PROBLEMS ON

BUSINESS/PROFESSION INCOME

B.COM (ACCA) 2ND SEM

IT ASSIGNMENT
ALLOWANCES:-

Allowances is a fixed monetary amount paid by the employer to the

employee for meeting certain expenses, whether personal or for the
performance of his duty.

Types of allowances are :-

 House rent allowance
 Entertainment allowance
 Children education allowance
 Children hostel allowance
 Transportation allowance
 Tribal or schedule area allowance
 Underground allowance for workers of coal mines
PROBLEMS ON HRA
IMPORTANT FACTORS TO BE CONSIDERED WHILE CLAIMING HRA TAX EXEMPTION U/S 10 (13A)
:-
 Salary
 Place of residence
 Rent paid
 Employment

1) Manoj receives salary for the year 2014-15. He resides at Rajkot.The

data for salary is given below:

Particular Amount (annual

data)
Basic 200000
DA 100000
Bonus 50000
HRA 24000 (2000/Month)
Rent paid during the 36000 ( 3000/Month)
year
Calculation of HRA exemption :-
Salary for the purpose of HRA exemption calculation :-
 Basic salary - 2,00,000
 Dearness allowance -1,00,000
 Total -3,00,000
 10% of salary -30,000
 40% of salary -1,20,000
Particular Amount
Actual HRA received 24,000
Rent paid Less 10% of salary 36,000 – 30,000 = 6,000
40% of salary 1,20,000
Available exemption (lease of the 6,000
above
Taxable HRA 18,000
Income Tax Exemption on Gratuity
 Gratuity is a lump sum amount an employee gets when she retires,
resigns, dies or becomes disabled due to an accident or disease,
provided she had worked for at least five continuous years for the
same employer. In other words, it’s a financial reward or gratitude
an employee gets from an employer for rendering her service to the
company for a continuous period.
 Companies in specific industries such as mines, oil fields, factories,
shops and plantations or shops having more than 10 employees are
mandatorily required to pay gratuity to their employees under the
Payment of Gratuity Act, 1972. Employers who are not covered by
this Act can also pay gratuity.
 There are different rules for calculating gratuity and the tax to be
paid on it, for government employees, for those covered under the
Act and for those not covered under the Act.
Calculating gratuity
 Gratuity is calculated based on two factors—the number of years
an employee completes with an organisation and her last drawn
salary at the organisation.
 Here, salary includes basic salary and dearness allowance, and all
other components are excluded.
 To calculate the amount of gratuity, multiply the total number of
years served with 15 days of salary. But remember 15 days’
salary is arrived at by dividing the last month’s salary by 26 and
multiplying the product by 15. This adjustment is not available for
workers not covered by the Payment of Gratuity Act.
 So, if your last drawn salary was ₹50,000 (basic and dearness
allowance) and the employment tenure was 12 years, you will be
eligible for a gratuity of {(50,000/26)x15}x12 or Rs3,46,154.
Problems on gratuity
 1) Mr. Ravi retired on 15.6.2109 after completion of 26 years 8 months of service
and received gratuity of Rs.6,00,000. at the time of retirement , his salary was
 Basic salary: Rs 5000 pm
 Dearness allowance: Rs 3000 pm (60%of which is for retirement benefits)
 Commission: 1% of turnover(turnover in the last 12 months was Rs.12,00,000)
 Bonus : Rs 12,000 pa
 compute his taxable gratuity assuming:
 A) He is non-government employee and covered by the payment of gratuity
act,1972.
 B) He is non-government employee and not covered by payments of gratuity
act,1972.
 C) He is a government employee
Answer: Mr Ravi
Retirement data- 15.06.2019
service period – 26 years
Gratuity received – 6,00,000

BASIC ALLOWANCE - 5000PM

DEARNESS ALLOWANCE- 3000PM

COMMUTED 1% OF 12,00,000 = 12,000PA=1000PM

BONUS 12000÷12 PA=1000pm

A)Non- government covered By POGA

EXEMPTION IS LEAST OF AMOUNT

1)GRATUITY RECEIVED 6,00,000
2)GOVERNMENT LIMIT 20,00,000

3)15÷26×(5000+3000) ×27 1,24,615

EXEMPT GRATUITY 1,24,615

B) NON-GOVERNMENT EMPLOYEE COVERED BY POGA

EXEMPTION IS LEAST OF AMOUNT

1)GRATUITY RECEIVED 6,00,000
2)GOVERNMENT LIMIT 10,00,000
3) 1/2×(5000+60%OF 3000) 1,01,400
+1000) ×26

GOVERNMENT EMPLOYEE

PARTICULAR GRATUITY EXEMPT TAXABLE

S
1) Payment of 6,00,000 1,24,616 4,75,385
Gratuity Act
2)NO Payment 6,00,000 1,0,1400 4,98,600
of Gratuity Act
3)GOVERNMENT 6,00,000 6,00,000 0