INCOME FROM SALARY
Basis of Charge [Section 15] As per Section 15, Salary consists of
the following: • any salary due from an employer or former
employer to an assessee in the previous year, whether actually
paid or not; ( Normal Salary )
• any salary paid to him in the previous year by an employer or a
former employer though not due or before it became due to him.
(Advance Salary)
• any arrears of salary paid to him by employer or former
employer, if not charged to income tax for any earlier previous
year. (Arrears of Salary)
INCOME FROM SALARY
Basic Salary —
Add: — 1. Fees, Commission and Bonus — **
2. Allowances —
3. Perquisites —
4. Retirement Benefits —
5. Fees, Commission and Bonus —
Gross Salary —
Less: Deductions from Salary —
1. Entertainment Allowance u/s 16 —
2. Professional Tax u/s 16
— Net Salary
INCOME FROM SALARY
Definition of Salary as per Income Tax Act
Sub-section(1) of Section 17 of the Income Tax Act provides an inclusive
definition of “Salary”. It is a much broader term than it is usually understood.
In a financial year, the amount received by the employee from his employer in
any of the following forms will be considered “Salary” for income tax purposes:
Wages- A sum of money paid under contract by the employer to the employees
for services rendered is called wages. The employee may generally receive it
under various names such as basic pay, salary, remuneration, etc. The payment
may be for paid leaves, actual work, or the actual amount received or due
during the relevant previous year.
Annuity or Pension – Annuity or pension is the payment received from the
previous or present employer after attaining retirement. It may be a payout
from the pension plans created by the employer.
INCOME FROM SALARY
Annuity received from a present employer is taxed as ‘Salary’.
Annuity received from a previous employer is taxed as ‘Profits in lieu of
Salary’.
Profits in lieu of Salary or Wages- These payments include:
Employment termination compensation or employment terms
modification compensation.
Payment due or received from an unrecognized provident fund or an
unrecognized superannuation fund to the extent of contribution by the
employer and interest on the employer’s contribution.
Payments from the keyman insurance policy and the sum allocated as a
bonus on such policy.
INCOME FROM SALARY
Gratuity- A lump-sum amount voluntarily paid by the employer to the
employee as a token of appreciation for the services rendered to the
organization is gratuity. The concept of gratuity is statutorily recognized under
The Payment of Gratuity Act, 1972.
Fees- An amount received as fees to the employee from the employer for the
services rendered is included in the definition of salary.
Commission- Any amount of commissions given to the employee for the
services provided shall form part of the salary. If the employee receives a fixed
commission as a percentage of the sales or profits, it shall be considered salary.
Perquisites- Perquisites are additional benefits received over and above the
salary due to the employee’s official position. It may be provided in cash or
kind.
