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CMA Intermediate · Direct and Indirect Taxation · Salaries

Ms. Deepa Nair received Rs. 60,000 in the current tax year as salary for the next tax year, paid in advance by her employer. In the next tax year, the same salary becomes due. What is the correct treatment?

Salary paid in advance is taxed in the tax year in which it is received. Because the Act bars including it again when it falls due, Ms. Nair pays tax on the Rs. 60,000 only in the current year and not again in the next year.

  1. ATaxed in the current tax year only, and not taxed again when it becomes dueCorrect
  2. BTaxed only in the next tax year when it becomes due
  3. CTaxed in both years, with relief claimed later
  4. DNot taxable in either year as it is an advance

Explanation

Under section 15(1)(b), salary paid before it becomes due is chargeable in the tax year it is paid. Section 15(3) says that once included in total income, it is not included again when it becomes due. Taxing it in both years would be double taxation, which the Act prevents.

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