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Unit 7: Income under the Head Salaries

7. The income received by a treasurer of a bank would be taxable as his salary income if the Notes
treasurer is an employee of the bank. If he does not happen to be an employee, the income
received by him would be taxable as “Income from other sources”. For this purpose, the
question whether in a particular case the treasurer is an employee or not has to be decided
on the basis of the facts and circumstances of each case having due regard to his powers,
responsibilities and functions.
8. Income derived by any person from carrying on a profession or vocation must be taxed as
business income and not as salary income because employment is different from profession.
But, if an employee receives any money from his employer as part of the terms of employment
for not carrying on any profession, such income must be taxed as salary income. For instance,
the allowance given by employer to a doctor employed by him for not carrying on a profession
in addition to the employment would be income arising from employment in accordance with
the terms and conditions of such employment and must, therefore, be taxed as salary income. If
an employee gets money from persons other than his employer and if such money is not in any
way related to the contract of services with the employer under whom he is working, the
receipts, if taxable as income, must be assessed under the head “Income from other sources”.
However, gratuity, bonus, commission or other items of payment made by the employer without
any specific stipulation in the contract of employment to this effect, would still be taxable as
salary, because they are paid by the employer for the services rendered by the employee. The
fact is that such payments are voluntary and in certain circumstances may qualify for exemption
from income-tax in the hands of the employee, would not affect the income being computed
under the head salary.

Did u know? Salary Received from Former Employer

Even salaries received by an employee from former employer(s) for services rendered
would be chargeable to tax under this head. Hence, the fact that the employee in question
is not an employee under the person from whom the money is received at the time of its
receipt is irrelevant. Arrears of salaries are chargeable to tax as the income of the year in
which such arrears are received if they are not charged to tax at the time of becoming due.

7.2.3 Other Points for Consideration for Taxability of Salary

The following points should be kept in mind while computing Income under the Salaries:
1. Any lump sum amount paid to an employee by his employer in commutation, reduction
or substitution of salary, pension or other type of income from employment is nevertheless
taxable as income from salary in the year in which such payment falls due or is received by
the employee, whichever is earlier. Section 200 of the Companies Act totally prohibits any
company from paying tax-free remuneration to any of its employees.
2. For purposes of computing the income taxable under this head, the gross salary due to the
employee should be taken as the basis. Thus, any tax deducted at source or other deductions
on account of provident fund, insurance premium, or on any other account made by the
employer from the salary income, should be added to the net salary received by the
employee. The fact that some of the deductions like provident fund or insurance premium
may qualify for any deduction from gross total income in the personal assessment of the
employee, does not, in any way, affect the quantum of salary due to the employee.
3. Any salary voluntarily surrendered by the employee on or after 1- 4-1961 to the Central
Government under the provisions of the Voluntary Surrender of Salaries (Exemption

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