Q.1.What is Salary Income?

Ans- Salary is the remuneration paid by the employer to the employee for the services rendered for a certain period
of time. It is paid in fixed intervals i.e. monthly one-twelfth of the annual salary. Under the provision of the section
15 salaries includes the amount of salary due in the year, amount of advance salary received and amount of arrears
of salary received during the year from the present or past employer.
1. Salary includes: u/s 17(1)
 Basic Salary or the fixed component of salary as per the terms of employment.
 Fees, Commission and Bonus that the employee gets from the employer
 Allowances that the employer pays the employee to meet his personal expenses. Allowances are taxed
either fully, partially or are exempt.
2. Allowances -
Fully taxable allowances are:
 Dearness allowance paid to the employees to meet expenses due to inflation.
 City Compensatory allowance paid to those who move to big metros like Mumbai, Delhi, Chennai, where
the standard of living is higher.
 Overtime allowance paid to the employee who works over the prescribed hours.
 Deputation allowance and servant allowance.
Partly taxable allowances are:
a. House Rent Allowance: If the employee stays in his own house then the allowance is fully taxable. The
allowance exemption is the least of
 The actual house rent allowance
 If he pays additional rent above 10% of his salary
 If the rent is equal to 50% of his salary (metros) or 40% (other areas).
b. Entertainment allowance (except for Central and State Government employees).
c. Special allowances like uniform, travel, research allowance etc.
d. Special allowance to meet personal expenses like children education allowance, children hostel allowance etc.
Fully exempt allowances are:
 Foreign allowance given to employees posted abroad.
 Allowances of High Court and Supreme Court Judges.
 United Nations Organisation employees allowances.
3. Perquisites are payments received by employees over their salaries. They are not reimbursement of expenses.
Some perquisites are taxable for all employees, they are:
 Rent free accommodation
 Concession in accommodation rent
 Interest free loans
 Movable assets
 Club fee payments
 Educational expenses
 Insurance premium paid on behalf of employees
 Some are taxable only to specific employees like directors or those who have substantial interest in the
organisation, they are taxed for:
 Free gas, electricity etc. for domestic purpose
 Concessional educational expenses
 Concessional transport facility
 Payment made to gardener, sweeper and attendant.
Some perquisites are exempt from tax. The fringe benefits that are exempt from tax are:
 Medical benefits
 Leave travel concession
 Health Insurance Premium
 Car, laptop etc. for personal use.
  Staff Welfare Scheme
4. Retirement benefits are given to employees during their period of service or during retirement.
 Pension is given either on a monthly basis or in a lump sum. The tax is treated depending on the category of
the employee.
 Gratuity is given as appreciation of past performance which is received at the time of retirement and is
exempt to a certain limit.
 Leave salaries tax depends on the category of the employee. The employee may make use of the leave or
encash it.
 Provident fund is contributed by both employee and employer on a monthly basis. At the retirement,
employee gets the amount along with interest. Tax treatment is based on the type of provident
fund maintained by the employer.
So salary income u/s 15, 16, and 17 = Salary u/s 17(1) + Allowances u/s 17(2)(ii) +Perquisites u/s 17(2) + Profit in lieu
of salary u/s 17(3) – {Standard deductions u/s 16(ia) + Entertainment allowances u/s 16(ii) + Tax on employment
u/s16(iii) }
Q.2. What does the term ‘’net pay’’ mean?
Ans- Net salary, or more commonly referred to as take-home salary, is the income that an employee actually takes
home after tax, provident fund and other such deductions are subtracted from it.
Net Salary = Gross Salary (less) Income Tax (less) Public Provident Fund (less)Professional Tax
Net Salary is usually lower than gross salary. It can be equal in cases where income tax is 0 and when the salary that
the employee is earning is less than the government tax slab limits
Net Salary = Gross salary - All deductions like income tax, pension, professional tax, etc.
Q.3. What is Provident Fund?
Ans- To encourage savings for the social security of employees, the government has set up various kinds of
provident funds. The employee contributes a fixed percentage of his salary towards these funds and employer also
contributes. The whole contribution along with interest is credited to employees account, which he get payment
out of this fund at the time of retirement and at some other important occasion. In case of death of employee his
legal hirer will get full payment. There are four types of provident funds as-
1. Recognized Provident Fund: (RPF)
Employee’s Contribution: Deduction under Section 80C is available.
Employer’s Contribution:  Exempt up to 12% of Salary. Thus Contribution made by employer exceeding 12% of
salary shall be added to employee’s salary Income.
Interest on Provident Fund: Exempt up to 9.5%. Interest exceeding 9.5% shall be added to employee’s Salary
Income
Amount withdrew at retirement time: Exempt subject to certain conditions*.
Here salary= Basic salary + DA (enter)/DP + commission on turnover
2. Unrecognised provident fund: (URPF)
 Employee’s Contribution: No deduction under section 80C available.
Employer’s Contribution: Any amount of contribution is not taxable
Interest on Provident Fund: Not taxable
Amount withdrew at retirement time: Contribution from employer and interest on that is taxable under the head
Income from Salaries; Contribution by an employee is not taxable, and employee’s contribution interest is taxable
under the head Income from Other Sources.
3. Statutory Provident Fund (SPF)
 Employee’s Contribution: Deduction under Section 80C is available
Employer’s Contribution:  Any amount of contribution is fully exempt.
Interest on Provident Fund: Exempt
Amount withdrew at retirement time: Exempt
4. Public Provident Fund: Deduction under section 80C available.
The amount received (including interest) is Fully Exempt.
*Conditions:
Employee leaves the job after five years of employment; or
Where the service period is less than five years, the reason for termination is discontinuance of employer’s business
or ill health; or
The balance in RPF is reassigned to RPF with the new employer on re-employment.
Q.4. What is NPS-
Ans- NPS or National Pension System is a pension scheme available for both government employees as well as
private citizens. NPS is one of the most popular options available to individuals looking to create a corpus for their
retirement along with a regular monthly income. Under this system the employee is required to contribute 10% of
his monthly salary towards NPS and employer also contribute the same amount. The employer’s contribution is
added with the salary income of employee and then he is allowed a deduction u/s 80CCD(2) out of GTI only up to
10% of employee’s salary and w.e.f A/Y 2020-21 this deduction has been raised up to 14% of salary in case of
central govt. employees.
Here salary means= basic salary + D.A /D.P if entered or under terms of employment.
The money deposited in NPS is invested in a variety of securities and investment avenues including equity market. It
is widely regarded as one of the cheapest investment options with exposure to equity. As the returns are directly
related to the market performance, there is no guarantee of any particular amount, but over a period of time,
returns from NPS are one of the highest in the market.
There are two types of accounts in NPS, NPS Tier 1 and NPS Tier 2.
(i) Tier 1 Account
This has a fixed lock-in period until the subscriber reaches the age of 60 years. Only partial withdrawal is allowed,
with certain conditions. Contributions made towards Tier 1 are tax deductible and qualify for deductions under
Section 80CCD(1) and Section 80CCD(1B). This means you can invest up to Rs. 2 lakh in an NPS Tier 1 account and
claim a deduction for the full amount, i.e. Rs. 1.50 lakh under Sec 80CCD(1) and Rs. 50,000 under Section
80CCD(1B).
(ii) Tier 2 Account
This is necessarily a voluntary savings account which allows the subscribers to make withdrawals as and when they
like. But the contribution made to a Tier 2 account is not eligible for tax deduction. To open a Tier 2 account, you
must open a Tier 1 account first.
Contribution to NPS now qualifies under the exempt-exempt-exempt (EEE) mode of taxation wherein the amount
contributed to NPS, the income generated and the amount of maturity, are all tax-exempt. As per the latest
guidelines, you can withdraw up to 60% of the amount on maturity and need to reinvest the remaining 40% to
purchase an annuity that gives you a regular monthly income.
Existing NPS subscribers can also take the benefit of the deduction under section 80CCD(1B) in addition to
deduction of Rs.1.5 lakh under Section 80C. They can claim an additional deduction of Rs.50,000 on their
contribution under Section 80CCD(IB). They can split their NPS contribution and claim partly in 80C and remaining in
80CCD(1B), making the most of Rs.2 lakhs of tax deduction.
Q.5. What is Allowances?
Ans- Allowance is a fixed monetary amount paid by the employer to the employee for meeting some particular
expenses, whether personal or for the performance of his duties. Any monetary benefit offered by the employer to
its employees for meeting expenditures, over and above the basic salary is known as Salary Allowances. These
allowances are generally taxable and are to be included in the gross salary unless a specific exemption has been
provided in respect of any such allowance.
Allowance is generally defined as fixed quantity of money or other substance given regularly in addition to salary
for the purpose of meeting some particular requirement connected with the services rendered by the employee or
as compensation for unusual conditions. It is fixed, pre-determined and given irrespective of actual expenditure
Under income tax act for exemption purpose allowances are categorized under three heads. These are-
a. Fully Taxable Allowances
i. Dearness Allowance (DA): DA is provided for converse the inflationary effect from the cost of living of the
people. Income Tax Act does not provide any exemption on DA.
ii. City Compensation Allowance: It is offered to the employees for meeting the highly inflated costs in the
large or metro cities.
 iii. Entertainment Allowance: It is an amount given to the employees for achieving the expenses incurred
towards the meal, beverages, hotels, etc. for the business clients of the company. An exemption u/s 16(ii)
can be claimed for entertainment allowance by the Government employees. Non-government employees
are taxed entirely.
iv. Overtime Allowance: It is provided to the employees for working more than the regular working hours.
v. Tiffin Allowance: It is provided to meet the food expenses.
vi. Cash Allowance: Any cash allowance provided by the employer becomes taxable. For instance, marriage
allowance, holiday allowance, etc.
vii. Project Allowance: Allowance provided to bear the expenses relating to the project.
viii. Servant/helper Allowance: Amount provided for hiring a servant is fully taxable in the hands of an
employee.
b. Partly Taxable Allowances
i. House Rent Allowance: HRA is offered to meet the residential rent expenses of the employee for its
accommodation. It is partially exempt u/s 10(13A), and the remaining amount after deduction is taxable.
ii. Leave Travel Allowance: LTA is offered for travelling anywhere in India. Deduction on the fare cost is
provided to some extent, and the balance is taxable.
iii. Conveyance Allowance: An amount of Rs. 1600 per month is offered to the employees for coming from
home to office and vice-versa. Any expense over and above that is taxable.
iv. Medical Bills Reimbursement Allowance: A token of Rs. 15000 is given by the employer for meeting the
treatment costs in case the employee or its family falls ill. Any expenditure incurred above Rs. 15000 is
taxable.
v. Education Allowance: Employees are given a certain amount to educate their children in India. Any sum
spent more than the provided limit of Rs. 100 per month per child for maximum two children, is taxable.
vi. Hostel Allowance: Per Child Rs. 300 per month for maximum two children is allowed as a deduction.
c. Fully Exempt Allowances
i. Allowance to Government Employees: Any amount paid as a provision for rendering services outside
India by the Government Employees is exempt.
ii. Allowances to Judges of Supreme Court or High Court are not taxable.
iii. Benefits received by the people working in United Nations Organisation (UNO) are fully exempt.
Q.6. House rent allowance
Ans- House Rent Allowance, or commonly known as HRA, is an amount paid by the employer to employees as a part
of the salary. HRA helps provide employees with tax benefits towards the payment for accommodation every year.
The HRA to be paid is decided based on different criteria, such as the salary and the city of residence.
HRA is regulated by the provisions of Section 10(13A) of the Income Tax Act, 1961. The HRA serves to be quite
beneficial to salaried employees in India.
A major benefit of the HRA is that it serves as a medium to reduce the taxable income. HRA deduction leads to a
reduction in the tax that taxpayers have to pay.
As per the Income Tax Act, 1961, only salaried employees can claim HRA, and self-employed individuals can claim
their rent payment under Section 80GG. HRA is allowed as an exemption only if the employee is living in rented
accommodations. However, if the employee lives in his or her own house and does not pay any rent, the taxpayer
cannot claim HRA to save on taxes.
House Rent Allowance (HRA) is an allowance paid by employers to their employees as a compensation for the rent
they pay for residing at homes in the city where their workplace is located. Normally HRA is part of the annual ‘Cost
to Company’, normally known as CTC.
The exemption for HRA benefit is the minimum of:
i) Actual HRA received
ii) 50% of salary if living in metro cities, like Bombay, Calcutta, Delhi and Madras or 40% for non-metro cities; and
iii) Excess of rent paid annually over 10% of annual salary
For calculation purpose, the salary considered is 'basic salary'. In case 'Dearness Allowance (DA)' (if it forms a part of
retirement benefits) and 'commission received on the basis of sales turnover' is applicable, they are also added to
compute the minimum HRA exemption available.
So Taxable HRA= Actual HRA received- Exempted amount
Here Salary = Basic pay+ DA(enters)/DP +commission on turnover
The tax benefit is available to the person only for the period in which the rented house is occupied during the
previous year.
HRA exemptions can be availed only on submission of rent receipts or the rent agreement with the house owner.
It is mandatory for the employee to report the Pan Card of the 'landlord' to the employer if the rent paid is more
than Rs 1,00,000 annually.
While claiming a tax deduction, one must remember that the individual himself or his/her spouse, or minor child, or
as a member of the Hindu Undivided Family (HUF) must not own any accommodation. Also, if the individual owns
any residential property at any place and earns rent from it then no deduction is allowed.
Q.7. state the cases where HRA is fully taxable.
Ans- HRA is fully taxable in the following cases-
i. If employee is living in his own house or
ii. If employee is living in a house for which he is not paying any rent or
iii. If rent paid does not exceed 10% of salary.
Q.8. explain the allowances covered u/s 10(14) /official allowances
Ans- Under Section 10 (14)(i), allowances are exempted to the extent of the amount received as allowance or
amount spent on certain duties, whichever is the lower figure.
Allowances covered in this category are:
1. Daily Allowance: Daily allowance is given to employees to meet the daily charges incurred when on tour or
for the duration of a transfer in the job. This type of allowance is granted when the employee is not in the
usual place of duty.
2. Travel Allowance: Travel allowance covers costs related to travel while on tour or on transfer while on
duty. This allowance also includes travel costs incurred while getting transferred to another location,
including packaging or transport of personal objects.
3. Research/ Academic Allowance: Allowance granted for the purpose of encouraging academic and research
related training, education or professional duties is termed as academic or research allowance.
4. Conveyance Allowance: Allowance for conveyance is granted to employees in case of expenses incurred
while travelling for duties of office. However, the employer does not pay for travel from home to work as it
is not considered as a duty of the office. This allowance comes under a different section called as ‘Transport
allowance’ and is not exempt from tax.
5. Helper Allowance: Sometimes your employer allows you to appoint a helper for performing official duties
of the office. In such cases, helper allowance is granted.
6. Uniform Allowance: Allowance when given for the purchase or maintenance of uniform, required to be
worn while on duty is referred to as uniform allowance. This allowance can be opted for only when an
office duty prescribes a specific uniform.
Usually, it is not required to furnish details of the expenses incurred under this category of allowance unless the
expenses are disproportionate to the salary or unreasonable in reference to the duty performed by the employee.
At most times, it is not required to keep a proof of documents and a simple declaration serves the purpose.
Section 10 (14) (ii):
Under this section, allowance granted to employees for working under certain set of conditions while on duty. The
amount exempted is either the amount received as allowance or the limit mentioned, whichever is lesser.
The types of allowances in this category and exempt in allowances are listed below:
1. Allowance for children education: exemption is-Rs.100 pm for each child and a maximum of two children.
2. Allowance for working in a transport system for personal expenses, while on duty/ running flight allowances-
70% of allowance up to Rs.10, 000 pm.
3. Allowance for employee’s children’s hostel expenses:-Rs.300 pm for each child up to two children.
4. Transport allowance to physically disabled employee on duty to travel to work:-Rs.3,200 per month.
5. Allowance for working in underground mines:-Rs.800 per month.
6. Allowance for duty in border area or remote area or any difficult/disturbed areas:-Allowances ranging from
Rs.200 to Rs.1300 pm are exempt under the Rule 2BB.
7. Compensatory allowance for working in areas of high altitude or hilly areas, also known as climate allowance:
exemption upto Rs 300 p.m. to Rs 7,000 p.m. Hilly areas of HP, UP, J&K and North East - Rs.800 .Siachen areas
of J&K - Rs.7000 per month. Common places above 1000mtr or above - Rs.300
8. Scheduled or tribal or agency areas allowance:-Karnataka, West Bengal, MP, Assam, Orissa, Tamil Nadu, Bihar,
UP and Tripura. - Rs. 200
9. Special compensatory highly active field area allowance:-Rs.4200 pm.
10. Allowance for armed forces in a high altitude region: given to armed forces operating in high altitude areas and
exemption is-9000 – 15,000ft – Rs.1060 pm Above 15,000 ft – Rs.1600 pm
Q. Difference between transport allowance and conveyance allowance?
While transport allowance is an allowance given to meet commuting expenses between place of residence and
office or to meet personal expenditure of employee of transport business, conveyance allowance is an allowance
granted to meet the expenditure on conveyance in performance of office duty.
Further, while fixed amount of transport allowance is exempt irrespective of actual expenditure, conveyance
allowance only to the extent of actual expenditure incurred is exempt from tax.

Q.. What is perquisites / PERK?

Ans- “Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to
salary or wages. In essence, these are usually non-cash benefits given by an employer to employees in addition to
cash salary or wages.
Prerequisite as defined u/s 17(2) of the Income Tax Act include the following:
1. Rental Accommodation-The employer providing rent-free/concessional rent accommodation; Value of such
benefit provided by the employer shall be treated as perquisite.
2. Obligation of assesse paid by the employer-Any sum paid by the employer in respect of an obligation which
was actually incurred /payable by the assesse.
3. Benefit to a specified employee-Any benefit/amenity granted free or at concessional rate to specified
employees etc; Value of such benefit provided by the employer shall be treated as perquisite.
4. Allotment of Sweat Equity shares-The value of any specified security or sweat equity shares allotted, by the
employer, free of cost or at concessional rate to the assesse shall be treated as perquisite.
5. Any other benefit-Any other fringe benefit or amenity as may be prescribed; Value of such benefit provided
by the employer shall be treated as perquisite.
However, perquisites are taxable under the head “Salaries” only if they are
i. Allowed by an employer to his employee;
ii. Allowed during the continuance of employment;
iii. Directly dependent upon service;
iv. Resulting in the nature of personal advantage to the employee; and
v. Derived by virtue of employer’s authority.
It is not necessary that a recurring and regular receipt alone is a perquisite. Even a casual and non-recurring receipt
can be perquisite if the aforesaid conditions are satisfied. 
Q.9. Name different types of PERK
Ans- There are three types of PERK as-
i. Perks exempted for all employees.
ii. Perks taxable for all employees.
iii. Perks taxable only for specified employees.
Q.10. Explain perks exempted for all employees./ tax free perquisites.
Ans- Perquisites Exempted from Tax for all Employees and not Added in Salary Income. These are-
1.    Leave Travel Concession subject to conditions & actual spent only for travels.
2.    Computer/ Laptop provided for official / personal use.
3.    Initial Fees paid for corporate membership of a club.
4.    Refreshment provided by the Employer during working hours in office premises.
5.    Payment of annual premium on Personal Accident Policy.
6.    Subscription to periodicals and journal required for discharge of work.
7.    Provision of Medical Facilities.
8.    Gift not exceeding Rs. 5,000 p.a.
9.    Use of Health Club, Sports facility.
10.  Free telephones whether fixed or mobile phones.
11.  Interest Free / concessional loan of an amount not exceeding Rs.20, 000 (limit not application in the case of
medical treatment)
12.  Contribution to recognised Provident Fund / approved super annuation fund, pension or deferred annuity
scheme & staff group insurance scheme.
13.  Free meal provided during working hours or through paid non transferable vouchers not exceeding Rs. 50 per
meal or free meal provided during working hours in a remote area.

Q. 11. State the PERKs taxable for all employees.

Ans- Perquisites which are Taxable in the hands of all Categories of Employees
The following perquisites are taxable in the hands of all employees:
1. Rent free house provided by employer to employee, which may be furnished or unfurnished.
2. Concessional rent house
3. Obligation of employee met by employer- i. Gas and electricity bill ii. Education of children bills iii. Income
tax and P.T. ( iv) Salary of domestic servants.
4. Any sum payable by the employer whether directly or through a fund (other than recognized provident fund
(RPF), Approved Superannuation Fund or Deposit Linked Insurance Fund) to effect an assurance on the life of
the assessee or to effect a contract for an annuity in excess of Rs 1,50,000.
5. Interest free or concessional loan.
6. The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the
employer, or former employer, free of cost or at concessional rate to the assesssee.
7. Other fringe benefits-
i. Travelling, touring, accommodation.
ii. Food or beverages facility
iii. Gift voucher or token
iv. Club facility
v. Use of moveable assets
vi. Transfer of moveable asset to the employee
vii. Credit card

Q.12. Explain the Perquisites Taxable for specified employees:

Ans- An employee shall be a specified employee, if he falls under any of the following three categories:
i. he is a Director of a company; or
ii. he, i.e. the employee, has a substantial interest in the company i.e. he holds at least 20% of the voting
power in the company or
iii. his income under the head 'Salaries' (whether due from, or paid or allowed by, one or more
employers), exclusive of the value of all benefits or amenities not provided for by way of monetary
payment, exceeds Rs. 50,000.
Income, for this purpose, shall include all taxable monetary payments like-basic salary, dearness allowance, bonus,
commission, taxable allowances/perquisites but shall not include the value of any non-monetary
benefits/perquisites. So it includes -
Basic salary ( form all employer in case employee working with more than one employer)+ DA/DP/ADA + bonus +
commission( if as per turn over achieved) +fees + taxable allowances + cash perquisites + gratuity, pension and
leave salary – standard deduction - EA (if applicable) – tax on employment
The following are to be deducted from salary for this purpose:
i. entertainment allowance (to the extent deductible under section 16(ii);
ii. tax on employment [Section 16(iii)]
for such specified employees the followings are the PERKS
  Motor Car,
 Gas, electricity and water,
 Transport,
 Free education to employee’s children in employer’s institution,
 Sweeper, watchman, gardener, etc.,
 Refrigerator, heater, etc.,
 Facilities of free boarding and lodging at Holiday Homes,
 Issue of shares at a concessional price,
 Free Lunch.

Q.13 state the Difference between allowance and perquisites

Ans-
ALLOWANCE PERQUISITES

A fixed amount of money given periodically in Small benefits offered by the employers in addition to the
addition to the salary normal salary at free of cost

It is taxable on due / accrued basis whether it is paid

It is taxable in the hands of employees.
in addition to the salary or in lieu thereon

For example; Uniform allowance, transportation For example; Rent free accommodation, free electricity,

allowance, telephone allowance and water supply

Q.14. state the valuation of perks of Rent free house-

Ans The term accommodation includes the following:
1. A flat, 2. Farm House or part thereof , 3. Hotel , 4. Guest House , 5. Service apartment 6. Caravan, 7. Mobile
home, 8. Ship or other floating structures.
For computation of perks of RFA Employees are divided in the following two categories:
1. Central and State Government employees
2. Private sector employees or other employees
There are two type of rent free accommodation?
1. Furnished rent free accommodation
2. Unfurnished rent free accommodation
Taxability of Rent Free Accommodation
A] Value of Furnished rent free accommodation- Value of Unfurnished accommodation Plus: 10% per annum of
cost of furniture, if the furniture is owned by owned by the employer or actual rent of furniture if hired by
employer.
B] Value of Unfurnished rent free accommodation- For
i) Central and State Government employees-License fee of House determined will be taxable
ii) Private sector employees or other employees-
a) If it is owned by employer-
City having population upto 10 lakhs as per 2001 census –7.5% of Salary
City having population exceeding 10 lakhs but upto 25 lakhs as per 2001 census – 10% of Salary
City having population exceeding 25 lakhs as per 2001 census – 15% of Salary
b) If taken on leased by employer- Actual lease rent paid by employer or 15% of Salary whichever is less will be
taxable
C. Taxability for Hotel Accommodation
a) If Hotel Accommodation is unfurnished – it means it is given for office purpose not for residence-It is not taxable
b) If Hotel Accommodation is furnished-Actual charges paid or payable for such hotel or 24% of the salary
whichever is less will be taxable
Note: If the hotel accommodation is provided for not more than 15 days on transfer of employee from one place to
another then it will not be taxable.
Q.15. What is Salary includes for purpose of Taxability of Rent free accommodation?
Ans- For calculating taxability of Rent free accommodation salary includes-
Salary= Basic pay + D.A(enters)/ +D.P. + any fee, commission, bonus( except gratuitous bonus) + All fully taxable
allowances + taxable portion of other allowances + Taxable E.A. + Leave encashment pertaining to current year.
Advance alary and arrear salary is not included as it does not relates to that previous year, but any accrued salary in
previous year is added. Value of other PERKs is not added.
Q.16 state the provisions of income tax for more than one accommodation at the time of transfer.
Ans - In case a person is allowed to retain more than one accommodation at the time of his transfer then the
followings are the provisions of Income tax to calculate the taxable perk
a. For the 1st 3 months value of one accommodation having lower value shall be taxable.
b. If such accommodation is retained for more than 3 months thereafter value of both accommodations shall be
taxable.
Q.17. state the taxability of Concessional accommodation.
Ans- Concessional accommodation means the employer has given the house to his employee, for which the
employer is charging a part of the rent or employee is paying a part of rent. The value of perk shall be calculated by
assuming that it is rent free accommodation and then deduct the amount of rent so recovered from employee. So
value of perk in this case shall be =value of RFA- rent paid by employee
If it is positive then taxable with that amount and if negative then taxable amount will be Nil.
Q.18. state the taxability of obligations of employee met by employer.
Ans-sometimes employer discharges the Obligation of employee which is a type of perk. Such perk is fully taxable
with actual expenses incurred by employer in discharging the following obligations of employee
i. Gas and electricity bill ii. Education of children bills iii. Income tax and P.T.
iv. Salary of domestic servants.
v. And other similar obligations of employee.
Q.19. state the taxability of Interest free or concessional loan from employer.
Ans- Any loan given free of interest or concessional interest shall be a taxable perquisite and calculated as follows:
• Interest calculated at the rate charged by State Bank of India as on 1st day of previous year on loan for the
same purpose. This is to be calculated on maximum outstanding monthly balance.
• Less actual interest paid by employee.
Interest free or concessional loan from employer-taxable perk shall be:
i. For interest free loan:- value of perk shall be total interest on loan as per SBI rate during the previous year.
ii. For concessional loan: – value of perk shall be=Interest on such loan as per SBI rate less interest charged by
employer.
Exceptions
• Loan up to Rs. 20,000.
• Loan for medical purposes for prescribed diseases ( Rule 3A) like neurological diseases, Cancer, AIDS,
Chronic renal failure, Hemophilia (specified diseases). for employee or any member of his family except re-
imbursement under any medical insurance scheme.
Steps to calculate value of Perquisite
• Step  1 : Calculate maximum outstanding monthly balance at the end of every month
• Step 2 : Find out rate of interest charged by SBI as on 1st April of previous year in case of similar loan
• Step 3 : Calculate interest on amount as per Step 1 @ Rate as per Step 2 for each month
• Step 4 : Total of interest for the year as per Step 3
• Step 5 : Less : Interest charged from employee
• Step 6 : Balance amount is the value of perquisite in respect of interest free /concessional loan.
 • Maximum outstanding monthly balance means the amount of such loan due to the employer on the last
day of each month. In case any amount of loan has been repaid in any month, it will be deducted to find
out maximum outstanding monthly balance.
Q.20 .state the taxability of perk in respect to Travelling, touring, accommodation
Ans- Valuation of PERK in respect to Travelling, touring, accommodation is made under three situations as-
a. Where these facilities are provided to all employees:- in this case value of PERK = Amount spend by
employer – amount charged from employee
b. Where these facilities are not provided to all the employees:- Value of PERK = value at which such facilities
are offered by other agencies to the public -- amount recovered from employee.
c. Extension of official tour as vacation- if an employee is on official tour and it is extended as a vacation by
the employer, the value of PERK shall be taken only for the extended period.
Q.21. state the taxability of perk Food or beverages facility.
Ans – if employer provides free food and non- alcoholic beverages to an employee, it shall be treated as perk for
the employee. The taxable amount of this perk shall be-
1) Fully Taxable: Free meals in excess of Rs. 50 per meal less amount paid by the employee shall be a taxable
perquisite
2) Exempt from tax: Following free meals shall be exempt from tax
 a) Food and non-alcoholic beverages provided during working hours in remote area or in an offshore installation;
 b) Tea, Coffee or Non-Alcoholic beverages and Snacks during working hours are tax free perquisites;
 c) Food in office premises or through non-transferable paid vouchers usable only at eating joints provided by an
employer is not taxable, if cost to the employer is Rs. 50(or less) per meal.
Q.22. state the taxability of Gift voucher or token
Ans- Gift voucher or token-
a) Gifts in cash or convertible into money (like gift cheque) are fully taxable
b) Gift in kind up to Rs.5, 000 in aggregate per annum would be exempt, beyond which it would be taxable.
Q.23. How to find taxable perk of Club facility ?
Ans- in case employee or any other member of his household enjoys the facilities provided in a club and the
expenses of such is paid or re-imbursed by the employer the taxable value of perk shall be as-
a) Any Expenditure incurred by the employer towards annual or periodical fee etc. (excluding initial fee to acquire
corporate membership) less amount recovered from the employee is a taxable perquisite
b) Expenses incurred on club facilities for the official purposes are exempt from tax.
c) Use of health club, sports and similar facilities provided uniformly to all employees shall be exempt from tax.
Q.24. state the taxable value of perk of use of moveable assets.
Ans- Use of moveable assets-Taxable value of perquisites
a) Use of Laptops and Computers: Nil
b) Movable asset other than Laptops, computers and Motor Car*: 10% of original cost of the asset (if asset is owned
by the employer) or actual higher charges incurred by the employer (if asset is taken on rent) less amount
recovered from employee.
Q.25. what is the taxable amount of perk as regards to Transfer of moveable asset to the employee?
Ans- Transfer of moveable asset to the employee-Taxable value of perquisites
a) Computers, Laptop and Electronics items: Actual cost of asset less depreciation at 50% (using reducing balance
method) for each completed year of usage by employer less amount recovered from the employee
b) Motor Car: Actual cost of asset less depreciation at 20% (using reducing balance method) for each completed
year of usage by employer less amount recovered from the employee
c) Other movable assets: Actual cost of asset less depreciation at 10% (on SLM basis) for each completed year of
usage by employer less amount recovered from the employee.
7. Credit Card-
a) Expenditure incurred by the employer in respect of credit card used by the employee or any member of his
household less  amount recovered from the employee is a taxable perquisite
b) Expenses incurred for official purposes shall not be a taxable perquisite provided complete details in respect of
such expenditure are maintained by the employer
Q.26. Explain the valuation of perk as regards to Motor car
Ans- Motor car perk is taxable to specified employees. The value of this perk is calculated as-
Valuation of this Perk shall be made under three situations as-
1. Motor car is owned or hired by employer and running and maintenance expenses are met or reimbursed by
employer.
2. Car is owned by employee and running and maintenance expenses are met or reimbursed by employer.
3. Where employee owns any other automotive conveyance and running and maintenance expenses are met or
reimbursed by employer.
Value of PERK shall be-
1. Motor car is owned or hired by employer and running and maintenance expenses are met or reimbursed by
employer.- there are three cases as
a. Car is fully used for official duties- value of perk is Nil
b. Car is used for personal / family purposes- value of perk = actual expenses incurred by employer +salary of driver
+ normal wear and tear @ 10% on original cost – any amount charged by employer from employee.
c. Car is used partly for office and private purposes- value of Perk is calculated under two cases as-
• If running and maintenance expenses are met or reimbursed by employer- value of perk=
i. For small car (cubic capacity<1.6 ltr.)- Rs 1800 p.m.
ii. For big car (cubic capacity>1.6 ltr.)- Rs 2400 p.m.
• If running and maintenance expenses for private use are met by employee- value of perk =
i. For small car (cubic capacity<1.6 ltr.) - Rs 600 p.m.
ii. For big car(cubic capacity>1.6 ltr.)- Rs 900 p.m.
If chauffeur or driver is provided by employer, then Rs 900 p.m. shall be added with the above.
2. Car is owned by employee and running and maintenance expenses are met or reimbursed by employer.:- there
are 3 cases to calculate value of Perk as-
a. If Car is used for official use- value of perk = Nil but proper log book must be maintained.
b. If Car is used for personal / family purposes- value of perk = actual expenses incurred by employer +salary
of driver- any amount charged by employer from employee.
c. If Car is used partly for office and private purposes- value of perk shall be calculated as- Actual amount
incurred by Employer Less- Rs 1,800 p.m. for small car and Rs 2,400 p.m. for big car Plus Rs 900 p.m. for
driver
3. Where employee owns any other automotive conveyance and running and maintenance expenses are met or
reimbursed by employer.-
i. Employee’s conveyance is being used only for official purpose- value of Perk = Nil but proper log book is
required to be maintained.
ii. Employee’s conveyance is being used partly for official and partly for personal purpose-
Value of PERK = actual expenditure incurred by employer or Rs 900 p.m. Whichever is less / higher sum for official
purposes *
Employee using more than one car belong to employer- In this case value of one car at the choice of the employee
shall be @ Rs 1800 p.m. or Rs 2400 p.m. as for small car and big car respectively and the valuation of other car or
cars shall be made as if he had been provided with such a car or cars exclusively for his private or personal purpose.
Q.27. state the perks as regards to Medical facilities.
Ans- Perk as regards to Medical facilities- if such facility is provided :-
i. In Govt./Employer’s/ IT approved hospital:- value of perk = nil
ii. Group medi claim insurance:- exempted
iii. In private / other hospital:- fully taxable perk.
iv. Outside India: – accommodation and medical expenses shall not be taken as perk if expenses approved by
RBI. And travelling expenses not a perk if GTI is less than or equal to Rs 200,000 p.a.
Q.28. Explain Profit In lieu of salary u/s 17 (3) as regards to Leave travel concession u/s 10(5)-
Ans-Leave travel concession u/s 10(5)- it is an exemption for allowance/assistance received by the employee from
his employer for travelling on leave. Income tax provision has laid down rules with respect to claiming exemption of
LTA.
 a. if journey is performed by air- the amount of tax exemption will include the amount actually spent on
airfare or the price of an economy class ticket for the shortest route, whichever is lower.
b. In case journey is performed by a train- then the amount actually spent on train fare, or first-class ticket
for the shortest route, whichever is lower, will qualify for tax exemption.
c. In case of use of any other mode of travel, (if the places are not connected by rail and air):
1. If recognised transport system exists- then the actual amount spent on the transport or the value for deluxe
1st class fare on such transport by the shortest route, whichever is lower will be considered.
2. If recognised transport system does not exist- then 1st Class AC fair of the shortest route will be
considered, as if the journey had been done by rail or actual amount spent, whichever is lower.
Q.29. Explain Gratuity u/s 10(10)
Ans- Gratuity is a lump sum amount that employers pay their employees as a sign of gratitude for the services
provided. A person is eligible to receive gratuity only if he has completed minimum five years of service with an
organisation. However, it can be paid before the completion of five years at the death of an employee or if he has
become disabled due to an accident or disease. So gratuity is paid
a. At the time of retirement / leaving the job- due to VR or due to Statutory Retirement (SR) is taxable in the
hands of employee under the head salary after claiming exemption.
b. In the event of death of employee- taxable in the hands of legal heirs under the head income from other
source
The exemption limit of gratuity shall be-
1. For govt. employee -Fully exempted
2. For non- govt. employee –
a. If employee covered under POGA
Exemption – least of the following 3
i. Notified limit- 20,00,000
ii. Actual gratuity received
iii. (15 X last drawn salary X years of service or part in excess of 6 months) divided by 26
Here salary means = basic salary + DA entered or not entered
b. If employee not covered under POGA
Exemption – least of the following 3
i. Notified limit- 20,00,000
ii. Actual gratuity received
iii. 1/2 x average salary for the last 10 months (IPMR) x number of completed years of service
Here salary means= basic pay + DA (enter) + commission on turnover
Q.30. Explain pension u/s 10 (10A)
Ans- Meaning of pension-At the time of retirement of an employee, the employer pays the employee a certain
amount regularly in consideration of his past service. This periodic payment is paid by the employer to his
employee is referred to as Pension.
Pension is a retirement benefit; this is taxed as salary in the hands of the employee.
Family pension received by the dependence of the employee is taxable under the head income from other source.
Who is eligible for pension/ family pension
• Person himself, his/her spouse, children below 25 year of age, unmarried daughter.
After the introduction of the National Pension Scheme not only can the employer pay pension after retirement but
the Pension Scheme can also pay Pension. The individual taxpayers may also invest in a pension plan which will give
them pension after retirement. Such investment in pension plans can also be claimed as a deduction under Section
80CCC & Section 80CCD
Types of Pension:- There are two types of pension as-
1. Uncommuted Pension/ periodic /normal/monthly pension-: Uncommuted Pension refers to Pension received
periodically. Any amount received as Uncommuted Pension is fully taxable in the hands of both govt and non-govt
employees.
2. Commuted Pension /lump sum pension-: Commuted means Interchange. Many employers allow the employee to
forgo a portion of the pension and receive a lump-sum amount by surrendering a portion of the Pension. Such
amount received is known as Commuted Pension. The pension may be fully or partly commuted.
For example, suppose a person is entitled to receive a pension of Rs. 2000 pm for the rest of his life. He may
commute 1/4th i.e. 25% of this amount and get a lump-sum of Rs. 30,000. After commutation, his pension will now
be the balance 75% of Rs. 2000 pm i.e. Rs. 1500 pm
Q.31. state the Tax treatment of pension
Ans- Taxable amount of pension can be calculated as-
1. Uncommuted pension i.e. periodical pension -:It is fully taxable in the hands of all employees, whether
government or non- government.
Here- Govt. employee may be central govt., state govt, local authority, public sector undertaking, judges of
Supreme Court or high court of India
2. Commuted Pension -:
A) i. Exempted in case of Government employee or employee of local authorities or statutory corporation
[section 10(10a)(i)]
ii. Disability pension given to Armed Forces personnel- fully exempted
B) Non-Government Employee-Any commuted pension received is exempt from tax in the following
manner:
i. If the employee is in receipt of gratuity
Exemption = 1/3rd of the amount of pension which he would have received had he commuted the whole of
the pension.
ii. If the employee does not receive an gratuity
Exemption = ½ of the amount of pension which he would have received had he commuted the whole of the
pension.
Caution: Exemption shall be to the extent it is allowed to be commuted and the balance uncommuted
Pension received periodically will be fully taxable.
Q.32. Leave Encashment u/s 10(10AA)
Ans- Every salaried person as per labour law is entitled to a minimum number of paid leave every year. Such leaves
may be casual leave, medical leave, privileged leave or earned leave.
Generally, employees are allowed to take leave during the period of service. There are various possibilities that can
arise when leaves get allotted to an employee.
• The employee may avail such leave
• The employee may not avail such leave but encash it in future during the term of employment
• The employee may not avail such leave but encash it at the time of retirement, whether on superannuation
or otherwise
• The leaves may lapse, depending on the employer’s H.R. policies.
However, it is not necessary that an individual employee utilises all the leave he is entitled for a year. In fact, most
employers allow the employees an option of carrying forward such unutilised paid leaves. This would invariably
leave the employee with an accumulated unutilised leave balance at the time of retirement or resignation from the
company . In case an employee does not avail all the leaves which were allowed to him, he may also encash these
leaves and earns salary for the no. of the days which were allowed to be taken as leaves but were not availed as
leave. Such receipt of salary by an employee from his employer in lieu of his accumulated leaves is called as leave
encashment.
Q.33. state the Tax treatment of Leave Encashment.
Ans- There are 3 cases for taxability of leave encashment as-
A. Leave Encashment during service:-Fully Taxable for both Govt. and Non- Govt. Employees.
B. Leave Encashment on leaving job / on retirement :-
1. Govt. employee:- Fully Exempted.
2. Non- Govt. employee:- Exempted up to least of 4 limits.
i. Notified limit- Rs 3,00,000
ii. Actual amount received as leave encashment
 iii. Salary for approved period of leave not utilised by employee and remains to his credit at the
time of retirement or leaving the job.
iv. 10 months salary on the basis of average salary drawn during 10 months immediately
preceeding his retirement / leaving the job
C. Leave Encashment after Death: - Fully Exempted for both Govt. and Non- Govt. Employees.
Here salary = Basic pay + D.A.( enter)/ D.P.+ commission on turnover.
Approved period of leave= 30 days / 1 month for every completed year of service.
Approved leaves left on retirement = Approved leaves -- leaves taken – leaves encashed during service.
Or
Leave Availed = Leave Due (service period x leave entitlement) – leave encashment received for.
Approved leaves left = leave due as per approved period – leave availed.