INCOME TAX LAWS AND PRACTICES
UNIT-I
INCOME FROM SALARIES
LECTURE NOTES PREPARED BY:
Dr. REETIKA THAKUR (ASSISTANT PROFESSOR)
Income from Salaries-
All types of taxable income of an assessee fall under any of the following five heads of
income. Those incomes which do not find a place under first four heads of income fall
under the head of ‘income from other sources’. In order to calculate the taxable income
under each head, certain deductions have to be made from the gross income of that head.
These deductions are different for each head. There are separate sections in the Income
Tax Act for computing the taxable income under each head, which are as under:
(1) Salaries- Sections 15 to 17,
(2) Income from House Property- Sections 22 to 27,
(3) Profits and Gains of Business or Profession- Sections 28 to 44,
(4) Capital Gains- Sections 45 to 55, and
(5) Income from Other Sources- Sections 56 to 59. (Sec. 14)
Salaries-
Any remuneration paid by an employer to his employee in consideration of his service
called salaries. It includes the monetary value of those benefits and facilities provided by
employer which are taxable.
Under section 15, the following incomes are taxable under the head ‘Salaries’:
(a) The salary due from an employer or former employer to an assessee in the previous
year, whether paid or not;
(b) The salary paid or allowed to him in the previous year by or on behalf of an employer
or a former employer though not due or before it becomes due to him;
(c) Any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, if not charged to income tax for any earlier previous
year.
Explanation 1: If any salary paid in advance is included in the total income of any person
for any previous year, it shall not be included again in the total income of the person
when the salary becomes due.
Explanation 2: Any salary, bonus, commission or remuneration due to or received by a
partner of a firm from the firm shall not be regarded as salary for the purposes of section
15.
Definitions-
Under section 17 of the Act the following have been defined:
(1) Salary, (2) Perquisites, and (3) Profits in lieu of salary.
Salary- [Sec. 17(1)]
Salary includes:
(i) wages;
(ii) any annuity or pension;
(iii) any gratuity;
(iv) any fees, commission, perquisites or profit in lieu of or in addition to any salary or
wages;
(v) any advance of salary, but not loan for purchasing a car, cycle, scooter or a house, etc.
(vi) any payment received by an employee in respect of any period of leave not availed of
by him;
[Note: Encashment of earned leave at the time of retirement whether on superannuation
or otherwise is exempt subject to the provisions of Sec. 10(10AA).]
(vii) the annual accretion to the balance at the credit of any employee participating in a
recognized provident fund, i.e., employer's contribution in excess of 12% of the
employee's salary and interest on the provident fund in excess of such rate as may be
fixed by the Central Government by notification in the Official Gazette;
(viii) taxable portion of the transferred balance (from unrecognized provident fund to
recognized provident fund);
(ix) the contribution made by the Government or other employer, in the previous year, to
the account of an employee, under a pension scheme notified by the Central Government.
Computation of Taxable Salary-
Basic Salary + Allowances + Perquisites + Profits in lieu of Salary = Gross Salary
Gross Salary Less (Deductions u/s 16) (i. Standard Deduction, ii. Entertainment
Allowance, iii. Employment Tax) = Taxable Salary
