Chargeability [Sec. 20]
by Under the Income tax Act, 2025, Section 20 deals with the chargeability of income under the head “Salaries”. Salary income is taxable when there is an employer employee relationship between the person paying the amount and the person receiving it. The section determines the amounts that are included in salary income and the point at which they become chargeable to tax. Salary is generally taxable on the basis of due or receipt, whichever occurs earlier, subject to the specific provisions of the Act.
Amounts Chargeable as Salary
| Particular | Tax Treatment |
|---|---|
| Salary Due | Salary becomes taxable when it becomes due to the employee, even if it has not actually been received. |
| Salary Received | Salary received before it becomes due is generally taxable in the year of receipt. |
| Advance Salary | Salary received in advance is taxable in the year in which it is received. |
| Arrears of Salary | Salary relating to an earlier period but received later is generally taxable on receipt if it was not taxed earlier. |
| Bonus and Commission | Taxable as salary when received or due, as applicable under the charging provisions. |
| Pension | Pension received from an employer or former employer is generally chargeable under the head Salaries, subject to applicable provisions. |
| Perquisites | Taxable value of specified benefits and facilities provided by the employer is included in salary. |
| Profits in Lieu of Salary | Amounts covered by the relevant provisions relating to profits in lieu of salary are chargeable to tax. |
Important Principle:
The basic rule can be expressed as:
Salary Income Chargeable = Salary Due or Salary Received, Whichever is Earlier
For example, if salary of ₹60,000 for March becomes due on 31 March but is paid in April, it is generally chargeable in the tax year in which it became due. If the employer pays ₹60,000 as advance salary in March for a future month, it is generally chargeable in the year in which it is received.
However, salary is taxable under this head only where an employer employee relationship exists. Amounts received for independent professional services are generally considered under the appropriate head rather than Salaries.
Thus, Section 20 establishes the chargeability of salary income and ensures that salary is taxed at the appropriate point of time, while the remaining provisions determine exemptions, perquisites, deductions and the final taxable salary.