Sec 4 (b): Employment Income

Section 13 (1) (a) of the Act reads as follows:

(1) Gross income of an employees in respect of gain or profit from an employment includes:

(a) any wages, salary, remuneration, leave pay, fee, commission, bonus, gratuity, perquisite, or allowance (whether in money or otherwise) in respect of having or exercising the employment.

Section 13(1) (a) comprises of income that is convertible into money. The scope is wide enough to encompass the following:

a. amount received in the ordinary course of employment, which may or may not, be from the employer

b. it must make reference to services rendered in the past, present or future.

c. voluntariness is not relevant for consideration.

d. amount accrued from or directly connected to employment.

e. the employee is entitled to the payment.

Bonus

Bonus would be assessed to tax under sec 13 (1) (a). It has the following characteristics:

a. bonus is paid in addition to the salary. It can be contractual or non-contractual.

b. the true nature and character of the payment should be examined.

c. the amount can be fixed or contingent subject to the profits of the company.

d. bonus is paid by reference to services rendered.

e. bonus is paid on recurring basis. If the bonus is paid one and for all to mark the personal excellence of an individual, it would not be taxed as bonus but is capital in nature.

Gratuity

Gratuity is normally referred to as ‘money present of amount fixed by giver in recognition of an inferior’s good offices. It is normally paid to an employee in the course of his employment upon resignation or retirement from the employment after service a long period.

Gratuity is treated as part of gross employment income under sec 13(1)(a).

Gift is not, even though the gift is paid by the employer.

Exemption of gratuity

a. Ill health : If the Director General is satisfied that the retirement was due to ill-health.

b. Age 55 years: If the retirement takes place on or after reaching the age of 55, or on reaching the compulsory age of retirement from employment specified under any written law and in either case from an employment which has lasted ten years with the same employer which has lasted ten years with the same employer or with companies in the same group. The ten years must be continuous period immediately prior to retirement.

c. Age 50 but before 55: Tax free gratuity to early retiree employee following the global trend of merger and acquisition, voluntary separation scheme, thus have fully exempted the gratuity.

d. Government Servant – retirement

e. Government Servant- termination.