25 April 2013
My company has a Staff welfare plan that if any employee die before his retirement, then his nominee has a option to REFUND the Gratuity and PF amount to the company and company will give to the nominee per month a sum equivalent to the last basic salary of employee till his remaining service period. and at last total deposited amount will be refunded.
For example : "A" was an employee. His retirement age was Jan 2022. But he dies on 30th April 2012 when his Basic Salary was Rs. 20,000. His nominee "B" refund his PF and Gratuity amount to the company.
So Company will give Rs. 20,000 per month to "B" till Jan 2022. and on Jan 2022 Co will refund the Deposit amount.
Now please tell me, whether this Rs. 20,000 p.m. is taxable in the hands of "B". and in which section TDS will be deducted.
Points to remember :
1. There is no employer employee relationship between company and "B".
2. PF and Gratuity in the hands of nominee (in case of death) is exempted. But here "B" is returning the money.
25 April 2013
I hope your company would be accounting such expenditure under staff cost.
The AO can take view that you are paying an interest for the deposit received in form Gratuity & PF. You need to check whether such amount works out to normal interest rates or not. However on substance of scheme you can prove that this is not interest but its scheme for benefits of staff.
In such case, while making payment no TDS would be required to be deducted.
Querist :
Anonymous
Querist :
Anonymous
(Querist)
26 April 2013
Dear Krunal, Thanks for your reply.
Amount paid to the Nominee is not at certain rate. and it will never be matched with any interest rate. If we calculate rate of interest, then it may be the rate of each nominee will come different.
But i can't understand how it is benefit to the staff. As last benefit to the staff has been paid to the nominee (PF and Gratuity), and nominee at his own wish deposited that amount to the company. Further, with nominee their is no Employer employee relationship.
So please mention how it can be justified as staff benefit.
CAclubindia
