3. INCOME FROM SALARIES

Transcription

1 SOLUTIONS TO PROBLEMS FOR CLASSROOM DISCUSSION PROBLEM NO: 1 3. INCOME FROM SALARIES a) Value of the rent free unfurnished accommodation = 15% of salary for the relevant period = 15% of [( ) + ( 2,000 30% 5) + ( 1,500 5)] = 15% of 40,500 = 6,075. b) In the case of accommodation owned by the employer in cities having a population exceeding 25 lakh, there would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable from the employee. Value of the rent free unfurnished accommodation = 6,075 Less : Rent paid by the employee ( 1,000 5) = 5,000 Perquisite value of unfurnished accommodation given at concessional rent = 1,075 c) In the case of accommodation taken on lease by the employer, there would be deemed to be a concession in the matter of rent if the rent paid by the employer or 15% of salary, whichever is lower, exceeds rent recoverable from the employee. Value of the rent free unfurnished accommodation [Note1] = 6,000 Less: Rent paid by the employee ( 1,000 5) = 5,000 Value of unfurnished accommodation given at concessional rent = 1,000 Note 1: Value of the rent free unfurnished accommodation is lower of (i) Lease rent paid by the company for relevant period = 1,200 5 = 6,000 (ii) 15% of salary for the relevant period (computed earlier) = 6,075 d) In the case of accommodation owned by the employer in a city having a population exceeding 25 lakh, there would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable from the employee. Value of the rent free unfurnished accommodation (computed earlier) = 6,075 Add: Value of furniture provided by the employer [Note 1] = 4,625 Value of rent free furnished accommodation = 10,700 Less: Rent paid by the employee ( 1,000 5) = 5,000 Value of furnished accommodation given at concessional rent = 5,700 Note 1: Value of the furniture provided = ( 400 p.m. 2 5 months) + ( 25,000 10% p.a. for 3 months) = 4, = 4,625 e) Value of the rent free unfurnished accommodation ( 700 5) = 3,500 Add: Value of furniture provided by the employer (computed earlier) = 4,625 Value of rent free furnished accommodation = 8,125 Less: Rent paid by the employee ( 1,000 5) = 5,000 Perquisite value of furnished accommodation given at concessional rent = 3,125 PROBLEM NO: 2 1. The eligible exemption under section 10(13A) (HRA): Exemption In respect of house rent allowance received would be least of the following: a) Actual house rent allowance (HRA) received 1,00,000 b) Excess of rent paid over 10% of basic salary IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.1

2 Ph: /26 Rent paid (10,000 x 12) Less: 10% of basic pay (i.e. 10% of ) 12,000 1,08,000 c) 50% of salary (i.e. 50% of ) 60,000 Least of the above is 60,000. The house rent allowance received by Mr. Khanna would be exempt to the extent of 60,000 under section 10(13A). The balance of 40,000 is includible in his total income. 2. Perquisite value in respect of concessional accommodation: Where the accommodation is taken on lease or rent by the employer, the actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower, as reduced by the rent, if any, actually paid by the employee is the value of the perquisite. a) Actual rent paid by the employer = 10,000 x 12 = b) 15% of salary = 15% of basic pay plus special allowance = 15% of 1,50,000 = 22,500 Lower of the above is 22,500, which should be reduced by the rent of 30,000 paid by the employee (i.e. 2, = 30,000). The perquisite value is, therefore, nil. 3. We have to see the cash flow from both the options to find out which is more beneficial. Option 1: HRA Cash inflows [Basic Pay + HRA + Special Allowance] Less: Cash outflows: Rent paid Tax (See Working Note 1 below) Net cash flow Option 2: Concessional accommodation Cash inflows [Basic Pay + Special Allowance] Less: Cash outflows: Rent recovery Tax (See Working Note 2 below) Net cash flow 30,000 2,50,000 1,30,000 1,50,000 30,000 Since the net cash flow is higher in Option 1, Mr. Khanna should opt for HRA, which would be more beneficial to him. WORKING NOTES: 1. Computation of tax under Option 1 (HRA): Salary: Basic Pay HRA (taxable) Special allowance Total salary Tax on 1,90,000 (including cess) 2. Computation of tax under Option 2 (Concessional accommodation) Salary: Basic Pay Special allowance Concessional accommodation Total salary Tax on 1,50,000 40,000 30,000 1,90,000 30,000 1,50,000 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.2

3 PROBLEM NO: 3 1. The following are eligible for exemption to the extent of 15,000 a) Treatment of X b) Treatment of Mrs. X c) Treatment of X mother Since the amount doesn t exceeded 15,000 it is totally exempted Taxable perquisite Treatment of X s brother (non dependent) Treatment of grand father (not covered in family definition) 4,200 3,600 1,200 9, , Since the expenditure is incurred in an approved private hospital the value of medical facility is totally exempted. 3. Taxable perquisite Medical expenses Loading expenses Traveling expenses (W.N.1) 15,000 20,000 1,55,000 Gross total income Other income 180,000 (+) Staying Exp. 20,000 (+) Medical Exp. 15,000 G.T.I 2,15,000 Since GTI has exceeded 2L, no exemption is available in respect of traveling expenses. PROBLEM NO: 4 a) Since laptop is given for usage to employee nothing is taxable in the hands of employee. 5.5 b) Amount of perquisite = 15,000 10% = c) i) Name of the employee: Z Value of perquisite (car) 1. Value of asset sold Original Cost (-) Dep. for 1 st completed year of usage ( to ) (-) Dep. for 2 nd completed year of usage ( to ) 6,96,000 1,39,200 5,56,800 1,11,360 4,45, Asset sold for 2,10, Value of perquisite (1-2) 2,35,440 ii) Name of the employee: A 1. Value of asset sold Original Cost (-) Dep. for 1 st completed year of usage ( to ) 1,17,000 58,500 58,500 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.3

4 Ph: /26 (-) Dep. for 2 nd completed year of usage 29,250 29,250 ( to ) 2. Asset sold for 24, Value of perquisite (1-2) 4,980 iii) Name of the employee: B 1. Value of asset sold for Cost of the asset (-) Dep. for 2 nd completed years of usage 40,000 8,000 32,000 (40,000 10% 2y) 2. Asset sold for 1, Value of perquisite (1-2) 31,000 a) He is a government employee: PROBLEM NO: 5 Uncommuted pension received (October - March) [(5,000 4 months) + (40% of 5,000 2 months)] Commuted pension received 3,00,000 Less: Exempt u/s 10(10A) 3,00,000 Taxable pension 24,000 24,000 b) He is a non-government employee, receiving gratuity 5,00,000 at the time of retirement: Uncommuted pension received (October - March) [(5,000 4 months) + (40% of 5,000 2 months)] Commuted pension received 3,00,000 Less: Exempt u/s 10(10A) 1 3,00,000 x x100% 1,66, % Taxable pension 24,000 1,33,333 1,57,333 c) He is a non-government employee and is not in receipt of gratuity at the time of retirement: Uncommuted pension received (October March) [(5,000 4 months) + (40% of 5,000 2 months)] Commuted pension received 3,00,000 Less: Exempt u/s 10(10A) 1 3,00,000 x x100% 2,50, % Taxable pension 24,000 50,000 74,000 PROBLEM NO: 6 a) He is a government employee: Leave Salary received at the time of retirement Less : Exemption under section 10(10AA) Taxable Leave salary 5,00,000 5,00,000 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.4

5 b) He is a non-government employee: Leave Salary received at the time of retirement 5,00,000 Less: Exemption under section 10(10AA) (Note 1) 26,400 Taxable Leave salary 4,73,600 Note 1: Exemption under section 10(10AA) is least of the following: i. Leave salary received 5,00,000 ii. Statutory limit 3,00,000 iii. 10 months salary based on average salary of last 10 months 10 x i.e., = Salary of last 10 months i.e.,feb 10 months Nov ( 5000 x 8) + ( 4000 x 2) ( 60% x 3000 x10) x + 10 = 66, months iv. Cash equivalent of leave standing at the credit of the employee based on the average salary of last 10 months (max. 30 days per year of service) Leave Due = Leave allowed - Leave taken = (30 days per year 20 years) days = 120 days Leave due 30 days i.e., = ( in days) 120 days 66,000 x 30 days 10 x Average salaryp.m. = 26,400 PROBLEM NO: 7 Computation of total income of Mr. Narendra for A.Y IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.5 Income from Salaries Gross salary received during to 16,000 p.m. (16,000 x 10) Pension for 2 30% of the basic salary of 10,000 p.m. Leave Salary Less: Exempt under section 10(10AA) (Note1) 75,000 50,000 1,60,000 6,000 25,000 Gratuity 50,000 Less: Exempt under section 10(10) (Note2) 25,000 25,000 Total Income 2,16,000 Notes: 1. Leave encashment is exempt to the extent of least of the following: i. Statutory limit 3,00,000 ii. Cash equivalent of leave for 30 days for 5 years (10, /30) 50,000 iii. 10 months average salary (10 x 10,000) 1,00,000 iv. Actual amount received 75,000 Therefore, 50,000 is exempt under section 10(10AA). Copyrights Reserved To, Guntur 2. Gratuity is exempt to the extent of least of the following: i. Statutory limit 10,00,000 ii. Half month s salary for 5 years of service ( 5 x 5,000) 25,000 iii. Actual gratuity received 50,000

6 Ph: /26 Therefore, 25,000 is exempt under section 10(10). a) It is assumed that the employee is not covered under The Payment of Gratuity Act, b) It assumed that DA is not forming part of retiring benefits Alternative 2: It assumed that DA is forming part of retiring benefits (Solution change accordingly) PROBLEM NO: 8 1. Taxable portion of the amount received from the URPF in the hands of Mr. A for the A.Y is computed here under: Amount taxable under the head Salaries Employer s share in the payment received from the URPF Interest on the employer s share Total Amount taxable under the head Income from other sources Interest on the employee s share Total amount taxable from the amount received from the fund 2,20,000 50,000 2,70,000 60,000 3,30,000 Note: Since the employees is not eligible for deduction under section 80C for contribution to URPF a the time of such contribution, the employee s share received from the URPF is not taxable at the time of withdrawal as this amount has already been taxed as his salary income. 2. Since the fund is a recognized one, and the maturity is taking place after a service of 25 years, the entire amount received on the maturity of the RPF will be fully exempt from tax. PROBLEM NO: 9 Computation of gross salary of Mr. Mohit for A.Y Basic salary [(10,000 10) + (11,000 2)] 1,22,000 Dearness Allowance (100% of basic salary) 1,22,000 House Rent Allowance (See Note below) 21,300 Gross Salary 2,65,300 Note: Computation of Taxable House Rent Allowance (HRA) April-May () June-Oct () Nov-Dec () Jan () Feb-March () Basic salary per month 10,000 10,000 10,000 10,000 11,000 Dearness allowance (included in salary as per terms of employment) (50% of basic salary). 5,000 5,000 5,000 5,000 5,500 Salary per month for the purpose of computation of house rent allowance 15,000 15,000 15,000 15,000 16,500 Relevant period (in months) Salary for the relevant period (Salary per month relevant period) 30,000 75,000 30,000 15,000 33,000 Rent paid for the relevant period House rent allowance (HRA) received during the relevant period (A) Least of the following is exempt [u/s 10(13A)] 12,000 (6,000x 2) 30,000 (6,000x5) 30,000 (6,000x5) 16,000 (8,000x2) 12,000 (6,000x2) 8,000 (8,000x1) 7,000 (7,000x1) 16,000 (8,000x2) 14,000 (7,000x2) IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.6

7 1. Actual HRA received 12,000 30,000 12,000 7,000 14, Rent paid-10% of salary N.A 22,500 13,000 6,500 12, % of salary (Residence at Ghaziabad June to Oct, 2015) 50% of salary (Residence at Delhi Nov 15- March 16) N.A 30,000 (40% 75,000) 15,000 (50% 30,000) 7,500 (50% 15,000) 16,500 (50% 33,000) Exempt HRA (B) 22,500 12,000 6,500 12,700 Taxable HRA (Actual HRA 12,000 7, ,300 Exempt HRA) (A-B) COMPREHENSIVE PROBLEMS: PROBLEM NO: 10 Computation of Gross Total Income of Mr. X for A.Y Basic Salary = 20,000 x 10 2,00,000 Dearness Allowance = 50% of basic salary 1,00,000 Gift Voucher (See Note - 1) 6000 Transfer of car (See Note - 2) 56,000 Gratuity (See Note - 3) 80,769 Leave encashment (See Note - 4) 1,30,000 Uncommuted pension = 5000 x 2 10,000 Commuted pension (See Note - 5) 1,50,000 Taxable Salary /Gross Total Income 7,32,769 Note: 1. An alternate view possible is that only the sum in excess of 5,000 is taxable in view of the language of Circular No.15/2001 dated that such gifts upto 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite would be 1,000 and gross taxable income would be 7,27, Perquisite value of transfer of car: Purchase price ( ) 5,00,000 Less: 20% 1,00,000 WDV on ,00,000 Less: 20% 80,000 WDV on ,20,000 Less: 20% 64,000 WDV on ,56,000 Less: Amount recovered 2,00,000 Value of perquisite 56,000 The rate of 15% as well as the straight line method adopted by the company for depreciation of vehicle is not relevant for calculation of perquisite value of car in the hands of Mr. X. 3. Taxable gratuity: Gratuity received Less : Exempt under section 10(10) - Least of the following: a) Notified limit = 10,00,000 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.7 6,00,000

8 Ph: /26 b) Actual gratuity = 6,00,000 c) 15/26 x 30,000 x 30 = 5,19,231 Taxable Gratuity 5,19,231 80, Taxable leave encashment: Leave Salary received Less: Exempt under section 10(10AA) - Least of the following: i. Notified limit 3,00,000 ii. Actual leave salary 3,30,000 iii. 10 months x 20,000 2,00,000 (Assuming that dearness allowance does not form part of pay for retirement benefit) iv. Cash equivalent of leave to his credit 2,20, x 20, Taxable Leave encashment 3,30,000 2,00,000 1,30,000 Note: It has been assumed that dearness allowance does not form part of salary for retirement benefits. In case it is assumed that dearness allowance forms part of pay for retirement benefits, then, the third limit for exemption under section 10(10AA) in respect of leave encashment would be 3,00,000 (i.e. 10 x 30,000) and the fourth limit 3,30,000, in which case, the taxable leave encashment would be 30,000 (3,30,000-3,00,000). In such a case, the gross total income would be 6,32, Commuted Pension: Amount received 3,00, Exemption under section 10(10A) = x 3,00,000 x 3 2 1,50,000 Taxable amount 1,50, The taxability provisions under section 56(2)(vii) are not attracted in respect of television received from colleagues, since television is not included in the definition of property therein. PROBLEM NO: 11 Computation of taxable income of Mr. Harish for the A.Y Basic salary (50,000 x 12) 6,00,000 Dearness 40% of basic salary 2,40,000 Transport allowance (3,000 x 12) 36,000 Less : Exemption under section 10(14) (1600 x 12) 19,200 16,800 Motor car running & maintenance charges paid by employer (See Note-1) 28,800 Expenditure on accommodation in hotels while touring on official duty is not a perquisite in the hands of employee and hence not chargeable to tax Loan from recognized provident fund not chargeable to tax Value of lunch provided during office hours 24,000 Less: Exempt (See Note-2) 15,000 9,000 Computer provided in the residence of employee by the employer not chargeable to tax IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.8

9 Gross Salary 8,94,600 Less : Deduction under Chapter VI-A Deduction under section 80D in respect of medical insurance premium paid by cheque amounting to 15,200 but restricted to (See Note-3) 25,000 Taxable income 8,69,600 Notes: 1. If the motor car (whose engine cubic capacity is above 1.60 litres) is owned by the employer and is used for both official and personal purpose by the employee, then the value of perquisite for use of motor car would be 2,400 per month. Therefore value of perquisite for use of motor car would be 2,400 x 12 = 28, Lunch provided by the employer during office hours is not considered as perquisite upto 50 per meal. Since, the number of working days is not given in the question, it is assumed to be 300 days during the F.Y Therefore, 15,000 (i.e. 300 x 50) would be exempt and the balance 9,000 (i.e. 24,000-15,000) would be taxable. 3. Medical insurance premium paid in cash of 4,800 is not allowable as deduction under section 80D. Further, deduction for medical insurance premium paid through cheque is restricted to R 25,000, which is the maximum deduction allowable. PROBLEM NO: 12 Computation of Income from salaries of Mr.X for the A.Y Basic Pay (9K 9M) H.R.A (5K 9M) (W.N. 1) Medical allowance (1200 9M) Leave travel concession 5600 (-) Exemption u/s 10(5) 5600 Car facility ( ) X 9 months Employer contribution to R.P.F (up to 12%) Club facility Gratuity (W.N.2) Leave encashment (W.N.3) Gross Salary (-) Deduction U/s 16 Gross total income (-) Chapter VI A Deductions Employees contribution to R.P.F u/s 80C (9K 20% 9M) Net Taxable Income W.N. 1: Since he lives in his own house, no exemption will be given. W.N. 2: Gratuity: 1. Gratuity received 2. Gratuity exempted:- a) Statutory Limit = 10,00,000 b) Actually received = 1,35,800 1 c) M 30 9,000=1,35,000 2 least of above three 3. Taxable portion (1-2) 81,000 45,000 10, ,300 Exempted ,000 1,80,170 1,80,170 16,200 1,63,970 1,35,800 1,35, The last increment was obtained by X on 1 st of January The relevant period for the purpose of computation of average salary is February, 2016 to November, Since no increment was obtained during this period no need of calculating the Average salary. IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.9

10 Ph: /26 W.N.3: Leave encashment: 1. Leave encashment received 2. Exempted a) Statutory Limit 3,00,000 b) Actually received 1,08,000 c) 10 Months Salary (10M 9K) 90,000 d) Cash equivalent of surplus leave (12M 9K) 1,08,000 Least of above four 3. Taxable portion (1-2) 1,08,000 90,000 18,000 PROBLEM NO: 13 Computation of taxable salary of Mr. X for A.Y Basic pay [(20,000 9) + ( 21,000 3)] = 1,80, ,000 2,43,000 Dearness allowance [10% of basic pay] 24,300 Bonus 21,000 Employer s contribution to Recognized Provident Fund in excess of 12% (15% - 8,019 12% =3% of 2,67,300) [See Note 1 below] Taxable allowances Telephone allowance 6,000 Taxable perquisites Rent-free accommodation [See Note 1 & 2 below] 44,145 Medical reimbursement ( 25,000-15,000) [See Note 4 below] 10,000 Reimbursement of salary of housekeeper 12,000 Gift voucher [See Note 6 below] 10,000 Salary income chargeable to tax 3,78,464 Notes: 1. It has been assumed that dearness allowance forms part of salary for retirement benefits and accordingly, the perquisite value of rent-free accommodation and employer s contribution to recognized provident fund have been worked out. 2. Where the accommodation is taken on lease or rent by the employer, the value of rent - free accommodation provided to employee would be actual amount of lease rental paid or payable by the employer or 15% of salary, whichever is lower. For the purposes of valuation of rent free house, salary includes: i) Basic salary i.e., 2,43,000 ii) Dearness allowance (assuming that it is included for calculating retirement benefits) i.e. 24,300 iii) Bonus i.e., 21,000 iv) Telephone allowance i.e., 6,000 Therefore, salary works out to 2,43, , ,000 +6,000 = 2,94, % of salary = 2,94,300 15/100 = 44,145 Value of rent-free house = Lower of rent paid by the employer (i.e. ) or 15% of salary (i.e., 44,145). Therefore, the perquisite value is 44, Facility of use of laptop is not a taxable perquisite. 4. Clause (v) of the proviso to section 17(2) exempts any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family to the extent of 15,000. Therefore, in this case, the balance of 10,000 (i.e., 25,000 15,000) is a taxable perquisite. Medical insurance premium paid by employer is exempt. IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.10

11 5. Conveyance allowance is exempt since it is based on actual reimbursement for official purposes. 6. The value of any gift or voucher or token in lieu of gift received by the employee or by member of his household below 5,000 in aggregate during the previous year is exempt. In this case, the gift voucher was received on the occasion of marriage anniversary and the sum exceeds the limit of 5,000. Therefore, the entire amount of 10,000 is liable to tax as perquisite. Note - An alternate view possible is that only the sum in excess of 5,000 is taxable in view of the language of Circular No.15/2001 dated that such gifts upto 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite would be 5, Premium of 5,000 paid by the company for personal accident policy is not liable to tax. PROBLEM NO: 14 Computation of taxable income of Mr. Vignesh for the Assessment Year a) Income from salaries (See Working Note below) 7,62,800 b) Income from other sources i) Interest on fixed deposit with a company 5,000 ii) Income from specified mutual fund exempt under section 10(35) iii) Interest on Fixed Deposit received by minor daughter 1,500 6,500 ( 3, ) Gross total income 7,69,300 Less: Deductions under Chapter VI-A Section 80C PPF 40,000 Section 80CCC 1,00,000 1,40,000 Total Income 6,29,300 Tax on total income 50,860 Add : Education 2% 1,017 Add : Secondary and Higher Education 1% 509 Total tax liability 52,386 Total tax liability (rounded off) 52,390 Working Note: Computation of salary income of Mr. Vignesh for the Assessment Year Income under the head salaries Salary [ 46,000 x 12 ] 5,52,000 Medical facility [ in the hospital maintained by the company is exempt] _ Rent free accommodation 15% of salary is taxable (i.e. 5,52,000 15% as per Rule 3(1)) 82,800 Use of dining table for 4 months [ 60,000 x 10 /100 x 4 /12] 2,000 Valuation of perquisite of interest on loan [Rule 3(7)(i)] 10% is taxable which is to be reduced by actual rate of 24,000 interest charged i.e. [ 10% - 6% = 4%] Gift given on the occasion of wedding anniversary 4,750 is - exempt, since its value is less than 5,000 Perquisite on sale of dining tables Cost 60,000 Less: Depreciation on straight line 10% for 3 years (18,000) Written Down Value 42,000 Less: Amount paid by the assessee (30,000) 12,000 Purchase through credit card not being a privilege but covered by section 17(2)(iv) 10,000 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.11

12 Ph: /26 Perquisite on sale of car Original cost of car 2,50,000 Less: Depreciation from to 20% (50,000) 2,00,000 Less: Depreciation from to 20% (40,000) Value as on being the date of sale to employee 1,60,000 Less : Amount received from the assessee on (80,000) 80,000 Income from Salaries 7,62,800 Note: Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee arising from the transfer of any movable asset, the normal wear and tear is to be calculated in respect of each completed year during which the asset was put to use by the employer. In the given case the third year of use of ambassador car is completed on where as the car was sold to the employee on The solution worked out above provides for wear and tear for only two years. PROBLEM NO: 15 Computation of taxable salary of Mr. Anand for the Assessment Year Amount Basic Salary ( 80,000 x 9) 7,20,000 Bonus 36,000 House Rent Allowance (Working Note 1) 1,17,000 Employer s contribution towards recognized provident fund in excess of 23,600 12% of salary [i.e., 1,10,000 86,400 (12% of 7,20,000)]. Gratuity (Working Note 2) 10,51,640 Uncommuted Pension [( 8,000 x 1) + ( 2,000 x 2)] 12,000 Commuted Pension (Working Note 3) 2,50,000 Gross Salary 22,10,240 Less: Professional tax paid by Mr. Anand [deductible under section 16(iii)] 2,000 Taxable salary 22,08,240 Working Notes: Amount Amount 1) Taxable House Rent Allowance Actual HRA Received As per section 10(13A), least of the following is exempt: (i) Actual HRA received 1,35,000 (ii) Excess of rent paid over 10% of salary (basic pay, in this case) - Rent paid ( 10,000 x 9) 90,000 - Less: 10% of salary (i.e., 10% of 7,20,000) 72,000 18,000 (iii) 50% of salary (i.e., 50% of 7,20,000) 3,60,000 3,60,000 Least of the above 18,000 Taxable HRA 18,000 Taxable Gratuity 2) Actual Gratuity received 1,17,000 As per section 10(10), least of the following is exempt: 20,51,640 (i) Statutory limit 10,00,000 (ii) Actual gratuity received 20,51,640 (iii) 15 days salary for each completed year of service or part thereof in excess of 6 months i.e., 15/26 x 80,000 x 34 Least of the above 15,69,231 Taxable Gratuity 10,00,000 Commuted Pension 10,51,640 IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.12

13 3) Since Mr. Anand is a non-government employee in receipt of gratuity, exemption under section 10(10A), would be available to the extent of 1/3rd of the amount of the pension which he would have received had he commuted the whole of the pension. Amount received (Commuted value of 75% of pension) 4,50,000 4,50,000 Amount exempt from tax = ( 4,50,000 x 100/75) x 1/3 2,00,000 2,00,000 Taxable amount Accumulated balance of Recognized Provident Fund (RPF) 4) 6 lakh, representing the accumulated balance of RPF, received on retirement is exempt since Mr. Anand has rendered a continuous service for a period of 5 years or more (33 years and 7 months) in XYZ Ltd. 2,50,000 Copyrights Reserved To, Guntur THE END IPCC_37e_Income Tax_ Solutions to Classroom Problems 3.13