Sign-On Bonus Repaid to the Old Employer: Can You Deduct It From Salary? (ITAT Chennai)

Last updated: 03 August 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

A sign-on bonus is a payment to attract you to a job. Most contracts add a clawback: if you leave within a year, you repay it. The tax question that follows is a hard one. You were taxed on the bonus when you got it. Can you reduce your taxable salary when you pay it back?

The tax position on receipt

A sign-on bonus is paid by the employer because of the employment. That makes it salary. Section 16 of the Income-tax Act, 2025 says salary includes wages, fees or commission, perquisites and profits in lieu of salary, and a joining bonus falls in these. The employer deducts TDS under section 392 when it pays the bonus.

The case: S.S.N. Ravi v ACIT

Forum and date: Income Tax Appellate Tribunal, Chennai, order dated 06/05/2016, I.T.A. No. 933/Mds/2015, assessment year 2008-09.

Facts

• The taxpayer joined Barclays in November 2006 and received a sign-on bonus of ₹25 lakh in FY 2006-07, which he included in his income of that year.
• The bonus was repayable if he left within one year.
• He left on 31/10/2007, before the year was complete, and moved to Deutsche Bank. Deutsche Bank paid him ₹25 lakh, which he used to repay Barclays.
• In his return for FY 2007-08 he reduced his salary by ₹25 lakh. The Assessing Officer added it back.

Decision. The Tribunal dismissed the appeal. In short:

• The sign-on bonus is a revenue receipt of the nature of employment income.
• The employee left voluntarily; he was not terminated.
• Section 17(1) of the 1961 Act made no provision for reducing salary by a refund of the bonus.
• The amount that the new employer paid to cover the repayment could not be treated as compensation for the lost bonus.
• The ₹25 lakh could not be reduced from taxable income.

The position under the Income-tax Act, 2025

The 2025 Act has the same structure. Section 19(1) lists the deductions from salary: professional tax, the standard deduction, the retirement exemptions (gratuity, commutation of pension, leave encashment and similar) and compensation items. A repayment of a bonus is not in that list.

The ruling is a Tribunal order on its facts, in a case where the employee left voluntarily and a new employer paid the sum. Do not treat it as settling every repayment: a different fact pattern could be argued differently.

Practical points

1. Read the clawback clause before you sign. Check the repayment period and whether the repayment is of the gross amount or of the amount net of tax.
2. If your new employer reimburses the repayment, remember that the reimbursement is a payment from an employer, so expect it to be taxed as salary, with no deduction for the amount you repay.
3. Take advice before claiming a deduction for a repaid bonus. If you claim it, keep the contract, the repayment proof and the old employer’s acknowledgement.

Frequently asked questions

Official sources

• ITAT Chennai: S.S.N. Ravi, Chennai v ACIT, order of 06/05/2016 (I.T.A. No. 933/Mds/2015)
• Income Tax Department: Income-tax Act, 2025 (sections 16 and 19)

Disclaimer

This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.

Case law, Clawback, ITAT Chennai, Repayment of bonus, Salary, Section 19, Sign-on bonus

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