Karan Varma had received an offer from a rival company he couldn’t resist. Three months down he was designing graphics for a fresh set of clients in his new firm. Now that it is time to file the tax returns Karan has been secretly thinking of giving the Form 16 issued by his previous employer a miss. “I can just stick to this new Form 16, which has the details of my income for 8 months. I can save tax as well,” he thought to himself.
During lunch hours a colleague sat beside him and looked really tensed. Karan questioned him, “What’s the matter?” The response pinched Karan too. “I have no money to pay the rent this month and now I have pay taxes as well as I switched jobs and both companies gave me the investment deductions,” the colleague lamented.
Karan mistakenly mentioned about his plan of skipping the previous job’s income by ignoring the Form 16. His colleague immediately warned him. “Don’t do that bro. The old company has already deducted some tax and so authorities have a whiff of your income. You don’t want to fall in deeper trouble do you?”
Now Karan worried and decided to seek help of his friend who was a Chartered Accountant. “Multiple Form 16s are tricky to account for in the tax returns. But with a little planning you can do it.”
This is how he filed Karan’s returns.
He first traced his Form 26 AS and pointed out to him that the details of both employers are already present with the records of the Income Tax Department. He noted down the Tax payment details of both employers, including the Tax Deduction Account Number, date of crediting the taxes to government.
Then he summed up his income from both employers and deduced that Karan would fall in the 20% tax bracket. Karan refuted his claim, “My office accountant says I am in 10% bracket, then why are you increasing my taxes and changing my bracket? Are you still my friend or have decided to be my enemy!”
The friend smiled and explained. “Income earned during the year gets halved between multiple employers they assume a lower tax bracket and deduct less taxes. But when we sum your total income from both employers, we realise you have earned Rs 6.5 lakh. So, you fall in the second bracket,” he assured him of his loyalties.
Additional income such as bank and fixed deposit interest, commissions etc too can increase your income, which the employer has no idea about.
In fact, one of the junior accountant told Karan, he needn’t file returns at all, without assessing his old employer’s income. Had Karan followed him, he would have been deep trouble.
So, now that the expert was at work, he mentioned the tax deductions in Karan’s returns only once and not twice as both employers had separately offered. “Tax benefits under Section 80 C can be claimed upto a maximum of Rs 1.5 lakh during a year, my friend,” he clarified.
He then checked whether the total of allowances such as travel allowance etc. offered by both employers was within the exemption limit. The followed the same for perquisites offered.
“Here you go Karan. I have prepared your return. But before submission you will have to pay Rs 3,400 worth of tax and mention the details of payment in the column,” the Chartered Accountant informed.
“More tax!” Karan exclaimed. But realized there was no escaping it.
“See, you can’t out rightly avoid mentioning the income from one employer. I showed you the details are traced through your PAN,” said Karan’s friend.
But he told him about a way to avoid the hassle next time he moves companies.
“Next time you change your job, always share the details of salary and tax deduction during previous employment. Your employer’s wouldn’t be caught hold of for deducting less taxes, but you would be. By sharing the details, the new employer will adequately cut the required taxes and you wouldn’t have to bear a hefty tax burden at the end of the financial year,” suggested his Chartered Accountant friend.
He added that by sharing the information of previous employment, job hoppers would be saved the discomfort of referring to two Form 16s as the new employer’s Form 16 would account for all the details and reflect it. But do collect the Form 16 from old employer as details of TAN number, address would be needed.
So, all those who have switched jobs, work for two employers or handle a consultancy apart from a regular job during the previous financial year then you need to plan in advance, do the math again to calculate the new tax liability and file your returns.
(The example and names mentioned are hypothetical)