3. Heads of Income :Chargeability
Income Tax Act
Salary IV-A 15-17 15
House Property IV-C 22-27 22
Profit & Gains
from Business &
IV-D 28-44D 28
Capital Gain IV-E 45-55A 45 & 46(2)
Other Sources IV-F 56-59 56
5. 1. Income from Salary
2. Income from House Property
3. Income from Business (or) Profession
4. Income from Capital Gains
(i) Short-term capital gains
(ii) Long-term capital gains
5. Income from Other Sources
(i) Casual incomes
(ii) Other incomes
Gross Total Income
Less: Deductions u/s 80-C to 80-U
Computation of Total Income of an
8. Income from Salary
As per Section 15, Salary consists of the following:
a) any salary due from an employer (or) former
employer to an assessee in the previous year,
whether actually paid or not; ( Normal salary )
b) any salary paid to him in the previous year by an
employer (or) a former employer though not due (or)
before it became due to him. ( Advance Salary )
c) any arrears of salary paid to him by employer (or)
former employer, if not charged to income tax for
any earlier previous year. ( Arrears of Salary )
9. Once salary is taxed on receipt / due basis, it
will not be charged again on falling due (or)
receipt basis, as the case may be.
The assessee can claim relief u/s 89(1) for
arrears or advance salary.
Loan from employer is not salary & not taxable,
as it is advance against salary & not advance
Partner is not an employee of Firm, hence any
salary, bonus commission (or) remuneration
received by him, is not taxable as Salary, but
it is taxable as Business Income.
10. As per Sec 17(1), Salary includes the following :
2. Any Annuity (or) Pension,
3. Any Gratuity,
4. Any Fees, commission, perquisites (or) profits
in lieu of (or) in addition to salary/wages,
5. Any Advance Salary,
6. Leave Salary,
7. Annual accretion to the Provident Fund to
the extent it is taxable,
8. Contribution made by the Central Govt. (or)
any other employer to the account of
employee under a pension scheme
referred to in Sec.80CCD.
12. Profits in lieu of Salary
The term in lieu means where an employer pays an additional
amount to an employee in addition to salary which is not
considered as allowance (or) perquisite (or) retirement benefit
u/s 10, will be treated as profit in lieu of salary. The amount
Any compensation received in connection with termination of
Payment from an URPF;
Payment under Keyman Insurance Policy including bonus;
Any amount received before joining (or) after cessation of
Any other sum received from the employer made in pursuance of
a legal obligation.
13. Computation of Income from Salary
Note: If Employer pays tax on employee then total salary to such
employee will be
Net salary received + tax paid by employer
14. Deductions from Salary
[ U/S 16 ]
1) Entertainment Allowance [Sec 16(ii) ]
Only Govt. employees can claim the following
a) Actual Entertainment Allowance.
b) 1/5th of Salary........
[ Here, Salary = Basic Pay only ]
c) ₹ 5000/-
Whichever is lower.
15. Deduction from Salary
[Sec 16 ]
2) Professional Tax [Sec 16 (iii) ]
Deduction is available in the year in which
professional tax is actually paid.
If employee have paid professional tax of more
than one year then entire professional tax so
paid is allowed as deduction.
If professional tax is reimbursed by the
employer then it will first added as perquisite
( in case of all employees, whether specified
(or) not & then allowed as deduction )
16. Different forms of salary-
1. Leave encashment (or) Leave salary
[Examination point of view these five items
are very important]
17. Leave encashment
It is not related to casual leave.
For every completed year of service employee is
entitled to receive a certain number of days of
Employee either can take leave (or) encash it while
in service (or) after retirement.
Note: Any thing received while in service is
normally taxable for all employees.
After retirement there are some concessions given.
18. Leave salary received
While in Service On Retirement
Central / State
Least Exempt Fully Exempt
Actual Leave salary
Entitled Leave salary
Last 10M salary
The limit ₹ 3,00,000
The word gratuity is derived from the word
‘Gratuitous’ which means “Gift” (or)
Gratuity means a lump sum payment made
by an employer to his employee as the
retrial reward for his past services
when his employment is terminated.
Retiring benefit - Long and unblemished
20. Gratuity when payable
Gratuity shall be payable to an employee –
Who has rendered continuous service for a
period of not less than 5 years on the
termination of his employment;
On his superannuation; (or)
On his retirement; (or)
On his resignation; (or)
On his death (or) disablement due to accident
(or) disease. (5 years of service is not
21. Basis of charge
1. If gratuity is received by an employee on
leaving the job, it is taxable under the head
‘Income from salary’ after claiming
2. If gratuity is received by legal heirs of
deceased employee, it is taxable under the
head ‘Income from other sources’ after
claiming exemption u/s10(10).
22. GRATUITY [ Sec 10 (10) ]
Gratuity received during continuation of
service is Fully Taxable.
Maximum exemption available under this
section during life time of the assessee
cannot exceed ₹ 10,00,000/-
Completed years of service include period of
service under current employer as well as
previous employer ( if no gratuity has been
received from former employer at that time. )
Periodical payments after retirement of an employee is
known as pension.
Regular pension received by the employee himself after
the retirement is taxable as salary.
Family pension (after the death of husband/wife)
received by wife/husband comes under income
from other sources as there is no employer and
employee relationship after the death of an
Standard deduction is available ie. 1/3rd of family
pension (or) ₹ 15,000 whichever is lower is
deductible from family pension.
24. Commuted pension
Instead of receiving monthly pension some portion of
regular pension can be accumulated and can be
received (after retirement/voluntary retirement) as
a lump sum is known as commuted pension.
Government employee includes –
Public sector undertakings,
Judges of Supreme court (or) High court,
Civil services and Defense services.
Fixed monetary payments for a specific
purpose is known as allowance.
An allowance is a fixed monetary amount
paid by the employer to employee for
expenses related to office work.
Allowance are generally included in the
salary and taxed unless there are