1.
What is the base for charging
Tax on Salary
Nature of salary Taxable or Not
Salary which becomes due
during previous year
Yes
Salary which is received during
previous year
Yes
Arrears of salary paid during the
previous year & same were not
taxed earlier
Yes
Arrears of salary paid during the
previous year & same were
taxed earlier
No

2.
What is Salary
Under salaries first of all gross
salaries is computed it includes:
Salary
Allowances
Perquisites
Profits in Lieu of salary
Salary at a Glance

3.
Salary means
Wages
Any annuity or pension
Any fees, commission in addition
to any salary or wages
Any advance salary
Gratuity
Encashment of leaves

4.
Pension sec 17 (1) (ii)
 Pension means a periodical payment received by an
employee after his retirement.
 On certain occasions, employer allows to withdraw a
lump sum amount as the present value of periodical
pension.
 When pension is received periodically by employee,
it is known as Uncommuted pension.
 On the other hand, pension received in lump sum is
known as Commuted pension.
 Such lump sum amount is determined considering
factors like the age and health of the recipient, rate of
interest, etc. Wages

5.
Pension sec 17 (1) (ii)
Pension
Uncommuted
Pension
Case A
Commuted
Pension
(Lump sum)
By Govt.
employee
Case B
Other
Employee
Assessee receives
Gratuity
Case C
Assessee does not
received Gratuity
Case D
Received After
death of
employee
Case A

6.
Pension sec 17 (1) (ii)
 Case A: Uncommuted pension (Periodical)
 Uncommuted pension is fully taxable in the hands of all employees whether
Government or Non –Government employee.
 Case B: Commuted pension received by a Government employee
 Commuted pension received by a Government employee is fully exempt from
tax u/s 10(10A)(i).
 Case C: Commuted pension received by an employee who also
received gratuity [Sec. 10(10A)(ii)]
 One third of total pension (which assessee is normally entitled for) commuted
is exempt. (It is immaterial employee to be covered by the Payment of Gratuity Act or not)
 Case D: Commuted pension received by an employee who does not
receive gratuity [Sec. 10(10A)(ii)]
 One half of total pension (which assessee is normally entitled for) commuted
is exempt.

7.
Pension sec 17 (1) (ii)
 Example
 Mr. Amit has retired from his job on 31/3/2020.
 From 1/4/2020, he was entitled to a pension of Rs. 3,000
p.m.
 On 1/8/2020, he got 80% of his pension commuted and
received Rs. 1,20,000.
 Compute taxable pension if he is:
 Case a) Government employee;
 Case b) Non-Government employee & not receiving gratuity
 Case c) Non-Government employee (receiving gratuity, but not
covered by the Payment of Gratuity Act)

8.
Pension sec 17 (1) (ii)

9.
Death-Cum Retirement Gratuity Rule
Sandeep Kapoor
MIET, Meerut
Govt.
(Cen./state/local)
u/s 10(10)(i)
Employees covered
by payt. Of Gratuity
Act 1972
u/s 10(10)(ii)
Employees not
covered by payt. Of
Gratuity Act 1972
u/s 10(10)(iii)
Gratuity Received is totally exempt
Least of the following amount is exempt
1. 15/7 days salary for services of 6 months or more in each year
2. Rs. 20 Lakhs
3. Gratuity Received
Note:
i) Salary includes DA last drawn by the employee excluding all other
payments
ii) 15 Days salary = (Salary of last month drawn/26) X 15
Least of the following amount is exempt
1. ½ month’s salary for each completed year of service
2. Rs. 20 Lakhs
3. Gratuity Received
Note:
i) Salary=Basic Salary + DA/DP(if given under terms of employment)
+ commission on sales (%).
ii) The salary will be average salary on the basis of average salary of
10 months immediately preceding the month of retirement
iii) Completed year = Period of one full year of service. Any fraction
of the year is ignored.

10.
Sandeep Kapoor
MIET, Meerut
 Mr. Dutta is an employee in a company. He gets
a gratuity of Rs. 10 lakhs in accordance with
payment of Gratuity act, 1972.
 He retired on 3rd Dec, 2020 after serving 28 years
& 8 months. Monthly salary at the time of his
retirement was Rs. 50000.
 Calculate the exempt Gratuity
 Solution:
 15 days Salary 50000*(15/26) = 28846X29 = 836538
 Rs. 20lakhs =2000000
 Actual Gratuity Received =1000000
 So least of the above i.e. 836538 is exempt
 Thus 1000000-836538 = 163462 is taxable
Death-Cum Retirement Gratuity Rule

11.
Sandeep Kapoor
MIET, Meerut
 Dr. Prashar who is not covered by the payment of Gratuity Act 1972,
retires on 2nd October, 2020 from the college after a service of 38
years & 10 months.
 He received a gratuity of Rs. 600000/- His salary for the period
ending on 1st October 2020 has been Rs. 29000 p.m.
 His annual increment of Rs. 1000 fell due on 1st Jan of every year
 Calculate taxable amount of gratuity.
 Solution:
 ½ months salary for last 10 months (for each completed year of service)
i.e. Jan to sep (29000X9)=261000+28000= 289000/10=28900
(for each completed year of service) i.e. 28900*(38/2) = 549100
 Rs. 20 lakhs = 2000000
 Actual Gratuity Received = 600000
 Least amount is exempt so Rs.549100 is exempt
 Thus 600000-549100 = 50900 is taxable
Death-Cum Retirement Gratuity Rule

12.
Encashment of Earned Leaves
Sandeep Kapoor
MIET, Meerut
Nature of Leave
encashment
Taxability Status of employee
Encashment during
continuity of service
Taxable For all employees government
or private
Encashment at the time of
retirement
Fully Exempt Govt. employees u/s
10(10AA)(i)
Partly Exempt Non Govt. employees u/s
10(10AA)(ii)
Local authorities & statutory
corporations
Encashment the time of
termination of services
Taxable For all employees government
or private

13.
Sandeep Kapoor
MIET, Meerut
 Least of the following is exempt:-
1. Actual amount received as encashment of earned leave at the time
of his retirement or resignation
2. Cash equivalent of earned leaves standing to credit of the employee
at the time of his retirement,
1. Calculated on the basis of 10 months average salary. The entitlement to
earned leave of an employee shall not exceed 30 days for every year of actual
service rendered by him as an employee for the employer from whose service is
retired.
3. Salary for 10 months immediately preceding his
retirement/resignation.
4. The amount specified by central govt. i.e. Rs. 300000 from 2nd April,
1998.
Encashment of Earned Leaves

14.
Sandeep Kapoor
MIET, Meerut
 Dr. Hari was an employee in a limited company. He received Rs.
250000/- as encashment of earned leaves on his retirement on 31st
Jan 2021. His monthly salary at the time of retirement was Rs.
25500/- p.m.. He has been getting this salary since March, 2020. He
has 10 month’s leave to his credit at the time of retirement. The
company allows earned leave at the rate of one month for every year
of actual service.
 Solution:
1. Actual amount received = 250000
2. Encashment of earned leaves not availed during service = 255000
(10X25500)
3. 10 months salary immediately preceding his retirement = 255000
(10X25500)
4. The amount specified by central govt (from 2-April, 1998) =300000
Least of the above is exempt i.e. 250000 is exempt thus taxable is nil
Encashment of Earned Leaves

15.
Sandeep Kapoor
MIET, Meerut
 Determine the exempt amount of the encashment of earned leaves
from the following particulars:-
 Employees retiring from a limited company on 31st Dec. 2020
Encashment of Earned Leaves
Particulars Mr. A Mr. B Mr. C
Monthly salary at the time of retirement paid
regularly since Jan. 2020
10000 10000 10000
Duration of service 30 Years 30 Years 30 Years
Leaves availed during the service Nil 20 months 32 months
Leave entitlement is @ 1.5 months for each
year of service
45 months 45 months 45 months
Leave at the credit of employee 45 months 25 months 13 months
Leave salary paid on retirement @ 10000 p.m. 450000 250000 130000

16.
Sandeep Kapoor
MIET, Meerut
 Solution: Least of the following is exempt:-
Encashment of Earned Leaves
Particulars Mr. A Mr. B Mr. C
Encashment of earned leave being received 450000 250000 130000
Encashment of earned leave not availed by
the employee during his service not
exceeding 30 days for each year of service
300000
(30*10000)
100000
(10*10000)
Nil
Immediately preceding 10 months salary 100000 100000 100000
Maximum Exemption 300000 300000 300000
Hence the exempt amount is 100000 100000 NIL
Taxable amount will be 350000 150000 130000

17.
Allowances means
Sandeep Kapoor
MIET, Meerut
 All monetary payments made by an employer to
his employee, other than salary, are allowances.
 It is fixed, pre-determined and given regularly in
addition to salary.
 It may be given in form of reimbursement of
some expenditure or irrespective of actual
expenditure.
 From the income tax view point all the
allowances have been classified in three
categories as;
 Fully taxable
 Partly taxable
 Fully exempt

18.
Fully Taxable Allowances
Sandeep Kapoor
MIET, Meerut
D.A. or D.P.
Fixed Medical allowance
Cost of living allowance
City compensatory allowance
Over time allowance
Servant’s allowance
Proctor’s allowance
Warden’s allowance
Non practicing allow
Tiffin or Lunch allowance
Deputation allowance

19.
Partly Taxable Allowances
Sandeep Kapoor
MIET, Meerut
Special Allowances
U/S 10 (14) (ii)
To meet personal
expenses of employee
Education Allowance
Hostel Allowance
Composite hill Allowance
Allowance to transport employees
Tribal area Allowance
Special compensatory Allowance
Compensatory field area allowance
Compensatory modified area allowance
Counter insurgency allowance
Transport Allowance
Retrenchment Compensation
Compensation on VRS
House Rent Allowance
Entertainment Allowance
Travel Allowance

20.
Fully Exempt Allowances
Sandeep Kapoor
MIET, Meerut
Car or conveyance allowance
Foreign Allowance
Allowance to high court judges
Allowance from UNOs
Compensatory allowance to a judge
Sumptuary Allowance to a judge
Special Allowances
U/S 10 (14) (i)
To meet expenses
incurred in
performance of duty
Tour Allowances
Daily Allowances
Conveyance Allowance
Helper Allowance
Academic Allowance
Uniform Allowance

21.
Valuation of partly taxable allowances
Sandeep Kapoor
MIET, Meerut
 The taxable portion of allowance is
included in the taxable salary of the
employee.
 The taxable portion is calculated as
follows:
 Taxable portion = Actual allowance - Exempt portion

22.
Valuation of House Rent Allowances
Sandeep Kapoor
MIET, Meerut
1. Actual HRA received x
2. Actual rent paid (–) 10% of Salary x
3. 40% of Salary or
50% of Salary (D,K,M,C) x
Lesser will
be
exempted
Taxable HRA = Actual HRA received – Exempt HRA
Where,
salary = Basic salary + DA(under terms of employment) + commission (in %)

23.
Example
Sandeep Kapoor
MIET, Meerut
 Mr. X resides in Chennai.
 He is paid Rs. 360000 as basic salary.
 He also gets Rs.100000/- as house rent allowance.
 The rent paid by him is Rs. 75000/-
 Calculate exempt HRA
Answer
1. Actual HRA received 100000
2. Actual rent paid – 10% of Salary (75000-36000) 39000
3. 50% of Salary (360000 @ 50%) 180000
As Rs.39000/- is the least amount, hence it is exempt.
Taxable HRA = HRA received – Exempt HRA
= 100000 – 39000
= Rs.61000

24.
Example
 Mr. X resides in Meerut. He is employed in a company on Rs. 15600/-
p.m. He gets dearness allowance @ Rs.3000 p.m. under the terms of
employment and a commission @ 5% on total sales effected by him
which amounts to Rs. 250000/- during the previous year. He is paid a
house rent allowance of Rs.2500/- p.m. whereas he pays rent @
Rs.4750/- p.m. Calculate taxable HRA
Answer
salary = Salary + DA(under terms of employment) + commission (in %)
= (15600 X12) + (3000 X 12) + 5% on Rs. 250000 = Rs.235700
1. Actual HRA received 30000
2. Actual rend paid (–) 10% of Salary (57000-23570) 33430
3. 40% of Salary (235700 @ 40%) 94280
As Rs.30000/- is the least amount, hence it is exempt.
Taxable HRA = HRA received – Exempt HRA
= 30000 - 30000
= NIL

25.
Valuation of Entertainment Allowances
 It is paid by an employer to his employee to
compensate his entertainment expenses.
 The whole allowance is first included in his salaries
income.
 But later-on a deduction is allowed U/S-16(ii)
 Provided that the assessee is a central/state
government employee. (Local authorities means non-govt.)
1. 20% of the Basic Salary
2. Rs.5000/-
3. Actual entertainment allowance granted.
Lesser will
be
exempted
OK

26.
Valuation of Travel allowances
Sandeep Kapoor
MIET, Meerut
 Following is exempt as per section 10(5)
1. The value of any travel concession or
assistance received by or due to the
assessee for himself and his family in
connection with his proceeding on leave to
any place in India.
OR
1. Same thing after retirement from service
or after termination of his service.
 The amount exempt under this section
shall in no case exceed the actual travel
expenditure.

27.
Valuation of Travel allowances
Sandeep Kapoor
MIET, Meerut
 Family means the spouse and children, the parents,
brothers and sisters or any of them wholly or mainly
dependant on assessee.
 This exemption shall not be available to more than two
children after 01-10-98.
 But this rule shall not apply in respect of the children
born before 01-10-98 and also in case of multiple births
after one child. Child includes a step child or an adopted
child.
 Without performing any journey and incurring expenses
thereon, no exemption can be claimed.
 Exemption is available to an individual in respect of 2
journeys in a block of 4 years i.e. 2018-2021.
 Carry-over is possible but only in first calendar year of
succeeding block

28.
Special Allowances
Sandeep Kapoor
MIET, Meerut
 These allowances are exempt from tax to the prescribed
extent.
 Such allowance is granted to the assessee to meet his
personal expenses incurred by him at the place:-
 Where the duties of his office of profit are ordinarily performed
by him; or
 Where he ordinarily resides; or
 The allowance is granted to the assessee to compensate him for
the increases cost of living.
 Such personal allowance which is granted to the
assessee to remunerate or compensate him;
 For performing duties of a special nature relating to his
office is not exempt;
 Unless such allowance is related to the place of his
posting or residence.

29.
Children Education Allowances
Sandeep Kapoor
MIET, Meerut
 Any allowance which is granted to an employee
to meet the cost of education of his children is
exempt from tax.
 Exemption limit is Rs.100/- p.m. per child up to
two children i.e. Rs.2400/- p.a. is exempt.
 Example
 An employee gets Rs.200 p.m. per child as
education allowance for his three children.
 The employee gets Rs.7200/- p.a.
 The allowance chargeable to tax is
 (7200-2400)=Rs.4800/-

30.
Hostel Allowances
Sandeep Kapoor
MIET, Meerut
 Any allowance which is granted to an
employee to meet the hostel
expenditure incurred by him
 Where his children are completing
their studies in a hostel is exempt
from tax.
 Exemption limit is Rs.300/- p.m. per
child up to two children i.e.
 Rs.7200/- p.a. is exempt.

31.
Composite Hill Allowances
Sandeep Kapoor
MIET, Meerut
 It is a form of special compensatory allowance.
 It can be named as
 Hill area allowance
 High altitude allowance
 Uncongenial (unsuitable) climate allowance
 Snow bound area allowance
 Avalanche allowance
Place Maximum Exemption
Places in the areas at height of 9000 ft or above
and falling in the states i.e. Manipur, Arunanchal
Pradesh, Sikkim, UK, Himachal Pradesh and
J&K
Rs. 800 p.m.
Siachen area of Jammu and Kashmir Rs. 7000 p.m.
All places located at a height of 1000 meters or
more above the sea level except the places
specified above
Rs. 300 p.m.

32.
Allowance to Transport Employee
Sandeep Kapoor
MIET, Meerut
 If it is given to meet his personal
expenditure;
 During his duty performed in the course of
running such transport from one place to
another place;
 And he is not getting any DA for his duties.
 Exemption Limit:
1. 70% of such allowance or
2. Rs.10000/- p.m.
 Which ever is less will be exempted from tax

33.
Tribal area Allowances
Sandeep Kapoor
MIET, Meerut
 It can be named as
 Tribal area allowance
 Scheduled area allowance
 Agency area allowance
Place Maximum Exemption
Madhya Pradesh, Chhattisgarh, Tamil Nadu, U.P.
Karnataka, Tripura, Assam, West Bengal, Bihar,
Jharkhand & Orissa
Rs. 200 p.m.

34.
Special compensatory Allowances
Sandeep Kapoor
MIET, Meerut
 It can be named as
 Border area allowance
 Remote allowance
 Difficult area allowance
 Disturbed area allowance
Exemption Limit:
Rs.200/- p.m. to Rs.1300/- p.m.
Depending upon the place.

35.
Compensatory field area Allowances
Sandeep Kapoor
MIET, Meerut
 Any such allowance given in the field
areas of
 Arunanchal Pradesh,
 Manipur, Nagaland,
 Sikkim,
 H.P.,
 U.P. &
 some areas of J&K is exempt
Exemption Limit:
UPTO Rs.2600/- p.m.

36.
Compensatory modified field area Allowances
Sandeep Kapoor
MIET, Meerut
 Any such allowance given in the field areas of
 Punjab and Rajasthan
 Hissar in Haryana
 Some areas of H.P., Arunanchal Pradesh, Assam,
Sikkim, West Bengal & U.P.
 Throughout Mizoram & Tripura,
 Certain areas of J&K is exempt.
Exemption Limit:
UPTO Rs.1000/- p.m.

37.
Counter Insurgency Allowances
Sandeep Kapoor
MIET, Meerut
 This allowance is granted to the armed forces
operating in area away from their permanent
locations for a period of more than 30 days
Exemption Limit:
UPTO Rs.3900/- p.m.

38.
Transport Allowances
Sandeep Kapoor
MIET, Meerut
 Any special allowance in the nature of transport
allowance granted to an employee to meet his
expenditure for the purpose of commuting
between place of his residence & the place of
his duty, is exempt
Exemption Limit:
UPTO Rs.1600/- p.m. (not valid after AY 2019-20)
If assessee is blind or orthopedically handicapped
UPTO RS.3200/- p.m.

39.
Retrenchment compensation Allowances
 Any compensation received by a workman under the Industrial
dispute act 1947 or
 Rules, orders or notification issued hereunder or Under any
standing orders or
 Under any award, contract of service
 At the time of his retrenchment, is exempt from tax to the
extent of the least of the following:
1. 15 days average pay for completed year of service, or any
part thereof in excess of 6 months
2. Rs.500000/-, if a worker is retrenched on or after 1 Jan,
1997
3. Actual amount being received as retrenchment
 Average pay means the average pay of 3 completed calendar months
immediately preceding the date on which retrenchment compensation
paid.
OK

40.
Retrenchment compensation Allowances
Sandeep Kapoor
MIET, Meerut
 Example
 Mr. Mohan has been working in a company since June 1, 2005.
During the previous year he received Rs. 20000 p.m. as salary, 10%
of pay DA, 2 months bonus and Rs. 1000 p.m. city compensatory
allowance. His services were terminated during 31 Dec, 2020 under a
scheme of retrenchment. He was paid Rs. 250000 as retrenchment
compensation. Determine the amount of compensation exempt from
income tax.
 Solution
 15 Day’s average pay for each year of service
 (23000 X 16 year) / 2 184000
 Rupees Five Lakhs 500000
 Retrenchment compensation received 250000
 Thus least amount i.e. 184000 is exempt & 66000 is taxable

41.
Compensation received on Voluntary Retirement
Sandeep Kapoor
MIET, Meerut
 It is exempt on fulfillment of the following conditions:
 It is received with any scheme of voluntary retirement.
 The individual is the employee of any of the following bodies:-
 A public sector company or any other company
 An authority established under a central, state act or
 A local authority, A co-operative society or
 A university or deemed university or
 An Indian Institute of Technology or
 Any state/central govt.
 A notified institute of Management
(Ahd, B’lore, Kol, Lko, IIFT New Delhi)
 Exemption under this clause is allowed, to an employee for one
assessment year only.

42.
Compensation received on Voluntary Retirement
Sandeep Kapoor
MIET, Meerut
 Exempt amount is subject to least of the following:
1. Compensation Received
2. 3 months salary for each completed year of service. (Ignore
the fraction)
3. Salary at the time of retirement multiplied by the balance
months of service left till his normal age of retirement
4. Rs. 500000/-
 Example
 Mr. Bansal born on Jan 5, 1975, got his first employment in a
public sector company w.e.f. May 1, 2000. He was promoted
as general manager of the company in 2015. During the
previous year he got Rs.10000 p.m. as salary, Rs.2000 p.m. DA
(under terms of employment), Rs.500 p.m. city compensatory
& Rs. 10000 p.a. bonus

43.
Compensation received on Voluntary Retirement
Sandeep Kapoor
MIET, Meerut
 In order to reduce the overall number of employees of the company, a
scheme of voluntary retirement is framed containing the following
provisions
 The scheme is applicable to every employee who has completed 40 years of age
or who has completed 10 years of service in the company
 The employee retiring voluntarily under the scheme shall be paid Rs. 800000 on
the date of retirement.
 The vacancies created by such voluntary retirement shall not be filled up.
 The retired employee will not be employed in any other concern of the
company.
 Mr. Bansal opts to retire voluntarily under the scheme on 31 Dec,
2020.
 Compute exempt compensation received at the time of voluntary retirement
presuming that the normal age of retirement is 60 years.

44.
Compensation received on Voluntary Retirement
Sandeep Kapoor
MIET, Meerut
Solution
 Actual amount of compensation received 800000
 3 Months salary for each completed year of service
 (3*20)*12000 720000
 Salary at the time of retirement multiplied by the
balance months of service left i.e. 168 Month * 12000 2016000
 The maximum limit fixed as per Income Tax 500000
 Hence the least of the above i.e. Rs. 5 lakhs are exempt
 Rest amount of Rs. 3 lakhs are taxable.

45.
Perquisites
Sandeep Kapoor
MIET, Meerut
 It is some benefit in addition to the amount that may be legally
due by way of contract for services rendered.
 Perquisites can be classified into the following three categories.
General Perquisites
(Taxable for all)
Rent free accommodation
Concessional rent free acc.
Payment of employee’s
Obligations
Employee’s life insurance
premium paid by employer
Fringe Benefits:-
a) Taxable in employee’s
hand
b) Taxable in employer’s
hand
Specific Perquisites
(Taxable for specified’s)
Facility of Car
Facility of domestic servants
Free gas, electricity & water
Free education
Transport facility by
transport undertaking
Medical Facility (Now Free)
Tax free Perquisites
(Tax free for all)
Medical facility
Recreational facilities
Conference
Tour & travel facility
Accommodation in remote
area
Refreshment facilities
Conveyance facilities
Telephone or mobile
Lunch or Dinner
Many more

46.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
Particulars Accommodation owned
by the employer
Accommodation taken
on lease or rent by
employer
In case of unfurnished Accommodation
For Govt. Employees License fee determined by
the central/state govt. –
Rent paid by employee
License fee determined by
the central/state govt. -
Rent paid by employee
For Private Sector Employees
As per census 2011, where accommodation is provided
If exceeds 25 Lakhs 15% of salary of occupied
period – Rent paid by employee
Rent Paid or 15% of salary
(Whichever is Less)
If it is between 10-25
Lakhs
10% of salary of occupied
period- Rent paid by employee
Rent Paid or 15% of salary
(Whichever is Less)
If it is below 10 Lakhs 7.5% of salary of occupied
period - Rent paid by employee
Rent Paid or 15% of salary
(Whichever is Less)
In case of Furnished Acc. Value as per unfurnished +
10% of the cost of
furniture or rent of the
furniture (if it is rented)
Value as per unfurnished +
10% of the cost of furniture
or rent of the furniture (if it
is rented)

47.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
Accommodation in Hotel 24% of the salary of the
relevant period
or
Actual charges of hotel
paid or payable
(Whichever is less)
Less
The rent actually paid by
the employee
Not Applicable
In case of furnished
accommodation
Valuation as unfurnished
+
10% of cost of furniture
Or
Rent of the furniture
(if furniture is rented)
Valuation as unfurnished
+
10% of cost of furniture
Or
Rent of the furniture
(if furniture is rented)
Particulars Accommodation owned
by the employer
Accommodation taken
on lease or rent by
employer
Salary =Basic salary + DA or DP (if under the terms of employment) + fees,
bonus & commission + All other taxable allowance (excluding the portion no
taxable) + Any monetary payment.

48.
Valuation of Concessional Rent free
Accommodation
Sandeep Kapoor
MIET, Meerut
 For all category of employee whether government or
private;
 Valuation of concessional rent free accommodation
(furnished & unfurnished)
 = valuation as rent free accommodation – Rent paid
or payable by or deducted from the employee
 For the purpose of rent free house salary includes;
 Basic salary + D.A. + D.P (if given in condition)
+Bonus + Commission + all taxable allowances + gas,
electricity & water facility

49.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Example 1:
 Mr. A is employed as secretary in Ministry of education. Government of India.
 He gets a salary @ Rs. 25000/- p.m. & a dearness allowance of Rs. 1000/- p.m.,
city compensatory allowance @ Rs. 2000/- p.m.
 He has been provided with a rent free accommodation by the Government.
 The license fee of the accommodation as per Government’s rule is Rs. 8000/-
p.a. and its fair market rent is Rs. 12000/- p.a.
 Value the rent free accommodation.
 What would be the valuation if the fair market rent is Rs. 20000/- p.a.
 Solution
 Valuation = License fee determined by the Government i.e. Rs. 8000/- p.a.
 Note:
 Market rental value of the accommodation and the salary of the employee are
irrelevant for valuation of rent free accommodation of a Government employee.

50.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Example 2:
 Mr. D is employee in a company. He is posted at company’s Mumbai branch
and gets Rs. 15000 p.m., Rs. 1500 p.m. as DA, Rs. 400 p.m. as education
allowance for two children.
 He also gets a city compensatory allowance at Rs. 2000 p.a.
 The employer paid his gas, electricity and water bills of Rs. 1200.
 He has been provided with a rent free flat by the company.
 Company pays Rs. 3500 p.m. rent of the flat.
 Computer the value of this flat to ascertain the taxable salary of Mr. D. What
would be the valuation when the rent Rs. 1500 p.m. is paid by the company?
 Solution
 Valuation = Rent paid by company or 15% of salary (whichever is less)
 Salary for this purpose = Basic + Education allowance + city compensatory allowance
 i.e. 180000 (Basic) + 2400 (EA) + 2000 (CCA) = 184400
 = (3500*12) = 42000 or 15% of 184400 i.e. 27660
 Thus valuation is Rs. 27660/-
 If rent paid is Rs. 1500 p.m. then
 Valuation will be = lesser of 18000 or 27660 thus Rs. 18000

51.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Example 3:
 Mr. P is General Manager of a company. He gets Rs. 20000 p.m. as salary,
 Rs. 1000 p.m. marriage allowance, Rs. 1500 p.m. children allowance & Rs. 1000
p.m. as DA (of which half the amount is added in salary to ascertain the
contribution to PF).
 He also gets transport allowance from residence to office Rs. 1800 p.m.
 Besides, he gets a bonus equal to 3 months basic pay per year.
 The company provided him a rent free bungalow in which AC, refrigerator, LED
TV set and other furniture of cost Rs. 120000 belonging to the company, are
installed.
 The monthly rent of the bungalow payable by the employer company is Rs.
6000.
 Calculate the value of the bungalow.
 If rental value would have been Rs. 2500 p.m. What would be the valuation?

52.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Solution:
 As the bungalow is not owned by the employer company, the valuation of rent
free furnished bungalow will be as under:-
 Valuation = Rent paid by employer or 15% of Salary (whichever is less)
 +10% of the cost of furniture
 Rent paid = (6000*12)= 72000
 Salary = 240000 (Basic) + 12000 (Marriage allowance) + 18000 (Children) +
6000 (DA) + 21600 (TA) + 60000 (Bonus) = 357600
 So 15% of 357600 = 53640
 Cost of furniture is Rs. 120000
 Thus [72000 or 53640] (whichever is less) + 10% of 120000
 i.e. 53640 + 12000 = 65640
 If the rental value of bungalow is Rs. 2500 p.m. then
 Valuation = (2500*12) i.e. 30000 or 53640 whichever is less + 10% of 120000
 i.e. 30000 + 12000 = 42000

53.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Example 4:
 A, B & C are working on the post of Govt. official, Branch
manager in Reserve Bank of India and Professor in XYZ
college (Government aided college), Agra respectively.
 A is posted in Delhi, B in Lucknow and C in Agra.
 All three employees are getting furnished accommodation
from their respective employers for which their employers
deduct 8% of their basic salary.
 The furniture installed in the accommodation of Govt.
official and Bank official is that of the employer and that
installed in the accommodation of C is taken on hire @ Rs.
1000 p.m. payable of the college.
 License fee determined by the Government in respect of
first accommodation is Rs. 12000 p.a. other information's
are as below:-

54.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
Particulars Mr. A Mr. B Mr. C
Salary 120000 132000 144000
Dearness Allowance 12000 12000 57600
Bonus 3 month’s basic pay 3 month’s basic pay -
Education Allowance 6000 10200 -
City compensatory allowance 6000 6000 -
Cost of Furniture 50000 100000 140000
Fair Rent 6000 7500 50000
Wardonship allowance - - 4800
 Calculate the value of residential facility in all the three
cases.

55.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Solution:
 Mr. A (Government Employee at Delhi)
 Valuation as rent free = License fee determined by Govt.
+ 10% of the cost of furniture
 Thus it will be 12000 + 10% of 50000 = 17000
 In case of valuation as concessional rent free house
 Valuation as rent free – Rent paid by employee
 i.e. 17000- 9600 (8% of Basic pay) = 7400
 Mr. B (Public Sector Employee at Lucknow)
 Salary = 132000 (S) + 33000(B) + 7800 (EA) + 6000 (CCA) = 178800
 Valuation as rent free = 15% of Salary + 10% of the cost of furniture
 Thus it will be 15% of 178800 + 10% of 100000 = 36820
 In case of valuation as concessional rent free house
 Valuation as rent free – Rent paid by employee
 i.e. 36820- 10560 (8% of Basic pay) = 26260
 Note: Population of Lucknow is more than 25 lakhs & it is assumed
that assessee has 2 children.

56.
Valuation of Rent free Accommodation
Sandeep Kapoor
MIET, Meerut
 Mr. C (Prof. in Govt. aided college at Agra)
 Salary = 144000 (S) + 4800 (WA) = 148800
 Valuation as rent free = 10% of Salary + Rent of the furniture
 Thus it will be 10% of 148800 + 12000 = 26880
 In case of valuation as concessional rent free house
 Valuation as rent free – Rent paid by employee
 i.e. 26880- 11520 (8% of Basic pay) = 15360
 Note: Population of Agra is between 10-25 lakhs.

57.
Payment of employee’s obligations by employer
Sandeep Kapoor
MIET, Meerut
 Valuation = Actual obligation of the employee or
Amount paid by the employer
(whichever is less)
• If the actual total obligation is not known, then the amount
paid by the employer will be the value of perquisite.
• Payment of employee’s Life Insurance Premium by the
employer
• Valuation = Life or annuity premium actually paid by the
employer. (including any penalty or interest on it)

58.
Specified security or sweat equity allotted or
transferred by employer or former employer
Sandeep Kapoor
MIET, Meerut
 Valuation = Fair market value of such security
(-) Minus
Amount paid by the employee
 Employer contribution towards approver superannuation fund,
recognized provident fund and NPS
 Valuation = Actual amount contributed to these funds – 7.5 Lakhs
 Apart from this any accretion by way of interest, dividend or any other
amount of similar nature during previous year on the above valuation is also
taxable.
 For this calculation a formula under Rule 3B is defined in Income Tax Act.

59.
Any other benefits or amenities as prescribed
 Interest free or concessional loan (More than 20000)
Interest charged by SBI as on the first day of the relevant previous year
– Actual interest paid by employee
 Use of moveable assets
10% of actual of asset or Rent paid by the employer
- Actual charges paid by employee
 Transfer of moveable assets by employer to employee
Actual cost of the assets – normal wear & tear – Amount paid by employee
(Depreciation rates for different assets defined in the act)
 Valuation of free or concessional transport
Value offered to public – Amount paid by the employee
Note: Not applicable for the employee of Railway & Airlines, for them this facility is
tax free.
 Travelling, Touring, Accommodation etc. (During Holiday)
 Actual amount incurred by employer – Recovery from employee
 If facility is maintained by the employer then
 Value at which facility offered to public – Recovery from employee

60.
Any other benefits or amenities as prescribed
Sandeep Kapoor
MIET, Meerut
 Free food, beverages or refreshment facility
 If any allowance is given for this purpose then fully taxable
 Refreshment i.e. tea or snacks during office hours in office
premises, NO TAX
 Free meal in remote area or offshore installation exempt (provided
remote area means 40 km away from town with population up to
20000)
 Food & non-alcoholic beverages in office premises during working
hours up to Rs. 50 per meal EXEMPT
 Any gift, or voucher or token exempt up to Rs. 5000
 Credit card facility
Actual amount paid or reimbursed by employer for employee or his family
– The amount paid by employee
 Club Expenditure
 Actual amount paid by employer – Amount recovered from employee

61.
Specific Perquisites
 Perquisites, which are taxable in the hands of
specified employees only, are called as specific
perquisites.
 Such specified employees are given below U/S17 (2) (iii)
 A Director of a company
 An employee having substantial interest in a
company i.e. 20% voting right
 An employee whose taxable monetary salary
exceeds Rs.50000/- p.a.

62.
Valuation of car as specific perquisite
Sandeep Kapoor
MIET, Meerut
If car is owned by the employer
In case when expenses incurred by employer
For private use only For business use only Private & business use
Actual exp. +
Actual salary of driver +
10% for Dep. –
Amt paid by employee
NIL
Rs.1800 p.m. up to 1.6 ltr or
Rs.2400 p.m. above 1.6 ltr
+ Rs.900 p.m. for driver
In case when expenses incurred by employee
For private use only For business use only Private & business use
10% for Dep.+
Actual salary of driver –
Amount paid by employee
NIL
Rs.600 p.m. up to 1.6 ltr or
Rs.900 p.m. above 1.6 ltr
+ Rs.900 p.m. for driver
If car is owned by the employee & expenses paid by employer
For private use only For business use only Private & business use
Actual expenses incurred –
Amount paid by employee NIL
Actual exp. Incurred –Rs.1800
pm up to 1.6 ltr or
Rs.2400 pm above 1.6 ltr
+ Rs.900 p.m. for driver
If car is owned by the employee & expenses paid him NIL

63.
Valuation of car as specific perquisite
 Sonia, has been provided a car (1.7 ltr.) by his employer Vikash
Ltd. The cost of car to the employer was Rs. 3,50,000 and
maintenance cost incurred by the employer Rs. 30,000 p.a.
 Chauffeur salary paid by the employer Rs. 3,000 p.m.
 Find value of perquisite for Sonam for the A.Y.2021-22; if the car
is used for:
a) Office purpose.
b) b) Personal purpose.
c) c) Both purpose.
In case (b) and (c), employee is being charged Rs. 15,000 p.a. for
such facility.
Solution:
a) Nil, as car is used for office purpose.

64.
Valuation of car as specific perquisite
b) Taxable value of car facility:
c) Rs. 2,400 p.m. for car facility + Rs. 900 p.m. for driver facility =
Rs. 3,300 p.m.
Taxable value of perquisite Rs. 3,300 * 12 = Rs. 39,600.

65.
Valuation of car as specific perquisite
 Ms. Pooja has been provided a car (1.5 ltr.) on 15/7/2021.
 The cost of car to the employer was Rs. 6,00,000 and maintenance
cost incurred by employer Rs. 20,000 p.a.
 Chauffeur salary paid by employer (Mr. Ratan) Rs. 4,000 p.m. The
car is 40% used for office and 60% for personal purpose.
 Charges paid by employee for such facility Rs. 5,000
 Solution
 A part of month shall not be considered for this purpose.
 Whenever statutory value is taken as taxable value of perquisite
then amount charged from employee shall not be subtracted.
Particulars Details Amount
Car 1800*8 14400
Driver 900*8 7200
Taxable Value of Perquisite 21600

66.
Valuation of car as specific perquisite
 Mr. Ravi has a car (1.5 ltr.) used for office as well as for personal
purpose.
 During the year car is used 80% for business purpose being certified
by the employer.
 During the year, he incurred Rs 50,000 on maintenance and running
of such car.
 The entire cost is reimbursed by the employer.
 Find taxable perquisite if assessee wish to claim higher deduction
 when – (a) A proper log book is maintained;
 (b) A proper log book is not maintained

67.
Valuation of car as specific perquisite
 Solution
 a) When log book is maintained
 Taxable perquisite in the hands of Ravi
 Actual expenditure incurred by the employer is reduced to the extent
it is used for office purpose, as a proper record is kept and duly
certified by employer.
 b) When log book is not maintained
 Taxable perquisite in the hands of Ravi
 Actual expenditure incurred by the employer is reduced to the
extent of Rs. 1,800 p.m. even though it is used for office
purpose but a proper record is not kept.
 50000-21600(1800*12) = 28400 (Taxable Amount)
Amount Reimbursed by the employer 50000
Less Deduction (80% of 50000) 40000
Taxable Amount 10000

68.
Valuation of facility of domestic servant
 Valuation = Amount paid by the employer – amount
recovered from the employee
 Valuation of free gas electricity and water
Servant
Appointed by
Taxable value of
perquisite
Taxable in hands of
Employer Actual cost to the employer is
taxable as perquisite
Specified Employee
Employee All employee
CASE
Taxable value of perquisite Taxable in
the hands of
Facility is provided
from own sources
Facility is provided
from other agency
Facility in the Name of
Employee
Manufacturing Cost
to employer
Prices paid to such
agency
All employees
Facility in the Name of
Employer
Specified
Employees

69.
Valuation of facility of Free Education
Sandeep Kapoor
MIET, Meerut
 If the cost of education is below Rs.1000 p.m. per
child then;
 The perquisite shall not be chargeable to tax. There
is no restriction on number of children.
 If the school run/prescribed by employer
 Valuation = Cost of education in similar institution
– amount recovered from employee –
Rs.1000 p.m.(if facility is for employee’s children)

70.
Valuation of Medical facility Sec 17(2)
Sandeep Kapoor
MIET, Meerut
 Sometimes it is a general perquisite and
sometimes specific perquisite.
 If the bills of medical treatment of employee or any
member of his family from any doctor are issued in the
name of the employee and;
 The employer reimburses them or makes their payment,
then,
 The payment or reimbursement in excess of Rs.15000 is
chargeable as general perquisite in hands of all
employees whether specific or general.
 If these bills are issued in the name of the employer then,
 The payment or reimbursement in excess of Rs.15000 is
chargeable as specific perquisite.

71.
Valuation of Medical facility Sec 17(2)

72.
Profits in Lieu of Salary U/S-17(3)
Sandeep Kapoor
MIET, Meerut
 These payments are made to an employee in Lieu of salary;
 Even if these payments have no connection with the profits
of the employer.
 It includes following:-
1. Compensation for loss of employment or Modification of
the employment terms.
2. Any Payment received by an employee from his employer.
3. Amount received from a provident or other fund.
• Exceptions:
i. Death-cum-retirement gratuity (exempt portion)
ii. Commuted pension (exempt portion)
iii. Compensation (exempt portion)
iv. Payment from SPF, RPF or PPF
v. Payment from approved superannuation fund
vi. House rent allowance (exempt portion)

73.
Profits in Lieu of Salary U/S-17(3)
Sandeep Kapoor
MIET, Meerut
Payment Received from a provident fund
Provident fund is of four types, viz:
a) Statutory Provident Fund (SPF):
Statutory provident fund is set up under the provisions of the Provident Funds Act,
1925. Government and Semi-Government organisations, local authorities, railways,
Universities and recognised educational institutions maintain Statutory Provident
Fund.
b) Recognised Provident Fund (RPF):
The provident fund scheme is framed under the Employee’s Provident Fund and
Miscellaneous Provisions Act, 1952.
The PF Act covers any establishment employing 20 or more persons.
Further, if an employer creates his own scheme for provident fund then he can do
so subject to recognition from the Commissioner of Income tax.
c) Unrecognised Provident Fund (URPF)
If a provident fund scheme is created by an employer, which is not recognised by
the Commissioner of Income tax, then such fund is known as Unrecognised
provident fund.
d) Public Provident Fund (PPF):

74.
Profits in Lieu of Salary U/S-17(3)
Sandeep Kapoor
MIET, Meerut
 The Central Government has established a fund for the benefit of public to
mobilise personal savings.
 Any member of the public, whether salaried or self-employed, can contribute to
the fund by opening a provident fund account at any branch of the State Bank of
India or its subsidiaries or other specified bank.
 Even a salaried employee can simultaneously become a member of employee’s
provident fund (whether SPF/ RPF / URPF) and public provident fund.
 Any amount in multiple of Rs. 5 (subject to minimum of Rs. 500 and maximum
of ` 1,50,000 p.a.) may be deposited in this account.
 Interest is credited every year but payable only at the time of maturity.
 Interest earned on this fund is exempt from tax u/s 10(11).
d) Public Provident Fund (PPF):

75.
Profits in Lieu of Salary U/S-17(3)
Tax Treatment of Provident Fund
Particulars
Employee’s
Contribution
Employer’s
Contribution
Interest credit to
provident Fund
Lump sum
payment at the
time of
retirement or
termination of
service etc
Statutory
PF (SPF)
Eligible for
deduction u/s
80C
Tax Free
Tax Free
Tax Free
Recognised PF
(RPF)
Exempted up to
12% of Salary
Eligible for
deduction u/s
80C
Exempted @ 9.5% p.a. (Interest rate),
any excess interest will be taxable as
salary.
Tax free u/s 10(12)
i) The employee has served continuously
for at least 5 years or
ii) He has been removed from services
on account of retrenchment, illness
or closure of business
Unrecognized PF
(URPF)
Not eligible for
deduction u/s
80C
Tax Free
Tax Free
i. Lump sum up to the
amount equal to
employee’s contribution is
exempt.
ii. Employer’s contribution &
interest thereon is
included in Salary income
iii. Interest in employee’s
contribution is taxable
under head income from
other sources
Public
PF (PPF)
Eligible for
deduction
u/s 80C
Employer
does not
contribute
Tax Free
Exempt from
Tax

76.
Deductions from Salaries
Sandeep Kapoor
MIET, Meerut
 The income chargeable under the head ‘salaries’ shall be
computed after making the following deductions: -
1. Standard Deduction under section 16 (i):
• Rs. 50000
2. Entertainment Allowance:
• Deduction is available under section 16 (ii)
• It is already explained under the head of valuation of
partly taxable allowances.

77.
Deductions from Salaries
Sandeep Kapoor
MIET, Meerut
3. Professional Tax or Tax on employment: - U/S 16 (iii)
• The total amount payable in respect of any person
• To the state or to any one municipality, district board,
local board or other local authority in the state by way
of taxes on profession, trade, & employments
• Shall not exceed Rs.2500 p.a.
• To avail this deduction it is necessary that the employee
has paid the tax. Tax due but not paid shall not be
allowed.

78.
Calculation of Taxable salary of Mr. X
For Assessment year ….
 Salary @ Rs …….. p.m.
 Fully Taxable Allowances
 D.A., D.P. Pension, Bonus etc.
 Partly Taxable Allowances
 HRA (Taxable part), Entertainment allowance, Hostel, Tribal, Hill etc.
 Perquisites
 Rent free House
 Payments of obligation made by employer
 Perquisites for specified Assesses (If not specified; NIL)
 CAR, Servant, Gas, Electricity, Water etc.
 Profits in Lieu of Salary
 Any compensation due to termination
 Payments received from URPF
 Gross Salary TOTAL
 (Less) Deductions
 Standard Deduction u/s 16 (i)
 Entertainment Allowance u/s 16 (ii)
 Employment Tax u/s 16 (iii)
 Taxable Salary BALANCE
Particulars Amount
Let’s understand all these terms in detail

79.
Thank You
Sandeep Kapoor
MIET, Meerut