INCOME FROM SALARY

Income from Salary: A Complete Detailed Material

I. Introduction to Income from Salary
Income from Salary is one of the five heads of income under the Income Tax Act, 1961. It
covers any remuneration received by an individual from an employer for services rendered
under a contract of employment. The existence of an employer-employee relationship is
paramount for income to be classified under this head. If such a relationship does not exist
(e.g., professional fees paid to a consultant), the income would be taxed under "Profits and
Gains of Business or Profession" or "Income from Other Sources."
Key Characteristics:
 Employer-Employee Relationship: This is the sine qua non. The employer has the
right to direct and control the manner in which the work is to be done.
 Taxable on Due or Receipt Basis (whichever is earlier): This means salary is
taxable as soon as it becomes due, even if not paid, or when received, even if not
due.
 Gross Concept: The entire salary amount is taxable before any deductions by the
employer (e.g., PF contribution, professional tax deducted by employer) are
considered. These deductions are deemed to be first received by the employee and
then utilized by them.
II. Components of Salary (Section 17(1))
Section 17(1) provides an inclusive definition of "salary":
1. Wages: The basic remuneration.
2. Annuity or pension: Regular payments after retirement.
3. Gratuity: Payment for past service, typically at retirement.
4. Any fees, commissions, perquisites or profits in lieu of or in addition to any
salary or wages: Broad categories for various benefits.
5. Any advance of salary: Salary received before it is due.
6. Any payment received in respect of any period of leave not availed (Leave
Encashment).
7. The portion of the annual accretion to the balance at the credit of an employee
participating in a recognized provident fund as consists of:
o Employer's contribution exceeding 12% of salary.

o Interest credited on the accumulated balance of the provident fund in excess

of the prescribed rate (currently, interest on employee contributions exceeding
₹2.5 lakh annually is taxable for non-government employees, and ₹5 lakh for
government employees, from FY 2021-22).
8. Transferred balance in a recognized provident fund.
9. Contribution by the Central Government or any other employer to the account
of an employee under a notified pension scheme (e.g., NPS) referred to in
section 80CCD.
III. Allowances and their Taxability

A. Sivakumnar, [Link].,
Allowances are fixed periodic payments made by an employer to an employee for specific
expenses. Their taxability depends on the nature of the allowance.
A. Fully Taxable Allowances:
These are always fully included in gross salary.
 Dearness Allowance (DA)
 Overtime Allowance
 City Compensatory Allowance
 Medical Allowance (fixed, not reimbursement)
 Tiffin/Lunch Allowance (fixed, not coupons)
 Servant Allowance
 Warden Allowance
 Project Allowance
 Interim Allowance
 Non-Practicing Allowance (NPA)
 Cash Allowance (unless specifically exempt)
B. Partially Taxable Allowances (Exempt under Section 10):
These are exempt up to a certain limit or actual expenditure.
1. House Rent Allowance (HRA) [Sec 10(13A)]:
o Exempt to the LEAST of:

1. Actual HRA received.

2. Rent paid minus 10% of salary (Basic + DA forming part of retirement
benefits).
3. 50% of salary (Basic + DA forming part of retirement benefits) if
residing in Mumbai, Kolkata, Delhi, or Chennai; OR 40% of salary
(Basic + DA forming part of retirement benefits) for other cities.
o Condition: The employee must actually pay rent for an accommodation. If no
rent is paid, no exemption is available.
o Salary for HRA = Basic Salary + Dearness Allowance (if it forms part of
retirement benefits) + Commission (if based on a fixed percentage of
turnover achieved by the employee).
2. Leave Travel Allowance (LTA) / Leave Travel Concession (LTC) [Sec 10(5)]:
o Exemption is for actual travel cost (air, rail, or bus fare) within India for the
employee and their family (spouse, two dependent children, parents,
siblings).
o Allowed for two journeys in a block of four calendar years.

o Only travel expenses are exempt; accommodation, food, etc., are not.

o Proof of travel (tickets, bills) must be retained.

A. Sivakumnar, [Link].,
 3. Children Education Allowance: Exempt up to ₹100 per month per child, for a
maximum of two children.
o Example: ₹100 x 2 children x 12 months = ₹2,400 per year exempt.

4. Children Hostel Allowance: Exempt up to ₹300 per month per child, for a maximum
of two children.
o Example: ₹300 x 2 children x 12 months = ₹7,200 per year exempt.

5. Special Allowances for Official Duties [Sec 10(14)]:

o Exempt to the extent of amount spent or amount received, whichever is lower.

o Examples:

 Conveyance Allowance: For travel between office and residence is

fully taxable from FY 2018-19. For official travel during duty hours, it is
exempt to the extent utilized.
 Travelling Allowance: For travel on tour or transfer.
 Daily Allowance: To meet ordinary daily expenses on tour.
 Helper Allowance: To engage a helper for official duties.
 Research Allowance: For undertaking research work.
 Uniform Allowance: To purchase or maintain a uniform for official
duties.
6. Special Compensatory Allowances [Sec 10(14)] (Specific categories):
o Transport Allowance (for disabled employees): Exempt up to ₹3,200 per
month.
o Underground Allowance: For employees working in underground mines,
exempt up to ₹800 per month.
o Tribal Area Allowance: Exempt up to ₹200 per month.

o High Altitude Allowance, Border Area Allowance, Remote Locality

Allowance: Specific limits apply.
C. Fully Exempt Allowances:
 Allowances paid by the government to its employees serving abroad.
 Allowances for judges of the Supreme Court and High Court.
 Allowances from the United Nations Organization (UNO) to its employees.
IV. Perquisites (Section 17(2))
Perquisites (or "perks") are non-cash benefits provided by the employer, converted into
monetary value for taxation. They can be fully taxable, partially taxable, or fully exempt.
A. Taxable Perquisites for All Employees:
1. Rent-Free or Concessional Accommodation:
o Government Employees: Value is the license fee determined by the
government, reduced by any rent paid by the employee.

A. Sivakumnar, [Link].,
 o Non-Government Employees:

 If owned by Employer: Value based on population as per the 2001

census:
 15% of salary (population > 25 lakh)
 10% of salary (population > 10 lakh but up to 25 lakh)
 7.5% of salary (population <= 10 lakh)
 Less: Rent paid by employee.
 If taken on Lease/Rent by Employer: Lower of actual lease rent paid
by employer OR 15% of salary.
 Less: Rent paid by employee.
 Furnished Accommodation: Add 10% per annum of the original cost
of furniture (if owned by employer) or actual hire charges (if hired).
 Salary for Perquisites: Basic + DA (if forming part of retirement
benefits) + all other taxable allowances + monetary payment of
perquisites + any other sum taxable under salary. (Very broad
definition).
2. Obligation of Employee Met by Employer: Any sum paid by the employer in
respect of an obligation which was actually payable by the employee (e.g.,
employee's income tax, professional tax, club bills, children's school fees, utility bills
like electricity/water/gas paid by employer).
3. Payment of Life Insurance Premium of Employee by Employer: Fully taxable.
4. Employee Stock Option Plan (ESOP): The difference between the Fair Market
Value (FMV) of shares on the date of exercise and the exercise price is a taxable
perquisite.
5. Interest-Free or Concessional Loans: The difference between the interest charged
by SBI (as of the first day of the relevant previous year) for the same type of loan and
the interest charged by the employer.
o Exemption: Loans up to ₹20,000 are exempt. Also, medical loans for
specified diseases are exempt.
6. Use of Movable Assets (other than laptop/computer):
o Employer owns asset: 10% per annum of original cost.

o Employer hires asset: Actual hire charges paid by employer.

o Less: Amount recovered from employee.

7. Transfer of Movable Assets (other than electronic items/car): Difference between

original cost reduced by depreciation (20% p.a. on WDV for computers/electronic
items, 20% p.a. on WDV for motor cars, 10% p.a. on SLM for other assets) and
amount recovered from employee.
8. Gift, Voucher, or Coupon: Taxable if the aggregate value during the financial year
exceeds ₹5,000. The excess amount is taxable. Gifts in kind below ₹5,000 are
exempt.

A. Sivakumnar, [Link].,
 9. Club Expenditure: Actual expenditure incurred by employer, reduced by amount
recovered from employee.
10. Education Facilities to Employee's Children:
o If provided in employer's own institution: Cost of education in a similar
institution, reduced by ₹1,000 per month per child.
o If fees paid to another institution: Actual fees paid by employer.

o Less: Amount recovered from employee.

B. Partially Exempt Perquisites:

1. Motor Car Provided by Employer:
o Owned/Hired by Employer; Expenses borne by Employer:

 Used wholly for official duties: Exempt.

 Used wholly for personal use: Actual expenses of running &
maintenance + 10% p.a. of original cost of car (if owned) or actual hire
charges (if hired).
 Used partly for official and partly for personal use:
 Small car (up to 1.6 litres engine capacity): ₹1,800 p.m. +
₹900 p.m. for driver (if provided).
 Large car (above 1.6 litres engine capacity): ₹2,400 p.m. +
₹900 p.m. for driver (if provided).
o Owned by Employee; Expenses reimbursed by Employer:

 Wholly official: Exempt.

 Partly official/personal: Same rates as above (₹1,800/₹2,400 + ₹900)
will be taken as perquisite, and anything above this actual expenditure
by employer is taxable.
o Owned by Employer; Expenses borne by Employee:

 Actual expenses incurred by employer for fuel & maintenance + 10%

p.a. of original cost (if owned) or actual hire charges (if hired).
 Less: Amount recovered from employee.
2. Medical Facilities:
o Reimbursement of medical treatment expenses (hospitalization,
medicines, etc.): Fully taxable.
o Medical treatment in employer's hospital/approved hospital/government
hospital: Fully exempt.
o Premium paid for Mediclaim policy for employee/family by employer:
Fully exempt.
o Medical treatment abroad: Cost of treatment & stay abroad (for patient &
one attendant) exempt. Travel cost for patient (and attendant if Gross Total
Income ≤ ₹20 lakh) is exempt.
C. Fully Exempt Perquisites:

A. Sivakumnar, [Link].,
  Refreshments provided during office hours.
 Employer's contribution to NPS account (up to 14% for Central Govt., 10% for
others).
 Telephone/Mobile phone provided to employee for office/personal use.
 Use of laptop/computer by employee.
 Medical facilities provided in a hospital maintained by the employer.
 Benefits provided under a policy of group insurance.
 Free meals provided during working hours (up to ₹50 per meal).
 Periodical magazines, journals for official use.
 Training of employees.
 Expenditure on conveyance for official purposes.
 Employer's contribution to a recognized provident fund (RPF) up to 12% of salary.
 Employer's contribution to an approved Superannuation Fund (up to ₹1.5 lakh per
annum per employee). Note: Combined employer contribution to EPF, NPS, and
Superannuation Fund exceeding ₹7.5 lakh in a year is taxable as a perquisite since
FY 2020-21.
V. Profits in Lieu of Salary (Section 17(3))
Any payment received by an employee from their employer or former employer which is not
covered by the regular salary, but is related to employment.
 Compensation for termination of employment.
 Any sum received under a Keyman Insurance Policy.
 Any sum received, whether in lump sum or otherwise, other than sums covered by
gratuity, pension, leave encashment, or provident fund.
VI. Deductions from Salary (Section 16)
After calculating the gross salary, the following deductions are allowed:
1. Standard Deduction [Sec 16(ia)]: A flat deduction of ₹50,000 for all salaried
individuals. This deduction is available irrespective of the tax regime (Old or New).
2. Entertainment Allowance [Sec 16(ii)]:
o Only available to Government Employees.

o Deduction is the LEAST of:

 ₹5,000.
 20% of Basic Salary.
 Actual Entertainment Allowance received.
o Non-government employees cannot claim this deduction.

3. Professional Tax / Tax on Employment [Sec 16(iii)]:

A. Sivakumnar, [Link].,
 o Any professional tax levied by a State Government and paid by the employee
(or paid by the employer on behalf of the employee) is allowed as a
deduction.
o If paid by the employer, it is first included in salary as a perquisite and then
deducted under this section.
o

VII. Tax Treatment of Specific Payments

A. Provident Fund (PF)

Employee's Employer's Interest Lump Sum Withdrawal (at

Type of PF
Contribution Contribution Accrued retirement/termination)

Statutory PF Deductible
Fully Exempt Fully Exempt Fully Exempt
(SPF) u/s 80C

Exempt if continuous service

of 5 years or more.
If less than 5 years:
- Employer's contribution +
interest thereon: Taxable as
Exempt up to
Recognized PF Deductible Exempt up to Salary.
12% of salary
(RPF) u/s 80C 9.5% p.a. - Interest on employee's
(B+DA)
contribution: Taxable as
Salary.
- Employee's own
contribution: Not taxable (as
80C benefit claimed earlier).

- Employer's contribution +
interest thereon: Taxable as
'Profits in lieu of salary'.
Not Not Taxable at Not Taxable - Interest on employee's
Unrecognized
Deductible time of during contribution: Taxable as
PF (URPF)
u/s 80C contribution accumulation 'Income from Other Sources'.

- Employee's own
contribution: Not taxable.

Public PF Deductible (Not

Fully Exempt Fully Exempt
(PPF) u/s 80C Applicable)

New Rule for RPF (FY 2021-22 onwards):

 Interest accrued on employee's contribution to RPF exceeding ₹2.5 Lakh in a
financial year is taxable.
 For government employees contributing to GPF (where there's no employer
contribution), the limit for interest exemption is ₹5 Lakh.
 Combined employer's contribution to RPF, NPS, and Superannuation Fund
exceeding ₹7.5 Lakh in a financial year is taxable as a perquisite.
B. Gratuity (Section 10(10))

A. Sivakumnar, [Link].,
Category Exemption (LEAST of)

Government Employees Fully Exempt

1. Actual Gratuity Received

2. ₹20,00,000 (Statutory Limit)
3. 15 days' salary for each completed year of service
Non-Government Employees
(15/26 * Last drawn salary * Completed years of service)
(Covered by Payment of
Definition of 'Salary' for this purpose: Last drawn Basic +
Gratuity Act, 1972)
Dearness Allowance.
Completed year of service: 6 months or more in a year is
rounded off to full year.

1. Actual Gratuity Received

2. ₹20,00,000 (Statutory Limit)
3. Half month's average salary for each completed year of
Non-Government Employees service (Average salary of last 10 months preceding the
(NOT Covered by Payment of month of retirement * 1/2 * Completed years of service)
Gratuity Act, 1972) Definition of 'Salary' for this purpose: Average of last 10
months Basic + DA (if forming part of retirement benefits)
+ Commission (if based on fixed % of turnover).
Completed years of service: Fractional part ignored.

Gratuity received During

Fully Taxable for all employees (no exemption).
Service

C. Pension (Section 10(10A))

Type of Pension Taxability

Uncommuted Fully Taxable for all employees (Government & Non-Government) as

Pension (Periodic) "Income from Salary."

Government Employees: Fully Exempt.

Non-Government Employees:
- If Gratuity is also received: 1/3rd of the amount of pension which he
Commuted
would have received had he commuted the whole of the pension is
Pension (Lump
Exempt. The balance is taxable.
Sum)
- If NO Gratuity is received: 1/2 of the amount of pension which he
would have received had he commuted the whole of the pension is
Exempt. The balance is taxable.

Received by legal heirs of a deceased employee. Taxable under

"Income from Other Sources."
Family Pension
Deduction u/s 57(iia): ₹15,000 or 1/3rd of the pension received,
whichever is lower.

- Withdrawal on retirement/superannuation (60%): Up to 60% of the

corpus withdrawn is exempt. The remaining 40% must be used to
National Pension purchase an annuity.
System (NPS) - Annuity Income: Fully taxable under "Income from Other Sources."
- Partial withdrawal (up to 25% of employee's contribution):
Exempt.

D. Leave Encashment (Section 10(10AA))

A. Sivakumnar, [Link].,
Type of Leave Encashment Taxability

Fully Taxable for all employees. Relief under Section 89

During Service
may be available.

Government Employees (Central/State): Fully Exempt.

Non-Government Employees: Exempt to the LEAST of:
1. Actual leave encashment received.
2. ₹25,00,000 (Statutory Limit) - This limit was increased
from ₹3 lakh to ₹25 lakh w.e.f. 01.04.2023 for leave
encashment received on or after 01.04.2023.
3. 10 months' average salary (Average of last 10 months
preceding the month of retirement/resignation).
At Retirement/Resignation
4. Cash equivalent of unutilized earned leave (based on a
maximum of 30 days leave for each completed year of
service, less leave availed).
Definition of 'Salary' for this purpose: Average of last 10
months Basic + DA (if forming part of retirement benefits) +
Commission (if based on fixed % of turnover).
Unutilized leave: Max 30 days per year, total period of
service.

Received by Legal Heirs of

Fully Exempt from tax.
Deceased Employee

Export to Sheets
VIII. Relief under Section 89
If an employee receives arrears of salary or advance salary, it can push their income into a
higher tax bracket in the year of receipt. Section 89 provides relief by allowing the assessee
to pay tax as if the arrears were received in the year(s) they were due. To claim this relief,
Form 10E must be filed online before filing the Income Tax Return.

A. Sivakumnar, [Link].,
Proforma for Computation of Income from Salary
This proforma can be used for both Old and New Tax Regimes, with specific notes for the
latter.
Name of Assessee: PAN: Assessment Year: 2025-26 Financial Year: 2024-25

Particulars Amount Amount

I. Gross Salary (₹) (₹)
Basic Salary XXX
Dearness Allowance XXX
Fully Taxable Allowances:
Overtime Allowance XXX
City Compensatory Allowance XXX
Medical Allowance (Fixed) XXX
Other Fully Taxable Allowances XXX
Taxable Perquisites (as per valuation rules):
Rent-Free/Concessional Accommodation XXX
Concessional Loan XXX
Motor Car Perquisite XXX
ESOP Perquisite XXX
Other Taxable Perquisites XXX
Profits in lieu of Salary (if any):
Compensation for termination XXX
Keyman Insurance Policy Amount XXX
Taxable Portion of PF contributions/interest:
Employer's contribution to RPF (>12% of salary) XXX
Interest on RPF (>9.5% p.a.) XXX
Interest on Employee's Contribution to RPF (> ₹2.5/5L) XXX
Taxable Employer's Combined PF/NPS/Superannuation Contribution XXX
(> ₹7.5L)
Less: Exempt Allowances (Section 10)
House Rent Allowance (Exempt portion) (XXX)
Leave Travel Allowance (Exempt portion) (XXX)
Children Education Allowance (Exempt portion) (XXX)
Children Hostel Allowance (Exempt portion) (XXX)
Other Exempt Allowances (e.g., specific official allowances to the (XXX)
extent spent)
Less: Exempt Gratuity/Commuted Pension/Leave Encashment (XXX)
(if applicable)
Gross Salary (after specific exemptions) XXXXXX
II. Deductions from Salary (Section 16)
Less: Standard Deduction [Sec 16(ia)] (₹50,000) (50,000)
Less: Entertainment Allowance [Sec 16(ii)] (for Govt. employees (XXX)
only) Professional Tax [Sec 16(iii)]
Less: (XXX)
Income Chargeable under the Head "Salaries" XXXXXX

A. Sivakumnar, [Link].,
Notes for New Tax Regime (Section 115BAC):
 If the assessee opts for the New Tax Regime, most exemptions under Section 10
(like HRA, LTA, Children allowances, etc.) and deductions under Section 16 (except
Standard Deduction) are not allowed.
 The Standard Deduction of ₹50,000 is available in the New Tax Regime as well,
starting from FY 2023-24 (AY 2024-25).
 Professional Tax (Sec 16(iii)) and Entertainment Allowance (Sec 16(ii)) are not
allowed under the New Tax Regime.
 Chapter VI-A deductions (80C, 80D, etc.) are not allowed in the New Tax Regime,
except for Sec 80CCD(2) (employer's contribution to NPS).

Practical Problems and Solutions

A. Sivakumnar, [Link].,
PROBLEM 1: Basic Salary + HRA + DA + Bonus + CCA
Question (10 Points):
1. Mr. Ajay is employed in a private firm in Delhi.
2. Basic Salary: ₹40,000 per month
3. Dearness Allowance: ₹10,000 per month (forms part of retirement)
4. HRA: ₹15,000 per month
5. Rent Paid: ₹18,000 per month in Delhi (Metro)
6. City Compensatory Allowance (CCA): ₹2,000 per month
7. Medical Allowance: ₹1,250 per month
8. Transport Allowance: ₹2,400 per month
9. Bonus received during the year: ₹25,000
10. Profession Tax paid by employee: ₹2,400
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 4,80,000
Dearness Allowance 1,20,000
House Rent Allowance 1,80,000
(-) Exemption 1,56,000 24,000
City Compensatory Allowance 24,000
Medical Allowance (Fully Taxable) 15,000
Transport Allowance (Fully Taxable) 28,800
Bonus 25,000
Gross Salary 8,16,800
(-) Standard Deduction (-) 50,000
(-) Profession Tax (-) 2,400
Net Income from Salary 7,64,400
Explanation:
 Basic Salary and DA: Fully taxable. DA is included in salary for HRA
exemption.
 HRA Exemption: Since Ajay lives in Delhi (metro), 50% of salary is
considered. Exemption is calculated as least of: HRA received
(₹1,80,000), 50% of salary (₹3,00,000), Rent paid – 10% of salary
(₹2,16,000 – ₹60,000 = ₹1,56,000). Hence, exempt = ₹1,56,000.
 CCA, Medical and Transport Allowances: Fully taxable as no
specific exemption applies.
 Bonus: Fully taxable.
 Deductions: Standard deduction (₹50,000) and profession tax paid
(₹2,400) are allowed under Sec. 16.

PROBLEM 2: Allowances Including Children Education, Uniform,

Helper
Question (10 Points):
1. Ms. Sneha is employed in a private company in Bengaluru.
2. Basic Salary: ₹60,000 per month
3. DA: ₹5,000 per month (not forming part of retirement)
4. HRA: ₹20,000 per month
5. Rent Paid: ₹22,000 per month in Bengaluru
6. Children Education Allowance: ₹800 per month for 2 children
7. Uniform Allowance: ₹1,500 per month (₹14,000 spent)
8. Helper Allowance: ₹1,000 per month (₹10,000 spent)
9. Medical Allowance: ₹1,250 per month
10. Transport Allowance: ₹2,400 per month

A. Sivakumnar, [Link].,
Computation of Income from Salary
Particulars Amount (INR) Amount (INR)
Basic Salary 7,20,000
Dearness Allowance 60,000
House Rent Allowance 2,40,000
(-) Exemption 1,92,000 48,000
Children Education Allowance 9,600
(-) Exemption 2,400 7,200
Uniform Allowance 18,000
(-) Exemption 14,000 4,000
Helper Allowance 12,000
(-) Exemption 10,000 2,000
Medical Allowance (Fully Taxable) 15,000
Transport Allowance (Fully Taxable) 28,800
Gross Salary 8,45,000
(-) Standard Deduction (-) 50,000
Net Income from Salary 7,95,000
Explanation:
 Basic Salary and DA: Fully taxable.
 HRA Exemption: Least of (i) HRA received ₹2,40,000, (ii) 50% of
salary = ₹3,90,000, (iii) Rent – 10% of salary = ₹2,64,000 – ₹72,000 =
₹1,92,000. So, exempt = ₹1,92,000.
 Children Education Allowance: ₹100 per child per month for 2
children = ₹2,400 exempt. Balance ₹7,200 is taxable.
 Uniform and Helper Allowances: Only amount actually spent (and
supported) is exempt. Taxable portions are added.
 Medical and Transport Allowances: Fully taxable.
 **Standard deduction ₹50,000 is allowed under Sec. 16.
PROBLEM 3: Entertainment, Lunch, Phone Bill, Gift Voucher
Question (10 Points):
1. Mr. Rohit is a marketing manager in Pune.
2. Basic Salary: ₹55,000 per month
3. DA: ₹5,000 per month (forms part of retirement)
4. HRA: ₹18,000 per month
5. Rent Paid: ₹20,000 per month
6. Entertainment Allowance: ₹2,000 per month
7. Free lunch: ₹60 per working day (300 days)
8. Mobile phone bills reimbursed: ₹12,000
9. Gift Voucher: ₹6,000
10. Children Education Allowance: ₹1,000 per month for 1 child
Computation of Income from Salary
Particulars Amount (INR) Amount (INR)
Basic Salary 6,60,000
Dearness Allowance 60,000
House Rent Allowance 2,16,000
(-) Exemption 1,74,000 42,000
Entertainment Allowance 24,000
Free Lunch Benefit 18,000
(-) Exemption 15,000 3,000
Mobile Reimbursement (Fully
12,000
Exempt)
Gift Voucher 6,000
(-) Exemption 5,000 1,000

A. Sivakumnar, [Link].,
Children Education Allowance 12,000
(-) Exemption 1,200 10,800
Gross Salary 8,60,800
(-) Standard Deduction (-) 50,000
Net Income from Salary 8,10,800
Explanation:
 Basic Salary and DA: Fully taxable. DA is included for HRA.
 HRA Exemption: Least of (i) HRA received ₹2,16,000, (ii) 50% of
salary = ₹3,60,000, (iii) Rent – 10% of salary = ₹2,40,000 – ₹66,000 =
₹1,74,000. So, exempt = ₹1,74,000.
 Entertainment Allowance and Free Lunch: Lunch exempt up to ₹50
per day. ₹15,000 exempt, ₹3,000 taxable.
 Mobile Reimbursement: Fully exempt if for official use.
 Gift Voucher: Exempt up to ₹5,000. ₹1,000 taxable.
 Children Education Allowance: ₹100/month exempt for 1 child =
₹1,200. Rest taxable.
 Standard deduction ₹50,000 allowed under Sec. 16.

A. Sivakumnar, [Link].,
PROBLEM 4: Rent-free Accommodation + Furniture + Allowances
Question (10 Points):
1. Mr. Ajay is working in a private company in Mumbai.
2. Basic Salary: ₹60,000/month
3. DA: ₹5,000/month (forms part of retirement)
4. HRA: ₹18,000/month
5. Rent paid: ₹20,000/month
6. Rent-free unfurnished house is provided by employer (FRV:
₹15,000/month)
7. Furniture worth ₹2,00,000 provided
8. Medical allowance: ₹1,250/month
9. Transport allowance: ₹3,000/month
[Link] deduction applies
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 7,20,000
DA 60,000
HRA 2,16,000
(-) Exemption 1,56,000 60,000
Rent-free House (FRV) 1,80,000
Furniture (10% of ₹2L) 20,000
Medical Allowance 15,000
Transport Allowance 36,000
Gross Salary 10,91,000
(-) Standard Deduction (-) 50,000
Net Income from
10,41,000
Salary
Explanation:
 HRA exemption = Least of (i) ₹2,16,000, (ii) 50% salary = ₹3,90,000, (iii)
Rent – 10% salary = ₹2,40,000 – ₹84,000 = ₹1,56,000
 Perquisite of furniture = 10% of cost p.a.
 Rent-free house taxed at FRV (₹15,000/month)

PROBLEM 5: Motor Car, Rent-free House (Leased), Servant Facility

Question (10 Points):
1. Mr. Srikanth is employed in a company in Hyderabad.
2. Basic Salary: ₹70,000/month
3. DA: ₹10,000/month
4. Company provided rent-free leased accommodation (actual rent paid by
employer: ₹20,000/month)
5. Company car (engine >1.6L) with driver, used for personal use
6. Servant provided by employer; salary ₹5,000/month
7. HRA: ₹20,000/month
8. Rent paid: ₹18,000/month
9. Medical allowance: ₹1,250/month
[Link] deduction applies
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 8,40,000
DA 1,20,000
HRA 2,40,000
(-) Exemption 1,80,000 60,000
Rent-free House (Least 2,40,000

A. Sivakumnar, [Link].,
 Amount Amount
Particulars
(INR) (INR)
of)
(-) 15% of salary 1,38,000 1,02,000
Car (>1.6L + driver) 32,400
Servant Salary 60,000
Medical Allowance 15,000
Gross Salary 11,49,400
(-) Standard Deduction (-) 50,000
Net Income from
10,99,400
Salary
Explanation:
 Rent-free house = least of actual rent paid (₹2,40,000) or 15% of salary
(₹1,38,000) → Taxable ₹1,02,000
 Car perquisite = ₹2,700/month
 Servant salary = fully taxable
 HRA exemption: Rent – 10% salary = ₹2,16,000 – ₹1,44,000 = ₹72,000
(actual HRA ₹2,40,000) → exemption ₹1,80,000

A. Sivakumnar, [Link].,
ROBLEM 6: Fully Taxable Perquisites – Gas, Electricity, Club, Personal
Expenses
Question (10 Points):
1. Mr. Rakesh is a senior executive in Chennai.
2. Basic Salary: ₹90,000 per month
3. DA: ₹10,000 per month (forms part of retirement)
4. Company paid for gas and electricity at home: ₹3,000/month
5. Club Membership: ₹30,000 per annum (personal use)
6. Reimbursement of personal travel expenses: ₹50,000
7. HRA: ₹20,000 per month
8. Rent paid: ₹22,000 per month
9. Medical Allowance: ₹1,250 per month
[Link] Tax: ₹2,500 paid by employee
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 10,80,000
Dearness Allowance 1,20,000
HRA 2,40,000
(-) Exemption 1,74,000 66,000
Gas and Electricity 36,000
Club Expenses (personal
30,000
use)
Reimbursed Travel
50,000
(personal)
Medical Allowance 15,000
Gross Salary 13,97,000
(-) Standard Deduction (-) 50,000
(-) Profession Tax (-) 2,500
Net Income from Salary 13,44,500
Explanation:
 All perquisites mentioned are fully taxable since they relate to personal
benefit.
 HRA Exemption: Least of (i) ₹2,40,000, (ii) 50% salary = ₹6,00,000, (iii)
Rent – 10% salary = ₹2,64,000 – ₹90,000 = ₹1,74,000.

PROBLEM 7: Gratuity + Leave Encashment + Pension (Govt. Employee)

Question (10 Points):
1. Mr. Prasad retired from State Government Service.
2. Basic Salary: ₹60,000 per month
3. Service: 32 years
4. Gratuity received: ₹12,00,000
5. Leave encashment: ₹5,40,000 (240 days leave)
6. Pension: ₹30,000 per month (uncommuted)
7. HRA before retirement: ₹12,000 per month
8. Rent paid: ₹15,000 per month
9. DA: ₹6,000 per month
[Link] deduction applies
Computation of Income from Salary
Amount
Particulars Amount (INR)
(INR)
Basic Salary (up to
7,20,000
retirement)
DA 72,000
HRA 1,44,000

A. Sivakumnar, [Link].,
(-) Exemption 1,26,000 18,000
Gratuity 12,00,000
(-) Exemption (Govt
12,00,000 0
employee)
Leave Encashment 5,40,000
(-) Exemption (Govt
5,40,000 0
employee)
Pension (Uncommuted) 3,60,000
Gross Salary 11,70,000
(-) Standard Deduction (-) 50,000
Net Income from Salary 11,20,000
Explanation:
 Govt. employees get full exemption on gratuity and leave encashment.
 Uncommuted pension is fully taxable.
PROBLEM 8: Commuted Pension + Gratuity (Non-Govt Covered under
Gratuity Act)
Question (10 Points):
1. Mr. Anand retired from a private company.
2. Basic Salary: ₹65,000 per month
3. Service: 30 years
4. Gratuity received: ₹10,00,000
5. Commuted Pension received: ₹6,00,000 (1/3rd of total)
6. Uncommuted Pension: ₹20,000 per month
7. DA: ₹5,000 per month (forms part of salary)
8. HRA: ₹15,000 per month (received till retirement)
9. Rent Paid: ₹14,000 per month
[Link] Deduction applies
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 7,80,000
DA 60,000
HRA 1,80,000
(-) Exemption 1,38,000 42,000
Gratuity 10,00,000
(-) Exemption 7,65,000 2,35,000
Commuted Pension 6,00,000
(-) Exemption (1/3rd
6,00,000 0
exempt)
Uncommuted Pension 2,40,000
Gross Salary 13,17,000
(-) Standard Deduction (-) 50,000
Net Income from Salary 12,67,000
Explanation:
 Non-govt employee covered under Gratuity Act: Exemption = Least of
₹20,00,000, actual received, or 15/26 × last salary × completed years
(₹7,65,000 approx.).
 Commuted pension 1/3rd received — fully exempt for non-govt if gratuity
also received.
 Uncommuted pension fully taxable.
PROBLEM 9: Voluntary Retirement Scheme + Uncommuted Pension
Question (10 Points):
1. Mr. Mahesh opted for VRS from a PSU.
2. Basic Salary: ₹55,000 per month

A. Sivakumnar, [Link].,
 3. DA: ₹5,000 per month (forms part of retirement)
4. VRS Compensation: ₹10,00,000
5. Uncommuted Pension: ₹25,000 per month
6. Gratuity: ₹8,00,000
7. HRA: ₹12,000 per month
8. Rent paid: ₹10,000 per month
9. Service: 28 years
[Link] Deduction applies
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 6,60,000
DA 60,000
HRA 1,44,000
(-) Exemption 72,000 72,000
VRS Compensation 10,00,000
(-) Exemption (Max
5,00,000 5,00,000
5,00,000)
Gratuity 8,00,000
(-) Exemption 6,38,000 1,62,000
Uncommuted Pension 3,00,000
Gross Salary 16,54,000
(-) Standard Deduction (-) 50,000
Net Income from Salary 16,04,000
Explanation:
 VRS Compensation exempt up to ₹5 lakh under Sec. 10(10C).
 Gratuity: Exempt least of ₹20L, actual received or eligible limit (15/26
formula) = ₹6,38,000.
 Pension (uncommuted): fully taxable.
 HRA Exemption: Rent – 10% salary = ₹1,20,000 – ₹66,000 = ₹54,000
(restricted to actual HRA ₹1,44,000).

PROBLEM 10: Employer Contribution to PF + NPS + Rent-free House +

Gifts
Question (10 Points):
1. Ms. Priya is a manager in a private company in Bengaluru.
2. Basic Salary: ₹75,000 per month
3. DA: ₹5,000 per month
4. Employer contributed ₹1,20,000 to RPF
5. Employer contributed ₹1,00,000 to NPS
6. Rent-free accommodation (leased): Rent ₹20,000 per month
7. Gift received ₹10,000
8. HRA: Not received
9. Medical allowance: ₹1,250/month
[Link] Tax: ₹2,400
Computation of Income from Salary
Amount
Particulars Amount (INR)
(INR)
Basic Salary 9,00,000
DA 60,000
Rent-free Accommodation 2,40,000
(-) Exemption (15% of salary) 1,44,000 96,000
Gift Received 10,000
(-) Exemption 5,000 5,000

A. Sivakumnar, [Link].,
Employer’s PF Contribution
0
(Exempt)
Employer NPS Contribution (Taxable) 1,00,000
Medical Allowance 15,000
Gross Salary 10,76,000
(-) Standard Deduction (-) 50,000
(-) Profession Tax (-) 2,400
Net Income from Salary 10,23,600
Explanation:
 Rent-free house: Taxable at least of rent paid by employer or 15% of
salary.
 Gift: Exempt up to ₹5,000.
 Employer’s RPF contribution is exempt up to 12% of salary.
 Employer NPS: Fully taxable under Sec. 17(1).
PROBLEM 11: HRA + Accommodation + Car + Pension + Gratuity (Mixed
Case)
Question (10 Points):
1. Mr. Dinesh retired during the year from a private company in Delhi.
2. Basic Salary: ₹80,000/month
3. DA: ₹10,000/month (forms part of retirement)
4. HRA: ₹25,000/month; Rent paid: ₹30,000/month
5. Rent-free house provided by employer post-retirement (FRV
₹20,000/month)
6. Car (engine >1.6L) with driver for personal use
7. Gratuity received: ₹9,00,000
8. Uncommuted Pension: ₹40,000/month
9. Club reimbursement: ₹24,000
[Link] Deduction allowed
Computation of Income from Salary
Amount Amount
Particulars
(INR) (INR)
Basic Salary 9,60,000
DA 1,20,000
HRA 3,00,000
(-) Exemption 2,52,000 48,000
Rent-free House (FRV
2,40,000
basis)
Car + Driver (>1.6L) 32,400
Club Reimbursement 24,000
Gratuity 9,00,000
(-) Exemption 6,92,308 2,07,692
Pension (uncommuted) 4,80,000
Gross Salary 21,12,092
(-) Standard Deduction (-) 50,000
Net Income from Salary 20,62,092
Explanation:
 HRA Exemption: Least of HRA (₹3,00,000), 50% salary (₹5,40,000), rent –
10% salary (₹2,52,000).
 Gratuity (private sector, not govt): 15/26 formula = ₹6,92,308 (exempt).
 Car: Personal use >1.6L = ₹2,700/month.
 Rent-free house (FRV basis) taxable post-retirement.

PROBLEM 12: All Allowances + PF + NPS + Gifts + Perks (Full Package)

Question (10 Points):

A. Sivakumnar, [Link].,
 1. Ms. Swathi is a senior officer in Hyderabad.
2. Basic: ₹85,000/month; DA: ₹7,000/month
3. HRA: ₹20,000/month; Rent paid: ₹21,000/month
4. Transport allowance: ₹3,000/month
5. Children Education: ₹1,200/month (2 kids)
6. Uniform allowance: ₹2,000/month
7. Gift: ₹7,000
8. Employer NPS: ₹80,000; RPF ₹1,00,000
9. Telephone Reimbursement: ₹15,000
[Link] Deduction applies
Computation of Income from Salary
Amount
Particulars Amount (INR)
(INR)
Basic Salary 10,20,000
DA 84,000
HRA 2,40,000
(-) Exemption 1,80,000 60,000
Transport Allowance 36,000
Children Education Allowance 28,800
(-) Exemption 4,800 24,000
Uniform Allowance (Exempt) 0
Gift 7,000
(-) Exemption 5,000 2,000
Employer’s RPF Contribution 0
Employer’s NPS Contribution 80,000
Telephone Reimbursement
0
(Exempt)
Gross Salary 13,06,000
(-) Standard Deduction (-) 50,000
Net Income from Salary 12,56,000
Explanation:
 CEA: ₹100/month/child for 2 kids for 12 months = ₹2,400 × 2 = ₹4,800
exempt.
 Gift: ₹5,000 exempt, ₹2,000 taxable.
 Uniform + telephone = exempt under official duty.

PROBLEM 13: Mixed Case – All Heads Included + Leave Encashment

Question (10 Points):
1. Mr. Kumar is a private employee retiring this year.
2. Basic Salary: ₹65,000/month; DA: ₹5,000/month
3. Gratuity received: ₹7,00,000
4. Leave encashment: ₹3,00,000 (240 days)
5. HRA: ₹15,000/month; Rent paid: ₹14,000/month
6. Car (private use): ₹2,700/month
7. Gift: ₹10,000; Medical: ₹15,000
8. Employer NPS: ₹50,000
9. Telephone reimbursement: ₹12,000
[Link] Deduction allowed
Computation of Income from Salary
Amount
Particulars Amount (INR)
(INR)
Basic Salary 7,80,000
DA 60,000
HRA 1,80,000

A. Sivakumnar, [Link].,
(-) Exemption 1,20,000 60,000
Car (personal use) 32,400
Gift 10,000
(-) Exemption 5,000 5,000
Medical Allowance 15,000
NPS Contribution 50,000
Leave Encashment 3,00,000
(-) Exemption 2,47,500 52,500
Gratuity 7,00,000
(-) Exemption 6,00,000 1,00,000
Telephone (Exempt) 0
Gross Salary 10,54,900
(-) Standard Deduction (-) 50,000
Net Income from
10,04,900
Salary
Explanation:
 Gratuity: As per 15/26 × salary × service rule → exemption ₹6L.
 Leave encashment: Exempt ₹3L max for private employee, but calculated
proportionally.
 All allowances, NPS, and perks considered fully.

A. Sivakumnar, [Link].,
Problem : Basic Salary and Allowances
Mr. Anand, a resident of Bangalore, provides the following details of his income for the FY
2024-25:
 Basic Salary: ₹50,000 p.m.
 Dearness Allowance: ₹15,000 p.m. (60% forms part of retirement benefits)
 House Rent Allowance (HRA): ₹20,000 p.m.
 Actual Rent Paid: ₹22,000 p.m.
 Children Education Allowance: ₹800 p.m. for 2 children.
 Children Hostel Allowance: ₹1,500 p.m. for 2 children.
 Transport Allowance: ₹2,000 p.m.
 Medical Allowance: ₹1,000 p.m.
 Professional Tax: ₹200 p.m. (deducted by employer)
Compute Mr. Anand's Income from Salary under both Old and New Tax Regimes.
Solution to Problem 1:
Step 1: Calculate "Salary" for HRA purposes:
 Basic Salary: ₹50,000 p.m. * 12 = ₹6,00,000
 DA forming part of retirement benefits: ₹15,000 p.m. * 60% * 12 = ₹1,08,000
 Salary for HRA = ₹6,00,000 + ₹1,08,000 = ₹7,08,000
Step 2: Calculate HRA Exemption:
 Actual HRA Received: ₹20,000 p.m. * 12 = ₹2,40,000
 Rent Paid minus 10% of Salary: (₹22,000 * 12) - (10% of ₹7,08,000) = ₹2,64,000 -
₹70,800 = ₹1,93,200
 40% of Salary (Bangalore is non-metro): 40% of ₹7,08,000 = ₹2,83,200
 HRA Exemption is the least of the above: ₹1,93,200
 Taxable HRA = Actual HRA Received - HRA Exemption = ₹2,40,000 - ₹1,93,200 =
₹46,800
Step 3: Calculate other Allowances Exemptions:
 Children Education Allowance:
o Received: ₹800 p.m. * 12 = ₹9,600

o Exempt: ₹100 p.m. * 2 children * 12 = ₹2,400

o Taxable: ₹9,600 - ₹2,400 = ₹7,200

 Children Hostel Allowance:

o Received: ₹1,500 p.m. * 12 = ₹18,000

o Exempt: ₹300 p.m. * 2 children * 12 = ₹7,200

A. Sivakumnar, [Link].,
 o Taxable: ₹18,000 - ₹7,200 = ₹10,800

 Transport Allowance: Fully Taxable = ₹2,000 p.m. * 12 = ₹24,000 (unless disabled)

 Medical Allowance: Fully Taxable = ₹1,000 p.m. * 12 = ₹12,000
 Professional Tax: ₹200 p.m. * 12 = ₹2,400
Computation of Income from Salary - Mr. Anand

Particulars Old Tax Regime New Tax Regime

I. Gross Salary (₹) (₹)
Basic Salary (₹50,000 * 12) 6,00,000 6,00,000
Dearness Allowance (₹15,000 * 12) 1,80,000 1,80,000
House Rent Allowance (₹20,000 * 12) 2,40,000 2,40,000
Children Education Allowance (₹800 * 12) 9,600 9,600
Children Hostel Allowance (₹1,500 * 12) 18,000 18,000
Transport Allowance (₹2,000 * 12) 24,000 24,000
Medical Allowance (₹1,000 * 12) 12,000 12,000
Professional Tax (by Employer, added back as 2,400 2,400
perquisite) (Gross Salary before Sec 10 exemptions) 10,86,000
Sub-Total 10,86,000
Less: Exempt Allowances (Section 10)
HRA Exemption (1,93,200) (0)
Children Education Allowance Exemption (2,400) (0)
Children Hostel Allowance Exemption (7,200) (0)
Gross Salary (after specific exemptions) 8,83,200 10,86,000
II. Deductions from Salary (Section 16)
Less: Standard Deduction [Sec 16(ia)] (50,000) (50,000)
Less: Professional Tax [Sec 16(iii)] (2,400) (0)
Income Chargeable under the Head "Salaries" 8,30,800 10,36,000

A. Sivakumnar, [Link].,
Problem 2: Basic Allowances & PF Contributions
Mr. Alok Kumar is employed with "Future Systems Pvt. Ltd." in Bengaluru. His salary
particulars for the Financial Year 2024-25 are:
1. Basic Salary: ₹50,000 per month
2. Dearness Allowance (DA): 20% of Basic Salary (60% forms part of retirement
benefits)
3. House Rent Allowance (HRA): ₹20,000 per month
4. Children Education Allowance: ₹1,200 per month for 2 children
5. Hostel Expenditure Allowance: ₹2,500 per month for 1 child
6. Transport Allowance: ₹1,500 per month (for commuting to office)
7. Employer's Contribution to Recognised Provident Fund (RPF): 15% of Basic Salary +
DA (forming part of retirement benefits)
8. Employee's Contribution to RPF: 15% of Basic Salary + DA (forming part of
retirement benefits)
9. Interest credited to RPF @ 10% p.a. (Fund balance as on 01.04.2024: ₹6,00,000)
10. Mr. Alok pays actual rent of ₹22,000 per month for his accommodation in Bengaluru.
11. Professional Tax paid by him: ₹200 per month.
Compute Mr. Alok Kumar's taxable salary for the Assessment Year 2025-26.
Solution to Problem 1
Computation of Taxable Salary of Mr. Alok Kumar For the Assessment Year 2025-26

Particulars Amount (₹) Amount

I. Gross Salary (₹)
1. Basic Salary (₹50,000 x 12) 6,00,000
2. Dearness Allowance (20% of ₹6,00,000) 1,20,000
3. House Rent Allowance (HRA)
Less: Exemption U/s 10(13A) (Least of the following):
a. Actual HRA received (₹20,000 x 12) 2,40,000
b. Rent Paid less 10% of Salary* (₹22,000 x 12) - 10% of 2,64,000 - 67,200 =
₹6,72,000*
c. 1,96,800
50% of Salary* (since Bengaluru is a metro city) (50% 3,36,000
of ₹6,72,000)
*Least of above is ₹1,96,800.
Taxable HRA (₹2,40,000 - ₹1,96,800) 43,200
4. Children Education Allowance (₹1,200 x 12 =
₹ 14,400)
Less: Exemption U/s 10(14)(ii) (₹100 x 12 x 2 children) 2,400
Taxable Children Education Allowance 12,000
5. Hostel Expenditure Allowance (₹2,500 x 12 =
₹ 30,000)
Less: Exemption U/s 10(14)(ii) (₹300 x 12 x 1 child) 3,600
Taxable Hostel Expenditure Allowance 26,400
6. Transport Allowance (₹1,500 x 12) (Fully taxable for 18,000
normal
7. employee)
Employer's Contribution to RPF
Salary for RPF = Basic Salary + DA (forming part of
retirement
= benefits)
₹6,00,000 + (60% of ₹1,20,000) = ₹6,00,000 +
₹72,000 = ₹6,72,000

A. Sivakumnar, [Link].,
Particulars Amount (₹) Amount
Employer's Contribution (15% of ₹6,72,000) = ₹1,00,800 (₹)
Less: Exempt (Up to 12% of Salary for RPF) (12% of 80,640
₹6,72,000)
Taxable = ₹80,640
Employer's Contribution to RPF 20,160
8. Interest credited to RPF (Exempt up to 9.5% p.a.)
Actual Interest (10% of ₹6,00,000) = ₹60,000
Exempt Interest (9.5% of ₹6,00,000) = ₹57,000 57,000
Taxable Interest on RPF (₹60,000 - ₹57,000) 3,000
Gross Salary 8,42,760
II. Less: Deductions U/s 16
1. Standard Deduction U/s 16(ia) 50,000
2. Professional Tax U/s 16(iii) (₹200 x 12) 2,400
Total Deductions 52,400
III. Taxable Salary (Gross Salary - Total Deductions) 7,90,360
Working Notes:
 Salary for HRA & RPF calculations: Basic Salary + DA (forming part of retirement
benefits) = ₹6,00,000 + (60% of ₹1,20,000) = ₹6,00,000 + ₹72,000 = ₹6,72,000.
 Employee's Contribution to RPF is eligible for deduction under Section 80C, not a
part of salary income computation directly.
Problem 3: Medical, Conveyance & Rent-Free Furnished Accommodation
Ms. Bhavana Singh is a marketing executive at "Innovate Solutions Ltd." in Chennai. Her
details for the Financial Year 2024-25 are:
1. Basic Salary: ₹60,000 per month
2. Dearness Allowance (DA): ₹15,000 per month (40% forms part of retirement
benefits)
3. Medical Reimbursement: ₹25,000 (actual bills submitted)
4. Conveyance Allowance: ₹2,500 per month (actual expenditure incurred for official
duties: ₹1,800 per month)
5. Rent-Free Furnished Accommodation (RFA) provided by the company. Fair rental
value of the house is ₹28,000 per month. The cost of furniture provided (owned by
employer) is ₹3,00,000.
6. Company provided a laptop to Ms. Bhavana for both official and personal use. Cost
of laptop: ₹80,000.
7. Employer paid her electricity bill of ₹5,000 and water bill of ₹2,000 for the year.
8. Professional Tax paid by the employer on her behalf: ₹2,500 for the year.
9. She received a performance bonus of ₹40,000 in December 2024.
10. She also received a gift voucher from her employer on Diwali worth ₹7,000.
Compute Ms. Bhavana Singh's taxable salary for the Assessment Year 2025-26.

Solution to Problem 2

A. Sivakumnar, [Link].,
Computation of Taxable Salary of Ms. Bhavana Singh For the Assessment Year 2025-
26

Particulars Amount Amount

I. Gross Salary (₹) (₹)
1. Basic Salary (₹60,000 x 12) 7,20,000
2. Dearness Allowance (₹15,000 x 12) 1,80,000
3. Medical Reimbursement 25,000
4. Conveyance Allowance (Actual expenditure not considered for tax 30,000
purposes
5. unless
Rent-Free specificAccommodation
Furnished cases) (RFA)
Salary for RFA = Basic + DA (part) + Bonus + all taxable allowances
(monetary)
Basic (₹7,20,000) + DA (40% of ₹1,80,000 = ₹72,000) + Bonus
(₹40,000)
= ₹7,20,000+ + Medical
₹72,000 +Reimbursement (₹25,000)
₹40,000 + ₹25,000 + Conveyance
+ ₹30,000 + ₹5,000 +
₹2,000of+ unfurnished
Value ₹7,000 + ₹2,500 = ₹9,03,500 15% of Salary* (since population
accommodation:
> 25 lakhs)
(15% of ₹9,03,500) = ₹1,35,525
Add: Value of furniture (10% p.a. of cost of furniture)
(10% of ₹3,00,000) = ₹30,000 30,000
Total Value of RFA 1,65,525
6. Laptop provided by company (Exempt, primarily for official use) Nil
7. Electricity Bill paid by employer 5,000
8. Water Bill paid by employer 2,000
9. Performance Bonus 40,000
10. Gift Voucher (Taxable value beyond ₹5,000) (₹7,000 - ₹5,000) 2,000
11. Professional Tax paid by Employer 2,500
Gross Salary 9,72,025
II. Less: Deductions U/s 16
1. Standard Deduction U/s 16(ia) 50,000
2. Professional Tax U/s 16(iii) 2,500
Total Deductions 52,500
III. Taxable Salary (Gross Salary - Total Deductions) 9,19,525
Working Notes:
 Salary for RFA calculation: Includes Basic Salary, Dearness Allowance (if forms
part of retirement benefits), Bonus, Commission, and all other taxable monetary
payments/allowances. It excludes employer's PF contribution, exempt allowances,
and non-monetary perquisites.
o Here, Basic + DA (part) + Bonus + all taxable allowances/payments =
₹7,20,000 + ₹72,000 + ₹40,000 + ₹25,000 (Med.) + ₹30,000 (Conveyance) +
₹5,000 (Elec.) + ₹2,000 (Water) + ₹2,000 (Taxable Gift) + ₹2,500 (PT by
Emp.) = ₹9,00,500.
o Correction for Salary for RFA calculation: "Salary" for RFA calculation (Rule
3(a)) includes Basic Pay, DA (if part of retirement benefits), Bonus,
Commission, and all other taxable cash allowances. It typically does not
include perquisites that are themselves valued on the basis of this salary. So,
we should exclude the gift, professional tax paid by employer, and other
perquisites like electricity/water for the base salary for RFA calculation to
avoid circularity for simpler problems.
o Let's recalculate for RFA salary more simply: Basic (₹7,20,000) + DA (40% of
₹1,80,000 = ₹72,000) + Bonus (₹40,000) + Conveyance Allowance
(₹30,000) = ₹8,62,000.

A. Sivakumnar, [Link].,
 o So, Value of unfurnished accommodation = 15% of ₹8,62,000 = ₹1,29,300.

Problem 4: Car Perquisite & Educational Facility

Mr. Chirag Mehta is a senior executive at "Global Services Inc." in Delhi. His salary details
for the Financial Year 2024-25 are:
1. Basic Salary: ₹70,000 per month
2. Dearness Allowance (DA): ₹20,000 per month (fully forms part of retirement benefits)
3. Car provided by employer (engine capacity 1.8 litres) for both official and personal
use. All running and maintenance expenses are borne by the employer. No driver is
provided.
4. Educational facility provided to his 2 children in a school maintained by the employer.
Cost of education in a similar local school: ₹1,500 per month per child.
5. Employer provided him with a domestic servant, for whom the employer paid ₹4,000
per month.
6. He received a Tiffin Allowance of ₹1,000 per month.
7. Employer's contribution to National Pension System (NPS): 12% of Basic Salary +
DA (forming part of retirement benefits).
8. Interest credited to Recognised Provident Fund @ 11% p.a. (Fund balance on
01.04.2024: ₹5,00,000).
9. He received a fully taxable Bonus of ₹75,000 in October 2024.
10. Professional Tax paid by him: ₹2,500 for the year.
11. He incurred actual official expenses for which he was reimbursed ₹5,000.
Compute Mr. Chirag Mehta's taxable salary for the Assessment Year 2025-26.
Solution to Problem4
Computation of Taxable Salary of Mr. Chirag Mehta For the Assessment Year 2025-26

Amount
Particulars Amount (₹)
(₹)

I. Gross Salary

1. Basic Salary (₹70,000 x 12) 8,40,000

2. Dearness Allowance (₹20,000 x 12) 2,40,000

3. Car Perquisite (Engine capacity > 1.6L, employer bears expenses,

no driver)*

(₹2,400 per month x 12 months) 28,800

4. Educational Facility for Children

Cost of education (₹1,500 x 12 x 2 children) = ₹36,000

Less: Exempt (₹1,000 x 12 x 2 children) = ₹24,000 24,000

A. Sivakumnar, [Link].,
 Amount
Particulars Amount (₹)
(₹)

Taxable Educational Facility 12,000

5. Domestic Servant Facility (Taxable Perquisite for specified

employee)

(₹4,000 x 12 months) 48,000

6. Tiffin Allowance (Fully taxable) 12,000

(₹1,000 x 12 months)

7. Employer's Contribution to NPS

Salary for NPS = Basic + DA (part) = ₹8,40,000 + ₹2,40,000 =

₹10,80,000

Employer's Contribution (12% of ₹10,80,000) = ₹1,29,600 1,29,600

8. Interest credited to RPF

Actual Interest (11% of ₹5,00,000) = ₹55,000

Less: Exempt Interest (9.5% of ₹5,00,000) = ₹47,500 47,500

Taxable Interest on RPF (₹55,000 - ₹47,500) 7,500

9. Bonus 75,000

10. Reimbursement of Official Expenses (Exempt) Nil

Gross Salary 13,92,900

II. Less: Deductions U/s 16

1. Standard Deduction U/s 16(ia) 50,000

2. Professional Tax U/s 16(iii) 2,500

III. Deductions under Chapter VI-A

1. NPS Contribution by Employer U/s 80CCD(2)

(Least of: Actual contribution ₹1,29,600 or 10% of Salary for NPS

1,08,000
₹1,08,000)

Total Deductions from Gross Salary 1,60,500

IV. Taxable Salary (Gross Salary - Total Deductions) 12,32,400

Export to Sheets
Working Notes:
 Car Perquisite: For a car with engine capacity > 1.6 litres, used for both official and
personal purposes, where expenses are borne by the employer and no driver is
provided, the perquisite value is ₹2,400 per month.
 Educational Facility: If the educational institution is owned and maintained by the
employer, the value of the perquisite is determined by the cost of education in a

A. Sivakumnar, [Link].,
 similar institution in the locality. However, if the cost does not exceed ₹1,000 per
month per child, it is exempt. Any excess is taxable.
 Domestic Servant: This is a specified employee perquisite, taxable at the actual
cost to the employer.
 Employer's Contribution to NPS: This is first added to Gross Salary and then
allowed as a deduction under Section 80CCD(2) up to 10% of salary (Basic + DA
forming part of retirement benefits) or actual contribution, whichever is less.
 Interest on RPF: Exempt up to 9.5% p.a.
 Reimbursement of Official Expenses: If it's for actual official expenses, it is not
treated as income.
Problem 5: Uniform Allowance & Sweeper Facility
Ms. Fatima works as an Executive with "Fashion Trends Ltd." in Kolkata. Her salary details
for FY 2024-25 are:
1. Basic Salary: ₹48,000 per month
2. Dearness Allowance (DA): 25% of Basic Salary (50% forms part of retirement
benefits)
3. Uniform Allowance: ₹1,500 per month (actual expenditure incurred on uniform
maintenance: ₹1,000 per month)
4. Children Education Allowance: ₹1,100 per month for 2 children
5. Employer provided a sweeper, for whom the employer paid ₹1,500 per month.
6. Employer's contribution to Recognised Provident Fund (RPF): 13% of Basic Salary +
DA (forming part of retirement benefits)
7. Interest credited to RPF @ 9% p.a. (Fund balance as on 01.04.2024: ₹7,00,000)
8. She received an annual bonus of ₹35,000.
9. Professional Tax paid by her: ₹200 per month.
10. She also received an initial joining bonus of ₹20,000 in April 2024.
Compute Ms. Fatima's taxable salary for the Assessment Year 2025-26.

A. Sivakumnar, [Link].,
Solution to Problem 5
Computation of Taxable Salary of Ms. Fatima For the Assessment Year 2025-26

Amount Amount
Particulars
(₹) (₹)

I. Gross Salary

1. Basic Salary (₹48,000 x 12) 5,76,000

2. Dearness Allowance (25% of ₹5,76,000) 1,44,000

3. Uniform Allowance

(Exempt to the extent of actual expenditure incurred for official duties)

Actual Allowance (₹1,500 x 12) = ₹18,000

Less: Exempt (Actual expenditure ₹1,000 x 12) = ₹12,000 12,000

Taxable Uniform Allowance 6,000

4. Children Education Allowance (₹1,100 x 12 = ₹13,200)

Less: Exemption U/s 10(14)(ii) (₹100 x 12 x 2 children) 2,400

Taxable Children Education Allowance 10,800

5. Sweeper Facility (Taxable Perquisite for specified employee)

(₹1,500 x 12 months) 18,000

6. Employer's Contribution to RPF

Salary for RPF = Basic + DA (part) = ₹5,76,000 + (50% of ₹1,44,000)

= ₹5,76,000 + ₹72,000 = ₹6,48,000

Employer's Contribution (13% of ₹6,48,000) = ₹84,240

Less: Exempt (Up to 12% of Salary for RPF) (12% of ₹6,48,000) =

77,760
₹77,760

Taxable Employer's Contribution to RPF 6,480

7. Interest credited to RPF (Exempt up to 9.5% p.a.)

Actual Interest (9% of ₹7,00,000) = ₹63,000

Less: Exempt Interest (9.5% of ₹7,00,000) = ₹66,500 63,000

Taxable Interest on RPF (Fully exempt as actual < 9.5%) Nil

8. Annual Bonus 35,000

9. Initial Joining Bonus 20,000

Gross Salary 8,12,280

II. Less: Deductions U/s 16

A. Sivakumnar, [Link].,
 Amount Amount
Particulars
(₹) (₹)

1. Standard Deduction U/s 16(ia) 50,000

2. Professional Tax U/s 16(iii) (₹200 x 12) 2,400

Total Deductions 52,400

III. Taxable Salary (Gross Salary - Total Deductions) 7,59,880

Working Notes:
 Uniform Allowance: Exempt to the extent actual expenditure is incurred for official
duties.
 Sweeper Facility: This is a specified employee perquisite, taxable at the actual cost
to the employer.
 Employer's Contribution to RPF: Exempt up to 12% of Salary (Basic + DA part of
retirement benefits).
 Interest on RPF: Exempt up to 9.5% p.a.

Problem 6: Perquisite of Gas, Electricity & Water

Mr. Gopal is working with "Power Corp Ltd." in Hyderabad. His salary details for the
Financial Year 2024-25 are:
1. Basic Salary: ₹65,000 per month
2. Dearness Allowance (DA): 30% of Basic Salary (fully forms part of retirement
benefits)
3. Overtime Allowance: ₹5,000 per month
4. Children Hostel Expenditure Allowance: ₹2,200 per month for 2 children
5. Employer provided gas, electricity, and water facilities. Bills paid by employer: Gas
₹3,000 p.m., Electricity ₹7,000 p.m., Water ₹1,000 p.m.
6. Employer provided a personal attendant (owned by employer), for whom the
employer paid salary of ₹6,000 per month.
7. He received a gift from his employer in cash on his wedding anniversary: ₹6,000.
8. Employer's Contribution to Approved Superannuation Fund: ₹18,000 per month.
9. He also received a fully taxable commission of ₹50,000 for the year.
10. Professional Tax paid by him: ₹2,500 for the year.
Compute Mr. Gopal's taxable salary for the Assessment Year 2025-26.

Solution to Problem 6
Computation of Taxable Salary of Mr. Gopal For the Assessment Year 2025-26

A. Sivakumnar, [Link].,
Particulars Amount Amount (₹)
I. Gross Salary (₹)
1. Basic Salary (₹65,000 x 12) 7,80,000
2. Dearness Allowance (30% of ₹7,80,000) 2,34,000
3. Overtime Allowance (Fully taxable) 60,000
(₹5,000 x 12 months)
4. Children Hostel Expenditure Allowance (₹2,200 x 12 x 2 children =
₹ 52,800)
Less: Exemption U/s 10(14)(ii) (₹300 x 12 x 2 children) 7,200
Taxable Hostel Expenditure Allowance 45,600
5. Perquisite of Gas, Electricity & Water (Bills paid by employer)
Gas (₹3,000 x 12) = ₹36,000
Electricity (₹7,000 x 12) = ₹84,000
Water (₹1,000 x 12) = ₹12,000
Total Perquisite (Fully taxable) 1,32,000
6. Personal Attendant Facility (Taxable perquisite for specified
employee)
(₹6,000 x 12 months) 72,000
7. Gift in Cash (Fully taxable as cash gift is not exempt up to ₹5,000) 6,000
8. Employer's Contribution to Approved Superannuation Fund
(₹18,000 x 12 = ₹2,16,000)
Less: Exempt (Up to ₹1,50,000) 1,50,000
Taxable Employer's Contribution to SAF 66,000
9. Commission 50,000
Gross Salary 14,45,600
II. Less: Deductions U/s 16
1. Standard Deduction U/s 16(ia) 50,000
2. Professional Tax U/s 16(iii) 2,500
Total Deductions 52,500
III. Taxable Salary (Gross Salary - Total Deductions) 13,93,100
Export to Sheets
Working Notes:
 Perquisite of Gas, Electricity, Water: If provided free by the employer, the actual
cost to the employer is a taxable perquisite.
 Personal Attendant: Taxable perquisite for specified employees.
 Gift in Cash: A gift received in cash is fully taxable as "income from other sources"
or "salary" if from employer, regardless of amount. The ₹5,000 exemption applies
only to non-monetary gifts.
 Employer's Contribution to Approved Superannuation Fund: Exempt up to
₹1,50,000 per financial year. Excess is taxable.

Problem 1: Comprehensive Salary Calculation (Basic + Allowances + HRA + PF +

Perquisite)

A. Sivakumnar, [Link].,
Question No. 1. (10 Marks)
Mr. Anand is employed with "Tech Solutions Ltd." in Bengaluru. Details of his emoluments
and other relevant information for the financial year 2024-25 are as follows:
 Basic Salary: ₹60,000 per month
 Dearness Allowance (DA): ₹20,000 per month (40% forms part of retirement
benefits)
 House Rent Allowance (HRA): ₹25,000 per month (Actual rent paid: ₹30,000 per
month for accommodation in Bengaluru)
 Children Education Allowance: ₹1,500 per month for 2 children
 Hostel Expenditure Allowance: ₹4,000 per month for 1 child
 Transport Allowance: ₹2,000 per month
 Medical Allowance: ₹1,000 per month
 Employer's Contribution to Recognized Provident Fund (RPF): 15% of Basic Salary +
DA (forming part of retirement benefits)
 Professional Tax paid: ₹2,400
You are required to compute the taxable income under the head "Salaries" of Mr.
Anand for the Assessment Year 2025-26, assuming he opts for the Old Tax Regime.

Solution to Problem 1
Computation of Taxable Salary of Mr. Anand for A.Y. 2025-26 (Assessing under Old
Tax Regime)

Amount
Particulars Amount (₹)
(₹)

I. Gross Salary

Basic Salary (₹60,000 x 12) 7,20,000

Dearness Allowance (₹20,000 x 12) 2,40,000

House Rent Allowance (₹25,000 x 12) 3,00,000

Less: Exemption U/s 10(13A) (Least of):

a) Actual HRA received: 3,00,000

b) Rent paid in excess of 10% of salary:

* (₹30,000 x 12) - 10% of (₹7,20,000 + ₹2,40,000 x 40%)*

* ₹3,60,000 - 10% of (₹7,20,000 + ₹96,000)*

* ₹3,60,000 - ₹81,600 = ₹2,78,400* 2,78,400

c) 50% of Salary (Metro city - Bengaluru):

* 50% of (₹7,20,000 + ₹96,000) = ₹4,08,000* 4,08,000

A. Sivakumnar, [Link].,
 Amount
Particulars Amount (₹)
(₹)

Exempt HRA (Least of a, b, c): (2,78,400)

Taxable HRA 21,600

Children Education Allowance (₹1,500 x 12) 18,000

Less: Exemption U/s 10(14) (₹100 x 2 children x 12 months) (2,400)

Taxable Children Education Allowance 15,600

Hostel Expenditure Allowance (₹4,000 x 12) 48,000

Less: Exemption U/s 10(14) (₹300 x 1 child x 12 months) (3,600)

Taxable Hostel Expenditure Allowance 44,400

Transport Allowance (₹2,000 x 12) 24,000

Medical Allowance (₹1,000 x 12) 12,000

Employer's Contribution to RPF

* (15% of ₹7,20,000 + ₹96,000) = ₹1,22,400*

Less: Exemption (up to 12% of Basic Salary + DA forming part of

retirement benefits)

* 12% of (₹7,20,000 + ₹96,000) = ₹97,920* (97,920)

Taxable Employer's RPF Contribution 24,480

Gross Salary (Total of above) 10,82,080

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (2,400)

Total Deductions (52,400)

III. Taxable Income from Salaries 10,29,680

Export to Sheets
Notes:
1. Salary for HRA, RPF: "Salary" for HRA and RPF exemption calculation means Basic
Salary + Dearness Allowance (to the extent it forms part of retirement benefits) +
Commission (if based on fixed percentage of turnover). In this case, DA forming part
of retirement benefits is ₹2,40,000 x 40% = ₹96,000. So, salary for these
calculations = ₹7,20,000 (Basic) + ₹96,000 (DA forming part) = ₹8,16,000.
2. Children Education Allowance: Exempt up to ₹100 per month per child for a
maximum of 2 children.
3. Hostel Expenditure Allowance: Exempt up to ₹300 per month per child for a
maximum of 2 children.

A. Sivakumnar, [Link].,
 4. Transport Allowance: Fully taxable for non-disabled employees.
5. Medical Allowance: Fully taxable.
6. Standard Deduction: A fixed deduction of ₹50,000 is allowed from salary income
under the Old Tax Regime for AY 2025-26.
7. Professional Tax: Deductible from gross salary.

Problem 2: Rent-Free Accommodation & Car Perquisite

Question No. 2. (10 Marks)
Ms. Priya works as a Marketing Manager for "Global Connect Inc." in Mumbai. Her salary
details for the financial year 2024-25 are:
 Basic Salary: ₹80,000 per month
 Dearness Allowance (DA): ₹30,000 per month (60% forms part of retirement
benefits)
 Bonus: ₹1,00,000
 Commission: ₹50,000
The company provides her with a rent-free unfurnished accommodation in Mumbai. The fair
rental value of the accommodation is ₹40,000 per month. The company does not own the
accommodation and pays rent for it.
Additionally, the company provides her with a motor car (with a cubic capacity exceeding 1.6
litres) which is used for both official and personal purposes. All running and maintenance
expenses of the car are borne by the company. A driver is also provided by the company.
Professional Tax paid by Ms. Priya: ₹2,500.
You are required to compute the taxable income under the head "Salaries" of Ms.
Priya for the Assessment Year 2025-26, assuming she opts for the Old Tax Regime.

Solution to Problem 2
Computation of Taxable Salary of Ms. Priya for A.Y. 2025-26 (Assessing under Old Tax
Regime)

Amount Amount
Particulars
(₹) (₹)

I. Gross Salary

Basic Salary (₹80,000 x 12) 9,60,000

Dearness Allowance (₹30,000 x 12) 3,60,000

Bonus 1,00,000

Commission 50,000

Valuation of Rent-Free Unfurnished Accommodation:

A. Sivakumnar, [Link].,
 Amount Amount
Particulars
(₹) (₹)

Salary for RFA calculation:

Basic Salary + DA (forming part of retirement benefits) + Bonus +

Commission + all other taxable cash allowances

₹9,60,000 + (₹3,60,000 x 60%) + ₹1,00,000 + ₹50,000

₹9,60,000 + ₹2,16,000 + ₹1,00,000 + ₹50,000 = ₹13,26,000

Since company pays rent, perquisite value is lower of:

a) 15% of Salary (₹13,26,000 x 15%) = ₹1,98,900 1,98,900

b) Actual Rent Paid by Employer (₹40,000 x 12) = ₹4,80,000 4,80,000

Taxable RFA Perquisite 1,98,900

Valuation of Motor Car Perquisite:

Car owned by employer, used for both official and personal purposes,
all expenses borne by employer, driver provided, CC > 1.6 litres.

Fixed amount per month:

* Car: ₹2,400 per month*

* Driver: ₹900 per month*

Total per month: ₹3,300 x 12 = ₹39,600

Taxable Car Perquisite 39,600

Gross Salary (Total of above) 17,08,500

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (2,500)

Total Deductions (52,500)

III. Taxable Income from Salaries 16,56,000

Export to Sheets
Notes:
1. Salary for RFA: For valuation of rent-free accommodation, "salary" includes Basic
Salary, Dearness Allowance (if it forms part of retirement benefits), Bonus,
Commission, and all other taxable cash allowances, but excludes perquisites and
employer's contribution to PF.
2. Rent-Free Accommodation: Since the accommodation is unfurnished and the
company pays rent, the perquisite value is the lower of 15% of salary (for Mumbai, a
city with population exceeding 25 lakhs) or the actual rent paid by the employer.
3. Car Perquisite: For employer-owned car, used for both official and personal
purposes, with all expenses and driver borne by the employer:

A. Sivakumnar, [Link].,
 o If CC not exceeding 1.6 litres: ₹1,800 p.m.

o If CC exceeding 1.6 litres: ₹2,400 p.m.

o Add ₹900 p.m. if a driver is also provided.

Problem 3: Leave Encashment, Gratuity & Pension

Question No. 3. (10 Marks)
Mr. Sharma retired from "Bharat Enterprises" on 31.03.2025 after rendering 30 years and 8
months of service. His salary details at the time of retirement were:
 Basic Salary: ₹70,000 per month
 Dearness Allowance (DA): ₹30,000 per month (60% forms part of retirement
benefits)
 Commission: ₹5,000 per month (fixed, not based on turnover)
 House Rent Allowance (HRA): ₹15,000 per month (He was living in his own house).
Upon retirement, he received the following:
 Gratuity: ₹20,00,000 (He is covered under the Payment of Gratuity Act, 1972)
 Leave Encashment: ₹12,00,000 (Based on 15 days leave for each completed year of
service, he had 300 days accumulated leave)
 Commuted Pension: ₹18,00,000 (60% of his full pension was commuted).
He also received a monthly uncommuted pension of ₹10,000 from 01.04.2024 to 31.03.2025
(i.e. for the full financial year).
You are required to compute the taxable income under the head "Salaries" of Mr.
Sharma for the Assessment Year 2025-26, assuming he opts for the Old Tax Regime.

Solution to Problem 3
Computation of Taxable Salary of Mr. Sharma for A.Y. 2025-26 (Assessing under Old
Tax Regime)

Particulars Amount (₹) Amount (₹)

I. Gross Salary

Basic Salary (₹70,000 x 12) 8,40,000

Dearness Allowance (₹30,000 x 12) 3,60,000

Commission (₹5,000 x 12) 60,000

House Rent Allowance (₹15,000 x 12) 1,80,000

(Since he lived in his own house, HRA is fully taxable)

Gratuity Received 20,00,000

Less: Exemption U/s 10(10) (Least of):

A. Sivakumnar, [Link].,
Particulars Amount (₹) Amount (₹)

a) Actual Gratuity received: 20,00,000

b) Statutory Limit: 20,00,000

c) 15 days salary for each completed year of service:

* (₹70,000 + ₹30,000 x 60%) x 15/26 x 31 years*

* (₹70,000 + ₹18,000) x 15/26 x 31 = ₹88,000 x 15/26 x 31 =

15,75,000
₹15,75,000*

Exempt Gratuity (Least of a, b, c): (15,75,000)

Taxable Gratuity 4,25,000

Leave Encashment Received 12,00,000

Less: Exemption U/s 10(10AA) (Least of):

a) Actual Leave Encashment received: 12,00,000

b) Statutory Limit: 25,00,000

c) 10 months average salary:

* Average salary for 10 months immediately preceding retirement

(last 10 months basic + DA forming part + commission based on
turnover)*

* (₹70,000 + ₹30,000 x 60%) = ₹88,000*

* ₹88,000 x 10 months = ₹8,80,000* 8,80,000

d) Cash equivalent of unavailed leave (max 30 days per year):

* Allowed leave: 30 days x 30 years = 900 days*

* Leave availed (if any) - not given, assume 0*

* Balance leave: 900 days*

* Cash equivalent (900 days / 30 days) x ₹88,000 = ₹26,40,000* 26,40,000

Exempt Leave Encashment (Least of a, b, c, d): (8,80,000)

Taxable Leave Encashment 3,20,000

Uncommuted Pension (₹10,000 x 12) 1,20,000

Commuted Pension Received 18,00,000

Less: Exemption U/s 10(10A):

* (Government employee - fully exempt)*

* (Non-Govt employee, also receiving gratuity: 1/3rd of full

commuted value)*

* Full commuted value = ₹18,00,000 / 60% = ₹30,00,000*

A. Sivakumnar, [Link].,
Particulars Amount (₹) Amount (₹)

* Exemption = 1/3rd of ₹30,00,000 = ₹10,00,000* (10,00,000)

Taxable Commuted Pension 8,00,000

Gross Salary (Total of above) 23,85,000

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (0)

Total Deductions (50,000)

III. Taxable Income from Salaries 23,35,000

Export to Sheets
Notes:
1. Gratuity:
o Covered by Payment of Gratuity Act: Least of actual gratuity, statutory limit
(₹20,00,000), or 15 days' salary for each completed year of service (or part
thereof exceeding 6 months). Salary = Basic + DA (fully).
o Service period of 30 years 8 months is taken as 31 years.

2. Leave Encashment (on retirement):

o Least of: (a) actual leave encashment received, (b) statutory limit
(₹25,00,000), (c) 10 months' average salary, (d) cash equivalent of unavailed
leave (max 30 days per completed year of service).
o Average salary for 10 months immediately preceding retirement: Basic + DA
(forming part of retirement benefits) + Commission (if based on turnover). In
this case, Commission is fixed, so not included.
3. Pension:
o Uncommuted Pension: Fully taxable.

o Commuted Pension:

 Government employees: Fully exempt.

 Non-Government employees:
 If gratuity is also received: 1/3rd of the full commuted value is
exempt.
 If gratuity is not received: 1/2 of the full commuted value is
exempt.
 Full commuted value = Commuted Pension Received /
Percentage Commuted.
4. Professional Tax: Not mentioned in the problem, so assumed as nil.

A. Sivakumnar, [Link].,
Problem 5: Advance Salary, Arrears & Provident Fund Types
Question No. 5. (10 Marks)
Mr. Sanjay works for "Dynamic Services Pvt. Ltd." in Hyderabad. His details for the Financial
Year 2024-25 are:
 Basic Salary: ₹50,000 per month
 Dearness Allowance (DA): ₹15,000 per month (fully forms part of retirement benefits)
 Advance Salary received in July 2024 (for August 2025): ₹50,000
 Arrears of Basic Salary for FY 2023-24 received in October 2024: ₹30,000
 Employer's Contribution to Unrecognized Provident Fund (URPF): 10% of Basic
Salary + DA
 Employee's Contribution to URPF: 10% of Basic Salary + DA
 Interest accrued on URPF: ₹15,000 (Employee's share ₹7,000; Employer's share
₹8,000)
Mr. Sanjay is provided with a gas, electricity, and water facility for personal use, the bills for
which are paid by the employer. The total bill amounted to ₹18,000 for the year.
Professional Tax paid: ₹2,000.
You are required to compute the taxable income under the head "Salaries" of Mr.
Sanjay for the Assessment Year 2025-26, assuming he opts for the Old Tax Regime.

Solution to Problem 5
Computation of Taxable Salary of Mr. Sanjay for A.Y. 2025-26 (Assessing under Old
Tax Regime)

Particulars Amount (₹) Amount (₹)

I. Gross Salary

Basic Salary (₹50,000 x 12) 6,00,000

Dearness Allowance (₹15,000 x 12) 1,80,000

Advance Salary (received in July 2024, taxed on receipt basis) 50,000

Arrears of Basic Salary (taxable on receipt basis in current FY) 30,000

Employer's Contribution to Unrecognized Provident Fund (URPF)

(Not taxable at the time of contribution) 0

Employee's Contribution to URPF

(Not deductible for Section 80C, not part of salary computation) 0

Interest Accrued on URPF

(Not taxable at the time of accrual) 0

Perquisite - Gas, Electricity, Water facility:

A. Sivakumnar, [Link].,
Particulars Amount (₹) Amount (₹)

Total bill paid by employer for personal use 18,000

Gross Salary (Total of above) 8,78,000

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (2,000)

Total Deductions (52,000)

III. Taxable Income from Salaries 8,26,000

Export to Sheets
Notes:
1. Advance Salary: Taxable in the year of receipt, regardless of the period it relates to.
2. Arrears of Salary: Taxable in the year of receipt. Relief under Section 89 can be
claimed if applicable.
3. Unrecognized Provident Fund (URPF):
o Employer's Contribution: Not taxable at the time of contribution. Taxable at
the time of withdrawal (as "salary" income) along with interest on employer's
contribution.
o Employee's Contribution: Not eligible for Section 80C deduction. Not
taxable at the time of contribution. Tax-free at the time of withdrawal.
o Interest Accrued: Not taxable at the time of accrual. Taxable at the time of
withdrawal (interest on employee's contribution under "Income from Other
Sources," interest on employer's contribution as "salary").
4. Gas, Electricity, Water Facility: The actual cost paid by the employer for domestic
consumption is a fully taxable perquisite.
5. Standard Deduction: A fixed deduction of ₹50,000 is allowed.
Highly Detailed 10-Mark Income from Salary Problems
Problem 12: Comprehensive Scenario with RFA, Car, PF, Medical, and Specific
Allowances
Question No. 12. (10 Marks)
Mr. Siddharth is employed as a Marketing Head at "Global Tech Solutions Ltd." in Mumbai.
His emoluments for the Financial Year 2024-25 are as follows:
1. Basic Salary: ₹90,000 per month.
2. Dearness Allowance (DA): ₹30,000 per month (40% forms part of retirement
benefits).
3. House Rent Allowance (HRA): ₹35,000 per month. He pays actual rent of ₹40,000
per month for an accommodation in Bandra, Mumbai.
4. Children Education Allowance: ₹1,000 per month for his three children studying in
a local school.

A. Sivakumnar, [Link].,
 5. Transport Allowance: ₹1,800 per month (Mr. Siddharth is not a disabled employee).
6. Medical Allowance: ₹2,500 per month (no specific medical expenses shown by
him).
7. Rent-Free Furnished Accommodation: The company owns the accommodation
provided to him. The fair rental value is ₹60,000 per month. The original cost of
furniture provided is ₹8,00,000.
8. Motor Car Facility: An employer-owned car (engine capacity below 1.6 litres) is
provided, used for both official and personal purposes. All running and maintenance
expenses are borne by the employer. A driver is also provided.
9. Employer's Contribution to Recognized Provident Fund (RPF): 18% of Basic
Salary + DA (forming part of retirement benefits).
10. Interest on RPF: ₹1,10,000 credited @ 11% p.a.
11. Professional Tax: ₹2,500 for the year.
12. Office Boy Salary: The employer pays the salary of ₹5,000 per month to an office
boy who works at Mr. Siddharth's residence.
You are required to compute the taxable income under the head "Salaries" of Mr.
Siddharth for the Assessment Year 2025-26, assuming he opts for the Old Tax Regime.

Solution to Problem 12
Computation of Taxable Salary of Mr. Siddharth for A.Y. 2025-26 (Assessing under Old
Tax Regime)

Amount Amount
Particulars
(₹) (₹)

I. Gross Salary

Basic Salary (₹90,000 x 12) 10,80,000

Dearness Allowance (₹30,000 x 12) 3,60,000

House Rent Allowance (HRA): 4,20,000

Less: Exemption U/s 10(13A) (Least of):

a) Actual HRA Received (₹35,000 x 12) 4,20,000

b) Rent Paid less 10% of Salary:

* (₹40,000 x 12) - (10% of (₹10,80,000 + (40% of ₹3,60,000)))*

* (₹4,80,000) - (10% of (₹10,80,000 + ₹1,44,000))*

* ₹4,80,000 - ₹1,22,400* 3,57,600

c) 50% of Salary (for Mumbai):

* 50% of (₹10,80,000 + ₹1,44,000)* 6,12,000

Exempt HRA (Least of a, b, c) (3,57,600)

A. Sivakumnar, [Link].,
 Amount Amount
Particulars
(₹) (₹)

Taxable HRA 62,400

Children Education Allowance: 12,000

* (₹1,000 x 3 children x 12 months)*

Less: Exemption (₹100 x 2 children x 12 months) (2,400)

Taxable Children Education Allowance 9,600

Transport Allowance: 21,600

* (₹1,800 x 12 months)*

* (Fully taxable for non-disabled employee)* 21,600

Medical Allowance: 30,000

* (₹2,500 x 12 months)*

* (Fully taxable)* 30,000

Valuation of Perquisites:

1. Rent-Free Furnished Accommodation (Owned by Employer):

* Value of unfurnished RFA:*

* Mumbai population > 25 lakhs = 15% of Salary*

* Salary for RFA = Basic + DA (forming part) + all other taxable

allowances + bonus + commission + any monetary payment. (Here:
Basic + Full DA + HRA Taxable + Children Edu. Taxable + Transport
Taxable + Medical Taxable + Office Boy Salary).*

* Basic: ₹10,80,000*

* DA: ₹3,60,000*

* Taxable HRA: ₹62,400*

* Taxable Children Edu. All.: ₹9,600*

* Taxable Transport All.: ₹21,600*

* Taxable Medical All.: ₹30,000*

* Office Boy Salary: ₹60,000*

* Total Salary for RFA = ₹10,80,000 + ₹3,60,000 + ₹62,400 + ₹9,600

+ ₹21,600 + ₹30,000 + ₹60,000 = ₹16,23,600*

* Value of unfurnished RFA = 15% of ₹16,23,600 = ₹2,43,540*

* Add: 10% p.a. of original cost of furniture (10% of ₹8,00,000)* 80,000

Taxable Value of RFA 3,23,540

A. Sivakumnar, [Link].,
 Amount Amount
Particulars
(₹) (₹)

2. Motor Car Facility (Engine < 1.6L, all expenses by employer,

with driver, for mixed use):

* Fixed perquisite value = ₹1,800 (car) + ₹900 (driver) per month*

* Total taxable = ₹2,700 x 12 months* 32,400

3. Employer's Contribution to RPF:

* Contribution @ 18% of (Basic + DA forming part)*

* Basic: ₹10,80,000*

* DA forming part: 40% of ₹3,60,000 = ₹1,44,000*

* Relevant Salary for RPF = ₹10,80,000 + ₹1,44,000 = ₹12,24,000*

* Employer's Contribution = 18% of ₹12,24,000 = ₹2,20,320*

* Exempt up to 12% of relevant salary (12% of ₹12,24,000 =

₹1,46,880)*

* Taxable Contribution = ₹2,20,320 - ₹1,46,880 = ₹73,440* 73,440

4. Interest on RPF:

* Interest credited: ₹1,10,000 @ 11% p.a.*

* Exempt up to 9.5% p.a.*

* Excess interest taxable = ₹1,10,000 x ( (11% - 9.5%) / 11% )*

* ₹1,10,000 x (1.5% / 11%) = ₹15,000* 15,000

5. Office Boy Salary:

* Fully taxable as perquisite* 60,000

Gross Salary (Total of above) 19,08,080

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (2,500)

Total Deductions (52,500)

III. Taxable Income from Salaries 18,55,580

Export to Sheets
Detailed Notes for Problem 12:
1. HRA Exemption (Sec 10(13A) read with Rule 2A):
o Exemption is the least of:

 Actual HRA received.

A. Sivakumnar, [Link].,
  Rent paid minus 10% of 'Salary'.
 50% of 'Salary' (for metro cities: Mumbai, Delhi, Chennai, Kolkata) or
40% of 'Salary' (for non-metro cities).
o 'Salary' for HRA = Basic Salary + Dearness Allowance (if it forms part of
retirement benefits) + Commission (if based on fixed percentage of turnover).
In this case, Basic + 40% of DA.
o Calculation of 'Salary' for HRA = ₹10,80,000 (Basic) + (₹3,60,000 * 40%) DA
= ₹10,80,000 + ₹1,44,000 = ₹12,24,000.
2. Children Education Allowance (Sec 10(14)(ii) read with Rule 2BB):
o Exempt up to ₹100 per month per child, for a maximum of two children.

o Taxable = Actual received - Exempt amount.

3. Transport Allowance (Sec 10(14)(ii) read with Rule 2BB):

o For a non-disabled employee, transport allowance (for commuting between
residence and office) is fully taxable.
o Only for physically challenged employees, there is an exemption of ₹3,200
per month.
4. Medical Allowance:
o A fixed medical allowance is fully taxable. It is different from medical
reimbursement for actual expenses (which is now covered under standard
deduction for most cases, except specified treatment).
5. Rent-Free Furnished Accommodation (RFA) - Owned by Employer (Rule 3(1)):
o Value of Unfurnished Accommodation:

 If the accommodation is owned by the employer, its value depends on

the population of the city:
 15% of 'Salary' if population exceeds 25 lakhs (Mumbai falls
here).
 10% of 'Salary' if population between 10 lakhs and 25 lakhs.
 7.5% of 'Salary' if population does not exceed 10 lakhs.
 'Salary' for RFA = Basic + DA (if it forms part of retirement benefits or
not, i.e., full DA) + Bonus + Commission + all taxable allowances
(monetary payments) + any other monetary payment. It specifically
excludes employer's PF contribution, perquisites themselves, and
retirement benefits.
 Here, 'Salary' for RFA = Basic Salary + Full DA + Taxable HRA +
Taxable Children Education Allowance + Taxable Transport Allowance
+ Taxable Medical Allowance + Office Boy Salary.
o Value of Furniture: If furniture is owned by the employer, 10% per annum of
the original cost of the furniture is added to the value of unfurnished
accommodation.
6. Motor Car Facility (Rule 3(2)):

A. Sivakumnar, [Link].,
 o When an employer-owned car is used for both official and personal purposes,
and all expenses (running & maintenance) are borne by the employer, the
perquisite value is a fixed amount:
 Engine capacity up to 1.6 litres: ₹1,800 per month.
 Engine capacity above 1.6 litres: ₹2,400 per month.
o If a chauffeur (driver) is also provided, an additional ₹900 per month is added
to the above values.
7. Employer's Contribution to Recognized Provident Fund (RPF) (Sec 17(2)(vii) &
Rule 6(2)):
o Employer's contribution to RPF in excess of 12% of the 'Salary' is taxable as
a perquisite.
o 'Salary' for RPF = Basic Salary + Dearness Allowance (only if it forms part of
retirement benefits) + Commission (if based on fixed percentage of turnover).
8. Interest on RPF (Sec 17(2)(vii) & Rule 6(2)):
o Interest credited to RPF is exempt up to 9.5% per annum. Any interest
credited above this rate is taxable as a perquisite.
9. Office Boy Salary paid by Employer:
o This is a perquisite and is fully taxable as the benefit is enjoyed by the
employee, and the cost is borne by the employer.
10. Standard Deduction (Sec 16(ia)):
o A flat deduction of ₹50,000 is allowed from gross salary.

11. Professional Tax (Sec 16(iii)):

o Any professional tax (or tax on employment) paid by the employee is allowed
as a deduction from gross salary. If paid by the employer on behalf of the
employee, it is first added to salary as a perquisite and then allowed as a
deduction. Here, it is mentioned as paid by Mr. Siddharth.

Problem 13: Retirement Benefits (Gratuity, Pension, Leave Encashment) & Other
Perquisites
Question No. 13. (10 Marks)
Ms. Priya, a non-government employee, retired on 31.01.2025 from "Dynamic Solutions Pvt.
Ltd." after serving for 32 years and 8 months. Her average salary (Basic + DA forming part)
for the 10 months preceding retirement was ₹90,000 per month. Her monthly salary just
before retirement was:
 Basic Salary: ₹80,000 per month
 Dearness Allowance (DA): ₹25,000 per month (60% forms part of retirement
benefits)
 Medical Reimbursement: ₹20,000 per month (reimbursed based on bills from a
private hospital for self).
 Food Allowance: ₹5,000 per month (fixed allowance).

A. Sivakumnar, [Link].,
Upon retirement, she received the following:
1. Gratuity: ₹25,00,000 (She is covered under the Payment of Gratuity Act, 1972).
2. Leave Encashment: She was entitled to 30 days of earned leave for each
completed year of service. At the time of retirement, she had 300 days of
accumulated leave balance. She received ₹10,00,000 as leave encashment.
3. Commuted Pension: On 01.03.2025, she commuted 75% of her pension and
received a lump sum of ₹18,00,000.
4. Uncommuted Pension: She started receiving uncommuted pension from
01.02.2025. Her full monthly pension before commutation was ₹30,000.
5. Club Facility: The employer paid an annual subscription of ₹30,000 for a club, which
is used only by Ms. Priya for personal recreation.
6. Credit Card Expenses: The company paid her credit card bills amounting to
₹45,000 during the year, which included personal expenses of ₹20,000. Official
expenses were ₹25,000.
7. Contribution to NPS: The employer contributed ₹1,00,000 to her National Pension
System (NPS) account during the year.
Professional Tax paid by her: ₹2,400.
You are required to compute the taxable income under the head "Salaries" of Ms.
Priya for the Assessment Year 2025-26, assuming she opts for the Old Tax Regime.

Solution to Problem 13
Computation of Taxable Salary of Ms. Priya for A.Y. 2025-26 (Assessing under Old Tax
Regime)

Amount
Particulars Amount (₹)
(₹)

I. Gross Salary

Basic Salary (₹80,000 x 10 months) 8,00,000

Dearness Allowance (₹25,000 x 10 months) 2,50,000

Medical Reimbursement (₹20,000 x 10 months) 2,00,000

* (Fully taxable as it's a reimbursement from private hospital for

self)*

Food Allowance (₹5,000 x 10 months) 50,000

* (Fully taxable as a fixed allowance)*

Gratuity Received: 25,00,000

Less: Exemption U/s 10(10) (Least of):

a) Actual Gratuity received: 25,00,000

b) Statutory Limit: 20,00,000

A. Sivakumnar, [Link].,
 Amount
Particulars Amount (₹)
(₹)

c) 15 days' salary for each completed year of service or part thereof

in excess of 6 months:

* Service: 32 years 8 months = 33 completed years (as per Gratuity

Act)*

* Last drawn salary per month = Basic + DA (full) = ₹80,000 +

₹25,000 = ₹1,05,000*

* (₹1,05,000 / 26) x 15 days x 33 years = ₹60,576.92 x 33 =

19,99,000
₹19,99,000 (approx)*

Exempt Gratuity (Least of a, b, c): (19,99,000)

Taxable Gratuity 5,01,000

Leave Encashment (Non-Govt. Employee): 10,00,000

Less: Exemption U/s 10(10AA) (Least of):

a) Actual Leave Encashment received: 10,00,000

b) Statutory Limit: 25,00,000

c) 10 months' average salary:

* Average salary for 10 months preceding retirement = Basic + DA

(forming part) + Commission (on turnover).*

* Average monthly salary = ₹90,000*

* 10 months' average salary = ₹90,000 x 10 = ₹9,00,000* 9,00,000

d) Cash equivalent of unavailed leave (at average salary) for each

completed year of service (max 30 days per year):

* Service: 32 years*

* Leave entitled: 30 days per year*

* Max leave for calculation = 30 days x 32 years = 960 days*

* Less: Leave availed during service (not given, assume 0 for max
(0)
benefit)*

* Balance leave eligible for encashment (max 300 days): 300 days*

* Cash equivalent for 300 days = (₹90,000 / 30) x 300 days =

9,00,000
₹9,00,000*

Exempt Leave Encashment (Least of a, b, c, d): (9,00,000)

Taxable Leave Encashment 1,00,000

Uncommuted Pension:

* From 01.02.2025 to 31.03.2025 (2 months):*

A. Sivakumnar, [Link].,
 Amount
Particulars Amount (₹)
(₹)

* Full pension before commutation: ₹30,000*

* Uncommuted portion (25% of ₹30,000) for March 2025:*

* Full pension for Feb 2025: ₹30,000* 30,000

* Uncommuted pension for March 2025: 25% of ₹30,000 = ₹7,500* 7,500

Total Uncommuted Pension for FY 37,500

Commuted Pension Received: 18,00,000

Less: Exemption U/s 10(10A):

* Non-Government employee, and also received gratuity: 1/3rd of full

commuted value is exempt.*

* Full commuted value (if 100% commuted) = ₹18,00,000 / 75% =

₹24,00,000*

* Exemption = 1/3rd of ₹24,00,000 = ₹8,00,000* (8,00,000)

Taxable Commuted Pension 10,00,000

Valuation of Perquisites:

1. Club Facility (Annual Subscription paid by Employer):

* If primarily for personal use, fully taxable.* 30,000

2. Credit Card Expenses (Personal portion):

* Personal expenses paid by employer are fully taxable.* 20,000

3. Employer's Contribution to NPS:

* Taxable as perquisite to employee. (Deduction u/s 80CCD(2)

1,00,000
available)*

Gross Salary (Total of above) 20,08,500

II. Less: Deductions U/s 16

Standard Deduction U/s 16(ia) (50,000)

Professional Tax U/s 16(iii) (2,400)

Total Deductions (52,400)

III. Taxable Income from Salaries 19,56,100

Export to Sheets
Detailed Notes for Problem 13:
1. Medical Reimbursement: As a general rule, reimbursement of medical expenses
from a private hospital is fully taxable for the employee. The ₹15,000 exemption for
medical reimbursement was replaced by the standard deduction.

A. Sivakumnar, [Link].,
 2. Food Allowance: A fixed food allowance (not a meal voucher/facility) is fully
taxable.
3. Gratuity (Covered by Payment of Gratuity Act, 1972):
o Exemption is the least of:

 Actual Gratuity received.

 Statutory limit (₹20,00,000).
 15 days' salary for each completed year of service or part thereof in
excess of six months. (Salary for this purpose = Basic Salary +
Dearness Allowance (full DA, whether forming part of retirement
benefits or not) divided by 26).
o Service period: For gratuity under the Act, part of a year exceeding 6 months
is considered a full year. So, 32 years 8 months = 33 completed years.
4. Leave Encashment (Non-Government Employee, on Retirement):
o Exemption is the least of:

 Actual leave encashment received.

 Statutory limit (₹25,00,000).
 10 months' average salary. (Average salary for this purpose = Average
of Basic + DA (forming part of retirement benefits) + Commission (if
based on fixed percentage of turnover) for the 10 months immediately
preceding retirement).
 Cash equivalent of unavailed leave (at average salary) for each
completed year of service, calculated on the basis of a maximum of 30
days' earned leave for each completed year of service. (Completed
years of service are considered as 32 years, 8 months are ignored).
5. Uncommuted Pension: Fully taxable in the hands of all employees (government or
non-government). Taxable on due or receipt basis, whichever is earlier.
6. Commuted Pension (Non-Government Employee):
o If the employee receives gratuity, then 1/3rd of the amount which would have
been received if the entire pension had been commuted is exempt.
o If the employee does not receive gratuity, then 1/2 of the amount which would
have been received if the entire pension had been commuted is exempt.
o For government employees, commuted pension is fully exempt.

7. Club Facility: Value of the perquisite if the club facility is primarily for personal use is
fully taxable.
8. Credit Card Expenses: Only the personal portion of credit card expenses paid by
the employer is taxable as a perquisite. Official expenses are exempt.
9. Employer's Contribution to NPS (National Pension System):
o Employer's contribution to NPS is taxable as a perquisite under Section 17(2)
(vii).

A. Sivakumnar, [Link].,
 o However, a deduction is available to the employee under Section 80CCD(2)
for the employer's contribution, up to 10% of 'Salary' (Basic + DA forming
part) or the actual contribution, whichever is less, without any monetary limit.
This deduction is allowed from Gross Total Income, not directly from salary
income. For computing "Taxable Income from Salaries", we first add it as a
perquisite.
10. Standard Deduction (Sec 16(ia)): Flat deduction of ₹50,000.
11. Professional Tax (Sec 16(iii)): Allowed as a deduction.

A. Sivakumnar, [Link].,
Problem 2: Perquisites and Provident Fund
Mr. Bimal works for XYZ Ltd. and provides the following details for FY 2024-25:
 Basic Salary: ₹60,000 p.m.
 DA: ₹20,000 p.m. (fully forms part of retirement benefits)
 Employer's contribution to RPF: 16% of Basic Salary + DA.
 Interest credited to RPF at 12% p.a. on a balance of ₹12,00,000.
 A rent-free furnished accommodation is provided by the employer in Mumbai
(population > 25 lakh). Fair rent value is ₹50,000 p.m. The cost of furniture provided
is ₹3,00,000.
 A small car (1.4L engine) is provided for personal and official use. Running and
maintenance expenses are borne by the employer.
 Employer provided a laptop costing ₹80,000 for official and personal use.
 Medical bills of Mr. Bimal reimbursed by employer: ₹35,000.
 Gift voucher received from employer on his birthday: ₹8,000.
Compute Mr. Bimal's Income from Salary under both Old and New Tax Regimes.

Solution to Problem 2:
Step 1: Calculate "Salary" for Perquisites (Rent-Free Accommodation and RPF):
 Basic Salary: ₹60,000 p.m. * 12 = ₹7,20,000
 DA: ₹20,000 p.m. * 12 = ₹2,40,000
 Salary for Perquisites = Basic + DA = ₹7,20,000 + ₹2,40,000 = ₹9,60,000
Step 2: Calculate Provident Fund Taxability:
 Employer's contribution: 16% of (Basic + DA) = 16% of ₹9,60,000 = ₹1,53,600
 Exempt Employer's contribution: 12% of (Basic + DA) = 12% of ₹9,60,000 =
₹1,15,200
 Taxable Employer's contribution to RPF = ₹1,53,600 - ₹1,15,200 = ₹38,400
 Interest credited to RPF: 12% of ₹12,00,000 = ₹1,44,000
 Exempt Interest: 9.5% of ₹12,00,000 = ₹1,14,000
 Taxable Interest on RPF = ₹1,44,000 - ₹1,14,000 = ₹30,000
Step 3: Calculate Rent-Free Furnished Accommodation Perquisite:
 Value of unfurnished accommodation: 15% of Salary (since Mumbai population > 25
lakh) = 15% of ₹9,60,000 = ₹1,44,000
 Add: Value of furniture = 10% of Cost of furniture = 10% of ₹3,00,000 = ₹30,000
 Total Taxable Perquisite for RFA = ₹1,44,000 + ₹30,000 = ₹1,74,000
 (Fair rent value is irrelevant for employer-owned accommodation)

A. Sivakumnar, [Link].,
Step 4: Calculate Motor Car Perquisite:
 Small car for personal and official use, expenses borne by employer:
 Taxable perquisite = ₹1,800 p.m. * 12 = ₹21,600
Step 5: Calculate other Perquisites:
 Laptop provided: Fully Exempt.
 Medical bills reimbursed: Fully Taxable = ₹35,000
 Gift voucher:
o Received: ₹8,000

o Exempt: Up to ₹5,000

o Taxable: ₹8,000 - ₹5,000 = ₹3,000

Computation of Income from Salary - Mr. Bimal

Old Tax Regime

Particulars New Tax Regime (₹)
(₹)

I. Gross Salary

Basic Salary (₹60,000 * 12) 7,20,000 7,20,000

Dearness Allowance (₹20,000 * 12) 2,40,000 2,40,000

Taxable Employer's Contribution to RPF 38,400 38,400

Taxable Interest on RPF 30,000 30,000

Taxable Perquisite: Rent-Free Furnished Acc. 1,74,000 1,74,000

Taxable Perquisite: Motor Car 21,600 21,600

Medical Bills Reimbursed (Fully Taxable) 35,000 35,000

Gift Voucher (Taxable portion) 3,000 3,000

Gross Salary (before Sec 16 deductions) 12,62,000 12,62,000

II. Deductions from Salary (Section 16)

Less: Standard Deduction [Sec 16(ia)] (50,000) (50,000)

Income Chargeable under the Head "Salaries" 12,12,000 12,12,000

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A. Sivakumnar, [Link].,
Problem 3: Retirement Benefits
Mr. Chetan, a non-government employee, retired on 31.01.2025 after 28 years and 7 months
of service. His salary details are:
 Basic Salary: ₹40,000 p.m.
 DA: ₹15,000 p.m. (80% forms part of retirement benefits)
 Commission (fixed % of turnover): ₹5,000 p.m.
He received the following payments on retirement:
1. Gratuity: ₹10,00,000
o (He is covered by the Payment of Gratuity Act, 1972)

2. Commuted Pension: Received 60% of his pension for ₹9,00,000.

3. Leave Encashment: ₹5,00,000 (He had 200 days of accumulated earned leave out of
total 30 days leave credit per year)
His average salary for the last 10 months immediately preceding retirement was: Basic
₹38,000, DA ₹14,000 (80% forming part), Commission ₹4,500.
Compute Mr. Chetan's taxable retirement benefits.

Solution to Problem 3:
1. Gratuity Exemption:
 Service Period: 28 years 7 months = 29 completed years (since 7 months > 6
months)
 Last drawn salary for Gratuity (Basic + DA): ₹40,000 + ₹15,000 = ₹55,000
 Exemption (Least of):
1. Actual Gratuity Received: ₹10,00,000
2. Statutory Limit: ₹20,00,000
3. 15 days' salary for each completed year of service: (15/26) * ₹55,000 * 29 =
₹9,23,077 (approx)
 Exempt Gratuity = ₹9,23,077
 Taxable Gratuity = ₹10,00,000 - ₹9,23,077 = ₹76,923
2. Commuted Pension Exemption:
 Mr. Chetan is a non-government employee and has also received gratuity.
 Commuted 60% for ₹9,00,000. So, 100% pension would be ₹9,00,000 / 0.60 =
₹15,00,000.
 Exemption (1/3rd of total commutable pension): 1/3 * ₹15,00,000 = ₹5,00,000
 Taxable Commuted Pension = Actual Commuted Pension - Exemption =
₹9,00,000 - ₹5,00,000 = ₹4,00,000
3. Leave Encashment Exemption:

A. Sivakumnar, [Link].,
  Service Period: 28 completed years.
 Leave entitlement: 30 days per year.
 Total Leave Credit: 28 years * 30 days/year = 840 days.
 Leave Availed: 840 - 200 (unutilized) = 640 days. (Self-correction: If 200 days are
UNUTILIZED, it means that's the balance, not total credit. The problem implies 200
days balance as per the company policy, not maximum entitlement per IT Act.)
 Let's assume the unutilized leave as per the company rule is 200 days, but for
exemption calculation, we use a max of 30 days per year earned leave.
 Cash equivalent of unutilized earned leave (based on 30 days per year):
o Max leave credit: 28 years * 30 days = 840 days.

o Balance of unutilized leave taken as per company rule: 200 days.

o This problem's wording "200 days of accumulated earned leave out of total 30
days leave credit per year" implies that the balance of 200 days is the actual
unutilized leave at the time of retirement.
o Average monthly salary for leave encashment (last 10 months):

 Basic: ₹38,000
 DA (forming part): ₹14,000 * 80% = ₹11,200
 Commission: ₹4,500
 Total average monthly salary = ₹38,000 + ₹11,200 + ₹4,500 =
₹53,700
o Average daily salary: ₹53,700 / 30 = ₹1,790

 Exemption (Least of):

1. Actual Leave Encashment Received: ₹5,00,000
2. Statutory Limit: ₹25,00,000 (for retirement after 01.04.2023)
3. 10 months' average salary: 10 * ₹53,700 = ₹5,37,000
4. Cash equivalent of unutilized earned leave: 200 days * ₹1,790/day =
₹3,58,000
 Exempt Leave Encashment = ₹3,58,000
 Taxable Leave Encashment = ₹5,00,000 - ₹3,58,000 = ₹1,42,000
Summary of Taxable Retirement Benefits (Mr. Chetan)

Particulars Amount (₹)

Taxable Gratuity 76,923

Taxable Commuted Pension 4,00,000

Taxable Leave Encashment 1,42,000

Total Taxable Income (related to these benefits) 6,18,923

A. Sivakumnar, [Link].,