Mr. Sohan, an employee of XYZ Ltd. is posted at Mumbai. He was appointed on 1st April 2025 on basic salary of ₹ 60,000. On every 1st January he gets…

CA Intermediate · Taxation · MTP · September 2026
Mr. Sohan, an employee of XYZ Ltd. is posted at Mumbai. He was appointed on 1st April 2025 on basic salary of ₹ 60,000. On every 1st January he gets the increment of 3% on his basic pay. Details of his other income for the previous year 2025-26 are as follows: (i) Dearness allowance: 40% of basic salary (60% forms part of pay for retirement benefits) (ii) Telephone allowance @₹ 500 per month (iii) Both Mr. Sohan and the company contribute 15% of basic salary to RPF. Interest accrued in this Fund@12% p.a. amounted to ₹ 25,800. (iv) The company has provided him with the rent free unfurnished accommodation in Mumbai owned by the company. (v) The salary of ₹ 2,500 p.m. of domestic servant is reimbursed by the company. (vi) Sohan has used his own motor car of 1.8 litre engine capacity for both official and personal purposes. The running and maintenance costs of ₹50,000 are borne by the company. (vii) Professional tax paid ₹ 2,500 of which ₹ 1,500 was paid by the employer. (viii) During the year 2024-25, Mr. Sohan gifted a sum of ₹ 6,00,000 to Mrs. Sohan. She started a business by introducing such amount as her capital. On 1st April, 2025, her total investment in business was ₹ 10,00,000. During the previous year 2025-26, she has suffered a loss of ₹ 1,20,000 from such business. Determine the gross total income of Mr. Sohan for the A.Y. 2026-27 under normal provisions of the Act.

Suggested Answer and Working Notes:

Computation of gross total income of Mr. Sohan for the A.Y.2026-27 Particulars Amount (₹) Amount (₹) I Salaries Basic Salary (₹ 60,000 x 9 + ₹ 61,800 x 3) 7,25,400 Dearness Allowance (40% of ₹ 7,25,400) 2,90,160 Telephone allowance (₹ 500 x 12) 6,000 Employer's contribution to RPF (15% of ₹7,25,400) 1,08,810 Less: Exempt [12% of salary i.e., 12% x 8,99,496 (7,25,400 + 60% of 2,90,160) 1,07,940 870 Interest accrued in the RPF@12% 25,800 Less: Exempt 9.5% p.a. 20,425 5,375 Value of Rent Free accommodation 10% of salary in respect of the period of occupation (-) rent recovered from employee 10% (7,25,400 + 60% of 2,90,160 +6000) 90,550 Reimbursement of salary of domestic servant [₹2,500 x 12] 30,000 Perquisite value of motor car Running and maintenance costs incurred by employer 50,000 Less: Specified as per Rule 3 [₹ 2,400 x 12] 28,800 21,200 Professional tax paid by employer 1,500 Gross Salary 11,71,055 Less: Deduction under section 16 Standard deduction 50,000 Professional tax paid 2,500 52,500 Taxable Salary 11,18,555 II Profit and gains from business or profession Where the amount of Mr. Sohan (₹ 6 lakh, in this case) is invested by Mrs. Sohan in a business as her capital, proportionate share of profit or loss, as the case may be, computing taking into account the value of the investment as on 1.4.2025 to the total investment in the business (₹ 10 lakhs) would be included in the income of Mr. Sohan [loss of ₹1,20,000 x 6/10] (72,000) [Business loss of ₹ 72,000 cannot be set off against salary income. It has to be carried forward to next year] Gross Total Income 11,18,555

Topics: Paper 3A: Income Tax Laws

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