08 June 2012
Say , suppose Mr. X pays a Salary of Rs. 2,40,000 to his son & his wife pays a Salary of Rs. 1,20,00 to their Daughter-in-law for managing their Income & doing their accounts for the Year . However , Mr. X & his wife do not deduct any TDS from this Salary . The Son already has Taxable Income of 5 lacs but the Daughter-in-law has no income (before receiving the Salary) . Mr. X , his wife & their son are filing Returns every year . The daughter-in-law has a PAN No. but doesn't file any Return since she has no income .
Mr. X takes the Salary paid as his expense & reduces his income by this amount (Rs. 2,40,000) . His wife takes the Salary that she pays to their Daughter-in Law as expense & reduces her Income by this amount (Rs.,120,000) . The son adds the Salary to his Income & then computes Taxable Income & pays the Tax so calculated . The Daughter-in-law need not pay anything since even after receiving this Salary , her income falls short of the Basic exempion Limit .
Now , my question is - Would this be allowed . As we can see the I-T Dept. has got it's full tax from all the assesses for the year . Then , would it still insist on the TDS (on the Salary paid) being deposited ? Does Mr X & his wife STILL have to deduct TDS on the Salary that they are paying to their son & his wife ?
In case , they do not deduct & deposit the TDS , what would be the implications ? In case , the TDS is paid later (along with Interest) , wouldn't it mean that this amount got paid twice as Tax (Since the Son had already paid the FULL Tax payable on his Income (which includes the Salary that he received as well) ?
09 June 2012
1. Salary Payable to Mr's X Son and Daughter in law is allowable as expenses if they are really working for the company and their salary is according to their qualification and experience.
2. Mr. X will have to deduct TDS on the salary of his son.
3. No need to deduct TDS on Daughter in law 's salary.
4. The deductor is treated to be ‘assessee in default’ in respect of the non deduction of tax. it is not the concern of the IT department whether TDS paid from own pocket or not
09 June 2012
Mr.X must deduct TDS from the salary given to SON if the latter does not provide any investments which are eligible for deductions. If you are paying salary every month then you must deduct tax.
Agreed with Syed Raza.
However if tax is paid by the employee and employer failed to deduct TDS though employer is in default it can surely explain the reason to AO why he is late to deduct and deposit the tax and show that tax has already been paid by the employee. This will be on case to case basis and depends upon you AO and reasons explained.
09 June 2012
What if Mr. X & his wife pay Salary to their son & daughter-in-law respectively at the end of the Financial Year , i.e. 31-3-xx ? Still , Mr. X needs to deduct TDS ?
09 June 2012
In case of salary, the amount whenever paid attracts TDS and not when credited if it crosses the exempted limits of 1.8lac for previous year. If there is any investments made and if eligible for deduction u/s 80C, 80D or any other section and amount comes under the exemption limit then there is no need to deduct TDS. If you have already paid the salary and not deducted TDS then you are in default.
09 June 2012
So , Am I correct in concluding that if the Salary has only been credited to the Son in the Books of Accounts but NOT ACTUALLY PAID , then TDS need not be deducted ?
What happens if at a later date (a few years later) the Amount standing in the Credit of the Son in the Books Of Accounts of the Father is ACTUALLY PAID OUT TO HIM BY ISSUING CHEQUE IN HIS FAVOUR ?
However, the practice of holding the balance and not paying is not in bonafide nature. Your son will have to pay the tax on this earnings as for him the income is certain as you have already credited in your books of accounts as an expense and you will also take the benefit of it by claiming as an expense under income tax act. Your son will have to pay income tax on such salary though he has not received in actual and after few years when he will receive actually he can take relief u/s 89 for arrears of salary received.
09 June 2012
I have a Question . When the Son has already included the entire Salary (credited to his a/c but not paid to him in the Books of his Father) in the Income for the P.Y. in which it was credited to him , where soes the question arise of AGAIN INCLUDING IT IN HIS INCOME FOR THE P.Y. IN WHICH IT IS ACTUALLY RECEIVED BY HIM ? So, where does the question arise of seeking relief u/s 89 ? I googled this section & read it but it was difficult to understand .
According to me , in whichever P.Y. the Father actually pays this Salary to the Son (And deducts TDS on it) , the Son should be claiming this full amount of TDS as Refund (Since he has already paid Tax on the Entire Salary amount when he paid his Tax for the P.Y. in which this Salary was credited to him (but not paid) .
09 June 2012
As per decision of Hon,ble Supreme Court in case of Hindustan Coca Cola Beverage Pvt. Ltd. Vs. CIT (2007) 293 ITR 226 (SC) whereby it was held that recovery once again cannot be made from the deductor where the deductee included the income ( which was attracting the TDS) in his return and legitimate taxes are paid. to give statutory recognition to above judgment sect 40 is amended vide finance Act, which is as under –
Amendment of section 40. 11. In section 40 of the Income-tax Act, in clause (a), in sub-clause (ia), after the proviso and before the Explanation, the following proviso shall be inserted with effect from the 1st day of April, 2013, namely:— “Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.”. . Because of amendment there will be no recovery of tax ought to have been deducted from the deductor. For the purposes of Section 40(a)(ia) it shall be deemed that the assessee had deducted tax and paid the tax on such income on the date of furnishing of return of income.
11 June 2012
What source of income will your son show when you will pay him the arrears of salary? His bank account will reflect this entry, how will you explain the same if in case any scrutiny comes or notice provided?
Section 89 states that whatever taxes paid on the salary which not received but later on received then you don't have to pay tax again on that salary received. Its just you have to show in your return your source of income as arrears of salary received and taxes already paid will be entitle to claim u/s 89 and you don't have to pay tax on salary on which you have already paid.
Regarding your TDS, as it is the liability of employer to deduct TDS but in such cases if Tax is duly paid by the employee then no need to pay again s already mentioned above. I hope this should clear your doubts.
11 June 2012
it is just common sense what is ROI? income once received it is income not notional income that may materialize or not depending on circumstances of employer and employee in any employment. it need not have any spl rule father and son or daughter or daughter in law . in contract of employment it is a pure and simple contract under indian contract Act. you have to complete terms of contract if not there is a breach of contract and breach may invite actions either to forgo your right for income or fight for it. So income received in AY is vital for tax purposes let that be TDS deducted or otherwise. Income tax law is not substantive law like a contract Act as Income tax Act goes on changing year after year after a finance bill during budget session of union government. Too much credence cannot be given to income tax act if you are always factual. Every year all round some notification or other appearing from CBDT and that modifies the rules all the year round. so at the time you file ROI what is there as tax law is relevant that way one has to look is my humble opinion! So you cannot depend an opinion at AY 2012-13 is valid for AY 20013-14, as IT rules changes once finance minister declares in parliament his finance bill once accepted by and passed by parliament (lok sabha) as all money bills depend on Lok Sabha passing the money bills!
11 June 2012
Rajendra had partly cleared my doubts as regards paying the Tax twice on the same Income . I understand that since the son already paid Income Tax on the Salary when it was credited to him , he need not pay Tax again on it when it is actually received by him .
However , I still haven't understood that when the Father actually deducts the TDS & deposits the same into Govt. Account to credit of PAN No. of Son , in that year , why son should not be claiming this entire amount as Deductible from his Income (Since he already included the Full Salary in his Taxable income in the year in which it was credited to him) .
As for the point raised by gbalakrishnan , doesn't section 40 pertain ONLY to Business Income ? Here , we are talking about the Father paying Salary to son & taking the same as Expenditure under "Income From Other Sources " .
Will be grateful if I can receive an answer to this .
11 June 2012
Rajendra had partly cleared my doubts as regards paying the Tax twice on the same Income . I understand that since the son already paid Income Tax on the Salary when it was credited to him , he need not pay Tax again on it when it is actually received by him .
However , I still haven't understood that when the Father actually deducts the TDS & deposits the same into Govt. Account to credit of PAN No. of Son , in that year , why son should not be claiming this entire amount as Deductible from his Income (Since he already included the Full Salary in his Taxable income in the year in which it was credited to him) .
As for the point raised by gbalakrishnan , doesn't section 40 pertain ONLY to Business Income ? Here , we are talking about the Father paying Salary to son & taking the same as Expenditure under "Income From Other Sources " .
Will be grateful if I can receive an answer to this .
11 June 2012
Rajendra had partly cleared my doubts as regards paying the Tax twice on the same Income . I understand that since the son already paid Income Tax on the Salary when it was credited to him , he need not pay Tax again on it when it is actually received by him .
However , I still haven't understood that when the Father actually deducts the TDS & deposits the same into Govt. Account to credit of PAN No. of Son , in that year , why son should not be claiming this entire amount as Deductible from his Income (Since he already included the Full Salary in his Taxable income in the year in which it was credited to him) .
As for the point raised by gbalakrishnan , doesn't section 40 pertain ONLY to Business Income ? Here , we are talking about the Father paying Salary to son & taking the same as Expenditure under "Income From Other Sources " .
Will be grateful if I can receive an answer to this .
11 June 2012
Rajendra had partly cleared my doubts as regards paying the Tax twice on the same Income . I understand that since the son already paid Income Tax on the Salary when it was credited to him , he need not pay Tax again on it when it is actually received by him .
However , I still haven't understood that when the Father actually deducts the TDS & deposits the same into Govt. Account to credit of PAN No. of Son , in that year , why son should not be claiming this entire amount as Deductible from his Income (Since he already included the Full Salary in his Taxable income in the year in which it was credited to him) .
As for the point raised by gbalakrishnan , doesn't section 40 pertain ONLY to Business Income ? Here , we are talking about the Father paying Salary to son & taking the same as Expenditure under "Income From Other Sources " .
Will be grateful if I can receive an answer to this .
11 June 2012
Rajendra had partly cleared my doubts as regards paying the Tax twice on the same Income . I understand that since the son already paid Income Tax on the Salary when it was credited to him , he need not pay Tax again on it when it is actually received by him .
However , I still haven't understood that when the Father actually deducts the TDS & deposits the same into Govt. Account to credit of PAN No. of Son , in that year , why son should not be claiming this entire amount as Deductible from his Income (Since he already included the Full Salary in his Taxable income in the year in which it was credited to him) .
As for the point raised by gbalakrishnan , doesn't section 40 pertain ONLY to Business Income ? Here , we are talking about the Father paying Salary to son & taking the same as Expenditure under "Income From Other Sources " .
Will be grateful if I can receive an answer to this .
12 June 2012
Father is Having Mainly " Income From Other Sources " (Fixed Deposit Interest around 12 lacs) & some "Capital Gains" Income (Around 2.5 Lacs Short Term & 2.5 Lacs Long Term. He also owns the Flat where whole Family lives .
He would like to pay son because son is Managing his entire Investments & Looking after his health in his old age . What are the clauses in Income Tax Law under which he can make payment to son (@ Rs. 20,000 per month) ?
13 June 2012
father can say that salary to be called as remuneration to meet the conveyance expenses as his son need to run here and there to service father's accounts in banks practically ever day and in salary statement father can say salary rs.5000/- conveyance expenses 15000/- how conveyance expenses can be a salary that gets paid of to various conveyances used but need to provide receipts how then can there be TDS at all, as the son's salary is around 60,000/- per year and that need not pay any tax at all, and in fact even if he files ROI then he has no tax liability.
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