Page 180 - DCOM301_INCOME_TAX_LAWS_I

Unit 7: Income under the Head Salaries

Notes
Computation of his Taxable Salary for Previous Year 2012–13 (1-4-2012 to 31-3-2013) will
be computed under grade system as:
Salary from 1.8.2009 to 31.7.2010: 13,000 p.m.
Salary from 1.8.2010 to 31.7.2011: 14,000 p.m.
Salary from 1.8.2011 to 31.7.2012: 15,000 p.m.
Salary from 1.8.2012 to 31.7.2013: 17,000 p.m.

Salary for Previous year 2012–13 will be divided into two parts:
Salary from 1.4.2012 to 31.7.2012 = 15,000 × 4 = 60,000
Salary from 1.8.2012 to 31.3.2013 = 17,000 × 8 = 1,36,000

Total Salary for P.Y. 2012–13 = 1,96,000

Self Assessment

State whether the following statements are true or false:

5. The basis of taxation of income from salary is normally on ‘due’ basis.
6. In order to attract liability to tax under the head salary, it is not essential that the employee,
who is liable to tax under this head, must receive salary from his present employer.

7. The salary of an employee is a separate source which is not distinct from other classes of
income.
8. Salaries received by an employee from former employer(s) for services rendered would
not be chargeable to tax under the head salaries.

7.3 Allowances

An allowance is defined as a fixed amount of money given periodically in addition to the salary
for the purpose of meeting some specific requirements connected with the service rendered by
the employee or by way of compensation for some unusual conditions of employment. It is
taxable on due or accrued basis whether it is paid in addition to the salary or in lieu thereon.
Thus allowances are generally taxable and are to be included in gross salary unless specific
exemption is provided in respect of such allowance. For the purpose of tax treatment, we divide
these allowances into three categories:

Fully taxable cash allowances
Partially exempt cash allowances
Fully exempt cash allowances
The three categories of allowances are briefly explained as follows:

7.3.1 Fully Taxable Allowances

This category includes all the allowances, which are fully taxable. So, if an allowance is not
partially exempt or fully exempt, it gets included in this category.

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