1. What is Advance Payment of Tax?

Process of Advance Payment of Tax

Meaning:
Advance Tax refers to the payment of income tax in parts during the financial year instead of a lump
sum at the end. It is also known as the "pay-as-you-earn" scheme.
Applicability:
If your total tax liability exceeds ₹10,000 in a financial year (after TDS), you are liable to pay advance
tax.
Process:
• Advance tax is paid in four installments:
o 15% by 15th June
o 45% by 15th September
o 75% by 15th December
o 100% by 15th March
• Payments can be made online through the Income Tax Department website using Challan
280.
• Non-payment or underpayment leads to interest under Sections 234B and 234C.
2. Meaning of Block of Assets and How Depreciation is Charged
Block of Assets:
A block of assets refers to a group of assets falling within a class of assets (tangible/intangible) and
having the same rate of depreciation. Examples: building, machinery, furniture.
Depreciation Charging:
• Depreciation is charged on the Written Down Value (WDV) method.
• Rates are prescribed under Income Tax Rules.
• Entire block is considered, not individual assets.
• If block ceases to exist (sold/disposed entirely), no depreciation allowed.

3. How to File Income Tax Return (ITR)?

Steps to File ITR:
Register/Login on https://www.incometax.gov.in
1. Choose applicable ITR Form (e.g., ITR-1 for salary)
2. Fill in personal and income details
3. Claim deductions under sections (80C, 80D, etc.)
4. Calculate tax payable/refund
5. Verify form using Aadhaar OTP, Net Banking or EVC
6. Submit ITR and download acknowledgment (ITR-V)
Modes:
• Online (Directly on portal)
• Offline (Upload XML/JSON)
 4. Difference Between TDS and TCS + TDS Income Types and Rates
Feature TDS (Tax Deducted at Source) TCS (Tax Collected at Source)
Meaning Tax deducted by payer Tax collected by seller
Deductor Payer (employer, tenant, etc.) Seller of goods/services
Recipient Deductee (employee, landlord) Buyer
Example Salary, rent, interest Sale of scrap, alcohol
TDS Applies On:
• Salary (Section 192) – As per slab
• Interest from bank (Section 194A) – 10%
• Rent (Section 194I) – 10%
• Professional Fees (Section 194J) – 10%
• Contractor Payments (Section 194C) – 1%/2%

5. Various Deductions Available Under Income Tax Act 1961

Section Deduction Limit
80C Life insurance, PPF, ELSS ₹1.5 lakh
80D Medical insurance ₹25k–₹1 lakh
80E Education loan interest Full interest
80TTA Interest on Savings A/c ₹10,000
80G Donations 50% or 100%
80GG Rent (no HRA) Based on conditions

6. Income Which are Exempted from Income Tax

Examples of Exempt Incomes:
• Agricultural income (Section 10(1))
• Share of profit from partnership firm (Sec 10(2A))
• Gifts up to ₹50,000 per year
• Gratuity, Leave Encashment, PF withdrawals
• Scholarships (Sec 10(16))
• LTC (Leave Travel Concession) under certain limits

7. Explain in Detail the Profits in the Business

Profit in Business refers to the financial gain a business earns when total revenue exceeds total
costs.
Types of Profits:
• Gross Profit = Sales – Cost of Goods Sold
• Operating Profit = Gross Profit – Operating Expenses
• Net Profit = Operating Profit – Taxes & Interest
 • Retained Profit = Net Profit – Dividends

Importance:
• Indicates business health
• Helps in reinvestment and expansion
• Attracts investors
Taxability:
• Business profits are taxable under "Income from Business or Profession"
• Adjustments allowed for depreciation, disallowed expenses, etc.
8. What are the Short-Term Sources of Finance?
Short-term finance refers to funds borrowed for a period of less than one year, mainly to meet
working capital needs.
Types:
1. Trade Credit – Credit extended by suppliers; no interest cost if paid on time.
2. Bank Overdraft – Withdrawal exceeding bank balance; interest charged on overdrawn
amount.
3. Cash Credit – Credit facility for business working capital, secured against stock/inventory.
4. Commercial Paper – Unsecured promissory note issued by large corporations; low
interest.
5. Bills Discounting – Bill of exchange sold to bank for immediate funds at a discount.
6. Short-term Loans – Loans for up to one year, often with fixed repayment terms.
Advantages:
• Quick availability
• Flexible repayment
• Helps manage liquidity
9. What are the Long-Term Sources of Finance?
Long-term finance refers to capital borrowed or invested for more than one year, typically for
acquiring fixed assets or expansion.
Types:
1. Equity Shares – Permanent capital, no obligation to repay, ownership stake.
2. Preference Shares – Fixed dividends, preference in repayment.
3. Debentures/Bonds – Fixed interest-bearing instruments; no ownership dilution.
4. Term Loans from Banks – Loans with fixed term, interest, and EMI-based repayment.
5. Retained Earnings – Internal source; reinvested profit.
6. Lease Financing – Using assets without ownership; regular lease payments.
7. External Commercial Borrowings (ECBs) – Foreign funding for large projects.
Importance:
• Supports capital investment
 • Helps long-term planning
• Stable financing source

10. What is Income from House Property?

Income from House Property is taxable if you own a building or land attached to it (not used for
business).
Key Points:
• Even if the property is not let out, income may be deemed taxable (except for one self-
occupied house).
• Rental income is taxable under this head.
Calculation:
1. Gross Annual Value (GAV) – Higher of expected rent or actual rent
2. Less: Municipal Taxes paid
3. = Net Annual Value (NAV)
4. Less: Deductions under Sec 24:
a. 30% Standard Deduction
b. Interest on Home Loan (up to ₹2 lakh for self-occupied)
Exemptions:
• One self-occupied property – NIL income assumed
• Second home onward – Deemed let out, taxed
11. What is Capital Gain? Types of Capital Gain
Capital Gain is profit from sale of a capital asset (e.g., land, house, shares).
Types:
1. Short-Term Capital Gain (STCG):
a. Assets held ≤ 36 months (or 12 months for listed shares)
b. Taxed at 15% (for shares) or slab rates
2. Long-Term Capital Gain (LTCG):
a. Assets held > 36 months (or >12 months for shares)
b. Taxed at 10% (above ₹1 lakh for shares) or 20% with indexation
Exemptions (Section 54, 54F):
• Available if reinvested in residential property or specified bonds
12. What is Income from Other Sources?
Income from Other Sources is a residual head – includes income not taxed under any other head.
Examples:
• Interest from FD/Savings
• Dividends
• Gifts exceeding ₹50,000
 • Lottery winnings, horse racing
• Rent from machinery (if not under business)

Taxability:
• Fully taxable unless specifically exempted
• Lottery, gambling winnings taxed @ 30% flat rate
13. What is Income from Salary? Components of Salary
Income from Salary includes all compensation received from an employer-employee relationship.
Components:
1. Basic Salary
2. Allowances – HRA, DA, TA, etc.
3. Perquisites – Car, accommodation, medical benefits
4. Retirement Benefits – Gratuity, pension, PF, leave encashment
5. Bonus and Commission
Tax Treatment:
• Fully or partially taxable depending on type
• Exemptions:
o HRA (Sec 10(13A))
o Leave encashment
o Standard Deduction: ₹50,000
14. What is Taxable Income? How is Total Income Calculated?
Taxable Income:
Taxable income is the portion of your gross income that is subject to income tax after claiming all
deductions and exemptions.
Steps to Calculate Total Income:
1. Compute income under 5 heads:
a. Income from Salary
b. Income from House Property
c. Profits & Gains of Business/Profession
d. Capital Gains
e. Income from Other Sources
2. Add all heads = Gross Total Income (GTI)
3. Less: Deductions under Chapter VI-A (80C to 80U)
Example: 80C (investments), 80D (medical insurance), 80G (donations), etc.
4. Total Income = GTI – Deductions
Rounded off to nearest ₹10
5. Apply tax rates/slabs to calculate tax liability.
 15. What is PAN and TAN? Why Are They Important?
PAN (Permanent Account Number):
• 10-character alphanumeric issued by Income Tax Department
• Mandatory for financial transactions (bank accounts, filing returns)
• Helps track all income and tax-related transactions of an individual/entity
TAN (Tax Deduction and Collection Account Number):
• Required by entities deducting TDS/TCS
• Mandatory for filing TDS returns and depositing tax
Importance:
• PAN ensures transparency and tracking of income
• TAN is required for deductors to deposit and report TDS
16. Explain the Different Types of ITR Forms
ITR Form Applicability
ITR-1 (Sahaj) Salaried individuals with income ≤ ₹50 lakh, 1 house property, other sources
ITR-2 Individuals/HUFs with capital gains or multiple house properties
ITR-3 Individuals/HUFs with income from business or profession
ITR-4 (Sugam) Presumptive income for small businesses (Sec 44AD/ADA)
ITR-5 Firms, LLPs, AOPs
ITR-6 Companies (except exempt under Sec 11)
ITR-7 Trusts, political parties, etc. claiming exemption under Section 11 to 13A
17. What is the Financial Year and Assessment Year?
• Financial Year (FY):
The year in which income is earned – from 1st April to 31st March (e.g., FY 2024–25)
• Assessment Year (AY):
The year following the FY in which income is assessed and taxed
(e.g., Income earned in FY 2024–25 is assessed in AY 2025–26)
Example:
If you earned income from 1 April 2024 to 31 March 2025 (FY 2024–25), it will be assessed in AY 2025–
26.
18. What is TDS Certificate and Form 16?
TDS Certificate:
A certificate issued by the deductor to the deductee, showing tax deducted and deposited.
Form 16:
• Issued by employer to salaried employees.
• Contains:
o Salary details
o TDS deducted
o PAN of employee
 o TAN of employer
Form 16 Parts:
• Part A: TDS details
• Part B: Salary breakup and deductions claimed
Other TDS forms:
• Form 16A (for non-salary payments)
• Form 26AS (combined tax credit statement)
19. What is E-Filing of Returns? Advantages
E-filing:
It refers to electronically filing income tax returns using the official portal: www.incometax.gov.in
Steps:
1. Register/Login
2. Select relevant ITR form
3. Fill details and submit
4. Verify via Aadhaar OTP, net banking, or EVC
Advantages:
• Fast and paperless
• Immediate acknowledgment
• Pre-filled data saves time
• Refund processing is faster
• Mandatory for income above ₹5 lakh
20. What is Rebate Under Section 87A?
Rebate u/s 87A:
A tax rebate available to resident individuals whose total income is ≤ ₹7,00,000 (AY 2024–25 onwards
under new regime).
Rebate Amount:
• Up to ₹25,000 under new regime (if income ≤ ₹7 lakh)
• ₹12,500 under old regime (if income ≤ ₹5 lakh)
Effect:
No tax liability up to ₹7 lakh under the new regime due to 87A rebate.
21. What is Self-Assessment Tax? How is it Paid?
Self-Assessment Tax is the tax paid by a taxpayer after computing their total tax liability, but
before filing the income tax return (ITR).
When is it Required?
• When tax liability exceeds TDS/TCS and advance tax paid.
• Must be paid before submitting ITR.
How to Pay:
 1. Visit https://www.incometax.gov.in
2. Use Challan 280
3. Select “Self-Assessment Tax” (Code 300)
4. Pay via Net Banking, Debit Card, or UPI
5. Keep receipt for ITR filing

22. What is Scrutiny in Income Tax?

Scrutiny Assessment is a detailed examination of an ITR by the Income Tax Department to ensure
correctness.
Purpose:
• Check underreporting of income or overclaim of deductions
Types of Scrutiny:
1. Manual Scrutiny
2. Computer-Assisted Scrutiny (CASS)
Process:
• Notice sent under Section 143(2)
• Taxpayer submits documents (bills, proofs, etc.)
• After verification, order passed with demand/refund

23. What is Intimation Under Section 143(1)?

Section 143(1) intimation is a system-generated communication sent after e-filing your ITR.
Purpose:
• Confirms whether income, deductions, and taxes match department records.
Intimation Types:
1. No discrepancy – Return accepted
2. Refund due
3. Tax payable (demand notice)
Time Limit:
Sent within 9 months from end of financial year in which return is filed.

24. What is Form 26AS? Importance of Form 26AS

Form 26AS is a consolidated tax credit statement that shows all taxes deposited on behalf of the
taxpayer.
Contains:
• TDS/TCS details
• Advance tax/self-assessment tax
• Refunds received
 • High-value transactions
Importance:
• Verifies tax credits before filing return
• Helps avoid mismatch or notice
• Available on income tax portal (linked to PAN)

25. What is AIS (Annual Information Statement)?

AIS is a comprehensive statement that includes all financial transactions linked to a taxpayer.
Includes:
• TDS/TCS
• Savings interest
• Mutual fund and stock investments
• Credit card payments
• Foreign remittances
Use:
• Helps ensure income disclosure
• Cross-verification for compliance
• Accessible via incometax.gov.in

26. What is a Belated Return and Revised Return?

Belated Return:
• Filed after due date (31st July for individuals)
• Can be filed till 31st Dec of the assessment year
• Attracts late fees (Sec 234F)
Revised Return:
• Return filed to correct errors in original ITR
• Can be filed till 31st Dec of AY or before assessment, whichever earlier
Note:
Both can be filed online on the portal.

27. What is a Defective Return? Section 139(9)

Defective Return means a return filed with missing/incomplete information.
Example:
• Missing TDS details
• No balance sheet for business income
• Incorrect ITR form used
 Section 139(9):
• A notice is issued
• 15 days are given to correct the defect
• Failure = ITR treated as invalid
28. What is a Notice Under Section 139(1) and 142(1)?
Section Purpose Use
139(1) General return filing Voluntary or mandatory return
142(1) Enquiry notice Asking for documents/information

Sec 142(1):
• Sent if return not filed or to gather info
• Compulsory to respond
• Ignoring = penalty or best judgment assessment
29. What is Assessment Under Section 144?
Section 144: Best Judgment Assessment
Done by AO when taxpayer:
• Fails to file return
• Fails to respond to notice
• Fails to produce books/documents
AO can:
• Use available data
• Estimate income
• Pass assessment order
Result:
Can lead to higher tax liability if no cooperation.

30. What is Revised Return Under Section 139(5)?

Section 139(5):
Allows taxpayers to revise a filed ITR if they discover any mistake, omission, or wrong statement.
Key Points:
• Must be filed before Dec 31 of the assessment year
• Original return must have been filed before due date
• Multiple revisions allowed
Purpose:
Avoid penalties, correct genuine errors.
 31. What is Tax Audit? Who Needs to Get It Done?
Tax Audit is an examination of accounts to ensure compliance with the provisions of the Income Tax
Act.
Conducted under Section 44AB by a chartered accountant (CA).
Mandatory if:
• Business turnover > ₹1 crore
(Limit increased to ₹10 crore if cash receipts/payments ≤ 5%)
• Professional income > ₹50 lakh
• Presumptive income claimed but actual profit < 6% or 8%
Form used:
Form 3CA/3CB with 3CD report

Purpose:
• Avoid tax evasion
• Ensure accurate income reporting
32. What is Presumptive Taxation Scheme? Sections 44AD, 44ADA, 44AE
This scheme allows small taxpayers to declare income at a prescribed rate without maintaining
books.
Section Applicable To Presumed Income
44AD Small businesses (turnover ≤ ₹2 crore) 8% of turnover (6% for digital)
44ADA Professionals (income ≤ ₹50 lakh) 50% of receipts
44AE Transport business (upto 10 vehicles) Fixed amount per vehicle/month
Benefits:
• No books required
• Easy compliance
• Reduced scrutiny
33. What is Advance Tax? Who is Liable to Pay?
Advance Tax means paying tax in parts during the financial year before filing ITR.
Applicable when tax liability > ₹10,000/year
Due Dates for Individuals:
• 15th June – 15%
• 15th Sept – 45%
• 15th Dec – 75%
• 15th Mar – 100%
Not applicable to:
Salaried individuals (if TDS covers liability) and senior citizens without business income
Form used: Challan 280
 34. What is Section 80C? Various Investments Allowed
Section 80C allows deductions up to ₹1.5 lakh from gross income.
Eligible Investments/Payments:
• Life insurance premiums
• PPF (Public Provident Fund)
• EPF (Employees’ Provident Fund)
• ELSS (Equity Linked Saving Scheme)
• NSC (National Savings Certificate)
• Tax-saving FDs (5 years)
• Principal repayment on home loan
• Tuition fees (up to 2 children)
Important:
• Only individuals and HUFs can claim
• Combined limit with 80CCC & 80CCD(1)
35. What is Section 80D? Medical Insurance Deduction
Section 80D allows deduction for health insurance premium:
Insured Person Deduction
Self, spouse, children Up to ₹25,000
Parents (senior citizen) Up to ₹50,000
Additional:
• ₹5,000 for preventive health check-ups (within the above limit)
Applicable to:
Individuals and HUFs
36. What is Section 80G? Deduction for Donations
Section 80G allows deduction for donations to charitable institutions and relief funds.
Types of Donations:
1. 100% without limit – PMNRF, CM relief fund, etc.
2. 50% with or without limit – NGOs, trusts
Conditions:
• Donation must be made via cheque/digital mode (not in cash above ₹2,000)
• Must have valid receipt with PAN of trust
37. What is Section 80TTA and 80TTB?
Section Applies To Deduction Limit Applies On
80TTA Non-senior individuals ₹10,000 Interest from savings account
80TTB Senior citizens (60+) ₹50,000 Interest from savings + fixed
deposits
Note:
Both can't be claimed together. 80TTB supersedes 80TTA for seniors.
 38. What is Section 80E? Education Loan Deduction
Section 80E allows deduction on interest paid on education loan (no cap).
Applicable for:
• Self, spouse, children, or student for whom the individual is legal guardian
Loan must be for:
Higher education in India or abroad
Period:
Up to 8 years or till interest is paid, whichever earlier
No limit on amount claimed
39. What is Exempt Income? Examples
Exempt Income is income which is not taxed under the Income Tax Act.
Examples:
• Agricultural income (Section 10(1))
• PPF interest (Sec 10(11))
• Gifts from relatives
• Gratuity (subject to limits)
• Scholarship for education
• HUF income from ancestral property
Note:
Must be reported in ITR under “Exempt Income” section.
40. What is Clubbing of Income?
Clubbing of Income means adding the income of another person (usually family) to your own, for
taxation.
Applicable cases:
1. Income from assets transferred to spouse or minor child
2. Remuneration of spouse from concern where taxpayer has substantial interest
3. Minor child’s income (except disability or talent-related)
Purpose:
Prevent tax evasion by transferring income to others in lower tax brackets.
PROBLEMS AND SOLUTIONS ON RESIDENTIAL STATUS

Q.1) During the previous year 2019-20, X, a foreign citizen, stayed in India for just 69 days. Determine his
residential status for the assessment year 2020-2021 on the basis of the following information: (i) During 2016-
17, X was present in India for 366 days. (ii) During 2013-14 and 2012-13, X was in Japan for 359 and 348 days
respectively and for the balance period in India. (iii) Mrs. X is resident in India for the assessment year 2020-
2021.
 To determine whether he is resident or not — He is resident for previous year 2019-20 as he satisfies the
second condition(BC2)as he was here during the previous year for 69 days and in thepreceding 4 years
for 366 days.
  To determine whether he is ordinarily resident or not — He should satisfy both of the additional
conditions.(AC1 & AC2)
2018-19 Nil Non-resident
2017-18 Nil Non-resident
2016-17 366 days Resident
2015-14 Nil Non-resident
2014-15 Nil Non-resident
2013-14 7 days Non-resident
2012-11 17 days Non-resident
2011-12 Nil Non-resident and
earlieryears Nil Non-resident

He was in India for less than 730 days in the 7 preceding previous years. He is also non-resident in 9 out of
10 previous years preceding the previous year. Hence he is “resident but not ordinarily resident”.
Q.2) Mr. Kohli, a citizen of India, is an export manager of Arjun Overseas Limited, an Indian Company,
since 1.5.2015. He has been regularly going to USA for export promotion. He spent the following days in
U.S.A. for the last five years:
Previous year ended No. of days spent in USA 31.3.2016 317 days
31.3.2017 150 days

31.3.2018 271 days

31.3.2019 311 days

31.3.2020 294 days

Determine his residential status for assessment year 2020-2021 assuming that prior to 1.5.2015 he had never
travelled abroad.
Solution
NOTE : IF a person goes out of India for his business promotion is different If a person goes out of
India for Employment purpose.(BC1 or BC2)
Since if he goes out of India for employment purpose, then BC1 will only apply for RESIDENT
PURPOSE(182 days)

Total stay in India

2015-16 48 days
2016-17 216 days
2017-18 94 days
2018-19 54 days
 2019-20 71 days

During previous year 2019-20 his stay in India is 71 days and in the four preceding years 48 + 216 + 94 + 54
= 412 days.
Resident in India (condition of 182 days for citizen not applicable as he has not gone for employment
abroad but has been going out of India during the course of employment).
2018-19 — 54 days (Non-Resident) 2017-18 — 94 days but more than 365 days in the 4 preceding
previous year. Hence, resident.
2016-17 — 216 days — resident

2015-16 — 48 days non-resident Prior to 2015-156 —- resident

He satisfies the first condition of being resident in at least 2 out of 10 previous year prior to relevant previous
year(AC1) and the 2nd condition of being in India for 730 days or more in the 7 precedingprevious years(AC2).
He is “resident and ordinarily resident in India”.
Q.3)

(a) R was born in Lahore in 1949. He has been staying in America since 1971. He came to visit India on
2.10.2019 and returns on 31.3.2020. Determine his residential status for the assessment year 2020-2021.
(b) Shane Warne, an Australian cricket player, has been coming to India since 1995-96 every year to play
cricket and has been staying here for about 4 months. What will be his residential status for the assessment
year 2020-2021.
Solution

(а) Non-resident as he neither satisfy the first conditions of 182 days nor the 2nd conditions as although he
was in India during the previous year for 181 days (i.e. more than 60 days), but he was not in India for at
least 365 days in the 4 preceding previous year.
(b) Resident in India, as he is in India for more than sixty days in the previous year and was in India for more
than 365 days in the 4 preceding previous years. Further, he satisfies both the conditions of category B. He
was resident in at least 2 out of 10 previous year prior to relevant previous year and was in India for 730 days or
more in the 7 preceding previous years. Hence, he is “resident and ordinarily resident in India”.
Q.4)

Determine the residential status in the following cases for the assessment year 2020-2021:
(i) The control and management of a HUF is situated in India. The manager of the H.U.F. visited England with his
wife from 14.8.2019 to 30.6.2020. Earlier to that he was always in India.
(ii) A company, whose registered office is in America, has a place of its effective management in the previous year in
India.
(iii) In a partnership firm, there are three partners namely A, B and
C. A and B reside in India while C lives in Germany. The firm is fully controlled by C. During the previous
year, Mr. C stayed for 6 months in India.
(iv) A V.I.P. Club is in India, whose director Mr. X belongs to China. The Club is controlled fully by Mr. X. In the
previous year. Mr. X did not come for a single day to India.
Solution
Residential Status for the assessment year 2020-21

HUF is a resident in India, as it is partly controlled from India. Further, the karta of the HUF satisfies both the conditions
of category B. He was resident in at least 2 out of 10 previous year prior to relevant previous year and was in India for
730 days or more in the 7 preceding previous years. Hence, the HUF is “resident and ordinarily resident in India”.

2. Company is resident in India as its place of effective management in the previous year is in India.
3. A partnership firm is said to be resident in India if control and management of its affairs is partly situated
in India.
4. VIP Club is non-resident — no part of the control and management was in India.
Q.5)

Sam came to India first time during the P.Y. 2019-20. During the previous year, he stayed in India for (i) 50 days; (ii) 183
days; & (iii) 153 days.
Determine his residential status for the A.Y. 2020-2021.

Solution

(i) Since Sam resides in India only for 50 days during the P.Y. 2019-20, hedoes not satisfy any of the conditions specified
in sec. 6(1). He is, therefore, a non-resident in India for the P.Y. 2019- 20.
(ii) Since Sam resides in India for 183 days during the previous year 2019- 20, he satisfies one of the conditions specified
in sec. 6(1). He is, therefore, a resident in India for the P.Y. 2019-20.
(iii) Sam resides in India only for 153 days during the previous year 2019-
20. Though he resided for more than 60 days during the previous year but in 4 years immediately preceding the
previous year (as he came India first time), he did not reside in India. Hence, he does not satisfy any of the
conditions specified in sec. 6(1). Thus, he is a non-resident for the P.Y. 2019-20.

Chapter salary
1. Mr. Rakesh is employed at Delhi in a limited company at a basic salary of Rs. 16,000 per month plus dearness
allowance of Rs 4,000 per month. He is also entitled to 1% commission on turnover achieved by him(turnover
achieved by his during the PY Rs 20 Lakhs spread evenly throughout the year). He is getting HRA of Rs. 8000 per
month. The actual rent paid by him is Rs. 5000 per month upto 30.09.2023 and thereafter it has been increased to
Rs 6,000 per month. Lunch Allowance Rs 600 per month; Medical allowance Rs 300 per month; Bonus Rs 16000
and Arrears of Salary Rs 20000. Compute the Net Salary of Mr. Rakesh for the assessment year 2024-25.

Basic Salary = ₹16,000 × 12 = ₹1,92,000

Dearness Allowance (DA) = ₹4,000 × 12 = ₹48,000
Commission = 1% of ₹20,00,000 = ₹20,000
HRA Received = ₹8,000 × 12 = ₹96,000
Lunch Allowance = ₹600 × 12 = ₹7,200
Medical Allowance = ₹300 × 12 = ₹3,600
Bonus = ₹16,000
Arrears of Salary = ₹20,000
Gross Salary before exemptions =
= 1,92,000 + 48,000 + 20,000 + 96,000 + 7,200 + 3,600 + 16,000 + 20,000
= ₹4,02,800

Less: HRA Exemption (u/s 10(13A))

Use Rule: Least of the following:

a) Actual HRA received = ₹96,000
b) Rent paid – 10% of salary
Salary for HRA = Basic + DA (forming part) = 1,92,000 + 48,000 = ₹2,40,000

• 10% = ₹24,000
• Rent paid = (₹5,000 × 6) + (₹6,000 × 6) = ₹30,000 + ₹36,000 = ₹66,000
• Excess of rent over 10% = ₹66,000 – ₹24,000 = ₹42,000
c) 50% of salary (Delhi metro) = ₹1,20,000
⇒ Exempt HRA = ₹42,000
⇒ Taxable HRA = ₹96,000 – ₹42,000 = ₹54,000

Gross Salary (after HRA exemption): = ₹4,02,800 – ₹42,000 = ₹3,60,800

Less: Standard Deduction u/s 16(ia) = ₹50,000
Net Salary = ₹3,10,800

2. Mr.Mehra is drawing a monthly basic salary of Rs 15000. He is given the following allowances every month in
addition to the basic salary: Dearness Allowance Rs 2000; Lunch Allowance Rs. 1500; Helper Allowance Rs
1,000(wages paid to helper Rs 1200 per month); Transport Allowance Rs 1200; Children Education Allowance Rs
250 per child for 3 children; Hostel Expenditure Allowance Rs 350 per child for 3 children; Conveyance Allowance Rs
500(Actual spent Rs 450 per month); Overtime Allowance Rs 800; Medical Allowance Rs 1200; City Compensatory
Allowance Rs 600; House Rent Allowance Rs 5000(Rent paid by Mr. Mehra is Rs 7000 per month). Professional tax
paid by Mr. Mehra is Rs. 2000. Compute the Taxable Salary of Mr. Mehra for the Assessment Year 2024-25.

Basic Salary = ₹15,000 × 12 = ₹1,80,000

DA = ₹2,000 × 12 = ₹24,000
Lunch Allowance = ₹1,500 × 12 = ₹18,000
Helper Allowance = ₹1,000 × 12 = ₹12,000 (Exempt to the extent spent: ₹1,200 × 12 = ₹14,400 → Fully
exempt)
Transport Allowance = ₹1,200 × 12 = ₹14,400 (Fully taxable w.e.f. AY 2020-21 except for disabled
persons)
Children Education Allowance = ₹250 × 3 × 12 = ₹9,000
Exempt: ₹100 per child for max 2 children = ₹2,400
⇒ Taxable = ₹6,600

Hostel Expenditure Allowance = ₹350 × 3 × 12 = ₹12,600

Exempt: ₹300 per child for max 2 = ₹7,200
⇒ Taxable = ₹5,400
Conveyance Allowance = ₹500 × 12 = ₹6,000 (Exempt to extent of amount spent: ₹450 × 12 = ₹5,400 →
Exempt ₹5,400, Taxable ₹600)
Overtime Allowance = ₹800 × 12 = ₹9,600
Medical Allowance = ₹1,200 × 12 = ₹14,400 (Fully taxable)
City Compensatory Allowance = ₹600 × 12 = ₹7,200
HRA = ₹5,000 × 12 = ₹60,000

HRA Exemption:

Salary for HRA = Basic + DA = ₹1,80,000 + ₹24,000 = ₹2,04,000

10% of salary = ₹20,400
Rent paid = ₹7,000 × 12 = ₹84,000
Excess of rent over 10% = ₹84,000 – ₹20,400 = ₹63,600
50% of salary = ₹1,02,000
⇒ Exempt = Least of: ₹60,000, ₹63,600, ₹1,02,000 = ₹60,000
⇒ Taxable HRA = Nil

Gross Salary Calculation

Component Amount (₹)

Basic 1,80,000
DA 24,000
Lunch Allowance 18,000
Helper Allowance Nil (Exempt)
Transport Allowance 14,400
Children Education 6,600
Allowance
Hostel Allowance 5,400
Conveyance Allowance 600
Overtime Allowance 9,600
Medical Allowance 14,400
City Compensatory 7,200
Allowance
HRA Nil
 Gross Salary ₹2,80,200

Less: Standard Deduction = ₹50,000 Less: Professional Tax (u/s 16(iii)) = ₹2,000
Net Taxable Salary = ₹2,28,200

3. Mr Rajan retires on 31.01.2024 after rendering service of 30 years and 7 months. His emoluments were as
follows : Basic Salary Rs 8000 per month; DA 40% of Basic Salary(2/3 enters for the retirement benefits); CCA Rs
125 per month; HRA Rs. 800 per month(rent paid Rs 1200 per month); Commission at 2% on turnover of
Rs 4,50,000; Medical Allowance Rs 250 per month; Lunch Allowance Rs 300 per month; Children Education
Allowance Rs 150 per month per child for 3 children; Hostel Expenditure Allowance Rs 450 per month for one child;
Travelling Allowance Rs 6000(Actual amount spent Rs 2500); Gratuity received Rs 2,85,000(He is covered under the
Payment of Gratuity Act, 1972). Mr. Rajan has paid professional tax of Rs 2000. Compute Taxable Salary of Mr.
Rajan for Assessment Year 2024-25.

Service Period = 30 years and 7 months ⇒ Count 31 years (≥6 months → full year)

Basic Salary = ₹8,000 × 10 months = ₹80,000

DA = 40% of ₹8,000 = ₹3,200/month → 2/3 for retirement = ₹2,133/month
→ Total DA (for salary) = ₹3,200 × 10 = ₹32,000
CCA = ₹125 × 10 = ₹1,250
HRA = ₹800 × 10 = ₹8,000
Commission = 2% of ₹4,50,000 = ₹9,000
Medical Allowance = ₹250 × 10 = ₹2,500
Lunch Allowance = ₹300 × 10 = ₹3,000
Children Education Allowance = ₹150 × 3 × 10 = ₹4,500 (Exempt: ₹2,000 → Taxable: ₹2,500)
Hostel Expenditure Allowance = ₹450 × 10 = ₹4,500 (Exempt: ₹3,000 → Taxable: ₹1,500)
Travelling Allowance = ₹6,000 (Exempt: actual spent ₹2,500 → Taxable ₹3,500)
Gratuity Received = ₹2,85,000

HRA Exemption:

Salary for HRA = Basic + DA (full, since part enters retirement) = ₹80,000 + ₹32,000 = ₹1,12,000
10% = ₹11,200
Rent paid = ₹1,200 × 10 = ₹12,000
Excess = ₹12,000 – ₹11,200 = ₹800
Least of: Actual HRA ₹8,000, Excess ₹800, 50% of salary ₹56,000
⇒ HRA Exempt = ₹800, Taxable = ₹7,200
Salary Before Gratuity:

Component Amount (₹)

Basic 80,000
DA 32,000
CCA 1,250
HRA (Taxable) 7,200
Commission 9,000
Medical Allowance 2,500
Lunch Allowance 3,000
Children Education Allowance 2,500
Hostel Expenditure Allowance 1,500
Travelling Allowance 3,500
Total ₹1,42,450

Gratuity Exemption Calculation (covered under Gratuity Act):

Exempt = Least of:

a) ₹20,00,000
b) Actual Gratuity = ₹2,85,000
c) 15/26 × last drawn salary × years of service
Salary = Basic + DA = ₹8,000 + ₹2,133 = ₹10,133
15/26 × ₹10,133 × 31 = ₹1,81,132.31
⇒ Exempt = ₹1,81,132, Taxable = ₹2,85,000 – ₹1,81,132 = ₹1,03,868

Gross Salary = ₹1,42,450 + ₹1,03,868 = ₹2,46,318

Less: Standard Deduction = ₹50,000

Less: Professional Tax = ₹2,000

Net Taxable Salary = ₹1,94,318