Tax on tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

30 October 2012

Can anyone tell me treatment of Tax on tax ?

In case of expat employees if company is bearing tax on Salary & on perquisites, will they get exemption of Paying Tax on Tax which is grossed up with earning in order to pay Tax free salary to an employee.

regards,
preeti

Guest

Guest (Expert)

30 October 2012 i did not get what u want to ask
from whose point of view
and kindly log in to caclubindia for future reference

Sunny Sonwal

Sunny Sonwal (Expert)
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31 October 2012 I think you are asking for an expat employee who will be liable or not to pay tax on the having addtional perquisites (For additional Tax arose due to international assigment,Hardship Allowance, etc) whether this expenses beared by his employer.

Then Yes, he is liable to pay tax while at the time of calculation of tax you have to gross up his income by the additional perquisites which are told above.

He can also claim for releif under section 90 or 91.

Querist : Anonymous

Querist : Anonymous (Querist)

13 November 2012
Yes i was asking for an expat employee only but what if in case of company is bearing Tax Liability for Salary & Perquisites.

How about the Tax Computation? If can help me with the format in excel.

regards,
preeti

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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26 July 2025 Got it! When a company **bears the tax liability on an expat employee’s salary and perquisites** (i.e., tax on tax or grossed-up salary), here’s how it works:

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### What is Grossing Up Tax?

* The employer **increases the employee’s gross salary** so that after paying the income tax liability, the employee still **receives the intended net salary**.
* The tax paid by the employer on behalf of the employee is treated as a **perquisite** in the hands of the employee, so it is **taxable again**.
* To compensate, the employer “grosses up” the salary — meaning they calculate a higher salary including tax on tax, so the employee’s net pay is unaffected.

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### Tax Treatment for the Employee:

* The **total salary** (including the grossed-up tax amount) is considered **income and taxable**.
* The tax paid by the employer is shown as a **perquisite and taxed accordingly**.
* The employee cannot claim exemption for this perquisite; it is taxable income.

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### Tax Calculation Example (Simplified):

| Particulars | Amount (Rs.) |
| ----------------------- | --------------------------------- |
| Salary (Before tax) | 1,00,000 |
| Tax on salary @ 30% | 30,000 |
| Tax on tax (perquisite) | (Grossed-up) ? — to be calculated |
| Total taxable income | Salary + Tax on tax |

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### How to calculate grossed-up salary?

The formula to calculate grossed-up amount **G** when tax rate is **t** and net pay is **N** is:

$$
G = \frac{N}{1 - t}
$$

Where:

* $N$ = Net salary to be received (after tax)
* $t$ = Tax rate applicable on income

This ensures tax on gross salary and tax on tax are covered.

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### About Excel Format

To prepare an Excel sheet for this calculation, columns should include:

* Gross Salary (input)
* Tax Rate (input)
* Tax on Salary = Gross Salary × Tax Rate
* Grossed-up Tax = Tax on Salary / (1 - Tax Rate)
* Total Tax Liability = Tax on Salary + Grossed-up Tax
* Net Salary = Gross Salary - Total Tax Liability

If you want, I can help create a simple Excel formula or sheet for this — just let me know!

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