Navigating a Job Change Mid-Year: Strategies to Prevent Unexpected Tax Surprises
Raghav, a digital marketing professional, recently made a career move, switching from a digital agency to a global consultancy firm. With a higher salary, a new role, and bigger responsibilities, Raghav found himself facing an unexpected challenge – double tax deductions.
When changing jobs during the financial year, it is crucial to provide Form 12B to your new employer to avoid double tax deductions and enable correct tax calculation for the entire year.
What is Form 12B?
Form 12B is a crucial document that informs the new employer about prior income, perquisites, allowances, and Tax Deducted at Source (TDS) deducted by the previous employer. By submitting Form 12B, the new employer can aggregate your total income and TDS, allowing them to deduct the appropriate residual TDS on your remaining salary without double taxing your earlier income.
Benefits of Form 12B
- Enables seamless calculation of your total taxable income for the year, blending both employers' earnings.
- Prevents excess tax deduction (double deduction) by consolidating income and prior TDS details.
- Makes your TDS deduction more accurate from the new employer onward, reducing surprises during income tax return filing.
How to Use Form 12B Effectively
- Collect details from your previous employer such as salary paid, allowances, perquisites, and TDS deducted during your employment.
- Fill out Form 12B with this income and tax information.
- Submit the form timely to your new employer as soon as you join to enable correct tax computation on your entire income for the financial year.
Additional Considerations
- Keep your investment proofs and deductions continuous and updated as per the new employer’s requirements, so deductions are properly accounted for.
- Filing your tax return after the financial year will consolidate your total income from all sources, but proactively submitting Form 12B minimizes tax issues during the year and avoids potential large tax payments or refunds.
- If you receive multiple Form 16s (from old and new employers), combining them properly during ITR filing is essential, and Form 12B helps ensure these figures align during the year.
In Raghav's case, despite both employers cutting tax from his salary throughout the year, he was asked to pay a large additional tax during income tax filing. This situation could have been avoided if he had submitted Form 12B to his new employer.
By providing Form 12B, you can avoid paying penalties on the extra tax exemptions and ensure your new employer accounts for your previous income and TDS, producing a smooth and accurate tax deduction process.
- In light of Raghav's experience, it is essential to submit Form 12B to a new employer during a job change to prevent double tax deductions.
- Form 12B serves as a critical document for enabling accurate tax calculation on total income, preventing excess tax deductions, and ensuring smooth tax deductions from the new employer moving forward.
