by Salary refers to remuneration received by an individual from an employer under an employer-employee relationship, taxable under the head “Income from Salaries” as per Section 15 of the Income-tax Act, 1961. It encompasses components such as basic pay, allowances, perquisites, bonus, commission, and retirement benefits like gratuity and pension. Section 17 provides an inclusive definition covering wages, annuities, advance salary, and profits in lieu of salary. Salary income is computed on a due or receipt basis, whichever is earlier, and taxed under prevailing slab rates. Understanding its components is essential for accurate computation of taxable income, deductions under Chapter VI-A, and correct filing of Income-tax Returns (ROI).
Problem 1: Basic Salary with Allowances
Mr. A receives the following income during the Previous Year:
| Particulars | Amount (₹) |
|---|---|
| Basic Salary | 6,00,000 |
| Dearness Allowance | 60,000 |
| House Rent Allowance | 1,20,000 |
| Bonus | 40,000 |
| Professional Tax Paid | 2,400 |
Assuming no other exemption is available, calculate Income from Salary.
Solution
| Particulars | Amount (₹) |
|---|---|
| Basic Salary | 6,00,000 |
| Dearness Allowance | 60,000 |
| House Rent Allowance | 1,20,000 |
| Bonus | 40,000 |
| Gross Salary | 8,20,000 |
| Less: Standard Deduction | 50,000 |
| Less: Professional Tax | 2,400 |
| Income from Salary | 7,67,600 |
Answer: Income from Salary = ₹7,67,600
Problem 2: Salary with Entertainment Allowance
Mr. B is a Government employee and receives:
| Particulars | Amount (₹) |
|---|---|
| Basic Salary | 7,00,000 |
| Dearness Allowance | 1,00,000 |
| Entertainment Allowance | 30,000 |
| Bonus | 50,000 |
| Professional Tax | 2,500 |
Calculate Income from Salary under the old tax regime.
Solution
Gross Salary
₹7,00,000 + ₹1,00,000 + ₹30,000 + ₹50,000 = ₹8,80,000
Entertainment Allowance Deduction
Least of:
Actual Entertainment Allowance = ₹30,000
20% of Salary = ₹1,60,000
Maximum Limit = ₹5,000
Deduction = ₹5,000
Computation
| Particulars | Amount (₹) |
|---|---|
| Gross Salary | 8,80,000 |
| Less: Standard Deduction | 50,000 |
| Less: Entertainment Allowance | 5,000 |
| Less: Professional Tax | 2,500 |
| Income from Salary | 8,22,500 |
Answer: Income from Salary = ₹8,22,500
Problem 3: Salary with Perquisites
Mr. C receives a salary of ₹8,00,000 and a taxable perquisite valued at ₹80,000. He also receives a bonus of ₹40,000 and pays professional tax of ₹2,000. Calculate his Income from Salary.
Solution
| Particulars | Amount (₹) |
|---|---|
| Salary | 8,00,000 |
| Taxable Perquisites | 80,000 |
| Bonus | 40,000 |
| Gross Salary | 9,20,000 |
| Less: Standard Deduction | 50,000 |
| Less: Professional Tax | 2,000 |
| Income from Salary | 8,68,000 |
Answer: Income from Salary = ₹8,68,000
Problem 4: Salary with HRA
Mr. D receives basic salary of ₹6,00,000, HRA of ₹1,80,000 and bonus of ₹30,000. He pays rent of ₹1,50,000 during the year. Assume that the conditions for HRA exemption are satisfied and the applicable city is a non metro city. Calculate taxable salary.
Solution
For HRA exemption, the least of the following is exempt:
Actual HRA = ₹1,80,000
Rent paid minus 10% of salary:
₹1,50,000 − ₹60,000 = ₹90,000
40% of salary:
40% × ₹6,00,000 = ₹2,40,000
Therefore, HRA exemption = ₹90,000
Taxable HRA:
₹1,80,000 − ₹90,000 = ₹90,000
Computation
| Particulars | Amount (₹) |
|---|---|
| Basic Salary | 6,00,000 |
| Taxable HRA | 90,000 |
| Bonus | 30,000 |
| Gross Salary | 7,20,000 |
| Less: Standard Deduction | 50,000 |
| Income from Salary | 6,70,000 |
Answer: Income from Salary = ₹6,70,000
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