Reimbursement in lieu of notice pay taxable

SC Vasudeva

I have resigned from my present job from a private sector bank. According to the terms and conditions of service, I am required to pay a sum of Rs 88,000 (approx.) in lieu of requisite notice pay recovery.

Kindly advise if I am entitled to claim this deduction from my salary income in my relevant I-T return and if not, under what provisions of the I-T law?

Further, my new employer, whom I will join soon, has undertaken to reimburse the aforesaid amount i.e. Rs 88,000 (approx.) on account of shortfall in notice period. Would this reimbursement form part of my salary income? 

Please clarify if the amount paid to my present employer by me is treated as deductible from my salary from my new employer?

 Can the same be set off against the reimbursement by new employer in my relevant I-T return?  — Rajeshwar

1. The amount payable by you as notice pay recovery should be considered as the amount of salary which has not become due to you.  You may rely in this regard on the decision of CIT vs. Mehar Singh Sampuran Singh Chawla 90 ITR 219.  You should claim that on the basis of the said decision the notice pay is not taxable. 

2. The amount paid by a new employer towards the reimbursement of Rs 88,000 (approx.) on account of shortfall in notice period would be a perquisite and taxable as part of your salary income.

In my income-tax return for 2013-14 (AY 2014-15), TDS of Rs 5,850 was deducted by Punjab National Bank, Bhadson Road, Patiala, as per details given below, but it has not been considered by the Income-ax Department:-

(i) TDS (Form 16A) w.e.f. 1.1.2013 to 31.3.13 Rs 2,957

(ii) TDS (Form 16A) w.e.f. 1.4.2012 to 31.6.12 Rs 1,409

(iii) TDS (Form 16A) w.e.f. 1.7.2012 to 30.9.12 Rs 1,449

(iv) TDS (Form 16A) w.e.f. 1.10.2012 to 31.12.12      Rs 35

Total: Rs 5,850           

This amount was duly  shown in the return for 2013-14 (Assessment Year 2014-15)

I was asked to deposit Rs 5,040 as current outstanding demand vide CPC, Bangalore letter dated 31.7.2015 which I have deposited with State Bank of Patiala Treasury Br. Chotti Baradari, PTA vide Sl. No. 00002, BSR-0130612 (J-472992 dated. 13.8.2015).

I am a diabetic and heart patient since 2005 and taking treatment/medicines regularly from two hospitals at Patiala and have to incur huge amount on tests/medicines and hospital fee etc. I am a senior citizen (DOB 4.1.50).

Please advise me the course of action and to whom should I make a request to consider my case so that I may get the due refund as I am in urgent need of funds to purchase the medicines.

I am a Punjab Government pensioner taking pension from the above stated bank. — Prem Kaul

It is observed from the facts given in the query that the tax deductions amounting to Rs 5,850 made by the bank on various dates pertain to the Assessment Year 2013-14 relevant to the financial year April 2012-March 2013.  Refund in respect of such tax deducted at source should have been claimed in the return filed in Assessment Year 2013-14 instead of the return for the Assessment Year 2014-15.  It seems it is because of this reason that refund for the Assessment Year 2014-15 has not been granted to you. You may approach the assessing officer to rectify the mistake while processing the return for the Assessment Year 2013-14 on the basis of information available in Form 26S in respect of above deductions.  I do hope interest earned for the period 1.4.2012 to 31.3.2013 has been reflected in the return for the said assessment year.

I want to apply for an IPO in the name of my major son/daughter from my bank account (money belongs to me).

Kindly let me know whether income arising from the sale of shares or loss belongs to me or my son/daughter. — Ramesh Gupta

It seems you intend to carry on the activity of purchase of sale and new issue of shares which are purchased in the name of your major son/daughter. If you are using your own funds for acquiring such shares in the name of your son or daughter, this can be treated as benami transaction. This can lead to many complications. I would suggest that you may gift the amounts to your major son/daughter. The gifted amounts should be deposited in their bank accounts. These funds can be utilised by them for the purpose of purchase and sale of shares. There is no tax liability in respect of the amount gifted by you to the major children. The short-term capital gain/loss arising on the sale of such shares arising in their hands would be netted off. The net amount of gain would be taxable @15% plus applicable education cess. The net loss, if any, will be carried forward for eight assessment years for adjustment against short-term capital gain, if any, arising in such eight years.