Tax on the salary and other perquisites.

1. INCOME FROM SALARY
CHARGING SECTION ( SEC 15)

2. CHARGING SECTION/BASIS OF CHARGE
(SECTION 15)
1) There must be employer employee relationship.
2) Salary is taxable either on due or receipt basis whichever is earlier
(therefore advance salary is also taxable)
3) Arrears of salary not taxed earlier are also taxable in the year of receipt
(increment with retrospective effect)

3. COMPUTATION OF INCOME FROM SALARY
Particulars Amount (₹) Amount ( ₹)
Basic Salary ..........
Allowances ..........
Perquisites ..........
Provident Fund ..........
Retirement Benefits
Profit in lieu of Salary
Advance Salary or Arrears of Salary
Gross Salary ..........
Less : Deduction u/s 16
a. Entertainment Allowance [ u/s 16(ii) ] ........
b. Professional Tax [ u/s 16 (iii) ] ......... ........
INCOME FROM SALARY ..........

4. ALLOWANCES
Types of
Allowances
Taxable
Allowances
Partly
Exempt
Allowances.
Fully Exempt
Allowances.

5. FULLY TAXABLE ALLOWANCES
Dearness Allowance / Dearness Pay / Additional Dearness Allowance
Medical Allowance.
Breakfast Allowance, Servant Allowance, Deputation Allowance.
City Compensatory Allowance (CCA).
Entertainment Allowance (No exemption, only deduction)
All Allowances are taxable unless fully or partly exempt

6. PARTLY EXEMPT ALLOWANCES
(HOUSE RENT ALLOWANCE [ SEC 10 (13A)])
Particulars Rs.
Actual HRA Received.
Less: Lower of following is Exempt U/s 10(13A) :
a) Actual HRA Received.
b) Rent paid in excess of 10% of Salary
c) 40% of Salary (50% if house situated at Delhi ,Mumbai, Kolkata &
Chennai )
XXX
XXX
XXX
XXX
Value of Furnished Accomodation XXX
Note:- Salary = Basic + DA, if terms of employment so provide + Commission, if based on fixed % of
turnover.)

7. QUESTION
• Mr. M.F. Hussian Staying At Madras, Working In Big Ltd., Receives Monthly
Rs.12,500 As Basic Salary; Rs.3,000 As DA Of Which 50% Is Provided in
Terms Of Employment And 4% As Commission On Turnover Achieved By
Him.
• He Is Paid An HRA Of Rs. 1,800 Per Month. The Turnover Achieved By Him
For The Year is Rs. 15 Lakhs. House Rent Paid By Him Is Rs. 2,500 P.M. He
Received Advance Salary Of Rs.50,000 In March 2015 Relating To The Period
April To July 2015.
• Determine The Taxable HRA. Also Determine Taxable Salary.

8. ANSWER
Particulars Amt.
Actual HRA (1800*12)
Lower of following is Exempt :
a. Actual HRA Received. (1800*12)
b. Rent paid in excess of 10% of Salary [30,000 – 22, 800]
c. 50% of Salary (Note -1)
21,600
21,600
7,200
1,14,000
Taxable HRA 14,400
Calculation of HRA
Particulars Amt.
Basic Salary ( 12,500*12)
DA If [3000*50% *12]
Commission If( 15lakhs *4%)
1,50,000
18,000
60,000
Salary for the Payment of HRA 2,28,000
10% of Salary (2,28,000*10%) 22,800
50% of Salary (2,28,000*50%) 1,14,000
Note -1 Computation of Taxable Salary for the Purpose of HRA

9. ANSWER (CONT.…)
Particulars Amt.
Basic Salary ( 12,500*12)
Allowances [(3000*12) +14,400]
Commission( 15lakhs *4%)
Advance Salary
1,50,000
50,400
60,000
50,000
Taxable Salary 3,10,400
Computation of Taxable Salary

10. PARTLY EXEMPT ALLOWANCES(CONT…)
SR
Allowances Exemption Limit
1 Children Education Allowance Rs.100/- pm per child. Max 2 Children.
2 Children Hostel Exp Allowance Rs.300/- pm per child. Max 2 Children.
3 Tribal Area Allowance Rs.200/- pm
4 Transport Allowance (between residence &
office)
Rs.1600/- pm ;
Rs.3200 pm for blind/handicapped.
5 Running Allowance / Allowance to
employees working in Transport systems
Least of 70% of Allowance or Rs.10000/-
pm
6 Underground Allowance Rs.800 pm
7 Compensatory Field Area Allowance Max Rs.2600 pm
8 Compensatory modified Hill Area
Allowance
Max Rs.1000 pm

11. FULLY EXEMPT ALLOWANCES
1) Foreign allowance: Section 10 (7) – Any allowance paid outside India by the Government to
an Indian citizen for rendering service outside India is fully exempt e.g.: Overseas allowance,
EA, children education allowance, car allowance etc.
2) Allowance to High Court and Supreme Court Judges – High Court Judges (Conditions of
Service) Act, 1954; similarly Supreme Court Judges (Conditions of Service) Act, 1958
3) Allowance from UNO – u/s 2 of United Nations (Privileges & Immunities) Act, 1974. (Note: -
Salary received from UNO not taxable in India.)
4) Special allowance exclusively incurred in the performance of official duties is fully exempt
U/s 10(14) to the extent of actual amount spent like travel allowance, conveyance, helper,
research, uniform allowance.

12. QUESTION
• Mr. Rajiv Gandhi Is Working As Pilot In Indian Airlines And Apart From Basic Salary
He Is Paid The Following Allowance:
a) Entertainment Allowance Rs.1, 200 P.M.
b) Uniform Allowance Rs.800 P.M. (Actually Spent On Uniform Rs.500 P.M.)
c) Conveyance Allowance Rs.2, 000 P.M. Of Which 40% Was Spent On Personal
Purposes.
d) Special Allowance To Meet Personal Expenses While On Duty Rs.10,000 P.M.
e) Children Education And Hostel Allowance Rs.900 P.M. He Has 2 Children Studying
In School And Staying In Hostel
Determine The Taxable Amount Of The Above Allowances.

13. ANSWER
Particulars Amt. Amt.
a)Entertainment Allowance
b)Uniform allowance
(-)Exempt U/s 10(14)
c) Conveyance allowance
(-)Exempt U/s 10(14)
d) Special allowance
(-)Exempt U/s 10(14)
e) Children Education and hostel
allowance
(-)Exempt U/s 10(14)
(1200*12)
9,600 (800*12)
6,000 (500*12)
24,000(2000*12)
14,400(24,000*60%)
1,20,000(10,000*12)
84,000(1.2lacs *70%)
10,800(900*12)
9,600(400*12*2)
14,400
3,600
9,600
36,000
1,200
Taxable allowances 64,800
Calculation of Taxable allowances

14. PERQUISITES
• Perquisites are the non-cash benefits, which an employee receives from his
employer during the course of employment.
• Most often referred to as “perks” or “perqs”.
• They are any casual emolument or benefit attached to an office or position in
addition to salary or wages.
Taxation of perquisites:
 If for personal purpose – Taxable
 If for official purpose – Not taxable
• They are either provided at free of cost or at concessional rates

15. PERQUISITES TAXABLE IN ALL CASES
1. Rent Free Accommodation (RFA) - Sec 17(2)(i).
2. Value of accommodation provided at concessional rent- Sec 17(2)(ii).
3. Obligation of employee met by the employer- Sec 17(2)(iv).
4. Any sum payable by the employer to effect insurance on the life of employee- Sec
17(2)(v).
5. ESOP or SES free of cost or at concessional rate transferred to the asseessee directly
or indirectly- Sec 17(2)(vi)
6. Amount of any contribution to approved super annuation fund by the employer to the
extent it exceeds Rs 1 Lakh - Sec 17(2)(vii)

16. PERQUISITES TAXABLE IN ALL CASES (CONT…)
7. Value of prescribed fringe benefits or amenities like- [Sec 17(2)(viii)]:
i. Interest free or concessional loans [Rule 3(7)(i)]
ii. Travelling, touring, accommodation (ie, holiday homes) [Rule 3(7)(ii)]
iii. Free food [Rule 3(7)(iii)]
iv. Gifts [Rule 3(7)(iv)]
v. Credit card facilities [Rule 3(7)(v)]
vi. Club facilities [Rule 3(7)(vi)]
vii. Use of movable assets [Rule 3(7)(vii)] – (possession)
viii.Transfer of movable assets [Rule 3(7)(viii)] – (possession and ownership)

17. PERQUISITES NOT TAXABLE
[BASED ON LIMITS OR CONDITIONS]
1. Medical Benefits [proviso to Sec 17(2)]:-
2. Employer’s hospital: Medical facility provided in a hospital, clinic etc. maintained by
employer is not taxable.
3. Government Hospital: Reimbursement or direct payment of expenses incurred in any hospital
maintained by government, local authority or approved hospitals (approved by
Govt/CCIT/CIT) is not taxable.
4. Prescribed disease: Reimbursement or Direct payments made by employer to hospitals
approved by Chief Commissioner towards treatment of prescribed diseases (given in Rule 3A
like cancer, TB, AIDS, disease of the heart, blood, liver etc. requiring surgical operation) is not
taxable.

18. PERQUISITES NOT TAXABLE( CONT…)
5. Group insurance: Group medical insurance or medical insurance premium is not
taxable.
6. Limit of Rs 15,000: In any other case not covered above, direct payment or
Reimbursement of medical expense is not taxable upto Rs. 15,000 p.a. (Eg: medical
bills, treatment in private nursing homes or hospitals)
7. International / Foreign: Medical treatment outside India including cost of stay outside
India to the extent permitted by RBI is not taxable.
8. Expenses on travel abroad with one attendant is also not taxable if the Gross Total
Income does not exceed Rs. 2,50,000 (without considering this travel expenses.)

19. PERQUISITES NOT TAXABLE( CONT…)
9. Refreshments to all employees during working hours in office premises is not
taxable.
10. Recreational facilities is not taxable.
11. Training of employees or fees paid for refresher management course is not
taxable.
12. Premium on personal accident policy is not taxable.
13. Foreign perks allowed outside India by the Govt. to a citizen of India for
rendering services outside India. Sec. 10(7) is not taxable.

20. PERQUISITES NOT TAXABLE
[BASED ON LIMITS OR CONDITIONS]
RFA to High Court & Supreme Court Judges, officials
of parliament, Union minister or leaders of opposition in
Parliament.
Conveyance facility provided by employer
Telephone bills and Mobile Bills
Goods (manufactured by Employer) sold to employee
Traveling facility to employees of railways or airlines

21. PERQUISITES TAXABLE IN THE HANDS OF
SPECIFIED EMPLOYEES
1. Status: Director employee - full time or part time-director for whole or part of a year.
2. Shareholding: Employee having substantial interest in the company i.e., not less
than 20% voting powers in the company.
3. Income: Employee whose Income under the head salaries exceeds Rs. 50,000 for the
year excluding value of Non-monetary benefits, Employers contribution to P.F. and
after allowing deductions u/s 16.

22. QUESTION
• From The Following Information Find Out Gross Salary Of Mr. FTP Who Is Employee In
ITC For The Current Assessment Year:
a) Basic Salary Rs. 3,95,000
b) Medical Expenditure Directly Paid By The Employer To Private Practitioner Rs. 25,000
c) Medical Expenditure Directly Paid By The Employer To Hospital Approved By CCIT Rs. 50,000
d) Reimbursement Of Medical Expenses Incurred By The Employee In A Hospital Approved By
Ccit Rs. 10,000
e) Expenditure On Traveling Abroad (Including Attendant) Borne By Employer Rs.1,00,000
f) Expenditure Incurred On Treatment Abroad Borne By Employer Rs. 1,50,000 (Out Of This
Amount RBI Granted Permission For Rs. 1,00,000)

23. ANSWER
Particulars Amt. Amt.
a)Basic Salary
b) Medical expenditure
(-)Not taxable (Proviso Sec 17(2))
c) Medical exp. App by CCIT
Is not taxable
d) Reimbursement of medical expenses
e) Expenditure on traveling abroad is not
Exempt as GTI >2lacs
e) Exp. incurred on treatment abroad
(-)Permitted by RBI
25,000
15,000
1,50,000
1,00,000
3,95,000
10,000
-
-
1,00,000
50,000
Gross Salary 5,55,000
Calculation of Gross Salary

24. VALUATION OF PERQUISITES (RFA)
Category A – Government Employees (Central / State Government but excludes employees
of Local Authority or Foreign Government)
RFA= License fee as per government rules
Category B
Other Employees if accommodation is owned by employer in a place where the
population:-
• exceeds 25 Lakhs : ……………..………………....RFA = 15% of Salary
• exceeds 10 Lakhs but not exceeding 25 Lakhs: …..RFA = 10% of Salary
• Any other place :…………………………………..RFA = 7.5% of Salary
Category C
Lease or rent - If accommodation is taken on lease or rent by employer
RFA = Rent Payable or 15% of Salary whichever is less irrespective of population

25. RFA( CONT…)
Category D - Dual Accommodation on transfer - In case of transfer of employee from one
place to another, if accommodation provided at new place of posting while retaining the
original place, the taxability as under:
(a) Lower of values of perquisites of RFA upto a period not exceeding 90 days
(b) After 90 days, both are chargeable as perquisite.
Category E – Exemption for Mining site - An employee working at a mining site or an
onshore /offshore site or project execution or dam or power generation site is not taxable
(being of a temporary nature and having plinth area not exceeding 800 square feet, is
located not less than eight kilometers away from the local limits of any municipality or a
cantonment board or in remote area)
(Remote area refers to an area 40 kms away from any town having population not
exceeding 20,000).

26. RFA( CONT…)
Category G - Hotel Accommodation (including service apartments, guest house or
motel) –
• Applicable to both Government and other employees
• Perquisites = 24% of salary or Actual charges payable to hotel whichever
is less.
• This perquisite is not taxable if the accommodation period does not
exceed in aggregate 15 days on his transfer from one place to another.
[Eg: If provided for 16 days, entire 16 days is taxable]
NOTE:
Salary for RFA = Basic + DA if + ABC any monetary payments like leave
encashment, pension, fees, annuity etc., but excludes PF contribution and Perquisites.

27. VALUATION OF FURNISHED ACCOMODATION
Particulars Rs.
Value of Unfurnished Accomodation as above
Add: Value of Furniture
• If Owned by Employer, then 10% per annum of Original cost
of such Furniture
• If hired from Third Party, then Actual Hire Charges
Less: Any Charges paid or payable by the Employee
XXX
XXX
XXX
(XXX)
Value of Furnished Accomodation XXX

28. QUESTION
Mr. Z, An Employee Of ABC Ltd. Gets
a) Rs.60,000 As Basic
b) Rs. 6,000 As Commission
c) 4,000 As Bonus
d) Rs.6000 As Uniform Allowance (60% Spent For Uniform)
e) Rs.12,000 As Conveyance Allowance (75% Utilised For Official Purpose) And EA
Rs.9,000.
A Rfa Is Provided At A Place Where Population Is (A) > 25 L (B) < 4 L .
Determine The Value Of Rfa.

29. ANSWER
Particulars Amt.
a)Basic Salary
b) Commission
c) Bonus
d) Uniform Allowance
e) Conveyance Allowance
e) EA
60,000
6,000
4,000
2400(6000-3600)
3000(12000-9000)
9000
Salary for the Purpose of RFA 84,400
a) Population >25 lacs 15% of Salary i.e, Rs. 12,660
b) Population < 4 lacs 7.5% of Salary i.e, Rs. 6,330
Calculation of Salary for the Purpose of RFA

30. DOCUMENTS REQUIRED FOR CLAIMING THE
ALLOWANCES AND EXEMPTIONS
Furnishing of evidence of claims by employee for deduction of tax under section 192 in form 12BB :
Sl No. Nature of Claims Evidence or Particulars
1 House Rent Allowance Name, Address, Rent paid receipts, PAN of the
Landlord, where the aggregate rent paid during the
previous year exceeds Rs. One Lakh.
2 Leave Travel Concession Evidence of Expenditure( eg. Flight/ Train Tickets)
3 Medical Reimbursements Medical Bills
4 Reimbursement of Expenses
towards Telephone, Car
Maintenance etc.
Telephone Bills, Fuel Bills, Repair Bills etc.
3 Deduction under Chapter VI-
A
Evidence of Investment or Expenditure

31. VALUATION OF PERQUISITES
1. RFA
2. Value of Accommodation provided at concessional Rent
3. Obligation of Employee met by employer
4. Employee Stock Option Plan (ESOP) / Sweat Equity Shares (SES)
5. PRESCRIBED FRINGE BENEFITS OR AMENITIES
i. Interest free Loans / Concessional Interest
ii. Traveling, Touring, Accommodation
iii. Free meals
iv. Gifts/ Vouchers/ Tokens
v. Credit Cards
vi. Club Facilities
vii. Use of Movable Assets & Transfer of movable assets

32. Nature of Perquiisite Taxable Value of Perquisite
Interest Free Loans/ Concessional
Interest
SBI Rate = SBI Rate Prevailing on
the 1st Day of the PY
1. provided to Employee or member of household
P =ROI p.a. as given by SBI as on 1st April of every
financial year
2. Value less Interest recovered from Employee
In case of Concesssional
Exception
• Loan given for treatment in respect of specified
diseases like cancer, TB, AIDS etc..
• loans not exceeding in the aggregate Rs. 20,000
Free meals during Office hours in
remote area or off-shore
installation area is not taxable
• Actual cost to the Employer( up to Rs. 50 per
meal/Tea/Snacks is Not Taxable)
(-) Amt. recovered from the Employee.
• Tea or Non- Alcoholic Beverages/ Snacks during
working hours are not taxable
PRESCRIBED FRINGE BENEFITS OR AMENITIES

33. CONT…
Nature of Perquiisite Taxable Value of Perquisite
Value of any Gift or Voucher taken other than
Gifts made in cash or convertible into money
(Eg. Gift Cheques) or Ceremonies
• Value of the Gift(Gift in cash Fully taxable)
• In case of aggregate value of gift during the PY
is less than Rs. 5000 then it is not a taxable
perquisite.
Expenditure incurred on Credit card or adds on
a card including membership fees and annual
fee.
• Actual Expenditure to Employer less amt.
recovered from employee
• If it is incurred for official purposes and
supported the necessary docs then it is not
taxable
Exp. Incurred on Club other than health club or
sports club or similar facilities provided
uniformly to all Employees
• Actual Expenditure less amt. recovered
• If it is incurred for official purposes and
supported the necessary docs then it is not
taxable
Use of any movable assets other than computer
or laptop or other assets already mentioned
10% p.a of actual cost or/ and actual rent/Hire
charges payable by employer, as the case may be
(less) amount Recovered
Exception: - Laptops

34. TRANSFER OF MOVABLE ASSETS
a) Employee or member of household.
b) In case of computers and electronic items
Perquisite = Actual cost (less) 50% depreciation under WDV method
a) In case of Motor cars
Perquisite = Actual Cost (less) 20% depreciation under WDV method
a) In case of Other Assets ( including household appliances):
Perquisite = Actual Cost (less) 10% depreciation under SLM method
a) For above values of perquisite reduce amount recovered.
b) Depreciation is calculated for each completed year.

35. PERKS ARE TAXABLE IN THE HANDS OF SPECIFIED
EMPLOYEES
Nature of Perquisite Taxable Value of Perquisite
Domestic Servants, Sweepers, Watchman
and Gardner
• Actual Expenditure to Employer less amt.
recovered from employee
Gas, Electricity, Water supply • Procured from outside agency : Amt. Paid to
outside Agency
• Perquisite = Manufacturing cost per unit i.e.,
Actual Expenses(less) amount recovered
Education Facility to members of his
household
a) If Educational Institution is owned by
Employer or the school sponsored by the
Employer
b) Other Schools
• If the cost od Education per child does not
exceed Rs. 1,000 p.m not taxable.
Otherwise Taxable
• Cost of such education in similar institution (-)
Amt. recovered
• Cost of Education from Employee
(-) Amt. recovered from Employee

36. MOTOR CAR
Employee Employer
Expenses met by Expenses met by
USED FOR
• Official(O)
• Personal (P)
• Partly Official /
Partly Personal
(PO/PP)
NOT A PERK FOR
ALL THE 3 CASES
USED FOR
(O) = No perk
(P) = AE + 10% of
Original Cost / hire
charges + driver’s salary
(PO/PP) = Not exceeding
1600CC
= [1.800]
Exceeding 1600CC
= [2,400]
USED FOR
(O) = No perk
(P) = 10% of Original Cost
/ hire charges + driver’s
salary
(PO/PP) = Not exceeding
1600CC
= [600]
Exceeding 1600CC
= [900]
USED FOR
(O) = No perk
(P) = Actual expense
(PO/PP) =
• Not exceeding
1600CC
= AE – [1,800]
• Exceeding1600CC
= AE – [2,400]
MOTOR CAR
Employee Employer Employee Employer

37. PROVIDENT FUND
PF Employers
Contribution
Employees
contribution
Interest Lump sum
Statutory
PF
Exempt 80C Exempt E (Sec
10(11)
Recognized
PF
Excess of
12% is
taxable
80C Excess of
9.5% is
taxable
E
URPF - - - Divided into
4 parts
Public PF - 80C Exempt Exempt

38. GRATUITY
Sr Particulars Exemption
1 Gratuity Received by Govt & Local
Authority employees.
Fully Exempt U/s 10(10)(i)
2 Gratuity in case of employees covered
by Payment of Gratuity Act,1972.
(Here, Salary means,
= Basic + DA entire )
Lower of following,
a. Actual Gratuity
b. ₹ 10,00,000/-
c. Salary last drawn x [15/26] x
completed years of service or part
thereof in excess of 6 months.
3 Gratuity in respect of other employees.
(Here, Salary means,
= Basic + DA If + Commission If)
Lower of following,
a. Actual Gratuity
b. ₹ 10,00,000/-
c. ½ x Average salary x Completed
years of service

39. POINTS ON GRATUITY
1. Average salary refers to average of salary of last 10 months preceding the month of
retirement.
E.g.: If an employee retires on 30th November last 10 months would mean January to
October i.e., excluding November being the month of retirement.
2. Gratuity received while in service is fully taxable, If Gratuity is given on death of employee
& received by legal heir, it is not income. Hence, not taxable.
3. If gratuity is received from 2 or more employers either in the same year or in different years
the aggregate amount of gratuity exempt from tax cannot exceed the above limits prescribed
i.e., if employee received gratuity in any earlier year from his former employer and also
receives gratuity from another employer in a later year then the limit of Rs 10,00,000 will be
reduced by the amount of gratuity exempt from tax in any earlier year.

40. QUESTION
• Mr. Fuse Working In Confuse Ltd. , Not Covered By Payment Of Gratuity Act, Retires
On 1st March 2015 After Serving The Employer Company For A Period Of 18 Years
And 10 Months. He Was Drawing A Salary Of Rs.5,000 P.M Upto September 2014
And Thereafter Rs.6,000 P.M. On Retirement He is Not in Receipt Of Pension But
Gratuity Of Rs.60,000 is Paid. Compute Taxable Gratuity.

41. ANSWER
Particulars Amt.
Actual Gratuity(5000*12)
Lower of following is Exempt :
a. Actual Gratuity
b. Celing Limit
c. ½ x 55,000 x 18
60,000
60,000
10,00,000
49,500
Taxable Gratuity 14,400
Calculation of Gratuity
Average Salary= Oct - Feb = 6000*5= 30,000
May- Sep = 5000*5 = 25,000
55,000

42. PENSION
1. Uncommuted Pension (UCP) refers to Pension periodically received by the
Employee after his retirement and it is taxable as salary u/s 15 in the hands of
both Government and Non-Government employees.
2. Pension from UNO is not taxable
3. Commuted Pension (CP) means lump sum payment in lieu of periodical
payments wherein either the whole/part of the pension is commuted.

43. PENSION
Sr Particulars Exemption
1 Commuted Pension received by
Govt employees
Fully Exempt
2 Commuted Pension received by
Non-Govt employees :
 If Such employees receives
Gratuity
 If Such employees does not
receives Gratuity
 1/3rd of Commuted Value of Pension is
exempt.
½ of Commuted Value of Pension is exempt.
3 Uncommuted Pension received by
ALL employees
Fully taxable as Salary.

44. QUESTION
• Mrs. Katrina kaif Employed In a Pvt. Co. Retires On 30.6.2014. She is Paid A
Pension Of Rs.6,000 P.M Upto January 2015. On 1st February, 2015 He
Commutes 75% Of His Pension And Receives Rs.1,20,000.
Calculate Taxable Pension.

45. ANSWER
Particulars Amt. Amt.
a)UCP Before Commutation
( Jul 14 –Jan 15)
b)UCP after Commutation
( Feb 15 –Mar 15)
c) Commuted pension received
(-) Exempt U/s 10(10A)
½ of 100% of Commuted Pension
[½ * { 1,20,000*100/75}]
(6000*7)
6000
4500(75% of 6000)
1500
i.e, 1500*2
1,20,000
80,000
42,000
3,000
40,000
Taxable Pension 85,000
Calculation of Taxable Pension

46. LEAVE SALARY/ENCASHMENT OF EARNED
LEAVE U/S10 (10 AA)
1. Leave Encashment while in service – Fully Taxable, though the assessee
can claim relief u/s 89. Similarly, relief u/s 89 can be claimed on the
Taxable portion of Leave Salary in excess of the exemption.
2. Leave Encashment at the time of retirement or leaving the job is exempt
u/s 10(10AA) as under:
1) Government Employees - State Government/CG – received at the
time of retirement or leaving the job: Fully exempt.
2) Other Employees (Including local authority or PSU):

47. COMPUTATION OF LEAVE
SALARY(CONT…)
Particulars Rs.
Leave Salary Received
Less: Least of the following exempt u/s 10(10AA)
• Actual leave salary received
• Ceiling Limit
• Average Salary x 10
• Average Salary x leave to his credit (based on not more
than 30 days leave for each completed year of service)
XXX
XXX
3,00,000
XXX
XXX
Taxable Leave Salary XXX

48. LEAVE SALARY (CONT…)
1. Salary = Basic + DA *+ Commission*
2. Average salary refers to average of last 10 months upto retirement. Therefore if an
employee retires on 15th November, last 10 months will be from 16th January to 15th
November.
3. If received from 2 or more employers either in the same year or different years the limit
shall not exceed the ceiling limit in the aggregate. (ceiling limit of Rs. 3,00,000 will be
reduced by the amount of exemption of any earlier year)
4. Leave to his credit = Leave entitlement – leave taken

49. Mr. East, An Employee Of West Ltd Receives Rs.80,000 as Leave Salary At The Time Of
His Retirement On Feb 28, 2015.
a) Average Salary Drawn During Last 10 Months Is Rs.3,000.
b) Last Drawn Salary Is Rs.3,200. Duration Of Service Is 24 Years And 7 Months,
Leave Taken While In Service Is 9 Months.
c) Leave Entitlement As Per Employer’s Rules Is 1-½ Months For Each Completed
Year Of Service.
Calculate Taxable Leave Salary

50. ANSWER
Working Note on Leave Salary
Particulars Rs.
Leave entitlement as per employer’s rules =1.5*24m
Leave entitlement as per Income Tax = 1*24
Leave entitlement shall be at least of the above
Leave Taken
Leave to his credit(Leave entitlement - Leave Taken)
36m
24m
24m
9m
15m

51. ANSWER CONT…
Computation on Leave Salary
Particulars Rs.
Leave Salary Received
Less: Least of the following exempt u/s 10(10AA)
• Actual leave salary received
• Ceiling Limit
• 3000 x 10
• Average Salary x leave to his credit (3000*15)
80,000
80,000
3,00,000
30,000
45,000
Taxable Leave Salary 50,000

52. RETRENCHMENT COMPENSATION
U/S 10 (10 B)
Particulars Rs.
Actual Amount Received
Less: Least of the following exempt u/s 10(10B)
• Actual amount received
• Ceiling Limit
• Amount calculated under Industrial Disputes Act 1947 [Sec.
25F(b)] 15/26 x Average salary of last 3 months { S = Basics +
DA} x No. of years of service (Round off if more than 6m)
XXX
XXX
5,00,000
XXX
Total RETRENCHMENT COMPENSATION XXX

53. VOLUNTARY RETIREMENT SCHEME U/S
10(10C)
Particulars Rs.
Actual Amount Received
Less: Least of the following exempt u/s 10(10C)
• Actual amount received
• Ceiling Limit
• Higher of the Following :
• 3 x Salary last drawn x Completed years of service
( S = Basics + DA If + Commission If)
• Salary last drawn x Remaining months of services
XXX
XXX
5,00,000
XXX
Taxable Amount XXX

54. SEC 80C
( CHAPTETR VI A DEDUCTION)
Eligible assessee: Individual and HUF.
Deductible amount: The maximum deductible amount is Rs. 1,50,000/-
Conditions or Qualifying Payments:
1. Life insurance premium
2. Contribution to Recognized provident fund, approved superannuation fund & PPF.
3. Deposits in post office savings bank (Cumulative Time Deposits).
4. Contribution for participation in any ULIP of UTI, LIC Mutual fund
5. Subscription to NSC (Including accrued interest).
6. Housing loan repayment
7. Tuition fees to any University, College, school or other educational institution situated in India for
full-time education for a maximum of two children (does not include donation, development fee
etc).

55. Particulars Conditions
Sec 80D Deductions in respect of
Medical Insurance Premium , CGHS &
Preventive Health checkup
Eligible assessee: Individual and HUF.
Deductible amount: The maximum
deductible amount is Rs. 25,000 /-/30,000.
1. Medical insurance premium (popularly called
mediclaim) subject to overall limits.
2. Contribution to CGHS
3. Any payment for Preventive Health checkup
not exceeding internal limit of Rs.5,000
Sec 80DD - Medical Treatment of
Handicap Dependant including
Maintenance
Eligible assessee: Individual and HUF.
Deductible amount: Flat deduction of Rs
75,000/-. Further, in case of a dependant with
severe disability (80% disability or more), the flat
deduction shall be Rs. 1,25,000/- .
Cont…

56. Particulars Conditions
Sec 80DDB: - Medical treatment of
Specified Diseases
Eligible assessee: Individual and HUF
Deductible amount: Deduction shall be maximum upto
Rs 40,000 and Rs 60,000/- for senior citizen (60 years or
more).
Medical treatment of himself or dependent relative or
member of HUF certified by prescribed authority
towards specified diseases like Cancer, AIDS
Sec 80E Interest on loan taken for
higher education
Eligible assessee: Individual
Deductible amount: Entire amount of
Interest
1. Loan taken from any financial institution or approved
charitable institution for pursuing higher education of
the assessee or his relative
2. Deduction is allowable for the maximum of 8 years
commencing from first year of payment of interest.
Cont…

57. Mr. Rakku bhai, A Government Employee Retired On 31.3.2015 After Serving For 20 Yrs And 5 Months. He
Received The Following Salaries, Allowances And Perquisites For The FY 2014-2015. Compute His Taxable Salary
For The FY 2014-2015.
a) Basic Salary Rs.16,250 Per Month
b) Bonus Rs.12,000 Pa
c) Gratuity Rs.2,12,000
d) Leave Salary Rs.1,50,000
e) Dearness Allowance Rs.1,000 Per Month (Enters)
f) Rent Free Accommodation (License Fees For Unfurnished Accommodation Rs.12,000 Per Annum)
g) Value Of Furniture Rs.20,000
h) Children Education Allowance For Two Children Of Assessee Rs.175 Per Month Each
i) Entertainment Allowance Rs.650 Pm (Rs.400 Per Month Was Spent)

58. Answer
Particulars Amt. Amt.
a)Basic Salary
b)Bonus
c)Dearness allowance
d)RFA= License fee decided by the Govt
(+) 10% of Furniture
e)CEA
(-)Exempt U/s 10(14)
f)Entertainment Allowance
12,000
2,000
4,200
2,400
(2*12*100)
1,95,000
12,000
12,000
14,000
1,800
7,800
Gross Salary 2,42,600
(-) Entertainment Allowance Sec 16(ii) (Note -1) 5,000
Taxable Salary 2,37,600
Calculation of Taxable Salary

59. Answer (Cont…)
Particulars Rs.
Least of the following is deductible u/s 16(ii)
• Actual Entertainment Allowance
• Ceiling Limit
• 1/5 * 1,95,000:
7800
5000
39000
Deductible Amount 5,000
Note :1 Sec 16(ii) Allowance