Income Tax Notes Till Salary 2022 by Sachin Arora SEH PDF

SACHIN EDUCATION HUB
Basic Concepts
I. What is Tax?
Taxes are levied by government to meet

the common welfare expenditure of the
society.
It includes two types:
Basis Direct Tax Indirect Tax
Meaning If the tax is levied on the If the tax is levied on the

income or wealth of a person, price of goods and
then, it is direct tax. services, then, it is an
indirect tax.
Burden The burden of the direct tax The burden of the indirect
cannot be shifted. tax is shifted from person
to persons.
Tax Difficult Relatively easier.

collection
For example Income Tax Goods and services tax

[GST] or custom duty
WHY TAX LEVIED?

Because it constitutes the basic source of revenue for the government which it
utilized for meeting the expenses of govt. like defence, health-care,
infrastructure.
II. Power to levy Taxes:

The constitution of India in Article 265 lays down that
“No tax shall be levied or collected except by authority of law.”
Constitution of India gives power to levy and collect taxes, whether direct or
indirect, to the Central and State Government.
Seventh Schedule of Article 246 contains three lists which enumerate the
matters under which the Parliament and the state legislatures have authority
to make laws for the purpose of levy of taxes.
Lists Power to make laws
Union List Parliament

State List The Legislatures of any state
Concurrent List Both Parliament and State Legislature
NOTE: Constitution of power given the power to parliament to make laws

on taxes on income other than agriculture income.
III. Overview of Income-Tax laws:

Legal
Income Tax Income Tax Decisions
Law Rules of courts
Annual
Circulars
Finance Act
IV. (a) Income Tax Act, 1961:

The levy of Income-Tax is governed by Income Tax Act, 1961.
It contains Sections 1 to 298 and Schedules I to XIV.
It came into force on 1st April, 1962.
→ When each part of section is independent of each other and one

is not related with each other, such part is called, “Clause”.
→ Such part of section where each part is related with each other
and all sub-sections taken together completed the concepts
propounded in that section.
For Example [1]:Clause of section 2 define meaning used in terms of income-

tax act, 1961.
• Clause (1A) defines “Agricultural income”
• Clause (1B) defines “Amalgamation”.
Section 5 defining scope of total income has two sub-sections (1) and (2).
• Section (1) defines the scope of income of resident.
• Section of (2) defines the scope of total income of non-resident.
Act also considered some proviso and explanations:
Proviso refers to the exception to the sections that where section/sub-

section/clause would not apply or apply with certain conditions.
Explanations refers to the clarification of the section/sub-

sections/clauses.
IV. (b) Finance Act:

Every year, the finance Minister of the govt. of India Introduces the finance
Bill in the Parliament Budget session. Whenever bill is passed by both
parliament and gets the assent of president, it becomes Finance Act.
Part 1 Part 2 Part 3 Part 4
Specifies the Specifies the Gives the rates Gives the rules
rates of taxes rates at which for calculating for computing
applicable for tax is deductible income-tax for net agricultural
current at source for deducting tax income.
Assessment Year. current Financial from income
Year. chargeable under
head “Salaries”
and computation
of advance tax.
IV. (c) Income Tax Rules, 1962

For the proper administration of income tax act,1961, the CBDT frames rules
from time to time. These rules are called Income Tax rules, 1962.
CBDT: - Central Board of Direct Tax.
IV. (e) Circulars:

Circulars are issued by CBDT from time to time with certain specific
problems and to clarify doubts regarding the scope and meaning of
certain provision of the Act.
What are Case Laws?
It refers to the decisions given by courts on issues arise during

implementation of Act. It is an important and unavoidable part of the
study of Income Tax law.
V. Levy of Income Tax:

Under Section 4, Income Tax is levied on total income of the previous year of
every person.
How to calculate Total income?
Step 9: Application of the rates of tax on Total Income according to

slab rates.
Step 10: Surcharge/Rebate under section 87 A.
❖ Surcharge = TI > Rs. 50Lakhs
❖ Rebate = TI does not exceed Rs. 5,00,000.
(Rebate = whichever is lower)
▪ Total income tax payable or
▪ Amt of RS. 12500
Step 11: Health and educational Cess: It is an additional surcharge. @4%.
Step 12: Advance tax and TDS:
Although tax liability is determined only at end of year, tax is required to be
paid in advance in four installments on basis of estimated income i.e.,
➢ On or before 15th June
➢ On or before 15th September
➢ On or Before 15th December
➢ On or before 15th March.
However, residents opting for presumptive taxation scheme can pay advance
tax in one installment on or before 15th March instead of four
installments.
Step 13: Tax payable/ Tax refundable
V. Important Definitions:
(1) Assessee [SECTION 2(7)]
“Assessee” means a person by whom any tax or any other sum of money is
payable under this Act. In Addition, it includes:
❖ Every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income, the income of any other
person in respect of which he is assessable; or the loss sustained by
him or by such other person.
❖ Every person who is deemed to be an assessee under any provision of
this Act;
❖ Every person who is deemed to be an assessee in default under any
provision of this Act.
(2) Assessment [SECTION 2(8)]

This is the procedure by which an income of an assessee is determined.
Assessment procedure will be dealt with in detail at final level.
(3) Person [SECTION 2(31)]

There are mainly seven categories of persons described under this section.
→ Individual: It means only natural person, i.e. a human being,

both male and female. It also includes minor or person of
unsound mind.
→ HUF: It is not defined by Income-Tax Act. But according to

Hindu Law as family, all males lineally descended from common
ancestors and includes their wives and daughters. Members of
HUF are called co-parceners. Under HUF, member with four
degrees including the head of family (Karta) are called Co-
Parceners.Under Income-Tax Act, 1961, Jain undivided families

and Sikh undivided families would also be assessed as a HUF.
→ Company [sec 2(17)]: Under this Act, the expression “Company”

means:
(i) Any Indian Company as defined in section 2(26); or
(ii) Any body corporate by or under the laws of country outside
India.
(iii) Any institute, association which is assessable or was assessed
as company for any AY under Income-Tax Act.
(iv) Any institution, association, whether incorporated or not
and whether Indian or Non-Indian, which is declared by any
general or specific order by CBDT.
Domestic Company [Section Foreign Company [Section

2(22A)] 2(23A)]
It means an Indian company or any It means a company which is not

other company which, in respect of domestic company.
its income liable to income-tax, has
made the prescribed arrangements
for declaration and payment of
dividends within India.
For Indian Company, two

conditions to be satisfied:
→ Company should have
been registered under
the Companies Act, 1956
and
→ The registered office of

company is in India.
→ Firm [Section 2(23)]: As defined under

the LLP Act, 2008
As defined under
the Partnership
Act, 1932
A partnership is the relation between persons who have agreed to share the
profits of business carried on by all or any of them acting for all.
The persons who have entered into partnership with one another are called
individually “partners’ and collectively a “firm”
→ Association of Persons (AOP): When persons combine

together for promotion of Joint enterprise they are assessable as
an AOP, if they do not in law constitute a partnership.
→ Body of individuals (BOI): It denotes the status of persons like

executors or trustees who merely receive the income jointly and
who may assessable in same extent as the beneficiaries
individually. Section 2(31) further explains that AOP/BOI shall
be treated as person weather or not it was formed with object of
deriving income, profits or gains.
→ Local Authority: The term local authority is taxable in respect

of that part of its income which arises from any business carried
on by it so far as that income does not arise from the supply of
commodity within its jurisdictional area. However, supply of

water and electricity even outside the local authority area is
exempt from tax.
→ Artificial Juridical Persons: These are not natural persons but

are separate entities in eyes of law. Deities, Bar council,
universities are some important examples of Artificial Juridical
persons.
(3) Income [SECTION 2(24)]

Section 2(24) of the Act gives a statutory definition of income. At present,
the following items and receipts are specifically included in income: ----
Allowance Any capital gain FMV of

Profits and
meet personal u/s 45 inventory as CA
Gains &
dividend expenses U/S 28(IVA)
Consideration
Deemed profits Any winning
Value of rec for issue of
u/s 41 or 59 from lottery,
perquisite shares u/s
other income
56(2)(viiib)
Any special P AND G of Compens. rec

Sum received termination of
allowance business u/s 28
to PF. his
employment
Revenue Receipt V/s Capital Receipt
Revenue receipt always Not Taxable unless

taxable unless expressly expressly provided.
exempt.
VI. Previous Year [PY] and Assessment Year [AY]
Assessment Year [AY] means a period of 12 months commencing on 1st

April every year in which income earned in PY is assessed to tax.
[Section 2(9)]
Previous year [PY] means a period of 12 months commencing on 1st
April every year in which income is earned. [section 3]
NOTE: - IF BUSINESS OR PROFESSION NEWLY SET UP DURING FY

THEN PY SHALL BE THE PERIOD BEGNINNING ON DATE OF SETTING
UP OF BUSINESS AND ENDING 31ST MARCH OF SAID FY.
For example [2]:
- Determine the PY for AY 2021-22, if A Chartered Accountant sets

up his profession on 1st July, 2020.
Answer: - The PY will be 1st July, 2020 to 31st March 2021.
Section 68: - If any sum found then sum so credited may be

credited in books of assessee and charged as income of Assessee of
assessee has no explanation, that PY.
Section 69: - If assessee made Value of investment taxed as

investments which are not deemed income of such FY.
recorded in books of Accounts
and Assessee has no explanation.
Section – 69A: - If assessee is Then money and the value of

found to be owner of any money, bullion etc. may be deemed to be
bullion, Jewellery, but the same income of assessee for such FY.
not recorded in his A/c books

and Assessee also have no any
explanation,
GENERAL RULE: “Income of a PY is assessed in the AY following the PY”.

There are certain exceptions to this rule:
Section 172: Shipping Business of Non-Resident

Ship of NR allowed to leave the port only where the tax has been paid or
satisfactory arrangements has been made to payment thereof.
- 7.5% of the freight paid of payable to the owner weather in India
or outside India on account of such carriage is deemed to be his
income in Same PY.
Section 174: Persons leaving India

If it appears to an AO that any individual may leave India during the current
AY or shortly after its expiry and he has no intention to returning to India,
Total income from expiry of last PY up to probable date of his departure
from India is taxable in that AY.
For example [3]
Suppose Mr. Sachin is leaving India for UK on 10.08.2020 and it

appears to AO that he has no intention to return. Before leaving
India, Mr. Sachin may be asked to pay Income-tax on income earned
during PY 2019-20 as well as on the total income earned during the
period 1.04.20 to 10.08.20
Section 174 A: AOP/BOI formed for a particular event

If AO think that AOP/BOI is likely to be dissolved in same year or in next
year, he will be assessed income up to date of dissolution in the relevant PY
itself.
Section 175: Persons likely to transfer property to avoid tax

Total income of the such person for period from the expiry of previous year
to the date, when the AO commences proceedings under this section is
chargeable to tax in that AY.
Section 176: Discontinued Business
Income of the period from expiry of PY up to the date of such
discontinuance may, at the discretion of AO may be charged to tax in that
PY itself.
RATES OF TAX
Illustration 1: Mr. Amit has a total income of Rs. 9,00,000 for PY 2020-
21, compromising of income from house property and interest on fixed
deposits. Compute tax liability for AY 2021-22 assuming the age
(i) 81 years
(ii) 63 years
(iii) 42 years
Assuming that Mr. Amit has not opted for provision of section 115BAC
SOLUTION:
(i) Computation of tax liability of Mr. Amit (age 81 years)
First Rs. 5,00,000 - Nil
Balance i.e. 9,00,000 minus Rs. 5,00,000 20% of 4,00,000 = Rs. 80000
Add: Health and Education Cess @4% = Rs. 3200
= Rs. 83200

Balance i.e. 9,00,000 minus Rs. 3,00,000 20% of 6,00,000 = Rs. 120000
= Rs. 124800

Next Rs. 2,50,001 to Rs. 5,00,000 5% of 250000 = Rs. 12500
Balance i.e. 900000 minus 5,00,000 20% of Rs. 4,00,000 = Rs.
80000
Rs. 92500

= Rs. 96200
Note: As per section 115BAC, individual and HUFs have an option to pay tax
in respect of their total income (other than income chargeable to tax at
special rates under chapter XII) at following concessional rates, if they do
not avail certain exemptions/ deductions like leave travel concession,
standard deductions under head ‘Salary’, interest on housing loan on self-
occupied property, deductions under Chapter VI-A (Other than 80CCD (2)
or section 80JJAA) etc. ------
Up to Rs. 2,50,000 Nil
From Rs. 2,50,001 to Rs. 5,00,000 5%
From Rs. 5,00,001 to Rs. 7,50,000 10%
From Rs. 7,50,001 to Rs. 10,00,000 15%
From Rs. 10,00,001 to Rs. 12,50,000 20%
From Rs. 12,50,001 to Rs. 15,00,000 25%
Above Rs. 15,00,000 30%
(2) Firm/LLP
On the whole of the total income 30%
(3) Local authority
On the whole of the total income 30%

Residence and Scope of

Total Income
I. Residential Status [Section 6]
The incidence of tax on any assessee depends upon his residential status
under this act.
Tax payers are broadly classified in
➢ Resident and ordinarily resident

➢ Resident but not ordinarily resident.
➢ Non-resident
Provisions:
• Residential status of individuals:
On the basis of number of days stay in India: Under section 6(1),

an individual is said to be resident in India in any Previous year, if
he satisfies any one of the following the conditions:
(i) He has been in India during the PY for total period of 182days
or more or;
(ii) He has been in India during the 4 years immediately

preceding the previous year for the total period of 365 days or
more and has been in India for at least 60days in the relevant PY.
Exceptions:
1. Indian citizen, who leaves India during relevant previous year as a member
of crew of an Indian ship or for the purpose of employment outside the India
2. Indian citizen or the person of Indian origin who, being outside the India
comes on visit to India during the relevant PY.
The above categories of individuals will be treated as resident in

India, only if their stay during the relevant PY amounts to 182 days or
more.
However, such person having total income, other than income from
foreign sources, exceeding 15 lakhs during the relevant PY will be
treated as resident, if
(a) the period of stay during relevant PY is 182 days or more;
(b) he has been in India, during the 4 years immediately

preceding the PY for the total period of 365days or more and he has
been in India for at least 120 days in PY.
NOTE 1:
As per Notification 70/2015, dated 17/08/2015, [Read with link]
https://taxguru.in/income-tax/section-61-cbdt-notification-computation-
period-stay-india.html
Under Rule 126 for the purpose of section 6(1), in case of individual, being a
citizen of India and member of crew of ship, the period or periods of stay in
India shall, in respect of eligible voyage, not include the following period:
Period commencing from the Period ending from the date

date entered into the continuous entered into the continuous
discharge certificate in respect of discharge certificate in respect of
joining the ship by said individual singing off the ship by said
for eligible voyage individual for eligible voyage
Resident and Ordinarily Resident
OR
Resident but Not Ordinarily Resident
[In short Who is NOR?]
NOR is one who satisfies any one of following conditions specifies u/s 6(6)
(i) If such individual has been NR in India in any 9 out of 10 PY proceeding

the relevant PY or;
(ii) If such individual has during the 7 PYs preceding the relevant PY been
in India for the period of 729 days or less or;
(iii) If such individual is an Indian Citizen or person from Indian origin

having total income from other than foreign sources [i.e. income accrued
or arise outside India (except the income from business or profession) or
income which accrues or arise in India] exceeding Rs. 15 lakhs during the
PY, who has been in India for 120 days or more but less than 182 days
during that PY or;
(iv) If such individual is an Indian citizen who is deemed to be resident in

India under section 6(1A). [see note}
NOTE 2: If such individual is an Indian Citizen or person from Indian origin

having total income from other than foreign sources [i.e. income accrued or
arise outside India (except the income from business or profession) or income
which accrues or arise in India] exceeding Rs. 15 lakhs during the PY, would
be deemed to be resident in India in that PY,if he is not liable to pay tax in
any other country due to reason of his domicile or residence or any other
criteria or similar nature.
• Residential status of HUF:
❖ Resident: If the control and management of its affairs is situated

wholly or partly in India.
❖ Non-Resident: If the Control and management of its affairs is
situated wholly or partly outside the India.
NOTE 3: Meaning of Control and management:
• Refers to the central C & M not to carrying day-to-day business by

servants, agents or employees etc.
• Place of control may be different from usual place of running of the
business or sometimes even the place of the registered of the Assessee.
If the Karta of the Resident HUF satisfies both the following conditions then
he is ROR Otherwise NOR.
(i) He should be the resident in at least 2 PY out of the last 10 PYs

immediately preceding the relevant PY.
(ii) Stay of Karta during 7 PYs immediately preceding the relevant

PY, should be 730days or more.
• Residential status of Firms, AOP and BOIs:
❖ Resident: If the control and management of its affairs is situated

wholly or partly in India.
❖ Non-Resident: If the Control and management of its affairs is
situated wholly or partly outside the India.
• Residential status of Companies: Resident if
(i) If Company is an Indian Company;
(ii) If its POEM is in India.
NOTE 4: POEM – Place of effective management means place where

key and commercial decisions that are necessary for the conduct of
business of an entity as a whole, in substance made [Explanation to
sec 6(3)]
ILLUSTRATION 1: Mr. Dhruv a person of Indian Origin and a citizen of

country X, got married to Ms. Deepika, an Indian citizen, residing in
country X on 4th Feb 2021 and came to India for first time on 20-2-2021.
He left for country X on 12th August 2021. He returned to India again on
20-01-2022 with his wife to spend some time with his parents-in-law for
30days and thereafter returned to country X on 18.08.2022.
He received the following gifts from his relatives and friends of her
wife during 01-04-2021 to 31-03-22 in India:
From parents of wife Rs. 101000
From married sister of wife Rs. 11000
From very close friend of wife Rs. 282000
(a) Determine the Residential status of Mr. Dhruv for AY 2022-23.
Solution:
Under section 6(1), Indian citizen or the person of Indian origin who, being
outside the India comes on visit to India during the relevant PY, will be
treated as resident in India, only if their stay during the relevant PY
amounts to 182 days or more.
However, such person having total income, other than income from foreign
sources, exceeding 15 lakhs during the relevant PY will be treated as resident,

if
(b) he has been in India, during the 4 years immediately preceding the
PY for the total period of 365days or more and he has been in India for at
least 120 days in PY.
Since in the present case, total income other than foreign sources, of Mr.
Dhruv, a person of Indian origin does not exceed Rs. 15,00,000, he would
said to be resident of India, only if he stayed in India for 182days or more
during the PY 2021-22 relevant to AY 22-23.
His stay in India during PY 2021-22 is as under:
01.04.21 – 12.08.20 = 134days
20.01.2022 – 18.02.2022 = 30 days
Total = 164 days
Since Mr. Dhruv has stayed in during the PY for less than
182days, he is said to be Non-resident.
II. SCOPE OF TOTAL INCOME [Section 5]

Section 5 provides the scope of total income in terms of residential status of
the assessee because the incidence of tax on any assessee depends upon his
residential status under this act.
Based on three considerations:
- Residential status of the assessee.

- The place of accrual or receipt of income, whether actual or deemed.
- The point of time at which the income has accrued to or was received
by or on behalf of the assessee.
Under section 5(1) total income of:
Scope of Total Income ROR RNOR NR
Income received or YES YES YES

deemed to be received
in India during PY
Income accrue or arise YES YES YES

or deeming to accrued
or arise in India during
PY
Income accrue or arise YES, even if such YES, but only if NO

outside India during PY income is not such income
received or derived from
brought in India business
during the PY. controlled in or
profession set up
in India during
PY.
MEANING OF “Income received or deemed to be received”

The receipt of income refers to only the first occasion when the recipient
gets the money under his control. Therefore, once an amount is received as
income, remittance or transmission of that amount from one place to
another does not constitute receipt of the income in the hands of the
subsequent recipient or at the place of subsequent receipt.
III. INCOME DEEMED TO BE RECEIVED IN

INDIA [Section 7]
(i) Contribution in excess of 12% of salary to RPF or interest credited in
excess of 9.5% p.a.
(ii) Contribution by the CG or any other employer in the PY under the

pension scheme referred u/d 80CCD.
(iii) Amount transferred from URPF to RPF (being the employer’s

contribution and interest thereon.)
IV. INCOME DEEMED TO BE ACCRUE OR ARISE

IN INDIA [Section 9]
1. Any Income accruing or arising to an assessee in any place outside the
India whether directly or indirectly:
(i) through or from any business connection in India.
(ii) through or from any property in India.
(iii) through or from any asset or source of income in India.
(iv) through the transfer of capital asset situated in India.
Would be deemed to be accrue or arise in India [section 9(i)]
Note 5: What is Business connection?
Business connection shall include any business activity carried out

through a person acting on behalf of the Non-resident. [Explanation 2 to
section 9(i)]
Person (i) must have an authority, which is habitually exercised in India,

to conclude the contracts on behalf of the Non-resident or
(ii) in case, where he has no such authority, but habitually maintains in

India a stock of goods or merchandise from which he regularly delivers

the goods or merchandise on the behalf or Non-resident or
(iii) habitually secures orders in India, mainly or wholly for the non-
resident.
• Further there are three situations, in clause (iii)
Mr. Sachin acting on behalf of Mr. Ishan, Non-resident
Secures
orders for
Mr. Ishan Mr. Abhishek

Business Business
connection connection
automatically established if
established.
(i) Mr. Abhishek is controlled by Mr. Ishan or;
(ii) Mr. Ishan is controlled by Mr. Abhishek.
(iii) Commonly controlled by Mr. Raman, being the person who

controls both Mr. Ishan and Mr. Abhishek.
In case of NR, the following shall not, however be treated as business

connection in India [Explanation 1 to section 9(1)(i)]
➢ In case of business, in respect of which, all operations are not

carried out in India [Explanation 1(a) to Section 9(1)(i)]:In this
case, income of the business deemed to be accrue or arise in India
shall be only such part of income as is reasonably attributable to the
operations carried out in India. It includes:
- Income from advt. targeting customers residing in India or

accessing advt. thro IPA located in India.
- Income from sale of data collected from the persons residing
in India or using IPA located in India.
➢ Purchase of goods in India for export [Explanation 1(b) to

section 9(1) (i)]
➢ Collection of news and views in India for transmission out of
India [Explanation 1© to section 9(1) (i)]
➢ Shooting of cinematograph films in India. [Explanation 1(d) to
section 9(1) (i)]: -
• If such non-resident is an Individual, who is not the citizen of India.
• A firm which does not have any partner who is a citizen of India or
who is resident in India.
• A company which does not have any shareholders who is a citizen of
India or who is resident in India.
➢ Activities confined to display of rough diamonds in SNZs
[Explanation 1(e) to section 9 (1)(i)]
2. Any Income from salaries earned in India: [Section 9 (1)(ii)]:

Salaries payable for the services rendered in India would be treated as
earned in India. Further any income under head “Salaries” payable for rest
period or leave period which is preceded or succeeded by services
rendered in India, and forms part of the service contracted of
employment, shall be treated as income earned in India.
3. Income from the salaries payable by the government for services

rendered outside in India [Section 9(1) (iii)]: However,allowances or
perquisites paid or allowed outside India by government to an Indian
citizen for services rendered outside India is exempt, by virtue of section
10(7)
4. Dividend paid by an Indian Company outside India [Section

9(1)(iv)]: would be taxable in the hands of shareholders at normal slab
rates.
5. Interest [Section 9(1) (v)]: Deemed to accrue or arise in India if
(i) it is payable by Government
(ii) a person who is resident in India;
Note 6:
Exception in case of (ii): where it is payable in respect of any debt

incurred or money borrowed and used for the purpose of business
or profession carried on him outside India or for purpose of making
or earning any income from any source outside India, it will not be
deemed to accrue or arise in India.
(iii) a person who is non-resident, when it is payable in respect of any

debt incurred or money borrowed and used for the purpose of business or
profession carried on in India by him.
Note 7:
Exception in case of (iii): Interests on money borrowed by the

Non-resident for any purpose in India other than business or
profession, will not to be deemed to accrue or arise in India.
6. Royalty [Section 9(1) (vi)]: Deemed to accrue or arise in India if
(ii) a person who is resident in India;

Note 8:
Exception in case of (ii): where it is payable in respect for transfer

of any right or the use of any property or information used or for
the utilization of services for the purposes of business or
profession carried on by such person outside India or for the
purpose of making or earning any income from any source
outside India; or
(iii) a person who is non-resident, only when royalty is payable in

respect of any right, property, or information used or services utilized for
purpose of business or profession carried on in India or for purpose of
making or earning any income from any source in India.
7. Fees for technical services [Section 9(1) (vii)]: Deemed to accrue or

arise in India if
(ii) a person who is resident in India
Note 9:
Exception in case of (ii): Where the fees are payable in respect of

technical services utilized in business or profession carried on by
such person outside India or for the purpose of making or earning
any income from any source outside India.
(iii) a person who is non-resident, only when fees for technical services
is payable in respect of any right, property, or information used or
services utilized for purpose of business or profession carried on in India
or for purpose of making or earning any income from any source in India.
ILLUSTRATION 2: Mrs. Aman, an Indian citizen aged 35years, worked

in ABC ltd. in Mumbai. She got a job offer from XYZ Inc., USA on
01.06.2020. She left India for the first time on 31.07.2020 and joined XYZ
Inc., on 08.08.2020. During the PY 2021-22, Mrs. Aman visited India
from 25.05.2021 to 22.09.2021. She has received the following income for
the PY 2021-22----
Particulars Amount
Salary from XYZ Inc., USA received in USA 700000
Dividend from Indian Companies 550000
Agriculture income from land situated in Punjab 55000
Rent received/receivable from House property in 400000

Lucknow
Profit from profession in USA, which was set up in 600000

India, received there
Determine the residential status of Mrs. Aman and the total income for
the AY 2022-23.
SOLUTION:
Under section 6(1), Indian citizen or the person of Indian origin who, being
outside the India comes on visit to India during the relevant PY, will be
treated as resident in India, only if their stay during the relevant PY
amounts to 182 days or more.
However, such person having total income, other than income from foreign
sources, exceeding 15 lakhs during the relevant PY will be treated as resident,
if
(b) he has been in India, during the 4 years immediately preceding the
PY for the total period of 365days or more and he has been in India for at
least 120 days in PY.
In such a case he would be resident but not ordinarily resident.
Income from foreign sources means income which accrues or arises

outside India (Except income derived from any business or
profession set up in India) and which is not deemed to accrue or
arise in India.
In this case total incomeof Mrs. Aman for PY 2021-22 would be:
Particulars ROR NOR NR
Salary from XYZ Inc., USA - - -

received in USA
Dividend from Indian Companies 550000 550000 550000
Agriculture income from land Exempt Exempt Exempt

situated in Punjab u/s 10(1) u/s 10(1) u/s 10(1)
Rent received/receivable from 400000 400000 400000

House property in Lucknow
Less- Standard deduction 30%

(120000) (120000) (120000)
280000 280000 280000
Profit from profession in USA, 600000 600000 -

which was set up in India,
received there
Total Income 14,30,000 14,30,000 8,30,000

Salaries
• Every payment made by an employer to his employee for services
rendered would be taxable as salaries.
• There is no matter that employment is part-time or full time.
• Under section 9(1)(ii) Salary earned in India is deemed to accrue or
arise in India even if it is paid outside India or it is paid or payable after
contract of employment in India comes to end.
I. Basis of Charge: (Section 15)

(i) Salary is chargeable to tax either on “due basis” or on “receipt basis”,
whichever is earlier.
(ii) However, where any salary, paid in advance, is assessed in the year
of payment, it cannot be subsequently brought to tax in the year in
which it becomes due.
(iii) If the salary paid in arrears has already been assessed on due basis,
the same cannot be taxed again when it is paid.
Example 1:
If Sachin withdrew his salary in advance for the month of April 2022 in the
month of March 2022 itself, then the same will be chargeable to tax on receipt
basis and is assessed as income of the PY 2021-22 i.e. AY 2022-23. However, the
salary for the AY 2023-24 will not include that of April 2022.
Example 2:
If the salary due for the March 2022 is received by Sachin in the Month of April
2022, then it is still chargeable as income of the PY 2021-22 i.e. AY 2022-23.
Obviously, salary for the AY 2023-24 will not include that of March 2022 salary
which is received in April 2022.
Arrears of Salaries:
Arrears refers to compensating for the salaries left, which should have been
paid earlier.
II. SALARY, PERQUISITE AND PROFIT IN LIEU OF

SALARY: (Section 17)
Meaning of Salary (Section 17(1))

As per section 17(1), salary is an inclusive definition and includes both
monetary as well as non-monetary items. It includes:
❖ Wages
❖ An annuity or pension
❖ Any gratuity
❖ Any fees, commission, perquisites or profit in lieu of or in addition to
any salary or wages.
❖ Any advance of salary,
❖ Any payment received in respect of any period of leave not availed by
him i.e. leave encashment or leave salary.
❖ Provident fund:
→ portion of the annual accretion in any PY to the balance at the
credit of an employee participating in RPF to the extent it is
taxable and
→ Transferred balance in the RPF to the extent is taxable.
❖ The contribution made by CG or any other employer in the PY to the
account of an employee under a pension scheme referred in the
section 80CCD
Allowances
Allowances are of various types: - Fully taxable, Partial taxable and Fully
exempt.
1. FULLY TAXABLE ALLOWANCES: - SWIFT-DPOT (To learn it easily)
❖ S – Servant Allowance
❖ W- Warden Allowance
❖ I – Interim Allowance
❖ F = Fixed Medical Allowances
❖ T – Tiffin Allowances
❖ D – Dearness Allowances/City Compensatory Allowance
❖ P – Project Allowances
❖ O – Overtime Allowances’
❖ T – Transport Allowances
2. PARTIAL TAXABLE ALLOWANCES-
➢ Special Allowances u/s 10(14)

➢ HRA u/s 10(13A)
HRA is the allowance given by employers to his employees towards the

payment of rent for residence of the employee. It is exempt to extent
of lease of following:
Metro Cities (i.e. Delhi, Kolkata, Other Cities

Chennai, Mumbai)
(i) HRA actually received (i) HRA actually received
(ii) Rent paid – 10% of salary of (ii) Rent paid – 10% of salary of
relevant period. relevant period.
(iii) 50% of salary for the relevant (iii) 40% of salary for the relevant
period. period.
(1) Exemption is not available to assessee who lives in his own house or in a
house for which he has not paid expenditure of rent.
(ii) Salary = Basic salary + DA (If provided in terms of employment for

purpose of retirement) + commission (as fixed % of turnover)
Illustration 1: Mr. Happy has the following receipts from his employer;
(1) Basic Pay Rs. 40000 p.m.
(2) DA Rs. 6000 p.m.
(3) Commission Rs. 50000 p.a.
(4) Motor Car for the personal use (expenses met by employer) RS.
1500 p.m.
(5) HRA received Rs. 15000 p.m.
Find out the amount of HRA eligible for exemption to Mr. Happy
assuming that he has paid a rent of Rs. 16000 p.m. for accommodation
at Kanpur. DA forms part of salary for retirement benefits:
Solution:
Least of following exempt u/s 10(13A)
(1) HRA received (Rs. 15000 * 12) Rs. 180000
(2) Rent paid – 10% of salary
(16000* 12 – 10% * 40000 + 6000 * 12)
Rs. 192000 – Rs. 55200 Rs. 136800
(3) 40% of salary (Kanpur)
40% * (40000 + 6000) * 12 Rs. 220800
Calculation of HRA eligible for the exemption to Mr. Happy:
HRA received = Rs. 180000

Rs. 43200
(-) Least u/s 10(13A) = Rs. 136800
Special Allowances u/s10(14) AS PER RULE 2BB
• U/s 10(14) (i): Special Allowances or benefits, not being the nature of
perquisites specially granted to meet expenses incurred wholly,
necessarily and exclusively in the performance of the duties of an office
o employment of profit.
For the allowances under this category, there is no limit on the

amount which the employee should receive from the employer,
but whatever amount is received should be fully utilized for the
purpose of which it was given to him.
Such allowances include: -

Assessee opts for
➢ Travelling allowances 115BAC would be
➢ Uniform Allowances entitled to get
➢ Research allowances exemption only for:
travelling, daily and
➢ Conveyance allowances conveyance allowances.
➢ Daily Allowances
➢ Helper allowances
• U/s 10(14) (ii): Special Allowances granted to the assessee either to

meet the personal expenses at place where the duties of his office or
employment of profit are ordinarily performed by him or at the place
where he ordinarily resides or to compensate him for the increased
cost of living.
For the allowances under this category, there is a limit on the

amount which the employee should receive from the employer,
any excess amount received would be taxable in hands of employee as
income from salary for the year. It doesn’t matter whether the amount
received actual spent or not by the employee for the purpose for which
it was given to him.
Nature of Allowances Extent to which

allowance is exempt
Any special compensatory allowances in nature Rs. 800 or Rs. 300 per
for Hilly Areas/ High altitude allowance month depending upon
specified locations
Rs. 7000 p.m. in Siachen

area of Jammu and
Kashmir
Any special compensatory allowances in nature Rs. 1300 or Rs. 1100, or Rs.
of border area allowances or remote locality 1050 or Rs. 750 or Rs. 300
allowance or difficult areas allowances or or Rs. 200 p.m. depending
distributed areas allowances upon the specified
locations
Tribal areas/ Schedule areas/ agency areas Rs. 200 per month
allowances
Any allowances granted to an employee 70% of such allowance up

working in any transport system to meet his to maximum of Rs. 10000
personal expenditure during his duty per month
performed in course of running such transport
from one place to another, provided that such
employee is not in receipt of daily allowances
Children education allowance Rs. 100 per child up to max

2 children
Hostel expenditure of child education Rs. 300 per child up to max

of 2 children.
Compensatory field area allowance (Specified Rs. 2600 per month

areas in specified states)
Compensatory modified field areas allowances Rs. 1000 per month

(specified areas in specified states)
Counter insurgency allowance granted to Rs. 3900 per month

members of armed forces operating in areas
away from their permanent locations
Any transport allowance granted to the person Rs. 3200 per month
who is handicapped or blind or deaf
Underground allowance Rs. 800 per month
High altitude allowances Rs. 1060 per month
From altitude of 9000 feet to 15000 feet Rs. 1600 per month
From above 15000 feet
Special compensatory highly active field area Rs. 4200 per month
allowances
Island allowance Rs. 3250 per month
Note: (1)
Allowances shaded in blue colors shall not be entitled to get exemption in

respect of allowances at 2 no. (Border area allowance)
→ An employee, being an assessee, who opts for 115BAC section would be

entitled to get an exemption only in respect of transportation
allowance for handicapped, blind or deaf employees.
3. FULLY EXEMPT ALLOWANCES-
➢ Allowances to Supreme court/ High Court Judges.

➢ Allowances received from UNO
➢ Allowances paid outside India (u/s 10(7)]
➢ Sumptuary Allowance
➢ Compensatory allowance under Article 222(2) of the constitution.
Illustration 2:
Mr. Karan has two sons. He is in receipt of children education

allowance of RS. 150 p.m. for his elder son and receive Rs. 70 p.m. for
his younger son. Both of his sons are going to school. He also receives
the following allowances:
Transport Allowances Rs. 1800 p.m.
Tribal areas allowance Rs. 500 p.m.
Compensatory modified field area allowance Rs. 1500
Compute his taxable allowances
Solution:
Children education allowance:
Elder son [Rs. 150 – Rs. 100] = Rs. 50*12 = 600
Younger son [Rs. 70 – Rs. 100] * 12 = Nil.
Transport allowance [Rs. 1800 * 12] Rs. 21600
Tribal area allowances [Rs. 500 – Rs. 200] * 12 Rs. 3600
Compensatory MFA allowances [Rs. 1500 – Rs. 1000] Rs. 500
Taxable allowances = Rs. 26300
Gratuity [Section 10(10)]

It is the voluntary payment made by employer in appreciation of services
rendered by an employee.
Its treatment of tax as under:

(1) Received during services: Fully Taxable
(2) Received at the time of death/retirement:
➢ Govt employee/Civil servant – Fully exempt u/s 10(10)(i)

➢ For other employees: -
❖ In case of employee covered under Payment of Gratuity Act, 1972
o Least of following u/s 10(10)(ii)
(i) Rs. 20 Lakhs
(ii) Actual Gratuity received
(iii) 15 days salary (based on last salary drawn) for
every completed year of services.
Note: (2)
Part in excess of 6 months = completed year of services.
Number of days taken in a month = 26 days.
Salary = Basic salary + DA (Provided in terms of employment for

retirement purpose) + commission, as fixed % of turnover.
❖ In case of employee not covered under Payment of Gratuity Act,

1972
(i) Rs. 20 Lakhs
(iii) half month salary (based on last 10 months salary)
for every competed year of services.
Note: (3)
(i) Where gratuity is received from 2 or more than 2 employers in the

same PY then, the aggregate amount of gratuity is exempt from tax
cannot exceeds Rs. 20,00,000.
Pension [SECTION 10(10A)]

It defines as periodic payment made especially by Government or
Company or other employers to the employee in consideration of past
service payable after his retirement.
Pension is of two types:
❖ Uncommuted
❖ Commuted
Taxability:
1. Uncommuted pension (during employment periodically)
Fully Taxable
2. Commuted Pension (Lumpsum at time of retirement)
❖ In case of Govt employee:

o Fully exempt u/s 10(10A) (i)
❖ In case of other employees: u/s 10(10A) (ii)

o If received gratuity:
(a) 1/3 * (commuted pension received/ Commutation %)
o If gratuity not received:
(b) 1/2 * (commuted pension received/ Commutation %)
Note: (4)
(i) Any commuted pension received by an individual out of an annuity

plan of the LIC from a fund set up by that corporation will be fully
exempted.
Leave Salary/Leave Encashment [SECTION 10(10AA)]

The provisions for this clause are mentioned below:
(a) Government employees: - Fully Exempt u/s 10(10AA) (i)
(b) Any other employees:
(i) Rs. 300000
(ii) Leave salary actually received.
(iii) 10months salary (basis of average salary of last 10 months

preceding retirement)
(iv) cash equivalent to unavailed leave (based on last 10 months

average salary) to his credit the time of retirement.
Earned leaves cannot be exceed to more than 30 days every year of

actual services.
Note: (5)
(i) Where leave salary is received from two or more employers in the
same PY, then the aggregate amount of leave salary exempt from tax
cannot exceed Rs. 300000.
Salary = Basic salary + DA, if provided in terms of employment for

retirement benefits + commission, expressed as fixed % of turnover.
Illustration 3:
Mr. AK Verma is working as a manager at Rs. 25000 p.m. with M/S

Hindustan Photo Jammu. He is receiving Rs. 4800 p.m. as DA and Rs.
6000 p.m. as HRA. He stays in his own house. He received Rs. 14000 as
travelling allowance and he could spend only Rs. 12500. His salary
accrues on last day of every month.
He retired from service with effect from feb 1, 2022 and received the
following amounts:
(i) Retirement Gratuity Rs. 462000 (He retired after rendering 34 years
services and hissalary during 2020-21 was Rs. 25000 p.m. (Not covered
under Gratuity Act, 1972)
(ii) His pension was fixed Rs. 12000 p.m. He gets 3/4th of his pension
commuted for a lump sum of Rs. 510000.
(iii) Leave encashment of Rs. 125000 being 5 month’s salary received

om 31-01-2022.
Compute his Gross Salary income for the PY 22-23
Computation of Gross Salary income of Rs. Rs

Shri AK Verma
Salary @25000 p.m. for 11 months 275000
DA @ 4800 p.m. for 11 months 52800
HRA Rs. 6000 p.m. for 11 months
(Fully taxable as live his own house) Rs. 66000
Travelling Allowance Rs. 14000
(Less) Actual Expenditure (12500) 1500
Gratuity received Rs. 462400
Less: Exempted u/s 10(10) - [see note 1] (425000) Rs. 37400
Uncommuted pension (fully taxable)

1/4 * Rs. 12000 for 1 month Rs. 3000
Commuted value of pension Rs. 510000
(-) Exempted u/s 10 (10A) [See note 2] (Rs. 226667) Rs. 283333
Leave encashment Rs. 125000
(-) Exempted u/s 10(10AA) [See note 3] (Rs. 125000) Nil
Gross salary Rs. 716033
Note 1: In case of employee not covered under Payment of Gratuity Act, 1972

(i) Rs. 20 Lakhs
(iii) half month salary (based on last 10 months salary)
for every competed year of services.
(1) Notified limit Rs. 20,00,000
(2) Actual gratuity received Rs. 462400
(3) Half month’s average salary for completed year of

services (based on last 10 months)
Average salary = Rs. 25000 * 10/10 = Rs. 25000 p.m.

Rs. 425000
25000 * ½ * 34
Least of the above exempt u/s 10 (10)(ii) Rs. 425000
Note 2:
Commuted Pension (Lumpsum at time of retirement:
❖ In case of other employees: u/s 10(10A) (ii)

o If received gratuity:
(a) 1/3 * (commuted pension received/ Commutation %)
o If gratuity not received:
(b) 1/2 * (commuted pension received/ Commutation %)
In case of commuted pension (if gratuity received)
For 3/4th of pension commuted value is = Rs. 510000
Full value of commuted pension is = RS. 510000 * 4/3 = Rs. 6,80,000
1/3 * Rs. 510000 * 3/4 = Rs. 226667
Note 3:
(i) Actual amount received = Rs. 125000
(ii) Notified limit = Rs. 300000
(iii) 10 months’ salary (25000 * 10) = Rs. 250000
(iv) Cash equivalent to leave due (Rs. 25000 * 5) = Rs. 125000
Least of the above is exempted u/s 10(10AA) = Rs. 125000
Provident Fund
It is the scheme, in which a specified sum is deducted from salary of the
employee as his contribution towards the fund to get benefits to employees
at his retirement. Sometimes, employer also contributed in this fund from
his pocket. The contribution from both employers and employee invested
towards in the approved securities. Interest on these securities thereon
credited to the account of the employee.
Types of Provident fund and its taxability:
Particulars RPF URPF Statutory PF PPF

(SPF)
Employer’s Contribution Not taxable Fully exempt Not available

contribution in excess of at the time of as its assessee
12% of salary contribution. ‘s only own
is taxable as contribution.
“salary” u/s
17(1)
employee’s Eligible for Not eligible Eligible for Eligible for

contribution deductions for deductions deduction u/s
u/s 80c. deductions. u/s 80c. 80c.
Interest Amount in Not taxable Fully exempt NA

Credited on excess of at the time of
employer’s 9.5% p.a. is credit of
contribution taxable as interest
“salary” u/s
17(1)
Interest Amount in Not taxable Exempt up to Fully exempt

credited on excess of at the time of certain limit
employee’s 9.5% p.a. is credit of of
contribution taxable as interest contribution
“salary” u/s [see note
17(1) below]
[see note
below]
Note (6) Interest credited on employee’s contribution
As per section 10(11) any payment from PF to which to which PF Act, 1925
applies or from PPF would be exempt.
Accumulated balance due and becoming payable to an employee participating

in RPF would be exempt u/s 10 (12)
However, the exemption u/s 11 and 12 would not be available in respect of

income by way of interest accrued during the PY to the extent it relates to the
amount or the aggregate amounts of contribution made by that person/
employee exceeding Rs. 250000 in any PY in that fund, on or after 1st April,
2021.
If the contribution made by employee in a fund where there is no any

employer’s contribution, then the higher limit of Rs. 500000 would be
applicable for such contribution, and interest accrued in any PY in that fund,
on or after 1ST April 2021, would be exempt up to that limit.
It may be noted that interest accrued on contribution to such funds up to 31st

March 2021, would be exempt without any limit, even the accrual of income is
after that date.
Important points:
In case of amount is withdrawn on retirement/termination:
RPF = Exempt u/s 12 subject to certain conditions.
URPF = Employee contribution is not taxable but interest on employee

contribution is taxable under head “Income from other sources”. Employer’s
contribution and interest thereon is also taxable as “profit in lieu of salary
u/s 17(3)
SPF and PPF = Exempt u/s 11
Illustration 4:
Mr. Dharma retires from services on December 31, 2021 after 25 years of
service.
Basic Pay @16000 per month for 9months. Rs. 144000
Dearness allowance (50% forms a part of the retirement Rs. 72000

benefits) Rs. 8000 for 9 months
Lump sum payment received from URPF Rs. 600000
Deposits in PPF account 40000
Out of amount received from URPF, the employer contribution was

Rs. 220000 and interest thereon Rs. 50000. The employee’s
contribution was Rs. 250000 and interest thereon Rs. 60000. What will
be the taxable portion of the amount received from the URPF in the
hands of Mr. Dharma for the AY 2022-23?
(ii) Will your answer be any different if the fund mentioned above was a
RPF?
Solution:
Amount taxable under head “Salaries”
Employer’s contribution in amount received from URPF Rs. 220000
Interest on contribution of employer Rs. 50000
TOTAL AMOUNT TAXABLE U/H SALARIES Rs. 270000
Amount taxable under head “Income from other sources”
Interest received on employee’s contribution Rs. 60000
Total amount taxable from amount received from the Rs. 330000
fund
NOTE: - In case of amount is withdrawn on retirement/termination:

Since, employee is not eligible for deductions under section 80c for
contribution to URPF at the time of such contribution. Hence, is not taxable
but interest on employee contribution is taxable under head “Income from
other sources”. Employer’s contribution and interest thereon is also taxable
as “profit in lieu of salary u/s 17(3)
(ii) Since the fund is now RPF and the maturity takes place after services of
25 years, the entire amount received on maturity of RPF will fully exempt u/s
10(12)
Retrenchment Compensation [section 10(10b)]

It means the compensation paid under industrial disputes Act, 1947 or
under any act, rule order or notification issued under any law.
Retrenchment is the termination of an employee by an employer for
reasons other than a punishment meted out by disciplinary action.
➢ Exemption limits:
(a) Amount calculated in accordance with provisions of section 25F of the

Industrial Dispute Act, 1947.
i.e. 15 days average pay * completed years of service and thereof in excess of 6
months.
Or
(b) An Amount, not less than Rs. 500000 as may be notified by the central
govt. in this behalf.
Note (7)
(i) The above limits will not be applicable in cases where compensation is
paid under any scheme approved by central government for giving special
protection to workmen under any circumstances.
(ii) It may be noted that compensation on account of termination and due to

modification in terms and conditions of employment would be taxable as
“Profit in lieu of salary” u/s 17(3)
Voluntary Retirement Receipts [section 10(10C)]

The employees of following undertaking are eligible for exemption under
this clause:
a. Public sector company

b. Any other company
c. An authority established under central/state or provincial Act.
d. A local authority
e. A cooperative society.
f. An Indian institute of technology.
g. A university established under central/state Act and an

institution declared to be a university by university grant
commission.
h. Any state government
i. Any central government and other such companies/institutions
etc.
The maximum limit of exemption under this section should not

exceed Rs. 5 Lakhs.
Rule 2BA prescribes the following guidelines for the purpose of above
clause:
(i) It applies to an employee who has completed 10years of service or

completed 40 years of age.
However, this requirement is not applicable to an employee of public

sector Company under the scheme of voluntary separation framed by the
company.
(ii) It applies to all employees by whatever name called, including workers

and executives of the company or the authority or a cooperative society
except the directors of company or cooperative society.
(iii) The scheme for voluntary retirement or separation must have been
drawn to result in overall reduction in existing strength of the employees.
(iv) The vacancy caused by the voluntary retirement or separation must not
be filled up.
(v) The retiring employee of the company shall not be employed in any
another company or concern belonging to same management.
(vi) The amount receivable on account of voluntary retirement or

separation of employee must not exceeds:
- The amount equivalent to three months’ salary for each

completed year of service.
- salary at the time of retirement multiplied by the

balance months of service left before the date of
retirement.
Lumpsum payment or otherwise received by an employee at the time of

voluntary retirement would be taxable as “Profit in lieu of salary” u/s
17(3)
Note (8)
(i) Where exemption for voluntary retirement compensation u/s 10(10C) has
been allowed in any AY, then no exemption thereunder shall be allowed to
him in any other AY.
Illustration 5:
Mr. Dutta received voluntary retirement compensation of Rs. 700000

after 30 years 4 months of service. He has still 6 years of service left. At
the time of voluntary retirement, he has drawing the basic salary Rs.
20000 p.m.; Dearness Allowance (which forms part of pay) Rs. 5000
p.m. Compute his taxable voluntary retirement receipts/
compensation u/s 10(10c) assuming that he does not claim any relief in
section 89.
Voluntary retirement compensation received Rs. 700000
Less: - Exemption u/s 10(10c) [Note 1] Rs. 500000
Taxable voluntary retirement compensation Rs. 2,00,000
NOTE: 1
Exemption is to the extent of least of the following u/s 10(10c)
(i) Compensation actually received = Rs. 700000
(ii) Statutory Limit = Rs. 500000

(iii) 3 months’ salary * completed years of services
= (Rs. 20000 + Rs. 5000) * 3 * 30 = Rs. 22, 50,000
(iv) Last salary drawn * remaining months salary left
= (Rs. 20000 + Rs. 5000) * 6 * 12 = Rs. 18, 00,000
III. PERQUISITES [SECTION 17(2)]

The term perquisites indicate some extra benefit in addition to the amount
that may legally due by way of contract for services rendered.
- It may be provided in cash or kind.

- Reimbursement of expenses incurred in an official package of
duties is not a perquisite.
- It becomes taxable only if it has legal origin.
For the purpose of computing income chargeable under head “Salaries” the
value of perquisites provided by the employer directly or indirectly to the
employee or to any member of his household by reason of his employment
shall be determined in accordance with RULE 3.
[A] Valuation of residential accommodation: (sub-rule 1 OF Rule 3)
In case of unfurnished accommodation:
S. No. Circumstances Valuation
1. When accommodation is License fees determined by

provided by central/state government in respect of
government to employees accommodation in respect of rules
framed by such government as
reduced by
• the rent actually paid by

employee
2. Where the accommodation

is provided by any other
employer
(a) If it is owned by City having population:

employer
• Upto 10Lakhs = 7.5% of salary
• Between 10Lakhs to 25Lakhs =
10% of salary
• More than 25 Lakhs = 15% of
Salary
(b) If taken on rent/lease • 15% of salary

by employer: • Actual salary paid by employer
Whichever is lower.
In case of furnished accommodation:
Value of unfurnished accommodation + 10% p.a. of cost of furniture (if

owned by employer)
Note (9)
(i) If furniture is hired from other/third party then, then actual rent/ hire
charges paid by employer is taxable as perquisites value.
Taxability of Hotel Accommodation:
(i) If hotel accommodation is unfurnished:
It is not taxable.
(ii) If hotel accommodation is furnished:
• Actual charges paid or payable for such hotel.

• 24% of salary.
Whichever is lower is taxable.

Meaning of Salary:
Salary = Basic pay + allowances + bonus + commission payable

monthly or otherwise + any monetary payment from one or more
employers.
However, it does not include:
(i) DA unless it enters into computation of superannuation or

retirement benefits of employee concerned.
(ii) Employer’s contribution to PF account of employee.
(iii) Allowances which are exempted from tax.
(iv) Value of perquisites specified in section 17(2)
(v) Any payment or expenditure specifically excluded i.e.
payment of medical insurance premium specified therein.
Illustration 6:
Mrs. Amisha is a Finance manager in TL limited. The company has

provided her with rent-free unfurnished accommodation in Mumbai.
She gives you following particulars: Basic Salary Rs. 6000 p.m. and DA
= Rs. 2000 p.m. (30% is for retirement benefits) and Bonus = 1500p.m.
Even though company allotted her the house on 1.04.21, she occupied
the same only from 1.11.21. Calculate taxable value of the perquisite for
AY 2022-23.
(ii) Also compute the value, if Mrs. Amisha is required to pay

the rent Rs. 1000 p.m. to company for use of accommodation.
(iii) Also compute the value, if TL company has taken
accommodation on a lease rent of Rs. 1000 p.m. to company for
use of accommodation.
(iv) If company has provided a television (WDV Rs. 10000 and
Cost Rs. 25000) and two air conditioners. The rent paid by
company for air conditioners is Rs. 400 p.m. each. The television
is provided on 01.01.2021. However, Mrs. AMISHA required paying
a rent of Rs. 1000 p.m. for the use of accommodation to the
company.
SOLUTION:
Calculation of unfurnished accommodation:
Salary = 6000 + 600 + 1500 = Rs. 8100 * 5 = Rs. 40500
Salary = 15% * Rs. 40500
Salary = Rs. 6075 (value of unfurnished accommodation in Mumbai)
Note: Since Mrs. Amisha occupies the house from 1.11.2021, we have
includes the salary due to her only in respect of months during which
he has occupied the accommodation. Hence, salary for 5 months will
be considered. She lives in Mumbai hence u/s 17(2) with Rule 3(1) 15%
of salary must be considered while calculating value of this perquisite.
(ii) Value of unfurnished accommodation = Rs. 6075
Less: - Rent already paid by employee = Rs. (5000)
Total value of perquisite to be taxable = Rs. 1075
(iii) Value of unfurnished accommodation:
Value of unfurnished accommodation rent-free [NOTE] = Rs. 6000
Less: Rent already paid by employee = Rs. (5000)
Total value of perquisite taxable = Rs. 1000
Note: Calculation of rent-free unfurnished accommodation:

(whichever is lower)
Actual lease/rent paid by employer = Rs. 1200* 5 = Rs. 6000
15% of salary (computed earlier = Rs. 6075
(iv) Value of furnished accommodation:

Value of unfurnished accommodation + 10% of cost of furniture (if

owned by employer)
If rent paid by company for furnished accommodation then, actual

rent paid is taxable.
Value of rent-free unfurnished accommodation = Rs. 6075 (computed

earlier)
Value of furniture provided = Rs. 4625 (Note)
Total value of rent-free accommodation
Note:
2 Air conditioners + 10% p.a. of cost of television for 3 months
= Rs. 400 * 2 * 5months + (Rs. 25000 * 2.5%)
= Rs. 4000 + 625 = Rs. 4625
[B] Valuation of Motor Car: (sub-rule 2 OF Rule 3)
If the motor car is provided by employer to employee, it will be perquisites in

hands of specified employees only. However, the use of any vehicle provided
by a company or an employer for journey by the assessee from his residence
to his office of other place of work shall not be regarded as a benefit given to
him or provided him free of cost or at concessional rate. [Explanation below
section 17(2)(iii)]
1. Motor car owned by employee, maintenance, running expenses and

driver expenses met by employee:
Taxable value is Nil.
2. Motor car owned by employee, maintenance, running expenses and

driver expenses met by employer:
Purpose Taxable perquisites value
Office Purpose Nil
Private purpose Actual expenses by employer – amount paid by

employee.
Both Purpose Amount incurred by employer = XXX
(-) Rs. 1800 =<1.6 litre/ Rs. 2400 > 1.6 litre = (XX)
(-) Rs. 900 if driver provided = (XX)
(-) Amount paid by employee = (XX)
Taxable value of perquisites = XXX
3. Motor car owned by employer, maintenance, running expenses and

driver expenses met by employee:
Office Purpose Nil
Private purpose 10% on Actual cost – Amount already paid by

employee.

4. Motor car owned by employer, maintenance, running expenses and

driver expenses met by employer:
Office Purpose Nil
Private purpose Actual expenses by employer – Dep 10% on

Actual cost – Amount already paid by employee.
Note (9)
Where one or more motor cars are owned and hired by employer and
employee or any member of his household are allowed to use such car
or all of any of such motor-cars, the value of perquisites shall be the
amount calculated in respect of one car as if the employee has been
provided one moto car for use partly in the performance of his duties
and partly for his private and personal purpose and the amount
calculated in respect of other car or cars as if he had been provided
with such car or cars exclusively for his private or personal purpose.
[C] Valuation of benefit of provision of domestic servants: (sub-rule 3

OF Rule 3)
The value of benefit to the employee or any member of his household

resulting from provision by employer of the services of a sweeper, a
gardener, a watchman or a personal attendant, shall be the actual cost

to the employer.
Actual cost = Total amount of salary paid by employer – amount already

paid by employee for such services.
Note (10)
(i) If servant is engaged by the employee and employer paid or reimbursed

the employee for wages of such servants, it will be perquisite in the hands of
all employees.
(ii) But if the domestic servants are engaged by the employer and the facility
of such servants provided to employee, it will be perquisite in hands of
specified employees only.
[D] Valuation of Gas, electricity or water supplied by employer: (sub-

rule 4 OF Rule 3)
Circumstances Value of perk
If payment is made to Sum equal to the amount paid on that

agency supplying of gas, account by the employer to the agency
water, electricity etc. supplying the gas, electric energy or water.
If supply is made from the Manufacturing cost per unit incurred by

resources owned by employer.
employer.
[E] Valuation of free and concessional educational facilities: (sub-rule

5 OF Rule 3)
Circumstances Value of perk
If the educational Cost of such education in similar institution

institution is maintained in or near the locality. However, there would
and owned by employer or be no perquisite if the cost of such education
or the value of such benefit per child does
If the free educational not exceed Rs. 1000 p.m.
facilities are allowed in any
other educational
institution by reason of
being in employment of
that employer;
Others Amount of expenditure incurred by the

employer in that behalf.
Note (11)
(i) If educational facilities provided in the school maintained by employer or

in any school by reason of being employment at free cost or concessional
rates, it will be perquisite in hands of specified employees only.
(ii) Exemption of Rs. 1000 p.m. is only in case of educational facility provided
to children not on case of educational facility provided to other household
members.
[F] Valuation of Free or concessional tickets: (sub-rule 6 OF Rule 3)
Value of perk = amount of such benefit is offered by such employer to the

public – any amount recovered from the employee for such benefit.
This benefit is provided to:

• Who is engaged in the carriage of passengers or goods.

• To any employee or to any other member of his household for
personal or private journey free of cost or at concessional fare.
• In any conveyance owned, leased or made available by any other
arrangement by such employer for the purpose of transport of
passengers or goods.
However, there is no such perquisite to the employees of an airline or

the railways.
[G] Valuation of other fringe benefits and amenities: (sub-rule 7 OF

Rule 3)
Section 17(2) (viii) provides that the value of any other fringe benefit
or amenity as may be prescribed would be included in the definition
of perquisite and taxable in hands of all employees.
Some others are:
❖ Interest-free or concessional loan [sub-rule 7(i) of rule 3]

(a) The value shall be determined as the sum equal to interest
computed at the rate charged per annum by SBI as on 1st day of
relevant PY in respect of loans for the same purpose advanced by it
on the maximum outstanding monthly balance as reduced by the
interest if any, actually paid by him or any such member of his
household.
Note (12)
“Maximum outstanding monthly balance” means the aggregate

outstanding balance for each loan as on the last day of each month.
(b) However, no value would be charged, if such loans are made

available for medical treatment in respect of prescribed diseases (like
cancer, tuberculosis etc.) or where the amount of loan not

exceeding in aggregate of Rs. 20000.
❖ Travelling, Touring and accommodation [sub-rule 7(ii) of rule

3]
(a) If the such expenses are paid or reimbursed by employer then the
value shall be determined as the sum equal to the amount of the
expenditure incurred by such employer in that behalf.
(b) If travelling, touring and accommodation etc. facilities are

maintained by employer to particular employer only then value of
such benefit will be taken to be the value at which such facilities are
offered by other agencies to the public.
© Where the employee is on official tour and the expenses incurred

in respect of any member of his household accompanying him, the
amount of expenditure so incurred shall also be a fringe benefit.
❖ Free or concessional food non-alcoholic beverages [sub-rule

7(iii) of rule 3]
Nature of Expenditure Taxability

Not a perquisite
Tea & snacks provided during
working hours
Cost of employer [In excess of
Meal provided in office Rs. 50 per meal]
Not a perquisite if provided in

Food and Non- alcoholic working hours.
beverages provided in remote
Area or off shore installation
areas.
Note (13)
Working hours = Overtime and Working on holidays also.
❖ Value of gift, voucher or token in lieu of such gift [sub-rule

7(iv) of rule 3]
Value of perks = sum equal to the amount of such gift.
However, if the value of such gift, voucher or token, as the case may be, is
below Rs. 5000 in the aggregate during the PY, the value of perquisite shall
be taken as “Nil”
❖ Value of Credit card expenses [sub-rule 7(v) of rule 3]
Total expenses including membership and annual fees incurred by

employer – expenses incurred for official purpose – amount received
from employee for such benefit.
However, such expenses incurred wholly or exclusively for official

purpose would not be treated as “Perquisites” if the following 2 conditions
are fulfilled.
1. Complete details in respect of such expenditure are maintained by

employer, include date and nature of expenditure.
2. the employer gives certificates for such expenditure to affect that the same
was incurred wholly or exclusively for official purpose.
❖ Value of Club expenditure [sub-rule 7(vi) of rule 3]
Same as (sub rule 7(v) of rule 3)
Further, where the employer has obtained any corporate membership

of the club and the facility is enjoyed by employee or any of his
household member, the value of perquisite shall not include initial fee
paid for acquiring such corporate membership.
❖ Value of use of moveable assets [sub-rule 7(vii) of rule 3]
Asset Given Value of perquisites
Use of laptops and computers Nil
Other movable assets 10% p.a. of actual cost of such asset

or the amount of rent or charge paid
as the case may be.
❖ Value of Transfer of moveable assets [sub-rule 7(viii) of rule 3]
Asset Given Value of perquisites
Computers and other Depreciated value of asset [Depreciation is

electronic items computed @ 50% on WDV for each
completed year of usage.
Motor cars Depreciated value of asset [Depreciation is

computed @ 20% on WDV for each
Other movable assets Depreciated value of asset [Depreciation is

computed @ 10% on SLM for each
Note (14)
Telephone expenses if paid by employer of employee, shall not be

taken as “perquisite”
H] Valuation of specified security or sweat equity shares: (sub-rule 8

OF Rule 3)
❖ If shares are listed on Recognized Stock Exchange: In a case

where, on the date of exercising of the option, the share of company is
listed on the RSE, the FMV shall be the average of opening and closing
price of the share on that date on the said stock exchange.
However, if shares are listed on more than one RSE, then FMV
shall be the average of opening and closing price of the RSE,
which records highest volume of trading in the share.
Note (15)
If no trading in share on the date of exercising of an option, then FMV

shall be:
• The closing price of share on any RSE on a date closet to the date
of exercising of the option, and immediately proceeding such
date.
❖ If shares are not listed on Recognized Stock Exchange: In a case

where, on the date of exercising of the option, the share of company is
not listed on the RSE, the FMV shall be such value of the share in the
company as determined by a merchant banker on specified date.
Note (16)
The above rule is same in case of valuation of perquisite for the

specified securities, not being an equity shares in the company for the
purpose of section 17(2) (vi) Rule 3 sub-rule 9.
IV. DEDUCTIONS FROM SALARY U/S 16.

✓ Standard Deductions [section 16(ia)]
Amount of salary or Rs. 50000 whichever is lower.
✓ Entertainment allowance [section 16(ii)]
Fully taxable i.e., first to be included in the amount of salary but
thereafter following deductions made from the amount of gross salary.
▪ One-fifth of Basic salary
▪ Rs. 5000
▪ Entertainment allowance received.
✓ Professional Tax (section 16(iii)]
Allowed as deduction only if actually paid by employee during the PY.
The total amount by way of Professional tax payable in respect of any
one person shall not be exceed Rs. 2500 p.a.
Note (17)
However, if employer paid the professional tax directly or on the

behalf of employee, then the amount first to be included in the
amount of salary and then allowed as deduction u/s 16.
V. RELIEF UNDER SECTION 89.

(i) Where by reason of any portion of an assessee’s salary being paid
in arrears or in advance or by reason of his having received in
any one financial year, salary for more than 12 months or
payment of profit in lieu of profit u/s 17(3) his income assessed as
rate higher than that at which it would otherwise have been
assessed, the AO shall, on an application made to him in this
belief, grant such relief as prescribed.
(ii) On account of family pension.
(iii) No relief at the time of termination of service or voluntary
retirement.

Income Tax Notes Till Salary 2022 by Sachin Arora SEH PDF

Uploaded by

Copyright:

Available Formats

Income Tax Notes Till Salary 2022 by Sachin Arora SEH PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Income Tax Notes Till Salary 2022 by Sachin Arora SEH PDF

Uploaded by

Copyright:

Available Formats

SACHIN EDUCATION HUB

Taxes are levied by government to meet

It includes two types:

Basis Direct Tax Indirect Tax

Meaning If the tax is levied on the If the tax is levied on the

Tax Difficult Relatively easier.

For example Income Tax Goods and services tax

WHY TAX LEVIED?

II. Power to levy Taxes:

Union List Parliament

NOTE: Constitution of power given the power to parliament to make laws

III. Overview of Income-Tax laws:

IV. (a) Income Tax Act, 1961:

→ When each part of section is independent of each other and one

For Example [1]:Clause of section 2 define meaning used in terms of income-

Act also considered some proviso and explanations:

Proviso refers to the exception to the sections that where section/sub-

Explanations refers to the clarification of the section/sub-

IV. (b) Finance Act:

IV. (c) Income Tax Rules, 1962

IV. (e) Circulars:

It refers to the decisions given by courts on issues arise during

study of Income Tax law.

V. Levy of Income Tax:

Step 9: Application of the rates of tax on Total Income according to

(2) Assessment [SECTION 2(8)]

(3) Person [SECTION 2(31)]

→ Individual: It means only natural person, i.e. a human being,

→ HUF: It is not defined by Income-Tax Act. But according to

Parceners.Under Income-Tax Act, 1961, Jain undivided families

→ Company [sec 2(17)]: Under this Act, the expression “Company”

Domestic Company [Section Foreign Company [Section

It means an Indian company or any It means a company which is not

For Indian Company, two

→ The registered office of

→ Firm [Section 2(23)]: As defined under

→ Association of Persons (AOP): When persons combine

→ Body of individuals (BOI): It denotes the status of persons like

→ Local Authority: The term local authority is taxable in respect

commodity within its jurisdictional area. However, supply of

→ Artificial Juridical Persons: These are not natural persons but

(3) Income [SECTION 2(24)]

Allowance Any capital gain FMV of

Any special P AND G of Compens. rec

Revenue Receipt V/s Capital Receipt

Revenue receipt always Not Taxable unless

VI. Previous Year [PY] and Assessment Year [AY]

Assessment Year [AY] means a period of 12 months commencing on 1st

NOTE: - IF BUSINESS OR PROFESSION NEWLY SET UP DURING FY

For example [2]:

- Determine the PY for AY 2021-22, if A Chartered Accountant sets

Answer: - The PY will be 1st July, 2020 to 31st March 2021.

Section 68: - If any sum found then sum so credited may be

Section 69: - If assessee made Value of investment taxed as

Section – 69A: - If assessee is Then money and the value of

not recorded in his A/c books

GENERAL RULE: “Income of a PY is assessed in the AY following the PY”.

Section 172: Shipping Business of Non-Resident

Section 174: Persons leaving India