Income tax for an individual on the amount received as a penalty from the Developer

Chapter 23 of the Tax Code of the Russian Federation is devoted to income tax (NDFL). The provisions of this chapter establish the circle of valid personal income tax payers, as well as taxable objects and the procedure for determining the tax base when calculating the tax payable. Thus, according to Chap. 23 Tax Code of the Russian Federation:

1. Personal income tax taxpayers are ordinary citizens (residents, non-residents of the Russian Federation) who have income.
2. Income tax is imposed on all income received from sources in the Russian Federation and abroad.
3. When calculating personal income tax, the tax base includes all income received by a citizen in kind or in monetary terms, as well as in the form of material benefits.

Meanwhile, some types of income are not subject to personal income tax. Their full list is presented in Art. 217 Tax Code of the Russian Federation. These include, for example, all types of compensation payments related to dismissal, free housing, and fuel. Unemployment benefits, maternity benefits, insurance pensions, compensation for unused vacation by the employee and other payments are also not subject to personal income tax.

Based on the listed norms, we can conclude that penalties and fines can be subject to personal income tax only if they are income, i.e., subject to inclusion in the tax base. All that remains is to find the answer to a simple question: are they recognized as an individual’s income or not.

What does a penalty (fine) mean and is it necessary to withhold personal income tax from it?

The definition of this concept is given in Art. 330 Civil Code of the Russian Federation. The article clearly states that a penalty (as well as a fine, penalties) is understood as the amount of money that the debtor must pay to the creditor in the event of failure to fulfill or improper fulfillment of its obligations. The amount of this amount is determined by law and agreement. It should be clearly understood that this is not compensation for damage, i.e. this payment is not compensatory in nature.

It should be noted that both the penalty and the fine can be collected pre-trial and through the court. In the first case, the payment is made by the debtor voluntarily, in the second - forcibly. For example, if the developer did not fulfill the terms of the equity participation agreement and did not deliver the house on time, then he must pay the shareholder a penalty, and in some cases a fine. He can do this voluntarily, at the written request of the second participant of the DDU, i.e., the shareholder. If he does not do this, then the shareholder has the right to file a lawsuit against him to collect a penalty. Then they talk about forced collection of the penalty by court order.

Regardless of how the forfeit (fine) is paid to the creditor, voluntarily or compulsorily, in both the first and second cases it is recognized as his income. And income, as established by the Tax Code of the Russian Federation, is subject to personal income tax. This position is confirmed by the relevant legislative norms (see table below).

Thus, penalties (fines) collected through the court are monetary income of an individual, since they are recognized as economic benefits. And all income received by an individual in kind or in cash is included in the tax base. In addition, penalties and fines are not included in the list of income that is exempt from personal income tax.

It follows that penalties and fines collected by the court, as well as their indexed amounts, are always subject to personal income tax. This position is recognized by the Federal Tax Service and the Ministry of Finance of the Russian Federation, is confirmed by legal norms and is not subject to challenge at the moment. In particular, in the letter of the Ministry of Finance of the Russian Federation No. 03-04-05/19869 dated March 29, 2021, it is noted that all sanctions that are provided for by the current Federal Law of the Russian Federation No. 2300-1 dated February 7, 1992 (as amended on March 18, 2021) “On the protection of rights consumers” are exclusively punitive in nature. They are not considered compensation. Since they form a property benefit for consumers, they are included in the taxable income of an individual.

Should the shareholder pay personal income tax on penalties for late transfer of the apartment?

A widespread situation is when a shareholder, having received a penalty (penalty, fine) from the developer for late transfer of an object, does not pay tax on this income (personal income tax). And not only does he not pay, but there are no tax consequences: both parties seem to “forget” about personal income tax. In some regions of Russia, where this was common practice, many are so accustomed to this that often not only the shareholder, but also the developer cannot imagine that it could be otherwise, although the latter has financiers, accountants and lawyers.

An article was even published on the pages of our website https://zashchita-shareshchikov.rf/help/116-0081. But in reality everything is not so simple. And this actually applies to any penalty, and not just that collected for late transfer of an apartment.

On the one hand, the Ministry of Finance of the Russian Federation has almost always stated that a penalty paid to an individual in the event of a delay in the delivery of a shared construction project is his income and is subject to personal income tax, since it is not included in the list of income from which tax does not need to be withheld. The developer is recognized as a tax agent who is obliged to withhold personal income tax (Letters of the Federal Tax Service of Russia dated March 25, 2011 No. KE-3-3/935, Ministry of Finance of Russia dated June 2, 2009 No. 03-04-05-01/409). However, the Ministry of Finance and the Federal Tax Service are far from the highest authorities in interpreting tax legislation, and although the Tax Code gives the Ministry of Finance certain powers to clarify tax legislation, these clarifications are mandatory only for tax authorities and do not prevent taxpayers from being guided by a different interpretation of the law, which, as As a rule, in recent years the Ministry of Finance has reported in the final part of many of its letters and even directly stated in the summary letter dated November 7, 2013 No. 03-01-13/01/47571 “On the formation of a unified law enforcement practice.” This is especially true if these letters answer private questions and do not have normative properties. Therefore, it is better to turn to judicial practice.

Until 2015, at the level of the Supreme Court of the Russian Federation there was no single position on the issue of paying personal income tax on penalties collected by court decision. The highest level of practice was regional (territorial, republican, etc.) courts. And there the law enforcement practice was different. In some subjects of the federation, the courts proceeded from the compensatory nature of the penalty, and such payments are exempt from personal income tax by virtue of clause 3 of Art. 217 Tax Code (TC) of the Russian Federation. In other regions, the courts did not consider the penalty to be income (economic benefit) at all. Thirdly, the courts, like the Ministry of Finance, considered that personal income tax on penalties should be paid on a general basis.

In 2015, this issue was finally clarified. A review of the practice of courts considering cases related to the application of Chapter 23 of the Tax Code of the Russian Federation has been published (approved by the Presidium of the Supreme Court of the Russian Federation on October 21, 2015). It is indicated that payments of penalties and fines made to citizens in connection with violation of consumer rights are not exempt from taxation, since the sanctions provided for by the legislation on the protection of consumer rights are exclusively punitive in nature. Their collection does not pursue the goal of compensating for losses (real damage) of the consumer. Since the payment of amounts of such sanctions leads to the formation of property benefits for the consumer, they are included in the citizen’s income on the basis of the provisions of Articles 41, 209 of the Tax Code of the Russian Federation, regardless of the fact that the receipt of these amounts is due to a violation of the rights of an individual.

The amounts of fines and penalties paid by an organization on the basis of a court decision for failure to voluntarily satisfy consumer requirements are also not specified in Article 217 of the Tax Code of the Russian Federation, therefore there are no grounds for exempting such payments from taxation. An exception is monetary compensation for moral damage paid to a citizen: it is not taxed.

Another thing is that, based on paragraph 2 of Art. 13 of the Code of Civil Procedure of the Russian Federation, the debtor is obliged to execute the court decision, including the collection of a penalty, according to its literal text. And the norms of tax legislation in this regard, although they do not directly contradict the norms of procedural legislation and legislation on enforcement proceedings, do not provide complete clarity. It turns out that, on the one hand, the debtor (for example, a developer) is a tax agent in relation to personal income tax, and on the other hand, he is obliged to fulfill the decision as it is. Therefore, if the court decision does not allocate the amount of personal income tax, then the debtor himself does not have the right to allocate personal income tax, but is obliged to execute the decision literally. In the judicial practice of a number of regions, this is directly confirmed, although in cases of a slightly different category - on the recovery of wages (for example, appeal rulings of the Stavropol Regional Court dated July 26, 2016 in case No. 33-5929/2016 and dated July 20, 2016 in case No. 33 -5889/2016, Khabarovsk Regional Court dated September 26, 2014 in case No. 33-5824/2014). Thus, it is indicated that the debtor organization, in accordance with civil procedural legislation, is given the right at the stage of consideration of a civil case to draw the court’s attention to the need to determine the debt subject to collection, taking into account the requirements of the legislation on taxes and fees. But if, when making a decision, the court does not divide the amounts due to the plaintiff and subject to withholding from him, the tax agent organization does not have the opportunity to withhold from the taxpayer personal income tax on payments made pursuant to a court decision.

So, the decision to collect amounts subject to personal income tax should be executed literally, even if personal income tax is not included in it. How can a debtor organization avoid violating tax laws? In these court decisions, one can see the idea that, if we proceed from the fact that in this case it is not possible to withhold tax, then according to paragraph 4 of Art. 226 of the Tax Code of the Russian Federation, it can be subsequently withheld until the end of the tax period (for personal income tax - the calendar year) at the expense of any monetary income due to the taxpayer, upon their actual payment, but not more than half of these incomes. But, as a rule, in the field of shared construction, the payment of any income by the developer to the shareholder is an infrequent situation (although, in principle, voluntary payment of the next part of the penalty is possible), and most importantly - in paragraph 4 of Art. 226 of the Tax Code of the Russian Federation directly states that deduction from cash income is allowed only in two cases: when the taxpayer pays income in kind or the taxpayer receives income in the form of material benefits. A penalty is monetary income, not in kind, and it is also not a material benefit in the sense of the Tax Code. Therefore, we believe that there is only one option left - the one specified in paragraph 5 of Art. 226 of the Tax Code of the Russian Federation and according to which, after the end of the year, the tax agent, before March 1, must inform the taxpayer-collector and the tax authority at the place of his registration in writing about the impossibility of withholding the tax and the amount of the tax, and then, according to paragraphs. 4 paragraphs 1 art. 228 of the Tax Code of the Russian Federation, the tax collector himself will have to calculate and pay the tax, having previously submitted a tax return before April 30. The same model has been repeatedly confirmed by the Ministry of Finance.

Summary: penalties, as a general rule, are subject to personal income tax. When a court considers a claim for the collection of a penalty, the debtor, before the court makes a decision, may ask the court to allocate personal income tax in the amount recovered. But if this is not done in the court decision to collect the penalty, the debtor does not have the right to independently allocate and withhold personal income tax. Before March 1 of the following year, he should inform the collector and the tax authority at the place of his registration (not the collector!) about the impossibility of withholding the tax, and the collector must submit a personal income tax return within the prescribed period and pay the tax himself. All of the above applies to both penalties collected by equity holders from developers and other penalties.

Non-personal income tax amounts collected by court decision

So, taking into account the norms of the Tax Code of the Russian Federation, it is determined that penalties and fines paid to an individual by court decision are taxable amounts. At the same time, often the plaintiff, when going to court, demands not only the recovery of these amounts, but also compensation for moral damage (physical, moral suffering), expenses and losses incurred, and lost profits. Accordingly, the question arises whether it is necessary to pay personal income tax on these amounts, i.e. whether they are included in the taxable income of an individual.

As mentioned above, the main list of payments that are exempt from taxation is indicated in Art. 217 Tax Code of the Russian Federation. This implies:

1. Compensation for moral, as well as actual, real damage is a compensation payment provided for by law. Therefore, personal income tax is not withheld from her.
2. Lost profits are lost income that an individual could have received if his rights had not been violated (in relation to Article 15 of the Civil Code of the Russian Federation). Therefore, personal income tax must be calculated and paid from it.

Important! Legal costs and other related expenses (such as state fees, postage, etc.) that occurred during the consideration of a claim for the collection of a penalty or fine are not subject to personal income tax. Reason: clause 61 of Art. 217 NK.

The following standard situation can be given as an example. A citizen purchased a product that turned out to be defective and of poor quality. He spent his own money to eliminate them. In this situation, he has the right to demand compensation from the seller for damages and moral damages. If he refuses to compensate for the damage, the buyer can go to court.

Thus, through the court it is possible to obtain compensation for real damage (expenses that were spent on eliminating a defect, defect), as well as moral damage. In this case, the guilty person (seller) reimburses all compensation amounts, but the buyer (plaintiff) pays personal income tax on them.

On what amounts do you need to pay personal income tax?

Let us immediately note that from the letter it follows that personal income tax must be paid on the amount of the penalty that the citizen received. Let's figure out why the Ministry of Finance believes this way.

The penalty is described in Article 330 of the Civil Code. It refers to fines and penalties that are paid by the debtor to the creditor by virtue of an agreement or law. An agreement concluded with a shareholder in accordance with the law on shared construction 214-FZ may provide for the payment of such a penalty for violation by the developer of the deadline for delivery of the project.

The Ministry of Finance believes that amounts in the form of fines and penalties have signs of economic benefit and are the income of an individual . In particular, this follows from the law 214-FZ itself, as well as from the law on the protection of consumer rights No. 2300-1. Since these amounts are income, then income tax must be paid on them. Since among the exceptions specified in Article 217 of the Tax Code of the Russian Federation, these types of payments are not available.

By the way, not only the Ministry of Finance thinks so. The review of judicial practice, approved by the Presidium of the Supreme Court on October 21, 2015, states the following. The penalty is purely punitive in nature and is not compensation for costs. Accordingly, the person who received it receives a benefit that should be subject to personal income tax. It does not matter that the individual received a penalty because his rights were violated.

Calculation and payment of personal income tax on penalties and fines based on a court decision: rates, formula, payment procedure

Calculation and payment of personal income tax on penalties and fines collected by court decision is carried out according to the generally established procedure. This means that in order to calculate personal income tax, you need to determine the total amount of taxable income, as well as know the tax rate. In this case, one should be guided by the norms prescribed in Art. 224 of the Tax Code of the Russian Federation (rates) and Art. 225 of the Tax Code of the Russian Federation (general procedure for calculating personal income tax).

That is, the actual amount of the penalty or fine is the income from which the tax must be calculated. As for the rate, for residents of the Russian Federation it is set at 13%, and for non-residents - 30%. For calculation purposes, we can distinguish a certain general formula, which is quite simple: taxable income * percentage tax rate.

No other calculation features for personal income tax have been established. In general, tax must be calculated on the date of actual receipt of income. Tax agents calculate and pay income for an individual in accordance with Art. 226 Tax Code of the Russian Federation. Citizens who pay personal income tax on their own are required to submit a declaration. For them, the procedure for calculation and payment is determined by Art. 227 Tax Code of the Russian Federation.

Who pays

Who pays personal income tax in case of payment of a penalty? There are several situations:

1. The developer voluntarily agrees to pay the penalty. Since individual entrepreneurs (IP), JSC, LLC and organizations of other forms of registration (regardless of the tax systems used: UTII, patent PSN or simplified tax system) are tax agents, they are all obliged in accordance with Art. 226 of the Tax Code to withhold when paying personal income tax from individuals and transfer it to the budget of the Russian Federation (on the same day on which the payment of remuneration to the individual was made). Personal income tax is withheld immediately and transferred directly by the organization (tax agent) to the Federal Tax Service.
2. The developer pays the penalty according to the court decision. In practice, judges indicate in court decisions the amounts actually awarded without allocating the part that is subject to withholding and payment to the budget of the Russian Federation in the form of taxes. The construction company undertakes to transfer the entire amount recorded in the writ of execution to the shareholder’s account, and the individual will pay the tax on his own. But at the same time, the company, as a tax agent, transmits to the tax office at the place of its registration data about the impossibility of withholding tax. Also, the developer must notify the shareholder that he is obliged to pay personal income tax. Such written notices contain the personal and other information of the taxpayer, the total amount of income received, as well as the amount of unwithheld tax. The developer must notify the shareholder and the Federal Tax Service no later than March 1 of the year following the year of payment.
3. In judicial practice, there are rarely cases in which judges in the operative parts of decisions indicate not only the amount of actual income in the form of the amount of the penalty imposed in favor of an individual, but also the amount of the tax itself.

For your information! In accounting, penalties paid by the developer are also taken into account for subsequent reporting, bookkeeping and filling out a journal. The accountant of the organization conducting accounting must include them in account 91.02 - “Other expenses” in the accounting book.

Example 1. Withholding personal income tax from a penalty collected by court

Moskvich, Belsky N.N. entered into an equity participation agreement (DPA) with the developer in January 2021 for the construction of a two-room apartment. According to the terms of this agreement, the shareholder paid the required cost of the apartment according to the DDU within the established time frame. However, the developer delayed the delivery of the house. As a result, Belsky I.N. went to court, demanding to collect a penalty from him for delay.

The court found the claims of the plaintiff (Belsky N.N.) justified. By a court ruling dated June 26, 2021, a penalty in the amount of RUR 200,000 was collected from the developer in favor of the shareholder. rub. This amount is recognized as the income of citizen N.N. Belsky and is subject to personal income tax. Since he is a resident of the Russian Federation, when calculating income tax payable, a rate of 13% is used.

The total is: 200,000 RUR. rub. * 13% = RUR 26,000 rub. This is the amount of personal income tax that will need to be paid.

Common mistakes when withholding personal income tax from penalties and fines by court decision

Error 1. It is necessary to correctly understand who, when, should calculate and pay personal income tax on penalties based on a court decision.

So, the organization that pays income to an individual is a tax agent. This is evidenced by paragraph 1 of Art. 226 Tax Code of the Russian Federation. Consequently, it is she who must withhold and transfer personal income tax from the income of an individual.

This rule fully applies to income paid in the form of penalties and fines, but with some reservations. It should be noted that here we are talking about a situation where the organization does not make other payments to an individual. If the court that made the decision indicated in its ruling a specific amount of the penalty and the amount of tax to be paid, then the debtor (organization), upon actual payment, will have to withhold and transfer personal income tax for the individual.

If there is no such division (in terms of the amount of the penalty and personal income tax), then the organization essentially does not have the opportunity to withhold and deduct tax. Then she must inform the individual and the Federal Tax Service in writing:

• about the inability to pay personal income tax;
• the amount of income (in the form of a penalty, a fine) from which tax must be withheld;
• the amount of unwithheld personal income tax.

This must be done within the deadline immediately after the last tax period. After this, payment of the tax falls entirely on the shoulders of the individual.

Recognized penalties – non-operating income

In accordance with paragraph 3 of Article 250 of the Tax Code, non-operating income includes fines, penalties and other sanctions for violation of contractual obligations, as well as amounts of compensation for losses or damages.

The basis for accounting for sanctions for violation of obligations is either the recognition of the corresponding amounts by the debtor, or the entry into force of a court decision to collect these amounts. A similar opinion was expressed by the Russian Ministry of Finance in letter dated February 8, 2013 No. 03-03-06/1/2986. In addition, he indicated that non-operating income also includes the amount of debt payable by the debtor on the basis of a court decision under the supply agreement.

If the supplier organization uses the accrual method in tax accounting, then income from the sale of goods must be reflected in accounting as income from sales in accordance with Article 39 of the Tax Code on the date of shipment. In this case, if, by a court decision, the buyer paid the debt on the previously received goods, the amount of the repaid debt will not be the income of the seller (company), since it was already reflected in the accounting, and the inadmissibility of repeated reflection of income is indicated by paragraph 3 of Article 248 of the Tax Code .

When using the cash method, the date of receipt of income is the day of receipt of funds into bank accounts and (or) the cash desk, receipt of other property (work, services) and (or) property rights, as well as repayment of debt to the enterprise in another way (Article 273 of the Tax Code) code). This means that income from the amount received by court decision to repay the debt must be reflected in the supplier’s accounting on the date of receipt of funds in his current account.

When using any of the methods (accrual, cash), the received amounts of debt must be shown in the seller's accounting as funds received in payment for the shipped goods, the income from the sale of which is income from sales in accordance with Article 249 of the Tax Code. The fact that the funds were received by court decision does not change the essence of the case.

But the amounts of penalties and reimbursement of legal costs relate to non-operating income (clause 3 of Article 250 of the Tax Code).

Answers to frequently asked questions

Question No. 1: Is it possible to apply any of the deductions when withholding personal income tax from a penalty?

An individual, when receiving income in the form of a penalty or a fine, can only claim a standard deduction for himself in the amount of 500 or 3000 rubles. rub. (for your child – from 1,400 to 12,000 Russian rubles). The law does not prohibit the use of a standard deduction.

It should be borne in mind that this deduction will be possible only if there are certain grounds and if the specific conditions provided for in Art. 218 Tax Code of the Russian Federation. Key point: the standard deduction is provided only to residents of the Russian Federation (i.e., those citizens whose income is subject to personal income tax at a rate of 13%).

When does income from fines arise?

The mere delay in fulfilling an obligation, upon the occurrence of which the debtor may be presented with appropriate claims for the collection of fines and penalties or a lawsuit may be filed, does not lead to the formation of non-operating income (letter of the Ministry of Finance of Russia dated August 16, 2010 No. 03-07-11/ 356). The judges agree with this. The Federal Antimonopoly Service of the Moscow District, in decisions dated November 28, 2005, dated November 22, 2005 No. KA-A40/11772-05, indicated that the company did not exercise the right to demand the debtor pay sanctions, and the debtor did not commit actions that indicated would be about recognition of the amount of the fine and willingness to pay it. Therefore, there is no reason to include the amounts of sanctions in income.

But what should be understood by recognition of debt in the form of fines and penalties, officials and judges did not come to a consensus. So, non-operating income is considered income in the form of fines, penalties and (or) other sanctions recognized by the debtor or subject to payment by court decision for violation of contractual obligations, as well as amounts of compensation for losses or damages (clause 3 of Article 250 of the Tax Code).

The Ministry of Finance of Russia in letter dated June 20, 2005 No. 03-03-04/2/5 explained that if the organization does not receive the debtor’s objections to the requirement to pay penalties, then such sanctions are subject to inclusion in non-operating income, since it can be assumed that they are recognized as a debtor.

The judges did not agree with the officials. The Federal Antimonopoly Service of the North-Western District, in its resolution dated August 22, 2007 No. A56-273/2007, recognized that the signing by the parties of agreements that contain a condition on liability for delay does not indicate their recognition of penalties. It only allows for the possibility of applying penalties, but cannot be considered as their recognition. The same court, in its decision dated June 22, 2007 No. A56-28963/2006, indicated that the moment of debt recognition is the debtor’s performance of specific actions to fulfill obligations, which indicate recognition of the debt. In this case, such actions were the payment by the debtor of the accrued penalties.