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SALARY INCOME - Direct Taxes


1-Income under the head “Salaries” under Income Tax Act.

As per section 15, the following income shall be chargeable to income-tax under the head "Salaries": 
 

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2- Tax Treatment of ‘Retirement Benefits’ Income to be included in Gross Salary - for computing ‘Salaries’ Income

Retirement Benefits Incomes includes …. (263) 1. Gratuity 2. Pension 3. Leave Encashment 4. Retrenchment Compensation 5. Compensation received on Voluntary Retirement
 

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3. Tax Treatment of 'Allowances' Income to be included in Gross Salary- for computing Salary Income

Allowance is a fixed monetary amount paid by the employer to the employee for meeting some particular expenses, whether personal or for the performance of his duties. These allowances are generally taxable and are to be included in the gross salary unless a specific exemption has been provided in respect of any such allowance. Specific exemptions in respect of allowances are provided under the following sections: 
 

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4. 'Perquisites' as per Section 17(2) of the Income Tax Act, 1961. - for computing Salary Income

Section 17(2) of the Income-tax Act, 1961 gives an inclusive definition of 'perquisite'. As per this section 'perquisite' includes: 
 

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5. Valuation of Perquisites on Rent Free Accommodation or Accommodation provided at Concessional Rate under Income Tax Act - for computing Salary Income

Accommodation provided to the employee may be— (i) unfurnished (ii) furnished Further, such accommodation may be provided: (a) rent free; or (b) at concessional rate. As per amended rule 3(1), the valuation of accommodation should be done as under:
 

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6. Perquisites of Specified Fringe Benefits or Amenities in the hands of all Employees for computing Salary Income under Income Tax Act

Fringe benefits or amenities which shall be taxable perquisite in the hands of all employees. The rules for valuation of specified fringe benefits or amenities are as under:

 

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7. Valuation of Motor Car / Other Vehicles, provided by the Employer, is a Perquisite for Computing Salary Income only for Specified Employees

As already discussed, motor car/other vehicles, provided by the employer, is a perquisite only for specified employees because it is a facility provided by the employer to the employees.
 

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8. Tax Treatment of Perquisites Taxable in the hands of Specified Employees - for computing Salary Income

Valuation of Provisions by the employer of Services of a Sweeper, a Gardener, a Watchman or Personal Attendant, supply of Gas, Electric Energy or Water for household consumption, Free or Concessional Educational Facilities to any member of employees' household, Free or concessional journey given to the transport employees and their family members …
 

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9. Tax Treatment of Medical Facilities provided to an Employee [ Proviso to Section 17(2)] – for Computing Salary Income

In the following cases, medical facility is not a perquisite and thus not taxable in the hands of the employees. 
 

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10. Tax Treatment of Leave Travel Concession or Assistance (LTC/LTA) [Section 10(5)] - for Computing Salary Income

The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding— 
 

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11. 'Profits in lieu of Salary' [Section 17(3)] under Income Tax Act. - for computing Salary Income

Section 17(3) gives an inclusive definition of "Profits in lieu of salary". As the name suggests, these payments are received by the employee in lieu of or in addition to salary or wages. These payments include the following:
 

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12. Deductions from Salaries [Section 16] – for Computing Salary Income

So far, we have discussed what are the various incomes, allowances and perquisites which are exempt and which are to be included in gross salary. From the gross salary so computed, the following three deductions are allowed under section 16: 
 

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13. Tax Treatment of 'Provident Fund' for Income-tax Purposes - for Computing Salary Income

Tax Treatment of SPF (Statutory Provident Fund), RPF ( Recognised Provident Fund), URPF (Unrecognised Provident Fund), PPF ( Public Provident Fund) with Transferred balance of Unrecognised Provident Fund (URPF) when it is converted into Recognised Provident Fund (RPF).
 

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14. Tax Treatment of 'Approved Superannuation Fund' – for computing Salary income

Like Provident Fund, Superannuation fund is also a scheme of retirement benefits for the employee. These are funds, usually established under trusts by an undertaking, for the purpose of providing annuities, etc., to the employees of the undertaking on their retirement at or after a specified age, or on their becoming incapacitated prior to such retirement, or for the widows, children or dependents of the employees in case of the any employee's earlier death.
 

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15. Relief when 'Salary is paid in Arrears or in Advance', etc. [Section 89/Rule 21A] - for Computing Salary Income

Where, by reason of any portion of an assessee's salary being paid in arrears or in advance or by reason of his having received in any one financial year salary for more than twelve months or a payment which under the provisions of section 17(3) is a profit in lieu of salary, his income is assessed at a rate higher than that at which it would otherwise have been assessed, the relief to be granted under section 89 shall be as under: 
 

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