Salary includes the pay, allowances, bonus or commission payable monthly or otherwise or any monetary payment, in whatever name called from one or more employers, as the case may be, but does not include the following, namely:
It also includes the following:
Is the allowance paid outside India by the Government to the Indian citizens taxable?
Any allowance, paid outside India by the Government to an Indian citizen for rendering services outside India, is fully exempt from tax u/s.10 (7) of the Income-tax Act.
How is the tax determined on the salary received by ships crew?
Under section 10(6)(viii), salary that is received by or due to a Non-resident foreign national, who is a member of a ships crew, is exempt from tax, provided the total stay of the crew member in India does not exceed 90 days in the previous year.
If a person foregoes his salary for any reason, would it be taxable?
Since the salary is taxable on due or receipt basis, whichever is earlier, foregoing of salary would amount to giving up something, which is due to him. Hence, even if a person foregoes salary, the same would still be taxable.
In the case of a Hindu undivided family, how would you determine whether the remuneration, received by an individual is the income of the individual or the income of the Hindu undivided family?
If the remuneration, received by the co-parcener, is compensation made for the services rendered by the individual co-parcener, then it will be income of the individual co-parcener. If the remuneration received by the individual co-parcener is because of investments of the family funds, then it will be considered as the income of the Hindu undivided family. If the income was essentially earned as a result of the funds invested, then the fact that the co-parcener had rendered some service will not change the character of the receipt. It will still be regarded as income of the Hindu undivided family. However, on the other hand, if the co-parcener has received remuneration for services rendered by him, even if his services were availed of because he was a member of the family which had invested funds in that business or that he had obtained qualifying shares from out of the family funds, the receipt would be the income of the individual.
If an assessee is employed in a company where he is called Managing Agent but is in fact, the Chief Manager of the company, under what head would the remuneration that is paid to him be charged?
Though he may be called a Managing Agent, the remuneration earned by him will be charged under the head of Salaries and not as Business Income. The fact that he is actually the Chief Manager of the company will make the remuneration earned by him chargeable to tax under the head Salaries. It is the true nature of the contract that will determine the relationship between the assessee and the company. Once it is established that the managing director functions, subject to the control and supervision of the Board of Directors, the inevitable corollary is that an employer - employee relationship exists and, that being so, his remuneration is assessable under the head "salary".
Is the salary, bonus, commission or remuneration, received by a partner of a firm from the firm regarded as salary?
No. The salary, bonus, commission or remuneration, by whatever name called, due to or received by the partner of a firm from the firm shall not be regarded as salary for the purpose of tax. It will be regarded as Business Income and taxable under the head 'profits and gains from business or profession'. Accordingly, no standard deduction, which is otherwise allowable from Salary Income, is available.
Would the remuneration, received by a director be taxable under the head 'Income from salaries'?
The remuneration, received by a director is taxable as 'Income from salaries' or not, would depend upon whether the director is an employee of the payer or not. This can be determined from the nature of the relationship between the director and the payer. If the relationship of a master and servant exists between the payer and payee, then the director would be an employee and the remuneration that is received would be taxable under the head 'salaries'. However, if such relationship does not exist, then the director will not be considered an employee of the payer and the Income would be taxable as Professional Income.
If a person is following the cash system of accounting would he be liable to pay tax in respect of salary which is due to him but which he has not received?
Salary is taxable on due basis or receipt basis, whichever is earlier, irrespective of the method of accounting that is followed by the assessee. Accordingly, advance salary is taxable on receipt basis, though not due. Hence, the method of accounting followed by the assessee is not of any consequence.
Explain the taxability of salary of foreign employees.
Under section 10(6)(vi), the remuneration received by An individual who is not a citizen of India foreign national as an employee of a foreign enterprise for services, rendered by him during his stay in India, would be exempt from tax, in the following cases:
Under section 10(6)(ii) of the Income-tax Act, any remuneration that is received by an individual who is not a citizen of India as an official of the Embassy, High Commission, Legation, Commission, Consulate or Trade representative of foreign State or, as a member of the staff of any of those officials would be exempt from tax, if the corresponding Indian officials in that foreign country enjoy similar exemption.
Is there any significance to the place where the services are rendered for the taxability of salaries?
Salary is deemed to accrue or arise at the place where the service is rendered. Even if salary is paid outside India, if the services are rendered in India, the said salary is taxable in India. Leave salary, paid abroad, is also taxable in India as it is deemed to accrue or arise out of services rendered in India.
It may be noted that salary, paid by the Indian Government to an Indian national, is deemed to accrue or arise in India even if the services are rendered outside India. Any pension, payable outside India to a person residing outside India permanently, shall not be taken as income deemed to accrue or arise in India, if the pension is payable to a person, referred to in Article 314 of the Constitution or to a person, who has been appointed as a Judge of the Federal Court or of the High Court, before the 15th of August, 1947 and continues to serve as a Judge in India on or after the commencement of the Constitution.
Are there any special privileges that are enjoyed by the officials of the United Nations Organization and other such international organizations?
Under section 2 of the United Nations (Privileges and Immunities) Act, 1947, read with section 18 of the Schedule, thereto, exemption is granted from Income tax in respect of salaries and emoluments that are paid by the United Nations and other notified international organizations to its officials. Pension is also covered under this provision and no tax is payable.
What is the taxability of the compensation, received by a person on voluntary retirement?
Under section 10(10C) of the Income-tax Act, compensation that is received at the time of voluntary retirement is exempt if the person satisfies the following conditions:
- dearness allowance or dearness pay unless it enters into the computation of superannuation or retirement benefits of the employee concerned;
- employer's contribution to the provident fund account of the employee;
- allowances which are exempted from payment of tax;
- the value of perquisites specified in sub-section (2) of section 17 of the Income-tax Act;
It also includes the following:
- Wages;
- Any annuity or pension;
- Any gratuity;
- Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
- Any advance of salary;
- Any payment received by an employee in respect of any period of leave not availed of by him;
- The annual accredition to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under Rule 6 of Part A of the Fourth Schedule; and
- The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of part A of the Fourth Schedule of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof.
Is the allowance paid outside India by the Government to the Indian citizens taxable?
Any allowance, paid outside India by the Government to an Indian citizen for rendering services outside India, is fully exempt from tax u/s.10 (7) of the Income-tax Act.
How is the tax determined on the salary received by ships crew?
Under section 10(6)(viii), salary that is received by or due to a Non-resident foreign national, who is a member of a ships crew, is exempt from tax, provided the total stay of the crew member in India does not exceed 90 days in the previous year.
If a person foregoes his salary for any reason, would it be taxable?
Since the salary is taxable on due or receipt basis, whichever is earlier, foregoing of salary would amount to giving up something, which is due to him. Hence, even if a person foregoes salary, the same would still be taxable.
In the case of a Hindu undivided family, how would you determine whether the remuneration, received by an individual is the income of the individual or the income of the Hindu undivided family?
If the remuneration, received by the co-parcener, is compensation made for the services rendered by the individual co-parcener, then it will be income of the individual co-parcener. If the remuneration received by the individual co-parcener is because of investments of the family funds, then it will be considered as the income of the Hindu undivided family. If the income was essentially earned as a result of the funds invested, then the fact that the co-parcener had rendered some service will not change the character of the receipt. It will still be regarded as income of the Hindu undivided family. However, on the other hand, if the co-parcener has received remuneration for services rendered by him, even if his services were availed of because he was a member of the family which had invested funds in that business or that he had obtained qualifying shares from out of the family funds, the receipt would be the income of the individual.
If an assessee is employed in a company where he is called Managing Agent but is in fact, the Chief Manager of the company, under what head would the remuneration that is paid to him be charged?
Though he may be called a Managing Agent, the remuneration earned by him will be charged under the head of Salaries and not as Business Income. The fact that he is actually the Chief Manager of the company will make the remuneration earned by him chargeable to tax under the head Salaries. It is the true nature of the contract that will determine the relationship between the assessee and the company. Once it is established that the managing director functions, subject to the control and supervision of the Board of Directors, the inevitable corollary is that an employer - employee relationship exists and, that being so, his remuneration is assessable under the head "salary".
Is the salary, bonus, commission or remuneration, received by a partner of a firm from the firm regarded as salary?
No. The salary, bonus, commission or remuneration, by whatever name called, due to or received by the partner of a firm from the firm shall not be regarded as salary for the purpose of tax. It will be regarded as Business Income and taxable under the head 'profits and gains from business or profession'. Accordingly, no standard deduction, which is otherwise allowable from Salary Income, is available.
Would the remuneration, received by a director be taxable under the head 'Income from salaries'?
The remuneration, received by a director is taxable as 'Income from salaries' or not, would depend upon whether the director is an employee of the payer or not. This can be determined from the nature of the relationship between the director and the payer. If the relationship of a master and servant exists between the payer and payee, then the director would be an employee and the remuneration that is received would be taxable under the head 'salaries'. However, if such relationship does not exist, then the director will not be considered an employee of the payer and the Income would be taxable as Professional Income.
If a person is following the cash system of accounting would he be liable to pay tax in respect of salary which is due to him but which he has not received?
Salary is taxable on due basis or receipt basis, whichever is earlier, irrespective of the method of accounting that is followed by the assessee. Accordingly, advance salary is taxable on receipt basis, though not due. Hence, the method of accounting followed by the assessee is not of any consequence.
Explain the taxability of salary of foreign employees.
Under section 10(6)(vi), the remuneration received by An individual who is not a citizen of India foreign national as an employee of a foreign enterprise for services, rendered by him during his stay in India, would be exempt from tax, in the following cases:
- The foreign enterprise is not engaged in any business or trade in India;
- The employee's stay in India does not exceed in the aggregate a period of 90 days in the previous year; and
- The remuneration, paid to him, is not liable to be deducted from the income of the employer chargeable under the Act.
Under section 10(6)(ii) of the Income-tax Act, any remuneration that is received by an individual who is not a citizen of India as an official of the Embassy, High Commission, Legation, Commission, Consulate or Trade representative of foreign State or, as a member of the staff of any of those officials would be exempt from tax, if the corresponding Indian officials in that foreign country enjoy similar exemption.
Is there any significance to the place where the services are rendered for the taxability of salaries?
Salary is deemed to accrue or arise at the place where the service is rendered. Even if salary is paid outside India, if the services are rendered in India, the said salary is taxable in India. Leave salary, paid abroad, is also taxable in India as it is deemed to accrue or arise out of services rendered in India.
It may be noted that salary, paid by the Indian Government to an Indian national, is deemed to accrue or arise in India even if the services are rendered outside India. Any pension, payable outside India to a person residing outside India permanently, shall not be taken as income deemed to accrue or arise in India, if the pension is payable to a person, referred to in Article 314 of the Constitution or to a person, who has been appointed as a Judge of the Federal Court or of the High Court, before the 15th of August, 1947 and continues to serve as a Judge in India on or after the commencement of the Constitution.
Are there any special privileges that are enjoyed by the officials of the United Nations Organization and other such international organizations?
Under section 2 of the United Nations (Privileges and Immunities) Act, 1947, read with section 18 of the Schedule, thereto, exemption is granted from Income tax in respect of salaries and emoluments that are paid by the United Nations and other notified international organizations to its officials. Pension is also covered under this provision and no tax is payable.
What is the taxability of the compensation, received by a person on voluntary retirement?
Under section 10(10C) of the Income-tax Act, compensation that is received at the time of voluntary retirement is exempt if the person satisfies the following conditions:
- It is received at the time of voluntary retirement;
- It is received by an employee of a public sector company; or any other company; or authority established under the Central, State or Provincial Act; or a local authority; or a co-operative society; or a University; or an Indian Institute of Technology; or any State Government; or the Central Government; or an institution having importance throughout India or in any other State(s); or a notified institute of Management.
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