Tax Deduction For Compensation Paid In Labour Court Through Settlement

Dear Seniors,

In the event, when settlement arrived in Labour Court, the agreed amount as compensation paid to terminated workmen are liable for Income Tax deduction or not ?

If , liable/non liable then any support judgement or guideline.

Brief on Matter

Rs. X Lac amount decided as compensation to workmen as a settlement amount in the case of terminated workmen after inquiry and conciliation proceeding , matter refered to Labour Court, by the time both the parties ( employer and workmen ) arrived at Settlement, by signing Affedevit on Stamp Paper .

Now, on the Settlement amount RS.X lacs , the Income Tax ( TDS ) is being deducted and cheque was handover before labour court judge, but the Labour Court judge is saying that, this compensation amount is not liable for Tax deduction and full amount cheque to be given to workmen.

On the other Hand Our Tax deptt. is saying that, we have to deduct the Income Tax at source and , can not issue cheque for full amount.

CAn anyon Help me out finding the remedies to resolve this issue.

regargs,

Vipul Rana

Your Tax department is right. But if the full and final settlement amount includes any gratuity, that should be paid without deduction of tax at source and the remaining portion can be subjected TDS. While making payment to the Conciliation authority, please mention it separately.
Madhu.T.K