CA Jasmeet Singh Arora 1

Income Under Head Salaries

Q.1 Mr. Rohan retired from M/s. QRST Ltd. a private sector company, on 31st March, 2024
after completing 28 years and 3 months of service. He received the following
sums/gifts on his retirement:
(i) Gratuity of ₹ 7,50,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of ₹ 3,25,000 for 210 days leave balance in his account. He was
credited with 30 days leave for each completed year of service.
(iii) Crockery set worth ₹ 4,500 from his employer at the farewell party which was
organised by the HR department a day before his retirement.
He drew a basic salary of ₹ 25,000 per month alongwith 50% of basic salary as dearness
allowance (not forming part of retirement benefits) for the period from 1 st April, 2023
to 31st March, 2024 .
Further, during the year, his employer provided him a motor car of 1800 cc which was
used by him and his family solely for personal purposes. The cost of fuel and repairs
were met by Mr. Rohan himself. The car was purchased by the employer on 1st April,
2022 at a cost of ₹ 8,00,000. Salary of driver amounting to ₹ 10,000 per month was met
by the employer only. Upon retirement, he gave the car back to the employer.
You are required to compute the taxable salary of Mr. Rohan for A.Y.2024 -25
assuming that he neither claims any relief under section 89 nor does he opt to pay tax
under section 115BAC.
(PYP MAY 23 )
Sol. : 1
Computation of taxable salary of Mr. Rohan for A.Y. 2024-25
Particulars ₹
Basic Salary ₹ 25,000 x 12 3,00,000
Dearness Allowance (50% of basic salary) 1,50,000
Gratuity [₹ 7,50,000 – ₹ 6,05,769] 1,44,231
Less: Exempt under section 10(10) - Least of the ₹
following:
(i) Notified limit 20,00,000
(ii) Actual gratuity received 7,50,000
(iii) 15/26 x last drawn salary x no. of completed 6,05,769
years of services or part in excess of 6
months [15/26 x 37,500 x 28]
Leave encashment [₹ 3,25,000 – ₹ 1,75,000] 1,50,000
 CA Jasmeet Singh Arora 2

Less: Exempt under section 10(10AA) - Least of the

following:
(iv) Notified limit as per Amendment 25,00,000
(v) Actual leave salary received 3,25,000
(vi) 10 months x ₹ 25,000 2,50,000
(vii) Cash equivalent of leave to his credit [₹ 1,75,000
25,000 x 210/30]
Crockery set [not a perquisite, since value of gift does -
not exceed ₹ 5,000]
Perquisite value of car [Driver’s salary met by 2,00,000
employer
₹ 1,20,000 (i.e., ₹ 10,000 x 12) + ₹ 80,000 (10% of
₹ 8,00,000), being normal wear and tear on car]
Gross Salary 9,44,231
Less: Standard deduction u/s 16(ia) 50,000
Taxable Salary 8,94,231

Q. 2 Mr. B is a sales manager in PQR Ltd. During F.Y. 2023-24 he has received the following
towards his salary and allowances/perquisites;
(i) Basic pay ₹ 85,000 per month upto December 2023 and thereafter an increase of
₹ 2,000 per month.
(ii) Dearness allowance 40% of basic pay forming part of retirement benefits.
(iii) Bonus 1 month basic pay based on the salary drawn during January month every
year.
(iv) He contributes 14% of his basic pay & DA towards his recognized provident fund
and his employer company contributes the same amount.
(v) Travelling allowance of ₹ 5,000 per month towards on duty tours.
(vi) Research and training allowance₹ 3,000 per month.
(vii) Children education allowance of ₹ 600 per month, per child for his 2 sons and 1
daughter.
(viii) Accommodation owned by PQR Ltd. was provided to him in Hyderabad for the
whole year and furniture of ₹ 2,00,000 was provided from 1st October, 2023.
(ix) Reimbursement of medical expenses on his treatment in private hospital -₹
15,000, medical allowance ₹ 1,500 per month. Company has paid premium on
medical policy purchased on his health ₹ 12,500.
You are required to:
I. Compute the income chargeable to tax under the head "Income from Salary",
assuming that he does not opt for the provisions under section 115BAC.
 CA Jasmeet Singh Arora 3

What will be the income under the head “Salaries”, if he opts for the provisions
under section 115BAC? ( PYP NOV 2022)

Sol. : 2
Computation of income chargeable to tax under the head “Salaries” for A.Y.2024-25 ,
if Mr. B does not opt for the provisions of section 115BAC
Particulars ₹ ₹
Basic Pay [₹ 85,000 x 9 + ₹ 87,000 x 3] 10,26,000
Dearness Allowance [₹ 10,26,000 x 40%] 4,10,400
Bonus 87,000
Travelling allowance [Exempt, since provided towards -
duty tours1]
Research and training allowance [₹ 3,000 x 12] 36,000
Medical allowance [₹ 1500 x 12] 18,000
Children Education allowance [₹ 600 x 12 x 3] 21,600
Less: Exempt [₹100 x 12 x 2] 2,400 19,200
Salary (for the purpose of valuation of Rent-free 15,96,600
accommodation)
Value of Rent-free accommodation [10% of 15,96,600] As 2,39,490
per amendment it is 10% of salary in cities having
population > 40 lakhs in censes 2011 Rs 1,59,660
Add: Value of furniture [₹ 2,00,000 × 10% p.a. for 6 10,000 1,69,660
months] Rs 10,000
Reimbursement of medical expenses [taxable, since 15,000
amount is reimbursed for treatment in private hospital]
Health insurance premium paid by PQR Ltd. [Exempt] -
Employers’ contribution to RPF in excess of 12% of 28,728
salary = 2% of ₹ 14,36,400 (₹ 10,26,000 + ₹ 4,10,400)
Gross Salary 18,09,988
Less: Deductions under section 16
Standard deduction 50,000
Income chargeable under the head “Salaries” 17,59,988

Computation of income chargeable to tax under the head “Salaries” for

A.Y.2024-25 , if Mr. B opts for the provisions of section 115BAC
Income chargeable under the head “Salaries” 17,59,988
Add: Exemption in respect of children education 2400
allowance [Not allowable as per section 115BAC]
17,62,388
Less: Value of rent-free accommodation (As per 1,69,660
regular provisions)
15,92,728
 CA Jasmeet Singh Arora 4

Add: Value of Rent-free accommodation

10% of ₹ 15,99,000
(₹ 15,96,600 (as calculated above) + ₹ 2,400) 1,59,900
Add: Value of furniture [₹ 2,00,000 × 10% p.a. for 6 1,69,900
months] 10,000
Income chargeable under the head “Salaries” 17,62,628

Q. 3 Examine with brief reasons, whether the following are chargeable to income-tax and
the amount liable to tax with reference to the provisions of the Income-tax Act, 1961:
(i) Allowance received by an employee Mr. Ram working in a transport system at ₹
12,000 p.m. which has been granted to meet his personal expenditure while on
duty. He is not in receipt of any daily allowance from his employer
(PYP NOV 2018 )

Sol. : 3
Chargeability Amount Reason
liable to
tax (₹)
(i) Partly taxable 43,200 Any allowance granted to an employee working
in a transport system to meet his personal
expenditure during his duty is exempt provided he is
not in receipt of any daily allowance. The
exemption is 70% of such allowance (i.e., ₹ 8,400
per month being, 70% of ₹ 12,000) or ₹ 10,000 per
month, whichever is less. Hence, 1,00,800 (i.e., ₹
8,400 x 12) is exempt. Balance ₹ 43,200 (₹
1,44,000 –
₹ 1,00,800) is taxable in the hands of Mr. Ram.
 CA Jasmeet Singh Arora 5

Q. 4 Mr. Honey is working with a domestic company having a production unit in the U.S.A.
for last 15 years. He has been regularly visiting India for export promotion of
company's product. He has been staying in India for atleast 184 days every year.
He submits the following information:
Salary received outside India (For 6 months) ₹ 50,000 P.M Salary received in India (For
6 months) ₹ 50,000 P.M.
He has been given rent free accommodation in U.S.A for which company pays ₹ 15,000
per month as rent, but when he comes to India, he stays in the guest house of the
company. During this period he is given free lunch facility.
During the previous year, company incurred an expenditure of ₹ 48,000 on this facility.
He has been provided a car of 2000 cc capacity in U.S.A. which is used by him for both
office and private purposes. The actual cost of the car is ₹ 8,00,000. But when he is in
India, the car is used by him and the members of his family only for personal purpose.
The monthly expenditure of car is ₹ 5,000. His elder son is studying in India for which
his employer spends ₹ 12,000 per year whereas his younger son is studying in U.S.A.
and stays in a hostel for which Mr. Honey gets ₹ 3,000 per month as combined
allowance.
The company has taken an accident insurance policy and a life insurance policy. During
the previous year, the company paid premium of ₹ 5,000 and ₹ 10,000, respectively.
Compute Mr. Honey's taxable income from salary for the Assessment Year 2024 -25.
(PYP MAY 2018)

Sol. : 4
Since Mr. Honey stays in India for atleast 184 days every year, he is resident and
ordinarily resident in India, every year. Therefore, his global income would be taxable
in India. The salary received by him in India and outside India would be taxable in India
as per the provisions of the Income-tax Act, 1961.
Computation of total income from salary of Mr. Honey for the A.Y. 2024-25
Particulars ₹ ₹
Basic Salary
Salary received outside India for 6 months (₹ 50,000 x 6) 3,00,000
Salary received in India for 6 months (₹ 50,000 x 6) 3,00,000 6,00,000
Children Education and Hostel Allowance
Amount received from employer (₹ 3,000 x 12) 36,000
[No exemption is available in respect of allowance
received for any education or hostel facility of children Nil
outside India] 36,000
Perquisites:
Value of rent-free accommodation in USA 63,600
Lower of:
 CA Jasmeet Singh Arora 6

- 10% of ₹ 6,36,000 (Basic Salary + Children Education 63,600

and Hostel Allowance)
- Rent paid by employer = ₹ 15,000 x 12 1,80,000
Value of guest house in India -
[not taxable, since it is provided for stay when he visits
India wholly for official purposes]
Lunch facility provided by employer 38,800
48000 – 184 days x 50 per meal
Motor car provided by employer [₹14,400 + ₹ 70,000] 84,400
[See Note 2 below]
Used for both official and personal purposes for 6 14,400
months when he is in US. Hence, the perquisite value is
₹14,400 [₹ 2,400 x 6], since cubic capacity exceeds 1.6
litres, assuming that
expenses are fully met by employer
Used for personal purposes by his family members for 6
months when he is in India
Actual running and maintenance
expenditure [₹ 5,000 x 6] 30,000
Normal wear and tear [10% of actual cost 40,000 70,000
of motor car for 6 months] = ₹ 8,00,000 x
10% x 6/12
Education expenditure of elder son in India met by 12,000
employer [Fully taxable perquisite]
Life insurance premium paid by the employer – any sum 10,000
payable by the employer to effect an assurance on the
life of the employee is a taxable perquisite
Accident insurance premium paid by employer – exempt
perquisite, since such policy is taken by the employer in
business interest so as to indemnify the company from -
payment of compensation.
Gross Salary 8,44,800
Less: Deductions under section 16 50,000
Standard Deduction Rs 50,000 or actual
salary whichever is lower
Taxable Salary 7,94,800

Q. 5 Mr. Mukesh, a State Government Employee receives the following emoluments during
the previous year ended 31.3.2024:
Basic Pay Rs 2,00,000
Dearness Allowance Rs 75,000
Commission Rs 50,000
Entertainment Allowance Rs 20,000
Medical Expenses reimbursed Rs 25,000
Professional tax paid Rs 2,000 ( 50% was paid by his employer)
Mukesh contributes Rs 5,000 towards RPF.
Determine his income from Salary for AY 2024-25 .
 CA Jasmeet Singh Arora 7

Sol. : 5
Computation of Income from Salary of Mr.Mukesh under Default tax Regime as per
Sec 115 BAC
Particulars Amount Amount

Basic Salary 2,00,000

Dearness Allowance 75,000

Commission 50,000

Entertainment Allowance 20,000

Employee’s contribution to RPF (Note ) -

Medical Expenses fully reimbursed 25,000

Professional tax paid by the employer 1,000

Gross Salary 3,71,000

Less : Standard Deduction 50,000

Income from Salary 3,21,000

NOTE : Employee ‘s contribution to RPF is not taxable . It is eligible for deduction u/s
80 C . However such deduction is not available under Default tax Regime u/s 115 BAC .

Computation of Income from Salary of Mr.Mukesh under Optional tax Regime as per
normal provisions
Particulars Amount Amount

Basic Salary 2,00,000

Dearness Allowance 75,000

Commission 50,000

Entertainment Allowance 20,000

Employee’s contribution to RPF (Note ) -

Medical Expenses fully reimbursed 25,000

Professional tax paid by the employer 1,000

Gross Salary 3,71,000

Less : Standard Deduction 50,000

 CA Jasmeet Singh Arora 8

Less : Entertainment Allowance : Least of the

following

i) Actual Amount received Rs 20,000 20,000

ii) 1/5th of Basic Salary Rs 2,00,000 x 1/5 40,000

iii) Statutory Amount 5,000 5,000

Less : Professional Tax paid 2,000

Income from Salary 3,14,000

NOTE : Employee ‘s contribution to RPF is not taxable . It is eligible for deduction u/s
80 C .

Q. 6 Ms. Aarohi is the HR manager in Shipra limited. She gives you the following particulars:
Basic Salary ₹ 70,000 p.m.
Dearness Allowance ₹ 24,000 p.m. (30% of which forms part of retirement benefits)
Bonus 21,000
Her employer has provided her with an accommodation on 1st April 2023 at a
concessional rent. The house was taken on lease by Shipra Ltd. for ₹ 12,000 p.m. Ms.
Aarohi occupied the house from 1st November, 2023, , Rs ₹ 4,800 p.m. is recovered
from the salary of Ms. Aarohi.
The employer gave her a gift voucher of ₹ 10,000 on her birthday. She contributes 18%
of her salary (Basic Pay plus DA) towards recognised provident fund and the company
contributes the same amount.
The company pays medical insurance premium to effect insurance on the health of Ms.
Aarohi ₹ 20,000.
Motor car owned by the employer (cubic capacity of engine exceeds 1.6 litres)
provided to Ms. Aarohi from 1st November, 2023 which is used for both official and
personal purposes. Repair and running expenses of ₹ 70,000 were fully met by the
company. The motor car was self-driven by the employee.
Compute the income chargeable to tax under the head "Salaries" in the hands of Ms.
Aarohi for the Assessment Year 2024-25. ( RTP MAY 2019)
 CA Jasmeet Singh Arora 9

Sol. : 6
Computation of Income from Salary of Ms . Aarohi for AY 24-25
Particulars Amount Amount

Basic Salary Rs 70,000 x 12 8,40,000

Dearness Allowance Rs 24,000 x 12 2,88,000

Bonus Rs 21,000 x 12 2,52,000

Perquisite value in respect of concessional rent 25,100

Gift voucher given by employer on Ms. Aarohi’s birthday 10,000

(entire amount is taxable since the perquisite value
exceeds ₹5,000)
Employer’s contribution to recognized provident fund in 91,872
excess of 12% of salary
= 18% x [(₹ 70,000 + ₹ 24,000) x 12] – 12% x {[₹ 70,000 + ₹
7,200
(being 30% of ₹ 24,000)] x 12} = 2,03,040 – 1,11,168
[Salary = Basic Salary + Dearness allowance, to the extent
it forms part of pay for retirement benefits
Medical insurance premium of ₹ 20,000 paid by the -
employer to effect an insurance on the health of an
employee is an exempt perquisite

Provision of motor car (engine cubic capacity more than 12,000

1.6 litres) owned by employer to an employee without
chauffeur for both official and personal purpose, where
the expenses are fully met by the
employer - the perquisite value would be ₹2400/- p.m.
[₹2,400 × 5 months]

Gross Salary 15,18,972

Less : Standard Deduction 50,000

Income from Salary 14,68,972

Working Note:
Where the accommodation is taken on lease or rent by the employer, the actual
amount of lease rent paid or payable by the employer or 10% of salary, whichever is
lower, in respect of the period during which the house is occupied by the employee, as
reduced by the rent recoverable from the employee, is the value of the perquisite.
 CA Jasmeet Singh Arora 10

Actual rent paid by the employer from 1.11.2023 to 31.3.2024 = ₹ 60,000 [ ₹ 12,000 x 5
months] 10% of salary = ₹ 49,100 [10% x (₹ 70,000 + ₹ 7,200 + ₹ 21,000) x 5 months]
Salary = Basic Salary + Dearness Allowance, to the extent it forms part of pay for
retirement benefits + Bonus
Lower of the above is ₹ 49,100 which is to be reduced by the rent recovered from the
employee.
Hence, the perquisite value of concessional rent = ₹ 49,100 – ₹24,000 [₹ 4,800 x 5
months] = ₹ 25,100
Note: As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or
by member of his household on ceremonial occasions or otherwise from the employer
shall be determined as the sum equal to the amount of such gift. However, the value
of any gift or voucher received by the employee or by member of his household below
Rs 5,000 in aggregate during the previous year would be exempt as per the proviso to
Rule 3(7)(iv).
In this case, the gift voucher of ₹ 10,000 was received by Ms. Aarohi from her employer
on the occasion of her birthday. Since the value of the gift voucher exceeds the limit
of 5,000, the entire amount of ₹ 10,000 is liable to tax as perquisite. The above solution
has been worked out accordingly.
Alternative view - An alternate view is also possible is that only the sum in excess of ₹
5,000 is taxable in view of the language of Circular No.15/2001 dated 12.12.2001, which
states that such gifts upto ₹ 5,000 in the aggregate per annum would be exempt,
beyond which it would be taxed as a perquisite. As per this view, the value of perquisite
would be ₹ 5,000. The salary chargeable to tax, in this case, would be ₹ 14,84,872.

Q. 7 Ms. Suhaani, a resident individual, aged 33 years, is an assistant manager of Daily Needs
Ltd. She is getting a salary of ₹ 48,000 per month. During the previous year 2023-24,
she received the following amounts from her employer.
(i) Dearness allowance (10% of basic pay which forms part of salary for retirement
benefits).
(ii) Bonus for the previous year 2022-23 amounting to ₹ 52,000 was received on 30th
November, 2023.
(iii) Fixed Medical allowance of ₹ 48,000 for meeting medical expenditure.
(iv) She was also reimbursed the medical bill of her father dependent on her
amounting to ₹ 4,900.
(v) Ms. Suhaani was provided;
• a laptop both for official and personal use. Laptop was acquired by the
company on 1st June, 2021 at ₹ 35,000.
• a domestic servant at a monthly salary of ₹ 5,000 which was reimbursed by
her employer.
 CA Jasmeet Singh Arora 11

(vi) Daily Needs Ltd. allotted 700 equity shares in the month of October 2023 @ ₹ 170
per share against the fair market value of ₹ 280 per share on the date of exercise
of option by Ms. Suhaani. The fair market value was computed in accordance with
the method prescribed under the Act.
(vii) Professional tax ₹ 2,200 (out of which ₹ 1,400 was paid by the employer).
Compute the Income under the head “Salaries” of Ms. Suhaani for the assessment year
AY 2024-25
( RTP NOV 2019 )

Sol. : 7
Computation of Income from Salary of Ms . Suhaani for AY 24-25
Particulars Amount Amount

Basic Salary [₹ 48,000 x 12] 5,76,000

Dearness allowance [10% of basic salary] 57,600

Bonus [Taxable in the P.Y. 2023-24, since it is taxable 52,000

on receipt basis]
Fixed Medical Allowance [Taxable] 48,000

Reimbursement of Medical expenditure incurred for 4,900

her father [Fully taxable from A.Y. 2024-25, even
though father is included in the meaning of “family” on
account of standard deduction being introduced in lieu
of reimbursement of medical expenditure].

Facility of laptop [Facility of laptop is an exempt NIL

perquisite, whether used for official or personal
purpose or both]

Reimbursement of salary of domestic servant [₹ 60,000

5,000 x 12] [Fully taxable, since perquisite includes
any sum paid by the employer in respect of any
obligation which would have been payable by the
employee]
Value of equity shares allotted [700 equity shares x ₹ 77,000
110 (₹ 280, being the fair market value – ₹ 170, being
the amount recovered)]

Professional tax paid by the employer [Perquisite

includes any sum paid by the employer in respect of 1,400
any obligation which would have been payable by
 CA Jasmeet Singh Arora 12

the employee]
Gross Salary 8,76,900

Less : Standard Deduction 50,000

Less : Professional Tax paid 2,200

Income from Salary 8,24,700

Q. 8 You are required to compute the income chargeable under the head Salaries in the
hands of Mr. Narayan for the assessment year 2024-25 from the following details
pertaining to the financial year 2023-24 :
Particulars ₹
Basic salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 25,000
Profession tax (of this, 50% paid by employer) 3,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 15,000
Life insurance premium of Narayan paid by employer 42,000
Laptop provided for use at home. Actual cost of Laptop to employer
[Children of the assessee are also using the Laptop at home] 45,000

Employer company owns a motor car, which was provided to the

assessee, both for official and personal use. All repair and
maintenance expenses are fully reimbursed by the employer. No
driver was provided. (Engine cubic capacity less than 1.6 litres).
Annual credit card fees paid by employer [Credit card is not
5,000
exclusively used for official purposes]
( RTP NOV 2018)
Sol. : 8
Computation of income chargeable under the head “Salaries” of Mr. Narayan for A.Y.
2024-25
Particulars Amount Amount
Basic Salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
 CA Jasmeet Singh Arora 13

Medical expenses reimbursed by the employer is 25,000

fully taxable
Professional tax paid by the employer is a taxable 1,500
perquisite as per section 17(2)(iv), since it is an
obligation of the employee which is paid by the
employer
Health insurance premium of ₹ 9,000 paid by the NIL
employer is an exempt perquisite [Clause (iii) of
proviso to section 17(2)]
Gift voucher given by employer on Mr. Narayan’s 15,000
birthday (entire amount is taxable since the
perquisite value exceeds ₹ 5,000) as per Rule 3(7)(iv)
Life insurance premium of Mr. Narayan paid by 42,000
employer is a taxable perquisite as per section
17(2)(v)
Laptop provided for use at home is an exempt NIL
perquisite as per Rule 3(7)(vii)
Provision of motor car (engine cubic capacity less 21,600
than 1.6 litres) owned by employer to employee for
both official and personal purposes – perquisite
value would be ₹ 21,600 [₹1,800 ×12] as per Rule 3(2)
Annual credit card fees paid by employer is a taxable 5,000
perquisite as per Rule 3(7)(v) since the credit card is
not exclusively used for official purposes.
Gross Salary 12,57,600
Less: Deductions under section 16
Less : Standard Deduction 50,000
Less: Entertainment Allowance (deduction under NIL
section 16(ii) not allowable since Mr. Narayan is not a
Government employee)
Income chargeable under the head “Salaries” 12,07,600

Q. 9 Mr. Kashyap retired from the services of M/s ABC Ltd. on 31.01.2024, after completing
service of 30 years and one month. He had received the following on his retirement:
(i) Gratuity ₹ 5,50,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of ₹ 3,30,000 for 330 days leave balance in his account. He was
credited 30 days leave for each completed year of service.
(iii) As per the scheme of the company, he was offered a car on 31.01.2024 which was
purchased on 01.03.2021 by the company for ₹ 5,00,000. Company has recovered
 CA Jasmeet Singh Arora 14

₹ 2,00,000 from him for the car. Company depreciates the vehicles at the rate of
15% on Straight Line Method.
(iv) An amount of ₹ 3,00,000 as commutation of pension for 2/3 of his pension
commutation.
(v) Company presented him a gift voucher worth ₹ 8,000 on his retirement.
Following are the other particulars:
(i) He has drawn a basic salary of ₹ 20,000 and dearness allowance @50% of basic
salary for the period from 01.04.2023 to 31.01.2024. Dearness allowance does not
form part of pay for retirement benefits.
(ii) Received pension of ₹ 7,000 per month for the period 01.02.2024 to 31.03.2024
after commutation of pension.
Compute his income taxable under the head “Salaries” for Assessment Year 2024-25.
(RTP MAY 2018)
Sol. : 9
Computation of Taxable Income for AY 2024-25
Particulars Amount Amount
Basic Salary = ₹ 20,000 x 10 2,00,000
Dearness Allowance = 50% of basic salary 1,00,000
Gift Voucher (See Note - 1) 8,000
Transfer of car (See Note - 2) 1,20,000
Gratuity (See Note - 3) 30,769
Leave encashment (See Note - 4) 1,30,000
Uncommuted pension (₹ 7000 x 2) 14,000
Commuted pension (See Note - 5) 1,50,000
Taxable Salary /Gross Total Income 7,52,769
Notes:
(1) As per Rule 3(7)(iv), the value of any gift or voucher or token in lieu of gift
received by the employee or by member of his household not exceeding ₹ 5,000
in aggregate during the previous year is exempt. In this case, the amount was
received on his retirement and the sum exceeds the limit of ₹ 5,000.
Therefore, the entire amount of ₹ 8,000 is liable to tax as perquisite.
Note - An alternate view is possible that only the sum in excess of ₹ 5,000 is
taxable in view of the language of Circular No.15/2001 dated 12.12.2001. Gifts upto
₹ 5,000 in the aggregate per annum would be exempt, beyond which it would be
taxed as a perquisite. As per this view, the value of perquisite would be ₹ 3,000
and gross total income would be ₹ 7,47,769.
 CA Jasmeet Singh Arora 15

(2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to
the employee arising from the transfer of an asset, being a motor car, by the
employer is the actual cost of the motor car to the employer as reduced by 20%
on a written down value basis for each completed year during which such motor
car was put to use by the employer. Therefore, the value of perquisite on transfer
of motor car, in this case, would be:
Particulars Amount Amount
Purchase price (1.3.2021) 5,00,000
Less: Depreciation @ 20% 1,00,000
WDV on 29.2.2022 4,00,000
Less: Depreciation @ 20% 80,000
WDV on 28.2.2023 3,20,000
Less: Amount recovered 2,00,000
Value of perquisite 1,20,000
Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee
arising from the transfer of any movable asset, the normal wear and tear is to be
calculated in respect of each completed year during which the asset was put to use by
the employer. In the given case, the third year of use of car is completed on 28.2.2024
whereas the car was sold to the employee on 31.1.2024. Accordingly, wear and tear has
to be calculated @20% on reducing balance method for only two years.
The rate of 15% as well as the straight line method adopted by the company for
depreciation of vehicle is not relevant for calculation of perquisite value of car in the
hands of Mr. Kashyap.
(3) Taxable gratuity
Particulars Amount Amount

Gratuity received 5,50,000

Less: Exempt under section 10(10) - Least of the
following:

(i) Notified limit = ₹ 10,00,000

(i) Actual gratuity received = ₹ 5,50,000
(ii) 15/26 x last drawn salary x no. of completed
years or part in excess of 6 months
15/26 x 30,000 x 30 = ₹ 5,19,231 5,19,231
Taxable Gratuity 30,769
 CA Jasmeet Singh Arora 16

Note – As per the Payment of Gratuity Act, 1972, dearness allowance is included in the
meaning of salary. Since, in this case, Mr. Kashyap is covered under the Payment of
Gratuity Act, 1972, dearness allowance has to be included within the meaning of salary
for computation of exemption under section 10(10).
Taxable leave encashment
Particulars Amount Amount

Leave Salary received 3,30,000

Less: Exempt under section 10(10 AA ) - Least of the

following:
(ii) Notified limit = ₹ 25,00,000
(iii) Actual Leave Salary received = ₹ 3,30,000
10 months x ₹ 20,000 = 2,20,000
Cash equivalent of leave to his credit 330/30x 2,00,000
20,000
Taxable leave encashment 1,30,000
Note - Salary, for the purpose of exemption under section 10(10AA), would include
dearness allowance only if it forms part of pay for retirement benefits. Therefore, i n
this case, since dearness allowance does not form part of pay for retirement benefits,
only basic salary has to be considered for computing exemption under section
10(10AA).
(1) Commuted Pension
Since Mr. Kashyap is a non-government employee in receipt of gratuity,
exemption under section 10(10A) would be available to the extent of 1/3 rd of the
amount of the commuted pension which he would have received had he
commuted the whole of the pension.
Particulars Amount Amount
Amount received 3,30,000

Less: Exemption under section 10(10 AA ) -

= ₹ 3,00,000 x 1/3 x 3/2 1,50,000
Taxable amount 1,50,000

Q. 10 Ms. Neelima, a resident of Delhi, was employed by LMN Ltd. upto 15, March, 1992. At
the time of leaving LMN Ltd., she was paid ₹ 3,50,000 as leave salary out of which ₹
59,000 was exempted from tax under section 10(10AA).
 CA Jasmeet Singh Arora 17

Thereafter, she joined CD (P) Ltd. and received ₹ 4,14,000 as leave salary at the time of
retirement on December 31, 2023. In addition she received a gratuity of ₹ 12,00,000
from the employer (she is not covered by the Payment of Gratuity Act, 1972). The
following information is available:
Average salary received during 11 months ending on December 31, 2023
From February 1 to July 31 (p.m.) ₹ 22,600
From August 1 to December 31 (p.m.) ₹ 22,900
Duration of service 14 years 7 months
Leave entitlement for every year of service 45 days
Leave availed while in service 90 days
Leave at her credit at the of retirement 18 months
She received ₹ 5,20,000 from unrecognized provident fund of which she was a
member (This constitutes employee's contribution ₹ 2,00,000; employer's
contribution ₹ 2,10,000; interest on employee's contribution ₹ 60,000; interest on
employer's contribution ₹ 50,000).
You are required to compute her total income for the assessment year 2024 -25,
clearly showing all workings. (Ignore section 115BAC provisions).
(NOV 23)
Sol. : 10
Computation of Total income of Ms. Neelima for A.Y. 2024-25
Particulars ₹ ₹ ₹
Income under the head “Salaries”
Basic Salary [₹ 22,600 x 4 + ₹ 22,900 x 5] 2,04,900
Gratuity [₹ 12,00,000 – ₹ 1,59,040] 10,40,960
Less: Exempt under section 10(10) - Least
of the following:
(i) Notified limit 20,00,000
(ii) Actual gratuity received 12,00,000
(iii) 1/2 x 22,720 [(22,600 x 6 + 22,900 x 1,59,040
4)/10] x 14 [No. of completed years of
services, ignore fraction]
Leave encashment [₹ 4,14,000 – ₹ 1,86,500
2,27,500]
Less: Exempt under section 10(10AA) -
Least of the following:
(i) Notified limit [₹ 25,00,000 – ₹ 24,41,000
59,000, amount exempted earlier]
(ii) Actual leave salary received 4,14,000
 CA Jasmeet Singh Arora 18

(iii) 10 months x 22,750 [(₹ 22,600 x 5 + 2,27,500

22,900 x 5)/10]
(iv) Cash equivalent of leave to his credit 2,50,250
[₹ 22,750 x 11 [420 days (30 days x 14
years of service) less 90 days of leave
availed /30]
Employer’s contribution from 2,10,000
unrecognized provident fund received on
retirement
Interest on Employer’s contribution from 50,000
unrecognized provident fund received on
retirement
Gross Salary 16,92,360
Less: Standard deduction u/s 16(ia) 50,000 16,42,360
Taxable Salary
Income from Other Sources
Interest on employee’s contribution from 60,000
unrecognized provident fund
Employee’s contribution from
unrecognized provident fund received on NIL 60,000
retirement [Not Taxable] -
Gross Total Income/Total Income 17,02,360

Q. 11 Mr. Kashyap (aged 38 years) is entitled to a salary Rs 40,000 per month . He is given
an option by his employer either to take HRA or RFA-rent free accommodation which
is owned by the company. The HRA amount payable was Rs 8000 per month . The rent
of the hired accommodation was Rs 6500 per month at New Delhi .
Advice Mr. Kashyap whether it would be beneficial for him to avail HRA or RFA on the
basis of Net Salary . (RTP NOV 21)

Sol. :11
Computation of Net Salary of Kashyap
Particulars Option-1 Option –ii
HRA RFA

Basic Salary 40,000 X 12 4,80,000 4,80,000

Perquisite Value of RFA -10% of salary in cities having N.A 48 ,000
population > 40lakhs as per 2011 census
HRA 8,000 X 12 = 96,000
Less exempt u/s 10(13A) – Least of the following
 CA Jasmeet Singh Arora 19

50% of Basic Salary = Rs 2,40,000

Actual HRA received –Rs 96,000
Rent paid less 10% of Salary =6500 x 12less
48000=30,000
Taxable HRA = 96,000-30,000 66,000
GROSS SALARY 5,46,000 5,28,000
Less Standard Deduction 50,000 50,000
NET SALARY 4,96,000 4,78,000

Q. 12 Mr. Neeraj, a salaried employee, furnishes the following details for the financial year
2023-24:
Particulars Amount Amount

Basic salary 6,20,000

Dearness allowance 4,20,000
Commission 75,000
Entertainment allowance 9,000
Medical expenses reimbursed by the employer 18,000
Profession tax (of this, 50% paid by employer) 4,000
Health insurance premium paid by employer 8,000
Gift voucher given by employer on his birthday 10,000
Life insurance premium of Neeraj paid by employer 26,000
Laptop provided for use at home. Actual cost of 45,000
Laptop to employer Children of the assessee are also
using the Laptop at home]
Employer company owns a Maruti Suzuki Swift car
(Engine cubic capacity more than 1.6 litres), which
was provided to the assessee, both for official and
personal use. Driver was also provided. All expenses
are met by the employer
Annual credit card fees paid by employer [Credit card 7,000
is not exclusively used for official purposes; details of
usage are not available]
You are required to compute the income chargeable under the head Salaries for the
assessment year 2024-25. (RTP Nov 2020)

Sol. : 12
Computation of income chargeable under the head “Salaries” of Mr. Neeraj for
A.Y.2024-25
 CA Jasmeet Singh Arora 20

Particulars Amount Amount

Basic salary 6,20,000

Dearness allowance 4,20,000
Commission 75,000
Entertainment allowance 9,000
Medical expenses reimbursed by the employer is 18,000
fully taxable
Profession tax paid by the employer is a taxable 2,000
perquisite as per Sec 17(2)(iv), since it is an obligation
of the employee which is paid by the employer
Health insurance premium Rs 8, 000 paid by NIL
employer is an exempt perquisite ( Sec 17(2)(iii)
Gift voucher given by employer on his birthday Entire 10,000
amount is taxable since perquisites value exceeds Rs
5,000
Life insurance premium of Neeraj paid by employer is 26,000
taxable perquisites as per sec 17(2)(v)
Laptop provided for use at home is an exempt NIL
perquisite as per Rule 3(7)(vii)
Provision of motor car (engine cubic capacity more 39,600
than 1.6 litres) owned by employer provided to
employee, the perquisite value would be Rs 39,600 [₹
2,400 +900×12] as per Rule 3(2)
Annual credit card fees paid by employer is a taxable 7,000
perquisite as per Rule 3(7)(v) since the credit card is
not exclusively used for official purposes and details
of usage are not available
Gross Salary 12,26,000
Less: Deductions under section 16
- Standard Deduction as per section 16(ia), 50,000
lower of gross salary and ₹ 50,000
- Entertainment allowance (deduction not NIL
allowable since Mr. Neeraj is not a
Government employee)
- Professional tax paid allowable as deduction 4,000
as per section 16(iii)
Income chargeable under the head “Salaries” 11,72,600
 CA Jasmeet Singh Arora 21

Q. 13 Mr. Janakaraj, employed as Production Manager in Rajus Refractories Pvt. Ltd.,

furnishes you the under mentioned information for the year ended 31-03-2018 :
(i) Basic salary upto 31-10-2023Rs. 50,000 p.m. Basic salary from 01-11-2023
Rs. 60,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness allowance @ 40% of basic salary
(iii) Bonus equal to one month salary. This was paid in October, 2 023 o n b as ic salary
plus dearness allowance applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the
(v) employee @ 16% of basic salary,
(vi) Profession tax paid ₹ 2,500 of which ₹ 2,000 was paid by the employer.
(vii) Facility of laptop & computer was provided to Janakaraj for both official and
(viii) personal u se . Cost of laptop ₹ 45,000 and computer Rs 35,000 was purchased
by the company on 1 dec 23
(ix) Leave travel concession given to Janakaraj , his wife and three children ( one
daughter aged 7 and twin sons aged 3 ). Cost of a ir t ickets ( economy c lass
reimbursed by the employer ₹ 30,000 for adults and lumpsum o f ₹ 45,000 for
three children. Janakaraj is eligible for availing exemption this year to the extent
it is permissible under the Income-tax Act, 1961.
Compute the taxable salary of Mr. Janakaraj. (PYP NOV 2018)
 CA Jasmeet Singh Arora 22

Sol. : 13
Computation of Taxable Salary Income of Janakraj for A.Y.2024-25
Particulars Amount Amount
Basic salary ( 50,000 x 7 + 60,000 x 5) 6,50,000
Dearness allowance ( 40% of basic salary ) 2,60,000
Bonus ( 50,000+40% of 50,000) 70,000
Employer’s contribution to RPF in excess of 12% of Salary ie 4 % of 26,000
Rs 6,50,000
Professional tax paid by the employer 2,000
LTC exempt as per sec 10(5) [Mr. Janakaraj can avail exemption NIL
on the entire amount of Rs 75,000 reimbursed by the employer
towards leave travel concession since the leave travel
concession was availedfor himself, wife and three children
and the journey was undertaken by economy class airfare.
The restriction imposed for two children is not applicable in
case of multiple birth which take place after the first child.]
Facility of laptop [Facility of laptop is an exempt perquisite, NIL
whether used for official or personal purpose or both]
Gross Salary 10,08,000
Less : Deduction u/s 16
Standard Deduction 50,000
Professional tax 2,500 52,500
Net Salary 9,55,500

Q. 14 Mr Thomas is an executive ot M/S A Ltd , Chennai from 1.4.2023. His Salary & other
particulars are as follows:
Particulars Amount Amount

Basic salary per month 20,000

Dearness allowance ( 100% forming part of retirement benefits ) 15,000
HRA per month 20,000
Rent paid by Thomas per month 25,000
Telephone bills paid by ALtd for the telephone 24,000
installed at his residence per annum
Annual Premium paid by A Ltd towards a personal accident policy 5,000
on his life
Motor car running & maintenance charges of Rs 30,600 fully paid
by employer ( Motor Car is owned & driven by Thomas himself
.Motor car is used for both purposes official & personal .The
engine cubic capacity is lower than 1.60 litres
 CA Jasmeet Singh Arora 23

Compute the taxable amount under the head salary for AY 24-25 Assume that he does
not opted sec 115 BAC (RTP MAY 21)

Sol. : 14
Computation of Taxable Salary Income of Thomas for A.Y.2024-25
Particulars Amount Amount Amount

Basic salary Rs 20,000 x 12 2,40,000

Dearness allowance Rs 15,000 x 12 1,80,000
HRA received 2,40,000
Less Exempt u/s 10(13)A 2,10,000
Taxable HRA 30,000
Least of the following will be exempt : 2,40,000
Actual HRA received
Rent paid less 10% of Salary ( 25,000 x 12 less 2,58,000
10% of 4,20,000
50% of Salary Chennai Metro city 2,10,000
Telephone bills paid by ALtd for the NIL
telephone installed at his residence per
annum is Tax Free Perquisites
Annual Premium paid by A Ltd towards a NIL
personal accident policy on his life is a tax
free perquisites
Motor Car is driven by employee & running & 9,000
maintenance expenses paid by employer
(30,600-21,600) ie 1800 x 12
Gross Salary 4,59,000
Less Standard Deduction 50,000
Net Salary 4,09,000