Direct and Indirect Taxation · Salaries

Meaning of Salary and Basis of Charge under Income-tax Act 2025

Updated 10 October 2026 · Fact-checked

Salary is income from an employer under an employer-employee relationship. Section 16 lists what it includes, such as wages, pension, gratuity and perquisites. Under section 15(1), salary is taxable if it is due in the tax year, whether paid or not, or if it is paid or allowed in the year though not due. Arrears are taxed once only.

Understand Basis of Charge and Meaning of Salary

Salary is taxed under the head "Salaries" only when there is an employer-employee relationship. The test is whether the person works under a contract of service, where the employer controls what work is done and how. A contract for services, such as an independent consultant's engagement, gives business or professional income instead. A partner's pay from his firm is also not salary: section 15(4) says salary, bonus, commission or remuneration due to or received by a partner from the firm is not regarded as salary for this section.

The word "salary" is wide. Section 16 says it includes wages, any annuity or pension, any gratuity, any fees or commission, perquisites, profits in lieu of or in addition to salary or wages, any advance of salary, and payment for leave not availed of. It also includes the taxable part of the annual accretion to a recognised provident fund, the taxable transferred balance of such a fund, the employer's contribution to a pension scheme under section 124, and the Central Government's contribution to the Agniveer Corpus Fund under section 125. Because the list says "includes", other payments from the job can also be salary. Wages are included in salary by section 16(a), so wages and salary are taxed under the same head with the same treatment.

Section 15(1) gives the basis of charge. Salary is chargeable if it is (a) due from an employer in the tax year, whether paid or not; (b) paid or allowed in the tax year, even though not due or before it became due; or (c) arrears of salary paid or allowed in the tax year, if not charged to tax in an earlier tax year. These are separate limbs, so test each one. Salary that is due in the year is taxable even if you have not received it. Salary paid in advance is taxable in the year it is paid or allowed. Arrears under clause (c) are treated separately: they are taxed in the year they are paid or allowed, but only if they were not charged to tax in an earlier tax year.

There is a protection against double tax. Under section 15(3), if salary paid in advance has been included in a person's total income for a tax year, it is not included again when it becomes due. Also, under section 15(2), "employer" includes a former employer. So a pension from a past employer is still taxed as salary.

If arrears or advance salary push you into a higher rate, you can apply for relief under section 157. This also covers salary for more than twelve months received in one tax year, profits in lieu of salary under section 18(1) and arrears of family pension. No relief is given where a deduction has been claimed under section 19(1) (Sl. No. 12) for the same amount.

Key rules to remember

Basis of charge, due: Salary due in the tax year is taxable, whether paid or not (s. 15(1)(a)); Outstanding salary is taxed in the year it falls due. Non-payment does not defer it.
Basis of charge, advance: Salary paid or allowed in the tax year, though not due or before due, is taxable (s. 15(1)(b)); Advance salary is taxed in the year of receipt. If so taxed, it is not taxed again when due (s. 15(3)).
Basis of charge, arrears: Arrears paid or allowed in the tax year are taxable if not charged to tax earlier (s. 15(1)(c)); Arrears are taxed once only. Check whether they were already charged to tax in an earlier tax year.
Employer: Employer includes former employer (s. 15(2)); Pension from a former employer is salary.
Partner's remuneration: Partner's salary, bonus, commission or remuneration from the firm is not salary (s. 15(4)); It is not taxed under this head. It is dealt with under business income.
Meaning of salary: Salary includes items (a) to (l) of section 16; Wages, pension, gratuity, fees, commission, perquisites, profits in lieu, advance salary, leave encashment and more.
Relief on arrears or advance: Relief on application under section 157 where income is taxed at a higher rate due to such receipts; No relief on income for which a deduction is claimed under section 19(1) (Sl. No. 12).

How to solve Basis of Charge and Meaning of Salary questions

Use this order for any question asking whether an amount is taxable salary and in which year.

1Confirm the employer-employee relationship. Look for words like appointment, service contract, or payment by a former employer. Rule out partners and independent professionals.
2Identify the item. Match it to section 16: wages, pension, gratuity, fees, commission, perquisites, advance, leave pay and so on.
3Fix the tax year for the item. Ask when it became due and when it was paid or allowed.
4Apply section 15(1)(a) and (b) separately. Salary due in the tax year is taxable whether paid or not. Salary paid or allowed in the year though not due, or before it became due, is also taxable.
5For arrears, check if they were taxed in an earlier tax year. If not, tax them in the year of payment.
6Apply section 15(3). If advance salary was taxed earlier, exclude it when it falls due.
7If a higher rate arises from arrears or advance salary, mention that relief is available under section 157 on application.
8Write the final amount taxable for the year, with a one-line reason for each item.

Quickest way: Three-question check

When to use it: Use it for MCQs and short case-based questions where you must decide quickly if and when an item is taxable.

Is there an employer-employee relationship? If not, it is not salary. Partners are always out.
Is it in the list of section 16, or is it a payment from the job? If yes, it is salary.
In which year? Salary due in the year is taxable, paid or not. Advance salary is taxed in the year it is paid or allowed. Arrears are taxed in the year paid or allowed only if not taxed before. Advance salary is taxed once.

Common mistakes in Basis of Charge and Meaning of Salary

Taxing salary only when it is actually received.
Students carry over the cash-basis idea from daily life.
Fix: Remember section 15(1)(a): salary due in the tax year is taxable whether paid or not. Tax it in the year it falls due.
Taxing arrears again in the year they are received when they were already taxed on a due basis.
Students forget the condition in section 15(1)(c).
Fix: Tax arrears only if they were not charged to tax in an earlier tax year.
Taxing advance salary twice, once when received and again when due.
Students overlook section 15(3).
Fix: If advance salary is already in total income of an earlier year, leave it out when it becomes due.
Treating a partner's remuneration as salary.
The word "salary" appears in the partnership deed and in the firm's books.
Fix: Section 15(4) says it is not salary. Keep it out of the head Salaries.
Ignoring pension from a former employer.
Students think salary needs a current job.
Fix: Under section 15(2), employer includes former employer, and section 16(b) includes pension. Taxable as salary.
Treating wages and salary as different items with different tax treatment.
Everyday language separates them.
Fix: Section 16(a) includes wages in salary. Both go under the same head and are taxed the same way.

Worked examples

Example 1

Mr. Arjun Mehta works for a private company. His salary for March of the tax year, ₹60,000, falls due on 31 March but is paid on 7 April of the next tax year. In the same tax year he is also paid ₹60,000 in advance for April of the next tax year. How much of this is taxable under section 15 in the current tax year, and what happens in the next year?

Show the solution

The relationship is employer-employee, so the amounts are salary.
March salary of ₹60,000 is due in the current tax year. Under section 15(1)(a), it is taxable now, whether paid or not.
The advance of ₹60,000 is paid in the current tax year before it is due. Under section 15(1)(b), it is taxable now.
Total taxable in the current tax year from these items is ₹60,000 + ₹60,000 = ₹1,20,000.
In the next tax year, the March salary is paid on 7 April. It is not taxed again because it was already charged as salary due in the current tax year. Section 15(1) charges it only once, in the year it fell due.
Also in the next tax year, April salary falls due. Section 15(3) says it is not included again, as the advance was already included in total income of the current tax year.

Answer: ₹1,20,000 is taxable in the current tax year. In the next tax year, the March salary is not taxed again because it was already charged as due, and the April salary is not taxed again because of section 15(3).

Example 2

Ms. Kavita Rao, an employee, receives ₹90,000 in the current tax year under a revised pay scale. Of this, ₹30,000 represents salary that was already taxed in an earlier tax year as salary due. The other ₹60,000 is arrears of salary that has never been charged to tax. What is taxable as arrears, and what relief can she seek?

Show the solution

Arrears are chargeable under section 15(1)(c) if paid or allowed in the tax year and not charged to tax in an earlier tax year.
The ₹30,000 portion was already taxed in an earlier tax year as salary due under section 15(1)(a). It is not arrears chargeable now, and taxing it again would be double tax.
Only the ₹60,000 is arrears under section 15(1)(c), as it was never charged to tax. Check: ₹90,000 − ₹30,000 = ₹60,000. This is taxable in the current tax year.
If the receipt pushes her income to a higher rate, section 157(1) lets her apply to the Assessing Officer for relief, as prescribed.
Relief is not available on income for which a deduction is claimed under section 19(1) (Sl. No. 12), as per section 157(2).

Answer: ₹60,000 is taxable as arrears. She may apply for relief under section 157 if the arrears cause a higher rate of tax.

Exam tips

In MCQs, look for the trap word "received". If the salary was due in the year, it is taxable even if unpaid.
For partner questions, state section 15(4) in one line and move on. Do not compute anything under Salaries.
Quote the section number next to each treatment, such as s. 15(1)(a), (b) or (c). It earns step marks.
In arrears and advance questions, always say whether the amount was taxed earlier. Examiners test the double-taxation protection.
Mention section 157 relief in one sentence when arrears or advance salary are large. Do not compute the relief unless the question gives the prescribed method.

Practice questions from Salaries

Basis of Charge and Meaning of Salary in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Basis of Charge and Meaning of Salary: frequently asked questions

Is salary taxed on due basis or receipt basis?

Both limbs can apply. Under section 15(1)(a), salary due in the tax year is taxable whether paid or not. Under section 15(1)(b), salary paid or allowed in the tax year, though not due or before it became due, is also taxable. So unpaid salary that is due in the year is taxable, and advance salary is taxable in the year it is received.

What is the difference between salary and wages for tax?

There is no difference in tax treatment. Section 16(a) lists wages as part of salary. Both are taxed under the head Salaries.

Is a partner's remuneration taxable as salary?

No. Section 15(4) says any salary, bonus, commission or remuneration due to or received by a partner from the firm is not regarded as salary. It is dealt with under business income.

How are arrears of salary taxed?

Arrears paid or allowed in the tax year are taxable under section 15(1)(c) if they were not charged to tax in an earlier tax year. If they push you into a higher rate, you can apply for relief under section 157.

Is pension from a former employer salary?

Yes. Section 16(b) includes any annuity or pension in salary, and section 15(2) says employer includes former employer.