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  • May 13, 2020
  • I-T liability exists even when salaries, payments deferred

    Consider this. If a company defers an employee’s salary or a vendor’s payment, say by six months, tax is applicable on such salaries or payments under current taxation laws, tax experts said, since it is a promise of income in future.

    As companies defer salaries to staff and payments to suppliers and vendors due to cash flow constraints because of the Covid-19 pandemic and resultant lockdown, it is clear that deferring the expense does not mean that tax, too, can be postponed, the experts said.

    They say, as per current tax regulations, companies will have to provide for any deferral under Section 192 of the Income Tax Act in their books and tax will have to be deducted on that. So, irrespective of whether the recipient receives a salary or payment, tax is applicable.

    And, if the deferred payments are never paid or postponed beyond March 2021, the recipient would have to pay taxes for the current fiscal year on money never received the current financial year.