SALARIES

Illustration 1 - Accrual of salary: Rajesh Kumar, an Indian citizen, is posted in the Indian High
commission at London during the previous year 2022-23. His emoluments consist of basic pay of
₹1,40,000 per month and overseas allowance of ₹40,000 per month. Besides, he is entitled to airfare
for going from and coming to India and also to free use of Government's car at London. He has no
taxable income except salary income stated above. His employer did not deduct tax at source.
Rajesh Kumar argues that -
(i) he is not liable to pay tax on salary earned and received outside India since he is a non-resident
during the previous year 2022-23, and
(ii) even if any tax is due, it is the duty of his employer to deduct tax at source and as such he has no
responsibility to pay the tax.
Discuss whether his contention is correct.
Will it make any difference if Rajesh Kumar is a Foreign citizen? Give reasons. (Nov. 1998)

Solution:
(i)If Rajesh is an Indian Citizen: The argument of Rajesh Kumar is not correct. Since he is an Indian
citizen being government employee his salary income is deemed to accrue or arise in India and is
taxable in India. In case if employer does not deduct tax at source, the tax is to be paid directly by
employee.
The computation of Taxable Salary is as under (amounts in ₹):
Salary (₹1,40,000 x 12) 16,80,000
Overseas Allowance (₹40,000 x 12) & Perquisites shall be exempt u/s 10(7) Nil
Gross Salary 16,80,000
Less: Standard deduction u/s 16(ia) 50,000
Income under the head salaries 16,30,000
(ii)If Mr. Rajesh is a foreign citizen: In case Rajesh Kumar is a foreign citizen, then salary income shall
not be deemed to accrue or arise in India, and hence not taxable in India.

Illustration 2: Computation of Taxable HRA and Gross salary: Mr. Mohit is employed with XY Ltd. on
a basic salary of ₹10,000p.m. He is also entitled to Dearness allowance @100% of basic salary, 50%
of which is included in salary as per terms of employment. The company gives him house rent
allowance of ₹6,000 p.m., which was increased to ₹7,000 p.m. with effect from 01-01-2023. He also
got an increment of ₹1,000p.m. in his basic salary with effect from 01-02-2023. Rent paid by him
during the previous year 2022-23 is as under:

April and May, 2022 - Nil, as he stayed with his parents.

June to October,2022 - ₹6,000p.m for an accommodation in Ghaziabad.
November,2022 to March,2023 - ₹8,000p.m for an accommodation in Delhi

Compute his gross salary for assessment year 2023 – 24. (8Marks, IPCC May 2012)
Solution: Computation of HRA exempt (amount in ₹)
Period 01-04-2022 01-06-2022 01-11-2022 01-01-2023 01-02-2023
to to to to to
31-05-2022 31-10-2022 31-12-2022 31-01-2023 31-03-2023
Number of months 2 5 2 1 2
Basic Salary per month 10,000 10,000 10,000 10,000 11,000
Dearness allowance, to the extent it forms part of 5,000 5,000 5,000 5,000 5,500
salary (@100% of basic salary, 50% of which is 15,000 15,000 15,000 15,000 16,500
included in salary as per terms of employment) - 6,000 8,000 8,000 8,000
Salary for the purpose of HRA exemption 6,000 6,000 6,000 7,000 7,000
Rent paid per month
HRA received 6,000 6,000 6,000 7,00 7,000
HRA is exempt per month upto least of following – - 4,500 6,500 6,500 6,350
(a)HRA received 6,000 6,000 7,500 7,500 8,250
(b)Rent paid – 10% of salary
(c )40% of salary (50% of salary, for Delhi w.e.f. 1-11- - 4,500 6,000 6,500 6,350
2022)
HRA exempt p.m. =Least of the above three (a), (b) or 6,000 1,500 - 500 650
(c) 12,000 7,500 - 500 1,300
Taxable HRA p.m.
Total taxable HRA
Total taxable HRA 21,300

Computation of gross salary (₹)

Basic Salary [₹10,000 x 10 + ₹11,000 x 2] 1,22,000
Dearness Allowance @100% of basic pay 1,22,000
House Rent Allowance 21,300
Gross Salary 2,65,300

Illustration 3 - Transport Allowance to employee of transport system: Examine with brief reasons,
whether the following is chargeable to income-tax and the amount liable to tax with reference to
the provisions of the Income-tax Act, 1961: Allowance received by an employee Mr. Ram working in
a transport system at ₹12,000 p.m. which has been granted to meet his personal expenditure while
on duty. He is not in receipt of any daily allowance from his employer.
(2 Marks, Nov. 2018-NS)
Solution: Under section 10(14), any allowance granted to an employee working in a transport
system to meet his personal expenditure during his duty is exempt provided he is not in receipt of
daily allowance. The exemption is 70% of such allowance (i.e., ₹8,400 per month, being 70% of
₹12,000) or ₹10,000 per month, whichever is less.
Hence, ₹8,400 p.m. is allowable as exemption u/s 10(14); and the balance 3,600 p.m. shall be
taxable. Hence taxable allowance will be ₹3,600 x 12 = ₹43,200.

4. What do you mean by 'Specified Employee'? What perquisites are taxable in case of specified
employees. (Nov. 2002)
Ans: The provisions relating to specified employee are discussed as under -
(1) Specified Employee [Section17(2) (iii)]: "Specified Employee" means -
(a) An employee who is a director of the company; or
(b)An employee being a person who has a substantial interest in the company i.e. who is the
beneficial owner of equity shares carrying 20% or more of the voting rights in the company; or
(c)Any other employee whose income chargeable under the head "Salaries" (whether due from, or
paid or allowed by, one or more employers), exclusive of the value of all benefits or amenities not
provided for by way of monetary payment, exceeds ₹50,000.
In other words, while computing limit of ₹50,000, following shall be deducted/excluded:
(i) All non-monetary benefits;
(ii) All monetary payments exempt under section 10;
 (iii) Deductions under section 16 [i.e. Standard deduction, Entertainment allowance and professional
tax].
(2) Perquisites taxable in case of specified employees only: Car Facility, Provision for sweeper,
domestic servant, Facility for gas, electricity, or water; Education facility; and Transport facility are
taxable only in the case of specified employees.

Illustration 5 - Computation of salary income: Mrs. Padma (age: 25 years) is offered an employment
by Pritam Ltd. at a basic salary of ₹24,000 per month; other allowances according to rules of the
company are - Dearness allowance: 18% of basic pay (not forming part of salary for calculating
retirement benefits); Bonus: 1 month basic pay; and Project allowance: 6% of basic pay.
The company gives Mrs. Padma an option either to take a rent-free unfurnished accommodation at
Mumbai for which the company would directly bear the rent of ₹15,000 per month or to accept a
house rent allowance of ₹15,000 per month and find out her own accommodation. If Mrs. Padma
opts for house rent allowance, she will have to pay ₹15,000 per month for an unfurnished house.
Which one of the two options should be opted by Mrs. Padma in order to minimize her tax liability?
(Marks 5, CS June 2008)
Solution: Computation of total taxable income of Mrs. Padma (amount in ₹):

Particulars Receipt of HRA Rent-free accommodation

Basic Salary (₹24,000 x 12) 2,88,000 2,88,000
Dearness Allowance (18% of basic salary i.e. 18% of ₹2,88,000) 51,840 51,840
Bonus (1 month basic pay) 24,000 24,000
Project Allowances (6% of basic salary i.e. 6% of ₹2,88,000) 17,280 17,280
House Rent Allowance [WN-1] 36,000
Rent Free Accommodation [WN-2] - 49,392
Salary Income 4,17,120 4,30,512
Hence, Mrs. Padma should opt for HRA so as to minimize her tax liability.

Working Notes:
(1)Computation of taxable HRA: (amount in ₹)
HRA received 1,80,000
Least of following amount is exempt
(a)Actual amount received 1,80,000
(b)Rent paid less 10% of salary i.e. ₹1,80,000 - ₹28,800 1,51,200
(c )50% of salary 1,44,000 1,44,000
Taxable HRA 36,000

(2)Value of rent free accommodation shall be least of the following – (amount in ₹)

(a)Actual rent paid or payable or 1,80,000
(b)15% of salary i.e. 15% of ₹3,29,280 49,392

(3)Salary for rent free accommodation:

Basic Salary 2,88,000
Bonus 24,000
Project Allowance 17,280
Total 3,29,280

Illustration 6 - Car facility: Mr. A is provided with two cars, to be used for official and personal work
by his employer ABC Ltd. The following information is available from the company records -
 Car 1 ₹ Car 2 ₹
Cost of the Car 6,00,000 4,00,000
Running and maintenance (Borne by the company) 40,800 28,000
Salary of driver (Borne by the company) 24,000 24,000

The taxable monetary emoluments of Mr. A are ₹90,000. Compute the taxable 'Perk' in respect of
Cars on the assumption car 2, exclusively used by 'A' for personal purpose. (4Marks, Nov. 2004)

Solution: The perquisite in respect of motor car will be taxable in the hands of Mr. A, as he is a
'specified employee'. Since in question it is specifically mentioned that Car 2 is used for private
purposes therefore Car 1 shall be taken as used for partly official and partly personal purpose:
(amount in ₹)
Car 1 (Partly official and partly personal, assumed to be above 1.6 litres cc) [(₹2,400 + ₹900) x 12] 39,600
Car 2 (Private use only) [Expenses actually incurred ₹28,000 and ₹24,000 + 10% of cost of car] 92,000
Total value of perquisite 1,31,600

Illustration 7 - Medical Facility: Ms. Rakhi is an employee in a private company. She receives the
following medical benefits from the company during the previous year 2022 - 23:
(1) Reimbursement of following Medical Expenses incurred by Ms. Rakhi – ₹
(a)On treatment of her self-employed daughter in a private clinic 4,000
(b)On treatment of herself by Family doctor 8,000
(c)On treatment of her Mother-in-law dependent on her, in a Nursing Home 5,000
(2)Payment of premium on Mediclaim Policy taken on her health. 7,500
(3) Medical Allowance. 2,000p.m.
(4) Medical Expenses Reimbursed on her Son’s treatment in a Government Hospital. 5,000
(5) Expenses incurred by company on the treatment of her minor son abroad. 1,05,000
(6)Expenses in relation to Foreign Travel and stay of Rakhi and her son abroad for 1,20,000
Medical Treatment. (Limit prescribed by RBI for this is ₹2,00,000)
Discuss about the taxability of above benefits and allowances in the hands of Rakhi. (8Marks, May
2014)

Solution: Computation of taxable value of perquisite in the hands of Ms. Rakhi (amount in ₹) -
Reimbursement of following Medical Expenses incurred by Ms. Rakhi –
(a)On treatment of her self-employed daughter in a private clinic (The same shall be 4,000
taxable) 8,000
(b)On treatment of herself by Family doctor (The same shall be taxable) 12,000
Total Expenditure Nil 12,000
Less: Exempt 5,000
(c)On treatment of her Mother-in-law dependent on her, in a Nursing Home (Since
Mother-in-law is not his family member hence the same shall be taxable)
Payment of premium on Mediclaim policy taken on her health. (The same shall be Exempt
exempt from tax)
Medical Allowance (Fully taxable) 24,000
Medical Expenses Reimbursed on her Son’s treatment in a Government Hospital. Exempt
Expenses incurred by company on the treatment of her minor son abroad. [WN] Exempt
Expenses in relation to Foreign Travel and stay of Rakhi and her son abroad for Medical Exempt
Treatment. [WN]
Taxable value of Perquisites 41,000
 Working Note: As per clause (vi) of the first proviso to section 17(2), the following expenditure
incurred by the employer would be excluded from perquisite subject to certain conditions -
(i) The expenditure on medical treatment and stay abroad would be excluded from perquisite to the
extent permitted by Reserve Bank of India;
(ii) The expenditure on travel would be excluded from perquisite only in the case of an employee
whose gross total income, as computed before including the said expenditure, does not exceed
₹2 lakh.
Assuming that the limit of ₹2 lakh prescribed by RBI pertains to both expenditure on medical
treatment of minor son as well as expenditure on stay abroad of Ms. Rakhi and her minor son, such
expenditure would be excluded from perquisite subject to a maximum of ₹2 lakh. If such
expenditure is less than ₹2 lakh, it would be fully excluded. The foreign travel expenditure of Ms.
Rakhi and her minor son borne by the employer would be excluded from perquisite only if the gross
total income of Ms. Rakhi, as computed before including the said expenditure, does not exceed
₹2 lakh.

Illustration 8 - Interest free loan: Ram is working as a General Manager of Ltd. on a monthly salary
of ₹20,000. In the previous year ending 31-3-2023, the company provided him the following -
(i)Interest free loan (on 01-10-2022)
(a)For purchase of residential flat (repayable in 8 years) (SBI rate 12.25%) ₹5,00,000
(b)Education loan (for son) (SBI Rate 11.5%) ₹15,000
(ii)Loan for purchase of computer on 01-10-2022 (8% interest p.a.) (SBI Rate 15.25%) ₹30,000
You are required to state the basic for calculation and compute the chargeable perquisite.
(Nov.2002)
Solution: computation of taxable perquisite in respect of interest -free or concessional loans
(amount in ₹)
Interest on housing loan (₹5,00,000 x 12.25% x 6/12) [1-10-2022 to 31-3-2023] 30,625.00
Education Loan for Son (₹15,000 x 11.50% x 6/12)[1-10-22 to 31-3-2023] 826.50
Loan for purchase of computer [₹30,000 x (15.25% - 8%) x 6/12 ] [1-10-2022 to 31-3-2023] 1,087.50
Table value of Perquisites 32,575.00
Note: Since the aggregate value of all the loans during the previous year exceeds ₹20,000, hence,
the education loan though less than ₹20,000 shall also be considered for valuation of perquisite.

Illustration 9 - Interest free loan and transfer of movable asset: Following benefits have been
granted by Ved Software Ltd. to one of its employees Mr. Badri:
(i) Housing loan @ 6% per annum. Amount outstanding on 01-4-2022 is ₹6,00,000. Mr. Badri pays
₹12,000 per month, on 5th of each month.
(ii) Air conditioners purchased 4 years back for ₹2,00,000 have been given to Mr. Badri for ₹90,000.
Compute the chargeable perquisite in the hands of Mr. Badri for the assessment year 2023-24.
The lending rate of SBI as on 1-4-2022 for housing loan may be taken as 10%. (6 Marks, PCC May
2008)
Solution: Computation of Taxable Perquisite in the hands of Mr. Badri (amount in₹)
(1)Concessional loan (see Note) 20,880
(2)Transfer of movable asset: Actual cost of the air conditioner 2,00,000
Less: (i)10% depreciation on SLM basis for 4 years 80,000
(ii)Amount paid by Mr. Badri 90,000 30,000
Total value of taxable perquisite 50,880
Note: Total maximum monthly outstanding balance means the amount outstanding on the last day
of the concerned month.
 Month Maximum outstanding Perquisite value
monthly balance (amount in ₹)
April 2022 5,88,000 1,960
May 2022 5,76,000 1,920
June 2022 5,64,000 1,880
July 2022 5,52,000 1,840
August 2022 5,40,000 1,800
September 2022 5,28,000 1,760
October 2022 5,16,000 1,720
November 2022 5,04,000 1,680
December 2022 4,92,000 1,640
January 2023 4,80,000 1,600
February 2023 4,68,000 1,560
March 2023 4,56,000 1,520
Total 20,880

10: Define Profits in lieu of Salary as explained in Section 17(3). (4 Marks, Nov. 2002; May 2006)
Ans: Profits in lieu of salary [Section 17(3)]: "Profits in lieu of salary" includes -
(1) The amount of any compensation due to or received by an assessee from his employer or former
employer at or in connection with the termination of his employment or the modification of the
terms and conditions relating thereto.
(2) Any payment due to or received by an assessee from an employer or from a provident fund or
other fund, to the extent it does not consist of contributions by the assessee or interest on such
contributions.
(3) Any sum received under a Keyman insurance policy including the sum allocated by way of bonus
on such policy.
(4) Any amount due to or received, whether in lump sum or otherwise, by any assessee from any
person -
(a) before his joining any employment with that person; or
(b) after cessation of his employment with that person.
For example: Dearness allowance, house rent allowance, city compensatory allowance, etc. are
taxable as profits in lieu of salary.

Illustration 11 - Compute taxable gratuity: Mr. Shah, an Accounts Manager, has retired from JK Ltd.
On 15-1-2023 after rendering services for 30 years 7 months. His salary is ₹25,000 p.m. upto 30-09-
2022 and ₹27,000 thereafter. He also gets ₹2,000 p.m. as dearness allowance (55% of it is a part of
salary for computing retirement benefits). He is not covered by the Payments of Gratuity Act, 1972.
He has received ₹8 lacs as gratuity from the employer company.
Compute taxable gratuity. (4 Marks, IPCC Nov. 2010)
Solution: Computation of taxable gratuity: The relevant computations are as follows (amount in ₹)
Gratuity received 8,00,000
Exemption u/s 10(10): The least of the following is exempt –
(a)Gratuity received 8,00,000
(b)1/2 x Average Salary (₹26,700) x Completed years (30) [WN] 4,00,500
(c)Specified limit 20,00,000 4,00,500
Taxable Gratuity = Gratuity Received – Exemption 3,99,500
Working Notes:
Ten months immediately preceding the month of retirement 1-3-2022 to 31-12-2022
Basic salary for the said ten months [₹25,000 x 7 + ₹27,000 x 3] 2,56,000
 DA (to the extent it forms part of retirement benefits), 55% of ₹2,000 x 10 11,000
Total Salary during the said ten months 2,67,000
Average salary for the said ten months 26,700
Completed years of service ignoring any fraction 30

Illustration 12 - Computation of taxable pension: Rani is entitled to get a pension of ₹1,500 p.m.
from Raja Ltd. She gets three-fifth of the pension commuted and receives ₹90,000. Compute the
taxable portion of commuted value of pension when -
(i) she does not receive gratuity;
(ii) receives ₹50,000 as gratuity.
(CS June 2004)
Solution: Computation of taxable pension -
(i)When Rani doesn't receive gratuity:
(a) % of pension commuted = 3/5 = 60%
(b)Commuted value of pension (Pension received ÷ % commuted) = ₹90,000 ÷ 60% = ₹1,50,000.
(c )Exemption = 1⁄2 of commuted value of pension (₹1,50,000) = ₹75,000
(d)Taxable portion of commuted pension = ₹90,000 - ₹75,000 = ₹15,000.

(ii)When Rani receives gratuity:

(a)Exemption = 1/3rd of commuted value of pension (₹1,50,000) = ₹50,000
(b)Taxable portion of commuted pension = ₹90,000 - ₹50,000 = ₹40,000.

Illustration 13- Exemption in respect of leave travel concession w/s 10(5): Mr. Amit avails the
benefit of LTC and went by air (economy class) on a holiday in India on 25-01-2023 along with his
wife and three children consisting of son aged 6 years and twin daughters of 2 years age. Total cost
of tickets reimbursed by his employer was ₹1,00,000 (₹55,000 for 2 adults and ₹45,000 for the three
children). State with reasons the amount which is exempt in the hands of Mr. Amit out of the
reimbursement received by him. (Similar 4 Marks, IPCC May 2013) (Similar: 4 Marks, Nov. 2016)
What will be your answer in case among his three children, the twins were 6 years old and the age of
the son was 2 years?
Solution: Exemption is available under section 10(5) to an employee in respect of value of LTC for
himself and his family, in connection with his proceedings on leave to any place in India.
"Family" includes the spouse and children of the individual. In case of children born after 1-10-1998
exemption is available for 2 surviving children. However, exemption shall be available in respect of
children born before 1-10-1998 and also in respect of multiple births after one child.
Further, as per Rule 2B, if journey is performed by air, the exemption will be available only upto the
extent of economy air fare of national carrier by shortest route.

Case I: Son aged 6 years & Twin daughters of 2 years age: This is a case of multiple birth (twin
daughters) after one child, hence, all the three children will be eligible for exemption. Accordingly,
the whole of the LTC of ₹1,00,000 will be exempt as the travel is economy class of air.
Case II: Twin daughters of 6 years age & son aged 2 years: In this case the number of children is
three and one son was born after the multiple birth. Hence, the exemption will be available only in
respect of two children and the economy air fare of one child will be taxable. Therefore, taxable
value = 45,000 ÷ 3 = ₹15,000; and the balance of ₹85,000 will be exempt.
14. Upto what extent Retrenchment Compensation can be exempted from tax? (6 Marks, Nov.2006)
(CS June 2007)
Ans: Exemption in respect of Retrenchment Compensation [Section 10(10B)]: Retrenchment
Compensation received by an assessee shall be exempt to the extent of least of the following -
(i) Actual amount received; or
(ii) ₹5,00,000; or
(iii) An amount calculated in accordance with Section 25F(b) of the Industrial Disputes Act, 1947 i.e.
15 days' average Pay x Every completed year of service or part thereof in excess of 6 months.

Notes:
(1) The above limits will not be applicable to cases where the compensation is paid under any
scheme approved by the Central Government for giving special protection to workmen under
certain circumstances.
(2)"Average pay" means average of the wages payable to a workman -
➢ in the case of monthly paid workman, in the 3 complete calendar months,
➢ in the case of weekly paid workman, in the 4 calendar weeks,
➢ in the case of daily paid workman, in the 12 full working days, preceding the date on
which the average pay becomes payable if the workman had worked for 3 complete
calendar months or 4 complete weeks or 12 full working days, as the case may be, and
where such calculation cannot be made, the average pay shall be calculated as the
average of the wages payable to a workman during the period he actually worked.
(3) Wages for this purpose means all remuneration capable of being expressed in terms of money,
which would, if the terms of employment, expressed or implied, were fulfilled, be payable to a
workman in respect of his employment or of work done in such employment, and includes
➢ such allowances including DA as the workman is for the time being entitled to;
➢ the value of any house accommodation, or of supply of light, water, medical attendance
or other amenity or of any other service or of any concessional supply of foodgrains or
other articles;
➢ any travel concession; and
➢ any commission payable on the promotion of sales or business or both.
However, it does not include-
➢ any bonus;
➢ contribution to a retirement benefit scheme;
➢ any gratuity payable on the termination of his service.

Illustration:15 Retrenchment Compensation: Mr. Gobind received retrenchment compensation of

₹10,00,000 after 30 years 4 months of service. At the time of retrenchment, he was receiving basic
salary of ₹20,000 p.m; dearness allowance of ₹5,000 p.m. Compute his taxable retrenchment
compensation. (4 Marks, IPCC May 2013)
Solution: Computation of taxable retrenchment compensation (amount in ₹)
Retrenchment compensation received 10,00,000
Less: Exemption under section 10(10B) [WN] 4,32,692
Taxable retrenchment compensation 5,67,308
Working Note: Exemption is to the extent of least of the following –
(i)Compensation actually received: ₹10,00,000
(ii)Statutory Limit: ₹5,00,000
(iii)Amount calculated in accordance with provisions of the Industrial Disputes Act, 1947
15 (₹20,000 × 3)+(₹5,000 × 3)
i.e., 16 x x 30 years = ₹4,32,692
3
 16. Discus the exemption available in respect of tax on non-monetary perquisites borne by the
employer on behalf of employee. (PCE Nov. 2007)
Ans: Exemption in respect of tax on non-monetary perquisites borne by the employer on behalf of
employee [Section 10(10CC)]: This section provides the exemption to an employee in respect of the
tax paid by his employer on his behalf on the non-monetary perquisites [within the scope of Section
17(2)] received by such employee. Hence, such tax paid shall not form part of the employee's gross
salary.
Tax implication in hands of employer: Section 40(a)(v) disallows such expenditure in the hands of
the employer. Therefore, the tax so paid by the employer will not be deductible expenditure in his
hands.

Illustration 17 - Computation of taxable salary: Mr. M is an area manager of M/s. N. Steels Co. Ltd.
During the previous year 2022-2023 he gets following emoluments from his employer:
Basic salary: upto 31-08-2022 ₹20,000 p.m.
from 01-09-2022 ₹25,000 P.m.
Transport Allowance ₹2,000 p.m.
Contribution to recognized provident fund 15% of basic salary and D.A.
Children education allowance ₹500 p.m. for two children
City Compensatory Allowance ₹300 p.m.
Hostel expenses allowance ₹380 p.m. for two children
Tiffin allowance (actual expenses ₹3,700) ₹5,000 p.a.
Tax paid on employment ₹2,500
Compute taxable salary of Mr. M. if he has not opted for the provisions of Section 115BAC. (6 Marks,
PCC Nov. 2008)
Solution: Computation of income from salary of Mr. M (amount in ₹):
Basic salary (₹20,000 x 5 + ₹25,000 × 7) 2,75,000
Transport Allowance (₹2,000 p.m. x 12) 24,000
Less: Exempt Nil 24,000
Children education allowance (₹500 p.m. x 12) 6,000
Less: Exempt (₹100 × 2 × 12) 2,400 3,600
City Compensatory Allowance 3,600
Hostel expenses allowance (₹380 × 12) 4,560
Less: Exempt (₹300 × 2 × 12) = ₹7,200 but restricted to the actual allowance of ₹4,560 4,560 Exempt
Tiffin allowance (Fully taxable) 5,000
Tax paid on employment (Employee's obligation met by employer) [WN-2] 2,500
Employer's contribution to R.P.F. In excess of 12% of salary (i.e., 3% of ₹2,75,000) [WN-1] 8,250
Gross salary 3,21,950
Less: Standard Deduction u/s 16(ia) [WN-3] 50,000
Employment tax u/s Section 16(iii) 2,500
Taxable Salary 2,69,450
Working Notes:
(1)The question states that contribution to recognised provident fund is at 15% of Basic salary + D.A.
However, since the amount or rate of D.A. is not given in the question, contribution to recognised
provident fund has been taken as 15% of basic salary.
(2) Employment tax paid by employer should be included in the salary of Mr. M as a perquisite since
it is discharge of monetary obligation of the employee by the employer. Thereafter, deduction of
employment tax paid is allowed to the employee from his gross salary.
(3) As per Section 16(ia), standard deduction will be allowed from gross salary amounting ₹50,000 or
the amount of salary, whichever is less.
 Illustration:18 Tax relief: Mr. Ashok Kumar, an employee of a PSU, furnishes the following
particulars for the previous year ending 31-3-2023:
Particulars ₹
(a) Salary income (computed) for the year 8,25,000
(b) Salary for financial year 2008-09 received during the year 40,000
(c) Assessed income for the financial year 2008-09 1,40,000
You are requested to compute relief under section 89 of the Income-tax Act,1961, in terms of tax
payable.
The rates of Income-tax for the Assessment Year 2009-10 are-
On first ₹1,00,000 : Nil
On: ₹1,00,000 - ₹1,50,000 : 10%
On ₹1,50,000 - ₹2,50,000 : 20%
Above ₹2,50,000 : 30% Education cess @2% of tax payable. (7Marks, Modified PCC June,2009)
Solution: Computation of Relief under section 89-
Particulars Tax liability for AY 2023-24 Tax liability for AY 2009-10
Salary inclusive Salary without Salary inclusive of arreas
Arreas of arreas
Actual Salary 8,65,000 8,25,000 1,80,000 1,40,00
Income Tax thereon 85,500 77,500 11,000 4,000
HEC @4% / EC @2% 3,420 3,100 220 80
Total Tax liability 88,920 80,600 11,220 4,080
Step 1: Tax at (1) - Tax at (2) 8,320
Step 2: Tax at (3) – Tax at (4) 7,140
Relief u/s 89: Step 1 – Step 2 1,180
Tax payable [Tax at (1) – Relief] (Rounded off) 87,740

Illustration 19 - Computation of taxable salary: Babu joined a Company on 01-06-2022 and was paid
the following emoluments and allowed perquisites as under -
Emoluments: Basic pay ₹25,000 per month; DA ₹10,000 per month; Bonus ₹50,000 per month.
Perquisites:
(a) Furnished accommodation owned by the employer and provided free of cost.
Value of furniture therein ₹3,00,000.
(b) Motorcar owned by the Company (with engine cubic capacity less than 1.6 litres) along with
chauffeur for official and personal use.
(c) Sweeper salary paid by Company ₹1,500 per month.
(d)Watchman salary paid by Company ₹1,500 per month.
(e)Educational facility for 2 children provided free of cost. School is owned and maintained by
company.
(f)Interest free loan of ₹5,00,000 given on 1-10-2022 for purchase of a house. No repayment was
made during the year. (SBI Rate 12.25%)
(g) Interest free loan for purchase of computer ₹50,000 given on 1-1-2023 No repayment was made
during the year. (SBI Rate 15.25%)
(h)Corporate membership of a club. The initial fee of ₹1,00,000 was paid by the Company. Babu paid
the bills for his use of club facilities.
You are required to compute the income of Babu under the Head "Salaries" if he has not opted for
the provisions of Section 115BAC. Suitable assumptions may be made, wherever necessary. (May
2002)
Solution: Computation of Income of Babu under the Head "Salaries" (amounts in ₹)
Basic Salary(₹25,000 x 10) 2,50,000
Dearness allowance (₹10,000 x 10) [WN-1] 1,00,000
Bonus (₹50,000 x 10 months) 5,00,000
Value of Accommodation [WN-2&3] 1,52,500
Sweeper Salary paid by employer (₹1,500 x 10) 15,000
Watchman Salary paid by employer (₹1,500 x 10) 15,000
Car facility [WN-4] 27,000
Club Facility [WN-5] Nil
Education facility to children [WN-6] Nil
Interest free housing Loan (₹5,00,000 x 12.25% x 6 ÷ 12) 30,625
Interest free computer Loan (₹50,000 x 15.25%p.a. x 3 ÷ 12) 1,906
Gross Salary 10,92,031
Less: Standard Deduction u/s 16(ia) 50,000
Income under the head salaries 10,42,031

Working Notes:
(1) It is assumed that DA forms the part of salary for retirement benefits
(2)It is assumed that the place of accommodation has population exceeding 25lakhs.
(3) Taxable value of Rent Free furnished Accommodation:
Valuation of rent free accommodation 15% of Salary
Value of rent-free accommodation (₹8,50,000 x 15%) 1,27,500
Add: Furniture (10% p.a. of original cost of furniture) (₹3,00,000 x 10% x 10/12) 25,000
Taxable value of furnished accommodation 1,52,500
Salary of rent free accommodation:
➢ Basic pay 2,50,000
➢ DA 1,00,000
➢ Bonus 5,00,000
8,50,000

(4)The car is used partly for personal and partly for official use. Assuming that the maintenance and
running expenses are met by the owner-company, value of car facility = (₹1,800 + ₹900) x 10 =
₹27,000.
(5)The initial fee for corporate membership is exempt from tax.
(6)It is assumed that the cost of education per child does not exceed ₹1,000 p.m.

Illustration 20 - Computation of taxable salary: From the following details find out the salary
chargeable to tax: Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 01-
01-2022 in the scale of ₹20,000 - ₹1,000 - ₹30,000. He is paid 10% D.A. & Bonus equivalent to one
month pay. He contributes 15% of his pay and D.A. towards his recognized provident fund and the
company contributes the same amount. He is provided free housing facility which has been taken on
rent by the company at ₹10,000 per month. He is also provided with following facilities:
(i) Facility of laptop costing ₹50,000
(ii) Company reimbursed medical treatment bill of his brother of ₹25,000, who is dependent on him.
(iii) The monthly salary of ₹1,000 of a house keeper is reimbursed by the company.
(iv) A gift voucher of ₹10,000 on the occasion of his marriage anniversary.
(v) Conveyance allowance of 1,000 p.m. is given by the company towards actual reimbursement.
(vi) He is provided personal accident policy for which premium of ₹5,000 is paid by the company.
(vii) He is getting telephone allowance @500 per month.
(viii) Company pays medical insurance premium of his family of ₹10,000.
Note: Mr. X has not opted for the provisions of Section 115BAC. (8 Marks, IPCC Nov. 2010)

Solution: Computation of taxable salary of Mr. X (amount in ₹)

Basic pay [₹20,000 x 9) + (₹21,000 × 3)] 2,43,000
Dearness allowance [10% of basic pay] 24,300
Bonus [WN-1] 21,000
Telephone allowance [₹500 x 12] 6,000
Conveyance allowance [WN-2] Exempt
Employer's contribution to RPF in excess of 12% [WN-3] 8,019
Rent-free accommodation [WN-4] 44,145
Medical reimbursement [WN-5] 25,000
Reimbursement of salary of housekeeper - Taxable u/s 17(2)(iv) 12,000
Facility of laptop - Exempt under Rule 3 of the Income-tax Rules Exempt
Medical insurance premium paid by employer on self or family member – Exempt Exempt
under proviso to Section 17(2) of the Act
Premium of ₹5,000 paid by the company for personal accident policy [WN-6] Exempt
Gift Voucher [WN-7] 10,000
Gross Salary 3,93,464
Less: Standard Deduction u/s 16(ia) 50,000
Salary income chargeable to tax 3,43,464
Working Notes:
(1) Bonus has been taken as 1 month's basic pay as at the end of year i.e. ₹21,000. Alternatively, it
may be taken ₹20,000, being 1 month's basic pay upto 31-12-2022.
(2) Conveyance Allowance is exempt as it is fully used for official purposes.
(3) Taxable part of employer's contribution to RPF = 3% of (Basic pay + DA) = 3% of (₹2,43,000 +
₹24,300) = ₹8,019. Since employer contributes to RPF on basic pay plus DA, hence, even the DA
forms the part of salary for computing retirement benefits.
(4) Value of taxable RFA = Lower of the two - (a) 15% of salary i.e. ₹44,145 (b) Lease rent ₹10,000 ×
12 = ₹1,20,000.

Salary for rent free accommodation (amount in ₹)

Basic pay 2,43,000
Dearness allowance 24,300
Bonus 21,000
Telephone allowance 6,000
Conveyance allowance Exempt
Total 2,94,300
(5)Reimbursed medical treatment bill of his brother of ₹25,000 who is dependent on him is fully
taxable.
(6) Premium of ₹5,000 paid by company for personal accident policy is not liable to tax.
(7)Gifts below ₹5,000 are not taxable; otherwise it is fully taxable.

Illustration 21 - Computation of taxable salary: Mr. Balaji, employed as Production Manager in Beta
Ltd., furnishes you the following information for the year ended 31-03-2023:
(i)Basic Salary upto 31-10-2022 ₹50,000 p.m.
Basic salary from 01-11-2022 ₹60,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness allowance @ 40% of basic salary.
(iii) Bonus equal to one month salary. Paid in October 2022 on basic salary plus dearness allowance
applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee @ 16% of basic
salary.
(v) Profession tax paid ₹3,000 of which ₹2,000 was paid by the employer.
(vi) Facility of laptop and computer was provided to Balaji for both official and personal use. Cost of
laptop ₹45,000 and computer ₹35,000 were acquired by the company on 01-12-2022.
(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the
employee from 01-11-2022 meant for both official and personal use. Repair and running expenses of
₹45,000 from 01-11-2022 to 31-03-2023, were fully met by the employer. The motor car was self-
driven by the employee.
(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 7
and twin sons - aged 3). Cost of air tickets (economy class) reimbursed by the employer ₹30,000 for
adults and ₹45,000 for three children. Balaji is eligible for availing exemption this year to the extent
it is permissible in law.
Compute the salary income chargeable to tax in the hands of Mr. Balaji if he has not opted for the
provisions of Section 115BAC. (8 Marks, IPCC Nov. 2011)

Solution: Computation of taxable salary of Mr. Balaji (amount in ₹) –

Basic salary [(₹50,000 × 7) + (₹60,000 × 5)] 6,50,000
Dearness allowance [40% of basic salary] 2,60,000
Bonus (₹50,000 + 40% of ₹50,000) [WN-1] 70,000
Employer's contribution to RPF in excess of 12% [4% of ₹6,50,000] [WN-2] 26,000
Professional tax paid by the employer [WN-6] 2,000
Facility of laptop and Computers [WN-2] Exempt
Motor Car Facility used for both official and personal purpose [WN-5] 12,000
Leave Travel Facility - Exemption u/s 10(5) [WN-3] Exempt
Gross Salary 10,20,000
Less: Professional tax paid 3,000
Less: Standard Deduction u/s 16(ia) 50,000
Income chargeable to tax under ‘Salaries’ 9,67,000

Working Notes:
(1) Since bonus was paid in the month of October, the basic salary of ₹50,000 for the month of
October is considered for its calculation.
(2) As per Rule 3(7)(vii), facility of use of laptop and computer is an exempt perquisite, whether used
for official or personal purpose or both.
(3) Mr. Balaji can avail exemption u/s 10(5) on the entire amount of ₹75,000 reimbursed by the
employer towards Leave Travel Concession since the same was availed for himself, his wife and
three children and the journey was undertaken by economy class airfare. The restriction imposed for
two children is not applicable in case of multiple births which take place after the first child. It is
assumed that the Leave Travel Concession was availed for journey within India.
(4)It is assumed that dearness allowance does not form part of salary for computing retirement
benefits.
(5)As per the provisions of Rule 3(2), in case a motor car (engine cubic capacity exceeding 1.60
liters)owned by the employer is provided to the employee without Chauffeur for personal as well as
office use the value of perquisite shall be ₹2,400 per month. The car was provided to the employee
from 01-11-2022 therefore, the perquisite value has been calculated for 5 months.
(6) As per Section 17(2)(iv), a "perquisite" includes any sum paid by the employer in respect of any
obligation which, but for such payment, would have been payable by the assessee. Therefore,
professional tax of ₹2,000 paid by the employer is taxable as a perquisite in the hands of Mr. Balaji.
As per Section 16(iii), a deduction from the salary is provided on account of tax on employment i.e.
professional tax paid during the year.
Therefore, in the present case, the professional tax paid by the employer on behalf of the employee
₹2,000 is first included in the salary and deduction of the entire professional tax of ₹3,000 is
provided from salary.

Illustration 22 - Computation of taxable salary: From the following details, find out the salary
chargeable to tax of Mr. Anand for the assessment year 2023-24: Mr. Anand is a regular employee of
Malpani Ltd. in Mumbai. He was appointed on 01-03-2022 in the scale of 25,000- 2,500 - 35,000. He
is paid dearness allowance (which forms part of salary for retirement benefits) @ 15% of basic pay
and bonus equivalent to one and a half month's basic pay as at the end of the year. He contributes
18% of his salary (basic pay plus dearness allowance) towards recognized provident fund and the
Company contributes the same amount.
He is provided free housing facility which has been taken on rent by the Company at ₹15,000 per
month. He is also provided with following facilities.
(i) The company reimbursed the medical treatment bill of ₹40,000 of his daughter, who is dependent
on him.
(ii) The monthly salary of ₹2,000 of a house keeper is reimbursed by the Company.
(iii) He is getting telephone allowance @ ₹1,000 per month.
(iv) A gift voucher of ₹4,700 was given on the occasion of his marriage anniversary.
(v) The Company pays medical insurance premium to effect an insurance on the health of Mr. Anand
₹12,000.
(vi) Motor car running and maintenance charges fully paid by employer of ₹36,600. (The motor car is
owned and driven by Mr. Anand. The engine cubic capacity is below 1.60 litres. The motor car is
used for both official and personal purpose by the employee.)
(vii) Value of free lunch provided during office hours is ₹2,200.
Note: He has not opted for the provisions of Section 115BAC. (8 Marks, Nov. 2013)

Solution: Computation of Salary chargeable to tax of Mr. Anand (amount in-)

Basic pay [(₹25,000 x 11) + (₹27,500 × 1)] 3,02,500
Dearness allowance (15% of basic pay) 45,375
Bonus (₹27,500 × 1.5) [WN-1] 41,250
Telephone allowance (₹1000 × 12) 12,000
Car facility (₹36,600 - ₹1,800 × 12) [WN-2] 15,000
Employer's contribution to RPF in excess of 12% [WN-3] 20,873
Rent-free accommodation [WN-4] 60,169
Medical reimbursement [Fully Taxable] 40,000
Reimbursement of salary of housekeeper - Taxable u/s 17(2)(iv) 24,000
Medical insurance premium paid by employer on health of Mr. Anand [WN-5] Exempt
Gift voucher [WN-6] Exempt
Free lunch provided during office hours shall be exempt from tax (assuming value per
meal doesn’t exceed ₹50) Exempt
Gross Salary 5,61,167
Less: Standard Deduction u/s 16(ia) 50,000
Salary income chargeable to tax 5,11,167
Working Notes:
 (1)Bonus has been taken as 1.5 month's basic pay as at the end of year i.e. ₹27,500.
(2) In case motor car is owned by the employee and repair and maintenance expenses are met by
employer, then perquisite value shall be actual expenses incurred by employer as reduced by ₹1,800
p.m., since cubic capacity of engine does not exceed 1.6 litres.
(3) Taxable part of employer's contribution to RPF = 6% of (Basic pay + DA) = 6% of (₹3,02,500 +
₹45,375) = ₹20,873. Since employer contributes to RPF on basic pay plus DA, hence, even the DA
forms the part of salary for computing retirement benefits.
(4)Value of taxable RFA = Lower of the two-
(a)15% of salary (₹4,01,125) i.e. ₹60,169
(b)Lease rent ₹15,000 × 12 = ₹1,80,000.
Salary for rent free accommodation (amount in ₹)
Basic salary 3,02,500
Dearness allowance 45,375
Bonus 41,250
Telephone allowance 12,000
Total 4,01,125

(5) Premium of ₹12,000 paid by company for medical insurance premium on health of Anand is not
liable to tax.
(6)Gifts below ₹5,000 are not taxable.

Illustration 23 - Computation of taxable salary: Mr. Anand an employee of XYZ Co. Ltd. at Mumbai
and covered by Payment of Gratuity Act, retires at the age of 64 years on 31-12-2022 after
completing 33 years and 7 months of service. At the time of retirement, his employer pays
₹20,51,640 as Gratuity and ₹6,00,000 as accumulated balance of Recognised Provident fund. He is
also entitled for monthly pension of ₹8,000. He gets 75% of pension Commuted for ₹4,50,000 on 1st
February, 2023.
Determine the salary chargeable to tax for Mr. Anand for the AY 2023-24 with the help of following
information:

₹
Basic Salary (₹80,000 x 9) 7,20,000
Bonus 36,000
House Rent Allowance (₹15,000 x 9) 1,35,000
Rent paid by Mr. Anand (₹10,000 x 12) 1,20,000
Employer contribution towards Recognized Provident Fund 1,10,000
Professional Tax paid by Mr. Anand 2,000

Note: Salary and Pension falls due on the last day of each month. He has not opted for the provisions
of Section 115BAC. (8 Marks, Nov. 2014)

Solution: Computation of Income from salary (amount in ₹):

Basic Salary (₹80,000 x 9) 7,20,000
Bonus 36,000
Taxable House Rent Allowance [WN-1] 1,17,000
Employer contribution towards Recognized Provident Fund [₹1,10,000 – 12% of ₹7,20,000] [WN-5] 23,600
Taxable Gratuity [WN-2] 4,82,409
Uncommuted pension [₹8,000 X 1 month (January, 2023) + (₹2,000 x 2 (February 2023 to March 12,000
2023)] [WN-3]
Taxable portion of commuted value of pension [WN-4] 2,50,000
Gross salary 16,41,009
Less: Standard Deduction u/s 16(ia) 50,000
Less: Professional Tax paid by Mr. Anand 2,000
Income from salary 15,89,009
Working Notes:
(1)HRA is exempt to the extent least of the following (amount in ₹)
1. Actual HRA received 1,35,000
2. Rent paid – 10% of salary (₹90,000 – 10% of ₹7,20,000) 18,000
3. 50% of the salary (50% of ₹7,20,000) 3,60,000
Exempted HRA 18,000
Taxable HRA 1,17,000
(2) Computation of taxable gratuity (amount in ₹):
Completed years of service (Part thereof in excess of 6 months shall be rounded off to higher side) 34
Exemption u/s 10(10): Least of the following is exempt –
(a) Gratuity received 20,51,640
(b) 15/26 × Salary last drawn x Completed years of service 15,69,231
(c) Specified limit 20,00,000
Taxable Gratuity = Gratuity Received - Exemption 4,82,409
(3) Uncommuted Pension: Since Mr. Anand commuted 75% pension in February, 2023. His
uncommitted pension from February, 2023 onward shall be (₹8,000 x 25 %) = ₹2,000 p.m.
(4)Commuted pension:
(a) % of pension commuted = 75%.
(b) Commuted value of pension (Pension received + % commuted) = ₹4,50,000 ÷75% = ₹6,00,000.
(c) Exemption = 1/3rd of commuted value of pension (₹6,00,000) = ₹2,00,000.
(d) Taxable portion of commuted pension = ₹4,50,000 - ₹2,00,000 = ₹2,50,000.
(5) Employer's contribution is exempt upto 12% of salary.

Illustration 24: Computation of taxable salary: Mr. Nambi, a salaried employee, furnishes the
following details for the financial year 2022 – 23
Particulars ₹
Basic salary 6,00,000
Dearness allowance 3,20,000
Commission 50,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 21,000
Profession Tax (of this, 50% paid by employer) 7,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 12,000
Life insurance premium of Nambi paid by employer 34,000
Laptop provided for use at home. Actual cost of Laptop to employer 30,000
[Children of the assessee are also using the Laptop at home]
Employer-Company owns a Tata Nano car, which was provided to the assessee, both for
official and personal use. No driver was provided. (Engine cubic capacity less than 1.6 litres)
Annual credit card fees paid by employer [Credit card is not exclusively used for official
purposes; details of usage are not available] 2,000

You are required to compute the income chargeable under the head “Salaries” for the AY 2023-24 if
he has not opted for the provisions of Section 115BAC. (8 Marks, May 2017)
 Solution: Computation of Taxable salary of Nambi (amounts in ₹)

Basic salary 6,00,000

Dearness allowance 3,20,000
Commission 50,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer [Fully Taxable] 21,000
Profession Tax (of this, 50% paid by employer shall be treated as perquisite) 3,500
Health insurance premium paid by employer [Exempt from tax] -
Gift voucher given by employer on his birthday (taxable, as it is not below ₹5,000) 12,000
Life insurance premium of Nambi paid by employer [Employees obligation met by employer, hence
fully taxable] 34,000
Laptop facility [Use of Laptops and computers belonging to or hired by the employer is exempt] -
Car facility for official and personal use [₹1,800 p.m. is taxable, since engine cubic capacity less than
1.6 litres] [₹1800 x 12] 21,600
Annual credit card fees paid by employer 2,000
Gross Salary 10,71,600
Less: Standard Deduction u/s 16(ia) 50,000
Less: Professional Tax paid 7,000
Income chargeable to tax under ‘Salaries’ 10,14,600

Illustration: 25 – Computation of taxable salary: Ms. Jaya is the marketing manager in XYZ limited.
She gives you the following particulars:

Basic Salary : ₹65,000 p.m.

Dearness Allowance : ₹22,000 p.m. (30% is for retirement benefits)
Bonus : ₹17,000 p.m.

Her employer has provided her with an accommodation on 1st April, 2022 at a concessional rent.
The house was taken on lease by XYZ Ltd. for ₹12,000 p.m. Ms. Jaya occupied the house from 1st
November, 2022. ₹4,800 p.m. is recovered from the salary of Ms. Jaya.
The employer gave her a gift voucher of ₹8,000 on her birthday. She contributes 18% of her salary
(Basic Pay+ DA) towards recognised provident fund and the company contributes the same amount.
The company pays medical insurance premium to effect insurance on the health of Ms. Jaya
₹18,000.
Motor car owned by the employer (cubic capacity of engine exceeds 1.6 liters) provided to Ms. Jaya
from 1st November, 2022 which is used for both official and personal purposes. Repair and running
expenses of ₹50,000 were fully met by the company. The motor car was self-driven by the
employee.

Compute the income chargeable to tax under the head "Salaries" in the hands of Ms. Jaya for the
A.Y. 2023-24 if she has not opted for the provisions of Section 115BAC. (10 Marks, Nov. 2017)

Solution: Computation of Salary chargeable to tax of Ms. Jaya (amount in ₹) –

Basic salary [(₹65,000 x 12)] 7,80,000
Dearness allowance [₹22,000 p.m. (30% is for retirement benefits)] [₹22,000 x 12] 2,64,000
Bonus (₹17,000 x 12) 2,04,000
Car facility (₹2,400 x 5) [WN-1] 12,000
Employer’s contribution to RPF in excess of 12% [WN-2] 84,816
Rent-free accommodation [WN-3] 36,000
 Medical insurance premium paid by employer on health of Ms. Jaya [WN-4] Exempt
Gift voucher [WN-5] 8,000
Gross Salary 13,88,816
Less: Standard Deduction u/s 16(ia) 50,000
Salary income chargeable to tax 13,38,816

Working Notes:
(1) In case motor car is owned by the employer and repair and maintenance expenses are met by
employer, then perquisite value shall be ₹2,400 p.m., since cubic capacity of engine exceeds 1.6
litres. Sine it is provided from 1st November, 2022, it will be taxable for 5 months.
(2) Employer's contribution to recognized provident fund in excess of 12% of salary is taxable as per
section 17(1)(vi). 18% [₹65,000 + ₹22,000) x 12] - 12% x {[₹65,000 + ₹6,600 (being 30% of ₹22,000)] ×
12} = ₹1,87,920 - ₹1,03,104] [Salary = Basic Salary + Dearness allowance, to the extent it forms part
of pay for retirement benefits]
(3) In case of accommodation taken on lease by the employer, there would be deemed concession in
the matter of rent i.e. the rent paid by the employer or 15% of salary, whichever is lower, exceeds
rent recoverable from the employee.
Hence, Value of concessional Accommodation = Lower of the two -
(a) 15% of salary (₹4,43,000) i.e. ₹66,450
(b) Lease rent ₹12,000 × 5 = ₹60,000
as reduced by rent recovered from Ms. Jaya i.e. [₹60,000 - ₹4,800 × 5)] = 36,000
Salary for rent free accommodation (amount in ₹)
Basic pay (₹65,000 x 5) 3,25,000
Dearness allowance (₹22,000 x 30% x 5) 33,000
Bonus (₹17,000 x 5) 85,000
Total 4,43,000
Note: Since Ms. Jaya has occupied the house only from 1-11-2022, salary would be considered only
in respect of the months during which she has occupied the accommodation. Hence, salary for 5
months (i.e. from 1-11-2022 to 31-3-2023) would be considered.
(4) Premium of ₹18,000 paid by company for medical insurance premium on health of Jaya is not
liable to tax.
(5) Gift voucher of ₹8,000 will be fully taxable, since it is not below ₹5,000

Illustration 26 - Computation of taxable salary: Mr. Honey is working with a domestic company
having a production unit in the U.S.A. for last 15 years. He has been regularly visiting India for export
promotion of company's product. He has been staying in India for at least 184 days every year.
He submits the following information:
Salary received outside India (For 6 months) ₹50,000 p.m.
Salary received in India (For 6 months) ₹50,000 p.m.
He has been given rent free accommodation in U.S.A. for which company pays ₹15,000 per month as
rent, but when he comes to India, he stays in the guest house of the company. During this period he
is given free lunch facility. During the previous year company incurred an expenditure of ₹48,000 on
this facility.
He has been provided a car of 2000 cc capacity in U.S.A. which is used by him for both office and
private purposes. The actual cost of the car is ₹8,00,000. But when he is in India, the car is used by
him and the members of his family only for personal purpose. The monthly expenditure of car is
₹5,000. His elder son is studying in India for which his employer spends ₹12,000 per year where as
his younger son is studying in U.S.A. and stays in a hostel for which Mr. Honey gets ₹3,000 per
month as combined allowance.
The company has taken an accident insurance policy and a life insurance policy. During the previous
year the company paid premium of ₹5,000 and ₹10,000 respectively.
Compute Mr. Honey's taxable income from salary for the Assessment Year 2023-24 if he has not
opted for the provisions of Section 115BAC. (10 Marks, May 2018-NS)

Solution: Since Honey was in India for more than 182 days during the previous year, he is a resident
in India for assessment year 2023-24. Hence, his worldwide income will be taxable in India.
Basic Salary [(₹50,000 x 6) + (₹50,000 × 6)] 6,00,000
Hostel and education allowance [₹3000 × 12] [WN-1] 36,000
Education facility for elder child [WN-2] 12,000
Car facility for official and personal use in U.S.A. (₹2,400 × 6) [WN-3] 14,400
Car facility for personal use [WN-4] 70,000
Guest House [WN-5] NIL
Lunch facility [WN-5] 48,000
Rent-free accommodation (lease rent paid or 15% of salary whichever is less [WN-6] 95,400
Premium of ₹5,000 paid by the company for personal accident policy [WN-7] Exempt
Life Insurance premium paid 10,000
Gross Salary 8,85,800
Less: Standard deduction u/s 16(ia) 50,000
Taxable Salary 8,35,000
Working Notes:

(1) No exemption is available in respect of allowance received for any education or hostel facility of
children outside India.
(2) If employer incurs expenditure on providing education facility to member of household, it is fully
taxable.
(3) Since car (2000cc) is used for official and personal purpose when Mr. Honey is in USA ₹2,400 p.m.
will be taxable.
(4) When Mr. Honey is in India, Car is used for personal purpose by his family members. Hence
amount to be taxable is arrived as under: (amount in ₹)

Deprecation of car @ 10% p.a. of original cost of car [₹ 8,00,000 × 10% × 6/12] 40,000
Monthly expenditure incurred by employer [₹5,000 x 6] 30,000
Total 70,000

(5)Guest house facility is not taxable, since it is provided for stay when he visits India wholly for
official purposes. Expenditure incurred on providing lunch facility is taxable.
(6)Value of taxable RFA = Lower of the two-
(a) 15% of salary i.e. ₹95,400
(b) Lease rent ₹15,000 x 12 = ₹1,80,000

Salary for rent free accommodation: (amount in ₹)

Basic pay 6,00,000

Hostel and education allowances 36,000
Total 6,36,000
 15% of salary 95,400
(7) Premium of ₹5,000 paid by company for personal accident policy is not liable to tax.

Illustration 27 - Computation of taxable salary: Mr. Janakaraj, employed as General Manager in

Rajus Refractories Pvt. Ltd., furnishes you the under-mentioned information for the year ended 31-
03-2023:

(i)Basic salary upto 30-11-2022 ₹70,000 p.m.

Basic salary from 01-12-2022 ₹80,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii)Dearness allowance @ 50% of basic salary (not forming part of salary for retirement benefits).
(iii)Bonus equal to one month salary. This was paid in November, 2022 on basic salary plus dearness
allowance applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee @ 18% of basic
salary, employee also contributing an equivalent amount.
(v) Profession tax paid ₹6,000 of which ₹3,000 was paid by the employer.
(vi) Facility of laptop was provided to Janakaraj for both official and personal use. Cost of laptop
₹65,000 and was purchased by the company on 11-10-2022.
(vii) Leave travel concession given to Janakaraj, his wife and three children (one daughter aged 6 and
twin sons aged 4). Cost of air tickets (economy class) reimbursed by the employer ₹20,000 for adults
and lump sum of ₹25,000 for three children. Janakaraj is eligible for availing exemption this year to
the extent it is permissible under the Income-tax Act, 1961.
Compute the taxable salary of Mr. Janakaraj if he has not opted for the provisions of Section
115BAC. (6 Marks, Nov. 2018-NS)

Solution: Computation of income from salary Mr. Janakaraj (amount in ₹):

Basic salary (₹70,000 x 8 + ₹80,000 x 4) 8,80,000

Dearness allowance (Fully taxable) [50% of basic salary] 4,40,000
Bonus on basis of salary for month of November [₹70,000 + ₹35,000] 1,05,000
Facility of laptop [WN-1] Exempt
Leave travel concession - Exempt under Section 10(5) [WN-3] Exempt
Tax paid on employment (Employee's obligation met by employer) [WN-2] 3,000
Employer's contribution to R.P.F. in excess of 12% of basic salary (i.e., 6% of ₹ 8,80,000) 52,800
Gross salary 14,80,800
Less: Standard Deduction u/s 16(ia) [WN-4] 50,000
Professional tax u/s Section 16(iii) [WN-2] 6,000
Taxable Salary 14,24,800
1) As per Rule 3(7)(vii), facility of use of laptop and computer is an exempt perquisite, whether used
for official or personal purpose or both.

(2) As per Section 17(2)(iv), a "perquisite" includes any sum paid by the employer in respect of any
obligation which, but for such payment, would have been payable by the assessee. Therefore,
professional tax of ₹3,000 paid by the employer is taxable as a perquisite in the hands of Mr.
Janakaraj. As per Section 16(iii), a deduction from the salary is provided on account of tax on
employment i.e. professional tax paid during the year. Therefore, in the present case, the
professional tax paid by the employer on behalf of the employee ₹3,000 is first included in the salary
and deduction of the entire professional tax of ₹6,000 is provided from salary.

(3) Mr. Janakraj can avail exemption u/s 10(5) on the entire amount of ₹45,000 reimbursed by the
employer towards Leave Travel Concession since the same was availed for himself, his wife and
three children and the journey was undertaken by economy class airfare. The restriction imposed for
two children is not applicable in case of multiple births which take place after the first child.

(4)As per Section 16(ia), standard deduction will be allowed from gross salary amounting ₹50,000 or
the amount of salary, whichever is less.