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CA Intermediate · Taxation · Basic Concepts

Kavita, a resident individual aged 35, is an assessee in tax year 2026-27. During the year she received: salary Rs 8,00,000 (due and taxable), a scholarship of Rs 50,000, and Rs 1,20,000 as an arrears of salary relating to an earlier year that was not previously taxed. Which statement correctly describes her income?

Arrears of salary not taxed earlier are taxable in the tax year of receipt, so Kavita's salary income is Rs 8,00,000 plus Rs 1,20,000, that is Rs 9,20,000. The scholarship is not salary and is not added, and taxability does not depend on TDS.

  1. AArrears of Rs 1,20,000 is taxed in the earlier year to which it relates
  2. BArrears are taxed in the tax year of receipt, so salary income considered is Rs 9,20,000Correct
  3. CArrears are taxable only when the employer deducts TDS
  4. DScholarship of Rs 50,000 is added, making salary income Rs 9,70,000

Explanation

Arrears of salary not charged earlier are taxable in the tax year in which they are received, so Rs 8,00,000 + Rs 1,20,000 = Rs 9,20,000 is the salary income (relief for arrears may be claimed separately). A scholarship is not salary and is not added. Taxing it in the earlier year is wrong.

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