Salary

CA SHREY RATHI SALARY 3.
APJ ABDUL KALAM
CHAPTER 3
SALARY
"If you want to shine like a sun,

first burn like a sun”
SCOPE OF THIS CHAPTER

❖ Determination of taxability point of ‘Income under the head salary”.
❖ Understanding the concept of allowances, perquisites and various retirement benefits.
❖ Computation of value of Perquisites.
❖ Deductions under the head salary.
INTRODUCTION
In order to charge income under the head “Salaries”, the relationship between payer and payee should be of an employer
and employee. This relation is said to exist only if there is control over the method of doing the work of another person. If
the payer can direct the payee, how, when & what has to done, it can be concluded that payer has control over the payee.
This relationship is also known as master-servant or principal-agent relationship.
But if there is no control over the work of another person, then the relationship is said to be of principal to principal basis.
Any payment received in such case shall be taxable under the head PGBP or other sources.
1. Guest Lecturer
Some examples where there is no control of 2. Partner of a Firm
payer over payee are:
3. Member of Parliament
CA SHREY RATHI SALARY 3.2
Let us understand this with the help of an example:
Titu is employed with Dharma He acts in various films produced by

Productions, who pays a monthly UTV Productions also.
remuneration of ₹ 5 lakhs.
Titu is an actor
The remuneration for acting in such films is directly paid to Dharma Productions by UTV Productions.
Conclusion: In this case, ₹ 5 lakh will constitute salary in the hands of Titu, since the relationship of employer and
employee exists between Dharma Productions and Titu.
METHOD OF COMPUTATION UNDER THE HEAD SALARY
Income under the head Salaries

Particulars (₹) (₹)
Basic Salary xxx
Allowances xxx
Less: Exempt xxx xxx
Perquisites xxx
Retirement Benefits xxx
Less: Exempt xxx xxx
Gross Salary xxx
Less: Deductions u/s 16
(a) Standard Deduction (Max: ₹ 50,000) xxx
(b) Professional Tax (payment basis) xxx
(c) Entertainment Allowance (only to Government employee) xxx xxx
Income chargeable under the head Salaries
xxx
BASIS OF CHARGE [SECTION 15]
Salary is taxable on due or receipt basis whichever is earlier.
Therefore, where any salary paid in advance is included in the total income of any person for any previous year, it shall not
be included again in the total income when the salary becomes due.
FAQ by Students:
Sir, please elaborate “due &

receipt”?
Due: Right to receive. Where the employee has worked
but the payment is pending, then the salary is due.
Receipt: Amount actually received. Where the
employee has received the salary even when he hasn’t
worked for the employer yet.
Sir, what if in FY 2021-22, an

employee receives salary
pertaining to FY 2020-21 (not
charged to tax). What will be the
treatment for this? Ans: Arrears of salary not charged to tax in an
earlier previous year are taxable in the year in
which it is received. But relief u/s 89(1) shall be
available.
Sir, Is there any difference

between advance salary and
advance against salary? Yes, Advance salary is different from advance against salary.
Advance salary is taxable on receipt basis whereas advance
against salary is a loan, which is repayable in certain specified
instalments. Such loan amount cannot be brought to tax as
salary of the employee.
However, interest free / concessional loan is a perquisite to the

employee.
Q 1: Mr. Y is an employee of BCD Ltd. getting a salary of ₹ 45,000 per month which is due on the 1st of next month and is
paid on the 7th of the next month. Salary for which months will be taxable for the A/Y 2022-23?
Sol 1: Salary becomes taxable on due or receipt basis whichever is earlier.

Due date for salary = 1st of the next month
Receipt date for salary = 7th of the next month
Therefore, salary shall become taxable on the due date for salary.
Months that shall become taxable for the A/Y 2022-23 = March 2021 to February 2022.
Q 2: Suppose in the above example, he is paid the salary of April 2022 and May 2022 in advance in March 2022. What will
be his gross salary for the A/Y 2022-23?
Sol 2: If salary of April 2022 & May 2022 is received in advance in the month of March 2022, they shall become taxable on
receipt basis (being earlier than due basis) in the month of March 2022 itself.
Computation of gross salary for the month of A/Y 2022-23:
March 2021 – February 2022 (due basis) (₹ 45,000 x 12) = ₹ 5,40,000
April 2022 – May 2022 (receipt basis) (₹ 45,000 x 2) = ₹ 90,000
Gross Salary = ₹ 6,30,000
FAQ by Students:
Sir, Is Bonus also taxable on due or

receipt basis whichever is earlier?
Ans: No. Bonus is taxable on receipt basis only.

Therefore, where bonus is actually received, then
only it shall be included in the gross salary.
❖ Foregoing of salary: Once salary accrues, the subsequent waiver by the employee does not absolve him from liability
to income-tax. Such waiver is only an application and hence, chargeable to tax.
For e.g.: Mr. Anil, an employee instructs his employer that he is not interested in receiving the salary for April 2021 and
the same might be donated to a charitable institution.
In this case, Mr. Anil cannot claim that he cannot be charged in respect of the salary for April 2021. It is only due to his
instructions that the donation was made to a charitable institution by his employer. It is only an application of income.
Hence, the salary for the month of April 2021 shall be taxable in the hands of Mr. Anil.
❖ Surrender of Salary: If an employee surrenders his salary to the Central Government, the salary so surrendered would
be exempt while computing his taxable income.
FAQ by Students:
Sir, does full time job or part time

job makes a difference to the
taxability of the income?
Ans: No. Once the relationship of employer and
employee exists, the income is to be charged under
the head “salaries”. It does not matter whether the
employee is a full-time employee or a part-time one.
Q 3: Mr. Anirudh received bonus of ₹ 50,000 relating to P/Y 2018-19 & ₹ 70,000 relating to P/Y 2020-21 in the year P/Y
2021-22. Further he received ₹ 1,00,000 as bonus in the P/Y 2021-22 which relates to this year only. What amount of bonus
shall be taxable in the P/Y 2021-22?
(a) ₹ 1,00,000 (c) ₹ 2,20,000
(b) ₹ 1,20,000 (d) Nil [Ans: (c)]
Q 4: Mr. Harmeet earned ₹ 3,00,000 as salary from ABC Ltd, out of which he surrendered 1/5th in favour of the Central
Government and forgone 1/3rd in favour of a charitable institution. Further, he also earned ₹ 10,000 p.m. as part time salary
from XY Ltd. Compute his gross salary.
(a) ₹ 3,60,000 (c) ₹ 4,20,000
(b) ₹ 3,00,000 (d) ₹ 2,60,000 [Ans: (a)]
RELIEF WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE [SEC 89(1)]
STEP 1: Calculate tax payable for the P/Y in which STEP 2: Calculate the tax payable of every P/Y to which the
such arrears/advance is received on: additional salary relates on:
(i) Total income inclusive of additional salary (i) Total income including additional salary of that particular
P/Y
(ii) Total income exclusive additional salary
(ii) Total income excluding additional salary
The difference between (i) and (ii) is the tax on
additional salary. (B) The difference between (i) and (ii) is the tax for every P/Y
to which the additional salary relates and aggregate the same.
STEP 3: Relief u/s 89(1) = (A) – (B).

Where (A) – (B) is negative, the assessee need not apply for relief.
Q 5: Mr. Hari, who turned 62 years on 28-03-2022, informed you that the salary (computed) for the previous year 2021-22
is ₹ 10,20,000 and arrears of salary (not taxed earlier) received is ₹ 1,03,000, which relates to P/Y 2016-17. Further, salary
received in the P/Y 2016-17 was ₹ 7,25,000.
Assessment year Slab rate of income tax

For the individuals of the age of 60 year or For other residential individuals
more of any time during the previous year
Slab Rate Slab Rate
2017-18 Upto ₹ 2,40,000 Nil Upto ₹ 1,60,000 NIL
₹ 2,40,001 – ₹ 5,00,000 10% ₹ 1,60,001 – ₹ 5,00,000 10%
₹ 5,00,001 – ₹ 8,00,000 20% ₹ 5,00,001 – ₹ 8,00,000 20%
Above ₹ 8,00,000 30% Above ₹ 8,00,000 30%
Note: Education Cess @ 2% and Secondary and Higher Education Cess @ 1% was leviable in the A/Y 2017-18.
Compute the relief available under section 89 and the tax payable for the A.Y. 2022-23.
Sol 5: Computation of Relief u/s 89(1) for Mr. Hari:

Tax liability for the year in which such arrears are received (i.e. P/Y 2021-22)
Particulars Incl. arrears of salary (₹) Excl. arrears of salary
(₹)
Current year salary (Computed) 10,20,000 10,20,000
Add: Arrears of salary 1,03,000 -
Taxable Salary 11,23,000 10,20,000
Income tax thereon (Senior Citizen) 1,46,900 1,16,000
Health & Education Cess @ 4% 5,876 4,640
Total Tax Payable 1,52,776 1,20,640
(Rounded off) 1,52,780 1,20,640
Additional tax payable due to arrears of salary [A] 32,140
(₹ 1,52,780 – ₹ 1,20,640)
Tax liability for the year in which such arrears relates (i.e. P/Y 2016-17)
Particulars Incl. arrears of salary (₹) Excl. arrears of salary
(₹)
Salary received 7,25,000 7,25,000
Add: Arrears of salary 1,03,000 -
Taxable Salary 8,28,000 7,25,000
Income tax thereon (Non-Senior Citizen) 1,02,400 79,000
EC + SHEC @ 3% 3,072 2,370
Total Tax Payable 1,05,472 81,370
(Rounded off) 1,05,470 81,370
Additional tax payable due to arrears of salary [B] 24,100
(₹ 1,05,470 – ₹ 81,370)
Relief u/s 89(1) [A – B]: ₹ 32,140 – ₹ 24,100 = ₹ 8,040.
Tax payable by Mr. Hari for the A/Y 2022-23:

Particulars (₹)
Income tax payable on total income including arrears of salary 1,52,780
Less: Relief u/s 89(1) 8,040
Tax payable after claiming relief 1,44,740
ALLOWANCES
SPECIFIED ALLOWANCES u/s 10(14)
A. Following allowances gets exempted depending upon actual expenditure by the employee. In other words, the amount
of exemption u/s 10(14) shall be lower of the following:
(i) the amount received as allowance or
(ii) the amount utilised for the specific purpose for which allowance is given.
1. Travelling allowance - granted to meet the cost of travel on tour or on transfer of goods.
2. Daily allowance - granted on tour or for the period of journey in connection with the transfer to meet the ordinary
daily charges.
3. Conveyance allowance - granted to meet the expenditure on conveyance in performance of duties of an office.
4. Helper allowance - granted to meet the expenditure of a helper engaged for the performance of official duties.
5. Uniform allowance - granted to meet the expenditure on the purchase or maintenance of uniform for wear during the
performance of duties of an office.
6. Academic/Research allowance - granted for encouraging training pursuits in educational and research institutions.
Q 6: Mr. Raghav was provided ₹ 3,000 p.m. as academic allowance and ₹ 6,000 per quarter as uniform allowance by his
employer. He spent ₹ 7,000 per quarter on academic and ₹ 3,500 p.m. on uniform. His taxable allowance shall be:
(a) Nil (c) ₹ 26,000
(b) ₹ 8,000 (d) ₹ 18,000 [Ans: (b)]
B. Following allowances does not depend upon the expenditure. Regardless of the amount of expenditure, the allowances
are exempt to the extent of lower of the following:
I. the amount received as allowance or
II. the amount specified in rule 2BB
1. Special Compensatory (Hill areas

allowance)
It is an allowance granted to an employee working in high
altitude climate areas.
Exemption varies from ₹ 300 p.m. to ₹ 7,000 p.m.
2. Border area allowance

Granted to an employee working in remote locality or
disturbed area.
Exemption varies from ₹ 200 p.m. to ₹ 1,300 p.m.
3. Tribal area allowance

Granted to an employee working in scheduled areas
Exemption: ₹ 200 p.m.
4. Allowance for transport employees

Granted to an employee working in any transport system to meet his
personal expenditure during his duty performed in the course of
running such transport from one place to another provided he is not in
receipt of daily allowance.
Exemption: i) 70% of such allowance

or lower
ii) ₹ 10,000 p.m.
5. Children education allowance

This allowance is provided to an employee for his children’s education.
Exemption: ₹ 100 p.m. per child upto 2 children.

Sir, I have 2 siblings. The employer of my

father pays ₹ 270 p.m. for 3 children as
education allowance to my father. In such
case, will my father be allowed ₹ 200 as
exemption?
Ans: No, your father will be allowed
exemption of ₹ 180 p.m. (i.e. ₹ 270/3 x 2) only
as exemption is restricted to 2 children only.
The taxable allowance shall be ₹ 90 p.m.
6. Hostel expenditure allowance
This allowance is provided to an employee to meet the hostel

expenditure of his child.
Exemption: ₹ 300 p.m. per child upto 2 children.
Q 7: Mr. Sharma was provided ₹ 8,000 p.a. as children hostel allowance for his 3 children. He spent ₹ 2,200 p.a. per child
on hostel accommodation. The taxable allowance shall be:
(a) ₹ 800 (c) ₹ 2,667
(b) Nil (d) ₹ 3,600 [Ans: (c)]
7. Transport allowance
Granted to a blind / handicapped employee for the purpose
of commuting between the place of his residence and the
place of duty.
Exemption: ₹ 3,200 p.m.
8. Underground allowance
Provided to an employee working in unnatural climate in

underground mines.
Exemption: ₹ 800 p.m.

9. High altitude (uncongenial climate)

allowance
Given to the member of the armed forces for altitude of
Exemption: 9,000 feats – 15,000 feats - ₹ 1,060 p.m.

Above 15,000 feats - ₹ 1,600 p.m.
Q 8: Mr. Anil received education allowance of ₹ 80 p.m. for his 1st child, ₹ 90 p.m. for his 2nd child and ₹ 120 p.m. for his 3rd
child. He also received hostel allowance of ₹ 1,000 p.m. None of his children are studying. Find taxable children education
allowance and hostel allowance.
Sol 8: Computation of taxable children education & hostel allowance:

Particulars (₹) (₹)
Children education allowance (₹ 80 + ₹ 90 + ₹ 120) x 12 3,480
Less: Exemption ((₹ 100 + ₹ 90) x 12 2,280 1,200
Hostel Allowance (₹ 1,000 x 12) 12,000
Less: Exemption (₹ 300 x 2 x 12) 7,200 4,800
Taxable Allowance 6,000
Note: Education allowance is allowed for any 2 children of the assessee therefore education allowance of 1st child (which is
the lowest) is not considered to avail higher exemption.
Q 9: Mr. Pankaj has been provided transport allowance of ₹ 4,500 p.m. for commuting between office and his residence.
He spends ₹ 4,000 p.m. on his commutation. Compute the taxable allowance.
(a) ₹ 6,000 (c) ₹ 54,000
(b) ₹ 48,000 (d) Nil [Ans: (c)]
Q 10: Mr. Dinesh is in receipt of the following allowances from his employer during the P/Y 2021-22. Calculate how much of
the following allowances are taxable?
a) Conveyance allowance ₹ 600 p.m. He spends ₹ 6,000 during the year for official purpose.
b) Underground allowance ₹ 1,900 p.m. for working in underground mines. He spends ₹ 600 p.m. during the year.
c) Uniform allowance ₹ 5,000 p.a. He spends ₹ 3,000 half yearly on the purchase of uniform.
d) Education and hostel expenditure allowance ₹ 450 p.m. per child for 3 children.
e) Helper allowance ₹ 2,000 p.m. He engaged the helper for official work and paid him salary of ₹ 1,500 p.m. for 9
months. Helper spends 60% of his time for official work.
Sol 10: Computation of taxable allowances of Mr. Dinesh for the P/Y 2021-22:
S. No Particulars (₹) (₹)
a) Conveyance Allowance (₹ 600 x 12) 7,200
Less: Exemption (₹ 7,200 or ₹ 6,000, being the expenditure, whichever is lower) 6,000 1,200
b) Underground Allowance (₹ 1,900 x 12) 22,800
Less: Exemption (₹ 22,800 or ₹ 9,600, being the limit, whichever is lower) 9,600 13,200
c) Uniform Allowance 5,000
Less: Exemption (₹ 5,000 or ₹ 6,000, being the expenditure, whichever is lower) 5,000 Nil
d) Education & Hostel Allowance (₹ 450 x 3 x 12) 16,200
Less: Exemption [(₹ 400 x 2 x 12) or ₹ 16,200, being the limit, whichever is lower] 9,600 6,600
e) Helper Allowance (₹ 2,000 x 12) 24,000
Less: Exemption (₹ 1,500 x 9 x 60%) or ₹ 24,000, being the expenditure, whichever
is lower 8,100 15,900
Total Taxable Allowance 36,900
Q 11: Mr. Kumar is working as a driver in a transport company. He received ₹ 13,500 p.m. as transport allowance to meet
his personal expenditure during his duty performed in the course of running such transport. He spends ₹ 14,500 p.m. out
of which 80% is official. Compute the taxable allowance.
(a) Nil (c) ₹ 42,000
(b) ₹ 22,800 (d) ₹ 48,600 [Ans: (d)]
ENTERTAINMENT ALLOWANCE [Section 16(ii)]
It is given to employees for entertainment of customers and guest of the business.

It is first included in salary income of all employees and then deduction is allowed only to Government employees.
Least of the following shall be allowed as deduction:

(i) Entertainment allowance granted during the year or
(ii) 20% of basic salary or
(iii) ₹ 5,000 p.a.
Q 12: Mr. Sameer, a Govt. employee gets ₹ 5,00,000 p.a. as basic salary. In addition, he receives ₹ 8,500 p.a. as
entertainment allowance. His actual expenditure on entertainment for official purposes was ₹ 13,500. Can he claim
deduction of the actual amount spent by him on entertainment?
Sol 12: Computation of maximum amount of deduction that Mr. Sameer can avail:
Least of the following shall be allowed as deduction:
(i) Entertainment allowance granted during the year or = ₹ 8,500
(ii) 20% of basic salary or (₹ 5,00,000 x 20%) = ₹ 1,00,000
(iii) Limit = ₹ 5,000
Maximum deduction that can be availed by Mr. Sameer = ₹ 5,000. It can further be concluded that he shall not be allowed
deduction of the actual amount spent by him on entertainment allowance.
HOUSE RENT ALLOWANCE [SECTION 10(13A)]
HRA is given to the employee to meet the expenses in connection with rent of the accommodation which the employee
might have to take.
HRA is exempt to the extent of the minimum of the following:

(i) Actual HRA received in respect of the relevant period or
(ii) Rent paid – 10% of salary or
(iii) 50% of salary if house is taken in Mumbai, Chennai, Kolkata or New Delhi (i.e. metro cities)
40% of salary in case of other cities.
Notes:
1. Relevant period means the period during which the said accommodation was occupied by the assessee during the
previous year. Therefore, HRA and salary are taken only for that period during house is taken on rent.
Sir, my mother is working in a MNC, the office of which

is situated in Noida (U.P.) She has been provided with a
HRA from her employer. She has taken a house on rent
in Delhi. Will she consider 40% or 50% of salary for the
purpose of HRA?
Sol: She will consider 50% as the house
that has been taken on rent is in Delhi.
The place of office is immaterial.
2. For the purpose of computation of HRA, salary consists of:

• Basic salary +
• Dearness allowance (if the terms of employment so provide) +
• Commission based on fixed % of turnover.
3. Salary is to be taken on due basis in respect of the period during which the rented accommodation is occupied by the
employee in the previous year.
4. Calculation of that period can be made collectively during which all the followings are same:
(i) Actual HRA; (ii) Salary; (iii) Rent paid and (iv) Location of the house taken on rent
➢ W.e.f. A.Y. 2021-22, if an employee opts to be taxed as per the new alternative regime u/s 115BAC, he will not be
entitled to claim exemption of HRA.
Q 13: Mr. Balram who resides in Jaipur received ₹ 1,92,000 p.a. as basic salary during the P/Y 2021-22. In addition, he gets
₹ 19,200 p.a. as dearness allowance forming part of basic salary for computation of all retirement benefits. He also gets 7%
commission on sales made by him (sales being ₹ 86,000). He received ₹ 24,000 p.a. as HRA but pays ₹ 21,500 p.a. as house
rent. Determine the quantum of HRA exempt from tax.
Sol 13: Computation of HRA exempt from tax:

HRA is exempt to the extent of minimum of the following:
(a) Actual HRA received = ₹ 24,000
(b) Rent paid – 10% of Salary [₹ 21,500 – 10% (₹ 1,92,000 + ₹ 19,200 + ₹ 6,020)] = Nil
(c) 40% of Salary [40% (₹ 1,92,000 + ₹ 19,200 + ₹ 6,020)] = ₹ 86,888
Therefore, HRA exempt = Nil
Q 14: Ms. Simi is employed at Delhi as the Finance Manager of T Ltd. The particulars of her salary for the P/Y 2021-22 are as
under:
(₹)
a) Basic salary 30,000 p.m.
b) Dearness allowance (forming part of basic salary) 10,000 p.m.
c) Conveyance allowance for personal use 5,000 p.m.
d) Commission @ 2% on turnover. Turnover achieved during the P/Y was ₹ 22,50,000 45,000
e) House rent allowance 15,000 p.m.
The actual rent paid by her is ₹ 10,000 p.m. for an accommodation at Noida till 31.12.2021. From 01.01.2022, the rent was
increased to ₹ 20,000 p.m. Compute the taxable HRA.
Sol 14: Computation of taxable HRA for Ms. Simi for the P/Y 2021-22:
Particulars 01.04.21 – 31.12.21 (₹) 01.01.22 – 31.03.22 (₹)
House Rent Allowance received (₹ 15,000 p.m.) 1,35,000 45,000
Less: Exempt [WN 1] 50,625 45,000
Taxable House Rent Allowance 84,375 Nil
Total Taxable HRA 84,375
WN 1: Computation of exempt portion of HRA

Particulars 01.04.21 – 31.12.21 (₹) 01.01.22 – 31.03.22 (₹)
Least of the following shall be exempt:
(a) Actual HRA received 1,35,000 45,000
(b) Rent paid – 10% of Salary 50,625 46,875
[₹ 90,000 – 10% (₹ 2,70,000 + [₹ 60,000 – 10% (₹ 90,000 + ₹
₹ 90,000 + ₹ 33,750)] 30,000 + ₹ 11,250)]
(c) 50% of Salary 1,57,500 52,500
Salary = Basic Salary + Dearness Allowance (under terms of employment)
+ Commission based on fixed % of turnover
Exempt Amount 50,625 45,000
Q 15: Mr. Abhimanyu is working as a senior manager of a company. He has been granted house rent allowance of ₹ 25,000
p.m. His basic salary is ₹ 1,50,000 p.m. He got an increment in the basic salary of ₹ 10,000 p.m. from 01.09.2021. He also
received commission of ₹ 50,000 during the year. Compute the exemption u/s 10(13A) assuming that he spends ₹ 22,000
p.m. as rent for a property in Bhopal.
(a) Nil (c) ₹ 72,000
(b) ₹ 77,000 (d) ₹ 3,00,000 [Ans: (b)]
Q 16: Mr. Lallu is employed with ABC Ltd. on a basic salary of ₹ 12,000 p.m. He is also entitled to dearness allowance of 20%
of basic salary. 70% of the dearness allowance is included in salary as per the terms of employment. The company gives him
HRA of ₹ 6,000 p.m. With effect from 01.01.2022, he receives an increment of ₹ 2,000 p.m. in his basic salary. During the
P/Y 2021-22, he has received arrears of salary pertaining to earlier years amounting to ₹ 16,000. Lallu was staying with his
parents till 31.10.2021. From 01.11.2021 he takes an accommodation on rent in Delhi and pays ₹ 5,000 p.m. as rent for the
accommodation. Compute the taxable HRA. [IMP. QUES]
Sol 16: Computation of taxable HRA for Mr. Lallu for the P/Y 2021-22:
Particulars Apr – Oct (₹) Nov – Dec (₹) Jan – Mar (₹)
House Rent Allowance received 42,000 12,000 18,000
Less: Exempt [WN 1] Nil 7,264 10,212
Taxable HRA 42,000 4,736 7,788
Total 54,524
WN 1: Computation of exempt portion of HRA

Particulars Apr – Oct (₹) Nov – Dec (₹) Jan – Mar (₹)
(a) Actual HRA received 42,000 12,000 18,000
(b) Rent paid – 10% of Salary Nil 7,264 10,212
(₹ 10,000 – 10% of (₹ 15,000 – 10% of
₹ 27,360) ₹ 47,880)
(c) 50% of Salary 47,880 13,680 23,940
Salary = Basic Salary + Dearness Allowance (under terms of
employment) + Commission based on fixed % of turnover
Exempt Amount Nil 7,264 10,212
Notes: Arrears of salary pertaining to earlier previous years shall not be considered as part of salary for computation of HRA.
Q 17: Mr. Sharma resides in Gurugram whereas his office is in New Delhi. He has been provided a house rent allowance of
₹ 14,000 p.m. His basic salary is ₹ 43,000 p.m. He further receives 10% as dearness allowance (half of which is under the
terms of employment). He spends ₹ 18,000 p.m. on rent. Compute his taxable house rent allowance.
(a) ₹ 6,180 (c) ₹ 8,760
(b) Nil (d) ₹ 3,600 [Ans: (a)]
There are allowances which are fully taxable as well as fully exempt. Few examples are as under:
• Fully taxable: Dearness, Overtime, Fixed medical, City compensatory, Servant, Project, Tiffin etc.
• Fully exempt: Allowance granted to Government employee outside India, Sumptuary allowance granted to High Court
or Supreme Court judges, Allowance paid by the UNO etc.
Q 18: Which of the following allowance is not fully taxable?

(a) Special allowance (c) Underground allowance
(b) Medical allowance (d) All of the above [Ans: (c)]
PERQUISITES
A perquisite is any casual emolument, fee or profit attached to an office or position in addition to the salary or wages. In
simple words, perquisites are the benefits in addition to normal salary to which the employee has a right by virtue of his
employment.
(A) If the following perquisites are provided in kind, then they shall be taxable only for employees specified u/s 17(2)(iii).
But if they are reimbursed, then it shall be taxable for all employees.
Sir, what does reimbursement and

perquisite mean?
Ans: Reimbursement is a situation in which the
employee makes the payment to the third party and
then the amount so paid is given back to the employee
by the employer.
Perquisite is a scenario in which the payment is made
to the third party directly by the employer however the
benefits are enjoyed by the employee.
1. ATTENDANTS, WATCHMAN ETC.;

2. WATER, GAS & ELECTRICITY;
3. CHILDREN EDUCATION;
4. MOTOR CAR.
SPECIFIED EMPLOYEE [SECTION 17(2)(iii)]
An employee shall be a specified employee if he satisfies any one of the following conditions:
1. Director of the company
2. An employee who has substantial interest in the employer company.
➢ A person has substantial interest if he is a beneficial owner of equity shares carrying 20% or more voting power in the
employer company.
3. Employee having a salary of more than ₹ 50,000.
Sir, my Uncle is working in two

companies. The limit of ₹ 50,000 is Ans: The limit of ₹ 50,000 shall be considered
applicable separately for each aggregately taking into account payment
company or considered in from all employers.
aggregate.
For the purpose of computing salary, the following are excluded or deducted:
a) all non-monetary benefits;
b) monetary benefits which are not taxable u/s 10;
c) deduction on account of standard deduction, entertainment allowance and professional tax.
Q 19: Mr. Nitin is working in two companies, A Ltd. and B Ltd. With the following particulars decide whether he is a specified
employee or not?
A Ltd. (₹) B Ltd. (₹)
(i) Basic salary 54,000 41,000
(ii) Children education allowance (for one child) - 2,000
(iii) Reimbursement of electricity bills 3,000 -
(iv) Medical allowance 800 1,600
(v) Value of car provided by the employer 2,800 400
(vi) Rent free house provided by the employer 4,000 1,800
(vii) During the previous year he paid professional tax of ₹ 1,800.
Sol 19: Computation of salary for the purpose of finding out whether or not Mr. Nitin is a specified employee:
Particulars A Ltd. (₹) B Ltd. (₹)
Basic Salary 54,000 41,000
Children Education Allowance (₹ 2,000 – ₹ 1,200) - 800
Reimbursement of electricity bills (fully taxable) 3,000 -
Medical Allowance 800 1,600
Value of Car - -
Rent Free House - -
Gross Salary 57,800 43,400
Total 1,01,200
Less: Professional Tax 1,800
Less: Standard Deduction 50,000
Salary 49,400
Since the salary of Mr. Nitin is not exceeding ₹ 50,000, he shall be considered as non-specified employee.
Notes: Value of car & rent-free house shall not be included, being perquisites.
PERQUISITES TAXABLE ONLY FOR SPECIFIED EMPLOYEE
1. ATTENDANT, SWEEPER, GARDENER OR WATCHMAN

Actual cost to the employer shall be taxable value in the hands of the employee. The actual cost in such a case shall be the
total amount of salary paid or payable by the employer for such services as reduced by any amount paid by the employee.
2. WATER, GAS OR ELECTRICITY

If from own sources – manufacturing cost per unit
In other cases – amount paid or payable to outside agency.
Any amount recovered from the employee shall be reduced from the above taxable value.
3. CHILDREN EDUCATION FACILITY
Circumstances Value of benefit

The educational institution is owned by the employer or such educational facility is
provided in any institute by reason of employee’s employment with the employer.
(i) Where educational facility is provided to employee’s children
• where cost of education does not exceed ₹ 1,000 p.m. per child (no restriction on Nil
the number of children).
• where such amount exceeds ₹ 1,000 p.m. per child Cost of education – ₹ 1,000
p.m. per child
(ii) Where educational facility is provided to member of his household. Cost of education
Notes:
a) Grandchildren and other member of household are included in (ii) above.
b) Any amount recovered from the employee by the employer regarding such facility shall be reduced from the value of
benefit.
Sir, my mother is working as a teacher in a

school. My younger brother is studying in the
same school. He got scholarship from the school
as his topped the school. Will that be taxable for Ans: Amount of scholarship given by
my mother? employer company to children of its
employees solely at its discretion without
reference to the terms of employment is not
assessable as perquisite in the hands of
employees.
Q 20: Find out the taxable value of the perquisite for the A/Y 2022-23 in the following cases:
1. A’s son is studying in Modern School, Delhi. ₹ 21,400 being his tuition fees is paid by B Ltd. where A is employed. There
is no arrangement between B Ltd. and Modern School.
2. Scholar Public School, Jaipur is owned and maintained by X Ltd. Y is an employee of X Ltd. The following family members
of Y are students in this school:
Relative Cost of education in a similar school Amount charged from Y

M, daughter of Y ₹ 5,500 p.m. ₹ 1,800 p.m.
N, dependent brother of Y ₹ 6,600 p.m. ₹ 1,600 p.m.
Sol 20: Computation of taxable value of the perquisite in the following cases:
1. As there is no arrangement between B Ltd. and Modern School, A shall not be allowed ₹ 1,000 p.m. per child as
exemption. Therefore full ₹ 21,400 shall be taxable.
2. As Scholar Public School, Jaipur is owned and maintained by X Ltd., Y shall be allowed ₹ 1,000 p.m. per child as
exemption.
Relative Computation of taxable perquisite Taxable Perquisite
M, daughter of Y (₹ 5,500 – ₹ 1,800 – ₹ 1,000) x 12 32,400
N, dependent brother of Y (₹ 6,600 – ₹ 1,600) x 12 60,000
Total 92,400
4. VALUATION OF MOTOR CAR

Motor car provided by the employer is a facility to the employee. On the other hand, if the car belongs to the employee and
the expenses are met by the employer, then it becomes a perquisite taxable in the hands of all employees as it is an
obligation of the employee to maintain his car but such obligation is met by the employer.
Car owned or hired by employee and used
Exclusively for official Partly for official purpose & partly for personal purpose Exclusively for private
purpose purpose
No value is taxable provided Actual expenditure incurred by the employer XXX Actual expenditure incurred
specified documents are Less: ₹ 1,800 p.m. where the cubic capacity of by the employer minus
maintained. the engine does not exceed 1.6 litres, XXX amount recovered from the
otherwise ₹ 2,400 p.m. employee shall be taxable.
Less: 900 p.m. for chauffeur (if any) XXX
Less: Amount recovered from employee XXX
Balance Taxable (if positive) XXX
However, if actual expenditure for official purpose is more than the specified limits, then actual expenditure can be
deducted by maintaining specified documents.
Q 21: Mr. Sohan has a car having 1.6 litres CC engine. He uses the car for both official as well as personal use. His employer
expended ₹ 75,000 on the running and maintenance of the car. Compute the taxable value of the perquisite assuming the
car is self-driven & the employer charges ₹ 1,800 p.m. from the employee.
(a) ₹ 31,800 (c) ₹ 24,600
(b) ₹ 21,000 (d) ₹ 13,800 [Ans: (a)]
Q 22: Mr. Anwar has a car (1.8 litres) used for office as well as for personal purpose. During the year car is used 70% for
business purpose being certified by the employer. During the year, he incurred ₹ 60,000 on maintenance and running of
such car. The entire cost is reimbursed by the employer. Find taxable value of the perquisite when:
(1) A proper log book is maintained (2) A proper log book is not maintained
Sol 22: Computation of taxable value of perquisite for Mr. Anwar in the following cases:
(1) A proper log book is maintained: Actual expenditure incurred by the employer shall be reduced to the extent it is used
for office purpose.
Taxable Perquisite = ₹ 60,000 - 70% = ₹ 18,000.
(2) A proper log book is not maintained: Actual expenditure incurred by the employer shall be reduced by 1,800 p.m. even
though it is used for office purpose but a proper log book is not maintained.
Taxable Perquisite = ₹ 60,000 – (₹ 2,400 x 12) = ₹ 31,200.
Car owned or hired by employer and used

Exclusively for official Partly for official purpose & partly for personal purpose Exclusively for private
purpose purpose
No value is taxable provided Running and maintenance expenses incurred by: (actual Actual expenditure (running
specified documents are expenditure is irrelevant) & maintenance) chauffeur
maintained expenses + wear and tear @
Employer (₹) Employee (₹) 10% of the cost of the car or
Upto 1.6 Above 1.6 Upto 1.6 Above 1.6 actual hire charges – amount
litres CC – litres CC – litres CC – litres CC – recovered from the
1,800 p.m. 2,400 p.m. 600 p.m. is 900 p.m. is employee shall be taxable
is taxable is taxable taxable taxable
Add: ₹ 900 p.m. is chauffeur is also provided
Q 23: Mr. Mahesh has been provided a small car by his employer which is used for official as well as personal purpose. The
expenses on the car were met by the employee. Determine the taxable value of the perquisite.
(a) ₹ 7,200 (c) ₹ 18,000
(b) ₹ 10,800 (d) ₹ 21,600 [Ans: (a)]
Q 24: Ms. Pia has been provided a car (1.8 litres) by his employer. The cost of the car to the employer was ₹ 3,50,000 and
maintenance cost incurred by the employer is ₹ 30,000 p.a. Chauffeur salary paid by the employer ₹ 3,000 p.m. Find taxable
value of the perquisite for Ms. Pia for A/Y 2022-23, if the car is used for:
(1) Personal purpose (2) Partly official and partly personal purpose
Sol 24: Computation of taxable value of perquisite for Ms. Pia for the A/Y 2022-23:
1. Car is used for personal purpose:
Depreciation on Car = ₹ 3,50,000 x 10% = ₹ 35,000
Running and maintenance borne by the company = ₹ 30,000
Salary of driver = (₹ 3,000 x 12) = ₹ 36,000
₹ 1,01,000
2. Car is used for partly official and partly personal purpose:
Car Facility (₹ 2,400 x 12) = ₹ 28,800
Chauffeur expenses (₹ 900 x 12) = ₹ 10,800
₹ 39,600
Sir, my elder brother is a senior

executive officer in a MNC. He has been
granted 2 cars by the employer which
is being partly used for office and partly
personal. How will he be taxable in Ans: Where more than one car has been provided
such a situation? to the employee which are not used exclusively for
official purpose then, value of one car shall be ₹
600 / ₹ 900 / ₹ 1,800 p.m. / ₹ 2,400 p.m. + ₹ 900
p.m. for chauffeur (if any) as the case may be and
the value of other cars shall be as if they are used
exclusively for personal purposes.
Note:
Specified documents shall be deemed to have been complied with if:
• the employer maintains complete details of journey undertaken for official purpose and
• the employer gives a certificate that expenditure was incurred wholly and exclusively for official purposes.
Q 25: Mr. Amrit is provided with two cars, to be used for official and personal work, by his employer. The following
information is available from employer records for computing taxable value of perquisites (assuming car 1 is exclusively
used by Amrit)
Car 1 (Large Car) (₹) Car 2 (Small Car) (₹)
(a) Cost of the car 6,00,000 4,00,000
(b) Running & maintenance borne by the company 40,800 28,000
(c) Salary of driver 24,000 24,000
Sol 25: Valuation of perquisite for Mr. Amrit:

Car 1 (Large Car) (exclusively personal):
Depreciation on Car = ₹ 6,00,000 x 10% = ₹ 60,000
Running and maintenance borne by the company = ₹ 40,800
Salary of driver = ₹ 24,000
₹ 1,24,800
Car 2 (Small Car) (partly official partly private):
Car Facility (₹ 1,800 x 12) = ₹ 21,600
Chauffeur expenses (₹ 900 x 12) = ₹ 10,800
₹ 32,400
Total value of perquisite = ₹ 1,24,800 + ₹ 32,400 = ₹ 1,57,200
THE FOLLOWING PERQUISITES SHALL BE EXEMPT UPTO SPECIFIED LIMIT FOR ALL
EMPLOYEES
1. LEAVE TRAVEL CONCESSION (LTC)

2. MEDICAL FACILITY
1. VALUATION OF LEAVE TRAVEL CONCESSION IN INDIA

LTC is a facility provided by an employer to an employee for visiting anywhere in India along with his family. Family includes
spouse and children of the employee. It also includes parents, brothers & sisters of the employee, who are wholly
dependent upon the employee. LTC is exempt depending the mode of travel which is as under:
Journey performed by
Air Other than Air and Rail Rail
Economy class Destination connected by railways 1st A/c rail

Yes No
1st A/C rail Public transport system exist

Yes No
Deluxe class 1st A/c rail

Notes:
➢ Only 2 journeys in the block of 4 calendar years are exempt. Block shall be as follows:
• 2018 – 2021 (i.e. from 1st January 2018 to 31st December 2021)
• 2022 – 2025 (i.e. from 1st January 2022 to 31st December 2025)
Sir, where an employee is not able to

utilise the 2 exemptions in the block of
4 calendar years, will the balance
exemptions lapse? Ans: No, out of the two journeys (if not
availed), exemption on one journey can be
claimed in the calendar year succeeding the
end of the block.
➢ Exemption in any case shall not exceed the actual expenditure incurred on the journey.
➢ Exemption is available in respect of shortest route: where the journey is performed by a circular route touching various
places, the exemption is limited to what is admissible by the shortest route.
➢ Fare of more than 2 children shall not be allowed as deduction. But all children born before 1st October 1998 shall be
eligible for deduction. In case of multiple births after the first one, exemption shall be given for all the children.
Q 26: How many LTC exemptions can be claimed in the block of 2022-25 if in the block of 2018-21?
(i) No exemption was taken
(ii) 2 exemptions were taken
(iii) 3 exemptions were taken
Sol 26: An employee who has not availed the benefit of LTC in the previous block shall be allowed to carry forward 1
exemption in the new block.
(i) If no exemption was taken in the previous block: 3 exemptions shall be allowed in the new block.
(ii) If 2 exemptions were taken in the previous block: 2 exemptions shall be allowed in the new block.
(iii) If 3 exemptions were taken in the previous block: 2 exemptions shall be allowed in the new block.
Q 27: Mr. Sanchit has been provided 5 business class (2 for himself & spouse and 3 for his children) air tickets by his employer
to travel to Kerala for family vacation. The cost of each ticket is ₹ 14,000, whereas the cost of economy class ticket is ₹ 8,000
per person. Compute the taxable perquisite in the hands of Mr. Sanchit.
(a) ₹ 38,000 (c) ₹ 70,000
(b) ₹ 30,000 (d) ₹ 14,000 [Ans: (a)]
Q 28: Mr. Kumar was provided 2nd A/c train tickets for himself, his spouse and a child. The cost of the tickets is ₹ 8,400. They
were also provided hotel accommodation by the employer on their personal tour, the cost of which was ₹ 14,000. The cost
of 1st A/c train tickets is ₹ 9,500. The taxable value of perquisite shall be:
(a) ₹ 22,400 (c) ₹ 12,900
(b) ₹ 14,000 (d) Nil [Ans: (b)]
2. VALUATION OF MEDICAL FACILITY

Medical Facility in India Medical Facility outside India
(If expense relates to)
The perquisite shall not be Medical Treatment Stay Abroad Travel
chargeable to tax if the following Expense shall be tax free Expense shall be tax free o It is not taxable only if
hospitals/clinic are owned or to the extent permitted to the extent permitted the GTI of employee
maintained by the: by RBI provided it is by RBI if the expense is is upto ₹ 2,00,000
o Employer spent on the employee for the employee or any (before including
o CG/SG/Local authority or his family members. of his family members for medical
o Approved for a specified stay abroad with one reimbursement).
disease only for treatment of attendant who
specified disease. o If GTI exceeds ₹
accompanies the patient
o Private hospital if it is 2,00,000, then total
in connection with such
recommended by the amount of travel
treatment.
Government for the expenses incurred by
treatment of specified the employer shall be
disease. taxable.
Sir, my Father is working in Reliance

Industries as a general manager. He told me
that his employer is paying medical
insurance premium for him. Is that taxable Ans: No, Medical insurance premium paid or
for my father? reimbursed by the employer is not chargeable
to tax in the hands of the employee.
Family for the purpose of medical facility shall be same as LTC.
Q 29: Mr. Ahmed met with an accident and his treatment was done in a Government hospital, the expenses of 92,000 were
borne by his employer. Further, there were some expenses amounting to ₹ 30,000 which relates to regular check-up after
the surgery which were done in a near-by clinic. These expenses were first borne by Mr. Ahmed and then reimbursed by
the employer. Furthermore, the employer took medical insurance premium of the employee for ₹ 12,000. What will be
taxable value of the perquisite?
(a) ₹ 1,34,000 (c) ₹ 30,000
(b) ₹ 42,000 (d) ₹ 1,22,000 [Ans: (c)]
Q 30: Calculate the taxable value of the perquisite in respect of medical facilities availed by Mr. Y from his employer in the
following situations:
(a) the employer reimburses the following medical expenses:
(i) treatment of Mr. Y by his family physician ₹ 4,800.
(ii) treatment of Mrs. Y in a private nursing home ₹ 7,400.
(iii) treatment of Y’s grandmother (dependent on him) ₹ 6,000.
(iv) treatment of Y’s father (dependent on him) ₹ 4,400.
(v) treatment of Y’s uncle (not dependent on him) ₹ 1,800.
(vi) treatment of Y’s sister (not dependent on him) ₹ 2,500.
(b) The employer reimburses an insurance premium of ₹ 52,000 under a health insurance scheme on the health of Mr. Y.
(c) The employer maintains a hospital for the employees where they and their family members are provided free
treatment. The expenses on treatment of Mr. Y and his family during the P/Y 2021-22 were as under:
(i) treatment of Y’s major daughter (dependent on him) ₹ 4,200.
(ii) treatment of Y ₹ 7,200.
(iii) treatment of Y’s uncle ₹ 6,600.
(iv) treatment if Mrs. Y ₹ 10,000.
(v) treatment of Y’s widowed sister (dependent upon him) ₹ 6,100.
(vi) treatment of Y’s handicapped niece ₹ 4,500.
(d) The following expenses on treatment of Y’s major daughter outside India were paid by the employer:
Actual Expenses (₹) Expenses permitted by RBI (₹)
(i) Medical expenses 1,70,000 1,25,000
(ii) Expenses on stay abroad with the attendant 1,20,000 1,10,000
(iii) Expenses on travelling abroad 40,000 ---
Assume that the other income of Mr. Y is 1) ₹ 1,00,000; 2) ₹ 1,60,000
Sol 30: Computation of taxable value of perquisite for Mr. Y:

(a) the employer reimburses the following expenses:
S. No. Particulars (₹)
(i) Treatment of Mr. Y by his family physician 4,800
(ii) Treatment of Mrs. Y in a private nursing home 7,400
(iii) Treatment of Y’s grandmother (dependent on him) 6,000
(iv) Treatment of Y’s father (dependent on him) 4,400
(v) Treatment of Y’s uncle (not dependent on him) 1,800
(vi) Treatment of Y’s sister (not dependent on him) 2,500
Taxable value of perquisite 26,900
(b) Any medical insurance premium reimbursed by the employer to its employee is tax free. Therefore, nothing shall be
taxable in the hands of the employee.
(c) As the employer maintains the hospital, treatment of Y and his family shall not be taxable at all. However, if the
treatment is provided to any person other than the family, it shall be fully taxable.
Therefore, in this case treatment of Y’s uncle and Y’s handicapped niece shall become taxable. Taxable value = ₹ 6,600
+ ₹ 4,500 = ₹ 11,100.
(d) Computation of taxable perquisite in case of medical treatment outside India.
Particulars Case 1 (₹) Case 2 (₹)
Medical expenses ₹ 1,70,000
(-) Expenses permitted by RBI ₹ 1,25,000 45,000 45,000
Staying expenses with one attendant ₹ 1,20,000
(-) Expenses permitted by RBI ₹ 1,10,000 10,000 10,000
Travel expenses [WN 1] - 40,000
Total value of perquisite 55,000 95,000
WN 1: Computation of GTI for the purpose of taxability of travel expenses:
Particulars Case 1 Case 2
Other Income 1,00,000 1,60,000
Taxable portion of medical & stay expenses (₹ 45,000 + ₹ 10,000) 55,000 55,000
Gross Total Income 1,55,000 2,15,000
As the GTI in Case 2 exceeds ₹ 2,00,000, travel expenses shall become taxable.
PERQUISITES TAXABLE FOR ALL EMPLOYEES
1. RENT FREE ACCOMMODATION
If accommodation is
provided
For Government For Non-Government

employees employees
Government owned In hotel Owned by Not Owned by

Employer Employer
Value shall be lower of 15% of salary or lease

following two: rent whichever is
Value =
(i) 24% of salary for the lower.
Licence Fee as determined by
period during which such
the Central or State
accommodation is
Government in accordance
provided or
with the rules framed.
(ii) Actual charges paid or If Population of the city as
Such licence fee is for
payable by the employer to per 2001 census
unfurnished flat. Value of
such hotel.
furniture is still to be added.
Exceptions: Below
> 10 lakhs but > 25 lakhs

Upto 10 lakhs
upto 25 lakhs
7.5% of salary in 10% of salary in 15% of salary in

respect of the respect of the respect of the
accommodation accommodation accommodation
period. period. period.
Exception:
Provided nothing shall be taxable if the following 2 conditions are satisfied:
(i) Accommodation is provided for a total period not exceeding 15 days in aggregate in a previous year and
(ii) such accommodation is provided on an employee’s transfer from one place to another.
If in the aforesaid case, the hotel accommodation is provided for more than 15 days, then the perquisite is taxable only
for the period exceeding 15 days.
Notes:
(i) Meaning of salary
Basic salary + Dearness allowance (it under terms of employment) + Bonus + Commission + Taxable portion of all allowances
+ cash payments from all employers even if house is provided by one employer.
➢ Salary is to be taken only for that period for which house is provided by the employer.
Q 31: Mr. Ankush has been provided a rent-free accommodation by the employee in Allahabad for which the employer is
paying a rent of ₹ 25,000 p.m. The basic salary of the employee is ₹ 62,000 p.m. He also received ₹ 30,000 as bonus during
the year. Compute the taxable value of the perquisite assuming the population of Allahabad to be 22 lakhs as per 2001
census.
(a) ₹ 3,00,000 (c) ₹ 77,400
(b) ₹ 1,16,100 (d) ₹ 1,11,600 [Ans: (b)]
Q 32: Mr. Aamir was given a hotel accommodation for 1 month 15 days on his transfer from Mumbai to Delhi. His basic
salary is ₹ 40,000 p.m. Dearness allowance is ₹ 12,000 p.m. His employer paid ₹ 2,000 per day for the hotel accommodation.
Compute the taxable value of perquisite.
(a) ₹ 9,600 (c) ₹ 12,480
(b) ₹ 60,000 (d) ₹ 90,000 [Ans: (a)]
Q 33: Mr. Suraj, an employee posted at Jodhpur (population: 24 lakhs) draws ₹ 4,20,000 as basic salary, ₹ 18,000 as dearness
allowance (forming part of all retirement benefits) and ₹ 15,000 as commission. Besides, the company provides a rent-free
accommodation. The house is owned by the company. Fair rent of the accommodation is ₹ 30,000 p.m. Determine the
taxable value of the perquisite for the A/Y 2022-23.
Sol 33: Computation of taxable value of perquisite for the A/Y 2022-23:
Where the property is owned by the employer, 10% of salary shall be taxable as the population of the city exceeds 10 lakhs
but does not exceed 25 lakhs.
Taxable Value = 10% (Basic salary + Dearness allowance (under terms of employment) + Commission based on fixed % of
turnover)
Taxable Value = 10% (₹ 4,20,000 + ₹ 18,000 + ₹ 15,000) = ₹ 45,300
➢ Fair rent of the accommodation is not considered while calculating RFA.
(ii) Two houses on transfer

Where on account on transfer of an employee from one place to another, he is provided with accommodation at the new
place of posting while retaining the house at the old place, the value of the perquisite shall be as under:
a) For the first 90 days from the date of transfer – only one house which has the lower value shall be taxable.
b) After 90 days – both the houses shall be taxed.
Q 34: Ms. Sona has the following salary details:

(a) Basic salary – ₹ 6,000 p.m.
(b) D.A. (forming part of salary) – ₹ 3,000 p.m.
(c) Academic development allowance - ₹ 1,000 p.m., expenditure incurred ₹ 700 p.m.
(d) Entertainment allowance – ₹ 500 p.m.
She has been provided with a RFA in Pune. On 01.07.2021, she was posted to Mumbai. A new house further allotted to her
on same date. But she surrendered her Pune house only on 31.12.2021. Rent paid by employer for Pune house ₹ 500 p.m.
while Mumbai house is owned by the employer. Find her gross salary.
Sol 34: Computation of gross salary for the A/Y 2022-23 for Ms. Sona:
Particulars (₹)
Basic salary (₹ 6,000 x 12) 72,000
Dearness allowance (₹ 3,000 x 12) 36,000
Academic development allowance (₹ 1,000 x 12) ₹ 12,000
Less: Exempt (₹ 700 x 12) ₹ 8,400 3,600
Entertainment allowance (₹ 500 x 12) 6,000
Rent free accommodation [WN 1] 13,320
Gross salary 1,30,920
WN 1: Calculation of Rent Free Accommodation:

Particulars Pune only Pune or Mumbai Pune or Mumbai Mumbai only
(Apr – June) (lower) (July – (both) (Oct – Dec) (Jan – March)
(₹) Sept) (₹) (₹) (₹)
Pune house (not owned by employer) = 15%
of salary or lease rent whichever is lower 1,500 only 1,500 or 4,410 1,500 & 4,410 4,410
15% (18,000 + 9,000 + 900 + 1,500) = 4,410 or whichever is lower both
lease rent (500 x 3 = 1,500) whichever is
lower
Mumbai house (owned by employer) = 15%
of salary = 4,410
Taxable RFA 1,500 1,500 5,910 4,410
Sir, my Uncle got a Rent free House

along with furniture from his employer. Ans: Yes, where furniture is also provided then
Is the furniture separately taxable? 10% p.a. of cost of furniture or actual hire
charges if taken on rent shall be added. Any
maintenance or repairs of the building incurred
by the employer shall be ignored.
(iii) If any amount is recovered from the employee, then such amount shall be reduced from the value determined for such
house.
(iv) RFA is not taxable if the house is located in a remote area and it is provided to an employee working at a mining site or
an onshore oil exploration site or a project execution site or a dam site or a power generation site.
Q 35: Mr. Abhimanyu has been granted rent-free accommodation owned by his employer in Chennai. The basic salary of
the employee is ₹ 1,00,000 p.m. He is also granted ₹ 5,000 p.m. as tribal area allowance. Further he is also given a fridge &
microwave by the employer for which the employer is paying ₹ 3,000 p.m. as hire charges. What is taxable value of the
perquisite assuming he the employer recovers ₹ 1,500 p.m. from his employee and the population of Chennai is 72 lakhs?
(a) ₹ 2,06,640 (c) ₹ 1,71,180
(b) ₹ 1,76,040 (d) ₹ 1,89,180 [Ans: (a)]
Q 36: Mr. Karan received during the P/Y ending 31st March 2022 emoluments consisting of basic pay of ₹ 1,86,000; special
allowance ₹ 24,000 and reimbursement of medical expenditure ₹ 12,400. His employer provided a rent free furnished flat
in Kolkata. Lease rent of the furnished flat is ₹ 50,000. Some of the household appliance provided to Karan (w.e.f. 1st June
2021) is owned by the employer (cost of which is ₹ 66,000) and w.d.v as on 1st April 2021 is ₹ 19,620. Employer pays ₹
10,000 annually as hire charges for air conditioners installed in the flat. Employer does not own the flat.
Compute the value of the perquisite if:

(a) Karan is a Government employee and ₹ 5,500 is the licence fee of unfurnished flat.
(b) Karan is the managing director of XYZ (P) Ltd.
(c) Does it make any difference if Karan has been provided a hotel accommodation throughout the year (tariff being ₹
1,44,000 p.a.)?
Sol 36: Computation of the value of the perquisite:

(a) Karan is a Government employee: The value of perquisite shall be equal to the licence fee which would have been
determined by the Central or State Government in accordance with the rules framed. In this case ₹ 5,500 being licence
fee shall be taxable for unfurnished flat.
Value of furniture: Household appliance = ₹ 66,000 x 10% x 10/12 = ₹ 5,500
Air conditioner (hire charges) = ₹ 10,000
₹ 15,500
Total value of perquisite: ₹ 5,500 + ₹ 15,500 = ₹ 21,000.
(b) Karan is the managing director of XYZ (P) Ltd.: As the employer does not own the flat, taxable value shall be 15% of
salary or lease rent whichever is lower:
15% [₹ 1,86,000 + ₹ 24,000] = ₹ 31,500 or lease rent = ₹ 50,000 whichever is lower
Value of furniture = ₹ 15,500.
Total value of perquisite = ₹ 31,500 + ₹ 15,500 = ₹ 47,000
(c) Karan is provided accommodation in a hotel: Taxable value where an employee is provided accommodation in a hotel
shall be 24% of salary or actual hotel charges whichever is lower.
24% [₹ 1,86,000 + ₹ 24,000] = ₹ 50,400 or actual hire charges = ₹ 1,44,000 whichever is lower
Taxable value = ₹ 50,400
Q 37: Ms. Neena submits the following information which she gets from ABC Ltd. regarding her salary:
(₹)
(i) Basic salary 11,000 p.m.
(ii) City compensatory allowance 150 p.m.
(iii) Children education allowance (for 3 children) 400 p.m.
(iv) Reimbursement of medical expenses 25,000
She was entitled to HRA of ₹ 6,000 p.m. from 01.04.2021 to 31.08.2022. She was paying a rent of ₹ 7,000 p.m. for a house
in Delhi. W.e.f 01.09.2021 she was provided with an accommodation by the company for which the company was paying
rent of ₹ 5,000 p.m. The company charged her ₹ 1,000 p.m. as rent for the accommodation. Compute the gross salary of
Neena for the A/Y 2022-23.
Sol 37: Computation of gross salary of Neena for the A/Y 2022-23:
Particulars (₹)
Basic salary (₹ 11,000 x 12) 1,32,000
City compensatory allowance (₹ 150 x 12) 1,800
Children education allowance [(₹ 400 x 12) – (₹ 100 x 12 x 2)] 2,400
Reimbursement of medical expenses 25,000
House rent allowance [WN 1] 2,500
Rent free accommodation [WN 2] 4,918
Gross Salary 1,68,618
WN 1: Computation of taxable HRA: 01.04.2021 – 31.08.2021

(i) Actual HRA received (₹ 6,000 x 5) - ₹ 30,000
(ii) Rent paid – 10% of salary [(₹ 7,000 x 5) – 10% (₹ 11,000 x 5)] - ₹ 29,500
(iii) 50% of salary (house in Delhi) 50% (₹ 11,000 x 5) - ₹ 27,500
Exempt amount = ₹ 27,500
Taxable value = HRA received – Exempt = ₹ 30,000 – ₹ 27,500 = ₹ 2,500
WN 2: Computation of taxable RFA: 01.09.2021 – 31.03.2022

As the house is not owned by the company, taxable value shall be 15% of salary or lease rent whichever is lower. Any amount
recovered from the employee shall be reduced from the taxable value.
Taxable RFA = 15% (₹ 77,000 + ₹ 1,050 + ₹ 1,400) or (₹ 5,000 x 7) whichever is lower
= ₹ 11,918 – amount recovered = ₹ 11,918 – (₹ 1,000 x 7) = ₹ 4,918.
2. VALUE OF INTEREST FREE OR CONCESSIONAL LOANS
Value of Interest Free or

Concessional Loans
the treatment of
Loan < 20,000 Other cases
specified disease
Not Taxable Not Taxable The value of interest free or

Exception: If Loan > ₹ 20,000 Exception: But if loan has been concessional loans can be
then interest on entire loan is reimbursed under any medical computed by the following steps:
taxable. insurance scheme and is not
repaid to employer, interest on Step 1: Find out the aggregate
loan shall be taxable. outstanding balance as on the last
date of each month for each loan.
Step 2: Find out the rate of interest

charged by SBI as on the first day
of the relevant P/Y.
Step 3: Calculate interest for each

month on the outstanding
amount.
Step 4: From the total interest,

deduct interest actually
Notes:
 Notional interest on interest free security deposit given by the employer for a flat belonging to the employee taken on
lease cannot be treated as perquisite.
 This perquisite is available to employee as well as member of household. It shall include: a) spouse; b) children and their
spouses; c) Parent; d) Servants and dependants.
Q 38: Mr. Harmeet took a loan of ₹ 7,000 from his employer on 12th January 2022. He again borrowed ₹ 11,000 on 27th
February 2022. He further borrowed ₹ 5,000 on 14th March 2022. What will the taxable value of the perquisite assuming
12% to be the rate of interest of SBI as on 1st April 2021?
(a) Nil (c) ₹ 230
(b) ₹ 410 (d) ₹ 480 [Ans: (c)]
Q 39: Determine the taxable value of the services in the following cases:
1. Mr. Neeraj is employed by A Ltd. On 1st June 2021, he takes a personal loan of ₹ 12,00,000. A Ltd. recovers interest @
6.5% p.a. from Neeraj. Rate of interest of SBI as on 1st April 2021 is 13.5%.
2. Mrs. Sharma took a loan of ₹ 2,00,000 from her employer as on 17.05.2021. Thereafter she borrowed another ₹
1,50,000 on 21.08.2021. Later on she repaid ₹ 1,00,000 to her employer on 31.12.2021. Calculate the taxable value of
the interest free loan if SBI charges 12% p.a. for a similar loan.
3. Mr. Ankur takes an interest free loan of ₹ 6,00,000 from his employer on 12.04.2021 for medical treatment of his wife
who is suffering from a specified disease. Mrs. Ankur is covered under a mediclaim insurance cover who reimburses ₹
3,50,000 on 05.01.2022.
According to terms of repayment of loan, Ankur has to pay ₹ 15,000 p.m. on the seventh day of each month starting
07.10.2021. Ascertain the value that shall be chargeable to tax for the P/Y 2021-22 assuming the amount paid by the
insurance company is retained by Ankur and the rate of interest as on 01.04.2021 is 14%.
Sol 39: Computation of taxable value in the following cases:

1. Valuation of concessinal loan = ₹ 12,00,000 x (13.5% - 6.5%) x 10/12 = ₹ 70,000.
2. Value of interest free loan = ₹ 2,00,000 x 12% x 3/12 = ₹ 6,000
= ₹ 3,50,000 x 12% x 4/12 = ₹ 14,000
= ₹ 2,50,000 x 12% x 4/12 = ₹ 10,000
₹ 30,000
3. Mr. Ankur took a loan from his employer for the treatment of his wife who is suffering from specified disease. It shall
become taxable from the date when insurance claim is received provided such amount is not repaid by the employee.
Value of interest free loan = (₹ 3,50,000 – ₹ 15,000) x 14% x 1/12 = ₹ 3,908
= (₹ 3,35,000 – ₹ 15,000) x 14% x 1/12 = ₹ 3,734
= (₹ 3,20,000 – ₹ 15,000) x 14% x 1/12 = ₹ 3,558
= ₹ 11,200
3. USE OF MOVABLE ASSETS

(a) Laptops, computers, telephone including a mobile phone – Nil
(b) All other assets (other than car) – 10% p.a. of the actual cost or actual hire charge
Taxable value shall be reduced by the amount recovered from the employee.
4. TRANSFER OF ANY MOVABLE ASSET

Asset transferred Value of benefit
(a) Computer & electronic Actual cost as reduced by 50% for each completed year on the basis of WDV.
items
(b) Motor cars Actual cost as reduced by 20% for each completed year on the basis of WDV.
(c) Any other asset Actual cost as reduced by 10% for each completed year on the basis of SLM.
Sir, an asset is used by the employer for 11

months and 25 days and then transferred
to employee. Can the depreciation be Ans: No, Depreciation shall be allowed only if
charged? used for 12 months. Any period less than 12
months shall be ignored.
Notes:
 Electronic items mean data storage and handling device.
 Any amount received from the employee shall be reduced while calculating the above perquisite.
Q 40: Find out the taxable value of the perquisite in the following cases:
(i) Mr. X is given a laptop by the employer for using it for office as well as personal purpose (ownership is not
transferred). Cost of the laptop is ₹ 46,000.
(ii) On 1st November 2021, the employer gave a music cum dvd system to Mr. Y for domestic use (ownership is not
transferred). Cost of the system is ₹ 25,000.
(iii) The employer sells the following assets to Mr. Z on 1st January 2021
Computer (₹) Motor car (₹) Furniture (₹)
Cost of the asset to the employer 1,20,000 6,40,000 80,000
Date of purchase (put to use on the same day) May, 2018 June, 2019 Aug, 2019
Sale price 11,500 2,45,000 52,000
Before sale on 1st January 2022, these assets were used for business purpose by the employer.
Sol 40: Computation of taxable value of perquisite in the following cases:

(i) Nil. Laptop provided by the employer to the employee shall not be taxable even if it is used for office as well as
personal purpose where ownership is not transferred.
(ii) Use of music cum dvd system = ₹ 25,000 x 10% x 5/12 = ₹ 1,042.
(iii) Taxable value of the assets transferred by the employer:
Particulars Computer (₹) Motor Car (₹) Furniture (₹)
Depreciation rate & method 50% (WDV) 20% (WDV) 10%(SLM)
Date of Purchase May, 2018 June, 2019 August, 2019
Cost of the asset 1,20,000 6,40,000 80,000
(-) Depreciation @ 50% / 20% / 10% respectively for each
completed year 60,000 1,28,000 8,000
60,000 5,12,000 72,000
(-) Depreciation 30,000 1,02,400 8,000
30,000 4,09,600 64,000
(-) Deprecation 15,000 - -
15,000 4,09,600 64,000
Sale price 11,500 2,45,000 52,000
Taxable value of perquisite 3,500 1,64,600 12,000
Total 1,80,100
Q 41: Employer gave a television worth ₹ 60,000 to his employee, Kuldeep for use on 01.05.2021. On 30.11.2021, the
television was transferred to his employee permanently and ₹ 44,000 was charged from the employee for the same. The
employer purchased the television on 15.12.2020. Compute the taxable value of the perquisite.
(a) ₹ 10,000 (c) ₹ 13,500
(b) ₹ 16,000 (d) ₹ 19,500 [Ans: (d)]
5. VALUE OF ANY GIFT, VOUCHER OR TOKEN

The value of the perquisite shall be determined as the sum equal to the amount of such gift.
Sir, is there any exemption from

Ans: Gifts in kind upto ₹ 5,000 in aggregate
gift?
p.a. would be exempt beyond which it would
be taxable. Gifts made in cash or convertible
into money are not exempt at all.
Q 42: Mr. Yuvraj was gifted ₹ 4,000 in gold coins on his birthday and a gift voucher worth ₹ 3,000 on company’s foundation
day. Compute the taxable amount of gift for Mr. Yuvraj.
(a) ₹ 7,000 (c) ₹ 2,000
(b) ₹ 4,000 (d) ₹ 3,000 [Ans: (b)]
6. CREDIT CARD OR CLUB EXPENDITURE

a) Expenditure incurred wholly and exclusively for official purpose – Nil value is taxable provided complete details of
such expenditure is maintained and employer certifies that such expenditure was incurred exclusively for official
purposes.
b) In other cases – the actual expenditure incurred by the employer shall be taxable.
Points to be kept in mind in case of club expenditure:
✓ Where the employer obtains membership of the club in his name, the fees paid for acquiring such membership shall
not be taxable in the hands of the employees.
✓ Expenditure on use of health club, sport facility provided to all employees shall not be taxable.
✓ Any amount recovered shall be reduced from the taxable value.
7. VALUATION OF SPECIFIED SECURITY OR SWEAT EQUITY SHARE

Fair market value of the shares on the date on which option is exercised as reduced by the amount recovered from the
employee.
Q 43: Mr. Prakash was offered shares of the company @ ₹ 83 per share whereas the market value was ₹ 120 per share. The
face value of the shares is ₹ 100 per share. He bought 200 shares from the company. Compute the taxable value of the
shares for Mr. Prakash u/h Salaries.
(a) ₹ 3,400 (c) ₹ 7,400
(b) ₹ 4,000 (d) ₹ 16,600 [Ans: (c)]
8. VALUE OF FREE FOOD AND NON-ALCOHOLIC BEVERAGES

(a) Free food provided in a remote area or an offshore installation – Nil
(b) Tea or snacks provided during working hours – Nil
(c) Free food and non-alcoholic beverages provided during working hours at office or through paid vouchers which are
not transferable and usable only at eating joints – amount only in excess of ₹ 50 per meal is taxable.
(d) In any other case – actual expenditure shall be taxable.
Q 44: Mr. Mahi gets a basic salary of ₹ 15,000 p.m. He has been provided with the following facilities:
(a) He has been provided a credit card. An annual fee of such card is ₹ 18,000 which is incurred by the employer. The
card is used for office as well as personal purpose.
(b) His employer is a corporate member of a club of which initial fee is ₹ 1,35,000 and annual expenditure of ₹ 20,000
paid by the employer. The membership is enjoyed by Mahi.
(c) He has been given a gift voucher of ₹ 18,500.
(d) An air conditioner has been installed in his office chamber worth ₹ 48,000.
(e) He has been provided the facility of mobile phone used for office as well as personal purpose. The cost of the asset
is ₹ 27,000.
(f) He has been provided with a washing machine of ₹ 50,000 for personal use, written down value of which is ₹ 38,000.
Calculate gross salary of Mr. Mahi for the A/Y 2022-23.
Sol 44: Computation of gross salary of Mr. Mahi for the A/Y 2022-23:
S. No. Particulars (₹)
1. Basic salary (₹ 15,000 x 12) 1,80,000
2. Credit card annual charges (taxable as used for personal purpose also) 18,000
3. Corporate membership of a club (initial fees shall not be taxable whereas annual
expenditure incurred for Mahi shall be taxable) 20,000
4. Gift (taxable only in excess of ₹ 5,000 shall be taxable) 13,500
5. Air conditioner (not taxable as installed in office) -
6. Mobile phone (not taxable even if used of partly personal purpose) -
7. Washing machine (taxable @ 10% on cost) 5,000
9. CONTRIBUTION TO APPROVED SUPERANNUATION FUND
The amount of contribution above ₹ 1,50,000 by the employer to an approved superannuation fund shall be taxable in the
hand of the employee.
10. EMPLOYER’S CONTRIBUTION IN A PREVIOUS YEAR

a) to a recognised provident fund;
b) in the scheme referred to in sub-section (1) of section 80CCD;
c)and in an approved superannuation fund
to the extent it exceeds ₹ 7,50,000 shall be taxable as perquisite.
Also, any annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to
the balance at the credit of the fund or scheme may be treated as perquisite to the extent it relates to employer’s
contribution which is included in total income.
RETIREMENT BENEFITS
Retirement benefits are payments which are given by the employer to the employee at the time of leaving the employment.
GRATUITY [SECTION 10(10)]

It is a lump sum payment made by the employer to an employee in appreciation of the past services rendered by the
employee.
Gratuity can either be received by:
(a) the employee himself at the time of his retirement or
(b) the legal heir on the event of the death of the employee.
❖ Gratuity received by an employee on his retirement is taxable u/h ‘Salary’ whereas gratuity received by the legal heir of
the deceased employee shall be taxable u/h ‘Income from other sources’.
Exemption limits for Gratuity

Govt. employees &
employees of local Non-government employees
authority
Fully exempt Employees covered under the Gratuity Act, Employees not covered under the Gratuity Act,
1972 1972
1. Amount of gratuity actually received 1. Amount of gratuity actually received
2. ₹ 20,00,000 2. ₹ 20,00,000
3. 15/26 days salary for every completed 3. 15/30 days average salary for every
year of service or part thereof in excess of completed year of service (ignoring
6 months fractions)
[15/26 x (last drawn basic salary + DA) x number of [15/30 x average salary x number of years of service
years of service (including fractions)] (excluding fractions)]
Salary: last drawn basic salary + dearness Salary: Basic salary + Dearness allowance (if the
allowance. terms of employment so provide) + Commission
based on fixed % of turnover
➢ Average monthly salary is calculated on the basis
of average salary for the 10 months immediately
preceding the month in which the employee has
retired.
Notes:
❖ In case of piece rated employees, for calculating 15 days salary, daily wages shall be computed on the average of the
total wages received by him for a period of 3 months immediately preceding the termination of employment but
overtime work shall not be included.
Q 45: Mr. Sonu received gratuity of ₹ 32,00,000 on retirement from the State Government. The amount of gratuity taxable
shall be:
(a) ₹ 32,00,000 (c) ₹ 20,00,000
(b) ₹ 12,00,000 (d) Nil [Ans: (d)]
Sir, my Father was working with ABC Ltd till 2006. He

received gratuity at the retirement. Then he started
working with DEF Ltd and retired in 2020-21. He has
again received gratuity. How is he supposed to
Ans: The statutory limit of ₹ 20,00,000 is the
calculate the gratuity amount now?
lifetime limit for an employee. Therefore, if
gratuity is received from the previous
employer also, then exempted amount shall
be reduced from ₹ 20,00,000.
Q 46: Ms. Jyoti is working with MNO Ltd. retires on 27th November 2021 receives ₹ 2,68,000 as gratuity after service of 32
years and 9 months. Her salary is ₹ 12,000 p.m. upto 30th June 2021 and ₹ 14,000 p.m. from 1st July 2021. Besides she gets
₹ 600 p.m. as dearness allowance (82% of which forms part of salary for computing all retirement benefits).
Calculate the amount of gratuity taxable assuming she is not covered by the Payments of Gratuity Act 1972.
Sol 46: Computation of taxable gratuity for Ms. Jyoti for the A/Y 2022-23:
Least of the following shall be exempt: (not covered under the Gratuity Act, 1972)
(i) Actual gratuity received ₹ 2,68,000
(ii) Limit ₹ 20,00,000
(iii) 15/30 x average salary (WN 1) x number of years of service (excluding fractions) ₹ 2,12,672
(15/30 x ₹ 13,292 x 32)
Exempt amount = ₹ 2,12,672
Taxable gratuity = Amount received as gratuity – exempt amount
= ₹ 2,68,000 – ₹ 2,12,672 = ₹ 55,328
WN 1: Calculation of average salary for gratuity: Average monthly salary is calculated on the basis of average salary for the
10 months immediately preceding the month in which the employee has retired.
Basic salary = (₹ 12,000 x 6) + (₹ 14,000 x 4) - ₹ 1,28,000
Dearness allowance (forming part of salary) = (₹ 600 x 10 x 82%) - ₹ 4,920
Total salary - ₹ 1,32,920
Average salary = ₹ 1,32,920 / 10 = ₹ 13,292
Q 47: Mr. Ankush retired from his job after 29 years 6 months and 5 days of service on 31.12.2021 and received gratuity
amounting to ₹ 4,00,000. His salary at the time of retirement was basic ₹ 6,000 p.m., dearness allowance ₹ 1,200 p.m.
(forming part of salary). House rent allowance ₹ 12,000, Commission on turnover 1%, commission on profit ₹ 5,000. He got
an increment on 01.07.2021 of ₹ 1,000 p.m. in basic salary. Turnover achieved by him is ₹ 1,00,000 p.m. Compute his taxable
gratuity assuming he is covered by the Payments of Gratuity Act 1972.
Sol 47: Computation of taxable gratuity for Mr. Ankush for the A/Y 2022-23:
Least of the following shall be exempt: (covered under the Gratuity Act, 1972)
(ii) Limit ₹ 20,00,000
(iii) 15/26 x (last drawn basic salary + DA) x number of years of service (including fractions)
[15/26 x (₹ 6,000 + ₹ 1,200) x 30] ₹ 1,24,615
= ₹ 4,00,000 – ₹ 1,24,615 = ₹ 2,75,385
Q 47: Ms. Payal received ₹ 3,00,000 as gratuity on the death of his husband from the employer. Such amount shall be
taxable in the hands of Payal u/h:
(a) Salary (c) Income from Other Sources
(b) Profit & Gains from Business and Profession (d) Either salary or income from other sources [Ans: (c)]
Q 49: Mr. Rahul who works with two companies A Ltd. and B Ltd. submits the following information:
S. No. Particulars A Ltd. B Ltd.
1. Basic salary (on the date of retirement) ₹ 12,000 p.m. ₹ 16,000 p.m.
2. Dearness allowance 30% 40% (80% forms part of salary
for retirement benefits)
3. Date of retirement 21.09.2021 04.01.2022
4. Period of service 24 years & 10 months 19 years & 7 months
5. Amount of gratuity received ₹ 2,45,000 ₹ 1,87,000
Although Rahul has been drawing the same salary from A Ltd. for the last one year but there was an increment of ₹ 800
p.m. from B Ltd. w.e.f 01.08.2021. Compute the amount of gratuity taxable assuming he is not covered by the Payments of
Gratuity Act 1972.
Sol 49: Computation of taxable gratuity for Mr. Rahul for the A/Y 2022-23:
As Rahul is not covered by the Payment of Gratuity Act, 1972, least of the following
shall be exempt:
(i) Actual gratuity received 2,45,000 1,87,000
(ii) Limit 20,00,000 18,56,000
(iii) 15/30 x average salary (WN 1) x number of years of service (excluding
fractions): A Ltd. (15/30 x ₹ 12,000 x 24); 1,44,000
B Ltd. (15/30 x ₹ 20,592 x 19 1,95,624
Exempt amount 1,44,000 1,87,000
Taxable Gratuity (Gratuity received – exempt) 1,01,000 Nil
Total Taxable Gratuity 1,01,000
WN 1: Calculation of average salary for gratuity:
Basic salary: A Ltd. (₹ 12,000 x 10); B Ltd. (₹ 15,200 x 5) + (₹ 16,000 x 5) 1,20,000 1,56,000
Dearness allowance (forming part of salary): A Ltd.: Not admissible; B Ltd. (₹ 1,56,000 x
40% x 80%) - 49,920
Total salary 1,20,000 2,05,920
Average salary 12,000 20,592
➢ Limit for B Ltd. = ₹ 20,00,000 – gratuity exempt from A Ltd. (i.e. ₹ 1,44,000) = ₹ 18,56,000
PENSION [SECTION 10(10A)]
It is a payment made by the employer after the retirement/death of the employee as a reward for past services.
Pension is normally paid as a periodical payment on monthly basis but certain employees may forgo a portion of the pension
and receive a lump sum amount by surrendering such portion of pension. This is known as commutation of pension.
Treatment of pension is as under:

(a) Uncommuted pension – It is periodical payment of pension. It is taxable as salary for all employees.
(b) Commuted pension – It is a lump sum payment of pension.
Status of employee Gratuity received/not received Exemption in respect of commuted pension
u/s 10(10A)
Government employee / Local Gratuity may or may not be received. Entire commuted pension is exempt from tax.
Authority employee (including
statutory corp.)
Non-government employee Gratuity is received 1/3rd of 100% commuted pension which he is
normally entitled to receive.
Non-government employee Gratuity is not received 1/2 of 100% commuted pension which he is
normally entitled to receive.
Q 50: Determine the amount of taxable pension for the P/Y 2021-22 in the following cases on the assumption that it becomes
due on the last day of each month:
1. Mr. A receives ₹ 6,850 p.m. as pension from the Central Government during the P/Y 2021-22.
2. Mr. B receives ₹ 12,200 p.m. as pension from DEF Ltd., a public limited company during the P/Y 2021-22.
3. Mr. C retires from the State Government service on 30th June 2021. He gets ₹ 8,000 p.m. as pension upto 31st October
2021 from where he gets 1/3rd of his pension commuted for ₹ 2,75,000.
Sol 50: Computation of taxable pension in the following cases:

1. Uncommuted (recurring) pension is taxable for all employees = ₹ 6,850 x 12 = ₹ 82,200.
2. Uncommuted pension is taxable for all employees = ₹ 12,200 x 12 = ₹ 1,46,400.
3. Commuted pension is exempt in the hands of government employees. Only uncommuted portion shall be taxable = {(₹
8,000 x 4) + (₹ 8,000 x 2/3 x 5)} = ₹ 58,667.
Q 51: Mr. Mukul retired from service w.e.f. 01.11.2021 after service for 22 years and 5 months. Following are some details
at the time of retirement:
(i) Basic salary – ₹ 24,000 p.m.
(ii) Dearness allowance – 30% of basic salary (60% of which forms part of salary for retirement benefits.
(iii) On retirement, he received a sum of ₹ 5,65,000 as gratuity. He was entitled to a pension of ₹ 14,000 p.m. w.e.f
01.11.2021.
(iv) From 01.01.2022, he got 50% of his pension commuted and received a sum of ₹ 7,50,000 as commuted pension.
Compute his gross salary for the P/Y 2021-22.
Sol 51: Computation of gross salary of Mr. Mukul for the P/Y 2021-22:
Particulars (₹)
Basic salary (₹ 24,000 x 7) 1,68,000
Dearness allowance (₹ 1,68,000 x 30%) 50,400
Gratuity [WN 1] 2,53,480
Pension [WN 2] 2,99,000
WN 1: Computation of taxable gratuity:
(ii) Limit ₹ 20,00,000
(iii) 15/30 x average salary x number of years of service (excluding fractions) ₹ 3,11,520
(15/30 x ₹ 28,320 x 22)

= ₹ 5,65,000 – ₹ 3,11,520 = ₹ 2,53,480
Calculation of average salary for gratuity: Average monthly salary is calculated on the basis of average salary for the 10
months immediately preceding the month in which the employee has retired.
Basic salary = (₹ 24,000 x 10) - ₹ 2,40,000
Dearness allowance (forming part of salary) = (₹ 2,40,000 x 30% x 60%) - ₹ 43,200
Total salary - ₹ 2,83,200
Average salary = ₹ 2,83,200 / 10 = ₹ 28,320
WN 2: Computation of taxable pension:

Uncommuted (recurring) pension = (₹ 14,000 x 2) + (₹ 7,000 x 3) = ₹ 49,000
Commuted pension: As gratuity is also received, 1/3rd of 100% commuted pension shall be exempt.
Commuted pension received = ₹ 7,50,000 = 50%, therefore ₹ 15,00,000 = 100%.
Exempt amount = ₹ 15,00,000 x 1/3 = ₹ 5,00,000
Taxable commuted pension = Commuted pension received – exempt amount
= ₹ 7,50,000 – ₹ 5,00,000 = ₹ 2,50,000
Total pension taxable = ₹ 49,000 + ₹ 2,50,000 = ₹ 2,99,000
Q 52: Mr. Anuj was working with 2 companies. He retired from Reliance Telecom Ltd. on 31.08.2021 and started receiving
₹ 12,000 p.m. as pension. On 30.11.2021 he retired from Reliance Industries and received ₹ 5,00,000 as gratuity & ₹ 8,000
p.m. as pension. He commuted 60% of his pension received from Reliance Industries Ltd. on 01.02.2022 and received ₹
1,20,000 as commuted pension. Determine the taxable pension for Mr. Anuj for the A/Y 2022-23.
(a) ₹ 1,53,333 (c) ₹ 1,26,400
(b) ₹ 1,59,733 (d) ₹ 1,06,400 [Ans: (b)]
LEAVE SALARY [SECTION 10(10AA)]
The accumulated leaves standing to the credit of an employee may be availed by the employee during his service time
or may be encashed at the time of retirement. Encashment of leave by surrendering leave standing to one’s credit is
known as ‘leave salary’.
Exemption limits for Leave Salary
Govt. Employees Non-govt Employees
Wholly exempt Least of the following shall be exempt:
1. Leave encashment actually received
2. ₹ 3,00,000
3. 10 months average salary
4. Cash equivalent of unavailed leaves salary on the basis of maximum 30 days for every year of
service (ignoring fractions). It is to be calculated on the basis of average salary.
Salary: Basic salary + dearness allowance (if the terms of employment so provide) + commission
based on fixed % of turnover.
Point (4) above can be broken up into several steps as follows:

Step 1: Leaves actually allowed or 30 days per year whichever is less
Step 2: Leaves actually taken
Step 3: (Step 1 – Step 2) x Average monthly salary x years of service
30
Notes:
❖ If leave salary is received from the previous employer also, then exempted amount shall be reduced from ₹ 3,00,000.
❖ Average salary is to be calculated on the basis of salary drawn by the employee during the period of 10 months
immediately preceding the date of retirement.
Sir, What if the employee encashes

the accumulated leaves during
employment?
Ans: Where leave encashment is received
during employment, then it will be taxable
for all employees.
Q 53: Mr. Punjabi received ₹ 80,000 as leave salary during the end of the year for the leaves accumulated during the current
year from the State Government. His salary is 1,00,000 p.m. The amount taxable as leave salary for Mr. Punjabi shall be:
(a) ₹ 80,000 (c) Nil
(b) ₹ 3,00,000 (d) ₹ 1,00,000 [Ans: (a)]
Q 54: Mr. Sunil was employed by MNC Ltd. upto Feb, 1988. At the time of retirement, he was paid ₹ 3,65,000 as leave salary
out of which ₹ 85,000 was exempt from tax. Thereafter he joined PQR Ltd. and received ₹ 5,22,000 as leave salary at the
time of retirement on 31st December 2021.
Determine the amount of taxable leave salary from the following information:
1. Monthly salary at the time of retirement ₹ 34,000 p.m.
2. Average salary received during 10 months ending 31st December 2021
1st March 2021 to 31st July 2021 ₹ 30,000 p.m.
1st August 2021 to 31st December 2021 ₹ 34,000 p.m.
3. Duration of service 14 years & 9 months
4. Leave entitlement for every year of service 45 days
5. Leave availed while in service 270 days
Sol 54: Computation of taxable leave salary for Mr. Sunil for the A/Y 2022-23:
1. Actual leave salary received ₹ 5,22,000
2. Limit (₹ 3,00,000 – ₹ 85,000) ₹ 2,15,000
3. 10 months average salary (10 x ₹ 32,000) [WN 1] ₹ 3,20,000
4. Cash equivalent to unavailed leaves
(i) Leaves actually allowed or 30 days per year whichever is less = 30 days x 14 = 420 days
(ii) Leaves actually taken = 270 days
(iii) (420 – 270) x average salary/30 = 150 x ₹ 32,000/30 = ₹ 1,60,000
Taxable leave salary = Actual leave salary – Exempt amount
= ₹ 5,22,000 – ₹ 1,60,000 = ₹ 3,62,000.
WN 1: Calculation of average salary for leave salary: Average salary is to be calculated on the basis of salary drawn by the
employee during the period of 10 months immediately preceding the date of retirement.
Basic salary = (₹ 30,000 x 5) + (₹ 34,000 x 5) = ₹ 3,20,000.
Average salary = ₹ 3,20,000 / 10 = ₹ 32,000.
Q 55: Mr. Kundra an employee of XYZ Ltd. retired from service w.e.f. 01.01.2022 after serving for 16 years and 9 months. At
the time of retirement, he received a sum of ₹ 60,000 as leave encashment for unavailed leaves of 300 days. He was entitled
to 40 days leave each year of completed service. He was getting a salary of ₹ 5,000 p.m. at the time of his retirement. He
received an increment of ₹ 500 from 01.07.2021. Compute the amount of leave encashment taxable.
Sol 55: Computation of taxable leave salary for Mr. Kundra for the A/Y 2022-23:
1. Actual leave salary received ₹ 60,000
2. Limit ₹ 3,00,000
3. 10 months average salary (10 x ₹ 4,800) [WN 1] ₹ 48,000
4. Cash equivalent to unavailed leaves
(i) Leaves actually allowed or 30 days per year whichever is less = 30 days x 16 = 480 days
(ii) Leaves actually taken = 340 days [(40 days x 16) – 300]
(iii) (480 – 340) x average salary/30 = 140 x ₹ 4,800/30 = ₹ 22,400
Taxable leave salary = Actual leave salary – Exempt amount
= ₹ 60,000 – ₹ 22,400 = ₹ 37,600
WN 1: Calculation of average salary for leave salary: Average salary is to be calculated on the basis of salary drawn by the
employee during the period of 10 months immediately preceding the date of retirement.
Basic salary = (4,500 x 4) + (₹ 5,000 x 6) = ₹ 48,000.
Average salary = ₹ 48,000 / 10 = ₹ 4,800.
Q 56: Mr. Hari was working with Tata Ltd. till Feb 2007. He got ₹ 3,50,000 as leave encashment at the time of retirement
out of which ₹ 1,40,000 was exempt. He then joined Reliance Industries from March 2007. He retired from Reliance
Industries in the year 2021-22 and got ₹ 4,60,000 as leave salary. The statutory limit for the purpose of calculation of leave
encashment shall be:
(a) ₹ 3,00,000 (c) ₹ 1,60,000
(b) ₹ 1,40,000 (d) ₹ 4,60,000 [Ans: (c)]
RETRENCHMENT COMPENSATION [SECTION 10(10B)]

(a) Amount received
(b) ₹ 5,00,000
(c) 15/26 days average salary for every completed year of service or any part in excess of 6 months.
[15/26 x average salary x number of years of service (including fractions)]
➢ Average salary for preceding 3 months preceding the date of retirement is taken.
➢ Salary includes all but shall not include bonus and employer’s PF contribution.
Q 57: Ms. Kanika received retrenchment compensation of ₹ 8,00,000 after 29 years and 9 months of service. At the time of
retrenchment, she was drawing basic salary of ₹ 22,000 p.m. and dearness allowance of ₹ 3,000 p.m. Compute her taxable
retrenchment compensation.
Sol 57: Computation of taxable retrenchment compensation for Ms. Kanika for the A/Y 2021-22:
(i) Actual retrenchment compensation received ₹ 8,00,000
(ii) Limit ₹ 5,00,000
(iii) 15/26 x average salary x number of years of service (including fractions)
[15/26 x ₹ 25,000 x 30] ₹ 4,32,692
Taxable retrenchment compensation = Amount received as retrenchment compensation – exempt amount

= ₹ 8,00,000 – ₹ 4,32,692 = ₹ 3,67,308
WN 1: Calculation of average salary for retrenchment compensation: Average salary is to be calculated on the basis of salary
drawn by the employee during the period of 3 months immediately preceding the date of retirement.
Basic salary = (₹ 22,000 x 3) = ₹ 66,000
Dearness allowance = (₹ 3,000 x 3) = ₹ 9,000
₹ 75,000
Average salary = ₹ 75,000 / 3 = ₹ 25,000.
COMPENSATION RECEIVED ON VOLUNTARY RETIREMENT [SECTION 10(10C)]

(a) Amount received
(b) ₹ 5,00,000
(c) The amount does not exceed
(i) 3 months salary for each completed year of service (3 x salary x no. of completed years of service) or
(ii) Salary multiplied by balance months of service left before the date of his retirement (Salary x years of service left
x 12)
Notes:
o Salary for the purpose of computation of voluntary retirement shall consist of basic salary + dearness allowance (if the
terms of employment so provide) + commission based on fixed % of turnover.
o Exemption is allowed only to employees of Central/State Government, PSUs, Local authority, Company, University,
Statutory corporation or notified institute of management.
Q 58: Ms. Anchal (age: 41 years) is employed QRS Ltd. from whom she was paid ₹ 8,50,000 as compensation on voluntary
retirement. She has completed 18 years of service.
Additional information is as follows:
(₹)
1. Basis pay (monthly) 15,000
2. Dearness allowance (50% includible for retirement benefits) (annually) 48,000
3. Commission (quarterly) 6,000
4. Education allowance for 2 children (monthly) 1,000
5. Daily allowance (average amount spent daily is ₹ 78) 90
6. Age of retirement – 60 years
Find out the amount taxable as voluntary retirement compensation.
Sol 58: Computation of taxable voluntary retirement compensation for Ms. Anchal for the A/Y 2022-23:
(i) Actual voluntary retirement compensation received ₹ 8,50,000
(ii) Limit ₹ 5,00,000
(iii) The amount should not exceed: ₹ 9,18,000
(a) 3 x salary x no. of completed years of service (3 x ₹ 17,000 x 18) = ₹ 9,18,000
(b) Salary x no. of years of service left x 12 (₹ 17,000 x 19 x 12) = ₹ 38,76,000
Taxable gratuity = Amount received as voluntary retirement compensation – exempt amount
= ₹ 8,50,000 – ₹ 5,00,000 = ₹ 3,50,000
• Salary shall be basic salary + DA (forming part of salary) = ₹ 15,000 + ₹ 2,000 = ₹ 17,000.
PROVIDENT FUND
It is a welfare scheme for the benefit of the employees. Under this scheme, a stipulated sum is deducted from the salary of
the employee as his contribution towards the fund. The employer also contributes a certain percentage of the salary of the
employee to the provident fund. These contributions are invested. Interest earned thereon is also credited to the provident
fund account of the employee. The accumulated sum is paid to the employee at the time of his retirement.
Types of Provident Fund:

1. Statutory Provident Fund (SPF)
2. Recognised Provident Fund (RPF)
3. Unrecognised Provident Fund (URPF)
Following points should be kept in mind while calculating provident fund:

(i) Employee’s contribution is made out of their income and therefore shall not be taxable as the entire amount of the
income has already been taxed. In fact, in such cases he is given a deduction from his GTI of the amount contributed by
him.
(ii) Employer’s contribution is over and above the salary of the employee and is therefore an income deemed to be
received by the employee and therefore shall be taxable. However, it is exempt upto certain limits.
(iii) The interest credited to the PF account of the employee is also an income over and above his salary income and
therefore shall be taxable. However, it is also exempt upto certain limits.
TREATMENT OF PROVIDENT FUND

Particulars SPF RPF URPF
Employer’s Contribution Exempt Exempt upto 12% of salary. Excess taxable. Exempt
Interest credited to PF Exempt Exempt upto 9.5% rate of interest. Excess Exempt
taxable.
Repayment of lump sum on Exempt Exempt in some cases (note-ii). When not Note – (iii)
retirement exempt, it shall be treated as URPF.
Deduction u/s 80C on employee’s Available Available Not available
contribution
Notes:
(i) Salary for provident fund consist of basic salary + dearness allowance (if the terms of employment so provide) +
commission based on fixed % of turnover.
(ii) Lump sum balance payable in case of RPF shall be exempt in the hands of employee in the following situations:
(a) The employee has served his employer continuously for a period of 5 years or more. Service rendered to the
previous employer shall be included if he had also maintained RPF and the balance of the employee was transferred
to the current employer.
(b) The employee has been terminated because of reasons which are beyond his control.
(iii) Lump sum payment received from URPF at the time of retirement shall be taxable as follows:
(a) Payment received in respect of employer’s contribution and interest thereon – taxable u/h salaries.
(b) Payment received in respect of interest on employee’s contribution – taxable u/h Income from other sources.
Q 60: Mr. Mohit submits the following information for the P/Y 2021-22.
Basic salary – ₹ 1,60,000; Dearness allowance – ₹ 50,000 (60% of which forms part of salary for retirement benefits);
Commission based on a fixed % of turnover – ₹ 9,000. The employer contributes ₹ 25,000 towards PF to which a matching
contribution is made by Mohit. Interest credited in the PF account @ 11% comes to ₹ 96,800. Find out the net income of
Mohit for the A/Y 2022-23 if the PF is a (i) SPF, (ii) RPF, (iii) URPF.
Sol 60: Computation of net income of Mohit for the A/Y 2022-23:
Particulars SPF (₹) RPF (₹) URPF (₹)
Basic salary 1,60,000 1,60,000 1,60,000
Dearness Allowance 50,000 50,000 50,000
Commission based on fixed % of turnover 9,000 9,000 9,000
Employer’s contribution: RPF = [₹ 25,000 – 12% of ₹ 1,99,000] - 1,120 -
Interest credited in the PF account: RPF = (₹ 96,800/11) x 1.5 - 13,200 -
Gross Salary 2,19,000 2,33,320 2,19,000
Less: Standard Deduction 50,000 50,000 50,000
Income u/h Salary 1,69,000 1,83,320 1,69,000
Less: Deduction u/s 80C of Employee’s contribution 25,000 25,000 -
Net Income 1,44,000 1,58,320 1,69,000
➢ Salary for recognised provident fund shall consist of basic salary + DA (forming part of salary) + commission based on
fixed % of turnover = ₹ 1,60,000 + ₹ 30,000 + ₹ 9,000 = ₹ 1,99,000.
Q 61: Mr. Bhawani is working in ST Ltd. and has given the details of his income for the P/Y 2021-22. You are required to
compute his gross salary from the details given below:
(₹)
1. Basic salary (monthly) 10,000
2. Dearness allowance (50% is for retirement benefits) (monthly) 8,000
3. Commission @ 1% on turnover. Turnover being 5,00,000
4. Bonus 25,000
5. Gratuity 40,000
6. His own contribution in the RPF 22,000
7. Employer’s contribution to RPF 20% of basic salary
8. Interest accrued from RPF @ 13% p.a. 26,000
Sol 61: Computation of gross salary of Mr. Bhawani for the P/Y 2021-22:
Particulars (₹)
Basic salary (₹ 10,000 x 12) 1,20,000
Dearness allowance (₹ 8,000 x 12) 96,000
Commission @ 1% of turnover 5,000
Bonus 25,000
Gratuity (fully taxable when received during employment) 40,000
Employer’s contribution [(₹ 1,20,000 x 20%) – 12% of ₹ 1,73,000] 3,240
Interest accrued from RPF [(₹ 26,000/13) x 3.5] 7,000
Salary for recognised provident fund shall consist of basic salary + DA (forming part of salary) + commission based on fixed
% of turnover = ₹ 1,20,000 + ₹ 48,000 + ₹ 5,000 = ₹ 1,73,000.
Q 62: Mr. Sohail is working with ABC Ltd. The company deducts 13% of basic salary as employee provident fund. Sohail
receives ₹ 30,000 p.m. as basic salary, ₹ 3,200 p.m. as dearness allowance and ₹ 32,000 p.a. as commission based on fixed
% of turnover. Compute the taxable value of the provident fund assuming the fund to be Recognised Provident Fund.
(a) ₹ Nil (c) ₹ 4,848
(b) ₹ 240 (d) ₹ 47,040 [Ans: (a)]
Q 63: Mrs. Tanya provides the following information regarding her income for the year ending 31.03.2021.
(i) Basic salary – ₹ 5,000 p.m.
(ii) Education allowance for 2 children – ₹ 300 p.m.
(iii) Entertainment allowance – ₹ 400 p.m.
(iv) She retires on 01.01.2021 after 24 years of service and received a pension of ₹ 3,200 p.m. and gratuity of ₹ 96,000.
She is not covered under the Payment of Gratuity Act, 1972.
(v) She also received ₹ 68,000 from URPF. This constitutes of employee’s contribution of ₹ 25,000, employer’s
contribution of ₹ 25,000, interest on employee’s contribution of ₹ 9,000 and on employer’s contribution of ₹ 9,000.
Compute the gross salary of Mrs. Tanya for the A/Y 2022-23.
Sol 63: Computation of taxable income u/h Salaries for Mrs. Tanya for the A/Y 2022-23:
Particulars (₹)
Basic salary (₹ 5,000 x 9) 45,000
Children education allowance for 2 children [(₹ 300 x 9) – (₹ 100 x 9 x 2)] 900
Entertainment allowance (₹ 400 x 9) 3,600
Pension (₹ 3,200 x 3) 9,600
Gratuity [WN 1] 36,000
Unrecognised Provident Fund [WN 2] 34,000
WN 1: Computation of taxable gratuity:

(i) Actual gratuity received ₹ 96,000
(ii) Limit ₹ 20,00,000
(iii) 15/30 x average salary (WN 1) x number of years of service (excluding fractions) ₹ 60,000
(15/30 x ₹ 5,000 x 24)
= ₹ 96,000 – ₹ 60,000 = ₹ 36,000
Calculation of average salary for gratuity: Average monthly salary is calculated on the basis of average salary for the 10
months immediately preceding the month in which the employee has retired.
Basic salary = ₹ 5,000 x 10 = ₹ 50,000
Average salary = ₹ 50,000 / 10 = ₹ 5,000
WN 2: Computation of taxable unrecognised provident fund:

Contribution of employer & interest on interest on employer’s contribution shall be taxable u/h salaries = ₹ 25,000 + ₹
9,000 = ₹ 34,000.
Interest on employee’s contribution shall be taxable u/h other sources, therefore shall not be included in taxable salary.
INCOME DEEMED TO BE RECEVED [SECTION 7]
1. The annual increase of interest to the balance of an employee in RPF in excess of 9.5% p.a.
2. Contribution of the employer to RPF in excess of 12% of the salary of the employee.
3. Transferred balance in a RPF from URPF.
DEDUCTIONS FROM GROSS SALARY [SECTION 16]
1. Standard Deduction [Section 16(ia)]: An employee shall be allowed a fixed standard deduction of ₹ 50,000 from his
gross salary. However, such deduction cannot exceed the amount of gross salary.
Q 64: Mr. Krish is in receipt of a salary of ₹ 3,500 p.m. He is also granted ₹ 1,500 p.a. as children education allowance for
one child & ₹ 500 p.m. as transport allowance for commutation between residence and office. Compute the amount of
deduction available u/s 16(ia).
(a) ₹ 48,300 (c) ₹ 42,300
(b) ₹ 50,000 (d) ₹ 42,000 [Ans: (a)]
2. Entertainment allowance [Section 16(ii)] – As already discussed entertainment allowance is first included in salary
income of all employees and then deduction is allowed only to Government employees.
3. Professional tax (tax on employment) [Section 16(iii)] – As per the constitution of India, the SGs/Local authorities are
empowered to make law and collect taxes on professions, trades, employment etc. However, amount payable shall not
exceed ₹ 2,500 p.a.
Sir, whether the deduction is

allowed on due basis or paid basis?
Ans: As per section 16(iii), a deduction of any

sum actually paid shall be allowed. The
deduction will be allowed in the year in which
the professional tax is paid, even if it relates to
any other year.
Sir, what if professional tax is paid by the

employer on behalf of the employee?
Ans: Where professional tax is paid by the

employer, then first it shall be included in the
gross salary of all employees and then deduction
shall be allowed u/s 16(iii).
Q 65: Ms. Sakshi paid the following amounts as professional tax during the P/Y 2021-22:
For 2020-21 – ₹ 2,000, For 2021-22 – ₹ 2,500, For 2022-23 – ₹ 1,500. Decide how much deduction Ms. Sakshi can claim
during the P/Y 2021-22.
Sol 65: Professional tax paid by Ms. Sakshi in the P/Y 2021-22 shall be allowed deduction irrespective of the year it belongs
to. Deduction allowed u/s 16(iii) = ₹ 2,000 + ₹ 2,500 + ₹ 1,500 = ₹ 6,000.
Q 66: Mr. Neeraj has to pay 2,300 as professional tax for the P/Y 2021-22. Out of this amount 1,000 was paid by his employer
and the remaining by himself. The deduction u/s 16(iii) available to him shall be:
(a) ₹ 1,300 (c) ₹ 2,300
(b) ₹ 1,000 (d) ₹ 2,500 [Ans: (c)]

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CA SHREY RATHI SALARY 3.

APJ ABDUL KALAM

"If you want to shine like a sun,

SCOPE OF THIS CHAPTER

Let us understand this with the help of an example:

Titu is employed with Dharma He acts in various films produced by

METHOD OF COMPUTATION UNDER THE HEAD SALARY

Income under the head Salaries

BASIS OF CHARGE [SECTION 15]

Salary is taxable on due or receipt basis whichever is earlier.

Sir, please elaborate “due &

Sir, what if in FY 2021-22, an

Sir, Is there any difference

However, interest free / concessional loan is a perquisite to the

Sol 1: Salary becomes taxable on due or receipt basis whichever is earlier.

Sir, Is Bonus also taxable on due or

Ans: No. Bonus is taxable on receipt basis only.

Sir, does full time job or part time

RELIEF WHEN SALARY IS PAID IN ARREARS OR IN ADVANCE [SEC 89(1)]

STEP 3: Relief u/s 89(1) = (A) – (B).

Assessment year Slab rate of income tax

Sol 5: Computation of Relief u/s 89(1) for Mr. Hari:

Tax payable by Mr. Hari for the A/Y 2022-23:

1. Special Compensatory (Hill areas

Exemption varies from ₹ 300 p.m. to ₹ 7,000 p.m.

2. Border area allowance

Exemption varies from ₹ 200 p.m. to ₹ 1,300 p.m.

3. Tribal area allowance

Exemption: ₹ 200 p.m.

4. Allowance for transport employees

Exemption: i) 70% of such allowance

5. Children education allowance

Exemption: ₹ 100 p.m. per child upto 2 children.

Sir, I have 2 siblings. The employer of my

6. Hostel expenditure allowance

This allowance is provided to an employee to meet the hostel

Exemption: ₹ 300 p.m. per child upto 2 children.

Exemption: ₹ 3,200 p.m.

Provided to an employee working in unnatural climate in

Exemption: ₹ 800 p.m.

9. High altitude (uncongenial climate)

Exemption: 9,000 feats – 15,000 feats - ₹ 1,060 p.m.

Sol 8: Computation of taxable children education & hostel allowance:

ENTERTAINMENT ALLOWANCE [Section 16(ii)]

It is given to employees for entertainment of customers and guest of the business.

Least of the following shall be allowed as deduction:

HOUSE RENT ALLOWANCE [SECTION 10(13A)]

HRA is exempt to the extent of the minimum of the following:

Sir, my mother is working in a MNC, the office of which

2. For the purpose of computation of HRA, salary consists of:

Sol 13: Computation of HRA exempt from tax:

WN 1: Computation of exempt portion of HRA

WN 1: Computation of exempt portion of HRA

Q 18: Which of the following allowance is not fully taxable?

Sir, what does reimbursement and

1. ATTENDANTS, WATCHMAN ETC.;

SPECIFIED EMPLOYEE [SECTION 17(2)(iii)]