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PROF. VINIT KUMAR TAXATION 9873126173

5. INCOME FROM SALARY

INTRODUCTION

• Any income shall be chargeable to tax u/h ‘salary’ if there exists a relationship of employer-employee
between the payer and the payee.
➢ MPs, MLAs are not employees of the Central Government/State Governments and therefore remuneration
received by such MPs & MLAs is not chargeable to tax u/h 'salary.; rather such income is chargeable to tax
u/h 'other sources'
➢ As per Section 28, salary, bonus, commission, etc paid by a partnership firm to its partners is taxable in the
hands of the partners u/h PGBP to the extent such remuneration has been allowed as deduction to the firm
u/s 40(b).
➢ Remuneration received by an employee director is taxable u/h 'salary' whereas remuneration received by a
non-employee director is taxable u/h 'other sources'.

• Full-Time Employment v/s Part-Time Employment :

It does not matter whether the employee is a full-time employee or a part-time one. Once the relationship of
employer and employee exists, the income is to be charged u/h salary.

• Section 9 – Place of Accrual of Salary Income :

Salary income is deemed to accrue/arise in India if the services are rendered in India. Therefore, place of
accrual of salary income is the place where work has been done by an employee.
Exception: Salary payable by Indian Government (Central Govt/State Govt) to an Indian citizen for services
rendered outside India are deemed to accrue/arise in India. However, all allowances & perquisites received by
such person outside India are fully exempt u/s 10(7).

• Section 15(1) – Chargeability of Salary Income :

Salary income shall be chargeable to income tax on due basis or receipt basis, whichever is earlier.
➢ Example ( due basis): Mr Amit is employed in HPCL Ltd and is getting basic pay of Rs 10,000 p.m. during PY
22-23 and salary upto February 23 has been paid by the employer in time. Salary for the month of March 23

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PROF. VINIT KUMAR TAXATION 9873126173

was, however, paid in April 23. The salary for the month of March 23 shall be taxable during PY 22-23 itself
(ie during the year in which it has become due).
➢ Example (Receipt Basis): Mr Vijay is employed in X Ltd and is getting basic pay of Rs 10,000 p.m. during PY
22-23. He has taken salary for the months of April 23 and May 23 in advance during March 23. Such advance
salary shall be taxable during PY 22-23 itself (ie during the year in which such advance salary is received).

• Salary Due on Last Day of Months v/s Salary due on 1 st Day of Next Month:
The point of time at which the salary becomes due depends upon the terms of employment agreement between
the employer and the employee.
➢ If salary is due on the last day of the month, salary from April 22 to March 23 shall become due during PY 22-
23.
➢ If salary is due on the 1st day of the next month, salary from March 22 to February 23 shall become due
during PY 22-23.

• 'Contract of Service' v/s 'Contract for Service':

➢ Contract of Service: The employment agreement under which the employee agrees to work under the control
and supervision of the employer is generally referred to as a 'contract of service.
➢ Contract for Service: Under a contract for service, one person agrees to provide specific services to the
other person on freelancer basis. In other words, both parties are on equal footing and there does not exist a
relationship of employer-employee between the two parties. Income from a contract for service is generally
taxable u/h PGBP in the hands of the payee.

• 'Advance Salary v/s 'Advance Against Salary.

➢ Advance Salary: In such cases, salary for a future period is taken in advance by the employee. Advance salary
is taxable when it is received by the employee irrespective of the fact whether it is due or not.
➢ Advance Against Salary: Advance against salary is different from advance salary. It is an advance taken by
the employee from his employer. This advance is generally adjusted with his salary over a specified time
period. It cannot be taxed as salary.

• Tax-Free Salary
In such cases, the employer bears the burden of the tax on the salary of the employee. If tax has been paid by
the employer on behalf of the employee, such payment of tax shall be considered to be a monetary perquisite in
the hands of the employee taxable u/s 17(2)(iv).

• Section 17(3) – Profits in Lieu of Salary :

It is not appropriate to term certain payments made by an employer to employee as 'salary'. As per Section
17(3), such payments can be alternatively called as 'profits in lieu of salary'. Examples:
➢ Taxable portion of retrenchment compensation or voluntary retirement;
➢ Taxable portion of gratuity, commuted pension and provident fund;
➢ Amount received by the employee under Keyman Insurance Policy;
➢ Amount received before taking up the employment or after termination of the employment; and
➢ Any other payment notified for this purpose.

QUE:- Mr. X joined A Ltd. for a salary of ₹ 25,000 p.m. on 1/4/2020. In the year 2021-22, his increment
decision was pending. On 1/12/2022, his increment was finalized as for 2021-22: ₹ 5,000 p.m. and for 2022-23 ₹
7,500 p.m. Such arrear salary received on 5/12/2022. Find Gross taxable salary. Further, salary of April 2023 has
also been received in advance on 15/03/2023.

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PROF. VINIT KUMAR TAXATION 9873126173

Solution : Gross taxable salary for the previous year 2022-23 shall be calculated as under :

Particulars Workings Amount

Salary for 2022-23 (25,000 + 5,000 + 4,50,000
7,500) x 12
Arrear salary for 2021-22 (5,000) x 12 60,000
Advance salary for April 2023 37,500
Gross total salary 5,47,500

Arrears of Salary (+) Relief Under Section 89

Meaning of Arrears of Salary

• Sometimes, the employer may increase the salary of the employee with retrospective effect (ie from a
back date). Arrears of salary represent that portion of increased salary which pertains to earlier years
but has been received during the current year.
• Such arrears of salary are taxable in the year in which such arrears of salary are received by the
employee. However, the employee shall be entitled to claim benefit of relief available u/s 89 in respect
of such arrears of salary.

Steps for Computation of Relief Available Under Section 89

• Relief u/s 89 is available in case of arrears of salary.
• It may so happen that if such arrears of salary are taxed in the year to which such arrears of salary
pertain, the resultant tax might be lower than the tax actually paid by the employee on such arrears of
salary. Section 89 intends to provide relief in such circumstances.
• Relief u/s 89 shall be calculated in the manner given below:

Computation of Relief Under Section 89

Relevant P/Y - Year of Receipt of Arrears of Salary:
• Tax on total income (including arrears of salary) XXX
• Tax on total income (excluding arrears of salary) (XXX)
Tax on arrears (difference b/w above figures) - (A) XXX
Relevant P/Y - Year to Which Arrears of Salary Pertain:
• Tax on total income (including arrears of salary) XXX
• Tax on total income (excluding arrears of salary) (XXX)
Tax on arrears (difference b/w above figures) - (B) XXX
Relief Under Section 89 [(A) - (B)] XXX

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PROF. VINIT KUMAR TAXATION 9873126173

TAXABILITY OF ALLOWANCES
Meaning of Allowance:
Allowance is a fixed monetary amount paid by the employer to the employee for meeting some particular expenses
whether personal or for the performance of his official duties.
List of Allowances:

HOUSE RENT ALLOWANCE ('HRA') Section 10(13A) & Rule 2A

Meaning
• HRA is an allowance given by the employer to the employee to meet the expenses in connection with rent of an
accommodation which the employee might have to take.
• HRA is taxable u/h salary to the extent it is not exempt u/s 10(13A).

Exemption Under Section 10(1 3A)

Exemption available u/s 10(13A) shall be least of the following three figures:
Kolkata/ Chennai / Delhi / Mumbai Other Cities
• Actual HRA received • Actual HRA received
• Rent paid over 10% of retirement benefits salary • Rent paid over 10% of retirement benefits salary
for the relevant period for the relevant period
• 50% of retirement benefits salary for the • 40% of retirement benefits salary for the
relevant period relevant period

Calculation of Retirement Benefits Salary:

Retirement benefits salary would comprise of the following three elements only:
➢ Basic pay
➢ Dearness allowance only if it forms part of the salary for retirement benefits as per the terms of the
agreement;
➢ Commission received as a fixed percentage of turnover achieved by the employee
➢ Note: RBS will not include any component other than those listed above. Therefore, while calculating RBS,
allowances and perquisites shall not be taken into consideration. Further, RBS shall be computed on 'due' basis
only for that period during which the rented accommodation is occupied by the employee.

Special Points
• Where the employee has not actually incurred any expenditure on payment of rent, no exemption is available
u/s 10(13A) and the entire HRA shall be taxable.
• If there is any change in the following four particulars, exemption u/s 10(13A) shall be calculated separately
for pre-change period as well as post-change period:
➢ Place of residence
➢ HRA received
➢ Rent paid
➢ Retirement benefits salary

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PROF. VINIT KUMAR TAXATION 9873126173

1. Mr. Dabbu ji is an employee in XYZ ltd. And he submit following particulars regarding the salaries. Calculate
taxable HRA:-
BASIC PAY :- Rs.30,000 P.M. DEARNESS ALLOWANCE :- Rs.8,000 P.M.(50 % FORM PART)
MEDICAL ALLOWANCE :- Rs. 2,000 P.M. HOUSE RENT ALLOWANCE:- Rs.7,000 P.M.
BONUS :- ONE MONTH BASIC PAY COMMISSION :- 5% ON SALE

Dabbu ji lives in the Delhi at the rent of Rs.15,000 p.m. XYZ limited situated in Gurugram.

2. Pyarelal is an employee of A ltd and he provides following information about the emoluments. Calculate taxable
HRA:-
BASIC PAY :- Rs.20,000 P.M.
D.A. :- Rs.5,000 P.M.(60% FORMS PART FOR RETIREMENT BENEFIT)
HRA :- Rs.9,000 P.M.
COMMISSION :- Rs.3,000 P.M. ( FIXED)

Pyarelal lives in pune at a rent of Rs.9,000 p.m. on 1 st aug, basic pay was increased Rs.25,000 p.m. on 1st jan he
shifted to Mumbai on a rent of Rs.15,000 p.m.

3. Mr. Raj submit following particulars regarding salary:-

Basic pay :- Rs.40,000 p.m.
D.A. :- 25 % OF BASIC PAY ( 50% FORMS PART)
BONUS:- ONE MONTH BASIC PAY
COMM. :- 2% ON TURNOVER
MEDICAL ALLOWANCE:- RS.1500 P.A.
ENT. ALLOWANCE: -RS.1000P.M.
HRA :- 16,000 PM
TRANSPORT ALLOWANCE:- 1,500 P.M. (ACTUAL EXPENDITURE RS. 1000 P.M)……………..( NOW FULLY TAXABLE)
UNIFORM ALLOWANCE :- 800 P.M. ( ACTUAL EXPENDITURE RS.7000 P.A.)
CHILDREN EDU. ALLOWANCE :- 150 P.M. PER CHILD.
DAILY ALLOWANCE :- 2000 P.M. (ACTUAL EXPENDITURE 1500 P.M.)
He lives in madras with his wife and 3 children. House is registered in his wife name and he pays rent of Rs.20000
p.m. to his wife. Sale turnover achieve Rs.15,00,000.
Find gross salary.

SPECIAL ALLOWANCES - Section 10(14) & Rule 2BB

PART 1 – PERSONAL ALLOWANCES
Children Education Allowance
Exemption: Exemption is available for maximum two children. Least of the following two figures is available as
exemption irrespective of the expenditure incurred:
➢ Rs 100 per month per child; or
➢ Amount received from the employer
Hostel Expenditure Allowance
Exemptions: Exemption is available for maximum two children least of the two figures is available as exemption
irrespective of the expenditure incurred:
➢ Rs 300 per month per child; or
➢ Amount received from the employer.

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PROF. VINIT KUMAR TAXATION 9873126173

Outstation Allowance
Purpose: Outstation allowance is given to employees of transport system in lieu of daily allowance- for meeting the
expenditure incurred during the performance of duties in the course of running of such transport system from one
place to another.
Exemption: Least of the following two figures is available as exemption irrespective of the expenditure incurred:
➢ 70% of outstation allowance received from the employer; or
➢ Rs 10,000 per month
Note: If an employee of transport system receives both daily allowance as well as outstation allowance, outstation
allowance shall be fully taxable. Exemption is available in respect of daily allowance to the extent it has been
actually spent.
Underground Allowance
Purpose: Underground allowance is given to employees working in unnatural climate in underground mines.
Exemption: Least of the following two figures is available as exemption:
➢ Rs 800 per month; or
➢ Amount received from the employer
Tribal Area Allowance
Purpose: Tribal area allowance is given to employees working in specified tribal areas,
Exemption: Least of the following two figures is available as exemption:
➢ Rs 200 per month; or
➢ Amount received from the employer

PART -2 OFFICIAL ALLOWANCE

➢ Official allowances are specifically granted to meet expenses incurred wholly and exclusively in connection with
performance of duties of an office or employment of profit.
➢ Official allowances are exempt to the extent expenses have been actually incurred for the specified purpose.
If any portion of the official allowance is not spent but saved by The employee, the portion so saved shall be
taxable in the hands of the employee.

Type of Official Allowance

Daily Allowance
➢ Daily allowance is given by the employer to the employees for meeting the cost of boarding and lodging when
the employee is on official tour away from his normal place of residence.
➢ Such allowance is given on per day basis, thus it has been named as 'daily allowance'.
Uniform Allowance
➢ Uniform allowance is given by the employer to the employees to meet the expenditure incurred on purchase or
maintenance of uniforms for wear during the performance of the duties of an office or employment of profit.
Conveyance Allowance
➢ Conveyance allowance is given by the employer to the employees for meeting the expenditure incurred on
conveyance during the performance of the. duties of on office or employment of profit.
Helper Allowance
➢ Helper allowance is given by the employer to the employees for meeting the expenditure incurred on a helper
where such helper is engaged during the performance of the duties of an office or employment of profit.
Academic Allowance
➢ Academic allowance is given by the employer to the employees for encouraging academic, research and training
pursuits in educational and research institutions.

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PROF. VINIT KUMAR TAXATION 9873126173

Travelling Allowance
➢ Travelling allowance is given by the employer to the employees to meet the cost of travel on tour or on transfer
of duty.
FOREIGN ALLOWANCE -Section 10(7)
Allowances/perquisites paid by the Government (Central Govt/State Govt) to an Indian citizen for services
rendered outside India are fully exempt u/s 10(7).
Example: Mr X, a citizen of India, is an IFS officer posted in Indian embassy of Singapore. All allowances/
perquisites received by Mr X shall be exempt in his hands u/s 10(7).

OTHER ALLOWANCES
Other allowances shall be fully taxable in the hands of the employee. Examples are: `;
➢ Family Allowance
➢ Telephone Allowance
➢ Split Duty Allowance
➢ City Compensatory Allowance (CCA)
➢ Dearness Allowance (DA)
➢ Lunch/Tiffin Allowance
➢ Overtime Allowance
➢ Medical Allowance
➢ Servant Allowance

QUESTION :- Mr. Laloo Singh, received education allowance of ` 80 p.m. for his 1st child, ` 90 p.m. for his 2nd
child and ` 120 p.m. for his 3rd child. He also received hostel allowance of ` 1,000 p.m. None of his children are
studying. Find taxable Children Education Allowance and Hostel allowance.

QUESTION :- Mr. & Mrs. X have three children and two of them are not studying. Both Mr. & Mrs. X are working
in A Ltd. and getting children education allowance ` 500 per month and hostel allowance ` 1,000 per month.
Compute taxable children education allowance and hostel allowance.

QUESTION :-Mr. Mugal joined Star Ltd. on 1/4/22. Details regarding his salary are as follows:
Particulars Amount (₹)
Basic 5,000 p.m.
Dearness Allowance 2,000 p.m. (50% considered for retirement benefit)
Education Allowance 1,000 p.m. (he has 1 son and 3 daughters)
Hostel Allowance 2,000 p.m. (none of the children is sent to hostel)
Medical Allowance 1,000 p.m. (total medical expenditure incurred ` 3,000)
Transport Allowance 1,800 p.m. (being used for office to residence & vice versa)
Servant Allowance 1,000 p.m.
City compensatory Allowance 2,000 p.m.
Entertainment Allowance 1,000 p.m.
Assistants Allowance 3,000 p.m. (paid to assistant ` 2,000 p.m.)
Professional Development Allowance 2,000 p.m. (actual expenses for the purpose ` 8,000 p.m.)
Bonus 24,000 p.a.
Commission 9,000 p.a.
Fees 5,000 p.a.
Compute his gross taxable salary.
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PROF. VINIT KUMAR TAXATION 9873126173

CERTAIN DEDUCTIONS UNDER SECTION 16

Standard deduction- 16(ia) :

A deduction of Rs.50,000.
Entertainment Allowance – Section 16(ii)
➢ Purpose: Entertainment allowance is given by the employer to meet the expenditure incurred by the employees
in entertaining the customers of the employer.
➢ Taxability: Entertainment allowance is first included in the gross salary of the employee and thereafter
deduction is allowed u/s 16(ii) in the manner given below:
➢ Deduction: Only government employees (state/central) are entitled to claim deduction u/s 16(ii). Least of the
following three figures is available as deduction irrespective of the expenditure actually incurred by the
employee:
➢ Actual entertainment allowance received from the employer; or
➢ 20% of salary exclusive of any allowance, benefit or perquisite; or
➢ Rs 5,000
Professional Tax – Section 16(ii)
Article 276 of the Constitution of India empowers State Governments/Local Authorities to collect tax on
profession, trade and employment. Such tax is commonly known as 'professional tax'.
Particulars Deductibility of Professional Tax
If professional tax is paid by a person engaged in Professional tax is allowed to be debited to P&L A/c on
carrying, on business or profession actual payment basis.
If professional tax is paid by the employee himself Professional tax is allowed as deduction from gross salary
u/s 16(iii) on actual payment basis.
If professional tax is paid by the employer on
➢ Professional tax so paid by the employer shall be first
behalf of the employee taxable as a monetary perquisite in the hands of the
employee u/s 17(2)(iv). Subsequently, such professional tax
so paid by the employer is allowed as deduction from gross
salary u/s 16(iii) on actual payment basis.

QUE:-Compute taxable Entertainment allowance & net salary of Sri Hanuman Prasad from the following data:
Basic salary ` 8,000 p.m. D.A. ` 2,000 p.m.
Taxable perquisite ` 35,000, Entertainment Allowance ` 4,000 p.m.
Out of such allowance ` 20,000 is expended and balance amount is saved.
Assuming he is:
a. Government employee
b. Non-Government employee.

QUE:- Mr. Rohit a non-Government employee has the following salary details : a. Basic Salary ` 5,000 p.m. b. D.A. `
2,000 p.m. c. Entertainment Allowance ` 300 p.m. d. Professional tax paid by employee ` 600 e. LIC Premium paid
by employer ` 3,600 f. Income tax paid by employee ` 2,000 g. Professional tax paid by employer on behalf of
employee ` 1,600 Find his taxable salary.

SALARY
PROF. VINIT KUMAR TAXATION 9873126173

TAXABILITY OF PERQUISITES

In simple words, perquisites are the benefits or facilities provided by an employer to his employee in addition to
the normal salary.
➢ List of Perquisites:
PERQUISITES TAXABLE U/S 17(2):
• Rent free accommodation- Section 17(2)(i) & Rule 3(1)
• Accommodation at concessional rent- Section 17(2)(ii) & Rule 3(1)
• Any obligation of the employee discharged/met, by the employer- Section 17(2)(iv)
• Medical facility - Proviso to Section 17(2)
• Leave Travel Concession (LTC)/Leave Travel Assistance (LTA) - Section 10(5) & Rule 2B
• Payment of life insurance premium by the employer on behalf of the employee - Section 17(2)(v)
• Specified securities or sweat equity shares allotted/transferred by the employer to his employees free of
cost or at concessional rates - Section 17(2)(vi)
• Employer's contribution to approved superannuation fund- Section 17(2)(vii)
• Any other fringe benefit- Section 17(2)(viii) & Rule 3(7)
• Interest free/ concessional loans - Section 17(2)(viii) & Rule 3(7)(i)
• Facility of travelling, touring., accommodation etc - Section 17(2)(viii) & Rule 3(7)(ii)
• Free food/refreshment - Section 17(2)(viii) & Rule 3(7)(iii)
• Gifts to employees - Section 17(2)(viii) & Rule 3(7)(iv)
• Expenses credit cords (le credit card facility)- Section 17(2)(viii) & Rule 3(7)(v)
• Club facilities - Section 17(2)(viii) & Rule 3(7)(vi)
• Use of employer' moveable assets by employee,' - Section 17(2)(viii) & Rule 3(7)(vii)
• Sale of moveable assts by employer to employee - Section 17(2)(viii) & Rule 3(7)(viii)
• Any other fringe benefit - Section 17(2)(viii) & Rule 3(7)(ix)

Perquisites covered u/s 17(2)(iii)

• Motor car facility- Section 17(2)(iii) 3 Rule 3(2)
• Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
• Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
• Free education facility- Section 17(2)(iii) & Rule 3(5)
• Free transport facility - Section 17(2)(iii) & Rule 3(6)

RENT FREE ACCOMMODATION - {Section 17(2)(i): Rule 3(1))

In Case of Government Employees
In case of rent-free accommodation provided by the Central Government or the State Government to its
employees, perquisite value shall be the license fee determined as per the rules framed by the Government in
this regard.

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PROF. VINIT KUMAR TAXATION 9873126173

In Case of Non-Government Employees

Case 1- Accommodation is NOT OWNED by the Employer:
In case of accommodation taken on rent by the employer and given to the employee free of rent, the taxable
value of perquisite shall be least of the following:
• 15% of RFA salary
• Rent charges paid/payable by the employer
Case 2 – Accommodation is OWNED by the Employer:
• In case of accommodation owned by the employer and given to the employee free of rent, the taxable value of
perquisite shall be as follows:
Population of the Area where Accommodation is Situated Perquisite Value
Upto 10 lakhs 7.5% of RFA Salary
More than 10 lakhs; but upto 25 lakhs 10% of RFA Salary
More than 25 lakhs 15% of RFA Salary

Note: Meaning of RFA Salary:

RFA Salary Includes… DUE BASIS RFA Salary Excludes
• Basic Pay; • Taxable portion of all Perquisites (whether monetary
• Dearness Allowance/Pay (only to the extent it forms or non-monetary)
part of salary for retirements benefits); • Any payment at the time of retirement or after
• Taxable portion of all Allowances retirement.
• Bonus/Commission/Fees, etc; Examples: Gratuity, commuted pension, provident fund,
• Leave Salary received by the employee during his etc
employment. • Arrears of salary;
• Advance salary.

Taxability of Furniture Provided to Employees along with ,Accommodation:

(FURNISHED. ACCOMMODATION)
The perquisite value of furniture (ie TV, AC, fridge, other household appliances, etc) shall be calculated in the
manner given below. Further, such perquisite value shall be taxable in the hands of all kinds of employees, whether
government or non-government.
• Case 1 - If Furniture is NOT OWNED by the Employer:
If the employer has taken furniture on rent, the perquisite value in the hands of the employee shall be the rent
charges paid by the employer. .
• Case 2 - If Furniture is OWNED by the Employer:
If furniture is owned by the employer, the perquisite value in the hands of the employee shall be 10% p.a. of
original cost of such furniture.
SOME SPECIAL POINTS
• Rent Free Accommodation Provided at Two Places:
Where an employee has been transferred from one place to another and he is provided with accommodation at
the new place of posting while retaining the accommodation at the original place, perquisite value shall be
determined as under:
➢ For the initial 90 days: Perquisite value of only one of the accommodation shall be taxable. Obviously, the
employee would prefer to choose the accommodation with lower perquisite value.
➢ After 90 days: Perquisite value of both the accommodations shall be taxable.
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• Rent Free Accommodation Provided in Hotels:

➢ There will be no perquisite value= in case of rent free accommodation provided in a hotel if the following
two conditions are satisfied:
a) Such accommodation is provided for a period not exceeding 15 days; and
b) The accommodation has been provided on transfer of employee from one place to another.
➢ If the above conditions are not fulfilled, the perquisite value shall be lower of the following:
a) 24% of RFA salary; or
b) Actual expenditure incurred by the employer.

• Rent Free Accommodation Provided in a Remote Area:

Rent free accommodation provided to any employee working in a miring site, oil-exploration site or project
execution site or any other remote area is exempt from income tax in the hands of the employee.

• Rent Free Accommodation Provided to Political Figures, Judges, etc:

Rent free accommodation provided to Judges of High Court/Supreme Court, Union Ministers, Leader of
Opposition in the Parliament, Chairman and members of UPSC, etc is exempt from income tax in the hands of
such persons.

ACCOMMODATION AT CONCESSIONAL RATES – {Section 17(2)(ii); Rule 3(1)}

• Section 17(2)(ii) applies where the employer has provided accommodation to the employee and has recovered
some amount from the employee. (Provisions of Section 17(2)(i) apply where accommodation is provided to the
employees and no amount is recovered from the employee in return)

• Perquisite Value for Cases Covered u/s 17(2)(ii):

Perquisite Value as per Section 17(2)(i) (ie same as in case of RFA) XXX
Less: Amount recovered from employee (XXX)
Perquisite Value as per Section 17(2)(ii) XXX

QUESTION: Mr. Chauhan has the following salary structure:

a) Basic Salary ` 5,000 p.m. b) Entertainment Allowance ` 1,000 p.m.
c) Education Allowance ` 500 p.m. (he has three children) d) DA ` 3,000 p.m.
e) Fees ` 5,000 p.a. f) Bonus ` 10,000 p.a.
g) Professional tax of employee paid by employer ` 2,000 for the year
h) He has been provided a rent-free accommodation in Mumbai.
(60% of DA only forms part of retirement benefits)

Compute taxable value of accommodation in the hands of Mr. Chauhan in the following cases:
i) The employer owns such accommodation.
ii) The employer hires such accommodation at a monthly rent of ` 900

QUESTION: Miss Stuti has the following salary structure:

a) Basic salary 15,000 p.m.
b) Dearness Allowance 5,000 p.m. (not forming part of retirement benefit)
c) Hostel Allowance 1,000 p.m. (does not have any child)
d) Tiffin Allowance 500 p.m.

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e) Transport Allowance 200 p.m.

f) Bonus 20,000 p.a.
g) Commission 15,000 p.a.
h) Free refreshment in office worth 5,000 p.a.
i) Mobile phone facility by employer 900 p.m.
j) Computer facility worth 10,000 p.a.
She has been provided a Rent-free Accommodation (owned by employer) in Kolkata. The house was allotted to her
with effect from 1/5/22 but she could occupy the same only from 1/6/22. Find her gross taxable salary.

QUESTION: Miss Khushi has the following salary details:

i) Basic salary ` 6,000 p.m.
ii) DA ` 3,000 p.m.
iii) Academic development allowance ` 1,000 p.m., expenditure incurred ` 700 p.m.
iv) Entertainment allowance ` 500 p.m.

She has been provided with a rent-free accommodation in Purulia. On 1/7/22, she was posted to Kolkata. A new
house further allotted to her on same date. But she surrendered her Purulia house only on 31/12/22. Rent paid by
employer for Purulia House ` 500 p.m. while Kolkata house is owned by the employer. Find her gross taxable salary.

MISCELLANEOUS POINTS WRT PERQUISITES

• 'Member of Household' of the employee shall include the following persons:
➢ Spouse/spouses of the employee;
➢ Children of the employee and their spouses;
➢ Parents of the employee; and Servants and dependents.

PAYMENT OF INCOME TAX BY EMPLOYER ON BEHALF OF EMPLOYEE - Section 10(10CC)

Nature of Tax Paid by Treatment in the Hands of the Treatment in the Hands of the Employer
the Employer on Behalf Employee
of the Employee
Income tax on salary The amount of tax shall be taxable in The amount of tax is allowed as deduction
income of the employee the hands of the employee as a to the employer while calculating his income
monetary perquisite u/s 17(2)(iv). u/h PGBP.
Income tax on monetary The amount of tax shall be taxable in The amount of tax is allowed as deduction
perquisite provided to the hands of the employee. to the employer while calculating his income
the employees u/h PGBP.
Income tax on non- • The amount of tax shall be exempt • The amount of tax to the extent
monetary perquisite in the hands of the employee to the specified u/s 10(10CC) is NOT allowed as
provided to the extent specified u/s 10(10CC). deduction to the employer. - (Section
employees • The amount of tax in excess of the 40(a))
amount specified u/s 10(10CC) shall • The amount of tax in excess of the
be taxable in the hands of the amount specified u/s 10(10CC) shall be
employee. allowed as deduction to the employer
while calculating his PGBP income.

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Section 10 10CC) - Tax Paid b the Employment in Connection with Non-Monetary Perquisite:
The amount calculated as per the formula given below shall be exempt in the hands of the employee and excess
over it shall be taxable in his hands u/h salary:

{ Tax Liability of Employee on Total Income Excluding the Amount

X Perquisite Value of Non- Monetary Perk

of Tax Paid by the Employer on Non−Monetary Perquisite
Total Income of Employee Excluding the Amount of Tax Paid by
the Employer on Non−Monetary Perquisite

TREATMENT OF MEDICAL FACILITIES - Proviso to Section 17(2)

Part 1 - Medical Facilities/Reimbursement in India
The taxability of the expenditure incurred/reimbursed by an employer in connection with medical treatment of the
employee or any member of his family in India (Outside-India) has been explained in the table given below:
Status of Hospital Where Treatment Has Been Taxability of Expenses
Provided
• Government hospital; Exempt in the hands of the employee
• Hospital owned by local authority;
• Hospital owned and maintained by the employer;
and
• Any private hospital approved by the government
Any private hospital not approved by the No amount shall be chargeable to tax if both the
government conditions listed below are fulfilled:
a) The private hospital has been approved by the
Commissioner of Income Tax; and
b) Expenditure has been incurred on medical treatment of
diseases specified under Rule 3A of Income Tax Rules.

Note 1: Where the employee has incurred expenditure on the medical treatment of self or any of his family
member and reimbursement is received from the employer, such reimbursement shall be taxable in similar manner.
Note 2: Payment/reimbursement of medi claim insurance premium by an employer for a policy taken in the name of
the employee or his family member is exempt in the hands of the employee.
Note 3: Medical allowance received by an employee from his employer is fully taxable.
Note 4: 'Family' for the purposes of medical facilities include:
• Spouse of the employee;
• Children of the employee (dependent or independent; married or unmarried);
• Parents, brothers and sisters of the employee provided they are dependent on him.

Part 2 – Medical Treatment Outside India

The taxability of the expenditure incurred by an employer in connection with medical treatment of the employee or
any member of his family outside India has been explained in the table given below:

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Nature of Expenses Incurred by Employer Taxability of Expenses

Expenses on medical treatment of the employee or any Exempt to the extent permitted by RBI
member of his family outside India
Expenses on stay abroad incurred for: Exempt to the extent permitted by RBI
➢ Patient (employee or his family member); and
➢ One attendant
Travel expenses incurred for: Gross Total Income CGTI') of the employee before
➢ Patient (employee or his family member); and including such travel expenses:
➢ One attendant • Exceeds Rs 2,00,000: Fully taxable
• Does not exceed Rs 2,00,000: Fully exempt

Find taxable amount of perquisite in the following cases:

1. Y has been allowed a fixed medical allowance of ` 2,000 p.m.
2. Apart from reimbursement of petty medical bill of ` 25,000, Z and his family get medical treatment in a
dispensary maintained by the employer. Value of facility provided to Z and his family members during the previous
year are as follows:
Particulars Amount (`)
a. Z 2,000
b. Mrs. Z 5,000
c. Major son of Z (independent) 8,000
d. Minor daughter of Z 25,000
e. Dependent younger brother of Z 8,000
f. Independent younger sister of Z 10,000
g. Dependent sister in law 5,000

LEAVE TRAVEL CONCESSION/ASSISTANCE (LTC/LTA) –Section 10(5) & Rule 2B

General Provisions
• In some cases the employer may provide leave travel concession or assistance to his employee to go on leave to
any place in India either alone or along with his family.
• The employee is entitled to exemption u/s 10(5) in respect of the value of leave travel concession on or
assistance received by him from his employer.
• 'Family' for the purposes of leave travel concession include:
➢ Spouse of the employee;
➢ Children of the employee (dependent or independent; married or unmarried); and
➢ Parents him. , brothers and sisters of the employee provided they are dependent on him.
Note: No exemption is allowed for the third or subsequent child who is born on or after October 1st 1998. This
rule shall not be applicable in case of multiple birth.
Quantum of Exemption
Exemption available u/s 10(5) shall be of the following two figures:
• Actual expenditure incurred on the performance of journey; or
• Amount determined as per the table given below.

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Particular Extent of Maximum Exemption Available

Journey is performed by air Economy fare charged by a National Carrier for
the shortest route to the place of destination
Journey is performed any Case. 1: Places of origin of First class AC fare charged by the Indian
mode of transport other journey and destination are railways- for the shortest route to the place of
than air connected by rail destination
Case 2: Places of origin of a) Recognized public transport system exists:
journey and destination are First class or deluxe class fare charged by such
NOT connected by rail recognized public transport system for the
shortest route to the place of destination
b) Recognized public transport system does not
exist: Amount equivalent to the first class AC
fare that would have been charged by the
Indian railways for the shortest route to the
place of destination if a railway connection
existed between such places

Note: If LTC is encashed without performing the journey, the entire amount received by the employee would be
taxable.
Note: The above exemption is allowed only in respect of travelling expenses. Expenses on boarding and lodging,
conveyance from residence to the railway station/airport/bus stand and back and other expenses incurred during
the journey will not qualify for exemption.
Special Points
• Ceiling on number of journeys: The assessee can claim exemption in respect of any two journeys in a block of
4 years. The block of 4 years shall be given to us in the question.
• If the assessee has not availed LTC exemption in a particular block (whether for both the journeys or for one
journey), maximum one journey can be carried forward and such carrier forward journey should be undertaken
during the lst year of the next block. Such carried forward journey shall not be taken into account for
determining the tax exemption of two journeys for the next block.

PERQUISITES TAXABLE IN CASE OF SPECIFIED EMPLOYEES ONLY Section 17(2)(iii)

• The perquisites covered u/s 17(2)(iii) have been listed below:

➢ Motor car facility - Section 17(2)(iii) & Rule 3(2)
➢ Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
➢ Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
➢ Free education facility - Section 17(2)(iii) & Rule 3(5)
➢ Free transport facility - Section 17(2)(iii) & Rule 3(6)

• Perquisites listed u/s 17(2)(iii) shall be taxable only in case of 'specified employees'. In other words, such
facilities shall not be taxable in case of non-specified employees.

• Meaning of 'Specified Employee': An employee shall be treated as a specified employee, if he falls under any
of the following circumstances:
➢ the employee is a director of the company (whether full-time or part-time); or

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➢ the employee has a substantial interest in The company (ie the employee should be the beneficial holder of
at least 20% equity shares of the company); or
➢ the monetary income of the employee u/h salary for the relevant previous year should be more than Rs
50,000 (monetary income u/h salary means income u/h salary computed in accordance with the provisions of
the Income Tax Act, 1961, however the value of non-monetary perquisites shall not be taken into
consideration).

• Monetary Perquisite v/s Non-Monetary, Perquisite:

➢ If the facility has been arranged by the employer himself, such perquisite is known as non-monetary
perquisite.
➢ If the facility has been arranged by the employee himself but payment for the same is made by the
employer on behalf of the employee or the employer reimburses the expenditure incurred by the employee,
such perquisite is known as monetary perquisite.

• Section 17(2)(iii) applies only if the facilities mentioned above have been provided by way of non-monetary
perquisite.

• If the above facilities are provided by way of monetary perquisites, such facilities shall not be covered u/s
17(2)(iii). Instead, such facilities would get covered u/s 17(2)(iv) and would be taxable in case of specified as
well as non-specified employees.
1) Motor Car. Facilities – Section (2)(iii) & Rule 3(2)
Refer to the flowchart given on the adjacent page.

2) Facilities of Gardener, Watchman, Sweeper, Servant, etc - Section 17(2)(iii) & Rule 3(3)
Relevant Section Taxability of Perquisite
Section 17(2)(iii) (Non-monetary • Taxable only in case of specified employees.
Perquisite) • Perquisite Value = Actual expenditure incurred by the employer
Note - Any amount recovered from the employee can be deducted.
Section 17(2)(iv) (Monetary • Taxable in case of both specified as well as non-specified employees.
Perquisite) • Perquisite Value = Amount reimbursed/paid by the employer
Note - Any amount recovered from the employee can be deducted,

3) Facilities of Gas, Electricity & Water - Section 17(2)011) & Rule 3(4)
Relevant Section Taxability of Perquisite
Section 17(2)(iii) • Taxable only in case of specified employees.
(Non-monetary Perquisite) • If the facility has been provided from resources owned by the
employer without purchasing from the outside agency, perquisite value
shall be the manufacturing cost incurred by the employer.
• In other cases, perquisite value shall be the actual expenditure incurred
by the employer.
Note - Any amount recovered from the employee can be deducted.

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Section 17(2)(iv) • Taxable in case of both specified as well as non-specified employees.

(Monetary Perquisite) • Perquisite Value = Amount reimbursed/paid by the employer
Note - Any amount recovered from the employee can be deducted.

4) Free Education Facility - Section 17(2)(iii) & Rule 3(5)

Section 17(2)(iii) (Non-monetary Perquisite)
• Taxable only in case of specified employees.
• Expenditure incurred by the employer for providing free education facility or training to the employee) is
NOT TAXABLE in ail cases.
• Taxability of education facility provided to other members of the employee household shall be as follows:
Educational • Children: Cost of education in a similar institution in or near the locality shall be
institution is owned taken as perquisite value. However, by exemption of Rs 1,000 per month shall be
by the employer provided per t e child without any limit on the number of children.
• Other Members : COST of education in a similar institution in or near the locality
shall be taken as perquisite value. No exemption is available in case of other family
members.
Note - Any amount recovered from the employee can be deducted in both the cases.
Educational • Children: Actual expenditure incurred by the employer shall be taken as perquisite
institution is NOT value.
owned by the • Other Members: Actual expenditure incurred by the employer shall be taken as
employer perquisite value. No exemption is available in case of other family members.
Note - Any amount recovered from the employee can be deducted in both the cases.

Section 17(2)(iv) (Monetary Perquisite)

• Taxable in case of both specified as well as non-specified employees.
• Perquisite Value = Amount reimbursed/paid by the employer
Note - Any amount recovered from the employee can be deducted.

5) Free Transport Facility - Section 17(2)(iii) & Rule 3(6)

Particulars Value of Non-Monetary Perquisite
Transportation facilities provided by airlines/railways to their NIL
employees or members of his household
Other employees employed Transport facilities provided Value at which such benefit or amenity is
by an employer engaged in free of cost offered by the employer to the public
carriage of goods or Transport facilities provided at Value at which such benefit or amenity is
passengers concessional rate offered by the employer to the public (-)
Amount recovered from employee

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