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1. What's Salary Income? 2. Employer & Employee Relationship 3. Salary Definition 4. Scope of Charge of Salary 5. Computation of Income Under the head "Salaries"
What's Salary Income? Section 15 is the charging section for the head "Salaries". It provides for charge to income tax of certain incomes from an employer or a former employer to an assessee under the head "Salaries". The taxability of the salary income in a previous year is as under: -
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1. Any salary due in the previous year, whether paid or not; 2. Any salary paid/allowed in the previous year, though not due or before it became
due to him; Have Questions on Tax?
3. Any arrears of salary paid/allowed in the previous year, if not charged to income
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4. However, if any salary paid in advance is included in the total income of any
person for any previous year, then it shall not be included again in the total income of the person when the salary becomes due. In short, Salary Income is chargeable to income tax on "due" basis or "receipt" basis whichever is earlier. Note: Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner (even if under representative capacity) of a firm, from the firm shall not be regarded as "salary" for the purposes of this section.
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employer and independent contractor. The test laid down is that in the case of master and servant, the master can order or require what is to be done and how it is to be done (control & supervision) but in case of an independent contractor an employer can only say what is to be done but not how it shall be done. In essence, the real test would be whether the employment is a "Contract of Service" (in which case it is chargeable as "Salary") or "Contract for Service" (in which case it is chargeable as "Profits and Gains of Business or Profession" or "Other Sources"). Note: The salary received by MLA and MPs are chargeable only under the head "Other Business Tax Capital Gains
Sources", since there is no employer-employee relationship. The salary paid to partners by firm is taxable as "Profits and Gains of Business or Profession" as the partners and firm are not different and they are self-employed. However, the salary of Judges is chargeable as "Salaries".
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Corporate Tax
1. Wages; 2. Any annuity or pension; 3. Any gratuity; 4. Any fees, commissions, perquisites or profits in lieu of or in addition to any
'salary or wages'; Other Sources
5. Any advance of salary; 6. Any payment received by an employee in respect of any period of leave not
availed of by him (leave salary);
xxx
xxx --xxx
xxx
xxx ---
Salary Income
xxx c Transferred balance of accumulated amount from URPF to RPF Amounts exempt for each year, had the URPF been RPF
xxx
xxx --xxx
d: Contribution made, by the Central Government in the Previous Year, to the account of the employee under a pension scheme referred to in 80CCD. Note: For the purpose of a. above Salary = Basic Pay + Dearness Allowance, if terms of employment provide + Commission as a Fixed Percentage on Turnover. The term "Salary" has been defined inclusively. Hence, it is to be understood in
common parlance. It is the consideration for the service rendered by the employee to the employer or former employer.
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services rendered in India and forming part of service contract of employment, earned by a Citizen of India, for services rendered outside India, if paid by Government of India.
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Retirement Benefits
Salary Income
Note:* Amount exempt under section 10, to be reduced from the respective items.
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