Mar 192015
 

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  
Salary Rs. 2,56,000
Entertainment allowance Rs. 1,06,000
Bonus Rs.1,11,200
Education allowance-    For her grandchildren Rs. 2,000
Payments made by employer Contributions by Mrs A
Income tax-penalty by employer Rs.1,500
Medical expenses reimbursed by employer Rs 12,10
Travel concession –    Actual expenditure on fare is more than Rs 51,300 Rs51,000
Reimbursement of gas bills Rs11,500
Payment of delegation fee to FICCI for attending All India Conference of Corporate Manager and Tax Executives Rs 3,000
Employer’s contribution towards recognised provident fund Rs47,920
Employer’s contribution to superannuation fund Rs.7,200
Employer’s contribution to approved gratuity fund on accrual basis Rs 2,700
(A) Contribution towards recognised provident fund Rs 30,000
(B) contribution towards superannuation fund Rs 7,200
Facilities availed as per terms of employment Expenditure in respect of facilities availed
Free residential telephone Rs11,000
Furnished flat for concessional rate – lease rent of the house Rs 1,60,800;
cost of maintenance of ground (including salary of Gardner) Rs2,000
Salary of two watchmen Rs 11,000
Salary of sweeper Rs 6,200
Rent of air conditioner Rs. 2,000
Cost of furniture Rs.18,000
Car (1900cc) owned by the employer given partly for official and partly for private use –cost of car
Maintenance of car Rs48,000,
Salary of driver-    10% of the expenditure is attributable for the journey between office and residence and back Rs 24,000
(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
Arrears of bonus of 2008-09 (not taxed earlier) Rs52,000
Interest credited in PF account @ 14%-    credited on August 10,2013 Rs14,000
Dividend from XYZ Ltd., a foreign company Rs 57,880
Agricultural income from Nepal Rs 2,29,160
Mrs X is a retired Government employee. She gets a sum of Rs.14,700 per month as pension from the Government.
(A) insurance premium for a policy on the life of her husband Rs.5,200-sum assured Rs.90,000
(B) insurance premium for a policy 10,000 on the life of her father Rs 4,000
(C) deposits in 10-years accounts under the post Office Saving Banks ( CTD) Rules including advanced deposit of April –May 2014 Rs 2,400
(D) payment of school fees of 2 children Rs.19,200 for each child

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:

  1. 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
  1. 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.
  1. Employer’s contribution towards superannuation fund and approved gratuity funds are not taxable.
  1. X is entitled to claim relief under section 89 read with 21 A in respects of arrears of bonus.
  1. 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