Clarification on Tax Paid by Company on Behalf of Employees

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venkateswara reddy

venkateswara reddy

(Querist)

26 September 2025 In Q4 of FY 2024–25, we paid cash incentives through bank-issued gift cards to our employees.

Due to an oversight, these incentives were not included in the original Form 24Q (TDS return).

In June 2025, we recognized this error and included the cash incentive portion as perquisites, and the company paid the applicable tax (with interest) on behalf of the employees.

A revised TDS return was filed. However, we did not show the tax paid by the company on behalf of employees as perquisite in the revised return.

Due to a software error, the TDS credit did not reflect in Part A of Form 16, though the perquisite details appeared in Part B.

As a result, employees paid the tax themselves on these perquisites and filed their income tax returns accordingly.

After September 16, 2025, the software issue was identified and rectified, and a second revised TDS return was filed.

Now, tax credit is appearing correctly in Part A of Form 16 for the respective employees.

We have advised employees to file revised income tax returns to claim the tax credit.

Initially, the company planned to recover the tax amount paid on behalf of employees from their September 2025 salary. However, our CEO has directed that this tax should not be recovered from the employees and has offered to bear the entire tax burden himself

🙏 We seek expert opinion on the following points:

Perquisite Classification:
If the company does not recover the tax paid on behalf of employees, will this be treated as an additional perquisite under Section 17(2)(iv) of the Income Tax Act?

Tax Recovery from CEO:
Is it legally permissible and compliant under the Income Tax Act to recover this tax amount from the CEO’s salary instead of from the respective employees? What are the possible compliance issues or audit risks?

Gift Treatment:
If the company recovers the tax amount from employees and later issues the same amount as a Diwali/festive gift, what are the tax implications? Would this result in double taxation or any unintended consequences?

Correct Recovery Method:
What is the proper method to recover such tax amounts from employees after the company has already deposited it with the government on their behalf?

Implications of Non-Recovery:
What are the legal and tax consequences if the company chooses not to recover the tax paid on behalf of employees? Are there additional disclosures or compliance requirements we must meet?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

27 September 2025 1. Yes.
2. No.
3. Taxable again.
4. Employee should recover it from ITD & pay back to company.
5. Treat is as miscellaneous expense.

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