04 Salaries

4. Salary 4.
Chapter 4 – Salaries
Proforma for computation of income under the head “Salaries”
Particulars Amt
(i) Basic Salary XXX
(ii) Fees/Commission XXX
(iii) Bonus XXX
(iv) Allowances:
(a) Dearness Allowance XXX
(b) House Rent Allowance (HRA) (115BAC – Not Allowed) xx
Less: Least of the following is exempt [Section 10(13A)] xx XXX
HRA actually received xxx
Rent paid (-)10% of salary for the relevant period xxx
50% of salary, if accommodation is located in
Mumbai, Kolkata, Delhi or Chennai or 40% of xxx
salary in any other city for the relevant period
(c) Children Education Allowance (115BAC – Not Allowed) xx

Less: Rs. 100 per month per child upto maximum of two xx XXX
children
(d) Children Hostel Allowance (115BAC – Not Allowed) xx
Less: Rs. 300 per month per child upto maximum of two xx XXX
children
(e) Transport allowance (115BAC – Allowed) xx
Less: Rs.3,200 per month in case of blind/ deaf and XXX
dumb/ orthopedically handicapped employeeonly xx
(f) Entertainment Allowance (115BAC – Not Allowed) XXX
(g) Other Allowances including overtime allowance, city compensatory XXX
allowance etc. (115BAC –Not Allowed except Travel, Conveyance, Daily)
(v) Taxable Even after 115BAC the calculation of perquisites remains the same except the exemption
Perquisit of food beverages of Rs. 50 per meal per day is not allowed)
es
(a) Valuation of rent free accommodation* XXX
I) Where the accommodation is provided by the Govt. to its
employees
License fee determined by the Govt. xx
Less: Rent actually paid by the employer xx
II) Where the accommodation is provided by any other employer
If accommodation is owned by the employer
(i) Cities having population > 25 lakh as per
2001census
15% of salary in respect of the period of occupation
(–) rent recovered from employee xx
Unique Academy - 8007916622 CA Saumil Manglani - Contact 9921051593

4. Salary 4.2
(ii) Cities having population >10 lakh < 25 lakh as

per 2001census
10% of salary in respect of the period of occupation
(iii) In other cities

7.5% of salary in respect of the period of occupation
If accommodation is taken on lease by the employer

Lower of lease rental paid or payable by the employer xx
(or) 15% of salary
Less: Rent actually paid by the employee xx
(b) Obligation of employee discharged by employer. For XXX
e.g. Professional tax paid by the employer
(c) Any sum payable by the employer to effect an assurance on the life XXX
of the employee or to effect a contract for annuity: Actual
expenditure incurred by the employer
(d) Value of use of motor car XXX

(e) Any other perquisite: For example, XXX
(1) Provision of services of a sweeper, gardener, watchman or
personal attendant : Actual cost to employer by way of salary paid or
payable for such services (-) amount paid by the employee
(2) Gas, electricity, or water supplied by employer for household

consumption of the employee : Amount paid on that account by the
Specified employer to the agency supplying gas etc. (-) amount paid by the
employees – employee
a. Director (3) Provision of free or concessional education facilities for any
b. Employee member of employee’s household : Sum equal to the expenditure
having incurred by the employer (-) amount paid or recovered from the
substantial employee
interest (i.e. Where educational institution is maintained and owned by employer:
minimum 20% Cost of such education in similar institution in or near the locality (-)
share holding amount paid or recovered from employee [However, there would be
no perquisite if the value of benefit per child does not exceed Rs.
c. Income
1,000 p.m.]
under the head
Salaries > Rs. Note: Above perquisites including Motor car are taxable only in case
50,000 of specified employees.
excluding (4) Interest-free or concessional loan exceeding
perquisites Rs. 20,000 : Interest computed at the rate charged by SBI as on 1st
day of relevant PY in respect of loans for similar purposes on the
maximum outstanding monthly balance (-) interest actually paid by
employee
(5) Value of gift, voucher: Sum equal to the amount of such gift
[If value of gift, voucher is upto Rs. 5,000, there would be
no perquisite]
(6) Use of moveable assets

4. Salary 4.3
Asset given Value of benefit

a) Use of laptops and computers Nil
b) Movable assets, other than - 10% p.a. of the actual cost of
(i) laptops and computers; and such assets, or the amount of
(ii) assets already specified rent or charge paid or payable
by the employer, as the case
may be
(-)
amount paid by/recovered from
an employee
(7) Transfer of movable assets: Actual cost of asset to employer – cost of
normal wear and tear – Amount paid or recovered from employee.
Assets transferred Computation of cost of normal wear and
tear
Computers and electronic items @ 50% on WDV for each completed year of
usage
Motor cars @ 20% on WDV for each completed year of
usage
Any other asset @ 10% of actual cost of such asset to
employer for each completed year of usage [on
SLM basis]
(vi) Leave travel concession (115BAC – Not Allowed) xxx
Less: Exempt u/s 10(5) xxx XXX
(vii) Gratuity
(a) Received during the tenure of employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10) xxx XXX
(viii) Uncommuted pension (fully taxable) Commuted pension xxx
(ix) Less: Exempt u/s 10(10A) xxx
XXX
(x) Leave encashment
(a) Received during the employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10AA) xxx XXX
(xi) Voluntary retirement compensation xxx
Less: Exempt u/s 10(10C) - Least of the following: xxx XXX
(a) Compensation received/ receivable on voluntary xxx
retirement
(b) Rs. 5,00,000 xxx
(c) 3 months’ salary x completed years of service xxx
(d) Last drawn salary x remaining months of service left xxx
(xi) Retrenchment compensation etc. xxx

Less: Exempt u/s 10(10B)] – Least of the following: xxx XXX
(a) Compensation actually received xxx
(b) Rs. 5,00,000 xxx

4. Salary 4.4
(c) 15 days average pay x completed years of service and

part thereof in excess of 6months xxx
Gross Salary XXX
Less: Deduction under section16 (115BAC – All 3 Not Allowed)
Standard deduction u/s 16(ia) upto Rs. 50,000 XXX
Entertainment allowance u/s 16(ii) (only for Govt. employees) xxx
Least of the following is allowable as deduction: xxx XXX
(a) Rs. 5,000 xxx
(b) 1/5th of basic salary xxx
(c) Actual entertainment allowance received xxx
Professional Tax (paid by employer/ employee) under section 16(iii) XXX
Income under the head salary XXX
1. Basics
Basis of Charge [Section 15]
(i) Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
(ii) However, where any salary, paid in advance, is assessed in the year of payment, it cannot
be subsequently brought to tax in the year in which it becomes due.
(iii) If the salary paid in arrears has already been assessed on due basis, the same cannot be
taxed again when it is paid.
2. Few examples given in module -
Professor → Examinership fees →from the same IOS
university in which he is employed
Director → Dual capacity Remuneration received – Salary
Attending the meetings - IOS
Official Liquidator Salary
Partner of a firm PGBP
Member of Parliament IOS
Income from tips IOS
Reason - not from the employer
ITC Ltd. gurgaon Vs Commissioner of Income-tax

(TDS) (SC).
Salaries received by Judges Salary
Justice Deoki Nandan Agarwala Vs Union of India (SC)
3. Computation of Salary in Grade system – varying Pay Scale

In this concept the person gets an increment in Salary after every completion of
duration of 12 months in employment.

4. Salary 4.5
Example – A person joined ABC ltd. On 1stJuly 2016 on a pay scale of monthly salary of Rs
30,000 – 3000 – 39000 – 5000 – 49000. The salary gets due on last day of every month. Find the
taxable salary of this person for P.Y 17 – 18 and PY 20 – 21.
Solution
Working Note
Cycle of 12 months Per month Salary (INR)

July 16 to June 17 30,000.00
July 17 to June 18 33,000.00
July 18 to June 19 36,000.00
July 19 to June 20 39,000.00
July 20 to June 21 44,000.00
July 21 to June 22 49,000.00
Therefore, for PY 17 -18 i.e. April 17 to March 18 = Rs 30,000 * 3 months and 33,000* 9 months =
Rs. 3,87,000
And for PY 20-21 i.e. April 20 to March 21 = Rs. 39,000 * 3 months and 44,000* 9 months = Rs.
5,13,000
Immediately Refer Past Exam Questions now. Baad me nahi hota hai. Sath sath me karo.

4. Salary 4.6
Retirement Benefits
4. Leave Encashment[Section 10(10AA)
Leave Encashment
Received during Received on

the period of retirement whether
Service on Superannuation
or otherwise
Full Taxable
By a Government By any other

employee employee
Full Exempt Least of the

following
is exempt
Rs. 3,00,000 Leave salary 10 months’ salary (Total leaves allowed/ 10 months
actually received (on the basis of average
average salary of
Earned – Total leaves
last 10 months) Availed)  monthly
salary
30
Earned leave entitlement cannot

exceed 30 days for every year of
actual service
Points to note - Mnemonics
➢ पिछले 10 महीनेमें average 4- 4 पिनकीछु ट्टी ली है (Means 4 amounts to compare)

➢ हरपिन important है (for calculating preceding 10 months, start counting from immediately
preceding day)
➢ तोसाल ignore (Means Total leaves allowed = Completed number of years of service *
max. 30 days per year)
Salary
Basic Conditional D.A Commission fixed

% of T.O
V. Imp- “Salary” is defined as above at total 4 calculations in this Chapter

a. Leave Encashment c. Not Covered by POGA – Gratuity payment
b. H.R.A d. Provident Fund

4. Salary 4.7
5. Gratuity 10(10)
Gratuity
Received during Received at the time of

service retirement/Death
Fully Taxable
Government Non-Government
Employees Employees
Fully Exempt
Covered under Not covered
Payment of underpayment of
Gratuity Act, 1972 Gratuity Act, 1972
Least of the following Least of the following

would be exempt: would be exempt:
- Rs 20 lakh - Rs. 20 lakhs

- Gratuity received - Gratuity received
- 15/26 * Last drawn

- ½ * Salary *
Salary * Number of
years of service completed number
(where > 6 moths = 1 years of service (ignore
year. fraction of years
Covered by POGA – Points to Note
➢ Last Drawer(means Drawn)मेंSalary रखीहै

➢ Covered है तोचीज़ेंज़रा specific (i.e. 15/26 and > 6 month = 1 year)
➢ Full Drawer खोलोतोिोचीज़ेंपमली ( FULL DA and Basic Salary)
Not covered by POGA–
Salary

% of T.O

4. Salary 4.8
6. Pension 10 (10A)
Pension
Commuted Uncommuted
Lumpsum)d (Monthly)
Employees of the Non-Government Fully taxable

Central Employees
Government/local
authorities/Statutory
Corporation/Members
of the Defence Services If the If the employee
employee is does not
in receipt of receive any
gratuity gratuity
1/3  (commuted ½  (commuted

pension received pension received
 commutation  commutation
%)  100, would %)  100, would
be exempt be exempt
Points to Note
• If nothing is given in question – assume that the person is not in receipt of Gratuity
• Family Pension received – Head IOS – 1/3rd of amount received or Rs. 15,000 per year
(Lower one) is the deduction allowed.
• Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
For example – The assessee was receiving Rs 10,000 p.m. as monthly pension for PY 22-
23.
Now on 31st Jan 23 the assessee got 60% of pension commuted, so now for Feb and
March monthly pension will be Rs. 4.000 for each month.
7. Compensation on voluntary Retirement

Refers to compensation received on voluntarily retirement or termination of service before the date of
actual retirement. Voluntary retirement compensation to be included under the head Salary = Voluntary
Retirement Compensation Less Exemption u/s10(10C)
Exemption u/s 10(10C)
Types of Employee • Employees of Central or State government or Local Authority or
Statutory Corporation
• Company or Co-operative Society
• Declared University, IIT, Notified IIM or Notified institutions
Conditions to be satisfied • Compensation received on Voluntary Retirement and
• The scheme of Voluntary Retirement should be as per rule 2BA
Amount of • Actual Compensation received/receivable
Exemption Least of • Rs. 5,00,000

• 3 months Total Salary * Completed years of service (Part of the service
following
to be ignored
• Current Salary per month * Balance months of service left
Salary = Basic + DA (retirement Benefits) + Commission % of turnover

4. Salary 4.9
Special Points:
1. [Rule 2BA]: The scheme of Voluntary Retirement should be framed in accordance with below guidelines.
i. Employee should have completed 10 years of service or 40 years of age. [This condition is not
applicable in the case of an employee of a public sector company].
ii. Scheme should be applicable to all employee (except Directors).
iii. Scheme should be drawn to result in overall reduction in existing strength of employees.
i. Vacancy caused by voluntary retirement should not be filled up.
ii. Retiring employee shall not be employed in other concern of same management.
If the guidelines are not followed, exemption shall not be available
2. Exemption under 10(10C) can be claimed only once by the Assessee.
Example
Mr. X received voluntary retirement compensation of Rs. 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 Rs. 20,000 p.m.;
Dearness allowance (which forms part of pay) Rs. 5,000 p.m. Compute his taxable voluntary retirement
compensation.
Solution
Voluntary retirement compensation received Rs. 7,00,000
Less: Exemption under section 10(10C) [Note 1] Rs. (5,00,000)

Taxable voluntary retirement compensation Rs. 2,00,000
Note 1: Exemption is to the extent of least of the following:
(i) Compensation actually received = Rs. 7,00,000
(ii) Statutory limit = Rs. 5,00,000
(iii) Last drawn salary × 3 × completed years of service
= (20,000 + 5,000) × 3 × 30 years = Rs. 22,50,000
(iv) Last drawn salary × remaining months of service
= (20,000 + 5,000) × 6 × 12 months = Rs. 18,00,000
Allowances 8.
7A. Allowance partially taxable (115BAC – Not Allowed)
House Rent Allowance 10(13A)
Section Allowance Exemption
10(13A) House Rent Least of the following is exempt:
Allowance (a) HRA actually received
(b) Rent paid less10% of salary
(c) 50% of salary, if accommodation is
located in Mumbai, Kolkata, Delhi or
Chennai
40% of salary, if the accommodation is
located in any other city.

4. Salary 4.10
Points
➢ Salary means -> Basic + Conditional D.A + Commission fixed % of Turnover
➢ Exemption is given only for that period during which the house is occupied by the
assessee.
➢ If any of the given elements change, the calculation also needs to be done accordingly –
Actual HRA received, rent paid, Salary, Location of the house taken on rent.
7B.Allowance exemption depends upon the actual expenditure (115BAC –

Colouring)
Mnemonics - (Daily Uniform िहन के Helper साथ Research करने पनकलता है और C.T.T बजाता है )
1. Daily allowance–to meet the ordinary daily charges incurred by an employee on account
of absence from his normal place of duty
2. Uniform allowance.
3. Helper allowance –Helper for official duties(But Servant allowance fully taxable)
4. Research allowance - encouraging the academic research and training pursuits in
research institutions
5. Conveyance allowance - performance of duties of an office
6. Travelling Allowance - cost of travel on tour one city to another – Official tour
7. Transfer allowance–Shifting city - transfer, packing and shifting of personal effects on
such transfer
7C.Allowance exemption does not depend upon the actual expenditure

(115BAC – Not allowed except Transport)
S. Name of Allowance Extent to which

No. allowance is exempt
1 Special Compensatory(Tribal Areas/Schedule Areas / Agency Rs. 200 per month.
Areas)Allowance
2 Any allowance granted to an employee working in any 70% of such allowance
transport system to meet his personal expenditure during his upto a maximum of
duty performed in the course of running such transport from one Rs. 10,000 per month.
place to another, provided that such employee is not in receipt
of daily allowance
3 Children Education Allowance Rs. 100 per month per
child upto a maximum of
two children.
4 Any allowance granted to an employee to meet the hostel Rs. 300 per month per
expenditure on his child child upto a maximum of
two children.
5 Any transport allowance granted to an employee to meet his Rs. 1,600 per month
expenditure for the purpose of commuting between the place of Withdrawn
his residence and the place of his duty from AY 19-20
6 Any transport allowance granted to an employee who is blind or Rs. 3,200 per month.
deaf and dumb or orthopedically handicapped with disability of
the lower extremities of the body, to meet his expenditure for

4. Salary 4.11
commuting between his residence and place of duty
7 Underground Allowance would be granted to an employee who Rs. 800 per month
is working in uncongenial, unnatural climate in underground
mines. This is applicable to whole of India.
7D. Allowances Fully Exempt (115BAC – Not Allowed)
a. Allowance to High Court Judges and Supreme court Judges

b. Allowance received from United Nations Organisation (UNO): Allowance
paid by the UNO to its employees is not taxable
c. Allowances payable outside India [Section10(7)] – By the Government to a citizen of
India for services rendered outside India.
7E. Allowances Fully Taxable
Dearness Allowance Non-Practicing allowance
City compensatory allowance Family allowance
Medical allowance (From AY 19-20, specified Special allowance
medical perquisite is also fully taxable)
Tiffin/ Lunch/Dinner allowance Secret allowance
(But if perquisite – Exempt upto Rs. 50 per
meal)
Overtime allowance Deputation allowance
Servant allowance Interim allowance
Warden/ Proctor allowance Any other cash allowance
Reminding again
Note: If the assessee opted concessional tax slab U/S 115BAC of the income tax act, 1961, then
assessee is not eligible to claim exemption from any allowances
except:
1. Travelling allowances
2. Daily allowances
3. Conveyance allowance
4. Transport allowance(For blind, handicapped, deaf or dumb employee)

4. Salary 4.12
8. Perquisites
8A. Rent free accommodation (Reduce recovery from employer wherever done)
8A.1. Valuation of accommodation only (Excluding furniture)
Rent Free Accommodation
Govt. Employee (Central/State) Non-Govt. Employee
License fee determined by

Govt. would be the value of Accommodation Accommodation not
perquisite Owned by employer Owned by employer
Population# of Population# of City Population# of 15% of Salary*

City upto 10 Lac > 10 lac to 25 lacs City > 25 Lac or
Rent paid
Whichever
7.5% of Salary* 10% of Salary* 15% of Salary* is lower
Note – Calculate for only that number of months for which the house is occupied by the
employee.
*Salary means
Basic Salary
⬧ DA (forming part of the retirement benefits)
⬧ Bonus
⬧ Fee
⬧ Commission (also includes fixed commission)
⬧ Taxable allowances i.e. only taxable portion of allowances
Monetary payment
# ⬧Population notas
of the city being
peerperquisites
2011 census(e.g. Leave encashment) i.e. “Ignore ALL
types of perquisites inmay
Accommodation this be
calculation”)
provided:
(1) Rent free; or
(2) At concessional rate.
Note: In case the house is provided at concessional rate, the value determined above
shall be reduced by the rent, if any, actually paid by the employee.
8A.2.Value of Furniture provided (To Govt. + Non - Govt. Employees)
1. Owned by employer –10% p.aof actual cost.
2. Rented by employer – Actual rent paid
8A.3. Accommodation in a hotel
➢ Lower of 24% of Salary or actual hotel charges
8A.4. Where RFA is not taxable– Exceptions
a. Hotel accommodation provided for a period of maximum15 days on his transfer from one
place to another.

4. Salary 4.13
b. Any accommodation provided to an employee working at a mining site or an on-shore

oil exploration site or a project execution site, or a dam site or a power generation site or
an off-shore site
c. Accommodation provided at new place of posting (New City) while retaining the
accommodation at the other place (Old city). Only 1 accommodation will be taxable upto a
period of 90 days at the option of the Assessee, thereafter both the accommodations will
be taxable.
8B. Leave Travel Concession 10(15) (Section 115BAC Not Allowed)
• This clause exempts leave travel concession (LTC)received by employees from their
employers for proceeding to any place in India,
• The benefit is available for assessee, spouse, children and (dependent) parents/
brother/sister
• Exemption will be available in respect of 2 journeys performed in a block of 4 calendar
years. Current block 2018 to 2021 calendar years)
• Where such travel concession or assistance is not availed by the individual during any
block of 4 calendar years, one such unavailed LTC will be carried forward to the
immediately succeeding block of 4 calendar years and will be eligible for exemption if
used in the first year of the block.
• Monetary limits – For comparison Amount not exceeding the shortest route by first class
rail fare or amount not exceeding the air economy fare of the National Carrier (Generally
Air India).
• The exemption referred to shall not be available to more than two surviving children of
an individual on or after 1.10.1998. This restrictive sub-rule shall not apply in respect
of children born before 1.10.1998 and also in case of multiple births after one child.

4. Salary 4.14
Calculation
Case Amount Amount Compariso Amount Amount Taxable
actually actually n amount - exempt
received spent Rail/ Flight
I 40,000.00 35,000.00 50,000.00 35,000.00 5000 (40,000 - 35,000)
(As amount sent is less than the amount
received from employer)
II 40,000.00 42,000.00 50,000.00 40,000.00 Nil
(As whole amount received is spent)
III 40,000.00 45,000.00 38,000.00 38,000.00 2000 (40,000 - 38000)
(As the amount given to employee is more
than the maximum limit regarding Rail/
Flight)
IV 50,000.00 43,000.00 42,000.00 42,000.00 8000 (50,000 - 42000)
(As amount given to employee is more than
the maximum limit regarding Rail/ Flight)
V 50,000.00 30,000.00 43,000.00 30,000.00 20,000
LTC cash voucher scheme - (ICSI Supplementary June 21)
To compensate and incentivize consumption by employees thereby giving a boost to consumption

expenditure, it has been decided that cash equivalent of LTC, comprising Leave Encashment and LTC
fare of the entitled LTC may be paid by way of reimbursement.
Condition
The employee spends
(i) an amount equal to the value of leave encashment (100% Payment) and;
(ii) an amount 3 times of the cash equivalent of deemed fare, as given above on purchase of such
items / availing of such services
(iii)which carry a GST rate of not less than 12%
Limit for CG employees –

Deemed LTC fare per person (Round Trip)
Employees who are entitled to business class of Rs. 36,000
airfare
Employees who are entitled to economy class of Rs. 20,000
airfare
Employees who are entitled to Rail fare of any class Rs. 6,000
Limit for other than CG employees (state governments, public sector enterprises, banks and
private sector)
Payment of cash allowance, subject to maximum of Rs 36,000 per person as Deemed LTC fare per
person (Round Trip) to non-Central Government employees.
New Rules added
Under Rule 2B of Income Tax Rules as follows:
Sub-Rule 1A
Maximum amount exempt shall be lower of –

4. Salary 4.15
Rs. 36,000 per person

Or
1/3rd of the specified expenditure
Specified expenditure – Buying goods/Services having minimum 12% GST Rate.
Sub-Rule 1B
Where an exemption is claimed and allowed, shall have effect as if for the words “two journeys”, the
words “one journey” has been substituted.”
8C. Motor Car

4. Salary 4.16
8D. Medical Facilities
Medical
Facilities
Outside
India
In India
Travel Stay Treatment Maintained Princi. CC/ Other

Expenditure Maintained clinics/
Expenditure (For 1 by Comm.
by Govt./ LA hospitals
(For 2 (For 2 person) employer approved +
persons) persons) Specified
diseases
Exempt if GTI Exempt Exempt

before subject to Exempt
incuding subject Fully
RBI limits
travel exp. to RBI Taxable
upto Rs 2 lacs limits
Points
1. Family means – Spouse, Children, Dependent Parents, Brothers & Sisters
2. Health/ Medical insurance policy premium paid by the employer for employee/
employee’s family members is exempt
3. Payment of premium on personal accident insurance policies of employees is exempt.
4. Reimbursement - in respect of any illness relating to COVID-19 subject to conditions notified by the
Central Government.
AY 23-24
Interest Free Loan

Interest free or Concessional outstanding Balance for Note taxable if -
Loan each loan on last day of 1. Loan < 20,000
Provided to Employee or each month  Rate of 2. Loan for diseases specified in
household members Interest charged by SBI on the rule 3A (Cancer, TB, AIDS,
1st day of the relevant Disease requiring surgical
PY. operation, mental disorder,
Less: Interest charged caesarean operation).
However, not applicable to so
much of the loan as has been
reimbursed to the employee
under medical insurance
scheme.

4. Salary 4.17
8E. Other Perquisites

Nature of Perquisite Taxable Value of Note
Perquisite
Free Domestic Servant Actual cost of the
Service of sweeper, employer Less: Amount
gardener or watchman or paid by employee
personal attendant
Supply of gas, electricity The amount determined shall be
or water for household reduced by the amount, if any
consumption recovered from the employee for
a) Procured from outside Amount paid to outside such benefit.
agency agency
b) Resources owned by Manufacturing cost per
employer himself unit
Education Facilities for 1. Amount paid for free training of
Children the employee is not taxable
a) Free education to Cost to the Employer 2. Payment or reimbursement of
employee's own children school fee is taxable in all cases
Less: Rs. 1,000 per
in the school 3. No restriction on number of
month
owned/maintained by children
Less: Amount recovered
the employer or the
from employee
school sponsored by the
employer
b) Other Schools Cost to the Employer
Less: Amount
recovered from
employee
c) For others (other than Cost of education to
assessees children i.e., Employer
grandchildren and other Less: Amount
household members) recovered from
employee
Educatoin Perq - Immediately Refer Past Exam Questions now. Baad me nahi hota hai. Sath
sath me karo.

4. Salary 4.18

Perquisite
Travelling, Touring, The amount determined shall be
Accommodation reduced by the amount, if any
a) Where such facility is It will be the value at recovered from the employee
maintained by the which such facilities are for such benefit
employer, and is not offered by other
available uniformly to all agencies to the public.
employees.
b) Where the employee is The amount of
on official tour and the expenditure so incurred.
expenses are incurred in
respect of any member
of his household
accompanying him.
c) Where any official tour is The value will be limited
extended as a vacation. to the expenses incurred
in relation to such
extended period of stay
or vacation
d) In any other case, where A sum equal to the
such facility is given to amount of expenditure
the employee or any incurred by the
member of his employer.
household. (Facility
available uniformly to all
employee)
Free food and Non-Alcoholic Working hours include extended
Beverages office hours (like working on
holidays, over time)
a) Tea or snacks provided Nil
during working hours
b) Free food and non- Nil
alcoholic beverages
during working hours
provided in a:
(i) Remote area; or
(ii) An offshore
installation.

4. Salary 4.19

Perquisite
c) Free food and non- Cost to the employer in excess Not allowed u/s 115BAC
alcoholic beverages of Rs. 50 per meal
provided by the Less: Recovery from the
employer during working employee
hours:
(i) at office or business
premises; or
(ii) Through paid
vouchers which are
not transferable and
usable only at eating
joints.
d) In any other case Actual amount of expenditure
incurred by the employer
Less: Recovery from the
employee
Value of any Gift, Voucher or Gifts made in cash or
Token convertible into money
The value of any gift, or Amountover and above of Rs. (like gift cheques) are not
voucher, or token received by 5,000 onlyshall be taxable exempt.
the employee or by member [CircularNo.15/2001 dated
of his household on 12.12.2001]
ceremonial occasions or Alternative view → proviso to
otherwise from the employers Rule 3(7)(iv)
If amount > Rs. 5,000, full
amount taxable.
Where the value of such gift, The value of perquisite shall
voucher or token, as the case be nil. As per proviso to Rule
may be, is upto Rs. 5,000 in 3(7)(iv)
the aggregate during the
previous year.
Expenses on Credit Cards
Expenses including The amount paid for or
membership fees and annual reimbursed by the employer.
fees are incurred by the Less: Expenditure on use for
employee or any member of official purpose
his household, which is Less: Amount recovered from
charged to a credit card, employee
provided by the employer or
otherwise are paid for or
reimbursed by the employer

4. Salary 4.20

Perquisite
Club Membership
The payment or The actual amount of
reimbursement by the expenditure incurred or
employer of any reimbursed by the employer.
expenditure incurred Less: Expenditure on use for
(including the amount of official purpose
annual or periodical fee) Less: Amount recovered from
in a club by the employee employee
or by any member of his
household
Use of Moveable Assets
a) Use of laptops and Nil The amount determined shall
computers be reduced by the reduced by
the amount, if any paid or
b) Moveable assets other i) If owned by employer than
recovered from the employee
than Laptops and 10% per annum of the actual
for such benefit.
computers cost of such asset, or
ii) If taken on hire by employer
the amount of rent or charge
paid, or payable by the
employer as the case may
be.
Transfer of any Moveable
Assets
a) Computers and Actual cost of such asset to the The amount determined shall
Electronic Items employer as reduced by 50% for be reduced by the amount, if
each completed year during any paid or recovered from the
which such asset was put to use employee for such benefit.
by the employer, on the basis of (Note – Completed year means
reducing balance method. ignore fraction of the year)
b) Motor Cars Actual cost of such asset to the

employer as reduced by 20% for
each completed year during
which such asset was put to use
by the employer, on the basis of
reducing balance method.
c) Any other Assets Actual cost of such asset to the
employer as reduced by
10%SLM of the actual cost to
the employer for each
completed year during which
such asset was put to use by the
employer.

4. Salary 4.21
Other Points –
1. Perquisites exempt in all cases
a. Telephone d. Transport Facility by employer engaged on
transportation of goods/ passengers
b. Employer’s contribution to e. Refreshment during working
staff group insurance hours in office premises
scheme
c. Recreational facilities if f. Rent-free official Residence to a Judge of a High
provided to all employees Court, the Supreme Court, Officer of Parliament,
Union Minister and aLeader of Opposition in
Parliament.
2. ESOP
Vesting Period ExercisePeriod
1st year 2nd year 3rd year 4th year 5th year
Date of
Date of Date of
Option Acquired Exercise
Allotment
MP = Rs. 175 MP = Rs.
100 shares @ 20 200
MP = Rs. 100
Vesting
DateMP = Rs.
150
Solution :
Perquisite = MV on the date of Exercise - Amount recovered from employee
= 100 Shares X Rs. 175 - 100 Shares X Rs. 20
= Rs. 17,500 - Rs. 2,000
But taxable in the year of allotment (i.e. 5 year).

4. Salary 4.22
9. Provident Fund
Particulars Statutory Recognized PF Unrecognized Public PF

PF PF
Employer’s Fully Amount in excess Not taxable N.A.
Contribution exempt of 12% of salary is yearly
taxable
Employee’s Eligible for Eligible for Not eligible for Eligible
Contribution deduction deduction u/s 80C deduction for
u/s 80C deduction
u/s 80C
Interest Fully Amount in excess of Not taxable yearly Fully exempt
Credited exempt 9.5%
p.a. is taxable
On Employer’s
Contribution
Interest Exempt upto Amount in excess of Not taxable yearly Fully exempt
Credited certainlimit of 9.5%
On Employee’s contribution p.a. is
Contribution [See Note 2 taxable“salary” u/s
below] 17(1) [See
Note 2 below]
Amount Fully Exempt from tax Employer’s Fully
received on exempt u/s if employee contribution and exempt u/s
retirement, 10(11) served a interest thereon 10(11)
etc. continuous is
period of 5 years taxable as salary.
or more or Employee’s
retires before contribution
rendering 5 is not taxable.
years of service Interest on
because of employee’s
reason contribution is
beyondthe taxable under
control of the income from
employee. In other source.
other case, it will
be taxable.
Note 1 - For PF, Salary means – Basic + Conditional DA + Fixed % commission on Turnover
Note 2 - Interest credited on contribution by such person/employee
✓ Clause became applicable from 1.4.2021
✓ Interest o over and above contribution taxable - Interest accrued on the
principal contribution made b y that person/employee during the previous
year to the extent it relates to the amount or the aggregate of amounts of
contribution made > exceeding Rs. 2,50,000
✓ In case there is no employer’s contribution, then, a higher limit of `
5,00,000 would be applicable
✓ It may be noted that interest accrued on contribution to such funds upto 31st
March, 2021 would be exempt without any limit, even if the accrual of income is
after that date.

4. Salary 4.23
RPF, Superannuation & NPS - New Upper cap of 7.5 Lacs

1. The amount or the aggregate of amounts of any contribution made to the account of the
assessee by the employer—
(a) in a recognized provident fund;
(b) in the scheme of National Pension Scheme (NPS) ; and
(c) in an approved superannuation fund,
to the extent it exceeds 7.5 Lacs rs. in a previous year shall be taxable
2. The annual accretion by way of interest, dividend on the above amounts is also to be
included in value of 7.5 Lacs rupees.
Note – Previously, contribution of employer to Superannuation fund was exempt to

employee upto Rs. 1.5 lacs. Now this clause has been removed and an overall limit
of 7.5 lacs is given.
Illustration: Mr. X, working in MNO ltd., draws the following amount of emoluments from the
company:
Particulars Amount (in lakhs)
Basic Pay 50
Commission 15
Employer's contribution to recognized provident fund 10
Employer's contribution to NPS 7
Employer's contribution to the superannuation fund 5
Total 87
Solutions:
Amount (in lakhs)
Particulars After
Amendment
Basic Pay 50
Commission 15
Employer's contribution to recognized provident fund (in 4
excess of 12% of basic pay) [Rs. 10 lakh (less) Rs.6 lakh (Rs. 50
lakh * 12%] [Section 17(1)]
Employer's contribution to NPS 7
Employer's contribution to the superannuation fund in excess -
of rs. 1.5 lakhs [Old Section 17(2)(vii)]
Perquisite arising from Employer's contribution to the 14.50
superannuation fund, RPF and NPS in excess of rs. 7.5 lakhs
[New Section 17(2)(vii)]
Income chargeable to tax under the head "Salary" 90.50

4. Salary 4.24
AS Per CBDT Notification No. 11 Dated March 5, 2021
Finance Act, 2020 inserted a new sub-clause (viia) in section 17(2) so as to provide that annual accretion
by way of interest, dividend or any other amount of similar nature during the previous year to the
balance at the credit of the fund or scheme referred to in sub-clause (vii) may also be treated as
perquisite.
In Simple words the accretion amount will be calculated as –
Employer's Current year's

contribution > 7.5 lacs / 2 x Rate
Plus
Past Contribution >7.5 lacs +

Past Taxable amount x Rate
Simplified form of formula given
TP= (PC/2)*R + (PC1+ TP1)*R
Terms Meaning
TP Final answer which will be calculated
PC Employers' Contribution > 7.5 lacs during the current year
Employers' Contribution > 7.5 lacs during the current year other than of current
PC1 year
R I/ Favg
I Income accrued during the current previous
Funds Average
Favg (opening + Closing Balance )/2
TP1 Aggregate of taxable perquisite other than the current previous year
Example
Opening balance of NPS/RPF etc. 20,00,000
During the year contribution of
Employer 10,00,000
Employee 10,00,000
Interest earned during the year 8,00,000

4. Salary 4.25
10.Deductions under the Head Salary (115BAC – All 3 Not Allowed)
Deductions from gross salary [Section 16]

a. Standard Deduction - Section 16(ia) -
A standard deduction of 50,000 or the amount of salary, whichever is lower, is

to be provided to “ALL” employees (Govt. Non Govt., Handicapped etc.)
b. Entertainment allowance (allowable only in the case of government
employees) [Section 16(ii)]
Least of the following is allowed as deduction:
(1) Rs. 5,000
(2) 1/5th of basic salary
(3) Actual entertainment allowance received
c. Profession tax [Section 16(iii)]
Any sum paid by the Assessee on account of tax on employment is allowable
as deduction.
In case profession tax is paid by employer on behalf of employee, the amount
paid shall be included in gross salary as a perquisite and then deduction can
be claimed.
Following table illustrates the impact of 115BAC under the head salaries (only the impacted
portion)
Sr. Nature of Exemption/Deduction Relating to Head Salaries New System Existing

No. of Tax u/s system of
115BAC Tax
A RETIREMENT BENEFITS EXEMPTIONS
leave travel Concession u/s 10(5) Not allowed allowed
B Allowances
Sr. Nature of Exemption/Deduction Relating to Head Salaries New System Existing

No. of Tax u/s system of
115BAC Tax
exemption u/s 10(13A) and rule 2Afrom House rent allowance Not allowed allowed
1. Exemption u/s 10(14)(i) and Rule 2BB
Travelling allowance allowed allowed
Conveyance allowance allowed allowed
daily allowance allowed allowed
Helper allowance Not allowed allowed
any allowance granted for encouraging the academic, research and Not allowed allowed
training pursuits in educational and research institutions
uniform allowance Not allowed allowed
2. Exemption u/s 10(14)(ii) and Rule 2BB
Children education allowance Not allowed allowed

4. Salary 4.26
Hostel expenditure allowance Not allowed allowed

tribal area allowance Not allowed allowed
transport allowance to Handicapped/deaf/dumb/Blind employee allowed allowed
transport allowance to other than above employees Not allowed Not allowed
C Perquisites
Free food and beverage through vouchers provided to the employee Not allowed allowed
upto 50/meal/tea & snacks
Other exemptions from perquisites e.g. use of Computers, laptops allowed allowed
etc
D Deductions u/s 16
Standard deduction u/s 16(ia) Not allowed allowed
entertainment allowance u/s 16(ii) Not allowed allowed
Professional tax u/s 16(iii) Not allowed allowed
Module - Case Laws
1. Can notional interest on security deposit given to the landlord in respect of residential premises taken on rent by
the employer and provided to the employee, be included in the perquisite value of rent-free accommodation given
to the employee ? CIT v. Shankar Krishnan (2012)(Bom.)
Decision - No
1. CanthelimitofINR1,000 per month per child be allowed as standard deduction, while computing the perquisite value
of free or concessional education facility provided to the employee by the employer?
CIT (TDS) v. Director, Delhi Public School (2011) (Punj. & Har.)
Decision – More than 1,000 – Fully taxable
Accidental Points
1. While computation of Salary in Grade system – Change the salary after the completion of 12
months period and not from the beginning of the new Financial Year.
2. Remember “Salary” is differently defined in different calculations –
a.
Salary

% of T.O
“Salary” is defined as above at total 4 calculations in this Chapter
c. Leave Encashment c. Not Covered by POGA – Gratuity
payment
d. H.R.A d. Provident Fund
4. Salary 4.27
b. Covered under POGA – Salary means → Basic + Full DA

c. Entertainment allowance - Salary means → Only Basic Salary
d. Rent Free Accomodation → Salary means
⬧ Basic Salary
⬧ DA (forming part of the retirement benefits)
⬧ Bonus
⬧ Fee
⬧ Commission (also includes fixed commission)
⬧ Taxable allowances i.e. only taxable portion of allowances
⬧ Monetary payment not being perquisites (e.g. Leave encashment) i.e. “Ignore ALL types of
perquisites in this calculation”)
3. Remember the mnemonics given in the chapter for different provisions like retirement benefits
calculations, allowances etc. This will make the retention of minute points very easy.
4. Read the beginning of any question very carefully. It may give you the hints regarding –
a. Who is the Person – Individual, Company, Firm etc.
b. Age of the person
c. City of stay of the person
d. Type of employee – Government/ Non Govt. Employee
e. Indian Citizen/ Person of Indian Origin etc.
5. In Pension calculate 1/2 or 1/3 of the (amount received/ commutation %). Generally, students
multiply 1/2 or 1/3 with the amount received and the whole calculation goes wrong.
6. Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
7. Need to mandatory remember the names and categories of the allowances.
8. Check carefully whether the House/ Furniture/ Car/ movable asset given to the employee for use
is “Owned” or “Rented” by the employer?
9. For Medical reimbursements and LTC, spouse, children can be dependent/ Independent but
parents/ brother/sister needs to be dependent to claim the benefit.
10. LTC restriction on Number of children (i.e. Maximum 2 ) is applicable only for those children who
are born 1.10.1998 onwards.
11. In Motor Car, Recovery from the employee is deducted from the value of the perquisite only and
only in the Second Category i.e. car/ expenses provided for “Fully Personal Use”.
The recovery is not to be deducted from Third Category i.e. Car provided for “Partly Official +
Partly Personal Use”
12. Calculation is different for below mentioned category of Motor Car –
Particulars Office + Personal purpose
3. Only Expenditure provided Total Expenditure
(-) 1800/2400 p.m
(-) 900 p.m for Driver (If any)
--------------------------------------
x x x → Taxable perquisite
(If higher amount to claim as expense, then

maintain documents)
13. Regarding reimbursement of Medical Expenses (Perquisite) now is taxable.
14. In Children’s Education allowance, there is a limit on the Number of Children (Max. 2) but for
Perquisite of education there is no limit on the number of Children.

4. Salary 4.28
15. For interest free or Concessional Loan – Consider the interest Rate of SBI only & that too of 1 st
Day of the relevant Year. Don’t get confused with the rates given of RBI, CG etc. and rate of
interest of different dates of the year.
16. Lunch/ Dinner perquisite provided at normal place of duty or paid vouchers provided – Taxable
but with the exemption limit of Rs. 50 per meal.
17. Lunch/ Dinner perquisite provided at offshore sites etc. – Fully exempt i.e. Taxable Value of
Perquisite is Nil
18. Lunch Dinner/ Meal allowance – Fully Taxable
19. Gift from Employer gets taxable under the head Salary (Exemption limit can be taken as Rs.
5000) and from other than employer gets taxable under the head “I.O.S” (Exemption limit can be
taken as Rs. 50,000)
20. If movable assets are transferred to the employee (i.e. sold 2nd Hand) follow the rates of
depreciation given as per valuation rules only –
a. Computers and Electronic Items - 50% w.d.v method
b. Motor Cars – 20% w.d.v method
c. Any other Assets – 10% SLM method.
Never get confused if the question specifies any other depreciation rate. Other rates if given,
have to be ignored.
21. Telephone perquisite – Not Taxable
Telephone allowance – Fully taxable
22. Specifically remember the category of the allowances where actual expenditure is relevant for
calculation and in which category it is irrelevant.
23. RPF category is most important for exams as this is the only category which contains limits if
12% of Salary and 9.5% of interest.
24. Entertainment allowance is “FULLY TAXABLE” for Non Govt. employee. Deduction is provided
only to the Govt employee.

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4. Salary 4.

(c) Children Education Allowance (115BAC – Not Allowed) xx

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(ii) Cities having population >10 lakh < 25 lakh as

(iii) In other cities

If accommodation is taken on lease by the employer

(d) Value of use of motor car XXX

(2) Gas, electricity, or water supplied by employer for household

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Asset given Value of benefit

(xi) Retrenchment compensation etc. xxx

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(c) 15 days average pay x completed years of service and

ITC Ltd. gurgaon Vs Commissioner of Income-tax

Justice Deoki Nandan Agarwala Vs Union of India (SC)

3. Computation of Salary in Grade system – varying Pay Scale

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Cycle of 12 months Per month Salary (INR)

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4. Leave Encashment[Section 10(10AA)

Received during Received on

By a Government By any other

Full Exempt Least of the

Earned leave entitlement cannot

Points to note - Mnemonics

➢ पिछले 10 महीनेमें average 4- 4 पिनकीछु ट्टी ली है (Means 4 amounts to compare)

Basic Conditional D.A Commission fixed

V. Imp- “Salary” is defined as above at total 4 calculations in this Chapter

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Received during Received at the time of

Least of the following Least of the following

- Rs 20 lakh - Rs. 20 lakhs

- 15/26 * Last drawn

Covered by POGA – Points to Note

➢ Last Drawer(means Drawn)मेंSalary रखीहै

Basic Conditional D.A Commission fixed

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Employees of the Non-Government Fully taxable

1/3  (commuted ½  (commuted

7. Compensation on voluntary Retirement

Exemption Least of • Rs. 5,00,000

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Less: Exemption under section 10(10C) [Note 1] Rs. (5,00,000)

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7B.Allowance exemption depends upon the actual expenditure (115BAC –

7C.Allowance exemption does not depend upon the actual expenditure

S. Name of Allowance Extent to which

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commuting between his residence and place of duty

7D. Allowances Fully Exempt (115BAC – Not Allowed)

a. Allowance to High Court Judges and Supreme court Judges

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Rent Free Accommodation

Govt. Employee (Central/State) Non-Govt. Employee

License fee determined by

Population# of Population# of City Population# of 15% of Salary*

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b. Any accommodation provided to an employee working at a mining site or an on-shore

8B. Leave Travel Concession 10(15) (Section 115BAC Not Allowed)

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LTC cash voucher scheme - (ICSI Supplementary June 21)

To compensate and incentivize consumption by employees thereby giving a boost to consumption

Limit for CG employees –

TP= (PC/2)R + (PC1+ TP1)R