Assistance required with Salary Advance Policy and forms or templates

Dear All,

We are drafting a policy regarding Salary Advance to employees. Would appreciate if anyone can share insights/ inputs if any one the same.

Would also be grateful if anyone can share policy templates and related forms if any.

Thanks a lot in advance.



Salary Advance can be given from 50% to 75% of Gross Salary.

Also, we should deduct the salary advance in One Instalment only.

Deduction in the same month if taken before 15th of month and if taken post 15th of the month, then deduction in next month.


Hi @amar_joshi

Usually there is no big law or guidance framed separately for this, but has an in-direct impact on the net take home and other deductions that can be made.

This is not a standard practice to encourage as there are banks to do the same, and if at all employer pays the advance should also be considered under the IT calculation as earning.

& Perquisite components comes into action for the same.

Sharing couple of templates I found online - sharing it for your reference

Salary Advance Policy.pdf (119.3 KB) staff_advances_policy_142.doc (34 KB)


The policy for salary advance could be as under. These are my views and I suppose, can be modified as necessitated by financial situation of company and also management’s views:

Advance limited to three months basic
Advance can be given for specified purposes, like medical emergencies, children education, marriages etc.
Recovery can be done in max 10 instalments.


Thanks everyone for sharing valuable inputs


Hi Amar,

Also note, Advance should be recovered instantly and not to be deducted in instalments.

If Employee wants deductions in instalments, then it should be treated as LOAN (Interest or Interest Free based on company policy). Also, Proper documentation with Guarantor or Cheque should be taken from employee incase he fails absconds.

LOAN & ADVANCE are two different.

Interest free loans provided by employers are taxable in the hands of employees as a perquisite.


True! Loan and advance are two different things and need to be dealt separately.

The over all deductions should not exceed 50% of the net salary too.


My views on salary advance recovery.

Salary advance should be recovered in same month or maximum next month. Else it can be considered as loan which will be subject to perquisite valuation which will result in increase in income tax liability.

Thanks & Regards,

Hemant Karmalkar

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