How to deal with two or more Form-16s?

People do not leave organizations but they leave their managers.

This is a oft quoted reason for most people, who leave one job and join another. In a growing economy like India, the opportunities are galore causing the  employees to leave the jobs very frequently. It is very common to plan/think about new work, new peers or managers, new location and higher salary when a person switches a job, but rarely the income tax implications are thought about!!

When you leave a job and join another, it is a good idea to plan, for the income tax implications and to deal with two or more Form-16 that you will receive for filing the IT return.

The Form 16 is certificate under section 203 of the Income-tax Act, 1961 for tax deducted at source from income chargeable under the head “Salaries”. The Form-16 (or Form 16AA for consultants) is required by the the Income Tax authorities to verify and calculate your income tax liabilities.

It is mandatory for all companies as per IT-Act section 203 to provide for Form-16 to all employees on the payroll, although in some cases there have been lapses by employers in providing it on time to the employee.

What happens when you switch the job in the financial year(April – March)?

Assume that a person worked in a company A from starting of financial year (April) till say September of that year and then moves to another company B. In such a scenario, company A will provide a Form-16 as well the company B will also provide a separate Form-16 to the employee. The person has to use both the Form-16 for filing the IT return.

What is the issue in having multiple Form-16?

The problem is that some people fail to provide the previous employer income to their current employer. So in our example, if the employee joining company B, did not provide the income earning during his tenure at company A, he would have to shell out money while filing the IT return.

Most people do not understand this calculation and thinks that they have been robbed due to excessive tax deduction. The reality is that they earned more money in the year and have paid less taxes.

Let us take a practical example. This is how the income tax can bite you when you least expect it during the IT return filing:

The problem is that since the person did not declared his earlier income from Company A to Company B, both the organizations considered the six months income as the full financial year income and deducted the tax based on this partial salary. The person is also happy since he is getting more in-hand money due to less tax burden. The reality will be hit when the calculation is done based on both the Form-16 to determine the entire financial year income. When that happens (sometime in month of June), the person has to shell out a good chunk of tax and pay it in lump sum to the tax authorities. Hence it is extremely important to declare the earlier income to your current employer since it will ensure that you don’t get the shock while filing IT returns.

If a person is not able to receive the Form-16 from his previous employer, he/she should ensure that Form 12B is submitted to the current employer to account for the entire financial year income to avoid paying tax in lump-sum. When the previous employment income is declared, it will be adjusted in the per month tax deduction leaving you with zero liability during IT-filing.