Applied Tax 33-82

INCOME FROM SALARIES
STUDY NOTE - 4
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 how to value perquisites and what deductions are available from salary has been dealt with under this head of income. 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 income from 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 between the 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 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 or Sacrificing of salary : Once salary accrues, the subsequent waiver by the employee does not absolve him from liability to incometax. 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 Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered would be exempt while computing his 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 and also the tax on this salary paid by the employer. This means both the salary and the tax paid thereon will be 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 of the 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 the value of the watch can be taxed in the hands of the employee. Courts have taken the view that such gifts are not taxable. However, in these cases it is important that such gifts must be given to employees pursuant
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Applied Direct Taxation
to a scheme applicable to employees in general. If gifts are given purely on a selective basis they will become chargeable in the hands of the recipient. However, due to the levy of Fringe Benefit Tax, these gifts will 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 not charged 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/falling due, 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 even if (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 accrue or 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 to accrue or arise in India. U/s 10(7), any allowance or perquisites paid or allowed outside India by the Government to a citizen of India 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
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Contribution made by Central Government or any other employer (w.e.f. A.Y.2008-09) in the previous year 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 Employers 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 of employment.
Specified Employee An 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 including a company) excluding non-monetary payments exceeds ` 50,000. For the above purpose, salary, should be arrived at after making the following deductions: (a) Entertainment Allowance (b) Professional Tax TAXABILITY OF ALLOWANCES Fully taxable allowances without any exemptions : 1. Basic Salary 2. Dearness Allowance 3. Advance Salary 4. Arrears of Salary 5. City Compensatory Allowance 6. Bonus 7. Commission as a percentage on turnover 8. Fixed Medical Allowance
9. 10. 11. 12. 13. 14. 15. 16.
Fees Lunch/Tiffin Allowance Overtime Allowance Servant Allowance Warden Allowance Non-practicing Allowance Family Allowance Leave encashment during service
Specific allowances that are fully exempt in the hands of employees Allowance Conditions to claim full exemption 1. Travelling allowance Should be provided by the employer and spent by the employee to meet the cost of official tour or transfer expenses.Cost of travel or transfer includes payments for transfer, packing and transportation of personal effects. 2. Daily Allowance Should be spent by the employee for meeting the daily charges incurred on a tour or transfer.
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3. Conveyance allowance 4. Helper allowance 5. Academic allowance 6. Uniform allowance 7. Allowances and perks paid by Government of India to an Indian citizen outside India
Should be used by the employee to meet the expenditure on conveyance in performance of official duties. Should be used by an employee to meet the expenditure on a helper who assists him in the performance of official duties. Should be used by the employee for his academic research and training pursuits. Should be spent by the employee for purchasing/maintaining office uniform for official duties. Fully exempted
Various items of Salary for which exemptions are available subject to limitations : LEAVE TRAVEL ASSISTANCE (LTA) U/S 10(5) Rule 2B Conditions 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 the whole 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 occupied by 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 fixed percentage on turnover as per terms of employment)
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Taxable HRA: Particulars Amount received during the financial year for HRA Less: Exemption u/s 10(13A) Rule 2A Least of the followings: (a) Actual amount received (b) 50% (for metro cities) / 40% of Salary (for other places) (c) Rent paid less 10% of Salary Taxable HRA
xxx xxx xxx xxx
xxx xxx
OTHER ALLOWANCES Allowances Exemption u/s 10(14) Rule 2BB Children Education Allowance ` 100 p.m.per child restricted upto 2 children Children Hostel Expenditure Allowance ` 300 p.m.per child restricted upto 2 children Running Allowance ( for transport sector employees for Least of : meeting personal expenditure incurred during transport (a) 70% of the amount received, or from one place to another) (b) ` 10,000 p.m. Transport allowance (given to meet the employees expendi- ` 800 p.m. (in case of handicapped or blind ture for traveling from his residence to offfice and back) employees, ` 1,600 p.m.) GRATUITY 1. Government Employee: Fully exempted from tax u/s 10(10)(i). 2. Non-Govt.Employee: (a) Employee covered by Payment of Gratuity Act,1972 Computation of Taxable Gratuity: Particulars Amount received as Gratuity Less: Exemption u/s 10(10)(ii) Least of the followings: (i) Actual amount received (ii) 15/26 Last drawn salary No. of years of completed service or part thereof in excess of 6 months (iii) Maximum Limit Taxable Gratuity Note: Salary = Basic Pay + Dearness Allowance In case of seasonal employment, instead of 15 days, 7 days shall be considered. (b) Employee not covered by Payment of Gratuity Act,1972 Particulars Amount received as Gratuity Less: Exemption u/s 10(10)(iii) Least of the followings: (i) Actual amount receive (ii) 1/2 Average salary No. of fully completed years of service (iii) Maximum Limit Taxable Gratuity
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xxx
xxx xxx 10,00,000 xxx xxx
xxx
xxx xxx 10,00,000
xxx xxx
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)
Very Important : Where an individual receives retirement gratuity from more than one employer, he can claim exemption in respect 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 maximum exemption claimed by an assessee during his entire life should not exceed ` 3,50,000. PENSION 1. 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 Taxable Government employee ( Central/State/Local Fully exempted u/s 10(10A)(i) Authority or Statutory Corporation) Non-Govt. employee who has also received Amount Received Gratuity u/s 10(10A)(ii) Less: 1/3 of Full Value of Commuted Pension Non-Govt. employee who has not received Amount Received Gratuity u/s 10(10A)(iii) Less:1/2 of Full Value of Commuted Pension
LEAVE ENCASHMENT 1. 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 amount received 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 in respect 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 of 30 days for every completed year of service.
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Particulars (i) Leave credit available on the date of retirement Less: Excess leave sanctioned by the employer (Leave sanctioned by the employer per year 30 days per year) No. of completed years of service) Leave credit on the basis of 30 days credit for completed years of service (ii) Leave salary on the basis of 30 days credit = Step 3(i) x Step 1
xxx xxx xxx xxx
Note: In case the employer sanctioned leave of 30 days or less for completed year of service then the salary for actual leave balance shall be considered and Step 3(i) shall not apply. 4. Taxable Leave Salary on Retirement : Particulars Amount Received on Leave Encashment Less: Exemption u/s 10(10AA) Least of the followings: (i) Actual amount of Leave encashment received (ii) Average salary of the individual for the past 10 months 10 months (iii) Maximum Limit (iv) Leave at credit at the rate of 30 days p.a. for every Completed year of service as calculated in Step 3(ii) Taxable Value of Leave Encashment
xxx xxx xxx 3,00,000 xxx
xxx xxx
Note: (a) If the individual receives leave encashment from more than one employer, the quantum of exemption will 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 COMPENSATION Compensation 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 pay compensation on the basis that the employees service has been continuous and has not been interrupted by transfer. Note: (a) Retrenchment compensation received in accordance with any scheme, which is approved by the Central Government, is fully exempt from tax. (b) An individual who receives retrenchment compensation, is entitled for exemption u/s 10(10B).
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Computation of Taxable Retrenchment Compensation : Particulars Amount received as Retrenchment Compensation Less: Exemption u/s 10(10B): Least of the followings: (i) Actual amount receive (ii) Amount determined under the Industrial Disputes Act,1947 (iii) Maximum Limit Taxable Value
xxx
xxx xxx 5,00,000
xxx xxx
VOLUNTARY RETIREMENT COMPENSATION Conditions for claiming exemption: (i) An individual, who has retired under the Voluntary Retirement scheme, should not be employed in another company of the same management. (ii) He should not have received any other Voluntary Retirement Compensation before from any other employer and claimed exemption. (iii) Exemption u/s 10(10C) in respect of Compensation under VRS can be availed by an Individual only once in his lifetime. Computation of Exemption: Step 1: Salary = Last drawn salary = Basic Pay + D.A.(considered for retirement benefits Step 2: Taxable VRS compensation Particulars Amount received as VRS Compensation Less: Exemption u/s 10(10C): Least of the followings: (i) Actual amount received (ii) Maximum Limit (iii) The highest of the following: Last drawn salary 3No. of fully completed years of service Last drawn salaryBalance of no. of months of service left. Taxable Value
xxx xxx 5,00,000 xxx xxx xxx
DEDUCTIONS AGAINST SALARY 1. 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) ` 5,000 2. Professional Tax [Sec.16(iii)] (i) Professional tax or tax on employment paid by an employee, levied under a State Act shall be allowed as deduction
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(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 as a perquisite and then, allowed as a deduction.
VALUATION & TAXABILITY OF PERQUISITES Perquisite: Perquisite includes any amount due to or received in lump sum or otherwise by an assessee from an employer 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 Chapter XII-H as may be prescribed. [Sec.17(2)(vi)] PERQUISITES WHICH ARE FULLY EXEMPTED FROM TAX The following perquisites are exempt from tax in all cases and hence not includible for the purpose of tax deduction at source under section 192 during the financial year 2008-09: 1. Provision for medical facilities subject to limit 2. Tea or snacks provided during working hours 3. Free meals provided during working hours in a remote area or an offshore installation 4. Perquisites allowed outside India by the Government to a citizen of India for rendering service outside India. 5. Sum payable by an employer through a recognized provident fund or an approved superannuation or deposit-linked insurance fund established under the Coal Mines Provident Fund or the Employees Provident Fund. 6. Employers 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 employee 9. Free educational facility provided in an institute owned/maintained by employer to children of employee provided 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 ` 20,000 11. 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 items or 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, a Union Minister or a Leader of Opposition in Parliament. 15. Conveyance facility provided to High Court Judges u/s22B of the High Court Judges (Conditions of Service) Act,1954 and Supreme Court Judges u/s 23A of the Supreme Court Judges (Conditions of Service) Act,1958.
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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 oil exploration site, or a project execution site or an accommodation provided in an offshore site of similar nature. 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 employees children.
MEDICAL FACILITIES Fixed medical allowance is fully taxable Medical payments include reimbursements also [ circular no.603/6.6.1991] MEDICAL TREATMENT IN INDIA 1. 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 sisters wholly dependent on the employee. 2. Group Medical insurance paid u/s 36(1)(ib) & Medical Insurance paid u/s 80D- which are approved by the Central 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 exemption will 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 Exemption Foreign Travel Expenditure Upto ` 2,00,000 Fully exempted Above ` 2,00,000 Fully taxable 3. Computation of exemption for foreign travel expenditure Step 1: Compute Gross Total Income of the assessee without considering foreign travel reimbursement but after set-off loss and unabsorbed depreciation. Step 2: If the Gross Total Income does not exceed ` 2 lakhs, Foreign Travel Reimbursement is not taxable otherwise fully taxable.
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If Foreign Travel reimbursement is taxable as per Step 2, recomputed the income under the head Salary after including foreign travel reimbursement and Gross Total Income must also be recomputed. ACCOMODATION FACILITIES 1. Value of Unfurnished Accomodation: Explanation 1 to Sec.17(2), Rule 3(1) Nature of Perquisite Taxable Value of Perquisite Provided by Central Govt. or State Govt. Licence fee determined by the Government Less: Rent recovered from employee Provided 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 employee In cities having population exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census: 10% of Salary Less Rent actually paid by employee In 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 lower Less Rent recovered from employee (c) Accommodation in a hotel 24% of salary paid/payable or actual charges paid/payable whichever is lower Less Amount paid or payable by the employee
Step 3:
Hotel Accommodation : Accommodation provided in a hotel will not be a taxable perquisite if the following two conditions 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 Add : Value of Furniture provided: If owned by employer, 10%p.a. of original cost of such furniture If hired from third party, then Actual hire charges Less: Any charges paid or payable by the employee Value of Furnished Accommodation
`
xxx xxx (xxx) xxx
Note : Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning plant or equipment. 3. Valuation not applicable: (a) Employees working at mining site, onshore oil exploration site, offshore site, project execution site, dam site, 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
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Accommodation should be located at least 8 kms away from local limits of municipality/cantonment or located in a remote area Remote area means area located at least 40 kms away from town having a population not exceeding 20,000 based 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 in new 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) Employers 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 HOUSEHOLD Rule Nature of Perquisite Taxable Value of Perquisite(TVP) 3(3) Service of sweeper, gardener or watchman or Actual cost to the employer personal attendant Less: Amount paid by employee 3(4) Supply of gas, electricity or water for Procured from outside agency household consumption Amount paid to outside agency Resources owned by employer himself Manufacturing cost per unit Less: amount paid by the employee 3(5) Education facilities to members of his If the cost of education per child does not exceed ` 1,000 household p.m.- then not taxable (a) free education to children in the school For points (b) & (c) maintained by the employer or the In other case, cost to the employer school sponsored by the employer Less: amount recovered from employee (b) other schools (c) for other members of the household 3(7)(i) Housing Loan/Vehicle Loan- for acquiring Other Loans capital assets and not for repairs. Interest charged by employer is equal to or higher than SBI Rate= SBI Rate prevailing on the first day SBI rates. It is not a taxable perquisite of the previous year Interest charged is lower than SBI rates: Interest charged at SBI rates on maximum outstanding balance Less: Interest paid by the employee on that loan Similar treatment as above. Exceptions : (a) Medical loan for treatment of diseases specified in Rule 3A except loan reimbursed by medical insurance (b) Loan not exceeding ` 20,000 in aggregate 3(7)(vii) Use of any movable asset other than computer or Less: Amount recovered from employee laptops or other assets already mentioned 10% of Actual Cost if owned by the employer; or Actual rental charge paid/payable by the employer
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TRANSFER OF MOVABLE ASSETS TO EMPLOYEES [Rule 3(7)(viii)] Particulars Method of Depreciation Rate of Depreciation for every completed year Actual Cost Less : Depreciation for completed years WDV at the end of completed years Less : Sale Value taken from Employee Taxable Value of Perquisite Computer & Electronic Gadgets WDV 50% XXXXX (XXXXX) XXXXX (XXXXX) XXXXX Car WDV 20% XXXXX (XXXXX) XXXXX (XXXXX) XXXXX Other Movable Assets SLM 10% XXXXX (XXXXX) XXXXX (XXXXX) XXXXX
Note : (a) Electronic gadgets include computer, digital diaries and printers, but excludes washing machines, microwave ovens, 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 transfer of such asset to the employees. TAXABILITY OF PERQUISITES PROVIDED BY EMPLOYERS Taxability of Motor Car Benefits Owner of Car
1(a) Employer 1(b) Employer
Expenses borne by Employer

Employer
Purpose
Fully official Fully private
Taxable Value of Perquisite

Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained. 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 employee Cubic Capacity of Car Engine upto 1.6 litres ` 1,800 p.m+ ` 900 p.m. for chauffeur Cubic Capacity of Car Engine above 1.6 litres ` 2,400 p.m. + ` 900 p.m. for chauffeur
1(c)(i) Employer 1(c)(ii) Employer
Employer Employee
Partly official and partly personal Partly for official and partly for personal
Cubic Capacity of Car Engine upto 1.6 litres ` 600 p.m + ` 900 p.m. for chauffeur Cubic Capacity of Car Engine above 1.6 litres ` 900 p.m. + ` 900 p.m. for chauffeur
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Owner of Car
2(i) Employee 2(ii) Employee
Expenses borne by Employer

Employer
Purpose
Fully official use Partly official and partly personal Fully official use Partly for official use
Taxable Value of Perquisite

Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained. Subject to Rule 3(2)(B) Actual expenditure incurred. Less: Car cubic capacity upto 1.6 litres [i.e. value as per 1(c)(i)] OR Car cubic capacity upto 1.6 litres above 1.6 litres [i.e. value as per 1(c )(i) Not a perquisite provided the documents as specified in Rule 3(2)(B) are maintained. Subject to Rule 3(2)(B) Actual expenditure incurred by employer. Less: ` 900 p.m.
3(i) Employee owns other auto-motive but not car 3(ii) Employee owns other auto-motive but not car
Employer Employer
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 [Rule 3(2)(B)] (a) Employer should maintain complete details of journey undertaken for official purpose, which includes date of journey, destination, mileage and amount of expenditure incurred thereon. (b) Certificate of supervising authority of the employee, wherever applicable, to the effect that the expenditure incurred 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) 3(6) Transportation of goods or passengers at free Value at which offered to public or concessional rate provided by the employer Less: amount recovered from the employee engaged in that business (other than railways/ airlines) 3(7)(ii) Traveling, touring, accommodation and other Amount recovered by employer or Value at which expenses met by the employer other than offered to public specified in Rule 2B. (this shall be calculated Less: amount recovered from the employee only for the period of vacation)
3(7)(iii)
Free meals during office hoursFree meal in Actual cost to the employer in excess of ` 50 per meal remote area or offshore installation area is not or tea or snacks a taxable perquisite Less: amount recovered from the employee. Tea or non-alcoholic beverages and snacks during working hours is not taxable.
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Nature of Perquisite Taxable Value of Perquisite (TVP) Value of any gift or voucher or taken other than Value of gift gifts made in cash or convertible into money In case the aggregate value of gift during the previous (e.g. gift cheques) on ceremonial occasion year is less than ` 5,000, then it is not a taxable perquisite 3(7)(v) Expenditure incurred on credit card or add on Actual expenditure to employer is taxable card including membership fee and annual fee Less: amount recovered from employee If it is incurred for official purpose and supported by necessary documents then it is not taxable. 3(7)(vi) Expenditure on club other than health club or Actual expenditure incurred by the employer sports club or similar facilities provided Less: amount recovered from employee uniformly to all employees If the expenditure is incurred exclusively for official purposes and supported by necessary documents then it is not taxable. Initial fee of corporate membership of a club is not a taxable perquisite 3(7)(ix) Any other benefit or amenities or service or Cost to the employer right or privilege provided by the employer Less: amount recovered from employee other than telephone or mobile phone Note: Members of household includes: spouse(s), children and their spouses, parents, servants and dependents. PROVIDENT FUNDS Particulars Statutory Recognized Unrecognized Public Constituted Provident Funds EPF and Misc, Not recognized by the Public Provident under Act, 1952 Provisions Act, 1952 & Commissioner of Income Fund Act,1968 recognized by the Tax Account in SBI or Commissioner of PF Post Offices and CIT Contribution Employer and Employer and Em- Employer and Employee All assessees inby Employee ployee dependently Assessees Deduction u/s 80C Deduction u/s 80C No Income Tax Benefit Deduction u/s 80C Contribution Employers Not taxable Amount exceeding 12% Not taxable at the time of Not applicable Contribution of salary is taxable contribution Interest Fully exempted Exempted upto 9.5% On Employees contri- Fully exempt credited p.a. Any excess is bution taxable under the taxable head Other Sources On Employers contribution not taxable at the time of credit Withdrawal at Exempted u/s Exempted u/s 10(12) Employees contribution Exempted u/s the time of 10(11) Subject to conditions and interest thereon is not 10(11) retire-ment/ taxable. resignation/ Employers contribution termination, and interest thereon is etc taxable as Profits in lieu of Salary, under Salaries Note: Sum received by an Employee under approved Superannuation Fund is also exempt from tax u/s 10(13).
42
Rule 3(7)(iv)
EMPLOYERS CONTRIBUTION TO RPF IS EXCLUDED FROM SALARY 1. 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 employees ill health, or (b) by the contraction or discontinuance of the employers business, or (c) any other cause beyond the control of the employee 3. If, on the cessation of his employment, the employee obtains employment with another employer, to the extent, the accumulated balance due and becoming payable to him is transferred to his individual account in 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 of continuous service in (3) above. TAXABILITY OF PERQUISITES (At a glance) Perquisites Specified Non-specified Employee Employee Rent free/concessional accommodation Taxable Taxable Watchman, gardener, sweeper, personal attendan engaged by Taxable Taxable employee and expenses met by the employer The aforesaid mentioned servants provided in any other manner Taxable Non-taxable Gas, electricity, water, etc. for household consumption and the Taxable Taxable connection in the name of employee but expenses paid by the employer Above facilities provided in any other manner Taxable Non-taxable Education expenses, if the bills are in the name of employee, Taxable Taxable the but met by employer Above facilities provided in any other manner Taxable Non-taxable Transport facility provided by transport undertakings Railways Taxable Taxable and other than Airlines Interest free loans or loans provided at concessional rates by the Taxable Taxable employer to employee Holiday home facilities provided Taxable Taxable Club facility provided by employer(other than official purposes) Taxable Taxable Computer/laptop provided by the employer for use by the employee Non-taxable Non-taxable Other movable assets provided by the employer for use Taxable Taxable by the employees Sale/transfer of movable assets to employees Taxable Taxable Magazines, periodicals, journals, etc. for official work Not taxable Not taxable Medical facilities, if the bills are in the name of employee, Taxable Taxable employer upto but met by ` 15,000 Above facility in any other manner Taxable Non-taxable Leave Travel Concession Not taxable Not taxable subject to subject to Sec.10(5) Sec.10(5) Stock option under approved scheme Not taxable Not taxable
43
SALARY For the purpose of

1. 2. 3. 4. 5. 6. 7. 8. 9. Deduction for Entertainment Allowance u/s16(ii) in case of Govt.employees Voluntary Retirement Compensation u/s 10(10C) Exemption for Gratuity covered under Payment of Gratuity Act u/s 10(10)(ii) Exemption for Gratuity not covered under Payment of Gratuity Act u/s 10(10)(iii) fixed percentage on turnover Exemption for Leave Salary u/s 10(10AA) Exemption for House Rent Allowance u/s 10(13A) Contribution to Recognized Provident Fund Determination of Specified employee u/s 17 including the value of non-monetary Rent-free accommodation Salary excludes D.A. (forming part of salary) Employers contribution to PF All taxable allowances Bonus or commission or ex-gratia Basic pay
Means
Basic Pay + D.A.(forming part of salary for etirement benefits) Basic Pay + D.A Basic Pay + D.A. (forming part of salary for retirement benefits) + Commission as a Same as above Same as above Same as above Income under the head salaries without benefits Salary includes Basic pay D.A. (not forming part of salary) Exempted allowances Perquisites u/s 17(2) or (2)(iii) or its provisions Any allowance in the nature of medical facility to the extent not taxable.
Any other monetary payment
44
ILLUSTRATIONS ON INCOME FROM SALARIES

Illustration 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. Compute
gross salary for the previous year 2011-12.
Solution :
Gross Salary
Previous Year: 2011-12 Salary for (i) April 2011 to June 2011 = 18,000 3 = (ii) July 2011 to March 2012 = 19,500 9= April to June Nil 15,000 16,500 18,000 July to March 15,000 16,500 18,000 19,500
Workings: Previous Year 2008-09 2009-10 2010-11 2011-12
2,29,500
54,000 1,75,500
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 and got arrears of `75,000. Bonus for the year 2011-12 is ` 15,000 remains outstanding but bonus of ` 12,000 for the year 2010-11 was paid on 1st January 2012. In March 2012, he got two months salary i.e. April and May 2012 in advance. Compute the gross salary for the assessment year 2012-13. Solution : Computation of Gross Salary for the Assessment Year 2012-13 Salary : ` 12,000 12 1,44,000 Arrears of Salary 75,000 Bonus for the year 2011-12 : (Receivable) Bonus for the year 2010-11 : (Received) 12,000 Advance of Salary: April & May 2012 (12,000 2) 24,000 Gross Salary 2,55,000 Illustration 3. Mr.Pradip, a foreign technician is employed with an Indian company. His contract of service was approved by the Government. He was in receipt of bonus from the said Company where he is working. The Assessing Officer subjected the amount to tax on the ground that bonus receipt falls outside the purview of the contract 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 same is 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 the previous 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 Governments car at Nairobi. He has no taxable income 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 outside India 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 services rendered outside India, is fully exempt from tax.
45

(3) Computation of Taxable Salary for the Previous Year 2011-12 Particulars Rs Rs Salary (1,50,000 12) 18,00,000 Overseas Allowance (60,000 12) 7,20,000 Less: Exempt u/s 10(7) 7,20,000 Nil Gross Salary 18,00,000 Less: Deduction u/s 16 Nil Income under the head Salaries 18,00,000 HOUSE 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 which forms part of retirement benefits. He is also entitled to HRA of `2,000 p.m. He actually pays `2,000 p.m. as rent for 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 fixed percentage on turnover as per terms of employment) = (5,000 12) + (40% 1,000 12) = 64,800 Taxable HRA : Particulars ` ` Amount received during the financial year for HRA 24,000 Less: 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 17,520 Taxable HRA 6,480 Illustration 6. X, is employed at Delhi as Finance Manager of R Ltd. The particulars of his salary for the previous year 2011-12 are as under: Basic Salary `16,000 p.m.. Dearness allowance `12,000 p.m. Conveyance Allowance for personal purpose `2,000p.m.; Commission @2% of the turnover achieved which was `9,00,000 during the previous year and the same was evenly spread. HRA `6,000 pm. The actual rent paid by him `5,000 pm for an accommodation at 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 time period. Rent before and after increase. Solution : Salary for HRA (for 9 months)= Basic Pay + DA(considered for retirement benefits) + Commission (if received as a fixed percentage on turnover as per terms of employment) = (16,000 9) + (12,000 9) + (2% of 9,00,000 9/12) = 2,65,500 Taxable HRA: (April to December 2011). Total time=9 months Particulars ` ` Amount 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 46
Salary for HRA (for 3 months)= Basic Pay + DA(considered for retirement benefits) + Commission ( if received as a fixed percentage on turnover as per terms of employment) = (16,000 3) + (12,000 3) + (2% of 9,00,000 3/12) = 88,500 Taxable HRA : Particulars Rs Rs Amount received during the financial year for HRA 18,000 Less: 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 5,850 Illustration 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 dearness allowance of 50% of basic salary. 70% of the dearness allowance is considered for retirement benefits. The company 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 received as a fixed percentage on turnover as per terms of employment)
Basic Pay = (5,000 2) +(6,000 3) DA = 50% of Basic Pay 70% forming part of retirement benefits [50 % 28,000 70%] Total Salary for HRA = 28,000 = 9,800 37,800
` `
Taxable HRA : Particulars Amount received during the financial year for HRA (3,000 12) Less: Exemption u/s 10(13A) Rule 2A. Least of the followings: (d) Actual amount received (e) 50% of Salary (f) Rent paid less 10% of Salary [2,500x 5 10% of 37,800] Taxable HRA 36,000 36,000 18,900 8,720 8,720 27,280
47
INCOME FROM SALARIES GRATUITY Illustration 8. Mr. Hari retires on 15th October 2011, after serving 30 years and 7 months. He gets `3,80,000 as gratuity. His salary details are given below:
FY 2011-12 FY 2010-11 Salary `16,000 pm Salary `15,000 pm D.A. 50% of salary. 40% forms part of retirement benefits. D.A. 50% of salary. 40% forms part of retirement benefits
Determine 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 Gratuity Particulars ` ` Amount received as Gratuity 3,80,000 Less: 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 service or 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 Less: Exemption u/s 10(10)(ii) Least of the followings: (i) Actual amount received (ii) 15/26 Last drawn salary No. of years of completed service or part thereof in excess of 6 months [15/26 31 24,000] (iii) Maximum Limit Taxable Gratuity
Computation of Taxable Gratuity Particulars
3,80,000 3,80,000 4,29,231 10,00,000 3,80,000 NIL
Note : Salary = Basic Pay + Dearness Allowance In case of seasonal employment, instead of 15 days, 7 days shall be considered.
48
(iv) As an employee of a private sector, not covered by Payment of Gratuity Act, 1972
Amount received as Gratuity Less: Exemption u/s 10(10)(iii) Least of the followings: (i) Actual amount received (ii) 1/2 Average salary No. of fully completed years of service [ 18,720 30] (iii) Maximum Limit Taxable Gratuity
3,80,000 3,80,000 2,80,800 10,00,000 2,80,800 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 = 60,000 April 11 to September 11 = 16,000 6 = 96,000 Total Basic Salary 1,56,000 Add: D.A. [50% of 1,56,000 40%, forming part of superannuation benefits] 31,200 Salary for 10 months 1,87,200 Therefore, Average salary for 10 months = 1,87,200/10 = 18,720 Illustration 9. Mr.Surya was an employee of Z Ltd. After 38 years of service, he retired on 28.2.12. He was drawing 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 4,00,000 Less: 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 [ 18,00038] 3,42,000 (iii) Maximum Limit 10,00,000 3,42,000 Taxable 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.
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INCOME FROM SALARIES PENSION Illustration 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 of service. 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 months Post-retirement period: December 11 to March 12 = 4 months Particulars Case (i) Case (ii) Case (iii) Salary 43,200 43,200 43,200 D.A 28,000 28,000 28,000 Taxable Gratuity Exempted 82,750 Nil Uncommuted Pension [(3,8002)+(9502)] 9,500 9,500 9,500 Commuted Value of Pension Exempted 88,333 Gross Salary Case (ii) Gratuity received by an employee of a private company
Actual amount received Less: Exempted amount(least of the followings): (i) Actual amount received (ii) x Avg.Salary x No.of years of Completed service [ 7,150 30] (iii) Maximum Limit Taxable Gratuity Commuted Value of Pension (Non-govt employee, gratuity received) Actual commuted value of pension received Less: Exempted u/s 10(10A) 1/3rd of Full Value of Commuted Pension [1/3 2,12,000] Full Value of Commuted Pension Amount received on commutation ? 1, 59,000 ? 2,12 ,000 Percentage of pension commuted 75% Taxable Commuted Value of Pension Case(iii) Commuted Value of Pension (Non-govt employee, gratuity not received) Actual commuted value of pension received Less: Exempted u/s 10(10A) 1/2 of Full Value of Commuted Pension [1/2 2,12,000] Full Value of Commuted Pension Amount received on commutation ? 1, 59,000 ? 2,12 ,000 Percentage of pension commuted 75% Taxable Commuted Value of Pension 50 1,90,000 1,90,000 1,07,250 10,00,000 1,59,000 70,667 1,07,250 82,750
`
88,333
1,59,000 1,06,000
53,000
LEAVE ENCASHMENT Illustration 11. Mrs. Vandana retires on 16th October 2010 after 30 years and 8 months of service. Salary structure is given below: FY 2011-12 Salary ` 15,000 pm D.A ` 7,500 pm FY 2010-11 Salary ` 12,000 pm D.A ` 6,000 pm 40%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 encashed during 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 sector Solution : Particulars Salary for 6months & 16 days Dearness Allowance Taxable amount of Leave encashment Gross Income from Salary Case(i) 98,000 49,000 Exempted 1,47,000 Case(ii) 98,000 49,000 1,24,980 2,71,980 Case(iii) 98,000 49,000 1,24,980 2,71,980 Case(iv) 98,000 49,000 1,24,980 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) Salary of 3 months 14 days: (14th December 2010 to 31st March 2011) Total Basic Salary Add: Dearness allowance For 6 months 16 days: (1st April 2011 to 16th October 2011) For 3 months 14 days: (14th December 2010 to 31st March 2011) Total D.A. D.A. [40% of 69,800, forming part of retirement benefits] Total salary of 10 months Average Salary = 1,67,520 / 10 = 16,752 Computation of Taxable Leave Encashment : Amount of encashment received: (30 x 20) (150 + 60) x (15,000 + 7,500)/ 30 = Less: Exempted u/s 10(10AA) [Least of the followings] (i) Actual amount received (ii) 10 months salary(preceeding the month of retirement) (iii) Leave credit on the date of retirement [(30 20) (150 + 60) (16,752 / 30)] (iv) Maximum Limit Taxable amount of Leave encashment
= 98,000 = 41,600 1,39,600 = 49,000 = 20,800 69,800
27,920 1,67,520
2,92,500 2,92,500 1,67,520 2,17,776 3,00,000 1,67,520 1,24,980 51
INCOME FROM SALARIES Illustration 12. Ms. Parineeta retired from service after 28 years from ABC Ltd. Leave sanctioned by employer 45 days p.a. Leave availed during service 400 days. Leave encashment received: ` 4,30,000. Average salary for 10 months preceeding the month of retirement `15,000.Compute taxable amount of Leave encashment for the Previous year 2011-12. Solution : Since leave sanctioned by the employer is more than 30days p.a., the following calculation is required, to determine 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 leave availed during service = [( 28 x 45) 400] 420 Less: 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 Retirement Particulars ` ` Amount Received on Leave Encashment 4,30,000 Less: 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 of service as calculated in Step (ii) 2,2,000 1,50,000 Taxable Leave Encashment 2,80,000 RETRENCHMENT COMPENSATION Illustration 13. Mr.Clever was retrenched from service of UGLY Ltd. The scheme of retrenchment is approved by 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 by the Central Government, it is fully exempted from tax. Illustration 14. Mr. Flemming was retrenched from service of GO SLOW Ltd. Retrenchment compensation received `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 ` ` Amount received as Retrenchment Compensation 6,00,000 Less: Exemption u/s 10(10B): Least of the followings: (i) Actual amount received 6,00,000 (ii) Amount determined under the Industrial 4,75,000 Disputes Act, 1948 (iii) Maximum Limit 5,00,000 4,75,000 Taxable Retrenchment Compensation 1,25,000
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VOLUNTARY RETIREMENT COMPENSATION Illustration 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 months Actual length of service = 23 years 7 months = 283 months No.of months of service left= (360 283) months = 77 months Taxable VRS compensation Particulars ` ` Amount received as VRS Compensation 8,00,000 Less: 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 5,00,000 Taxable VRS Compensation 3,00,000 DEDUCTIONS AGAINST SALARY Illustration 16. Ms.Neha is a Senior Accountant in the Ministry of Defence,Govt. of India. She received entertainment allowance `5,000 p.m. Her basic salary is `35,000 p.m. Professional tax paid `5,000. Compute Income from Salary. Solution : Computation of Income from Salary
Basic Salary : 35,000 x 12 Entertainment Allowance: 5,000 x 12 Gross Income from Salary Less: Deduction u/s 16(ii): Entertainment allowance: 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 [20% of 4,20,000] (iii) Statutory limit: Exempted amount being the least Less: Professional Tax paid u/s 16(iii) Income from Salary
= 4,20,000 = 60,000 4,80,000
60,000 84,000 5,000
5,000 5,000 4,70,000 53
INCOME FROM SALARIES VALUATION OF PERQUISITE FOR MEDICAL TREATMENT Illustration 17. Calculate the perquisite value of the expenditure on medical treatment, which is assessable in the hands 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 employees wife in a hospital maintained by the employer `20,000 (b) amount paid by the employer on treatment of the employees child in a hospital `14,000 (c) medical insurance premium reimbursed by the employer on a policy covering the employee, his wife and dependent 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 `60,000 Solution : Nature of Perquisites Amount Taxability/Non-taxability Taxable Treatment of employees wife in Nil Fully exempted a hospital Maintained by employers Reimbursement Nil Not taxable: since the amount is less than of expenses incurred on treatment of ` 15,000 employees child in hospital Reimbursement of medical insurance Nil Not taxable: since medical insurance premium premium paid referred to u/s 80D is paid on the employee and members of his family Medical treatment outside India Nil It is assumed that the whole of such expenditure is permitted by RBI Amount spent on travel and stay abroad Nil Not taxable: as the Gross total income does not for the employee (herein referred as the exceed ` 2,00,000 patient) Amount spent on travel and stay abroad Nil Not taxable: as the Gross total income does not of the attendant exceed ` 2,00,000 PERQUISITE VALUATION OF ACCOMODATION FACILITIES Illustration 18. Mr.Goutam is a Central Govt.employee. He is provided with an accommodation. The Licence fee determined 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) = 6,000 Less: Rent recovered from employee (50 12) = 600 Taxable value of perquisite = 5,400 Illustration 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.; Children Education Allowance ` 400 pm per child for 3 children; Transport Allowance ` 1,000 p.m. He is provided with a 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
54
Solution :
Computation of Income from Salary Particulars Amount Amount 1,80,000 72,000 3,600
Basic salary 15,000 12 D.A. (40% of 1,80,000) City Compensatory Allowance (fully taxable) (300 12) Children Education Allowance Actual amount received (400 12 3) Less: Exemption u/s 10(14) @ `100 per month per child subject to a maximum of 2 children (100 12 2) Transport Allowance Actual amount received ( 1,000 12) Less: Exemption u/s 10(14) @ `800 p.m. (800 12) Gross Income from Salary u/s 17(1) Add: Value of Unfurnished accommodation u/s 17(2) rule 3(1) explanation 1 Case (a) Population exceeding 25 lakhs 15% of salary Salary = 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 Total Income from Salary
14,400 2,400 12,000 9,600 12,000 2,400 2,70,000
40,500 3,10,500
Note: Case (b): Where population is exceeding 10 lakhs but not exceeding 25 lakhs 10% of Salary shall be considered as the value of taxable perquisite = 10% of `2,70,000 = `27,000 Case (c) : Where population is less than 10 lakhs 7.5 % of salary shall be considered as the value of taxable perquisite = 7.5% of `2,70,000 = `20,250 Illustration 20. Mr. Kushal submits the following information regarding his salary income which he gets from ABC Ltd. Basic salary `15,000 pm; D.A. 40% of basic salary( forming part of retirement benefits);City Compensatory Allowance `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 accommodation by the company for which the company was paying the rent of ` 5,000 pm. The company charged him `1,000 pm as rent for the accommodation. Compute gross salary for the assessment year 2012-13.
55
INCOME FROM SALARIES Solution : Computation of Income from Salary Particulars

Basic salary 15,000 12 D.A. (40% of 1,80,000) City Compensatory Allowance (fully taxable) (300 12) House Rent Allowance (April to August 2010) Actual amount received ( 6,000 5) Less: Exemption u/s 10(13A) Rule 2A Least 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 Note: Salary for HRA (5 months) Basic salary : 15,000 5 = 75,000 D.A. = 40% of 75,000 = 30,000 Total 1,05,000 Children Education Allowance Actual amount received (400 12 3) Less: Exemption u/s 10(14) @ `100 per month per child subject to a maximum of 2 children (100 12 2) Transport Allowance Actual amount received ( 1,000 12) Less: Exemption u/s 10(14) @ ` 800 p.m. (800 12) Gross Income from Salary u/s 17(1) Add: Value of Unfurnished accommodation u/s 17(2) rule 3(1) Explanation 1 Assuming Population exceeding 25 lakhs (as accommodation provided 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 Total Income from Salary
Amount
Amount 1,80,000 72,000 3,600
30,000
24,500
5,500
14,400 2,400 12,000 9,600 12,000
2,400 2,75,500
24,075 2,99,575
Illustration 21. Mr.Sambhu was provided an accommodation in a hotel by his employer for 22 days before providing him a rent free accommodation which is owned by the employer. The hotel charges paid `6,000. Salary for the purpose of accommodation for the period of 22 days is `11,000. Compute the taxable perquisite of accommodation.
56
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 2,640 Less Amount paid or payable by the employee 1,000 Taxable value of perquisite 1,640 Illustration 22. Value of unfurnished accommodation (computed) `50,000. Cost of furniture provided by the employer ` 80,000. Hire charges of furniture provided in the accommodation `500 p.m. Amount recovered from employee `200 p.m. Compute taxable value of perquisite. Value of Furnished Accomodation (provided at Concessional rates) Particulars ` Value of unfurnished accommodation as above 50,000 Add: Value of Furniture provided: 10%p.a. of original cost of such furniture 8,000 If hired from third party, then Actual hire charges 6,000 Less: Any charges paid or payable by the employee (200 12) (2,400) Value of Furnished Accomodation 61,600 Illustration 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 also provided 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) 8,000 Value of Furnished Accommodation 44,000 Phase 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 in new 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 place Value of accommodation at existing place of work (Kolkata) 15% of salary for 3 months (i.e. 90 days) = 15% of 55,000 3 months = 24,750 Add: Cost of furniture provided: 10% of 80,000 x 3 months = 24,000 Total Value of Perquisite 48,750
Solution :
57

Value of accommodation at new work place (Jharkhand) 10% of salary for 3 months (i.e. 90 days) = 10% of 55,000 3 months = 16,500 Therefore, 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 Add: Cost of furniture provided: 10% x 80,000 x 3 months Total value of perquisite For Jharkhand accommodation: 10% of 55,000 x 3 months Total value of perquisite : Particulars
= `24,750 = `24,000 ` 48,750 = `16,500
Taxable value of perquisite Phase 1: Accomodation in Kolkata 44,000 Phase 2: Accomodation in Jharkhand (being the lower during 90 days) 16,500 Phase 3: Accomodation in Kolkata 48,750 16,500 Total Value of Taxable Perquisite 1,25,750 OTHER FACILITIES AND PERQUISITES TO EMPLOYEE AND HIS HOUSEHOLD Illustration 24. Mr.E is employed with N Ltd. he also gets the services of sweeper and watchman. Determine his gross salary in the following cases: 1) His salary is ` 4,200 pm. Employer provides the services of sweeper and watchman. He pays them ` 600 pm and ` 500 pm; 2) His salary is ` 4,200 pm. Sweeper and watchman are engaged by N at the rates given in clause(1) above but 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 but he 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 50,520 Wages of sweeper Sec.17(2)(iii) not taxable 7,200 4,800 Wages of watchman Sec.17(2)(iii) not taxable 6,000 2,400 Gross 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 to tax: Salary: 4,200 12 = 50,400 Less: Professional tax paid u/s 16(iii) = 400 Monetary income not exceeding ` 50,000 = 50,000 Case (2): If the facility is engaged by the employee but reimbursed by the employer, it is an obligation of employee, discharged by employer u/s 17(2)(iv), it is always taxable.
58
` 50,000.
Case (3): He is a specified employee, as his monetary income, chargeable under the head salaries exceeds = 50,520 = 400 ` 50,120
Gross salary; 4,210 12 Less: Professional tax paid u/s 16(iii) Monetary income exceeding ` 50,000
Illustration 25. G Ltd. provides electricity to its employee, P. Annual consumption as per meter reading comes to 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 unit 2) 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 the employee, it is his obligation to pay the bill. However, as the bill has been paid by the employer, it is an obligation 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 specified employee 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 `2,500 pm 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 him after the death of his brother. Solution : Computation of taxable value of education facility [As per Rule 3(5)] Particulars
1. (a) School fees of his children, studying in a school run by employer : (`1,800 3 12) (1,000 3 12) (600 3 12) (b) Hostel fees: (2,000 3 12) (500 3 12) 2. School fee of nephew (1,200 12) Total value of taxable perquisite
` 4,000
Taxable value of perquisite

7,200 54,000 14,400 75,600
Illustration 27. Mr. Z is the manager of F Ltd. his son is a student of Amity International School. School fees of pm and hostel fees of ` 3,000 pm., are directly paid by Z Ltd. to the school but it recovers from Z only 30%. F also joins an advanced course of Marketing Management for 4 months at IIM, Ahmedabad, fees of the course, ` 2,50,000 is paid by F Ltd. Determine the perquisite value of the education facility.
59
INCOME FROM SALARIES Solution :
Computation of taxable value of education facility [As per Rule 3(5)] Particulars Taxable value of perquisite (` ) (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) 25,200 2) Fees paid for Marketing Management course for Mr.Z ( it is a fully exempted 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. SBI Lending 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 November December January February March Balance on the last day of the month 2,50,000 2,50,000 2,45,000 2,40,000 2,35,000 12,20,000
Total Perquisite value of interest-free loan : 12,20,000 8.5% 1/12 = ` 8,642
Illustration 29. Mr.Prabir Nandy is a Manager in H Ltd. He gets salary @ ` 30,000 pm. He is also allowed free use 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. Television set 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 Add: Free use of computer, u/s 17(2)(vi) read with Rule 3(7)(vii) Add: Free use of video camera, u/s 17(2)(vi) read with rule 3(7) (vii) [10% of 30,000] Add: Free use of telephone, u/s 17(2)(vi) read with rule 3(7)(vii) (100 12) Gross Salary 60 3,60,000 Nil 3,000 1,200
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 and washing machine from the company on 1 February 2011. Particulars of cost and sale price of the two assets are given below : Year of Purchase 01.07.2008 15.09.2007 Particulars of the Asset Motor car Washing Machine Purchase Price (Rs) 2,50,000 10,000 Sale price (Rs) 85,000 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 EMPLOYEES Nature of Assets transferred Motor car (Actual Cost) Less: Depreciation @ 20% on WDV from 01.07.2008 to 30.06.2009 WDV Less: Depreciation @ 20% on WDV from 01.07.2009 to 30.06.2010 WDV Less: Depreciation @ 20% on WDV from 01.07.2010 to 30.06.2011 WDV
Less: Less: Less: Less:
Amount
2,50,000 50,000 2,00,000 40,000 1,60,000 32,000 1,28,000 10,000 1,000 9,000 1,000 8,000 1,000 7,000 1,000 6,000
Washing Machine (Actual Cost) Depreciation @ 10% on SLM from 15.09.2007 to 14.09.2008 WDV Depreciation @ 10% on WDV from 15.09.2008 to 14.09.2009 WDV Depreciation @ 10% on WDV from 15.09.2009 to 14.09.2010 WDV Depreciation @ 10% on WDV from 15.09.2010 to 14.09.2011 WDV Motor Car 1,28,000 85,000 43,000
Particulars WDV on the Asset Less: Amount recovered from employee Taxable value of perquisite
Washing Machine 6,000 5,000 1,000
61
INCOME FROM SALARIES Illustration 31. Shri A. Chakraborty, Director (Administration) in MNPC Ltd. He is entitled to a motor car (1.8 ltrs.) 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 ` 60,000 provided 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 ` Amount of expenses 20,000 (+) Salary to chauffeur 60,000 80,000 Less : Value of Perquisite if the car was owned by the employer 39,600 [as computed in (i) above] 40,400
62
Illustration 32. Aniket joined a company on 1.7.2011 and was paid the following emoluments and allowed perquisities as 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 and personal 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 made during 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 the year; (ix) Corporate membership of a club. The initial fee of ` 1,00,000 was paid by the company. Aniket paid the bills for 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 (1,500200) 9 m 11,700 (vii) Watchman Salary (1,500300) 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 8,80,158 Taxable Salary 8,80,158 Value of Furnished Accommodation Note 1. Particulars Amount Salary for this purpose Basic Salary (35,000 9) 3,15,000 D.A (20,000 9) 1,80,000 Bonus (20,000 9) 1,80,000 Total 6,75,000
63

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 = ` 1,01,250 Value 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 = ` 1,28,250 Assumption: DA is included as a part of retirement benefits. Note 2. Value of Educational Facility Where 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 be equal 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 = 5,400 Valu of perquisite for younger child = NIL, since tuition fee per month is less than ` 1,000. Assuming, cost of education provided to Babus children is less than ` 1,000 p.m. value of perquisite provided is NIL. Note 3. Interest free housing loan Value of perquisite = Interest @ 10% p.a. less Actual interest charged = (10% 2%) 5,00,000 7/12 = ` 23,333. Note 4. Interest free computer loan Value 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 5 months. He submits the following information :
Basic Salary Dearness Allowance Last increment 100% of Basic Salary (60% of which forms part of salary for retirement benefits). ` 500 w.e.f. 1.7.2011
` 5,000 per month (at the time of retirement)
His pension was determined at ` 3,000 per month. He got 50% of the pension commuted w.e.f. 1.3.2011 and received a sum of ` 1,20,000 as commuted pension. In addition to this, he received a gratuity of ` 1,50,000 and leave encashment amounting to ` 56,000 on account of accumulated leave of 240 days. He was entitled to 40 days leave for every year of service. Compute his Gross Salary for assessment year 2012-13 assuming that he is not covered under Payment of Gratuity Act. 64
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 Dearness Allowance @ 100% of Basic Pay Uncommuted Pension February @ ` 3,000 pm 3,000 March @ ` 1,500 pm 1,500 (Since 50% cmmuted) Commuted Value of Pension Amount Received 1,20,000 Less : Exemption u/s 10(10A) ?1 ? 1/3 of Value of Commuted Pension ? 3 ? 2, 40,000 ? 80,000 ? ?
Full value of Commuted Pension
?
48,500 48,500 4,500
40,000
Amount Re ceived % Commuted

1, 20,000 ? 2, 40,000 50%
Gratuity : Amount received Less : Exempt (See note No. 1) Leave of the followings : (i) Actual Amount Received (ii) Maximum limit (ii) 1/2 months average slary for each years of completed Service ?1 ? 7,760 ? 24? 2 Salary for Gratuity (not covered by Payment of Gratuity Act) = Basic Pay + D/A (Forming part for retirement benefit)
1,50,000 93,120 1,50,000 10,00,000 93,120
56,880
Average Salary = Total Salary of 10 months preceeding the month of retirement 10 = 48, 500 ? 50% of 48, 500 ? 48,500 ? 29,100 ? 7 ,760 10 10
65
INCOME FROM SALARIES Leave Encashment Amount received Less : Exemption u/s 10(10AA) Least of the followings : (i) Actual Average Salary (ii) 10 months average salary (107760) (iii) Maximum limit (iv) Leave Credit as per Note Notes : Calculation of Leave Credit Total leave entitlement (24 yrs 40 days p.a. Less : Leave Availed during service = Total leave entitlement Leave encashment = (960 240) Less : Excess Leave in excess of 30 days p.a. (24 (40 30) Leave credit Gross Income from Salary
56,000 56,000 77,600 3,00,000 NIL
NIL
56,000
= 960 days 720 days 240 days 240 days NIL
2,54,380
Illustration 34. Vineet had been working with M Ltd., in a tribal area since 1-10-1997. He was entitled to the following emoluments: 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 equal amount. He resigned from his job on 1.1.2012 and shifted to Delhi. He was entitled to the following benefits at the time of his retirement : (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 ` 36,000 He was entitled to 40 days leave for every completed year of service. He got 50% of his pension commuted in lumpsum 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
66
(3) Rent-free unfurnished accommodation in Delhi which is owned by the employer and whose fair rental value is ` 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 personal purposes. (b) The monthly expenses incurred by A on gas and electricity were ` 500 which were reimbursed by the employer. (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 is 7% 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 : 2012-13 Computation of Total Income and Tax Liability Particulars ` ` Employer M Ltd. Basic salary 6,000 9 54,000 DA @ 50% of Basic Salary 27,000 Medical allowance @ ` 1,500 pm 9 months 13,500 Entertainment allowance @ ` 400 pm 9 months 3,600 Children education allowance 80 3 9 2,160 Less : Exempt u/s 10(14) = 80 2 9 440 720 Hostel expenditure allowance 100 3 9 2,700 Less : Exempt u/s 10(14) = 100 2 9 1,800 900 Uncommuted pension (2,000 2 + 1,000 1) 5,000 Uniform allowance (250 9 1500) 750 House Rent Allowance Amount Received 750 9 6,750 Less : Exemption u/s 10(13A) Rule 2A Lease 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)
67

Salary for HRA = Basic Pay + Dearness Allowance (forming part of salary) + Commission (if received at a fixed per centage on turnover) = 54,000 + (40% of 27,000) = 54,000 + 10,800 = 64,800 Employers Contribution to RPF @ ` 900 pm 9 months Less : Exemption u/s 10(14) upto 12% of salary Salary = Basic Pay + D.A (forming part) = 54,000 + 40% of 27,000 = 64,800 ? 12% of 64,800 =
8,100
7,776 1,25,000 1,25,000 10,00,000 50,400 50,400
324
Gratuity (form A Ltd.) Actual Amount Received Less : Exemption u/s 10(10) Least of the followings : (i) Actual Amount Received (ii) Max. limit (iii) 1/2 months average salary for each years of completed service [1/2 7,200 14]
Salary for Gratuity (not covered by Payment of Graguity Act) = Basic Pay + D/A (forming part for retirement benefits) + Commission (if received at a fixed percentage on turnover) Again, Average Salary = Salary for 10 months preceeding the month of retirement B/P = 6,000 10 = D/A (forming part) = 40% 50% 6,000 =
? ?Average Salary per month
?
74,600
Commuted Value of Pension Amount Received Less : Exemption u/s 10(10A)
72,000 10 = 7,200
60,000 12,000 72,000
1,20,000 80,000 40,000
1 1/3 of Full Value of Commuted Pension [ 3 ? 2, 40, 000 ] Amount Re ceived Full Value of Commuted Pension = % Commuted 1,20 ,000 = 50% ? 2, 40,000 Payment from RPF (Exempt)
68
Leave encashment Actual amount Less : Exemption u/s 10(10AA) List 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 ` 3,00,000 Leave encashment shall be exempt as under : Completed years of service 13 years Number of days leave allowed every year 40 Total leave allowable 520 days Leave encashed 150 days Therefore leave availed (520 150) 370 days Leave available on basis of 30 days (30 13) 390 days Less : Leave availed 370 days Therefore encashment eligible for exemption (390 370) 20 days Employer S Ltd. Basic salary 5,000 2 Dearness Allowance @ 20% of B/Pay Motor Car facility (1,800 + 900) 2 months Free Gas/Electricity (500 2) Education Re-imbursement (350 2) Medical Re-imbursement (17,500 15,000) Watchment (400 2) Sweeper (400 2) Cook (400 2) Gardener (400 2) Interest on Loan (not taxable as interest charged is more than the rate of SBI) Perquisite for Value ofRent-free unfurnished accommodation Valuation of unfurnished rent-free accommodation : 15% of salary which includes the following: Basic (5,000 2) DA Uncommuted pension from R Ltd. (2,000 + 1,000) Value of the unfurnished accommodation 15% of ` 15,000 = ` 2,250 Aggregate salary from M Ltd. and S Ltd. Less : (i) Entertainment allowance u/s 16(ii) (ii) Professional-tax u/s 16(iii) Income from salary Other Income Gross Total Income Less : Deduction u/s 80C RPF (900 9) LIP PPF Total Income (rounded off)
36,000 4,800
31,200 2,55,824
10,000 2,000 5,400 1,000 700 2,500 800 800 800 800 2,250
` 10,000 ` 2,000 ` 3,000 ` 15,000
27,050
Nil 500
2,82,874 500 2,82,374 Nil 2,82,374 73,100 2,09,274 69
8,100 15,000 50,000

Total Income (Rounded of u/s 288) 2,09,270 Tax on ` 2,09,270 upto ` 1,80,000 = Nil @ 10% on (209270 1,80,000) = 10% of 29270 = 2927 2,927 Add : Education cess @ 2% 58 Add : SHEC @ 1% 29 Total tax liability 3,014 Tax Payable (Rounded off u/s 288A) = ` 3010 Since he has received lump sum payment on account of gratuity, commuted pension and leave encashment, he can claim 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 20 years and 10 months. He ` 9,00,000 as gratuity from the employer. (He is not covered by Gratuity Act, 1972). His Salary details as below Basic Pay ` 30,000 p.m. upto 30.06.2011 Basic Pay ` 32,000 p.m. from 01.07.2011 Dearnes Allowance (Eligible for Retirement Benefits) 50% of Basic Pay Transport 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 year 31.3.2012. From a Fixed Deposit with a Bank, he earned Interest Income of ` 18,000 for the year ending 31.3.2012. He also invested ` 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 Computation of Total Income Assessment Year : 2012-13
` ` `
Particulars (A) Salaries : Salary from XYZ Co. Ltd 1. Basic Salary (` 30,000 3 + ` 32,000 5) 2. Dearness Allowance (50% of Basic Salary = 3. Transport Allowance (` 4,500 8) Less: Exempt u/s 10(14) (` 800 8 Months) 4. Gratuity Received (Not covered under Payment of Gratuity Act) Less: Exemption u/s 10(10) = Least of the following Actual Amount received 9,00,000 months average salary for each years of completed service = 30,800 20 years Maximum Limit Average Salary for Gratuity = Basic Pay ? DA (forming part) for the last 10 months preceeding the moth of retirement 10 = 32,000 ? 4 ? 30 ,000 ? 6 ? 3 ,08,000 ? 30, 800 10 10
70
1,25,000 36,000 (6,400) 9,00,000
2.50,000 29,600
3,08,000 10,00,000
3,08,000 5,92,000
Gross Salary Less: Deduction u/s 16 Income under the head Salary (B) Income from House Property Self Occupied Annual Value Less : Deduction u/s 24 Interest on Borrowed Capital (C) Income from Other Sources : Bank Interest` (D) Gross Total Income Less : Deduction under Chapter VIA u/s 80C Deposit in PPF ` 80,000 (Maximum amount allowed as deduction) u/s 80 CCF Subscription to Long-term Infrastructure Boned Amount deposited ` 30,000 remitted upto (E) Total Income
9,96,600 Nil 9,96,600

Nil (84,000)
(84,000) 18,000 9,30,600

70,000 20,000 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 the Income-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 7 months. Leave availed while in service 19 months. But for the voluntary retirement, Mr. Ganesh would have retired 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 Income Particulars Basic salary Dearness Allowance Gratuity Pension Voluntary Retirement Compensation Leave Encashment Income under the head Salaries
(` 20,000 7) (` 6,000 7) (W.N. 1) (W.N.2) (W.N.3) (W.N.4) 1,40,000 42,000 NIL 70,400 1,00,000 90,000 4,42,400
`
71
INCOME FROM SALARIES Working Notes : (a) Taxable Gratuity Particulars Gratuity received (assumed as not covered by Payment of Gratuity Act, 1972) Less : Exempt u/s 10(10) : Least of the following (i) Actual Amount of Gratuity Received (ii) Maximum Limit (iii) months average salary for each years of completed service ( 18 26,000) 26,000 ? 10 ? 26,000 Average Salary = 10 Taxable Gratuity (b) Taxable Pension Particulars (a) Uncommuted Pension Period: November 2010 - January 2011 (` 8,0003 Months) Period: February 2011 - March 2011 (` 8,00040%2 Months) Total (b) Commuted Pension Amount Received Less : 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) Taxable Pension (C) Computation of Taxable VRS Compensation Particulars Amount of VRS Compensation Received Less: Exempt u/s 10(10C): Least of the following Actual Amount Received Maximum Limit The above shall not exceed higher of : (i) Last Drawn Salary x 3 x No. of completed years of service (26,000 x 3 x 18 Years) (ii) Last drawn Salary x balance of months of service left (26,000 x 45 Months) Taxable Value of VRS Compensation
72
1,50,000
1,50,000 10,00,000 2,34,000 (1,50,000)
NIL
` `
24,000 6,400 90,000
30,400
40,000
70,400
`
6,00,000
6,00,000 5,00,000 14,04,000 5,40,000 (5,00,000) 1,00,000
(D) Computation of Taxable Leave Encashment Particulars Amount of Leave Encashment Received Less : Exemption u/s 10(l0AA) : Least of the following : (i) Amount Received (ii) Notified Amount (iii) Average salary of past 10 months Salary x 10 months (12,000 10) (iv) Leave Encashment based on 30 days credit for every completed year of service (Note) Taxable Leave Encashment Note : Total Leave Eligible on basis of 30 days credit for every completed years of service of 18 years Total Leave Taken Leave to his credit
90,000
90,000 3,00,000 1,20,000 Nil Nil
90,000
18 Months 19 Months 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 price Computer 1-7-08 2,00,000 18-8-2011 20,000 Car 1-4-09 3,00,000 1-3-2012 50,000 Television 1-4-06 50,000 1-4-2011 2,000 Sofa 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 perquisite Computer 25000 (Note 1) 2,000 5,000 Car 192000 (Note 2) 50,000 1,42,000 Television 25000 (Note 3) 2,000 23,000 Sofa set Nil4 5,000 Nil Taxable Perquisite 1,70,000 1. Calculation of WDV of Computer Particulars Amount Purchase value 2,00,000 Less : Depreciation from 1-7-08 to 30-6-09 @ 50% 1,00,000 WDV as on 1-7-09 1,00,000 Less : Depreciation from 1-7-09 to 30-6-10 @ 50% 50,000 WDV as on 1-7-10 50,000 Less : Depreciation from 1-7-10 to 30-6-11 @ 50% 25,000 WDV as on 1-7-11 25,000 Less : Depreciation from 1-7-11 to 18-8-11 (as year not completd) Nil WDV as on the date of sale 25,000
73

2. Calculation of WDV of Car Purchase value Less : Depreciation from 1-4-09 to 31-3-10 @ 20% WDV as on 1-4-10 Less : Depreciation from 1-4-10 to 31-3-11 @ 20% WDV as on 1-4-11 Less : Depreciation from 1-4-11 to 1-3-12 @ (as year not completd) WDV as on date of sale 3. Calculation of WDV of Television Purchase value Less : Depreciation from 1-4-06 to 31-3-11 @ 10% WDV as on date of sale
Particulars
Amount 3,00,000 60,000 2,40,000 48,000 1,92,000 Nil 1,92,000
Particulars
Amount 50,000 25,000 25,000
4. Depreciation on sofa set is charged @ 10% as per straight-line method. Since the asset is used for more than 10 years, 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 in continuous 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 Companys 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) Childrens 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.
74
Assessee : Mr. Lakshmi
Previous Year: 2011-2012 Computation of Total Income
Assessment Year : 2012-13

` `
Particulars Basic Salary (` 50,00012) Dearness Allowance (` 20,00012) Bonus (` 50,0002) Commission (` 15 Crores0.1%) Employers Contribution to Providend Fund Less : Exemption u/s 10(14) upto 12% of Salary (12% 9,90,000) (WN 1) Interest credited to Providend Fund Account at 10% Less : Exempted u/s 10(14) upto 9.5% Entertainment Allowances Children Education Allowance (` 5,0003) Less : Exempt u/s 10(14) [` 300 p.m.12 months 2 Children (maximum)] Taxable Salary before Perquisites Value of Perquisites Rent Free Unfurnished Accommodation Least of the following Rent paid by the Employer 70,000 15% of Salary [15% of ` 11,27,800] (WN 2) (assumed that Mumbai population > 25 Lakhs as per latest census) Gross Salary Less : Deduction u/s 16 Entertainment Allowance u/s 16(ii) [Not a Govt. Employee] Income under the head Salary Gross Total Income Less : Deduction Under Chapter VI-A U/s 80C LIC Premium paid 15,000 Contribution to PF Account 3,00,000 U/s 80CCC Contribution to Pension Fund 12,000 [The maximum amount along with deduction1,00,000 u/s 80CCC and 80CCC or u/s 80C, restricted to ` 1,00,000] U/s 80CCF Subscription to long term Infrastructure Bond 20,000 U/s 80D Medical Insurance Premium paid U/s 80G (WN 3) Total Income
3,00,000 (1,18,800) 60,000 57,000 15,000 (7,200)
6,00,000 2,40,000 1,00,000 1,50,000 1,81,200 3,000 30,000 7,800
13,12,000
1,69,170
70,000
13,82,000
Nil 13,82,000 13,82,000
20,000 63,450
(2,03,450) 11,78,550
75
INCOME FROM SALARIES Computation of Tax Liability Particulars

= @ 10% of 3,10,000 = @ 20% of 3,00,000 = @ 30% of 3,78,550 4,091
Total Income Upto ` 1,90,000 1,90,000 5,00,000 5,00,000 8,00,000 8,00,000 11,78,550
(+) Deduction Cess @ 2% (+) SHEC @ 1%
11,78,550 NIL 31,000 60,000 1,13,565 2,04,565

2,046 2,10,702 2,10,700
Rounded off u/s 288A Working Notes : 1. Salary for the purpose of computation of Taxable Portion of Employers Contribution to Provident Fund = Basic Salary + DA considered for Retirement Benefits + Commission = ` 6,00,000 + ` 2,40,000 + ` 1,50,000 = ` 9,90,000
2. 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 = 11,27,800 3. Computation of deduction u/s 80G : 50% of least of the followings : (a) Amount Donated (b) 10% of Adjusted Gross Total Income Gross Total Income Less : Deduction under Chapter VI-A excluding sec. 80G u/s 80C 80CCC (retired u/s 80CCF) u/s 80CCF u/s 80D 2,00,000 13,82,000 1,10,000 20,000 20,000
`
76
INCOME FROM HOUSE PROPERTY

This Study Note includes

STUDY NOTE - 5
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 assessees 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 the property is registered in his name. 2. Deemed Owner: Under the following circumstances, Income from House Property is taxable in the hands of 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 in pursuance of an agreement to live apart. (b) Where the Property is transferred to a minor child for inadequate consideration (except a transfer to 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 has been allotted a house property by virtue of his being a member, even though the property is registered in the name of the Society / Company / Association. (e) Where the property has been transferred to the individuals name as part-performance of a contract u/s 53A of the Transfer of Property Act, 1882. (i.e. Possession of the Property has been transferred to Individual, 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 enjoyment of the property. (g) Where the property has been constructed on a leasehold land. (h) Where the ownership of the Property is under dispute.
77

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INCOME FROM SALARIES

4.1 MEANING OF SALARY

INCOME FROM SALARIES

9. 10. 11. 12. 13. 14. 15. 16.

INCOME FROM SALARIES

xxx xxx xxx xxx

xxx xxx 10,00,000 xxx xxx

xxx xxx 10,00,000

Applied Direct Taxation

INCOME FROM SALARIES

xxx xxx xxx xxx

xxx xxx xxx 3,00,000 xxx

Applied Direct Taxation

xxx xxx 5,00,000

xxx xxx 5,00,000 xxx xxx xxx

INCOME FROM SALARIES

INCOME FROM SALARIES

xxx xxx (xxx) xxx

INCOME FROM SALARIES

Expenses borne by Employer

Taxable Value of Perquisite

1(c)(i) Employer 1(c)(ii) Employer

Applied Direct Taxation

Expenses borne by Employer

Taxable Value of Perquisite

Applied Direct Taxation

INCOME FROM SALARIES

INCOME FROM SALARIES

SALARY For the purpose of

Any other monetary payment

Applied Direct Taxation

ILLUSTRATIONS ON INCOME FROM SALARIES

Workings: Previous Year 2008-09 2009-10 2010-11 2011-12

INCOME FROM SALARIES

Applied Direct Taxation

Computation of Taxable Gratuity Particulars

3,80,000 3,80,000 4,29,231 10,00,000 3,80,000 NIL

Computation of Taxable Gratuity Particulars

3,80,000 3,80,000 2,80,800 10,00,000 2,80,800 99,200

Computation of Taxable Gratuity Particulars

Applied Direct Taxation

= 98,000 = 41,600 1,39,600 = 49,000 = 20,800 69,800

2,92,500 2,92,500 1,67,520 2,17,776 3,00,000 1,67,520 1,24,980 51

= 4,20,000 = 60,000 4,80,000

60,000 84,000 5,000

5,000 5,000 4,70,000 53

14,400 2,400 12,000 9,600 12,000 2,400 2,70,000

Applied Direct Taxation

INCOME FROM SALARIES Solution : Computation of Income from Salary Particulars

Amount 1,80,000 72,000 3,600

14,400 2,400 12,000 9,600 12,000

INCOME FROM SALARIES

= `24,750 = `24,000 ` 48,750 = `16,500

Taxable value of perquisite

Applied Direct Taxation

INCOME FROM SALARIES Solution :

Total Perquisite value of interest-free loan : 12,20,000 8.5% 1/12 = ` 8,642

Washing Machine 6,000 5,000 1,000

Applied Direct Taxation

Applied Direct Taxation

INCOME FROM SALARIES

48,500 48,500 4,500

Amount Re ceived % Commuted