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Diversion of income

ABHILASH (student) (34 Points)

29 July 2015

Hii all,

I had a company of 70 employees, all my employees are taking leave for 5 days a month to go homes as thier family position is not well. hence company decided to give standing order that 20% of salary will be directly given to parents.

my query is that

1.as is is a standing order given by company to employee it is diversion of income as it is obligation placed by company and it will be diversified before it reaches him

are they eligable exemption of income tax on 20%

should i deduct TDS on 100% or 80%

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Rajagopalakrishnan R (PARTNER) (1417 Points)
Replied 29 July 2015

The company has no locus standi to divert the salary income of an employee. Merely becoause the payment is made directly to the parents or any body else ( why not wife/children then??), does not divert the income.The only principle of Income diversion recognised by IT law is that of diversion by overriding title and this can never happen in any income where personal services are involved. ( i.e salary prof fees etc). The reason is that the income is earned by the emloyee on account of his emplyment with the employer and method/place/person of payment is irrelevant. Even if not paid it is still taxable as due in the hands of the employee.

Diversion by overriding title would mean that the ownership of the income will part hands even before it reaches the person who earns it. For Eg. Father wills a property to son, with condition that 20% of income from that property must be paid to mother in her life time. Here The right to earn the income from property itself is conditional upon the 20% diversion. Therefore 20% will be taxed in hands of mother and 80% in hands of son. Hope it is clear