income from salary questions

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NEW:Income from salary-
Problems,theory and solutions
By
Prof.Augustin Amaladas
M.Com., AICWA., PGDFM., B.Ed.
If you study theory which are explained in the slide
show given earlier under the head income tax
(www.augustin.co.nr)
It becomes easier for you to do problems here.
Study other topics
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Acquisitions under
The same web.
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please
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Of this
site

2
Solved problems Income from
Salary-2008-09 assessment year
By Prof. Mary Amala Shanthi Augustin
Jyoti Nivas College, Bangalore
M.Com.,M.Phil., MBA.,B.Ed.
Jyoti Nivas College, Bangalore
and
Prof. Augustin Amaladas M.Com., AICWA., PGDFM.,B.Ed.
St. Joseph’s College of Commerce, Bangalore
aug_bang@yahoo.com 09845844319
Read the concepts
From salary slide Education for all

3
Dedicated to
• Prof.Dr. Victor Louis Anthuvan M.Com., Phd.
• Prof. and Dean Loyola College of Business
Administration
• My Guru in St. Joseph’s College Trichy, Tamil
Nadu.
• I remember you always when ever I take class to
my students.-You are ever great.

4
What do you mean by rest?
If you are benefited, inform your friends in other states
So that Students community can be benefited. Send SMS
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5
Alternative work is rest
How to study salary?

6
Salary contains many types.
Each type of salary should
Be studied independently.
First understand the
Concepts which are explained in the first set
Under income tax head of my web.
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aug_bang@yahoo.com
By giving yourself up you will receive

7
Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Chennai
University. The details of her salary and other income for the previous
year 2007-2008 are as follows:
Basic Salary 80,000
Dearness allowance (forming part of salary) 3,600
Education allowance for 2 children (exp being Rs. 900) 5,100
Hostel expenditure allowance for 1 child
(expenditure being 8000) 7,200
HRA 10,400
Remuneration from Bangalore University for
Being as examiner 75,650
Allowance for research which is to be completed during
Dec-April 2008(actual exp being : up to March 31-08
Rs. 2000, during April 08 Rs. 4500 ) 8000
Exercise-1

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She contributes 10% of her salary to a statutory provident fund to
which the college also makes a matching contribution. She gets
reimbursed of Rs. 28000 being exp incurred on medical treatment of
her daughter in a private clinic. The bill for which is paid by the
employer.
During the year she spends Rs. 1000 on purchase of saree for his
wife (out of salary)for year 2007-08 he paid Rs. 8000 as insurance
premium on his life policy for Rs. 60,000 ( date payment – 3 April 08)
Compute the total income and tax liability for the assessment year
2008-09.

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ANSWER-1
Computation of Salary
Basic Salary 80,000
DA 3,600
Education Allowance 5,100
Exemption 100 x 2 x 12 2,400 2,700
(Monthly fixed educational allowance given to employee is taxable except
Rs.100 per child per month and only for two children. If allowance is not
received from employer nothing is taxable. Whether assessee spends or
not Rs.100 (only) allowed because, it is given not exclusively to do
official duty)
Hostel Allowances 7,200
300 x 12 3,600 3,600(see notes
given in the next slide)
HRA received 10,400 – 4840 5,560
Least of the following: Major any four cities like Delhi, Mumbai etc. (50%)
1) 50% of salary Basic + DA
83,600 x 50% 41800
ANSWER-1
Basic Salary 80,000
DA 3,600
Exemption 100 x 2 x 12 2,400 2,700
(Monthly fixed educational allowance given to employee is taxable except
Rs.100 per child per month and only for two children. If allowance is not
received from employer nothing is taxable. Whether assessee spends or
not Rs.100 (only) allowed because, it is given not exclusively to do
official duty)
Hostel Allowances 7,200
300 x 12 3,600 3,600(see notes
given in the next slide)
HRA received 10,400 – 4840 5,560
Least of the following: Major any four cities like Delhi, Mumbai etc. (50%)
83,600 x 50% 41800

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2) HRA received 10,400
3) Rent paid- 10% of salary
13,200 – 8360 4,840
(1100 x 12 )
Research Allowances 7000
Less: Exp incurred 6500 1,500
Medical Allowances 28000
Exemption 15000 13,000
Income from salary 1,09,960
Income from other sources 75,650
Total Income 1,85,610
Answer1.
continues
See explanation after
The answer in the following slides

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Exemption under sec 80c
1) 10% Provident fund 83600 8,360
2) (Basic + DA which comes for retirement benefit)
Taxable Income 1,77,250
Tax liability
Less: Exemption 1,45,000
32,250
• Woman’s tax liability :
145000 – 150 000 5,000 x 10% 500
150 000– 250,000 27,250 x 20% 5450
Tax payable 5950
Education cess 3% 178.5
Total tax 6128.5
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Explanations to exercise-1
• 1.Basic salary for the current financial year(previous
year) is relevant and taxable.
• 2. DA- Dearness allowance given mainly to compensate
the inflation based on Index numbers –fully taxable.
• 3. For the meaning of salary for special computation such
as HRA, Gratuity, Pension etc., Dearness allowance(DA)
is considered to the extent of % comes for retirement
benefit. The words ‘forming part of salary’ means such
portion comes for retirement benefit.

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• 4. If the words ‘forming part of salary’ is missing or simply
given DA with out mentioning the words forming part of
salary then do not take it for the meaning of salary for special
computation such as HRA, gratuity, Pension etc. But to
compute salary entire DA to be taken.
• 5. The word allowance means fixed monthly payment is made
to employee either to do exclusively official duty or other than
official duty. If such fixed monthly or annual allowance given
to do official duty the expenditure incurred for such allowance
is deducted from such allowance.(Uniform allowance, research
allowance, conveyance allowance to do official travel etc.)
Unused official allowance is taxable.
explanations

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• **6. If allowance given not exclusively for official
duty then the allowance is fully taxable unless some
exemption given under Income tax.(such as
Educational allowance, Medical allowance, Hostel
allowance).
• 7. Educational allowance given per month to
employee. It is given not exclusively to do official
duty. Therefore how much spent by employee is not
important. But Rs. 100 per month per child for two
children allowed exemption.
• 8. Hostel allowance for the children is allowed Rs.
300 per children for maximum two children only.
Since only one child is given hostel allowance Rs.
300 per month is allowed for the period such
allowance given.
explanations

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• 9. HRA- is an allowance given monthly based on
basic and types of city. First calculate the
meaning of salary for HRA allowance exemption.
Salary= basic + DA which is part of salary +Fixed
% of commission on sales( not on purchase or not
of fixed monthly commission)
• Read: www.augustin.co.nr under incometax-
salary-theory.
• 10. Salary for the calculation of exemption on HRA=Rs.
80,000(Full Basic) + 3600(here full DA) +0 (commission on
sales)= 83,600.
Explanations
Read carefully. Other problems can be worked out well unless you
Understand the explanations given above/next slides

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• 11. Research allowance given at a time to employee for
official purpose. He is expected to spend and produce bills
for such expenditure. It is not necessary that such
expenditure to be spent during the previous year. If it is
spent for the purpose given before filing of return in the
assessment year all expenditure up to allowance given is
exempted. Balance is taxable. If assessee spent more than
what was given, the amount provided by employer is
exempted.
• 12. Medical allowance given monthly not exclusively to
do official duty. Therefore the amount spent by assessee is
not important. If such amount spent in private clinic Up
to Rs. 15,000 is allowed. Beyond it is taxable. If employer
pays directly to recognised or approved hospital entire
amount is exempted.(Bill should be produced otherwise it
is fully taxable)

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• 13. Whenever the act says any one of the following is
exempted it means that the actual amount received from
employer is one of the item to be considered for
exemption.
• 14. Statutory Provident fund(State and Central
government employees local authorities, railway,
Bangalore other universities) can be statutory –fully
exempted.Since he is working in a college he comes under
Recognised provident fund therefore such fund never
exceeds 12% of salary and interest accrued should not
exceed 9.5%
While reading above you have to
Read word by word carefully to understand the meaning

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• 15. Valuation of answer scripts of Bangalore
university comes under income from other sources as
there is no employer and employee relationship.
• 16. Employee’s contribution to Recognised provident
fund is a personal saving which can be claimed u/s
80C.
• 17. The savings such as statutory PF, Insurance,
repayment of principal housing loan come under
Section 80C. All savings should not go beyond
Rs.1,00,000.
• 18.Purchase of saree is a personal expenses which was
not paid by employer and can not be deducted from
taxable income.

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• Exercise-2:
• Mr.Ajith is an 36yrs an employee of a co-operative society
in Gurgaon. His basic salary for the previous year 2007-08
is Rs.6750/month and he gets dearness allowance of
Rs.500/month(30% of of it forms part of salary for
computation of retirement benefit). Besides he also gets
bonus of Rs.700/month and Rs.200/month as medical
allowance. His employee contributes Rs.11286 to a
recognized provident fund to which X also makes a
matching contribution. X gets an interest free
loan(repayable within 8yrs) of Rs.95000 from the employer
for purchasing a house(SBI rate 10.75%). Besides, he gets
Rs.12,47,660 as interest on company deposits from a private
sector undertaking. Determine taxable income and tax
liability of X for the assessment year 2008-09
• Solution next slide……..

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Working notes –Exercise-2
• 1. Meaning of Salary for Recognised provident fund
• Basic +DA which comes for retirement benefit only
• 6750 +(30% x 500)=Rs.6,900 per month
• 6900 x 12= Rs.82,800 annual salary for RPF calculation
• Employer’s contribution can not exceed 12% of salary=12% x
82800=9936 per annum.
• RPF by employer exceeds 12% of salary by Rs.1350[11286-9936]
• 2. Employee’s contribution to RPF is a saving therefore Rs. 11286
saved for future comes under Section 80C along with other
savings.Total of all savings u/s 80C can not exceed Rs.1,00,000.
• 2. Interest on interest free loan is taxable to the extent of SBI
interest rate.
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• Basic Salary (6750*12) 81000
• Dearness Allowance (500*12) 6000
• Bonus (700*12) 8400
• Medical Allowance
(Fixed) (200*12) 2400
• Excess of contribution to provident fund by
Employer[11286-(12% of 12*(6750+30% of 500)] 1350
• (see note in the previous slide)
• Interest on interest free loan
(95000*10.75%) 10213
NET SALARY 109363
Add: income from other sources 1247660
TOTAL INCOME 1357660
Deduction U/S 80C: 11,286
Taxable salary 13,46,374
ROUNDED OFF 13,46,370

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Computation of Tax Liability
• Net Taxable Income 13,46,370
1,10,000-1,50,000= 40000*10%= 4000
150,000-250,000= 100000*20%= 20000
250 & above=10,96,370 x 30%= 328,911
352,911
Add: surcharge of 10% 35291
388,202
Add: 3% educational cess (on 3,88,202) 11646
3,99,848
Rounded off 3,99,850
(nearest to 10 rupee)

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Exercise-3
Mrs. X was born on July 1, 1940, She is Deputy Manager in a
company in Mumbai. She is getting a monthly salary and
dearness allowance of Rs.45000 and Rs.12000 respectively.
She also gets a house rent allowance of Rs.6000/month.
She is a member of recognized provident fund wherein she
contributes 15% of her salary and half dearness allowance.
Her employer also contributes an equal amount.
She is living in the house of minor son in Mumbai
During the previous year 2007-08, her minor son has earned
an income of Rs.30000(computed) as rent from a house
property, which had been transferred to him by Mrs.X
without consideration a few years back
During the pre-year 2007-08 she sold Government of India

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Capital Indexed Bonds for Rs.150000 on Sep 30, 2007, which
she purchased on July 1, 2002 for Rs.80000
Her employer gave her an interest free loan of Rs.150000 on
Oct 1, 2007 to one of her sons’ wife for the purchase of an
Alto Maruthi Car. Nothing has been repaid to the company
towards loan.
During the pre-year 2007-08 she paid Rs.15000 by cheque to
GIC towards Medical Insurance Premium of her dependent
mother.
Compute the taxable income and tax liability of Mrs..X for the
assessment year 2008-09

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Solution-3
• Salary (45000*12) 540000
• Dearness allowance (12000*12) 144000
• House rent allowance(6000*12) 72000
(fully taxable as she is not staying in a rented house)
• Employers contribution to recognized PF in
excess of 12% of salary
[(15%-12% )of Rs.6,12,000] 18360
(45000*12+1/2 of 12000*12)-meaning of salary for RPF
• Interest free loan[8% if 150000 from Oct 1, 2007
to March 31, 2008] 6000
GROSS SALARY 780360
Less: standard deduction nil
Income from salary 780360
Solution-3
• Salary (45000*12) 540000
• Dearness allowance (12000*12) 144000
• House rent allowance(6000*12) 72000
(fully taxable as she is not staying in a rented house)
• Employers contribution to recognized PF in
excess of 12% of salary
[(15%-12% )of Rs.6,12,000] 18360
(45000*12+1/2 of 12000*12)-meaning of salary for RPF
• Interest free loan[8% if 150000 from Oct 1, 2007
to March 31, 2008] 6000
GROSS SALARY 780360
Less: standard deduction nil
Income from salary 780360

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Computation of total taxable
income
1.Income from salary 780360
2.Income from house property (deemed income of
transferor if property was transferred to minor for
inadequate consideration u/s 64)
30000
3.Long term capital gains[150000-(80000*555/447)]
index cost of acquisition to be used 51387
solution-3-continues

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GROSS TOTAL INCOME 861747
Less: deduction
• Under section 80C:
• 1.Employee’s contribution to Recognised provident fund is
saving. Therefore it comes under section 80C
[15% of(45000*12+1/2 of 12000*12)] 91800
• 2. Under section 80D (Medi claim insurance ) 15000
NET INCOME ROUNDED OFF 754950
Tax on 51387@ 20%
How ever tax liability cannot exceed
10% of (150000-80000) 7000
Tax on balance 156569
TOTAL 163569

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Add: surcharge nil
TOTAL 163569
Add: education cess[2% of 163569] 3271
Add: secondary and higher education cess
[1 % of 163569] 1636
TOTAL TAX LIABILITY ROUNDED OFF 168480
Note: it is assumed that SBI lending rate for similar loan is 8%

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

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Not directly relate to
Official duty
(General)
1.Allowance for
transport
employees
2.Children
education
allowance
&70% of allowance
Or Rs. 6000 per
month whichever is
lower exempted
Rs.100 per month
per child max.two
children.If in hostel
Rs.300 extra per
child for two
children
3. Traveling
allowance to
commute from
home to office
4. Other border
area allowances
Rs. 800 per month.
If handicapped
person Rs.1600 per
month is exempted.
Depends on
altitude/Place
They are fixed.
Whether spent
Or not.Excess
Taxable as they
Are not given
For official
Duty

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Perquisites
The term perquisites has been defined by section 17(2) under
different clauses as including the following items-
a. Rent- free house [section 17(2)(i)]
b. Concession in the matter of rent [section 17(2)(ii)]
c. Any benefit in the case of a specified employee [section 17(2)
(iii)]
d. Expenditure on meeting employee’s obligation [section 17(2)
(iv)]
e. Any sum to effect an assurance on the life of an employee
[section 17(2)(v)]
f. The value of any other fringe benefit or amenity as may be
prescribed[ section 17(2)(vi)]

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Valuation of perquisite in respect of movable asset sold by an employer to
its employer [Rule-3 (7)(viii)]
If the sale price is less than the written down value (calculated as per
method and rate mentioned below) then the differences would be treated as
perquisite and the taxable in the hands of all employees.
Rates and methods of depreciation for the different types of assets are as
follows:
Types of asset Rate of
depreciation
Method of
deprecation
# Electronic items/
computer
50% Reducing
balance
Motor car 20% Reducing
balance
Any other 10% Straight line
Perquisites with respect to movable assets-computation

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# Eectronic items means: data storage and handling device like
computer , digital diaries and printer. They do not include house hold
appliances like washing machines, micro wave oven , mixers, etc.
• Mathematically taxable
perquisites is as under:
Original cost employer xxxxx
Less: accumulated depreciation as per specified rate foe
each completed during which such asset is used by the
employer
xxxxx
Written down value xxxxx
Less: amount charged fro employee xxxxx
Value of perquisite is positive xxxxx

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Exercise-1Allowances
• 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. Traveling allowance – Rs. 12000(However actual expenditure was only
Rs. 8000 for official duties
• 9. Conveyance allowance –Rs. 500 per month(the whole amount spent for
official duties)
• 10. Transport allowance- Rs. 18,600
• 11. Overtime allowance-Rs. 4000

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Mr. Deepak an employee in a company , gets a basis salary of Rs 10,000 per
month is employer has provided him the following facilities:-
a. He has been provided a credit card. Annual fee of such card is Rs 8,000
which is incurred by employer. The card is used for office as well as
personal purpose
b. His employer is a corporate member of a club of which initial fees is Rs.
1,00,000 and annual expenditure of Rs. 30,000 paid by the employer. The
membership is enjoyed by Mr. Deepak
c. He has been given a gift voucher of Rs. 13,500
d. He has been provided the of laptop used for office as well as personal
purpose. The cost of the asset Rs.1,20000.
e. In his office chamber , AC machine has been installed for 30,000
f. Calculate gross salary of Mr. Deepak for the assessment year 2008-09
Exercise-2(perquisites)

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computation of gross salary of Mr. Deepak for the
assessment yr 2008-09
particulars employee Amount
Basic salary 1,20,000
Credit card(perquisites becomes fringe benefit if
it falls under B category of perquisites-therefore
taxable in the hands of company employer. If he
is not a company employer, it is taxable I the
hands of employee.)
exempted Nil
Club membership fee(taxable to company
employer)
exempted Nil
Gift voucher is equal to cash gift (taxable to
company employer)
exempted Nil
Laptop facilities
A.C machine facility
Exempted
Used for office
purpose
Nil
Gross Taxable salary 1,20,000
Solution-6

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Exercise-9
Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Madras University.
The details of her salary and other income for the previous year 2007-2008 are
as follows:
Basic Salary 80,000
Dearness allowance (forming part of salary) 3,600
Education allowance for 2 children (exp being Rs. 900) 5,100
Hostel expenditure allowance for 1 child
(exp being 50000) 7,200
HRA 10,400
Remuneration from Bangalore University for
Being as examiner 75,650
Allowance for research which is to be completed during
Dec-April 2008(actual exp being : up to March 31-08
Rs. 2000, during April 08 Rs. 4500 8000

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She contributes 10% of her salary to a statutory provident fund to
which the college also makes a matching contribution. She gets
reimbursed of Rs. 28000 being exp incurred on medical treatment of
her daughter in a private clinic. The bill for which is paid by the
employer.
During the year she spends Rs. 1000 on purchase of saree for wife
for year 2007-08 he paid Rs. 8000 as insurance premium on his life
policy for Rs. 60,000 ( date payment – 3 April 08)
Compute the total income and tax liability for the assessment year
2008-09.

39
ANSWER-9
Basic Salary 80,000
DA 3,600
Exemption 100 x 2 x 12 2,400 2,700
7,200
Hostel Allowances
300 x 12 3,600 3,600
HRA received 10,400 – 4840 5,560
Least of the following
83,600 x 50% 41800
ANSWER-9
Basic Salary 80,000
DA 3,600
Exemption 100 x 2 x 12 2,400 2,700
7,200
Hostel Allowances
300 x 12 3,600 3,600
HRA received 10,400 – 4840 5,560
Least of the following
83,600 x 50% 41800

40
2) HRA received 10,400
3) The excess of Rent paid 10%
1100 x 12 = 13,200 – 8360 4,840
Research Allowances 7000
Less: Exp incurred 6500 1,500
Medical Allowances 28000
Exemption 15000 13,000
Income from salary 1,09,960
Income from other sources 75,650
Total Income 1,85,610

41
Exemption under sec 80C
1) 10% Provident fund 83600 8,360
Tax liability
Less: Exemption 1,45,000
32,250
145 – 150 5000 x 10% 500
150 – 250 2,7250 x 20% 5450
Taxable income 5950

42
Mr. Manoj an employee in a HUF, gets a basic salary of Rs 10,000 per
month.The employer has further provided him in following
facilities
a. He has been provided a credit card. Annual fee of such card is Rs
8,000 which is incurred by employer. The card is used for office
as well as personal purpose
b. his employer is a corporate member of a club of which initial fees
is Rs. 1,00,000 and annual expenditure of Rs. 30,000 paid by the
employer. The membership is enjoyed by Mr. Deepak
c. He has been given a gift voucher of Rs. 13,500
d. He has been provided the of laptop used for office as well as
personal purpose. The cost of the asset Rs.1,20,000.
e. In his office chamber , AC machine has been installed for 30,000
f. Calculate gross salary of Mr. Deepak for the assessment year
2008-09
Exercise-10

43
Solution-10
computation of gross salary of Mr. Deepak(Not a company
employee) for the assessment yr 2008-09
particulars Details Amount
Basic salary 1,20,000
Credit card(B category-perquisites)-
taxable to employee)
Taxable 8000
Club membership fee(taxable to
employee)
Taxable 30,000
Gift voucher taxed 13500
Laptop facilities
A.C machine facility
Exempted
Used for office
or private
purpose
Nil
Gross Taxable
salary
1,71,500

44
Value of rent free accommodation : Sri Radheshyam 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 Jaipur
owned by the employer. The population of Jaipur may be assumed
to be 15lakhs as per 2001 census
Determine the taxable value of the perquisite in respect of rent free
Exercise-11

45
Solution: 11
The valuation of rent free accommodation shall be 10% of the
salary i.e. 10% of
(248000+ 16000+30000+15000+16000+25000+12000)=Rs 36200
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.

46
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
Commission on purchase 16000
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 Jaipur owned
by the employer. The population of Jaipur may be assumed to be 15 lakh as
per 2001 census. Determine taxable salary.
Exercise-12(Value of free rent accommodation )

47
Solution-12
Computation of taxable salary of Sri Mohan for assessment Year
2008-09
Basic Salary 120000
Bonus 16000
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+ 15000+16000+25000+12000+80000)] 31400
Taxable Salary 397400

48
Value of concessional accommodation:
Mr.Tim is purchase manager of a private company and for the previous 2007-08 he
received the following emoluments-
Basic Salary 240000
Bonus 32000
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 rent of Rs 2000
p.m. in the following independent cases:
The accommodation is provided in Mumbai where popln as per 2001 census exceeds
25 lakh
The accommodation is provided in Alwar where popln as per 2001 census exceeds 18
lakh
The accommodation is provided at Chomu (popln less than 10 lakh).
Exercise-13

49
Solution: 13
The valuation of accommodation provided at concessional rent
shall be as under-
Place of accommodation Value of perquisite
Mumbai 15% of salary less rent recovered
= Rs 70200-24000=Rs46200
Alwar 10% of salary less rent recovered
= Rs 46800-24000=Rs22800
Chomu 7.5% of salary less rent recovered
=Rs 35100-24000=Rs11100

50
PRACTICAL QUESTIONS-concept based questions. Some
basic questions.
1. In the return for the assessment year 2008-09. B claimed deduction from his
income from salary of a sum paid by him to his ex-wife by way of alimony to
her and maintenance expenses to their minor son. On 7th January,2004 by
agreement with his employers, B had agreed to creation of a first charge on
his salary in favour of his ex-wife for the payment of monthly sum. What is the
effect of this charge and the alimony payment on the taxable income in the
hands of B?
ANS: Taxable in the hands of assessee as the income is
applied.Personal commitment (as per the law) it is taxable in
the hands of B only.

51
How do deal with the following situation ?
2. Basu, M.D of a company is entitled to commission on sales as per the
service agreement entered into. A part of the commission is converted into
a purchasing a single premium deferred annuity policy from LIC of India.
Basu claims that the commission diverted to secure the deferred annuity
can’t be taxed in his personal assessment.
Answer:- It is an application of income. Any income received by employee
from employer is treated as salary. The diversion of salary to meet
personal.
3. Sham is a whole time employee as a development officer in LIC of India. He
receives incentives bonus based on quantum of business procured in the
year. He claims that incentives bonus can’t be wholly included as his
income and he should be allowed deduction for expenses incurred in
procuring the business.
Answer:- Latest change in the meaning of salary is that any
amount received (whatever name used ) by employee from
employer is taxable as salary. Therefore it comes under
salary

52
3. Dearness allowance @ 60% of basic pay ( 50%of which forms part
of salary for retirement benefits ) .
Answer:- Full DA fully taxable. But meaning of salary for HRA, RFA,
Pension- 50% of DA is considered.
4. He was allowed (basic pay + DA) for 4 months in march 2008 in
advance.
Answer:- Four months salary taxable. Even advance salary received is taxable
in the year of receipt.Salary is defined as receipt or due whichever is earlier is
taxable. Therefore it is taxable in the assessment year 2008-09.
5. Bonus Rs.5,000 p.m.
Answer:- Fully taxable because salary includes bonus and received
from employer by employee.
6. Research allowance Rs.10,000 p.m. – amount expended for research
Rs.7,500 p.m.
Answer:- Research allowance given to meet exclusively for official purposes.The
amount not spent is taxable.There fore Rs. 2,500 is taxable.

53
• 7. Residential accommodation at Jaipur ( population exceeding 10
lakhs but not exceeding 25 lakhs ).
•
Answer:
If Residential accomodation owned by employer- Maximum 10% of
salary- amount collected by employer from employee is taxable.
• (Meaning of salary is that all cash salary belongs to current previous
year and all taxable allowances and DA which comes for retirement
purposes. It excludes all perquisites and all allowances not received
in cash.)
•
8.The company had a gas-manufacturing unit. Rahul was provided 10
gas cylinders during the year free of cost. The cost per cylinder to the
company was Rs.165.
Answer:
• The cost to the employer is taxable to the specified employee.Here
165 x 10 =1650 is taxable

54
9) He was allowed free use of 1 laptop ( actual cost Rs. 40,000 ), 1 motorcar ( actual
cost Rs.4 lakhs ) and 1 digital video camera ( actual cost Rs.60,000 ). The motorcar
was acquired by the company on 01-01-2005 and was sold to Mr. Rahul on 16 - 12 -
2007 at Rs.2,00,000.
Answer:
Lap top is not taxable perquisites.
Car use= Rs.1200(Car)+600(Driver) taxable in the hands of company employer as
Frindge benefit. Other than company employer employee is taxed as perquisites.
Digital camera is for entertainment. Therefore 10% of the value is perquisites to
employees.
Motor car sold 20% depreciation for each completed years to be provided on
WDV ie 2 years fully completed.WDV value=1,28,000. If sold less than this value
it is a perquisites to employees.
Note: car, food per meal exceeds Rs.50, club , credit card,company tour, stay in a
hotel or resorts- If company employer they are treated as Fringe benefits .
Therefore they are taxable to company employer.

55
• 10) He was given club facility for which employer incurred a
cost of Rs.75,000 during the year.
Answer:
***If he is a company employee it is not taxable to
employee. It is taxable to employer as Fringe Benefit
.Other than company employee it is taxable in the hands of
employee as perquisites.
11) He was given gifts worth Rs.10,000 on the occasion of
diwali.
***Gifts given in kind exceeds annually Rs. 5000 taxabe
not to company employee. But taxable to employer as
fringe benefits. Other than company employee it is taxable
in the hands of employee as perquisites.

56
• 12) He was allowed free use of mobile phone for which
employer incurred Rs. 50,000 during the year.
Answer:
• Mobil phone and lap top expenditure met by employer are
exempted to employee and also to employer. However they
can be treated as company expenditure while calculating
income from business.
• 13) The employer contributed Rs 25,000 to an approved
superannuation fund.
• Answer:
Special fund is taxable to employer as Fringe benefit.

57
• 14) A contribution of 14% of salary was made to recognized
provident fund by the employer and employee both. Interest
of Rs. 20,000 @ 10% was credited to the fund.
• Interest excess over 9.5% is taxed to employee=20000
x.05/10=1000.
• Employer’s contribution over 12 % of salary is taxed to
employee
• Employee’s contribution comes under section 80C
• 15) The employer paid Rs.1,000 professional tax and
Rs.10,000
• Professional tax paid by employer is added to salary in order
to compute actual salary.But later professional tax is
deducted from salary.

58
• 16) On Mr. Rahul’s eldest son getting first rank in the school,
the employer gave scholarship of Rs.2500 p.m. to Rahul’s
eldest son-
Answer:
Not taxable as it is given not in the capacity of employer and
employee relationship but as a meritorious student.The
scholarship is available to any one who gets first rank.
aug_bang@yahoo.com

59
17. Rs.2,50,000 on 01 - 09 - 2007 for medical treatment Of his father for disease
specified in Rule 3A. The employer charged interest @ 5% ( interest rate
of SBI is 12.75% ). He was reimbursed Rs.2,50,000 on 01 - 12 - 2007 by an
Insurance company under a medical insurance scheme and he repaid
Rs.1,50,000 out of this to the employer on 28 - 01 - 2008.
18) Rs.20,000 interest - free for purchase of a digital investor on 01 - 05 -
2007 ( SBI rate12.75%).
This loan was paid back on 15 – 08 - 2007.
Answer:- Loan upto Rs. 20,000 from employer the interest is not taxed in
the hands of employee.
If loan is taken on specified deceases more than Rs. 20,000 the interest on
such loan also exempted.
19. Rs.10,00,000 interest – free loan on 01 - 04 - 2007 for MBA course of his
spouse in UK ( SBI rate 9.25% ).
The first installment of Rs.1,00,000 in respect of this loan was paid on 01 -
01 - 2008.
Answer:- Interest free loan interest as per SBI’s rate is calculated and
taxed in the hands of all employees.

60
• 20) Spend Rs.2,500 for traveling from Jaipur to Shimla by train
( 1st
class ). Expenses incurred. he is also allowed free food
worth Rs.3,000.
•
Answer:-Since he travels for official duty all expenses are
allowed including food.
If he goes on leave travel allowance travel allowance is not
taxable. But food expenses met by employer is taxable in the
hands of employees.
• 21) He took a loan of Rs.40,000 @ 12% from RPF for purchase
of a bike ( SBI rate is 12.75% ).
Answer:-
The difference of 0.75% is taxable in the hands of employee as
this perquisites comes under A category.
You are required to compute income under the head
‘Salaries’ of Mr. Rahul
for assessment year 2008 – 20009, given that M/S Ram Ltd. Is
an employer liable to pay Fringe Benefit Tax.

61
Discuss “profits in lieu of salary”
Help others in studies. Help those who are in need including
Your knowledge.

62
Problem 4
State giving reasons whether the following are true or false:
1. “Profits in lieu of salary” is taxable under the head “Income from
other sources”.
2. Compensation payable to an employee on termination of service
is capital receipt. It is, therefore, not chargeable to tax.
3. Compensation for voluntary retirement [to the extent it is not
exempt under section 10(10C)] is treated as “profits in lieu of
salary”.
4. Employers contribution to unrecognized provident fund is
taxable as “profits in lieu of salary” in the year in which
contribution is made by the employer.
5. Bonds received on Keyman insurance policy taken by the
employer and assigned in favour of the employee is taxable under
the head “income from other sources”.
6. “Overtime allowance” is taxable as “profits in lieu of salary”

63
***Exercise-
During the previous year 2007-08, X is paid Rs. 60,000 as basic salary; Rs. 12,000
as dearness allowance (17% of which is part of salary for computing
retirement benefits); Rs. 6,000 as commission(i.e Rs. 500 per month); Rs.
24,000 as bonus of 2002-03; Rs. 6,600 as education allowance for one child;
Rs. 14,000 as uniform allowance (amount utilised for purchasing uniform
for official purpose:16,000); Rs. 10,000 as medical allowance; and Rs.
18,000 as conveyance allowance (Rs. 6,000 for official purpose and
Rs.12,000 for personal purpose).
What will be the amount of “salary” for the purpose of
1. The valuation of the perquisite in respect of rent free house.
2. Finding out how much entertainment allowance is deductible if he is paid
entertainment allowance.
3. Determinig exemption in respect of house rent allowance if it is paid to him.
4. Calculating exemption in respect of gratuity paid to him under the
payment of gratuity Act 1972 if he retires on 31-3-2008.

64
answer-1
• 1 .Meaning of salary for Rent Free
Accommodation(RFA):-
• Basic(annual) 60000
• DA(17%)(retirement benefit-cash) 2040
• Commission(Cash) 6000
• Bonus(2003-04) cash received but not
belong to the current previous year
------
Educational allowance(Cash but taxable)
(Rs.100 per month exempted)(Rs.6600-1200)
5,400
Uniform allowance to do official work(spent fully)
-------
Medical allowance(Monthly fixed)(cash) 18,000
Conveyance allowance( Personal-cash)
12,000
-Total (meaning of salary for RFA)
1,03,440
Cash salary
Belong to
Current
Previous
Year
And cash
Allowances
Which are
Taxable are
Considered.
No perquisites
No non-cash
Salary which
Are deposited
Directly to third
Party.

65
RFA important questions to
calculate the meaning of salary
Four questions:
Step 1: Does such salary belong to current previous year?
If yes –go to step 2
Step 2: Is it received in cash? (go to step-3)
Step-3: Is such cash allowance received by employee himself (not directly
deposited by employer to some funds) belong to current previous year taxable?
+ Step 4: How much DA will come for retirement benefit?
Step 3 value + step 4= meaning of salary for RFA

66
Question No.2
• Entertainment allowance received by all
employees taxable under the head salary
first. Later for government employees, the
amount received or Rs. 5000 whichever is
less deducted u/s 16.

67
Question no.3.
• For HRA the meaning of salary
• Basic + which will come for retirement +
fixed % of commission for those months
HRA allowance given
• Basic 60,000
• DA(Retirement benefit) 2,040
• Commission Nil
• Meaning of salary for HRA 62,040

68
Question-4
• Meaning of salary for Gratuity under the
payment of gratuity act
• Salary last drawn equal to meaning of
salary given in question no.3
• Meaning of salary= 62,040.

69
Problem - self practice
X resigns from his service on April 30, 2007 to start a business and
receives Rs. 86,000 being accumulated balance of recognized
provident fund which represents Rs. 38,000 as contribution of
employer, Rs. 3,000 as interest thereon, Rs. 40,000 as his own
contribution and Rs. 5,000 as interest thereon. Discuss whether
Rs. 86,000 is taxable if he had joined the employer on
• 1-4-2004.
• 1-4-1997
• 1-4-2004 but not resign on 30-4-2007 on completion of special
assignment for which he was appointed

70
Answer
• Nothing is taxable for RPF.Dates are not
important too.
• The dates may be relevant only for New
pension fund created on 1-4-2004.

71
I request you to send SMS to your friends and
relatives in our country or other countries it is a great
help that you show to India related to this web
site.You can tell all employees to read so that they can
compute tax liabilities without any body’s help.
www.augustin.co.nr is your free web for commerce
and management.
My beloved wife Prof. Shanthi Augustin and myself
thank you for your support.
Work hard and sincere to you whatever you do.

72
• Exercise:First work out by your self and check the answer
later
• Mrs. X (age 51 years) is a part time lecturer in a private college Delhi
owned by A ltd. During the year 2007-2008, she gets basic salary of Rs.
12300 up to June 30, 2007 and Rs 12700 afterwards. Besides, she gets 30
percent of basic salary as house rent allowance, Rs. 1630 per month as
dearness allowance ( 71 % of it forms part of salary for computation of
retirement benefits) and Rs. 500 per month as conveyance allowance which
is entirely used for personal purposes. On July 10, 2007, the employer
transfers a music system to Mrs. X on her completing 10 years of service
(cost of music system purchased on September 1, 2006: Rs 22470) for Rs
7500. She is member of statutory provident fund to which both employer
and employee contribute @ 12% of basic salary. Apart from the
maintaining contribution, she makes an additional contribution of Rs 600
per month to the provident fund. During the previous year 2007-08, Rs
65698 is paid to her for checking answer sheets of different universities.
Determine the taxable income and tax liability of Mrs. X for the assessment
year 2008-09 on the assumption that she pays rent of Rs. 4000
• .
•

73
• Solution:
• Basic salary (i.e., [Rs. 12300 * 3] + [Rs. 12700 * 9]) 151200
• House rent allowance (i.e., 30%of Rs 151200) 45360
• Less: exempt 31488 13872
• Dearness allowance (i.e., Rs 1630* 12) 19560
• Conveyance allowance (i.e., Rs 500 * 12) 6000
• Employers contribution to statutory provident fund nil
• Sale of movable asset (Rs 22470 – Rs 7500) 14970
• _____
• Gross salary 205602
• Less: deduction nil
• ______
• Net salary 205602
• Income from other sources 65698
• ______
• Gross total income 271300
• Less: deduction under section 80C 25344
• ______
• Net income round off 245960
• ______

74
• Notes:
• Conveyance allowance utilized for personal purposes is
not exempt from tax.
• Deduction under section 80C is computed as under:
• Minimum contribution to provident fund
• (12 % of Rs 151200) 18144
• Add: additional contribution (600 * 12) 7200
• Total 25344

75
• Tax on net income 19692
• Add: surcharge nil
• Tax and surcharge 19692
• Add: education cess [2% of tax and surcharge] 394
• Add; secondary and higher education cess [1%} 197
• Tax payable (rounded off) 20280Notes:
• It is assumed that the salary falls due on the last day of each month.
• Exemption in respect of house rent allowance is determined as follows:
•
• Up to June from July
• 30, 2007 1, 2007
• Salary for computation (i.e., basic salary + 71% of
• Dearness allowance) (per month) 13457 13857
• _______ _______
• 50% of salary 6729 6929
• House rent allowance 3690 3810
• Excess of rent paid (Rs 4000) over 10% of salary 2654 2614
• ______ _______
• Amount exempt from tax (being the least) 2654 2614

76
Thank you all
By Professors Mrs.Shanthi Augustin& Mr. August
www. Augustin.co.nr
Share your views, difficulties and sorrows to
Our Email.
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