Salary Income under Income Tax

Salary income refers to the compensation received by an employee from a current or former
employer for the execution of services in connection with employment. Thus, income is taxable as
salary under Section 15 only if an employer-employee relationship exists between the payer and
payee. Salary income could be in any form such as gift, pension, gratuity, usual remuneration and so
on. In this article, we look at various aspects of salary income under the Income Tax Act.

Meaning of Salary under Income Tax Act

Under the Income Tax Act, the term salary is defined to include the following:

 Wages;
 Annuity or pension;
 Gratuity;
 Fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
 Advance of salary;
 Payment received by an employee in respect of any period of leave not availed by him/her;
 The portion of annual accretion in any previous year to the balance at the credit of an
employee participating in a recognised provident fund to the extent it is taxable;
 Transferred balance in a recognised provident fund to the extent it is taxable;
 Contribution by the Central Government to the account of an employee under a pension
scheme referred to in section 80CCD (i.e NPS);

Computing Total Salary Income

While computing the chargeability to tax, salary consists of:

 Any salary due from an employer (current or former) to an assessee in the previous year,
whether actually paid or not;
 Any salary paid or allowed to an employee in the previous year by or on behalf of an
employer though not due or before it became due; and
 Any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer, if not charged to income tax for any earlier previous year.
Salary income is chargeable to tax either on a due basis or on receipt basis. Once salary has
accrued, it is subsequent waiver is only an application of income and is liable to be taxed.