Have you ever When Does Your Salary Become Taxablewondered whether your salary becomes taxable only when it reaches your bank account? The answer may surprise you!
Under Section 15 of the Income-tax Act, 2025, salary can become taxable even when your employer has not paid it yet. Similarly, salary received in advance and certain salary arrears may also be taxable in the year specified by the law.
Understanding these rules can help salaried employees plan their taxes, avoid reporting mistakes, and understand how delayed salary payments affect their income-tax returns.
1. What Is Section 15 of the Income-tax Act, 2025?
Section 15 explains when income is chargeable to tax under the head “Salaries.”
It covers three important situations:
- Salary that becomes due during the tax year, whether paid or unpaid.
- Salary received or allowed in advance, before it becomes due.
- Salary arrears received during the tax year, provided they were not already taxed in an earlier tax year.
The section also clarifies that an employer includes a former employer and prevents salary already taxed as advance salary from being taxed again when it becomes due.
2. When Does Salary Become Taxable?
Salary can become taxable based on when it becomes due or when it is received, depending on the circumstances.
Let’s understand the three main situations.
A. Salary Becomes Due but Is Not Paid
If your salary becomes due during a tax year, it can be taxable for that year even if your employer delays payment.
Example:
Suppose Priya earns ₹60,000 per month. Her salary for March 2026 becomes due during the tax year, but her employer pays it in April 2026.
The salary may still be taxable in the tax year in which it became due. The fact that Priya received the money later does not automatically shift the taxability to the year of payment.
B. Salary Is Received Before It Becomes Due
If your employer pays you salary in advance, before it becomes due, the advance salary is generally taxable in the tax year in which you receive it.
Example:
Suppose Rahul receives ₹1,20,000 as advance salary in December 2026 for a future period.
If the amount is salary received in advance, it is generally taxable in the tax year of receipt, subject to the rules against double taxation when it later becomes due.
C. Salary Arrears Are Received
Salary arrears are payments made later for salary that should have been paid earlier.
Under Section 15, arrears received during a tax year are taxable if they were not already charged to tax in an earlier tax year.
Example:
Suppose an employee receives ₹90,000 in salary arrears during the current tax year because of a delayed salary revision.
If the arrears were not taxed in an earlier tax year, the amount is generally taxable in the year of receipt under this provision.
However, if the arrears relate to an earlier period, the employee may be eligible for tax relief under Section 157, subject to the prescribed conditions.
3. Is Salary Taxable Before You Receive It?
Yes. Salary may be taxable even when the employer has not actually transferred the money to your bank account.
The key question is whether the salary became due during the relevant tax year.
For example, if your employer owes you ₹80,000 in salary that became due during the tax year, the amount may be taxable for that year even if payment is delayed.
This means that the date you receive salary and the date it becomes taxable may not always be the same.
Employees should review their salary records, payslips, and Form 16 details to ensure that their income is reported correctly.
4. Is Advance Salary Taxable?
Yes. Salary received before it becomes due is generally taxable in the tax year in which it is received.
This rule prevents taxpayers from automatically postponing taxability simply because the salary relates to a future period.
Example: Salary Received in Advance
Suppose Neha receives ₹1,50,000 in advance from her employer during the current tax year.
The amount is taxable in the year of receipt, subject to applicable salary provisions and exemptions.
When that salary subsequently becomes due, it should not be included in taxable income again if it was already included in total income for the earlier tax year.
This prevents double taxation of the same salary amount.
5. How Are Salary Arrears Taxed?
Salary arrears may arise because of:
- A delayed salary revision.
- A promotion granted retrospectively.
- A revised pay scale.
- A correction in salary calculations.
- A delayed payment by an employer.
Section 15 covers salary arrears received during a tax year when they have not already been taxed in an earlier tax year.
Example: Salary Arrears After a Pay Revision
Suppose Amit receives ₹1,20,000 in salary arrears during the current tax year after his employer revises his salary retrospectively.
If the amount was not taxed earlier, it is generally taxable in the year it is received.
However, receiving a large amount in one year may increase the tax burden. Section 157 provides relief in qualifying cases involving salary arrears or advance salary, subject to the applicable requirements.
Under the Income-tax Act, 2025, taxpayers claiming this relief should review the requirement to furnish Form 39 within the prescribed time. <Cite refs={[“turn385285search8”]}/>
6. Can Salary From a Former Employer Be Taxable?
Yes. Section 15 clarifies that the term “employer” includes a former employer.
This means salary received from a previous employer may also fall under the salary-tax provisions.
Example
Suppose Rohan leaves Company A and joins Company B.
A few months later, Company A pays him ₹50,000 in unpaid salary relating to his earlier employment.
If the amount meets the conditions under Section 15 and was not taxed earlier, it may be taxable in the relevant tax year.
Employees who change jobs should therefore check payments received from both current and former employers when preparing their income-tax returns.
7. Can the Same Salary Be Taxed Twice?
No. Section 15 specifically prevents advance salary already included in total income for an earlier tax year from being included again when it subsequently becomes due.
Example
Suppose Kavita receives ₹1,00,000 as advance salary in one tax year and includes it in her taxable income for that year.
In the following tax year, the same salary becomes due.
Kavita should not include that ₹1,00,000 again merely because it has now become due. It has already been considered in her taxable income.
Key takeaway: Keep records of advance salary payments and the tax year in which they were reported. This can help prevent duplicate reporting.
8. Is a Partner’s Remuneration Treated as Salary?
Remuneration received by a partner from a partnership firm is not automatically treated as salary under the salary provisions merely because it is called salary, bonus, commission, or remuneration.
The tax treatment of a partner’s remuneration differs from the treatment of salary received by an employee. It must be considered under the provisions applicable to partnership income and the partner’s taxable income.
For this reason, partners should not assume that remuneration from their firm is taxed in the same way as an employee’s salary.
9. Important Points to Remember
Before filing your income-tax return, remember these key points:
- Salary due: It can be taxable even if it has not been paid.
- Advance salary: It is generally taxable in the year of receipt.
- Salary arrears: They are taxable if they were not already taxed in an earlier tax year.
- Former employer: Salary from a previous employer can also be taxable.
- No double taxation: Advance salary already taxed should not be taxed again when it becomes due.
- Arrears relief: Section 157 may provide relief in qualifying cases, subject to the applicable conditions and filing requirements.
- Partner’s remuneration: Its tax treatment differs from ordinary employee salary.
Maintain payslips, salary statements, Form 16, and records of arrears or advance payments to support your tax calculations.
Conclusion
Section 15 of the Income-tax Act, 2025, explains when salary becomes taxable. The important point is that salary taxability does not depend only on when the money reaches your bank account.
Salary may be taxable when it becomes due, when it is received in advance, or when qualifying arrears are received.
At the same time, the law prevents advance salary already taxed in an earlier year from being taxed again when it becomes due.
Understanding these rules can help salaried employees report income accurately, manage arrears, and avoid common tax-filing errors.
Frequently Asked Questions
1. What is Section 15 of the Income-tax Act, 2025?
Section 15 explains when salary is chargeable to income tax, including salary that becomes due, salary received in advance, and eligible salary arrears.
2. Is unpaid salary taxable?
Yes. Salary that becomes due during the tax year can be taxable even if the employer has not paid it.
3. Is advance salary taxable when received?
Generally, yes. Salary received before it becomes due is taxable in the tax year of receipt, subject to applicable provisions.
4. Are salary arrears taxable?
Salary arrears received during a tax year are generally taxable if they were not already charged to tax in an earlier tax year.
5. Can salary from a former employer be taxable?
Yes. Section 15 includes a former employer within the meaning of employer, so qualifying salary payments from a previous employer may be taxable.
6. Can advance salary be taxed twice?
No. If advance salary was already included in total income for an earlier tax year, it should not be included again when it becomes due.
7. Can I claim tax relief on salary arrears?
Eligible taxpayers may claim relief under Section 157, subject to the applicable conditions. Check the prescribed filing requirements, including Form 39 where applicable.
8. Is remuneration received by a partner treated as salary?
Not automatically. Remuneration received by a partner from a partnership firm is treated differently from an employee’s salary and must be considered under the applicable provisions.
