#LetsCrackTax CA Amit Mahajan
4
INCOME FROM SALARY
Section 15Part
– Charging section Income
A – Agricultural Calculation of Income from Salary
• There has to be employer-employee relationship (full time / part Particulars Amounts
time does not matter) 1. Basic Salary XXX
• When is it taxable? Due / Receipt basis (whichever is earlier) 2. Dearness Allowance (D.A.) XXX
• What if I receive the salary in advance - Taxable when received.
3. Commission XXX
Not taxable AGAIN at the time of accrual
4. Bonus XXX
• Forgoing of salary - Always taxable (application of income)
• Surrender of salary - to central Govt - NOT to be treated as 5. Advance Salary / Arrears salary XXX
salary. 6. Gratuity XXX
• Employer bears burden of tax = Taxable salary would be – 7. Pension XXX
SALARY + TAXES borne by employer 8. Leave salary XXX
• Salary due and Salary accrued = different 9. Allowances XXX
• Salary paid to MPs and MLAs = Salary IFOS 10. Provident Fund XXX
11. Voluntary Retirement Compensation XXX
Difference between advance salary and advance against salary
• Loan is different from salary. 12. Super Annuation fund XXX
• When an employee takes a loan from his employer, which is 13. Retrenchment Compensation XXX
repayable in certain specified installments, the loan amount 14. Perquisite XXX
cannot be brought to tax as salary of the employee. Gross Salary XXXX
• Similarly, advance against salary is different from advance salary. (LESS) Deductions under Section 16
• It is an advance taken by the employee from his employer. - Professional taxes (XXX)
• This advance is generally adjusted with his salary over a specified
- Entertainment allowance (XXX)
time period.
• It cannot be taxed as salary. - Standard deduction (XXX)
Net Salary XXX
INCOME FROM SALARY 27
,#LetsCrackTax CA Amit Mahajan
Salary components in detail 6. Gratuity: Q 4 20 45
1. Basic salary = FULLY taxable (Wages
/ Salary / Basic salary are used Voluntary payment in
interchangeably) Employer appreciation of Employee
2. Dearness Allowance = aimed at services rendered
beating the impact of inflation
Treatment = Fully taxable whether it
is ‘in terms’ or ‘not in terms’ Received during At the time of
employment retirement / death
DA in terms = DA which is forming Govt + Non-govt
Fully taxable EXEMPT U/S(10/10)
part of retirement benefit calculation. employees
3. Commission (ANY) – Fully taxable
In almost all formulae – ONLY
turnover commission is considered
4. Bonus = Taxable on receipt basis FULLY
(not on due basis) Q 37 Employees of Govt Exempt Other employee
5. Advance salary = Taxable on due or
receipt basis, whichever is EARLIER
Arrears of salary = taxable in the year Covered under POGA 1972 NOT covered under POGA 1972
of receipt. Arrears may arise due to
increase in salary retrospectively Amount of exemption:
Amount of exemption u/s 10(10)(ii):
DA
i. Rs 20,00,000
-
i. Rs 20,00,000
ii.Actual amount received
I
Not in terms .
ii.Actual amount received
In terms
↓
iii.
1/2 * Avg Salary p.m. * No of years
↓
Does not include
Includes retirement
benefits iii.
15/26 * Salary p.m. * No of years of
of completion
.
retirement
benefits.
completion of services
of services
WHICHEVER IS LOWER
WHICHEVER IS LOWER
INCOME FROM SALARY 28
, #LetsCrackTax CA Amit Mahajan
Salary per month (For POGA) : 7. Pension Q 3 20
Latest Basic salary p.m. XXX
+ Latest DA (BOTH) XXX
XXX
Number of years of completion of service Uncommuted pension Commuted pension
If fraction – Normal round off (pension received periodically usually yearly) (lumpsum)
1 year 2 months = 1 year
1 year 7 months = 2 years Govt + Non Govt
1 year 6 months = 1 year Fully taxable EXEMPT U/S(10/10A)
employee
Average salary per month (For NON POGA):
Avg basic salary of last 10 months XXX
+ Avg DA(T) of last 10 months XXX FULLY
+ Avg T/O commn of last 10 month XXX Govt employee Exempt Other employee
Number of years of completion of service
IGNORE fractions
1 year 2 months = 1 year
1 years 7 months = 1 year Gratuity received Gratuity NOT received
1 year 6 months = 1 year
Amount of Amount of
Total pension * 1/3 Total pension * 1/2
exemption exemption
Full amount of pension = Commuted pension Taxable commuted pension = pension received
% of commuted pension (-) pension exempted under section 10(10A)
Special note – Generally students forget to consider the uncommuted pension after the computation.
Note – Annuity received from a past employer is taxable as profit in lieu of salary
INCOME FROM SALARY 29
4
INCOME FROM SALARY
Section 15Part
– Charging section Income
A – Agricultural Calculation of Income from Salary
• There has to be employer-employee relationship (full time / part Particulars Amounts
time does not matter) 1. Basic Salary XXX
• When is it taxable? Due / Receipt basis (whichever is earlier) 2. Dearness Allowance (D.A.) XXX
• What if I receive the salary in advance - Taxable when received.
3. Commission XXX
Not taxable AGAIN at the time of accrual
4. Bonus XXX
• Forgoing of salary - Always taxable (application of income)
• Surrender of salary - to central Govt - NOT to be treated as 5. Advance Salary / Arrears salary XXX
salary. 6. Gratuity XXX
• Employer bears burden of tax = Taxable salary would be – 7. Pension XXX
SALARY + TAXES borne by employer 8. Leave salary XXX
• Salary due and Salary accrued = different 9. Allowances XXX
• Salary paid to MPs and MLAs = Salary IFOS 10. Provident Fund XXX
11. Voluntary Retirement Compensation XXX
Difference between advance salary and advance against salary
• Loan is different from salary. 12. Super Annuation fund XXX
• When an employee takes a loan from his employer, which is 13. Retrenchment Compensation XXX
repayable in certain specified installments, the loan amount 14. Perquisite XXX
cannot be brought to tax as salary of the employee. Gross Salary XXXX
• Similarly, advance against salary is different from advance salary. (LESS) Deductions under Section 16
• It is an advance taken by the employee from his employer. - Professional taxes (XXX)
• This advance is generally adjusted with his salary over a specified
- Entertainment allowance (XXX)
time period.
• It cannot be taxed as salary. - Standard deduction (XXX)
Net Salary XXX
INCOME FROM SALARY 27
,#LetsCrackTax CA Amit Mahajan
Salary components in detail 6. Gratuity: Q 4 20 45
1. Basic salary = FULLY taxable (Wages
/ Salary / Basic salary are used Voluntary payment in
interchangeably) Employer appreciation of Employee
2. Dearness Allowance = aimed at services rendered
beating the impact of inflation
Treatment = Fully taxable whether it
is ‘in terms’ or ‘not in terms’ Received during At the time of
employment retirement / death
DA in terms = DA which is forming Govt + Non-govt
Fully taxable EXEMPT U/S(10/10)
part of retirement benefit calculation. employees
3. Commission (ANY) – Fully taxable
In almost all formulae – ONLY
turnover commission is considered
4. Bonus = Taxable on receipt basis FULLY
(not on due basis) Q 37 Employees of Govt Exempt Other employee
5. Advance salary = Taxable on due or
receipt basis, whichever is EARLIER
Arrears of salary = taxable in the year Covered under POGA 1972 NOT covered under POGA 1972
of receipt. Arrears may arise due to
increase in salary retrospectively Amount of exemption:
Amount of exemption u/s 10(10)(ii):
DA
i. Rs 20,00,000
-
i. Rs 20,00,000
ii.Actual amount received
I
Not in terms .
ii.Actual amount received
In terms
↓
iii.
1/2 * Avg Salary p.m. * No of years
↓
Does not include
Includes retirement
benefits iii.
15/26 * Salary p.m. * No of years of
of completion
.
retirement
benefits.
completion of services
of services
WHICHEVER IS LOWER
WHICHEVER IS LOWER
INCOME FROM SALARY 28
, #LetsCrackTax CA Amit Mahajan
Salary per month (For POGA) : 7. Pension Q 3 20
Latest Basic salary p.m. XXX
+ Latest DA (BOTH) XXX
XXX
Number of years of completion of service Uncommuted pension Commuted pension
If fraction – Normal round off (pension received periodically usually yearly) (lumpsum)
1 year 2 months = 1 year
1 year 7 months = 2 years Govt + Non Govt
1 year 6 months = 1 year Fully taxable EXEMPT U/S(10/10A)
employee
Average salary per month (For NON POGA):
Avg basic salary of last 10 months XXX
+ Avg DA(T) of last 10 months XXX FULLY
+ Avg T/O commn of last 10 month XXX Govt employee Exempt Other employee
Number of years of completion of service
IGNORE fractions
1 year 2 months = 1 year
1 years 7 months = 1 year Gratuity received Gratuity NOT received
1 year 6 months = 1 year
Amount of Amount of
Total pension * 1/3 Total pension * 1/2
exemption exemption
Full amount of pension = Commuted pension Taxable commuted pension = pension received
% of commuted pension (-) pension exempted under section 10(10A)
Special note – Generally students forget to consider the uncommuted pension after the computation.
Note – Annuity received from a past employer is taxable as profit in lieu of salary
INCOME FROM SALARY 29
