SALARY

R ALOK VERMA
BASIC ELEMENTS OF SALARY
A teacher receives emoluments in kind from school in which he teaches.
Yes, it is immaterial whether salary has been received in cash or in kind.

● A teacher of a college receives fees from a University for checking answer sheets.

No, as employer – employee relationship does not exist between payer and payee. (College-teacher is not the employee
of the University).

Such receipt shall be taxable under the head ‘Income from other sources’.
DEFINITION OF SALARY [SEC.
17(1)]
 COMPONENTS OF SALARY
• Basic Salary: It is the sum paid by employer to employee as salary and shall be fully taxable.

• ■ Pay-Scale (Grade system): It is a system of payment where increment scale is pre-known to employee. E.g.
Basic salary is given as 5,000 – 1,000 – 8,000 – 2,000 – 12,000. The above data indicates the increment
schedule. As per this schedule initial payment is ` 5,000 p.m. which will increased by ` 1,000 every year until
salary reaches to `8,000 p.m. Once salary reaches to ` 8,000 then increment will be ` 2,000 every year till salary
reaches the scale of ` 12,000. Accordingly, basic salary is calculated.

• ■ Dearness Allowance (DA) or Dearness Pay (DP): It is an extra amount given to an employee to meet the
burden of inflation or increased cost of living. This is fully taxable.
COMPONENTS
GRATUITY
TAX TREATMENT
Gratuity received after death of
employee
LEAVE SALARY ENCASHMENT
LEAVE SALARY ENCASHMENT

Case A: Leave salary received during continuation of service

• Leave salary during continuation of service is fully taxable in the case

of the Government employee as well as other employees [Sec. 17(1)
(va)].
Case B: Leave salary received by Government employee on
termination of service

• At the time of termination of service, leave salary received by the

Central or State Government employee is fully exempted u/s 10(10AA)
(i).
Case C: Leave salary received by non-Government employee on termination of
service

• At the time of termination of service, leave salary received by a non-

Government employee (including employee of foreign Government,
local authority, public sector undertaking) is exempted to the minimum
of the following u/s 10(10AA)(ii):
PENSION [SEC. 17(1)(ii)]
ALLOWANCES
House rent allowance (HRA) [Sec.
10(13A)