SALARY

Salary Salary, as commonly understood, means a fixed payment made periodically as compensation for regular services rendered. It covers wages paid for manual work, salary paid for clerical jobs and remuneration paid to executives and managers. It includes all sums paid by an employer to an employee by way of Basic Salary, Allowances, and Perquisites

Important provision for Salary Employer-Employee Relationship. Remuneration of a Director. Remuneration of a Partner.

LEGAL PROVISION: According to Section 15, the following income shall be chargeable to tax under the head "Salaries" ‑ (a) any salary due from an employer or former employer to an assessee in the previous year, whether paid or not; (b) any salary paid or allowed to him, in the previous year, by or on behalf an employer or former employer, though not due or before it became due to him; (c) Any arrears of salary paid or allowed in the previous year, by on the behalf of the employer or former employer.

Salary received by Indian Diplomat: However received by an Indian Citizen from government of India is deemed to accrue in India even if services is rendered outside India e.g. Indian diplomats. However, the allowances and perquisites earned by such staff are exempt under Sec 10 ( 7). From all employers: salary earned during a particular previous year is charged to tax, whether received from the present or a former employer. The amount of salary from all employers during the year is added together and taxed under the head salary.

According to Section 17 salary includes: wages and salaries including advance salary annuity or pension Various allowances such as Dearness allowance, House rent allowance, Gratuity fees and commission Perquisites Leave encashment

Taxable Annual Accretion in recognised provident fund: Statutory Provident fund: Statutory fund is set up and administered by the government. Recognised Provident fund: Recognised provident means fund set up by the private sector employer and recognised by the income tax department. These recognised fund have to strictly follow the rules regarding contributions, investment of funds prescribed by the income tax act. Unrecognised Provident fund: Unrecognised provident fund set up by private sector employer but not recognised by the income tax department. Employer follows the rules with to provident fund

AmountStatutory P.F.Recognised P.F. Unrecognised P.F. Employers Contribution during the previous year Exempt Exempt upto 12% Basic salary. Salary excess taxable. Exempt Interest Credited during previous year Exempt Exempt if rate upto 9.5 % p.a. excess is taxable. Exempt Lump sum payment on the retirement Exempt Employers contribution and interest thereon is taxable.

Deduction under head salary ( Sec 16). 1) Entertainment allowance ( only if is government employee). 2)Least of the following: 20 % basic salary Rs Actual entertainment allowance received. 3)Profession tax paid.

ALLOWANCES: Allowances such as Travelling allowance/ Transfer allowance, Daily allowance. Uniform allowance, Research allowance, helper allowance, uniform allowance. Exempt to the extent of expenditure incurred. Children education allowance is exempt up to 100 p.m. per child for maximum of two children Children Hostel allowance is exempt up to 300 p.m. per child for maximum of two children Transport allowance for traveling between office and residence. is exempt upto Rs 800 p.m.

Perquisites: Value of rent-free accommodation provided by the employer. Value of concession in rent in respect of accommodation provided by employer. Sum paid by the employer in respect of any obligation payable by the assessee. Sum payable by the employer to effect an assurance on the life of the assessee (Life insurance). However this is not applicable to sum to employer (a) Recognised provident fund (b) Approved superannuation fund.

Value of any other prescribed fringe benefits or amenity (1) Interest free or concessional loan (2) Use of movable property (3) Transfer of movable property. Gas, electricity or water supply provided free of cost by the employer Free education facilities for family members of employee by the employer. Free domestic servants such as sweeper, watchman, Gardner, cook. by the employer

Perquisites Not Taxable At All Cost of medical treatment, is a hospital maintained by the employer, provided to employee or any member of his family member. Reimbursement of medical expenses incurred by employee on medical treatment of employee or his family member in a hospital maintained by the Government or local authority or approved by Government. Any sum paid by an employer directly to a hospital, approved by the Chief Commissioner of Income-tax, for medical treatment of the employee or his family member.

Reimbursement of medical expenses upto Rs. 15,000 incurred by employee on medical treatment of himself or his family member in the previous year. Mediclaim insurance premium paid by employer on behalf of the employee. Expenditure incurred by employer on ‑ Medical treatment of the employee or his family member outside India, travel or stay abroad of the employee or his family member for medical treatment, travel and stay abroad of one attendant who accompanies the patient in connection of such treatment;

expenditure on medical treatment and stay abroad will be exempt only to the extent permitted by the Reserve Bank of India; and Expenditure on travel shall be exempt only if the gross total income of such an employee does not exceed Rs. 2,00,000 in the previous year.