UNIT-2 INCOME FROM SALARY

Unit-2: HEADS OF INCOME TAX
INCOME FROM SALARY

Prepared by: Prof. Vikrant D. Palatshaha
MKSSS’s Shri Siddhivinayak Mahila Mahavidyalaya,

Karvenagar, Pune-52



Definition of ‘Salary’:

• As per Section 17(1), Salary includes following:
a) Wages
b) Any annuity or pension
c) Any gratuity
d) Any fees, commission, perquisites or profits in lieu of salary
e) Any advance salary
f) Leave salary
g) Annual accreditation to the provident fund
h) Contribution made by central govt. to the employee pension

scheme

Computation of Income from Salary

Particulars Amount
Basic Salary -----
Add: Taxable Allowances -----
Add: Taxable Perquisites -----
Gross Salary -----
Less: Deductions u/s 16
a) Standard Deduction 50,000
b) Entertainment Allowance N.A.
c) Professional Tax -----
Income from Salary -----

Computation of Income from Salary of Mr. Nitin Ptil, Asst...



Allowances

• Allowance is generally defined as a fixed quantity of money given
regularly in addition to salary for the purpose of meeting some
particular requirement connected with the services rendered by the
employee or as compensation for unusual conditions for that service.

• Following are the types of allowances:

a) Fully Taxable Allowances

b) Partly Taxable Allowances

Fully Taxable Allowances

• City compensatory Allowance
• Fixed Medical Allowance
• Tiffin/Lunch/Dinner/Refreshment Allowance.
• Servant Allowance
• Dearness Allowance
• Project Allowance
• Overtime Allowance.
• Non-practising Allowance
• Washing Allowance
• Warden Allowance
• Entertainment Allowance
• Any other Cash Allowance.

Partly Taxable Allowances

Particulars Exemption Limit

Children Education Allowance Rs.100 p.m. per child maximum upto two children

Hostel Expenditure Allowance Rs.300 p.m. per child maximum upto two children

Transport Allowance Fully taxable in case of normal person and Rs. 1600 p.m. is exempted for
blind/handicapped person

House Rent Allowance Lower of the following is exempted:
a) Actual HRA
b) Rent paid- 10% of salary
c) 40% of salary in any other city or 50% of salary in metro city

(Delhi/Mumbai/Kolkata/Chennai/Banglore)
[Salary= Basic Salary + DA (if applicable) + Commission (if in fixed%)]

Underground Allowance Rs.800 p.m.

Compensatory Field Area Rs.2600 p.m.
Allowance

Uniform Allowance Amount which is actually utilized

Tribal Area Allowance Rs.200 p.m.

Running Allowance 70% of received amount or Rs.1000 p.m. whichever is less

Computation of Income from Salary of Mr. Atish, Delhi for...
Computation of Income from Salary of Mr. Nitin Ptil, Asst...



Perquisites

• Perquisites may be defined as benefits attached to an office or
position in addition to Salary or Wages.

• Perquisites may be provided in cash or in kind.

• A benefit or advantage would be taxable as perquisites only if it has
legal origin. As unauthorized advantage taken by an employee,
without employer’s authority would create a legal obligation to
restore such advantage, it would not amount to perquisite taxable
under the Act.

Taxability of Perquisites

Perquisites Taxability
Taxable
Profession Tax paid by employer (exempted u/s 16) Taxable
Taxable
Income Tax paid by employer Taxable

Salary of servant/watchman/gardener/cook paid by employer Rs.1000 p.m.
Taxable
Medical Facility/Hospital Bill reimbursed by employer Exempted
Exempted upto Rs.5000
Education Facility: It means employees children are studying in school run by Taxable
employer Exempted
a)Provided to employees children Exempted Rs.50 per meal
b)Provided to employees household Taxable
Educational Scholarship Exempted

Gift, Voucher/Token a) In kind
b) In cash

Free cloth/personal attendant/ holiday home facility

Free Meal/Lunch facility

Free Gas, water and electricity bill

Computer/Laptop facility

Computation of Income from Salary of Mr. Atish, Delhi for...

Valuation of Perquisites

Valuation of Unfurnished and Furnished Rent Free Accommodation

Accommodation owned by employer

 When population of city 10 lacs then 7.5% of salary

 When population of city in between 10 to 25 lacs 10% of salary

 When population of city is above 25 lacs 15% of salary

In case of furnished accommodation add 10% cost of furniture added in above
valuation

If any amount recovered from employee then deduct from above valuation

If accommodation is taken on rent/lease by employer then lower of following two is
taxable:

 15% of salary or Rent paid

 If accommodation is provided in hotel then lower of following two is taxable:

 Actual charges paid or 24% of salary

[Salary=Basic Salary + DA (if applicable) + Bonus + Fees + Commission + all other taxable
allowances ]
Working Notes:

Working Notes:

Valuation of Motor Car

a) Car is owned by or hired by Employer:

For Official Purpose For Private Purpose For Official as well as Private
Fully Exempted
Actual Run & maint. Exp Run & Maint. Exp. Borne by employer
+Drivers Remuneration a) If car is less than 1600 cc
+Depreciation @10% pa
Rs.1800 p.m. + Rs.900 p.m. drivers salary (if
Or driver provided)
When car is taken on hire b) If car is more than 1600 cc
Hire charges Rs.2400 p.m. + Rs.900 p.m. drivers salary (if
Less: Amount recovered from driver provided)

employee Run & Maint Exp. Borne by employee
a) If car is less than 1600 cc

Rs.600 p.m. + Rs.900 p.m. drivers salary (if
driver provided)
b) If car is more than 1600 cc
Rs.900 p.m. + Rs.900 p.m. drivers salary (if
driver provided)

Working Notes:

Valuation of Motor Car

b) Car is owned by Employee:

For Official Purpose For Private Purpose For Official as well as Private
Fully Exempted
Actual Exp. incurred by employer Run & Maint Exp. Borne by employer
Less: Amount recovered from Actual Exp.
Less:Rs.900 p.m. drivers salary (if
employee
driver provided)

Run & Maint Exp. Borne by employee
Nil

Provident Fund

Paericulars Statutory P.F. Recognised P.F. Unrecognised P.F. Public P.F.
Exempted Taxable Exempted
Employees Exempted
Contribution

Employers Exempted Exempted upto 12% of Taxable on Retirement Not Applicable
Contribution Salary
Taxable Exempted
Interest Credited Exempted Exempted upto 9.5% Taxable Exempted

Amount withdrawn (at Exempted Exempted
the time of retirement)

Salary= Basic Salary + DA (if applicable) + Commission (if in fixed %)

Working Notes:
Slide 25

DEDUCTIONS FROM SALARY

• Standard Deduction: Lump Sum amount of RS.50,000
• Entertainment Allowance: In case of Govt. employees EA is deducted

from salary but in case of private sector employees EA is not
deducted.
• Professional Tax: this tax is levied by State Govt. is allowed as
deduction on payment basis.

Computation of Income from Salary of Mr. Atish, Delhi for...

Problem-1

Computation of Income from
Salary Mr. Dhananjay,
Mumbai f...

Computation of Income from Salary Mr. Dhananjay, Mumbai for the A.Y. 2022-2023

Particulars ₹₹

Basic Salary (25,000 x 12) 40,000 3,00,000
D. A. (8000 x 12) - 25,333 96,000
Bonus 40,000
Interest @ 15% 18,000
Less: Exempted = 40,000/ 15 x 9.5 21,600 14,667
Employers Contribution to R.P.F. (W.N.-1) 18,000 9,720
Valuation of Furnished Accommodation (W.N.-2)
Facility provided by employer: 29,600
i) Sweeper (1500 x 12)
ii) Watchman (1800 x 12) 57,600
iii) Servant (1500 x 12) 35,000
Hospital Bill reimbursed by the employer 28,800
Valuation of Motor Car (W.N.-3) 10,000
Gas and Electricity Bill paid by the employer

Gross Salary 6,21,387 Problem-1
Computation of Income
Less: Deductions u/s 16 50,000 - 52,500 from Salary
i) Standard Deduction 2,500 Working Notes:
ii) Profession Tax Working Notes:
Valuation of Perquisites
Income From Salary 5,68,887 Provident Fund
Taxability of Perquisites

Working Notes: 48,600
- 38,880
Working Note 1: ----------------
Employers contribution to R.P.F.:
Salary= Basic Salary + D.A. (if admissible) + Commission (if given at fixed rate) 9,720

= 3,00,000 + 24,000 = 3,24,000
Employers Contribution @ 15% (i.e. 15% of 3,24,000)
Less: Exempted @ 12% of Salary (i.e. 12% of 3,24,000)

Taxable

Working Note 1: 48,600 Computation of Income
Valuation of Furnished Accommodation +5,000 from Salary Mr.
Salary = Basic Salary + D.A. (if admissible) + Commission + Fees + All other Taxable Allowances ------------------ Dhananjay, Mumbai f...
53,600
= 3,00,000 + 24,000 = 3,24,000 - 24,000
Valuation @15% of Salary (i.e. 15% of 3,24,000) ----------------------
Add: 10% cost of furniture (i.e. 10% of 29,600

Less: Rent Paid by Mr. Dhananjay (2000 x 12)

Taxable

Working Notes:

Working Note 2:
Valuation of Motor Car
i) Car is owned by the employer
ii) Car is used for both official and private purpose
iii) Maintenance and running expenses are borne by the employer and
iv) C.C. exceeds 1600

Therefore, Valuation = 2400 x 12 = 28,800

9,720

Mr. Atish is a Manager of a Multinational Company at Delhi. He has submitted the following particulars of his
salary income for the financial year 2021-2022:-

a) Basic Salary 4,20,000 (Annual)
b) D.A. 24,000 PM ( 10,000 p.m. enters into retirement benefits)
c) Education Allowance for two children 1,300 p.m. per child and hostel allowance for elder son 1,450 p.m.

d) Commission on sales 40,000.
e) Entertainment Allowance 800 p.m.
f) Travelling Allowance for his official tours 80,000 (Actual tour expenditure on tour is 54,000)

g) He was given cloth worth 4,000 by his employer free of cost.
h) He resides in the banglow of the company. It’s fair rent is 12,000p.m. He pays 51,000 p.a. as rent for the
house. A watchman and a cook have been provided by the company who were paid 1,400p.m. each.
i) He has been provided with a motor car of 1800 cc with a driver for his official as well as personal use
maintenance expenses for private use are borne by Mr. Atish.

j) The Company Contributed 10% of salary to National Pension Scheme and 70,000 in RPF.
k) Interest credited to RPF account was @ 13%p.a. amounted to 16,250/-
l) Professional tax paid 2,500.

Compute taxable income from salary of Mr. Atish for the Assessment year 2022-23.

Problem-2

Mr. Atish is a Manager of a Multinational Company at Delhi. He has submitted the following particulars of his
salary income for the financial year 2021-2022:-

a) Basic Salary 4,20,000 (Annual)

b) D.A. 24,000 PM ( 10,000 p.m. enters into retirement benefits)

c) Education Allowance for two children 1,300 p.m. per child and hostel allowance for elder son 1,450 p.m.

d) Commission on sales 40,000.

e) Entertainment Allowance 800 p.m.

f) Travelling Allowance for his official tours 80,000 (Actual tour expenditure on tour is 54,000)

g) He was given cloth worth 4,000 by his employer free of cost.

h) He resides in the banglow of the company. It’s fair rent is 12,000p.m. He pays 51,000 p.a. as rent for the
house. A watchman and a cook have been provided by the company who were paid 1,400p.m. each.

i) He has been provided with a motor car of 1800 cc with a driver for his official as well as personal use
maintenance expenses for private use are borne by Mr. Atish.

j) The Company Contributed 10% of salary to National Pension Scheme and 70,000 in RPF.

k) Interest credited to RPF account was @ 13%p.a. amounted to 16,250/-

l) Professional tax paid 2,500.

Compute taxable income from salary of Mr. Atish for the Assessment year 2022-23.

Computation of Income from Salary of
Mr. Atish, Delhi for...

Computation of Income from Salary of Mr. Atish, Delhi for the A.Y. 2022-2023

Particulars ₹₹

Basic Salary 15,600 4,20,000
D. A. (24,000 x 12) - 2,400 2,88,000
Education Allowance (1,300 x 12)
Less: Exempted (100 x 12 x 2) 17,400 13,200
Hostel Allowance (1,450 x 12) - 3,600
Less: Exempted (300 x 12) 13,800
Commission on Sales 80,000 40,000
Entertainment Allowance (800 x 12) - 54,000
Travelling Allowance 9,600
Less: Exempted: Actual tour Expenditure 16,250 Problem-2
Cloth given by employer free of cost - 11,875 26,000 Computation of Income from
Valuation of Accommodation (W.N.-1) NIL Salary
Facility of Watchman & Cook (1,400 x 2 x12) Partly Taxable Allowances
Valuation of Motor Car (W.N.-2) 40,050 Taxability of Perquisites
Companies Contribution to National Pension Scheme @10% of Salary 33,600 Working Notes:
(i.e. 10% of 4,20,000 + 2,88,000) 21,600 Valuation of Motor Car
Employers Contribution to RPF (W.N.-3) Valuation of Perquisites
Interest Credited to RPF account @13% 70,800 Slide 24
Less: Exempted: (16,250/13 x 9.5) 5,200 Provident Fund
DEDUCTIONS FROM SALARY
Gross Salary 4.375
9,86,225

Less: Deductions u/s 16 50,000 - 52,500
i) Standard Deduction N.A. 9,33,725
ii) Entertainment Allowance
iii) Profession Tax 2,500

Income From Salary

Working Notes: 91,050
- 51,000
Working Note 1: ----------------------
Valuation of Furnished Accommodation 40,050
Salary = Basic Salary + D.A. (if admissible) + Commission + Fees + All other Taxable Allowances

= 4,20,000 + 1,20,000 + 40,000 + 13,200 + 13,800 = 6,07,000
Valuation @15% of Salary (i.e. 15% of 6,07,000)
Less: Rent Paid by Mr. Atish

Taxable
Working Note 2:
Valuation of Motor Car
i) Car is owned by the employer
ii) Car is used for both official and private purpose
iii) Maintenance and running expenses are borne by the employee and
iv) C.C. exceeds 1600
v) Driver is Provided

Therefore, Valuation = 900 x 12 + 900 x 12 = 21,600

Computation of Income from Salary of Mr. Atish, Delhi for...
Valuation of Motor Car

Working Notes: 70,000
- 64,800
Working Note 3: ----------------
Employers contribution to R.P.F.:
Salary= Basic Salary + D.A. (if admissible) + Commission (if given at fixed rate) 5,200

= 4,20,000 + 1,20,000 = 5,40,000
Employers Contribution
Less: Exempted @ 12% of Salary (i.e. 12% of 5,40,000)

Taxable

Computation of Income from Salary of Mr. Atish, Delhi for...
Provident Fund

Problem-3

From the following particulars of Mr. Nitin Patil. Who is Asst. Manager in ICICI Bank in Mumbai, for the financial year
2021-22. Compute his Taxable Income from the salary for the Assessment year 2022-23.
a) Basic salary p.m. Rs.30,000. Increment of Rs. 5000 in basic salary from 1st July 2020 is applicable.
b) Dearness allowance 60% of basic salary (not considered for retirement benefit).
c) Bonus received Rs.50,000.
d) Entertainment Allowance Rs.2500 p.m.
e) Transport Allowance Rs.2000 p.m.
f) Commission received during the year from the company Rs.50,000 @ 0.05% on sales.
g) Employers contribution to RPF. 14% of basic salary plus dearness allowance. Same amount is contributed by Mr. Patil.
h) Rent free unfurnished house provided by employer at Mumbai whose annual rental value is Rs.180,000.
i) Interest Rs.1,50,000 credited to RPF A/c @ 10 p.a. for the year.
j) Medical expenses re-imbursed by employer during the year Rs.20,000.
k) Employer paid personal L.I.C. Premium of Mr. Nitin Patil for the year Rs.20,000.
l) Professional Tax of Rs.2500 for the year is paid by employer on behalf of Mr. Nitin Patil.
m) A watchman is provided by employer for the security of residence of Mr. Nitin Patil. Who is paid Rs.3,000 p.m. by
employer.
n) He receive the salary of particular month on the date of 25th of that particular month

Computation of Income from Salary of Mr. Nitin Ptil, Asst...

Computation of Income from Salary of Mr. Nitin Ptil, Asst. Manager ICICI Bank,
Mumbai for the A.Y. 2022-2023

Particulars ₹₹

Basic Salary (W.N.-1) 1,50,000 4,05,000
Dearness Allowance (60% of Basic Salary i.e. 60% of Rs.4,05,000) - 1,18,750 2,43,000
Bonus
Entertainment Allowance (2500 x 12) 50,000
Transport Allowance (2000 x 12) 30,000
Commission @0.05% on sales 24,000
Employers Contribution to R.P.F. (W.N.-2) 50,000
Valuation of Rent Free Unfurnished House (W.N.-3) 3,84,420
Interest Credited to R.P.F. A/C @10% p.a. 5,13,100
Less: Exempted @9.5% (i.e. 1,50,000/10 x 9.5)
Medical Expenses Reimbursed by the employer 31,250
Personal L.I.C. Premium paid by the employer 20,000
Professional Tax paid by employer 20,000
Watchman Salary paid by employer (3,000 x 12) 2,500
36,000

Gross Salary 18,08,970 Problem-3
Computation of Income from Salary
Deductions u/s 16: 50,000 - 52,500 Partly Taxable Allowances
i) Standard Deduction N.A. 17,56,470 Working Notes:
ii) Entertainment Allowance 2,500 Working Notes:
iii) Professional Tax

Income from Salary

Working Notes:

Working Note-1:

Basic Salary

For 3 months (i.e. April, May, June = 30,000 x 3) = 90,000

For 9 months (i.e. July, Aug, Sept, Oct, Nov, Dec, Jan, Feb, March = 35,000 x 9) = 3,15,000

……………….

Total Basic Salary 4,05,000

Working Note-2:

Employers Contribution to RPF

Salary = Basic Salary + D.A. (if applicable) + Commission (if given in fixed %)

= 4,05,000 + N.A. + 50,000 = 4,55,000

Employers Contribution to R.P.F. 14% of B.S. + D.A. (i.e.14% of 4,05,000 + 2,43,000 = 6,48,000) = 4,39,020

Less: Exempted 12% of Salary (i.e. 12% of 4,55,000) = - 54,600

………………..

Taxable 3,84,420

Problem-3
Provident Fund
Computation of Income from
Salary of Mr. Nitin Ptil, Asst...

Working Notes:

Working Note-3:

Valuation of Rent Free Furnished Accommodation

Salary = B.S. + D.A. (if applicable) + Bonus + Commission + All Other Taxable Allowances

= 4,05,000 + N.A. + 50,000 + 50,000 + 30,000 + 24,000 = 5,59,000

Valuation 15% of Salary (i.e. 15% of 5,59,000) 5,13,100

Problem-3
Valuation of Perquisites
Computation of Income from
Salary of Mr. Nitin Ptil, Asst...

THANK YOU