Union Budget proposes to tackle problem of Income from Other Sources
Posted on: 05/Feb/2018 12:29:55 PM
Did you know that sometimes income received by an individual even if it relates to employment, does not fit within the technical definitions of salary or profits received in lieu of salary. Thus, very often, such income could not be taxed. Budget 2018-19 proposes to change this scenario. A wide range of income received - say non-compete payments, which sometimes did not fit the above definitions of salary or profits in lieu of salary, or compensation when a job offer went awry will now be taxable.
Say experts, The proposal perhaps also intends to bring within ambit of tax, payments received in connection with employment but not from the employer. In other words, it covers cases where an employer-employee relationship does not exist between the payer and the receiver. For example, in case of termination of employment with an Indian subsidiary company, any severance pay received from a foreign holding company may be covered under this amendment. It may also cover situations of merger and acquisition where payments are received by employees from the acquiring company or from the investors.
According to the Finance Bill, A large segment of compensation receipts in connection with employment are out of the purview of taxation leading to base erosion and revenue loss. Any compensation or other payment due or received in connection with the termination of employment or the modification of the terms and conditions relating thereto, will now be treated as `Income from other sources`.
Experts explain, In various decisions, courts and tax tribunals have held certain receipts to be not taxable, even as they related to employment. This is because such receipts did not fall under the definition of salaries or profits in lieu of salary or because the employer-employee relationship was not in existence. Money received in such instances is now proposed to be taxed. A capital receipt is not income and hence I-T is not levied on it. There are instances, where compensation related to employment, has fallen within the cracks and escaped I-T. Each such case, typically involves compensation of at least Rs. one crore. Hence, budget amendment is critical.
