A PROJECT

ON
INCOME HEAD SALARY
SUBJECT: PRINCIPLES OF TAXATION LAW

SESSION: 2023-24

SUBMITTED ON: 14 OCTOBER 2023

SUBMITTEDBY: SUBMITTED TO:

Mr. Rahul Bansiwal Ms. Pooja Saxena

Roll No. 53 [Faculty Of Principles
Class - VII Semester of Taxation Law]
Section - A

UNIVERSITY FIVE YEAR LAW COLLEGE

UNIVERSITY OF RAJASTHAN

JAIPUR
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DECLARATION

I,Rahul Bansiwal, hereby declare that thr project titled “Income Head Salary” is based
on the original research carried out by me under the guidance and supervision of Ms. Pooja
Saxena. The interpretations put forth are based on my reading and understanding of the original
text. The book, article and website etc. which have been relied upon by me have been duly
acknowledged at the respective place in the text.

For the present project which I am submitting to the university, no degree or diploma has been
conferred on me before, either in this or in any university.

DATE: SIGNATURE
14 October 2023 [Rahul Bansiwal]

Roll No. 53

Semester VII-A

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CERTIFICATE

Dr. Pooja Saxena Date: 14 October 2023

Faculty of Principles of Taxation Law

University Five Year Law College,

University of Rajasthan, Jaipur

This is to certify that Mr. Rahul Bansiwal student of VII Semester, SEC-A of University

Five Year Law College, University of Rajasthan has carried out the project entitled “Income

Head Salary” under my supervision and guidance. It is an investigation report of a minor

project. The student has completed research work in my stipulated time and according to the
norms prescribed for the purpose.

SIGNATURE

[Ms. Pooja Saxena]

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ACKNOWLEDGEMENT

The present study relates to a comprehensive analysis of “Income Head Salary” to give
clear underrating of the subject in broader perspective.

I am heartily grateful to, Ms. Pooja Saxena, Faculty of Principles of Taxation Law, University
Five Year Law College, University of Rajasthan, Jaipur, for having guided me through this
long & difficult journey that culminated in the present Project without whose co-operation,
stimulating inspiration, constant help, able guidance, innovative deliberations & continuous
supervision this work could not have seen the light of the day. Hence, I sincerely want to
express my deep sense of honor & gratitude towards him.

I shall be failing in my duty if I do not express my debt of gratitude to Dr. Akhil Kumar,
Director, University five-year law college, University of Rajasthan, Jaipur, for extending his
co-operation in the completion of this work.

I would also like to thank to all library staff & the remaining staff members of the Department
of Law, University of Rajasthan, Jaipur who have always extended an h& of co-operation
throughout the course of the research work.

SIGNATURE

[Rahul Bansiwal]

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Table of Contents

Declaration ....................................................................................................................
Certificate ......................................................................................................................
Acknowledgement.......................................................................................................

Chapter I : Meaning Of Salary.……….…...…………….……………….………..6

Chapter II : Salary as Head of Income…………………...……………………..….8
Chapter III : Deductions from Salary….………….………………………………..9
Chapter IV: Conclusion……………...……………………………………..……..11
Bibliography………………………………………………………………….…...12

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CHAPTER - I
MEANING OF SALARY
Among the different sources of income specified by the Income Tax Act, the income earned
under the head “Salaries” holds paramount significance. This category encompasses the earnings
received by individuals in the form of remuneration, wages, commissions, or any other monetary
compensation arising from employment.

In simple terms, Salary is a fixed amount of money or compensation paid to an employee by an

employer in return for work performed. Any payment made by an employer to an employee for
the services rendered by him is chargeable to tax as salary and envisages a ‘contract of
employment’. The employer – employee relationship or master-servant relationship is an
essential ingredient of a ‘contract of employment’ as against a ‘contract for employment’.

Salary is the remuneration received by or accruing to an individual, periodically, for service

rendered as a result of an express or implied contract.

The existence of employer employee relationship is the sine qua non for taxing a particular
receipt under the head “salaries.

For the purpose of income tax Section 17(1) he meaning of the term ‘salary’ is much wider than
what it i gives an inclusive definition of salary as:

 “Salary” includes –

(i) wages;

(ii) any annuity or pension;

(iii) any gratuity;

(iv) any fees, commissions, perquisites or profits in lieu of or in addition to any salary
or wages;

(v) any advance of salary;

(va) any payment received by an employee in respect of any period of leave not availed
of by him;

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(vi) the annual accretion to the balance at the credit of an employee participating in a
recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of
Part A of the Fourth Schedule;

(vii) the aggregate of all sums that are comprised in the transferred balance as
referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee
participating in a recognised provident fund, to the extent to which it is chargeable to
tax under sub-rule (4) thereof; *and

(viii) the contribution made by the Central Government or any other employer in the
previous year, to the account of an employee under a pension scheme referred to
in section 80CCD;

[(ix) the contribution made by the Central Government in the previous year, to
the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme
referred to in section 80CCH;]

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CHAPTER - II
SALARY AS HEAD OF INCOME

 CHARGING SECTION : SECTION 15

As per section 15, the following income shall be chargeable to income-tax under the
head “Salaries”:

(A) any salary due fro m an employer or a former employer to an assessee in the
previous year, whether paid in that previous year or not;

(B) any salary paid or allowed to him in the previous year by or on behalf of an employer
or a former employer though not due in that previous year or before it became due to him;

(C) any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, if not charged to Income-tax in any earlier previous year.
Explanation—For the removal of doubts, it is hereby declared that where any salary paid in
advance is included in the total income of any person for any previous year it shall not be
included again in the total income of the person when the salary becomes due.

Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due
to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the
purposes of this section.

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CHAPTER - III
DEDUCTIONS FROM SALARY
The Income Tax Act of 1961 provides various exemptions to taxpayers to reduce their taxable
income and save taxes. One such benefit is available under Section 16 of the Income Tax Act,
which allows employees to claim deductions from salary income. The Sections reads as:

The income chargeable under the head “salaries” shall be computed after making the following
deductions :
(ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less;
(ii) a deduction in respect of any allowance in the nature of an entertainment allowance
specifically granted by an employer to the assessee who is in receipt of a salary from the
Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other
perquisite) or five thousand rupees, whichever is less;
(iii) a deduction of any sum paid by the assessee on account of a tax on employment within
the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law.

Thus, Section 16 of the Income Tax Act allows employees to claim the following benefits:

 Standard Deduction [Section 16(ia)] A standard deduction is allowed against the salary
income subject to a limit of ₹ 50,000/- or the amount of salary whichever is less.

 Entertainment Allowance [Section 16(ii)] Entertainment allowance is a taxable allowance

and forms a part of the taxable salary. However, Government employees who are in receipt
of such an allowance are eligible for a deduction in respect of the entertainment allowance
received by them to the extent of the least of the following:
1) ₹ 5,000/-
2) 1/5th of salary excluding allowances or benefits or perquisites
3) Actual entertainment allowance received

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The actual expenditure incurred for the purposes of entertainment is not relevant to the
calculation of the deduction. No such deduction is available to employees other than
Government employees.
 Tax on Employment [Section 16(iii)]
 Certain Indian States levy a tax on employment commonly known as Profession tax
which is required to be recovered by the employer from the salary paid to the employee
and deposited into the treasury. Such tax paid by an employee is allowed as deduction
from his Salary.
 Deduction is available in the year in which profession tax is actually paid, regardless of
which year the profession tax pertains to.
 If Profession Tax is reimbursed/borne by the employer, then such Profession Tax
reimbursed/borne by the employer is first included in the taxable income as a perquisite
& then allowed as deduction under section 16(iii).
Criteria for Eligibility for Section 16 deduction: A taxpayer must meet the following criteria to
claim section 16 deduction-
1) The taxable person must be an employee.
2) The taxpayer must have received a salary during the financial year.
3) The taxpayer must have paid business tax during the financial year.
4) In the case of representative subsidy, only government employees can claim this discount.

It is important to note that income under Chapter 16 can be claimed by individual taxpayers and
not by Hindu Undivided Families (HUFs) or other taxpayers.

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CHAPTER - IV
CONCLUSION
To sum up, income earned under the head “Salaries” is chargeable to income tax as per section
15 of the Income Tax Act. This includes salary due from an employer or former employer, salary
paid or allowed to the employee, and arrears of salary not charged to income tax in any earlier
year. The definition of salary under section 17(1) is inclusive and covers various incomes,
including wages, annuity or pension, gratuity, fees, commissions, perquisites, and profits in lieu
of or in addition to any salary or wages. Deductions are allowed under section 16, including a
standard deduction of up to ₹50,000, deduction for entertainment allowance, and deduction on
account of any sum paid towards tax on employment. The amount arrived at, after allowing these
deductions, is the income under the head “Salaries”.

Understanding the basics of salary and income tax is important for every individual. The amount
of tax that an individual has to pay depends on various factors such as the income level, tax slab,
deductions, and exemptions available. It is important to file tax returns on time and to ensure
compliance with the tax laws to avoid penalties and legal consequences. Individuals should also
be aware of various tax planning strategies such as investing in tax-saving instruments, taking
advantage of deductions and exemptions, and utilizing various allowances to minimize their tax
liability

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BIBLIOGRAPHY
 BOOK REFERENCES
1. Family Law Taxation Laws, Dr. Jyoti Rattan, Bharat Law House, 15th Edition , 2023

2. The Income Tax Act, Bare Act, Universal Lexis Nexis, 22nd Edition, 2020

3. Principles of Taxation Laws, Ullas Kumar Saha, Central Law Publications, 2nd Edition, 2023

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