Monday, January 30, 2012

TAX ON PERQUISITE PAID BY EMPLOYER 192(1A)-TAX ISSUES


on Monday, January 30, 2012

Qus:How to consider the "Tax paid by the employer on behalf of the employee unser section 192(1A) on perquisite under section 17(2)" in Income tax calculation ?Further Pls tell me where taxes born by the organisation, how we have to treat in organisation books, is it perquist ? and how you show in etds return Form 24Q eTds returns?.

Ans:Tax on perquisites Paid by employer:With effect fro 01.06.2002, employer has given a option to deposit the tax on non monetary perquisites on behalf of employee without deducting the same from the employee {section 192(1A) &192(1b)}

Tax treatment in Hands of employees: Tax on perquisite paid by employer is a obligation of the employee,if it is paid by employer then it should be treated as perquisite and taxable in hands of employee. but Income tax act gives specific exemption to employees in this regard with effect from assessment year 2003-04.. As per Income Tax Act ,1961 section 10(10CC) the tax paid by employer on non monetary perquisites given to employee is not taxable in hands of the employee.

Tax payment and Form 16: Tax paid by employer on perquisites should be paid in accordance with average tax due to employee on monthly basis .Further such tax is to be shown in tax deducted at source in Form 16 (tds certificate)

Tax treatment in hands of employer: As per section 40a(v) of the Income Tax Act the amount of tax paid by employer on perquisites is not allowed as business expenses. so in books of employer first this expense is to  be booked as expenses under the salary expenses head and at the time of computation of income of the employer this amount will be added back in profits.

Treatment in ETDS return: In etds return tax treatment is simple .First employee income will be shown inclusive of the such perquisites and in Tds column ,total of the tax deducted from salary by employer and tax paid by employer on behalf of employee will be shown.

relevant provisions of the act is reproduced hereunder

10CC) in the case of an employee, being an individual deriving income in the nature of a perquisite, not provided for by way of monetary payment, within the meaning of clause (2) of section 17, the tax on such income actually paid by his employer, at the option of the employer, on behalf of such employee, notwithstanding anything contained in section 200 of the Companies Act, 1956 (1 of 1956);

192(1A) Without prejudice to the provisions contained in sub-section (1), the person responsible for paying any income in the nature of a perquisite which is not provided for by way of monetary payment, referred to in clause (2) of section 17, may pay, at his option, tax on the whole or part of such income without making any deduction therefrom at the time when such tax was otherwise deductible under the provisions of sub-section (1).
192(1B) For the purpose of paying tax under sub-section (1A), tax shall be determined at the average of income-tax computed on the basis of the rates in force for the financial year, on the income chargeable under the head Salaries including the income referred to in sub-section (1A), and the tax so payable shall be construed as if it were, a tax deductible at source, from the income under the head Salaries as per the provisions of sub-section (1), and shall be subject to the provisions of this Chapter.

199(2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.