TDS to be deducted on tips passed to employees by Hotel employers who have collected them from customers

PrintPDF The HC, following the decision of the Supreme Court in the case of Karamchari Union (above), treated ‘advantage’ in terms of the payment of money received by the employee from the employer in relation to or in addition to any salary or wages as covered by the inclusive definition of the term ‘salary’. Furthermore, the HC considered the bona fide belief of the assessee for non withholding of tax at source from payments made from tips as a reasonable cause for failure to withhold tax, and waived the penalty. This decision is of relevance to the hotels which are following a similar mechanism of collecting and distributing tips to their employees and not withholding taxes under section 192 when making payment of tips. In future, they may need to withhold taxes under section 192 while paying money collected as tips