Income from Salaries – Charging Section and Allowances, Income from Salaries at a glance. Find Complete details regarding Tax on Salary, What is Salary Income, Basis of Charge (Sec.15), What is included in Salary (Sec.17?), House Rent Allowance [Sec. 10 (13A)], Entertainment Allowance, Other exemptions. Recently we provide complete details regarding Types of stamps and some concepts of stamp duty. Now you can scroll down below and check more details for “Income from Salaries – Charging Section and Allowances”

Income from Salaries – Charging Section and Allowances

What is Salary

The meaning of the term ‘salary’ for purposes of income tax is much wider than what is normally understood. Every payment made by an employer to his employee for service rendered would be chargeable to tax as income from salaries. The term ‘salary’ for the purposes of Income-tax Act, 1961 will include both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc).

Must Read – Income of Other Persons included in our Income

Basis of Charge (Sec.15)

  • Income from salary chargeable to tax on due basis or receipt basis whichever occurs earlier. In other words salary due in a financial year is taxable, even if it is not received and salary received in a financial year is taxable, even if it not due.There should be existence of employee relationship and nexus between payment and employment.

What is included in Salary (Sec.17?)

There are four components of salary income:-

  • Salary properAllowancesPerquisitesProfit in lieu of salary

Must Read – Incometaxindiaefiling

ACCORDING TO SECTION 17(1) SALARY INCLUDES:

  • Wages Any annuity or pension:Any gratuityAny fees, commissions, perquisites or profit in lieu of salary.Any advance salaryEncashment of leave

The following allowances are exempt to the extent they are spent for the specified purpose. If they are not spent for the specified purpose, then the unspent amount will be taxable.

Advertisement

Must Read – Top Reasons for Income Tax Refund Failure

The following allowances are exempt to the extent of the limit specified i.e. exemption does not depend on expenditure.

House Rent Allowance [Sec. 10 (13A)]

Exempted from tax to the extent of the least of the following:

(a)    70% of such allowance or

(b)   Rs.10,000 per month

  • 50% of salary in Delhi, Mumbai, Kolkata, Chennai or 40% of salary in other cases.House rent allowance; orThe excess of rent paid over 10% of salary (rent paid less 10% of salary)

Must Read – Income Tax – Sources, Basics & Important Concepts

Entertainment Allowance

In case of Government employees, least of the following is exempt from tax:

  • 5,000/-20% of Salary orEntertainment allowance actually received

For entertainment allowance, salary means basic salary; it excludes all benefits and allowances.

From AY 2002 -03, for non – government employees, entertainment allowance deduction will not be available.

Other exemptions

(1) Actual allowance received.

(2) Actual amount spent for the purposes of duties of other employment.