INCOME U/H SALARY

RELATIONSHIP OF THE RECEIVER WITH PAYER:

An income is taxable under head salary only if there is employer-employee relationship between the
payer and payee. The relationship of employer and employee should be of master and servant. This
relation is said to exist if there is control over the method of doing the work of other person.
Some example when there is no control of payer over payee are partner of a firm, director who is
not employee, member of parliament etc. And the income in case of said examples would be taxable
U/h PGBP or Other Sources.

BASIS OF CHARGE (SEC 15)

As per section 15, the following income shall be chargeable to income-tax under the head Salaries:
 any salary due from an employer or a former employer to an assessee in the previous year,
whether paid in the previous year or not;
 any salary paid or allowed to him in the previous year by or on behalf of an employer or a
employer though not due in that previous year or before it became due to him;
 any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer
or a former employer, if not charged to Income-tax in any earlier previous year.
Salary is taxable on receipt or due basis whichever is earlier. Bonus is taxable on receipt basis.
Therefore it will be included in the salary only in the year in which it is received.
Any salary, bonus etc by whatever name called received by a partner from the firm shall not be
regarded as salary.
Pay Scale: Certain employees are entitled to a graded system of salary. Under this system, the
normal annual increments to be given to employee are already fixed in the grade. For example Mr Z
is employed on pay scale of Rs 20,000-30,000. It means that his initial salary is Rs 20,000 and there
will be an yearly increment of Rs 1,000 till his salary reaches Rs 30,000.

93 9013878840, 8010796433
 STATEMENT SHOWING COMPUTATION U/H SALARY

PARTICULARS AMOUNT
i) Basic Salary xxx
ii) Dearness Allowance xxx
(Forming Part or not)
iii) Bonus xxx
iv) Commission xxx
v) Allowances xxx
Less: Exempt u/s 10 xxx xxx
vi) Perquisites (Valuation u/s 17) xxx
vii) Contribution to Provident Fund xxx
viii) Interest on Provident Fund xxx
ix) Retirement Benefits xxx
(Gratuity, Pension, Leave Salary etc)
Less: Exempt u/s 10
xxx xxx
Gross Salary
Less Deductions u/s 16 xxxx
a) Standard Deduction [u/s 16(ia)] xxx
b) Entertainment Allowance xxx
[u/s 16(ii)]
c) Employment Tax [u/s 16(iii)] xxx xxx

Income Chargeable u/h Salary xxx xxxx

ARREARS OF SALARY
Salary is taxable on ‘due’ or ‘receipt’ basis whichever is earlier, but in case any arrears of salary
which have not been taxed in the past, such arrears will be taxed in the year in which these arrears
are paid or allowed to employee.

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RELIEF WHEN SALARY IS PAID IN ARREARS [SEC 89(1)]
Step 1: Calculate tax on the arrears in the previous year in which the arrears/advance salary is
received on:
a) Tax on (salary of the current year exclusive of additional salary)
b) Tax on (total income inclusive of salary i.e. salary of current year + arrears)
(b) minus (a) is the tax on arrears in the year in which arrears are received.
Tax rates & cess of the year in which arrears are received shall be applicable.

Step 2: Calculate the tax payable of every previous year to which additional salary relates:
a) Tax on (salary of that particular year exclusive of additional salary)
b) Tax on (total income inclusive of salary i.e salary of the year of arrears + arrears)
(b) minus (a) is the tax on arrears in the year to which they are related.
Tax rates & cess of the year to which arrears are related shall be applicable.

Step 3: Step1 – Step2 will show the excess tax payable on arrears because they were not received in
the years to which they were related.
Such excess amount shall be deducted from the final tax payable of the year in which they are
received.
If the tax calculated in step 1 is less than tax calculated in step 2, the assessee need not apply for
relief.

95 9013878840, 8010796433
ALLOWANCES:
FULLY TAXABLE
 Entertainment
Allowance
 Dearness Allowance
 Overtime Allowance
 Family Allowance
 Non-practising
Allowance
 Servant Allowance
 City Compensatory
Allowance
 Lunch Allowance
 Warden Allowance
 Medical Allowance
 Transport allowance
to other than blinds
or handicap
employees
PARTLY TAXABLE FULLY EXEMPT
 House rent  Allowances to Government
Allowance [u/s employees, rendering
10(13A)] services outside India [u/s
 Specific Allowance 10(7)]
[u/s 10(14)]  Compensatory Allowances
(13 exempt provided to High Court
allowances) judges
 Sumptuary Allowances
given to High Court or
Supreme Court judges
(allowances in nature of
entertainment allowance)
 Allowance received by an
employee of UNO from his
employer.

HOUSE RENT ALLOWANCE [SEC 10(13A) & RULE 2A]

House rent allowance (HRA) refers to the allowance given by the employer to the employee in order
to meet its accommodation expenses. HRA is taxable above the extent of exemption u/s 10(13A)
Least of the following shall be exempt:
i) Actual HRA received by the employee during the relevant period
ii) Rent paid minus 10% of Salary
iii) 50% or 40% of salary
(50% in case the employee takes house on rent in Kolkata, Delhi, Chennai and Mumbai. And
40% in case employee takes house on rent in other states.
 Meaning of Salary:
Basic Salary + Dearness Allowance (includible for retirement benefits) + Commission based on
turnover
 The exemption in respect of HRA is based on following factors:
 Salary
 Place of residence
 Rent paid
 HRA received
Calculation would be done together for whole financial year if the above said factors remain
similar throughout the year.
 Exemption would be available only for the period for which accommodation is taken on rent.

SPECIAL ALLOWANCES [SEC 10(14)]

 Special Allowances which are exempt to the extent of actual amount received or amount
spent for the performance of the duties of an office or employment of profit, whichever is
less. Such allowances are as follows:
 Travelling Allowances: provided by the employer to the employee to meet the cost of travel
on official tour or transfer.

96 9013878840, 8010796433
  Daily Allowances: provided to meet ordinary daily expenses during travel on tour or
transfer.
 Conveyance Allowances: provided to meet expenditure incurred on conveyance for official
duties.
 Helper Allowances: provided to meet expenditure incurred on helper, in case helper
provided to perform official duties.
 Academic Allowances: provided for encouraging academic, research and training pursuits in
educational and research institutions.
 Uniform Allowances: provided to meet expenditure incurred on the purchase or
maintenance of uniform.

 Allowances which are exempt to the extent of amount received or limit specified whichever is
less. Such Allowances are as follows:
 Children Education Allowances: Exempt upto actual amount received per child or Rs 100
p.m per child upto a maximum of 2 children, whichever is less.
 Hostel Expenditure Allowances: Exempt upto actual amount received per child or Rs 300
p.m per child upto a maximum of 2 children, whichever is less.
 Transport Allowances: provided to employee to meet expenditure for the purpose of
commuting between the place of his residence and the place of his duty, exempt to the
extent of Rs 1,600 p.m. Only in case of blind/handicapped employee exempt to the extent
of Rs 3,200 p.m.
 Allowances to transportation employees: provided to the employees working in any
transportation company to meet his personal expenditure during the course of running of
such transport from one place to another, the amount of exemption shall be 70% of such
allowance or Rs 10,000 p.m., whichever is less.
 Tribal area allowance: Exempt upto actual amount received or Rs 200 p.m, whichever is
less.
 Underground Allowance: provided to employee working in uncongenial, unnatural climate
in underground mines shall be exempt to the extent of Rs 800 p.m.
 Hill/Border/Remote Area allowance: varying from Rs 300 to Rs 7,000 p.m (the amount
depends on the area of postings).
 Border area, remote area allowance, disturbed area allowance, etc: (as per given later):
Exemption varies from Rs 200 p.m to Rs 1,300 p.m
 Compensatory field area allowance: Exempt to the extent of Rs 2,600 p,m.
 Compensatory, modified area allowance: Exempt to the extent of Rs 1,000 p,m.
 Counter insurgency allowance granted to members of armed forces: Exempt to the extent
of Rs 3,900 p.m.
 High altitude (uncongenial climate) allowance: Given to the member of the armed forces
for altitude of 9000 ft to 15000 ft Rs 1,060 p.m. and for altitude above 15000 ft Rs 1,600
p.m.
 Special compensatory highly active field area allowance granted to members of armed
force: Exempt to the extent of Rs 4,200 p.m.
 Island (duty) allowance: Given to the member of the armed forces in the Andaman and
Nicobar and Lakshadweep Group of islands exempt to the extent of Rs 3,250 p.m.

97 9013878840, 8010796433
 Allowances Exemption limit
1. Children Education Rs 100 p.m. per child up to 2 children
2. Children Hostel Rs 300 p.m. per child up to 2 children
3. Tribal Area Rs 200 p.m.
4. Transport (between office to home) Rs 1,600 p.m.
Rs 3,200 p.m. (for handicapped employees)
5. Transport Employees Rs 10,000 p.m. or 70% of allowance which ever is
less
6. Compensatory Field Area Rs 2,600 p.m.
7. Compensatory Modified Field Area Rs 1,000 p.m.
8. Border Area, Remote Area Allowance, Rs 200 p.m. to 1,300 p.m.
Distributed Are Allowance
9. Counter insurgency allowance Rs 3,900 p.m.
10. Underground Rs 800 p.m.
11. Composite Hill Compensatory Rs 300 p.m. to Rs 7,000 p.m
Allowance

PRACTICAL QUESTIONS
1. Compute the exemption available u/s 10(13A) in following cases:
Name of employee X Y Z I J
Place of Residence Bangalore Mumbai Patna Noida Delhi
Salary p.m. 5,000 7,000 9,000 5,000 8,000
HRA p.m. 2,500 2,200 6,000 3,000 4,500
Rent paid p.m. Nil 2,000 7,000 2,800 3,400
2. X is entitled to salary of Rs. 17,000 p.m w.e.f. 1.5.2015, which was increased to Rs. 19,000 w.e.f
1.11.2015. He was also entitled to dearness allowance @ 30% of his basic salary (60% of which
is part of salary as per the terms of the employment), HRA amounting to Rs. 6,000 p.m. which
was increased to Rs. 8,000 p.m. w.e.f 1.2.2016. During May and June 2015 he lived in his own
house in Mumbai, thereafter shifted to a rented accommodation at Pune and paid a rent of Rs.
7,000 p.m. and w.e.f. 1.11.2015, X shifted to other house in Pune and paid a rent of 9,000 p.m.
Compute amount of taxable HRA.
3. Compute the income under salary with the following information :-
Particulars Amount (in Rs.)
Basic Salary 15,500 p.m.
Transport Allowance 950 p.m. (spent 600 p.m.)
Children Education Allowance 150 p.m. each for 3 children (300 spent)
Conveyance Allowance 1,750 p.m. (spent 1,350)
Tribal Area Allowance 325 p.m.
Allowance for Research 600 p.m. (nothing spent)
HRA 2,500p.m.(rent paid 2,000 p.m. in Gurgaon,
office in Noida)
City Compensatory Allowance 550 p.m.
4. A is in receipt of the following allowances from his employer during the previous year 2015-16:
a) Conveyance allowance Rs. 500p.m. He spends Rs. 4,000 during the previous year for official
purposes.

98 9013878840, 8010796433
 b) Transport allowance Rs. 1,600 p.m. for commuting from residence to office and back .He
spends Rs. 1,100 p.m. during the year.
c) Uniform allowance Rs. 6,500 p.a. He spends Rs. 5,500 on the purchase and maintenance of
uniform.
d) Education and Hostel Expenditure allowance Rs. 350p.m. per child for 3 children.
e) Personal assistant allowance Rs. 3,000 p.m. He engaged the personal assistant for official
work and paid him salary of Rs. 2,500 p.m. for 9 months. Personal assistant spends 50% of
his time for official work of A.
Compute how much of the above allowances are taxable.

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PERQUISITES
In all the perquisites whenever any amount is recovered from the employee, the amount recovered
shall be deducted from the value of the perquisites
In all the perquisites whenever any amount is recovered from the employee, the amount recovered
shall be deducted from the value of the perquisites

PERQUISITES IN ALL FORM TAXABLE FOR ALL EMPLOYEES

Rent Free Accommodation

Government Non-Government Accommodation

Employees Employees in Hotels

As per Govt.
Rules
Actual Charges 24% of Salary

Whichever is less

Owned By Not owned By

Employer Employer
Population % of
salary
Above 25 Lacs 15%
Above 10 Lacs upto 25 Lacs 10%
Upto 10 Lacs 7.5%
Actual Rent 15% of Salary

Whichever is less

100 9013878840, 8010796433

 RENT FREE ACCOMODATION
 Accommodation Provided by Government:
Amount as per Government Rules (License fees)
 Accommodation Provided by Employers other than Government Employers in:
House Owned by employer:
Population of the city in which house provided Taxable Amount
as per 2001 census
More Than 25 Lakhs 15% of Salary
More than 10 Lakhs but upto 25 Lakhs 10% of Salary
Upto 10 Lakhs 7.5% of Salary
House not owned by the employer:
Lower of following is taxable:
a) Actual rent or
b) 15% of salary
Accommodation in Hotel:
Lower of following is taxable
a) 24% of salary or
b) Actual Charges paid
Note: However nothing shall be taxable if accommodation is
 Provided for not more than 15 days and
 On Transfer of employee from one place to another.

Notes:
 Furnished House:
If furniture is also provided then 10% of actual cost of furniture or actual charges if taken on
rent, shall be added in the value calculated above.
 Meaning Of Salary:
Salary for the above said provisions includes Basic salary, Dearness Allowance (Forming Part),
Bonus, Commission (all types), taxable portion of all allowances and monetary payments from
one or more companies
But doesnot include employers PF contribution, Interest on PF contribution of both employer
and employee, whether in kind or reimbursement perquisites.
 Salary from all employers is taken even if house is provided only by one employer,
 And salary is taken only for that period for which house is provided by employer.
 RFA not taxable:
Nothing shall be taxable in case accommodation is provided to employee working at mining site
etc or an onshore oil exploration site or a project execution site, or a dam site, or dam site or a
power generation site or an offshore site, which should be of temporary nature and having
plinth area not exceeding 800 square feet, is located not less than 8 km away from the local
limits of municipality or cantonment board or is located in remote area.
 Any amount recovered from employee by employer shall be reduced from the value
determined.
 Two Houses on transfer:
In case of t/f from one place to another, if employee is provided house at the new place and
also allowed to retain house at the old place,
 For First 90 days from the t/f the value of one house with lower value will be taxable.
 After 90 days value of both houses will be taxed for the period in excess of 90 days.

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 REIMBURSEMENT FOR MEETING PERSONAL EXPENDITURE:
All monetary expenses incurred by employer on behalf of the employee shall be taxable in the
hands of the employee.

 SWEAT EQUITY SHARES:

Employer offers shares to the employee at lower value as compared to value of the shares in
lieu of know how etc.
Value taxable in hands of employee = FMV of the shares on the date of allotment –
Amount recovered from employee.

 USE OF MOVEABLE ASSETS:

Circumstances Value of Benefit
Laptops, Computer or Telephone Nill
Moveable assets other than above and Motor car 10% of Actual cost or
Actual hire charges paid
As the case may be.

 TRANSFER OF MOVEABLE ASSETS:

Purchase price of employer
Less: 50% depreciation in case of Computer & Electronic items on WDV
20% depreciation in case Motor cars on WDV
10% depreciation in case Other Assets SLM
For every completed year used before transfer
(fractions to be ignored)
Value of Asset
Less: Amount recovered from employee
Taxable Amount

 VALUATION OF INTEREST FREE LOAN:

Value for Interest free Loan would be ascertained by calculating interest on the outstanding
balance for each loan as on the last day of each month and for said purpose interest rate would
be rate charged by SBI on 1st day of relevant p/y for similar loan.

However nothing shall be taxable if:

 where the loan amount are petty not exceeding in the aggregate Rs 20,000
 where the loan is taken for the treatment of specified diseases.

 OTHER PRESCRIBED FRINGE BENEFITS:

 VALUE OF ACCOMODATION AND ANY OTHER EXPENSE ON HOLIDAY
Actual expenditure incurred by employer for the following period shall be taxable:
 If the official tour is extended as vacation only for the extended period.
 If family member accompany the employee on official tour expenditure incurred on
such person the total tour.
 GIFT, VOUCHER OR TOKEN
Gift received from employer shall be taxable but in case if the aggregate amount during the
P/Y doesnot exceed Rs 5,000 nothing shall be taxable.
102 9013878840, 8010796433
 Note: CBDT has clarified that the amount only in excess of Rs 5,000 shall be taxable but if
cash or cheque is received, then in that case entire amount would be taxable.
 FREE MEALS:
Circumstances Value of Benefits
Tea or snacks provided during working hours Nil
Free food and non-alcoholic beverages during Nil
working hours provided in a:
remote area; or
an offshore installation
Free food and non-alcoholic beverages Nil, if the value thereof in either case is
provided by the employer during working upto Rs 50 per meal.
hours:
at office or business premises; or Amount in excess of Rs 50 per meal shall
through paid vouchers which are not be value of such taxable perquisites.
transferable and usable only at eating joints
 CREDIT CARD OR CLUB EXPENDITURE:
 If expenditure for official purpose – Nothing is taxable, if complete details of such
expenditure is maintained.
 If expenditure is for personal purpose – the actual expenditure incurred by the
employer shall be taxable.
But even personal expenditure on use of health club, sports facilities shall not be
taxable.
 ANY OTHER BENEFIT:
The value of any other benefit shall be cost to the employer as reduced by amount
recovered from the employee.

PERQUISITES EXEMPT UPTO LIMIT FOR ALL EMPLOYEES:

 LEAVE TRAVEL CONCESSION [SEC 10(5)]
Any concession received by employee for himself or his family member for travelling to any
place in India is exempt, to the extent amount spent, subject to following conditions:
 Exemption can be claimed for two journeys in a block of 4 calendar years, i.e 1-1-2006 to
31-12-2009, 1-1-2010 to 31-12-2013, 1-1-2014 to 31-12-2017 and so on. The period of 4
years has to be taken as per period fixed under the Act. The date of joining with the
employer is not relevant.
 Out of two journeys, exemption for one journey can be claimed in the calendar year
succeeding the end of the block.
 Exemption is available for two children only, however exemption would be available
for all children born on or before 01-10-1988 and in case of multiple births after the
first one exemption shall be available to all.
 Amount of Exemption:
If journey is performed by
 By air – maximum exemption shall be an amount not exceeding the air economy fare
of the National Carrier by the shortest to the place of destination;
 By any mode other than air and destination is connected by rail - maximum exemption
shall be an amount not exceeding the A/C first class rail fare by the shortest to the
place of destination;
 By any mode other than air and destination is not connected by rail and journey is
performed between such places: the amount eligible for exemption shall be
103 9013878840, 8010796433
  Where a recognized public transport systems exists, an amount not exceeding the
1st class or deluxe class fare, as the case may be, on such transport by the
shortest route to the place of destination; and
 Where no recognized public transport systems exists, an amount equivalent to
the A/C first class rail fare, for the shortest distance of the journey by the shortest
route, as if the journey had been performed by rail.
[Shortest Route – Where journey is performed from the place of origin to different places,
the exemption shall be limited to what is admissible for the journey from the place of origin
to the farthest point reached, by the shortest possible route.]
Note: If LTC encashed without performing journey entire amount taxable.

Amount of Exemption

JOURNEY
BY AIR OTHER THAN BY AIR

ECONOMY

DESTINATION

CONNECTED BY NOT CONNECTED

RAIL BY RAIL

1ST AC DELUXE CLASS

104 9013878840, 8010796433

 MEDICAL PERQUISITES
Medical Treatment

In INDIA Outside INDIA

Expenditure on Medical Medical Expenditure on Expenses on Expenses on Travel

Treatment on ‘yee or Insurance Medical Medical stay abroad Expenses
his family in following premium Treatment of Treatment of ‘yee or his
hospital is fully exempt incurred ‘yee or his family
for ‘yee or family in any member for
his family other hospitals medical
or nursing treatment
homes with one
1. Maintained by Fully Exempt upto attendant
the employer, exempt maximum of Rs Tax free to Tax free to Exempt
2. Maintained by without 15,000 the extent by the extent by in case
Govt, limit RBI RBI of ‘yees
3. Maintained by whose
any local GTI does
authority, not
4. Approved by exceed
govt for Rs
treatment of 2,00,000
govt and other
employees or
5. Approved for a
specified
disease only

Note: Family for valuation of Medical Facilities and LTC means:

 Spouse and children of the employee, whether dependent or not
 Parents, brothers and sisters of the employee who are mainly dependent on employee.

SPECIFIED EMPLOYEE [Sec 17(2)(iii)

 Director of the company or
 Employee having 20% or more voting power in the employer company or
 Employee having salary more than Rs 50,000 (p.a.)
Salary means all taxable monetary payments after deduction u/s 16.

105 9013878840, 8010796433

PERQUSITES IN KIND TAXABLE FOR SPECIFIED EMPLOYEES
 SWEEPER, GARDNER, WATCHMAN or PERSONAL ATTENDANT
Actual cost to the employer shall be taxable in the hands of employee.

 GAS, ELECTRICITY OR WATER

CIRCUMSTANCES TAXABLE VALUE
If from own sources Manufacturing cost per unit taxable
If other sources Actual charges paid

 CHILDREN EDUCATION
CIRCUMSTANCES TAXABLE VALUE
Education facility is owned by the Employer Taxable Value shall be fees charged by
Education provided in schools as being under similar school in similar locality.
employment with employer Nothing shall be taxable if value per child
doesnot exceed Rs 1,000 p.m
In other cases Actual expenditure incurred by the
employer.
Note: Where cost of education exceeds Rs 1,000 p.m. per child, the whole amount shall be
taxable in the hands of the employee and no deduction of Rs 1,000 p.m. shall be allowed. [Delhi
Public School (P&H)

 MOTOR CAR VALUATION

Car provided which is Owned or hired By Employer and used
Exclusively for Official purpose Nothing taxable if Specified document
maintained
Exclusively for Private purpose Running & Maintenance Exp: Actual Cost
Chauffer : Actual Cost
Wear & Tear: 10% of actual cost or hire
charges as the case may be
Partly for official and partly private Running and maintenance Expenses by
(Actual Expenses irrelevant) Employer employee
Note: Additional Rs 900 p.m if chauffeur is Upto 1.6 ltrs c.c. Rs Upto 1.6 ltrs c.c. Rs
also provided 1,800 p.m shall be 600 p.m shall be
taxable taxable
Exceeding 1.6 ltrs Exceeding 1.6 ltrs
c.c. Rs 2,400 p.m c.c. Rs900p.m shall
shall be taxable be taxable

Car provided which is Owned or hired By Employee and used

Exclusively for Official purpose
Exclusively for Private purpose
Partly for official and partly private
(However if actual expenditure for official
purpose is more than the limits then actual
expenditure can be deducted by maintaining
specified documents)
Nothing taxable if Specified document
maintained
Actual Expenditure incurred by employer
shall be taxable
Total Actual Expenditure for both purpose
Less : 1,800 p.m/2400 p.m
Less: 900 p.m for chauffer (if any)

106 9013878840, 8010796433

Note :
 In above cases part of the month shall be ignored.
 Specified Documents:
 Complete details of journey undertaken for official purpose which may include date of
journey, destination, mileage and amount of expenditure incurred.
 Employer gives a certificate that expenditure was incurred wholly and exclusively for
official purposes.
 If employee has been provided with more than one care, which are not used exclusively for
official purposes then
 Value of one car shall be 1,800 p.m or 2,400 p.m and 900 p.m for driver (if any) as the case
may be and
 The value of other cars shall be as if they are used exclusively for personal purposes.
 Car facility between and office and residence shall not be taxable.

Tax-free Perquisites (for all employees)

1) Medical facility or medical reimbursement:
a) Medical facility: The value of any medical treatment provided to an employee or any
member of his family in a hospital, dispensary or a nursing home maintained by the
employer shall be a tax free perquisite.
b) Medical reimbursement: Any sum paid by the employer in respect of any expenditure
incurred by the employee on his medical treatment or treatment of any member of his
family subject to maximum of `15,000 in the previous year (discussed in detail in Para 4.34).
2) Recreational facilities: Any recreational facility provided to a group of employees (not being
restricted to a select few employees) by the employer is not taxable.
3) Training of employees: Any expenditure incurred by the employer, for providing training to the
employees or by way of payment of fees of refresher courses attended by the employees.
4) Use of health club, sports and similar facilities provided uniformly to all employees by the
employer.
5) Expenses on telephone, including a mobile phone, actually incurred on behalf of the employee
by the employer.
6) Employer's contribution: Employer's contribution to superannuation fund of the employee or
provided such contribution does not exceed Rs 1,00,000 per employee per year.
7) The premium paid by the employer on an accident policy taken out by it in respect of the
employee would not be a perquisite.
8) Amount given by employer of assessee to assessee’s child as scholarship is exempt under
section 10(16).
9) Food and beverages provided to employees: The following shall be a tax free perquisite in the
hands of the employees—
i) free food and non-alcoholic beverages provided by the employer to his employees during
working hours:
a) at office or business premises or
b) through paid vouchers which are not transferable and usable only at eating joints.
Provided the value of such meal is upto Rs 50 per meal.
ii) Any tea or snacks provided during working hours.
iii) Free food and non-alcoholic beverages during working hours provided in a remote area or
on offshore installation.

107 9013878840, 8010796433

10) Loans to employees: In the following cases the value of benefit to the assessee resulting from
the provision of interest free or concessional loan shall be nil:
a) where the amount of loans are petty, not exceeding in the aggregate `20,000;
b) loans made available for medical treatment in respect of deceases specified in rule 3A of the
Income-tax Rules. However, the exemption so provided shall not apply to so much of the
loan as has been reimbursed to the employee under any medical insurance scheme.
11) Perquisites provided outside India: Perquisites provided by the Government to its employees,
who are citizens of India for rendering services outside India, are not taxable. [Section 10(7)]
12) Rent free House/Conveyance facility: Rent free official residence and conveyance facilities
provided to a Judge of the Supreme Court/High Court is not a taxable perquisite.
13) Residence to officials of Parliament, etc.: Rent free furnished residence (including maintenance
thereof) provided to an officer of the Parliament, a Union Minister or Leader of Opposition in
Parliament, is not a taxable perquisite.
14) Accommodation in a remote area: The accommodation provided by the employer shall be a tax
free perquisite if the accommodation is provided to an employee working at mining site or an
onshore oil exploration site or a project execution site, or a dam site or a power generation site
or an offshore site which—
a) being of a temporary nature and having plinth area not exceeding 800 square feet, is located
not less than eight kilometers away from the local limits of any municipality or a cantonment
board; or
b) is located in a remote area.
15) Educational facility for children of the employee: Where the educational institution itself is
maintained and owned by the employer and free educational facilities are provided to the
children of the employee or where such free educational facilities are provided in any
institution by reason of his being in employment of that employer, there shall be no perquisite
value if the cost of such education or the value of such benefit per child does not exceed` 1,000
p.m.
16) Use by the employee or any member of his household of laptops and computers belonging to
the employer or hired by him.
17) Leave Travel Concession.
18) Tax paid by the employer on non-monetary perquisites: Tax paid by the employer on non-
monetary perquisites of the employee shall be exempt in the hands of the employee. [Section
10(10CQ]

MEANING OF SALARY: [SEC 17(1)]

Salary as per Sec.17(1): -
“salary” includes —
 wages;
 any annuity or pension;
 any gratuity;
 any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
 any advance of salary;
 any payment received by an employee in respect of any period of leave not availed of by him;
 the annual accretion to the balance at the credit of an employee participating in a
recognized provident fund, to the extent to which it is chargeable to tax under
rule 6 of Part A of the Fourth Schedule;
 the aggregate of all sums that are comprised in the transferred balance as referred to in sub rule
(2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognized

108 9013878840, 8010796433

 provident fund, to the extent to which it is chargeable to tax under sub-rule (4) there of ;and
 the contribution made by the Central Government or any other employer in the
previous year, to the account of an employee under a pension scheme referred
to in section 80CCD.

MEANING OF PERQUISITES: [SEC 17(2)]

Perquisites as per Sec. 17(2): -
“perquisites” includes –
 Rent-free accommodation
 Accommodation in concessional rate of rent
 Any benefit or amenity to the specified employee who is either a director of has a
substantial interest in the company or whose income under salaries exceeds Rs
50,000
 Obligation of the employee paid or reimbursed by the employer
 Any sum payable by the employer to effect as assurance on the life of the
assessee or to effect a contract of annuity
 Any specified security or sweat security shares allowed or transferred by the
employer free of cost or at concessional rate
 Contribution to any superannuation fund by the employer in respect of the
assessee to the extent it exceeds Rs 1,00,000.
 Prescribed fringe benefits or amenity.

PRACTICAL QUESTIONS:

1) Compute the perquisite value of the car for the assessment year 2016-17 in the following
situation if the taxable monetary emoluments of Z are Rs. 4,50,000 :
i. The car is owned by Z but the running and maintenance expenses amounting to Rs. 45,000
during the previous year are not met by the employer the car is used
a) For personal benefits of Z
b) Only for official duties
c) 40% for personal benefits and 60% for official use
ii. The employer provides a car of 2ltr. Engine cubic capacity costing Rs. 5,50,000 exclusively
for the personal benefits of Z. The expenses incurred on the car are Rs. 62,000.
iii. The employer provides a car (below 2.1 ltr) alongwith a driver to Z partly for official and
partly for personal purpose. The expenses incurred by the company are :
a) Running and maintenance expenses – Rs. 42,000
b) Driver’s salary – Rs. 44,000
iv. In case (iii) the employer maintains a log book and it is established than 40% of the total
mileage of the car is for personal use of Z and 60% for official duties.
v. The employer provides a car (above 2.1 ltr) to Z which is used for official work and is also
used by Z for commuting from his residence to office and back.
vi. Z is provided with 2 cars to be used for official and personal work and the following
information is available from the companies records :
(in Rs.)
Car 1 Car 2
(exceeding 2.1ltr.) (below 2.1 ltr.)
Cost of the car 7,00,000 5,00,000
Running and maintenance 70,800 97,000
Salary of driver 45,000 45,000

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2) Compute the taxable value of the perquisite in respect of medical facilities availed of by A from
his employer in the following situations:
a) The employer reimburses the following medical expenses :
i. Treatment of A by his family physician Rs. 5,400.
ii. Treatment of Mrs. A in a private nursing home Rs. 4,800.
iii. Treatment of A’s mother (dependent upon him) Rs.2,000 by a private doctor.
iv. Treatment of A’s brother (not dependent upon him) Rs. 600.
v. Treatment of A’s grandfather (dependent upon him) Rs. 1,800.
b) The employer pays an insurance premium of Rs. 4,100 under a health insurance scheme on
the health of A.
c) The employer maintains a hospital for the employees where they and their family
members are provided free treatment. The expenses on treatment of A and his family
members during the previous year 2015-16 were as under:
i. Treatment of A’s major son (dependent upon him) – Rs. 3,300
ii. Treatment of A – Rs. 6,300
iii. Treatment of A’s uncle – Rs. 5,400
iv. Treatment of Mrs. A – Rs. 7,000
v. Treatment of A’s handicapped nephew – Rs. 4,100
d) Expenses on cancer treatment of married daughter of A at XYZ hospital, Pune (an approved
hospital for this purpose) paid by the employer Rs. 40,000 and reimbursement of expenses
for medical treatment of himself amounting to Rs. 10,000.
3) Following benefits have been granted by Ved Software Ltd. To one of its employees Mr. Badri:
I. Housing loan @ 6% p.a. Amount outstanding on 1.4.2014 is Rs. 6,00,000. Mr. Badri pays Rs.
12,000 p.m., on 5thof each month.
II. Air conditioner purchased 4 years back for Rs. 2,00,000 have been given to Mr. Badri for
Rs. 90,000.
Compute the chargeable perquisite in the hands of Mr. Badri for the A/Y 2016-17.
The lending rate of State Bank of India as on 1.4.2015 for housing loan may be taken as 10%.
4) Calculate the taxable amount in the hands of Mr. K in the following cases :
i. Mr. K was given LTC by his employer. He was given business class ticket of Rs. 15,000
whereas economy class ticket was Rs. 12,000.
ii. Mr. K was given LTC by his employer. He was given second AC rail ticket of Rs. 4,200
whereas first AC ticket was Rs. 7,200.
5) Find out the taxable value of the perquisite for the A/Y 2016-17 in the following cases –
i. R’s son is a student of ninth class of XYZ school, Delhi. Rs. 18,700 being tuition fees of R’s
son is reimbursed by Z Ltd where R is employed. There is no arrangement between Z Ltd
and XYZ school, Delhi.
ii. ABC school, owned and maintained by D Ltd. Y is an employee of D Ltd. The following
family members of Y are students in ABC school-
Cost of education in a Amount charged from Y
similar institution
X, daughter of Y Rs. 6,500 p.m. Rs. 900 p.m.
J, dependent brother of Y Rs. 7,000 p.m. Rs. 1,800 p.m.
iii. Suppose in (ii) above, ABC school is not owned by D Ltd. But the employer has contract
with the school.

110 9013878840, 8010796433

RETIREMENT BENEFITS
PENSION [SEC 10(10A)]
TYPE OF PENSION TAX TREATMENT
UNCOMMUTED PENSION FULLY TAXABLE
( Pension received periodically)
COMMUTED PENSION GOVERNMENT FULLY EXEMPT
EMPLOYEE
NON-GOVERNMENT GRATUITY ONE-THIRD OF
EMPLOYEE ALSO COMMUTED
RECEIVED (FULL) VALUE
OF PENSION
GRATUITY ONE-HALF OF
NOT COMMUTED
RECEIVED (FULL) VALUE
OF PENSION

RETRENCHMENT COMPENSATION [SEC 10(10B)]

Least of the following is exempt:
 Amount received
 Rs 5,00,000
 15 Days Average Salary*Completed Years of Service (Including Fractions)
(15/26* Average Salary*CYS)
Note: Salary means, Basic + All Allowance + Value of all benefit (but does not include Bonus,
Employer’s contribution to any retirement benefit scheme; and gratuity.

111 9013878840, 8010796433

GRATUITY [ SEC 10(10)]
GRATUITY RECEIVED WHILE IN SERVICE:
Gratuity received by employee during service is fully taxable.

GRATUITY RECEIVED ON RETIREMENT:

Government Employees Non- Government

Employees
Fully Exempt

Employees Covered Under Employees Not Covered Under

Gratuity Act Gratuity Act

Least of Following Exempt: Least of Following Exempt:

a) Actual Amount Received a) Actual Amount Received

b) Rs 10,00,000 Rs 20,00,000 b) Rs 10,00,000
c) 15/26*Last Drawn c) 15/30*Average
Salary*Completed Years Salary*Completed Years
Of Service (Including Of Service (Ignoring
Fractions) Fractions)

Meaning of Salary: Meaning of Salary:

Last Drawn Basic + DA only Basic + DA (Forming Part) +

(Full) Commission Based on
Turnover

Average salary for 10 months

preceding the month of
Retirement.

Note:
 If Gratuity received from previous employer was exempted, exempted amount shall be
deducted from Rs 10,00,000.
 Gratuity received by the family members after the death of the employee
 If gratuity is due or paid during the lifetime of employee: It will be taxable in the hands of
the deceased employee and tax return would be filled by legal heir.
 If gratuity is due & paid after the death of employee: It cannot be taxed in the hands of the
deceased employee.
The above said amount would not be taxable in the hands of legal heirs also as it does not
partake the character of income in their hands but it is only a part of the estate developing
upon them.

112 9013878840, 8010796433

LEAVE ENCASHMENT [SEC 10(10AA)]

During Job After Retirement

Fully Taxable

Government Employees Least of Following Exempt:

Fully Exempt  Actual Amount Received

 Rs 3,00,000
 Average Salary*10
 (Maximum 30 days for
each completed year of
service minus leave
availed)*Average Salary

Meaning of Salary:

Basic + DA (Forming Part) +

Commission Based on
Turnover

Average salary for 10 months

preceding the month of
Note:
 If Leave Encashment received from previous employer was exempted, exempted amount shall
be deducted from Rs 3,00,000.
 Leave Encashment received by legal heir: Amount received by legal heir of deceased employee
shall be not be taxable in the hands of the recipient.
 Steps for Point [(d)]
 Step 1: Leaves allowed per year or 30 days whichever is lower
 Step 2: Leaves actually taken
 Step 3: (Step 1 – Step 2)*Average Salary*CYS (ignoring fractions).

VOLUNTARY RETIREMENT COMPENSATION [SEC 10(10C)]

Least of the following is exempt:
 Amount received
 Rs 5,00,000
 Maximum of
 Last drawn salary*3*Completed years of Service (Ignoring Fractions)
 Last drawn salary*Balance months of Service Left
Notes:
 Compensation received from employer on voluntary retirement is not taxable to certain limit
113 9013878840, 8010796433
  Government (Any Government), authority under any provisional act
 Any Company / co-operative society
 University/ I.I.T
 Notified institute of management
 Institute having importance throughout India or in any state or states as may be notified.
 Salary: Basic + DA (forming part) + Commission Based on turnover
 Exemption can be claimed once in lifetime of employee.

PROVIDENT FUND:
Particulars SPF RPF URPF
Employee’s Deductions u/s 80C Deductions u/s 80C No treatment
Contribution
Employer’s Fully Exempted Taxable in excess of 12 Fully Exempted (at
Contribution % of Salary time of contribution i.e
during job)
Interest on PF (On Fully Exempted Taxable in excess of Fully Exempted (during
both employee’s or 9.5% job)
employer’s
contribution)
Repayment of lump Fully Exempted Exempted subject to Employee’s
sum amount on [Sec 10(11) certain condition’s Contribution : Exempt
retirement Employer’s
/resignation/ Contribution : Taxable
termination as Salary
Interest on Employer’s
Contribution: Taxable
as Salary
Interest on Employee’s
Contribution: Taxable
as Income u/h other
sources

Notes:
 Conditions for exemption of Repayment of lump sum amount from RPF:
 Employee left job after 5 years of service or
 Due to ill health, discontinuance of employer’s business or reasons beyond his control
 Balance t/f to RPF with new company. In such case for purpose of computing period under
both employer would be taken together.
If nothing satisfied then amount not taxed previously shall become taxable.
 Salary = Basic + DA (forming part) + Commission Based on turnover

Contribution to Superannuation fund

Employees Contribution: Allowed as deductions u/s 80C
Employers Contribution: Exempt upto limit of Rs 1,00,000, amount in excess of Rs 1,00,000 shall be
taxable in the hands of the employee.
Interest on accumulated balance: It is exempt from tax.
Payment from the fund: Any payment received from the superannuation fund shall be exempt from
tax if it is made:

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 I. on the death of a beneficiary ; or
II. to an employee in lieu of or commutation of an annuity on his retirement at or after a specified
age or on his becoming incapacitated prior to such retirement; or
III. by way of refund of contributions on the death of beneficiary
IV. by way of refund of contributions to an employee on his leaving the connection with which the
fund is established otherwise than by retirement at or after a specified age or on his becoming
incapacitated prior to such retirement, to the extent to which such payment doesnot exceed
the contributions made prior to the commencement of this Act and any interest thereon.

Deductions from salaries [Section 16]

(i) Standard Deduction [Sec 16(ia)]
A standard deduction of Rs 40,000 or the amount of salary, whichever is lower, is provided to
the employees.
(ii) Entertainment Allowance [Sec 16(ii)]
Deductions allowable only to Government employees only.
Deductions allowable shall be lower of following:
 Actual entertainment allowance received during the previous year
 20% of salary exclusive of any allowance, benefit or other perquisites
 Rs 5,000
(iii) Tax on Employment (Professional Tax) [Sec 16(iii)]
As per Constitution of India, the State Government/Local Authorities are empowered to make
law and collect taxes on professions, trades, callings and employment.
Any amount paid by the employee as professional tax shall be allowed as deduction in the year
of payment.

PRACTICAL QUESTIONS

1) Mr.A (age 40 years), who is employed in ABC Ltd. up to November,2015, gets the following
salary and benefits : basic salary: Rs.15,000 per month; bonus :Rs.1,000 p.m ; club
facility(expenditure of the company: Rs.700 p.m.); house rent allowance: Rs.6,000 p.m.;
employer’s contribution towards unrecognised provident fund : Rs.600 p.m.(Mr. A also makes a
matching contribution)
On December 1,2015, Mr. A joins XYZ Ltd. on monthly salary of Rs.19,500 and house rent
allowance of Rs.3,000 p.m. Besides, he enjoys club facility (expenditure of the company: Rs.
1,000 p.m.); car facility (expenditure of the company :Rs.1,700 p.m.) and employer’s
contribution towards unrecognised provident fund : Rs.900 p.m.(Mr. A also makes a matching
contribution).
Determine the taxable income and tax liability for the assessment year 2016-17 on the
following assumptions:
i. Salary in both cases becomes due on the last day of each month.
ii. Mr. A is not a director in any company, though he holds 12 per cent and 8 per cent share
capital in ABC Ltd. and XYZ Ltd., respectively
iii. He resides in Mumbai and pays rent of Rs. 6,500 p.m. throughout the previous year.
iv. Car facility is used by Mr. A only for journey between office and residence and back.
v. Club facility is provided only for private benefit of Mr. A

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2) Mr. P (age 30years) receives the following emoluments during the previous year ending March
31,2016
Particulars Rs.
Basic pay 6,00,000
Commission 3,05,000
Free car facility for Mr. P and his family 1,15,000
members only for private use(expenditure of
the employer including normal wear and tear:
Rs.1,15,000
Entertainment allowance 40,000
On August, 2015, the employer gives a housing loan of Rs. 12,50,000@5% p.a. (repayable in
20years) (SBI lending rate: 11%).
Mr. P contributes Rs.55,000 towards RPF.
Determine the taxable income and tax liability for the assessment year 2016-17 if Mr. P is an
employee of ABC, a partnership firm.
3) D, an employee of MNO Pvt. Ltd. retired from the company on 30-10-2016. At the time of his
retirement, he received Rs. 2,00,200 as leave salary from his employer. The following
information is provided by the employee:
Particulars
Salary at the time of retirement(per month) Rs.10,000
Period of service 25years and 6months
Leave encashment Rs.2,00,000
Leave availed while in service 15months
Balance Unavailed leave at the time of 17months
retirement
Average salary for the month of Jan,2015 to Rs.9,000
Oct,2015
Leave entitlement 1.5month for every completed year of
service
Compute the amount of taxable leave encashment.

116 9013878840, 8010796433

 PRACTICAL QUESTIONS

Allowances
1) S is employed in a company in Bangalore. The details of his salary for the F/Y 2018-19 are as
follows:
a) Basic Pay : Rs 26,000 (p.m) & w.e.f 01.12.18 increased by
Rs 2,500 p.m
b) Dearness Allowance : 60% of Basic Salary
c) Commission : 2% of Turnover
d) Commission : Rs 22,000 (p.a)
e) H.R.A : Rs 21,000 (p.m) w.e.f 01.08.18 increased to Rs
24,500 p.m
f) Bonus : Rs 45,000 (p.a)
He had taken a house on rent in Bangalore for Rs 20,000 p.m and from 01.02.2019 the rent was
Rs 22,500. 50% of D.A is forming part for retirement benefits. Turnover of the company was Rs
75,00,000. Compute his total salary for the period 2018-19.

Perquisites
1) R submits following information regarding his salary income for the year 2018-19.
i. Basic salary Rs.15,000 p.m.
ii. D. A./forming part of salary 40% of basic salary
iii. CCA Rs. 300 p.m.
iv. Children education allowance Rs.200 p.m. per child for 2 children
v. Transport allowance Rs. 1,000 p.m.
He is provided with a rent free unfurnished accommodation which is owned by the employer.
The fair rental value of the house is Rs. 24,000 p.a.
Compute the gross salary assuming accommodation is provided in a city having population:
(a) not exceeding 10 lakhs as per 2001 census.
(b) exceeding 10 lakhs but not exceeding 25 lakhs as per 2001 census.
exceeding 25 lakhs
2) R, who is working in a remote area, is provided free meal during office hours for 300 days during
the previous year. The cost to the employer per meal is Rs.60. Determine the value of perquisite.
3) R is employed with ABC Ltd. on a monthly salary of Rs. 25,000 per month. The company
provides him with the following benefits:
I. A company owned accommodation is provided to him in Delhi.
II. The company has given him a housing loan of Rs 5,00,000 on 1.4.2018 on which it charges
III. Interest @ 6% per annum. The entire loan is still outstanding. (Assume the interest charged
by SBI is 10% p.a.)
IV. The company gave him a gift worth Rs. 15,900 on his 50th birthday on 21.10.2018.
V. He is allowed to use the video camera belonging to the company. The company had
purchased this camera for Rs. 60,000 on 1.5.2015. This camera was sold to him on 1.8.2018
for Rs. 30,000
VI. The company had purchased a car on 16.7.2015 for Rs. 2,50,000. This car is sold to R on
14.7.2018 for Rs. 80,000. The car was not being used by R.
The company pays the telephone bills of Rs. 24,000 for the telephone installed at the residence of
R. Compute the Gross income from salary of R for the assessment year 2018-19.

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Retirement Benefits
Gratuity
1) S joined the service on 1.7.1997. He retired from his service on 15.10.2018 and received Rs.
12,20,000 as gratuity. At the time of retirement his basic salary was Rs. 80,000 p.m. and
dearness allowance Rs. 40,000 p.m. (60% of which was part of salary).
Compute the amount of gratuity exempt from tax and the amount to be included in gross
salary. He is covered under the Payment of Gratuity Act.
2) Mr. Z retired from service w.e.f. 4.2.2019 after serving 17 years and 10 months. At the time of
retirement his basic Salary was Rs. 54,000 p.m. and he was entitled to Dearness allowance of
Rs. 9,000 p.m. On his retirement, he received a sum of Rs. 6,50,000 as gratuity. Compute the
amount of gratuity exempt from tax and the amount to be included in gross salary. He is not
covered under the Payment of Gratuity Act.
3) X, who has been in part time employment with Y Ltd. and Z Ltd. submits the following
information :
Particulars Y Ltd. Z Ltd.
Basic salary (on the date of Rs.10,000 p.m. Rs.6,000 p.m.
retirement)
Dearness allowance 20% 20% (60% forms part of
salary for retirements
benefits)
Date of retirement 15.10.2018 1.1.2019
Period of service 21 years and 10 months 15 years and 4months
Amount of gratuity received Rs.1,90,000 Rs.90,000
Although he has been drawing the same salary from Y Ltd. for the last one year; but from Z Ltd.
he received an increment of Rs.500 w.e.f. 1.8.2018.
Compute the gratuity exempt under section 10(10).
4) S, a General Manager of YZ Company Ltd., retired from the company on 15.7.2018. At the time
of retirement his basic salary was Rs. 80,000 p.m. and he was entitled to Dearness allowance
@20% of his basic salary (60% of the Dearness allowance forms part of salary for retirement
benefits). He has worked with the company for 11 years 11 months and 15 days. He got an
increment of Rs. 6,000 in his basic salary w.e.f. 1.3.2018.
At the time of his retirement, the company paid him a gratuity of Rs. 11,00,000. S had earlier
worked with MN Company Ltd. from where he had received gratuity and had availed a
exemption of Rs. 3,50,000. Compute the amount of exemption available out of the gratuity
received from YZ Company Ltd. He is not covered under the Payment of Gratuity Act.
5) Mr. S was employed since 1.2.1983 in a commercial establishment. His salary was fixed at Rs.
14,500 in the grade of Rs. 14,000-400-22,000 with effect from 1.8.2016. He got 20% of his salary
as dearness allowance which is treated as salary for computation of retirement benefits. He
retired from service on 1.1.2019. He received Rs. 3,25,000 as gratuity from his employer.
Calculate his gross income under the head ‘Salaries’ for the A/Y 2019-20 if-
i. Payment of Gratuity Act, 1972 applies
ii. Payment of Gratuity Act, 1972 does not apply.
6) Mr. V , who has been in part time employment with X Ltd. and Y Ltd. furnishes the following
information :
Particulars X Ltd. Y Ltd.
Basic salary p.m. (last drawn) Rs.11,000 Rs.7,000

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 Dearness allowance 30% (forming part of salary 30%(40% forming part of
for retirements benefits) salary for retirements
benefits)
Date of retirement 1.11.2018 1.10.2018
Period of service 23 years and 10 months 21 years and 3months
Amount of gratuity received Rs.1,53,000 Rs.90,000
Date of last increment in Basic 1.3.2018 1.7.2018
salary
Amount of last increment Rs.1,100 Rs.600
Compute the gross salary of Mr. V for A/Y 2019-20.

Treatment of Pension
7) R retired from service w.e.f. 1.11.2018 after serving 20 years and 10 months. At the time of
retirement he was entitled to the following remuneration :
a) Salary Rs. 30,000 p.m.
b) Dearness allowance @20% of salary (60% of which forms part of salary for retirements
benefits)
On retirement, he received a sum of Rs. 6,50,000 as gratuity. He was entitled to a pension of Rs.
13,000 p.m. w.e.f 1.11.2018. From 1.1.2019 he got 60% of his pension commuted and received
a sum of Rs. 8,00,000 as commuted pension.
Compute his gross salary for the assessment year 2019-2020.
8) M retired on 15.5.2018 from TR Company Ltd. He was entitled to a pension of Rs 5,000 p.m. At
the time of retirement he got 75% of the pension commuted and received Rs 1,30,000 as
commuted pension. Compute the taxable portion of the commuted pension if-
i. He is also entitled to gratuity.
ii. He is not entitled to gratuity.

Treatment of Leave Salary

9) S an employee of ABC Ltd. retired from service w.e.f 1.1.2019 after serving for 16 years and 7
months. At the time of retirement he received a sum of Rs. 50,000 as leave encashment for
unavailed leave of 300 days. He was entitled to 40 days leave for each year of completed
service. He was getting a salary of Rs. 5,000 p.m. at the time of the retirement. He received
increment of Rs.500 w.e.f. 1.7.2018.
Compute the amount of leave encashment exempt from tax.
10) B was employed with XYZ ltd. He retired w.e.f. 1.1.2019 after completing a service of 25 years
and 5 months. He submits the following information:
Basic salary Rs. 30,000 p.m. (at the time of retirement)
Dearness allowance 100% of Basic salary (40% of which forms part of salary
for retirement benefits).
Last increment Rs.3,000 w.e.f. 1.6.2018
His pension was determined at Rs. 20,000 p.m. He got 50% of the pension commuted w.e.f.
1.2.2019 and received a sum of Rs. 5,50,000 as commuted pension. In addition to this, he
received a gratuity of Rs. 6,50,000 and leave encashment amounting to Rs.2,90,000 on account
of accumulated leave of 300 days. He was entitled to 42 days leave for every year of service.
Compute his Gross Salary for the A/Y 2019-20 assuming that he is not covered under
Payment of Gratuity act.

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 Deductions from salaries:
i. Entertainment allowance
ii. Tax on employment (Professional tax)
11) Z furnishes the following particulars of his remuneration for the P/Y 2018-19 from ABC
Company Ltd. where he is employed as an Accountant:
Basic salary Rs.15,000 p.m.
Dearness allowance (forming part of salary for retirement benefits) Rs. 2,000 p.m.
Children education allowance (for one child) Rs. 300 p.m.
Entertainment allowance Rs. 300 p.m.
He is entitled to use a car (below 1.6 ltrs.) for official and personal work.
He has paid Rs.500 towards professional tax to State Government. Compute his income from
salary for the A/Y 2019-20.

Treatment of Provident Fund

12) From the particulars of Mr. QR, a manager of a firm, compute his taxable income from salary for
the A/Y 2019-20.
S. No. Particulars In Rs.
1 Basic salary (p.m.) 25,000
2 D.A (included in salary for retirement benefits p.m.) 5,000
3 Own contribution towards RPF (p.m.) 3,200
4 Employer’s contribution towards RPF (p.m.) 3,200
5 Interest on RPF @ 13% p.a. 50,000
6 HRA Rs.8,000 p.m. rent paid for house at Pune (p.m.) 14,000
7 Medical allowance (p.m.) 2,000
8 Mr. QR was also provided with a motor car of 1.3 litre rating for
his official as well as private use by the employer.
Express of running and maintenance including depreciation are
Rs.50,000
13) Mrs. X was an employee in a company. The following particulars are available regarding her
income for the year ending 31.3.2019:
i. Salary Rs. 3,000 p.m.
ii. Entertainment allowance Rs. 300 p.m.
iii. She retires from service on 1.1.2019 after 25 years of completed service and received a
pension of Rs. 1,500 p.m. and gratuity of Rs. 52,000.
iv. She also received Rs.52,000 from unrecognised provident fund of which she was a
member (this constitutes employee’s contribution Rs 20,000; employer’s contribution Rs.
20,000; interest on employee’s contribution Rs. 6,000; interest on employer’s
contribution Rs. 6,000)
Compute the taxable income under the head ‘salaries’ of Mrs. X for the A/Y 2019-20 assuming
that the salary and pension is due on the last day of the month. She is not covered under the
payment Of Gratuity Act.

Salary Questions

1) Following are particulars of Mrs. Sheetal Bhandari's income:

(i) Salary Rs. 1,14,000 per annum.
(ii) Dearness allowance (under the terms of employment) Rs. 12.000 per annum.
(iii) Education allowance (for three children) Rs. 5,700 per annum.

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(iv) Medical allowance (actual expenditure Rs. 8,000) Rs.7,200 per annum.
(v) Rent free house (in Ghaziabad population 15 lakhs) for which the company paid Rs. 3,000
per month us rent. The house is furnished and the rent of the furniture is Rs. 2,000 per
annum.
(vi) A domestic servant, a sweeper and a watchman paid Rs. 250 per month each by the
company.
(vii) The company spent Rs. 4.000 on her refresher course.
(viii) Her contribution to R.P.F. Rs. 8,000 and employer's contribution Rs. 6,000.
(ix) The company has provided a free telephone at Mrs. Bhandari's residence and paid bill
amounting to Rs. 3,000.
(x) Professional tax Rs. 1,000 paid by Mrs. Sheetal.
Compute taxable "Income from Salary" for the assessment year 2019-20.
2) Mr. Brown is employed with X Limited, an Indian company having manufacturing unit
in Kenya. For the past 7 years Brown has been regularly visiting India for export
promotion of company's goods in India. He has stayed in India for 120 days every year.
Compute his income under the head salary from the following particulars for the
assessment year 2019-20:
Salary for 8 months while abroad received there only Rs. 20.000 p.m.
Salary for 4 months during his stay in India received in India Rs. 20,000 p.m.
Rent free accommodation abroad where he and his family members stay for which his
employer pays Rs. 15,000 p.m.
During his tour in India, he stays in the Company's guest house and gets free food. The
company incures an expenditure of Rs.20,000 for such facilities.
He has been provided with motor car of 1600 cc in Kenya, which he uses partly for
official purposes and partly for private purposes during his slay there. However, the car
is used exclusively by family members of Mr. Brown while he is in India. The monthly
expenses on car (including normal wear and (ear calculated @ 10% of the cost of the
cur) is Rs.6,000, His elder son is studying in India for which his employer spent Rs.
15,000 per year whereas his younger son is studying in USA and stays in the hostel Mr.
Brown gets Rs.700 p.m. as allowance both for education and hostel for his younger
son.
3) R was appointed as sales manager of a company at Ghaziabad on 1.1.2015 in the scale of
Rs. 18,000-400-22,000 at Rs.18.000 p.m. His other emoluments are:
Dearness Allowance 40% of salary
Conveyance Allowance 1,200 p.m.
(upto 30.9.2018 and his actual expenses on
conveyance for employment purposes were Rs.800 p.m.) —
House Rent Allowance upto 31.7.2018 (Rent paid was
Rs. 3.000 p.m.) 2,500 p.m.
Fixed medical allowance 600 p.m.
Rent free house from 1.8.2018 onwards FRV Rs. 45,000 p.a. and cost of furnishing
amounts to Rs. 90,000. Employer also paid Rs. 20,000 towards maintenance of house and
Rs. 1,000 p.m. as electricity bill from 1.8.2018 to 31.3.2019, Free use of 1.8 ltr. engine
capacity car with driver for personal and employment purposes from 1.10.2018 onwards.
He and his employer both contributed 15% of salary each towards RPF. Interest credited
on RPF balance @ 11 % amounts to Rs. 7,700. Club bill of the employee reimbursed by
employer during the year were Rs.6.000.
Compute his salary income, assuming population of Ghaziabad is less than 25 lakhs.

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4) R a General Manager of a limited company in Delhi, retired from service on 1.1.2019
after 32 years of service and submits the following particulars of his income.
Salary Rs. 12,000 p.m., House Rent Allowance Rs.3.000 p.m. Medical Expenses
reimbursed by the company during the previous year Rs. 17.000. Leave travel assistance
for going to his home town. Mumbai. on leave reimbursed by the company Rs.8,000. A
car of 1.6 litre engine capacity is provided by the company for official and personal use
and expenses of its running and maintenance including salary of driver for official use
are borne by the company.
He contributes 20% of his salary to recognised provident fund to which company
contributes 14%.
He received Rs.1,80.000 gratuity and Rs.1,20,000 for encashment of 10 months earned
leave not availed by him. As per rules of the company Mr. X was entitled to one months
leave for every year of service. He was drawing a salary of Rs. 12,000 per month since
1.1.2019.
He invested Rs. 24,000 in National Savings Certificates (VIII Issue) and Rs. 15,000 in
Public Provident Fund A/c. He paid Rs.4,000 towards Life Insurance Premium on a policy
issued on 5.4.2016 for a sum assured for Rs.30,000.
His other incomes were: Interest on debentures Rs. 80,000 (Gross). He donated
Rs.10,000 to Prime Ministers National Relief Fund. .Compute the total income of Mr. R
for the assessment year 2019-20 and deduction allowed under section 80C.
5) R is employed in a company in Lucknow. He famishes the following particulars of his
income/investments during the previous year 2018-19:
(i) He draws salary @ Rs. 30,000 p.m. and dearness allowance @ Rs. 6.000 p.m. Dearness
allowance amounting to Rs. 3,000 p.m. forms part of basic pay for retirement benefits.
He is provided with a furnished flat at concessional rent of Rs. 1,000 p.m. The company
pays Rs. 6,000 p.m. as rent for the flat. Cost of furnishing Rs. 60,000, W.D.V. on
1.4.2018 Rs.25,000.
He has been paid Rs. 4,000 on account of arrear of bonus for 2015-16 and salary in lieu
of leave Rs. 5,000 for 2018-19. He has been provided with a chauffeur driven car of 1.7
kr. engine capacity for personal and official use. All expenses of its maintenance are
met by the employer.
He is a member of unrecognised provident fund to which he contributes 15% but the
employer contributes @ 20% of salary.
(ii) Income received from deposits with companies Rs.20,000.
(iii) He has received 1/3 share of the crop for leasing out agricultural land at Ambala. One-
half of the crop has been consumed in domestic use and the rest has been sold for Rs.
30,000, He deposited this sum in Public Provident Fund,
(iv) He has purchased National Savings Certificates VIII issue for Rs.20,000 on 15.2.2019.
Compute his total income and tax liability for the assessment year 2019-20, assuming
population of Lucknow is more than 25 lakhs.
6) R was in the service of G Ltd. since 1.1.1996 as medical officer. He dies on 1.2.2019. The
following information is available: Basic salary Rs. 20,000 per month; dearness allowance
Rs. 6,000 per month (40% of which is included for the purpose of determining retirement
benefit); transport allowance Rs. 3,800 per month (out of which only Rs. 600 is used for
the journey between office and residence; the remaining amount is not spent); and
entertainment allowance Rs. 1,000 per month. He contributes 15% of basic pay towards
recognised provident fund and G Ltd. also makes a matching contribution.

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 After the death of R, his legal heirs (i.e., his wife and his minor children) get the following
payments from G Ltd.:
(i) Salary for the month of January 2017;
(ii) Family pension Rs.10,000 per month;
(iii) Encashment of leave standing to the credit of R on 31.1.2019 Rs. 2.40,000 (as per
service rule, R was entitled for 45 days leave for each year of service);
(iv) Provident fund balance Rs. 3,90,000;
(v) Gratuity Rs. 2,60,000 (R is not covered by the Payment of Gratuity Act, 1972, nor
is there any agreement with the employer to receive gratuity).
R also runs a small clinic near his residence which is discontinued after the death of R. His
income from the clinic for the period 1.4.2018 to 31.1.2019 is Rs. 49,000.
After the discontinuation of the clinic, Mrs. R recovers Rs. 76,000 by 31.3.2019 against
outstanding bills issued by R. Mrs. R does not have any other income.
Assuming that salary, allowances and pension become due on the last day of the month,
compute the taxable income and tax liability thereon of Mr. R and Mrs. R for the assessment
year 2019-20.
Practice Questions
1) From the following details, find out the salary chargeable to tax of Mr. Anand for the
assessment year 2019-20:
Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 01-03-
2016 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 Rs 15,000
per month. He is also provided with following facilities:
(i) The Company reimbursed the medical treatment bill of Rs 40,000 of his daughter, who is
dependent on him.
(ii) The monthly salary of Rs 2,000 of a house keeper is reimbursed by the Company.
(iv) He is getting telephone allowance @ Rs 1,000 per month.
(v) A gift voucher of Rs 4,700 was given on the occasion of his marriage anniversary.
(vi) The Company pays medical insurance premium to effect an insurance on the health of Mr.
Anand Rs 12,000.
(vii) Motor car running and maintenance charges of Rs 36,600 fully paid by employer. (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.)
(viii) Value of free lunch provided during office hours is Rs 2,200.
2) Shri Hari is the General Manager of ABC Ltd. From the following details, compute the taxable
income for the Assessment year 2019-20:
Basic salary Rs 20,000 per month
Dearness allowance 30% of basic salary
Transport allowance (for commuting between place of residence and office) Rs 2,000 per month
Motor car running and maintenance charges fully paid by employer Rs 36,000
(The motor car is owned and driven by employee Hari. The engine cubic capacity is below 1.60
litres. The motor car is used for both official and personal purpose by the employee)
Expenditure on accommodation in hotels while touring on official duties met
by the employer. Rs 30,000
Loan from recognised provident fund (maintained by the employer) Rs 40,000
Lunch provided by the employer during office hours.
Cost to the employer Rs 12,000
Computer (cost Rs 50,000) kept by the employer in the residence of Hari

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 from 1.10.2018
Hari made the following payments:
Medical insurance premium : Paid in cash Rs 3,000
Paid by cheque Rs 27,000
3) Mr. Vignesh, Finance Manager of KLM Ltd., Mumbai, furnishes the following particulars for the
financial year 2018-19:
(i) Salary Rs 46,000 per month
(ii) Value of medical facility in a hospital maintained by the company Rs 7,000
(iii) Rent free accommodation owned by the company
(iv) Housing loan of Rs 6,00,000 given on 01.04.2018 at the interest rate of 6% p.a. (No repayment
made during the year). The rate of interest charged by State Bank of India (SBI) as on
01.04.2018 in respect of housing loan is 10%.
(v) Gifts in kind made by the company on the occasion of wedding anniversary of Mr. Vignesh Rs
4,750.
(vi) A wooden table and 4 chairs were provided to Mr. Vignesh at his residence (dining table).
This was purchased on 1.5.2015 for Rs 60,000 and sold to Mr. Vignesh on 1.8.2018 for Rs
30,000.
(vii) Personal purchases through credit card provided by the company amounting to Rs 10,000 was
paid by the company. No part of the amount was recovered from Mr. Vignesh.
(viii) An ambassador car which was purchased by the company on 16.7.2015 for Rs 2,50,000 was
sold to the assessee on 14.7.2015 for Rs 80,000.
Other income received by the assessee during the previous year 2018-19:
Particulars Rs
(a) Interest on Fixed Deposits with a company 5,000
(b) Income from specified mutual fund 3,000
(c) Interest on bank fixed deposits of a minor married daughter 3,000

(ix) Contribution to LIC towards premium under section 80CCC Rs 1,00,000

(x) Deposit in PPF Account made during the year 2018-19 Rs 40,000
Compute the taxable income of Mr. Vignesh and the tax thereon for the Assessment year 2019-
20.

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 Objective Questions

1) Bimal is employed in a factory at a salary of Rs 2,400 p.m. He also gets dearness allowance @ Rs
600 per month and bonus @ Rs 200 per month. He retired on 31-12-2015 and received Rs
75,000 as gratuity under the Payment of Gratuity Act, 1972 after serving 31 years and 4 months
in that factory. The amount of gratuity exempt under the Income-Tax Act, 1961 will be-
a) Rs 75,000 b) Rs 53,654 c) Rs 21,346 d) Rs 10,00,000
[December 2014]
2) Akash is entitled to get a pension of Rs 6,000 p.m. from a private company. He gets 60% of the
pension commuted and receives Rs 3,60,000. He also receives Rs 2,00,000 as gratuity from the
same employer. The taxable portion of commuted value of pension will be- [December 2014]
a) Rs 1,60,000 b) Nil c) Rs 3,60,000 d) Rs 60,000
3) Chandan, a handicapped employee received Rs 3,000 p.m. as transport allowance from his
employer. His actual expenditure on transport is Rs 2,000 p.m. The amount of transport
allowance taxable under the head income from salaries will be- [December 2014]
a) Rs 36,000 b) Nil c) Rs 12,000 d) Rs 16,000
4) Arjun joins a service in the grade of Rs 15,600 – 39,100 plus grade pay of Rs 6,000 on
01.08.2015. He also gets dearness allowance @ 107% of salary. His tax liability for assessment
year 2016-17 will be- [December 2014]
a) Rs 9,033 b) Rs 11,093 c) Nil d) Rs 8,770
5) Joy Ltd. Transfers a Honda city car to its employee Happy after using it for 4 years and 10
months, for Rs 2,10,000. Cost of the car is Rs 10,00,000. The value of taxable perquisite in the
hands of Happy is- [December 2014]
a) Rs 1,17,680 b) Rs 1,99,600 c) Nil d) Rs 7,90,000
6) Ramesh, an employee of Gauri & Co. of Delhi, received the following payments during the
previous year ended 31-3-2016:
Basic Salary: Rs 2,40,000 and dearness allowance; 40% of basic salary(40% forming part of
salary). Rent free unfurnished accommodation provided by employer for which rent paid by
employer being Rs 50,000. The value of taxable perquisite in the hands of Ramesh will be-
a) Rs 41,760 b) Rs 50,000 c) Rs 36,000 d) Rs 52,500
[December 2014]
7) For the year ended 31-3-2016 Paresh receives a salary of Rs 2,80,000. Paresh’s contribution to
employees’ recognised provident fund account is Rs 59,000 and matching contribution has been
made by employer. Taxable income of Paresh will be- [December 2014]
a) Rs 2,46,400 b) Rs 3,05,400 c) Rs 3,39,000 d) Rs 2,80,000
8) Children education allowance received by an employee from his employer is Rs 80 p.m. per
child for 3 children. Taxable education allowance will be- [December 2014]
a) Rs 960 b) Rs 480 c) Nil d) Rs 1,200
9) Which of the following is not correct about the approved superannuation fund- [June 2015]
a) Employees contribution qualifies for deduction u/s 80C.
b) Any amount contributed by the employer is exempt from tax.
c) Interest on accumulated balance is exempt from tax
d) Under some circumstances, payments from the fund are chargeable to income-tax.
10) Ashraf is an employee of Moon public School. His daughter, Zara, is studying in the said school
at a concessional fees of Rs 600 per month (Actual fee: Rs 4,000 p.m). The amount taxable in
the hands of Ashraf will be- [June 2015]
a) Rs 48,000 b) Rs 7,200 c) Nil d) Rs 40,800

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11) Ashok took an interest free loan of Rs 15,000 from B ltd. (the employer). Assuming that the
market rate of interest on similar loan is 10%, the taxable value of the perquisite in the hands of
Ashok will be- [June 2015]
a) Rs 150 b) Rs 1,500 c) Nil d) None of the above
12) During the previous year 2015-16, barun received a watch worth Rs 20,000 from his employer.
The taxable value of the watch will be- [June 2015]
a) Rs 15,000 b) Rs 20,000 c) Nil d) None of the above
13) Raman purchased a residential house property in Ahmedabad on loan for which he paid an
interest of rs 50,000 during the previous year. He is working in Delhi and getting an HRA of Rs
4,000 p.m. He can claim exemption/deduction for- [June 2015]
a) Only HRA
b) Only interest paid
c) Either interest paid or HRA but not both
d) Both HRA and interest paid.
14) Kapil gets salary of Rs 12,000 p.m. and is provided with rent free unfurnished accommodation
at Pune (population 20 lakh). House is owned by employer, fair rental value of which is Rs 1,400
p.m. House was provided with effect from 01.07.2015. Value of the perquisite of rent-free
accommodation will be- [December 2015]
a) Rs 21,600 b) Rs 10,800 c) Rs 16,200 d) Rs 12,600
15) Rohan retires from private service on 30.4.2015 and his pension has been fixed at Rs 1,500 p.m.
He gets ½ of his pension commuted during January 2016 and receives Rs 75,000. He also gets Rs
60,000 as gratuity. The total pension taxable including commuted value will be-
[December 2015]
a) Rs 16,500 b) Rs 41,500 c) Rs 39,250 d) Rs 14,250
16) Govt, of India paid salary of Rs 5 lakh and allowances/perquisites valued at Rs 2.20 lakh to a
person who is a citizen of India for the services rendered by him outside India for 5 months
during the previous year. His total income chargeable to tax would be- [December 2015]
a) Rs 7,20,000 b) Rs 5,00,000 c) Rs 6,10,000 d) Nil
17) X, Manager of XYZ Ltd. Since 2002 was terminated by the company on 01.08.2015 by paying a
compensation of Rs 200 lakh. Such compensation is – [December 2015]
a) Chargeable under the Wealth-Tax Act, 1957
b) Not chargeable under the Income-tax Act, 1961
c) Chargeable u/s 17(3)(i)
d) Chargeable u/s 28(ii)(a)
18) HSK, an LLP had taken keyman insurance policy on the life of its managing partner. The policy
got matured on 13.09.2015 and an amount of Rs 75 lakh was paid by the insurers to the
managing partner. The amount so received on maturity of the policy by the managing partner
is- [December 2015]
a) Fully exempt u/s 10(10D)
b) 50% of Rs 75 lakh exempt
c) Rs 75 lakh taxable
d) Rs 25 lakh exempt and Rs 50 lakh taxable
19) Pankaj joins service on 01.04.2011 in the grade of Rs 15,000 –(1,000)-18,000-(2,000)-26,000. He
shall be paying tax for the period ended on 31.03.2016 on the total salary of- [December 2015]
a) Rs 2,16,000 b) Rs 2,40,000 c) Rs 2,28,000 d) Rs 1,80,000

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20) Salary of S (Rs. 40,000 per month) becomes due on the last day of the month but is paid on 7th
of next month. Also, salary of April, 2014 and May, 2014 is received in advance in March, 2014.
What will be his gross income for Assessment Year 2014-15?
a) Rs. 5,60,000 b) Rs. 4,80,000 c) Rs. 4,40,000 d) Rs. 5,20,000
21) Calculate the exempt HRA from the following details:
X is entitled to a basic salary of Rs. 50,000 p.m. and dearness allowance of Rs. 10,000 p.m., 40%
of which forms part of retirement benefits. He is also entitled to HRA of Rs. 20,000 pm. He
actually lives with his parents in Mumbai and does not pay any rent. Market rent of that house
is Rs. 20,000 pm in Mumbai.
a) Nil b) Rs. 1,75,200 c) Rs. 64,800 d) Rs. 2,40,000
22) Y received children education allowance of Rs. 500 pm for 10 of his children. Calculate taxable
amount of children education allowance for the assessment year 2014-15 if entire Rs. 500 is
spent by Y.
a) Nil b) Rs. 4,800 c) Rs. 6,000 d) Rs. 3,600
23) A Ltd. has advanced an interest free loan of Rs. 5,00,000 to B for purchase of car on 1.5.2013. B
has been repaying the loan in instalments of Rs. 20,000 p.m. on the 1st of next month. Compute
the value of perquisite on account of interest assuming the interest charged by SBI is 10% p.a.
a) Rs. 34,833 b) Rs. 36,667 c) Rs. 40,000 d) Rs. 50,000
24) Employer provides a car (below 1.6 Ltr. capacity) alongwith a driver to X partly for official and
partly for personal purpose. The expenses incurred by the company are:
running and maintenance expenses - Rs. 32,000
driver's salary - Rs. 36,000
Taxable value of perquisite is:
a) Rs. 21,600 b) Rs. 21,600 c) Rs. 32,400 d) Rs. 39,600
25) X retired on 15.4.2013 from a company. He was entitled to a pension of Rs. 4,000 p.m. At the
time of retirement, he got 75% of the pension commuted and received Rs. 1,20,000 as
commuted pension. Compute the taxable portion of the commuted pension if he is entitled to
gratuity.
a) Rs. 66,667 b) Rs. 53,333 c) Rs. 1,20,000 d) Rs. 78,667
26) X is employed in Complex Ltd as a chartered accountant. The annual membership fee of X paid
by Complex Ltd is not a perquisite and hence not chargeable to tax, state the validity of the
statement
a) Valid b) Invalid c) Partly Valid d) None of the above
27) Z, a chartered accountant is employed with L Ltd, as an internal auditor and requests the
employer to call the remuneration as internal audit fee. Z shall be chargeable to tax for such fee
under the head:
a) Income u/h Salary b) PGBP c) Income from other sources d) None of the above
28) Salary is taxable on __________ basis
a) Accrual basis b) Receipt basis
c) Due or receipt basis, whichever is earlier d) Due or receipt basis, whichever is later
29) Which of the allowance is partly taxable.
a) Lunch Allowance
b) Conveyance Allowance
c) Allowance received by employee of UNO
d) Dearness Allowance
30) HRA is fully taxable allowance. State the validity of the statement.
a) Valid b) Partly Valid c) Invalid d) None of the above
31) Mr Suresh was employed as assistant manager of R Ltd of Delhi, at monthly basic salary of Rs
25,000 and DA being 20% of salary (30% forming part of retirement benefit) and HRA of Rs
26,000 p.m. Mr Suresh was living in Gurgaon and paying Rent of Rs 22,000 p.m. Compute the
taxable HRA of Mr Suresh.
a) Nil b) Rs 3,12,000 c) Rs 1,84,800 d) Rs 79,800
32) From the following details of the salary of Mr Ram, compute taxable HRA:

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 Basic Pay – Rs 26,000 p.m upto 30.09.2015 and thereafter Rs 29,000
D.A. – 40% of Basic Pay (50% forming part)
HRA – Rs 24,500 p.m
Rent – Rs 19,000 p.m (stay in Mumbai)
Commission fixed – Rs 1,00,000 p.a.
a) Nil b) Rs 2,94,000 c) Rs 1,05,600 d) Rs 96,000
33) From the following details of the salary of Mr Ram, compute taxable HRA:
Basic Pay – Rs 26,000 p.m upto
D.A. – 40% of Basic Pay
HRA – Rs 24,500 p.m
Rent – Rs 19,000 p.m (stay in Mumbai) till 30, November 2015 and thereafter Rs 22,000 p.m.
(stay in Nasik)
a) Nil b) Rs 2,94,000 c) Rs 1,48,400 d) Rs 85,600
34) The allowance received by the employee for going for outstation official tour shall be stated as
________________ allowance.
a) Transport Allowance b) Conveyance allowance
c) Travelling Allowance d) None of the above
35) Employee received Rs 8,750 as on travelling on official duty within city and the actual amount
spent by the employee was Rs 9,760. Calculate the taxable amount of allowance.
a) Nil b) Rs 8,750 c) (Rs 1,010) d) None of the above
36) An employee was receiving HRA at Rs 29,000 p.m. and was living in his parents house.
Exemption u/s 10(13A) allowed to said employee shall be _____________.
a) Nil b) Rs 29,000
c) Either (a) or (b) d) None of the above
37) An employee received Rs 1,400 p.m. as tribal area allowance. And the said employee spent Rs
18,000 on official expenses. The taxable amount of allowance will be ______________.
a) Nill b) (Rs 1,200) c) Rs 14,400 d) Rs 16,800
38) Surender is entitled to children education allowance of Rs 90 p.m. per child for 4 children
amounting to Rs 360 p.m and amount spent is Rs 320 p.m. The taxable amount of allowance
shall be __________________.
a) Nil b) Rs 480 c) Rs 2,160 d) Rs 4,320
39) Sandeep is entitled to hostel expenditure allowance of Rs 350 p.m. per child for 4 children
amounting to Rs 1,400 p.m and amount spent is Rs 1,500 p.m. The taxable amount of allowance
shall be __________________.
a) Nil b) Rs 9,600 c) Nil d) 16,800
40) Daya received Rs 16,000 as medical allowance. He spent Rs 10,000 on his medical treatment
and Rs 4,000 on medical treatment of his son. The taxable amount of allowance shall be
__________________.
a) Nil b) Rs 1,000 c) Rs 2,000 d) Rs 16,000
41) Education allowance in case of Government employee is ________________.
a) fully taxable.
b) fully exempt.
c) considered as part of salary and allowed as deduction from gross u/s 16(ii).
d) exempt upto limit specified in sec 16(ii)
42) Deductions u/s 16(ii) is allowable to ________________.
a) Central Government employee
b) Central Government employee and State Government employee
c) Central Government employee and State Government employee and employee of local
authority
d) None of the above

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43) Anand being an government employee having annual salary of Rs 2,88,000 was provided
accommodation (owned by employer) by employer in Delhi and the value as per government
rules is Rs 74,000. Taxable value of accommodation will be __________.
a) Rs 43,200 b) Rs 74,000 c) Nil d) None of the above
44) Sachin an employee of RML Ltd was entitled to annual salary of Rs 2,15,000. And was provided
and accommodation which was taken on rent by the employer at Rs 3,000 p.m. The employer
charges Rs 2,000 p.m. as rent from the employee. The taxable value of accommodation shall be
__________.
a) Rs 27,600 b) Rs 12,000 c) 8,250 d) Nil
45) Gautam and employee of ABC Ltd at annual salary of Rs 2,30,000, is provided accommodation in
a hotel for 14 days on account of transfer from Delhi to Pune. The charges paid by the employer
for hotel accommodation were Rs 34,000. The taxable value of accommodation shall be ______.
a) Rs 34,000 b) Rs 55,200 c) Rs 34,500 d) Not taxable
46) Employee’s electricity bill was paid by the employer amounting to Rs 16,400. The taxable value
of perquisite shall be _____________.
a) Nil b) Rs 16,400 c) Either (a) or (b) d) Exempt
47) Employee received 1,000 shares for Rs 30 per share. The face value of the share was Rs 10 and
FMV of the share is Rs 60 per share. The taxable value of perquisite shall be ________.
a) Rs 6,000 b) Rs 3,000 c) 2,000 d) Nil
48) Employee was provided with mobile worth Rs 50,000 by employer and the mobile bill
amounting to Rs 13,500 was paid by the employer. The taxable value of perquisite will be ____.
a) Rs 13,500 b) Rs 18,500 c) Exempt d) None of the above
49) Employee was provided with air conditioner (worth Rs 38,000) and furniture (worth Rs 65,000)
which was taken on rent by employer at Rs 3,500 p.m. The taxable value of the perquisite will
be _____.
a) Rs 10,300 b) Rs 45,800 c) Nil d) None of the above
50) Employer sold one of its car purchased at Rs 3,00,000 after being used for official purpose for 2
years 6 months for Rs 1,20,000. The taxable value of perquisite shall be _________________.
a) Rs 72,000 b) Rs Nil c) Rs 1,23,000 d) Rs 1,20,000
51) What will be the answer if Q 50 the asset transferred is a computer?
a) Rs 72,000 b) Rs Nil c) Rs 1,23,000 d) Rs 1,20,000
52) What will be the answer if Q 50 the asset transferred is a neither a car nor computer?
a) Rs 72,000 b) Rs Nil c) Rs 1,23,000 d) Rs 1,20,000
53) Mr Suresh received from his employer a gift of Titan watch worth Rs 13,500. Such gift shall be –
a) be a perquisite and taxable u/h salary and value of perquisite shall be Rs 13,500
b) be a perquisite and taxable u/h salary and value of perquisite shall be Rs 8,500
c) not a perquisite
d) none of the above
54) Amount received as transport allowance by employee is exempt upto ____________-.
a) Amount received
b) Rs 1,600 or Rs 3,200 for blind/handicapped employee
c) Lower of (a) or (b)
d) None of the above
55) Allowances allowed to transport employee shall be exempt upto ______________.
a) 70% of amount received
b) Rs 10,000
c) Lower of (a) or (b)
d) None of the above
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56) Surender a sales manager of PQR Ltd was provided a rent free accommodation in Pune. The
details of his salary are as follows
Basic Salary: Rs 6,000 p.m.
Advance Salary for April 2015: Rs 5,000
D.A: Rs 2,000 p.m. (30% forming part of retirement benefits)
Bonus: Rs 1,500 p.m.
The house was provided from 01.04.2015 while it was occupied by him from 01.11.2015 and
employer charged Rs 500 p.m. for the said accommodation. Calculate the value of
perquisites__.
a) Rs 3,575 b) Rs 3,500 c) Rs 2,000 d) Nil
57) An employee was provided a interest free loan from his employer. The value of the perquisite
shall be a sum equal to
a) Simple interest compounded @ 10%
b) Simple interest compounded at the rate charged by SBI on the date of loan obtained on the
maximum outstanding monthly balance
c) Simple interest compounded at the rate charged by SBI on the 1st day of the relevant previous
year on the maximum outstanding monthly balance
d) Simple interest compounded at the rate charged by SBI on the last day of the relevant previous
year on the maximum outstanding monthly balance
58) Value of interest free loan shall not be taxable in which of the following case?
a) If the loans on the last day of the month does not exceed Rs 20,000
b) If the loan is being obtained for a specified disease.
c) Either of (a) or (b)
d) None of the above
59) When accommodation and other expense on holiday has been borne by the employer during
the official tour of the employee. The amount so incurred is
a) taxable in the hands of the employee
b) not taxable in the hands of the employee
c) may be taxable at the discretion of the Assessing Officer
d) none of the above
60) Tea or snacks provided during the working hours shall be
a) fully taxable
b) fully exempt
c) partly taxable
d) none of the above
61) Free food and non-alcoholic beverages provided by the employer during the working hours,
shall be exempted upto __________.
a) Rs 200 per meal b) Rs 50 per meal
c) Rs 150 per meal d) Nil
62) Leave travel concession is tax free perquisite _______________.
a) for one journey in a block of 4 years
b) one journey per year
c) two journeys in a block of 4 years
d) none of the above
63) If the employee performs a journey by any mode of transportation other than Air, and not
connected by rail, the amount of exemption shall be _________.
a) the second class rail fare by the shortest route to the place of destination
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b) the first class rail fare by the shortest route to the place of destination
c) the first class rail fare by the longest route to the place of destination
d) the 1st class rail fare or deluxe class fare
64) Mrs Suresh, wife of Mr Suresh who is employed in ABC Ltd went for by pass surgery in Russia
alongwith her husband. Expenses on medical treatment of wife and stay outside India of wife
and Mr Suresh amounted to Rs 7,00,000 as against Rs 6,50,000 permitted by RBI Guidelines.
The travel expenses amounted to Rs 1,50,000 and all expenses were reimbursed by the
employer. And assume the gross salary and income from other sources of Mr Suresh are Rs
1,60,000 and Rs 50,000 respectively. The taxable value of the perquisite shall be ______.
a) Nil b) Rs 2,00,000 c) Rs 50,000 d) Rs 1,50,000
65) The employee is provided amount for treatment in hospital maintained by local authority, the
amount so paid shall ______________.
a) be fully taxable b) be partly taxable c) fully exempt d) none of the above

66) Health insurance of the employee paid by the employer shall be ___________
a) fully taxable b) fully exempt
c) exempt upto limit of Rs 15,000 d) none of the above
67) R is an employee of Indian Oil Corporation Ltd. He is provided with free gas for his personal
purposes by the employer. The perquisite shall ___________.
a) be taxable in case of specified employee only
b) be taxable in case of an employee other than specified employee
c) be taxable case of specified and non specified employees
d) not be taxable
68) Employee was provided the reimbursement of the salary paid to gardner. Sweeper and the
watchman @ Rs 500 p.m. each by the employer. The taxable value of the perquisite shall be
_________.
a) Rs 4,320 b) Rs 18,000 c) Rs 1,960 d) Rs 6,000
69) In which of the following case should amount spent by the employee on education of children is
taxable?
a) Education facility is owned by the employer and value per child exceed Rs 1,000 p.m.
b) Free education is provided in any other educational institution by reason of employee being in
employment of that employer and value per child exceed Rs 1,000 p.m.
c) Any of the above
d) None of the above
70) A car of 1500 cc is provided by the employer, to the employee whose salary is Rs 20,000 p.m.
The car is used by him partly for official and partly for his personal purposes. The expenses of
running and maintenance for official purpose is met by the employer and the expenses of
running and maintenance for private use is met by employee himself. The valuation of the
perquisite shall be ______________.
a) Nil b) Rs 1,800 p.m. c) Rs 600 p.m. d) None of the above
71) An employer has provided a motor car of 1.5 liter capacity to his employee which the employee
is allowed to use for official purpose and for travelling from office to residence and back. The
expenses of running and maintenance of Motor car are met by the employer. The value of the
perquisite shall be __________.
a) Rs 1,800 b) Rs 600 p.m. c) Nil d) Rs 2,400 p.m
72) Suresh is provided with a car of 1.6 liter capacity by the employer alongwith driver. The
expenses of running and maintenance of car are met by Suresh himself. Besides using the car

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 for official purposes, Suresh uses the car for his personal purposes also. The value of the
perquisite shall be ____________.
a) Rs 7,200 b) Rs 18,000 c) Rs 10,800 d) Nil
73) Satish an employee, owns an car which he uses for private as well as official purposes. The
expenses of running and maintenance of the car is met by the employer. The perquisite shall be
______________.
a) taxable in case of specified employee
b) taxable in case of an employee other than specified employees
c) taxable case of specified and non specified employee.
d) Not be taxable
74) Gratuity shall be fully exempt in case of :
a) Central and state government employee
b) Central and state government employees and employees of local authority
c) Central and state government employees and employees of local authority and employee of
statutory corporation
d) None of the above
Following questions for employee covered under Provisions of Gratuity Act, 1972
75) Salary for purpose of calculating 15 days salary for each completed year of service shall be
_________.
a) last drawn salary
b) average salary of last 10 months
c) average salary of last 3 completed years
d) none of the above
76) Salary for the above purpose shall ________________.
a) include D.A. and fixed % of commission on turnover achieved by employee.
b) not include D.A.
c) include D.A. to the extent the terms of employment provide
d) none of the above
77) If the employee has completed service of 16 years 6 months and 5 days, the number of
completed year shall be taken as ________________.
a) 16 years
b) 17 years
c) 16 years 6 months and 5 days
d) None of the above
78) If the employee has completed service of 16 years 6 months, the number of completed year
shall be taken as ________________.
a) 16 years
b) 17 years
c) 16 years and 6 months.
d) None of the above
79) For the purpose of computing 15 days salary, the number a days in a month shall be taken as
_______________.
a) 30 days
b) 26 days
c) 31 days
d) None of the

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80) The maximum amount of exemption of gratuity shall be ___________.
a) Rs 6,00,000 b) Rs 3,50,000 c) Rs 10,00,000 d) 20 months salary
Following questions for employee being neither a government employee nor covered under
Provisions of Gratuity Act, 1972
81) Salary for purpose of calculating 15 days salary for each completed year of service shall be
_________.
a) last drawn salary
b) average salary of last 10 months
c) average salary of last 3 completed years
d) none of the above
82) Salary for the above purpose shall ________________.
a) include D.A. and fixed % of commission on turnover achieved by employee.
b) not include D.A.
c) include D.A. to the extent the terms of employment provide
d) include D.A. to the extent the terms of employment provide and fixed % of commission on
turnover achieved by employee.
83) If the employee has completed service of 16 years 9 months, the number of completed year
shall be taken as ________________.
a) 16 years
b) 17 years
c) 16 years and 9 months.
d) None of the above
84) The maximum amount of exemption of gratuity shall be ___________.
a) Rs 6,00,000 b) Rs 3,50,000 c) Rs 10,00,000 d) 20 months salary
85) Surender claimed the exemption under gratuity in the past to the extent of Rs 3,50,000, was
entitled to the gratuity from the present/second employer amounting to Rs 6,00,000 in the
previous year 2015-16 as he retired on 25.10.2015. Surender shall be entitled to exemption
maximum of _____________
a) Rs 6,50,000 b) nil c) Rs 6,00,000 d) None of the above
86) Un-commuted pension received by a government employee is
a) fully taxable b) fully exempt
c) partially taxable d) none of the above
87) An employee was also entitled to gratuity. He got 60% of his pension commuted and received a
sum of Rs 12,00,000 as commuted pension. The exemption available shall be ___________.
a) Rs 12,00,000
b) Rs 4,00,000
c) Rs 6,66,667
d) Rs 10,00,000
88) Encashment of leave salary at the time of retirement is fully taxable in the case of __________.
a) Central Government employee
b) State Government employee
c) Both Central and State Government employee
d) Government employee and employee of local authority
89) Salary for exemption under leave encashment shall be ________________.
a) last drawn salary
b) average salary of 10 months immediately preceding the month of retirement
c) average salary of 10 months immediately preceding the date of retirement

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d) none of the above
90) The maximum exemption in case of leave encashment shall be _________________.
a) Rs 2,40,000
b) Rs 3,00,000
c) Rs 3,50,000
d) None of the above
91) An employee availed the exemption of leave encashment of Rs 1,00,000 in the past. He
received from the second employer a sum of Rs 2,50,000 as leave encashment. The value of
exemption available shall be ___________________.
a) Rs 2,50,000
b) Nil
c) Rs 2,00,000
d) Rs 1,40,000
92) The compensation received on voluntary retirement is exempt under 10(10C) to the maximum
extent of ______________.
a) Rs 5,00,000
b) Rs 2,40,000
c) Rs 3,50,000
d) Rs 10,00,000
93) Employer contribution to statutory provident fund shall be
a) fully taxable
b) fully exempt
c) exempt upto 10% of salary
d) exempt upto 12 % of salary
94) Interest credited to statutory provident fund shall be
a) fully taxable
b) fully exempt
c) exempt upto 8.5% p.a.
d) exempt upto 9.5% p.a.
95) Employer contribution to recognized provident fund shall be
a) fully taxable
b) fully exempt
c) exempt upto 10% of salary
d) exempt upto 12 % of salary
96) Interest credited to recognized provident fund shall be
a) fully taxable
b) fully exempt
c) exempt upto 8.5% p.a.
d) exempt upto 9.5% p.a.
97) Employer contribution to unrecognized provident fund shall be
a) fully taxable
b) fully exempt
c) neither exempt nor taxable in the year of contribution
d) exempt upto 12 % of salary
98) Interest credited to unrecognized provident fund shall be
a) fully taxable

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b) fully exempt
c) neither exempt nor taxable in the year of contribution
d) exempt upto 9.5% p.a.
99)Employee’s/assessee’s contribution to statutory or recognized provident fund or public
provident fund shall be subject to ____________.
a) deduction u/s 80C
b) deduction u/s 80CCC
c) deduction u/s 16 from gross salary
d) none of the above
100) Employee’s contribution to unrecognized provident fund shall be subject to ____________.
a) deduction u/s 80C
b) deduction u/s 80CCC
c) deduction u/s 16 from gross salary
d) nil deduction
101) Payment from statutory fund and public provident fund shall be _____.
a) fully taxable
b) fully exempt
c) taxable to the extent of employer’s contribution and interest thereon
d) none of the above
102) Payment from recognised fund after 5 years of service shall be _____.
a) fully taxable
b) fully exempt
c) taxable to the extent of employer’s contribution and interest thereon
d) none of the above
103) Payment from recognised fund before 5 years of service shall be _____.
a) fully taxable
b) fully exempt
c) taxable to the extent of employer’s contribution and interest thereon
d) shall be treated as if the fund was unrecognized right from beginning
104) Payment from unrecognised fund shall be _____.
a) fully taxable
b) fully exempt
c) taxable to the extent of employer’s contribution and interest thereon
d) same as (c) and the interest on employees contribution shall be taxable under head other
sources
105) The year in which unrecognized provident fund is converted in recognized provident fund:
a) the employers contribution till date and interest thereon shall be taxable
b) the employers contribution till date shall be taxable
c) it will be assumed as if the provident fund was recognized right from beginning and excess
amount of employers contribution and interest thereon shall be chargeable to tax.
d) None of the above

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 Answers
1) b) 36) a) 71) c)
2) a) 37) c) 72) b)
3) b) 38) c) 73) c)
4) a) 39) b) 74) b)
5) b) 40) d) 75) a)
6) a) 41) c) 76) a)
7) a) 42) b) 77) b)
8) a) 43) b) 78) a)
9) b) 44) c) 79) b)
10) d) 45) d) 80) c)
11) c) 46) b) 81) b)
12) a) 47) b) 82) d)
13) d) 48) c) 83) a)
14) b) 49) b) 84) c)
15) c) 50) a) 85) c)
16) b) 51) b) 86) a)
17) c) 52) d) 87) c)
18) c) 53) b) 88) c)
19) b) 54) c) 89) c)
20) a) 55) c) 90) b)
21) a) 56) a) 91) c)
22) b) 57) c) 92) a)
23) b) 58) c) 93) b)
24) c) 59) b) 94) b)
25) a) 60) b) 95) d)
26) b) 61) b) 96) d)
27) a) 62) c) 97) c)
28) c) 63) d) 98) c)
29) b) 64) b) 99) a)
30) c) 65) c) 100) d)
31) c) 66) b) 101) b)
32) c) 67) c) 102) b)
33) c) 68) b) 103) d)
34) c) 69) c) 104) d)
35) a) 70) c) 105) c)

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