Income tax

1. NEW :Income from salary-Problems,theory and solutions By Prof.Augustin Amaladas M.Com., AICWA., PGDFM., B.Ed. If you study theory which are explained in the slide show given earlier under the head income tax (www.augustin.co.nr) It becomes easier for you to do problems here. Study other topics Mergers and Acquisitions under The same web. It is absolutely free but you have to study Tell about This web to others B.Com BBM M.Com CA ICWA students All corporate Employees please Make use Of this site

2. Solved problems Income from Salary-2008-09 assessment year By Prof. Mary Amala Shanthi Augustin Jyoti Nivas College, Bangalore M.Com.,M.Phil., MBA.,B.Ed. Jyoti Nivas College, Bangalore and Prof. Augustin Amaladas M.Com., AICWA., PGDFM.,B.Ed. St. Joseph’s College of Commerce, Bangalore aug [email_address] 09845844319 Read the concepts From salary slide Education for all

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5. Alternative work is rest How to study salary?

6. Salary contains many types. Each type of salary should Be studied independently. First understand the Concepts which are explained in the first set Under income tax head of my web. www.augustin.co.nr [email_address] By giving yourself up you will receive

7. Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Chennai University. The details of her salary and other income for the previous year 2007-2008 are as follows: Basic Salary 80,000 Dearness allowance (forming part of salary) 3,600 Education allowance for 2 children (exp being Rs. 900) 5,100 Hostel expenditure allowance for 1 child (expenditure being 8000) 7,200 HRA 10,400 Remuneration from Bangalore University for Being as examiner 75,650 Allowance for research which is to be completed during Dec-April 2008(actual exp being : up to March 31-08 Rs. 2000, during April 08 Rs. 4500 ) 8000 Exercise-1

8. She contributes 10% of her salary to a statutory provident fund to which the college also makes a matching contribution. She gets reimbursed of Rs. 28000 being exp incurred on medical treatment of her daughter in a private clinic. The bill for which is paid by the employer. During the year she spends Rs. 1000 on purchase of saree for his wife (out of salary)for year 2007-08 he paid Rs. 8000 as insurance premium on his life policy for Rs. 60,000 ( date payment – 3 April 08) Compute the total income and tax liability for the assessment year 2008-09.

10. 2) HRA received 10,400 3) Rent paid- 10% of salary 13,200 – 8360 4,840 ( 1100 x 12 ) Research Allowances 7000 Less: Exp incurred 6500 1,500 Medical Allowances 28000 Exemption 15000 13,000 Income from salary 1,09,960 Income from other sources 75,650 Total Income 1,85,610 Answer1. continues See explanation after The answer in the following slides

30. Not directly relate to Official duty (General) They are fixed. Whether spent Or not.Excess Taxable as they Are not given For official Duty Rs. 800 per month. If handicapped person Rs.1600 per month is exempted. Depends on altitude/Place 3. Traveling allowance to commute from home to office 4. Other border area allowances &70% of allowance Or Rs. 6000 per month whichever is lower exempted Rs.100 per month per child max.two children.If in hostel Rs.300 extra per child for two children 1.Allowance for transport employees 2.Children education allowance

32. Valuation of perquisite in respect of movable asset sold by an employer to its employer [Rule-3 (7)(viii)] If the sale price is less than the written down value (calculated as per method and rate mentioned below) then the differences would be treated as perquisite and the taxable in the hands of all employees. Rates and methods of depreciation for the different types of assets are as follows: Perquisites with respect to movable assets-computation Straight line 10% Any other Reducing balance 20% Motor car Reducing balance 50% # Electronic items/ computer Method of deprecation Rate of depreciation Types of asset

36. computation of gross salary of Mr. Deepak for the assessment yr 2008-09 Solution-6 1,20,000 Gross Taxable salary Nil Exempted Used for office purpose Laptop facilities A.C machine facility Nil exempted Gift voucher is equal to cash gift (taxable to company employer) Nil exempted Club membership fee (taxable to company employer) Nil exempted Credit card( perquisites becomes fringe benefit if it falls under B category of perquisites-therefore taxable in the hands of company employer. If he is not a company employer, it is taxable I the hands of employee.) 1,20,000 Basic salary Amount employee particulars

37. Exercise-9 Mrs. Sneha (Age 49 yrs) is a part time lecturer in a college Madras University. The details of her salary and other income for the previous year 2007-2008 are as follows: Basic Salary 80,000 Dearness allowance (forming part of salary) 3,600 Education allowance for 2 children (exp being Rs. 900) 5,100 Hostel expenditure allowance for 1 child (exp being 50000) 7,200 HRA 10,400 Remuneration from Bangalore University for Being as examiner 75,650 Allowance for research which is to be completed during Dec-April 2008(actual exp being : up to March 31-08 Rs. 2000, during April 08 Rs. 4500 8000

38. She contributes 10% of her salary to a statutory provident fund to which the college also makes a matching contribution. She gets reimbursed of Rs. 28000 being exp incurred on medical treatment of her daughter in a private clinic. The bill for which is paid by the employer. During the year she spends Rs. 1000 on purchase of saree for wife for year 2007-08 he paid Rs. 8000 as insurance premium on his life policy for Rs. 60,000 ( date payment – 3 April 08) Compute the total income and tax liability for the assessment year 2008-09 .

40. 2) HRA received 10,400 3) The excess of Rent paid 10% 1100 x 12 = 13,200 – 8360 4,840 Research Allowances 7000 Less: Exp incurred 6500 1,500 Medical Allowances 28000 Exemption 15000 13,000 Income from salary 1,09,960 Income from other sources 75,650 Total Income 1,85,610

43. Solution-10 computation of gross salary of Mr. Deepak (Not a company employee) for the assessment yr 2008-09 1,71,500 Gross Taxable salary Nil Exempted Used for office or private purpose Laptop facilities A.C machine facility 13500 taxed Gift voucher 30,000 Taxable Club membership fee(taxable to employee) 8000 Taxable Credit card(B category-perquisites)-taxable to employee) 1,20,000 Basic salary Amount Details particulars

44. Value of rent free accommodation : Sri Radheshyam is sales manager of a private company and for previous year 2007-08,he received the following emoluments (amts in Rs) Basic Salary 248000 Bonus 16000 Dearness allowance(50% forming part of salary) 60000 Project allowance 15000 Commission on sales 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to recognized provision fund 20000 Salary pertaining the year 2008-09 has been received in advance 20000 He has been provided with a rent free accommodation in Jaipur owned by the employer. The population of Jaipur may be assumed to be 15lakhs as per 2001 census Determine the taxable value of the perquisite in respect of rent free accommodation. Exercise-11

45. Solution: 11 The valuation of rent free accommodation shall be 10% of the salary i.e. 10% of (248000+ 16000+30000+15000+16000+25000+12000)=Rs 36200 Note: Salary shall be taken on basis for the period for which accommodation has been provided. Hence advance salary for 2008-09 shall not be taken in account.

46. Sri Mohan is purchase manager of a private company and for previous year 2007-08 he received the following emoluments- Basic Salary 120000 Bonus 16000 Dearness allowance(50% forming part of salary) 60000 Project allowance 15000 Commission on purchase 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to recognized provision fund 20000 Salary pertaining the year 2008-09 has been received in advance 20000 He is also in part employment with B ltd and is receiving salary of Rs 80000 P.A. he has been provided with a rent free accommodation in Jaipur owned by the employer. The population of Jaipur may be assumed to be 15 lakh as per 2001 census. Determine taxable salary. Exercise-12( Value of free rent accommodation )

47. Solution-12 Computation of taxable salary of Sri Mohan for assessment Year 2008-09 Basic Salary 120000 Bonus 16000 Dearness allowance(50% forming part of salary) 60000 Project allowance 15000 Commission on purchase 16000 City compensatory allowance 25000 Medical allowance 12000 Employer contribution to RPF in excess of 12% of salary 2000 [20000- 12% of (120000+ 50% of 60000)] Salary from B ltd 80000 Advance of salary 20000 Value of housing facility[10% of (120000+16000+30000+ 15000+16000+25000+12000+80000)] 31400 Taxable Salary 397400

48. Value of concessional accommodation: Mr.Tim is purchase manager of a private company and for the previous 2007-08 he received the following emoluments- Basic Salary 240000 Bonus 32000 Dearness allowance(50% forming part of salary) 120000 Project allowance 30000 Commission on purchase 32000 City compensatory allowance 50000 Medical allowance 24000 Employer contribution to recognized provision fund 40000 2 months salary for year 2008-09 has been received in advance 20000 What would be the value of accommodation if the employer charges rent of Rs 2000 p.m. in the following independent cases: The accommodation is provided in Mumbai where popln as per 2001 census exceeds 25 lakh The accommodation is provided in Alwar where popln as per 2001 census exceeds 18 lakh The accommodation is provided at Chomu (popln less than 10 lakh). Exercise-13

49. Solution: 13 The valuation of accommodation provided at concessional rent shall be as under- 7.5% of salary less rent recovered =Rs 35100-24000=Rs11100 Chomu 10% of salary less rent recovered = Rs 46800-24000=Rs22800 Alwar 15% of salary less rent recovered = Rs 70200-24000=Rs46200 Mumbai Value of perquisite Place of accommodation

50. PRACTICAL QUESTIONS-concept based questions. Some basic questions. 1. In the return for the assessment year 2008-09. B claimed deduction from his income from salary of a sum paid by him to his ex-wife by way of alimony to her and maintenance expenses to their minor son. On 7th January,2004 by agreement with his employers, B had agreed to creation of a first charge on his salary in favour of his ex-wife for the payment of monthly sum. What is the effect of this charge and the alimony payment on the taxable income in the hands of B? ANS: Taxable in the hands of assessee as the income is applied.Personal commitment (as per the law) it is taxable in the hands of B only.

51. How do deal with the following situation ? 2. Basu, M.D of a company is entitled to commission on sales as per the service agreement entered into. A part of the commission is converted into a purchasing a single premium deferred annuity policy from LIC of India. Basu claims that the commission diverted to secure the deferred annuity can’t be taxed in his personal assessment. Answer:- It is an application of income. Any income received by employee from employer is treated as salary. The diversion of salary to meet personal. 3. Sham is a whole time employee as a development officer in LIC of India. He receives incentives bonus based on quantum of business procured in the year. He claims that incentives bonus can’t be wholly included as his income and he should be allowed deduction for expenses incurred in procuring the business . Answer:- Latest change in the meaning of salary is that any amount received (whatever name used ) by employee from employer is taxable as salary. Therefore it comes under salary

52. 3. Dearness allowance @ 60% of basic pay ( 50%of which forms part of salary for retirement benefits ) . Answer:- Full DA f ully taxable. But meaning of salary for HRA, RFA, Pension- 50% of DA is considered. 4. He was allowed (basic pay + DA) for 4 months in march 2008 in advance. Answer:- Four months salary taxable. Even advance salary received is taxable in the year of receipt.Salary is defined as receipt or due whichever is earlier is taxable. Therefore it is taxable in the assessment year 2008-09. 5. Bonus Rs.5,000 p.m. Answer:- Fully taxable because salary includes bonus and received from employer by employee. 6. Research allowance Rs.10,000 p.m. – amount expended for research Rs.7,500 p.m. Answer:- Research allowance given to meet exclusively for official purposes.The amount not spent is taxable.There fore Rs. 2,500 is taxable.

54. 9) He was allowed free use of 1 laptop ( actual cost Rs. 40,000 ), 1 motorcar ( actual cost Rs.4 lakhs ) and 1 digital video camera ( actual cost Rs.60,000 ). The motorcar was acquired by the company on 01-01-2005 and was sold to Mr. Rahul on 16 - 12 - 2007 at Rs.2,00,000. Answer: Lap top is not taxable perquisites. Car use= Rs.1200(Car)+600(Driver) taxable in the hands of company employer as Frindge benefit. Other than company employer employee is taxed as perquisites. Digital camera is for entertainment. Therefore 10% of the value is perquisites to employees. Motor car sold 20% depreciation for each completed years to be provided on WDV ie 2 years fully completed.WDV value=1,28,000. If sold less than this value it is a perquisites to employees. Note: car, food per meal exceeds Rs.50, club , credit card,company tour, stay in a hotel or resorts- If company employer they are treated as Fringe benefits . Therefore they are taxable to company employer.

59. 17. Rs.2,50,000 on 01 - 09 - 2007 for medical treatment Of his father for disease specified in Rule 3A. The employer charged interest @ 5% ( interest rate of SBI is 12.75% ). He was reimbursed Rs.2,50,000 on 01 - 12 - 2007 by an Insurance company under a medical insurance scheme and he repaid Rs.1,50,000 out of this to the employer on 28 - 01 - 2008. 18) Rs.20,000 interest - free for purchase of a digital investor on 01 - 05 - 2007 ( SBI rate12.75%). This loan was paid back on 15 – 08 - 2007. Answer :- Loan upto Rs. 20,000 from employer the interest is not taxed in the hands of employee. If loan is taken on specified deceases more than Rs. 20,000 the interest on such loan also exempted. 19. Rs.10,00,000 interest – free loan on 01 - 04 - 2007 for MBA course of his spouse in UK ( SBI rate 9.25% ). The first installment of Rs.1,00,000 in respect of this loan was paid on 01 - 01 - 2008. Answer:- Interest free loan interest as per SBI’s rate is calculated and taxed in the hands of all employees.

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