New job, higher pay? Check these tax implications before switching

A higher CTC may not mean higher take-home pay. Check salary structure, TDS, tax regime and deductions before making the switch

Higher salary after a job switch does not lead to more take-home income. Employees changing jobs during a tax year could face an unexpected tax bill if their new employer does not account for the salary earned from the previous organisation. Differences in salary structure, tax deductions and the choice of tax regime can also affect the final amount they take home.

 

Before accepting a new offer, employees should look beyond the headline cost to the company (CTC) and assess how the change will affect their overall tax liability.

 

Here are five tax-related things to check before switching jobs.

 

1. Ensure salary from both employers is accounted for

 

A common mistake people make is assuming that their new employer will calculate tax only on the salary paid by the new organisation.

 

However, salary received from both employers during the same tax year is considered while calculating total taxable income.

 

Under Section 392 of the Income-tax Act, 2025, employers are required to deduct tax at source (TDS) on salary. Employees who change jobs during the year can furnish details of their previous salary and tax deductions to their new employer.

 

The Income Tax Department’s Form 122, introduced under the Income-tax Rules, 2026, allows employees to report salary received from previous employers, tax deducted, income from other sources and losses under the house property head.

 

According to the Income Tax Department, employees who change jobs during the same tax year should submit this form to their current employer so that TDS can be calculated correctly. Without these details, the new employer may deduct insufficient tax, leaving the employee with an additional liability while filing the income tax return.

 

2. Compare the old and new tax regimes

A higher salary could change which tax regime works better for an employee.

 

The new tax regime is the default option, but salaried individuals can opt for the old regime if it results in a lower tax liability.

 

According to the Income Tax Department, the old regime allows several exemptions and deductions, including house rent allowance (HRA) and eligible investments under Section 80C of the earlier Income-tax Act. The new regime offers lower tax rates but permits fewer exemptions and deductions.

 

Employees should compare their estimated tax liability under both regimes using their revised annual salary, eligible investments and exemptions. They should also communicate their preferred regime to the new employer for TDS calculations.

 

3. Examine the salary structure, not just CTC

A higher CTC does not necessarily mean a proportionate increase in monthly take-home pay.

 

Employees should examine the break-up of the new salary, including:

 

• Basic salary and dearness allowance
• House rent allowance
• Special allowance
• Employer's provident fund contribution
• Gratuity
• Performance-linked bonus and incentives

According to the Income Tax Department, allowances and perquisites are generally taxable unless specifically exempt under the applicable provisions.

 

For instance, HRA exemption is available under the old tax regime, subject to prescribed conditions, but not under the new regime. Employer contributions and certain benefits may also have tax implications.

 

4. Review deductions and tax-saving investments

Employees should not assume that investment declarations made to their previous employer will automatically be considered by the new organisation.

 

They should submit the relevant investment and expenditure details to the new employer, wherever applicable, for calculating TDS.

 

The choice of tax regime is particularly important here. Under the old regime, eligible investments in instruments such as the Employees’ Provident Fund, Public Provident Fund and life insurance policies can qualify for deductions under Section 80C, subject to the overall limit and conditions. Most such deductions are not available under the new regime.

 

Employees should therefore check whether their existing investments provide any tax benefit under the regime they intend to choose.

 

5. Check final settlement and pending payments

The final settlement from the previous employer may include unpaid salary, performance bonuses, leave encashment and other payments.

 

Employees should check which components have been paid and which are pending. They should also verify the TDS deducted by the previous employer and ensure that the amounts are correctly reflected in their tax records.

 

Reconcile the information available in Form 16, Form 26AS and the Annual Information Statement (AIS) before filing the return.

 

Avoid a tax surprise after switching

Before joining the new organisation, collect previous salary slips, tax deduction details and the final settlement statement. Share the relevant information with the new employer and check the revised TDS calculation.

 

The decision should ultimately be based on the additional post-tax income and benefits offered by the new organisation, rather than the increase in headline CTC alone.