Section 17(1) – Definition of Salary under the Income Tax Act
Section 17 under the Income Tax Act includes the detail of the benefits provided by the employer to the employees. While filing income Tax Return, the most prominent income head is considered salary. Sub-Section (1) of Section 17 covers the explanation of salary. Let us discuss this more.
What is Salary under Section 17(1)?
Salary is a much broader term than what we understood. Salary is used when there is an employer-employee relationship between the payee and the payer. While calculating the income under the head salaries, the total amount of salary, perquisites, and profits provided in place of a salary received in a financial year must be calculated. Salary is used most frequently while filing the income tax return. All salaried individuals with income above the exemption limit must file the ITR.
Incomes Classified as “Salary” Under Section 17(1) are:-
- Wages- Wages refer to the payment or remuneration given to an employee in exchange for their work or services rendered. It is typically paid hourly for blue-collar jobs, such as factory workers, mechanics, or construction workers. It is fully taxable under Section 15 if received during the relevant previous year.
- Annuity or pension- An annuity or pension is amount received by an individual that provides a fixed stream of payments over a certain period, typically after retirement. It is designed to provide a steady income to help individuals meet their financial needs in retirement. Annuity received from a present employer is taxed as ‘Salary while the Annuity received from a previous employer is taxed as ‘Profits in lieu of Salary’.
- Advance of salary- An advance of salary is a payment made by an employer to an employee before the employee's regular salary payment date. This payment is usually made in anticipation of an employee's financial need or emergency.It is fully taxable under Section 15.
- Gratuity- Gratuity is a lump-sum payment made by an employer to an employee as a token of appreciation for the employee's long and meritorious service. It is a type of retirement benefit and is usually paid when an employee completes a certain period of service with the employer, such as 5 or 10 years. Taxed as per Section 10(10) and is exempted up to certain limits.
- Fees, commissions, perquisites- Fees, commissions, and perquisites are types of income that an individual may receive as part of their employment or business activities.
- An amount received as fees to the employee from the employer for the services rendered is included in the definition of salary.
- Any amount of commissions given to the employee for the services provided shall form part of the salary. If the employee receives a fixed commission as a percentage of the sales or profits, it shall be considered a salary.
- Perquisites, also known as perks, are benefits or privileges provided to an employee in addition to their regular salary or wages. This is explained more under Section 17 (2).
- Profits in lieu of salary- Profits in lieu of salary refer to any payment or benefit received by an employee in connection with their employment, other than salary or wages. This can include bonuses, commissions, incentives, allowances, or any other form of compensation not classified as salary. This is explained more under Section 17(3).
- Leave encashment- Leave encashment is a payment made to an employee in lieu of the employee taking their entitled leave. In other words, it is the amount paid to an employee for the unutilized leave days they are entitled to.
- EPF- EPF stands for Employees' Provident Fund, a retirement savings scheme for salaried employees in India. The scheme is managed and regulated by the Employees' Provident Fund Organization (EPFO), a statutory body under the Ministry of Labour and Employment.
- NPS- A contribution made by the Central Government or any other employer in a financial year in an employee’s account under National Pension Scheme (NPS) will form part of the salary.
- Transferred PF balance- The taxable portion of the transferred balance from an unrecognized provident fund to a recognized provident fund will be considered salary.
What is the basis of salary income being charged?
The salary income is charged on the basis of Section 15 of the Income Tax Act. It is charged on a ‘receipt basis’ or ‘due basis,’ whichever is earlier. A salary received in a particular financial year comprises of:-
- Any advance amount paid to the employee before it became due or payable.
- Any salary due to the employee during the year.
- Arrears of salary paid to the employee during the year and not charged to tax in any earlier years
What are the conditions under which the salary is taxable in India?
- If the services are rendered in India, it is taxable, no matter whether the payment is made outside the country.
- Salary paid by the Government of the foreign country to their employees serving in India.
- Leave salary paid to the employees working outside India and earned the leaves in India.
Frequently Asked Questions
Q- What is section 17(1) of the Income Tax Act, 1961?
Section 17(1) of the Income Tax Act, 1961 lists the various perquisites or benefits in lieu of salary that are taxable as part of an employee's salary income.
Q- Are all perquisites or benefits in lieu of salary taxable under section 17(1)?
No, certain perquisites or benefits in lieu of salary may be exempt from tax under section 10 of the Income Tax Act, 1961. For example, housing rent allowance, or leave travel allowance is exempted up to a certain limit.
Q- Who is responsible for deducting tax on perquisites or benefits in lieu of salary under section 17(1)?
The employer is responsible for deducting tax on perquisites or benefits in lieu of salary and depositing it with the government on the employee's behalf.
People also ask
- Types Of Income, Deductions, Tax Slabs & e-Filing ITR Online
- Advance Tax: Calculate & Make Payment Online
- URN Status - How to check your URN Status?
- Udyog Aadhar Registration
- Self Assessment Tax
- Securities Transaction Tax (STT)
- Section 92E - Furnishing Reports For International Transactions
- Presumptive Income Taxation Under Income Tax Act
- Section 44ADA - Presumptive Taxation
- Section 44AD - Presumptive Taxation
- Section 12A - Tax Exemptions for Charitable Trusts & NGOs
- PRAN Card - Permanent Retirement Account Number Guide
- Minimum Alternative Tax - Applicability & Calculation of MAT Credit
- Section 56 - Taxation of Wedding/Marriage Gifts Received
- Income Tax on Dividends - How dividends are taxed?
- Income Tax on Awards & Prizes - Lottery, Game Shows, Puzzle
- Claim Tax Credit on Foreign Income of a Resident Indian
- Income Tax Audit Under Section 44AB of Income Tax Act
- Income Tax Act & Laws - 1961 & 1962
- Gross Total Income - Computation of Total Taxable Income
- Form 10E - Claim Income Tax Relief under Section 89(1)
- Dividend Mutual Funds
- Cost Inflation Index (CII)
- Agricultural Income - Types & Tax Calculation
- 5-Year Post Office Recurring Deposit
- Voter ID /Election Card - Documents, Application, Eligibility
- Total Income - How to Calculate It?
- Income Tax India E - filing Login
- KYC (Know Your Customer) - How to Check Your KYC Status
- Section 87A - Tax Rebate under Section 87A
- Union Budget 2019 - Key Highlights
- Income Tax Form 60
- Income Tax For Self Employed Business, Profession & Freelancers
- Govt. Jobs v/s Private Jobs - Comparative study on benefits
- Section 234F - Penalty for Late Filing of Income Tax Return
- Section 234C - Interest on Deferred Payment of Advance Tax
- Section 234B - Interest on Delayed Payment of Advance Tax
- Section 234A - Interest Penalty on Delayed ITR Filing
- Section 234F - Penalty for Late Filing of Income Tax Return