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SALARY as per Income Tax Act:
When an individual want to offer his income for taxation the questions that float in the minds of that individual is under which head of income do he need to offer his income.
For example if an individual is temporary worker or earns daily wage will it be taxable in the hands as Income from other Sources or Salary.
In case of amount received on retirement it will be taxable as Salary or other head the question continues. To understand what all income will be taxable under the head income from salary we need to understand meaning of the term Salary.
The term ‘salary’ for purposes of income tax has a wide impact. It not only includes monetary amounts but also the non- monetary perquisites. Monetary payments include basic salary, bonus, commission, allowances etc. Non-monetary payment includes housing accommodation, medical facility, interest free loans etc. to the employee by the employer.
Section 17(1) defined the term “Salary” in the Income Tax Act, 1961.
It is an inclusive definition i.e. it describes what all over and above the general concept of salary is to be included in salary.
‘Salary’ under section 17(1) of the Income Tax Act, 1961, includes the following:
- annuity or pension,
- profits in lieu of or in addition to any salary or wages
- any advance of salary
- any payment received in respect of any period of leave not availed by him i.e. leave salary or leave encashment
- Provident Fund: the portion of the annual accretion in any previous year to the balance at the credit of an employeeparticipating in a recognised provident fund to the extent it is taxable and transferred balance in recognized providentfund to the extent it is taxable,
- the contribution made by the Central Government or any other employer in the previous year to the account of an employee under a pension scheme referred to in section 80CCD.
Generally allowances are given to employees to meet some particular requirements like house rent, expenses on uniform, conveyance etc. Under the Income-tax Act, 1961, allowance is taxable on due or receipt basis, whichever is earlier.
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