Understanding Advance Salary vs. Advance Against Salary: Tax Implications Explained

Hi Friends,

I request your advice in understanding the following: What is the difference between Advance against Salary and Advance Salary? Are both taxable? If not, which one of these is taxable, and which one is non-taxable?

Please help.

Regards,
Jammy

Dear Jammy,

As far as I'm concerned, salary is taxable at the time of payment or due, whichever is earlier, so advance salary is taxable as per the IT Act. Now, advance against salary: if you repay the amount to the company, then it is not taxable as you have repaid it back to the company (no income received). If you have taken this as an advance against salary and you will not pay back to the company, then it is taxable (as you have taken a salary advance and the remaining salary will be credited as per the process).

If you need any clarification, please email me through the same thread.

Regards,
Sanjay

Dear Jammy,

Advance salary is TAXABLE. Let's say, if you pay 3 months' salary to an employee in advance, i.e., 60,000 (20,000 each month), calculate the tax. You can either deduct it from the current month's salary or divide the tax into the whole year, 12 months.

Sanjeev

Advance salary or adv. against salary is taxable in the fiscal year in which it is given. The tricky situation arises when it spans across two financial years. The amount taxed in the previous year will be deducted in the following year. In cases where adjustments are made within the same year, the tax status will remain the same.

Thanks

Also, another point to note is that in the case of a loan (not against salary), it is not taxable. However, if the loan is interest-free, notional interest will be added to his income when calculating tax.

Thanks,

Hello,

Below are the details you require:

Advance Salary: It means if you work for 15 days within a month, then management can approve ad hoc payment (Advance payment) according to the policy. The number of days for ad hoc payment can vary from company to company policy.

Advance against salary: This is a type of loan against your salary. Normally, there is no interest on such a loan.

Both are taxable according to the Income Tax Act, 1961.

Regards, Soni Gundecha

"You see things and you say, 'why?' But I dream things that never were and I say, 'why not?'"

Hi all,

Please advise if one of my employees requested an advance against salary, but his process head will not approve the same, can the said employee go for legal action?

Regards,
Vinay