Page 174 - DCOM301_INCOME_TAX_LAWS_I

Unit 7: Income under the Head Salaries

2. Annuity is annual grant made by the employer to the employee. Notes
3. Pension is a periodical payment for past services.
4. Gratuity is a lump sum payment for past services.
5. Fees and Commission: It is a remuneration to encourage employees.

6. Perquisites: These include all benefits and amenities provided by the employer to the
employee, either in cash or kind.
7. Profit in lieu of or in addition to salary or wages.

8. Advance of Salary.
9. Any payment received by an employee in respect of any period of leave not availed of by
him.

10. Taxable Portion of Annual Accretion: Where the employee is a member of a Recognised
Provident Fund, the amount contributed by the employer in this fund in excess of
12 per cent of the salary of the employee and interest credited on the amount of the fund
in excess of the prescribed rate of interest is to be included in the salary income.
11. Taxable Portion of Transferred Balance: When an unrecognised provident fund is
recognised for the first time, the balance in the unrecognised provident fund is known as
“Transferred balance”. The employer’s share (contribution in unrecognised provident
fund and interest on employer’s share) is included in the salary income for income-tax
purposes at the time of such transfer.

12. The contribution made by the Central Government in the previous year, the account of
any employee under a pension scheme referred to in Section 80CCD.

Notes

1. Advance salary is taxable on receipt basis in the previous year in which it is received.
The recipient can, however, claim relief under Section 89(1) read with Rule 21A.
2. Arrears salary is taxable on receipt basis subject to the fact that it has not been taxed
on accrual basis earlier. The recipient can claim relief in terms of Section 89(1) read
with Rule 21A.

3. Encashment of leave salary (before retirement) is taxable on receipt basis but relief
can be claimed under Section 89(1). However, such salary received at the time of
retirement is exempt subject to Section 10(10AA).
4. Pension received by a person from the employer after his retirement is taxed as
salary. The pension can be either uncommuted or commuted. Commuted pensions
received by government employees are wholly exempt under Section 10(10A). In
case of non-Government employees, commuted value of one-third of pension which
he is normally entitled to receive is exempt from tax if the employee receives
gratuity. In other cases, one-half of commuted value of pension is exempt.

5. Instalments re-paid under Additional Emoluments (C.D.) Act, 1974 are taxable as
arrear of salary in the previous year in which the same are received. However, relief
under Section 89(1) can be claimed.

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