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Module II
Income from Salary(section 15-17)
By Vibha Chaturvedi

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Statement showing Taxable Income PARTICULAR
Salary Income (sec 15-17) XXX
Add: House Property (sec 22-27) XXX
Add: Business or Profession(28-44) XXX
Add: Capital Gains (sec 45-55) XXX
Add: Income from other source (55-59) XXX
Gross Total Income XXX
Less: Deduction (u/s 80C to 80U) XXX
Taxable Income XXX

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Meaning of Salary
Any remuneration paid by an employer to his employees in consideration of his
services is called salaries.
• Salary comes into existence as a result of employer-employee relationship.
• In a employer-employee relationship, employee performs his duties and the
employer provides him salary.
The meaning of the term ‘salary’ for purposes of income tax is much wider than what
is normally understood. The term ‘salary’ for the purposes of Income-tax Act, 1961
will include both monetary payments (e.g. basic salary, bonus, commission,
allowances etc.) as well as non-monetary facilities (e.g. housing accommodation,
medical facility, interest free loans etc). Section 17(1), defined the term “Salary”. It is
an inclusive definition and includes monetary as well as nonmonetary items.
Income from Salary

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As per Section 17(1) definition salary includes :
(i) Salary , wages,
(ii) any annuity or pension,
(iii) any gratuity,
(iv) any fees, Allowances, commission, perquisite or profits in lieu of or in addition to any salary or
wages,
(v) any advance of salary
(vi) any payment received in respect of any period of leave not availed by him i.e. leave salary or
leave encashment,
(vii) the portion of the annual accretion in any previous year to the balance at the credit of an
employee participating in a recognized provident fund to the extent it is taxable and
(viii) transferred balance in recognized provident fund to the extent it is taxable,
(ix) the contribution made by the Central Government or any other employer in the previous year to
the account of an employee under a pension scheme referred to in section 80CCD

Computation of Salary in the Grade System
An employee may be entitled to receive Salary in grade system. Under
this system, the normal annual increments to be given to employee are
already fixed in the grade.
For example, if an employee joins the service on 01.06.2010 and is
placed in the grade of Rs. 10000-1000- 15000-2000-25000
then his salary from 01.06.2010 will be Rs. 10,000 p.m. and thereafter
his salary will be Rs. 11000 p.m. w.e.f. 31.05.2011 until it reaches Rs.
15,000 after which it will increase annually by Rs. 2000 until it reaches
Rs. 25,000. After that, employee will be placed in another grade.

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Basic Salary: It is the sum paid by employer to employee as salary and shall be fully taxable.
Dearness Allowance (DA) or Dearness Pay (DP): It is an extra amount given to an employee to meet the
burden of inflation or increased cost of living. This is fully taxable. Note: Sometimes, it is given that
DA/DP is not forming a part of retirement benefit (Leave encashment, Pension, Provident Fund, etc.). In
such case, DA/DP itself shall be fully taxable. However, for calculating taxable Leave encashment,
Pension, HRA, etc., DA/DP will be included in ‘salary’ only if it forms a part of retirement benefit.
Fees: An employee may be given apart from basic salary, extra remuneration for doing specific job
under the terms of employment. Such extra remuneration is termed as fee and shall be fully taxable.
Commission: It may be as a percentage of turnover or as a percentage of profit. In either case, it is
taxable.
Bonus: Bonus may be contractual or voluntary. In either case, it is fully taxable. (i) Contractual bonus is
taxable as bonus whereas voluntary bonus is taxable as perquisite. (ii) It is taxable in the year of receipt.
(iii) If arrear bonus is received, assessee can claim relief u/s 89(1).

The fixed sum paid by employer to employee to meet official or personal expenses. Different types of
allowances are given to employees by their employers. Generally allowances are given to
employees to meet some particular requirements like house rent, expenses on uniform, conveyance
etc.
Under the Income tax Act, 1961, allowance is taxable on due or receipt basis, whichever is earlier.
Various types of allowances normally in vogue are discussed below:
Allowances

(A) Allowances which are fully taxable
(1) City compensatory allowance: City Compensatory Allowance is normally intended to compensate the
employees for the higher cost of living in cities. It is taxable irrespective of the fact whether it is given as
compensation for performing his duties in a particular place or under special circumstances.
(2) Entertainment allowance: This allowance is given to employees to meet the expenses towards hospitality in
receiving customers etc. The Act gives a deduction towards entertainment allowance only to a Government
employee. In the case of government employees (only Central Government and State Government),
First included in salary and there after least of following is deductible;
1. Rs. 5000;
2. 20 per cent of basic salary; or 10,000*20/100= 2000
3. Entertainment allowance. 10,000
(3) Non government employees (including employees of statutory corporation and local authority):
nothing is allowed as deduction

B. Allowances Exempted up to specified/ partly exempted allowance
1. House Rent Allowance ( Sec 10(13A):
An allowance granted to an assessee by his employer to meet expenditure incurred on payment of rent in
respect of residential accommodation occupied by him is exempted from tax to a certain extent.
Rule 2A prescribed that least of the following amount will be exempted :
1. 50 per cent of salary in Delhi Mumbai Kolkata Chennai or 40 per cent of salary in other cases;
2. House rent allowance;
3. The excess of rent paid over 10 per cent of salary ( rent paid – 10% salary )
Salary include= Basic salary + DA(dearness allowance)+commission (if given as % of turnover)
Exemption from Hra = 5,000
Taxable amt of HRA= 10,000-5000= 5000

Taxable HRA = Actual HRA – Exemption
(a) Exemption not available to an assessee who lives in his own house, or in a house for which he has not
incurred the expenditure of rent.
(b) Salary for this purpose means basic salary, dearness allowance, if provided in terms of employment and
commission as a fixed percentage of turnover.
(c) Salary determined on due basis.

salary= Basic salary + Dearness allowance +commission=
I = 18000*40/100=7200, II=12000*40/100= 4800, III= 6000*40/100=2400
Excess of rent over 10% of salary= I . 1500-1800= NIL
II. 1920-1200= 720
III. 750-600=
Least of the
following will be
exempted:
I II III
1.Amt of HRA pm 2100 600 1050
2. 40% 0f salary 7200 4800 2400
3. Excess of rent
paid over 10% of
salary
NIL 720 150
Exempted value of
HRA
2100 600 150
Taxable value of
HRA
2100-2100= NIL 600-600= NIL 1050-150= 900*12=
10,800
Computation of tax liability on House rent allowance(HRA)

1. 40% of salary 6000*40/100= 2400
2. Actual HRA received= 1050
3. Rent paid-10%of salary 750-600= 150
Exempted HRA= 150
Taxable HRA= 750-150= 600

Salary = 70,000*12= 840,000+72,000PA= 9,12,000
Least of he following will be exempted:
1. 40% of salary 9,12,000*40/100 3,64,800
2. Actual HRA received 2000*12 24,000
3. Rent 30,000- 91,200 NA
Exempted HRA value= 24,000
Taxable HRA= 24,000- 24,000= NIL

Least of the following: Delhi Amritsar
1. HRA received 8000 24000
2. 40% or 50% of salary 23,600*50/100= 11,800 72,000*40/100=
28,800
3. Rent paid- 10% of salary 11,600-2360= 9240 7600-7200=400
Exemption Sec 10(13A) 8000 400
Taxable amt 8000-8000= NIL 24,000-400=23,400
NIL*8=nil 23,600*4=94,400
Commutation of Taxable Amount of House rent Allowance (HRA) for AY
2021-22
Working Notes
Delhi= 20,000+3600= 23,600
Dearness allowance= 6000*60/100= 3600
Amritsar= 40,000+32,000= 72,000

Special allowance exempt u/s 10(14)
a. Allowances, deduction from which depends on actual expenditure [Sec. 10(14)(i)]
Allowance Meaning
Travel or transfer Allowance An allowance, by whatever name called, to meet the cost of
travel on tour. Cost of travel includes any sum paid in
connection with transfer, packing and transportation of
personal effects on such transfer.
Daily Allowance An allowance, by whatever name called, granted on tour (or for
the period of journey in connection with transfer) to meet the
ordinary daily charges incurred by employee on account of
absence from his normal place of duty.
Conveyance Allowance Any allowance granted to meet the expenditure on conveyance
in performance of duties of the office, provided free
conveyance is not provided by the employer.
Tax point: Expenditure for covering the journey between office
and residence is not treated as expenditure in performance of
duties of office and consequently not covered under this
allowance. (Refer Transport allowance)

Special allowance exempt u/s 10(14)
Allowances, deduction from which depends on actual expenditure [Sec. 10(14)(i)]
Helper / Assistant
Allowance
Any allowance (by whatever name called) to meet the expenditure of assistant or
helper, provided such helper is appointed for the performance of duties of an office.
Taxpoint: Servant allowance is fully taxable.
Research
Allowance
Any allowance, by whatever name called, granted to encourage academic, research
and other professional pursuits. This allowance may also be termed as Professional
Development / Academic allowance
Uniform Allowance Any allowance, by whatever name called, to meet the expenditure on purchase or
maintenance of uniform wear, during the performance of duties of an office.
Tax point: Uniform allowance is different from Dress allowance. Dress allowance is
fully taxable.

Tax Treatment of aforesaid allowances: Minimum of the following shall be exempted:
a) Actual amount received;
b) or b) Actual expenditure incurred for such purpose
Mr X received 10,000 Rs for incurring expenditure due to transfer , total cost incurred 2000
a. 10,000
b. 2,000
Tax liability on travel allowance = 10,000-2000= 8000

Children Education Allowance :
An allowance to meet the expenses in connection with education of children, by whatever name called.
Treatment:
Minimum of the following is exempted from tax – 3
a) Rs 100 per month per child (to the maximum of two children)
Or
b) Actual amount received for each child (to the maximum of two children)
Allowances, deduction from which do not depend on actual
expenditure [Sec. 10(14)(ii)]

Children Hostel Allowance :An allowance to meet the hostel expenses of children, by whatever name
called.
Treatment:
Minimum of the following is exempted from tax –
a) Rs. 300 per month per child (to the maximum of two children)
b) Actual amount received for each child (to the maximum of two children)
Notes for Children Education Allowance and Hostel Allowance:
a) Child includes adopted child, step-child but does not include illegitimate child and grandchild.
b) Child may be major or minor child.
c) Deduction is available irrespective of actual expenditure incurred on education of child.

Example :
Mr. & Mrs. X have three children and two of them are not studying. Both Mr. & Mrs. X are
working in A Ltd. and getting children education allowance Rs. 500 per month and hostel
allowance Rs. 1,000 per month. Compute taxable children education allowance and hostel
allowance. Particular Mr. X Amt. Mrs. X Amt
Children
Allowance
500*12= 6,000 6000 500*12 6000
Less:
Exemption
100*12*2=2400 2400 100*12*2 2400
3600 3600
Hostel
allowance
Less:
Exemption
Taxable
Allowance
1000*12= 12000
300*12*2=7200
12,000
7200
4800
12000
7200
4800

Example:
Mr. Laloo Singh, received education allowance of Rs, 80 p.m. for his 1st child, Rs. 90 p.m. for his 2nd child
and Rs. 120 p.m. for his 3rd child. He also received hostel allowance of Rs, 1,000 p.m. None of his
children are studying. Find taxable Children Education Allowance and Hostel allowance.

Truck Driver’s Allowance Any allowance (by whatever name called) granted to an employee
working in any transport system to meet his personal expenditure during his duty performed in the
course of running of such transport (from one place to another place), provided such employee is not in
receipt of daily allowance.
Treatment: Minimum of the following shall be exempted:
a) 70% of allowance.
b) Rs. 10,000 p.m.
*point: If assessee is in receipt of Daily allowance then above allowance shall be fully taxable.

Transport Allowance: An allowance, by whatever name called, to meet the expenditure for the
purpose of travelling between the place of residence and the place of duty.
Available to: Assessee is blind / deaf and dumb / orthopaedically handicapped.
Treatment: Minimum of the following shall be exempted:
a. Actual amount received; or
b. b. Rs. 3,200 p.m.
*point: No exemption is available to the assessee other than specified above

Allowance to Government employees outside India As per sec. 10(7),
any allowance or perquisite allowed outside India by the Government to an Indian citizen for rendering services
outside India is wholly exempt from tax.
*Point:
Assessee must be –
a) Government employee
b) Citizen of India; and
c) Working outside India
2. Any allowance or perquisite to such employee shall be exempted u/s 10(7)

Allowance received from UNO (United Nations Organization) Basic salary or Allowance paid by the UNO
to its employees are not taxable.
Compensatory allowance under Article 222(2) of the Constitution : an allowance granted to meet
personal expenditure necessitated by the special circumstances in which duty is performed , It is fully
exempt from tax.
Allowance to judges of the High Court or the Supreme Court:
Any allowance paid to Judges of the High Court u/s 22A(2) and sumptuary allowance u/s 22C of the “High
Court Judges (Conditions of Service) Act, 1954” is not taxable. Allowance to the Supreme Court Judges u/s
23B of the “Supreme Court Judges (Conditions of Service) Act, 1958” is also exempt.

Salary to teacher or professor from SAARC Member States [DTAA]: Salary including allowances and
perquisites of a teacher or professor or research scholars from SAARC Member States shall not be taxable
if following conditions are satisfied:
1. Such professor, teacher or research scholar is a resident of other SAARC member State (i.e.,
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan & Sri Lanka) prior to visiting another member State.
Taxpoint: 1. An individual is deemed to be a resident of a member State if he/she is resident in that
member State in the fiscal year in which he visits the other member State or in the immediately preceding
fiscal year.
2. Such visit is for the purposes of teaching or engaging in research or both at a university or college or
similar approved institution in that other Member State.
3. The remuneration from aforesaid activities in other Member State is exempt for a period of 2 years from
the date of arrival in the other member State.

Allowance or Perquisite to member of Union Public Service Commission [Sec. 10(45)] :
Any allowance or perquisite, as may be notified by the Central Government in the Official Gazette in
this behalf, paid to the Chairman or a retired Chairman or any other member or retired member of the
Union Public Service Commission is exempt.

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Transport Allowance: exemption of up to Rs.1,600 per month is provided.
In the case of handicapped employees, the exemption is extended up to
Rs.3,200.
Tribal Area Allowance: A special allowance is provided to the residents of hilly, scheduled, and
agency areas such as Uttar Pradesh, Karnataka, Madhya Pradesh, Tamil
Nadu, Odisha, Assam, and Tripura. can get an exemption of up to Rs.200
per month.
Outstation Allowance: This is an allowance provided by roadways, railways, and airways in place
of the daily allowance.
The exemption applicable is 70% of the allowance or Rs.10,000, whichever
is lower.
Island Duty Allowance: This allowance is provided to the members of the armed forces who are
assigned duties in islands such as Lakshadweep and Andaman & Nicobar.
A maximum exemption of up to Rs.3,250 is given per month.
Underground Allowance: An allowance of up to Rs 800 is given to employees who work in
unfavorable, unnatural conditions in underground mines.

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Tax treatment of various allowances are as follows Following allowances are fully taxable:

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Particular Detail Taxable amt of allowance
Basic Salary 2000*12 24,000
Dearness allowance 3000*12 36000
Dearness pay 1000*12 12000
Fees 50,000
House rent allowance 5000*12 60,000
Less: Exception 36,000 24,000
Children Education 30000*12 36,000
Less: Exemption 1200 34800
Children allowance 1,000*12 12,000
Hostel allowance 24,000
Less: Exemption 3600 20400
Dress allowance 5000*12 60,000
Uniform allowance 2000*12 24,000
Less: Exemption 12,000 12,000
Computation of gross total salary of Ms Sonal For the AY. 2021-22

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Particular Detail Taxable amt of allowance
Tiffin allowance 1,000*12 12,000
Education Allowance 2000*12 24,000
Less: Expenditure on education 1500*12 18,000 6,000
Gross salary

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Working note:
1. Salary for the purpose of HRA= BS+ DA+ Commission
24,000+36,000=72000
50%of 72,000=36,000
10 % of salary = 7200
2. Exemption value of HRA
Least of the following will be exempted:
1. HRA received = 60,000
2. 50% of salary = 36,000
3. Rent paid- 10% of salary
4,000*12= 48,000-7200= 40,800
Least will be exempted from HRA= 36,000
2. Exemption from children education allowance
100*12*1= 1200

3. Exemption from Hostel allowance
300*12*1= 3,600
4. Tax exemption from uniform allowance :
Expenditure incurred on uniform 1,000*12 12,000
Allowance receive 24,000
12,000
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In the above illustration, how shall your answer differ if Miss Sonal is working outside India and rent paid
for the house in Japan
Note: Since, Miss Sonal, being Government-employee and citizen of India, is working outside India.
Hence, all allowances paid to her by the Government are exempted u/s 10(7)

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Computation of Taxable Amount of Special allowance AY 2021-22
Particular Amt Amt Taxable value
1. Climate allowance 700*12 8400
2. Snow Bound Area 300*12 3600
12,000
Less: Since both 1 and 2nd
allowances comes under
same category hence only
800Pm exemption
800*12 9600 2400
3.Distub area allowance 800*12 9600
4Border Area allowance 600*12 7200
16,800
Less: Exemption 1300*12 15600 1,200
5. Hostel Allowance 800*12 9600
Exemption :300*12*2 7200 2400
6. Children education 300*12 3600
Less: Exemption 100*12*2 2400 1200
Taxable 7200

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PERQUISITE [SEC. 17(2)]
Any casual emoluments or benefits attached to an office or position, in addition to salary or wages, which is
availed by an employee. In other words, perquisites are the benefits in addition to normal salary.
As per sec. 17(2) of the Income tax Act, Perquisite includes –
i. Value of rent-free accommodation provided by the employer.
ii. Value of concession in rent in respect of accommodation provided to the assessee by his employer.
iii. The value of any benefit or amenity granted or provided free of cost or at concessional rate to ‘specified
employees’.
iv. Amount paid by an employer in respect of any obligation which otherwise would have been payable by the
employee
Tax point: Any obligation of the employee met by employer shall be taxable on cash basis i.e. in the year in
which amount is paid by the employer.
Sum payable by an employer, whether directly or through a fund other than recognized provident fund or
approved superannuation fund or deposit-linked insurance fund, to effect an assurance on the life of the
assessed or to effect a contract for an annuity.

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Taxable Perquisite
1 Rent Free Residential Accommodation :
A. If government employee- Licence Fee determined as per the Government Rules, as
reduced by rent actually paid by the employee for
unfurnished accommodation.
For a furnished accommodation,
10% p.a. of the furniture cost is added to the value obtained
above for unfurnished.
In case the furniture is hired, the actual hire charges would
be added to the value obtained above for unfurnished

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Valuation of Rent free House – Government Employee
Value of Unfurnished 2,000*12 24,000
Add: 10% of Furniture cost
1,70,000
17,000
Value of Perquisite
Rs.
41,000
Since Mr. Narain is a Govt employee hence value of
unfurnished house will be the value determined by Govt.

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Non-Government Employee In case of Unfurnished Accommodation;
(a) If the accommodation is owned by the employer, the value
would be based on the population, i.e.,
(i) if in cities having a population of > 25 Lacs (2001 Census)
- 15% of Salary;
(ii) if the population is between 10 Lacs up to 25 Lacs – 10%
of Salary;
(iii) else 7.5% of Salary
(b) If the accommodation is taken on lease by the employer,
the actual value of lease rentals paid by the employer subject
to a maximum of 15% of Salary is considered as Value.
For a furnished accommodation, 10% p.a. of the furniture
cost is added to the value obtained above for
unfurnished. In case the furniture is hired, the actual hire
charges would be added to the value obtained above for
unfurnished.

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Government Employee
License Fee determined as per the
Government Rules
10% p.a. of the furniture cost is added to
the value obtained above for unfurnished.
OR
hire charges
Other
A. If the accommodation is owned by the employer
1. > 25 Lacs (2001 Census) - 15% of Salary
(ii) if the population is between 10 Lacs up to 25 Lacs –
10% of Salary;
(iii) else 7.5% of Salary
B. If the accommodation is taken on lease by the
employer,
The actual value of lease rentals paid by the employer
subject to a maximum of 15% of Salary is considered as
Value.

Salary for the purpose of rent free accommodation = Basic salary+ all taxable allowances
(do not include Retirement benefit )
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Valuation of Rent free House : For other employee
Assessee is non Govt employee and House
is owned by employer
A. value of Unfurnished house 15% of Salary 6,00,000*15/100= 90,000
B. Value of Perquisite 7.5 of sal 6,00,000*7.5%= 45,000
Salary= Basic Salary all benefits received by employer(taxable value) but
avoid retirement benefits

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Salary for the purpose of Rent free accommodation
1. Basic salary 3,92,000
2.Dearness allowance ----
3.Entertainment Allowance 36,000
4. Bonus 32,000
5.Commision 40,000
6.Premium paid by employer Perquisite not
included
----
7. Employer’s contribution to RPF DO -----
8. Conveyance allowance (office purpose) DO ---
9. Sweeper Do ---
10.Gardner DO ---
11. Electricity DO ----
12. Loan Do ---
13.Internest Do ---
5,00,000

ACCOMMODATION PROVIDED IN HOTEL
Government or Non-Government Employee:
a. Accommodation provided on transfer from one place to another and the aggregate
does not exceed 15 days- NIL
b. Any other case – 24% of salary (for the period during which accommodation is
provided)
Or actual charges Paid or payable which ever is less.
If any amount paid by employee it shall be reduced and balance shall be the value of
perquisites.
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Computation of Taxable value of Perquisite: Accommodation in hotel
24% of salary 7,30,000/365*2
5
50,000*24/100 12,000
Or Actual cost
incurred
1000*25 25,000
Least of the above
Less: Employee
paid rent to
employed 200*25
12,000
5000
Perquisite
value
7000

INSURANCE PREMIUM PAYABLE BY EMPLOYER
As per sec. 17(2)(v), following sums payable by an employer shall be taxable perquisite in the hands of all
employees, whether it is paid directly or through a fund (other than recognised provident fund or approved
superannuation fund or deposit-linked insurance fund):
● to effect an assurance on the life of the assessee;
● to effect a contract for an annuity
Note: Employee can claim deduction u/s 80C for LIC premium paid by employer

VALUATION OF PERQUISITES IN RESPECT OF
MOTOR CAR [RULE 3(2)]
Owned / Maintenance by Employer Tax Liability
1. Fully Official Purpose NIL
2. Fully Personal Purpose Running cost and Maintained cost
+ Depreciation (10% of cost of car)
Add: driver salary
3. Official+Personal
Small upto 1.6 ltr = 1800pm
Large above 1.6 ltr 2400pm
Large or small car
Capacity car:
Small car: upto 1.6 ltr
Large car: above 1.6 ltr
Small car: 1800pm
Large car: 2400pm
Add: driver 900pm

Owned by Employer maintained by employee Tax Liability
1. Fully Official Purpose NIL
2. Fully Personal Purpose Depreciation (10% of cost of car)
3. official+personal Capacity car:
Small car: upto 1.6 ltr
Large car: above 1.6 ltr
Small car: 600pm
Large car: 900pm
Add: driver 900pm

Owned by Employee maintained by employer Tax Liability
1. Fully Official Purpose NIL
2. Fully Personal Purpose Maintenance cost
3. official + personal Amount reimbursed :
Less: 1800pm or 2400pm
Less: 900 for chauffeur

Owned by Employee maintained by employee Tax Liability
1. Fully Official Purpose NIL
2. Fully Personal Purpose NIL
3. official + personal NIL
Not a perquisite

Conditions to be fulfilled for claiming higher deductions:
● The employer has maintained complete details of journey undertaken
for official purpose, which may include date of journey, destination,
mileage, and the amount of expenditure incurred thereon; and
● The employer gives the certificate to the effect that the expenditure
was incurred wholly and exclusively for the performance of official
duties.

Notes
a) If motor car is provided at a concessional rate then charges paid by employee for such car, shall be
reduced from the value of perquisite.
b) The word “month” denotes completed month. Any part of the month shall be ignored.
c) When more than one car is provided to the employee, otherwise than wholly and exclusively for
office purpose, the value of perquisite for –
● One car shall be taken as car is provided partly for office and partly for private purpose i.e. Rs1,800
or Rs 2,400 p.m. (plus Rs. 900 p.m. for chauffeur, if provided); and
● For other car(s), value shall be calculated as car(s) are provided exclusively for private purpose
• Conveyance facility to the judges of High Court or Supreme Court is not taxable. e) Use of any
vehicle provided to an employee for journey from residence to work place or vice versa is not a
taxable perquisite.

Sonam, has been provided a car (1.7 ltr.) by his employer Vikash Ltd. The cost of car to the employer was Rs.
3,50,000 and maintenance cost incurred by the employer Rs. 30,000 p.a. Chauffeur salary paid by the employer
Rs.3,000 p.m.
Find value of perquisite for Sonam for the A.Y.2019-20, if the car is used for:
a) Office purpose.
b) Personal purpose.
c) Both purpose. In case (b) and (c), employee is being charged RS. 15,000 p.a. for such facility
Solution
Computation of perquisite in respect of Motor car
a. Office purpose NIL
b. Personal Depreciation on Car @10%
3,50,000*10/100
Add: Salary of Driver 3000*12
Value of Perquisite(CAR)
35,000+30,000=
65,000
36,000
1,01,000
C. Mixed purpose Large Car 2400*12=
Add: Driver Salary 900*12
28,800
10,800
Value of Perquisite 30,600

Computation of perquisite in respect of Motor car
B. Personal 1,01,000
Less: Payment to employer 15,000
86,000
C. Mixed : Incase of combined purpose
payment made by employee to
employer will never be
deducted from perquisite value
30,600

Computation of Value Car( small car) owned by employee and maintained by
Employer
i) For official purpose NA
ii) Official as well as personal Maintenance cost 70,000
Less: 1800*12 21600
48,400
Value of Car 48,400

For Practice :
Mr. Piyush has been provided a car (1.5 ltr.) on 15/7/2018. The cost of car to the employer was Rs.
6,00,000 and maintenance cost incurred by employer Rs.20,000 p.a. Chauffeur salary paid by
employer (Mr. Ratan) Rs. 4,000 p.m. The car is 40% used for office and 60% for personal purpose.
Charges paid by employee for such facility Rs.5,000 p.a. Find taxable value of perquisite

VALUATION OF PERQUISITE IN RESPECT OF FREE DOMESTIC SERVANTS (
sweeper, Gardner or personal attendant) [RULE 3(3)]
Value of perquisites shall be:
Salary paid or payable to servant -------
Less: Amount recovered from the employee(if any) ………
Value of perquisite
a) If rent-free accommodation (owned by the employer) is provided with gardener then gardener’s salary
and maintenance cost of garden shall not be taxable. [Circular No.122 dated 19/10/1973]
b) Any amount charged from the employee for such facility shall be reduced from above value.
c) Domestic servant allowance given to employee is fully taxable.
d) Reimbursement of servant-salary by the employer shall be taxable in hands of all employee

Sri Bhagawan, has been provided with the following servants by his employer:

Computation of perquisite in respect of servant
Particular Specified Non specified employee
Watchman 2000pm 24,000 NA
Cook 3000pm 36,000 36,000
Maid 1000*12 12000 NA
Sweeper 500*12 6000 6000
Gardner NA NA
78,000 42,000

GAS, ELECTRICITY OR WATER FACILITY [RULE 3(4)]
It is taxable on the following basis:

VALUATION OF PERQUISITE IN RESPECT OF FREE EDUCATION [RULE 3(5)
1. Where an educational institution is itself owned and maintained by the employer or where free
educational facilities are allowed in any other educational institution by reason of his being in the
employment of that employer , The value shall be:
a. The educational facility provided to children of employee:
i. The cost of such education or the value of the benefit per
child does not exceed Rs. 1000 p.m.
ii. If the cost or value exceed Rs 1000pm per child
Less: Amount recovered from employee ----
Value of perquisite will be without deduction of Rs. 1000 pm
per child)
NIL
Cost of such education in a similar institution
in or near the locality
b. The education facility provided to other members of
household
Less: Amount recovered from employee
Cost of education in the similar in situation in
or near the locality
2. Education facility provided in any other educational institution to children or other household
members of the employee
The value of facility shall be the expenses incurred by the
employer

a) Child includes adopted child, stepchild of the assessee, but does not include grandchild or illegitimate
child.
b) Any amount charged from the employee for such facility shall be reduced from the above value.
c) Contribution made under an Educational Trust, created for the children of particular group of employees,
is not taxable
d). There is no limit of 2 children in case of free education perquisition
Perquisite 20,000*4= 80,000 perquisition
Allowance 10,000 allowance , exemption= 100*2*12= 2400

VALUATION OF PERQUISITE IN RESPECT OF FREE TRANSPORT [RULE 3(6)]
The facility provided by employer is taxable in the hands of employee on the following basis:

VALUATION OF PERQUISITE IN RESPECT OF INTEREST FREE LOAN OR
CONCESSIONAL RATE OF INTEREST [RULE 3(7)(i)
Perquisite in respect of interest free loan or loan at concessional rate of interest to the employee or any
member of his household by the employer or any person on his behalf,
• is not taxable if aggregate amount of loan given by the employer (or any other person on his behalf) does
not exceed Rs. 20,000.
• The taxable value of such perquisite shall be determined as per the rate as on the 1st day of the relevant
previous year charged by the State Bank of India in respect of loans for the same purpose advanced by it

Notes
a) Maximum outstanding monthly balance: Interest is calculated on the maximum outstanding
monthly balance. Maximum outstanding monthly balance means the aggregate outstanding
balance for each loan as on the last day of each month.
b) Loan for medical treatment: Nothing is taxable if loan is given for medical treatment of the
employee or any member of his household in respect of diseases specified in rule 3A.
However, such exempted loan will not include the amount that has been reimbursed by an insurance
company under any medical insurance scheme.
c) Concessional interest: Any interest paid by the employee to the employer for such loan shall
be reduced from the above computed value. If rate of interest charged by the employer is higher than
the above rate, nothing is taxable as perquisite.
d) Amount on which interest shall be calculated: If loan amount is more than Rs. 20000, interest shall
be levied on total loan amount, rather than the excess amount

The facility provided by employer is taxable in the hands of employee on the following basis:
VALUATION OF PERQUISITE IN RESPECT OF FREE MEALS [RULE 3(7)(iii)
Case Tax Treatment
Tea, snacks or other non-alcoholic beverages in the form
of light refreshment provided during office hours (including
over-time)
NIL
Free meals provided during office hours in:
● Remote area or ● An offshore installation
NIL
Free meals provided by the employer during office hours:
● At office or business premises; or
● Through paid vouchers which are not transferable and
usable only at eating joints.
Expenditure on free meals in excess of Rs. 50 per meal
shall be taxable perquisite to the extent of excess amount
in hands of all employees. E.g. Free meal given to
employee worth Rs.70 per meal through non-transferable
coupon for 300 times in a year. Taxable perquisite in such
case shall be Rs. 6,000 {being Rs.(70 – 50) × 300}.
In any other case The actual expenditure incurred by employer as reduced
by amount charged from employee for such lunch or meal
shall be taxable in the hands of all employees. i.e. [Actual
expenditure to employer – Amount charged from
employee]
Remote area means an area located at least 40 k.m. away from a town having a population not exceeding 20,000
based on latest published census

The value of any gift, voucher, or token (in lieu of which any gift may be received) given to the employee
(or any member of his household) on ceremonial occasion or otherwise by the employer shall be taxable
in the hands of all employees. However, gift, voucher or token up to Rs. 5,000, in aggregate, during the
previous year, shall be exempted.
GIFT, VOUCHER OR TOKEN GIVEN BY EMPLOYER [RULE 3(7)(iv)]
Notes:
a) Where worth of gift is in excess of Rs 5,000 then amount in excess of Rs. 5,000 shall be taxable.10,000-
5000=5000
b) No such exemption (Rs. 5,000) is available on gift made in cash or convertible into money.
Determine taxable perquisite in the following cases:
1. Miss Shradha received a wrist-watch of Rs.3,000 on 17/7/2018 and a golden chain worth Rs.12,000 on
18/8/2018 from her employer, Mr. Raju. 30,000+12,000=42,000-5,000= 37,000
2. Miss Rakhi received Rs.11,000 cash–gift from her employer, Dipu Ltd. =11,000 taxable
3. Mr. Anirudha is working with X & Co. a partnership firm. During the year, the employer firm gifted a
diamond ring worth Rs.80,000 to wife of Mr. Anirudha. Ans. 80,000-5,000= 75,000

CREDIT CARD [RULE 3(7)(v)

CLUB EXPENDITURE [RULE 3(7)(vi)]

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Computation of Gross salary for the AY 2021-22 Rs.
1.Basic Salary 50,000*12 6,00,000
2.Dearness allowance 3000*12 36,000
3. Entertainment Allowance 500*12 6000
4. Domestic help perquisite 24,600
5.Ref. Facility 8400*10/100=840*7/12 490
6. Gas electricity and water
bill
15,000
7. Membership fee for club 1000
8. Car facility 2400*12+900*12 39600
9. Education facility in
employee school
8000/12=666
Since cost of education is less than 1000
hence not consider
NA
10. Issue of share at
concessional value
120-100=20
300*20
6000
11. Guest house facility 5,000
Gross Salary 7,33,690

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Computation of perquisite in reference of servant : Assuming
assesee is a specified employee
1. Gardner 150*12 1800
2.Sweeper 200*12 2400
3.Watchman 1100*12 13,200
4.Domestic Sevant 600*12 7200
Perquisite 24,600
Working Notes:
Footnotes: it is assumed that assessee is specified employee and company
has provided servant facility

91