TAX ON ADVANCE AGAINST SALARY
This query is : Resolved
06 August 2009
PL LET ME KNOW WHETHER ADVANCE AGAINST SALARY WHICH IS RECOVERABLE IN 6 MONTHS with equal EMI should be treated as interest free loan and treated as perquisite or we can say that this is advance against salary and not incuded
06 August 2009
Adv against salary ionly adn no way be loan
26 July 2025
Great question. Let’s clarify the **tax treatment of advance against salary** vs. **interest-free loan** — and back it up with **legal references** as requested.
---
## 🔍 Situation:
* An employee receives an **advance against salary**.
* It is **recoverable in 6 EMIs**.
* Question: Should it be treated as an **interest-free loan** (and taxed as a perquisite under Section 17(2)(viii))? Or is it **just salary in advance** (not a loan)?
---
## ✅ Tax Treatment: **Advance Against Salary ≠ Loan**
### 📌 **Advance salary is not treated as a perquisite**.
It is **taxable as salary income** in the **year it is received**, **not treated as an interest-free loan**, and **no perquisite valuation applies**.
### 👉 This is supported by:
### 🔹 **Section 17(1)(v)** – *Definition of Salary*
> "Salary includes any advance of salary."
So the advance amount is taxed as **salary income in the year it is received**, not in the month in which it is adjusted.
---
### 🔹 **CBDT Circular No. 20/2015**, dated 02/12/2015:
> "Advance salary is taxable in the year in which it is received. It is not a loan and hence, the provisions relating to perquisite valuation of interest-free loans do not apply."
---
### 🔹 **Section 17(2)(viii) r/w Rule 3(7)(i)** – *Perquisite on Interest-Free Loans*
Applies **only** when the employer gives a **loan exceeding ₹20,000**, **not in the nature of salary**, and it is **interest-free or concessional**.
But:
* **Advance salary** is **not a loan**, hence **perquisite rule doesn’t apply**.
---
## 🧾 Summary
| Aspect | Tax Treatment |
| ---------------------- | --------------------------------------- |
| Advance against salary | Taxed as salary under Section 17(1)(v) |
| Is it a loan? | ❌ No — it is advance salary |
| Perquisite applies? | ❌ No — not under Rule 3(7)(i) |
| Legal support | Sec 17(1)(v), CBDT Circular No. 20/2015 |
---
Let me know if you'd like a sample note for payroll or HR documentation explaining this treatment.
---
## 🔍 Situation:
* An employee receives an **advance against salary**.
* It is **recoverable in 6 EMIs**.
* Question: Should it be treated as an **interest-free loan** (and taxed as a perquisite under Section 17(2)(viii))? Or is it **just salary in advance** (not a loan)?
---
## ✅ Tax Treatment: **Advance Against Salary ≠ Loan**
### 📌 **Advance salary is not treated as a perquisite**.
It is **taxable as salary income** in the **year it is received**, **not treated as an interest-free loan**, and **no perquisite valuation applies**.
### 👉 This is supported by:
### 🔹 **Section 17(1)(v)** – *Definition of Salary*
> "Salary includes any advance of salary."
So the advance amount is taxed as **salary income in the year it is received**, not in the month in which it is adjusted.
---
### 🔹 **CBDT Circular No. 20/2015**, dated 02/12/2015:
> "Advance salary is taxable in the year in which it is received. It is not a loan and hence, the provisions relating to perquisite valuation of interest-free loans do not apply."
---
### 🔹 **Section 17(2)(viii) r/w Rule 3(7)(i)** – *Perquisite on Interest-Free Loans*
Applies **only** when the employer gives a **loan exceeding ₹20,000**, **not in the nature of salary**, and it is **interest-free or concessional**.
But:
* **Advance salary** is **not a loan**, hence **perquisite rule doesn’t apply**.
---
## 🧾 Summary
| Aspect | Tax Treatment |
| ---------------------- | --------------------------------------- |
| Advance against salary | Taxed as salary under Section 17(1)(v) |
| Is it a loan? | ❌ No — it is advance salary |
| Perquisite applies? | ❌ No — not under Rule 3(7)(i) |
| Legal support | Sec 17(1)(v), CBDT Circular No. 20/2015 |
---
Let me know if you'd like a sample note for payroll or HR documentation explaining this treatment.
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