Income from Salary -: 3.1 :- By:- CA.

SUMIT GOYAL

SALARY
Chargeability (Sec. 15)
Any payment made by an Employer to his Employee for rendering his Services is called Salary. It
includes Monetary as well as Non-Monetary benefits.
Employer and Employee Relationship
An income can be taxed under the head 'Salaries' only if there is a relationship of an employer and
employee between the payer and the payee. If this relationship does not exists, then the income would not be
deemed to be income from salary. The relation of Employer and employee should be of master and servant.
Examples
(i) A Member of Parliament is Not a Govt. employee and therefore, remuneration received by him is
Not taxable as salary income, but as income from other sources.
(ii) Any salary, bonus, commission or remuneration due to / received by an Assessee from a firm, in
which he is a partner, shall not be taxable under the head 'Salaries' as there is no employer-
employee relationship. It will, however, be taxable under the head 'Profits & Gains of business
or profession'.
(iii) Family Pension :- Any family pension received by the widow or legal heirs of a deceased
employee is taxable under the head 'Other Sources'.
(iv) Examinership fees Received by a lecturer from the University is not taxable under the head 'Salaries'
but as the income from other sources because university is not the employer of him.

Basis of Charge (Sec. 15)

Any amount received as salary will be taxable on Receipt OR ‘Due Basis’ whichever is earlier. So
it will include:-
(i) Salary Due, Whether Received Or Not.
(ii) Salary Received in Advance, whether Due or Not (Advance against Salary is treated as Loan)
(iii) Any Arrear of Salary(e.g., bonus) if Not taxed earlier. (However 89(1) Relief can be claimed)

Place of Accrual of Salary

The Golden Rule is that Salary accrues Where the Service is rendered. Leave Salary paid to a person
employed in India on Leave to a Foreign country is treated to be Income arisen in India. However, if a
Citizen of India renders Service outside India, and receives Salary from the Govt. of India, it would be
Taxable as Salary deemed to have accrued in India.

Foregoing of Salary
Sec. 15 charges Salary to Tax on Due basis, even if it is Not received. Therefore, the salary
foregone is Taxable in the hands of the Employee. However, if the employee foregoes his Salary before it
accrues it is Not taxable.
Surrender of Salary
Salary Surrendered will not be included in computing the income, provided salary is surrendered
to the Central Govt. whether he is in Public Sector or Private Sector or Govt. Employee.
Salary Grade or Pay Scale : Salary grade means that at what starting salary any employee is to be
appointed and during the entire service period ( if there is no revision of grade or no promotion ), what will be
his increment per year and what will be his maximum Salary after which there will be No increment. Here
salary means basic salary. For Example, if a person is appointed in the grade Rs. 2,200-100-3,000, it means
that his starting salary will be Rs. 2,200 p.m. after one year of service he will get an increment of Rs. 100
p.m. i.e., his salary will become Rs. 2,300 p.m., and similarly he will get an annual increment of Rs. 100 p.m.
till his Salary reaches Rs. 3,000 p.m.

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Income from Salary -: 3.2 :- By:- CA. SUMIT GOYAL

Salary When Due

In almost all the offices of State Govt., Salary becomes due on the First date of Every month. In this
Case, Basic Salary from March to February Next shall be taken. Generally In Central Govt. offices &
Non -Govt. Sector, the Salary is paid on the Last date of the Month, Basic Salary from April to March Next
Year is taken.
In Banks and certain other bodies, the Salary is Credited on the Last date of the Month. Hence, the
Salary from April to March Next shall be Taxable.

ILLUSTRATION : 1

Mr. Piyush was appointed as Reader in Delhi University in the Scale of 3,700-125-4950 on 1.9.2019.
Compute his Salary income for the Previous year 2023-24 if (a) Salary is Due on Last date of Every month. Or
(b) First Day of Next month.
Solution:- (a) Salary Rs. 49,775 (b) Salary Rs. 49,650

ILLUSTRATION : 2

Peehu joined a Service on 1-8-2019 in the grade of Rs. 12,000-300-13,800-400-17,800 and her Salary
was Fixed at Rs. 14,200 from the date of Joining.
Compute her Basic Salary for the A.Y. 2024-25.

Solution:- Basic Salary = Rs. 1,88,000 [ (15,400 x 4) + (15,800 x 8) ]

ILLUSTRATION : 3

Sudama is an Employee of ABC Ltd. getting Salary of Rs. 40,000 p.m. which is Due on the Last day of
the Month but is paid on the 7th of the Next Month. Salary for which months will be Taxable for Assessment
year 2024-25?

Solution:- Salary will be Taxable for the Months of April, 2023 to March, 2024.

ILLUSTRATION : 4

In the Above Illustration-3 , Assume that Salary becomes 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 A.Y. 2024-25?

Solution:- Salary will be Taxable for the Months of March, 2023 to Feb., 2024 because Salary for March,
2023 was Due on 1-4-2023 and Salary of March, 2024 will become Due on 1-4-2024 i.e., the Next Financial
year.

ILLUSTRATION : 5

In the Above Illustration 3, Assume that he is paid the Salary of April, 2024 and May, 2024 in Advance
in March, 2024. What will be the Gross Income for A.Y. 2024-25?

Solution:- Taxable Amount of Salary in P.Y. 2023-24 = Rs. 5,60,000 (4,80,000 + 80,000)

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Income from Salary -: 3.3 :- By:- CA. SUMIT GOYAL

COMPUTATION OF SALARY INCOME

(a) Basic Salary [According to Pay Scale] XXXX
(b) Allowances [ Sec.17(3)(ii) ] XXXX
(c) Perquisites [ Sec. 17(2) ] XXXX
(d) Profits in lieu of Salary [ Sec.17(3) ] XXXX
Gross Salary ( a +b + c + d ) XXXX
Less : Deductions :
* Standard Deduction (Max. 50,000) Sec.16(ia) XXX
* Entertainment Allowance Sec.16(ii) XXX
* Tax on Employment Sec.16(iii) XXX (XXXX)
Taxable Income under the Head Salary XXXX

Treatment of Various Incomes to be included in ‘Salary’

(1) Basic Salary:- Fully Taxable (Salary or Wages both are same under this head)
(2) Dearness Allowance / Dearness Pay:- Fully Taxable
(3) Bonus, Fees or Commission: Fully Taxable (Bonus is Taxable on Receipt basis)

(4) Salary in lieu of Notice Period: This is Taxable in the Previous year in which it is Receive.
Meaning of Notice period- Normally, if any Employer wants to terminate the Services of an
Employee, he gives Notice of his intention to do so. e.g. as per the Contract of Service, he may have to
give 3 months Notice in Advance to the employee. This is known as Notice period. Sometime Employer
instead of giving him a Notice gives him Salary for the Notice period and Terminates him immediately.
This amount paid by Employer is known as Salary in lieu of Notice period and is Fully Taxable in the
hands of the Employee.

(5) Overtime Payment: Any Payment made by the Employer to the Employees for working beyond Office
hours or for any Extra work done by the Employees is Taxable and therefore, included in Gross Salary.

(6) LEAVE ENCASHMENT OR LEAVE SALARY [Sec. 10(10AA)]

(i) Before Retirement : Fully Taxable for All Employees (whether govt. or private)

F The Encashment of Leave Salary while in service is Allowed to be spread over under
the Provisions of Sec. 89(1) so as to avail the Relief which is Now Available at Source.

(ii) At the Time of Retirement,whether on Superannuation or otherwise

- For All Govt. Employees:- Fully Exempted

- For Non Govt. Employees:-

Least of following is Exempted:-

(a) Credit Balance of Leaves × Average Salary (on the Basis of Last 10 months' Salary)
(b) 10 × Average Salary
(c) Rs. 25,00,000
(d) Amount Actually Received
Salary Means:- Basic + D.A. (if term of Employment so Provided) + Fixed
Commission on Sales.

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Income from Salary -: 3.4 :- By:- CA. SUMIT GOYAL

(i) Leaves Allowed / Entitlement Can Not exceed 30 days (1 month) for every Completed year of
Service. For a Part of year No Leave is Allowed.
(ii) Where the leave encashment is Received by the Employee from more than One employer in the
same previous year, the specified limit given in clause (c) above would apply to the aggregate
of leave encashment received from one or more Employers.
(iii) Leave Encashment paid to legal heirs is Not Taxable in case of Death of Employee.

ILLUSTRATION : 6
Mr. Anil, Employee of R Ltd., Receives Rs. 36,00,000 as Leave Salary at the time of
Retirement on Jan. 31, 2024. On the basis of following information, Determine the amount of Taxable
Leave Salary; Basic Pay Rs. 3,00,000 p.m. since 2021 ; Duration of Service - 22 years and 8
months; Leave to his Credit at the time of Retirement is 12 months on the Basis of 45 Days Entitlement
of Leave for Each Completed year of Service .
SOLUTION: Taxable Leave Salary = Rs. 33,00,000 (36,00,000 - 3,00,000)

(7) DEATH CUM RETIREMENT GRATUITY [Sec. 10(10)]

(i) For All Govt. Employees: Fully Exempted under the head 'Salary' or 'Other Sources'

(ii) For Non Govt. Employees: (A) & (B)

(A) For Employee Covered under Gratuity Act, 1972, Least of the following is Exempted:

(i) Years of Service × 15/26 × Last month's drawn Salary

(ii) Amount Actually Received
(iii) Rs. 20,00,000

Salary Means:- Basic Salary + D. A. (In All cases)

F Year of Service will include each Completed year + 1 year for Part of the year in Excess of 6
months.

(B) For Employees Not covered under Gratuity Act then least of the following is exempted:-

(i) Completed years of Service* × 15/30 × Average Salary (on the basis of Last 10 months
Salary Preceding the month of Retirement)
(ii) Amount Actually Received
(iii) Rs. 20,00,000
Salary Means:- Basic + D.A. (if term of Employment so provide) + Fixed
Commission on Sale/Turnover
* Only Completed years are Considered, any fraction period should be Ignored.

F If Gratuity or Leave Salary Received from Previous Employer was Exempted, Exempted
Amount (Granted earlier) shall be Deducted from Rs. 20,00,000 Or Rs. 25,00,000.
F Gratuity Received during the period of Service is Always Taxable.
F Gratuity Received by Legal Heir of Deceased Employee is Taxable under 'Other Sources".

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Income from Salary -: 3.5 :- By:- CA. SUMIT GOYAL

ILLUSTRATION : 7
Mr. Anil, an Employee of R Ltd. Receives Rs. 9,00,000 as Gratuity under the Payment of Gratuity
Act, 1972. He Retires on August 31, 2023 after rendering Service for 32 years and 4 months. The
Last drawn Basic Salary was Rs. 32,500 p.m. Calculate the Amount of Gratuity Chargeable to tax.
Solution : Taxable Gratuity = Rs. 3,00,000 (9 Lacs - 6 Lacs)

ILLUSTRATION : 8
Ms. Lata, Not being Covered by the Payment of Gratuity Act, 1972 Retires during 2023-24
from R Ltd., and Receives Rs. 45,000 as Gratuity after a Service of 40 years 11 months. Her Average
monthly Salary during the Last 10 months of Service was Rs. 2,200. Determine the Taxable Gratuity in
her Case. What would be your Answer if She Retired after Serving for another 2 Months.
Solution : Case 1: Taxable Gratuity = Rs. 1,000
Case 2: Taxable Gratuity = Nil

(8) RETRENCHMENT COMPENSATION [Sec. 10(10B)]

Any Compensation Received by any Employee is Exempted up to Least of the following :-
(i) Years of Service × 15/26 × Average Salary* (Generally On the basis of Last 3 months)
(ii) Rs. 5,00,000
(iii) Amount Actually Received
Salary means: Basic Salary + All Monetary Receipts (Excluding Bonus) + Value of
Electricity & Water facility + Value of Rent free house + Any Travelling Aid.

* The Computation of Average Salary/Pay differs for the following Classes of Workman :-
(a) Monthly paid Workman - Avg. of 3 Calander Months;
(b) Weekly Paid Workman - Avg of 4 Calender Weeks;
(c) Daily Paid Workman - 12 Full working Days.

1. Years of Service will be Rounded off (Over 6 Months will be considred whole year).
2. Retrechment includes the following :-
(a) Retrechment on account of Closure of Business, or
(b) transfer of services of workman to some other employer, if it amounts to brake of service;
or if the terms of service of the New Employer are less favourable than that of the Original Employer.
3. However, the Amount of Compensation shall be fully Exempt, where it is paid under any scheme
Approved by the Central Government for extending special Protection to Workmen under certain
Circumstances.

ILLUSTRATION : 9
Mr. Gaurav Received Retrenchment Compensation of Rs. 10 Lacs after 30 years 4 Months of
Service. At the Time of Retrenchment, he was Receiving Basic Salary of Rs. 20,000 p.m.; Dearness
Allowance of Rs. 5,000 p.m. Compute his Taxable Retrenchment Compensation.
Solution : Exemption u/s 10(10B) is Rs. 4,32,692 and Taxable Amount will be Rs. 5,67,308
Least of Rs. 4,32,692 [30 yr x 15/26 x 25,000] Or Rs. 5,00,000 Or Rs. 10,00,000; is Exempt.

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Income from Salary -: 3.6 :- By:- CA. SUMIT GOYAL

(9) COMPENSATION ON VOLUNTARY RETIREMENT (VRS) [Sec. 10(10C)]

Least of the following is Exempted :-

(i) Rs. 5,00,000
(ii) Amount Actually Received
(iii) Completed years of Service × 3 × Last month Salary
(iv) Balance Months of Service Left × Last month Salary

Salary means:- Basic Salary + D.A. (if term of Employment so provide) + Fixed Commission on Sale.

1. Conditions for Claiming Exemption :-

(i) It should be Received at the time of Voluntary Retirement

(ii) It should be received by employees of Central / State Govt., PSU, State Corp. , Local Authority,
University, Co-operative Societies, IIT or notified institute of management.
(iii) It must be received in accordance with the scheme of voluntary retirement which is framed in
accordance with the prescribed guidelines of the Govt.
2. Exemption : Only Once- If Exemption is claimed in One A/Y then Exemption shall
Not be Allowed in another A/Y (Exemption of VRS can be claimed Only Once in a Lifetime).
3. If the Amount of Compensation of VRS received in Installments, the Entire amount of
Compensation accrued as Salary and accordingly Taxable at the time of initial Payment itself.
- YSC Babu Vs. Chairman and MD, Syndicate Bank

4. Again, where any Tax Relief was Claimed u/s 89 towards Arrear of Salary, to that Extent Exemption
shall Not be Allowed u/s 10(10C). It may be Noted that Sec. 10(10C) and Sec. 89 are Mutually
Exclusive and Only One Tax benefit shall be availed in respect of Amount of VRS Received.
5. As per Rule 2 BA, Guidelines of the Govt. for the Exemption of VRS from tax are as under:-
(i) Applied to the Employees, who have Completed 10 years of service or Completed
40 years of age;
(ii) Applied to all Employees except Director of Company or Co-operative society;
(iii) Voluntary Retirement scheme intends to reduce existing overall strength of the Employees;
(iv) Vacancy caused by the Voluntary Retirement is Not to be filled up again;
(v) The Retiring employee of the Company shall Not employed in another Sister concern;

Illustration : 10 Mr. Varun, aged 54 years and who has put in 20 years of Service in a Public Sector
undertaking Voluntarily Resigns the job under a Scheme of Voluntary Separation. He has 7 years and 2
months of Service Left and his Last drawn Salary is Rs. 20,000. He is paid Rs. 12 Lakhs as
Compensation. Calculate the Taxable amount of Compensation.
Solution : Taxable Compensation = Rs. 7,00,000

(10) UNCOMMUTED PENSION:- It is Fully Taxable for All Emplyees.

F Pension is the Amount which is entitled by employees after Retirement. He will Not be entitled to
receive any Basic Salary, any Perquisites or Allowances after Retirement.

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Income from Salary -: 3.7 :- By:- CA. SUMIT GOYAL

(11) COMMUTED VALUE OF PENSION (CVP) [Sec. 10(10A)]

(i) For All Govt. Employees: Fully Exempted

(ii) For Non Govt. Employees:

(a) If Gratuity has also been received along with CVP then 1/3 Of the full CVP is Exempted.
(b) If Gratuity has Not been Received then ½ of the full CVP is Exempted.

ILLSTRATION : 12
Mr. Ram Retires from T Ltd., on 31.10.2022. He gets Pension of Rs. 2,000 p.m. upto
31.10.2023. With effect from Nov.1, 2023, he gets 60% of Pension Commuted for Rs. 30,000. He has
Not Received any amount in respect of Gratuity.
SOLUTION : Taxable Pension includible in Salary Rs. 23,000 [14,000 + 4,000 + 5,000]

(12) SALARY OR PENSION RECEIVED BY UNO EMPLOYEES : Fully Exempted

(13) ANNUITY :- Annuity Recieved from Employer is fully Taxable.

(14) PENSION OF GALLANTRY AWARDEE

Pension received by an individual who has been in Service of the Central or State Government and has
been awarded "Param Vir Chakra" or "Mahavir Chakra" or "Vir Chakra" or such other gallantry award as the
Central Govt. may notify shall be Exempt.

(15) PAYMENT UNDER KEYMAN INSURANCE POLICY

Any Payment received by an Employee, under a Keyman Ins. Policy including Bonus on such
Policy, will Also be Taxable for Employee {It is Not Exempted u/s 10(10D)}

(14) PAYMENT from NATIONAL PENSION SCHEME (NPS) Sec. 10(12A) & (12B)

Any Payment of NPS referred to in Sec. 80CCD on account of :-

(a) Closure of Or Opting out from NPS by any Assessee Sec. 10(12A) :-
Exempt upto 60% of Total Amount Received/Withdrawn

(b) Partial withdrawal from NPS by An Employee (Not Self Employed person) Sec. 10(12B) :-

Exempt upto 25% of the Own Contribution of Employee (for others - Fully Taxable) Received/withdrawn.

ILLUSTRATION : 13 Mayank a Salaried Employee with Axis Bank is a subscriber to a National

Pension Scheme (NPS). The Accumulated balance in his NPS Account as on 31-1-2024 is Rs. 50 Lacs.
Out of which Rs. 30 Lacs were contributed by his Employer (Bank) and the balance Rs. 20 Lacs is his
Own Contribution to the NPS. Compute the Taxable Amount on withdrawal in the following Independent
situations :-
(a) On 28th Feb., 2024, he had Opted out of the Scheme (NPS) and withdrawn the Entire amount of
Rs. 50 Lacs;
(b) On 1st Feb, 2024, he made a Partial withdrawal of Rs. 20 Lacs out of the Contribution made by
Him to his NPS Account;

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Income from Salary -: 3.8 :- By:- CA. SUMIT GOYAL

(c) Would your Answer differ in Case Mayank is CA in practice and Not an Employee?

Solution : (a) Taxable Amount = Rs. 20 Lacs (Exempt 50 Lacs x 60% = 30 Lacs)
(b) Taxable Amount = Rs. 15 Lacs (Exempt 20 Lacs x 25% = 5 Lacs out of 20 Lacs)
(c) Exemption u/s 10(12A) is Applicable to All Assessee and Sec. 10(12B) is Applicable Only to an
Individual who is an Employee (Only).
In the Given situation, Deepak, being a Professional carrying Chartered Accountancy practice Shall Not
be regarded as an Employee.
Therefore, Under situtation (a) above, Exemption u/s 10(12A) for Opting out of the Scheme shall be
Upto 60% (30 Lacs) and the balance Rs. 20 Lacs shall be Subject to Tax.
Under Situation (b) above, No Exemption shall be Claimed u/s 10(12B) for Partial withdrawal, as He is
Not an Employee and the Entire sum of Rs. 20 Lacs shall be Taxable.

ILLUSTRATION : 14
Mr. Pihu was Employed in a Company, He took Voluntary Retirement on 1st December, 2023
after Completing 25 years of Service. On 1st January, 2023 his Salary was Rs. 4,000 p.m after
adding the Annual Increment. In this Company 2 months Leave accrued every year. Compute the
Amount Exempt regarding Encashment of earned Leave, if his other Particulars were as under:-
A B C

Total Leave Availed during Service 10 months Nill 30 months

Actually Received amount 1,60,000 2,00,000 80,000

Ans: Exempted Amount of Leave Salary: A: Rs. 40,000; B: Rs. 40,000; C: Rs. Nil

ILLUSTRATION : 15

Mr. Shah on 31.10.2023 Voluntarily Resigns from Hind Chemicals (P) Ltd. as per the scheme
approved u/s.10(10C) of the Income-Tax Act, 1961. He furnishes the following particulars : -
Salary Rs. 5,000 p.m. ; Pension Rs. 3,000 p.m.; D.P. forming part of Basic pay Rs. 1,000 p.m.;
Compensation on Retirement Rs. 2,00,000; Gratuity Rs. 1,20,000 ; Computed Pension of 70%,
Rs. 42,000 on 31.1.2024;
Leave Salary Rs. 30,000. Completed years of Service 20 years and 8 months. Leave Availed while in
service 25 months. But if Don't Opt Voluntary Retirement, Mr. Shah would have Retired Only after
40 months.
The last increment he Received was in 2020. Compute his Taxable salary income for the A.Y. 2024-25.

Solution : Gross Salary - 1,64,800; Gratuity - 60,000; Compensation (Exempt) - 2,00,000

Taxable Pension- 32,800; Leave Salary (Taxable ) = Rs. 30,000

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Income from Salary -: 3.9 :- By:- CA. SUMIT GOYAL

LLUSTRATION - 16 Sh. A.K. Roy who is Not covered by the Payment of Gratuity Act, 1972,
Receives a Gratuity of Rs. 11,64,000 when he Retires on 23rd June, 2023 after a Service of 34 years 9
Months and 23 days. His Last drawn Emoluments are as follows:-

Basic Salary Rs. 75,000 p.m.

Dearness Allowance Rs. 15,000 p.m. (Not as per terms of Employment)
Servant Allowance Rs. 600 p.m. (Fixed)
Annual increment of Basic Salary Rs. 3,000 p.m. falls due on 1st Jan. every year.
What amount of Gratuity is Exempted from Tax in the A.Y. 2024-25 ?

Solution: Taxable Gratuity : NIL; Gratutity Exempted : Rs. 11,64,000 (Avg. Salary 73,500)

LLUSTRATION - 17 G who has been in Part time employment with R Ltd. and S Ltd. submits
the following information :-

R Ltd. S Ltd.
Basic Salary 9,000 pm 5,000 pm
Dearness Allowance 20% 20% (60% forms part of
Salary for R'ment purpose)

Date of Retirement 15-9-2023 1-1-2024

Period of Service 20 years and 11 Months 16 Years and 5 Months
Amount of Gratuity Received Rs. 1,80,000 Rs. 80,000

Although he has been drawing the same Salary from R Ltd. for the last 1 Year; but from S Ltd. he
Received an increment of Rs 500 w.e.f. 1-8-2023.

Solution: Taxable Gratuity from R Ltd. = 90,000 and From S Ltd. Rs. 37,440 (80,000 - 42,560 Ex)
Avg. Salary of R Ltd. = 9,000 and of S Ltd. = 5,320 [{(4,500 x 5m) + (5,000 x 5m)} + DA 12%]/10m

LLUSTRATION - 18 Calculate the Taxable Pension includible in the Salary income in the
following Cases for A.Y. 2024-25 :-

(a) Mr. Ram singh Retired from the Indian Revenue Service on 16-3-2023. He gets Pension of
Rs. 4,000 p.m. upto 31-12-2023. W.e.f. 1-1-2024, he gets 25% of his Pension commuted for
Rs. 75,000.
(b) Mr. Sunder Retires from RG Co. on 31-3-2023. He is paid Rs. 1,800 p.m. as Pension On his
Request, RG & Co. pays Rs. 36,000 in lieu of 50% of Pension from 1-12-2023.
Assume that (i) Gratuity is Paid, (ii) No Gratuity has been paid.

Solution: (a) Taxable Pension = Rs. 45,000 (36,000 + 9,000; CVP Exempt for Govt. Employees)
(b) Case I: Gratuity is paid; Taxable Pension = Rs. 30,000 (14,400 + 3,600 + 12,000)
(b) Case II: Gratuity is Not paid; Taxable Pension = Rs. 18,000 (14,400 + 3,600 + NIL)

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Income from Salary -: 3.10 :- By:- CA. SUMIT GOYAL

ALLOWANCES
It is a Fixed sum of money paid regularly in addition to Salary for meeting Specific Requirements. There
are 3 types of Allowances :-

1. FULLY TAXABLE ALLOWANCE (Taxable For All Employees)

(i) Dearness Allowance (D.A.) or Dearness Pay ( D.P.)

(ii) Food Allowance or Tiffin Allowance or Lunch Allowance
(iii) Servant Allowance
(iv) Fixed Medical Allowance (irrespective to Actual Exps., it is Always Fully Taxable)
(v) Non-Practising Allowance
(vi) Warden Allowance and Proctor Allowance

(vii) Deputation Allowance

(viii) Overtime Allowance

(ix) OTHERS:- Marriage Allowance, Family Allowance, City Compensatory Allowance (CCA).

F Transport Allowance for Private Purpose, Dog Allowance, Project Allowance or any Other
Allowance Not Covered in any of Above Categories will be Fully Taxable for All Employees.

2. PARTLY TAXABLE ALLOWANCE

(A) House Rent Allowance (HRA) [Sec. 10(13A) & Rule 2A ]

Least of the following is Exempted (under Old Regime) :-

(i) Rent paid - 10% of Salary

(ii) Actual Amount of HRA received;

(iii) 50% of Salary – In Delhi, Mumbai, Chennai, Kolkata; OR

40% of Salary - In other Cities

Salary Means: Basic Salary + D.A. (if it is under E/terms) + Fixed Commission on Sales.

(i) HRA is fully Taxable if Assesses stays in Own house or No Rent is paid by him.

(ii) Salary is to be taken on 'Due' basis in respect of the period during which the Rented Accomodation
is occupied by the Employee in the previous year. The Salary of any Other Period is not to be
included even though it may be received and Taxed during the previous year.

(iii) The period for which the following 3 factors are same, calculation for such period can be made
jointly: (a) Rent paid ; (b) Salary; (c) Location of house taken on place.

F No Exemption of HRA will be Allowed to Employee is he wants to be taxed under Default Regime u/s
115BAC (i.e. Whole Amount of HRA Received will be Taxable in that Case, there will be No need to
check the Least amount out of 3 Exemption conditions).

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Income from Salary -: 3.11 :- By:- CA. SUMIT GOYAL

ILLUSTRATION: 19

Ms. Jaanki, staying at Chennai, Receives Rs. 12,500 monthly as Basic Salary; Rs. 1,500 P.M. as
D.A. provided in terms of Employment and 4% as Commission on Turnover achieved by her.
She is paid an House Rent Allowance of Rs. 1,800 p.m. The Turnover achieved by her for the year is
Rs. 15 Lakhs. House Rent paid by her is Rs. 2,500 p.m.
She Received Advance Salary of Rs. 50,000 in March 2024 relating to the period April to July 2024.
Determine the Taxable quantum of House Rent Allowance under both Regimes (Opting for Optional /
Old Regime Or Wants to pay tax under Default/ New Regime u/s 115BAC).

SOLUTION : (i) Salary for purpose of HRA = Rs. 2,28,000 (1,50,000+18,000+60,000)

Taxable HRA = Rs. 14,400 (under Default Regime)

(ii) Taxable HRA if Ms. Jaanki Opts for Sec. 115BAC = Rs. 21,600 (HRA Fully Taxable)

(B) Allowance Exempt u/s 10(14)(i) - Special Allowances for Performance of Duty
Special Allowances Granted to meet the Expenses Exclusively incurred for the peformance of Official
Duties will be Exempt if they are incurred for the said purpose. Any Excess (Saving ) will be Taxable :-

(i) Travelling Allowance / Transfer Allowance [ to meet the Cost of Travel On Tour Or in Connection
with Transfer of Duties (e.g. Packing, Transportation of Personal effects) on an Office ]

(ii) Daily Allowance (to meet the ordinary daily charges incurred by Employees on Account of Absense
from his Normal Place of duty)

(iii) Conveyance Allowance [to meet the Expenditure incurred on Conveyance in performance of duty
where free transportation facility is Not Provided by Employer to his employees, it is Not Covered
theAmount Received to cover the Exps. incurred on to and fro Commutation from Office to Residence
Or Vice versa, it is Transport Allowance which will be Covered under Next Category (C) ]

(iv) Helper Allowance (to meet the Expenditure incurred on Office Assistant for duty performance)

(v) Academic Allowance (to encourage Academic Research and Training in Education Institutions)

(vi) Uniform Allowance (to meet Uniform Cost where Uniform is Compulsory for Employees)

F Out of Above Allowances, Helper Allowance, Academic Allowance and Uniform Allowance will Not be
Exempted (Whole Allowance Amount Received will be Taxable) if Employee did Not Opt for Optional/
Old Regime (i.e. wants to be Taxed under Sec. 115BAC (Default Regime).
It means Travelling/ Transfer Allowance, Daily Allowance and Conveyance Allowance will be
Exempted to Employee to the Extent of Amount Expended in Performance of Official duty Even if they
did Not Opt for Optional / Old Regime (i.e.Wants to be taxed under Default Regime u/s 115BAC).

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(C) Allowance Exempt u/s 10(14)(ii) - Allowances to meet Personal Exps.

(i) Children Education Allowance - Exempt upto Rs. 100 p.m. per Child for maximum 2children.

(ii) Hostel Allowance for children - Exempt upto Rs. 300 p.m. per Child for maximum 2 children.

(iii) Hill Allowance - Exempt upto Rs. 300 p.m to Rs. 7,000 p.m. dependent on Place (Normally Rs.
300 p.m. if the Place is located at the height of 1000 meters or more above the sea level)

(iv) Transport Allowance ( For Conveyance between Office & Residence ) - Exempt upto
Rs. 3,200 p.m. ( for Blind & handicapped Employees Only, No Exemption is Allowed
regarding Transport Allowance to Normal Employees)
F Exemption of Rs. 3,200 of Transport Allowance to Disabled Employees (Blind or Handicapped)
will always be allowed even if that Disabled Employee Opts to tax under Sec. 115BAC.

(v) Tribal Area Allowance - Exempt upto Rs. 200 p.m.

(vi) Underground Allowance Or Employee Working in Underground Mines.

Exempt upto Rs. 800 p.m.

(vii) Special Allowance to Employees working in a Transport System, e.g. Running Allowance,
Flight Allowance, etc.

Exemption: - 70% of such Allowance or Rs. 10,000 p.m., whichever is Less.

F If the Employee Receives Daily Allowance, he is Not Entitled to Exemption in this Clause.

(viii) Counter Insurgency Allowance (to Armed forces) - Exempt upto Rs. 3,900 p.m.

(ix) Island Duty Allowance (Andeman, Lakshdeep's Employees) - Exempt upto Rs. 3,250 p.m.

(x) High Altitude Allowance granted to the member of the armed forces operating in high altitude
areas
- For altitude of 9,000 to 15,000 feet Rs. 1,060 per month
- For above 15,000 feet Rs. 1,600 per month

(xi) Special Compensatory highly active field area allowance (to armed forces) Rs. 4,200 per month

(xii) Compensatory Modified Field Area Allowance (in specified area of specified state) - Rs. 1,000
p.m.

(xiii) Compensatory Field Area Allowance (in specified area of specified state) - Rs. 2,600 p.m.
(xvi) Entertainment Allowance {Sec. 16 (ii)}
It is first included in Gross Salary as fully Taxable then Deduction u/s 16(ii) is Given.

* For Category (C) Allowances, Actual Expenses are Irrelevant. Amount Specified u/s 10(14)(ii) will be
Exempted from the amount Received.

F Out of All Allowances Covered under above Category (C) u/s 10(14)(ii), Only Transport Allowance will
be Allowed to be Exempted to Blind or Disabled Person Even if does Not Opt for Optional / Old Regime
(i.e. when he wants to be Taxed under Sec. 115BAC), All Other Allowances will be Fully Taxable (No
Amount will be Exempted out of Amt. Received from Other Allowances).

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F Even No Deduction out of Gross Salary [ Deduction of Entertainment Allowance u/s 16(ii) &
Professional / Employement Tax paid u/s 16(iii)] will be Allowed if Employee Opts to pay Tax
under Sec. 115BAC.

3. FULLY EXEMPT ALLOWANCE

(i) Allowances paid to High Court or Supreme Court Judges. (Sumptury Allowances)

(ii) Allowance paid to the Employee of UNO.

(iii) All Allowance to a Govt./Non Govt. Employee rendering Services Outside India. {Sec. 10(7)}
(e.g. Employees Working in Foreign Country's in Indian Embassies)

F Under New Regime (Sec. 115BAC), Only Exemption is Available for Travelling/ Transfer Allowance,
Daily Allowance, Conveyance Allowance and Transport Allowance to Disabled Person. All Other
Allowances will be Totally Taxable to Employees Who wants to pay Tax under Sec. 115BAC.

ILLUSTRATION : 20

Mr. Subhash is in Receipt of the following Allowances and seeks your advice about the Taxable quantum
of these Allowances :-

(i) Helper Allowance Rs. 300 p.m. Mr. Subhash had appointed a Helper for 9 months during the
year to whom he paid Rs. 200 p.m.
(ii) Conveyance Allowance of Rs. 750 p.m. Mr. Subhash Owns a Car which is used both for personal
purposes and official purposes. Total monthly Expenses amounts to Rs. 1,200 of which 40% is
attributable to Office use.
(iii) During the year Mr. Subhash Received Education Allowance for his 3 Children a sum of Rs. 250
per month each towards Education and Hostel Expenditure. All the Children are staying in Hostel.
(iv) During the year for 6 months Mr. Subhash was posted at Kandala, a Hilly Area located at a height
of 1,200 mts., above Sea level. Hill Compensatory Allowance of Rs. 2,400 has been received by
him at Rs. 400 per month.

Solution : Taxable Amount of Allowances (under Old Regime) = Rs. 8,640 (1,800 + 3,240 + 3,000 + 600)

Taxable Amount of Allowances if Subhash follows Sec. 115BAC = Rs. 18,240 (3,600 + 3,240 + 9,000 +
2.400); No Exemption is allowed from Above Allowances Except Conveyance Allowance.

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Income from Salary -: 3.14 :- By:- CA. SUMIT GOYAL

ILLUSTRATION: 21
Mr. Ram is Employed in a Limited Company at Kanpur on a Salary of Rs. 8,000 p.m. and a
Dearness Allowance of 20% of Salary, 60% of the D.A. is under the Term of Employment i.e., it is
included in Salary for the purpose of Retirement Benefits. He gets House Rent Allowance from the
Company @ Rs. 4,000 p.m.

His Annual Increment of Rs. 1,000 p.m. falls due on 1st Dec., 2023. He also Received Arrears of
Salary and D.A. of the Preceding year amounting to Rs. 9,000 and Rs. 500 resepectively.
Mr. Ram Did Not pay any Rent of the House in which he lived till 30th Sept., 2023 as he was
Living with his Uncle. From Ist Oct. 2023 he Shifted into a Rented House of Rs. 3,000 p.m.

Compute Ram's Gross Salary for A.Y. 2024-25, if Ram :-

(i) Opts for Optional Regime (Old Regime/ Tax payable by Normal Provisions)

(ii) Does Not Opt for Optional / Old Regime (i.e. Default Regime followed u/s 115BAC).

SOLUTION: (i) Gross Salary = Rs. 1,65,324; Taxable HRA = Rs. 35,824.

(ii) Gross Salary in Case Ram Opts Sec. 115BAC = Rs. 1,77,500; Whole HRA Taxable = Rs 48,000

ILLUSTRATION - 22

Shri Sham who Resides in Ambala, got the following emoluments during the previous year ending on
March 31, 2024 :-

From R Ltd: 6 Months Basic Pay @ Rs. 3,000 p.m., Dearness Pay forming part of Basic Pay @ Rs.
250 p.m., and House Rent Allowance @ Rs. 1,000 p.m.

From S Ltd. : 4 months Basic pay @ Rs. 4,000 p.m., Dearness Allowance @ 25% of Basic pay,
Commission on Sale @ 5% (On Sales effected during 4 Months Rs. 1,00,000), House Rent Allowance
@ Rs. 2,500 p.m.

From T Ltd.: 2 Months Salary @ Rs. 8,000 p.m., Dearness Allowance @ Rs. 1,000 p.m., House Rent
Allowance Rs. 3,000 p.m. During this Period He Lived in his Own House.

He Paid Rs. 3,000 p.m. as House Rent Throughout the Previous year Except 2 Months When he Lived in
his Own House.

Determine the Amount of House Rent Allowance Taxable for the Assessment year 2024-25.

SOLUTION: Total Taxable HRA = Rs. 7,600 (0 + 1,600 + 6,000)

(ii) Taxable HRA if Sham wants to pay Tax u/s 115BAC = Rs. 22,000 (6,000+10,000+6,000)

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Income from Salary -: 3.15 :- By:- CA. SUMIT GOYAL

ILLUSTRATION - 23
R furnishes you the following information for the Previous year 2023-24 :-

Basic Salary Rs. 15,000 pm

Dearness Allowance Rs. 6,000 pm (60% of
which is part of Salary)
Entertainment Allowance Rs. 500 pm
House Rent Allowance Rs. 6,000 pm
Actual Rent paid for a House in Delhi Rs. 7,000 pm
Education Allowance for 3 Children Rs. 200 pm per Child
Transport Allowance for commuting from Residence to Office Rs. 2,400 pm
and back (He spends Rs. 1,400 pm for such purpose)
Medical Allowance ( He spends Rs 5,000 for his Medical treatment) Rs. 1,000 pm
Lunch Allowance (He spends Rs. 2,000 for his lunch in the Office Rs. 200 pm

Compute Taxable Salary of R for the Assessment year 2024-25 if :- (i) he Opts to pay tax under
Optional Regime (ii) if he does Not Opts for Optional Regime (i.e wants to pay tax u/s 115BAC)

SOLUTION: (i) Taxable Salary = 2,66,320; Gross Salary = 3,16,320; EA fully Taxable; Edu. Allow.
Taxable = 4,800; Transport All = 28,800; HRA Taxable = 10,320 (72,000 - 61,680); Salary mean for
HRA = 2,23,200; HRA Exempted as least of following 3 :- 72,000 Actual Or 61,680 Or 1,11,600

(ii) Taxable Salary = Rs. 3,30,400 (1,80,000 + 72,000 + 6,000 + 72,000 HRA + 7,200 Ch Ed. +
28,800 TA + 12,000 Med All + 2,400 Lunch All., Standard Deduction of Rs. 50,000 is also
Allowed even if he wants to pay Tax under Default Regime u/s 115BAC)

ILLUSTRATION - 24

X is a Pilot in Indian Airlines. He Draws Rs. 72,000 p.a. as Salary, Rs. 18,000 Dearness
Allowance, Rs. 70,000 p.a. as Flight Allowance to meet Personal Expenses while on Duty, Rs.12,000
Conveyance Allowance (Actual Expenses Rs. 9,000) and Rs. 7,200 as Educational Allowance for his 3
Children studying in a Public School.

(i) Determine the Taxable Value of the Allowances paid to him if X Opts for Optional / Old Regime.

(i) Determine the Taxable Value of the Allowances paid to him if X did Not Opts for Optional Regime.

SOLUTION : (i) Taxable Value of Allowances = Rs. 46,800 (18,000 + 21,000 + 3,000 + 4,800)

(ii) Taxable Value of Allowances u/s 115BAC = Rs. 98,200 (18,000 + 70,000 + 3,000 + 7,200);
Exemption of Amount Expended out of Conveyance Allowance Received is Allowed.

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Income from Salary -: 3.16 :- By:- CA. SUMIT GOYAL

PERQUISITES
PERQUISITES [ Sec. 17(2) ] : Perquisites mean Free Facilities provided by the Employer to Employee in
Addition to Monetary Payments. Perquisites may be in Cash or in Kind.

(1) PERQUISITES TAXABLE IN CASE OF ALL EMPLOYEES (Rule 3)

(A) RENT FREE UNFURNISHED ACCOMODATION { Sec. 17(2)(i) }

-If Rent free Accommodations is Provided by Govt. (SG Or CG)

Taxable value = Licence Fee Payable in respect of the Accomodation in accordance with
the Government Rules - Rent Actully Paid by the Employee.

-If Accommodation is Provided by Any other Employer (Non Govt. Employer) :-

(i) If Accomodation is Owned by Employer (Taxable Value of RFA w.e.f. 1-9-2023 on

the basis of year 2011 Census)

Taxable Value of RFA = 10% of Salary for the Accomodation Period

(If City Population is Over 40 Lakhs) &

↸ 7.5 % of Salary (If Population is between 15 to 40 Lakhs) &

5 % of Salary (if City Population is Less than 15 Lakhs)

Upto 31-08-2023 : Taxable Value of RFA on the basis of Year 2001 Census :-
Taxable Value of RFA = 15% of Salary for the Accomodation Period
(If City Population is Over 25 Lakhs) &

10% of Salary (If Population is between 10 to 25 Lakhs) &

7.5 % of Salary (if City Population is Less than 10 Lakhs)

(ii) If Accomodation is Taken on Lease or Rent by Employer

Taxable Value = Rent Paid Or 10% of Salary, Whichever is Less.

F Upto 31-8-2023, Above % is 15% instead of 10% of Salary in Case of Accomidation

hired / taken on Lease by Employer.

F For Students point of View, Calculation of Rent Free Accomodation is to be done on the
basis of Latest Provisions based on Year 2011 Census for Whole of the year.
F Value of Perquisite to be Restricted to Cost Inflation Index (CII) : Where the Accommodation is
Owned Or taken on Lease Or Rent by the Employer and the same Accommodation is Continued to
be provided to the Same Employee for more than One Previous year, the Value of Perquisite as
Calculated in (ii) Above shall Not Exceed the Amount So Calculated for the First Previous year, as
Multiplied by Amount which is a Ratio of the CII for the P/ year for which the Value is Calculated
and the CII for the Previous year in which the Accommodation was initially provided to Employee.
“First Previous year” Means the P.Y..2023-24 Or the Previous year in which the Accommodation
was Provided to Employee, whichever is Later (So this Provision will be applicable from Next year).

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- If Accomodation is Provided by Govt. Or Any Other Employer in a Hotel / Motel :

Taxable Value = Actual charge of Hotel Or 24% of Salary, Whichever is Less.

Taxable Value will be NIL if Accomodation in Hotel is provided on the Transfer of

Employee for a Period Not Exceeding 15 Days.

-For Employees, on Transfer from One Place to Another : (See Illusration: 28 )

(a) For the First 90 Days of Transfer : -

Where Accomodation is provided both at Existing Place of work and a New place
the Accomodation which has Lower Value shall be Taxable.

(b) After 90 Days : Both such Accommodations shall be Taxable.

(B) RENT FREE FURNISHED ACCOMODATION

Taxable Value = Taxable value as Accomodation is Unfurnished + Annually 10% of

Original Cost of Furniture Or Actual Hire Charges paid by Employer.

* Furniture includes T.V., Radio, Refrigerator, A.C., M. Oven Or Other household Appliances.
* Any Repair/maintenance of Building incurred by Employer shall be Ignored.

(C) ACCOMODATION PROVIDED AT CONCESSIONAL RENT { Sec. 17(2)(ii) }

Taxable value = Taxable Value of Rent Free Accomodation - Rent Payable by Employee.

(1) Salary Means:- Basic Salary + D.A. (if Term of Employment provided) + Bonus + Commission
+ Taxable Portion of Other Allowances + Leave Salary (on Year to year basis)

[Above All are taken for the period of Accomodation on Due basis, suppose Accomodation is provided
from 1st April,2023 to 31st July, 2023 then Salary for April, May, June, July is to be taken. Advance Salary
Or Arrear of Salary is to be Ignored. ]
F No Value of Any Perquisite will be included for the Meaning of Salary of RFA.

(2) If Employee Receives Salary from more than One Employer, then Aggregate Salary from Both the
Employers will be taken. (See Illustration - 29 )

(3) The Above Rule of Valuation is Not Applicable to Temporary Accomodation Located in
Remote Area provided to the Employees Working at a Mining site, an Onshore Oil Exploration site,
a Project execution Site and an off- shore site of similar Nature.

Remote Area :- Remote Area for above purposes means an Area that is
Located at Least 40 kilometres away from a Town/ Municipality / Cantt. Board having a Population Not
Exceeding 1,00,000 based on 2011 Census.

(4) Valuation of Rent Free Or Concessional Accomodation shall be Same under both the Regimes.

(5) Rent Free Official Residence provided to Judges of a High Court or to a Judge of the Supreme Court is
Exempt from Tax.

(6) Similarly Rent Free Accomodation given to an Official of Parliament, a Union Minister and the Leader of
Opposition in Parliament is Exempt from Tax.

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Income from Salary -: 3.18 :- By:- CA. SUMIT GOYAL

(7) Employee Serving on Deputation : Where the Accommodation is Provided by the Central Govt Or
any State Government to an Employee Who is Serving on Deputation with any Body Or Undertaking
under the Control of such Government :-
(i) the Employer of such an Employee shall be Deemed to be that Body Or Undertaking Where the
Employee is Serving on Deputation; and
(ii) the Value of Perquisite of such an Accommodation shall be the Amount Calculated in
Accordance with Above Provision of Accomodation Provided by Non Govt. Employer, As
if the Accommodation is Owned by the Employer.

ILLUSTRATION - 25 Mr. Sunil a Private Sector Employee gets Rs. 70,000 as Basic pay, Rs. 11,000 as
Commission ; Rs. 9,000 as Bonus, Rs. 6,000 as Uniform Allowance (60% spent for Uniform ) ; Rs. 12,000 as
Conveyance Allowance (75% utilised for Official Purposes); and Entertainment Allowance Rs. 5,000. His
Employer has paid Income-Tax of Rs. 5,000 and Profession Tax of Rs. 2,000 on his behalf. A Rent
free Unfurnished Accommodation is provided in a Place Where Population in 2011 Census is (a) More than
40 Lacs ; (b) Less than 15 Lacs (c) Less than 40 Lacs. Determine the Value of Rent free Accommodation.
(ii) What will be the Value of Rent free Accomodation if Sunil want to pay tax under 115BAC (New).

Solution : Meaning of Salary unde Optional /Old Regime = Rs. 1,00,400

(i) (a) Value of Rent Free Accommodation = Rs. 10,040
(b) Value of Rent Free Accommodation = Rs. 5,020
(c) Value of Rent Free Accommodation = Rs. 7,530

(ii) Meaning of Salary unde Default / New Regime = Rs. 1,04,000; Value of RFA if Piyush wants
to pay Tax u/s 115BAC :- (a) RFA = Rs. 10,400 (b) RFA = Rs. 5,200 (c) RFA = Rs. 7,800

ILLUSTRATION - 26 In the Case of Mr. X, the Employer provides Own Accommodation well
Furnished at Chennai. The Written down Value of the Furniture Works out to Rs. 12,000 whereas the
Actual Cost is Rs. 30,000. Mr. X Draws Rs. 15,000 per Month as Basic Pay and Rs. 2,500 as Monthly
Commission. Calculate the Value of Perquisite of Rent Free Accommodation. (a) If instead
of providing the Accommodation Free of Rent, the Employer Charges Rs. 1,500 per Month as Rent
from Mr. X, What will be the Value of Taxable Perquisite (RFA) ? (b) What will be your Answer if
Rent payable by X to his Employer is Rs. 2,500 per month ?
Solution : Value of RFA (under Both Regimes) = Rs. 24,000 (21,000 + 3,000)
(a) Value of Concessional RFA (Under Both Regimes) = Rs. 6,000 (24,000 - 18,000)
(b) Nil Value of Perquisite in this Case.

ILLUSTRATION: 27
X is Appointed at Kolkata. He Stayed in a Hotel for 25 Days and thereafter Shifted in a House provided
by the Employer. From the following information Determine the Taxable Value of Perquisites, Stay in Hotel:-
(1) Room Rent in Hotel Rs. 1,000 per Day;
(2) Salary for Valuation of Accomodation during the P.Y. (2023-24) : Rs. 3,66,000;
(3) The Employer Recovered Rs. 100 per Day from X regarding Stay in Hotel.

SOLUTION: Taxable Value of Perquisite : Rs. 3,500 (24% of 25,000 - 2,500 Amount Recovered)

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Income from Salary -: 3.19 :- By:- CA. SUMIT GOYAL

ILLUSTRATION: 28
Mr. A was provided a House in Chandigarh (having Population 22 Lakhs) Owned by Employer. His
Salary was Rs. 10,000 p.m. He was Transferred to Delhi on 1-7-2023. There also he was provided a House
which was also Owned By Employer. He retained both the Houses till 1-12-2023, thenafter he Vacated the
Chandigarh House. Calculate the Value of Rent Free house for the P.Y. 2023-24.

SOLUTION: Taxable Value of RFA : Rs. 12,000 (2,250 + 2,250 + 1,500 + 2,000 + 4,000)

ILLUSTRATION: 29
Ram is Employed on Part Time Basis with Two Employers, Hum Ltd., and Tum Ltd. From the
following Particulars, Compute his Income under the head Salary for the A.Y. 2024-25 :-

Particulars Hum Ltd. Tum Ltd.

Basic Salary 15,000 p.m. 5,000 p.m.

D.A. 1,000 p.m. 20% Forming Part of Salary
Medical Allowance 300 p.m. ----
Medical Facility provided ---- 20,000
HRA 1,000 p.m. ----
Date of Joining 1-8-1999 1-10-2004
Effective Date of Retirement 16-11-2023 16-11-2023
Gratuity Received 2,50,000 1,20,000
Leave Encashment 1,80,000 90,000

He was Entitiled to 40 Days Leave for each Completed year of Service from Hum Ltd. and Availed 600
Days Leave during the Tenure of his Service. Where as He was Entitled to 25 Days Leave for each Com-
pleted Year of Service from Tum Ltd., and Availed Only 25 Days Leave during his Tenure.
Tum Ltd. Provided a Rent free Unfurnished Accomodation in Mumbai to Ram during his Service with
the Company. The House is Owned by the Employer and its Fair Rental Value is 13,000 p.m.
Compute his Income under the head Salary for the Assessment year 2024-25 if X does Not Opt for Optional
Regime (it means he wants to pay Tax under New Regime i.e. 115BAC )

SOLUTION: Gross Salary : Rs. 4,94,475 (3,19,750 + 1,74,725); Taxable Salary = Rs. 4,44,475 (Gross
Salary Rs. 4,94,475 - Standard Deduction of Rs 50,000) ; Gratuity Taxable : 70,000+ 63,000;
Leave Encashment : 1,20,000 + 30,000 = Rs. 1,50,000; RFA from G Ltd. : 16,725 (10% of 1,67,250)

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Income from Salary -: 3.20 :- By:- CA. SUMIT GOYAL

ILLUSTRATION : 30 Ram submits following information regarding his Salary for the year 2023-24 :-

1. Basic Salary Rs. 15,000 p.m

2. D.A/ Forming part of Salary 40% of Basic Salary
3. CCA Rs. 2,100 p.m.
4. Children Education Allowance Rs. 200 p.m. per Child for 2 Children
5. Transport Allowance Rs. 1,800 p.m. (Ram is Diabled persons)

He is provided with a Rent-free Unfurnished Accomodation which is Owned by the Employer. The Fair
Rental Value of the House is Rs. 24,000 p.a.

(i) Compute the Gross Salary Assuming Accomodation is provided in a City having Population :-

(A) Not Exceeding 15 Lakhs as per 2011 Census.

(B) Exceeding 15 Lakhs but Not Exceeding 40 Lakhs as per 2011 Census.
(C) Exceeding 40 Lakhs.

(ii) What will be effect on Value of RFA if Ram Opts to pay Tax under Sec. 115BAC.

SOLUTION : (i) Gross Salary :- (A) 2,93,580; (B) 3,00,570; (C) 3,07,560; Salary means for RFA: 2,79,600
Taxable RFA :- (A) 13,980; (B) 20,970; (C) 27,960; Taxable Child Ed: 2,400, Transport All. : Exempt

(ii) Under 115BAC :- G. Salary :- (A) 2,96,100; (B) 3,03,150; (C) 3,10,200; Salary means for RFA :-
2,82,000; Taxable RFA :- (A) 14,100 (B) 21,150; (C) 28,200; Taxable Child Ed: 4,800, Transport: Exempt

(D) OBLIGATION OF THE EMPLOYEE MET BY EMPLOYER Sec. 17(2)(iv)

Any Amount (Obligation) paid by Employer on behalf of Employer is Taxable in All Cases.
For Example, LIP, Group LIP, Income Tax Or Professional/ Employment Tax, Medical Exps. of
Employee's Family, Servant Salary, Gas, Electricity Bill paid by Employer, etc.

Taxable Value = Amount so Paid on behalf of Employee

Example, If a domestic Servant is engaged by an Employee and the Employer Reimburses the Salary
paid to the Servant, it becomes an Obligation which the Employee would have discharged even if the
Employer did Not Reimburse the Same. This Perquisite will be Covered by Sec. 17(2)(iv) and will be
Taxable in the hands of All Employees (Whether Specified Or Not).

(E) ANY SUM PAID BY THE EMPLOYER FOR LIFE INSURANCE Or TO CONTRACT
OF ANNUITY Sec. 17(2)(v)

Taxable Value of Perquisite = Amount so Paid by Emloyer on behalf of Employee.

F Life Insurance premium (LIP) paid by the Employer on the Life of the Employee is , No Doubt, a
Perquisite in the hands of the Employee. Hence it is included in his Gross Salary. Since the Payment
of LIP was on behalf of the Employee, so such Employee shall be entitled to a Deduction of Income
Tax u/s 80C.

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Income from Salary -: 3.21 :- By:- CA. SUMIT GOYAL

(F) INTEREST FREE or Concessional LOAN provided to Employee Or any Member of Household,
the Taxable Value shall be Computed by Rate Charged by SBI on 1st Day of relevant Previous year
for similar Loan { If Certain % of Interest is Charged by Employer then Taxable Value will be
Computed at Concession Rate (i.e. SBI % - % of Interest Charged by Employer) }.

(i) Taxable Value is NIL if Loan is Less than Or Equal to 20,000.

(ii) Taxable Value is NIL if Loan is taken for Medical Treatment in respect of Diseases Specified
under Rule 3A e.g. Cancer, TB, Neuro Problem, AIDS, etc. ( But if Such Loan has been
Reimbursed under any Medical Insurance Scheme and it is Not Repaid to Employer, it shall be
Taxable)

(iii) Interest is charged on Maximum Outstanding Monthly Balance of Loan.

(iv) 'Maximum Outstanding Monthly Balance' means the Aggregate Outstanding balance for
Each Loan as on the Last Day of each month.

ILLUSTRATION: 31

R Ltd. had Advanced an Interest Free Loan of Rs. 10 Lacs to Mr. A for Purchase of Car on 1-5-2023.
Mr. A has been regularly Repaying the Loan in Instalement of Rs. 40,000 p.m. at the End of Each month.

Compute the Value of Perquisite on account of Interest assuming the Interest charged by SBI @ 8% p.a.

Solution: Max. O/s Monthly Balance = Rs. 83.60 Lacs, Interest = Rs. 55,734

ILLUSTRATION : 32

Ram Ltd. has Advanced an Interest-Free Loan of Rs. 10,00,000 to Arjun for Purchase of Jeep on
1.05.2023. Arjun has been Regularly repaying the Loan in Instalments of Rs. 40,000 p.m. on the Ist day of
Next Month.

(a) Compute the Value of Perquisite of Interest Assuming the Interest charged by SBI is 10% p.a.

(b) Compute the Value of Perquisite if Ram Ltd. is Recovering Interest @ 6% p.a. from Arjun.

(c) What will be your Answer if Arjun has Recovered/Received a Sum of Rs. 6,00,000 from Company
on 1-12-2023. The Rate of Interest charged by SBI may be Assumed @13% p.a.

(d) What will be your Answer if such Loan is given for Cancer Treatment, a Disease Specified in
Rule 3A.

SOLUTION : (a) Max. Monthly O/s bal. in Aggregate = Rs. 88,00,000; Taxable Interest = Rs. 73,333
(b) Max. Monthly O/s Bal in Aggregate = 88,00,000; Taxable Interest = 29,333 (88 Lac x 4% x 1/12)
(c) Max. Monthly O/s Bal. in Aggregate = Rs. 24,00,000; Taxable Interest = Rs. 26,000
(d) The Value of this Perquisite shall be NIL.

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Income from Salary -: 3.22 :- By:- CA. SUMIT GOYAL

(G) Use of Movable Assets by the Employee or Any Member of his household.

Taxable value

-Use of Laptop & Computer NIL

-Use of Assets Other than Laptop & Computer 10% p.a. of Actual Cost
& other specified Assets in Rules. OR
(There is Separate Provisions of Use of Car provided Hire Charges paid by
by Employer, it is Taxable for Specified Employees).

(H) Transfer / Sale of any Movable Asset to Employee/Family at Nominal Rate / without Cost.

Taxable Value
-Computer & Electronics item Actual Cost - 50% p.a. of Cost for each
(Laptop, TV, LCD/DVD, Printer, etc.) Completed year of Use.
(On WDV method on Purchase of Asset)

-Motor Car Actual Cost- 20% p.a. of Cost of each

Completed year of Use (on WDV method)

-Any Other Assets (Furniture, AC, Actual Cost- 10% p.a. of Cost for each
Camera, Oven, Cooler, etc.) Completed year of Use
(on Straight Line Method)

ILLUSTRATION : 33 The Company had Purchased a Car on 16-7-2020 for Rs. 2,50,000. This Car is
Sold to Anil on 14-7-2023 for Rs. 70,000. What will be the Taxable Value in
the hands of Anil for Concessional Transfer of Car by Employer.

SOLUTION : Taxable Value is Rs. 90,000 (1,60,000 - 70,000 )

(I) Value of Travelling, Touring, Accomodation (Holiday Home facility) and any other
Expense on Holiday incurred by Employer (Other than Rule 2B) will be Taxable as under :-

TAXABLE VALUE
- Exps. for the Purpose of Official Tour Exempted
-Where such Hotel/Agnecy is Owned by Equivalent Value Charged by Other
Employer & is Not Available Uniformly Hotel/Agencies to the Public.
to All Employees.
-Where Employee is on Official Tour but Amount incurred for Other Member by
Expenses are for Any Family Member Employer.
Accompanying him
-Where Official Tour is Extended as Amount incurred for Extended Period
Vacation of Vacation.

F The Above Rules are Not Applicable to LTC to which Rule 2B is Applicable.

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Income from Salary -: 3.23 :- By:- CA. SUMIT GOYAL

(J) Free or Concessional MEAL or SNACKS (FOOD FACILITY)

Taxable Value
- Tea or Snacks Provided during Official NIL
Hours (i.e. Refreshment or Breakfast)
- Free Meals during Office Hours in a NIL
Remote Area or an Offshore Installation.
- Free Meals Provided by Employer during Exempted upto Rs. 50 per Meal.
Office Hours : -
Y At Office or Business Premises; or
Y Through Paid Vouchers which are Not
Transferable Or Convertible in Cash

- Any Other Case (Liquour, etc.) Any Amount incurred by

Employer - Amount if
Received from Employee

F Exemption in respect of Free Food and Non-Alcoholic Beverage provided by such Employer
through paid Voucher would Not be Available in Case an Employee pays Tax under the
Default Tax Regime u/s 115BAC

ILLUSTRATION : 33
R is provided Free Meals in the Office, during Office hours, for 290 Days during the Previous year.
The Cost of Meals to the Employer is Rs. 70 per Meal.

(a) Determine the Value of Perquisite in respect of Meals.

(b) What shall be the Value if the Value per Meal is Rs. 50.

SOLUTION : (a) If Free Meal is provided during Office hours in the Office or Business Premises, it
shall be Exempt to the Extent of Rs. 50 per Meal and Excess if any shall be Taxable Perquisite.
Hence, Taxable Value of Perquisite in Case of Free Meal shall be 290 × 20 = Rs. 5,800

(b) The Value of Perquisite in this shall be Nil.

ILLUSTRATION : 34
R, who is Working in a Remote Area, is provided free Meal during office hours for 310 Days
during the Previous year. The Cost to the Employer per Meal is Rs. 80. Determine the value of Perquisite.

SOLUTION : The Value in this Case shall be Nil as it is provided to an Employee working in a Remote
Area.

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Income from Salary -: 3.24 :- By:- CA. SUMIT GOYAL

(K) Value of Any GIFT (in Kind), Voucher or Token Received by Employee :-

- Exempted Upto Rs. 5,000 p.a.

F Gifts made in Cash or Convertible into Money (like Gift Cheques) are Not Exempt upto any Amount.

F The Value of Aforesaid Gifts given on Social, Religious and other Ceremonial Occasions like Diwali,
Christmas, New Year, the Anniversary of the Organisation, etc., are Deductible (for Employer) in
Computing the P/G/B/P.

F If Gifts are given to All Employees on their Marriage/Birthday (as per the practice of Emplyer Co.)
then it will also be Exempted upto Rs. 5,000.

F Other Gifts of Personal Nature, provided to Any particular Employee, the Value of such Gifts is
wholly Taxable under 'Salary'. (It will Not Cover under the Provision of Sec. 56(2)(x) of 'O/S' )

ILLUSTRATION : 35 On the Occassion of Silver Jubilee of Sham Ltd., Karan an Employee, is given
a Gift of M. Oven whose Value is Rs. 4,800. Is this Gift Taxable?

SOLUTION : A Gift given in Kind or any Gift Voucher or Token in lieu of which such Gift may be
Received shall be Tax-free Perquisite if the value of Gift in Aggregate is upto Rs. 5,000 during the
P/year. So It is Exempted for Karan.

ILLUSTRATION : 36
What shall be Taxable Value of Perquisite if the Value of above Oven (in above question)
is Rs. 8,000 instead of Rs. 4,800.

SOLUTION :The Taxable Value of such Perquisite shall be Rs. 8,000 - 5,000 = Rs. 3,000

ILLUSTRATION : 37 What shall be Taxable value of Perquisite if instead of M. Oven, Karan is

Given a Cash Gift of Rs. 3,500.

SOLUTION : If Gift is given in Cash or by way of Gift Cheque/Voucher which Can be Coverted
into Cash, the Entire Amount Received shall be Taxable Even if such Gift in Aggregate Received during
the year is below Rs. 5,000. Hence, Rs. 3,500 shall be Taxable in this Case for Karan.

(L) Expenses on Credit Card of Employee or his Family Members

Taxable Value

-Where Any Expenses including Membership Amount Paid or

fees and Annual Fees incurred by the Employee Reimbursed by
are Paid or Reimbursed by the Employer. Employer

-Where Such Expenses are incurred Wholly NIL

for Official Purpose.

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Income from Salary -: 3.25 :- By:- CA. SUMIT GOYAL

(M) Expenses on Club Membership & Other Expenses

Taxable Value

-Where any Expenses (Annual or Periodical) incurred by Amount Paid or

Employee in a Club are Paid or Reimbursed Reimbursed by
by the Employer. Employer.
-Where Such Expenses are incurred Wholly for NIL
Official Purpose.
-Where facility of Corporate Membership taken by NIL
Employer, the Initial Fee paid for such Corporate
Membership by Employer

ILLUSTRATION : 38
Vidur is Employed with Inderprasth Ltd. on a Monthly Salary of Rs. 25,000 per month.
The Company provides him with the following benefits :-

(i) A Company Owned Accommodation is provided to him in Mumbai.

(ii) The Company has given him a Housing Loan of Rs. 5,00,000 on which it charges interest
@ 4.15% p.a. Entire Loan is still Outstanding . (Assume the Interest Charged by SBI is 8.15% p.a.)

(iii) The Company gave him a Gift worth Rs. 4,900 on its 28th Business Anniversary on 21-12-2023.

(iv) He is Allowed to Use the Video Camera belonging to the Company. The Company had Purchased
this Video Camera for Rs. 60,000 on 1-6-2020 . This V. Camara was Sold to him on 1-8-2023
for Rs. 30,000 (To becomes the Owner after 4 Months Use of Video Camera ).

(v) The Company had Purchased a Car on 16-7-2020 for Rs. 2,50,000. This Car is Sold to
T on 14-7-2023 for Rs. 59,000.

(vi) The Company pays the Telephone Bills of Rs. 18,000 for the Telephone installed at the
Residence of Vidur.

Compute the Gross Income from Salary of Vidur for the Assessment Year 2024-25.

SOLUTION : Gross Income From Salary (With or Without 115BAC)= Rs. 4,65,000

* Telephone facility is Exempted.

* V. Camera has been Transferred to Vidur as Owner after 4 months use so Taxable
Value of 4 Months use @ 10% p.a. will be added to Salary.
* Video Camera is Not Covered under Electronics so It will be treated as Other Asset (it
is Electrical Item), Depreciation will be charged @ 10% p.a. by SLM.

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Income from Salary -: 3.26 :- By:- CA. SUMIT GOYAL

N) CONTRIBUTION TO AN APPROVED SUPERANNUATION FUND, RECOGNISED

PROVIDENT FUND (RPF) & NOTIFIED PENSION SCHEME (NPS) u/s 80CCD

According to Sec. 17(2)(vii), Aggregate Amount of any Contribution made by the Employer to :-

If Employer's Contribution to following 3 Exceeds Rs. 7,50,000 p.a. then Excess Contribution by Employer in
Employee's A/c will be Considered as Taxable Perquisite in the hands of All types of Employee :-

(a) Recognized Provident Fund (RPF);

(b) National Pension Scheme referred in Sec. 80CCD; and

(c) Approved Superannuation Fund

Again, any Annual Income accrued by way of Interest, Dividend, etc. during the Previous year to that
Excess Balance at the Credit of the Fund Or Scheme referred Above shall be treated as Perquisites (also
Taxable) in accordance with Sec. 17(2)(viia).

ILLUSTRATION: 39

Sohan employed with Zee TV Ltd. furnishes the following information relating to Employer's Contribution to
Certain Funds for the year ended 31st March, 2022 :-

(i) Superannuation fund - Rs. 2,00,000

(ii) Recorgnized Provident fund (RPF) - Rs. 4,00,000

(iii) National Pension Scheme (NPS) - Rs. 80,000; Advise on the Taxability of above Contributions

Would your Answer differ if the Contribution to RPF is Rs. 6,00,000 ?

SOLUTION : The Aggregate amount of Rs. 6,80,000 Contributed by the Employer to the fund / scheme
are Not Taxable in the hands of Sohan as the same does Not Exceed Rs. 7,50,000.

On the Other hand, if the Contribution to RPF is Rs. 6,00,000 (instead of Rs. 4,00,000), the Aggregate
Contribution to these specified fund / Scheme Exceeds Rs. 7,50,000 in a Previous year.

Accordingly, the Excess shall be Considered as Taxable Perquisites u/s 17(2)(vii) in the hands of the
Employee. In the Given Case, the Aggregate Contribution is Rs. 8,80,000 (with 6 Lakhs to RPF) and thus, the
Excess Contribution of Rs. 1,30,000 (8.80 Lakhs Less 7.5 Lakhs) shall be treated as Perquisites the hands of
Sohan. Excess Contribution (over Rs. 7,50,000 during the year) is Taxable in Case of All
Employees.

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Income from Salary -: 3.27 :- By:- CA. SUMIT GOYAL

(2) PERQUISITES TAXABLE ONLY IN CASE OF SPECIFIED EMPLOYEES

Specified Employee
(i) A Director of his Employer Company
(ii) An Employee who has Substantial Interest (20% Eq. Shares) in his Employer Company
(iii) An Employee Drawing Salary in Excess of Rs. 50,000 p.a.
Meaning of Salary in Excess of Rs. 50,000 p.a.
Basic Salary + All Taxable Monetary Receipts Less Deductions of Sec. 16 (ia), (ii), (iii)

Following are Some Perquisites which are Taxable for Specified Employees Only:-
(A) Motor Car Facility
(I) In Case of Car is Owned / Hired by Employer Ž
-If Car is used wholly for Official Purpose than Nothing is Taxable whether Expenses are
Borne by Employer or Employee.

-If Car is Used for Private Purpose Only.

Taxable Value

Expenses are Borne by Expenses are Borne by

EMPLOYER EMPLOYEE

Running Expenses + Salary of (No Specified Rule in Act but Assumed)

Driver + 10% p.a. of Cost of Car. Estimated Wear and Tear Exps..(10% p.a.
Dep.) + Salary of Driver.

-If use of Car is Partly for Office and Partly for Private Purpose :-

If Personal Expenses of Car If Personal Expenses of Car

are borne by EMPLOYER are borne by EMPLOYEE
Up to 1.6 Ltr.(16 HP) Rs. 1,800 p.m. Rs. 600 p.m.
More than 1.6 Ltr. Rs. 2,400 p.m. Rs. 900 p.m.

F If a Driver is Also Provided then Add Rs. 900 p.m. in each of Above Case.

(II) In Case of Car is Owned by the EMPLOYEE and Expenses are met by EMPLOYER
Taxable Value
(i) Car is used wholly for Official purpose NIL
(ii) Car is used wholly for Private Purpose Actual Expenses paid by
EMPLOYER
(iii) Car is Used Partly Official & Partly Private Actual Expenses of Employer
purpose and Car is upto 1.6 Ltr. - 1,800 p.m. or 2,700 p.m. if
Driver is provided
If Car is More than 1.6 Ltr. Actual Expenses -
2,400 p.m. or 3,300 p.m. if
Driver is provided.

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Income from Salary -: 3.28 :- By:- CA. SUMIT GOYAL

Notes Related to Clause (II)

(i) It is Taxable for All Employees as it is Obligation.

(ii) If Actual Expenses for Official purpose Exceed Rs.1,800 / Rs.2,400 p.m. then that
expenses will be deducted in Above Clause (If Specified Documents are maintained)
(iii) Specified Documents :-
(a) The Employer has maintained complete details of journey undertaken for
official purpose which may include date of journey, destination, mileage and
the Amount of Expenditure incurred thereon.
(b) The Employee and his supervisor gives a certificate that expenditure was
incurred wholly and exclusively for Official purpose.

(III) Where More than One Car is Allowed to be used by Assessee for Official and
Personal Work (Otherwise than Exclusively for Official purpose)

Taxable Value
Y Rs.1,800 p.m. / 2,400 p.m. According to Capacity + Rs. 900 p.m. if Driver is also
provided. (Assuming One Car to be used for Partly Official or Partly Private purpose)
Add:- Actual Expenses paid by Employer + Salary of Driver + 10% p.a. Cost of Car.
(Assuming Other Cars to be used for Private Purpose Only.)

(IV) In Case of Any Other Automotive is Owned by EMPLOYEE and Expenses

are Met by EMPLOYER

Taxable Value
-Automotive is Used Wholly for Official purpose NIL
-Used Partly for Official & Partly Private purpose Actual Expenses of
Employer - Rs.900 p.m.

F In Above All Cases, Month means Complete month and a Part of month is left out of Consideration.

F Vehicle provided for commuting from Residence to Office or any place of Work and Back to
Residence shall Not be regarded as Perquisites, hence it will be exempted.

(B) FREE TRANSPORT FACILITY (Tickets provided, etc.)

(In Case Employer is Engaged in Carriage of Passenger or Goods )

Taxable Amount = Value at which such facility is Provided to the Public - Amount if any
Recovered from Employee.

F The Above Rule shall Not apply to the Employees of an Airline or the Railways (means Exempted)
All Privilege passes and Privilege Ticket granted by Indian Railways to its Employees is Exempted.

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(C) FACILITY OF DOMESTIC SERVANT [Rule 3(3)]

Taxable Value

-Free Service of a Sweeper, Gardener, Watchman or Salary paid by Employer

Personal Attendant provided by Employer. to them.

-In Case any Domestic Servant is Appointed by Amount Reimbursed

Employee and their Salary is Paid or Reimbursed (Taxable is Case of All Employees
by the Employer. as it is Obligation of the Employee
Met by the Employer.)

(D) FACILITY OF FREE GAS, ELECTRICITY, WATER [Rule 3(4)]

Taxable Value
-If Supplied from Own Sources. Manufacturing Cost

-If Purchased by Employer from Any Outside Actual Amount Paid to Agency
Agency. by Employer.

-Gas, Water, Electricity Bill Paid or Reimbursed Taxable in Case of All Employees as it
by the Employer on behalf of Employee. is the Obligation Met by the Employer.

(E) FREE OR CONCESSIONAL EDUCATION TO THE CHILDREN OR ANY OTHER

MEMBER OF EMPLOYEE'S FAMILY [Rule 3(5)]

(a) Where Free Education facility is Provided :-

- In the School Maintained/Run by Employer or the School Sponsored by Employer

Taxable Value = Cost to the Employer - Amount if any Recovered from Employee.

(i) Taxable Value will be NIL, if Such facility is Provided to the Children of the Employee and
Cost of Education per Child Does Not Exceed Rs.1000 p.m. (if it Exceeds Rs. 1,000 p.m. per
Child, then whole Amount will be taxable, No Exemption of Rs 1,000 pm per child allowed.)

(ii) No Limit of Number of Children.

(b) Any Other Case if Education Expenses of Employee's Children (of Any Other School) Or for Any
Other Member of his Family (In Employer's School or Other School)are Paid/borne by Employer:

Taxable Value = Actual Expenses incurred or Paid or Reimburses by Employer.

F In Above Case (b), Value of Perquisite will be Taxable in Case of All Employee as It is
Obligation of Employee paid by Employer.

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Income from Salary -: 3.30 :- By:- CA. SUMIT GOYAL

(G) Allotment of Shares/Debentures under ESOP Scheme e.g. Sweat Equity Shares

Taxable Value = FMV of Debs./Shares on the Date of Option Opted by Employee

F If Above Shares/Debentures are Not given at Free of Cost then Amount paid by Employee must
be Deducted for the Computation of Taxable Value.
F FMV shall be the Avg. of Op. Price (Sale Price of First Settlement) and Closing Price (S.P. of
Last Settlement) on the Date of Excersing the Option (or earlier date if No Trading on that date).

ILLUSTRATION : 41 Tuti Co. Ltd. alloted 1,000 Sweat Eq. Shares to Sumit Goyal in June, 2023.
The Shares were alloted at Rs. 500 per share. Tuti Co. Ltd. Shares are Listed on Bombay Stock
Exchange. The Opening Price and Closing Price of the Share is Rs. 600 and Rs. 800 respectively on the
date of Excercise of Option by Sumit. What is the Perquisite Value of Sweat Eq. Shares alloted to Sumit?

SOLUTION : As per Sec. 17(2)(vi), the Value of Sweat Eq. Share Chargeable to Tax as perquisite shall
be the Fair Mkt. Value of such Shares on the date on which the Option is excercised by the Assessee as
Reduced by the Amount actually paid by, or Recovered from, the Assessee in respect of such Shares.

FMV of Shares is Rs. 7,00,000 Less Amount Recovered From Sumit Goyal Rs. 5,00,000, hence
Rs. 2,00,000 is the Taxable value of Perquisites of Shares.

FMV of shares is Rs. 700 [ (600+800)/2 ]

ILLUSTRATION : 42 Find out the value of the Perquisite of Car provided to the Employee and
Owned by the Employer in the following Cases :-
(i) Large Car : All Expenses borne by the Employer. The Car is solely used for Official purposes.
(ii) Large Car : All Expenses borne by the Employer which are Rs. 60,000 during the P.Y Cost of
Car Rs. 2,80,000. The Car is solely used for Private purposes of the Employee.
(iii) Large Car : Meant for both Private and Official use. All Expenses borne by the Employer.
(iv) Small Car : Meant for both Private and Official use. All Exps. borne by the Employer. Chauffeur is
also provided free of charge.
(v) Large Car : Meant for both Official and Private purposes. Private Expenses borne by the Employee.

Solution: (i) Value of Perquisite is nil as the Car is solely used for Official purposes.
(ii) Value of perquisite is Rs. 60,000 + Rs. 28,000 = Rs. 88,000 as the Car is solely used for private
purposes.
(iii) The Value of Perquisite will be Rs. 2,400 x 12 = Rs. 28,800
(iv) Value of perquisite in such a Case will be Rs. 1,800 p.m + Chauffeur's Salary at Rs. 900 p.m
i.e., Rs. 2,700 x 12 = Rs. 32,400
(v) If the Expenses of maintenance and Running of the Car for Private purposes are met by the
Employee, the value of the Perquisite in the Case of Large Car will be @ 900 p. m. i.e. Rs. 10,800.

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Income from Salary -: 3.31 :- By:- CA. SUMIT GOYAL

ILLUSTRATION - 43

2 Small Cars are provided to the Employees for Private and Official purposes. Maintenance Exps. of
Cars are borne by the Employer. Other informations in this connection are :-

CAR 1 CAR 2

Actual Cost of Car (Rs.) 3,00,000 2,80,000

Exps. of Running and Maintenance of Car (Rs) 60,000 50,000

Determine the Taxable Value of Car Perquisite.

SOLUTION : Rs. 99,600 (21,600 + 78,000)

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Income from Salary -: 3.32 :- By:- CA. SUMIT GOYAL

(3) TAX FREE PERQUISITES FOR ALL EMPLOYEES

(A) MEDICAL BENEFIT PROVIDED TO EMPLOYEE OR HIS FAMILY MEMBERS

(i) If Medical Treatment has been done in a Govt. Hospital, Recognised Public hospital,
Hospital run by Local Authority, An Hospital Run/Maintained by Employer.
(Covid-19 Treatment of Employee or his Family in Any Hospital)
Taxable Value = NIL (No Limit of Expenses.)
h
F If Medical Facility is Provided in any Other Hospital (e.g. Private Hospital) - Totally Taxable
F If Medical Exps. incurred for Treatment of Specified Disease prescribed under Rule 3A (Cancer,
AIDS, etc) in ANY HOSPITAL/CLINIC/DISPENSARY in a Hospital approved by Principal Chief
Commissioner Or Chief Commissioner = Totally Exempted

(iii) Payment of Medical Insurance Premium (Group Medical Insurance) of Employee or his Family Member
by Employer for the Purpose of Sec. 80D.
Taxable Value = NIL

(iv) Expenses on Medical Treatment or Stay Abroad Expenses of Employee & Attendant are
Exempted as per RBI Rules. [Sec. 17(2) Proviso (vi) & (vii)]

(v) If Gross Total Income of the Employee Does Not Exceed Rs.2 Lac (before including Taxable Travel
Exps.) then Travel Expenses of Employee and One Attendants are Exempted otherwise Taxable.

F Family for Valuation of Medical means Spouse and Children of the Employee, Whether Dependent
Or Not, Parents, Brothers, Sisters of the Employee Who are mainly Dependent on the Employee.

ILLUSTRATION: 44
The following Expenses on Treatment of Mr. Deepak's Son were Reimbursed by his Employer.
Treatment was Administered in U.S.A.
(i) Actual Medical Expenses Rs. 75,000 (Permitted by RBI Rs. 50,000).
(ii) Expenses on Stay at U.S.A. Rs. 65,000 (Permitted by RBI Rs. 45,000).
(iii) Travelling Expenses of Mrs. Deepak and Mr. Deepak's Son Rs. 1,20,000.

Compute the Taxable Medical Perquisite in the Hands of Mr. Deepak for the Assessment year 2024-25
Assuming his Salary Income (Before considering Medical Facility) at:-
(i) Rs. 1,50,000; (ii) Rs. 1,90,000.

Solution: Taxable Medical Perquisite:- (i) Rs. 45,000; (ii) Rs. 1,65,000.

(B) PREMIUM PAID BY EMPLOYER ON ACCIDENT POLICY

(C) Exps. on ENTERTAINMENT (Entertainment Facility if Provided to All Employees)

(D) Exps. on TELEPHONE/MOBILES (Telephone Facility) or NEWSPAPERS/Periodicals

(E) FACILITY OF REFRESHER OR TRAINEE COURSE FOR EMPLOYEE

(F) Use of HEALTH CLUB, SPORTS or Similar facilities (if Provided to All Employees)

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Income from Salary -: 3.33 :- By:- CA. SUMIT GOYAL

(G) LEAVE TRAVEL CONCESSION / ASSISTANCE (LTC/ LTA) / Or PASSAGE MONEY

[Sec. 10(5)]

If Journey is Performed By Air (Air Economy Fare

of the National Carrier), or Rail (AC First Class) Or - ALL TAX EXEMPTED
Any Other Transport Mean (First Class or Deluxe) (Exps. Other than Fare are Taxable)
By Way or Shortest Route.

(i) LTC is Not Exempted if it is Provided for the Journey is Performed Out of India.
(ii) It is pertinent to Note that the Expemtion is Available in respect of Journeys Actually Undertaken;
Payments Received without Actually Performing the Journey are Totally Taxable as Salary. (Rule 2B)
(iii) Exemption is Available for Maximum 2 Children Born after 1-10-1998. This Restriction shall Not
be Applicable in respect of Children Born before 1st October, 1998 and also in Case of Multiple Births
After 1st Child.
(iv) The Exemption under 10 (5) is Available in respect of Two Journeys performed in a Block of 4
Calendar years Commencing from the Calender year 1986-89 (Xth Block 2022-2025).
(v) Out of Two Journeys, Exemption for One journey Can be claimed in the Calendar year Succeeding
the End of the Block.
(vi) It is Not Necessary that the family Members Should Perform Journey along with the Employee.

F Exemption on LTC will Not be Available if the Employee Opts to be taxed u/s 115BAC. It means
whole Amount incurred by Employer on Employee (LTC) will be Taxable.

(H) SCHOLARSHIPS to the Children of Employee & Newspaper/Magazine provided

(I) FACILITY OF FAMILY PLANNING PROVIDED BY EMPLOYER.

(J) PERQUISITES TO CITIZENS RENDERING SERVICE OUTSIDE INDIA ARE

EXEMPTED [ SEC 10(7) ] (See Illustration - 52)

(K) RENT FREE HOUSE / CONVEYANCE FACILITY TO SUPREME COURT / HIGH

COURT JUDGES

(L) RESIDENCE/HOUSES TO OFFICIAL OF PARLIAMENT (MLA/MPs)

(M) ANY PAYMENT FROM NPS TO EMPLOYEE [Sec. 10(12A) and 10(12B) ] : Any Payment
from the National Pension System Trust (NPS) to an Employee shall be Exempt upto 60% or 25% as
per the case may be (As Explained Earlier)

(N) TAX ON NON-MONETARY PERQUISITES - Emplyer has Option u/s 192(1A) to bear the
Tax on Non-Monetary Perquisites on behalf of the Employees. Where the Employer exercise such
Option, the Tax so borne shall be Exempt from Tax in the hands of Employees {u/s 10(10CC) } &
Employer Can't claim deduction on Tax paid on Non Monetary Perquisites to Employees.

Determination of Tax Payable by Employer on Non Monetary Perqusites

Tax Payable = Value of Non-Monetary Perquisite includes in Salary x Avg Rate of Income Tax on Salary

Avg. Rate of Income Tax on Salary = {Tax on Total Taxable Salary / Taxable Salary} x 100

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Income from Salary -: 3.34 :- By:- CA. SUMIT GOYAL

(O) CONTRIBUTION MADE BY EMPLOYER IN RPF, NPS and in an APPROVED

SUPERANNUATION FUND upto Rs. 7,50,000 during the year

(P) ACCOMODATION (RFA) PROVIDED BY EMPLOYER IN REMOTE AREA

ILLUSTRATION: 45
Sanjeev went to Srinagar on a Holdiay on 15-11-2023 with his wife and 3 Children (1 Son - age 6 years);
Twin Daughters - 3 years) They went by Indigo Airways Economy Class Flight and the Total Cost of Tickets
borne by his Employer was Rs. 58,000 (Rs. 43,000 for Adults and Rs 15,000 for the 3 Minor Children).
Compute the Amount of Leave Travel Concession Exempt u/s 10(5).
Will the Answer be different if among his 3 Children the Twins age 6 years Old and Son 3 years Old? Discuss.

Solution: Since Son's Age is more than the Twin Daughters, Mr Sanjeev Can avail Exemption for All
the 3 Children. The Restriction of 2 Children is Not Applicable to multiple births after the First Child.
Accordingly, in the First Case, the Entire Amount of Rs. 58,000 is fully Exempted in the hands of Mr. Sanjeev.
In the Second Case, the Employee Can Claim Exemption Only for 2 Children besides the Expense incurred on
Adults. So the Amount of Exemption is reduced to Rs. 53,000 (For Adults - Rs. 43,000 and for 2 Children Only
Rs. 10,000 (15,000 x 2/3)

Illustration : 46 Compute the Taxable Value of the Medical Perquisite in respect of Medical
Facilities received by Mr. G from his Employer during the P.Y. 2023-24 (ICAI Module) :-

Medical Premium paid for Insuring Health of Mr. G Rs. 7,000

Treatment of Mr. G by his Family Doctor Rs. 5,000
Treatment of Mrs. G in a Government Hospital Rs. 25,000
Treatment of Mr. G's Major Son (Independent) in a Employer's Hospital Rs. 15,000
Treatment of Mr. G’s Grandfather (Dependent) in a Private Clinic Rs. 12,000
Treatment of Mr. G’s Mother (68 years and Dependant) by Family Doctor Rs. 8,000
Treatment of Mr. G’s Sister (Dependant) in a Nursing home Rs. 3,000
Treatment of Mr. G’s Nephew (Dependant) for Treatment of Specified
Disease in a Hospital Approved from Chief Commissioner of Income Tax Rs. 10,000
Treatment of Mr. G’s Brother (Independent) Rs. 6,000
Treatment of Mr. G’s Father (75 years and Dependent) Abroad Rs. 50,000
Expenses of Staying Abroad of the Patient Rs. 30,000
Limit Specified by RBI for Abroad Treatment and Stay Exps. Rs. 75,000
Solution: Taxable Perquisites = Rs. 49,000 [ 0 + 5,000 + 0 + 0 + 12,000 + 8,000 + 3,000 + 10,000
+ 6,000 + 5,000 (50,000 + 30,000 - 75,000 RBI Approval )]
* Since Grandfather and Nephew are Not treated as Family Member, So Treatment Exps. borne by
Employer is Taxable.

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Income from Salary -: 3.35 :- By:- CA. SUMIT GOYAL

TREATMENT OF PROVIDENT FUND CONTRIBUTION

Particulars Statutory P.F. (SPF) Recognised P.F. (RPF) Unrecognised P.F. (URPF)

(i) Employer's Fully Exempted Exempt Upto Not Taxable on Yearly Basis
Contribution 12% Salary *1

(ii) Interest on Fully Exempted Exempt Upto Not Taxable on Yearly Basis
Employer's 9.5% p.a.
Contribution

(iii) Interest on Fully Exempted*2 Exempt Upto Not Taxable on Yearly Basis
Employee's 9.5% p.a. *2
Contribution

(iv) Repayment Fully Exempted Fully Exempt Total Employer's Contribution

of Lumpsum Subject to Certain and Interest Thereon is
Amount Condition *3 Taxable under the head 'Salary'
on Retirement and Interest on Employee's
Contribution is Taxable under
the Head 'Income from
Other Sources'.

Salary Means :- Basic Salary + D.A. ( if Term of Employment so provide) + Fixed Commission
on Sales.

F If Employer Contribute (in RPF) Certain % of D.A. in Addition to Basic Salary then it will
be Treates as DA is Under the term of Employment for All Other Purposes too.

F You should Remember that Employee's Contribution is Already Taxed because we take Gross Basic
Salary (without Deducting Employee's Contribution) for the Computation of Taxable Salary.

F Public Provident Fund (PPF) :- A Membership is open to Every Individual (including Salaries
Employee) though it is ideally suited to Self employed People. An Individual Can Contribute Own Fund
to earn Interest (Interest is Exempted on PPF balance) and to take Advantage of Deduction u/s 80C
on deposit to PPF A/c. PPF A/c Can be Opened in SBI or its Subsidiaries Or in any Post Office.

*1 Employer's Contribution to Recognised Provident Fund (RPF) is Taxable Or Not :- Government

has further put combined cap of Rs. 7,50,000 on Retirement Funds of the Emplyee {i.e. Recognised
Provident Fund (RPF), Superannuation Fund and Notified Pension Scheme (NPS) }. This means
if an Emplyer Contribution in All Specified Funds during the Previous Financial year Exceeds
Rs. 7,50,000, it will be Taxable in hands of Employees u/s 17(2)(vii).
In Other Words, Although Employer's Contribution to RPF is Exempt upto 12%, if the Aggregate
of Employer's Contribution to RPF, NPS, Approved Superannuation Fund Exceeds Rs. 7,50,000
in any P. Y., the Same shall be chargeable as Perquisite u/s 17(2)(vii) for Employee.

*2 W.e.f. 2021-22, Where the Employee's Contribution (in RPF Or SPF ) Exceeds Rs. 2,50,000 Or
Where there is NoContribution by the Employer (RPF Or SPF or PPF , it (Employees's
Contribution) Exceeds Rs. 5,00,000, Interest on the Amount Exceeding Rs. 2,50,000/
Rs. 5,00,000 as the Case may be, shall be Taxable under the head 'Income from Other Sources"
and shall be Liable to TDS u/s 194A.

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*3 Payment from Recognised Provident Fund is Exempt if [Sec. 10(12)] :

(i) he has been in Continuous Service for at Least 5 years { RPF balance will also be Exempt if
Employees' Service is terminated before Completion of 5 years if Reason of Termination is being
cited under Clause (ii) and (iii) below}; Or

(ii) his Service has been Terminated due to his ill-health Or due to Contraction or
Discontinuation of his Employer's Business Or any other Cause beyond his Control; Or

(iii) on Cessation of his Employment his Accumulated/Credit Balance is Transferred to an

Other Recognised Provident Fund (RPF) with New Employer Or to National Pension Scheme
(NPS) Referred in Sec. 80CCD.

F Contribution by Central Govt. in the Previous year, to the Agniveer Corpus Fund A/c of an
Individual (for Newly appointed Army Personnel) is Taxable under the head Salary.
Individuals Can Claim the Entire Amount (Self Contribution & CG Contribution) of the Agniveer
Corpus Fund as a Deduction u/s 80CCH.
The Deduction is Applicable under the Old and New Tax Regimes. The Sum of Money Received
from the Agniveer Corpus Fund after Completing 4 years of Service is Tax-Exempt.

F Employer's Contribution to National Pension Scheme (NPS referred u/s 80CCD) would be Taxable
under Salary. (Deduction will be Allowed on Both Contribution to Employee u/s 80CCD)

Illustration : 47 An Individual is in Receipt of a Salary of Rs. 20,000 per month, 13 % of which

he Contributes to a Provident fund to which his Employer Contributes 14 %. He is provided with a Rent
free house by the Employer in Chennai. He also Received from his Employer Rs. 60,000 as Bonus. The
Amount of Interest Credited to his Provident Fund at 10 % p.a. is Rs. 20,000.
Ascertain his Gross Salary for the A.Y. 2024-25, if the Provident fund in question is (a) a Provident
fund to which the Provident Fund Act, 1925 Applies (SPF), (b) a Recognised Provident fund.
Solution: Gross Salary (a) Rs. 3,30,000 and (b) Rs. 3,35,800

ILLUSTRATION: 48 R is an Employee Posted in a Company at Banglore. The following are the

Particulars of his Salary Income :-
(i) Salary @ Rs. 10,000 p.m.
(ii) D.A. @ 6,000 p.m. (50% Enters for Service benefits)
(iii) He is provided with a Car of 1.8 Ltr. Engine Capacity with Driver for his Official and Private
Purposes but the Employer Recovers from him Rs. 600 p.m.
(iv) Commission on Turnover Achieved by R @ 2% of Rs. 10,00,000.
(v) Bonus Rs. 16,000.
(vi) He is provided and Rent free furnished House and the Employer pays Rs. 9,000 p.m. for the
House and Rs. 1,500 p.m. for the Furniture.

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(vii) The Employee Contributes 15% of his Salary towards his Provident fund and the Employer is
Contributing the Same amount. Interest Credited during the year @ 14% being 14,000.

Compute his Gross Salary if Provident fund is :-

(a) Statutory Provident Fund. (b) Recognised Provident Fund (c)Unrecognised Provident Fund

SOLUTION: Gross Salary : (a) 2,97,600 (Contribution to SPF and its Interest is Exempted);

(b) 3,07,380 (RPF 5,280 + Intt. 4,500);

(c) 2,97,600 (Contribution to URPF and its Interest is Exempted in Current year)

Taxable RFA : 37,200 (19,800 + 18,000)

Profits in lieu of Salary

Sec. 17(3) :- Sec. 17(3) gives an Inclusive Definition of "Profits in lieu of Salary". As the Name Suggests,
these Payments are Received by the Employee in lieu of or in Addition to Salary or wages. These Payments
include the following:-

(1) Terminal Compensation: It is Compensation paid to Assessee from his Employer in connection
with the Termination of his Employment or the Modification of the Terms and Conditions;

(2) Payment from an Unrecognised Provident fund or an Unrecognised Superannuation fund:

When the Accumulated balance of such a fund is paid to the employee either on Retirement or on
Termination of Service, the untaxed portion, i.e. the Employer's Contribution and Interest thereon is
taxed as 'Profit in lieu of Salary'. The interest on employee's contribution is taxed as 'Income from O/S'.

(3) Payment under Keyman Insurance Policy: Any payment Due to or Received by an
Employee, under a Keyman Insurance Policy including the sum allocated by way of Bonus on
such Policy, will also be regarded as Profit in lieu of Salary.

(4) Any Amount Due to or Received, whether in Lump Sum or otherwise, by any Assessee:

(A) Before his Joining any Employment with that Person; or

(B) After Cessation of his Employment with that Person.

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DEDUCTIONS FROM GROSS SALARIES

The Income Taxable under the head 'Salaries' is Computed After making the following Deductions :-

(I) STANDARD DEDUCTION u/s 16 (ia) (Allowed under both Regimes)

Lump Sum Rs. 50,000 Or Gross Salary, whichever is Less. (Allowed to All Employees)

(II) ENTERTAINMENT ALLOWANCE u/s16 (ii) (Allowed under Optional Regime Only)

- Deductible Only For Govt. Employees (for Non-Govt. Employee, No Deduction Allowed)

Least of the following is Deductible :

(i) Amount of Allowance Actually Received

(ii) 20% of Salary

(iii) Rs. 5,000

Salary Means : Basic Salary Only

(i) For purpose of Deduction in respect of Entertainment Allowance, the Actual Amount
Spent towards Entertainment Expenses is Irrelevant. Even if the Govt. Employee spends
the Entire amount of Entertainment Allowance or even an amount greater than the Entertainment
Allowance received is Spent on Entertainment for official purposes, the Deduction shall be
Restricted to the amount as per the Provisions Mentioned Above.

(ii) Sumptuary Allowance has to be treated as an Entertainment Allowance.

(III) EMPLOYMENT TAX OR PROFESSIONAL TAX u/s 16 (iii) (under Optional Regime Only)

Under Article 276 of Constitution, Actual Amount Paid by is Deductible.

(i) Deduction is Available Only in the year in which Professional Tax is paid.

(ii) If the Professional tax is paid by the Employer on behalf of Employee, it is first included in the
Salary of the Employee ( In case of all employee as a payment of Obligation) and then the same
amount is Allowed as Deduction from Gross Salary.

F If Assessee Opts to pay tax u/s 115BAC then Deduction u/s 16(ii) & 16(iii) will Not be
Allowed from Gross Salary (it means Ded. u/s 16(ia) is allowed under both Regimes}

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Income from Salary -: 3.39 :- By:- CA. SUMIT GOYAL

Provision of DEDUCTION U/S 80C Allowable to Salaried Person

ASSESSEE : Individual (Salaried Employee Opted for Optional Regime Only)

SUBJECT : The Deduction is Allowed from Gross Total Income in respect of Amount Paid or
Deposited in the Previous year under the following Schemes :-

(a) Life Insurance Premium on Life of himself, Spouse and Children ( Married/ Unmarried or
Dependent/Independent );

F Max. Eligible Amount (of Premium) is Upto 10% (15% for Handicapped) of Sum Assured.

(b) Employee’s Contribution to Statutory Or Recognized Provident fund

(c) Deposited to Public Provident fund (PPF) in the Name of himself, Spouse and Children (Married/
Unmarried or Dependent/ Independent )

(d) Investment in NSC (VIII issue ) and Interest Accrued thereon which is deemed to be reinvested,
in the Name of Individual himself/ herself;

(e) Subscription to NSS 1992;

(f) Time Deposit ( P.O. /Scheduled Bank F.D.) for a Period of not Less than 5 years ;

(g) Investment in Jeevan Dhara , Jeevan Akshay, Dhan Raksha plan of LIC;

(h) Contribution to Unit Linked Insurance Plan (ULIP ) of UTI or LIC Mutual Fund, on Own Name
or on the Name of Spouse shall also fully qualify.

(i) Subscription to Home Loan Account Scheme of National Housing Bank;

(j) Repayment of Housing Loan taken to meet the Cost of Purchase (including Land) or Construction
of a New Residential house, from a Bank or any other financial institution;

(k) Tuition Fees (Excluding Donation or Development fee etc.) at the Time of Admission or thereafter:
- For Full Time Education
- For Any 2 Children of such Individual
- To Any University, College, School or other Educational Institution situated in India

(l) Subscription to Debentures or Equity Shares forming part of Any Eligible issue of Capital
Approved by the Board;

(m) Subscription to Any Units of Mutual fund referred to in Sec. 10 (23D) and Approved by the Board;
(Apply if Amount is Utilised for Eligible issue of Capital )

Eligible issue of Capital:- It means an issue made by a Public company formed and
and the Entire proceeds of the Issue is utilized Wholly and Exclusively either for the purpose of
developing, maintaining and Operating an Infrastructure facility

Quantum of Deduction : Amount Paid/Deposited in Above Schemes Or Rs. 1,50,000,

Whichever is Less.

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ILLUSTRATION: 49 Sri Bhushan who is Employed as Supervisor in a Company at Jaipur and is Covered
by the Payment of Gratuity Act, 1972, Retired on 31st December, 2023 After Completing 34 years of Service.
At the time of Retirement the Employer paid him a Gratuity of Rs. 1,07,000 and Accumulated Balance of
Recognized Provident fund Rs. 60,000. He is Also entitled to a Pension of Rs. 1,500 p.m. He Commuted his
half Pension and Received on 1st March, 2024 the Commuted value of Pension amounting to Rs. 67,500.
On the Basis of the following information Compute his Salary Income for the A.Y. 2024-25 Assuming that
Salary and Pension are Due on the Last Day of the month and Sri Gupta is opting for Optional Regime.
Basic Pay Rs. 31,500 (Rs. 3,500 p.m. for 9 month), D.A. Rs. 15,300 (1,700 p.m. for 9 month), Bonus
Rs. 6,000, Project Allowance Rs. 3,000, House Rent Allowance Rs. 700 p.m., Paid Rent at
Rs. 500 p.m. for 12 month.

Employer's and Employee's Contribution to Recognized Provident fund Rs. 4,800 Each. Suppose Bhushan
Opts out of Default Regime (Opts to pay Tax under Optional Scheme)

SOLUTION: Gross Salary = Rs. 93,020; Taxable Salary = 43,020 (with Optional Regime)

ILLUSTRATION - 50 Mr. Amandeep (A) Working in SGC Ltd., Receives the following Salary and
Perquisites during the Previous year 2023-2024 :-

Basic Pay Rs. 12,375 p.m. 1,48,500

Dearness Pay @ 40% 59,400
Bonus 12,375
Entertainment Allowance 6,000
Transport Allowance @ Rs. 1,200 p.m. 14,400
Employer's Contribution to Recognised Provident fund 25,987
Interest on Recognised Provident fund Accumulation @ 9.5% 28,500
Reimbursement of Expenditure incurred by Mr. A on treatment 13,500
of his Wife in a Nursing home
Facility of Motor Car of Less than 1.6 Litres Engine Capacity with Driver -------
for Official and Personal use
Rent free furnished House in Mumbai for which the Employer pays -------
Rent @ Rs. 3,800 p.m.
Cost of Furniture provided to Mr. A 70,000
Free Service of Domestic Servant (Salary @ Rs. 1,200 p.m. paid by Employer) 14,400
Free Service of Watchman (Salary @ Rs.800 p.m. paid by Employer) 9,600
Employer's Expenditure on free Supply of Gas, Electricity and Water at Residence 15,000
Free Education to 2 Children of Mr. A in Employer's Aided School [Fee charged -------
from other Students is Rs. 700 p.m. and Annual charge of Rs. 3,000]
Interest free Housing Loan to Mr. A sanctioned in April 2023 ( Mr. A Repays 2,40,000
Rs. 5,000 p.m. towards Loan, from May 2023 Onwards, Loan to be Repaid
in 48 Instalments), Suppose SBI Housing Loan Interest Rate is 8% p.a.
Determine the Taxable Salary Income of Mr. A for A. Y. 2024-25 if he Opts for Optional Regime or Not.

SOLUTION : Gross Salary = Rs. 3,74,682; Taxable Salary = Rs. 3,24,682 (without 115BAC)
(ii) If Aman follows 115BAC :- Gross Salary = Rs. 3,74,682; Taxable Salary = 3,24,682
RFA = Rs. 31,068; Car = Rs. 32,400; Meaning of Salary for RFA = 2,40,675;
Taxable Interest = 17,000; Aggregate Max. O/s Balance = 25,50,000; Medical Perks = 13,500

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Income from Salary -: 3.41 :- By:- CA. SUMIT GOYAL

ILLUSTRATION - 51 Mr. X retired from the Services of M/s Y Ltd. on 31.01.2024, after Completing
Service of 30 years and 1 month. He had joined the company on 1.1.1994 at the age of 30 years and received
the following on his Retirement (ICAI Module) :-

(i) Gratuity Rs. 6,00,000. He was Covered under the Payment of Gratuity Act, 1972.

(ii) Leave Encashment of Rs. 3,30,000 for 330 Days Leave Balance in his Account. He was Credited
30 days Leave for Each Completed year of Service.

(iii) As per the Scheme of the Company, he was offered a Car (On Retirement) which was Purchased on
30.01.2021 by the Company for Rs. 5,00,000. Company has Recovered Rs. 2,00,000 from him for the
Car. Company Depreciates the Vehicles at the Rate of 15% on Straight Line Method.

(iv) An Amount of Rs. 3,00,000 as Commutation of Pension for 2/3 of his Pension Commutation.

(v) Company Presented him a Gift Voucher worth Rs. 6,000 on his Retirement.

(vi) His Colleagues also gifted him a Television (LCD) worth Rs. 50,000 from their Own Contribution.

Following are the Other Particulars :-

(i) He has drawn a Basic Salary of Rs. 20,000 and 50% Dearness Allowance per month for the period from
01.04.2023 to 31.01.2024.

(ii) Received Pension of Rs. 5,000 per month for the period 01.02.2024 to 31.03.2024 after Commutation of
Pension.

Compute his Gross Total Income from the Above for Assessment Year 2024-25 Assuming he Exercises the
Option of Shifting out of the Default tax Regime (follow Old Regime) provided under Section 115BAC(1A).

SOLUTION : Gross Salary = Rs. 7,32,769 (Or 7,27,769 if Gift Amount if taken at Rs. 1,000);
Taxable Salary = Rs. 6,82,769 (Or 6,77,769 if Gift Amount if taken at Rs. 1,000);

Taxable Amounts under Salary :- Gift by Employer : Rs 6,000 (Alternatively, Rs. 1,000 Can also be taken);
Gratuity : Rs. 80,769; T/f of Car : Rs. 56,000; Leave Salary : Rs. 1,30,000; Uncommuted Pension : 10,000;
CVP : 1,50,000

F It has been Assumed that Dearness Allowance does Not form part of Salary for Retirement benefits.

F The Taxability Provisions u/s 56(2)(x) are Not attracted in respect of Television Received from
Colleagues, Since Television is Not included in the Definition of Property therein.

ILLUSTRATION - 52 Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the List of
Perquisites provided by the Company to him for the Entire Financial year 2023-24 (ICAI) :-

(i) Domestic Servant was provided at the Residence of Bala. Salary of Domestic Servant is Rs. 1,500 per
month. The Servant was engaged by him and the Salary is reimbursed by the Company (Employer).
In Case the Company has Employed the domestic Servant, What is the Value of Perquisite?

(ii) Free Education was provided to his 2 Children Arthy and Ashok in a School maintained and Owned by
Company. The Cost of such Education for Arthy is Computed at Rs. 900 per month and for Ashok at
Rs. 1,200 per month. No Amount was Recovered by the Company for such Education facility from Bala.
(iii) The employer has provided movable assets such as Television, Refrigerator and Air-conditioner at the
Residence of Bala. The Actual Cost of such Assets provided to the Employee is Rs. 1,10,000.

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(iv) A Gift Voucher worth Rs. 10,000 was given on the Occasion of his Marriage Anniversary. It is given by
the Company to All Employees Above Certain Grade.

(v) Telephone provided at the Residence of Shri Bala and the Bill aggregating to Rs. 25,000 paid by the
Employer.

(vi) Housing Loan @ 6% per annum. Amount Outstanding on 1.4.2023 is Rs. 6,00,000. Shri Bala pays
Rs. 12,000 per month towards Principal, on 5th of Each month.
The Lending Rate of State Bank of India as on 1.4.2023 for Housing Loan may be taken as 10%

Compute the Chargeable Perquisite in the hands of Mr. Bala for the A.Y. 2024-25.

SOLUTION : (i) Taxable Perquisite Value for All Employees = Rs. 1,500 × 12 = Rs. 18,000.
In 2nd Case, the perquisite is Taxable only in the Case of Specified Employees. The Value of the Taxable
Perquisite in such a Case Also would be Rs. 18,000.

(ii) There would be No Perquisite in respect of Cost of free Education provided to his Child Arthy, Since
the Cost does Not Exceed Rs. 1,000 per month.
However, the Cost of free Education provided to his Child Ashok would be Taxable, Since the Cost
Exceeds Rs. 1,000 per month. The Taxable Perquisite Value would be Rs. 14,400 (Rs. 1,200 × 12).

F An Alternate View possible is that Only the Sum in Excess of Rs. 1,000 per month is Taxable. In
such a Case, the Value of Perquisite Would be Rs. 2,400 (200 x 12m).

(iii) The Perquisite Value would be 10% of the Actual Cost i.e., Rs. 11,000, being 10% of Rs. 1,10,000.

(iv) Amount was Received on the occasion of marriage anniversary (provided to All Employees on same
occasion) and the Sum Exceeds the Limit of Rs. 5,000.
Therefore, the Excess of Rs. 5,000 i.e. Rs. 5,000 (10,000 - 5,000) is Liable to Tax as perquisite.
F An Alternate view possible is that the whole Amount of Rs. 10,000 is Taxable if the amount of Gift
Exceeds Rs. 5,000 in the year.

(v) Telephone provided at Residence of Employee and payment of Bill by the Employer is Exempt Perquisite.

(vi) Max. Outstanding balance of Loan = Rs. 62,64,000; Taxable Interest @ 4% = Rs. 20,880

Que : 53 Mr. Somesh is Working in Indian Railways and apart from Basic Salary, he is paid the
following Allowances:-
(i) Entertainment Allowance Rs. 1200 p.m. (Basic Salary Rs. 50,000 p.a.)
(ii) Uniform Allowance Rs. 800 p.m. Actual Amount spent Rs. 500 p.m.
(iii) Conveyance Allowance Rs. 2,000 p.m. Spent for Office purpose Rs. 1,200 p.m.
(iv) Special Allowance to meet Personal Expenses while on Duty Rs. 5,000 p.m.
(v) Education and Hostal Expenditure Allowance Rs. 500 p.m for 2 Children. His 2 Children studing
in School by standing in Hostel.
Determine the Taxable Amount of the Above Allowances, suppose Mukesh has opted for Old Regime.
Solution: Taxable Amount = Rs. 40,600; Deduction of Entertainment All = Rs 5,000, Taxable Special
Allowance = Rs. 18,000

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Income from Salary -: 3.43 :- By:- CA. SUMIT GOYAL

Que : 54
Shri Devdas Mukharjee is the Principal of a College at Delhi. He is in the Grade of Rs. 12,000-420-
18,300 Since 1st January, 2019. He gets 60% of his Basic Salary as Dearness Allowance and 10% of the Basic
Pay as City Compensatoy Allowance. He has been provided with a furnished House by the College Owned by
it, of the Estimated Rental value of Rs. 12,000 p.m. Furniture Costing Rs. 35,000 has also been provided by the
College. Shri Devdas has been Using his Personal Car of 1.6 Cubic Litre for his Official and Personal
purposes. Expenses of Car amounting to Rs. 25,000 for Official purposes are borne by the College. He
has been provided with the facility of a Gardner, a watchman and a Servant who are paid Salary by the College
@ Rs. 450 p.m., Rs. 450 p.m. and Rs. 300 p.m. respectively. In the month of January, 2024, he Surrendered
Leave and got 1 Month's Basic pay (on the basis of year 2023).
He Contributes 15% of his B.Pay and Dearness Allowance to the Recognised Provident fund
towards which the College Contributes an Equal Amount. Interest Amounting to Rs. 12,500 at 12.5% has been
Credited to his Provident fund Account.
Assuming that his Salary becomes Due on the 1st Day of the Next Month, Determine his Taxable
Income under the head 'Salaries' for the Assessment year 2024-25 if Dev Opts or Not for Optional Regime.

SOLUTION: Taxable Salary = 3,02,418 (Under both Regimes); RFA : Rs. 32,918

ILLUSTRATION - 55
Mr. X, an Indian Citizen, is Employed in the Foreign Ministry of the Govt. of India. On 1st August, 2023
he was Transferred to the Indian Embassy in Italy. On 1st Oct., 2023, he was Called back to India for an
Urgent Official Work. On 1st January, 2024 he was again Sent back to Italy. The Particulars of his Income for
the year ended 31st March, 2024 are as under:-

(i) Salary at Rs. 15,000 p.m.

(ii) Dearness Allowance @ 20% of Salary of X Paid in India.

(iii) Rent free House in Delhi while in India and in Rome while in Italy was provided to him. The Rent
of the house of Delhi was Rs. 500 p.m. as per Govt. Rules and the Rent of the House in Rome
was Rs. 3,000 p.m. The house in Delhi was unfurnished, but Furniture Costing Rs. 20,000 was
provided in the House at Rome.
(iv) He has been provided with a Large Car both in Delhi and in Rome, which is being used for
Personal as well as Official purposes. The Car is Driven by Mr. X himself.
(v) He got Entertainment Allowance in Italy at Rs. 2,000 p.m.
(vi) He was getting Overseas Allowance @ Rs. 5,000 p.m.
(vii) The Govt. of India reimbursed Rs. 15,000 Medical Expenses incurred on the treatment of himself
and his family on treatment conducted in a Private Hospital within India.

Find out the Taxable income under the head Salaries for the Assessment year 2024-25. Salary is Due on the
Last Day of the month. Salary is due on Last day of Each Month. X has opted for Optional Regime.

SOLUTION : Taxable Salary = Rs. 1,86,300 (1,80,000+21,000+3,500+16,800+15,000 -50,000)

F Basic Salary is Taxable for full year as it is deemed to accrue or arise in India even if it has
become Due and paid in Foreign Country.

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Income from Salary -: 3.44 :- By:- CA. SUMIT GOYAL

ILLUSTRATION - 56
Mr. X is an Employee of a Public Ltd. Co. He supplies you the following Particulars of his Income :-

Basic Salary Rs. 20,000 per month.

DA 50% of Salary (50% of DA Enters into pay for Retirement Benefits.)
Marriage Allowance Rs. 1,600 per month.
Education Allowance Rs. 270 per month (Allowance @ Rs. 90 per month per Child)
Bonus 1 Month's Salary.
Entertainment Allowance Rs. 1,200 per month.
He and his Employer each Contributes @ 16% of Salary to R.P.F. During 2022-23, he had
Received 2 month's Basic Salary as Advance which was included in the Income of Prev. year 2022-23.
He is Provided Rent-free house Owned by Employer (Suppose City Population is Above 40 Lacs
according to 2011 Census).
He is Also in Receipt of Fixed Medical Allowance of Rs. 300 per month.
Amount Spent on Medicines Rs. 5,500 during the year. Calculate his Salary Income for
A.Y. 2024-25 if Mr. X Opts for Optional Regime or does Not Opt it (follows 115BAC).

SOLUTION : (i) Taxable Salary : Rs. 3,76,108 (4,26,108-50,000); Value of RFA : Rs. 35,828;
(ii) Taxable Salary (u/s 115BAC) = Rs. 3,78,484 (Taxable RFA under this = Rs. 36,044)

ILLUSTRATION - 57 Mr. Gupta is Asstt. Manger of a Textile Company of Indore Since 1997. He has
Submitted the following Particulars of his Income for the F.Y. 2023-24 :-
(i) Net Basic Salary Rs. 80,000 After Deduction of Tax at Source Rs. 5,000, Contribution
to Recognized Provident fund Rs. 9,500 and Rent of Bungalow @ 10% of Gross Basic Salary.
(ii) D.A. Rs. 1,000 per month (Rs. 200 p.m. Enters into Retirement Benefits).
(iii) Education Allowance for 2 Children at Rs. 150 p.m. per Child.
(iv) Commission on Sales Rs. 10,000.
(v) Entertainment Allowance Rs. 700 p.m.
(vi) Travelling Allowance for his Official Tours Rs. 30,000. Actual Expenditure on Tour
amounted to Rs. 22,000.
(vii) He Resides in the Bungalow of the Company. Its Fair Rent is Rs. 3,000 p.m. A
Watchman and Cook have been provided by the Company at the Bungalow who
were paid Rs. 400 p.m. each.
(viii) He has been provided with a Large Motor-Car for his Official as well as Personal
Use. The Running and maintenance Costs are Borne by the Company.
(ix) Employer's Contribution to R.P.F. is Rs. 9,500 and the Interest Credited to this fund
at 10% Rate amounted to Rs. 10,000.
Compute Income from Salaries for the A.Y. 2024-25 if Mr. Gupta Opts for Optional Regime.
SOLUTION : Taxable Salary : Rs. 1,36,500; Value Concessional House : Rs. 3,000

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Income from Salary -: 3.45 :- By:- CA. SUMIT GOYAL

ILLUSTRATION - 58 Mr. Rahul Kainth was appointed as a foreman in a factory on 1st January, 2014 in
the Pay Scale of Rs. 3,000-250-6,000. On Ist September, 2023 his Services were Terminated at the Time
of Retrenchment on account of Closure of Business and he Received a Compensation of Rs. 50,000 from his
Employer and he Received also Gratuity Rs. 37,500 under the Gratuity Payment Act, 1972. He was Entitled
to Avail earned Leave of 30 Days each year. At the Time of Termination of his Service he was Also paid Rs.
42,000 for 8 months earned Leave Not Availed of by him During the period of Service.
On 1st December, 2023 He got another Appoinment on a Monthly Salary of Rs. 7,500.
On 1st February, 2024 in Order to meet the Expenses for Repair of his Home, he Received an Advance of
4 months Salary and also took a Loan of Rs. 20,000 from his Employer for the purpose. Determine his
Taxable Income under the head Salary for the A.Y. 2024-25. Assuming that the Salary is Due on the First of
the Next Month.

Solution : Taxable Salary = Rs. 54,224, Gratuity = 7,212, R. Comp = 19,712, Leave Salary= 800
Salary (10 Months Avg.) for Leave Salary = Rs. 5,150

Illustration: 59
Mr. Prem Kumar, a Employee, furnishes the follwoing details for the F.Y. 2024-25 :-

Particulars Rs.
Basic Salary 6,00,000
Dearness Allowance 3,20,000
Commission 50,000
Entertainment Allowance 7,500
Medical Expenses Reimbursed by the Employer 21,000
Profession Tax (of this, 50% paid by the Employer and balance 50% is outstanding) 7,000
Health Insurance Premium paid by Employer 9,000
Gift Voucher given by Employer on his Birthday 12,000
Life Insurance Premium of Alok Nath paid by Employer 34,000
Laptop provided for Use at home. Actual Cost of Laptop to Employer
(Children of Assessee are also using the Laptop at home) 30,000
Employer-company Owns a Tata Nano Car, which was provided to the Asseess,
both for Official and Personal use. No Driver was provided. (Engine Cubic Capacity
Less than 1.6 Litres) Personal Expenses is to be borne by Employee himself.
Annual Credit Card fees paid by Employer (Credit Card is used for
Personal purposes) 2,000

You are Required to Compute the Income chargeable under the head "Salaries" for the A.Y. 2024-25.

Solution: Gross Salary = 10,57,200; Taxable Salaries : Rs. 10,03,700; Deductible from Gross Salary :-
S.D. = 50,000; Prof. Tax : 3,500 ; Taxable Medical Expenses Rs. 21,000; Gift Voucher Rs. 12,000;
Car: 7,200; Health Insurance: Exempt; LIP : 34,000; Prof. Tax included in Gross Salary: 3,500

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Income from Salary -: 3.46 :- By:- CA. SUMIT GOYAL

ILLUSTRATION: 60

Ranu is a Cost Accountant Drawing following Salary and Allowances, etc.:-

Basic Pay 15,000 p.m.

House Rent Allowance 4,000 p.m.
City Compensatory Allowance 300 p.m.
Reimbursement of Medical Expenses 24,000
(including Rs. 6,000 Spent in a Govt. Hospital)

He is given a Motor Car of 1400 cc Engine Capacity and is entitled to Use it both for Office and Private
Purposes. He is Also given the facility of Driver w.e.f. 1-10-2023. He is Given a facility of Watchman and
Gardner by his Employer for which his Employer Pays Rs. 500 p.m. to Each Such Employee.
500 Shares of the Face value of Rs. 10 each Given to him Free of Cost under ESOP. The Market Value of
the Shares is Rs. 10,000.

He Contributes 15% of his Basic Salary to Recognised Provident fund to which Employer Contributes Equal
Amount. Interest Credited to RPF @ 12% p.a. is Rs. 84,000. The Company has taken a Personal Acci-
dent Policy for him, the Annual Premium being Rs. 1,200. He Resides in a House in Delhi belonging to his
HUF and Pays Rent of Rs. 5,000 p.m.
Compute his Income under the head Salaries for the Ass. year 2024-25 if he opts for Optional Regime.

SOLUTION: Gross Salary : 2,79,500; Taxable Salary = 2,29,500; Taxable HRA : 6,000
Taxable Value of Car Perquisite (including Driver) = Rs. 27,000

ILLUSTRATION: 61

Ram was appointed as Sales Manager of a Company at Chandigarh on 1-1-2020 in the Scale of
Rs. 18,000 - 400 - 22,000 at Rs. 18,000 p.m. (joining Pay at that time). His other Emoluments are:-

D.A. 40% of Salary

Conveyance Allowance (upto 30-9-2023 and his Actual Exps. on 1,200 p.m.
Conveyance for Employement Purposes were Rs. 800 p.m.)

House Rent Allowance upto 31-7-2023 (Rent paid was Rs. 3,000 p.m.) 2,500 p.m.

Fixed Medical Allowance 600 p.m

Rent free House from 1-8-2023 Onwards FRV Rs. 45,000 p.a. and Cost of Furnishing amounts to
Rs. 90,000. Employer also paid Rs. 20,000 towards maintenance of House and Rs. 1,000 p.m. as
Electricity Bill from 1-8-2023 to 31-3-2024, Free use of 1.8 Ltr. Engine Capacity Car with Driver for
Personal and Employment Purposes from 1-10-2023 Onwards. He and his Employer both
Contributed 15% of Salary Each towards RPF.

Interest Credited on RPF balance @ 11% amounts to Rs. 7,700.

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Income from Salary -: 3.47 :- By:- CA. SUMIT GOYAL

Life Insurance Premium of the Employee Reimbursed by the Employer during the year Rs. 6,000.

Compute his Salary Income (Ram Opts for Optional Regime), assuming Population of Chandigarh is Less
than 40 Lacs as per year 2011 Census.

SOLUTION: Taxable Salary : Rs. 3,53,358; Basic Salary : 2,31,600; HRA : 5,680
RFA : 18,030 (12,030 + 6,000); Excess Contribution in RPF : 6,948;
Meaning of Salary for RFA :- Rs. 1,60,400 (1,54,800 Basic +800 CA+ 4,800 Med All)
Car Perquisites = Rs. 19,800; Excess Interest on RPF taxable = Rs. 1,050

ILLUSTRATION - 62

Mr. Arjun is the Accountant of Inderprasth Ltd. at Mumbai since 1st March, 2016. He is in the
Grade of Rs. 4,000-200-8,000-350-11,500 plus a Dearness Allowance @ 20% of his Basic pay, Half of
which Enters into Retirement Benefits. He Contributes 12% of his Salary and One-half D.A. to
Recognised Provident Fund (RPF) to which his Employer Contributes an Equal amount.

During the Previous year he took a Loan of Rs. 20,000 from his Employer for his Daughter's Mar-
riage out of which he Repaid Rs. 4,000 during the year by way of Deduction from his Salary. He has been
provided with a Rent-free House Owned by the Mill, the Fair Rent of which is Rs. 25,000 per annum.

He is getting Conveyance Allowance of Rs. 300 p.m. of Private Purpose, Medical Allowance of
Rs. 200 p.m. and Servant Allowance of Rs. 200 p.m.

He Received Rs. 60,000 for Encashment of Leave on 1st September, 2023 being 10 months Leave Not
Availed of. As per the Rules of the Company Mr. Nair was Entitled to 30 Days' Leave for Every year of
Service.

He had been Provided with the facility of a Gardner and a Cook, who are Each paid Rs. 275 p.m. by the
Employer. He is also provided with a Small Car by the Employer for Mix Use. Two Children of Mr. Nair
are Studying in the Institution Run by the Employer for which No fees are paid.
Expenditure per Student per Month is Rs. 900. His Salary Due on 1st Day of Next Month.

Compute the Taxable Salary if Mr. Nair opts for Optional / Old Regime

SOLUTION : (i) Arjun is Non Specified Employee (All Taxable Monetary Receipts Less Std. Ded is Less
than Rs. 50,000); Taxable Salary = Rs. 1,04,128; Rent Free Accomodation (RFA) = Rs. 7,968, Salary
for RFA= Rs. 79,680

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