How to file IT return for a bonus returned to the company

Dear Sir,

Hope you are doing well !!

Yes, you'll get the refund while filling ITR.

You don't need to show the bonus amount.

We may assist you for the same.

- Please check your Form 26AS. If TDS deducted on bonus is reflecting then you cam get the refund after filing of ITR. Also check Gross salary as per Form 26AS should not reflect bonus amount. 

- I can assist you in filing of ITR.

It needs detailed discussion, please take phone consultation.

Hi,

There is nothing in the act which provides you to deduct the amount of bonus returned and get the refund of tax. Even if you try to claim it back in the return, the chances are very high that you will receive a notice from tax department due to mismatch in 26AS and return.

There is a case law which says that TDS amount cannot be refunded. Following is the case law:

Case Law: Income Tax Appellate Tribunal – Chennai, S.S.N.Ravi, Chennai vs ACIT on 6 May 2016 I.T.A. No.933/Mds/2015. Assessment year: 2008-2009.

Facts of the case:

The taxpayer filed the income tax return for FY 2007-08 and disclosed a salary income of Rs.43,54,815. He had filed for a refund of Rs 7,72,266. However, the assessing officer (AO) found out that the taxpayer’s salary income was Rs.68,54,815 as per Form 16.

In the FY 2006-07 (the previous financial year), the taxpayer had joined Barclays on 20 November 2006. The taxpayer had received a sign-on bonus of Rs.25 lakh in FY 2006-07 from Barclays and included it in his income tax return for FY 2006-07. The sign-on bonus was given on the condition that if he leaves Barclays within one year of joining, he shall refund the sign-on bonus. The taxpayer left Barclays on 31 October 2007, i.e. before completing 1 year from the date sign-on bonus was received.

He, then, joined Deutsche Bank who reimbursed to him the sign-on bonus amount of Rs.25 lakhs. While filing IT returns for FY 2007-08, the taxpayer reduced the sign-on bonus he paid to Barclays from his taxable salary.

The decision:

The AO added back Rs.25 lakh to the taxable salary for FY 2007-08. The tax authorities said that the Income Tax Act does not offer any details or explanation for the reduction of sign-on bonus which is refunded to the previous employer. (Section 17(1)).

The taxpayer has left the services of Barclays voluntarily and there was no termination of his employment. Deutsche Bank agreed to pay the sign-on bonus to the taxpayer so he can refund to Barclays.

The sign-on bonus cannot be considered as compensation by Deutsche Bank of the forfeited amount. It is a revenue receipt and not a capital receipt. ITAT decided that Rs.25 lakh, which was refunded to the previous employer and reimbursed by the current employer, cannot be reduced from taxable income.

Takeaways from the case law:

• Sign on bonus refunded to previous employer cannot be reduced from taxable salary.
• TDS is deducted on sign-on bonus by the employer while paying the sign-on bonus to the employee. However, at the time of returning this sign-on bonus, no refund of TDS can be claimed by the employee.

[Details of Case Law:
Case Law: Income Tax Appellate Tribunal – Chennai, S.S.N.Ravi, Chennai vs Assessee on 6 May 2016 I.T.A. No.933/Mds/2015. Assessment year: 2008-2009.]

This is a very common issue in case of bonus.

Also technically the contract has been terminated in this financial year and hence you cannot reduce the salary for the same in previous financial year.

But if you don't do that and next year you don't have any amount to adjust this to you will end up paying more tax.

Hence in the end the only way to do that is to show it as any other exemption and keep the proof ready for repayment of bonus.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Hello,

Practically, there is no provision in the income tax law to claim a deduction of return of bonus by an employee to the employer. Since the Form 26AS reflects the full amount including the bonus, deducting the bonus from the taxable salary would fetch you a notice for mismatch in the return and Form 26AS.

Advisable to get in touch with a practicing CA for your return preparation and filing.

I hope this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Hi

This is a grey areas in Tax treatment which has been bothering and affecting many Tax payers. The tax payer employees and their advisers/consultants also face anxiety on such matters

This is not considered as a part of your salary income. Therefore it may be taxable

Hi

No you can't include this under section 10

No, you can't claim the same u/s 10.

However, you can reduce the bonus amount while filing ITR.

We may assist you for the same.