Income Tax Law and Practice -1

Module-1
Basic concepts of Income Tax
Income Tax Law And Practice-1
• Module No. 1: Basic Concepts of Income Tax
Introduction - Meaning of tax-, types of taxes, cannons of taxation. Brief history of Indian Income
Tax, legal framework of taxation, Important definitions, assessment, assessment year, previous year
including exceptions, assesses, person, income, casual income, Gross total income, Total income,
agricultural income, scheme of taxation. Exempted incomes of individuals undersection 10 of the
Income Tax Act, 1961.
• Module No. 2: Residential Status and Incidence of Tax
Introduction - Residential status of an individual Determination of residential status of an individual.
Incidence of tax or Scope of Total income. Problems on computation of Gross total Income of an
individual.
Module No. 3: Income from Salary
Introduction - Meaning of Salary -Basis of charge Definitions-Salary, Perquisites and profits in lieu of
salary Provident Fund -Transferred balance. Retirement Benefits Gratuity, pension and Leave salary.
Deductions and Problems on Computation of Taxable Salary.
Module No. 4: Income from House Property
Introduction Basis for charge - Deemed owners-House property incomes
exempt from tax, composite rent and unrealized rent. Annual Value -
Determination of Annual Value Deductions from Annual Value - Problems on
Computation of Income from House Property.
Module No. 5: Tax Deduction at Sources & Advance Tax Ruling Introduction
Meaning of TDS - Provisions regarding TDS, TDS to be made from Salaries
Filing of Quarterly statement - Theory and Problems; Advance Tax: Meaning
of advance tax Computation of advance tax Instalment of advance tax and
due dates. Deductions under Sections 80C, 80CCC, 80CCD, 80CCG, 80D,
80DD, 80DDB, 80E, 80G, 80GG, 80TTA and 80U as applicable to Individuals.
Introduction
• In ancient days king used to collect tax to administer his kingdom through
imposing tax such as ‘Sunka’ ; land revenue etc. Taxes are levied by Government
on their citizens to generate income for undertaking projects to boost the
economy of the country and to raise the standard of living of its citizens.
• A Tax is a compulsory financial charge levied by government on an individual or
an organization to collect revenue for public works providing the best facilities
and infrastructure. The collected fund is then used to fund different public
expenditure programs.
• The authority of the government to levy tax in India is derived from the
Constitution of India, which allocates the power to levy taxes to the Central and
State Governments.
History of Income Tax
• In India Income tax was introduced for the first time in 1860 by Sir
James Wilson in order to meet the losses sustained by the
Government on account of the Military Mutiny of 1857.
• In 1918 a new Income Tax was passed and again it was replaced by
another new act which was passed in 1922
• In constitution with the Ministry of Law finally the Income Tax Act,
1961 was passed. The Income Tax Act 1961 has been brought into
force with 1 April 1962. It applies to the whole of India.
Types of Taxes

• There are two main categories of taxes, which are further sub-divided into
other categories. The two major categories are direct tax and indirect tax.
There are also minor cess taxes that fall into different sub-categories,
Within the Income Tax Act, there are different acts that govern these taxes
• Direct Tax: Direct tax is the tax that are to be paid directly to the
Government by the individual or legal entity. Direct taxes are overlooked by
the Central Board of Direct Taxes (CBDT). Direct taxes cannot be transferred
to any other individual or legal entity.
• Indirect Tax :Taxes that are levied on services and products are called
Indirect Tax Indirect Taxes are collected by the seller of the service or
product. The tax is added to the price of the products and services. It
increases the price of the product or services. There is only one indirect tax
levied by the Government currently. It is called as Goods and Services Tax.
Definition of Basic Concepts
• 1. Assessee [Sec. 2(7)]: Any person as defined above, who is liable to pay tax or
any other sum (i.e. penalty or interest) under the Income Tax Act, 1961,
Assessee includes:
• Every person in respect of whom any proceeding has been taken for the
assessment of his income.
• Refund due to him or such other person.
• Every person who is deemed to be an assessee under the Act.
• Every person who is deemed to be an assessee in default under the Act
2. Deemed Assessee: A person may be liable not only for his own income but also
on the income of other persons. For instance
• In case of a deceased person who dies after writing the WILL the executors of the
property of deceased are deemed as an assessee.
• In case a person dies without writing his will his eldest son or other legal persons are deemed as
assessee
• In case of of a minor, lunatic or idiot having income taxable under Income tax Act , their guardian
is deemed as an assessee.
• In case of a non resident having income in India , any person acting on his behalf is deemed as an
assessee.
• Assessee-in-default: A person is deemed to be an assessee-in-default if he fails to fulfill his
statutory obligations. In case of an employer paying salary or a person who is paying interest, it is
their duty to deduct tax at source and deposit the amount of tax so collected in Government
treasury. If he fails to deduct tax at source or deducts tax but does not deposit it in the treasury,
he is known as assessee-in-default
• Person[sec2(31)
• The term "Person" has been defined under Sec2(31) of the IncomeTax Act of 1961. The definition
of "Person" is as follows:
• Individual- It refers to a natural human being whether male or female, minor or major.
• Hindu Undivided Family (HUF)- It is a relationship created due to
operation of Hindu Law’.It means a family which consists lineally
descended from a common ancestor including their wives and
unmarried daughters.

• Company-It is an artificial person registered under Indian Companies

Act 1956 or any other law.
• Firm -lt is an entity which comes into existence as a result of
Partnership Deed between persons to share profits of the business
carried on by all or any one of them. Though, a partnership firm does
not have a separate legal entity, yet it has been regarded as a separate
entity under Income Tax Act. Under Income Tax Act, 1961.
• Association of Person: or Body of individual –Co operative society are
the examples of such persons. When people combine together to carry
on a joint enterprise and they do not constitute partnership under the
law ,they are assemble as an Association of Persons.
• Local Authority: Municipality, Panchayath , Port Trust etc. are called
local authorities.
• Artificial Judicial Person: A public corporation established under
DIFFERENCE BETWEEN AOP AND BOI
• An AOP may consist of non-individuals but a BOI has to consist of individuals only.
If two or more persons (like firm, company, HUF, individual etc.) join together, it is
called an AOP. But if only individuals join together then it is called a BOI. For
example, where X, ABC Ltd. and PQ & Co. (A firm) join together for a particular
venture then they may be referred to as an AOP. If X, Y and Z join together for a
particular venture, but do not constitute a firm then they may be referred to as a
body of individuals.
ASSESSMENT YEAR [SEC.2(9)]
• Assessment year :
Assessment year defined as “ the period of 12 months starting from 1st April and
ending on 31st March of every year”
In other words ‘Assessment year’ (A.Y) means income of previous year of an
assessee is taxed during the next following year is called of the A.Y.
Example: If the previous year 2020-21 ,then 2021-22 will be the A.Y. It is the year in
which tax is payable by the an assessee on the income of the P.Y.
Previous year [sec3]
• Previous Year [Sec.3]
Previous year (P.Y.) is the financial year immediately preceding the Assessment year. In
other words, the year in which income is earned by the assessee Income earned during the
P.Y shall be assessable in the A.Y.
i.e. if the A.Y is 2021-22, then the P.Y shall be 2020-21. It is the year in which income
received or accrued or earned by the assessee. P.Y is also to be called as Financial Year (F.Y.)
Exceptions for section 3:
• Shipping business of non resident[sec.172]
• Persons Leaving India [sec.174]
• Bodies formed for short term duration[sec 174A] and discontinued business[SEC.176]
• Person intends to transfer property to avoid tax [sec.175]
INCOME UNDER SEC2(24)
• Sec. 2(24)]: The term income defined under this Act is not an exclusive but it is inclusive. But the said
section states following are the incomes under the IT Act.
• Profits or gains of business or profession.
• Dividend.
• Voluntary Contribution received by a Charitable / Religious Trust or University/Education Institution or
Hospital
• Value of perquisite or profit in lieu of salary taxable u/s 17 and special allowance or benefit specifically
granted either to meet personal expenses or for performance of duties of an office or an employment
profit.
• Interest, salary, bonus, commission or remuneration earned by a partner of a Firm from such firm.
• Capital Gains chargeable u/s 45.
• Profits and gains from the business of banking carried on by a cooperative society with its members.
• Winnings from lotteries, crossword puzzles, races including horse races, card games and other games
of any sort or from gambling or betting of any form or nature whatsoever.
• Sums received by an assessee from his employees towards welfare
fund contributions such as Provident Fund, Superannuation Fund etc.
• Gift as defined u/s 56 (2) (vi) (w.e.f. A.Y 2008-2009). Any sum of
money exceeding*50, 000, received by an Individual or a HUF from
any person during the previous year without consideration on or after
1.4.2007, then the whole of aggregate of such sums will be taxable.
Gross total income:
• As the name suggests gross total income is the aggregate of all the
income earned during a specified period. According to sec 14 of the
Income Tax act 1961, the income of a person or an assessee can be
categorized under these 5 heads.
❑Income from salary
❑Income from House Property
❑Profit and Gains of Business and Profession
❑Capital Gain
❑Income From Other Sources
Total Income or Net Total Income
Total Income or Taxable Income [sec. 2(45)]:
Total income means GTI as mentioned above and reduced to the extent of
deductions available U/S 80C to 80U. it is also termed as Taxable Income. Taxable
income is the amount of income used to calculate how much tax an individual or a
company owes to the government in a given tax year. It is generally described as
gross income or adjusted gross income (which is minus any deductions or
exemptions allowed in that tax year)
Assessment:
Assessment [Sec. 2(8)]: Assessment means computation of total income, taxable
payable and procedure of imposing tax liability. Assessment also includes re-
assessment. There are seven kinds of assessment - Self assessment, provisional
assessment, regular assessment, best judgment assessment, re-assessment .
Casual Income:
It is an income which is earned by chance and not likely to occur again
in a year. This earning is neither anticipated nor provided for in any
agreements.
For example, incomes from winning lotteries, card games, horse races,
crossword puzzles or any other games come under casual incomes.
AGRICULTURAL INCOME SECTION 2(1A)
• It is the total revenue generated by an individual or entity by executing agricultural activities on
identified agricultural land.sec2(1A) of the Income tax Act of 1961 defines agricultural income
under the following activities.
• Revenue or rent generated through activities executed on agricultural land situated in India for
agricultural purposes
• Income or revenue generated by the commercial sale of produce grown on agricultural land
• Income or revenue generated by leasing or renting buildings on or around agricultural land (the
tenant should be a farmer or cultivator and use the building for a warehouse/storeroom,
residential space or outhouse)
EXCEPTIONS
• If a person sells processed produce without carrying out any
agricultural or processing operations, the income would not be
regarded as agricultural income.
Example Canning of fruits.
• Income from trees that have been cut and sold as timber is not
considered as an agricultural income since there is no active
involvement in operations like cultivation and soil treatment.
PARTIAL INTEGRATION OF AGRICULTURAL INCOME WITH NON
AGRICULTURAL INCOME

• There is no tax on agricultural income but if an assessee has non-agricultural income as well as
agricultural income, such agricultural income is included in Total Income for the purpose of
computation of Income-tax on non-agricultural income. This is also known as partial integration of
agricultural income with non-agricultural income or indirect way of taxing agricultural income.
• Applicability Partial integration of Agricultural income: Individuals, HUFS, AOPS, BOIS an artificial
juridical persons have to compulsorily calculate their taxable income using this method.
• Thus Company, firm/LLP, co-operative society and local authority are excluded from using this
method.
• Conditions: This method is applicable when the following conditions are met:
• Net agricultural income is greater than 5,000 during the year;
• Non-agricultural income is
• Greater than 2,50,000 for individuals below 60 years of age and all other applicable persons
• Greater than3,00,000 for individua between 60 - 80 years of age
• Greater than 5,00,000 for individuals above 80 years of age.
EXAMPLES OF AGRICULTURAL INCOME
• Income from growing trade or commercial products like jute, cotton, etc. is an
agro income.
• Income from growing flowers and creepers is an Agro income.
• Plants sold in pots are an agro income provided basic operations are performed.
• Remuneration and interest to partner: Any remuneration (salary, commission,
etc.) received by a partner from a firm engaged in agricultural operation is an
agro income. Interest on capital received by a partner from a firm, engaged in
agricultural operation is an agro income.
• Any fee derived from land used for grazing of cattle, being used for agricultural
operation is an agro income
• Any income derived from saplings or seedlings grown in a nursery shall be
deemed to be agricultural income.
EXAMPLES OF NON AGRICULTURAL INCOME
• Salary received by an employee from any business (having agricultural income) is non-agro
income.
• Dividend received from a company engaged in agricultural operation is non-agro income.
• Income from salt produced by flooding the land with sea-water is non-agro income.
• Income from fisheries, poultry farming, dairy farming, butter & cheese making, etc. is non-agro
income.
• Breeding & rearing of livestock is non-agro income
• Interest received by a moneylender in the form of agricultural produce is non-agro income.
• .Royalty income from mines is non-agro income.
• Remuneration to a Director or Managing Director from a company engaged in agricultural
business is non-agro income.
• Income earned by a cultivator from conversion of sugarcane (raised on own land) to jaggery is
non-agro income to the extent to which income is related to such conversion only. This is because
sugarcane itself is marketable
• Income from a land situated outside India is non-agro income
TREATMENT OF PARTLY AGRICULTURAL AND PARTLY NON-AGRICULTURAL
INCOME

Particulars of business Agricultural (Exempt portion) Non agricultural (Taxable) portion

Growing and manufacturing of tea 60% 40%
Growing and manufacturing of 65% 35%
rubber
Growing and manufacturing of 75% 25%
coffee
Growing and manufacturing of 60% 40%
coffee grown, cured, roasted and
grounded
EXEMPTED INCOMES OF INDIVIDUALS (SEC. 10
Any income that an individual acquires or earns during the course of a financial year that is deemed
to be non taxable is referred to as 'Exempt Income'. As per the Income Tax Act, there are specific
kinds of income that are exempt from tax as long as these types of income fulfill the guidelines and
provisions outlined in the Act. Incomes which are exempted from tax are listed under Section 10 of
the Income Tax Act. This section contains a list of income that is deemed or considered to be free
from taxation.

1. Agricultural income [Sec. 10(1)]: As per section 10(1), agricultural income earned by the
taxpayer in India is exempt from tax. .
2. Amount received by a member of HUF from HUF [Sec. 10(2)]: As per section 10(2),amount
received out of family income, or in case of impartible estate, amount received out of income
of family estate by any member of such HUF is exempt from tax.
3. Share of profit received by a partner from partnership firm [Sec..10 (2A)]: As per
section10(2A), share of profit received by a partner from a firm is exempt from tax in
the hands of the patner.
4.Certain interest to Non-residents [Sec. 10(4)]: As per section
10(4)(1), in the case of a non-resident any income by way of interest on
certain notified securities or bonds (including income by way of
premium on the redemption of such bonds) is exempt from tax.
5. Interest on notified savings certificates [Sec. 10(4B)]:As per section
10(4B), in the case of an individual, being a citizen of India or a person
of Indian origin, who is a non-resident, any income by way of interest
on notified savings certificates (subscribed in convertible foreign
exchange) issued before the 1st day of June, 2002 by the Central
Government is exempt from tax.
Leave Travel Concession [Sec. 10(5)]:
Leave travel allowance/concession is an allowance given by an employer to his employee for travelling in India
with or without family. The amount received as LTC is available as exemption under section 10(5) and rule 2B of
Income Tax Act subject to certain conditions to all employees (i.e., Indians as well as to foreigners),
Exemption is available in respect of value of any travel concession or or due to the employee from his
employer (including former employer) for himself and his family members in connection with his proceeding
on leave to any place in India.
Conditions and Calculation for Exemption of LTC
The amount which is paid as fare for travel via air, rail or bus is allowed as exemption subject to maximum
limits. The amount which is paid for other expenses such as hotel room charges, food expenses etc are not
allowed. Also travel made via private car or hired cab is not eligible.
The maximum amount of deduction is the leave travel allowance actually received.
Exemption is not allowed for expenses made on international travel.
Exemption is allowed for expenses made on travel of himself or family members only. So if a person pays for
travel of his/her friends or distant relative then exemption is not allowed.)
Meaning of Family: Spouse (husband/wife), children and also dependent parents, brothers and sisters.
• Exemption is allowed only when the person claiming deduction is also travelling. If only family is travelling
then deduction is not allowed.
• The exemption relating to LTC shall not be available to more than two surviving children of an individual
born after 1.10.1998. However, this rule will not apply in respect of children born before 1.10.1998 and also
in case of multiple birth after one child.
• If such allowance in received from former employer after retirement or termination of service then also LTC
exemption can be taken.
• If an employee receives LTC on per year basis and he doesn't utilize that amount in a year then the amount is
carried forward to next year.
• For example, an employee receives Rs.10,000 per year he doesn't utilize that amount in a year, now Rs.
20,000 can be allowed as deduction in next year if he uses such amount as per above provisions.
• Exemption is allowed only for one travel within one calendar year
• In case the LTC is encashed without performing the journey, the entire amount received by the employee
would be taxable ,
• The Concession is not available to an employee who has exercised an option to pay income tax under new
income tax regime
7. Remuneration received by specified diplomats and their staff [Sec. 10(6)(ii)]: As per section
10(6) (ii), in case of an individual who is not a citizen of India, remuneration received by him as an
official (by whatever name called) of an embassy, high Commission, legation, Commission, consulate
or trade representative of a foreign State, or member of the staff of any of that official is exempt
from tax, if corresponding Indian official in that foreign country enjoys a similar exemption.
8.Salary of a foreign employee and Non-resident member of a crew [Sec.10(6)(vi),(viii)]: As per
section 10(6)(vi), the remuneration received by a foreign national as an employee of a foreign
enterprise for services rendered by him during his stay in India is exempt from tax, provided the
following conditions are fulfilled-The foreign enterprise is not engaged in any trade or business in
India;
His stay in India does not exceed in the aggregate a period of 90 days in such year;
9. Allowances/ perquisites to Government employee outside India [Sec 10(7)]:
As per section 10(7), any allowances or perquisites paid or allowed as such outside India by the
Government to a citizen of India for rendering service outside India is exempt from tax
 Death cum Retirement Gratuity [Sec.10(10)]:
In general, gratuity means gift or present made by employer for services rendered by his employee. Gratuity is
given by the employer to his/her employee on his/her retirement or his/her family members on his/her death
for the services rendered by him/her during the period of employment
A person is eligible to receive gratuity only if he has completed minimum five years of service with an
organisation.
However, it can be paid before the completion of five years at the death of an employee or if he has become
disabled due to accident or disease.
Payment of Gratuity Act, 1972 enactment made employers legal obligation for payment of gratuity to
employees. So, gratuity received shall be considered as income to the employee. The following provisions U/S
10(10) of the IT Act states the exemption limit:

Government Employee: Section 10(10) (i) grants full exemption to gratuity received by all categories of
Government employees or employees of local authority.
Non-Govt. Employee: In the case of non-government employees, it is exempt up to specified limit. For the
purpose of calculation of taxable gratuity, the Payment of Gratuity Act, 1972has divided non-government
employees into two categories:
i. Non-Govt. Employee covered by the Payment of Gratuity Act, 1972.
ii. Non-Govt. Employee not covered by the Payment of Gratuity Act, 1972.
Non-Govt. Employees Covered Under the Payment of Gratuity Act, 1972 u/s 10(10) (ii):
Government Employee: Section 10(10) (i) grants full exemption to gratuity received
by all categories of Government employees or employees of local authority.
Non-Govt. Employee: In the case of non-government employees, it is exempt up to
specified limit. For the purpose of calculation of taxable gratuity, the Payment of
Gratuity Act, 1972has divided non-government employees into two categories:
i. Non-Govt. Employee covered by the Payment of Gratuity Act, 1972.
ii. Non-Govt. Employee not covered by the Payment of Gratuity Act, 1972.
Non-Govt. Employees Covered Under the Payment of Gratuity Act, 1972 u/s 10(10)
(ii):
Every individual - working in a factory, mine, oil field, port, railways, plantation,
shops &establishments, or educational institution having 10 or more employees on
any day in the preceding12 months - is entitled to gratuity. Once the Act becomes
applicable to an employer, even if th e number of employees goes below 10,
gratuity is still applicable
Exemption in respect of gratuity in case of employees covered by the
Payment of Gratuity Act, 1972 will be lower of following:
• 15 days salary based on last drawn salary for each completed year of
service or part thereof in excess of 6 months
• Maximum amount specified, i.e., 20,00,000 or
• Gratuity actually received.
NOTE

• 15 days' salary = Salary last drawn x 15/26 days,

• Salay =Basic Salary for this purpose will include Basic Salary and Dearness
Allowance (whether as per terms of employment or not) only. Items other than
basic salary and dearness allowance are not to be considered.
• Part of the year, in excess of 6 months, shall be taken as one full year: Completed
year of service includes any fraction in excess of 6 months. (e.g. 4 years 9 months
will be treated as5 years; 4 years 5 months will be treated as 4 years and 4 years 6
months will be treated as4 years).
• If the employee receives gratuity from any former employers in the same
previous year or in any of the earlier previous years, the amount of such gratuity
received and exempted from tax in the earlier previous years, should be deducted
from the prescribed maximum limit of20,00,000 and only the balance remaining
thereafter should be taken as the maximum limit for the current previous year.
COMPUTATION OF TAXABLE GRATUITY
• Sum of gratuity received XXX
Less: Least of the following
1. Actual amount of gratuity received or XXX
2. Last salary ( BASIC+ DA)* Number of years of employment*
15/26 or XXX
3. Statutory limit 2000000 XXX

Taxable amount of gratuity xxx

Non Government Employee not Covered By
the Payment Of Gratuity Act
• There is no law that restricts an employer from paying gratuity to his employees, even if
the organization is not covered under the Payment of Gratuity Act. The amount of
gratuity payable to the employee can be calculated based on half month's salary for each
completed year.
• Gratuity received at the time of termination of service by non-government employee
being not covered under the Payment of Gratuity Act shall be exempted from tax u/s
10(10)(iii) to the extent of lower of the following:
• Actual Gratuity received;
• 20,00,000; and
• 1/2 x Completed year of service x Average Salary p.m.
• Notes: a. While calculating completed year of service ignore any fraction of the year. (e.g.
5 years 9months will be treated as 5 years only)
• Average salary means = Basic Salary +DA ( Part of retirement benefit) +Comission
( 10 month salary)
Commutation of Pension sec.10(10A)
• Pension means a periodical payment received by an employee after his
retirement. On certain occasions, employer allows to withdraw a lump sum
amount as the present value of periodical pension. When pension is
received periodically by employee, it is known as Uncommuted pension.
• On the other hand, pension received in lump sum is known as Commuted
pension. Such lump sum amount is determined considering factors like the
age and health of the recipient, rate of interest, etc.
• Un-commuted Pension: It is a periodical payment of pension e.g. monthly
payment of pension after the retirement of employee. And it is fully
taxable in the hands of Govt. and Non-Govt. employees.
• Commuted Pension: Sometimes employees will receive the pension
amount in lump-sum instead of periodical payment called commuted
pension.
Government Employee Fully Exempt u/s 10(10A)

Non govt Employee who has to be received Amount received

Gratuity Less: 1/3 of full value of commuted pension

Non Govt Employee who has not received Amount received

Gratuity Less: ½ of Full value of Commuted pension.
EARNED LEAVE SALARY
• Employees will have provided with leave for various purpose while they
are rendering services to his employer. Generally ,various forms of leaves
are casual leave, earned leave, restrictive holiday leaves etc.
• For Income Tax purpose consider only earned leave. Earned Leave means
leaves available for employee can be utilized for the personal purpose or
else if un-utilized such leaves, can been cashed and to be considered as
income to employee. But subjected to the following provisions;
• Leave encashment while in service is fully taxable as income of previous
year in which it is en-cashed whether an assessee is Govt. or Non- govt.
employee.
• .Leave encashment on retirement: if an individual receives leave
encashment on his retirement, then the amount received will be eligible
for exemption. The amount of exemption is based on his employment:
Particulars Amt Amt
Amount received on Leave Encashment xxx
Less: Exemption under section 10(10A)
i. Actual amount received xxx
ii. Approved period of earned leave to his a/c*
Avg monthly salary xxx
iii. 10 months*Avg monthly salary xxx
iv. Maximum limit 300000 xxx
Taxable Leave salary xxx
House Rent Allowance [Sec. 10(13A)]
HRA is an allowance paid by employer to his employee to meet expenditure to be incurred on
payment of rent for residential accommodation. HRA shall be exempted to the extent of least of the
following:
1. Actual HRA received by the assessee, OR
2. Excess of rent paid by the employee over 10% of salary, OR Rent paid - 10% of Salary
3. In case of employee resides at metropolitan cities such as Mumbai, Delhi, Kolkata or Chennai
then 50% of salary.
Other than metropolitan cities 40% of salary.
Note: In case of employee residing at own house or he is not paying any rent, and then full amount
of HRA received is taxable.
If rent paid exceeds Rs. 1 lakh per annum, it is mandatory for the employee to report PAN ofthe
landlord to the employer.
For the purpose computation of HRA 'Salary' means: Basic salary+DA in terms of employment
(Dearness Pay) + Commission based on fixed percentage of turnover, but does not include any
allowances, bonus and perquisites.