Switching jobs- Don’t get Caught in these Tax Complications
When you change jobs, don not ignore your taxes. These are few tax complications you should avoid when you switch.
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Employers calculate th tax liability of an individual on the basis of salary they paid during a fiscal. If you change jobs mid-stream and do not inform your new employer about the previous income, be ready for a shock when you file your tax returns. You might have to cough up additional tax at that stage. This is because both employers would have factored in the basic exemption of 2.5 lakh and Section 80C investment of 1.5 lakh while calculating your tax liability. They would also have given you the benefit of lower tax slabs.
The EPFO promised that from October, Provident Fund accounts will become portable. Till this becomes a reality, it is best to transfer your PF balance to the new employer instead of withdrawing the amount. If you withdraw your PF balance before five years of countinuous service, you will lose the tax benefit availed of on the amount in previous years.
Avoid Taxation of Allowances
Submit documentary proof for claiming the allowances you are eligible for- your annual house rent and medical or conveyance allowances could lose the tax-free status, if you change your job before the January deadline. This is because your previous employer will pay it along with the final settlement amount. Make sure you submit rent receipt and other documents before you put in your papers. If you fail to give the receipt, you can claim HRA exemption when you file the return.
Tax on Overseas Income
If you are moving to an overseas location, you may choose to withdraw your Provident Fund after three years. If a PF account is not active for three years, that is there has been no deposit for 36 months, the EPFO will stop crediting interest.
Check All Document Before you Exit
The following documents you must have when you move out of an organisation. Payslip,full and final settlement statement, Form 19 and Form 10C for PF with drawel, and your provident Fund account details, among others. Also don’t forget to ask for your Form 16 at the end of the financial year.