Salary and benefits

Salary and benefits are two most commonly used and heard concepts when it comes to employment. But do these terms mean the same or are they different. The present article discusses the definitions of both the terms, the differences and the taxability of both.

Salary is defined to mean a fixed and a regular sum of money usually expressed in yearly terms and payable to the employee as remuneration for the services provided to the employer. Though benefits are also a kind of remuneration, it is slightly different. Benefits are paid in addition to the regular salary as a non- wage compensation. According to Cockman, “employee benefits are those benefits which are supplied by an employer to or for the benefits of an employee, and which are not in the form of wages, salaries and time rated payments.”¹

Benefits are not given for performances of an employee. It improves the quality of services rendered by the employees and makes them comfortable and satisfied with jobs. So, at present paying benefits have become an integral and an important part of employment.

For example, an employee may be paid rupees 50,000 per month salary. And might get certain benefits such as free food or food at subsidized rates in their place of employment, health insurance, retirement benefits, maternity leave, paid holidays etc.

Such benefits over and above the regular compensation boosts the morale of the employees and increases the image of the company. It makes itself more attractive and chances to get well qualified and talented personnel is high.

The labor laws in India are a backbone for the employees. There were several legislations pertaining to specific or general labor provisions. However, around 25 of these labor laws were compiled into three codes. The implementation of these codes are delayed due to the COVID- 19 pandemic. These laws bring about uniformity in payment of wages, regulates over- time workings, maternity leave, timings for work and on other aspects.

The Code on Wages Bill, 2019 was passed by both the houses and it stipulates the wage payments and benefits in all employments. The Code combines the provision of the following four laws: (i) the Payment of Wages Act, 1936, (ii) the Minimum Wages Act, 1948, (iii) the Payment of Bonus Act, 1965, and (iv) the Equal Remuneration Act, 1976. The Wage Code repeals the above 4 laws.²

Regarding the taxability, for each category there is a specific provision under the Income Tax Act, 1961. The basic salary excluding any benefits and the dearness allowances are fully taxable. The House Rent Allowance is partly taxable. The HRA is exempted to the Actual HRA received from the employer, Actual house rent paid minus 10% of your basic salary, 50% of basic salary for metro or 40% of basic salary for non-metro.³ Leave Travel Expenses has exemptions based on specific criteria’s and the medical allowances are fully taxable.

The perquisites such as fringe benefits given to the employees for the position the employee holds in the organization is fully taxable. Such as rent free remuneration, motor vehicle provided, superannuation fund etc. Profits of in lieu of profits such as additional sum of amount on salary is also fully taxable.

Thus, all fringe benefits provided by the employer is taxable unless certain exceptions are provided. The educational assistance, conveyance assistance and if the employer pays the premium of health insurances in behalf of employees on such amount tax is not levied. To sum up, salary is regularly paid for the services provided whereas the benefits are additional perquisites provided for being in an organization or holding a particular position. The payment of salary and benefits are regulated by several labor laws and the taxability of each such component in discussed in the Income Tax Act.

¹ Employee Benefits: Meaning, Benefits, Objective and Other Details, YOUR ARTICLE LIBRARY, (Nov 15, 2021, 12: 45 pm), https://www.yourarticlelibrary.com/employee-management/employee-benefits-meaning-benefits-objective-and-other-details/60366.

² Overtime Compensation, PAYCHECK, (Nov 15, 2021, 1: 00 pm), https://paycheck.in/labour-law-india/compensation.

³ Which Salary Components are taxable, INDIA FILINGS, (Nov 15, 2021, 2: 17 pm), https://www.indiafilings.com/learn/which-salary-component-are-taxable/.