Income Under the Head Salary
“Doing job, Compute your income here.”
In a job, employee receives salary in various forms. in cash, few benefits in kind like house and, certain benefits after retirement such as pension. Govt does not charge tax on whole cash and retirement benefits, some exemptions are given in case of benefits in kind, certain principles are provided for determining their value.
Relationship of the receiver with payer
Income under head salary is taxable only if there is employer-employee relationship between payer and payee. And this relation is said to exist only if there is control over the method of doing the work of other person.
Control is said to exist if the payer can direct what has to be done, when and how it has to be done, who has to do it and the receiver is bound to follow all his instructions. This relationship is also called master-servant or principal-agent relationship.
While if there is no control over the work of another person then the relationship is said to be on principal to principal basis. The remuneration, in such case, shall be taxable under head Other Sources or PGBP. This relationship is also called at an arm’s length relationship.
Few common examples when there is no control of payer over payee are
Partner of a firm,
Director who is not employee,
Members of parliament,
Guest lecturers etc.
In all these cases income of the receiver is not taxable under head salary.
Computation of Income Under the Head Income from Salary: - To understand the computation of income under the head “Salaries”, the following important concepts must first be understand
1) Employer and Employee Relationship
2) Place of Accrual
3) Tax Free Salary
4) Surrender of Salary
5) Foregoing of Salary
6) How to Compute Salary in the grade system
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