150 question and answers on income from salaries
🔹 SECTION A: BASIC CONCEPTS (Q1–Q25)
Q1. What is the basis of charge for salary income under the Income Tax Act?
A1. Salary is chargeable on a "due" or "receipt" basis, whichever is earlier, as per Section 15.
Q2. What is meant by the employer-employee relationship?
A2. Salary is taxable only when there exists an employer-employee relationship between the payer and the payee.
Q3. Can part-time employment income be taxed as salary?
A3. Yes, salary received from part-time employment is taxable under “Salaries”.
Q4. What is the tax treatment of advance salary?
A4. Advance salary is taxable in the year of receipt, even if it’s not due.
Q5. How are arrears of salary taxed?
A5. Arrears are taxed on receipt basis, unless already taxed earlier on due basis.
Q6. What is the treatment of salary forfeited by the employee?
A6. It is taxable as it is considered application of income.
Q7. Is tax-free salary taxable?
A7. Yes, the tax paid by the employer is a taxable perquisite in the hands of the employee.
Q8. Define salary under Section 17(1).
A8. Salary includes wages, pension, gratuity, fees, commission, perquisites, etc.
Q9. What are the three relevant sections dealing with salary income?
A9. Section 15 (chargeability), Section 16 (deductions), Section 17 (definitions).
Q10. What is the tax treatment of foreign salaries received in India?
A10. Salary for services rendered in India is taxable, even if paid outside India.
Q11. How is salary taxed if received by a Member of Parliament?
A11. It is not taxed under “Salaries”; it is taxable as “Income from Other Sources”.
Q12. Is director’s remuneration always taxable under salary?
A12. Only if the director is also an employee of the company.
Q13. What if a partner receives a salary from a firm?
A13. It is not taxable under salaries; it is business income.
Q14. What is annuity?
A14. An annuity is a fixed annual payment; if received from employer, it's taxable as salary.
Q15. Is salary received by a foreign diplomat in India taxable?
A15. No, it is exempt under section 10(6), subject to conditions.
Q16. What if an employee receives salary from two employers?
A16. Both are aggregated and taxed under “Salaries”.
Q17. Can salary be taxed if received before it is due?
A17. Yes, salary is taxed on “due or receipt” basis, whichever is earlier.
Q18. What is the treatment of surrender of salary to Government?
A18. It is exempt if surrendered under the Voluntary Surrender of Salaries Act.
Q19. What is the place of accrual of salary?
A19. Salary earned in India is taxable in India, even if paid outside.
Q20. What is included in “Profits in lieu of Salary”?
A20. Compensation on termination, voluntary retirement compensation, etc.
Q21. Is commission part of salary?
A21. Yes, if paid by employer to employee.
Q22. What is standard deduction u/s 16(ia)?
A22. ₹50,000 or salary amount, whichever is less.
Q23. Are gifts from employer taxable?
A23. Yes, if value exceeds ₹5,000 in a year.
Q24. What are specified employees?
A24. Directors, employees with substantial interest, or those earning salary above ₹50,000.
Q25. Is pension taxable under salary?
A25. Uncommuted pension is fully taxable; commuted pension may be exempt.
🔹 SECTION B: ALLOWANCES (Q26–Q50)
Q26. What is an allowance?
A26. Fixed amount paid by employer for specific purposes like HRA, conveyance, etc.
Q27. Is Dearness Allowance taxable?
A27. Yes, it is fully taxable.
Q28. How is HRA taxed?
A28. Exempt u/s 10(13A) to the extent of least of actual HRA, rent paid minus 10% salary, or 40/50% of salary.
Q29. What is the exemption limit for education allowance?
A29. ₹100/month per child for maximum two children.
Q30. What is the limit for hostel allowance exemption?
A30. ₹300/month per child for maximum two children.
Q31. Is transport allowance taxable?
A31. Yes, except up to ₹3,200 p.m. for handicapped employees.
Q32. What is entertainment allowance?
A32. Fully taxable except for government employees eligible for deduction u/s 16(ii).
Q33. Is project allowance taxable?
A33. Yes, fully taxable.
Q34. How are high altitude allowances taxed?
A34. Exempt up to ₹1,600 p.m. depending on location.
Q35. What is the exemption for special area allowance?
A35. ₹300 to ₹7,000 depending on area.
Q36. Are UN salaries taxable?
A36. No, exempt under the UN Act.
Q37. What are special compensatory allowances?
A37. Given for working in difficult areas, exempt up to prescribed limits.
Q38. What are perquisites?
A38. Non-monetary benefits like accommodation, car, etc., taxable under Sec 17(2).
Q39. How is rent-free accommodation taxed?
A39. As per specified valuation rules under Rule 3.
Q40. Are utility bills paid by employer a perquisite?
A40. Yes, taxable.
Q41. Is concessional loan from employer taxable?
A41. Yes, if loan exceeds ₹20,000 and concessional interest is provided.
Q42. What is the exemption for food coupons?
A42. Exempt up to ₹50 per meal.
Q43. Is car facility provided by employer taxable?
A43. Yes, based on usage and engine capacity.
Q44. Are domestic servants provided by employer taxable?
A44. Yes, value is taxable perquisite.
Q45. Is education facility to employee’s children taxable?
A45. Yes, if value exceeds ₹1,000 p.m. per child.
Q46. Is telephone facility a perquisite?
A46. No, it is not considered a taxable perquisite.
Q47. Are gifts from employer taxable?
A47. Yes, beyond ₹5,000 in aggregate per annum.
Q48. Is uniform allowance taxable?
A48. Exempt to the extent of actual expenditure.
Q49. What is helper allowance?
A49. Exempt only if actually spent for official duties.
Q50. Are research and academic allowances exempt?
A50. Yes, if granted in educational/research institutions.
🔹 SECTION C: RETIREMENT BENEFITS (Q51–Q75)
Q51. What is gratuity?
A51. Payment made on retirement for past services.
Q52. Is gratuity taxable?
A52. Exempt u/s 10(10) up to ₹20 lakh subject to conditions.
Q53. Is pension taxable?
A53. Uncommuted pension is fully taxable; commuted pension may be exempt.
Q54. What is commuted pension?
A54. Lump sum received in place of periodic pension.
Q55. How is commuted pension exempted?
A55. Fully exempt for govt. employees; partly exempt for others.
Q56. What is leave encashment?
A56. Money received for unutilised leave at retirement.
Q57. Is leave encashment taxable?
A57. Exempt for govt. employees; others up to ₹25 lakh u/s 10(10AA).
Q58. What is voluntary retirement compensation?
A58. Compensation received under VRS scheme, exempt u/s 10(10C) up to ₹5 lakh.
Q59. What is retrenchment compensation?
A59. Compensation under layoff, exempt up to ₹5 lakh u/s 10(10B).
Q60. Is bonus taxable?
A60. Yes, fully taxable.
Continuing from the previous list, here are:
🔹 SECTION C: RETIREMENT BENEFITS (Continued: Q61–Q75)
Q61. How is the average salary calculated for leave encashment?
A61. Average of basic salary + DA (retirement benefits only) + commission (if fixed %) for 10 months preceding retirement.
Q62. What is the limit on exempt gratuity for private employees?
A62. ₹20 lakh under section 10(10), applicable for both Gratuity Act-covered and non-covered employees.
Q63. How is gratuity exemption computed for Gratuity Act-covered employees?
A63. 15/26 × last drawn salary × completed years (including >6 months).
Q64. How is gratuity exemption computed for others (non-Gratuity Act)?
A64. ½ month average salary × completed years of service.
Q65. What is the maximum exemption for leave encashment?
A65. ₹25,00,000 under section 10(10AA).
Q66. Can bonus be taxed in the year it is declared?
A66. Yes, taxed on receipt basis unless already taxed on due basis.
Q67. Is VRS compensation exempt for private employees?
A67. Yes, least of actual received, ₹5 lakh, 3-month salary × years, or last drawn salary × remaining months.
Q68. What is the meaning of “profits in lieu of salary”?
A68. Includes compensation on termination, VRS, keyman insurance proceeds, etc.
Q69. Is tax paid by employer on non-monetary perquisites taxable?
A69. No, exempt under section 10(10CC).
Q70. Can government employees claim exemption for commuted pension?
A70. Yes, fully exempt under section 10(10A)(i).
Q71. Can a person claim both VRS and leave encashment exemption?
A71. Yes, subject to individual section limits.
Q72. What is the exemption under Section 10(18)?
A72. Pension received by recipients of gallantry awards is fully exempt.
Q73. Is disability pension for armed forces taxable?
A73. No, fully exempt as per CBDT Circular No. 13/2019.
Q74. Are family pensions taxable?
A74. Yes, under “Income from Other Sources” with standard deduction of ₹15,000 or 1/3rd, whichever is less.
Q75. Are judicial allowances exempt?
A75. Yes, for High Court and Supreme Court judges under respective Acts.
🔹 SECTION D: COMPUTATION & PRACTICAL CASES (Q76–Q100)
Q76. What is the standard deduction allowed from salary income?
A76. ₹50,000 or actual salary, whichever is less, under section 16(ia).
Q77. How is rent-free accommodation valued for taxation?
A77. Based on city population and salary percentage (15%, 10%, 7.5%).
Q78. What if accommodation is leased by the employer?
A78. Lower of actual rent paid or 15% of salary, less rent recovered.
Q79. How is car perquisite valued?
A79. Based on engine size and usage — fixed monthly value added to salary.
Q80. What is taxable when employer pays professional tax?
A80. It is a perquisite and taxable, but allowed as deduction u/s 16(iii).
Q81. How is provident fund taxed?
A81. Employer contribution to RPF is exempt up to 12% of salary. Excess and interest beyond limits are taxable.
Q82. Is NPS contribution by employer taxable?
A82. Exempt up to ₹7,50,000 (combined PF, NPS, and Superannuation Fund).
Q83. What if value of gifts exceeds ₹5,000?
A83. Entire value is taxable as perquisite.
Q84. Are paid vouchers for meals taxable?
A84. Exempt up to ₹50 per meal during office hours.
Q85. How is free education facility valued?
A85. Value = actual cost to employer or comparable institute – employee contribution.
Q86. Are sweepers, watchmen, and domestic help provided by employer taxable?
A86. Yes, cost to employer minus amount recovered is taxable.
Q87. Is reimbursement of medical expenses taxable?
A87. Yes, under the new regime, all such reimbursements are taxable unless specifically exempt.
Q88. Can employee claim exemption for leave encashment received twice?
A88. Yes, but aggregate exemption over multiple employers is restricted to ₹25 lakh.
Q89. What is included in “salary” for HRA exemption?
A89. Basic + DA (if part of retirement benefits) + commission as fixed % of turnover.
Q90. How is taxable HRA computed?
A90. Taxable HRA = Actual HRA – Exempt amount u/s 10(13A).
Q91. Can pension received abroad be taxable in India?
A91. Yes, if it relates to services rendered in India.
Q92. What is the value of accommodation for government employees?
A92. License fee determined by the government – rent paid.
Q93. Is compensation received on termination taxable?
A93. Yes, under “Profits in lieu of Salary”.
Q94. Are foreign diplomats exempt from tax?
A94. Yes, subject to reciprocity and provided they don’t earn other income in India.
Q95. What is taxable salary?
A95. Gross salary – deductions under section 16.
Q96. What is the deduction under section 16(ii)?
A96. Entertainment allowance deduction — only for government employees, least of ₹5,000, 1/5th of salary, or actual allowance.
Q97. How are lump-sum amounts from employers taxed?
A97. Depending on nature: termination/retirement — may be exempt under relevant sections or fully taxable.
Q98. How is taxable salary computed under new regime (Section 115BAC)?
A98. Most exemptions and deductions not allowed; only standard deduction permitted from FY 2023-24 onwards.
Q99. Can a person claim Section 80C deductions under new regime?
A99. No, deductions under Chapter VI-A are not allowed under Section 115BAC, except a few like 80CCD(2).
Q100. What is the benefit of the new tax regime for salaried individuals?
A100. Lower tax rates with fewer exemptions; beneficial for those with minimal deductions.
SECTION E: ALLOWANCES & PERQUISITES (Advanced) – Q101 to Q125
Q101. What is the perquisite value of a motor car used partly for personal purposes (engine ≤1600cc)?
A101. ₹1,800 per month + ₹900 if chauffeur provided.
Q102. How is accommodation taxed if provided at concessional rate?
A102. Perquisite = Value as per rules – Rent paid by employee.
Q103. Who is a “specified employee”?
A103. One who is (i) director, (ii) substantial interest (>20% equity), or (iii) earns salary > ₹50,000 (excluding non-monetary benefits).
Q104. How are moveable assets provided by employer taxed?
A104. Perquisite = 10% of asset cost – employee’s payment (if any).
Q105. What is the value of gift taxable as perquisite?
A105. Entire amount is taxable if aggregate value > ₹5,000 in a year.
Q106. What is helper allowance?
A106. Allowance for engaging a helper in official work; exempt if spent.
Q107. Are medical reimbursements taxable under new regime?
A107. Yes, all are taxable unless covered under specific exemptions.
Q108. What is the value of education benefit provided by employer?
A108. Value = Cost in similar school – amount paid by employee (exempt if ≤ ₹1,000/month/child).
Q109. How is concessional accommodation valued for private employer?
A109. % of salary (15/10/7.5%) minus rent recovered from employee.
Q110. Is gas/electricity/water facility provided by employer taxable?
A110. Yes, value = amount paid by employer – amount recovered.
Q111. What is project allowance?
A111. Allowance for specific assignments; fully taxable.
Q112. Is perquisite valuation different under new tax regime?
A112. No, perquisite valuation is same under both regimes; only deductions differ.
Q113. Are high court judges’ allowances taxable?
A113. No, exempt under respective Acts even under optional regime.
Q114. What is research allowance?
A114. Allowance for academic pursuits in educational institutions; exempt to the extent used.
Q115. Is leave travel concession (LTC) taxable under new regime?
A115. Yes, LTC exemption is not available under default 115BAC regime.
Q116. What is the value of a loan from employer at concessional interest?
A116. Perquisite = SBI rate – actual interest × outstanding amount.
Q117. Can a salaried person claim 80C deduction under new regime?
A117. No, except NPS employer contribution u/s 80CCD(2).
Q118. Is free lunch provided by employer taxable?
A118. Exempt up to ₹50 per meal during office hours.
Q119. What is the perquisite value of a furnished accommodation?
A119. Add 10% p.a. of furniture cost or hire charges to RFA value.
Q120. Is car used wholly for official purposes taxable?
A120. No, if detailed logbook and employer’s certificate are maintained.
Q121. What is the exemption for tribal area allowance?
A121. ₹200 per month.
Q122. Is warden allowance taxable?
A122. Yes, fully taxable.
Q123. What if uniform allowance is not spent?
A123. Unspent portion becomes taxable.
Q124. Is employer’s contribution to superannuation fund taxable?
A124. Exempt up to ₹1.5 lakh per annum; excess taxable.
Q125. Are allowances under section 10(14) available in both regimes?
A125. No, most are disallowed under Section 115BAC (default regime).
🔹 SECTION F: ADVANCED CASES & NUMERICALS – Q126 to Q150
Q126. Mr. Y receives ₹30,000 HRA, lives in Chennai, pays ₹20,000 rent, and salary is ₹80,000 p.m. What is HRA exemption?
A126. Least of:
-
HRA received = ₹3,60,000
-
Rent – 10% salary = ₹2,40,000 – ₹96,000 = ₹1,44,000
-
50% salary = ₹4,80,000
Exemption: ₹1,44,000; Taxable: ₹2,16,000.
Q127. What if rent is not paid but HRA is received?
A127. Entire HRA is taxable.
Q128. How is average salary computed for gratuity (non-Gratuity Act)?
A128. Average basic + DA (if retirement benefit) + commission over last 10 months.
Q129. Can a person receive salary and pension in same FY?
A129. Yes, both are taxable under salary.
Q130. Mr. A received gratuity from two employers. Is full exemption available?
A130. No, total exemption cannot exceed ₹20 lakh.
Q131. Is arrears of salary eligible for relief u/s 89?
A131. Yes, if it increases tax burden due to receipt in lump sum.
Q132. What is Section 89 relief?
A132. It mitigates additional tax burden due to advance or arrears of salary.
Q133. Can Section 89 relief be claimed under default regime?
A133. Yes, applicable under both regimes.
Q134. What is the tax implication if rent-free accommodation is provided outside India?
A134. Fully taxable as per fair rental value unless exempt under specific provision.
Q135. Is encashment of earned leave during service exempt?
A135. No, it is fully taxable.
Q136. Mr. Z received salary from a foreign company for work done in India. Taxable?
A136. Yes, deemed to accrue in India.
Q137. What if salary is received after resignation?
A137. It is taxable in the year of receipt.
Q138. Can standard deduction be claimed under new regime (from FY 2023–24)?
A138. Yes, standard deduction of ₹50,000 is allowed under Section 115BAC(1A).
Q139. What is the perquisite for transfer of movable assets?
A139. Cost – depreciation – amount recovered from employee.
Q140. What is the tax treatment of leave encashment received on resignation?
A140. Fully taxable.
Q141. Can a salaried individual claim loss under house property in new regime?
A141. No, set-off of loss under house property is not allowed under Section 115BAC.
Q142. What is salary for the purpose of RFA valuation?
A142. Includes basic, DA (if retirement), and commission as % of turnover.
Q143. Is reimbursement of telephone expenses taxable?
A143. No, not taxable if used for official purposes.
Q144. Mr. P is a specified employee. Does he pay tax on all perquisites?
A144. Yes, perquisites like car, domestic help, concessional loan, etc., are taxable.
Q145. Mr. R gets accommodation in a city with <10 lakh population. How is RFA valued?
A145. 7.5% of salary – rent recovered from employee.
Q146. What is included in “salary” for gratuity calculation under Gratuity Act?
A146. Basic salary + DA.
Q147. What is the exemption for compensation on retrenchment?
A147. Least of actual, ₹5 lakh, or 15 days’ pay × completed years.
Q148. Mr. S earns ₹60,000 salary p.m. and ₹15,000 HRA, lives in Delhi, pays ₹18,000 rent. What is HRA exemption?
A148.
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HRA received: ₹1,80,000
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Rent – 10% salary = ₹2,16,000 – ₹72,000 = ₹1,44,000
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50% salary = ₹3,60,000
Exempt: ₹1,44,000
Q149. Can perquisites be negative?
A149. No, but they can be nil if fully recovered from employee.
Q150. What if an employer gives gift worth ₹4,500 and then ₹2,000 later?
A150. Total = ₹6,500 → entire ₹6,500 is taxable as it exceeds ₹5,000.
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