ITR Filing: TDS deducted on unpaid salary. Can a refund be claimed?

TDS refund on unpaid salary

An employee working with a Chennai-based company faced a situation where three months’ salary remained unpaid, yet TDS was deducted, and Form 16 was issued. Today's Ask Wallet Wise decodes if one can claim a tax refund even if the salary is not received.

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I am working in a Chennai-based company. Due to financial issues, the company has not paid me my salary for the last three months of FY 2024–25. However, the company has deducted income tax on the unpaid salary and issued Form 16 accordingly. If I include the unpaid salary, I fall into a taxable bracket; otherwise, my tax liability would be nil after deductions. Can I claim a refund of the tax deducted without including the unpaid salary in my income? Can I also claim a refund later if I ultimately do not receive this salary when I leave the company, since I am unsure whether it will be paid?

Expert Advice: As per the present taxation scheme, salary is taxable on a “due” basis. Even advance salary or arrears are taxed in the year of receipt. Section 192 provides that employers must deduct tax at the time of payment, but since the TDS return format requires tax deduction on the earlier of credit or payment, in practice, employers deduct TDS monthly even if the salary is not actually paid.

Since salary is taxable on a due basis even if not received, you must include it while filing your ITR. As the appropriate tax has already been deducted, you cannot claim a refund on it. Your tax liability arises as soon as the salary becomes due, regardless of whether you receive it in the future. Unfortunately, there is no provision to claim a refund of tax paid on salary that is ultimately not received.

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