Incentives — employees are taxable

Q: The National Thermal Power Corporation gives incentives for achieving monthly generation targets in construction of power stations and other similar projects. This is being taxed. I am herewith enclosing a copy of the decision of the Supreme Court in the State of West Bengal and Others v Texmaco Ltd. [AIR 1999 SC 2366] wherein it was held that the definition of salary and wages does not include incentive bonus. I presume, that in view of the same, incentive bonus should not be taxable though the employers continue to deduct tax from such incentive bonus. How do we implement this decision?

A: The decision referred by the reader is in the context of the definition of salary or wages in West Bengal State Tax on Professions, Trades, Callings and Employments Act, 1979 relating to profession tax. Incentive bonus is required to be deducted from salary under that Act for the purposes of that Act.

The West Bengal Tax Tribunal had held that incentive bonus being dependent on production was not paid on regular basis, so that it could not be treated as salary within the definition of salary, which covers only regular payments under that Act. On the other hand, the definition of salary under the Income-tax Act is wide enough to include any payment received in consequence of employment, so that this decision has no impact for purposes of taxation of salary under the income-tax law.

S. Rajaratnam

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