Salary Basics – When a payment can be treated as Salary?

This article provides basic information about salary heads along with suitable examples to make the topic easily understood.

Here starting with some concepts that one should always keep in mind while calculating the salary.

Concept 1:– There should exist an employer and employee relationship among the person then only you will include the amount in your salary. salary paid by the payer to the payee or any amount like gratuity, pension, perquisite, allowance, etc. won’t to taxable under the head salary. If there doesn’t exist an employer and employee responsible then the amount will not be taxable under head salary but may be taxable under head Profit and gains from business and profession, House property, and capital gains as the case may be.

Concept 2:- there should exist a relationship between employer and employee now let us understand what this means

There is said to exist a relationship between employer and employee when control is said to exist if the payer can direct

• What has to be done
• When has to be done
• How has to be done
• Who has to be done

And receiver is bond to follow all the instructions.

This relationship is also called by other names like Master decant relationship or principal when relationship.

Concept 3:- every payment by an employer to his employee for service rendered would to taxable as salary. Employee is provided with many cash and none cash benefits known as Allowance and prerequisite respectively.

Cash benefits like travelling allowance, helper allowance , uniform allowance, transportation allowance etc.

None cash benefits like education facility, medical facility, rent-free accommodation, etc.

Salary is chargeable to tax either on Due basis or Receipt basis, whichever is earlier.

Bonus is taxable on receipt basis.

However, any salary, paid in advance is assessed in the year of payment it can not be subsequently brought to tax in the year in which it becomes due.

If the salary paid in arrears has already been assessed on due basis, the same cannot be treated again when it is paid

Arrears of salary shall be chargeable to tax but subject to section 89(1)

Example- salary 20000 per month salary due last day of same month, salary received 7^th of next month, Gross salary for previous year 2021-2022?

Gross salary= 20000×12 =2,40,000.

Concept of grade based salary  

Often people have difficulty understanding the concept of grade-based salary and hence they either leave or consider it as a difficult topic people search here and now and then also couldn’t grasp the rendered clarity.

Presenting the cover employee with examples to make people understand what exactly it means.

Certain employees are entitled to A grading system of salary under the system normal annual increments to be given to the employee are already fixed in the grade

For example, if an employee eye joins on 01/05/2005 and is placed in grade 12,200– 300-17400- 500-19400. This means the employee

gets a basic salary of 12,200 with effect from 01/05/2006 and onwards till his salary reaches 17,400. Thereafter he will get an annual increment of 500 till his salary reaches 19400. No further increment will be given thereafter till he is placed in another grade