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Salary not given for few years, shown as loan. is tds applic

pranav mishra (article) (42 Points)

26 December 2013

Hello, i wanted to ask a querry. If an employer has not given salary for couple of years because of shortage of funds and thus for the said period, this was shown as a loan to the company from the said employee..This loan has interest component too. My question is TDS applicable on such a scenario as the salary has not been paid at all.. In co. Balance sheet this stands as a liability And in the respective employee's Balance sheet, this stands as an asset.. Please let me know if TDS is applicable in such case?? Also i am pretty sure that company is out of funds to pay this salary currently.. In that case does department expect us to take a loan or allied finances to pay such TDS.... Thanks so much for you opinions on this...

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(Guest)

All these years the company must have passed the following entry:

Salary a/c ......Dr

To Employee's Loan A/c

That means they have booked the expense to their P & L a/c. They should have deducted TDS on salary (If it was applicable) at the time of booking this expense.

Now, if the loan interest exceeds Rs 5000/- P.a. then the company should deduct TDS on interest at the time of accounting it.

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@VaibhavJ (Believe!! Live your dreams!) (33516 Points)
Replied 26 December 2013

In case of salary is TDS is to be paid to govt within 7 days from the end of the month in which Salary is paid to employee.

Since No salary is paid no TDS is payable to govt.

Thanks//VaibhavJ

Mihir (Wealth Manager) (5293 Points)
Replied 26 December 2013

When the company has already booked salary payable account for few years in the books, how can they transfer the balance in loan account? The company may on their own wish pay something more to the employees (interest) but the employee must not agree to this. Employee must sense something fishy here.

Z ( ) (2965 Points)
Replied 26 December 2013

In case of Salary Tax is to be deducted at source when salary is PAID, therefore as of now NO liability

S.192

"Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment....."

Note the language used in other sections

"at the time of credit or payment"

For an entity payment to employees comes first lest they will go on strike,refuse to work, market share down etc. Even tax department know this, if salary is not paid then there must be some good reason to do so like financial trouble lest no prudent businessman will do so therefore even after years tax is not made deductible at time of credit

S.192 is the only exception in entire chapter of TDS

NOTE:This apply till the dues are covered u/s 192, as soon as you convert it into loan the interest income will attract deduction of tax as per provisions of 194A whose explanation maked liability on credit or payment basis

pranav mishra (article) (42 Points)
Replied 26 December 2013

Thank you all. So from the above discussion i am understanding that company assessee will be liable for TDS only when salary is actually paid.. But now thinking from the said employee's prospective.. This employee has to pay tax on this accrued salary right?? As in per salary i am referring to due or receipt which ever is earlier.. Even if company has the primary liability to deduct TDS, i am guessing that the employee should pay tax even if salary is not actually received by the employee... It's their any waiver available to this employee..?? Thanks so much again!!!

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@VaibhavJ (Believe!! Live your dreams!) (33516 Points)
Replied 26 December 2013

Yse, salary in the had of employee is taxable on the basis of Due or Received whichever is earlier.

But no one would work more than 3 months without salary!!

Thanks

CA KARAN MAINI (Practising CA) (106 Points)
Replied 26 December 2013

Sec. 192 if any person who is responsible for payment to resident any income chargeable tax under the head income from salary shall at the time of payment of salary to employee deduct tax and if there is salary exp. is booked in books of account of employer and employees loan a c is shown in BS then no tds is required to b deducted on such salary and interest accrued on such loan shall be subject to tds us 194A if exceeding rs. 5000 there shall b no dissallowance of salary payable as loan account in bs us 40(a)I(a) without deducting tds

pranav mishra (article) (42 Points)
Replied 26 December 2013

But my point is.. If the employee has got no money, where will he pay the tax amount from? I am agreeing to the due or receipt concept.. But i am hoping there should be some kind of a waiver in such a case.. This particular employee is a director of the company and for past couple of years company did not do very well.. So director did not take any salary.. All other employees were paid timely as you cannot stop work.. As directors cut was little large, he deferred the credit until company starts to perform better.. Concept wise i think tax should be payable on the salary due... But practically its not feasible for small entrepreneurs.. let's see what happens.. I am hoping this case will go far.. Please keep posting your replies.. Very helpful..

ABHISHEK JHUNJHUNWALA (Senior Finance Manager) (36 Points)
Replied 26 December 2013

Please let us know the company name whose financial is so weak

(Guest)

Originally posted by : Z
	In case of Salary Tax is to be deducted at source when salary is PAID, therefore as of now NO liability S.192 "Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment....." Note the language used in other sections "at the time of credit or payment" For an entity payment to employees comes first lest they will go on strike,refuse to work, market share down etc. Even tax department know this, if salary is not paid then there must be some good reason to do so like financial trouble lest no prudent businessman will do so therefore even after years tax is not made deductible at time of credit S.192 is the only exception in entire chapter of TDS NOTE:This apply till the dues are covered u/s 192, as soon as you convert it into loan the interest income will attract deduction of tax as per provisions of 194A whose explanation maked liability on credit or payment basis