To give more clarity to the users of our blog, here an attempt is made for detail case study on computation of income under salary. Please see the below case study:-
Mrs. X an employee director of XYZ Ltd. submit the following information relevant for the assessment year 2015-16:
Income Details | Expenditure / Investment Details | ||||||||||||||||||||
Salary component details | |||||||||||||||||||||
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Payments made by employer | Contributions by Mrs A | ||||||||||||||||||||
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Facilities availed as per terms of employment | Expenditure in respect of facilities availed | ||||||||||||||||||||
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(A) Rent of furnishing house paid to the employer : Rs.11,200(B) Payment in respect of use of car : Rs.6,000,as per service rule Mrs has to pay an amount equal to Rs.2 per km., whenever car is for personal purposes; however, nothing is payable in respect of journey from office to residence and back | ||||||||||||||||||||
Taxes Paid | |||||||||||||||||||||
Professional tax paid by Mrs X :Rs1,650 | |||||||||||||||||||||
Details of other incomes | Investments | ||||||||||||||||||||
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Now the above case is analyse and computed as below:
Table 1 – Computation of Gross Salary
Components of salary | Explanation | Computed Amount (In Rs) |
Salary | 256,000 | |
Entertainment allowance | 106,000 | |
Bonus | 111,200 | |
Education allowance for grandchildren | 2,000 | |
IT penalty paid by the employer | 1,500 | |
Payment of electricity bills | 11,000 | |
Reimbursement of gas bills | 11,500 | |
Arrears of bonus | 4 | 52,000 |
Furnished house at concessional rent | 1 | 90,340 |
Salary of two watchmen | 11,000 | |
Salary of sweeper | 6,200 | |
Salary of gardener | 2,000 | |
Car [12 * (Rs. 2,400 + Rs. 900)] (amount recovered from Mrs is not deductible) | 39,600 | |
Excess of employer’s contribution towards provident fund over 12% of salary | 3 | 17,200 |
Interest credited in PF account in excess over 9.5% (i.e., Rs14, 000 * 4.5 /14) | 4,500 | |
Pension from government (Rs14, 700 * 12) | 176,400 | |
Gross salary | 898,440 |
Table 2 Analysis of Deduction allowable from Gross Salary
Nature of Deduction | Explanation | Amount Involve (In Rs) |
Less : Deduction under section 16 | ||
Standard deductible | Now not available | Nil |
Entertainment allowance | Not applicable to this case being Mrs A is not govt employee | Nil |
Professional tax | Allow on actual payment basis | 1,650 |
Total Deduction | 1,650 | |
Table 3 Computation of Net Income
Components of Income | Explanation | Amount Involve (In Rs) |
Gross Salary | Table 1 | 898,440 |
Less : Deductions | Table 2 | (1,650) |
Net Salary | 896,790 | |
Dividend from XYZ Ltd. | 57,880 | |
Agricultural income from Nepal | 229,160 | |
Gross Total Income | 1,183,830 | |
Less : Deduction under sec 80C (Max allowable Rs 1,50,000) | 5 | 80,800 |
Net Income | 1,103,030 |
Explanations:
- Valuation of the perquisites in the form of concessional rent –
Step 1: Salary for the purposes of valuation of perquisite:
Components of salary | Explanation | Computed Amount (In Rs) |
Salary | 2,56,000 | |
Entertainment allowance | 1,06,000 | |
Bonus | 1,11,200 | |
Education allowance for grandchildren | See Blogs | 2,000 |
Pension from government | 1,76,400 | |
Total | 6,51,600 |
Step 2: Lease rent of the unfurnished house is Rs 1,60,800.
Step 3: The perquisites value of the unfurnished house (lower of lease rent & 15% of salary):
Salary | 651600 |
Value of unfurnished house | |
(15% of salary) | 97740 |
Step 4: Value of furniture:
Cost of furniture | 18000 |
Rent of AC | 2000 |
10% of cost of furniture | 1800 |
Value of furniture | 3800 |
Step 5: Value of concession
Value of unfurnished house | Step 3 | 97740 |
Value of furniture | Step 4 | 3800 |
Rent recovered | 11200 | |
Value for computation | 90340 |
- Reimbursement of medical expenses, free residential telephone, free refreshment, payment of conference fees and leave travel concession reimbursed by the employer are not taxable in the hands of the employee.
- Employer’s contribution towards superannuation fund and approved gratuity funds are not taxable.
- X is entitled to claim relief under section 89 read with 21 A in respects of arrears of bonus.
- Deduction under section 80C is the total of the following qualifying amounts.
PF Contribution | 30,000 |
Superannuation fund for contribution | 7,200 |
Insurance premium on the life of husbands | 5,200 |
Insurance premium on the life of father | – |
Deposits under the Post Office Saving Bank (CTD) Rules (including advance deposits) | – |
School fees of 2 children | 38,400 |
Total | 80,800 |