IPCC Paper 4 Taxation Chapter 1 Part 1

Adv. Ajay Malchand Sharma

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What is the meaning of Salary under Income tax Act?

When the salary income is chargeable to tax.

What is the meaning of concept of Profit in lieu of salary?

What are the various retirement benefits which will be charged as salary?

What is included in Allowances and Perquisites?

What deductions are to be claimed from salary income?

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Income from Salary is one of the heads of Income.

Every payment made by the employer to the employee for services rendered is chargeable to tax under the head salary.

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1 • Employer and employee relationship

2 • Salary received from more than one employer

3 • Salary from former or present or prospective

employer

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4 • Foregoing of Salary

5 • Surrender of Salary

6 • Tax paid by the Employer

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The following receipts are also treated as salary

Wages. Any annuity or pension. Any Gratuity

Any fees, commission,

perquisite or profit in lieu of salary or in addition to any salary or wages.

Definition of Salary under Income Tax Act.- Section 17(1).

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The following receipts are also treated as salary (Cont..)

Any advance of salary Any payment received in respect of period of leave not availed by him.

The portion of annual accretion in any previous year to the balance at credit of an employee participating in Recognized Provident fund to the extent it is taxable.

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The following receipts are also treated as salary

Transferred Balance in the recognized provident fund to the

extent it is taxable.

The contribution made by the central government in the previous

year, to the account of the employee under a pension scheme

referred to in section 80 CCD

Definition of Salary under Income Tax Act.- Section 17(1).

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The following incomes shall be chargeable to income tax under the head “Salaries”

Salary is chargeable to tax either on due basis or receipt basis whichever

is earlier.

This means that even if the employee has not been paid for in respect of the

period of services rendered by him the same shall be taxable in the

hands of the employee on due basis.

Basis of Charge –Section 15

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The following incomes shall be chargeable to income tax under the head “Salaries” (cont..)

Advance Salary

Once the advance salary is taxed in the previous year of receipt the same cannot be taxed again when such

salary becomes due.

Loan taken is not an advanced salary

Basis of Charge –Section 15

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The following incomes shall be chargeable to income tax under the head “Salaries” (Cont..)

Arrears of salary received from the present or the former employer taxable.

Basis of Charge –Section 15

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Partner of the firm receiving salary shall be taxable under business or profession.

Because there is no employer and employee relationship between partner and firm.

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Section 9(1) (ii) states that salary earned in India is deemed to accrue or arise in India even if the same is paid out side India.

Pension received out of India for the services rendered in India shall be taxable in India only.

In the case of the Government employee the salary paid for services rendered outside India shall be taxable in India only under section 9(1)(iii) of the Act.

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Profit in lieu of salary means an extra amount received by the employee from the employer over and above the salary.

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The following receipts shall be treated as Profit in Lieu of Salary:

Compensation received in connection with change/modification in terms of Employment.

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Any sum received by the assessee under Keyman Insurance Policy including the sum allocated by way of Bonus on such policy.

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Director Receiving Salary as an Employee

Director receiving remuneration not as an Employee

MP/MLA receiving Remuneration

Remuneration received by the Judge

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Independent Contractor

Film star for working in films

Visiting Doctor

Commission received by Agent

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Commission paid to the Employee

Surrender of salary by the Employee

Foregoing of the salary

Commission to the Employee

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Tax Free Salary

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