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Service damages aren’t deductible
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ASIANAGE on 06 August, 2008 04:36:30
 
Kamal Rathi
Q. What is the last date of payment of the premium for enabling one to claim
deduction under Section 80C? Can I claim deduction for payment made before the
due date for filing of return — July 31 — and accordingly file the returns
of income?
Rahul Dev
Via email
A. The last date of relevant previous year — March 31 — is the deadline for
all the investments to qualify for deduction U/s 80C. The relevant LIC premium
should have been made during the previous year. If the payment is made after the
previous year but before the due date for filing of return, it will not qualify
for deduction for the year intended by you but for the subsequent year.
Q. Recently, I resigned from an organisation by giving one month notice after
serving for a period of 18 months. According to terms and conditions of my
appointment letter, I was supposed to pay to the company a liquidated damage
equal to my six months salary, if I quit the organisation before completing five
years of service. Since I resigned against the wishes of the management, I had
to pay to the company a sum of Rs 1,16,200, which is equal to my six month
salary. I requested the company to refund excess income tax deducted by them as
my effective income from salary for the financial year 2007-08 was reduced to
the extent of six months due to the liquidated damages that I paid to the
company. However, the company did not refund any income tax as they considered
it as a liquidated damage and not refund of salary as claimed by me. Kindly
advice me if I can claim refund of income tax?
B.S. Prasad
Via email
A. Your employer’s refusal to consider damages paid by you as refund of
salary is legally correct. You have to appreciate the fact that your employer
had paid you the salary mentioned in Form 16. Your employer cannot deduct the
damages from the salary and such deduction will not be allowed by income tax
authorities. It is pertinent to know that while the income of the company is
assessed under the head income from business, in your case the income is
assessable under the head "salaries" which does not allow your claim.
(Kamal Rathi is a chartered accountant, representing Rathi & Malani, a
Hyderabad-based accounting firm. Readers can mail their queries on income-tax
tokamalrathi.ca@gmail.com)