Sections 23 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Sections 23 to 25 of the Code on Wages, 2019 deal with the deduction heads for advances and loans in section 18(2)(f) and (g), and then limit how far Chapter III applies to Government establishments. The Code sets only outline conditions; the manner of recovery and the extent of loans are left to rules.
An advance given before employment began is recovered from the first payment of wages for a complete wage-period, and a travelling-expense advance is not recoverable (s.23(a)). Advances given after employment began and advances of wages not yet earned are recovered on prescribed conditions (s.23(b), (c)). For loans (s.18(2)(g)), the extent and the rate of interest are as prescribed (s.24). Chapter III does not apply to Government establishments unless the appropriate Government notifies it (s.25).
Section 23: three kinds of advance
Section 23 applies to deductions under clause (f) of section 18(2): recovery of advances "of whatever nature" (including advances for travelling allowance or conveyance allowance) with the interest due, adjustment of overpayment of wages, and loans from a labour-welfare fund. Section 23 then sets conditions for advances specifically.
| Clause | Kind of advance | Rule in the Code |
|---|---|---|
| s.23(a) | Money given before employment began | Recovered from the first payment of wages in respect of a complete wage-period; no recovery of advances given for travelling expenses |
| s.23(b) | Money given after employment began | Subject to conditions as may be prescribed |
| s.23(c) | Advances of wages not already earned | Subject to conditions as may be prescribed |
Points of detail:
- Complete wage-period. For pre-employment advances the first recovery is from the first wages for a complete wage-period. The text does not say how a part period at the joining or leaving date is treated; see section 16 for how wage periods are fixed.
- Travelling-expense advances before joining. The bar on recovery in clause (a) is limited to advances for travelling expenses given before employment began. The bar does not extend, on its words, to advances given after employment begins.
- An advance against wages not yet earned (clause (c)) is distinct from an advance of other money (clause (b)). Employers who give salary advances should record which clause each falls under.
- Interest. Section 18(2)(f)(i) allows deduction of "the interest due in respect thereof". The Code does not itself state a rate or say when interest may be charged on an advance.
All recoveries stay inside the overall limit in s.18(3): total deductions in a wage period cannot be more than fifty per cent of wages. Teams that want their advance policy checked against this can use our payroll compliance audit service.
What the Central Rules add for advances
The Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026) apply only where the Central Government is the appropriate Government. Where the State Government is the appropriate Government, the State's own wage rules apply.
Rule 19 covers the two prescribed-condition clauses, advances given after employment begins (s.23(b)) and advances of wages not already earned (s.23(c)):
- recovery is made from the employee's wages in instalments determined by the employer;
- any or all instalments in a wage period shall not exceed fifty per cent of the wages, subject to the ceiling specified in rule 13 (the ceiling for total deductions and carry-forward of the excess); and
- the particulars of the recovery are recorded in the register in Form IV.
Rule 20 covers loans under s.24: deductions for recovery of loans granted and the interest due are as per the extant instructions or guidelines of the Central Government regulating the extent to which such loans may be granted and the rate of interest payable. The Rules do not themselves state a maximum loan or an interest rate, so the current Central instructions must be checked.
See Rules 19 and 20 and Rules 13 to 16.
Hypothetical example. An employee is given a Rs 30,000 advance of wages not yet earned. His monthly wages are Rs 20,000. The employer decides on instalments of Rs 4,000 a month. Fifty per cent of wages is Rs 10,000, so the instalment is within the limit, but if the employee also has Rs 8,000 of other authorised deductions in a month, the total of Rs 12,000 would exceed Rs 10,000 and the excess is carried forward under rule 13. The figures are invented only to show the arithmetic.
Section 24: loans
Section 24 applies to a deduction under clause (g) of section 18(2): recovery of loans granted for house-building or other purposes approved by the appropriate Government, with interest. The section says the rules regulating "the extent to which such loans may be granted and the rate of interest payable thereon, shall be such as may be prescribed". The sentence as printed is awkward: it appears to say the deduction itself shall be as prescribed, with the extent and the interest rate prescribed alongside. The section does not state a loan limit or an interest rate. A general loan from the employer that is not approved by the appropriate Government is not on the list in s.18(2)(g); it may fall only under the advance head in clause (f), so classify the money carefully.
Section 25: Government establishments
The provisions of Chapter III (headed "Payment of Wages", ending with s.25) do not apply to Government establishments unless the appropriate Government, by notification, applies them to the Government establishments specified in the notification. So a State or Central Government department is outside the deduction rules of ss.18 to 24 unless a notification brings it in. Check the notification list for the department concerned. See section 2 for who is the appropriate Government.
Need help with advance and loan policies?
Salary advances are the most common deduction an employer makes outside statutory heads. Our payroll compliance audit team can review your advance and loan terms, instalment schedule and register entries against ss.23 and 24 and the rules that apply to you.
Key takeaways
- A pre-employment advance is recovered from the first wages for a complete wage-period; a travelling-expense advance of that kind cannot be recovered.
- Advances after joining, and advances of unearned wages, follow prescribed conditions; in the Central sphere the instalments stay within fifty per cent and are logged in Form IV.
- Loan limits and interest rates are as prescribed; the Central Rules point to the Central Government's existing instructions.
- Chapter III does not apply to Government establishments unless notified.
- Every recovery is also subject to the overall fifty per cent ceiling in s.18(3).
Read next
- Sections 21 and 22: deductions for damage, loss and services rendered
- Section 26: eligibility for bonus
- Rules 19 and 20 of the Central Rules: recovery of advances and loans
- Payment of Wages Act, 1936: applicability, deductions and compliance
Disclaimer: Based on the Code on Wages, 2019 (as enacted) and, where noted, the Code on Wages (Central) Rules, 2026 (G.S.R. 343(E), 8 May 2026), as on 1 October 2026. The Code is in force from 21 November 2025; State Governments make their own rules for establishments where the State is the appropriate Government, and wage rates are notified separately. Verify the current position before acting.