Provisional entry bonus.

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A company has changed its salary structure to include a bonus within the monthly CTC, payable at year-end regardless of profit. The question is whether to record this bonus expense monthly or annually. The advice given is to record it annually at the end of the financial year. This aligns with Section 43B of the Income Tax Act, which allows deductions only in the year of payment, with an exception for payments made before filing the annual return.

Karthik

Karthik (Querist)

10 August 2021 Dear Expert,

our company has recently changed it's salary structure for the newly joined employees and, in the recent change company included the Bonus amount in monthly CTC at a predefined rate on basic salary and, as per the new structure the company will pay the bonus amount at the end of the year irrespective of whether the company making the profit or not.

and my doubt is, whether we should record the bonus expense in every month or, annually at end of the reporting period, in the payment financial year ?

Note: the company is a SME Company.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

10 August 2021 Record the bonus expense annually at end of the financial year.

Udaya Chandran

Udaya Chandran (Expert)

11 August 2021 According to Section 43B of Income Tax Act, expenditure is allowed to be deducted only in the year when such expenditure is paid, i.e. Bonus to employees. An exception is also provided if the expenditure is paid before filing the annual return u/s 139(1).

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