Salary is not taxed solely by bank receipt
Section 15 of the Income-tax Act, 2025 covers salary due in the tax year whether paid or not, salary paid or allowed though not yet due, and arrears paid or allowed if not charged in an earlier tax year. Subsection (3) prevents an advance already included in total income from being included again when it becomes due. This guide applies to tax year 2026–27 and the Act as amended by Finance Act, 2026, checked on 26 October 2026. It deals with chargeability timing, not a final tax or withholding calculation. Income Tax Department: Income-tax Act, 2025 as amended by Finance Act, 2026; sections 15–16.
Establish when the salary legally became due
Use the employment terms, payroll period, entitlement and any relevant award or revision. A month-end accounting entry is useful evidence but does not settle every dispute about when an enforceable salary entitlement arose. Nor does an employer’s temporary inability to pay automatically postpone salary already due. Keep unpaid current-year salary separate from a possible future discretionary award that has not yet become due, paid or allowed.
An advance needs an earlier-year inclusion record
Under section 15(1)(b) and (3), a true advance of salary can enter the earlier year before the salary is due. At the later due date, preserve evidence of the actual earlier inclusion so it is not charged again. Do not subtract every payroll deduction labelled advance: it could be recovery of a separate employee loan or a different adjustment. A genuine loan and any related perquisite require their own legal analysis; the label alone does not establish either treatment.
Arrears require a history of what was charged
For every arrears component, record the earning/entitlement period, date due, payment or allowance date and whether it was charged earlier. A later bank receipt of previously taxed unpaid salary is not new salary income merely because it appears in this year’s bank statement. Conversely, calling a payment old arrears does not exempt an amount that was never charged and meets the current receipt/allowance rule. Any relief for arrears or advance salary is a separate statutory and procedural enquiry, not automatic exclusion from income.
Former employers and non-salary remuneration
Section 15(2) includes a former employer in the employer reference. Reconcile leaving-employment settlements rather than ignoring them because the employee has joined elsewhere. Section 15(4) separately states that a partner’s salary, bonus, commission or remuneration from the firm is not salary for this section. A commercial description such as monthly salary is therefore insufficient without identifying the actual employer/employee or partner relationship.
Use a gross-to-bank and year-to-year bridge
Prepare a component register with amounts due, paid/allowed before due, previously charged and excluded to prevent duplication. Reconcile gross salary to withholding, recoveries and net bank receipts without treating a tax deduction as a salary exemption. Then apply the applicable salary deductions, exclusions, regime and tax computation separately. The illustrations assume the stated legal due/payment facts, contain no disputed entitlement or exemption and show timing bases before those later adjustments.
Applicable primary references
Income Tax Department: Income-tax Act, 2025 as amended by Finance Act, 2026; sections 15–16
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Due but partly unpaid
Salary of ₹1,00,000 per month becomes due for all twelve months of tax year 2026–27. Only ₹11,00,000 is paid by year-end. Salary due totals ₹12,00,000 and unpaid salary is ₹1,00,000. The unpaid amount is not excluded from this timing base merely because the bank receipt is smaller.
Illustrative example 2: True advance for the next year
Current-year salary due is ₹9,60,000. A true ₹80,000 salary advance for April 2027 is paid in March 2027 and has not been charged earlier. The illustrative 2026–27 timing base is ₹10,40,000. Keep the ₹80,000 as already included for the later due-year reconciliation.
Illustrative example 3: Advance already included last year
Salary becoming due in 2026–27 totals ₹12,00,000, of which ₹1,00,000 was genuinely paid in advance and included in total income for the preceding year. The current timing inclusion for that due salary is ₹11,00,000, assuming no other amounts. Retain the prior inclusion evidence rather than merely a recovery entry.
Illustrative example 4: Previously taxed unpaid salary is collected
Current-year salary due is ₹8,00,000. The employee also receives ₹1,50,000 of older salary that was already charged when due. Bank receipts total ₹9,50,000 on these simplified facts, but the current timing base remains ₹8,00,000. The ₹1,50,000 is not charged twice.
Illustrative example 5: Arrears from a former employer
Current-employer salary due is ₹10,00,000. A former employer pays ₹2,00,000 of qualifying salary arrears not charged in any earlier year. The combined timing base is ₹12,00,000 before applicable deductions or any separately established relief. Former-employer status alone does not remove the ₹2,00,000.
Illustrative example 6: Net payment is not gross salary
Gross salary due is ₹1,00,000, withholding is ₹10,000 and a separate loan recovery is ₹5,000. The bank receives ₹85,000. The gross timing amount remains ₹1,00,000; neither the ₹10,000 withholding nor the ₹5,000 recovery is automatically an exclusion from salary income.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify the tax year and relationship | Applicable Act and employer/employee status. |
| 2 | List salary components | Payroll, contract, settlement and revision records. |
| 3 | Establish amounts legally due | Entitlement and due-date evidence. |
| 4 | Identify salary paid or allowed before due | Advance authorisation and actual payment records. |
| 5 | Trace prior-year inclusions | Earlier computations and supporting acknowledgments. |
| 6 | Analyse arrears component by component | Due, payment and earlier-charge history. |
| 7 | Include former-employer records | Leaving settlements and arrears statements. |
| 8 | Separate loans and other recoveries | Contract and ledger substance, not labels alone. |
| 9 | Reconcile gross salary to bank receipts | Withholding and deduction/recovery bridge. |
| 10 | Complete the separate tax computation | Exemptions, deductions, regime, relief and credit verification. |
Sixteen practitioner FAQs
1. Is salary always taxable only when received?
No. Section 15 also charges salary due whether paid or not.
2. Does unpaid salary automatically move to next year?
Not if it already became due under the applicable facts.
3. Is every employer accrual conclusive evidence of employee entitlement?
No. Examine the actual terms and legal due facts.
4. Can salary paid before it is due be chargeable?
Yes. Section 15(1)(b) addresses salary paid or allowed before due.
5. Must that advance be charged again when due?
Subsection (3) prevents double inclusion where it was already included earlier.
6. What proves the earlier inclusion?
The prior computation and supporting return/payroll trail, rather than a later recovery label alone.
7. Are all payments called advance necessarily advance salary?
No. Separate genuine salary advances, loans and other adjustments.
8. Does recovering an employee loan automatically reduce gross salary?
No. Analyse the loan separately from the salary charge.
9. Are older arrears always exempt?
No. Section 15(1)(c) addresses arrears not charged in an earlier year.
10. Can already taxed unpaid salary be charged again on collection?
Avoid double inclusion by reconciling its earlier charge and later receipt.
11. Does the rule include former employers?
Yes. Subsection (2) includes them.
12. Is partner remuneration salary for section 15?
No. Subsection (4) expressly excludes the specified partner remuneration from that treatment.
13. Does net bank credit equal the salary tax base?
Not necessarily. Withholding, recoveries and timing differences require a gross reconciliation.
14. Does withholding itself exempt salary?
No. Tax withheld and income chargeability are distinct matters.
15. Does this article calculate arrears relief automatically?
No. Any applicable relief and required procedure need a separate verified computation.
16. What is the main closing control?
A component-wise timing register linked to prior inclusions, payroll, bank receipts and the current return.
Conclusion
Reconcile salary due, salary paid before due and later arrears without taxing the same amount twice or treating bank receipts as the complete salary base.