Treatment of various incomes to be included in Gross Salary

Treatment of various incomes to be included in the Gross Salary

Wages:

Wage is nothing but as good as salary, there is not any conceptual difference between wages and salary. So wages are treated as salary for the calculation of taxable income.

Fees and Commission:

During the employment period any amount received by the employee from the employer by way of fees or commission than such amount is included in the gross salary of the employee. Commission income of the employee may be fixed amount or a fixed percentage of turnover or net profit etc. But it will be taxable only when it is paid or payable by employer to employee.

Overtime Payments:

An overtime payment means any extra work done by an employee after the normal working hours or office hours. Such extra income is included in the gross salary of the employee for computation of income.

Treatment of Bonus:

The bonus is taxable under the head of salary on receipt basis. Means it will be included in the gross salary of an employee when actual bonus is paid by the employer. If the bonus is received in arrears than assessee can claim relief under section 89.

Salary in lieu of notice period:

This is taxable in the previous year in which it is received. It is taxed on receipt basis just like Bonus.

Retirement Benefits:

Following are some retirement benefits

     1)      Pension under section 10(10A)

     2)      Gratuity under section 10(10)

     3)      Leave Encashment under section 10(10AA)

     4)      Retrenchment Compensation under section 10(10B)

     5)      Compensation received on voluntary retirement under section 10(10C)

Annuity:

The annuity is one type of annual grant which is taxable under the head of salary when it is given by an employer to his employee. It may be given voluntarily by an employer or due to contractual agreement made between employer and employee. The annuity is taxable under the head Salaries in the financial year in which it is paid by employer to employee. If such annuity is received from the formal employer then it will be taxed as profit in lieu of salary. A deferred annuity will not be taxable in assessment year until the right to receive the same arises. There are some other forms of annuities also for example under a will by settlor or grant by a life assurance company, or accruing under a contract, will be assessed under the head Income From Other Sources under section 56 of the Income Tax Act, 1961.