Salary PDF

INCOME UNDER THE
HEAD SALARY
(Sec 15,16 & 17)
Salary includes:
• Wages
• Any annuity or pension
• Any Gratuity
• Any fees, commission, perquisite or profit
in lieu of salary or in addition to salary
• Any Advance Salary
• Leave Salary
• Amount transferred to PF
• Any other payment made or benefit
extended due to the employer-employee
relationship.
Basis of Charge
• Salary is taxable on RECEIPT OR DUE
whichever is earlier.
• BONUS is taxable on RECEIPT basis
• Arrears of salary paid to employee is
chargeable to tax.
Standard Deduction
• As per Section 16 (ia) a deduction of
fifty thousand rupees or the amount
of the salary, whichever is less.
TAX TREATMENT OF DIFFERENT
FORMS OF SALARY INCOME
• taxable on receipt basis in the A/Y relevant to the P/Y
in which it was received. (However relief can be
ADVANCE
SALARY claimed)
• TAXABLE ON RECEIPT BASIS, if the same has not been

subjected to tax earlier on due basis. (However relief
ARRERS
SALARY can be claimed)
• Both will be taxable in the year of receipt, if it has not

BONUS &
COMMISSIO
been taxed before. (However relief can be claimed)
N RECEIVED
Relief under Section 89
• If any person has received arrears of salary or advance of salary and because of this
reason his tax liability has increased, he may claim relief under section 89 in the
manner given below:
1. Compute tax liability for the previous year in which the arrear or advance of
salary has been received including the amount of such arrear or advance.
2. Compute tax liability for the previous year in which the arrear or advance
has been received excluding such arrear or advance.
3. Tax at step no. 1 minus tax at step no. 2 shall be the tax on such arrear or
advance.
4. Compute tax liability of the previous year to which the arrear or advance
relates including such arrear or advance.
5. Compute tax liability of the previous year to which arrear or advance relates
excluding such arrear or advance.
6. Tax at step no. 4 minus tax at step no. 5 shall be tax on the arrears or
advance in the year to which such arrear or advance relates.
7. Tax at step no. 3 minus tax at step no. 6 shall be the relief under section 89.
If there is no excess, no relief is admissible.
Illustration
• Mr. X is employed in ABC Ltd. getting
gross salary 9,00,000, but it is
increased to 11,00,000 in previous
year 2017-18 w.e.f. previous year
2016-17. Compute Tax Liability and
relief under section 89.
Step 1. Previous Year 2017–18
Salary 11,00,000
Add: Arrears for previous year 2016-17 2,00,000
Gross Salary 13,00,000
Less: Standard deduction u/s 16(ia) (40,000)
Income under the head Salary 12,60,000
Tax before health & education cess 1,90,500
Add: HEC @ 3% 5,715
Tax Liability 1,96,220
Salary 11,00,000
Add: HEC @ 3% 3,915
Step 3. Difference between Step 1 and Step 2 61,800
Salary 9,00,000
Add: Arrears 2,00,000
Add: HEC @ 3% 4,290
Salary 9,00,000
Tax before health & education cess 97,000
Add: HEC @ 3% 2,910
Tax Liability 99,910
Step 6. Difference between Step 4 and Step 5 47,380
Step 7. Relief under section 89 Step 3 – Step 6 (61,800 – 47,380) 14,420
Tax after adjusting relief u/s 89 [1,96,220 – 14,420] 1,81,800
Illustration
Mr. X, an employee of a PSU, furnishes the following particulars for the previous year
ending 31.03.2019:
i. Salary income for the year 5,25,000

ii. Salary for Previous Year 2017-18 received during the year 40,000
iii. Salary for the Previous Year 2017-18 1,40,000
You are requested by the assessee to compute relief under section 89 of the Income-
tax Act, 1961, in terms of tax payable for assessment year 2019-20. The rates of
Income-tax for the Assessment Year 2018-19 are:
Tax Rate (%)
On first 2,50,000 Nil
On 2,50,000 - 5,00,000 5
On 5,00,000 - 10,00,000 20
Above 10,00,000 30
Health & Education cess 4
Standard deduction = 40000
COMPONENTS OF SALARY
(i) Personal Allowance
2,000 – 100 – 2,500 – 200 – 3,500 – 300 – 5,000 – 400 – 7,000 Children Education Allowance
Hostel Allowance
Transport Allowance
Part – A Part – B Allowances Outstation Allowance
• Basic pay • House Rent Allowance Tribal Area Allowance
• Dearness allowance Sec. 10(13A) Rule 2A Underground Allowance
• Bonus • Special Allowance
• Commission/Fees etc. Sec. 10(14) Rule 2BB (ii) Allowance for official Duty
• Foreign Allowance Any allowance granted to
meet the cost of travel on tour
Sec. 10(7) Daily allowance
• Any other Allowance Conveyance allowance
City Compensatory Allowance - Cash Allowance - Overtime Helper allowance
Allowance - Medical Allowance - Tiffin Allowance - Research allowance
Entertainment Allowance Uniform allowance
Illustration
• Mr. X is employed in ABC Ltd. since
01.07.2006 in the pay scale of 11,000 –
500 – 14,500 – 1200 – 20,500 – 1,500 –
28,000. The employer has paid dearness
allowance @ 20% of his basic pay from
01.04.2018 to 30.09.2018 and
thereafter dearness allowance was
allowed @ 25% of basic pay. Compute
employee’s Tax Liability for Assessment
Year 2019-20.
Basic Pay [(19,300 x 3) + (20,500 x 9)] 2,42,400.00
Working Note:
01.07.2006 – 30.06.2007 = 11,000 p.m.
01.07.2007 – 30.06.2008 = 11,500 p.m.
01.07.2008 – 30.06.2009 = 12,000 p.m.
01.07.2009 – 30.06.2010 = 12,500 p.m.
01.07.2010 – 30.06.2011 = 13,000 p.m.
01.07.2011 – 30.06.2012 = 13,500 p.m.
01.07.2012 – 30.06.2013 = 14,000 p.m.
01.07.2013 – 30.06.2014 = 14,500 p.m.
01.07.2014 – 30.06.2015 = 15,700 p.m.
01.07.2015 – 30.06.2016 = 16,900 p.m.
01.07.2016 – 30.06.2017 = 18,100 p.m.
01.07.2017 – 30.06.2018 = 19,300 p.m.
01.07.2018 – 30.06.2019 = 20,500 p.m.
Dearness Allowance 54,630.00
Working Note:
From April to September (19,300 x 3) x 20% = 11,580
(20,500 x 3) x 20% = 12,300
From October to March (20,500 x 6) x 25% = 30,750
Gross Salary 2,97,030.00
Less: Standard Deduction u/s 16 (ia) (50,000.00)
Income under the head Salary 2,47,030.00
Gross Total Income 2,47,030.00
Less: Deduction u/s 80C to 80U Nil
Total Income 2,47,030.00
COMPONENTS OF SALARY
Part – E
Part – C Perquisites (Facilities) Part – D Superannuation Benefits Any other payment
I. Rent Free Accommodation Profits in lieu of salary
II. Accommodation at I. Gratuity Sec. 10(10)
concessional rent II. Pension Sec. 10(10A)
III. Motor Car Facility III. Leave Salary Sec. 10(10AA)
IV. Gardener/Watchmen/Sweeper IV. Provident Fund Sec. 10(11), 10(12),
or any other servant 10(13),
V. Gas/Electricity/Water V. Retrenchment Compensation Sec.
10(10B)
VI. Education Facility
VI. Voluntary Retirement Sec. 10(10C) Rule
VII. Free transport 2BA
VIII. Payment by the employer on
behalf of the employee
IX. Payment of insurance premium
on behalf of the employee
X. Any other fringe benefit
HOUSE RENT ALLOWANCE (H.R.A.) Basic pay
Dearness allowance
• Least of the following shall be
exemptedCommission
: if it is paid as
a fixed percentage
– Actual amount received
– Rent paid over 10% of retirement benefits
salary
– 50% of the retirement benefits Salary (if the
house is located in
Delhi/Mumbai/Kolkata/Chennai)
– 40% of the retirement benefits Salary (if the
house is located elsewhere )
Illustration
• Compute taxable amount of house
rent allowance in the following cases:
Illustration
• Mr. X is employed in ABC Ltd. getting basic
pay 20,000 p.m., dearness allowance 7,000
p.m. and half of the dearness allowance forms
the part of salary for the purpose of
retirement benefits. The employer has paid
bonus @ 500 p.m., commission @ 1% on the
sales turnover of 20 lakhs. The employer paid
him house rent allowance 6,000 p.m.
Employee has paid rent 7,000 p.m. and was
posted at Agra. Compute his Tax Liability for
the Assessment Year 2019-20.
Basic Pay (20,000 x 12) 2,40,000.00
Dearness Allowance (7,000 x 12) 84,000.00
Bonus (500 x 12) 6,000.00
Commission (1% of 20,00,000) 20,000.00
House rent allowance {Sec 10(13A) Rule 2A} 18,200.00
Less: Deduction u/s 80C to 80U Nil .
Tax Liability NIL

(A) Personal allowance
Children Education • Exempt upto 100 p.m. per child upto two child.
Allowance
Hostel Allowance • Exempt upto 300 p.m. per child upto two children.
Transport Allowance • Transport allowance is exempt upto 3,200 p.m.

(handicapped)
Outstation Allowance • Exempt to the extent of least of the following:

• (i) 70% of the allowance (ii) 10,000 p.m.
Underground • Exempt upto 800 p.m.
Allowance
Tribal Area Allowance • Exempt upto 200 p.m

(B) Official allowance
The allowances given by the employer for official
purpose are called official allowance and are exempt
from income tax however saving is taxable
• Travelling Allowance
• Daily Allowance
• Conveyance allowance
• Helper allowance
• Research allowance
• Uniform allowance
If the above allowances are given for personal purpose,
it will be taxable
Illustration
• Mr. X is employed in Central Government getting basic
pay 18,000 p.m., dearness allowance 6,000 p.m.
Employer has paid children education allowance 700
p.m. per child w.e.f. 01.09.2018 and hostel allowance of
1,000 p.m. for one child w.e.f. 01.10.2018. Employer
has paid transport allowance 1,700 p.m. w.e.f.
01.11.2018. Employer has paid house rent allowance
5,000 p.m. w.e.f 01.01.2019. The employee has
resigned from 01.02.2019 and has taken up a new job
w.e.f. 01.03.2019. He is getting basic pay 27,000 p.m.
and house rent allowance 4,000 p.m. Compute his Tax
Liability for the Assessment Year 2019-20.
Basic Pay [(18,000 x 10) + (27,000 x 1)] 2,07,000.00
Dearness Allowance (6,000 x 10) 60,000.00
House rent allowance {Sec 10(13A) Rule 2A} 9,000.00
Working Note:
For January : Least of the following is exempt:
Nil
40% of retirement benefit salary = 7,200 (Retirement benefit salary = 18,000)
5,000
Received = 5,000
Exempt = Nil
Taxable = 5,000
For March : Least of the following is exempt:
Nil
40% of retirement benefit salary = 10,800 (Retirement benefit salary = 27,000)
4,000
Received = 4,000
Exempt = Nil
Taxable = 4,000
Total = 5,000 + 4,000 = 9,000
Children Education Allowance {Sec 10(14) Rule 2BB} 3,000.00
Working Note:
Received = 700 x 5 x 1 = 3,500
Exempt = 100 x 5 x 1 = (500)
Taxable = 3,000
Hostel Allowance {Sec 10(14) Rule 2BB} 2,800.00
Working Note:
Received = 1,000 x 4 x 1 = 4,000
Exempt = 300 x 4 x 1 = (1,200)
Taxable = 2,800
Transport Allowance 5,100.00
Less: Standard Deduction u/s 16(ia) (50,000.00)
Income under the head salary 2,36,900.00
Tax Liability Nil
Other Allowances
Any other allowance is fully chargeable to tax and
such allowances may be:
City Compensatory Allowance
Cash Allowance
Overtime Allowance
Deduction shall be allowed in case of government employees under
Medical
sectionAllowance
16(ii) to the extent of the least of the following:
Servant Allowance (i) 20% of basic salary
Tiffin Allowance. (ii) 5,000
(iii)The actual allowance received by the employee
Entertainment Allowance (Subject to deduction
Deduction is allowed
under section only if the employee is State Government or
16(ii))
Central Government employee i.e. in case of employees of Local
Authority, Statutory Corporation, Public Sector Undertaking etc,
deduction is not allowed.
Illustration
Mr. X, a citizen of India, serving in the Ministry of Finance in India and
transferred to High Commission of Australia on 15th March 2018. He
did not come to India during the financial year 2018-19. His income
during the financial year 2018-19 is given here under:
Particulars
Salary from Govt. of India 7,20,000
Foreign Allowances from Govt. of India 6,00,000
Rent from a house situated at London, received in London 3,60,000
Interest accrued on National Saving Certificate during the year 2018-19
45,000
Compute The Gross Total Income of Mr. X for the Assessment year
2019-20.
Income under the head Salary
Salary from Govt. of India 7,20,000
Foreign Allowances from Govt. of India (exempt) Nil
Less: Standard Deduction u/s 16(ia) (50,000)
Income under the head other sources
Interest accrued on National Saving Certificate during the
year 2018-19 45,000
Income under the head other sources 45,000
Gross Total Income 7,15,000
Taxability of Perquisite
Rent Free Accommodation given to an
employee by his employer
• In case Central or State Government provides the
accommodation to their employees, perquisite value
shall be the license fee determined as per Government
rules.
• If employer has also provided furniture (including T.V.,
refrigerators, other household appliances, air
conditioning plant or equipment), Perquisite value shall
be 10% p.a. of original cost of furniture and not WDV.
• If the employer has taken furniture on rent, rent paid by
employer shall be considered to be perquisite value
Illustration
• Mr. X is employed in Central Government
getting basic pay 73,000 p.m. Employer has
provided him rent free accommodation and the
rent determined as per Government rules is
6,000 p.m. The employer has provided him
furniture with actual cost 1,00,000 and written
down value 65,000. The employer has provided
one air-conditioner also during April and May’
2018. Rent paid by the employer for the air-
conditioner is 1,000 p.m. Compute employee’s
Tax Liability for the Assessment Year 2019-20.
Basic Pay (73,000 x 12) 8,76,000
Rent free accommodation {Sec 17(2)(i) Rule 3(1)} 84,000
Working Note:
Perquisite value of unfurnished house (6,000 x 12) 72,000
Add: 10% of cost of furniture (1,00,000 x 10%) 10,000
Add: Rent of air-conditioner (1,000 x 2) 2,000
Perquisite value of furnished house 84,000
Gross Total Income 9,10,000
Total Income 9,10,000
Tax Liability 98,280

Other employees- Furnished
Accommodation
• If the employer has taken the
accommodation on rent and given it to the
employee free of rent, taxable amount shall
be 15% of salary or rent paid or payable by
the employer whichever is less
• Add 10% of the value of furniture if owned
by employer or actual hire charges when
hired
(Furniture includes TV, fridge, radio and any
household appliances)
Valuation of Rent Free Unfurnished
Accommodation (private sector)
Population as Property owned by Leased or rent
per 2001 Employer
census
Above 25 15% of salary for the Amount of lease
lakhs period rent or 15% of
salary
Between 10% of salary for the Same as above
10- 25 lakhs period
Any other 7.5% of salary for the Same as above

period
Illustration
• Mr. X employed in ABC Ltd. and getting basic
pay 20,000 p.m., dearness allowance 10,000
p.m. and 50% of DA forms part of salary.
Employer has paid bonus 1,000 p.m.
commission 2,000 p.m. children education
allowance 150 p.m. per child for 3 children and
hostel allowance 500 p.m. for one child and
entertainment allowance 500 p.m., transport
allowance 1,800 p.m. Employer has provided
him rent free accommodation for which rent
paid by employer is 11,000 p.m. Compute his
income and tax liability A.Y. 2019-20.
Basic Salary (20,000 x 12) 2,40,000.00
Dearness Allowance (10,000 x 12) 1,20,000.00
Bonus (1,000 x 12) 12,000.00
Commission (2,000 x 12) 24,000.00
Children Education Allowance {Sec 10(14), Rule 2BB} 3,000.00
Working Note:
Received = 150 x 3 x 12 = 5,400
Exempt = 100 x 2 x 12 = (2,400)
Taxable = 3,000
Hostel Allowance {Sec 10(14), Rule 2BB} 2,400.00
Working Note:
Received = 500 x 1 x 12 = 6,000
Exempt = 300 x 1 x 12 = (3,600)
Taxable = 2,400
Entertainment Allowance (500 x 12) 6,000.00
Transport Allowance 21,600.00
Rent free Accommodation {Sec 17(2)(i), Rule 3(1)} 55,350.00
Working Note:
15% of rent free accommodation salary or rent paid whichever is less
Rent free accommodation Salary = Basic Pay + Dearness Allowance (forming part
of salary) + Bonus + Commission + Children Education allowance + Hostel
Allowance + Entertainment Allowance + Transport Allowance = 2,40,000 + 60,000
+ 12,000 + 24,000 + 3,000 + 2,400 + 6,000 + 21,600 = 3,69,000
15% of rent free accommodation Salary = 55,350
Rent Paid = 11,000 x 12 = 1,32,000
Perquisite value of unfurnished house = 55,350
Total Income 3, 74,350.00
Tax Liability NIL
Taxability of Motor Car Facility
• If the employer has provided motor car
facility for personal use, it will be
taxable and perquisite value shall be
10% per annum of actual cost plus
expenses incurred by employer and if
employer has recovered any amount
from the employee, it will be deducted
and only balance amount shall be
taxable.
• E.g. Mr. X is employed in ABC Ltd. and
getting basic pay 50,000 p.m., dearness
allowance 10,000 p.m. and employer has
provided him one motor car for personal
use with original cost 6,00,000 and
expenditure on petrol 20,000, repairs
11,000, driver salary 10,000 p.m.
• Motor car (Sec 17(2)(iii) Rule 3(2))
=2,11,000
(6,00,000 x 10%) + 20,000 + 11,000 + 1,20,000
Car used partly for official and
partly for personal purposes
• If the employer has provided motor car
facility for official as well as personal use,
perquisite value shall be 600 p.m. if engine
capacity of motor car is upto 1.6 litres
otherwise it is 900 p.m.
• If employer is incurring other expenses also
except driver, taxable amount shall be
1,800 p.m. and 2,400 p.m. respectively.
• If employer has provided chauffeur (driver)
also, there will be additional perquisite
value of 900 p.m.
Illustration
Mr. X is employed in ABC Ltd. getting basic
pay 22,000 p.m. and the employee has
paid professional tax 200 p.m. and the
employer has provided him motor car for
official as well as personal use and its
engine capacity is 1.2 litres and it is a
chauffeur driven car and all expenses are
met by the employer himself. Compute
Tax Liability for the Assessment Year 2019-
20.
Basic Pay (22,000 x 12) 2,64,000
Motor Car 32,400
[(1,800 + 900) x 12]
Taxability of Educational Facility
• If the employer has provided free education or training facility to the
employee, there is no perquisite value.
• If education facility is provided to the children of the employee, it is
exempt to the extent of 1,000 p.m. per child. (irrespective of the number
of children)
• If education facility is provided in employer’s own institution, Still it is
taxable however normal exemption of 1,000 p.m. per child shall be
allowed. Value for this purpose shall be the cost of similar type of
education in a similar type of institution in the same locality.
• If any amount has been recovered from the employee, it will be deducted
and only the balance amount shall be taxed.
• If the facility has been availed by the employee for education of members
of his household and payment or reimbursement has been given by the
employer, entire amount paid or reimbursed shall be taxable as per
section 17(2)(iv).
Illustration
Mr. X is employed in ABC Ltd.. Compute perquisite value of
educational facilities in the following situations:
(i) The employer has deputed him on one day seminar on
Industrial Finance and Corporate Taxation and has paid
participation fees of 3,000.
(ii) The employer has made arrangements for the education
of his three children in his own school and has incurred 1,500
per month per child and has recovered 300 per month per
child from the employee.
(iii) If the employee himself has made arrangements of the
education of his three children in a public school and the
employer has reimbursed 1,500 per month per child.
Superannuation Benefits- Basic pay
Recognised Provident Funds Commission
Dearness allowance
if it is paid as
• Employer’s contribution upto 12% ofa fixed percentage
the employee’s retirement benefit
salary shall be exempt from income tax.
• Interest credited to the provident fund
account upto 9.5% p.a. shall be exempt
from income tax.
• Deduction shall be allowed under
section 80C for employee contribution.
• Payments received from recognised provident fund shall be exempt from
income tax if the employee has complied with any of the conditions given
below:
(i) If the employee has rendered continuous service for a period of 5 years or
more, or
(ii) If he has not rendered such continuous service, the service has been
terminated by reason of the employee’s ill-health, or by the contraction or
discontinuance of the employer’s business or other cause beyond the control of
the employee, or
(iii) If the employee obtains employment with any other employer and the
provident fund has been transferred to such employer and the total service
with the former employer and the current employer is of 5 years or more.
• If the employee has not complied with even a single condition, in that case
amount received shall be taxable but only that part which was exempt earlier.
Employer contribution and interest on employer contribution shall be taxable
under the head Salary. Interest on employee contribution shall be taxable under
the head Other Sources
Illustration
Mr. X retired from ABC Ltd. and received RPF balance
as given below-
Employer Contribution 5,00,000 - 15%
Employee contribution 5,00,000 - 15%
Interest employer contribution 1,00,000 - 10% p.a.
Interest employee contribution 1,00,000 - 10% p.a.
Employer contribution = 5,00,000 / 15% x
12% = 4,00,000 (Taxable under the head
Salary)
Interest on employer contribution =
1,00,000 /10% x 9.5% = 95,000 (Taxable
under the head Salary)
Interest on employee contribution=
1,00,000 / 10% x 9.5% = 95,000 (Taxable
under the head Other Sources)
Employee contribution 5,00,000 Exempt
Unrecognised Provident Fund
• Employer contribution and interest on employee and
employer contribution shall be exempt from income tax
so long as the employee is in employment but at the time
of leaving the job, employer contribution and interest on
employer and employee contribution shall be taxable,
however amount of employee contribution shall not be
taxed at the time of receipt because it has already been
taxed when the employee was in employment.
• The employer’s contribution and interest thereon is
taxable under the head salary but interest on employee
contribution shall be taxable under the head Other
Sources.
• No deduction is allowed under section 80C for employee
contribution.
Illustration
Mr. X retires from service on December 31, 2018, after 25 years of service.
Following are the particulars of his income/investments for the previous year
2018-19:
Particulars
Basic pay @ 16,000 per month for 9 months 1,44,000
Dearness pay (50% forms part of the retirement benefits) 8,000 per month for 9
months 72,000
Lumpsum payment received from the Unrecognised Provident Fund 6,00,000
Deposits in the PPF account 40,000
Out of the amount received from the provident fund, the employer’s share was
2,20,000 and the interest thereon 50,000. The employee’s share was 2,70,000 and
the interest thereon 60,000. What is the taxable portion of the amount received
from the unrecognized provident fund in the hands of Mr. A for the assessment
year 2019-20?
Amount taxable under the head “Salaries”:
Employer’s share in the payment received from
the URPF 2,20,000
Interest on the employer’s share 50,000
Total 2,70,000
Amount taxable under the head “Income from
Other Sources” :
Interest on the employee’s share 60,000
Total amount taxable from the amount
received from the fund 3,30,000
Statutory provident fund
• Statutory provident fund (also called Government
Provident Fund) is applicable in case of Government
employees and is regulated through Provident Fund Act,
1925.
• The Employer do not contribute to this fund hence there
is no tax treatment for employer contribution and interest
on employer contribution.
• Interest on employee contribution is exempt from Income
Tax.
• Further, the lump sum payment from such provident fund
at the time of retirement or termination of service is also
exempt from tax. Deduction shall be allowed under
section 80C for employee contribution
NIL NIL
Illustration
Mr. X is employed in ABC Ltd. getting basic pay
12,000 p.m. and dearness allowance 5,000 p.m.
forming part of salary. He has contributed 3,000
p.m. to the recognised provident fund and
employer has also contributed an equal amount.
During the year interest of 25,000 was credited @
8.5% p.a. Employer has provided rent free
accommodation to the employee for which rent
paid by the employer is 5,000 p.m. The employee
has encashed one month leave and was allowed
leave salary of 17,000. Compute his income under
the head salary for the previous year 2018-19.
Basic Pay (12,000 x 12) 1,44,000
Dearness Allowance (5,000 x 12) 60,000
Leave Salary 17,000
Rent free accommodation {Sec 17(2)(i) Rule 3(1)} 33,150
Working Note:
15% of rent free accommodation salary or rent paid whichever is less
Rent free accommodation salary = Basic Pay + Dearness Allowance +
Leave Salary = 1,44,000 + 60,000 + 17,000 = 2,21,000
15% of rent free accommodation salary 33,150
Rent paid = 5,000 x 12 60,000
Perquisite value of rent free accommodation 33,150
Employer’s contribution to recognised provident fund in excess of 12%
of retirement benefit salary {Rule 6 of Part A of schedule IV} 11,520
(36,000 – 24,480)
Taxability of Gratuity
• Death cum retirement gratuity
Section 10(10)
• Tax treatment of gratuity is as under:
– Employees of State EXEMPT FROM TAX
Government/Central
Government/Local Authority
– Employees covered under payment of
Gratuity Act 1972
– Any other employee
B-Any gratuity received by the employees covered under
payment of Gratuity Act 1972, shall be exempt to the extent
of the least of the following:
(i) Gratuity received
(ii) 20,00,000 10,00,000
(iii) 15 days salary for each completed year of service or part
thereof in excess of six month.
In case of employees of a seasonal establishment, in place of

15 days, only 7 days salary will be taken. 15 days or 7 days
wages shall be calculated by considering number of days in a
month to be 26.
Salary = Basic Pay + Dearness Allowance
C – Any other employee:
The least of the following will be exempt
(i) Gratuity received
(ii) 10,00,000
(iii) Half month’s salary for each completed year of
service. Salary here means average salary for ten
months immediately preceding the month of
retirement and will consist of Basis pay +
Dearness allowance (if provided) + Commission on
sales turnover achieved by the employee and paid
at fixed rate
Salary= Retirement Benefit Salary
Illustration
Mr. X was employed in ABC Ltd. getting basic pay 18,000 p.m.
but it was increased to 24,000 p.m. w.e.f. 01-07-2018,
dearness allowance 6,000 p.m. but it was increased to 9,000
p.m. w.e.f. 01-07-2018 (50% of DA forms part of salary). The
employee was retired on 10.01.2019 after serving the
employer for 20 years and 10 months. The employer has paid
him gratuity of 9,10,000 and the employee was covered under
Payment of Gratuity Act, 1972. Compute taxable portion of
gratuity and also Tax Liability.
Basic Pay [(18,000 x 3) + (24,000 x 6)+ (24,000 x 10/30)] 2,06,000.00
Dearness Allowance [(6,000 x 3) + (9,000 x 6) + (9,000 x 10/30)] 75,000.00
Gratuity {Sec 10(10)} 5,10,192.31
Working Note: Least of the following is exempt:
1. 9,10,000
2. 20,00,000
3. 15/26 x 33,000 x 21 = 3,99,807.69
Received = 9,10,000.00
Exempt = (3,99,807.69)
Taxable = 5,10,192.31
Presume Mr. X is not covered in
Payment of Gratuity Act 1972
Working Note: Least of the following is
exempt:
1. 9,10,000
2. 10,00,000
3. 1/2 x (21,000 x 4 + 28,500 x 6)/10 x 20
= 2,55,000
Received = 9,10,000
Exempt = (2,55,000)
Taxable = 6,55,000
Illustration
Mr. X retired on 15.06.2018 after completion of 26 years 8 months of
service and received gratuity of 6,00,000. At the time of retirement his
salary was:
Basic Salary : 5,000 p.m.
Dearness Allowance: 3,000 p.m. (60% of which is for retirement benefits)
Commission: 1% of turnover (turnover in the last 12 months was
12,00,000)
Bonus : 12,000 p.a.
Compute his taxable gratuity assuming:
(a) He is non-government employee and covered by the Payment of
Gratuity Act 1972.
(b) He is non-government employee and not covered by Payment of
Gratuity Act 1972.
(c) He is a Government employee.
Retrenchment Compensation
• Compensation received by a workmen under
the Industrial Dispute Act, 1947 or under any
Act, Rule, Order, Notification issued at the time
of retrenchment, is exempt from tax to the
extend of lower of the following :-
1. Amount Received
2. ₹ 5,00,000/- (amount specified by the Govt.)
3. 15/26 * Salary * Every completed year of
Service in excess of 6 months
Salary = Basic Pay + Dearness Allowance
Illustration
Mr. X received retrenchment compensation of 10,00,000 after 30
years 4 months of service. At the time of retrenchment, he was
receiving basic salary of 20,000 p.m.; dearness allowance of
5,000 p.m. Compute his taxable retrenchment compensation.
Answer:
5,67,308
Solution:
Compensation actually received = 10,00,000
Statutory limit = 5,00,000
Amount calculated in accordance with the provisions of
section 25F of the Industrial Disputes Act, 1947
15/26 x (20,000+5,000) x 30 = 4,32,692
Therefore, 4,32,692, being the least of the above limits,
would be exempt under section 10(10B). The taxable
retrenchment compensation will be :
Retrenchment compensation received 10,00,000
Less: Exemption under section 10(10B) (4,32,692)
Taxable Retrenchment Compensation 5,67,308
Voluntary Retirement Scheme
Least of the following shall be exempt :
1. Amount Received
2. ₹ 5,00,000/-
3. a) 3 months Salary * Every completed
year of Service
b) Salary of the balance months of service
left before his normal retirement.
Salary= Retirement Benefit Salary
Illustration
Mr. X received voluntary retirement compensation of 7,00,000
after 30 years 4 months of service. He still has 6 years of service
left. At the time of voluntary retirement, he was drawing basic
salary 20,000 p.m.; Dearness allowance (which forms part of pay)
5,000 p.m. Compute his taxable voluntary retirement
compensation.
Answer:
2,00,000
Solution:
Voluntary retirement compensation received 7,00,000
Less: Exemption under section 10(10C) [Note 1] (5,00,000)
Taxable voluntary retirement compensation 2,00,000
Note 1: Exemption is to the extent of least of the following:
(i) Compensation actually received = 7,00,000
(ii) Statutory limit = 5,00,000
(iii) Last drawn salary × 3 × completed years of service = (20,000 +
5,000) × 3 × 30 years = 22,50,000
(iv) Last drawn salary × remaining months of service = (20,000 +
5,000) × 6 × 12 months = 18,00,000
Taxability of Pension
Family Pension
• Pension received by the family after
death – Taxable in the hands of
recipient under head Other Sources
and Deduction of 1/3rd OR ₹15,000/-
whichever is less, shall be given.
Illustration
• Mr. X retired w.e.f 01.10.2018 receiving 5,000
p.m. as pension. On 01.02.2019, he commuted
60% of his pension and received 3,00,000 as
commuted pension. You are required to
compute his taxable pension assuming:
• a. He is a government employee.
• b. He is a non-government employee, receiving
gratuity of 5,00,000 at the time of retirement.
• c. He is a non-government employee and is in
receipt of no gratuity at the time of retirement
(a) He is a government employee.
Uncommuted pension received (October – March) 24,000
[( 5,000 × 4 months) + (40% of 5,000 × 2 months)]
Commuted pension received 3,00,000
Less : Exempt u/s 10(10A) (3,00,000) NIL
Taxable pension 24,000
(b) He is a non-government employee, receiving gratuity 5,00,000 at the time of retirement.
[( 5,000 × 4 months) + (40% of 5,000 × 2 months)]
Less: Exempt u/s 10(10A) 1/3*300000/60% * 100% (1,66,667) 1,33,333
Taxable pension 1,57,333
(c) He is a non-government employee and is not in receipt of gratuity at the time of
retirement.
[ ( 5,000 × 4 months) + (40% of 5,000 × 2 months)]
Less : Exempt u/s 10(10A) 1/2*300000/60% * 100% (2,50,000) 50,000
Taxable pension 74,000
Illustration
Mr. X is employed in ABC Ltd. getting basic pay 22,000 p.m.,
dearness allowance 5,000 p.m. He was retired on 21.12.2018. The
employer has allowed him pension of 9,000 p.m. and the employee
has requested for commutation of 52% of his pension. The employer
has allowed him such commutation on 01.02.2019 and has paid
5,61,600. The employer has paid him gratuity of 6,95,000 and
employee has completed service of 20 years and 11 months.
Compute Tax Liability for the Assessment Year 2019-20.
Assuming employee not covered under Payment of Gratuity Act

1972.
Deduction in respect of contribution
to Pension Scheme of Central
Government Section 80CCD
1. Deduction is allowed to an INDIVIDUAL.
2. In case of an employee deduction shall be allowed equal to the amount contributed
by the employee towards the Pension Scheme (also called New Pension System) but
maximum to the extent of 10% of retirement benefit salary. If the employer has
contributed any amount towards Pension Scheme, it will be added to the gross salary
of the employee and also deduction shall be allowed for such contribution but
maximum to the extent of 10%(14%) of retirement benefit salary.
3. If the individual is not an employee and he has contributed to the Pension Scheme,
deduction shall be allowed for such contribution but maximum to the extent of 20% of
gross total income. Maximum deduction allowed under section 80C + 80CCC + 80CCD
shall be 1,50,000. It can exceed upto 50,000 because of contribution to NPS by an
individual. Limit of 1,50,000 can exceed to any extent because of employer
contribution
4. Any pension received under this scheme shall be taxable.
5. Lumpsum payment received upto 40% of total amount payable shall be exempt
from income tax.
6. Amount received by the nominee on the death of the assessee shall be exempt
from income tax.
Illustration
Mrs. X is employed in Central Government since 01.01.2018 and is
getting basic pay of 1,00,000 p.m. She has contributed 10,000 p.m. to
the notified pension scheme of Central Government and employer has
also contributed an equal amount. She has paid premium of Jeevan
Suraksha Policy 3,000 and invested 1,00,000 in NSC. Compute her tax
liability for the assessment year 2019-20.
Answer:
9,50,000
Basic Pay 12,00,000.00
(1,00,000 x 12)
Contribution to the pension fund by CG 1,20,000.00
(10,000 x 12)
Less: Deduction u/s 80C 1,00,000.00
Less: Deduction u/s 80CCC 3,000.00
Less: Deduction u/s 80CCD 1,20,000.00 (employee contribution)
Deduction under section 80C + 80CCC + 80CCD 1,50,000.00
Additional Deduction u/s 80CCD 50,000.00
Employer contribution 1,20,000.00 (3,20,000.00)
Taxability of Leave Salary/
Encashment of Leave
Illustration
Mr. X is retired from ABC Ltd. on 10.11.2018 after serving the
employer for 20 years and 10 months. The employer has paid him
leave salary of 5,00,000. The employee was entitled for 1 month leave
per year of service. During entire service, he has availed 6 month
leave and has encashed 7 month leave. The employee was getting
basic pay 27,000 p.m. but it was increased to 33,000 p.m. w.e.f. 01-
07-2018. He was getting DA 9,000 per month but it was increased to
12,000 per month w.e.f. 01-07-2018. 50% of DA forms part of salary.
Compute his Tax Liability for the Assessment Year 2019-20.
Basic Pay [(27,000 x 3)+(33,000 x 4)+(33,000 /30 x 10)] 2,24,000.00
DA [(9,000 x 3)+(12,000 x 4)+(12,000 /30 x 10)] 79,000.00
Leave Salary {Sec 10(10AA)} 2,56,750.00
Working Note: Least of the following is exempt:
Calculation of average
1. 5,00,000 salary
2. 10 x 34,750 = 3,47,500 11-01-2018 to 10-11-2018
3. 3,00,000 Basic Pay [(27000/30 x 20)
4. 7 x 34,750 = 2,43,250 + (27,000 x 5) + (33,000 x
4)+ (33,000/30x10)] =
Received = 5,00,000
2,96,000
Exempt = (2,43,250) Dearness Allowance
Taxable = 2,56,750 [(4,500/30 x 20) + (4,500 x
Computation of leave at the credit 5) + (6,000 x 4)+
Leave Entitlement = 1 month x 20 = 20 month (6,000/30x10)] =
51,500
Less: Leave availed = (6) month Total 3,47,500
Less: Leave Encashed = (7 ) month Average Salary =
Leave at the credit = 7 month 3,47,500/10 = 34,750
Professional Tax/Employment Tax
• As per article 276 of Indian constitution, state government
is empowered to levy a tax on profession, business or
employment and such tax shall be called professional tax
or employment tax.
• If the person has business or profession, such tax can be
debited to profit and loss account on actual payment basis
and if the assessee is the employee he will be allowed to
claim deduction from gross salary under section 16(iii) to
compute income under the head salary.
• If the amount has been paid by the employer on behalf of
the employee, it will be first included in gross salary under
section 17(2)(iv) and subsequently deduction is allowed
under section 16(iii).
Illustration
Mr. X is employed in Central Government
getting basic pay 14,000 p.m., dearness
allowance 5,000 p.m., House rent allowance
4,000 p.m. w.e.f. 01.07.2018. However,
employee is residing in the house of his
parents. Employer has paid cash allowance
300 p.m., medical allowance 250 p.m.
Employer has paid professional tax 75 p.m. on
behalf of the employee. Compute employee’s
income under the head Salary and Tax Liability
for the Assessment Year 2019-20.
Basic Pay (14,000 x 12) 1,68,000.00
Dearness allowance (5,000 x 12) 60,000.00
House rent allowance {Sec 10(13A) Rule 2A 36,000.00
Received = 36,000 Exempt = Nil Taxable = 36,000
Cash Allowance (300 x 12) 3,600.00
Medical Allowance (250 x 12) 3,000.00
Entertainment Allowance (400 x 12) 4,800.00
Professional tax paid by employer (75 x 12) 900.00
Less: 16(iii) Professional Tax (900.00)
Income under the head salary 2,25,400.00

Salary PDF

Uploaded by

Copyright:

Available Formats

Salary PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Salary PDF

Uploaded by

Copyright:

Available Formats

INCOME UNDER THE

• TAXABLE ON RECEIPT BASIS, if the same has not been

• Both will be taxable in the year of receipt, if it has not

i. Salary income for the year 5,25,000

Tax Liability NIL

Transport Allowance • Transport allowance is exempt upto 3,200 p.m.

Outstation Allowance • Exempt to the extent of least of the following:

Tribal Area Allowance • Exempt upto 200 p.m

Tax Liability 98,280

Any other 7.5% of salary for the Same as above

In case of employees of a seasonal establishment, in place of

Assuming employee not covered under Payment of Gratuity Act

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.