Treatment of Joining bonus that has to be refunded back now

This query is : Resolved

asuterwala (Querist)
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13 August 2010 Dear Sir,

What shall be the tax treatment of joining bonus that was received earlier but had to be repaid or refunded by the employee now, as he had to leave the job before completing the term that was a precondition at the time of giving the joining bonus earlier.

An early reply woul be highly appreciated.

Regards,

CA Mandar Dixit

CA Mandar Dixit (Expert)
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14 August 2010 The employer must have deducted the tax on joining bonus when it was paid to you at highest marginal rate of tax. If the bonus is returned to employer, then you will have to pay back the entire amount. In the return of income, you will not show the bonus amount as your salary but will claim tax amount deducted as refund.
Hope it clarifies

asuterwala

asuterwala (Querist)
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14 August 2010 Dear Sir,

The bonus is received in one financial year and refund of bonus amount back to the employer has to be done in the next financial year. In other words, what shall be the tax treatment of bonus paid back to the employer in current financial year, when it was received in an earlier financial year. Its true that they have deducted TDS from bonus amount when it was paid and I have already filed my return for that year and taken bonus recd as taxable income. However, since I want to leave my job I have to refund that amount to the employer. Kindly let me know the treatment of bonus paid back and whether I can claim setoff of the same against my any other income. Kindly quote some case laws or circulars on the topic.

Kindly reply asap as I have to refund the bonus amount and accordingly plan my tax savings.

Thanks & Regards

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Parveen Bansal

Parveen Bansal (Expert)
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16 August 2010 In commercial terms, when bonus was received, it was a conditional receipt. Conditional receipt would have become income on fulfillment of agreed condition. The receipt was taxed due to section 15 (b).

Since agreed condition has not been fulfilled and there is no provision for claim for deduction of the refund, there is no way but to revise the tax return for the year, in which the same was offered as income and claim refund of TDS / deposited tax.

asuterwala

asuterwala (Querist)
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16 August 2010 Refund cannot be claimed by filing revised return as amount stated in Form No.16, which includes bonus, will not change. In other words form 16 will show some other income as compared to revised return that I shall file.

Please advise.

Parveen Bansal

Parveen Bansal (Expert)
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17 August 2010 Form 16 is only an evidence issued by employer stating the income and tax deducted at source. Differentiate with procedures and concepts. Joining bonus was a taxable income at the time of issue of TDS certificate. Subsequent events proved otherwise. Revise tax return, do not show joining bonus as income and claim TDS refund. I know this is a controversial issue, which will result in adverse orders from assessing officer. But has merits to litigate.