Retention Bonus Dilemma: Should Employees Repay the Net or Gross Amount?

Dear All,

We have paid the retention bonus to the employee after deducting the TDS. Now, the employee is leaving the company before the specified time, and the employee has to pay the retention bonus back to the company. My question is, does the employee have to pay the net amount credited to his account or the gross amount including the TDS amount?

Dear Vijay Kulkarni,

While paying the retention bonus to the employee, did your company make a formal agreement with the employee? If not, did the company issue any letter to the employee mentioning the terms and conditions of the recovery of the amount? What was the expected retention period of the employee, and how many months did the employee complete? Does the agreement or letter state anything about the total recovery or the proportionate recovery of the retention bonus?

There are so many questions associated with your post. Please clarify the situation.

Whatever the case may be, whether the total or proportional recovery of the bonus, the employee can pay back only the amount he received. You cannot force the employee to pay the taxes (TDS) because the tax was paid to the government, not to the employee.

Thanks,

Dinesh Divekar

Thank you, sir, for the reply. I will get back to you with all the details you asked for in your last comments on TDS.

TDS and Employee Refunds

TDS paid to the government is in the employee's name only. An employee may have taken a refund or adjusted it for tax liability. So, should we get the full amount, including TDS, right?

Dear Vijay Kulkarni,

The learned senior member, Mr. Saswata Banerjee, is the right person to answer your query on TDS. I will send a private message to draw his attention to this thread.

Thanks,

Dinesh Divekar

Thanks for drawing this interesting query to my attention, Dinesh-ji.

Understanding TDS and Bonus Payments

TDS is deducted and paid to the government, but it will be credited to the 26AS of the employee (effectively as Advance Tax). If the employee has tax to pay at the end of the year, the TDS in 26AS gets adjusted against it. If there is no tax liability, the remaining TDS amount is refunded to the employee.

Company's Perspective on TDS and Bonus

So from the company's point of view, the TDS is a part of the bonus payment. Therefore, the employee will be asked to pay the full bonus (gross amount) back, including the TDS.