Suppose, You are working with Company "A" and were employed there at the start of the financial year 2022-2023 drawing a salary of Rs. 40k per month (4.8 Lakhs per annum).
For ease of understanding, let's assume you have no other income/deductions disclosed to your employer.
The employer deducted no TDS on Rs. 4.8L since, there is no tax on 4.8L as you are eligible for rebate under section 87A for total income upto Rs. 5 Lakh.
Till September, You were working with Company 'A' and has drawn a salary of Rs. 2.4 Lakhs till date.
From 1st October, You are joining Company 'B' who have offered you an annual package of 8 Lakhs per annum.
So, from September to March, Salary Payable for 6 months comes to Rs. 4 Lakhs.
Company "B" did not deduct any TDS as the taxable salary is below 5 Lakhs here.
But, You will say company "B" should have deducted TDS here but let me tell you why did Company "B" did not deduct TDS?
Reasons
1. Most people do not communicate salary already drawn from the old employer to the new company.
2. Sometimes, even if they do, the HR of the new company doesn't fill past period salary of the new employee to ascertain the right amount of TDS that needs to be deducted.
So, your total annual income comes to Rs. 6.4 Lakhs.
For FY 22-23,
Tax on 5.9L comes to Rs. 31720 (As per Old Regime - With 50k benefit of standard deduction)
Tax on 6.4L comes to Rs. 27560 (As per New Regime - Standard deduction benefit not available)
When you proceed to file your ITR in July, you probably would expect to pay nothing (assuming all is deducted by employer as TDS or if it was not deducted, there was no liability.)
But, you will see a tax liability of Rs. 27560 + Interest on not paying advance tax on time.
Clearly, you did not expect any such liability to come.
This impact can be much much higher with higher incomes.
Attaching another example here:
Salary in the old company was 20L and then, the annual package was raised to 27L in the new company.
Additional tax comes to 128700
The tax shock is more where you have exhaused your income slab till 25% & fall into 30% slab now but the new company deducts your first 15L at the rate of 5% to 25% rate instead of deducting at 30%.
This creates a lot of tax gap that you get to know while filing your ITR.
If you ascertain any such difference, you can ask your new employer:
1. To deduct additional TDS
2. To pay advance tax yourself before 15th March
This will help you save heavy interest on delay that you will need to unnecessary pay.
This is a practical problem which is faced by many such people who switch jobs anytime in the financial year.
Save yourself from this tax shock by ascertaining your total taxable income and total tax payable on it now.
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