Applied Tax 33-82

28 Applied Direct Taxation

INCOME FROM SALARIES

STUDY NOTE - 4INCOME FROM SALARIES

This Study Note includes• Meaning of Salary

Any person employed gets compensated by way of remuneration for services rendered. This is called ‘Salary’.It is received in cash or in kind – by way of amenities, benefits, perquisites. Which emoluments are ‘salary’ howto value perquisites and what deductions are available from ‘salary’ has been dealt with under this head ofincome. In a recently enacted law, certain perquisites are taxed in the hands of ‘employer’ as Fringe Benefits Tax.Certain tax-free items of remuneration have been enumerated under section 10 and are discussed in this chapter.4.1 MEANING OF SALARY

The meaning of the term ‘salary’ for purposes of income tax is much wider than what is normally understood.Every payment made by an employer to his employee for service rendered would be chargeable to tax as incomefrom salaries. The term ‘salary’ for the purposes of Income-Tax Act will include both monetary payments (e.g.basic salary, bonus, commission, allowances etc.) as well as non-monetary facilities (e.g. housing accommodation,medical facility, interest free loans etc).(1) Employer-employee relationship :Before an income can become chargeable under the head ‘salaries’, it is vital that there should exist betweenthe payer and the payee, the relationship of an employer and an employee.(2) Full-time or part-time employment:It does not matter whether the employee is a fulltime employee or a part-time one. Once the relationshipof employer and employee exists, the income is to be charged under the head “salaries”. If, for example,an employee works with more than one employer, salaries received from all the employers should beclubbed and brought to charge for the relevant previous years.(3) Foregoing or Sacrificing of salary :Once salary accrues, the subsequent waiver by the employee does not absolve him from liability to income-tax. Such waiver is only an application and hence chargeable.(4) Surrender of salary :However, if an employee surrenders his salary to the Central Government u/s 2 of the Voluntary Surrenderof Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered would be exempt while computinghis taxable income.(5) Salary paid tax-free :This, in other words, means that the employer bears the burden of the tax on the salary of the employee.In such a case, the income from salaries in the hands of the employee will consist of his salary income andalso the tax on this salary paid by the employer. This means both the salary and the tax paid thereon willbe taxable in the hands of the employee.(6) Voluntary payments :Whether the payment from an employer is based on a contract or not, it constitutes salary in the hands ofthe employee. However, many employers give personal gifts and testimonials to the employees. For example,employees who complete 20 years of service may be given a wrist watch. The question arises whether thevalue of the watch can be taxed in the hands of the employee. Courts have taken the view that such giftsare not taxable. However, in these cases it is important that such gifts must be given to employees pursuant

29Applied Direct Taxation

to a scheme applicable to employees in general. If gifts are given purely on a selective basis they willbecome chargeable in the hands of the recipient. However, due to the levy of Fringe Benefit Tax, these giftswill now be exempt in the hands of the recipient, but will be taxable in the hands of the employer.Sec.15: Year of Chargeability of Salary

• Due or receipt whichever falls earlier: Salary is taxable on due basis or on receipt basis, whichever is earlier.Hence,(a) salary due in a previous year is taxable, even if it not received.(b) Salary received in a previous year is taxable, even if it is not due.(c) Arrears of salary received during the current previous year shall be taxable in the current year if notcharged to tax in an earlier previous year.

• No double taxation: once salary is taxed on due/receipt basis, it will not be taxed again on receipt/fallingdue, as the case may be.• The assessee can claim relief u/s 89(1) for arrears or advance salary.• Loan from employer is not salary. Advance salary is taxable, while advance against salary is not taxable.• For Government employees, the period of chargeability of salary is from March to February. For example,salary from 1st March 2008 to 29th February 2009 is chargeable as Income of the Assessment Year 2009-10.

“Place of accrual of salary”• The place of accrual of salary is the place of employment.• Service rendered in India: U/s 9(1)(ii), salary earned in India is deemed to accrue or arise in India evenif –

(a) it is paid outside India,(b) it is paid or payable after the contract of employment in India comes to an end.

• If an employee gets pension paid abroad in respect of services in India, the same will be deemed to accrueor arise in India• Leave salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.• Services rendered outside India: Sec.9(1)(iii) provides that income chargeable under the head “Salaries”payable by the Government to a citizen of India for service provided outside India will be deemed toaccrue or arise in India.• U/s 10(7), any allowance or perquisites paid or allowed outside India by the Government to a citizen ofIndia for rendering services outside India will be fully exempted.

Items included under the head Salary u/s 17(1)Salary includes:

• Wages• Any annuity or pension• Any gratuity• Any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages• Any advance salary• Encashment of leave-not-availed• Interest earned in excess of 9.5% on Recognized Provident Fund(RPF)• Amount transferred in excess of 12% of Salary to RPF



• Contribution made by Central Government or any other employer (w.e.f. A.Y.2008-09) in the previousyear to the account of an employee under Pension Scheme u/s 80 CCD.• Money embezzled by an employee constitutes his income.Profits in Lieu of Salary u/s 17(3)• Compensation due or received from present/former employer in connection with(a) termination of employment, or(b) modification of terms and conditions of employment.• Any amount received from an Unrecognized Provident Fund, to the extent of Employer’s contributions,along with interest on such contribution.• Sum received under Keyman Insurance Policy, including Bonus on it.• Any sum received (either in lump sum or otherwise), either prior to employment or after cessation ofemployment.Specified EmployeeAn Individual will be considered as a Specified Employee if :• He is a director of a company, or

• He holds 20% or more of equity voting power in the company,• Monetary salary in excess of ` 50,000: His income under the head salaries, (from any employer includinga company) excluding non-monetary payments exceeds ` 50,000. For the above purpose, salary, shouldbe arrived at after making the following deductions:(a) Entertainment Allowance(b) Professional TaxTAXABILITY OF ALLOWANCESFully taxable allowances without any exemptions :

1. Basic Salary 9. Fees2. Dearness Allowance 10. Lunch/Tiffin Allowance3. Advance Salary 11. Overtime Allowance4. Arrears of Salary 12. Servant Allowance5. City Compensatory Allowance 13. Warden Allowance6. Bonus 14. Non-practicing Allowance7. Commission as a percentage on turnover 15. Family Allowance8. Fixed Medical Allowance 16. Leave encashment during service

Specific allowances that are fully exempt in the hands of employeesAllowance Conditions to claim full exemption

1. Travelling allowance Should be provided by the employer and spent by the employee tomeet the cost of official tour or transfer expenses.Cost of travel ortransfer includes payments for transfer, packing and transportationof personal effects.2. Daily Allowance Should be spent by the employee for meeting the daily chargesincurred on a tour or transfer.


3. Conveyance allowance Should be used by the employee to meet the expenditure onconveyance in performance of official duties.4. Helper allowance Should be used by an employee to meet the expenditure on a helperwho assists him in the performance of official duties.5. Academic allowance Should be used by the employee for his academic research and trainingpursuits.6. Uniform allowance Should be spent by the employee for purchasing/maintaining officeuniform for official duties.7. Allowances and perks paid by Fully exemptedGovernment of India to an Indiancitizen outside India

Various items of Salary for which exemptions are available subject to limitations :LEAVE TRAVEL ASSISTANCE (LTA) U/S 10(5) Rule 2BConditions for claiming the benefit:(a) An individual can avail the benefit of LTA offered by his employer, twice in a block of four years.(b) The present block of four years applicable for A.Y.2008-09 is calendar years 2006-2009.

(c) LTA may be provided by the employer to the employee and his family:• In connection with his proceeding on leave to any place in India, while in service.• Proceeding to any place in India after retirement or termination from service.When Taxable :

• LTA encashed without performing journey is fully taxable• Expenses reimbursed other than the fare like boarding or lodging is fully taxable.• Amount received from employer in excess of the cost of traveling on the shortest route.Family of an Individual means:• Spouse and children of the individual, and

• Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual.HOUSE RENT ALLOWANCE [Sec. 10(13A) Rule 2A]Conditions for claiming exemption:• Assessee is in receipt of HRA• Pays rent• Rent paid is more than 10% of salary.Very Important:• The exemption shall be calculated on the basis of where the accommodation is situated.• If the place of employment is the same for the whole year, then exemption shall be calculated for thewhole year.• If there is a change in place during the previous year, then it will be calculated on a monthly basis• Exemption should be calculated in respect of the period during which rental accommodation is occupiedby the employee during the previous year.

• Salary for the period during which rental accommodation is not occupied shall not be considered.Salary for HRA= Basic Pay + DA(considered for retirement benefits) + Commission ( if received as a fixedpercentage on turnover as per terms of employment)



Taxable HRA:Particulars ̀ ̀Amount received during the financial year for HRA xxxLess: Exemption u/s 10(13A) Rule 2A Least of the followings:(a) Actual amount received xxx(b) 50% (for metro cities) / 40% of Salary (for other places) xxx(c) Rent paid less 10% of Salary xxx xxxTaxable HRA xxx

OTHER ALLOWANCESAllowances Exemption u/s 10(14) Rule 2BBChildren Education Allowance ` 100 p.m.per child restricted upto 2 childrenChildren Hostel Expenditure Allowance ` 300 p.m.per child restricted upto 2 childrenRunning Allowance ( for transport sector employees for Least of :meeting personal expenditure incurred during transport (a) 70% of the amount received, orfrom one place to another) (b) ` 10,000 p.m.Transport allowance (given to meet the employee’s expendi- ` 800 p.m. (in case of handicapped or blindture for traveling from his residence to offfice and back) employees, ̀ 1,600 p.m.)

GRATUITY1. Government Employee: Fully exempted from tax u/s 10(10)(i).2. Non-Govt.Employee:(a) Employee covered by Payment of Gratuity Act,1972Computation of Taxable Gratuity:

Particulars ` Àmount received as Gratuity xxxLess: Exemption u/s 10(10)(ii)Least of the followings:(i) Actual amount received xxx(ii) 15/26 × Last drawn salary × No. of years of completed xxx service or part thereof in excess of 6 months(iii) Maximum Limit 10,00,000 xxxTaxable Gratuity xxxNote: Salary = Basic Pay + Dearness AllowanceIn case of seasonal employment, instead of 15 days, 7 days shall be considered.

(b) Employee not covered by Payment of Gratuity Act,1972Particulars ` Àmount received as Gratuity xxxLess: Exemption u/s 10(10)(iii)

Least of the followings:(i) Actual amount receive xxx(ii) 1/2 × Average salary × No. of fully completed years of service xxx(iii) Maximum Limit 10,00,000 xxxTaxable Gratuity xxx


Note: Salary = 10 months average salary preceeding the month of retirement.= Basic Pay + Dearness Allowance considered for retirement benefits + commission (if received asa fixed percentage on turnover)

Very Important :• Where an individual receives retirement gratuity from more than one employer, he can claim exemption inrespect of both of them.• However, the maximum amount of exemption should not exceed ` 3,50,000• When gratuity is received from more than one employer during different periods of time, the maximumexemption claimed by an assessee during his entire life should not exceed ` 3,50,000.PENSION1. Taxability of Uncommuted Pension or Monthly Pension:

(a) Pension is received periodically by the retired employee(b) It may be received by Government or non-government employees(c) Amount received shall be fully taxable under the head salaries

2. Taxability of Commuted Pension:(a) Pension is received in lumpsum as per the terms of the employment on retirement or superannuation.(b) Full Value of Commuted Pension = Amount received on commutation / percentage of commutation.(c) Taxability:

Recipient Amount TaxableGovernment employee ( Central/State/Local Fully exempted u/s 10(10A)(i)Authority or Statutory Corporation)Non-Govt. employee who has also received Amount ReceivedGratuity u/s 10(10A)(ii) Less: 1/3 of Full Value of Commuted PensionNon-Govt. employee who has not received Amount ReceivedGratuity u/s 10(10A)(iii) Less:1/2 of Full Value of Commuted Pension

LEAVE ENCASHMENT1. Leave encashment while in service is fully taxable as income of previous year in which it is encashed.2. Leave encashment on retirement: if an individual receives leave encashment on his retirement, then the amountreceived will be eligible for exemption. The amount of exemption is based on his employment:

(b) Government employee: fully exempted from tax(c) Non-Govt. employee: An individual who is not a Government employee is also entitled for exemption inrespect of Leave Encashment compensation received by him.

3. Computation of exemption from Leave Encashment:Step 1 : Computation of Salary = 10 months average salary preceeding the month of retirement.Step 2 : Salary = Basic Pay + Dearness Allowance (forming a part of salary for retirement benefits) + Commission(if received as a fixed percentage on turnover)Step3 : This calculation is only applicable where the employer has sanctioned leave to the employee in excess of30 days for every completed year of service.



Particulars `(i) Leave credit available on the date of retirement xxxLess: Excess leave sanctioned by the employer

(Leave sanctioned by the employer per year – 30 days per year) × No. of xxxcompleted years of service)Leave credit on the basis of 30 days credit for completed years of service xxx(ii) Leave salary on the basis of 30 days credit = Step 3(i) x Step 1 xxx

Note: In case the employer sanctioned leave of 30 days or less for completed year of service then the salary foractual leave balance shall be considered and Step 3(i) shall not apply.4. Taxable Leave Salary on Retirement :

Particulars ` Àmount Received on Leave Encashment xxxLess: Exemption u/s 10(10AA)Least of the followings:

(i) Actual amount of Leave encashment received xxx(ii) Average salary of the individual for the past 10 months ×10 months xxx

(iii) Maximum Limit 3,00,000(iv) Leave at credit at the rate of 30 days p.a. for every Completed xxx xxxyear of service as calculated in Step 3(ii)

Taxable Value of Leave Encashment xxxNote: (a) If the individual receives leave encashment from more than one employer, the quantum of exemptionwill be computed independently in respect of each employer.(b) The total amount of exemption should not exceed ` 3,00,000 during his life time.RETRENCHMENT COMPENSATIONCompensation is received by a workman at the time of:

(i) closing down of the undertaking.(ii) transfer (irrespective of by agreement/compulsory acquisition) if the following conditions are satisfied:

• service of workmen interrupted by transfer• terms and conditions of employment after transfer are less favourable• new employer is not under a legal obligation whether under the terms of transfer or otherwise to paycompensation on the basis that the employee’s service has been continuous and has not been interrupted bytransfer.Note:(a) Retrenchment compensation received in accordance with any scheme, which is approved by the CentralGovernment, is fully exempt from tax.(b) An individual who receives retrenchment compensation, is entitled for exemption u/s 10(10B).


Computation of Taxable Retrenchment Compensation :Particulars ̀ ̀Amount received as Retrenchment Compensation xxxLess: Exemption u/s 10(10B):Least of the followings:

(i) Actual amount receive xxx(ii) Amount determined under the Industrial Disputes Act,1947 xxx(iii) Maximum Limit 5,00,000 xxxTaxable Value xxx

VOLUNTARY RETIREMENT COMPENSATIONConditions for claiming exemption:(i) An individual, who has retired under the Voluntary Retirement scheme, should not be employed in anothercompany of the same management.(ii) He should not have received any other Voluntary Retirement Compensation before from any other employerand claimed exemption.(iii) Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an Individual only once inhis lifetime.Computation of Exemption:Step 1: Salary = Last drawn salary = Basic Pay + D.A.(considered for retirement benefitsStep 2: Taxable VRS compensation

Particulars ` Àmount received as VRS Compensation xxxLess: Exemption u/s 10(10C):Least of the followings:(i) Actual amount received xxx(ii) Maximum Limit 5,00,000

(iii) The highest of the following:• Last drawn salary ×3×No. of fully completed years of service xxx• Last drawn salary×Balance of no. of months of service left. xxxTaxable Value xxx

DEDUCTIONS AGAINST SALARY1. Entertainment Allowance: Applicable only for Government Employees [Sec.16(ii)]Least of the following will be allowed as a deduction:

(i) Actual amount of entertainment allowance received(ii) 20% of Basic salary of the Individual

(iii) ` 5,0002. Professional Tax [Sec.16(iii)]

(i) Professional tax or tax on employment paid by an employee, levied under a State Act shall be allowed asdeduction



(ii) such deduction is available only on actual payment(iii) If an employer pays professional tax on behalf of his employee, then it will first be included in the Salary asa perquisite and then, allowed as a deduction.

VALUATION & TAXABILITY OF PERQUISITESPerquisite: Perquisite includes any amount due to or received in lump sum or otherwise by an assessee from anemployer which is usually attached to a position.Perquisite includes:(a) value of rent free accommodation given by the employer

(b) value of accommodation given at concessional rate(c) value of benefit given free of cost or at concessional rate in the following cases:• given by employer to his Director Employee;• given by employer to his employee who owns 20% or more of voting power in the company, and• given by any employer (including company) to his employees whose monetary salary exceeds ` 50,000(d) any sum paid by the employer on behalf of the employees(e) sum paid/payable by the employer towards insurance on the life of the individual or annuity payments(f) Value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under ChapterXII-H as may be prescribed. [Sec.17(2)(vi)]

PERQUISITES WHICH ARE FULLY EXEMPTED FROM TAXThe following perquisites are exempt from tax in all cases and hence not includible for the purpose of taxdeduction at source under section 192 during the financial year 2008-09:

1. Provision for medical facilities subject to limit2. Tea or snacks provided during working hours3. Free meals provided during working hours in a remote area or an offshore installation4. Perquisites allowed outside India by the Government to a citizen of India for rendering service outsideIndia.5. Sum payable by an employer through a recognized provident fund or an approved superannuation ordeposit-linked insurance fund established under the Coal Mines Provident Fund or the Employees ProvidentFund.6. Employer’s contribution to staff group insurance scheme.7. Leave travel concession subject to Sec.10(5)8. Payment of annual premium by employer on personal accident policy effected by him on his employee9. Free educational facility provided in an institute owned/maintained by employer to children of employeeprovided cost/value does not exceed ` 1,000 per month per child (no limit on no. of children)

10. Interest-free/concessional loan of an amount not exceeding ` 20,00011. Computer/laptop given(not transferred) to an employee for official/personal use.12. Transfer without consideration to an employee of a movable asset (other than computer, electronic itemsor car) by the employer after using it for a period of 10 years or more.13. Traveling facility to employees of railways or airlines.14. Rent-free furnished residence (including maintenance thereof) provided to an Official of Parliament, aUnion Minister or a Leader of Opposition in Parliament.15. Conveyance facility provided to High Court Judges u/s22B of the High Court Judges (Conditions ofService) Act,1954 and Supreme Court Judges u/s 23A of the Supreme Court Judges (Conditions of Service)Act,1958.


16. Conveyance facility provided to an employee to cover the journey between office and residence.17. Accomodation provided in a remote area to an employee working at a mining site or an onshore oilexploration site, or a project execution site or an accommodation provided in an offshore site of similarnature.18. Accommodation provided on transfer of an employee in a hotel for not exceeding 15 days in aggregate.19. Interest free loan for medical treatment of the nature given in Rule 3A.20. Periodicals and journals required for discharge of work.21. Tax on perquisite paid by employer [Sec.10(10CC)]22. Other Exempted Payments:• Bonus paid to a football player after the World Cup victory to mark an exceptional event• Payment made as a gift in appreciation of the personal qualities of the employee.• Payment of proceeds of a benefit cricket match to a great cricket player after he retired from test match.

• Trust for the benefit of employee’s children.MEDICAL FACILITIES

• Fixed medical allowance is fully taxable• Medical payments include reimbursements also [ circular no.603/6.6.1991]

MEDICAL TREATMENT IN INDIA1. Local treatment to employee or any member of his family in:

• Hospital maintained by employer• Government Hospital• Notified hospital for prescribed diseases [Sec.17(2)(v)]Family includes spouse, children (whether dependent or independent) and parents, brothers and sisterswholly dependent on the employee.2. Group Medical insurance paid u/s 36(1)(ib) & Medical Insurance paid u/s 80D- which are approved by theCentral Govt. or IRDA w.e.f. A.Y.2007-08.3. Any other medical expenditure reimbursed subject to a maximum of ` 15,000

MEDICAL TREATMENT ABROAD (for the patient and the attendant)If the employee underwent medical treatment abroad and the expenditure is met by the employer, the exemptionwill be subject to the following:1. Medical treatment and stay expenses abroad(both for the patient and the attendant) is exempt from tax,subject to the maximum amount permitted by the Reserve Bank of India.

2. Travel expenditure of the patient and the attendant:Gross Total Income, before including reimbursement of Amount of ExemptionForeign Travel ExpenditureUpto ` 2,00,000 Fully exemptedAbove ` 2,00,000 Fully taxable

3. Computation of exemption for foreign travel expenditureStep 1: Compute Gross Total Income of the assessee without considering foreign travel reimbursementbut after set-off loss and unabsorbed depreciation.Step 2: If the Gross Total Income does not exceed ̀ 2 lakhs, Foreign Travel Reimbursement is not taxableotherwise fully taxable.



Step 3: If Foreign Travel reimbursement is taxable as per Step 2, recomputed the income under the headSalary after including foreign travel reimbursement and Gross Total Income must also berecomputed.ACCOMODATION FACILITIES1. Value of Unfurnished Accomodation: Explanation 1 to Sec.17(2), Rule 3(1)

Nature of Perquisite Taxable Value of PerquisiteProvided by Central Govt. or State Govt. Licence fee determined by the Government

Less: Rent recovered from employeeProvided by Employer other than Central or State Government(a) owned by employer In cities having population exceeding 25 lakhs as per 2001 census:5% of Salary Less Rent actually paid by employeeIn cities having population exceeding 10 lakhs but not exceeding25 lakhs as per 2001 census:

10% of Salary Less Rent actually paid by employeeIn other places: 7.5% of Salary Less Rent actually paid by employee(b) taken on lease by the employer Rent paid by the employer or 15% of Salary whichever is lowerLess Rent recovered from employee(c) Accommodation in a hotel 24% of salary paid/payable or actual charges paid/payablewhichever is lowerLess Amount paid or payable by the employeeHotel Accommodation : Accommodation provided in a hotel will not be a taxable perquisite if the following twoconditions are fulfilled:• The period of such accommodation does not exceed 15 days• Such accommodation has been provided on the transfer of the employees from one place to another.2. Value of Furnished Accommodation

Particulars `Value of unfurnished accommodation as above xxxAdd : Value of Furniture provided:

• If owned by employer, 10%p.a. of original cost of such furniture xxx• If hired from third party, then Actual hire charges

Less: Any charges paid or payable by the employee (xxx)Value of Furnished Accommodation xxx

Note : Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning plantor equipment.3. Valuation not applicable:(a) Employees working at mining site, onshore oil exploration site, offshore site, project execution site, damsite, power generation site.(b) Conditions to be fulfilled:• The accommodation should be of a temporary nature, and• Plinth area should not exceed 800 square feet


• Accommodation should be located at least 8 kms away from local limits of municipality/cantonmentor located in a remote areaRemote area means area located at least 40 kms away from town having a population not exceeding 20,000based on latest published All-India census.4. Valuation of accommodation in case of Employees on transfer :

(a) For the first 90 days of transfer: Where accommodation is provided both at existing place of work and innew place, the accommodation, which has lower value, shall be taxable.(b) After 90 days : Both accommodations shall be taxable.5. Salary for Valuation of Accommodation facilities :

Salary includes Salary excludes• Basic Salary • Other D.A• D.A. (if considered for retirement benefits) • Employer’s contribution to PF• All taxable allowances • Exempted allowances• Bonus or commission or ex-gratia • Perquisites u/s 17(2)• Any other monetary payment • Perquisites u/s 17(2)(iii) or its provisions

OTHER FACILITIES AND PERQUISITES TO EMPLOYEE AND HIS HOUSEHOLDRule Nature of Perquisite Taxable Value of Perquisite(TVP)3(3) Service of sweeper, gardener or watchman orpersonal attendant Actual cost to the employerLess: Amount paid by employee3(4) Supply of gas, electricity or water forhousehold consumption Procured from outside agencyAmount paid to outside agencyResources owned by employer himselfManufacturing cost per unitLess: amount paid by the employee3(5) Education facilities to members of hishousehold(a) free education to children in the schoolmaintained by the employer or theschool sponsored by the employer(b) other schools(c) for other members of the household

If the cost of education per child does not exceed ̀ 1,000p.m.- then not taxableFor points (b) & (c)In other case, cost to the employerLess: amount recovered from employee3(7)(i) Housing Loan/Vehicle Loan- for acquiringcapital assets and not for repairs.SBI Rate= SBI Rate prevailing on the first dayof the previous year

Other LoansInterest charged by employer is equal to or higher thanSBI rates. It is not a taxable perquisiteInterest charged is lower than SBI rates: Interest chargedat SBI rates on maximum outstanding balanceLess: Interest paid by the employee on that loanSimilar treatment as above.Exceptions :(a) Medical loan for treatment of diseases specified inRule 3A except loan reimbursed by medicalinsurance(b) Loan not exceeding ` 20,000 in aggregate3(7)(vii)Use of any movable asset other than computer orlaptops or other assets already mentioned10% of Actual Cost if owned by the employer;or Actual rental charge paid/payable by theemployer

Less: Amount recovered from employee



TRANSFER OF MOVABLE ASSETS TO EMPLOYEES [Rule 3(7)(viii)]Particulars Computer & Electronic Car Other MovableGadgets Assets

Method of Depreciation WDV WDV SLMRate of Depreciation for every completed year 50% 20% 10%

Actual Cost XXXXX XXXXX XXXXXLess : Depreciation for completed years (XXXXX) (XXXXX) (XXXXX)

WDV at the end of completed years XXXXX XXXXX XXXXXLess : Sale Value taken from Employee (XXXXX) (XXXXX) (XXXXX)

Taxable Value of Perquisite XXXXX XXXXX XXXXXNote :

(a) Electronic gadgets include computer, digital diaries and printers, but excludes washing machines, microwaveovens, hot plates, mixers, ovens, etc.(b) Transfer of Assets, which are 10 years old, shall not attract tax liability.(c) Member of household includes: Spouse(s), children and their spouses, parents, servants and dependents.(d) Completed year means actual completed year from the date of acquisition of the asset to the date of transferof such asset to the employees.

TAXABILITY OF PERQUISITES PROVIDED BY EMPLOYERS

Taxability of Motor Car BenefitsOwner of Car Expenses Purpose Taxable Value of Perquisiteborne by1(a) Employer Employer Fully official Not a perquisite provided the documents as specified in Rule3(2)(B) are maintained.1(b) Employer Employer Fully private Total of:(i) Actual expenditure on car(ii) Remuneration to chauffeur(iii) 10% of the cost of car (normal wear & tear)Less: Amount charged from employee1(c)(i) Employer Employer Partly official Cubic Capacity of Car Engine upto 1.6 litresand partly ` 1,800 p.m+ ` 900 p.m. for chauffeurpersonal Cubic Capacity of Car Engine above 1.6 litres` 2,400 p.m. + ` 900 p.m. for chauffeur1(c)(ii) Employer Employee Partly forofficial Cubic Capacity of Car Engine upto 1.6 litresand partly ` 600 p.m + ` 900 p.m. for chauffeurfor personal Cubic Capacity of Car Engine above 1.6 litres` 900 p.m. + ` 900 p.m. for chauffeur


2(i) Employee Employer Fully official Not a perquisite provided the documents asuse specified in Rule 3(2)(B) are maintained.2(ii) Employee Employer Partly official Subject to Rule 3(2)(B)and partly Actual expenditure incurred.personal Less: Car cubic capacity upto 1.6 litres [i.e. value as per 1(c)(i)]ORCar cubic capacity upto 1.6 litres above 1.6 litres [i.e. value asper 1(c )(i)3(i) Employee Employer Fully official Not a perquisite provided the documents asowns other use specified in Rule 3(2)(B) are maintained.auto-motivebut not car3(ii) Employee Employer Partly for Subject to Rule 3(2)(B)owns other official Actual expenditure incurred by employer.auto-motive use Less: ` 900 p.m.but not car

Note :1. Using cars from pool of cars owned or hired by Employer:The employee is permitted to use any or all cars for both official and personal use:

For one car Valued as per 1(c )(i) For more than one car Valued as per 1(b) as if fully used for personal purpose

2. Documents to be maintained for claiming ‘not taxable perquisite’ or higher deduction wherever applicable [Rule3(2)(B)](a) Employer should maintain complete details of journey undertaken for official purpose, which includes dateof journey, destination, mileage and amount of expenditure incurred thereon.(b) Certificate of supervising authority of the employee, wherever applicable, to the effect that the expenditureincurred for wholly and exclusively for performance of official duties, should be provided.TAXABILITY OF OTHER BENEFITS

Rule Nature of Perquisite Taxable Value of Perquisite (TVP)

Owner of Car Expenses Purpose Taxable Value of Perquisiteborne by

3(6) Transportation of goods or passengers at freeor concessional rate provided by the employerengaged in that business (other than railways/airlines)Value at which offered to publicLess: amount recovered from the employee

3(7)(ii) Traveling, touring, accommodation and otherexpenses met by the employer other thanspecified in Rule 2B. (this shall be calculatedonly for the period of vacation)Amount recovered by employer or Value at whichoffered to publicLess: amount recovered from the employee

3(7)(iii) Free meals during office hoursFree meal inremote area or offshore installation area is nota taxable perquisiteActual cost to the employer in excess of ` 50 per mealor tea or snacksLess: amount recovered from the employee.Tea or non-alcoholic beverages and snacks duringworking hours is not taxable.



Note: Members of household includes: spouse(s), children and their spouses, parents, servants and dependents.PROVIDENT FUNDS

Particulars Statutory Recognized Unrecognized Public

3(7)(iv)Rule Nature of Perquisite Taxable Value of Perquisite (TVP)

Value of any gift or voucher or taken other thangifts made in cash or convertible into money(e.g. gift cheques) on ceremonial occasionValue of giftIn case the aggregate value of gift during the previousyear is less than ` 5,000, then it is not a taxableperquisite

3(7)(v) Expenditure incurred on credit card or add oncard including membership fee and annual fee Actual expenditure to employer is taxableLess: amount recovered from employeeIf it is incurred for official purpose and supported bynecessary documents then it is not taxable.3(7)(vi) Expenditure on club other than health club orsports club or similar facilities provideduniformly to all employees

Actual expenditure incurred by the employerLess: amount recovered from employeeIf the expenditure is incurred exclusively for officialpurposes and supported by necessary documents thenit is not taxable.Initial fee of corporate membership of a club is not ataxable perquisite

3(7)(ix) Any other benefit or amenities or service orright or privilege provided by the employerother than telephone or mobile phoneCost to the employer Less: amount recovered from employee

Note: Sum received by an Employee under approved Superannuation Fund is also exempt from tax u/s 10(13).

Constitutedunder Provident FundsAct, 1952 EPF and Misc,Provisions Act, 1952 &recognized by theCommissioner of PFand CIT

Not recognized by theCommissioner of IncomeTaxPublic ProvidentFund Act,1968Account in SBI orPost Offices

Contributionby Employer andEmployee Employer and Em-ployee Employer and Employee All assessees in-dependentlyAssessee’sContribution Deduction u/s 80C Deduction u/s 80C No Income Tax Benefit Deduction u/s 80CEmployer’sContribution Not taxable Amount exceeding 12%of salary is taxable Not taxable at the time ofcontribution Not applicableInterestcredited Fully exempted Exempted upto 9.5%p.a. Any excess istaxable

On Employee’s contri-bution taxable under thehead “Other Sources”On Employer’s contri-bution not taxable at thetime of credit

Fully exempt

Withdrawal atthe time ofretire-ment/resignation/termination,etc

Exempted u/s10(11) Exempted u/s 10(12)Subject to conditions Employee’s contributionand interest thereon is nottaxable.Employer’s contributionand interest thereon istaxable as Profits in lieu ofSalary, under“ Salaries”

Exempted u/s10(11)


EMPLOYERS CONTRIBUTION TO RPF IS EXCLUDED FROM SALARY1. If the employee has rendered continuous service with his employer for a period of 5 years or more.2. If he has not rendered such continuous service of 5 years, then the service has been terminated:(a) by reason of such employee’s ill health, or(b) by the contraction or discontinuance of the employer’s business, or(c) any other cause beyond the control of the employee3. If, on the cessation of his employment, the employee obtains employment with another employer, to theextent, the accumulated balance due and becoming payable to him is transferred to his individual accountin any recognized fund maintained by such employer.The period of service rendered under the previous employer(s) should also be included in determining the period ofcontinuous service in (3) above.

TAXABILITY OF PERQUISITES (At a glance)Perquisites Specified Non-specifiedEmployee EmployeeRent free/concessional accommodation Taxable TaxableWatchman, gardener, sweeper, personal attendan engaged by Taxable Taxableemployee and expenses met by the employerThe aforesaid mentioned servants provided in any other manner Taxable Non-taxableGas, electricity, water, etc. for household consumption and the Taxable Taxableconnection in the name of employee but expenses paid bythe employerAbove facilities provided in any other manner Taxable Non-taxableEducation expenses, if the bills are in the name of employee, Taxable Taxablethe but met by employerAbove facilities provided in any other manner Taxable Non-taxableTransport facility provided by transport undertakings Railways Taxable Taxableand other than AirlinesInterest free loans or loans provided at concessional rates by the Taxable Taxableemployer to employeeHoliday home facilities provided Taxable TaxableClub facility provided by employer(other than official purposes) Taxable TaxableComputer/laptop provided by the employer for use by theemployee Non-taxable Non-taxableOther movable assets provided by the employer for use Taxable Taxableby the employeesSale/transfer of movable assets to employees Taxable TaxableMagazines, periodicals, journals, etc. for official work Not taxable Not taxableMedical facilities, if the bills are in the name of employee, Taxable Taxableemployer upto but met by ` 15,000Above facility in any other manner Taxable Non-taxableLeave Travel Concession Not taxable Not taxablesubject to subject toSec.10(5) Sec.10(5)Stock option under approved scheme Not taxable Not taxable



SALARYFor the purpose of Means1. Deduction for Entertainment Allowance u/s16(ii) Basic payin case of Govt.employees2. Voluntary Retirement Compensation u/s 10(10C) Basic Pay + D.A.(forming part of salary foretirement benefits)3. Exemption for Gratuity covered under Payment of Basic Pay + D.AGratuity Act u/s 10(10)(ii)4. Exemption for Gratuity not covered under Payment Basic Pay + D.A. (forming part of salary forof Gratuity Act u/s 10(10)(iii) retirement benefits) + Commission as afixed percentage on turnover5. Exemption for Leave Salary u/s 10(10AA) Same as above6. Exemption for House Rent Allowance u/s 10(13A) Same as above7. Contribution to Recognized Provident Fund Same as above8. Determination of Specified employee u/s 17 Income under the head salaries withoutincluding the value of non-monetary benefits9. Rent-free accommodation Salary includes

Salary excludes • Basic pay• D.A. (not forming part of salary)• D.A. (forming part of salary)

• Employer’s contribution to PF • Exempted allowances• All taxable allowances• Bonus or commission or ex-gratia • Perquisites u/s 17(2) or (2)(iii) orits provisions• Any other monetary payment • Any allowance in the nature ofmedical facility to the extent nottaxable.


ILLUSTRATIONS ON INCOME FROM SALARIESIllustration 1. Mr.Z has joined ICC Ltd. on 1st July 2008 in the scale of `15,000-1,500-21,000-2,500-31,000. Computegross salary for the previous year 2011-12.Solution :Previous Year: 2011-12Salary for (i) April 2011 to June 2011 = 18,000 × 3 = 54,000

(ii) July 2011 to March 2012 = 19,500 × 9= 1,75,500Gross Salary 2,29,500Workings:

Previous Year April to June July to March2008-09 Nil 15,0002009-10 15,000 16,5002010-11 16,500 18,0002011-12 18,000 19,500

Illustration 2. Mr.Kabir is getting a salary of `12,000 p.m. w.e.f. 1.4.2010. He is promoted w.e.f. 31.12.2010 andgot arrears of `75,000. Bonus for the year 2011-12 is ` 15,000 remains outstanding but bonus of ` 12,000 for theyear 2010-11 was paid on 1st January 2012. In March 2012, he got two months salary i.e. April and May 2012 inadvance. Compute the gross salary for the assessment year 2012-13.Solution :Computation of Gross Salary for the Assessment Year 2012-13Salary : ` 12,000 × 12 1,44,000Arrears of Salary 75,000Bonus for the year 2011-12 : (Receivable) —Bonus for the year 2010-11 : (Received) 12,000Advance of Salary: April & May 2012 (12,000 × 2) 24,000Gross Salary 2,55,000Illustration 3. Mr.Pradip, a foreign technician is employed with an Indian company. His contract of service wasapproved by the Government. He was in receipt of bonus from the said Company where he is working. TheAssessing Officer subjected the amount to tax on the ground that bonus receipt falls outside the purview of thecontract of service. Is the Assessing Officer justified?Solution : U/s 9(1)(ii) salary earned in India is deemed to accrue or arise in India and is taxable in India.The salary and bonus paid to a foreign technician for services rendered in India is taxable in India and the sameis not entitled for any exemption from the Assessment Year 2008-09 onwards.Illustration 4. Amal Kumar, an Indian citizen, is posted in the Indian High Commission at Nairobi during theprevious year 2011-12.His emoluments consist of Basic Pay of `1,50,000 per month and overseas allowance of ` 60,000 per month.Besides, he is entitled to & fro journey to India and also use Government’s car at Nairobi. He has no taxableincome except salary income stated above.Compute tax liability if (i) he is a non-resident during the previous year 2011-12 and (ii) he is a foreign citizen.Solution :(1) U/s 9(1)(iii), Salary paid by the Government of India to an Indian citizen for services rendered outsideIndia is deemed to accrue or arise in India and is therefore taxable in India.(2) U/s 10(7), allowances or perquisites paid by the Government of India to an Indian citizen or servicesrendered outside India, is fully exempt from tax.



(3) Computation of Taxable Salary for the Previous Year 2011-12Particulars Rs Rs

Salary (1,50,000 × 12) 18,00,000Overseas Allowance (60,000 × 12) 7,20,000Less: Exempt u/s 10(7) 7,20,000 NilGross Salary 18,00,000Less: Deduction u/s 16 NilIncome under the head Salaries 18,00,000HOUSE RENT ALLOWANCE [Sec.10(13A) Rule 2A]Illustration 5. A, is entitled to a basic salary of `5,000 p.m. and dearness allowance of `1,000p.m., 40% of whichforms part of retirement benefits. He is also entitled to HRA of `2,000 p.m. He actually pays `2,000 p.m. as rentfor a house in Delhi. Compute the taxable HRA.Solution :Salary for HRA= Basic Pay + D.A. (considered for retirement benefits) + Commission (if received as a fixedpercentage on turnover as per terms of employment) = (5,000 × 12) + (40% × 1,000 × 12) = 64,800Taxable HRA :

Particulars ` Àmount received during the financial year for HRA 24,000Less: Exemption u/s 10(13A) Rule 2A Least of the followings:(a) Actual amount received 24,000(b) 50% of Salary of `64,800 32,400(c) Rent paid less 10% of Salary [2,000 × 12 – 10% of 64,800] 17,520 17,520Taxable HRA 6,480

Illustration 6. X, is employed at Delhi as Finance Manager of R Ltd. The particulars of his salary for the previousyear 2011-12 are as under: Basic Salary `16,000 p.m.. Dearness allowance `12,000 p.m. Conveyance Allowance forpersonal purpose `2,000p.m.; Commission @2% of the turnover achieved which was `9,00,000 during the previousyear and the same was evenly spread. HRA `6,000 pm. The actual rent paid by him `5,000 pm for an accommodationat till 31.12.11. From 1.1.12 the rent was increased to `7,000 pm. Compute taxable HRA.Note : If there is an increase in rent paid, it is advisable to calculate the exemptions separately based on the timeperiod. Rent before and after increase.Solution :Salary for HRA (for 9 months)= Basic Pay + DA(considered for retirement benefits) + Commission (if receivedas a fixed percentage on turnover as per terms of employment)= (16,000 × 9) + (12,000 × 9) + (2% of 9,00,000 × 9/12) = 2,65,500Taxable HRA: (April to December 2011). Total time=9 months

Particulars ` Àmount received during the financial year for HRA 54,000

Less: Exemption u/s 10(13A) Rule 2A.Least of the followings:(a) Actual amount received 54,000(b) 50% of Salary 1,32,750(c) Rent paid less 10% of Salary 18,450 18,450 [5,000 × 9 – 10% of 2,65,500]Taxable HRA 35,550


Salary for HRA (for 3 months)= Basic Pay + DA(considered for retirement benefits) + Commission ( if receivedas a fixed percentage on turnover as per terms of employment) = (16,000 × 3) + (12,000 × 3) + (2% of 9,00,000 × 3/12) = 88,500Taxable HRA :

Particulars Rs RsAmount received during the financial year for HRA 18,000Less: Exemption u/s 10(13A) Rule 2A

Least of the followings:(a) Actual amount received 18,000(b) 50% of Salary 44,250(c) Rent paid less 10% of Salary[7,000 × 3 – 10% of 88,500] 12,150 12,150

Taxable HRA 5,850Illustration 7. Z is employed in A Ltd. As on 31.3.11, his basic salary `6,000 p.m. He is also entitled to a dearnessallowance of 50% of basic salary. 70% of the dearness allowance is considered for retirement benefits. Thecompany gives him HRA `3,000pm. With effect from 1.1.11 he receives an increment of `1,000 in his basic salary.was staying with his parents till 31.10.2011. From 1.11.10 he takes an accommodation on rent in Delhi and pays`2,500 pm as rent for the accommodation. Compute taxable HRA for the assessment year 2012-13.Solution :Salary for the purpose of HRA shall cover the time period for which the assessee, who is in receipt of HRA,resided in a rented accommodation and the rent paid by such assessee, is more than 10% of salary.Salary for HRA (for 5 months) = Basic Pay + DA (considered for retirement benefits) + Commission ( if receivedas a fixed percentage on turnover as per terms of employment) Basic Pay = (5,000 × 2) +(6,000 × 3) = 28,000 DA = 50% of Basic Pay × 70% forming part of retirement benefits [50 % × 28,000 × 70%] = 9,800

Total Salary for HRA 37,800Taxable HRA :

Particulars ` Àmount received during the financial year for HRA (3,000 × 12) 36,000Less: Exemption u/s 10(13A) Rule 2A.

Least of the followings:(d) Actual amount received 36,000(e) 50% of Salary 18,900(f) Rent paid less 10% of Salary

[2,500x 5 – 10% of 37,800] 8,720 8,720Taxable HRA 27,280



GRATUITYIllustration 8. Mr. Hari retires on 15th October 2011, after serving 30 years and 7 months. He gets `3,80,000 asgratuity. His salary details are given below:

FY 2011-12 Salary 1̀6,000 pm D.A. 50% of salary. 40% forms part of retirement benefits.FY 2010-11 Salary 1̀5,000 pm D.A. 50% of salary. 40% forms part of retirement benefitsDetermine his gross salary in the following cases:(i) He retires from government service(ii) He retires from seasonal factory in a private sector, covered under Payment of Gratuity Act, 1972.(iii) He retires from non-seasonal factory, covered by Payment of Gratuity Act, 1972(iv) He retires from private sector, not covered by payment of Gratuity Act

Solution :(i) The amount of gratuity received as a Government employee is fully exempt from tax u/s 10(10)(i)(ii) As an employee of a seasonal factory, in a private sector, covered under the Payment of Gratuity Act, 1972

Computation of Taxable GratuityParticulars ` `

Amount received as Gratuity 3,80,000Less: Exemption u/s 10(10)(ii)

Least of the followings:(i) Actual amount received 3,80,000(ii) 7/26 x Last drawn salary × No. of years of completed serviceor part thereof in excess of 6 months [31 × 7/26 × 24,000] 2,00,308(iii) Maximum Limit 10,00,000 2,00,308

Taxable Gratuity 1,79,692(iii) As an employee of a non-seasonal factory, covered by Payment of Gratuity Act, 1972


Amount received as Gratuity 3,80,000Less: Exemption u/s 10(10)(ii)Least of the followings:

(i) Actual amount received 3,80,000(ii) 15/26 × Last drawn salary × No. of years of completed 4,29,231service or part thereof in excess of 6 months[15/26 × 31 × 24,000](iii) Maximum Limit 10,00,000 3,80,000Taxable Gratuity NIL

Note : Salary = Basic Pay + Dearness AllowanceIn case of seasonal employment, instead of 15 days, 7 days shall be considered.


(iv) As an employee of a private sector, not covered by Payment of Gratuity Act, 1972Computation of Taxable Gratuity

Particulars ` Àmount received as Gratuity 3,80,000Less: Exemption u/s 10(10)(iii) Least of the followings:(i) Actual amount received 3,80,000(ii) 1/2 × Average salary × No. of fully completed years of service[½ × 18,720 × 30] 2,80,800

(iii) Maximum Limit 10,00,000 2,80,800Taxable Gratuity 99,200

Note: Salary = 10 months average salary preceeding the month of retirement. = Basic Pay + Dearness Allowance considered for retirement benefits + commission(if received as a fixed percentage on turnover)Salary for the months December ’10 till September ’11 shall have to be considered.Basic Salary: `December ’10 to March ’11 = 15,000 × 4 = 60,000April ’11 to September ’11 = 16,000 × 6 = 96,000Total Basic Salary 1,56,000Add: D.A. [50% of 1,56,000 × 40%, forming part ofsuperannuation benefits] 31,200Salary for 10 months 1,87,200Therefore, Average salary for 10 months = 1,87,200/10 = 18,720Illustration 9. Mr.Surya was an employee of Z Ltd. After 38 years of service, he retired on 28.2.12. He wasdrawing a monthly salary of `18,000. On retirement he received a gratuity of `4,00,000. Compute taxable gratuity.Solution : Assuming employee not covered by Payment of Gratuity Act, 1972


Amount received as Gratuity 4,00,000Less: Exemption u/s 10(10)(iii) Least of the followings:(i) Actual amount received 4,00,000

(ii) 1/2 × Average salary × No. of fully completed years of service [½ ×18,000×38] 3,42,000(iii) Maximum Limit 10,00,000 3,42,000Taxable Gratuity 58,000

Note: Salary = 10 months average salary preceeding the month of retirement.= Basic Pay + Dearness Allowance considered for retirement benefits + commission (if received as a fixed percentage on turnover)In this case, Average salary for 10 months preceeding the month of retirement is ` 18,000 only.



PENSIONIllustration 10. Mr. King is getting a salary of `5,400 pm since 1.1.10 and dearness allowance of `3,500 pm, 50%of which is a part of retirement benefits. He retires on 30th November 2011 after 30 years and 11 months ofservice. His pension is fixed at ` 3,800 pm. On 1st February 2012 he gets 3/4ths of the pension commuted at`1,59,000. Compute his gross salary for the previous year 2011-12 in the following cases:(i) If he is a government employee, getting gratuity of ` 1,90,000(ii) If he is an employee of a private company, getting gratuity of ` 1,90,000

(iii) If he is an employee of a private company but gets no gratuity.Solution :Previous Year 2011-12. Tenure of Service: 1.4.11 to 30.11.11 = 8 monthsPost-retirement period: December ’11 to March ‘12 = 4 months

Particulars Case (i) Case (ii) Case (iii)Salary 43,200 43,200 43,200D.A 28,000 28,000 28,000Taxable Gratuity Exempted 82,750 NilUncommuted Pension [(3,800×2)+(950×2)] 9,500 9,500 9,500Commuted Value of Pension Exempted 88,333Gross Salary

Case (ii) Gratuity received by an employee of a private company`

Actual amount received 1,90,000Less: Exempted amount(least of the followings):(i) Actual amount received 1,90,000(ii) ½ x Avg.Salary x No.of years of Completed service [½ × 7,150 × 30] 1,07,250(iii) Maximum Limit 10,00,000 1,07,250Taxable Gratuity 82,750Commuted Value of Pension(Non-govt employee, gratuity received)Actual commuted value of pension received 1,59,000Less: Exempted u/s 10(10A)1/3rd of Full Value of Commuted Pension [1/3 × 2,12,000] 70,667Full Value of Commuted Pension000,12,2%75 000,59,1commutedpensionofPercentage ncommutatioonreceivedAmount

??

Taxable Commuted Value of Pension 88,333Case(iii) Commuted Value of Pension (Non-govt employee, gratuity not received)Actual commuted value of pension received 1,59,000Less: Exempted u/s 10(10A)1/2 of Full Value of Commuted Pension [1/2 × 2,12,000] 1,06,000Full Value of Commuted Pension

000,12,2%75 000,59,1commutedpensionofPercentage ncommutatioonreceivedAmount??

Taxable Commuted Value of Pension 53,000


LEAVE ENCASHMENTIllustration 11. Mrs. Vandana retires on 16th October 2010 after 30 years and 8 months of service. Salary structureis given below:

FY 2011-12 Salary ` 15,000 pm D.A ` 7,500 pmFY 2010-11 Salary ` 12,000 pm D.A ` 6,000 pm40%of dearness allowance forms a part of superannuation benefits. Record of Earned Leave is given below:Leave allowed for one year of completed service -20 days; Leave taken while in service-150 days; Leave encashedduring the year-60 days.Determine the gross salary in the following cases:(i) He retires from government service(ii) He retires from the service of Delhi Municipal Corporation(iii) He retires from the service of Life Insurance Corporation of India(iv) He retires from private sectorSolution :

Particulars Case(i) Case(ii) Case(iii) Case(iv)Salary for 6months & 16 days 98,000 98,000 98,000 98,000Dearness Allowance 49,000 49,000 49,000 49,000Taxable amount of Leave encashment Exempted 1,24,980 1,24,980 1,24,980Gross Income from Salary 1,47,000 2,71,980 2,71,980 2,71,980

Working Notes :Average monthly salary for 10 months, prior to retirement: `Salary of 6 months 16 days: (1st April 2011 to 16th October 2011) = 98,000Salary of 3 months 14 days: (14th December 2010 to 31st March 2011) = 41,600Total Basic Salary 1,39,600Add: Dearness allowanceFor 6 months 16 days: (1st April 2011 to 16th October 2011) = 49,000For 3 months 14 days: (14th December 2010 to 31st March 2011) = 20,800Total D.A. 69,800D.A. [40% of 69,800, forming part of retirement benefits] 27,920Total salary of 10 months 1,67,520Average Salary = 1,67,520 / 10 = 16,752Computation of Taxable Leave Encashment :Amount of encashment received:(30 x 20) – (150 + 60) x (15,000 + 7,500)/ 30 = 2,92,500Less: Exempted u/s 10(10AA) [Least of the followings](i) Actual amount received 2,92,500(ii) 10 months salary(preceeding the month of retirement) 1,67,520(iii) Leave credit on the date of retirement [(30 × 20) – (150 + 60) × (16,752 / 30)] 2,17,776(iv) Maximum Limit 3,00,000 1,67,520Taxable amount of Leave encashment 1,24,980



Illustration 12. Ms. Parineeta retired from service after 28 years from ABC Ltd. Leave sanctioned by employer45 days p.a. Leave availed during service 400 days. Leave encashment received: ` 4,30,000. Average salary for10 months preceeding the month of retirement `15,000.Compute taxable amount of Leave encashment for thePrevious year 2011-12.Solution :Since leave sanctioned by the employer is more than 30days p.a., the following calculation is required, todetermine the amount of leave credit on the date of retirement.

Particulars `(i) Leave credit available on the date of retirement 860= Total Leave sanctioned during tenure of employment –Total leaveavailed during service= [( 28 x 45) – 400] 420Less: Excess leave sanctioned by the employer[(45– 30 days) per year x 28)Leave credit on the basis of 30 days credit for completed years of service 440(ii) Leave salary on the basis of 30 days credit = Step (i) × Average Salary = 440 × (15,000/30) 2,20,000

Taxable Leave Salary on RetirementParticulars ` `

Amount Received on Leave Encashment 4,30,000Less: Exemption u/s 10(10AA) Least of the followings:(i) Actual amount of Leave encashment received 4,30,000(ii) Average salary of the individual for the past 10 months × 10 months 1,50,000(iii) Maximum Limit 3,00,000(iv) Leave at credit at the rate of 30 days p.a. for every Completed year ofservice as calculated in Step (ii) 2,2,000 1,50,000

Taxable Leave Encashment 2,80,000RETRENCHMENT COMPENSATION

Illustration 13. Mr.Clever was retrenched from service of UGLY Ltd. The scheme of retrenchment is approvedby the Central Government. Retrenchment compensation received `8 lakhs. What is the taxability?Solution : When retrenchment compensation is received in accordance with any scheme, which is approved bythe Central Government, it is fully exempted from tax.Illustration 14. Mr. Flemming was retrenched from service of “GO SLOW Ltd”. Retrenchment compensationreceived `6,00,000. Amount determined under the Industrial Disputes Act, 1948 `4,75,000. What is the taxability?Solution : Computation of Taxable Retrenchment Compensation

Particulars ` Àmount received as Retrenchment Compensation 6,00,000Less: Exemption u/s 10(10B): Least of the followings:

(i) Actual amount received 6,00,000(ii) Amount determined under the Industrial 4,75,000Disputes Act, 1948(iii) Maximum Limit 5,00,000 4,75,000Taxable Retrenchment Compensation 1,25,000


VOLUNTARY RETIREMENT COMPENSATIONIllustration 15. Mr.Hitesh, after serving Z Ltd. for 23 years 7 months, opted the Voluntary Retirement Scheme.Total tenure of service:30 years Compensation received ` 8,00,000. Last drawn Salary (i.e. Basic pay + D.A,forming part of retirement benefits) ` 15,000.Compute exemption & taxable value of VRS compensation.Solution :Computation of Exemption:Total tenure of service = 30 × 12=360 monthsActual length of service = 23 years 7 months = 283 monthsNo.of months of service left= (360 – 283) months = 77 months

Taxable VRS compensationParticulars ` `

Amount received as VRS Compensation 8,00,000Less: Exemption u/s 10(10C): Least of the followings:(i) Actual amount received 8,00,000(ii) Maximum Limit 5,00,000(iii) The highest of the following:Last drawn salary x 3 x No.of fully completed years of service=15,000 x 3 x 23= 10,35,000• Last drawn salary x Balance of no.of months of service left. 11,55,000= 15,000 x 77 months= 11,55,000 5,00,000Taxable VRS Compensation 3,00,000

DEDUCTIONS AGAINST SALARYIllustration 16. Ms.Neha is a Senior Accountant in the Ministry of Defence,Govt. of India. She receivedentertainment allowance `5,000 p.m. Her basic salary is `35,000 p.m. Professional tax paid `5,000. ComputeIncome from Salary.Solution : Computation of Income from Salary `Basic Salary : 35,000 x 12 = 4,20,000Entertainment Allowance: 5,000 x 12 = 60,000Gross Income from Salary 4,80,000Less: Deduction u/s 16(ii): Entertainment allowance:Least of the following will be allowed as a deduction:(i) Actual amount ofentertainment allowance received 60,000

(ii) 20% of Basic salary of the Individual[20% of 4,20,000] 84,000(iii) Statutory limit: 5,000Exempted amount being the least 5,000Less: Professional Tax paid u/s 16(iii) 5,000Income from Salary 4,70,000



VALUATION OF PERQUISITE FOR MEDICAL TREATMENTIllustration 17. Calculate the perquisite value of the expenditure on medical treatment, which is assessable in thehands of an employee of a company, inclusive of the conditions to be satisfied:Gross total income, inclusive of salary `2,00,000

(a) amount spent on treatment of the employee’s wife in a hospital maintained by the employer `20,000(b) amount paid by the employer on treatment of the employee’s child in a hospital `14,000(c) medical insurance premium reimbursed by the employer on a policy covering the employee, his wife anddependent parents `7,000(d) (i) amount spent on medical treatment of the employee outside India `2,50,000(ii) amount spent on travel and stay abroad `90,000(e) amount spent on travel and stay abroad of attendant `60,000Solution :

Nature of Perquisites Amount Taxability/Non-taxabilityTaxableTreatment of employee’s wife in Nil Fully exempteda hospitalMaintained by employers Reimbursement Nil Not taxable: since the amount is less thanof expenses incurred on treatment of ` 15,000employee’s child in hospitalReimbursement of medical insurance Nil Not taxable: since medical insurance premiumpremium paid referred to u/s 80D is paid on the employee andmembers of his familyMedical treatment outside India Nil It is assumed that the whole of such expenditureis permitted by RBIAmount spent on travel and stay abroad Nil Not taxable: as the Gross total income does notfor the employee (herein referred as the exceed ̀ 2,00,000patient)Amount spent on travel and stay abroad Nil Not taxable: as the Gross total income does notof the attendant exceed ̀ 2,00,000

PERQUISITE VALUATION OF ACCOMODATION FACILITIESIllustration 18. Mr.Goutam is a Central Govt.employee. He is provided with an accommodation. The Licence feedetermined by the Government is `500 p.m. An amount of `50 is deducted from his salary towards such rent.Determine the taxable value of perquisite.Solution :Taxable Value of Unfurnished Accommodation: Explanation 1 to Sec.17(2) Rule 3(1)

Licence fee determined by the Government (500 × 12) = 6,000Less: Rent recovered from employee (50 × 12) = 600Taxable value of perquisite = 5,400Illustration 19. R submits the following information regarding his salary income for the year 2011-12: Basic salary` 15,000 p.m.; D.A (forming part of salary) 40% of basic salary; City Compensatory Allowance ` 300 p.m.; ChildrenEducation Allowance ` 400 pm per child for 3 children; Transport Allowance ` 1,000 p.m. He is provided witha rent free unfurnished accommodation which is owned by the employer. The fair rental value of the house is` 24,000 p.a. Compute the gross salary assuming accommodation is provided in a city where population is(a) exceeding 25 lakhs (b) exceeding 10 lakhs but not exceeding 25 lakhs (c) less than 10 lakhs


Solution : Computation of Income from SalaryParticulars Amount Amount

Basic salary 15,000 × 12 1,80,000D.A. (40% of 1,80,000) 72,000City Compensatory Allowance (fully taxable) (300 × 12) 3,600Children Education AllowanceActual amount received (400 × 12 × 3) 14,400Less: Exemption u/s 10(14)@ `100 per month per child subject to a maximum of 2 children 2,400 12,000(100 × 12 × 2)Transport Allowance 12,000Actual amount received ( 1,000 × 12) 9,600 2,400Less: Exemption u/s 10(14) @ `800 p.m. (800 × 12)Gross Income from Salary u/s 17(1) 2,70,000Add: Value of Unfurnished accommodation u/s 17(2) rule 3(1) explanation 1Case (a) Population exceeding 25 lakhs15% of salarySalary = Basic pay + DA( forming part of retirement benefits) + all other taxable allowances= 1,80,000 + 72,000 + 3,600 + 12,000 + 2,400= 2,70,000 40,500Total Income from Salary 3,10,500

Note: Case (b): Where population is exceeding 10 lakhs but not exceeding 25 lakhs10% of Salary shall be considered as the value of taxable perquisite

= 10% of `2,70,000 = `27,000Case (c) : Where population is less than 10 lakhs7.5 % of salary shall be considered as the value of taxable perquisite

= 7.5% of `2,70,000 = `20,250Illustration 20. Mr. Kushal submits the following information regarding his salary income which he gets fromABC Ltd. Basic salary `15,000 pm; D.A. 40% of basic salary( forming part of retirement benefits);City CompensatoryAllowance `300pm; Children Education Allowance `400pm( for 3 children); Transport allowance `1,000 p.m.;Reimbursement of Medical Expenses `25,000. He is also entitled to HRA of `6,000 p.m. from 1.4.2011 to 31.8.2011.He was paying a rent of `7,000 p.m. for a house in Delhi. From 1.9.2011 he was provided with an accommodationby the company for which the company was paying the rent of ` 5,000 pm. The company charged him `1,000pm as rent for the accommodation. Compute gross salary for the assessment year 2012-13.



Solution : Computation of Income from SalaryParticulars Amount Amount

Basic salary 15,000 × 12 1,80,000D.A. (40% of 1,80,000) 72,000City Compensatory Allowance (fully taxable) (300 × 12) 3,600House Rent Allowance (April to August 2010)Actual amount received ( 6,000 × 5) 30,000Less: Exemption u/s 10(13A) Rule 2ALeast of the followings:(a) Actual amount received 30,000(b) 50% of salary 52,500(c) Rent paid – 10% of Salary [ 7,000 × 5 – 10% of 1,05,000] 24,500 24,500 5,500Note: Salary for HRA (5 months)Basic salary : 15,000 × 5 = 75,000D.A. = 40% of 75,000 = 30,000 Total 1,05,000Children Education AllowanceActual amount received (400 × 12 × 3) 14,400Less: Exemption u/s 10(14)@ `100 per month per child subject to a maximum of 2 children 2,400 12,000(100 × 12 × 2)Transport AllowanceActual amount received ( 1,000 × 12) 12,000Less: Exemption u/s 10(14) @ ` 800 p.m. (800 × 12) 9,600 2,400Gross Income from Salary u/s 17(1) 2,75,500Add: Value of Unfurnished accommodation u/s 17(2) rule3(1) Explanation 1Assuming Population exceeding 25 lakhs (as accommodationprovided in a Metro city)15% of salary for 7 months (September 2009 to March 2010)Salary = Basic pay + DA (forming part of retirement benefits) +all other taxable allowances= [(15,000 × 7) + (40% of 1,05,000) + (300 × 9)+ {(400 × 9 × 3) –(100 × 9 × 2)}+ {(1000 – 800) × 9}]= 1,60,500 24,075Total Income from Salary 2,99,575

Illustration 21. Mr.Sambhu was provided an accommodation in a hotel by his employer for 22 days beforeproviding him a rent free accommodation which is owned by the employer. The hotel charges paid `6,000. Salaryfor the purpose of accommodation for the period of 22 days is `11,000. Compute the taxable perquisite ofaccommodation.


Solution :In case of accommodation provided to the assessee on account of transfer, which is exceeding 15 days cumulatively,such shall be taxable as a perquisite. The company recovered `1,000 from the employee. Compute taxability.Lower of the following:(i) 24% of salary paid/payable= 24% of 11,000 = 2,640(ii) Actual charges paid/payable = 6,000 2,640Less Amount paid or payable by the employee 1,000Taxable value of perquisite 1,640Illustration 22. Value of unfurnished accommodation (computed) `50,000. Cost of furniture provided by theemployer ` 80,000. Hire charges of furniture provided in the accommodation `500 p.m. Amount recovered fromemployee `200 p.m. Compute taxable value of perquisite.Solution : Value of Furnished Accomodation (provided at Concessional rates)

Particulars `Value of unfurnished accommodation as above 50,000Add: Value of Furniture provided:• 10%p.a. of original cost of such furniture 8,000• If hired from third party, then Actual hire charges 6,000Less: Any charges paid or payable by the employee (200 × 12) (2,400)

Value of Furnished Accomodation 61,600Illustration 23. Mr.Ritesh is provided with an accommodation in Kolkata since April 2011. Salary ` 40,000 p.m.Cost of furniture provided `80,000. On 1st September, 2011, following a promotion with a increase in Salary by`15,000, he was transferred to Jharkhand (population less than 25 lakhs but more than 10 lakhs),and was alsoprovided an accommodation there. Mr.Ritesh was allowed to retain the Kolkata accommodation till March, 2012.Compute taxable value of perquisite.Solution :Phase 1: Value of Furnished Accommodation (Kolkata) (April to September 2011)Particulars `Value of unfurnished accommodation (15% of 40,000 × 6 months) 36,000

Add: Value of Furniture provided:• 10%p.a. of original cost of such furniture (10% of 80,000 x 6 months) 8,000Value of Furnished Accommodation 44,000Phase 2: Valuation of accommodation (October 2011 to December 2011)(a) For the first 90 days of transfer: Where accommodation is provided both at existing place of work and innew place, the accommodation, which has lower value, shall be taxable.(b) After 90 days: Both accommodations shall be taxable.Computation for the first 90 days of transfer : (October 2011 to December 2011)Lower of :(i) Value of accommodation at existing place of work(ii) Value of accommodation at new placeValue of accommodation at existing place of work (Kolkata)15% of salary for 3 months (i.e. 90 days) = 15% of 55,000 × 3 months = 24,750Add: Cost of furniture provided: 10% of 80,000 x 3 months = 24,000

Total Value of Perquisite 48,750



Value of accommodation at new work place (Jharkhand)10% of salary for 3 months (i.e. 90 days) = 10% of 55,000 × 3 months = 16,500Therefore, the assessee shall be assessed to tax on ` 16,500 (being the lower)Phase 3: Valuation of accommodation (after 90 days) (January 2012 to March 2012)For Kolkata accommodation: 15% of 55,000 x 3 months = `24,750Add: Cost of furniture provided: 10% x 80,000 x 3 months = `24,000Total value of perquisite `48,750For Jharkhand accommodation: 10% of 55,000 x 3 months = `16,500Total value of perquisite :

Particulars Taxable value ofperquisitePhase 1: Accomodation in Kolkata 44,000Phase 2: Accomodation in Jharkhand (being the lower during 90 days) 16,500Phase 3: Accomodation in Kolkata 48,75016,500Total Value of Taxable Perquisite 1,25,750

OTHER FACILITIES AND PERQUISITES TO EMPLOYEE AND HIS HOUSEHOLDIllustration 24. Mr.E is employed with N Ltd. he also gets the services of sweeper and watchman. Determine hisgross salary in the following cases:

1) His salary is ` 4,200 pm. Employer provides the services of sweeper and watchman. He pays them ` 600pm and ` 500 pm;2) His salary is ` 4,200 pm. Sweeper and watchman are engaged by N at the rates given in clause(1) abovebut their wages are reimbursed by the employer;3) His salary is ` 4,210 pm. Employer provides the services of sweeper and watchman at the above rates buthe recovers from N ` 200 pm and ` 300 pm respectively.E has paid employment tax of ` 400.Solution :

Particulars Case (1) Case (2) Case (3)[Ref.Sec.17(2)(iv), [Ref.Sec.17(2)(iii)Rule 3(3)] Rule 3(3)]Salary 50,400 50,400 50,520Wages of sweeper Sec.17(2)(iii) not taxable 7,200 4,800Wages of watchman Sec.17(2)(iii) not taxable 6,000 2,400Gross salary 50,400 63,600 57,720

Working Note :Case (1): He is a non-specified employee. Perquisites provided by employer u/s 17(2)(iii) are not chargeable totax:Salary: 4,200 × 12 = 50,400Less: Professional tax paid u/s 16(iii) = 400Monetary income not exceeding ` 50,000 = 50,000Case (2): If the facility is engaged by the employee but reimbursed by the employer, it is an obligation ofemployee, discharged by employer u/s 17(2)(iv), it is always taxable.


Case (3): He is a specified employee, as his monetary income, chargeable under the head “salaries” exceeds` 50,000.Gross salary; 4,210 × 12 = 50,520Less: Professional tax paid u/s 16(iii) = 400Monetary income exceeding ` 50,000 ` 50,120Illustration 25. G Ltd. provides electricity to its employee, P. Annual consumption as per meter reading comesto 2,250 units. Determine the value of the perquisite in the following cases:

1) Electricity meter is in the name of P and the rate of electricity is `3 per unit2) Electricity meter is in the name of G Ltd. the rate of electricity is `3 per unit.3) G Ltd. is a power-generating company. Manufacturing cost is 90 paise per unit but supplied to public @`2 per unit. However, it charges 30 paise per unit from employees.

Solution: With reference to Rule 3(4)1) Perquisite value of free electricity is `6,750 (2,250 × 3 ). As the electric meter is in the name of theemployee, it is his obligation to pay the bill. However, as the bill has been paid by the employer, it is anobligation of employee, discharged by the employer. It is always taxable u/s 17(2)(iv).2) Perquisite value of free electricity will be `6,750. It shall be assessed to tax, if the employee is a specifiedemployee as per Sec.17(2)(iii)3) Perquisite value of electricity supplied = 2,250 ( 0.90 – 0.30) = ` 1,350

Illustration 26. Determine the value of education facility in the following cases:1) Three children of G, an employee of S Ltd., are studying in a school, run by S Ltd. School fees is `2,500pm and hostel fees is `2,000 pm. But the employer recovers only `600 pm and `500 pm respectively.However, a similar school or a hostel around the locality charges `1,800 pm and `1,200 pm respectively.2) The employer has also reimbursed the school fees of `1,200 pm of his nephew, fully dependent on himafter the death of his brother.

Solution :Computation of taxable value of education facility [As per Rule 3(5)]

Particulars Taxable value ofperquisite1. (a) School fees of his children, studying in a school run by employer : (`1,800 × 3 × 12) – (1,000 × 3 × 12) – (600 × 3 × 12) 7,200

(b) Hostel fees: (2,000 × 3 × 12) – (500 × 3 × 12) 54,0002. School fee of nephew (1,200 × 12) 14,400 Total value of taxable perquisite 75,600

Illustration 27. Mr. Z is the manager of F Ltd. his son is a student of Amity International School. School fees of` 4,000 pm and hostel fees of ` 3,000 pm., are directly paid by Z Ltd. to the school but it recovers from Z only30%. F also joins an advanced course of Marketing Management for 4 months at IIM, Ahmedabad, fees of thecourse, ` 2,50,000 is paid by F Ltd. Determine the perquisite value of the education facility.



Solution :Computation of taxable value of education facility [As per Rule 3(5)]

Particulars Taxable value ofperquisite (̀ )(1)(a) School fees of his children, studying in a school run by employer: (`4,000 x 12) - (1,200 x 12) 33,600 (b) Hostel fees: (3,000 x 12) – (900 x 12) 25,2002) Fees paid for Marketing Management course for Mr.Z ( it is a fullyexempted perquisite) Nil Total value of taxable perquisite 58,800

Illustration 28. Mr.D takes interest-free loan of ` 2,50,000 on 1.11.11 from his employer to construct his house.The loan is repayable in 50 monthly installments from January 2011. Compute the value of interest free loan. SBILending rate 8.5% p.a. (for housing loans not exceeding 5 years).Solution :Computation of taxable value of Loan provided by employer [As per Rule 3(7)(i)]

Time period during which loan remains outstanding Balance on the lastday of the monthNovember 2,50,000December 2,50,000January 2,45,000February 2,40,000March 2,35,000

Total 12,20,000Perquisite value of interest-free loan :12,20,000 × 8.5% × 1/12 = ` 8,642Illustration 29. Mr.Prabir Nandy is a Manager in H Ltd. He gets salary @ ` 30,000 pm. He is also allowed freeuse of computer, video-camera and television of the company. H Ltd. has purchased (i) Computer for ` 1,00,000(ii) Video-camera for ` 30,000. Their written down value on 1.4.09 is ` 60,000 and ` 30,000 respectively. Televisionset has been taken on lease rent @ ` 100 pm. The employer recovers ` 500 per month for use of the assets.Compute his gross salary for the assessment year 2012-13.Solution :Computation of taxable value of Loan provided by employer [As per Rule 3(7)(vii)]

Salary : 30,000 × 12 3,60,000Add: Free use of computer, u/s 17(2)(vi) read with Rule 3(7)(vii) NilAdd: Free use of video camera, u/s 17(2)(vi) read with rule 3(7) 3,000(vii) [10% of 30,000]Add: Free use of telephone, u/s 17(2)(vi) read with rule 3(7)(vii) 1,200(100 × 12)

Gross Salary 3,64,200


Illustration 30. Mr.C is an accountant of D Ltd. He gets salary of `25,000 pm. He has purchased motor car andwashing machine from the company on 1 February 2011. Particulars of cost and sale price of the two assets aregiven below :Year of Purchase Particulars of the Asset Purchase Price (Rs) Sale price (Rs)01.07.2008 Motor car 2,50,000 85,00015.09.2007 Washing Machine 10,000 5,000

Compute the taxable value of perquisites for the assessment year 2012-13.Solution :Computation of taxable value of perquisites on transfer of moveable assets[As per Rule 3(7)(viii)]

TRANSFER OF MOVABLE ASSET TO EMPLOYEESNature of Assets transferred Amount

Motor car (Actual Cost) 2,50,000Less: Depreciation @ 20% on WDV from 01.07.2008 to 30.06.2009 50,000

WDV 2,00,000Less: Depreciation @ 20% on WDV from 01.07.2009 to 30.06.2010 40,000

WDV 1,60,000Less: Depreciation @ 20% on WDV from 01.07.2010 to 30.06.2011 32,000

WDV 1,28,000Washing Machine (Actual Cost) 10,000

Less: Depreciation @ 10% on SLM from 15.09.2007 to 14.09.2008 1,000WDV 9,000Less: Depreciation @ 10% on WDV from 15.09.2008 to 14.09.2009 1,000WDV 8,000Less: Depreciation @ 10% on WDV from 15.09.2009 to 14.09.2010 1,000WDV 7,000Less: Depreciation @ 10% on WDV from 15.09.2010 to 14.09.2011 1,000WDV 6,000

Particulars Motor Car Washing MachineWDV on the Asset 1,28,000 6,000

Less: Amount recovered 85,000 5,000from employeeTaxable value of perquisite 43,000 1,000



Illustration 31. Shri A. Chakraborty, Director (Administration) in MNPC Ltd. He is entitled to a motor car (1.8ltrs.) to be used for both official & private purposes.Discuss the taxability of perquisite if :(i) The car is owned by the employer, expenses paid by employer & it is a chauffeur driven car.(ii) The car is owned by Sri Chakraborty. Expenses incurred ` 20,000 & chauffeur paid a salary of ` 60,000provided by the employer.

Solution :As per notification No. 24 dated 18.12.09, the taxable value of perquisite will be :(i) ` 2,400 p.m + ` 900 p.m for chauffeur = ` 3,300 p.m × 12 months= ` 39,600(ii) Value of Perquisite Àmount of expenses 20,000(+) Salary to chauffeur 60,00080,000Less : Value of Perquisite if the car was owned by the employer 39,600 [as computed in (i) above] 40,400


Illustration 32. Aniket joined a company on 1.7.2011 and was paid the following emoluments and allowed perquisitiesas under :Emoluments : Basic Pay ` 35,000 per month; D.A. ` 20,000 per month; Bonus ` 20,000 per month.Perquisities :

(i) Furnished accommodation owned by the employer and provided free of cost;(ii) Value of furniture therein ` 3,60,000; Hire charges of Furniture provided ` 20,000 p.a.(iii) Motor car owned by the company (with engine c.c. less than 1.6 litres) along with chauffeur for official andpersonal use, expenses met by Employer.(iv) Sweeper salary paid by company ` 1,500 per month; amount recovered @ ` 200 pm.(v) Watchman salary paid by company ` 1,500 per month; amount recovered @ ` 300 pm.(vi) Educational facility for 2 children provided free of cost. The school is owned and maintained by the company.Elder child studies in class V and younger child in class II. Tuition fee per month ` 1,600 & ` 900 respectively.(vii) Loan of ` 5,00,000 repayable within 7 years given on 1.10.2011 for purchase of a house. No repayment was madeduring the year; let charged by employer @ 2% p.a. Interest chargeable as per Income Tax Act @ 10% p.a.(viii) Interest free loan for purchase of computer ` 50,000 given on 1.2.2012. No repayment was made during theyear;(ix) Corporate membership of a club. The initial fee of ` 1,00,000 was paid by the company. Aniket paid the billsfor his use of club facilities.You are required to compute the income of Aniket under the head “Salaries” in respect of assessment year 2012-13.

Solution :Assessee : Mr. Aniket A.Y. 2012-13

Computation of Income under the head ‘Salaries’(i) Basic Pay (35,000 × 9) 3,15,000

(ii) D.A. (20,000 × 9) 1,80,000(iii) Bonus (20,000 × 9) 1,80,000(iv) Value of furnished accommodation Note 1 1,28,250(v) Motor car (1,800+900) × 9 m 24,300(vi) Sweeper Salary (1,500–200) × 9 m 11,700(vii) Watchman Salary (1,500–300) × 9 m 10,800(viii) Education facility Note 2 5,400(ix) Interest free housing loan Note 3 23,333(x) Interest free computer loan Note 4 1,375(xi) Corporate membership fee 1,00,000

Gross Salary 8,80,158Taxable Salary 8,80,158

Value of Furnished AccommodationNote 1.

Particulars AmountSalary for this purpose -Basic Salary (35,000 × 9) 3,15,000D.A (20,000 × 9) 1,80,000Bonus (20,000 × 9) 1,80,000 Total 6,75,000



Assuming, Mr. Ankit stays in a city where population is more than 25,00,000 as per 2001 census,Value of unfurnished accommodation = 15% of salary= 15% of 6,75,000= ` 1,01,250Value of furniture provided = 10% p.a. of actual cost= 10% of 3,60,000 × 9/12= ` 27,000(Assuming, value of furniture given in the problem represents actual cost.)Value ofrent free furnished accommodation = 1,01,250 (+) 27,000= ` 1,28,250Assumption: DA is included as a part of retirement benefits.Note 2.Value of Educational FacilityWhere the school is owned and maintained by employer, if the cost of education provided is less than ` 1,000 p.m.then the value of perquisite is NIL. If the cost of education exceeds ` 1,000 p.m. then the value of perquisite will beequal to the actual cost of education provided in excess of ` 1,000 pm. per child maximum for two children.Value of perquisite for elder child = ` (16,000 – 1,000) × 9 m = 5,400Valu of perquisite for younger child = NIL, since tuition fee per month is less than ` 1,000.Assuming, cost of education provided to Babu’s children is less than ` 1,000 p.m. value of perquisite provided isNIL.Note 3.Interest free housing loanValue of perquisite = Interest @ 10% p.a. less Actual interest charged= (10% – 2%) × 5,00,000 × 7/12 = ` 23,333.Note 4.Interest free computer loanValue of perquisite = Interest @ 16.50% p.a. less Actual interest charged

= (16.50% – 0%) × 50,000 × 2/12 = ` 1,375.Illustration 33. A was employed with Z Ltd. He retired w.e.f. 1.2.2012 after completing a service of 24 years and 5months. He submits the following information :

Basic Salary ` 5,000 per month (at the time of retirement)Dearness Allowance 100% of Basic Salary (60% of which forms part ofsalary for retirement benefits).Last increment ` 500 w.e.f. 1.7.2011

His pension was determined at ̀ 3,000 per month. He got 50% of the pension commuted w.e.f. 1.3.2011 and receiveda sum of ̀ 1,20,000 as commuted pension. In addition to this, he received a gratuity of ̀ 1,50,000 and leave encashmentamounting to ` 56,000 on account of accumulated leave of 240 days. He was entitled to 40 days leave for every yearof service.Compute his Gross Salary for assessment year 2012-13 assuming that he is not covered under Payment of GratuityAct.


Solution :Computation of Gross Salary for the Assessment Year 2012-13

Particulars ` `Basic Pay : April ’11 to June ’11 = 3 months @ ` 4,500 pm 13,500

July 11 to June ’12 = 7 months @ ` 5,000 pm 35,000 48,500Dearness Allowance @ 100% of Basic Pay 48,500Uncommuted Pension

February @ ` 3,000 pm 3,000March @ ` 1,500 pm 1,500 4,500(Since 50% cmmuted)Commuted Value of PensionAmount Received 1,20,000Less : Exemption u/s 10(10A)

1/3 of Value of Commuted Pension ??

???

?? 000,40,231 80,000 40,000

Full value of Commuted Pension Commuted% ceivedReAmount?

000,40,2%50 000,20,1??

Gratuity :Amount received 1,50,000Less : Exempt (See note No. 1) 93,120 56,880Leave of the followings :(i) Actual Amount Received 1,50,000

(ii) Maximum limit 10,00,000(ii) 1/2 months average slary 93,120for each years of completedService ? ?24760,721 ??

Salary for Gratuity (not covered by Payment of Gratuity Act)= Basic Pay + D/A (Forming part for retirement benefit)

Average Salary = 10 retirementofmonththepreceedingmonths10ofSalaryTotal

= 760,710 100,29500,4810 500,48of%50500,48?

??

?



Leave EncashmentAmount received 56,000Less : Exemption u/s 10(10AA)Least of the followings :(i) Actual Average Salary 56,000(ii) 10 months average salary (10×7760) 77,600(iii) Maximum limit 3,00,000(iv) Leave Credit NIL NIL 56,000 as per Note

Notes :Calculation of Leave Credit

Total leave entitlement (24 yrs × 40 days p.a. = 960 daysLess : Leave Availed during service 720 days

= Total leave entitlement – Leave encashment= (960 – 240) 240 days

Less : Excess Leave in excess of 30 days p.a. 240 days(24 (40 – 30)Leave credit NIL

Gross Income from Salary 2,54,380Illustration 34. Vineet had been working with M Ltd., in a tribal area since 1-10-1997. He was entitled to the followingemoluments:1. Basic salary w.e.f. 1-1-2011 ` 6,000 p.m.2. Dearness allowancc 50% of basic salary (40% of which forms part of salary for retirement benefits)3. Medical allowance ` 1500 p.m ., (entire amount is spent on his own medical treatment).4. Entertainment allowance ` 400 p.m.5. Children education allowance ` 80 p.m. per child for three children.6. Hostel expenditure allowance ` 100 p.m. per child for three children.7. Uniform allowance ` 250 p.m. (He spends ` 1,500 on the purchase and maintenance of uniform)8. House rent allowance ` 750 per month. He pays ` 1,000 per month as rent.9. He contributes ` 900 per month to a recognised provident fund to which his employer contributes an equalamount.He resigned from his job on 1.1.2012 and shifted to Delhi. He was entitled to the following benefits at the time of hisretirement :(a) Gratuity ` 1,35,000(b) Pension from 1.1.2012 ` 3,000 p.m.(c) Payment from recognised provident fund ` 3,00,000(d) Encashment of earned leave for 150 days ` 36,000He was entitled to 40 days leave for every completed year of service. He got 50% of his pension commuted inlumpsum w.e.f. 1.3.2012 and received ` 1,20,000 as commuted pcnsion.He joined K Ltd. at Mumbai w.ef 1-2-2012 and was entitled to the following emoluments:(1) Basic salary ` 5,000 p.m.(2) Dearness allowance (forming part of salary) 20% of basic salary


(3) Rent-free unfurnished accommodation in Delhi which is owned by the employer and whose fair rental valueis ` 48,000 p.a.He was also given the following facilities by the employer :(a) Motor car (1.4 ltr. engine capacity) with driver, which he uses partly for official and partly for personalpurposes.

(b) The monthly expenses incurred by ‘A’ on gas and electricity were ` 500 which were reimbursed by theemployer.(c) Reimbursement of educational expenses of his two children which amounted to ` 350 p.m.(d) On 4.3.2011 his wife fell ill and the employer reimbursed the expenditure of medical treatment amounting to` 17,500.(e) A watchman, a sweeper, a cook and a gradner have been provided to whom the company pays a salary of ̀400 p.m. each.(f) Loan of ` 1,00,000 @ 8% p.a. for construction of his house was given by the company. SBI rate of interest is7% p.a.

He made the following payments during the previous year :(1) Professional tax ` 500(2) LIP on his life policy of ` 1,00,000 – ` 15,000.(3) Deposit in PPF account ` 50,000.Compute his total income and tax liability for the assessment year 2012-13.Solution :

Assessee : Mr. Vineet A. Y : 2012-13Computation of Total Income and Tax LiabilityParticulars ` `

Employer – M Ltd.Basic salary 6,000 × 9 54,000DA @ 50% of Basic Salary 27,000Medical allowance @ ` 1,500 pm × 9 months 13,500Entertainment allowance @ ` 400 pm × 9 months 3,600Children education allowance 80 × 3 × 9 2,160Less : Exempt u/s 10(14) = 80 × 2 × 9 440 720Hostel expenditure allowance 100 × 3 × 9 2,700Less : Exempt u/s 10(14) = 100 × 2 × 9 1,800 900Uncommuted pension (2,000 × 2 + 1,000 × 1) 5,000Uniform allowance (250 ×9 – 1500) 750House Rent AllowanceAmount Received 750 × 9 6,750Less : Exemption u/s 10(13A) Rule 2ALease of the followings :(i) Amount Received 6,750

(ii) 40% of Salary 25,920(iii) Rent paid – 10% of Salary 2,520 2,520 4,230 (1000 × 9 – 6,480)



Salary for HRA = Basic Pay + Dearness Allowance(forming part of salary) + Commission (if received at afixed per centage on turnover)= 54,000 + (40% of 27,000) = 54,000 + 10,800 = 64,800Employer’s Contribution to RPF @ ` 900 pm × 9 months 8,100Less : Exemption u/s 10(14) upto 12% of salarySalary = Basic Pay + D.A (forming part) = 54,000 + 40% of 27,000 = 64,800

? 12% of 64,800 = 7,776 324Gratuity — (form A Ltd.)Actual Amount Received 1,25,000Less : Exemption u/s 10(10)Least of the followings :(i) Actual Amount Received 1,25,000(ii) Max. limit 10,00,000(iii) 1/2 months average salary for each years of completed service 50,400 50,400 74,600

[1/2 × 7,200 × 14]Salary for Gratuity (not covered by Paymentof Graguity Act)= Basic Pay + D/A (forming part for retirementbenefits) + Commission (if received at a fixedpercentage on turnover)Again, Average Salary = Salary for 10 monthspreceeding the month of retirementB/P = 6,000 × 10 = 60,000D/A (forming part) = 40% × 50% × 6,000 = 12,000 72,000? ?Average Salary per month 10000,72

? = 7,200Commuted Value of PensionAmount Received 1,20,000Less : Exemption u/s 10(10A)1/3 of Full Value of Commuted Pension [ 000,40,231 ? ] 80,000 40,000Full Value of Commuted Pension = Commuted% ceivedReAmount

= 000,40,2%50 000,20,1?

Payment from RPF (Exempt) —


Leave encashment – Actual amount 36,000Less : Exemption u/s 10(10AA) 4,800 31,200 2,55,824List of the followings:(a) Actual encashment ` 36,000(b) Eligible encashment (7,200/30 × 20) ` 4,800(c) 10 months average salary (7,200 × 10) ` 72,000(d) Amount specified ` 3,00,000Leave encashment shall be exempt as under :Completed years of service 13 yearsNumber of days leave allowed every year 40Total leave allowable 520 daysLeave encashed 150 daysTherefore leave availed (520 – 150) 370 daysLeave available on basis of 30 days (30 ×13) 390 daysLess : Leave availed 370 daysTherefore encashment eligible for exemption (390 – 370) 20 daysEmployer — S Ltd.Basic salary 5,000 ×2 10,000Dearness Allowance @ 20% of B/Pay 2,000Motor Car facility (1,800 + 900) × 2 months 5,400Free Gas/Electricity (500 × 2) 1,000Education Re-imbursement (350 × 2) 700Medical Re-imbursement (17,500 – 15,000) 2,500Watchment (400 × 2) 800Sweeper (400 × 2) 800Cook (400 ×2) 800Gardener (400 × 2) 800Interest on Loan (not taxable as interest charged is more than the rate of SBI) —Perquisite for Value ofRent-free unfurnished accommodation 2,250 27,050Valuation of unfurnished rent-free accommodation :15% of salary which includes the following:Basic (5,000 × 2) ` 10,000DA ` 2,000Uncommuted pension from R Ltd. (2,000 + 1,000) ` 3,000` 15,000Value of the unfurnished accommodation 15% of ` 15,000 = ` 2,250Aggregate salary from M Ltd. and S Ltd. 2,82,874Less : (i) Entertainment allowance u/s 16(ii) Nil(ii) Professional-tax u/s 16(iii) 500 500Income from salary 2,82,374Other Income NilGross Total Income 2,82,374Less : Deduction u/s 80CRPF (900 × 9) 8,100LIP 15,000PPF 50,000 73,100Total Income (rounded off) 2,09,274



Total Income (Rounded of u/s 288) 2,09,270Tax on ` 2,09,270upto ` 1,80,000 = Nil@ 10% on (209270 – 1,80,000) = 10% of 29270 = 2927 2,927Add : Education cess @ 2% 58Add : SHEC @ 1% 29Total tax liability 3,014Tax Payable (Rounded off u/s 288A) = ` 3010

Since he has received lump sum payment on account of gratuity, commuted pension and leave encashment, he canclaim relief u/s 89 if the same is beneficial to him.Illustration 35. Ramesh retired as General Manager of XYZ Co. Ltd. on 30.11.2011 after rendering service for 20years and 10 months. He ` 9,00,000 as gratuity from the employer. (He is not covered by Gratuity Act, 1972). HisSalary details as below -Basic Pay ` 30,000 p.m. upto 30.06.2011Basic Pay ` 32,000 p.m. from 01.07.2011

Dearnes Allowance (Eligible for Retirement Benefits) 50% of Basic PayTransport Allowance ` 4,500 p.m.Ramesh resides in his own house. Interest on monies borrowed for the self-occupied house is ` 84,000 for the year31.3.2012.From a Fixed Deposit with a Bank, he earned Interest Income of ` 18,000 for the year ending 31.3.2012. He alsoinvested ` 30,000 in long-term infrastructure Bond and ` 80,000 in PPF.Compute Taxable Income of Ramesh for the year ended 31.03.2012.Assessee : Mr. Ramesh Previous Year : 2011-2012 Assessment Year : 2012-13

Computation of Total IncomeParticulars ` ` `

(A) Salaries : Salary from XYZ Co. Ltd1. Basic Salary (` 30,000 × 3 + ` 32,000 × 5) 2.50,0002. Dearness Allowance (50% of Basic Salary = 1,25,0003. Transport Allowance (` 4,500 × 8) 36,000Less: Exempt u/s 10(14) (` 800 × 8 Months) (6,400) 29,6004. Gratuity Received (Not covered under Payment 9,00,000of Gratuity Act)

Less: Exemption u/s 10(10) = Least of the following —• Actual Amount received 9,00,000• ½ months average salary for each years of completed service = ½ × 30,800 × 20 years 3,08,000• Maximum Limit 10,00,000 3,08,000 5,92,000Average Salary for Gratuity =

10 retirementofmoththepreceeding months 10 lasttheforpart)(formingDA PayBasic ?

= 800,3010000,08,310 6000,304000,32??

???


Gross Salary 9,96,600Less: Deduction u/s 16 Nil

Income under the head Salary 9,96,600(B) Income from House PropertySelf Occupied — Annual Value NilLess : Deduction u/s 24 — Interest on Borrowed Capital (84,000) (84,000)(C) Income from Other Sources : Bank Interest` 18,000(D) Gross Total Income 9,30,600Less : Deduction under Chapter VIAu/s 80C – Deposit in PPF ` 80,000(Maximum amount allowed as deduction) 70,000u/s 80 CCF – Subscription to Long-termInfrastructure Boned– Amount deposited ` 30,000 remitted upto 20,000(E) Total Income 8,40,600

Illustration 36. Mr. Ganesh retires on 31.10.2011 voluntarily from XYZ (P) Ltd as per the scheme u/s (10C) of theIncome-tax Act, 1961. He furnishes the following particulars :(a) Basic Pay ` 20,000 pm.(b) Pension ` 8,000 pm.(c) D.A. forming part of Salary for retirement benefits ` 6,000 pm.(d) Compensation of voluntary retirement ` 6,00,000(e) Gratuity ` 1,50,000(f) Leave Salary ` 40,000(g) He gets 60% of his pension commuted for ` 90,000 on 31.1.2011. Completed years of service 18 years and 7months. Leave availed while in service 19 months. But for the voluntary retirement, Mr. Ganesh would haveretired only after 45 months. The last increment he received was on 1.11.2010.

Compute his taxable salary income for the A.Y. 2012-13.Solution :Assessee : Mr. Ganesh Previous Year : 2011-2012 Assessment Year : 2012-13

Computation of Total IncomeParticulars `Basic salary (` 20,000 × 7) 1,40,000Dearness Allowance (` 6,000 × 7) 42,000Gratuity (W.N. 1) NILPension (W.N.2) 70,400Voluntary Retirement Compensation (W.N.3) 1,00,000Leave Encashment (W.N.4) 90,000

Income under the head “Salaries” 4,42,400



Working Notes :(a) Taxable Gratuity

Particulars ` `Gratuity received (assumed as not covered by 1,50,000Payment of Gratuity Act, 1972)Less : Exempt u/s 10(10) : Least of the following —(i) Actual Amount of Gratuity Received 1,50,000(ii) Maximum Limit 10,00,000(iii) ½ months average salary for each years ofcompleted service (½ × 18 × 26,000) 2,34,000 (1,50,000)

Average Salary = 000,2610 10000,26?

?

Taxable Gratuity NIL(b) Taxable Pension

Particulars ` `(a) Uncommuted Pension• Period: November 2010 - January 2011 (` 8,000×3 Months) 24,000• Period: February 2011 - March 2011 (` 8,000×40%×2 Months) 6,400• Total 30,400(b) Commuted PensionAmount Received 90,000Less : Exempt u/s 10(10A)1/3rd of Full Value of Commuted Pension(Since Gratuity received)

[1/3rd of (90,000/60) x 100] (Note 1) (50,000) 40,000Taxable Pension 70,400

(C) Computation of Taxable VRS CompensationParticulars ` Àmount of VRS Compensation Received 6,00,000Less: Exempt u/s 10(10C):Least of the following —

• Actual Amount Received 6,00,000• Maximum Limit 5,00,000• The above shall not exceed higher of :(i) Last Drawn Salary x 3 x No. of completed yearsof service (26,000 x 3 x 18 Years) 14,04,000(ii) Last drawn Salary x balance of months ofservice left (26,000 x 45 Months) 5,40,000 (5,00,000)

Taxable Value of VRS Compensation 1,00,000


(D) Computation of Taxable Leave EncashmentParticulars ` `

Amount of Leave Encashment Received 90,000Less : Exemption u/s 10(l0AA) :Least of the following :(i) Amount Received 90,000(ii) Notified Amount 3,00,000(iii) Average salary of past 10 months Salary x 10 months 1,20,000(12,000 × 10)(iv) Leave Encashment based on 30 days credit for every Nil Nilcompleted year of service (Note)Taxable Leave Encashment 90,000

Note :Total Leave Eligible on basis of 30 days credit for every 18 Monthscompleted years of service of 18 yearsTotal Leave Taken 19 MonthsLeave to his credit Nil

Illustration 37. M Ltd. has sold the following assets to its employee, Mr. Raghu. Compute taxable perquisite.Assets Date of purchase Purchase value Date of sale Sale priceComputer 1-7-08 2,00,000 18-8-2011 20,000Car 1-4-09 3,00,000 1-3-2012 50,000Television 1-4-06 50,000 1-4-2011 2,000Sofa set 1-4-96 80,000 1-7-2011 5,000

Solution :Computation of taxable value of perquisite in hands of Mr. Amit for the A.Y. 2012-13.Assets Written down value Sale value Taxable perquisiteComputer 25000 (Note 1) 2,000 5,000Car 192000 (Note 2) 50,000 1,42,000Television 25000 (Note 3) 2,000 23,000Sofa set Nil4 5,000 NilTaxable Perquisite 1,70,000

1. Calculation of WDV of ComputerParticulars Amount

Purchase value 2,00,000Less : Depreciation from 1-7-08 to 30-6-09 @ 50% 1,00,000WDV as on 1-7-09 1,00,000Less : Depreciation from 1-7-09 to 30-6-10 @ 50% 50,000WDV as on 1-7-10 50,000Less : Depreciation from 1-7-10 to 30-6-11 @ 50% 25,000WDV as on 1-7-11 25,000Less : Depreciation from 1-7-11 to 18-8-11 (as year not completd) NilWDV as on the date of sale 25,000



2. Calculation of WDV of CarParticulars Amount

Purchase value 3,00,000Less : Depreciation from 1-4-09 to 31-3-10 @ 20% 60,000WDV as on 1-4-10 2,40,000Less : Depreciation from 1-4-10 to 31-3-11 @ 20% 48,000WDV as on 1-4-11 1,92,000Less : Depreciation from 1-4-11 to 1-3-12 @ (as year not completd) Nil

WDV as on date of sale 1,92,0003. Calculation of WDV of Television

Particulars AmountPurchase value 50,000Less : Depreciation from 1-4-06 to 31-3-11 @ 10% 25,000WDV as on date of sale 25,000

4. Depreciation on sofa set is charged @ 10% as per straight-line method. Since the asset is used for more than 10years, hence its WDV will be Nil.Illustration 38. Hema, aged about 66 years is a Finance Manager of Udyog Pvt. Ltd. based at Mumbai. She is incontinuous service since 1969 and received the following from the Company during the year 31.3.2012.

(a) Basic Pay (50,000 × 12) = ` 6,00,000(b) D.A (20,000 × 12) = ` 2,40,000(c) Bonus 2 months Basic Pay(d) Commission — 0.1% of Company’s Turnover. Turnover for financial year 2011-2012 was ` 15 Crores.(e) Contribution of the Employer and Employee to the PF Account ` 3,00,000 each(f) Interest credited to P.F Account at 10% ` 60,000(g) Rent Free Unfurnished Accommodation provided by the Company (Company pays ` 70,000 p.a. rent)(h) Entertainment Allowance ` 30,000(i) Children’s Education Allowance to meet the hostel expenditure of three children ` 5,000 each.

Hema makes the following payments and Investments :(a) Premium paid to insure the life of her major son ` 15,000(b) Medical Insurance Premium for Self — ` 15,000, Spouse ` 15,000 (Aged 70 yrs.)(c) Donation to Public Charitable Institution registered under Section 80G ` 2,00,000(d) LIC Pension Fund ` 12,000(e) Long-term Infrastructure Bond —` 25,000

Determine the tax liability for the Assessment Year 2012-13.


Assessee : Mr. Lakshmi Previous Year: 2011-2012 Assessment Year : 2012-13Computation of Total Income

Particulars ` `Basic Salary (` 50,000×12) 6,00,000Dearness Allowance (` 20,000×12) 2,40,000Bonus (` 50,000×2) 1,00,000Commission (` 15 Crores×0.1%) 1,50,000Employer’s Contribution to Providend Fund 3,00,000Less : Exemption u/s 10(14) upto 12% of Salary (1,18,800) 1,81,200

(12% × 9,90,000) (WN 1)Interest credited to Providend Fund Account at 10% 60,000Less : Exempted u/s 10(14) upto 9.5% 57,000 3,000Entertainment Allowances 30,000Children Education Allowance (̀ 5,000×3) 15,000Less : Exempt u/s 10(14) [` 300 p.m.×12 months (7,200) 7,800× 2 Children (maximum)]

Taxable Salary before Perquisites 13,12,000Value of Perquisites

Rent Free Unfurnished AccommodationLeast of the following—

Rent paid by the Employer 70,00015% of Salary [15% of ` 11,27,800] (WN 2) 1,69,170 70,000(assumed that Mumbai population > 25 Lakhs as perlatest census)Gross Salary 13,82,000Less : Deduction u/s 16Entertainment Allowanceu/s 16(ii) [Not a Govt. Employee] NilIncome under the head Salary 13,82,000Gross Total Income 13,82,000Less : Deduction Under Chapter VI-AU/s 80C LIC Premium paid 15,000Contribution to PF Account 3,00,000U/s 80CCC Contribution to Pension Fund 12,000[The maximum amount along with deduction1,00,000u/s 80CCC and 80CCC or u/s 80C, restricted

to ` 1,00,000]U/s 80CCF Subscription to long term Infrastructure Bond 20,000U/s 80D Medical Insurance Premium paid 20,000U/s 80G (WN 3) 63,450 (2,03,450)Total Income 11,78,550



Computation of Tax LiabilityParticulars ` `Total Income 11,78,550

Upto ` 1,90,000 NIL1,90,000 – 5,00,000 = @ 10% of 3,10,000 31,0005,00,000 – 8,00,000 = @ 20% of 3,00,000 60,0008,00,000 – 11,78,550 = @ 30% of 3,78,550 1,13,5652,04,565(+) Deduction Cess @ 2% 4,091(+) SHEC @ 1% 2,0462,10,702Rounded off u/s 288A 2,10,700

Working Notes :1. Salary for the purpose of computation of Taxable Portion of Employer’s Contribution to Provident Fund

= Basic Salary + DA considered for Retirement Benefits + Commission= ` 6,00,000 + ` 2,40,000 + ` 1,50,000 = ` 9,90,0002. Salary for the purpose of computation of Taxable Value of Rent Free Unfurnished Accommodation= Basic Pay (+) D.A (forming part of Salary) (+) All other Taxable Allowances (+) Any other monetary benefits

= 6,00,000 + 2,40,000 + 1,00,000 + 1,50,000 + 30,000 + 7,870 = 11,27,8003. Computation of deduction u/s 80G :50% of least of the followings : `

(a) Amount Donated 2,00,000(b) 10% of Adjusted Gross Total IncomeGross Total Income 13,82,000Less : Deduction under Chapter VI-A excluding sec. 80Gu/s 80C 80CCC 1,10,000

(retired u/s 80CCF) u/s 80CCF 20,000 u/s 80D 20,000


STUDY NOTE - 5INCOME FROM HOUSE PROPERTY

This Study Note includes• Chargeability• Deemed Owner• Property Income is Exempt from Tax to Certain Persons• Recovery of Unrealised Rent• Receipt of Arrears of Rent• Unrealized Rent• Municipal Tax• Deduction from Net Annual Value• Computation of Prior Period Interest• Computation of Income from House Property• Computation

5.1 CHARGEABILITY [Section 22]1. The basis of chargeability under the head income from house property is Annual Value.2. The property must consist of Building or Lands Appurtenant thereto.3. The assessee must be the owner of such property.4. The property may be used for any purpose other than the assessee’s business or profession.

5.2 DEEMED OWNER [Section 27]1. Owner: An Individual shall be considered as owner of a property when the document of title to theproperty is registered in his name.2. Deemed Owner: Under the following circumstances, Income from House Property is taxable in the handsof the Individual, even if the property is not registered in his name —(a) Where the Property has been transferred to spouse for inadequate consideration other than inpursuance of an agreement to live apart.

(b) Where the Property is transferred to a minor child for inadequate consideration (except a transferto minor married daughter)(c) Where the Individual holds an impartible estate.(d) Where the Individual is a member of Co-operative Society, Company, or other Association and hasbeen allotted a house property by virtue of his being a member, even though the property is registeredin the name of the Society / Company / Association.(e) Where the property has been transferred to the individual’s name as part-performance of a contractu/s 53A of the Transfer of Property Act, 1882. (i.e. Possession of the Property has been transferred toIndividual, but the Title Deeds have not yet been transferred).(f) Where the Individual is a holder of a Power of Attorney enabling the right of possession or enjoymentof the property.(g) Where the property has been constructed on a leasehold land.(h) Where the ownership of the Property is under dispute.