12 October 2010
TDS payable on salary of some employees is borne by employer, as per employment agreement with the employee, and tds payable is added to salary of employee for grossing up salary and tds on grossed up salary(including tds on taxable salary)is paid by the employer. Is TDS paid by employer an allowable expenditure while computing business income.
Please reply with supporing provisions of the income tax act and will appreciate if somebody can reply asap.
12 October 2010
Not a business expenditure meaning thereby that such tax will be disallowed in the hands of the employer by virtue of section 40 (a)(v) of the Income tax Act,1961.
This view is not agreeable that the TDS borne by employer is not a buiness expenditure. Under a contratual agreement the TDS borne by the employer becomes the expenditure / cost in the hands of the employer and is fully tax deductible. Take anothe example, if one has to make payment to a consultant net of taxes, then grossing up cost is also added to consulatancy charges. The consulatancy charges are will be booked at the higher amount which actully becomes my cost. Will this not be allowed?
12 October 2010
My observation is as per section 40(a)(v) read along with 10 (10CC) of the Income tax Act,1961. You have the right to agree or not to agree. If you do not agree, as you know, face the consequences or contest before a court of law.
CAclubindia
