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Interest received on arrears of salary

Gubbi's (6 Points)

17 June 2019

Hi Friends,
A Govt employee has received arrears of salary. On such arrears he has received interest also.

Whether such interest form part of salary or to be considered as Income from other sources?
please help as to classifying the Heads of Income

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5 Replies

Gauthami (Student CA Final ) (428 Points)
Replied 17 June 2019

it is taxable under head income from other sources

1 Like

Gubbi's (6 Points)
Replied 17 June 2019

Can you substantiate the basis for treating it as Income from Other Sources

Gauthami (Student CA Final ) (428 Points)
Replied 22 June 2019

any monetary benefit and non monetary benefit provided by employer for services rendered to him is treated as income from salary. interest on arrears of salary is the income arises because the payment due to employee but not for services rendered. hence it is treated as income from other sources

Suresh Thiyagarajan (Student) (3986 Points)
Replied 22 June 2019

1. According to sec 17(3), salary also includes "Profits in lieu of salary" which also includes any amount received from an employer subject to certain exceptions.
2. Hence in your case arrear's salary and interest on such arrears also forms part of salary and hence will be taxed under the head Salary.
Please correct me if the above interpretation has an alternative view.

Gauthami (Student CA Final ) (428 Points)
Replied 22 June 2019

In my view, the word 'profits' in the context is required to be understood as a gain or advantage to the assessee. interest on arrears of salary is neither gain nor advantage. It is the compensation for late payment of salary.