Income Tax payable on Reversing Pay Arrears Provision in FY 2024-25

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This query is : Resolved

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This discussion addresses the income tax implications of reversing a provision made for differentiated salary payments. The consensus is that such provisions are not allowable as expenses for income tax purposes. If the provision was claimed as an expense in an earlier year (e.g., 2020-21), reversing it means treating it as current year income, with tax payable accordingly. Interest under sections 234A, 234B, and 234C is generally not applicable unless there's a revision of assessment for the year the provision was claimed.

Satish M Khairmode

Satish M Khairmode (Querist)
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29 July 2024 I need some guidance on a tax matter. We made a provision of Rs 23 crores in March 2021 for differentiated salary payable to employees. We're now planning to reverse this provision. Could someone please explain the income tax liability associated with this reversal? Specifically, I'm interested in the treatment under the Income Tax Act and the applicability of interest under sections 234A, 234B, and 234C.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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29 July 2024 Provisions will not be allowed as expenses under income tax.
Check the income tax calculation for 2020-21.
Treat it as current year income if claimed in earlier year, interest not applicable.
Interest applicable only in case of revision of assessment for 2020-21.

Satish M Khairmode

Satish M Khairmode (Querist)
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31 July 2024 if is allowed then tax burden amount ?

Satish M Khairmode

Satish M Khairmode (Querist)
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31 July 2024 if it is allowed then tax amount pl ?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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31 July 2024 Treat it as current year income only tax payable.

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