Leaving Mid-Year: How Are Tax Deductions Handled When Quitting for Studies?

Hello,

I am looking for a definitive answer on how tax deductions will be handled for an employee who leaves the organization in the middle of the financial year. For example, an employee is leaving the organization in October 2009. According to the saving/investment declaration, he is liable for X amount of tax and has been having X amount deducted each month until now. However, having decided to quit the profession and pursue higher studies, this gentleman will not have any other expected earnings in the coming months. In this scenario, is there a provision for his earnings from May 2009 to October 2009 to be calculated for tax purposes? If this calculation allows him to be exempt from tax, can the organization exempt him from the deduction for the current month? Additionally, can he receive a refund for the amount that has been deducted thus far?

I hope my intentions are clear, albeit a bit lengthy. I truly appreciate your valuable time and am seeking some insightful answers.

Thank you,
Shajeev

Dear Shaajeev,

Finance will deduct his income tax liability until his Last Working Day (LWD). However, the staff can request Finance not to deduct the same as he would be paying any tax when he files his returns. Not sure if Finance will agree.

Now, if tax is deducted and the staff does not earn any income after his LWD for the financial calendar i.e. till 31 March, he would have to file his returns with the IT department, and any additional amount that might have been deducted by IT will be reimbursed to him.

Hope that answers your question.

Regards, Ukmitra

Thank you, Mitra. I have one more question regarding furnishing the proof of savings/investment. As it is only the middle of the current financial year, it seems difficult, but the finance department is insisting on them.

Can you give me any resolution for this.

Shajeev

Hi Shajeev,

It's mandatory for the staff to submit the same. Since, based on the documents, the finance department can deduct or give a rebate on the tax amount. If the staff fails to provide the documents, they will presume no investment and deduct the tax.

No worries for the staff, as at a later stage, if they do make any investment, they can claim a rebate from the IT department.

Regards,
Ukmitra

Hi Shajeev,

There is nothing to worry about in this Deduction. Please calculate the actual salary from 01st April to Oct '09 and update the original proof (LIC payment, Rent, Loan from Apr - Oct, etc.). Calculate the Tax accordingly and prepare Form 16 to hand over to the employee. The next organization will definitely ask him about his Form 16.

Thanks & regards,

N. Srinivasan
9600004773

If an employee leaves the organization in the middle or any day of the financial year, we have to calculate the tax liability on salary paid to him after considering the proof of investments submitted by him. The next step is to issue him Form 16. If an employee gives only a declaration in writing but is not able to produce the proofs for the same, the company is obliged to deduct the tax from his salary. The employee can claim the refund, if any, from the Income Tax Department by filing his return. He has to produce his income proof to the next organization for the part of the financial year. He has to declare all the income for the financial year in the Income Tax Return.

Regards,
Sachin