Question 2 (b)
Income under the head Salaries with provident fund, house rent allowance, car and sale of assets (as set, 1961 Act)
12 marks
- Time to write
- About 24 minutes
- Topic
- Income from salaries
- Notes
- Crux notes
Question
Question 2 (b) · 12 marksMs. Asha (age 50 years), an Accounts Officer in ABC Textiles Ltd, gives you these details for the year that ended on 31st March, 2024:
| SN | Item | Amount (Rs.) |
|---|---|---|
| 1. | Basic salary, as on 01/04/2023; increment with effect from 01/11/2023, Rs. 10000 pm | 55000 pm |
| 2. | D.A. (it forms part of retirement benefits) | 40% of basic |
| 3. | Bonus (paid in the month of November, on Diwali) | 70000 |
| 4. | Employer's contribution to Recognized Provident Fund (RPF); Ms. Asha also contributes an equal amount | 12000 pm |
| 5. | Interest @ 11% p.a. credited on the RPF accumulated balance | 33000 |
| 6. | Medical Allowance | 5000 pm |
| 7. | Children Education Allowance (two children) | 1000 pm |
| 8. | House Rent Allowance (she pays Rs. 18000 pm as rent in Meerut) | 16000 pm |
| 9. | The employer provides her a car facility of 1.6 litres (1600CC) engine capacity; the employer company meets the car's running expenses. | |
| 10. | On 12/01/2024 the employer company sold her the following assets |
| Particulars | Computer | Refrigerator |
|---|---|---|
| Cost to employer of the asset | Rs.60000 | Rs. 20000 |
| Purchase date of the assets | 01/04/2020 | 01/04/2020 |
| Price on sale | Rs. 10000 | Rs. 80000 |
Assuming she has opted for the old tax regime, compute her taxable income under the head salaries. (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. Item 10 sets out the two assets in a table within the table; it is shown as a second table. The car is read as used for both official and private purposes, the usual reading where the question 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 she has opted for the…The paper fixes this: use it as given, and say so in your answer.
- computeHead by head: each income under its head, exempt items marked exempt, then the deductions and the tax.
Write it in this order
- Read the data; note exactly what is asked 2 min
- 1 Basic salary with increment, DA, bonus and allowances 3 marks 5 min
- 2 Provident fund contribution and interest 2 marks 3 min
- 3 House rent allowance 3 marks 5 min
- 4 Car, computer and refrigerator 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.
- Ms. Asha has opted out of the default regime (section 115BAC(6)); the standard deduction is ₹50,000 (section 16(ia)).
- The car (1600 cc, that is not above 1.6 litres) is used for both official and private purposes, without a driver.
- The children education allowance is ₹1,000 a month in total for the two children. Meerut is not one of the four metro cities.
| Item | Working | Rs. |
|---|---|---|
| Basic salary: April to October | ₹55,000 × 7 | 3,85,000 |
| Basic salary: November to March | ₹65,000 × 5 | 3,25,000 |
| Basic salary | 7,10,000 | |
| Dearness allowance (part of retirement benefits) | 40% of ₹7,10,000 | 2,84,000 |
| Salary for provident fund and house rent allowance (basic + DA) | 9,94,000 |
Recognised provident fund (Fourth Schedule, Part A, rule 6)
| Particulars | Rs. |
|---|---|
| Employer's contribution: ₹12,000 × 12 | 1,44,000 |
| Exempt: 12% of salary (12% of ₹9,94,000) | 1,19,280 |
| Taxable excess contribution | 24,720 |
| Interest credited at 11% | 33,000 |
| Exempt: interest at 9.5% (₹33,000 × 9.5/11) | 28,500 |
| Taxable excess interest | 4,500 |
Her own contribution (₹1,44,000) is not salary; it qualifies for deduction under section 80C in computing total income.
House rent allowance (section 10(13A), rule 2A)
| Exempt: the least of | Rs. |
|---|---|
| (a) House rent allowance received: ₹16,000 × 12 | 1,92,000 |
| (b) Rent paid less 10% of salary: ₹2,16,000 − ₹99,400 | 1,16,600 |
| (c) 40% of salary (Meerut, not a metro city) | 3,97,600 |
| Exempt | 1,16,600 |
| Taxable house rent allowance (1,92,000 − 1,16,600) | 75,400 |
Car and assets sold to her (section 17(2); rule 3)
- Car: owned by the employer, running expenses met by it, used officially and privately, engine not above 1.6 litres: ₹1,800 a month = ₹21,600 (rule 3(2)).
- Computer (bought 01/04/2020, sold 12/01/2024: 3 completed years): value = cost less 50% a year on the written down value = ₹60,000 × 50% × 50% × 50% = ₹7,500. She paid ₹10,000, more than that: no perquisite.
- Refrigerator (other movable asset): value = cost less 10% of cost for each completed year = ₹20,000 − 30% = ₹14,000. She paid ₹80,000: no perquisite (rule 3(7)(viii)).
Computation of income under the head Salaries for assessment year 2024-25
| Particulars | Rs. |
|---|---|
| Basic salary | 7,10,000 |
| Dearness allowance | 2,84,000 |
| Bonus | 70,000 |
| Employer's contribution to RPF in excess of 12% | 24,720 |
| Interest on RPF in excess of 9.5% | 4,500 |
| Medical allowance: ₹5,000 × 12 (fully taxable) | 60,000 |
| Children education allowance: ₹12,000 − exempt ₹2,400 (₹100 a month per child for two) | 9,600 |
| House rent allowance (taxable part) | 75,400 |
| Car perquisite | 21,600 |
| Computer and refrigerator | Nil |
| Gross salary | 12,59,820 |
| Less: Standard deduction (section 16(ia)) | 50,000 |
| Income under the head Salaries | 12,09,820 |
Where the 12 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Basic salary with increment, DA, bonus and allowances | 3 |
| 2 | Provident fund contribution and interest | 2 |
| 3 | House rent allowance | 3 |
| 4 | Car, computer and refrigerator | 2 |
| 5 | Standard deduction and income from salaries | 2 |
| Total | 12 |
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