Summary of this article
One of the most common mistakes while filing ITRs is not informing the new employer about the salary earned from the previous employer.
Employees may receive pending salary, bonus or arrears from a previous employer after joining a new organisation. Such income is taxable in the year of receipt and must be reported in the ITR.
HRA is another area where errors are common, particularly when an employee changes jobs or relocates during the year.
Changing jobs during a financial year is common, but many employees do not realise that it can make filing their income tax return (ITR) more complicated. Since salary is received from more than one employer, there are additional tax reporting requirements that should not be overlooked. Missing these can result in a lower tax deduction by the employer, additional tax payable while filing the ITR, interest liability or even notices from the Income Tax Department.
One of the most common mistakes while filing ITRs in such cases is not informing the new employer about the salary earned from the previous employer.
Says Harsh Rustagi, consultant, Nangia & Co LLP, “Employees should share details of their previous salary and the tax already deducted so that the new employer can compute the correct tax deducted at source (TDS) for the remaining part of the year. If this information is not provided, the employer may deduct tax only on the salary paid by it, leading to a tax shortfall that must be paid later along with applicable interest. Before filing the ITR, taxpayers should also reconcile the TDS reflected in Form 16 with Form 26AS and the annual information statement (AIS) to ensure all tax credits have been correctly reported.”
Another area that is often overlooked is salary arrears. Employees may receive pending salary, bonus or arrears from a previous employer after joining a new organisation. Such income is taxable in the year of receipt and must be reported in the ITR. Where eligible, taxpayers may also claim relief under the provisions of the Income-tax Act, 1961 to reduce the additional tax burden arising from receipt of arrears.
“Leave encashment is another component that is frequently misunderstood. Government employees generally receive full tax exemption on leave encashment at the time of retirement, whereas different rules apply to non-government employees. For private sector employees, the exemption is subject to prescribed conditions and an overall lifetime limit. Since this limit applies across all employers, employees should keep track of the exemption already claimed in the past. Ignoring this may result in excess exemption being claimed and could lead to a tax demand later,” adds Rustagi.
The same principle applies to gratuity. Many employees assume that the exemption limit becomes available afresh with every new employer. However, the exemption is subject to an overall lifetime limit.
House rent allowance (HRA) is another area where errors are common, particularly when an employee changes jobs or relocates during the year. The HRA exemption should be calculated separately for each period if there is a change in employer, salary, rent paid or city of residence.
For instance, shifting from a non-metro city to a metro city during the year changes the basis of calculating the exemption. Applying a single calculation for the entire year may lead to an incorrect claim.
“Employees should also ensure that their Employees’ Provident Fund (EPF) account is transferred to the new employer using the same Universal Account Number (UAN). This helps maintain continuity of service and simplifies the tax treatment of future withdrawals. Premature withdrawal before completing the prescribed period of continuous service may make the withdrawal partly taxable. Those opting for the old tax regime should also remember that their own EPF contribution qualifies for deduction under Section 80C only within the overall annual limit prescribed under the law,” says Rustagi
The key takeaway is that changing jobs does not just mean updating your employer’s name in the ITR. It requires accurate reporting of income from both employers, proper reconciliation of TDS and careful calculation of exemptions. Spending a little extra time reviewing these details before filing the return can help taxpayers avoid additional tax, interest and unnecessary notices from the Income Tax Department.
