Income From Salary-Basics

Income from Salary:
Basic of Charge, Components and Deductions
Rajat Dixit
Concepts
● Salary
● Relationship between payer and payee
● Salary and wages
● Salary from more than one source
● Salary from former employer, present employers or prospective employer
● Foregoing of salary
● Salary paid tax- free
● Voluntary payments
Salary- Sec 17(1)
● Salary" includes-
○ Wages;
○ any annuity or pension;
○ any gratuity;
○ any fees, commissions, perquisites or profits in lieu of or in addition to any salary
or wages;
○ any advance of salary;
○ any payment received by an employee in respect of any period of leave not
availed of by him; and
○ the annual accretion to the balance at the credit of an employee participating in a
recognised provident fund.
Basis of Charge of Salary Income
● any salary due from an employer or a former employer to an assessee in the previous
year, whether paid or not;
● any 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 became due to him;
● 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:
○ For the removal of doubts, it is hereby declared that where any salary paid in
advance in 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- Any salary, bonus, commission or remuneration, by whatever name
called, due to, or received by, a partner of a firm from the firm shall not be
regarded as" salary" for the purposes of this section.
Nature of Salary Is it taxable as income of the
previous year (2020-21 )
Salary becomes due during the previous year 2020-21 (whether paid Yes
during the same year or not)
Salary is received during the previous year 2020-21 (whether it Yes

becomes due in a subsequent year)
Arrears of salary received during the previous year 2020-21 although it Yes
pertains to one of the earlier years and the same were not taxed earlier
on due basis
Arrears of salary received during the previous year 2020-21 although it No

pertains to one of the earlier years and the same were taxed earlier on
due basis
Retirement Beneﬁt
● Leave Salary
○ During employment- Taxable for All- Sec. 89
○ Retirement
■ Government employee- Fully Exempt- Sec. 10(10AA)(i)
■ Non- Government employee- only a specific amount could get exemption-
Sec. 10(10AA)(ii)
Exemption-
Least of the one-
➔ Actual Amount Received.
➔ 3 Lakh
➔ Leave Balance * Average monthly salary (last 10 months)
➔ 10 Month salary
Rule: Govt permit only 1 month leave in a year
Salary = Basic + DA + Commission
Gratuity
● Government employee- Fully Exempt- Sec. 10(10)(i)
● Non- Government employee-least of the following is exempted- Sec. 10(10)(ii) and (iii)
Covered- Payment of Gratuity Act, 1972 Not covered- Payment of Gratuity Act, 1972
20 Lakh (Amended The CBDT Notification no. S.O. 20 Lakh (Amended The CBDT Notification no. S.O.
1213(E), dated 8 March 2019) 1213(E), dated 8 March 2019)
Actual Amount Received Actual Amount Received
15/26 * Last drawn salary * No of years completed 15/30 * Average salary (10 month) * No of years
in service completed in service
Rule: add month fraction Rule: month fraction ignored
[Salary: Basic + DA] [Salary: Basic + DA + Commission]
Pension
● Uncommuted (Regular)- Taxable for All

● Commuted
○ Government employee- Fully Exempt
○ Non- Government employee- only a specific amount could get exemption
Also receives Gratuity Do not received Gratuity
⅓ of Commuted Value of Pension is exempted ½ of Commuted Value of Pension is exempted
NPS
Provident Fund
Statutory Recognized Non- recognized Public
Provident Fund Provident Fund Provident Fund Provident Fund
(SPF) (PPF)
Employer Exempt Up to 12% of Exempt NA

Contribution salary- Exempt
Interest Exempt Up to 9.5% per Exempt Exempt

Annum- Exempt
Retirement Exempt Exempt Employer Money+ Exempt

Benefit interest- Salary
Self Money- Exempt
Interest of self
money- income from
other source
Allowance
● Fully Taxable Allowance: ● Section 10(14)- Actual expense exempted

○ Dearness Allowance (DA) ○ Travelling Allowance
○ City Compensatory Allowance (CCA)
○ Transfering Allowance
○ Tiffin Allowance
○ Fix Medical Allowance ○ Conveyance allowance
○ Servant Allowance ○ Daily Allowance
○ Deputation Allowance ○ Helper Allowance
○ Refreshment Allowance ○ Research/ Academic Allowance
○ Overtime allowance
○ Uniform Allowance
○ Family Allowance
○ Non-practicing Allowance
○ Warden Allowance
○ Planning Allowance
Partially exempted allowance
● House Rent Allowance S.10(13A) and rule 2A-

○ Least of the following is exempted-
■ 50% of Salary in Metro City or 40% of Salary otherwise
■ Actual Rent of accommodation.
■ Excess of the rent paid over 10% of salary
■ Salary= Basic + DA + Commission
● Entertainment Allowance Sec 16(ii)-
○ Govt employee- least of the following
■ ₹ 5000;
■ 20% of Basic Salary; or
■ Actual allowance received.
○ Non- Govt employee- Fully Taxable
● Transports Employee Allowance
○ Exempted- 10,000₹ or 70% of Allowance (whichever is minimum)
● Transport Allowance
○ Exempted- 1600₹ or 3200₹ (for blind employee)
● Children Education
○ Exempted- 100₹ per child per month (up to 2 Child)
● Hostel Charge
○ Exempted- 300₹ per child per month (up to 2 Child)
● Tribal Area Allowance
○ Exempted- 200₹ per month
● Underground Allowance
● Highly Active Field Area
● Island Allowance
Percusits
● Rent Free Accommodation

○ Government Employee- Tax on Licence Fee
○ Non- Govt Employee-
■ Salary = Basic + DA + Commission + Any Fees + All Taxable Allowances
+Any monetary payments
Population Employer’s House Rented House
25 Lakh + 15% of Salary Actual Rent
10-25 Lakh 10% of Salary Or
10 Lakh - 7.5% of Salary 15% of Salary

● Furnished Accomodation
○ Value of Rent free accommodation + 10% of Accommodation (Furnishing Value)
● In Hotel Accomodation
○ Actual Rent; or 24% of Salary (whichever is minimum)
● Motorcar
Computation of Salary Income

Income From Salary-Basics

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Income from Salary:

Basic of Charge, Components and Deductions

Salary is received during the previous year 2020-21 (whether it Yes

Arrears of salary received during the previous year 2020-21 although it No

Actual Amount Received Actual Amount Received

● Uncommuted (Regular)- Taxable for All

Also receives Gratuity Do not received Gratuity

⅓ of Commuted Value of Pension is exempted ½ of Commuted Value of Pension is exempted

Employer Exempt Up to 12% of Exempt NA

Interest Exempt Up to 9.5% per Exempt Exempt

Retirement Exempt Exempt Employer Money+ Exempt

● Fully Taxable Allowance: ● Section 10(14)- Actual expense exempted

● House Rent Allowance S.10(13A) and rule 2A-

● Rent Free Accommodation

Population Employer’s House Rented House

25 Lakh + 15% of Salary Actual Rent

10-25 Lakh 10% of Salary Or

10 Lakh - 7.5% of Salary 15% of Salary

Computation of Salary Income

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