08 January 2009
A Company is Deducting 15% P.M. from Salary of Staff.
This Salary is Payable only if person is associated with company for 24 months.
While Calculating TDS Company takes full Salary Amount.
As per Form 16 Salary income is higher but actual receipt is 15% Less.
Now quesation is 1) If salary not paid only calculated TDS on the Same is applicable or not?
2) While Filling individual return - Salary REceivable is Shown In Balance Sheet or not? - If not Mismatch with From 16 ?
3) If Individual discontinue his service & 15% Of pervious year & Current year Salary amount is not receivable how his income will be shown? how he can claim his loss & under which section?
08 January 2009
1) As per section 192 tax is to be deducted on the amount paid only. 2) Form 16 encompasses only salary paid. Therefore, question of mismatch do not arise. 3) No relevance in view of 1) and 2) above.
For the purpose of my following note, "Gross Salary" means salary contracted and "Net Salary" means Salary contracted less 15% withheld by Employer
As per Sec 15, "any salary due from an employer...whether actually paid or not" is chargeable to tax.
Further "Once salary has accrued, its subsequent waiver is only an application of income and liable to taxed"
From the above as well as Query, the Company is booking entire amount of Gross Salary as expenditure in its books of account. It is only withholding 15 % amount to enfoce compliance of contractual obligation of working for a minimum period of 24 months (in the nature of Notice Pay)
Since the Company is booking Gross Salary as its expenditure, it has no option except to issue Form 16 for Gross Salary only and affect TDS thereon. Employee is also bound to return Gross Salary as his income. Coming to specifics raised by Querist,
(1) TDS has to be effected on Gross Salary (2) Employee has to return Gross Salary (3) If Employee discontinues service, he will not be eligible to claim Refund since amount recovered by Company is in the nature of Notice Pay, that is, application of Income
In all fairness, Employer should book only Net Salary as his expenditure in books of account, affect TDS on Net Salary, issue Form-16 for Net Salary only.
When the amount is released to employee after serving 24 months' tenure, then Employer may book it as expenditure, affect TDS and include in Form-16 for the year in which amount is released.
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