SALARIES

Format of Computation of Income from Salary

Amount Amount
Particulars (₹) (₹)
Salary :
Basic Salary/ Wages
Arrears of Salary
Advance Salary
Bonus / Incentives
Leave Salary
Commission
Pension
Gratuity

Allowances (to the extent not exempt u/s 10)

Dearness Allowance
Entertainment Allowance
City Compensatory Allowance
House Rent Allowance
Other Allowances

Perquisites: (to the extent taxable)

Rent-free accommodation
Concessional Rent accommodation
Vehicle/ Drivers salary
Free educational facilities (for Children of employee)
Interest free /concessional loan

Profits in lieu of Salary:

Compensation for termination of employment
Compensation for modification of the terms & conditions
relating to employment

Payment from employer or Provident or any other fund over

and above the employee's own contribution & interest
Receipt from Keyman Insurance Policy

Gross Taxable Salary xxx

Less: Deductions u/s 16
(i) Standard Deduction 50,000
(ii) Entertainment Allowance (only to Government
Employees) xxx
(iii) Professional Tax 2500 (xxx)

Net Taxable Salary xxx

Q1. Compute the income of Mr. Suhas under the head ‘Salaries’ for the year ended 31 st March,
2022
Basic Salary received during the year at Rs. 25,600 p.m.
Dearness Allowance (D.A) Rs. 10,500 p.m.
House Rent Allowance received Rs. 2,000 p.m. (Rs. 18,000 exempt).
Arrears of salary for the earlier year received during the year Rs. 12,500.
Took advance salary Rs. 50,000 on account of marriage in the family and loan of Rs. 10,000.
Received bonus during the year Rs. 30,000.
Mr. Suhas is provided with car for office use as well as personal use. The perquisite value of
the same is determined at Rs. 3,800.
He has incurred following expenses during the year:
(a)Books and periodicals required for employment purpose Rs. 1,500.
(b)Professional tax paid Rs. 1,600.

Q2. Mr Ashok is working as an accountant in Central Railway. The following are the
particulars of his income for the year ending 31st March 2022:
(i) Monthly Basic Salary Rs. 58000
(ii) Dearness Allowance Rs.15000 p.m.
(iii) Special Allowance Rs. 4300p.m.
(iv) Bonus Rs. 20000
(v) He is provided with Maruti Car for his office use as well as for personal use. The
perquisite value of this is ascertained at Rs. 5,920
(vi) Entertainment allowance of Rs. 800p.m. since 1/4/2010 of which he actually spent
Rs. 8,000.
(vii) He spent Rs. 1,500 on books and paid Profession tax Rs. 1,720.
(viii)Interest on Savings Bank Account Rs. 5,000
(ix) Winning from lotteries Rs. 1,00,000 (TDS Rs. 35,000)
(x) Mr. Ashok took Anand Bhavan on rent of Rs. 12,000 p.m. He subletted the property
to Mr. Anant at Rs. 12,500 p.m. w.e.f. 01.04.2021
(xi) Accrued Interest on NSC amounts to Rs. 15,000.
(xii) Directorship fees from Imphal Associates Pvt. Ltd. received Rs. 12,000
(xiii) Withdrawals from PPF account Rs. 34,000.
(xiv) Investment in NSC was Rs. 1,20,000
(xv) Contribution to Annuity plan of Pension Fund Rs. 50,000
(xvi) Medical Insurance Premium paid for self: Rs. 28,000 and Father (Sr.
Citizen ) Rs. 32,000.
(xvii)
Compute Gross Total Income of Mr. Ashok for AY 2022-23.

Q3. Mr. David, employed with Kandila Healthcare Ltd., retired from the company on
1.10.2021. At the time of retirement, his Basic Salary was Rs. 45,000 p.m. He was also
entitled to dearness allowance @ 16% of his basic salary. He was also paid House Rent
Allowance of Rs. 15,000 p.m. (Actual Rent paid to the landlord Rs.12,000 p.m) and
entertainment allowance of Rs. 2,250 p.m. He was also given the facility of a chauffeur-
driven car for official and personal use, the perquisite value of which came to Rs. 5,000.
Profession tax was deducted from his Salary at Rs. 1,200. He is not covered under the
Payment of Gratuity Act. Also compute his gross salary for the AY 2022-23.
Q4. Mr A is retiring after 15.5 years of service. Mr A was entitled to 35 days of paid leave
per annum from his employer i.e., overall 542 days of leave during his entire service. Out
of the same Mr A has already utilised 200 days of paid leave and is left with 342 days of
unutilised leave. Mr A was drawing basic salary + DA of Rs 33,000 per month at the time
of retirement and received Rs 3,76,750 as leave encashment calculated based on 342 days
* Rs. 1,100 (salary per day = Rs. 33,000/30 days).

Q5. Mr. Anurag has retired from the organisation after serving for a period of 20 years. But
he exhausted leave 390 and left with 370 days of leave. He draws basic salary and D.A ₹
45000 per month at the time of retirement. He received leave encashment of ₹ 555000
(370*1500). He was entitled to 38 days of paid leave in a year. Calculate taxable leave
encashment.

Q6. Mr Aakash retired on 31st August, 2021 and receives Rs. 12500 p.m. as pension. He
submits the following information:
Basic Salary (Since October 2019): Rs. 25,000 p.m.
Dearness Allowance: Rs. 16,000 p.m (1/3 of which forms part of retirement benefit)
City Compensatory Allowance : Rs. 3,500 p.m.
Employer’s contribution towards provident fund: Rs. 5,500 p.m
Interest credited to PF @12.5% on Rs. 2,400
PF received at the time of retirement:
Aakash’s contribution: Rs. 5,30,000
Interest on Aakash’s contribution: Rs. 52,000
Employer’s contribution: Rs. 4,70,000
Interest on Employer’s contribution: Rs. 44000
Calculate Taxable income of Mr. Aakash for AY 2022-23 under following
circumstances:
(a) Statutory PF (b) Recognised PF and (c) Unrecognised PF

Q7. Ms. Jyoti retires on 04.01.2022 after serving XY Company Ltd for a period of 32 years
and 11 months. At the time of retirement her basic salary was Rs.60,400 p.m. and she
was also entitled to Dearness Allowance of Rs.28,000 p.m. On her retirement, she
received Rs.25,60,000 as gratuity. Compute the amount of gratuity exempt from tax and
the amount to be included in gross salary. She is covered by Payment of Gratuity Act.

Q8. Mr. Abhijeet is not covered by Payment of Gratuity Act, 1972, retires on 28 th February
2022 after serving the employer company for a period of 28yrs and 10months. He was
drawing a monthly salary of Rs.80,000 up to September 2020 and thereafter Rs.95,000.
On retirement, he receives gratuity of Rs.16,75,000. Mr. Abhijeet had earlier worked with
S Co. Ltd. from where he had received gratuity and had availed of the exemption of Rs.
8,00,000. Compute the amount of Gratuity exempt from tax and the amount to be
included in gross salary.

Q9. A retired from his job w.e.f. 01.09.2021. He had joined the service on 1999. He got an
increment in his basic salary amounting to Rs. 5,000 every year on January 1. At the time
of his retirement, he was getting a basic salary of Rs. 60,000 p.m. He was also entitled to
dearness allowance @ 10% of basic salary and commission on turnover @ 1% of the total
sales achieved by him. His turnover for the 12 months ending 31.08.2021 was Rs.
 90,00,000, spread evenly over the year. He received a sum of Rs. 14,00,000 as gratuity
on the date of retirement. Compute the taxable salary for the A.Y. 2022-23.

Q10. On 30.06.2021, Mr Santosh retires from Central Government service and gets pension
of Rs. 30,000 p.m. upto 31.01.2022. With effect from 01.02.2022, he gets 1/3 rd of his
pension commuted for Rs. 12,00,000. Calculate the gross amount of taxable pension
includible in the salary of Mr. Santosh for A.Y. 2022-23.

Q11. Mr. Samuel retires from X Ltd. on 30.06.2021. He had joined the company on
04.01.1987. He gets pension of Rs. 20,000 p.m. upto 30 th November 2021. On 31st
December 2021, he requests for commutation of 50% of his pension. His request is
accepted and he receives Rs. 7,50,000. Compute the gross taxable salary if he has
received Rs. 15,00,000 as gratuity, which is fully exempt from tax.

Q12. Mr Akhilesh retires from Sun Pharma Ltd. on 31.10.2020. He gets pension of Rs.
25,000 p.m. as upto 31.10.2021. With effect from November 1, 2021, he gets 65% of
pension commuted for Rs. 40,00,000. Prior to 31.10.2019 he used to get Rs. 50,000 p.m.
as salary and Rs. 12,000 p.m. as DA. Determine the gross amount of taxable pension
includible in salary of Mr. Akhilesh for the AY 2022-23, if Gratuity is received by him.

(A) Deduction on Entertainment Allowance [S. 16(ii)]

(Least of the following)
(a) HRA actually received
(b) Rent Paid (-) 10% of (Basic salary + DA)
(c ) For Metro Cities: 50% of (Basic Salary
+DA)
For Non Metro Cities: 40% of (Basic
Salary +DA)

(B) House Rent Allowance (HRA) Exemption: [S. 10(13a)]

(Least of the following)
(a) HRA actually received
(b) Rent Paid (-) 10% of (Basic salary + DA)
(c ) For Metro Cities: 50% of (Basic Salary +DA)
For Non Metro Cities: 40% of (Basic Salary
+DA)
(C ) Leave Salary Encashment
Accumulated leave can either be encashed during service or at the time of retirement or resignation. Any
leave encashed during service is fully taxable and forms part of ‘income from Salary’
Leave encashment received at the time of either retirement or resignation is either fully or partially
exempt depending upon the category that an employee falls under. This has been elaborated further
below:
(A)Leave encashment received by Central or State Government employee at the time of retirement or
resignation is fully exempt
(B) Leave encashment received by legal heirs of deceased employee is fully exempt
(C )Leave encashment received by Non-Government employee is exempt based on the computation
provided under Section 10(10AA)(ii) and balance amount if any is taxable as ‘income from salary’
Formula for computing leave encashment exemption of Non-government employees:
Particulars Amount Amount
Leave encashment received xxx
Less: Exemption under Section 10(10AA) – Least of the following:
Amount notified by the Government** Rs 3,00,000 3,00,000
Actual leave encashment amount XXXX
Average salary* of last 10 months x 10 months XXXX
Salary per day * unutilised leave (considering maximum 30 days leave per year) for
XXXX (XXX)
every year of completed service
Leave encashment taxable XXX
*Salary for this purpose includes basic salary, dearness allowance and commission based on fixed
percentage of turnover secured by employee** Specified amount of Rs 3,00,000 is the aggregate amount
allowed as exemption irrespective of frequency of leave encashment received by employee by various
employers. If an employee has utilised Rs 2,00,000 already at the time of first resignation, he is only
entitled to use balance of Rs 1,00,000 for the exemption computation next time. Hence, overall employee
is allowed total exemption of only Rs 3,00,000 with respect to leave encashed from all employers.

(D) Provident Fund:

Fund During Continuity of Job Upon Retirement
Employee’s Employer’s Interest on Repayment of sum on
Contribution Contribution Provident retirement, resignation or
Fund termination
Deduction u/s Fully Exempt Fully Fully Exempt
Statutory PF 80C Exempt
Exempt upto
Deduction u/s 12% of Exempt
Recognised PF 80C Salary. upto 9.5%. Not Taxable
Unrecognised PF No deduction
Available u/s Employees
80C Not taxable Not taxable contribution: not taxable
Interest on Taxable
employees under Other
contribution sources
Taxable
Employers under
Contribution: Salary
Interest on Taxable
employers under
contribution Salary
(E) Gratuity Exemption [S. 10(10)]
(1) Government Employee : Fully Exempt

(2) Others:
(A) Covered by Payment of Gratuity Act (POGA) : (Least of the Following is exempt)
(i) Gratuity Actually Received
(ii) Notified Amount : ₹ 20,00,000 (FOR LIFETIME)
(iii) Salary last drawn x 15 days x No. of completed years of service
26 days

* Salary last drawn: 1 month salary at the time of retirement

Salary includes : Basic Salary + Dearness Allowance

* No of completed years of service: (round off)

eg: 15 years and 5 months : 15 years
15 years and 6 months: 15.5 years
15 years and 7 months : 16 years

(B) Not covered by Payments of Gratuity Act (Least of the Following is exempt)
(i) Gratuity Actually Received
(ii) Notified Amount : ₹ 20,00,000 (FOR LIFETIME)
(iii) Average Salary x 1/2 x No. of completed years of service

* Average Salary : Average salary for 10 months preceding the month of retirement
Salary includes : Basic Salary + Dearness Allowance + Fixed % Commission on Turnover
(retirement benefit)

* No of completed years of service:

eg: 15 years and 5 months : 15 years
15 years and 6 months: 15 years
15 years and 7 months : 15 years

(F) Pension [S 10(10A)]

(I) Uncommuted Pension : ( monthly pension ) -----> Fully Taxable ( even to government employees )

(II) Commuted Pension : (lumpsum amount)

(1) Government Employees -----> Fully Exempt

(2) Others:
(A) Receives Gratuity also
1 x Pension Received x 100
3 % Commuted

(B) Does not Receives Gratuity

1 x Pension Received x 100
2 % Commuted
Solution 6:

Computation of Income from Salary

Particulars Stat . PF R PF URPF

Basic Salary (25,000 x 5m) 1,25,000 1,25,000 1,25,000

DA (16000 x 5m) 80,000 80,000 80,000

CCA (3,500 x 5m) 17,500 17,500 17,500

Provident Fund:
Continuity of Job:
Employers Contribution Nil 9,300 NIL
Interest on PF NIL 576 NIL
(2400/12.5 x 3)
Upon Retirement:

Employers Contribution: NIL NIL 4,70,000

Interest on employers
contribution NIL NIL 44,000

Pension- Uncommuted Pension (12,500 x 7m) 87,500 87,500 87,500

Gross Salary 3,10,000 3,19,876 8,24,000

Less: Deduction u/s 16

(i) Standard Deduction (50,000 ) (50,000 ) (50,000 )

(ii) Professional tax NIL NIL NIL

Net Taxable Salary 2,60,000 2,69,876 7,74,000

Income from Other Sources

Interest on Employees
Contribution to PF Nil Nil 52,000
(Received upon retirement)

GROSS TAXABLE INCOME 2,60,000 2,69,876 8,26,000

Less: Deductions
u/s 80C - Employees
Contribution towards PF (27,500 ) (27,500 ) NIL
(5,500 x 5m)

Net Taxable Income 2,32,500 2,42,376 8,26,000

Solution 7:

Computation of Gratuity exemption

Amount
Particulars (₹) Amount (₹)
Gratuity received 25,60,000
Less: Exempt
(i) Gratuity received 25,60,000
(ii) Notified Amount 20,00,000
(iii) Salary last drawn x 15 days x No. of completed years
26 days of service

= (60,400 + 28,000) x 15 / 26 x 33 16,83,000

( whichever is less) (16,83,000 )
Taxable Gratuity 8,77,000

Solution 8:

Computation of Gratuity exemption

Particulars Amount (₹) Amount (₹)
Gratuity received 16,75,000
Less: Exempt
(i) Gratuity received 16,75,000
(ii) Notified Amount (20,00,000 - 8,00,000) 12,00,000
(iii) Average Salary x 15
1
days
2 x No. of completed years of service

= (86,000) x 1/2x 28 12,04,000

( whichever is less) (12,00,000 )

Taxable Gratuity 4,75,000
Calculation of Average Salary:
Date of retirement: 28th February, 2022
Average salary preceding the month of retirement

April - September (80,000 x 6 m) 4,80,000

October to January (95,000 x 4 m) 3,80,000

Total 10 month salary 8,60,000

Divide: 10 months 10
Average salary ₹ 86000
Solution 9:

Computation of Income from Salary

Particulars Amount (₹) Amount (₹)
Basic Salary (60,000 x 5 m) 3,00,000
DA (3,00,000 x 10%) 30,000
Commission (90,00,000 x 5m /12 m x 1%) 37,500
Gratuity 14,00,000
Less: Exempt (Least of the following)
(i) Gratuity received 14,00,000
(ii) Notified Amount 20,00,000
(iii) Average Salary x 1 x No. of completed
2 years of service
= (72,400) x 1/2x 20 7,24,000
( whichever is less) (7,24,000 ) 6,76,000
Gross Salary 10,43,500
Less: Deductions u/s 16
(i) Standard Deduction (50,000 )

Income from Salary 9,93,500

Calculation of Average Salary:

Date of retirement: 1st September, 2019
Average salary preceding the month of retirement

Nov & Dec 2018 (55,000 x 2m) 110000

Jan to Aug, 2019 (60,000 x 8m) 480000
Total Basic Salary 590000
(5,90,000 x 10%) 59000
75000
Total Salary for 10 months 724000
10
Average Salary 72400

Solution 10:

Calculation of Taxable Pension

Particulars Amount (₹) Amount (₹)
Uncommuted Pension:
July to January : (30,000 x 7m) 2,10,000
February and March (30,000 x 2/3 x 2m ) 40,000 2,50,000
Commuted Pension 12,00,000
Less: Exempt (12,00,000 ) NIL
Taxable Pension 2,50,000
Solution 11:

Computation of Income from Salary

Particulars Amount (₹) Amount (₹)
Uncommuted Pension:
July to Nov : (20,000 x 5m) 1,00,000
Dec to March (20,000 x 60% x 4m ) 48,000 1,48,000
Commuted Pension: 7,50,000
Less: Exempt NIL
1 x Pension Received x 100
3 % Commuted
1 x 7,50,000 x 100 (6,25,000 )
3 40 1,25,000
Taxable Pension 2,73,000
Gratuity 15,00,000
Less: Exempt (15,00,000 ) NIL

Income from Salary 2,73,000

Solution 12:

Calculation of Taxable Pension

Particulars Amount (₹) Amount (₹)
Uncommuted Pension:
April to Oct (25,000 x 7 m) 1,75,000
Nov to March (25,000 x 35% x 5m) 43,750 2,18,750
Commuted Pension 40,00,000
Less: Exempt NIL
1 x Pension Received x 100
2 % Commuted
1 x 40,00,000 x 100 (30,76,923 )
2 65 9,23,077

Taxable Pension 11,41,827