Salary 1

rrSalary
The income tax created more criminals than any other

single act of government.
~Barry Goldwater
41 Taxation
SRK of Salary
Sharp Review of Koncept of SMS & Danger Notes
42 Taxation criticism increases when a person becomes more successful & popular.
Ankur Agarwal - B.com, M.com, M.A. CA(I), PGDT, B.ed, MBA, Phd* SALARY
CHAPTER OUTLINE
Sections Particulars
15 Basis of Charges
16(ia) Standard Deductions from Salaries
16(ii) Deductions of entertainment allowance
16(iii) Deductions of Professional Tax
17(1) Definition of 'Salary'
17(2) Definition of 'Perquisite'
17(3) Definition of 'Profit in lieu of Salary'
10(5) Leave Travel concession
10(10) Gratuity
10(10A) Treatment of Commuted Pension
10(10AA) Leave Salary
10(10B) Retrenchment Compensation
10(10C) Compensation on Voluntary Retirement
10(13A) House rent allowance
10(14) Special allowances
89 Relief when salary is paid in arrears or in advance
criticism increases when a person becomes more successful & popular.
If you wish for the roses…be ready for the thorns. So stop wishing, start doing. Page 43
INTRODUCTION
 Income under the head salary is taxable only if there is employer-employee
relationship between payer and payee, this relationship is exist only if there is
control over the method of doing the work of other person. i.e. control of service.
 Eg: Warden allowances………..
 MP’s Salary-
 Daily allowances & Constituency Allowances to MP & MLA are EXEMPT
 Partner getting salary, bonus, interest etc.-
Emoluments received by a Ankur sir from college for full time work are salary, irrespective
of the fact whether it is received for academic work or otherwise.
If lecturer is paid for setting question paper by university, the remuneration is not salary,
as it is not received from the employer and is taxable under the head “Income from other
sources”.
If any salary has accrued to an employee, it is chargeable to tax even if he foregoes

(waive) his salary. Waiver by an employee of his salary is foregoing of salary.
 If any employee surrenders his salary to the Central Government under the Voluntary
Surrender of Salaries (Exemption from Taxation) Act, 1961, the surrendered salary would
not be included in computing his taxable income, whether he is a private sector/public
sector or Government employee.
 If employment is in India and after retirement settle in USA and getting pension there,
 Then such pension taxable in India
 As it is deemed to accrue or arise in India, as he served in India.
 Salary to foreign employee by foreign Govt. who is providing service in india is taxable under
the head salary.
Relief available to Salaried assesses for Salary received in arrears & in advance.
Section 89:-
Arrears of Salary
Sometimes salary of employee may be increased from retrospective effect i.e. from back date and employee
may receive arrear of salary, such arrears are taxable in the year in which arrears have been received.
however relief shall be allowed under section 89.
Step I:- Calculate the tax payable of the previous year in which the arrears/advance salary is
received on:
(a) Total Income inclusive of additional salary.
(b) Total Income exclusive of additional salary.
The difference between (a) and (b) is the tax on additional salary included in the total
income.
Step 2:- Calculate the tax payable of every previous year to which the additional salary relates
(a) on total income including additional salary of that particular previous year.
(b) on total income excluding additional salary.
Calculate the difference between (a) and (b) for every previous year to which the additional
salary relates and aggregate the same.
Step 3:- The excess between the tax on additional salary as calculated under step 1 and 2 shall be
the relief admissible under section 89. If there is not excess, no relief is admissible. If the
tax calculated in step 1 is less than tax calculated in step 2, the assessee need not apply
for relief.
CQ:28 Mr. Rahat, an employee furnishes the following particulars for your previous year -
Rs.
(a) Salary income as computed (after all deductions) for your year 6,80,000
(b) Arrears of salary received during the year (not included in the above) 25,000
relating to financial year 2009-10
(c) Assessed income-tax for the assessment year 2009-10 2,40,000
Compute the relief under section 89 of the Income-Tax Act, 1961.
The rates of income-Tax for the assessment year 2010-11 are:

Tax Rate (%)
On first ` 1,60,000 Nil
On 1,60,010 – 3,00,000 10%
On 3,00,010 to ` 5,00,000 20%
Above 5,00,000 30%
Education cess 3% (of tax payable)
Solution: Relief under section 89
Assessment year 2022-23 Assessment year 2010-11

Salary without Salary Income without Income
Arrears inclusive arrears inclusive
Of arrears of arrears
Salary income 6,80,000 7,05,000 2,40,000 2,65,000
Tax Payable 8,000 10,500
Add: H & E Cess. 240 315
Total TAX 8,240 10,815
Additional tax Step 1= Step 2= 10,815 – 8,240 = 2,575

on arrears
 Answer Relief allowed under section 89 = (Step 1 – step 2) =
BASIS OF CHARGE SECTION 15
(i) Salary is taxable on due basis or on receipt basis, whichever is earlier.
(ii) Once Salary is taxed on due/receipt basis, it will not be taxed again on receipt/fulling due,
as the case may be.
(iii) Loan from employer is not salary. Hence Advance Salary is taxable, while Loan against
salary is not.
MEANING OF SALARY SECTION 17(1)
"Salary" includes—
(i) Wages
(ii) Any annuity or pension
(iii) Any gratuity or Pensioin
(iv) Any perquisite or profit in lieu of or in addition to any salary or wages.
(v) Leave encashment
(vi) Interest earned in excess of 9.5% on recognised provident fund.
(vii) Amount transferred in excess of 12% of salary to recognised provident fund.
(viii) Bonus or Commission.
(ix) amount contributed by employer to new pension system covered under section 80CCD.
RETIREMENT BENEFITS
Gratuity Section 10 (10)
(a) Government Employee:-

Any death cum-retirement gratuity received by Government employees is wholly exempt
from tax.
(b) Employees covered by the payment of Gratuity Act, 1972:-

Exemption is least of the following:-
(i) Rs. 20,00,000

(ii) 15 days salary (out of 26 days) based on last drawn salary for each completed year of
service or part of the year in excess of 6 months; or
(iii) Gratuity actually received.
* Salary for this purpose means LAST basis salary and dearness allowance.
(c) Any other employees which is not covered by Gratuity Act, 1972:-
Exemption is least of the following:-
(i) Rs. 20,00,000
(ii) 15 days salary (out of 30 days) for every completed year of service (ignoring fraction)
(iii) Actual received.
* Salary means basic salary, dearness allowance if provided in terms of employment and
commission as a percentage of turnover achieved by the employee.
Salary shall be average of last 10 month salary.
conceptual Notes:-
(1) Gratuity received during the period of service is always taxable.
(2) Where gratuity is received by an employee from more than one employer in the same
previous year than the aggregate amount of gratuity exempt from tax cannot exceed
the above limits prescribed.
(3) In case where the employee has received gratuity in any earlier year from his former
employer and also receives gratuity from another employer in a later year, the limit
will be reduced by the amount of gratuity exempt from tax in any earlier year.
CQ 29: Bijli Retires on 31 jan. in your dear previous year after serving Dhamaka ltd. for period of
16 year 11 months. At the time of retirement her basic salary was 4400 p.m. & she was also
entitled to DA of Rs.800 p.m. bonus Rs.1000.
On Retirement, she received Rs.60,000 as gratuity. Compute taxable Salary
CQ.30: Saleem a General Manager of Anarkali Disco Chali Ltd., retired from Co. on 15 th June.2021
At time of Retirement his Basic Salary was 7000 p.m..
He Entitled D.A @ 20% of Basic ,60% D.A forms Part of Salary for Retirement Benefits.
He worked with Co. for 10 yr, 11 Month and 15 days. He got increment of Rs.500 in his basic w.e.f.
January 2021. At retirement time Co. paid him Rs.1,00,000 as gratuity .Saleem had Earlier
worked with Munni Ltd. from where he received gratuity & availed Expemtion of Rs. 3,00,000.
Compute the gratuity exempt & Salary of Saleem.
Pension: Section 10 (10A)

Taxability of Pension
Nature of Pension Received by Amount Taxable
Uncommuted Pension or Government or Fully Taxable under the

Monthly Pension: Pension head Salaries
received periodically by the Non-Government
retired employee. Employees
Commuted Pension- (a) Government Employee Fully Exempt
It is a pension received in (b) Non-Government Amount Received

lumpsum as per the terms of
the employment on Employee who is in Less 1/3 of Fully Value of
retirement or Pension he is entitled to receive
receipt of Gratuity
superannuation.
Amount Received
(c)Non-Government
Employee who is not in Less 1/2 of Full Value of
receipt of Gratuity. Pension he is entitled to receive.
CQ:31 guddu rangela Retired on 1st -may in your dear P.Y from chalu ltd. He was entitled at
Rs.4000 p.m. as pension At time of retirement. He got 75% of pension commuted and Received
Rs.1,20,000 as commuted pension compute taxable portion of pension. his salary was Rs.10,000
pm.
DA Rs.2000 pm, lunch allowances 500 pm. calculate income from salary.
CQ.32: what will be your Answer if in above question he got 75% of pension commuted on 1
November.
Leave Salary : Section 10(10AA):-
Government Employee:- Fully Exempted
Non-Govt. Employee:- Exemption is least of the following:-
(a) Cash equivalent of the leave (on the basis of average of last 10 months salary) to the credit
of the employee at the time of retirement (calculated at 30 days credit for each completed
year of service); or
(b) 10 months salary (on the basis of average of last 10 months salary); or
(c) the amount specified by the Government – Rs. 3,00,000
(d) Leave encashment actually received
Even in the case of voluntary retirement by way of resignation, leave salary received qualifies
for exemption.
Conceptual Notes:-
(1) Leave salary received during the period of service is always taxable.
Where leave salary is received by an employee from 2 or more employers in the same
previous year then the aggregate amount of leave salary exempt from tax cannot exceed the
limits prescribed.
(2) When an employee has received cash equivalent of earned leave in any earlier year from his
former employer and also receives leave encashment from his present employer in the
subsequent year, the prescribed ceiling limit shall be reduced by leave salary which was
exempted in earlier years.
*Salary for this purpose means basic salary, dearness allowance-if provided in terms of
employment and commission as a percentage of turnover achieved by the employer.
CQ:33 Ms. ghumar an employer of Holiday Ltd. retired on 30th november. His information is:
(1) Salary at the time of retirement (per month) `9000
(2) Period of service 20yrs & 8 month
(3) Leaver Encashment Received ` 1,44,000
(4) Leave availed while in service 14 month
(5) Balance unavailed leave at time of retirement 16month
(6) Average salary for the months of Feb to Nov 8800
(7) Leave Entitlement 1.5 month for every completed
Years of service
Compute the amount of taxable leave encashment.
CCQ:34 Mr. Festival Retire after 24 years & 4 month, & Received Rs.56,000 as leave salary on
account of accumulated leave of 240 days. He was entitled to 40 days leave for every years of
service. Compute Taxable Leave Encashment.
CQ: 35: what will be your answer if in above ques. he Received `56,000 as leave salary on account
of accumulated leave of 300 days.
Retrenchment Compensation Section 10 (10B):-
Least of the following amount is exempt:-
(i) 15 days (out of 26 days) salary for every completed year of service or any part thereof in
excess of 6 months (as Calculated in accordance with Industrial Disputes Act)
(ii) Rs 5,00,000
(iii) Actual amount received.
Average shall be taken for 3 months and salary shall include only basic pay and dearness allowance.
CQ.36 Mr. Popat lal received retrenchment compensation of Rs.10,00,000 after 30 years 4 months of service. At the
time of retrenchment, he was receiving basic salary of Rs.20,000 p.m.; dearness allowance of Rs.5,000 p.m.
Compute his taxable retrenchment compensation.
KEY:
As per section 10(10B), exemption available to Mr. X in respect of retrenchment compensation, in this case, will be
the least of the following limits:
Compensation actually received = `.10,00,000
Statutory limit = `.5,00,000
Amount calculated in accordance with the Industrial Disputes Act, 1947
= 15/26 x (20,000+5,000) x 30 = `.4,32,692
Therefore, `.4,32,692, being the least of the above limits, would be exempt under section 10(10B).
 The taxable retrenchment compensation will be :

Retrenchment compensation received `.10,00,000
Less: Exemption under section 10(10B) `. (4,32,692)
Taxable Retrenchment Compensation `.5,67,308
Compensation on Voluntary Retirement : Section 10(10C):-
Guidelines for claiming exemption [Rule 2BA]:-
(i) it applies to an employee of the company who has completed 10 years of service or
completed 40 years of age.
(ii) it applies to all employees (by whatever name called) including workers and executives of the
company excepting directors of the company;
(iii) the scheme of voluntary retirement or voluntary separation has been drawn up to result in
overall reduction in the existing strength of the employees of the company;
(v) the retiring employee shall not be employed in another company or concern belonging to the
same management;
(vi) the maximum amount of compensation on account of VRS shall not exceed the following:-
(a) Last drawn salary x 3 months x No. of fully completed years of service; or
(b) Last drawn salary x Balance of months of service left
(c) Actual amount received.
(d) Statutory limit Rs. 5,00,000
*Salary= Basic Pay + DA (if forming part of retirement benefits)+ Fixed % of commission on
turnover.
CQ.37 Mr. X received voluntary retirement compensation of `.7,00,000 after 30 years 4 months of service. He still
has 6 years of service left. At the time of voluntary retirement, he was drawing basic salary `.20,000 p.m.; Dearness
allowance (which forms part of pay) `.5,000 p.m. Compute his taxable voluntary retirement compensation.
KEY
Voluntary retirement compensation received `.7,00,000
Less: Exemption under section 10(10C) [working Note 1] `. (5,00,000)
Taxable voluntary retirement compensation `.2,00,000
Working Note 1: Exemption is to the extent of least of the following:

(i) Compensation actually received = `.7,00,000
(ii) Statutory limit = `.5,00,000
(iii) Last drawn salary × 3 × completed years of service = (20,000 + 5,000) × 3 × 30 years = `.22,50,000
(iv) Last drawn salary × remaining months of service = (20,000 + 5,000) × 6 × 12 months = `.18,00,000
 Provident Funds: - Tax treatment relating to Provident Fund

Particulars Statutory Recognised Un-recognised Public
Sec. 10(11) Sec.10(12)
Employees Deduction Deduction u/s Deduction u/s 80C and Deduction

Contribution u/s 80C 80C available available u/s 80C
available available
Employer's Not Taxable Amount exceeding NOT taxable at the time of Not
contribution 12% of Salary is contribution Applicable
taxable
Interest on Fully Exempt upto 9.5% NOT taxable every year Fully
Provident exempt from p.a. exempt
Fund tax Interest credited in
excess of 9.5% p.a.
is included in
gross salary.
AT Fully Exempt subject to 1.Accumulated employee's Fully

RETIREMENT exempt u/s certain contribution is not exempt
10(11) conditions*. taxable.
u/s
2.Accumulated employer's 10(11).
Repayment of contribution
lump sum + interest on employer's
amount on contribution (till date) is
retirement/r taxable as profit in lieu of
esignation/ter salary.
mination
3.Interest on employees
contribution (till date) is
taxable as income from
other sources.
Meaning of Salary:- Basic Salary, Dearness allowance (if pro-vided in terms of employment) and
commission as a fixed percentage of turnover achieved by the employee.
*If the employee has rendered continuous service with his employer for a period of 5 years or more.
Key Note:- Condition of 5 years is not applicable-

(a) By reason of such employee's ill health, or
(b) By the contraction or discontinuance of the employer's business.
(c) or other cause beyond the control of the employee.
Section 17(2) (vii)

The amount or the aggregate of amounts of any contribution made to the account of the
assessee by the employer—
(a) in a recognised provident fund RPF
(b) in NATIONAL PENSION SCHEME (NPS) of section 80CCD; and
(c)in an approved superannuation fund,
to the extent it exceeds 7,50,000 rupees in a previous year shall be taxable.
 Interest on amount in excess of 7,50,000 shall also be taxable.
CQ:38 Basic salary is 20000 after deduction of `. 5000 employee’s contribution. What will be the
correct basic salary?
CQ:39 Basic salary is `. 10000. Employee contribution `.1000 (included in basic). What will be the
Correct basic salary?
CQ-40 Salary `.90,00,000 Employer’s Contribution in RPF 11,00,000.calculate taxable RPF.
CQ-41 Salary `.1 crore, Employer’s Contribution in RPF 10,00,000. Calculate taxable RPF.
CQ-42: salary 50,00,000. employer’s contribution in RPF `.7,00,000. Calculate taxable RPF.
CQ-43 salary 50,00,000. employer’s contribution in RPF `.5,00,000. Calculate taxable RPF.
SUPER CQ:42 (section 10(12) + sec. 17(2)(vii) + sec 80C )

Mr. Vee-lee employee with ju-lee ltd. on salary of `. 5,00,000 p.m He and employer Both contribute
14% of salary to PF.
Discuss tax treatment in case of:- 1.SPF 2.RPF 3. URPF
SUPER CQ:43 Miss nee-lee got salary of `.20000 p.m from pee-lee limited. bonus `.50,000.
Discuss tax treatment under: 1.SPF 2.RPF 3. URPF
Info: employee contribution 3000 p.m
Employer contribution 3000 p.m
Interest on Both 11% p.a. `.22000
Contribution by Employer to NPS [Section 80CCD (2)]
Any contribution by employer to NPS shall form part of Salary and deduction shall be allowed u/s
80CCD(2) to the extent of 10% of the Salary.
But The deduction of employer’s contribution under section 80CCD(2) would be restricted to 14% of
salary, where the employer is the Central Government
CQ-44:Mrs. champak is employed in Central Government since 01.01.2020 and is getting basic pay of `.1,00,000 p.m.
She has contributed `.10,000 p.m. to the notified pension scheme of Central Government and employer has also
contributed an equal amount. She has paid premium of Jeevan Suraksha Policy `.3,000 and invested `.1,00,000 in NSC.
KEY
Basic Pay (1,00,000 x 12) 12,00,000.00
Contribution to the pension fund by Central Government (10,000 x 12) 1,20,000.00
Gross Salary 13,20,000.00
Less: Standard Deduction u/s 16 (ia) (50,000.00)
Income under the head Salary 12,70,000.00
Gross Total Income 12,70,000.00

Less: Deduction u/s 80C 1,00,000.00
Less: Deduction u/s 80CCC 3,000.00
Less: Deduction u/s 80CCD (employee contribution `1,20,000) 1,20,000.00
Deduction under section 80C + 80CCC + 80CCD 1,50,000.00
Additional Deduction u/s 80CCD (additional deduction can exceed maximum `50,000) 50,000.00
Employer contribution 1,20,000.00
Total Income 9,50,000.00
Allowances
(1) FULLY TAXABLE ALLOWANCE:
(i) Dearness allowances and dearness pay
(ii) Fixed Medical Allowance
(iii) Servant Allowance
(iv) Non-practising allowance
(v) Warden Allowance
(vi) Over time Allowance
 (vii) Entertainment Allowances.
(viii) Other Allowance
(2) ALLOWANCES EXEMPT UPTO SPECIFIED LIMIT:-
(A) House Rent Allowance Section 10 (13A):
Least of the following shall be exempt:-
(i) Actual allowance received.
(ii) Rent paid less 10% of Salary
(iii) 50% of Salary:- If the accommodation is in Mumbai, Delhi & Chennai
40% of Salary:- For any other place
Meaning of Salary:-
Basic salary,
+dearness allowance, if provided in terms of employment and
+commission as a fixed percentage of turn over achieved by the employee.
Key Note:-Exemption is not available to an assessee who lives in his own house or in a house for
which he does not pay any rent.
 If there is any change in house rent allowance, rent paid,

retirement benefits salary or the place of posting during the
year,
 there will be separate calculation for each of such change.
CQ:45 Mr. Romio was Basic Salary 50,000 p.m. and D.A of ` 10,000 p.m., 40% of which forms part
of retirement Benefits. He also entitled to HRA of ` 20,000 p.m.
He pays is 20,000 p.m. as rent for House in Delhi. compute taxable HRA.
CQ:46 Mrs. Juliet is Employed at Delhi. Particular of her salary are:
(i) Basic Salary 30,000p.m.
(ii) D.A (forming part of basic salary) 10,000 p.m.
(iii) Commission @ 2% of turnover achieved which was Rs 22,50,000 & same was evenly spread.
(iv) HRA ` 15,000 p.m.
The actual rent paid by her ` 10,000 p.m. for an Accommodation at Noida till 31 december from 1
Jan Rent was increased to ` 20,000 p.m.. Compute taxable HRA.
CQ:47.Mr. Beghar is employed in ghar-ghar Ltd. getting basic pay `20,000 p.m., dearness
allowance `7,000 p.m. and half of the dearness allowance forms the part of salary for the purpose
of retirement benefits.
The employer has paid bonus @ `500 p.m., commission @ 1% on the sales turnover of `20 lakhs.
The employer paid him house rent allowance`6,000 p.m. Employee has paid rent `7,000 p.m. and
was posted at Agra.
Compute his tax liability for the assessment year.
Solution: `
Computation of Gross Salary
Basic Pay (20,000 x 12) 2,40,000.00
Dearness Allowance (7,000 x 12) 84,000.00
Bonus (500 x 12) 6,000.00
Commission (1% of `20,00,000) 20,000.00
House rent allowance {Sec 10(13A) Rule 2A} (W.Note 1)
Received = `72,000
Exempt = `53,800 18,200.00
Gross Total Income (GTI) 3,68,200.00
Less: Deduction u/s 80C to 80U Nil
Computation of Tax Liability(assuming he is not following 115BAC)

Tax on `3,68,200 at slab rate ……………
Less. Rebate u/s 87A …………..
Add: HEC @ 4%
Tax Liability
Working Note:
Least of the following is exempt:
1. Actual HRA ` 72,000
2.Rent paid – 10% of Salary `84,000 – `30,200 = ` 53,800
3. 40% of retirement benefit salary = `1,20,800

(Retirement benefit salary = 2,40,000 + 42,000 + 20,000 = 3,02,000)
(B) SPECIAL ALLOWANCES Sec. 10 (14)
 Following allowance (by whatever name called) are exempt to the extent of
actual amount received or

amount spent whichever is less:-
(i) Travelling allowance : Granted to meet the cost of travel on tour or on transfer.
(ii) Daily allowance : Granted on tour or on transfer to meet the ordinary daily
charges.
(iii) Conveyance allowance : Granted to meet the expenditure incurred on conveyance
official duties.
(iv) Helper allowance : Granted to meet the expenditure on a helper for official
duties.
(v) Academic allowance : Granted to encouraging academic, research and training

pursuits.
(vi) Uniform allowance : Granted to meet the expenditure on purchase or
maintenance of uniform.
 Following allowance are exempt to the extent of

amount received or
the limit specified whichever is less:-
(i) Children education : Exempt upto actual amount received per child or `100 p.m. per
allowance
child upto a maximum of 2 children whichever is less.
(ii) Hostel expenditure : Exempt upto actual amount received per child or `300 p.m. per
allowance
child upto a maximum of two children whichever is less.
(iii) Transport allowance : For purpose of commuting between residence and the place of
his duty, `3200 p.m. for bind/handicapped employee/deaf &
dumb.
(iv) Allowances allowed to transport employees, given to the employee working in any transport
system, to meet his personal expenditure during the course of running of such transport
from one place to another. The amount of exemption shall be
(a) `.70% of such allowance or (b) `10,000 p.m. whichever is less.
 However he should not be receiving daily allowance.
(v) Tribal area allowance : Exempt upto actual amount received or `.200 per month
whichever is less
(vi) Underground : Granted to employees working in uncongenial, unnatural

allowance climate. In underground coal mines shall be
exempt upto Rs. 800 p.m.
Hilly Areas `300 per month /

Allowance or High
vii Altitude Allowance :
`7000 per month in Siachen area of Jammu and Kashmir
viii border area :
allowance or remote
locality allowance ` 1300 per month.
ix Compensatory Field :
Area Allowance
` 2600 per month.
x Compensatory :
Modified Field Area
Allowance ` 1000 per month.
 ALLOWANCES TO THE MEMBER OF ARMED FORCES:
1. counter insurgency allowance granted to the members of the armed : `3900 p.m.
-forces
2. high Altitude allowance granted to the member of the armed
forces operating in high altitude areas :
For altitude of 9,000 to 15,000 feet `1060 p.m.
For above 15,000 feet
` 1600 p.m.
3. highly active field area allowance granted to the member of the : `4200 p.m.
armed forces
4. Island (duty) allowance granted to the member of the armed forces : `3250 p.m.
in Andaman & Nicobar and Lakshadweep Group of Islands
An employee, being an assessee, who opts for the provisions of section 115BAC would be entitled for
exemption only in respect of DIL CHURAYA TUNE-
travelling allowance, daily allowance and conveyance allowance& transport allowance.
(3) Fully Exempted Allowances:-

(i) foreign Allowance (Only for Citizen of India, who is a Govt. employee)
(ii) Allowance to High Court or Supreme Court Judges
(iii) Allowance from U.N.O.
PERQUISITES
Definition of Perquisites Section 17 (2):-
Perquisites includes--
(i) the value of rent free accommodation provided to the assessee by his employer [as per Rule 3 (I)].
(ii) the value of any concession in the matter of rent in respect of any accommodation provided to the
assessee by his employer [value as per Rule 3 (I)].
(iii) the value of any benefit or amenity granted or provided free of cost or at concessional rate in the
case of specified employees;
 Motor Car [Value as per Rule 3 (2)]
 Sweeper, Gardener, Watchman or Personal attendant [Value as per Rule 3(3)]
 Gas, Electricity & Water [Value as per Rule 3(4)]
 Free Education Facility [Value as per Rule 3 (5)]
 Free/Concessional Fare [Value as per Rule 3(6)']
 Value of any other benefit or amenity, service, right/privilege [Value as per Rule 3(7) (ix).
(iv) any sum paid by the employer to effect an assurance on the life of the employee or to effect a contract
for an annuity.
(v) Perquisite shall include the value of any specified security or sweat equity allotted or transferred,
directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the
assessee.
For this purpose.The value of any specified security or sweat equity shares=The Fair Market Value of
such security or shares as on the date on which the option is exercised by the assessee as reduced by
the amount actually paid by/recovered from the assessee.
(vi) perquisite shall also include the value of any other fringe benefit or amenity as may be prescribed.
 Concessional or Internet-free Loan [Value as per Rule 3 (7) (i)]

 Travelling, touring & accommodation other than LTC [Value as per Rule 3(7) (ii)]
 Free food & beverages to the employees during office hours [Value as per Rule 3(7) (iii)]
 Gift to the employees [Value as per Rule 3(7) (iv)]
 Credit Card Expenses including membership fees & annual fee [Rule 3(7) (v)]
 Expenditure on account of Club Expenses[Value asper Rule 3(7) (vi)]
 Use of Movable Assets [Value as per Rule 3(7) (vii)]
 Transfer of Movable Assets to employee [Value as per Rule 3(7) (viii)]
(vii) perquisite shall also include the amount of any contribution to an approved superannuation fund or
NPS or RPF by the employer in respect of the assessee, to the extent it exceeds `7,50,000.
SRK of Perks
Taxable in the hand of All perks taxable in hand of Tax free perks for
Employee (specified or not) Specified employee. ALL employee
 RFA *Taxability of motor car **Medical facility
 Monetary obligation /reimbursement *Sweeper/Gardner, **LTC
Discharged by Employer. *Watch man, Attendant
 Interest free loan *Supply of Gas, electricity, water
 Tour & travel Exp. met by employer *Education facility to member of household
 Free meal during office hour. *Transportation of goods or passenger
 Value of Gift/voucher other than cash Gift.
 Credit card/ membership fee/Annual fee
 Expenditure of club other than health
 club or sport club
 Use & movable Asset
 Transfer of movable Assets
Valuation of Perquisites [Section 17(2) and Rule 3]:

(1) Perquisites-Taxable in the hands of
all employees:-
(A) Rent Free Accommodation or Accommodation provided at concessional rate:-
Accommodation provided by
Central and State Govt. Taxable value of perquisite as per Govt. rules.
In cities having population exceeding 25 lakh as per 2001

Others- census=15% of Salary
(i) Owned by Employer In cities having population exceeding 10 lakh but not
exceeding 25 lakhs = 10% of Salary
In other places = 7.5% of Salary
(ii) Not owned by employer (a) Actual Rent, or

(b) 15% of Salary Whichever is lower
(iii) Accommodation in hotel (a) Actual Rent, or

(b) 24% of Salary Whichever is lower
[Whether Govt. or Others]
However nothing shall be taxable if accommodation is
(i) Provided for not more than 15 days, and

(ii) or transfer of employee from one place to another.
Important Notes:-
(i) Meaning of Salary:-
Basic Salary
+DA (if under terms of employment)
+Bonus, Commission(ANY)
+Taxable portion of all allowances
+Any other monetary payments
(ii) Valuation of furnished accommodation:-

Value of unfurnished accommodation as above
Add: If the furniture is owned by employer, then 10% p.a. of original cost of such furniture
or if it is hired from third party, then actual hire charges.
(iii) Valuation of accommodation in case of Employees on transfer, if employee is provided

house at the new place and also allowed to retain house at the old place.
(a) For first 90 days from the transfer the value of one house with lower value will be taxable.
(b) After 90 days value of both houses will be taxed.
(iv) The above rule of valuation is not applicable if:
(a) House is located in a remote area i.e., an area 40 kms. away from city having
population not exceeding 20,000 based on latest published all India census and.
(b) It is provided to an employee working at a mining site or an onshore oil exploration

site or a project execution site.
(v) If any amount is recovered from the employee, then such amount shall be reduced from the
value, determined for such house.
CQ:48(RFA) Mr. dal baati churma furnishes the following particulars:
Basic: 12000 P.M : DA 1000 P.M (40% UT0E): Lunch allowances Rs. 200 P.M
Medical allowances 500 PM ; city compensatory allowances Rs. 300 P.M children education
allowances (per child for 2 children) Rs.230 pm he is provided RFA in Delhi. The cost of furniture
provided is Rs. 100,000 & 2 air conditioner which have been taken on hire by co. have also been
provided in accommodation.The hire charges for each A.C is Rs. 2000 per annum.
Compute RFA if:-Accommodation is provided by company.
CQ.49. what will be the answer if in above question accommodation has been taken on rent By
Company at Rs. 5000 p.m.
 CQ: 50.
Mr. surma bhopali is employed in dabli Ltd. getting basic pay `37,000 p.m., dearness allowance `
32,000 p.m. The employer has provided him rent free accommodation at a place with population of
13 lakhs. The employer has provided him furniture with original cost `1,50,000. However, the
employer has discontinued the facility of rent free accommodation and furniture both w.e.f. 1 st
March. He has paid him house rent allowance `7,000 p.m. The employee has shifted in his own
house w.e.f. 01 march.
Compute total income asap for your dear assessment year.
(B) Valuation of Monetary Obligation of the employee discharged by the employer:-
The value of these perquisites is the actual expenditure incurred by the employer in this
regard.
(C) Valuation of fringe benefits or amenities [Rule 3(7)]
(i) Interest free or concessional loans [Rule 3(7) (i)]-
 Interest charged by employer is equal to or higher than SBI rates:

It is NOT a taxable perquisite.
 Interest charged is lower than SBI rates:

Interest at State Bank of India rate on maximum outstanding balance.
Less Interest paid by the employee on that loan
 Exceptions:-
(a) Medical loan form treatment of diseases specified in Rule 3A except Loan reimbursed by
medical insurance.
(b) Loan not exceeding Rs 20,000 in aggregate.
Key Note:-
"Maximum outstanding monthly balance means the aggregate outstanding balance for each limit
as on the last day of each month.
CQ.51 Mr. bhagwan das is employed in Jhakaas Ltd. and he has taken interest free loan of
`3,00,000 on 10.07.2021 for personal purpose for a period of 3 years and the loan is to be repaid in
monthly installments of `10,000 and repayment shall start with effect from 21.09.2021, in this
case perquisite value for the loan shall be computed in the manner given below (SBI Rate 12%).
CQ 52.Mr. chalbazz is employed in BOSS Ltd. and he has taken interest free loan of `3,00,000 on
10.07.2021 for treatment of specified disease and the assessee has received a claim of `1,20,000
under medi-claim policy on 07.01.2022 and he has repaid `70,000 on 31.03.2022, in this case
perquisite value for the loan shall be computed in the manner given below (SBI Rate 12%):
Months Outstanding balance at the end Amount of interest

(in Rs) (in Rs. )
January
February
March
Total
So, perquisite value of interest free loan = 2,900
(ii) Travelling, touring, accommodation and other expenses met by the employer.
(To be calculated only for the period of vacation) [Rule 3(7) (ii)-
Amount incurred by employer or value offered to public

Less: Amount recovered from employee
(iii) Free meals during office hours

{free meals in remote area or offshore installation area is not a taxable perquisite}
Actual cost to the employer but not taxable upto Rs. 50 per meal or tea or snacks.
Less: Amount recovered from the employee
Note:- Tea or non-alcoholic beverages and snacks during working hours is not taxable.
(iv) Value of any gift or voucher or token other than gifts made in cash or convertible into
money (gift cheques) on ceremonial occasion [Rule3(7) (iv)]-
Value of gift
In case the aggregate value of gift during the during year is upto Rs. 5,000, then it is not a
taxable perquisite.
Note:- Gifts made in cash or convertible into money (like gift cheques) are fully Taxable.
(v) Expenditure incurred on credit card or add on card including membership fee and annual
fee. [Rule 3(7) (v)]-
Actual expenditure to employer is taxable.

Less: Amount recovered from employee.
Note:- If it is incurred for official purpose and supported by necessary documents then it
is not taxable.
(vi) Expenditure on club other than health club sports club or similar facilities provided
uniformly to all employees. [Rule 3 (7) (vi)]-
Actual expenditure incurred by the employer

Note:- 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.
(vii) Use of moveable assets [Rule 3(7) (vii)]:-
Circumstances Value of Benefit
(a) Use of laptops and computers Nil
(b) Moveable assets, other than-
(i) laptops and computers; and (i) 10% per annum of the actual cost if it is
owned by the employer, or
(ii) assets already specified in the rules (ii)Actual rental charge paid or payable by the
employer.
(viii) Transfer of moveable asset to employees [Rule 3 (7) (viii)]:-
Computers & Electronic Motor Car Other Assets

Items
Actual Cost Actual Cost Actual Cost

Less: Depreciation @ 50% Less: Depreciation @ 20% for Less: Depreciation @ 10% for
for every completed year every completed year under every completed year under
under WDV method. WDV method. SLM.
CQ:53 Chatpata Ques. mr. papad is employed with kachri limited on salary 25000 p.m .
Company provides following benefits:
1. A co. owned accommodation is provided in Delhi.

2. Co. gave him house loan of Rs. 500000 on which it charges intt. 6% pa. Entire loan is still
outstanding. (Intt. By SBI 10% p.a)
3. Co. gave him a gift in kind Rs. 15900 on his 50th birthday.
4. He allowed using video camera belonging to company, co. had purchase this camera for Rs.
60,000 on 1.5.2018 this camera sold to him on 1.8.2021 for Rs 30,000.
5. The company had purchases Car on 16.7.2017 for Rs. 2,50,000. This car is sold to B. bhaijaan
on 14.7.2021 for Rs. 80,000.
6. The co. pays telephone bills of Rs. 24,000 for the telephone installed at the residence of Him.
Compute gross income from salary.
(ix) Valuation of specified security or sweat equity : section 17(2)(vi)

the value of sweat equity shares chargeable to tax as perquisite shall be the
fair market value of such shares on the date on which the option is exercised by the
assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect
of such shares. i.e (FMV – amount paid)
CQ-54 STREE. Ltd., allotted 1000 sweat equity shares to Mr. VICKY. The shares were allotted at `200 per share as
against the fair market value of `300 per share on the date of exercise of option by the allottee viz. Mr. VICKY. The
fair market value was computed in accordance with the method prescribed under the Act.
(i) What is the perquisite value of sweat equity shares allotted to Mr. VICKY?
(ii) In the case of subsequent sale of those shares by Mr. VICKY, what would be the cost of acquisition of those
sweat equity shares?
Answer.
(i)Fair market value of 1,000 sweat equity shares @ `300 each 3,00,000
Less: Amount recovered from Mr. VICKY 1,000 shares @ `200 each (2,00,000)
Value of perquisite of sweat equity shares allotted to Mr. VICKY `1,00,000
(ii) As per section 49(2AA), where capital gain arises from transfer of sweat equity shares, the cost of acquisition of
such shares shall be the fair market value which has been taken into account for perquisite valuation under section
17(2)(vi). Therefore, in case of subsequent sale of sweat equity shares by Mr. VICKY, the cost of acquisition would
be Rs.3,00,000.
(2) Perquisites taxable in the hands of specified employees:-
(i) Taxability of use of Motor Car Benefits [Rule 3(2)]
Owner of Car Expenses Purpose Taxable Value of Perquisite

met by
(a) Employer Employer Fully official Not a perquisite provided the documents are
maintained
(b) Employer Employer Fully private Aggregate of-
use (a) Actual expenditure on car
(b) Remuneration to chauffeur
(c) 10% of the cost of car (normal wear & tear)
Less: Amount charged from employee.
(c) Employer Employer Partly for Cubic capacity of Car engine upto 1.6 litres
official and Rs. 1,800 p.m. + Rs.900 p.m. for chauffeur
partly for Cubic Capacity of Car engine above 1.6 litres
personal Rs.2,400 p.m. + Rs.900 p.m. for chauffeur
(d) Employer Employee Partly for Cubic Capacity of Car Engine upto 1.6 litres
official and Rs.600 p.m.+ Rs.900 p.m. for chauffeur
partly for Cubic Capacity of Car Engine above 1.6 litres
personal Rs.900 p.m.+ Rs.900 p.m. for chauffeur
(e) Employee Employer Fully official Not a perquisite provided documents as per
use rule are maintained.
(f) Employee Employer Partly for Actual expenditure incurred less
official use Car Cubic Capacity upto 1.6 litres- Rs.1800 p.m.
and partly for Car cubic capacity above 1.6 litres- Rs.2400 p.m.
personal use Less: Rs.900 p.m. for chauffeur.
(g)Employee owns Employer Fully official Not a perquisite provided documents as per Rule
other automotive use are maintained.
but not car
(h) Employee Employer Partly for Actual Expenditure incurred by employer

owns other official and Less : Rs.900 p.m.
automotive but partly for
not car personal use
Note:-
 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 Value as per (c)
 For more than one car Valued as per (b) as if fully used for personal purpose.
 Documents to be maintained for claiming not taxable perquisite' or higher deduction wherever
applicable [Rule 3(2) (b)]
o Employer should maintain complete details of journey undertaken for official
purpose, which includes date of journey, destination, mileage and amount of
expenditure incurred thereon.
o Certificate of supervising authority of the employee, wherever applicable, to the effect
that the expenditure was incurred for wholly and exclusively for performance of
official duties, should be provided.
 Member of house hold includes: Spouse (s), Children & their spouses, parents, servants and
dependents.
(ii) Service of sweeper, gardener or watchman or personal attendant- [Rule 3(3)]:-
Actual cost of the employer

Less: Amount paid by the employee
(iii) Supply of gas, electricity or water for household consumption-[Rule 3(4)]:-
 Procured from outside agency  Amount paid to outside agency
 Resources owned by employer himself  Manufacturing cost per unit
Deduction allowed for any amount paid by the employee.
(iv) Education Facilities to members of his household-[Rule 3(5)]:-
(a) Free Education to children in the school maintained by the employer or the school
sponsored by the employer-if the cost of education per child does not exceed
Rs.1,000 p.m.- Not taxable.
(b) Other Schools-Cost to the employer less amount recovered from employee.
(c) For other members of household-The cost of education to employer less amount
recovered from employee.
(v) Transportation of goods or passengers at free or concessional rate provided by

the employer engaged in that business (other than railways/airlines) [Rule 3(6)]:-
Value at which offered to public

Less- Amount recovered from the employee
(vi) Any other benefit or amenities or service or right or privilege provided by the
employer other than telephone or mobile phone [Rule 3(7) (ix)]:-
Cost of the employer

Less: Amount recovered from employee
Conceptual Notes:-
(i) Specified employee [Section 17 (2) (iii)]
(a) Director of the company; or
(b) Employee having 20% or more voting power or Beneficial ownership in the employer
company, or
(c) Employee having Salary more than Rs 50,000.
Salary means (whether due from, or paid or allowed by one or more employers) all taxable
monetary payments after deductions u/s 16.
CCQ:55 Miss aalia is employed on part time basis with two company- cherry ltd and lichi ltd.
Particulars of her income is as under:
Particulars cherry ltd Lichi Ltd
Basic salary 32000 13000
Education Allowances for one child --- 1800
Reimbursement of electricity bill 2000 ---
Medical allowances --- 2400
Value of RFA taken by employer on Rent 3000 ---
Aalia is neither Director nor Substantial shareholder of either companies.

Is she specified employee?
(ii) "Member of household" shall spouses.

(a) Spouse (s) (b) Children and their spouses
(c) Parents (d) Servants and dependents.
(3) Tax Free Perquisites for all employees:-
(i) Medical Facilities:-
 Medical Treatment in India: The following are tax-free medical benefits:
(a) Local treatment to employer or any member of his family in

 Hospital maintained by employer
 Government Hospital
 Notified hospital for prescribed diseases
(b) Group medical insurance premium paid.

(c) Medical insurance paid u/s. 80D
 Medical treatment Abroad [for the patient and the attendant]:-
If the employee underwent Medical Treatment abroad and the expenditure is met by the
employer exemption will be subject to the following –
(a) Medical treatment and stay expenses abroad (both for the patient and the attendant) is
exempt from subject to the maximum amount permitted by the Reserve Bank of India.
(b) Travel Expenditure of the patient and the attendant:-
Gross Total Income, before including Amount of

reimbursement of Foreign Travel Expenditure Exemption
Upto Rs.2,00,000 Fully Exempt
Above Rs.2,00,000 Fully Taxable
 Key Note:- Family means-

(a) the spouse and children.
(b) Parents, Brothers and Sisters of the individual wholly or mainly dependent on the
individual.
Chatpata Ques:56
Compute the Taxable value of Perk in respect of Medical facilities availed by Mr. Injection from His
employer in following situation:
A. Employer reimburse the following medical exp:

(i) Treatment of Mr. Injection by his family physician Rs. 8400.
(ii) Treatment of Mrs. Injection (mrs. Goli) in private nursing home Rs. 7200.
(iii) Treatment of Mr. Injection mother(mrs. Capsule) (dependent) Rs.2400 by Pvt. Doctor.
(iv) Treatment of Mr. Injection brother (shri. Tablet) (not dependent) Rs. 400.
(v) Treatment of Mr. Injection grandpa (shri operation) (dependent) Rs.1500.
B. Employer pays insurance premium of Rs 3000 under health insurance scheme on the
health of Mr. Injection.
C. The employer maintains a hospital for the employees where they and their family members are
provided free treatment. The expenses on treatment of Mr. Injection and his family member
during the previous year were as under:
(i) Treatment of Mr. Injection major son (dependent) Rs. 2200
(ii) Treatment of Mr. Injection Rs. 5200
(iii) Treatment of Mr. Injection uncle Rs. 4600
(iv) Treatment of Mrs. Injection Rs. 8000
(v) Treatment of Mr. Injection widowed sister(dependent) Rs. 4100
(vi) Treatment of Mr. Injection handicapped nephew. Rs. 2500
D. Expenses on cancer treatment of married daughter of Mr. Injection at Tata memorial Hospital,
Bombay paid by employer Rs.50,000 and reimbursement of medical expenditure for medical
treatment of himself amounting to Rs. 20,000.
(ii) LEAVE TRAVEL CONCESSION [Section 10(5)]:-
Value of travel concession received by an individual from his employer or former in connection with
his proceeding:
(a) on leave to any place in India.

(b) to any place in India before retirement from service or after the termination of his
service shall be exempt.
(1) Amount of Exemption:-

The exemption for each trip shall be computed on the following basis but shall be restricted
to actual expenditure incurred for the purpose of such travel.
Journey performed by Exemption
(1) AIR Amount not exceeding the air economy fare of the national
carrier by the shortest route to the place of destination.
(2) Any other mode-

(a) but rail service is available Amount not exceeding the air-conditioned first class rail fare
by the shortest route to the place of destination.
(b) rail service not available-
(i)but recognized public An amount not exceeding the first class or deluxe class fare on
transport system exists such transport by the shortest route to the place of destination.
(ii) and recognised public An amount equivalent to the air conditional Ist class rail fare
transport system does not for the distance by the shortest route as if the journey had been
exist performed by rail.
(2) Exemption can be claimed for two journey in a block of 4 years.

The different blocks are-
(i) 1.1.2012 to 31.12.2016
(ii) 1.1.2016 to 31.12.2019
(iii) 1.1.2020 to 31.12.2023
 Out of two journeys, exemption for one journey can be claimed in the first calendar year after
the end of the block.
 Family means-
(a) The spouse and children; and
(b) Parents, Brothers and Sisters of the individual wholly or Mainly dependant on
the individual.
 The exemption shall not be available to more than two surviving children of an Individual born
on or after 1.10.1998.
This restriction shall not apply in respect of children born before 1.10.1998 and also in
case of multiple births after one child.
 Deduction from Salaries. Section 16:-

(1) Standard Deduction – Section 16(ia)
- a deduction of 50,000. rupees or the amount of the salary, whichever is less;
(2) Entertainment Allowance [Section 16 (ii)]:-

If the Individual is a Government employee, then least of the following will be allowed as a
deduction:-
(a) Actual amount received during the year
(b) 20% of BASIC SALARY of the Individual
(c) Rs.5,000
(3) Professional Tax [Section 16 (iii)]:-

Any amount paid by the employee or employer (on behalf of employee) shall be allowed as
deduction in the year of payment.
CQ: 57: Mr. Singam having basic salary 20000 p.m., DA 10% of salary, child education allowances
received 90 p.m., he received 2000 p.m. entertainment allowances, 500 pm medical allowances, he
is sarkari karamchari, soch kya rahe ho net salary nikalo.
CQ: 58: munna Michael having basic salary 20,000 p.m. DA 5000 p.m. entertainment allowances
1000 p.m, free meal provided by company worth Rs. 80 per meal, His professional tax paid by
company Rs. 2000, socho mat fir nikalo net salary.
CQ. 59: what will be your answer if in ques. 58,professional tax Rs. 500 paid by employee & 1500
paid by employer. (May 2017)
Profits in lieu of Salary Section 17(3)

'Profits in lieu of salary' to includes:-
(i) The amount of compensation due to or received by an assessee from his employer or former
employer at or in connection with-
(a) Termination of employment; or
(b) Modification of the terms and conditions of employment.
(ii) any payment due to or received by the assessee from his employer or former employer or
from provident fund or any other fund or any sum received under a keyman insurance
policy including the sum allocated by way of bonus on such policy.
(iii) any amount due to or received whether in lump sum or otherwise, by any assessee from any
person
(a) before his joining any employment with that person or
(b) after cessation of his employment with that person.
CQ 60.Mrs Rajjo, Chief Administrative Officer in a chulbul ltd., gets `.50,000 p.m. as salary and 10% dearness allowance . He also
gets medical allowance of `4,000 and commission on sales at 1%. sale effected by him during the previous year amounted to `1
crore. The employer has provided him a 2000 cc. car with driver which he also uses for the company work. He is a member of a
recognised provident fund to which he contributes `1,00,000 p.a. whereas the company contributes `1,04,000 p.a. interest credited
to the fund @12.5% p.a. amounted to `15,000. He has income from other sources Rs. 40,000. Determine her income.
Solution: COMPUTATION OF TAXABLE INCOME OF Mrs Rajjo

-Salary @ ` 50,000 p.m. 6,00,000
-Dearness allowance @ 10% 60,000
-Medical allowance (taxable in full) 4,000
-Commission on sales @ 1% on `1,00,00,000 1,00,000
-Car of 2000 cc or 20 h.p. with driver @ `3,300 p.m. i.e. `2,400 (car)+ `900 (driver) 39,600
-Employer’s contribution to RPF in excess of 12% of salary,
I,e, `1,04,000 -12% of ` 7,00,000 (6,00,000+1,00,000) 20,000
-Interest credited to RPF in excess of 9.5% 3,600
Gross salaries 8,27,200
Less: Deduction U/s 16 50,000
Taxable salaries 7,77,200
Income from other sources 40,000
Gross total income 8,17,200
 Less: Deductions u/s 80-C Employee contribution 1,00,000

Taxable income 7,67,200
CQ:61 Mr. gulgule is employed in Central Government getting basic pay `9,000 p.m. and dearness allowance @ 60% of basic pay.
Employer has paid children education allowance `600 per month per child for 3 children and has paid hostel allowance `1,000 per
month per child for one child. Employer has paid professional tax of `175 p.m. on behalf of the employee and has allowed him
entertainment allowance `200 p.m. out of which he has saved `100 p.m. The employer has paid medical allowance `300 p.m. but
employee’s expenditure is `500 p.m.
Compute his income under the head salary.
SOLUTION: Computation of income under the head Salary
Basic Pay (9,000 x 12) 1,08,000.00
Dearness Allowance (60% of 1,08,000) 64,800.00
Children Education Allowance (w.n-1) 19,200.00
Hostel Allowance {W.N-2) 8,400.00
Entertainment Allowance (200 x 12) 2,400.00
Professional Tax (175 x 12) 2,100.00
Medical Allowance (300 x 12) 3,600.00
Less: 16(ia) standard deduction 50,000
Less: 16(ii) Entertainment Allowance 2,400.00
Less: 16(iii) Professional Tax 2,100.00
Income under the head Salary 1,54,000.00
Gross Total Income 1,54,000.00
Less: Deduction u/s 80C to 80U Nil
Working Note1: children education allowances
Received = 600 x 3 x 12 = 21,600
Exempt = 100 x 2 x 12 = 2,400
Taxable = 19,200
Working Note 2: Hostel Allowance

Received = 1,000 x 1 x 12 = 12,000
Exempt = 300 x 1 x 12 = 3,600
Taxable = 8,400
Working Note 3: deduction of Entertainment Allowances only for govt. employee.

Least of the following is deductible:
1. Actual 2,400
2. limit 5,000
3. 20% of Basic 1,08,000 = 21,600 So Deductible= 2,400
Super CQ 62 Mr. mogli is employed in jungle Ltd. getting basic pay Rs.11,500 p.m., dearness allowance Rs.5,000
p.m. (half of it is taken into consideration for retirement benefit).
Employer has allowed him house rent allowance with effect from 01.10.2021 @ 3,000 p.m. and the employee has
paid rent Rs.3,500 p.m. throughout the year. Employer has paid him children education allowance Rs.75 per month
per child for four children and has also paid him hostel allowance Rs.500 per month for one child, the actual
expenses incurred by the employee is Rs.1,000 per month per child. Company paid him Lunch allowance Rs.300 p.m &
medical allowance 500p.m.
Employer has paid him transport allowance Rs.1900 per month with effect from 01.07.2021 and the employee has
spend Rs.1900 p.m. CCA 1500 p.m Compute his income under the head Salary.
Dhamaka CQ.63 .shri 420 getting salary 4000 p.m. DA 400 p.m. tribal area allowances 350 p.m. HRA
650 p.m. entertainment allowances 500 p.m. tour and travel allowance 400 p.m. he lives in a house
owned by his wife.
He retired on 31 dec. after 36 years 9 months. He
received 140000 rs. As gratuity and 60000 rs. As
balance of URPF. He and his employer contributed
equally in URPF. He got pension of Rs. 2000 p.m., 3 /4
of which was commuted for 44000 Rs. Compute his
taxable salary.

Salary 1

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rrSalary

The income tax created more criminals than any other

16(ia) Standard Deductions from Salaries

16(ii) Deductions of entertainment allowance

16(iii) Deductions of Professional Tax

17(1) Definition of 'Salary'

17(2) Definition of 'Perquisite'

17(3) Definition of 'Profit in lieu of Salary'

10(5) Leave Travel concession

10(10A) Treatment of Commuted Pension

10(10AA) Leave Salary

10(10B) Retrenchment Compensation

10(10C) Compensation on Voluntary Retirement

10(13A) House rent allowance

10(14) Special allowances

89 Relief when salary is paid in arrears or in advance

criticism increases when a person becomes more successful & popular.

 Eg: Warden allowances………..

 Daily allowances & Constituency Allowances to MP & MLA are EXEMPT

 Partner getting salary, bonus, interest etc.-

If any salary has accrued to an employee, it is chargeable to tax even if he foregoes

however relief shall be allowed under section 89.

Compute the relief under section 89 of the Income-Tax Act, 1961.

The rates of income-Tax for the assessment year 2010-11 are:

Assessment year 2022-23 Assessment year 2010-11

Total TAX 8,240 10,815

Additional tax Step 1= Step 2= 10,815 – 8,240 = 2,575

 Answer Relief allowed under section 89 = (Step 1 – step 2) =

BASIS OF CHARGE SECTION 15

(i) Salary is taxable on due basis or on receipt basis, whichever is earlier.

MEANING OF SALARY SECTION 17(1)

(ii) Any annuity or pension

(iii) Any gratuity or Pensioin

(iv) Any perquisite or profit in lieu of or in addition to any salary or wages.

(v) Leave encashment

(vi) Interest earned in excess of 9.5% on recognised provident fund.

(vii) Amount transferred in excess of 12% of salary to recognised provident fund.

(viii) Bonus or Commission.

Gratuity Section 10 (10)

(a) Government Employee:-

(b) Employees covered by the payment of Gratuity Act, 1972:-

(i) Rs. 20,00,000

(i) Rs. 20,00,000

(iii) Actual received.

Salary shall be average of last 10 month salary.

(1) Gratuity received during the period of service is always taxable.

Compute the gratuity exempt & Salary of Saleem.

Pension: Section 10 (10A)

Nature of Pension Received by Amount Taxable

Uncommuted Pension or Government or Fully Taxable under the

Commuted Pension- (a) Government Employee Fully Exempt

It is a pension received in (b) Non-Government Amount Received

Non-Govt. Employee:- Exemption is least of the following:-

(c) the amount specified by the Government – Rs. 3,00,000

(d) Leave encashment actually received

(iii) Actual amount received.

 The taxable retrenchment compensation will be :

Compensation on Voluntary Retirement : Section 10(10C):-

Guidelines for claiming exemption [Rule 2BA]:-

Working Note 1: Exemption is to the extent of least of the following:

 Provident Funds: - Tax treatment relating to Provident Fund

Employees Deduction Deduction u/s Deduction u/s 80C and Deduction

AT Fully Exempt subject to 1.Accumulated employee's Fully