Income under heads of salary is defined as remuneration received by an individual for services rendered by him to undertake a contract whether it is expressed or implied. According to Income Tax Act there are following conditions where all such remuneration are chargeable to income tax:

• When due from the former employer or present employer in the previous year, whether paid or not
• When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.
• When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary:

• Salary (including advance salary)
• Wages
• Fees
• Commissions
• Pensions
• Annuity
• Perquisite
• Gratuity
• Annual Bonus
• Income From Provident Fund
• Leave Encashment
• Allowance
• Awards

Leave encashment is the salary received by an individual for leave period. It is a chargeable income whether he is a government employee or not. Under section 10(10AA) (i) there is also a provision of exemption in case of leave encashment depending upon whether he is a government employee or other employees.

It is an annual income received by the employee from his employer. It may be paid by the employer as voluntarily or on account of contractual agreement. It is not taxable until the right to receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a will or granted by a life insurance company or accruing as a result of contract which comes as income under from other sources.

It is salary received by an individual paid by the employee at the time of his retirement or by his legal heir in the case of death of the employee.

It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/ exemptions.

Under Income Tax Act following types of allowance are defined

Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. There are following amount which are exempt from tax:

• Actual house rent paid by that individual
• Rent paid for the accommodation over 10% of the salary
• 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary in it is placed in any other city

It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance. Deduction in tax against this allowance can be divided into two parts :
In case of Government employee entitled to minimum deduction of

• Entertainment allowance received
• 20% of basic salary excluding any other allowance
• Rs. 5000 In case of other employee entitled to minimum deduction of
• (a) Entertainment allowance received
• 20% of basic salary excluding any other allowance
• Rs. 7500
• Entertainment allowance received during 1954-1955

Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:

• Amount paid for the rent-free accommodation provided to the assessee by his employer
• Any concession in the matter of rent respecting any accommodation provided to the assessee by his employer
• Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. By a company to an employee, who is a director thereof
2. By a company to an employee being a person who has a substantial interest in the company
3. By any employer to an employee whose income under the head 'Salaries' exceeds Rs.24000 excluding the value of non monetary benefits or amenities
4. Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity

There are following perquisites which are tax free:

• Medical facility
• Medical reimbursement
• Refreshments
• Subsidised Luch/ Dinner provided by employer
• Facilities For Recreation
• Telephone Bills
• Products at concessional rate to employee sold by his/ her employer
• Insurance premium paid by employer
• Loans to employees by given by employer
• Transportation
• Training
• House without rent
• Residence Facility to member of Parliament, judges of High Court/ Supreme Court
• Conveyance to member of Parliament, judges of High Court/ Supreme Court
• Contribution of employers to employee's pension, annuity schemes and group insurance

Certain deductions are available while determining the taxable salary income.

A) Standard Deduction

Income Tax Slab (in Rs.)	Tax
0 to 1,60,000	No Tax
1,60,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

Income Tax Slab (in Rs.)	Tax
0 to 1,90,000	No Tax
1,90,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

Income Tax Slab (in Rs.)	Tax
0 to 2,40,000	No Tax
2,40,001 to 3,00,000	10%
3,00,001 to 5,00,000	20%
Above 5,00,000	30%

B) Professional Tax Professional tax, which is paid, is allowed as deduction.

C) Arrears salary If salary is received in arrears or in advance, it can be spread over the years to which it relates and be taxed accordingly as per section 89(1) of the Income tax Act.

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