Income from Salary (The Income Tax Act, 1961)

Question 1

Mr. Manoj is employed with XY Ltd. on a basic salary of ` 10,000 p.m.

He is also entitled to dearness

allowance @100% of basic salary, 50% of which is included in salary

as per terms of employment. The

company gives him house rent allowance of ` 6,000 p.m. which was
increased to ` 7,000 p.m. with effect

from 01.01.2020. He also got an increment of ` 1,000 p.m. in his

basic salary with effect from 01.02.2020.

Rent paid by him during the previous year 2019-20 is as under:

April and May 2019 - Nil, as he stayed with his parents

June to October 2019 - ` 6,000 p.m. for an accommodation in

Ghaziabad
November 2019 to March 2020 - ` 8,000 p.m. for an accommodation
in Delhi
Compute his gross salary for assessment year 2020-21

Solution
Computation of gross salary of Mr. Manoj for A.Y. 2020-21
Particulars
`
Basic salary [(` 10,000 × 10) + (` 11,000 × 2)] 122,000
Dearness Allowance (100% of basic salary) 122,000
House Rent Allowance (See Note below) 21,300
Gross Salary 265,300

Note: Computation of Taxable House Rent Allowance (HRA)

Particulars April-May June-Oct
Basic salary per month 10,000 10,000
Dearness allowance (included in salary as per terms of employment)
5,000 5,000
(50% of basic salary)

Salary per month for the purpose of computation of house rent

15,000 15,000
allowance
Relevant period (in months) 2 5
Salary for the relevant period (Salary per month × relevant period) 30,000 75,000
Rent paid for the relevant period Nil 30,000
(`6000x5)
House rent allowance (HRA) received during the relevant period (A) 12,000 30,000

(`6,000×2) (`6,000×5)
Least of the following is exempt [u/s 10(13A)] N.A.
1. Actual HRA received - 30,000
2. Rent paid (–) 10% of salary - 22,500
3. 40% of salary (Residence at Ghaziabad – June to Oct 2019) - 30,000
(40% ×
`75,000)

50% of salary (Residence at Delhi : Nov 19 - March, 20)

Exempt HRA (B) Nil 22,500
Taxable HRA [Actual HRA (–) Exempt HRA] (A-B) 12,000 7,500

Taxable HRA (total) = (` 12,000 + ` 7,500 + ` 500 + ` 1,300) 21,300

Nov-Dec Jan Feb - March
10,000 10,000 11,000
5,000 5,000 5,500

15,000 15,000 16,500

2 1 2
30,000 15,000 33,000
 16,000 8,000 16,000
(`8000x2) (`8000x1) (`8000x2)
12,000 7,000 14,000

(`6,000×2) (`7,000×1) (`7,000×2)

12,000 7,000 14,000

13,000 6,500 12,700
15,000 7,500 16,500
(50% × (50% × (50% ×
`30,000) `15,000) `33,000)

12,000 6,500 12,700

Nil 500 1,300
Question 2
Ms. Jyoti is marketing manager in XYZ Ltd. She gives you the following particulars

Basic salary
Dearness allowance
Bonus

Her employer has provided her with an accommodation on 1st April ,2019 at a concessional rent. The house
was taken on lease by XYZ Ltd. for `12,000 p.m. Ms. Jyoti occupied the house from 1st November ,2019.
`4,800 p.m. is recovered from the salary of Ms. Jyoti.

The employer gave her a gift voucher of `8,000 on her birthday. She contributes 18% of her salary (Basic
pay + DA) towards recognised provident fund and the company contributes the same amount.

Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provides to Ms. Jyoti from
1st November 2019 which is used for both official and personal use. Repair and running expenses `50,000
were fully met by the company. The motor car was self-driven by employee.

Compute the income chargeable to tax under the head “Salaries” in the hands of Ms. Jyoti for the
Assessment year 2020-21.

Answer
Computation of income from “salaries” of Ms. Jyoti for the A.Y. 2020-21
Particulars
Basic salary [`65,000 * 12]
Dearness allowance [`22,000 * 12]
Bonus [`17,000 * 12]
Perquisite value in respect of concessional rent
Gift voucher received from employer
Employer’s contribution towards recognised provident fund in excess of 12% of salary is
taxable as per Section 17(1)(iv) 18% * [(` 65,000 + `22,000) * 12] – 12% * {[`65,000 +
`6,600 being 30% of `22,0000)] *12 } = 1,87,920 – 1,03,104
[Salary = Basic salary + dearness allowance, to the extent it forms part of pay for
retirement benefits]
Perquisite value of motor car for partly personal and partly official purpose of capacity
more than 1.6 litres) owned by the employer expenses fully met by the employer – the
Perquisite value would be `2,400 p.m. [`2,400 * 5 months]

Salary
Less: Standard deduction u/s 16(ia)
 `65,000 p.m.
`22,000 p.m. (30% is for retirement benefits)
`17,000 p.m.

essional rent. The house

st November ,2019.

of her salary (Basic

vides to Ms. Jyoti from

ing expenses `50,000

. Jyoti for the

Amount (Rs.)
780,000
264,000
204,000
36,000
8,000
84,816

12,000

1,388,816
50,000
1,338,816
Question 3
Mr. X retired on 25.01.2020 after rendering a service of 25 years and 10 months. He earned a salary of
`10,000 from 1.1.2019 to 30.6.2019 and his salary was increased w.e.f. 1.7.2019 to `15,000 p.m. He
received a dearness allowance of `1,000 p.m. But the terms of employment did not provide for inclusion of
D.A for the purpose of gratuity. Calculate the taxable amount of gratuity if he received `2,75,000 as gratuity
assuming that Mr. X is not covered under the Payment of Gratuity act,1972.

Answer
Assessee : Mr. X
Status: Individual
Previous year: 2019-20
Assessment year:2020-21

Computation of taxable amount of Gratuity

(When not covered under the payment of Gratuity Act)

Particulars Amount Amount

Gratuity Received `2,75,000

Less: Exempted u/s 10(10)- Least of the following
(i) Amount of gratuity actually received `2,75,000
(ii) ½ month salary for every completed year of service `1,62,500
(13,000x ½ x 25)
(iii) Maximum exemption Limit `20,00,000̀162500
Taxable amount of gratuity `112500

Note 1: Calculation of 10-month average salary: (10,000 x 4 + 15,000 x 6/10 = (40,000 + 90,000)/10 = 13000
d a salary of

e for inclusion of
5,000 as gratuity

0,000)/10 = 13000
Question 4
Mr. X is drawing a basic salary of `12,000 p.m.; D.A. `4,000 p.m. and a fixed commission of `500 p.m. till
31/12/2019. His basic salary was increased from 1/1/2020 to `15,000 and D.A. to `5,000 p.m. If HRA is
`6,000 p.m. and rent paid `5,000 p.m., then what is his taxable HRA given that he lived with his parents at
their accommodation till 30/9/2019 and from 1/10/2019 he started living in a rented house.

Answer
Particulars Amount Amount
A. HRA received from April 2019 to September 2019 36,000
`6,000 x 6 months (Fully Taxable)

B. HRA received from October 2019 to December 2019 18,000

`6,000 x 3
Less: exempted under section 10(13A) (least of the following)
1. Amount actually received 18,000
2. Rent paid – 10% of salary [15,000 – 10% of (12,000+4,000)x 3] 10,200
3. 40% of salary i.e. 40% of `48,000 19,200 10,200
Taxable amount 7,800

C. HRA received from January 2020 to March 2020 18,000

`6,000 x 3
Less: Exempted under section 10(13A) (least of the following)
1. Amount actually received 18,000
2. Rent paid – 10% of salary [15,000 – 10% of (15,000+5,000)x 3] 9,000
3. 40% of salary i.e. 40% of `60,000 24,000 9,000
Taxable amount 9,000

Total Taxable HRA (A+B+C) 52,800

of `500 p.m. till
p.m. If HRA is
ith his parents at
Question 5
Mrs. Shalu, an Indian citizen, who was working in the UK as a reader to Indian High Commission of UK for a
period of 3 years from 1.4.2021. she will get a salary of `7,500 p.m. Overseas allowance `1500 p.m., a rent-
free accommodation in London of the fair rental value `2500 p.m. a fiat car for use in UK at free of cost and
actual air fare from Kolkata to London `60,000. She left Kolkata on 25Th March, 2021 for London and was
paid her air fare there in London. Throughout the year she remained in London. Compute Income from
salaries

Answer
Section 10(7) provides exemption to an individual being an Indian citizen who has been deputed outside India
for services outside India by Government in respect of all allowances and perquisites. Therefore, in the given
case only Basic Salary of `90,000 shall be taxable. Further, Mrs. Shalu shall be entitled to get a standard
deduction of `50,000. Hence, taxable salaries shall be `40,000
mission of UK for a
1500 p.m., a rent-
at free of cost and
London and was
e Income from

deputed outside India

erefore, in the given
get a standard