Apr 112021
 

Facts of the case:

The assessee in a development office of LIC. The issue that arises here is – whether the incentive bonus received by DO-LIC is a salary income. If so, whether amount so received by him is entitled to a separate deduction?

Whether 30 periods of incentive bonus were to be excluded from the definition of ’emoluments’ under section 17?

Whether incentive bonus being salary, the assessee was entitled to any deduction excess/different from standard deduction allowable under section 16(1)?

Analysis of fact:

Whether any expenditure is allowable in the computation of income or any receipt has to be added to income only after providing for the expenditure is a matter to be found in the statute, that is, the income-tax Act. The scheme of the Act is compartmentalization of income under various heads and computation of the taxable portion strictly in accordance with the formula of deductions, rebates, and allowances provided therein.

The first step in this regard is to identify the head under which the income is assessable and Deductions and allowances are specific for each head of income.

The definition of “salary” under section 15 of the Income-tax Act, 1961, is so wide and is only an inclusive one taking in all receipts from the employer in the form of wages, commission, bonus, profits in lieu of or into the employee towards consideration for services rendered in the course of employment comes within the description of “salary” which includes perquisites as well. The definition of salary as provided under section 15 is reproduced below:

  1. The following income shall be chargeable to income-tax under the head “Salaries”—

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.

Explanation 1.—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.

Explanation 2.—Any salary, bonus, commission, or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section.

  1. For the purposes of sections 15and 16 and of this section,—

(1) “salary” includes—

(i) wages;

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commissions, perquisites, or profits in lieu of or in addition to any salary or wages;

(v) any advance of salary;

(a) any payment received by an employee in respect of any period of leave not availed of by him;

(vi) the annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;

(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and

(viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme, referred to in section 80CCD;

 

Meaning of bonus to DO-LIC:

The incentive bonus is a percentage of the premium received by the LIC of India for the business canvassed through the Development Officers,

It is not the reimbursement of any expenditure and is not even linked to expenditure, if any, incurred by the Development Officers.

Further, in cases where the remuneration otherwise receivable by the Development Officers is in excess of 20 percent of the net premium, then the Development Officer is not entitled to any incentive bonus.

Conclusion:

It is an additional payment and is nothing but a salary coming within the meaning of section 15 of the Act and the Development Officer is not entitled to any deduction over and above the standard deduction.

Apr 082021
 

Computation of salary income of a Czech national employed with Skoda Auto AS, a company incorporated in Czechoslovakia and is currently under deputation to Skoda Auto India (P.) Ltd:

Income tax return filed on : 31-7-2006,

Basic Salary:

Bonus:

Total Salary:                                                 

Rs. 47,31,650

Rs. 8,81,760

Rs. 56,13,410

Deductions:

  • Hypothetical-tax : 20,21,281
  • Social security charges: 9,23,498
Net Salary: Rs. 26,68,631
Taxable allowances:

Taxable perquisite:

Rs. 17,74,558

Rs. 25,79,856

Taxable income under the head salary: Rs. 70,23,050

The explanation for deduction of social security charges: As regards the social security contribution, it was explained that Skoda a.s. has made a contribution to the social security plan for the assessee in the home country.

It is admitted position that domestic law of the Czech Republic lays down a compulsion whereby all citizens of the Czech Republic are required to contribute to the social security plan, regardless of the fact whether they are working in the Czech Republic or any other place.

 

There is a thin diving line between diversion of income and application of income as explained below:

Diversion of income: Income is received by a person other than the person who is entitled to it. The recipient, later on, diverts the income under a pre-existing title to the person who is actually entitled to it. It is the diversion of income by overriding title.

In such cases, income is not taxable in the hands of the person who first receives it. The tax is payable by the person to whom income is diverted by overriding title.

 

Application of income: Income is received by the person who is actually entitled to it. He is made chargeable to tax.

 

In order to decide whether a particular payment is a diversion of income or application of income, it has to be seen whether the disbursement of income is a result of the fulfillment of an obligation on him or whether income has been applied to discharge an obligation?

 

In the first case income is not taxable in the hands of the assessee but in the latter case same consequences to law not follow and income is taxable in the hands of the assessee recipient.

 

Analysis of present case and conclusion:

In the above case, the assessee had no discretion in the matter of social security charges contributions and the assessee does not have any enforceable right over it.

Also, no benefits accrued to the assessee, under this social security plan, in the relevant financial year.

Thus the payment is not taxable as the employee does not have a present enforceable vested right in the contribution.

Also, in the case of Gallotti Raoul v. Asstt. CIT, it was highlighted that only net income was chargeable to tax after adjustment of the French social security charges as was the assessee’s case.

Thus, the facts of this case show that the amount to the extent of the social security plan never reaches the assessee as his income, and, therefore not taxable.

Also, the non-existence of provision for deduction either under section 16 of the Income-tax Act or in the tax treaty between India and the appellant’s home country is immaterial in this case.

Apr 062021
 

 

Download TDS Rate Chart FY 2020-2021 (AY 2021-2022)

 

 

Apr 032021
 

Computation of salary income of a Czech national employed with Skoda Auto AS, a company incorporated in Czechoslovakia and is currently under deputation to Skoda Auto India (P.) Ltd:

Income tax return filed on : 31-7-2006,

Basic Salary: Rs. 47,31,650
Bonus: Rs. 8,81,760
Total Salary: Rs. 56,13,410

Deductions:

  • Hypothetical-tax : 20,21,281
  • Social security charges: 9,23,498
Net Salary: Rs. 26,68,631
Taxable allowances:

Taxable perquisite:

Rs. 17,74,558

Rs. 25,79,856

Taxable income under the head salary: Rs. 70,23,050

 

Meaning of the term tax equalization policy and hypothetical tax:

This deduction on account of hypothetical-tax liability is made under tax equalization policy, which, in substance, restricts the tax liability of an employee in India to the tax liability which the employee would have incurred in their home country. For example:

Particulars Tax liability which the employee would have incurred in his home country,i.e Czech republic in the present case Tax liability of an employee in India Impact analysis
Tax rate 20 percent of salary income 30 percent of salary Actual tax liability paid by the employer company. (it is the employee tax bill is paid by the employer and same will be taxable under the head salary income as a prerequisite of employee)
Whether tax equalization policy applicable Yes As tax rate in the country of employment is more.
Tax liability to be borne by the employer 10 percent of salary

(Being 30% tax in India Less 20% tax in home country)

This is the tax liability of employer company under the term of employment and also paid employer company and hence, not a prerequisite income of the assessee employee.
Tax liability to be paid to employee assessee 20 percent of salary income 20 percent of salary income Hypothetical tax bill under the tax equalization policy of the employer company and reimbursed by an employee to the employer under the term of employment. Thus, income to this extent never accrue to an employee but received by him as an employer has already paid taxes at increased rates. Thus, this amount needs to be deducted while computing a taxable perquisite.
The net effect of the policy tax equalization tax equalization Objective achieve

 

Thus, what is deducted on account of hypothetical-tax is not a reduction of basic salary, but it is only restricting the tax liability of the employee as borne by the employer.

 

When a deduction to be made from the salary on account of hypothetical-tax, whether this deduction to be allowed while computing the basic salary or is it to be allowed at the stage of computing perquisite of tax on the salary being borne by the employer?

 

The hypothetical-tax liability thus only reduces the tax prerequisite of the employee and not his income. The deduction, therefore, should be made at the stage of computing the tax prerequisite and not the basic salary.

 

The view, that hypothetical-tax is not one of the three deductions permissible under section 16, and, accordingly, the deduction cannot be granted on account of hypothetical-tax from the basic salary is wrong as the hypothetical tax is not a tax liability and thus not an income of the assessee employee.

 

The explanation for deduction of hypothetical tax: This deduction was on account of hypothetical-tax under tax equalization policy and, in accordance with Tribunal’s decision in the case of Jaidev H. Raja v. Dy. CIT [IT Appeal No. 2021 (Mum.) of 1998], taxable base salary is to be reduced by the amount of hypothetical-tax.

 

In the case of Jaydev H. Raja (supra), as per the tax equalization policy framed by the employer company i.e., Coca Cola India Inc., employees were guaranteed a net of tax salary and the company was to bear all actual taxes imposed on the employee’s assignment income. The employees had to reimburse the company that part of the total tax liability which he would have paid had if he worked in Atlanta.

 

Thus, the deduction on account of hypothetical-tax is justified because the liability of the employer will be restricted only to the extent of additional liability over and above what would have arisen had the appellant been in the Czech Republic. Therefore, the amount of Rs. 20,21,281. which has been reduced as hypothetical-tax, is not accrued to the appellant at all and the same is not taxable.

Apr 022021
 
The Bihar Minimum wages have been revised from 1st Apr 2021 to 30th Sep-2021
SOURCES: PRAKASH CONSULTANCY SERVICES
Apr 012021
 

Due dates for the Month of April 2021
10th
GST
– Return for authorities deducting tax at source – GSTR 7 for February
– Details of supplies effected through e-commerce operator and the amount of tax collected –
GSTR 8 for March.
11th
GST
– Details of outward supplies of taxable goods and/or services effected – GSTR 1 for March.
13th
GST
– Return for Input Service Distributor – GSTR 6 for March
– Quarterly Return GSTR 1 for January to March 2021 turnover not exceeding Rs. 1.5 crore
15th
Providend Fund
– PF Payment for March
ESIC
– ESIC Payment for March
18th
GST
– Return for composition taxable person- GSTR 4 for January to March
20th
GST
– Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of the amount of tax – GSTR 3B for March
– Return for Non-Resident foreign taxable person – GSTR 5 for March
22nd
GST
– GSTR 3B for February if turnover below Rs. 5 Crore for Gujrat, Madhya Pradesh, Chattisgarh, Maharashtra, Telangana. Andhra Pradesh, Karnataka, Goa, Kerala, Tamil Nadu, Puducherry, Dadra & Nagar Haveli
24th
GST
– GSTR 3B for March if turnover below Rs. 5 Crore for the Rest of India.
28th
GST
– Details of Inward Supplies to be furnished by a person having UIN and claiming refund – GSR 11 for
March.
30th
Income Tax

– TDS deduction for the month of March

Profession Tax
– Monthly Return for Tax Liability of Rs. 100,000 & above

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