Tax Implication on Salary Arrears of Late Person

Summary

On the facts stated, the Rs. 4.20 lakh salary arrears of the deceased wife should not be clubbed with the husband's own salary income, merely because the husband receives the amount as her legal heir.

• The arrears represent salary relating to the period during which the wife was alive and employed. Death does not, by itself, make such salary arrears exempt.

• The amount should ordinarily be treated as income of the deceased wife and assessed through her legal representative, rather than as the husband's individual income.

• Under Section 302 of the Income-tax Act, 2025, the legal representative is liable for the tax which the deceased would have been liable to pay and is treated as an assessee for this purpose.

• Therefore, the husband should not include Rs. 4.20 lakh as his salary income. His own salary and the deceased wife's arrears should be kept distinct.

• Section 157 read with Rule 73 provides relief where receipt of salary arrears increases the tax burden because arrears relate to earlier years. The arrears should therefore be allocated year-wise and the prescribed relief should be examined.

• A blanket claim of exemption merely because the employee died is not justified. However, if any part of the payment is actually an ex-gratia/death-related payment rather than salary arrears, its treatment must be separately examined.

Practical approach: Obtain the University's arrear sanction order, year-wise arrear statement and Form 16/TDS details. Verify whether the arrears relate entirely to the wife's service period and whether any amount had already been taxed.

Conclusion: Strong view: Rs. 4.20 lakh is not automatically exempt, but it should ordinarily be dealt with as the deceased wife's income through her legal representative, not clubbed with the husband's salary income. The applicable arrears relief should be claimed wherever eligible.