Income Tax: Ca - Cma - Cs Inter / EP

CA – CMA – CS
Inter / EP
Income Tax
HEADS OF INCOME
Part 1
Dr CMA T K Sridhar
INCOME TAX
CONTENT
Part 1: Heads of Income Page
1 Income from Salary 1
2 Income from House Property
3 Profits and Gains from Business or Profession
4 Capital Gains
5 Income from Other Sources
1. INCOME FROM SALARIES
S Content
15 Chargeability of salaries
16 Deductions
17(1) Definition of salary
17(2) Perquisite
17(3) Profits in lieu of salary
INTRODUCTION – NORMS TO FALL UNDER INCOME FROM SALARY

1. Employer and employee relationship
Contract of service and contract for service
Particulars Contract of Service Contract for Service
1 Employer-employees relationship Exist Not exist
2 Master Control Exist Not Exist
3 Execution of work Under employer’s supervision Own discretion
4 Remuneration Monthly Profit / loss
5 Taxable under Salaries. PGBP
2. Salary and wages – conceptually not different

3. Salary from more than one source – taxable
4. Remuneration for extra duties – taxable
5. Salary from full time / part time employment – taxable
6. Surrender of salary to government under Voluntary Surrender of Salaries Act, 1961 by government
or non-government employees – not taxable
7. Forgoing of salary – taxable [Subject to 80G]
8. Salary paid tax free – taxable to the extent of tax liability paid by employer.
9. Tax paid on perquisites – exempt
10. Salary to a partner – taxable under income from business or profession

11. Salary received by MP, MLA, MLC shall be taxable under the head IFOS.
12. Commission by director is salary if director is employed else it is income from other sources
13. Fees and commission – taxable
14. Place of accrual [Refer: S.9 & S.10(7)]
Income from Salaries 1

Application of Income and Diversion of Income.
{CA inter M99, 6 marks}
An application of income: merely the apportionment of income.
The essentials of the concept of application of income under the provisions of the Income Tax Act are
1. Income accrues to the assessee
2. Income reaches the assessee
3. Income is applied to discharge an obligation, whether self-imposed or gratuitous.
Diversion of Income: is an obligation to apply the income before it is received by the assessee. The
source is charged with an overriding title, which diverts the income.
The essentials for diversion of income are
1. Income is diverted at source,
2. There is an overriding charge or title for such diversion, and
3. The charge / obligation is on the source of income and not on the receiver.
Examples of diversion by overriding title are -
1. Right of maintenance of dependents or of coparceners on partition
2. Right under a statutory provision
3. A charge created by a decree of a Court of law.
Section 15: Charging Section:

Due or receipt whichever is earlier.
Salary in advance is taxable on receipt and
Arrear of salary is taxable on receipt basis if it is not taxed earlier.
Arrear and advance of salary are subject to relief u/s 89(1)
Section 17(1): Definition of salary

Wages Perquisite Leave salary
Any annuity or pension Profit in lieu of or RPF (taxable extent)
Gratuity In addition to any salary UPF → RPF
Fees Advance salary NPS u/s. 80CCD
Commission
Section 17(3): Profit in lieu of salary includes:

1. Compensation from employer or former employer for termination of employment
2. Compensation from employer or former employer for Modification of terms of employment
3. Any amount from any person before employment or after employment
4. Any amount from employer or former employer or PF or any fund
Except the following to the extent exempt u/s 10
Gratuity | Commuted Pension | Retrenchment Compensation | SPF | RPF | SAF
5. Keyman Insurance Policy
{CA inter N02 & M06, 3 marks & 4 marks}
Income Tax 2
Computation of salary
Particulars ₹
Basic Salary xxx
Dearness Allowance (DA) xxx
Fees / Commission xxx
Bonus (taxable on receipt basis) xxx
Advance Salary / Arrears salary (S. 15) xxx
Gratuity (S. 10(10)) xxx
Pension (S. 10(10A)) xxx
Leave salary (S. 10(10AA)) xxx
Retrenchment Compensation (S. 10(10B)) xxx
Voluntary Retirement Compensation (S. 10(10C) xxx
Allowances (S. 10(7) / 10(14)) xxx
Provident Fund xxx
Super Annuation fund xxx
Perquisite xxx
Entertainment Allowance Received xxx
Professional Tax Paid by Employer xxx
Gross Salary xxx
Less Deduction u/s 16:
Standard deduction (S. 16(ia)) [₹50,000] (xxx)
Professional Tax (S. 16(ii)) (xxx)
Entertainment Allowance (S. 16(iii)) (xxx)
Net Salary xxx
Salary for different purpose
Gratuity Specified employee Entertainment Rest

PGA / Rent Free Allowance of the cases
covered Accommodation
Basic √ √ √ √
DA – FPS √ √ √
DA – NFPS √
Fixed % Comm. √ √
Cash Benefits √
Perquisites

Section 10(10): Gratuity is the payment in appreciation of past services rendered
1. Gratuity receive during service – fully taxable to all employees
2. Government employee (Central / State / LA / Defence) – exempt
3. Non-government employee [Payment of Gratuity Act Covered]
WEL is exempt:
15
a. × 𝐿𝑎𝑠𝑡 𝑑𝑟𝑎𝑤𝑛 𝑠𝑎𝑙𝑎𝑟𝑦2 × 𝑐𝑜𝑚𝑝𝑙𝑒𝑡𝑒𝑑 𝑦𝑒𝑎𝑟𝑠 𝑜𝑓 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑜𝑟 𝑝𝑎𝑟𝑡 𝑡ℎ𝑒𝑟𝑒𝑜𝑓 (6𝑚+ = 1 𝑦𝑒𝑎𝑟)
261
b. Ceiling – ₹20,00,000
c. Actual Gratuity
4. Non-government employee [Payment of Gratuity Act NOT Covered]
1
a. × 10 𝑐𝑎𝑙𝑒𝑛𝑑𝑒𝑟 𝑚𝑜𝑛𝑡ℎ𝑠 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑎𝑙𝑎𝑟𝑦 × 𝐶𝑜𝑚𝑝𝑙𝑒𝑡𝑒𝑑 𝑦𝑒𝑎𝑟𝑠 𝑜𝑓 𝑠𝑒𝑟𝑣𝑖𝑐𝑒
2
b. Ceiling – ₹20,00,000
c. Actual Gratuity
5. Gratuity received after the death of employee
a. If gratuity is due before the death – exempt as per the above (4) provisions
b. If gratuity is due after the death – fully NOT taxable
Question: Mr. Hari retires on 15th October 2020, after serving 30 years and 7 months. He gets ₹4,80,000
as gratuity. His salary details are given below:
FY Salary Dearness Allowance
2020-21 ₹16,000 p.m. D.A. 50% of salary and
2019-20 ₹15,000 p.m. 40% forms part of retirement benefits.
Determine his gross salary in the following cases:

1. He retires from government service
2. He retires from seasonal factory in a private sector, covered under Payment of Gratuity Act, 1972.
3. He retires from non-seasonal factory, covered by Payment of Gratuity Act, 1972
4. He retires from private sector, not covered by payment of Gratuity Act
{RTP}
Answer:
1. The amount of gratuity received as a Government employee is fully exempt from tax u/s 10(10)(i)
2. As an employee of a seasonal factory, in a private sector, covered under the Payment of Gratuity
Act, 1972
Computation of Taxable Gratuity
Particulars ₹ ₹
Amount received as Gratuity 4,80,000

Less: Exemption u/s 10(10)(ii) Least of the followings:
(i) Actual amount received 4,80,000
1
7/26 in case of seasonal establishment
2
Salary, in case employees drawing daily wages then average of three months wages is taken
Income Tax 4
(ii) 7 7 2,00,308
× 𝐿𝑎𝑠𝑡 𝐷𝑟𝑎𝑤𝑛 𝑆𝑎𝑙𝑎𝑟𝑦 × 𝐿𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 [ × 24,000 × 31]
26 26
(iii) Maximum Limit 20,00,000 2,00,308
Taxable Gratuity 2,79,692
3. As an employee of a non-seasonal factory, covered by Payment of Gratuity Act, 1972

Particulars ₹ ₹

Less: Exemption u/s 10(10)(ii) Least of the followings:
15 15
(ii) × 𝐿𝑎𝑠𝑡 𝐷𝑟𝑎𝑤𝑛 𝑆𝑎𝑙𝑎𝑟𝑦 × 𝐿𝑒𝑛𝑔𝑡ℎ 𝑜𝑓 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 [ × 24,000 × 31] 4,29,231
26 26

Taxable Gratuity 50,769
4. As an employee of a private sector, not covered by Payment of Gratuity Act, 1972

Particulars ₹ ₹

(-) Exemption u/s 10(10)(iii) Least of the foll0owings
(ii) 1 1 2,80,800
× 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑎𝑙𝑎𝑟𝑦 × 𝐶𝑜𝑚𝑝𝑙𝑒𝑡𝑒𝑑 𝑦𝑒𝑎𝑟𝑠 𝑜𝑓 𝑠𝑒𝑟𝑣𝑖𝑐𝑒 [ × 18,720 × 30]
2 2
Taxable Gratuity 1,99,200
Salary for the months December19’ till September ’20 shall have to be considered.
Basic Salary ₹
December ’19 to March ’20 = 15,000 × 4 60,000

April ’20 to September ’20 = 16,000 × 6 96,000
Total Basic Salary 1,56,000
Add D.A. [50% of 1,56,000 × 40%, forming part of superannuation benefits] 31,200
Fixed percent of commission on turnover Nil
Salary for 10 months 1,87,200
Therefore, Average salary for 10 months = 1,87,200/10 18,720

Section 10(10A): Annuity / pension (contractual or voluntarily) – taxable.
1. Annuity from ex-employer is taxable – profit in lieu of salary
2. Annuity from other than employer is taxable [family pension] – income from other sources.
3. Pension from UNO by the employee or family members – exempt u/s 10(18)
4. Pension from armed forces by family members – exempt u/s 10(19)
5. National Pension Scheme for employee who joins after 1.1.04 (refer in deduction chapter)
6. Any other case:
a. Uncommuted pension – taxable
b. Commuted pension
i. Government employee, Judges of HC & SC and LIC annuity plan – exemption
ii. Others
1. Gratuity received: 1/3rd of total commuted pension – exemption
2. Gratuity not received: ½ of total commuted pension – exemption
Question: Mr. King is getting a salary of ₹5,400 p.m. since 1.1.19 and dearness allowance of ₹3,500 pm,
50% of which is a part of retirement benefits. He retires on 30th November 2020 after 30 years and 11
months of service. His pension is fixed at ₹3,800 pm. On 1st February 2021 he gets 3/4th of the pension
commuted at ₹1,59,000. Compute his gross salary for the previous year 2020-21 in the following cases:
(a) If he is a government employee, getting gratuity of ₹1,90,000
(b) If he is an employee of a private company, getting gratuity of ₹1,90,000
(c) If he is an employee of a private company but gets no gratuity.
Answer:
Previous Year 2020-21
Tenure of Service [1.4.20 to 30.11.20] 8 months
Post-retirement period [Dec 20 to Mar 21] 4 months
Particulars Case (a) Case (b) Case (c)
Salary 43,200 43,200 43,200
Dearness Allowance 28,000 28,000 28,000
Taxable Gratuity Exempted 82,7501 Nil
Uncommuted Pension [(3,800×2)+(950×2)] 9,500 9,500 9,500
Commuted Value of Pension Exempted 88,3332 53,0002
Total salary
Note 1:
Case (b) Gratuity received by an employee of a private company
Particulars ₹ ₹
Less: Exemption u/s 10(10)(iii) Least of the followings
(ii) 1/2 × Average salary × Completed years of service [½ ×7150×30] 1,07,250
Income Tax 6
Note 2:
Commuted Value of Pension Gratuity Paid No Gratuity Paid
Actual commuted value of pension received 1,59,000 1,59,000
Less Exempted u/s 10(10A)
1/3rd of Full Value of Commuted Pension [1/3 × 2,12,0003] 70,667
½ of Full Value of Commuted Pension [1/3 × 2,12,000 3] 1,06,000
Taxable Commuted Value of Pension 88,333 53,000
Note3: Full Value of Commuted Pension = [₹1,59,000× 4/3 = 2,12,000]
Section 10(10AA): Leave Encashment

1. Leave salary during service–taxable for government and non-government
2. Leave salary at the time of retirement
a. Government employees –exempt u/s 10(10AA)(i)
b. Non-government employees – WEL is exempt u/s 10(10AA)(ii)
1 Period of earned leave in credit1 × ×××
average salary of 10 months immediately prior from the date preceding the retirement
2 10 × average monthly salary ×××
3 Ceiling – ₹3,00,000 less amount exempted earlier ×××
4 Actual leave salary ×××
3. Leave salary received by legal heir after the death – fully NOT taxable
Note: Salary = basic + DA (FPS) + Fixed % commission
Question: Ms. Parineeta retired from service after 28 years 7 months from ABC Ltd. Leave sanctioned
by employer 42 days p.a. Leave availed during service 400 days. Leave encashment received is
₹4,30,000. Average salary for 10 months preceding the month of retirement is ₹27,000. Compute taxable
amount of leave encashment for the previous year 2020-21.
Answer:
(i) Leave credit available on the date of retirement Days
Total Leave sanctioned during tenure of employment [28 years × 42 days p.a.] 1176
Less Total leave availed during service 400
Less Excess leave sanctioned by the employer [(42– 30) days per year × 28 years] 336
Leave credit on the basis of 30 days credit for completed years of service [i] 440
₹
(ii) Leave salary on the basis of 30 days credit = [i] × Average Salary = 440 × (27,000/30) 3,96,000
1
[WEL (leaves sanctioned, 30 days per completed year of service)] – leaves availed – leaves encashed

Computation of Taxable Leave Salary on Retirement ₹ ₹
Amount Received on Leave Encashment 4,30,000
Less Exemption u/s 10(10AA) Least of the followings:
1 Leave salary calculated in step (ii) 3,96000
2 10 × average monthly salary = [10 × ₹27,000] 2,70,000
3 Ceiling – ₹3,00,000 less amount exempted earlier 3,00,000
4 Actual leave salary 4,30,000 2,70,000
Taxable Value of Leave Encashment 1,60,000
Question: Mrs. Vandana retires on 16th October 2020 after 30 years and 8 months of service. Salary
structure is given below:
FY 2020-21 Salary ₹15,000 pm D.A ₹7,500 pm
FY 2019-20 Salary ₹12,000 pm D.A ₹6,000 pm
60%of dearness allowance forms a part of superannuation benefits.
Record of earned Leave is given below:
❖ Leave allowed for one year of completed service – 23 days;
❖ Leave taken while in service – 150 days;
❖ Leave encashed during the year – 60 days.
Determine the gross salary in the following cases:
1. she retires from government service
2. she retires from the service of Delhi Municipal Corporation
3. she retires from the service of Life Insurance Corporation of India
4. she retires from private sector
Answer:
Particulars Case (1) Case (2) Case(3) Case(4)
Salary for 6 months and 16 days 98,000 98,000 98,000 98,000
Dearness Allowance 49,000 49,000 49,000 49,000
Taxable amount of Leave encashment Exempted 1,78,520 1,78,520 1,78,520
Gross Income from Salary 1,47,000 3,25,520 3,25,520 3,25,520
Notes:
Average monthly salary for 10 months, prior to retirement: ₹
Salary of 6 months 16 days: (1st April 2020 to 16th October 2020) 98,000
Salary of 3 months 14 days: (14th December 2019 to 31st March 2020) 41,600
Total Basic Salary 1,39,600
Add Dearness allowance
For 6 months 16 days: (1st April 2020 to 16th October 2020) 49,000
For 3 months 14 days: (14th December 2019 to 31st March 2020) 20,800
Income Tax 8
Total D.A. 69,800
D.A. [60% of 69,800, forming part of retirement benefits] 41,880
Total salary of 10 months 1,81,480
Average Salary = 1,81,480 / 10 18,148

15,000+7,500
Leave Encashment received [30 × 23 − 150 − 60] × 3,60,000
30

18,148
1 Leave credit on the date of retirement [30 × 23 − 150 − 60] × 2,90,368
30
2 10 × average monthly salary 1,81,480
3 Ceiling – ₹300,000 less amount exempted earlier 300,000
4 Actual leave salary 3,60,000 1,81,480
Taxable Value of Leave Encashment 1,78,520
Question: A was employed with Z Ltd. He retired w.e.f. 1.2.2021 after completing a service of 24 years
and 5 months. He submits the following information:
Basic Salary ₹5,000 per month (at the time of retirement)
Dearness Allowance 100% of Basic Salary
(60% of which forms part of salary for retirement benefits).
Last increment ₹500 w.e.f. 1.7.2020
His pension was determined at ₹3,000 per month. He got 50% of the pension commuted w.e.f. 1.3.2021
and received a sum of ₹1,20,000 as commuted pension. In addition to this, he received a gratuity of
₹1,50,000 and leave encashment amounting to ₹56,000 on account of accumulated leave of 240 days. He
was entitled to 40 days leave for every year of completed service.
Compute his Gross Salary for assessment year 2021-22 assuming that he is not covered under Payment
of Gratuity Act.
Answer:
Computation of Gross Salary for the Assessment Year 2021-22 ₹ ₹
1 Basic Pay
April 20 to June 20 = 3 months @ ₹4,500 pm 13,500
July 20 to Jan 2021 = 7 months @ ₹5,000 pm 35,000 48,500
2 Dearness Allowance @ 100% of Basic Pay 48,500
3 Uncommuted Pension
February @ ₹3,000 pm 3,000
March @ ₹1,500 pm (Since 50% commuted) 1,500 4,500
4 Commuted Value of Pension 1 40,000
5 Gratuity2 56,880
6 Leave Encashment3 56,000
Gross Salary 2,54,380

Note 1:
Commuted Value of Pension ₹
Actual commuted value of pension received 1,20,000
Less Exempted u/s 10(10A)
1/3rd of Full Value of Commuted Pension [1/3 × 2,40,0001] 80,000
Taxable Commuted Value of Pension 40,000
Note 2:
Particulars ₹ ₹
Less: Exemption u/s 10(10)(iii) Least of the followings
(ii) 1/2 × Average salary2 × Completed years of service [½ × 7,760 × 24] 93,120
(iii) Maximum Limit 20,00,000 93,120
Salary 10 calendar months average salary preceding the month of retirement.

Basic Pay + DA FPS + Fixed % commission
Note 3:
Amount Received on Leave Encashment 56,000
1 Leave salary calculated4 0
2 10 × average monthly salary = [10 × ₹7,760] 77,600
3 Ceiling – ₹3,00,000 less amount0 exempted earlier 3,00,000
4 Actual leave salary 56,000 0
Taxable Value of Leave Encashment 56,000
Note 4:
Leave credit available on the date of retirement Days
Total Leave sanctioned during tenure of employment [24 years × 40 days p.a.] 960
Less Total leave availed during service 720
Less Excess leave sanctioned by the employer [(40– 30) days per year × 24 years] 240
Leave credit on the basis of 30 days credit for completed years of service 0
Hence Leave salary – exempted 0
1
Note: Full value of commuted pension = 1,20,000/50% = ₹2,40,000
2
Note: Average salary = (48,500 + 60% of 48,500)/10 = ₹7,760
Income Tax 10
Section 10(10B): Exemption allowed for Retrenchment Compensation
1. Retrenchment compensation under any CG approved scheme – Exemption
2. Retrenchment compensation under Industrial Dispute Act 1947 or under any Act / Rule / Orders
Least of the following will be exempt but subject to relief u/s 89(1)
1 15/26 days salary for completed years of service and part thereof [Industrial Dispute Act] ×××
2 Actual Amount Received. ×××
3 Maximum Limit - ₹5,00,000 ×××
Salary includes everything except Bonus and contribution to any retirement scheme
Salary will be average salary for
In the case of monthly paid workman, 3 calendar months from the date of retirement.
In the case of weekly paid workman, 4 calendar weeks from the date of retirement.
In the case of daily paid workman, 12 full working days
{CA inter N06, 6 marks}
Question: Mr. Gobind received retrenchment compensation of ₹10,00,000 after 30 years 4 months of
service. At the time of retrenchment, he was receiving basic salary of ₹20,000 p.m. dearness allowance
of ₹5,000 p.m. Compute his taxable retrenchment compensation.
{CA inter M13, 4 marks]
Answer: As per section 10(10B), exemption available to Mr. Gobind in respect of retrenchment
compensation, in this case, will be the least of the following limits:
Compensation actually received ₹10,00,000
Less Exemption u/s 10(10B): Whichever is the least
1 Amount calculated as per S.25F of the Industrial Disputes Act, 1947 ₹4,32,692
15 20,000 × 3 + 5,000 × 3
( × × 30 𝑦𝑒𝑎𝑟𝑠)
26 3
2 Statutory limit ₹5,00,000
3 Compensation actually received ₹10,00,000 ₹4,32,692
Taxable Retrenchment Compensation ₹5,67,308
Section 10(10C): Condition for claiming exemption of Voluntary Retirement Compensation

{CMA inter D13, 3 marks | CA inter N07, 4 marks}
1. Compensation is received as per any scheme (with guidelines) of voluntary retirement
2. Exemption shall be allowed only to employees of
Central government State Government Public Sector Any company
Statutory corporation Local authority University IIT
Notified Institutes
3. After VRS, the individual should not be employed in another Company of the same management;
4. He should not have received any other VRS
5. The person who availed relief u/s 89 will not be able to claim exemption u/s 10(10C)
6. Least of the following will be exempt

1 Actual amount received ×××
2 Maximum Amount [₹5,00,000] ×××
3 The highest of the following
3 × last drawn salary × completed years of service ×××
Last drawn salary × Number of months left un-served ××× ×××
Salary: Basic salary + D.A. (FPS) + fixed % commission
Question: Mr. Roshan, after serving Z Ltd., for 23 years 7 months, opted the Voluntary Retirement
Scheme. Total tenure of service: 30 years Compensation received ₹8,00,000. Last drawn Salary (i.e. Basic
pay + D.A, forming part of retirement benefits) ₹25,000. Compute exemption & taxable value of VRS
compensation.
{RTP}
Answer:
Total tenure of service 30 × 12 360 months
Actual length of service 23 years 7 months 283 months
Number of months of service left (360 – 283) months 77 months
Computation of Taxable VRS Compensation

Particulars ₹ ₹
Amount received as Retrenchment Compensation 8,00,000
Less Exemption u/s 10(10C): Least of the followings:
(ii) Maximum Amount 5,00,000
(iii) The highest of the following
3× last drawn salary × completed years of service [3×25,000×23] 17,25,000
Last drawn salary × Number of months left un-served [25,000×77] 19,25,000 19,25,000
Taxable Value 3,00,000
Allowances u/s. 10(7) / 10(14) / 10(45)

1. Fully taxable allowances
2. Fully exempt allowances
3. Exempt up to actual spending
4. Exempt up to amount specified in rule 2BB
Fully taxable allowances

1 Dearness Allowance 8 Overtime Allowance
2 City Compensatory Allowance 9 Deputation Allowance
3 Fixed Medical Allowance 10 Servant Allowance, etc.,
Income Tax 12
4 Lunch / Tiffin / Dinner allowance 11 Entertainment Allowance
5 Warden Allowance 12 Interim Allowance
6 Non-practicing Allowance 13 Project Allowance
7 Family Allowance 14 Any other cash allowance
Allowances which are exempt in the hand of certain persons

1. to a citizen of India, who is a government employee, rendering service outside India – S. 10(7)
2. to Supreme Court / High Court Judges
3. Sumptuary allowance given to High Court and the Supreme Court Judges.
4. Compensatory allowances u/a 222(2) of the Constitutions to judges
5. Allowance received by an employee of UNO from his employer.
Note: Salary and allowances to teacher or professor from SAARC member states – exempt for 2 years
Section 10(45): Exempted allowances and perquisites to serving Chairman / Member of UPSC
a) Value of rent free official residence
b) Value of conveyance facilities including transport allowance
c) Sumptuary allowance
d) Leave travel concession
Exempted allowances to Retired Chairman / Members of UPSC (Subject to limit as follows)
For paying services of an orderly and for secretarial assistant on contract basis – 14,000 p.m.
Free residential telephone – 1,500 p.m.
Section 10(14)(i): Allowances which are exempted up to the actual expenditure

1. Travelling / Transfer Allowance - to meet the cost of official tour or transfer expenses
2. Conveyance Allowance – to perform official duty
3. Daily Allowance – during transfer or tour to meet normal daily charges
4. Helper Allowance – engaged to perform official duty
5. Research / Academic / Professional Development Allowance – for academic & professional research
6. Uniform Allowance – for purchase and maintenance
Section 10(14)(ii): Exempt Allowances {WEL (a) actual allowance & (b) the amount specified in rule
2BB:
1. Special Compensatory Allowance – Hill area – ₹300 or ₹800 {₹7,000 p.m. for Siachen in J&K}
2. Border Area Allowance – ₹200 to ₹1,300 p.m.
3. Tribal / Scheduled area allowance – ₹200 p.m.
4. Allowance for transport employees: 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 that such employee is not in receipt of daily allowance:
exempt up to WEL of (a) 70% of such allowance and (b) ₹10,000 p.m.

5. Children Education Allowance: Limited to ₹100 per child and maximum of two children u/s
10(14)
6. Hostel Expenditure Allowance: Limited to ₹300 per child and maximum of two children
7. Compensatory field Area Allowance: Limited to 2,600 pm in some cases
8. Compensatory modified area allowance: limited to ₹1,000 pm in some cases
9. Counter insurgency allowance: limited to 3,900 p.m. in some cases.
10. Transport allowance: is 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. Exempt up to ₹3,200 per
month for blind, deaf, dumb and handicapped employees.
11. Underground allowance: limited to 800 p.m.
12. High altitude allowance: ₹1,060 for altitude of 9,000 to 15,000 feet / ₹1,600 for altitude above 15,000
feet
13. High Active Field Area Allowance: exempt up to ₹4,200 p.m.
14. Island duty allowance: exempt up to ₹3,250
Note: Transport allowance is only granted if provisions of section 115BAC are opted
Question: Preet is employed as a driver in a transport company. During the previous year 2020-21 he
has been paid ₹24,000 being allowance to meet his personal expenses in course of running trucks from
one place to another. He is not in receipt of daily allowance. The expenditure incurred is, however
₹30,000. Find out the amount chargeable to tax. 1
Section 10(13A): House Rent Allowance – Exemption: WEL

1 50% (situated in metro cities) or 40% (Others) of salary ×××
2 Actual HRA received ×××
3 Rent paid – 10% of salary for the relevant period ×××
Note 1: Salary = Basic, DA [FPS], and fixed % commission
Note 2: Calculate separately for any change such as rent, salary, job, etc.
Question: B is employed at Mumbai as a Manager of R Ltd. The particulars of his salary for the previous
year 2020-21 are as under: Basic Salary ₹26,000 p.m. Dearness allowance ₹15,000 p.m. Conveyance
Allowance for personal purpose ₹6,000 p.m.; Commission @ 0.5% of the turnover achieved which was
₹90,00,000 during the previous year and the same was evenly spread. HRA is ₹10,000 p.m. The actual
rent paid by him ₹15,000 pm for an accommodation till 31.12.20. From 1.1.21 the rent was increased to
₹17,000 p.m. Compute taxable HRA.
Note: If there is an increase in rent paid, it is advisable to calculate the exemptions separately based on
the time period. Rent before and after increase.
1
Exemption = 70% of 24,000 or 10,000 = 10,000 and taxable amount = 24,000 – 10,000 = 14,000
Income Tax 14
Answer:
Computation of Taxable House Rent Allowance
Particulars 1.4.2020-31.12.20 [₹] 1.1.21-31.3.21 [₹]
Amount received for HRA 90,000 30,000
Less Exemption u/s 10(13A): WEL
(i) Actual amount received 90,000 30,000
(ii) 50% of salary1 2,01,375 67,125
(iii) Rent paid – 10% of salary 94,725 37,575
Taxable HRA Nil Nil
Therefore, Total Taxable HRA for Mr. B for the previous year 2010-21 is NIL.
Note 1:
Salary for HRA Basic Pay + DA + Fixed % commission
1.4.2020-31.12.20 (26,000 × 9) + (15,000 × 9) + (0.5% of 90,00,000 × 9/12) 4,02,750
1.1.21-31.3.21 (26,000 × 3) + (15,000 × 3) + (0.5% of 90,00,000 × 3/12) 1,34,250
Question: Mr. Mohit is employed with XY Ltd. on a basic salary of ₹10,000 p.m. He is also entitled to
Dearness allowance @ 100% of basic salary, 50% of which is included in salary as per terms of
employment. The company gives him house rent allowance of ₹6,000 p.m. which was increased to
₹7,000 p.m. with effect from 1-1-2021. He also got an increment of ₹1000 p.m. in his basic salary with
effect from 1-02-2021. Rent paid by him during the previous year 2020-21 is as under:
April and May, 2020 Nil, as he stayed with his parents
June to October, 2020 ₹6,000 p.m. for an accommodation in Ghaziabad.
November, 2020 to March, 2021 ₹8,000 p.m. for an accommodation in Delhi.
Compute his gross salary for assessment year 2021-22.
Answer: Computation of gross salary of Mr. Mohit for A.Y. 2021-22
Particulars ₹
Basic salary [(₹10,000 x 10) + (₹11,000 x 2)] 1,22,000
Dearness Allowance (100% of basic salary) 1,22,000
House Rent Allowance (See Note below) 21,300
Note 1: Calculation of HRA is affected be changes such as change in salary, basic, HRA, rent paid and
place of stay. Hence every such change is listed below
Particulars [Change] Date of Change Months
Commencement of year 01.04.2020 2
Payment of rent of ₹6,000 at Ghaziabad 01.06.2020 5
Payment of rent of ₹8,000 at Delhi 01.11.2020 2

Change of HRA 01.01.2021 1
Change of Salary 01.02.2021 2
Note 2: Computation of Taxable House Rent Allowance (HRA) as per Note 1

Particulars April & May June & Oct Nov & Dec Jan Feb & Mar
A Basic salary per month 10,000 10,000 10,000 10,000 11,000
B Dearness allowance (FPS)1 5,000 5,000 5,000 5,000 5,500
Salary for HRA [A+B] 15,000 15,000 15,000 15,000 16,500
Place of Stay Ghaziabad Ghaziabad Delhi Delhi Delhi
Rent paid Nil 6,000 8,000 8,000 8,000
I HRA received 6,000 6,000 6,000 7,000 7,000
Exemption u/s 10(13A) [WEL]
1 40% of Salary [Ghaziabad] 6,000 6,000 - - -
50% of Salary [Delhi] - - 7,500 7,500 8,250
2 Actual HRA 6,000 6,000 6,000 7,000 7,000
3 Rent paid – 10% of HRA Nil 4,500 6,500 6,500 6,350
II Exemption u/s 10(13A) [WEL] Nil 4,500 6,000 6,500 6,350
Taxable HRA [I – II] 6,000 1,500 0 500 650
Period (in months) [Note 1] 2 5 2 1 2
Total taxable HRA 12,000 7,500 0 500 1,300
Total taxable HRA 21,300
Provident Fund [S. 10(11) – SPF & PPF & (12) – RPF]
Statutory PF Recognised PF Public PF Unrecognised PF
On Deposit
Employee's contribution Deduction u/s 80C Deduction u/s 80C Deduction u/s 80C Not considered
Employer's contribution Exempt Up to 12% of salary is exempt Not applicable Not considered
Interest on employee’s Contribution Exempt Up to 9.5% of int.is exempt Exempt Not considered
Interest on employer’s Contribution Exempt Up to 9.5% of int. is exempt Not applicable Not considered
On withdrawal
Employee's contribution Exempt Exempt1 Exempt Exempt
1
Employer's contribution Exempt Exempt Not applicable Taxable under salary
Interest on employee’s contribution Exempt Exempt1 Exempt Taxable under IFOS
1
Interest on employer’s Contribution Exempt Exempt Not applicable Taxable under salary
Note:1 condition to be satisfied:
1
Dearness allowance [forming part of retirement benefits] only considered as salary for HRA
(𝑆𝑎𝑙𝑎𝑟𝑦 × 100% × 50%)
Income Tax 16
1. Employee left the job
a. after 5 years of service, or
b. due to ill health,
c. discontinuance of employer's business or
d. reasons beyond his control, or
2. the balance is transferred to
a. RPF with new employer
b. NPS account referred to in S.80CCD and notified by CG
If the conditions are not satisfied – taxable as if the withdrawal of the unrecognised provident fund.
PERQUISITES
Section 17(2): Perquisites and valuation (non cash benefits or benefits in kind)
(i) Rent free accommodation
(ii) Accommodation provided concessional rate
(iii) Any benefit or amenity granted to specified employees
(iv) Any obligation of the employee paid by employer
(v) Premium paid on employee’s life assurance or annuity – taxable
Except: PF, approved SAF, group insurance, ESI and fidelity guarantee scheme
Note: Qualify for deduction u/s 80C
Personal accident insurance premium: NOT taxable [CIT vs. Lala Shri Dhar]
(vi) Sweat equity shares [average FMV – amount recovered]
(vii) Superannuation fund [RPF+NPS] in excess of ₹7,50,000 p.a. & interest on it – taxable
(viii) Other fringe benefits (except mobile and telephone)
Note: taxable perquisites = value determined – amount recovered
Section 17(2)(i/ii): Perquisite – Rent Free Accommodation / Accommodation at Concessional Rent

Exception: to judge of HC or SC – Not taxable
Government employee: license fee determined by the Government
Non-Government employee:
Where accommodation is
Population [2001 census] owned by the employer leased out or rental by the employer
1 More than 25 lakhs 15% of the salary Which Ever is Lower [WEL]
2 10 lakhs – 25 lakhs 10% of the salary (1) Amount of lease rent paid
3 Less than 10 lakhs 7.5% of the salary (2) 15% salary
Note 1: in case of furnished accommodation, 10% cost of furniture or hire charge is added
Note 2: Salary = All monetary benefits + bonus in accrual basis + DA (FPS) + Salary from two or
more employers
Note 3: Exempt – if accommodation provided at project site (mining, dams, etc..) in remote area

1. 40 km away from town where population is less than 20,000
2. In case, 8 km away from town – RFA up to 800 sq.ft. is exempt
Note 4: in case of possession of two RFA on transfer,
1. First 90 days, whichever is lower of two RFA – taxable
2. After 90 days, both RFA is taxable
Note 5: Accommodation provided in (licensed) hotel on transfer
1. Actual Charges or
2. 24% of Salary, whichever is lower
However, nothing is taxable if accommodation is
Provided for not more than 15 days, and
On transfer of employee from one place to another.
Question: Mr. Avilash, is a Central Govt. employee. He is provided with an accommodation. The
Licence fee determined by the Government is ₹900 p.m. An amount of ₹750 is deducted from his salary
towards such rent. Determine the taxable value of perquisite for accommodation at a concessional rent.
Cost of furniture provided costing ₹50,000 and hire charges of furniture ₹800 p.m. paid for 8 months
only.
Answer: Taxable Value of Unfurnished Accommodation
Licence fee determined by the Government (900 × 12) 10,800
Less: Rent recovered from employee (750 × 12) 9,000
Value of unfurnished accommodation provided at concessional rent 1,800
Add: 10 % of cost of furniture provided by employer 5,000
Add: Hire-charges on furniture paid ( 800 x 8 months) 6,400
Less: Amount recovered Nil
Taxable value of perquisite 13,200
Question: R submits the following information regarding his salary income for the year 2020-21: Basic
salary ₹1,70,000 p.a.; D.A (forming part of salary) 60% of basic salary; City Compensatory Allowance
₹300 p.m.; Children Education Allowance ₹400 p.m. per child for 3 children; Transport Allowance
₹1,000 p.m. He is provided with a rent free unfurnished accommodation which is owned by the
employer. The fair rental value of the house is ₹24,000 p.a. Compute the value of perquisite for
accommodation provided, assuming that the accommodation is provided in a city where population is
(a) exceeding 25 lakhs (b) exceeding 10 lakhs but not exceeding 25 lakhs (c) less than 10 lakhs
Answer:
Computation of Salary RFA ₹ ₹
1 Basic Pay 1,70,000
2 Dearness Allowance @ 60% of Basic Pay 1,02,000
3 City Compensatory Allowance [₹300×12] 3,600
4 Children Education Allowance
Actual amount received (400 × 12 × 3) 14,400
Income Tax 18
Less Exemption: ₹100 p.m. per child [max of 2 children (₹100×12× 2) 2,400 12,000
5 Transport Allowance (₹1,000 × 12) 12,000
Salary for RFA 2,99,600
Taxable RFA Case [a] Case [b] Case [c]

Percent of salary for value of unfurnished accommodation 15% 10% 7.5%
Unfurnished accommodation – value ₹44,940 ₹29,960 ₹22,470
Question: Mr. Ritesh is provided with an accommodation in Kolkata since April 2020. Salary is ₹40,000
p.m. Cost of furniture provided is ₹80,000. On 1st September, 2020, following a promotion with an
increase in Salary by ₹15,000, he was transferred to Jharkhand (population less than 25 lakhs but more
than 10 lakhs), and was also provided an accommodation there. Mr. Ritesh was allowed to retain the
Kolkata accommodation till March, 2021. Compute taxability.
Answer:
2019-20 Kolkata Jharkhand Total Note
15% of Salary 10% of salary [₹]
April 20 6,000 6,000
May 20 6,000 6,000
June 20 6,000 6,000
July 20 6,000 6,000
August 20 6,000 6,000
September 20 8,250 5,500 5,500 WEL of
October 20 8,250 5,500 5,500 2 is taxable
November 20 8,250 5,500 5,500 for 3 months
December 20 8,250 5,500 13,750 Total of

January 21 8,250 5,500 13,750 both
February 21 8,250 5,500 13,750 will be
March 21 8,250 5,500 13,750 taxable
Taxable perquisite for unfurnished accommodation 1,01,500

Add 10% of the cost of furniture (10% of 80,000) 8,000
Taxable perquisite for furnished accommodation 1,09,500
Question: Mr. Haider, was provided an accommodation in a hotel by his employer for 22 days, before
he could be provided with a rent free accommodation, owned by the employer. The hotel charges paid
₹6,000. Salary for the purpose of accommodation for the period of 22 days is ₹22,000. Compute the value
of accommodation assuming ₹3,000 was recovered from the employee.1
1
Taxable RFA = WEL of (24% of 22,000 or 6,000) – 3,000 = ₹2,280

For Section 17(2)(iii): Specified Employees
1. A director employee or
2. An employee who has substantial interest in the employer company
[for company: equity voting power ≥ 20%] / [Firm: Profit share ≥ 20%]
Note: Holding shares by A, Karta of HUF is not A’s holding
3. An employee drawing monetary benefits even from one or more employers (excluding
exemptions and deductions: entertainment allowance and professional tax) in excess of ₹50,000
Perquisites taxable only in the hands of specified employees are:

1. Use of motor car + other automotive
2. Provision of sweeper, gardener, watchman or personal employer
3. Facility of use of gas, electricity or water supplied by employer
4. Free or concessional educational facilities
5. Free or concessional tickets
6. Leave Travel Concession
Question: Mr. M is an employee of Z Ltd. His basic pay is ₹74,000 p.a., Dearness Allowance ₹12,000
p.a; Medical Allowance (fixed) ₹10,000 p.a.; Conveyance Allowance ₹6,000 p.a.; Professional Tax
deducted from his salary ₹1,000 p.a.; Free lunch provided during office hours valued at ₹12,000 for a
300-working day year; free education for two children in a school owned and maintained by the
employer – school tuition fee for both the children is estimated at ₹18,000 p.a. Is Mr. M a specified or
non-specified employee?
Answer: Computation of Salary for determining specified / non-specified employee
Particulars ₹
Basic Salary 74,000
Dearness Allowance 12,000
Medical Allowance (fixed) 10,000
Conveyance Allowance 6,000
Free lunch (non-monetary benefits not considered) NA
Free education (non-monetary benefits not considered) NA
Less Standard Deduction u/s 16(iia) 50,000
Less Professional Tax paid u/s 16(iii) 1,000
Net Income from Salary ( excluding non-monetary benefits) 51,000
Hence, Mr. M is a “specified employee”. However, if his Net Income from Salary was equal to ₹50,000
or less, then, he would be assessed as a “non-specified employee”.
Income Tax 20
Valuation of Motor Car
Use Car owned or hired by employer Car owned by employee
1 Official Nil Nil

Running & Maintenance Actual Running & Maintenance Actual
+ Chauffeur Actual + Chauffeur Actual
2 Private
+ Wear and tear 10% + Wear and tear Nil
Taxable ×××× Taxable ××××
Expenses met by
Actual Expenses ××××
CC of the car Employer Employee
− If CC < 1.6 lt. 1,800
< 1.6 lt. 1,800 600
3 Both − If CC > 1.6 lt. 2,400
> 1.6 lt. 2,400 900
− If Chauffeur 900
+ If Chauffeur 900 900
Taxable ××××
Taxable ×××× ××××
Note 1: Reimbursement of running and maintenance cost of other automotive conveyance

Official purpose: Not perquisites
Official and Private purpose: Perquisite = Actual amount reimbursed – ₹900
Note 2: More than one motor car is provided
One car – treat as used for official partly and private purpose partly
Other car/s – treat as used for private purpose
Note 3: Higher deduction can be claimed if document for usage is maintained.
Question: Mr. Rahim, Director in a MNC Ltd., is entitled to a motor car (1.8 Ltrs.) to be used for both
official and private purposes?
Discuss the taxability of perquisite, if,
1. The car is owned by the employer, expenses paid by employer and it is a Chauffeur-driven car.1
2. The car is owned by Mr. Rahim, expenses incurred ₹30,000 and chauffeur is paid a salary of ₹90,000
provided by the employer.2
{CMA inter J14, 3 marks}
Domestic servants: sweeper, gardener, watchman and personal attendant

Servant engaged by Salary paid by Value of Perquisites Taxable in the hands of
Employee Employer Actual Cost All employees
1
Taxable = (2,400 + 900) × 12 = 39,600
2
Taxable = (30,000 + 90,000) – (2,400 + 900) × 12 = 80,400

Employer Employer Actual Cost Specified employees
Question: Mr. E is employed with N Ltd. he also gets the services of sweeper and watchman. Determine
his gross salary in the following cases:
i. His salary is ₹8,450 pm. Employer provides the services of sweeper and watchman. He pays them
₹600 pm and ₹500 pm;
ii. His salary is ₹8,450 pm. Sweeper and watchman are engaged by E at the rates given in clause (i)
above but their wages are reimbursed by the employer;
iii. His salary is ₹8,460 pm. Employer provides the services of sweeper and watchman at the above
rates but he recovers from E ₹200 pm and ₹300 pm respectively.
E has paid employment tax of ₹1,400.
Answer:
Particulars Case (i) Case (ii) Case (iii)
Salary 1,01,400 1,01,400 1,01,520
Wages of sweeper not taxable1 7,2002 4,8003
Wages of watchman not taxable 6,000 2,400
Gross salary 1,01,400 1,14,600 1,08,720
Less Standard deduction u/s 16(ia) 50,000 50,000 50,000
Less Professional tax paid u/s 16(iii) 1,400 1,400 1,400
Net Salary 50,000 63,200 57,320
Amenities: gas, electricity or water

Facility in Provided Provided To whom
the name from own source outside agency taxable
of
Employee Manufacturing cost per unit Amount paid to outside agency All employees
Employer Manufacturing cost per unit Amount paid to outside agency Specified employees
Question: G Ltd. provides electricity to its employee, P. Annual consumption as per meter reading
comes to 2,250 units. Determine the value of the perquisite in the following cases:
i. Electricity meter is in the name of P and the rate of electricity is ₹4 per unit4
ii. Electricity meter is in the name of G Ltd. the rate of electricity is ₹4 per unit.5
iii. G Ltd. is a power-generating company. Manufacturing cost is 2.90 paise per unit but supplied to
public @ ₹4 per unit. However, it charges 60 paise per unit from employees. 6
1
Non-specified employee as his salary ≤ ₹50,000 [1,01,400 – 50,000 – 1,400]
2
Though non-specified, but employee’s obligation met by employer is taxable
3
specified employee as his salary > ₹50,000 [1,01,520 – 50,000 – 1,400] [7,200 – 200 × 12]
4
Taxable to all as the electricity in the name of employee. [taxable value: 2,250 × ₹4 = ₹9,000]
5
Taxable only to specified employee as the electricity in the name of employer
6
Taxable: 2,250 × (₹2.90 – ₹0.6) = ₹5,175
Income Tax 22
Educational Facilities
Facility Provided in employer’s school / Provided in other school Taxable in
provided to school in which agreement is made the hands of
Children Cost of such education in similar Amount paid for such Specified
school (exemption if the value is less education (exemption if the Employees
than ₹1,000 p.m. per child) value is less than ₹1,000
p.m. per child)
Other Cost of such education in similar Amount paid for such Specified
members school education employees.
Note:
Child shall include step child or adopted child
For employee himself (refresher course) – NOT taxable
Question: Determine the value of education facility in the following cases:

i. Three children of G, an employee of S Ltd., are studying in a school, run by S Ltd. School fees is
₹2,500 pm and hostel fees is ₹2,000 pm. But the employer recovers only ₹600 pm and ₹500 pm
respectively. However, a similar school or a hostel around the locality charges ₹1,800 pm and ₹1,200
pm respectively.1
ii. The employer has also reimbursed the school fees of ₹1,200 pm of his nephew, fully dependent on
him after the death of his brother.2
Question: Mr. Z is the manager of F Ltd. his son is a student of Amity International School. School fees
of ₹6,000 p.m. and hostel fees of ₹4,000 p.m., are directly paid by F Ltd. to the school but it recovers
from Mr. Z only 40%. Mr. Z also joins an advanced course of Marketing Management for 4 months at
IIM, Ahmedabad, fees of the course, ₹4,50,000 is paid by F Ltd. Determine the perquisite value of the
education facility.3
Free / concessional transport

1. Provided by any undertaking engaged in the carriage of passengers or goods
2. to any employee or to any member of his household
3. for private journey
4. in any conveyance owned or leased by it
Then taxable perquisite = the value offered to the public – amount recovered
In case of employees of the Railways and airlines – exempt
1
Taxable school fee: (₹1,800 – ₹600)×3×12 = ₹43,200 | taxable hostel fee: (₹2,000 – ₹500)×3×12 = ₹54,000
2
Taxable school fee: ₹1,200×12=₹14,400
3
Taxable school fee: (₹6,000 – ₹2,400)×12 = ₹43,200 | taxable hostel fee: (₹4,000 – ₹1,600)×12 = ₹28,800
Fees paid for Mr Z – exempt

Section 10(5): Leave Travel Concession for any place in India (taxable for specified employee)
Leave Travel Concession is taxable only for specified employee if LTC is more than twice in a block of
4 years and carry forward one travel of a block of four years to the first year of the next block.
Exemption: two travels in a block of four years (one travel can be carried forward to next block)
Economy class fair – by air travel Deluxe class fair – by recognized bus
I class a/c fair – by rail Proportionate I class a/c fair –by any other mode.
Note: Family of an Individual: Spouse and children | dependent parents, brothers and sisters
Note: Restricted to 2 children only (except: child born before 1.10.98 and multiple births after first child)
Question: Rajesh went to Shrinagar on a holiday on 15-11-2020 with his wife and two children (one Son
– age 6 years; twin daughters – age 3 years. They went by aeroplane (economy class) and the total cost
of tickets by his employer was ₹58,000 (₹43,000 for adults and ₹15,000 for the three minor children.
Compute the amount of Leave Travel Concession exempt. 1
With the answer be any different if among his three children the twins are 6 years old and son 3 years
old? Discuss.
Medical facility – Fully exempt

1. treatment in hospital maintained by the employer
2. Reimbursement medical expenditure incurred
a. In hospital maintained by Govt. / LA / Govt approved for this purpose
b. In respect of the prescribed disease in any hospital approved by Principal Chief Commissioner
or chief commissioner
3. Premium paid / reimbursed for health insurance approved by CG or IRDA
4. Treatment in foreign [employee or family]
Family – Spouse and children | Dependent parents, brothers and sisters
Treatment Cost of Stay Cost of Travel
Patient Exempt Exempt Exempt
Attendant NA Exempt Exempt
Condition RBI permission RBI permission GTI <= 2 lakhs
Question: Compute the taxable value of the perquisite in respect of medical facilities received by My
G from his employer during the PY 2020-21
₹
1 Medical premium paid for insuring health of Mr. G 2 7,000
2 Treatment of Mr. G by his family doctor3 5,000
1
(i) Fully exempt | (ii) 53,000 exempt and 5,000 for one child is taxable (allowed only to 2 children)
2
Exempt
3
Taxable
Income Tax 24
3 Treatment of Mrs. G in a Government hospital 1 25,000
4 Treatment of Mr. G’s grandfather in a private clinic 2 12,000
5 Treatment of Mr. G’s mother (68 years and dependent) by family doctor 3 8,000
6 Treatment of Mr. G’s sister (dependent) in a nursing home 4 3000
7 Treatment of Mr. G’s brother (independent) 5 6,000
8 Treatment of Mr. G’s father (75 years and dependent) abroad 50,000
Expenses of staying abroad of the patient [RBI limit specified ₹75,000]6 75,000
{CA inter M14, 8 marks | Rakhi um Modified}
Sweat equity share:

Perquisite = FMV – amount received
FMV
1. Listed shares:
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑠𝑒𝑙𝑙 𝑝𝑟𝑖𝑐𝑒 + 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑠𝑒𝑙𝑙 𝑝𝑟𝑖𝑐𝑒
𝑎𝑠 𝑜𝑛 𝑡ℎ𝑒 𝑑𝑎𝑡𝑒 𝑜𝑓 𝑒𝑥𝑒𝑟𝑐𝑖𝑠𝑖𝑛𝑔 𝑜𝑓 𝑡ℎ𝑒 𝑜𝑝𝑡𝑖𝑜𝑛
2
Note:
a. if stock is listed in more than one market, then the price of the market which has highest
volume traded is taken
b. if no trading on the date of exercise, then closing price on the date closest to the date of
exercising the option
2. Unlisted shares: Value determined by a merchant banker on the date of exercising option or
any date earlier but not more thank 180 days from the date of exercising the option
3. Specified securities other than equity shares: [similar to unlisted shares]
Question: Excel Ltd. allotted 1,000 (sweat) equity shares of ₹10 each to Mr. Rao, General Manager. The
fair market value of the shares computed in accordance with the method prescribed under the Income-
tax Act / Rules was ₹500 per share, whereas it was allotted at ₹300 per share. What is the perquisite
value of sweat equity shares allotted to Mr. Rao? In case these shares are sold subsequently, what would
be their cost of acquisition in the hands of Mr.Rao? 7
{CMA inter D12, 6 marks}
VALUE OF FRINGE BENEFITS U/S 17(2)(viii) w.r.t Rule 3(7)

1 Interest Free Loan / Loan at Concessional Rate of Interest
2 Traveling, touring and accommodation
1
Exempt
2
Taxable
3
Taxable
4
Taxable
5
Taxable
6
Exempt up to limit specified by RBI. Taxable ₹5,000. [50,000+30,000 – 75,000]
7
Taxable: (500 − 300) × 1,000 𝑠ℎ𝑎𝑟𝑒𝑠 = 2,00,000 & Cost of Acquisition in the hands of employee = ₹500

3 Free Meal
4 Gift Voucher
5 Cost of Credit Card – taxable if used for personal purpose
6 Club Membership
7 Use of Movable Asset
8 Sale / Transfer of Movable Asset
9 Any others except telephone / mobile – taxable
Interest Free Loan / Concessional Loan – taxable value

Maximum outstanding monthly balance × Interest Rate of SBI xxx
as on 1st day of relevant previous year
Less Interest (if any) paid by the employee on that loan xxx
Exemption if
Loan in aggregate does not exceed ₹20,000 or
Loan is provided for the treatment of specified diseases [(rule 3A)] provided
1. Not reimbursed under any medical insurance scheme and
2. Repayable to employer
Question: Housing loan @ 6% per annum has been granted by Ved Software Ltd to his employee Mr.
Badri. Amount outstanding on 1.4.2020 is ₹6,00,000. Mr. Badri pays ₹12,000 per month, on 5th of each
month. Compute the chargeable perquisite in the hands of Mr. Badri for the assessment year 2021-22.
The lending rate of State Bank of India as on 1.4.2020 for housing loan may be taken as 10%.
Answer: Chargeable perquisite
Month Balance Month Balance Month Balance Month Balance
30.04.20 5,88,000 31.07.20 5,52,000 31.10.20 5,16,000 31.01.21 4,80,000
31.05.20 5,76,000 31.08.20 5,40,000 30.11.20 5,04,000 28.02.21 4,68,000
30.06.20 5,64,000 30.09.20 5,28,000 31.12.20 4,92,000 31.03.21 4,56,000
Sum of balance in all months = ₹62,64,000
1
Total interest as a taxable perquisite = 62,64,000 × (10% − 6%) × = 20,880
12
Valuation of traveling, touring, accommodation and any other expenses on holiday

Actual expenditure incurred by employer shall be taxable. However if
The facilities are maintained by the employer and not available to all employees uniformly, the
value at which such facilities are offered by other agencies to public shall be taxable.
If the official tour is extended as a vacation the value shall be taken only for the extended period.
If any member of household accompanies the employee on official tour the value shall be
expenditure incurred on such member of household.
Note: The above rules are not applicable to LTC.
Income Tax 26
Valuation of Free Meals: Actual expenditure by employer shall be taxable except the following
i. Food during working hours in remote area
ii. Tea, coffee and non-alcoholic beverages during working hours
iii. Meals cost up to ₹50 in office hours
Note: meals cost excess of ₹50 less amount recovered is taxable
Note: Not available for 115BAC
Valuation of gift voucher or token

The amount of such gift shall be taxable as perquisite, however if value of gift voucher in aggregate
during the previous year more than ₹5,000 is taxable. If gift is by cash or by way of gift voucher /
cheque convertible in cash, then entire amount shall be taxable
Question: Chris, an employee of Beautiful World Ltd. was presented a gift voucher of Pantaloons
amounting to ₹7,000, on the occasion of his marriage. Discuss taxability. Would your answer differ, if
the same was presented to Chris on the occasion of her first marriage anniversary? 1
Taxable Club cost = Club cost – cost for official purpose - amount recovered if any
Not taxable if
a. corporate membership
b. official
c. for use of health club, sports and similar facilities provided uniformly to all employees
Use of movable asset except computer / laptop

1. Employer owned – taxable @ 10% p.a. of the actual cost
2. Hired – rent is taxable
Less amount recovered
Question: Mr. Prabir Nandy is a Manager in H Ltd. He gets salary @ ₹30,000 pm. He is also allowed
free use of computer, video-camera and television of the company. H Ltd. has purchased (i) Computer
for ₹1,00,000 (ii) Video-camera for ₹30,000. Their written down value on 1.4.20 is ₹60,000 and ₹3,000
respectively. Television set has been taken on lease rent @ ₹100 pm. The employer recovers ₹500 per
month for use of the assets. Compute his gross salary for the assessment year 2021-22.
Answer: Computation of gross salary
Particulars Calculation ₹ ₹
Salary 30,000 × 12 3,60,000
Add Free use of computer Nil
Add Free use of video camera 10% of 30,000 3,000
Add Free use of television 100 × 12 1,200
1
On the occasion of marriage – not taxable | otherwise ₹7,000 is taxable as gift exceeds ₹5,000

Less Amount recovered from the employee ₹500 × 12 (6,000) Nil
Taxable value on transfer of movable asset

1. Electronic items and computers – 50% depreciation under WDV for each completed year,
2. Motor car – 20% depreciation under WDV and
3. any other asset – 10% for each completed year by SLM
less amount recovered
Question: Air-conditioners purchased 4 years back for ₹2,00,000 have been given to Mr. Badri by Ved
Software Ltd for ₹90,000. Compute the chargeable perquisite in the hands of Mr. Badri for the
assessment year 2021-22.1
Question: Mr. C is an accountant of D Ltd. He gets salary of ₹25,000 pm. He has purchased motor car
and washing machine from the company on 1st February 2021. He was also provided with a laptop and
Particulars of cost and sale price of the two assets are given below:
Year of Purchase Particulars of the Asset Purchase Price (₹) Sale price (₹)
01.07.2009 Motor car 2,50,000 25,000
15.09.2016 Washing Machine 10,000 5,000
Compute the taxable value of perquisites for the assessment year 2021-22. 2
Tax free perquisites in all cases

1. Telephone
2. Transport facility to employees by employer engaged in transport business
3. Privilege passes and privilege tickets by Indian Railways to its employees
4. Staff group insurance scheme
5. Personal accident policy [CIT vs. Lala Shri Dhar]
6. Refreshment [non-alcoholic beverages] during working hours
7. Lunch up to ₹50
8. Recreational facilities – club cost
9. Training of employees
10. Sum payable to RPF or approved superannuation fund
11. LTC [subject to condition]
Note: Fully exempt to Judges of HC and SC
12. Medical facilities [some cases]
13. Rent free official residence to judges of HC and SC
14. Conveyance facility to judge of HC and SC
1
Taxable: (2,00,000 – 10% depreciation p.a. for 4 years) – 90,000 = 30,000
2
Laptop – exemption | Motor car – not taxable as expired 10 years &
washing machine: taxable = (10,000 − 10,000 × 10% × 4) − 5,000 = 1,000
Income Tax 28
DEDUCTIONS U/S 16
Section 16(ia): Standard Deduction – ₹50,000
Section 16(ii): Entertainment Allowance Deduction [only for Government Employees only]
Deduction [WEL]
1 20% of basic salary only ×××
2 Ceiling 5,000
3 Actual entertainment allowance ×××
Section 16(ii): Professional Tax (maximum ₹2,500 p.a.): deductible on payment basis. Employer’s
payment is first included in income as perquisite
Question: Find out income from salary Mr. X (case i: Government employee and case ii: Non-
Government employee) who draws the following emoluments
1. Basic salary ₹20,000 p.m.
2. Dearness allowance ₹10,000 p.m.
3. Entertainment allowance received from employer ₹10,000
4. Professional tax received from employer ₹5,000
5. Entertainment allowance actually spent is ₹8,000
6. Professional tax paid is ₹6,000
Answer:
Particulars Case i: Case ii:
₹ ₹ ₹
Basic 2,40,000 2,40,000
DA and others 1,20,000 1,20,000
Entertainment allowance from employer 10,000 10,000
Professional tax received from employer 5,000 5,000
Gross total income 3,75,000 3,75,000
Less Standard Deduction 50,000 50,000
Less Deduction u/s 16 (ii) [WEL]
20% of basic salary only 48,000
Ceiling 5,000
Actual entertainment allowance 10,000 5,000 Nil
Less Professional Tax (Paid) u/s 16 (iii) 6,000 6,000
Net taxable income 3,14,000 3,19,000

Question: Mr. M is an area manager of M/s N. Steels Co. Ltd. During the financial year 2020-21, he gets
following emoluments from his employer;
Basic Salary
Up to 31.8.2020 ₹20,000 p.m.
From 1.9.2020 ₹25,000 p.m.
Transport allowance ₹2,000 p.m.
Contribution to recognized provident fund 15% of basic salary and DA
Children education allowance ₹500 p.m. for two children
City compensatory allowance ₹300 p.m.
Hostel expenses allowance ₹380 p.m. for two children
Tiffin allowance (actual expenses ₹3700) ₹5,000 p.a.
Tax paid on employment ₹2,500
Compute taxable salary of Mr. M for the Assessment year 2021-22.
Answer:
Basic Salary
Upto 31.8.20 (20,000 x 5 ) 1,00,000
From 1.9.20 (25,000 x 7 ) 1,75,000 2,75,000
Transport allowance 24,000
City Compensatory Allowance (fully taxable) 3,600
Contribution to RPF (in excess of 12% of salary) 8,250
Children education allowance 6,000
Less: Exempt upto ₹100 per month per child for two 2,400 3,600
Hostel Expenses Allowance 4,560
Less: Exempt upto ₹300 per month per child for two (4,560) ---
Tiffin Allowance (fully taxable) 5,000
Tax paid by employer on employment (Note 1) 2,500
Gross Salary (3,21,950)
Less Deduction u/s 16(ia) 50,000
Less: Deduction u/s 16(iii) 2,500
Income from Salary 2,69,450
Note 1: Tax on employment is paid by Mr. M’s employer. Hence it is taxable in his hand i.e. Mr.X &
allowance u/s 16(iii) is available to him.
Income Tax 30
RELIEF U/S 89
1. On account of arrears of salary or advance salary
2. On account of arrears of family pension
3. No relief at the time of voluntary retirement or termination of services
Exemption: Salary or pension from UNO
COMPREHENSIVE PROBLEMS
Question: Mr. Narendra, who retired from the services of hotel Samode Ltd., on 31.1.2020 after putting
on service for 5 years, received the following amounts from the employer for the year ending on
31.3.2021:
- Salary @ ₹16,000 p.m. comprising of basic salary of ₹10,000, Dearness allowance of ₹3,000, City
compensatory allowance of ₹2,000 and Night duty allowance of ₹1,000.
- Pension @ 30% of basic salary from 01.02.2021.
- Leave salary of ₹75,000 for 225 days of leave accumulated during 5 years @ 45 days leave in each
year.
- Gratuity of ₹50,000.
Compute the total income of Mr. Narendra for the assessment year 2021-22.
Answer: Computation of Total Income of Mr. Narendra for A.Y. 2021-22
Particulars ₹ ₹
Income from Salaries
Gross salary received during 1.4.20 to 31.1.21 @ ₹16,000 p.m. (₹16,000x10) 1,60,000
Pension for 2 months @ 30% of the basic salary of ₹10,000 p.m. 6,000
Leave Salary 75,000
Less WEL is exempt 50,000 25,000
Statutory limit 3,00,000
Leaves standing in credit x 10 months average salary 50,000
[225 – (45-30) x 5] /30 days x 10,000
10 months average salary (10 x ₹10,000) 1,00,000
Actual amount received 75,000
Gratuity 50,000
Less WEL is Exempt 25,000 25,000
Statutory limit 20,00,000
Half month’s salary for 5 years of service (5 x ₹5,000) 25,000
Actual gratuity received 50,000
Total Income 2,16,000

Question: Mr. Raghu joined a company of Chennai on 01.07.2020 and was paid the following
emoluments:
1. Basic salary ₹50,000 per month
2. Dearness allowance @ 50% of basic salary (eligible for retirement benefits).
3. Furnished accommodation owned by company was provided at Chennai.
4. Value of furniture in the accommodation ₹2,00,000 (cost)
5. Motor car owned by the employer (with engine capacity less than 1.6 litres) given for exclusive
personal use. Self-driven by Raghu. Expenses incurred by employer on its running and
maintenance ₹55,950.
6. Educational facility for two children provided free of cost. The school is owned by the company.
Tuition fee per month ₹600 and ₹1,200 respectively.
7. Annual membership for Gymkhana Club paid by the employer ₹20,000.
Compute the income from salary of Mr. Raghu for the assessment year 2021-22.
Answer:
Computation of income from salary of Mr. Raghu for F.Y. 2020-21 ₹ ₹
Basic Salary ₹50000 x 9 4,50,000
Dearness Allowance @ 50% of Basic Salary 2,25,000
Value of Furnished Accommodation @ 15% of (4,50,000 + 2,25,000) 1,01,250
Add Furniture provided for use (2,00,000 × 10% × 9/12) 15,000 1,16,250
Add Motor car – used for personal use 55,950
Add Educational facility provided in a school owned by employer
Child 1 – Tuition Fee ₹600 p.m. (Exempt as fee p.m. ≤ ₹1,000 p.m.) Exempted
Child 2 – Tuition Fee ₹1,200 p.m. (taxable as fee p.m. ≥ ₹1,000 p.m.) 10,800 1,800
Add Club Membership fee paid by employer 20,000
Gross Income from Salary 8,69,000
Question: Raja joined TCI Limited on 1st June 2020. Emoluments paid and benefits allowed by the
company to Raja are as follows:
1 Basic Salary ₹40,000 p.m.
2 Dearness Allowance ₹15,000 p.m.
3 Incentive 30,000 p.m.
4 A furnished accommodation at Mumbai belonging to the company is provided free. Cost of
furniture therein ₹3,00,000
5 Motor car (with engine CC less than 1.6 litres) owned by the company along with a chauffeur for
official and personal purposes
6 Salary of sweeper paid by the company – ₹1,000 p.m.
7 Education provided for Raja’s son without any fees. Cost of providing education by the school is
₹750 p.m.
Income Tax 32
8 Admission fee for corporate membership of a club paid by the company. Bills for club facilities
were paid by Raja. – ₹1,20,000
9 House building loan of ₹10,00,000 was given by the company to Raja on 1 st December, 2020 at
interest rate of 5% p.a. No repayment was made during the year. (SBI lending rate is 10.75%)
Answer: Compute the income of Raja Chargeable under the head “Salaries”
Assessee: Mr. Raja Assessment Year: 2021-22
Particulars ₹
Basic Pay (₹40,000 x 10 months) 4,00,000
Add Dearness Allowance (₹15000 x 10 months) 1,50,000
Add Bonus ( ₹30,000 x 10 months) 3,00,000
Add Taxable Value of Perquisite related to:
15 10 10
Furnished accommodation ( × 8,50,000 + × × 3,00,000) 1,52,500
100 100 12
Motor car provided by employer (₹1,800 + ₹900) x 10 months 27,000

Salary of sweeper- ₹1000 x 10 months 10,000
Educational facilities – exempt as fee ≤ ₹1,000 Nil
4 19,167
Value of concessional housing loan ((10.75% − 5%) × ₹10,00,000 × )
12
Corporate Membership Fees – exempt as it is for official purpose Nil

Gross Income from Salary 10,58,667
Objective Type Questions

Choose the Best: Travel expenditure of the patient and the attender for medical treatment abroad is
fully exempted if gross total income before including reimbursement of foreign travel expenditure is, 1
(a) ₹2,00,000 (b) ₹2,50,000 (c) ₹3,00,000 (d) ₹5,00,000
{CMA inter D13, 1 mark}
Choose the Best: Maximum amount of exemption under section 16(ii) in respect of entertainment
allowance received by a Government employee is2
(a) ₹2,500 (b) ₹5,000 (c) ₹7,500 (d) ₹10,000
Choose the best: For an employee in receipt of fixed medical allowance, the maximum amount which
is exempt is ₹_____3
(a) 12,000 (b) 15,000 (c) 18,000 (d) Nil
{CMA inter D13 & J14, 1 mark}
1
(a)
2
(b) ₹5,000
3
(d)

Choose the Best: Children education allowance paid by an employer to an employee is exempted from
tax under section 10(14) subject to a limit (per month) of 1
(a) ₹50 per child (b) ₹75 per child up to a maximum of 2 children
(c) ₹100 per child up to a maximum of 3 children (d) ₹100 per child up to a maximum of 2 children
{CMA inter D13 & D14, 1 & 1 mark}
Choose the best: Family pension received by a widow of a member of the armed forces where the
death of the member has occurred in the course of the operational duties in the circumstances and
subject to prescribed conditions, is 2
(a) Exempt up to ₹3,00,000 (b) Exempt up to ₹3,50,000
(c) Totally exempt under section 10(19) (d) Totally chargeable to tax
{CA inter M05, 1 mark}
Choose the Best: Retrenchment compensation received by a workman in accordance with any scheme
approved by the Central Government is 3
(a) Fully Exempted (b) Exempted up to maximum ₹2 lakhs
(c) Exempted up to ₹3 lakhs (d) Exempted up to ₹5 lakhs
Fill up the blanks: In the case of employee not in receipt of gratuity _____ % of the commuted pension
is tax free.4
Fill up the blanks: The maximum amount of exemption under section 10(10B) of the Income-tax Act,
1961 in respect of retrenchment compensation is ₹_____5
Fill up the blanks: The maximum amount of retrenchment compensation exempt u/s 10(10B) in the
hands of a person, when received from a private scheme not approved by the Board, is ₹____6
{CMA inter J14, 1 mark}
Fill up the blanks: Maximum amount of exemption under section 10(10C) of the Income-tax Act in
respect of compensation received for voluntary retirement is _______ 7
1
(d) ₹100 per child up to a maximum of two children
2
(c) totally exempt under section 10(19)
3
(a) Fully exempted
4
50%
5
5,00,000
6
5,00,000
7
₹5 lacs
Income Tax 34
Fill up the blanks: An employee of a partnership firm is treated as “specified employee” if the income
under the head “Salaries”, excluding non-monetary perquisites exceeds ₹_____1
State taxability: Gratuity of ₹22,00,000 received by an employee of Maharashtra State Government. 2

State taxability: House rent allowance received by an employee who resides in his own house. 3
State taxability: Amount received on closure of public provident fund account. 4

Question: An employee instructs his employer to pay a certain portion of his salary to a charity and
claims it as exempt as it is diverted by overriding charge / title – Comment.5
Question: How is advance salary taxed in the hands of an employee? Is the tax treatment same for loan
or advance against salary?6
1
50,000
2
Fully exempt under section 10(10) without any monetary limit.
3
Taxable and not exempt U/s. 10(13A)
4
Exempt U/s. 10(11)
5
Application of income - taxable
6
advance salary is taxable on receipt subject to relief u/s 89 | advance against salary is loan hence not taxable

8. INCOME FROM HOUSE PROPERTY
S Content
22 Chargeability of Income from house property [NAV]
23 Annual Value [municipal tax and unrealized rent (Rule 4)]
Annual value is nil, if self-occupied property kept vacant due to employment or business
Provided: no benefit derived from it
Deemed to be let out if more than two houses are self-occupied
Builder: Property held as stock in trade (for letting out) – taxable as HP income.
But not taxable:
Up to two years from end of FY in which certificate of completion obtained + not let-out
24 Deductions from income from house property [30%]
24 Deduction for interest on loan borrowed for construction
25 Interest without TDS paid outside India not deductible from income from house property
25A Unrealised rent & arrear rent
26 Property owned by co-owners.
27 “Owner of house property”, “annual charge”, etc., defined
Exemption
Note: Rule 115: Income from a house property earned in foreign currency is converted using TT buying
rate on the last day of previous year
Section 22: Basis of Charge

Income: Annual Value
Property: Buildings and Lands appurtenant thereto [rental of land – IFOS]
Assessee: owner + deemed owner
House property in a foreign country
o ROR: taxable
o NR & RNOR: taxable only if it is received in India
Exceptions (not taxable u/h IFHP):
o Property occupied for own business or profession
o Properties of an assessee engaged in the business of letting out of properties
Income Tax 36
Section 23: Determination of Annual Value
Let out DLO Self
Municipal Value [Gross Ratable Value] ××× ××× 0
Note: Net Ratable Value = Gross Ratable Value – 10%
Fair Rent in the market ××× ××× 0
WEH ××× ××× 0
Standard Rent under Rent Control Act ××× ××× 0
WEL: Expected Rent ××× ××× 0
Actual Rent (AR) (received + O/S) less unrealized rent u/r 4 ××× NA 0
Less self-occupied period
Vacancy Rent (VR) ××× NA 0
AR + VR ××× NA 0
Gross Annual Value [GAV=AR, if ER ≤ AR + VR] [GAV = ER, if ER > AR + VR] ××× ××× 0
Less Municipal tax paid by owner ××× ××× 0
Net Annual Value ××× ××× 0
Less Standard Deductions u/s 24: 30% of net annual value ××× ××× 0
Less Interest – preconstruction period and post construction ××× ××× 30,000/
Limit applicable for self-occupied property 2,00,000
Income from house property P/L P/L Loss
Other point
Non-refundable deposits – includible proportionately
Refundable deposits, if it reduces the rent payable by way interest is includible in property income
Unrealised rent: Not included in annual value provided conditions in rule 4 are fulfilled:
Rule 4: Conditions
1. Bonafide tenancy
2. The defaulting tenant has vacated or steps have been taken to vacate
3. The defaulting tenant is not in the occupation any other property of the assessee and
4. The assessee has taken all reasonable legal steps for the recovery of unpaid rent
Income from House Property 37

Interest on Loan for self-occupied property: maximum deduction
₹
1. Interest on loan borrowed on or after 1-4-1999 for acquisition or construction of HP 2,00,000
Conditions:
a. Complete in 5 years from the end of FY in which loan was borrowed
b. Furnish a certificate for interest payable
2. Other cases: Loan borrowed before 1-4-1999 or for repair or reconstruction 30,000
Note: 1+2 ≤ ₹2,00,000
Calculation interest on loan borrowed deductible u/s 24(b)

Section 24: Deduction for Interest on Loan:
Pre-acquisition or pre-construction period
(1) Starting date Date of Borrowings ×××
(2) Ending Date (1) Date of repayment of loan ×××
[Whichever (2) Earliest 31st March from ××× ×××
is earlier of] the date of completion of construction
Pre-acquisition or pre construction period (2) – (1) ×××
Deductible interest u/s 24(b)

Particulars Formula ₹
1 Pre-acquisition interest1 1 ×××

× 𝐿𝑜𝑎𝑛 × 𝑝𝑟𝑒 𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 × 𝑟
5
2 Post-acquisition interest 𝐿𝑜𝑎𝑛 × 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑙𝑜𝑎𝑛 𝑢𝑛𝑝𝑎𝑖𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑃𝑌 × 𝑟 ×××
Fully deductible for let-out and deemed to be let-out ×××
Restricted to 30,000 / 2,00,000 in case of self-occupied [for two houses]
Note:
Interest is deductible in due basis
Loan from banks, FI, friends, family etc... are allowed
No deduction is allowed for any brokerage, commission for arranging loan.
Interest on fresh loan taken to repay the original loan is allowed as deduction
Interest on unpaid interest is not deductible.
Section 25 – Interest payable outside India is deductible [only if TDS]
Section 25A: Realisation of unrealized rent / Arrear rent

Taxable IFHP (even not owner on receipt) = amount realised – 30%
{CA inter N02, M03, M06 & M12 3~6}
1
Deduction = 1/5th of the interest of pre-acquisition or pre-construction period, for 5 consecutive years starting
from the previous year in which the property is acquired, or constructed.
Income Tax 38
Section 26: Co-owners: property owned by co-owners
Share of ownership Value IFHP
1 Known As per respective share
2 Unknown As AOP
Notes: Deduction up to ₹30,000 / ₹2,00,000 will be available to each co-owner.
Owner: the document of title to the property is registered in his name.
Section 27: Deemed owner

1. Transfer to spouse or minor child without adequate consideration:
An individual who transfers his house property for inadequate consideration to -
a. his or her spouse (not being a transfer in connection with an agreement to live apart) or
b. his or her child (not being married daughter) is deemed to be the owner of such house property.
2. Holder of impartible Estate is deemed as owner
3. Property allotted under house building scheme: A member of a co-operative society, company or
an Association of Persons to whom a building or part thereof is allotted or leased under a house-
building scheme of society / company association, shall be deemed to be owner of that building or
part thereof.
4. Possession holder of property: in part performance of a contract [Transfer of property Act]
5. The lessee of a building: lease period ≥ 12 years or lease period < 12 years and extendable further
Not applicable: Lease period < 1 year and extendable
6. Holder of a Power of Attorney
7. Disputed ownership. (beneficial owner)
8. Where the property has been constructed on a leasehold land
Note: Therefore, legal ownership itself is not the criteria for assessment of income under the head
“Income from house property”.
Composite Rent
Combined receipt for Separable Inseparable
1 Land and building IFHP PGBP or IHOS
2 Other assets, like furniture, P&M etc. PGBP or IFOS PGBP or IHOS
3 Services for lifts, securities, power, etc. PGBP or IFOS PGBP or IHOS
Separable means let-out separately possible
Property income is not charged to tax in the following cases – income from –
farm house [which is agricultural income],
annual value of any one palace of an ex-ruler,
a local authority,
an approved scientific research association,
an educational institution and hospital,

property held for a charitable purpose,
a political party,
property used for own business and
one self-occupied property.
Problem Type
1. Calculation of NAV: Unrealised rent | Vacancy Allowance
a. Let out for residential | commercial
b. Self-occupied for residential | commercial [2 HPs]
c. Self-occupied for residential [more than 2 HPs]
2. Interest on loan & Limit of deduction for Self-occupied
3. Partly let out:
a. part of the year
b. part of the property
4. Realisation of arrear of rent / unrealised rent
5. Co-owners
6. Composite rent
Practical Problems
Calculation of Net Annual Value

Question 1: Singar furnishes the following particulars in respect of his house properties let out for the
previous year 2020-21
Particulars A B C D
Municipal Value 4,00,000 3,00,000 1,50,000 2,60,000
Fair Rent in the market 4,20,000 3,70,000 1,80,000 2,40,000
Standard Rent under Rent Control Act 3,50,000 3,80,000 1,70,000 2,80,000
Annual Rent 3,00,000 4,20,000 2,04,000 2,40,000
Municipal tax 30,000 36,000 16,500 20,000
(paid) (payable) (paid by tenant) (disputed)
Determine their net annual value

Answer:
Particulars A B C D
(a) Municipal Value 4,00,000 3,00,000 1,50,000 2,60,000
(b) Fair Rent in the market 4,20,000 3,70,000 1,80,000 2,40,000
(c) Whichever is Higher of (a) and (b) 4,20,000 3,70,000 1,80,000 2,60,000
(d) Standard Rent under Rent Control Act 3,50,000 3,80,000 1,70,000 2,80,000
(e) Whichever is Lower (c) and (d) 3,50,000 3,70,000 1,70,000 2,60,000
(f) Annual Rent 3,00,000 4,20,000 2,04,000 2,40,000
Gross Annual Value: WH (e) and (f) 3,50,000 4,20,000 2,04,000 2,60,000
Income Tax 40
Less Municipal tax paid by landlord 30,000 Nil Nil Nil
Net Annual Value 3,20,000 4,20,000 2,04,000 2,60,000
Calculation of Net Annual Value with Unrealised Rent

Question 2: Mr. Rajan furnishes the following particulars in respect of his house properties let out for
the previous year 2020-21
Particulars A B C D
Municipal Value 5,00,000 3,00,000 4,00,000 2,00,000
Fair Rent in the market 5,60,000 3,50,000 3,75,000 1,50,000
Standard Rent under Rent Control Act 4,60,000 NA 3,60,000 NA
Annual Rent 5,40,000 4,20,000 3,90,000 3,00,000
Municipal tax paid by the owner 60,000 42,000 36,000 12,000
Number of months for which rent remained unrealised. 1½ 3 1 2
Conditions of Rule 4 not been satisfied for property D months months month months
Answer:
A B C D
(a) Municipal Value 5,00,000 3,00,000 4,00,000 2,00,000
(b) Fair Rent in the market 5,60,000 3,50,000 3,75,000 1,50,000
(c) Whichever is Higher of (a) and (b) 5,60,000 3,50,000 4,00,000 2,00,000
(d) Standard Rent under Rent Control Act 4,60,000 NA 3,60,000 NA
(e) Whichever is Lower (c) and (d) 4,60,000 3,50,000 3,60,000 2,00,000
(f) Annual Rent less unrealised rent [rule 4] 4,72,500 3,15,000 3,57,500 3,00,000
Gross Annual Value WEH of (e) and (f) 4,72,500 3,50,000 3,60,000 3,00,000
Less Municipal tax paid by landlord 60,000 42,000 36,000 12,000
Net Annual Value 4,12,500 3,08,000 3,24,000 2,88,000
Calculation of Net Annual Value with Vacancy Allowance

1. ER ≤ AR + VR, GAV=AR
2. ER > AR + VR, GAV = ER
Question 3: Mr Sankar furnishes the following particulars in respect of his house properties let out for
Particulars A B C D
Municipal Value 80,000 1,25,000 44,000 1,40,000
Fair Rent in the market 90,000 1,20,000 60,000 1,50,000
Standard Rent under Rent Control Act 70,000 1,30,000 50,000 1,30,000

Annual Rent 96,000 1,02,000 Nil 1,32,000
Annual Rent received 80,000 42,500 Nil 1,10,000
Municipal tax paid by the owner 8,000 15,000 3,500 14,300
Vacancy Period 2 months 7 months Whole year 2 months1
Answer:
A B C D
(a) Municipal Value 80,000 1,25,000 44,000 1,40,000
(b) Fair Rent in the market 90,000 1,20,000 60,000 1,50,000
(c) Whichever is Higher of (a) and (b) 90,000 1,25,000 60,000 1,50,000
(d) Standard Rent under Rent Control Act 70,000 1,30,000 50,000 1,30,000
(e) Expected Rent: WEL (c) and (d) 70,000 1,25,000 50,000 1,30,000
(f) Actual rent (received + receivable) 80,000 42,500 0 1,32,000
Vacancy rent 16,000 59,500 0 0
AR + VR 96,000 1,02,000 0 1,32,000
Gross Annual Value 80,000 1,25,000 50,0002 1,32,000
Less Municipal tax paid by landlord 8,000 15,000 3,500 14,300
Net Annual Value 72,000 1,10,000 46,500 1,17,700
Calculation of Net Annual Value with unrealised rent and vacancy allowance
Question 4: Mr. Sankar furnishes the following particulars in respect of his house properties let out for
Particulars A B C D E F
Municipal Value 140 120 180 180 160 120
Fair Rent in the market 150 130 170 170 170 130
Standard Rent under Rent Control Act 118 118 150 130 152 140
Annual Rent 144 114 144 144 NA 192
Unrealised rent 12 28.5 4 36 - 16
Vacancy Period (month) 1 1½ 5 3 12 10
Loss due to vacancy [₹] 12 14.25 60 36 - 160
Municipal tax paid by the owner @ 5%. Determine their net annual value
Answer:
A B C D E F
(a) Municipal Value 140 120 180 180 160 120
1
Kept vacant for 2 months for letting out to a friend who could not turn up
2
Owner has to prove that property could not be let out for the whole year though it was kept ready to be let out.
Income Tax 42
(b) Fair Rent in the market 150 130 170 170 170 130
(c) Whichever is Higher of (a) and (b) 150 130 180 180 170 130
(d) Standard Rent under Rent Control Act 118 118 150 130 152 140
(e) Expected Rent: WEL (c) and (d) 118 118 150 130 152 130
Actual Rent – unrealised rent 120 71.25 80 72 - 16
Vacancy rent 12 14.25 60 36 - 160
AR + VR 132 85.5 140 108 - 176
Gross Annual Value 120 118 150 130 152 16
Less Municipal tax paid by landlord 7 6 9 9 8 6
Net Annual Value 113 97.75 81 85 (8) 10
Question 5: Mr Nataraj started construction of a house on 15 th July 2017. He borrowed ₹2,00,000 on 1st
January 2018 @ 15% p.a. The house is completed on 30th November 2020 and let out thereafter. Compute
the amount of deduction of interest in the following cases:
1. The whole loan is outstanding till 31.03.2021
2. The entire loan has been refunded on 31.12.2020
3. He has refunded ₹50,000 on 31.12.2019 and ₹50,000 on 31.12.2020
Answer:
Pre-acquisition or pre-construction period (a) (b)

(1) Starting date Date of Borrowings 01.01.18 01.01.18
(2) Ending date (1) Date of repayment Pending 31.12.20
[Whichever (2) Earliest 31st March from 31.03.20 31.03.20 31.03.20 31.03.20
is earlier of] the date of completion of construction
Pre-construction period (2) – (1) [in years] 2.25 2.25
a Deductible interest u/s 24(b)

Interest for Formula Calculation ₹
1 Pre-acquisition 1 1 13,500
× 𝐿𝑜𝑎𝑛 × 𝑝𝑟𝑒𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 × 𝑟 × 2,00,000 × 2.25 × 0.15
5 5
2 Post-acquisition 𝐿𝑜𝑎𝑛 × 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑙𝑜𝑎𝑛 𝑢𝑛𝑝𝑎𝑖𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑃𝑌 × 𝑟 2,00,000 × 0.15 30,000
Fully deductible for let out and deemed to be let out 43,500
Restricted to 30,000 / 2,00,000 in case of self-occupied
b Deductible interest u/s 24(b)

Interest for Formula Calculation ₹
1 Pre-acquisition 1 1 13,500
× 𝐿𝑜𝑎𝑛 × 𝑝𝑟𝑒𝑎𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑝𝑒𝑟𝑖𝑜𝑑 × 𝑟 × 2,00,000 × 2.25 × 0.15
5 5
2 Post-acquisition 𝐿𝑜𝑎𝑛 × 𝑝𝑒𝑟𝑖𝑜𝑑 𝑜𝑓 𝑙𝑜𝑎𝑛 𝑢𝑛𝑝𝑎𝑖𝑑 𝑖𝑛 𝑡ℎ𝑒 𝑃𝑌 × 𝑟 2,00,000 × 0.15 × .75 22,500

Fully deductible for let-out and deemed to be let-out 36,000
Restricted to 30,000 / 2,00,000 in case of self-occupied
Vacancy allowance
Question 6: Mr. Pradipto completed construction of a residential house on 1.4.2020. Interest paid on
loans borrowed for purpose of construction during the 2 years prior to completion was ₹40,000. The
house was let-out on a monthly rent of ₹4,000. Annual Corporation Tax paid is ₹2,000. Interest paid
during the year is ₹16,000. Amount spent on repairs is ₹2,000. Fire Insurance Premium paid is ₹1,500
p.a. Property was vacant for 3 months. Annual letting value as per corporation records is ₹30,000.
Compute the income under the head “Income from House Property” for the A.Y. 2021-22.
Answer:
Assessee: Mr. Pradipto Previous Year: 2020-2021 Assessment Year: 2021-22
Computation of Income from House Property ₹ ₹ ₹

Expected Rent: Municipal Value 30,000
Annual Rent less unrealized rent u/r 4 [4,000×9] 36,000
Vacancy Rent [4,000×3] 12,000
AR + VR 48,000
Gross Annual Value 36,000
Less Municipal tax paid 2,000
Net Annual Value 34,000
Less Standard Deductions u/s 24: 30% of net annual value 10,200
Interest – preconstruction period 16,000
Interest – post construction [40,000 / 5] 8,000 24,000 34,200
Income from house property Nil
Determining deemed to be let-out if more than two house properties are self-occupied u/s 23(4)
Question 7: Puja has occupied three houses for his self-occupancy. Their particulars for the previous
year 2020-2021 are given below:
Particulars House X House Y House Z
₹ ₹ ₹
Municipal value 3,60,000 9,60,000 9,50,000
Municipal taxes paid 40,000 80,000 90,000
Fair rent 5,40,000 8,00,000 10,00,000
Standard rent 4,50,000 6,00,000 9,00,000
Repairs 1,50,000 2,50,000 3,00,000
Ground rent paid 20,000 25,000 30,000
Income Tax 44
Insurance premium paid 5,000 6,000 7,000
Interest on loan taken for purchase of H.P. 75,000 1,20,000 2,00,000
Year of the loan 1997-98 2003-2004 2008-09
She has suffered loss in his business, amounting ₹3,00,000. House Y is constructed in six years.
Compute her total income, advising her which house should be specified for self-occupancy concession:
Answer: Computation of income from house property under different options:
(a) Assumed House X House Y House Z
All the properties are self-occupied ₹ ₹ ₹
Annual value Nil Nil Nil

Less Interest on loan 30,000 30,000 2,00,000
Loss from house property 30,000 30,000 2,00,000
(b) Assumed House X House Y House Z

All the properties as Deemed Let Out ₹ ₹ ₹
Gross annual value 4,50,000 6,00,000 9,00,000

Less Municipal taxes paid 40,000 80,000 90,000
Net annual value 4,10,000 5,20,000 8,10,000
Less Statutory deduction u/s 24(a) @ 30% of NAV 1,23,000 1,56,000 2,43,000
Interest on Loan u/s 24(b) (-) 75,000 (-) 1,20,000 (-) 2,00,000
Income from house property 2,12,000 2,44,000 3,67,000
(c) Total Income under different options for self-occupancy

Particulars Option 1 Status 1 Option 2 Status 2 Option 3 Status 3
House X (-) 30,000 (SO) 2,12,000 (DLO) (-) 30,000 (SO)
House Y (-) 30,000 (SO) (-) 30,000 (SO) 2,44,000 (DLO)
House Z 3,67,000 (DLO) (-) 2,00,000 (SO) (-) 2,00,000 (SO)
3,07,000 12,000 44,000
Recommended Selected
Note: interest for both SO HP ≤ ₹2,00,000
Receipt of arrear rent and unrealised rent

True or false 8: Arrears of rent received shall be charged to income-tax as income of the previous
year in which rent was received irrespective of whether the assessee is the owner of property in
that year or not. 1
1True

Question 9: Mr.Lal is the owner of a commercial property let out of ₹60,000 per month. The Corporation
tax on the property is ₹30,000 annually. 60% of which is payable by the tenant. This tax was actually
paid on 15.04.2021. He had borrowed a sum of ₹40.00 lakhs from his cousin, resident in Singapore (in
dollars) for the construction of the property on which interest of 8% is payable. He has also received
arrears of rent of ₹80,000 during the year, which was not charges to tax in the earlier years. What is the
property income of Mr. Lal for the assessment year 2021-22?
{CMA inter D13}
Answer: Assessee Mr.Lal Previous year 2020-21: Assessment Year – 2021-22
Computation of income from house property
Particulars ₹ ₹
Let out: So, Annual value u/s (i) (a)/(b)Actual rent ₹60,000.00 × 12 7,20,000
Less Municipal taxes paid [not deductible as not paid in the PY] NIL
Net Annual value (NAV) 7,20,000
Less Deduction u/s 24(a) 30% of NAV of ₹7,20,000 × 30% 2,16,000
Deduction u/s 24(b) Interest on housing loan (Note) ₹40,00,000 × 8% 3,20,000 5,36,000
Income from house property before considering arrears of rent 1,84,000
Arrears of rent received 80,000
Less Deduction u/s 25A-30% of arrears received 24,000 56,000
Net income from house property 2,40,000
Note: it is presumed that the tax has been deducted of source on the amount of interest payable outside
India. (S.25)
Let-out part of the year and self-occupied for the other part of the year
Actual rent excludes self-occupied part
Question 10: Mr. X lets out his house property from 1.4.2020 to 1.12.2020 at a monthly rent of ₹7,000
and from 1.12.2020 to 1.3.2021, it was self-occupied by him for residence. The other relevant data are
given below:
Municipal value ₹90,000 Fair Rent ₹80,000 Standard Rent ₹60,000.
Municipal tax 15%. Interest on Loan ₹12,000.
Answer:
Let out
Municipal Value [Gross Realisable Value] 90,000
Fair Rent in the market 80,000
WEH 90,000
Standard Rent under Rent Control Act 60,000
Expected rent: WEL 60,000
Income Tax 46
Annual Rent less self-occupied period [7,000×9] 63,000
WEH: Gross Annual Value 63,000
Less Municipal tax paid by owner 15% of 90,000 13,500
Net Annual Value 49,500
Less Standard Deductions u/s 24: 30% of net annual value 14,850
Less Interest – preconstruction period and post construction 12,000
Income from house property – usually 22,650
Let-out part of the property (unit one) and self-occupied other part of the property (another unit)
1. Self-occupied unit – valued the self-occupied portion of property as a self-occupied property
2. Let-out unit – valued the let-out portion of property as a let-out property
Question 11: Mr. A and B constructed their houses on a piece of land purchased by them at New Delhi.
The built-up area of each house was 1,000 sq. ft. ground floor and an equal area in the first floor. A
started construction on 1-04-19 and completed on 31-03-20. B started the construction on 1-04-19 and
completed the construction on 30-06-20. Mr. A occupied the entire house on 01-04-20. B occupied the
ground floor on 01-07-20 and let out the first floor for a rent of ₹15,000 per month. However, the tenant
vacated the house on 31-12-20 and B occupied the entire house during the period 01-01-21 to 31-03-21.
Following are the other information:

(i) Fair rental value of each unit (ground floor / first floor) ₹1,00,000 per annum
(ii) Municipal value of each unit (ground floor / first floor) ₹72,000 per annum
(iii) Municipal taxes paid by A – 8,000
B – 8,000
(iv) Repair and maintenance charges paid by A – 28,000
B – 30,000
A has availed a housing loan of ₹20 lakhs @ 12% p.a. on 01-04-19. B has availed a housing loan of
₹12 lakhs @ 10% p.a. on 01-07-19. No repayment was made by either of them till 31-03-21. Compute
income from house property for A and B for the previous year 2020-21 (AY 2021-22).
Answer: Let us assume as below:
Mr. A Mr. B
Date of commencement of construction 01.04.2019 01.04.2019
Date of completion 10.04.2020 30.06.2020
Date of availing loan 01.04.2019 01.07.2019
Occupation 10.04.2020 01.07.2020

Let out period Self-occupied 01.07.2020 to 31.12.2020
Self-occupancy of let out portion 01.01.2020 to 31.03.2020
Date of availing of housing loan 01.04.2019 01.07.2019
Computation of IFHP of Mr. A for AY 2021-22 Mr A [SO]

Particulars ₹
Annual value is nil (since house is self-occupied) Nil

Less: Deduction u/s. 24(b)
Interest paid on borrowed capital ₹20,00,000 @ 12% 2,40,000
Pre-construction interest ₹2,40,000 / 5 48,000
2,88,000
Interest deduction restricted to 2,00,000
Income from house property (2,00,000)
Computation of income from house property of Mr. B for AY 2021-22

Ground Floor First Floor
Particulars
SO – 50% LO – 50%
(a) Municipal value [72,000 × 75% for 9 months] NA 54,000
(b) Fair value [1,00,000×75% for 9 months] NA 75,000
(c) Whichever is higher of (a) and (b) NA 75,000
(d) Annual rent less self-occupied [15,000 × 9 months] 90,000
(e) Gross annual value whichever is higher of (c) and (d) Nil 90,000
Less Municipal taxes (for first floor) NA 4,000
Net annual value (A) Nil 86,000
Less Deduction u/s 24(a) 30% net annual value Nil 25,800
Deduction u/s 24(b) Interest on borrowings
Interest paid on borrowed capital ₹12,00,000 × 10% 60,000 60,000
9
₹12,00,000 × 10% × 12 9,000 9,000
Pre-construction interest
5
Total deduction u/s. 24(B) 69,000 94,800

Income from house property (A)-(B) (69,000) (8,800)
Income from house property (77,800)
Co-owners:
1. Calculate as usual and IFOS is shared among the co-owners
2. In case of self-occupied, interest limit is multiplied by the number of co-owners
Income Tax 48
Question 12: Mr. Raman is a co-owner of a house property along with his brother.
Municipal value of the Property ₹1,60,000
Fair Rent ₹1,50,000
Standard Rent Under the Rent Control Act ₹1,70,000
Rent received ₹15,000 p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is
₹25,000 out of which ₹21,000 has been paid. Interest on the unpaid interest is ₹450. To repay this loan,
Raman and his brother have taken a fresh loan and interest charged on this loan is ₹5,000.
The Municipal Taxes of ₹5,100 have been paid by the tenant.
Compute the income from this property chargeable in the hands of Mr. Raman for AY 2021-22.
Answer:
Computation of income from House Property
Gross Annual Value 1,80,000
Less: Municipal value paid by co-owner -----
Net Annual value 1,80,000
Less: Deduction u/s 24 standard deduction @ 30%
Interest on borrowed capital
- Interest on original loan 25,000
- Interest on fresh loan 5,000
Income from House Property 96,000
Income from House Property in the hands of Raman = ½ × 96,000 = ₹48,000.
Composite rent – separable

Question 13: Mr.Kalidas is the owner of a house property. Its municipal valuation is ₹7,00,000. It has
been let out for ₹9,00,000. The local taxes payable by the owner amount to ₹40,000 but as per agreement
between the tenant and the landlord, the tenant has paid them direct to the municipality. The landlord,
however, bears the following expenses on tenant’s amenities during the year 2020-2021.
₹
Expenses of water connection 25,000

Water charges 5,000
Lift maintenance 10,000
Salary of gardener 36,000
Lighting of stairs 15,000
Maintenance of swimming pool 20,000
The landlord claims the following deductions:
Repairs 20,000

Land revenue paid 3,000
Collection charges 8,000
Compute the taxable income from the house property for the assessment year 2021-22.
Answer:
Assessee: Mr.Kalidas Previous Year: 2020-2021 Assessment Year: 2021-22
Computation of Income from House Property ₹

Municipal Value 7,00,000
Annual Rent less unrealized rent1 8,14,000
Gross Annual Value [WEH] 8,14,000
Less Municipal tax paid by owner Nil
Net Annual Value 8,14,000
Less Standard Deductions u/s 24: 30% of net annual value 2,44,200
Income from house property 5,69,800
Note 1:
Composite rent 9,00,000

Less Value of the amenities provided by the assessee:
(i) Water connection expenses (Not allowed being capital expenditure)
(ii) Water charges 5,000
(iii) Lift maintenance 10,000
(iv) Salary of gardener 36,000
(v) Lighting of stairs 15,000
(vi) Maintenance of swimming pool 20,000 (-) 86,000
Actual rent 8,14,000
Composite rent
Question 14: Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and ordinarily resident in India
during the financial year 2020-21. She owns a house property at Los Angeles, U.S.A., which is used as
her residence. The annual value of the house is $20,000. The value of one USD ($) may be taken as ₹45.
She took ownership and possession of a flat in Chennai on 1.7.2020, which is used for self-
occupation, while she is in India. The flat was used by her for 7 months only during the year ended
31.3.2021. Whilst the municipal valuation is ₹32,000 p.m., the fair rent is ₹4,20,000 p.a. She paid the
following to Corporation of Chennai:
Property Tax ₹16,200
Sewerage Tax ₹1,800
She had taken a loan from Standard Chartered Bank for purchasing this flat. Interest on loan was
as under:
Income Tax 50
₹
Period prior to 1.4.2020 49,200

1.4.2020 to 30.6.2020 50,800
1.7.2020 to 31.3.2021 1,31,300
She had a house property in Bangalore, which was sold in March, 2018. In respect of this house,
she received arrears of rent of ₹60,000 in March, 2021. This amount has not been charged to tax
earlier. Compute the income chargeable from house property of Mrs. Rohini Ravi for the
assessment year 2021-22, exercising the most beneficial option available.
{CA inter J09, 10 marks}
Answer: Being RNOR – global income is taxable
Particulars ₹ ₹ ₹
Los Angeles Chennai Bangalore

SO SO
Arrears of rent received 25A(1) 60,000
Net Annual Value (NAV) Nil Nil
Less: Deductions u/s 24(a) / 25A(2) 30% of NAV Nil Nil 18,000
Deductions u/s 24(b) Interest Nil 1,91,940 1 Nil
Nil (1,91,940) 42,000
1,49,940
Note 1 Interest on borrowed capital ₹
Interest for the current year (₹50,800 + ₹1,31,300) 1,82,100

Add 1/5th of pre-construction interest (₹49,200 × 1/5) 9,840
Interest deduction allowable under section 24 1,91,940
Discussion problem
Question: Discuss in case of the following issue relating to Income from house property.
1. Income earned by residents from house properties situated in foreign countries. 1
2. Properties which are used for agricultural purposes. 2
3. House property with disputed ownership. 3
{CA inter M03 & N10, 3~4 marks}
1
Taxable as IFHP
2
Exempt
3
Taxable in the hands of beneficial owner

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CA – CMA – CS

INTRODUCTION – NORMS TO FALL UNDER INCOME FROM SALARY

2. Salary and wages – conceptually not different

10. Salary to a partner – taxable under income from business or profession

14. Place of accrual [Refer: S.9 & S.10(7)]

Income from Salaries 1

Section 15: Charging Section:

Section 17(1): Definition of salary

Section 17(3): Profit in lieu of salary includes:

Salary for different purpose

Gratuity Specified employee Entertainment Rest

Income from Salaries 3

Determine his gross salary in the following cases:

Amount received as Gratuity 4,80,000

3. As an employee of a non-seasonal factory, covered by Payment of Gratuity Act, 1972

Amount received as Gratuity 4,80,000

(iii) Maximum Limit 20,00,000 4,29,231

4. As an employee of a private sector, not covered by Payment of Gratuity Act, 1972

Amount received as Gratuity 4,80,000

December ’19 to March ’20 = 15,000 × 4 60,000

Income from Salaries 5

Section 10(10AA): Leave Encashment

Income from Salaries 7

Computation of Taxable Leave Salary on Retirement ₹ ₹

Less Exemption u/s 10(10AA) Least of the followings:

Income from Salaries 9

Salary 10 calendar months average salary preceding the month of retirement.

Section 10(10C): Condition for claiming exemption of Voluntary Retirement Compensation

Income from Salaries 11

Computation of Taxable VRS Compensation

Allowances u/s. 10(7) / 10(14) / 10(45)

Fully taxable allowances

Allowances which are exempt in the hand of certain persons

Section 10(14)(i): Allowances which are exempted up to the actual expenditure

Income from Salaries 13

Section 10(13A): House Rent Allowance – Exemption: WEL

Income from Salaries 15

Note 2: Computation of Taxable House Rent Allowance (HRA) as per Note 1

Section 17(2)(i/ii): Perquisite – Rent Free Accommodation / Accommodation at Concessional Rent

Income from Salaries 17

Taxable RFA Case [a] Case [b] Case [c]

November 20 8,250 5,500 5,500 for 3 months

December 20 8,250 5,500 13,750 Total of

February 21 8,250 5,500 13,750 will be

March 21 8,250 5,500 13,750 taxable

Taxable perquisite for unfurnished accommodation 1,01,500

Income from Salaries 19

Perquisites taxable only in the hands of specified employees are:

1 Official Nil Nil

Note 1: Reimbursement of running and maintenance cost of other automotive conveyance

Domestic servants: sweeper, gardener, watchman and personal attendant

Income from Salaries 21

Amenities: gas, electricity or water

Question: Determine the value of education facility in the following cases:

Free / concessional transport

Income from Salaries 23

Medical facility – Fully exempt

Sweat equity share:

VALUE OF FRINGE BENEFITS U/S 17(2)(viii) w.r.t Rule 3(7)