Salary Due vs Salary Paid: Confusion provides scope for trouble for employees

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Updated: Jun 12, 2020 1:08 PM

Some firms deposit the TDS without paying full salary, which provide them scope to show higher expenses on account of salary in their Profit and Loss Account by paying just the tax part.

income tax, income tax return, ITR, ITR filing, Tax Deducted at Source, TDS, taxable income, Form 26AS, salary due, salary paid, mismatch in salary paid and tax depositedExperts differ on whether ITR to be filed on the basis of salary paid or the salary due but not paid also to be included.

Debanjan Deb (name changed) resigned from his job after some differences with his employer. After his resignation, the company, without making lump sum payments like salary for the notice period, paid leave (PL) encashment, leave travel allowance (LTA) and other dues, deposited the tax deducted at source (TDS) on unpaid amount, which started reflecting in Form 26AS available on the Income Tax e-Filing Portal.

He has now got confused whether to file his Income Tax Return (ITR) on the actual salary receipt and actual TDS or the income and TDS being reflected in the Form 26AS.

Experts, however, differ on whether he should file a return on the actual salary paid or including salary and lump sum payments becoming due but not paid.

“He’ll have to file ITR with the amount as reflected in Form 26AS as the Salary has become accrued even if not paid,” said CA Karan Batra, Founder and CEO of

Gopal Bohra, Partner, NA Shah Associates, also said, “Salary is taxable on a due basis irrespective of whether paid or not paid by the employer. In case the employer does not pay lump sum benefits due to the employee on his resignation, but only deposits TDS thereon, the employee will require to file his tax return based on total income inclusive of lump sum unpaid benefit.”

However, tax for government employees are calculated on salaries of March to February every year, which are paid on subsequent months, that is from April to March. So, government employees pay tax on salary paid basis.

Commenting on Deb’s case Pranjal Kamra, CEO, Finology said, “In such a situation, the employee will file ITR with actual income received. However, they will have to forego the additional TDS (on unpaid benefit) which is being reflected in his tax credit statement. But, since there will be a mismatch in the TDS statement and Form 26AS, the department will issue a notice and the taxpayer has to then file rectification.”

In fact, a financial crisis-hit media company last year deposited TDS on unpaid salaries to employees, who resigned en masse, after August 31, 2019, the extended due date of filing ITR. The employees got notice as there was mismatches in Form 26AS and the ITR they filed on or before the extended due date on the basis of salary slips and bank statements.

However, the notices were quashed without any intervention of the employees and tax refunds were approved. One of the employees, who filed the Revised Return after getting the notice, got a call from the I-T Department and on the basis of her statement, the higher refund as per the Original Return was released.

Commenting on whether ITR to be filed on salary paid or salary due basis, Dr. Suresh Surana, Founder, RSM India, said, “Firstly, the liability to deduct TDS on Salary u/s 192 of the Income Tax Act, 1961 (‘The Act’) is on payment basis. Thus, the action of the employer to deduct TDS on accrual basis is not correct.”

“Section 15 of the Act states that Salary, which includes lump sum benefits on resignation, is taxable on due or payment basis, whichever is earlier. Thus, an employee has to mention the entire amount due to him and not only the amount actually received by him while filing his ITR. Accordingly, he can claim the entire TDS credit as reflected in Form 26AS,” he added.

Not only outgoing employees, it has also been reported that some firms deposit the TDS without paying full salary even to their regular employees, which provide them scope to show higher expenses on account of salary in their Profit and Loss Account by paying just the tax part.

In such a case, filing ITR on the basis of Form 26AS would amount to acknowledging that entire amount is actually received. So assessees may file their return on the basis of salary slips/bank statements, but they should also lodge their grievances with the Income Tax department at or through the short URL before filing their ITRs.

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