Income Tax: Sections 15-17 (Salaries)

• Provisions regarding income taxed under "Salaries" are outlined in sections 15, 16, and 17.

Key Sections:

• Chargeability (Section 15): Deals with salary due, paid/allowed amounts (even if not yet due), and any arrears.
• Deductions (Section 16): Includes standard deduction, entertainment allowance, and professional tax.
• Meaning (Section 17): Defines salary, perquisites, and profits in lieu of salary.

Employer-Employee Relationship

• A service payment from employer to employee is taxable as salary.
• The relationship between payer and payee must exist within employment.

Full-time or Part-time Employment

• Income will be charged as salaries if this employment relationship exists.
• The time spent of the employee doesn't matter.

Foregoing of Salary

• Employee’s waving salary after accrual doesn't remove income tax liability.
• This waiver is considered an application of income and is thus, taxable.

Surrender of Salary

• Salary surrendered to the Central Government under the Exemption from Taxation Act of 1961 is exempt.

Salary Paid Tax-Free

• If an employer pays the employee's tax, that income is included within the employee's taxable income.
• Income tax paid on non-monetary perquisites is exempt for the employee under section 10(10CC).

Place of Accrual of Salary

• Salary earned in India is taxed in India (section 9(1)(ii)), even if payments occur outside of India.
• Pension payments from Indian services is taxed in India.

Basis of Charge (Section 15)

• Salary is taxed when due or received, based on whichever comes first.
• Advanced payments are taxed in the payment year, not when it becomes due.
• Payments already assessed cannot be taxed again.

Advance Salary

• Taxable when received, regardless of when it is due.
• Section 89 tax relief may apply when received.

Difference Between Advance vs Against Salary

• Employer salary loans (repayable via installments) aren't taxed as salary.
• Advance amount taken by an employee is generally adjusted over time and isn't taxed as salary.

Arrears of Salary

• Taxed on a due basis in most cases.
• Relief options are available under Section 89.

Salary Definition (Section 17)

• Includes monetary and non-monetary items.
• Monetary: wages, bonus, commission, allowances.
• Non-monetary payments: facilities of housing, medical etc.

Components of Salary (Section 17(1))

• Wages.
• Annuity or pension.
• Gratuity.
• Fees, commission, perquisites or profits in lieu of salary/wages.
• Advance of salary.
• Leave salary or leave encashment.
• Taxable portion of annual accretion to recognized provident fund balances.
• Transferred balances in a recognized provident fund.
• Employer contributions to employee's pension schemes (section 80CCD).

Wages

• Fixed and earned for work or services done (words are often interchangeable).
• Payments such as allowances are included within the salary meaning.

Allowances

• Given by employers to meet various needs (housing, uniform expenses etc.).
• Taxed on due or receipt basis, based on whichever comes first.

Fully Taxable Allowances

• Entertainment, Dearness, Overtime, Fixed Medical, City Compensatory.
• Interim, Servant, Project, Tiffin/Lunch/Dinner,
• Warden, Non-Practicing.
• Transport (except for blind / deaf / handicapped employees)
• Uniform allowance

Partly Taxable Allowances

• House Rent Allowance (HRA) [u/s 10(13A)].
• Special Allowances [u/s 10(14)].
• Leave Travel Allowance (LTA).
• Children Education Allowance.
• Hostel Expenditure Allowance.
• Fixed medical allowance.
• Conveyance allowance above ₹19,200.

Fully Exempt Allowances

• Allowances to High Court Judges.
• Allowances paid by the United Nations Organization.
• Compensatory Allowances received by a judge.
• Sumptuary allowances granted to High Court or Supreme Court Judges.
• Allowances granted to government employees serving outside of India.

City Compensatory Allowance

• Intended to offset the higher living costs in cities.
• Taxable regardless of performance location/condition.

Entertainment Allowance

• Given to employees to host customers.
• Tax deductions are exclusive to government employees.

Transport Allowance

• Taxable to meet expenses between residence and work.
• Exemptions up to ₹3,200 p.m. to blind/deaf/handicapped employees

House Rent Allowance (HRA) [Section 10(13A)]

• Special allowance to pay rent expenses.
• Available exemptions to Least out of :
• • HRA received;
• • actual rent paid minus 10% of salary;
• • 50% of salary (metro cities) or 40% of salary (non-metro areas).

Allowances for Expenses (Section 10(14))

• Section has two categories to exempt allowances as per Rule 2BB.
• No Limit is set for amounts for fully expense related cases. Must be spent for that purpose.
• Set Allowances are for personal expenses and excess amounts are added to income

Rules of 2BB(1)

• Travel allowances to cost travel;
• Daily expenses allowances
• Conveyance for duty office use
• Helper to conduct and or aide duties
• Academic pursuits and encouragements.

Transport allowance limit for handicapped employees:

• ₹3,200 per month.
• Can only be availed if not under 115BAC tax bracket

Key Allowances and Exemptions in Rule 2BB (2)

• Special Compensation for Hilly Areas or High Altitude: ₹800/₹300 per month dependent on location.
• Siachen Area (J&K) Compensation: ₹7,000 per month.
• Border, Remote, or Disturbed Area Compensation: ₹200-₹1,300 per month depending on location. Tribal/Schedule/Agency Area Compensation: ₹200 per month.
• Transport System Employees Allowance: 70% allowance (max ₹10,000).
• Children Education Allowance: ₹100/month per child (max 2 children).
• Hostel Expenditure Allowance: ₹300/month per child (max 2 children).
• Compensatory Areas in States Allowance: ₹2,600 per month.
• Modified Field Areas Allowance: ₹1,000 per month.
• Counter Insurgency Allowance: ₹3,900 per month.
• Transport for handicapped: ₹3,200/month.
• Underground Allowance: ₹800 per month.
• High Altitude Allowance(armed forces):₹1,060 to ₹1,600.
• Special Highly Acted Field Allowance or Island Duty Allowance (armed forces): around ₹3,250 to₹4,200.

Key Notes on Exemptions:

• Claiming serials 7 & 8 can't claim for serial 2
• Choosing for 115BC are limited to only 3 travel allowances

Tax Exemptions

• Judge of Supreme Court or High court
• United Nations UNO
• Compensatory allowance under section 222(2) of the Constitution
• Sumptuary allowance per judge as conditions apply

Allowances Payable Outside India [Section 10(7)]

• Government paid allowances/perks to Indian citizens serving outside of India are exempt from tax.

Annuity Meaning

• Fixed interest payments
• Not dependent on annual net income of source

Annuity received

• Can be taxed from 3 different sources
• • past employer: Profit in Salary
• • Present Employer : Salary Tax
• • Other Employer: other source income

Pension

• A periodic payment made to previous employee of the Company
• Two types : Uncommuted and commuted
• • Uncommuted : Full tax applicable from source
• • Commuted : Lump sum payments taken by employee in place of monthly payments.

Commuted Pension [Section 10(10A)]

• Exemptions can be applied based on condition given

Key Exemptions on Commuted Pension based on who is employer and gratuity conditions

• Central / Local / Statutory Corporation with civil service or defence is Fully exempt and no tax needed
• other employees have separate conditions: One the employee must be in receipt of gratuity if that is to be. 1/3 of pension is tax exempt
• No receipt : 1/2 amount exempt.

Gratuity

• voluntary payment made by an employer,
• Recognition of the concept
• The Exemptions range based on who is the employer
• • Retiring gratuity pay under Defence is fully exempt
• • Central Gov and all subdivisions are fully taxed

Payment Gratuity Condition

• Death cum retirement gratuity is exempt to the extent of least of the following: ₹20,00,000
• Gratuity actually received
• 15 days' salary based on last drawn salary for each completed year of service

Note re: Salary

• For this purpose means basic salary and dearness allowance.
• No. of days in a month shall be 26
• If any death occurs, or retirement any amount gratuity or salary widow gets are exempt if it meets following:
• --₹20,00,000
• • gratuity is actually received
• • half month salary based on 10mon previous average.

Notes To apply and Consider

• • All should be fixed payments.
• • any received after in year are added together for 20lakh exception count
• • All periods considered are for fraction based on services

Leave Encashment

• Given at the time of employment,
• or after cessation of his employment with that person
• -- Government employees: Fully exempt
• -- non Governmental Employees: Exempt to least of i. $3,000,000 ii. Leave salary actually received

Notes on leave salary

a. salary for base pay and commission is fixed b. if there were extra earned it's added together fully taxable

Components of Provident Fund:

Components, interest credit contributions with employer as well

• Recognized Provident Fund : Means one recognized under income tax
• Unrecognized Provident Fund : means one not under income tax
• Statutory Provident Fund : provident funds act Public Provident Fund : Operated under Public.

Tax treatment to the fund with respect to conditions

• Recognized. Contributions from 12%. is taxed, employee gets deduction from the SEC. Interest over 9.5 is taxed
• Unrecognised. not taxed at the time credited. Contributions and deductions aren't able to be used and applied
• -- statutory : fully exempt
• --public: Fully exempt on most sections and conditions Employee contribution are fully exempt

Exempt under Employer - Terminations

• Employer gives contribution is employer and or employees under that. If employee has not been around with continuity for more then there.
• NO services are terminated due too illness reasons.
• -Entire bal for ee transferred
• • Entire balance for NPS

Fees and Commissions

• Are fully tax applicable
• • Advance Salary has
• -leave salary or encashment

10(AA) Provides

• -exepetions from amount received by an employee
• • Salary is always dearness plus amount
• If paid at concessional or at different price.
• -- If given money is not tax applicable
• -- Reimburse or provided then is the benefit.

Prequisites is a inclusive one with these following types

• Taxable if there and free
• Taxable for certain special cases

Rent Accomodation

• Tax free official judge
• employee reimbursement will cause this,
• annuity life insurance and or insurance in schemes. Note per section 17(2)(vii) to be known. And discussed

1 or more auto cases with rules given.

• value then will get perq and or the high amount applicable set.
• Documentation is needed for notes are good that the employee
• If used in certain amounts and such. High as of these documentation. Documentations needed can be for certain
• That is what the table has been for certain

For those fees see conditions and details

4 Deductions after this is computed for salaries

• Standard.
• entertainment
• for certain taxes given