Analysis of Salary Taxation: Section 15 of Income Tax Act 1961 vs Clause 15 of Income Tax Bill 2025

Clause 15 Salaries.

Income Tax Bill, 2025

1. Introduction

This article presents a detailed analysis comparing the existing provisions for taxation of salary income u/s 15 of the Income Tax Act, 1961, with the proposed changes in Clause 15 of the Income Tax Bill, 2025. The provisions relate to the charging of income under the head "Salaries" and form a crucial part of India's direct taxation framework.

2. Objective and Purpose

The primary objective of both provisions is to establish the scope and basis for taxing salary income. They define what constitutes taxable salary income and when such income becomes chargeable to tax. The provisions aim to ensure clarity in the taxation of different forms of salary payments, including regular salary, advance salary, and arrears.

3. Detailed Analysis of Changes

3.1 Structural Changes

• The new bill reorganizes the provisions into four distinct subsections, making the structure more systematic compared to the current act's format with main provisions and explanations.
• The explanations in the current act have been converted into substantive provisions in the bill.

3.2 Key Changes in Language and Substance

a) Definition of Tax Period

• Current Act: Uses the term "previous year"
• Proposed Bill: Introduces the term "tax year"

Impact: This change aligns with modern taxation terminology and potentially simplifies understanding.

b) Employer Reference

• Current Act: Explicitly mentions "employer or a former employer" in clauses (a), (b), and (c)
• Proposed Bill:

a) Uses only "employer" in the main clauses

b) Introduces a separate subsection (2) stating "employer includes former employer"

Impact: More concise drafting while maintaining the same scope

c) Treatment of Advance Salary

• Current Act: Contains as Explanation 1
• Proposed Bill: Elevated to sub-section (3)

Impact: Gives more prominence to this provision while maintaining the same legal effect

d) Partner's Remuneration

• Current Act: Contained in Explanation 2
• Proposed Bill: Elevated to sub-section (4)

Impact: Clearer statutory positioning of this exclusion

4. Practical Implications

4.1 For Taxpayers

• The reorganized structure makes it easier to understand the provisions
• No substantial change in tax liability or compliance requirements
• Clearer understanding of treatment of advance salary and partner's remuneration

4.2 For Tax Administrators

• More systematic arrangement of provisions aids in interpretation
• Reduced ambiguity regarding the scope of "employer"
• Clearer statutory basis for existing practices

5. Comparative Analysis with Other Jurisdictions

The proposed changes align with international best practices in tax legislation drafting, particularly in:

• Using more contemporary terminology
• Providing clearer statutory structure
• Maintaining consistency in treatment of various forms of salary income

6. Conclusion

The proposed Clause 15 represents a structural improvement over the existing Section 15, while maintaining the substantive aspects of salary taxation. The changes focus on better organization and clarity rather than introducing significant modifications to the tax treatment of salary income.

 

Full Text:

Clause 15 Salaries.

 

Dated: 26-2-2025