HRA

HRA is given by the employer to the employees to meet his/her rental expenditure.

COMPUTATION OF TAXABLE HRA

ACTUAL AMOUNT OF HRA XXX

RECEIVED

LEAST OF THE FOLLOWING IS

EXEMPTED
1. Actual amount of HRA XXX
received
2. Rent paid – 10% of XXX
salary
3. 50% of salary in case of
Delhi, Mumbai, kolkatta XXX XXX
and Chennai and 40% in
other places

TAXABLE HRA XXX

SALARY = Basic Salary + D.A. (if the terms of employment so provide, i.e. it is
taken into account for retirement benefits or Dearness pay) + Commission based on
fixed % of turnover achieved by the employee and given under terms of
employment.
PROBLEMS ON HRA

1. From the following information compute the exempted amount of HRA of Mr. A

I II III
Salary PM 4500 6000 6000
H R A received PM 525 300 1050
Rent paid PM 300 960 750

2. Find out the amount of the HRA which shall be included in the income under the head
salaries in each of the following cases.

a) Basic pay Rs 7000 PM, DP @ 10% of basic pay, Commission Based on

fixed percentage of turnover Rs 12000 for the whole year. HRA Rs 2000
PM. Actual rent paid by the assessee Rs 1600 PM. House situated at Agra.
b) Basic pay Rs 9000 PM, DA @ 10% of basic pay, HRA Rs1500 PM.
Actual rent paid by the assessee Rs 2100 PM. House situated at mathura.
c) Basic pay Rs 8000 PM, DA @ 10% of Basic pay, HRA Rs 800 PM.
Actual rent paid by the assessee Rs 2000 PM. House situated at Delhi.

3. Mr. X is employed at Mumbai in a limited company at a Salary of Rs 16000

PM. plus D P of Rs 4000 PM and Education Allowance for his 2 children @ Rs
2000 PM. Since he is Deputy Manager in the sales Department, He is also entitled
to 1% commission of the turnover achieved through him which amounted to Rs
20 Lakh during the year. The turnover is evenly spread over throughout the year.
He is also getting HRA of Rs 8000 P.M. The actual rent paid by him is Rs 5000
pm upto 30th September 2019 and thereafter it has been increased to Rs 6000 PM.
Find out the taxable amount of HRA for the assessment year 2020-2021.
LEAVE SALARY OR ENCASHMENT OF LEAVE SALARY

There are different types of leave as per service rules. One type of is earned leave where
employee can convert the leave into cash provided if he has not utilized the leave. Every
employee can surrender the accumulated leave standing to this credit at the time of
retirement or leaving job and can encash. Any amount from this type of surrendering
leave is known as LEAVE SALARY

COMPUTATION OF TAXABLE LEAVE SALARY

RECEIVED DURING THE SERVICE PERIOD OR WHILE IN SERVICE

GOVERNMENT
EMPLOYEES FULLY TAXABLE
( CENTRAL /STATE)

NON- GOVERNMENT EMPLOYEES FULLY TAXABLE

COMPUTATION OF TAXABLE LEAVE SALARY

RECEIVED AT THE TIME OF RETIREMENT

GOVERNMENT
EMPLOYEES NOT TAXABLE
( CENTRAL /STATE) FULLY EXEMPTED UNDER
SECTION 10(10AA)
 FOR NON- GOVERNMENT EMPLOYEES

PARTLY TAXABLE/PARTLY EXEMPTED

COMPUTATION OF TAXABLE LEAVE SALARY

ACTUAL LEAVE SALARY XXX

RECEIVED

LEAST OF THE FOLLOWING IS

EXEMPTED
1. Actual leave salary XXX
received
2. 10 months average salary XXX
3. Absolute limit Rs 300000
4. leave to the credit of
employees X Average XXX
salary XXX

TAXABLE LEAVE SALARY XXX

NOTE:

1. Average Salary for 10 months is calculated from the date of retirement.

2. Average Salary under leave salary means the total of basic salary. DP,
DA( if it enters into retirement benefits), commission( if it based on a fixed %
of turnover achieved by the employee) for 10 months immediately preceding
the date of retirement divided by 10
Total of basic salary for 10 months
DP ) for 10 months
DA( if it enters into retirement benefits)) for 10 months
commission( if it based on a fixed % of turnover achieved by the employee) for
10 months immediately preceding the date of retirement divided by 10

3. LEAVE TO THE CREDIT OF THE EMPLOYEE WILL BE

= LEAVE ENTITLED – LEAVE TAKEN
Leave entitled ( Leave can be taken ) = is 30 days for every completed year of
service or leave granted by the organization which ever is less.

For calculating duration of service in number of years Ignore any fraction of

year.

PROBLEMS ON LEAVE SALARY

1. Mr. X was a manager in a private company. He sought pre mature retirement from
service on 1st November 2019 after completing 25 years of service. His salary for
10 months preceding retirement was Rs 36900. He had seven months leave to his
credit on the basis of 30 days per year which was approved and he was paid Rs
27300 as salary. Compute the amount of encashment exempt from tax for the PY
2019-2020.

2. Mr. Y retired from his services on 31.12.2019 after serving 26 years 8 months in a
private company. At the time of retirement he was entitled to a salary of Rs 15000
per month. DA was Rs 1000 PM. He was also entitled for a commission at fixed
percentage of 2 % on sale achieved by him. On a average he had achieved
monthly sales of Rs 200000. During his service he had availed 14 months of leave
and he received RS 250000 as leave encashment. Compute his taxable leave
salary for the PY 2019-2020

3. Mr. M retired on 16.1.2020 as a sales executive from Music Company Private

Ltd. His salary was Rs 7500 upto June 30, 2019 and it was increased to RS 8000
from July onwards. DA 10% enters into terms. He had a service of 28 years 9
months. As on the date retirement he had 10 months of leave at his credit.
Calculate taxable leave salary for PY 2019-2020

ALLOWANCES:

1. CHILDREN EDUCATION ALLOWANCES; Rs 100 per month per child for a

maximum of 2 children is exempted.
 2. CHILDREN HOSTEL ALLOWANCES: Rs 300 per month per child upto a
maximum of 2 children is exempted.

3. TRANSPORT / TRAVELLING ALLOWANCES: Rs 800 per month is

exempted.

4. TRIBAL AREA ALLOWANCES: Rs 200 per month is exempted.

ENTERTAINMENT ALLOWANCES

1. EA should be taken at gross value while calculating gross salary

 2. Deduction U/S 16(2) is to be given for the exempted amount of EA from gross
salary.

CALCULATION OF EXEMPTION FOR EA

GOVERNMENT EMPLOYEES

LEAST OF THE FOLLOWING IS

EXEMPTED

1. Actual amount of EA received Xxx

2. Maximum limits Rs 5000
3. 20% of Basic Salary Xxx

Note : Salary includes only Basic Salary

CALCULATION OF EXEMPTION FOR EA

NON - GOVERNMENT EMPLOYEES

FULL GROSS AMOUNT IS TAXABLE

GRATUITY
 Gratuity is a retirement benefit. it is paid at the retirement / cessation of employment
based on the service.
For tax treatment the status of the employee is divided into two main categories as
follows;

1. Government Employees
2. Non – Government Employees
a) Employees Covered by payment of Gratuity Act 1972
b) Employees Not Covered by payment of Gratuity Act 1972

CALCULATION OF TAXABLE AMOUNT OF GRATUITY

GOVERNMENT EMPLOYEES

FULLY EXEMPTED

CALCULATION OF TAXABLE AMOUNT OF GRATUITY

NON - GOVERNMENT EMPLOYEES
Employees Covered by payment of Gratuity Act 1972

ACTUAL AMOUNT OF GRATUITY XXX

RECEIVED

LEAST OF THE FOLLOWING IS

EXEMPTED
Xxx
1. Actual amount of gratuity received 350000/1000000
2. LIMIT during whole life Xxx
3. 15/26 x salary last drawn x no of XXX
completed year of service

TAXABLE GRATUITY XXX

NOTE:
1. Salary last drawn means Basic Salary + DA of the month o retirement
( whether included in the retirement benefit or not
2. number of completed year of service can be rounded into one full year only if
it is more than 6 months
 CALCULATION OF TAXABLE AMOUNT OF GRATUITY
NON - GOVERNMENT EMPLOYEES
Employees Not Covered by payment of Gratuity Act 1972

ACTUAL AMOUNT OF GRATUITY XXX

RECEIVED

LEAST OF THE FOLLOWING IS EXEMPTED

1. Actual amount of gratuity received Xxx

2. LIMIT during whole life 1000000
3. ½ x Average salary x no of completed year Xxx
of service XXX

TAXABLE GRATUITY XXX

NOTE 1:

1. AVERAGE SALARY: 10 months average salary preceding the month of

retirement.
Basic Salary for 10 months
+ DA FOR 10 Months ( only if it is included in the terms of employment )
+ Commission ( only if it is given as a % of turnover)

TOTAL SALARY FOR 10 MONTHS

Therefore Average salary = total salary / 10

Note 2: Fraction of a service to be ignored.

PROBLEMS ON GRATUITY

1. Mr. G is employed at a salary of RS 6200 PM. He is also getting DA of Rs 2800

PM. He received Rs 5000 as bonus. On 30.4.2019 he retired from his service. He
has service of 29 years and 5 months. He received Rs 200000 as gratuity under
the payment of gratuity act. Compute his taxable gratuity for the AY 2020-2021.

2. Mr. A retired from X ltd on 18.1.2020. His salary was Rs 2600 per month upto
July 31st and RS 3000 per month from august onwards. DA Rs 1000 per month
 (50% enters into for retirement benefits). His commission based on turnover is
5%. He achieved an average monthly turnover of 15000 per month upto
September 30th and Rs 20000 per month then onwards. He received A gratuity at
the time of retirement of Rs 75000. Computer his taxable gratuity for the AY
2020-2021, if A does not fall under the category covered under gratuity act. He
had 24 years 11 months of service.

3. Mr. A, a marketing manager in Bombay retired from AB Ltd on Dec 10 2019

after 28 years and 8 months of service and receives Rs 290000 as death cum
retirement gratuity. His average basic salary for the preceding 10 months ended
on 30 Nov 2019 was Rs 18200 per month. Besides he has received Rs 1000 per
month as DA 80% of which form part of the salary for the purpose of
computation of retirement benefits and 6% commission on turnover achieved by
him. Total turnover achieved by him for 10 months ended on 30th Nov 2019 is Rs
150000. Assume he is not under payment of gratuity act. Compute the taxable
gratuity.

4. Mr. A who is not covered by the payment of gratuity act 1972 retires on
November 20th 2019 from a private company and received Rs 186000 gratuity
after service of 38 years 10 months. His salary is Rs 8000 PM up to July 31 2019
and Rs 9000 PM from August 1 2019. Besides he gets Rs 500 PM as DA which is
part of retirement benefit benefits and 6% commission on turnover achieved by
him. Total turnover achieved by him during 10 months ending on 31.10.2019 is
Rs 100000. What amount of gratuity will be exempt from tax.

PENSION:
It is periodical payment receive by an employee after his retirement. Pension is the
amount received by an employee after his retirement for the services rendered during the
service period. It is received on a monthly basis.

An employee cannot receive pension while he in service. Any pension received is

taxable as salary.
THERE ARE TWO TYPES OF PENSION
1. COMMUTED PENSION: instead of receiving every month as pension an
assessee can collect a lumpsum pension of future also, to get the lumpsum
amount a portion of the pension has to be foregone every month as future period
pension which is received now.
2. UNCOMMUTED PENSION: the portion of pension received every month.

CVFP : COMMUTED VALUE OF FULL PENSION:

PENSION GOVERNMENT NON-GOVT.

EMPLOYEES EMPLOYEES NON-GOVT.
WITH EMPLOYEES
GRATUITY WITHOUT
GRATUITY

UNCOMMUTED TAXABLE TAXABLE TAXABLE

PENSION

COMMUTED EXEMPT 1/3 OF CVFP 1/2 OF CVFP IS

PENSION IS EXEMPTED EXEMPTED

Total pension commuted entirely

PROVIDENT FUND

Provident fund is a retirement benefit wherein employer and employee contributed

certain percentage of salary to a fund which shall be invested with the provident
authorities or self maintained provident fund investment portfolio and such investment
shall earn interest and shall be credited to provident account of the employee on a regular
basis.
TYPES OF PF

1. Statutory Provident Fund

2. Recognized Provident Fund
3. Un – Recognized provident Fund
4. Public Provident fund.

TYPES OF PF SPF RPF UPF PPF

EMPLOYEES Not Taxable Not Taxable Not Taxable Not Taxable

CONTRIBUTION Qualifies for Qualifies for Does not Qualifies for
deduction deduction U/S Qualifies for deduction U/S 80
U/S 80 C 80 C deduction U/S C
 80 C

EMPLOYERS
CONTRIBUTION NOT upto 12% of NOT NOT
TAXABLE salary = TAXABLE APPLICABLE
FULLY EXEMPT
EXEMPTED balance =
TAXABLE

INTEREST FULLY Upto 9.5% of

EXEMPTED interest = NOT NOT TAXABLE
EXEMPT TAXABLE
Balance =
TAXABLE

WITHDRAWAL NOT More than 5 Refer below NOT TAXABLE

OF LUMPSUM TAXABLE years of
AMOUNT OR service =
LUMPSUM exempt
AMOUNT Less than 5
RECEIVED ON years of
RETIREMENT service = refer
below

a. Employees contribution = Not Taxable

b. Employers contribution = taxable under salary
c. Interest on employees contribution = taxable under other sources
d. Interest on employers contribution = taxable under salary

SALARY =

Basic Salary
+ DA ( only if it is included in the terms of employment )
+ Commision ( only if it is given as a % of turnover)

PERQUISITES
The term perquisites means any benefit attached to an office or position in addition to
salary or wages. Perquisite denotes a personal advantage. It may be in cash or in kind.
 PERQUISITES

TAXABLE PERKS TAX FREE PERKS

TAXABLE FOR TAXABLE

ALL ASSESSEE FOR SPECIFIED
ASSESSEE

MEANING OF SPECIFIED ASSESSEE

1. Employee who is a director of the same company ( or)

2. Employee who is having substantial interest in the company ( or)
3. Income from salaries excluding perquisites and PF but after giving deduction U/S
16 exceeds Rs 50000 per annum.

TAXABLE PERQUIISTES FOR ALL ASSESSEE ( SPECIFIED AND

UNSPECIFIED)

1. RENT FREE ACCOMODATION

2. ACCOMODATION AT NOMINAL RATES
3. OBLIGATION OF EMPLOYEE MET BY EMPLOYER
4. AMOUNT PAID BY EMPLOYER TO EFFECT AN ASSURANCE ON THE
LIFE OF EMPLOYEE
5. FRINGE BENEFITS

1. RENT FREE ACCOMODATION

 Accommodation provided by the employer to the employee.

Accommodation can be

a) UNFURNISHED
b) FURNISHED

A) UNFURNISHED HOUSE – TAXABLE

CITY ACCOMODATION PROVIDED IS

TAKEN ON LEASE
OWNED BY OR RENT PAID BY
EMPLOYER EMPLOYER

With population exceeding ( Actual amount of lease

25 lakhs 15% of salary or rent paid) OR 15% of
salary
Population between 10 to 25 10% of salary ( WITHEVER IS
lacs LOWER)

Any other places 7.5% of salary

SALARY FOR RFA

Basic salary
Bonus
Commission
DA( if enters only)
DP
Fees
Leave encashment only current years
All taxable allowances

A) FURNISHED HOUSE – TAXABLE AMOUNT

Value of RFA ( Unfurnished) XXX
+ 10% of furniture in case of

owned by employer or rent

charges in case of hired by
employer XXX

VALUE OF RFA (Furnished) XXX

2. ACCOMMODATION AT NOMINAL RATES OR CONCESSIONAL

RATES

When employer provides accommodation to employee at a very nominal rates or

concessional rent

Value of RFA Xxx

(- ) Rent paid by employee Xxx
Value of perks Xxx

3. OBILIGATION OF EMPLOYEE MET BY EMPLOYER

Those obligations which actually had to be met by employee but met by employer
will be taxable.
EXAMPLE:
Electricity, water, telephone, bills, gas bills of employee paid by employer
Domestic servant appointed by employee but salary paid by employer.
 PERKS TAXABLE TAXABLE
SPECIFIED ALL ASSESSEE
EMPLOYEE
SERVICES OF SWEEEPER, Appointed by Appointed by
GARDENER, WATCHMAN, employer and employee but salary
DOMESTIC SERVANT ( Actual salary also paid by paid by employer
salary paid by employer – Any employer
amount recovered from employee)

1. GAS, ELECTIC ENERGY OR Connection in the

WATER: Connection in the name of employee,
Manufacturing cost or amount paid by name of employer, bills paid by
employer bills paid by employer
employer

1. SWEEPER, GARDENER, WATCHMAN,

THE VALUE OF PERKS SHALL BE

Salary paid or payable to the servant

Less: Amount recovered from employee
Value of perks

2. GAS ELECTRICITY OR WATER

THE VALUE OF PERKS SHALL BE

Amount paid by employer to the agency providing gas, water etc

Less: Amount recovered from employee
Value of perks

3. EDUCATION FACILITY PROVIDED TO THE CHILDREN OF THE

EMPLOYEE

Educational facilities in a school or college maintained by employer

(Employer’s Institute).

In case school, college etc. is run or maintained by the employer and free
educational facilities are given to the children of employee or any other
 member of his household, the valuation of this perk is to be calculated as
under :

1. Free educational facilities to employee’s own children :

IF the cost of such education or the value of the benefit per child does not exceed Rs
1000 p.m. = exempt

IF the cost of such education or the value of the benefit per child exceed Rs 1000 p.m

Value of perks:
Cost of such education in a similar institution in or near the locality
Less; Amount recovered from the employee

MEDICAL FACILITY

Expense incurred or reimbursed by the employer for the medical treatment of the
employee or his family (spouse and children, dependent - parents, brothers and
sisters) in any of the following hospital is not chargeable to tax in the hands of the
employee:

a)  Hospital maintained by the employer.

b)  Hospital maintained by the Government or Local Authority or any other

hospital approved by Central Government

c)  Hospital approved by the Chief Commissioner having regard to the prescribed

guidelines for treatment of the prescribed diseases.

2) Medical insurance premium paid or reimbursed by the employer is not

chargeable to tax.

3) Any other expenditure incurred or reimbursed by the employer for providing

medical facility in India is not chargeable to tax up to Rs. 15,000 in aggregate per
assessment year.

If the employer provides or reimburses the medical expenses of assessee and

family members then it is perks
 TREATMENT TAKEN IN HOSPITAL

Maintained by Govt. Employer or hospital

approved by CIT NOT TAXABLE

Up to Rs 15000 exempt
balance amount taxable
Any private hospital

TAX FREE PERKS

NOT TAXABLE
Training programme to employee
NOT TAXABLE
Free lunch provided by employer to employee
EXEMPT Rs 50 per meal
Free lunch outside the office
 VALUATION OF MOTOR CAR

1. CAR OWNED OR HIRED BY THE EMPLOYER:

Car is used wholly and exclusively in the performance of his official duties
VALUE OF PERKS = NIL

2. CAR OWNED BY EMPLOYER AND IT IS EXCLUSIVELY FOR THE

PRIVATE OR PERSONAL PURPOSES OF THE EMPLOYEE OR ANY MEMBER
OF HIS HOUSEHOLD:

Actual amount of expenditure incurred on the running and maintainence of motor car
Add: 10% depreciation on the actual cost of the car
Less: Amount charged by the employer

2. CAR OWNED OR HIRED BY EMPLOYER:

Car is used partly in the performance of duties and partly for private or personal purposes
of employee or any member of his household;

a) If the entire expenses of maintainence and running of the motor car are borne by
the employer:

SMALL CAR ( cubic capacity of the engine does Not exceed 1.6 litre Rs 1800 pm
LARGE CAR (cubic capacity of the engine exceed 1.6 litre Rs 2400 pm
If driver is provided ADD 900 P.M.

b) If the expenses of maintenance and running for his personal or private purposes
are borne by the employee

SMALL CAR ( cubic capacity of the engine does Not exceed 1.6 litre Rs 600 pm
LARGE CAR (cubic capacity of the engine exceed 1.6 litre Rs 900 pm
If driver is provided ADD 900 P.M.