Any income can be taxed under the head salary only if there is an employer and employee relationship between the payee and payer. If such relationship does not exist then income will not be taxable under the head salary.
Member of Parliament and MLA are elected by the public from their respective constituency. They are discharging their respective constituency functions, so they can not be treated as government employees. Hence their remunerations can not be considered as salary under section 15 of the income tax act and as such these are taxable under the head income from other sources instead of “income from salaries”.
If such MP and MLA are acquiring any cabinet or chief ministerial position then they will be treated as government employee and salary received out of such post will be taxable under the head “income from salary”.
However not all allowance received by MP and MLA are exempted.
- Daily allowances received by such MP and MLA are exempted from income tax. – section 10(17) of income tax act, 1961.
- Constitution allowance is also exempted – Section 10(17) of income tax act, 1961.
- Special allowances other than those mentioned above like allowances for conveyance, helper etc granted to meet expenses wholly, necessarily and exclusively for the performance of duties of an office or employment to the extent to which such expenses are actually incurred for that purpose are exempted up to the prescribed limit of section 10(14) of income tax act and any surplus left out will be taxable
To claim exemption under section 10(14) of the income tax act, such MP and MLA has to proof that they have spent the entire amount claimed as exemption. In absence of proof for such expenses, the amount will be taxable as per income tax act.
All other allowances are taxable as specified in the income tax act.
Article 125 and 221 of the constitution deal with salary of Supreme Court and High court judges respectively. These articles state that judges of a Supreme Court and high court receives salary. As it is clearly stated in article that what judges are receiving are salary we have to tax these incomes under the head “Income from salary”.