Salary

INCOME U/H SALARY
INCOME UNDER THE HEAD SALARY

INTRODUCTION:
1. BASIC ELEMENTS  Payer and payee must have employer and employee (or Master &
OF SALARY Servant) relationship.
 It does not matter whether the employee is a full-time employee or

a part-time one.
 If, for example, an employee works with more than one employer,
salaries received from all the employers should be clubbed and
brought to charge for the relevant previous years.
 Forgoing of salary: Once salary accrues, the subsequent waiver by

the employee does not absolve him from liability to income-tax.
Such waiver is only an application and hence, chargeable to tax.
 A payment can be construed as salary only if the payer is the

employer and payee is the employee of the payer.
 An official liquidator appointed by the Court or by the Central

Government would also become an employee of the Central
Government under Section 448 of the Companies Act, 1956 and
consequently the remuneration due to him would also be
assessable under the head ‘Salaries’.
 Professor : The professor of university would be receiving income

by way of monthly salary from the university which is chargeable to
tax under this head. But this does not mean that every item of
income received by the employee from his employer would be
taxable under this head. Thus, income by way of examinership fees
received by a professor from the same university in which he is
employed would not be chargeable to tax under this head but must
be taxed as Income from other sources.
 Surrender of salary: However, if an employee surrenders his

salary to the Central Government under section 2 of the Voluntary
Surrender of Salaries (Exemption from Taxation) Act, 1961, the
salary so surrendered would be exempt while computing his
taxable income.
 Agent and Principal: If a person is acting as an agent for his

principal, any commission or remuneration earned by the agent is
not taxable under the head “Salaries”. This is because, an agent is
not the employee of his principal.
CMA UJJAWAL JAIN

INCOME U/H SALARY
 Salary received by a partner from its firm shall not be taxable as
salary, because there is no employer-employee relationship
between the firm and the partner. Such salary shall be taxable
under the head “Profits & gains of business or profession”.
 Member of Parliament : According to a circular of the Board

dated 22-5-1967, the salary received by a person as Member of
Parliament will not be chargeable to income-tax under the head
“Salaries” but as“Income from other sources” because a Member of
Parliament is not an employee of the Government but only an
elected representative of the people.
 Treasurer of a bank : The income received by a treasurer of a

bank would be taxable as his salary income if the treasurer is an
employee of the bank. If he does not happen to be an employee, the
income received by him would be taxable as “Income from other
sources”.
 Salary received by proprietor from his proprietorship firm is

not an income. As proprietor and proprietorship firm are the same
person and no one can earn from himself.
 Remuneration to director from his company can be treated as

salary only if the director is employee of the company, otherwise
the same shall be taxable under the head “Income from other
sources”. LIKE, Directors’ sitting fee is taxable under the head
“Income from other sources”.
 Pension received by the widow or legal heir of deceased

employee is not taxable as salary as no employer-employee
relationship exists between the payer and the payee. However such
amount shall be taxable under the head “Income from other
sources”.
 HOWEVER, IF PENSION RECEIVED BY SUCH EMPLOYEE THEN

TAXABLE U/H SALARY.
 Remuneration received by Judges is taxable under the head

“Salaries” even though they are not having any employer.
CMA UJJAWAL JAIN

INCOME U/H SALARY
LET’S SEE SOME EXAMPLES
EXAMPLE 1:
State whether the following receipts should be treated as salary or not?
• A teacher receives emoluments in kind from school in which he teaches.
Yes it is Salary, it is immaterial whether salary has been received in cash or in kind.
• A teacher of a college receives fees from a University for checking answer sheets.
No, as employer – employee relationship does not exist between payer and payee. (College-
teacher is not the employee of the University). Such receipt shall be taxable under the head
‘Income from other sources’.
• A payment made to the Member of the Parliament or the State legislature.
No, as employer-employee relationship does not exist.
A member of the Parliament or the State legislature is not treated as employee of the
Government. Payment received by them shall be taxable under the head “Income from other
sources”.
EXAMPLE 2:
Sujata, an actress, is employed in Chopra Films, where she is paid a monthly remuneration of Rs. 2
lakh. She acts in various films produced by various producers. The remuneration for acting in such
films is directly paid to Chopra Films by the different producers.
In this case, Rs. 2 lakh will constitute salary in the hands of Sujata, since the relationship of
employer and employee exists between Chopra Films and Sujata.
EXAMPLE 3:
In the above example, if Sujata acts in various films and gets fees from different producers, the
same income will be chargeable as income from profession since the relationship of employer and
employee does not exist between Sujata and the film producers.
EXAMPLE 4:
Commission received by a Director from a company is salary if the Director is an employee of the
company. If, however, the Director is not an employee of the company, the said commission cannot be
charged as salary but has to be charged either as income from business or as income from other
sources depending upon the facts.
CMA UJJAWAL JAIN

INCOME U/H SALARY
EXAMPLE 5:
Salary paid to a partner by a firm is nothing but an appropriation of profits. Any salary, bonus,
commission or remuneration by whatever name called due to or received by partner of a firm shall
not be regarded as salary.
The same is to be charged as income from profits and gains of business or profession. This is
primarily because the relationship between the firm and its partners is not that of an employer and
employee.
EXAMPLE OF FORGOING OF SALARY
EXAMPLE 6:
Mr. A, an employee instructs his employer that he is not interested in receiving the salary for April
2020 and the same might be donated to a charitable institution.
In this case, Mr. A cannot claim that he cannot be charged in respect of the salary for April
2020. It is only due to his instruction that the donation was made to a charitable institution by
his employer.
It is only an application of income.
Hence, the salary for the month of April 2020 will be taxable in the hands of Mr. A. He is,
however, entitled to claim a deduction under section 80G for the amount donated to the
institution.
CMA UJJAWAL JAIN

INCOME U/H SALARY
WHAT IS SALARY?
The meaning of the term ‘salary’ for purposes of income-tax is much wider than what is
normally understood. The term ‘salary’ for the purposes of Income-tax Act, 1961 will include
both monetary payments (e.g. basic salary, bonus, commission, allowances etc.) as well as non-
monetary facilities (e.g. housing accommodation, medical facility, interest free loans etc.).
Under the Income-tax Act, there are certain payments made which are fully taxable, partly
taxable and fully exempt. For Example, wages, salary, bonus, dearness allowance etc. are fully
taxable payments. Whereas monetary benefits in the form of allowances such as House Rent
Allowance, conveyance allowance etc. are partially taxable.
a) Baic salary/Wages;
SALARY INCLUDES
b) Any annuity or pension;
c) Any gratuity;
d) Any fees, commission, perquisite or profits in addition to any salary or

wages;
e) Any advance of salary;
f) Any payment received in respect of any period of leave not availed of by the
assessee;
g) The portion of the annual accretion in any previous year to the balance at
the credit of an employee, participating in recognised provident fund, to the
extent it is taxable;
h) Transferred balance in a Recognised Provident Fund to the extent it is

taxable.
i) Contribution made by the employer in the previous year, to the account of an

employee under a pension scheme referred to in sec. 80CCD [National Pension
Scheme and Atal Pension Yojana].
CMA UJJAWAL JAIN

INCOME U/H SALARY
SECTION 15 BASIS OF CHARGE
BASIS OF CHARGE Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis,
whichever is earlier. Hence, taxable salary includes:
a) Advance salary (on ‘receipt’ basis): Salary paid in advance is

taxable under the head ‘Salaries’ in the year of receipt.
Note: Such advance salary shall not be included again in the total
income when the salary becomes due.
b) Outstanding salary (on ‘due’ basis): Salary falling due is taxable

under the head ‘Salaries’ in the year in which it falls due.
Note: Such due salary shall not be included again in the total income
when it is received.
c) 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
EXAMPLE 1:
If A draws his salary in advance for the month of April 2021 in the month Of March 2021 itself, the
same becomes chargeable on receipt basis and is to be assessed as income of the P.Y.2020-21 i.e.,
A.Y.2021-22. However, the salary for the A.Y.2022-23 will not include that of April 2021.
EXAMPLE 2:
If the salary due for March 2021 is received by A later in the month of April 2021, it is still chargeable
as income of the P.Y.2020-21 i.e., A.Y.2021-22 on due basis. Obviously, salary for the A.Y.2022-23 will
not include that of March 2021.
EXAMPLE 3:
Mr. X joined A Ltd. for a salary of Rs. 5,000 p.m. on 1/4/2018. In the year 2019-20, his increment
decision was pending. On 1/4/2020, his increment was finalized as for 2019-20: Rs. 1,000 p.m. and
for 2020-21 Rs. 1,500 p.m. Such arrear salary received on 5/4/2020. Find Gross taxable salary.
Further, salary of April 2021 has also been received in advance on 15/03/2021.
CMA UJJAWAL JAIN

INCOME U/H SALARY
SOLUTION:
Gross taxable salary for the previous year 2020-21 shall be calculated as under:
Particulars Workings Amount

Salary for 2020-21 (5,000 + 1,000 + 1,500) 90,000
* 12
Arrear salary for 2019-20 (1,000) * 12 12,000
Advance salary for April 2021 7,500
Gross total salary 1,09,500
ADVANCE SALARY VS ADVANCE AGAINST SALARY
‘Advance salary’ is taxable u/s 17(1)(e) whereas ‘Advance against salary’ is treated as
loan hence, not taxable under the head “Salaries”.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXABILITY OF ALLOWANCES
Allowance means fixed quantum of money given regularly in addition to salary to meet
particular requirement.
ALLOWANCES WHICH ARE FULLY TAXABLE:

Transport allowance: Transport allowance granted to an employee to meet his expenditure for the
purpose of commuting between the place of his residence and the place of his duty is fully taxable.
However, in case of blind/ deaf and dumb/ orthopedically handicapped employees exemption
upto Rs. 3,200 p.m. is provided under section 10(14)(ii) read with Rule 2BB.
City Compensatory Allowance : An allowance to meet personal expenses, which arise due to special
circumstances, or to compensate extra expenditure by reason of posting at a particular place.
Tiffin Allowance: An allowance to meet the expenditure on tiffin, refreshment etc.
Medical Allowance : An allowance to meet the expenditure on medical treatment etc.
Servant Allowance : An allowance to meet the expenditure of servant for personal purpose.
Non-practicing Allowance : Allowance given to professionals to compensate them for restriction on

private practice.
Warden or Proctor Allowance: Allowances given to employees of educational institutions for

working as warden of the hostel or working as proctor in the institutions.
Deputation Allowance : Allowances given to an employee, when he is sent on deputation for a

temporary period from his permanent place of service.
Entertainment Allowance : It is an allowance to meet expenditure on entertainment, by whatever

name called. Government employee can claim deduction u/s 16(ii) discussed later in this chapter.
CMA UJJAWAL JAIN

INCOME U/H SALARY
ALLOWANCES WHICH ARE PARTIALLY TAXABLE
House rent allowance [Section 10(13A)]: HRA is a special allowance specifically granted to an
employee by his employer towards payment of rent for residence of the employee.
HRA granted to an employee is exempt to the extent of least of the following:
Metro Cities (i.e. Delhi, Kolkata, Other Cities

Mumbai, Chennai)
1) HRA actually received for the relevant 1) HRA actually received for the relevant
period period
2) Rent paid (-) 10% of salary for the 2) Rent paid (-) 10% of salary for the
relevant period relevant period
3) 50% of salary for the relevant period 3) 40% of salary for the relevant period
NOTES:
1. Exemption is not available to an assessee who lives in his own house, or in a house for which he has
not incurred the expenditure of rent.
2. Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment
and commission as a fixed percentage of turnover.
SALARY= BASIC+DA+COMMISION AS A FIXED % OF TURNOVER
3. Relevant period means the period during which the said accommodation was occupied by the
assessee during the previous year.
4. For criteria of 50% or 40% of salary as deduction, place of employment is not significant but place
where the house is situated is important.
5. Salary shall be determined on due basis for the period for which the employee occupies rented
accommodation in the previous year and gets HRA.
CMA UJJAWAL JAIN

INCOME U/H SALARY
FOLLOWING ARE THE ALLOWANCE WHICH ARE EXEMPT UPTO A LIMIT THEREAFTER TAXABLE
ALLOWANCES PRESCRIBED FOR THE PURPOSES OF SECTION 10(14)(II)
S. No. Name of Allowance Extent to which

allowance is exempt
1. Any Special Compensatory Allowance in the nature Rs. 800 or Rs. 300 per
of Special Compensatory (Hilly Areas) month depending upon
Allowance or High Altitude Allowance or the specified locations
Uncongenial Climate Allowance or Snow Bound Rs. 7,000 per month in
Area Allowance or Avalanche Allowance Siachen area of Jammu
and Kashmir
2. Any Special Compensatory Allowance in the nature Rs. 1,300 or Rs. 1,100 or
of border area allowance or remote locality Rs. 1,050 or Rs. 750 or
allowance or difficult area allowance or Rs. 300 or Rs. 200 per
disturbed area allowance month depending upon
the specified locations
3. Special Compensatory (Tribal Areas/Schedule Rs. 200 per month
Areas/Agency Areas) Allowance [Specified
States]
4. Any allowance granted to an employee working in 70% of such allowance
any transport system to meet his personal upto a maximum of Rs.
expenditure during his duty performed in the 10,000 per month
course of running such transport from one place to
another, provided that such employee is not in
receipt of daily allowance
5. Children Education Allowance Rs. 100 per month per
child upto a maximum of
two children
6. Any allowance granted to an employee to meet Rs. 300 per month per
the hostel expenditure on his child child upto a maximum of
two children
7. Compensatory Field Area Allowance [Specified Rs. 2,600 per month
areas in Specified States]
8. Compensatory Modified Field Area Allowance Rs. 1,000 per month
[Specified areas in Specified States]
9. Any special allowance in the nature of counter Rs. 3,900 per month
insurgency allowance granted to the members
of the armed forces operating in areas away
from their permanent locations.
10. Any transport allowance granted to an Rs. 3,200 per month.
employee who is blind or deaf and dumb or
orthopedically handicapped with disability of
the lower extremities of the body, to meet his
expenditure for commuting between his
residence and place of duty
CMA UJJAWAL JAIN

INCOME U/H SALARY
12. Underground Allowance granted to an Rs. 800 per month
employee who is working in uncongenial,
unnatural climate in underground mines.
13. Any special allowance in the nature of high Rs. 1,060 per month
Altitude allowance granted to the member of Rs. 1,600 per month
the armed forces operating in high altitude
areas
For altitude of 9,000 to 15,000 feet
For above 15,000 feet
14. Any special allowance in the nature of special Rs. 4,200 per month
compensatory highly active field area
allowance granted to the member of the armed
forces
15. Any special allowance in the nature of Island Rs. 3,250 per month
(duty) allowance granted to the member of the
armed forces in Andaman & Nicobar and
Lakshadweep Group of Islands
FOLLOWING ALLOWANCE ARE FULLY EXEMPT BUT IF THEY ARE UTILISED
ALLOWANCES PRESCRIBED FOR THE PURPOSES OF SECTION 10(14)(I)
(a) any allowance granted to meet the cost of travel on tour or on transfer (Travelling /Transfer
Allowance); Explanation - “allowance granted to meet the cost of travel on transfer” includes any
sum paid in connection with the transfer, packing and transportation of personal effects on such
transfer.
(b) any allowance, whether granted on tour or for the period of journey in connection with transfer, to
meet the ordinary daily charges incurred by an employee on account of absence from his normal place
of duty (Daily allowance);
(c) any allowance granted to meet the expenditure incurred on conveyance in performance of duties
of an office or employment of profit (Conveyance Allowance);
(d) any allowance granted to meet the expenditure incurred on a helper where such helper is engaged
in the performance of the duties of an office or employment of profit (Helper Allowance);
(e) any allowance granted for encouraging the academic, research and training pursuits in educational
and research institutions (Research allowance);
(f) any allowance granted to meet the expenditure on the purchase or maintenance of uniform for
wear during the performance of the duties of an office or employment of profit (Uniform Allowance).
CMA UJJAWAL JAIN

INCOME U/H SALARY
ALLOWANCES WHICH ARE FULLY EXEMPT
(1) Allowance to Supreme Court/ High Court Judges: Any allowance paid to a Judge of a High Court
and Supreme Court under section 22A(2) of the High Court Judges (Conditions of Service) Act, 1954
and section 23(1A) of the Supreme Court Judges (Salaries and Conditions of services) Act, 1958,
respectively, is not taxable.
(2) Allowance received from United Nations Organisation (UNO): Allowance paid by the UNO to
its employees is not taxable by virtue of section 2 of the United Nations (Privileges and Immunities)
Act, 1947.
(3) Compensatory allowance under Article 222(2) of the Constitution: Compensatory allowance
received by judge under Article 222(2) of the Constitution is not taxable since it is neither salary not
perquisite†.
(4) Sumptuary allowance: Sumptuary allowance given to High Court Judges under section 22C of the
High Court Judges (Conditions of Service) Act, 1954 and Supreme Court Judges under section 23B of
the Supreme Court Judges (Conditions of Service) Act, 1958 is not chargeable to tax.
(5) Allowances payable outside India [Section 10(7)]: Allowances or perquisites paid or allowed
as such outside India by the Government to a citizen of India for services rendered outside India are
exempt from tax.
CMA UJJAWAL JAIN

INCOME U/H SALARY
House rent allowance [Section 10(13A)]: HRA is a special allowance specifically granted to an
employee by his employer towards payment of rent for residence of the employee.
HRA granted to an employee is exempt to the extent of least of the following:
Metro Cities (i.e. Delhi, Kolkata, Other Cities

Mumbai, Chennai)
1) HRA actually received for the relevant 1) HRA actually received for the relevant
period period
2) Rent paid (-) 10% of salary for the 2) Rent paid (-) 10% of salary for the
relevant period relevant period
3) 50% of salary for the relevant period 3) 40% of salary for the relevant period
NOTES:
1. Exemption is not available to an assessee who lives in his own house, or in a house for which he has
not incurred the expenditure of rent.
2. Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment
and commission as a fixed percentage of turnover.
SALARY= BASIC+DA(IF IT FORMS A PART OF RETIREMENT BENEFIT)+COMMISION AS A FIXED

% OF TURNOVER
3. Relevant period means the period during which the said accommodation was occupied by the
assessee during the previous year.
4. For criteria of 50% or 40% of salary as deduction, place of employment is not significant but place
where the house is situated is important.
5. Salary shall be determined on due basis for the period for which the employee occupies rented
accommodation in the previous year and gets HRA.
CMA UJJAWAL JAIN

INCOME U/H SALARY
CHILDREN EDUCATION ALLOWANCE
An allowance to meet the expenses in connection with education of children, by whatever
name called.
Treatment: Minimum of the following is exempted from tax -
a) Rs. 100 per month per child (to the maximum of two children)
b) Actual amount received for each child (to the maximum of two children)
CHILDREN HOSTEL ALLOWANCE

An allowance to meet the hostel expenses of children, by whatever name called.
Treatment: Minimum of the following is exempted from tax -
a) Rs. 300 per month per child (to the maximum of two children)
b) Actual amount received for each child (to the maximum of two children)
Notes for Children Education Allowance AND Hostel Allowance:

a) Child includes adopted child, step-child but does not include illegitimate child
[not recognized by the law] and grandchild.
b) Child may be major or minor child.
c) Deduction is available irrespective of actual expenditure incurred on
education of child.
CMA UJJAWAL JAIN

QUESTIONS OF INCOME U/H SALARY
HRA
QUESTION 1:
Mr. Raj Kumar has the following receipts from his employer:
(1) Basic pay Rs. 40,000 p.m.
(2) Dearness allowance (D.A.) Rs. 6,000 p.m.
(3) Commission Rs. 50,000 p.a.
(4) Motor car for personal use (expenses met by the employer) Rs. 1,500 p.m.
(5) House rent allowance Rs. 15,000 p.m.
Find out the amount of HRA eligible for exemption to Mr. Raj Kumar assuming that he paid a rent of
Rs. 16,000 p.m. for his accommodation at Kanpur. DA forms part of salary for retirement benefits.
SOLUTION:
HRA received Rs. 1,80,000
Less: Exempt under section 10(13A) [Note] Rs. 1,36,800
Taxable HRA Rs. 43,200
Note: Exemption shall be least of the following three limits:
(a) the actual amount received (Rs. 15,000 × 12) = Rs. 1,80,000
(b) excess of the actual rent paid by the assessee over 10% of his salary
= Rent Paid (-) 10% of salary for the relevant period
= (Rs. 16,000×12) (-) 10% of [(Rs. 40,000+Rs. 6,000) × 12] = Rs. 1,92,000 - Rs. 55,200 = Rs. 1,36,800
(c) 40% salary as his accommodation is situated at Kanpur

= 40% of [(Rs. 40,000+ Rs. 6,000) × 12] = Rs. 2,20,800
Note: For the purpose of exemption under section 10(13A), salary includes dearness allowance only
when the terms of employment so provide, but excludes all other allowances and perquisites.
CMA UJJAWAL JAIN

QUESTION 2:
X, a resident of Ajmer, receives Rs. 48,000 as basic salary during the relevant previous year . In
addition, he gets Rs. 4,800 as dearness allowance forming part of basic salary, 7% commission on
sales made by him (sale made by X during the relevant previous year is Rs. 86,000) and Rs. 6,000 as
house rent allowance. He, however, pays Rs. 5,800 as house rent.
Determine the quantum of exempted house rent allowance.
SOLUTION:
Computation of taxable house rent allowance of X for the A.Y. 2021-22
Particulars Details Amount

House Rent Allowance Received 6,000
Less: Minimum of the following being exempted u/s 10(13A)
a) Actual Amount Received 6,000
b) 40% of Salary (Note) 23,528
c) Rent paid – 10% of salary [Rs. 5,800 – Rs. 5,882] Nil Nil
Taxable House Rent 6,000
Allowance
Note: Salary for the purpose of HRA

Basic salary = Rs. 48,000
Dearness Allowance = Rs. 4,800
Commission (7% of Rs. 86,000) = Rs. 6,020
Total Salary for HRA = Rs. 58,820
Hence, exemption u/s 10(13A) is Nil.
CMA UJJAWAL JAIN

QUESTION 3:
Compute the taxable house rent allowance of Mr. Abhijeet from the following data:
• Basic Salary Rs. 5,000 p.m., D.A. Rs. 2,000 p.m., HRA Rs. 4,000 p.m., Rent paid Rs. 4,000 p.m. in Pune.
• On 1/07/2020, there is an increment in Basic salary by Rs. 1,000.
• On 1/10/2020, employee hired a new flat in Kolkata at the same rent as he was posted to Kolkata.
• On 1/01/2021, employee purchased his own flat and resides there.
SOLUTION:
Computation of taxable house rent allowance of Mr. Abhijeet for the A.Y. 2021-22
Particulars Details Amount Amount

House Rent Allowance Received (from 1.4.2020 to 12,000
30.6.2020)
Less: Minimum of the following being exempted u/s
10(13A)
b) 40% of Salary [(Rs. 5,000 + Rs. 2,000) * 3] 8,400
c) Rent paid – 10% of salary (Rs. 12,000 – Rs. 2,100) 9,900 8,400 3,600
30.9.2020)
10(13A)
b) 40% of Salary [(Rs. 6,000 + Rs. 2,000) * 3] 9,600
31.12.2020)
10(13A)
b) 50% of Salary [(Rs. 6,000 + Rs. 2,000) * 3] 12,000
House Rent Allowance Received (from 1.1.2021 to
31.3.2021)
(Fully taxable as assessee resides in his own house) 12,000
Taxable House Rent 20,400
Allowance
CMA UJJAWAL JAIN

CHILDREN EDUCATION / HOSTEL ALLOWANCE
QUESTION 1:
Mr. Laloo Singh, received education allowance of Rs. 80 p.m. for his 1st child, Rs. 90 p.m. for
his 2nd child and Rs. 120 p.m. for his 3rd child. He also received hostel allowance of Rs.
1,000 p.m. None of his children are studying. Find taxable Children Education Allowance and
Hostel allowance.
SOLUTION:
Computation of taxable children education allowance for Mr. Laloo Singh for the A.Y. 2021-22

Hostel allowance 12,000
Less: Exempted (Rs. 300 * 2 * 12) 7,200 4,800
Children Education allowance [(Rs. 80 * 12) + (Rs. 90 * 12) + (Rs. 120 * 3,480
12)]
Less: Exempted {(Rs. 100 + Rs. 90) * 12} 2,280 1,200
Taxable Allowance 6,000
Note: Education allowance is allowed for any two children of assessee therefore education
allowance of first child (which is the lowest one i.e. Rs. 80 only) is not considered, to avail
higher deduction.
QUESTION 2:
Mr. & Mrs. X have three children and two of them are not studying. Both Mr. & Mrs. X are working in A
Ltd. and getting children education allowance Rs. 500 per month and hostel allowance Rs. 1,000 per
month. Compute taxable children education allowance and hostel allowance.
SOLUTION:
Computation of taxable allowance of Mr. & Mrs. X
Particulars Mr. X Mrs. X
Details Amount Details Amount
Education allowance (Rs. 500 * 12) 6,000 6,000
Less: Exemption (Rs. 100 * 12 * 2) 2,400 3,600 2,400 3,600
Hostel Allowance (Rs. 1,000 * 12) 12,000 12,000
Less: Exemption (Rs. 300 * 12 * 2) 7,200 4,800 7,200 4,800
Taxable 8,400 8,400
Allowance
CMA UJJAWAL JAIN

CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF RENT FREE UNFURNISHED ACCOMMODATION (RFA)
Rent-free accommodation is taxable in the hands of all employees (except the Judges of High Court or
Supreme Court and Official of the Parliament or Union Minister and a leader of Opposition).
Accommodation here includes fixed as well as floating structure.
Fixed Structure A house, flat, farm house (or a part there of), accommodation in hotel, motel, service
apartment, a guest house, etc.
Floating Structure A caravan, mobile home, ship etc.
FOR THE PURPOSE OF VALUATION, EMPLOYEES ARE DIVIDED INTO THREE CATEGORIES:
a. Employees of the Central or State Government or of any undertaking under the control of the
Government;
b. Accommodation provided by Government to an employee serving on deputation
c. Other employees
I) Central and State Government Employee (including military person)
Where the accommodation is provided by the Central Government or any State Government to the
employees either holding office or post in connection with the affairs of the Union or of such State, the
value of perquisite in respect of such accommodation is equal to the licence fee, which would have
been determined by the Central or State Government in accordance with the rules framed by the
Government.
{Academically, the taxable value of the perquisite will be mentioned in the Question}
Taxpoint: Employees of a local authority or a foreign government are not covered under this
category.
CMA UJJAWAL JAIN

INCOME U/H SALARY
II) ACCOMMODATION PROVIDED BY GOVERNMENT TO AN EMPLOYEE SERVING ON
DEPUTATION
Where the accommodation is provided by the Central Government or any State Government to an
employee who is serving on deputation with any body or undertaking under the control of such
Government, then the value of perquisite of such an accommodation shall be:
City in which accommodation is provided Value of perquisite
CITY IN WHICH ACCOMMODATION IS TAXABLE RFA

PROVIDED
Having population exceeding 25 lacs as per 2001 15% of salary shall be taxable for the period
census: during which the employee occupied the said
accommodation.
Having population exceeding 10 lacs but not 10% of salary shall be taxable for the period
exceeding 25 lacs as per 2001 census: during which the employee occupied the said
accommodation.
Any other city: 7.5% of salary shall be taxable for the period
during which the employee occupied the said
accommodation.
Note:
a) Salary for the purpose of Rent free accommodation: Salary here means:
Basic + Dearness allowance (if it forms a part of retirement benefit) + Bonus + Commission + Fees
+ All other taxable allowances (only taxable amount) + Any other monetary payment by whatever
name called (excluding perquisites and lump-sum payments received at the time of termination
of service or superannuation or voluntary retirement, like gratuity, severance pay leave
encashment, voluntary retrenchment benefits, commutation of pension and similar payments)
Taxpoint:
 Salary shall be determined on due basis.[ Not take arrears nor take advance]
 Where an assessee is receiving salary from two or more employers, the aggregate salary for
the period during which accommodation has been provided (by any of the employer) shall be
taken into account.
 Monetary payments, which are not in the nature of perquisite, shall be taken into account. E.g.
Leave encashment received during the continuation of service shall be included in salary for
this purpose.
 However, if such pay leave is received at the time of retirement, then such receipt shall
not be considered.
 Here salary does not include employer’s contribution to Provident Fund of the employee.
b) The employer of such an employee shall be deemed to be that body or undertaking where the
employee is serving on deputation.
CMA UJJAWAL JAIN
INCOME U/H SALARY
III) Other Employees (residual category)
The value of perquisite is determined as per the following table:
IF ACCOMMODATION IS OWNED BY THE EMPLOYER.
CITY IN WHICH ACCOMMODATION IS TAXABLE RFA

PROVIDED
Having population exceeding 25 lacs as per 2001 15% of salary shall be taxable for the period
census: during which the employee occupied the said
accommodation.
Having population exceeding 10 lacs but not 10% of salary shall be taxable for the period
exceeding 25 lacs as per 2001 census: during which the employee occupied the said
accommodation.
Any other city: 7.5% of salary shall be taxable for the period
during which the employee occupied the said
accommodation.
Notes:
a) Salary for the purpose of Rent free accommodation: Salary here means:
Basic + Dearness allowance/pay (if it forms a part of retirement benefit) + Bonus + Commission +
Fees + All other taxable allowances (only taxable amount) + Any other monetary payment by
whatever name called (excluding perquisites and lump-sum payments received at the time of
termination of service or superannuation or voluntary retirement, like gratuity, severance pay
leave encashment, voluntary retrenchment benefits, commutation of pension and similar
payments)
TAXPOINT:
 Salary shall be determined on due basis.
 Where an assessee is receiving salary from two or more employers, the aggregate salary for the
period during which accommodation has been provided (by any of the employer) shall be
taken into account.
 Monetary payments, which are not in the nature of perquisite, shall be taken into account.
E.g. Leave encashment received during the continuation of service shall be included in salary
for this purpose.
 However, if such pay leave is received at the time of retirement, then such receipt shall not be
considered.
 Here salary does not include employer’s contribution to Provident Fund of the employee.
CMA UJJAWAL JAIN

INCOME U/H SALARY
b) Exemption of 90 days in case of allotment of two houses: Where an employee is transferred
from one place to another and he is provided with an accommodation at new place also, the value of
perquisite shall be taken for only one such house having lower value for a period not exceeding 90
days. Thereafter, the values of both such houses are taxable.
c) Any accommodation provided to an employee working at a mining site; or an on-shore oil

exploration site; or
a project execution site; or a dam site; or a power generation site; or an off-shore site, which being of a
temporary nature and having plinth area not exceeding 800 sq.ft. is located not less than 8 kms away
from the local limits of any municipality or a cantonment board; or
b. is located in a remote area.
c) Remote area here means an area located at least 40 K.M. away from a town having population not
exceeding 20,000 as per latest published census.
VALUATION OF RENT FREE FURNISHED ACCOMMODATION

Furnished accommodation means Accommodation + Furniture.
Value of Furnished accommodation = Value of accommodation + Value of furniture
Valuation of Accommodation: As discussed above.

Valuation of Furniture: As per the following table
Case Taxable value

Furniture owned by the employer 10% of original cost of furniture
Furniture hired by the employer Actual hire charges paid/payable by the
employer
Notes:
1. “Furniture” here, includes refrigerator, television, radio, air-conditioner and
other household appliances, etc.
2. The above rule is applicable to Government as well as Non-Government
Employees.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF ACCOMMODATION PROVIDED AT CONCESSIONAL RENT
Valuation will be made as if the rent-free accommodation is provided and the amount so computed
will be reduced by the rent payable by the employee.
Value of Rent free accommodation as usual *****

Less: Rent payable by employee to employer for the above facility ****
Taxable value of perquisite ****
Taxpoint: The above rule of valuation shall be applicable in case of the Government employee
also.
ACCOMMODATION PROVIDED IN A HOTEL
In this case, value of perquisite shall be minimum of the following:
a) 24% of salary for the period such accommodation is provided; or
b) Actual charges paid or payable to such hotel.
However, if the following conditions are satisfied then nothing is taxable -
• Such accommodation is provided for a period not exceeding in aggregate 15
days; and
• Such accommodation is provided on transfer of employee from one place to
another place.
Note: If the employee pays any rent, the value so determined shall be reduced
by the rent actually paid orpayable by the employee
Taxpoint:
 Salary here has the same meaning as in the case of rent-free accommodation.
 Above rule shall be applicable whether the assessee is a Government or a Non-
Government employee.
 If the facility is provided for more than 15 days, then the perquisite is exempt for first 15
days and thereafter taxable. E.g. if facility has been provided for 45 days then taxable
perquisite shall be only for last 30 days.
 Hotel includes licensed accommodation in the nature of motel, service apartment or
guest house.
CMA UJJAWAL JAIN

INCOME U/H SALARY
RENT FREE ACCOMODATION [RFA]
QUESTION 1:
Mr. C is a Finance Manager in ABC Ltd. The company has provided him with rent-free unfurnished
accommodation in Mumbai. He gives you the following particulars:
Basic salary Rs. 6,000 p.m.

Dearness Allowance Rs. 2,000 p.m. (30% is for retirement benefits)
Bonus Rs. 1,500 p.m.
Even though the company allotted the house to him on 1ST APRIL he occupied the same only from 1ST
NOVEMBER. Calculate the taxable value of the perquisite.
SOLUTION
Value of the rent free unfurnished accommodation
= 15% of salary for the relevant period

= 15% of [(Rs. 6000 × 5) + (Rs. 2,000 × 30% × 5) + (Rs. 1,500 × 5)] [See Note below]
= 15% of Rs. 40,500 = Rs. 6,075.
Note: Since, Mr. C occupies the house only from 1ST NOVEMBER, we have to include the salary due to
him only in respect of months during which he has occupied the accommodation. Hence salary for 5
months (i.e. from 1ST NOVEMBER to 31ST MARCH) will be considered.
QUESTION 2
Using the data given in the previous QUESTION 1, compute the value of the perquisite if Mr. C is
required to pay a rent of Rs. 1,000 p.m. to the company, for the use of this accommodation.
SOLUTION
First of all, we have to see whether there is a concession in the matter of rent. In the case of
accommodation owned by the employer in cities having a population exceeding 25 lakh, there would
be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable from the
employee.
In this case, 15% of salary would be Rs. 6,075 (i.e. 15% of Rs. 40,500). The rent paid by the employee
is Rs. 5,000 (i.e., Rs. 1,000 x 5). Since 15% of salary exceeds the rent recovered from the employee,
there is a deemed concession in the matter of rent. Once there is a deemed concession, the provisions
of Rule 3(1) would be applicable in computing the taxable perquisite.
Value of the rent free unfurnished accommodation = Rs. 6,075

Less: Rent paid by the employee (Rs. 1,000 × 5) = Rs. 5,000
Perquisite value of unfurnished accommodation = Rs. 1,075 given at concessional rent.
CMA UJJAWAL JAIN

INCOME U/H SALARY
QUESTION 3:
Using the data given in QUESTION 1, compute the value of the perquisite if ABC Ltd. has taken this
accommodation on a lease rent of Rs. 1,200 p.m. and Mr. C is required to pay a rent of Rs. 1,000 p.m. to
the company, for the use of this accommodation.
SOLUTION
Here again, we have to see whether there is a concession in the matter of rent. In the case of
accommodation taken on lease by the employer, there would be deemed to be a concession in the
matter of rent if the rent paid by the employer or 15% of salary, whichever is lower, exceeds rent
recoverable from the employee.
In this case, 15% of salary is Rs. 6,075 (i.e. 15% of Rs. 40,500). Rent paid by the employer is Rs. 6,000
(i.e. Rs. 1,200 x 5). The lower of the two is Rs. 6,000, which exceeds the rent paid by the employee i.e.
Rs. 5,000 (Rs. 1,000 x 5). Therefore, there is a deemed concession in the matter of rent. Once there is a
deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable
perquisite.
Value of the rent free unfurnished accommodation [Note] = Rs. 6,000
Value of unfurnished accommodation given at concessional rent = Rs. 1,000
Note: Value of the rent free unfurnished accommodation is lower of

(i) Lease rent paid by the company for relevant period = Rs. 1,200 × 5 = Rs. 6,000
(ii) 15% of salary for the relevant period (computed earlier) = Rs. 6,075
QUESTION 4
Using the data given in QUESTION 1, compute the value of the perquisite if ABC Ltd. has provided a
television (WDV Rs. 10,000; Cost Rs. 25,000) and two air conditioners. The rent paid by the company
for the air conditioners is Rs. 400 p.m. each. The television was provided on 1ST JANUARY. However,
Mr. C is required to pay a rent of Rs. 1,000 p.m. to the company, for the use of this furnished
accommodation.
SOLUTION
Here again, we have to see whether there is a concession in the matter of rent. In the case of
accommodation owned by the employer in a city having a population exceeding Rs. 25 lakh, there
would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable
from the employee.
In case of furnished accommodation, the excess of hire charges paid or 10% p.a. of the cost of
furniture, as the case may be, over and above the charges paid or payable by the employee has to be
added to the value arrived at above to determine whether there is a concession in the matter of rent.
CMA UJJAWAL JAIN

INCOME U/H SALARY
In this case, 15% of salary is Rs. 6,075 (i.e. 15% of Rs. 40,500). The rent paid by the employee is Rs.
5,000 (i.e. Rs. 1,000 x 5). The value of furniture of Rs. 4,625 (see Note below) is to be added to 15% of
salary. The deemed concession in the matter of rent is Rs. 6,075 + Rs. 4,625 - Rs. 5,000 = Rs. 5,700.
Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the
taxable perquisite.
Value of the rent free unfurnished accommodation (computed earlier) = Rs. 6,075
Add: Value of furniture provided by the employer [Note] = Rs. 4,625
Value of rent free furnished accommodation = Rs. 10,700

Value of furnished accommodation given at concessional rent = Rs. 5,700

Note: Value of the furniture provided = (Rs. 400 p.m. × 2 × 5 months) + (Rs. 25,000 × 10% p.a. for 3
months) = Rs. 4,000 + Rs. 625 = Rs. 4,625
QUESTION 5:
Using the data given in QUESTION 4 above, compute the value of the perquisite if Mr. C is a
government employee. The licence fees determined by the Government for this accommodation was
Rs. 700 p.m.
SOLUTION
In the case of Government employees, the excess of licence fees determined by the employer as
increased by the value of furniture and fixture over and above the rent recovered/ recoverable from
the employee and the charges paid or payable for furniture by the employee would be deemed to be
the concession in the matter of rent. Therefore, the deemed concession in the matter of rent is Rs.
3,125 [i.e. Rs. 3,500 (licence fees: Rs. 700 x 5) + Rs. 4,625 (Value of furniture) – Rs. 5,000 (Rs. 1,000 ×
5)].
Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the
taxable perquisite.
Value of the rent free unfurnished accommodation (Rs. 700 × 5) = Rs. 3,500
Add: Value of furniture provided by the employer (computed earlier) = Rs. 4,625
Value of rent free furnished accommodation = Rs. 8,125

Perquisite value of furnished accommodation given at concessional rent = Rs. 3,125
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF MOTOR CAR [RULE 3(2)]
1. If motor car is provided by the employer to the employee, it will be perquisite in the
hands of specified employees only. However, the use of any vehicle provided by a
company or an employer for journey by the assessee from his residence to his office or
other place of work, or from such office or place to his residence shall not be regarded
as a benefit given or provided to him free of cost or at concessional rate.
2. But if the motor car is owned by the employee and used by him or members of his
family wholly for personal purpose and for which employer reimburses the running
and maintenance expenses of the car, it will be perquisite in the hands of all
employees.
3. Motor-car facility provided by an employer is taxable in the hands of employee on the

following basis:
Car is Car is Used by Taxable value Who is Chargeable

owned Maintained employee
by by for
Office purpose Not a perquisite Not applicable
Employer Personal M1+D2 Specified
purpose Employee
Both purpose Rs. 1800 or Rs.
2400 p.m.3
Employer Employee Personal D Specified
purpose employee
Both purpose Rs. 600 / Rs.
900 p.m.4
Personal M All employee
purpose
Actual expenditure
Employee Employer incurred by the
employer as reduced
by Rs. 1800 / Rs. 2400
Both purpose p.m.3 (further
deduction of Rs. 900
p.m. for driver) or a
higher deduction if
prescribed conditions
are satisfied5
Employee Any purpose Not a perquisite Not
applicable
CMA UJJAWAL JAIN

INCOME U/H SALARY
INTREPRETATION : 1. M = Maintenance cost
2. D = Depreciation @ 10% of actual cost of the car.
However, if the car is not owned by employer then actual hire
charge incurred by employer shall be considered.
3. Rs. 2400 p.m. in case of higher capacity car# and Rs. 1800 p.m. for
lower capacity car.
4. Rs. 900 p.m. in case of higher capacity car# and Rs. 600 p.m. for
lower capacity car.
# Higher capacity car means a car whose cubic capacity of engine
exceeds 1.6 litres.
5. Conditions to be fulfilled for claiming higher deductions:
 The employer has maintained complete details of journey
undertaken for official purpose, which may include date of
journey, destination, mileage, and the amount of expenditure
incurred thereon; and
 The employer gives the certificate to the effect that the
expenditure was incurred wholly and exclusively for the
performance of official duties.
CHAUFFEUR / DRIVER If chauffeur is also provided, then salary of chauffeur is further to be added
to the value of perquisite (as computed above). However, if car is used for
both i.e. official and personal purpose then Rs. 900 p.m. (irrespective of
higher or lower capacity of car) is to be taken as value of chauffeur
perquisite.
Notes:
a) If motor car is provided at a concessional rate then
charges paid by employee for such car, shall be reduced
from the value of perquisite.
b) The word “month” denotes completed month. Any part of the
month shall be ignored.
c) When more than one car is provided to the employee, otherwise
than wholly and exclusively for office purpose, the value of
perquisite for -
 One car shall be taken as car is provided partly for office and
partly for private purpose i.e. Rs. 1,800 or Rs. 2,400 p.m. (plus
Rs. 900 p.m. for chauffeur, if provided); and
CMA UJJAWAL JAIN
INCOME U/H SALARY
 For other car(s), value shall be calculated as car(s) are
provided exclusively for private purpose.
d) Conveyance facility to the judges of High Court or Supreme
Court is not taxable.
e) Use of any vehicle provided to an employee for journey from
residence to work place or vice versa is not a taxable
perquisite.
CMA UJJAWAL JAIN

QUESTION OF INCOME U/H SALARY
QUESTION 1
Sonam, has been provided a car (1.7 ltr.) by his employer Vikash Ltd. The cost of car to the
employer was Rs. 3,50,000 and maintenance cost incurred by the employer Rs. 30,000 p.a.
Chauffeur salary paid by the employer Rs. 3,000 p.m.
Find value of perquisite for Sonam , if the car is used for:
a) Office purpose. b) Personal purpose. c) Both purpose.
In case (b) and (c), employee is being charged Rs. 15,000 p.a. for such facility.
Solution:
a) Nil, as car is used for office purpose.
b) Taxable value of car facility:

Depreciation of Car 10% of Rs. 3,50,000 35,000
Maintenance cost Actual 30,000
Driver’s salary Actual 36,000
Total 1,01,000
Less: Amount charged from employee 15,000
Taxable Perquisite 86,000
c) Rs. 2,400 p.m. for car facility + Rs. 900
p.m. for driver facility = Rs. 3,300 p.m.
Taxable value of perquisite Rs. 3,300 *
12 = Rs. 39,600.
Note: Whenever statutory value (Rs. 1,800 or Rs. 2,400 and Rs. 600 or Rs. 900) is taken as
taxable value of perquisite then amount charged from employee shall not be subtracted.
QUESTION 2:
Mr. Piyush has been provided a car (1.5 ltr.) on 15th JULY The cost of car to the employer was
Rs. 6,00,000 and maintenance cost incurred by employer Rs. 20,000 p.a. Chauffeur salary paid
by employer (Mr. Ratan) Rs. 4,000 p.m. The car is 40% used for office and 60% for personal
purpose. Charges paid by employee for such facility Rs. 5,000 p.a. Find taxable value of
perquisite.
CMA UJJAWAL JAIN

SOLUTION:
Taxable value of perquisite

Car Rs. 1,800 * 8 14,400
Driver Rs. 900 * 8 7,200
1. A part of month shall not be considered for this purpose.
2. Whenever statutory value is taken as taxable value of perquisite then
amount charged from employee shallnot be subtracted.
QUESTION 3:
Mr. Vikram being a Government employee has a car (1.7 ltr.) used for office as well as for
personal purpose. During the year, he incurred Rs. 40,000 on maintenance and Rs. 20,000 on
driver’s salary. The entire cost is reimbursed byemployer. Find taxable perquisite.
SOLUTION:
Taxable perquisite in the hands of Mr. Vikram
As the car is owned by the assessee & maintained by the employer, taxable value of perquisite
shall be -
Actual expenditure incurred by the employer as reduced by Rs. 2,400 p.m. (in case
of 1.7 ltr.) and Rs. 900 p.m. for driver’s salary. Hence, taxable amount shall be -
Amount reimbursed by employer (Rs. 40,000 + Rs. 20,000) Rs. 60,000

Less: Deduction for the amount used for office purpose (Rs. 2,400 + Rs. 900) * 12 Rs. 39,600
Taxable amount Rs. 20,400
QUESTION 4:
Wasim has a car (1.5 ltr.) used for office as well as for personal purpose. During the year car is
used 80% for business purpose being certified by the employer. During the year, he incurred
Rs. 50,000 on maintenance and running of such car. The entire cost is reimbursed by the
employer. Find taxable perquisite if assessee wish to claim higher deduction, when – (a) A proper
log book is maintained; (b) A proper log book is not maintained.
CMA UJJAWAL JAIN

SOLUTION:
a) When log book is maintained
Taxable perquisite in the hands of Wasim
Actual expenditure incurred by the employer is reduced to the extent it is used for
office purpose, as a proper record is kept and duly certified by employer.
Amount reimbursed by the employer Rs. 50,000

Less: Deduction (80% of Rs. 50,000) Rs. 40,000
Taxable Rs. 10,000
amount
b) When log book is not maintained

Taxable perquisite in the hands of Wasim
Actual expenditure incurred by the employer is reduced to the extent of Rs. 1,800 p.m. even
though it is used for office purpose but a proper record is not kept.
Amount reimbursed by the employer Rs. 50,000

Less: Deduction (Rs. 1,800 * 12) Rs. 21,600
Taxable amount Rs. 28,400
QUESTION 5: Amit is provided with two cars, to be used official & personal work, by his employer
Raj. The following information is available from the employer records for computing taxable
value of perk (assuming car 1, is exclusively used byAmit).
Particulars Car 1 Car 2

Cost of the car 6,00,000 4,00,000
Running and maintenance (borne by the company) 40,800 28,000
Salary of driver (borne by the company) 24,000 24,000
SOLUTION:
Valuation of perquisite for Mr. Amit
Particulars Workings Details Amount

Valuation of perquisite in respect of Car 1
- Depreciation of car 10% of Rs. 60,000
6,00,000
- Maintenance 40,800
- Driver salary 24,000 1,24,800
Valuation of perquisite in respect of Car 2 (Rs. 1,800 + Rs. 32,400
(assumed capacity of engine does not exceed 900) * 12
1.6 cc)
Value of car perquisite 1,57,200
CMA UJJAWAL JAIN

QUESTION 6:
Mr. Vijay, manager, has been provided the following car facilities by Kishan Ltd. (his
employer) -
Particulars Car A Car B Car C

Owned by Employer Employer Employer
Used for Office as well as personal Personal
purpose purpose
Cost of car 3,00,000 5,00,000 2,00,000
Maintenance expenditure incurred by 50,000 60,000 -
employer
Maintenance expenditure incurred by 40,000
employee
Capacity of car 1.8 ltr. 1.4 ltr. 1.6 ltr.
Find taxable value of car facility.
Case a) Mr. Vijay holds 17% of equity share capital and 30% of preference share capital of
Kishan Ltd. and his wife holds 13% equity share capital of the same company. Assume his total
salary during the year other than perquisiteis Rs. 40,000;
Case b) Mr. Vijay holds 25% equity share capital of the employer company.
Solution:
Case a) Since Mr. Vijay is not a specified employee & employer owns all cars therefore car
facility shall not be taxable.
Case b) Since Mr. Vijay holds substantial interest in employer-company hence he is a
specified employee.
As employee has been provided 2 cars, used for office as well as for personal purpose,
therefore he will have to opt one car as for ‘office as well as personal purpose’ & the other car
for personal purpose. In the given case, assessee has two options -
Option 1) Car A is used for office as well as personal purpose and car B is used
for personal purpose.
CMA UJJAWAL JAIN

Option 2) Car A is used for personal purpose and car B is used for office as
well as personal purpose. In any case, Car C is used for Personal purpose.
Workings Option 1 Option 2

Particulars Car A Car B Car C Car A Car B Car C
Car used Both Personal Personal Personal Both Personal
for
Valuation Rs. 2,400 * 12 28,800
10% of Rs. 5,00,000 + 1,10,000
Rs. 60,000
10% of Rs. 2,00,000 20,000 20,000
10% of Rs. 3,00,000 + 80,000
Rs. 50,000
Rs. 1,800 * 12 21,600
Total 1,58,800 1,21,600
As option 2 has lesser taxable value, hence assessee will opt for option 2 & taxable value
shall be Rs. 1,21,600.
CMA UJJAWAL JAIN

INCOME U/H SALARY
MEANING OF SPECIFIED EMPLOYEE FOR TAXABLE PERQUISITES
[SECTION 17(2)(III)]
AN EMPLOYEE SHALL BE A SPECIFIED EMPLOYEE, IF HE FALLS UNDER ANY OF THE FOLLOWING
THREE CATEGORIES:
1. he is a Director of a company; or
2. he has a substantial interest in the As per section 2(32), person who has a
company; or substantial interest in the company, in relation to
a company means a person who is the beneficial
owner of shares, not being shares entitled to a
fixed rate of dividend whether with or without a
right to participate in profits, carrying not less
than 20% of the voting power;
Here the word beneficial owner is significant.
It means that even if a person is not a registered

holder of shares in a company but has beneficial
interest in such shares, he shall be covered by this
definition and conversely,
even if a person is a registered holders of shares

but has no beneficial interest in such shares, he
shall not be covered by this definition.
Thus, the beneficial ownership is the criterion

under this definition.
3. his income under the head 'Salaries' (whether due from, or paid or allowed by, one or more
employers), exclusive of the value of all benefits or amenities not provided for by way of
monetary payment, exceeds Rs. 50,000.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF VEHICLE OTHER THAN MOTOR CAR
The facility provided by employer is taxable in the hands of employee on the following basis:
Owned by Maintained Used for Taxable Value of Who is

by perquisite Chargeable
Office Nil Not
purpose Applicable
Employer
Personal Actual Maintenance + Depreciation @
purpose 10% ofOriginal cost Specified
Both Reasonable proportion of employee
purpose (Maintenance +Depreciation @ 10% of
Original cost)
Office Nil Not
purpose Applicable
Employee Employer Personal Actual Maintenance
purpose
Actual expenditure incurred by the All
Both employer as reduced by Rs. 900 p.m. employee
purpose or as reduced by higher sum if
prescribed conditions (as discussed in
caseof Car facility) are satisfied.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF GRATUITY
Gratuity is a retirement benefit given by the employer to the employee in consideration of past
services. Sec. 10(10) deals with the exemptions from gratuity income. Such exemption can be claimed
by a salaried assessee. Gratuity received by an assessee other than employee shall not be eligible for
exemption u/s 10(10). E.g. Gratuity received by an agent of LIC of India is not eligible for exemption
u/s 10(10) as agents are not employees of LIC of India.
Gratuity received during continuation of service

Case A: Gratuity received during continuation
of service [FULLY TAXABLE FOR ALL] is fully taxable in the hands of all employee
(whether Government or non-Government
employee).
Case B: Gratuity received at the time of Gratuity received at the time of termination of
termination of service by Government service by Government employee is fully
employee exempt from tax u/s 10(10) (i).
Taxpoint: Government employee, here, includes

employee of the Central or the State Government
or local authority but does not include employee
of statutory corporation.
Case C: Gratuity received at the time of In such case, minimum of the following shall be
termination of service by non–government exempted from tax u/s 10(10)(ii):
(including foreign government) employee, 1. Actual Gratuity received;
covered by the Payment of Gratuity Act. 2. Rs. 20,00,000; or
3. 15 working days salary for every completed
NOTES: year of service
a) Completed year of service includes any [Arithmetically, 15/26 * Completed year of

fraction in excess of 6 months. (e.g. 7 years 9 service * Salary p.m.]
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

c) In case of an employee of a seasonal
establishment: 15 days shall be replaced by 7
days. (i.e., 7/26 * Completed year of service *
Salary p.m.)
d) In case of a piece-rated employee: 15 days
salary would be computed on the basis of average
of total wages (excluding wages paid for over
time) received for a period of 3 months
immediately preceding the termination of his
employment.
CMA UJJAWAL JAIN

INCOME U/H SALARY
Gratuity received at the time of termination of

Case D: Gratuity received at the time of
service by non-government employee being not
termination of service by non-government
covered under the Payment of Gratuity Act shall
employee (including foreign government
be exempted from tax u/s 10(10)(iii) to the
employee) not covered under the Payment of
extent of lower of the following:
Gratuity Act.
1. Actual Gratuity received;
2. Rs. 20,00,000; and
3. ½ * 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.
Note: Applicable in Case D and not in Case C

While claiming the statutory amount (i.e. Rs. 20,00,000) any amount earlier claimed as deduction u/s
10(10) shall be reduced from Rs. 20,00,000.
Example: An assessee left a job in the year 1995-96 and claimed a deduction of Rs. 40,000 for gratuity
in that year. He joined another organisation, left the same in the year 2020-21, and received a gratuity
of Rs. 19,80,000. While calculating exemption for gratuity for the assessment year 2021-22, statutory
amount of Rs. 20,00,000 shall be reduced by earlier deduction claimed i.e. Rs. 40,000. Hence, statutory
deduction limit for the assessee in the A.Y. 2021-22 will be Rs. 19,60,000 only.
Note: Applicable in Case C and Case D
Where gratuity is received from more than one employer: Where gratuity is received from more than
one employer in the same previous year, the aggregate amount exempt from tax shall not exceed
statutory deduction.
CMA UJJAWAL JAIN

INCOME U/H SALARY
AFTER DEATH
Case E: Gratuity received after death of employee The Act is silent on treatment of gratuity received
after death of employee. However, on following
grounds, it can be concluded that gratuity
received by a legal heir shall not be taxable in the
hands of the recipient -
 A lump sum payment made gratuitously to
widow or legal heir of employee, who dies
while in service, by way of compensation
or otherwise is not taxable under the head
“Salaries”.
 Unutilised deposit under the capital gains
deposit account scheme shall not be
taxable in the hands of legal heir.
 Legal representative is not liable for
payment of tax on income that has not
accrued to the deceased till his death.
 Leave salary paid to the legal heir of
deceased employee is not taxable as
salary. Further, leave salary by a legal heir
of the Government employee who died in
harness is not taxable in the hands of the
recipient
Taxpoint: If gratuity becomes due before the

death of the assessee (no matter when and by
whom received), it shall be taxable in the hands of
employee. Whereas if gratuity becomes due after
the death of assessee, it shall not be taxable (even
in the hands of legal heir of the assessee).
CMA UJJAWAL JAIN

GRATUITY
QUESTION 1
Ashok, an employee of ABC Ltd., receives Rs. 2,05,000 as gratuity under the Payment of Gratuity Act, 1972.
He retires on 10th September after rendering service for 35 years and 7 months. The last drawn salary
was Rs. 2,700 permonth. Calculate the amount of gratuity chargeable to tax.
SOLUTION:
Computation of taxable gratuity of Mr. Ashok

Gratuity received 2,05,000
Less: Minimum of the following is exempted as per Sec 10(10)(ii):
a) Actual gratuity received 2,05,000
b) Statutory Amount 20,00,000
c) 15/26 * completed year of service * salary p.m. [15/26 * 36 * Rs. 56,077 56,077
2,700]
Taxable Gratuity 1,48,923
QUESTION 2:
Mr. Oldman retired from his job after 29 years 6 months and 15 days of service on 17/12/2020
and received gratuity amounting Rs. 4,00,000. His salary at the time of retirement was basic Rs.
6,000 p.m., dearness allowance Rs. 1,200 p.m., House rent allowance Rs. 2,000, Commission on
turnover 1%, Commission on profit Rs. 5,000. He got an increment on 1/4/2020 of Rs. 1,000
p.m. in Basic. Turnover achieved by assessee Rs. 1,00,000 p.m. Calculate his taxable gratuity if
he is a —
a) Government employee Non-Government employee, covered by the
Payment of Gratuity Act;
b) Non-Government employee not covered by the Payment of Gratuity

Act
CMA UJJAWAL JAIN

SOLUTION:
a) Government employee: Taxable amount: Nil as per section 10(10)(i).
b) Other cases:
Computation of taxable gratuity of Mr. Oldman
Particulars Case (b) Case (c)

Gratuity received 4,00,000 4,00,000
Less: Min. of the following is exempted u/s 10(10)
— Actual gratuity received 4,00,000 4,00,000
— Statutory Amount 20,00,000 20,00,000
— 15/26 * completed year of service * 1,24,615 1,24,615
salary p.m.[15/26 * 30 * 7,200]
— ½ * completed year of service * 1,16,000 1,16,000
1
salary p.m.[ /2 * 29 * 8,000]
Taxable 2,75,385 2,84,00
Gratuity 0
Workings for case (b):
1. Completed year of service is 30 years.
2. Salary here means (Basic + Dearness Allowance) last drawn. i.e. (Rs. 6,000 + Rs. 1,200) = Rs.
7,200
Workings for case (c):
1. Completed year of service is 29 years.
2. Salary here means Basic + Dearness Allowance + Commission on turnover,
being last 10 months average justpreceding the month of retirement, as
shown below:
Particulars 1 2 3 4 5 6 7 8 9 10 Total
Feb’ 20 Mar Apr May June July Aug Sept Oct Nov
Basic 5,000 5,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 58,000
D.A. 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,200 12,000
Commissio 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 10,000
n
Total 80,000
Average salary = Rs. 80,000 / 10 months 8,000
CMA UJJAWAL JAIN

QUESTION 3:
Mrs. X is working with ABC Ltd. since last 30 years 9 months. Her salary structure is as under:
Basic Rs. 5,000 p.m. Dearness allowance Rs. 3,000 p.m.
On 15TH DECEMBER, she died. State the treatment of gratuity in following cases:
Case 1: Mrs. X retired on 10TH DECEMBER & gratuity Rs. 4,00,000 received by her
husband (legal heir) as on 18TH DECEMBER
Case 2: Husband of Mrs. X received gratuity on 18TH DECEMBER falling due after
death of Mrs. X. Mrs. X is covered by the Payment of Gratuity Act.
SOLUTION:
In Case 1, Computation of taxable gratuity in hands of Mrs. X

Total Gratuity received 4,00,000
Less: Minimum of the following is exempted as per Sec 10(10)(ii):
a) Actual gratuity received 4,00,000
c) 15/26 * completed year of service * salary p.m. [15/26 * 31 * Rs. 1,43,077 1,43,077
8,000]
Taxable Gratuity 2,56,923
In Case 2, Since gratuity falls due after the death of Mrs. X hence the same is not taxable in
hands of Mrs. X. Thesaid gratuity is not taxable even in hands of husband of Mrs. X.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF LEAVE ENCASHMENT
As per service contract and discipline, normally, every employee is allowed certain period of leave
(with pay) every year. Such leave may be availed during the year or accumulated by the employee.
The accumulated leave lying to the credit of an employee may be availed subsequently or encashed.
When an employee receives an amount for waiving leave lying to his credit, such amount is known as
leave salary encashment.
Case A: Leave salary received during Leave salary during continuation of service is
continuation of service fully taxable in the case of the Government
employee as well as other employees [Sec.
17(1)(va)].
Case B: Leave salary received by Government At the time of termination of service, leave salary
employee on termination of service received by the Central or State Government
employee is fully exempted u/s 10(10AA)(i).
Taxpoint: Government employee here does not

include employee of local authority or public
sector undertaking or foreign Government
employee.
Case C: Leave salary received by non- At the time of termination of service, leave salary
Government employee on termination of received by a non-Government employee
service (including employee of foreign Government, local
authority, public sector undertaking) is exempted
to the minimum of the following u/s
10(10AA)(ii):
a) Actual amount received as leave salary

b) Rs. 3,00,000/-
c) 10 * Average salary p.m.
d) To the maximum of 30 days (normally taken as
1 month) average salary1 for every completed
year of service2, subject to deduction for actual
leave availed during the tenure of service.
Academically: [{(1 * completed year of service) –

leave actually taken in terms of month} * average
salary
p.m.]
CMA UJJAWAL JAIN

INCOME U/H SALARY
NOTE:
 Average salary means Basic + DA# + Commission (as a fixed percentage on turnover) being last
10 months average salary ending on the date of retirement or superannuation. (e.g. if an
employee retires on 18/11/2020 then 10 months average salary shall be a period starting from
19th Jan’ 2020 and ending on 18th Nov’ 2020).
 If DA is not forming a part of retirement benefit then the same shall not be included in salary
for the above purpose. However, DA itself shall be fully taxable.
 While calculating completed year of service, ignore any fraction of the year. E.g. 10 years 9
months shall be taken as 10 years.
 Leave encashment received from more than one employer: Where leave encashment is
received from more than one employer in the same previous year, the aggregate amount
exempt from tax shall not exceed the statutory deduction i.e. Rs. 3,00,000.
 Earlier deduction claimed for leave encashment: While claiming the statutory amount (i.e.
Rs. 3,00,000) any deduction claimed earlier as leave encashment shall be reduced from Rs.
3,00,000.
CMA UJJAWAL JAIN

QUESTION 1
a) Mr. Bhanu is working in Zebra Ltd. since last 25 years 9 months. Company allows 2 months leave
for every completed year of service to its employees. During the job, he had availed 20 months leave.
At the time of retirement on 10/8/2020, he got Rs. 1,50,000 as leave encashment. As on that date, his
basic salary was Rs. 5,000 p.m., D.A. was Rs. 2,000 p.m., Commission was 5% on turnover + Rs. 2,000
p.m. (Fixed p.m.). Turnover effected by the assessee during last 12 months (evenly) Rs. 5,00,000.
Bhanu got an increment of Rs. 1,000 p.m. from 1/1/2020 in basic and Rs. 500 p.m. in D.A. Compute his
taxable leave encashment salary.
b) How shall your answer differ if the assessee had taken 2 months leave instead of 20 months, during
his continuation of job.
Solution:
Working
1. Completed year of service: 25 years 9 months = 25 years

2. As per sec. 3(35) of the General Clauses Act, 1897, shall mean a
month reckoned according to the British month calendar e.g. the
period commencing from 7th September & end on 6th October
shall be a month.
3. Salary here means Basic + Dearness Allowance + Commission on
turnover (last 10 months average from thedate of retirement)
Particulars Oct’ 19 Nov Dec Jan’ 20 Feb Mar April

May June July Aug Total
21days 10
Days
Basic 2,710 4,000 4,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 1,613 47,323
D.A. 1,016 1,500 1,500 2,000 2,000 2,000 2,000 2,000 2,000 2,000 645 18,661
Commissi 500000 * 5% * 20,833
on 10/12
Total 86,817
Average salary i.e. Rs. 86,817 / 10 months 8,682
Monthly fixed commission is irrelevant. Commission as fixed percentage of turnover is to be
considered.
Computation of taxable leave encashment salary of Mr. Bhanu for the A.Y.2021-22
Particulars Case (a) Case (b)

Leave encashment received 1,50,000 1,50,000
Less: Min. of the following is exempted u/s
10(10AA)(ii):
a) Actual amount received 1,50.000 1,50,000
b) Statutory Amount 3,00,000 3,00,000
c) 10 months * Av. Salary p.m. (10 * 8,682) 86,820 86,820
CMA UJJAWAL JAIN

d) [{1* completed year of service - Leave taken}
* salary p.m.]
^[{1 * 25 – 20} * 8,682] #[{1 * 25 – 2} * Rs. 8,682]
43,410^ 43,410 1,99,686 86,820
#
Taxable Leave Encashment 10,6590 63,180
QUESTION 2:
Mr. Das retired on 31/3/2021. At the time of retirement, 18 months leave was lying to the credit of his
account. He received leave encashment equivalent to 18 months Basic salary Rs. 1,26,000. His
employer allows him 1½ months leave for every completed year of service. During his tenure, he
availed of 12 months leave. At the time of retirement, he also gets D.A. Rs. 3,000. His last increment of
Rs. 1,000 in basic was on 1/4/2020. Find taxable leave encashment.
Solution:
Working:
1. Calculation of completed year of service: Employee has received 18 months leave encashment on
termination of service as well he had enjoyed leave of 12 months during his tenure. That means he
had received a leave benefit of 30 months. Since leave allowed by employer is 1½ months for every
completed year of service, this signifies that Mr. Das had completed 20 years (being 30/1½) of
service.
2. Salary here means, Basic + DA + Commission, being last 10 months average from the date of
retirement.
There is no increment in last 10 months (last increment was on 1/4/2020) and there is no
commission, hence Av. Salary
= Rs. 7,000 (i.e. Rs. 1,26,000/18) + Rs. 3,000 = Rs. 10,000 p.m.
Computation of taxable leave encashment of Mr. Das for the A.Y.

2021-22

Leave Encashment received 1,26,000
Less: Minimum of the following is exempt u/s 10(10AA)(ii):
a) Actual amount received 1,26,000
c) 10 months * Av. Salary p.m. (10 * 10,000) 1,00,000
d) {1* completed year of service - Leave taken}* Avg. 80,000 80,000
salary p.m.[{1 * 20 – 12}* Rs. 10,000]
Taxable Leave Encashment 46,000
CMA UJJAWAL JAIN

INCOME U/H SALARY
LEAVE TRAVEL CONCESSION {SECTION 10(5)}
If an employee goes on travel (on leave) with his family and traveling cost is reimbursed by the
employer, then such reimbursement is fully exempted.
Notes:
1) Journey may be performed during service or after retirement.
2) Employer may be present or former.
3) Journey must be performed to any place within India.
4) In case, journey was performed to various places together, then exemption
is limited to the extent of cost of journey from the place of origin to the farthest
point reached, by the shortest route.
5) Employee may or may not be a citizen of India.
6) Stay cost is not exempt.
Exemption: Exemption is limited to the amount actually incurred on the travel to the extent as
under:
Journey performed Maximum exempted fare

By Air Air economic class fare of shortest route
By Rail Air conditioned 1st class fare of shortest
route
When the place of origin and destination Same as above
is connected by rail but journey is
performed by any other mode of
transport
When the place of origin and destination is not connected by rail:
Where a recognised public transport First class or deluxe class fare, as the case
system exists may be, onsuch transport.
Where no recognised public transport Amount equivalent to air-conditioned 1st
system exists class rail fare, for the distance of the
journey by the shortest route, as if journey
had been performed by rail.
CMA UJJAWAL JAIN

INCOME U/H SALARY
NOTES:
a) No exemption can be claimed without performing journey and incurring expenses
thereon.
b) Block-period: Exemption is available in respect of 2 journeys performed in a
block of 4 calendar years commencing from 1st January 1986.
c) Carry-forward facility: Where concession is not availed during the preceding
block (whether on one occasion or both), then any one journey performed in
the first calendar year of the immediately succeeding block will be additionally
exempted (i.e. not counted in two journey limit)
d) Family: Family here means -
• Spouse and children of the individual; and
• Parents, brothers and sisters of the individual, who are wholly or mainly
dependent on him.
e) Restriction on number of children: Exemption can be claimed for any number of
children born on or before30/9/1998. In addition, exemption is available only for
2 surviving children born on or after 1/10/1998.
However, children born out of multiple birth, after the first child, will be treated as one child
only.
f) Fixed Leave travel allowance: Fixed amount paid to employees by way of leave
travel allowance shall not beexempt.
g) The exemption u/s 10(5) is for travel cost and does not include stay cost or other cost.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF MEDICAL FACILITY
Medical facility is taxable as under:
a) Medical facility provided in India
Case Treatment
1 Medical facility provided to the employee or his family in Fully
a hospital, clinic, dispensary or nursing home maintained by Exempted
the employer.
2 Reimbursement of medical bill of the employee or his family of - Fully
exempted
• Any hospital maintained by Government or Local Authority;
or
• Any hospital approved by the Government for its employee.
3 Payment/reimbursement by employer of medical expenses Fully
incurred by an employee on himself/his family in a hospital, exempted
which is approved by the CCIT, for the prescribed diseases (like
Cancer, TB, AIDS, etc.)
Employee must attach with the return of income -
• a certificate from the approved hospital specifying the
prescribed disease or
ailment for which hospitalisation was required; and
• a receipt for the amount paid to the hospital.
4 Group medical insurance (i.e. Mediclaim) obtained by the Fully
employer for hisemployees. Exempted
5 Any reimbursement by employer of any insurance premium Fully
paid by the employee, for insurance of his health or the health of Exempted
any member of his family.
b) Medical facility provided outside India
Case Treatment
Medical Expenditure Exempted to the extent permitted by RBI.
Cost of stay abroad Exempted to the extent permitted by RBI.
(Patient + One
Attendant/Care taker)
Cost of travel + One Exempted only when gross total Income of the employee
(Patient excluding this
Attendant/Care (cost of travel) perquisite, does not exceed Rs. 2,00,000 p.a.
taker)
Taxpoint: In calculation of gross total income ceiling,
taxable value of
medical treatment perquisite and cost of stay perquisite
shall be included.
CMA UJJAWAL JAIN

INCOME U/H SALARY
NOTES:
a) Hospital includes a dispensary, a clinic or a nursing home.
b) For this purpose ‘family’ means:
• Spouse, children of the individual; and
• Parents, brothers, sisters of the individual, wholly or mainly dependent on
him.
c) Fixed Medical Allowance is fully taxable.
d) The expenditure on medical treatment by the employer may be by way of
payment or reimbursement.
e) The perquisite is taxable in the hands of specified employee, however if the
bills are issued in the name of employee and reimbursed by the employer,
then it shall be taxable in the hands of all employees.
CMA UJJAWAL JAIN

QUESTION 1:
Find taxable amount of perquisite in the following cases:
1. Y has been allowed a fixed medical allowance of Rs. 2,000 p.m.
2. Apart from reimbursement of petty medical bill of Rs. 25,000, Z and his
family get medical treatment in a dispensary maintained by the employer.
Value of facility provided to Z and his family members during the
previous year are as follows:
Particulars Amount
a. Z 2,000
b. Mrs. Z 5,000
c. Major son of Z (independent) 8,000
d. Minor daughter of Z 25,000
e. Dependent younger brother of Z 8,000
f. Independent younger sister of Z 10,000
g. Dependent sister in law 5,000
SOLUTION:
1. Medical allowance is fully taxable, hence the taxable amount is Rs. 24,000
2. Taxable perquisite in hands of Mr. Z is as under:
Particulars Amount
a. Z Nil
b. Mrs. Z Nil
c. Major son of Z (independent) Nil
d. Minor daughter of Z Nil
e. Dependant younger brother of Z Nil
f. Independent younger sister of Z 10,000
g. Dependant sister in law 5,000
h. Reimbursement of medical bill 25,000
CMA UJJAWAL JAIN

QUESTION 2:
Himalaya Ltd. reimburses the following expenditure on medical treatment of the son of an
employee Karan. The treatment was done at UK:
1. Travelling expenses Rs. 1,15,000.
2. Stay expenses at UK permitted by RBI Rs. 45,000 (Actual expenses Rs. 70,000).
3. Medical expenses permitted by RBI Rs. 50,000 (Actual expenses Rs. 70,000).
Compute the taxable perquisites in the hands of Karan, if his annual income
from salary before considering medical facility perquisite was (i) Rs. 1,50,000;
(ii) Rs. 2,00,000.
SOLUTION:
Taxable value of perquisite in hands of Mr. Karan is as under:
Particulars Workings Details Case 1 Case 2

Amount paid in excess of RBI
Medical
permission and actual expenditure Rs. 70,000 – Rs. Rs. Rs.
expenditure shall not qualify for exemption. 50,000 20,000 20,000
Stay cost in excess of RBI permission
Stay cost Rs. 70,000 – Rs. Rs. Rs.
and actualexpenditure shall not
45,000 25,000 25,000
qualify for exemption.
Travel cost Travel cost (Note) Nil Rs.
1,15,000
Total taxable perquisite Rs. Rs.
45,000 1,60,000
Note: Travel cost shall be eligible for exemption only if gross total income of the
assessee does not exceed Rs. 2,00,000, which can be evaluated as under:
Particulars Case 1 Case 2

Salaries
Annual income from salary other than foreign medical 1,50,000 2,00,000
perquisites
Add: Medical facility
Medical expenditure perquisite 20,000 20,000
Stay cost perquisite 25,000 25,000
Gross Total Income for the purpose of foreign travel medical 1,95,000 2,45,000
facility
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF PROVIDENT FUND
Provident fund scheme is a saving device in the hands of salaried class. It is a retirement benefit
scheme. 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.
Thus, provident fund scheme is a great media to initiate and mobilise small savings to a large Scale.
On termination of service or retirement, employee receives the whole accumulated fund, subject to
certain conditions. Hence, provident fund has four components i.e. Employer’s contribution;
Employee’s contribution; Interest on employer’s contribution; and Interest on employee’s
contribution.
Provident fund is of four types, viz:

a) Statutory Provident Fund (SPF): Statutory provident fund is set up under the
provisions of the Provident Funds Act, 1925. Government and Semi-Government
organisations, local authorities, railways, Universities and recognised
educational institutions maintain Statutory Provident Fund.
b) Recognised 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). The PF Act covers any establishment
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. Further, if an employer creates his own scheme for
provident fund then he can do so subject to recognition from the
Commissioner of Income tax.
c) Unrecognised Provident Fund (URPF): If a provident fund scheme is created by an
employer, which is not recognised by the Commissioner of Income tax, then such fund is
known as Unrecognised provident fund.
d) Public Provident Fund (PPF): The Central Government has established a fund for
the benefit of public to mobilise personal savings. 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 specified bank. Even a salaried employee can
simultaneously become a member of employee’s provident fund (whether
statutory, recognised or unrecognized) and public provident fund. Any
amount in multiple of Rs. 5 (subject to minimum of Rs. 500 and maximum of
Rs. 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 earned on this fund is
exempt from taxu/s 10(11).
CMA UJJAWAL JAIN

INCOME U/H SALARY
Tax Treatment
Particulars SPF RPF URPF PPF

Exempted up to 12% of
Employer’s Salary (here, salary means Not
Not Not
Contribution Applicable
taxable Basic + DA# + taxable
Commission as a fixed
percentage on turnover
Employee’s Eligible for Not Eligible
deduction Eligible for deduction u/s eligible for for
Contribution 80C
u/s80C deduction deduction
u/s 80C u/s 80C
Exempted @ 9.5% p.a.
Interest Not (Interest rate), any excess Not Not
Taxable interest will be taxable as Taxable taxable
salary.
Lump Sum Not taxable (Subject to
Not Note 1 Not
withdrawal Taxable Note 2) taxable
D.A., forming part of retirement benefit, only to be considered.
Notes:
1. Lump sum amount withdrawn from URPF
Particulars Tax treatment

Accumulated employer’s contribution Fully taxable under the head Salaries
Accumulated employee’s contribution Not taxable
Accumulated interest on employer’s Fully taxable under the head Salaries
contribution
Accumulated interest on employee’s Fully taxable as income from other
contribution sources
2. Lump sum amount withdrawn from RPF
a) Amount withdrawn from RPF is not taxable, if
i. Employee retires or terminates job after 5 years of continuous service; or
ii. Employee has resigned before completion of 5 years and
joins another organization (who also maintains recognized
provident fund and his fund balance with current employer is
transferred to thenew employer).
iii. The entire balance standing to the credit of the employee is
transferred to his account under New Pension Scheme as
referred u/s 80CC
CMA UJJAWAL JAIN

INCOME U/H SALARY
iv. Employee retires or terminates job before 5 years of continuous service -
• by reason of ill health; or
• by reason of contraction or discontinuance of employer’s business; or
• any other reason beyond the control of employee.
b) In any other case, amount withdrawn shall be taxable as in the case of URPF. [Refer
Note 1].
Points to be remembered
1. Employer’s Contribution to the New pension System (as specified u/s
80CCD) is fully taxable under the head‘Salaries’. However, deduction is
available u/s 80CCD.
2. The amount or the aggregate of amounts of any contribution made to the
account of the assessee by theemployer:
(a) in a Recognised Provident Fund (RPF);
(b) in the scheme referred to in sec. 80CCD(1) [i.e., NPS]; and
(c) in an approved superannuation fund,

- to the extent it exceeds Rs. 7,50,000 in a previous year.
Taxpoint: There is combined upper limit of Rs. 7,50,000 in respect of employer’s
contribution in a year to NPS, superannuation fund and recognised provident fund and any
excess contribution is taxable.
3. The annual accretion (like interest, dividend, etc.) during the previous year
to the balance at the credit of the aforesaid fund or scheme to the extent it
relates to the contribution referred above.
Taxpoint: Such accretion shall be included in the total income and shall be
computed in such manner as may be prescribed.
CMA UJJAWAL JAIN

QUESTION 1:
Mr. X has the following salary structure –
Basic pay Rs. 10,000 p.m. Commission (fixed) Rs. 2,000

DA Rs. 1,000 p.m. Entertainment Rs. 2,000
allowance p.m.
X contributes Rs. 20,000 to provident fund. Employer also makes a matching
contribution. Compute gross salary of if –
a) Mr. X is a Government employee and such provident fund is a statutory provident

fund.
b) Mr. X is an employee of Y Ltd. and such fund is a recognized fund.
c) Mr. X is an employee of Z Ltd. and such fund is an unrecognized fund.
Solution:
Computation of taxable salary of Mr. X
Particulars Case Case Case

A B C
Details Amount Details Amount Details Amount
Basic 1,20,000 1,20,000 1,20,000
Commission 2,000 2,000 2,000
Allowances
Dearness allowance 12,000 12,000 12,000
Entertainment allowance 24,000 36,000 24,000 36,000 24,000 36,000
Employer’s contribution to 20,000 20,000 20,000
PF
Less: Exempted 20,0001 Nil 15,8402 4,160 20,0001 Nil
Gross Salary 1,58,000 1,62,160 1,58,000
Notes:
1. Contribution to statutory and unrecognised provident fund is fully exempted.
2. Contribution to recognised provident fund is exempt upto 12% of salary. Salary
for such purpose –
Particulars Amount
Basic 1,20,000
Commission (as fixed) Nil
Dearness allowance 12,000
Total 1,32,000
CMA UJJAWAL JAIN

INCOME U/H SALARY
RETRENCHMENT COMPENSATION:
Retrenchment means cancellation of contract of service by employer.
Tax Treatment [Sec. 10(10B)]: Any compensation received by a worker at the time of retrenchment
is exempted to the extent of minimum of the following:
a) Actual amount received;

b) Rs. 5,00,000; or
c) An amount calculated in accordance with the provisions of sec. 25F(b) of Industrial Dispute Act,
1947 (Under the said Act a workman is entitled to retrenchment compensation equivalent to 15 days’
average pay, for every completed year of service or any part thereof in excess of 6 months).
NOTES:
a) In case, where the compensation is paid under any scheme approved by the Central Government
nothing shall be taxable.
b) Compensation received by a workman at the time of closing down of the undertaking in which he is
employed is treated as compensation received at the time of his retrenchment.
COMPENSATION RECEIVED AT THE TIME OF VOLUNTARY RETIREMENT [SEC.

10(10C)]
If an employee accepts retirement willingly in lieu of compensation then such retirement is known as
Voluntary Retirement. Voluntary retirement compensation received or receivable by an employee is
eligible for exemption subject to the following conditions -
Conditions for exemption
1. Compensation is received from specified employer#

2. Compensation is received as per Voluntary Retirement Scheme (VRS) framed in accordance with
prescribed guidelines*
Amount of exemption
Exemption shall be minimum of the following -

a) Actual amount received as per guidelines; or
b) Rs. 5,00,000.
CMA UJJAWAL JAIN

INCOME U/H SALARY
EXEMPTED PERQUISITES
Following perquisites are exempted in hands of employee:
1. Tea or snacks: Tea, similar non-alcoholic beverages and snacks provided during working hours.
2. Food: Food provided by employer in working place.
3. Recreational facilities: Recreational facilities extended to a group of employees.
4. Goods sold to employee at concessional rate: Goods manufactured by employer and sold by him
to his employees at concessional (not free) rates.
5. Conveyance facility: Conveyance facility provided -

• to employees for journey between office and residence and vice versa.
• to the judges of High Court and Supreme Court
6. Training: Amount spent on training of employees including boarding & lodging expenses for such
training.
7. Services rendered outside India: Any perquisite allowed outside India by the Government to a
citizen of India for rendering services outside India.
8. Contribution in some specified schemes

• Employer’s contribution to a pension or deferred annuity scheme.
• Employer’s contribution to staff group insurance scheme.
• Annual premium paid by the employer on personal accident policy affected by him in respect of his
employee.
9. *Loans
• Loan given at nil or at concessional rate of interest by the employer provided the aggregate amount
of loan does not exceed Rs. 20,000.
• Interest free loan for medical treatment of the diseases specified in Rule 3A.
10. *Medical facility: A provision of medical facility at office is exempt.

Note: However, medical allowance is fully taxable.
11. Periodicals and journals: Periodicals and journals required for discharge of work.
12. Telephone, mobile phones: Expenses for telephone, mobile phones actually incurred on behalf of
employee by the employer whether by way of direct payment or reimbursement.
13. *Free education facility: Free education facility to the children of employee in an institution
owned or maintained by the employer provided cost of such facility does not exceed Rs. 1,000 p.m. per
child.
Note: Such facility is not restricted to two children as in case of Children Education allowance.
14. Computer or Laptop: Computer or Laptop provided whether to use at office or at home (provided
ownership is not transferred to the employee).
CMA UJJAWAL JAIN

INCOME U/H SALARY
15. *Movable assets: Sale or gift of any movable asset (other than car and electronic items) to
employee after being used by the employer for 10 or more years.
16. *Leave Travel Concession: Leave Travel Concession (LTC) subject to few conditions.
17. Rent-free accommodation

• Rent-free official residence provided to a Judge of a High Court or the Supreme Court.
• Rent-free furnished residence (including maintenance thereof) to Official of Parliament, a Union
Minister or a Leader of opposition in Parliament.
18. *Accommodation: Accommodation provided -

• on transfer of an employee in a hotel for a period not exceeding 15 days in aggregate.
• in a remote area to an employee working at a mining site or an onshore exploration site or a project
execution site or a dam site or a power generation site or an offshore site.
19. Tax on non-monetary perquisite paid by employer on behalf of employee. With effect from A.Y.
2003-04 a new sec. 10(10CC) has been inserted which provides that income tax paid by employer on
behalf of employee on income, being non-monetary perquisite, is not a taxable perquisite.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF FREE EDUCATION [RULE 3(5)]
Taxable value of perquisite is as follows:
Case Taxable Value

Facility provided to employee Not taxable
Facility provided to family member:
Facility provided in an institution Child of the assessee: Cost of such education in
owned by the employer similar institution subject to an exemption of
Facility provided in any institution
Rs. 1,000 p.m. per child shall be taxable1.
(not owned by the employer) by
Other family member: Cost of such education in
reason of his being in employment.
similar institution shall be taxable.
Actual reimbursement shall be taxable. Such
Reimbursement of education reimbursement of tuition fee shall also be
taxable in the hands of Central Government
expenditure toemployee. employee. (Circular letter No 35/7/65–IT(B) dt
12/2/1965)
Who is chargeable
Case Taxability in the

hands of
In case of reimbursement; or All employee
School fee of family member of the employee paid by the
employer directlyto school
In any other case Specified
employee
Notes:
a) Rs. 1,000 per month per child shall be exempted without any restriction on number of
children.
b) However, Hon’ble Punjab & Haryana High Court in the case of CIT –vs.- Director, Delhi
Public School (2011) 202 Taxman 318 has held that if value of perquisite exceeds ₹
1,000/-, then entire amount shall be taxable.
c) Child includes adopted child, stepchild of the assessee, but does not include grandchild
or illegitimate child.
d) Any amount charged from the employee for such facility shall be reduced from the
above value.
e) Contribution made under an Educational Trust, created for the children of
particular group of employees, is not taxable.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF FREE TRANSPORT [RULE 3(6)]
Case Treatment
If employer is engaged in transportation Amount charged from public for such facility is
business. taxable in thehands of specified employee.
In any other case Actual cost of employer for such facility is taxable
in the handsof all employees.
Notes:
a) In case above facility is provided to employees of Railways & Airlines, nothing shall be
chargeable to tax.
b) Any amount charged from the employee for such facility shall be reduced from the
above value.
c) Conveyance facility provided to the employee for journey between office and
residence is not taxable.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF FREE MEALS [RULE 3(7)(iii)]
Case Tax Treatment

Tea, snacks or other non-alcoholic
beverages in the form of light Nil
refreshment provided during office
hours (including over-time)
Free meals provided during office
hours in: Nil
• Remote area1; or
• An offshore installation
Free meals provided by the Expenditure on free meals in excess of Rs. 50
employer during per meal shall be taxable perquisite to the
office hours: extent of excess amount in hands of all
employees.
• At office or business premises; or
E.g. Free meal given to employee worth Rs. 70 per meal
• Through paid vouchers which
through non-transferable coupon for 300 times in a
are nottransferable and usable
year. Taxable perquisite in such case shall be Rs. 6,000
only at eating joints.
{being Rs. (70 – 50) * 300}.
The actual expenditure incurred by
In any other case employer as reduced by amount charged from
employee for such lunch or meal shall be
taxable in the hands of all employees. i.e.
[Actual expenditure to employer – Amount
charged from employee]
Remote area means an area located at least 40 k.m. away from a town having a population not
exceeding 20,000 based on latest published census.
CMA UJJAWAL JAIN

INCOME U/H SALARY
GIFT, VOUCHER OR TOKEN GIVEN BY EMPLOYER [RULE 3(7)(iv)]
The value of any gift, voucher, or token (in lieu of which any gift may be received) given to the
employee (or any member of his household) on ceremonial occasion or otherwise by the employer
shall be taxable in the hands of all employees. However, gift, voucher or token upto Rs. 5,000, in
aggregate, during the previous year, shall be exempted.
Notes:
a) Where worth of gift is in excess of Rs. 5,000 then amount in excess of Rs. 5,000 shall be
taxable.
b) No such exemption (Rs. 5,000) is available on gift made in cash or convertible into
money.
FOR EXAMPLE
Determine taxable perquisite in the following cases:
1. Miss Shradha received a wrist-watch of Rs. 3,000 on 17/7/2020 and a
golden chain worth Rs. 12,000 on 18/8/2020 from her employer, Mr. Raju.
2. Miss Rakhi received Rs. 11,000 cash–gift from her employer, Dipu Ltd.
3. Mr. Anirudha is working with X & Co. a partnership firm. During the year, the
employer firm gifted a diamond ring worth Rs. 80,000 to wife of Mr. Anirudha.
SOLUTION:
1. Taxable perquisite in the hands of Shradha shall be Rs. 10,000 (being Rs. 3,000 + Rs.
12,000 – Rs. 5,000)
2. Taxable perquisite in the hands of Rakhi shall be Rs. 11,000.
3. Taxable perquisite in the hands of Mr. Anirudha shall be Rs. 75,000.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF CREDIT CARD FACILITY
Expenditure incurred by an employer in respect of credit card facility to employee shall be
treated as under:
Case Tax Treatment

Where such credit card is used wholly Nil
and exclusively for office purpose and
specified conditions# are satisfied.
Where expenses (including membership If directly paid by the employer
and annual fees) are incurred by the Any amount incurred by the employer as
employee or any member of his reduced by amount charged from the
household, which is charged to a credit employee shall be taxable in the hands of
card (including any add-on card) all employees
provided by the employer or otherwise, If amount reimbursed by the employer
are paid or reimbursed by the employer. Any amount reimbursed by the employer
shall be taxable in the hands of all
employees.
Specified conditions to be fulfilled to claim that expenses have been incurred wholly and
exclusively for office purpose:
a. Complete details in respect of such expenditure are maintained by the employer
which may, inter-alia, include the date of expenditure and the nature of expenditure;
and
b. The employer gives a certificate for such expenditure to the effect that the
same was incurred wholly andexclusively for the performance of official
duty.
CMA UJJAWAL JAIN

INCOME U/H SALARY
CLUB EXPENDITURE [RULE 3(7)(vi)]
Expenditure incurred by employer in respect of club facility to employee shall be treated as
under:
Case Tax Treatment

Where such expenses are incurred wholly Nil
and exclusively for office purpose and
specified conditions are satisfied.
Where health club, sports and similar Nil
facilities areprovided uniformly to all
employees by the employer.
Where the employer has obtained Amount incurred by employer for such
corporate membership of the club and the facility shall be taxable perquisite in the
facility is enjoyed by the employee or any hands of all employees. However, initial
member of his household fees paid for obtaining corporate
membership shall not be a taxable
perquisite.
Any payment or reimbursement by the If directly paid by the employer
employer of any expenditure incurred Any amount incurred by the employer as
(including the amount of annual or reduced by amount charged from the
periodical fee) in a club by employee or employee shall be taxable in the hands of
anymember of his household all employees.
If amount reimbursed by the employer
Any amount reimbursed by the employer
shall be taxable in the hands of all
employees.
Specified conditions to be fulfilled to claim that expenses have been incurred wholly and
exclusively for office purpose:
a. Complete details in respect of such expenditure is maintained by the
employer which may, inter alia, includethe date of expenditure, the nature of
expenditure and its business expediency; and
b. The employer gives a certificate for such expenditure to the effect that the
same was incurred wholly andexclusively for the performance of official
duty;
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF USE OF MOVABLE ASSETS [RULE 3(7)(vii)]
If employee (or any member of his household) uses any movable asset (other than the assets for
which provisions have been made) belonging to employer, then such facility is taxable in the hands of
all employees. The value of such benefit is determined as per the following table:
If the asset is owned by the employer 10% of the original cost of such asset.
If the asset is hired by the employer Charges paid or payable by the employer
Notes:
a) Any sum charged from the employee shall be reduced from the value determined as
above.
b) Use of computer, laptop, etc. (as discussed earlier) is exempted perquisite.
c) Here movable asset does not include car.
CMA UJJAWAL JAIN

LESSON 2 BASIC CONCEPT OF INCOME TAX
Allowance to Government employees outside India
As per sec. 10(7), any allowance or perquisite allowed outside India by the Government to an Indian
citizen for rendering services outside India is wholly exempt from tax.
Taxpoint:
1. Assessee must be -
a) Government employee b) Citizen of India; and c) Working outside India
2. Any allowance or perquisite to such employee shall be exempted u/s 10(7)
Allowance received from UNO (United Nations Organisation)

Basic salary or Allowance paid by the UNO to its employees are not taxable.
Compensatory allowance under Article 222(2) of the Constitution

It is fully exempt from tax.
Allowance to judges of the High Court or the Supreme Court

Any allowance paid to Judges of the High Court u/s 22A(2) and sumptuary allowance u/s 22C of the
“High Court Judges (Conditions of Service) Act, 1954” is not taxable. Allowance to the Supreme Court
Judges u/s 23B of the “Supreme Court Judges (Conditions of Service) Act, 1958” is also exempt.
Salary to teacher or professor from SAARC Member States [DTAA]

Salary including allowances and perquisites of a teacher or professor or research scholars from
SAARC Member States shall not be taxable if following conditions are satisfied:
1. Such professor, teacher or research scholar is a resident of other SAARC member State (i.e.,
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan & Sri Lanka) prior to visiting another member
State.
Taxpoint: An individual is deemed to be a resident of a member State if he/she is resident in that

member State in the fiscal year in which he visits the other member State or in the immediately
preceding fiscal year.
2. Such visit is for the purposes of teaching or engaging in research or both at a university or college or
similar approved institution in that other Member State.
3. The remuneration from aforesaid activities in other Member State is exempt for a period of 2 years
from the
date of arrival in the other member State.
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXATION OF PENSION [SEC. 17(1)(ii)]
Pension means a periodical payment received by an employee after his retirement. On certain
occasions, employer allows to withdraw a lump sum amount as the present value of periodical
pension.
When pension is received periodically by employee, it is known as Uncommuted pension.
On the other hand, pension received in lump sum is known as Commuted pension. Such lump sum
amount is determined considering factors like the age and health of the recipient, rate of interest, etc.
Case A: Uncommuted pension Uncommuted pension is fully taxable in the hands

of all employees whether Government or Non –
Government employee.
Case B: Commuted pension received by a Commuted pension received by a Government

Government employee employee is fully exempt from tax u/s
10(10A)(i).
Note: Government employee here includes

employee of the Central or State Government,
Local authority as well as employee of Statutory
corporation. Judges of the High Court and the
Supreme Court are also entitled to the exemption.
Case C: Commuted pension received by an One third of total pension (which assessee is
employee who also received gratuity [Sec. normally entitled for) commuted is exempt.
10(10A)(ii)]
Taxpoint: It is immaterial whether the
employee is covered by the Payment of Gratuity
Act or not.
Case D: Commuted pension received by an One half of total pension (which assessee is
employee who does not receive gratuity [Sec. normally entitled for) commuted is exempt.
10(10A)(ii)]
NOTE:
a) Pension received by a widow or legal heir of a deceased employee shall not be taxable as salary but
taxable u/s 56 as income from other sources (further refer chapter “Income from other sources”.)
b) Where commuted pension is taxable, relief u/s 89 is available.
c) Pension received from United Nations Organisation is not taxable. Further, pension received by a
widow of the United Nations ex-officials from UN Joint Staff Pension Fund is also exempt.
CMA UJJAWAL JAIN

PENSION
QUESTION 1:
Mr. Amit has retired from his job on 31ST MARCH From 1ST APRIL, he was entitled to a
pension of Rs. 3,000 p.m. On 1ST AUGUST, he got 80% of his pension commuted and received
Rs. 1,20,000. Compute taxable pension if he is:
Case a) Government employee; Case b) Non-Government employee & not receiving gratuity
Case c) Non-Government employee (receiving gratuity, but not covered by the Payment of
Gratuity Act)
SOLUTION:
COMPUTATION OF TAXABLE PENSION OF MR. AMIT
Particulars Case a Case b Case c

Details Amount Details Amount Details Amount
Uncommuted Pension
- 1/4 to 31/7 (Rs. 3,000*4) 12,000 12,000 12,000
- 1/8 to 31/3 (Rs. 600 * 8) 4,800 16,800 4,800 16,800 4,800 16,800
Commuted Pension 1,20,000 1,20,000 1,20,000
Fully exempted u/s 10(10A)(i) 1,20,000 Nil
Exempted u/s 75,000 45,000
10(10A)(ii)(½ of Rs.
1,50,000#)
Exempted u/s 50,000 70,000
10(10A)(ii)(1/3 of
Rs. 1,50,000)
Taxable Pension 16,800 61,800 86,800
Commuted Amount for 80% of pension = Rs. 1,20,000. Commuted amount for 100% of pension =
Rs. 1,50,000
CMA UJJAWAL JAIN

INCOME U/H SALARY
TAXABILITY OF INSURANCE PREMIUM PAYABLE BY EMPLOYER
As per sec. 17(2)(v), following sums payable by an employer shall be taxable perquisite in the hands
of all employees, whether it is paid directly or through a fund (other than recognised provident fund
or approved superannuation fund or deposit-linked insurance fund),
 to effect an assurance on the life [LIC] of the assessee; or

 to effect a contract for an annuity.
Note: Employee can claim deduction u/s 80C for LIC premium paid by employer.
VALUATION OF SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED TO THE

ASSESSEE
Value of any specified security or sweat equity shares shall be considered as perquisites in hands of
employee if the following conditions are satisfied:
a. Such security or sweat equity shares are allotted or transferred on or after 01-04-2009
b. Such security or sweat equity shares are allotted or transferred by the employer (former or
present) directly or indirectly.
c. Such security or sweat equity shares are allotted or transferred free of cost or at concessional rate
to the assessee
Valuation
Value of such perquisite shall be computed as under:
Particulars Amount
The fair market value of the specified security or sweat equity shares, as the case may be, on the
date on which the option is exercised by the assesse- Rs.XXXX
Less: The amount actually paid by, or recovered from the assessee in respect
of such security or Shares- (Rs.XXXX)
Value of perquisite- Rs.XXXX
Notes: Option means a right but not an obligation granted to an employee to apply for the specified
security or sweat equity shares at a predetermined price.
CMA UJJAWAL JAIN

INCOME U/H SALARY
FOR EAMPLE
A company ‘X’ grants option to its employee ‘R’ on 1st April, 2015 to apply for 100 shares of the
company for making available right in the intellectual property to the employer-company at a pre-
determined price of Rs. 50 per share with date of vesting of the option being 1st April, 2016 and
exercise period being 1st April, 2016 to 31st March, 2021. Employee ‘R’ exercises his option on 31st
March, 2020 and shares are allotted/transferred to him on 3rd April, 2020.
Fair market value of such share on different dates are as under:
01-04- 01-04- 31-03- 03-04-

2015 2016 2020 2020
Rs. 100 Rs. 180 Rs. 440 Rs. 470
Compute taxable perquisite, if any, in hands of Mr. R for A.Y. 2021-22.
SOLUTION:
Since shares are allotted by the company after 31-03-2020 (even though it is
exercised by the employee on 31-03-2020), hence, it is taxable in A.Y. 2021-22.
Value of the perquisite is as under:
Particulars Amount
The FMV of shares on the date on which the option is exercised [Rs. 440 * 100 44,000
shares]
Less: The amount actually paid by assessee in respect of such shares [Rs. 50 * 5,000
100 shares]
Value of perquisite 39,000
Note: For the purpose of computing capital gain on transfer of these shares by Mr. R,
Rs. 44,000 (i.e. Rs. 440 per shares)shall be considered as cost of acquisition of such
shares.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES INTEREST FREE LOAN OR CONCESSIONAL RATE OF INTEREST [RULE 3(7)(i)]
Perquisite in respect of interest free loan or loan at concessional rate of interest to the employee or
any member of his household by the employer or any person on his behalf, is not taxable if aggregate
amount of loan given by the employer (or any other person on his behalf) does not exceed Rs. 20,000.
The taxable value of such perquisite shall be determined as per the rate as on the 1st day of the
relevant previous year charged by the State Bank of India in respect of loans for the same purpose
advanced by it.
NOTES:
 Maximum outstanding monthly balance: Interest is calculated on the maximum
outstanding monthly balance. Maximum outstanding monthly balance means the
aggregate outstanding balance for each loan as on the last day of each month.
 Loan for medical treatment: Nothing is taxable if loan is given for medical treatment of
the employee or any member of his household in respect of diseases specified in rule 3A.
However, such exempted loan will not include the amount that has been reimbursed by
an insurance company under any medical insurance scheme.
 Concessional interest: Any interest paid by the employee to the employer for such loan
shall be reduced from the above computed value. If rate of interest charged by the
employer is higher than the above rate, nothing is taxable as perquisite.
 Amount on which interest shall be calculated: If loan amount is more than Rs. 20000, interest
shall be levied on total loan amount, rather than the excess amount.
 Treatment of outstanding loan taken earlier: Interest on loan, taken before insertion of this
provision, shall alsobe treated as taxable perquisite. [Circular No.15/2001dated 12/12/2001]
TRAVELLING/TOURING/HOLIDAY HOME EXPENDITURE ON HOLIDAY [RULE 3(7)(iii)]

Valuation of perquisite in respect of travelling, touring, holiday home or any other expenses paid for
or borne or reimbursed by the employer for any holiday availed of by the employee or any member of
his household is taxable in the hands of all employees as per the following table:
Case Taxable value of perquisite
Notional cost of such facility. In other
Where such facility is maintained by
words, value at which such facilities are
employer and isnot available uniformly to offered by other agencies to the public.
all employee
Where the employee is on official tour and
The amount of expenditure so incurred
the expenses are incurred in respect of any
member of his household accompanying for the accompanying member of his
him household.
The value will be limited to the expenses
Where any official tour is extended as a
incurred in relation to such extended
vacation
period of stay or vacation.
In any other case Amount incurred by the employer.
CMA UJJAWAL JAIN

INCOME U/H SALARY
Notes:
a) Any amount charged from employee shall be reduced from the above determined value.
b) The above provisions are not applicable in case of Leave Travel Concession (discussed
earlier)
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF MOVABLE ASSETS SOLD BY AN EMPLOYER [RULE
3(7)(viii)]
If the sale price is less than the written down value (calculated as per method and rate mentioned
below) then the difference would be treated as perquisite and taxable in the hands of all employees.
Rates and methods of depreciation for different types of assets are as follow:
Types of asset Rate of depreciation Method of depreciation

Electronic items#/Computer 50% Reducing
balance
Motor car 20% Reducing
balance
Any other 10% Straight line
Electronic items here means data storage and handling devices like computer, digital diaries and
printers. They do not include household appliances like washing machines, microwave ovens, mixers,
etc.
Mathematically, taxable perquisite is as under:
Original cost to the employer *****

Less: Accumulated depreciation for each completed year during which such asset is ****
used by theemployer
Written down value ****
Less: Amount charged from employee ***
Value of Perquisite (if positive) *****
Taxpoint: No depreciation shall be charged for a part of the year.
FOR EXAMPLE
X Ltd. has sold the following assets to its employee, Mr. Amit. Compute taxable perquisite.
Assets Date of Purchase Date of sale Sale price

purchase value
Computer 1/7/2017 2,00,000 18/8/2020 20,000
Car 1/4/2018 3,00,000 1/3/2021 50,000
Television 1/4/2015 50,000 1/4/2020 2,000
Sofa set 1/4/2005 80,000 1/7/2020 5,000
CMA UJJAWAL JAIN

INCOME U/H SALARY
SOLUTION:
Computation of taxable value of perquisite in hands of Mr. Amit for the A.Y.2021-22
Assets Written down value Sale value Taxable perquisite

Computer 25,0001 20,000 5,000
Car 1,92,0002 50,000 1,42,000
Television 25,0003 2,000 23,000
Sofa set Nil4 5,000 Nil
Taxable Perquisite 1,70,000
1. Calculation of WDV of Computer
Particulars Amount
Purchase value 2,00,000
Less: Depreciation from 1/7/2017 to 30/6/2018 @ 50% 1,00,000
WDV as on 1/7/2018 1,00,000
Less: Depreciation from 1/7/2018 to 30/6/2019 @ 50% 50,000
WDV as on 1/7/2019 50,000
WDV as on 1/7/2020 25,000
Less: Depreciation from 1/7/2020 to 18/8/2020 (as not being a complete Nil
year)
WDV as on the date of sale 25,000
2. Calculation of WDV of Car
Particulars Amount
Purchase value 3,00,000
WDV as on 1/4/2019 2,40,000
WDV as on 1/4/2020 1,92,000
Less: Depreciation from 1/4/2020 to 1/3/2021 (as not being a complete Nil
year)
WDV as on date of sale 1,92,000
CMA UJJAWAL JAIN

INCOME U/H SALARY
3. Calculation of WDV of television
Particulars Amount
Purchase value 50,000
WDV as on the date of sale 25,000
4. Depreciation on sofa set is charged @ 10% as per straight-line method. Since the
asset is used for more than 10 years, hence its WDV will be Nil.
CMA UJJAWAL JAIN

INCOME U/H SALARY
VALUATION OF PERQUISITES IN RESPECT OF FREE DOMESTIC SERVANTS [RULE 3(3)]
Value of perquisite is determined as under:
Servant appointed by Taxable value of perquisite Taxable in hands of

Employer Actual cost to the employer is Specified employee
Employee taxable as perquisite All employee
NOTE:
a) If rent-free accommodation (owned by the employer) is provided with
gardener then gardener’s salary and maintenance cost of garden shall not
be taxable. [Circular No.122 dated 19/101973]
b) Any amount charged from the employee for such facility shall be reduced from above
value.
c) Domestic servant allowance given to employee is fully taxable.
d) Reimbursement of servant-salary by the employer shall be taxable in hands of all
employee.
EXAMPLE:
Sri Bhagawan, has been provided with the following servants by his employer:
Servant Appointed by Salary of

Servant
Watchman Employer 2,000 p.m.
Cook Employee’s wife 3,000 p.m.
Maid servant Employer 1,000 p.m.
Sweeper Employee 500 p.m.
Gardener Employer 1,000 p.m.
Sri Bhagawan has also been provided a rent-free accommodation, which is owned by the
employer. Find taxable value of servant facility if –
Case a) He is a specified employee.
Case b) He is a non-specified employee.
CMA UJJAWAL JAIN

INCOME U/H SALARY
SOLUTION:
Computation of taxable value of perquisite for A.Y. 2021-22
Servant Taxable Amount

Case a Case b
Watchman 24,000 Nil
Cook 36,000 36,000
Maid servant 12,000 Nil
Sweeper 6,000 6,000
Gardener (since Rent free accommodation, owned by employer, Nil Nil
is provided)
Taxable Perquisite 78,000 42,000
GAS, ELECTRICITY OR WATER FACILITY [RULE 3(4)]
It is taxable on the following basis:
Taxable value of perquisite

Case Taxable in the hands
Facility is provided Facility is provided
of
from own sources from other agency
Facility is in name of Manufacturing cost Prices paid to All employees
employee tothe employer suchagency
Facility is in name of Specified
employer employees
CMA UJJAWAL JAIN

LESSON 2 BASIC CONCEPT OF INCOME TAX
Truck Driver’s Allowance
Any allowance (by whatever name called) granted to an employee working in
any transport system to meet his personal expenditure during his duty
performed in the course of running of such transport (from one place to another
place), provided such employee is not in receipt of daily allowance.
Treatment: Minimum of the following shall be exempted:
a) 70% of allowance.
b) Rs. 10,000 p.m.
Taxpoint: If assessee is in receipt of Daily allowance then above allowance shall be fully
taxable.
Transport Allowance
An allowance, by whatever name called, to meet the expenditure for the
purpose of travelling between theplace of residence and the place of duty.
Available to: Assessee is blind / deaf and dumb / orthopaedically handicapped.
Treatment: Minimum of the following shall be exempted:
a. Actual amount received; or
b. Rs. 3,200 p.m.
Taxpoint: No exemption is available to the assessee other than specified above.
CMA UJJAWAL JAIN

Salary

Uploaded by

Copyright:

Available Formats

Salary

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

Uploaded by

Copyright:

Available Formats

INCOME U/H SALARY

INCOME UNDER THE HEAD SALARY

 It does not matter whether the employee is a full-time employee or

 Forgoing of salary: Once salary accrues, the subsequent waiver by

 A payment can be construed as salary only if the payer is the

 An official liquidator appointed by the Court or by the Central

 Professor : The professor of university would be receiving income

 Surrender of salary: However, if an employee surrenders his

 Agent and Principal: If a person is acting as an agent for his

CMA UJJAWAL JAIN

 Member of Parliament : According to a circular of the Board

 Treasurer of a bank : The income received by a treasurer of a

 Salary received by proprietor from his proprietorship firm is

 Remuneration to director from his company can be treated as

 Pension received by the widow or legal heir of deceased

 HOWEVER, IF PENSION RECEIVED BY SUCH EMPLOYEE THEN

 Remuneration received by Judges is taxable under the head

CMA UJJAWAL JAIN

State whether the following receipts should be treated as salary or not?

• A teacher receives emoluments in kind from school in which he teaches.

• A payment made to the Member of the Parliament or the State legislature.

No, as employer-employee relationship does not exist.

CMA UJJAWAL JAIN

EXAMPLE OF FORGOING OF SALARY

It is only an application of income.

CMA UJJAWAL JAIN

d) Any fees, commission, perquisite or profits in addition to any salary or

e) Any advance of salary;

h) Transferred balance in a Recognised Provident Fund to the extent it is

i) Contribution made by the employer in the previous year, to the account of an

CMA UJJAWAL JAIN

a) Advance salary (on ‘receipt’ basis): Salary paid in advance is

b) Outstanding salary (on ‘due’ basis): Salary falling due is taxable

c) Arrear salary: Any increment in salary with retrospective effect

CMA UJJAWAL JAIN

Particulars Workings Amount

ADVANCE SALARY VS ADVANCE AGAINST SALARY

CMA UJJAWAL JAIN

ALLOWANCES WHICH ARE FULLY TAXABLE:

Tiffin Allowance: An allowance to meet the expenditure on tiffin, refreshment etc.

Medical Allowance : An allowance to meet the expenditure on medical treatment etc.

Non-practicing Allowance : Allowance given to professionals to compensate them for restriction on

Warden or Proctor Allowance: Allowances given to employees of educational institutions for

Deputation Allowance : Allowances given to an employee, when he is sent on deputation for a

Entertainment Allowance : It is an allowance to meet expenditure on entertainment, by whatever

CMA UJJAWAL JAIN

HRA granted to an employee is exempt to the extent of least of the following:

Metro Cities (i.e. Delhi, Kolkata, Other Cities

SALARY= BASIC+DA+COMMISION AS A FIXED % OF TURNOVER

CMA UJJAWAL JAIN

ALLOWANCES PRESCRIBED FOR THE PURPOSES OF SECTION 10(14)(II)

S. No. Name of Allowance Extent to which

CMA UJJAWAL JAIN

FOLLOWING ALLOWANCE ARE FULLY EXEMPT BUT IF THEY ARE UTILISED

ALLOWANCES PRESCRIBED FOR THE PURPOSES OF SECTION 10(14)(I)

CMA UJJAWAL JAIN

CMA UJJAWAL JAIN

HRA granted to an employee is exempt to the extent of least of the following:

Metro Cities (i.e. Delhi, Kolkata, Other Cities