Why Should I Pay Tax On 13 Months’ Salary When I Earned For 12 Months Only?

I am working in SSSIHMS Prasanthigram.Today I received a notice from our Director asking for my income tax deduction for 13 months from March2007 to March2008 since they are going to pay me March2008 salary on 31.03.2008.which they were not practicing in previous years.Only because they credit my pay to my account 24 hours ahead of completion of the financial year I have to pay excess income tax of one month’s salary though actually I earn for 12 months ,receive for 12 months and should pay my tax for 12 months also.Please advise me what steps should I take to avert extra month’s tax for which I am not due. Name Withheld, Prasanthigram

The salary is taxable either on due basis or receipt basis. This is clear from section 15 of the I T Act which is as under

15. The following income shall be chargeable to income-tax under the head Salaries

(a) any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;…..

Generally,employers prepares salary bills for the month of March in April, therefore the salary for March is not taken for computation of total income as it is neither due nor paid during that financial year. In your case also, the salary for March 2007 was not taken into account in Fy 2006-07 ,as it became due and paid in April 2007 ,thus, it has to be taken for total income computation for FY 2007-08.

The exceptional step taken by your organisation, is that the salary will be now become due , as you have stated , from April to March.

So, this financial year, i.e 2007-08 , salary for March 2008 will become due in the books of your employer in March 2008 only. Whether they pay you that salary in March 2008 or not, your employer is liable to deduct the tax on the total salary paid or due to you. Since it is due on March 2008, the salary taxable for FY 2007-08 will be 13 months.

The logic that you earned for 12 months is not correct as far as Income Tax Act is concerned. On account of change in payment schedule by your organisation, for the Fy 2007-08, total earning is of 13 months as far as salary is concerned.

There is no special deduction for such a problem, which will not be from next year. What if the next year, salary for March 2009 again become due in April 2009. You will be paying tax on salary for 11 months only!