INCOME UNDER THE HEAD SALARY

MEANING OF SALARY

Salary under the Act is defined U/s 17(1), which includes the following:- Wages; Any Annuity or Pension; Any Fees, Commission, Perquisites or Profits in Lieu of salary; Any Gratuity; Any Advance of Salary; Any payment received by an employee in respect of any period of leave not availed by him, known as leave encashment; Transferred balance in a recognized provident fund to the extent it is taxable; Contribution made by central govt. to the account of an employee under the pension scheme U/s 80 CCD;

BASIS OF CHARGE
Basis of Charge of an Income lets us know that on what grounds Income earned by a person is chargeable to tax. It specifically defines whether Income so received is tax chargeable on receipt basis or accrual basis, or in case of variations in accounting method how tax should be charged. All five heads of Income have different Basis of Charge Salary Income is chargeable to tax on DUE OR RECEIPT BASIS WHICHEVER IS EARLIER Income Tax Act however specifically states that where any salary 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. It is also worthwhile to note that the Accounting Method employed by the Assessee is absolutely irrelevant to violate the chargeability rule as stated above .

You, being an employee of a MNC are faced with the following alternative situations during the P.Y. 2007-08 (A.Y. 2008-09 1) You received your annual salary of Rs. 7,00,000/- due & receivable by you in the previous year.- The salary of Rs. 7,00,000/- will be chargeable to tax in P.Y. 2007-08 in your hands. 2) An Annual salary due to you of Rs. 7,00,000/- out of which only Rs. 5,50,000/- was received during the P.Y. 2007-08 and rest was received by you in the next P.Y. i.e., 2008-09.The whole salary amount of Rs. 7,00,000/- will be chargeable to tax in your hands in the P.Y. 2007-08 i.e., A.Y. 2008-09. The salary of Rs 1,50,000/- received in P.Y. 2008-09 will not be chargeable to tax again in P.Y. 2008-09 i.e., A.Y. 2009-10 since it has already been taxed earlier.

ADVANCE SALARY
Advance salary [Sec.17 (1)(v)] Advance salary is taxable on receipt basis, in the assessment year relevant to the previous year in which it is received, However, a loan taken from employer is not taxable as advance tax salary. Provision illustrated Salary of X is Rs. 3000 per month. During the month of March 2007, he gets salary of the next two months in advance. In this case, for the previous year 2006-07, salary of 14 months i.e. Rs. 42,000 is taxable. For the previous year 2007-08, salary of 10 months, i.e. Rs. 30,000 will be chargeable to tax and not of 12 months.

ARREAR SALARY
It is taxable on receipt basis if the same has not been subjected to tax earlier on due basis. In this case also recipient can claim relief under section 89. Provision illustrated - The following illustrations are given to have a better understanding: On March 10, 2007, X receives a sum of Rs. 20,000 as arrears of bonus pertaining to the previous year 2002-03 it was not taxed during the previous year 2002-03.

LEAVE SALARY Sec10(10AA)

As per Service rules every employee is entitled to certain no. of leaves per annum. If an employee does not utilize all his leaves available to him per annum such unutilized either get lapsed or get carry forward which can be enchased later. If such carry forward leaves are liquidated in cash form during the continuity of employment or on retirement, it is known as leave salary. The taxation of Leave salary for various categories of employees is shown here under: