Taxation of salary not received

Company, is liable to pay his salary. Kindly rectify me , if am wrong

Hi Vivek,

Company is responsible in deducting tax eventhough physically the salary hasn't remitted as TDS is deductible on actual payment or due whichever is earlier.

Regards,

Mutyam

Salary is taxed on accrual or receipt basis whichever is earlier.

Even though salary is accrued and becomes payable but not paid, tax is liable to be deducted or paid for the relevant ass. yr. it pertains to.

But my question is that what if TDS has been deducted but the salary which is payable is not paid at all. Why should one be paying tax for income which is finally not received at all.

Salaries.

15. The following income shall be chargeable to income-tax under the head “Salaries”—

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid  or not;

(b) any salary paid or allowed  to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

 [Explanation 1].—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

 [Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.]

Salary is chargeable as accrual basis or receipt basis whichever matures earlier. In this case salary will be taxable as accrual basis actual receipt will not be considered for taxation.

Section 15 under normal scenario where due payment is paid with reasonable time may be ok. But incase company does not pay in 3 years and filed under bankruptcy in nclt, is it justified to consider such due salary for taxation purposes.

What happens when company is bankrupt and having large negative net-worth with no income. In other words there is no visibility of payment is being honoured