Income from salary

434 views 3 replies

Chintan Shah

534 Points Joined October 2009

A is an employee of X corporation. A’s compensation package includes two different advances. One is Zeus Scheme Advance and other is Junior Advance. These two are salary advances and hence they are taxable in the year in which it is received. A has a three year bond with X corporation. If A leaves the company before 3 years company will deduct the aforesaid advances from the salary and other benefits payable to A at the time of full and final settlement.

Whether the same will be allowed as deduction under any head?

If not how can the employee claim relief for the same since the advance has been taxed in earlier years and now the same is deducted from current year salary?

Can the net amount of salary for the assessment year be taxed in the last year of service after deducting this amount?

Please do spare your time and answer the above.....

Thanks in advance

Replies (3)

Kaushik Vankadkar

Service

350 Points Joined October 2009

Salary after deduction of the advances will be taxed as it is taxed earlier. The advance will now be treated as salary but the same is already taxed so no need to tax at this point of time.

So the net amount of salary will be taxed.

Amir

Learner

4016 Points Joined December 2009

Dear Chintan,

Sorry but I couldnot get ur doubt in clear terms but I think two questions were asked-

1) Payment made to employer as a compensation for a waiver of notice period : "Allowable or Not"

NO IS NOT ALLOWED AS DEDUCTION. No relief is available.

Reason - No such provision is there.

2) Advance Salary which has been taxed earlier -No it will not be taxed again. Relief u/s 89(1) can be claimed.

If A leaves X corporation before 3 years than the bond will be effective. In that case the advances which were given and were taxable as salary in the earlier years will be deducted by company from the salary of the year in which the employee left the company at the time of full and final settlement. The question is, Can a relief be claimed in respect of such deduction by company?

Please note that the company includes the above advances in Form 16 when they are paid to the employees. However the Zeus and junior scheme schemes specifies that the advances are paid on the assumption that the employee will complete 3 years of service. Hence it appears that the condition for accrual of these advances is that the employee completes 3 years of service with the company.

We had even taken up the matter with the AO and had argued that the as per the company’s scheme document the advances are not due in the year in which they are paid to the employee though they are included in the salary of the employee under Form 16 by the company. However the AO refused to accept the scheme as evidence and he stated that since Form 16 being a public document and the company having included the advances in Form 16 the advances will be taxable in the year of receipt though as per the scheme they have not accrued in that year.

The AO also stated that the advances, though have been recovered from the salary of the year in which the employee left the service, will not be allowed as deduction in such year since there is no provision under the Act which provides for such deduction.

Well I guess the employee will not get any relief!

Regards

Chintan