01/04/2017
!! General tax hiccups - Salaried People !!
Normally an employee is employed with an employer for a full financial year and the headache of taxation (payment of precise tax) is taken care off by your existing employer in the form of regular deduction of tax from your salary i.e. TDS. This is due to the fact that you make all the declaration of your investment or permitted allowances and deductions with your employer..be it LIC premium, Home Loan Interest & Principal payment, Tax Saving SIP’s, house rent paid ..etc.
The real problem occurs when you switch your job in between a financial year and later you get a notice from income tax department for non-payment of tax, leaving you baffled with the amount.
Let’s understand this case through an example.
Mr A is employed with X limited and draws a monthly salary of Rs 50,000/- p.m. he works for a period of five months (April 2016 – August 2016) aggregating his salary income from X limited to Rs 2,50,000/- (Rs 50,000/- * 5 months). The current employer, X Limited, does not deduct any tax till date since Mr A’s income from salary has not exceeded above exemption limit of Rs 2,50,000/-. Hence tax deducted by X limited is zero.
In the month of September Mr A switches his job for a better salary to Y limited, which offers him with a monthly salary of Rs 60,000/ - per month. He continues to work with Y limited for the rest of the financial year drawing Rs 4,80,000/- (Rs 60,000/- *8 months). The current employer assumes that Mr A doesn’t have any previous income and deducts a tax of Rs 23,000/- accordingly [(Rs 4,80,000 –Rs 2,50,000)*10%] . This is so because Mr A doesn’t declare or forgets to declare how much salary he has drawn from his previous employer - common mistake made by all of us while switching jobs.
Now finally when it’s time to file your Income Tax Returns, suddenly a Tax Consultant like me tells Mr A that he has tax payable of Rs 53,000/- (approx) along with interest and penalty (for non-payment of tax). Mr A disagrees with a lots arguments and he thinks that his current company has deducted tax properly per month in the form of TDS while crediting his salary to his account and seeks for explanations of why there is tax payable. For which the consultant replies with how tax calculations work
Total Income from salary from of Mr A from April 2016 – March 2017 = Rs 7,30,000 ( Rs 2,50,000 + Rs 4,80,000).
For tax payable calculation: Income below 2,50,000 exempt so tax payable in this slab is zero, then Rs 25,000 (5,00,000 - 2,50,000 @ 10%) being next slab for which income is taxed @ 10% and finally Rs 46,000/- (7,30,000 – 5,00,00 @ 20%) being second slab for which income is taxed @ 20%. Aggregating to Rs 71,000/- ( Rs 25,000 + Rs 46,000).
The second employer deducted a TDS of Rs 23,000/- , reducing this TDS amount from the actual liability of Rs 71,000/- the consultant arrives at tax payable of Rs 48,000/-. Since the tax was not paid properly, the government has a right to levy interest and penalty for late payment of tax and imposes an interest @ 1% per month on balance tax till the date of payment and hence the amount Rs 53,000/- (approx – actual may vary)
So as a Tax Consultant request you to declare your salary income from previous employer while switching jobs so as to avoid any last moment hiccups.
(Just an illustrative example, detailed calculation may vary on case by case basis, consult a tax expert for exact calculation)
