Ramesh had been working in the same IT firm for the past 3 years. Owing to his stellar performance, he received an offer from another, bigger firm last year. He took it happily as he got an impressive hike and a job profile he always wanted. The transition from his previous firm to his new one was rather smooth. However, at the end of the financial year, he received a shock in the form of a huge tax liability. He couldn’t deduce how both his employers had been deducting tax from his salary all year round. He had no option but to pay the amount.
Here’s how it had happened. Let’s say Ramesh’s salary at the previous firm, which he left on the 30th of June, was Rs.68000 and his tax deductions under Section 80C were Rs.55000. He joined the new firm on the 1st of July and his salary is Rs.92000. His final investments deductible under Section 80C are Rs.90000.
This is how his tax should ideally have been calculated.
His final tax liability became Rs. 50900 instead of Rs.15575. In the absence of Ramesh providing tax details from his last firm, the new firm recalculated the exemption limit and deductions. This led to double counting and a rather huge tax payable at the end of the financial year.
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Ramesh could have been any of you, had you not furnished Form 12B under Income Tax Act. When you switch jobs, you need to ask your previous employer for Form 12B under Income Tax Act. You can also download it yourself, fill it based on your salary slips, and submit it to your new employer.
What is Form 12B?
Form 12B comprises details of your earlier salary, TDS (Tax Deducted at Source), perquisites paid, etc. Along with this form, you also have to submit proofs of all investments you have made before 31st March to your new employer. At the closing of the financial year, they will give you your consolidated Form 16. If you do not submit Form 12B, you will end up receiving Form 16 twice and will have to consolidate the two yourself.
What does Form 12B under Income Tax Act include?
- TAN and PAN of previous company
- Breakup of previous salary
- TDS deducted by previous employer
- Professional tax deductions
- EPF deductions
- Deductions for accommodation expenses
- Other deductions like those under Sections 80c, 80D, 80E, and Section 24.
What is Form 12BA?
It is a statement issued by your employer listing details about perquisites. These include perquisites like loans. Form 12BA can be downloaded from the official website of Income Tax Department of India, and submitted to your new employer.
What if you haven’t been given any perquisites?
If you haven’t received any perquisites, you should still ask for your Form 12BA. Your employer can thus mention in Form 12B that you haven’t received any perquisites.
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Can my new employer refuse to deduct TDS on my previous salary?
It is obligatory for your new employer to deduct tax on your consolidated income after taking into consideration deductions from your previous employer.
Income Tax laws and procedures are quite confusing and it may seem like a daunting task to go through them. But if you do not pay attention to details like these on time, you will have to face unnecessary trouble at the time of filing taxes. Make sure you have all your documentation in order at the correct time and save yourself from the stress of dealing with corrections at the end of the financial year.
You can also read about tax benefits on personal loan.
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