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SREEKANTH
VITTAM PUBLICATIONS
Comprehensive Problems on Taxable Salary Income
Problem Number One
Mr. A is employed at Mumbai in a limited company at a Basic Salary of Rs.16,000 p.m. plus
Dearness Pay of Rs. 4,000 p.m. He is also entitled to 1% commission on turnover achieved by
him (turnover achieved by him during the PY Rs. 20 Lakhs spread evenly throughout the year).
He is getting HRA of Rs. 8,000 p.m. The actual rent paid by him is Rs. 5,000 p.m. up to 30-09-13
and thereafter it has been increased to Rs. 6,000 p.m. The other allowances and emoluments
received by him are as follows: CCA Rs. 400 p.m; Lunch Allowance Rs. 600 p.m; Medical
Allowance Rs. 300 p.m; Bonus Rs. 16,000 and Arrears of Salary Rs. 20,000. Compute the Gross
Salary of Mr. A
Solution
Computation of Gross Salary Income of Mr. A
Rs. Rs.
Basic Pay (16,000 x 12) 1,92,000
Dearness Pay (4,000 x 12) 48,000
Commission (20,00,000 x 1%) 20,000
HRA (8,000 x 12) 96,000
Less: Exempt (see note below) 40,000 56,000
CCA (400 x 12) 4,800
Lunch Allowance (600 x 12) 7,200
Medical Allowance (300 x 12) 3,600
Bonus 16,000
Arrears of Salary 20,000
Gross Salary Income 3,67,600
Note:
A. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 96,000
b) Excess of ‘rent paid’ over 10% of “Salary”
[66,000 – 26,000] 40,000
c) 50% of “Salary” 1,30,000
1. Rent paid is arrived at as follows: Rent from April, 2013 to September 2013 at Rs.
5,000 per month Rs. 30,000 (i.e., 5,000 x 6) and from October 2013 onwards Rs. 36,000
(i.e., 6,000 x 6). Total rent paid = 30,000 + 36,000 = 66,000
2. Since the accommodation is in Mumbai, 50% of “Salary” is considered for item (c)
above.
3. Exempted HRA is Rs. 40,000 being least of the above.
“Salary” for HRA purpose
Rs.
Basic Salary 1,92,000
Dearness Pay 48,000
Fixed percentage commission on turnover achieved by employee 20,000
2,60,000
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
1. 10% of Salary = Rs. 2,60,000 x 10% = Rs. 26,000
2. 50% of Salary = Rs. 2,60,000 x 50% = Rs. 1,30,000
Problem Number Two
Mr. B is drawing a monthly basic salary of Rs. 15,000. He is given the following allowances
every month in addition to the basic salary: Dearness Allowance Rs. 2,000; Lunch Allowance Rs.
1,500; Helper Allowance Rs. 1,000 (wages paid to helper Rs. 1,200 p.m); Transport Allowance
Rs. 1,200; Children Education Allowance Rs. 250 per child for 3 children; Hostel Expenditure
Allowance Rs. 350 per child for 3 children; Conveyance Allowance Rs. 500 (Actual spent Rs. 450
p.m); Overtime Allowance Rs. 800; Medical Allowance Rs. 1,200; City Compensatory Allowance
Rs. 600; House Rent Allowance Rs. 5,000 (Rent paid by Mr. B is Rs. 7,000 p.m). Professional tax
paid by Mr. B Rs. 2,000. Compute the Taxable Salary Income of Mr. B
Solution
Computation of Taxable Salary Income of Mr. B
Rs. Rs.
Basic salary (15,000 x 12) 1,80,000
Dearness Allowance (2,000 x 12) 24,000
Lunch Allowance (1,500 x 12) 18,000
Helper Allowance (1,000 x 12) 12,000
Less: Exempt (see note 1 below) 12,000 Nil
Transport Allowance (1,200 x 12) 14,400
Less: Exempt (800 x 12) 9,600 4,800
Children Education Allowance (250 x 12 x 3) 9,000
Less: Exempt (100 x 12 x 2) 2,400 6,600
Hostel Expenditure Allowance (350 x 12 x 3) 12,600
Less: Exempt (300 x 12 x 2) 7,200 5,400
Conveyance Allowance (500 x 12) 6,000
Less: Exempt (Actual spent 450 x 12) 5,400 600
Overtime Allowance (800 x 12) 9,600
Medical Allowance (1,200 x 12) 14,400
City Compensatory Allowance (600 x 12) 7,200
House Rent Allowance (5,000 x 12) 60,000
Less: Exempt (see note below) 60,000 Nil
Gross Salary Income 2,70,600
Deduction u/s 16(iii) Professional tax paid 2,000
Taxable Salary Income 2,68,600
A. As the wages paid is more than the allowance received, the entire amount of helper
allowance is exempted.
B. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 60,000
b) Excess of ‘rent paid’ over 10% of “Salary”
[84,000 – 18,000] 66,000
c) 40% of “Salary” 72,000
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
i. Since the place of accommodation is not given in the problem, 40% of “Salary” is
considered for item (c) in the format.
ii. Exempted HRA is Rs. 60,000 being least of the above.
“Salary” for HRA purpose
Rs.
Basic Salary 1,80,000
Dearness Allowance forming part of salary Zero
Fixed percentage commission on turnover achieved by employee Zero
1,80,000
1. In the absence of specific information, DA is assumed as not forming part of
salary.
2. 10% of Salary = Rs. 1,80,000 x 10% = Rs. 18,000
3. 40% of Salary = Rs. 1,80,000 x 40% = Rs. 72,000
Solution
Computation of Taxable Salary Income of Mr. C
Rs. Rs.
Basic Salary (8,000 x 10) 80,000
DA (80,000 x 40%) 32,000
CCA (125 x 10) 1,250
HRA (800 x 10) 8,000
Less: Exempted (see note 2 below) 967 7,033
Commission (4,50,000 x 2%) 9,000
Medical Allowance (250 x 10) 2,500
Lunch Allowance (300 x 10) 3,000
Children Education Allowance (150 x 10 x 3) 4,500
Less: Exempted (100 x 10 x 2) 2,000 2,500
Hostel Expenditure Allowance (450 x 10 x 1) 4,500
Less: Exempted (300 x 10 x 1) 3,000 1,500
Travelling Allowance 6,000
Less: Exempted (Actual amount spent) 2,500 3,500
Gratuity received 2,85,000
Less: Exempted 2,00,308 84,692
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
Gross Salary Income 2,26,975
Deduction u/s 16 (iii) Professional tax paid 2,000
Taxable Salary Income 2,24,975
A. As Mr. C retires on 31/1/14, he receives salary only for 10 months during the PY 2013-14.
Hence all amounts are considered for 10 months only
B. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 8,000
b) Excess of ‘rent paid’ over 10% of “Salary”
[12,000 – 11,033] 967
c) 40% of “Salary” 44,133
i. Since the place of accommodation is not given in the problem, 40% of “Salary” is
considered for item (c) in the format.
ii. Exempted HRA is Rs. 967 being least of the above.
C. Mr. C is an employee of a company covered under the Payment of Gratuity Act, 1972.
Hence exempted gratuity under section 10(10)(ii) is least of the following:
Rs.
a) 15/26 x ‘Last drawn Salary’ x Number of years of service. 2,00,308
[15/26 x Rs. 11,200 x 31]
b) Maximum Limit 10,00,000
c) Actual Gratuity Received 2,85,000
Exempted Gratuity is Rs. 2,00,308 being least of the above
Notes:
1. Last drawn salary for gratuity purpose
= Basic Salary last drawn + DA last drawn
= Rs. 8,000 + Rs. 3,200
= Rs. 11,200
2. Number of years of service is rounded off to 31 years.
Solution
Computation of Taxable Salary Income of Mr. D
Rs. Rs.
Basic Salary (6,000 x 9) 54,000
DA (54,000 x 50%) 27,000
CCA (100 x 9) 900
HRA (600 x 9) 5,400
Less: Exempted (see note 1 below) Nil 5,400
Medical Allowance (150 x 9) 1,350
Gratuity received Rs. 1,35,000 1,35,000
Less: Exempted (see note 2 below) 1,35,000 Nil
Pension {(3,000 + 25%) x 3} 11,250
Gross Salary Income 99,900
Deduction u/s 16 (iii) employment tax 1,800
Taxable Salary Income 98,100
Notes:
A. As Ms. D retires on 31/12/13, she receives salary only for 9 months during the PY 2013-
14. Hence all amounts are considered for 9 months only. She receives pension for the
remaining 3 months, which is included for the calculation of Gross Salary.
B. As Ms. D resides in her own house, she is not eligible to claim exemption of HRA.
Hence, the entire amount of HRA received is taxable.
C. Mr. C is an employee of a company covered under the Payment of Gratuity Act, 1972.
Hence exempted gratuity under section 10(10)(ii) is least of the following:
Rs.
a) 15/26 x ‘Last drawn Salary’ x Number of years of service. 1,81,731
[15/26 x Rs. 9,000 x 35]
b) Maximum Limit 10,00,000
c) Actual Gratuity Received 1,35,000
Exempted Gratuity is Rs. 1,35,000 being least of the above
Notes:
Last drawn salary for gratuity purpose
= Basic Salary last drawn + DA last drawn
= Rs. 6,000 + (6,000 x 50%)
= Rs. 9,000
Number of years of service is rounded off to 35 years.
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
Problem Number Five
Mr. E retires from the education department of the Government of Karnataka on 31-01-14 after
rendering service of 33 years and 9 months. His emoluments for the PY 2013-14 were as
follows: Basic Salary Rs. 16,000 p.m; DA 58% of Basic Salary (entire amount forms part of
salary); CCA Rs. 350 p.m; HRA Rs. 3,500 p.m. (He pays rent at Rs. 6,000 p.m.); Medical
Allowance Rs. 500 p.m; Employer’s contribution to SPF 12% of Salary; Gratuity received Rs.
3,65,000; Refund from SPF Rs. 3,65,000. After retirement his pension was fixed as follows: Basic
40% of the original basic and DA as before. He has paid professional tax Rs. 2,000. Compute
the Taxable Salary Income of Mr. E for the AY 2014-15.
Solution
Computation of Taxable Salary Income of Mr. E
Rs. Rs.
Basic Salary (16,000 x 10) 1,60,000
DA (1,60,000 x 58%) 92,800
CCA (350 x 10) 3,500
HRA (3,500 x 10) 35,000
Less: Exempted (see note 2 below) 34,720 280
Medical Allowance (500 x 10) 5,000
Employer’s contribution to SPF ( see note 3 below) Nil
Gratuity (see note 3 below) Nil
Refund from SPF (see note 3 below) Nil
Pension {(16,000 x 40%) + 58%} x 2 20,224
Gross Salary Income 2,81,804
Deduction u/s 16 (iii) employment tax 2,000
Taxable Salary Income 2,79,804
Notes:
A. As Mr. E retires on 31/01/14, he receives salary only for 10 months during the PY 2013-
14. Hence all amounts are considered for 10 months only. He receives pension for the
remaining 2 months, which is included for the calculation of Gross Salary.
B. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 35,000
b) Excess of ‘rent paid’ over 10% of “Salary”
[60,000 – 25,280] 34,720
c) 40% of “Salary” 1,01,120
i. Since the place of accommodation is not given in the problem, 40% of
“Salary” is considered for item (c) in the format.
ii. Exempted HRA is Rs. 34,720 being least of the above.
iii.
“Salary” for HRA purpose
Rs.
Basic Salary 1,60,000
Dearness Allowance forming part of salary (1,60,000 x 58%) 92,800
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
Fixed percentage commission on turnover achieved by employee Zero
2,52,800
i. 10% of Salary = Rs. 2,52,800 x 10% = Rs. 25,280
ii. 40% of Salary = Rs. 2,52,800 x 40% = Rs.1,01,120
C. Since, Mr. E is employee of Karnataka Government, Employer’s contribution to SPF,
Gratuity received and Refund from SPF are fully exempted and hence the taxable
amounts are shown as Nil.
Solution
Computation of Taxable Salary Income of Ms. F
Rs. Rs.
Basic Pay 2,61,600
Special Allowance 18,000
DA (2,61,600 x 20%) 52,320
Bonus 2 months Basic Pay {(2,61,600/12) x 2} 43,600
CCA (500 x 12) 6,000
Children Education Allowance (250 x 12 x 3) 9,000
Less: Exempt (100 x 12 x 2) 2,400 6,600
Uniform Allowance (1,000 x 12) 12,000
Less: Exempt (600 x 12) 7,200 4,800
Lunch Allowance (900 x 12) (see note 1 below) 10,800
Value of accommodation provided at concessional rent (see note 2 below) 34,210
Gross Salary Income 4,37,930
Deduction u/s 16 (iii) Professional tax paid 2,000
Taxable Salary Income 4,35,930
Notes:
1. Lunch Allowance is fully taxable. Actual expenses incurred is irrelevant.
2. Note on value of accommodation provided at concessional rent:
• Ms. F is not a Government employee
• The accommodation provided to her is not owned by the employer (as the employer is
paying a lease rent of Rs. 1,20,000)
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
• The city in which the accommodation is situated and its population is irrelevant
• Salary for the purpose of valuation of rent free unfurnished accommodation is
= Basic Pay + Special Allowance + D.A (entering into retirement benefits) + Bonus + CCA
+ Taxable portion of Children Education Allowance + Taxable Portion of Uniform
Allowance + Lunch Allowance
= 2,61,600 + 18,000 + Zero + 43,600 + 6,000 + 6,600 + 4,800 +10,800
= Rs. 3,51,400
• Value of rent free unfurnished accommodation provided to Ms. F is Lease rent or 15% of
salary whichever is less. Hence the value of rent free unfurnished accommodation is least of
the following:
a) Lease rent paid by employer Rs. 1,20,000 or
b) 15% of salary Rs. 52,710 (i.e., 3,51,400 x 15%) whichever is less.
Rs. 52,710 being least of the above, is the value of rent free unfurnished accommodation provided to
Ms. F
• Ms. F is also provided with house hold appliances and air conditioner and an amount of
Rs. 2,500 per month is collected towards this facility. Therefore, the value of furnished
accommodation provided at concessional rent is arrived at as follows:
Rs.
Value of rent free unfurnished accommodation 52,710
Add: 10% of the cost of furniture provided (75,000 x 10%) 7,500
Add: Hire charges of the air conditioner installed in the house 4,000
Taxable value of rent free furnished accommodation 64,210
Less: Rent recovered from employee (2,500 x 12) 30,000
Value of accommodation provided at concessional rent 34,210
Notes:
A. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 48,000
b) Excess of ‘rent paid’ over 10% of “Salary”
[60,000 – 19,602] 40,398
c) 40% of “Salary” 78,408
i. Since the place of accommodation is Bangalore, 40% of “Salary” is
considered for item (c) in the format.
ii. Exempted HRA is Rs. 40,398 being least of the above.
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
“Salary” for HRA purpose
Rs.
Basic Salary 1,62,000
Dearness Allowance forming part of salary (1,62,000 x 35% x 60%) 34,020
Fixed percentage commission on turnover achieved by employee Zero
1,96,020
i. 10% of Salary = Rs. 1,96,020 x 10% = Rs. 19,602
ii. 40% of Salary = Rs. 1,96,020 x 40% = Rs. 78,408
B. Leave Encashment during the continuation of service is fully taxable and hence, it is
included in the calculation of gross salary income
C. Small car for both official and personal purposes is provided by the employer and the
expenses are also met by the employer. No log book for the personal use is maintained.
Hence, the guidance value of perquisite in respect of motor car facility Rs. 1,800 per
month is considered.
D. Reimbursement of medical expenses in respect of treatment taken in a private clinic or
hospital is exempted up to Rs. 15,000
E. Contribution of employer towards RPF over and above 12% per annum is taxable.
Since, the employer has contributed 14% of salary, 2% of salary is taken as excess
contribution. For the purpose of calculation of excess contribution made by employer
towards RPF, the meaning of salary is the same as the meaning of salary for HRA
purpose.
F. Interest credited over and above 9.5% per annum is taxable. Since the interest credited is
at 12%, the excess interest of 2.5% (i.e., 12% - 9.5%) is taken as taxable. It is calculated as
follows:
If 12% represents Rs. 12,000 how much is 2.5% i.e.,
12% = 12,000
2.5% = ?
Therefore, excess interest credited is (12,000/12) x 2.5 = Rs. 2,500
Solution
Computation of Taxable Salary Income of Mr. H
Rs. Rs.
Basic Salary (42,300 x 3) + (44,300 x 9) 5,25,600
DA ( 5,25,600 x 56%) 2,94,336
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
HRA (5,25,600 x 30%) 1,57,680
Less: Exempted (see note 1 below) Nil 1,57,680
Conveyance Allowance (2,500 x 12) 30,000
Less: Exempted (see note 2 below) Nil 30,000
Gift in kind 35,000
Less: Exempted (see note 3 below) 5,000 30,000
Employer’s contribution to RPF over and above 12% (see note 4 below) 18,880
Interest credited to RPF over and above 9.5% (see note 5 below) 8,000
Gross Salary Income 10,64,496
Deduction u/s 16 (iii) Professional tax paid 2,400
Taxable Salary Income 10,62,096
Notes:
1. Exempted HRA is nil as rent paid is not given in the problem
2. Exempted Conveyance Allowance is nil as entire amount is spent for personal purpose
3. Gifts from employer received in kind is exempted up to Rs. 5,000
4. Salary for the purpose of RPF is Basic + DA entering into retirement benefits + Turnover
based fixed percentage commission. Therefore salary for RPF purpose
= 5,25,600 + (2,94,336 x 78%) + Zero
= Rs. 7,55,182
Employer’s contribution over and above 12% is 2.5% (i.e., 14.5% - 12%).
Therefore, excess contribution is Rs. 18,880 (i.e., 7,55,182 x 2.5%)
5. Interest credited over and above 9.5% per annum is taxable. Since the interest credited is
at 13.5%, the excess interest of 4% (i.e., 13.5% - 9.5%) is taken as taxable. It is calculated
as follows:
If 13.5% represents Rs. 27,000 how much is 4% i.e.,
13.5% = 27,000
4% = ?
Therefore, excess interest credited is (27,000/13.5) x 4 = Rs. 8,000
Notes:
1. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 1,51,200
b) Excess of ‘rent paid’ over 10% of “Salary”
[2,40,000 – 64,008] 1,75,992
c) 40% of “Salary” 2,56,032
i. Since the place of accommodation is Bangalore, 40% of “Salary” is
considered for item (c) in the format.
ii. Exempted HRA is Rs. 1,51,200 being least of the above.
Solution
Computation of Taxable Salary Income of Mr. J
Rs. Rs.
Basic Salary (22,500 x 4) + (23,000 x 8) 2,74,000
DA ( 2,74,000 x 47%) 1,28,780
HRA (2,74,000 x 30) 82,200
Less: Exempted (see note 1 below) 11,585 70,415
Conveyance Allowance (2,500 x 12) 30,000
Less: Exempted (see note 2 below) 30,000 Nil
Medical Allowance (250 x 12) 3,000
CCA (150 x 12) 1,800
Lunch Allowance (750 x 12) 9,000
Children Education Allowance (750 x 12 x 3) 27,000
Less: Exempted (100 x 12 x 2) 2,400 24,600
Hostel Expenditure Allowance (500 x 12 x 2) 12,000
Less: Exempted (300 x 12 x 2) 7,200 4,800
Special Allowance (750 x 12) 9,000
Research Allowance 5,000
Less: Exempted (see note 3 below) 4,500 500
Value of motor car facility (see note 4 below) 21,600
Employers contribution to RPF over and above 12% of salary (see note 5) Nil
Interest credited to RPF over and above 9.5% (see note 6) Nil
Reimbursement in respect of books and journals (see note 7 below) 12,500
Gross Salary Income
Deduction u/s 16 (iii) Professional tax paid 2,400
Taxable Salary Income
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
Notes:
1. Exempted HRA under section 10(13A) is least of the following:
a) Actual amount of House Rent Allowance 82,200
b) Excess of ‘rent paid’ over 10% of “Salary”
[48,000 – 36,415] 11,585
c) 40% of “Salary” 1,45,658
i. Since the place of accommodation is Bangalore, 40% of “Salary” is
considered for item (c) in the format.
ii. Exempted HRA is Rs. 11,585 being least of the above.
Solution
Computation of Taxable Salary Income of Ms. L
Rs. Rs.
Basic Salary (10,000 x 12) 1,20,000
D.A (2,500 x 12) 30,000
Commission (20,00,000 x 2.5%) 50,000
Value of rent free furnished accommodation (see note 1 below) 27,000
Facility of a watchman (600 x 12) (see note 2 below) 7,200
Facility of cook (1,000 x 12) (see note 2 below) 12,000
Gas bills paid by the company (see note 3 below) 3,200
Electricity bills paid by the company (see note 3 below) 3,500
Leave Travel Concession 4,500
Less: Exempted (see note 4 below) 4,500 Nil
Reimbursement of medical expenses 28,500
Less: Exempted (see note 5 below) 15,000 13,500
Gift of a watch worth 38,300
Less: Exempted (see note 6 below) 5,000 33,300
Gross Salary Income 2,99,700
Deduction u/s 16
(ii) Entertainment Allowance -
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
(iii) Professional tax paid 2,400
Taxable Salary Income
Notes:
1. Note on value of accommodation provided at concessional rent:
• Ms. L is not a Government employee
• The accommodation provided to her is not owned by the employer (as the employer is
paying a lease rent of Rs. 3,200 per month)
• The city in which the accommodation is situated and its population is irrelevant
• Salary for the purpose of valuation of rent free unfurnished accommodation is
= Basic Pay + D.A (entering into retirement benefits) + Commission
= 1,20,000 + 30,000 + 50,000
= Rs. 2,00,000
• Value of rent free unfurnished accommodation provided to Ms. L is Lease rent or 15% of
salary whichever is less. Hence the value of rent free unfurnished accommodation is least of
the following:
Lease rent paid by employer Rs. 38,400 (i.e., 3,200 x 12) or
15% of salary Rs. 30,000 (i.e.,2,00,000 x 15%) whichever is less.
Rs. 30,000 being least of the above, is the value of rent free unfurnished accommodation
provided to Ms. L
• Ms. L is also provided with furniture and an amount of Rs. 500 per month is collected
towards this facility. Therefore, the value of furnished accommodation provided at
concessional rent is arrived at as follows:
Rs.
Value of rent free unfurnished accommodation 30,000
Add: 10% of the cost of furniture provided (30,000 x 10%) 3,000
Taxable value of rent free furnished accommodation 33,000
Less: Rent recovered from employee (500 x 12) 6,000
Value of accommodation provided at concessional rent 27,000
Solution
Computation of Taxable Salary Income of Mr. M
Rs. Rs.
Salary (8,000 x 12) 96,000
Dearness Allowance (3,000 x 12) 36,000
HRA (2,000 x 12) (see note 1) 24,000
Employers contribution to RPF over and above 12% of salary (see note 2) Nil
Interest credited to RPF over and above 9.5% (see note 3) Nil
Receipt from URPF 1,00,000
Gross Salary Income 2,56,000
Deduction u/s 16 (iii) Professional tax paid 2,400
Taxable Salary Income 2,53,600
Notes:
1. Mr. M resides in his father’s house and is not paying any rent. Hence, the entire amount
of HRA is taxable.
2. Own contribution to RPF Rs. 11,520 is the savings of Mr. M and hence, it is ignored.
Employer’s contribution to the said fund is also Rs. 11,520 which is exactly 12% of
salary. Therefore, there is no excess contribution by the employer. (Salary for RPF
purpose includes only basic salary of Rs. 96,000 in this case)
3. Interest credited to RPF is at 9.5%. Therefore, there is no excess interest credited.
4. Receipt from URPF to the extent of employer’s contribution only is taxable.
Solution
Computation of Taxable Salary Income of Mr. N
Rs. Rs.
Salary (12,500 x 12) 1,50,000
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
Dearness Allowance (1,50,000 x 25%) 37,500
CCA (150 x 12) 1,800
Interest concession on interest free loan (76,000 x 18.2%) + (50,000 x 18.2%) 22,932
Gross Salary Income 2,12,232
Deduction u/s 16 (iii) Professional tax paid 2,400
Taxable Salary Income 2,09,832
Ms. O provides the following details: Basic Salary Rs. 2,000 p.m; DA forming part of salary Rs.
250 p.m; CCA Rs. 100 per month. She is provided with free use of Gas, Electricity and Water
facilities for which the company incurred an expenditure of Rs. 21,560. She is also provided
with free services of Watchman, Sweeper & Gardner each of whom is paid Rs. 750 p.m. by the
company. A big chauffer driven car is provided for the use of Ms. O for both official and
personal purposes. During the year she has paid Professional Tax of Rs. 2,400. Compute the
taxable salary of Ms. G if (a) Ms. O is director in the employer company & (b) Ms. O is neither
director nor shareholder in the employer company.
Solution
Case (a): Ms. O is director in the employer company - By being a director in the employer
company, Ms. O satisfies one of the conditions to be treated as a specified employee. Therefore,
the facility of free use of gas, electricity and water and provision of free services of watchman,
sweeper and gardner, and free use of motor car become taxable in the hands of Ms. O. The
taxable salary income is computed below:
Case (b): Ms. O is neither a director nor a shareholder in the employer company - When Ms.
O is neither a director nor a shareholder in the employer company, we have to ascertain
whether her total monetary emoluments after deduction u/s 16 exceed Rs. 50,000 or not. If it
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
exceeds, she becomes specified employee. In this case, her total monetary emoluments is arrived
at as follows:
Basic Salary + DA + CCA – Deduction u/s 16
= 24,000 + 3,000 + 1,200 – 2,400
= Rs. 25,800
As total monetary emoluments does not exceed Rs. 50,000 Ms. O is considered as a non-
specified employee. Hence, the facility of free use of gas, electricity and water and provision of
free services of watchman, sweeper and gardner, and free use of motor car become non taxable
in the hands of Ms. O. The taxable salary income is computed below:
Solution
Free use of car, free services of domestic servants and free use of gas, electricity, water, etc., are
perquisites taxable only in the hands of specified employee. In the absence of specific
information in the problem, we have to assume that, Mr. P is neither a director nor a
shareholder in the employer company, and we have to ascertain whether his total monetary
emoluments after deduction u/s 16 exceed Rs. 50,000 or not. If it exceeds, he becomes specified
employee. In this case, his total monetary emoluments is arrived at as follows:
Basic Salary + DA + CCA – Deduction u/s 16
= 38,000 + 10,000 + 4,400 – 2,400
= Rs. 50,000
As the total monetary emoluments does not exceed Rs. 50,000 (it is exactly Rs. 50,000) Mr. P is
considered as a non-specified employee. Hence, the facility of free use of car, free services of
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
domestic servants and free use of gas, electricity, water, etc., become non taxable in the hands of
Mr. P. The taxable salary income is computed below:
Solution
Computation of Taxable Salary Income of Ms. R
Rs. Rs.
Basic Salary (see note 1) 5,50,000
Dearness Allowance (5,50,000 x 52%) 2,86,000
HRA (5,50,000 x 30%) 1,65,000
DR.R.K.SREEKANTH
VITTAM PUBLICATIONS
CCA (300 x 12) 3,600
Employer’s contribution to RPF over and above 12% of salary (see note 2) 2,750
Interest credited to RPF over and above 9.5% (see note 3) 3,000
Holiday home facility 22,500
Gross Salary Income 10,32,850
Deduction u/s 16 (iii) Professional tax paid 2,400
Taxable Salary Income 10,30,450
Note:
1. Basic salary after deduction of income tax and own contribution to RPF is given.
Therefore, basic salary before deduction is Rs. 5,50,000 (i.e., 4,00,000 + 65,000 + 85,000)
2. Actual contribution to RPF by the employer is Rs. 68,750. 12% of salary is Rs. 66,000
(i.e., 5,50,000 x 12%). Therefore, the excess contribution is Rs. 2,750 (68,750 – 66,000)
3. Interest credited to RPF over and above 9.5% per annum is taxable. Since the interest
credited is at 11%, the excess interest of 1.5% (i.e., 11% - 9.5%) is taken as taxable. It is
calculated as follows:
If 11% represents Rs. 22,000 how much is 1.5% i.e.,
11% = 22,000
1.5% = ?
Therefore, excess interest credited is (22,000/11) x 1.5 = Rs. 3,000