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Income Tax Laws – I

Notes 11. Payment received out of an approved Superannuation Fund [Section 10(13)];
12. House rent allowance [Section 10(13A)];
13. Special allowances to meet the expenses of the duties [Section 10(14)];
14. Salary income of a member of Scheduled Tribe [Section 10(26)];

15. Salary income of a resident of Ladakh [Section 10(26A)].

Notes Tax Deducted at Source
Salaries payable by an employer are chargeable to tax in the hands of the employee and
are subject to deduction of tax at source under Section 192 of the Income-tax Act. The
obligation of the employer to deduct tax at source is mandatory and cannot be negotiated.
But in cases where there is any failure on the part of the employer to deduct the tax at
source, the employee cannot escape liability to tax; he would be chargeable to tax on his
entire income from salaries. The fact that the employer could be proceeded against and be
subjected to penalty or prosecution, would not absolve the employee of his liability to
pay tax on the income which should have been subjected to deduction of tax by the
employer. In every case, the tax deducted by the employer should be added to the employee’s
income and the gross amount should be taken as the taxable income of the employee.

Important examples of computation of Income from Salary are given below:

Example: Calculation of taxable house rent allowance:

Mr. Ram is employed at Bombay. His basic Salary is ` 5,000 per month. He receives ` 5,000 p.a.
as house rent allowance. Rent paid by him is ` 12,000 p.a. Find out the amount of taxable house
rent allowance.

Solution:
As per Rule 2A, the least of the following is exempt from tax:
1. the actual house rent allowance;

2. excess of rent paid over 10% of salary;
3. where the accommodation is situate at Bombay, Delhi, Calcutta or Madras, one-half of the
amount of salary due to the assessee for the relevant period;

4. Where the accommodation is situating at any other place, two-fifth of the salary due to the
assessee for the relevant period.
Accordingly, Mr. Ram would be entitled to the least of:

(i) 5,000 or
(ii) 6,000 being excess of rent over 1/10th of salary; or
(iii) 30,000 (being one-half of the salary of the assessee).
5,000, being the least, would not be included in the total income of Mr. Ram. So the entire
amount of HRA would be exempt from tax.
Salary for this purpose includes basic salary as well as dearness allowance if the terms of
employment so provide. It also includes commission based on a fixed percentage of turnover
achieved by an employee as per terms of contract of employment but excludes all other allowances

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