Category: Litigation

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

Posted on by CA Meet Dhrangadhariya

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

Quick summary

  • A sign-on bonus is salary and is taxed when you receive it.
  • In S.S.N. Ravi v ACIT (ITAT Chennai, 06/05/2016), an employee who repaid a ₹25 lakh sign-on bonus to his old employer on leaving early was not allowed to reduce his taxable salary by that amount.
  • The Tribunal held that the bonus was a revenue receipt, he left voluntarily, and the Act has no provision to deduct such a repayment from salary.
  • Section 19 of the Income-tax Act, 2025 lists the deductions from salary, and a repaid bonus is not one of them.

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

Is a sign-on bonus taxable?

Yes. It is a payment from the employer in connection with employment, so it is salary under section 16 of the Income-tax Act, 2025 and taxed in the year you receive it, with TDS.

Can I deduct a sign-on bonus that I repay to my old employer?

The Chennai Tribunal held that you cannot reduce your taxable salary by a repaid sign-on bonus when the employee left voluntarily. The Act does not provide a deduction for the repayment.

Does it matter that my new employer reimbursed the repayment?

In S.S.N. Ravi the new employer paid the employee the amount to repay. The Tribunal treated it as a revenue receipt, not a capital receipt, and the employee was taxed on it as well.

Which case is this?

S.S.N. Ravi, Chennai v ACIT, ITAT Chennai, order dated 06/05/2016, I.T.A. No. 933/Mds/2015, assessment year 2008-09.

What should I do before signing a sign-on bonus clause?

Read the clawback terms and ask who bears the tax if you have to repay. If a new employer will reimburse the repayment, ask for advice on how that payment will be taxed in your hands.

Official sources

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.

Cheque Bounce under Section 138 of the Negotiable Instruments Act: Notice, Time Limits, Penalty, Interim Compensation and Appeal

Posted on by CA Meet Dhrangadhariya

Last updated: 09 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • A cheque returned unpaid for insufficient funds, or because it exceeds the arrangement with the bank, is an offence under section 138 if it was issued for a legally enforceable debt or liability. Punishment is imprisonment up to two years, or fine up to twice the cheque amount, or both.
  • Three steps in time: present the cheque within six months of its date or its validity, whichever is earlier; send a written demand notice within 30 days of the bank’s return information; the drawer has 15 days from receipt of the notice to pay.
  • The complaint must be filed within one month after the 15 days end, in the court of the branch where the payee holds the account (if the cheque was deposited through an account).
  • The court may order interim compensation up to 20% of the cheque amount, and an appellant against conviction may be asked to deposit at least 20% of the fine or compensation.

A bounced cheque is not always a crime, but one returned for want of funds can be. Section 138 of the Negotiable Instruments Act, 1881 turns the dishonour of a cheque issued to discharge a debt into a criminal offence, subject to a strict timetable. Missing any step in that timetable ends the complaint, so the dates matter more than the amount.

When section 138 applies

A cheque drawn by a person on an account maintained by him with a banker, for payment of an amount to another person from that account, for the discharge in whole or in part of any debt or other liability, is returned by the bank unpaid either because:

  • the money standing to the credit of the account is insufficient to honour the cheque, or
  • the cheque exceeds the amount arranged to be paid from that account by an agreement with the bank.

“Debt or other liability” means a legally enforceable debt or liability. A cheque given as a gift, or for a time-barred or illegal debt, falls outside the section.

The three conditions in the proviso

  1. Presentation: the cheque is presented to the bank within six months from the date on which it is drawn, or within the period of its validity, whichever is earlier. (The RBI has fixed the validity of a cheque at three months from its date, so in practice the cheque must be presented within three months.)
  2. Demand notice: the payee or holder in due course gives a written notice to the drawer demanding the amount, within 30 days of receiving information from the bank that the cheque was returned unpaid.
  3. Drawer’s chance to pay: the drawer fails to pay the amount within 15 days of receiving the notice.

Only when all three are met is the offence complete.

Filing the complaint (section 142)

  • Only on a written complaint by the payee or the holder in due course.
  • Within one month from the date the cause of action arises, which is the day after the 15 days to pay have ended. The court may take a late complaint if the complainant shows sufficient cause.
  • The court must be not lower than a Metropolitan Magistrate or Judicial Magistrate of the first class.
  • Territorial jurisdiction: if the cheque was delivered for collection through an account, the court where the payee’s (or holder’s) branch is situated; if it was presented for payment otherwise than through an account, the court where the drawer’s branch is situated. A cheque delivered to any branch of the payee’s bank is treated as delivered to the branch where the payee holds the account.
  • Later complaints against the same drawer for other cheques go to the same court as an earlier pending complaint (section 142A).

Example timeline

Step Date
Cheque dated 01/06/2026
Presented to the bank 15/06/2026 (within validity)
Bank return memo received 17/06/2026
Last day to send the notice (30 days from receipt of information) 17/07/2026
Notice sent and received 05/07/2026
Drawer’s 15 days end 20/07/2026
File the complaint by (one month after the cause of action arises; do not leave it to the last day) 20/08/2026

Count the days from the date the notice was received, not the date it was posted, and keep the postal proof.

Presumptions and what the drawer cannot say

  • It is presumed, unless the contrary is proved, that the holder received the cheque for the discharge of a debt or liability (section 139).
  • It is not a defence that the drawer had no reason to believe the cheque would be dishonoured (section 140).
  • On production of the bank’s slip or memo showing the official mark of dishonour, the court presumes the fact of dishonour until it is disproved (section 146).
  • The complainant’s evidence can be given on affidavit (section 145), and summons can be served by speed post or approved courier (section 144).

Punishment

Imprisonment which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Companies (section 141): where the drawer is a company, every person in charge of and responsible for the conduct of its business at the time of the offence, as well as the company, is deemed guilty, unless the person proves the offence was committed without knowledge or that he exercised all due diligence. A nominee director from the Government or a government financial institution is not liable. A director, manager or other officer is also liable where the offence was committed with consent or connivance or is attributable to neglect on his part. For this section, “company” includes a firm or other association of individuals, and “director” means a partner in a firm.

Trial, interim compensation and appeal

  • Summary trial (section 143): trials are by a Judicial Magistrate of the first class or Metropolitan Magistrate and follow the summary procedure, with a sentence of up to one year in a summary trial, and the court endeavours to conclude the trial within six months of the complaint.
  • Interim compensation (section 143A, from 01/09/2018): the court may order the drawer to pay the complainant up to 20% of the cheque amount, when the drawer pleads not guilty in a summary trial or summons case, or after charge is framed in other cases. It is payable within 60 days (extendable by up to 30 days) and is refunded, with interest at the RBI bank rate, if the drawer is acquitted.
  • Appeal deposit (section 148): in an appeal by the drawer against conviction, the appellate court may order a deposit of at least 20% of the fine or compensation awarded, in addition to any interim compensation, within 60 days (extendable by 30 days). The amount can be released to the complainant during the appeal and is repaid with interest if the appellant is acquitted.
  • Settlement: every offence under the Act is compoundable (section 147).

What to do if your cheque bounces

  1. Ask the bank for the return memo and note the date you received it.
  2. Send a written notice, by a method that gives proof of delivery, within 30 days, stating the cheque number, date, amount and the reason for return.
  3. Wait for the 15 days to end, then file the complaint within the next month.
  4. Keep the bank slips, the notice, the postal receipts and proof of the underlying debt (invoice, ledger, agreement).

If you are the drawer, reply to the notice, pay within 15 days where the debt is genuine, and keep proof of payment.

Points to check

  • This post follows the Act as published on India Code. That copy still refers to the Code of Criminal Procedure, 1973; the Bharatiya Nagarik Suraksha Sanhita, 2023 has replaced it from 01/07/2024, so check the equivalent BNSS provisions for procedure.
  • The three month validity of a cheque is an RBI instruction, not stated in the Act.
  • The facts of each case (the debt, defences, jurisdiction) decide the outcome; take legal advice before sending a notice or replying to one.

Frequently asked questions

Is every bounced cheque a criminal offence?

No. Section 138 applies when a cheque issued for a legally enforceable debt or liability is returned unpaid because the account has insufficient money, or the cheque exceeds the amount arranged with the bank. Other reasons, such as signature mismatch or account closed, are dealt with by courts on their own facts.

What is the punishment?

Imprisonment for a term which may extend to two years, or a fine which may extend to twice the amount of the cheque, or both.

Within what time must the cheque be presented?

Within six months from the date on which it was drawn, or within its validity period, whichever is earlier.

What is the time limit for the legal notice?

A written demand must be given to the drawer within 30 days of receiving information from the bank that the cheque was returned unpaid.

How long does the drawer have to pay after the notice?

15 days from the receipt of the notice. If the drawer does not pay, the cause of action arises.

By when must the complaint be filed?

Within one month from the date the cause of action arises, that is, after the 15 days end. The court can take a late complaint if the complainant shows sufficient cause for the delay.

Which court has jurisdiction?

The court where the payee’s or holder’s bank branch is situated, if the cheque was delivered for collection through an account; otherwise the court where the drawer’s bank branch is situated.

Can the case be settled?

Yes. Every offence under the Act is compoundable under section 147.

What is interim compensation?

Under section 143A, the court trying the case may order the drawer to pay up to 20% of the cheque amount to the complainant when the drawer pleads not guilty (or after charge is framed), payable within 60 days, and refundable with interest if the drawer is acquitted.

Official sources

Related reading

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.

Rental Income: House Property or Business Income? Supreme Court Tests (Tax Year 2026-27)

Posted on by CA Meet Dhrangadhariya

Last updated: 22 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP

Quick summary

  • Rent from a building you own is taxed as income from house property (section 20 of the Income-tax Act, 2025), with only taxes, a flat 30% and interest as deductions.
  • If letting is itself your business, the same rent can be business income, with actual expenses and depreciation allowed. This depends on facts, not on your choice.
  • The Supreme Court decided this in Chennai Properties (2015), Rayala Corporation (2016) and Raj Dadarkar (2017): look at what the owner actually does, from a businessman’s point of view.
  • A person with long-term rights in a building, such as a lease of 12 years or more, is a deemed owner under section 25, and the rent from sub-letting can be house property income.

Rent from a property can be taxed under two heads, and they are taxed very differently. House property income allows only a flat 30% deduction, local taxes and loan interest. Business income allows the real costs of running the activity. The choice is not yours. It follows from what you actually do.

The two heads

House property (section 20). The annual value of a building and its appurtenant land that you own is chargeable to tax as income from house property, except for the part you occupy for your own business or profession. The deductions are the local taxes you paid, 30% of the annual value and interest on borrowed capital (sections 21 and 22).

Business income (section 26). Profits of a business carried on at any time in the year. If letting out property is itself a business, its profits are computed under the business provisions, with deductions such as salaries of staff, repairs, insurance, depreciation and interest, and the usual books of account.

What the Supreme Court has said

The Court looks at the activity, not just the ownership or the wording of a document.

Case Facts in brief Result
Chennai Properties and Investments Ltd v CIT (09/04/2015) A company whose main object was to acquire properties and let them out; its only income was rent Business income. The object clause alone is not decisive. It depends on the circumstances whether letting is the business
Rayala Corporation Pvt Ltd v ACIT (11/08/2016) A company whose only business was leasing its property and earning rent Business income, following Chennai Properties
Raj Dadarkar and Associates v ACIT (09/05/2017) A partnership firm held a long-term licence over market space, built 95 shops and 30 stalls and sub-licensed them, collecting licence fees and service charges House property income. The firm was a deemed owner; the service charges were inseparable from the rent, and it did not provide organised, systematic services

The test the Court applied in Raj Dadarkar was whether, from a businessman’s point of view, the letting was the doing of a business or the exploitation of property by an owner. In Chennai Properties, where the entire income was from letting properties owned by the company, letting was the business. In Raj Dadarkar, ownership of the property characterised the activity.

A reading to avoid: some articles say Raj Dadarkar held that sub-letting as an activity makes the income business income. On its facts the Court held it was house property income.

Signs that point to business

  • The object and the main activity of the person are letting properties, and that is the only or main source of income.
  • The activity is organised: staff, systematic management, a range of services (not only the use of space), and books of account.
  • Several properties are let continuously, and letting is exploited commercially rather than as a way of holding an asset.
  • The income comes from services (a hotel, a hostel, a co-working space, a hall with caterers), not just the right to occupy.

Signs that point to house property

  • You own one or a few properties and let them as an investment.
  • The rent is for occupation of the building. Any service charge is a minor, inseparable part of the rent.
  • The owner does no organised business activity around the letting.
  • You have acquired rights in the building of the kind listed in section 25(e), such as a lease of 12 years or more, and you sub-let it: you are a deemed owner, so the rent is house property income. That was the basis of Raj Dadarkar, where the firm held long-term rights under a licence.

Worked comparison

A property is let at ₹35,000 a month. Local taxes paid ₹20,000, loan interest ₹60,000.

As house property

Step Amount (₹)
Annual value (35,000 × 12) 4,20,000
Less: local taxes 20,000
Net 4,00,000
Less: 30% 1,20,000
Less: interest 60,000
Income 2,20,000

As business income, if letting is genuinely a business, with actual running costs of ₹1,10,000 (staff ₹60,000, repairs ₹30,000, insurance ₹10,000, depreciation ₹10,000) in addition to taxes and interest:

Step Amount (₹)
Rent 4,20,000
Less: taxes 20,000
Less: interest 60,000
Less: running costs 1,10,000
Profit 2,30,000

The business head is not always lower: in this case the flat 30% deduction under house property is larger than the real costs. A business also brings the burden of books of account and, above the limits, audit. Do not claim a head only for the tax result.

Other points

  • Loss: a house property loss can be set off against other income only up to ₹2,00,000 in the old regime, and not at all in the new regime. A business loss is treated differently (section 109), though it cannot be set off against salary.
  • Basic exemption: if rent is your only income, tax is nil up to the basic exemption limit of your regime, after the deductions for the head.
  • Documentation: keep the agreement, rent receipts, and for a business, evidence of services provided and of the staff and records.

Before you rely on this

The rulings are on their own facts and later cases apply them to different set-ups, so a case-specific opinion is worth having if the amount is large or the Assessing Officer questions your head. The sub-letting position of a deemed owner follows section 25(e) of the 2025 Act (earlier section 27(iiib)).

Frequently asked questions

Is rental income house property income or business income?

Usually house property income. It is business income only when letting is itself the business, as the Supreme Court found in Chennai Properties and Rayala Corporation, where the company’s main business was letting its properties.

Does the object clause of the company decide it?

No. In Chennai Properties the Court said that an entry in the objects is not decisive; the question depends on the circumstances of each case, from a businessman’s point of view.

Who decides which head applies?

The facts decide, and in a return you must report under the head the facts support. The Assessing Officer can differ. You cannot pick the more favourable head.

What deductions are allowed under each head?

House property: local taxes paid, 30% of the annual value and interest on borrowed capital. Business: expenses allowed under the business provisions of the Act (such as staff, repairs, insurance, depreciation and interest), which usually need books of account.

What did Raj Dadarkar decide?

That a partnership firm which held a long-term licence and sub-licensed shops, earning rent and service charges that were inseparable from the rent, was a deemed owner and its income was house property income, not business income.

Is sub-letting income house property or other income?

If you are a deemed owner under section 25 (for example, you hold a lease of 12 years or more), it is house property income. Otherwise it is business income or income from other sources depending on the facts.

Official sources

Related reading

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.

Understanding Notice under Section 142(1) of the Income Tax Act

Posted on by CA Meet Dhrangadhariya

Understanding Notice under Section 142(1) of the Income Tax Act

The Income Tax Act, 1961, is a comprehensive legislation that governs the taxation of income in India. One of the key provisions of this Act is Section 142, which deals with the assessment of income tax. Specifically, Section 142(1) empowers the Assessing Officer to issue a notice to the taxpayer, requiring them to file their income tax return.

What is a Notice under Section 142(1)?

A notice under Section 142(1) is a formal communication issued by the Assessing Officer to the taxpayer, requiring them to file their income tax return. This notice is typically issued when the taxpayer has not filed their income tax return or has not furnished the required documents or information.

Why is a Notice under Section 142(1) issued?

A notice under Section 142(1) is issued for several reasons, including:

1. Non-filing of income tax return: If the taxpayer has not filed their income tax return, the Assessing Officer may issue a notice under Section 142(1) to require them to file their return.
2. Non-furnishing of documents or information: If the taxpayer has not furnished the required documents or information, the Assessing Officer may issue a notice under Section 142(1) to require them to furnish the same.
3. Discrepancies in income tax return: If there are discrepancies in the income tax return filed by the taxpayer, the Assessing Officer may issue a notice under Section 142(1) to require them to explain the discrepancies.

What to do if you receive a Notice under Section 142(1)?

If you receive a notice under Section 142(1), it is essential to take immediate action to avoid any penalties or consequences. Here are some steps you can take:

1. Respond to the notice: Respond to the notice within the specified time limit, typically 15 days from the date of receipt of the notice.
2. Furnish the required documents or information: Furnish the required documents or information, such as financial statements, tax audit reports, or other relevant documents.
3. File your income tax return: If you have not filed your income tax return, file it immediately, along with any necessary documents or information.
4. Seek professional help: If you are unsure about how to respond to the notice or need help with filing your income tax return, seek the advice of a tax professional or chartered accountant.

Conclusion

A notice under Section 142(1) is a formal communication issued by the Assessing Officer to the taxpayer, requiring them to file their income tax return or furnish the required documents or information. If you receive such a notice, it is essential to respond promptly and take necessary action to avoid any penalties or consequences. By understanding the purpose and implications of a notice under Section 142(1), you can ensure that you comply with the requirements of the Income Tax Act and avoid any unnecessary complications.

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.