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By
Prof.Augustin Amaladas
M.Com., AICWA., PGDFM., B.Ed.
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Exercise-1
Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Chennai
University. The details of her salary and other income for the previous
year 2007-2008 are as follows:
Basic Salary
80,000
3,600
7,200
10,400
75,650
8000
ANSWER-1
ANSWER-1
Computation
Computationof
ofSalary
Salary
Basic
BasicSalary
Salary
DA
DA
Education
EducationAllowance
Allowance
80,000
80,000
3,600
3,600
5,100
5,100
2,400
2,400
Exemption
2,700
Exemption100
100xx22xx12
12
2,700
(Monthly
(Monthlyfixed
fixededucational
educationalallowance
allowancegiven
givento
toemployee
employeeis
istaxable
taxableexcept
except
Rs.100
Rs.100per
perchild
childper
permonth
monthand
andonly
onlyfor
fortwo
twochildren.
children.IfIfallowance
allowanceis
isnot
not
received
receivedfrom
fromemployer
employernothing
nothingisistaxable.
taxable.Whether
Whetherassessee
assesseespends
spendsor
or
not
notRs.100
Rs.100 (only)
(only)allowed
allowedbecause,
because,ititisisgiven
givennot
notexclusively
exclusivelyto
todo
do
official
officialduty)
duty)
Hostel
HostelAllowances
Allowances
300
300xx12
12
given
givenin
inthe
thenext
nextslide)
slide)
7,200
7,200
3,600
3,600
3,600(see
3,600(seenotes
notes
HRA
5,560
HRAreceived
received10,400
10,4004840
4840
5,560
Least
Leastof
ofthe
thefollowing:
following:Major
Majorany
anyfour
fourcities
citieslike
likeDelhi,
Delhi,Mumbai
Mumbaietc.
etc.(50%)
(50%)
1)
1) 50%
50%of
ofsalary
salaryBasic
Basic++DA
DA
83,600
83,600xx50%
50%
41800
41800
2) HRA received
3) Rent paid- 10% of salary
13,200 8360
(1100 x 12 )
Research Allowances
7000
Less: Exp incurred
6500
1,500
Medical Allowances
Exemption
13,000
28000
15000
10,400
4,840
Answer1.
continues
1,09,960
75,650
1,85,610
10
www.augustin.co.nr
Tax liability
Taxable Income
Less: Exemption
1,77,250
1,45,000
32,250
500
5450
5950
11
Explanations to exercise-1
1.Basic salary for the current financial year(previous
year) is relevant and taxable.
2. DA- Dearness allowance given mainly to compensate
the inflation based on Index numbers fully taxable.
3. For the meaning of salary for special computation such
as HRA, Gratuity, Pension etc., Dearness allowance(DA)
is considered to the extent of % comes for retirement
benefit. The words forming part of salary means such
portion comes for retirement benefit.
12
explanations
Exercise-2:
Mr.Ajith is an 36yrs an employee of a co-operative society
in Gurgaon. His basic salary for the previous year 2007-08 is
Rs.6750/month and he gets dearness allowance of
Rs.500/month(30% of of it forms part of salary for
computation of retirement benefit). Besides he also gets
bonus of Rs.700/month and Rs.200/month as medical
allowance. His employee contributes Rs.11286 to a
recognized provident fund to which X also makes a matching
contribution. X gets an interest free loan(repayable within
8yrs) of Rs.95000 from the employer for purchasing a
house(SBI rate 10.75%). Besides, he gets Rs.12,47,660 as
interest on company deposits from a private sector
undertaking. Determine taxable income and tax liability of X
for the assessment year 2008-09
Solution next slide..
19
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20
Basic Salary
(6750*12)
81000
Dearness Allowance (500*12)
6000
Bonus
(700*12)
8400
Medical Allowance
(Fixed)
(200*12)
2400
Excess of contribution to provident fund by
Employer[11286-(12% of 12*(6750+30% of 500)] 1350
(see note in the previous slide)
Interest on interest free loan
(95000*10.75%)
10213
NET SALARY
Add: income from other sources
TOTAL INCOME
Deduction U/S 80C:
Taxable salary
ROUNDED OFF
109363
1247660
1357660
11,286
13,46,374
13,46,370
21
13,46,370
4000
20000
328,911
352,911
35291
388,202
11646
3,99,848
3,99,850
22
Exercise-3
Mrs. X was born on July 1, 1940, She is Deputy Manager in a
company in Mumbai. She is getting a monthly salary and
dearness allowance of Rs.45000 and Rs.12000 respectively.
She also gets a house rent allowance of Rs.6000/month.
She is a member of recognized provident fund wherein she
contributes 15% of her salary and half dearness allowance.
Her employer also contributes an equal amount.
She is living in the house of minor son in Mumbai
During the previous year 2007-08, her minor son has earned
an income of Rs.30000(computed) as rent from a house
property, which had been transferred to him by Mrs.X
without consideration a few years back
During the pre-year 2007-08 she sold Government of India
23
24
Solution-3
Solution-3
Salary
540000
Salary(45000*12)
(45000*12)
540000
Dearness
144000
Dearnessallowance
allowance(12000*12)
(12000*12)
144000
House
72000
Houserent
rentallowance(6000*12)
allowance(6000*12)
72000
(fully
(fullytaxable
taxableasasshe
sheisisnot
notstaying
stayingininaarented
rentedhouse)
house)
Employers
Employerscontribution
contributiontotorecognized
recognizedPF
PFinin
excess
excessofof12%
12%ofofsalary
salary
[(15%-12%
18360
[(15%-12%)of
)ofRs.6,12,000]
Rs.6,12,000]
18360
(45000*12+1/2
(45000*12+1/2ofof12000*12)-meaning
12000*12)-meaningofofsalary
salaryfor
forRPF
RPF
Interest
Interestfree
freeloan[8%
loan[8%ifif150000
150000from
fromOct
Oct1,1,2007
2007
totoMarch
6000
March31,
31,2008]
2008]
6000
GROSS
780360
GROSSSALARY
SALARY
780360
Less:
nil
Less:standard
standarddeduction
deduction
nil
Income
780360
Incomefrom
fromsalary
salary
780360
25
solution-3-continues
Taxable income
8,61,747
26
7000
156569
163569
27
Add: surcharge
TOTAL
Add: education cess[2% of 163569]
Add: secondary and higher education cess
[1 % of 163569]
TOTAL TAX LIABILITY ROUNDED OFF
nil
163569
3271
1636
168480
28
Special
allowances[10(14)]
For official duties (after
Reaching office)
1.Official travel/transfer
Allowance to meet the cost
2.Conveyance allowance
to meet customers
3.daily allowance on official
Tour/journey
4.Helper allowance to carry
Official documents
5. Research allowance
6. Uniform allowance to do
Official duty
See in
the
Next
slide
29
3. Traveling
allowance to
commute from
home to office
4. Other border
area allowances
&70% of allowance
Or Rs. 6000 per
month whichever is
lower exempted
Rs.100 per month
per child max.two
children.If in hostel
Rs.300 extra per
child for two
children
Rs. 800 per month.
If handicapped
person Rs.1600 per
month is exempted.
Depends on
altitude/Place
Perquisites
The term perquisites has been defined by section 17(2) under
different clauses as including the following itemsa.
Rent- free house [section 17(2)(i)]
b.
Concession in the matter of rent [section 17(2)(ii)]
c.
Any benefit in the case of a specified employee [section 17(2)
(iii)]
d.
Expenditure on meeting employees obligation [section 17(2)(iv)]
e.
Any sum to effect an assurance on the life of an employee
[section 17(2)(v)]
f.
The value of any other fringe benefit or amenity as may be
prescribed[ section 17(2)(vi)]
31
Types of asset
Rate of
depreciation
Method of
deprecation
# Electronic items/
computer
50%
Reducing
balance
Motor car
20%
Reducing
balance
Any other
10%
Straight line
32
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
33
Exercise-1Allowances
Salary income and various allowances: Compute the gross salary of Mr.
Amal for the assessment year 2008-09on the basis of the following
information:
1. Basic pay Rs. 8,000 per month
2. DA 40% of basic pay
3. City compensatory allowance-10% of basic pay
4.Medical allowance Rs.800 per month
5. Children educational allowance- Rs. 200 per month for three children
6. Hostel expenditure allowance-Rs. 400 per child per month for 2 children
7. Tribal area allowance Rs. 500 per month in Bihar
8. Traveling allowance Rs. 12000(However actual expenditure was only
Rs. 8000 for official duties
9. Conveyance allowance Rs. 500 per month(the whole amount spent for
official duties)
10. Transport allowance- Rs. 18,600
11. Overtime allowance-Rs. 4000
34
Exercise-2(perquisites)
Mr. Deepak an employee in a company , gets a basis salary of Rs 10,000 per
month is employer has provided him the following facilities:a. He has been provided a credit card. Annual fee of such card is Rs 8,000
which is incurred by employer. The card is used for office as well as
personal purpose
b. His employer is a corporate member of a club of which initial fees is Rs.
1,00,000 and annual expenditure of Rs. 30,000 paid by the employer. The
membership is enjoyed by Mr. Deepak
c. He has been given a gift voucher of Rs. 13,500
d. He has been provided the of laptop used for office as well as personal
purpose. The cost of the asset Rs.1,20000.
e. In his office chamber , AC machine has been installed for 30,000
f. Calculate gross salary of Mr. Deepak for the assessment year 2008-09
35
employee
Basic salary
Solution-6
Amount
1,20,000
exempted
Nil
exempted
Nil
exempted
Nil
Laptop facilities
A.C machine facility
Exempted
Used for office
purpose
Nil
1,20,000
36
Exercise-9
Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Madras University.
The details of her salary and other income for the previous year 2007-2008 are
as follows:
Basic Salary
80,000
3,600
7,200
10,400
75,650
8000
37
38
ANSWER-9
ANSWER-9
Computation
Computationof
ofSalary
Salary
Basic
BasicSalary
Salary
DA
DA
Education
EducationAllowance
Allowance
Exemption
Exemption100
100xx22xx12
12
80,000
80,000
3,600
3,600
5,100
5,100
2,400
2,400
2,700
2,700
7,200
7,200
Hostel
HostelAllowances
Allowances
300
300xx12
12
3,600
3,600
HRA
HRAreceived
received10,400
10,4004840
4840
Least
Leastof
ofthe
thefollowing
following
1)1) 50%
50%of
ofsalary
salaryBasic
Basic++DA
DA
83,600
83,600xx50%
50%
41800
41800
3,600
3,600
5,560
5,560
39
2) HRA received
3) The excess of Rent paid 10%
1100 x 12 = 13,200 8360
10,400
4,840
Research Allowances
Less: Exp incurred
7000
6500
1,500
Medical Allowances
Exemption
28000
15000
13,000
1,09,960
75,650
1,85,610
40
8,360
Taxable Income
1,77,250
Tax liability
Taxable Income
Less: Exemption
145 150
150 250
Taxable income
1,77,250
1,45,000
32,250
5000 x 10%
2,7250 x 20%
500
5450
5950
41
Exercise-10
Mr. Manoj an employee in a HUF, gets a basic salary of Rs 10,000 per
month.The employer has further provided him in following
facilities
a. He has been provided a credit card. Annual fee of such card is Rs
8,000 which is incurred by employer. The card is used for office as
well as personal purpose
b. his employer is a corporate member of a club of which initial fees
is Rs. 1,00,000 and annual expenditure of Rs. 30,000 paid by the
employer. The membership is enjoyed by Mr. Deepak
c. He has been given a gift voucher of Rs. 13,500
d. He has been provided the of laptop used for office as well as
personal purpose. The cost of the asset Rs.1,20,000.
e. In his office chamber , AC machine has been installed for 30,000
f. Calculate gross salary of Mr. Deepak for the assessment year
2008-09
42
Solution-10
computation of gross salary of Mr. Deepak(Not
employee) for the assessment yr 2008-09
particulars
a company
Details
Amount
Basic salary
1,20,000
8000
Taxable
30,000
Gift voucher
taxed
13500
Laptop facilities
A.C machine facility
Exempted
Nil
Used for office or
private purpose
Gross Taxable
salary
1,71,500
43
Exercise-11
Value of rent free accommodation : Sri Radheshyam is sales
manager of a private company and for previous year 2007-08,he
received the following emoluments (amts in Rs)
Basic Salary
248000
Bonus
16000
Dearness allowance(50% forming part of salary)
60000
Project allowance
15000
Commission on sales
16000
City compensatory allowance
25000
Medical allowance
12000
Employer contribution to recognized provision fund
20000
Salary pertaining the year 2008-09 has been received in advance
20000
He has been provided with a rent free accommodation in Jaipur
owned by the employer. The population of Jaipur may be assumed
to be 15lakhs as per 2001 census
44
Determine the taxable value of the perquisite in respect of rent free
Solution: 11
The valuation of rent free accommodation shall be 10% of the
salary i.e. 10% of
(248000+ 16000+30000+15000+16000+25000+12000)=Rs 36200
Note: Salary shall be taken on basis for the period for which
accommodation has been provided. Hence advance salary for
2008-09 shall not be taken in account.
45
Sri Mohan is purchase manager of a private company and for previous year
2007-08 he received the following emolumentsBasic Salary
120000
Bonus
16000
Dearness allowance(50% forming part of salary)
60000
Project allowance
15000
Commission on purchase
16000
City compensatory allowance
25000
Medical allowance
12000
Employer contribution to recognized provision fund
20000
Salary pertaining the year 2008-09 has been received in advance
20000
He is also in part employment with B ltd and is receiving salary of Rs 80000
P.A. he has been provided with a rent free accommodation in Jaipur owned by
the employer. The population of Jaipur may be assumed to be 15 lakh as per
2001 census. Determine taxable salary.
46
Solution-12
Computation of taxable salary of Sri Mohan for assessment Year
2008-09
Basic Salary
Bonus
Dearness allowance(50% forming part of salary)
Project allowance
Commission on purchase
City compensatory allowance
Medical allowance
Employer contribution to RPF in excess of 12% of salary
[20000- 12% of (120000+ 50% of 60000)]
Salary from B ltd
Advance of salary
Value of housing facility[10% of
(120000+16000+30000+ 15000+16000+25000+12000+80000)]
Taxable Salary
120000
16000
60000
15000
16000
25000
12000
2000
80000
20000
31400
397400
47
Exercise-13
Value of concessional accommodation:
Mr.Tim is purchase manager of a private company and for the previous 2007-08 he
received the following emolumentsBasic Salary
240000
Bonus
32000
Dearness allowance(50% forming part of salary)
120000
Project allowance
30000
Commission on purchase
32000
City compensatory allowance
50000
Medical allowance
24000
Employer contribution to recognized provision fund
40000
2 months salary for year 2008-09 has been received in advance
20000
What would be the value of accommodation if the employer charges rent of Rs 2000
p.m. in the following independent cases:
The accommodation is provided in Mumbai where popln as per 2001 census exceeds
25 lakh
The accommodation is provided in Alwar where popln as per 2001 census exceeds 18
lakh
The accommodation is provided at Chomu (popln less than 10 lakh).
48
Solution: 13
The valuation of accommodation provided at concessional rent
shall be as under-
Place of accommodation
Value of perquisite
Mumbai
Alwar
Chomu
49
50
Answer:
If Residential accomodation owned by employer- Maximum 10% of
salary- amount collected by employer from employee is taxable.
(Meaning of salary is that all cash salary belongs to current previous
year and all taxable allowances and DA which comes for retirement
purposes. It excludes all perquisites and all allowances not received in
cash.)
53
9) He was allowed free use of 1 laptop ( actual cost Rs. 40,000 ), 1 motorcar ( actual
cost Rs.4 lakhs ) and 1 digital video camera ( actual cost Rs.60,000 ). The motorcar
was acquired by the company on 01-01-2005 and was sold to Mr. Rahul on 16 - 12 2007 at Rs.2,00,000.
Answer:
Lap top is not taxable perquisites.
Car use= Rs.1200(Car)+600(Driver) taxable in the hands of company employer as
Frindge benefit. Other than company employer employee is taxed as perquisites.
Digital camera is for entertainment. Therefore 10% of the value is perquisites to
employees.
Motor car sold 20% depreciation for each completed years to be provided on
WDV ie 2 years fully completed.WDV value=1,28,000. If sold less than this value it
is a perquisites to employees.
Note: car, food per meal exceeds Rs.50, club , credit card,company tour, stay in a
hotel or resorts- If company employer they are treated as Fringe benefits .
Therefore they are taxable to company employer.
54
55
56
16) On Mr. Rahuls eldest son getting first rank in the school,
the employer gave scholarship of Rs.2500 p.m. to Rahuls
eldest sonAnswer:
Not taxable as it is given not in the capacity of employer and
employee relationship but as a meritorious student.The
scholarship is available to any one who gets first rank.
aug_bang@yahoo.com
58
17.
59
Problem 4
State giving reasons whether the following are true or false:
1.
Profits in lieu of salary is taxable under the head Income from
other sources.
2.
Compensation payable to an employee on termination of service
is capital receipt. It is, therefore, not chargeable to tax.
3.
Compensation for voluntary retirement [to the extent it is not
exempt under section 10(10C)] is treated as profits in lieu of
salary.
4.
Employers contribution to unrecognized provident fund is
taxable as profits in lieu of salary in the year in which
contribution is made by the employer.
5.
Bonds received on Keyman insurance policy taken by the
employer and assigned in favour of the employee is taxable under
the head income from other sources.
6.
Overtime allowance is taxable as profits in lieu of salary
62
***ExerciseDuring the previous year 2007-08, X is paid Rs. 60,000 as basic salary; Rs. 12,000
as dearness allowance (17% of which is part of salary for computing
retirement benefits); Rs. 6,000 as commission(i.e Rs. 500 per month); Rs.
24,000 as bonus of 2002-03; Rs. 6,600 as education allowance for one child;
Rs. 14,000 as uniform allowance (amount utilised for purchasing uniform
for official purpose:16,000); Rs. 10,000 as medical allowance; and Rs.
18,000 as conveyance allowance (Rs. 6,000 for official purpose and
Rs.12,000 for personal purpose).
What will be the amount of salary for the purpose of
1.
The valuation of the perquisite in respect of rent free house.
2.
Finding out how much entertainment allowance is deductible if he is paid
entertainment allowance.
3.
Determinig exemption in respect of house rent allowance if it is paid to him.
4.
Calculating exemption in respect of gratuity paid to him under the payment
of gratuity Act 1972 if he retires on 31-3-2008.
63
answer-1
1 .Meaning of salary for Rent Free
Accommodation(RFA): Basic(annual)
60000
DA(17%)(retirement benefit-cash)
2040
Commission(Cash)
6000
Bonus(2003-04) cash received but not
belong to the current previous year
-----Educational allowance(Cash but taxable)
(Rs.100 per month exempted)(Rs.6600-1200)
5,400
Uniform allowance to do official work(spent fully)
------Medical allowance(Monthly fixed)(cash)
18,000
Conveyance allowance( Personal-cash)
12,000
-Total (meaning of salary for RFA)
1,03,440
Cash salary
Belong to
Current
Previous
Year
And cash
Allowances
Which are
Taxable are
Considered.
No perquisites
No non-cash
Salary which
Are deposited
Directly to third
Party.
64
65
Question No.2
Entertainment allowance received by all
employees taxable under the head salary
first. Later for government employees, the
amount received or Rs. 5000 whichever is
less deducted u/s 16.
66
Question no.3.
For HRA the meaning of salary
Basic + which will come for retirement +
fixed % of commission for those months
HRA allowance given
Basic
60,000
DA(Retirement benefit)
2,040
Commission
Nil
Meaning of salary for HRA 62,040
67
Question-4
Meaning of salary for Gratuity under the
payment of gratuity act
Salary last drawn equal to meaning of
salary given in question no.3
Meaning of salary= 62,040.
68
69
Answer
Nothing is taxable for RPF.Dates are not
important too.
The dates may be relevant only for New
pension fund created on 1-4-2004.
70
Exercise:First work out by your self and check the answer later
72
Solution:
Basic salary (i.e., [Rs. 12300 * 3] + [Rs. 12700 * 9])
House rent allowance (i.e., 30%of Rs 151200)
Less: exempt
Dearness allowance (i.e., Rs 1630* 12)
Conveyance allowance (i.e., Rs 500 * 12)
Employers contribution to statutory provident fund
Sale of movable asset (Rs 22470 Rs 7500)
Gross salary
Less: deduction
Net salary
Income from other sources
Gross total income
Less: deduction under section 80C
Net income round off
151200
45360
31488
13872
19560
6000
nil
14970
_____
205602
nil
______
205602
65698
______
271300
25344
______
245960
______
73
Notes:
Conveyance allowance utilized for personal purposes is
not exempt from tax.
Deduction under section 80C is computed as under:
Minimum contribution to provident fund
(12 % of Rs 151200)
18144
Add: additional contribution (600 * 12)
7200
Total
25344
74
Up to June
30, 2007
from July
1, 2007
50% of salary
House rent allowance
Excess of rent paid (Rs 4000) over 10% of salary
13457
_______
6729
3690
2654
13857
_______
6929
3810
2614
______
2654
_______
2614
75
76