1. Employment is must for income to be assessed under the head ‘Salaries’. For employer – employee relationship to exist, the employer must have the powers to – (i) define the terms of the employment, and (ii) terminate the employment. However, what is relevant is employment and not so much the presence of an employer, as held by the Supreme Court in Justice D.N.Agarwal v. UOI (1999) 237 ITR 872. As long as the money received is remuneration for services, it is salary.
  2. All receipts with respect to the employment are ‘salary’. The term ‘employer’ takes in not only the past and present employers but a future employer as well and any receipt in contemplation of employment from such employer is assessable as salary. S.17(1)(v) says: ‘Salary’ includes ‘any advance of salary’.
  3. ‘Salary’ includes commission when such commission is received with reference to the employment. Where it is independent of the employment, it is assessable either as other sources income or business income depending on the facts of the case. See P.Ramajeyam 133 Taxman 33 (Mad).
  4. Salary due though not received is assessable in the year it falls due. See s.15(a).
  5. Salary earned in India is taxable in India no matter it has been received as salary proper or as leave salary. See Explanation to s.9(1)(ii).
  6. Salary income including leave salary is earned where the service is rendered.
  7. Family pension is assessable as ‘other sources’ income, subject to the deduction under s.57(iia).
  8. For non-government employee cases, the exemption is restricted to 10 months’ salary based on the average salary for the last 10 months immediately preceding the date of retirement, in turn restricted to Rs.3,00,000.
  9. Gratuity received by a government employee is fully exempt. The limit of Rs.3,50,000 is applicable only to other cases. In such a case, the exemption varies depending on whether the payment is covered by the Payment of Gratuity Act, or not, subject to the ceiling of Rs.3,50,000.
  10. The language of s.89 is clear that the relief is available in cases of both arrears and advance receipts. S.89 comes into operation ‘where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than 12 months…
  11. The employer’s contribution is taxable on withdrawal at the time of retirement/ termination of service of the employee, much in the same way as interest referred to in (c).
  12. The entire transferred balance of PF would not be taxed; only that part of the transferred balance that would have been taxable, had the fund been an RPF from the date of institution, would be taxed.
  13. The hire charges borne by the employer are reckoned if they are lower than the prescribed percentage of salary. The perquisite value then is: actual hire charges as reduced by the rent recovered from the employee.
  14. That the employee is an interested person like a promoter or director holding more than 10 share in the equity disentitles him from participation in the scheme.
  15. Exemption is available in respect of any other medical reimbursement to the extent of Rs.15,000.
  16. Overseas travel expenses are excludible from perquisites only in the case of an employee whose gross total income before including this perquisite does not exceed Rs.2,00,000.
  17. Tax is deductible from salary only at the time when the salary is received, though salary is assessable to tax when it is due or received, whichever occurs earlier.
  18. For TDS only the loss under house property can be considered.
  19. The employer does not have the power of investigation. If reasonable proof is given, it is not open to the employer to insist on cast iron evidence.

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