Heads of Income: Salary

What is Salary:

Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:

• When due from the former employer or present employer in the previous year, whether paid or not
• When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.
• When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

What Income Comes Under Head of Salary:

Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary:

1. Salary (including advance salary)
2. Wages
3. Fees
4. Commissions
5. Pensions
6. Annuity
7. Perquisite
8. Gratuity
9. Annual Bonus
10. Income From Provident Fund
11. Leave Encashment
12. Allowance
13. Awards

What is Leave Encashment:

Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees.

What is Annuity:

It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a result of contract which comes as income under from other sources.

What is Gratuity:

It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case of death of the employee.

What is Allowance:

It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/ exemptions.