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Unit 7: Income under the Head Salaries

Notes
(ii) ` 10, 00,000.
(iii) Actual gratuity received ` 1,50,000.

8. Leave salary is exempt to the extent of the least of the following:
(i) Salary in respect of unavailed leave at the time of retirement 1,60,000
(ii) Salary for 10 months 1,00,000
(iii) Limit of exemption as specified by the Government 3,00,000

(iv) Leave encashment actually received at the time of retirement 1,60,000
Exemption is limited to ` 1,00,000 being the least of the amounts mentioned above.

Self Assessment

State whether the following statements are true or false:
29. Standard deduction has been omitted by Financial Act, 2005 w.e.f. 1.4.2006. – Section 16(i).
30. Where the employee is in receipt of entertainment allowance, the amount so received
shall first be included in the salary income and thereafter the following deduction shall be
made - Section 16(ii).
31. W.e.f. April 1, 2003 entertainment allowance will be allowed in computing income from
salary only in case of employees of the Government and will cease to be allowable for
persons other than those employed in Government i.e. entertainment allowance deduction
will not be allowed to other employees.
32. Where Professional or Employment tax is paid by the employer on behalf of the employee,
it will first be included in his gross salary as a perquisite, being a monetary obligation of
the employee discharged by the employer.

Case Study In Case of Expatriate, Seconded to Indian Company,

Liability of TDS on ‘Home Salary’ Paid by the Foreign

Company Outside India — Sec. 192

person responsible for making certain payments [Payer] to a resident or a
non-resident (Payee) is required to deduct tax (TDS) as provided in various
Aprovisions contained in Chapter XVIIB of the Income-Tax Act, 1961 (the Act).
In the last few years, the net of TDS is substantially widened from time to time by the
Government and large number of payments is now covered within those provisions.
A large portion of direct tax collection is made by the Government through TDS provisions.

Out of the collections made by the Government by way of TDS, a major portion of the
collection represents the TDS from salary income. Sec.192(1) provides that any person
responsible for paying (Employer) any income chargeable under the head ‘Salaries’
[hereinafter referred to as Salary Income], at the time of payment, is required to deduct tax
on the estimated Salary Income of the assessee (Employee) for relevant financial year as
provided in the Section. Such Employee could be resident or non-resident. The only criterion
is taxability of Salary Income under the Act. Such tax is required to be deducted at an
Contd...

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