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DEDUCTION OF TDS FROM UNPAID SALARIES

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saumitra chakrabarti

Senior General Manager

24 Points Posted on 31 January 2022

A Company fails to pay salaries to the employees within a specific accounting year but books the salary liability in its books.

Should the Company deposit the TDS on unpaid salaries even though it has not been deducted from the employees so far ?

If not, should it issue Form 16 on the basis of TDS on paid salaries only ?

If yes, What the employee will do ? Should he/she deposit the tax on unpaid salaries on his own ?

If the Company deposits only TDS on paid salaries and issue Form 16 accordingly, in case of Tax Audit there will be a difference between salary amount considered in Form 24Q and salary amount booked in accounts. Can it create problem ?

What are the way outs as the Company is really not in a position to disburse salaries in time ?

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Quick Summary

This discussion addresses the crucial question of whether a company must deduct and deposit Tax Deducted at Source (TDS) on salaries that have been accrued as a liability but not yet paid to employees within the financial year. It explores the implications for Form 16 issuance, potential tax audit discrepancies, and clarifies that TDS is deductible based on booking or payment, whichever is earlier, meaning TDS is indeed required even for unpaid salaries.