QUESTIONS ON INCOME FROM SALARIES

Question 1
Ramesh an employee of XYZ Ltd. retired from the company on 30 November 2012. At the time of his retirement, he
received Rs. 144000 as leave salary from his employer. The following information is provided by the employee:
a. Salary at the time of retirement

Rs. 9000 per

month
b. Duration of service

20 years and 8

months
c. Leave encashment

Rs.

144000
d. Leave availed while in service

14 months

e. Balance unavailed leave at the time of retirement

16 months

f.

Average salary for the months of February, 2012 to November, 2012

g. Leave entitlement

Rs. 8800

1.5 months for every completed year of

service
Required: Compute the amount of taxable leave encashment or salary for the assessment year 2013-14.
Solution
Since Ramesh is not a government employee and he receives leave salary at the time of retirement, therefore, the
least of the following amounts is taxable under Section 10(10AA) (ii):
1. Leaves lying at the credit of the employee at the time of his retirement X Average monthly salary
=

1)14 30
( 20 30(seenote
) Rs . 8800( see note2)
30

= Rs. 52800

2. Average monthly salary X 10 = Rs. 8800 X 10 = Rs. 88000

3. Leave salary received = Rs. 144000
4. Rs. 3,00,000
Exempted leave salary = Least amount = Rs. 52800
Taxable leave salary = Leave salary exempted leave salary = Rs. 144000- Rs. 52800= Rs. 91200
Important note
1. Since leave entitlement in the question is 1.5 months for every completed year of service which is greater than 30
days. In such a situation, the figure of 30 is used instead of 1.5 to calculate the leaves lying at the credit of the
employee at the time of his retirement.
2. Average monthly salary means the salary drawn in the last 10 months ending on the date of retirement divided by
10 i.e. total salary from February 2012 to November 2012 divided by 10 = Rs. 8800.
Question 2

X retires on March 16, 2010 from a private company. According to the service rules, he is entitled for 24 days for each
year of completed service. The following information is available from the records:
Duration of service

32 years

Gross leave entitlement (32 years X 24)

768

days
Less: Leave actually availed while in service

108

days
Balance

660 days

Less: Leave encashment taken during 1997-98

390 days

Balance

270 days

Less: Leave encashment given on May 10, 2009 at Rs. 5000 per month

60 days

Leave standing/lying to the credit of X at the time of retirement

210

days
Salary and dearness allowance paid to X prior to retirement are as follows:
Basic salary per month

Particulars

Dearness allowance (62% is part of

salary for determining retirement
benefit i.e. forming part)

January 1, 2009 to October 31, 2009

November 1, 2009 to March 16, 2010

4000
5000

1000
1250

He received Rs. 43750 as leave salary on March 16, 2010. Calculate taxable amount of leave salary for the assessment
year 2010-11.
Solution
Since X is not a government employee and he receives leave salary at the time of retirement, therefore, the least of
the following amounts is taxable under Section 10(10AA) (ii):
1. Leaves lying at the credit of the employee at the time of his retirement X Average monthly salary

( 32 2410839060
)
30

Rs. 5143.6 (See note 2) = Rs. 36005.2

2. Average monthly salary X 10 = Rs. 5143.6 X 10 = Rs. 51436

3. Leave salary received = Rs. 43750
4. Rs. 3,00,000
Exempted amount = Rs. 36005.2
Taxable amount = Leave salary exempted = Rs. 43750 Rs 36005.2 = Rs. 7744.8
Apart, leave salary withdrawn while in service is always taxable whether the employee is a government employee or
not. In the present question leave salary withdrawn on May 10, 2009 while in service is Rs. 5000 X 60/30 = Rs. 10,000
and therefore this amount is fully taxable.
Thus, total leave salary taxable = Rs. 7744.8 + Rs. 10,000 = Rs. 17744.8

Important notes
1. Salary for the purpose of Section 10(10AA) (ii) = Basic Salary + DA (forming part only) + Fixed commission
based on turnover achieved by the employee, if any.
2. Average monthly salary means the salary drawn in the last 10 months ending on the date of retirement divided by
Basic salary
Entire period covered from May 17, 2009 to March 16,

DA (forming

Basic

part only)

DA

salary

2010
Salary from May 17, 2009 to October 31, 2009 (5 months and

21,867

3389

25256

22667

3513

26180

14 days)

Salary from November 1, 2009 to March 16, 2010 (4 months

and 16 days)
Total
Average salary

51436
51436/10= 5143.6

10 i.e. total salary from May 17, 2009 to March 16, 2010 divided by 10

Question 3
X retires on March 16, 2010 from state government service. According to the service rules, he is entitled for 24 days for
each year of completed service. The following information is available from the records:
Duration of service
Gross leave entitlement (32 years X 24)

32 years
768

days
Less: Leave actually availed while in service

108

days
Balance

660 days

Less: Leave encashment taken during 1997-98

390 days

Balance

270 days

Less: Leave encashment given on May 10, 2009 at Rs. 5000 per month

60 days

Leave standing/lying to the credit of X at the time of retirement

210

days
Salary and dearness allowance paid to X prior to retirement are as follows:
Basic salary per month

Particulars

Dearness allowance (62% is part of

salary for determining retirement
benefit i.e. forming part)

January 1, 2009 to October 31, 2009

November 1, 2009 to March 16, 2010

4000
5000

1000
1250

He received Rs. 43750 as leave salary on March 16, 2010. Calculate taxable amount of leave salary for the assessment
year 2010-11.
Solution
Since X is a government employee and he receives leave salary at the time of retirement, therefore, the leave salary is
fully exempt under Section 10(10AA) (i) for the assessment year 2010-11. Apart, leave salary withdrawn while in
service is always taxable whether the employee is a government employee or not. In the present question leave salary
withdrawn on May 10, 2009 while in service is Rs. 5000 X 60/30 = Rs. 10,000 and therefore this amount is fully taxable
for the assessment yea 2010-11.
Thus, total leave salary taxable =Rs. 10,000
Question 4
X is employed by A Ltd up to November 30, 2009 on the following monthly salary (place of posting is Delhi)
Components of salary
Basic pay
Dearness allowance (60% is part of salary for computing retirement benefit)
Dearness allowance (not part of salary for computing retirement benefit)
Commission
House rent allowance

Upto May 31, 2009

From June 1, 2009

Rs.
5000
1200
600
1000
3000

Rs.
6000
1500
600
1000
4500

With effect from December 1, 2009, he joins B Ltd. on monthly salary of Rs. 11,000 (place of posting: Bhopal). Besides,
he gets dearness allowance at Rs. 4,000 per month (10 percent of which is considered for provident fund contribution) and
house rent allowance at Rs. 6,000 per month.
Rent paid per month by X is as follows:
Periods

Delhi

Bhopal

From April 1, 2009 to July 31, 2009

From August 1, 2009 to December 31, 2009
January 2010
February 1, 2010 to March 31, 2010

Rs.
600
3000
-

Rs.
1000
6100

Determine the amount of house rent allowance chargeable to tax for the assessment year 2010-11.
Solution
Taxable HRA is calculated as per the provisions of Section 10(13A) and rule 2A. As per the provisions least of the
following is exempted.
1. 50% of the salary (basic salary + DA-forming part only + commission based on turnover achieved by the
employee) if the house is situated in Delhi, Mumbai, Kolkata and Chennai other wise 40% of the salary.
2. HRA received
3. Rent 10% of salary
Thus, we do the following calculations:

Basic pay
DA (forming part only)
Salary for the purpose

April and May

June

and

2009

July 2009

August

to

December 2009

January 2010

November

February and
March 2010

5000
720
5720

6000
900
6900

2009
6000
900
6900

11000
400
11400

11000
400
11400

11000
400
11400

2860

3450

3450

5700

600
572
28
3000
28
3000-28= 2972

600
690
Nil
4500
Nil
4500

3000
690
2310
4500
2310
4500-

3000
1140
1860
6000
1860
6000-

4560
1000
1140
Nil
6000
Nil
6000

4560
6100
1140
4960
6000
4560
6000-4560=

2310=2190

1860=4140

of Section 10(13A) and

rule 2A
50% of salary
40% of salary
Rent
10% of salary
Rent 10% of salary
HRA
Exempted amount
Taxable HRA

Total HRA taxable

2972X2+4500X2+2190X4= 32944

4140

1440
6000

1440X2
=2880

Question 5
A is entitled to a basic salary of Rs. 50,000 per month and dearness allowance of Rs. 10,000 per month 405 of which
forms part of retirement benefits. He is also entitled to HRA of Rs. 20,000 per month. He actually pays Rs. 20,000 as rent
for a house in Delhi. Compute the taxable HRA.
Answer: Taxable HRA: Rs. 648000
Question 6
Mr. X is employed with ABC Ltd. on a basic salary of Rs. 30,000 per month. He is also entitled to a dearness allowance of
20% of basic salary. 70% of the dearness allowance is included in salary for retirement benefits. The company gives him
HRA of Rs. 15,000 per month.
With effect from 1 January 2013 he receives an increment of Rs. 5,000 in his basic salary.
During the previous year 2012-13 he has received arrears of salary pertaining to earlier years amounting to Rs. 40000.

X was staying with his parents till 31 October 2012. From 1 November 2012 he takes an accommodation on rent in Delhi
and pays Rs. 12500 per month as rent for the same.
Compute his gross salary for the assessment year 2013-14.
Solution
1.

Basic salary
9 X 30000 = 270000
3 X 35000 = 105000

2.

From April 1, 2012 to December 31, 2012

From January 1, 2013 to March 31, 2013
Dearness allowance (fully taxable) : 20% of the basis salary

9 X 30000 X 0.20= 54000

3 X 35000 X 0.20 = 21000

3.

From April 1, 2012 to December 31, 2012

From January 1, 2013 to March 31, 2013
Arrears of salary (fully taxable in the previous year in which

4.

received, if not taxed earlier on due basis)

Taxable amount of HRA ( Calculate this amount yourself as per

136310

the provisions of Section 10(13A) and rule 2A)

Gross salary

626310

375000

75000
40000

Working note
Calculation of taxable HRA
Period 1: 1 April 2012 to 31 October 2012
HRA during this period is fully taxable because X is staying with his parents during this period and he would not have
paid any rent. Thus, taxable HRA during this period = Rs. 15000 X 7 = Rs. 105000
Period 2: 1 November 2012 to 31 October 2012
During this period basic salary is Rs. 30000 per month. Least of the following amount is exempted.
1. 50% of the salary* because the house is in Delhi = 0.50 X 68400 = Rs. 34200
2. HRA received = Rs. 15000 X 2 = Rs. 30,000
3. Rent paid 10% of the salary = (12500 X 2) 0.10 X 68400 = 25000- 6840= Rs. 18160
Exempted HRA = Rs. 18160
Taxable HRA = 30000 18160 = Rs. 11840
Note
*Salary here = Basic salary + Dearness allowance (forming part only) = 30000 X 2 + 60000X 0.20 X 0.70 = Rs. 68400
Period 3: 1 January 2013 to 31 March 2013
During this period basic salary is Rs. 35000 per month. Least of the following amount is exempted.
1. 50% of the salary** because the house is in Delhi = 0.50 X 119700 = Rs. 59850
2. HRA received = Rs. 15000 X 3 = Rs. 45000
3. Rent paid 10% of the salary = (12500 X 3) 0.10 X 119700= 37500- 11970 = Rs. 25530
Exempted HRA = Rs. 25530
Taxable HRA = 45000 25530 = Rs. 19470
Note

**Salary = Basic salary + Dearness allowance (forming part only) = 35000 X 3 + 105000 X 0.20 X 0.70 = Rs. 119700
Thus total HRA taxable = Rs. 105000 + Rs. 11840 + Rs. 19470 = Rs. 136310
Question 7
Compute the exemption available under Section 10(13A) in the following cases:
Place of residence
Salary per month
HRA per month
Rent paid per month

A
Delhi
4000
1500
Nil

B
Noida
6000
1200
1000

C
Mumbai
8000
5000
6000

D
Patna
3000
1000
800

E
Rajasthan
5000
1500
400

Answer: A: Nil; B: Rs. 4800; C: Rs. 48000; D: Rs. 6000; E: Nil

Question 8
Raghav is employed with AB Ltd on a basic salary of Rs. 5000 per month. He is also entitled to dearness allowance at
100% of basic salary, 50% of which is included in salary for as per terms of employment i.e. forming part. The company
gives him HRA of Rs. 3,000 per month which was increased to Rs. 3500 with effect of 1 January 2013. He also got an
increment of Rs. 500 in his basic salary with effect of 1 February 2013. Rent paid by him during the previous year 201213 is as under:
April and May 2012 Nil, as he was staying in his parents.
June to October 2012 Rs. 3000 per month for a house in Ghaziabad
November 2012 to March 2013 Rs. 4000 per month for a house in Delhi.
Compute his gross salary for assessment year 2013-14.
Answer: Rs. 132650
Question 9
Diya is employed as a pilot in Air India. She is in receipt of the following during the previous year 2012-13:
1. Basic salary
2. Bonus

Rs. 50,000 p.m.

2 months of basic salary

3. Entertainment allowance

Rs. 1500 pm

4. Medical allowance

Rs. 3000 pm

5. Servant allowance

Rs. 2000 pm

6. Uniform allowance

Rs. 1200 pm

He has spent Rs. 8000 for purchase and maintenance of uniform for official purpose.
7. He has been given Rs. 6000 p.m. as allowance to meet personal expenses during the performance of his duties in
the transport system.
8. Children education allowance

Rs. 2500 pm

9. House rent allowance

Rs. 10,000 pm

He stays in Delhi with his sister for which he does not pay any rent.

Solution
Components
Basic salary
Bonus
Taxable value of the allowances
a. Entertainment allowances (always added)
b. Medical allowance (fully taxable)
c. Servant allowance (fully taxable)
d. Uniform allowance
e. Transport allowance
f. Children allowance
g. House rent allowance
Gross salary
Less: Deduction under Section 16 (ii)
Income under the head salaries

Particulars
50000 X 12
50000 X 2
1500 X 12
3000 X 12
2000 X 12
See note 1
See note 2
See note 3
See note 4
See note 5

Amount
Rs.
600000
100000
18000
36000
24000
6400
21600
28800
120000
954800
Nil

Notes:
1. Uniform allowance is the allowance the exemption of which depends upon the expenditure incurred out of it.
Lower of the following amounts is exempted
a. Amount of allowance = Rs. 1200 X 12 = Rs. 14400
b. Expenditure incurred = Rs. 8000
Exempted amount = Rs. 8000
Thus taxable amount = Rs. 14400 Rs. 8000 = Rs. 6400
2. Transport allowance
Since Diya is an employee in a transport system i.e. Air India, therefore, lower of the following amounts is
exempted:
a. 70% of the allowance = Rs. (6000 X 12 X 0.70) = Rs. 50400
b. Rs. 10,000 p.m. X 12 = Rs. 120000
Exempted amount = Rs. 50400
Taxable amount = Rs. 72000 Rs. 50400 = Rs. 21600
3. Children education allowance
Children education allowance is the allowance the exemption of which depends upon the specified amount which
is Rs. 100 per month per child. Therefore, taxable children education allowance is Rs. (2500-100) X 12 = Rs.
28800.
4. House Rent Allowance
Since she is not paying any rent, hence, the entire HRA is taxable.
5. Education allowance
She is not eligible for deduction under Section 16(ii) because she is not a government employee.
Question 9
M gives you the following information for the previous year 2012-13:

Basic salary

Rs. 15000 pm

Dearness allowance (60% of which is forming part)

Rs. 6000 pm

Entertainment allowance

Rs. 500 pm

HRA

Rs. 6000 pm

Actual rent paid for a house in Laxmi Nagar, Delhi

Rs. 7000 pm

Education allowance for 3 children

Rs. 200 pm per child

Transport allowance for commuting from residence to office and back

Rs. 1200 pm

He travels via Delhi metro from his residence to office and back in which he spends Rs. 1500 pm.
Medical allowance (Actual expenditure on medical treatment is Rs. 5000)

Rs. 1000 pm

Lunch allowance

Rs. 200 pm

Compute taxable salary of M for the assessment year 2013-14

Answer: Rs. 292320
Question 10
A is employed on part time basis with two companies X company and Y company. The particulars of his income for the
previous year 2012-13 are as follows:
Particulars
Basic salary
Education allowance for one child
Reimbursement of electricity bills
Medical allowance
Employers contribution to recognized provident fund
Value of rent free accommodation taken by the employer on

Company X
32000

Company Y
13000
1800
2400
1500
-

2000
1800
3000

rent
A is neither a director nor a substantial shareholder in either of the companies. Is he a specified employee?
Solution
Components

Particulars

Amount

Basic salary
Education allowance

32000+13000
1800-Rs. 100 per child per month

Rs.
45000
600

= 1800-1200
Medical allowance (Fully taxable)
Reimbursement of electricity bills
Total

2400
2000
50000

Since, the salary of A is not exceeding Rs. 50,000, therefore, he is not a specified employee.
Note
Students are advised to read the definition of the specified employee given in the notes.
Question 11
Mr. Garg submits you the following information regarding his salary income for the year 2012-13:
1. Basic salary

Rs. 15000 pm

2. DA

40% of basic salary

3. CCA

Rs. 300 pm

4. Children education allowance

Rs. 200 pm per child for 2 children

5. Transport allowance

Rs. 1000 pm

He is provided with a rent free unfurnished accommodation which is owned by the employer. The fair rental value of
the house is Rs. 24000 p.a.
Compute the gross salary assuming accommodation is provided in a city having population:
a. Not exceeding 10 lakhs as per 2001 census.
b. Exceeding 10 lakhs but less than 25 lakhs as per 2001 census.
c. Exceeding 25 lakhs.
Solution
Population < 10
lakhs
Basic salary
Taxable value of the allowances
a. DA (fully taxable)
b. CCA (fully taxable)
c. Children Education Allowance
(See note 1)
d. Transport allowance (See note 2)
Value of perquisite
Rent free unfurnished house (See note 3)
Gross salary

180000

10 lakhs <
Population < 25
lakhs
180000

Population > 25 lakhs

180000

72000
3600
2400

72000
3600
2400

72000
3600
2400

2400
19530

2400
26040

2400
39060

279930

286440

299460

Notes:
1. Children education allowance is the allowance which is exempt on the basis of the specified amount which is
Rs. 100 per month per child but maximum two children. Therefore, taxable amount of the children education
allowance is Rs. (200-100) X 12 X 2= Rs. 2400
2. Transport allowance is the allowance which is exempt on the basis of the specified amount which is Rs. 800 per
month. Therefore, the taxable amount is Rs. (1000-800) X 12 = Rs. 2400.
3. Taxable value of rent free unfurnished house
When population is less than 10 lakhs, then
Taxable value = 7.5% of the salary = 0.075 X (180000+72000+3600+2400+2400) = 0.075 X 260400 = Rs. 19530
When population is greater than 10 lakhs but less than 25 lakhs
Taxable value = 10% of the salary = 0.10 X 260400 = Rs. 26040
When population is greater than 25 lakhs
Taxable value = 15% of the salary = 0.15 X 260400 = Rs. 39060

Students are advised to read the definition of salary for the calculation of perquisites given in the notes.
Question 12

Dev submits you the following information regarding his salary income for the year 2012-13:
6. Basic salary

Rs. 15000 pm

7. DA

40% of basic salary

8. CCA

Rs. 300 pm

9. Children education allowance

Rs. 200 pm per child for 2 children

10. Transport allowance

Rs. 1000 pm

He is provided with a rent free unfurnished accommodation which is taken on rent by the employer. The fair rental
value of the house is Rs. 24000 p.a.
Compute the gross salary assuming accommodation is provided in a city having population:
d. Not exceeding 10 lakhs as per 2001 census.
e. Exceeding 10 lakhs but less than 25 lakhs as per 2001 census.
f.

Exceeding 25 lakhs.

Solution
Population < 10
lakhs
Basic salary
Taxable value of the allowances
e. DA (fully taxable)
f. CCA (fully taxable)
g. Children Education Allowance
(See note 1)
h. Transport allowance (See note 2)
Value of perquisite
Rent free unfurnished house (See note 3)
Gross salary

180000

10 lakhs <
Population < 25
lakhs
180000

Population > 25 lakhs

180000

72000
3600
2400

72000
3600
2400

72000
3600
2400

2400
24000

2400
24000

2400
24000

284400

284400

284400

Notes:
1. Children education allowance is the allowance which is exempt on the basis of the specified amount which is
Rs. 100 per month per child but maximum two children. Therefore, taxable amount of the children education
allowance is Rs. (200-100) X 12 X 2= Rs. 2400
2. Transport allowance is the allowance which is exempt on the basis of the specified amount which is Rs. 800 per
month. Therefore, the taxable amount is Rs. (1000-800) X 12 = Rs. 2400.
3. Taxable value of rent free unfurnished house taken on rent by the employer
When population is less than 10 lakhs, then
Taxable value = Lower of the following amounts
a.

15% of the salary = 15 X (180000+72000+3600+2400+2400) = 0.15 X 260400 = Rs.39060

b. Rent payable by the employer = Rs. 24000

Thus, taxable value = Rs. 24000
When population is greater than 10 lakhs but less than 25 lakhs
Taxable value = Lower of the following amounts
c.

15% of the salary = 15 X (180000+72000+3600+2400+2400) = 0.15 X 260400 = Rs.39060

d. Rent payable by the employer = Rs. 24000

Thus, taxable value = Rs. 24000
When population is greater than 25 lakhs
Taxable value = Lower of the following amounts
e.

15% of the salary = 15 X (180000+72000+3600+2400+2400) = 0.15 X 260400 = Rs.39060

f.

Rent payable by the employer = Rs. 24000

Thus, taxable value = Rs. 24000

Students are advised to read the definition of salary for the calculation of perquisites given in the notes.
Question 13
Compute the taxable value of the perquisite in respect of medical facilities availed by X from his employer in the
following cases.
Case 1: The employer reimburses the following expenses
a. Treatment of X by his family physician Rs. 4200.
b. Treatment of Mrs. X in a private nursing home Rs. 3600.
c. Treatment of Xs mother (dependent upon him) Rs. 1200 by a private doctor.
d. Treatment of Xs brother (not dependent upon him) Rs. 400.
e. Treatment of Xs grandfather (dependent upon him) Rs. 1500.
Case 2: The employer pays an insurance premium of Rs. 3000 under a health insurance scheme on the health of X.
Case 3: The employer maintains a hospital for the employees where they and their family members are provided free
treatment. The expenses on treatment of X and his family members during the previous year 2012-13 were as under:
a. Treatment of Xs major son (dependent upon him)

Rs. 2200

b. Treatment of X

Rs. 5200

c. Treatment of Xs uncle

Rs. 4600

d. Treatment of Mrs. X

Rs. 8000

e. Treatment of Xs widowed sister (dependent upon him)

Rs. 4100

f.

Rs. 2500

Treatment of Xs handicapped nephew

Case 4: Expenses on cancer (mentioned in rule 3A) treatment of married daughter of X at Tata Memorial Hospital
Mumbai (an approved hospital for this purpose) paid by the employer Rs. 50000 and reimbursement of expenses for
medical treatment of himself amounting to Rs. 20000.
Case 5: The following expenses on treatment of Xs major son outside India were paid by the employer:
Actual expenses
a. Actual medical expenses

Expenses permitted by RBI

Rs. 75000

Rs. 60000

Rs. 65000

Rs. 45000

Rs. 120000

b. Expenses on stay abroad of Xs son and brother

who accompanied the patient
c. Travelling expenses of Xs son and Xs brother

Assume that the other income of X is (i) Rs. 150000 and (ii) Rs. 180000

Solution
Case 1
S.No.
1
2
3
4
5

Persons under treatment

Treatment of X
Treatment of Mrs. X
Treatment of Xs mother
Treatment of Xs brother
Treatment of Xs grandfather
Total expenses

Expenses exempt up to Rs. 15000

4200
3600
1200
9000

Taxable expenses

400
1500
1900

Case 2
Insurance premium paid by an employer on the health of his employee is a tax free perquisite provided the health
insurance scheme is approved by Central Government or IRDA.
Case 3
The expenses medical treatment of the employee and his family members in a hospital maintained by the employer are
tax-free. Therefore
S.No.
1
2
3
4
5

Persons under treatment

Treatment of X
Treatment of Xs major son
Treatment of Xs widowed sister
Treatment of Xs uncle (because not part of family)
Treatment of Xs handicapped nephew (because not part of
salary)
Total expenses

Taxable expenses
Nil
Nil
Nil
4600
2500
7100

Case 4
Expenses incurred by an employer on the treatment of a disease (mentioned in rule 3A) caught by his employee or
employees family members in an approved hospital, then nothing is taxable. Therefore, Rs. 50000 is tax free. As far as
the reimbursement of expenses for medical treatment of the employee is concerned, then this exempt up to Rs. 15000,
therefore, Rs. 5000 are taxable out of Rs. 20000.
Case 5
In respect on medical treatment outside India, the expenses on actual treatment and on stay abroad (of the patient and one
attendant) are exempt from tax to the extent permitted by RBI i.e. up to Rs. 60000 and Rs. 45000 respectively. Therefore,
balance Rs. 15000 and Rs. 20000 are taxable perquisites. Expense on travel are exempt only if the gross total income of
the employee does not exceed Rs. 200000. Therefore, we should calculate his gross total income as follows:
Case i. when other salary is Rs. 150000
Gross total income = Rs. 150000+ Rs. 15000+ Rs. 20000 = Rs. 185000 < Rs. 200000, therefore, the entire
expenditure on travel is tax free.
Case i. when other salary is Rs. 150000

Gross total income = Rs. 180000+ Rs. 15000+ Rs. 20000 = Rs. 215000 > Rs. 200000, therefore, the entire
expenditure on travel is taxable.
Question 14
A retired from service w.e.f. 1.11. 2012 after giving serving for 18 years and 9 months. At the time of retirement he was
entitled to the following remuneration:
a. Salary Rs. 25000 per month
b. Dearness allowance @ 20% of salary (60% of which forms part of salary for retirement benefits)
On retirement, he received a sum of Rs. 600000 as gratuity. He was entitled to a pension of Rs. 12500 per month w.e.f
1.11.2012. From 1.1.2013 he got 60% of his pension commuted and received a sum of Rs. 750000 as commuted pension.
Compute his gross salary for the assessment year 2013-14.
Answer: Gross salary -Rs. 931333; Taxable gratuity Rs. 348000
Question 15
Determine the taxable amount for the assessment year 2010-11 in the following cases:
1. X retires from the Central Government services on May 31, 2009 per month. He gets pension of Rs. 900 per
month up to January 31, 2010. With effect from February 1, 2010, he gets one-third of his pension commuted for
Rs. 62000.
2. X retires from B Ltd. on July 31, 2009. He gets pension of Rs. 1000 per month up to December 31, 2009. With
effect from January 1, 2010 he gets 60% of pension commuted for Rs. 170000. Does it make any difference if he
also receives gratuity of Rs. 3000 at the time of his retirement?
3. X retries from P Ltd. on March 31, 2009. P Ltd. pays Rs. 2600 per month as pension but does not pay any
gratuity. On the request of X, P Ltd. pays Rs. 80000 in lieu of commutation of 25% of pension on January 31,
2010.
4. Y retries from Z Ltd. on March 31, 2009. Z Ltd. pays Rs. 2600 per month as pension along with gratuity of Rs.
3400. On the request of Y, Z Ltd. pays Rs. 80000 in lieu of commutation of 25% of pension on January 31, 2010.
Question 16
Rams son is a student of 10 th class of DAV, Delhi. Rs. 17800 being tuition fees of Rams son is paid/reimbursed by B Ltd
where Ram is employed. There is no arrangement between B Ltd and DAV, Delhi. Comment on the taxability of Ram in
this regard.
Answer: Entire amount is taxable in the hands of Ram as perquisite
Question 17
X is an employee in the Accounts Department of A Ltd. On November 27, 2009, he attends a seminar on IFRS. Seminar
fees Rs. 3000 is paid by A Ltd. Comment on the taxability of X in this regard.
Answer: Not taxable because any amount spent/paid by the employer for the education or training of his employee is not
taxable.
Question 18
GAP school, Delhi is owned and maintained by E Ltd. a trading company. Books of account of the school and E Ltd are
maintained separately. Riya is an employee of E Ltd. The following family members of Riya are students in GAP school.
Diya her daughter (Cost of education in a similar institution is Rs. 5500 per month)

Rahul her brother who is dependent on her (Cost of education in a similar institution is Rs. 6000 per month)
Amount charged from Riya are as follows:
For Diya Rs. 800 per month
For Rahul Rs. 1600 per month
Calculate the taxable value of the perquisite.
Answer: Diya: Rs. 44400 and Rahul: Rs. 52800
Question 19
Deepak takes a loan of Rs. 2 lakhs from a bank. The loan is later on paid by his employer on behalf of Deepak. Comment
on the taxability of the loan paid by the employer in the hands of Deepak.
Answer: 100% taxable as perquisite
Question 20
B takes an interest free loan of Rs. 700000 from his employer PQR Ltd. on June 16, 2009 for medical treatment of his
wife who is suffering from a disease mentioned in rule 3A. Mrs. B is also covered under a mediclaim insurance cover.
Insurance company reimburses her of the hospitalization charges of Rs. 250000 on January 1, 2010. According to the
terms of repayment of loan, A has to pay Rs. 1200 per month on the 7 th day of each month starting from November 2009.
Ascertain the taxable value of perquisite in respect of interest free loan for the previous year 2009-10. The amount paid by
insurance company is retained by B. Given the SBI lending rate for a similar loan is 16.50% on April 1, 2009.
Solution
The perquisite in the form of interest free loan taken for a disease mentioned in rule 3A is not taxable. However, any
insurance claim received will be taxed as follows:
Month end

Maximum monthly outstanding amount on the

Interest at 16.50%

last day of the month

January 31, 2010
February 28, 2010
March 31, 2010

Rs.
238000 = (250000-12000 repaid )
226000 = (238000-12000 repaid )
214000 = (226000-12000 repaid )
Total (Taxable value of the perquisite)

3272.50
3107.50
2942.50
9322.50

Question 21
X takes a loan of Rs. 15000 from his employer on May 28, 2009 (no other loan is taken so far). Suppose, he takes another
loan of Rs. 5500 from his employer on July 17, 200. What can say about the taxability about the loans before and after
taking another loan?
Question 22
Find out the taxable value of the perquisite in the following cases for the assessment year 2010-11:
1. X is given a laptop by the employer for using it for office and private purpose. Cost of the laptop to the employer
is Rs. 96000.
Answer: Nil

2. On October 15, 2009, the company gives its music system to Y for domestic use. Cost of music system (in 2001)
to the employer is Rs. 15000.
Answer: Rs. 690
3. The employer sells the following assets to the employees on January 1, 2010
Particulars
Cost of the asset to the
employer
Date of purchase
Sale consideration

To A

To B

To C

Car
Rs. 696000

Computer
Rs. 117000

Fridge
Rs. 40000

May 15, 2007

210000

May 15, 2007

24270

May 15, 2007

1000

Answer in this case: Rs. 235440, Rs. 4980 and Rs. 31000