TAX TREATMENT OF SALARY -ITS NATURE AND SCOPE Essays - Tax

TAX TREATMENT OF SALARY -ITS NATURE AND SCOPE Essays - Tax TAX TREATMENT OF SALARY -ITS NATURE AND SCOPE SUBMITTED BY STUTI PRIYA OJHA BALLB, 7 TH SEMESTER ENROLL NO. - 0056150813 Contents TOC \o "1-3" \h \z \u INTRODUCTION PAGEREF _Toc467133005 \h 4 WHAT IS SALARY? PAGEREF _Toc467133006 \h 4 CONSTITUENTS OF SALARY PAGEREF _Toc467133007 \h 4 PROVISIONS UNDER INCOME TAX ACT 1961 REGARDING INCOME FROM SALARY PAGEREF _Toc467133008 \h 4 SECTION 15 - CHARGEABILITY PAGEREF _Toc467133009 \h 4 SECTION 16 - DEDUCTIONS PAGEREF _Toc467133010 \h 5 SECTION 17 - DEFINITIONS PAGEREF _Toc467133011 \h 5 NATURE AND SCOPE OF SALARY PAGEREF _Toc467133012 \h 5 MEANING OF SALARY AS GIVEN UNDER INCOME TAS ACT PAGEREF _Toc467133018 \h 7 Definition of Salary under Income tax Act PAGEREF _Toc467133019 \h 7 DEDUCTIONS FROM SALARY PAGEREF _Toc467133020 \h 15 CONCLUSION PAGEREF _Toc467133021 \h 16 INTRODUCTION Income tax is that percentage of a person's income that he/she pays to the government to fund infrastructural development and for other developmental schemes. All taxes are levied based on the passing of a law, and the law that governs the provisions for our income tax is the Income Tax Act, 1961. This income tax is to be paid by all individuals, Hindu Undivided family, firms and associations. The Income Tax Act provides detailed provisions on what constitutes an income. Income from different sources is taxed differently. These sources are called heads of income and are as follows: Income from Salaries Income from House Property Income from capital gains Profits or gains from business Income from other sources WHAT IS SALARY? Salary is a fixed regular payment, typically paid on a monthly basis but often expressed as an annual sum, made by an employer to an employee for services rendered. The origin of the word can be traced back to the Latin term salarium , originally denoting a Roman soldier's allowance to buy salt,( from sal salt'). CONSTITUENTS OF SALARY The two basic constituents of salary are : Monetary payments (e.g.- basic salary, bonus, commission , allowance etc) Non- Monetary facilities (e.g.- house accommodation, medical facilities , interest free loans etc.) PROVISIONS UNDER INCOME TAX ACT 1961 REGARDING INCOME FROM SALARY SECTION 15 - CHARGE A BILITY It includes full time as well as part employment . Salary foregone by a employee is also accountable. Tax paid by employer on the salary of the employee also constitutes the income of the employee SECTION 16 - DEDUCTIONS Entertainment allowance Professional Tax SECTION 17 - DEFINITIONS NATURE AND SCOPE OF SALARY Relation between Payer and Payee: The relation between payer and payee should be that of employer and employee . I n other words for an income to be taxed under head salaries the relation between payer and payee should be of employer and employee. Employer may be an Individual, firm, AOP etc and an employee may be full time or part time employee. If the relation between payer and payee is not that of employer and employee income received cannot be charged under head Salaries it would be charged under other heads. TEST: The test to determine the employer-employee relationship between the payer and recipient is existence of right of control in respect of manner in which the work is to be done. Income by way of examinership fees received by a professor from the same university in which he is employed would not be chargeable to tax under this head but must be taxed as Income from other sources under Section 56. Income by way of remuneration received by a managing director would be taxable as his salary income whereas the income received by him as directors fees in his capacity as director for attending the meetings of the Board would be assessable under the head Income from other sources. An official liquidator appointed by the Court or by the Central Government would also become an employee of the Central Government under Section 448 of the Companies Act, 1956 and consequently the remuneration due to him would also be assessable under the head Salaries. Remuneration received by a manager of a company even if he is wrongly designated as a director or by any other name would be chargeable to tax under this head regardless of the fact that the