Every payment made by an employer to his employee for service rendered would be chargeable to tax as ‘Income from Salary”. For the purpose of Income-Tax Act, 1961 the term salary includes both monetary payments like basic salary, bonus, commission, allowances, etc. and non-monetary facilities like housing accommodation, medical facility, interest-free loans, etc. It must be noted that any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary”. Thus, income would be taxable under the head Income from Salary only when an employer-employee relationship exists, regardless whether the employee is a full-time employee or a part-time one.
At the time of payment of salary, the employer is required to mandatorily deduct TDS on salary U/S 192 and the balance amount after deduction of TDS is payable to the employee. Once the salary accrues, the subsequent waiver by the employee does not absolve him from liability to income-tax. Such waiver is only an application and hence, chargeable to tax. However, if he surrenders his salary to the Central Government U/S 2 of the voluntary surrender of salaries act, 1961, the salary rendered will be exempt while computing his taxable Income from Salary.
U/S 17(1), the term salary includes the following:
Place of Accrual of salary:
Allowances are fixed quantity of money or other substance in addition to basic salary, given regularly to an employee for the purpose of meeting some particular requirement connected with the service rendered by him. Allowances are taxable on due or receipt basis, whichever is earlier. Allowances can be fully taxable, partly taxable or fully exempt from tax.
– 70% of allowance
– Rs. 6000/- per month
Perquisites are an extra benefit in addition to the amount that may be legally due by way of contract for services rendered.
The value of any benefits or amenity mentioned above in 1 & 2 will be taxable in the hands of these employees:
Least of the following is exempt from tax:
If a professional tax is paid by the employer on behalf of its employees than it is first included in the salary of an employee as a prerequisite and then is allowed to be deducted. Professional tax in Gujarat is as follows:
|Monthly Salary||Professional Tax Per Month|
|Up to Rs. 15000/-||Nil|
|Rs. 15001 – Rs. 25000||Rs. 150|
|Rs. 25001 – or Above||Rs. 200|
How to compute Income from Salary ?
Bonus, commission and fees
Retirement benefits such as gratuity & PF
Less: deductions from salary
|Income from Salary||
Income from Salary