I can see either of the following happening:-
1. The company earns more than in reports in its taxable income. This way it has got black money which it distributes as cash salary to employees. It means both underreporting of incomes and expenses.
2. It want employees to save on tax. Cash salary means no record of money received, no TDS and no tax - your friend will hear this thing when he receives Form 16
3. Implication for your friend will be that he will be considered as active tax evader (if he gets caught). Later on when he switch job, he will be at his wit's ends to prove to other company he earned this much. In most of the companies, they cap hike as % of your previous company salary.
4. In getting bank loan / housing loan etc. also the same problem will arise.
Personally I feel its pretty risk affair to be in such type of circumstances.
From India, Lucknow
Many thanks for your email. You have precisely identified the situation.
Your deduction at Sr. 1 is a fact.
Your observation at Sr. 2 is what company tries to pass off as a plus point.
Your conclusion at Sr. 3 is exactly the dilemma.
your conclusion at Sr. 4 is a fact.
This leaves with the question of the possible courses of action. :?
Please remember that the total package as such is substantive. :wink:
From India, Mumbai
Lets agree on one thing. your friend does not want to shout and prove to company that they are doing wrong - rather he is more interesting in protecting himself against any complication which may come.
So instead of wasting time on guessing why the company is doing it likewise, its better to
1. First calculate how much monthly money your friend is actually getting (both cash as well as thru bank) and see how much tax company is actually deducting (obviously they are issuing him monthly payslips showing all heads of earnings and deductions which features TDS figure also) and how much tax it should deduct.
This will give first hand idea on whether it is tax evasion ploy or something else.
2. After this, its better to ask plain questions to HR / Payroll as to how and why they are paying cash. Remember it is not against best practices, also strictly not legal if monthly cash outgo per employee exceed a pre-defined limit. This way he will come to know real motive behind all this.
3. If still not much info. is made available on this front by company, better to ask colleagues / seniors and whether the proportion of cash : bank (67:33) is equally distorting in their case also. And how do they view it.
Hope I am making sense.
From India, Lucknow
To ask a question or write a reply on this discussion you will need to create an account and login.