Standard deduction under salaries applies to the full taxable salary income, including terminal payments and excess gratuity.

Section 16(i) standard deduction is to be computed on the entire income chargeable under the head "Salaries", including gratuity in excess of exemption and ex gratia terminal payments, because the provision bases the deduction on total salary income chargeable to tax and does not allow exclusion of any part of that income. The contemporaneous circulars were consistent with that interpretation and treated the deduction as applicable to the full taxable salary, regardless of actual employee expenditure.

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Issues: Whether, for purposes of standard deduction under section 16(i), the deduction had to be computed on the entire amount chargeable under the head 'Salaries', including gratuity in excess of exemption and ex gratia terminal payment.

Analysis: Section 16(i) requires the deduction to be calculated as a percentage of the salary income chargeable under that head. The amounts in question were admittedly assessable under 'Salaries' and formed part of the income so chargeable. The provision did not permit exclusion of any part of such salary income while computing the standard deduction. The contemporaneous circulars also reflected the same understanding that the deduction was to apply to the entire salary income chargeable to tax, irrespective of actual expenditure incurred by the employee.

Conclusion: The standard deduction was correctly computed on the full amount chargeable under the head 'Salaries'; the assessee's claim succeeded before the first appellate authority, and the revenue's appeal was dismissed.

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