M. Com. Part-I Advanced Accountancy Paper-III (Taxation) PDF

H I SHIVAJI UNIVERSITY, KOLHAPUR CENTRE FOR DISTANCE AND ONLINE EDUCATION Advanced Accountancy Paper-III (Taxation) For M. Com. Part-I Sem...

H I SHIVAJI UNIVERSITY, KOLHAPUR CENTRE FOR DISTANCE AND ONLINE EDUCATION Advanced Accountancy Paper-III (Taxation) For M. Com. Part-I Semester - I (In accordance with National Education Policy 2020) (Implemented from the Academic Year 2023-24) K J Copyright © Registrar, Shivaji University, Kolhapur. (Maharashtra) First Edition 2023 Prescribed for M. Com. Part-I All rights reserved, No part of this work may be reproduced in any form by mimeography or any other means without permission in writing from the Shivaji University, Kolhapur (MS) Copies : 2,000 Published by: Dr. V. N. Shinde Registrar, Shivaji University, Kolhapur-416 004 Printed by : Shri. B. P. Patil Superintendent, Shivaji University Press, Kolhapur-416 004 ISBN- 978-93-89345-24-7  Further information about the Centre for Distance and Online Education & Shivaji University may be obtained from the University Office at Vidyanagar, Kolhapur-416 004, India. (ii)  Centre for Distance and Online Education Shivaji University, Kolhapur  ADVISORY COMMITTEE Prof. (Dr.) D. T. Shirke Prof. (Dr.) Smt. S. H. Thakar Hon'ble Vice Chancellor, I/c. Dean, Faculty of Science and Shivaji University, Kolhapur Technology, Shivaji University, Kolhapur Prof. (Dr.) P. S. Patil Prin. (Dr.) Smt. M. V. Gulavani Hon'ble Pro-Vice Chancellor, I/c. Dean, Faculty of Inter-disciplinary Shivaji University, Kolhapur Studies, Shivaji University, Kolhapur Prof. (Dr.) S. S. Mahajan Dr. V. N. Shinde Dean, Faculty of Commerce and Registrar, Management, Shivaji University, Kolhapur Shivaji University, Kolhapur Prof. (Dr.) M. S. Deshmukh Dr. A. N. Jadhav Dean, Faculty of Humanities, Director, Board of Examinations and Shivaji University, Kolhapur Valuation, Shivaji University, Kolhapur Prof. (Dr.) Prakash Pawar Smt. Suhasini Sardar Patil Department of Political Science Finance and Accounts Officer, Shivaji University, Kolhapur Shivaji University, Kolhapur Prof. (Dr.) S. Vidyashankar Dr. (Smt.) Kavita Oza Hon'bleVice-Chancellor, KSOU, Department of Computer Science, Mukthagangotri, Mysuru, Karnataka Shivaji University, Kolhapur Dr. Rajendra Kankariya Dr. Chetan Awati G-2/121, Indira Park, Chinchwadgaon, Department of Technology, Pune Shivaji University, Kolhapur Prof. (Dr.) Cima Yeole Prof. (Dr.) D. K. More Geet-Govind, Flat No. 2, (Member Secretary) Director, 1139 Sykes Extension, Kolhapur Centre for Distance Education, Shivaji University, Kolhapur. Dr. Sanjay Ratnaparkhi D-16, Teachers Colony, Vidhyanagari, Mumbai University, Santacruz (E), Mumbai (iii)  Centre for Distance and Online Education Shivaji University, Kolhapur MEMBERS OF B.O.S. IN ACCOUNTANCY Prof. (Dr.) Nandkumar Laxman Kadam Jaysingpur College, Jaysingpur, Jaysingpur, Dist. Kolhapur  Dr. Mrs. Sherya Vinay Patil  Dr. Ashok Ramchandra Shinde Balwant College, Vita, Dist. Sangli Yashwantrao Chavan Mahavidyalaya, Urun-Islampur, Tal. Walwa, Dist. Sangli  Dr. Anil S. Patil Arts, Commerce and Science College,  Prof. (Dr.) B. B. Shitole Palus, Dist. Sangli Karmaveer Bhaurao Patil Mahavidyalaya Pandharpur, Tal. Pandharpur, Dist. Solapur  Dr. Smt. Vandana S. Tandale Hon. Shri. Annasaheb Dange Arts,  Prof. (Dr.) V. K. Sawant Commerce and Science College, Dhananjayrao Gadgil College of Hatkanangale, Dist. Kolhapur Commerce, Satara  Dr. J. G. Mulani  Dr. M. N. Haladkar Shri. Sampatrao Mane Mahavidyalaya, Rajarshi Shahu Arts and Commerce Khanapur, Dist. Sangli College, Rukadi, Dist. Kolhapur  Dr. Sarjerao S. Chile  CA - A. A. Gawade Prof. (Dr.) N. D. Patil Mahavidyalaya Matoshri Plaze, Shop No. 210 2nd Floor Malkapur, Tal. Shahuwadi, Dist. Kolhapur Station Road, Venus Corner, Shahupuri, Kolhapur  Dr. Sagar R. Powar Karmaveer Hire Arts, Commerce, Science  CA - Mrs. C. K. Patil and Education College, Gargoti, Morya Residence, 4th Floor, Tal. Bhudargad, Dist. Kolhapur Rajarampuri 2nd lane, Nigade Hospital lane, Kolhapur  Dr. Ram Ningappa Naik Smt. Kusumtai Rajarambapu Patil Kanya Mahavidyalaya (Arts, Commerce & Science) Islampur, Tal. Walwa, Dist. Sangli (iv)  Preface We are glad to place the SLM on Advanced Accountancy Paper III which is written considering the revised syllabus of Shivaji University, Kolhapur for the M. Com. I, Semester I to be implemented from the academic year 2023-24 in line with the National Education Policy 2020. The first unit focuses on income from salary. Provisions regarding computation of taxable income from salary are discussed in detail in this unit. The recently introduced new regime of taxation and existing old regime of taxation are also deliberated in this unit. The second unit is exhaustive as it consists of provisions regarding computation of taxable income from business/profession, house property as well as capital gain. The provisions of income from other sources are also included in this unit. The third unit consists of provisions relating to the deduction from gross total income. This unit has the provisions of computation of income tax also. The fourth unit presents the provisions regarding clubbing of income, set off of losses and carry forward the losses. The unit also describes the procedure of e-payment of tax and e-filing of return of income tax. The theory and illustrations are presented in such a way that students can understand the concept easily. Though, the book focus on practical aspect sufficient theory is supported to learn the concepts clearly. The process and steps of solving problems are stated in simple language and in a systematic manner. We strongly believe that this book would prove highly useful to the students. The book is written for the students of distance education, but the students of the same programme as well as students of professional programmes can also find this useful. We are thankful to the authors for providing the needed inputs. The efforts taken by the authors are commendable and due to those efforts, this book is being completed in time. We are indebted to the authorities of Shivaji, Kolhapur for giving us this opportunity to present this SLM for the students of M.Com. We express our sincere thanks to all those who have helped and supported us in writing the book. We also welcome the suggestions from the readers of the book for further improvement in the quality of the book in future. We are confident that the students and teachers will definitely welcome this book.  Editors Dr. K. V. Marulkar Prof. (Dr.) N. L. Kadam Chairman, BOS in Commerce, Chairman, BOS in Accountancy, Department of Commerce & Management, Jaysingpur College, Jaysingpur, Shivaji University, Kolhapur Dist. Kolhapur (v) Centre for Distance and Online Education Advanced Accountancy Paper-III Shivaji University, Kolhapur. (Taxation) M. Com. Part-I Writing Team Sem. I Writers Name Units Dr. Aditya Sontakke 1 Pilai Institute of Management Studies and Research, New Panvel, Mumbai Dr. Ram Ningappa Naik 2 Smt. Kusumtai Rajarambapu Patil Kanya Mahavidyalaya (Arts, Commerce & Science) Islampur, Tal. Walwa, Dist. Sangli iversity, Kolhapur Dr. Smt. S. H. Ambawade 3 Shri. Vyankatesh Mahavidyalay, Ichalkaranji Dr. Bharat Kharat 4 Arts and Commerce College, Ashta, Tal. Walva, Dist. Sangli  Editors Dr. K. V. Marulkar Prof. (Dr.) N. L. Kadam Chairman, BOS in Commerce, Chairman, BOS in Accountancy, Department of Commerce & Management, Jaysingpur College, Jaysingpur, Shivaji University, Kolhapur Dist. Kolhapur (vi)  M. Com. Part-I SIM IN ADVANCED ACCOUNTANCY PAPER III (Taxation) INDEX Unit No. Topic Page No. Semester-I 1. Income From Salary (Section 15-17) 1 2. Income from Business or Profession, Income from 48 House Property, Capital Gains and Income from other sources (Of individuals only) 3. Deductions Under Chapter VI A Computation of 121 Total Income and Liability (of individual Only) 4. Clubbing of Income, Set-off and Carry Forward of 170 Loss, E-Filing of Return, E-Payment of Tax (vii) Each Unit begins with the section objectives - Objectives are directive and indicative of : 1. what has been presented in the unit and 2. what is expected from you 3. what you are expected to know pertaining to the specific unit, once you have completed working on the unit. The self check exercises with possible answers will help you understand the unit in the right perspective. Go through the possible answers only after you write your answers. These exercises are not to be submitted to us for evaluation. They have been provided to you as study tools to keep you in the right track as you study the unit. Dear Students The SIM is simply a supporting material for the study of this paper. It is also advised to see the new syllabus 2023-24 and study the reference books & other related material for the detailed study of the paper. (viii)  Unit-1 Income From Salary (Section 15-17) 1.0 Objectives 1.1 Introduction 1.2 Taxability of Income from salary 1.2.1 Who is taxable? 1.2.2 When is Salary Taxable? (Basis of Charge) [S.15] 1.2.2.1 Legal Provision 1.2.2.2 Comments 1.3 What is Included in Salary? [S.17(1)] 1.3.1 Definition 1.3.2 Perquisites 1.3.3 Profit in Lieu of Salary 1.3.4 Provident Fund 1.3.5 Allowances 1.4 Exemptions [S.10] 1.4.1 Leave Travel Concession [S.10(5)] 1.4.2 Gratuity [S.10(10)] 1.4.3 Commutation of Pension [S.10(10AA)] 1.4.4 Encashment of Leave Salary [S.10(10A)] 1.4.5 Retrenchment Compensation [S.10(10B)] 1.4.6 Retirement Compensation [S.10(10C)] 1.4.7 Tax on Perks Paid by Employer [S.10(10CC)] 1.4.8 Payment from Statutory/Public P.F. [S.10(11)] 1.4.9 Payment from Recognized P.F. [S.10(12)] 1  1.4.10 Payment from NPS [S.10(12A&12B)] 1.4.11 Payment from Superannuation Fund [S.10(13)] 1.4.12 House Rent Allowance [S.10(13A)] 1.4.13 Special Allowance for Expenses [S.10(14)] 1.5 What is Deducted from Salary? [S.16] 1.5.1 Standard Deduction [S.16(ia)] 1.5.2 Entertainment Allowance [S.16(ii)] 1.5.3 Professional Tax [S.16(iii)] 1.6 Tax Return 1.7 Illustration 1.8 Check Your Progress 1.9 Summary 1.0 Objectives: After reading this unit, you will be able to understand: a) when the salary income is chargeable to tax b) the concept of profits in lieu of salary c) the various retirement benefits which will be charged as salary d) the concepts of allowances and perquisites e) the admissible deductions from salary 1.1 Introduction Salary as commonly understood means a fixed payment made periodically as compensation for regular services rendered. it covers wages paid for manual work salary paid for clerical jobs and remuneration paid to executives and managers.it includes all sums paid by an employer to an employee by way of basic salary Allowance perquisites etc. to understand how income under the head salary is computed one must have answers to the following questions 2 (1) who are the persons liable to pay tax on salaries? (2) when is salary taxable -on accrual or on receipt? (3) what is the place of accrual for salary income? (4) how is salary computed? which items are included which items are exempt and what are the deductions available? Let us final out the answers to the above questions. 1.2 TAXABILITY OF INCOME FROM SALARY: 1.2.1 Who is taxable? (1) Employer-Employee Relationship: salary means the remuneration received by an employee from his employer for services rendered. Only an individual can earn salary since only an individual can render personal service any individual who receives remuneration from his employer is liable to be taxed on his income from salaries. for a payment to be regarded as salary, it is essential that the relationship between the payer and payee is that of an employer and employee or master and servant. The payee must be working under a contract of service and not a contract for service. Payment received by an individual from a person other than an employer is not taxable as salaries. Thus, examinership fees received by a professor from his college are taxable as salaries. But examinership fees received by the same professor from the university are taxable as income from other sources. Monthly amounts received by freedom fighters from government (though called pension) are not taxable as salary because the freedom fighters were not employed by the government for securing freedom for India! An employee may be a full-time or a part-time employee. Further he may be an ordinary resident not-resident or resident but not ordinarily resident in India. The employer on the other hand may be any person e.g., an individual a firm a company government local authority a foreigner etc. (2) Remuneration of a director: the remuneration received by a director from a company is taxable as salary if the director is an employee of the company in terms of a contract of employment or the Articles of Association. Otherwise, it is taxable as income from business or income from other sources depending upon the facts of each case. 3 (3) Remuneration of a partner: Any salary bonus commission or remuneration due to or received by a partner from the firm is not to be regarded as salaries [s-15- Explanation 2]. Such amounts are taxable as profits from business in the hands of the partner. (4) Remuneration of a M.P/M.Le.A: the salaries and allowances of a member of parliament (M.P) or a member of legislative assembly (M.L.A) are taxable as income from other sources and not under the head salaries since the M.P or the M.L.A is not an employee of the government or the parliament or the assembly. 1.2.2 When is salary taxable? 1.2.2.1 Legal Provisions: According to section 15, the following income shall be chargeable to tax under the head salaries (a) any salary due from an employer or former employer to an assessee in the previous year whether paid or not (b) any salary paid or allowed to him in the previous year by or on behalf an employer of former employer though not due or before it became due to him; (3) any arrears of salary paid or allowed in the previous year by on behalf of employer of former employer if not charged to income tax in any earlier previous year. 1.2.2.2 Comments: (1) Earned in previous year: An employee must compute his taxable salary for the previous year. The previous year for salary is the financial year April to march preceding the assessment year. (2) Due or Received: salary is taxable on either due basis or on receipt basis. Thus, salary due or received in the previous year April 2022 to March 2023 is taxed in the current assessment year 2023-24 ln short salary is taxed at the earliest point of time possible but only once. This is irrespective of the method of accounting used by the employee. Lt does not matter whether the salary is recorded by the employee in his accounts on cash basis or mercantile (accrued) basis. (3) From all Employers: salary earned during a particular previous year is charged to tax whether received from the present or a former employer. The number of 4  salaries from all employers during the year is year is added the year is added together and taxed under the head salary. (4) Due as per terms of service: When salary becomes due depends upon the terms of service. Salary for a month normally becomes due on the last day of the month though paid in the next month. In such case salary due for the period from say April 2022 to March 2023 will be taxed in the previous year 2022-23 (as salary for April 2022 will be due on 30th April 2022 and salary for March 2022 will be due on 31st March 2022). However, if salary for a month becomes due on the 1st of the next month as per the terms of service (e.g., government employees), salary due for the period from say March 2022 to February 2023 will tax in the previous year 2022-23 (as salary for March 2022 will be due on 1st April 2022 salary for February 2023 will be due on 1st March 2023 and salary for March 2023 will be due on 1st April 2023). (5) Grade system: certain employees are entitled to a graded system of salary. Under this system the normal annual increments to be given to the employee are already fixed in the grade for example if an employee joins the service on 1-5- 2022 and is placed in the grade of Rs.12,200-300-17,400-500-19,400. This means that he will get a basic salary of Rs.-12,200 w.e.f from 1-5-2022 he will get annual increment of Rs.300 w.e.f 1-5-2022 and onwards till his salary reaches Rs.17,400 thereafter he will get an annual increment of Rs.500 till his salary reaches Rs.19,400 no further increment will be given thereafter till he is placed in other grade further in certain cases it may happen that he may join the service in a particular grade but his salary is fixed not at the initial stage of the grade but at an amount somewhere between the grade. For example, X joins the service on 1-5-2022 in the grade of Rs.12000-300-15,000-500-18000 but his salary from the date of joining the service is fixed at Rs.14,400 this means that he will get a basic salary of Rs.14,400 from the date of joining and his annual increment for the next two years will be Rs.300. (i.e., till he reaches Rs.15,000). Thereafter his annual increment will be Rs.500. Illustration 1: Mr. Surendra an employee of XYZ Ltd. submits the following details in respect in respect of previous year 2022-23 (1) He is entitled to salary @ Rs.5000 per month due on the last day of each month. 5 (2) He has received salary for April 2023 in advance in March 2023 (3) He has received arrears of salary amounting to RS-10,000 in respect of 2018-19 in October 2022. Compute the amount of salary subject to tax during the relevant previous year. Solution: Name of the assessee- Mr. Surendra Previous year 2022-23 Assessment year: 2023-24 Particulars Rs. 1. Salary Due in 2023-232 whether paid or not Salary due from April 2022 to March 2023 whether It is received in 2022-23 or not is 5,000 * 12 = 60,000 2.Salary received in 2022-23 whether due or not Salary for April 2023 received in advance in March 2023 (however this would not be taxed again in next F.Y. 2023-24) 5,000 3.Arrears of salary received in 2022-23 Provided these were not charged to tax earlier (on due basis) 10,000 Total Taxable salary in P.Y.2022-23 … 75,000 Illustration 2: Mr. Somnath is employed in ABC Ltd. since 1-9-2019 in the grade of 25,000-2000- 29,000-3,000-41,000 compute salary chargeable to tax for the P.Y. 2022-23 if (a) salary falls due on last day of each month (b) salary falls due on first day of next month. Solution: Date of increment of salary Rs. Date of increment of salary Rs. 1-9-2020 [P.Y.2019-20] 25,000 1-9-2023 [P.Y.2023-24] 35,000 1-9-2021 [P.Y.2020-21] 27,000 1-9-2024 [P.Y.2024-25] 38,000 1-9-2022 [P.Y.2021-22] 29,000 1-9-2025 [P.Y.2025-26] 41,000 1-9-2023 [P.Y.2022-23] 32,000 NO increment thereafter 6  Salary falls due on the last of each Salary falls due on the first day of next month month April 2022 to March 2023 March 2022 to February 2023 April to August (5 ×29,000) 1,45,000 March to August (6×29,000) 1,74,000 September to March (7 ×32,000) 2,24,000 September to February (6 1,92,000 ×32,000) Total salary Total salary 3,69,000 3,66,000 1.3 WHAT IS INCLUDED IN SALARY? 1.3.1 DEFINITION According to section 17 (1) salary includes (1) wages to section including advance of salary (2) annuity or pension (3) gratuity (4) fees and commission (5) perquisites (6) profits in lieu of salary or in addition to salary or wages (7) advance (8) contribution made by the central Government on any other employer in the account of an employee under a pension scheme. (9) payment received by an employee in respect of any period of leave not availed of by him i.e., leave encashment. (10) annual accretion to the balance at the credit of an employee participating in a recognized provident fund to the extent it is taxable and 7 (11) transferred balance in a recognized provident fund to the extent it is taxable ln brief salaries include wages annuity pension fees commission perquisites profits in lieu of salary advance leave encashment and taxable contribution /interest/transferred balance in a recognized provident fund account since this is an inclusive definition the term salary would include other items commonly understood to indicate salary such as allowance bonus etc. the following points should be noted in this regard. (1) Advance/Arrears: salary also includes (a) advance salary (b) arrears of salary and (c) salary in lieu of notice period if any. (2) voluntary payments: normally salary is paid as per the terms of contract of employment if the employer makes any voluntary payment to the employee in addition to the contracted amount in connection with any service rendered it is taxed as salary. (3) Gross salary: salary means gross salary and not the net salary received by the employee after deductions such as the employees’ contributions to provident fund or to employee’s state insurance fund income tax deducted at source profession tax etc. these deductions should be added to the net salary received to determine the gross salary to be included in income. (4) Exempt: the amounts received by way of remuneration which are exempt from tax under section 10 should be excluded and ignored while computing salaries (see para 5). 1.3.2 PERQUISITES (1) Meaning: perquisites mean any casual emoluments or benefits attached to an office or position in addition to salary perquisite is a personal advantage or benefit derived by virtue of employment office or position. Lt is an incidental income from employment in addition to the regular salary Mere reimbursement of expenses does not amount to a perquisite a perquisite denotes an additional monetary benefit going into the pocket of or enriching the employee perquisites may be in cash or kind. (2) Definition: The definition of perquisites under s.17 can be summarized and studied under the following heads: (A) perquisites taxable in case of all employees (B) perquisites taxable only in case of specified employees like directors etc. and (c) perquisites not taxable at all. 8 (3) Perquisites taxable in case of all employees: The following perquisites are taxable in case of every employee: 1. value of rent-free accommodation provided by the employer. 2. value of concession in rent in respect of accommodation provided by employer. 3. sum paid by the employer in respect of any obligation payable by the assessee. 4. sum payable by the employer to effect an assurance on the life of the assessee or to effect a contract for an annuity however this is not applicable to sums paid as employer contribution to (a) a recognized provident fund (b) an approved superannuation fund (up to Rs.1,50,000) (c) a deposit linked insurance fund etc. 5. value of security under employee stock option plan (ESOP) or sweat equity shares allotted/transferred by the employer free of cost or at concessional rate. 6. value of any other prescribed fringe benefit or amenity i.e. (1) interest free or concessional loan (2) use of movable assets and (3) transfer of movable assets. (4) Perquisites taxable only ln case of specified employees: the value of any benefit or amenity given free of cost or at a concessional rate to a specified employee is treated as a perquisite and included in the salary of a specified employee. Specified employee means. (a) a director who is an employee of the company: (b) an employee having substantial interest in the company (i.e., an employee holding equity shares in the employer company carrying more than 20% or more voting power) (c) any other employee whose income from salary is more than RS 50,000 during the relevant previous year. (The amount of Rs.50,000 is to be 9  computed after excluding non-monetary benefits and deducting entertainment allowance and professional tax under s.16 explained later) The following perquisites are taxable in case of a specified employee 1. Gas electricity or water supply provided free of cost 2. free education facilities for family members of employee 3. free domestic servants such as sweeper watchman gardener cook. (5) Perquisites not taxable at all (a) section 17 specifically provides that following are not regarded as perquisites in any case. 1. cost of medical treatment in a hospital maintained by the employer provided to an employee or any member of his family. 2. Reimbursement of medical expenses incurred by employee on medical treatment of himself or his family member in a hospital maintained by the government or any local authority or approved by government. 3. any sum paid by an employer directly to a hospital approved by the chief commissioner of income tax for medical treatment of the employee or his family member. 4. reimbursement by employer of any expenditure incurred by the employee on medical treatment of himself or his family in any hospital approved by the chief commissioner of income tax subject to the condition that the employee will attach with his return of income a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital for such treatment. 5. premium on employee health insurance under any scheme approved by the central government under s.36 (1) (ib). 6. premium on insurance (Medi-claim) on the health of employee or his family member under any scheme approved for the purpose of s.80D. 7. Expenditure incurred by employer on (a) medical treatment of the employee or his family member outside India 10  (b) travel or stay abroad of the employee or his family member for medical treatment (c) travel and stay abroad of one attendant who accompanies the patient in connection of such treatment (d) expenditure on medical treatment and stay abroad will be exempt only to the employee permitted by the reserve bank of India and (e) expenditure on travel shall be exempt only if the gross total income of such an employee does not exceed Rs.2,00,000 in the previous year. 8. Reimbursement of expenses specified in 7 above. (b) the following perquisites are not taxable at all per other acts/decisions of courts/circulars issued by the central board of direct taxes: (1) telephone provided by an employer to an employee at his residence (2) transport facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate (3) privilege passes and privilege ticket orders granted by Indian railways to its employees (4) perquisites allowed outside India by the government to a citizen of India for rendering services outside India. (5) sum payable by an employer to a RPF or an approved superannuation fund or deposit linked insurance fund established under the coal mines provident fund or the employees provident fund act (6) Employers’ contribution to staff group insurance scheme (7) leave travel concession (8) payment of annual premium by employer on personal accident policy effected by him on the life of the employee (9) refreshment provided to all employees during working hours in office premises (10) subsidized lunch or dinner provided to an employee 11  (11) recreational facilities include facilities extended to employees in general i.e., not restricted to a few select employees (12) amount spent by the employer or training of employees or amount paid for refresher management course including expenses on boarding and lodging (13) medical facilities subject to certain prescribed limits (14) rent free official residence provided to a judge of a high court or the supreme court (15) rent free furnished residence including maintenance provided to an officer of parliament union minister and a leader of opposition in parliament. (16) conveyance facility provided to high court judges under section 22B of the high court judges (condition of service) act 1954 and supreme court judges under section 23A of the supreme court judges (conditions of service) act,1958. 1.3.3 PROFIT IN LIEU OF SALARY The term profit in lieu of salary according to section 17(3) includes the following (1) compensation for termination of Employment: normally compensation for termination of employment being a capital receipt is not taxable at all but section 17(3) has specifically provided that such compensation would be taxable under the head salary however the following compensations are exempt under section 10 (see para 5) (a) retrenchment compensation to workers [S.10(10B)] (b) voluntary retirement compensation to employees [S.10(10c)] (2) compensation for modification: of the terms and conditions relating to employment (3) payments from employer or provident or any other fund: over and above the employees’ own contributions and interest except the following payments exempt u/s 10. Gratuity [S.10(10)] Commutation of pension [S.10(10A)] 12  Retrenchment compensation [S.10(10B)] Payment from statutory or public provident fund [S.10(11)] Payment from recognized provident fund [S.10(12)] Payment from approved superannuation fund [S.10(13)] Thus, lumpsum payments from unrecognized provident fund to an employee on his retirement over and above his own contribution are taxable under this provision the annuity received from a former employer is also taxable under this provision (4) Receipts from kayman insurance policy: including bonus if any (5) any amount due to or received whether in lump sum or otherwise by any assessee from any person. (a) before his joining any employment with that person or (b) after cessation of his employment with that person 1.3.4 PROVIDENT FUND Provident fund scheme provides for monthly contribution from the employees as well as the employer to a provident fund account the balance to the credit of such accounts also earns interest the entire balance is paid to an employee on his retirement the taxability of (1) employer contribution (2) interest credited annually and (3) balance paid on retirement depends upon the type of provident fund there are different types of provident fund (P.F) such as (a) statutory P.F. (b) recognized P.F. and (c) unrecognized P.F. (1) Statutory P.F.: Statutory provident fund is set up and administered by the government. (2) Recognized P.F: Recognized P.F means as fund set up and operated by a private sector employer and recognize by the income tax department these recognized provident funds must strictly follow the rules regarding contributions investment of funds etc. prescribed by the income tax act. (3) Unrecognized P.F: unrecognized P.F. is a private provident fund set up and operated by an employer not recognized by the income tax department due to non-compliance of prescribed conditions. 13 The taxability of various amounts in each case is summed up in the following chart PROVIDENT FUNDS AMOUNT Statutory P.F Recognized P.F. Unrecognized P.F [10(11)] [s.10 (12)] [S.17(3)] Employers’ Exempt contribution during Exempt up to 12% of basic Exempt previous year salary excess is taxable Interests credited Exempt Exempt if rate up to 9.5 % Exempt during previous year p.a. Excess is Taxable Lumpsum payment Exempt Exempt subject to Rules Employers’ on retirement etc. contribution & interest thereon taxable u/s 17(3) NOTES: (1) In all cases employee’s monthly contribution to P.F. deducted from salary forms part of the gross taxable salary of the employee. (2) Lump sum amount of employee’s contribution received on retirement etc. is exempt in all cases. (3) Interest on employee’s contribution received in lump sum on retirement from an unrecognized P.F. is taxable as income from other sources. (4) Rate if interest on R.P.F. is laid down in the fourth schedule [part A-rule 6(b)] to the income tax act [notification no 24/2011] (5) In case of recognized P.F the contribution exceeding 12% of salary and interest @rate exceeding 9.5 % p.a. credited during a year is taxed u/s 7 1.3.5 ALLOWANCES (1) Meaning: Allowances mean a fixed amount regularly paid to an employee in addition to his basic salary for various purposes. Thus, Expense Allowances are granted to meet expenses for the performance of duties or to meet the employee's personal expenses at office. Dearness Allowance, City Compensatory Allowance or House Rent Allowance are granted to compensate him for the increased cost of living. All Allowances are taxable as salaries, unless specifically exempted. 14  (2) Exempt u/s 10: Following allowances are exempt to the extent provided under section 10 (see para 5)- (a) Allowances for expenses on Travelling on tour or transfer, Conveyance on office duties Outstation duties, Helpers in office, Professional research or development, and Purchase and maintenance of uniform are fully exempt to the extent actually spent. (b) Leave travel allowance and House rent allowance are exempt to the extent of lower of the amount actually spent or the prescribed limits. (c)Allowances for Duties at difficult areas (border/remote/disturbed/tribal areas etc.), Children education allowance and Children hostel expenses allowance are exempt to the extent of lower of allowance received or the lump-sum amount prescribed, irrespective of actual expenditure. (d) Allowances and perquisites paid outside India by the Government to a citizen of India for rendering service outside India [S.10(7)]. (3) Deduction u/s 16: Further, Entertainment allowance can be deducted from the Gross salary to the extent provided under section 16(ii) explained later (in para 6.1). 1.4 EXEMPTIONS (S.10) 1.4.1 LEAVE TRAVEL CONCESSION [S.10(5)] Leave Travel Concession is exempt to the following extent: (1) in the case of an individual. (2) the value of any travel concession or assistance received by or due to him, (3) from his employer for himself and his family, in connection with his proceeding on leave to anyplace in India. (4) or, from his employer or former employer for himself and his family, for proceeding to any place in India after retirement from service or after the termination of his service, (5) subject to the conditions prescribed as to the number of journeys and the amount exempt per head 15 ‘Family’ of the individual includes: (a) his spouse and children and (b) his parents, brothers and sisters who are mainly dependent upon him. The amount of exemption is limited to the actual expenses incurred for the travel. Other provisions to be kept in mind in this regard are as follows: (1) Where journey is performed by air: Amount of exemption will be lower of amount of economy class air fare of the National Carrier by the shortest route or actual amount spent. (2) Where journey is performed by rail: Amount of exemption will be lower of amount of air- conditioner first-class rail fare by the shortest route or actual amount spent. The same rule will apply where journey is performed by any other mode and the place of origin of journey and destination are connected by rail. (3) Where the place of origin and destination are not connected by rail and journey is performed by any mode of transport other than by air: The exemption will be as follows: (a) If recognized public transport exists: Exemption will be lower of first class or deluxe class fare by the shortest route or actual amount spent. (b) If no recognized public transport exists: Exemption will be lower of amount of air-conditioned first-class rail fare by the shortest route (considering as if journey is performed by rail) or actual amount spent. (4) Block: Exemption is available for 2 journeys in a block of 4 years. The block applicable for current period is calendar year 2018-23. (Extended up to 31/03/2023 vide order dt. 27/12/2022) (5) Carry over: If an employee has not availed of travel concession or assistance in respect of one or two permitted journeys in a particular block of 4 years, then he is entitled to carry over one journey to the next block. In this situation, exemption will be available for 3 journeys in the next block. However, to avail of this benefit, exemption in respect of journey should be utilized in the first calendar year of the next block. In other words, in case of carry over, exemption is available in respect of 3 journeys in a block, provided exemption in respect of at least I journey is claimed in the first year of the next block. 16 (6) No journey, no exemption: Exemption is in respect of actual expenditure on fare, hence, if no journey is performed, then no exemption is available. (7) Family: Family will include spouse and children of the individual, whether dependent or not and parents, brothers, sisters of the individual or any of them who are wholly or mainly dependent on him. Exemption is restricted to only 2 surviving children born after October 1, 1999 (multiple births after first single child will be considered as one child only), however, such restriction is not applicable to children born before October 1, 1999. (8) Deemed LTC: The Central Board of Direct Taxes has provided income-tax exemption for the payment of cash equivalent of LTC fare [subject to maximum of ₹ 36,000 per person as deemed Leave Travel Concession (LTC) fare per person Round Trip] to the employees of the Central Government, state governments, public sector enterprises, banks, and private sector subject to certain conditions. The employee is required to spend a sum equal to three times of the value of the deemed LTC fare on purchase of goods or services which carry a GST rate of 12% or more from GST registered vendors/service providers through digital mode between October 12, 2020 to March 31, 2021 and obtain a voucher indicating the GST number and the amount of GST paid. An employee who spends less than three times of the deemed LTC fare on specified expenditure during the specified period shall not be entitled to receive full amount of deemed LTC fare and the related income-tax exemption and the amount of both shall be reduced proportionately. The employees have to exercise an option for the deemed LTC fare in lieu of the applicable LTC is the Block year 2018-2023. 1.4.2 GRATUITY [S.10(10)] Gratuity is a lump-sum amount paid to an employee, on the basis of the duration of his employment, on termination of service due to retirement, resignation, death etc. It is exempt from tax, either fully or partly, depending on the type of employee receiving it. Gratuity received while still in service is not exempt; it is taxable as salary. 1.4.2.1 Gratuity to Government Employees [A] Any death-cum-retirement gratuity received under - 17  (a) the Revised Pension Rules of the Central Government, (b) the Central Civil Services (Pension) Rules, 1972, (c) any similar scheme applicable to - (1) the members of civil services of the Union, (2) holders of defense or civil posts under the Union, (3) the members of the All- India Services, (4) the members of the civil services of a State, (5) holders of civil posts under a State, (6) the employees of a Local Authority; and [B] Any retirement gratuity under the Pension Code or Regulations applicable to the members of the defense services, is wholly exempt from tax. In short, the gratuity received by any employee of the Central/State Government(s), Union, Local Authority, or the defense services is entirely exempt from tax. 1.4.2.2 Gratuity Under Payment of Gratuity Act, 1972 (1) A person working in any factory, mine, oil field, plantation, port, railways, and a shop or establishment (employing 10 or more persons) is covered under the Payment of Gratuity Act 1972. (2) Any gratuity received by such person is exempt from tax, to the extent of the least of the following amounts- (a) Gratuity actually received; (b) 20,00,000, being the notified limit (as amended vide Notification dt. 29-03- 2019); 15 days (c) Salary last drawn x 26 days x No. of completed years (3) It should be noted that - a. basically, gratuity is equal to 15 days' salary (based on salary last drawn), for every completed year of service (part of year exceeding 6 months is treated as one year), 18  b. in case of a seasonal establishment, 7 days' salary is taken instead of 15 days; c. 26 days refer to the working days per month; d. "salary" includes Basic + Dearness Allowance, but excludes bonus, commission, other allowances, overtime etc. Illustration 3: Mr. Jaydeep, covered under the Payment of Gratuity Act, 1972 retired on 30-8-2022. At the time of retirement. he was getting basic salary of 10,000 p.m. and Dearness Allowance @ 10% of the basic salary. He had joined the company on 1-4-2004. He was paid gratuity of 1,25,000. Compute the amount of gratuity taxable for the assessment year 2023-24. Solution: 1. Salary last drawn: Basic + D. A. last drawn = 10,000 + 1,000= 11,000 p.m. 2. Period of Service: 17 years & 5 months, rounded off to17 years. 3. 15 days' salary: 17 years x 11,000 x 15 ÷ 26= 1,07,885 4. Gratuity Exempt: Least of (a) 15 days' salary = 1,07,885 (b) 20,00,000 (c) Actually Received = 1,25,000 5. Gratuity Taxable: Received Less Exempt = 1,25,000 - 1,07,885= 17,115 1.4.2.3 Gratuity to any other Employee (1) Any other gratuity received- 1. by an employee on (a) retirement or (b) his becoming incapacitated (handicapped) before his retirement or (c) termination of his employment, including by resignation; or 2. by his widow, children or dependent, on his death, 3. to the extent of the least of the following amounts is exempt from tax- (a) gratuity actually received during previous year. 19  (b) sum notified by the Government ( 20,00,000 as notified vide NN 16/2019 dt. 8-3-2019); (c) half months’ salary for each completed year of service, on the basis of the average salary for the 10 months immediately preceding the month of retirement. (2) If an employee receives gratuities from more than one employer, in the same previous year, the total exemption cannot exceed the limit notified by the Government (i.e., 20,00,000). (3) Similarly, the notified ceiling applies to any gratuity received and exempted in any earlier previous years by the employee. Any such gratuity exempted earlier shall be reduced from the c amount of 20,00,000, and only the balance amount can be claimed, subsequently. (4) "Salary", for this clause, includes basic salary, dearness allowance (to the extent eligible retirement benefits) and commission at fixed percentage on turnover achieved by employee. (5) "Completed years of service" means only completed years; part of year, even if more the months is to be ignored and not rounded off. (6) Note that while the gratuity under this clause is calculated on the basis of the average salary last 10 months, gratuity under Payment of Gratuity Act, 1972 is calculated on the basis of salary drawn. Illustration 4: Mr. Suhas, Working in JK Ltd. where total employees were 5, retired on 31-1-2023 after 20 years and 11 months of service. During the preceding ten months, he was drawing a basic salary of ₹ 2.500 p.m., Dearness Allowance of ₹ 1,000 pm (50% eligible for retirement benefit) and Conveyance Allowance turnover achieved by him. He was paid Gratuity of ₹ 38,000. Earlier, he had received ₹ 5,000 as gratuity from his previous employer Oxford Ltd, in respect of which he had claimed full exemption Compute the taxable amount of gratuity. Solution: 1. Mr. Suhas is neither a government employee, nor a person covered under the Payment of Gratuity Act as JK Ltd employs less than 10 persons. 2. Therefore, gratuity exempt u/s 10/10) (iii), is the least of the following amounts– 20  (a) actual amount received ₹ 38.000 (b) notified amount ₹20.00.000 - ₹5,000 claimed earlier = ₹ 19,95,000, (c) 1/2 months' salary for each completed year of service on the basis of the average salary for the past 10 months, i.e., 1/2 x 3,500 x 20 = 35,000; [Notes: (a) ‘Salary’ includes eligible DA (50% of 1,000), commission at fixed percentage on his turnover but excludes Conveyance Allowance (b) Total Salary for 10 months Basic 2,500 x 10 =25,000 + D.A.500 x 10 = 5,000 + Commission 5,000 = 35,000, average salary = 3,500 p.m. (c) Completed years of service are 20 years; part or fraction of year is to be ignored and so 11 months are not to be rounded e so a year] Thus, the exempt amount of gratuity is 35,000 being the least amount. 3. The taxable amount of gratuity is 38,000 - 35,000 = 3,000. 1.4.3 COMMUTATION OF PENSION [S.10(10A)] Pension is the monthly payment by the ex-employer to a retired employee which is taxed as "salary" An employee may opt to get a one-time lump-sum payment in lieu of such monthly payments. This is known as commutation of pension, which is exempt fully or partly depending on the category of the employee, as explained below. 1.4.3.1 Government Employees A payment in commutation of pension is fully exempt, if received under- (1) the Civil Pensions (Commutation) Rules of the Central Government, (2) a similar scheme applicable to members of civil services of the Union, holders of defense or civil posts under the Union, (3) members of All India Services, defense services, State civil services. (4) holders of civil posts under a State, (5) employees of a Local Authority or statutory corporation 1.4.3.2 Other Employees Any payment in commutation of pension received under any scheme of any other employer (the commuted value being determined having regard to the age, and health 21 of the recipient, the rate of interest and official table of mortality) is exempt to the extent, it does not exceed - (a) where the employee receives any gratuity, the commuted value of 1/3 of the pension which he is normally entitled to receive (i.e., 100 ÷ % of Pension Commuted x Amount Commuted ÷ 3). (b) in any other case, the commuted value of 1/2 of such pension; (i.e., 100÷% of Pension Commuted x Amount of Commuted Pension +2). The above discussion is summed up in the following exhibit. Illustration 5: Mr. A retires from X Limited on June 30, 2022. He had joined the company on 4-1- 1990. He gets pension of 2,000 p.m. up to 30th November 2022. On 1st December, 2022, he requests for commutation of 50% of his pension. His request is accepted and he receives 75,000. Compute his gross taxable salary if he has received 50,000 as Gratuity, which is fully exempt from tax. Solution: INCOME UNDER “SALARIES": Uncommuted Pension [(2,000 x 5) + (1,000 x 4)] 14,000 Commuted Pension Received 75,000 Less: Exempt u/s 10 (10A) 50% commuted value = 75,000 100% commuted value = 75,000 x 2 = 1,50,000 1/3 of 1,50,000 (full commuted value) exempt 50,000 25,000 Gross Taxable Salary 39,000 Illustration 6: Compute the taxable income of A if no gratuity is received by him, in the above case. Solution: INCOME UNDER “SALARIES": Uncommuted Pension [(2,000 x 5) + (1,000 x 4)] 14,000 Commuted Pension Received 75,000 Less: Exempt u/s 10(10A) 22 50% commuted value = 75,000 100% commuted value = 1,50,000 1/2 full commuted value exempt 75,000 NIL Gross Taxable Salary 14,000 1.4.3.3 Commuted Pension from L.I.C. Pension Fund Commuted pension received from the pension fund set up by the Life Insurance Corporation of India u's 10(23AAB) by a member of such Fund is fully exempt u/s 10(10A) (iii). 1.4.4 ENCASHMENT OF LEAVE SALARY [S. 10(10AA)] Leave encashment means cash received by an employee against leave earned but not taken and accumulated. Leave encashment while in service is taxable. Leave encashment on leaving a job (by retirement, superannuation, resignation etc.) is exempt as explained below. 1.4.4.1 Government Employees Any payment received by an employee of the Central Government or a State Government as the encashment of the earned leave to his credit at the time of his retirement, is wholly exempt from tax. 1.4.4.2 Other Employees In the case of non-Government employees, leave salary is exempt to the extent of the least of the following amounts - (a) encashment of the earned leave, not exceeding 30 days per each completed year of service with the employer from whose services he is retiring, standing to the credit of the employee at the time of retirement; (b) 10 months' average salary, on the basis of the salary drawn for the 10 months immediately preceding the date of retirement; (c) the amount notified by the Government ( 3,00,000 at present); (d) the amount actually received. Where leave encashment is received by an employee from two or more employers in the same year, the exemption cannot exceed the notified limit of 3,00,000. Similarly, the notified limit of 3,00,000 applies to all such amounts 23 received by an employee, including amounts received and exempted in any earlier year(s). Any such amount exempted earlier will be reduced from the limit of 3,00,000 at the time of any subsequent claim. "Salary" for this clause, includes Basic Salary, Dearness Allowance (eligible for retirement benefits) and Commission at fixed percentage on turnover achieved by the employee. "Average salary" under this clause is to be calculated on the basis of the salary of 10 months preceding the date of retirement; (note that in case of gratuity exempt under s. 10(10)(iii), it is to be calculated on the basis of the salary of 10 months preceding the month of retirement). The above discussion is summed up in the following exhibit. Illustration 7: Mr. Madhav received leave salary from X Ltd. calculated @ 10,000 for every month of leave to his credit on his retirement on 31-3-2023. Compute taxable amount of leave salary on the basis of the following information: 1. Period of Service: 15 years and 6 months. 2. Earned leave entitlement :2 months per year 3. Earned leave taken while in service: 3 months 4. Average salary for 10 months ending 31-3-2023: 10,000 p.m. Solution: The leave salary exempt u/s 10(10AA) is the least of the following amounts: a. Encashment of leave @ 30 days per completed year = RS 10,000 ×12 months [note 1] =Rs.1,20,000 b. 10 months average salary =10,000 ×10=1,00,000 c. Maximum notified exempt amount =Rs.3,00,000 d. Amount actually received [note 2] =Rs.2,80,000 Thus, the amount of leave salary exempt is the least amount of RS 1,00,000 and the amount taxable received Rs.2,80,000 exempt Rs. 1,00,000 = Rs.1,80,000 Note 1: a. completed years of service: 15 years (ignore part of year or months) 24 b. leave eligible u/s 10(10AA) @30 days (1 month) per year: 1 month ×15 years = 15 months (ignore the actual entitlement of 2 months per year) c. leave availed earlier:3 months. d. leave balance eligible u/s (10AA): 15 months -3 months =12 months (ignore the actual leave balance) Note 2: a. Total leave entitlement 2months ×151/2 years =31months b. Actual leave valance on date of retirement =31months -3 months=28months c. Leave salary received =28 months × Rs.10,000 =2,80,000 1.4.5 RETRENCHMENT COMPENSATLON [S.10(10B)] (1) Conditions: the exemption is in respect of 1. Any compensation received by a workman under the industrial disputes Act 1947 or under any other act rules orders or notification there under Standing orders award contract of service etc. 2. At the time of- (a) his retrenchment (dismissal from job) or (b) the closing down of the undertaking in which he is employed or (c) the transfer of the services of the workman due to change in the Management or ownership of the undertaking if his service is Interrupted due to such transfer or his new service conditions are less Favorable or the new employer is not liable to pay retrenchment Compensation in respect of the earlier period of service 3. Limited up to the amount (a) calculated u/s 25F(b) the industrial disputes act or (b) notified by the central government whichever is less 4. Except that no limit is applicable in respect of any compensation received under a scheme approved by the central government. (2) Amount of exemption: the amount is the least of the following 25  (A) amount calculated at 15 days average pay for every completed year of continuous service or any part thereof in excess of six months month for this purpose should be taken as 26 days (B) Rs. 5,00,000 (C) retrenchment compensation actually received The above limits will not apply in cases where the compensation is paid under any scheme approved by the central government. Notes: (1) Meaning of average pay: average pay will be the average wages for the following period preceding retrenchment (i) for three complete Calendar months in the case of a monthly paid workman (ii) for four Complete weeks in the case of a weekly paid workman and (iii) twelve full working days in the case of a daily paid workman. (2) Meaning of wages: wages mean all remuneration capable of being expressed in terms of money which would be payable to a workman and will include all allowances (including dearness allowance) value of amenities provided by employer and value of any travel concession however bonus employers contribution benefit scheme and gratuity will be excluded. Illustration 8: Mr. Omkar was retrenched on 1-7-2022 and on that date the workman had put in a service of 30 years 5 months the working was paid a retrenchment compensation of Rs. 2,60,000. The monthly wages received by Mr. Omkar during the month April 2022, May 2022 and June 2022 were Rs.12,000, Rs.13,000 and Rs.14,000 respectively calculate the amount exempt u/s 10 (10b) Solution: Exemption is the least of: (a) Retrenchment compensation actually received =Rs. 2,60,000 (b) Maximum exemption admissible Rs.5,00,000 (c) Amount calculated at 15 days average wages per year for 30 years’ service: 13,000 ×15/26 ×30 = Rs. 2,25,000 26 Exemption u/s 10 (10b) (least of a, b, and c) i.e., Rs.2,25,000 1.4.6 RETIREENT COMPENSATLON TO EMPLOYEES [S.10(10C)] (1) Any amount received or receivable (i.e., in instalment) as compensation (2) By an employee of- (a) a public sector company. (b) any other company (c) an authority established under a central state or provincial act (d) a local authority (e) a cooperative society (f) a statutory or recognized university (g) a notified institute of management (h) state government (i) the central government (j) a notified institution having importance throughout India or any state (k) an Indian institute of technology (IIT) (3) On his voluntary retirement (4) Under any scheme framed as per the prescribed guidelines (5) Is exempt up to Rs.5 lakhs (6) Provided that (i) no such exemption was allowed to the assessee in any Earlier assessment year and (ii) no relief has been allowed u/s 89 1.4.7 TAX ON PERQUISITES PALD BY EMPLOYER [S.10(10CC)] (1) In the case of an employee being an individual (2) Deriving income by way of non-monetary perquisites [i.e., not being monetary payments as defined u/s 17(2)] (3) The tax on whole or part of such income (4) Actually, paid by his employer at the option of the employer (5) On behalf of such employee 27 (6) Shall be exempt from tax (7) Notwithstanding anything contained in section 200 of the companies act 1956 (which prohibits payment of tax-free salary by a company) Such tax paid cannot be claimed as business expenditure by the employer as provided in s.40(a)(vi) [seen chapter 6]. 1.4.8 PAYMENT FROM STATUTORS/PUBLIC P.F [S.10(11) This exemption is in respect of- (1) Any payment to a member from (2) A provident fund to which the provident funds act 1925 applies (3) Or from any other provident fund set up and notified by the central government (i.e., the public provident fund). Interest accrued during the previous year in the account of an employee maintained by the fund shall not be exempted to the extent it relates to the following amount. case Interest not exempted Where employer is Interest on employee’s contribution (made on or after 1-4- giving contribution 2022) in excess of RS 2,50,000 per year. Where employer is no Interest on employee’s contribution (made on or after 1-4- giving contribution. 2022) in excess of RS 5,00,000 per year’ 1.4.9 PAYMENT FROM RECOGNISED P.F. [S.10(12)] This exemption pertains to- (1) the accumulated balance due and becoming payable (2) to any employer participating in a recognized provident fund. (3) to the extent provided in rule 8 of part A of the 4th schedule to the act. Interest accrued during the previous year in the account of an employee maintained by the fund shall not be exempted to the extent it relates to the following amount. 28  case Interest not exempted Where employer is Interest on employee’s contribution (made on or after 1-4- giving contribution 2022) in excess of RS 2,50,000 per year. Where employer is no Interest on employee’s contribution (made on or after 1-4- giving contribution. 2022) in excess of RS 5,00,000 per year’ 1.4.10 PAYMENT FROM NPS [S.10 (10A & 12B)] As per section 80CCD any payment from national pension system trust to an an assessee (employee or not) on account of closure or his opting out of the pension scheme is chargeable tax. Any payment from national pension system trust to an assessee on account of closure or his opting out of the pension scheme referred to in section 80CCD to the extent it does not exceed 60% of the total amount payable to him at the time of closure or his opting out of the scheme shall be exempt from tax vide s.10 (12A). however, the whole amount received by the nominee on death of the assessee shall by exempt from tax. Further any payment from the national pension system trust to an employee under the pension sachem referred to in section 80CCD on partial withdrawal made from his account in accordance with the terms and condition specified under the pension fund regulatory in development authority act,2013 (23 of 2013) and the regulation made there under to the extent it does not exceed 25% of the amount of contribution made by him shall be exempt. 1.4.11 PAYMENT FROM SUPERANNUATLON FUND [S.10(13)] This exemption is in respect of- (1) any payment made from an approved superannuation fund. (2) on the death of the beneficiary, or (3) to an employee in lieu of or in commutation of an annuity- (a) on his retirement at or after certain age or (b) on his becoming incapacitated prior to such retirement or (4) by way of refund of contribution on the death of a beneficiary. 29 (5) or refund of contributions to an employee on leaving the Service otherwise than on retirement incapacitation etc. so far as the Payment relates to the contribution made by him before 1-4-1962 And any interest thereon. 1.4.12 HOUSE RENT ALLOWANCE [S.10(13A)] The exemption is in respect of (a) any special allowance granted to an employee by his employer to specifically meet expenditure actually incurred on the payment of rent for residential accommodation occupied by him. (b) to such extent as may be prescribed having regard to the area or the place and such other considerations. (c) provided that no exemption is available if – (1) such accommodation occupied by the assessee is owned by him or (2) the assessee has not actually incurred any expenditure on payment of rent in respect of such by him. In case the individual’s HRA has not been mentioned and yet you are eligible then the person needs to calculate HRA using the formula under section 10 mentioned in Form 16. For instance, if your LTA is Rs. 50,000 and therefore the HRA that computes to Rs.1 lakh then the Allowances that would be exempted under the section of the Income Tax Act would be Rs 1.5 lakhs. The least of the mentioned below should be ideally claims as the House rent allowance:  50% / 40% (metro / non-metro) of basic salary  Rent paid minus 10% of salary.  Actual HRA received 1.4.13 SPECIAL ALLOWANCE FOR EXPENSES [S.10(14)] 1.4.13.1 Allowance exempt to the extent spent The exemption u/s 10(14) (i) is in respect of- (1) any prescribed special allowance or benefit (2) not being in the nature of a perquisite under section 17(2) 30 (3) specifically granted to meet expenses wholly necessarily and exclusively incurred in the performance of the duties of an office or employment of profit (4) to the extent actually spent Examples of such allowances (under rule 2BB) exempt to the extent actually spent are travelling /transfer allowance conveyance allowance outstation daily allowance actually utilized on tour transfer etc. helper allowance to meet actual expenses on helpers in office allowance for research studies professional development etc. uniform allowance used for purchase or maintenance of uniform for wear at office. 1.4.13.2 Allowance exempt to the extent prescribed The exemption u/s 10(14) (ii) us in respect of- (1) a prescribed allowance granted either to meet the assessee personal expenses at his place of work or residence or to compensate him for the increased cost living other than any allowance granted to remunerate or compensate the assesseefor performing duties of a special nature relating to his office or employment (2) to the extent prescribed [examples of such allowances (under rule 2BB) exempt to the extent prescribed (a) children education allowance @RS 100 p.m. child for up to two children (b) children hostel expenses allowance @ RS 300 p.m. per child for two children (c) transport allowance for travelling between home and office in case of a blind or deaf or dumb or handicapped RS 3,200 p.m.] 1.5. WHAT IS DEDUCTED FROM SALARY? The following two deduction from gross salary are allowed vide section 16: (1) entertainment allowance and (2) professional tax no other deductions expenses on purchasing books etc. are allowed. 1.5.1 STANDARD DEDUCTLON [S.16 (ia)] A standard deduction of RS 50,000 or the amount of salary whichever is lower is allowed to an employee. 31 1.5.2 ENTERTAINMENT ALLOWANCE [S.16(ii)] (1) only to govt. employee: entertainment allowance is initially included in gross taxable salary thereafter section 16(ii) allows a deduction from salaries only to government employees to the least of the following: (a) 1/5th of basic salary (b) RS 5000 (c) amount of entertainment allowance actually received (2) non-govt. employee: a non-government employee is not entitled to any deduction for entrainment allowance. (3) irrespective of actual expenses: the deduction is allowed for the entertainment allowance as such irrespective of the actual amount spent on entertainment by the employee. Illustration 9: X a government employee receives RS 50,000 as salary and RS 12,000 as entertainment allowance. His actual expenditure on entertainment is only RS 3000 compute the taxability of the entertainment allowance. Solution: The deduction of entertainment allowance u/s 16 (ii) does not depend upon the amount of actual expenditure. Mr. A. being a government employee can deduct the least of the following amounts: (A) 20% of salary i.e.,20% of 50,000 =Rs. 10,000 (B) Rs.5000 (C) Entertainment allowance i.e., Rs. 12000 The deduction will be Rs. 5000. 1.5.3 PROFESSIONAL TAX [S.16(iii)] Section 16(iii) allows a deduction from salaries of the amount of a tax on employment (i.e., professional tax) levied by or under any law by the state government under article 276 of the constitution. 32 Deductions and Exemptions Allowed under the Old and New /Alternate tax regime Particulars Old Tax Regime New Tax Regime (until 31st March 2023) Standard deductions (50000) Yes No Rebate u/s 87A 12500/- 12500/- Leave Travel Allowance Yes No HRA Yes No Other allowances Yes No Entertainment Allowance and Professional Tax Yes No Interest on Home Loan u/s 24b Yes No Deductions u/s 80 C EPF,ELSS,PPF,FD, Yes No tuition fee etc. Employees own Contribution to NPS Yes No Employers contribution to NPS Yes Yes Medical Insurance 80D Yes No Disabled Individual 80 U Yes No Interest on education loan 80 E Yes No Interest on Electric Vehicle loan 80 EEB Yes No Donation on political party/ trust 80G Yes No Saving Bank interest u/s 80TTA and 80 TTB Yes No Other Chapter VI-A deductions Yes No Perquisites for official purpose Yes Yes Source: https://cleartax.in/s/old-tax-regime-vs-new-tax-regime 1.7 ILLUSTRATION Illustration 10: Mr. Kamlesh who is currently employed with Wax Ltd. furnishes you with the following information. The details of monthly salary for the year ended 31-3-2023 are as under: Basic Salary per month = Rs.5000 33 Dearness Allowance per month From 1-4-2022 to 31-12-2022 = 25% of basic From 1-1-2023 to 31-3-2023 =32% of basic Professional Tax Deducted per month Rs.120 Taxable conveyance allowance Rs.3500 Bonus @ 20% on Basic plus Dearness Allowance. Mediclaim Premium paid by employer on behalf of Mr. C Rs. 2800 Compute his taxable salary for the assessment year 2023-24. (Old Tax Regime and New/ Alternate Tax Regime) Solution: PREVIOUS YEAR: 2022-23 ASSESSMENT YEAR: 2023-24 Particulars Old/Regular New/ Tax Regime Alternate Rs. Tax Regime 1. SALARY & ALLOWANCES Basic 5,000 x 12 60,000 D.A. (up to December) 25% of (5,000 x 9) 11,250 DA. (Jan.-March) 32% of (5.000 x 3) 4,800 Conveyance allowance 3,500 Bonus [20% of (60,000+ 16,050)] 15,210 94760 2. GROSS TAXABLE SALARY 94,760 3. Less: DEDUCTION UNDER S. 16 Standard Deduction 50,000 Professional Tax (120 x 12) 1,440 51,440 - 4. NET TAXABLE SALARY (2-3) 43,320 94760 Notes: Medi-claim premium paid by the company is an exempt perquisite. 34 Illustration 11: Mr. Vatsal, an employee of Reliance Ltd., covered by the Payment of Gratuity Act, 1972, retires on 31st January 2023, after 35 years and 7 months service. At the time of retirement employer paid him gratuity of 65,000 and he received 50,000 being the accumulated balance of Statutory Provident Fund. The due date of salary and allowances etc. was 1st day of the next month his and were paid on due date. He was entitled to monthly pension of 400 with effect from 1st day of February, 2023, which becomes due on the last day of the month. Professional Tax is 800. Compute the taxable income of Mr. Dharmesh for the Assessment Year 2023-24 (Old Tax Regime and New/ Alternate Tax Regime) on the basis of the following further information: (1) Basic Salary = 2,500 p.m. (2) House Rent Allowance 400 p.m. Taxable value is 50% of the amount received. (3) Project Allowance paid during the year Rs.12,000 (4) Bonus paid during the year 3,600. (5) In retirement, on encashment of earned leave at his credit of 15 months he received 37,500. Solution: PREVIOUS YEAR: 2022-23 ASSESSMENT YEAR: 2023-24 Particulars Regular/ New/ Old Tax Alternate Regime Tax Rs. Regime 1. SALARY & ALLOWANCES 1. Salary (2,500 x 11) 27500 27500 2. House rent allowances taxable value (200 x 11) 2200 2200 3. Project allowance 12000 12000 4. Bonus 3600 3600 5. Leave encashment (Note) 12500 12500 6. Gratuity (Note) 13077 13077 7. Pension (400 x 2) 800 800 2. GROSS SALARY 71,677 71,677 35 3. LESS: DEDUCTION U/S 16 Standard Deduction 50,000 Professional Tax 800 50,800 - 4.NET TAXABLE SALARY (2-3) 20,877 71,677 Notes: (1) Gratuity: An employee covered under Payment of Gratuity Act, 1972 is entitled to exemption us 10(10) to the extent of the least of the following amounts: a. 15 days salary (i.e., 15/26 working days x salary p.m.) based on the salary last drawn for every completed year of service or part thereof in excess of six months i.e., 2,500 x (15/26) x 36 = Rs. 51,923: b. 20,00,000 c. gratuity actually received, i.e., 65,000. Thus, the exemption in this case is 51,923. Taxable Amount: 65,000-51,923 13,077. (2) Leave Encashment: The least of following is exempt u/s 10(10AA): (a) Encashment @ 30 days p.a. (i.e., 35 months x 2,500 = 87,500) (b) 10 x Average Salary (i.e., 10 x 2,500 = 25,000) (c) Actually received (i.e., 37,500) (d) 3,00,000. So, exempt amount is Rs.25,000. Taxable Amount is 37,500-25,000 =12,500. (3) Due Basis: Salary of Mar. 2021 is taxable on due basis on 1-4-2021 i.e., in previous year 2022-23. Apr. 2022 to Dec. 2022 salaries will also be taxed in the same previous year. Hence total salaries taxable will be for 11 months. Pension being due on last day of the month is for two months. Illustration 12: Mr. Jagdish joined a company XYZ Ltd. on June 1, 2022 and was paid the following emoluments and allowed perquisites as under. Basic pay = Rs. 50,000 per month Dearness Allowance = Rs. 20,000 Per month Bonus = Rs. 1,00,000 per month 36 Perquisites: (1) Furnished accommodation owned by the employer and provided free of cost. Taxable value of this rent-free furnished accommodation was 2,56,000. (2) The company paid medical insurance premium of Mr. X amounting to 15,000. Before joining the company AB Ltd., he was a Central Government employee and retired on May 31, 2022. He was paid the following emoluments and perquisite till May 31, 2022 by the Government. Basic Salary = Rs. 96,000 p.a. Dearness Allowance = Rs. 6000 p.a. Entertainment Allowance since 1963 = Rs. 24,000 p.a. From June 1, 2022 he receives the monthly pension of 3,000 from the Government. He received 30,000 as Leave Salary in respect of earned leave at his credit. He received 1,20,000 as gratuity. Compute the taxable salary of Mr. X for the assessment year 2023-24. (Old Tax Regime and New/ Alternate Tax Regime) Solution: PREVIOUS YEAR: 2022-23 ASSESSMENT YEAR 2023-24 Particulars Regular/ New/Alternate Old Tax Tax Regime Regime Rs. COMPUTATION OF TOTAL INCOME FROM SALARY A. GROSS SALARY (1) From AB Ltd. Basic = 50,000 x 10 = 5,00,000 Dearness Allowance = 20,000 x 10= 2,00,000 17,00,000 17,00,000 Bonus 1,00,000 x 10 = 10,00,000 1700000 Add: Perquisites 2,56,000 2,56,000 Rent free furnished accommodation 256000 19,56,000 19,56,000 (2) From central government 16,000 16,000 Basic (96,000 x 2/12). 1,000 1,000 37  Dearness Allowance (6,000 x 2/12) 4,000 4,000 Entertainment Allowance (24,000 x 2/12) 30,000 30,000 Monthly Pension (3,000 x 10) GROSS TOTAL SALARY b. LESS: DEDUCTION U/S 16 Standard Deduction Entertainment Allowance (Least of following) (1) 1/5 of Basic Salary (16,000+ 1,000) = 3400 (2) Maximum Allowed = 5,000 (3) Actual = 4000 20,07,000 20,07,000 C. NET TAXABLE SALARY (A-B) 50,000 - 3400 - 19,53,600 20,07,000 Working Notes: (1) Leave Salary 10(10AA) & Gratuity 10(10) Exempted fully for Government Employee. (2) Mediclaim Premium Paid by the Employer is not a taxable perquisite. 1.8 CHECK YOUR PROGRESS A) MULTLPLE CHOLCE QUESTIONS 1. M, a chartered accountant is employed with m ltd as an internal auditor and requests the employer to call the remuneration as internal audit fee m shall be chargeable to tax for 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 these 38 2. Mr.A, who is entitled to a salary RS 20,000 p.m. took an advance of RS 50,000 against salary in the month of march 2022 the gross salary of m for assessment year 2022-23 shall be: (a) 2,90,000 (b) 2,40,000 (c) 50,000 (d) None of these 3. Mr.C who is entitled to salary of RS 12000 p.m. took advance salary from his employer for the months of April and May 2022 along with salary or march 2022 on 31-3-2022 the gross salary of m for assessment year 2022-23 shall be (a) RS 1,44,000 (b) RS 1,68,000 (c) RS 24,000 (d) None of these 4. salary of m becomes due on 1st of next month and it is paid on 7th that month. For the assessment year 2022-23 the salary of m shall be taken from (a) April 2020 to March 2022 (b) March 2021 to February 2022 (c) April 2021 to March 2023 (d) None of these 5. A. Ltd. Announced increase in D.A. on 21-3-2021 with retrospective effect from 21-3-2016 and the same were paid on 6-4-2021 the arrears of D.A. shall be taxable in the previous year. (a) 2020-21 (b) 2021-22 (c) In respective previous years to which these relate (d) None of these 6. Uncommuted pension received by a government employee is (a) Exempt (b) Taxable (c) 1/3 is exempt (d) None of these 7. Mr.X claimed the exemption of gratuity in the past to the extent of RS 2,50,000. He was entitled to the gratuity from the present employer amounting to RS 2,00,000 in the previous year 2021-22 m can claim exemption to the maximum extent of (a) RS 2,00,000 (b) Rs. NIL (c) RS 1,00,000 (d) None of these 8. Employee A is neither a government employee nor covered under payment of gratuity act 1972 he has completed 16 years and 8 months of service the number of completed years considered for gratuity exemption shall be (a) 17 years (b) 16 years 39  (c) 16 years and 8 months (d) None of these 9. Compensation received on voluntary retirement is exempt under sec 10(10c) to the maximum extent of (a) RS 2,40,000 (b) RS 3,00,000 (c) RS 5,00,000 (d) None of these 10. Mr. S is entitled to children education allowance @ RS 80 p.m. child for 3 children amounting RS 240 p.m. It will be exempt to the extent of (a) Rs. 200 P.M. (B) Rs. 160 P.M. (C) Rs. 240 P.M. (D) None of the above 11. A is entitled to children education allowance @ RS 80 p.m. par child for 3 children amounting RS 240 P.M. it will be exempt to the extent of: (a) Fully exempt (b) Fully taxable (c) Exempt up to certain limits mentioned in sec. 16 (d) First included in full in gross salary and thereafter deduction allowed from gross salary under section 16 12. Pension received by an employee of the central or state government who has been awarded param Vir chakra (a) Is taxable as income from salary (b) Is exempt from tax (c) Is taxed after deducting RS 15000 or 1/3 whichever is lower (d) Is taxable as income from other sources 13. Children Education allowance is (a) Exempt up to the lower of the amount spent or prescribed limit (b) Exempt fully to the extent actually spent (c) Exempt to the extent of lower of allowance received or the lump sum amount received irrespective of actual expenditure (d) Fully taxable 14. Leave travel concession is (a) Exempt up to lower of the amount actually spent or the prescribed limits (b) Exempt full to the extent actually spent 40  (c) Exempt to the extent of lower of allowance received or the lump sum amount prescribed irrespective of actual expenditure. (d) Full taxable 15. Allowances for expenses on travelling on tour or transfer are (a) Exempt up to lower of the amount actually spent or the prescribed limits (b) Exempt full to the extent actually spent (c) Exempt to the extent of lower of allowance received or the lumpsum amount prescribed irrespective of actual expenditure. (d) Full taxable 16. Lumpsum payment from unrecognized provident fund to an employee on his retirement over and above his own contributions (a) Is not taxable (b) Is taxable as income from other sources (c) Is taxable in case of only specified employees (d) Is taxable as profit in lieu of salary 17. compensation for termination of employment (a) Is not taxable (b) Is taxable as capital (c) Is taxable in case of only specified employees (d) Is taxable as profit in lieu of salary 18. Cost of medical treatment in a hospital maintained by the employer provided to an employee (a) Is not taxable (b) Is a perquisite taxable in case of all employees (c) Is a perquisite taxable in case of specified all employees (d) Is taxable as profit in lieu of salary 41 19. Gas, electricity, or water supply provided free of cost (a) Is exempt from tax (b) Is a perquisite taxable in case of all employees (c) Is a perquisite taxable in case of specified all employees (d) Is taxable as profit in lieu of salary 20. Sum paid as employer contribution to a recognized provident fund within the allowed limits (a) Is not taxable (b) Is a perquisite taxable in case of all employees (c) Is a perquisite taxable in case of specified all employees (d) Is taxable as profit in lieu of salary 21. Value of rent-free accommodation provided by the employer (a) Is exempt from tax (b) Is a perquisite taxable in case of all employees (c) Is a perquisite taxable in case of specified all employees (d) Is a perquisite taxable in case of only government employees 22. Salary received by partner from firm (a) Salary (b) Income from other sources (c) Income from business (d) Exempt income 23. Salary received by a member of parliament (a) Salary (b) Income from other sources (c) Income from business (d) Exempt income 24. Payment received by a college lecturer from university for setting question papers (a) Salary (b) Income from other sources (c) Income from business (d) Exempt income 42 B) FILL IN THE BLANKS 1. Salary received by the partner from the firm in which is a partner is taxable under the head …………. 2. Income under the head salary is taxable only if there is a relationship …………… and ……………. Between the payer and the payee 3. Profits in lieu of salary is taxable under the head …………. (salaries /profits from business) 4. Compensation payable to an employee on termination of service is a capital receipt it is …………. (taxable / non-taxable) 5. A Ltd. paid salary of Rs. 2.00,000 to employee M and undertakes to pay the income tax amounting to Rs. 6,120 during the previous year 2021-22 on behalf of M the gross salary of M the gross salary of am shall be ………… 6. Medi-claim insurance premium paid by employer on the behalf of employee is a …………. (tax-free / taxable) perquisite. 7. Amount notified as exempt gratuity for a non-government employee is …………. 8. Employers’ contribution to recognized provident fund during the previous year in excess of ……………. Of basic salary is taxable as salary 9. …………. of commuted pension received (along with gratuity) by a non- government employee is exempt from tax 10. Leave encashment received while in service is ………….(taxable / exempt) 11. M pays a salary of RS 2,50,000 to his employee V and undertakes to pay the income tax amounting to RS 49,980 during the previous year 2021-22 on behalf of V gross salary of V for assessment year 2022-23 is Rs. ………. 12. M was employed on 1-4-2014 in the grade of RS 15,000-400-17000-500-22000 gross salary for assessment year 2022-23 is Rs., …………. 13. M was employed on 1-8-2018 in the grade of Rs. 15000-400-17000-500-22000- and his salary was fixed at Rs. 16200 from the date of joining gross salary for assessment year 2022-23 is Rs. ………. 43 14. M who is entitled to a salary of Rs. 10,000 p.m. paid on last day of the month took an advance of Rs. 20,000 on 1-3-2021 against salary in the month of march 2021 gross salary for assessment year 2022-23 is Rs.…………. 15. M who is entitled to salary Rs. 10,000 p.m. took advance salary from his employer for the month of April and May 2022 along with salary of march 2022 on 31-3-22 gross for assessment year 2022-23 is Rs…………. 16. M is employed with V ltd at a salary of RS 10,000 p.m. as V Ltd was in financial crisis it paid the salary of January 2021 to march 2021 to M only in July 2021 gross salary for assessment year 2022-23 is RS …………. 17. Salary of M is 10,000 p.m. M had taken salary in advance for the months of April 2021 to June 2021 in march 2021 itself gross salary of assessment year 2022-23 is Rs ……………. 18. M who was working with another company joined the present employer w.e.f. 1-5-2021 at a salary of Rs. 10.000 p.m. his salary becomes due on first of next month he was also entitled to a pension of Rs. 4000 p.m. from his former employer gross salary for assessment year 2022-23 Rs. ……………. 19. Mayank is a government employee he Draws a monthly salary of Rs. 5000 and dearness allowance @ RS 300 p.m. he gets RS 500 p.m. as entertainment allowance the amount of deduction towards entertainment allowance is Rs. ………… 20. X a government employee receives Rs. 50,000 as salary and Rs. 12000 as entertainment allowance his actual expenditure on entertainment is only Rs. 3000 the deduction for entertainment allowance is Rs. ………. 21. Shobha is getting a pension of RS 3000 p.m. from a company during the previous year he got three66-fourth of his pension commuted and received RS 2,40,000 assuming that he also received gratuity earlier the exempt amount is Rs. …………. 22. C retires from service on 30-11-2021 he is in receipt of Rs. f Rs. 3000 p.m. as pension up to 31-1-2022 payable on the last day of each month on 1-2-2022 he gets two third of his pension commuted for Rs. 1,20,000 he is an ex-employee of central govt the amount of pension taxable is Rs. …………… 44 23. Mr. X is employed in ABC Ltd and the employer has paid him children education allowance of Rs. 175 p.m. per child for three in this case taxable amount shall be Rs.………. 24. Mr. X is employed in ABC Ltd. And the employer has paid him children education allowance of Rs. 45 p.m. per child for three children.in this case taxable amount shall be Rs. …………. 25. Mr. X is employed in ABC Ltd and is getting children education allowance of Rs. 75 p.m. per child for three children and Mr. X has incurred Rs. 500 p.m. on the of each of the child in this case taxable amount shall be Rs. ………. 1.9 Summary Income from salary includes a variety of components such as Basic pay, dearness allowance; House rent allowance (HRA), special allowances, bonuses, perquisites, pensions, and gratuities. These components compose an individual's taxable earnings. There are several exemptions available to lessen the tax burden on salaried persons. HRA exemptions, which allow a portion of HRA to be tax-free, standard deductions, exemptions for LTA, employer payments to provident funds, and certain gratuity receipts, are among them. The deductions from salaries are undertaken largely to maintain tax compliance and include professional tax, tax deducted at source (TDS), and payments to schemes such as the Employee Provident Fund (EPF) and the National Pension System (NPS). ANSWER TO CHECK YOUR PROGRESS A) MULTIPLW CHIOCE QUESTIONS 1. (A) 5. (B) 9. (C) 13. (C) 17. (D) 21. (B) 2. (B) 6. (B) 10. (B) 14. (B) 18. (A) 22. (C) 3. (B) 7. (A) 11. (D) 15. (B) 19. (C) 23. (B) 4. (B) 8. (B) 12. (B) 16. (D) 20. (A) 24. (B) B) FILL IN THE BLANKS (1) Business income (2) Employer; Employee (3) salaries (4) taxable (5) 2,06,120 (6) tax free 45 (7) 12 % (8) 10,00,000 (9) taxable (10) taxable (11) 2,99,980 (12) 2,10,000 (13) 2,08,000 (14) 1,20,000 (15) 1,40,000 (16) 1,20,000 (17) 90,000 (18) 1,48,000 (19) 5000 (20) 5000 (21) 5000 (22) 1,06,667 (23) 3,900 (24) 540 (25) 900 EXERCISE DESCRIPTIVE QUESTIONS 1. Discuss the basis of charge in respect in respect of income from salaries. 2. Who are the persons liable to be taxed on income salaries? 3. Explain whether following receipts are taxable as income from salaries- (a) Remuneration received by a director from company (b) Remuneration received by a partner from firm (c) Remuneration received by a member of parliament (d) Commission received by an agent from principal (e) Fees received by a lawyer from his clients (f) Bonus received on life insurance police by the insured from the insurance company 4. Explain the following statements- (a) Employer employee relationship is a basic condition for determining basis of charge under the head salary (b) Salary is taxable either on accrued or receipt basis whichever occurs first (c) Salary is taxable at earliest possible time but only once 5. How does the income tax act define the term salary? 6. Briefly enumerate the items covered by the definition of salary under the income tax act. 7. Define perquisites describe the items taxable as perquisite (a) In case of all employees and (b) In case of specified employees 46 8. What do you mean by perquisites? enumerate the persons in whose case the value of a benefit or amenity given free of cost or at a concessional rate is treated as a perquisite give 5 instances of such perquisites taxable in the hands of such specified employees. 9. Enumerate the items which are not treated as perquisites under the act. 10. Enumerate the items which are exempt from tax under section of the income tax act 10. Define perquisites and give a few instances of perquisites taxable and exempt under the income tax act 11. What do you mean by profit in lieu of salary? explain and illustrate. 12. What are the deductions allowed from the income from salary? explain and illustrate 13. Explain entertainment allowance 14. Explain the various deduction u/s 16 of the income tax act 1961 available from income from salary for the current assessment year. SHORT NOTES Write a short note on 1. Salary basis of charge 2. Perquisites 3. Profit in lieu of salary 4. Gratuity exemption 5. Leaver salary exemption 6. Standard deduction Reference for further study: 1) Singhania V. K. (2023), Direct taxes, Taxman Publication 2) Banger M, (2023), Income tax, Aadhya Publication.  47  Unit-2 Income from Business or Profession, Income from House Property, Capital Gains and Income from other sources (Of individuals only) Index : 2.0 Objectives 2.1 Introduction 2.2 Income from House Property 2.2.1 Introduction 2.2.2 Section 115BAC – the new tax regime 2.2.3 House property loss under the new tax regime 2.2.4 Practical Problems and Solutions 2.2.5 Check Your Progress-I 2.3 Income from Business and Profession 2.3.1 Introduction 2.3.2 New tax Regime 2.3.2 Practical Problems and Solutions 2.3.4 Check Your Progress-II 2.4 Capital Gain 2.4.1 Introduction and Concept 2.4.2 Check Your Progress-III 2.5 Income from Other Sources 2.5.1 Introduction and Concept 2.5.2 Check Your Progress-IV 2.6 Summery 2.7 Terms to Remember 2.8 Answers to Check your Progress 2.9 Exercise 2.10 References 48 2.0 Objectives After studying this unit you will be able to; 1. Understand the concept and terminology of Income from House Property, Income from Business or Profession, Capital gains and Income from other sources 2. Explain the sources of incomes for individuals 3. Understand the calculation of taxable income as per new regime and old regime 2.1 Introduction In the intricate web of financial structures and taxation systems, understanding the diverse sources of income is paramount. The Income Tax Act of any country classifies income into several categories, each with its unique set of rules and implications. In India, these classifications encompass Income from House Property, Income from Business and Profession, Capital Gains, and Income from Other