TDS and Taxation Explained for Retired PSU Employee Working in Private Firm

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Employment options after retirement

Public sector undertakings (PSU) are government-owned enterprises. These are often established by central or state governments, who own it fully or its majority shares. The central government employs nearly 3.45 million people as per recent estimates, with Indian Railways being one of the largest PSU employers in the world. With most of these employees retiring by the age of 60, many choose to continue working rather than resting on laurels and retirement benefits.

Also Read: 4 investment tools save tax senior citizens and earn good returns after your retirement

Employment options after retirement from a PSU

Only a select handful can count on being employed back to their former companies in a consultancy role, and even that isn't guaranteed for more than a few years. For anyone else retiring from a PSU, the private sector is the key prospect for a new job.

While working in a private firm, a retired PSU employee can either choose to be an employee or work as a consultant. Even employees may be permanently hired or as a contractual or retainer. 

  1. Permanent Employee – If you work as a salaried employee, your TDS calculation will be based on your income tax slab and will further depend on your total income during the year. Your present taxable salary, your pension income, or any other income sources will add up to your annual total income. As an employee, you will receive a Form 16 which will include details of the TDS deducted during the year. As your tax will be deducted at source, the need for payment of advance tax doesn’t arise. 

    As a salaried person, you will file ITR 1, if your income doesn’t exceed Rs 50 lakhs. You will also be eligible to avail of the benefit of senior citizen tax slabs. Individuals with income above Rs 50 lakhs must file ITR 2.

    Also Read: Too much TDS deducted, Here’s how to claim your TDS refund online

  2. Consultant – As a consultant, your income from the private organisation will be subjected to TDS under section 194J of the Income Tax Act 1961. Presently, TDS under section 194J is deducted at 10%. However, if the estimated tax liability after the deduction of TDS is more than Rs 10,000, a consultant must pay advance tax on time. Non-payment of advance tax can result in the accumulation of interest thereon.

Someone working as a consultant files income tax returns through ITR 3 form. However, consultants eligible for the presumptive tax scheme can also opt for the ITR 4 form. Consultants have to maintain and declare books of account and declare key figures while filing their income tax returns. Being professional income, losses against the same can be set off against the annual amount of income other than income from salary. 

Also Read: What are the differences between revised, belated and updated income tax returns

Avoid Haste in Catching the New Job 

Retired government officials need to abide by the mandatory cooling-off period before accepting a new job. As per the Central Vigilance Commission guidelines, accepting a new job during the cooling-off period is serious misconduct by the retired employees of government organisations. Government organisations hiring retired employees must obtain a vigilance clearance before doing so. As a senior citizen employee, you should know the cooling-off period.

Thus, the tax rules for salaried employees and consultants are different, and it is the same even for retired employees of PSUs and government offices.

Public sector undertakings (PSU) are government-owned enterprises. These are often established by central or state governments, who own it fully or its majority shares. The central government employs nearly 3.45 million people as per recent estimates, with Indian Railways being one of the largest PSU employers in the world. With most of these employees retiring by the age of 60, many choose to continue working rather than resting on laurels and retirement benefits.

Also Read: 4 investment tools save tax senior citizens and earn good returns after your retirement

Employment options after retirement from a PSU

Only a select handful can count on being employed back to their former companies in a consultancy role, and even that isn't guaranteed for more than a few years. For anyone else retiring from a PSU, the private sector is the key prospect for a new job.

While working in a private firm, a retired PSU employee can either choose to be an employee or work as a consultant. Even employees may be permanently hired or as a contractual or retainer. 

  1. Permanent Employee – If you work as a salaried employee, your TDS calculation will be based on your income tax slab and will further depend on your total income during the year. Your present taxable salary, your pension income, or any other income sources will add up to your annual total income. As an employee, you will receive a Form 16 which will include details of the TDS deducted during the year. As your tax will be deducted at source, the need for payment of advance tax doesn’t arise. 

    As a salaried person, you will file ITR 1, if your income doesn’t exceed Rs 50 lakhs. You will also be eligible to avail of the benefit of senior citizen tax slabs. Individuals with income above Rs 50 lakhs must file ITR 2.

    Also Read: Too much TDS deducted, Here’s how to claim your TDS refund online

  2. Consultant – As a consultant, your income from the private organisation will be subjected to TDS under section 194J of the Income Tax Act 1961. Presently, TDS under section 194J is deducted at 10%. However, if the estimated tax liability after the deduction of TDS is more than Rs 10,000, a consultant must pay advance tax on time. Non-payment of advance tax can result in the accumulation of interest thereon.

Someone working as a consultant files income tax returns through ITR 3 form. However, consultants eligible for the presumptive tax scheme can also opt for the ITR 4 form. Consultants have to maintain and declare books of account and declare key figures while filing their income tax returns. Being professional income, losses against the same can be set off against the annual amount of income other than income from salary. 

Also Read: What are the differences between revised, belated and updated income tax returns

Avoid Haste in Catching the New Job 

Retired government officials need to abide by the mandatory cooling-off period before accepting a new job. As per the Central Vigilance Commission guidelines, accepting a new job during the cooling-off period is serious misconduct by the retired employees of government organisations. Government organisations hiring retired employees must obtain a vigilance clearance before doing so. As a senior citizen employee, you should know the cooling-off period.

Thus, the tax rules for salaried employees and consultants are different, and it is the same even for retired employees of PSUs and government offices.

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