Taxable Income Under The Head Of: Salary

TAXABLE INCOME UNDER THE
HEAD OF
SALARY
Salaries –Section 15-17
• Any amount received or receivable by an
assessee from his employer or even former
employer by virtue of rendering services is
chargeable to tax under the head “Salaries”.
It includes monetary value of those benefits
and facilities provided by the employer which
are taxable.
• Employer – employee relationship
• Contract of Service and contract for service
• Place of Accrual of Salary
• Basis of Charge- Charge on salary is either on
Due basis or Receipt basis , whichever is
earliar.
Salary
Profits in lieu
Basic Salary Allowances Perquisites
of Salary
Gross Salary
Less Deduction
u/s 16
Standard Deduction
Entertainment Employment
Rs. 50,000
Allowance Tax
Taxable Salary
• Basic Salary
Rs. 20,000- 2000- 40,000
Allowances
• Payment in cash made by the employer to his
employees monthly other salary is called an
allowance.
A.Taxable Allowances
B.Partly taxable Allowances
C.Fully exempted Allowances
Fully Taxable Allowances
• Dearness Allowance and Dearness pay
• City compensatory Allowance
• Fixed medical Allowance
• Servant Allowance
• Non practising Allowance
• Hill Allowance
• Warden Allowance /Proctor Allowance
• Deputation Allowance
• Overtime Allowance
• Other Allowances
Partly Taxable Allowances
• House Rent Allowance
• Entertainment Allowance
• Special allowance for meeting certain expenditure
(A)Special allowance exclusively to be incurred in the
performance of the duties of his office
(a) Travelling Allowance
(b) Daily Allowance
(c) Conveyance Allowance
(d) Helper Allowance
(e) Academic Allowance
(f) Uniform Allowance
(B) Special Allowance to meet the personal expenses
(1) Special Compensatory Allowance in the nature of –snow bound area,
high altitude (rate of Allowance prescribed by C.G.)
(2) Special Compensatory Allowance in the nature of – Border area, remote
locality, difficult area (rate of Allowance prescribed by C.G.)
(3) Special Compensatory (Tribal/ Schedule area) – Rs. 200 p.m. In M.P.
(4) Any allowance granted to an employee working in any Transport system
– (i) 70% of such allowance or, (ii) Rs. 10,000 p.m. Which ever is less.
(5) Children education allowance- Rs. 100 p.m. Per child up to maxi. Of
2children
(6) Children hostel allowance- Rs. 300 p.m. Per child up to maxi. Of 2
children
(7) Transport allowance – Rs. 1600 p.m.
(8) Underground allowance – Rs. 800 p.m.
(9) Special allowance to members of Armed forces
Fully exempted Allowances
• Foreign Allowance
• Sumptuary Allowance to High Court or
Supreme Court Judges
• Allowance from UNO
• Per-diem Allowance
Perquisites
• The term perquisites means any benefit,
attached to an office or position in addition to
salary or wages. Perquisites denotes a
personal advantage. It may be given in cash or
in kind.
Profit in lieu of salary
• Compensation for Termination of
employment
• Compensation for modifications of terms of
employment
• Surrender Value of Keyman Insurance policy
• Basic salary
• D.A.
• Allowances
• Perquisites
• Bonus
• Commission
• Employer contribution in P.F.
• Gratuity
• Pension
• Leave encashment
• VRS
• YSC Babu v. Chairman and Managing Director
Syndicate Bank(2002) 253 ITR , A.P.
‘B’ an employee of a public sector opted for VRS and
was paid Rs. 10 lakhs being 50% of the
compensation under VRS and the balance was to
be paid in 5 equal instalments of Rs. 2 Lakh each.
The A.O. assessed the full amount of Rs. 20 lakh
was assessable in P.Y. ‘B’ contended that he should
be taxed only of Rs. 10 lakh received by him during
the P.Y. And the balance to be received by him
should be assessed in the respective years of
receipts
• Takenaka v. CIT (1999) 237 ITR 112 Kar.
The Assessee was a foreigner who worked as technical
adviser to ‘Y’ India Ltd. As per the terms of his
employment , he was to be paid a fixed amount of net
salary and the tax component was to be borne by his
employer. The employer paid income tax of Rs. 34,000
on behalf of the assessee
- A.O. contended that tax component which was borne
by the employer is a perquisite therefore it should be
grossed up and added in the total salary and afterwards
tax would be determined.
- Assessee contended that if tax component added
in the salary then it would amount to be tax on
tax.
• CIT v. Parthasarathy (1979) 118 ITR 869(A.P)
‘P’ the assessee was requested by his employer to visit
London, Canada in connection with the business of the
employer company. The company further desired that
the wife of the assessee accompany him on foreign
tour , so that she could attend the wife of the guest
during visit.
- During the assessment A.O. Determined that the
expenditure met by the company in connection with
the tour of the Assessee’s wife is perquisite and added
the said amount in theincome of assessee.
• .
• Sugra Sulaiman v. CIT (1990) 181 ITR 444 Mad
The Assesse was an employee of a company of
which her husband was the managing director .
During a particular P.Y. she spent Rs. 1,60,000 on
foreign tour when she accompanied her
husband. The company met the expenditure of
the assessee.
- A.O. Assessed the expenditure on foreign tour as
perquisites in the hand of assessee.

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