Summary: For tax purposes, salary is defined as any payment you receive from an employer, including your basic pay, allowances, bonuses, and perks. The key principle governing when this income is taxed is the “due or receipt” rule—meaning your salary is taxable in the financial year in which it is either due to be paid or actually received, whichever happens first. For example, if your March salary is due on March 31 but paid in April, it is still considered taxable income for the previous financial year. Your employer typically handles a portion of this by deducting Tax at Source (TDS) if your annual income exceeds the basic exemption limit, which is currently ₹2,50,000 under the old regime and ₹3,00,000 under the new regime. To determine your final taxable salary, you must add up all your pay components, subtract any tax-free allowances, and then apply the standard deduction of ₹50,000. Understanding these rules can help you manage your finances and navigate the tax filing process more effectively.
Introduction
If you earn a salary, you’ve probably asked yourself at least once:
“When exactly do I have to pay tax on it?”
It’s not just about the money hitting your bank account. The Income Tax Act has its own rules about when salary income becomes taxable — and knowing these rules can help you plan better, save tax, and avoid unpleasant surprises during filing season.
Let’s break it down in simple terms.
1. What Exactly Counts as Salary?
For tax purposes, salary is much more than your monthly take-home pay. It can include:
Basic salary
Dearness allowance (DA)
House rent allowance (HRA)
Bonus, commission, and incentives
Leave encashment
Employer’s contribution to PF, NPS, gratuity
Perks like company car, rent-free accommodation, etc.
Tip: Your CTC (Cost to Company) often contains these elements, but not all of them are taxable.
2. The Golden Rule: “Due or Receipt, Whichever is Earlier”
The tax law says salary becomes taxable when it’s due or when it’s received — whichever comes first.
Here’s what that means:
If your March 2025 salary is due on 31 March 2025 but credited to your account in April 2025, it’s still taxable in FY 2024–25.
On the other hand, if your company pays April’s salary in advance, it will be taxable in the year you receive it.
Think of it this way: If you have the right to receive it, the taxman counts it – whether or not you’ve been paid yet.
3. How Employers Handle TDS
Your employer usually takes care of tax deduction at source (TDS) every month – but only if your yearly income crosses the basic exemption limit:
₹2,50,000 (Old Regime, below 60 years)
₹3,00,000 (New Regime)
Higher limits for senior citizens (Old Regime)
If you’re below this limit, you can submit Form 15G/15H to avoid unnecessary deductions.
4. How to Figure Out Your Taxable Salary
Here’s the step-by-step approach:
1. Start with Gross Salary → Add up all pay components (basic, allowances, perks).
2. Subtract Tax-Free Allowances (Section 10) → HRA, LTC, eligible gratuity, etc.
3. Subtract Standard Deduction → ₹50,000 for all salaried taxpayers.
4. The result is your Taxable Salary.
5. When Do You Actually Pay the Tax?
Even though your tax liability arises in the year salary is due/received:
Most of it is paid via monthly TDS by your employer.
If TDS isn’t enough, you pay the balance as advance tax or self-assessment tax before filing your ITR.
6. Key Takeaways for Every Salaried Individual
√ Salary is taxed when it’s due or received — whichever is earlier.
√ Even unpaid salary (if due) is taxable in that year.
√ Keep track of exemptions and deductions to save tax.
√ Arrears or past salary received now? Check Section 89 relief — it can lower your tax hit.
Final Word:
Tax on salary isn’t as complicated as it sounds — the tricky part is knowing the timing and claiming the right exemptions. Once you understand that, the rest is just maths (and maybe a little coffee).
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