How salary is defined under Income Tax Act

The term salary is defined under section 17 (1) of the income tax act to include following items as salary;

  • Wages
  • Any annuity or pension
  • Any gratuity
  • Any fee, commission, perquisite or profit in lieu of salary or in addition to any salary or wages
  • Any advance of salary
  • Any payment received by an employee in respect of any period of leave not availed by him
  • The portion of the annual accretion in any previous year to the balance at the credit of an employee participating in a recognized provident fund to the extent it is taxable
  • Transferred balance in a recognized provident fund to the extent it is taxable and
  • Contribution by the central government to the account of an employee under a pension scheme referred to in section 80CCD 

Salary as per Income TaxWages in a general term is no difference from salary. Any amount received as a fixed wage or at an hourly rate is taxable under the head salary. Gratuity and pension are retirement benefits provided by the employer to employee and are taxable under the head salary.

Any commission (as a fixed percentage of turnover) or overtime payment paid or payable by an employer to employee will be taxable under the head salary as it is forming part of the definition as defined under income tax act.

The term salary under Income Tax Act has been defined to include all sums that an employee receives from his employer during his tenure of service. If any amount received from a former employer in relation to the services that you have rendered to him during your tenure of employment then the amount received will be taxable under the head salary.

Salary as per income tax is taxable on due or receipt basis which ever is earlier. If it is due but not paid by the employer then employee is liable to pay income tax on it. Same way if employee receive advance salary then income tax need to be paid on the basis of receipt i.e. income tax liability comes when employee receive the advance salary.

One thought on “How salary is defined under Income Tax Act

  1. Savit kumar

    is there any rule or provision that person who is liable , only those person get form no.16 from their department. (sepcially my question regarding nagar nigam ghaziabad, not providing me the form no.16 that ur r not liable , ur r not coming in tax slab and it only for those person who r under tax slab. pls guide me & send provision regarding my problem.

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