Dr.

Ram Raj G, CHRIST-YPR Income Tax Study Material

INCOME TAX
UNIT – II
Income from salary- meaning – Profit in lieu of salary- Allowances- Taxable, Special and Exempted,
Perquisites- Accommodation, Motor car and LTA.

Part A – Salary
Introduction
The first head of Income Tax is income from salary which is a form of periodic payment from an employer
to an employee, which may be specified in an employment contract. Salary is basically a fixed amount of
money agreed every year as pay for an employee, usually paid directly into his or her bank account every
month
Salary
As per sec. 17(1) of the Income-tax Act, 1961, salary includes the following: -
1. Wages;
2. Any annuity or pension;
3. Any gratuity;
4. Any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;
5. Any advance of salary;
6. Any payment received by an employee in respect of any period of leave not availed by him;
7. Employer's contribution to Recognized Provident Fund (RPF) in excess of 12% of employee's salary
and interest credible to recognized provident fund in excess of 9.5% p.a.; U/S 80CCD
Features of Salaries
1. For tax purposes there is no difference between wages and salary
2. There must be an employer and employee relationship between provider and receiver
3. It may be received from more then one employer in any previous year
4. It should be a real one. Mere agreement to receive salary will not be a salary
5. It is deemed to accrue at the place were the service is rendered.
6. Salary is earned by the partner is not taxable because there is no employer employee relationships
7. It does not matter whether the employee is a full-time employee or a part-time one.
8. Pension received by a widow or legal heir is not taxable.
9. Amount received from other than employer is not taxable as salary Eg; Examiner received remuneration

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
BASIS OF CHARGE [SEC 15]
As per section 15, the following income shall be chargeable to income-tax under the head “Salaries” is
chargeable to tax either on “due” basis or on “receipt” basis, whichever matures earlier.
Advance salary
It is common practice of employees to receive salary in advance under conditions of emergency. Tax
is chargeable to all salaries which are due whether actually paid or not and also on those which are paid
whether due or not to the employee during the financial year.
Arrear salary
Any increment in salary with retrospective effect which have not been taxed in the past, such arrears
will be taxed in the year in which it is allowed. Arrear salary are taxable on receipt basis. In such a case the
assessee can claim relief of income-tax u/s 89, if so desires.
Foregoing of salary
Once salary has been earned by an employee, it becomes taxable in his hands though he may
subsequently waive the right to receive the same from the employer. The waiver of salary by the employee
would be treated as application of the income and salary though waived would be taxable in his hands.
Tax-free salary:
When the employee receives tax-free salary from his employer, it normally means that the employer
himself pays the tax which is due on the salary of such employee. The amount of tax, so paid by the employer,
is also to be considered as the income of the employee and will be added to his salary.
Place of accrual of salary:

According to section 9(1) of the Income-tax Act, salary is deemed to accrue at the place where the service
for which it is paid, is rendered. Salary accrued in India is deemed to accrue or arise in India though it has
been paid outside India.

3. Due date of salary:

(a) For government and semi-government employees, the salary is due on the first date of next month, i.e.,
salary of February is due on 1st March. For this purpose, previous year salary will be from 1st March to 28th
February of next year.

(b) For employees of bank and non-government organizations, the salary is due on last date of same month,
i.e., salary for February is due on 28th February. For this purpose, previous year salary will be from 1st April
to 31st March next year

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
ALLOWANCES
“Allowance” means fixed quantum of money given regularly in addition to salary to meet some
particular requirement. The assessee may or may not spent these allowances. There are different type of
allowances and each allowance may have different characteristics which are
i. Fully Taxable allowance
ii. Partially taxable allowance
iii. Fully Exempted allowances.
Fully Taxable Allowance
1. Dearness Pay
2. City compensatory allowance
3. Project allowance
4. Fixed medical allowance
5. Tiffin allowance/ Lunch allowance
6. Servant allowance
7. Wardenship allowance
8. Overtime allowance
9. Special allowance
10. Petrol allowance/ Transport allowance
Partially Taxable Allowance
1. House Rent allowance
2. Entertainment allowance
3. Hill allowance/ High attitude allowance
4. Tribal area/ Scheduled area allowance
5. Education allowance
6. Hostel allowance
7. Conveyance/ Transfer allowance
8. Washing allowance/ Uniform allowance
9. Helper allowance
10. Daily allowance
Fully Exempted Allowance
1. Foreign allowance [To a government servant for service outside India]
2. Sumptuary allowance to high/supreme court judges
3. Allowance to employees of UNO [United Nations Organisation]
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
4. Transport allowance/ sumptuary allowace to UPSC members
5. Allowance received by a teacher from SAARC member states
Tax Treatment for Allowances

I. HOUSE RENT ALLOWANCE (HRA) [Section 10(13A) & Rule 2]

Employees generally receive house rent allowance (HRA) from their employers. This is a part of
the salary package, in accordance with the terms and conditions of employment. HRA is given to meet the
cost of the accommodation which the employee might have to take.
HRA is taxable under the head 'Salary' to the extent it is not exempt under section 10(13A). HRA is
exempt to the extent of the minimum of the following three amounts -
1. Actual HRA received by the employee in respect of the relevant period.
2. Excess of rent paid over 10% of the salary of the relevant period.
3. 40% of the salary (50% of salary in case of Mumbai, Kolkata, Delhi or Chennai)
Note
 Salary for this purpose = Basic + D. A. (forming part of salary for retirement benefits) + Commission

Problem No. 1. Mr. Ameer is employed in Salem. He receives ₹8,000 pm as his basic salary; DA ₹4,000
(50%only entered into forming part); commission 2% on turnover (Turnover is ₹6,00,000) HRA ₹6,000 pm.
Rentpaid ₹5,000 pm in Salem. On 1st January he has bought new own house. Compute his taxable HRA.
Solution
Working Note 1 - Calculation of Salary
Particulars Amount
Basic pay 8,000 * 12 96,000
DA 2,000 * 12 24,000
Commission 2%*6,00,000 12,000
Salary 1,32,000

Working Note 2 - Calculation of Exemption of HRA

Note: Mr. Ameer stayed in rent house only 9 months (1/4/2024-31/12/2025) after that he bought ownhouse.
Sl. No Particulars Amount
1 Actual HRA received 6,000*9 month 54,000
2 40% of salary 99,000*40% 39,600
3 Rent – 10% Salary (45,000-9,900) 31,100*
Rent (5000*9=45,000)
*Exempted

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Calculation of Taxable HRA
Particulars Amount
Actual HRA received 6,000*12 72,000
- Exempted amount (WN 2) 31,100
Taxable Amount 40,900
Problem No. 2
Ms. Aadhithya woks in government of Tamil Nadu, Chennai. She gives the following details. Ascertain
her taxable HRA.

Basic salary 5,000 p.m.

D.A (forming part of salary ) 1,000 p.m.
D.A (not forming part of salary) 700 p.m.
House rent allowance (Actual rent is ` 200 p.m) 600 p.m.
Solution:

Calculation of Taxable HRA

HRA received 7,200
Less: Exempted – Least of the following
i) Actual HRA 7,200
ii) 50% of salary 36,000
iii) Rent – 10% of salary 2,400 – 7,200 0
---------------- 0
------------
Taxable HRA 7,200
-------------
Note 1: For HRA, salary means Basic 60,000 + D.A 12,000 = ` 72,000

Problem No. 3
From the following information compute the exempted amount of House rent allowance of

Ms. Nandhini and Ms. Vinodhini who resides at Kanchipuram.

Nandhini Vinodhini
Salary per month 6,000 6,000
HRA received per month 300 1,050
Rent paid per month 960 750
Solution:
For Nandhini: Calculation of Taxable HRA – Nil

For For Vinodhini: Calculation of Taxable HRA – 10,800

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
PERSONAL ALLOWANCES
Sl. No ALLOWANCE LIMIT
1 Children education allowance Rs.100 per month, per child, up to a maximum of
two children or actual amount received;
whichever is less.
2 Hostel expenditure allowance Rs.300 per month, per child, up to a maximum of
two children or actual amount received;
whichever is less.
3 Tribal area, scheduled area and agency area Rs.200 per month or actual amount received;
allowance whichever is less.
4. Special compensatory hilly area allowance or Varies from Rs.300 to Rs.7,000 per month
high altitude allowance, etc
5 Border area, remote area allowance, Varies from Rs.200 to Rs.1,300 per month.
disturbed area allowance, etc.
6 Compensatory field area allowance Exempt to the extent of Rs.2,600 per month.
7 Compensatory, modified field area Exempt to the extent of Rs.1,000 per month.
allowance
8 Counter insurgency allowance granted to Exempt to the extent of Rs.3,900 per month
members of armed forces
9 Transport allowance Exempt to the extent of Rs.800 per month
(Rs.1,600 instead of Rs.800 if the employee is
blind or orthopedically handicapped with
disabilities of
lower extremities).
10 Underground allowance Granted to an employee who is working in
uncongenial, unnatural climate in underground
mines shall be exempt to the extent of Rs.800 per
month.
11 High altitude (uncongenial climate) Given to the members of armed forces for altitude
allowance of 9000 feet to 15000 feet - Rs.1,060 per month
and for altitude above 15000 feet - Rs.1,600 per
month.
12 Island (duty) allowance Given to the members of the armed forces in the
Andaman and Nicobar and Lakshadweep Group
of Islands exempt to the extent of Rs.3,250 per
month.
13 Special Allowance These allowances are exempt of the minimum of
the following two amounts:
Travelling allowance , Daily allowance,
i. Actual allowance received
Conveyance allowance , Helper allowance ,
Academic allowance , Uniform allowance ii. Actual amount spent for the purposes of duties
of office or employment

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

I . Children Education Allowance & Hostel Allowance

Sum No 4 Mr. Ravi has 5 children. He receives an educational allowance of ₹1,500pm and a hostel allowance
of ₹2,000 pm. Compute his taxable allowance.
Solution
Calculation of Taxable allowances
Particulars Amount Amount
Education allowance 1,500*12 18,000
- Exemption ₹100*2child*12month 2,400 15,600
Hostel allowance 2,000*12 24,000
- Exemption ₹300*2child*12month 7,200 16,800
Taxable Allowance 32,400

Sum No 5 Mr. Muthu has received an educational allowance ₹200 pm for his first child and ₹80 for his
second child. He also received ₹1,000 pm as hostel allowance. Compute his taxable allowance.

Solution
Calculation of Taxable allowances
Particulars Amount Amount
Education allowance
1st child 200*12 2,400
2nd child 80*12 960 3,360
- Exemption
1st child 100*12 1,200
2nd child 80*12 960 2,160 1,200
Hostel allowance 1,000*12 12,000
- Exemption ₹300*2child*12month 7,200 4,800
Taxable Allowances 6,000

III. ENTERTAINMENT ALLOWANCE

EA is the money paid to employees to cover the cost of meals and other entertainment incurred while
doing their job. Entertainment allowance in case of non-government employees is fully taxable while
deduction is allowed only to government employees. In case of entertainment allowance, the assessee is not
entitled to any exemption but he is entitled to a deduction under section 16(ii) from gross salary, to the extent
of minimum of the following three limits –
i. Actual entertainment allowance received during the previous year.
ii. 20% of his salary exclusive of any allowance, benefit or other perquisite.
iii. Max. Limit Rs.5,000

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Sum No 6 Mr. Prabu is a government employee working in Chennai. He gets Basic pay ₹9,000pm. ₹4000 as
DA (FP) and 3,000 pm as Entertainment Allowance (EA) he spent ₹41,000 towards EA. Compute taxableEA.

Solution

WN – 1 Calculation of Exempted Entertainment Allowance

Particulars Amount
Actual EA received 3,000*12 36,000
20% salary (Only basic Pay) 9,000*12*20% 21,600
Maximum Limit 5,000*
*Exempted Amount

Calculation of Taxable Entertainment Allowance

Particulars Amount
Total entertainment allowance Spending 41,000
- Exempted amount (WN 1) 5,000
Taxable Allowance 36,000
Sum No 7 Ms. Shamira, an employee of Karnataka Government, has furnished the following particulars
relating to P.Y 2024-25.

Basic pay 4,000 p.m.

D.A. (50% forms part of retirement benefits) 2,000 p.m

City Compensatory Allowance 2,000 p.m.

Entertainment Allowance 3,000 p.m.

Find the amount eligible for deduction under entertainment allowance.

Solution:
Calculation of Deduction under EA
i. Actual EA received 3,000 × 12 36,000
ii. 20% of basic salary 48,000 × 20 /100 9,600
iii. Maximum limit 5,000
WEL can be deducted. Therefore deduction ` 5,000 can be claimed for EA.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Other Allowances
Sum No 8 Ms. Samyuktha furnished the following details. Compute her gross salary.

Basic salary 15,000 p.m

Transport allowance 2,000 p.m
Academic Research allowance
(She spent ` 30,000 during the year) 3,000 p.m
Education allowance 400 p.m
Hostel allowance 1,000 p.m
Solution

Gross Salary of Ms. Samyuktha

` `
Basic salary 15,000 × 12 1,80,000
Transport allowance 24,000
Academic Research allowance 36,000 – 30,000 6,000
Education allowance 4,800
Less: Exemption ` 100 × 12 × 2 2,400
2,400
Hostel allowance 12,000
Less: Exemption 300 × 12 × 2 7,200
4,800
Gross Salary 2,17,200
Sum No 9 Ms. Sanjana is working at Coimbatore at a basic salary of ` 25,000 p.m. and she is also getting
the following allowances. Compute her gross salary.

Dearness allowance 3,000 p.m.

Lunch allowance 1,000 p.m.
Overtime allowance 2,000 p.m.
Entertainment allowance 2,000 p.m.
House rent allowance (Actual rent is ` 4,500 p.m.) 3,000 p.m.
Solution:
`
Basic salary 25,000 × 12 3,00,000
Dearness allowance 3,000 × 12 36,000
Lunch allowance 1,000 × 12 12,000
Overtime allowance 2,000 × 12 24,000
Entertainment allowance 2,000 × 12 24,000
House rent allowance (W. Note 1) 12,000
Gross Salary 4,08,00
0

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Working Note: 1
` `
HRA Received 36,000
Less: Exempted – Least of the following
i. Actual HRA 3,000 × 12 36,000
ii. 40% of salary 3,00,000 × 40 /100 1,20,000
[Link] – 10% of salary (54,000 – 30,000) 24,000
24,000
Taxable HRA 12,000

Sum No 10 Ms. Sathya is working at Ernakulam at a basic salary of ` 7,500 p.m. and she is also getting the
following allowances. Compute her gross salary.

Project allowance 1,000 p.m.

Tiffin allowance 2,500 p.m.
Family allowance 3,000 p.m.
Travelling allowance (actual expenditure ` 18,000) 2,000 p.m.
House rent allowance (Actual rent is ` 3,000 p.m.) 2,000 p.m.
Solution:
Gross Salary of Ms. Sathya `
Basic salary 7,500 × 12 90,000
Project allowance 1,000 × 12 12,000
Tiffin allowance 2,500 × 12 30,000
Family allowance 3,000 × 12 36,000
Travelling allowance 24,000 – 18,000 6,000
House rent allowance (W. Note 1) Nil
Gross Salary 1,74,000

Working Note 1:
` `
HRA Received 24,000
Less: Exempted – Least of the following
i. Actual HRA 2,000 × 12 24,000
ii.40% of salary 90,000 × 40 /100 36,000
[Link] – 10% of salary 36,000 – 9,000 27,000
24,000
Taxable HRA Nil

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
PERQUISITES

Perquisite is defined in the Oxford Dictionary as any casual emolument or benefit attached to an
office or position in addition to salary or wages. It is a facility provided by employer in kind to the employee
for official use or for personal benefit or partly for official purpose and partly for private purpose. Section
17(2) defines perquisite in income tax act. For computing income from salary, Perquiste cab be classified
into three types they are

i. Perquisites which are taxable in the hands of all categories of employees

ii. Perquisites taxable for specified employees only
iii. Perquisites exempted for all employees

i. Perquisites which are taxable in the hands of all categories of employees

1. House accommodation with or without furniture

2. Servant hired by employee
3. Gas or electricity or water service connection in the name of the employee
4. Loans to employees without interest or at lower interest.
5. Club membership for personal use
6. Car facility or other vehicles hired or owned by employee
7. LTC – Leave Travel Concession above limit
8. Medical facility beyond permissible limits
9. Education facility beyond permissible limits
10. Food or snacks provided by employer beyond limits
11. Contribution to provident fund or pension fund or other fund for the benefit of employee above
prescribed limits
12. Monetary obligations of employee paid or reimbursed by the employer
13. Income tax paid on behalf of employee (not TDS)
14. Professional tax paid for employee

ii. Perquisites taxable for specified employees only

1. Furniture provided without house for personal use

2. Servant provided for personal use
3. Gas or electricity or water services provided from one source or from outside agency where connection
is in the name of the employer
4. Car facility or other vehicle facility where it is owned or hired by the employer
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
5. Education facility from own source or outside agency

iii. Perquisites exempted for all employees

1. Any facility received only for official use

2. Telephone or mobile or fax service at house or for personal use including bills.
3. Use of computers, laptops, iPad, tablet, and other electronic devices for official purpose
4. LTC – Leave Travel Concession within limits
5. Medical facility in hospital maintained by Government or Government approved or maintained by the
employer
6. Education facility for employee , Health club or recreational facility for employee
7. Food or snacks provided by employer within limits
8. Contribution to provident fund or pension fund or other welfare fund for the benefit of employee within
limits
9. Gift or Vouchers up to Rs.5000
10. Training expenses incurred on employee , Premium on health and life insurance policy of employee.
IV RENT FREE ACCOMMODATION

1. If house accommodation is owned by government and provided to its employees

The taxable value shall be the License fee determined by Union or State Government in respect of
accommodation in accordance with the rules framed by that government for allotment of houses to its
officers. Rent free official residence provided to a judge of a High Court or to a judge of the Supreme Court,
an official of Parliament, a Union Minister and a Leader of Opposition in Parliament is exempt from tax.

2. If house accommodation is owned by any other employer and provided to employees

Place of Accommodation Owned by Employer Not owned by employer
If the Population is less than 10 lakhs 7.5% of salary 15 % of salary
If the Population is between 10 and 25 lakhs 10% of salary or
If the Population is above 25 lakhs 15% of salary Rent paid by employer
(WEL)

3. If house accommodation is hired by employer on rent and provided to employee, taxable value is
minimum of the two – 1. Actual rent paid by employer; 2. 15% of salary
4. If the accommodation is provided by the government at a concessional rate, the value of concession shall
be the license fee reduced by the rent actually paid by the employee.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
5. If the accommodation is provided by the employer (government or other employer) in a hotel, the value
of the accommodation shall be minimum of the following two amounts –

 24% of salary paid or payable for the previous year

 The actual charges paid or payable to such hotel.

 No perquisite value even if accommodation provided in a hotel, if the following two conditions are
fulfilled –
 Such accommodation is provided for a period not exceeding 15 days; and

 It has been provided on the transfer of the employee from one place to another.

Salary for this purpose = basic + DA (forming part of salary) + all other taxable allowances + bonus and
commission + monetary obligation of employee paid by employer

6. Value of Furniture - Furniture provided by the employer to employee for personal use with or without
house accommodation may be owned by the employer or hired by the employer. Computation of taxable
value of furniture –

 If the furniture is owned by the employer – taxable value is 10% of original cost of the furniture to
employer per annum.
 If the furniture is hired by the employer – taxable value is actual hire charges paid by the employer.
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Sum No 11 Ms. Sophia is working in a public company in Mysore. She gets basic salary @ ` 15,000 p.m.
D.A @ ` 3,000 p.m. (50% enter into service benefits) and city compensatory allowance @ ` 2,000 p.m. She
has been provided a rent free house by the company, fair rental value of which is ` 4,000 p.m. Ascertain the
value of perquisite.
Working Note
Salary means
Basic (15,000 × 12) 1,80,000
D.A (1,500 × 12) 18,000
CCA (2,000 × 12) 24,000
2,22,000
Perquisite value of RFA is 15% of ` 2,22,000 ` 33,300
Sum No 12 Mr. Kumar furnishes the following particulars of his remuneration during Previous
[Link] his value of Rent Free Accommodation
Basic Pay ₹10,000pm
DA ₹3,000pm (50% forms part of salary)
Bonus ₹12,000.
CCA ₹2,000pm;
Commission ₹1,000 pm.
Education allowance ₹1,000 pm and Hostel allowance ₹2,000 pm
He is provided RFA in house owned by employer in Delhi. The cost of furniture provided in that house
₹50,000
Solution
Working Note 1- Calculation of Salary Under RFA
Particulars Amount
Basic pay 10,000*12 1,20,000
DA 3,000*12*50%(FP only) 18,000
CCA 2,000*12 24,000
Bonus 12,000
Commission 1,000*12 12,000
Education Allowance 12,000-(100*2*12) 9,600
Hostel Allowances 24,000 –(300*2*12) 16,800
Salary 2,12,400
Working Note 2 - Calculation of Taxable RFA (Delhi population more than 25L)
Particulars Amount
15% of salary (2,12,400*15%) 31,860
+ 10% of Cost of furniture (50,000*10%) 5,000
Taxable value of RFA 36,860
Sum No 13 Compute the value of Rent Free Accommodation for Mr. Anbu
Basic Pay ₹6,000pm
DA ₹3,000pm (forms part of salary)
Bonus ₹5,000 pa. CCA ₹2,500pm
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

He is provided house is Madurai, the population is 20 Lakhs. Compute perquisite

1. Employer own house
2. Employer hire house and monthly rent ₹1,500 pm
Solution

Working Note 1- Calculation of Salary Under RFA

Particulars Amount
Basic pay 6,000*12 72,000
DA 3,000*12 36,000
CCA 2,500*12 30,000
Bonus 5,000
Salary 1,43,000

a. If accommodation is owned by employer

Calculation of Taxable RFA (population limit 20L)

Particulars Amount
10% of salary (1,43,000*10%) 14,300
Taxable value of RFA 14,300

b. If accommodation is not owned by employer

Calculation of Taxable RFA (population limit 20L)

Particulars Amount
15% of salary (15*1,43,000) 21,450
Or
Rent paid by employer 1,500*12 18,000
Whichever is less is the perquisite value
Taxable value of RFA 18,000
Sum No 14 Miss. Sheela has furnished the following particulars.

Basic Pay ₹12,000pm

DA ₹1,000pm (forms part of salary)
Bonus ₹20,000 pa.
EA ₹600pm
Educational Allowance ₹500 pm (Only Daughter)
Case 1. If she is a government employee and House rent rate is fixed by government ₹750 pm

Case 2. If she is working in Pvt company at Indore (population less than 10L)
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Case 3. If she is Pvt ., working in Pune (Population 20L) and also provided furniture ₹300pm

Case 4. If she is working in Pvt company in Chennai (Population more than 30L) and rent paid by employer
₹500pm

Solution
Working Note 1- Calculation of Salary Under RFA
Particulars Amount
Basic pay 12,000*12 1,44,000
DA 1,000 * 12 12,000
Entertainment Allowance (WN – 2) 5,000
Bonus 20,000
Educational Allowance (WN – 3) 4,800
Salary 1,85,800
Working Note 2 - Entertainment allowance
Particulars Amount
Actual Received 600*12 7,200
20% Basic pay 1,44,000*20% 28,800
Maximum Limit 5,000
Whichever is least is exempted 5,000
Working Note 3 - Educational Allowance
Particulars Amount
Actual Received 500*12*1 6,000
Exmpted 100*1*12 1,200
Taxable Allowance 4,800
Case 1. Government employee

The value of Rent is fixed by government 750*12 ₹9,000

Case 2. Private employee in a city of less than 10 Lakhs population

The value of RFA is 7.5% salary (1,85,800*7.5%) ₹13,935
Case 3 Private employee in a city of 20 Lakhs
The value of RFA is 10% salary (1,85,800 *10%) ₹18,580
+ Value of Furniture (300*12) ₹3,600
Taxable RFA --------- ₹ 22,180
Case 4. Private employee in a city of 30 L
15 % of salary (1,85,800*15%) ₹27,870
Or
Rent Paid by employer (500*12)
₹6,000
Taxable RFA
₹6,000

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 Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Sum Not 15
Ms. Devi is a private company employee at Hyderabad (population - 20 lakhs). Her basic salary is ` 15,000
p.m. and her D.A. is ` 6,000 p.m. which forms part of her salary. She is provided with a rent free
accommodation. Her employer pays a rent of ` 4,500 p.m, but deducts ` 1,000 p.m. from employees salary
for that accommodation. The cost of furniture provided in that house is ` 40,000. Calculate the value of
concessional rent accommodation.

Solution:

Concessional Rent Accommodation

15% of salary (2,52,000) 37,800
Or
Actual rent (4,500 × 12) 54,000
whichever is less 37,800
Add: 10 % of cost of the furniture 4,000
41,800
Less: Amount deducted from the 12,000
employee
Value of rent-free accommodation 29,800
Working Note 1:
Basic pay 1,80,00
D.A. 0 72,000
2,52,00
0

v. VALUE OF CAR

Car Owned By Purpose Expenses Met By Taxable Value

Employer Official Employer NIL
Employer Personal Employer [Running Exp + Driver Salary + 10 % Cost of Car]
Less: Amount charged from employee
Employer Both Employer [₹1,800 pm for small car and ₹2,400 pm for big car]
+ ₹900 pm if driver provided
Employer Both Employee [₹600 pm for small car and ₹900 pm for big car] +
₹900 pm if driver provided
Employee Both Employer Actual Exp - [₹1,800 pm for small car and ₹2,400 pm
for big car] + ₹900 pm if driver provided
*Upto 1600 CC or 1.6 Liter is considered as Small car, More than that is Big car

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Sum No 16 Mr. Mani has been provided a car (1.8ltr) by his employer. The cost of car to employer was
₹3,50,000 and maintenance cost incurred by the employer ₹30,000pa. Driver salary is paid by employer
₹3000 pm. Find taxable value of perquisite in the type of following

1. If he used of Office use

2. If he used for Personal use
3. If he used for Both purpose
Solution
Case 1. If he used for office use only

Since the cat is used for only office purposes, then the value of perquisite is NIL
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Case 2. If he used for personal use

Depreciation of Car (3,50,000*10%) 35,000

Maintenance cost 30,000
Driver salary 3,000*12 36,000
Total ---------- ₹1,01,000
Case 3. If he used for both purposes (big Car)

For car (Big) 2,400*12 28,800

For driver 900*12 10,800
Total --------- ₹39,600

Sum No 17 Mr. Bharathan has been provided with two big cars which he used for both office and personal
use. All expenses are incurred on the car during the Previous Year as follow. Calculate Taxable Perquisite
Particulars Car A Car B
Cost of Car 5,00,000 4,00,000
Petrol 36,000 40,000
Insurance 20,000 24,000
Solution
a. Perquisite value of First car
For car 2,400 * 12 28,800
For Driver 900 * 12 10,800
Taxable Amount --------- ₹39,600
b) Perquisite value of Second car

Petrol Expenses 40,000

Insurance 24,000
10% of depreciation (4,00,000*10%) 40,000
Taxable amount ---------₹1,04,000
Note: When employer has provided two cars and both the cars were used for personal as well as office use.
As per income tax act the expenses which is higher should be taken for personal use and other one is used
for office use.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
VI GRATUITY [SEC 10 (10)]

Gratuity means a lump sum amount paid by employer to employee on retirement or resignation or
retrenchment or death, as a reward for sincerity and continuous service rendered by him. Payment of gratuity
is compulsory for certain class of establishments under the Payment of Gratuity Act, 1972. For the purpose
of tax treatment, gratuity can be classified into two major division which are gratuity received during the
service and after the retirement. After the retirement or termination of work will further classified into three
categories. They are

i. Government employees [Sec 10(10) (i)]

ii. Employees covered under Gratuity Act, 1972 [Sec 10(10) (ii)]
iii. Other non-government employees, not covered in Gratuity Act [Sec 10(10) (iii)]
Note: Gratuity received during continuation of service is fully taxable in the hands of all employee (whether
Government or non-Government employee).
1. Government employees [Sec 10(10) (i)]
Gratuity received at the time of termination of service by Government employee is fully exempt from
tax u/s 10(10)(i).
2. Employees covered under Gratuity Act, 1972 [Sec 10(10) (ii)]
Gratuity received at the time of termination of service by non–government (including foreign
government) employee, covered by the Payment of Gratuity Act. In such case, minimum of the following
shall be exempted from tax u/s 10(10)(ii):
1. Actual Gratuity received;
2. Maximum Limit ₹20,00,000.
3. 15 working days salary for every completed year of service
[Arithmetically, 15/26 × Completed year of service × Salary p.m.]

Notes
a) Completed year of service includes any fraction in excess of 6 months. (e.g. 7 years 9 months will
be treated as 8 years; 7 years 5 months will be treated as 7 years and 7 years 6 months will be
treated as 7 years).
b) Salary here means Basic + DA, last drawn
3. Other non-government employees, not covered in Gratuity Act [Sec 10(10) (iii)]
Gratuity received at the time of termination of service by non-government employee being not
covered under the Payment of Gratuity Act shall be exempted from tax u/s 10(10)(iii) to the extent of lower
of the following:
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
1. Actual Gratuity received
2. Maximum ₹20,00,000
3. 1/2 × Completed year of service × Average Salary p.m.
Notes
a) While calculating completed year of service ignore any fraction of the year. (e.g. 7 years 9 months will be
treated as 7 years only)
b) Average Salary here means, Basic + DA# + Commission (being a fixed percentage on turnover) being last
10 months average salary, immediately preceding the month of retirement. (E.g. If an employee retires on
18/11/2020 then 10 months average salary shall be a period starting from Jan’ 2020 and ending on Oct’
2020).
# If DA is not forming a part of retirement benefit then the same shall not be included in salary for above
purpose. However, DA itself shall be fully taxable.
VII PENSION [Sec 17(1) (ii)]

Pension is the periodical payment made by the employer to an employee after his retirement.
Sometimes employer agrees to pay commute pension. Commutation means payment of onetime lump sum
amount in place of regular payment. Full or part of pension may be commuted.
 Uncommuted pension is fully taxable in the hands of all employees.

 Commuted pension [Sec 10(10A) (i)] is fully exempt in the hands of government employees.

 Taxability of commuted pension, in case of non-government employees [Sec 10(10A) (ii)], depends
upon whether employee has received gratuity at the time of retirement –

 If employee has received gratuity at the time of retirement, commuted pension is exempted to the
limit of 1/3rd of commuted value of full pension.
 If employee has not received gratuity at the time of retirement, commuted pension is exempted to the
limit of ½ of commuted value of full pension.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Sum No 25. Mr. Ragul retired on 31/1/2021 and his pension was fixed ₹4,800 pm. He 60% of his pension
commuted by which he received ₹2,40,000 as a lump sum from his company. Find taxable pension. If he is
a. Getting Gratuity b. If He is not getting gratuity
Solution
WN 1 – Calculation of Total Pension amount
If he received 60% of pension as ₹2,40,000, hence is 100% pension is 2,40,000*100/60 = 4,00,000

a. Calculation of taxable Commuted pension – If he getting Gratuity

As per income tax act, if a person getting pension under commuted scheme, if he is also received gratuity
then the value of commuted pension is 1/3 of actual received
The taxable Pension = 4,00,000*1/3 = 1,33,333 exempted

b. Calculation of Taxable commuted pension – If he not getting gratuity

As per income tax act, if a person getting pension under commuted scheme, if he is not received gratuity then
the value of commuted pension is 1/2 of actual received
Taxable Pension = 4,00,000*1/2 = 2,00,000 is exempted

Sum No 26. Mr. Arun retired on 30/9/2019 from Government office. His pension was fixed at ₹6,000 pm.
He gets one third of pension commuted by which he received ₹90,000. Calculate taxable for PY 2020-21
Solution
Mr. Arun is a government employee, hence the (Lump sum) commuted pension is fully exempted from tax
The uncommuted (Monthly) pension is taxable
The calculation of taxable pension = 6,000*2/3=4000
*2/3 Is remaining portion of pension
From Oct 2019 – Mar 2020 = 6 month * 4000= 24,000 is taxable pension for PY.

Sum No 26. Ms. Rejina retired on 30.06.22 from a Private Ltd. Co. Her pension has been fixed at ` 4,800
p.m. She got half of her pension commuted and thereby receives ` 1,50,000. She got her pension commuted
during Jan. 2022. Pension is payable on the first day of each month. She received gratuity also. Compute the
taxable pension and commuted pension.
Solution
Commuted Pension:
Commuted Pension Received (Actual) 1,50,000
Less: Exemption (Working Note 1) 1,00,000
50,000
Pension (Uncommuted):

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
From 01.07.20 to 01.01.21 ` 4,800 × 6 28,800
From Jan. 2021 to Mar. 2021 ` 4,800 × ½ × 3 7,200
Taxable Pension and Commuted Pension 36,000

Working Note 1:
Exempted Commuted Pension
For ½ surrendered, he received - ` 1,50,000
Therefore, full value - 1,50,000 × 2/1 3,00,000
Exempted = 3,00,000 × 1/3 = 1,00,000
Sum No 27. Ms. Kanmani retired on 30.11.22 after serving 30 years and 9 months. She received 3,00,000
as gratuity under payment of Gratuity Act and her pension has been fixed at ` 12,000 p.m. She gets 1/2 of
her pension commuted and gets ` 3,60,000. Calculate taxable gratuity and pension when she is a private
employee and her salary at the time of retirement was ` 15,600 p.m.

Solution
Gratuity (Working Note 1) 21,000
Commuted pension (Working Note 2) 1,20,00
Pension From 01.12.21 to 31.03.22 6,000 × 4 0 24,000
Taxable amount 1,65,00
0
Working Note 1: Calculation of Taxable Gratuity

i) 15 days salary for each completed year of service or part thereof.

15,600 × 15/26 × 31 2,79,000

ii) Maximum limit 20,00,000

iii) Actual gratuity 3,00,000

The Least of the above, i.e.` 2,79,000 is eligible for exemption.

Taxable gratuity = ` 3,00,000 – ` 2,79,000 = ` 21,000

Working Note 2: Calculation of Taxable Commuted Pension

For 50% commutation, she received = ` 3,60,000

Full value - 3,60,000 × 100 / 50 = ` 7,20,000

Exempted - 7,20,000 × 1/3 = ` 2,40,000

Taxable = 3,60,000 – 2,40,000 = ` 1,20,000

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

VIII LEAVE SALARY OR SALARY IN LIEU OF LEAVE [Sec 10(10AA)]

An employee is entitled to various types of leave during his services (Eg. Earn Leave, Casual Leave,
Religious Holiday Leave, Medical Leave). If an employee has not availed his earn leave, he can encash it
whenever he is in need of money. For the purpose of tax treatment, Leave salary can be classified into two
major division which are amount received during the service and after the retirement.
1. Leave salary received during the service or employment is fully taxable as part of salary income.
2. Amount received at the time of retirement and the employee is a –
a. Government employee [Sec 10(10AA) (i)] – fully exempt from tax
b. Non-government employee [Sec 10(10AA) (ii)] – minimum of the four amounts is exempted –
i. Actual amount received of salary in lieu of leave on retirement
ii. Amount fixed by the government after deducting Rs.3,00,000 from it
iii. 10 months*average salary of last 10 month immediately preceding date of retirement.
iv. 30 days or one month salary for each completed year less leave availed during service [(number
of completed years-leave availed in months)*average salary]
Note:
 10 months period should end on date of retirement for salary amount
 Last incomplete year of service for the fourth amount, for counting completed years is ignored.
Salary for this purpose shall include Basic + DA (forming part of salary) + commission (as percentage of
turnover achieved by the employee).
Sum No 28. Mrs. Devi retired on 31/8/2019 after 22 years of service and received ₹1,50,000 as leave
encashment for 15 month. His employer allowed him 60 days leave for each year of service. During his
service he has enchashed 14 month leave. He received a basic salary of 12,000pm DA ₹4,000 pm (FP)
Solution
WN 1 – Calculation of 10 month Average Salary
Basic Pay 12,000
DA 4,000 ------ 16,000 *10 =1,60,000
Hence 10 month average salary = 1,60,000
WN 2 – Calculation of Leave Due
Leave salary eligibility (22 years * 1month) 22 months
- Already leave taken 14 month
Leave Due --------------------------------------------------8 months

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

WN3 – Calculation of exempted amount

1. 10 Month average salary 1,60,000
2. Cash equavent to leave due 16,000*8month 1,28,000
3. Maximum limit 3,00,000
4. Actual Received 1,50,000
Therefore 1,28,000 is exempted amount*
Calculation of Taxable Leave salary
Actual Received 1,50,000
- Exemption* 1,28,000
Taxable amount ------------ 22,000

IX PROVIDENT FUND
Provident Fund is a fund which is created to help an individual in future i.e. after retirement or death.
It is a saving device in the hands of salaried class. Under this scheme, a stipulated sum is regularly deducted
from the salary of the employee as his contribution towards the fund. The employer also, generally,
contributes a similar amount out of his pocket to the fund. The employer’s and employee’s contribution are
together invested in such fund. Interest earned thereon is also credited to the fund of the employee. There are
four types of provident fund accounts
1) Statutory Provident Fund (SPF)
2) Recognized Provident Fund (RPF)
3) Unrecognized Provident Fund (URPF)
4) Public Provident Fund (PPF)
1) Statutory Provident Fund (SPF): Statutory provident fund is set up under the provisions of the Provident
Funds Act, 1925. This fund is mainly for Government and Semi-Government organizations, local authorities,
railways, Universities and recognized educational institutions maintain Statutory Provident Fund.

2) Recognized Provident Fund (RPF): The provident fund scheme is framed under the Employee’s
Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred as PF Act). This scheme is
applicable to an organization which employing 20 or more persons. However, any establishment employing
less than 20 persons can also join the scheme provided employer and employee both agree to do so. An
organization can also voluntarily opt for this scheme. All RPF schemes must be approved by The
Commissioner of Income Tax.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

3) Unrecognized Provident Fund (URPF): Such schemes are those that are started by employer and
employees in an establishment, but are not approved by The Commissioner of Income Tax. Since they are
not recognized, then such fund is known as Unrecognized provident fund. These schemes have a different
tax treatment as compared to RPFs.

4.) Public Provident Fund (PPF): This is a scheme under Public Provident Fund Act, 1968. In this scheme
even self-employed persons can make a contribution. This fund is made by the Government of India for the
purpose of promoting savings among the general public. Any member of the public, whether salaried or self-
employed, can contribute to the fund by opening a provident fund account at any branch of the State Bank
of India or its subsidiaries or other nationalized bank. It has no relation with any employee or employer or
salary. Any amount in multiple of ` 5 (subject to minimum of ` 500 and maximum of ` 1,50,000 p.a.) may be
deposited in this account. Interest is credited every year but payable only at the time of maturity. Interest is
credited to the account every year on rates fixed by the government. Interest earned on this fund is exempt
from tax u/s 10(11). This amount is repayable along with interest after minimum specified period (15 years).
The whole amount received at the time of withdrawal is fully exempt from tax deduction u/s 80C on the
amount deposited in this fund account.
Particulars Recognised PF Unrecognized PF Statutory PF Public PF
Employer’s Contribution to 12% Not taxable Not taxable Not taxable
Contribution of salary is exempt,
above that is added to
salary income of the
employee.
Employee’s Section 80C No Section 80C deduction Section 80C Section 80C
Contribution Deduction Deduction Deduction
Interest on PF Any interest over and Not taxable Exempt Exempt
above 9.5% is added
to Income from
Salaries. Until 9.5%
interest is exempt.

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Amount Exempt subject to Contribution from employer and Exempt Exempt
Withdrew at certain conditions*. interest on that is taxable under
retirement time the head Income from Salaries;
Contribution by an employee is
not taxable, and employee’s
contribution interest is taxable
under the head Income from
Other Sources.
Sum No 29. Mr. Sundar an employee of Reliance pvt company has furnished the following particulars Basic
pay ₹12,000pm; DA (75% FP) ₹6,000pm; CCA ₹3,000pm; Commission on Turnover 2% ₹20,000pa;
Commission on purchase at 1% 10,000pa. He is contributing 15% of his salary towards Provident Fund. His
employer also contributed an equivalent amount towards PF. He received ₹3,900as interest on PF at rate of
13%. Compute a. RPF [Link] [Link]
Solution
WN 1 – Calculation of Salary
Basic pay 12,000*12 1,44,000
DA (75% only FP) 6,000*12*3/4 54,000
Commission on turnover 20,000
Total Salary ------------ 2,18,000
WN 2 – Employer contribution
Excess over 12% is taxable. Therefore 15-12=3% is taxable
(salary)2,18,000*3% = 6,540 Taxable as per RPF
WN- 3 Interest on PF
Excess over 9.5% is taxable. Therefore 13-9.5=3.5% is taxable
3,900*3.5/13 = 1,050 is taxable
Calculation of Gross Salary of Mr. Sundar
Particulars RPF URPF SPF
Basic pay 12,000*12 1,44,000 1,44,000 1,44,000
DA 6,000*12 72,000 72,000 72,000
CCA 3,000*12 36,000 36,000 36,000
Commission on Turnover 20,000 20,000 20,000
Commission on purchase 10,000 10,000 10,000
Employer contribution (WN 2) 6,540 - -
Interest on RPF (WN 3) 1,050 - -

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material
Gross Salary 2,89,590 2,82,000 2,82,000

Sum No 30. [Link], an employee of Reliance Power, has furnished the following particulars
relating to P.Y 2022-23.

Basic salary 30,000 p.m

D.A (50% forms part of retirement benefits) 10,000 p.m

CCA 5,000 p.m

Commission on turnover at 2% 40,000 p.a

She is contributing 15% of his salary towards P.F. Her employer also contributes an equivalent amount
towards PF. She received ` 5,600 as interest on PF at the rate of 14%. Compute the gross salary, if the
provident fund is a) RPF b) URPF and c) SPF

Solution:
Computation of Gross Salary of Ms. Yamini
Particular RPF URP SPF
s ` F `
Basic 3,60,00 3,60,00
` 3,60,00
D.A 0
1,20,00 0
1,20,00 0
1,20,00
C.C.A 0 60,00 0 60,00 0 60,00
Commission on Turnover 040,00 040,00 040,00
Employer’s contribution to 0
13,80 0 - 0 -
RPF on RPF
Interest 01,800 - -
Gross Salary 5,95,60 5,80,00 5,80,00
Working Note 1: PF 0 0 0

For Provident Fund, Salary means Basic Pay + D.A. (if) + Commission on turnover

Basic 3,60,000

D.A (50%) 60,000

Commission on turnover 40,000

4,60,000

Working Note 2: Employer’s contribution to PF

Excess over 12% is taxable. Therefore 3% is taxable if it is RPF. (4,60,000 × 3 / 100 = ` 13,800)

Working Note 3: Interest on PF is at 14%

Excess over 9.5 % is taxable. Therefore 4.5% (14 – 9.5) is taxable. (5,600 /14 × 4.5 = ` 1,800)

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

X a - TAXABILITY OF RETRENCHMENT COMPENSATION [Sec 10(10B)]

Retrenchment compensation will be exempted from tax subject to minimum of the following:
 15/26 * average salary of last 3 months * number of completed years of service and part thereof in excess
of six months [this amount is calculated in accordance with the provisions of section 25F of the Industrial
Disputes Act, 1947
 Rs.5, 00,000 or such sum as may be notified by the Central Government.

X b -TAXABILITY OF VOLUNTARY RETIREMENT SCHEME (VRS) [SECTION 10(10C)]

This compensation is based on the remaining part of service and exemption is minimum of the following
four amounts –
 Actual amount received as VRS compensation
 3 months‟ salary * No. of completed years of service * last drawn salary
 No. of months left unserved * monthly salary
 Rs.5,00,000
For this purpose, salary = basic + DA (if it forms part of salary for retirement benefits) + commission (on
turnover)
TAXABLE SALRY
Particulars Amount
Basic pay XX
Bonus XX
Commission XX
Perquisites XX
Allowance XX
RPF Contribution XX
Retirement Benefits XX
Profit in lieu Salary XX
Arrears of salary XX
Advance salary XX
Gross Salary XXX
Less Deduction
Sec [16(i)] Standard Deduction 50,000

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Sec [16(ii)] Entertainment allowance XX
Sec [16(iii)]Professional Tax XX
Taxable Salary XXX

Sum No 30. Mr. Rajan an employee of the central government has furnished the following particulars PY
2019-2020
Basic pay 7,000pm
DA (50% FP) 3,000pm
Bonus 10,000pa
Commission (2% on turnover) 8,000 pa
HRA (Actual Rent paid 4,000pm in Delhi) 3,250pm
Entertainment allowance 2,000pm
Professional Tax paid by Mr. Rajan 2,000pa
Compute Taxable Salary

Solution
WN 1 – Calculation of salary under HRA
Basic Pay 7,000*12 84,000

DA (50% FP) 3,000*12*50% 18,000

Commission 8,000
Salary as per HRA ---------- 1,10,000

WN – 2 Exempted and taxable HRA

1. 50 % of salary (Delhi) 55,000

2. Rent – 10 % salary 4,000*12=48,000-11,000 37,000
3. Actual HRA received 3,250*12 39,000
Whichever is lower is exempted, here ₹37,000
Therefore, the taxable HRA is Actual – Exempted = 39,000- 37,000 = 2,000 HRA

WN – 3 Calculation of Entertainment allowance

1. 20% of Basic Pay (84,000*20%) 16,800
2. Maximum Limit 5,000
3. Actual EA received (2,000*12) 24,000
Whichever is lower is exempted, then 5,000Exempt
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Computation of Taxable salary of [Link]

PARTICULARS AMOUNT
Basic Pay 7,000 * 12 84,000
DA 3,000 * 12 36,000
Bonus 10,000
Comission 8,000
HRA (WN 2) 2,000
Entertainment allowance (Actual Amount) 2,000*12 24,000
Gross Salary 1,64,000
Less Deducations (U/S 16)
i ) Standard Deduction 50,000
ii) Entertainment allowance (WN- 3) 5,000
iii) Professional tax 2,000
Taxable salary 1,07,000

Sum No 31. Mr. Tamil is a manager in a private company at Chennai. He furnishes the following particulars
for the PY 2019-2020
Basic pay 18,000 pm;
DA (50% FP) 6,000pm;
CCA 2,000 pm;
Medical Allowance 1,000 pm;
HRA 4,000pm;
Actual Rent 5,000 pm
EA 2,000pm
 He is provided with a small car for both office and personal Use. Expenses including driver salary are
met by employer.
 He contributed 15% of his salary towards RPF. His employer also contribute the same.
 Interest on RPF credited @14% ₹4,900
 Professional Tax paid by Mr. Tamil ₹1,500
Compute his taxable salary

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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Solution
WN – 1 HRA (House Rent Allowance)
Calculation of Salary under HRA
Basic Pay 18,000*12 2,16,000
+DA (50% FP) 6,000*12*50% 36,000
Salary -------------------------------- 2,52,000
Calculation of HRA Exemption
1. 50% of salary (Chennai) 2,52,000*50% 1,26,000
2. Rent – 10% of salary (5000*12= 60,000) – (2,52,000*10% =25,200) 34,800
3. Actual HRA received 60,000
As per income tax, whichever is lower is exempted. Hence ₹34,800 is exempted
Calculation of Taxable HRA
Actual HRA Received (4,000*12) 48,000
- Exempted amount 34,800
Taxable amount ---------- 13,200
WN- 2 RPF – Employers Contribution
Calculation of Salary under HRA
Basic Pay 18,000*12 2,16,000
+DA (50% FP) 6,000*12*50% 36,000
Salary ----------------------------------------- 2,52,000
Excess over 12% is [Link] employer contribution is 15% Hence 15-12=3% is taxable amount;
2,52,000*3%=7,560
WN – 3 Taxable Interest on RPF
Excess over 9.5% is taxable. Here actual interest is 14% Hence 14-9.5 = 4.5% is taxable; 4,900*4.5/14=1,575
WN- 4 Motor car
Small car is given to the employee with driver
For car 1,800*12 21,600
For Driver 900*12 10,800
Taxable Amount ------------------------32,400
WN – 5 Entertainment allowance
Mr. Tamil is working in private company, hence Entertainment allowance is not allowed to him. Because he
is non-government employee
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Computation of Taxable Salary of Mr. Tamil

Particulars Amount
Basic Pay 18,000*12 2,16,000
DA 6,000*12 72,000
CCA 2,000*12 24,000
Medical Allowance 1,000*12 12,000
HRA (WN – 1) 13,200
Entertainment allowance 2,000*12 24,000
Motor Car (WN – 4) 32,400
Employer Contribution to RPF (WN – 2) 7,560
Interest on RPF (WN – 3) 1,575
Gross Salary 4,02,735
Less: Deduction U/S 16
i. Standard Deduction 50,000
ii. EA (WN – 5) -
iii. Professional Tax 1,500
Taxable Salary 3,51,235

Sum No 32. Mr. Suresh, an employee of TVS Lts., in Chennai, has furnished the following particulars
i. Basic Pay 7,500pm
ii. DA (50% FP) 2,500pm
iii. Bonus 5,000pa
iv. Arrear Salary 6,000
v. Educational Allowance (Grandchildren) 200pm
vi. Medical Expenses paid by employer 4,000
vii. Lunch allowance 300 days @90 per day
viii. Professional Tax paid by him 3,000
ix. Club bill paid by the employer 5,000
Compute his taxable salary
Solution
WN – 1 Educational Allowance - As per income tax act, educational allowance is available for only children
not grand children. Hence the entire amount is taxable
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

Computation of Taxable Salary of Mr. Suresh

Particulars Amount
Basic Pay 7,500 * 12 90,000
DA 2,500 * 12 30,000
Bonus 5,000
Arrear Salary 6,000
Educational Allowance (WN – 1) 200*12 2,400
Medical Expenses 4,000
Lunch Allowance 300 * 90 27,000
Professional Tax Paid by employer 3,000
Club Bill paid by employer 5,000
Gross Salary 1,72,400
Less: deduction U/S 16
i. Standard Deduction 50,000
ii. Entertainment allowance -
iii. Professional Tax 3,000
Taxable Salary 1,19,400

Sum No 33. Mr. Gowtham, a Tamilnadu Government employee at Chennai. Has furnishes the following
details
i. Basic Pay 8,000 pm
ii. DA (75% Forming Part) 4,000 pm
iii. Bonus 6,000 pm
iv. Educational allowance for his child 600 pm
v. CCA 1,000 pm
vi. Medical Allowance 600 pm
vii. Entertainment Allowance 1,000 pm
viii. RFA (Rate Fixed by Government) 2,000 pm
ix. Cost of the furniture provided 20,000 pa
x. Professional Tax Paid by Mr. Gowtham 1,400
xi. He contributed 15% of his salary towards RPF. His employer also contribute the same amount
xii. Interest on PF credited 12% 2,640
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Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

xiii. Free lunch during office hours (40 per meal*300days)

xiv. Reimbursement expenses by employer 5,000
xv. Leave Travel Concession 1,000
xvi. Helper allowance (Fully spent) 100 pm
xvii. Hostel Allowance for his child 800pm
Compute Taxable Salary of Mr. Gowtham

Computation of Taxable Salary of Mr. Gowtham

Particulars Amount
Basic Pay 8,000 * 12 96,000
DA 4,000 * 12 48,000
Bonus 6,000 * 12 72,000
Educational Allowance (WN – 1 ) 4,800
CCA 1,000 * 12 12,000
Medical Allowance 600 * 12 7,200
Entertainment Allowance (Actual) 12,000
RFA (WN – 3) 26,000
Professional Tax paid by him Nil
RPF (WN – 4) 3,960
Interest on RPF (WN – 5) 550
Free Lunch During office Hours (WN – 6) Nil
Reimbursement Expenses (WN – 7) Nil
Leave Travel Concession (WN -8) Nil
Helper Allowance (WN – 9) Nil
Hostel Allowance (WN – 10) 2,400
Gross Salary 2,84,910
Less: Deduction U/S 16
i. Standard Deduction 50,000
ii. Entertainment Allowance (WN 2) 5,000
iii. Professional Tax 1,400
Taxable Salary 2,28,510

35
Dr. Ram Raj G, CHRIST-YPR Income Tax Study Material

WN – 1 Educational Allowances
Actual amount 600* 12 7,200
- Exempted 100 * 2* 12 2,400
Taxable amount ------- 4,800

WN – 2 Entertainment Allowance
1. 20% of basic Pay (96,000*20%) 19,200
2. Maximum Limit 5,000
3. Actual EA Received (1,000 * 12) 12,000
As per income tax, whichever is lower is exempted; Hence 5,000 is exempted.

WN – 3 RFA Calculation
Mr. Gowtham is a government employee then the RFA amount will be fixed by government; hence
RFA amount 2,000 * 12 24,000
+ 10% cost of Furniture (20,000*10%) 2,000
Taxable RFA -------- 26,000

WN – 4 Calculation of RPF
Calculation of Salary under HRA
Basic Pay 8,000*12 96,000
+DA (75% FP) 4,000*12*75% 36,000
Salary ----------------------------------------- 1,32,000
Excess over 12% is [Link] employer contribution is 15% Hence 15-12=3% is taxable amount;
1,32,000*3%=3,960

WN – 3 Taxable Interest on RPF

Excess over 9.5% is taxable. Here actual interest is 12% Hence 12-9.5 = 2.5% is taxable; 2,640*2.5/12=550

WN – 6 Free Lunch - As per income tax act, free lunch will be provided during the working hours is fully
exempted.

WN – 7 Reimbursement Expenses - If the expenses met by employer its exempted from tax

WN – 8 Leave travel Concession - As per income tax act, Leave travel concession will be exempted for
government employees.

36
 Income Tax

WN – 9 Helper allowance
Helper allowance actual 100 * 12 1,200
- Exempted (Whatever spent) 100 * 12 1,200
Taxable Allowance ------------------------------------------------Nil

WN – 10 Hostel Allowance
Actual amount spent 800 * 12 9,600
- Exempted 300 * 2 * 12 7,200
Taxable Allowance --------------------------------------------------------2,400
Sum No 34 Compute taxable Entertainment allowance & net salary of Sri Hanuman Prasad from the
following
Basic salary 8,000 p.m.
D.A. 2,000 p.m.
Taxable perquisite 35,000,
Entertainment Allowance 4,000 p.m.
Out of such allowance ` 20,000 is expended and balance amount issaved.
Assuming he is: [Link] employee [Link]-Government employee.

Computation of taxable income of Sri Hanuman Prasad

Particulars Government Private
Basic Pay 96,000 96,000
Dearness Allowance 24,000 24,000
Entertainment Allowance 48,000 48,000
Taxable Perquisite 35,000 35,000
Gross Salary 2,03,000 2,03,000
Less: Deduction U/S 16
i. Standard Deduction 50,000 50,000
ii Entertainment Allowance (WN -1) 5,000 -
Net Taxable Salary 1,48,000 1,53,000

WN – 1 Entertainment Allowance is exempted to the extent of minimum of the following :

a. Actual Entertainment Allowance 48,000
b. 20% of Basic Salary 19,200
c. Statutory amount 5,000

WN – 2 TAX ON EMPLOYMENT OR PROFESSIONAL TAX [SEC. 16(iii)]

Tax on employment, profession, trade, etc. levied by a State under Article 276 of the Constitution will be
allowed as deduction on cash basis, whether paid by employee or by employer (on behalf of employee)
Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)
 Income Tax
from gross taxable salary.
Note: If employer (on behalf of employee) pays Professional tax then:
a. Firstly, it is to be included as taxable perquisite; and
b. Further, it is allowed as deduction u/s 16(iii).

Sum No 35 Ms. Asothai is working in a Government organization. She furnishes the following particular
Compute her taxable salary for the P.Y 2022-23.
i) Basic salary 50,000 p.m.
ii) D.A (60% enter into service benefits) 10,000 p.m.
iii) Entertainment Allowance 18,000
However her actual expenditure towards it amounted to ` 20,000.
iv) Professional tax paid by her employer 4,600
v) Employer contribution towards RPF 90,000

Solution
Computation of Taxable Salary
` `
Basic Salary 50,000 × 12 6,00,000
D.A 10,000 × 12 1,20,000
Entertainment Allowance 18,000
Professional tax paid by employer 4,600
Employer contribution to RPF (Working Note 1) 9,360
Gross Salary 7,51,960
Less: Standard Deduction 50,000
Entertainment Allowance (Working Note 2) 5,000
Professional Tax 4,600
59,600
Taxable Salary 6,92,360

Working Note 1: Calculation for RPF

Salary means Basic + DA (60%) = 6,00,000 + 72,000 = 6,72,000

Actual contribution by the employer 90,000

Less: Exempted 6,72,000 × 12/100 80,640
Taxable value 9,360
Working Note 2: Calculation for EA
Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)
 Income Tax
Actual expenditure is immaterial for computing deduction.
EA Actual contribution 18,000
20% of Basic salary 6,00,000 × 20 /100 1,20,000
Maximum Limit 5,000
Least of the above ` 5,000 can be claimed as deduction.

Sum No 35 Ms. Nirmala is employed in a company at Krishnagiri. Her salary particulars are as follows.
Compute her taxable salary for the P.Y 2022-23.
i) Basic salary 15,000 p.m.
ii) Dearness allowance (50% enter into service benefits) 3,000 p.m.
iii) Bonus 8,000 p.a.
iv) Salary in lieu of leave 4,000
v) Entertainment allowance 1,000 p.m.
vi) Conveyance expenses reimbursed (incurred for office) 2,000
vii) She is provided with Rent free house. The rent paid by the company is ` 6,500 p.m. (Cost of furniture
provided in that house is ` 60,000)
viii)Club bills paid by the employer 3,800 p.a.
ix) Special allowance 1,000 p.m.
x) Education allowance for her only son 1,000 p.m.
xi) Hostel allowance for her son 2,000 p.m.

Solution
Working Note 1: Calculation of RFA
Salary means Basic + D.A (50%) +Bonus + taxable portion of all allowances.
= 1,80,000 + 18,000 + 8,000+12,000+12,000+10,800+20,400 = ` 2,61,200
Perquisite value of RFA is

Hence perquisite value is 15% of ` 2,61,200 39,180

OR Actual rent paid by the employer 6,500 × 12 78,000
Whichever is less is perquisite value.
Hence value of unfurnished accommodation 39,180
+ 10% of cost of furniture 60,000 × 10 /100 6,000
Perquisite value of RFA 45,180

Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)

 Income Tax
Sum No 36 Ms. Sangamithra is employed in a firm at Chennai and she furnishes the following particulars
of her income for the P.Y 2022-23. Ascertain her taxable salary.

i) Salary received after deduction of her own contribution to

RPF and income tax at source
4,20,000
ii) Income tax deducted at source 18,000
iii) Own contribution to RPF 72,000
iv) Employer’s contribution to RPF 72,000
v) D.A at 60% of ` 2,00,000 and 40% of the remaining basic salary.
vi) Interest credited to RPF @ 14% p.a 14,000
vii) H.R.A (Rent paid ` 6,000 p.m.) 5,000
p.m
viii) Reimbursement of medical expenses for medical treatment of her husband (hospital
is notified) 39,000

ix) Free refreshment during working hours 4,200

x) Free services of sweeper and watchman. Salary paid by employer
is ` 400 p.m. and ` 800 p.m. respectively.
xi) Free lunch during office hours, the cost of which is estimated at 1,300
xii) Premium paid on her life policy of ` 3,00,000 33,000

Solution
Working Note 1: Calculation of Basic Salary
Net salary received 4,20,000
Her contribution to RPF 72,000
Income tax deducted 18,000
5,10,000

Working Note 2: D.A Calculation

60% of `v2,00,000 1,20,000
40% of ` 3,10,000 1,24,000

Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)

 Income Tax
2,44,000
Working Note 3: Calculation of HRA
Salary means Basic + D.A (if) + Commission (if)
= 5,10,000 + 0 + 0 = ` 5,10,000
i. Actual HRA 5,000 × 12 60,000
ii. 50% of salary 5,10,000 × 50/100 2,55,000
iii. Rent – 10% of salary 72,000 – 51,000 21,000
Least of the above three i.e. ` 21,000 is exempted.
Hence taxable HRA = 60,000 – 21,000 = ` 39,000
Working Note 4: Calculation for RPF:
Salary means Basic + D.A (if) + Commission (if) = 5,10,000 + 0 + 0 = ` 5,10,000
Actual contribution by the employer 72,000
Less: Exempted 5,10,000 × 12/100 61,200
Taxable value 10,800
Working Note 5: Calculation for Interest on RPF
Salary means Basic + D.A (if) + Commission (if) = 5,10,000 + 0 + 0 = ` 5,10,000
Actual Interest @ 14% 14,000
Less: Exempted = excess over 9.5% = 14,000 /14 × 9.5 9,500
Taxable value 4,500
Computation of Taxable Salary of Ms. Sangamithra
`
Basic Salary (W. Note 1) 5,10,000
D.A (W. Note 2) 2,44,000
HRA (W. Note 3) 39,000
Medical expenses 39,000
Free refreshment Nil
Sweeper’s salary (400 × 12) 4,800
Watchman’s salary (800 × 12) 9,600

Free Lunch (not exceeding ` 50 per day) Nil

Employer contribution to RPF (W. Note 4) 10,800
Interest on RPF (W. Note 5) 4,500
Gross Salary 8,61,700
Less: Standard deduction 50,000
Taxable Salary 8,11,700

Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)

 Income Tax
Sum No 37 Ms. Sudha, an employee of Tamil Nadu Govt. submits the following information relevant for
the previous year 2022-23.
Salary ` 86,000, Entertainment allowance ` 8,000, Bonus ` 10,200, Education allowance ` 4,000, (for
her grand children). Income tax penalty paid by employer: ` 2,000, Medical expenses reimbursed by
employer: ` 2,000. Leave travel concession. 1,000, Free residential telephone ` 4,000, free refreshment during
office hours ` 4,000. Payment of electricity bills by the employer ` 1,060. Reimbursement of gas bills ` 1,000.
Professional tax paid by employer ` 300. Professional tax paid by Ms. Sudha: ` 150. Determine the taxable
salary.
Solution
` `
Basic 86,000
Entertainment allowance 8,000
Bonus 10,200
Education allowance (no amount exempted for grant 4,000
child) tax penalty paid by employer
Income 2,000
Medical reimbursement 2,000
Leave Travel concession – tax free –
Free residential telephone - tax free –
Free refreshment during office hours – tax free –
Payment of electricity bill by employer 1,060
Reimbursement of gas bills 1,000
Professional tax paid by employer 300
Gross Salary 1,14,56
Less: Deduction u/s 16 0
Standard Deduction 50,000
Entertainment allowance (Note 1) 5,000
Professional Tax (300+150) 450
55,450
Taxable Salary 59,110

Mr. Ram Raj G [Link]., [Link]., MFx., NET&SET (Ph.D.)