New Cos Act to bring clarity on tax-free salary

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Tax equalisation and payment of tax-free remuneration is a common feature in secondment of expatriates globally. Tax equalisation and payment of tax-free remuneration is a common feature in secondment of expatriates globally.
SummaryTax equalisation & payment of tax free remuneration is a common feature in secondment of expatriates.

the Cos Act continues to remain in force, till the repealing Section 465 of the New Cos Act is enacted.

While the New Cos Act is expected to bring some clarity, what is the true impact of this change on the employees and the employers? The tax paid by the employer on non-monetary perquisites is not a tax deductible item for the employer. Thus, when the contracts reflect the tax-free remuneration arrangement with the employees, the employers lose the deduction in respect of tax paid on non-monetary perquisites (including on tax perquisites).

The exemption from multiple-level gross up seems to be coming at the cost of losing the corporate tax deduction in respect of such tax amount. It seems to be a number game and a matter of careful considerations on whether to adopt single gross up and lose corporate tax deduction or the multiple level gross up and claim a corporate tax deduction. However, Section 10(10CC) of IT Act may not give them any option.

Chaitali Bhatawdekar

The writer is senior tax professional, EY. Views expressed are personal.

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