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 | |||||||||||||||||||||
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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 |