Salary means anything whether in cash or kind receivable by employee from employer in lieu of his or her past or present services.
Based on the nature of payment salary can be divided into two basic category like monetary benefits and non monetary benefits also known as perquisites, these can be sub divided into heads like basic salary, pension i.e. income receivable from the previous employer, bonus as fixed or variable, House rent allowance, dearness allowance, stock option given to employee, rent free accommodation, car etc.
Meaning of salary:
“Salary” includes the following:
- Wages, any annuity or pension
- Any gratuity
- Any fees, commission, bonus
- Any taxable allowance
- All taxable perquisites
Income from salaries (sec. 15 or 17)
Under sec 15 the following incomes are taxable under the head salaries:
- The salary due from an employer or former employer to an assessee in the previous year whether paid or not.
- The salary paid or allowed to him in the previous year though not due (i.e. advance salary but not in the form of loan)
- Any arrears of salary(taxable on payment basis)
Some important points in respect of salary:
- Employer and employee relationship must exist(master& servant)
- If Employer and employee relationship not exists the remuneration is taxable in income from other sources
- Salary given by firm to partner is taxable under the head “Business and profession”
- Salary must be accrued in India
- Salary is taxable on due or receipt basis whichever is earlier except arrear of salary
- Salary surrendered by the employee to the central Govt. will not be included while computing his taxable income
- Salary will be deemed to accrue or arise at a place where service is rendered
- Salary of Govt. employee serving outside India who are citizen of India is treated as deemed to accrue or arise in India
- If there are more than one employer salaries received from all the employers should be clubbed (added) & taxed for the relevant previous year.
Forms of salary:
- Fees and commission
- Leave salary 10(10AA)
- Compensation for retrenchment 10(10B)
- Gratuity 10(10)
- Pension or annuity 10(10A)
- Commutation of pension
- Voluntary retirement compensation 10(10C)