Most of us are keen on earning more and increasing our standard of living. To earn more, some take up additional work as consultants or take tuitions or engage in share trading, etc. A few also switch jobs to explore good opportunities and get a pay hike.
Earning salary from two employers in a year or earning employment and other incomes can add to your tax outgo too. It is always wise to know the tax issues that could arise and how to resolve them.
Having two or more employers in a year
If you are a salaried employee, the employer takes care of the taxes. The employer takes into consideration salary, allowances, perquisites, tax exemptions and tax slabs and, then, computes your tax liability.
If a person has left employment from one employer and joined another, he will effectively have two employers during a financial year. If he has not disclosed his previous salary, the new employer is liable to deduct taxes only from the current salary. Hence, the new employer provides benefit of tax exemptions and also tax slabs. This results in additional tax and interest liability later for the employee.
To avoid this situation, Section 192 of the Income Tax Act, 1961, provides an option that an employee can declare his salary and other details from the previous employer to the new one. This is done by providing a Form 12B, which contains details of previous employer, tax deduction account number of the employer, salary received and the amount of tax deducted and other details. Such disclosure helps the new employer in computing the correct tax liability.
Income from multiple sources
Salaried people often engage as consultants or brokers, take tuitions, or engage in trading of shares, etc. In such a situation, employment income and other incomes will be added and will be liable to tax.
In some cases, tax is deducted at a lower rate and, in others, it is not deducted at all. However, it is important to note that if there is any tax liability, it should be deposited regularly as advance tax/self-assessment tax, subject to certain conditions. Otherwise, there is a risk of additional interest outflow.
Form 26AS can be of help
Form 26AS is a tax statement as per the tax authority’s records, which provides details of taxes paid against a Permanent Account Number in a financial year. A person should download Form 26AS from the income tax authority’s website regularly and check whether proper taxes have been deducted again the PAN. A person can accordingly calculate the balance tax liability and deposit the same. It’s always good to have multiple sources of income. Keeping the above simple things in mind, one can avoid any additional tax and interest outflow at a later stage.
* The writer is a director at KPMG.
Views expressed are personal