The term “salary” under income tax is a comprehensive term that includes both monetary and non-monetary payments made by an employer to an employee. It is defined in Section 17(1) of the Income Tax Act, 1961 as follows:

“Salary” means all remuneration, including any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages, earned by an assesses for services rendered by him under a contract of service, whether the contract is express or implied.”

Some of the important components of salary under income tax include:

• Basic salary
• Dearness allowance
• House rent allowance
• Medical allowance
• Bonus
• Commission
• Leave encashment
• Gratuity
• Profits in lieu of salary
• Perquisites

The income tax treatment of salary varies depending on the nature of the payment. For example, basic salary and dearness allowance are taxable in full, while house rent allowance and medical allowance are taxable only to the extent that they exceed certain limits. Bonus and commission are taxable only when they are actually received. Leave encashment is taxable in the year in which it is received, even if it relates to leave that was earned in a previous year. Gratuity is taxable only when it is paid, and the tax liability is spread over a period of five years.

The employer is required to deduct tax at source (TDS) from the salary of an employee. The rate of TDS depends on the employee’s income and the type of payment. The employee can claim a deduction for the TDS paid while filing his/her income tax return.

EXAMPLES

• Salary in Delhi: The income tax slabs for salary income in Delhi are as follows:
  • Up to Rs.3,00,000 – Nil
  • 3,00,000 to Rs.6,00,000 – 5%
  • 6,00,000 to Rs.9,00,000 – Rs.15,000 + 10%
  • 9,00,000 to Rs.12,00,000 – Rs.45,000 + 15%
  • 12,00,000 to Rs.15,00,000 – Rs.90,000 + 20%
  • Above Rs.15,00,000 – Rs.1,35,000 + 30%

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Salary in Chennai: The income tax slabs for salary income in Chennai are as follows:

• Up to Rs.2,50,000 – Nil
• 2,50,000 to Rs.5,00,000 – 5%
• 5,00,000 to Rs.7,50,000 – Rs.12,500 + 10%
• 7,50,000 to Rs.10,00,000 – R 37,500 + 15%
• 10,00,000 to Rs.12,50,000 – Rs.75,000 + 20%.
• Above Rs. 12,50,000 – Rs. 1,12,500 + 30%

These are just some examples, and the actual income tax rates may vary depending on the individual’s circumstances. It is important to consult with a tax advisor to determine the correct tax liability.

In addition to the income tax slabs, there are also a number of deductions and exemptions that can be claimed against salary income. These deductions and exemptions can significantly reduce the amount of tax payable. Some of the common deductions and exemptions include under income tax act:

• Standard deduction
• Medical expenses
• Transport allowance
• Leave travel allowance
• Interest on home loan
• Education expenses
• Donation to charity

FAQ QUESTONS

• What is considered as salary income under income tax act?

Salary income income tax act includes all remuneration received by an employee from his/her employer, whether in cash or in kind. It includes basic salary, dearness allowance, house rent allowance, bonus, commission, overtime allowance, and any other allowances or benefits received by the employee.

• Even if no taxes have been deducted from salary, is there any need for my employer to issue Form-16 to me?

Yes, even if no taxes have been deducted from your salary, your employer is still required to issue you a Form-16. Form-16 is a certificate that contains details of your salary income and the taxes that have been deducted from it. You will need this form to file your income tax return.

• Is pension income tax taxed as salary income?

Pension income is not taxed as salary income. However, it is taxed as income from other sources. The tax rate for pension income depends on the amount of pension and the taxpayer’s income slab.

• Is Family pension taxed as salary income?

Family pension is taxed as income tax from other sources. The tax rate for family pension depends on the amount of pension and the taxpayer’s income slab.

CASE LAWS

• CIT v. G.L. Jain (1963): This case established the principle that salary includes all remuneration paid to an employee for services rendered, whether in cash or in kind. This includes basic salary, dearness allowance, house rent allowance, bonus, commission, and any other form of payment.
• CIT v. Indian Oil Corporation (2002): This case income tax held that the value of free accommodation provided to an employee by the employer is taxable as salary. The court held that the accommodation is a fringe benefit that is given to the employee in lieu of cash, and therefore, it is taxable.
• CIT v. Wipro Ltd. (2011): This case income tax ruled that the value of medical reimbursements provided to employees by the employer is taxable as salary. The court held that the medical reimbursements are a form of fringe benefit that is given to the employee in lieu of cash, and therefore, it is taxable.
• CIT v. Infosys Ltd. (2013): This case income tax held that the value of stock options granted to employees by the employer is taxable as salary. The court held that the stock options are a form of deferred compensation that is given to the employee in lieu of cash, and therefore, it is taxable.
• CIT v. Vodafone India Ltd. (2017): This case income tax ruled that the value of perquisites provided to employees by the employer is taxable as salary. The court held that the perquisites are a form of fringe benefit that is given to the employee in lieu of cash, ]]
• and therefore, it is taxable.