What is salary?
Any remuneration received from an employer by an employee in consideration of services rendered.
Actual receipt of salary is immaterial for income tax purpose.ie any remuneration accruing to him in the previous year is taxable in the assessment year.
Employer – employee relationship is the essential ingredient for treating an item under the head salary.
A director receiving fees in consideration for services rendered as a director is not charged under the head salary but under the head income from other sources.(director is not an agent or employee of the company thus there is no employer- employee relationship)
There is no distinction between wages and salary
Components of salary [section 17(1)]
- Annuity or pension
- Fees, commission, perquisites, profit in lieu of salary
- Advance of salary
- Encashment of earned leave
- Contribution to recognized provident fund by employer in excess of 12 % salary and interest received from such fund in excess of the prescribed rate of interest
- Taxable portion of transferred balance
- Contribution made by central government in the previous year, the account of any employee under a pension scheme referred to in section 8OCCD
Advance salary is taxable on receipt basis in the previous year in which it is received, assessee can claim relief under section 89(1) read with rule 21A
Arrears salary is taxable on receipt basis provided, it has not been taxed on accrual basis earlier. Assessee can claim refund in terms of section 89(1) read with rule 21A
Read rule 21A:click here