2. Tax is a fee charged by a government on a product,
income or activity.
There are two types of taxes . Direct taxes and indirect
taxes.
If tax is levied directly on the income or wealth of a
person, then it is a direct tax e.g. income-tax, wealth tax.
If tax is levied on the price of a good or service, then it is
called an indirect tax e.g. excise duty, Goods and
Services Tax.
In the case of indirect taxes, the person paying the
tax passes on the incidence to another person.
3. The reason for levy of taxes is that
they constitute the basic source of
revenue to the government.
Revenue so raised is utilised for
meeting the expenses of
government like defence, provision
of education, health-care,
infrastructure facilities like roads,
dams etc.
4. Income-tax is the most significant direct tax.
The income-tax law in India consists of the
following components.
Income Tax Act, 1961
Annual Finance Acts
Income Tax Rules, 1962
Circulars/Notifications
Legal decisions of Courts
5. The levy of income-tax in India is governed by the
Income-tax Act, 1961.
This Act came into force on 1st April, 1962.
The Act contains 298 sections and XIV schedules.
These undergo change every year with additions and
deletions brought about by the Finance Act passed by
Parliament.
In pursuance of the power given by the Income-tax Act,
rules have been framed to facilitate proper administration
of the Income-tax Act.
6. Every year, the Finance Minister of the Government of India
presents the Budget to the Parliament.
Part A of the budget speech contains the proposed policies of
the Government in fiscal areas.
Part B of the budget speech contains the detailed tax
proposals.
In order to implement the above proposals, the Finance Bill is
introduced in the Parliament.
Once the Finance Bill is approved by the Parliament and gets
the assent of the President, it becomes the Finance Act.
7. The administration of direct taxes is looked after
by the Central Board of Direct Taxes (CBDT).
The CBDT is empowered to make rules for carrying
out the purposes of the Act.
For the proper administration of the Income-tax
Act, the CBDT frames rules from time to time.
These rules are collectively called Income-tax
Rules, 1962. It is important to keep in mind that
along with the Income-tax Act, these rules should
also be studied.
8. Circulars are issued by the Central Board Direct Taxes (CBDT)
from time to time to deal with certain specific problems and
to clarify doubts regarding the scope and meaning of the
provisions.
These circulars are issued for the guidance of the officers
and/or assessees.
The department is bound by the circulars. While such
circulars are not binding the assessees they can take
advantage of beneficial circulars.
9. The study of case laws is an important and
unavoidable part of the study of income-tax law.
It is not possible for Parliament to conceive and
provide for all possible issues that may arise in the
implementation of any Act. Hence the judiciary will
hear the disputes between the assessees and the
department and give decisions on various issues.
The Supreme Court is the Apex Court of the country
and the law laid down by the Supreme Court is the
law of the land.
The decisions given by various High Courts will
apply in the respective states in which such High
Courts have jurisdiction.
10. Income-tax is a tax levied on the total income of the
previous year of every person. A person includes
An individual,
Hindu Undivided Family (HUF),
Association of Persons (AOP),
Body of Individuals (BOI),
A firm,
A company,
Artificial Juridical Persons.
11. Income-tax is levied on an assessee’s total income. Such total income
has to be computed as per the provisions contained in the Income-tax
Act, 1961. Let us go step by step to understand the procedure of
computation of total income for the purpose of levy of income-tax.
Step 1 Determination of residential status
Step 2 Classification of income under different heads
Step 3 Exclusion of income not chargeable to tax
Step 4 Computation of income under each head
Step 5 Clubbing of income of spouse, minor child etc.
Step 6 Set-off or carry forward and set-off of losses
Step 7 Computation of Gross Total Income.
Step 8 Deductions from Gross Total Income
Step 9 Total income
Step 10 Application of the rates of tax on the total income
Step 11 Surcharge
Step 12 Education cess and secondary and higher education cess
Step 13 Advance tax and tax deducted at source
12. Agriculture Income Sec 10(1)
Any sum received as co parcener from HUF Sec 10(2)
Share of Income from Firm Sec 10(2F)
Interest paid to Non Resident Sec 10(4)(i)
Interest to Non Resident on Non Resident External Account Sec
10(4) (ii)
Interest paid to a Person of Indian Origin Non Resident Sec 10(4B)
LTC or LTA to Indian Citizen Employee Sec 10(5)
Remuneration received by an individual who is not a citizen of India
Sec 10(6)
Tax Paid by Govt or Indian concern on Income of a Foreign
Company Sec 10(6 A, B, BB, C)
Prequisites and allowances paid by Govt to its employees serving
outside India Sec 10(7)
Employees of foreign Countries working in India Sec 10(7)
13. Employees of Foreign Countries working in India under India
Technical and Economic Cooperation Program Sec 10(B)
Income of a Family member of a person working under ITEC
Sec10(9)
Income of a Consultant Sec 10(8A)
Gratuity Under Section10 (10)
Amount received as Leave Encashment on retirement Sec 10(10AA)
Retrenchment Compensation paid to workmen Sec 10(10B)
Compensation received in case of any disaster Sec 10 (10C)
Tax on non Monetary Perquisites paid by employer Sec 10(10CC)
Any sum received under a Life Insurance Policy Sec 10(10D
Payment from any Statutory or Recognized Provident Fund Sec 10
(11/12)
Payment from superannuation fund Sec 10(13)
House Rent Allowance Sec 10(13A) Read with Rule 2A
Any allowance given for meeting Business Expenditure Sec 10(14)
Interest Income Sec 10(15)
Scholarship to meet cost of Education Sec 10(16)
14. Allowance to MP/MLA/MLC Sec 10 (17)
Awards given by Govt Sec 10(17A)
Pension received by gallantry award winners Sec 10(18)
Family pension received by family members of Armed forces
including paramilitary forces Sec 10(19)
Income of Local authority Sec 10(20)
Income of Scientific Research Association Sec 10(21)
Income of News Agency Sec 10(22B)
Income of Some Professional Bodies Sec 10(23A)
Exemption of Income received by Regimental Fund Sec 10(23AA)
Income of a fund set up for welfare of employees or their
dependents Sec 10(23 AAA)
Income of a Fund Set up by LIC Sec 10(23 AAB)
Income of KVIC or State KVIC Sec 10(23 BB)
Income of Charitable and Religious Trusts Sec 10(23 BBA)
Income of European Economic Community Sec 10(23BBB)
Income of SAARC Fund for regional projects Sec 10 (23BBC)
15. Any income of IRDA Sec 10(23 BBC)
Income of Prasar Bharti Sec 10(23 BBH)
Any income received by a person on behalf of specified funds Sec 10(23C)
Income of Mutual Funds Sec 10(23 D)
Income of Securitisation Trust Sec 10(23DA)
Income of Investor Protection Fund Sec 10(23 EA)
Exemption of Income of Investor Protection fund of depository Sec 10(23ED)
Exemption of Certain Venture Capital Company/Fund Sec 10(23FB)
Income of Registered Trade Union Sec 10 (24)
Income of Provident and Superannuation Funds Sec 10(25)
Income of ESIC Sec 10(25A)
Income of Scheduled Tribe Members Sec 10(26A)
Income of Sikkimese individual Sec 10 (26 AAN)
Income of corporation set up for welfare of SC/ST Sec 10 (26B)
Income of Corporation set up for welfare of minorities Sec 10(26BB)
Income of corporation set up for welfare of Ex Servicemen
Income of Commodity Boards Sec 10(29A)
Subsidy received through recognized Board Sec 10 (31)
Income of Child clubbed Sec 10(32)
16. Income of a shareholder on buyback of shares of unlisted Company
Sec 10(34A)
Capital Gains on Compulsory Acquisition of Agriculture Land Sec
10(37)
Income from International Sporting Event Sec 10(39)
Exemption of a Foreign Company from sale of crude oil in IndiaSec
10(48)
17. Sec 80 C Investment in PPF, Govt PF,NSC,LIC, Children Tuition Fees,
Payment of Principal on Home Loan, Sukanya Samridhi, ULIPS,ELSS,
deferred annuity, Five year deposits , Senior Citizen Savings
Scheme,, Notified securities, deposits scheme, Pension fund of
Mutual fund or UTI, Home loan account of National Housing Bank,
Subscription to deposit scheme of public sector company engaged in
housing finance, notified annual plan of LIC, bonds of NABARD
Section 80 CC Deduction Premium paid for Annuity plan of LIC or
other insurer
Section 80 CCD Contribution to Pension Account 10% of Salary 20%
in case self employed or 1.5 lakhs whichever is less additional
deduction of 50,000 in case invested in NPS
Section80 TTA Interest on Savings Account Rs 10,000
Section 80 GG Rent paid when HRA not received Least of following
Rent paid minus 10% of adjusted total income
Rs 5000 per month
25% of adjusted total income
18. Section 80 E Deduction for Interest on Education Loan for Higher
Education
Sec 80 EE Deduction on Home Loan Interest for First Time Owners(Rs
1,50,000)
Sec 80 CCG Rajiv Gandhi Equity Saving Scheme if Gross income less
than 12 lakhs deduction limited to least of following
50% amount invested in equity shares or
Rs 25,000 for three consecutive years
Sec 80D premium paid for medical insurance upto Rs 25,000 for self,
spouse, dependent children, additional Rs 25,000 for parents if less
than 60 years and Rs 30,000 if above 60 years
Sec 80 DD Deduction for rehabilitation of Handicapped dependent
relative disability between 40-80%- Rs 75,000
if 80 % and above disability fixed deduction of Rs 1,25,000
Sec 80 DDB Medical Expenditure on self or dependent
if below 60 years Rs 40,000
for Senior citizens and Super Senior Citizens Rs 60,000 and 80,000
respectively
19. For reimbursement claim limited to Sec 80 DDB
Sec 80 U Deduction for person suffering from physical disability – Rs
75,000, severe disability Rs 1,25,000
Sec 80 EEA Interest paid on Loan on affordable Housing Scheme
Sec 80 EEB Interest paid on loan to purchase Electric Vehicle
Sec 80 G Donations towards Social causes 100 % on PM Relief Fund,
National Defence Fund, National Foundation for Communal
Harmony, Educational institution of National emenience , national
sports fund, cultural fund, national children fund, CM Relief Fund,
Army Fund Earthquake relief fund, Swatch bharat kosh, clean ganga
fund, national fund for control of Drug Abuse
50 % other approved agencies
Section 80 GGB Donation to Political parties by companies
Section 80 GGC Donation to Political parties by individual
Sec 80 RRB income from Royalty of a patent upto 3 lakhs
Sec 80 TTB Deduction for deposits by Senior Citizens Rs 50,000
22. Mr Raj age 42 years is a salaried employee Salary Rs 40,000 pm
During the year2023-24 he makes the following investments ,
deposits, payments
LIC Policy premium Rs 6000(Sum assured Rs 20,000) for his married
daughter
LIC Policy for self premium 2700( sum assured 60,000)
Contribution to Recognized Provident Fund Rs 9000
Contribution to PPF Rs 1,30,000
Repayment of Loan taken from LIC for purchase of residential house
property RS 30,000
Contribution towards notified equity linked saving scheme of UTI Rs
14,000
Find the Tax liability of Mr Raj for the assessment year 2024-25 assuming
that income from House property is Rs 2,28900 and he chooses old
scheme to pay taxes
23. Computation
Salary (40,000x12) 4,80,000
Less Standard Deduction -50,000
Income from Salary 4,30,000
Income from House Property 2,28,900
Gross Total Income 6,58,900
Less Deductions
Under Sec 80 C 1,50,000
Net Income 5,08,900
Tax on Rs 508,900 14280
Less Rebate Under 87 A Nil
Balance 14280
Add Surcharge ( Nil upto 50 lakhs) Nil
Add Health and Education Cess 4% 571
Tax liability rounded off 14850
24. Tax liability rounded off Rs 14850
Computation of deduction under Sec 80 C
Gross Qualifying Amount
Insurance premium on married daughter policy
( max 20% of sum assured ) Rs 4000
Self Insurance Policy Rs 2700
Insurance premium on life of sister(Not eligible) ---
Recognized Provident Fund Rs 9000
Public Provident Fund(PPF) Rs 1,30,000
Repayment of Loan taken from LIC Rs 30,000
Contribution to notified equity linked
saving scheme Rs 14,000
Total Rs 1,89,000
Maximum deduction allowed Rs 1,50,000
Deduction claimed under Section 80 C Rs 1,50,000
25. Mrs Roshini is employed by a private garment factory and gets salary
of Rs 75,000 per month. The company has provided her a car
(1400cc) which is used by her partly for official and partly for private
purpose. The company reimburses the entire expenditure which
approx is Rs 80,000( it includes Salary of driver since Jan 2024).
Besides she gets house Rent allowance of Rs 6000 per month thugh
she pays rent of Rs 6500 per month. She also gets Leave travel
Concession of Rs 63,000( out of which Rs 58,000 is exempt under
Section 10(5).
She has purchased from the company showroom garments of MRP
Rs 20,000 at a discount of 93% of MRP as per service Rules ).
Production cost of these garments is 45% of MRP. The company also
deposits a sum of Rs 1,20,000 in the public Provident fund account
of Mrs Roshini on its own. She has purchased Rs 40,000 worth of
National Savings Certificate during FY 2023-24.
Find out the net income and tax liability of Mrs Roshini for AY 2024-
25 on assumption that her income from other sources is Rs
2,50,000
26. Regular Tax Tax under New Regime Sec 115
Basic Salary(75,000x12) 900,000 Basic Salary(75,000x12) 900,000
Motor Car(1800x12) 21600 Motor Car(1800x12) 21600
Driver(Rs 900 x2) 1800 Driver(Rs 900 x2) 1800
HRA(Rs 6000x12) 72000
No exemption as rent paid is less
than 10% of Salary
HRA(Rs 6000x12) 72000
No exemption as rent paid is less than
10% of Salary
LTC Rs 63,000-Rs 58,000
Exemption under Sec10(5)- 5000
LTC 63,000
Purchase of Garment at discount
Purchase price is 7% of Rs 20,000
whereas cost of manufacturing is 45%
of Rs 20,000 difference is chargeable
to tax 7600
Purchase of Garment at discount
Purchase price is 7% of Rs 20,000
whereas cost of manufacturing is 45%
of Rs 20,000 difference is chargeable to
tax 7600
Amount deposited by employer in PPF
1,20,000
Amount deposited by employer in PPF
1,20,000
27. Gross Salary 1128,000 Gross Salary 1186,000
Less Standard deduction 50,000 Standard deduction Nil
Salary Income 10,78,000 Salary Income 1186,000
Other Income 2,50,000 Other Income 2,50,000
Gross Total Income 13 28,000 Gross Total Income 14,36,000
Less Deduction Under Sec 80 C
(PPF 1,20,000
NSC 40,000
Total 1,60,000 1,50,000
Deduction - Nil
Net Income 11,78,000 Net Income 1436,000
Tax first 2,50,000 Nil
2,50,000-500,000 5%
500,000-7,50,000 10%
7,50,000-90,00,000 20%
Balance of 11,78,000 30%
Total Tax 1,65,900
Surcharge Nil
( upto 50 lakhs)
Health and
Education Cess 4% 6636
Tax Liability 1,72540
0-300,000 Nil
300,000 600,000 – 15,000
600,000-900,000- 30,000
900,000-1200,000- 60,000
1200,000-1436,000-70800
Total Tax 1,75800
Education
And Health Cess
4% 7032
Total tax 1,82,832
28. Residential Status Example
Mr X is an Indian Citizen(50 years) employed in
India with an Indian Company. He leaves India for
the first time on August 31 2022 to complete a
project in South Korea of his employer Company.
He will not come back before 31st March 2023
Find out his residential Status for AY 2023-24
Solution: During previous year 2022-23 he was
in India for 153 days Since he is Indian Citizen
leaving India for employment purpose he is
covered by special case 1 and can become India
if he stays for 182 days since he is in India for
153 days he will be non Resident for AY 2023-24
29. Example 2
Mr Raj Menon was born in Chennai in 1993 later
he migrated to Canada in June 2010 and took
Canadian Citizenship w.e.f December 26, 2021.
His parents were born in Kerala and
grandparents also born in India. During year
2022-23 he visit India for 110 days. During
earlier 4 years ( April 2018 to March 2022) he
was in India for 400 days find out his residential
status for AY 2023-24
Solution: X is a foreign citizen but person of
Indian origin. During the previous year 2022-23
he was in India for 110 days he is covered by
special case 2 he cannot satisfy basic
condition(a) and (b) not relevant in his case
consequently he is non resident in AY 2023-24
30. X is a foreign Citizen not being person of
Indian origin during the FY 2022-23 he came
to India for 70 days. Determine his residential
status fr AY 2023-24 on the assumption that
during FY 2008-09 to 2021-22 he as present
in India as follows
2008-09 298 2015-16 23
2009-10 55 2016-17 70
2010-11 08 2017-18 80
2011-12 04 2018-19 126
2012-13 71 2029-20 60
2013-14 90 2020-21 80
2014-15 181 2021-22 100
31. Solution
X is foreign citizen not a PIO not covered
under special case 1 or 2 he is in Current FY
for a period of 70 days and four preceding
previous year for 366 days this he satisfy
condition(b) thus he is resident of India
2021-22 100 days
2020-21 80
2019-20 60
2018-19 126
Total 366 days
32. House Rent Allowance
X is an employee of national insurance during
previous year 2022-23 he gets 80,000 per
month as Salary and Rs 10,000 per month as
dearness allowance(40% of dearness
allowance is calculated for provident fund and
30% only calculated for gratuity ). He gets Rs
55000 as House Rent Allowance. He stayed
with his joint family till 30th June 2022 for
which no rent is paid. From July 2022 he
took a house on a monthly rent of Rs 10,000
in Noida. In Jan 2023 he shift to Delhi and
paid a monthly rent of 53,000 find out his
house rent allowance chargeable to tax in AY
2023-24
33. Salary for the purpose of Tax would Rs
80,000+30% of DA which is calculated for all
retirement benefits)
April to June 2022 : Full HRA Taxable no
exemption.
July to Dec 2022 HRA exemption will be as
follows
33200 pm ( being 40% of Salary of Rs 83,000)
55000 per month HRA Allowance
Rs 1700 per month ( being excess of rent
paid of Rs 10,000 per month over 10% of
83,000)
Which ever is lower of above is exempt so Rs
1700 pm will be exempt
34. Jan 2023- March 2023 – Delhi Residence
Rs 41,500 pm ( being 50% of Salary of Rs 83,000)
Rs 55000 per House Rent allowance received
Rs 44700 per month( Being the excess of rent paid of Rs 53,000 pm
over 10% of Salary of Rs 83,000
Whichever is lower is exempt so Rs 41,500 will be exempt
Lets calculate Taxable portion of HRA
House Rent allowance shall be
House Rent allowance (Rs 55,000 x12)
6,60000
Less Exemption
July 2022-Dec 2022 (Rs 1700 x6) 10,200
Jan 2023- March 2023 (Rs41,500 x 3) 124500
---------
134700 -(134,700)
Taxable HRA ----------
5,25,300
35. Govt Employee :The Gratuity Paid to a Central or State Government Employee
or local authority is exempt from tax under Section 10(10)(i)
Non Government Employee : The gratuity to a non government Employee is
exempt as per Payment of Gratuity Act 1972 if a Non Government Employee
is not covered by Payment of Gratuity Act his Gratuity calculation for purpose
of tax will be calculated under Section 10(10)(iii)
A Non Govt Employee covered
under Payment of Gratuity Act
1972
A Non Govt Employee not covered
under payment of Gratuity Act
1972 calculated under Sec
10(10)(iii) of IT Act
15 days salary for each
completed year of service and if
in part it should be more than 6
months or
Gratuity Actually received or
Rs 20,00,000 whichever is less
Half of average Salary for each
completed year of service or
Rs 20,00,000 or
Gratuity actually received which
ever is less
36. Gratuity Example
Miss Raj Lakshmi is a Marketing Officer is working for
two companies A Co and B Co. He retires from A Co
on November 30 1988( Salary at the time of
Retirement Rs 2600) and receives Rs 22,000 as
gratuity out of which Rs 20,000 is exempt under
Section 10(10)(iii) . He also retires from B. Co on 10th
December 2022 after 38 years and 8 months of
service and received Rs 3,90,000 as death cum
retirement gratuity. His average basic salary drawn
from B Co in preceding 10 months ending
November 2022 is Rs 18,200 pm Beside he has
received 1000 pm as dearness allowance 80% of
which form part of computation for retirement
benefits ( provident fund 85% is considered) 6%
commission on turnover achieved by him . Total
turnover achieved by him during 10 months ending
Nov 2022 is Rs 200,000. Determine amount of
gratuity exempt under Section 10(10)(iii) of IT Act
37. Basic Salary of 10 months (18200x10) 182,000
DA for 10 months (80% of Rs 1000x10) 8000
Commission@6% of turnover of
10 months (6% of Rs 200,000) 12,000
Total 202,000 Average monthly salary (Rs
202,000/10)
20,200
Amount of Gratuity exempt is least
Of following
1980,000( 20,00,000-20,000 being exempt gratuity received from A Co )
Rs 3,83,800( half of month Salary for each completed year of service
(20,200x1/2x38)
Rs 3,90,000 Gratuity received from B Co
Rs 3,83800 is least hence exempt from tax therefore Rs 6200 is
chargeable to tax for AY 2023-24 X can claim relief Us Sec 89
Note Dearness allowance is included in salary for the purpose of
calculation of gratuity ( In this case 80 of DA being part of the Salary for
computation of retirement benefits i. e gratuity
If employee receives gratuity from previous employer receive gratuity from
another employer in same year or later year the limit of Rs 20,00,000 is
reduced by amount of gratuity exempt in earlier years so Rs 20,000
gratuity from Employer A will be reduced from maximum limit of Rs
20,00,000
38. X is an employee of AC Chemicals Pvt Ltd receives Rs 78,000 as Gratuity. He
is covered by Payment of Gratuity Act 1972. He retires on March 31st, 2023
after rendering 38 years and 8months of service. At the time of retirement
his monthly basic salary and dearness allowance was Rs 2400 and Rs 800.
Calculate the exempted amount of Gratuity
Solution Salary(2400+800)=3200= Rs 1846.15( 3200x15/26=1846.15
(15 days Salary for each year)
Out of Rs 78,000 received as Gratuity the following will be exempt from
taxes
Rs 72,000(1846.15x39)
Rs20,00,000 maximum admissible limit under Income Tax Act
Rs 78,000( Actually received by him )
Rs 72,000 will be admissible exempt amount
39. Mrs Priya Works for Computer Society of India as Manager Admn. She draws
an average Salary of Rs 80,000 per month which includes 10,000 Inflation
allowance, 5000 incentive part of Salary). After serving for 33 years she
retires from the job on 31st December 2023. On retirement she was paid a
Gratuity of Rs 22,00,000. She is not covered under Payment of Gratuity Act
1972. Calculate admissible amount of Gratuity exempt from Tax
40,000 x33=13,20,000
Out of Rs 22,00,000 received as Gratuity least of the following will be
admissible
A. Rs 13,20,000 half of average salary for each completed year of service
B. Rs20,00,000 maximum exemption limit under IT Act
C Rs 22,00,000 amount actually received
The least of the following is Rs 13,20,000 will be admissible as exempt
amount of Gratuity
40. Profits in lieu of Salary is Taxable Profit includes
Any amount of compensation paid by employer in the event
of termination of an employment ( Not covered under
workmen compensation act)
Any amount received as arrears due to modification in terms
of employment
Any other payment received by employee other than
following:
Gratuity exempt under Sec 10(10)
House Rent Allowance exempt under Section 10(13A)
Payment of commuted Pension exempt under Sec 10(10A)
Payment of retrenchment compensation exempt under Sec
10(10B)
Payment from an approved Superannuation Fund under Sec
10(13)
41. Different Allowance Tax Treatment
City Compensatory Allowance Taxable
House Rent Allowance Exempt in some cases
Entertainment Allowance Deductible in some cases
Foreign Allowance Exempt from taxes paid to a Govt
Servant posted out of India and
being Indian Citizen
Tiffin Allowance, Fixed Medical
Allowance, and servant allowance
Taxable
Allowances to High Court Judges Exempt
Allowances from United Nations
Organisation
Exempt
Compensatory allowance under
article 222(2) of Constitution
Exempt(paid to Judges on transfer
from one High court to other
Sumptuary Allowance to High
Court, Supreme Court Judge, Chief
and other Election Commissioners
Exempt
Any other allowance Taxable
42. Exemption: 50% of Salary if residing in Delhi,
Mumbai, Kolkata, Chennai 40% in any other
city
House rent allowance received by employee
for the period in which rental accommodation
is occupied
Excess of rent paid over 10% of Salary
The least is exempt
43. Amit resides in Chennai and gets Rs 300,000 per annum basic salary and Rs
50,000 per annum as HRA. He pays Rent of Rs 40,000 per annum find out
the taxable house rent allowance for AY 2023-24
Solution : Out of Rs 50,000 pa HRA least of following will be exempt
A Rs 1,50,000( 50% of Salary)
B Rs 50,000(HRA actually received)
C Rs 10,000( Excess of rent paid over 10% of Salary (40,000-30,000)
Rs 10,000 will be exempt and balance Rs 40,000 will be taxable
Q. 2 Shalini lives in Ajmer receives Rs 1,92,000 pa as basic salary in FY
2022-23)In addition she gets Rs 19,200 pa as dearness allowance and 7%
commission on sales made by her( Sale by her in 22-23 is 86,000). She
receives Rs 24000 pa as HRA. She pays Rs 21500 as Rent
Solution: Salary(1,92,000+19200+6020(7% Commission on 86,000 Sales)
Least of following will be exempted
A Rs 86,888(40% of Salary B Class city)
B. 24,000( HRA received)
C Nil (Excess of rent paid over 10% of Salary 21722 rent paid 21500)
As the least of three is Nil entire HRA is chargeable to Tax
44. Entertainment allowance is first included in the Salary and then
deduction is claimed under Sec 16(ii)
In case of Govt Employee the least of following
Rs 5000
20% of basic Salary
Amount of Entertainment Allowance granted in previous year
Also keep in mind the following factors :
Salary excludes all allowances and perquisites
Amount actually expended towards entertainment out of
entertainment allowance( Rest Taxable)
For all non Govt Employees including Statutory Corporation and local
authority it is taxable
45. Mr Tarun Yadav is Assistant Section Officer in
Railways getting salary of Rs 600,000 pa. In
addition he receives Rs 72,000 as
Entertainment allowance. His actual expenses
under the head is Rs 75,000 calculate the
exempt amount of Entertainment allowance
Rs 5000
Rs 1,20,000(20% of basic Salary)
Rs 72,000 entertainment allowance granted
in previous year
Rs 75,000 actual expenses
Admissible exemption Rs 5000 least of above
46. Travelling Allowance- Actuals
Conveyance Allowance
Daily Allowance
Helper Allowance
Research Allowance
Uniform Allowance
Tribal Area allowance-Rs 200 per month
Employees in Transport Sector- 70% of such allowance or Rs 10,000 per
month whichever is less
Children Education Allowance _ Rs 100 per month per child max 2 child
Hostel Expenditure Allowance to meet hostel expenditure of child in India – S
300 per month per child max 2 child
Transport Allowance- In case of deaf, dumb, blind –Rs3200 per month
Other Employees no exemption
