Bonus and Commission paid to employees- Section 32 Income Tax Bill 2025
Payment made to employees by an employer in the form of salary, allowances or perquisites is allowed as deduction while computing income of the business or profession. However, there are some restrictions on the deduction of bonus or commission paid to an employee as per Section 32 of the Income Tax Bill, 2025. Let’s have an understanding of the same.
Section 32(1)(a) of Income Tax Bill
According to clause (a) of Section 32(1), an employer is eligible to claim deduction of expenditure incurred towards bonus or commission paid to an employee for services rendered. However, no such deduction shall be allowed if he has been paid bonus or commission in lieu of the profits or dividends otherwise payable to him.
In simple words, if the employer pays dividends to his employer but disguised as bonus/ commission, the deduction is not allowed.
Further, Section 37 of the Income Tax Bill, 2025 also provides that deduction towards bonus or commission shall be allowed only when the amount has been actually paid by the employer. The employer shall ensure that the bonus or commission in respect of a tax year is paid off on or before due date of filing ITR in respect of that tax year. If the employer fails to discharge the obligation before this deadline, he will not be eligible to claim deduction for bonus or commission expenses in respect of the employees.
For example: In respect of tax year 2024-25, Ram (individual) pays Rs. 10 Lakhs as bonus to employees before the end of the tax year whereas Rs. 20 Lakhs is outstanding out of which it pays Rs. 12 Lakhs on 11-07-2025. The balance amount is paid on 04-11-2025. The due date of filing ITR in case of individuals in 31st July 2025.
Solution: In this case, Ram will not be eligible to claim deduction for Rs. 8 Lakhs which is paid after 31st July 2025. He will be eligible to claim deduction towards bonus for Rs. 10+12 = 22 Lakhs which has been paid off before the given deadline.
Disclaimer: The above information is meant for educational purposes only. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article. For any support mail at: support@taxwink.com
