Income From Salary

Salary Meaning
• Salary is the remuneration received by an individual for services
rendered as an employee. It includes monetary and non-monetary
benefits.
Items Included in Salary
• Basic Salary: Fixed component of salary.
• Dearness Allowance (DA): Compensation for inflation.
• House Rent Allowance (HRA): Provided for rent expenses.
• Special Allowance: Any special allowances like children education
allowance.
• Leave Travel Allowance (LTA): Concession for travel within India.
• Bonus: Annual bonus or incentive payments.
• Commission: Any commission received on sales.
• Fees: Any professional fees received.
• Gratuity: Amount received on retirement or resignation.
 Continue….
• Pension: Regular payments received after retirement.
• Perquisites: Non-cash benefits like:
• Company car
• Rent-free accommodation
• Medical facilities
• Interest-free loans
• Computer/Laptop for official use
 Continue…
• Profits in Lieu of Salary: Payments received in place of salary, including:
• Compensation for loss of job
• Advance salary
• Any payment received from the employer in connection with the termination of
employment.
• Retirement Benefits:
• Provident Fund contributions
• Superannuation Fund contributions
• Leave encashment
• Voluntary Retirement Scheme (VRS) payments
Types of Salary
• Normal Salary:
• The regular salary paid to an employee for services rendered during a specified period.
• It includes basic salary, allowances, and perquisites.
• Advance Salary:
• Salary paid in advance for services that will be rendered in the future.
• Taxable in the year it is received.
• Arrear Salary:
• Salary paid for services rendered in the past but not paid at that time.
• It includes payments for previous years due to increments, settlements, or corrections.
• Taxable in the year it is received, with possible relief under Section 89(1) for tax
calculation adjustments.
Features of
Salary
1. Employer –Employee relationship (Certain income chargeable under other sources )
2. Salaries and Business Profit (Director salary and other allowances )
3. Salaries and Professional income (Contract of service – Doctor , CA etc.)
4. Voluntary surrender of Salary (if its due –taxable - Surrender of fictional salary not taxable and
Central Govt. S Surrender not taxable)
5. Salary from former employer, present employer or prospective employer (Present, Former and
Prospective is irrelevant )
6. Personal gifts and other Voluntary payment (if it is related to employment Taxable)
7. Tax free salary (Salary means = Aggregate salary + Tax paid by the employer )
8. Gross salary due to the employee
9. Salary or pension received by “UNO” Employee
[Link] Salary or pension paid to legal heirs (Family pension is Taxable )
[Link] year of Salary income
[Link] taxable on ‘DUE” or “Receipt” basis whichever is earlier
Deduction Sec(16)
• i) Standard or adhoc deduction Sec. 16 (ia)
• ii) Deduction for entertainment allowance – Sec 16 (ii)
• iii) Deduction towards profession tax – Sec 16 (iii)
Deduction for entertainment allowance – Sec 16 (ii)

Deduction for entertainment allowance – Sec 16 (ii)

• Entertainment allowance is not eligible for exemption but qualifies for
reduction
• i) Rs.5000; or
• ii) 1/5 of Salary ; or (Salary – Basic salary )
• iii) Actual entertainment allowance received for the previous year
INCOME FROM SALARY
ALLOWANCES
ALLOWANCES
• It is fixed monetary amount paid by employer to the employee in
addition to salary for meeting some particular expenses whether
personal or for performance of his duties. They are generally taxable
on receipt or due basis whichever is earlier unless specific exemption
is provided.
 ALLOWANCES

FULLY TAXABLE ALLOWANCES PARTLY TAXABLE ALLOWANCES FULLY EXEMPT

•House Rent Allowance [Sec
•Entertainment Allowance; •Allowances to high court judges;
10(13A)]
•Allowances paid by United Nations
•Dearness Allowance; •Special Allowances [Sec 10 (14)]
Organisation

•Overtime Allowance; •Compensatory allowance received by judge

•Medical Allowance; •Sumptuary allowance given to High Court and

•City Compensatory
•Supreme Court judges
Allowance;
•Allowance given to Govt. employees outside
•Lunch/Dinner/Tiffin
India

•Warden Allowance;

•Servant Allowance;

•Project Allowance Etc.

Entertainment Allowance

Deduction for entertainment allowance – Sec 16 (ii)

• Entertainment allowance is not eligible for exemption but qualifies for
reduction (Only for Government Employees)
• i) Rs.5000; or
• ii) 1/5 of Salary ; or (Salary – Basic salary )
• iii) Actual entertainment allowance received for the previous year
Exercise
Compute the salary income for the year 2023-24 in the following
cases.
• a) Mr. A who is in Government service receives ₹20,000 p.m. as basic
salary; ₹500 p.m. as dearness allowances and ₹600 p.m. as
entertainment allowance.
a) ₹1,98,200
Exercise
Question 2: Mr. Arun is a government employee receiving a basic salary
of ₹50,000 per month. He also receives an entertainment allowance of
₹8,000 per annum. Compute the taxable portion of the entertainment
allowance. (Taxable Salary Income : 5,53,000 )
• Question 3: Ms. Riya is employed in a private company and receives a
basic salary of ₹60,000 per month. She also receives an
entertainment allowance of ₹12,000 per annum. Compute the taxable
portion of the entertainment allowance. (Taxable Salary Income =
₹6,82,000)
HOUSE RENT ALLOWANCE [SEC 10(13A)]
• HRA is given by employer to employee to meet the expenses in connection with
rent of the accommodation which the employee might have to take for his/her
residence.
• HRA given to an employee is exempt to the extent of minimum of the following:

Metro Cities (i.e. Delhi, Mumbai, Chennai, Kolkata) Other Cities

1. HRA actually received 1. HRA actually received

2. Excess of Rent paid over 10% of salary i.e. (Rent 2. Excess of Rent paid over 10% of salary i.e. (Rent paid
paid – 10% of salary for relevant period) – 10% of salary for relevant period)

3. 40% of the salary for the relevant period 3. 50% of the salary for the relevant period
Notes (for HRA):
1. Salary includes basic salary + D.A. (forming part of salary) + commission (if based
on % of turnover)
2. Exemption is not available to an assesse who lives in his own house or in house for
which he has not incurred the expenditure of rent
3. Relevant period means the period for which the said accommodation was occupied
the assesse during the previous year
4. Salary to be taken on due basis in respect of which rented accommodation is occupied
by the employee in the P.Y. Advance salary should be ignored.
Exercise
• Compute taxable HRA of Mr. Riya who is working in Cochin.
Basic salary Rs. 3,000 p.m.
HRA Rs. 700 p.m.
(Rent paid Rs. 400 p.m.) [Ans: Rs. 7,200]

• Mr. 'A' is employed at Thrissur on a salary of Rs. 3,000 per month. The
employer is paying HRA of Rs. 350 but actual rent paid by him
(employee) is Rs. 500 p.m.
Compute his taxable HRA. [Ans: Taxable HRA Rs. 1,800]
Practice questions
• Mr. Anil is employed in Kochi (Kerala) with a basic salary of Rs. 50,000
per month. He receives an HRA of Rs. 20,000 per month. He pays
actual rent of Rs. 18,000 per month for a house in the city.
Compute the taxable HRA for the assessment year. (Ans:84,000)

• Ms. Lekha works in Thiruvananthapuram (Kerala) and earns a basic

salary of Rs. 40,000 per month. She is paid HRA of Rs. 15,000 per
month. She pays actual rent of Rs. 14,000 per month for her
residence. Calculate the taxable portion of HRA. (Ans:Rs. 60,000)
Exercise -1
• From the following details compute House Rent Allowance taxable in
respect of the five employees of a company. In the case of B and E,
dearness allowance is includible for retirement benefits (amounts ₹).
Particulars A B C D E

1. Salary (per month) 20,000 30,000 40,000 50,000 60,000

2. Dearness allowance (per month) 10,000 12,000 15,000 20,000 20,000

3. Bonus (per annum) 20,000 20,000 25,000 15,000 25,000

4. House rent allowance (per month) 1,500 2,000 1,800 5,000 4,500

5. Actual rent paid (per month) 2,000 4,500 4,000 6,000 7,000

6. Place of service Calicut Patna Delhi Chennai Kochi

[Ans. A) ₹18,000 B) ₹20,400 C) ₹21,600 D) ₹48,000 E) ₹54,000]

Exercise-2

Ans : a) 15,240 b) 3600 c) Nil

House Rent Allowances (HRA)

Practice question from : Income Tax Law and Accounts , Dr. H.C Mehrotra , Page No. 134
SPECIAL ALLOWANCES [SEC. 10(14)]
SPECIAL ALLOWANCES

Granted to meet expenses incurred Granted to meet his PERSONAL EXPENSES

wholly, necessarily and exclusively in [SEC. 10(14)(ii)] Either at the place where the
the PERFORMANCE OF OFFICIAL duties of his office or employment of profit
DUTIES [SEC. 10(14)(i)] are ordinarily performed by him or at the
place where he ordinarily resides

EXEMPT to the extent of the minimum EXEMPT to the extent of the minimum of the
of the following: following:
• Actual Allowance Received i.e. which • Actual Allowance Received
• Actual amount spent for official purpose ever is less
• Specified limit
SPECIAL ALLOWANCES [SEC. 10(14)]
Section 10(14)(i)
1. Travelling Allowance
2. Daily Allowance
3. Conveyance Allowance
4. Helper Allowance
5. Academic Allowance
6. Uniform Allowance
Section 10(14)(ii)
• Children Education allowance
• Hostel expenditure allowance
• Transport allowance
• Underground allowance
• Tribal area/Scheduled area allowance
• Allowance for transport employees working in any transport system
 Section 10(14)(ii)
•Children Education allowance ₹ 100 p.m. per child up-to maximum of 2 Children
•Hostel expenditure allowance ₹ 300 p.m. per child up-to maximum of 2 Children
•Transport allowance (only for
Physically challenged ) ₹ 3200 p.m.
•Underground allowance ₹ 800 p.m

•Tribal area/Scheduled area allowance

₹ 200 p.m.

•Allowance for transport employees 70% of such allowance Or ₹ 10,000 p.m.

working in any transport system (Whichever
is lower)
 Rs. 1,600 per month is tax-free in excess of Rs. 1600 is
1. Travelling Allowance
taxable.
If employees have used all of their daily allowance, it is not
2. Daily Allowance
taxable
3. Conveyance Allowance
Up to Rs. 19,200 per annum or Rs. 1,600 per month.
4. Helper Allowance
Actual expenses exempted
5. Research Allowance No Upper Limit (Actual expenses exempted )

6. Uniform Allowance
Actual expenses exempted
 Allowance covered under u/s
10(14)(ii)
(exemption based on notified
limit)
Children Education Allowance
Allowance Exemption Limit

₹100 p.m for 2 children

Hostel Allowance ₹300 p.m for 2 children

Tribal Area Allowance (M.P, Tamil Nadu, UP, Karnataka, Tripura, Assam, West Bengal, Bihar and
₹200 p.m
Orissa)
Special Compensatory Allowance (Hill area) ₹300 p.m to ₹7,000 p.m

Border Area Allowance ₹200 p.m to ₹1,300 p.m

Compensatory Field Area Allowance ₹2,600 p.m

Compensatory Modified Field Area Allowance ₹1,000 p.m

Counter Insurgency Allowance ₹3,900 p.m

Transport Allowance for Blind and Handicapped Employees ₹3,200 p.m

Underground Allowance ₹800 p.m

High Altitude Allowance (9,000 to 15,000 or 15,000 & Above) ₹1,060 p.m or ₹1,600 p.m

Highly Active Field Area Allowance ₹3,250 p.m

Island Duty Allowance ₹3,250 p.m

70% of such allowance or ₹10,000 p.m
Running Flight Allowance / Allowance for Transport Employees whichever is less is exempted
 Treatment of Entertainment Allowance
• Entertainment allowance received is fully taxable and is first to be included in salary income under the
head “Salaries” and thereafter a deduction is given.

● Deduction in respect of Entertainment allowance is available from Gross Salary only to Government
employees. The amount of deduction will be lower of :
1. ₹ 5,000
2. 20 percent of basic salary i.e. exclusive of any allowance, benefit or other perquisite; or
3. Amount of entertainment allowance received during the previous year

● In the case of a non-Governmental employee entertainment allowances is not deductible.

● Amount actually spent towards entertainment (out of entertainment allowance received) is not taken into
consideration.
Exercise 1
Computation of Taxable Income
Solution
Computation of Taxable Salary
Particulars Rs.
Basic Salary (Rs.1000x12) 12,000
Dearness Allowance @40% 4,800
Bonus (Rs.200x12) 2,400
Taxable perquisite 20,000

Gross Salary 39,200

Less: Std deduction u/s 16 -Gross Salary whichever is less 39,200

Taxable Salary NIL

Exercise 2
Entertainment Allowances

• Practice question from : T.N. Manoharan and G.R Hari , Page No.72,
snow white publication-2022
Solution
Computation of Taxable Salary of Mr. A
Basic Salary (Rs.4,000pm x12 months) 48,000
Dearness (Rs.500 p.m x 12 months) 6,000

Entertainment Allowance (Rs.600 pm x12 months) 7,200

Gross Salary 61,200

Less: i) Std deduction u/s 16 -Gross Salary whichever is less 50,000

ii) Enterainment allowance u/s (ii) for Govt . Employee
a) Rs.5,000 (Least of
three Rs. 5,000) 5,000
b) 20% of Basic Salary Rs.48,000 = 9,600
c) Actual receipt Rs. 7,200

Taxable Salary 6,200

Solution
COMPUTATION OF TAXABLE SALARY CASE1
Basic Salary Rs.20,000 pm x12 2,40,000
Dearness Pay @10% of Basic Salary (10% of 2,40,000) 24,000
Commission based on Turnover 1,20,000

3,84,000 3,84,000
H.R.A (Calculation)
i) Actual HRA [Link].5000x12 60,000
ii) Rent paid - 10% of Salary (4000x12 -10% of 3,84,000) 48000-
38400 9,600
ii) 40% of Salary (since its in Agra ) 1,53,600

i.e Least of the three Rs.9,600 will be deducted from HRA

Allowance Rs.60,000 (60,000-9,600) 50,400

Taxable Salary 4,34,400

Exercise 3
Exercise
Mr. Kapil is in receipt of the following allowance and seeks your advise about the taxable quantum of
theses allowance

i) Helper allowance of Rs. 300 p.m. [Link] had appointed a helper for 9months during the year to
whom he paid Rs.200 p.m
ii) Conveyance allowance of Rs.750p.m. [Link] owns a car which is used both for personal purpose
and official. Total monthly expenses amounts to Rs.1200 of which 40% is attributable to office use.
iii) During the year Mr. Kapil received education allowance for his 3 children a sum of Rs.250 p.m.
each towards education and hostel expenditure. All the children are staying in hostel.
iv) During the year for six months. Mr. Kapil was posted at Kandala, a hilly area located at a height
of 1,200mts above the sea level. Hill compensatory allowance of Rs.2,400 has been recived by him at
Rs.400 p.m
Solution
Computation of Taxable Allowances of Mr. Kapil
Particulars Rs Rs

Helper allowance received 3600

Less : Exempt (Actually spent -9 x Rs.200) 1800 1800

Conveyance Allowance received 9000

Less : Exempt (Actually spent ) (Rs.1,200x40% x12) 5760 3240

Education & hostel expenditure allowance 9000

Less : Education & Hostel expenses (Rs.250x2x12) 6000 3000

Hill compensatory allowance 2400

Less : Exempt (300p.mx6) 1800 600

Taxable amount of allowance 8640

Rent-Free Accommodation (RFA) – Income
from Salary
• Definition:
Rent-Free Accommodation is a perquisite provided by the employer to the
employee, where the employer provides accommodation to the employee
either free of cost or at a concessional rate.
Taxability:
• RFA is taxable as a perquisite under Section 17(2)(ii) of the Income Tax Act.
• The value of RFA is added to the employee’s income from salary and taxed
as per applicable slab rates.
Valuation of RFA:
1. Government Employees:
• Value = License fee as determined by the government minus any rent
recovered from the employee.
2. Non-Government Employees:
• If accommodation is owned by employer:
• 15% of salary in cities with population > 25 lakhs
• 10% of salary in cities with population 10–25 lakhs
• 7.5% of salary in other areas
Salary includes
• Salary: Basic + DA (if part of retirement benefits) + Bonus +
Commission + All taxable allowances (Excluding HRA, employer's
contribution to PF, etc.)
Exercise Questions
Practice Q.37 (T.N Manoharan , page
no.100)
Retirement Benefits
Gratuity
• Gratuity refers to the amount that an employer pays his employee,
in return for services offered by him to the company. However, only
those employees who have been employed by the company for five
years or more are given the gratuity amount. It is governed by the
Payment of Gratuity Act, 1972.
Exercise 1
Calculate Taxable amount of Gratuity for the following cases
• i) Shriram, a Government employee, receives Rs. 2,00,000 as gratuity at the time of retirement on
May 30, 2018.

(ii) Mr. Francis , an employee of Audco Ltd., receives Rs. 3,00,000 as gratuity. He is covered by the
payment of gratuity Act, 1972. He retires on November 15, 2018, after rendering service of 32
years and 7 months. At the time of retirement his monthly basic salary and DASB were Rs. 3,000
and Rs. 1,000 respectively.

iii) Arun an employee of AB Itd. received Rs. 96,000 as gratuity and not covered by payment of
Gratuity Act. He retires from services on 31.1.2019 after 28 years and 9 months service. At the
time of retirement his sant was
Rs. 6,300 p.m. Find out taxable gratuity.
Exercise 2

Calculate the taxable gratuity in the following cases:

• Raju, a government school teacher, receives ₹3,50,000 as gratuity at the time of retirement
on 31 March 2019.
• Ms. Joseph, an employee of SunTech Ltd., receives ₹4,80,000 as gratuity. She is covered by
the Payment of Gratuity Act, 1972. She retires on 1 July 2019 after 28 years and 4 months of
service. Her basic salary was ₹12,000 p.m. and DA ₹3,000 p.m. (fully included for retirement
benefits).
• Meera, an employee of Bright Pvt. Ltd., receives ₹2,80,000 as gratuity. She is not covered
under the Payment of Gratuity Act, 1972. She retires on 30 September 2019 after 25 years
and 7 months of service. Her last 10 months’ average salary (Basic + DA for retirement
benefits) was ₹15,000 p.m.
• Answer : i) Nil ii) ₹2,37,692. iii) ₹92,500.
PF and Tax Treatment
• A provident fund​is an investment fund that is voluntarily established
by Employer and employees to serve as long term savings to support
an employee's retirement. Sources of fund: Employee's contribution:
The amount deducted from the employee's salary at a rate of 2% –
15%.
Types of Provident Fund
• Statutory Provident Fund – This scheme is set up under the
Provident Funds Act, 1952. It is meant for government employees,
universities, recognised educational Institutions, railways, etc. It is
also known as the General Provident Fund (GPF).
• Recognized Provident Fund. Any establishment which is recognized
by the Commissioner of Income Tax is called as recognized provident
fund. To be recognized, an organization of 20 or more members shall
invest funds as per the guidelines of PF Act, 1952, and can get an
approval from the PF Commissioner of Income-tax.
• Unrecognised Provident Fund – If the commissioner of income tax
does not approve the provident fund scheme created by the
employer and employee (as mentioned above), then such scheme is
an unrecognised provident fund scheme.
• Public Provident Fund Scheme is a Central Government scheme,
framed under the PPF Act of 1968. Thus we can say PPF is a
government backed, long term Small Savings Scheme. The Scheme
offers an investment avenue with decent returns coupled with income
tax benefits.
• An approved superannuation fund is a fund that is approved by the
Commissioner of Income Tax. The rules pertaining to this can be found in Part B
of the Fourth Schedule of the Income Tax Act. Superannuation funds are approved
by the Income Tax Commissioner based on whether or not they are meeting
certain conditions.
• It works as a superannuation benefit for employee after they leave it. The Act
covers all companies with more than ten employees. Gratuity amount is payable at
the time of resignation, retirement /superannuation, layoff or voluntary retirement,
death, retrenchment, disability or termination.
Salary for the purpose of PF
• Basis Salary + DA (only forming part of employment)+ Commission
based on T.O
Pension under Income from
Salary
• Pension is a retirement benefit received by an employee (or
family) in recognition of past services.
• Tax Treatment:
I. Uncommuted Pension (periodical/regular pension):
• Fully taxable as Income from Salary in the hands of the employee/retiree.
II. Commuted Pension (lump sum received in advance):
Government employees: Fully exempt.
Non-government employees: Exempt up to:
• 1/3rd of the commuted value if gratuity is received, or
• 1/2 of the commuted value if gratuity is not received.
Exercise
Pension Exercise
1. Mr. A retires from XYZ Ltd on 30.4.18. He receives Rs. 12,000 p.m as pension during the year
2018-19 compute the taxable pension.
[Ans: 1,32,000]

2. ‘X' retires from PQR (P) Ltd. in December 2018 and receives Rs. 7,000 per month upto February
28, 2019 when he dies. Compute the taxable pension.
[Ans: Taxable pension: Rs. 14,000]

3. Calculate Taxable value of pension of Mr. B a government employee who

retired on 30th April 18 and received Rs. 2,400 p.m as pension upto 31.10.2018. On 1.11.2018
he commuted 70% of his pension for Rs. 1,80,000. He had a total of 35 years and 8 months
service.
[Ans: Commuted pension of government employees is exempt. Taxable monthly pension
is Rs, 18,000 ]
Medical Treatment under
Income from Salary
• Medical Reimbursement (till AY 2018–19):
• Exemption was available up to ₹15,000 per year for medical reimbursement by employer.
• This exemption was withdrawn from AY 2019–20 (after introduction of standard
deduction).
• Medical Facilities Provided by Employer (still applicable):
• Treatment in employer’s hospital/clinic/dispensary: Fully exempt.
• Treatment in Government or approved hospital: Fully exempt.
• Medical insurance premium paid by employer on employee’s behalf (under a scheme
approved by IRDA): Fully exempt.
• Medical Treatment Abroad:
• Expenditure on medical treatment outside India is exempt to the extent permitted by RBI.
• Travel expenditure for patient + one attendant is also exempt, provided the employee’s
gross total income (before such exemption) does not exceed ₹2 lakh.
Medical Facility/Benefits
Treatment in India

Treatment in Govt. Otherwise fully

recognized Hospital taxable

Treatment in Employer
own Hospital

Treatment in Govt.
Hospital
Motor Car Perquisite – Income from Salary
When Car is Owned/Provided by Employer
• Used wholly for official purpose: Not taxable (if proper records maintained).
• Used wholly for personal purpose: Taxable at actual expenditure incurred by employer
(including driver’s salary, fuel, maintenance, insurance, etc.).
• Used partly official & partly personal purpose: Taxable at a fixed value as per Income Tax Rules.
Valuation of Perquisite (Partly official & partly personal use)
• Car owned/maintained by employer:
• Engine ≤ 1.6 litres → ₹1,800 p.m.
• Engine > 1.6 litres → ₹2,400 p.m.
• Add ₹900 p.m. if driver is provided.
When Car is Owned by Employee but Expenses Borne by Employer
• Used wholly for official purpose: Not taxable.
• Used partly for personal purpose:
• Engine ≤ 1.6 litres → ₹600 p.m.
• Engine > 1.6 litres → ₹900 p.m.
• Add ₹900 p.m. if driver is provided.
 Leave Travel Concession (LTC) –
Section
• Meaning:
10(5)
• LTC/Leave Travel Allowance (LTA) is an allowance given by employer for travel expenses of employee and family while on leave.
• Exemption:
• Exemption available only for actual travel expenses (air/rail/bus fare).
• Exemption restricted to shortest route to the destination in India.
• Only domestic travel (within India) is allowed; foreign travel not covered.
• Family Definition:
• Includes employee’s spouse, children, dependent parents, brothers & sisters.
• Restriction: Exemption allowed for maximum 2 surviving children (after 1-10-1998 rule).
• Number of Journeys:
• Exemption available for 2 journeys in a block of 4 years (as notified by Govt.).
• Unused concession of 1 journey can be carried forward to the next block (must be used in 1st year of next block).
• Mode-wise Exemption:
• Air Travel: Economy class airfare of national carrier (Air India) by shortest route.
• Rail Travel: AC First Class rail fare by shortest route.
• Other Places (no rail available): Recognized public transport – equivalent bus/rail fare.
• Taxability:
• Any amount received in excess of eligible exemption is taxable under Income from Salary.
Taxable Salary :1,18,330 and Taxable Income:
95,070
Ans: Income from salary: Rs. 4,13,507 and Taxable Income Rs. 3,78,047
 Exercise 5

(office )

Answer: Income from salary Rs.6,63,340

Answer:2,94,500
Taxable Salary: Rs.2,22,480
Exercise 8

Answer Rs.348,800
Exercise .1
• Find out the amount of taxable annual contribution to RPF for Mr. Ajay
from the particulars given below.
• Salary Rs. 5000 p.m; DA Rs.1000; 10% commission on turnover (turnover
achieved Rs.60,000) Fixed commission Rs.300 p.m ; He and his employer
contribute Rs.2000 p.m. each to RPF , Interest credited to PF at 10% is Rs.
20,000
Exercise .2
• Mr. Vijay is working in a company at Hydrabad : Salary Rs.9,000 p.m;
D.A Rs.6000; commission at 2% on sale Rs.8,00,000; Bonus Rs.6000
Employer’s contribution to PF 14% of Basic salary ; Interest credited
to PF at 11% amounted to Rs.5,500; Calculate the taxable salary of Mr.
Vijay
Gratuity

Gratuity

Received at the
Received during
time of
the Service
Retirement/Death

Employee of
Fully Taxable Govt. /Local Other Employee
Authority

Covered Under Not Covered

Fully Exempted u/s
Payment of Under Payment of
10(10)(i)
Gratuity Act,1972 Gratuity Act,1972
GRATUITY (OTHER EMPLOYEES)
COVERED UNDER PAYMENT OF GRATUITY ACT, NOT COVERED UNDER PAYMENT OF GRATUITY
1972 ACT, 1972
Gratuity is exempt from tax to the extent of Gratuity is exempt from tax to the extent of
minimum of the following: minimum of the following:
1. Actual Gratuity received 1. Actual Gratuity received
2. ₹ 20,00,000 2. ₹ 20,00,000
3. 𝑴𝒐𝒏𝒕𝒉𝒍𝒚 𝒔𝒂𝒍𝒂𝒓𝒚/ 26 3. 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒔𝒂𝒍𝒂𝒓𝒚/2 ×Completed year
×15×Completed year of service or part of service
thereof in excess of 6 months Note: *Salary= Basic salary + D.A. (forming part) +
Note: *Salary= Basic salary + D.A. Commission (%of turnover)

* Salary is based on last 10 months average salary

immediately preceding the month of retirement
or death
Answer: Gross Salary Rs.2,72,480 ; Taxable Salary : 2,22,480

Amount qualified for deduction u/s 80C : Rs.1,50,000