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INTRODUCTION
Income under the Head “Salaries” is dealt in Sec 15, 16 and 17 of the Income Tax
Act 1961. Salary consists of remuneration paid in any form for the services rendered
under a relationship of “Master and Servant” or “Employer and Employee”.
For a Government servant who is a citizen of India posted abroad, the salary paid to
him for service rendered outside India is deemed to accrue in India; but foreign
allowance and perquisites granted to him are exempted from tax under sec 10(7).
This concession is not available for employees in private services.
DEFINITION
Sec 17(1) of the Income tax Act 1961 defines “Salary” includes:
i. Wages
ii. Any annuity or pension
iii. Any Gratuity
iv. Any fees, commissions, perquisites or profits in lieu of or in addition to any
salary or wages
v. Any advance of salary
vi. Any payment received by an employee in respect of any period of leave not
availed of by him.
vii. the annual accretion to the balance at the credit of an employee participating
in a recognised provident fund to the extent to which it is chargeable to tax
under Rule 6 of Part A of the Fourth Schedule.
viii. The aggregate of all sums that are comprised in the transferred balance as
referred to in sub-rule (2) of Rule 11 of Part A of the Fourth Schedule of an
employee participating in a recognised provident fund, to the extent to which it
is chargeable to tax under sub-rule (4) thereof, and
ix. The contribution made by the Central Government or any other employer in the
previous year for the account of an employee under a pension scheme referred
to in Sec 80-CCD
U/s 15 of the I.T. Act, following are the income chargeable under “salaries”
(i) Any salary due from an employer or former employer in the previous year
whether paid or not.
(ii) Any salary paid or allowed to an assessee in the previous year, by or on
behalf of an employer or former employer though not due or before it
became due to him.
(iii) Any arrears of salary paid or allowed to him for the previous year, by or
on behalf of an employer or former employer, if not charged to tax for any
earlier years.
Upto the Assessment year 2005-06, standard deductions were applicable to the
salaried people under Clause (i) of sec. 16. Since different deductions from the
salary income are provided in other sections, the Parliament has omitted Clause
(i) of sec 16 by The Finance Act 2005. Hence, from 1.4.2006, there is no
standard deduction from the salary.
Clause (2) of Article 276 of the Constitution of India empowers the State
Government to impose taxes on professions, trades, callings and employments
shall not exceed Rs.2500/- pa. The tax goes to the Municipality, District Board,
local board or other local authority in the State.
According to Clause (iii) of sec 16 of IT Act, the professional tax paid by any
employee shall be deducted from the total income.
Sec 17(2) of IT Act provides exemption for medical treatment, subject to certain
restrictions for the medical treatment to the employee and his family members.
Proviso (ii) to Clause (2) of sec 17 provides exemption, subject to certain
limitations for the reimbursement of expenditure on medical treatment in an
affliated hospital.
Provisos (iii) & (iv) of Clause (2) of sec 17 provides exemption, subject to certain
limitations for the medical insurance premium.
Proviso (vi & vii) to Clause (2) of sec 17 provides exemption to a maximum of
Rs.15000/- towards reimbursement of medical expenses in abroad.
According to sec 80-C, the premium paid towards LIC are deductable from
the total income of the salaried employee. This differs from the assessment
year to assessment year according to the Finance Act.
Sec 80-CCA provides that any individual or a HUF has in the previous year deposited
any amount in accordance with such scheme as the Central Government may by
notification in the Official gazette, specify in this behalf or paid any amount to effect
or to keep in force, a contract for such annuity plan of the LIC is exempted from
Income tax computation.
Sec 80-CCB lays down that where an assessee being an individual or a HUF, has
acquired in the previous year, out of his income chargeable to taxes, units of any
Mutual Fund specified under Unit Trust of India Act, under any plan formulated in
accordance with such scheme as the Central Government may by notification in the
Official Gazette specify, he shall, in accordance with and subject to the provisions of
this section, be allowed a deduction in the computation of total income, which
should not exceed Rs.10000/- in the previous year.
Sec 80GGA