Salary Grossing-up

Hi Mr Ravi,Okay,

I see now! In the case of Western Geo International Ltd. V. Asstt. CIT, [2007] 16 SOT 459 (Delhi), it's been held that in a case where the employee is paid tax-free salary (tax-free in the sense that the employer bears the tax), the taxable salary in the hands of the employee is determined after grossing up the salary with the taxes borne by the employer. The employee will get what she wants and the employer too can keep from running afoul of the law. This method of shifting the tax burden is also recognized by Section 195A of the I T Act. Now this tax on salary borne by the employer is squarely covered by Section 17(2)(iv—-employee' s obligation met by the employer. So without a doubt it'd be a perquisite in the employee's hands and liable to tax. So the employer will once again have to calculate tax on tax and deposit it. This iterative process will go on till the tax amount becomes negligible! Obviously, this isn't a very good idea to go about this thing. What the employer should do is work back from the figure of net outgo he's agreed to pay to the employee, and arrive at the figure of salary, which he will book as an expense. The entire grossed-up salary can be claimed as an expense and there'd be no disallowance u/s 40a. This will give the impression of the employee having had tax on her income deducted at source. But actually, she got what she wanted. And in addition, she got a Tax-Credit certificate for free! It may be noted that Section 10(10CC) won't be attracted since taxes are monetary payments. Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, selvaganapathy ravichandran wrote:>> Dear sanjeev,> > My understanding of Mr. Kunjan,querry is that the Salary paid is not Tax free but only the tax portion is borne by the company. Whether the tax paid by the co is treated as perqusite in the hands of the employee and the tax is calculated on that also.> > thank you> Ravi> > Sanjeev Bedi wrote:> Hi Kunjan,> > No company can pay tax-free salaries to any of its employees—whether > directors or other officers. Section 200 of the Companies Act > forbids that:> > [Prohibition of tax-free payments:> > 200. (1) No company shall pay to any officer or employee thereof, > whether in his capacity as such or otherwise, remuneration free of > any tax, or otherwise calculated by reference to, or varying with, > any tax payable by him, or the rate or standard rate of any such > tax, or the amount thereof.]> > As such, there's no idea reaching for a calculator and working out > the figures.> > Thanks,> > CA Sanjeev Bedi> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Kunjan Choksi" > wrote:> >> > Dear Members> > > > In case of a company where the salary to director is paid > exclusive of> > taxes. Say Rs 5 Lac p.m and the taxes are to be borne by the > company.> > > > What is the total income & the total tax liability. Could any > member please> > illustrate.