Many components of tax optimized pay structure might not be suitable or justifiable, because of which people have to move to the liner and simple structures, which will obviously impact the tax liability.

Lots of people are facing salary cuts, salary delays, retrenchment, layoffs, leave without pay, and partial deferred payout, etc. amidst the COVID-19 crisis. Abhishek Rastogi, Partner, Khaitan & Co, says, “Companies that are most affected belong to the MSME sector or those companies with heavy bank loans with no incoming funds. Hence, these salary cuts are inevitable.” Additionally, there are people who have the element of reimbursements in their salary structure but, since people are not going out, they can’t claim entertainment or transport allowances.

During this lockdown, most organizations have been non-functional or are working from remote places. Experts believe post lockdown, organizations will have to operate with the limited on-premises workforce and the rest will continue working from home or remote places. Therefore, people will not be able to claim reimbursements, which are part of their pay structure, and will have to look case to case basis on how to manage this. Kapil Rana, Founder, and Chairman, HostBooks, says, “We all have adopted, implemented, or have kept it as an option of tax optimized payment structure to save on tax liabilities.”

Will tax liability go up due to no claim on reimbursements? 

Experts say many components of tax optimized pay structure might not be suitable or justifiable, because of which people have to move to the liner and simple structures, which will obviously impact the tax liability. Rana says, “Keep in mind the whole calculation will depend on how much gross salary is paid to the employee. Moreover, there are 8 months yet to go for this financial year, hence, people will have ample time to do their tax planning.”

In case of a tax on salary for an employee – for its calculation, deduction and deposit responsibilities lie with the employer and not the employee. Therefore, an employee is not responsible for any advance tax, if his/her salary is due but not paid. Having said that, if the employee has earned income from additional sources and his/her income is liable to advance tax, then they may have to pay advance tax.

What will be the tax treatment, if the salary is not paid?

There are three scenarios to this:

1. If the employer has not provided for the salary in books and has not deducted or deposited tax – then there is no implication in the case of the employee as his/her salary has not been due or received.
2. If the employer has provided for the salary in books and has not deducted or deposited tax – then there is no implication for the employee on the taxation front.
3. If the employer has provided for the salary in books, has deducted and deposited tax (but salary has not been paid) – then the employee’s liability arises, he/she has to make effort with the employer to either do correction in the TDS Return by removing the salary or pay full salary.

Can people who have lost jobs claim relief?

If an employee complies with the rules, then he/she can claim relief under section 89 of the Income Tax Act.