Individuals with only salary income may find it easy to file their tax returns without considering anything.
Individuals in higher tax bracket with high salary or individuals with other benefits such as perquisites and allowances should be careful while filing their tax returns on when they have received and which year should be considered for tax.
Here we will understand tax treatment of various forms of salary like bonus, overtime pay, salary in lieu of notice period, etc., and when the tax is applicable.
In case where an employee has received advance salary it will be taxed in the year of receipt. This is done on the basis of taxability of salary, i.e., salary is taxed on due or receipt basis, whichever is earlier.
Say for example, in March, 2013, Mr. Kumar received advance salary of Rs. 84,000 pertaining to the month of April, 2013. Advance salary will be taxed for the Financial year 2012-13.
Compensation received from the employer in connection with modification of terms of employment will be charged to tax as salary income, which means it is considered as profits in lieu of salary.
Fees or commission
Fees or commission received by the employee from the employer are charged to tax as salary income.
Salary in notice period
Salary in lieu of notice period is charged to tax on receipt basis, which means it is charged to tax in the year of receipt.
Any voluntarily gift received by the employee from the employer is charged to tax as salary income as perquisite. However, non-monetary gifts are exempt upto Rs 5,000.
Arrears of salary
Arrears of salary received by an employee are taxed in the year of receipt if the same were not taxed earlier on due basis.
Bonus received by an employee is charged to tax in the year of receipt. However, one can claim relief in respect of arrears of bonus received during the year.