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Income Tax Deduction on Retention Bonus

Abhijeet (SW) (29 Points)

20 May 2010  

Hi All,


I am having the query about the Income Tax deduction on Retention Bonus, Please help me about same.

Query:

An organisation is giving retention bonus to employee on completion on a candidate year.

(If an employee leaves or fired from company then he/she won't be getting Retention Bonus).

As the retention bonus is given at the end of candidate year, so the income tax should be deducted at the time when employee is getting paid.

But the organisation is deduting the income tax on rentention bonus from employee's salary on monthly basisi in whole financial year irrespective of whether he get the retention bonus or not.


So is it legal to deduct the income tax on retention bonus at the time of getting it?

OR

Is it Income tax deduction from an employee's salary in whole year on monthly basis?

Please clarify or suggest, I want income tax to be deducted at the time of getting Retention Bonus so that my monthly take-home will be good enough.


If possible, please provide me link or name of rule or law to support these things.


 6 Replies

Shudhanshu Agrawal (Business) (2570 Points)
Replied 20 May 2010

Retention bonus is a part of salary. TDS on Salary is deducted u/s 192. As per Section 192 TDS is deducted on average basis. In your case you are right that TDS on bonus should be deducted when it is actually paid. But company may follow the procedure as followed in your case i.e. to deduct on monthly basis. The reason is very simple, they dont want to take the risk of increasing the tax liability of the employee in the march month which may affect their take home very badly.

 

If you want to understand with an example then let me know. I will give you an example.

1 Like

Abhijeet (SW) (29 Points)
Replied 20 May 2010

Thanks Sudhanshu for replying this query. :)

Can it be possible for the company to take decision of deducting tax at the time of giving rentention bonus?

For doing this what can we suggest the company authorities?

Also do we opt which pattern of tax deduction should be used for us?

If it is possible, please provide an example.

Shudhanshu Agrawal (Business) (2570 Points)
Replied 20 May 2010

 

Originally posted by : Abhijeet

Thanks Sudhanshu for replying this query.

Can it be possible for the company to take decision of deducting tax at the time of giving rentention bonus?

For doing this what can we suggest the company authorities?

Also do we opt which pattern of tax deduction should be used for us?

If it is possible, please provide an example.

 

Answer for the question 1 is yes it is possible for the company to deduct TDS at the time of payment of bonus. In this case suppose an emploee gets bonus of Rs. 1,00,000 and due to this amount his tax liability inceased by Rs. 25,000 then you can pay him Rs. 75,000 after deducting TDS. 

 

Now i want to tell you why your company have adopted for monthly basis. Suppose an employee is planning to take the advantage of bonus of Rs. 1,00,000 at the year end and his income is say Rs. 4,50,000 without bonus then his liability will increase in the month of March. Problem will come when he will not be able to give proof of declaration earlier provided and this will also increase his tax liability. Now the take come will be affected very badly. 

Shudhanshu Agrawal (Business) (2570 Points)
Replied 20 May 2010

If you need more clarification then let me know.

Akash Mistun (4 Points)
Replied 12 August 2021

Hi,

My employer already deduct TDS at the time of payment of bonus.

Now as I am leaving the organisation, so I won't be eligible for the bonus. I want to understand how much amount will be adjusted during separation in that case. It will be helpful if you explain with example.
 

Thanks,

Tanoy

Akash Mistun (4 Points)
Replied 12 August 2021

Hi, My employer already deduct TDS at the time of payment of bonus. Now as I am leaving the organisation, so I won't be eligible for the bonus. I want to understand how much amount will be adjusted during separation in that case. It will be helpful if you explain with example.  

Thanks in advance

 


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