Problems on Taxable Salary Income-Additional

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Comprehensive Problems on Taxable Salary Income Problem Number One Mr. A is employed at Mumbai in a limited company at a Basic Salary of Rs.16,000 p.m. plus Dearness Pay of Rs. 4,000 p.m. He is also entitled to 1% commission on turnover achieved by him (turnover achieved by him during the PY Rs. 20 Lakhs spread evenly throughout the year). He is getting HRA of Rs. 8,000 p.m. The actual rent paid by him is Rs. 5,000 p.m. up to 30-09-13 and thereafter it has been increased to Rs. 6,000 p.m. The other allowances and emoluments received by him are as follows: CCA Rs. 400 p.m; Lunch Allowance Rs. 600 p.m; Medical Allowance Rs. 300 p.m; Bonus Rs. 16,000 and Arrears of Salary Rs. 20,000. Compute the Gross Salary of Mr. A Solution Computation of Gross Salary Income of Mr. A Rs.

Rs. 1,92,000 48,000 20,000

Basic Pay (16,000 x 12) Dearness Pay (4,000 x 12) Commission (20,00,000 x 1%) 96,000 HRA (8,000 x 12) Less: Exempt (see note below) 40,000 56,000 CCA (400 x 12) 4,800 Lunch Allowance (600 x 12) 7,200 Medical Allowance (300 x 12) 3,600 Bonus 16,000 20,000 Arrears of Salary Gross Salary Income 3,67,600 Note: A. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 96,000 b) Excess of ‘rent paid’ over 10% of “Salary” [66,000 – 26,000] 40,000 c) 50% of “Salary” 1,30,000 1. Rent paid is arrived at as follows: Rent from April, 2013 to September 2013 at Rs. 5,000 per month Rs. 30,000 (i.e., 5,000 x 6) and from October 2013 onwards Rs. 36,000 (i.e., 6,000 x 6). Total rent paid = 30,000 + 36,000 = 66,000 2. Since the accommodation is in Mumbai, 50% of “Salary” is considered for item (c) above. 3. Exempted HRA is Rs. 40,000 being least of the above. “Salary” for HRA purpose Rs. Basic Salary 1,92,000 Dearness Pay 48,000 Fixed percentage commission on turnover achieved by employee 20,000 2,60,000

DR.R.K.SREEKANTH VITTAM PUBLICATIONS 1. 10% of Salary = Rs. 2,60,000 x 10% = Rs. 26,000 2. 50% of Salary = Rs. 2,60,000 x 50% = Rs. 1,30,000 Problem Number Two Mr. B is drawing a monthly basic salary of Rs. 15,000. He is given the following allowances every month in addition to the basic salary: Dearness Allowance Rs. 2,000; Lunch Allowance Rs. 1,500; Helper Allowance Rs. 1,000 (wages paid to helper Rs. 1,200 p.m); Transport Allowance Rs. 1,200; Children Education Allowance Rs. 250 per child for 3 children; Hostel Expenditure Allowance Rs. 350 per child for 3 children; Conveyance Allowance Rs. 500 (Actual spent Rs. 450 p.m); Overtime Allowance Rs. 800; Medical Allowance Rs. 1,200; City Compensatory Allowance Rs. 600; House Rent Allowance Rs. 5,000 (Rent paid by Mr. B is Rs. 7,000 p.m). Professional tax paid by Mr. B Rs. 2,000. Compute the Taxable Salary Income of Mr. B Solution Computation of Taxable Salary Income of Mr. B Rs.

Rs. 1,80,000 24,000 18,000

Basic salary (15,000 x 12) Dearness Allowance (2,000 x 12) Lunch Allowance (1,500 x 12) Helper Allowance (1,000 x 12) 12,000 Less: Exempt (see note 1 below) 12,000 Nil Transport Allowance (1,200 x 12) 14,400 Less: Exempt (800 x 12) 9,600 4,800 Children Education Allowance (250 x 12 x 3) 9,000 Less: Exempt (100 x 12 x 2) 2,400 6,600 Hostel Expenditure Allowance (350 x 12 x 3) 12,600 Less: Exempt (300 x 12 x 2) 7,200 5,400 Conveyance Allowance (500 x 12) 6,000 Less: Exempt (Actual spent 450 x 12) 5,400 600 Overtime Allowance (800 x 12) 9,600 Medical Allowance (1,200 x 12) 14,400 City Compensatory Allowance (600 x 12) 7,200 House Rent Allowance (5,000 x 12) 60,000 Less: Exempt (see note below) 60,000 Nil Gross Salary Income 2,70,600 Deduction u/s 16(iii) Professional tax paid 2,000 Taxable Salary Income 2,68,600 A. As the wages paid is more than the allowance received, the entire amount of helper allowance is exempted. B. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 60,000 b) Excess of ‘rent paid’ over 10% of “Salary” [84,000 – 18,000] 66,000 c) 40% of “Salary” 72,000

DR.R.K.SREEKANTH VITTAM PUBLICATIONS i.

Since the place of accommodation is not given in the problem, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 60,000 being least of the above.

“Salary” for HRA purpose Rs. Basic Salary 1,80,000 Dearness Allowance forming part of salary Zero Fixed percentage commission on turnover achieved by employee Zero 1,80,000 1. In the absence of specific information, DA is assumed as not forming part of salary. 2. 10% of Salary = Rs. 1,80,000 x 10% = Rs. 18,000 3. 40% of Salary = Rs. 1,80,000 x 40% = Rs. 72,000 Problem Number Three Mr. C retires on 31-01-2014 after rendering service of 30 years and 7 months. His emoluments were as follows: Basic Salary Rs. 8,000 p.m; DA 40% of Basic Salary (2/3 enters for service benefits); CCA Rs. 125 p.m; HRA Rs. 800 p.m. (rent paid Rs. 1,200 p.m.); Commission at 2% on turnover of Rs. 4,50,000; Medical Allowance Rs. 250 p.m; Lunch Allowance Rs. 300 p.m; Children Education Allowance Rs. 150 p.m. per child for 3 children; Hostel Expenditure Allowance Rs. 450 p.m. for one child; Travelling Allowance Rs. 6,000 (Actual amount spent Rs. 2,500); Gratuity received Rs. 2,85,000. (He is covered under Payment of Gratuity Act, 1972). Mr. C has paid professional tax of Rs. 2,000. Compute the Taxable Salary Income of Mr. C Solution Computation of Taxable Salary Income of Mr. C Rs. Basic Salary (8,000 x 10) DA (80,000 x 40%) CCA (125 x 10) HRA (800 x 10) Less: Exempted (see note 2 below) Commission (4,50,000 x 2%) Medical Allowance (250 x 10) Lunch Allowance (300 x 10) Children Education Allowance (150 x 10 x 3) Less: Exempted (100 x 10 x 2) Hostel Expenditure Allowance (450 x 10 x 1) Less: Exempted (300 x 10 x 1) Travelling Allowance Less: Exempted (Actual amount spent) Gratuity received Less: Exempted

8,000 967

4,500 2,000 4,500 3,000 6,000 2,500 2,85,000 2,00,308

Rs. 80,000 32,000 1,250 7,033 9,000 2,500 3,000 2,500 1,500 3,500 84,692

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Gross Salary Income 2,26,975 Deduction u/s 16 (iii) Professional tax paid 2,000 Taxable Salary Income 2,24,975 A. As Mr. C retires on 31/1/14, he receives salary only for 10 months during the PY 2013-14. Hence all amounts are considered for 10 months only B. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 8,000 b) Excess of ‘rent paid’ over 10% of “Salary” [12,000 – 11,033] 967 c) 40% of “Salary” 44,133 i. Since the place of accommodation is not given in the problem, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 967 being least of the above. “Salary” for HRA purpose Rs. Basic Salary Dearness Allowance forming part of salary (32,000 x 2/3) Fixed percentage commission on turnover achieved by employee

80,000 21,333 9,000 1,10,333

i. 10% of Salary = Rs. 1,10,333 x 10% = Rs. 11,033 ii. 40% of Salary = Rs. 1,10,333 x 40% = Rs. 44,133 C. Mr. C is an employee of a company covered under the Payment of Gratuity Act, 1972. Hence exempted gratuity under section 10(10)(ii) is least of the following: Rs. a) 15/26 x ‘Last drawn Salary’ x Number of years of service. 2,00,308 [15/26 x Rs. 11,200 x 31] 10,00,000 b) Maximum Limit 2,85,000 c) Actual Gratuity Received Exempted Gratuity is Rs. 2,00,308 being least of the above Notes: 1. Last drawn salary for gratuity purpose = Basic Salary last drawn + DA last drawn = Rs. 8,000 + Rs. 3,200 = Rs. 11,200 2. Number of years of service is rounded off to 31 years. Problem Number Four Ms. D retires on 31-12-2013 after rendering service of 35 years and 3 months. Her emoluments for the year PY 2013-14 were as follows: Basic Salary Rs. 6,000 p.m; DA 50% of Basic (50% forms part of salary); CCA Rs. 100 p.m; HRA Rs. 600 p.m. (she resides in her own house); Medical

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Allowance Rs. 150 p.m; Gratuity received Rs. 1,35,000 (she is covered under the Payment of Gratuity Act, 1972). After retirement her pension was fixed as follows: Basic Rs. 3,000 p.m; DA 25% of Basic. She has paid employment tax Rs. 1,800. Compute the Taxable Salary Income of Ms. D Solution Computation of Taxable Salary Income of Mr. D Rs.

Rs. 54,000 27,000 900

Basic Salary (6,000 x 9) DA (54,000 x 50%) CCA (100 x 9) 5,400 HRA (600 x 9) Less: Exempted (see note 1 below) Nil 5,400 Medical Allowance (150 x 9) 1,350 1,35,000 Gratuity received Rs. 1,35,000 1,35,000 Nil Less: Exempted (see note 2 below) 11,250 Pension {(3,000 + 25%) x 3} Gross Salary Income 99,900 Deduction u/s 16 (iii) employment tax 1,800 Taxable Salary Income 98,100 Notes: A. As Ms. D retires on 31/12/13, she receives salary only for 9 months during the PY 201314. Hence all amounts are considered for 9 months only. She receives pension for the remaining 3 months, which is included for the calculation of Gross Salary. B. As Ms. D resides in her own house, she is not eligible to claim exemption of HRA. Hence, the entire amount of HRA received is taxable. C. Mr. C is an employee of a company covered under the Payment of Gratuity Act, 1972. Hence exempted gratuity under section 10(10)(ii) is least of the following: Rs. 1,81,731 a) 15/26 x ‘Last drawn Salary’ x Number of years of service. [15/26 x Rs. 9,000 x 35]

b) Maximum Limit c) Actual Gratuity Received Exempted Gratuity is Rs. 1,35,000 being least of the above Notes: Last drawn salary for gratuity purpose = Basic Salary last drawn + DA last drawn = Rs. 6,000 + (6,000 x 50%) = Rs. 9,000 Number of years of service is rounded off to 35 years.

10,00,000 1,35,000

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Problem Number Five Mr. E retires from the education department of the Government of Karnataka on 31-01-14 after rendering service of 33 years and 9 months. His emoluments for the PY 2013-14 were as follows: Basic Salary Rs. 16,000 p.m; DA 58% of Basic Salary (entire amount forms part of salary); CCA Rs. 350 p.m; HRA Rs. 3,500 p.m. (He pays rent at Rs. 6,000 p.m.); Medical Allowance Rs. 500 p.m; Employer’s contribution to SPF 12% of Salary; Gratuity received Rs. 3,65,000; Refund from SPF Rs. 3,65,000. After retirement his pension was fixed as follows: Basic 40% of the original basic and DA as before. He has paid professional tax Rs. 2,000. Compute the Taxable Salary Income of Mr. E for the AY 2014-15. Solution Computation of Taxable Salary Income of Mr. E Rs.

Rs. 1,60,000 92,800 3,500

Basic Salary (16,000 x 10) DA (1,60,000 x 58%) CCA (350 x 10) HRA (3,500 x 10) 35,000 Less: Exempted (see note 2 below) 34,720 280 Medical Allowance (500 x 10) 5,000 Employer’s contribution to SPF ( see note 3 below) Nil Nil Gratuity (see note 3 below) Refund from SPF (see note 3 below) Nil Pension {(16,000 x 40%) + 58%} x 2 20,224 Gross Salary Income 2,81,804 Deduction u/s 16 (iii) employment tax 2,000 Taxable Salary Income 2,79,804 Notes: A. As Mr. E retires on 31/01/14, he receives salary only for 10 months during the PY 201314. Hence all amounts are considered for 10 months only. He receives pension for the remaining 2 months, which is included for the calculation of Gross Salary. B. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 35,000 b) Excess of ‘rent paid’ over 10% of “Salary” [60,000 – 25,280] 34,720 c) 40% of “Salary” 1,01,120 i. Since the place of accommodation is not given in the problem, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 34,720 being least of the above. iii. “Salary” for HRA purpose Rs. Basic Salary 1,60,000 Dearness Allowance forming part of salary (1,60,000 x 58%) 92,800

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Fixed percentage commission on turnover achieved by employee

Zero 2,52,800

i. 10% of Salary = Rs. 2,52,800 x 10% = Rs. 25,280 ii. 40% of Salary = Rs. 2,52,800 x 40% = Rs.1,01,120 C. Since, Mr. E is employee of Karnataka Government, Employer’s contribution to SPF, Gratuity received and Refund from SPF are fully exempted and hence the taxable amounts are shown as Nil. Problem Number Six Ms. F received the following emoluments during the PY 2013-14: Basic Pay Rs. 2,61,600; Special Allowance Rs. 18,000; DA 20% of Basic (not forming part of salary for retirement benefits); Bonus 2 months Basic; CCA Rs. 500 p.m; Children Education Allowance Rs. 250 per month per child for 3 children; Uniform Allowance Rs. 1,000 p.m.(amount spent for the maintenance of uniform Rs. 600); Lunch Allowance Rs. 900 p.m. (Actual lunch expenses Rs.1,200 per month). She is also provided with a rent free furnished flat, lease rent of which is Rs. 1,20,000 p.a. The cost price of house hold appliances provided is Rs. 75,000 and hire charges paid by the company in respect of air conditioner installed in the house amounted to Rs. 4,000. For providing this facility, the employer collected Rs. 2,500 per month from the employee. Ms. F paid Rs. 2,000 professional tax. Compute the Taxable Salary Income of Ms. F Solution Computation of Taxable Salary Income of Ms. F Rs. Basic Pay Special Allowance DA (2,61,600 x 20%) Bonus 2 months Basic Pay {(2,61,600/12) x 2} CCA (500 x 12) Children Education Allowance (250 x 12 x 3) Less: Exempt (100 x 12 x 2) Uniform Allowance (1,000 x 12) Less: Exempt (600 x 12) Lunch Allowance (900 x 12) (see note 1 below) Value of accommodation provided at concessional rent (see note 2 below) Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income Notes: 1. 2. • •

9,000 2,400 12,000 7,200

Rs. 2,61,600 18,000 52,320 43,600 6,000 6,600 4,800 10,800 34,210 4,37,930 2,000 4,35,930

Lunch Allowance is fully taxable. Actual expenses incurred is irrelevant. Note on value of accommodation provided at concessional rent: Ms. F is not a Government employee The accommodation provided to her is not owned by the employer (as the employer is paying a lease rent of Rs. 1,20,000)

DR.R.K.SREEKANTH VITTAM PUBLICATIONS • •

The city in which the accommodation is situated and its population is irrelevant Salary for the purpose of valuation of rent free unfurnished accommodation is = Basic Pay + Special Allowance + D.A (entering into retirement benefits) + Bonus + CCA + Taxable portion of Children Education Allowance + Taxable Portion of Uniform Allowance + Lunch Allowance = 2,61,600 + 18,000 + Zero + 43,600 + 6,000 + 6,600 + 4,800 +10,800

= Rs. 3,51,400 Value of rent free unfurnished accommodation provided to Ms. F is Lease rent or 15% of salary whichever is less. Hence the value of rent free unfurnished accommodation is least of the following: a) Lease rent paid by employer Rs. 1,20,000 or b) 15% of salary Rs. 52,710 (i.e., 3,51,400 x 15%) whichever is less. Rs. 52,710 being least of the above, is the value of rent free unfurnished accommodation provided to Ms. F • Ms. F is also provided with house hold appliances and air conditioner and an amount of Rs. 2,500 per month is collected towards this facility. Therefore, the value of furnished accommodation provided at concessional rent is arrived at as follows: Rs. Value of rent free unfurnished accommodation 52,710 Add: 10% of the cost of furniture provided (75,000 x 10%) 7,500 Add: Hire charges of the air conditioner installed in the house 4,000 Taxable value of rent free furnished accommodation 64,210 Less: Rent recovered from employee (2,500 x 12) 30,000 Value of accommodation provided at concessional rent 34,210 •

Problem Number Seven Mr. G is an employee of ABC Ltd., Bangalore. His particulars of income are as follows: Basic Salary Rs. 13,500 p.m; DA 35% of Basic (60% of it forms part of salary for retirement benefits); HRA Rs. 4,000 p.m. (rent paid Rs. 5,000 p.m); CCA Rs. 175 p.m; Lunch Allowance Rs. 500 p.m. (actual amount spent Rs. 1,000 p.m.); Children Education Allowance Rs. 50 p.m. per child for 3 children; Hostel Expenditure Allowance Rs. 400 p.m. per child for 3 children; Special Allowance Rs. 150 p.m; Helper Allowance Rs. 300 p.m.(actual amount spent Rs. 200 p.m.); Bonus Rs. 25,000; Leave Encashment Rs. 13,500; Advance Salary Rs. 14,000; Entertainment Allowance Rs. 250 p.m; (actual amount spent by him Rs. 200 p.m.); Mr. G has also been provided with free use of a small car for both official and personal use. During the year he has been reimbursed with Rs.17,500 towards medical expenses incurred in a private clinic. He contributes 14% of salary towards RPF to which the company also makes a matching contribution. Interest credited to RPF account during the PY at 12% amounted to Rs. 12,000. He has paid Rs. 200 p.m. as professional tax. Compute Mr. G’s Taxable Salary Income.

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Solution Computation of Taxable Salary Income of Mr. G Rs. Basic Salary (13,500 x 12) DA (1,62,000 x 35%) HRA (4,000 x 12) Less: Exempted (see note 1 below) CCA (175 x 12) Lunch Allowance (500 x 12) Children Education Allowance (50 x 12 x 3) Less: Exempted (50 x 12 x 2) Hostel Expenditure Allowance (400 x 12 x 3) Less: Exempted (300 x 12 x 2) Special Allowance (150 x 12) Helper Allowance (300 x 12) Less: Exempted (200 x 12) Bonus Leave Encashment (see note 2 below) Advance Salary Entertainment Allowance (250 x 12) Motor car facility (1,800 x 12) (see note 3 below) Reimbursement of medical expenses Less: Exempted (see note 4 below) Employer’s contribution to RPF over and above 12% of salary (1,96,020 x 2%) (see note 5 below) Interest credited to RPF account over and above 9.5% per annum {(12,000/12) x 2.5} (see note 6 below) Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid (200 x 12) Taxable Salary Income

Rs. 1,62,000 56,700

48,000

40,398

1,800 1,200 14,400 7,200 3,600 2,400

17,500 15,000

7,602 2,100 6,000 600 7,200 1,800 1,200 25.000 13,500 14,000 3,000 21,600 2,500 3,920 2,500 3,31,222 2,400 3,28,822

Notes: A. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 48,000 b) Excess of ‘rent paid’ over 10% of “Salary” [60,000 – 19,602] 40,398 c) 40% of “Salary” 78,408 i. Since the place of accommodation is Bangalore, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 40,398 being least of the above.

DR.R.K.SREEKANTH VITTAM PUBLICATIONS “Salary” for HRA purpose Basic Salary Dearness Allowance forming part of salary (1,62,000 x 35% x 60%) Fixed percentage commission on turnover achieved by employee

B. C.

D. E.

F.

Rs. 1,62,000 34,020 Zero 1,96,020

i. 10% of Salary = Rs. 1,96,020 x 10% = Rs. 19,602 ii. 40% of Salary = Rs. 1,96,020 x 40% = Rs. 78,408 Leave Encashment during the continuation of service is fully taxable and hence, it is included in the calculation of gross salary income Small car for both official and personal purposes is provided by the employer and the expenses are also met by the employer. No log book for the personal use is maintained. Hence, the guidance value of perquisite in respect of motor car facility Rs. 1,800 per month is considered. Reimbursement of medical expenses in respect of treatment taken in a private clinic or hospital is exempted up to Rs. 15,000 Contribution of employer towards RPF over and above 12% per annum is taxable. Since, the employer has contributed 14% of salary, 2% of salary is taken as excess contribution. For the purpose of calculation of excess contribution made by employer towards RPF, the meaning of salary is the same as the meaning of salary for HRA purpose. Interest credited over and above 9.5% per annum is taxable. Since the interest credited is at 12%, the excess interest of 2.5% (i.e., 12% - 9.5%) is taken as taxable. It is calculated as follows: If 12% represents Rs. 12,000 how much is 2.5% i.e., 12% = 12,000 2.5% = ? Therefore, excess interest credited is (12,000/12) x 2.5 = Rs. 2,500

Problem Number Eight Mr. H is a professor in a reputed college in Kolkata and gets the following emoluments during the PY 2013-14. Basic Salary Rs. 42,300 p.m. up to 30-06-13 and Rs. 44,300 p.m. thereafter; DA Rs. 56% of Basic (78% of it forms part of salary for retirement benefits); HRA 30% of Basic; Conveyance Allowance Rs. 2,500 p.m. (entire amount used for personal purpose). On 10-07-13 the employer gifts Mr. H a wrist watch costing Rs. 35,000. Employer’s contribution to RPF is 14.5% of salary and interest credited to RPF at 13.5% amounted to Rs. 27,000. Mr. H paid tax professional tax of Rs. 2,400 during the year. Compute the Taxable Salary Income of Mr. H. Solution Computation of Taxable Salary Income of Mr. H Rs. Basic Salary (42,300 x 3) + (44,300 x 9) DA ( 5,25,600 x 56%)

Rs. 5,25,600 2,94,336

DR.R.K.SREEKANTH VITTAM PUBLICATIONS HRA (5,25,600 x 30%) Less: Exempted (see note 1 below) Conveyance Allowance (2,500 x 12) Less: Exempted (see note 2 below) Gift in kind Less: Exempted (see note 3 below) Employer’s contribution to RPF over and above 12% (see note 4 below) Interest credited to RPF over and above 9.5% (see note 5 below) Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

1,57,680 Nil 30,000 Nil 35,000 5,000

1,57,680 30,000 30,000 18,880 8,000 10,64,496 2,400 10,62,096

Notes: 1. 2. 3. 4.

Exempted HRA is nil as rent paid is not given in the problem Exempted Conveyance Allowance is nil as entire amount is spent for personal purpose Gifts from employer received in kind is exempted up to Rs. 5,000 Salary for the purpose of RPF is Basic + DA entering into retirement benefits + Turnover based fixed percentage commission. Therefore salary for RPF purpose = 5,25,600 + (2,94,336 x 78%) + Zero = Rs. 7,55,182 Employer’s contribution over and above 12% is 2.5% (i.e., 14.5% - 12%). Therefore, excess contribution is Rs. 18,880 (i.e., 7,55,182 x 2.5%) 5. Interest credited over and above 9.5% per annum is taxable. Since the interest credited is at 13.5%, the excess interest of 4% (i.e., 13.5% - 9.5%) is taken as taxable. It is calculated as follows: If 13.5% represents Rs. 27,000 how much is 4% i.e., 13.5% = 27,000 4% = ? Therefore, excess interest credited is (27,000/13.5) x 4 = Rs. 8,000

Problem Number Nine Ms. I is a professor in a popular college in Bangalore and gets the following emoluments: Basic Salary Rs. 5,04,000; DA 27% of Basic (forming part of salary); CCA Rs. 3,000; Children Education Allowance Rs. 3,060 (at Rs. 85 p.m. per child for 3 children); HRA 30% of Basic (rent paid Rs.20,000 per month). She also gets remuneration from Bangalore University for acting as paper setter and examiner Rs. 36,400 (expenses incurred by her in this connection Rs. 6,800). She gets Rs. 18,500 reimbursement in respect of medical expenses incurred for treatment in a private clinic and Rs. 22,500 in respect of books and journals purchased by her for discharging official work. Her contribution to RPF is 14.5% to which a matching contribution is made by the employer. She informs you that during the year she paid Rs. 2,400 as professional tax and incurred expenditure of Rs. 8,000 on purchase of books for teaching purpose and Rs. 23,500 for maintaining car for commuting between the college and his residence. Determine the Taxable Salary Income of Ms. I.

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Solution Computation of Taxable Salary Income of Ms. I Rs. Basic Salary 5,04,000 DA (5,04,000 x 27%) CCA Rs. 3,000 Children Education Allowance Rs. 3,060 Less: Exempted (85 x 12 x 2) HRA (5,04,000 x 30%) Less: Exempted (see note 1 below) Reimbursement of medical expenses Less: Exempted Employer’s contribution to RPF over and above 12%

3,060 2,040 1,51,200 1,51,200 18,500 15,000

Rs. 5,04,000 1,36,080 3,000 1,020 Nil 3,500

16,002

Gross Salary Income

6,63,602

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

2,400 6,61,202

Notes: 1. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 1,51,200 b) Excess of ‘rent paid’ over 10% of “Salary” [2,40,000 – 64,008] 1,75,992 c) 40% of “Salary” 2,56,032 i. Since the place of accommodation is Bangalore, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 1,51,200 being least of the above. “Salary” for HRA purpose Basic Salary Dearness Allowance forming part of salary Fixed percentage commission on turnover achieved by employee

Rs. 5,04,000 1,36,080 Zero 6,40,080

i. 10% of Salary = Rs. 6,40,080 x 10% = Rs. 64,008 ii. 40% of Salary = Rs. 6,40,080 x 40% = Rs. 2,56,032 2. Remuneration from Bangalore University for acting as paper setter and examiner shall be considered under the head “Income from other sources” and hence, it is ignored for calculation of taxable salary income. 3. Reimbursement of Rs. 22,500 in respect of book and journals purchased by her for discharging official work is not taxable. 4. Salary for the purpose of RPF is the same as salary for HRA purpose. Employer’s contribution over and above 12% is 2.5% (i.e., 14.5% - 12%). Therefore, excess contribution is Rs. 16,002 (i.e., 6,40,080 x 2.5%)

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Problem Number Ten Mr. J an employee in RKS Ltd., Bangalore gets the following emoluments during the year ending 31-03-14: Basic Salary Rs. 22,500 p.m. up to 31-07-13 and Rs. 23,000 p.m. afterwards; DA 47% of Basic (70% forms part of salary); HRA 30% of Basic (rent paid Rs. 4,000 p.m.); Conveyance Allowance Rs. 2,500 p.m. spent fully for official purpose; Medical Allowance Rs. 250 p.m; CCA Rs. 150 p.m; Lunch Allowance Rs. 750 p.m; Children Education Allowance Rs. 750 p.m. per child for 3 children; Hostel Expenditure Allowance Rs. 500 p.m. per child for 2 children; Special Allowance Rs. 750 p.m; Research Allowance Rs. 5,000(Rs. 4,500 spent).Mr. J is provided with a Maruti 800 car for both official and personal use. He contributes 10% of his salary to RPF to which the company also contributes an equal sum. Interest credited to the said sum at 9% p.a. amounts to Rs. 8,100. He gets Rs. 12,500 reimbursement in respect of books and journals purchased for personal use. During the year he has paid Rs. 200 p.m. as professional tax and donated Rs. 6,000 to Prime Minister’s National Relief Fund. Determine the Taxable Salary Income of Mr. J Solution Computation of Taxable Salary Income of Mr. J Rs. Basic Salary (22,500 x 4) + (23,000 x 8) DA ( 2,74,000 x 47%) HRA (2,74,000 x 30) Less: Exempted (see note 1 below) Conveyance Allowance (2,500 x 12) Less: Exempted (see note 2 below) Medical Allowance (250 x 12) CCA (150 x 12) Lunch Allowance (750 x 12) Children Education Allowance (750 x 12 x 3) Less: Exempted (100 x 12 x 2) Hostel Expenditure Allowance (500 x 12 x 2) Less: Exempted (300 x 12 x 2) Special Allowance (750 x 12) Research Allowance Less: Exempted (see note 3 below) Value of motor car facility (see note 4 below) Employers contribution to RPF over and above 12% of salary (see note 5) Interest credited to RPF over and above 9.5% (see note 6) Reimbursement in respect of books and journals (see note 7 below) Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

Rs. 2,74,000 1,28,780

82,200

11,585 30,000 30,000

27,000 2,400 12,000 7,200 5,000 4,500

70,415 Nil 3,000 1,800 9,000 24,600 4,800 9,000 500 21,600 Nil Nil 12,500 2,400

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Notes: 1. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 82,200 b) Excess of ‘rent paid’ over 10% of “Salary” [48,000 – 36,415] 11,585 c) 40% of “Salary” 1,45,658 i. Since the place of accommodation is Bangalore, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Rs. 11,585 being least of the above. “Salary” for HRA purpose Basic Salary Dearness Allowance forming part of salary (1,28,780 x 70%) Fixed percentage commission on turnover achieved by employee

Rs. 2,74,000 90,146

Zero 3,64,146

2. 3. 4.

5. 6. 7. 8.

i. 10% of Salary = Rs. 3,64,146 x 10% = Rs. 36,415 ii. 40% of Salary = Rs. 3,64,146 x 40% = Rs. 1,45,658 Since the entire amount of conveyance allowance is used for official purpose, it is fully exempted. Research allowance is exempt to the extent it is spent. Maruti 800 is a small car. It is used for both official and personal use. No log book is maintained. Hence, guidance value of Rs. 1,800 per month is taken as the value of perquisite in this respect. Employers contribution to RPF does not exceed 12% of Salary. Hence, it is nil. Interest credited to RPF does not exceed 9.5%. Hence, it is nil Reimbursement in respect of books and journals is for personal use. Hence full amount is taxable. Donation to Prime Minister’s National Relief Fund is not an income. Hence, it is ignored.

Problem Number Eleven Ms. K is a Government employee whose salary becomes due on the 1st of every month. During the PY 2013-14 she has received the following emoluments and benefits: Basic Rs. 16,500 p.m. up to 31-08-13 and an increment of Rs. 500 p.m. from 1-09-13; DA at 65% of Basic which fully enters for retirement benefits; CCA Rs. 150 p.m; Entertainment Allowance Rs. 250 p.m (actual amount spent during the year Rs. 1,200); Transport Allowance Rs. 900 p.m; Uniform Allowance Rs. 650 p.m. (amount spent Rs.450 p.m.); HRA 30% of Basic (rent paid Rs. 2,000 p.m.); Reimbursement of medical expenses incurred in Government Hospital Rs. 22,500. Ms. K has paid professional tax at Rs. 200 p.m. Determine the Taxable Salary Income of Ms. K

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Solution Computation of Taxable Salary Income of Ms. K Rs. Basic (16,500 x 6) + 17,000 x 6) (see note 1 below) DA (2,01,000 x 65%) CCA (150 x 12) Entertainment Allowance (250 x 12) Transport Allowance (900 x 12) Less: Exempted (800 x 12) Uniform Allowance (650 x 12) Less: Exempted (450 x 12) HRA (2,01,000 x 30%) Less: Exempted (see note 2 below) Reimbursement of medical expenses (see note 3 below) Gross Salary Income

10,800 9,600 7,800 5,400 60,300 Nil

Deduction u/s 16 (ii) Entertainment Allowance (see note 4 below) (iii) Professional tax paid Taxable Salary Income

Rs. 2,01,000 1,30,650 1,800 3,000 1,200 2,400 60,300 Nil 4,00,350 3,000 2,400 3,94,950

Notes: 1. Salary falls due on the 1st of every month. That is, March 2013 salary falls due in the month of April. Hence, salary from March 2013 to February 2014 is considered. Basic salary up to 31-08-13 i.e., from March 2013 to August 2013 is taken at Rs. 16,500 and from September 2013 to February 2014 it is taken at Rs. 17,000 after considering increment of Rs. 500 per month. 2. Exempted HRA under section 10(13A) is least of the following: a) Actual amount of House Rent Allowance 60,300 b) Excess of ‘rent paid’ over 10% of “Salary” [24,000 – 33,165 ] Nil c) 40% of “Salary” 1,32,660 i. Since the place of accommodation is not given in the problem, 40% of “Salary” is considered for item (c) in the format. ii. Exempted HRA is Nil being least of the above. “Salary” for HRA purpose Basic Salary Dearness Allowance forming part of salary (1,28,780 x 70%) Fixed percentage commission on turnover achieved by employee

Rs. 2,01,000 1,30,650

Zero 3,31,650

i. ii.

10% of Salary = Rs. 3,31,650 x 10% = Rs. 33,165 40% of Salary = Rs. 3,31,650 x 40% = Rs. 1,32,660

DR.R.K.SREEKANTH VITTAM PUBLICATIONS 3. Since the reimbursement of medical expenses is in respect of expenses incurred in Government Hospital, the entire amount is exempted. 4. Deduction u/s 16 (ii) in respect of Entertainment Allowance. The amount of deduction is least of the following: a) Maximum limit Rs. 5,000 b) 20% of Basic Salary Rs. 40,200 c) Actual Entertainment Allowance received Rs. 3,000. Hence, Deduction u/s 16 (ii) is Rs. 3,000 being least of the above Note: The actual amount spent is not considered for allowing this deduction. Problem Number Twelve Ms. L is the Marketing Manager in RKS Ltd., at Chennai. Her Basic Salary was Rs. 10,000 per month and D.A Rs. 2,500 per month which formed part of salary for retirement benefits. In addition she was entitled for the following: 2.5% commission on turnover achieved (Actual turnover Rs. 20 Lakhs); Furnished accommodation at a concessional rent of Rs. 500 per month at Chennai for which the company paid Rs. 3,200 per month as rent and provided furniture costing Rs. 30,000; Facility of a watchman and a cook who are paid Rs. 600 per month and Rs. 1,000 per month respectively. The company also paid Ms. L’s residential gas and electricity bills of Rs. 3,200 and Rs. 3,500 respectively for the whole year. During the PY she availed Leave Travel Concession of Rs. 4,500, Reimbursement of ordinary medical expenses for treatment taken in a private nursing home Rs. 28,500 and Gift of a watch worth Rs. 38,300. Professional Tax paid by her is Rs. 2,400. Compute the Taxable Salary Income of Ms. L Solution Computation of Taxable Salary Income of Ms. L Rs. Basic Salary (10,000 x 12) D.A (2,500 x 12) Commission (20,00,000 x 2.5%) Value of rent free furnished accommodation (see note 1 below) Facility of a watchman (600 x 12) (see note 2 below) Facility of cook (1,000 x 12) (see note 2 below) Gas bills paid by the company (see note 3 below) Electricity bills paid by the company (see note 3 below) Leave Travel Concession Less: Exempted (see note 4 below) Reimbursement of medical expenses Less: Exempted (see note 5 below) Gift of a watch worth Less: Exempted (see note 6 below) Gross Salary Income

Deduction u/s 16 (ii) Entertainment Allowance

4,500 4,500 28,500 15,000 38,300 5,000

Rs. 1,20,000 30,000 50,000 27,000 7,200 12,000 3,200 3,500 Nil 13,500 33,300 2,99,700 -

DR.R.K.SREEKANTH VITTAM PUBLICATIONS (iii) Professional tax paid Taxable Salary Income

2,400

Notes: 1. Note on value of accommodation provided at concessional rent: • Ms. L is not a Government employee • The accommodation provided to her is not owned by the employer (as the employer is paying a lease rent of Rs. 3,200 per month) • The city in which the accommodation is situated and its population is irrelevant • Salary for the purpose of valuation of rent free unfurnished accommodation is = Basic Pay + D.A (entering into retirement benefits) + Commission

= 1,20,000 + 30,000 + 50,000 = Rs. 2,00,000 •

•

Value of rent free unfurnished accommodation provided to Ms. L is Lease rent or 15% of salary whichever is less. Hence the value of rent free unfurnished accommodation is least of the following: Lease rent paid by employer Rs. 38,400 (i.e., 3,200 x 12) or 15% of salary Rs. 30,000 (i.e.,2,00,000 x 15%) whichever is less. Rs. 30,000 being least of the above, is the value of rent free unfurnished accommodation provided to Ms. L Ms. L is also provided with furniture and an amount of Rs. 500 per month is collected towards this facility. Therefore, the value of furnished accommodation provided at concessional rent is arrived at as follows: Rs. Value of rent free unfurnished accommodation 30,000 Add: 10% of the cost of furniture provided (30,000 x 10%) 3,000 Taxable value of rent free furnished accommodation 33,000 Less: Rent recovered from employee (500 x 12) 6,000 Value of accommodation provided at concessional rent 27,000

2. Facility of Watchman & Cook is taxable in case of specified employee. Ms. L is a specified employee as her annual monetary emoluments exceed Rs. 50,000. Hence, this facility is fully taxable. 3. Payment of Gas bills & Electricity bills by the company is fully taxable as they are personal obligations of the employee. 4. In the absence of detailed information about Leave Travel Concession, it is assumed that the entire amount is eligible for exemption. 5. Since the reimbursement of medical expenses is in respect of treatment taken in a private nursing home, up to Rs. 15,000 is exempted. 6. Gift in kind up to Rs. 5,000 is exempted.

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Problem Number Thirteen Mr. M an employee SN Ltd., provides you the following details for the year ending 31-3-14: Salary Rs. 8,000 per month; Dearness Allowance Rs. 3,000 per month (not forming part of salary); HRA Rs. 2,000 per month. (Mr. M resides in his father’s house); Own contribution to RPF Rs. 11,520 (the employer also contributes an equal sum); Interest credited to RPF at 9.5% per annum Rs. 1,400; Receipt from URPF Rs. 2,00,000 (the employer and employee both were contributing an equal sum to this fund). Professional tax paid Rs. 2,400. Compute the taxable salary income of Mr. M for the AY 2014-15. Solution Computation of Taxable Salary Income of Mr. M Rs. Salary (8,000 x 12) Dearness Allowance (3,000 x 12) HRA (2,000 x 12) (see note 1) Employers contribution to RPF over and above 12% of salary (see note 2) Interest credited to RPF over and above 9.5% (see note 3) Receipt from URPF Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

Rs. 96,000 36,000 24,000 Nil Nil 1,00,000 2,56,000 2,400 2,53,600

Notes: 1. Mr. M resides in his father’s house and is not paying any rent. Hence, the entire amount of HRA is taxable. 2. Own contribution to RPF Rs. 11,520 is the savings of Mr. M and hence, it is ignored. Employer’s contribution to the said fund is also Rs. 11,520 which is exactly 12% of salary. Therefore, there is no excess contribution by the employer. (Salary for RPF purpose includes only basic salary of Rs. 96,000 in this case) 3. Interest credited to RPF is at 9.5%. Therefore, there is no excess interest credited. 4. Receipt from URPF to the extent of employer’s contribution only is taxable. Problem Number Fourteen Mr. N receives the following incomes during the year ending 31-03-14: Salary Rs. 12,500 per month; Dearness Allowance 25%; CCA Rs. 150 per month. On 1/3/2011 Mr. N was provided with interest free loan of Rs. 1,20,000 for purchasing home appliances. The amount outstanding between 1-04-13 to 30-11-13 is Rs. 76,000 and afterwards Rs. 50,000. SBI lending rate for similar loan on 1-4-13 is 18.2%. Professional Tax paid by Mr. N during the year amounted to Rs.2,400. Determine the Taxable Salary Income of Mr. N Solution Computation of Taxable Salary Income of Mr. N Rs. Salary (12,500 x 12)

Rs. 1,50,000

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Dearness Allowance (1,50,000 x 25%) CCA (150 x 12) Interest concession on interest free loan (76,000 x 18.2%) + (50,000 x 18.2%) Gross Salary Income

37,500 1,800 22,932 2,12,232 2,400

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

2,09,832

Problem Number Fourteen Ms. O provides the following details: Basic Salary Rs. 2,000 p.m; DA forming part of salary Rs. 250 p.m; CCA Rs. 100 per month. She is provided with free use of Gas, Electricity and Water facilities for which the company incurred an expenditure of Rs. 21,560. She is also provided with free services of Watchman, Sweeper & Gardner each of whom is paid Rs. 750 p.m. by the company. A big chauffer driven car is provided for the use of Ms. O for both official and personal purposes. During the year she has paid Professional Tax of Rs. 2,400. Compute the taxable salary of Ms. G if (a) Ms. O is director in the employer company & (b) Ms. O is neither director nor shareholder in the employer company. Solution Case (a): Ms. O is director in the employer company - By being a director in the employer company, Ms. O satisfies one of the conditions to be treated as a specified employee. Therefore, the facility of free use of gas, electricity and water and provision of free services of watchman, sweeper and gardner, and free use of motor car become taxable in the hands of Ms. O. The taxable salary income is computed below: Computation of Taxable Salary Income of Ms. O Rs. Basic Salary (2,000 x 12) DA (250 x 12) CCA (100 x 12) Free use of Gas, Electricity and Water facilities Free services of Watchman, Sweeper & Gardner (750 x 12 x 3) Motor car facility (2,400 + 900) x 12 Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

Rs. 24,000 3,000 1,200 21,560 27,000 39,600 1,16,360 2,400 1,13,960

Case (b): Ms. O is neither a director nor a shareholder in the employer company - When Ms. O is neither a director nor a shareholder in the employer company, we have to ascertain whether her total monetary emoluments after deduction u/s 16 exceed Rs. 50,000 or not. If it

DR.R.K.SREEKANTH VITTAM PUBLICATIONS exceeds, she becomes specified employee. In this case, her total monetary emoluments is arrived at as follows: Basic Salary + DA + CCA – Deduction u/s 16 = 24,000 + 3,000 + 1,200 – 2,400 = Rs. 25,800 As total monetary emoluments does not exceed Rs. 50,000 Ms. O is considered as a nonspecified employee. Hence, the facility of free use of gas, electricity and water and provision of free services of watchman, sweeper and gardner, and free use of motor car become non taxable in the hands of Ms. O. The taxable salary income is computed below: Computation of Taxable Salary Income of Ms. O Rs. Basic Salary (2,000 x 12) DA (250 x 12) CCA (100 x 12) Free use of Gas, Electricity and Water facilities Free services of Watchman, Sweeper & Gardner Motor car facility Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

Rs. 24,000 3,000 1,200 Nil Nil Nil 28,200 2,400 25,800

Problem Number Fifteen Mr. P provides you the following details of income: Basic Salary Rs. 30,000; DA entering into retirement benefits Rs.10,000; CCA Rs. 2,000; Free use of Big Car with driver for both official and personal purpose; Free services of 3 domestic servants (Salary paid by company Rs. 2,000 per month per person); Free use of Gas, Electricity and Water (cost incurred by the company Rs. 28,000); Professional Tax paid by Mr. P Rs. 2,400. Compute the Taxable Salary Income of Mr. P. Does it make any difference if Mr. P is a director in the employer company? Solution Free use of car, free services of domestic servants and free use of gas, electricity, water, etc., are perquisites taxable only in the hands of specified employee. In the absence of specific information in the problem, we have to assume that, Mr. P is neither a director nor a shareholder in the employer company, and we have to ascertain whether his total monetary emoluments after deduction u/s 16 exceed Rs. 50,000 or not. If it exceeds, he becomes specified employee. In this case, his total monetary emoluments is arrived at as follows: Basic Salary + DA + CCA – Deduction u/s 16 = 38,000 + 10,000 + 4,400 – 2,400 = Rs. 50,000 As the total monetary emoluments does not exceed Rs. 50,000 (it is exactly Rs. 50,000) Mr. P is considered as a non-specified employee. Hence, the facility of free use of car, free services of

DR.R.K.SREEKANTH VITTAM PUBLICATIONS domestic servants and free use of gas, electricity, water, etc., become non taxable in the hands of Mr. P. The taxable salary income is computed below: Computation of Taxable Salary Income of Ms. O Rs. Basic Salary (2,000 x 12) DA (250 x 12) CCA (100 x 12) Free use of Motor Car Free services of Watchman, Sweeper & Gardner Free use of Gas, Electricity and Water facilities Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

Rs. 38,000 10,000 4,400 Nil Nil Nil 52,400 2,400 50,000

Alternatively, if Mr. P is a director in the employer company, he becomes a specified employee and hence, the free use of car, free services of domestic servants and free use of gas, electricity, water, etc., become perquisites taxable in the hands of Mr. P. The taxable salary income is computed below: Computation of Taxable Salary Income of Ms. O Rs. Rs. Basic Salary (2,000 x 12) 38,000 DA (250 x 12) 10,000 CCA (100 x 12) 4,400 Free use of Motor Car {(2,400 + 900) x 12} 39,600 Free services of Watchman, Sweeper & Gardner (2,000 x 12 x 3) 72,000 Free use of Gas, Electricity and Water facilities 28,000 Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

1,92,000 2,400 1,89,600

Note: Mr. P is provided with the facility of free use of Big Car with driver for both official and personal purpose, and the log book is not maintained. Hence the guidance value of Rs. 2,400 per month for car + Rs. 900 per month for driver facility is considered in the calculation of value of perquisite in respect of motor car. Problem Number Sixteen Ms. Q is the Manager of a cloth mill. She receives every month Rs. 19,000 as Basic Pay, Rs. 4,000 as Dearness Pay, and Rs. 500 as Entertainment Allowance. She owns a house but the company has provided her with the following amenities: Free services of Gardner, Sweeper and Cook each of whom is paid Rs. 700 p.m; Free use of Refrigerator costing Rs. 10,000; Free supply of Gas, Water and Electricity to which the company pays Rs. 13,500 annually. She herself owns a

DR.R.K.SREEKANTH VITTAM PUBLICATIONS car and uses it for both official and personal purposes but the company meets all the expenses of maintaining the car. The expenses incurred by the company towards the car used for personal purposes is estimated at Rs. 8,450. Her son is studying in a school run by the company where the cost of education is Rs. 18,000 p.a. but the company is collecting only Rs. 300 p.m. from her towards this facility. During the year she proceeded on leave to Simla and stayed in a holiday home maintained by the company (the company incurs an expenditure of Rs. 30,000 for this facility). During the year she has paid Rs. 2,400 as professional tax. Determine the Taxable Salary Income of Ms. Q Computation of Taxable Salary Income of Ms. Q Rs. Rs. Basic Pay (19,000 x 12) 2,28,000 Dearness Pay (4,000 x 12) 48,000 Entertainment Allowance (500 x 12) 6,000 Free services of Gardner, Sweeper and Cook (700 x 12 x 3) 25,200 Free use of Refrigerator (10,000 x 10%) 1,000 Free supply of Gas, Water and Electricity 13,500 Car expenses paid towards personal use 8,450 School facility to son (18,000 – 12,000 – 3,600) 2,400 Holiday home facility 30,000 Gross Salary Income 3,62,550 2,400 Deduction u/s 16 (iii) Professional tax paid 3,60,150

Taxable Salary Income

Note: 1. Ms. Q is a specified employee as her monetary emoluments exceed Rs. 50,000. Free services of domestic servants, free supply of gas, water, electricity, etc., are taxable in her case. 2. Taxable value in respect of school facility to son is arrived at after deducting standard value of Rs. 1,000 per month which is exempt and the amount recovered from Ms. Q Problem Number Seventeen Mr. R gives the under noted particulars of his income for the year ending 31-03-14: Basic Salary after deduction of IT at source and own contribution to RPF Rs. 4,00,000; Dearness Allowance 52%; HRA 30%; CCA Rs. 300 per month. IT deducted at source Rs. 65,000; Own contribution to RPF Rs. 85,000; Employer’s contribution to RPF Rs. 68,750; Interest credited to RPF at 11% Rs. 22,000; Holiday home facility worth Rs.22,500; During the year he has paid professional tax Rs.2,400. Determine the Taxable Salary Income of Mr. R Solution Computation of Taxable Salary Income of Ms. R Rs. Basic Salary (see note 1) Dearness Allowance (5,50,000 x 52%) HRA (5,50,000 x 30%)

Rs. 5,50,000 2,86,000 1,65,000

DR.R.K.SREEKANTH VITTAM PUBLICATIONS CCA (300 x 12) Employer’s contribution to RPF over and above 12% of salary (see note 2) Interest credited to RPF over and above 9.5% (see note 3) Holiday home facility Gross Salary Income

Deduction u/s 16 (iii) Professional tax paid Taxable Salary Income

3,600 2,750 3,000 22,500 10,32,850 2,400 10,30,450

Note: 1. Basic salary after deduction of income tax and own contribution to RPF is given. Therefore, basic salary before deduction is Rs. 5,50,000 (i.e., 4,00,000 + 65,000 + 85,000) 2. Actual contribution to RPF by the employer is Rs. 68,750. 12% of salary is Rs. 66,000 (i.e., 5,50,000 x 12%). Therefore, the excess contribution is Rs. 2,750 (68,750 – 66,000) 3. Interest credited to RPF over and above 9.5% per annum is taxable. Since the interest credited is at 11%, the excess interest of 1.5% (i.e., 11% - 9.5%) is taken as taxable. It is calculated as follows: If 11% represents Rs. 22,000 how much is 1.5% i.e., 11% = 22,000 1.5% = ? Therefore, excess interest credited is (22,000/11) x 1.5 = Rs. 3,000 Problem Number Eighteen Mr. S gives the following particulars of income for the year ending 31-03-14: Basic Salary (after deduction of tax at source and own contribution to RPF at 15%) Rs. 4,75,000; Dearness Allowance 52%; HRA 30%; CCA Rs. 300 per month; Tax deducted at source Rs. 47,750; Employer’s contribution to RPF Rs. 97,550; Interest credited on June 22, 2012 to RPF at 12.5% Rs. 56,250; Holiday home facility worth Rs.45,200. During the year he has paid Rs.2,400 professional tax. Determine the Taxable Salary Income of Mr. S for the AY 2013-14. Solution Computation of Taxable Salary Income of Mr. S Rs. Rs. Basic Salary (see note 1) 6,15,000 Dearness Allowance (6,15,000 x 52%) 3,19,800 HRA (6,15,000 x 30%) 1,84,500 CCA (300 x 12) 3,600 Employer’s contribution to RPF over and above 12% of salary (see note 2) 23,950 Interest credited to RPF over and above 9.5% (see note 3) 13,500 Holiday home facility 45,200 Gross Salary Income 12,05,550 2,400 Deduction u/s 16 (iii) Professional tax paid

Taxable Salary Income

12,03,150

DR.R.K.SREEKANTH VITTAM PUBLICATIONS Notes: 1. Basic salary after deduction of income tax and own contribution to RPF is given. Since deduction towards RPF is 15%, the net amount received plus tax deducted at source represents 85%. Thus Rs. 5,22,750 (i.e., Rs.4,75,000 + 47,750) represents 85%. Therefore, basic salary before deduction of income tax and own contribution to RPF is Rs. 6,15,000 (i.e., 5,22,750 x 100/85) 2. Actual contribution to RPF by the employer is Rs. 97,550. 12% of salary is Rs. 73,800 (i.e., 6,15,000 x 12%). Therefore, the excess contribution is Rs. 23,950 (97,750 – 73,800) 3. Interest credited to RPF over and above 9.5% per annum is taxable. Since the interest credited is at 12.5%, the excess interest of 3% (i.e., 12.5% - 9.5%) is taken as taxable. It is calculated as follows: If 12.5% represents Rs. 56,250 how much is 3% i.e., 12.5% = 56,250 3% = ? Therefore, excess interest credited is (56,250/12.5) x 3 = Rs. 13,500