Salary Section Under Income Tax Act 

Almost every working person in India thinks they understand salary taxation…
until they see their Form 16.

Suddenly, questions start popping up:

• “Why is my taxable salary higher than my take-home?”
• “Why is company-paid insurance taxed?”
• “What are perquisites?”
• “Which section actually defines salary?”

All these questions point to one thing—the Salary Section of the Income Tax Act.

Let’s break it down slowly, clearly, and practically.

Which Is the Salary Section in Income Tax?

Salary income is taxed under the head:

👉 “Income from Salaries”

And this head is governed mainly by

• Section 15 – When salary is taxable
• Section 16 – Deductions from salary
• Section 17 – What counts as salary

So when people search the salary section, they are actually referring to Sections 15, 16 and 17 together.

Section 17 – The Heart of Salary Taxation

If we had to pick one most important salary section, it would be Section 17.

Why?

Because Section 17 defines what salary actually means for tax purposes — and it is much broader than your bank credit.

Section 17(1) – What Is “Salary” as per Income Tax Act?

Section 17(1) lists what the law considers as salary.

This includes:

• Basic salary
• Dearness allowance (if forms part of retirement benefits)
• Bonus
• Commission
• Fees
• Any advance salary
• Arrears of salary

So even if something is not called “salary” in your appointment letter, it can still be taxed as salary.

That’s the first reality check.

Section 17(2) – Perquisites (The Silent Tax Add-On)

This is where most people get shocked.

Section 17(2) deals with perquisites.

In simple words:

A perquisite is a benefit or facility provided by the employer, over and above cash salary.

Common examples:

• Company car
• Rent-free accommodation
• Employer-paid electricity or driver
• Company-paid insurance premium
• Interest-free or concessional loans

You don’t receive this money in cash — but you still pay tax on it.

That’s why people ask:

• what is section 17(2) of income tax act
• value of perquisites as per section 17(2)

Why Perquisites Are Taxed (Simple Logic)

Income tax law looks at benefit, not just cash.

If:

• Your employer pays your expense
• Or gives you a facility with monetary value

The tax department says:

“This is also income.”

Section 17(3) – Profits in Lieu of Salary

This section catches people at the time of job change or termination.

Section 17(3) covers:

• Compensation on termination
• Payments received after resignation
• Notice pay recovered or paid
• Golden handshake payments

Even though your employment has ended, the tax liability hasn’t.

That’s why people search:

• salary as per section 17(3)

Salary as per Section 17 – One Clear Picture

If we combine Section 17(1), 17(2), and 17(3):

👉 Salary =

• Cash payments (17(1))
• Non-cash benefits (17(2))
• Termination or exit payments (17(3))

That’s your gross salary for tax purposes, not your take-home.

Section 15 – When Is Salary Taxable?

Section 15 answers a very basic but important question:

When should salary be taxed?

Salary is taxable when:

• It is due, or
• It is received

Whichever happens earlier.

So even if:

• Salary is credited late
• Or paid in advance

Tax timing is controlled by Section 15.

Section 16 – Deductions from Salary

After adding everything under Section 17, Section 16 gives limited relief.

Allowed deductions:

• Standard deduction (₹50,000)
• Entertainment allowance (government employees only)
• Professional tax

That’s it.

No mobile bill.
No internet bill.
No travel expenses (unless allowed separately).

Why TDS on Salary Feels High

People often ask:

• salary section tds
• tds on salary section 192b limit

Here’s the truth:

TDS on salary is calculated after adding:

• Perquisites
• Bonuses
• Arrears
• Other salary components

But before you actually see that money.

That’s why:

• Take-home feels low
• Tax feels high

The law taxes value, not cash flow.

Salary vs Take-Home—The Biggest Confusion

Let’s say:

• Basic allowances = ₹8 lakh
• Company car insurance = ₹1 lakh
• Bonus = ₹1 lakh

Taxable salary = ₹10 lakh
Take-home may still be ₹7.5 lakh

Tax is calculated on ₹10 lakh—not on what hits your bank.

That difference comes directly from Section 17(2).

Common Salary Tax Mistakes Employees Make

From real experience:

• Ignoring perquisites
• Not checking Form 16 breakup
• Assuming reimbursements are tax-free
• Believing employer “handles everything”
• Not planning salary structure

Salary taxation is simple—but only if you know where to look.

 

Final Thought: Salary Tax Is About Definition, Not Emotion

Most employees say:

“But I didn’t receive this money!”

Income tax law responds:

“But you received the benefit.”

Understanding Sections 15, 16, and 17 helps you:

• Read Form 16 properly
• Avoid surprises at ITR time
• Plan salary structure smartly
• Reduce stress around TDS

Once you understand the salary section, income tax stops feeling random.
If you need personalized guidance on salary taxation, Form 16 analysis, TDS planning, or overall income tax compliance, you can explore professional support at callmyca.com—where complex tax rules are explained in simple, practical language for working professionals and business owners.