CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.

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1. BASIC CONCEPT OF TAX

WHAT IS TAX?
 Tax is NOT “Compulsory Extortion of Money” by the government.
 It is the financial charge (fee) imposed by the Government on income,
commodity or activity.

WHY ARE TAXES LEVIED?

 Taxes constitute the basic source of revenue to the Government which are
utilized for meeting the expenses of Government like defense, provision of
education, health-care, infrastructure facilities like roads, dams etc.

CONSTITUTIONAL PROVISIONS:
India has a three-tier federal structure, comprising the Union Government, the State Governments
and the Local Government.
The power to levy taxes and duties is distributed among the three tiers of Governments, in
accordance with the provisions of the Indian Constitution.
The Constitution of India is the supreme law of India. It consists of a Preamble, 25 parts
containing 448 Articles and 12 Schedules.
Power to levy and collect taxes whether, direct or indirect emerges from the Constitution of India.
In case any tax law, be it an act, rule, notification or order is not in conformity with the
Constitution, it is called ultra vires the Constitution and is illegal and void.
Thus, a study of the basic provisions of the Constitution is essential forunderstanding the genesis
of the various taxes being imposed in India.
The significant provisions of the Constitution relating to taxation are:
1. Article 265: Article 265 of the Constitution of India prohibits arbitrary collection of tax. It
states that “no tax shall be levied or collected exceptby authority of law”. The term
“authority of law” means that tax proposed to be levied must be within the legislative
competence of the Legislature imposing the tax.
2. Article 245: Part XI of the Constitution deals with relationship between the Union and States.
The power for enacting the laws is conferred on the Parliament and on the Legislature of a
State by Article 245 of theConstitution. The said Article provides as under:
 Subject to the provisions of this Constitution, Parliament may makelaws for the whole
or any part of the territory of India, and the legislature of a State may make laws for
the whole or any part of theState.
 No law made by the Parliament shall be deemed to be invalid on theground that it
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would have extra-territorial operation.

3. Article 246: It gives the respective authority to Union and StateGovernments for levying
tax.

IMPORTANT POINTS:
Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., ListI of Seventh
Schedule to Article 246 of the Constitution of India has given the power to Parliament to make
laws on taxes on income other than agricultural income.

Components of income-tax law

 Income-tax Act, 1961 – governs the levy of income-tax in India.
 Income-tax Rules, 1962 – formulated for proper administration of the Act.
 Annual Finance Act – Amendments in the Income-tax Act, 1961 areeffected every year
through the Annual Finance Act.
 Circulars – issued by CBDT to clarify the meaning and scope of certainprovisions of
the Act.
 Notifications – issued to give effect to the provisions of the Act/ make oramend Rules.
 Court decisions – interprets the various provisions of income-tax law.

Income-tax is a TAX levied on the TOTAL INCOME of the PREVIOUS YEAR ofevery PERSON.

1. Person: A person includes an individual, Hindu Undivided Family (HUF),Association of Persons

(AOP), Body of Individuals (BOI), a firm, a company etc.

2. Concept of Previous year (P.Y.) and Assessment Year (A.Y.): Previous year is the financial
year immediately preceding the assessment year i.e., it is the financial year ending on 31st
March, in which the income has accrued/received.
In case of a newly set-up business, the previous year would be the period beginning with the date
of setting up of the business or profession or, as the case may be, the date on which the source of
income newly came into existence, and ending on 31st March.
Assessment year (A.Y.): Assessment year means the period of twelve months commencing on the
1st April every year.

Exceptions to the rule that income is charged to income-tax in the Assessment Year
following the previous year:
The income of an assessee for a previous year is charged to income-tax in theassessment year
following the previous year. However, in the following cases, this rule does not apply and the
income is taxed in the previous year in which itis earned.
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(i) Shipping business of non-resident [Section 172]

(ii) Persons leaving India [Section 174]
(iii) AOP/BOI/Artificial Juridical Person formed for a particular event orpurpose [Section
174A]
(iv) Persons likely to transfer property to avoid tax [Section 175]
(v) Discontinued business [Section 176]

Rate of tax for Undisclosed Sources of Income: The following undisclosed incomes are
chargeable to tax @78% [i.e., 60% plus surcharge @25% plus cess @4%] as specified under section
115BBE:
(i) Cash Credits [Section 68]
(ii) Unexplained Investments [Section 69]
(iii) Unexplained money etc. [Section 69A]
(iv) Amount of investments etc., not fully disclosed in the books of account[Section 69B]
(v) Unexplained expenditure [Section 69C]
(vi) Amount borrowed or repaid on hundi [Section 69D]

3. Total Income: Total income has to be computed as per the provisions contained in the Income-
tax Act, 1961. The following steps has to be followedfor computing the total income of an
assessee:
Step 1 – Determination of residential status
Step 2 – Classification of income under different heads
Step 3 – Computation of income under each head after providing forpermissible deductions/
exemptions
Step 4 – Clubbing of income of spouse, minor child etc.
Step 5 – Set-off or carry forward and set-off of losses
Step 6 – Computation of Gross Total Income
Step 7 – Deductions from Gross Total Income
Step 8 – Computation of Total income

4. Tax liability: Tax has to be computed by applying the rates of tax mentioned in the Annual
Finance Act and the rate specified under the Income- tax Act, 1961, as the case may be.

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APPLICABLE RATE OF TAX – AY 2021-22

 Individuals [except (B) & (C)], HUF, AOP’s & BOI’s & every Artificial Juridical Person:
TOTAL INCOME AMOUNT OF TAX
Up to ` 2,50,000 NIL
On next ` 2,50,001 - 500,000 5%
On next ` 5,00,001 - 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%

 For a Resident individual, being a Sr. Citizen, Age > 60 yrs (but less than 80 years) at any
time during the PY.
TOTAL INCOME AMOUNT OF TAX
Up to ` 3,00,000 NIL
On next ` 300,001 - ` 500,000 5%
On next ` 500,001 - ` 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%

 For a resident individual, being a Very Sr. Citizen, Age 80 yrs at any time during the PY.
TOTAL INCOME AMOUNT OF TAX
Up to ` 5,00,000 NIL
On next ` 500,001 – ` 10,00,000 20%
On the balance amount ` 10,00,001 & above 30%

Above rate is normal rate or slab rate for Individuals/HUFs. It is applicable when
Individuals/HUF has not opted for the provisions of Section 115BAC (Alternate tax regime).
Surcharge rate for Individual / HUF / AOP / BOI / Artificial Juridical Person
S.No. Total Income Surcharge Rate on
Income
Tax related to
Dividend Other
Income & Income
Income
covered u/s
111A &
112A

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1 Total Income (including dividend income & capital gains 10% 10%
chargeable to tax under Section 111A & 112A) exceeds ` 50
Lakhs but not exceeding ` 1 crores
2 Total Income (including dividend income & capital gains 15% 15%
chargeable to tax under Section 111A & 112A) exceeds ` 1
crores but not exceeding ` 2 crores

3 Total Income (including dividend income & capital gains 15% 15%
chargeable to tax under Section 111A & 112A) exceeds ` 2
crores but not covered below
4 Total Income (excluding dividend income & capital gains 15% 25%
chargeable to tax under Section 111A & 112A) exceeds ` 2
crores but not exceeding ` 5 crores
5 Total Income (excluding dividend income & capital gains 15% 37%
chargeable to tax under Section 111A & 112A) exceeds ` 5
crores
In all above cases, Income Tax (including surcharge, if any) shall be further increased by Health and
Education Cess @ 4%.
Rebate of ` 12,500 for resident individuals having total income up to ` 5 lakh [Section 87A]

IN CASE OF OTHER CATEGORY OF PERSONS

OTHERS AMOUNT OF TAX SURCHARGE

FIRM & LLP @30% @ 12% of Tax Payable if TOTAL
INCOME > ` 1 Crore
Local Authority @30% @ 12 % of Tax Payable if TOTAL
INCOME > ` 1 Crore
Co-operative On first Rs.10,000 @10% @ 12 % of Tax Payable if TOTAL
Societies (Not On next Rs.10,000 @20% INCOME > ` 1 Crore
opting for the For the Balance @30%
provisions of
Section 115BAD)
Companies Domestic Co.: @30% @ 7 % of Tax Payable if TOTAL
(Not opting for (If Total Turnover / Gross INCOME > ` 1 Crore
the provisions of receipts during PY 19-20 PY
Section 115BA / 17-18 does not exceeds @ 12 % of Tax Payable if TOTAL
115BAA / ` 400 Crore then Tax rate is INCOME > ` 10 Crore
115BAB) 25%) [AMENDMENT]

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Foreign Co.: @40% @ 2 % of Tax Payable if TOTAL

INCOME > ` 1 Crore if TOTAL

@ 5 % of Tax Payable
INCOME > ` 10 Crore
In all above cases, Income Tax (including surcharge, if any) shall be further increased by
Health and Education Cess @ 4%

ALTERNATIVE TAX REGIME FOR INDIVIDUAL & HUF

NEW SECTION 115BAC INSERTED BY FINANCE ACT 2020
Applicable FROM Assessment Year 2021-22 (EXAM IN YEAR 2021)
A. Option to pay income-tax at concessional tax slab rates: [OPTIONAL SCHEME]
As per Section 115BAC, individuals or HUFs have an option to pay tax in respect of their total income
(other than income chargeable to tax at special rates under “Chapter XII – SETION 111A to SECTION
115BBG” such as section 111A, 112, 112A, 115BB, 115BBE etc.) at the following concessional rates,
subject to certain conditions specified under section 115BAC(2) –

S. NO. Total Income Rate of Tax

1 Upto ` 2,50,000 NIL

2 From ` 2,50,001 to ` 5,00,000 5%

3 From ` 5,00,001 to ` 7,50,000 10%

4 From ` 7,50,001 to ` 10,00,000 15%

5 From ` 10,00,001 to ` 12,50,000 20%

6 From ` 12,50,001 to ` 15,00,000 25%

7 Above ` 15,00,000 30%

B. Conditions to be satisfied for availing concessional rates of tax:

1. Certain deductions/exemptions not allowable: Section 115BAC(2) provides that while
computing total income, the following deductions/exemptions would not be allowed, if an

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individual or HUF opts for concessional rates of taxes under section 115BAC(1):
Section Exemption/Deduction SATC Hint
(related
Chapters)
10(5) Leave Travel Concession Salary

10(13A) House Rent Allowances Salary

10(14) Special Allowances (other than those as may be Salary
prescribed) – few is permitted

10(17) Allowances to MP/MLA IOS

10(32) Exemption in respect of income of minor child Clubbing
included in the income of parent

10AA Deduction to units in SEZ (Tax holiday) SEZ Unit

Deduction against Gross Salary
Section 16(ia) - Statutory Deduction of ` 50,000
16 Salary
Section 16(ii) - Entertainment allowances deduction
Section 16(iii) - Professional Tax deduction
Interest on Housing Loan in respect of one or two self- House
24(b)
occupied properties Property
Depreciation/
32(1)(iia) Additional Depreciation
PGBP
Investment Allowances (Investment in notified Depreciation/
32AD
Backward Area) PGBP
33AB Tea/Rubber/Coffee development Account PGBP

33ABA Site Restoration Fund PGBP

35(1)(ii), Deduction in respect to contribution to
(iia), (iii) Notified/Approved institutes etc for Scientific PGBP
& 35(2AA) Research etc
35AD Capital Expenditure related to Specified Business PGBP
Deduction in respect of expenditure incurred on
35CCC PGBP
notified agriculture project
57(iia) Deduction in respect of Family Pension IOS
Deduction under chapter VI-A except Deduction
80C to
Section 80CCD(2) : Employer’s contribution to NPS under
80U
Section 80JJAA : Employment of New Employee Chapter VI-A
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Section 80LA(1A): Units in IFSC

2. Certain losses not allowed to be set-off:

While computing total income, set-off of any loss -
i carried forward or depreciation from any earlier assessment year, if such loss or depreciation
is attributable to any of the deductions referred to in (1) above; or
ii under the head house property with any other head of income;
would not be allowed.

3. Depreciation or additional depreciation:

Depreciation u/s 32 is to be determined in the prescribed manner. Depreciation in respect of any
block of assets entitled to more than 40%, would be restricted to 40% on the written down value
of such block of assets.
Additional depreciation u/s 32(1)(iia), however, cannot be claimed.
Additional points:
In case of an individual or HUF opting for section 115BAC, total income should be computed without
set-off of any loss brought forward or depreciation from any earlier assessment year, where such
loss or depreciation is attributable to any of the deductions listed in (1) above [Such loss and
depreciation would be deemed to have been already given effect to and no further deduction
for such loss or depreciation shall be allowed for any subsequent year]

Where there is a depreciation allowance in respect of a block of asset from an earlier assessment
year attributable to additional depreciation u/s 32(1)(iia), which has not been given full effect to
prior to A.Y. 2021-22 and which is not allowed to be set-off in the A.Y.2021-22 due to exercise of
option u/s 115BAC from that year, corresponding adjustment shall be made to the WDV of such
block of assets as on 1.4.2020 in the prescribed manner i.e., the WDV as on 1.4.2020 will be
increased by the unabsorbed additional depreciation not allowed to be set-off. .

C. Time limit for exercise of option [Section 115BAC(5)]:

1. In case of an individual or HUF having no income from business or profession: Where such
individual or HUF has no business income, the option has to be exercised along with the return
of income to be furnished under section 139(1) for a previous year relevant to the assessment
year.
[In effect, such individual or HUF can choose whether or not to exercise the option in each
previous year. He may choose to exercise the option in one year and not to exercise the
option in another year.]
2. In case of an individual or HUF having income from business or profession: The option has
to be exercised on or before the due date specified under section 139(1) for furnishing the return
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of income for any previous year relevant to assessment year 2021-22 or any later assessment
year and once such option is exercised, it would apply to subsequent assessment years.

The option can be withdrawn only once where it was exercised by the individual or HUF having
business income for a previous year other than the year in which it was exercised.

Thereafter, the individual or HUF shall never be eligible to exercise option under this section, except
where such individual or HUF ceases to have any business income in which case, option
under (i) above shall be available.

D. Consequences for failure to satisfy conditions mentioned in section 115BAC(2):

1. In case of an individual or HUF having no income from business or profession: On failure

to satisfy the conditions mentioned in point B above in any previous year, the option
exercised would be invalid in respect of the assessment year relevant to that previous year.
Consequently, the other provisions of the Income-tax Act, 1961 would apply as if the option had not
been exercised for the assessment year relevant to that previous year.
2. In case of an individual or HUF having income from business or profession: On failure to
satisfy the conditions mentioned in point B above in any previous year, the option exercised
would be invalid in respect of the assessment year relevant to that previous year and
subsequent assessment years.
Consequently, the other provisions of the Income-tax Act, 1961 would apply to the person as if the
option had not been exercised for the assessment year relevant to that previous year and
subsequent assessment years.

E. AMT liability not attracted:

Individuals or HUFs exercising option u/s 115BAC are not liable to alternate minimum tax
u/s 115JC.

F. Other Points:
a. It may be noted that in case of individuals or HUFs not having income from business or
profession, the total income and tax liability (including provisions relating to AMT, if
applicable under normal provisions) may be computed every year both in accordance with
normal provisions of the Income-tax Act, 1961 and in accordance with the provisions of
section 115BAC, in order to determine which is more beneficial and accordingly decide
whether or not to opt for section 115BAC for that year.

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b. For the purpose of tax deduction at source, the CBDT has clarified that an employee, having
income other than income under the head "Profits and gains of business or profession" and
intending to opt for the concessional rate under section 115BAC, is required to intimate to
the deductor, being his employer, of such intention for each previous year and upon such
intimation, the deductor shall compute his total income, and make TDS thereon in accordance
with the provisions of section 115BAC. If such intimation is not made by the employee, the
employer shall make TDS without considering the provisions of section 115BAC.

It is also clarified that the intimation so made to the deductor shall be only for the purposes of
TDS during the previous year and cannot be modified during that year. However, the intimation
would not amount to exercising option in terms of section 115BAC and the person shall be required
to do so alongwith the return to be furnished under section 139(1) for that previous year.

Thus, option at the time of filing of return of income under section 139(1) could be different
from the intimation made by such employee to the employer for that previous year.

Further, in case of a person who has income under the head "Profit and gains of business or
profession" also, the option for taxation under section 115BAC once exercised for a previous year
at the time of filing of return of income under section 139(1) cannot be changed for
subsequent previous years except in certain circumstances.

Accordingly, a person having income under the head “Profits and gains from business or profession”
also shall also intimate to his employer. However, the intimation to the employer in his case for
subsequent previous years must not deviate from the option under section 115BAC once
exercised in a previous year.

c. Sub-rule 7(iii) to Rule 3 is amended (Perquisite Value – Salaries Head)

Notification No. 38/2020 dated 26.06.2020 [Income Tax (13th Amendment) Rules, 2020]
Exemption provided in respect of free food and non-alcoholic beverage provided by employer
through paid voucher shall not apply to an employee, being an assessee, who has exercised option
under sub-section (5) of section 115BAC.”
d. Rule 2BB is amended (Section 10(14) – Salaries Head)
Notification No. 38/2020 dated 26.06.2020 [Income Tax (13th Amendment) Rules, 2020]
a. An employee, being an assessee, who opts for the provisions of section 115BAC would be
entitled for exemption only in respect of travelling allowance, daily allowance and
conveyance allowance.
b. An employee, being an assessee, who opts for the provisions of section 115BAC would be
entitled for exemption only in respect of transport allowance granted to an employee who

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is blind or deaf and dumb or orthopedically handicapped with disability of the lower
extremities of the body to the extent of ` 3,200 p.m.

Consequential amendments – EFFECTIVE FROM AY 2021-22

Section 115JC (AMT) - Special provisions for payment of tax by certain persons other than a
company

The provisions of this section shall not apply to a person who has exercised the option referred to
in Section 115BAC or Section 115BAD.

[SATC Note – AMT is not applicable to Individual or HUF opting for Section 115BAD]

Section 115JD - Tax credit for Alternate Minimum Tax

The provisions of this section shall not apply to a person who has exercised the option referred to
in Section 115BAC or Section 115BAD.

AMENDMENT
If the total turnover of gross receipt of the 25% OF TOTAL INCOME
company in PY.2019-20 < 400 CRORE
In any other case 30% OF TOTAL INCOME

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MULTIPLE CHOICE QUESTIONS

1. Finance Bill becomes the Finance Act when it is passed by:
(A) the Lok Sabha
(B) both the Lok Sabha and Rajya Sabha
(C) both the Houses of Parliament and given the assent of the President
(D) both the Houses of Parliament and given the assent of the Prime Minister/Finance Minister

2. If total income of Mr. X, Resident, age 50 years, is Rs.3,50,000, his tax liability including cess shall
be……..
(A) Nil

(B) Rs.2,575

(C) Rs.5,150

(D) Rs.8,300

3. A new business was set up on 15.10.2021 and it commenced its business from 12.2021. The first
previous year in this case shall be:
(A) 15.10.2021 to 33.2022
(B) 12.2021 to 33.2022
(C) 2021-22
(D) 2022-23

4. A person leaves INDIA permanently on 15.12021. The assessment year for income earned till
15.12021 in this case shall be:
(A) 2020-21
(B) 2021-22
(C) 2022-23
(D) None of the above

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5. The maximum amount on which income-tax is not chargeable in case of H.U.F. for assessment
year 202- 23 is:
(A) Rs.2,00,000
(B) Rs.2,50,000
(C) Rs.2,00,000
(D) Rs.3,00,000

6. The maximum amount on which income-tax is not chargeable for the assessment year 2022-23
in case of a man/women who is of the age of 60 years or above but who is not resident of INDIA
and has not exercised the option to be taxed u/s 115BAC is:
(A) Rs.2,00,000
(B) Rs.3,00,000
(C) Rs.2,50,000
(D) Rs.2,40,000

7. The total income of the assessee has been computed as Rs.4,83,495. For rounding off the total
income will be taken as:
(A) Rs.4,83,500
(B) Rs.4,83,490
(C) Rs.4,83,495
(D) None of the above

8. Mrs. R, a resident of INDIA, is 56 years old. Her total income for the assessment year 2022-23 is
Rs.11,20,000. Her tax liability, if she does not exercise option u/s 115BAC, shall be:
(A) Rs.1,51,840
(B) Rs.1,67,440
(C) Rs.1,54,440
(D) Rs.1,64,840

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9. Mrs. A, a resident of INDIA, is 61 years old. Her total income for the assessment year 2022-23 is
Rs.4,50,000. Her tax liability, if she does not exercise option u/s 115BAC, shall be:
(A) Rs.10,400
(B) Rs.5,200
(C) Nil
(D) Rs.7,800

10. The total income of the assessee shall be rounded off in the multiples of:
(A) 1000
(B) 100
(C) 10
(D) Not rounded off at all.

11. Any receipt in the nature of windfall gains is known as casual income
(A) True
(B) False

12. 2018 - Dec [43] Surcharge on the amount of tax is to be levied at specified percentage when an
individual is having income exceeding specified limits:
(a) @7% having income exceeding 1 crore and @ 12% if the income exceeds ≤ 10 crores
(b) @ 2% having income exceeding 1 crore and @ 12% it the income exceeds 10 crores
(c) @15% having income exceeding 1 crore but upto 2 crore and @ 10% if the income exceeds 50
lakh but does not exceed = 1 crore
(d) None of the above.

13. 2018 - Dec [51] An employee director of a company was paid 5 lakh as a lump sum
consideration for resigning from the directorship by XYZ Ltd. The amount so paid shall be
treated in the accounts of the company as
(a) Deferred Revenue expenses
(b) Revenue expenses
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(c) Capital expenses

(d) Gift to employee director

14. 2018 - Dec [54] Total income-tax including cess payable in case of a resident individual aged
58 years, whose computed total income is 3,40,000 for assessment year 2022-23 shall be:
(a) NIL
(b) 2,060
(c) 4,120
(d) 4,635

15. 2018 - Dec [60] Which out of the following criteria determines the Place of Effective
Management (POEM) in order to treat a foreign company as resident in India (resident
company) during the previous year as per guidelines issued by CBDT and the provisions
contained under the Income Tax Act, 1961 …………………….
(a) General Meeting held in India
(b) Research and Development work is done in India
(c) Board Meetings are held in India
(d) None of the above

16. 2019 - Dec [13] A person is deemed to be of Indian origin if he, or either of his parents or any
of his grandparents, was born in ………………
(a) India
(b) India other than J & K
(c) Undivided India
(d) Greater India

17. 2019 - Dec [14] Central Board of Direct Taxes (CBDT) vide Circular No. 8 of 2017 dated 23rd
February, 2017 has clarified that the Place of Effective Management (POEM) provisions shall not
apply to a company having turnover or gross receipts in a financial year of.
(a) 30 crore or less
(b) 10 crore or less
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(c) 50 crore or less

(d) 5 crore or less

ANSWER KEY:
1 C 2 A 3 A 4 B 5 B
6 C 7 A 8 C 9 C 10 C
11 A 12 C 13 B 14 A 15 C
16 C 17 C

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2. INCOME UNDER THE HEAD SALARY

Basis of Charge [Section 15]

 Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whicheveris earlier.
 However, where any salary, paid in advance, is assessed in the year of payment,it cannot be
subsequently brought to tax in the year in which it becomes due.
 If the salary paid in arrears has already been assessed on due basis, the samecannot be
taxed again when it is paid.
Income from Salary XXX
Add: Income by way of Allowances XXX
Add: Taxable Value of Perquisites XXX
Gross Salary XXX
Less: Deduction under section 16
(ia) Statutory Deduction 50,000
(ii) Entertainment Allowances XXX
(iii) Professional Tax XXX XXX

INCOME UNDER THE HEAD “SALARIES” XXX

NOTE: Deduction under Section 16 (all 3) would not be available in case of an employee,
being an assessee, who opts for the provisions of section 115BAC [Finance Act 2020]

SALARY IN THE GRADE SYSTEM:

7,000 - 500 - 10,000 - 800 - 15,600 - 1,000 - 22,600 Salary for every 12 months will remain same
and then it will increase by 500 upto 10,000 after that by 800 etc

HOUSE RENT ALLOWANCE [Sec 10(13A)]

Least of the following is exempt:
A. Actual HRA Received
B. 50% (metros) / 40% (others) of Salary
C. Rent paid Less 10% of salary
 Salary = Basic + DA (Forming Part of Retirement Benefits) + Commission on Turnover
 If there is a change in Rent, Salary, Place, HRA etc, than HRA exemption will be on periodic
basis.
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[Exemption u/s 10(13A) would not be available in case of an employee, being an assessee, who
opts for the provisions of section 115BAC]

ALLOWANCES which is Partly Exempted to the extent specified [Section 10(14)]

A. Children Education allowance (for Maximum 2 Children) ` 100 p.m. per child

B. Children Hostel Expenditure allowance (for Max 2 Children) ` 300 p.m. per child

C. Running Allowance/Outstation Allowances for Transport Lower of

Sector Employees 70% of amount received or
` 10,000 p.m.
D. Transport Allowance (for going to office and back)
(i) General NIL
(ii) For handicapped, Blind etc ` 3,200 p.m.
E. Mining / Underground Allowance ` 800 p.m.

F. Tribal Area Allowance ` 200 p.m.

G. Hill compensatory allowance ` 300 p.m.

Note:
An employee, being an assessee, who opts for the provisions of section 115BAC would be entitled
for exemption only in respect of transport allowance granted to an employee who is blind or deaf
and dumb or orthopedically handicapped with disability of the lower extremities of the body to the
extent of ` 3,200 p.m.

ALLOWANCES which is Exempted to the extent incurred for official purpose [Section 10(14)]
A. Travelling Allowance B. Conveyance Allowance C. Daily Allowance
D. Academic Allowance E. Helper Allowance F. Uniform Allowance

Note: An employee, being an assessee, who opts for the provisions of section 115BAC would
be entitled for exemption only in respect of travelling allowance, daily allowance and
conveyance allowance mentioned in (a) to (c) above.

ALLOWANCES – Fully Taxable

A. City Compensatory Allowances B. Entertainment Allowance C. Dearness Allowance
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D. Medical Allowance E. Lunch Allowance F. Overtime Allowance

ALLOWANCES – Fully Exempt

A. Allowances & Perquisites to Indian Citizen working outside India by GOI
B. Allowances & Perquisites to UNO Employee

Exempted Perquisites
Following perquisites are exempted in hands of employee:
1. Tea or snacks: Tea, similar non-alcoholic beverages and snacks provided during working hours.
2. Food: Food provided by employer in working place upto ` 50 per meal. Remote area – full exempt.
3. Recreational facilities: Recreational facilities extended to a group of employees.
4. Goods sold to employee at concessional rate: Goods manufactured by employer and sold by
him to his employees at concessional (not free) rates.
5. Conveyance facility: Conveyance facility provided -
• to employees for journey between office and residence and vice versa.
• to the judges of High Court and Supreme Court
6. Training. Amount spent on training of employees including boarding and lodging expenses of the
employees on such training.
7. Services rendered outside India: Any perquisite/allowances allowed outside India by the
Government to a citizen of India for rendering services outside India.
8. Contribution in some specified schemes
• Employer's contribution to staff group insurance scheme.
• Payment of annual premium by employer on personal accident policy affected by him in
respect of his employee.
9. Loans
• Loan given at nil or at concessional rate of interest by the employer provided the aggregate
amount of loan does not exceed ` 20000.
• Interest free loan for medical treatment of the diseases specified in Rule 3A.
10. Medical facility
• A provision of medical facility at office is exempt.
• In any other case, medical facility up to ` 15000 is exempt.
11. Periodicals and journals: Periodicals and journals required for discharge of work.
12. Telephone, mobile phones: Expenses for telephone, mobile phones actually incurred on behalf
of employee by the employer whether by way of direct payment or reimbursement.
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13. Free education facility: Free education facility to the children of employee in an institution
owned or maintained by the employer provided cost of such facility does not exceed ` 1000 per
month per child.
14. Computer or Laptop: Computer or Laptop provided whether to use at office or at home
(provided ownership is not transferred to the employee).
15. Movable assets: Sale or gift of any movable asset (covered under SLM method) to employee
after being used by the employer for 10 or more years.
16. Leave Travel Concession: Leave Travel Concession (LTC) to the extent of lowest cost incurred.
17. Rent-free accommodation
• Rent-free official residence provided to a Judge of a High Court or the Supreme Court.
• Rent-free furnished residence (including maintenance thereof) to Official of Parliament, a
Union Minister or a Leader of opposition in Parliament.
18. Accommodation: Accommodation provided -
• on transfer of an employee in a hotel for a period not exceeding 15 days in aggregate.
• in a remote area to an employee working at a mining site or an onshore exploration site or a
project execution site or a dam site or a power generation site or an offshore site.
19. Tax on non-monetary perquisite paid by employer on behalf of employee.
20. Health club. Sports club facility

ACCOMMODATION PROVIDED BY THE EMPLOYER TO THE EMPLOYEE

1. Value of Unfurnished Accommodation
Nature of Perquisite Taxable Value of Perquisite
Provided by Government License fee determined by the
Government Less: Rent recovered
from Employee
Provided by Employer other than Central and State Government
(a) Owned by Employer If population > 25 Lakhs: 15% of Salary
If population > 10 Lakhs but does not exceeds 25 Lakhs: 10%
of Salary
If population < 10 Lakhs: 7.5% of Salary
Less Rent actually paid by the employee

(b)Taken on lease by the Lower of the Two:

employer (a) Rent paid by employer or
(b) 15% of Salary
Less Rent recovered from employee
(c) Accommodation in hotel 24% of Salary paid / payable or actual charges paid / payable
whichever is lower Less Amount paid or payable by the
employee
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Hotel Accommodation: Accommodation provided in a hotel will not be a taxable perquisite if—
• The period of such accommodation does not exceed 15 days;
• Such accommodation has been provided on the transfer of the employee from one place to
another.

2. Valuation of Furnished Accommodation:

Particulars
Value of unfurnished accommodation as above XXX
Add: Value of Furniture
- If owned by employer, then 10% per annum of Original Cost of such XXX
Furniture
- If hired from third party, then Actual Hire Charges XXX
Less Any charges paid or payable by the employee (xxx)
:
Value of furnished accommodation XXX

Note: Furniture includes Television sets, Radio, Refrigerator, other Household Appliance, Air-
Conditioning plant or Equipment.

VALUATION NOT APPLICABLE

(a) Employees Covered: Employees working at —
• Mining Site; • Offshore Site; • Dam Site;
• Onshore Oil Exploration Site; • Project Execution Site; • Power Generation
Site
(b) Conditions:
 The accommodation should be of a temporary nature and
 Accommodation should be located at least 8 kms away from local limits of Municipality /
Cantonment or located in a remote area (i.e. 40 kms away from town with Less than 20,000
population)

VALUATION OF ACCOMMODATION IN CASE OF EMPLOYEES ON TRANSFER

a) For the first 90 days of transfer: Where accommodation is provided both at existing place of
work and in new place, the accommodation, which has lower value, shall be taxable.
b) After 90 days: Both accommodations shall be taxable.

MEANING OF SALARY FOR VALUATION OF ACCOMMODATION FACILITIES

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Salary (from one or more employer) Salary excludes
includes

 Basic Salary  Employer's contribution to PF

 D.A., if considered for retirement benefits  Exempted Allowances
 All taxable allowances  Value of perquisites (monetary or non-
 Bonus or Commission monetary)
 Any other monetary payment
 Arrear Salary / Advance Salary

TAXABLE PERQUISITES PROVIDED BY AN EMPLOYER TO AN EMPLOYEE OR MEMBERS OF HIS

HOUSEHOLD
(A) Taxability of Motor Car Benefits [Rule 3(2)(A)] - Taxable only in the hands of specified
employee
[Specified employee means – Director, 20% (beneficial ownership), Cash salary (Excluding
non-monetary perquisites) more than ` 50,000 p.a.]
Owner of Car Expenses Purpose Taxable Value of Perquisite
met by
1(a)Employer Employer Fully Official Not a perquisite provided the documents
specified in Rule 3(2)(B) are maintained.
1(b)Employer Employer Fully personal Aggregate of-
use
(a) Actual expenditure on car
(b) Remuneration to chauffeur
(c) 10% of the cost of car (normal wear & tear)
Less: Amount charged from employee

1(c)(i) Employer Partly for Upto 1.6 Litres [Small Car]

Employer official and
partly for ` 1,800 p.m. + ` 900 p.m. for chauffeur
personal
Above 1.6 Litres
` 2,400 p.m. + ` 900 p.m. for chauffeur
1(c)(ii) Employee Partly for Upto 1.6 Litres [Small Car]
Employer official and
partly for ` 600 p.m. + ` 900 p.m. for chauffeur
personal
Above 1.6 Litres
` 900 p.m. + ` 900 p.m. for chauffeur
2(i) Employee Employer Fully official use Not a perquisite provided documents as per Rule
3(2)(B) are maintained.
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2(ii) Employee Employer Partly for Subject to Rule 3(2)(B)
official use and
partly for Actual expenditure incurred
personal use
Less Small Car - Value as per 1(c)(i)
Big Car - Value as per 1(c)(i)
3(i) Employee Employer Fully official use Not a perquisite provided documents as per Rule
owns other 3(2)(B) are maintained
auto- motive
but not car
3(ii) Employee Employer Partly for Subject to Rule 3(2)(B)
official and
owns other partly for Actual expenditure incurred by employer
auto- motive personal use Less: 900 p.m.
but not car

Notes:
1. Using cars from pool of cars owned or hired by Employer:
The employee is permitted to use any or all cars for both official and personal use:
For one car - Valued as per 1(c)(i)
For more than one car - Valued as per 1(b) as if fully used for personal purpose

Perquisites taxable in case of Specified Employee only (if it is provided by employer):

Rule Nature of perquisite Taxable Value of perquisite (TVP)
3(3) Service of sweeper, gardener or Actual cost to the employer
watchman or personal
attendant Less: Amount paid by the employee
3(4) Supply of gas, electricity or Procured from outside Agency: Amount paid to
water for household outside agency
consumption
Resources owned by employer himself:
Manufacturing cost
per unit Less: Amount paid by the employee
3(5) Education facilities to
members of his household:
1. Free Education to If the cost of education per child does not exceed
children In the school 1,000 p.m. - Not taxable
maintained by the
employer or the school
sponsored by the
employer [No limit]
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2. Other Schools In other case, Cost to such education

Less: Amount recovered from employee
3(6) Transportation of goods or Value at which it is offered to public
passengers at free or
concessional rate Less: Amount recovered from the employee
provided by the employ
er engaged in that
business (other
than railways / airlines)

VALUATION OF OTHER PERQUISITES:

 Interest charged by employer is equal to or
higher than SBI rates: It is not a taxable
perquisite
 Interest charged is lower than SBI rates:
Perquisites will be:
Interest at SBI rates on maximum
Interest Free of Concessional monthly outstanding balance on last day
Loan:
3(7)(i) SBI Rate = SBI Rate prevailing Less: Interest paid by the employee on that
loan.
on the First Day of the Previous
Year Exceptions:
(a) Medical loan for treatment of diseases
specified in Rule 3A except Loan reimbursed
by medical insurance
(b) Loan not exceeding 20,000 in aggregate
3(7)(ii) Travelling, touring,
accommodation and other
expenses met by the Amount incurred by employer or Value offered to
employer other than official public
purpose. (To be calculated only
for the period of vacation) Less: Amount recovered from employee

3(7)(iii) Free meals during office hours

[Free meal in remote area or off A. Actual cost to the employer above 50/- per
shore installation area is not
a taxable day per meal
perquisite] Less: Amount recovered from the employee

(exemption through coupon B. Tea or non-alcoholic beverages / snacks during

working hours is not taxable.
would not be available in case
of an employee, being an
assessee, who opts for the
provisions of section 115BAC)
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM
3(7)(iv) Value of any gift or voucher or A. Value of gift (in Kind) in excess of 5,000.
token including cash gift B. Gift in cash – Fully taxable.
.
3(7)(v) Expenditure incurred on credit A. Actual expenditure by employer is taxable Less:
card or add on card including Amount recovered from employee.
membership fee and annual fee.
B. If it is incurred for official purpose - Not taxable
3(7)(vi) Expenditure on club A. Actual expenditure incurredby the
employer Less: Amount recovered from
employee.
B. If it is incurred for official purpose - Not taxable
C. Initial fee of corporate membership of a club is not
a taxable perquisite.
D. Health club or sports club or similar facilities
provided uniformly to all employees – Not a
perquisite.
3(7)(vii Use of any movable asset other 10% of Actual cost if owned by the employer; or
) than computer or laptops or
other assets Actual Rental Charge Paid / Payable by employer
Less: Amount recovered from employee

TRANSFER OF MOVABLE ASSET TO EMPLOYEES

3(7)(vii Computers & Electronic Motor Car Other Assets
i) Items
Actual Cost Actual Cost Actual Cost
Less: Depreciation @ 50% for Less: Depreciation @ 20% Less: Depreciation @
for every completed
every completed year year [WDV] 10% for every
under WDV method. completed year
under SLM Method.
Value of the Asset Value of the Asset Value of the Asset
Less: Amount recovered from Less: Amount recovered Less: Amount
the employee from the employee recovered
from the
employee

Value of the perquisite Value of the perquisite Value of the

perquisite
 Electronic gadgets include Computer. Digital Diaries but exclude washing machines,
Microwave ovens, Mixers, Hot plates, Ovens etc.
 Transfer of other assets (SLM), which are 10 years old, shall not attract taxability
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM
3(7)(i Any other benefit or amenities or Cost to the employer
x) service or right or privilege
provided by the employer other Less: Amount recovered from employee
than telephone or mobile phone

Medical Facilities – Exempt

MEDICAL TREATMENT IN INDIA:
I. Expenditure incurred in a HOSPITAL MAINTAINED BY THE EMPLOYER.
II. Sum paid by the employer for any expenditure for medical treatment in any hospital
maintained by the Govt. or local authority or an approved hospital under CGHS or of
prescribed diseases/ ailment in a hospital approved by CCIT. [Certificate is required]
III. Group Medical Insurance, Medical Insurance paid u/s 80D, Premium of Accidental Insurance
Policy.
IV. Any other medical expenditure reimbursed to the extent of `15,000
Medical Treatment Abroad:
Medical treatment and Stay expenses (one attendant) abroad – exempt (If permitted by R.B.I.)
Travel expenditure (patient + one attendant) – GTI upto ` 2,00,000 – Fully exempt.
– GTI above ` 2,00,000 (fully taxable)
Family = Spouse + Children + Dependent [Parents + Brothers + Sister

GRATUITY:
Gratuity is a voluntary payment made by an employer in appreciation of services rendered by the
employee. Now-a-days gratuity has become a normal payment applicable to all employees. In fact,
Payment of Gratuity Act, 1972 is a statutory recognition of the concept of gratuity. Almost all
employers enter into an agreement with employees to pay gratuity.
Exemption in respect of Gratuity [Section 10(10)]
Its treatment is discussed below:
1. Retirement gratuity received under the Pension Code or Regulations applicable to members of
the Defence Service is fully exempt from tax.
2. Employees of Central Government/ Members of Civil Services/ local authority employees:
Any death cum retirement gratuity is fully exempt from tax under section 10(10)(i).
3. Other employees:
(i) Covered by the Payment of Gratuity Act, 1972
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Any death-cum-retirement gratuity is exempt from tax to the extent of least of the
following:
(a) ` 20,00,000
(b) Gratuity actually received
(c) 15 days’ salary based on last drawn salary for each completed
year of service or part thereof in excess of 6 months
Note: Salary for this purpose means basic salary and dearness allowance.No. of days in a month for
this purpose, shall be taken as 26.
(ii) Not covered by the Payment of Gratuity Act, 1972
Any death cum retirement gratuity received by an employee on hisretirement or his becoming
incapacitated prior to such retirement oron his termination or any gratuity received by his widow,
children or dependents on his death is exempt from tax to the extent of least of the following:
(a) ` 20,00,000
(b) Gratuity actually received
(c)Half month’s salary (based on last 10 months’ average salary
immediately preceding the month of retirement or death) for each
completed year of service (fraction to be ignored)
Note: Salary for this purpose means basic salary and dearness allowance, if provided in the terms
of employment for retirement benefits, forming part of salary and commission which is
expressed asa fixed percentage of turnover.
Note the following points:
 Gratuity received during the period of service is fully taxable.
 Where gratuity is received from 2 or more employers in the same previous year thenaggregate
amount of gratuity exempt from tax cannot exceed ` 20,00,000.
 Where gratuity is received in any earlier previous year from former employer and again
received from another employer in a later previous year, the limit of ` 20,00,000 will be
reduced by the amount of gratuity exempt earlier.

Section 10(5) [Leave Travel Concession]

Exemption is available for 2 trips in a block of 4 calendar years.

S. Journey performed by Exemption
No
.
1 Air Amount not exceeding air economy fare by the
shortest route.
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2 Any other mode :

(i) Where rail service is Amount not exceeding air conditioned first classrail
available fare by the shortest route to the place of destination

(ii) Where rail service is

not available
a) and public Amount equivalent to air conditioned first class rail
transport does not fares by the shortest route, as if the journeyhad
exist been performed by rail
b) but public Amount not exceeding the first class or deluxe class
transport exists. fare by the shortest route to the place of destination

Provident Funds - Exemption & Taxability provisions

Particulars Recognized PF Unrecognized Statutory PF Public PF
PF
Employer’s Contribution in Not taxable at Fully exempt N.A. (as
Contribution excess of 12% of the time of there is only
salary is taxable contribution assessee's own
as “salary” u/s contribution)
17(1)
Employee's Eligible for Not eligible for Eligible for Eligible for
Contribution deduction u/s 80C deduction deduction u/s deduction u/s
80C 80C
Interest Amount in excess Not taxable at Fully exempt N.A.
Credited on of 9.5% p.a. is the
Employer's taxable as time of credit
Contribution "salary" of
u/s 17(1) interest
Interest Amount in excess Not taxable at Exempt upto Fully exempt
Credited on of 9.5% p.a. is the certain limit
Employee's taxable as time of credit of
Contribution "salary" u/s 17(1) of contribution
[See Note below] interest [See Note
below]
Amount Exempt from tax Employer's Fully exempt Fully exempt u/s
withdrawn on if contribution and u/s 10(11) 10(11)
retirement/ (i) employee interest thereon
termination served a is taxable
continuous as salary.
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM
period of 5 years Employee's
or more; or contribution is
(ii)retires before not taxable.
rendering 5 Interest
years of service on employee's
because of ill contribution is
health, taxable under
contraction or
income from
discontinuous other source.
of employer's
business or
reason beyond
(iii) The control of
the employee;
or on cessation
of employment,
the employee
obtains
employment
with any other
employer, to the
extent the
accumulated
balance in RPF
is transferred to
his
RPF account
maintained by
the new
employer.
(iv) The entire
balance
standing to the
credit of the
employee is
transferred to
his NPSaccount
referred to in
section 80CCD
and notified by
the Central
Government
In other cases, it
will be taxable.
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 As per section 10(11), any payment from a Provident Fund (PF) to which Provident Fund Act,
1925, applies or from Public Provident Fund would be exempt.
 Accumulated balance due and becoming payable to an employee participating in a Recognized
Provident Fund (RPF) would be exempt under section 10(12).
 However, the exemption under section 10(11) or 10(12) would not be available in respect
of income by way of interest accrued during the previous year to t he extent it relates to
the amount or the aggregate of amounts of contribution made by that person/employee
exceeding 2,50,000 in any previous year in that fund, on or after 1st April, 2021.
 If the contribution by such person/employee is in a fund in which there is no employer's
contribution, then, a higher limit of 5,00,000 would be applicable for such contribution, and
interest accrued in any previous year in that fund, on or after 1st April, 2021 would be exempt
upto that limit.
 It may be noted that interest accrued on contribution to such funds upto 31st March, 2021
would be exempt without any limit, even if the accrual of income is after that date.

MEANING OF GOVERNMENT EMPLOYEES FOR DIFFERENT PURPOSE

S. No. Purpose Government employees

1. GRATUITY [SECTION 10(10)] CG/SG/LA
PENSION
2. CG/SG/LA/SC
[SECTION 10(10A)]
LEAVE SALARY
3. CG/SG
[SECTION 10(10AA)]
RENT FREE ACCOMODATION [SECTION
4. CG/SG
17(2)(i) & 17(2)(ii)]
ENTERTAINMENT ALLOWANCE
5. CG/SG
[SECTION 16(ii)]

MEANING OF SLALRY FOR COMPUTATION

SECTION Purpose of computation Salary includes

16(ii) Entertainment allowance Basic salary
10(10) Gratuity [if gratuity Act,1972 is Basic salary + DA
applicable]
10(10) Gratuity [it Act not applicable] Basic salary + DA (R) + % Commission on Sales.
10(10AA) Leave Salary Basic salary + DA (R) + % Commission on Sales.
10(10B) Retrenchment Compensation Basic salary + DA
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM
10(13A) HRA Basic salary + DA (R) + % Commission on Sales.
10(10C) VRS Basic salary + DA (R) + % Commission on Sales.
10(12) RPF Basic salary + DA (R) + % Commission on Sales.
Basic + Allowance +Bonus + Commission + DA(R) +
Any money payment ( which in chargeable to tax)
17(2)(i) RENT FREE ACC [RFA] OR But does not include –
& ACCOMMODATION AT
17(2)(ii) CONFESSIONAL RATE 1. Employer’s contribution to RPF
2. Value of perquisite specified in Sec 17(2) [from
one or more employer]
Basic Salary + D.A. + Commission, whether payable
monthly or turnover based + Bonus + Fees +
Advance Salary + Arrear Salary + Any other taxable
17(2)(iii) SPECIFIED EMPLOYEE
payment + Any taxable allowances + Any other
monetary benefits – Deductions under section 16
[From one employer or more]

DEARNESS ALLOWANCES & DEARNESS PAYS

DEARNESS ALLOWANCE (DA)
If in question DA is given, then it will not be treated as forming part of salary unless question
specifically says that –
 If forming part of retirement benefit
 Under the terms of employment
 Consider for retirement benefit

Dearness Pays = It means it is forming part of retirement benefit unless question says otherwise.
NUMBER OF HOUSEHOLDS = Spouse, Children, Spouse of children, Parents, Servants & all
other Dependents.
FAMILY = Spouse + Children + Dependent [Parents + Brothers + Sisters]
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AMENDMENTS
Perquisite includes:
A. The amount or aggregate of amounts of any contribution made
- in a recognised provident fund
- in NPS referred to in section 80CCD(1)
- in an approved superannuation fund
by the employer to the account of the assessee, to the extent it exceeds ` 7,50,000.
[Section 17(2)(vii)]

PROVIDENT FUNDS - TREATMENT OF CONTRIBUTIONS TO AND MONEY RECEIVED FROM

THE PROVIDENT FUND
For purposes of Income-tax, provident funds are grouped under three heads:
1. Statutory provident fund
Meaning: All provident funds which are set up under the Provident Funds Act, 1925 are called
Statutory Provident Funds. Provident funds of institutions such as Universities, Colleges or other
Educational Institutions, Reserve Bank of India, State Bank of India, the Central government and
State government would constitute Statutory Provident Funds.
Treatment: In case of Statutory Provident Fund, the entire amount of employer’s contribution
without any limit or restriction whatsoever and the interest thereon received by the employee shall
not be includible in the total income of the employee both at the time when the contribution is made
and at the time when the money is received by or on behalf of the employee on his retirement, death
or otherwise. This exemption is specifically conferred by Sub-section (11) of Section 10 of the
Income-tax Act. The employee can contribute to this fund out of his salary as much as he likes.

2. Recognised provident fund

Meaning: All Provident Funds recognised by the Commissioner of Income-tax under Rule 3 of Part
‘A’ of the Fourth Schedule to the Income-tax Act, 1961 and also Provident Funds established under
a scheme framed under the Employees Provident Funds Act, 1952 are known under the Income-tax
Act as Recognised Provident Funds. For the purposes of being treated as Recognised Provident
Fund, the Fund in question must be recognised by the Commissioner of Income-tax at the time of its
setting up and must continue to be so recognised even subsequently. The moment the recognition
is withdrawn by the Commissioner, the Fund ceases to be a Recognised Provident Fund. The
Provident Funds of various Public Sector Undertakings, Semi- government bodies and other
institutions and organisations including companies which are recognised by the Commissioner for
income-tax purposes, would be treated as Recognised Provident Funds.

Employer Contribution & Interest

Tax Treatment upto 31.03.2020: In the case of a Recognised Provident Fund, the employer’s
contribution to the Provident Fund is not treated as the employee’s income so long as the
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM

contribution by the employer does not exceed 12% of the salary of the employee.
But if the contribution of the employer exceeds 12% of the employee’s salary, the excess of the
contribution over 12% of the salary of the employee is to be treated as part of the taxable income
from salaries in the hands of the employee in respect of the financial year in which the contributions
were made by the employer.
As regards interest on the contributions to the Provident Fund, only an amount exceeding a sum
calculated at 12% per annum on the balance standing to the credit of the employee would be treated
as part of the taxable income of the employee. In other words, so long as the amount of interest does
not exceed this limit, the interest does not become chargeable to tax in the hands of the employee.
Tax Treatment w.e.f. 01.04.2020 [Amendment vide Finance Act, 2020]: Apart from the limit of
12% for employer contribution and 9.5% p.a. for Interest, there was no monetary limit above which
such amount was taxable. Now these two have been combined with Employer contribution to
Approved Superannuation fund and NPS along with annual interest thereon within ceiling of
Rs.7,50,000. If total exceeds Rs.7,50,000, then excess will also be taxable under the head Salary.
1. Total of following in excess of 7,50,000 during p/y will also be taxable under the head salary
2. Employer contribution to Recognised Provident Fund
3. Employer contribution to Approved Superannuation Fund
4. Employer contribution to National Pension Scheme

Tax Treatment of Employee Contribution

The employee’s own contribution qualifies for deduction under Section 80C of the Income-tax Act.
[Salary for this purpose, includes basic salary; dearness allowance/pay (if the terms of
employment so provide) and commission (if based on a fixed percentage of turnover achieved by
the employee)].

3. Unrecognised provident Fund

Meaning: The Provident Fund which is neither Statutory nor recognised by the Commissioner of
Income-tax nor Public Provident Fund, would be an Unrecognised Provident Fund for income-tax
purposes.
Treatment: In the case of an Unrecognised Provident Fund, the employee’s own contribution to
the Fund would not be allowed as a deduction. The employer’s contribution and the interest
thereon would, however, be exempt from tax as and when the contributions are being made. But
when the money in lump sum is received back by the employee, that part of the amount
attributable to the employer’s contribution would be taxable as income from salaries and the
interest on the employer’s contribution would also be taxable as salary income in the hands of the
employee. The employee’s own contributions when received back would not be taxable because
they do not contain an element of income. However, the interest thereon would be chargeable to
tax as income from other sources and not as income from salaries.
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM

QUESTION BASED ON AMENDMENT

Mr. X, working in MNO Ltd., draws the following amount of emoluments from the company:

Particulars Amount (in

lakhs)
Basic Pay 50
Commission 15
Employer’s contribution to recognized provident fund 10
Employer’s contribution to NPS 7
Employer’s contribution to the superannuation fund 5
Total 87
Solution

Particulars Before After

Amendment Amendment
Basic Pay 50 50
Commission 15 15
Employer’s contribution to recognized provident fund (in 4 4
excess of 12% of basic pay) [Rs. 10 lakh (less) Rs.6 lakh (Rs. 50
lakh * 12%] [Section 17(1)]
Employer’s contribution to NPS 7 7

Employer’s contribution to the superannuation fund in 3.50 -

excess of Rs. 1.5 lakhs [Old Section 17(2)(vii)]
Perquisite arising from Employer’s contribution to the - 14.50
superannuation fund, RPF and NPS in excess of Rs. 7.5 lakhs
[New Section 17(2)(vii)]
Income chargeable to tax under the head “Salary” 79.50 90.50
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MULTIPLE CHOICE QUESTIONS

1. 2016 - June [28] Satish is employed as chief engineer in Gama Ltd., Chennai w.e.f. 1st April, 2021
for a consolidated salary of 60,000 per month. He is provided with rent-free unfurnished
accommodation owned by the employer from 1st July, 2021 onwards. The value of taxable
perquisite is —
(a) 1,08,000
(b) 81,000
(c) 72,000
(d) 54,000
2. 2016 - June [51] Mrs. Meena retired from service with Sky Ltd. on 31st January, 2022. She
received the following amounts from unrecognised provident fund: (i) Own contribution
1,50,000; (ii) Interest on own contribution 21,000; (iii) Employer's contribution 1,10,000; and
(iv)interest on employer's contribution 15,000. How much of the receipt is chargeable to tax as
income from salary —
(a) 21,000
(b) 15,000
(c) 1,25,000
(d) 1,71,000
3. 2016 - June [58] An employee of a company, who was entitled for a gratuity of 8,00,000, also
received 12,00,000 by commuting 40% of his pension. The taxable amount of commuted
pension is —
(a) 2,00,000
(b) 4,00,000
(C) 12,00,000
(d) 22,00,000
4. 2016 - June [59] Ravi is receiving 10,000 as medical allowance from his employer. Out of this,
he spends 5,000 on his own medical treatment, 2,000 on the medical treatment of his dependent
wife and another 3,000 for the medical treatment of his major son who is not a dependent on
him. The amount of medical allowance taxable in his hand is —
(a) 10,000
(b) 5,000
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM

(c) 3,000
(d) Nil.
5. 2016 - Dec [4] A company acquired a motor car for 8 lakh on 30th June, 2020. It sold the said
motor car to its employee, Jayant, for 6 lakh on 10th June, 2020. The company claimed
depreciation @ 15% for the year ended 31st March, 2021. The perquisite value in the hands of
Jayant on sale of motor car would be —
(a) 80,000
(b) Nil
(c) 2,00,000
(d) 1,40,000
6. 2016 - Dec [19] Pawan, employed in Magic Ltd., was eligible for transport allowance of 2,000
per month to meet his travel expenses from residence to office. He actually incurred 1,200 per
month towards travel. The amount of travel allowance chargeable to tax as perquisite would be
—
(a) 24,000
(b) 14,400
(c) 4,800
(d) Nil.
7. 2016 - Dec [20] An employee of a public limited company received 3,00,000 as encashment of
leave salary at the time of retirement. He has 18 months' leave to his credit at the time of
retirement and his average salary for last 10 months is 24,000. The taxable amount of leave
encashment would be —
(a) 2,40,000
(b) 3,00,000
(c) 60,000
(d) Nil.
8. 2016-Dec [28] A company has provided laptop worth 50,000 to its employee for official as well
as personal purposes. The taxable amount of perquisite will be —
(a) 5,000
(b) 25,000
(c) 10,000
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(d) Nil.
9. 2017 - June [1] Interest credited to statutory provident fund shall be:
(a) Fully exempt
(b) Exempt upto 8.5% p.a.
(c) Fully taxable
(d) Exempt upto 9.5%
10. 2017 - June [60] Mr. Ashwin retired on 31-10-2021 after rendering 35 years of service in PLN
& Co. Ltd. He received gratuity of 18 lakhs. He is governed by Payment of Gratuity Act, 1972. The
monetary limit eligible for exemption is:
(a) 20 lakhs
(b) 18 lakhs
(c) 3,50,000
(d) Nil
11. 2017 - June [61] Mr. A is employed in ABS Transports as cabin driver. He is paid 15,000 every
month in the whole of previous year 2021-22 as allowance for meeting his personal expenditure
in the course of running the goods vehicle. Mr. A does not receive any other amount by way of
daily allowance. The amount of allowance eligible for exemption is:
(a) 1,80,000
(b) 1,20,000
(c) 1,26,000
(d) Nil
12. 2017 - June [67] Mr. Gupta is given a motor car with chauffeur by the employer which is used
for both official and personal purpose. The entire running expenses of the car amounting to
64,800 was met by the employer in the previous year 2021-22. The cubic capacity of the engine
of the motor car exceeds 1.6 litres. The perquisite value of motor car taxable in the hands of Mr.
Gupta is:
(a) 19,200
(b) 39,600
(c) 28,800
(d) 64,800
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13. 2017 - June [68] Ashwin Co. Ltd. contributed 15% of the salary of the employee Virat towards
recognized provident fund. The amount liable to tax as perquisite in the hands of Virat would
be………………….of contribution.
(a) 5%
(b) 3%
(c) Nil
(d) any sum exceeding 7,50,000
14. 2017 - June [69] During the previous year, the employee was reimbursed 24,000 as medical
expenses incurred by him which includes 7,000 spent in Government hospital. The taxable
perquisite in this case shall be:
(a) 9,000
(b) 17,000
(c) 2,000
(d) 24,000
15. 2017 - June [70] The employee is provided with furniture costing 1,50,000 along with house
w.e.f. 1-7-2020. The value of the furniture to be included in the valuation of unfurnished house
shall be:
(a) 11,250
(b) 15,000
(c) 22,500
(d) 16,875
16. 2017 - Dec [8] Mr. Vijay employed in ABC Ltd. opted for voluntary retirement and received 12
lakhs by way of gratuity. The Payment of Gratuity Act, 1972 is applicable in his case. The
monetary limit for exemption under Section 10(10) is:
(a) 3,50,000
(b) 5,00,000
(c) 20,00,000
(d) 3,00,000
17. 2017 - Dec [9] The maximum amount eligible for exemption in respect of encashment of earned
leave on retirement is:
CA SURAJ SATIJA SSGURU WWW.CSCARTINDIA.COM

(a) 3,00,000
(b) 10,00,000
(c) 50,000
(d) 5,00,000
18. 2017 - Dec [10] Mr. Murthy is employed in ABC Management Institute, Pune. He is eligible for
24,000 as allowance for the year towards academic and research work. The amount of academic
and research allowance chargeable to tax is:
(a) 10,000
(b) 24,000
(c) Nil
(d) 9,000
19. 2017 - Dec [12] Mr. Amit employed in X Co. Ltd., Salem received 10,000 per month as house
rent allowance in the year 2021-22. His total salary is 4 lakhs consisting of Basic pay + DA. He paid
rent of 8,000 per month. How much of HRA is exempt from tax?
(a) 40,000
(b) 56,000
(c) 1,20,000
(d) 1,60,000
20. 2017 - Dec [18] Mr. Balan is employed in SS Ltd. at Madurai. He is provided with a rent free
accommodation owned by the employer. The percentage of salary to be adopted for the purpose of
valuation of perquisite would be:
(a) 15%
(b) 10%
(c) 7.5%
(d) 20%
ANSWER KEY:
1 B 2 C 3 A 4 A 5 C
6 C 7 C 8 D 9 A 10 A
11 B 12 B 13 B 14 B 15 A
16 C 17 A 18 C 19 B 20 A