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CMA Intermediate · Direct and Indirect Taxation · Salaries

Mr. Kabir Sethi, who left Bharat Steels Ltd. two years ago, receives in the current tax year Rs. 1,20,000 as arrears of salary from the company relating to his past service. These arrears were not charged to tax in any earlier tax year. Under the Income-tax Act, 2025, how is this amount treated?

The Rs. 1,20,000 is taxable under the head Salaries in the current tax year. Arrears paid in the year are chargeable if not taxed earlier, and the employer includes a former employer, so leaving the job does not take the payment out of Salaries.

  1. ATaxable as arrears of salary in the current year under Salaries, even though he is a former employeeCorrect
  2. BNot taxable because he is no longer an employee
  3. CTaxable under Income from Other Sources
  4. DTaxable in the years to which the arrears relate, by reopening them

Explanation

Section 15(1)(c) charges arrears of salary paid in the tax year if not taxed earlier. Section 15(2) says employer includes a former employer. So the Rs. 1,20,000 falls under Salaries for the current year. Treating it as Other Sources ignores the extended meaning of employer.

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