TAXATION- Concept Book

SUMMARY Standard Deduction 1. Standard Deduction [Rs. 50,000 or the amount of salary, whichever is lower] Section 16(ia). Transport allowance and Medical allowances are replaced with standard deduction Retirement Benefits 1. Uncommuted pension – taxable. Commuted pension: 1/2 exempt (without gratuity) or 1/3 exempt (with gratuity) 2. Gratuity –Rs.10,00,000 or {15/26 x salary x completed years (+ fraction > 6m) – if covered by gratuity act} or {1/2 x salary x completed years (fraction ignored) – if not covered by Gratuity Act} 3. Leave salary –Rs.3,00,000 or 10 months’ salary or salary for unavailed leaves on the basis of 30 days leaves every year 4. RPF – employer’s contribution upto 12% of salary, interest @9.5%pa. Employee’s contribution to SPF/RPF is allowed as deduction u/s 80C. Allowances 1. HRA – rent paid less 10% of salary or 40%/50% of salary. If any of the factor changes, then calculations to be made for every period separately. 2. Specified allowances – some are exempt to the extent spent and some are exempt to the extent limit specified. 3. Rest fully taxable like CCA, Medical allowance, etc. 4. Transport Allowance – 1600 discontinued. CFP Level 2 - Module 2 – Taxation - India Page 145

Perquisites 1. If any amount recovered from employee, then first calculate value of perquisite assuming there is no recovery from employee, and then subtract the recovery from employee from such value. 2. RFA – depends upon owned by employer or taken on rent by employer. Salary for this purpose shall include any perquisite. 3. Motor car – if for personal use, then actual expenses borne by the employer shall be the value. If for mix use, thenRs.1,800pm/Rs.2,400pm shall be the value. 4. Education facility – in case of education in employer’s school,Rs.1,000pm/children is exempt. 5. Interest free loan – interest on the basis of interest rate of SBI as on 01/04, applying on outstanding balance on last day of each month. 6. Use of movable assets – laptop/computers – value nil. Other assets – value 10%pa of actual cost to employer or actual hire charges 7. Transfer of movable assets – value on the basis of 50% WDV (computers), 20% WDV (motor cars) & 10% SLM (other assets). Depreciation shall be for complete 12 months only. 8. Medical facilities – if employer/govt./approved hospital – fully exempt. Otherwise exempt uptoRs.15,000pa. 9. LTC – only travelling cost exempt. Exempt upto air economy fare, first class A/c fare, and deluxe class bus fare. Exemption for new children (eldest 2) + old children (no limit). 10. Free meal, etc. – exempt uptoRs.50/meal. 11. Gift in kind – exempt uptoRs.5,000. Gift in money form – fully taxable. Deductions u/s 16 1. Entertainment allowance – only to Govt. employees. Lower of 1/5th of basic salary orRs.5,000. 2. Professional tax – deduction allowed on actual payment basis. CFP Level 2 - Module 2 – Taxation - India Page 146

PRACTICE QUESTIONS Question-1 Mr. Yogesh is employed with a transport firm. He is member of an unrecognized provident fund. He has been drawing salary @ Rs.10,000 p.m. since 1-1-2019. Dearness allowance, forming part of pay for superannuation benefits, is paid @ 10% of his salary. He gets house rent allowance Rs.1,500 per month. He pays rent of Rs.2,500 pm. He contributes @ 11% of his salary to the fund and the employer contributes @ 25%. The employer also reimburses his personal club bills amounting to Rs.15,000. Besides, he is paidRs.1,400 p.m. as transport allowance. He retires 1-1-2020 after 28 years and 9 months of service. He gets Rs.85,000 as accumulated balance from the provident fund. It consists of Rs.20,000 as his contribution and Rs.15,000 interest thereon. The employer's contribution is Rs.35,000 and interest thereon is Rs.25,000. He also gets gratuity of Rs.2,50,000. After retirement, he gets pension @Rs.5,000 p.m. On 1-3-2020 he surrenders one half pension for a consolidated amount of Rs.1,50,000. He has made the following payments/investments during the previous year 2019-20: (i) Life Insurance Premium amounting Rs.5,000 on the policy taken on the life of his married son. (ii) Public provident fund deposit Rs.7,000. (iii) Repayment of principal amount of Rs.15,000 to the Life Insurance Corporation of India on account of loan taken for the purchases of a flat, allotted in March, 1998. (iv) Purchase of National Savings Certificates, IX issue, amounting to Rs.5,000 (v) Contribution of Rs..8,000 under the Jeevan Dhara Scheme of Life Insurance Corporation of India. Compute his total income and tax liability for the assessment year 2020-21. Question-2 Manas has been in service of Xansa Ltd., since November 1993, in Delhi. During the financial year ending 2019-2020 he received from the company, salary @Rs.12,000 p.m., dearness allowance @Rs.3,000 p.m., city compensatory allowance @Rs.300 p.m., entertainment allowance @Rs.500 per month and house rent allowance @Rs.4,000 p.m. Manas resides in the house property owned by his CFP Level 2 - Module 2 – Taxation - India Page 147

HUF for which he pays a rent of Rs.5,000 p.m. He has been in receipt of entertainment allowance from company since November 1993. He retired from the service of the company on 31-12-2019 and received gratuity of Rs.1,20,000 and pension of Rs..5,000 p.m. He is not covered under the Payment of Gratuity Act. On 1-2-2020 he got one half of the pension commuted and received Rs.1,60,000 as commuted pension. He also received Rs.3,00,000 as the accumulated balance of the recognized provident fund. Compute his income under the head salary for the assessment year 2020-21. Question-3 Manish x a resident but not ordinarily resident individual, is employed by an Indian company. For the previous year 2019-20, he submits the following information: (a) Salary of 4 months of service in New York (paid by the foreign branch in USA)Rs.1,20,000 (b) Salary of 8 months of service in DelhiRs.2,20,000 (c) Bonus of 2016-17 (not taxed earlier)Rs.30,000 (d) Employer’s contribution towards recognized provident fund @Rs.4,000 per month for the entire previous year [provident fund is maintained in India; When Manish was posted abroad, employer’s contribution was transferred to a separate account in USA and later on along with employee’s contribution it is remitted to India+Rs.48,000 (e) Free car facility in Delhi only for private purpose of Manish and his family members; Expenditure of the employerRs.58,000 (f) Car allowance in New York @Rs.11,000 per month (one third of which is utilized for private purpose)Rs.44,000 Besides, the employer-company provides a rent-free furnished flat both in Delhi and New York. While lease rent of the flat provided at Delhi isRs.14,000 per month (rent of furniture:Rs.9,000), lease rent of the flat provided at New York isRs.20,000 per month(rent of furniture:Rs.7,000 per month). During 2019-20, Manish is paid a special allowance of $15,000 by UNO in appreciation of his services rendered in New York. His income from other sources isRs.2,10,000. On March 10, 2020, the employer sells a computer to Manish for 16,500 (it was purchased by the company forRs.62,000 an April 10, 2015 & till its transfer to Manish it was used by the employer for business purposes). Manish makes the following payments: (a) his contribution to the recognized provident fund:Rs.65,000 (contribution was remitted from USA when he was posted abroad); (b) contribution to public provident fund:Rs.19,000 CFP Level 2 - Module 2 – Taxation - India Page 148

(c) life insurance premium to an American insurance company:Rs.35,000 (sum assured: Rs.3,00,000); (d) investment in equity shares at a notified company which is engaged in maintaining and operating on infrastructure facility:Rs.26,000; and (e) tuition fees of Manish’s son:Rs.4,000 per month. Determine the taxable income and tax liability for the assessment year 2020-21 on the assumption that he holds 20 per cent equity share capital in the employer company and on April 1, 2021, he paysRs.300, being professional tax pertaining to the previous year 2019-20. Manish gets a pension of Rs..10,000 per month from the Gujarat Government (date of retirement being March 31, 2015). Question-4 Suman, an employee furnished the following particulars for previous year ending 31.03.2020: Particulars Rs. (a) Salary income as computed 6,00,000 (b) During the year arrears of salary were received not included in the above related to 15,000 F.Y. 2002- 03 (c) Assessed income of Financial Year 2002-03 66,000 (d) On 25.3.2018, amount deposited in Public Provident Fund Account 50,000 You are requested to compute relief u/s. 89 in terms of tax payable. The rates of tax for the A.Y. 2003-2004 are: On First Rs.50,000 Nil On Next Rs.10,000 10% On Next Rs.90,000 20% On the balance 30% (Surcharge @ 2% when taxable income exceeds Rs.60,000). Question-5 Raman has been in the service of a private company since 1st January, 2002, in Chennai. During the financial year ending 31-03-2020, he received from the company, salary Rs.15,000 per month dearness allowance Rs.3,000 per month, city compensatory allowanceRs.400 per month, entertainment allowance Rs.1,500 per month and house rent allowanceRs.5,000 p.m. CFP Level 2 - Module 2 – Taxation - India Page 149

Raman resides in the house property owned by his father for which he pays a rent of Rs.5,500 p.m. Raman has been in receipt of entertainment allowance from the company since January, 2002. Raman contributes Rs.2,000 p.m. to the recognized provident fund. The company is also contributing an equal amount. Raman retires from the service of the company on 31-12-2019 when he was paid a gratuity of Rs.95,000 and pension of Rs.8,000 p.m. He is not covered under the Payment of Gratuity Act, 1972. On 1-2-2020, he got one-half of the pension commuted and received Rs.1,95,000 as commuted pension. He also receivedRs.4,00,000 as the accumulated balance of the recognised provident fund. Compute his income under the head salary for the A.Y. 2020-21. Question-6 Ramesh an employee of a private sector transport company, based at Nagpur and covered by the Payment of Gratuity Act, retires on December 31, 2019 after a service of 33 years and 7 months. At the time of retirement his employer pays Rs.2,76,000 as gratuity and Rs.65,000 as accumulated balance of recognised provident fund. He is also entitled for a monthly pension of Rs.900. He gets 70 per cent of pension commuted for Rs.25,000 on February 1, 2020. The following information is available: (i) Basic salary: Rs.90,000 (Rs.10,000 x 9); (ii) Bonus: Rs.4,000; (iii) Special Allowance: Rs.25,000; (iv) House rent allowance: Rs.13,500 (Rs.1,500 x 9); rent paid by him:Rs.14,400 (Rs.1,200 x 12); (v) Employer's contribution towards recognised provident fund:Rs.13,000; (vi) Ramesh's contribution towards provident fund:Rs.15,000; (vii) Payment of insurance premium on March 31, 2020 on own life insurance policy:Rs.15,000 (sum assured:Rs.2,00,000, policy was taken on 09/07/2013); (viii) Professional tax paid by Ramesh: Rs.1,500. Salary and pension fall due on last day of each month. As per the terms of employment, Ramesh and his family members can use deluxe buses operated by the employer-company but only once in a year (value of the facility enjoyed by Ramesh and his family members during October 2017 isRs.10,000; a sum of Rs..5,000 is recovered from Ramesh). On an official tour of Ramesh to Cochin (October 10, 2019 to October 20, 2019), Mrs. Ramesh accompanies him (total expenditure incurred by employer on providing this facility to Mrs. Ramesh:Rs.20,500, amount recovered from Ramesh:Rs.2,000).Determine Ramesh’s total income for the assessment year 2020-21. CFP Level 2 - Module 2 – Taxation - India Page 150

Question-7 Ramesh was the General Manager of Amity Ltd. in Delhi. He retired from his service on 31-12-2019 after 30 years of service. The following information has been provided by him: (i) Basic Salary Rs.20,000 p.m. Dearness allowance 40% of basic salary (50% of which forms part of salary for retirement benefits). (ii) House rent allowance Rs.5,000 p.m. He pays Rs.6,000 p.m. as rent. (iii) Medical allowance Rs.1,200 p.m. (iv) A car of 1.4 ltrs. engine cubic capacity is provided by the company for official and personal use and all expenses of running and maintenance of car and salary of the driver are borne by the company. (v) The monthly expenses incurred by Ramesh on gas and electricity were Rs.800 which were reimbursed by the employer. (vi) Reimbursement of educational expenses of his two children which amount to Rs.450 p.m. (vii) A watchman, a sweeper & a cook have been provided to whom the company pays a salary of Rs.600 p.m. each. (viii) Loan of Rs.1,50,000 @ 10% p.a. for construction of his house was given by the company. SBI rate of interest is 8% p.a. (ix) He received Rs.2,40,000 as gratuity. His salary for the preceding years was as under: Particulars Rs. (a) Year ending 31-12-2014 1,10,000 (b) Year ending 31-12-2015 1,16,000 (c) Year ending 31-12-2016 1,20,000 (x) He receivedRs.1,25,000 for encashment of leave being twelve months unavailed leave of Ramesh. He was entitled to one month’s leave for every year of service. (xi) Ramesh contributes 20% of his salary to a recognised provident fund and the employer’s contribution is 10%. (xii) He has investedRs.20,000 in National Savings Certificates IX issue andRs.15,000 in public provident fund. He paidRs.10,000 towards life insurance premium. Compute the total income of Ramesh for the assessment year 2020-21. CFP Level 2 - Module 2 – Taxation - India Page 151

Question-8 Mr. Jaideep is a lecturer in a renowned private college in Baroda. During the previous year 2019-20, he gets the following emoluments: Basic salary: Rs.1,90,000; dearness allowance:Rs.12,300 (forming part of salary); city compensatory allowance:Rs.3,100; children’s education allowance:Rs.2,340 (Rs.65 per month for 3 children); house rent allowance:Rs.16,200 (rent paid:Rs.20,500) and remuneration from the Aligarh University for acting as paper setter and examiner:Rs.90,000 (expenditure incurred by Mr. Jaideep:Rs.3,400). He getsRs.21,233 as reimbursement from the employer in respect of expenditure incurred on medical treatment of his family members from a doctor. Besides, he gets Rs.12,600 as reimbursement from the employer in respect of books and journals purchased by him for discharging his official work. He contributes 11 per cent of his salary to recognized provident fund to which a matching contribution is made by the employer. During the year, he spendsRs.3,000 on purchase of books for teaching purposes (not being reimbursed by the employer). Besides, he makes, an expenditure of Rs..6,000 on maintaining car for going to the college and paysRs.16,000 as insurance premium on own life insurance policy (sum assured:Rs.50,000, policy was taken on 08/11/2012). Determine the total income and tax liability of Mr. Jaideep for the assessment year 2021-21. Question-9 State True or False, with reasons Mr. S is employed with T Ltd. as a Chartered Accountant. The annual membership fee of Mr. S paid by T Ltd. is not a perquisite and hence not chargeable to tax. Question-10 Following benefits have been granted by Ved Software Ltd. to one of its employees Mr. Badri: (i) Housing loan @ 6% per annum. Amount outstanding on 1.4.2019 isRs.6,00,000. Mr. Badri pays Rs.12,000 per month, on 5th of each month. (ii) Air-conditioners purchased 4 years back forRs.2,00,000 have been given to Mr. Badri for Rs.90,000. Compute the chargeable perquisite in the hands of Mr. Badri for the A.Y. 2020-21.The lending rate of State Bank of India as on 1.4.2019 for housing loan may be taken as 10%. CFP Level 2 - Module 2 – Taxation - India Page 152

Question-11 How is advance salary taxed in the hands of an employee? Is the tax treatment same for loan or advance against salary? Question-12 Mr. M is an area manager of M/s N. Steels Co. Ltd. During the financial year 2019-20, he gets the following emoluments from his employer: Basic Salary Rs.20,000 p.m. Up to 31.8.2019 Rs.25,000 p.m. From 1.9.2019 Rs.2,000 p.m. Transport allowance Contribution to recognised provident fund 15% of basic salary & D.A. Rs.500 p.m. for two Children education allowance children City compensatory allowance Rs.300 p.m. Hostel expenses allowance Rs.380 p.m. for two Tiffin allowance (actual expenses Rs.3,700) children Tax paid on employment Rs.5,000 p.a. Rs.2,500 Compute taxable salary of Mr. M for the Assessment year 2020-21. Question-13 Mr. Ashok Kumar, an employee of a PSU, furnishes the following particulars for the previous year ending 31.3.2020: (i) Salary income for the year Rs. (ii) Salary for Financial Year 2007-08 received during the year 5,25,000 (iii) Assessed Income for the Financial Year 2007-08 40,000 1,40,000 You are requested by the assessee to compute relief u/s 89 of the Income-tax Act,1961, in terms of tax payable for assessment year 2020-21. CFP Level 2 - Module 2 – Taxation - India Page 153

The rates of Income-tax for the assessment year 2008-09 are: Tax Rate (%) Nil On first Rs.1,00,000 10 On Rs.1,00,000 - Rs.1,50,000 20 On Rs.1,50,000 - Rs.2,50,000 30 Above Rs.2,50,000 2 Education cess Question-14 (i) Mr. Khanna, an employee of IOL, New Delhi, a private sector company, received the following for the financial year 2019-20: Rs. (a) Basic pay 1,80,000 (b) House rent allowance 1,20,000 (c) Special allowance 1,20,000 Mr. Khanna was residing at New Delhi and was paying a rent of Rs.15,000 a month. Compute the eligible exemption u/s 10(13A) of the Income-tax Act, 1961, in respect of house rent allowance received. (ii) If Mr. Khanna opts for rent free accommodation whereby IOL would be paying a rent of Rs.15,000 per month to the landlord and recovers a sum of Rs..5,000 per month from Mr. Khanna which was in excess of his entitlement, what will be the perquisite value in respect of such rent free accommodation? (iii) Which of the above would be beneficial to Mr. Khanna i.e., house rent allowance or rent free accommodation? Question-15 From the following particulars furnished by Mr. X for the year ended 31.3.2020, you are requested to compute his total income and tax payable for the assessment year 2020-21. (a) Mr. X retired on 31.12.2019 at the age of 58, after putting in 25 years and 9 months of service, from a private company at Mumbai. CFP Level 2 - Module 2 – Taxation - India Page 154

(b) He was paid a salary of Rs.25,000 p.m. and house rent allowance of Rs.6,000 p.m. He paid rent of Rs.6,500 p.m. during his tenure of service. (c) On retirement, he was paid a gratuity of Rs.4,00,000.He was not covered by the payment of Gratuity Act. His average salary in this regard may be taken as Rs.24,500.Mr. X had not received any other gratuity at any point of time earlier, other than this gratuity. (d) He had accumulated leave of 15 days per annum during the period of his service; this was encased by Mr. X at the time of his retirement. A sum of Rs.3,15,000 was received by him in this regard. His average salary may be taken as Rs.24,500. (e) After retirement, he ventured into textile business and incurred a loss of Rs.80,000 for the period upto 31.3.20. (f) Mr. X has invested Rs.22,500 in recognized provident fund,Rs.40,000 in public provident fund and Rs.37,500 in National Savings Certificates. Question-16 (i) Smt. Savita Rani was born on 01.07.1964.She is a Deputy Manager in a Company in Mumbai. She is getting a monthly salary and D.A. (fully includible for retirement benefits) of Rs..45,000 andRs.12,000 respectively. She also gets a House Rent Allowance of Rs..6,000 per month. She is a member of Recognised P.F. wherein she contributes 15% of her salary and half D.A. Her employer also contributes an equal amount. (ii) She is living in the house of her minor son in Mumbai. (iii) During the previous year her minor son has earned an income of Rs..30,000 (computed) as rent from a House Property, which had been transferred to him by Smt. Savita Rani without consideration a few years back. (iv) During the previous year she sold Government of India Capital Indexed Bonds forRs.1,54,950 on 30.09.2019, which she purchased forRs.80,000.The indexed cost of these bonds is 126582. (v) Her employer gave her an interest free loan of Rs..1,50,000 on 01.10.2019 to one of her son’s wife for the purchase of an Alto Maruti Car. Nothing has been repaid to the company towards the loan. (vi) During the previous year 2019-2020 she paidRs.15,000 by cheque to GIC towards Medical Insurance Premium of her dependent mother. Compute the taxable income and tax liability of Mrs. Savita Rani for the A.Y. 2020-2021. CFP Level 2 - Module 2 – Taxation - India Page 155

Question-17 Ramesh retired as General Manager of XYZ Co. Ltd. on 30.11.2019 after rendering service for 20 years and 10 months. He received Rs.3,00,000 as gratuity from the employer. (He is not covered by Gratuity Act, 1972). His salary particulars are given below: Basic pay Rs.10,000 per month up to 30.6.2019 Basic pay Rs.12,000 per month from 1.7.2019 Dearness allowance (Eligible for retirement benefits) 50% of basic pay Transport allowance Rs.1,500 per month He resides in his own house. Interest on monies borrowed for the self-occupied house is Rs.24,000 for the year ended 31.03.2020. From a fixed deposit with a bank, he earned interest income of Rs.18,000 for the year ended 31.03.2020. Compute taxable income of Ramesh for the year ended 31.03.2020. Question-18 Shri Hari is the General Manager of ABC Ltd. From the following details compute the taxable income for the Assessment year 2020-21: Basic salary Rs.20,000 per month Dearness allowance 30% of basic salary Transport allowance Rs.2,000 per month Motor car running and maintenance charges fully paid by employer Rs.36,000 (The motor car is owned and driven by employee Hari. The engine cubic capacity is below 1.6 litres. The motor car is used for both official and personal purpose by the employee) Expenditure on accommodation in hotels while touring on official duties Rs.30,000 met by the employer. Loan from recognised provident fund (maintained by the employer) Rs.40,000 Value of lunch provided by the employer during office hours - Cost to the Rs.12,000 employer Residence telephone bill for Hari paid by the employer Rs.15,000 Computer (cost Rs.50,000) kept by the employer in the residence of Hari from 1.10.19 CFP Level 2 - Module 2 – Taxation - India Page 156

Hari made the following payments: Rs.2,000 Medical insurance premium - Paid in cash Rs.3,200 - Paid by cheque Question-19 Distinguish between foregoing of salary and surrender of salary. Question-20 Mr. X and Mr. Y are working for M/s. Gama Ltd. As per salary fixation norms, the following perquisites were offered: For Mr. X, who engaged a domestic servant for Rs.500 per month, his employer reimbursed the entire salary paid to the domestic servant i.e. Rs.500 per month. For Mr. Y, he was provided with a domestic servant @Rs.500 per month as part of remuneration package. You are required to comment on the taxability of the above in the hands of Mr. X and Mr. Y, who are not specified employees. Question-21 Mr. Vignesh, Finance Manager of KLM Ltd., Mumbai, furnishes the following particulars for the financial year 2019-20. (i) Salary Rs.46,000 per month (ii) Value of medical facility in a hospital maintained by the company Rs.7,000 (iii) Rent free accommodation owned by the company (iv) Housing loan of Rs.6,00,000 at the interest rate of 5% per annum (No repayment made during the year). (v) Gifts made by the company on the occasion of wedding anniversary of Mr. Vignesh Rs.4,750. (vi) A wooden table and 4 chairs were provided to Mr. Vignesh at his residence (dining table). This was purchased on 1.5.14 for Rs.60,000 and sold to Mr. Vignesh on 1.8.2019 for Rs.30,000. (vii) Personal purchases through credit card provided by the company amounting to Rs.10,000 was paid by the company. No part of the amount was recovered from Mr.Vignesh. (viii) An ambassador car which was purchased by the company on 16.7.14 for Rs.2,50,000 was sold to the assessee on 14.7.19 forRs.80,000. CFP Level 2 - Module 2 – Taxation - India Page 157

Other income received by the assessee during the previous year 2019-20. Rs. Interest on Fixed Deposits with a company 5,000 Income from specified mutual fund 3,000 Interest on bank deposits of a minor married daughter 3,000 Income from UTI received by his handicapped minor son 1,200 Contribution to LIC towards premium u/s 80CCC 10,000 Deposit in PPF Account made during the year 2019-20 65,000 Bonds of ICICI (Tax savings) eligible for tax rebate 25,000 Compute the taxable income of Mr. Vignesh and the tax thereon for the Assessment year 2020-21. Question-23 Mrs. Lakshmi aged about 66 years is a Finance Manager of M/s. Lakshmi & Co., Pvt. Ltd., based at Calcutta. She is in continuous service since 1966 and receives the following salary and perks from the company during the year ending 31.03.2020. (i) Basic Salary (50,000 x 12) =Rs.6,00,000 (ii) D.A. (20,000 x 12) =Rs.2,40,000 (Part of Retirement Benefits) (iii) Bonus – 2 months basic pay. (iv) Commission – 0.1% of the turnover of the company. The turnover for the F.Y. 2019-20 was Rs.15.00 crores. (v) Contribution of the employer and employee to the PF Account Rs.3,00,000 each. (vi) Interest credited to P.F. Account at 8.5% -Rs.60,000. (vii) Rent free unfurnished accommodation provided by the company for which the company pays a rent of Rs.70,000 per annum. (viii) Entertainment Allowance –Rs.30,000. (ix) Children’s education allowance to meet the hostel expenditure of three children –Rs.5,000 each. She makes the following payments and investments: (a) Premium paid to insure the life of her major son –Rs.15,000. (b) Medical Insurance premium for self –Rs.5,000; Spouse –Rs.5,000. (c) Donation to a public charitable institution registered under 80GRs.2,00,000. (d) LIC Pension Fund –Rs.12,000. Determine the tax liability for the Assessment Year 2020-21. Page 158 CFP Level 2 - Module 2 – Taxation - India

ANSWERS Answer-1 Computation of Total Income and tax liability of Mr. Yogesh for the Assessment year 2020-21 Particulars Amount (Rs.) Income from Salary Salary ( Rs.10,000 × 9) 90,000 D.A. (10% of salary) 9,000 Club Bills reimbursed by employer 15,000 House Rent Allowance ( Rs.13,500 – Rs.12,600) (Note 1) Transport allowance ( Rs.1,400 × 9) i.e. Rs.12,600 900 Pension ( Rs.5,000 × 2 + Rs.2,500 × 1) 12,600 Commuted pension ( Rs.1,50,000 – Rs.1,00,000) (Note 2) 12,500 Gratuity ( Rs.2,50,000 – Rs.1,54,000) (Note 3) 50,000 Employer’s contribution of U.R.P.F. 96,000 Interest on employers contribution to U.R.P.F 35,000 Gross salary 25,000 Less: Standard Deduction sec 16(ia) 3,46,000 Income from Salary 50000 Income from other sources 2,96,000 Interest received on own contribution U.R.P.F Gross total income 15,000 Less: Deduction u/s 80C (Note 4) 3,11,000 Total taxable income Tax on Rs.3,12,180 40,000 Income tax 2,71,000 Less: Rebate u/s 87A 1,050.00 1,050.00 0.00 CFP Level 2 - Module 2 – Taxation - India Page 159

Add: Health And Education cess @ 4% 0.00 Tax liability 0.00 Tax liability rounded off 0.00 Note: Rs. 1. HRA is exempt to the extent of the minimum of the following: 13,500 12,600 (i) HRA received ( Rs.1,500 × 9) 39,600 (ii) Rent paid -10% of salary of Rs.99,000 i.e. ( Rs.22,500 – Rs.9,900) (iii) 40% of salary Therefore,Rs.12,600 will be exempt. 2. Commuted pension will be exempt to the extent of commuted value of 1/3rd of the pension as the assessee is also entitled to gratuity. The exemption amount will be (Rs.1,50,000 × 2 × 1/3) =Rs.1,00,000. 3. Assuming that he is not covered under the Payment of Gratuity Act. Gratuity is exempt to the extent of the minimum of the following: Rs. (i) Half month's average salary for every completed year of service i.e. 1,54,000 (28 × 1/2 × Rs.11,000) (ii) Actual gratuity received 2,50,000 (iii) Specified amount 10,00,000 Therefore,Rs.1,54,000 will be exempt. Rs. 4. The following payments qualify for deduction u/s 80C: 5,000 7,000 (i) LlC premium 8,000 (ii) PPF 15,000 (iii) Jeevan Dhara Scheme 5,000 (iv) Repayment of housing loan 40,000 (v) Purchase of NSC IX issue CFP Level 2 - Module 2 – Taxation - India Page 160

Answer-2 Computation of Income from Salary of Manas for Assessment year 2020-21 Particulars Rs. Rs. 1,08,000 Salary ( Rs.12,000 × 9) 27,000 Dearness allowance ( Rs.3,000 × 9) 2,700 4,500 City compensatory allowance ( Rs.300 × 9) 1,800 Entertainment allowance ( Rs.500 × 9) Nil House rent allowance 36,000 5,000 5,000 Less: Exempt (Note 1) 34,200 53,333 2,07,333 Gratuity (Note 2) 50,000 157333 Pension for January 2018 Pension for February & March 2018 ( Rs.2,500 × 2) Commuted pension (Note 3) Gross salary Less Standard Deduction Section 16 (ia) Income from Salary Working note – 1. As per section 10(13A), house rent allowance will be exempt to the extent of minimum of the following three: (i) 50% of salary i.e.Rs.54,000 (ii) Rent paid minus 10% of salary i.e. 5,000 – 1,200 = 3,800 × 9 =Rs.34,200. (iii) HRA received Rs.4,000 × 9 =Rs.36,000 Therefore,Rs.34,200 will be exempt. 2. Gratuity of Rs.1,20,000 is fully exempt u/s 10(10) being the minimum of the following amounts: (i) Rs.1,20,000 (ii) (12,000/2) × 24 =Rs.1,44,000 (iii) Rs.10,00,000 3. As Manas is receiving gratuity, commuted value of one-third of pension which he is normally entitled to receive will be exempt and the balance is taxable. 50% of the pension commuted is Rs.1,60,000. Therefore, 100% would be Rs.3,20,000 and 1/3rd would be Rs.1,06,667. The balance of Rs.53,333 is taxable. CFP Level 2 - Module 2 – Taxation - India Page 161

Answer-3 Manish is a resident but not ordinarily resident in India for the assessment year 2020-21. Income earned and received out of India is not chargeable to tax in India. Therefore, salary and perquisites received out of India for rendering service in New York is not deemed as income chargeable to tax in India u/s 9(1)(iii). For the assessment year 2020-21, taxable income of Manish will, therefore, be computed as follows: Particulars Rs. Salary of 4 months of service in New York (not taxable) - Salary of 8 months of service in Delhi 2,20,000 Bonus of 2016-17 30,000 Employer’s contribution towards recognised provident fund in excess of 12% of salary * 7,200 Rs.4,000 x 12 – 12% of ( Rs.1,20,000 + Rs.2,20,000); salary of the entire previous year will be taken, as the provident fund is maintained in Delhi] 58,000 Free car facility in Delhi - Car allowance in New York(not chargeable as Manish is RNOR in India) Rent free flat in Delhi (Note 1) 54,000 Rent free flat in New York(not chargeable as Manish is RNOR in India) - Sale of computer - Pension from Gujarat Government ( Rs.10,000 × 12] Gross salary 1,20,000 Less: Deduction u/s 16 (ia) 4,89,200 Income from salary 50,000 Income from other sources 4,39,200 Gross total income 2,10,000 Less: Deduction u/s 80C (Note 5) 6,49,200 Total Income (rounded off) 1,50,000 Tax 4,99,200 Income tax Add: Education cess (2% of tax) 22,340.00 Add: Secondary and higher education cess [1% of tax] 446.80 223.40 CFP Level 2 - Module 2 – Taxation - India Page 162

Tax payable 23,010.20 Tax payable (rounded off) 23,010.00 Notes: 1. Salary for the purpose of valuation of rent-free flat at Delhi comes to Rs.3,00,000(i.e.,Rs.2,20,000 + pension of 8 months: Rs.80,000). Lease rent of the flat is Rs.1,12,000 (i.e.,Rs.14,000 x 8). As lease rent of the flat exceeds, 15% of salary, Rs.45,000 (being 15% of salary) is taxable value of unfurnished flat. To this figure, rent of furniture is added to arrive at the valuation of furnished flat. Therefore, Rs.54,000 (i.e.,Rs.45,000 +Rs.9,000) is value of rent-free furnished flat provided in Delhi. 2. Salary, allowance or perquisite from UNO is not chargeable to tax. 3. Professional tax is deductible on payment basis. As professional tax is paid after the end of the previous year 2019-20, it is not deductible. 4. Perquisite in respect of sale of computer Cost of computer to the employer Rs. Less: Normal wear and tear for first year ending April 9, 2016 (50% of Rs.62,000) 62,000 Balance as on April 10, 2016 31,000 Less: Normal wear & tear for second year ending April 9, 2017(50% of Rs.31,000) 31,000 Balance as on April 10, 2017 15,500 Less: Sale price paid by Manish 15,500 Balance 16,500 5. Deduction u/s 80C Nil Gross qualifying amount Rs. Contribution to recognised provident fund Contribution to public provident fund 65,000 Payment of insurance premium to an American insurance company (subject to 19,000 maximum of 10% of sum assured) 30,000 CFP Level 2 - Module 2 – Taxation - India Page 163

Tuition fees of Manish's son ( Rs.4,000 × 12) Rs. Investment in equity shares of a notified company engaged in maintaining an 48,000 infrastructure facility 26,000 Total Maximum permissible 1,88,000 Deduction u/s 80C 1,50,000 1,50,000 Answer-4 A. Tax payable for A.Y. 2020-21 Computation of tax Excluding Including arrears of arrears of Current year salary salary ( Rs.) salary ( Rs.) Add: Arrears of salary 6,00,000 6,00,000 Gross Total income Less Standard Deduction --- 15,000 Less: Deduction under chapter VI-A -u/s 80C – P.P.F. Contribution 6,00,000 6,15,000 Total income 50,000 50,000 Income tax thereon 50,000 50,000 Less rebate u/s 87A 5,00,000 5,15,000 Add:Health &Education cess @ 4% 22,500 15,500 Tax payable 22500 NIL 0.00 620 0.00 16,120 B. Tax payable for A.Y. 2003-04 Computation of tax Excluding Including arrears of arrears of Current year income salary ( Rs.) salary ( Rs.) Add: Arrears of salary 66,000 66,000 -- 15,000 CFP Level 2 - Module 2 – Taxation - India Page 164

Total income 66,000 81,000 Income tax thereon 2,200 5,200 Add: Surcharge @ 2% 104 Tax payable 44 5,304 2,244 C. Relief u/s. 89 Particulars Rs. Rs. (i) Tax payable on arrears in A.Y. 2020-21: 16,120 16,120 Tax on income including arrears 0.00 Less: Tax on income excluding arrears 3,060 (ii) Tax payable on arrears in A.Y. 2003-04: 5,304 13,060 Tax on income including arrears 2,244 Less: Tax on income excluding arrears Relief u/s. 89 (i.e. excess tax payable in A.Y.2003-04 for arrears) Rs. 16,120 D. Tax payable for A.Y. 2018-19 after relief u/s. 89 13,060 Particulars 3,060 Income tax payable on income including arrears Rs. Less: Relief u/s. 89 as per workings (C) above 1,35,000 Tax payable 27,000 Answer-5 3,600 13,500 Computation of income under the head “Salaries” for the A.Y.2020-21 9,000 Particulars 16,000 65,000 Salary ( Rs.15,000 × 9) Dearness allowance ( Rs.3,000 × 9) City compensatory allowance ( Rs.400 × 9) Entertainment allowance ( Rs.1,500 × 9) House rent allowance [See Note 1] Pension ( Rs.8,000 + Rs.4,000 × 2) Commuted pension ( Rs.1,95,000 – Rs.1,30,000) [See Note 3] CFP Level 2 - Module 2 – Taxation - India Page 165

Gross salary 2,69,100 Less Standard Deduction 50,000 Less: Deduction u/s 16 [See Note 5] Income from salary Nil 2,19,100 Note: 1. As per section 10(13A), house rent allowance will be exempt to the extent of minimum of the following three amounts: (i) 50% of salary i.e.Rs.67,500. (ii) Rent paid minus 10% of salary i.e.,Rs.5,500 –Rs.1,500 =Rs.4,000 × 9 =Rs.36,000 (iii) HRA receivedRs.5,000 × 9 =Rs.45,000 Therefore, out of Rs..45,000,Rs.36,000 will be exempt and the balanceRs.9,000 will be included in Gross Salary. 2. Gratuity of Rs..95,000 is fully exempt u/s 10(10)(iii), being the minimum of the following amounts: (i) Actual gratuity received, i.e.,Rs.95,000 (ii) Half month’s average salary for every completed year of service i.e. 15,000 × 16 /2 = 1,20,000 (iii) Notified limit i.e.,Rs.10,00,000 3. As Raman is receiving gratuity, one-third of commuted pension will be exempt and the balance would be taxable. 50% of the pension commuted isRs.1,95,000. Therefore, 100% would beRs.3,90,000 and one-third of the same would beRs.1,30,000. The taxable portion of the commuted pension would beRs.65,000 (i.e.Rs.1,95,000 -Rs.1,30,000). 4. Since employer’s contribution to recognized provident fund is less than 12% of salary, it is not taxable. Accumulated balance of the recognized provident fund received is exempt from tax, since Raman has rendered continuous service of more than five years. 5. Deduction u/s 16(ii) in respect of entertainment allowance can be claimed only by Government employees. Therefore, Raman is not eligible for any deduction in respect of entertainment allowance received by him. CFP Level 2 - Module 2 – Taxation - India Page 166

Answer-6 Computation of Total Income of Ramesh for the Assessment Year 2020-21 Amount Amount Particulars ( Rs.) ( Rs.) 90,000 Basic salary 13,500 4,000 Bonus 1,800 25,000 Special allowance House rent allowance 2,76,000 11,700 Less: Exempt (See Note 1) 1,96,154 2,200 Employer's contribution towards recognised provident fund in excess of 25,000 12% of salary (i.e., Rs.13,000 -12% of Rs.90,000) 11,905 79,846 Gratuity 1,440 Less: Exempt (See Note 2) Uncommuted pension [ Rs.900 + (30% of Rs.900 x 2)] 13,095 Commuted pension 5,000 Less: Exempt (See Note 3) 18,500 Free use of deluxe bus by Ramesh and family members 2,50,781 Tour expenses of Mrs. X 1,500 Gross salary 50,000 Less: Deduction u/s 16(iii) - Professional tax 1,99,281 Less : Standard Deduction U/S 16(ia) 1,99,281 Income from salary 30,000 Gross total income 1,69,281 Less: Deduction u/s 80C (See Note 5) 1,69,280 Total income Total income (rounded off) Notes: Amount ( Rs.) 1. HRA is exempt to the extent of least of the following: 1,500 2. 200 Particulars (i) Actual HRA received (ii) Rent paid – 10% of salary ( Rs.1,200 – 10% × Rs.10,000) CFP Level 2 - Module 2 – Taxation - India Page 167

(iii) 40% of salary (40% of Rs.10,000) 4,000 Therefore,Rs.1,800 (Rs.200 x 9), being the least amount, is exempt u/s10(13A). 3. Ramesh is a private sector employee, covered by the Payment of Gratuity Act. Number of completed years of service is 34 years. Gratuity is exempt to the extent of minimum of the following: Particulars Amount ( Rs.) (i) Statutory limit 10,00,000 (ii) 15 days’ salary for every completed year of service ( Rs.10,000 × 34 × 15 1,96,154 / 26) (iii) Actual gratuity received 2,76,000 Therefore,Rs.1,96,154 is exempt u/s 10(10). 4. Commuted pension is exempt from tax as under: Commuted value of 70% of usual pension:Rs.25,000 Commuted value of full pension:Rs.35,714 (i.e.,Rs.25,000 / 0.7) Amount exempt from tax is one-third of commuted value of full pension, i.e., 1/3 of Rs..35,714 =Rs.11,905, as Ramesh is in receipt of gratuity at the time of retirement. 5. Accumulated balance of recognised provident fund is exempt from tax as Ramesh has rendered continuous service of more than 5 years with his employer. 6. Deduction u/s 80C: Particulars Amount ( Rs.) Contribution towards recognised provident fund 15,000 Insurance premium 15,000 Total deduction 30,000 Answer-7 Computation of Total Income of Ramesh for the A.Y. 2020-21 Amount Amount Particulars ( Rs.) ( Rs.) Basic Salary ( Rs.20,000 × 9) 1,80,000 CFP Level 2 - Module 2 – Taxation - India Page 168

Dearness Allowance ( Rs.1,80,000 × 40%) 45,000 72,000 House Rent Allowance ( Rs.5,000 × 9) 32,400 Less: Exempt u/s 10(13A) (Note 1) 12,600 Medical allowance ( Rs.1,200 × 9) 2,40,000 10,800 Value of car (1800+900 × 9) 2,40,000 24,300 Gas / electricity ( Rs.800 × 9) 1,25,000 7,200 Education Re-imbursement ( Rs.450 × 9) 1,25,000 4,050 Watchman ( Rs.600 × 9) 5,400 Sweeper ( Rs.600 × 9) 5,400 Cook ( Rs.600 × 9) 5,400 Interest on loan (Note 2) Gratuity Nil Less: Exempt u/s 10(10) (Note 3) Leave salary Nil Less: Exempt u/s 10(10AA) (Note 4) Income from Salary Nil Less Deduction U/s 16(ia) 3,27,150 Gross total income 50,000 Less: Deduction u/s 80C 2,77,150 PF (Note 5) 43,200 88,200 NSC 20,000 1,88,950 PPF 15,000 LIP 10,000 Total Income Amount Notes: ( Rs.) 1. HRA is exempt to the extent of least of the following: Page 169 Particulars CFP Level 2 - Module 2 – Taxation - India

(i) Actual HRA received 45,000 (ii) Rent paid – 10% of Salary ( Rs.54,000 – 10% × ( Rs.1,80,000 + Rs.36,000) 32,400 (iii) 50% of Salary [50% of ( Rs.1,80,000+ Rs.36,000) 1,08,000 Therefore,Rs.32,400, being the least amount, is exempt u/s 10(13A). 2. Interest on loan is not taxable as interest charged is more than the rate of SBI. 3. Gratuity is exempt to the extent of minimum of the following: Particulars Amount ( Rs.) (i) Statutory limit 10,00,000 (ii) Half month’s salary for every year of service (½ x 30 x Rs.24,000) 3,60,000 (iii) Actual gratuity received 2,40,000 Therefore,Rs.2,40,000 is exempt u/s 10(10). It is assumed that the employee is not covered under The Payment of Gratuity Act, 1972. 4. Leave encashment is exempt to the extent of minimum of the following: Amount Particulars ( Rs.) (i) Statutory limit 3,00,000 (ii) Cash equivalent of leave at the credit of the employee(12 × Rs.24,000) 2,88,000 (iii) 10 months average salary (10 x Rs.24,000) 2,40,000 (iv) Actual amount received 1,25,000 Therefore,Rs.1,25,000 is exempt u/s 10(10AA). 5. Employee’s Contribution to RPF = 20% of (BS + DA for retirement benefits) = 20% of (Rs.1,80,000 +Rs.36,000) = 20% of Rs..2,16,000 =Rs.43,200 Answer-8 Computation of taxable income and tax liability of Mr. Jaideep for the A.Y. 2020-21 Particulars Rs. Rs. 1,90,000 Basic salary CFP Level 2 - Module 2 – Taxation - India Page 170

Dearness allowance 2,340 12,300 City compensatory allowance 1,560 3,100 Education allowance: 16,200 Less: Exempt [see Note 3] 270 780 House rent allowance Less: Exempt [see Note 1] 15,930 Reimbursement of medical expenditure (i.e., Rs.21,233 – Rs.15,000) 6,233 Reimbursement of expenditure on books and journals for official work (not chargeable to tax) Nil Gross salary Less: Deductions u/s 16 (ia) 2,28,343 Net salary 50,000 Income from other sources (i.e. Rs.90,000 – Rs.3,400) 1,78,343 Gross total income 86,600 Less: Deduction u/s 80C [see Note 4] 2,64,943 Total income 32,253 Tax on total income 2,28,043 Income-tax Less: Rebate u/s 87A NIL Add: H&EC @4% NIL Tax payable nil Tax payable (rounded off) nil nil Notes: 1. House rent allowance is exempt from tax to the extent of the least of the following: (a) Rs.80,920 (being 40% of Rs..2,02,300); (b) Rs.16,200 (being the amount of house rent allowance); (c) Rs.270 [being the excess of rent paid over 10% of salary, i.e.,Rs.20,500 – 10% of (Rs.1,90,000 +Rs.12,300)] 2. Expenditure on books and maintenance of car is application of income and is not deductible. 3. Education allowance for children is not chargeable to tax up toRs.100 per child per month for a maximum of 2 children. Therefore, in this case, the amount not chargeable to tax is Rs.65 per month for 2 children, i.e.,Rs.1,560. CFP Level 2 - Module 2 – Taxation - India Page 171

4. Deduction u/s 80C is computed as under: Contribution to statutory provident fund [i.e., 11% of ( Rs.1,90,000 + Rs.12,300)] Rs.22,253 Insurance premium (maximum: 20% of sum assured i.e. 20% of 50,000) Rs.10,000 Total deduction Rs.32,253 Answer-9 False - The membership fee payable to the Institute is an obligation of Mr. S, which is paid by his employer i.e. T Ltd.Under the definition of perquisite, an obligation of the employee paid by the employer is to be treated as a perquisite and hence chargeable to tax. Answer-10 Perquisite value for housing loan The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the sum equal to the interest computed at the rate charged per annum by the State Bank of India(SBI) as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it. This rate should be applied on the maximum outstanding monthly balance and the resulting amount should be reduced by the interest, if any, actually paid by him. “Maximum outstanding monthly balance” means the aggregate outstanding balance for loan as on the last day of each month. The perquisite value for computation is 10% - 6% = 4% Month Maximum outstanding balance as Perquisite value at 4% for the on last date of month month April 5,88,000 1,960 May 5,76,000 1,920 June 5,64,000 1,880 July 5,52,000 1,840 August 5,40,000 1,800 September 5,28,000 1,760 October 5,16,000 1,720 CFP Level 2 - Module 2 – Taxation - India Page 172

November 5,04,000 1,680 December 4,92,000 1,640 January 4,80,000 1,600 February 4,68,000 1,560 March 4,56,000 1,520 Total value of this perquisite 20,880 Perquisite Value of Air Conditioners Rs. Original cost 2,00,000 Depreciation on SLM basis for 4 years @10% i.e. Rs.2,00,000 × 10% × 4 80,000 Written down value 1,20,000 Amount recovered from the employee 90,000 Perquisite value 30,000 Chargeable perquisite in the hands of Mr. Badri for the assessment year Rs. Housing loan 20,880 Air Conditioner 30,000 Total 50,880 Answer-11 Advance Salary Advance salary is taxable when it is received by the employee, irrespective of the fact whether it is due or not. It may so happen that when advance salary is included and charged in a particular previous year, the rate of tax at which the employee is assessed may be higher than the normal rate of tax to which he would have been assessed. Section 89(1) provides for relief in these types of cases. Loan or Advance against Salary Loan is different from salary. When an employee takes a loan from his employer, which is repayable in certain specified instalments, the loan amount cannot be brought to tax as salary of the employee. CFP Level 2 - Module 2 – Taxation - India Page 173

Similarly, advance against salary is different from advance salary. It is an advance taken by the employee from his employer. This advance is generally adjusted against his salary over a specified time period. It cannot be taxed as salary. Answer-12 Computation of taxable salary of Mr. M. for the Assessment Year 2020-21 Amount Amount Particulars ( Rs.) ( Rs.) Basic Salary ( Rs.20,000 ×5) +( Rs.25,000 × 7) 24,000 2,75,000 Transport allowance ( Rs.2,000 × 12) 24000 (earlier we get benefit of transport allowance upto 1600*12=19200) 6,000 Children education allowance ( Rs.500 × 12) 2,400 3,600 Less: Exempt u/s 10(14) ( Rs.100 × 2 × 12) 3,600 City Compensatory Allowance ( Rs.300 × 12) 4,560 Hostel Expenses Allowance ( Rs.380 × 12) 4,560 Nil Less: Exempt u/s 10(14) ( Rs.300 × 2 × 12 i.e. Rs.7,200 but restricted to the 5,000 actual allowance of Rs.4,560) 2,500 Tiffin allowance (fully taxable) 8,250 Tax paid on employment Employer’s contribution to R.P.F in excess of 12% of salary 3,21,950 (i.e. 3% of Rs.2,75,000) 2,500 Gross Salary 50,000 Less: Tax on employment u/s 16(iii) Less: Standard Deduction U/S 16(ia) 2,69,450 Taxable salary Notes: (i) The question states that contribution to recognised provident fund is at 15% of Basic salary + D.A. However, since neither the amount nor rate of D.A. has been given in the question, contribution to recognised provident fund has been taken as15% of basic salary. (ii) Professional tax paid by employer should be included in the salary of Mr. M as a perquisite since it is discharge of monetary obligation of the employee by the employer. Thereafter, deduction of professional tax paid is allowed to the employee from his gross salary. CFP Level 2 - Module 2 – Taxation - India Page 174

Answer-13 Computation of Relief u/s 89 for the Assessment Year 2018-19 Rs. Rs. Particulars 5,25,000 0 40,000 Salary Income for the year excluding the arrears 12,500 5,65,000 13,000 Add: Arrears relating to Financial Year 2007-08 25,500 1,020 Total Income Assessment year 2020-21 Tax on Rs.5,65,000 First Rs.2,50,000 Nil Next Rs.2,50,000 5% Balance Rs.65,000 20% Add: health & Education cess @ 4% Tax on total income (including arrears) (A) 26,520 Total Income excluding arrears 5,25,000 Tax on Rs.5,25,000 Nil 0 First Rs.2,50,000 5% 12,500 Next Rs.2,50,000 20% 5,000 Balance Rs.25,000 17,500 Add:Health & Education cess @ 4% 700 Tax on total income (excluding arrears) (B) 18,200 Difference between A & B I 8,320 Assessment Year 2008-09 1,40,000 Total Income assessed 40,000 Add: Arrears relating to Financial year 2007-08 CFP Level 2 - Module 2 – Taxation - India Page 175

Total income (including arrears) II 1,80,000 Tax on Rs.1,80,000 11,000 Add: Education Cess @ 2% Tax on total income (including arrears) (C) 220 Total Income excluding arrears 11,220 Tax on Rs.1,40,000 1,40,000 Add: Education Cess @ 2% 4,000 Tax on total income (excluding arrears) (D) Difference between C & D 80 Relief u/s 89 (I – II) 4,080 Tax payable for A.Y. 2020-21 ( Rs.26,520 – Rs.1,180) 7, 140 1,180 25,340 Answer-14 (i) The eligible exemption u/s 10(13A) in respect of house rent allowance received would be least of the following: Rs. Rs. (a) Actual house rent allowance (HRA) received 1,20,000 (b) Excess of rent paid over 10% of basic salary Rent paid (15,000 × 12) 1,80,000 Less:10% of basic pay (i.e. 10% of Rs.1,80,000) 18,000 1,62,000 (c) 50% of salary (i.e. 50% of Rs.1,80,000) 90,000 Least of the above isRs.90,000. The house rent allowance received by Mr. Khanna would be exempt to the extent of Rs.90,000 u/s 10(13A). The balance of Rs..30,000 is includible in his total income. (ii) Perquisite value in respect of concessional accommodation As per rule 3(1), where the accommodation is taken on lease or rent by the employer, the actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee is the value of the perquisite. (a) Actual rent paid by the employer = 15,000 × 12 = 1,80,000 (b) 15% of salary = 15% of basic pay plus special allowance = 15% of Rs..3,00,000 =Rs.45,000 CFP Level 2 - Module 2 – Taxation - India Page 176

Lower of the above isRs.45,000, which should be reduced by the rent of Rs..60,000 paid by the employee (i.e. 5,000 × 12 = 60,000). The perquisite value is, therefore, nil. (iii) We have to see the cash flow from both the options to find out which is more beneficial. Rs. Rs. Option 1: HRA Cash inflows [Basic Pay + HRA + Special Allowance] 4,20,000 Less: Cash outflows: Rent paid 1,80,000 Tax (See Working Note 1 below) NIL 1,80,000 Net cash flow 2,40,000 Option 2: Concessional accommodation Cash inflows [Basic Pay + Special Allowance] 3,00,000 Less: Cash outflows: Rent recovery 60,000 Tax (See Working Note 2 below) nil 60,000 Net cash flow 2,40,000 Since the net cash flow in both the option is equal, Mr. Khanna should opt for any one of the option. Working Notes – Rs. 1. Computation of tax under Option 1 (HRA): 1,80,000 Salary: 30,000 Basic Pay 1,20,000 HRA (taxable) 3,30,000 Special allowance 50,000 Total salary 2,80,000 Less Standard Deduction 16(ia) 1,500 Taxable salary 1,500 Tax on Rs.2,80,000 Less: Rebate u/s 87A NIL CFP Level 2 - Module 2 – Taxation - India Page 177

Add: H & Education cess @ 4% NIL Tax payable (including education cess) NIL 2. Computation of tax under Option 2 (Concessional accommodation) 1,80,000 Salary: 1,20,000 Basic Pay Special allowance Nil Concessional accommodation 3,00,000 Gross salary 50,000 Less Standard Deduction U/S 16(ia) Tax on Rs.2,50,000 NIL Less: Rebate u/s 87A NIL nil Add: Education cess @ 4% nil Tax payable (including education cess) nil Answer-15 Computation of total income of Mr. X for A.Y.2020-21 Particulars Rs. Rs. Rs. 2,25,000 Income from Salaries 54,000 36,000 18,000 Basic salary ( Rs.25,000 × 9 months) House rent allowance Actual amount received Less: Exemption u/s 10(13A) Least of the following (i) HRA actually received 54,000 (ii) Rent paid in excess of 10% of salary ( Rs.6,500– Rs.2,500) × 9 months 36,000 (iii) 50% salary 1,12,500 Gratuity Page 178 CFP Level 2 - Module 2 – Taxation - India

Actual amount received 4,00,000 3,06,250 Less: Exemption u/s.10(10)(iii) 93,750 Least of the following (i) Actual amount received 4,00,000 (ii) Half month average salary for each year of completed service (1/2 × 24,500 × 25) 3,06,250 (iii) Statutory limit 10,00,000 Leave encashment Actual amount received 3,15,000 2,45,000 Less: Exemption u/s.10(10AA) 70,000 Least of the following 4,06,750 50,000 (i) Actual amount received 3,15,000 Nil (ii) 10 months average salary (24,500 × 10) 2,45,000 3,56,750 (iii) Cash equivalent of unavailed leave calculated on the basis 3,06,250 1,00,000 of maximum 30 days for every year of actual service 2,56,750 rendered to the employer from whose service he retired (see note 2 below) 337.5 337.5 (iv) Statutory limit 3,00,000 Gross Salary Less Deduction U/S 16(ia) Profits and gains of business or profession Business loss of Rs.80,000 to be carried forward as the same cannot be set off against salary income. Gross Total income Less: Deduction u/s.80C RPF 22,500 PPF 40,000 NSC 37,500 Total income Tax on total income Less: Rebate u/s 87A CFP Level 2 - Module 2 – Taxation - India Page 179

Add:Health &Education cess @ 4% NIL Tax payable NIL Tax payable (rounded off) NIL Note: The leave entitlement of Mr. X as per his employer’s rules is not given in the question. It is assumed that the leave entitlement of Mr. X as per his employer’s rules is 30 days credit for each year of service. Since Mr. X had accumulated 15 days per annum during the period of his service, he would have availed/taken the balance 15 days leave every year. Leave entitlement of Mr. X on the basis of 30 days for every year of actual service rendered by him to the employer = 30 days/year × 25= 750 days Less: Leave taken /availed by Mr. X during the period of his service = 15 days/year × 25= 375 days Earned leave to the credit of Mr. X at the time of his retirement 375 days Cash equivalent of earned leave to the credit of Mr. X at the time of his retirement = 375 × 24,500 /30 =Rs.3,06,250 Answer-16 Computation of taxable income and tax liability of Smt. Savita Rani for A.Y. 2020-21 Particulars Rs. Rs. Income from salary 5,40,000 Basic salary (45,000 × 12) 1,44,000 DA (12000 × 12) 72,000 House Rent allowance (full taxable) Employer’s contribution to RPF in excess of 12% is taxable as salary income. 12% of salary is Rs.82,080. Employer’s contribution is 15% of (salary plus 50% of D.A.), which is Rs.91,800. CFP Level 2 - Module 2 – Taxation - India Page 180

Excess contribution is ( Rs.91,800 – Rs.82,080) 91,800 9,720 Perquisite in respect of interest free loan (See Note 1 below) 15,000 Rs.1,50,000 × 8%× ½ 6,000 Gross Salary 5673.60 7,71,720 Less Deduction U/S 16(ia) 7,495.00 50,000 Taxable Salary 7,21,720 Income from house property (of which Smt. Savita Rani is the deemed owner) – See Note 2 below 30,000 Long term Capital Gain: 28,368 Gross Total Income 7,80,088 Deduction U/s.80C – in respect of RPF contribution Deduction U/s.80D – Medi claim 1,06,800 Total Income 6,73,288 Income tax payable on long term capital gains: (i) 20% on Rs.28,368 or 5673.60 (ii) 10% of Rs.74,950 (u/s.112) 41,484.00 Tax on long term capital gain – whichever is less Income tax payable on income other than LTCG (i.e. Rs.6,73,288– 1,886.00 28,368) i.e. Rs.6,44,920 49,044.00 Add: H & EC @4% 49,040.00 Total tax payable Total tax payable (rounded off) Notes: 1. The rate of interest charged by SBI as on 1.4.2017 in respect of car loan is assumed at 8%. 2. As per section 27, any property transferred to the minor child without adequate consideration would be deemed to be the property of the assessee. Therefore, the income from house property of Rs..30,000 (computed) is to be assessed in the hands of Smt. Savita Rani. Answer-17 Computation of taxable income of Ramesh for the assessment year 2020-21 Page 181 CFP Level 2 - Module 2 – Taxation - India

Particulars Rs. Rs. Income from salary Basic pay: April to June(10,000 × 3) 30,000 Basic pay: July to November (12,000 × 5) 60,000 Dearness allowance @ 50% basic pay 45,000 Transport allowance Rs.1500×8 12,000 Gratuity (i) Statutory limit Rs.10,00,000 1,38,000 (ii) Half month average salary Rs.8,100 × 20 yrs = 1,62,000 285,000 (iii) Actual amount received = Rs.3,00,000 50,000 Least of the above is exempt. Balance is taxable Less deduction u/s 16(ia) Income from House property: Self-occupied – ALV Nil Less: Interest on monies borrowed u/s.24 24,000 Income from house property Income from other sources: Fixed deposit interest (24,000) Gross total income 18,000 2,29,000 Note 1: Average salary of 10 months preceding the date of retirement is to be computed: Basic pay 10,000 × 6 60,000 Basic pay 12,000 × 4 48,000 Total 1,08,000 Add: 50% DA – eligible for retirement benefits 54,000 1,62,000 Average salary: 1,62,000/10 16,200 Half month average salary 16,200 / 2 8,100 CFP Level 2 - Module 2 – Taxation - India Page 182

Answer-18 Computation of taxable income of Shri Hari for the A.Y. 2020-21 Rs. Rs. Particulars 2,40,000 72,000 Basic salary (20,000 × 12) 24,000 Dearness allowance @ 30% Transport allowance 14,400 (Deduction under Transport allowances are abolished ) Motor car maintenance borne by employer (36,000 – 1,800 x 12) Nil Expenditure on accommodation while on official duty not a perquisite and Nil hence not chargeable to tax Nil Loan from recognized provident – not chargeable to tax Value of lunch provided during working hours (assumed all meals for less Nil than Rs.50/meal) Residence telephone bill –not taxable Nil Computer provided in the residence of employee by the employer – not 3,31,200 chargeable to tax (Rule 3(7)(vii)) 50,000 Gross Salary 3,200 Less Deduction u/s 16(ia) 3,200 2,78,000 Less: Deduction under chapter VI-A Nil Deduction u/s.80Din respect of medical insurance premium paid by cheque Premium paid in cash not eligible for deduction Taxable income Answer-19 Foregoing of salary – Waiver by an employee of his salary is foregoing of salary. Once salary accrues, subsequent waiver does not absolve him from liability to income-tax. CFP Level 2 - Module 2 – Taxation - India Page 183

Surrender of salary – If any employee surrenders his salary to the Central Government under the Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the surrendered salary would not be included in computing his taxable income, whether he is a private sector/public sector or Government employee. Answer-20 In the case of Mr. X, it becomes an obligation which the employee would have discharged even if the employer did not reimburse the same. Hence, the perquisite will be covered u/s 17(2)(iv) and will be taxable in the hands of Mr. X. This is taxable in the case of all employees. In the case of Mr. Y, it cannot be considered as an obligation which the employee would meet. The employee might choose not to have a domestic servant. This is taxable only in the case of specified employees covered by section 17(2)(iii).Hence, there is no perquisite element in the hands of Mr. Y. Answer-21 Rs. Computation of taxable income of Mr. Vignesh for the Assessment Year 2020-21 5,52,000 Particulars 82,800 2,000 Income under the head “salaries” 24,000 Salary [ Rs.46,000 × 12 ] Nil Medical facility[ in the hospital maintained by the company exempt] 12,000 Page 184 Rent free accommodation [Rule 3(1) ] – 15% of salary is taxable Use of dining table for 4 months [ Rs.60,000 × 10 /100 × 4 /12] Valuation of perquisite of interest on loan [Rule 3(7)(i)] – assumed 9% is taxable which is to be reduced by actual rate of interest charged i.e. [ 9% - 5% = 4%] Gift given on the occasion of wedding anniversary Rs.4,750 not liable to tax Perquisite on sale of dining table cost 60,000 Less: Depreciation on straight line method @ 10% for 3 years 18,000 W.D.V 42,000 Less: Amount paid by the assessee 30,000 CFP Level 2 - Module 2 – Taxation - India

Particulars Rs. 10,000 Purchase through credit card – not being a privilege but covered by section 17(2)(iv) 80,000 7,62,800 Original cost of car 2,50,000 Less: Depreciation from 16.7.16 to 15.7.2017 @ 20% 50,000 2,00,000 Less: Depreciation from 16.7.2017 to 15.7.18 @ 20% on WDV 40,000 Value as on 14.07.2019 - being the date of sale to employee 1,60,000 Less: Amount received from the assessee on 14.07.2017 80,000 Gross salary Computation of taxable income Rs. Rs. Particulars 7,62,800 5,000 50,000 Income from salaries NIL Less Deduction u/s 16 (ia) 1,500 6,500 Income from other sources 7,19,300 (i) Interest on fixed deposit with a company Nil (ii) Income from specified mutual fund exempt u/s 10(35) 1,00,000 (iii) Interest received by minor daughter (3,000 -1500) 6,19,300 (iv) Income from UTI received by a handicapped minor son (Assuming 36,360.00 1,454..40 that the disability is of the nature specified in section 80 U, section 64(1A) is not applicable - exempt U/s.10(35) Gross total income 90,000 Less: Chapter VI-A deductions 10,000 Section 80 C – PPF & ICICI bonds Section 80 CCC – LIC Total Income Tax on above income of Rs.6,69,300 Add: Health & Education cess @ 4% CFP Level 2 - Module 2 – Taxation - India Page 185

Total tax liability 37,814.40 Total tax liability (R/o) 37,810.00 Note: It is presumed that the housing loan was availed on 1.4.2019. Answer-22 Computation of Total Income of Mrs. Lakshmi for A.Y. 2020-21 Rs. Rs. Particulars 15,000 6,00,000 Income from salary 7,200 2,40,000 Basic salary 1,00,000 Dearness allowance 15,000 1,50,000 Bonus 3,00,000 30,000 Commission (calculated as percentage of turnover) 12,000 Entertainment allowance 3,25,000 7,800 Children’s hostel allowance (See Note 1) 70,000 Less: Exemption (300 x 12 x 2) 1,81,200 Rent free unfurnished accommodation (Refer working Note 1) 13,79,000 Excess contribution to PF by employer (Refer working Note 2) 50,000 Gross salary Less Deduction u/s 16(ia) 1,50,000 Less: Deduction u/s.80C 10,000 11,69,000 LIC PF 58,450 Deduction u/s.80CCC in respect of LIC pension fund 11,10,550 1,45,665.00 Deduction limited to Rs.1,50,000 as per Sec.80CCE Deduction u/s 80D Total income before deduction u/s.80G Deduction u/s 80G: Limited to 10% of total income Rs.1,16,900. Deduction @ 50% Total income Tax on total income CFP Level 2 - Module 2 – Taxation - India Page 186

Add: Education cess @ 3% 5,826.60 Total tax liability 1,51,491.60 Total tax liability (rounded off) 1,51,490.00 Working Notes: 6,00,000 2,40,000 1. Value of rent free unfurnished accommodation 1,00,000 Basic salary 1,50,000 Dearness allowance Bonus 30,000 Commission @ 1% of turnover 7,800 Entertainment allowance 11,27,800 Children’s hostel allowance 1,69,170 Gross Salary 70,000 15 % of salary Actual rent paid by the company 3,00,000 The least of the above is chargeable perquisite. 1,18,800 1,81,200 The least of the above is chargeable perquisite. 2. Employer’s contribution to P.F. in excess of 12% of salary Employer’s contribution Less: 12% of salary, DA & commission - 12% of Rs.9,90,000 CFP Level 2 - Module 2 – Taxation - India Page 187

MULTIPLE CHOICE QUESTIONS 1. Mr. J is working with ABC Ltd. He joined the service on 1/1/2014 in the grade of Rs.10,000 – which increase by Rs.1000 on every completed yea. The Company gives him DA @ 25% of Basic Salary. He works in the sales department and has made sale of Rs..20 lakhs for which company gives him a commission of 1%. The Company also gives him a bonus of Rs..5,000 in the month of September. He also receives various Allowances of Rs..6,000 pm and various perquisites which have the money value of Rs..4,000 pm. Calculate Gross Salary for the AY 2020-2021. (a) 3,70,000 (b) 3,77,000 (c) 3,77,500 (d) 4,00,000 Answers questions (2 to 4) from the following information Mr. J is an employee of Haryana Government and gets salary of Rs..8,000pm.Hereceives Entertainment Allowance of Rs..2,000 pm and DA of 100% of Basic Salary. Haryana Government has imposed Professional Tax upon him of Rs..100 pm. On 15/3/2020 he has paid this amount for current year as well as for the next year in advance. 2. Deduction for entertainment allowance would be? (a) 24,000 (b) 5,000 (c) 19,200 (d) 18,000 3. Calculate his taxable salary for the AY 2020-2021 i.e. PY 2019-2021. (a) 2,08,600 (b) 2,16,000 (c) 2,11,000 (d) 2,09,000 4. Deduction for professional tax would be? (a) 1,200 (b) 2,400 (c) 3,600 (d) 2,500 Answer questions (5 to 6) from the following information Mr. J is a Non- Government employee receiving monthly salary of Rs..4,500, monthly DA of Rs.700 and monthly Entertainment Allowance of Rs..600. He has paidRs.100 pm as Professional Tax. 5. Deduction for entertainment allowance would be? (a) zero (b) 10,800 (c) 7,200 (d) 5,000 6. Calculate his taxable salary . (a) 69,600 (b) 63,400 (c) 64,600 (d) 68,400 Answer questions (7 to 9) from the following information Mr. J was employed since 1st July 2002 in an establishment. His salary was fixed atRs.14,800 in the grade of Rs..14,000-Rs.400 -Rs.22,000 w.e.f.1/7/2013. He got the benefit of 15% of salary as DA which CFP Level 2 - Module 2 – Taxation - India Page 188

is treated as forming part of the salary for the retirement benefits. He retired on 1/2/2020 and receivedRs.3,40,000 as a Gratuity from his employer. 7. Calculate his income under the head ‘Salary’ for the AY 2020-2021 if He is a Central government employee. (a) 1,96,420 (b) 5,36,420 (c) 3.36,000 (d) Income is not Taxable 8. Calculate his income under the head ‘Salary’ for the AY 2020-2021 if He is an employee of organization where Payment of the Gratuity Act applies (a) 3,24,000 (b) 4,36,420 (c) 3,42,424 (d) 1,46,004 9. Calculate the amount of gratuity exempt if he is not covered under payment of gratuity act? (a) 1,36,571 (b) 1,57,361 (c) 1,36,157 (d) 1,57,136 Answer questions (10 to 11) from the following information Mr. J was employed with ABC Ltd for last 23 years and 7 months and gets retired from that employer on15/5/2001 and he received Gratuity of Rs..2,75,000 out of whichRs.75,000 was exempt from tax. Thereafter, he joined the services of XYZ Ltd. Mr. J retires from XYZ Ltd. on 15/2/2020 and receives Gratuity of Rs..3,15,000. From XYZ Ltd. he was receiving Basic Salary of Rs..15,000 pm and DA of Rs..3,500 pm out of whichRs.2,000 pm was included in Salary for the Retirement benefits. He was in service of XYZ Ltd. for 16 years and 5 months. 10. Calculate the amount of gratuity exempt? (a) 10,00,000 (b) 1,36,000 (c) 3,15,000 (d) 75,000 11. Calculate taxable salary in hands of Mr. J. 3,37,250 (d) 3,25,073 (a) 3,73,250 (b) 3,74,150 (c) Answer questions (12 to 13) from the following information Mr. J retires from the services of Central Government on 31/3/2020 after doing the services of 37 years. He was getting the Basic Salary of Rs..25,000 pm and DA of 10% of Basic Salary. He was given Entertainment Allowance of Rs.1,000 pm and he was paying Professional Tax of Rs..200 pm to Maharashtra Government. On retirement he has been given Gratuity of Rs.10 lakhs. His pension was fixed at Rs.11,000 pm out of which he has got 40% commuted to receiveRs.7,92,000. 12. Calculate the exempted amount of commuted pension? (a) 2,97,000 (b) 2,79,000 (c) 7,92,000 (d) 7,29,000 13. Calculate his taxable salary for the AY 2020-2021. (d) 3,34,700 (a) 3,34,600 (b) 3,33,600 (c) 3,21,400 CFP Level 2 - Module 2 – Taxation - India Page 189

14. Mr. J is a Central Government employee working for a Basic Salary of Rs..10,000 pm and DA of Rs..2,000 pm. He retires on 31/12/2019 and Government gives him Gratuity of Rs..3,00,000. At retirement his pension is fixed atRs.3,500 pm. On the date of retirement he commutes 40% of his pension and receivedRs.2,52,000. Calculate taxable salary for the AY 2020-2021. (a) 1,43,100 (b) 1,14,300 (c) 1,42,400 (d) 1,41,300 Answer questions (15 to 16) from the following information Mr. J is working in Indian Army getting Basic Salary of Rs..7,500 pm and DARs.2,500 pm. He gets various Allowances of Rs.2,000 pm. In an encounter with terrorist he died on 1/1/2020. Government announces to give pension of Rs.3,000 pm. 15. Calculate the taxable income of Mr. J (a) 1,14,120 (b) 1,04,100 (c) 1,41,000 (d) 1,08,000 16. Calculate the taxable income of Mrs. J (a) 7,500 (b) 9,000 (c) nil (d) 6,000 Answer questions (17 to 19) from the following information. Mr. J is working with PQR Ltd. getting a salary of Rs..8,500 pm and DA is of Rs.1,500 pm. He gets a Bonus of Rs.2,000 in October 2019. In a road accident he died on 1/12/2019 and his employer has determined his pension of Rs..4,500 pm which is given to his wife Mrs. J. Mrs. J is also working with PQR Ltd. getting salary income of Rs..10,000 pm. 17. Calculate taxable salary of Mr.J (a) 80,000 (b) 78,000 (c) 77,100 (d) 11,700 18. Calculate taxable salary of Mrs.J (c) 1,21,000 (d) 1,20,000 (a) 1,20,500 (b) 1,22,000 19. Calculate taxable income of Mrs.J (c) 1,33,000 (d) 1,20,000 (a) 1,23,000 (b) 1,32,000 Answer questions (20 to 21) from the following information. Mr. J retired from the services from 1/11/2019 after serving for 18 years and 9 months. At the time of his retirement he was entitled to salaryRs.5,000 pm, DA @20% of salary (60% of which forms part of Salary for the retirement purposes). On retirement he received a sum of Rs..1,20,000 as Gratuity. He was entitled to a pension of Rs..2,500 pm w.e.f 1/11/2019 and he got 60% of his pension commuted and received a sum of Rs..1,50,000 as commuted pension. Compute his taxable salary for the AY 2020- 2021. CFP Level 2 - Module 2 – Taxation - India Page 190

20. Compute taxable salary if salary becomes due on last day of month. (a) 1,81,230 (b) 148,267 (c) 1,83,267 (d) 1,38,267 21. Compute taxable salary if salary becomes due on first day of next month. (a) 1,88,267 (b) 1,88,000 (c) 1,87,240 (d) 1,88,000 22. Mr. J retired from the services of ABC Ltd w.e.f 1/1/2020 after serving for 16 years and 7 months. At the time of the retirement he receivedRs.50,000 as Leave Encashment for unveiled leave of 300 days. He was entitled to 40 days leave for each completed year of services. He was getting the Salary of Rs..5,000 pm at the time of the retirement. He has received an increment of Rs..500 w.e.f 1/7/2019. Compute the amount of leave encashment exempt from tax. (a) 24,200 (b) 22,400 (c) 24,000 (d) 20,400 1.(c) ANSWERS 17.(a) 2.(b) 18.(d) 3.(a) 9.(d) 19.(b) 4.(b) 10.(b) 20.(c) 5.(a) 11.(a) 21.(a) 6.(d) 12.(c) 22.(b) 7.(a) 13.(a) 8.(c) 14.(b) 15.(d) 16.(c) CFP Level 2 - Module 2 – Taxation - India Page 191

SOLUTIONS Q1. Calculation of Gross Salary of Mr. J for the AY 2020-2021, i.e. PY 2019 – 20. Basic Salary ( Rs.15,000 x 9) + ( Rs.1,86,000 Rs.17,000 x 3) Dearness Allowance 25% of Rs.1,86,000 Rs.46,500 Commission (1% of Rs.20 lakhs) Rs.20,000 Bonus Rs.5,000 Allowances ( Rs.6,000 X 12) Rs.72,000 Perquisite ( Rs.4,000 X 12) Rs.48,000 Gross Salary Rs.3,77,500 Calculation of Basic Salary Rs.10,000 pm As on 1/1/2014 Rs.11,000 pm As on 1/1/2015 Rs.12,000 pm As on 1/1/2016 Rs.13,000 pm As on 1/1/2017 Rs.14,000 pm As on 1/1/2018 Rs.15,000 pm As on 1/1/2019 Rs.17,000 pm As on 1/1/2020 Q2. Calculation of deduction of Entertainment Allowance Rs.24,000 Deduction is Least of Rs.19,200 Rs.5,000 Actual amount received 20% of salary, i.e., 20% of Rs.96,000 Maximum limit of Q3. Calculation of Taxable Salary for the AY 2020-2021. Basic Salary ( Rs.8,000 x 12) Rs.96,000 Rs.24,000 Entertainment Allowance ( Rs.2,000 x 12) Rs.96,000 DA ( Rs.100% of B.S.) CFP Level 2 - Module 2 – Taxation - India Page 192

Gross Salary Working note Rs.2,16,000 Less: 16 (ii) Entertainment Allowance ( Rs.100 x 12 x 2) Rs.5,000 Less: 16 (iii) Professional Tax paid Rs.2,400 Taxable Salary Less Standard Deduction 16(ia) Rs.2,08,600 Taxable salary Rs.50,000 Rs. 1,58,600 Q6. Calculation of Taxable Salary for the AY 2020-2021. Basic Salary ( Rs.4,500 X12) Rs.54,000 Rs.8,400 DA ( Rs.700 X12) Rs.7,200 Rs.69,600 Entertainment Allowance ( Rs.600 X12) Gross Salary Rs.1,200 Rs.50,000 Less Professional tax paid 16(iii) Rs.18,400 Less Standard Deduction 16 (ia) Rs.14,800 Q7. Calculation of Basic Salary of Mr. J. Rs.15,200 1/7/2013 Rs.15,600 1/7/2014 Rs.16,000 1/7/2015 Rs.16,400 1/7/2016 Rs.16,800 1/7/2017 Rs.17,200 1/7/2018 1/7/2019 If Mr. J is a Central Government employee: Calculation of Taxable Salary Basic Salary ( Rs.16,800 X 3 ) + ( Rs.17,200 Rs.1,70,800 X 7) DA 15 % of Rs.1,70,800 Rs.25,620 Gratuity Rs.3,40,000 Nil Less: Exempt u/s 10(10) Rs.3,40,000 Taxable Salary Rs.1,96,420 CFP Level 2 - Module 2 – Taxation - India Page 193

Q8. If Mr. J is covered under the Payment of Gratuity Act,1972: Calculation of Taxable Salary Basic Salary ( Rs.16,800 X 3 ) + ( Rs.17,200 x 7) Rs.1,70,800 DA 15 % of Rs.1,70,800 Rs.25,620 Gratuity Rs.3,40,000 Rs.1,46,004 Less: Exempt u/s 10(10) Rs.1,93,996 Taxable Salary Rs.3,42,424 Least of the following amount of Gratuity is exempt from tax Rs.3,40,000 (a) Actual amount received Rs.10,00,000 (b) Maximum limit of Rs.1,93,996 (c) 15/26 x Salary x 17 years = 15/26 x Rs.19,780 x 17 years Q9. Least of the following amount of Gratuity is exempt from tax Rs.3,40,000 (a) Actual amount received Rs.10,00,000 (b) Maximum limit of Rs.1,57,136 (c) 15/30 x Avg. Salary x 16 years = 15/30 x Rs.19,642 x 16 years Calculation of Average Salary 17,200 + 2,580 19,780 Jan 17,200 + 2,580 19,780 Dec 17,200 + 2,580 19,780 Nov 17,200 + 2,580 19,780 Oct 17,200 + 2,580 19,780 Sep 17,200 + 2,580 19,780 Aug 17,200 + 2,580 19,780 July 16,800 + 2,520 19,320 Jun 16,800 + 2,520 19,320 May 16,800 + 2,520 19,320 Apr Average salary is 1,96,420 / 10 =19,642 CFP Level 2 - Module 2 – Taxation - India Page 194