Harish was working with a leading equity broking company in their Institutional overseas sales team and was drawing a package of Rs. 38.75 lakhs, including variable pay. Early this year (January), he decided to change his job to another broking company albeit at a salary package which was slightly lower at Rs. 34 lakhs than the company which he had decided to quit. High competition in the broking industry coupled with a sluggish FII market had forced Harish to bite the bullet as he was looking to switch sectors for better prospects over the next 3-4 years. The fact that the new company offered to lower his variable annual pay and keep the fixed pay at par with his existing structure gave Harish some relief to manage his monthly cash flows.
At the end of first month, he found that his new in-hand salary was higher than the one he was used to receiving at his ex. Harish did not mind this and planned his expenditure accordingly.
In July at the time of filing his returns, Harish was taken aback when he was informed that he has to pay an additional tax of approx. 1 lakh. He was expecting his tax liability to reduce as his salary package was lower. Harish was surprised to learn that the tax computation at his new company did not take into account his old salary and thus had resulted in the basic tax slab benefits being claimed twice – once by his ex and second by his new company. For the purpose of filing returns, when both these salaries were added; it resulted in additional liability of 1 lakh as a tax payer is allowed the tax slab benefits only once.
#ARMoneyHabits – Harish did not realize that his monthly in-hand should have either been lower or at least at par with the earlier salary as his fixed salary was almost the same. If he had bothered to analyze the increase in his monthly income in February itself, the additional taxes could have been made to be deducted by the new company, thereby saving Harish the agony of paying additional taxes, along with interest, in July. This incident definitely caused a strain on his savings, although it wasn’t the case that he was paying higher taxes.
#Budgeting: Salaried individuals should make it a habit to analyze any positive or negative variances in their post-tax salary received in bank whenever they switch jobs to avoid any surprises later during the year.
