Tax idea for Budget 2026: How to stop double taxation for salaried employees switching jobs

As the Union Budget 2026 approaches, tax experts and industry bodies have begun submitting suggestions to the government to fix many persisting tax issues faced by salaried employees and other taxpayers. One such issue is the double taxation that many salaried employees face when switching their jobs. The Bombay Chambers of Commerce and Industry (BCCI) highlighted this issue in its Pre-Budget Memorandum 2026-27 and also recommended how the upcoming Budget can fix this issue.

What's the issue?

Currently, employees are required to serve notice before leaving an organisation. In case of a shortfall in the service of notice period, the present employer often recovers a specified amount for the shortfall in service of notice period. In many cases, this is reimbursed by the new employer.

Further, it is a common practice to give a conditional joining bonus to employees, which becomes refundable if the employee resigns within a specific period like one year or two years.

According to the memorandum, while there is no dispute that receipt of the joining bonus in the year of joining employment is taxable as salary income, there is ambiguity whether the recovery of the joining bonus can be reduced from the salary of the year of leaving the employment.

Such recovery may also be funded by the new employer, according to the memorandum.

"In such cases, many-a-times, in the absence of any clarity, the present employer deducts TDS on notice pay recovery and joining bonus recovery," BCCI said.

"Further, in cases of reimbursement, the new employer also includes the said amount in the total income of the employee and deducts TDS even if such income belonged to the ex-employer and is taxable in his hands. Therefore, it leads to double taxation in the hands of employee, though no payment is received by the employee," it added.

How can Budget 2026 prevent double taxation?

BCCI has recommended the Government to allow joining bonus recovery as deduction. Further, there should a clarity on taxing notice amount not received by the employee in the hands of the ex-employer.

"It should be clarified that since notice pay amount is not received by the employee, the same is not chargeable to tax in the hands of employee but is chargeable in the hands of ex-employer. Similarly, the joining bonus recovery should be explicitly allowed as deduction to the employee in the year of recovery to avoid ‘double whammy’ of taxation in the year of joining as well as non-grant of deduction in year of recovery," BCCI said.