Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

QUERY

SUDHIR & PRADEEP JI (CA FINAL+LLB + DISA) (2299 Points)

26 July 2010

Hi,

if some gets the amount from his current employer to pay the amount to his previous employer for not serving of Bond period, is it will taxable income for employee.
if we really see it's not the real income earn by employee, he is receibing the income from one source and paying to other.
Can the tax burden be avoided to be taxed as Salary income if the new employer has already been showed the payment as salary (Other income) for the employee.

Thanks,

Reply
Follow
Share

14 Replies

RAKESH (Almost CA) (2199 Points)
Replied 26 July 2010

yes it is taxable because the scenario which arises here is that the payment made by the present employer to your previous employer is actually on behalf of u and it is paid to preserve the employee in his company so the payment made by the current employer is taxable in the hands of employee. and i dont think it can be avoided.

Upgrade to CAclubindia Pro. Subscribe Now!

(Guest)

If u go with the basics.. The Salary income gets taxed at the hands of the employee on due basis or receive basis whichever is earlier.. In the present case, Once u receive the Salary, it will get taxed.. Any transfer/diversion of amount received thereafter is an application of income.. An Application of Income may be a deductible amount if and only if it is expressly mentioned in chapter VIA.. But to the best of my knowledge, no section provides for the deduction on account of payment to tthe previous employee for relieving himself from the service.. IN nutshell, the amount has to be taxed nly and there can be no tax avoidance in the instant case...

mittul (software engineer) (21 Points)
Replied 27 July 2010

1)An organisation gives Rs2000/- per month as transport allowance to employees as they work in shifts. No cab facility is provided. This component comes as transport allowance in salary and as taxable component.

2) There is a policy to provide bills of Rs 1800/- petrol bill and Rs 900/- as driver's salary per month to get exemption from tax. ( This is not a re-imbursement, just to provide bills and get fringe benefits).

Can an employee choose both or only one is applicable.

(Guest)

Originally posted by : Kunal Kishore
	If u go with the basics.. The Salary income gets taxed at the hands of the employee on due basis or receive basis whichever is earlier.. In the present case, Once u receive the Salary, it will get taxed.. Any transfer/diversion of amount received thereafter is an application of income.. An Application of Income may be a deductible amount if and only if it is expressly mentioned in chapter VIA.. But to the best of my knowledge, no section provides for the deduction on account of payment to tthe previous employee for relieving himself from the service.. IN nutshell, the amount has to be taxed nly and there can be no tax avoidance in the instant case...

Max Payne (employed) (2574 Points)
Replied 27 July 2010

Originally posted by : PRADEEP & SUDHIR JI
	Hi, if some gets the amount from his current employer to pay the amount to his previous employer for not serving of Bond period, is it will taxable income for employee. if we really see it's not the real income earn by employee, he is receibing the income from one source and paying to other. Can the tax burden be avoided to be taxed as Salary income if the new employer has already been showed the payment as salary (Other income) for the employee. Thanks,

Hi, don't go by logic....

It is taxable as "profit in lieu of salary" in the hands of the employee as per section 17(3)(iii)

(iii) any amount due to or received, whether in lump sum or otherwise, by any assessee from any person—

(A) before his joining any employment with that person; or

(B) after cessation of his employment with that person.

Upgrade to CAclubindia Pro. Subscribe Now!

SUDHIR & PRADEEP JI (CA FINAL+LLB + DISA) (2299 Points)
Replied 27 July 2010

THANKS 2 ALL

Sagar Sharma (CA Final Fianance Executive) (111 Points)
Replied 27 July 2010

Agreed with Lucifer,,,,,,,,,,,,,,,,,,,,,,,,, The MAount paid will be taxable in the hands of Employee

Samir (Chief Accountant) (80 Points)
Replied 27 July 2010

IN ONE WORD - TAXABLE

RADHIKA JALAN (agarwal) (1521 Points)
Replied 27 July 2010

agree with lucifer...it is taxable in the hands of employee.....

(Guest)

Originally posted by : RADHIKA JALAN
	agree with lucifer...it is taxable in the hands of employee.....

ok...it is taxable in the hands of employee!!!

Upgrade to CAclubindia Pro. Subscribe Now!

Nitin (-) (25 Points)
Replied 27 July 2010

Clarification on Income Tax Matters in respect of the following two cases may please be given :

Case 1

An employee was posted at DUBAI and he retires on 24^th October 2007. Now wage arrears pertaining to the period 1-1-2007 to 24-0ct,2007 are payable to him. He is presently settled in India. His current status for A.Y. 2011-12 is Resident in India. His earlier status was Non resident in India during the tenure of accrual of Salary in Dubai. Payment will be made in INR in India during the financial year 2010-11.

Case 2

An employee was posted in Dubai since November 2009, and presently he is in Dubai and likely to be posted till March 2011. Now his wage arrears pertaining to the period Nov., 2009 to March, 2010 are to be paid in Dubai in FE during the financial year 2010-11. He was Resident in Financial Year 2009-10 and Non-Resident in Financial Year 2010-11.

PLEASE NOTE THAT SALARY PAID IN DUBAI IS NOT TAXABLE IN DUBAI.

PLEASE GIVE YOUR OPINION ON THE TAXABILITY ON THE ABOVE TWO CASES, KEEPING IN VIEW VARIOUS TAX LAWS APPLICABLE IN THIS REGARD.

Thanx N Regards

Nitin P S

Roopesh.V.Naik (Chartered Accountant) (189 Points)
Replied 27 July 2010

The amount paid by the employer on behalf of employee is a taxable perquisite by virtue of Section 17(2)(iv)

SUCHINDRA PARE (Lawyer) (80 Points)
Replied 27 July 2010

Dear Nitinji

For finding the tax liability of Individual the inividual is classified as RESIDENT IN INDIA and NON RESIDENT IN INDIA for any financial year.... a RESIDENT IN INDIA is further clasiified into two categories

i) ordinarly resident

ii) not ordinarly resident

From the information given by you following conclusions can be drawn

Case 1

salary / wage has accrued or arised in foreign land BUT it will be receivable in india during the financial year 2010-2011... Hence according to section 5 it is an indian income... and the income (arrears of wages) is TAXABLE IN INDIA ACCORDING TO SECTION 5.

Case 2

Taxability for Assessment year

a) 2010-2011 - [ie financial year/previous year 2009-2010] --- FULLY TAXABLE IN INDIA

As the employee is resident and ordinarily resident and all income whether Indian or Foreign is taxable in his hands.... [sec 6 and sec 5]

b) 2011-2012 - [ie financial year/previous year2010-2011] ---- NOT TAXABLE IN INDIA

As foreign income of non residents are not chargeable to tax in India.. [sec 6 and sec 5]

Regards

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 27 July 2010

Dear All,

Any amount paid by the employer which the employee is liable to pay covered specifically by Sec 17(2)(iv) of the IT Act which is also given by Mr Rupesh Naik.

Given case absolutely same as that given under sec 17(2)(iv) as the bond money is liable to be paid by the employee to his previous employer, however the same is paid by the current (new) employer to previous employer which employee is liable to pay.

Thus it is taxable and should be taxed in the hands of employee.

Regards,

Manoj