Page 179 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes from Taxation Act), 1961, would not be treated as income taxable in the hands of the
employee. In all other cases, the salary foregone voluntarily or otherwise surrendered by
the employee would still be chargeable to tax although the employee may not receive that
income. No tax exemption is available for surrender of salaries for the simple reason that
the amount surrendered constitutes merely an application of income which is immaterial
for the purpose of taxing the employee.
If the foregoing or surrender of salary represents a donation for charitable purpose, the
employee may qualify for deduction from gross total income under Section 80G of the
Act. However, salary foregone before it becomes due cannot be taxed. Further, where in
reality there is no agreement to pay any salary, the apparent foregoing of a fictional salary
would not attract tax.

4. Where a person, out of missionary spirit, agrees to work as principal in an institution
without accepting any salary from the institution, and in the school accounts his salary is
shown as an item of expenditure, while the same amount is entered in the receipts as a
donation by the management in a separate cash book meant for exclusive use for the
management only, these entries are book entries only and no money is actually paid to
him; hence, taking into consideration the special circumstances of the case, the fictional
salary would not be taxable.
5. Salary is taxable even if the money is not received or could not be recovered from the
employer due to his insolvency or any other reason. The expenses, if any, incurred by the
employee to take legal proceedings against his employer for its recovery would not also
are allowed as a deduction from the income assessable in his hands. This is because of the
fact that the actual receipt of the income is immaterial for purpose of its taxation.
6. It is immaterial whether the employer is Government or a private employer. Further, the
salary may be paid by a foreign Government to its employees serving in India, and this
salary is taxable under the head “Salaries”.
7. The leave salary paid to the legal heirs of the deceased employee in respect of privilege
leave standing to the credit of such employee at the time of his/her death is not taxable as
salary. It is an ex-gratia payment on compassionate grounds in the nature of gift. Thus, the
payment is not in the nature of a salary.

Caselet Salary and Grade System in India

n employee may be entitled to receive salary in grade system in India. Under this
system, the normal annual increments to be given to the employee are already
Afixed in the grade. If an employee joins the service on 1.6.2009 and is placed in the
grade of 10,000-1,000-15,000-2,000-25,000 then his salary from 1.6.2009 will be 10,000 p.m.
and thereafter his salary will be 11,000 p.m. w.e.f. 31.5.2010 until it reaches 15,000 after
which it will increase annually by 2,000 until it reaches 25,000. After that, employee will
be placed in another grade.
In certain cases, employee joins in the grade at a salary in between the grade, in that case
his salary will annually increase in the aforesaid manner the only difference would be that
his initial salary would be a different amount than the start of the grade.
A joins the service in the grade of 10,000-1000-15,000-2,000-25,000 on 1.8.2009 at a salary of
13,000. Compute taxable salary for AY 2013–14.
Contd...

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