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Salary income and business income or income from any other sources are treated differently from Income Tax point of view. In this article we have simplified and explained in detail when income of an individual is classified as salary income from employer.
To conclude Income is from salary one must keep in mind the norms mentioned below.
- Relation between payer and payee must be in nature of employer and employee and not in nature of agent and principal.
- Payment received from a person other than his employer cannot be treated as salary as such payment is not taxable under head salaries but under head of profits and gains from business and profession.
- A contractor who is hired or a professional who is hired for performance of contract cannot be termed as employee even though in border sense they are performing duties of appointer.
- Even though wages are received by person, Salary and wages are not conceptually different for taxability under Income Tax Act. Wages received is taxable under Salary Income.
- Salary from more than one source is taxable under head salary. Mere receipt of income from more than one employer will not make one income to be taxed under head salaries and other under different head. Both incomes are taxable under head salaries.
- Salary received from former employer is taxable only under head salary income.
- Once salary is due it is taxable, forgoing of salary later by employee will not make difference in taxability of salary as salary is taxed on due or receipt basis whichever is earlier.
- If salary is paid tax free by employer then employee has to calculate his salary income by considering not only salary received but he has to add tax paid by employer to arrive at taxable salary income.
Any other payment in whatever nature it may be salary, allowance, perquisite or gift is taxable under the salary income.