BASIS OF CHARGE [SECTION 15]

-Salary due
- paid or allowed, though not due
- Arrears of Salary

DEDUCTION [SECTION 16]

-Standard deduction
- Entertainment Allowance
-Professional tax

MEANING [SECTION 17]

- Salary
-Perquisite
-Profits in lieu of salary
IMPORTANT
CONCEPTS
❏ Employer-Employee relationship must exist between payer and
payee

For example: - Mr. X is an employee of Deloitte, lecturer working in

college etc.

- Member of Parliament or State Legislature are not a Govt. Employee

and therefore remuneration received by them is not taxable as salary
income but as income from other sources
-- Salary, bonus, commission
Salary received or remuneration
by Ministers by whatever
working in Govt. ed due under
Dept. is taxable eceive
head Salary to/r d
name call by partner of a firm shall not be regarded as
Salary
IMPORTANT
CONCEPTS
❏ Full time or Part-time Employment - it doesn’t matter
❏ For example: if employee works with more than one employer,
all the salaries should be clubbed together for chargeability
under the head salary

❏ Surrender of Salary - if an employee surrenders his salary to the

Central Government
from Taxation) under
Act, 1961, section
the salary2 of
sothe Voluntary Surrender
exempt ilof
surrendered would be wh e
Salaries (Exemption
computing his taxable income.
IMPORTANT
CONCEPTS
❏ Foregoing of Salary - It means waiving the right to receive the
salary i.e. work has been performed and salary has accrued but
employee voluntarily says that he will not take salary. It is treated
as application of income and thus would be taxable in the
hands of an employee.

❏ Tax Free Salary - it means the employer has paid the tax on salary
due to such employee. Thus, the amount paid as tax by employer
would also be considered as income of the employee and will
be added in his salary.
IMPORTANT
CONCEPTS
❏ Place of accrual - place where services are rendered

Exception- In case a Citizen of India who is Govt. employee and

renders services outside India, salary received by him would be
treated as income deemed to accrue or arise in India

Example: Mr. Z an Indian citizen posted in UK as Indian Ambassador,

salary received by him for rendering services outside India shall be
treated as deemed to accrue or arise in India
IMPORTANT
CONCEPTS
❏ Salary paid by Foreign Govt./Enterprises - to its employees is
taxable under the head salaries unless it is specifically exempt under
section 10 like 10(6)
 BASIS OF CHARGE
[SECTION
(a) any salary due (b)15]
any salary paid (c) any arrears of
from an employer or allowed to him salary paid or
or a former in the previous allowed to him in
employer to an year by or on the previous year
assessee in the behalf of an by or on behalf of
previous year, employer or a an employer or a
whether paid or former employer former employer,
not though not due or if not charged to
before it became income- tax for
due to him; any earlier
previous year.
 where 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.

 Any salary, bonus, commission or remuneration, by whatever name called, due to,
or received by,
NOTES:

 Salary is chargeable to tax either on “due” basis or on “receipt” basis,

whichever is
earlier.

 Any amount received as arrears of salary is taxable in the year of

receipt, if it was not taxed earlier.

 Accounting method of an employee is not relevant

 Example 1.1 Mr. Suresh is an employee of Alpha Ltd. getting a salary of ₹ 60,000
which is due on the last day of month but is paid on the 7th of next month. Salary
for which months will be taxable for A.Y. 2023-24?

 Example 1.2: In the above case, assume that salary becomes due on 1st of next
month and is paid on the 7th of next month. Salary for which months will be
taxable for A.Y. 2023-24?
SECTION 17
SALARY
[SEC. 17(1)]

PERQUISITE
SEC.
17(2)]
PROFITS IN LIEU OF SALARY
SEC. 17(3)]
 SALARY [SETION 17
(1)]and includes monetary payments as well as non-
It is an inclusive definition
monetary
facilities.

(i)wages;

(ii)any annuity or pension;

(iii)any gratuity;

(iv)any fees, commissions, perquisites or profits in lieu of or in addition to any

salary or
wages;

(v)any advance of salary;

by him;
 SALARY [SETION 17
(1)]
(vi)the annual accretion to the balance at the credit of an employee
participating in a recognised provident fund, to the extent to which it is
chargeable to tax

(Excess of employer’s contribution over 12% of salary is taxable and

excess of interest over 9.5% is taxable)

(vii)the aggregate of all sums that are comprised in the transferred

balance of an employee participating in a recognised provident fund,
to the extent to which it is chargeable to tax

(viii)the contribution made by the Central Government or any other

employer in the previous year, to the account of an employee under a
pension scheme referred to in section 80CCD;
 INCOMES TO BE INCLUDED IN GROSS
SALARY TAX TREATMENT
DIFFERENT RECEIPTS

Wages/ remuneration/basic Taxable

salary
COMMISSION
Annuity from employer Taxable

Bonus Taxable on receipt basis if

not taxed earlier on due BASED ON
basis FIXED % OF
TURNOVER
Salary in lieu of notice Taxable
period
Fee and Commission Taxable

Overtime Payments Taxable

Allowances Taxable unless

specific exemption
is provided
Retirement benefits Taxable in some specified
 DEARNESS
ALLOWANCE/PAY
paid by the employer to its employees as well as a pensioner to offset
the impact of inflation. It is fully taxable.

D.A
.

Forming part of salary/ Not Forming part of salary/

forming part of retirement Not forming part of retirement
benefits/ if terms of benefits/ not so
if terms of employment
employment so provides provides
 PENSION

LEAVE
GRATUITY
ENCASHMENT

RETIREMENT
BENEFITS

VOLUNTARY RETRENCHMENT
RETIREMENT COMPENSATION
 HOUSE RENT ALLOWANCE [SEC
10(13A)]
HRA is given by employer to employee to meet the expenses in connection
with rent of the accommodation which the employee might have to take for
his/her residence.

HRA given Metro

to anCities
employee is exempt to the extent
(i.e. Delhi, Mumbai,
of minimum of the
Other Cities
following Rule 2 Chennai,
A: Kolkata)
1. HRA actually received 1. HRA actually received

2. Excess of Rent paid over 10% of 2. Excess of Rent paid over 10% of
salary salary
i.e. (Rent paid – 10% of salary for i.e. (Rent paid – 10% of salary for
relevant period) relevant period)
3. 50% of the salary for the 3. two-fifth of the salary for the
relevant period relevant period
Notes (for HRA):

1. Salary includes basic salary + D.A. (forming part of salary) + commission

(if based on
%of turnover)

2. Exemption is not available to an assesse who lives in his own house or

in house for which he has not incurred the expenditure of rent

3. Relevant period means the period for which the said accommodation
was occupied the assesse during the previous year

4. Salary to be taken on due basis in respect of which rented

accommodation is occupied by the employee in the P.Y. Advance
salary should be ignored.
 SPECIAL ALLOWANCES [SEC. 10(14)]

Granted to meet his

Granted to meet expenses
PERSONAL EXPENSES [SEC.
incurred wholly, necessarily
10(14)(ii)]
and exclusively in the
Either at the place where the
PERFORMANCE OF OFFICIAL
duties of his office or
DUTIES [SEC. 10(14)(i)]
employment of profit are
ordinarily performed by him or
at the place where he
EXEMPT to the extent of EXEMPT
ordinarilytoresides
the extent of
the i.e. the
 ActualofAllowance
minimum the Received which  ActualofAllowance
minimum the

following:
Actual amount spent for e ver Received
following:
official purpose is  Specified limit
less Actual expenditure in the
above
 SPECIAL ALLOWANCES [SEC. 10(14)]

[Section 10(14)(i)]
1. Travelling Allowance
2. Daily Allowance
3. Conveyance Allowance
4. Helper Allowance
5. Academic Allowance
6. Uniform Allowance
 SPECIAL ALLOWANCES [SEC. 10(14)]

[Section 10(14)(ii)] & Rule 2BB (2)

NAME OF ALLOWANCE EXTENT TO WHICH ALLOWANCE IS
[Section 10(14)(ii)] EXEMPT
Children Education allowance ₹ 100 p.m. per child upto
Hostel expenditure maximum of 2 Children

allowance Transport ₹ 300 p.m. per child upto

maximum of 2 Children
allowance
(for the purpose of commuting between place of ₹ 3200 p.m.
residence to place of his duty) In the case of an
employee who is blind or deaf and dumb or
orthopedically handicapped ₹ 800
p.m.
₹ 200
Underground allowance p.m.
70% of such
Tribal area/Scheduled area allowance allowance Or Whichev
₹ 10,000 p.m. er
Allowance for transport employees working in any is lower
transport system to meet his personal expenditure
 Treatment of Entertainment
Allowance
● Entertainment allowance received is fully taxable and is first to be included
in salary income
under the head “Salaries” and thereafter a deduction is given.
● Deduction in respect of Entertainment allowance is available from Gross
Salary only to Government employees. The amount of deduction will
be lower of :

1. ₹ 5,000

2.20 percent of basic salary i.e. exclusive of any allowance, benefit or other
perquisite; or

3.Amount of entertainment allowance received during the previous year

● In the case of a non-Governmental employee entertainment allowances is

not deductible.