Income Tax Investment Declaration: Steps to Follow When Changing Jobs to Avoid Double Claims

Close to the end of the financial year is the time for taxpayers to return the proofs on investment to their employers to deduct claims on tax exemption. Therefore, failure to do so at this point in time risks missing out on tax saving otherwise or a shock tax demand later. Most people take early steps to report their investment to their employer, yet it is just as imperative to attach the proof thereof to the claims made.

It so happens that the very basic mistake is when some switch the jobs during the financial year. Their new employer may have declarations for their previous employer with the former, and those were declared. It does make one unaware of the unintended claims towards tax exemptions. Hence, when the time arrives for them to file the income tax return, the tax liability rises considerably.

For example, assume an individual invests Rs 1.25 lakh before September 30 and claims deductions under sections 80C and 80D of the Income Tax Act. The previous employer, considering the declared investment, does not deduct TDS (Tax Deducted at Source) for the corresponding income. If this person changes job on 15th October and later gives the same investment documents to the new employer in December, the new employer may once again change the TDS for the same amount of investment. At the close of the financial year, when the individual files the income tax return in July, the cumulative tax liability will exceed the TDS deducted by the employers. This is because the tax exemption was effectively claimed twice. To avoid this scenario, there are key measures individuals should follow.

1. Instruct the new employer: It is essential to inform the new employer about the income earned and tax declarations made during the months spent with the previous employer in the same financial year.

2. Investment declaration: If investment declarations were made with the previous employer, the same details must be shared with the new employer. This ensures that exemptions are not claimed twice inadvertently.

3. Understand the maximum limits: As per Section 80C of the Income Tax Act, taxpayers are eligible for deductions up to Rs 1.5 lakh. The investments include National Savings Certificate (NSC), Public Provident Fund (PPF), and Life Insurance Corporation (LIC) premiums, among others.

4. Additional deductions: In addition to the provisions of Section 80C, extra deduction of Rs 50,000 is available under Section 80CCD(1B) for contributions to the National Pension System (NPS).

5. Opt for the correct tax regime: Most tax exemptions and deductions are available only under the old tax regime. Since the new tax regime is now the default option, taxpayers must opt for the old regime if they want to avail of the tax benefits.

Thus, people would be able to continue calculating their taxes correctly by not committing themselves to additional tax to be paid at the end of the financial year by switching jobs and following all these rules. Seamless compliance would then result through careful communication with employers as well as knowledge of the limits and rules of taxation.