Salary income
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
24 March 2016
Clarify whether Bonus amount is taxable on due basis or receipt basis. Company makes provision for Bonus in March and it pays it April/May.
24 March 2016
Normally salaried individuals do not maintain books of accounts nor is there any provision for the same. Where books of accounts are maintained and mandatory, the assessee has the option to maintain them on either mercantile basis or cash basis. This question does not arise.
Salary is taxable on receipt or due basis whichever is earlier. Bonus does not become due unless declared - the company in its books of accounts make PROVISION for bonus expenses. A provision is an estimate and the actual expense may be more or less. Hence provision in the books of the company is immaterial. Bonus is taxable when paid i.e. in April / May of the next financial year. HOWEVER if the company officially declares the bonus payable (i.e. accepts a binding liability) before the close of the financial year, then bonus would be taxable on due basis in the previous financial year when declared. In many cases negotiations are made with workers' union etc. before the bonus is declared, so a mere entry in the books of accounts does not make the employees liable to pay tax thereon as Salaries Received / Receivable.
Salary is taxable on receipt or due basis whichever is earlier. Bonus does not become due unless declared - the company in its books of accounts make PROVISION for bonus expenses. A provision is an estimate and the actual expense may be more or less. Hence provision in the books of the company is immaterial. Bonus is taxable when paid i.e. in April / May of the next financial year. HOWEVER if the company officially declares the bonus payable (i.e. accepts a binding liability) before the close of the financial year, then bonus would be taxable on due basis in the previous financial year when declared. In many cases negotiations are made with workers' union etc. before the bonus is declared, so a mere entry in the books of accounts does not make the employees liable to pay tax thereon as Salaries Received / Receivable.
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24 March 2016
Bonus should be taxed in the year in which it is due or received, whichever is earlier. Hence, if the bonus was due (amount ascertained and unconditionally payable ) it should be taxed on due basis. However, if you can establish that there was uncertainty on the payment and/ or quantum of bonus, then the same shall be taxable on receipt basis.
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