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1 | P a g e
INCOME FROM SALARIES AND SECTION 80C
INDEX
Sr. No. Particulars Page No.
1. Introduction and Meaning 2-9
2. Definitions 10
3. Allowances 11-15
4. Perquisites 16--22
5. Deductions (Section 80C) 23-30
6. Illustrations 31-33
7. Bibliography 34
2 | P a g e
INTRODUCTION AND MEANING
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 income from salaries. The term 'salary' for the
purposes of Income-tax Act. 1961 will inclu1de 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 between the payer and the payee, the
relationship of an employer and an employee. Consider the following examples:
a. Sujatha, an actress, is employed in Chopra Films, where she is paid a
monthly remuneration of 2 lakhs. She acts in various films produced by various
producers . The remuneration for acting in such films is directly paid to Chopra
Films by the different producers. In this case, 2 lakhs will constitute salary in the
hands of Sujatha, since the relationship of employer and employee exists between
Chopra Films and Sujatha.
b. In the above example, if Sujatha acts in various films and gets fees from
different producers, the same income will be chargeable as income from
profession since the relationship of employer and employee does not exist
between Sujatha and the film producers.
c. Commission received by a Director from a company is salary if the Director is
an employee of the company. If, however, the Director is not an employee of the
company, the said commission cannot be charged as salary but has to be charged either
as income from business or as income from other sources depending upon the facts.
d. Salary paid to a partner by a firm is nothing but an appropriation of profits. Any
salary, bonus, commission or remuneration by whatever name called due to or
received by partner of a firm shall not be regarded .as salary. The same is to be
charged as income from profits and gains of business or profession. This is
primarily because the relationship between the firm and its partners is not that of an
employer and employee.
3 | P a g e
2. Full-time or part-time employment: t does not matter whether the employee is a full
time employee or a part-time one. Once the relationship of 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
be clubbed and brought to charge for the relevant previous years.
3. Foregoing 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 to tax.
4. Example: Mr. A, an employee instructs his employer that he is not interested in receiving
the salary for April 2013 and the same might be donated to a charitable institution. In this
case, Mr. A cannot claim that he cannot be charged in respect of the salary for April 2013. It
is only due to his instruction that the donation was made to a charitable institution by his
employer. It is only an application of income. Hence, the salary for the! month of April 2013
will be taxable in the hands of Mr. A. He is however, entitled to claim a deduction under
section BOG for the amount donated to the institution.
5. Surrender of salary: However, if an employee surrenders his salary to the Central
Government under section 2 of the Voluntary Surrender of Salaries (Exemption from
Taxation) Act, 1961, the salary so surrendered would be«: exempt while computing his
taxable income.
6. 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 and also the tax on this salary paid by
the employer.
Advance Salary
Advance salary is taxable when it is received by the employee irrespective of the fact whether it is due or
not. It may so happen that when advance salary is included and charged in a particular previous
year, the rate of tax at which the employee is assessed may be higher than the normal rate of tax to which
he would have! been assessed . Section 89(1) provides for relief in these types of cases.
Loan or Advance against salary
Loan is different from salary. When an employee takes a loan from his employer, which is
repayable in certain specified installments, the loan amount cannot be brought to tax as salary of the
employee.
4 | P a g e
Similarly, advance against salary is different from advance salary. It is an advance taken by the
employee from his employer. This advance is generally adjusted with his salary over a specified
time period. It cannot be taxed as salary.
Arrears of salary
Normally speaking, salary arrears must b1e charged on due basis. However, there are
circumstances when it may not be possible to bring the same to charge on due basis. For example, if
the Pay Commission is appointee! by the Central Government and it recommends revision of salaries of
employees, the arrears received in that connection will be charged on receipt basis. Here, also relief
under section B9(1) is available.
Annuity
1. As per the definition, ‘annuity' is treated as salary. Annuity is a sum payable in respect of a
particular year. It is a yearly grant. If a person invests some money entitling him to series of
equal annual sums, such annual sums are annuities in the hands of the investor. Annuity
received by a present employer is to be taxed as salary. It does not matter whether it is paid in
pursuance of a contractual obligation or voluntarily.
3. Annuity received from a past employer is taxable as profit in lieu of salary.
4. Annuity received from person other than an employer is taxable as "income from other sources".
Gratuity [Section 10(10)]
Gratuity is a voluntary payment made by an 1employer in appreciation of services rendered by the
employee. Now-a-days gratuity has become a normal payment applicable to all employees. In
fact, Payment of Gratuity Act. 1972 is a statutory recognition of the concept of gratuity. Almost all
employers enter into an agreement with employees to pay gratuity. For details refer to Chapter 3.
Pension
Concise Oxford Dictionary defines 'pension' as a periodic payment made especially by
Government or a company or other employers to the employee in consideration of past service payable
after his retirement.
Commuted pension: Commutation means inter-change. Many persons convert their future right to
receive pension into a lump sum amount receivable immediately. For example, suppose a person
is entitled to receive a pension of say 2000 p.m. for the rest of his life. He may commute i.e., 25% of
this amount and get a lump sum of say 30,000. After commutation, his pension will now be the
balance 75% of 2,000 p.m. = 1,500 p.m.
5 | P a g e
Leave Salary [Section 10(10JA)]
Many organization provide the facility of encashment of leave (by whatever name called be
it earned leave, sick leave etc) either
1) during the period of employment or
2) at the time of retirement (including separation on account of resignation, retrenchment,
VRS etc other than termination) of the employee or
3) at the time of Termination of the employee
For tax treatment of leave encashment u/s 10(10AA) of Income Tax Act 1961 the employees
has been classified into two types:
1) Govt. Employees and
2) Non-Govt employees (PSU employees are considered as non-govt employees)
The tax treatment of Leave encashment is explained with the help of following table:
Sr. No. Leave encashment Govt.
employees
Non-Govt employees
1 During period of service Fully exempt Fully exempt
2 At the time of retirement or
separation (other than on
account of Termination)
Fully exempt Exemption is least of the following:
1) Rs 3,00,000
2) Leave encashment amount
actually received
3) 10 months’ salary (on the basis of
average salary of last 10 months) *
4) Cash equivalent to leave to the
credit of employee at time of
retirement **
3 At the time of termination of
employee
Fully exempt Fully exempt
Here salary means Basic + Dearness Allowance (forms part of pay) + Commission (Fixed %
on turnover)
** Cash equivalent to leave to the credit of employee at time of retirement is
6 | P a g e
= {(A X B) – C} X D
Where
A) No of completed year of service (excluding part of the year)
B) Number of leave credited each year (Subject to maximum of 30 leave per year)
C) Number of leave taken or leave encased during period of employment
D) Average salary for last 10 months
The following additional points should be noted:
i. Where leave salary is received from two or more employers in the same year, then the
aggregate amount of leave salary exempt from tax cannot exceed Rs 3,00,000
ii. Where leave salary is received in any earlier year from a former employer and again
received from another employer in a later year, the limit of Rs 3,00,000 will be reduced by
the amount of leave salary exempt earlier.
iii. Relief u/s 89 read with Rule 21A can be claimed by the employee in cases where the
amount of leave encashment is fully taxable.
iv. Leave salary (or leave encashment) received by the legal heir of the deceased employee
is not at all taxable in the hands of his legal heirs (F.35/1/65-IT(B), dated 5-11-1965)
Retrenchment Compensation [Section 10(1OB)]
Retrenchment compensation received by an assessee shall be exempt of the least amount from the
following.
Actual amount received
5,00,000
An amount calculated in accordance with sec 25F(b) of the Industrial Disputes Act, 1947 i.e
15 days’ average pay x completed year of service or part thereof in excess of 6 months.
Compensation received on voluntary retirement [Section 10(1OC)]
Any compensation received by an employee of a public-sector company or of any other
company or other specified bodies at the time of his voluntary retirement or termination of his
service is exempt up to a maximum limit of 5,00,000. However, such payment should be in
accordance with a scheme of voluntary retirement or in the case of a public-sector company. a
7 | P a g e
scheme of voluntary separation. Which should be in accordance with prescribed guidelines.
These guidelines may include ewnomic viability as one of the criteria.
Provident Fund
Provident fund scheme is a scheme intended to give substantial benefits to an employee at the
time of his retirement. Under this scheme, a specified sum is deducted from the salary of the
employee as his contribution towards the fund. The employer also generally contributes the
same amount out of his pocket, to the fund. The contribution of the employer and the
employee are invested in approved securities. Interest earned thereon is also credited to the
account of the employee. Thus, the credit balance in a provident fund account of an employee
consists of the following:
(i) employee's contribution
(ii) interest on employee's contribution
(iii) employer's contribution
(iv) interest on employer's contribution.
The accumulated balance is paid to the employee at the time of his retirement or resignation. In the
case of death of the employee the same is paid to his legal heirs.
The provident fund represents an important source of small savings available to the
Government. Hence, the Income-tax Act. 11 961 gives certain deductions on savings in a
provident fund account.
There are four types of provident funds:
(i) Statutory Provident Fund (SPF)
(ii) Recognized Provident Fund (RPF)
(iii) Unrecognized Provident Fund (URPF)
(iv) Public Provident Fund (PPF)
8 | P a g e
The tax treatment is given below:
Particulars Recognized PF lJnrecognized
PF
Statutory PF Public PF
Employer's
Contribution
Amount in excess of
12% of salary is
taxable
Not taxable
yearly
Fully exempt N.A. (as there is
only assessee's
own contribution)
Employee's
Contribution
Eligible for
deduction u/s BOC
Not eligible
for deduction
Eligible for
deduction u/s
BOC
Eligible for
deduction u/s
BOC
Interest Credited Amount in excess of
9.5% p.a. is taxable
Not taxable
yearly
Fully exempt Fully exempt
Amount received on
retirement, etc.
See Note (1) See Note (3) Fully exempt
u/s 10(11)
Fully exempt
u/s 10(11)
Notes:
(1) Amount received on the maturity of RPF is fully exempt in case of an employee who has
rendered continuous service for a period of 5 years or more. In case the maturity of RPF
takes place within 5 years then the amount received would be fully exempt only if the
service had been terminated due to employee's ill-health or discontinuance or contraction of
employer's business or other reason beyond control of the employee. In any other case.
The amount received will be taxable in the same manner as that of an URPF.
(2) If, after termination of his employee not with one employer, the employee obtains
employment under another employer, t1en, only so much of the accumulated balance in his
provident fund account will be exempt which is transferred to his individual account in a
recognized provident fund maintained by the new employer. In such a case. for
exemption of payment of accumulates balance by the new employer, the period of
service with the former employer shall also be taken into account for computing the
period of five years' continuous service.
(3) Employee's contribution is not taxable but interest thereon is taxable under 'Income from
Other Sources'. Employer's contribution and interest thereon is taxed as Salary.
(4) Salary for this purpose means basic salary and dearness allowance - if provided in the terms
of employment for retirement benefits and commission as a percentage of turnover.
9 | P a g e
(1) Statutory Provident Fund (SPF): The SPF is governed by Provident Funds Act,1925. It
applies to employees of government. railways. semi-government institutions. local bodies,
universities and all recognised educational institutions. Under the Income-tax Act. 1961, the
rules governing the SPF are as follows :
(2) Recognised Provident Fund (RPF): Recognized provident fund means a provident fund
recognised by the Commissioner of Income-tax for the purposes of income-tax. It is governed
by Part A of Schedule IV to the Income-tax Act. 1961. This schedule contains various rules
regarding the following:
(a) Recognition of the fund
(b} Employee’s and employer's contribution to the fund
(c) Treatment of accumulated balance etc.
A fund constituted under the Employees's Provident Fund and Miscellaneous Provisions Act.
1952 will also be a Recognized Provident Fund.
(3) Unrecognized Provident Fund (URPF) : A fund not recognised by the Commissioner of
Income-tax is Unrecognised Provident Fund.
Public Provident Fund (PPF): Public provident fund is operated under the Public Provident
Fund Act. 1968. A membership of the fund is open to every individual though it is ideally suited
to self-employed people. A salaried employee may also contribute to PPF in addition to the fund
operated by his employer. An individual may contribute to the fund on his own behalf as also on
behalf of a minor of whom he is the guardian.
For getting a deduction under section SOC, a member is required to contribute to the PPF a
minimum of Rs.500 in a year. The maximum amount that may qualify for deduction on
this account is Rs.1,00,000 as per PPF rules.
A member of PPF may deposit his contribution in as many installments in multiples of Rs.500
as is convenient to him. The sums contributed to PPF earn interest at S%. The amount of
contribution may be paid at any of the offices or branch offices of the State Bank of India or its
subsidiaries and specified branches of Nationalized Banks or any Head Post Office.
10 | P a g e
DEFINITION
The term 'salary' has been defined differently for different purposes in the Act. The definition as
to what constitutes salary is very wide. As already discussed earlier, it is an inclusive
definition and includes monetary as well as non-monetary items. There are different definitions of
'salary' say for calculating exemption in respect of gratuity, house rent allowance etc.
'Salary' under section 17(1), includes the following:
i. Wages
ii. Any annuity or pension
iii. Any gratuity
iv. any fees, commission, perquisite or profits in lieu of or in addition to any salary or wages,
v. any advance of salary,
vi. any payment received in respect of any period of leave not availed by him i.e. leave salary
or leave encashment.
vii. the portion of the annual accretion in aniy previous year to the balance at the credit of an
employee participating in a recognized provident fund to the extent it is taxable and
viii. Transferred balance in recognized provident fund to the extent it is taxable,
ix. The contribution made by the Central Government or any other employer in the previous
year to the account of an employee under a pension scheme referred to in section 80CCD.
11 | P a g e
ALLOWANCES
Allowance is defined as a fixed quantity of money or other substance given regularly in addition
to salary for meeting specific requirements of the employees. As a general rule, all allowances are
to be included in the total income unless specifically exempted. Exemption in respect of
following allowances is allowable to the extent mentioned against each:-
House Rent Allowance:- Provided that expenditure on rent is actually incurred, exemption
available shall be the least of the following :
(i) HRA received.
(ii) Rent paid less 10% of salary.
(iii) 40% of Salary (50% in case of Mumbai, Chennai, Kolkata, Delhi) Salary here means Basic +
Dearness Allowance, if dearness allowance is provided by the terms of employment.
Leave Travel Allowance: The amount actually incurred on performance of travel on leave to any
place in India by the shortest route to that place is exempt. This is subject to a maximum of the
air economy fare or AC 1st Class fare (if journey is performed by mode other than air) by such
route, provided that the exemption shall be available only in respect of two journeys performed in
a block of 4 calendar years.
Certain allowances given by the employer to the employee are exempt u/s 10(14). All these
exempt allowances are detailed in Rule 2BB of Income-tax Rules and are briefly given below:
For the purpose of Section 10(14) (i), following allowances are exempt, subject to actual
expenses incurred:
(i) Allowance granted to meet cost of travel on tour or on transfer.
(ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges
incurred by the employee.
(iii) Allowance granted to meet conveyance expenses incurred in performance of duty, provided
no free conveyance is provided.
(iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official
duty.
(v) Academic, research or training allowance granted in educational or research institutions.
(vi) Allowance granted to meet expenditure on purchase/ maintenance of uniform for
performance of official duty.
12 | P a g e
Under Section 10(14) (ii), the following allowances have been prescribed as exempt:
Sr. No. Types of Allowances Amount Exempt
1 Special Compensatory Allowance for hilly areas
or high altitude allowance or climate allowance.
Rs.800 common for various areas of
North East, Hilly areas of U.P., H.P. &
J&K and Rs. 7000 per month for
Siachen area of J&K and Rs.300
common for all places at a height of
1000 mts or more other than the above
places.
2 Border area allowance or remote area allowance
or a difficult area allowance or disturbed area
allowance
Various amounts ranging from Rs.200
per month to Rs.1300 per month are
exempt for various areas specified in
Rule 2BB
3 Tribal area/Schedule area/Agency area allowance
available in M.P., Assam, U.P., Karnataka, West
Bengal, Bihar, Orissa, Tamil Nadu, Tripura - See
more at: http://taxguru.in/income-tax/taxability-
salary-income-perquisites-
allowances.html#sthash.ah4PBgaE.dpuf
Rs.200 per month.
4 Any allowance granted to an employee working
in any transport system to meet his personal
expenditure during duty performed in the course
of running of such transport from one place to
another place
70% of such allowance upto a
maximum of Rs.6000 per month
5 Children education allowance. Rs. 100 per month per child upto a
maximum 2 children
6 Allowance granted to meet hostel expenditure on
employee’s child
Rs.300 per month per child upto a
maximum two children.
7 Compensatory field area allowance available in
various areas of Arunachal Pradesh, Manipur
Rs.2600 per month.
13 | P a g e
Sikkim, Nagaland, H.P., U.P. & J&K
8 Compensatory modified field area allowance
available in specified areas of Punjab, Rajsthan,
Haryana, U.P., J&K, H.P., West Bengal & North
East
Rs. 1000 per month
9 Counter insurgency allowance to members of
Armed Forces - See more at:
http://taxguru.in/income-tax/taxability-salary-
income-perquisites-
allowances.html#sthash.ah4PBgaE.dpuf
Rs.3 900 Per month
10 Transport Allowance
granted to an employee to meet his expenditure
for the purpose of commuting between the place
of residence & duty
Rs.800 per month.
11 Transport allowance
granted to physically disabled employee for the
purpose of commuting between place of duty and
residence
Rs. 1600 per month.
12 Underground allowance granted to an employee
working in under ground mines
Rs.800 per month.
13 Special allowance in the nature of high altitude
allowance granted to members of the armed
forces
Rs. 1060 p.m. (for altitude of 9000-
15000 ft.) Rs.1600 p.m. (for altitude
above 15000 ft.
14 Any special allowance granted to the members of
the armed forces in the nature of special
compensatory highly active field area
Rs. 4,200/- per month.
15 Special allowance granted to members of armed
forces in the nature of island duty allowance.(in
Andaman & Nicobar& Lakshadweep Group of
Islands
Rs. 3,250/- p.m.
Different types of allowances are given to employees by their employers. Generally
14 | P a g e
allowances are given to employees to meet some particular requirements like house rent,
expenses on uniform. conveyance etc. Under the Income-tax Act. 1961, allowance is taxable on
due or receipt basis, whichever is earlier. Various types of allowances normally in vogue are
discussed below:
Allo1wances
Fully Taxable Partl1f Taxable Fully Exempt
(i) Entertainment Allowance (i) House Rent (i) Allowance granted to
(ii) Dearness Allowance Allowance [u/s Government employees
(iii) Overtime Allowance 10(13A)] outside India.
(iv) Fixed Medical Allowance
(v) City Compensatory
Allowance
(vi) Interim Allowance (to meet
increased cost of living in
cities)
(vii) Servant Allowance
(viii) Project Allowance
(ix) Tiffin/Lunch/Dinner
(ii) SpelCial
Allowances
10(14)]
[u/s
(ii)
(iii)
(iv)
Sumptuary allowance
granted to High Court or
Supreme Court Judges
Allowance paid by the
United Nations
Organization.
Compensatory
Allowance received by a
judge
Allowance
(x) Any other cash allowance
(xi) Warden Allowance
(xii) Non-practicing Allowance
Allowances which are fully taxable
1. City compensatory allowance: City Compensatory Allowance is normally intended to
compensate the employees for the higher cost of living in cities. It is taxable irrespective of
the fact whether it is given as compensation for performing his duties in a particular place or
under special circumstances.
2. Entertainment allowance:This allowance is given to employees to meet the expenses
towards hospitality in receiving customers etc. The Act gives a deduction
towards entertainment allowance only to a Government employee . The details of deduction
permissible are discussed later on in this Unit.
3. Allowances which are partially taxable:
I. House rent allowance [Section 10(13Jl\)] :Refer to Chapter 3 for detailed discussion.
II. Special allowances [Section 10(14)] : Refer to Chapter 3 for
details.
15 | P a g e
Allowances which are fully exempt:
1. Allowance to High Court Judges: Any allowance paid to a Judge of a High Court
under section 22A(2) of the High Court Judges (Conditions of Service) Act, 1954 is
not taxable.
2. Allowance received from United Nations Organisation (UNO): Allowance paid by the
UNO to its employees is not taxable by virtue of section 2 of the United Nations (Privileges and
Immunities) Act, 1974.
3. Compensatory allowance under Article 222(2) of the Constitution: Compensatory
allowance received by judge under Article 2; 2(2) of the Constitution is not taxable since it is
neither salary not perquisite-Bishamber Dayal v. C/T[1976J 103 ITR 813 (MP) .
4. Sumptuary allowance: Sumptuary allowance given to High Court Judges under section
22C of the High Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges
under section 238 of the Supreme Court Judges (Conditions of Service) Act, 1958 is not
chargeable to tax.
16 | P a g e
PERQUISITES
“Perquisite” may be defined as any casual emolument or benefit attached to an office or
position in addition to salary or wages.
“Perquisite” is defined in the section 17(2) of the Income tax Act as including:
i. Value of rent-free/concessional rent accommodation provided by the employer.
ii. Any sum paid by employer in respect of an obligation which was actually payable by the
assessee.
iii. Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
iv. The value of any specified security or sweat equity shares allotted or transferred, directly or
indirectly, by the employer, or former employer, free of cost or at concessional rate to the
assesssee.
v.The amount of any contribution to an approved superannuation fund by the exployer in
respect of the assessee, to the extent it exceeds one lakh rupees; and
vi. The value of any other fringe benefit or amenity as may be prescribed.
Valuation of perquisites
As a general rule, the taxable value of perquisites in the hands of the employees is its cost to the
employer. However, specific rules for valuation of certain perquisites have been laid down in
Rule 3 of the I.T. Rules. These are briefly given below.
Valuation of residential accommodation provided by the employer: -
1. Union or State Government Employees- The value of perquisite is the license fee as
determined by the Govt. as reduced by the rent actually paid by the employee.
2. Non-Govt. Employees- The value of perquisite is an amount equal to 15% of the salary in
cities having population more than 25 lakhs, (10% of salary in cities where population as
per 2001 census is exceeding 10 lakh but not exceeding 25 lakh and 7.5% of salary in
areas where population as per 2001 census is 10 lakh or below). In case the
accommodation provided is not owned by the employer, but is taken on lease or rent, then
the value of the perquisite would be the actual amount of lease rent paid/payable by the
employer or 15% of salary, whichever is lower. In both of above cases, the value of the
perquisite would be reduced by the rent, if any, actually paid by the employee.
3. Value of Furnished Accommodation- The value would be the value of unfurnished
17 | P a g e
accommodation as computed above, increased by 10% per annum of the cost of furniture
(including TV/radio/ refrigerator/AC/other gadgets). In case such furniture is hired from a
third party, the value of unfurnished accommodation would be increased by the hire
charges paid/payable by the employer. However, any payment recovered from the
employee towards the above would be reduced from this amount.
4. Value of hotel accommodation provided by the employer- The value of perquisite arising
out of the above would be 24% of salary or the actual charges paid or payable to the
hotel, whichever is lower. The above would be reduced by any rent actually paid or
payable by the employee. It may be noted that no perquisite would arise, if the employee
is provided such accommodation on transfer from one place to another for a period of 15
days or less.
5. Perquisite of motor car provided by the employer– w.e.f.. 1-4-2008, if an employer
providing such facility to his employee is not liable to pay fringe benefit tax, the value of
such perquisite shall be:
i. Nil, if the motor car is used by the employee wholly and exclusively in the
performance of his official duties.
ii. Actual expenditure incurred by the employer on the running and maintenance of motor
car, including remuneration to chauffeur as increased by the amount representing
normal wear and tear of the motor car and as reduced by any amount charged from the
employee for such use (in case the motor car is exclusively for private or personal
purposes of the employee or any member of his household).
iii. Rs. 1800- (plus Rs. 900-, if chauffeur is also provided) per month (in case the motor
car is used partly in performance of duties and partly for private or personal purposes
of the employee or any member of his household if the expenses on maintenance and
running of motor car are met or reimbursed by the employer). However, the value of
perquisite will be Rs. 2400- (plus Rs. 900-, if chauffeur is also provided) per month if
the cubic capacity if engine of the motor car exceeds 1.6 litres.
iv. Rs. 600- (plus Rs. 900-, if chauffeur is also provided) per month (in case the motor car
is used partly in performance of duties and partly for private or personal purposes of
the employee or any member of his household if the expenses on maintenance and
running of motor car for such private or personal use are fully met by the employee).
However, the value of perquisite will be Rs. 900- (plus Rs. 900-, if chauffeur is also
18 | P a g e
provided) per month if the cubic capacity of engine of the motor car exceeds 1.6 litres.
v. If the motor car or any other automotive conveyance is owned by the employee but the
actual running and maintenance charges are met or reimbursed by the employer, the
method of valuation of perquisite value is different. (See Rule 3(2)).
6. Perquisite arising out of supply of gas, electric energy or water: This shall be determined as
the amount paid by the employer to the agency supplying the same. If the supply is from the
employer’s own resources, the value of the perquisite would be the manufacturing cost per
unit incurred by the employer. However, any payment received from the employee towards
the above would be reduced from the amount [Rule 3(4)]
7. Free/Concessional Educational Facility: Value of the perquisite would be the expenditure
incurred by the employer. If the education institution is maintained & owned by the
employer, the value would be nil if the value of the benefit per child is below Rs. 1000/- P.M.
or else the reasonable cost of such education in a similar institution in or near the locality.
[Rule 3(5)].
8. Free/Concessional journeys provided by an undertaking engaged in carriage of passengers or
goods: Value of perquisite would be the value at which such amenity is offered to general
public as reduced by any amount, if recovered from the employee. However, these provisions
are not applicable to the employees of an airline or the railways.
9. Provision for sweeper, gardener, watchman or personal attendant: The value of benefit
resulting from provision of any of these shall be the actual cost borne by the employer in this
respect as reduced by any amount paid by the employee for such services. (Cost to the
employer in respect to the above will be salary paid/payable). [Rule 3(3)].
10. Value of certain other fringe benefits:
i. Interest free/concessional loans– The value of the perquisite shall be the excess of interest
payable at the prescribed interest rate over, interest, if any, actually paid by the employee
or any member of his household. The prescribed interest rate would be the rate charged by
State Bank of India as on the 1st Day of the relevant Previous Year in respect of loans of
the same type and for same purpose advanced by it to general public. Perquisite to be
calculated on the basis of the maximum outstanding monthly balance method. However,
loans upto Rs. 20,000/-, loans for medical treatment specified in Rule 3A are exempt
provided the same are not reimbursed under medical insurance.
ii. Value of free meals- The perquisite value in respect of free food and non-alcoholic
19 | P a g e
beverages provided by the employer, not liable to pay fringe benefit tax, to an employee
shall be the expenditure incurred by the employer as reduced by the amount paid or
recovered from the employee for such benefit or amenity. However, no perquisite value
will be taken if food and non-alcoholic beverages are provided during working hours and
certain conditions specified under Rule 3(7)(iii) are satisfied.
iii. Value of gift or voucher or token– The perquisite value in respect of any gift, or voucher,
or taken in lieu of which such gift may be received by the employee or member of his
household from the employer, not liable to pay fringe benefit tax, shall be the sum equal to
the amount of such gift, voucher or token. However, no perquisite value will be taken if
the value of such gift, voucher or taken is below Rs. 5000- in the aggregate during the
previous years.
iv. Credit card provided by the employer– The perquisite value in respect of expenses
incurred by the employee or any of his household members, which are charged to a credit
card provided by the employer, not liable to pay fringe benefit tax, which are paid or
reimbursed by such employer to an employee shall be taken to be such amount paid or
reimbursed by the employer. However, no perquisite value will be taken if the expenses
are incurred wholly and exclusively for official purposes and certain conditions mentioned
in Rule 3(7)(v) are satisfied.
v. Club membership provided by the employer– The perquisite value in respect of amount
paid or reimbursed to an employee by an employer, not liable to pay fringe benefit tax,
against the expenses incurred in a club by such employee or any of his household
members shall be taken to be such amount incurred or reimbursed by the employer as
reduced by any amount paid or recovered from the employee on such account. However,
no perquisite value will be taken if the expenditure is incurred wholly any exclusively for
business purposes and certain conditions mentioned in Rule 3(7)(vi) are satisfied.
11. The value of any other benefit or amenity provided by the employer shall be determined on the
basis of cost to the employer under an arms’ length transaction as reduced by the employee’s
contribution.
12. The fair market value of any specified security or sweat equity share, being an equity share in a
company, on the date on which the option is exercised by the employee, shall be determined as
follows: -
i. In a case where, on the date of exercising of the option, the share in the company is listed
20 | P a g e
on a recognized stock exchange, the fair market value shall be the average of the opening
price and closing price of the share on the date on the said stock exchange.
ii. In a case where, on the date of exercising of the option, the share in the company is not
listed on a recognized stock exchange, the fair market value shall be such value of the
share in the company as determined by a merchant banker on the specified date.
iii. The fair market value of any specified security, not being an equity share in a company, on
the date on which the option is exercised by the employee, shall be such value as
determined by a merchant banker on the specified date.
13. Valuation of benefit of provision of domestic servants [Sub-rule (3) of Rule 3)
(i) The value of benefit to the employee or any member of his household resulting from the
provision by the employer of th1e services of a sweeper, a gardener, a watchman or a personal
attendant. shall be the actual cost to the employer.
(ii) The actual cost in such a case shall! be the total amount of salary paid or payable by the
employer or any other person on his behalf for such services as reduced by any amount paid
by the employee for such services.
14. Valuation of gas, electricity or water supplied by employer [Sub-rule (4) of Rule 3)
(i) The value of the benefit to the employee resulting from the supply of gas, electric energy
or water for his household consumption shall be determined as the sum equal to the
amount paid on that account by the employer to the agency supplying the gas, electric energy
or water.
(ii) Where such supply is made from resources owned by the employer, without
purchasing them from any other outside agency, the value of perquisite would be the
manufacturing cost per unit inc1Urred by the employer.
(iii) Where the employee is paying any amount in respect of such services, the amount so paid
shall be deducted from the value so arrived at.
15. Valuation of free or concessional educational facilities [Sub-rule (5) of Rule 3)
i. The value of benefit to the employee resulting from the provision of free or
concessional educational facilities for any member of his household shall be
determined as the sum equal to the amount of expenditure incurred by the employer in that
behalf or where the educational institution is itself maintained and owned by the employer
or where free educational facilities for such member of employees ' household are
21 | P a g e
allowed in any other educational institution by reason of his being in employment of that
employer, the value of the perquisite to the employee shall be determined with reference
to the cost of such education in a similar institution in or near the locality.
ii. Where any amount is paid, or recovered from the employee on that account. the value
of benefit shall be reduced by the amount so paid or recovered.
iii. However, where the educational institution itself is maintained and owned by the
employer and free educational facilities are provided to the children of the employee or
where such free educationa l facilities are provided in any institution by reason of his being
in employment of that employer, there would be no perquisite if the cost of such education
or the value of such benefit per child does not exceed 1,000 p.m.
16. Valuation of specified security or sweat equity share for the purpose of section
17(2)(vi) [Sub-rule (8)] - The fair market valU1e of any specified secur ity or sweat equity share,
being an equity share in a company, on the date on which the option is exercised by the
employee, shall be determined in the following manner –
i. In a case where, on the date of the exe1rcising of the option, the share in the company is
listed on a recognized stock exchange, the fair market value shall be the average of the
opening price and closing price of the share on that date on the said stock exchange .
ii. However, where, on the date of exerc ising of the option, the share is listed on more than
one recognized stock exchanges, the fair market value shall be the average of opening
price and closing price of the share on the recognized stock exchange which records the
highest volume of trading in the share.
iii. Further, where on the date of exercising1 of the option, there is no trading in the share on
any recognized stock exchange, the fair market value shall be:
a. the closing price of the share on any recognised stock exchange on a date
closest to the date of exercising of the option and immediately preceding such
date; or
b. the closing price of the share on a recognised stock exchange, which records
the highest volume of trading in such share, if the closing price, as on the date
closest to the date of exercising of the option and immediately preceding
such date, is recorded on more than one recogn zed stock exchange.
22 | P a g e
"Closing price" of a share on a recognisi d stock exchange on a date shall be the price of the
last settlement on such date on such stock exchange. However, where the stock exchange
quotes both "buy" and "sell" prices, the closing price shall be the "sell" price of the last
settlement.
"Opening price" of a share on a recogn sed stock exchange on a date shall be the price of the
first settlement on such date on such stock exchange. However, where the stock exchange
quotes both "buy" and "sell" p1rices, the opening price shall be the "sell" price of the first
settlement.
iv. In a case where, on the date of exercising of the option, the share in the company is not
listed on a recognised stock exchange, the fair market value shall be such value of the
share in the company as determined by a merchant banker on the spec ified date.
For this purpose, "spec ified date" means,
(i) the date of exerc ising of the option or
(ii) any date earlier than the date of thie exercising of the option, not being a date which
is more than 180 days earlier than the date of the exercising.
Note: Where any amount has been re·covered from the employee, the same shall be
deducted to arrive at the value of perquisites.
Perquisites exempt from income tax
Some instances of perquisites exempt from tax are given below:
Provision of medical facilities (proviso to sec. 17(2)): value of medical treatment in any hospital
maintained by the government or any local authority or approved by the chief commissioner of
income-tax. Besides, any sum paid by the employer towards medical reimbursement other than as
discussed above is exempt up to Rs. 15,000/-.
Perquisites allowed outside India by the government to a citizen of India for rendering services
outside India (sec. 10(7)). Rent free official residence provided to a judge of high court or
supreme court or an official of parliament, union minister or leader of opposition in parliament.
No perquisite shall arise if interest free/concessional loans are made available for medical
treatment of specified diseases in rule 3a or where the loan is petty not exceeding in the aggregate
Rs.20,000/-
No perquisite shall arise in relation to expenses on telephones including a mobile phone incurred
on behalf of the employee by the employer.
23 | P a g e
DEDUCTIONS (SECTION 80C)
Under section 80C, a deduction of Rs 1,50,000 can be claimed from your total income. In simple
terms, you can reduce up to Rs 1,50,000 from your total taxable income through section 80C.
This deduction is allowed to an Individual or a HUF.
Section 80CCC: Deduction for Premium Paid for Annuity Plan of LIC or Other Insurer
This section provides deduction to an Individual for any amount paid or deposited in any annuity
plan of LIC or any other insurer. The plan must be for receiving pension from a fund referred to
in Section 10(23AAB).
If the annuity is surrendered before the date of its maturity, the surrender value is taxable in the
year of receipt.
Section 80CCD: Deduction for Contribution to Pension Account
Employee's contribution – Section 80CCD(1) Allowed to an Individual who makes deposits to
his/her Pension account. Maximum deduction allowed is 10% of salary (in case of taxpayer being
an employee) or 10% of gross total income (in case of tax payer being self-employed) or Rs
1,00,000 whichever is less. The limit of Rs 1,00,000 has been increased to Rs 1,50,000 starting
financial year 2015-16 (assessment year 2016-17).
Deduction for self-contribution to NPS - section 80CCD(1B) A new section 80CCD(1B) has
been introduced for additional deduction for amount deposited by a taxpayer to their NPS
account . Contributions to Atal Pension Yojana are also eligible. Deduction is allowed on
contribution up to Rs 50,000.
Employer's contribution – Section 80CCD(2) Deduction is allowed for employer's contribution to
employee’s pension account up to 10% of the salary of the employee. There is no monetary
ceiling on this deduction.
Section 80 TTA: Deduction from gross total income for Interest on Savings bank account
A deduction of maximum Rs 10,000 can be claimed against interest income from a savings bank
account. Interest from savings bank account should be first included in other income and
deduction can be claimed of the total interest earned or Rs 10,000, whichever is less. This
deduction is allowed to an individual or HUF. And it can be claimed for interest on deposits in
savings account with a bank, co-operative society or post office. Section 80TTA deduction is not
available on interest income from fixed deposits or recurring deposits or interest income from
corporate bonds.
24 | P a g e
Deductions on House Rent
Section 80GG: Deduction for House Rent Paid where HRA is not received
This deduction is available for rent paid when HRA is not received. Taxpayer or his
spouse or minor child should not own residential accommodation at the place of employment.
Taxpayer should not have self-occupied residential property in any other place.
Taxpayer must be living on rent and paying rent.
Deduction available is the minimum of
1. Rent paid minus 10% of total income
2. Rs. 2000/- per month
3. 25% of total income
For Financial year 2016-17 – For calculating deduction above, Rs 2,000 per month has been
raised to Rs 5,000 per month. Therefore a maximum of Rs 60,000 per annum can be claimed as a
deduction.
Deductions on Education Loan for Higher Studies
Section 80E: Deduction for Interest on Education Loan for Higher Studies
Deduction is allowed for interest on loan taken for pursuing higher education. This loan may
have been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a
legal guardian. The deduction is available for a maximum of 8 years or till the interest is paid,
whichever is earlier. There is no restriction on the amount that can be claimed.
Deduction for First Time Home Owners
Section 80EE: Deductions on Home Loan Interest for First Time Home Owners
For Financial Year 2013-14 and Financial Year 2014-15
This section provided deduction on the Home Loan Interest paid. The deduction under this
section is available only to Individuals for first house purchased where the value of the house is
Rs 40lakhs or less and loan taken for the house is Rs 25lakhs or less. And the Loan has been
sanctioned between 01.04.2013 to 31.03.2014. The aggregate deduction allowed under this
25 | P a g e
section cannot exceed Rs 1,00,000 and is allowed for financial years 2013-14 & 2014-15
(Assessment year 2014-15 and 2015-16).
This deduction is not available for financial year 2015-16 (assessment year 2016-17).
For Financial Year 2016-17
This section was revived in Budget 2016 and is applicable starting FY 2016-17. The deduction
under this section is available only to an Individual who is a first time home owner. The value of
the property purchased must be less than Rs 50 Lakhs and home loan must be less than Rs 35
lakhs. And the Loan must be taken from a financial institution and must be sanctioned between
01.04.2016 to 31.03.2017. Under this section, an additional deduction of Rs 50,000 can be
claimed on home loan interest. This is in addition to deduction of Rs 2,00,000 allowed under
section 24 of the income tax act for a self-occupied house property. There is no restriction on the
number of years for which this deduction can be claimed.
Deductions on Rajiv Gandhi Equity Saving Scheme (RGESS)
Section 80CCG: Rajiv Gandhi Equity Saving Scheme (RGESS)
The Rajiv Gandhi Equity Saving Scheme (RGESS) was launched after the 2012 Budget.
Investors whose gross total income is less than Rs. 12 lakhs can invest in this scheme. Upon
fulfilment of conditions laid down in the section, the deduction is lower of, 50% of amount
invested in equity shares or Rs 25,000.
Deductions on Medical Insurance
Section 80D: Deduction for premium paid for Medical Insurance
For financial year 2014-15 - Deduction is available up to Rs. 15,000/- to a taxpayer for insurance
of self, spouse and dependent children. If individual or spouse is more than 60 years old the
deduction available is Rs 20,000. An additional deduction for insurance of parents (father or
mother or both) is available to the extent of Rs. 15,000/- if less than 60 years old and Rs 20,000 if
parents are more than 60 years old. Therefore, the maximum deduction available under this
section is to the extent of Rs. 40,000/-. (From AY 2013-14, within the existing limit a deduction
of up to Rs. 5,000 for preventive health check-up is available).
For financial year 2015-16– Deduction is raised from Rs 15,000 to Rs 25,000. The deduction for
senior citizens is raised from Rs 20,000 to Rs 30,000. For uninsured super senior citizens (more
than 80 years old) medical expenditure incurred up to Rs 30,000 shall be allowed as a deduction
26 | P a g e
under section 80D. However, total deduction for health insurance premium and medical expenses
for parents shall be limited to Rs 30,000.
Deductions on Medical Expenditure for a Handicapped Relative
Section 80DD: Deduction for Rehabilitation of Handicapped Dependent Relative
Deduction is available on:
1. Expenditure incurred on medical treatment, (including nursing), training and rehabilitation
of handicapped dependent relative
2. Payment or deposit to specified scheme for maintenance of dependent handicapped
relative.
Where disability is 40% or more but less than 80% - fixed deduction of Rs 50,000.
Where there is severe disability (disability is 80% or more) – fixed deduction of Rs 1,00,000.A
certificate of disability is required from prescribed medical authority.
Note: A person with 'severe disability' means a person with 80% or more of one or more
disabilities as outlined in section 56(4) of the 'Persons with disabilities (Equal opportunities,
protection of rights and full participation)' Act.
Certificate can be taken from a Specialist as specified.
Patients getting treated in a private hospital are not required to take the certificate from a
government hospital.
Patients receiving treatment in a government hospital have to take certificate from any
specialist working full-time in that hospital. Such specialist must have a post-graduate
degree in General or Internal Medicine or any equivalent degree, which is recognised by
the Medical Council of India.
Certificate in Form 10I is no longer required. The certificate must have - name and age of
the patient, name of the disease or ailment, name, address, registration number and the
qualification of the specialist issuing the prescription. If the patient is receiving the
treatment in a Government hospital, it should also have name and address of the
Government hospital.
For financial year 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and
Rs 1,00,000 has been raised to Rs 1,25,000.
Deductions on Medical Expenditure on Self or Dependent Relative
27 | P a g e
Section 80DDB: Deduction for Medical Expenditure on Self or Dependent Relative
A deduction Rs. 40,000/- or the amount actually paid, whichever is less is available for
expenditure actually incurred by resident taxpayer on himself or dependent relative for medical
treatment of specified disease or ailment.
The diseases have been specified in Rule 11DD. A certificate in form 10 I is to be furnished by
the taxpayer from any Registered Doctor.
In case of senior citizen the deduction can be claimed up to Rs 60,000 or amount actually paid,
whichever is less.
For financial year 2015-16 – for very senior citizens Rs 80,000 is the maximum deduction that
can be claimed.
Deductions for Person suffering from Physical Disability
Section 80U: Deduction for Person suffering from Physical Disability
Deduction of Rs. 50,000/- to an individual who suffers from a physical disability (including
blindness) or mental retardation. In case of severe disability, deduction of Rs. 100,000 can be
claimed. Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D. This
is a fixed deduction and not based on bills or expenses.
For financial year 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and
Rs 1,00,000 has been raised to Rs 1,25,000.
Deduction for donations towards Social Causes
Section 80G: Deduction for donations towards Social Causes
The various donations specified in Sec. 80G are eligible for deduction up to either 100% or 50%
with or without restriction as provided in Sec. 80G. 80G deduction not applicable in case
donation is done in form of cash for amount over Rs 10,000.
Donations with 100% deduction without any qualifying limit:
National Defence Fund set up by the Central Government
Prime Minister's National Relief Fund
National Foundation for Communal Harmony
28 | P a g e
An approved university/educational institution of National eminence
Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of
that district
Fund set up by a State Government for the medical relief to the poor
National Illness Assistance Fund
National Blood Transfusion Council or to any State Blood Transfusion Council
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities
National Sports Fund
National Cultural Fund
Fund for Technology Development and Application
National Children's Fund
Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund with respect to any
State or Union Territory
The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force
Central Welfare Fund, Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996
The Maharashtra Chief Minister's Relief Fund during October 1, 1993 and October 6,1993
Chief Minister's Earthquake Relief Fund, Maharashtra
Any fund set up by the State Government of Gujarat exclusively for providing relief to the
victims of earthquake in Gujarat
Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the
victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30,
2001) or
Prime Minister's Armenia Earthquake Relief Fund
Africa (Public Contributions — India) Fund
Swachh Bharat Kosh (applicable from financial year 2014-15)
Clean Ganga Fund (applicable from financial year 2014-15)
National Fund for Control of Drug Abuse (applicable from financial year 2015-16)
29 | P a g e
Donations with 50% deduction without any qualifying limit.
Jawaharlal Nehru Memorial Fund
Prime Minister's Drought Relief Fund
Indira Gandhi Memorial Trust
The Rajiv Gandhi Foundation
Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total
income
Government or any approved local authority, institution or association to be utilised for the
purpose of promoting family planning
Donation by a Company to the Indian Olympic Association or to any other notified
association or institution established in India for the development of infrastructure for sports and
games in India or the sponsorship of sports and games in India.
Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total
income
Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)
Government or any local authority to be utilised for any charitable purpose other than the
purpose of promoting family planning
Any authority constituted in India for the purpose of dealing with and satisfying the need
for housing accommodation or for the purpose of planning, development or improvement of
cities, towns, villages or both
Any corporation referred in Section 10(26BB) for promoting interest of minority
community
For repairs or renovation of any notified temple, mosque, gurdwara, church or other place.
Deductions on Contribution by Companies to Political Parties
Section 80GGB: Deduction on contributions given by companies to Political Parties
Deduction is allowed to an Indian company for amount contributed by it to any political party or
an electoral trust. Deduction is allowed for contribution done by any way other than cash.
Political party means any political party registered under section 29A of the Representation of the
People Act. Contribution is defined as per section 293A of the Companies Act, 1956.
30 | P a g e
Deductions on Contribution by Individuals to Political Parties
Section 80GGC: Deduction on contributions given by any person to Political Parties
Deduction is allowed to a taxpayer for any amount contributed to any political party or an
electoral trust. Deduction is allowed for contribution done by any way other than cash.
Political party means any political party registered under section 29A of the Representation of the
People Act.
Deductions on Income by way of Royalty of a Patent
Section 80RRB: Deduction with respect to any Income by way of Royalty of a Patent
Deduction for any income by way of royalty for a patent registered on or after 01.04.2003 under
the Patents Act 1970 shall be available up to Rs. 3 lakhs or the income received, whichever is
less. The taxpayer must be an individual resident of India who is a patentee. The taxpayer must
furnish a certificate in the prescribed form duly signed by the prescribed authority.
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ILLUSTRATIONS
1.Mr. Goyal receives the following emoluments during the previous year ending 31.03.2014.
Particulars Rs.
Basic Pay 40000
Dearness Allowance 15000
Commission 10000
Entertainment allowance 4000
Medical expenses reimbursed 25000
Professional tax paid 3000 (2000 was paid his employer)
Mr. Goyal contributes f 5,000 towards recognized provident fund. He has no other income.
Determine the income from salary for A. Y.2014-15, if Mr. Goyal is a State Government employee.
Solution:
Computation of salary of Mr. Goyal for the A.Y. 2014-15
Particulars Rs. Rs.
Basic Salary
25,000
40,000
Dearness Allowance 15,000
Commission 10,000
Entertainment Allowance received 4,000
Employee's contribution to RPF (Note) -
Medical expenses reimbursed
Less: Exempt medical expenses 15,000 10.000
Professional tax paid by the employer
4,000
2,000
Gross Salary 81,000
Less: Deductions under section 16
4,000
under section 16(ii) Entertainment allowance being lower of :
(a) Allowance received
(b) One fifth of basic salary 1115 x 40,000] 8,000
(c) Statutory amount 5,000
- under section 16(iii) Professional tax paid 3,000
Income from Salary 74,000
Note: Employee's contribution to RPF is not taxable. It is eligible for deduction under
section 80C.
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2. Mr. X is employed with AB Ltd. on a monthly salary of Rs. 25,000 per month and an
entertainment allowance and commission or Rs.1,000 p.m. each. The company provides him with the
following benefits:
1. A company owned accommodation is provided to him in Delhi. Furniture costing
Rs. 2,40,000 was provided on 1.8.2013.
2. A personal loan of Rs. 5,00,000 on 1.7.2013 on which it charges interest @ 6.75% p.a. The
entire loan is still outstanding. (Assume SB! rate of interest to be 12.75%p.a.)
3. His son is allowed to use a motor cycle belonging to the company. The company had purchased
this motor cycle for Rs. 60,000 on 1.5.2010. The motor cycle was finally sold to him on 1.8.2013
for r 30,000.
4. Professional tax paid by Mr. X is Rs. 2,000.
Compute the income from salary of Mr. X for the A. Y.2014-15.
Solution:
Computation of salary of Mr. Goyal for the A.Y. 2014-15
Particulars Rs. Rs.
Basic salary [( 25,000 x 121 "
Commission [( 1,000 x 12] 12,000
Entertainment allowance [( 1,000 x 121 12,000
Rent free accommodation [Note 1) 48,600
Add : Value of furniture [( 2,40,000 x 10% p.a. for 8 months] 16,000 64,600
Interest on personal loan [Note 2) 22,500
Use of motor cycle [( 60,000 x 10% p.a. for 4 months] 2,000
Transfer of motor cycle [Note 3) 12,000
Gross Salary 4,25,100
2,000
Less : Deduction under section 16(iii)
Professional tax paid
Income from Salary 4,23,100
Note 1: Value of rent free unfurnished accommodation
= 15% of salary for the relevant period
= 15% of (3,00,000 +12,000 + 12,000)= Rs. 48,600
Note 2: Value of perquisite for interest on pe1rsonal loan
= [5,00,000 x 12.75% - 6.75%) for 9 months!= Rs. 22,500
Note 3: Depreciated value of the motor cycle
= Original cost - Depreciation @ 10% p.a. for 3 completed years.
= ( 60,000 - 60,000 x 10% p.a. x 3 years) = Rs. 42,000. Perquisite = ( 42,000 - 30,000 = Rs
.12,000.
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3. Compute the taxable value of the perquisite in respect of medical facilities received by
Mr. G from his employer during the P. Y.2013- 14:
Particulars Amount (Rs)
Medical premium paid for insuring health of Mr. G 7000
Treatment of Mr. G by his family doctor 5000
Treatment of Mrs. Gin a Government hospita1I 25000
Treatment of Mr. G'sgrandfather in private clinic 12000
Treatment of Mr. G's mother (68years and dependent) by family doctor 8000
Treatment of Mr. G's sister (dependent) in a nursing home 3000
Treatment of Mr. G's brother (independent) 6000
Treatment of Mr. G's father (75years and dependent) 50000
abroad Expenses of staying abroad of the patient 30000
Limit specified by RBI 75000
Solution:
Computation of salary of Mr. Goyal for the A.Y. 2014-15
Particulars
Treatment of Mrs. G in a Government hospit.al
Treatment of Mr. G's father (75 years and dependents) abroad " 50,000
"-
Expenses of staying abroad of the patient and attendant 30,000
Less : Exempt up to limit specified by RBI
80,000
75,000
5,000
Medical premium paid for insuring health of Mr. G
5,000
-
Treatment of Mr. G by his family doctor
1,000
Treatment of Mr. G's mother (dependent) by family doctor 8,000
Treatment of Mr. G's sister (dependent) in a nursing home 3,000
Less: Exempt up to 15,000
16,000
15,000
Add: Treatment of Mr. G's grandfather in a private clinic 12,000
Add: Treatment of Mr. G's brother 6000
(independent) Taxable value of perquisite 24000
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BIBLIOGRAPHY
https://cleartax.in/Guide/Section80Deductions
http://www.caclubindia.com/experts/retrenchment-benefit-486770.asp
http://taxguru.in/income-tax/leave-encashment-leave-salary-tax-treatment-sec-1010aa.html
http://taxguru.in/income-tax/taxability-salary-income-perquisites- allowances.html
#sthash.ah4PBgaE.dpuf