Income Tax Act Section 192(b): Taxability of Salary Arrears

The question of whether an employee's wage arrears are taxable is covered by Section 192(b) of the Income Tax Act. This blog post will address the provisions of Section 192 of the Income Tax Act, 1961 as well as the taxability of salary arrears received by employees.

What does Section 192's TDS on Salary mean?

TDS on salary is the amount of tax that is withheld by the employer from the employee's pay at the source. Anybody who is in charge of paying any income taxable under the heading "Salaries" is required by Section 192(1) to deduct income tax from the amount owed at the time of payment.

Taxability of Salary Arrears

Arrears of salary are the amounts of pay to which an employee is entitled but has not yet received. Salary arrears are subject to taxation depending on the year they are received.

How is tax on salary arrears calculated?

The following formula is used to compute the tax on salary arrears:

1. Determine the employee's total income for the year that the arrears are received.
2. Determine the tax due on the entire income, including any wage arrears.
3. Determine the tax on the entire income, not including salary arrears.
4. The tax due on the salary arrears is the difference between the two tax amounts.

As an Illustration

Assume that in the fiscal year 2022–2023 an employee receives salary arrears of Rs. 1,00,000, which relate to the fiscal year 2018–19. The following formula will be used to determine the tax on the salary arrears:

1. Determine the employee's total income for the 2022–2023 fiscal year, taking into account any salary arrears.
2. Determine the tax due on the entire income, including any wage arrears.
3. Determine the tax on the entire income, not including salary arrears.
4. The tax due on the salary arrears is the difference between the two tax amounts.

In Summary

In conclusion, the year that salary arrears are paid determines whether they are taxable. The difference between the tax on the whole income, which includes the salary arrears, and the tax on the entire income, which does not include the salary arrears, is the tax on salary arrears. To prevent any tax problems, it is imperative that employees comprehend the tax ramifications of salary arrears.

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