Calculation of Income from Salary

Calculation of Income from Salary

Introduction
Section 17 provides a comprehensive definition of salary, covering wages, pensions, gratuity, fees, bonuses, perquisites, and profits in lieu of salary. It also includes advance salary, leave encashment, provident fund contributions, and contributions to the Agniveer Corpus Fund.

Key Inclusions in Salary

• Components:
  • Wages, annuities, pensions, gratuity
  • Any fees, commission, perquisites, bonuses, and profits in lieu of salary
  • Leave encashment and advance salary
  • Annual accretion to the balance in RecognisedProvident Fund, to the extent to which it is chargeable to tax
  • Transferred balance in a RecognisedProvident Fund to the extent it is chargeable to tax.
  • Employer contributions to pension schemes (Section 80CCD)
  • Contributions to the Agniveer Corpus Fund (Section 80CCH)
• Pension Scheme Contributions:
  • Employer contributions are added to the employee’s salary and may be deducted under Section 80CCD, subject to limits:
    • 14% of salary (in case the contribution is made by Central Government or State Government employer)
    • 14%of salary (in case the contribution is made by any other employer and the total income of the employee is chargeable to tax under the default tax regime of Section 115BAC)
    • 10% of salary (in case the contribution is made by any other employer and the employee doesn’t opt for the default tax regime of Section 115BAC)
  • Agnipath Scheme Contributions:
    • Employer contributions to the Agniveer Corpus Fund are included in salary but are deductible under Section 80CCH.

Deductions Permissible from Salary
Salary is taxable on a gross basis, with only the following deductions allowed:

• Standard Deduction
• Professional Tax
• Entertainment Allowance

Summary of Salary Calculation