Maternity leave salary-tax applicability

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

11 October 2013 Dear Sir,

I have a doubt regarding maternity leave salary.

As an employer in which year i have calculate the Maternity leave salary for deducting tds?
ie, leave period n previous FY, but payment made on this FY, So can i add the full amount of ML salary along with this year salary and deduct TDS?

Kindly advice me

Arun Jain

Arun Jain (Expert)
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11 October 2013 If you r booking these as payable in previous year than TDS should be deduteed in previous year. But if you have not booked expenses yet then you can book now and can deduct tds now.

Querist : Anonymous

Querist : Anonymous (Querist)

11 October 2013 Thank you sir,

If maternity leave salary excluded, current year total salary income with in the income tax limit. So employee argue that its previous year income he cannot remit the tax.

So if you dont mind, kindly give me any link related to such case or detailed note for convincing the employee.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 In India, the treatment of maternity leave salary for tax purposes and TDS (Tax Deducted at Source) compliance involves specific considerations. Here’s a detailed guide to address your concerns:

### **1. Timing of Tax Deduction and TDS on Maternity Leave Salary**

#### **Tax Deductibility:**
- **Income Year:** The salary paid during maternity leave is considered income for the financial year in which the payment is made, not necessarily the year in which the leave was taken.
- **TDS Deduction:** TDS should be deducted based on the year in which the salary is actually paid. So if the maternity leave salary is paid in the current financial year, it should be included in the total salary for TDS calculation for that year.

#### **Practical Application:**
1. **If Maternity Leave Salary is Paid in Current Financial Year:**
- **Include in Current Year’s Salary:** Add the maternity leave salary paid in the current financial year to the total salary of the employee for this year.
- **Deduct TDS Accordingly:** Calculate TDS on the entire salary (including the maternity leave salary) as per the applicable tax slabs and provisions for the current financial year.

2. **If Maternity Leave Salary was for Previous Financial Year:**
- **Payment in Current Year:** Even though the leave was in the previous financial year, the payment made in the current year is subject to TDS in the current year.

### **2. Employee’s Argument Regarding Tax on Previous Year Income**

If the employee argues that the maternity leave salary should be treated as income for the previous year, the primary points you can clarify are:

- **Income Year Principle:** Income is assessed in the financial year in which it is received or paid, not necessarily when it is earned. Thus, the maternity leave salary is taxable in the financial year in which the payment is made.
- **TDS Compliance:** The TDS is deducted based on the year in which the salary is actually paid. Therefore, the employer must deduct TDS on the total salary including maternity leave salary for the financial year in which the payment is made.

### **3. Relevant Tax Laws and Guidelines**

- **Income Tax Act, 1961:** According to the Income Tax Act, salary income is taxable in the year in which it is paid. Therefore, the maternity leave salary paid in the current year should be taxed in the current year.
- **CBDT Circulars:** The Central Board of Direct Taxes (CBDT) issues circulars and guidelines which provide clarity on various issues related to tax and TDS. Reviewing the latest CBDT circulars related to salary and TDS could be beneficial.

### **4. Practical Example and Clarification:**

#### **Example Scenario:**

- **Leave Taken:** March 2022 (Previous Financial Year: FY 2021-22)
- **Payment Made:** April 2022 (Current Financial Year: FY 2022-23)

In this scenario:
- The maternity leave salary should be included in the total salary for FY 2022-23 for TDS purposes.
- TDS should be calculated and deducted in FY 2022-23 on the total amount paid, including the maternity leave salary.

### **5. Reference Links and Detailed Notes:**

For detailed and authoritative references, you can review the following:
- **Income Tax Act, 1961:** Check the provisions under Section 10(14) and other relevant sections.
- **CBDT Circulars:** Refer to recent circulars related to TDS and salary payments.
- **Tax Advisory Websites:** Websites such as the Income Tax India website, Taxmann, or other reputable tax advisory services.

#### **Helpful Links:**
- [Income Tax India - Official Website](https://incometaxindia.gov.in)
- [Taxmann - Tax Law and Compliance](https://www.taxmann.com)

These sources provide detailed information and updates on tax regulations, including the treatment of maternity leave salary.