PROF.

VINIT KUMAR TAXATION 9873126173

1. CHARGE OF INCOME TAX & RATE OF TAX

Heads of Income [Sec. 14]

According to Sec.14 of the Act, all income of a person shall be classified under the following five heads:

1. Salaries;

2. Income from house property;

3. Profits and gains of business or profession;

4. Capital gains;

5. Income from other sources.

TAX RATE APPLICABLE FOR AY 24-25

Individual/HUF/Association of Persons/Body of Individuals/Artificial Juridical Person

In case of Super Senior citizen

Total Income Range Rates of Income Tax

Up to ₹ 5,00,000 Nil
₹ 5,00,001 to ₹ 10,00,000 20% of (Total income – ₹ 5,00,000)
₹ 10,00,001 and above ₹ 1,00,000 + 30% of (Total income – ₹ 10,00,000)

Super Senior Citizen means an individual who is resident in India and is of at least 80 years of age at any time
during the relevant previous year (i.e. any resident person, male or female, born before 02-04-1944).

In case of Senior citizen

Total Income Range Rates of Income Tax

Up to ₹ 3,00,000 Nil
₹ 3,00,001 to ₹ 5,00,000 5% of (Total Income – ₹ 3,00,000)
₹ 5,00,001 to ₹ 10,00,000 ₹ 10,000 + 20% of (Total income – ₹ 5,00,000)
₹ 10,00,001 and above ₹ 1,10,000 + 30% of (Total income – ₹ 10,00,000)

Senior Citizen means an individual who is resident in India and is of at least 60 years of age at any time during the
relevant previous year. (i.e., a resident person, male or female, born on or after 02-04-1944 but before 02-04-
1964)

In case of other Individual / HUF / Association of Persons / Body of Individuals / Artificial Juridical Person

Total Income Range Rates of Income Tax

Up to₹ 2,50,000 Nil
₹ 2,50,001 to ₹ 5,00,000 5% of (Total Income – ₹ 2,50,000)
₹ 5,00,001 to ₹ 10,00,000 ₹ 12,500 + 20% of (Total income – ₹ 5,00,000)
₹ 10,00,001 and above ₹ 1,12,500 + 30% of (Total income – ₹ 10,00,000)

Rebate u/s 87A

Applicable to: RESIDENT INDIVIDUAL
Conditions to be satisfied: Total income of the assessee does not exceed ₹ 5,00,000.

Quantum of Rebate: Lower of the following:

(a) 100% of tax liability as computed above; or (b) ₹ 12,500/-

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PROF. VINIT KUMAR TAXATION 9873126173
Compute rebate u/s 87A in the following cases:

Particulars Case 1 Case 2 Case 3 Case 4 Case 5 Case 6

Assessee Individual Individual Senior Senior Individual HUF

Citizen Citizen

Residential Resident Resident Resident Resident Non-Resident Resident

status

Total Income ₹ 4,90,000 ₹ 5,12,000 ₹ 4,25,000 ₹ 5,40,000 ₹ 2,60,000 ₹ 2,65,000

Tax on above ₹ 12,000 ₹ 14,900 ₹ 6,250 ₹ 18,000 ₹ 500 ₹ 750

Rebate u/s 87A ₹ 12,000 Nil ₹ 6,250 Nil Nil Nil

Reason Total Total income Assessee is Assessee is not

income exceeds ₹ 5 non-resident an individual
exceeds ₹ lacs
5 lacs

Tax after Nil ₹ 14,900 Nil ₹ 18,000 ₹ 500 ₹ 750

rebate

Surcharge on tax after rebate u/s 87A

Surcharge at the following rate is also payable on tax as computed above after rebate u/s 87A

Total Income Rate of Surcharge

Total income does not exceed ` 50 lacs Nil
Total income exceeds ₹ 50 lacs but does not exceed ₹ 1 crore 10% of tax
Total income exceeds ₹ 1 crore but does not exceed ₹ 2 crores 15% of tax
Total income exceeds ₹ 2 crores but does not exceed ₹ 5 crores 25% of tax*
Total income exceeds ₹ 5 crores 37% of tax*

* Where the total income includes dividend, any income chargeable u/s 111A and 112A (now includes 112 as well), the surcharge
on the amount of income-tax computed on that part of income shall not exceed 15%. In other words, surcharge higher than
15% is applicable only on tax on income other than dividend, income covered u/s 111A, 112A & 112.

Health & Education Cess

Applicable on: All assessee
Rate of cess: 4% of Tax liability after Surcharge

Marginal Relief
Example: Compute tax liability of the assessee (52 years) whose total income is:

(Case 1) ₹ 49,90,000 (Case 2) ₹ 50,10,000; (Case 3) ₹ 60,00,000

Particulars Working Case 1 Case 2 Case 3

Tax liability before Rebate ₹ 2,50,000 * Nil Nil Nil Nil
₹ 2,50,000 * 5% 12,500 12,500 12,500
₹ 5,00,000 * 20% 1,00,000 1,00,000 1,00,000
Balance Income * 30% 11,97,000 12,03,000 15,00,000
Total 13,09,500 13,15,500 16,12,500
Less: Rebate u/s 87A As income exceeds ₹ Nil Nil Nil
5,00,000
Liability [A] 13,09,500 13,15,500 16,12,500
Add: Surcharge B = [10% of (A)] Nil 1,31,550 1,61,250
Tax and surcharge payable 13,09,500 14,47,050 17,73,750

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PROF. VINIT KUMAR TAXATION 9873126173
Analysis of case (1) and case (2)

Increase in income ₹ 20,000

Liability for surcharge increased ₹ 1,31,550

Now, computation of tax liability is made after considering marginal relief:

Particulars Working Case 1 Case 2 Case 3

Liability [A] 13,09,500 13,15,500 16,12,500
Add: Surcharge B = [10% of (A)] Nil 1,31,550 1,61,250
Tax and surcharge 13,09,500 14,47,050 17,73,750
Less: Marginal relief [(B) –{70% (50,10,000 – Nil 1,24,550 Nil
50,00,000)}]
Effective Surcharge [C] Nil 7,000 1,61,250
Liability after surcharge [A + C] 13,09,500 13,22,500 17,73,750
Add: Health & Educationcess 4% of above 52,380 52,900 70,950

Total Rounded off u/s 288B 13,61,880 13,75,400 18,44,700

Taxpoint: The concept of marginal relief is not applicable in case of cess

Firm or Limited Liability Partnership (LLP)

A partnership firm (including limited liability partnership) is taxable at the rate of 30%

Surcharge: 12% of income-tax (if total income exceeds ₹ 1 crore otherwise Nil)

Marginal Relief: Available

Health & Education Cess: 4% of tax liability after surcharge

Company

Company Rate
In the case of a domestic company
– Where its total turnover or gross receipts during the previous year 2021-22 does not exceed ₹ 25%
400 crore
– In any other case 30%
In the case of a foreign company 40%

Surcharge

Total Income Domestic Company Foreign Company

If total income exceeds ₹ 10 crore 12% 5%
If income exceeds ₹ 1 crore but does not exceed ₹ 10 crore 7% 2%
If income does not exceed ₹ 1 crore Nil Nil

Marginal Relief: Available at both points (i.e., income exceeds ₹ 1,00,00,000 or ₹ 10,00,00,000)

Health & Education Cess: 4% of tax liability after surcharge

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PROF. VINIT KUMAR TAXATION 9873126173

Major amendments & 115BAC

New tax regime will be the default tax regime. However, taxpayers can opt for the old regime

A tax rebate has been introduced under the new tax regime on income up to Rs.7 lakhs. Therefore, you do not have to pay tax
if your taxable income is below Rs.7 lakhs under the new tax regime

The tax exemption limit of Rs.2.5 lakh has increased to Rs.3 lakh under the new tax regime and tax slabs have been
recalibrated under the new tax regime as follows:
Up to Rs.3 lakh: Nil
Rs.3 lakh-Rs.6 lakh: 5%
Rs.6 lakh-Rs.9 lakh: 10%
Rs.9 lakh-Rs.12 lakh: 15%
Rs.12 lakh-Rs.15 lakh: 20%
Above Rs.15 lakh: 30%

The standard deduction of Rs 25,000 has been extended to the new tax regime as well.
The highest surcharge rate of 37% has been reduced to 25% under the new tax regime. This move impacts taxpayers earning
more than Rs 5 crore. As a result, their overall tax rate will decrease from 42.74% to 39%

From FY 2020-21, you can choose to pay income tax under an optional new tax regime. The new tax regime is available for
individuals and HUFs with lower tax rates and fewer deductions/exemptions.

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PROF. VINIT KUMAR TAXATION 9873126173

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 PROF. VINIT KUMAR TAXATION 9873126173

5. INCOME FROM SALARY

INTRODUCTION
 Any income shall be chargeable to tax u/h ‘salary’ if there exists a relationship of employer-employee between the payer
and the payee.

 Full-Time Employment v/s Part-Time Employment.

 Due or received whichever is earlier.

 Section 9 – Place of Accrual of Salary Income: Salary income is deemed to accrue/arise in India if the services are rendered in
India. Therefore, place of accrual of salary income is the place where work has been done by an employee.

 Section 15(1) – Chargeability of Salary Income: Salary income shall be chargeable to income tax on due basis or receipt basis,
whichever is earlier.

 'Contract of Service' v/s 'Contract for Service'.

 'Advance Salary v/s 'Advance Against Salary.

 Tax-Free Salary: In such cases, the employer bears the burden of the tax on the salary of the employee. If tax has been paid by
the employer on behalf of the employee, such payment of tax shall be considered to be a monetary perquisite in the hands of the
employee taxable u/s 17(2)(iv).

 Section 17(3) – Profits in Lieu of Salary: It is not appropriate to term certain payments made by an employer to employee as
'salary'. As per Section 17(3), such payments can be alternatively called as 'profits in lieu of salary'.

QUE:- Mr. X joined A Ltd. for a salary of ₹ 25,000 p.m. on 1/4/2021. In the year 2022-23, his increment decision was pending. On
1/12/2023, his increment was finalized as for 2022-23: ₹ 5,000 p.m. and for 2023-24 ₹ 7,500 p.m. Such arrear salary received on
5/12/2023. Find Gross taxable salary. Further, salary of April 2024 has also been received in advance on 15/03/2024.

Solution : Gross taxable salary for the previous year 2023-24 shall be calculated as under :

Particulars Workings Amount

Salary for 2023-24 (25,000 + 5,000 + 7,500) 4,50,000
x 12
Arrear salary for 2022-23 (5,000) x 12 60,000
Advance salary for April 2024 37,500
Gross total salary 5,47,500

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 PROF. VINIT KUMAR TAXATION 9873126173
TAXABILITY OF ALLOWANCES
Meaning of Allowance:
Allowance is a fixed monetary amount paid by the employer to the employee for meeting some particular expenses whether personal or
for the performance of his official duties.
List of Allowances:

HOUSE RENT ALLOWANCE ('HRA') Section 10(13A) & Rule 2A

Meaning
• HRA is an allowance given by the employer to the employee to meet the expenses in connection with rent of an accommodation
which the employee might have to take.
• HRA is taxable u/h salary to the extent it is not exempt u/s 10(13A).

Exemption Under Section 10(1 3A)

Exemption available u/s 10(13A) shall be least of the following three figures:
Kolkata/ Chennai / Delhi / Mumbai Other Cities
• Actual HRA received • Actual HRA received
• Rent paid over 10% of retirement benefits salary for • Rent paid over 10% of retirement benefits salary for the
the relevant period relevant period
• 50% of retirement benefits salary for the relevant • 40% of retirement benefits salary for the relevant
period period

Calculation of Retirement Benefits Salary:

Retirement benefits salary would comprise of the following three elements only:
 Basic pay
 Dearness allowance only if it forms part of the salary for retirement benefits as per the terms of the agreement;
 Commission received as a fixed percentage of turnover achieved by the employee
 RBS shall be computed on 'due' basis only for that period during which the rented accommodation is occupied by the employee.

Special Points
• Where the employee has not actually incurred any expenditure on payment of rent, no exemption is available u/s 10(13A) and the
entire HRA shall be taxable.
• If there is any change in the following four particulars, exemption u/s 10(13A) shall be calculated separately for pre-change period
as well as post-change period:
 Place of residence
 HRA received
 Rent paid
 Retirement benefits salary

Q. Pyarelal is an employee of A ltd and he provides following information about the emoluments. Calculate taxable HRA:-
BASIC PAY :- Rs.20,000 P.M.
D.A. :- Rs.5,000 P.M.(60% FORMS PART FOR RETIREMENT BENEFIT)
HRA :- Rs.9,000 P.M.
COMMISSION :- Rs.3,000 P.M. ( FIXED)
Pyarelal lives in pune at a rent of Rs.9,000 p.m. on 1 st aug, basic pay was increased Rs.25,000 p.m. on 1st jan he shifted to Mumbai on a
rent of Rs.15,000 p.m.

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 PROF. VINIT KUMAR TAXATION 9873126173
SPECIAL ALLOWANCES - Section 10(14) & Rule 2BB
PART 1 – PERSONAL ALLOWANCES
Children Education Allowance
Exemption: Exemption is available for maximum two children. Least of the following two figures is available as exemption irrespective
of the expenditure incurred:
 Rs 100 per month per child; or
 Amount received from the employer
Hostel Expenditure Allowance
Exemptions: Exemption is available for maximum two children least of the two figures is available as exemption irrespective of the
expenditure incurred:
 Rs 300 per month per child; or
 Amount received from the employer.
Outstation Allowance
Exemption: Least of the following two figures is available as exemption irrespective of the expenditure incurred:
 70% of outstation allowance received from the employer; or
 Rs 10,000 per month
Note: If an employee of transport system receives both daily allowance as well as outstation allowance, outstation allowance shall be
fully taxable. Exemption is available in respect of daily allowance to the extent it has been actually spent.
Underground Allowance
Exemption: Least of the following two figures is available as exemption:
 Rs 800 per month; or
 Amount received from the employer
Tribal Area Allowance
Purpose: Tribal area allowance is given to employees working in specified tribal areas,
Exemption: Least of the following two figures is available as exemption:
 Rs 200 per month; or
 Amount received from the employer

PART -2 OFFICIAL ALLOWANCE

 Official allowances are specifically granted to meet expenses incurred wholly and exclusively in connection with performance of
duties of an office or employment of profit.
 Official allowances are exempt to the extent expenses have been actually incurred for the specified purpose. If any portion of the
official allowance is not spent but saved by the employee, the portion so saved shall be taxable in the hands of the employee.

TYPE OF OFFICIAL ALLOWANCE

Daily Allowance
Uniform Allowance
Conveyance Allowance
Helper Allowance
Academic Allowance
Travelling Allowance

OTHER ALLOWANCES
Other allowances shall be fully taxable in the hands of the employee. Examples are: `;
 Family Allowance  Lunch/Tiffin Allowance
 Telephone Allowance  Overtime Allowance
 Split Duty Allowance  Medical Allowance
 City Compensatory Allowance (CCA)  Servant Allowance
 Dearness Allowance (DA)

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 PROF. VINIT KUMAR TAXATION 9873126173
QUESTION :- Mr. Laloo Singh, received education allowance of ` 80 p.m. for his 1st child, ` 90 p.m. for his 2nd child and ` 120 p.m.
for his 3rd child. He also received hostel allowance of ` 1,000 p.m. None of his children are studying. Find taxable Children Education
Allowance and Hostel allowance.

QUESTION :- Mr. & Mrs. X have three children and two of them are not studying. Both Mr. & Mrs. X are working in A Ltd. and getting
children education allowance ` 500 per month and hostel allowance ` 1,000 per month. Compute taxable children education allowance
and hostel allowance.

QUESTION :-Mr. Mugal joined Star Ltd. on 1/4/23. Details regarding his salary are as follows:
Particulars Amount (₹)
Basic 5,000 p.m.
Dearness Allowance 2,000 p.m. (50% considered for retirement benefit)
Education Allowance 1,000 p.m. (he has 1 son and 3 daughters)
Hostel Allowance 2,000 p.m. (none of the children is sent to hostel)
Medical Allowance 1,000 p.m. (total medical expenditure incurred ` 3,000)
Transport Allowance 1,800 p.m. (being used for office to residence & vice versa)
Servant Allowance 1,000 p.m.
City compensatory Allowance 2,000 p.m.
Entertainment Allowance 1,000 p.m.
Assistants Allowance 3,000 p.m. (paid to assistant ` 2,000 p.m.)
Professional Development Allowance 2,000 p.m. (actual expenses for the purpose ` 8,000 p.m.)
Bonus 24,000 p.a.
Commission 9,000 p.a.
Fees 5,000 p.a.
Compute his gross taxable salary.

CERTAIN DEDUCTIONS UNDER SECTION 16

Standard deduction- 16(ia) :

A deduction of Rs.50,000.
Entertainment Allowance – Section 16(ii)
 Taxability: Entertainment allowance is first included in the gross salary of the employee and thereafter deduction is allowed u/s
16(ii) in the manner given below:
 Deduction: Only government employees (state/central) are entitled to claim deduction u/s 16(ii). Least of the following three
figures is available as deduction irrespective of the expenditure actually incurred by the employee:
 Actual entertainment allowance received from the employer; or
 20% of salary exclusive of any allowance, benefit or perquisite; or
 Rs 5,000
Professional Tax – Section 16(ii)
Article 276 of the Constitution of India empowers State Governments/Local Authorities to collect tax on profession, trade and
employment. Such tax is commonly known as 'professional tax'.
Particulars Deductibility of Professional Tax
If professional tax is paid by a person engaged in carrying, Professional tax is allowed to be debited to P&L A/c on actual payment
on business or profession basis.
If professional tax is paid by the employee himself Professional tax is allowed as deduction from gross salary u/s 16(iii) on
actual payment basis.
If professional tax is paid by the employer on behalf of
 Professional tax so paid by the employer shall be first taxable as a
the employee monetary perquisite in the hands of the employee u/s 17(2)(iv).
Subsequently, such professional tax so paid by the employer is allowed
as deduction from gross salary u/s 16(iii) on actual payment basis.

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 PROF. VINIT KUMAR TAXATION 9873126173
QUE:- Mr. Rohit a non-Government employee has the following salary details :
a. Basic Salary ` 5,000 p.m.
b. D.A. ` 2,000 p.m.
c. Entertainment Allowance ` 300 p.m.
d. Professional tax paid by employee ` 600
e. LIC Premium paid by employer ` 3,600
f. Income tax paid by employee ` 2,000
g. Professional tax paid by employer on behalf of employee ` 1,600 Find his taxable salary.

TAXABILITY OF PERQUISITES

In simple words, perquisites are the benefits or facilities provided by an employer to his employee in addition to the normal salary.
 List of Perquisites:
PERQUISITES TAXABLE U/S 17(2):
 Rent free accommodation- Section 17(2)(i) & Rule 3(1)
 Accommodation at concessional rent- Section 17(2)(ii) & Rule 3(1)
 Any obligation of the employee discharged/met, by the employer- Section 17(2)(iv)
 Medical facility - Proviso to Section 17(2)
 Leave Travel Concession (LTC)/Leave Travel Assistance (LTA) - Section 10(5) & Rule 2B
 Payment of life insurance premium by the employer on behalf of the employee - Section 17(2)(v)
 Specified securities or sweat equity shares allotted/transferred by the employer to his employees free of cost or at
concessional rates - Section 17(2)(vi)
 Employer's contribution to approved superannuation fund- Section 17(2)(vii)
 Any other fringe benefit- Section 17(2)(viii) & Rule 3(7)
 Interest free/ concessional loans - Section 17(2)(viii) & Rule 3(7)(i)
 Facility of travelling, touring., accommodation etc - Section 17(2)(viii) & Rule 3(7)(ii)
 Free food/refreshment - Section 17(2)(viii) & Rule 3(7)(iii)
 Gifts to employees - Section 17(2)(viii) & Rule 3(7)(iv)
 Expenses credit cords (le credit card facility)- Section 17(2)(viii) & Rule 3(7)(v)
 Club facilities - Section 17(2)(viii) & Rule 3(7)(vi)
 Use of employer' moveable assets by employee,' - Section 17(2)(viii) & Rule 3(7)(vii)
 Sale of moveable assts by employer to employee - Section 17(2)(viii) & Rule 3(7)(viii)
 Any other fringe benefit - Section 17(2)(viii) & Rule 3(7)(ix)

Perquisites covered u/s 17(2)(iii)

 Motor car facility- Section 17(2)(iii) 3 Rule 3(2)
 Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
 Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
 Free education facility- Section 17(2)(iii) & Rule 3(5)
 Free transport facility - Section 17(2)(iii) & Rule 3(6)

RENT FREE ACCOMMODATION - {Section 17(2)(i): Rule 3(1))

In Case of Government Employees
In case of rent-free accommodation provided by the Central Government or the State Government to its employees, perquisite
value shall be the license fee determined as per the rules framed by the Government in this regard.

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 PROF. VINIT KUMAR TAXATION 9873126173
In Case of Non-Government Employees
Case 1- Accommodation is NOT OWNED by the Employer:
In case of accommodation taken on rent by the employer and given to the employee free of rent, the taxable value of perquisite
shall be least of the following:
• 10% of RFA salary
• Rent charges paid/payable by the employer
Case 2 – Accommodation is OWNED by the Employer:
• In case of accommodation owned by the employer and given to the employee free of rent, the taxable value of perquisite shall be
as follows:
Population of the Area where Accommodation is Situated Perquisite Value
Upto 15 lakhs 5% of RFA Salary
More than 15 lakhs; but upto 40 lakhs 7.5% of RFA Salary
More than 40 lakhs 10% of RFA Salary

Note: Meaning of RFA Salary:

Taxability of Furniture Provided to Employees along with ,Accommodation:

(FURNISHED. ACCOMMODATION)
The perquisite value of furniture (ie TV, AC, fridge, other household appliances, etc) shall be calculated in the manner given below.
Further, such perquisite value shall be taxable in the hands of all kinds of employees, whether government or non-government.
• Case 1 - If Furniture is NOT OWNED by the Employer:

• Case 2 - If Furniture is OWNED by the Employer:

SOME SPECIAL POINTS

• Rent Free Accommodation Provided at Two Places:
Where an employee has been transferred from one place to another and he is provided with accommodation at the new place of posting
while retaining the accommodation at the original place, perquisite value shall be determined as under:
 For the initial 90 days: Perquisite value of only one of the accommodation shall be taxable. Obviously, the employee would
prefer to choose the accommodation with lower perquisite value.
 After 90 days: Perquisite value of both the accommodations shall be taxable.

 Rent Free Accommodation Provided in Hotels:

 There will be no perquisite value= in case of rent free accommodation provided in a hotel if the following two conditions are
satisfied:
a) Such accommodation is provided for a period not exceeding 15 days; and
b) The accommodation has been provided on transfer of employee from one place to another.
 If the above conditions are not fulfilled, the perquisite value shall be lower of the following:
a) 24% of RFA salary; or
b) Actual expenditure incurred by the employer.

• Rent Free Accommodation Provided in a Remote Area:

Rent free accommodation provided to any employee working in a miring site, oil-exploration site or project execution site or any
other remote area is exempt from income tax in the hands of the employee.

• Rent Free Accommodation Provided to Political Figures, Judges, etc:

Rent free accommodation provided to Judges of High Court/Supreme Court, Union Ministers, Leader of Opposition in the Parliament,
Chairman and members of UPSC, etc is exempt from income tax in the hands of such persons.

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 PROF. VINIT KUMAR TAXATION 9873126173

QUESTION: Miss Stuti has the following salary structure:

a) Basic salary 15,000 p.m.
b) Dearness Allowance 5,000 p.m. (not forming part of retirement benefit)
c) Hostel Allowance 1,000 p.m. (does not have any child)
d) Tiffin Allowance 500 p.m.
e) Transport Allowance ₹ 200 p.m.
f) Bonus 20,000 p.a.
g) Commission 15,000 p.a.
h) Free refreshment in office worth ₹ 5,000 p.a.
i) Mobile phone facility by employer ₹ 900 p.m.
j) Computer facility worth ₹ 10,000 p.a.
She has been provided a Rent-free Accommodation (owned by employer) in Kolkata. The house was allotted to her with effect from
1/5/23 but she could occupy the same only from 1/6/23. Find her gross taxable salary.

QUESTION: Miss Khushi has the following salary details:

i) Basic salary ` 6,000 p.m.
ii) DA ` 3,000 p.m.
iii) Academic development allowance ` 1,000 p.m., expenditure incurred ` 700 p.m.
iv) Entertainment allowance ` 500 p.m.

She has been provided with a rent-free accommodation in Purulia. On 1/7/23, she was posted to Kolkata. A new house further allotted
to her on same date. But she surrendered her Purulia house only on 31/12/23. Rent paid by employer for Purulia House ` 500 p.m. while
Kolkata house is owned by the employer. Find her gross taxable salary.

PAYMENT OF INCOME TAX BY EMPLOYER ON BEHALF OF EMPLOYEE - Section 10(10CC)

Nature of Tax Paid by Treatment in the Hands of the Employee Treatment in the Hands of the Employer
the Employer on Behalf of
the Employee
Income tax on salary income The amount of tax shall be taxable in the The amount of tax is allowed as deduction to the
of the employee hands of the employee as a monetary employer while calculating his income u/h PGBP.
perquisite u/s 17(2)(iv).
Income tax on monetary The amount of tax shall be taxable in the The amount of tax is allowed as deduction to the
perquisite provided to the hands of the employee. employer while calculating his income u/h PGBP.
employees
Income tax on non- • The amount of tax shall be exempt in the • The amount of tax to the extent specified u/s
monetary perquisite hands of the employee to the extent 10(10CC) is NOT allowed as deduction to the
provided to the employees specified u/s 10(10CC). employer. - (Section 40(a))
• The amount of tax in excess of the • The amount of tax in excess of the amount
amount specified u/s 10(10CC) shall be specified u/s 10(10CC) shall be allowed as
taxable in the hands of the employee. deduction to the employer while calculating
his PGBP income.

Section 10 10CC) - Tax Paid b the Employment in Connection with Non-Monetary Perquisite:
The amount calculated as per the formula given below shall be exempt in the hands of the employee and excess over it shall be
taxable in his hands u/h salary:

{ Tax Liability of Employee on Total Income Excluding the Amount

X Perquisite Value of Non- Monetary Perk

of Tax Paid by the Employer on Non−Monetary Perquisite
Total Income of Employee Excluding the Amount of Tax Paid by
the Employer on Non−Monetary Perquisite

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 PROF. VINIT KUMAR TAXATION 9873126173

TREATMENT OF MEDICAL FACILITIES - Proviso to Section 17(2)

Part 1 - Medical Facilities/Reimbursement in India
The taxability of the expenditure incurred/reimbursed by an employer in connection with medical treatment of the employee or any
member of his family in India (Outside-India) has been explained in the table given below:
Status of Hospital Where Treatment Has Been Taxability of Expenses
Provided
• Government hospital; Exempt in the hands of the employee
• Hospital owned by local authority;
• Hospital owned and maintained by the employer; and
• Any private hospital approved by the government
Any private hospital not approved by the government No amount shall be chargeable to tax if both the conditions listed
below are fulfilled:
a) The private hospital has been approved by the Commissioner of
Income Tax; and
b) Expenditure has been incurred on medical treatment of
diseases specified under Rule 3A of Income Tax Rules.

Note 1: Where the employee has incurred expenditure on the medical treatment of self or any of his family member and reimbursement
is received from the employer, such reimbursement shall be taxable in similar manner.
Note 2: Payment/reimbursement of medi claim insurance premium by an employer for a policy taken in the name of the employee or his
family member is exempt in the hands of the employee.
Note 3: Medical allowance received by an employee from his employer is fully taxable.
Note 4: 'Family' for the purposes of medical facilities include:
• Spouse of the employee;
• Children of the employee (dependent or independent; married or unmarried);
• Parents, brothers and sisters of the employee provided they are dependent on him.

Part 2 – Medical Treatment Outside India

The taxability of the expenditure incurred by an employer in connection with medical treatment of the employee or any member of his
family outside India has been explained in the table given below:
Nature of Expenses Incurred by Employer Taxability of Expenses
Expenses on medical treatment of the employee or any Exempt to the extent permitted by RBI
member of his family outside India
Expenses on stay abroad incurred for: Exempt to the extent permitted by RBI
➢ Patient (employee or his family member); and
➢ One attendant
Travel expenses incurred for: Gross Total Income CGTI') of the employee before including
➢ Patient (employee or his family member); and such travel expenses:
➢ One attendant • Exceeds Rs 2,00,000: Fully taxable
• Does not exceed Rs 2,00,000: Fully exempt

Find taxable amount of perquisite in the following cases:

1. Y has been allowed a fixed medical allowance of ` 2,000 p.m.
2. Apart from reimbursement of petty medical bill of ` 25,000, Z and his family get medical treatment in a dispensary maintai ned by
the employer. Value of facility provided to Z and his family members during the previous year are as follows:
Particulars Amount (`)
a. Z 2,000
b. Mrs. Z 5,000
c. Major son of Z (independent) 8,000
d. Minor daughter of Z 25,000

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e. Dependent younger brother of Z 8,000
f. Independent younger sister of Z 10,000
g. Dependent sister in law 5,000

LEAVE TRAVEL CONCESSION/ASSISTANCE (LTC/LTA) –Section 10(5) & Rule 2B

General Provisions
• In some cases the employer may provide leave travel concession or assistance to his employee to go on leave to any place in India
either alone or along with his family.
• The employee is entitled to exemption u/s 10(5) in respect of the value of leave travel concession on or assistance received by him
from his employer.
• 'Family' for the purposes of leave travel concession include:
 Spouse of the employee;
 Children of the employee (dependent or independent; married or unmarried); and
 Parents him. , brothers and sisters of the employee provided they are dependent on him.
Note: No exemption is allowed for the third or subsequent child who is born on or after October 1st 1998. This rule shall not be
applicable in case of multiple birth.
Quantum of Exemption
Exemption available u/s 10(5) shall be of the following two figures:
• Actual expenditure incurred on the performance of journey; or
• Amount determined as per the table given below.

Particular Extent of Maximum Exemption Available

Journey is performed by air Economy fare charged by a National Carrier for the
shortest route to the place of destination
Journey is performed any mode Case. 1: Places of origin of First class AC fare charged by the Indian railways- for
of transport other than air journey and destination are the shortest route to the place of destination
connected by rail
Case 2: Places of origin of a) Recognized public transport system exists: First
journey and destination are NOT class or deluxe class fare charged by such recognized
connected by rail public transport system for the shortest route to the
place of destination
b) Recognized public transport system does not exist:
Amount equivalent to the first class AC fare that
would have been charged by the Indian railways for
the shortest route to the place of destination if a
railway connection existed between such places

• Ceiling on number of journeys:

PERQUISITES TAXABLE IN CASE OF SPECIFIED EMPLOYEES ONLY Section 17(2)(iii)

• The perquisites covered u/s 17(2)(iii) have been listed below:

 Motor car facility - Section 17(2)(iii) & Rule 3(2)
 Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
 Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
 Free education facility - Section 17(2)(iii) & Rule 3(5)
 Free transport facility - Section 17(2)(iii) & Rule 3(6)

• Perquisites listed u/s 17(2)(iii) shall be taxable only in case of 'specified employees'. In other words, such facilities shall not be
taxable in case of non-specified employees.

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• Meaning of 'Specified Employee': An employee shall be treated as a specified employee, if he falls under any of the following
circumstances:
 the employee is a director of the company (whether full-time or part-time); or
 the employee has a substantial interest in The company (ie the employee should be the beneficial holder of at least 20% equity
shares of the company); or
 the monetary income of the employee u/h salary for the relevant previous year should be more than Rs 50,000 (monetary
income u/h salary means income u/h salary computed in accordance with the provisions of the Income Tax Act, 1961, however
the value of non-monetary perquisites shall not be taken into consideration).

• Section 17(2)(iii) applies only if the facilities mentioned above have been provided by way of NON-MONETARY PERQUISITE.

• If the above facilities are provided by way of monetary perquisites, such facilities shall not be covered u/s 17(2)(iii).
Instead, such facilities would get covered u/s 17(2)(iv) and would be taxable in case of specified as well as non-specified
employees.

1) Motor Car. Facilities – Section (2)(iii) & Rule 3(2)

Car is Maintained by Used by employee for

Car is owned by Taxable value Who is Chargeable

Office purpose Not a perquisite Not applicable

1 2
Employer Personal purpose M +D
Specified Employee
Both purpose ₹ 1800 or ₹ 2400
p.m.3
Office purpose Not a perquisite Not applicable
Employer Employee Personal purpose D
Specified employee
Both purpose ₹ 600 / ₹ 900 p.m.4
Office purpose Not a perquisite Not applicable
Personal purpose M All employee
Both purpose Actual expenditure
incurred by the
employer as reduced
by
₹ 1800 / ₹ 2400
Employee Employer
p.m.3 (further
deduction of ₹900
p.m. for driver) ora
higher deduction if
prescribed conditions
are satisfied
Employee Any purpose Not a perquisite Not applicable

1.M =Maintenance cost

2.D = Depreciation @ 10% of actual cost of the car. However, if the car is not owned by employer then actual hire charge
incurred by employer shall be considered.

3.₹ 2400 p.m. in case of higher capacity car# and ₹ 1800 p.m. for lower capacity car.

4.₹ 900 p.m. in case of higher capacity car# and ₹ 600 p.m. for lower capacity car.

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2) Facilities of Gardener, Watchman, Sweeper, Servant, etc - Section 17(2)(iii) & Rule 3(3)
Relevant Section Taxability of Perquisite
Section 17(2)(iii) (Non-monetary • Taxable only in case of specified employees.
Perquisite) • Perquisite Value = Actual expenditure incurred by the employer
Note - Any amount recovered from the employee can be deducted.
Section 17(2)(iv) (Monetary • Taxable in case of both specified as well as non-specified employees.
Perquisite) • Perquisite Value = Amount reimbursed/paid by the employer
Note - Any amount recovered from the employee can be deducted,

3) Facilities of Gas, Electricity & Water - Section 17(2)011) & Rule 3(4)
Relevant Section Taxability of Perquisite
Section 17(2)(iii) • Taxable only in case of specified employees.
(Non-monetary Perquisite) • If the facility has been provided from resources owned by the employer without
purchasing from the outside agency, perquisite value shall be the manufacturing
cost incurred by the employer.
• In other cases, perquisite value shall be the actual expenditure incurred by the
employer.
Note - Any amount recovered from the employee can be deducted.
Section 17(2)(iv) • Taxable in case of both specified as well as non-specified employees.
(Monetary Perquisite) • Perquisite Value = Amount reimbursed/paid by the employer
Note - Any amount recovered from the employee can be deducted.

4) Free Education Facility - Section 17(2)(iii) & Rule 3(5)

Section 17(2)(iii) (Non-monetary Perquisite)
• Taxable only in case of specified employees.
• Expenditure incurred by the employer for providing free education facility or training to the employee) is NOT TAXABLE in
ail cases.
• Taxability of education facility provided to other members of the employee household shall be as follows:
Educational institution is • Children: Cost of education in a similar institution in or near the locality shall be taken as
owned by the employer perquisite value. However, by exemption of Rs 1,000 per month shall be provided per child
without any limit on the number of children.
• Other Members : COST of education in a similar institution in or near the locality shall be
taken as perquisite value. No exemption is available in case of other family members.
Note - Any amount recovered from the employee can be deducted in both the cases.
Educational institution • Children: Actual expenditure incurred by the employer shall be taken as perquisite value.
is NOT owned by the • Other Members: Actual expenditure incurred by the employer shall be taken as perquisite
employer value. No exemption is available in case of other family members.
Note - Any amount recovered from the employee can be deducted in both the cases.

5) Free Transport Facility - Section 17(2)(iii) & Rule 3(6)

Particulars Value of Non-Monetary Perquisite
Transportation facilities provided by airlines/railways to their NIL
employees or members of his household
Other employees employed by Transport facilities provided free Value at which such benefit or amenity is offered
an employer engaged in carriage of cost by the employer to the public
of goods or passengers Transport facilities provided at Value at which such benefit or amenity is offered
concessional rate by the employer to the public (-) Amount
recovered from employee

QUE. Mr. X employed in XYZ Ltd. as a computer analyst gives you the list of perquisites provided by the company to him for PY 23-
24:

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1. Domestic servant was provided at the residence of Mr. X. Salary of domestic servant is Rs. 1,500 p.m. The servant was engaged by
him and the salary is reimbursed by the company (employer).

2. Free education was provided to his two children Y & Z in a school maintained and owned by the company. The cost of such education
for Y is computed at Rs. 900 p.m and for Z at Rs. 1,200 p.m. No amount was recovered by the company for such education facility
from Mr. X.

3. A gift voucher worth Rs. 10,000 was given on the occasion of his marriage anniversary. It is given by the company to all employees
above certain grade.

4. Telephone provided at the residence of Shri Bala and the bill aggregating to Rs. 25,000 paid by the employer. Compute the

chargeable perquisite in the hands of Mr. X.

Solution:
1. Domestic servant was employed by the employee & salary of such domestic servant was paid/reimbursed by the employer. It is
taxable as perquisite for all employees. Taxable perquisite value = Rs. 1,500 × 12 = Rs. 18,000.

2. Where the educational institution is owned by the employer, value of perquisite i.r.o free education facility shall be determined
with reference to the reasonable cost of such education in a similar institution in or near the locality. However, there would be
no perquisite if the cost of such education per child ≤ Rs. 1,000 p.m.

Therefore, there would be no perquisite in respect of cost of free education provided to his child Y.
However, the cost of free education provided to his child Z would be taxable, since the cost exceeds Rs. 1,000 p.m. The taxable
perquisite value would be Rs. 2,400 (Rs. 200 × 12).
3. The value of any gift or voucher or token in lieu of gift received by the employee or by member of his household not exceeding
Rs. 5,000 in aggregate during the previous year is exempt. Value of perquisite would be Rs. 5,000.
Telephone provided at the residence of the employee & payment of bill by the employer is a tax-free perquisite

OBLIGATION OF THE EMPLOYEE MET BY THE EMPLOYER - Section 17(2)(iv)

• Perquisites covered u/s 17(2)(iv) are also known as monetary perquisites.
• Section 17(2)(iv) covers those situations where any obligation of the employee is met by the employer (either by way of direc t
payment or by way of reimbursement).
Examples: Reimbursement of hotel bills of the employee, reimbursement of education expenses incurred by the employee for his
family members, payment of personal debt of the employee, etc.
• The amount paid/reimbursed by the employer shall be fully taxable in the hands of the employee as a monetary perquisite u/s
17(2)(iv). Where any amount has been recovered from the employee in respect of such monetary perquisite, the same shall be
allowed to be deducted.

PAYMENT OF LIFE INSURANCE PREMIUM BY THE EMPLOYER - Section 17(2)(v)

• Life insurance premium paid by the employer to LTC or any other insurance company for a life insurance policy taken in the name
of the employee or any member of his family shall be taxable in the hands of the employee as a perquisite u/s 17(2)(v).
• The employee shall be entitled to claim deduction u/s 80C in respect of the life insurance premium paid by the employer subject
to the conditions specified u/s 80C.
• Other insurance premiums like accident insurance premium, group insurance premium, etc shall not be regarded as a perquisite for
the employee because such schemes are generally for the benefit of the employer and not the employee. .
• Provison to Section 17(2): Payment/reimbursement of mediclaim insurance premium by an employer for a policy taken in the name
of the employee or his family member is exempt in the hands of the employee.

EMPLOYER's CONTRIBUTION TO APPROVED SUPERANNUATION FUND - Section 17(2)(vii)

• Employer's contribution to an approved superannuation fund is exempt in the hands of the employee to the extent of Rs 1,50,000
• Employer's contribution in excess of Rs 1, 50,000 shall be taxable as a perquisite u/s 17(2Xvii).

SWEAT EQUITY SHARES/SECURITIES ISSUE) TO EMPLOYEES - Section 17(2)(vi)

• Value of perquisite u/s 17(2)(vi) shall be calculated in the following manner:
(FMV of Shares/Securities Amount on the (Minus) Amount Recovered from the Employees
date of Exercising the Option
x No. of Shares/Securities Allotted to the Employees
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• If such shares/securities are subsequently sold by the employee, the cost of acquisition of such shares/securities shall he the
FMV of the shares/securities as on the date of exercising the option.
• Computation of FMV of Shares/Securities (only for reading purposes):
Listed shares (listed on a recognized stock ❑ FMV shall be the average of the opening price and closing price of the
exchange) day on which the option is exercised.
❑ If shares are listed on more than one recognized stock exchange on the
date of exercising the option, opening price and closing price of that
stock exchange shall be taken into consideration which records the
highest volume of trading in the share on that day.
 Unlisted shares FMV in such situations shall be the value as determined by a merchant
 Securities (whether listed or unlisted) banker.

A company ‘X’ grants option to it employee ‘R’ on 1st April, 2017 to apply for 100 shares of the company for making available right in
the intellectual property to the employer-company at a pre-determined price of ` 50 per share with date of vesting of the option
being 1st April, 2017 and exercise period being 1st April, 2018 to 31st March, 2024. Employee ‘R’ exercises his option on 31st March,
24 and shares are allotted/transferred to him on 3rd April, 24. Fair market value of such share on different dates are as under:
01-04-2017 01-04-2018 31-03-2024 03-04-24
` 100 ` 180 ` 440 ` 470
Compute taxable perquisite, if any, in hands of Mr. R for P.Y. 23-24

VALUATION OF PERQUISITE IN RESPECT OF INTEREST FREE LOAN OR CONCESSIONAL RATE OF

INTEREST
Perquisite in respect of interest free loan or loan at concessional rate of interest to th]e employee or any member of his
household by the employer or any person on his behalf, is not taxable if aggregate amount of loan given by the employer (or
any other person on his behalf) does not exceed ₹ 20,000. The taxable value of such perquisite shall be determined as per the
rate as on the 1st day of the relevant previous year charged by the State Bank of India in respect of loans for the same
purpose advanced by it.

Notes :

a. MAXIMUM OUTSTANDING MONTHLY BALANCE: Interest is calculated on the maximum outstanding monthly balance.
Maximum outstanding monthly balance means the aggregate outstanding balance for each loan as on the last day of each month.

b. LOAN FOR MEDICAL TREATMENT: Nothing is taxable if loan is given for medical treatment of the employee or any member
of his household in respect of diseases specified in rule 3A. However, such exempted loan will not include the amount that has
been reimbursed by an insurance company under any medical insurance scheme.

c. CONCESSIONAL INTEREST: Any interest paid by the employee to the employer for such loan shall be reduced from the
above computed value. If rate of interest charged by the employer is higher than the above rate, nothing is taxable as
perquisite.

d. Amount on which interest shall be calculated: If loan amount is more than ₹ 20000, interest shall be levied on total loan
amount, rather than the excess amount.

VALUATION OF PERQUISITE IN RESPECT OF USE OF MOVABLE ASSETS [RULE 3(7)(VII)]

If employee (or any member of his household) uses any movable asset (other than the assets for which provisions have been made)
belonging to employer, then such facility is taxable in the hands of all employees. The value of such benefit is determined as per the
following table:

If the asset is owned by the employer = 10% of the original cost of such asset.

If the asset is hired by the employer = Charges paid or payable by the employer

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Notes :
a. Any sum charged from the employee shall be reduced from the value determined as above.
b. Use of computer, laptop, etc. (as discussed earlier) is exempted perquisite.
c. Here movable asset does not include car.

VALUATION OF THE PERQUISITE IN RESPECT OF MOVABLE ASSETS SOLD BY AN EMPLOYER

[RULE 3(7)(VIII)]

Types of asset Rate of depreciation Method of

depreciation
Electronic items#/Computer 50% Reducing balance
Motor car 20% Reducing balance
Any other 10% Straight line

TREATMENT OF RETIREMENT BENEFITS

• Contribution made to Provident fund

• Gratuity – Section 10(10)
• Pension- Section 10(10A) & Section 17(1) made to Provident Fund
• Leave Salary- Section 10(10AA)

TAXABILITY OF CONTRIBUTION MADE TO PROVIDENT FUND

Statutory Provident Fund

Statutory Provident Fund is set up under the Provident Fund Act, 1952. It applies to employees of government,railways, semi-
government institutions, local bodies, universities and all recognised educational institutions.
Recognised Provident Fund
Recognised Provident Fund is set up under the Employee's Provident Funds and Miscellaneous Provisions Act,1952.
Unrecognised Provident Fund
An Unrecognised Provident Fund is set up under a scheme, which has not been approved by the Income TaxAuthorities.
Public Provident Fund (PPF)
PPF is set up under the Public Provident Fund Act, 1968. Any member of the public, whether in employment ornot, may
contribute to PPF.

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BASIS EMPLOYEE’S EMPLOYER’S CONT. INTEREST ACCUM.
CONT. BALANCE
SPF

RPF

URPF

PPF

Withdrawals from RPF

• If any of the following conditions is satisfied, withdrawal from RPF shall be exempt in the hands of theemployee:
 If the employee has rendered continuous service with his employer for a period of 5 years or more;
 If the services of the employee have been terminated before 5 years due to the following reasons:
 employee's ill health; he employer has contracted/discontinued his business; or
 any other reason beyond the control of the employee.
 If after termination of his employment, the employee obtains a new employment and the total service with all
the employers is 5 years or more and the old employer should transfer the accumulated balance to any RPF
maintained by the new employer.
• If none of the above conditions are satisfied, then the amount shall be taxable in the following manner:
 Employer's Contribution & Interest thereon - Amount not taxed earlier (le 12% contribution & 9.5%interest)
shall be taxable in the hands of the employee u/h 'salary
 Employee's Contribution - Not taxable
 Interest on Employee's Contribution - Amount not taxed earlier (ie 9.5% interest) shall be taxable in the hands
of the employee u/h 'other sources'.
Further, at the time of payment, TDS shall be deducted @ 10% u/s 192A if the total payment during the relevant PY exceeds Rs
50,000.

IMPORTANT POINT :-

1) SALARY :-

2) the amount or the aggregate of amounts of any contribution made to the account of the assessee by theemployer –
a) in RPF
b) in the scheme referred to in section 80CCD(1) and
c) in an approved superannuation fund.

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QUESTION :- Mr. Sharma has been appointed as an accountant of ABC Ltd as on 1/4/2019, since then heis working with
the same company. The salary structure and increment details are as under

Basic ` 5000 - 1000 - 8000 -1500 - 14000

D.A. ` 3000 – 500 – 5000 – 1000 - 10000

He and his employer contribute to URPF 14% of basic and DA. Every year 9% interest is credited to such fund. As on
1/4/2023, the fund gets recognition. Hence, the accumulated balance in URPF was transferred to RPF. Comment on tax
treatment of such transferred balance.

QUESTION :- Mr. X is appointed as a CFO of ABC ltd. In Delhi from 1-5-2023. His basic salary is ₹ 5,50,000 p.m. He
is paid 10% as DA. He contributes 11% of his salary and DA towards RPF and company contributes the same. Find chargable
perks in the hand of Mr. X for the PY.

TAXABILITY OF CONTRIBUTION MADE TO APPROVED SUPERANNUATION FUND

Like Provident Fund, Superannuation Fund is also a scheme of retirement benefits for the employees. These funds are generally
established for the purpose of providing annuities to the employees or their family members after the retirement/death of the
employees.
Particulars Tax Treatment
Employee's Contribution Allowed as deduction u/s 80C
Employer's Contribution Exempt
Interest from Fund Fully exempt from tax in the hands of the employee
Withdrawals from Fund Exempt in certain situations (like death, retirement, etc)

Mr. X has the following salary structure – Basic pay ` 10,000 p.m. Commission (fixed) ` 2,000 DA ` 1,000 p.m. Entertainment allowance
` 2,000 p.m. X contributes ` 20,000 to provident fund. Employer also makes a matching contribution. Compute gross salary of if – a)
Mr. X is a Government employee and such provident fund is a statutoryprovident fund. b) Mr. X is an employee of Y Ltd. and such
fund is a recognized fund. c) Mr. X is an employee of Z Ltd. and such fund is an unrecognized fund.

Section 10(10) TAXABILITY OF GRATUITY

General Meaning
• In its general sense, gratuity would mean a gratuitous payment made by the employer to the employee inappreciation
of the past services rendered by the employee and his association with the institution.
• With the enactment of the Payment of Gratuity Act, 1972, payment of gratuity has become a statutoryobligation on
the part of the employer.
Taxability of Gratuity Received at the Time of Retirement
• Case 1 - In case of Government Employees:
Gratuity received by the employees of the Central Government, State Government or employees of a localauthority is fully
exempt from tax.

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• Case 2- In case of Non-Government Employees:
Employees Covered Least of the following shall be exempt:
Under the Payment  The amount of actual gratuity received;
of Gratuity Act,1972  Rs 20,00,000;
 15 days salary for each completed year of service or part thereof inexcess of 6 months
Notes:
1) While calculating 15 days salary, total number of days in a month shall be taken to be 26 days.
In case of seasonal establishment, only 7 dayssalary shall be calculated instead of 15 days.
2) Salary means the last drawn salary (Salary = Basic Pay + DA(Full)).
In case of piece rated employees, salary shall be computed on the basis of average of the total
wages received by such employees for a period of three months immediately preceding the
termination of their employment.

Employees NOT Least of the following shall be exempt:

Covered
Under the Payment of  The amount of actual gratuity received;
Gratuity Act, 1972  Rs 20,00,000;
 Half month's average salary for each completed year of service
Note: Average salary, in this case, would mean the average of the
retirement benefit salary for 10 months immediately preceding the month
of retirement.

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Special Points

• No exemption from gratuity is allowed if the relationship of employer and employee does not exist. (Eg - gratuity paid by
LIC to its insurance agents is fully chargeable to tax)
• If gratuity is received by an employee during the continuity of his job, such gratuity shall be fully taxablein the hands
of all kinds of employees.
• Where an employee has passed away and the gratuity is received by the members of such deceased employee, exemption
shall be allowed in the normal manner and the balance amount shall be taxable in the hands of the family members u/h
'other sources'.
• Reduction of Exemption: This provisions applies to an employee who has retired earlier and gratuity was paid to him upon
his retirement and some exemption was allowed to such employee u/s 10(10). If such employee retires again after
reassuming work, exemption can be claimed u/s 10(10) in respect of gratuity received again but the limit of Rs 20 lakhs
shall be reduced by the amount of exemption allowed earlier u/s 10(10).

QUESTION :- Ashok, an employee of ABC Ltd., receives ₹ 2,05,000 as gratuity under the Payment of Gratuity Act,
1972. He retires on 10th September, 2022 after rendering service for 35 years and 7 months. The last drawn salary was
₹ 2,700 per month. Calculate the amount of gratuity chargeable to tax.

QUESTION :- Mr. Oldman retired from his job after 29 years 6 months and 15 days of service on 17/12/2022 and
received gratuity amounting ₹ 4,00,000. His salary at the time of retirement was basic ₹ 6,000 p.m., dearness allowance
₹ 1,200 p.m., House rent allowance ₹ 2,000, Commission on turnover 1%, Commission on profit ₹ 5,000. He got an increment
on 1/4/2022 of ₹ 1,000 p.m. in Basic. Turnover achieved by assessee ₹ 1,00,000 p.m. Calculate his taxable gratuity if he
is a —
a) Government employee
b) Non-Government employee, covered by the Payment of Gratuity Act;
c) Non-Government employee not covered by the Payment of Gratuity Act.

QUESTION :- Mrs. X is working with ABC Ltd. since last 30 years 9 months. Her salary structure is as under: Basic `
5,000 p.m. Dearness allowance `3,000 p.m. On 15/12/2022, she died. State the treatment ofgratuity in following cases:
Case 1: Mrs. X retired on 10/12/2022 & gratuity ` 4,00,000 received by her husband (legal heir) as on 18/12/2022.
Case 2: Husband of Mrs. X received gratuity on 18/12/2022 falling due after death of Mrs. X.Mrs. X is
covered by the Payment of Gratuity Act.

Answer :

In Case 1, Computation of taxable gratuity in hands of Mrs. X for the A.Y. 2023-24 :

Particulars Details Amount

Total Gratuity received 4,00,000
Less : Minimum of the following is exempted as per Sec 10(10)(ii):
a) Actual gratuity received 4,00,000
b) Statutory Amount 20,00,000
1,43,077 1,43,077
c) 15/ x completed year of service x salary p.m. [15/ x 31 x ₹
8,000]
26 26

Taxable Gratuity 2,56,923

In Case 2, Since gratuity falls due after the death of Mrs. X hence the same is not taxable in hands ofMrs. X. Thesaid
gratuity is not taxable even in hands of husband of Mrs. X.

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Section 10(10A) & Section 17(1)

TAXABILITY OF PENSION
General Meaning
• In its general sense, pension means a payment made by the employer after the death/ retirement of the employee as a
reward for past service.
• However, in certain cases, the employee may forgo a portion of his pension and request the employer to pay a lumpsum
amount in advance by surrendering such portion of the pension. This is known as commutation of pension.

Taxability of Uncommuted Pension -Section 17(1)

Uncommuted Pension (ie Periodical Pension): As per Section 17(1), uncommuted pension is taxable in the caseof all kind of
employees.

Note: Where such pension is received by the family members of the employee after his death, such pension is known as
family pension and it is taxable in the hands of the family member u/h 'other sources' u/s 56. Annual deduction available u/s
57 in respect of family pension is equal to 1/3' of such family pension or Rs 15,000, whichever is lower.

Taxability of Commuted Pension -Section 10(10A)

• Case 1 - In case of Government Employees:

Commuted pension received by the employees of the Central Government, State Government, local authority or
statutory corporation is fully exempt from tax
• Case 2- In case of Non-Government
If the Employee is Also in Receipt of GratuityEmployees: The commuted value of 1/3rd of pension is exempt
from tax. Any amount received over and above the
exempted pension is taxable.
If the Employee is NOT in Receipt of Gratuity The commuted value of 50% of pension is exempt
from tax. Any amount received over and above the
exempted pension is taxable.

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 PROF. VINIT KUMAR TAXATION 9873126173

Uncommuted Pension Exempt in Certain Cases

• section 10(18): Pension received by the winners of gallantry awards such as Param Vir Chakra, Maha Vir Chakra or Vir
Chakra shall be fully exempt from tax. Similarly, family pension received by the family members of such winners after
their death is also exempt from tax.
• Section 10(19): In case of death of members of the armed forces of India including para-military forces during the
performance of their operational duties, family pension received by the widow/children/nominee of such members shall
be exempt from tax.

QUESTION :- Mr. Amit has retired from his job on 31/3/22. From 1/4/22 he was entitled to a pension of ` 3,000 p.m. On
1/8/22, he got 80% of his pension commuted and received ` 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)

Section 10(10AA) TAXABILITY OF LEAVE SALARY

General Meaning
• Employees are entitled to various types of leaves while they are in service. Some organizations allow an employee to
accumulate his leave and get the same encashed either during the continuity of service or at the time of retirement/death
of the employee.
• Any leave salary enchased by an employee during the continuity of his service is taxable in his hands irrespective
of the status of his employer. (CASE A)

Taxability of Leave Salary Received at the Time of Retirement

• Case B - In case of Government Employees:

Leave salary received by the employees of the Central Government and the State Government at the timeof retirement
is fully exempt from tax.
• Case C- In case of Non-Government Employees:
Least of the following shall be exempt:

IG; Tax_Forum_
 PROF. VINIT KUMAR TAXATION 9873126173
 The amount of leave salary actually received;
 Rs 25,00,000;
 10 times (x) average salary par month;
 Leave at the credit of the employee (x) average salary per month
Note 1: 'Salary', in this case, would mean retirement benefits salary. Further, average salary would be calculated on the
basis of salary drawn by the employee during the period of 10 months immediately preceding the date of his retirement.
Note 2: Leave at the credit of the employee shall be calculated in the following manner:
Leave entitlement XXXX
(Leave entitlement cannot exceed 30 days leaves per completed year of service.Any part
of the year shall not be taken into consideration)
(XXXX)
Less: Leave availed by the employee during the entire service
(XXXX)
Less: Leave enchased by the employee during the entire service

Leave at the credit of the employee XXXX

Special Points
• If leave salary has been received by an employee during the continuity of his job, such leave salary shall be fully taxable
in the hands of all kinds of employees.
• Where an employee has passed away and leave salary is received by the members of such deceased employee, such leave
salary shall be fully exempt in the hands of the family members.
• Reduction of Exemption: This provisions applies to an employee who has retired earlier and leave salary was paid to him
upon his retirement and some exemption was allowed to him u/s 10(10AA). If such employee retires again after reassuming
work, exemption can be claimed u/s 10(10AA) in respect of leave salary again but the limit of Rs 3,00,000 shall be reduced
by the amount of exemption allowed earlier u/s 10(10AA).

QUESTION :- a) Mr. Bhanu is working in Zebra Ltd. since last 25 years 9 months. Company allows 2 months leave for every
completed year of service to its employees. During the job, he had availed 20 months leave. At the time of retirement
on 10/8/2023, he got ` 1,50,000 as leave encashment. As on that date, his basic salary was ` 5,000 p.m., D.A. was ` 2,000
p.m., Commission was 5% on turnover + ` 2,000 p.m. (Fixed p.m.). Turnover effected by the assessee during last 12 months
(evenly) ` 5,00,000. Bhanu got an increment of ` 1,000 p.m. from 1/1/2023 in basic and ` 500 p.m. in D.A. Compute his
taxable leave encashment salary.

b) How shall your answer differ if the assessee had taken 2 months leave instead of 20 months, during his continuation of
job.

QUESTION :- Mr. Das retired on 31/3/2024. At the time of retirement, 18 months leave was lying to the creditof his account.
He received leave encashment equivalent to 18 months Basic salary ` 1,26,000. His employer allowshim 1½ months leave for every
completed year of service. During his tenure, he availed of 12 months leave. At thetime of retirement, he also gets D.A. ` 3,000.
His last increment of ` 1,000 in basic was on 1/4/2023. Find taxable leave encashment.

IG; Tax_Forum_
PROF. VINIT KUMAR TAXATION CA/CMA/CS
Case D: Leave salary paid to the legal heir

Leave salary paid to the legal heir of deceased employee is not taxable. [Circulars Letter No. F.35/1/65 -
IT(B), dated 5/11/1965]. Further, leave salary received by a legal heir of the Government employee who died
in harness is not taxable in the hands of the recipient [Circulars No.309, dated 3/7/1981].

MISCELLANEOUS TOPICS

TAXABILITY OF RETRENCHMENT COMPENSATION - Section 10(10B)

Meaning of Retirement compensation : Any compensation received by a workman at the time of his byretrenchment
under the Industrial Disputes Act, 1947

Exemption Available: The least of the following shall be available as exemption:

• Actual retrenchment compensation received;

• Rs.5,00,000;
• Amount computed u/s 25F(b) of the Industrial Disputes Act, 1947, ie,
(15/26 (x) Average salary of last 3 months (x) Number of completed years of service or part thereof inexcess
of 6 months)
- Salary would include basic pay and dearness allowance

QUESTION :- Mr. Raghav received retrenchment compensation of ₹ 10,00,000 after 30 years 4 months of services.
At the time of retrenchment, he was receiving basic salary of ₹ 20,000 p.m. DA of ₹ 5,000 pm. Calculate RC.

TAXABILITY OF VRS COMPENSATION- Section 10(10C) & Rule 2BA

Meaning of voluntary Retirement compensation : An employee may choose to retire voluntary from his job under a
scheme of voluntary retirement framed by the employer or the government. Compensation received by the employee at
the time of such voluntary retirement is known as voluntary retirement compensation.

Exemption Available: The least of the following shall be available as exemption:

• Actual voluntary retirement compensation received;

• Rs.5,00,000
• [3 Times (x) retirement benefit salary per month at the time of retirement (x) Number of completed yearsof
service) - Any port of month shall be completely ignored;

• Retirement benefit salary per month at the Time at retirement (x) Number of months of service yet to be
completed to reach the age of retirement)

QUESTION:- R is employed in a public company and is paid a sum of ₹ 6,00,000 on voluntary retirement from services.
The normal age of retirement in the company is 60 years and R who was 45 years at the time of retirement had completed
20 years of services. His monthly salary at the time of retirement was :-
BP = 10,000 DA (50% FP) = 6,000 HRA = 3,000 CONVEYANCE ALLOW. = 800