How is tax calculated when you switch jobs?

Let’s say you are looking for a job switch. After going through the longest process of applications and interviews, you finally land an exciting job with great work and even better pay. Everything seems to be going well until it’s time to file your ITR, and you find out that you have tax dues on your salary, despite both your employers deducting TDS.

This is a very common scenario with people who switch jobs in the middle of the year.

Why does the tax liability increase?

Your tax liability at the end of the year can increase due to various reasons:

  • Your salary might have been increased, placing you in a higher tax slab.
  • Both employers may have considered the basic exemption limit and standard deduction while calculating your tax liability.
  • Similarly, your investments to claim deductions like 80C may have been taken into account by both employers when calculating TDS.

Let’s understand better with an example.

Suppose you worked at Company A for the first three months of the financial year, and in July, you switched to Company B. Initially, you were receiving a monthly salary of ₹80,000. However, when you switched to Company B, your salary was hiked to ₹1,00,000.

Now, you had declared to employer A that you would make investments of ₹1.5L to claim deduction u/s 80C. And when you joined Company B, you made the same declaration.

Let’s see how both employers will calculate and deduct TDS.

*Salary earned in 9 months

The total tax you paid for the FY comes to ₹71,370.

Now, ideally, because you had already claimed deductions in Company A, the other company should have calculated the tax liability as follows:


Hence, you were liable to pay ₹1,04,520 but the taxes that you actually paid were just ₹71,370. This difference of ₹33,150, along with penal interests, would reflect as tax dues when you file your ITR.

This situation arises because both employers individually factored in your deductions and hence deducted a lower TDS.

How can you avoid this?

You need to declare the details of your salary and deductions to the new employer. This can be done via Form 12B which contains your salary details along with allowances like HRA, LTA etc.

It also includes any deductions that you had declared to your previous employer and the TDS that was already paid.

Alternatively, you can also calculate your tax liability using your Form 26AS and pay the additional liability in the form of advance taxes.

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