Can I Keep My Bonus if I Quit Early? Understanding Repayment and Tax Implications

Hi, Recently, my company gave me an extra bonus in an attempt to retain me. However, there was a clause attached to it stating that if I choose to leave the organization before a particular date, the bonus amount paid to me will be recovered from me.

Repayment of Bonus

My question is, in the event that I decide to leave before the specified date, do I have to repay the bonus amount to the company? Additionally, what is the tax treatment on the bonus amount? When I received the bonus, TDS was deducted by the company on that amount. Now, if I have to repay the amount, am I liable for the total amount paid by the company?

Tax Deducted at Source (TDS) Implications

Furthermore, what will happen to the TDS that was deducted and deposited to the government?

Thanks,

Amit Sood

Once you pay back the amount to your employer or they deduct the same in your F&F statement, your taxable salary/income will automatically decrease. You can claim the deducted tax money back through your income tax return.

Thank you.

Thanks, Shashi. However, the concern is that the tax has been deducted, and in case I decide to leave after September 2013, then I would already have filed the tax return for 2012-2013.

Tax Deduction and Repayment of Bonus

If the tax has already been deducted, there is a provision for claiming the realization of excess tax from the concerned authority, which must be shown when filing the return after proper calculation. In fact, the tax is calculated based on yearly earnings only.

Regards,
BK Mohanty
Director
Cypress Management Associates

No issue if you leave in September 2013; the same amount will show as negative in your salary earning portion. Due to this, your tax liabilities will decrease.

Regards,
Shashi

Dear Amit, we always file returns for the previous year; we never file returns in advance. Please understand that returns are meant to return the extra tax. For example, you worked at Company X with a CTC of Y, and the tax on it was Z per annum. Your TDS would have been A = Z/12. Now, you worked at this place until September 2013. So you paid your TDS A as per your whole year's CTC, whereas you should have been paying only for 6 months. Therefore, you file the claim next year in 2014. I do not know the "How" process, but that is how it works. So if you've paid your tax on the bonus, and say you're resigning in September this year, you'd file for a return next year. Tax is always paid in the current year, assessed, and returned for the previous year. So in 2013, we would assess and return 2011-12's returns. 

Ensure there is a single line break between paragraphs.

Regards,

The bonus is paid to you as per the law; they have no right to reclaim it. They are just putting pressure on you. Do not worry, you can file a case in the Labour court.

Regards,
[Name Removed For Privacy Reasons]
[Phone Number Removed For Privacy Reasons]

Bonus Payment Conditions and Tax Implications

First of all, any bonus paid to an employee covered under the Payment of Bonus Act 1965 cannot be conditional. Secondly, the condition of payback of the bonus amount is punitive and hence cannot be shown as a reduction in salary. Therefore, the Form 16 may not reflect the reduction in total salary. Thus, I'm afraid whether you will be able to claim a tax refund.

Regards,

Thank you to everyone for their valuable responses. I am not sure how things will proceed further, but I will definitely seek everyone's expert advice if required in the future.

Understanding Bonuses and the Payment of Bonus Act

Sometimes, various incentives are also referred to as bonuses. Can they be considered as per the Payment of Bonus Act?

Regards,
T S Ramani

Your query has multiple threads that need to be examined carefully.

Bonus Repayment Obligation

1. A bonus can never be conditional, so what you've received has to be paid back; therefore, it cannot be termed as a Bonus Per Se.

2. You should treat the receipt as a liability in your books of account because you intend to quit later and are liable to repay that amount.

Tax Implications

3. Regarding the TDS already deducted by the company, you may claim a refund by filing your ITR for FY 2012-13 before 31st July 2013 and repay the company the full amount, i.e., the actual receipt plus the TDS deducted.

4. Your tax consultant will need to exercise due diligence while preparing your ITRs for FY 2012-13 & 2013-14 to ensure that you do not end up paying more income tax than you should.

Legal Considerations

5. Shri Laxminarayana has rightly pointed out that a company cannot claim back bonuses paid to employees. You can approach a labor court for resolution, but before opting for a legal battle in this regard, it would be imperative for you to find out more about the situation.

Please let me know if you need further assistance or clarification.