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URGENT_Income Tax_TDS on employee salary contribution

M.D.Ram (CA Student) (123 Points)

08 March 2010

Dear all,

FACTS:
One of the employee of a company dies in an accident in the office premises.
Employees of the company decided to provide one day salary as their contribution to the family of the employee who died in the accident.

Please advice on the TDS and other tax implication on the above transactions in the hands of the employees/company/and the receiving family.

Thanks in advance

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15 Replies

Vivek Angrish (Manager Finance & Accounts) (232 Points)
Replied 08 March 2010

In this case, the Employee's contributing their one day salary will not get any relief from Tax and in this the company has no role, as the employee's are paying their one day salary, what the company is doing?

Whereas the family of the person died is concerned, i m not sure but may be the amount is taxable.

Also, let's wait for others replies too.

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M.D.Ram (CA Student) (123 Points)
Replied 08 March 2010

Company is deducting the salary from the employees monthly salary and paying to same to the family of the person who died in accident.

The amount would be paid by the company to the family

could be please provide the inputs with Income tax provisions

llllVICTORllll (Internal Auditor) (511 Points)
Replied 08 March 2010

as per my view, company is just collecting from other employee and paying it to demised employees' family. so COmpany here is not acting as an employer but as a mediator, so no deduction of tax towards TDS.The employees will not be attracting nor saving any tax in this process... and the family, if there income(the current head of family to whom income can be clubbed) is higher than the limit, he will have to pay tax on the same.(this is totally my view no sections and provisions to back myself)

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Poornima (Search on.... for knowledge) (129 Points)
Replied 08 March 2010

Originally posted by : llllVICTORllll
	as per my view, company is just collecting from other employee and paying it to demised employees' family. so COmpany here is not acting as an employer but as a mediator, so no deduction of tax towards TDS.The employees will not be attracting nor saving any tax in this process... and the family, if there income(the current head of family to whom income can be clubbed) is higher than the limit, he will have to pay tax on the same.(this is totally my view no sections and provisions to back myself)

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MS SAMEER (CMA*CA*CMDM*ast FUND MANAGER*LEGAL ADVISOR) (14938 Points)
Replied 08 March 2010

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llllVICTORllll (Internal Auditor) (511 Points)
Replied 08 March 2010

ha ha.. poornima ji.. you cant copy my personal view, or do we think so similarly(just on lighter note, no serious criticism intended)

M.D.Ram (CA Student) (123 Points)
Replied 08 March 2010

For information:

Employees are not individually / directly paying to the family
Company is deducting one day salary from employees and paying the same to the family
Since, the company is directly making payment to the family, is company liable to deduct TDS for one day salary contribution? In the hands of the receiver (family) the amount would be received from company not from individual employees.

CA Amit Kumar Khaitan (Research Analyst) (360 Points)
Replied 08 March 2010

Hi Mr. Ram,

First of all, Substance is always above form. The company is deducting the one day salary only with the consent of the contributing employees, it cant legally deduct the amount from other's salaries without their consent. Hence lets be clear on this that, the company has got nothing to do with the payment as far as tax effects are concerned. The company need not deduct anything out of the gift.

Again, in the hands of the deceased, as a gift cant b made to a dead person, it appears to b a clear case of gift to the survivors of the deceased and should be taxed as per provisions of Sec 56.

As far as company's liability to deduct TDS is concerned, the contribution of one day's salary by the employees is an application of income and not a diversion of income (assuming that they are contributing the salary for a day already worked), hence the company will deduct TDS in the normal manner from the salary of other employees and no change will occur due to the above arrangement.

sandeep kumar (audit manager) (42 Points)
Replied 08 March 2010

It is just diversion of income part of employee who are contributing their one day salary for the deceased employee. Company is not liable to deduct TDS on it. TDS shall be deducted in the hands of employee who are contributing. Company is here just acting mere a collecting agency so he is not liable to deduct any TDS on it.

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Nilesh Shah (Practising Chartered Accountan) (395 Points)
Replied 08 March 2010

Nilesh Shah Replies:

nilesh63 @ vsnl.com

It appears that the employer has not contributed to the family of the bereaved . Poor fellow . It seems this incident is the recent tragedy that happened in a high rise office complex in Bangalore. Be that as it may.

The amount contributed by fellow employees is a gratutious act on their part. It is neither income in the hands of the deceased employee nor the income of his legal representative. One of the test of income is enforceability. Either the deceased employee or his legal representative should have a legal enforeable right to claim the money. Which is presently not the case. There is therefore no question of deducting TDS. The fellow employees cannot claim the amount as deduction from the taxes to be paid by them.

Assuming that certain amount has been paid by the employer to the bereaved family, let us examine its taxability.

A lump sum payment made gratutiously or by way of compensation or otherwise to the widow or other legal heirs of an employee, who dies while still in active service, is not taxable. Circular No 573 dated 21st August, 1990.

Likewise, if a person or his legal heirs receive ex gratia payment from Central Government, State Government, local authority, public sector undertaking, consequent upon injury to the person/death of a family member, while on duty, the ex gratia payment will not be liable to income tax- Circular issued by CBDT No 776 dated 8th June,1999.

We need to improve the quality of the reply. It cannot depend on my view or their view. Reply is not a figment of imagination.

Sincerely,

Nilesh Shah

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manish (Article Assitant) (358 Points)
Replied 08 March 2010

TDS to be deducted on the salary of the all employees because they get the salary and contribute it to gives the one day salary to died person's family. So company have to deduct the tds on the salary paid to employees at the end of the month.

CA. ANiRuDDhA RAthi (CA) (554 Points)
Replied 09 March 2010

FOR COMPANY = NOTHING *

FOR EMPLOYEES = NOTHING *

FOR DECEASED FAMILY MEMBERS = TAXABLE U/S 56

* = NO BENEFIT OR LIABILITY UNDER IT ACT 1961

THANX

if u have any query about taxation

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Aniruddha Suresh Rathi

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Nilesh Shah (Practising Chartered Accountan) (395 Points)
Replied 09 March 2010

Nilesh Shah Replies:

nilesh63 @ vsnl.com

A B has erred when he says that it is taxable under section 56. Section 56 of the Income tax Act takes within its sweep gifts. The term gift is no where defined in the Income tax Act. It is neither defined under section 2 nor under section 56 to 59. It has therefore to be given its ordinary natural meaning.

I can understand gifts being made on occassion of birth or birth anniversary or on marriage etc . Can any thing paid on a sad occassion be considered as gift.

Gift can even be paid in the absence of any occassion. Certainly not on a sad occassion.

Sincerely,

Nilesh Shah

Rajat Singhal CA,CS,CFA (Senior Manager (F&A)) (254 Points)
Replied 09 March 2010

From the case it is clearly evident that company is merely acting as a mediator. (So there would be no impact on company).

As far as employees are concerned, it is merely an application of their income as a contribution to the family of a deceased colleague.(So there would be no deduction from their salary, company would deduct TDS normally.)

As nilesh had very correctly said, The amount recieved as contribution by the family of deceased employees does not fall in the ambit of term income as per income tax act.(So it is not Taxable)

Thanks & Regards

C.A.Rajat Singhal

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