Net income and tax of an accounts officer with rent-free accommodation, perquisites and lottery winnings (as set, 1961 Act, AY 2022-23)

Readings

1. Pay drawn. Appointed on 1st February, 2020 in the scale ₹50,000 – ₹5,000 – ₹70,000, Mr. X is read as earning his annual increment each 1st February: ₹55,000 a month from 1st February, 2021 and ₹60,000 from 1st February, 2022. Salary falls due on the last day of each month, so 2021-22 has ten months at ₹55,000 and two at ₹60,000: ₹6,70,000.
2. Bonus. Two months' basic pay, read as two months at ₹55,000, the rate drawn for most of the year: ₹1,10,000, received in the year. The other rate is at the end.
3. Medical treatment. The married daughter is a child of his and his dependant; the treatment is read as in a private hospital not approved by the Government.
4. Donation to the Relief Fund. Read as paid otherwise than in cash. X is a resident individual (age 32).

Treatment of each item

1. Basic salary ₹6,70,000; dearness allowance 15% ₹1,00,500; bonus ₹1,10,000: taxable (section 17(1)).
2. Provident fund: salary for this purpose is basic plus the dearness allowance that counts for retirement: ₹7,70,500. The employer's ₹1,10,000 is taxable to the extent it exceeds 12% of that (₹92,460): ₹17,540 (Fourth Schedule, Part A, rule 6). His own ₹1,10,000 qualifies under section 80C (section 80C(2)(vi)), within the ₹1,50,000 limit of section 80C(1) and section 80CCE.
3. Rent-free accommodation in Mumbai, taken on lease by the employer: the value is the rent paid by the employer (₹20,000 × 12 = ₹2,40,000) or 15% of salary, whichever is lower (section 17(2)(i)). Salary here is basic, dearness allowance forming part of retirement benefits and bonus: ₹8,80,500; 15% = ₹1,32,075, which is lower (Income-tax Rules, 1962, rule 3(1), Table I, Sl. No. (2)(b), and Explanation (vi) to rule 3, as substituted by the Income-tax (13th Amendment) Rules, 2009).
4. Medical bill of ₹80,000 reimbursed: the treatment was in a private hospital not approved by the Government, and nothing shows a prescribed disease treated in an approved hospital, so none of the proviso's exclusions applies (proviso to section 17(2)); the employer meets his obligation, so the whole is a perquisite (section 17(2)(iv)). (Clause (v) of the proviso, which used to exempt medical reimbursement up to a limit, was omitted from 1st April, 2019, as the held text's footnote to section 17(2) records.)
5. Domestic servant's salary ₹4,000 a month paid by the company: taxable, ₹48,000 (section 17(2)(iv)).
6. Telephone ₹20,000: not a taxable benefit (proviso to Income-tax Rules, 1962, rule 3(7)(ix)).
7. Wrist watch ₹4,900 gifted on his marriage anniversary: a gift worth less than ₹5,000 in the year's aggregate is valued at nil (proviso to Income-tax Rules, 1962, rule 3(7)(iv)).
8. Health insurance premium ₹20,000 paid by the company: not a perquisite (proviso (iii) to section 17(2)), which covers a premium the employer pays to insure the employee's health under a scheme approved by the Central Government or the IRDA for section 36(1)(ib); the company's policy is read as such a scheme. He paid nothing himself, so he gets no deduction for it under Chapter VI-A.
9. His own car (above 1.6 litres), running costs met by the company, used for both official and personal purposes: the employer's actual expense less ₹2,400 a month: ₹70,000 − ₹28,800 = ₹41,200 (Income-tax Rules, 1962, rule 3(2), Table II, Sl. No. (2)(ii)).
10. Free lunch at ₹100 a meal for 300 days: free food provided during working hours at the office or business premises, or through paid vouchers that are not transferable and can be used only at eating joints, is exempt up to ₹50 a meal; the lunch is read as served during working hours at the office. The excess, ₹50 × 300 = ₹15,000, is taxable (proviso to Income-tax Rules, 1962, rule 3(7)(iii)). If it was not provided in either of those ways, the whole ₹30,000 is taxable (the result is at the end).
11. Standard deduction: ₹50,000 (section 16(ia)).
12. Lottery winnings: the ₹70,000 is net of 30% tax deducted at source, so the gross is ₹1,00,000, income from other sources taxed at a flat 30% with no deduction or allowance set against it (section 115BB).
13. Savings bank interest ₹15,000: income from other sources; ₹10,000 is deductible (section 80TTA): the account is read as his own savings account with a bank, a co-operative bank or a post office (section 80TTA(1)), not one held by or for a firm, association of persons or body of individuals (section 80TTA(2)).
14. Political party ₹5,000 in cash: no deduction (section 80GGC allows only contributions made otherwise than in cash). Prime Minister's National Relief Fund ₹10,000: 100% deduction with no qualifying limit (section 80G).

Computation of net income

Computation of tax liability

No surcharge: total income is below ₹50,00,000. No rebate under section 87A: total income is above ₹5,00,000.

If the facts are read otherwise

• Bonus at the ₹60,000 rate (₹1,20,000): the accommodation rises to 15% of ₹8,90,500 = ₹1,33,575; gross salary ₹12,25,815, net income ₹11,60,820 (rounded), and tax liability ₹1,67,180.
• Lunch not served at the office during working hours, nor through non-transferable meal vouchers: the proviso to rule 3(7)(iii) does not apply, so the whole ₹30,000 is taxable; gross salary ₹12,29,315, net income ₹11,64,320 (rounded), and tax liability ₹1,68,270.