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Superannuation salary (SAS) =

Basic Salary +
Dearness Allowance if terms of employment so provide that dearness allowance should form part of basic salary for computation of retirement benefits.
- Retirement benefits are (i) Gratuity (ii) Pension (iii) Leave salary and (iv) Provident fund.
As per Supreme Court Judgement, Commission shall also form part of salary if based on sales turnover and sales turnover is achieved by employee.

SAS_dm = Basic Salary + Dearness allowance ( ) + commission (if).

Note:
1. SAS is always computed on due basis.
2. Since salary (SAS) is computed on due basis therefore neither arrears of salary nor advance salary is included for computing Superannuation salary.
3. For simplification SAS shall be computed on monthly basis.
4. If the question uses the word ‘Salary’ it means it is superannuation salary.
5. If nothing is provided in the question whether DA is forming part of salary or not, then assumed that DA is
not forming part of SAS.

P1: Say whether following payments are part of SAS or not.
1. Basic Salary.
2. Dearness Allowance (20% forms part of salary for computation of retirement benefits).
3. Dearness Allowance (as per terms of employment).
4. Dearness Allowance.
5. Commission 10% of sales. Sales achieved by employee 36,000 p.m.
6. Commission 5% of purchase. Purchase achieved by employee.
7. Commission 1% of profits. Profits achieved by employee.
8. Fixed commission.
9. Dearness Allowance ₹ 10,000. Monthly accretion to provident fund is 13% of basic salary and dearness
allowance.
10. Allowances.
11. Bonus.

Ans: (1) yes (2) only 20% (3) 100% (4) No (5) 3,600 p.m. (6) No (7) No (8) No (9) 100% (10) No (11) No

P2: Compute superannuation salary.

Basic Salary 60,000 p.a. Dearness Allowance (20% forms part of salary) 12,000 p.a. Commission 10% of sales. Sales achieved by employee 36,000 p.m.
Basic Salary 10,000 p.m. Dearness Allowance (40% forms part of salary) 70% of basic salary. Commission 5% of purchase. Purchase achieved by employee 50,000 p.m.
Basic Salary 4,000 p.m. Dearness Allowance (as per terms of employment) 6,000 p.a. Fixed Commission 500 p.m.
Basic Salary 3,000 p.m. Dearness Allowance 600 p.m. Commission 1% of profits. Profits achieved by employee 6,00,000 p.m.
Basic Salary 9,000 p.m. Dearness Allowance 10% of basic salary. Commission 1% of sales. Sales achieved by employee 1,00,000 p.m. Annual accretion to provident fund is 13% of basic salary and dearness allowance.

Ans: (1) 8,800; (2) 12,800; (3) 4,500; (4) 3,000; (5) 10,900.

Section 10(13A) & Rule 2a. House Rent Allowance

House rent allowance (HRA) is given to employee for payment of rent. No rent no exemption.

MAF

Maximum

If place of residence is Metro cities (Delhi, Mumbai, Chennai, Kolkata) then 50% of Salary (SAS) otherwise 40% of Salary (SAS)

Least is

exempt

Actual

Actual HRA received.

Formula

Rent paid in excess of 10% of salary (SAS) i.e.

Rent Paid - 10% of salary.

Actual HRA received minus least is taxable.

Note
1. Salary is computed on due basis for the period when rent is paid and rent is paid only when house is rented
by the employee. Suppose rent is paid for the month of April to June. SAS shall be computed on due basis
for the month of April to June.
2. If place of stay is not given in the question take 40% of salary.
3. Salary used here means SAS. SAS = Basic Salary + Dearness allowance ( ) + Commission (if).

P1 : Compute taxable HRA from the following informations:

	Case 1	Case 2	Case 3	Case 4
Salary	4,000 p.m.	3,000 p.m.	11,000 p.m.	7,000 p.m.
Place of residence	Delhi	Agra	Gurgoan	Chennai
Place of service	Noida	Agra	Delhi	Chennai
HRA received	1,500 p.m.	700 p.m.	5,000 p.m.	3,000 p.m.
Rent Paid	1,400 p.m.	200 p.m.	7,100 p.m.	5,000 p.m.

Solution.

Computation of Taxable HRA

	Case 1	Case 2	Case 3	Case 4
sas	4,000	3,000	11,000	7,000
Maximum	2,000	1,200	4,400	3,500
Actual	1,500	700	5,000	3,000
Formula	1,400 - 400 = 1,000	200 - 300 = nil	7,100 - 1,100 = 6,000	5,000 - 700 = 4,300
Taxable HRA (Actual - least is taxable)	(1,500 - 1,000) = 500 x 12 = 6,000	(700 - 0) = 700 x 12 = 8,400	(5,000 - 4,400) = 600 x 12 = 7,200	(3,000 - 3,000) = 0 x 12 = Nil

P2 : Compute Income from salary. Basic Salary ₹ 2,000 p.m. Dearness Allowance (60% forms part of salary)
₹ 1,000 p.m. Fixed commission ₹ 400 p.m. House Rent Allowance ₹ 1,000 p.m. Rent paid ₹ 700 p.m. Place of
stay is Kolkota.

Solution :

Computation of Income from Salary
Basic Salary (2,000 x 12)		24,000
Dearness Allowance (60% forming part of salary) (1,000 x 12)		12,000
Fixed Commission (400 x 12)		4,800
House Rent Allowance (1,000 x 12)	12,000
Less : Exempt u/s 10(13A) [see note]	(5.280)	6,720
Gross Salary		47,520

Note : Superannuation salary (SAS) = 2,000 + 600 = ? 2,600 p.m.

Maximum	50% of SAS	1,300 p.m.	Least is exempt from tax. In this case ? 440 is exempt since it is least.
Actual	Actual HRA received	1,000 p.m.
Formula	Rent paid — 10% of SAS (700 - 260)	440 p.m.
Actual — least is taxable. (1,000 — 440) x 12 = 6,720.

P3: Compute income from salary : Basic Salary ₹ 5,000 p.m. Dearness allowance (70% forms part of salary)
₹ 500 p.m. Commission 1% p.a. based on sales. Sales achieved by the employee ₹ 24 lakhs p.a. House rent
allowance ₹ 4,000 p.m. Rent paid at Gurgoan ₹ 5,000 p.m.

Ans: IFS ₹ 1,02,720; HRA ₹ 12,720.

P4: Compute taxable HRA. Basic Salary for first 3 months ₹ 4,000 p.m. Basic Salary for next 9 months ₹ 5,000
p.m. House rent allowance for first 6 months ₹ 3,000 p.m. House rent allowance for next 6 months ₹ 4,000 p.m.
Rent paid for first 7 months ₹ 500 p.m. Rent paid for next 5 months ₹ 3,700 p.m. Place of residence for first 10
months Chennai. Place of residence for next 2 months Pondicherry.

Solution :

	Months	Basic Salary	House Rent Allowance	Rent Paid	Place of residence
set 1 (3 months)	April	4,000	3,000	500	Chennai
	May	4,000	3,000	500	Chennai
	June	4,000	3,000	500	Chennai
set 2 (3 months)	July	5,000	3,000	500	Chennai
	August	5,000	3,000	500	Chennai
	September	5,000	3,000	500	Chennai
set 3 (1 month)	October	5,000	4 000	500	Chennai
set 4 (3 months)	November	5,000	4,000	3,700	Chennai
	December	5,000	4,000	3,700	Chennai
	January	5,000	4,000	3,700	Chennai
set 5	February	5,000	4,000	3,700	Pondicherry
(2 months)	March	5,000	4,000	3,700	Pondicherry

		set 1 (3 months)	set 2 (3 months)	set 3 (1 months)	set 4 (3 months)	set 5 (2 months)
SAS		4,000	5,000	5,000	5,000	5,000
M	50% of SAS / 40% of SAS	2,000	.A^2,500	2,500	2,500	2,000
A	Actual HRA received	3,000	3,000	4,000	4,000	4,000
F	Rent paid — 10% of SAS	100	0	0	3,200	3,200
Actual — least is taxable.		2,900 x 3 =	3,000 x 3 =	4,000 x 1 =	1,500 x 3 =	2,000 x 2 =
Total taxable HRA ? 30,200		8,700	9,000	4,000	4,500	4,000

P5: Compute taxable HRA for the AY 2017-18 from the following information:

Basic Salary ₹ 4,500 p.m. Dearness Allowance ₹ 1,500 p.m. House Rent Allowance ₹ 2,500 p.m. Rent paid in Delhi for 1st 6 months ₹ 3,000 p.m. Rent paid in Gurgoan for next 6 months ₹ 3,500 p.m.
Joining date 1-1-2015. Basic salary ₹ 10,000 - ₹ 1,000 - ₹ 15,000. Dearness allowance 10% of basic salary. (30% of DA forms part of salary). HRA received ₹ 2,800 p.m. Rent paid ₹ 4,000 p.m.
Joining date 1-11-2013. Basic salary ₹ 8,000-₹ 500-₹ 12,000. Dearness allowance 20% of basic salary. (as per terms of employment). HRA received ₹ 3,000 p.m. Rent paid ₹ 4,000 p.m. On 1-3-2017 he shifts in his own house. However salary of March 2017 was received in April 2018.

Ans: 5,700; 108; 4,120.

Deductions u/s 16

Three types of deductions.
(i) Standard deduction. Deleted.
(ii) Entertainment allowance.
(iii) Professional tax / Employment tax.

Section 16(ii). Entertainment Allowance

Entertainment allowance is fully taxable whether given for official purpose or for personal purpose. However it’s deduction is allowed only to Government employee. No deduction of entertainment allowance is allowed to private employee.
Therefore in case of Govt. employee entertainment allowance is first added to Gross Salary and then deduction is allowed u/s 16(ii). This deduction cannot be claimed by private employee.
Least of the following is deductible u/s 16(ii).

MAF	Maximum	5,000 (Lump sum)
	Actual	Actual entertainment allowance received during the relevant previous year.
	Formula	20% of Basic Salary.

P1: Compute Income from Salary (Govt employee): Basic salary 3,000 p.m. Entertainment allowance 400 p.m.
Tiffin allowance 100 p.m.
Ans: 37,200.
Solution

Computation of Income from Salary
Basic Salary (3,000 x 12)				36,000
Entertainment allowance (400 x 12)				4,800
Tiffin allowance (100 x 12)				1.200
Gross Salary				42,000
Less: Deduction u/s 16(ii) in respect of Entertainment Allowance
M	Maximum	5,000	Least is deductible
A	Actual	4,800
F	20% of Basic Salary	20% of 36,000 = 7,200		(4,800)
Income from Salaries				37,200

P2: Compute Income from Salary (Govt. employee): Basic salary Rs. 8,000 p.m. Entertainment allowance ? 2,000 p.m only for 3 month. Servant allowance Rs. 500 p.m. K Agrawal

Ans: Rs. 1,03,000.

Section 16(iii). Employment tax or Professional Ta x

It is a tax levied by State Govt. on the person who is in service or is self-employed. It’s deduction is allowed whether tax is paid by employee or by the employer on behalf of employee.
Deduction of such tax is allowed only if it is actually paid during the relevant previous year.
But if such tax is paid by employer on behalf of employee then it is said that employer has is charged the obligation of employee. Such payment made by employer shall be treated as income in the hands of employee and shall be added to gross salary of employee. And therefore such tax is first added to Gross Salary and then deduction is allowed u/s 16(iii).

Note: For other taxes like income tax, wealth tax or any liability of employee is paid by employer, then it is said that employer has discharged the obligation of employee. Such payment made by employer shall be treated as income in the hands of employee and shall be added to gross salary of employee. No deduction whatsoever is allowed to employee.

P1: Mr. Taxcrazy posted with West Bengal Govt. draws the following emoluments for the AY 2017-18.

	Case 1	Case 2
Basic Salary	4,84,000	5,43,300
Entertainment Allowance (30% is used for official purpose)	16,000	15,000
Professional tax paid by employer on behalf of employee
• on 31-3-2017	4,000	1,700
• on 1-4-2017	500	650
Professional tax paid by employee
• on 31-3-2017	1,000	1,000
• on 1-4-2017	2,000	800

Ans: 4,94,000; 5,52,300
Solution: Case 1

Computation of Income from Salary
Basic Salary		4,84,000
Entertainment allowance		16,000
Professional tax paid by employer on behalf of employee on 31-3		4.000
Gross Salary		5,04,000
Less:	Deduction u/s 16(ii)
(ii)	Entertainment Allowance	(5,000)
(iii)	Professional tax paid by employer and employee during the PY 2016-17 (4,000 + 1,000)	(5,000)
Income from salaries		4,94,000

P2: Mr. Taxcrazy is employed as a Revenue Officer in Delhi Govt. on following emoluments :
Basic Salary from 1-1-2016 ₹ 9,000 p.m.; Basic Salary from 1-1-2017 ₹ 12,000 p.m.; Dearness Allowance
forming part of salary.

As per the service rule if Basic Salary is upto ₹ 10,000 p.m. then DA = 20% of Basic Salary if Basic Salary exceeds ₹ 10,000 p.m. then DA = 10% of Basic Salary.

Commission @ 1% on the sales effected by him. From 1-12-2016 his term of employment were amended. Accordingly the payment of commission to him was discontinued. But on account of this change, he was paid a sum of ₹ 5,400 as compensation. The sales effected by him during the financial year 2016-17 were ₹ 6,00,000.

He lives in a rented accommodation in Noida where he pays a rent of ₹ 3,300 p.m. The employer pays rent allowance of ₹ 4,000 p.m.
He is given allowance to commute between office and residence (he commutes in his own car) ₹ 1,600 p.m.
He also receives entertainment allowance of ₹ 3,000.
He was sent to Europe and the salary including DA for 1 month was received by him in Europe.
He is also employed in Right and Left institute on a part time basis as a Tax faculty on an honorarium of ₹ 14,000 p.m including ₹ 20,000 as entertainment allowance.
You are required to compute Income from Salary for the AY 2017-18 on the assumption that salary and allowances falls due on the last day of each month.

Ans: 3,36,680. [1,17,000+19,800+9,400+22,480+0+3,000=1,71,680+1,68,000 = 3,39,680 – 3,000=3,36,680]
[SAS: 8 months 11,300; 1 month 10,800; 3 month 13,200] [Taxable HRA 14,640 + 1,780 + 6,060 = 22,480]

The document Computation of Superannuation Salary (SAS) - Taxation | Income Tax for assessment (Inter Level) is a part of the Taxation Course Income Tax for assessment (Inter Level).

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FAQs on Computation of Superannuation Salary (SAS) - Taxation - Income Tax for assessment (Inter Level)

1. What is Superannuation Salary (SAS) and how is it computed?

Ans. Superannuation Salary (SAS) is the salary used as the basis for calculating superannuation contributions. It is typically the salary earned by an employee before any deductions or additional payments. SAS is computed by taking into account the employee's gross salary, including any bonuses or commissions, and excluding any overtime pay or allowances.

2. How is taxation applied to Superannuation Salary (SAS)?

Ans. Taxation on Superannuation Salary (SAS) is applied based on the prevailing tax rates and rules set by the government. The SAS amount is subject to income tax, and the applicable tax rate is determined by the employee's income tax bracket. The employer deducts the appropriate tax amount from the employee's SAS before paying it out.

3. Can I claim tax deductions on my Superannuation Salary (SAS)?

Ans. Yes, you may be able to claim tax deductions on your Superannuation Salary (SAS) contributions. However, eligibility for tax deductions on SAS contributions depends on various factors, including your employment status, income level, and any other superannuation contributions made by your employer. It is advisable to consult with a tax professional or refer to the relevant tax laws to determine your eligibility for tax deductions.

4. Are there any tax benefits associated with Superannuation Salary (SAS)?

Ans. Yes, there are tax benefits associated with Superannuation Salary (SAS). One of the main benefits is that contributions made to superannuation from SAS are generally taxed at a lower rate compared to regular income tax rates. Additionally, any earnings on investments within the superannuation fund are also taxed at a concessional rate. These tax benefits are designed to incentivize individuals to save for their retirement.

5. Can I withdraw my Superannuation Salary (SAS) before retirement?

Ans. Generally, you cannot withdraw your Superannuation Salary (SAS) before reaching the retirement age or meeting specific conditions set by the government. Superannuation is intended to provide income during retirement, and early access to these funds is restricted to limited circumstances such as severe financial hardship, certain medical conditions, or permanent departure from the country. It is important to understand the specific rules and regulations regarding early withdrawal of superannuation funds to avoid any penalties or tax implications.

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