Income Tax Department
Government of India
27/06/22, 12:12 AM
Treatment of Income from Different Sources
I. Income under the head Salaries
1.1 Salary is defined to include:
a) Wages
b) Annuity
c) Pension
d) Gratuity
e) Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
f) Advance of Salary
g) Leave Encashment
h) Annual accretion to the balance of Recognized Provident Fund
i) Transferred balance in Recognized Provident Fund
j) Contribution by Central Government or any other employer to Employees Pension Account as referred in 80CCD
1.2 Points to consider:
a) Salary income is chargeable to tax on “due basis” or “receipt basis” whichever is earlier.
b) Existence of relationship of employer and employee is must between the payer and payee to tax the income under this head.
c) Income from salary taxable during the year shall consists of following:
i.Salary due from employer (including former employer) to taxpayer during the previous year, whether paid or not;
ii.Salary paid by employer (including former employer) to taxpayer during the previous year before it became due;
iii. Arrear of salary paid by the employer (including former employer) to taxpayer during the previous year, if not charged to tax in any earlier year;
Exceptions – Remuneration, bonus or commission received by a partner from the firm is not taxable under the head Salaries rather it would be taxable under the head business or profession.
1.3 Place of accrual of salary:
a) Salary accrues where the services are rendered even if it is paid outside India;
b) Salary paid by the Foreign Government to his employee serving in India is taxable under the head Salaries;
c) Leave salary paid abroad in respect of leave earned in India shall be deemed to accrue or arise in India.
Exceptions – If a Citizen of India render services outside India, and receives salary from Government of India, it would be taxable as salary deemed to have accrued in India.
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