Income from Salary

A set of vocabulary flashcards covering Section 15 of the Income Tax Act, including salary definitions, tax components, gratuity, pensions, allowances, and perquisite valuations.

Section 15: Charging Section

Salary is taxable under the head "Salaries" only if there is an Employer-Employee Relationship (Master-Servant Relationship).

Basis of Charge for Salary

Salary is taxable at the time of Receipt or Due, whichever is earlier.

Salary to Partner

Taxable under the head "PGBP" (Profits and Gains of Business or Profession), not under the head "Salaries".

Salary Received by MP/MLA/MLC

Taxable under the head "Other Sources", not under "Salaries".

Salary Foregone

Taxable in the hands of the employee as it is considered an application of income, even if donated to a charitable organization.

Salary Surrendered

Salary surrendered to the Central Government is exempt from tax and not taxable in the hands of the employee.

Contract of Service vs. Contract for Service

A Contract of Service is taxable under the head "Salary", while a Contract for Service is taxable under the head "PGBP".

DA "in Terms"

Dearness Allowance (DA) that forms part of the calculation for retirement benefits.

Bonus Taxability

Bonus is taxable only on a Receipt Basis.

Advance Salary

Salary received before it becomes due; taxable on a receipt basis.

Arrears of Salary

Salary which was under dispute or revised retrospectively; taxable on a receipt basis.

Advance against Salary

Treated as a loan and is therefore not taxable.

Gratuity (Government Employee)

Fully exempt from tax at the time of retirement.

Gratuity (POGA Employee)

Exempt amount is the lowest of: (i) $\frac{15}{26} \times \text{Salary p.m.} \times \text{No. of years of completion of Service}$ (rounding allowed), (ii) Actual Amount Received, or (iii) Maximum $₹20\text{ Lakhs}$.

Gratuity Average Salary (Non-POGA)

Average Basic Salary + Average DA (in Terms) + Average Turnover Commission of the last $10$ months, ignoring the month of retirement.

Rounding (Non-POGA Gratuity)

Fraction of years should be ignored completely (e.g., $25\text{ years and } 11\text{ months} = 25\text{ years}$).

Uncommuted Pension

A monthly pension that is fully taxable for all employees, both Government and Non-Government.

Commuted Pension (Government Employees)

Fully exempt from tax.

Commuted Pension (Non-Government with Gratuity)

Exempt amount calculated as $\text{Total Pension} \times \frac{1}{3}$.

Leave Salary (Government Employee)

Encashment of unutilized leaves received at the time of retirement is fully exempt.

Leave Salary Exemption Limit (Non-Government)

The maximum exemption amount for Leave Salary is $₹25\text{ Lakhs}$.

Voluntary Retirement Scheme (VRS) Exemption Limit

The maximum exempt amount under Section 10(10C) is $₹5,00,000$.

Retrenchment Compensation Exemption

Lowest of: (i) $\frac{15}{26} \times \text{Average Salary} \times \text{No. of Years of Completion of Service}$ (rounding up decimal for months > $6$), or (ii) Maximum $₹5,00,000$.

Statutory Provident Fund (SPF)

A provident fund for all types of Government employees where the employer's contribution and interest are exempt, and the lumpsum at retirement is exempt.

Recognised Provident Fund (RPF) Employer Contribution

Exempt up to $12\%$ of Salary.

Recognised Provident Fund (RPF) Interest

Exempt up to $9.5\%\text{ p.a.}$

Children Education Allowance Exemption

Maximum $₹100\text{ p.m.}$ per child for a maximum of $2$ children.

Children Hostel Allowance Exemption

Maximum $₹300\text{ p.m.}$ per child for a maximum of $2$ children.

Commutation/Transport Allowance for Disabled Employees

Maximum $₹3,200\text{ p.m.}$ for blind, deaf, dumb, or handicapped employees.

House Rent Allowance (HRA) Exemption (Metro Cities)

Lowest of: (i) $50\%$ of Salary, (ii) Actual Amount Received, or (iii) $\text{Rent Paid} - 10\% \text{ of Salary}$.

DMKC

Metro cities for HRA calculations: Delhi, Mumbai, Kolkata, and Chennai.

Medical Treatment GTI Limit (Outside India)

The benefit of travel is fully exempt if the employee's GTI is up to $₹8,00,000$ (Amended by FA, 2025).

Loan Perquisite Exemption

Interest benefit is fully exempt if the loan amount is up to $₹20,000$ or if the loan is for treatment of a Specified Disease.

LTC Air Travel Exemption

Lowest of: (i) Actual Expense, or (ii) Economy Class Fare.

Gift in Kind Perquisite

Fully exempt if Fair Market Value (FMV) is less than $₹5,000$; fully taxable if FMV is $₹5,000$ or more.

ESOP Taxable Amount

$\text{FMV of Shares on date of Exercise} - \text{Issue Price (Amount paid by employee)}$.

Use of Movable Assets (Computer/Laptop)

Fully exempt as it is used for work purpose only.

Transfer of Movable Assets (Car Depreciation)

WDV calculated with depreciation at $20\%$ on WDV Method for every completed year.

BDBACM (Salary for RFA)

Basic Salary + DA (in Terms) + Bonus + Allowances (Taxable) + Commission (all types) + Monetary Benefits.

Specified Employee Criteria

A Director Employee, an employee with Substantial Interest ($20\%$ or more voting power), or an employee whose income u/h Salary exceeds $₹4,00,000$ (excluding non-monetary perks).

Standard Deduction (Section 115BAC)

The Standard Deduction is $₹75,000$ instead of $₹50,000$ in case the assessee pays tax under Section 115BAC.