It is very common for people to change jobs due to various reasons. Many employees receive additional incentives in form of Sign on bonus at the time of joining the company which is added to the taxable salary of the employees and TDS is deducted on the same.
However, this bonus is generally provided with a condition for a period of employment which can vary from company to company. Now if the employee leaves the company before the completion of such period then they shall have to refund the money to the employer received as a Sign on bonus.
Usually, in such cases, the new employer pays for reimbursement of the amount received by the employee which they will then return to the previous employer.
Employees are of the view that since they are reimbursing the additional amount received from new employer to their previous employer it should not be taxed in the hands of employees and this receipt does not constitute income.
One such case was filed with the Income-tax appealte tribunal - S.S.N. Ravi, Chennai vs Assessee on 6th May 2016 I.T.A. No. 933/Mds/2015 for A.Y 2008-09.
The assessee had filed ITR for A.Y 2008-09 in which they reported a salary of INR 43,54,815 and claimed a refund of INR 7,72,266/- which was processed by A.O. by adding 25 Lakhs to the taxable salary based on Form 16 issued by the employer. The assessee had changed jobs during the financial year.
The assessee had received a sign-on bonus of INR 25 Lakhs from M/s. Barclays Bank in FY 2006-07 on the condition that if he leaves the organisation without completion of one year from the date of joining then this amount shall be refunded to the employer. This bonus was reported as taxable salary in ITR filed by the assessee for A.Y 2007-08.
The assessee left Barclays without completing one year from the joining date and joined Deutsche Bank, who reimbursed them INR 25 Lakhs which was refunded to Barclays and while filing ITR for A.Y 2008-09 was reduced from the taxable salary by the assessee.
The A.O. after considering the facts of the case was of the opinion that such a bonus is non-deductible from salary as there is no provision for such reduction u/s. 17(1) of the Income Tax Act and hence added it to the taxable salary of the assessee. Aggrieved of the order, the assessee filed an appeal before CIT (appeals).
CIT (appeals) was of the view that since the bonus was forfeited by the employer due to a breach of contract on the part of the assessee the same should be added to the taxable income. Aggrieved by this assessee filed an appeal before Tribunal.
The ITAT after considering the apparent facts, terms of employment, characteristics of sign-on bonus and the service certificate of Barclays Bank was of the opinion that they uphold the decision of CIT (appeals) since the assessee had voluntarily left the organisation and was not forced to terminate the employment. As per the Income tax act, there is no explanation for where the assessee should reduce the taxable salary due to refund of sign-on-bonus.
- Sign-on bonus refunded to the previous employer can not be reduced from taxable salary.
- Refund for TDS deducted by the previous employer at the time of returning the sign-on bonus can not be claimed.