Income From Salary

Dr. Amitabha Maheshwari

Content
• Introduction
• U/S 17 – Salary includes perquisites and profits in lieu of salary
Salary
• Basic Concept: Every Payment made by an employer to his employees
for service rendered by him would be chargeable to tax as income
from salaries. Provisions regarding income under head of salaries
given under section 15, 16 and 17
U/S 15- deals with chargeability Salaries Due
or paid or advance

U/S 16- Standard deduction , Entertainment

allowance & profession tax

U/S 17 – Salary includes perquisites and profits

in lieu of salary
CONCEPT Of SALARY
Any remuneration paid by an employer to his employee in
consideration of his services is called salary. It includes the
monetary value of those benefits and facilities provided by
the employer which are taxable.
Salary includes :
Wages any annuity or pension;
Any gratuity;
Any fees, commission, perquisites or profit in lieu of or in
addition to any salary or wages;
Any advance of salary, but not loan for purchasing car,
cycle, scooter or a house, etc.
Any payment received by an employee in respect of any
period of leave not availed of by him;
Computation of Taxable Salary
INCOME FROM SALARIES
• HEAD SALARIES DEFINED
• Under section 15, the following incomes are chargeable to income-tax
under the head salaries:
1. Any salary due from an employer or a former employer to an assesse
in the previous year whether paid or not;
2. Any salary paid or allowed to him in the previous year by or on
behalf of an employer or a former employer though not due or
before becomes due to him;
3. Any arrears of salary paid or allowed to him in the previous year by
or on behalf of an employer or a former employer if not charged to
income-tax for any earlier previous year.
• Relationship of employer and employee:

For a payment to fall under the head salaries the relationship of

employer and employee must exist between payee and the receiver of
the salary. Every kind of payment to every kind of servant, public or
private, however high or low placed he may be, is covered under the
provisions of this act.
• Salary from more than one employer:
Any amount of salary received or due from one or more than one
employer shall be taxable under this head. Such situation may
arise when an employee is working with two employers
simultaneously or has worked with one employer and later on
serves with another employer after leaving service with the first
employer, salary from both the employers shall be taxable under
this head.
• Salary from present, past or prospective employer:
Salary received or due from present, past or future employer is also taxable
under this head.
• Tax free salary
Sometimes, the employer allows an employee to draw tax-free salary, e.g.
the employer pays full salary to the employee and also pays tax on this
directly to the department. The employee’s assessment is to be made not on
the amount of salary he is drawing but on gross amount i.e. salary drawn
plus the tax paid by the employer.
• Salary received as member of parliament or member of state
legislature

A member of parliament or of state legislature is not treated as an

employee of the govt. and hence, salary received by such persons is
not taxable under the head salaries. It is taxable as income from other
sources. Any allowance received by them is fully exempted from tax.
• Receipts from persons other than employer

Perquisites or benefits or any other remuneration received fro persons

other than the employer, would be taxable not under the head salaries
but under the head income from other sources even if they accrue to
the employee by reason of his employment or while he was
discharging his normal duties.
• Place of accrual of salary income

Salary accrues at that place where the services are rendered.

• Salary or pension received by UNO employees

It is fully exempted as per circular no. 293 Dt. 10-2-81.

• Deductions made by the employer: If , an employer makes certain
deductions out of the salary payable to an employee, amount so deducted is
deemed to be received by the employee. Some important types of
deductions made by the employer are as follows:
• 1. Deductions made to recover the loan advanced by the employer.
• 2. Employees contribution towards the provident fund, income-tax and
professional tax.
• 3. Deduction made to pay the premium on life insurance policy of the
employee.
• 4. Any other deduction for which the employee has authorized the
employer.
• Salary as partner:

Any salary, commission or remuneration received by a working

partner from a firm/LLP shall not be taxable under the head
salaries. It is taxable under the head profits and gains.
• Payments received by Legal Heirs of a Deceased employee

Any ex-gratia payment or compensation given to widow or

legal heirs of an employee who dies during service is not taxable
as salary income but family pension received is taxable under
other sources.
• VOLUNTARY FOREGOING: APPLICATION OF SALARY

Salary is chargeable on due basis.

 It will become income only after it has fallen due.

 Therefore ,voluntary surrender or forgoing of salary after it has

become due will be mere application of income and hence
taxable. .
• TAXABILITY OF SALARY ON DUE OR RECEIPT , WHICHEVER
IS EARLIER BASIS

• U/s 15(a) salary is taxable on due basis whether received or not .

• Salary becomes due after doing work in India is due on monthly basis. First
salary for the month of April becomes due on 1st day of next month.

• In some cases salary becomes due on the last day of the month and the
salary for the month of April shall be due on 30th April.
• SALARY GRADE/PAY SCALE

 In some organisations like Government offices ,banks ,post offices , railways, etc. salary
to employees is paid as per pay scales .the pay scale fixes the starting salary of an
employee and also the annual increment in future years of the employment. The annual
increment is granted to employee after completion of one full year of service e.g. If an
employee joins his service on 1st September 2011, he will be granted 1st annual increment
i.e.. 1st September 2012.
• EXAMPLE OF GRADE /PAY SCALE
• 8000-300-11000
• 12000-500-20000
Payment in cash made by the employer to his employees monthly other than
salary is called an allowance. It is a fixed sum of money paid regularly in
addition to salary for the purpose of meeting some particular requirement
connected with the services rendered by an employee. There are three types
of such allowances:

1. Taxable Allowance,

2. Allowances Exempt upto specified limit,

3. Fully Exempted Allowances

Fully Taxable Allowances Partly Exempted Fully Exempted
Allowances Allowances
• Dearness Allowance 1. House Rent Allowance • Allowance to High
• City Compensatory 2. Entertainment Allowance Court Judges.
Allowance 3. A. Special allowance to be
• Fixed Medical Allowance incurred in the performance
• Allowance paid by
• Tiffin Allowance of the office duties- are UNO
• Washing Allowance exempt to the extent • Allowances granted to
• Warden Allowance actually spent Govt. employee outside
• Servant Allowance 3. B. Special allowance for India.
• Non- Practicing allowance meeting certain personal
• Proctor Allowance expenditure- these are
• Deputation Allowance exempt up to specified limit
• Overtime Allowance
A. Special allowance to be incurred in B. Special allowance for meeting
the performance of the office duties- certain personal expenditure- these are
are exempt to the extent actually exempt up to specified limit(under rule
spent(under rule 2BB(1)) 2BB(2))

• Prescribed allowances u/d. Rule • Prescribed allowances u/d. Rule

2BB (1) 2BB(2)
- Granted to meet official expenses - Granted to meet personal expenses
• Exemption : • Exemption:
Actual amount of allowance Actual amount of allowance
or or
Amount Spent for official purpose Specified Limit whichever is less
whichever is less
A. Special allowance to be incurred in
the performance of the office duties-
are exempt to the extent actually
spent(under rule 2BB(1))
• Travelling Allowance
• Daily Allowance
• Conveyance Allowance
• Helper Allowance
• Academic Allowance
• Uniform Allowance
B. Special allowance for meeting
certain personal expenditure- these are
exempt up to specified limit(under rule
2BB(2))
• Special Compensatory allowance of the nature of
• Special Compensatory allowance of the nature of
• Special Compensatory -Tribal Area Allowance
• Any allowance granted to an employee working in
any transport System
• Children Education Allowance
• Children Hostel Allowance
• Underground Allowance
• Transport Allowance ( physically handicapped
person)
Allowances covered u/s 10(14)(i) i.e., Official Allowances
• Helper Allowance. It is exempted upto actual amount spent on engaging a helper
required to perform the official duties.
• Uniform Allowance. It is also exempted upto actual expenditure incurred on
acquiring or maintaining of the official uniform. Excess, if any, will be taxable.
• Academic Research Allowance. It is exempted upto actual expenditure incurred
for research. Excess, if any, is taxable.
• Conveyance Allowance. It is exempted upto actual expenditure incurred in
performance of official duties. In case amount received is more than actual
expenditure, excess, if any, will be taxable.
• Travelling, Transfer or Daily Allowance. It is exempted upto actual expenditure
incurred for the purposes of employment. Excess, if any, will be taxable.

So, exemption shall be the least of following two amounts—

1. The amount of the allowance received.
2. The amount actually spent by the employee for the purpose for which the
allowance is given.
1. House Rent Allowance
Rule 2A prescribes that the least of the following amounts shall be exempt :
a) House Rent Allowance actually received by the assessee; or
b) Excess of rent paid by the assessee over 10% of salary due to him for the relevant period (Rent
paid – 10% of salary) ; or
c) A. If the accommodation is situated at Mumbai, Kolkatta, Delhi or Chennai 50% of salary due
to the assessee, and
c) B. If the accommodation is situated at any other place - 40% of Salary
In case employee is living in his own house and is getting H.R.A or is living in a house for which he is not
paying any rent, the full amount of H.R.A receivable is taxable.

Salary = Basic salary + D.A. (If part of a salary/in terms of employement) + Commission (If fixed % of

turnover)
1. HRA Exempted

Minimum of the following Three will be Exempted

Actual HRA received
Rent Paid – 10% of salary
Metro City = 50% of salary
OR
Non Metro city or other city = 40% of salary

Taxable = Actual received HRA – Exempted

Practical Problem 1:
Mr. Raj kumar has the following receipts from his employer:
Basic pay 3,000 p.m. , D.A 600 p.m., Commission 6000 p.a.,House Rent Allowance 900 p.m.
Find out amount of HRA eligible for exemption of Mr. Raj Kumar assuming that he paid a rent of
1,000 p.m. for his accommodation at Kanpur. DA forms part of Salary for retirement benefit/
employment purpose.
Minimum of the following Three will be Exempted
Actual HRA received
Rent Paid – 10% of salary
Metro City = 50% of salary
OR
Non Metro city or other city = 40% of salary

Taxable = Actual received HRA – Exempted

 Practical Problem 2:
Mr. Prasang is employed in a private company at 70,000 per month, 6,000 per month as dearness
pay and 10,000 per annum as commission during the previous year. He received 2000 per month
as house rent allowance. He paid 2500 per month rent. Compute House Rent allowance
exempted from tax.

Minimum of the following Three will be Exempted

Actual HRA received
Rent Paid – 10% of salary
Metro City = 50% of salary
OR
Non Metro city or other city = 40% of salary
Taxable = Actual received HRA – Exempted
 Practical problem 3: (For practice)
From the following information compute exempted amount of HRA of Mr. Ram
who resides at Kanpur.
I II III
Salary per month 4500 6000 6000
HRA recd per month 525 300 1050
Rent paid per month 300 960 750

Minimum of the following Three will be Exempted

Actual HRA received
Rent Paid – 10% of salary
Metro City = 50% of salary
OR
Non Metro city or other city = 40% of salary
Taxable = Actual received HRA – Exempted
2. Education Allowance : Exempted upto Rs.100 per month per child
maximum for two children.

3. Hostel Expenditure Allowance: Exempted upto Rs.300 per month

per child maximum for two children.

4. Tribal Area Allowance: Exempted upto Rs.200 per month.

5. Underground Allowance: Exempted upto Rs.800 per month.

6. Any allowance granted to an employee working in any transport
System- minimum of the following two
a. 70% of such allowance
b. 10,000 per month

7. Transport Allowance- 1600 p.m.

8. Transport Allowance ( physically handicapped person) – 3200 P.M.

Deduction under section 16
I. Standard Deduction u/s 16(i) – Rs.50,000

II. Entertainment Allowance u/s16(ii)

III. Profession Tax u/s 16 (iii) – paid by employer or employee

Entertainment Allowance
1. Foreign Allowance
2. Sumptuary Allowance to High Court/Supreme Court Judges
3. Allowances from U.N.O
4. Per-diem allowance for use of the Hotel, boarding and lodging.
PERQUISITES : [Sec17(2)]
• The term perquisite means any benefit, attached
to an office or position in addition to salary or
wages
• Perquisite denotes a personal advantage. For
example, if an employee is provided with a
servant only for helping him in official duties, it
is not a perquisite, as there is no personal benefit
to the employee. But if the same servant helps
the employee in his domestic obligations only.
Then it is a perquisite, being a personal
advantage.
PERQUISITES : [Sec17(2)]
• Perquisite can be given in cash or kind. If it is
given in kind it should be capable of being
measured in terms of money. Reimbursement of
any expenses incurred by the employee, in cash,
is also treated as perquisite and not allowance.
• Perquisites received from a person other than an
employer is taxable under the head Profits and
gains from business or profession or Income
from other source, as the case may be.
PERQUISITES [Section 17(2)]
• Perquisite” is defined in the section 17(2) of the Income tax Act as
includes-
• The value of rent- free accommodation provided to the assessee by
his employer
• Any sum paid by employer in respect of an obligation which was
actually payable by the assessee.
• Value of any benefit/amenity granted free or at concessional rate to
specified employees etc.
• (a) by a company to an employee who is a director thereof;
(b) being a person who has a substantial interest in the company;
(c) by any employer to an employee to whose income under the head"
PERQUISITES [Section 17(2)]
• The value of any specified security or sweat equity shares allotted or
transferred, directly or indirectly, by the employer, or former
employer, free of cost or at concessional rate to the assesssee.

• The amount of any contribution to an approved superannuation fund

by the employer in respect of the assessee, to the extent it exceeds one
lakh rupees; and

• (vi) the value of any other fringe benefit or amenity as may be

prescribed.
PERQUISITES [Section 17(2)]
TAXABLE IN HANDS OF SPECIFIED EMPLOYEE ONLY

Specified Employee

Employee has Substantial Interest in Employee’s Income under head

Employee is Director of his
employer company his employer company salary exceeds 50,000/- (excluding
non monetary benefits & amenities)

Sec 2(32) : Substantial Interest in relation to company means beneficial ownership of atleast 20%
Equity shares of the company
Salary for above purpose is to be taken on due basis or received basis, whichever is earlier.
The following perquisites provided by Employer to Employee or to any Member of his household
are taxable perquisite in the hands of specified employee only.
PERQUISITES [Section 17(2)]
TAXABLE IN HANDS OF SPECIFIED EMPLOYEE ONLY
The following perquisites provided by Employer to Employee or to any
Member of his household are taxable perquisite in the hands of specified
employee only.
A. Motor Car
B. Sweeper, Gardener, Watchman or Personal attendant
C. Supply of Gas, Electricity or Water provided to Employee
D. Educational facilities to employee children & members of household
E. Free or concessional tickets provided to employee of transport
undertakings
PERQUISITES Exempted for All Employees
• Free medical facilities as given u/s 17(2).
• Free refreshments during working hours.
• Free recreational facilities.
• Provision of telephone whether basic or cellular exclusively for official use.
• Free meals provided in remote area or at offshore installation are fully
exempted.
• Free education, training or refresher course for employees.
• Leave Travel Concession if given twice in a bock of 4 years.
• Free ration received by members of armed forces.
• Perquisites allowed by Government to its employees posted abroad.
Valuation of Perquisites
RENT FREE ACCOMMODATION

Provided to the employee or to any member of his household

will be taxable in the hand of the employee
Member of household
• Spouse(s),
• Children& their spouses ,
• Parents,
• Servants &
• Dependants
Valuation of Perquisites
Valuation of Perquisites
Valuation of Residential Accommodation
Government Employee
Particulars Value of Accommodation
a) Unfurnished Amount determined as per Govt. Rules ………
b) Furnished i) Amount determine as per Govt. Rules ………
ii) Add : 10% p.a of the cost of furniture or hire charges (if any) ………
………
Less : Amount paid or payable by employees (If any) ………
Value of Accommodation ……….
Valuation of Perquisites
Valuation of Residential Accommodation

Practical Problem
Shri Bishan Narain is District Magistrate of Agra. He is living in a furnished
bungalow provided by the government free of rent. His salary is 1,20,000 per
month. The rent of the unfurnished bungalow as per Govt. rules is 2,000 per month
but its fair rental value is 17,500 per month. He is provided furniture costing
1,70,000. Find out the value of rent- free house as a perquisite for the purpose of
income tax.
Valuation of Perquisites
Valuation of Residential Accommodation (Other Employees)
A . Accommodation owned by employer
Unfurnished House
Cities having Population exceeding
25 lakhs per 2001 census
Cities having Population exceeding
10 lakh but not more than 25lakh
Other Places (less than 10 lakh)
15% of salary for the period during which the
accommodation was occupied by employee
10% of salary for the period during which the
accommodation was occupied by employee
7.5% of salary for the period during which
the accommodation was occupied by
employee
Valuation of Perquisites
Valuation of Residential Accommodation (Other Employees)

Practical Problem
A company has provided residential accommodation to an employee.
From the following information find out the value of perquisite of
accommodation:
i) Fair rental value of the house – Annual 70,000
ii) Salary 6,00,000
a) The house is situated in a city whose population is more than 25
lakh
b) The house is situated in a city whose population is less than 10 lakh
Valuation of Perquisites
Valuation of Residential Accommodation (Other Employees)
B. Accomondation taken on lease/rent by employer
Actual lease rental or 15% of the salary for the period during which accommodation was occupied
by an employee, whichever is less will be taken
Furnished House
i) Value of unfurnished house ……….
ii) Add: 10% p.a. of the cost of furniture or hire charges (if any) ……...
………
Accommodation at concessional Rent
i) Value of unfurnished/furnished accommondation ……….
ii) Less : Amount paid or payable by employee ………

Value of Concessional Rent ………

Valuation of Perquisites
Valuation of Residential Accommodation (Other Employees)

Practical Problem
A company took house on rent and allotted it to its employee. From the following
information find out the value of perquisite of accommodation :
i) Rent paid for the year 60,000
ii) Salary 5,00,000
iii) Cost of Furniture provided in the house 60,000
Rent charged from employee per month 1,000
Valuation of Perquisites
RENT FREE HOUSE [Section 17 (2)(i)]
MEANING OF SALARY: Salary includes-
 Basic salary
 Dearness pay or dearness allowances ( if term of employment so provide or enters into salary for
service or retirement benefits)
 Commission
 Bonus
 Fees
 Value of all taxable allowances
 Any other monetary payment chargeable to tax
 Leave encashment of salary if it relate during the previous year in which rent free house is provided
Salary does not include-
Dearness allowance if not enter into salary
Exempted allowances
Employer’s contribution in employee’s provident fund.
Value of any other perquisites u/s 17 (2)
Leave encashment of salary if it relate to leave earned in earlier previous years.
Income tax of employee if paid by employer
Valuation of Perquisites
Accommodation provided in a Hotel
If accommodation is provided by the employer (Govt. or Non Govt.) in a hotel
a) Where accommodation is given on his transfer from one place to another and the period in
aggregate does not exceed 15 days
value will be taken as nil
b) In other case
24% of salary ……..
or
Actual charges paid ……..
Whichever is less
Less: Any amount paid or payable ……..
Value of Perquisite ……..
Valuation of Perquisites- Valuation of Motor Car (Taxable only for Specified
Employee)

Fully Official Use

Running and
Maintenance borne
One car owned or by an employer
hired by an Mixed use
employer for Running and
Maintenance borne
More than one car by an employee
provided to an
employee for private
Fully Personal Use
and official use
Valuation of Motor
Car
Fully Official Use

Car owned by
Mixed use
Employee

Fully Personal Use

Valuation of Perquisites
• One Car owned or hired by employer and provided to employee

1. Fully Official Purpose/Use : Value of perquisite will be nil

2. Fully Personal Use:
Actual expenditure on running and maintenance ……..
+ Remuneration paid to Chauffer ……..
+ Depreciation @ 10% p.a. of the actual cost of car
(If owned) or hire charges (if hired) ..……
Taxable Value .......
Valuation of Perquisites
• Mixed Use (Partly for personal and partly for official)
• If running and maintenance borne by employer
Small Car (Upto 1.6 ltr cc ) - 1,800 p.m.
Large Car (exceeding 1.6 ltr cc) – 2,400 p.m.
• If Running and maintenance borne by an employee
Small Car – 600 p.m. ii) Large Car 900 p.m.
• *If Chauffer (Driver) provided add 900 p.m. in both cases
• II More than one car provided to an employee for private and
official use: treat one car for both use (mixed use) and all others as
personal use
Valuation of Perquisites
• Car Owned by Employee
• 1. Fully Official use - value of perquisite = Nil
• 2. Fully personal use = Amount reimbursed
• 3. Mixed Use

Small Car Large Car

Amount of expenditure by employer reimbursed ………. ……….
Less: 1,800 p.m. 2,400 p.m.
Less: Chauffer (If any) 900 p.m. 900 p.m.
Value of Perquisite ……… ………
1. OWNED BY EMPLOYER
2. OWNED BY EMPLOYEE
SOME OTHER VALUATION
Valuation of Perquisites
Practical Problem
Find out the value of the perquisite of the Motor-Car provided to the employee and owned by the employer in the following
cases:
i) Large Car: All expenses are borne by the employer. The car is solely used for official purposes.
ii) Large Car: All Expenses borne by the employer which are 60,000 during the P.Y. Cost of Car 2,80,000. The car is
solely used for private purposes of the employee.
iii) Large Car: Meant for both private and official use. All expenses borne by employer
iv) Small Car: Meant for both private and official use. All expenses borne by the employer. Chauffeur is also provided free
of charge.
v) Two small cars are provided to the employee for private and official purposes. Maintenance expenses of cars are borne
by the employer. Other information in this connection are:

I Car II Car
Actual Cost of Car 3,00,000 2,80,000
Expenses of running and Maintenance 60,000 50,000

vi) Large Car: Meant for both official and private purposes. Private expenses are borne by the employee
Valuation of Perquisites
SUM PAID BY EMPLOYER FOR MEETING EMPLOYEE OBLIGATION

Where any Obligation is paid by employer (directly or through

reimbursement), which would have been payable by employee if
employer did not paid it, actual amount paid by employer is perquisite
taxable in hands of the employee
E.g. Gas, water, electricity Bills, Income Tax, Professional tax, children
education expenses of the employee which are paid/reimbursed by the
employer
Valuation of Perquisites
SUM PAYABLE FOR LIC OR ANNUITY OF EMPLOYEE

Sum Payable by the employer

• for Life Insurance Policy or Annuity policy taken by him
• for the benefit of the employee
• is a perquisite in the hand of the employee
Valuation of Perquisites
FRINGE BENEFITS OR AMENITY

Fringe benefits or amenity provided to employee or member of

household is taxable in hands of the employees. It includes the
following benefits
• Interest free/Concessional loans
• Use of movable assets
• Transfer of movable assets
• Travelling, Tour, Accommodation & Other Expenses Paid or Reimbursed by Employer
• Free Meals, Tea & Snacks
• Gift, Vouchers or token
• Expenditure on Credit Card
• Club membership & Club Expenses
• Other benefits
Valuation of Perquisites
FRINGE BENEFITS OR Interest Free Or Concessional Loans made available by Employer
AMENITY

If a loan (interest free or at concessional rates) is made available by employer to

employee or to any member of his household, such will be a perquisite chargeable to
tax The valuation of perquisite is done as follows
Step 1: Determine Maximum outstanding monthly balance of the loan on the last
day of each month
Step 2: Find out rate of interest charged by State bank of India for similar loan on
the 1st day of the previous year in which such loan is given
Step 3: Determine interest for each month on the above rate applied on balance
determined under step 1
Step 4: Total of step 3 is the value of the perquisite
If however, some interest is charged from employee, reduce such rate from the
SBI rate
Valuation of Perquisites
FRINGE BENEFITS OR Interest Free Or Concessional Loans made available by Employer
AMENITY

Exemption : The following loans are not taxable perquisite

1. Medical Loans taken for treatment of any person for diseases specified in Rule 3A
e.g. cancer, AIDS or diseases of heart, blood, liver, skin, eye, ear, nose etc. requiring
surgical operation.
 If loan is reimbursed under medical insurance scheme, then such amount
reimbursed shall be treated as taxable perquisite
2. Small loans i.e. Total amount of loan is upto Rs. 20,000 in the current previous
year. The loan may be taken for any purpose.
Valuation of Perquisites
FRINGE BENEFITS OR Interest Free Or Concessional Loans made available by Employer
AMENITY

Exemption : The following loans are not taxable perquisite

3. Advance salary & Advance against salary
 Advance salary is taxed as per section 15 on receipt basis. If any salary paid in
advance is included in the total income of any person for any pervious year it
shall not be included again in the total income of the person when the salary
becomes due.

 Advance against salary is not considered to be income rather it is a loan.

However, loan involves valuation of perquisite with respect to interest free loan
i.e. from the date the loan is given to the date it is repaid, the employee shall be
subject to perquisite u/s section 17(2) & Rule 3.
Valuation of Perquisites
FRINGE BENEFITS OR Use of Movable Assets
AMENITY

Laptop/Computers Exempt as per Rule 3

Telephone including Exempt as per Rule 3

mobile
Motor Cars Taxable under Perquisites for Specified Employees
Other Movable Assets If owned by employer : 10% p.a of original cost
In other cases : 100% of hire charges payable by
employer for such assets
Special Point :
• As per circular no. 15/ 2001, use of an asset which is older than 10 years shall be exempt from
tax.
• The taxable amount shall be reduced by amount recovered from employee against this facility.
Valuation of Perquisites
FRINGE BENEFITS OR
AMENITY
COMPUTER &
ELECTRONIC ITEMS
Sale of Movable assets belonging to employer to
employee/ household member
MOTOR CAR OTHER MOVABLE ASSETS

Actual cost to Employer Actual cost to Employer Actual cost to Employer

Less :
50% reduction on WDV basis
(for each completed year asset
used by employer)
Less : Selling Price
Less :
20% reduction on WDV
basis (for each completed
year asset used by employer)
Less : Selling Price
Less :
10% reduction on SLM basis
(for each completed year
asset used by employer)
Less : Selling Price

Special Point :
1.Complete year here does not mean either calendar year or financial year. It means complete 365 days
2. As per clarification by circular no. 15/2001 electronic gadgets in this case means the data storage and
handling devices like computer, digital diaries and printers. They do not include household appliances like
washing machines, micro-wave ovens, mixers, TV etc.
Valuation of Perquisites
FRINGE BENEFITS OR Travelling, Tour, Accommodation & Other Expenses
AMENITY Paid or Reimbursed by Employer
(Such expenses shall not include LTC provided by
employer)
OFFICIAL TOUR
Employee Household Member
Facility maintained by employer Other Cases
& not available for all employees
Exempt Value at which similar services Actual expenditure of
provided by other agencies to employer
public
Valuation of Perquisites
FRINGE BENEFITS OR Travelling, Tour, Accommodation & Other Expenses
AMENITY Paid or Reimbursed by Employer
(Such expenses shall not include LTC provided by
employer)
PRIVATE TOUR
Employee/Household Member
Facility maintained by employer & not Other Cases
available for all employees
Value at which similar services Actual expenditure of
provided by other agencies to public employer

Special Point :
In case above facility is not provided free of cost , Deduct amount paid/recovered from
Employee
Valuation of Perquisites
FRINGE BENEFITS OR Free Meals, Tea & Snacks
AMENITY

FREE MEALS/NON ALCHOLIC BEVERAGES TEA AND SNACKS

Office premises OR At eating joints ( by paid Other Case
vouchers)
Office Hours Non Office Hours Office Non Office Hours
Hours
A. Nil, provided value upto Actual expenditure Actual expenditure of Nil Actual expenditure
Rs. 50/- per meal of employer of employer
B. (If value > 50 excess employer
taxable)

Special Point :
In case Meal is not provided free of cost , Deduct amount recovered from Employee
Valuation of Perquisites
FRINGE BENEFITS OR Gift, Vouchers or token
AMENITY

Gift, Voucher or token on ceremonial or Other occasions

In Kind In Cash
Aggregate value upto Aggregate value more than Rs. Any amount
Rs. 5,000 during P/Y 5,000/- during P/Y
Exempt Perquisite Value = (Actual value – Fully Taxable
5,000/-)

Special Point :
In case Meal is not provided free of cost , Deduct amount recovered from Employee
Valuation of Perquisites
FRINGE BENEFITS OR Expenditure on Credit Card
AMENITY

Expenditure on credit card including membership & annual fees

Paid or reimbursed wholly & exclusively for Other Purposes
official purpose
Nil, Provided: Amount paid or reimbursed by
a) Details of date & nature of expenditure employer
maintained by employer and Less: Amount recovered from
b) Employer certifies that expenditure incurred employee
for official purpose

Special point :
Credit card includes add on card
Valuation of Perquisites
FRINGE BENEFITS OR Club membership & Club Expenses
AMENITY
Club membership & club expenses (including annual or periodic fees)
Paid or reimbursed wholly & exclusively for Other Purposes
official purpose
Nil, Provided : Amount paid or reimbursed by
a) Details of date & nature of expenditure employer
maintained by employer Less : Amount recovered from
and employee
b) Employer certifies that expenditure incurred for
official purpose
Special Point:
1. Initial fees of corporate membership of a club is not taxable as perquisite.
2. Use of Health club, sports & similar facility provided uniformly to all employees is not
perquisite
Valuation of Perquisites
SWEAT EQUITY SHARES / SPECIFIED SECURITY

Sweat Equity shares” means

 Equity shares issued by a company to its employees or directors
 at a discount or for consideration other than cash
 for providing know-how or value additions
Value of Perquisite :
Fair Market Value of sweat equity shares/specified security on the date on which
the option is exercised by the assessee
Less : Amount recovered from the assessee in respect of such shares/security

Special Point :
FMV means value determined in accordance with the method as may be prescribed
Valuation of Perquisites
Employer Contribution to Approved Superannuation Fund

Value of Perquisite :
Employer contribution to Superannuation fund during the p/y in excess of Rs.
1,50,000/-

APPROVED SUPERANNUATION FUND

The purpose of this fund is to provide for annuities to employees on their retirement or to their
widows, children or dependents on the death of such employee.
Valuation of Perquisites
Tax treatment of Superannuation Fund
 Annuities received by employee are taxable as Salary income,
 while those received by the widow etc. is taxable under Other sources.
Approved Superannuation Fund
Employees Employer’s Interest on Payment of Accumulated balance
Contribution Contribution accumulated balance
Deduction 80C Excess of Exempt from Tax Exempt from tax u/s 10(13), if
from GTI is Rs.1,50,000  on death ,
available to treated as Perquisite  on retirement ,
employee  after specified age or becoming
incapacitated before retirement
 Transfer employee account
 under pension scheme u/s 80CCD
Valuation of Perquisites
Taxable In Hands of Specified Employee Only
 Sweeper, Gardener, Watchman or Personal attendant

Engaged by employer & provided to employee/household member , such

perquisite shall be taxable for all specified employee
Value of perquisite : Actual cost to employer Less Amount paid by employee.
Special point : Cost to employer shall be salary payable to such person by employer
 Valuation of Perquisites
Taxable In Hands of Specified Employee Only
 Supply of Gas, Electricity or Water provided to Employee

Gas, Electricity or Water provided to Employee

Purchase from outside agency From own resources

Amount paid to outside agency Manufacturing cost
Less: Amount recovered from employee Less: Amount recovered from employee

Special point
If Electricity, gas & water connections are in the name of employee and employer is bearing the expenditure
either directly or indirectly then it will be covered under 3rd perquisite of Sec 17(2) i.e obligation of employee
paid by employer and therefore will be taxable for all employees
Valuation of Perquisites
Taxable In Hands of Specified Employee Only
 Educational facilities to employee children & members of household
A. Facility in Educational institutions maintained by employer or in other educational institutions due to
employment
To whom Cost of education in Value of Perquisite
similar school in similar
locality
Employee child upto `1,000 p.m per child Fully exempt
greater than `1,000 p.m per Cost of education in similar
child school in same locality
less : 1,000 pm/per child
Household members Limit of `1,000 irrelevant Cost of education in similar
school in same locality
Valuation of Perquisites
Taxable In Hands of Specified Employee Only
 Educational facilities to employee children & members of household
B. Facility in any other educational institutions

To whom Value of Perquisite

Employee child Actual Cost to Employer
Household members Actual Cost to Employer

Special Points :
(a) If any amount is recovered from employee, reduce the value by that amount
(b) Education facility to employee in any form like training, seminars, conference etc. is fully
exempt.
Valuation of Perquisites
Free or concessional tickets provided to employees of transport
undertakings for private journeys

 Employees of Airlines and Railways : Exempt in hands of employees

 Employee of other transport undertaking : Value at which such benefit or
amenity is provided by the employer to public

Special point :
If any amount is recovered from employee, reduce the value by that amount
Valuation of Perquisites
LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)

Travel concession or assistance due or received from employer

 For himself or family member
 For travel to any place in India
 During Service or on leave or after retirement or after termination
 Value to be included in salary :
Amount of concession due or received
Less : exemption u/s. 10(5)
Valuation of Perquisites
LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)
Journey by Air
Minimum of following
i. Actual concession
ii. Amount actually incurred
by employee
iii. Air economy fare of
National Carrier by
shortest route
Exemption u/s 10(5)
Journey by Rail
Minimum of following
i. Actual concession
ii. Amount actually incurred
by employee
iii. AC 1st class RAIL FARE
by shortest route
Journey by other modes
Connected by Rail - Same as column 2
Not Connected by Rail
Minimum of following
i. Actual concession
ii. Amount actually incurred by employee
iii. Deluxe fare of such transport by shortest
route (where recognised transport exists)
OR
Similar AC 1st class rail fare by shortest
route
(if recognised transport does not exists)
Valuation of Perquisites
LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)

Special Points :
1. Exemption available on twice in a block of FOUR CALENDAR YEARS :
1986-89, 1990-93, 1994-97, 1998-2001, 2002-05, 2006- 09, 2010- 2013 , 2014-
2017
2. No exemption claimed or only one exemption claimed in a block, then ONLY
ONE exemption carried forward in Calendar Year succeeding end of block.
Exemption only for the fare: - The exemption is strictly limited to expenses on air
fare, rail fare, bus fare only. No other expenses, like scooter charges at both ends,
porterage expenses [money paid for carrying luggage] during the journey and
lodging / boarding expenses will qualify for exemption.
Valuation of Perquisites
LEAVE TRAVEL CONCESSION IN INDIA : SECTION 10(5)

Special Points :
3. LTC available for a TWO children born on or after 01.10.1998. However, this
restriction shall not apply in respect of children born before 1-10-1998 and also
incase of multiple births after one child.
4. Family for the above purpose means Spouse & Children & Parents, brother,
sisters of employee who are dependent on employee. Explanation to Sec 10(5)
5. In case the LTC is encashed without performing the journey, the entire amount
received by the employees would be taxable
Valuation of Perquisites
MEDICAL FACILITIES (Proviso to Sec 17(2))

MEDICAL FACILITIES IN INDIA

( to EMPLOYEE / Family Members)
Hospital maintained In Govt Hospital Premium paid for Other case
by employer or Health Insurance
local authority hospital under Approved
or scheme
Govt. approved hospital
or
Hospital approved by CCIT
(For prescribed disease only)
Fully Exempt Fully Exempt Fully Exempt Exempt upto Rs. 15,000/-
in P/Y
Excess taxable
Valuation of Perquisites
MEDICAL FACILITIES (Proviso to Sec 17(2))

MEDICAL FACILITIES OUTSIDE INDIA to Employee / Family member

Medical Expenses of
Patient
Tax free to extent
permitted by RBI
Stay Expenses of Patient and
One attendant (total two
persons)
Tax free to extent permitted by
RBI
Travel Expenses of Patient with One
attendant (total two persons)
Tax free if employee‟s GTI UPTO
`2,00,000/- (before including such
travel expenses)

Special Points :
1. Family for above purpose means - Spouse & children of employee - Parents, brother & sister of employee
who are dependent on employee.
2. Hospital includes dispensary, clinic or nursing home.
3. Expenditure on medical treatment by the employer can be by way of payment or as reimbursement.
4. Medical allowance is fully taxable.
 RETIREMENT BENEFITS

Retirement benefits consists of following

1. Gratuity
2. Pension
3. Leave salary
4. Compensation on voluntary retirement/Retrenchment compensation
5. Provident fund / Superannuation funds
 RETIREMENT BENEFITS
GRATUITY

Gratuity is a kind of retirement benefit, like provident fund or pension. It is a

payment, which is intended to help an employee after his retirement whether the
retirement is the result of the completion of age of retirement or some physical
disability. The general principle underlying gratuity schemes is that by faithful
service over a long period the employee is entitled to claim a certain amount as
retirement benefit. Thus it is earned by an employee as a reward for long and
meritorious service.
Gratuity to be included under Salary = Amount of Gratuity less Exemption u/s. 10(10)
 RETIREMENT BENEFITS
GRATUITY

Type of Employee of Employee covered under Other Employees

Employee Central & State payment of Gratuity Act, (not covered under earlier
Govt., Local 1972 categories)
Authority
Exemption 100% of Gratuity Minimum of Following: Minimum of Following:
Amount received is i. Actual Gratuity received. i. Actual Gratuity received.
Exempt ii. `20,00,000 ii. ` 20,00,000
iii. [15 X Completed yrs of iii [15 X Completed yrs of service
service Including part excess 6 Excluding part] X
mths] X [Average monthly SALARY /30]
[last month SALARY/26
Definition N.A SALARY = Basic Salary + 100% SALARY = Basic + DA(retirement
of Salary DA Benefits) + Commission % of turnover
 RETIREMENT BENEFITS
GRATUITY
Type of Employee of Employee covered under Other Employees
Employee Central & State payment of Gratuity Act, (not covered under earlier
Govt., Local 1972 categories)
Authority
Special 1. Commission received as a fixed
point percentage of turnover would form part
of the salary [Gestetner Duplicators
Pvt. Ltd. v CIT (SC)]
2.Average Monthly Salary = Average
of last 10 months immediately
preceding the month of leaving service
 RETIREMENT BENEFITS
GRATUITY

SPECIAL POINTS:
 Where an employee had received gratuity in any earlier years and had claimed exemptions u/s
10(10) in respect of the gratuity received earlier also, he will still be entitled to this exemption but
the limit of 20,00,000 shall be reduced by the amount of exemption availed in the earlier year.
 If gratuity is received from more than one employer in the same previous year, the limit of
20,00,000 would apply to the aggregate of gratuity received from one or more employers
 Any gratuity paid to an employee, while he continues to remain in service with the same
employer is taxable under the head “Salaries” because gratuity is exempt only on retirement or on
his becoming incapacitated or on termination of his employment or death of the employee.
 GRATUITY sec 10(10)

During Continuation Of On Termination Of

Service Service

Fully Taxable
Covered If Non
YES
Under YES
Government
PGA Employee

NO NO

Minimum Of Following Exempted Minimum Of Following Exempted

1) Actual Gratuity Received 1) Actual Gratuity Received
2) Rs. 20,00,000 2) Rs. 20,00,000
3) P.M. Salary X Completed Year of 3)1/2 month Avg Salary X
Service X 15/26 Completed Year of Service Fully Exempt

Note: Note:
* PGA= PAYMENT OF GRATUITY ACT *AVG. SALARY= (10 MONTHS BASIC
*SALARY= BASIC+D.A. SALARY+D.A.+TURNOVER BASED
*COMPLETED YEAR includes every
completed year & period in excess of 6 months
COMMISSION) / 10
shall be treated as a year *COMPLETED YEAR ignores ANY
FRACTION
 RETIREMENT BENEFITS
PENSION

Refers to Periodic Payment made by the employer after retirement or death of the
employee as a reward for past services rendered by the employee
 Pension can be Uncommuted or Commuted

TAX TREATMENT OF UNCOMMUTED PENSION

Pension payable to an employee periodically e.g. every month, after retirement
from service. This pension is known as uncommuted pension.
 It is Fully Taxable in the hand of all employees, whether government or non-
government
 RETIREMENT BENEFITS
PENSION

TAX TREATMENT OF COMMUTED PENSION

Sometimes the employee wants to have a lump-sum payment in lieu of certain
portion of monthly pension, which he would have otherwise received monthly. The
lump-sum payment which he receives on foregoing the monthly pension is known
as commuted value of the pension. Commutation is done having regards to age of
recipient, state of his health ,rate of interest and tables of mortatility.

 Though it is also taxable, exemption u/s 10(10A) can be claimed by the employee
 RETIREMENT BENEFITS
PENSION

TAX TREATMENT OF COMMUTED PENSION

Exemption u/s 10(10A):
 Treatment for employees of Government, local authority & Statutory
Corporations :
Commuted pension received by these employees is 100% Exempt

 Treatment in the case of Other Employees

Commuted value of pension received is exempt to the following extent:
(a) If receives Gratuity : 1/3 of Normal commuted pension
(b) If he does not receive Gratuity : 1/2 of Normal commuted pension
Normal Commuted pension = Actual commuted pension x 100 % of commutation
 RETIREMENT BENEFITS
PENSION

SPECIAL POINTS:
 The pension discussed above is different from “Family Pension” While the
pension paid by the employer to the employee is known as pension, the monthly
payment by the employer to the family of such employee after his/her death is
known as family pension.

The family pension is taxable as Income from other source

Deduction against such family pension : 1/3rd of family pension or `15,000,
whichever is less.
 Pension received from a United Nations organization is not taxable.
 Exemption of Commuted pension is also available to Judges of High courts and
Supreme Court.
 PENSION sec10(10A)

UNCOMMUTED COMMUTED
PENSION PENSION

FULLY TAXABLE

ASSESSEE YES IF NON

YES
RECEIVED GOVERNMEN
GRATUITY T EMPLOYEE

NO NO

FULLY EXEMPT

ONE THIRD OF TOTAL PENSION ONE HALF OF TOTAL PENSION

COMMUTED SHALL BE EXEMPTED COMMUTED SHALL BE EXEMPTED
 RETIREMENT BENEFITS
LEAVE SALARY

Employees are entitled to various types of leave on the job. These leaves may either
be availed by the employee or may not be availed. If they are not availed, they can
also be encashed.
Such leave which the employee gets encashed is taxable under head salary
 Encashment of leave during tenure of service:
Leave encashment by an employee, while he continues to be in service, is fully
taxable for all categories of employees [Whether Govt. employee or a Private
employee]
 Encashment of unavailed leave at the time of retirement/ resignation
This is also taxable but employee can claim exemption u/s Section 10(10AA)
 LEAVE SALARY ENCASHMENT sec10(10AA)

During Continuation Of On Termination Of

Service Service

Fully Taxable

If Non
YES
Government
Employee

Minimum Of Following Exempted

1) Actual leave encashment Received NO
2) Rs. 3,00,000/-
3) 10 Months Average Salary
4) 30 Days Average Salary For Every Completed Year Of
Service, Subject To Leaved Availed During The Tenure Of
Service. Fully Exempt

Note:
*AVG. SALARY= (10 MONTHS BASIC SALARY+D.A.+TURNOVER BASED COMMISSION) / 10
[LAST 10 MONTHS EXACT FROM THE DATE OF RETIREMENT.]
*COMPLETED YEAR ignores ANY FRACTION
 RETRENCHMENT COMPENSATION sec10(10B)
If Compensation Paid Under Any Scheme
Approved By The Central Government.
Nothing Shall Be Taxable.
In any other Case
MINIMUM OF FOLLOWING SHALL BE
XEMPTED
a) ACTUAL AMOUNT RECEIVED
b) Rs.5,00,000/-
c) ANY AMOUNT CALCULATED UNDER
INDUSTRIAL DISPUTE ACT,1947 i.e Average
of last 3 months8* a5/26 * No of completed years
of service and part there in excess of 6 months
 VOLUNTARY RETIREMENT

RECEIVED FROM SPECIFIED EMPLOYERS In any other Case

MINIMUM OF FOLLOWING SHALL

BE EXEMPTED
a) ACTUAL AMOUNT RECEIVED AS FULLY TAXABLE
PER V.R.S. GUIDELINES* or
b)Rs.5,00,000/-

GUIDELINES:-
a)COMPLETED AGE OF 40 YEARS OR COMPLETED 10 YEARS OF SERVICE (IT IS NOT APPLICABLE ON PUBLIC
SECTOR COMPANY)
b)THIS IS FRAMED TO REDUCE THE STRENGHT OF EMPLOYEES.
c)THE VACANCY CAUSED BY VRS IS NOT TO BE FILLED UP
d)THE RETIRING EMPLOYEE IS NOT EMPLOYED IN ANOTHER COMPANY BELONGING TO THE SAME
MANAGEMENT
e)* THE AMOUNT OF COMPENSATION DOES NOT EXCEED = 3 MONTHS SALARY FOR EACH COMPLETED
YEAR OF SERVICE or SALARY AT THE TIME OF RETIREMENT x BALANCE MONTHS OF SERVICE LEFT

# SPECIFIED EMPLOYERS :-
a)COMPANY b)LOCAL AUTHORITY c)CO-OPERATIVE SOCIETY
d)ANY AUTHORITY ESTABLISHED UNDER CENTRAL/STATE/PROVINCIAL ACT
e)SPECIFIED UNIVERSITY f)INDIAN INSTITUTE OF TECHNOLOGY(IIT)
g)STATE GOVERNMENT h)CENTRAL GOVERNMENT i)NOTIFIED INSTITUTION
j)NOTIFIED INSTITUTION OF MANAGEMENT (IIM)
 PROVIDENT FUND
TYPES OF PROVIDENT FUND

Provident fund is of four types:

I. Statutory Provident Fund: Statutory provident fund is set up under the provisions
of the Provident Funds Act, 1925. Generally, this provident fund is maintained by
Govt., Semi-Govt. offices like local authorities, universities, other recognised
educational institutions, statutory corporations and nationalized banks, etc.
 PROVIDENT FUND
TYPES OF PROVIDENT FUND

Provident fund is of four types:

II. Recognised Provident Fund: This provident fund is meant for private sector
employees. This fund is set up under the employee provident fund and
miscellaneous act, 1952.According to this act,any establishment employing 20 or
more employees is under an obligation to register itself under this act. An employer
employing less than 20 persons, can also start a P.F. scheme if both employer and
employee want to do so.
An establishment who wants to start a R.P.F scheme has two alternatives.
a) Set up provident fund as per scheme mentioned under the P.F.Act,1952.
b) Set up Provident fund under its own scheme. In this case approval of the
provident fund commissioner is required together with approval of commissioner of
Income Tax. If both the approval is granted,it is called Recognised provident fund
 PROVIDENT FUND
TYPES OF PROVIDENT FUND

Provident fund is of four types:

III. Unrecognised Provident Fund: It is that provident fund which is set up under
own scheme (as in (b) above) and which is not approved by Commissioner of
Income tax.
 PROVIDENT FUND
TYPES OF PROVIDENT FUND

Provident fund is of four types:

IV. Public Provident Fund: This fund is set up under Public provident
act,1968.Every individual (including a salaried employee) can contribute to this
fund. An account under this scheme can be opened at a branch of the State Bank of
India or at a branch of any of the authorized nationalized banks. The accumulated
sum is repayable after 15 years. This provident fund carries compound interest (tax-
free) at prescribed rate. Interest is credited every year but is payable only at the time
of maturity.
 PROVIDENT FUND
TAX TREATMENT OF PROVIDENT FUNDS
Employees Employer’s Interest on Payment of
Contribution Contribution Provident Fund Accumulated balance
Statutory Deduction u/s 80C Not Taxable Not Taxable Exempt u/s 10(11)
Provident Fund from GTI is available
(SPF) to employee
Recognised Deduction u/s 80C Exempt upto 12% Exempt upto Exempt u/s 10(12)
Provident Fund from GTI of SALARY 9.5% p.a (Refer special point
(RPF) is available to Excess Taxable Excess Taxable below)
employee under Salary under Salary
Un Recognised Deduction u/s Not Taxable Not Taxable Taxable in P/Y of Receipt
Provident Fund 80C is NOT - Employers contribution +
(URPF) available to interest on it
employee taxable as profit in lieu of
salary u/s 17(3)
- Interest on Employee
contribution taxable
under I/O/S
 PROVIDENT FUND
TAX TREATMENT OF PROVIDENT FUNDS
Employees Employer’s Interest on Payment of
Contribution Contribution Provident Fund Accumulated balance
Public Provident Deduction u/s 80C No employers Exempt from Fully exempt
Fund (PPF) from contribution Tax 10(11)
GTI is available to
assessee
 Sec10(11,12,13) Any sum received from PF,RPF,SAF
Type of Employer Employer’s Employee's Employees Amount withdrawn
fund Contribution contribution Contribution Contribution on retirement
principal) interest) principal) interest)

SPF Exempt Exempt Deduction u/s 80 Exempt Exempt u/s 10(11)

c
RPF Exempt up to Exempt up to Deduction us 80 c Exempt up to Exempt subject to
12% of salary 9.5% 9.5% condition. If not then
RPF treated as
URPF
URPF Exempt Exempt No Deduction us Exempt Employees
80 c contribution exempt.
Interest on employee
taxable under IOS.
Employer
contribution
taxable as salary
PPF NA NA Deduction us 80 c Exempt Exempt
u/s 10(11)
Approved Exempt Exempt Deduction us 80 c Exempt Exempt
Super u/s 10(3)
annuation
fund
Approved Exempt Exempt NA NA Exempt
gratuity u/s 10(10)
fund
 Salary/wages ………
Advance Salary ………
Computation of Income from Salary
Dearness Pay ………
Dearness Allowance ………
Bonus ………
Fees ………
Commission ………
Allowances ………
Value of taxable Perquisites ………
Profit in lieu of ………
Contribution of the employer in RPF in excess on 12% of salary ………
Interest on RPF in excess of 9.5 % ………
Any other like gratuity, retrenchment compensation ………
Gross Salary Income ………
Less: a) Standard Deduction - Max 50,000
b) Entertainment Allowance ………
c) Employment Tax
Taxable Salary ………
109
 Practical Problem 7:
Compute taxable Income under the head salary of Mr. X for the Assessment
Year 2019-20:
• Salary 60,000 p.m.
• D.A. 10,000 p.m.
• Entertainment Allowance 1,000 p.m.
• Employer’s Contribution to recognized provident fund 88,800. His
contribution was 88,800.
• Interest @10% p.a. on Credit Balance of Recognized P.F. amounted to 50,000.
• City Compensatory Allowance 500 p.m.
• Medical Allowance 1,200 p.m
• He has been provided with a large car for both official and personal use.
Employer bears all the expenses of the car
• He is provided an unfurnished house by the employer in a city (population
12 lakh). The fair rental value of the house is 90,000 p.a. Employer charges
2,000 from him per month as rent.

110
Solution: Salary (60,000 * 12) 7,20,000
D.A. (10,000 * 12) 1,20,000
Entertainment Allowance (1,000 * 12) 12,000
Employer’s Contribution to RPF in excess of 12 % 2,400
Excess of 12% 7,20,000 * 12 % = 86400
(88,800 – 86,400 = 2,400)
Interest on P.F. in excess of 9.5 % 2,500
(50,000 *.5/10 )
City Compensatory Allowance 6,000
Medical Allowance 14,400
Car (2,400 * 12) 28,800
Concession in Rent 51,240
Rent Free House 10% of salary (B.s 7,20,000+
12,000+6000+14,400) = 75,240
Less : Paid by the employee (2000*12) = 24,000
Gross Salary 9,57,340
Less: Deductions 40,000
i) Standard Deduction Sec. 16(ia) 40000
Taxable Salary 9,17,340 111