MEANING OF SALARY Salary includes section 171 Wages

MEANING OF SALARY Salary includes [section 17(1)] : • Wages • Any annuity on pension • Any gratuity • Any fees, commission, bonus, perquisite on profits in lieu of or in addition to any salary on wages • Any advance of salary • Any earned leave • Employers contribution (taxable) towards recognized provident fund.

INCOME TAX LAW AND PRACTICE UNIT II (SALARY) SUBMITTED BY Dr. T. Santhiya Rani Associate professor & Dr. A. Ramasethu Assistant Professor Dept of Commerce DATE: 15/07/2015

BASIS OF CHARGE • Income is taxable under head “Salaries”, only if there exists Employer - Employee Relationship between the payer and the payee. The following incomes shall be chargeable to income-tax under the head “Salaries”: • (i)Salary is chargeable on due basis or receipt basis, whichever is earlier. • Advance salary and Arrears of salary are chargeable to tax on receipt basis only.

ALLOWANCES • Allowance is generally defined as a fixed quantity of money or other substance given regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by the employee or as compensation for unusual conditions of that service. • Dearness Allowance - It is Always Taxable • City Compensatory Allowance - It is Always Taxable • House Rent Allowance • Entertainment allowance [sec. 169(ii)] • Special allowances prescribed as exempt under section 10(14

DEDUCTIONS ADMISSIBLE IN COMPUTING INCOME UNDER HEAD ‘SALARIES’ • Entertainment allowance granted by employer [Sec. 16(ii)] : This deduction is available in case of Government employees only. • Employment Tax / Professional Tax [Sec. 16(iii)] : Any sum paid by assessee on account of a tax on employment within the meaning of Article 276(2). Under the said article employment tax cannot exceed Rs. 2500 p. a.