Income tax basis of charge

Dear Sir,

Few companies have the policy to make the salary due for next month. It means salary of Jan is paid in the month of Feb and the salary of Feb is paid in the month of March. If you notice the series, salary from March to Feb are paid in the months of April to March.

So in this case for financials of 2012-13, if no provision entry is passed at every month's end then the payments reflected in the P&L is for the months March to Feb but because they are paid in April to March, financial year for salary may fall as March - Feb. But when the same comes to individual employee, since salary is taxable on due basis and not on accrual basis, FY for employee shall be April - March.

This problem is only because of difference in treatment in accounts and income tax.

Dear Rishebh 

Please read Income from salary on internet. There in chargeability it is clearly mentioned as under 

"Salary is chargeable to tax on "due" or "receipt" basis whichever is earlier."

So the amount paid in april is actualy earned in March and hence taxable in that period.

I hope you got this one.

Regards