Did good work? Received incentive? Must know these points
Bonus, sometimes referred to as performance incentive is usually paid to an employee twice a year.
When your performance in your workspace is up to the mark and satisfactory, you get rewarded by your company by what is known as a bonus. Bonus sometimes referred to as performance incentive is usually paid to an employee twice a year, according to the appraisal rating that they get for a duration or period of time. This is entirely subject to the policies of the company.
Since the amount which accounts as bonus is added to the employee's salary, it fall under the radar of deduction under the Income Tax Laws. So to say, the reward that you received after all your hard work is cut down as the amount is taxable. However, like any other tax that is deducted, a salaried employee can file a return to claim the amount thus deducted. The same goes for bonuses as well.
It should, however, be noted that bonus is the amount that is paid to the employee by the employer and is not the dividend payable to them as shareholders
Tax on bonus is levied only when the total aggregate of the salary as well as the bonus is over the tax deduction slab. So to say, for example, the employee's taxable salary is Rs. 4, 90,000, for which the employee falls in the tax slab between Rs 2,50,000 to Rs 5,00,000. For this, normally the employee will be levied a tax of 5%. However, with his performance report, if the employee attains a bonus amount of Rs 25, 000, the total income jumps to Rs 5,15,000, which exceeds the employees former tax slab. Now, the employee will fall under the tax slab of Rs 5,00,000 to Rs 10,00,000, wherein the employee hence needs to pay tax at a rate of 20%.
One the time for the filing of the return arrives, the employee then needs to file form 16, for the entire amount. Here the said employee needs to make sure that the bonus component for which he or she had to pay tax for is also mentioned. Once their tax liability with TDS is cross checked, the employee can claim refund from the Income Tax Department for higher deductions.