Annual income for working of less than 12 months

talha.moin · 07-11-2011, 06:34 PM

Hi

I have an employee who joined our organization on 16 Aug 2010. His total annual income till June 30 2011 is 748,306.

Considering that he worked 11 months in the organization, should i deduct tax on 748,306.

One of my colleagues is suggesting that we should add 60,000 (his salary) to this 748,306 to check the tax bracket.

any advise?

talha.moin · 07-11-2011, 08:12 PM

Please advise...

student_of_law · 07-11-2011, 08:23 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by talha.moin
 Hi

I have an employee who joined our organization on 16 Aug 2010. His total annual income till June 30 2011 is 748,306.

Considering that he worked 11 months in the organization, should i deduct tax on 748,306.

One of my colleagues is suggesting that we should add 60,000 (his salary) to this 748,306 to check the tax bracket.

any advise?
<hr height="1" noshade id="quote"></blockquote id="quote">

There is nothing in law that suggests you to add salary of the months during which the employee had not joined you, to work out the basis of deduction of tax. This will be sheer injustice to a person who has remained unemplyed for those months. This step would put him under th hardships of pursuing refund and may be to pay bribe for the same.

s.149 requires you to deduct tax on his estimated annual income. In order to work out the estimate you may ask your new employee to provide you in writing whether he was employed during the earlier months of the tax year. If yes, what salary was he drawing. On that basis you may work out his estimate.

If on the salary drawn by him, tax has been withheld, then ask him to furnish tax withholding certificate from the previous employer.

If he states that he was unemployed then take the earlier months income as zero, for calculating his estimated annual income.

Remember, it is estimated income on which you have to deduct tax u/s149, and estimate must have some footing. You can easily deduct tax but employee can't obtain refund so easily.

talha.moin · 07-12-2011, 12:13 AM

Thanks.

So we should sum all of his income throughout the year. Say, he joined on Sep 15. His salary is 30k. For sep 2010, he got 15k and till June he got 50k per month. That makes his total income (25k X 1) + (50k X 9) = 25,000 + 450,000 = 475,000.

Now, the tax rate will be 3.5%
and, total tax payable will be 16,625

Please confirm if it's correct

student_of_law · 07-12-2011, 04:05 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by talha.moin
 Thanks.

So we should sum all of his income throughout the year. Say, he joined on Sep 15. His salary is 30k. For sep 2010, he got 15k and till June he got 50k per month. That makes his total income (25k X 1) + (50k X 9) = 25,000 + 450,000 = 475,000.

Now, the tax rate will be 3.5%
and, total tax payable will be 16,625

Please confirm if it's correct
<hr height="1" noshade id="quote"></blockquote id="quote">

I think, in the second line you mean to say that his salary is 50k and for Sep 2010 he got 25k.

If this is so, your calculation is absolutely right. You will deduct tax at the rate of 3.5% every month (I have intentionally ignored marginal relief, just for simplicity)

talha.moin · 07-23-2011, 02:56 AM

Hi student of law,

I have another query regarding the undertaking. We have now three cases

1. The employee submits tax certificate from previous employer
2. He states that he was unemployed.
3. He doesn't submit any declaration.

If he doesn't submit any declaration; can we calculate the estimated annual income by adding the average amounts earned in our organization?

In the case I presented above - the employee didn't submit any declaration that he was unemployed nor he submitted any tax certificate from previous employer. Now, are we justified to add 60,000 to his total annual income to calculate his tax slab?

student_of_law · 07-23-2011, 03:37 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by talha.moin
 Hi student of law,

I have another query regarding the undertaking. We have now three cases

1. The employee submits tax certificate from previous employer
2. He states that he was unemployed.
3. He doesn't submit any declaration.

If he doesn't submit any declaration; can we calculate the estimated annual income by adding the average amounts earned in our organization?

In the case I presented above - the employee didn't submit any declaration that he was unemployed nor he submitted any tax certificate from previous employer. Now, are we justified to add 60,000 to his total annual income to calculate his tax slab?
<hr height="1" noshade id="quote"></blockquote id="quote">

Law has not required the employee anywhere to submit any declaration to employee regarding his previous employment. If law has not bound you to do certain thing then omission to do that cannot entail negative presumption.

Respectfully, I recalled a joke on your question, once a person claimed that they had telephone lines hundred years ago as they found wires on digging. The other claimed that they had wireless system hundred years ago because upon digging they found nothing.

So if your employee has not informed you anything about previous employment how can you presume that he was employed and if employed how can you presume that employment was for Rs.60,000. It may be 30k or 100k.

So there is nothing to make negative inference. On all counts of justice and good conscience, it will be a bad act. I always say it is easy to deduct tax but it is not easy to get refund for employee.

We know that it is not easy to obtain refund. Most of the people do not pursue refund because of this difficulty. So they part with their hard earned money. You are trustee of Salary of employee. Doing anything in excess of law that has impact of deriving employee of his due reward would be breach of trust, injustice and sin.

Employer is not bound by law to trace previous income of employee.

Deduct tax on the basis of knowledge that you know with certainty.

talha.moin · 07-25-2011, 05:46 PM

Thanks for the advice and all the guidance.

So, it means if someone joins us in June and we pay him 250k in June as salary and he doesn't give info about his previous employment, we will not deduct tax as it's not exceeding 300k during the tax year with us. Am I right?

student_of_law · 07-25-2011, 06:24 PM

<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by talha.moin
 Thanks for the advice and all the guidance.

So, it means if someone joins us in June and we pay him 250k in June as salary and he doesn't give info about his previous employment, we will not deduct tax as it's not exceeding 300k during the tax year with us. Am I right?
<hr height="1" noshade id="quote"></blockquote id="quote">

Yes, sure.

However, for further safeguarding your organization, you may take indemnity letter from your employee. Wherein employee will undertake that he has represented that his Salary income for the year is below taxable limit and the company should not deduct tax. If the company suffers any loss or expenditure for this non deduction it may deduct it later from employee's salary

Sayub · 08-13-2011, 04:48 AM

@student of law#8626;
continuing the example of an employee who joined the organisation in the month of june at a salary of 250k per month since the salary is below taxable limits therefore estimated taxable income would be nil and employer would not deduct any tax from his salary (as per your comment employer has no obligation to ask employee for his previous employment). Assuming the said employee was employed in the previous 11months of the tax year at the same salary of 250k and his previous employer deducted tax @ of 17.5%. But his new employer didnt deduct tax as aforesaid, the real annual income and tax liability would have been 3 m and 525,000(3m @17.5) respectively, but in the case in discussion the tax liability/deducted and paid would be 481,250. As per sec 115 employee whose employer has filed annual statement shall be treated as filed return of income. Also as per sec 120 a person who has filled complete return of income, the commissioner shall be taken to have made assessment of taxable income. So in this case the employee paid tax short of 43,750 but has this assessed lawfully. i think employer is required to obtain documetary evidence of tax witheld from employee during tax year under clause i of 149(1). If this is right then new employer should deduct tax @17.5% . Please guide me.(<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by student_of_law
 <blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by talha.moin
 Thanks for the advice and all the guidance.

So, it means if someone joins us in June and we pay him 250k in June as salary and he doesn't give info about his previous employment, we will not deduct tax as it's not exceeding 300k during the tax year with us. Am I right?
<hr height="1" noshade id="quote"></blockquote id="quote">

Yes, sure.

However, for further safeguarding your organization, you may take indemnity letter from your employee. Wherein employee will undertake that he has represented that his Salary income for the year is below taxable limit and the company should not deduct tax. If the company suffers any loss or expenditure for this non deduction it may deduct it later from employee's salary

<hr height="1" noshade id="quote"></blockquote id="quote">

student_of_law · 08-13-2011, 05:35 PM

[quote]Originally posted by Sayub
 @student of law#8626;
continuing the example of an employee who joined the organisation in the month of june at a salary of 250k per month since the salary is below taxable limits therefore estimated taxable income would be nil and employer would not deduct any tax from his salary (as per your comment employer has no obligation to ask employee for his previous employment). Assuming the said employee was employed in the previous 11months of the tax year at the same salary of 250k and his previous employer deducted tax @ of 17.5%. But his new employer didnt deduct tax as aforesaid, the real annual income and tax liability would have been 3 m and 525,000(3m @17.5) respectively, but in the case in discussion the tax liability/deducted and paid would be 481,250. As per sec 115 employee whose employer has filed annual statement shall be treated as filed return of income. Also as per sec 120 a person who has filled complete return of income, the commissioner shall be taken to have made assessment of taxable income. So in this case the employee paid tax short of 43,750 but has this assessed lawfully. i think employer is required to obtain documetary evidence of tax witheld from employee during tax year under clause i of 149(1). If this is right then new employer should deduct tax @17.5% . Please guide me.[quote]

As far as s.115 is concerned, this section does not address many issues.

for example what if the employer has short deducted the tax & later employee has filed return on due date with tax payable. Then would the annual statement of deduction would still be treated as return and return filed by employee as amended return. The answer is NO

Secondly, s.115 says where the entire income of a taxpayer in a tax year consists of income chargeable under the Head "Salary" Annual statement of deduction of INcome Tax form Salary filed by the Employer .... be treated as return n income furnished by the taxpayer u/s 114
this section is saying where entire income comprises salary. Suppose, a person is undertaking two employment simultaneously. A teacher teaching in college in the morning and in academy in the evening may be a practical example. Now the entire income of teacher is from salary. However, college is not liable to consider his salary income from academy. College will deduct tax according to salary paid by it and file statement of Deduction of Tax. On the other hand suppose academy doesn't deduct and pay tax. Should it be treated as return and assessment order u/s 115 and 120. the answer is no.

S.115 just gives a convenience for a person whose whole salary income is covered and tax is duly deducted and noted under Annual Statement of Deduction of Tax. In the above example, teacher doing dual job, no one of us claims that college should ask for other salary income and deduct tax upon it. If one employer is not bound to account for other salary income earned simultaneously then how can you hold him liable to account for previous salary income. simultaneous salary income may change tax rate from 6% to 10%. But employer will continue to deduct tax on the amount he is giving as salary. Same would be the case of new employee

Sayub · 08-13-2011, 09:41 PM

continuing the example of a teacher in college and academy. College is deducting tax therefore files annual statement but academy is not. In the case of academy the teacher in discussion would not be covered under sec 115, as his employer doesnt file a.statememt. Therefore would be covered under sec 114 and any differential tax (due to change of rate ) would be paid by him with return. <blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by student_of_law
 [quote]Originally posted by Sayub
 @student of law#8626;
continuing the example of an employee who joined the organisation in the month of june at a salary of 250k per month since the salary is below taxable limits therefore estimated taxable income would be nil and employer would not deduct any tax from his salary (as per your comment employer has no obligation to ask employee for his previous employment). Assuming the said employee was employed in the previous 11months of the tax year at the same salary of 250k and his previous employer deducted tax @ of 17.5%. But his new employer didnt deduct tax as aforesaid, the real annual income and tax liability would have been 3 m and 525,000(3m @17.5) respectively, but in the case in discussion the tax liability/deducted and paid would be 481,250. As per sec 115 employee whose employer has filed annual statement shall be treated as filed return of income. Also as per sec 120 a person who has filled complete return of income, the commissioner shall be taken to have made assessment of taxable income. So in this case the employee paid tax short of 43,750 but has this assessed lawfully. i think employer is required to obtain documetary evidence of tax witheld from employee during tax year under clause i of 149(1). If this is right then new employer should deduct tax @17.5% . Please guide me.[quote]

As far as s.115 is concerned, this section does not address many issues.

for example what if the employer has short deducted the tax & later employee has filed return on due date with tax payable. Then would the annual statement of deduction would still be treated as return and return filed by employee as amended return. The answer is NO

Secondly, s.115 says where the entire income of a taxpayer in a tax year consists of income chargeable under the Head "Salary" Annual statement of deduction of INcome Tax form Salary filed by the Employer .... be treated as return n income furnished by the taxpayer u/s 114
this section is saying where entire income comprises salary. Suppose, a person is undertaking two employment simultaneously. A teacher teaching in college in the morning and in academy in the evening may be a practical example. Now the entire income of teacher is from salary. However, college is not liable to consider his salary income from academy. College will deduct tax according to salary paid by it and file statement of Deduction of Tax. On the other hand suppose academy doesn't deduct and pay tax. Should it be treated as return and assessment order u/s 115 and 120. the answer is no.

S.115 just gives a convenience for a person whose whole salary income is covered and tax is duly deducted and noted under Annual Statement of Deduction of Tax. In the above example, teacher doing dual job, no one of us claims that college should ask for other salary income and deduct tax upon it. If one employer is not bound to account for other salary income earned simultaneously then how can you hold him liable to account for previous salary income. simultaneous salary income may change tax rate from 6% to 10%. But employer will continue to deduct tax on the amount he is giving as salary. Same would be the case of new employee

<hr height="1" noshade id="quote"></blockquote id="quote">

student_of_law · 08-15-2011, 03:32 PM

good point - appreciable

However applying same ratio, in the case of employment of only one month with new employer within a tax year, if one employer has paid you salary for 11 months he will file your particulars in Annual Statement of Deduction of Tax while the other who has not deducted any tax may not file your particulars in Annual statement of deduction.

So your point will squarely applies here. As his second employer will not file Annual statement so he will not fall within s115 but s.114.

Anyway there may be endless debate. To safeguard oneself I have already said that employer may take indemnity letter from previous employee. But I also say that there is nothing in income tax law that makes employee bound to submit complete information to employer about his previous employment. Secondly, this will be highly irrational approach to assume that employee was employed during all the preceding months of the tax year and further that he was employed on the same salary. I am strictly against any such presumption.

As law does not ask employer to ask for employee's previous employment
As law does not ask for any written thing to be handed over from employee to employer
So law cannot punish employer, as he may always say that employee has not disclosed his previous earnings.

If employer is not in a critical situation, then why should we over burden them with the responsibility which the law has not conferred upon them. If law does not ask us to do so, then why some of us without any legal backing say that employer having new employee at the end of tax year, should blindly assume that he had been drawing same salary for the last whole year and deduct tax accordingly. This is nothing but depriving an employee of his hard earned money, as he might have been unemployed, might be beginning his job or might have been employed at very low salary earlier.

Unless any new law point , judgment or SRO is brought forward I intend not to contribute further in this endless debate on mere surmises and conjectures.

Sayub · 08-17-2011, 06:37 AM

Many thanks for your contribution. Your point of over burdening the employer justifies logical end of this discussion. But I will try to search any contradicting sro or case law for the knowledge of all.<blockquote id="quote">quote<hr height="1" noshade id="quote">Originally posted by student_of_law
 good point - appreciable

However applying same ratio, in the case of employment of only one month with new employer within a tax year, if one employer has paid you salary for 11 months he will file your particulars in Annual Statement of Deduction of Tax while the other who has not deducted any tax may not file your particulars in Annual statement of deduction.

So your point will squarely applies here. As his second employer will not file Annual statement so he will not fall within s115 but s.114.

Anyway there may be endless debate. To safeguard oneself I have already said that employer may take indemnity letter from previous employee. But I also say that there is nothing in income tax law that makes employee bound to submit complete information to employer about his previous employment. Secondly, this will be highly irrational approach to assume that employee was employed during all the preceding months of the tax year and further that he was employed on the same salary. I am strictly against any such presumption.

As law does not ask employer to ask for employee's previous employment
As law does not ask for any written thing to be handed over from employee to employer
So law cannot punish employer, as he may always say that employee has not disclosed his previous earnings.

If employer is not in a critical situation, then why should we over burden them with the responsibility which the law has not conferred upon them. If law does not ask us to do so, then why some of us without any legal backing say that employer having new employee at the end of tax year, should blindly assume that he had been drawing same salary for the last whole year and deduct tax accordingly. This is nothing but depriving an employee of his hard earned money, as he might have been unemployed, might be beginning his job or might have been employed at very low salary earlier.

Unless any new law point , judgment or SRO is brought forward I intend not to contribute further in this endless debate on mere surmises and conjectures.
<hr height="1" noshade id="quote"></blockquote id="quote">