Page 185 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes 2. Allowance to High Court and Supreme Court Judges of whatever nature are exempt from
tax.
3. Allowances from UNO organisation to its employees are fully exempt from tax

Example: From the following particulars, compute gross salary of Mr. X for the assessment
year 2013–14. He is employed in textile industry in Mumbai at a monthly salary of ` 4,000. He is
entitled to commission of 1% on sales achieved by him, which were ` 10 lakh for the year.
In addition, he received the following allowances from the employer during the previous year:
1. Dearness Allowance ` 2,000 per month which is granted under terms of employment and
counted for retirement benefits.
2. Bonus ` 32,000
3. House Rent Allowance ` 1,000 per month (Rent paid for house in Mumbai ` 1,200
per month)
4. Entertainment Allowance ` 1,000 per month
5. Children Education Allowance ` 500 per month
6. Transport Allowance ` 1,000 per month

7. Medical Allowance ` 500 per month
8. Servant Allowance ` 200 per month
9. City Compensatory Allowance ` 300 per month
10. Research Allowance ` 500 per month (amount spent on research ` 3,000)
Solution:

Computation of Income from Salary of Mr. X for the Assessment Year 2013–14.
Basic Salary 48,000
Dearness Allowance 24,000
Commission 10,000
Bonus 32,000
House Rent Allowance

(` 1,000 × 12 – Amount exempts ` 6,200)* 5,800
Entertainment Allowance 12,000
Children Education Allowance
(` 500 × 12 – Amount exempt ` 100 × 2 × 12) 3,600
Transport Allowance

(` 1,000 × 12 – Amount exempt ` 800 × 12) 2,400
Medical Allowance (fully taxable) 6,000
Servant Allowance (fully taxable) 2,400
City Compensatory Allowance (fully taxable) 3,600
Research Allowance
(` 500 × 12 – Amount exempt ` 3,000) 3,000

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