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Chapter 3 – Income from Salaries

Introduction
Section Content Details
• Salary Due

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15 Chargeability
• Salary Paid or Allowed, though not Due
• Arrears of Salary
16 Deductions • Standard Deduction
• Entertainment Allowance for Government Employees*
• Professional Tax*
*Note: These deductions are only available when switching to the optional
tax regime under Section 115BAC(1A). They are not available under the
default tax regime as per Section 115BAC.

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17 Definitions Definitions of “Salary”, “Perquisite”, and “Profit in Lieu of Salaries”

Essentials of Salary
Essentials of Details
Salary
Employer- • Any payment made by an employer to an employee for services is taxed
Employee as salary.
Relationship • A clear employer-employee relationship is necessary to classify income
as salaries for taxation.
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• Two types of contracts are relevant:
o Contract “of” Service (establishes an employer-employee
relationship, income is taxed as salary) and
o Contract “for” Service (agreement for a specific type of work,
income is taxed under “Profits and Gains from Business or
Profession”).
Full Time or • The categorization as “salaries” for tax purposes requires an employer-
Part Time employee relationship, regardless of whether the employment is full-
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Employment time or part-time.

• Salaries from multiple employers are combined for taxation.
Forgoing of • Tax liability is triggered once an employee earns his salary; waiving or
Salary forgoing the salary later does not exempt it from taxation.
• Waiving salary is considered an application of income and is taxable.
Surrender of • Salary voluntarily given up for the public good, as per specific legislation,
Salary is not taxable.
• This applies when the surrender is recognized under the Voluntary
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Surrender of Salaries (Exemption from Taxation) Act, 1961.

Salary Paid Tax- • Normally, employers deduct tax at source when paying salaries.
Free • If the employee’s salary is ₹1,00,000, and the employer pays ₹90,000
after deducting ₹10,000 as tax at source, the taxable salary in the hands
of the employee is ₹1,00,000.
• If the employee’s salary is ₹1,00,000, and the employer pays him
₹1,00,000, and pays ₹10,000 tax on behalf of the employee on his own,
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then the taxable salary in the hands of the employee is ₹1,10,000.

• However, if the tax is paid by the employer on behalf of the employee for
any non-monetary perquisite, that tax is not added to the employee’s

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taxable salary. For example, if the value of Rent Free Accommodation is
₹5,000, and the employer deposits ₹500 as tax on behalf of the
employee, the taxable value in the hands of the employee will be ₹5,000
only, and not ₹5,500.
Place of Accrual Section Details
of Salary 9(1)(ii) • Salary earned in India is considered to have accrued in

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India, even if paid outside India or after the employment
contract in India ends.
• Pensions from abroad for services in India and leave
salary paid from abroad for leave earned in India are
treated as having accrued in India.
9(1)(iii) Salaries paid by the Government to an Indian citizen for services
performed outside India are deemed to have accrued in India.
10(7) Allowances or benefits paid or provided by the Government
outside India to an Indian citizen for services performed outside

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India are exempt from taxation.
10(6)(ii) Remuneration received by officials of Foreign States’ Embassies,
etc., is exempt, with conditions such as reciprocity and the
individual not being engaged in other business, profession, or
employment in India.
10(6)(vi) Foreign nationals employed by foreign enterprises for services
during their stay in India are tax-exempt if the enterprise does not
engage in business in India, the stay does not exceed 90 days, and
the remuneration is not deductible from the employer’s taxable
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income.
10(6)(viii) Salary income received by non-Indian citizens who are non-
residents for services on foreign ships is exempt, provided the stay
in India does not exceed 90 days during the previous year.
10(6)(xi) Remuneration received by foreign government employees during
their stay in India for training in certain Indian government or
government-financed entities is exempt from tax.
General Exemptions under sections 10(6) and 10(7) apply regardless of the
Note tax regime chosen by the taxpayer.
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Basis of Charge [Section 15]

Basis of Charge [Section 15]
1. Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
2. However, where any salary, paid in advance, is assessed in the year of payment, it cannot be
subsequently brought to tax in the year in which it becomes due.
3. If the salary paid in arrears has already been assessed on due basis, the same cannot be taxed
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again when it is paid.

If an employee works with more than one employer, salaries received from all the employers would
be clubbed and brought to charge for the relevant previous year.

Advance Salary vs. Loan vs. Advance Against Salary

Feature Advance Salary Loan Advance Against Salary
Definition & Payment in advance of An amount given by the An advance taken by the
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Difference services rendered. employer to the employee, employee, adjusted

repayable in installments. against future salary.

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Taxability Taxable in the year of Not taxable as salary when Not taxed as salary.
receipt, irrespective of repayable in specified
due status. installments.
Tax Rate Possible higher tax rate Not applicable. Not applicable.
Concerns than normal due to
inclusion in a tax year.

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Relief Relief under section 89 Not applicable. Not applicable.
Provisions for specific cases.

Fixed Pay Scale and Graded Pay Scale

1. In fixed pay scale, the employee receives a certain fixed amount of salary for a specified period
whereas in case of graded pay scale, the employee gets an annual increment in his salary based
on the grade in which he is placed.
2. For example, if the salary of Ms. Muskan, who joined Indian Railways on 01-08-2014 follows a
pay scale of 20,000 - 1,500 - 23,000 - 2,000 - 33,000 - 2,500 - 43,000. Her salary would be as

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follows:
a. 01-08-2014 - 31-07-2015 - ₹ 20,000 p.m.
b. 01-08-2015 - 31-07-2016 - ₹ 21,500 p.m.
c. 01-08-2016 - 31-07-2017 - ₹ 23,000 p.m.
d. 01-08-2017 - 31-07-2018 - ₹ 25,000 p.m.
e. 01-08-2018 - 31-07-2019 - ₹ 27,000 p.m.
f. 01-08-2019 - 31-07-2020 - ₹ 29,000 p.m.
g. 01-08-2020 - 31-07-2021 - ₹ 31,000 p.m.
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h. 01-08-2021 - 31-07-2022 - ₹ 33,000 p.m.
i. 01-08-2022 - 31-07-2023 - ₹ 35,500 p.m.
j. 01-08-2023 - 31-07-2024 - ₹ 38,000 p.m.
k. Therefore, Salary for P.Y. 2023-24 = (₹ 35,500 × 4) + (₹ 38,000 × 8) = ₹ 4,46,000

Allowances
Fully Taxable Under Fully Taxable under default tax Fully Exempt only Fully
Both Schemes regime/Partly Exempt under under the optional tax Exempt
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the optional tax regime regime under

both tax
regimes
1. Entertainment 1. House Rent Allowance 1. Allowances to Allowance
Allowance [u/s 10(13A)] High Court granted to
2. Dearness 2. Special Allowances [u/s Judges Governme
Allowance 10(14)] 2. Salary and nt
3. Overtime Except: Allowances employees
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Allowance a. Travelling paid by the outside

4. Fixed Medical allowance United Nations India
Allowance b. Daily allowance Organization [Section
5. City c. Conveyance 3. Sumptuary 10(7)]
Compensatory allowance allowance
Allowance (to d. Transport granted to
meet increased allowance to High Court or
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cost of living in blind/deaf and Supreme

cities) dumb/orthoped Court Judges
ically Note:

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6. Interim handicapped i. In cases (1)
Allowance employee and (3)
7. Servant Note - The exceptions in (a) to (d) above, the
Allowance above are partly exempt under respective
8. Project both the tax regimes. Acts provide
Allowance for such

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9. Tiffin/Lunch/Din exemption,
ner Allowance notwithstan
10. Any other cash ding
allowance anything
11. Warden contained in
Allowance the Income-
12. Non-practicing tax Act,
Allowance 1961.
13. Transport ii. In case (2),
allowance to exemption is

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employee other provided
than blind/deaf under the
and respective
dumb/orthopedi Act,
cally notwithstan
handicapped ding
employee anything to
the contrary
contained in
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any other
law.

Taxability/Exemption of Certain Allowances

Section Allowance Particulars Regime
17(2) Dearness •
Fully taxable Both
•
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Allowance DA (in terms) means it’ll be considered for

calculating the retirement benefits.
• DA (not in terms) means it won’t be considered for
calculating the retirement benefits.
10(13A) House Rent Least of the following is exempt: Old
Allowance 1. HRA actually received
2. Rent paid less 10% of salary
3. 40%/50% (for Delhi, Mumbai, Kolkata, Chennai) of
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salary
Salary = Basic Salary + DA (in Terms) + Commission on
Turnover

Taxability/Exemption of Certain Allowances

Section Allowance Exemption Regime
10(14) Special Allowances
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10(14)(i) Exempt to the extent of actual expenditure

Helper Allowance To the extent of actual
Old
Research Allowance expenditure incurred

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Uniform Allowance
Travelling Allowance
To the extent of actual
Daily Allowance Both
expenditure incurred
Conveyance Allowance
10(14)(ii) Exempt to the extent mentioned in Law
Tribal/Scheduled/Agency Area Allowance ₹200 p.m.

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Children Education Allowance ₹100 p.m. per child upto a
maximum of two children
Children Hostel Allowance ₹300 p.m. per child upto a
maximum of two children Old
Allowance to a worker working in transport Lower of:
system, who is not in receipt of daily allowance • 70% of Allowance
Received, or
• ₹10,000
Transport Allowance to a deaf, dumb,

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orthopedically handicapped employee having ₹3,200 p.m. Both
disabilities of lower extremities of the body
Other Allowance to Supreme Court/ High Court Judges
Allowance received from United Nations
Organisation (UNO) Fully Exempt Old
Sumptuary Allowance to judges of High Court
and Supreme Court
10(7) Allowances or perquisites paid outside India by
the Government to a citizen of India for services Fully Exempt Both
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rendered outside India.

Annuity
Aspect Details
Definition of Annuity An annual grant or payment, considered a form of salary, due to
investing money for equal annual payments.
Taxation (if received from Taxable as part of the individual's salary, regardless of whether it's
Current Employer) a contractual obligation or voluntary.
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Taxation (if received from Taxable as profit in lieu of salary, still under the head “Income
Former Employer) from Salaries”.
Taxation (if received from Taxable as "income from other sources."
Other Sources)

Exemption of Terminal Benefits [Both Regimes]

Terminal Benefits are those which are received at the time of retirement.
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Gratuity [Section 10(10)]

Gratuity is a payment made by an employer as a token of appreciation for an employee’s service.

Category of Employee Particulars (Taxability/Exemption u/s 10)

Central Government employees/ Fully exempt u/s 10(10)(i)
Members of Civil Services/ local
authority employees etc.
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Other Employees Employee Covered by POGA, 1972

Least of the following is exempt:

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1. Received
2. ₹20,00,000
3. 15/26 × Salary p.m. × Number of Completed
Years
Notes:
1. Salary = Last Drawn Salary + DA (both)

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2. If the number of months is more than 6, then
round it off, for e.g., 26 years 7 months → 27
years
Employee Not Covered by POGA, 1972
Least of the following is exempt:
1. Received
2. ₹20,00,000
3. ½ × 10 Months’ Average Salary × Number of
Completed Years
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1. Average is to be calculated for 10 months:
a. Basic Salary
b. DA (in terms)
c. Commission on Turnover
2. Any fraction of years is to be ignored.

Pension [Section 10(10A)]

Component of Category of Employee Particulars (Taxability/
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Salary Exemption u/s 10)
Uncommuted Government & non-government employees Fully Taxable
Pension
Commuted Employees of Central Government/ local Fully exempt under section
Pension authorities/ Statutory corporation/ members 10(10A)(i)
of Civil services/ All-India services/ Defence
Services
Other Employees 1. If Gratuity is also
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received, Exemption =
1/3 × Total Pension
2. If Gratuity is not
received, Exemption =
½ × Total Pension

Leave Salary or Leave Encashment [Section 10(10AA)]

This is the compensation given to employees for un-availed leaves.
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Component of Salary Category of Employee Particulars (Taxability/Exemption

u/s 10)
Received during service Government & Non- Fully Taxable
Government
Employees
Received at the time of retirement, Government Fully exempt u/s 10(10AA)(i)
(whether on superannuation or Employees
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otherwise) Non-Government Least of the following is exempt:

Employees 1. Received

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2. ₹25,00,000
3. Leave Credit (in months) ×
Average Salary p.m.
4. Average Salary p.m. × 10
months
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1. Average is to be calculated
for 10 months:
a. Basic Salary
b. DA (in terms)
c. Commission on
Turnover
2. Leave Credit = Leave
Allowed – Leave Taken
3. Maximum Leaves allowed in
a year = 30 Days

Particulars
Employer’s
Contribution

Employee’s
Recognized PF
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Provident Funds – Exemption and Taxability Provisions
Unrecognized PF
Taxable in excess of Not taxable at the time of
12% of Salary u/s contribution
17(1)
Deduction u/s 80C is Not eligible for deduction
Statutory PF
Fully Exempt

Deduction u/s
Public PF
N.A.

Deduction
Contribution allowed under Old 80C is allowed u/s 80C is
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Scheme under Old allowed
Scheme under Old
Scheme
Interest on Taxable in excess of Not taxable at the time of Fully Exempt N.A.
Employer’s 9.5% p.a. u/s 17(1) credit
Contribution
Interest onTaxable in excess of Not taxable at the time of Exempt upto Fully
Employee’s 9.5% p.a. u/s 17(1) credit a certain limit Exempt
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Contribution of
contribution
Amount Exempt, if: Component Taxable Fully Exempt Fully
withdrawn on 1. Work for 5+ As u/s 10(11) Exempt u/s
Retirement/ years, Employer’s Salary 10(11)
Termination 2. Retire early Contribution
due to ill
Interest on Salary
health or
Employer’s
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employer
Contribution
issues,
Employee’s Not
3. Transfer their
Contribution Taxable
provident
Interest on Income
fund to a
Employee’s from
new
Contribution Other
employer's
Sources
account, or
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4. Move their
balance to an
NPS account

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per section
80CCD.
In other cases, it will
be taxable.
Notes:

1. As per section 10(11), any payment from a Provident Fund (PF) to which Provident Fund Act,

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1925, applies or from Public Provident Fund would be exempt.
2. Accumulated balance due and becoming payable to an employee participating in a Recognized
Provident Fund (RPF) would be exempt under section 10(12).
3. From 01-04-2021,
a. If the employee’s contribution in a year is more than ₹ 2,50,000, then any interest
earned on the amount exceeding ₹ 2,50,000 is taxable.
b. However, if the employer’s contribution is not there, then this limit is ₹ 5,00,000, i.e.,
any interest earned on the amount exceeding ₹ 5,00,000 is taxable.

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4. It may be noted that interest accrued on contribution to such funds upto 31st March, 2021
would be exempt without any limit, even if the accrual of income is after that date.

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
Aspect Details
Scheme National Pension Scheme (NPS)
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Eligibility Indian citizens aged 18 to 70 years
Contributions Contributions made by both employees and employers
Employer's Contribution Considered as part of the employee's salary under Section 17(1)
Tax Treatment of Employer's Deductible under Section 80CCD(2), available regardless of the tax
Contribution regime chosen
Tax Treatment of Employee's Deductible under Section 80CCD(1)/(1B), available only if opting out
Contribution of the default tax regime (115BAC(1A))
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Contribution made by the Central Government in the Previous Year, to

the Agniveer Corpus Fund Account of an Individual Enrolled in the
Agnipath Scheme Referred to in Section 80CCH
Aspect Details
Scheme Agnipath Scheme
Initiation Year 2022
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Purpose To enroll Indian youth as Agniveers in the Armed Forces for a

four-year service
Fund Name Agniveer Corpus Fund
Fund Nature Interest-bearing section of the Public Account
Contributions Contributions by Agniveers matched equally by Central
Government
Fund Management Contributions and interest maintained in separate accounts
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Tax Treatment of Government's Considered as part of Agniveer’s salary under Section 17(1),
Contribution deductible under Section 80CCH(2)

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Tax Treatment of Agniveer's Deductible under Section 80CCH(1), only if opting out of default
Contribution tax regime (Section 115BAC(1A))

Profits in Lieu of Salary [Section 17(3)]

Category Description Taxable/ Details/Conditions
Exempt

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Compensation on Amounts received by an Taxable Considered as part of salary for tax
Termination of individual due to purposes.
Employment termination of
employment.
Compensation on Compensation due to Taxable Treated as a revenue receipt and thus
Modification of modifications in the taxable under salaries.
Employment Terms terms and conditions of
employment.
Payment from Payments from funds Mostly Discussed under previous heading.

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Provident or Other such as provident fund, Taxable
Fund subject to specific
exemptions.
Keyman Insurance Amounts received Taxable Taxable under salaries as profits in
Policy under a Keyman lieu of salary when received by the
Insurance policy, employee.
including any bonuses.
Lump Sum Payment Payments received TaxableClassified as profits in lieu of salary
or Otherwise before starting or after and taxable unless specifically
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ending employment. exempted under other provisions.
Retrenchment Compensation given to Exempt Taxable, but exempt under Section
Compensation employees when they up to
10(10B) up to the least of:
are laid off. limits • Actual received,
• ₹5,00,000, or
• 15/26 × Average Salary of last
3 months × No. of years of
completed service and part
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thereof in excess of 6
months.
Average Salary = Basic + DA (in terms)
+ Commission on Turnover
Exemption under section 10(10B) is
available regardless of the tax
regime.
Voluntary Payments under Exempt Exempt under Section 10(10C) up to
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Retirement Voluntary Retirement up to the least of:

Receipts Schemes (VRS). limits • Compensation actually
received,
• ₹5,00,000,
• 3 × Salary p.m. × No. of
completed years of service
• Last Drawn Salary ×
Remaining Months of Service
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Left

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Category Description Taxable/ Details/Conditions
Exempt
Salary = Basic + DA (in terms) +
Commission on Turnover
Exemption under section 10(10C) is
available regardless of the tax

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regime.

Valuation Rent-Free Residential Accommodation/Accommodation

Provided to an Employee at Concessional Rate
Circumstance Unfurnished Furnished Accommodation
Accommodation Furniture Furniture
Owned by Rented by
Employer Employer

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(1) (2) (3) (4)
1. Provided by Government to License Fee Value as per Value as per
employees holding office/post in (determined by Column (3) + Column (3) +
Government affairs Government) – Actual 10% of Cost of Hire Charges of
Rent Paid Furniture Furniture
2. Provided by Other Employer
• Employer is the owner Population ≤ 15 lakhs: Value as per Value as per
of accommodation 5% of Salary Column (3) + Column (3) +
15 lakhs < Population ≤ 10% of Cost of Hire Charges of
40 lakhs: 7.5% of Salary Furniture Furniture
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Population > 40 lakhs:
10% of Salary
• Accommodation is Lower of: Value as per Value as per
taken on lease or rent • Actual Rent Column (3) + Column (3) +
Paid by 10% of Cost of Hire Charges of
Employer Furniture Furniture
• 10% of Salary
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3. Accommodation provided in Not applicable Lower of:

hotel • Actual Charges Paid/
Payable to the hotel
• 24% of salary
Adjustment for Inflation: If the same accommodation is provided for more than one year, the value
is adjusted based on the Cost Inflation Index.

Note: Salary =
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1. Basic Salary
2. DA (in terms)
3. Bonus
4. Taxable Allowances
5. Commission (All types)
6. Monetary Income (Other than Perquisites)
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Perquisite of Motor Car or Other Conveyance Facility
A. Motor Car
Particulars Use
Wholly Partly Official Partly Private Wholly Private
Official Cubic Capacity ≤ Cubic Capacity >
1.6 Litres 1.6 Litres

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Owned by Maintained NIL ₹ 1,800 p.m. + ₹ 2,400 p.m. + Maintenance
Employer by Employer (Note) ₹ 900 p.m. (if ₹ 900 p.m. (if Charges + Chauffer’s
chauffer is also chauffer is also Salary + 10% of Cost
provided) provided) – Amount Recovered
from Employee
Maintained NIL ₹ 600 p.m. + ₹ 900 p.m. + 10% of Cost
by Employee (Note) ₹ 900 p.m. (if ₹ 900 p.m. (if
chauffer is also chauffer is also
provided) provided)

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Hired by Maintained NIL ₹ 1,800 p.m. + ₹ 2,400 p.m. + Maintenance
Employer by Employer (Note) ₹ 900 p.m. (if ₹ 900 p.m. (if Charges + Chauffer’s
chauffer is also chauffer is also Salary + Hire Charges
provided) provided) – Amount Recovered
from Employee
Maintained NIL ₹ 600 p.m. + ₹ 900 p.m. + Hire Charges
by Employee (Note) ₹ 900 p.m. (if ₹ 900 p.m. (if
chauffer is also chauffer is also
provided) provided)
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Owned by Maintained NIL Amount Incurred Amount Incurred Amount Incurred by
Employee by Employer (Note) by Employer + by Employer + Employer – Amount
₹ 900 p.m. (if ₹ 900 p.m. (if Recovered from
chauffer is also chauffer is also Employee
provided) – provided) –
₹ 1,800 p.m. ₹ 2,400 p.m.
B. Other Conveyance
Owned by Maintained NIL Amount Incurred by Employer – Amount Incurred by
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Employee by Employer (Note) ₹ 900 p.m. Employer – Amount

Recovered from
Employee
Note: Provided employer maintains the complete details of such journey and expenditure thereon and
gives a certificate that such expenditure are incurred wholly for official use.

Valuation of Benefit of Provision of Domestic Servants [Sub-rule (3) of

Rule 3]
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The valuation of domestic servant benefits provided by an employer is treated as a perquisite. If the
employer pays for the servants hired by employees, it is a perquisite for all employees. If the employer
directly hires servants for employees, it counts as a perquisite only for ‘specified employees’. The
perquisite's value is based on the actual costs incurred by the employer, such as salaries for services
like gardening or security, minus any contributions by the employee.
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Valuation of Gas, Electricity or Water Supplied by Employer [Sub-rule
(4) of Rule 3]
The valuation of utilities like gas, electricity, or water provided by an employer is considered a
perquisite under Sub-rule (4) of Rule 3. If these utilities are registered in the employee's name and the
employer pays for them, all employees receive this as a perquisite. However, if the utilities are in the

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employer's name and provided to the employee, it is a perquisite for specified employees only. The
value of this perquisite is determined by the cost incurred by the employer, either the amount paid to
a service agency or the manufacturing cost per unit if supplied from the employer's resources. Any
payments made by the employee for these services are deducted from the total value calculated.

Valuation of Free or Concessional Educational Facilities [Sub-rule (5) of

Rule 3]
Situation Benefit Type Valuation of Benefit Exemptions

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Employer pays/reimburses Perquisite for Total cost incurred by the None specified.
school fees for employee's all employees employer.
children or household
members.
Educational facility Perquisite for Cost of similar education in ₹1,000 per month
provided in a school specified the local area; no exemption per child,
maintained by the employees perquisite if the cost does not other household
employer due to not exceed ₹1,000 per members.
employment. month per child.
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Educational facilities Perquisite for Employer's expenditure on None specified.
provided at reduced rate in specified this benefit.
a school due to employee's employees
employment.
Employee makes payments Reduction in Calculated value of the
towards educational calculated benefit minus the amount
benefits. perquisite paid or recovered from the
value employee.
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Free or Concessional Tickets [Sub-rule (6) of Rule 3]

Situation Benefit Description Valuation of Benefit Exemptions
Employer engaged in Free or concessional travel
The value is the same as None specified
transporting passengers tickets provided by
what the employer for general
or goods and providing employers who are
charges the general transport
discounted travel for an involved in the
public for this employees.
employee or transportation of
advantage, minus any
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household. passengers or goods. amount paid by the

employee.
Employee is a part of an Specific exemption for N/A Full exemption
airline or railway. employees involved in for airline and
these sectors who receive railway
free or concessional travel employees.
benefits as part of
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employment.

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Valuation of Other Fringe Benefits and Amenities [Sub-rule (7) of Rule
3]
1. As per Section 17(2)(viii), any other fringe benefit or amenity prescribed is considered a
perquisite and taxable for all employees.
2. The following fringe benefits or amenities are prescribed:

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a. Interest free or concessional loan
b. Travelling, touring and accommodation
c. Free or concessional food and non-alcoholic beverages
d. Gift, voucher or token in lieu of such gift
e. Credit card expense
f. Club expenditure
g. Use of movable assets
h. Transfer of movable assets
i. Other benefit or amenity

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Valuation of Interest-Free or Concessional Loan [Sub-rule 7(i) of Rule 3]
Taxable Perquisite = Loan Amount × [SBI Interest Rate on 1st April of P.Y. – Actual Rate of Interest]

1. If aggregate loan is upto ₹ 20,000, then interest benefit is NOT taxable.

2. If loan is taken for treatment of specified disease, then interest benefit is not taxable even if
loan amount is more than ₹ 20,000.
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Travelling, Touring and Accommodation [Sub-rule 7(ii) of Rule 3]
Situation Valuation of Benefit
Employer pays or reimburses expenses for Exact amount spent by the employer for this purpose.
traveling, touring, accommodation, and
other holiday costs.
Employer offers facilities selectively, not Value equals similar facilities offered to the public by
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uniformly available to all employees. other providers.

Expenses incurred for a household Amount spent on the household member is
member accompanying an employee on considered a fringe benefit or amenity.
an office tour.
Official business trip extended to include a Value limited to expenses during the extended stay or
vacation. vacation period. Value reduced by any amount paid or
recovered from the employee for this benefit.
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Free or Concessional Food and Non-Alcoholic Beverages [Sub-rule 7(iii)

of Rule 3]
1. Value of Perquisite = Amount incurred by Employer – Amount recovered from Employee
2. The following would not be treated as a perquisite:
a. free food and non-alcoholic beverages provided by such employer during
i. working hours at office or business premises or
ii. through paid vouchers which are not transferable and usable only at eating
CA

joints to the extent the value thereof either case does not exceed fifty rupees
per meal or

CA NISHANT KUMAR 13
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b. tea or snacks provided during working hours or
c. free food and non-alcoholic beverages during working hours provided in a remote area
or an off-shore installation
3. Exemption in respect of free food and non-alcoholic beverage provided by such employer
through paid voucher would not be available in case an employee pays tax under the default
tax regime under section 115BAC.

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Value of Gift, Voucher or Token in Lieu of Such Gift [Sub-rule 7(iv) of Rule
3]
1. Value of Benefit = Sum equal to amount of such gift.
2. If the value of such gift or voucher is less than ₹ 5,000 in aggregate during the previous year,
the value of perquisite shall be taken as NIL; otherwise, it is fully taxable.

Credit Card Expenses [Sub-rule 7(v) of Rule 3]

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1. Value of Perquisite = Actual Expenditure Paid by Employer (including membership fees and
annual fees) - Amount recovered from employee.
2. However, such expenses incurred wholly and exclusively for official purposes would not be
treated as a perquisite if the following conditions are fulfilled:
a. complete details in respect of such expenditure are maintained by the employer which
may, inter alia, include the date of expenditure and the nature of expenditure;
b. the employer gives a certificate for such expenditure to the effect that the same was
incurred wholly and exclusively for the performance of official duties.
AN
Club Expenditure [Sub-rule 7(vi) of Rule 3]
1. Value of Benefit = Amount of Expenditure by employer (including the amount of annual or
periodical fee) – Amount recovered from employee.
2. However, where the employer has obtained corporate membership of the club and the facility
is enjoyed by the employee or any member of his household, the value of perquisite shall not
include the initial fee paid for acquiring such corporate membership.
SH

3. Further, if such expenditure is incurred wholly and exclusively for business purposes, it would
not be treated as a perquisite provided the following conditions are fulfilled:
a. complete details in respect of such expenditure are maintained by the employer which
may, inter alia, include the date of expenditure, the nature of expenditure and its
business expediency;
b. the employer gives a certificate for such expenditure to the effect that the same was
incurred wholly and exclusively for the performance of official duties.
4. There would be no perquisite for use of health club, sports and similar facilities provided
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uniformly to all employees by the employer.

CA

CA NISHANT KUMAR 14
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Use of Moveable Assets [Sub-rule 7(vii) of Rule 3]
Use of Moveable Asset

Computer/Laptop Car Any other Asset

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Fully Exempt Already Discussed Owned by Employer Hired by Employer

Taxable Amount = 10% of Taxable Amount = Hire

Cost Charges Paid by Employer

Transfer of Moveable Assets [Sub-rule 7(viii) of Rule 3]

Computer/Laptop
Taxable Value = WDV –
Consideration
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Transfer of Moveable Asset

Car
Taxable Amount = WDV –
Consideration
Any other Asset
Taxable Amount = WDV –
Consideration
AN
Depreciation @ 50% on WDV Depreciation @ 20% on WDV Depreciation @ 10% on SLM
Method Method Method

Depreciation should be calculated only for each completed year from the date on which employer
acquires the asset till transfer of asset.

Other Benefit or Amenity [Sub-rule 7(ix) of Rule 3]

Aspect Details
SH

Valuation Based The value of any benefit, amenity, service, right, or privilege provided by the
on Cost to employer is determined by considering the cost to the employer in an arms'
Employer length transaction. This value is reduced by any contribution made by the
employee.
Exemption for No taxable perquisite arises if the employer pays or reimburses telephone
Telephone expenses, including mobile phone charges, on behalf of the employee.
Expenses
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Valuation of Specified Security (ESOPs) or Sweat Equity Share

Aspect Details
Definition of ESOP ESOP is an incentive scheme where employees get an option to
purchase company stocks at today's value after a certain period,
provided they stay employed.
Definition of Sweat Equity Equity shares issued at a discount or for non-cash consideration to
Shares employees or directors for providing know-how, IPR, or value
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additions.

CA NISHANT KUMAR 15
 AR
Taxability of ESOPs/Sweat Taxability arises when ESOPs/Sweat Equity Shares are allotted or
Equity Shares transferred, directly or indirectly, by the employer or former
employer.
Taxable Value Calculation Fair Market Value (FMV) on the date of exercising the option minus
the amount paid or recovered from the employee.
Deferment of Taxability for For eligible startups (u/s 80IAC), tax is deferred up to 5 years or until

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Startups (u/s 80IAC) the employee sells the shares or leaves the company, whichever is
earliest. Tax is to be paid within 14 days when any such event
happens.
Fair Market Value For listed shares, FMV depends on whether they are traded or not:
Determination - Listed Equity • Traded: (Opening price + Closing price) ÷ 2 on highest
Shares volume exchange.
• Not traded: Closing price of the closest preceding date.
Fair Market Value For unlisted shares, FMV is determined by a SEBI-registered
Determination - Unlisted Category I Merchant Banker.

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Equity Shares
Fair Market Value For other specified securities, FMV is determined by a merchant
Determination - Specified banker on the specified date.
Security (not Equity Share)

Amount or the Aggregate of Amounts of Any Contribution Made to the

Account of the Assessee by Employer in a Recognised Provident Fund,
or in NPS, or in an Approved Superannuation Fund [Section 17(2)(vii)]
AN
AND Annual Accretion to the Balance at the Credit of the Recognised
Provident Fund/NPS/Approved Superannuation Fund Which Relates to
the Employer’s Contribution and Included in Total Income (on Account
of the same Having Exceeded ₹ 7,50,000)
Aspect Details
Employer's Contribution to Employer contributes to Recognised Provident Fund, NPS (u/s
SH

Recognised Funds 80CCD(1)), or Approved Superannuation Fund.

Threshold Limit ₹ 7,50,000 per annum
Funds Covered Recognised Provident Fund, NPS (u/s 80CCD(1)), Approved
Superannuation Fund
Tax Treatment of Excess Excess over ₹ 7,50,000 is included in employee's total income as
Contribution perquisite u/s 17(2)(vii).
Tax Treatment of Accretion Interest, dividend, or similar earnings on the excess contribution
(Interest, Dividend, etc.) are also treated as perquisites u/s 17(2)(viia).
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Formula for Computing TP = (PC/2)*R + (PC1 + TP1)*R

Taxable Accretion
Explanation of Formula • TP: Taxable perquisite for the current year
• PC: Excess employer’s contribution
• PC1: Excess contribution from previous years
• TP1: Taxable perquisite from previous years
• R: Accrual rate (I/Favg)
CA

• I: Income accrued during the year (interest, dividend, etc.)

• Favg: Average balance of the recognised provident fund,
NPS, and approved superannuation fund during the year

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Additional Condition If PC1 + TP1 exceeds the opening balance of the fund, the excess is
ignored for computation.
Question 34 – ICAI SM – Illustration 10

Mr. X is appointed as a CFO of ABC Ltd. in Mumbai from 1.9.2022. His basic salary is ₹ 6,00,000 p.m. He
is paid 8% as D.A. He contributes 10% of his pay and D.A. towards his recognized provident fund and
the company contributes the same amount. The accumulated balance in recognized provident fund as

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on 1.4.2023, 31.3.2024 and 31.3.2025 is ₹ 9,81,137, ₹ 27,43,048 and ₹ 46,48,555, respectively.
Compute the perquisite value chargeable to tax in the hands of Mr. X u/s 17(2)(vii) and 17(2)(viia) for
the A.Y. 2024-25 and A.Y. 2025-26. Prior to 1.9.2022, he was a consultant, whose professional fees was
taxable under the head “Profits and gains of business or profession”.

Solution

Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y. 2024-25

TK
1. Perquisite value taxable u/s 17(2)(vii) = ₹ 7,77,600, being employer’s contribution to
recognized provident fund during the P.Y. 2022-23 – ₹ 7,50,000 = ₹ 27,600
2. Perquisite value taxable u/s 17(2)(viia) = Annual accretion on perquisite taxable u/s 17(2)(vii) =
(PC/2)*R + (PC1 + TP1)*R = (27,600/2) × 0.111 + 0 = ₹ 1,532
PC ABC Ltd.’s contribution in excess of ₹ 7.5 lakh to recognized provident fund during P.Y.
2023-24 = ₹ 27,600
PC1 Nil since employer’s contribution is less than ₹ 7.5 lakh to recognized provident fund
in P.Y. 2022-23 and there is no employer’s contribution in P.Y. 2021-22.
TP1 Nil
AN
R I/Favg = 2,06,711/18,62,093 = 0.111
I RPF balance as on 31.3.2024 – employee’s and employer’s contribution during the
year – RPF balance as on 1.4.2023 = ₹ 2,06,711 (₹ 27,43,048 – ₹ 7,77,600 – ₹ 7,77,600
– ₹ 9,81,137)
Favg Balance to the credit of recognized provident fund as on 1st April, 2023 + Balance to
the credit of recognized provident fund as on 31st March, 2024)/2 = (₹ 9,81,137 +
₹ 27,43,048)/2 = ₹ 18,62,093
Note – Interest on the aggregate of following will also be chargeable to tax during A.Y. 2024-25 –
SH

1. ₹ 2,03,600 [Employee’s contribution exceeding ₹ 2,50,000 during P.Y. 2022-23]

2. ₹ 5,27,600 [Employee’s contribution exceeding ₹ 2,50,000 during P.Y. 2023-24]
3. Interest accrued on ₹ 2,03,600 being excess employee’s contribution of P.Y. 2022-23

Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y. 2025-26

1. Perquisite value taxable u/s 17(2)(vii) = ₹ 7,77,600, being employer’s contribution to

recognized provident fund during the P.Y. 2024-25 – ₹ 7,50,000 = ₹ 27,600
NI

2. Perquisite value taxable u/s 17(2)(viia) = Annual accretion on perquisite taxable u/s 17(2)(vii) =
(PC/2)*R + (PC1 + TP1)*R = (27,600/2) x 0.09479 + (27,600 + 1,532) x 0.09479 = ₹ 1,308 +
₹ 2,761 = ₹ 4,069
PC ABC Ltd.’s contribution in excess of ₹ 7.5 lakh to recognized provident fund during P.Y.
2024-25 = ₹ 27,600
PC1 Amount of employer’s contribution in excess of ₹ 7,50,000 to RPF in P.Y. 2022-23 and
P.Y. 2023-24 = ₹ 27,600
CA

TP1 Taxable perquisite under section 17(2)(viia) for the P.Y. 2023-24 = ₹ 1,532
R I/Favg = 3,50,307/36,95,802 = 0.09479

CA NISHANT KUMAR 17
 AR
I RPF balance as on 31.3.2025 – employee’s and employer’s contribution during the
year – RPF balance as on 1.4.2024 = ₹ 3,50,307 (₹ 46,48,555 – ₹ 7,77,600 – ₹ 7,77,600
– ₹ 27,43,048)
Favg Balance to the credit of recognized provident fund as on 1st April, 2024 + Balance to
the credit of recognized provident fund as on 31st March, 2025)/2 = (₹ 27,43,048 +
₹ 46,48,555)/2 = ₹ 36,95,802

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Note – Interest on the aggregate of following will also be chargeable to tax during A.Y. 2025-26 –

1. ₹ 2,03,600 [Employee’s contribution exceeding ₹ 2,50,000 during P.Y. 2022-23]

2. ₹ 5,27,600 [Employee’s contribution exceeding ₹ 2,50,000 during P.Y. 2023-24]
3. ₹ 5,27,600 [Employee’s contribution exceeding ₹ 2,50,000 during P.Y. 2024-25]
4. Interest accrued on ₹ 2,03,600 being excess employee’s contribution of P.Y. 2022-23
5. Interest accrued on ₹ 5,27,600 being excess employee’s contribution of P.Y. 2023-24

Exemption in Respect of Payment from Superannuation Funds [Section

TK
10(13)]
Aspect Details
Definition of Superannuation Superannuation refers to an employee retiring after a certain
age or period of service.
Purpose of Superannuation Ensures financial security post-retirement by setting aside
funds over working years.
Section 10(13) - Tax Exemption on Specifies when payments from an approved superannuation
Superannuation Fund Payments fund are exempt from tax.
AN
Exemption on Death Benefit If an employee receives money due to the death of the
entitled person, it is tax-free.
Exemption on Lump-Sum Payment If an employee opts for a lump sum instead of an annuity
Instead of Annuity upon retirement or due to incapacity, the payment is tax-free.
Exemption on Refund of Refund of contributions from the superannuation fund upon
Contributions the death of the entitled person is not taxable.
Exemption on Withdrawal on If an employee leaves a job not due to retirement or
Leaving Job incapacity, the contributions (before April 1, 1962) along with
interest are tax-free.
SH

Exemption on Transfer to Pension If the superannuation fund transfers money to an employee’s

Scheme account under a pension scheme (u/s 80CCD), the transfer is
tax-exempt.

Tax-Free Perquisites in All Cases

Perquisite Explanation
Telephone Telephone provided by an employer to an employee at his
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residence.
Transport Facility Transport facility provided by an employer engaged in the
business of carrying passengers or goods to employees either
free of charge or at a concessional rate.
Privilege Passes and Privilege Privilege passes and privilege ticket orders granted by Indian
Ticket Railways to its employees.
Perquisites Allowed Outside Perquisites allowed outside India by the Government to a citizen
India by the Government of India for rendering services outside India.
CA

Employer’s Contribution to Employer’s contribution to staff group insurance scheme.

Staff Group Insurance Scheme

CA NISHANT KUMAR 18
 AR
Annual Premium by Employer Payment of annual premium by employer on a personal accident
on Personal Accident Policy policy effected by him on the life of the employee.
Refreshment Refreshment provided to all employees during working hours in
office premises.
Subsidized Lunch Subsidized lunch provided to an employee during working hours
at office or business premises, up to ₹ 50; available only if the

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employee opts out of the default tax regime u/s 115BAC(1A).
Recreational Facilities Recreational facilities, including club facilities, extended to
employees in general and not restricted to a few select
employees.
Amount Spent on Training of Amount spent by the employer on training of employees or
Employees payment for refresher management courses, including expenses
on boarding and lodging.
Sum Payable by Employer to a Sum payable by an employer to a Recognised Provident Fund or
RPF or an Approved an approved superannuation fund or deposit-linked insurance

TK
Superannuation Fund fund under specific acts, up to prescribed limits.
Leave Travel Concession Leave travel concession, exempt if the assessee opts out of the
default tax regime u/s 115BAC(1A), subject to section 10
conditions.
Medical Facilities Medical facilities subject to prescribed limits.
Rent-Free Official Residence Rent-free official residence provided to a Judge of a High Court
or the Supreme Court if they opt out of the default tax regime
u/s 115BAC(1A).
Conveyance Facility Conveyance facility provided to High Court and Supreme Court
Judges under respective conditions of service acts, if they opt out
AN
of the default tax regime u/s 115BAC(1A).

Exemption in Respect of Leave Travel Concession [Section 10(5)]

An employer can reimburse the traveling expenses of the employee or his relatives. This is known as
Leave Travel Concession. It is exempt u/s 10(5) subject to certain conditions. The conditions are given
below:
SH

Travel by Air – Least of

Travel by Other Modes
the following is exempt:

Railway Facility Available at

Actual Economy
the Destination – Least of Railway Facility Not Available
Expenses Class Fare
the following is exempt:

Recognized Public Transport Recognized Public Transport

NI

Actual 1st Class AC

Facility Available – Least of the Facility Not Available – Least
Expenses Railway Fare
following is exempt: of the following is exempt:

1st Class
Actual Deluxe Class Actual Railway Fare
Expenses Bus Fare Expenses of Similar
Distances

Notes:
CA

1. LTC exemption is available only for the travel of assessee, his spouse, children, and dependent
relatives (mother, father, brother, sister).

CA NISHANT KUMAR 19
 AR
2. Exemption of LTC is available only for 2 children born on or after 01-10-1998. This limit is not
applicable in case of multiple births after one child.
a. If the first born child is a single child, and the next time you get twins, then exemption
will be available to all the three children.
b. If you get twins the first time itself, and the next time, a single child is born, exemption
will be available only to the first born twins, and not to the third child.

UM
3. LTC exemption is available for 2 years during the block of 4 years. If exemption is not claimed
in any block, then one year can be carried forward to next block. [Current Blocks: F.Y. 2018 -
2021, 2022 - 2025] For example, if in 2018-2021 block, LTC exemption is not utilized, then 1
year benefit can be carried forward to 2022-2025 block. It means in 2022-2025, assessee can
claim benefit for three years.
4. Exemption under this section would be available only to employees exercising the option of
shifting out of the default tax regime provided under section 115BAC(1A). It is not available
under the default tax regime under section 115BAC.

TK
Medical Facilities [Proviso to section 17(2)]
Medical Facility

Treatment in India Treatment Outside India

Government
Government Employer’s Benefit of
Recognized Otherwise Benefit of Stay Benefit of Travel
AN
Hospital Hospital Treatment
Hospital

Exempt upto Exempt upto

GTI upto GTI above
Fully Exempt Fully Exempt Fully Exempt Fully Taxable Limit Prescribed Limit Prescribed
₹ 2,00,000 ₹ 2,00,000
by RBI by RBI

Fully Exempt Fully Taxable

SH

Notes:

1. Exemption for treatment is allowed for Employee, Spouse, Children, and Dependent Relatives
(Mother, Father, Brother, Sister)
2. Exemption of Stay and Travel is allowed only for patient and one attendant.
3. Medical insurance premium paid by employer is fully exempt.
4. 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 in respect of any illness
NI

relating to COVID-19 would not be treated as a perquisite subject to conditions notified by the
Central Government.
Accordingly, the Central Government has specified that for claiming benefit of such exemption,
the employee has to submit the following documents to the employer:
a. the COVID-19 positive report of the employee or family member, or medical report if
clinically determined to be COVID-19 positive through investigations, in a hospital or
an in-patient facility by a treating physician of a person so admitted;
CA

b. all necessary documents of medical diagnosis or treatment of the employee or his

family member for COVID-19 or illness related to COVID-19 suffered within 6 months
from the date of being determined as COVID-19 positive; and

CA NISHANT KUMAR 20
 AR
c. a certification in respect of all expenditure incurred on the treatment of COVID-19 or
illness related to COVID-19 of the employee or of any member of his family.

Perquisites Taxable Only in the Hands of Specified Employees [Section

17(2)(iii)]

UM
Aspect Details
Meaning of Specified employees include director employees, employees with substantial
Specified interest in the company, and employees earning more than ₹ 50,000 in salary.
Employees
Director Employee An individual who is both an employee and a director in the company,
regardless of whether full-time or part-time.
Employee with An employee is considered to have substantial interest if he owns at least 20%
Substantial Interest of the voting power in the company, based on beneficial ownership.
Employee Drawing Includes employees whose salary exceeds ₹ 50,000, after considering

TK
Income Exceeding exclusions like non-monetary benefits, exempt allowances, and standard
₹ 50,000 deductions.
Monetary If the employer pays off any financial obligations of the employee, it is
Obligations Paid by considered a perquisite taxable for all employees u/s 17(2)(iv).
Employer
Perquisites Taxable Perquisites in the form of facilities provided by the employer are taxable only
Only for Specified for specified employees. Examples include provision of personal attendants,
Employees gas/electricity/water facilities, concessional tickets, use of motor car, and
free/concessional educational facilities.
AN
Deductions from Salary [Section 16]
Deduction Details
Standard Deduction Deduction of actual salary or ₹ 50,000, whichever is less. Available under
[Section 16(ia)] the old scheme. Under the new scheme, standard deduction is ₹ 75,000.
Entertainment Only available to Government employees. Deduction is lower of:
Allowance [Section • Actual entertainment allowance received
16(ii)] • ₹ 5,000
SH

• One-fifth of basic salary

Not available under the default tax regime u/s 115BAC.
Professional Tax on Allowed only if actually paid during the previous year. Maximum ₹ 2,500
Employment [Section per annum, but if arrears are paid, it can exceed ₹ 2,500. If employer pays,
16(iii)] it is included in salary and then deducted. Not available under the default
tax regime u/s 115BAC.

Relief u/s 89
NI

1. If an employee receives arrears of salary (pertaining to any preceding previous year(s)) in the
relevant previous year, there’s a possibility that it’ll get taxed at a higher slab rate.
2. This excess taxability is relieved to the assessee in the previous year, in which the arrears of
salary are received.
3. When the amount is received due to voluntary retirement, relief u/s 89 shall not be available
if the employee has claimed exemption u/s 10(10C).
4. Steps for calculating Relief u/s 89:
CA

a. Calculate the tax payable on the total income, including the additional salary, of the
previous year in which the same is received.

CA NISHANT KUMAR 21
 AR
b. Calculate the tax payable on the total income, excluding the additional salary of the
previous year in which the same is received.
c. Find out the difference between the tax at (a) and (b).
d. Compute tax on total income after including the additional salary in the previous year
to which such salary relates.
e. Compute tax on total income after excluding the additional salary in the previous year

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to which such salary relates.
f. Find out the difference between tax at (d) and (e).
g. Relief u/s 89 = Tax computed at (c) – Tax computed at (f)

Question 40 – ICAI SM – Illustration 25

In the case of Mr. Hari, who turned 71 years on 28.3.2025, you are informed that the salary (computed)
for the previous year 2024-25 is ₹ 10,20,000 and arrears of salary received is ₹ 3,45,000. Further, you
are given the following details relating to the earlier years to which the arrears of salary received is

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attributable to:

Previous Year Taxable Salary (₹) Arrears now received (₹)

2011-12 7,10,000 1,03,000
2012-13 8,25,000 1,17,000
2013-14 9,50,000 1,25,000
Compute the relief available under section 89 and the tax payable for the A.Y. 2025-26. Assume that
Mr. Hari exercises the option of shifting out of the default tax regime provided under section
115BAC(1A).
AN
Note: Rates of Taxes:

Assessment
Slab rates of income-tax
Year
For resident individuals of the age of 60
years or more at any time during the For other resident individuals
previous year
Slabs Rate Slabs Rate
SH

2012-13 Upto ₹ 2,40,000 Nil Upto ₹ 1,60,000 Nil

₹ 2,40,001 - ₹ 5,00,000 10% ₹ 1,60,001 - ₹ 5,00,000 10%
₹ 5,00,001 - ₹ 8,00,000 20% ₹ 5,00,001 - ₹ 8,00,000 20%
Above ₹ 8,00,000 30% Above ₹ 8,00,000 30%
2013-14 Upto ₹ 2,50,000 Nil Upto ₹ 1,80,000 Nil
₹ 2,50,001 - ₹ 5,00,000 10% ₹ 1,80,001 - ₹ 5,00,000 10%
₹ 5,00,001 - ₹ 8,00,000 20% ₹ 5,00,001 - ₹ 8,00,000 20%
Above ₹ 8,00,000 30% Above ₹ 8,00,000 30%
NI

2014-15 Upto ₹ 2,50,000 Nil Upto ₹ 2,00,000 Nil

₹ 2,50,001 - ₹ 5,00,000 10% ₹ 2,00,001 - ₹ 5,00,000 10%
₹ 5,00,001 - ₹ 10,00,000 20% ₹ 5,00,001 - ₹ 10,00,000 20%
Above ₹ 10,00,000 30% Above ₹ 10,00,000 30%
Note – Education cess @ 2% and secondary and higher education cess @ 1% was attracted on the
income-tax for all above preceding years.

Solution
CA

Computation of tax payable by Mr. Hari for the A.Y. 2025-26

Particulars Including Arrears of Salary Excluding Arrears of Salary

CA NISHANT KUMAR 22
 AR
Current Year Salary (Computed) 10,20,000 10,20,000
Add: Arrears of Salary 3,45,000 -
Taxable Salary 13,65,000 10,20,000
Income Tax thereon 2,19,500 1,16,000
Add: Health and Education Cess @ 4% 8,780 4,640
Total Payable 2,28,280 1,20,640

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Computation of tax payable on arrears of salary if charged to tax in the respective AYs

A.Y. 2012-13 A.Y. 2013-14 A.Y. 2014-15

Particulars Including Excluding Including Excluding Including Excluding
Arrears Arrears Arrears Arrears Arrears Arrears
Taxable Salary 7,10,000 7,10,000 8,25,000 8,25,000 9,50,000 9,50,000
Add: Arrears of Salary 1,03,000 - 1,17,000 - 1,25,000 -
Taxable Salary 8,13,000 7,10,000 9,42,000 8,25,000 10,75,000 9,50,000
Tax on the above 97,900 76,000 1,34,600 99,500 1,47,500 1,15,000

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Add: Cess @ 3% 2,937 2,280 4,038 2,985 4,425 3,450
Tax payable 1,00,837 78,280 1,38,638 1,02,485 1,51,925 1,18,450

Computation of relief under section 89

Particulars ₹ ₹
i Tax payable in A.Y. 2025-26 on arrears
Tax on income including arrears 2,28,280
Less: Tax on income excluding arrears 1,20,640 1,07,640
ii Tax payable in respective years on arrears:
AN
Tax on income including arrears (₹ 1,00,837 + ₹ 1,38,638 + ₹ 1,51,925) 3,91,400
Less: Tax on income excluding arrears (₹ 78,280 + ₹ 1,02,485 + ₹ 1,18,450) 2,99,215 92,185
Relief under section 89 – difference between tax on arrears in A.Y. 2025- 15,455
26 and tax on arrears in respective years

Tax payable for A.Y. 2025-26 after relief under section 89

Particulars ₹
SH

Income-tax payable on total income including arrears of salary 2,28,280

Less: Relief under section 89 as computed above 15,455
Tax payable after claiming relief 2,12,825

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