I am working at a Chennai-based company. Due to some financial issues, I have not been paid three months' salary in the 2022-23, but our company deducted income tax considering the unpaid salary amount, and Form 16 was also issued accordingly. Considering unpaid salary, I am in the tax bracket. Otherwise, the tax will be nil after necessary deductions. Can I claim the said paid tax & how can I claim the same?
-Name withheld
How much tax do I have to pay? Calculate now
Reply by Prabhakar K S, founder and chief executive officer of tax advisory firm Shree Tax Chambers.
As per Income-tax law, salary is taxable on a due or receipt basis, whichever is earlier. To put it in simple words, irrespective of salary received or not, a salaried employee is subject to applicable taxes/tds. Two prominent provisions applicable to salary income are -
· It should be taxed whenever it accrues or is paid under Section 15 and
· The employer is obligated to deduct taxes at the moment of actual salary payment (rather than on an accrual basis) as stipulated in Section 192. There is a bit of conflict between these two provisions.
The latter provision speaks about the timing of deducting the tax. However, the quantum of deduction should be only as per the former. Further, assuming in the above-stated case, TDS on unpaid salaries of January, February and March of 2023 should be calculated based on the tax rates prevailing in the Assessment year 2023-24 even if the salaries were paid during the current financial year 2023-24. The reason could be that the employer is under obligation to close the books of accounts and file the relevant quarterly TDS Return by the end of May 31, 2023, with details of salaries for those three months and taxes deducted thereon.
Further, as a general rule, actual salary payments can be held back, but accounting/payroll processes, TDS, provident funds, employee state insurance, and other monthly compliances cannot be held even for a shorter period. Thus, several organisations tend to deduct and remit the TDS as soon as the accounting/payroll process is over, and salaries will be deferred.
Now coming to the above-stated query: Since the salaried taxpayer is already in the tax bracket and availed of all deductions, he is unlikely to get a tax refund.