Summary: Under the Income Tax Act, 1961, salary income is defined under sections 15, 16, and 17, encompassing all forms of remuneration, including perquisites, earned by employees under an employer-employee contract. Salary is taxable on a due basis, meaning it is taxed in the year it is either received or due, whichever occurs earlier. Exemptions are provided for certain perquisites, such as medical facilities, food allowances, and occasional gifts. Medical facilities, including treatment at government-approved hospitals and premiums for health insurance, are exempt under section 17(2). Similarly, food facilities provided by an employer during office hours or in the office premises, up to a certain limit, are exempt. Phone expenses reimbursed for business purposes are also exempt. Occasional gifts, such as vouchers up to Rs. 5,000, are tax-exempt. Other exemptions include the use of a computer or laptop, entertainment facilities, and personal accident insurance premiums paid by the employer. Additionally, facilities such as rent-free housing and vehicle usage provided to judicial officers are also exempt. However, these exemptions do not apply to employees in private service posted abroad, with the exception of certain foreign allowances and perquisites available to government employees.
Under the Income Tax Act, 1961, there are five heads of Gross Total Income, out of which first head is about “Salaries” income. This head of Salary Income covers under sections 15, 16 and 17.
Income under the head “Salaries” comprises remuneration in any form which includes perquisites also, due for personal service under an express or implied contract of employment or service. Please remember that under this head income which received under the relationship of employer and employee. Remuneration received by a partner from Partnership firm will not fall under the head Salaries, but under the head “Income from Business or Profession”.
One more thing have to keep in mind that “Salaries” is chargeable on due basis. Salary received or due, whichever is earlier will be considered as income of the year. If salary of March 2024, received in the month of April, 2024 will be considered as income of year 2023-24. The same way if salary of April, 2024 received in advance in the month of March, 2024 will considered as income of the year 203-24.
Please remember that, when a person employed in India settles outside in India, i.e. foreign country, after retirement and receives his pension abroad, the pension so received by him will be taken as income accruing in India and will be liable to tax even though he may be a non-resident. This is because the pension is paid on services rendered in India.
In the case of a Government employee, who is a citizen of India and is posted abroad, the salary received by him abroad is deemed to accrue or arise in India under section9(1)(iii), even though the service is rendered by him outside India. Please note that, foreign allowances and perquisites granted to him are specifically exempt under section 10(7). This concession is not, however, available to Indian employees in private service who are posted abroad.
Over and above salary, the concession given to employee under following circumstances are added to the income of an employee.
- Free residential house
- Relief in rent of house
- The amount payable by employee are paid by employer like, Club and hotel bills, life insurance premium, payment of personal debt etc.
After doing the valuation of above, the amount will be added to the income of employee.
The following types of facilities and concession given to employee are exempt, in the hands of employee.
Medical Facilities:
Following types of Medical Facilities provided to employee are exempt under section 17(2) of the Act.
- Any kind of treatment provided to employee or his family members, at dispensary or hospital run by an employer.
- Any kind of treatment provided to employee or his family members, at any hospital approved by the Central or State Government, where the payment is made by employer.
- Any private hospital, where in particular medical treatment provided which are approved by Commissioner of Income Tax as per Rule 3A (1).
- Medical treatment as prescribed under rule 3-A(2), diseases like, T.B., Cancer, Aids, heart and other physical and mental diseases.
- Premium paid for Group Insurance Scheme of employees.
- Premium of employee or his family members, for approved health insurance policy under section 80D.
- Any kind of medical treatment received outside India and residential expenditure paid as per provisions of Reserve Bank of India at present annual amount limit is Rs.2,50,000 is exempt.
- From assessment year 2020-21, amendment under section 17(2), any amount paid to employee or his family members for treatment during COVID-19 will be exempt.
Food Facilities:
When employer give food facility to their employees in the office premises at any place by providing food coupon, up to Rs. 50 or during office hours provided tea coffee or breakfast is also exempt.
Phone Facilities:
For the use phone, mobile for business purposes any reimbursement of telephone expenditure is exempt.
Occasional Gift:
Any kind of gift given to employee or his family members on the occasion in family by way of voucher or token up to Rs.5,000 is exempt.
Facility of using Computer or Laptop:
Any amount paid to employee for use of Computer or Laptop is exempt.
Entertainment Facility:
Recreational facilities for a group of employees provided by an employer is exempt.
Personal Accident Insurance Policy:
When there is an accident of any employee during working hour, it is the responsibility of employer. For this purpose when employer make the payment of premium of Accident Insurance Policy is exempt. For this purpose in the case of Commissioner of Income Tax Vs. Lala Shridher (84 ITR 192) Delhi and Ambica Mills Ltd. Vs. Commissioner of Income Tax (235 ITR 264) Gujarat High Court have given their order in favor of assessee.
Facilities of Rent free House and Vehicle provided to Judges of High Court and Supreme Court is also exempt.
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