Which Types of Income Will Fall Under the Head “Salary”?

Under the Income Tax Act, 1961 and the Income tax Bill 2025, income is classified under five heads, one of which is “Salaries.” Salary income arises only when there is an employer–employee relationship, and it includes all forms of remuneration for personal services rendered under an express or implied contract. Payments to partners, independent professionals, or visiting doctors do not qualify as salary, while amounts paid to resident doctors employed by a hospital do. Family pension received by heirs is treated as income from other sources, not salary. Section 17 provides an inclusive definition of salary, covering wages, pensions, gratuity, commissions, perquisites, leave encashment, and employer contributions to pension schemes and the Agniveer Corpus Fund. Perquisites forming part of salary include rent-free or concessional accommodation, benefits or amenities provided to specified employees, sweat equity, employer contributions exceeding ₹7,50,000 to retirement funds, transport facilities, utilities, household services, and concessional education.

Five different heads of Gross Total Income:

SALARIES:

Income under the head “Salaries” comprises remuneration in any form (including perquisites) due for personal service under an express or implied contract of employment or service. Thus the contractual relationship should be as between employer and employee. The best example of this is, remuneration given to partners of partnership firm is considered as income from business or professions. In this case partner and firm has no relationship of employer and employee, therefore remuneration is not considered as salary. A person who runes nursing home, invite doctors from

Outside for the treatment and make the payment from the fees collected from patient after deducting certain percentages. So this income will not considered as salary but considered as income from profession in the hands of doctor. If any doctor provided service as resident doctor at hospital and fees received from patient is to hospital considered as professional income but payment made to resident doctor is considered as salary.

Family Pension: Family pension received by the relatives of employee after the death of employee is considered as other income and not as salary.

Ordinarily, the word “salary” is understood as periodical payment for services rendered by an employee to an employer. Section 17 of the Act, it inclusive of the following items:

(i) Wages,

(ii) Any annuity or pension,

(iii) Any gratuity,

(iv) Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages,

(v) Any advance of salary,

(vi) Any payment received by an employee while in service in respect of any period of leave availed of by him,

(vii) The contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD.

(viii) The contribution made by Central Government in the previous year , to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to Section 80CCH.

Perquisites: Perquisites includes:

(1) the value of rent-free accommodation provided to the assesse, by his employer computed in such manner, as prescribed;

(2) the value of any accommodation provided to the assesse by his employer at a concessional rate which is in excess of rent recoverable from , or payable by, the assesse, computed in such manner as prescribed;

(3) the value of any benefit or amenity granted or provided free of cost or at concessional rate in the following cases:

(a) by a company to an employee, who is a director thereof or who has a substantial interest in the company;

(b) by any employer, to an employee whose income under the head Salaries by way of monetary payment exceed such amount as prescribed;

(4) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the current employer, or former employer, free of cost or at concessional rate to the assesse;

(5) the value of any other benefit or amenity, as prescribed;

(6) Aggregate amount of any contribution, in excess of Rs.7,50,000 in a tax year, made to the account of the assesse by the employer-

• In a recognized provident fund,
• In the scheme referred to in section 124(1); and
• In an approved superannuation fund

(7) Transport provided for a group of employees to the place of employment;

(8) Services of a sweeper, a gardener, a watchman or a personal attended provided to employee;

(9) Gas, Electric energy or Water supplied to employee;

(10) Free or concessional education facilities;

(11) Free/concessional transport to employees by an undertaking engaged in the carriage of passengers/goods;

The above perquisites are considered as part of salary. The valuation of perquisites are different for different perquisites.