Salary is a periodic payment made by employer to an employee as per the terms specified in employment contract signed by both parties. For income tax purpose, to tax salary the employer and employee relationship must exist at the time of payment or for which the payment has been received.
Changeability of Salary as per Income Tax Act
This means if salary is due but not received then it will be taxable in the year when it became due. Similarly, when salary is received but its not due during the year then it will taxable in the year in which it is received.
Following is the text of section 15 for your reference;
According to section 15 of the IT act, for the purpose of changeability to income tax, salary consists of;
- any salary due from an employer (or a former employer) to an assessee in the previous year, whether actually paid or not;
- 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 or before it became due; and
- 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 for any earlier previous year.
Income is taxable as salary under section 15 of the Income Tax act only when there exist a relationship of employee-employer between the payer and payee.
To know what salary consists of section 17 the IT act defines it to include various things that employee gets from employer. As the term defined the term includes all most all the payment that a employer make to an employee.
Text of Section 17 as Salary defined in IT Act
As per sec. 17(1) of the Income-tax Act, 1961, the term salary is defined to include the followings:
- Any annuity or pension;
- Any gratuity;
- Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages;
- Any advance of salary;
- Any payment received in respect of any period of leave not availed of by the assessee;
- The portion of the annual accretion in any previous year to the balance at the credit of an employee, participating in recognized provident fund, to the extent it is taxable;
- Transferred balance in a Recognized Provident Fund to the extent it is taxable.
- Contribution made by the employer in the previous year, to the account of an employee under a pension scheme referred to in sec. 80CCD.