Do you have a job offer with a sweet joining bonus? You don’t want to say no to it. It’s free money, right?
I thought so too until I lost more than 12 lakhs when I had to repay my joining bonus (Bonus + lost taxes).
When I joined a company, they offered a joining bonus to cover my existing personal loan. It was a great gesture from the company. They wanted me to join them without any financial worries.
I was happy and I accepted the offer.
But that turned out to be one of the worst financial mistakes of my life.
The Mistakes I Made
#1: I did not read my offer letter
Like the terms and conditions you accept on websites without reading, I too signed the offer letter without actually reading it. It must be standard stuff in there, right?
Turns out, I was wrong.
There was a clause in the company offer letter- if I leave the company within a specified time, I’d have to pay back the entire amount.
Ouch. Only if I had read that.
Sometimes, you never assume you’ll leave the company quickly. You overestimate your loyalty to the company.
#2: I assumed that the company will not enforce the clause in the offer letter
After All, they were considerate and did a lot for me when I joined. So it stands to reason that if I explain my situation, they’d understand and not make me pay back.
Turns out, employers mostly care when you join them. Not so much when you leave.
#3: I did not pay off my loan
This is probably the stupidest thing I did. I did not use the bonus for its intended purpose.
When I got a lot of money, instead of paying off my loan straight away, I kept it in my account. What if I needed the money?
Overspent on items I’d have normally never spent money on. After all, I have a financial cushion.
#4: I got taxed on the bonus I had to return
I should have read the income tax rules regarding joining bonuses before I put in my papers.
When I received the joining bonus, TDS was deducted and paid to the government. My salary went from being in the 20% bracket to 30% tax bracket because of the bonus.
I ended up paying more tax on the rest of the month’s income as well.
But that’s OK I assumed. Because I can claim a refund for the extra taxes I paid since I paid the money back, right?
Oh boy. Was I wrong again!
Turns out, according to Indian tax rules, even if you pay back your joining bonus, you cannot claim tax relief. It’s your loss.
The government is happy to double tax this amount. It gets taxed when I get it. It gets taxed again when the company receives it back from us.
What should you do if a company is offering you a joining bonus?
You don’t necessarily have to say no to more money. There are a few things you can do to minimize the impact should something go wrong.
#1: Ask for a salary hike instead of a joining bonus
The joining bonus you get this year will not be there next year. So your net income will be lower next year.
Ask the employer to add the joining bonus as part of your CTC. This will help you:
- Avoid unpleasant clauses in your contract
- Prevent you from doing anything extravagant when you suddenly get a lot of money
#2: Negotiate the pay-back clause
Can you negotiate with the HR to remove the pay-back clause from your offer letter? If not, can you negotiate a pro-rated payback instead of the full amount?
#3: Request joining bonus to be paid out at the completion of the first year
This way, you won’t have the payback clause and you can get the bonus in full.
What are your thoughts?
Have you ever had a bad experience with joining/sign-on bonus? Are there better ways to handle this? Share your thoughts using the comments below.