Tax paid by an employer on behalf of employees is a non-monetary remuneration and therefore exempt from tax, according to an Uttarakhand High Court order. The income-tax department had held that employees are obliged to pay tax on the tax paid by their employers on their behalf. The high court delivered this verdict on July 30 on an appeal filed by the Director, International Taxation, New Delhi against Triton Holding, R&B Falcon, Sedco Forex International Drilling, Transocean Offshore International Ventures and Transocean Discoverer and Others, BG International.

The court pointed out that Section 17 (2) of the Income-tax Act, among other things, exempts "any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee" . The tax paid by the employer on behalf of the employee is among the pre-requisites mentioned under this section such as rent-free accommodation, amenities granted free of cost, sum payable by the employer to Provident Fund, etc, the high court pointed out. On many occasions, employers agree to pay income tax on behalf of the employees .

The issue before the court was whether the tax paid by the employer on behalf of employees would be exempt from taxation as such payments are non-monetary benefits to the employees as classified under section 10 (10CC) of the Income-tax Act. The High Court explained that Section 10 (10CC) of the Income-tax Act stipulates that such payment shall be excluded from the income of the employees computed for the purpose of taxation. The High Court also pointed out that payment of tax by the employer to the Income-tax department on account of their employees is non-monetary payment to employees and can be classified as remuneration mentioned under clause (2) of section 17 of the Income-tax Act.