Mr. Vikram, an employee in a private corporate entity, has provided the following details pertaining to his compensation for the financial year…

CA Intermediate · Taxation · MTP · September 2026
Mr. Vikram, an employee in a private corporate entity, has provided the following details pertaining to his compensation for the financial year ending 31st March 2026: Basic salary of ₹ 75,000 per month, which was revised to ₹ 85,000 per month effective from 1st December 2025. Dearness Allowance (DA) is calculated at 50% of his basic salary, with 40% of DA forms part of retirement benefit. Entertainment allowance amounting to ₹ 10,000 for the year. Both Mr. Vikram and his employer contribute 18% of the basic salary towards a recognized provident fund (RPF). Professional tax amounting to ₹ 2,200 was paid during the year, out of which his employer borne ₹ 1,800. House Rent Allowance (HRA) of ₹ 16,000 per month, he resides in Meerut and pays a monthly rent of ₹ 17,000. Conveyance allowance of ₹ 1,500 per month towards reimbursement of the actual travel expenses incurred for official duties. Loan of ₹ 2,00,000 was taken from his employer on 1st July 2025 for his brother's tuberculosis treatment. The entire principal remains unpaid as of 31st March 2026. The employer charges interest of 5% on this loan. He has no medical insurance for his brother. SBI lending rate for a similar loan on 1st April 2025 was 11%. Free education at a school owned and operated by the employer was provided to the sister of Mr. Vikram. The per-month cost of this educational benefit is estimated at ₹ 900, which the employer does not recover from Mr. Vikram. Leave Travel Concession (LTC) for a trip with his wife and three children (a 6-year-old daughter and 4-year-old twin sons) was given to Mr. Vikram. The employer reimbursed airfare (economy class) totaling ₹ 45,000 (₹ 20,000 for the adults and 25,000 as a lump sum for the children). He is eligible for availing LTC exemption under the Income Tax Act, 1961. Determine Mr. Vikram's taxable salary for the Assessment Year 2026-27, assuming he has chosen to opt out of the default tax regime under section 115BAC.

Suggested Answer and Working Notes:

Computation of Taxable Salary of Mr. Vikram for A.Y. 2026-27 as per normal provision of the Act Particulars ₹ ₹ Basic Salary [(₹ 75,000 x 8) + (₹ 85,000 x 4)] 9,40,000 Dearness allowance [50% of basic salary] 4,70,000 Employer's contribution to recognized provident fund [18% x ₹ 9,40,000] 1,69,200 Less: Exempt upto 12% of basic salary and D.A. forms part of retirement benefit [12% x ₹ 11,28,000] 1,35,360 33,840 Taxable allowances Entertainment allowance 10,000 Conveyance allowance [Exempt, since it is based on actual reimbursement for official purpose] - House rent allowance 1,92,000 Less: Least of the following exempt under section 10(13A) 91,200 1,00,800 (i) HRA received 1,92,000 (ii) Rent paid (-) 10% of salary [₹2,04,000 – 10% x ₹ 11,28,000] 91,200 (iii) 40% of salary [40% x ₹ 11,28,000] 4,51,200 Taxable Perquisite Professional tax paid by the employer [Perquisite includes any sum paid by the employer in respect of any obligation which would have been payable by the employee] 1,800 Interest on loan [Not a perquisite, since loan is for medical treatment of his brother for tuberculosis treatment assuming his brother is dependent on him] - Provision of education facility [₹ 900 x 12] 10,800 Leave travel concession 45,000 Less: Exempt 45,000 - [Mr. Vikram can avail exemption on the entire amount of ₹ 45,000 reimbursed by the employer towards leave travel concession since the leave travel concession was availed for himself, wife and three children and the journey was undertaken by economy class airfare. The restriction imposed for two children is not applicable in case of multiple birth which take place after the first child.] Gross Salary 15,67,240 Less: Deduction under section 16 Professional tax paid 2,200 Standard Deduction, lower of salary or ₹ 50,000 50,000 52,200 Taxable Salary 15,15,040

Topics: Paper 3A: Income Tax Laws

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