I resigned from the services of my erstwhile company by giving one month’s notice after serving for about 18 months. My appointment letter contained a clause that I will have to pay to the company a liquidated damage equal to my six months salary, if I leave 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 4,19,750 equal to my six month’s salary in form of liquidated damages to enable me to get a release order. I requested the company to refund excess income-tax deducted by them as my effective income from salary for financial year 2018-19 was reduced to the extent of six month’s salary refunded by me in terms of my appointment letter. The company did not refund any income-tax as they considered it as liquidated damage and not a refund of salary as claimed by me. Kindly advise me if I can claim the refund of income-tax and whether the same will be allowed by I-T officials?
— Sanjay Deva Rao, Via email
A) The action of your employer in refusing to deduct the amount of damages paid by you on the account of service conditions from your salary income is in accordance with law. It has to be appreciated that the salary had been paid to you by your employer as mentioned in Form-16 and there is no way that you can deduct the compensation or liquidated damages from the salary paid to you by your employer and such deduction will not be allowed by the income-tax authorities. Since your income is assessable under the head salaries, you cannot this deduction.
I am a 68-year- old man. There is an element of ambiguity with regard to the admissibility for tax relief in respect of interest on savings bank account, fixed deposit and dividends. Please clarify.
— Raj Gupta, Hyderabad
A) Interest from savings bank interest and fixed deposit interest is allow-ed as a deduction to resident senior citizen upto a maximum Rs 50,000 under Section 80TTB of the Income-Tax Act and anything excess is taxable. Dividend income received from domestic companies is exempt upto a maximum of Rs 10 lakh in the hands of the shareholders under Section 10 (34) of the Income-Tax Act. Anything over and above the limit specified above will be taxable under income from other sources. The dividend income in excess of Rs 10 lakh will be taxed at a flat rate of 10 per cent (excluding surcharge) and health and education cess of four per cent.
(The writer is a CA. He can be reached at info@ rathiandmalanis.com)
