Income from Salary Very Short Answer Type Questions

Question 1.
Define salary.
Answer:
According to Sec. 17(1) ordinarily the word Salary is understood as periodical payment for services rendered. However, for the purpose of Section 15 and 16, it is defined U/s 17 as inclusive of the following items:

  • Wages
  • Any annuity or pension
  • Any gratuity
  • Any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages.
  • Any advance of salary.

Question 2.
What is advance salary? How is it treated?
Answer:
In case an assessee receives salary in advance in a previous year, which was actually not due in that year, it shall be taxable in the year of receipt. On the other hand, if any loan is taken against of salary it is not treated as advance Salary.

Question 3.
What is salary for the purpose of calculating HRA?
Answer:
Salary for the purpose of calculating HRA means Basic Pay + Dearness Allowance (enters into service) + Commission based on percentage of on turnover achieved by assessee.

Question 4.
Give the meaning of salary for the purpose of calculating exempted earnedl leave salary.
Answer:
Salary = Basic salary + Dearness Pay + Dearness Allowances (Enters into service benefit) + Fixed percent of commission on turnover.

Question 5.
Give the meaning of salary for the purpose of calculating exempted RPF contribution by employer.
Answer:
Salary for the purpose of calculating exempted RPF contribution by employer:
Salary = Basic salary + Dearness allowances (Which enters into retirement benefits) + Commission (if employee is given commission at fixed percentage on sales achieved by him).

Question 6.
What is meant by an allowance?
Answer:
It is the amount received by an individual paid by his/her employer in addition to salary. Under section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few condition where they are entitled of deduction/ exemptions.

Under Income Tax Act following types of allowance are defined:

  • House Rent Allowance
  • Entertainment Allowance
  • Other Special Allowances

Question 7.
What is the provision related to Hostel Allowance?
Answer:
Exempt up to 300 per month per child up to a maximum of two children only.

Question 8.
What is DA?
Answer:
Dearness allowance shall be considered only when it is part of salary for computing all retirement benefits such as pension, leave encashment, gratuity, etc. If dearness allowance is part of salary for computing only some of the retirement benefits, then it is not taken into consideration for this purpose.

Question 9.
Write any four special allowances exempted up to certain limit.
Answer:
The four special allowances exempted upto certain limit are:

  • Travelling allowance
  • Daily allowance
  • Children education allowance
  • Tribal area allowance

Question 10.
What are the deducations allowed U/s 16(2) Entertainment allowance?
Answer:
The assessee can claim certain deductions on under Section 16 (ii). This deduction shall be admissible only to Central or State Government employees. The deduction shall be allowed in the following manner. Least of following shall be allowed as deduction:

  • Statutory limit of 5,000 or
  • 1/2 Basic Salary or
  • Actual amount of Entertainment Allowance received.

Question 11.
What is bonus?
Answer:
Bonus is taxable in the year of receipt, if it has not been taxed earlier on due basis. If bonus is received in arrears, the assessee can claim relief u/ s 89(1) of the income tax act.

Question 12.
Give the meaning of fees.
Answer:
Fees is paid by employer for extra work done by employee. It is fully taxable.

Question 13.
Give the meaning of commission.
Answer:
Commission is paid as a percentage on profit/sales. It is fully taxable.

Question 14.
Define perquisite. OR Define perquisites under sec. 17 and give any two examples.
Answer:
Perquisites refers to any benefits attached to an office or position in addition to Salary, Wages, Free telephone, Free refreshment during working hours, Cost of refresher course, Free ration to employees of armed forces, Free conveyance facilities.

Question 15.
What are taxable perquisites?
Answer:
Perquisites taxable in case of ail category of employees are:

  • Rent-Free accommodation.
  • Concessional Rent accommodation.
  • Gifts given by employer exceeding 5,000.
  • Interest free loan exceeding 20,000

Question 16.
Mention any four tax free perquisites.
Answer:
The four tax free perquisites are:

  • Expenses on telephone including mobile phone
  • Rent free house and conveyance facility provided to high court and Supreme Court judges
  • Residential accommodation provided at site
  • Employees contribution to staff group insurance scheme.

Question 17.
What do you mean by provident of fund?
Answer:
A provident fund is a form of social safety net into which workers must contribute a portion of their salaries and employers must contribute on behalf of their workers. The money in the fund is then paid out to retirees, or in some cases to the disabled who cannot work.

Question 18.
State the types of provident fund.
Answer:
The types of provident fund are:

  • Statutory Provident Fund(SPF)
  • Recognized Provident Fund (RPF)
  • Unrecognized Provident Fund(URPF)
  • Public provident fund(PPF)

Question 19.
How is RPF treated in income tax?
Answer:
Any contribution made by employer to recognised Provident Fund is exempted up to 12% of employee’s salary and Interest credited to RPF balance is exempted up to 9.5% p.a.

Question 20.
How is URPF treated in income tax?
Answer:
The employers contribution and interest credited to URPF is not taxed. But at the time of converting URPF to recognized provident fund, the transferred balance is taxed. Employee contribution to URPF is not eligible for deduction U/s 80C.

Question 21.
How is the refund from un-recognised provident fund treated under Income Tax Act?
Answer:
Rent obtain after deducting the expenses incurred by the owner of the building towards certain amenities provided to the tenants, such as lift maintenance, staircase lighting, garden maintenance, etc. from actual rent receivable.

Question 22.
What are profits in lieu of salary?
Answer:
Any payment received or due in addition to the salary or wages from the employer is called profit in lieu of salary.

Question 23.
What do you mean by gratuity?
Answer:
Gratuity is a lump sum payment made to the employees based on the duration of their total service. The gratuity benefit is payable on cessation of employment (either by resignation, death, retirement or termination, etc) by taking the last drawn salary as the basis for the calculation.

Question 24.
Give the meaning of pension.
Answer:
A pension is essentially compensation received by the employee after he/ she has retired. Post-retirement benefits that an employee might receive from some employers

Question 25.
Distinguish between pension and gratuity.
Answer:
Pension is the monthly income received on monthly basis after the retirement and it is fuliy taxable. Where as Gratuity is the amount received at the time of retirement. It is fully exempted in case of Govt, employees and in case of Non-Govt, employees it is partly taxable.

Question 26.
State the salary for the purpose of computation of taxable value of rent-free accommodation.
Answer:
Meaning of salary for valuation of rent free house includes: Basic Salary, Dearness allowance (If it forms a part of salary), Taxable portion of allowance, Fees, Bonus & commission, leave salary received during the service period.

Question 27.
State how the ‘Leave Travel Concession’ is exempted.
Answer:
LTC received by an employee is exempt to the extent of the least of the following:
(A) LTC granted by the employer, Expenses incurred by an employee, Amount determined as per the IT law.

Question 28.
Mention the deduction Under Sec. 16.
Answer:

  • 16(ii) Entertainment allowance.
  • 16(iii) Professional tax.

Question 29.
What do you mean by Transferred Balance?
Answer:
If URPF is recognized by the CIT for the first time, the balance standing to the credit of the employee in the URPF account will be transferred to his RPF account. The account so transferred is known as transferred balance.

Question 30.
How do you treat professional tax paid by employer on behalf of employees?
Answer:
If employer pays on behalf of employee then it should be treated as income and claimed deduction U/S 16.

Question 31.
Give the meaning of fringe benefits.
Answer:
Fringe benefits means any consideration for employment provided by way of any privilege, service, facility or amenity, directly or indirectly by an employer to his employees. For example: Car facility, Transport facility, Traveling/Touring, Free lunch, gift, club/ credit card facility, Free holiday home facility.