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Taxability of Income
From Salaries
PART
- A
Part - a Chargeability to Tax on Income from Salaries
Scope
of Income Taxable as Salaries
Under
the provisions of Section 9(1) of the Indian Income
Tax Act, 1961, remuneration for services rendered in
India, wherever payable, is deemed to accrue or arise
in India and, as such, is taxable in India. The relevant
provision reads as under :
Section
9(1)(ii) :
"The following incomes shall be deemed to accrue
or arise in India.
Income
which falls under the head "Salaries",
if it is earned in India.
"Explanation
: For the removal of doubts, it is hereby declared that
income of the nature referred to in this clause payable
for service rendered in India, and for the rest period
or leave period which is preceded and succeeded by services
rendered in India and forms part of the service contract
of employment, shall be regarded as income earned in
India".
As
such, even in the case of a person having status of
'Non-Resident' or a 'Not Ordinarily Resident', remuneration
for services in India, payable to him, whether in India
or outside India, is liable to Income Tax in India.
Where the nature of employment involves rendering of
employment activities partly in India and partly outside
India, remuneration relating to activities outside India
is not chargeable to income tax in India. For the said
purpose necessary evidence has to be adduced.
As
per the provisions of the Income Tax Act, 1961, income
for the purpose of charge of income tax, is classified
under various heads of income. Income of the nature
of salaries, derived from the exercise of employment
is chargeable under a separate head of income described
as 'Salaries'.
The
income chargeable to tax under the head 'Salaries' includes
any salary due from an employer to the assessee in the
financial year, whether paid or not and also any arrears
of salary paid to him in the financial year if the same
has not been charged to tax for any earlier financial
year. Salary includes any "fees", "commission",
"perquisite", or "profit" in lieu
of or in addition to any salary.
Perquisites
& Allowances
Perquisite
has been defined, in the Income Tax Act, 1961, vide
provisions of Section 17(2) to include:-
- the
value of any rent-free accommodation provided to the
employee;
- any
concession granted in the matter of rent in respect
of such accommodation;
- value
of any benefit or amenity granted or provided free
of cost to an employee who is a Director thereof or,
who has substantial interest in the company or whose
income exclusive of the value of all benefits or amenities
not provided by way of monetary payments exceeds Rs
24,000/- per annum; and
- any
sum paid by the employer in respect of any obligation
which, but for such payment, would have been payable
by the assessee.
- the
value of any other fringe benefit or amenity as may
be prescribed
As
such, all cash payments whether classified as salary,
allowances or otherwise, value of any benefit, perquisite
or amenity, provided by the employer, any expenditure
incurred by the employer in respect of any obligation
of the employee are chargeable to income tax, unless
exempted by a specific provision.
It
is pertinent to note that income tax paid by the employer
on behalf of the employee is also treated as perquisite
and thus charged to tax. In general, Indian Companies
are not allowed to make payment of salaries free of
Income Tax except for the cases where concessions are
available under the Income Tax Act.
A
substantial concession is available as per provisions
of Section 10(5B) of the Income Tax Act with respect
to the remuneration derived by foreign technicians subject
to fulfillment of prescribed conditions.
Section
10(5B) grants exemption from inclusion in the total
income, as perquisite on grossing up basis, income tax
paid on behalf of the technician, by the employer. Under
general principles, as explained above, an employer
who undertakes to pay tax on behalf of the employee,
has to include such tax paid / payable on behalf of
the employee, on grossing up basis, for payment of tax.
Such grossing up, considerably increases the amount
of tax payable. As such the benefit of exemption from
grossing up, as admissible under the provisions of Section
10(5B), on fulfillment of specified conditions, is very
significant.For details click Alternative ‘C’
of Part C of this Chapter.
Click
Annexure 'B1' detailing
conditions of exemption and steps to be taken by the
employer, in case of employees, who are eligible to
exemption under this section.
Monetary
value of benefit or perquisite as are required to be
included, is generally to be computed on the basis of
'actual cost' thereof to the employer. In respect of
certain benefits, perquisites, rules for the valuation
are provided in the Income Tax Rules, 1962, Click Annexure
'B2". Some allowances, benefits, perquisites
are exempted under the Income Tax Rules.
For details Annexure 'B3'.
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