Year 2004Q. No.
1 Mr. Ramlal the general manager of Y ltd. Retired on December 31,2003 after 30 years of service. The particulars of his income are as follows:(a) Salary Rs. 8,000 per month from January 1, 2003. House rent allowance Rs. 3,000 per month from January 1, 2003.
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(b) Medical expenses reimbursed by the employer Rs. 21,000 for the period from April 1, 2003 which includes Rs. 5,000 paid to a Government hospital.(c) The employer provides him a car of less than 1.6 litres capacity and driver for official and personal use.
(d) Ramlal contributes 22% ( 12% regular and 10% additional voluntary contribution) to a recognized provident fund and the company matches his regular contribution of 12%(e) He lives in a rented house in Delhi and pays Rs. 4,000 per month as rent.(f) Ramlal received Rs.
1,50,000 as gratuity. He is not covered by the payment of Gratuity Act.1972.(g) He received Rs. 1,60,000 for encashment of leave, being 10 months leave not availed of.
(h) In addition to the above he is provided with the other benefits and facilities such as (i) Free gas and water for his domestic use Rs. 4,000(ii) A domestic servant ( Salary paid by the employer ) 3,500(iii) Free lunch outside office Rs.5,000.(iv) Education allowance of Rs. 6,000.Compute Mr. Ramlal's Income for the assessment year 2004-2005.
Solution: (Kindly beware of the dates in such questions. Given data pertains to Calendar Year, where as IT Act mandates accounting on only Financial Year basis ie 01 Apr to 31 Mar. Therefore all income/expenditure from 01 Jan to 31 Mar 2003 have to be disregarded in calculation).Assessment Year – 2004-05Name – Mr RamlalComputation of IncomeSalary (Apr 03-Dec 03) = Rs 8000 x 9 months 72000House Rent Allowance = Rs 3000 x 9 months 27000 Less: Exempted Amount (Refer Note 1 for calculations) 27000 NILMedical Expenses Reimbursement 21000 Less:Exempt amount as per IT Act 15000 6000Car Perquisites = 1200 PM x 9 months 10800 Add: Driver's salary valuation 600 x 9 months 5400 16200Gratuity(Refer Note 3 for calculation) 30000Leave Salary (Refer Note 4 for calculation) 80000Other Perquisites (a) Free Gas and Water 4000 (b) Domestic Servant 3500 (c) Lunch Outside office premises 5000 (d) Education Allowance 6000 Less: Exempt= 2 (100 x 9) for 2 children 1800 4200Income From Salary 220900NOTES:Note 1: House Rent Allowance Calculation (a) 50% of Salary = ? x 8000 = 4000 (b) Actual HRA received 3000 (c) Rent Paid minus 10% of Salary = 4000 – 800= 3200Least of the above three amounts eligible for tax exemption. So, Rs 3000 PM is exempted.
Note 2: Recognised Provident Fund Employer Contribution = 12% of Salary. This is the maximum Tax Free employer's contribution permitted by the Act. So, it is fully exempted.Note 3: Gratuity (a) Admissible gratuity by law = ? month salary x years of service = 4000 x 30= 120000 (b) Specified Amount by Central Govt 350000 (c) Actual Gratuity received 150000Least of the above 3 amounts is the tax exempted gratuity amount = 120000Balance amount = 150000 -120000.