1. ‘INCOME FROM SALARIES’
Presentation by :
CA D C GARG
M.com., FCA, ISA(ICAI), LL.B.

2. Section 15
For the purpose of chargeability of tax, salary consist of :
a) any salary ‘due’ from an employer or a former employer to an assessee in the previous year, whether actually paid or not ;
b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, though not ‘due’ or before it becomes ‘due’ ; and
c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income tax for any early previous year.

3. Section 15
Meaning of the word ‘due’ Accrual vs Due Accrual means right to receive whereas due means right to enforce to receive the same. For example : Salary of a particular month is accrue on daily basis as we performing our job but it is due on a particular date as decided by the management may be first week of next month. CIT vs L. W. Russel 54 ITR 91 [1964] [SC] The expression ‘due’ under Explanation 1 to section 7 of the income tax Act, 1922, is followed by the qualifying clause ‘whether paid or not’ and it shows that there shall be an obligation on the part of the employer to pay the amount and a right of the employee to claim the same.

4. Meaning of the word ‘Due’
ITO vs Dr Y. K. Hamied [1988] 25 TTJ 88 [ITAT Bombay]
The word ‘due’ means the right to demand payment as arisen to the employee and such right should arise from the contact of service.
Varajeshwari B. Parikh v ITO [2015]
The expression used in section 15 is ‘due’ which represents amount payable, rather than ‘earned’ or ‘accrued’ which would normally represent the income earned by the assesse or income which has accrued to the assesse.

5. Meaning of Salary – Section 17(1) Various components of salary and tax treatment
Basic salary and DA
Taxable under section 15 i.e. on ‘Due’ basis
Fees and Commission
Bonus
Remuneration for extra work (Overtime)
Advance salary
Year of receipt
Arrears of salary
Salary in lieu of notice
Employer’s Contribution to PF
In excess of 12% of salary

6. Meaning of Salary – Section 17(1) Various components of salary and tax treatment
Leave encashment
Exempt subject to certain conditions
Gratuity
Exempt subject to certain conditions. Govt. of India has enhanced limit of payment of gratuity from Rs. 10 lacs to Rs. 20 lacs vide notification dated However, no notification under income tax law, has yet been issued.
Pension
Retrenchment Compensation
Exempt subject to certain conditions. From AY 19-20, taxable under section 56(2)(xi).
Voluntary payments
Taxable under section 15. However, if paid to the widow of a deceased employee who dies while still in active service is not taxable. (CBDT Circular 573 dated August 21, 1990)
Payment received at the time of voluntary retirement
Salary from United Nations Organisation
Fully Exempt
Salary to a foreign citizen
Remuneration received by foreign nationals as diplomatic personnel, consular personal, trade Commissioner, staff of a foreign mission, is exempt under section 10(6).

7. Allowances :
House Rent Allowance : Exempt in accordance with the provisions of section 10(13A) r. w. Rule 2A.
City Compensatory Allowance : Fully taxable
Entertainment Allowance : Exempt only in case of Government employees (least of Rs, 5000/- and 20% of basic salary)
Special Allowance : Notified special allowances are exempt
Foreign Allowance : Exempt, if paid outside India by the Government to an Indian citizen for rendering services outside India.
Allowances to judges of High Courts or Supreme Court : Fully exempt
Allowances received by a teacher/professor from SAARC member states : exempt

8. Perquisites : Section 17(2)
There are several perquisites may be given by an employer to employees :
Perquisites
Tax treatment
House accommodation
Service of sweeper, gardener, watchman or personal attendant.
Not taxable if employee is a non-specified employee
Supply of gas, electricity or water for household purposes
Education facility to employee’s family members
Leave travel concession
1.Not taxable twice in a block of 4 years
2.Not taxable if the employees is a non-specified employee
Amount paid by the employer in respect of any obligation which otherwise would have been payable by the employee
Tax born by employer on non-monetary perquisites of employees
Amount payable by an employer directly tor indirectly to effect an assurance on the life of employee or to effect a contract of an annuity
Contribution to recognized provident fond

9. Interest fee/ concessional loan
If original amount of loan does not exceed Rs , the perquisite is not taxable
2. Loan for medical treatment is not taxable subject to few conditions
Providing use of moveable assets
Providing use of laptop/computer in any case
Transfer of movable assets
Medical facility
Car or any other automotive conveyance
Transport facility by a transport undertaking
Free good and beverage
Travelling touring accommodation
Gift or gift voucher
Gift is in kind up to Rs.5000
Credit card
Initial fee payable for obtaining corporate membership
Club
Health club or sport club facility if few conditions are satisfy
Tax of employee paid by employer
Tax on non-monetary perquisites paid by employer is exempt.

10. Deductions from Salary : Section 16
Section 16(ia) : Standard Deduction of Rs. 40,000/- or the amount of salary, whichever is less – Applicable from Assessment year Government has withdrawn i) Transport Allowance Rs. 19,600/- and ii) Medical Reimbursement amounting to Rs. 15,000/-. Therefore, there is a saving of Rs. 5,800/- per annum. However, for claiming standard deduction, no bills are required to be furnished. Section 16(ii) : Entertainment Allowance : first added in the salary as allowance then deduction under this section Section 16(iii) : Professional Tax :- Professional tax or tax on employment levied by a State under Article 276(2) of the Constitution is allowed as a deduction from the assessment year

11. Taxation of Salaries received by Expatriate
Salaries for services received in India : Section 9(1)(ii) : Income chargeable to tax under the head “Salaries” is deemed to accrue or arise in India, if it is earned in India. Any salary payable for the rest period or leave period which is preceded or succeeded by service rendered in India forms part of the service contact of employment, shall be regarded as income earned in India.
Salaries payable by Government to a citizen of India for services outside India : Section 9(1)(iii) : Salary received by Indian national from the Indian Government in respect of services rendered outside India, is deemed to accrue or arise in India. However, by virtue of section 10(7), any allowance or perquisite paid outside India is fully exempt.

12. Remuneration received as an employee of a foreign enterprise for services rendered by him during his stay in India [section 10(6)(vi)]
The entire amount of remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, following conditions are followed.
ESSENTIAL CONDITIONS:-
Recipient should not be citizen of India .
The foreign enterprise is not engaged in any trade or business; in India
Stay of the assessee in India does not exceed in the aggregate a period of 90 days in such previous year; and
Such remuneration so paid is not liable to be deducted from the income of the employer chargeable under the Income –tax act, 1961.

13. Salary in connection with the services on a foreign ship [Section 10(6)(viii)]
Any income chargeable under the head “Salaries” received by or due to any such individual being a non-resident, as remuneration for service rendered in connection with his employment on a foreign ship shall be exempt.
ESSENTIAL CONDITIONS :-
Recipient should be a foreign citizen and non-resident in India.
Stay in India should not exceed in the aggregate of a period of 90 days in the previous year.

14. Under training in India employee of foreign state [section 10(6)(xi)]
The entire amount of remuneration received by an employee of foreign government during his stay in India for his training in India shall be exempted as under:-
ESSENTIAL CONDITIONS:-
The remuneration received by him as an employee government of foreign state during his stay in India in connection with his training in any establishment or office of; or in any undertaking owned by,-
The government; or
Any govt. company; or
Any registered society.
Recipient should be a foreign citizen .
Training is with Govt. company or corporation or approved institution.