First Job Checklist: Bank, Tax, PF And Insurance Basics You Shouldn’t Ignore

As fresh graduates and first-time employees enter the workforce, early financial gaps are becoming more visible. Most are interested in in-hand payment and overlook essential processes associated with banking, income tax, provident fund (PF) and insurance.

Such loopholes may cause over tax deductions, dormant savings and gaps in financial documentation within the first year of employment. Simple compliance criteria, reports and prompt filing are useful in crediting and taxing and saving of salary. Any omission of these steps can cause unforeseen problems that can take months to repair.

Banking Essentials 

Typically, employers create a salary account, and employees are obliged to complete the Know Your Customer (KYC) norms by connecting Permanent Account Number (PAN) and Aadhaar.

If PAN is not linked, tax is deducted at source on interest income at 20 per cent instead of 10 per cent under applicable rules, provided the interest earned in a financial year exceeds Rs 50,000.

Also, employees are expected to pre-verify their bank account on the income tax e-filing portal. This is needed in order to get tax refunds directly.

As an example, any refund requested following the submission of ITR can be withheld or denied in case a bank account is not pre-verified or connected with PAN. Standard onboarding also includes setting up Netbanking, Unified Payments Interface (UPI) and nominee details, since they influence access to funds and account security.

Knowing Tax Deductions

Employers collect investment declarations at the beginning of every financial year through provisional statements. They are subsequently confirmed by submitting proofs, normally by means of Form 124. In case proofs are not provided in time, tax deducted at source (TDS) is computed without deductions.

In case an employee reports investments under Section 80C and also fails to file Form 124 with supporting documents, the employer can deduct a larger amount of tax by way of TDS throughout the year.

Basic pay, House Rent Allowance (HRA), special allowance and deductions like Employees' Provident Fund (EPF) and professional tax, are some of the elements that make up salary slips. These have a direct effect on the taxable income. 

Form 130 is given out by the employer at the end of the financial year; it summarises salary, TDS and tax payable. This document is used to file the income tax return (ITR). ITR-1 is usually filed by resident salaried persons with the income to a maximum of Rs 50 lakh and not having complex sources of income.

The default option for salaried professionals is the new tax regime; it provides a tax-free limit of income up to Rs 12 lakh along with a standard deduction of Rs 75,000. It has lower slab rates but the old regime can still be used by individuals who make deductions under sub-sections 80C, 80D and HRA.

Provident Fund And Long-Term Savings

EPF involves a contribution of 12 per cent each by both the employee and the employer on basic salary and dearness allowance. Part of the contribution of the employer will go to the Employees' Pension Scheme (EPS).

Every employee gets a Universal Account Number (UAN), which remains the same and doesn't change with change of jobs. The EPFO portal can be used to check for PF balance, passbooks and contributions.

PF transfer is needed in case an employee is transferred. Otherwise, it is possible that several PF accounts could be active, and it is not easy to monitor the total savings.

When PF accounts are not merged due to change of job, the interest accrued will be accumulated separately, however, the interest accrued on an inoperative account may turn out to be taxable.

Insurance Coverage And Gaps

Group health insurance provided by employers usually covers hospitalisation, but the coverage amounts and conditions vary. This insurance is in force until you leave the company payroll and this includes your notice period till the last day of work.

When changing jobs, the transition period may be between the final day of work and the commencement of coverage at the new organisation. Any medical cost during the transition period is not covered in group policies.

For instance, in case a medical emergency arises after the official last working day and before one is employed in a new company, one may have to incur personal expenses.

Other benefits that are offered to employees in their compensation package include group term life insurance policies. These are usually associated with employment and cease to exist upon exit.

As more young professionals enter formal employment, these processes should become part of early financial onboarding. Missing or delaying them can impact tax calculations, PF accumulation and access to financial protection in the initial years of earning.