File Income Tax Return after a Job Change

Multiple Form 16 after Change of Job

When you change the job in the financial year, it is quite common to receive multiple Form 16 issued by every employer. Since you are working with different employers in different periods, the reason being employers are responsible for deducting TDS (Tax Deducted at Source) and issuing Form 16 for each period of employment.

Form 16 has Part A and Part B, as shown below:

Part A would specify the following:

1. Employer’s name & Address

1. Employer's PAN and TAN

1. TDS deducted and deposited to the Income Tax Department

Part B would contain particulars for:

1. Gross Salary

1. Deductions allowed under Chapter VI-A (like 80C, 80D, etc.)

1. Taxable Income and Taxability

The multiple Form 16s are not duplicates, and each of them reflects income and tax deductions for the separate employment period. While filing Income Tax Return (ITR), it is important to combine all Form 16s in order to correctly determine total taxable income and avoid underreporting which can attract notices from the Income Tax Department.

Documents Required to file ITR with multiple employers  

In order to file your ITR correctly, you will need the following documents if you have changed jobs:

1. Form 16 from each employer - It is very common to have multiple Form 16s issued for whatever period you worked in the financial year, and you will need to gather these.

1. Payslips or account statements - If your former employer does not provide you with a Form 16, you can use either the monthly salary slips or bank statements to estimate how much you earned as well as the TDS that was finally deducted from your total income.

1. Form 26AS - Form 26AS is essentially a consolidated statement of your tax credits to reflect TDS that has been deducted by all employers, any advance tax you paid (if any), and any refunds you received. It provides a way to check the tax you have paid or have been deducted against the tax due to the government as a result of the amount drained out with your Form 16s.

Notify Your Current Employer of Your Prior Employment

Some individuals neglect to disclose their previous salary structure to their new employer, resulting in the new employer calculating income tax based solely on the income earned from them during the financial year. This can result in an inaccurate tax calculation for that year.

Example: Consider Mr Rahul, who left XYZ Company in December 2019 and joined a new company, ABC, in January 2020. He did not inform ABC about his previous salary of Rs. 6.5 lakh. While his income from ABC was Rs. 2.4 lakh, since he didn't disclose the Rs. 6.5 lakh from his previous job, ABC will only calculate tax based on the Rs. 2.4 lakh. Consequently, according to ABC's calculations, Mr Rahul would not owe any tax for the year, as his income falls below the basic exemption limit of Rs. 2.5 lakh.

However, he would eventually need to pay taxes on the total income of Rs. 9 lakh (Rs. 6.5 lakh + Rs. 2.4 lakh) along with penalties when filing his income tax returns. To avoid this tax calculation error, it's essential to inform your new employer about your previous salary as soon as you join the company.

Directions if Your Previous Employer doesn't provide Form 16

If you haven't received Form 16 from your previous employer, you can take the following steps to file your Income Tax Return (ITR) without it:

1. Examine your salary slips to confirm total income, allowances, and deductions.

1. Use Form 26AS to check whether TDS has been deposited by the employer.

1. When filing your return, enter the details manually, such as the employer's PAN and TAN.

1. Make sure to accurately determine tax liability so that you do not make mistakes in reporting or difference in tax credit.  Just because you did not receive Form 16 does not mean that you do not have to file your taxes.

Incorporate The Details of Each of Your Employers into Your Tax Return

Whenever you switch jobs in a financial year, every employer that you worked for is required to provide you with a separate Form 16, relating to the salary and tax paid on it during the period of your employment. These forms will need to be provided when you complete your income tax return.

Obtain Form 16 from each employer you have worked for throughout the year. Ensure that you enter each employer detail, including:

1. Name and address of the employer

1. PAN (Permanent Account Number)

1. TAN (Tax Deduction and Collection Account Number)

Note: Not including these details can lead to incorrect tax computation and potentially even notices from the Income Tax Department.

Combine Your Earnings from All Employers

When you file your tax returns, it's important to consolidate the income you've earned from all of your employers. If you inadvertently omit reporting any of these incomes, you may receive a notice from the tax department regarding the omission.

Remember that your salary is subject to taxation regardless of whether Tax Deducted at Source (TDS)) is deducted, so be sure to include this amount in your tax return.

Adapting Exempt Allowances

Typically, when switching jobs, your salary structure undergoes modifications, which can also impact your allowances, such as the House Rent Allowance (HRA). It's crucial to ensure you claim HRA exemption with each of your employers. If you reside in a rented apartment, you can simply provide rent receipts to support your claim.

If you fail to submit these rent receipts to your employers promptly, you can still claim HRA when filing your income tax returns. In such a scenario, you will need to reevaluate your HRA exemption for the entire year, make necessary adjustments to your income, and potentially receive a refund if excessive tax is deducted.

Claim All Available Tax Deductions

Typically, employers initiate the process of gathering evidence for tax-saving deductions around February or March each year. However, many individuals change jobs before this period, and as a result, their employers may not provide them with the advantage of various deductions. There's no need to worry. Once you have consolidated your income earned from multiple employers during the financial year, you should also tally your deductions, especially if you have made investments in tax-saving avenues.

When filing your income tax returns, you can claim deductions under Sections 80C to 80U. Just make sure to retain the necessary proofs for future reference securely. It's important to note that deductions are applicable against your total income earned in a financial year, so you should only claim the benefit of a deduction once per year for tax calculation purposes.

Verify Your Form 26AS

Form 26AS serves as the tax credit statement containing information about Tax Deducted at Source (TDS) by various deductors. For a salaried individual, it provides a monthly breakdown of salary credits and the corresponding tax deductions made by each employer. Form 26AS holds significant importance when it comes to filing your income tax returns because it allows you to claim credit for all the taxes deducted against your total tax liabilities for a given financial year.

It is advisable always to cross-reference the TDS entries listed in Form 26AS with your payslips or bank statements. If you detect any discrepancies in the entries, promptly report them to your employer and resolve the issues before proceeding with the tax return filing process.

Review Your Tax Liability

When you combine your salary income from various employers, it's possible to encounter a tax liability. It occurs when your new employer lacks information about your earnings from your previous job, which can result in an inaccurate tax calculation.

Typically, all your employers may apply the basic exemption limit and standard deduction. Moreover, more than one employer might apply the benefit of tax-saving deductions during the tax calculation process. Additionally, your income tax bracket may shift after aggregating all your salary income.

For instance, consider Mr Sharma, who left XXX Company in December 2019 and joined a new company, YYY, in January 2020. He didn't disclose his previous salary to YYY. From his previous employment, he earned Rs. 9.5 lakh, while from YYY, he earned Rs. 2.4 lakh.

His income was within the 20% tax slab based on his previous salary. However, after combining earnings from both employers, his income falls into the 30% tax slab. This scenario results in a tax liability for Mr Sharma when filing his return.

Therefore, it's wise to thoroughly review all salary details from different employers and settle any tax dues before submitting your income tax returns.

Common Errors to Avoid When Submitting ITR After a Career Switch

It is simple to miss some key things when submitting your income tax return after a job change. Following are some common errors you need to avoid consciously:

1. Not including income from all employers: Every Form 16 only includes the income given by that employer. Not including the income from any former employer causes underreporting and potential tax notices.

1. Not balancing TDS with Form 26AS: Always compare TDS reported in Form 16 with Form 26AS. Discrepancies can lead to disallowance of credit and additional tax burden.

1. Double claiming of deductions: If both employers treat exemptions such as HRA or deductions under 80C, it can lead to double claiming. Re-calculate exemptions yourself at the time of filing the return.

1. Overlooking the effect on slabs of taxes: Income from two or more jobs together could land you in a higher tax bracket. Make sure to calculate your resulting tax liability and pay the deficit in advance.

1. Missing rent receipts or proof of tax savings: If you were unable to produce them to your employers, claim them directly while filing ITR and have documents ready in case of future audits.