Changing Jobs and Tax, Form 12B: Nowadays, people seem to change their jobs frequently for jobs which pay better than the previous one. In the past, our parents used to do one job till their retirement and never think of switching companies, but things are different now. Changing jobs gives rise to a situation where the one changing the job gets tax exemption twice from the old employer as well as the new employer. Exemptions and tax liability form is considered to be an important consideration which is required during switching of jobs. When a person decides to switch jobs in the middle of the year, he/she must make sure that the deductions and exemptions regarding the tax liability are made only once. In this article, we will try to explain certain aspects related to changing jobs, and we will also make a detailed overview of the tax exemption rules when a person changes his/her job.
Calculation of Tax Liability by Both the Employers on Switching Job
Most employers seem to evaluate their employee’s tax liability after taking into consideration the basic exemption limit and also the exemption that is availed under section 80 c of the Income Tax Act. The basic exemption limit is considered to be an amount up to which an individual is not liable to pay any tax for a single financial year. For example, in the financial year, 2013-2014 or assessment year 2014-3015, the basic exemption limit for employees who are in their 60s was Rs 2 lakh. This exemption process gets executed smoothly when there is one employer, but when a person decides to switch jobs, there might be some chances of the employee to get tax exemptions twice from the old employer as well as the new employer in a financial year.
To give a person a more detailed idea of the above explanation, let’s discuss an example that will make things more clear:
Let’s say Anshuman is a working employee in a particular company whose annual income is around 6 lakhs. He informed his company that he is planning to invest Rs 50000 in order to save taxes. But he worked till October 2013. So, in this case, his first employer will evaluate the tax liability of Anshuman by deducting the basic exemption limit as directed by the government and Anshuman’s tax savings from his taxable income.
| Particulars | Amount (Rs) |
| Income acquired from the job in a year | 6,00,000 |
| Fewer Investments done by the employee under section 80 c | 50,000 |
| Taxable income | 5,50,000 |
| Less Tax-free exemption | 2,00,000 |
| Income on which the tax is calculated | 3,50,000 |
| Tax for the financial year | 41,200 |
| Monthly tax | 3433.33 (41,200 / 12) |
| TDS paid by the company (Till October) | 21,200 (41,200 / 12 * 6) |
Anshuman decides to change his job after six months for a better annual package of Rs 8 Lakh. Here, the tax is calculated by the second employer for a period of six months on an annual salary of Rs 8 Lakh. He seems to include the income that he has acquired from the first year. He again plans to take care of investments under section 80c and basic exemptions.
| Particulars | Amount (Rs) |
| Income from the second job ( for six months ) | 4,00,000 (8,00,000 / 2) |
| Less Investments made under section 80c | 50,000 |
| Taxable income | 3,50,000 |
| Less Income which can be exempted | 2,00,000 |
| Income on which tax is calculated | 1,50,000 |
| Tax for the whole year | 15,000 |
| Monthly tax | 1,250 (15,000 / 12) |
| TDS paid by the second company (From Nov) | 7,500 (15,000 / 12 * 6) |
So Ansuman has paid total of Rs 28,600 (21,100 + 7500) as tax on his income of Rs 7 Lakh (3 Lakh + 4 Lakh)
The correct way for calculating the tax liability of an employee who decides to switch jobs is as follows; this method uses the basic exemption only once in the whole process.
| Particulars | Amount (Rs) |
| Income received from the first job | 3,00,000 |
| Income received from the second job | 4,00,000 |
| Investments under section 80c | 50,000 |
| Tax-free exemption | 2,00,000 |
| Taxable income | 6,50,000 |
| Tax liability | 60,000 |
| Total (before charging cess or surcharge) | 10,000 |
- So instead of paying Rs 60,000 as TDS on Anshuman’s salary, only Rs 28,600 was paid.
- The other thing that motivated Anshuman to switch his job was the tax home pay shot up, but it seems to be short-lived happiness. In the month of May, his salary for April was less than what he received for March. Because in May his salary was calculated on the income he has received on the whole year hence TDS on the income increases, therefore his take home decreases.
- When Anshuman files his income tax return for the financial year 2013-2014, he is obliged to pay the TDS for the financial year and also the interest on the tax that was due from last year as he is liable to pay tax in advance.
Form 12B
When a person joins a company as a new employee, he/she is required to provide the particulars of his/her income from the job he was doing earlier by filing Form 12B. The Form 12B has the following details:
- Details of the previous employer such as the PAN number, TAN number and number of years the person switching jobs worked with him/her.
- Break up of the salary like Basic salary + DA + perquisites, House Rent Allowance, Leave Encashment, Leave Travel Allowance, etc. These are given in a detailed form for better understanding.
- Deductions that will be done on the salary for the purpose of provident fund and particulars for the value of perquisites such as rent-free accommodation.
- Deductions, if any, must be applied under section 80c, Section 80G, Section 80E, Section 80D, Section 24.
- TDS that was deducted from the salary by the previous employer.
- Professional Tax (If any) that is paid by the employer.