Incentives and Taxes: How Should We Handle Taxation for Sales Team Bonuses?

Hello Everyone! Our company has planned to provide incentives to the sales team. So, I have some questions regarding it.

1- Is the incentive amount taxable for both the employer and employee? If yes, then what type of tax should we be paying, like TDS or any other?

2- Should incentives be added to gross salary?

3- What will be the minimum taxable amount? Shall the taxable amount be calculated only on incentives or incentives + gross salary?

Please suggest. Thank you.

Hi,

1) Incentives paid to employees are fully taxable and form a part of the taxable salary. In the ITR form, you shall have to club the amount of incentive under the head salary, and tax shall be charged at applicable slab rates.

2) Incentives, being a variable component, cannot be added to Gross salary. Incentives are paid subject to achieving the target. Hence, they cannot be fixed and cannot be added to Gross salary.

3) The taxable amount depends on the total earnings of the employee, including salary, incentives, and any other allowances like food allowance paid. After considering the IT exemptions (if the employee is under the old regime), taxable income can be arrived at.