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Short-Term Capital Gain (STCG)

Topic: Capital GainsChapter: Chapter 2
STCG=Full Value of Consideration−Expenditure incurred in connection with transfer−Cost of Acquisition−Cost of ImprovementSTCG = \text{Full Value of Consideration} - \text{Expenditure incurred in connection with transfer} - \text{Cost of Acquisition} - \text{Cost of Improvement}
Used when a capital asset is held for a period less than the specified threshold (Short-term asset). It represents the profit after deducting all direct costs and improvements.

Long-Term Capital Gain (LTCG)

Topic: Capital GainsChapter: Chapter 2
LTCG=Full Value of Consideration−Expenditure incurred in connection with transfer−Indexed Cost of Acquisition−Indexed Cost of ImprovementLTCG = \text{Full Value of Consideration} - \text{Expenditure incurred in connection with transfer} - \text{Indexed Cost of Acquisition} - \text{Indexed Cost of Improvement}
Used when a capital asset is held for a period exceeding the specified threshold (Long-term asset). It incorporates indexation to account for inflation.

Indexed Cost of Acquisition (ICOA)

Topic: Capital GainsChapter: Chapter 2
ICOA=Cost of Acquisition×CII of Year of TransferCII of Year of Acquisition\text{ICOA} = \text{Cost of Acquisition} \times \frac{\text{CII of Year of Transfer}}{\text{CII of Year of Acquisition}}
This formula adjusts the original purchase price to current value using the Cost Inflation Index (CII) to mitigate the impact of inflation on long-term assets.

Indexed Cost of Improvement (ICOI)

Topic: Capital GainsChapter: Chapter 2
ICOI=Cost of Improvement×CII of Year of TransferCII of Year of Improvement\text{ICOI} = \text{Cost of Improvement} \times \frac{\text{CII of Year of Transfer}}{\text{CII of Year of Improvement}}
Used to adjust the cost of capital improvements made to an asset to reflect their value in the year of sale.

Net Capital Gain

Topic: Capital GainsChapter: Chapter 2
Net Capital Gain=∑Capital Gains−∑Capital Losses\text{Net Capital Gain} = \sum \text{Capital Gains} - \sum \text{Capital Losses}
The final taxable amount after setting off current year capital losses against current year capital gains (subject to STCG/LTCG rules).

Net Capital Gain (after exemptions)

Topic: Capital GainsChapter: Chapter 2
Net Capital Gain=Gross Capital Gain−Exemptions under Sections 54, 54B, 54EC, 54F, etc.\text{Net Capital Gain} = \text{Gross Capital Gain} - \text{Exemptions under Sections 54, 54B, 54EC, 54F, etc.}
Calculates the final taxable capital gain after deducting eligible exemptions provided under various sections of the Income Tax Act, 1961, such as those for reinvestment in specified assets.

Computation of Taxable Business Income

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Taxable PGBP=Net Profit as per P&L A/c+Inadmissible Expenses−Allowable Expenses−Incomes taxable under other heads−Profits not chargeable to tax\text{Taxable PGBP} = \text{Net Profit as per P\&L A/c} + \text{Inadmissible Expenses} - \text{Allowable Expenses} - \text{Incomes taxable under other heads} - \text{Profits not chargeable to tax}
The fundamental starting point for PGBP computation. It involves adjusting the accounting profit by adding back expenses disallowed under Sections 30 to 44DB and subtracting incomes that belong to other heads (like House Property or Capital Gains).

Depreciation Calculation (Block of Assets Method)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Closing WDV=Opening WDV+Additions during year−Money value of assets sold/discarded\text{Closing WDV} = \text{Opening WDV} + \text{Additions during year} - \text{Money value of assets sold/discarded}
Used to determine the Written Down Value (WDV) of a block of assets at the end of the previous year. Depreciation is then calculated on this closing WDV based on the prescribed rates.

Depreciation on Additional Assets (Put to Use < 180 days)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Depreciation=Applicable Rate×12×Value of asset put to use for <180 days\text{Depreciation} = \text{Applicable Rate} \times \frac{1}{2} \times \text{Value of asset put to use for } < 180 \text{ days}
If an asset is acquired and put to use for less than 180 days in the year of acquisition, only 50% of the normal depreciation rate is allowed.

Presumptive Taxation (Section 44AD)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Gross Turnover×Prescribed Rate (e.g., 8% or 6%)\text{Presumptive Income} = \text{Gross Turnover} \times \text{Prescribed Rate (e.g., 8\% or 6\%)}
For eligible small businesses, income is presumed to be 8% of turnover (or 6% for digital transactions) without the need to maintain detailed books of accounts.

Section 44ADA (Presumptive Income for Professionals)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Gross Receipts×50%\text{Presumptive Income} = \text{Gross Receipts} \times 50\%
Applicable to specified professionals where income is deemed to be 50% of the total gross receipts.

Computation of Taxable PGBP Income (General Method)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Taxable PGBP Income=Net Profit (as per P&L Account)+Expenses Disallowed (IT Act)−Expenses Allowed (not debited)+Incomes Taxable under PGBP (not credited)−Incomes Taxable under Other Heads (credited)−Exempt Incomes (credited)\text{Taxable PGBP Income} = \text{Net Profit (as per P\&L Account)} + \text{Expenses Disallowed (IT Act)} - \text{Expenses Allowed (not debited)} + \text{Incomes Taxable under PGBP (not credited)} - \text{Incomes Taxable under Other Heads (credited)} - \text{Exempt Incomes (credited)}
This formula calculates the taxable income under the head 'Profits and Gains of Business or Profession' by adjusting the Net Profit as per the Profit & Loss Account for various items as per the Income Tax Act, 1961. Key variables include Net Profit, expenses disallowed/allowed as per IT Act, and incomes taxable under other heads or exempt.

Written Down Value (WDV) of a Block of Assets

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
WDVclosing=WDVopening+Cost of Assets Acquired−Sale Price of Assets Sold\text{WDV}_{\text{closing}} = \text{WDV}_{\text{opening}} + \text{Cost of Assets Acquired} - \text{Sale Price of Assets Sold}
This formula calculates the Written Down Value (WDV) of a block of assets at the end of the previous year, which serves as the base for calculating depreciation. WDV_opening is the WDV at the beginning of the year.

Depreciation Calculation (General)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Depreciation Amount=WDVfor depreciation×Applicable Depreciation Rate\text{Depreciation Amount} = \text{WDV}_{\text{for depreciation}} \times \text{Applicable Depreciation Rate}
This formula determines the amount of depreciation allowable for a block of assets for the previous year. The WDV_for depreciation is the WDV of the block at the end of the previous year, after considering additions and deletions during the year, but before deducting the current year's depreciation.

Presumptive Income u/s 44AD (Eligible Business)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Gross Receipts/Turnover×Applicable Rate\text{Presumptive Income} = \text{Gross Receipts/Turnover} \times \text{Applicable Rate}
This formula calculates the presumptive income for eligible businesses opting for Section 44AD. The applicable rate is 8% of gross receipts/turnover, or 6% for the amount received through digital modes (bank draft, cheque, electronic clearing system, or other prescribed electronic mode) during the previous year or before the due date of filing return.

Presumptive Income u/s 44ADA (Eligible Profession)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Gross Receipts×50%\text{Presumptive Income} = \text{Gross Receipts} \times 50\%
This formula calculates the presumptive income for eligible professionals opting for Section 44ADA. The income is deemed to be 50% of the total gross receipts from the profession.

Presumptive Income u/s 44AE (Heavy Goods Vehicle)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Rs. 1,000×Gross Vehicle Weight (in tons)×Number of Months\text{Presumptive Income} = \text{Rs. 1,000} \times \text{Gross Vehicle Weight (in tons)} \times \text{Number of Months}
This formula calculates the presumptive income for an assessee engaged in the business of plying, hiring, or leasing goods carriages, specifically for a Heavy Goods Vehicle (HGV). Income is calculated per month or part of a month for which the vehicle is owned by the assessee.

Presumptive Income u/s 44AE (Other than Heavy Goods Vehicle)

Topic: Profits and Gains of Business or Profession (PGBP)Chapter: Chapter 2
Presumptive Income=Rs. 7,500×Number of Months\text{Presumptive Income} = \text{Rs. 7,500} \times \text{Number of Months}
This formula calculates the presumptive income for an assessee engaged in the business of plying, hiring, or leasing goods carriages, specifically for a vehicle other than a Heavy Goods Vehicle (HGV). Income is calculated per month or part of a month for which the vehicle is owned by the assessee.

Tax Deducted at Source (TDS) Calculation

Topic: TDS and TCSChapter: Chapter 2
\text{TDS Amount} = \text{Gross Amount of Payment} \times \frac{\text{Applicable Rate (%) }}{100}
The amount of tax to be deducted from the total payment made to a payee. The rate depends on the specific section (e.g., 194C, 194J, 194I) and the nature of the transaction.

TDS in case of Non-Furnishing of PAN

Topic: TDS and TCSChapter: Chapter 2
TDS Amount=Gross Amount of Payment×max⁡(Applicable Rate,20)%\text{TDS Amount} = \text{Gross Amount of Payment} \times \max\left(\text{Applicable Rate}, 20\right)\%
If the deductee fails to provide their Permanent Account Number (PAN), the tax must be deducted at the higher of the specified rate or 20%.

Tax Collected at Source (TCS) Calculation

Topic: TDS and TCSChapter: Chapter 2
\text{TCS Amount} = \text{Sale Consideration} \times \frac{\text{Applicable Rate (%) }}{100}
The amount to be collected by the seller from the buyer at the time of sale for specific goods/transactions (e.g., Section 206C).

TCS in case of Non-Furnishing of PAN

Topic: TDS and TCSChapter: Chapter 2
TCS Amount=Sale Consideration×max⁡(Applicable Rate,5)%\text{TCS Amount} = \text{Sale Consideration} \times \max\left(\text{Applicable Rate}, 5\right)\%
If the buyer fails to provide a PAN, the collection rate is generally higher (often 5% or as specified by the relevant section) compared to the normal rate.

TDS/TCS Amount Calculation

Topic: TDS and TCSChapter: Chapter 2
TDS/TCS Amount=Gross Payment/Receipt×Applicable Rate\text{TDS/TCS Amount} = \text{Gross Payment/Receipt} \times \text{Applicable Rate}
Calculates the amount of tax to be deducted at source (TDS) or collected at source (TCS) by multiplying the gross payment or receipt (exceeding the threshold, if any) by the prescribed rate as per the Income Tax Act, 1961.

Net Payment/Receipt to Payee/Collector

Topic: TDS and TCSChapter: Chapter 2
Net Payment/Receipt=Gross Payment/Receipt−TDS/TCS Amount\text{Net Payment/Receipt} = \text{Gross Payment/Receipt} - \text{TDS/TCS Amount}
Determines the actual amount received by the payee after the deduction of TDS, or the net amount collected by the collector after TCS, which is then remitted to the government.

Interest for Late Deduction of TDS/TCS

Topic: TDS and TCSChapter: Chapter 2
Interest=TDS/TCS Amount×1%×Number of Months or Part Thereof\text{Interest} = \text{TDS/TCS Amount} \times 1\% \times \text{Number of Months or Part Thereof}
Calculates the interest payable by the deductor/collector for failure to deduct or collect tax at source, or for deducting/collecting at a lower rate. This interest is charged from the date the tax was deductible/collectible until the date it was actually deducted/collected.

Interest for Late Payment of TDS/TCS

Topic: TDS and TCSChapter: Chapter 2
Interest=TDS/TCS Amount×1.5%×Number of Months or Part Thereof\text{Interest} = \text{TDS/TCS Amount} \times 1.5\% \times \text{Number of Months or Part Thereof}
Calculates the interest payable by the deductor/collector for failure to pay the deducted/collected tax to the government within the prescribed due date. This interest is charged from the date the tax was deducted/collected until the date it was actually paid to the government.

Total TDS/TCS (including Surcharge and Cess)

Topic: TDS and TCSChapter: Chapter 2
Total TDS/TCS=(TDS/TCS Amount+Surcharge)+Health and Education Cess\text{Total TDS/TCS} = (\text{TDS/TCS Amount} + \text{Surcharge}) + \text{Health and Education Cess}
Calculates the total tax to be deducted/collected, including applicable surcharge (if the gross payment or income exceeds specified monetary limits, particularly for non-residents or certain types of payments) and Health and Education Cess (typically 4% on the tax plus surcharge). The applicability of surcharge and cess depends on the nature of payment and the status of the payee.

Gross Annual Value (GAV)

Topic: Income from House PropertyChapter: Chapter 2
GAV=max⁡(Expected Rent,Actual Rent Received/Receivable)\text{GAV} = \max(\text{Expected Rent}, \text{Actual Rent Received/Receivable})
The GAV is the higher of the Expected Rent (Fair Rent or Municipal Value, whichever is higher, but restricted to Standard Rent) and the Actual Rent received or receivable (after adjusting for unrealized rent).

Net Annual Value (NAV)

Topic: Income from House PropertyChapter: Chapter 2
NAV=GAV−Municipal Taxes Paid by Owner\text{NAV} = \text{GAV} - \text{Municipal Taxes Paid by Owner}
The NAV is calculated by deducting municipal taxes from the Gross Annual Value, provided such taxes are actually paid by the owner during the previous year.

Income from House Property

Topic: Income from House PropertyChapter: Chapter 2
Taxable Income=NAV−Standard Deduction (u/s 24a)−Interest on Borrowed Capital (u/s 24b)\text{Taxable Income} = \text{NAV} - \text{Standard Deduction (u/s 24a)} - \text{Interest on Borrowed Capital (u/s 24b)}
This is the final step to arrive at the taxable income. It involves subtracting the statutory deduction and the interest paid on loans taken for the property.

Standard Deduction (Section 24a)

Topic: Income from House PropertyChapter: Chapter 2
Standard Deduction=30%×NAV\text{Standard Deduction} = 30\% \times \text{NAV}
A flat deduction of 30% of the Net Annual Value is allowed to cover repairs and maintenance, regardless of actual expenditure incurred.

Interest on Borrowed Capital (Section 24b)

Topic: Income from House PropertyChapter: Chapter 2
Interest Deduction=Interest Paid on Loan for Purchase/Construction/Repair/Renovation\text{Interest Deduction} = \text{Interest Paid on Loan for Purchase/Construction/Repair/Renovation}
Deduction is allowed for interest on capital borrowed for the property. For let-out property, there is no limit, but for self-occupied property, it is capped at $\text{Rs. 2,00,000}\text{ or } $\text{Rs. 30,000}\text{ depending on conditions}.

Expected Rent (ER)

Topic: Income from House PropertyChapter: Chapter 2

\text{ER} = \begin{cases} \text{Max}(\text{Municipal Value}, \text{Fair Rent}) & \text{if Standard Rent is not applicable} \ \text{Min}(\text{Max}(\text{Municipal Value}, \text{Fair Rent}), \text{Standard Rent}) & \text{if Standard Rent is applicable} \end{cases}

Calculates the Expected Rent, which is a component of Gross Annual Value. It compares Municipal Value (MV), Fair Rent (FR), and Standard Rent (SR) as per rent control laws. MV is the rent determined by municipal authorities, FR is the rent fetched by similar properties in the same locality, and SR is the maximum rent that can be legally charged.

Gross Annual Value (GAV) for Let-out Property (LOP)

Topic: Income from House PropertyChapter: Chapter 2
GAVLOP=Max(Expected Rent,Actual Rent Received/Receivable)\text{GAV}_{\text{LOP}} = \text{Max}(\text{Expected Rent}, \text{Actual Rent Received/Receivable})
Determines the Gross Annual Value for a property that is let out. It is generally the higher of the Expected Rent (ER) and the Actual Rent Received/Receivable (ARR). A special rule applies for vacancy: if ARR is less than ER solely due to vacancy, then GAV is taken as ARR. Otherwise, the higher of ER and ARR is the GAV.

Gross Annual Value (GAV) for Self-Occupied Property (SOP)

Topic: Income from House PropertyChapter: Chapter 2
GAVSOP=0\text{GAV}_{\text{SOP}} = 0
The Gross Annual Value for a self-occupied house property (or up to two self-occupied properties) is always taken as Nil, provided it is not actually let out for any part of the year.

Gross Annual Value (GAV) for Deemed to be Let-out Property (DLOP)

Topic: Income from House PropertyChapter: Chapter 2
GAVDLOP=Expected Rent\text{GAV}_{\text{DLOP}} = \text{Expected Rent}
If an individual owns more than two self-occupied house properties, the third (and subsequent) property is treated as 'deemed to be let out'. For such properties, the GAV is considered to be the Expected Rent.

Income from House Property (IHP)

Topic: Income from House PropertyChapter: Chapter 2
IHP=NAV−Deduction u/s 24(a)−Deduction u/s 24(b)\text{IHP} = \text{NAV} - \text{Deduction u/s 24(a)} - \text{Deduction u/s 24(b)}
The final taxable income under the head 'Income from House Property' is calculated by deducting statutory deductions under Section 24 from the Net Annual Value.

Deduction u/s 24(a) - Standard Deduction

Topic: Income from House PropertyChapter: Chapter 2
Standard Deduction=30%×NAV\text{Standard Deduction} = 30\% \times \text{NAV}
A flat deduction of 30% of the Net Annual Value is allowed under Section 24(a) for all house properties (let-out or deemed to be let-out), irrespective of actual expenses incurred for repairs, insurance, etc. No standard deduction is allowed for self-occupied property as its NAV is Nil.

Deduction u/s 24(b) - Interest on Borrowed Capital (for LOP/DLOP)

Topic: Income from House PropertyChapter: Chapter 2
Interest DeductionLOP/DLOP=Actual Interest Paid/Payable\text{Interest Deduction}_{\text{LOP/DLOP}} = \text{Actual Interest Paid/Payable}
For let-out or deemed to be let-out properties, the entire amount of interest paid or payable on borrowed capital for the acquisition, construction, repair, renewal, or reconstruction of the property is allowed as a deduction under Section 24(b), without any monetary limit.

Deduction u/s 24(b) - Interest on Borrowed Capital (for SOP)

Topic: Income from House PropertyChapter: Chapter 2
Interest DeductionSOP=Min(Actual Interest Paid/Payable,Maximum Limit)\text{Interest Deduction}_{\text{SOP}} = \text{Min}(\text{Actual Interest Paid/Payable}, \text{Maximum Limit})
For self-occupied properties, the deduction for interest on borrowed capital is restricted to a maximum limit. The limit is Rs. 2,00,000 if the loan is taken on or after 01.04.1999 for acquisition/construction and completed within 5 years. In all other cases (e.g., repairs, renewal, or loan before 01.04.1999), the limit is Rs. 30,000.

Gross Salary Calculation

Topic: SalariesChapter: Chapter 2
Gross Salary=∑(Basic Salary+Allowances+Perquisites+Profits in lieu of Salary)\text{Gross Salary} = \sum (\text{Basic Salary} + \text{Allowances} + \text{Perquisites} + \text{Profits in lieu of Salary})
The total sum of all components received by an employee from an employer in respect of employment.

Taxable House Rent Allowance (HRA)

Topic: SalariesChapter: Chapter 2
Taxable HRA=Actual HRA Received−min⁡(Actual HRA,Rent Paid−10% of Salary,50% or 40% of Salary)\text{Taxable HRA} = \text{Actual HRA Received} - \min\left( \text{Actual HRA}, \text{Rent Paid} - 10\% \text{ of Salary}, 50\% \text{ or } 40\% \text{ of Salary} \right)
Used to calculate the taxable portion of HRA under Section 10(13A). The minimum of the three specified values is exempt; the remainder is taxable.

Taxable Value of Rent-Free Accommodation (RFA)

Topic: SalariesChapter: Chapter 2
Value of RFA=Perquisite Value (as per Rule 3)\text{Value of RFA} = \text{Perquisite Value (as per Rule 3)}
For owned accommodation, it is based on a percentage of salary (e.g., 7.5%, 10%, or 15% depending on population). For leased accommodation, it is the lower of actual rent paid or 15% of salary.

Net Taxable Salary

Topic: SalariesChapter: Chapter 2
Net Taxable Salary=Gross Salary−Deductions under Section 16\text{Net Taxable Salary} = \text{Gross Salary} - \text{Deductions under Section 16}
The final amount on which tax rates are applied after subtracting standard deduction, entertainment allowance, and professional tax.

Standard Deduction (Section 16(ia))

Topic: SalariesChapter: Chapter 2

\text{Deduction} = \min(\text{Gross Salary}, \text{Fixed Limit of \$50,000\})

A flat deduction allowed to all salaried employees to cover certain employment-related expenses.

Entertainment Allowance Deduction (Section 16(ii))

Topic: SalariesChapter: Chapter 2

\text{Deduction} = \min(\text{Actual Allowance}, \text{\$5,000\}, \frac{20%}{10% \text{ of Basic Salary}})

Only applicable to Government Employees. The deduction is the least of the actual amount, \$5,000\, or 20% of basic salary.

Gross Salary

Topic: SalariesChapter: Chapter 2
Gross Salary=Basic Pay+Dearness Allowance+House Rent Allowance+Other Taxable Allowances+Taxable Perquisites+Bonus+Commission+Arrears of Salary+Advance Salary\text{Gross Salary} = \text{Basic Pay} + \text{Dearness Allowance} + \text{House Rent Allowance} + \text{Other Taxable Allowances} + \text{Taxable Perquisites} + \text{Bonus} + \text{Commission} + \text{Arrears of Salary} + \text{Advance Salary}
Calculates the total salary before any exemptions or deductions. It includes all monetary and non-monetary benefits received by an employee from an employer.

House Rent Allowance (HRA) Exemption (Section 10(13A))

Topic: SalariesChapter: Chapter 2

\text{HRA Exemption} = \min \begin{cases} \text{Actual HRA received} \ \text{Rent paid} - 10% \text{ of Salary} \ 50% \text{ of Salary (for metro cities)} \ 40% \text{ of Salary (for non-metro cities)} \end{cases}

Calculates the exempt portion of HRA. 'Salary' for HRA means Basic Pay + Dearness Allowance (if forming part of retirement benefits) + Commission (if based on fixed percentage of turnover). Metro cities are Mumbai, Delhi, Kolkata, Chennai.

Professional Tax Deduction (Section 16(iii))

Topic: SalariesChapter: Chapter 2
Professional Tax Deduction=Actual Professional Tax paid during the previous year\text{Professional Tax Deduction} = \text{Actual Professional Tax paid during the previous year}
Deduction for professional tax (or tax on employment) levied by a State Government, irrespective of whether it is paid by the employer or employee.

Taxable Salary

Topic: SalariesChapter: Chapter 2
Taxable Salary=Gross Salary−Exemptions (e.g., HRA, LTC)−Deductions u/s 16 (Standard, Entertainment, Professional Tax)\text{Taxable Salary} = \text{Gross Salary} - \text{Exemptions (e.g., HRA, LTC)} - \text{Deductions u/s 16 (Standard, Entertainment, Professional Tax)}
The final amount of salary income on which income tax is calculated. Exemptions like LTC, Gratuity, Leave Encashment, etc., are also reduced from Gross Salary to arrive at the taxable figure.

Gratuity Exemption (Non-Government Employees covered by Payment of Gratuity Act, 1972) (Section 10(10))

Topic: SalariesChapter: Chapter 2

\text{Gratuity Exemption} = \min \begin{cases} \text{Actual Gratuity received} \ \text{INR 20,00,000} \ 15 \text{ days' salary for each completed year of service} \end{cases}

Calculates the exempt portion of gratuity for non-government employees covered by the Payment of Gratuity Act, 1972. 'Salary' for this purpose means last drawn Basic Pay + Dearness Allowance. 15 days' salary is calculated as (Last drawn salary / 26) * 15.

Gratuity Exemption (Non-Government Employees NOT covered by Payment of Gratuity Act, 1972) (Section 10(10))

Topic: SalariesChapter: Chapter 2

\text{Gratuity Exemption} = \min \begin{cases} \text{Actual Gratuity received} \ \text{INR 20,00,000} \ \frac{1}{2} \times \text{Average Salary of last 10 months} \times \text{Completed years of service} \end{cases}

Calculates the exempt portion of gratuity for non-government employees not covered by the Payment of Gratuity Act, 1972. 'Average Salary' means average of Basic Pay + Dearness Allowance (if forming part of retirement benefits) + Commission (if based on fixed percentage of turnover) for the 10 months immediately preceding the month of retirement.

Commuted Pension Exemption (Non-Government Employees) (Section 10(10A))

Topic: SalariesChapter: Chapter 2

\text{Commuted Pension Exemption} = \begin{cases} \frac{1}{3} \times \text{Total Pension if Gratuity is also received} \ \frac{1}{2} \times \text{Total Pension if Gratuity is NOT received} \end{cases} \times \text{Commuted Percentage}

Calculates the exempt portion of commuted pension for non-government employees. 'Total Pension' refers to the pension that would have been received if 100% of the pension was commuted. Government employees' commuted pension is fully exempt.

Leave Encashment Exemption (Non-Government Employees) (Section 10(10AA))

Topic: SalariesChapter: Chapter 2

\text{Leave Encashment Exemption} = \min \begin{cases} \text{Actual Leave Encashment received} \ \text{INR 3,00,000} \ 10 \times \text{Average Salary of last 10 months} \ \text{Cash equivalent of unavailed leave (max 30 days per year of service)} \end{cases}

Calculates the exempt portion of leave encashment at the time of retirement for non-government employees. 'Average Salary' means average of Basic Pay + Dearness Allowance (if forming part of retirement benefits) + Commission (if based on fixed percentage of turnover) for the 10 months immediately preceding the retirement. Unavailed leave is calculated based on a maximum of 30 days for each completed year of service. Government employees' leave encashment is fully exempt.

Voluntary Retirement Scheme (VRS) Exemption (Section 10(10C))

Topic: SalariesChapter: Chapter 2

\text{VRS Exemption} = \min \begin{cases} \text{Actual Compensation received} \ \text{INR 5,00,000} \ \text{Amount calculated as per Rule 2BA} \end{cases}

Calculates the exempt portion of compensation received under a Voluntary Retirement Scheme. Rule 2BA specifies the amount as (Last drawn salary * 3 months) * Completed years of service OR Last drawn salary * (Remaining months of service before retirement), whichever is less. 'Last drawn salary' means Basic Pay + Dearness Allowance (if forming part of retirement benefits) + Commission (if based on fixed percentage of turnover).
Chapter 2 Formulas — CA Intermediate | Kartavvya