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SALARIESSalary Means any Compensation received from the EMPLOYER for the services rendered by EMPLOYEEThat means there should exist relationship of an employer and employee before the payment can be termed as 'Salary'According to Section 17 (1) 'Salary' includes(i) Wages(ii) Any Annuity OR Pension(iii) Any Gratuity(iv) Any fees, Commission, Perquisities OR profits in lieu of or in addition to any salary or wages(v) Any Advance of Salary(vi) Any payment received by an employee while in services in respect of any period of leave not availed by him (leave salary)(vii) Any Contribution to Recognised provident fund by the employer, in excess of 12% of the salary and any interest in excess of 9.5% p.a. rate credited to such fund.According to Section 17 (1) 'Salary' includes(viii) Transferred Balance in a Recognised Provident Fund to the extent it is taxable(ix) Contribution mande by the Central Government to the Account of an employess under a pension Scheme [ U/S 80 CCD]gratuityGratuity is a lump sum amount paid to an employee when he retires after a long service. It is a reward for his long services. GratuityGratuity Received by Government Employee Section 10(10)(i)Gratuity Recd. by an emploee covered under payment of Gratuity Act-1972Section 10(10)(ii)Gratuity Recd. by any other EmployeeSection10(10)(iii)gratuity received by Government EmployeesAny Death-cum-retirement Gratuity received (by an employee or his legal heirs) by all categories of Central Government employees (including defence service employees), State Government employees and employees of Local Authorities is fully expempt from Income Tax [ Sec.10(10)(i)]AGratuity Recd. by an emploee covered under payment of Gratuity Act-1972Section 10(10)(ii)This Act is Applicable in the Shop, an Institution, Factory, Mines, Oil Mill,Gardens, Ports etc. where Minimum number of employeesP [ Section 10(10)(ii)]BCondition of Payment of Gratuity Act-1972Least of following three is exempted Gratuity(1) 15 days' salary ( 7 days in the case of employees of seasonal establishment) based on every completed year of service (26 days of a month is considered in place of 30 days)(2) Maximum Rs. 10 Lacs.(3) Gratuity Actually ReceivedCondition of Payment of Gratuity Act-1972Notes :(1) Here 'Salary' OR 'Wages' means the last drawn salary or wages (including D.A. if terms of retirement includes)(2) A Service period of more than 6 months is treated as period of one yearGratuity Recd. by any other emploeeSection 10(10)(iii)Employees of statutory corporations and private sector employees on their retirement, or on termination of his employment or on his becoming permanently incapacitated prior to such retirement of many received by his widow or dependents on his death [ Section 10(10)(iii)]CCondition of Payment of Gratuity Act-1972Least of following three is exempted Gratuity(1) 1/2 month's salary for each year of completed service (any fraction of a year is ignored)(2) Maximum Rs. 10 Lacs.(3) Gratuity Actually ReceivedCondition of Gratuity received by any other employeeCondition of Gratuity received by any other employeeNotes :(1) Gratuity calculated on the basis of the Average Salary of ten months immediately preceding the month in which he has retired (2) Any fraction period of the year is to be ignored(3) Here 'Salary' OR 'Wages' means the last drawn salary or wages (including D.A. if terms of retirement includes) as well as fixed percentage of commission also be includedAssumption for Gratuity CalculationNote oIf the amount of salary for last ten months is given in problem and/or it is instructed to add some percentage of dearness allowance for retirement benefit in such case Consider Gratuity Received by any other employee (Third type of Gratuity)Otherwise Assume that Payment of Gratuity Act -1972 is applicablePensionCommuted Pension(Lump Sum Pension) Section 17(i)(iii)Non-Commuted Pension(Monthly Pension) Section 17Fully Taxable for All type of employeesCommuted Pension For Government. Emploees Section 10(10A)(i) Fully Exempted For Non Government Employee Section10(10 A)(ii) (Exempted on Certain Conditions)1/3 of Commuted Value If Gratuity Received is Exempted1/2 of Commuted Value If Gratuity NotReceived is ExemptedHouse Rent AllowanceAccording to Section 10 (13-A) and Rule 2 (A) the Least of the following three sums is exempted(1) Actual H.R.A. received(2) Actual Rent Paid - 10% of Salary (AR - 10% of S)(3) 40% of Basic Salary OR 50% of Basic Salary (50% is Applicable only in four metropolitan cities Mumbai, Calcutta, Delhi and Chennai)(4) Taxable H.R.A = Total Amt. Recd. - Exempted