Income Under the Head Salary – Full Guide for CS 2025

Understand Income Under the Head Salary with examples, exemptions, and theory. A must-read guide for CS students & exam 2025.

In the field of taxation, "Income Under the Head Salary" is one of the five heads of income as per the Income Tax Act, 1961. For CS students and exam aspirants, understanding this concept is not only important for exams but also for practical application in tax filing and advisory roles.

Let’s dive into what counts as salary income, its components, exemptions, and how it is computed.

What is the salary?

The salary involves the remuneration received by a person for services provided as an employee. It has monetary payments such as basic wages, bonuses, and commissions, as well as non-monetary benefits. According to Section 17(1) of the Income Tax Act, the definition of salary is inclusive of wages, annuities, pensions, gratuity, fees, commissions, illegal profits, profits instead of salary, profits, advance salary, leave (except encashment), contributions to pensions, and pensions. This broad definition ensures that the head is occupied under the head "salary" for all types of remuneration.

Components of Salary (Breakdown)

Component Description Taxable?
Basic Salary Fixed component of salary Yes
Dearness Allowance (DA) Paid to offset inflation Yes
House Rent Allowance For rented accommodation Partially Exempt
Leave Travel Allowance For travel expenses Partially Exempt
Bonus/Incentives Extra performance-based payments Yes
Gratuity Paid at retirement/resignation Exempt up to limit
Provident Fund Contribution towards retirement Employer part exempt
Perquisites Non-monetary benefits (car, accommodation) Taxable or Exempt

House Rent Allowance (HRA) Exemption – Section 10(13A)

One of the most asked concepts in exams. HRA is partially exempt, calculated using this formula:

Least of the following is exempt:

  • Actual HRA received
  • 50% of salary (metro cities) or 40% (non-metro)
  • Rent paid – 10% of salary

E.g., If your salary is ₹50,000, rent is ₹15,000, and HRA received is ₹20,000, calculate all 3 values to find the exempt portion.

Perquisites (Section 17(2))

Perquisites are benefits or amenities provided by employer like:

  • Rent-free accommodation
  • Company car
  • Free meals
  • Medical reimbursements

Some perquisites are fully taxable, some are partially exempt, and few are fully exempt depending on their nature.

Fully Taxable Allowances

  • Dearness Allowance (DA)
  • Overtime
  • Bonus/Incentives
  • City Compensatory Allowance (CCA)

These are always fully added to gross salary.

Exemptions Under Section 10

Section Type of Exemption Max Limit
10(13A) HRA As per rules above
10(5) LTA Actual travel fare (conditions apply)
10(10) Gratuity ₹20 lakhs max (Govt employee)
10(10C) VRS Compensation ₹5 lakhs
10(14) Special Allowances Based on actual expenses

How to Compute Income Under Head Salary?

Step-by-step process:

  • Start with Gross Salary = Basic + DA + Bonus + Allowances
  • Add Perquisites (like car, house)
  • Subtract Exemptions (HRA, LTA, etc.)
  • Subtract Standard Deduction = ₹50,000

Final result = Net taxable salary

Example Calculation:

  • Basic Salary: ₹6,00,000
  • HRA: ₹2,40,000
  • Rent Paid: ₹1,80,000/year
  • DA: ₹60,000
  • Bonus: ₹40,000
  • Perquisites: ₹30,000

Standard Deduction: ₹50,000

Calculation of Exempt HRA:

  • 40% of salary = ₹2,40,000

  • Rent – 10% = ₹1,20,000

  • Actual HRA = ₹2,40,000
    Least = ₹1,20,000 (exempt)

Now, taxable salary:
6,00,000 + 60,000 + 40,000 + 30,000 - 1,20,000 - 50,000 = ₹7,60,000

Summary for Exam Revision:

  • Employer-employee relation is must
  • Salary includes basic, DA, bonus, allowances, and perquisites
  • HRA, LTA, gratuity can be partially exempt
  • Standard deduction of ₹50,000 allowed
  • Use proper formulae to compute exemptions


 

FAQs

What is the salary under the head of income?

Income under head salary includes all remuneration received by an employee, including wages, allowances, and benefits. This blog examines the pay income aspects to help taxpayers navigate tax rules and adapt their strategies.

What is income under the head?

Income under the head refers to the categorization of income for tax purposes. In India, income is classified into five heads: salaries, house property, business/profession, capital gains, and other sources, each with specific tax implications and calculation methods.

Which income comes under salary?

For the Income Tax Act, 1961, the word 'salary' will include both monetary payments (eg, basic salary, bonus, commission, allowances, etc.) as well as non-monetary facilities (such as housing, medical facilities, interest-free loans, etc.). Section 17(1) defines the word "salary."

What is allowance under the head salary?

An allowance is a predetermined amount that employers provide to their employees. The purpose is to cover specific expenses beyond the original salary.

What is a salary head?

The salary chief is a component of the salary structure of an employee. The chief is generally classified as earnings and deductions. Lenvika HRMS has another type of salary called 'Non-Paesalip.' Making the salary chief is the first step in salary configuration.

How to calculate income from salary?

Income from salary = basic salary + HRA + special allowance + transport allowance + any allowance. Some components of your salary are exempt from tax, such as telephone bill reimbursement and travel allowance.

What is the minimum salary to pay income tax in India?

In India, the minimum wage to pay income tax depends on the tax regime. For individuals below 60, the basic discount limit is 2.5 lakhs under the old regime, while the new regime provides tax benefits up to ₹ 7 lakhs without deduction.

What is the salary for sections 15 to 17?

Salary (Section 15-17) Salary is the remuneration obtained or received by an individual, on time -time, for service provided as a result of an express or implied contract.

What is the DA allowance?

Dearness allowance (DA) is a cost-of-living adjustment provided by the government to public sector employees and pensioners. Calculated as a percentage of basic salary, it helps reduce the effect of inflation, ensures financial stability, and maintains purchasing power against rising costs.

How much salary is taxable in India?

For salaried persons, the tax-free limit is Rs. 12.75 lakhs, Rs. Factoring in. 75,000 standard deduction. However, once a person's taxable income is Rs. 12 lakhs, tax applies to the complete taxable income based on the following revised rates: taxable income (Rs.).