Explain the term Salary and write the allowances and deductions which are given under this head or discuss the main features of Salary
It is the first source which is given in the heads of income. It is chargeable to tax. The term “Salary” is used in the wider sense. It includes the following receipts :
1. Salary and wages.
2. Profits in lieu of or in addition to salary or wages.
3. Fees commission or allowance.
4. Annuity, pension or gratuity.
ESSENTIALS OF SALARY INCOME :-
Following are the important features of salary income :
1. Existence Of Relationship :-
It is necessary that the relationship between employer and employee must exist. The amount must be paid by the employer to the employee. The employer may be present or past, there is no difference under this head the income can not be taxed without this relationship.
2. Earned Salary :-
Whether received or not salary earned is taxable.
3. Income Paid In Own Country :-
Income paid by foreign government is not taxable under the salary head. Income paid by the government or the company or by any employer in own country is considered salary.
4. Salary Of Service :-
Amount received without any service will be not considered salary. It is necessary that salary or reward must be for some past, present or future services.
5. Employee :-
In case of company managing director, directors and agent of a company is also included in employees.
6. Pension :-
It is also included in the salary head. Because it is the income which is due to employee for his past services.
7. Salary Received Is Taxable Whether Earned or Not :-
(a) Minimum time scale
It means the amount from where the salary scale of the employee starts.
(b) Basic salary
It means the pay and allowances payable monthly but following does not include :
· Dearness allowance
· Contribution of employer in provident fund
· Interest on provident fund
· Medical, conveyance and special allowance
· Utilities and entertainment allowance
House Rent Allowance : Amount received by a salaried person as a house rent allowance is exempted from tax up to 45% of the basic salary or minimum time scale. ON the other hand if an assessee has been provided an accommodation the allowance shall be made according the rules.