PAYMENT TO EMPLOYEE OTHER THEN SALARY

No. As long as he is continuously employed, there exists an employer employee relationship and therefore whatever he receives is salary. If he is a partner in the catering firm then there is no problem.  However, any AO will determine the transaction to be that of fronting. When you issue him form 16 you have recorded him as a technical employee. Now the technical person has branched off into catering for you as a contractor? I do not think any AO will buy that.

Reply for th querry is"This totaly depends on the letter of appointment & terms".If he is not restrictedto only job.He can take contracts & work.TDS will be different or both.The advise is to avoid this & get this contrat with any other name.

You can pay him if the Employer agrees, except employer nobody can object, provided the transaction are genuine, you may also deduct TDS Under section 192 (If applicable) & 194C.

Agreed. The only problem in these cases is genuinity of transaction. The instance where I have seen problem is when there was payment u/s 192 as well as 194H for arranging properties as employee was in 30% bracket. If the employee is not restricted in doing any other business as proprietor or partner and he is already organised to do this business and does it with other people also then there is no problem. People try a lot to give a legal form to every transaction. The difficulty arises if the employee does a one off contract with his employer or does catering only for his employer. Then it is not easy to prove anything. AO will be correct in assuming that arrangement has been made to put revenue at loss.

But how revenue will be at a loss , The employer will be deducting tax at both payments,

salary & contract payment.

When employee will file his ROI , he will be paid Income tax on both the income.

You are right Monika

Please read the circumstances under which  AO will make such an assumption. If there is only a one off transaction or the employer is the only client of the employee. In the contract you are deducting only 2% TDS and you may pay a higher rate to employee and he will claim expenses including indirect expenses to reduce his tax liability. The danger for revenue in such cases is that TDS has come less. Price is fixed by payer for contract. Expenses claimed by employee in contract business may be what would otherwise have been his perquisites if working in the employment. However, you must be carefull in routing this transaction. Nowadays department has given their CASS software a lot of triggers in selecting returns for scrutiny especially in networked cities. The entity maintaining Income Tax Database is the same NSDL. If they ever flag returns of yours for having made TDS under 192 as well as one of the 194s, they will flag return for scrutiny. There is more chances of employee return being picked up. This is because his account will show 194C and 192 from same person. Once either get into scrutiny then there is a problem. Employees AO can contend that he has been renumerated less for the catering job on account of the employer employee relationship. Both accounts can be called by any of the AOs.

Whenever you go for scrutiny these days, AOs do not give you reason why your case is picked. But during the process of scrutiny, you will make out when AO refers to his printouts and starts getting on you bang on target. Therefore if it is indeed a such a tranaction, with advancement in technology, bettwer avoid it.

One can do any business in "white", no need to fear, GAAP/Accounting Standards/IFRS all were prepared based on people's "common sense", if we panic in suchway one can do only one business. Only the thing is we need to apply rule as per IT laid-on. If our common sense accepted we can do anything.

Yes one can do any business in "white" but it is better to say that one should do business "only in white". However, in doing business in white, you do not have 'freedom'. You only have 'liberty'. The business should be at arm's length especially if one person is a dependent on the other. I am not saying anything about the legality of the transaction. It is perfectly legal and it cannot be questioned. My contention remains that you should not attempt to minimise the taxes by giving a legal form to various transactions. Use all other avenues and options available to you in the Act to reduce your taxes. Eventually you have to satisfy your auditor first who will definitely have to look into arms length principal considering employer employee relationship that he just cannot ignore. If you get away year after year, your good luck.

I am not a Government Agent or a Government Employee. I have love for my country and I have respect for other countries. However I do not have love for any Government on this planet. As a duty I am bound to respect my Government. One has to exist with the Government  according to his capabilities.

 it wud be very difficult to prove genuineness of such a transcaction......employer has to prove that the employee is not providing same service as an employee and as a professional /technician....if employer is nt able to prove the genuiness of such transaction ....ao will not allow such expenditure.....

penalty u/s 271(1)c may be imposed on both employer and employee...and it is very heavy penalty amting to max 300%

only option is to take pmt for services in cash.(i.e. black)...which is again against law...this happens in mainy co.'s...specially when theywant to make pmt to independent director....who are only entitled to board sitting fees