Rs.3,50,000/- would be taxable

OM SAI SRI SAI JAI JAI SAI

My understanding is as follows:

1.While computing Income from Salary, we always consider the Gross salary as per Form 16.Only the exemptions u/s 10, deductions u/s16 and Ch.VI A can be availed of.

2. Gross Salary - Rs.3.5L is the Income to which the employee is entitled to and the same should be offered to tax.

3.The penalty that was deducted by the employer is only an application of this income.Moreover, there is no specific section which allows this kind of deduction.

For ex: If a employee loses his laptop and the employer deducts Rs.30,000/- from the employee's salary,Then ,I feel It is not justifiable to claim this payment of Rs.30,000/- resulting out of employee's default or any other action whatsoever from the taxable salary.

Taxable income from salary is Rs.350000/-

I agree with Usha

Taxable income from salary is Rs.350000/-

I agree with Usha

According to me,  tax should be on Rs. 3.25 Lacs only because of the following reasons:

1) first of all it is seen that you have break the contract, for that, you have received lesser salary of Rs. 25000 in form of penalty 2) simply because of the terminating the contract and terming the same penalty doesn't seems to be viable and it should be said as, if you have break the contract, the salary will be deducted Rs. 25000, and you have been paid lesser salary of Rs. 25K. and you should be taxed on Rs. 325K and not on Rs. 350K being above contention in mind..

yes Rs. 3.50 lacs would be chargeable to tax

hellow dear

as per the ur plain reading it wud be taxed only on Rs. 350000

but if bond provides any condition for penalty then it wud be only on Rs. 325000

and there is no any section provides for exeption on such penlty as assessee wud be considered as in default

thank u

As far xyz ltd is concerned liability for tax deduction is only for the actual amount paid at the time of payment only and not on creditting any amount as salary as per sec.192. Ie tds is for the net amount payable to the staff after deducting penalty. Then the company can issue form16 for the net payment .

 Dear Tom,

But what i have seen practically is in this type of cases, companies always issue form 16 of gross amount i.e. before penalty.

I want to discuss here some points more.

First:

If we talk about salary then sec 15 is the charging section there. It says salary accrued or received whichever is earlier and salary gets accrued always on the last day of the month. For eg: if Mr. A leaves XYZ ltd. on 20th of september and he receives his full and final settlement payment on 28th of september then according to section 15 of I.T Act, Rs. 325000 should be taxable according to me.

Second:

If we think on a bigger level, then it appears that Rs. 25000 has the effect of double taxation which is not correct.

Expl. Both XYZ and ABC ltd. will take Rs. 350000 salary as an exp. in profit & loss account, since FORM 16 has been issued for Rs. 350000 and XYZ ltd. will credit its profit & loass a/c by Rs. 25000. Therefore in all company gets the deduction of Rs. 325000 but Mr. A pays tax on Rs. 350000. So, on this Rs. 25000, both companies and Mr. A pays the tax, hence double taxation which is not correct.

Dear Sailendra,

• in your second case: XYZ Ltd., Debited to P&L account with Rs. 3,50,000 and credited to P& L account with Rs.25,000. the net effect will be Rs. 3,25,000/- only. Mr. A pays tax on balance Rs. 25,000/-. there is no double taxation.
• every one knows tax will be calculated on the basis of form - 16. if form -16 is issued net amount aftre adjusting Rs. 25,000/- then there is no proble (salary received). other wise he can't claim separately.

please advice.

Dear Ravikiran sir,

I have said that on Rs. 25000, there is double taxation because here in this case, deduction allowed to XYZ ltd. and ABC ltd. is Rs. 325000, however Mr. A pays tax on Rs. 350000.

It means that Rs. 25000 is included in the income of Mr. A as well as the companies XYZ and ABC ltd. Therefore, there is double taxation on Rs. 25000.

Can you please explain that how you feel there is no double taxation on Rs. 25000.

And i know sir that if company issues form 16 of Rs. 325000, then there will be no problem regarding tax, but what i have seen practically is that the companies always issue form 16 of Rs. 350000, so this type of problem arises.

If you have seen a case where company issue form 16 of Rs. 325000 then please do tell me. May be, i am not aware of it.

Hi Shailender,

I want to correct myself and yes you are right. Tax should be calculated on Rs. 3,25,000. The reason behind this is when company will pay the amount in the whole year the amount will be 3,25,000 and when they will issue Form 16 they will not show the gross amount equal to 3,50,000 but they will show it equal to 3,25,000 and there is a case also in the same matter in which it was mentioned that they should subtract Rs. 25,000 paid as penalty for breach of contract.

Dear Sudhanshu,

Can you please mention the case law name and from which book i can find it. Please do the needful. Thanks in advance.

Dear Shailendra,

Actually same case came one and half year earlier when i was in a US based software company and there my CA referred so many books and said there is case where penalty was deducted from salary. I also dont know the name of the case.