CHARGEABILITY U/S 15

• Any amount due to or received by an

employee including arrears of salary from an
employer or former employer and falling
within the purview of the meaning of the term
salary is chargeable to tax under head
salaries. However the term salary is not
exhaustively defined but inclusively defined
under sec. 17(1)
• There must be an employer-employee
relationship.
• May be present or past
• Contract of service is example for employer-
employee relationship. Contract for service it is
not so.
• Normally Director of a company is not employee
relationship however employee director is an
employee.
• Salary of MP and MLA are chargeable only under
‘income from other sources’. Daily allowance are
exempted.
• Place accrual- for salary is the place where the services
are rendered
• Partner’s salary is taxable as business and
profession(sec.28)
• Surrender of salary – Central govt employee surrenders
his salary exempted under sec.2 of Voluntary surrender
of salaries (exemptions from taxation) Act,1961
• Salary received by employees of
UN,IMF,WORLD BANK under Sec.18 UN
Privileges and Immunities
 Case laws
• Lalu prasad yadav v.CIT • Salary of CM is taxable
(2009) 316 ITR 186 Patna under salaries as there
exist employer-
employee relationship.
CIT v. Govind
swaminathan • AG is not an employee
of State Govt. Taxable
under business income
• Justice Deoki Nandan • Remuneration received
Agarwala v. Union of by the judge are taxable
India(1999) 237 ITR 872 under salary
(SC)
• CIT v. Navanitlal Sakarlal • Commission paid to MD
(2001) 247ITR 70(SC) of Company is
chargeable under salary
since he is an employee
• Lakshminarayan Ram • The distinction between
Gopal & sons. Ltd. Vs. a servant and agent
govt. of Hydrabad were laid down.
(1954) 25 ITR 449(SC).
• Piyare Lal Adishwar Lal • Control and supervision
Vs. CIT (1960)40 ITR 17 are relevant factors.
(SC)
• Ramprasad Vs. CIT • Company director is not
(1972)86 ITR 122(SC) a servant but an agent.
• CIT Vs. Shiv Charan • Salary of M.L.A and M.P.
Mathur are taxable under the
(2008)306ITR126(Raj). head income from
other sources.
 Sec 17(1)
• For the purposes of sections 15 and 16 and of this
section, –
• (1) “salary” includes –
• (i) wages;
• (ii) any annuity or pension;
•  (iii) any gratuity;
•  (iv) any fees, commissions, perquisites or profits in
lieu of or in addition to any salary or wages;
• (v) any advance of salary;
•(va) any payment received by an employee in respect of any period of
leave not availed of by him;
•(vi) the annual accretion to the balance at the credit of an employee
participating in a recognised provident fund, to the extent to which it
is chargeable to tax under rule 6 of Part A of the Fourth Schedule; and
•(vii) the aggregate of all sums that are comprised in the transferred
balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth
Schedule of an employee participating in a recognized provident fund,
to the extent to which it is chargeable to tax under sub-rule (4) thereof;
•1[(viii) the contribution made by the 2[Central Government or any
other employer] in the previous year, to the account of an employee
under a pension scheme referred to in section 80CCD;]
 Sec 17(3)
• (3) “profits in lieu of salary” includes –
• (i) the amount of any compensation due to or received by an asses-
see from his employer or former employer at or in connection with
the termination of his employment or the modification of the terms
and conditions relating thereto;
• (ii) any payment [other than any payment referred to in clause (10),
clause (10A), clause (10B), clause (11), clause (12), clause (13) or
clause (13A) of section 10], due to or received by an assessee from an
employer or a former employer or from a provident or other fund, to
the extent to which it does not consist of contributions by the
assessee or interest on such contributions or any sum received under
a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
• Explanation: For the purposes of this sub-clause, the
expression “Keyman insurance policy” shall have the
meaning assigned to it in clause (10D) of section 10.
• [(iii) any amount due to or received, whether in lump
sum or otherwise, by any assessee from any person –
• (A) before his joining any employment with that
person; or
• (B) after cessation of his employment with that
person.]
 Deduction U/s 16
• Standard Deduction – Sec.16(ia)
• While computing the income under the head
salaries, a standard deduction upto Rs.50,000/- or
the amount of salary, whichever is less shall be
allowed.
Entertainment allowance S.16(ii)
• It is first included in salary and then claimed as
deduction.
• The deduction is available only to government
employees.
• The least of the following is exempt
• (a)Rs. 5000/-
• (b) 1/5th of the salary
• (c)actual E.A. received for the P.Y.
• Salary for this purpose basic only.
 Profession Tax-S.16(iii)
• Deduction is allowed in respect of profession
tax paid by employee.
• If the employer bears the tax burden then it
will be added to gross salary as a perquisite
and deduction will be allowed u/s.16(iii).
• Article 276(2) of Constitution of India-
Profession tax levied by any local authority
shall not exceed Rs.2500/-