Newbie Tax Traps
Taxes! Something you learn on the field often after it’s too late. Here are some things I wish someone told me.
⚠️Disclaimer: These are just words cooked up from my head and not definitive or exact. More like recalling stories from personal experience. The details I’ll leave it to you and google or CA.
1) Reporting your mid FY job change
TL;DR report your previous employer as soon as you join new company
If you don’t report your job change, your new company will not be deducting TDS correctly. Meaning, less tax will be deducted. An FY goes from April to March of next year. If you change jobs in, say, October and don’t report your previous employer details (very easy to miss because nobody prompts you to) your new company will estimate your FY taxes by extrapolating only from the time you join till the end of that FY. So your full FY liability is only from October till April of next year. The first half of the FY from March till September is completely ignored by new company. You’re basically unemployed from April-September according to new company and tax deductions calculated accordingly because your tax bracket may be low without data of previous employer salary missing for new company TDS calculation.
I also don’t know the nitty gritty details but the takeaway is to report your job changes. If you don’t you’ll end up paying a lumpsum amount while filing taxes along with penalties.
2) Paying advance tax
TL;DR when you incur unexpected income example from RSU sale gain you need to pay advance tax before tax filing season
This is tax you have to in advance on a quarterly basis for variable income which you may incur in the FY eg: RSU sales. RSU is treated as income and taxes should be deducted according to your tax bracket. When you make a sale in FY and expect everything to go smooth. You couldn’t be more wrong. When the tax filing season comes and you report your RSU gains, your total income suddenly bumps up(salary + RSU gains) which means your tax liabiliy was more but you weren’t paying the correct amount. The amount which you should have been offsetting via “advance tax”.
Conclusion
This tax shit needs to be taught before folks join the workforce.