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Income from Salary
Dr. P. Ravichandran
M.Com., M.B.A., M.A (Astrology)., M.Phil., Ph.D.,
D.C.P., D.L.L & A.L., P.G.D.C.A., P.G.D.P.M & I.R.,
S.B.K. College, Aruppukottai – 626101.
 9443424090 & 9080030090
 e-mail id.- prcapk@gmail.com
Heads of
Income
[Sec-14]
Income
from
Salary
Income
from
Other
sources
Income
from
House
Property
Income
from
Capital
Gains
Profits and
Gains of
Business
and
Profession
Heads of Income :Chargeability
Income
Head
Chapter under
Income Tax Act
Sections Charging
Section
Income from
Salary IV-A 15-17 15
Income from
House Property IV-C 22-27 22
Profit & Gains
from Business &
Profession
IV-D 28-44D 28
Capital Gain IV-E 45-55A 45 & 46(2)
Income from
Other Sources IV-F 56-59 56
After applying clubbing provisions and making adjustments of
set-off and carry forward of losses.
1. Income from Salary
2. Income from House Property
3. Income from Business (or) Profession
4. Income from Capital Gains
(i) Short-term capital gains
(ii) Long-term capital gains
5. Income from Other Sources
(i) Casual incomes
(ii) Other incomes
Gross Total Income
Less: Deductions u/s 80-C to 80-U
Total Income
xxxx
xxxx
xxxx
xxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxxx
xxxx
xxxxxx
Computation of Total Income of an
Individual
Income from Salary
The first head of income
Income from Salary
 As per Section 15, Salary consists of the following:
 a) any salary due from an employer (or) former
employer to an assessee in the previous year,
whether actually paid or not; ( Normal salary )
 b) any salary paid to him in the previous year by an
employer (or) a former employer though not due (or)
before it became due to him. ( Advance Salary )
 c) any arrears of salary paid to him by employer (or)
former employer, if not charged to income tax for
any earlier previous year. ( Arrears of Salary )
Once salary is taxed on receipt / due basis, it
will not be charged again on falling due (or)
receipt basis, as the case may be.
 The assessee can claim relief u/s 89(1) for
arrears or advance salary.
Loan from employer is not salary & not taxable,
as it is advance against salary & not advance
salary.
Partner is not an employee of Firm, hence any
salary, bonus commission (or) remuneration
received by him, is not taxable as Salary, but
it is taxable as Business Income.
As per Sec 17(1), Salary includes the following :
1.Wages,
2. Any Annuity (or) Pension,
3. Any Gratuity,
4. Any Fees, commission, perquisites (or) profits
in lieu of (or) in addition to salary/wages,
5. Any Advance Salary,
6. Leave Salary,
7. Annual accretion to the Provident Fund to
the extent it is taxable,
8. Contribution made by the Central Govt. (or)
any other employer to the account of
employee under a pension scheme
referred to in Sec.80CCD.
SALARY
Salary
[17(1)]
Allowances
[17(3)(ii)]
Profits in lieu
of salary
[17(3)]
Perquisites
[17(2)]
Entertainment
Allowance
[16(ii)]
Tax on
employment
[16(iii)]
Income under the head Salary
+
+
++
Less
Profits in lieu of Salary
 The term in lieu means where an employer pays an additional
amount to an employee in addition to salary which is not
considered as allowance (or) perquisite (or) retirement benefit
u/s 10, will be treated as profit in lieu of salary. The amount
becomes taxable.
Examples:
 Any compensation received in connection with termination of
his employment;
 Payment from an URPF;
 Payment under Keyman Insurance Policy including bonus;
 Any amount received before joining (or) after cessation of
employment;
 Any other sum received from the employer made in pursuance of
a legal obligation.
Computation of Income from Salary
Note: If Employer pays tax on employee then total salary to such
employee will be
Net salary received + tax paid by employer
Deductions from Salary
[ U/S 16 ]
1) Entertainment Allowance [Sec 16(ii) ]
Only Govt. employees can claim the following
deduction :-
 a) Actual Entertainment Allowance.
 b) 1/5th of Salary........
[ Here, Salary = Basic Pay only ]
 c) ₹ 5000/-
Whichever is lower.
Deduction from Salary
[Sec 16 ]
2) Professional Tax [Sec 16 (iii) ]
 Deduction is available in the year in which
professional tax is actually paid.
 If employee have paid professional tax of more
than one year then entire professional tax so
paid is allowed as deduction.
 If professional tax is reimbursed by the
employer then it will first added as perquisite
( in case of all employees, whether specified
(or) not & then allowed as deduction )
Different forms of salary-
Retirement benefits
 1. Leave encashment (or) Leave salary
 2.Gratuity
 3.Pension
 4.Retrenchment compensation
 5.Provident Fund
[Examination point of view these five items
are very important]
Leave encashment
It is not related to casual leave.
For every completed year of service employee is
entitled to receive a certain number of days of
paid leave.
Employee either can take leave (or) encash it while
in service (or) after retirement.
Note: Any thing received while in service is
normally taxable for all employees.
 After retirement there are some concessions given.
Leave salary received
While in Service On Retirement
Govt. Employees
Central / State
Non-Govt. Employees
(including local
authority
and corporation
employees)
Fully Taxable
Least Exempt Fully Exempt
Least Exempt
 Actual Leave salary
 Entitled Leave salary
 Last 10M salary
 The limit ₹ 3,00,000
Gratuity
The word gratuity is derived from the word
‘Gratuitous’ which means “Gift” (or)
“Present”.
Gratuity means a lump sum payment made
by an employer to his employee as the
retrial reward for his past services
when his employment is terminated.
Retiring benefit - Long and unblemished
service.
Gratuity when payable
 Gratuity shall be payable to an employee –
Who has rendered continuous service for a
period of not less than 5 years on the
termination of his employment;
 On his superannuation; (or)
 On his retirement; (or)
 On his resignation; (or)
On his death (or) disablement due to accident
(or) disease. (5 years of service is not
necessary)
Basis of charge
1. If gratuity is received by an employee on
leaving the job, it is taxable under the head
‘Income from salary’ after claiming
exemption u/s10(10).
2. If gratuity is received by legal heirs of
deceased employee, it is taxable under the
head ‘Income from other sources’ after
claiming exemption u/s10(10).
GRATUITY [ Sec 10 (10) ]
 Gratuity received during continuation of
service is Fully Taxable.
 Maximum exemption available under this
section during life time of the assessee
cannot exceed ₹ 10,00,000/-
 Completed years of service include period of
service under current employer as well as
previous employer ( if no gratuity has been
received from former employer at that time. )
PENSION
 Periodical payments after retirement of an employee is
known as pension.
 Regular pension received by the employee himself after
the retirement is taxable as salary.
 Family pension (after the death of husband/wife)
received by wife/husband comes under income
from other sources as there is no employer and
employee relationship after the death of an
employee.
 Standard deduction is available ie. 1/3rd of family
pension (or) ₹ 15,000 whichever is lower is
deductible from family pension.
Commuted pension
Sec.17(1)(ii)
 Instead of receiving monthly pension some portion of
regular pension can be accumulated and can be
received (after retirement/voluntary retirement) as
a lump sum is known as commuted pension.
 Government employee includes –
 Central Govt.,
 State Govt.,
 Local Authority,
 Corporation employees,
 Public sector undertakings,
 Judges of Supreme court (or) High court,
 Civil services and Defense services.
Allowances
Fixed monetary payments for a specific
purpose is known as allowance.
An allowance is a fixed monetary amount
paid by the employer to employee for
expenses related to office work.
Allowance are generally included in the
salary and taxed unless there are
exemption available.

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Income from salary

  • 1. Income from Salary Dr. P. Ravichandran M.Com., M.B.A., M.A (Astrology)., M.Phil., Ph.D., D.C.P., D.L.L & A.L., P.G.D.C.A., P.G.D.P.M & I.R., S.B.K. College, Aruppukottai – 626101.  9443424090 & 9080030090  e-mail id.- prcapk@gmail.com
  • 3. Heads of Income :Chargeability Income Head Chapter under Income Tax Act Sections Charging Section Income from Salary IV-A 15-17 15 Income from House Property IV-C 22-27 22 Profit & Gains from Business & Profession IV-D 28-44D 28 Capital Gain IV-E 45-55A 45 & 46(2) Income from Other Sources IV-F 56-59 56
  • 4. After applying clubbing provisions and making adjustments of set-off and carry forward of losses.
  • 5. 1. Income from Salary 2. Income from House Property 3. Income from Business (or) Profession 4. Income from Capital Gains (i) Short-term capital gains (ii) Long-term capital gains 5. Income from Other Sources (i) Casual incomes (ii) Other incomes Gross Total Income Less: Deductions u/s 80-C to 80-U Total Income xxxx xxxx xxxx xxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxxx xxxx xxxxxx Computation of Total Income of an Individual
  • 6.
  • 7. Income from Salary The first head of income
  • 8. Income from Salary  As per Section 15, Salary consists of the following:  a) any salary due from an employer (or) former employer to an assessee in the previous year, whether actually paid or not; ( Normal salary )  b) any salary paid to him in the previous year by an employer (or) a former employer though not due (or) before it became due to him. ( Advance Salary )  c) any arrears of salary paid to him by employer (or) former employer, if not charged to income tax for any earlier previous year. ( Arrears of Salary )
  • 9. Once salary is taxed on receipt / due basis, it will not be charged again on falling due (or) receipt basis, as the case may be.  The assessee can claim relief u/s 89(1) for arrears or advance salary. Loan from employer is not salary & not taxable, as it is advance against salary & not advance salary. Partner is not an employee of Firm, hence any salary, bonus commission (or) remuneration received by him, is not taxable as Salary, but it is taxable as Business Income.
  • 10. As per Sec 17(1), Salary includes the following : 1.Wages, 2. Any Annuity (or) Pension, 3. Any Gratuity, 4. Any Fees, commission, perquisites (or) profits in lieu of (or) in addition to salary/wages, 5. Any Advance Salary, 6. Leave Salary, 7. Annual accretion to the Provident Fund to the extent it is taxable, 8. Contribution made by the Central Govt. (or) any other employer to the account of employee under a pension scheme referred to in Sec.80CCD.
  • 11. SALARY Salary [17(1)] Allowances [17(3)(ii)] Profits in lieu of salary [17(3)] Perquisites [17(2)] Entertainment Allowance [16(ii)] Tax on employment [16(iii)] Income under the head Salary + + ++ Less
  • 12. Profits in lieu of Salary  The term in lieu means where an employer pays an additional amount to an employee in addition to salary which is not considered as allowance (or) perquisite (or) retirement benefit u/s 10, will be treated as profit in lieu of salary. The amount becomes taxable. Examples:  Any compensation received in connection with termination of his employment;  Payment from an URPF;  Payment under Keyman Insurance Policy including bonus;  Any amount received before joining (or) after cessation of employment;  Any other sum received from the employer made in pursuance of a legal obligation.
  • 13. Computation of Income from Salary Note: If Employer pays tax on employee then total salary to such employee will be Net salary received + tax paid by employer
  • 14. Deductions from Salary [ U/S 16 ] 1) Entertainment Allowance [Sec 16(ii) ] Only Govt. employees can claim the following deduction :-  a) Actual Entertainment Allowance.  b) 1/5th of Salary........ [ Here, Salary = Basic Pay only ]  c) ₹ 5000/- Whichever is lower.
  • 15. Deduction from Salary [Sec 16 ] 2) Professional Tax [Sec 16 (iii) ]  Deduction is available in the year in which professional tax is actually paid.  If employee have paid professional tax of more than one year then entire professional tax so paid is allowed as deduction.  If professional tax is reimbursed by the employer then it will first added as perquisite ( in case of all employees, whether specified (or) not & then allowed as deduction )
  • 16. Different forms of salary- Retirement benefits  1. Leave encashment (or) Leave salary  2.Gratuity  3.Pension  4.Retrenchment compensation  5.Provident Fund [Examination point of view these five items are very important]
  • 17. Leave encashment It is not related to casual leave. For every completed year of service employee is entitled to receive a certain number of days of paid leave. Employee either can take leave (or) encash it while in service (or) after retirement. Note: Any thing received while in service is normally taxable for all employees.  After retirement there are some concessions given.
  • 18. Leave salary received While in Service On Retirement Govt. Employees Central / State Non-Govt. Employees (including local authority and corporation employees) Fully Taxable Least Exempt Fully Exempt Least Exempt  Actual Leave salary  Entitled Leave salary  Last 10M salary  The limit ₹ 3,00,000
  • 19. Gratuity The word gratuity is derived from the word ‘Gratuitous’ which means “Gift” (or) “Present”. Gratuity means a lump sum payment made by an employer to his employee as the retrial reward for his past services when his employment is terminated. Retiring benefit - Long and unblemished service.
  • 20. Gratuity when payable  Gratuity shall be payable to an employee – Who has rendered continuous service for a period of not less than 5 years on the termination of his employment;  On his superannuation; (or)  On his retirement; (or)  On his resignation; (or) On his death (or) disablement due to accident (or) disease. (5 years of service is not necessary)
  • 21. Basis of charge 1. If gratuity is received by an employee on leaving the job, it is taxable under the head ‘Income from salary’ after claiming exemption u/s10(10). 2. If gratuity is received by legal heirs of deceased employee, it is taxable under the head ‘Income from other sources’ after claiming exemption u/s10(10).
  • 22. GRATUITY [ Sec 10 (10) ]  Gratuity received during continuation of service is Fully Taxable.  Maximum exemption available under this section during life time of the assessee cannot exceed ₹ 10,00,000/-  Completed years of service include period of service under current employer as well as previous employer ( if no gratuity has been received from former employer at that time. )
  • 23. PENSION  Periodical payments after retirement of an employee is known as pension.  Regular pension received by the employee himself after the retirement is taxable as salary.  Family pension (after the death of husband/wife) received by wife/husband comes under income from other sources as there is no employer and employee relationship after the death of an employee.  Standard deduction is available ie. 1/3rd of family pension (or) ₹ 15,000 whichever is lower is deductible from family pension.
  • 24. Commuted pension Sec.17(1)(ii)  Instead of receiving monthly pension some portion of regular pension can be accumulated and can be received (after retirement/voluntary retirement) as a lump sum is known as commuted pension.  Government employee includes –  Central Govt.,  State Govt.,  Local Authority,  Corporation employees,  Public sector undertakings,  Judges of Supreme court (or) High court,  Civil services and Defense services.
  • 25. Allowances Fixed monetary payments for a specific purpose is known as allowance. An allowance is a fixed monetary amount paid by the employer to employee for expenses related to office work. Allowance are generally included in the salary and taxed unless there are exemption available.