fin623 assignment no 3 solution spring June 2011

[Vuhelper]

See income tax rules 2002 updated


2[Provided further that where House Rent Allowance is admissible @ thirty per
cent, the value taken for the purpose of this rule shall be an amount not less than
thirty per cent of minimum of the time scale of basic salary or the basic salary
where there is no time scale.] (Reference: Page # 10, Valuation of Accommodation)

If house rent paid then the amount taken should not be less then 30% not 45%

For personal use only 10% of:
(a) the cost to the employer for
acquiring the motor vehicle; or,
(b) the fair market value of the motor
vehicle at the commencement of
the lease, if the motor vehicle is
taken on lease by the employer;

Reference: Page # 10, Valuation of Conveyance

FMV taken only if motor vehicle is on lease, and FMV taken at the time of commencement not on settlement please note that


further the tax liability is to be calculated for the tax year 2010 not 2009, so please follow the rules that are apply in the respective years

[Vuhelper]

SOLUTION



Name of Taxpayer: Nasir

National Tax Number: XXX

Tax Year Ended on: 30th June, 2010

Tax Year: 2010
Personal Status: Individual - Salaried

Residential Status: Resident



COMPUTATION OF TAXABLE INCOME



SALARY INCOME



Rs

Basic Salary (N1)



846,000

Rent of furnished accommodation (N2)



380,700

Utilities allowance (N3)



144,000

Medical benefits (N4)



Nil

Gratuity (N5)



Nil

Golden Handshake (N6)



Nil

Taxable benefit on Loan (N7)



24,000

Waiver of amount payable by employee (N8)



50,000

Benefits of Car for personal use



70,000

Transfer of Car (N10)



Nil

Total salary taxable income



1,514,700



Total Income





1,514,700





Tax Liability (N11)







172,440



NOTES:

N1: The tax year 2010 includes the period from JULY 2009 – JUNE 2010, so he already has got the salary of tax year 2010. The calendar year 2010, remaining 6 months will be added in Tax year 2011.

Basic salary of only 6 months = (70,500 *12) = 846,000



N2: Section 13(2) and Rule-4

Rent for the year = 30,000 * 12 = 360,000



HIGHER of (Fair Market Rent OR 45% of basic salary)

Rent =360,000 OR 45% of Basic salary = 380,700



N3: Utilities allowance = (12,000 *12) = 72,000



N4: Ref: Part 1 of Second Schedule, (Clause 139)

Maximum 10% of basic salary is exempt

10% of 846,000= 84,600

25,000 is less than 84,600, so exempted.



N5: Ref: Part 1 of Second Schedule, (Clause 13)

This is the income of TAX YEAR 2011 , so no further to see whether it is exempted or not.

Gratuity received from Approved Fund is Totally Exempted.

(The amount also has not been given in the question) The extra amount received from this fund will also be exempted.



N6: Section 12(2)(e) and Section 12(6)

The amount received on redundancy of employment can be taxed in 2 ways at the option of employee.

It may be included in total income
It may be taxed as a separate block of income. (The total tax income and total tax liability of 3 preceding years are needed) which is not given in question.
We will add golden handshake payment in total income that is 150,000

BUT it will not be included in TAX YEAR 2010.



N7: Section 13(7)

The amount of interest on interest free loan, will be computed at benchmark rate.

Taxable benefit on Loan = Loan amount * Benchmark Rate

Taxable benefit on Loan = 200,000 * 12% = 24,000



N8: Section 13(9)

Any amount waived by the employer out of the amount payable by the employee shall be included in income of employee.

Waived amount = 200,000 * 25% = 50,000



N9: Rule 5(2) of Income tax RULES 2002

Benefits of Car for personal use = 10% of Fair market values = 700,000 * 10% = 70,000



N10: Section 13(13)

Fair Market Value of car Perquisite (Car) 700,000

Less: Payment made by the employee (650,000)

Taxable amount of Car perquisite 50,000

We assumed that the Car settlement was held at the end of December 2010, so this will not be included income of tax year 2010.



N11: 2nd provision of 1A of PART 1 of FIRST Schedule:

For salaried persons, there are 2 procedures for computing tax liability. One should use that procedure which gives less amount of tax liability..



Tax under Normal procedure:

1,514,700 * 12.5% = 189337.5



Tax under Marginal Tax Relief System:

Tax on Rs. 1,450,000 = 1,450,000 * 11.0% = 159,500

Tax on Rs. 64,700 = 14,700 * 20% = 12,940

Tax Liability = 159,500 + 12,940 = Rs.172,440=======================================


Idea Solution by WASIF

Tax Payer: Mr. Nasir


Tax Year: 2010

Residentail Status: Resident


NTN: xxxxxxx-x


Computation of taxable income and tax thereon:



Particulars

Total
Income

Exempt
Income

Taxable
Income

Basic Salary

846,000

-

846,000

House Allowance

360,000

-

380,700

Utilities Allowance

144,000

-

144,000

Medical Allowance

25,000

25,000

-

Conveyance Allowance

65,000

-

65,000

Interest Free Loan

24,000

-

24,000

Total Taxable Income

1,464,000

25,000

1,459,700

vuzs

Rate of Tax


12.50%

vuzs.net
Tax Liability for the Tax Year 2010


182,463