Section 15 of the Income Tax Act, 1961 (ITA) deals with the basis of charge for income from salaries. It states that the following income shall be chargeable to income tax under the head “Salaries”:

• Any salary due in the previous year or any salary under income tax paid in the previous year, whichever is earlier.
• Any arrears of salary paid under income tax in the previous year, if not charged to tax for any earlier previous year on due basis.

The term “salary” is defined in Section income tax 17(1) of the ITA to include all remuneration, whether by way of salary, wages, fees, commission, perquisites or profits in lieu of or in addition to salary, received by an employee from his employer.

The basis of charge for income tax from salaries is “due basis” or “receipt basis”, whichever is earlier. This means that the income will be chargeable to tax in the year in which it is due to be paid, even if it is actually paid in a later year. However, if the salary is actually paid in the previous year, even though it was not due in that year, then it will be chargeable to tax in the previous year.

For example, if an employee is entitled to a salary of Rs. 10,000 per month, but his salary is paid on income tax the 10th of the following month, then the income from salary for the month of March will be chargeable to tax in the previous year (i.e., the year 2023-2024), even though it is actually paid in the current year (i.e., the year 2024-2025).

There are a few exceptions to the due basis of charge for income tax from salaries. These exceptions are:

• Bonuses and commissions are chargeable to tax under income tax in the year in which they are actually paid.
• Any sum paid by the employer to the employee as a retiring allowance or gratuity is chargeable to tax under income tax in the year in which it is paid.
• Any sum paid by the employer to the employee as a leave encashment is chargeable to tax under income tax in the year in which it is paid.

FAQ QUESTIONS

1. What is the basis of charges under section 15 of the Income Tax Act?

The basis of charges under section 15 of the Income Tax Act is the amount of money or other consideration received by the assesses for the supply of goods or services. This includes the amount of money actually received, as well as any amount that is receivable but not yet received.

2. What are the different types of charges that are covered by sectionincometax15?

The different types of charges that are covered by section 15 income tax include:

• Sale of goods
• Provision of services
• Letting of immovable property
• Construction of immovable property
• Transfer of business assets
• Transfer of intellectual property rights
• Any other type of transaction that involves the transfer of property or the provision of services

3. How is the basis of charges under income tax determined for different types of transactions?

The basis of charges for different types of transactions under income tax is determined in accordance with the provisions of the Income Tax Act. For example, the basis of charges for the sale of goods is the sale price of the goods, while the basis of charges for the provision of services is the amount of money charged for the services.

4. What are the consequences of not correctly determining the basis of charges under income tax?

If the basis of charges is not correctly determined, it can result in the assesses either underpaying or overpaying their income tax. In either case, the assesses may be liable to interest and penalties.

5. What are the steps that can be taken to ensure that the basis of charges is correctly determined under income tax?

The following steps can be taken to ensure that the basis of charges is correctly determined:

• Keep proper records of all transactions.
• Invoice all transactions correctly.
• Get professional advice if necessary.

CASE LAWS

• Gopal Chand v. CIT (1973) 88 ITR 74 (SC): This case held that the basis of charge for income tax under the head “Salaries” is the “due” basis, not the “receipt” basis. This means that salary income is chargeable to tax in the year in which it is due, even if it is not actually paid in that year.
• CIT v. Associated Cement Companies Ltd. (1986) 158 ITR 271 (SC): This case held that the term “salary” under Section 15incometax includes all remuneration paid by an employer to an employee for services rendered, whether paid in cash or in kind. This means that all forms of remuneration, including allowances, bonuses, and commissions, are taxable under the head “Salaries”.
• CIT v. J.K. Synthetics Ltd. (1995) 212 ITR 471 (SC): This case held that the term “arrears of salary” under Section income tax 15 includes only those arrears which are due and payable in the previous year. This means that arrears of salary which become due in a subsequent year are not taxable in the previous year.
• CIT v. M.S. Ramachandran (2003) 262 ITR 465 (SC): This case held that the term “salary” under Section income tax 15 does not include amounts paid by an employer to an employee as compensation for the termination of employment. This means that such amounts are not taxable under the head “Salaries”.
• CIT v. Indian Oil Corporation Ltd. (2010) 328 ITR 235 (SC): This case held that the term “salary” under Section income tax 15 includes all remuneration paid by an employer to an employee, whether paid directly or indirectly. This means that amounts paid by an employer to a third party on behalf of an employee are also taxable under the head “Salaries”.