Taxability of Salary Income- Important things to know

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Provisions for Income under head salary contained in Section 15, 16 and 17 of the Income Tax Act 1961.

Section 15 deals with chargeability, section 16 contains provision related with Deduction and section 17 deals with meaning of salary, perquisite and profit in lieu of salary.

Important things to know:

Any income earned shall be taxable under head “Salary” only if there is employee-employer relationship.
Employment will include both full time employment as well part time employment. It means if any person is in employment on part-time basis shall also be taxed under this head.
Employee-employer relationship will be established basis upon the fact whether the work as performed by any person basis upon the direction received from another person. However, if the relationship is based upon principal to principal basis then any income earned in such case will not be taxed under head “Salary”.
Salary income is taxable on the basis on due or received whichever is earlier. It means if salary is due to employee then it shall be taxable even if not actually received. Similarly, any advance salary received for coming months will be taxable in the year in which it is received.
Any advance taken by employee against its salary and same is adjusted against salary income is not taxable.
If any employee waives his salary, meaning forego to take his salary, then in such case as well, he will be required to pay taxes on such salary foregone.
Any taxes paid by employer on behalf of employee will be treated as perquisite under section 17(2)(iv)
Remuneration paid by company to Executive director (employee of company), will be treated as Income under Salary in hands of such director.
Salary paid by partnership firm to its partners will be taxable as Income under PGBP i.e., Profits and Gains under Business or Profession.
MPs/MLAs are not the employee of Central or State Government, hence their income will not be taxed under the head “Salary”, however, their income/remuneration shall be taxable under head “Other Sources”.
Tax on Salary income will be deducted by employer itself in the form of TDS which is deducted on average basis of total tax liability from monthly salary.
Even if there is any failure of TDS deduction on employer end, then still employee would be liable to pay taxes to the the government on salary income.
Only Loss under head House Property which is mainly due to heavy interest paid by employee on housing loan, is eligible to adjust against salary income. Rest all other losses, like Loss earned due to sale of shares, would not allowed to be adjusted against salary income.