Question 2 OR (b)
Income from salaries in the year of retirement under the old regime (as set, 1961 Act)
12 marks
- Time to write
- About 24 minutes
- Topic
- Income from salaries
- Notes
- Crux notes
Question
Question 2 OR (b) · 12 marksMr. Balram, an employee of PK Ltd. at Pune who is covered under Payment of Gratuity Act, 1972; he retires on 1st December 2023 (age of 60 years), having completed 34 years and 7 months of service. At retirement he is entitled to a pension of Rs. 40000 pm, and he opts to commute 80% of his pension, for Rs. 900000, on 1st February 2024. Also, the employer pays him Rs. 2051640 by way of Gratuity, and Rs. 500000, the accumulated balance of his Recognised Provident Fund. For the year ended 31st March 2024 he also gives these details:
| SN | Particulars | Amount (in Rs) |
|---|---|---|
| 1 | Salary (basic) | 80000 pm |
| 2 | D.A. (forming part of retirement: 60%) | 20000 pm |
| 3 | Bonus | 5000 pm |
| 4 | Commission | 2000 pm |
| 5 | Contribution by employer to Recognized Provident Fund | 110000 |
| 6 | House Rent Allowance (Mr Balram pays rent of Rs 12000 pm in Pune) | 15000 pm |
| 7. | Fee of his son, who is studying in MBA, paid by the employer co. | 120000 |
| 8 | Lunch coupons, of Rs. 120 each per meal, for 180 days |
Assuming he opted for the old tax regime, determine Mr Balram's income from salaries for the assessment year 2024-25. (12)
Paper note: The as-set version: set and answered under the Income-tax Act, 1961 for assessment year 2024-25 (previous year 2023-24), with the dates as printed. A current version under the Income-tax Act, 2025 for tax year 2026-27 follows when the Income-tax Rules, 2026 are available. "Forming part of retirement" is as printed, read as retirement benefits. The salary items are read as paid for the eight months of service to 30 November, and the pension from 1 December; the paper does not say.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- Assuming he opted for the old…The paper fixes this: use it as given, and say so in your answer.
- determineFormula first, then the working, then the answer with its unit (₹, %, units).
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Salary, provident fund and house rent allowance 3 marks 5 min
- 2 Son's fee and lunch coupons 2 marks 3 min
- 3 Uncommuted and commuted pension 3 marks 5 min
- 4 Gratuity 2 marks 3 min
- 5 Standard deduction and income from salaries 2 marks 3 min
- Check: arithmetic, units (₹, %), final answer underlined 3 min
Try it first. About 24 minutes for 12 marks. Write it out, then open the solution.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
- The salary items are for the eight months of service, April to November 2023; the pension runs from 1 December 2023. The paper does not say this; it is the reading that fits a retirement on 1 December.
- Mr. Balram has opted out of the default regime (section 115BAC(6)); the standard deduction is ₹50,000.
- The commission is not a fixed percentage of turnover, so it is left out of salary for the provident fund and house rent allowance. Pune is not one of the four metro cities.
| Item | Working | Rs. |
|---|---|---|
| Basic salary | ₹80,000 × 8 | 6,40,000 |
| Dearness allowance | ₹20,000 × 8 | 1,60,000 |
| Bonus | ₹5,000 × 8 | 40,000 |
| Commission | ₹2,000 × 8 | 16,000 |
Salary for the provident fund and house rent allowance = basic + 60% of DA = (₹80,000 + ₹12,000) × 8 = ₹7,36,000.
Provident fund and house rent allowance
| Particulars | Rs. |
|---|---|
| Employer's contribution to RPF | 1,10,000 |
| Exempt: 12% of ₹7,36,000 | 88,320 |
| Taxable excess contribution | 21,680 |
| House rent allowance received: ₹15,000 × 8 | 1,20,000 |
| Exempt: least of (a) ₹1,20,000; (b) rent ₹96,000 less 10% of salary ₹73,600 = ₹22,400; (c) 40% of salary ₹2,94,400 | 22,400 |
| Taxable house rent allowance | 97,600 |
The accumulated balance of the recognised provident fund (₹5,00,000), paid after more than five years of service, is exempt within the limits that rule 8 of Part A of the Fourth Schedule sets (section 10(12)).
- Son's MBA fee paid by the employer (₹1,20,000): the employer meets the employee's own obligation, so it is a perquisite in full (section 17(2)(iv)).
- Lunch coupons: meals during working hours are exempt up to ₹50 a meal (rule 3(7)(iii)); taxable ₹70 × 180 = ₹12,600.
Uncommuted pension: ₹40,000 for December and January (₹80,000), and 20% of ₹40,000 for February and March (₹16,000): ₹96,000, fully taxable.
Commuted pension (section 10(10A)(ii)): he also receives gratuity, so the commuted value of one-third of the pension is exempt, its commuted value being worked out with regard to his age and health, the interest rate and the officially recognised mortality tables. The paper gives only the amount received for 80% of the pension, so the full commuted value is worked back from it. Full commuted value = ₹9,00,000 ÷ 80% = ₹11,25,000; exempt one-third = ₹3,75,000; taxable = ₹9,00,000 − ₹3,75,000 = ₹5,25,000.
Gratuity (section 10(10)(ii); Payment of Gratuity Act, 1972)
Gratuity received under the Payment of Gratuity Act, 1972 is exempt to the extent it does not exceed the amount worked out under sections 4(2) and 4(3) of that Act (section 10(10)(ii)): for every completed year of service or part of a year above six months, fifteen days' wages at the rate last drawn (for a monthly-rated employee, the monthly wages ÷ 26 × 15: section 4(2) and its Explanation), up to the amount the Central Government notifies under section 4(3), taken below as ₹20,00,000.
Service of 34 years and 7 months counts as 35 years (a part above six months counts). Last drawn wages = basic ₹80,000 + DA ₹20,000 = ₹1,00,000.
| Exempt: the least of | Rs. |
|---|---|
| (a) Gratuity received | 20,51,640 |
| (b) 15/26 × ₹1,00,000 × 35 | 20,19,231 |
| (c) Ceiling | 20,00,000 |
| Exempt | 20,00,000 |
| Taxable gratuity | 51,640 |
Computation of income from salaries for assessment year 2024-25
| Particulars | Rs. |
|---|---|
| Basic salary | 6,40,000 |
| Dearness allowance | 1,60,000 |
| Bonus | 40,000 |
| Commission | 16,000 |
| Employer's contribution to RPF in excess of 12% | 21,680 |
| House rent allowance (taxable part) | 97,600 |
| Son's education fee | 1,20,000 |
| Lunch coupons (taxable part) | 12,600 |
| Uncommuted pension | 96,000 |
| Commuted pension (taxable part) | 5,25,000 |
| Gratuity (taxable part) | 51,640 |
| RPF accumulated balance | Nil |
| Gross salary | 17,80,520 |
| Less: Standard deduction (section 16(ia)) | 50,000 |
| Income from salaries | 17,30,520 |
He may claim relief under section 89 for the taxable gratuity and commuted pension, if receiving them in this one year makes his total income bear a higher rate than it otherwise would; the Assessing Officer grants it only on an application made by him for it (section 89).
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Salary, provident fund and house rent allowance | 3 |
| 2 | Son's fee and lunch coupons | 2 |
| 3 | Uncommuted and commuted pension | 3 |
| 4 | Gratuity | 2 |
| 5 | Standard deduction and income from salaries | 2 |
| Total | 12 |
Report a problemopens an email to admin@getkunji.com with the question ID871-Q2bORalready filled in.