Income from Salaries – CA Inter Taxation ​

Question 1.
Mr. M is an area manager of M/s N. Steels Co. Ltd. During tt>e financial year 2020-21, he gets following emoluments from his employer: Basic Salary
Up to 31.8.2020 : ₹ 20,000 p.m.
From 1.9.2020 : ₹ 25,000 p.m.
Transport allowance : ₹ 2,000 p.m.
Contribution to recognised provident fund : 15% of basic salary and D.A
Children education allowance : ₹ 500 p.m. for two children
City compensatory allowance : ₹ 300 p.m.
Hostel expenses allowance : ₹ 300 p.m. for two children
Tiffin allowance (actual expenses ₹ 3,700) : ₹ 5,000 p.a.
Tax paid on employment : ₹ 2,500
Compute taxable salary of Mr. M for the Assessment year 2021-22. (Nov 2008, 6 marks)

Question 2.
From the following details find out the salary chargeable to tax for the assessment year 2021 -22.
Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 01.01.20 in the scale of 20000-1000-30000. He is paid D.A. 0% of Basic Pay and Bonus equivalent to one month pay. He contributes 15% of his pay and D.A. towards his recognized provident fund and the company contributes the same amount.
He is provided free housing facility which has been taken on rent by the company at ₹ 25,000 per month. He is also provided with following facilities:
(i) Facility of laptop costing ₹ 50,000.
(ii) Company reimbursed the medical treatment bill of his brother of ₹ 10,000, who is dependent on him.
(iii) The monthly salary of ₹ 1,000 of a house keeper is reimbursed by the company.
(iv) A gift voucher of ₹ 10,000 on the occasion of his marriage anniversary.
(v) Conveyance allowance of ₹ 1,000 per month is given by the company towards actual reimbursement.
(vi) He is provided personal accident policy for which premium of ₹ 5,000 is paid by the company.
(vii) He is getting telephone allowance @ ₹ 500 per month.
(viii) Company pays medical  insurance premium of his family of ₹ 10,000. 

Question 3.
Answer the question.
Mr. Shah, an Accounts Manager, has retired from JK Ltd. on 15.1.2021 after rendering services for 30 years 7 months. His salary is ₹ 25,000/- p.m. upto 30.9.2020 and ₹ 27,000/- thereafter. He also gets ₹ 2,000/- p.m. as dearness allowance (55% of it is a part of salary for computing retirement benefits). He is not covered by the Payments of Gratuity Act, 1972. He has received ₹ 8 Lacs as gratuity from the employer company. 
Answer:
Calculation of Gratuity taxable in the hand, of Mr. Shah :
As Mr. Shah is not covered by the payments of Gratuity Act, 1972. The least of the following is exempt:
(a) Amount Specified ₹ 20,00,000
(b) Gratuity Actually received
(c) 12 × Last 10 months Average Salary × Completed years of service rendered by employee
Where :
Last 10 months Avg. Salary = (25,000×7)+(27,000×3)+(2000×55%×10)10
= ₹ 26,700 /-
Completed years of service = 30 year 7 months i.e. = 30 years
Hence exemption:
(a) ₹ 20,00,000
(b) ₹ 8,00,000 (Actual gratuity received)
(c) 12 × 26,700 × 30 = 4,00,500
Hence exemption in respect of gratuity = ₹ 4,00,500 (Being least of above)

Question 4.
Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the following information for the year ended 31 -03-2021:
(i) Basic salary upto 31-10-2020. ₹ 50,000 p.m.
Basic salary from 01-11-2020. ₹ 60,000 p.m.
Note : Salary is due and paid on .the last day of every month.
(ii) Dearness allowance @ 40% of basic salary.
(iii) Bonus equal to one month salary. Paid in October 2020 on basic salary plus dearness allowance applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee @ 16% of basic salary.
(v) Profession tax paid ₹ 3,000 of which ₹ 2,000 was paid by the employer.
(vi) Facility of laptop and computer was provided to Balaji for both official and personal use. Cost of laptop ₹ 45,000 and computer ₹ 35,000 were acquired by the company on 01 -12-2017.
(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the employee from 01 -11 -2020 meant for both official and personal use. Repair and running expenses of ₹ 45,000 from 01-11-2020 to 31-03-2021, were fully met by the employer. The motor car was self-driven by the employee.
(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and twin sons – aged 3). Cost of air tickets (economy class) reimbursed by the employer ₹ 30,000 for adults and ₹ 45,000 for three children. Balaji is eligible for availing exemption this year to the extent it is permissible in law. Compute the salary income chargeable to tax in the hands of Mr. Balaji for the assessment year 2021-22. 

Question 5.
Mr. Mohit is employed with XY Ltd. on a basic salary of ₹ 10,000 p.m. He is also entitled to Deafness allowance @ 100% of basic salary, 50% of which is included in salary as per terms of employment. The company gives him house rent allowance of ₹ 6,000 p.m. which was
increased to ₹ 7,000 p.m with effect from 1-1-2021. He also got an increment of ₹ 1,000 p.m. in his basic salary with effect from 1-02-2021. Rent paid by him during the previous year 2020-21 is as under:
April and May, 2020 – Nil, as he stayed with his parents
June to October, 2020 – ₹ 6,000 p.m for an accommodation in Ghaziabad.
November, 2020 to March, 2021 – ₹ 8,000 p.m for an accommodation in Delhi.
Compute his gross salary for assessment year 2021-22. 

Question 6.

(i) Rajesh went to Shrinagar on a holiday on 15-11-2020 with his wife and two children (one Son – age 6 years; twin daughters – age 3 years). They went by aeroplane (economy class) and the total cost of tickets by his employer was ₹ 58,000 (₹ 43,000 for adults and ₹ 15,000 for the three minor children). Compute the amount of Leave Travel Concession exempt.
Will the answer be any different if among his three children the twins are 6 years old and son 3 years old? Discuss. (May 2013, 4 marks)
(ii) Mr. Gobind received retrenchment compensation of ₹ 10,00,000 after 30 years 4 months of service. At the time of retrenchment, he was receiving basic salary of ₹ 20,000 p.m; dearness allowance of ₹ 5,000 p.m. Compute his taxable retrenchment compensation. 
Answer:
(i) Section 10(5) of the Income Tax Act, 1961 exempts the leave travel concession received by an employee from his employer for himself and his family which includes, inter alia, his spouse and children, in connection with proceeding on leave to any place in India. The exemption is not available to more than two surviving children of an individual. But, this restriction shall not apply in case of multiple births (i.e., after the first child). In the present case, Mr. Rajesh can avail exemption for all his three children since the son’s age is more than 1 the age of his twin daughters. The holiday being in India and the journey being performed by air (economy class), the entire reimbursement of ₹ 58,000 towards leave travel concession met by the employer is fully exempt under Section 10(5).
But, if the twins’ age is more than the age of the son, Mr. Rajesh cannot avail exemption for all his three children. The exemption in respect of leave travel concession under Section 10(5) can be availed in respect of only two children. The taxable leave travel concession, in this case, will be ₹ 5,000, being one-third of ₹ 15,000.
The leave travel concession exempt under Section 10(5), in such a case, would be ₹ 53,000 (₹ 58,000 – ₹ 5,000)

(ii) As per Section 10(10B), exemption available to Mr. Gobind in respect of retrenchment compensation, in this case, will be the least of the following limits:

Question 7.
From the following details, find out the salary chargeable to tax of Mr. Anand for the assessment year 2021 -22:
Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 01-03-2020 in the scale of 25,000-2,500-35,000. He is paid dearness allowance (which forms part of salary for retirement benefits) @ 15% of basic pay and bonus equivalent to one and a half month’s basic pay as at the end of the year. He contributes 18% of his salary (basic pay plus dearness allowance) towards recognized provident fund and the Company contributes the same amount.
He is provided free housing facility which has been taken on rent by the Company at ₹ 15,000 per month. He is also provided with following facilities:
(i) The Company reimbursed the medical treatment bill of ₹ 25,000 of his daughter, who is dependent on him.
(ii) The monthly salary of ₹ 2,000 of a house keeper is reimbursed by the Company.
(iii) He is getting telephone allowance @ ₹ 1,000 per month.
(iv) A gift voucher of ₹ 4,700 was given on the occasion of his marriage anniversary.
(v) The Company pays medical  insurance premium to effect an  insurance on the health of Mr. Anand ₹ 12,000.
(vi) Motor car running and maintenance charges fully paid by employer of ₹ 36,600. (The motor car is owned and driven by Mr. Anand. The engine cubic capacity is below 1.60 litres. The motor car is used for both official and personal purpose by the employee.)
(vii) Value of free lunch provided during office hours is ₹ 2,200. 

Question 8.
Ms. Rakhi is an employee in a private company. She receives the following medical benefits from the company during the previous year 2020-21:
1. Reimbursement of following Medical Expenses incurred by Ms. Rakhi.
(A) On treatment of her self employed daughter in a , private clinic ₹ 4,000
(B) On treatment of herself by Family doctor ₹ 8,000
(C) On treatment of her Mother-in-law dependent on her, in a Nursing Home ₹ 5,000
2. Payment of premium on Mediclaim Policy taken on her health. ₹ 7,500
3. Medical Allowance ₹ 2,000 Per month
4. Medical Expenses Reimbursed on her Son’s treatment in a Government Hospital. ₹ 5,000
5. Expenses incurred by company on the treatment of her minor son abroad. ₹ 1,05,000
6. Expenses in relation to Foreign Travel and stay of Rakhi and her son abroad for Medical Treatment.
(Limit prescribed by RBI for this is ₹ 2,00,000) ₹ 1,20,000
Discuss about the taxability of above benefits and allowances in the hands of Rakhi. (8 marks)
Answer:
Tax treatment of medical benefits, allowances and mediclaim premium in the hands of Ms. Rakhi:
1. Reimbursement of medical expenses incurred by Ms. Rakhi fully taxable from A.Y. 2021-22. Hence (4,000 + 8,000 + 5,000) i.e. 17,000 taxable.

2. Medical insurance premium of ₹ 7,500 paid by the employer for insuring health of Ms. Rakhi is an exempt perquisite as per Clause (iii) of the first proviso to Section-17(2).

3. Medical allowance of ₹ 2,000 per month i.e., ₹ 24,000 p.a. is a fully taxable allowance.

4. As per Clause (ii)(a) of the first proviso to Section 17(2), reimbursement of medical expenses of ₹ 5,000 on her son’s treatment in a hospital maintained by the Government is an exempt perquisite.

5. As per Clause (vi) of the first proviso to Section 17(2), the following expenditure incurred by the employer would be excluded from perquisite subject to certain conditions:

• Expenditure on medical treatment of the employee or any member of the family of such employee, outside India [₹ 1,05,000, in this case];
• Expenditure on travel and stay abroad of the employee or any member of the family of such employee for medical treatment and one attendant who accompanies the patient in connection with such treatment [₹ 1,20,000, in this case].

6. The conditions subject to which the above expenditure would be exempt are as follows:

1. The expenditure on medical treatment and stay abroad would be excluded from perquisite to the extent permitted by Reserve Bank of India;
2. The expenditure on travel would be excluded from perquisite only in the case of an employee whose gross total income, as computed before including the said expenditure, does not exceed ₹ 2 lakh.

Assuming that the limit of ₹ 2 lakh prescribed by RBI pertains to both expenditure on medical treatment of minor son as well as expenditure on stay abroad of Ms. Rakhi and her minor son, such expenditure would be excluded from perquisite subject to a maximum of ₹ 2 lakh. If such expenditure is less than ₹ 2 lakh, it would be fully excluded. The foreign travel expenditure of Ms. Rakhi and her minor son borne by the employer would be excluded from perquisite only if the gross total income of Ms. Rakhi, as computed before including the said expenditure, does not exceed ₹ 2 lakh.

Question 9.
Mr. Anand an employee of XYZ Co. Ltd. at Mumbai and not covered by Payment of Gratuity Act, retires at the age of 64 years on 31 – 12-2020 after completing 33 years and 7 months of service. At the time of retirement, his employer pays ₹ 20,51,640 as Gratuity and ₹ 6,00,000 as accumulated balance of Recognised Provident fund. He is also entitled for monthly pension of ₹ 8,000. He gets 75% of pension Commuted for ₹ 4,50,000 on 1st February, 2021.
Determine the salary chargeable to tax for Mr. Anand for the Assessment Year 2021 -22 with the help of following information:

Note: Salary and Pension falls due on the last day of each month. 
Answer:

Question 10. Compute the amount of LTC Exemption in the following cases with reference to the provision under Income Tax Act, 1961:

(a) Mr. Suresh went on a holiday on 09/09/2020 to Mysore with his wife and 3 children – one daughter born on 02/02/2013 and twin sons born on 05/05/2015. The total cost of travel was ₹ 80,000. The ticket cost for Mr. Suresh and his wife was ₹ 50,000 and for all three children was ₹ 30,000. The employer reimbursed total ticket cost ₹ 80,000.
(b) In the above case (a), if among his 3 children the twin sons born on 02/02/2013 and the daughter was born on 05/05/2015, what shall be the exemption? 
Answer:
Computation of LTC Exemption: The value of leave travel concession received by an employee from his employer for himself and his family, in connection with his proceeding on leave’ to any place in India would be exempt under Section 10(5). However, the amount of exemption cannot exceed the amount of expenses actually incurred for the purpose of such travel.

The exemption referred to shall not be available to more than two surviving children of an individual. However, this restriction is not applicable in case of multiple births at the second instance after the first child.
(a) The total cost of travel of ₹ 80,000, being ₹ 50,000 towards ticket cost of Mr. Suresh and his wife and ₹ 30,000 for all the three children, reimbursed by the employer would be exempt. It is assumed that journey is performed by air (economy class).
The restriction of two children is not applicable to multiple births at the second instance after the first child. In this case, since the twin sons were born after first child i.e., one daughter, the restriction of two children is not applicable.
(b) If the twin sons were born first i.e., on 02/02/2013, then, the exemption in respect of amount of ₹ 30,000 received towards leave travel concession for the children would be restricted to the travel cost of two children i.e. ₹ 20,000. Therefore, ₹ 10,000 being the cost of travel of one child would be taxable and the remaining amount of ₹ 70,000 [₹ 80,000 – ₹ 10,000] would be exempt.

Question 11.
Mr. Nambi, a salaried employee, furnishes the following details for the financial year 2020-21:

You are required to compute the income chargeable under the head “Salaries” for the assessment year 2021-22. (May 2017, 8 marks)
Answer:
computation of income under head salary

BASIC SALARY                                                                  6,00,000

DEARNESS ALLOWANCE                                              3,20,000

COMMISSION                                                                        50,000

ENTERTAINMENT ALLOWANCE                                          7,500

MEDICAL REIMBURSEMENT                                              21,000      [FULLY TAXABLE]

PROFESSION TAX                                                                     3,500

HEALTH INSURANCE PREMIUM                                      EXEMPT

GIFT VOUCHER (12000-5000)                                              7,000

LIP PAID BY EMPLOYER                                                      34,000

USE OF LAPTOP EXEMPT

USE OF CAR(1800 INTO 12)                                                   21600

CREDIT CARD FEE                                                                     2000

                                                                                                 10,66,600

– DEDUCTION U/S  16

I] STANDARD DEDUCTION                                                    50,000

2]PROFESSION TAX                                                                    7,000

                                                                                                   10,09,600

Question 12.
Ms. Jaya is the marketing manager in XYZ Limited. She gives you the following particulars :
Basic Salary ₹ 65,000 p.m
Dearness Allowance ₹ 22,000 p.m. (30% is for retirement benefits)
Bonus ₹ 17,000 p.m.
Her employer has provided her with an accommodation on 1st April, 2020 at a concessional rent. The house was taken on lease by XYZ Ltd. for ₹ 12,000 p.m. Ms. Jaya occupied the house from 1st November, 2020. ₹ 4,800 p.m. is recovered from the salary of Ms. Jaya.
The employer gave her a gift voucher of ₹ 8,000 on her birthday. She contributes 18% of her salary (Basic Pay + DA) towards recognised provident fund and the company contributes the same amount.
The company pays medical insurance premium to effect insurance on the health of Ms. Jaya ₹ 18,000.
Motor car owned by the employer (cubic capacity of engine exceeds 1.6 litres) provided to Ms. Jaya from 1st November, 2020 which is used for both official and personal purposes. Repair and running expenses of ₹ 50,000 were fully met by the company. The motor car was self-driven by the employee.
Compute the income chargeable to tax under the head “Salaries” in the hands of Ms. Jaya for the Assessment Year 2021-22. 
Answer:
Computation of income chargeable to tax under the head “Salaries” in the hands of

Notes:
1. Where the accommodation is taken on lease or rent by the employer, the actual amount of lease rent paid or payable by the employer or 15% of salary, whichever is lower, in respect of the period during which the house is occupied by the employee, as reduced by the rent recoverable from the employee, is the value of the perquisite.
Actual rent paid by employer from 1.11.2020 to 31.3.2021 = ₹ 60,000
[₹ 12,000 × 5 months] 15% of salary = ₹ 66,450 [15% × (₹ 65,000 + ₹ 6,600 + ₹ 17,000) × 5 months]
Lower of the above is ₹ 60,000 which is to be reduced by the rent recovered from the employee.
Hence, the perquisite value of concessional rent = ₹ 60,000 – ₹ 24,000 [₹ 4,800 × 5 months] = 36,000
Salary for valuation of perquisite = Basic Salary + Dearness Allowance, to the extent it forms part of pay for retirement benefits + Bonus
As per Explanation 1 to Section 17(2)(ii) read with Rule 3(1) of Income-tax Rules, 1962

2. As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his household on ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift. However, the value of any gift or voucher received by the employee or by member of his household below ₹ 5,000 in aggregate during the previous year would be exempt as per the proviso to Rule 3(7)(iv). In this case, the gift voucher of ₹ 8,000 was received by Ms. Jaya from her employer on the occasion of her birthday. Since the value of the gift voucher exceeds the limit of ₹ 5,000, the entire amount of ₹ 8,000 is liable to tax as perquisite. The above solution has been worked out accordingly.

Alternative view: An alternate view possible is that only the sum in excess of ₹ 5,000 is taxable in view of the language of Circular No. 15/2001 dated 12.12.2001, which states that such gifts upto ₹ 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite would be ₹ 3,000. The salary chargeable to tax, in this case, would be ₹ 13,83,816.

Question 13.
Mr. Honey is working with a domestic company having a production unit in the U.S. A. for last 15 years. He has been regularly visiting India for export promotion of company’s product. He has been staying in India for atleast 184 days every year.
He submits the following information:
Salary received outside India (For 6 months) ₹ 50,000 P. M.
Salary received in India (For 6 months) ₹ 50,000 P. M.
He has been given rent free accommodation in U.S.A. for which company pays ₹ 15,000 per month as rent, but when he comes to India, he stays in the guest house of the company. During this period he is given free lunch facility. During the previous year company incurred an expenditure of ₹ 48,000 on this facility.
He has been provided a car of 2000 cc capacity in U.S.A. which is used by him for both office- and private purposes. The actual cost of the car is ₹ 8,00,000. But when he is in India, the car is used by him.and the members of his family only for personal purpose. The monthly expenditure of car is – ₹ 5,000. His elder son is studying in India for which his employer spends 12,000 per year where as his younger son is studying in USA. and stays in a, hostel for which Mr. Honey gets ₹ 3,000 per month as combined allowance.
The company has taken an accident  insurance policy and a life  insurance policy. During the previous year the company paid premium of ₹ 5,000 and ₹ 10,000 respectively.
Compute Mr. Honey’s taxable income from salary for the Assessment Year 2021-22. 

Question 14.Mr. Janakaraj, employed as General Manager in Rajus Refractories Pvt. Ltd., furnishes you the under-mentioned information for the year ended 31 -03-2021:

(i) Basic salary upto 30-11 -2020 ₹ 70,000 p.m.
Basic salary from 01 -12-2020 ₹ 80,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness allowance @ 50% of basic salary (not forming part of salary for retirement benefits).
(iii) Bonus equal to one month salary. This was paid in November, 2020 on basic salary plus dearness allowance applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee @ 18% of basic salary, employee also contributing an equivalent amount.
(v) Profession tax paid ₹ 6,000 of which ₹ 3,000 was paid by the employer.
(vi) Facility of laptop was provided to Janakaraj for both official and personal use. Cost of laptop ₹ 65,000 and was purchased by the company on 11-10-2020.
(vii) Leave travel concession given to Janakaraj, his wife and three children (one daughter aged 6 and twin sons aged 4). Cost of air tickets (economy class) reimbursed by the employer ₹ 20,000 for adults and lumpsum of ₹ 25,000 for three children. Janakaraj is eligible for availing exemption this year to the extent it is permissible under the Income-tax Act, 1961.
Compute the taxable salary of Mr. Janakaraj. (Nov 2018, 6 marks)

Question 15.Examine with brief reasons, whether the following are chargeable to income-tax and the amount liable to tax with reference to the provisions of the Income Tax Act, 1961:

Allowance received by an employee Mr. Ram working in a transport system at ₹ 12,000 p.m. which has been granted to meet his personal expenditure while on duty. He is not in receipt of any daily allowance from his employer. 
Answer:

Question 16.
Mr. Raj Kumar has the following receipts from his employer:
(1) Basic pay ₹ 3,000 p.m.
(2) Dearness allowance (D.A.) ₹ 600 p.m.
(3) Commission ₹ 6,000 p.a.
(4) Motor car for personal use
(expenditure met by the employer) ₹ 500 p.m.
(5) House rent allowance ₹ 900 p.m.
Find out the amount of HRA eligible for exemption to Mr. Raj Kumar assuming that he paid a rent of ₹ 1,000 p.m. for his accommodation at Kanpur. DA forms part of salary for retirement benefits.
Answer:
HRA received ₹ 10,800
Less: Exempt under section 10(13A) [Note] ₹ 7,680
Taxable HRA ₹ 3,120
Note: Exemption shall be least of the following three limits:
(a) the actual amount received (₹ 900 × 12) = ₹ 10,800
(b) excess of the actual rent paid by the assessee over 10% of his salary
= Rent Paid -10% of salary for the relevant period
= (₹ 1,000 × 12) – 10% of [(₹ 3,000 + ₹ 600 ) × 12]
= ₹ 12,000 – ₹ 4,320 = ₹ 7,680
(c) 40% salary as his accommodation is situated at kanpur = 40% of [(₹ 3,000 + ₹ 600) × 12] = ₹ 17,280
Note: For the purpose of exemption under Section 10(13A), salary includes dearness allowance only when the terms of employment so provide, but excludes all other allowances and perquisites.

Question 17.
Mr. Srikant has two sons. He is in receipt of children education allowance of ₹ 150 p.m. for his elder son and ₹ 70 p.m. for his younger son. Both his sons are going to school. He also receives the following allowances:
Transport allowance: ₹ 1,800 p.m.
Tribal area allowance: ₹ 500 p.m.
Compute his taxable allowances.
Answer:
Taxable allowance in the hands of Mr. Srikant is computed as under – Children Education Allowance:
Elder son [(₹ 150 – ₹ 100) p.m. × 12 months] = ? 600
Younger son [(₹ 70 – ₹ 70) p.m. × 12 months] = Nil ₹ 600
Transport allowance [(₹ 1,800 × 12 months] = ₹ 21,600
Tribal area allowance [(₹ 500 – ₹ 200) p.m. × 12 months] = ₹ 3,600
Taxable allowances = ₹ 25,800

Question 18.
Mr. Ravi retired on 15.6.2020 after completion of 26 years 8 months of service and received gratuity of ₹ 6,00,000. At the time of retirement, his salary was:
Basic Salary : ₹ 5,000 p.m.
Dearness Allowance : ₹ 3,000 p.m. (60% of which is for retirement benefits)
Commission : 1 % of turnover (turnover in the last 12 months was ₹ 12,00,000)
Bonus : ₹ 12,000 p.a.
Compute his taxable gratuity assuming:
(a) He is non-government employee and covered by the Payment of Gratuity Act 1972.
(b) He is non-government employee and not covered by Payment of Gratuity Act 1972.
(c) He is a Government employee.
Answer:
(a) He is covered by the Payment of Gratuity Act 1972.
Gratuity received at the time of retirement ₹ 6,00,000
Less: Exemption under section 10(10) Least of the following:
(i) Gratuity received ₹ 6,00,000
(ii) Statutory limit ₹ 20,00,000
(iii) 15 days salary based on last drawn salary for each completed year of service or part thereof in excess of 6 months

(b) He is not covered by the Payment of Gratuity Act 1972.
Gratuity received at the time of retirement ₹ 6,00,000
Less: Exemption under Section 10(10) (Note) ₹ 1,01,400
Taxable Gratuity ₹ 4,98,600
Note: Exemption under Section 10(10) is least of the following:
(i) Gratuity received ₹ 6,00,000
(ii) Statutory limit ₹ 20,00,000
(iii) Half month’s salary based on average salary of last 10 months preceding the month of retirement for each completed year of service.
12 × Average salary × years of service

= ₹ 1,01,400

(c) He is a government employee
Gratuity received at the time of retirement ₹ 6,00,000
Less : Exemption under section 10(10) ₹ 6.00.000
Taxable gratuity Nil

Question 19.
Mr. A retires from service on December 31, 2020, after 25 years of service. Following are the particulars of his income/investments for the previous year 2020-21.

Out of the amount received from the unrecognized provident fund, the employer’s contribution was ₹ 2,20,000 and the interest thereon ₹ 50,000. The employee’s contribution was ₹ 2,70,000 and the interest thereon ₹ 60,000. What is the taxable portion of the amount received from the unrecognized provident fund in the hands of Mr. A for the assessment year 2021-22?

Question 20.
Mr. C is a Finance Manager in ABC Ltd. The company has provided him with rent-free unfurnished accommodation in Mumbai. He gives you the following particulars:
Basic salary ₹ 6,000 p.m.
Dearness Allowance ₹ 2,000 p.m. (30% is for retirement benefits)
Bonus ₹ 1,500 p.m.
Even though the company allotted the house to him on 1.4.2020, he occupied the same only from 1.11.2020. Calculate the taxable value of the perquisite for A.Y.2021 -22.
Answer:
Value of the rent free unfurnished accommodation = 15% of salary for the relevant period
= 15% of [(₹ 6000 × 5) + (₹ 2,000 × 30% × 5) + (₹ 1,500 × 5)] [See Note below]
= 15% of ₹ 40,500 = ₹ 6,075.

Note:
Since, Mr. Coccupiesthe house only from 1.11.2020, we have to include the salary due to him only in respect of months during which he has occupied the accommodation. Hence salary for 5 months (i.e. from 1.11.2020 to 31.03.2021) will be considered.

Question 21.
Mr. X and Mr. Y are working for M/s. Gama Ltd. As per salary fixation norms, the following perquisites were offered:
(i) For Mr. X, who engaged a domestic servant for ₹ 500 per month, his employer reimbursed the entire salary paid to the domestic servant
i.e. ₹ 500 per month.
(ii) For Mr. Y, he was provided with a domestic servant @ ₹ 500 per month as part of remuneration package.
You are required to comment on the taxability of the above in the hands of Mr. X and Mr. Y, who are not specified employees.
Answer:
In the case of Mr. X, it .becomes an obligation which the employee would have discharged even if the employer did not reimburse the same. Hence, the perquisite will be covered under Section 17(2)(iv) and will be taxable in the hands of Mr. X. This is taxable in the case of all employees.
In the case of Mr. Y, it cannot be considered as an obligation which the employee would meet. The employee might choose not to have a domestic servant. This is taxable only in the case of specified employees covered by Section 17(2)(iii). Hence, there is no perquisite element in the hands of Mr. Y.

Question 22.AB Co. Ltd. allotted 1000 sweat equity shares to Sri Chand in June 2020.The shares were allotted at ₹ 200 per share as against the fair market value of ₹ 300 per share on the date of exercise of option by the allottee viz. Sri Chand. The fair market value was computed in accordance with the method prescribed under the Act.

(i) What is the perquisite value of sweat equity shares allotted to Sri Chand?
(ii) In the case of subsequent sale of those shares by Sri Chand, what would be the cost of acquisition of those sweat equity shares?
Answer:
As per Section 17(2)(vi), the value of sweat equity shares chargeable to tax as perquisite shall be the fair market value of such shares on the date on which the option is exercised by the assessee as reduced by the amount actually paid by, or recovered from, the assessee in respect of such shares.

(i) As per Section 49(2AA),where capital gain arises from transfer of sweat equity shares, the cost of acquisition of such shares shall be the fair market value which has been taken into account for perquisite valuation under Section 17(2)(vi). (The provisions of Section 49 are discussed in Unit 4: Capital Gains of this chapter)
Therefore, in case of subsequent sale of sweat equity shares by Sri Chand, the cost of acquisition would be ₹ 3,00,000.

Question 23.
X Ltd. provided the following perquisites to its employee Mr. Y for the P.Y. 2020-21:
(1) Accommodation taken on lease by X Ltd. for ₹ 15,000 p.m. ₹ 5,000 p.m. is recovered from the salary of Mr. Y.
(2) Furniture, for which the hire charges paid by X Ltd. is ₹ 3,000 p.m.
No amount is recovered from the employee in respect of the same.
(3) A Santro Car which is owned by X Ltd. and given to Mr. Y to be used both for official and personal purposes. All running and maintenance expenses are fully met by the employer. He is also provided with a chauffeur.
(4) A gift voucher of ₹ 10,000 on his birthday.
Compute the value of perquisites chargeable to tax for the A.Y. 2021-22, assuming his salary for perquisite valuation to be ₹ 10 lakh.

Question 24.
Compute the taxable value of the perquisite in respect of medical facilities received by Mr. G from his employer during the P.Y. 2020-21:
Medical premium paid for insuring health of Mr. G ₹ 7,000
Treatment of Mr. G by his family doctor ₹ 5,000
Treatment of Mrs. G in a Government hospital ₹ 25,000
Treatment of Mr. G’s grandfather in a private clinic ₹ 12,000
Treatment of Mr. G’s mother (68 years and dependant) by family doctor ₹ 8,000
Treatment of Mr. G’s sister (dependant) in a nursing home ₹ 3,000
Treatment of Mr. G’s brother (independent) ₹ 6,000
Treatment of Mr. G’s father (75 years and dependant) abroad ₹ 50,000
Expenses of staying abroad of the patient and attendant ₹ 30,000
Limit specified by RBI ₹ 75,000

Multiple Choice Question

Question 1.
Mr. B, a Chartered Accountant is employed with A Ltd., as an internal auditor and requests the employer to call the remuneration as internal audit fee shall be chargeable to tax for such fee under the head.
(a) Income from Salaries
(b) Profit and gains from Business and Profession
(c) Income from other Sources.
(d) None of the above
Answer:
(a) Income from Salaries

Question 2.
R was employed from 1.8.2017 in the grade of ₹ 15,000-400-17,000-500-22,000 and his salary was fixed at X 16,200 from the date of joining. His gross salary for the assessment year 2021-22 shall be.
(a) ₹ 1,99,200
(b) ₹ 2,04,000
(c) ₹ 2,08,000
(d) ₹ 2,10,000
Answer:
(c) ₹ 2,08,000

Question 3.
Maximum exemption limit in case of employees covered under Gratuity Payment Act is:
(a) ₹ 2 Lakh
(b) ₹ 3 Lakh
(c) ₹ 5 Lakh
(d) ₹ 20 Lakh
Answer:
(d) ₹ 20 Lakh

Question 4.
The exemption of Voluntary Retirement compensation is available to an employee who has completed _______________ years of service or completed _______________ years of age except in case of employees of public sector company.
(a) 10,40
(b) 10,50
(c) 8,40
(d) 10,58
Answer:
(a) 10,40

Question 5.
Sneha is an employee in a private company. In the previous year she received salary ₹ 1,80,000 and entertainment allowance ₹ 12,000. She spent ₹ 6,000 on entertainment. Under Section 16(ii), she is entitled to deduction of:
(a) ₹ 12,000
(b) ₹ 6,000
(c) ₹ 5,000
(d) Nil.
Answer:
(d) Nil.

Question 6.
Reshma receives ₹ 50,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ₹ 25,000 p.m. forming part of retirement benefit. She has been provided motor car (engine capacity exceeds 1.6 Its.) owned by employer for her personal use. The original cost of car is ₹ 6,00,000 (WDV ₹ 5,10,000). Expenditure incurred by the employer on running and maintenance of the motor car during the relevant previous year amounted ₹ 75,000. The salary of driver paid by the employer – ₹ 96,000. The taxable value of car facility for AY 2021 -22 will be:
(a) ₹ 2,31,000
(b) ₹ 39,600
(c) ₹ 2,22,000
(d) ₹ 1,71,000
Answer:
(a) ₹ 2,31,000

Question 7.
The value of free food and non-alcoholic beverages provided by the employer to an employee during working hours provided in a remote area shall be:
(a) Exempt upto ₹ 50 per meal
(b) Fully taxable
(c) Fully exempt
(d) Exempt upto ₹ 20,000
Answer:
(c) Fully exempt

Question 8.
Anand is entitled to get a pension of ₹ 600 per month, from a private company. He gets three-fifth of the pension commuted and received ₹ 36,000. He did not receive gratuity. The taxable portion of commuted value of pension is:
(a) ₹ 16,000
(b) ₹ 6,000
(c) ₹ 18,000
(d) ₹ 12,000
Answer:
(b) ₹ 6,000

Question 9.
For an employee in receipt of hostel expenditure allowance for his three children, the maximum annual allowance exempt under Section 10(14) is:
(a) ₹ 10,800
(b) ₹ 7,200
(c) ₹ 9,600
(d) ₹ 3,600
Answer:
(b) ₹ 7,200

Question 10.
Chhaya receives ₹ 25,000 p.m. as basic salary from ABC Ltd. She is also provided dearness allowance of ₹ 15,000 p.m. forming part of retirement benefit and has been provided, accommodation owned by employer in Delhi (population exceeds 25 lakhs). The employer has charged rent of ₹ 4,000 p.m. from Chhaya. The taxable value of concessional accommodation will be:
(a) ₹ 24,000
(b) ₹ 48,000
(c) ₹ 72,000
(d) Nil
Answer:
(a) ₹ 24,000

Income from Salaries Notes

Amendment of section 17.
In section 17 of the Income-tax Act, in clause (2), for sub-clause (vii), the * following sub-clauses shall be substituted with effect from the 1st day of April, 2021, namely :-
(vii) the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer:
(a) in a recognised provident fund;
(b) in the scheme referred to in sub-section (1) of section 80CCD; and
(c) in an approved superannuation fund, to the extent it exceeds seven lakh and fifty thousand rupees in a previous year;
(viia) the annual accretion by way of interest, dividend or any other amount of similar nature during the previous year to the balance at the credit of the fund or scheme referred to in sub-clause (vii) to the extent i( relates to the contribution referred to in the said sub-clause which is included in total income under the said sub-clause in any previous year computed in such manner as may be prescribed; and”.

Valuation of specified security, not being an equity share in a company for the purpose of section 17(2)(vi) [Sub-rule (9)]
The fair market value of any specified security, not being an equity share in a company, on the date on which the option is exercised by the employee, shall be such value as determined by a merchant banker on the specified date.
For this purpose, “specified date” means,

• the date of exercising of the option; or
• any date earlier than the date of the exercising of the option, not being a date which is more than 180 days earlier than the date of the exercising.

Tax on perquisite of specified securities and sweat equity shares is required to be paid in the year of exercising of option. However, where such shares or securities are allotted by the current employer, being an eligible start-up, the perquisite is taxable in the year

• after the expiry of 48 months from the end of the relevant assessment year
• in which sale of such security or share are made by the assessee

in which the assessee ceases to be the employee of the employer, whichever is earlier.