Salary includes compensation received by an employee from their employer. It is taxable under section 15 of the Income Tax Act. Key components of salary include basic pay, dearness allowance, commissions, bonuses, retirement benefits like gratuity and leave encashment. Certain allowances and perquisites are also considered part of taxable salary. The taxation of salary depends on factors like whether the individual is a government or private employee, and whether retirement benefits are received during service or post-retirement.

1. Salary
DR. Anurag Agnihotri

2. Education for all
Casually sit back and relax and
enjoy your Income tax
What do you mean by rest?
B. Com, BBM, M.Com,
INCOME FROM
This slides are
Prepared for
Any one who
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regularly Prof. Augustin Amaladas and Prof.Amala shanthi Exercise
Or do not have St. Joseph’s College of Commerce and Jyoti Even not
Time or money. Nivas college respectively, Bangalore Studied
M.Com., AICWA.,PGDFM., B.Ed. So far.
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As It is so simplified in such a way that you can easily understand CA
CS

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4. salary
Fringe
Benefit tax
Taxable
To Employer
Applicable
Basic + DA+ To companies
Commission etc
Normal components
Perquisites
Taxable
Allowances To
employee

5. Alternative work is rest
Definition of salary
• Section 15
• Employer and employee relationship is
very important.
• Director of a company is not an employee-
therefore his remuneration does not come
under salary
• Emolument received by college lecturer
for valuation of answer scripts in the
university does not come under salary
because he/She is not an employee of the
university but employee of a college.They
come under income from other sources

6. Threat is your opportunity
Paper setting, MP and MLA
• If the same lecturer receives
emoluments(remuneration or salary) from
his college for academic or non academic
work constitute salary.
• Question paper set to other colleges or
other universities comes under other
sources.
• A Member of parliament(MP), Member of
the state assembly(MLA) receives
remuneration does not come under salary
as there is no employer employee
relationship between government of India
and MP and MLA.-therefore comes under

7. Salary and wages
• Income tax point of view there is no
difference between salary and wages.
Strength is your weakness

8. If More than one employer
• Salary from each source is taxable
under the head salary
• Example: Mr. A works in two places
part time job. He is calculated under the
head salary in both the places.
All problems and happiness are temporary

9. Pension from former
employer
• As pension paid due to the previous
employer employee relationships it is
taxed under salary provided the same
employee receives(alive)
• If, after the death of such employee family
pension received by spouse(wife or
husband) comes under other sources, as
there is no employer employee
relationship after the death of such
employee. as it is
Take your life

10. Employer includes
• Former
• Present
• And prospective employer
Love others in order to love oneself

11. If No intention to pay?
• Agreement between teacher and
management to pay salary to employee
and another agreement by which an
identical sum has to be returned by the
same teacher(assessee)-does not
constitute salary because salary is not
real but fictitious.(Actual intension to
pay is important)
Play every day

12. Whether salary taxed on
payment or due basis?
• Salary is taxable on due or receipt
whichever earlier
• Advance salary received or
salary of the last month not
received is taxed in the
current previous year
• See Example: Next slide

13. Example
• April 2008 salary received in March
2008-taxable in the previous year 2007-
08 itself as it is received in 2007-08
period(receipt or due which ever is
earlier)
• March 2008 salary received in April
2008-taxable in the previous year 2007-
08 only(receipt or due which ever is
earlier)
Otherwise hardship

14. Surrender of salary
• Surrender to central government- either
by government employee or private
employee-not taxable salary.
Women have changed but men have not changed in India

15. If Tax paid by employer?
• If Employer pays tax on employee then
total salary to such employee will be
Net salary received + tax
paid by employer
Change in attitude of men required to have a harmony in family life

16. Gifts given by employer?
• Taxable under the head salary
Men also should learn cooking as woman is working like men

17. Salary under section 17(1)
• Wages
• Any annuities or pension
• Any gratuity
• Any fees, commission
• Perquisites( received in kind)
• Profit in lieu of salary
• Advance of salary
• Any accretion(addition) due to interest on provident
fund paid out of the employer’s contribution.
• The contribution paid by employer under notified
pension scheme
Do not fight.If you want to fight, fight after??

18. Pension received by former employee who
rendered service in India
• Pension received outside india by an
employee who rendered services in
India taxable in India to all
assessees(resident, not ordinarily
resident and non resident) as salary is
from India.
• Place of accrual of salary is important-
from India or from outside India
After meal why?

19. Exercise-1
• 1.Pension paid abroad for the services
rendered in India?
• 2.Leave salary paid outside India for the
services rendered in India?
• 3.Salary paid by government of India to an
Indian National outside India if services
rendered outside India?
• 4.Allowances received outside India by
Central government employee for services
rendered outside India?
Normally people do not fight after meal.

20. Answer-1
• 1.taxable as services rendered in India
• 2. Taxable as services rendered in India
• 3. - DO-
• 4. Allowances paid by government of
India to its employees(Indian nationals)
outside India for the services rendered
outside India are exempted as per
section 10(7)

21. Different forms of salary-
Retirement benefits
• 1. Leave encashment salary
• 2.Gratuity
• 3.Pension
• 4.Retrenchment compensation
• 5.Provident Fund
• [Examination point of view these five
items are very important]

22. Leave encashment
• It is not related to casual leave
• For every completed year of service
employee is entitled to receive a certain
number of days of paid leave.Employee
either can take leave or en cash it while in
service or after retirement.
• Note: Any thing received while in service
is normally taxable.After retirement there
are some concessions given.

23. 1.Leave encashment
1.Received while in
Service Received At the time
Fully taxable(government or of retirement
Non government employee)
Non government employee
Government (including local authority
Employees-Exempted and corporation employees)
Central/
State govt.
(see next slide)
Employees(2)

24. Non-government employee
(including local authority
and corporation employees)
*Average salary
Basic + % DA comes
only for retirement +fixed
% of commission on sales. Least of the following
Note: Immediately before the Exempted out of leave cash received
The retirement
a) 10 months average salary*
b) Amount specified by the government-3,50,000
c) Actually received at the time of retirement
d) [Period of leave on 30 days basis (if more
than 30 days as per service rules)for every completed year
of service( -) leave availed while in service(-)leave encashed
while in service] x (average salary)*

25. • Basic + DA which comes for retirement
+fixed percentage of commission only
on sales.
• Do not consider fixed amount of commission
on sales
• Do not consider variable or fixed percentage
of commission on purchase
• BDA employee is not a government employee
as for as the leave encashment point of view.
• Note: 1.Fixed % of commission is different
from fixed amount of commission(monthly
fixed amount)

26. Exercise-1
• X an employee of the central government receives Rs.4,00,000
as cash equivalent to leave credit to his salary on 1st Feb. 200X
after his retirement.
• a)How much is taxable?
• b)Suppose X is a private employee and received Rs.15000 as
salary and served 20 years and 3 months and taken 3 months
leave while in service at the time of retirement?
• c)If X had rendered 24 years and 8 months of service and he is
employee of BDA and received Rs 15,000 basic, 40% DA out of
which only 60% will come for retirement purpose and 5%
variable and 4% fixed commission on sales where sales
achieved in the previous year was Rs.30,00,000. Leave availed
while in service was 10 months and 8 months leave en
cashed ?
• d)Suppose X receives leave encashment while in service and
he is a government employee?

27. Answer
• a) after the retirement leave encashment by
government employee is not taxable.
• b)If he is a private employee the least of the following
is exempted from the amount received Rs.4,00,000
• 1.Actually received-Rs.4,00,000;
• 2.10 months average salary=15000 x 10=1,50,000;
• 3.Maximum limit=Rs.3,00,000
4. One month for completed year of service(-)leave
availed while in service(-)leave en cashed while in
service x (average salary)
= 20months-3month-0 months(15,000)=2,55,000
How much is exempted? How much is taxable?

28. The lowest of all four is Rs.1,50,000 is exempted
from Rs.4,00,000
Therefore taxable leave encashment is
Rs.2,50,000.
(Rs.4,00,000-1,50,000)

29. • c) Working Notes:-
• No of years of service= 24 years and 8 months=24 years
only(fraction is ignored)
• Average salary=15000 +(40% x 60% x15000) +(4% x 10/12)
(30,00,000)=15000 +3600 +30,00,000 x10/12 x 4%/10=28,600
• Rs. 30,00,000 is for 12 months but we have to calculate for ten
months only before the date of retirement.
• Least of the following is exempted out of Rs.4,00,000:
• A) Actually received-Rs.4,00,000
• B) 10 months average salary-10 x 28,600=Rs.2,86,000
• C) (24 months-10 months-8 months) x 28,600=Rs.1,71,600
• D) Maximum limit-Rs.3,00,000
• Least of the above is Rs.1,71,600 which is exempted .
• Therefore taxable leave salary is
• Rs.4,00,000-Rs.1,71,600=Rs.2,28,400

30. • D) Salary received by government
employee while in service is fully
taxable.

31. @Exercise-2
• X a non government employee receives
Rs.2,50,000 as leave salary at the time of
retirement on February 20, 2008. On the
following information, determine the
amount of taxable leave salary: Basic
salary Rs.15,000 per month since 2005.
Duration of service : 26 years; leave at the
credit of X at the time of retirement: 25
months; entitlement of leave salary: 60
days’ salary for every year of service and
leave availed while in service: 27 months.

32. Working notes for exercise-2
• 1. No of years:26 years equal to 26 months for our
calculations because every completed year of
service one month is allowed.
• 2.Average salary Rs.15,000
Least of the following is exempted from Rs.2,50,000
a) Actually received Rs.2,50,000
b) 10 months salary=10 x Rs.15,000=1,50,000
c) Maximum limit Rs.3,00,000
d) (26 months-27 months-8 months) x Rs.15,000=0
(as it is negative it is equal to Zero)
Least exempted leave encashment is Rs.0. Therefore
taxable leave encashment is Rs.2,50,000.

33. Fees and commission
• Taxable as salary if paid to employee
by employer

34. Bonus
• It is taxable on due basis.
• If it is not taxable on due basis it is
taxable on receipt basis.

35. Gratuity
1.Government Non Government employee Non Government employee
Employee(Central,State under the payment of gratuity under not covered under the
and local authority Act. payment of gratuity Act.
employees)(three) Including statutory Including statutory
corporation corporation
2.Average salary: Average salary:last drawn Average Salary: Basic +DA
Not necessary includes Basic+DA comes for retirement +Fixed
% of commission on sales
No of days in a month-
3.No of days in a No of days in a month-
month-Not necessary 26 days only 30 days only
4..Received while in Received while in service is
Received while in service is
service is fully taxable fully taxable
fully taxable
Received Gratuity at the time
5.Received Gratuity at of retirement: Received Gratuity at the time
the time of retirement of retirement:
Least of the following is
Exempted exempted Least of the following is
see in the next page. exempted(next page)

36. Non Government employee under Non Government employee under
the payment of gratuity Act. not covered under the payment of
Including statutory corporation gratuity Act. Including statutory
corporation
The Least of the following isThe least of the following is
exempted from gratuity exempted from gratuity
received: received:
1.(15/26) x (last salary 1.(15/30) x (10 preceding
drawn )x (number of years of months average salary) x
service ) ie.Basic+DA (number of fully completed
years of service)
(No commission please)
Basic + % DA comes for
Year= above 6 months is
retirement + Fixed Percentage
considered as one year.
of commission on sales
2.Rs.3,50,000
2. Rs.3,50,000
3.Gratuity actually received
3. Gratuity actually received

37. Exercise-1
• Mr. X retires from service on Nov.18 200X and received
Rs.3,40,000 as gratuity after 32 years and 8 months. His
salary at the time of retirement is Basic Rs.19000 and DA
40% on Basic and 4% commission on sales.
• Sales achieved preceding ten months was Rs.15,00,000.
Basic salary was more by Rs.2000 since 1 st April 200X.
st
• 60% of DA will come for retirement purpose.
• Answer the following:How much is taxable gratuity?
• A)If Mr.X is a government employee?
• B) If Mr. X is a private employee who is covered under the
payment of gratuity act?
• C) If Mr. X is a BDA employee?
• D) If Mr.X is a Bangalore Mahanagara paliga(BMP)
employee?
• E) If Mr. X is a XYZ public Ltd.(a Government

38. Answer
Particulars Government A BDA BMP Employee
employee employee
1.Years of service Not applicable Local BMP is a
authority= corporation.therefore
Government the employee is a
employee private employee who
is covered under the
payment of gratuity
Act.
Year of service=33 years.
Not
2.Meaning of Not necessary Basic + Full DA =Rs.19,000
necessary
salary +40%(19000)=26,600
Least of the following is
Not taxable exempted:
3.How much
Not taxable 1. Rs.3,50,000
taxable?
2. Gratuity actually received
Rs.Rs.3,40,000
3. (15/26)x 33 x
Rs.26,600=5,06,423
Least=Rs.3,40,000
exempted.Therefore

39. Particulars XYZ Public limited Wife receives after the death
government company not of Mr.X
covered under the payment
of gratuity Act
1.Year of service Fraction of the year is Not required as there is no
ignored. Therefore 32 years employer employee
relationship after the death
of Mr.X.The gratuity
received is taxable under the
head income under other
sources.
2.Meaning of salary Average salary 10 months
preceding the month of
retirement=Basic+DA which
Least of the following is
comes for retirement +fixed
% of commission= January exempted:
to October salary= Jan to 1.(15/30) x32
March Rs.17,000 each and x31,760=Rs.5,08,160
19000 from April to 2.Rs. 3,50,000
October=Rs.1,84,000+ 3.Gratuity actually
Rs.7360 x10(DA)+6000 x received=Rs. 3,40,000
10(Commission) Least : Rs. 3,40,000
Average salary=3,17,600/10 Therefore Gratuity received
=Rs.31760 is fully exempted.

40. Pension
• Regular pension received by the employee
himself ( not dead )after the retirement is
taxable as salary.
• Family pension(after the death of
husband/wife) received by wife/husband
comes under income from other sources
as there is no employer and employee
relationship after the death of husband
who was an employee. 1/3 rd of family pension or
•Standard deduction is available ie.
•15,000 whichever is lower is deductible from family pension.

41. Commuted pension-Sec.17(1)
(ii)
• Instead of receiving monthly pension
some portion of regular pension can be
accumulated and can be received( after
retirement/voluntary retirement) a lump
sum is known as commuted pension.
• 1. Government employee-Exempted after
retirement.
• Government employee means:-Central,
state,local authority and corporation
employees(totally 4)

42. Non Government employee-
commuted pension
• If gratuity received Maximum 1/3 of the
regular pension can be commuted which
is not taxable.
• If gratuity is not received ½ of the regular
pension can be commuted which is not
taxable.
• Note: above those limits are taxable for
non government employees
• See example in the next slide

43. Example – commuted pension
• Mr. X receives pension every month
Rs.10,000. He wants to commute some
portion of the pension.
• ? How much can he commute if
• A) he is a state government employee
• B) he is a Bangalooru development
authority employee.
• C) He is receiving gratuity from Karnataka
Government.
• D) He is an employee of Shanthi Ltd.

44. Answer for commuted
pension
• A,B and C all are government employees
therefore any amount of pension
commuted are exempted . It is because
government never exceeds the statutory
limit of 1/3 or ½ depends on the situation.
• D) If he an employee of Shanthi ltd.
Max.1/3 if he receives gratuity ie
1/3(10,000)=Rs.3333
• If he does not receive gratuity he can
commute ½ of pension ie.
½(10,000)=Rs.5,000.
• Note:remaining pension regularly received
(after commutation)is taxable.

45. Pension scheme-(after 1st Jan
2004)
• Applicable for those join after 1st Jan 2004
• Contribution made by employer –taxable
• Employer and employee’s contribution to
the extent of 10% is deductible as saving
U/S80CCD. Beyond 10% is not deductible.
• When pension received –fully taxed in the
hands of recipient
• Salary=Basic +DA if it comes for
retirement benefit
• Example-next page

46. Exercise
• Mr. X joined a government service on January 2007 for
a salary of Rs.40,000 per month.The government
contributes towards pension scheme is Rs.5000 per
month.Find out how much is taxable for the year 2007-
08, 2008-09 and 2009-10 previous year?
• Answer: 1st April-31st March
• 12 months salary=40,000 x12= 4,80,000
• Government contribution 5000 x12= 60,000
• Total 5,40,000
• Less: deduction U/S 80CCD
• Upto 10% both by employer and employer=4000
x2=8000 per month.
• Annual Saving =8000 x12=96000 deductible from
5.40,000.
• Net taxable salary=Rs.5,40,000-
96,000=4,44,000.Applicable for all three years.

47. Does it make any difference if he had
joined XYZ Ltd?
• No. It is because this provision is
applicable both for government and
any other employer.

48. Annuity[17(1)(ii)]
• Annual payment constantly paid by
employer to employee.
• Even paid voluntarily it is taxable
• Annuity received from ex employer is
taxed as profit in lieu of salary-taxed as
salary.

49. Retrenchment
compensation[10(10B)]
• The Least of the following is exempted:
• 1. Amount calculated as per Industrial
dispute act.
• (15 days salary for every completed year
of service and fraction beyond 6 months
ie. 25 years and 7 months=26 years.)
• 2. Rs. 5,00,000 notified by Government
• 3.The amount received
• Exercise:-next page
Note: If approved by government, under
any scheme, such amount is fully exempted.

50. Exercise
• Mr. X has working in BPL. Due to closing down of the
company, company pays to Mr.X Rs. 2,60,000 as
compensation.He has rendered service 20 years and 8
months.Average salary was Rs.20,000. How much is
taxable? How much is exempted?
• Answer: no of years of service=21 years
• 1.Compensation as per Industrial dispute 15/30(20,000)
(21)=2,10,000
• 2.Rs.5,00,000
• 3.Rs.2,60,000
• Least is Rs.2,10,000 is exempted. Therefore 50,000 is
taxable ie (2,60,000-2,10,000)

51. Profit in lieu of salary
• If company wants a manager to quit
immediately as per the service rules he
is paid a lump sum immediately. Such
compensation is treated as salary.
• The compensation can be received
from present or former employer.

52. Remuneration for extra duties
• Taxed as salary
• Even warden ship remuneration also
taxed as salary

53. Salary received from a United
Nations organisation
• Not taxable in India

54. VRS[10(10C)]
• Voluntary Retirement scheme
• Maximum amount of exemption is
Rs.5,00,000.
• Up to Rs. 5,00,000 is exempted
• Conditions:
• The same employee can not be re-
employed in the same or any other
company comes under the same
management.
• Salary means the last salary drawn for
computation of compensation
• Basic+ DA which comes for retirement +
fixed % of commission on sales.

55. Provident fund
Particulars Statutory PF Recognised PF Un-recognised PF Public PF
1.Who maintains? Government Private Not recognised by Personal
and semi- establishments commissioner of savings in
government having 20 or Income-tax act post office by
more employees Employer self employed
Both employer contributes but etc.
Both employer and similar there is no
2.Who contributes? contribution by separate account By
and similar
employees in the name of Employee(not
contribution by
employees employee by employer
3.Exempted or not? Employer’s Only when
contribution employer
Employees Employer’s Since
exceeding 12% transfers his employer does
contribution comes contribution is account to
under Section 80C exempted. of salary and not contribute
Interest employee’s
as savings in all nothing is
exceeding 9.5% account is taxable taxable
cases or converted to
taxable.
recognised PF
excess over 12%
Salary means of salary and
excess over 9.5%
Basic+DA+Fixed % of towards interest is
Commission on Sales taxable

56. City compensatory allowance
• Fully taxable as salary

57. House rent
allowance(10[13A]) be lowest of
•Exemption will
• (a) 50% of salary where residential accommodation is in Mumbai,
Kolkata, Delhi or Chennai and 40% of at other place
(b)(Rent paid minus 10% of salary)
(c) Actual allowance paid.
• There will be no tax exemption if the
residential accommodation is self occupied
(not taken house for rent by employee or
employee has not paid any rent for
residential accommodation used by him
[section 10(13A) of Income Tax Act and rule
2A]
•Salary means basic plus DA (if forming part of retirement benefits)
• plus commission (if fixed as a percentage of turnover).

58. House rent allowance
• Important points:
• 1.It is advisable to calculate claim month wise
if any changes in salary or house rent
allowance or rent paid or place of stay during
the previous year.
• 2. Salary to be estimated on due basis when
you calculate the meaning of salary
• Place of work is not important but the place of
accommodation taken is important either to
claim 50% or 40% depends on type of city.
• After receiving rent allowance either he stays
in his own house or rent accomodation is not
taken rent allowance for such period is taxable.

59. Exercise-
1
• Mr. X works in Mumboi but stays in Pune and
receives house rent allowance of Rs.12,000. He
pays Rs. 15,000 per month as rent.His Basic is
Rs.20,000, DA-30% which will come for retirement
purpose.
• A)Compute taxable House rent allowance if he has
taken a rented house in Pune.
• B) If he stays in Mumboi and pays the same rent.
• C) suppose he stays in his own house in Mumboi
• D) suppose he has taken a house for rent in
Mumboi for the same rent but rent his own house
in Pune?
• E) Suppose he stays in a rented house upto
December in Mumboi by paying same rent and
taken a rented house in Pune from 1st January for a

60. Answer-HRA
• A) Rented house in Pune:
• Since salary, place of stay, HRA and rent paid are
same throughout the year we can calculate for the
whole financial year.
House rent Allowance received (12,000x12)
Rs.1,44,000
Least of the following is exempted:
1.40% of salary*=26000 x 12 x40% 1,24,800
2.Rent paid-10% of salary* 1,48,800
[(15000-10% x26000) x 12]
3.Actually received 1,44,000
*Salary means:
The Least is Rs.1,24,800 which is exempted out of HRA
20,000+(30% x20,000)=26,000
received.There fore taxable HRA is Rs.19,200 ie
(1,44,000-1,24,800)

61. Answer-HRA
• A) Rented house in Mumboi
• Since salary, place of stay, HRA and rent paid are
same throughout the year we can calculate for the
whole financial year.
House rent Allowance received (12,000x12)
Rs.1,44,000
Least of the following is exempted:
1.40% of salary*=26000 x 12 x50% 1,56,800
2.Rent paid-10% of salary* 1,48,800
[(15000-10% x26000) x 12]
3.Actually received 1,44,000
*Salary means:
The Least is Rs.1,44,000 which is exempted out of HRA
20,000+(30% x20,000)=26,000
received.There fore taxable HRA is Zero ie (1,44,000-
1,44,000)

62. C) Stayed in Mumboi in own
house
• The entire rent allowance received is fully
taxable as he stays in own house in
Mumboi.
• There fore Rs.1,44,000 is fully taxable.
• D) It does not make any difference with
answer C as he stays in a rented house in
Mumboi, the answer ‘A’is applicable.-See
the answer A.The house rented in Pune
and rent receivable comes under the head
income from House property.

63. E. Up to December in Mumboi in a rented
house and thereafter in Pune in a rented house
• Exempted HRA in Mumboi Nine months
• Meaning of salary:Rs.26,000
• HRA received Rs.1,08,000
• Least of the following is exempted:
• 1. 50% of salary=26000 x50% x9 Rs.1,17,000
• 2. Rent paid – 10% of salary Rs.1,11,600
• [(15000-10% x26000) x 9]
3.Actually received 1,08,000
The least is 1,08,000. There fore for the 9 months entire
HRA is exempted. Nothing is taxable.
Exempted HRA in Pune :-Next slide
www.professoraugustin.com

64. 3 Months HRA in Pune in a rented house
• Meaning of salary:Rs.26,000
• HRA received Rs.36,000
• Least of the following is exempted:
• 1. 40% of salary=26000 x40% x3 Rs.31,200
• 2. Rent paid – 10% of salary Rs.22,200
• [(10000-10% x26000) x 3]
3.Actually received 36,000
The least is Rs.22,200 which is exempted. There fore for
the3 months the taxable HRA is Rs.13,800[ 36000-
22200]
Therefore HRA taxable for the previous year is Rs. 13,800.

65. Entertainment
allowance[16(ii)]
• In case of *government employees:Least
of the following is deductible:
• 1. Rs. 5,000;
• 2. 20% of salary**;
• 3.Amount of entertainment allowance
granted during the previous year.
Non government employees are not
exempted
*Government employee **Salary excludes any allowance
Central and State government employees Benefit or other perquisites

66. Special
allowances[10(14)]
For official duties Not directly relate to
(after Official duty
Reaching office) (General)
1.Official travel/transfer
To be
Allowance to meet the cost
Spent
2.Conveyance allowance
Fully
to meet customers
Other
3.daily allowance on official
Wise, See in
Tour/journey
amount the
4.Helper allowance to carry
not Next
Official documents
Spent slide
5. Research allowance
taxable
6. Uniform allowance to do
Official duty

67. Not directly relate to
Official duty
(General)
1.Allowance &70% of
for transport allowance
employees Or Rs. 6000 per
month whichever
2.Children is lower They are fixed.
education exempted Whether spent
allowance Rs.100 per Or not.Excess
month per child Taxable as they
max.two
children.If in Are not given
hostel Rs.300 For official
extra per child Duty
for two children
3. Traveling Rs. 800 per

68. Amount spent or not, exemptions are given
Exercise
Particulars No. of Amount Exempted from
Childre received tax
Chargeable
n/Name from to tax
employe
r
1.Educational Three 300 PM 100 x2 x12=2400 (200 x2 x12+300
allowance per child x12=8400
2.Hostel Three 400 per 300 x2 (100 x2 x12 +400
expenditure child per x12=7,200(limited to x12)=7200
month two children
3. Transport
allowance from 800 x12=9600 12000-9600=2400
house to office or ------- 12000
vice-versa
4.Transport
company Y 70%(72000) or 6000 72000-50,400=21600
employee –daily 72000 per month which ever
allowance is lower=50,400
5. -DO- 6000 x 12=72000 or

69. Tiffin allowance, fixed medical
allowance
• Any amount received in cash is always
taxable before the expenditure
incurred.

70. Exercise
• Salary income and various allowances: Compute the gross
salary of Mr. Amal for the assessment year 2008-09on the
basis of the following information:
• 1. Basic pay Rs. 8,000 per month
• 2. DA –40% of basic pay
• 3. City compensatory allowance-10% of basic pay
• 4.Medical allowance –Rs.800 per month
• 5. Children educational allowance- Rs. 200 per month for
three children
• 6. Hostel expenditure allowance-Rs. 400 per child per
month for 2 children
• 7. Tribal area allowance – Rs. 500 per month in Bihar
• 8. Travelling allowance – Rs. 12000(However actual
expenditure was only Rs. 8000 for official duties
• 9. Conveyance allowance –Rs. 500 per month(the whole

71. Answer:
• Computation of gross salary of Mr. Amal for the
assessment year 2008-09:
» Taxable allowances
• 1. Basic pay Rs. 8,000 x 12 96,000
• . DA –40% of basic pay(8000 x 40% x12) 38 400
• 3. City compensatory allowance-10% x 8000 x12 9,600
• 4.Medical allowance –Rs.800 x 12 9,600
• 5. Children educational allowance-[ (Rs. 200-100)2 x 12+
• 200 x 12]
4,800
• 6. Hostel expenditure allowance-(Rs. 400-300) 2 x 12
2,400
• 7. Tribal area allowance – (Rs. 500-200) x 12 3,600
• 8. Travelling allowance – (Rs. 12000-8000) official duties
4,000
Children education –Rs. 100 per month per child for two children allowed.
• 9. Conveyance allowance –Rs. month –500)children allowed Nil
Hostel expenditure Rs. 300 per child per 500 for two 12

72. Perquisites
• Casual emolument or benefit
attached to an office or
position in addition to salary or
wages
• Something that benefits a man by
going into his own pocket
• Whether perquisites should be given in
Kind?

73. Perquisites
• Need not be in kind.It can be in cash.
• What are the conditions to be fulfilled
to become a perks?

74. Conditions
To become
perquisites
1.Allowed by
Employer to 4.Personal
Employee advantage
To the
employee
3.Directly
Depend
upon service
2.Allowed during 5. Derived by
Continuance Virtue of
Of employment Employer’s
authority

75. Other conditions
• Employer and employee relationship
should exist at any point of time-need
not be an employee now.
• Legal origin is important-Un authorized
advantage taken by employee without
employer’s authority will not become
perquisites.

76. Perquisites
Includes
1.Rent free
Accommodation 4.Personal
Provided Obligations of
By employer Employee
Accommodation Related(1-3) Met by
Including sweeper,gardener,watchman,gas, employer
electricity,
6.Fringe
3.value of Benefits
Benefits provided Allowed
Like furniture 5. Funds paid To employees
2.concessional In the accommodation By employer Of Other
Accommodation Other than Than
Provided RPF/Insurance companies
By employer fund

77. Perquisites Taxable in the hands of employee
In the hands of employee
Category-A
1. (R)ent free or concessional 1 to 5 taxable only to
rent accommodation
Specified Employee
2. (S)weeper in the house,
gardener, watchman, personal
attendant Category –B
3. Free/concessional 1.Car given by employer
(g)as,electricity,water etc
2. Transport facility given by
4. (E)ducational facility to transport undertakings except
employee’s family members Railway and airlines.
including servants and
depentant, parents, spouse and ( only to Specified Employee)
children(need not be
dependent)

78. • Special items in
computation
perquisites

79. Rent Free accomodation(RFA)
• Company’s House given at free of cost
or rented by company given to
employee at free/cocessional rent.
• Includes: house, flat, farm house,
carvan(people go by camel place to
place), mobil home,ship, floating
structure-like boat.
• Step1. Unfurnished Accomodation
Central or
State Government Private employees
employees

80. 1.Central or state government
employee-RFA
• License fee of flat determined
by central government is
perquisites in the hands of
employee.
• Fair market value of
rent is not important

81. RFA-Government employee-
Exercise
• Exercise:- Mr. X is working in Central
government service given rent free
accommodation in an government apartment
at free of cost. The license fee prescribed by
government is Rs.3000 but fair rental value of
the house is Rs. 10,000. How much is taxable?
• Answer:-next page

82. Answer-RFA
• Fair rent is not considered. The license fee Rs.
3,000 is taxable in the hands of Specified
employee.

83. 2. Private Employees(RFA)
• It depends on Population of the city
where accommodation provided.
Population as per 2001 census
Exceeding population Population beyond Population Upto
25 lakhs 10 lakhs-Up to25 lakhs 10 lakhs
Owned Owned Owned
Rented
By By By
employer Rented employer 15%of salary
employer Rented
or amount paid
By By company By
company
To outsider
Whichever company
10% of Is lower 7.5% of
15% of salary
salary Salary

84. Explanation to the diagram
• 1.If house property is owned by employer
depends on the population of the city
percentage differs. Big city it is 15% of
salary, medium city it is 10% and small
city it is 7.5% of salary for accommodation
with out any facility like furniture.
• If house is rented by employer given to
employee it is 15% of salary or rent paid
by employer whichever is less taxable for
specified employees irrespective of the
type of city.

85. If Furniture provided by
employer
If rented
Actual hire
charges
payable
If owned
10% of original
Cost of furniture

86. Meaning of salary for RFA
• All Cash salary received or recivable in hand(
including taxable allowances) by the
employee himself.
• Excludes all *perquisites and *DA which will
not come under retirement purpose
• If any allowance is exempted ( like
HRA(partly), children educational
allowance upto Rs.100 Per month or
transport allowance up to Rs. 800 per
month etc.) to the extent exempted is
not included in the meaning of salary
but balance is included in the meaning

87. Exercise-RFA
• Value of rent free accommodation : Preetham is sales manager of a
private company and for previous year 2007-08,he received the
following emoluments(amts in Rs)
• Basic Salary 248000
• Bonus 16000
• Dearness allowance(50% forming part of salary)
60000
• Project allowance 15000
• Commission on sales
16000
• City compensatory allowance
25000
• Medical allowance 12000
• Employer contribution to recognized provision fund
20000
• Salary pertaining the year 2008-09 has been received in advance
20000
•
• He has been provided with a rent free accommodation in Bangalore

88. • He has been provided with a rent free accommodation in jaipur
owned by the employer. The population of jaipur may be
assumed to be 15lakhs as per 2001 census
• Determine : a) Meaning of salary for RFA
• b)the taxable value of the perquisite in respect of rent free
accommodation.
• 1. Meaning of salary:-
• All Cash salary received or recivable in hand
including taxable allowances by the employee
himself.
• Excludes all *perquisites and *DA which will not
come under retirement purpose
• Any allowance is not taxed( like
HRA(partly), children educational
allowance upto Rs.100 Per month or
transport allowance up to Rs. 800 per

89. Meaning of salary-
Exercise
• The valuation of rent free accommodation
shall be 15% of the salary i.e. 15% of
(248000+
16000+30000+15000+16000+25000+12000)=
Rs 54,300
• Note: Salary shall be taken on basis for the
period for which accommodation has been
provided. Hence advance salary for 2008-09
shall not be taken in account.
• Employer’s contribution does not come to
the assessee in cash as it is paid directly to
the department. That is why I have
mentioned the meaning of salary is cash

90. Exercise
• Value of free rent accommodation : sri Mohan is purchase manager of a
private company and for previous year 2007-08 he received the following
emoluments-
•
• Basic Salary 120000
• Bonus 16000
• Dearness allowance(50% forming part of salary) 60000
• Project allowance 15000
• Commission on purchase 16000
• City compensatory allowance 25000
• Medical allowance 12000
• Employer contribution to recognized provision fund 20000
• Salary pertaining the year 2008-09 has been received in advance 20000
•
• He is also in part employment with B ltd and is receiving salary of Rs 80000
P.A. he has been provided with a rent free accommodation in Mysore owned
by the employer. The population of Mysore may be assumed to be 15 lakhs
as per 2001 census. Determine taxable salary

91. solution
• Computation of taxable salary of Sri Mohan for assessement Year 2008-09
•
• Basic Salary 120000
• Bonus 16000
• Dearness allowance(50% forming part of salary) 60000
• Project allowance 15000
• Commission on purchase 16000
• City compensatory allowance 25000
• Medical allowance 12000
• Employer contribution to RPF in excess of 12% of salary 2000
• [20000- 12% of (120000+ 50% of 60000)]
• Salary from B ltd 80000
• Advance of salary 20000
• Value of housing facility[10% of (120000+16000+30000+ 31400
• 15000+16000+25000+12000+80000)]
• Taxable Salary 397400

92. Exercis
• Value e concessional accommodation: Sri Basant is purchase
of
manager of a private company and for the previous 2007-08 he
received the following emoluments-
• Basic Salary 240000
• Bonus 32000
• Dearness allowance(50% forming part of salary)
120000
• Project allowance 30000
• Commission on purchase 32000
• City compensatory allowance
50000
• Medical allowance 24000
• Employer contribution to recognized provision fund
40000
• 2 months salary for year 2008-09 has been received in advance
20000
•
• What would be the value of accommodation if the employer charges
www.professoraugustin.com
rent of Rs 2000 p.m. in the following independent cases:

93. Solution
• Soln: The valuation of accommodation provided at
concessional rent shall be as under-
•
• Place of accommodation Value of perquisite
• Hyderabad 15% of salary less rent recovered = Rs
70200-24000=Rs46200
• Alwar 10% of salary less rent recovered = Rs
46800-24000=Rs22800
• Tumkore 7.5% of salary less rent recovered =Rs
35100-24000=Rs11100
•
• Salary =
240000+32000+60000+32000+30000+50000+24000 = Rs
468000
•
• Any rent collected by employer

94. Furnished accommodation in
hotel
• 24% of salary paid or payable only for the
period accommodation provided
• Or
• Actual charges paid or payable by the
employer to such hotel
• Whichever is lower
• Exceptions:-1.The above rule is not applicable
if such employee stays less than 15 days in the
previous year and
• 2.Accommodation given only he is transferred
to such new place
• Both the conditions should be fulfilled

95. Perquisites –Domestic servants,
free supply of gas, electricity etc
• Sweeper, gardener watchman personal
assistant paid by employer is perquisites
to the extent of cost to the employer.

96. Monthly Fixed Education
allowance
• Training of employees is not perquisites
• Fixed educational allowance
Rs.100 per child per month is
exempted per child. Maximum two
children.Beyond is taxable
• Hostel Rs.300 per month per child
exempted.Maximum two children.Beyond
it is taxable to the employee

97. Payment of school fees and re-
imbursement of school fees
• Taxable as perquisites fully

98. Education facility to children(own) in their
own school or any other school/college
• If less than Rs. 1000 per month exempted
• If exceeds Rs. 1000 per month
cost of education in similar institution in
the near locality (minus )Rs. 1000(minus)
amount recovered.
Example:- Employer pays Rs. 1500 per month
to the school selected by employee for three
children and one grand children.How much is
taxable perquisites?

99. Education facility to relative’s
children
• Cost to the employer in such similar
institution minus amount recovered
• Important Note: Only for own children
exemption of Rs. 1000 allowed. But for the
relative’s children such deduction is not
allowed.

100. Answer- Educational facility
• 3 x 1000= 3000 exempted
• 500 x 3 + 1500= 3000 taxable
• Note: Number of children is not
limited to two

101. Scholarships
• Scholarship given by employer company is
not taxable as perquisites.
• Note:- It should not be related to his/her
employment.

102. Leave travel concession for
Family
• Any place in India
• Only travel short route permissible
• Two Journey in four block period allowed.
• If Journey is not taken place with in two
years, in the very next year if used itcan be
claimed.
• Flight- economy class fair allowed(not
taxable).
• Train-Air conditioned first class fair
allowed(Not taxable)
• Note:- Only Journey expenditure is

103. Employee’s obligation met by employer either
giving money or reimbursed is taxed in the hands
of employee(17(2)(iv))
• Example:1.Domestic servant’s salary
reimbursed by employer.
• 2.Gas connection in the name of the
employee but monthly gas bill paid by
employer-Taxable to all employee whether
specified or not.
• 3.If gas connection in the name of the
company then there is no obligation to
employer. Such perquisites is taxable in the
hands of Specified employee.

104. Amount payable by employer
for fund on life of employee
• Taxable to all employees
• Exception:1. RPF,
• 2. approved superannuation
fund
• 3. Group Insurance,ESI
• 4. Fidelity Guarantee scheme

105. Valuation of Interest
free/concession loan
• Difference between SBI interest rate on 1st
day of the previous year-rate of interest
charged by company from employee.
• SBI rate:on 1st April 2007 are:- Housing loan
more than 5 years-10.75%, Upto 5 years-
10.25%,educational loan upto 4 lakhs-11.5%,
above 4 lakhs-13.25%
• Exceptions- see in the next slide

106. Example
• X is employed by A Ltd. on 1st June 2007,
he has taken interest free Housing loan of
Rs. 14,00,000.How much is taxable?

107. Answer
• Lending rate upto 5 years is 10.25% per
annum
• 10.25% x 14,00,000=1,19,583 is taxable.
• Suppose the interest charged by the
company from assessee is 6%, then how
much is taxable?

108. Answer
•(10.25%-6%) x 14,00,000=Rs59500

109. Perquisites in respect of movable assets
given to an employee for personal use.
• 10 % of Original cost of such asset
purchased by employer(- )reimbursed by
employee
• If taken on rental basis by employer:
Rent payable(-)reimbursed by employee
Note: It is not on WDV value

110. Perquisites by sale of company
asset at nominal rate
• Electronics and computers- Calculate WDV
at 50% depreciation for every fully completed
years and compare with amount charged. If
WDV is more there is perquisites.
• Note: 1. WDV method only
• 2. Fully completed years of individual asset
only It is not financial year. Fraction of the
year is ignored.
• What % of depreciation on Motor car?

111. Motor car transferred?
• 20% depreciation under WDV for
completed year of service.
• Other assets?
• 10% on ORIGINAL value of asset.

112. Exception on Interest on loan
• 1. Loan(s) less than Rs.20,000(in
aggregate of original loan ) and
• 2.Taken for specified medical treatment.
• Amount reimbursed from medical
insurance scheme is not considered.

113. Medical facilities
• Medical facilities availed in employer’s
hospital, government hospital or hospitals
recognised by Income tax department is not
taxable.( No limit for specified diseases.
• If private –Up to Rs.15000 is not taxable if
reimbursed to specified employees.
• If bill is issued in the name of employee but
paid by employer then it is taxable in all
types of employees.
• Family means: spouse, children, parents,
brothers, sisters who are wholly or mainly
dependent on him/her.

114. Medical facilities outside India
• Medical treatment expenditure To the
extent of RBI’s permission is not taxable.
• Travel:employee+relative or one
attendant-exempted provided cost does
not exceed Rs.2,00,000.
• Stay for one relative/one attendant
expenditure – allowed to the extent of
RBI’s permission.

115. Motor car – belong to Employee
but expenditures met by employer
• Exclusively used for private – Fully taxable.
• Exclusively used for official- Not taxable.
• Partly used for business partly for private
and difficult to identify:-
• Calculation of perquisites:-1.6 litres car
• Actual expenditure incurred by employer
• Less:Rs.1,200 per month +600 per month if
driver is paid.(This is assumed that it is
incurred for official purpose)

116. Motor car-Owned /Hired and maintained by
employer by employer-
• Used for private purpose:-
(All expenditure met by employer + 10%
depreciation on original cost are perquisites)
or higher charges
Partly for private partly for oficial:
Up to 1.6 litres-
1200(car) +600(if Driver provided) per month-
taxable.
If more than 1.6 litre:-
1600 (car) + 600(If driver provided) per month

117. Motor car-Owned /Hired by employer but
maintained by employee
Used wholly for personal purpose
Expenditure Hire charges +
Incurred by or 10% on original
employer Cost of car incurred
by employer
Note:- if recovered by employer it is deductible

118. Motor car-Owned /Hired by employer
maintained by employee
• Used Partly for private partly for official-
difficult to identify:-
• If 1.6 litres cubic capacity- Rs.400Per
month(Car) + 600 per month(if driver
provided)----Taxable
• If above 1.6 litres cubic capacity:
• Rs.600 per month(car) +Rs.600per
month(if driver provided) taxable.
Note: amount recovered from employee is not deductible

119. Other than car like two wheeler
owned by employee but maintained by
employer
• Partly for office and partly for private-if
difficult to measure:
• Expenditure incurred by employer
Less: Rs.600 per month or higher sum for
official purpose as per log book if
maintained
Less: Amount recovered from employee
balance is taxable in the hands of
assessee.

120. Higher claim on car
• Conditions:
• 1.Complete detail of journey for official
purpose to be maintained
• 2.Certified by employer that the
expenditure was incurred wholly and
exclusively for official purposes.
• Ref: Income tax by Dr. Singhania-page
147-149 39th edition.