Advance salary

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Shivani

Learner

1881 Points Posted on 18 September 2015

Dear Friends

Following is the salary structure of X in ABC Limited.

Basic Salary 40000

DA 12000

HRA 10400

Transport Allowance 4000

Gross Salary 66400

EPF Deduction 6240

TDS Deduction 5000

Net Salary 55160

So Rs. 55160 is what X will get in hand at the end of the month after deductions if he remains present for the whole month.

Now, if X request company for 2 months advance salary, then how will ABC Limited calculate this advance salary to be paid to X.

ABC Ltd does not for how many days X will be present during next 2 months. So how will ABC calculate next 2 months advance salary?

Will ABC Ltd. pay him 110320 (i.e. 55160 X 2).

Advance salary is given on Net salary basis or Gross Salary basis?

If yes, then if in the following 2 months salary of X after considering number of days he is present comes out to be following

Month 1 50000

Month 2 49000

Then what will be the accounting treatment in next 2 months. His salary during next 2 months based on attendance is Rs. 99000 (i.e. 50000 + 49000) but advance salary taken by him is 110320.

Regards

Replies (3)

CA AnKiT BoHrA (AB)

Manager

25955 Points Posted on 18 September 2015

it depends on the policy of the company on what gross or basic co pays salary advance

and u cant predict future attendance... so if you are not able to deduct the same in two months.. u can deduct the remaining balance in third month ..!!

at the time of advance

Salary advance Dr

To bank

at the time of credit

Salary dr.

to salary advance ( for regular three months or so on until whole amount recovered)

Anup A Deshpande

Freelancer

77 Points Posted on 21 September 2015

Agree with Mr Ankit's reply

Mukund

Nil

36 Points Posted on 25 September 2015

https://www.incometaxindia.gov.in/tutorials/tax-treatment-of-various-forms-of-salary.pdf

That is a good document which you should read,you need to inform employees on taxes of advance salary.If he takes advance salary in March which belongs to his projected earnings for April & May for next year then he will need to pay tax on that in current year.If he takes advance salary in middle or begining of FY then he will not have a tax burden.

As to calculation it is policy of the company to make future earnings based on some haircut or managerial discretion.The disbursal & collections of advance salary will be shown as current assets.In your case if intent is to help employee then 110000 or 130000 as advance salary does not matter.The Journal entry will be

1. Advance salary account

To Bank

2.Salary Account

To Advance salary ( after 2 months)