Very Short Questions and Answers
1. List out any two incomes excluded from employment income.
Two incomes excluded from employment income are:
- Meals and refreshments are provided to all employees on equal ground.
- Reimbursement of petty expenses relating to tea expenses, stationeries, tips, prizes and emergency medical treatment of up to Rs 500.
2. State whether the following incomes are related to employment or profession.
a) The amount earned by a government employee from private tuition
b) Amount earned from another university from setting a question paper.
c) Payment received from the third party on behalf of the employer.
d) Amount received from past employment.
Answers:
a) Profession
b) Profession
c) Employment
d) Employment
3. Describe in brief the situation of master-servant relationships in profession and employment.
In employment, the master i.e. employer can order his servant i.e. employee how it should be done while in the profession the master can require only what is to be done.
4. Point out any two differences between business and employment:
The two differences between business and employment are:
- Qualification and training as prescribed by the employer are essential for an employee. But such a thing may not be essential for business.
- In business, the returns (i.e. profit) may be uncertain and irregular while in employment the returns (i.e. salary and allowances) are certain and regular.
5. Mrs. Bina was employed in a private school three years ago. She has disabled as well as a single woman (widow). State any two privilege that she gets while assessing income.
The two privileges are:
- 10 percent rebate in total tax liability.
- 50 percent of basic exemption as an additional exemption for a disabled residents.
Short Questions and Answers
1. Explain the provisions regarding the contribution to an approved retirement fund.
Retirement contributions constitute contributions to provident fund, gratuity fund, citizen investment fund, or any periodic amounts payable on retirement or on the left of the service. In addition to the employee’s own contributions, the employer also contributes some amount to the fund. Such retirement contributions may be deposited either with the approved fund or an unapproved fund.
An individual may claim a deduction for retirement contributions made to an approved fund in an income year not exceeding Rs.3,00,000 or one-third of the assessable income.
2. Define employment. Differentiate between employment and profession.
Employment is a contract between two parties one being the employer and the other being the employee. An employer is a person or institution that hires employees or workers to get mental or physical services against a regular payment of salary, wages, and other benefits. The employer has the power or right to control and direct the employee in the material details of how the work is to be performed. An employee, on the other hand, is a person in the service of another under any contract. The employee provides services on a regular basis to the employer and in return gets certain amounts or benefits.
Employment and profession are conceptually different. In employment, the master i.e., the employer can order his servant i.e., the employee how it should be done while in the profession the master can require only what is to be done. The basic distinction between employment and profession lies in the distinction between a contract of service and a contract for service. Contract of service is employment while the contract for service is a profession. In employment, there is a master-servant relationship while in the profession, the person carries out activities independently.
3. How the term employment has been defined in the Act? List any five incomes included in employment income.
Employment is a contract between two parties one being the employer and the other being the employee. An employer is a person or institution that hires employees or workers to get mental or physical services against a regular payment of salary, wages and other benefits. The employer has the power or right to control and direct the employee in the material details of how the work is to be performed. An employee, on the other hand, is a person in the service of another under any contract. The employee provides services on a regular basis to the employer and in return gets certain amounts or benefits.
The five incomes included in the employment heading are:
- Salary and wages
- Leave pay
- Pay for overtime
- Prizes and gifts related to employment
- Dearness allowance.
4. Point out any five incomes excluded from the employment heading.
The following incomes are excluded in calculating the employment income of an employee:
- Amounts exempted from tax.
- Final withholding payments.
- Meals and refreshments provided to employees at business premises/work site if provided to all employees under equal terms
- Settlement by or reimbursement to an employee of expenses incurred solely for the purpose of business.
- Payments by the employer for petty expenses relating to tea expenses, stationeries, tips, prizes, and emergency medical treatment up to Rs. 500 at a time whose accounting is not practical or administratively difficult.
5. 2061 (F) Q. No. 5 Mr. Shrestha an employee of a business firm has submitted the following incomes and expenditures for the previous year.
Salary Rs. 10,000 p.m.
Dearness allowance Rs. 500 p.m.
Dashain kharcha Rs. 10,000
The tuition fee of his son paid by the employer Rs. 1,000 p.m.
He is a member of a recognized provided fund.
He paid a life insurance premium of Rs. 6,000 for the insured sum of Rs. 200,000.
He has claimed domestic expenses of Rs. 10,000 and transportation expenses of Rs. 5,000. Required: Net (assessable) income from employment.
SOLUTION
Calculation of assessable income from employment of Mr. Shrestha for the previous income year:
|
Particulars
|
Rs.
|
| Salary (Rs. 10,000 × 12)
Dearness allowance (Rs. 500 × 12) Dashain Kharcha Tuition fee of his son paid by employer (Rs. 1,000×12) Contribution to recognised provident fund by employer (10% of Rs. 120,000)
Assessable income from employment
|
120,000
6,000 10,000 12,000
12,000
|
| 160,000
|
6. Mr. Rajesh an employee of government owned organisation has submitted the following particulars of his incomes and expenditures of previous year.
Salary scale 12,000 – 350-14,100 EB 400 – 15,700
Date of appointment 1st Shrawan, 2053
Local allowance Rs. 400 p.m.
Entertainment allowance Rs. 600 p.m.
House facility provided by employer
Annual increment in salary is calculated on the basis of government rules and regulations.
Project allowance Rs. 700 p.m.
He has claimed the following expenses for deduction:
Contribution to provident fund 10% his salary and employer also contributes an equal amount.
Income tax for the current year Rs. 3,000
Education expenses of his brother Rs. 10,000
Life insurance premium of Rs. 5,000 for this insured sum of Rs. 150,000
Donation to Eye Hospital Rs. 8,000
Required: (a) Net (Assessable) income from employment (b) Statement of taxable income.
SOLUTION
Calculation of assessable income from employment of Mr. Rajesh, an employee of a government-owned organization, for the previous year.
a) Net (Assessable) income from employment
|
Particulars
|
Rs.
|
| Salary ((Rs. 12,000+ 6 x 350+ 4 × 400) × 12}
Local allowance (Rs. 400 x 12) Entertainment allowance (Rs. 600 × 12) House facility (2% of Rs. 1,88,400) Project allowance (Rs. 700 x 12) Dashain allowance (Rs. 15,700 × 1) Contribution to P/F by employer (10% of Rs. 1,88,400) Assessable income from employment |
188,400
4,800 7,200 3,768 8,400 15,700 18,840 |
| 247,108 |
b) Statement of taxable income
|
Particulars
|
Rs.
|
| Assessable income from employment
Assessable income from business/investment (if any) Total assessable income Less: Allowable Reductions: (a) Retirement contribution [Actual 20% of Rs. 1,88,400 or 1/3rd of Rs. 2,47,108 or maximum Rs. 300,000]
(b) Donation [5% of (Rs. 247,108- Rs. 37,680) or actual Rs. 8,000 or maximum Rs. 1,00,000] (c) Life insurance premium (actual Rs. 5,000 or maximum Rs. 20,000) Total taxable income
|
2,47,108
Nil |
| 2,47,108
37,680
8,000
5,000
|
|
| 1,96,428
|
Working Note:
No. of service years = Income year – Appointment year = 2074/75 – 2053/54 = 21. Since he gets only 10 grades, he is receiving salary Rs. 15,700 p.m. (last salary)
7. Mr. Narayan an employer of a trading company furnished the following particulars of his incomes for the previous year:
Salary Rs. 10,000 p.m.
Electricity bill paid by the employer Rs. 5,000.
Dashain Kharcha Rs 7,000.
Telephone bill paid by the employer Rs. 400
Entertainment allowance is 15% of his salary.
He and his employer each contributed to the provident fund @ 10% of his salary.
He purchased books for his job for Rs. 2,000.
Required: Net (assessable) income from employment.
SOLUTION
Computation of assessable income from employment of Mr. Narayan for the previous year
| Particulars
|
Rs.
|
| Salary (Rs. 10,000 × 12)
Electricity bill paid by the employer Dashain kharcha Telephone bill paid by the employer Entertainment allowance (15% of Rs. 120,000) Contribution to provident fund by employer (10% of Rs. 120,000) |
120,000
5,000 7,000 400 18,000 12,000
|
| Assessable income from employment
|
162,400
|
8. Mr. Pradhan, works as a Personal Assistant to Finance Director in private firm. Following are the details of his incomes and expenditures for the previous year. Incomes:
Salary Rs. 12,000 p.m.
Dearness allowances 10% of salary
He was paid Dashain allowance equal to 50% of his monthly salary.
Other facilities provided by the employer were:
Electricity bill Rs. 200 p.m.
Telephone bill Rs. 300 p.m. (telephone was used equally for official and personal purpose)
He contributed 10% of his salary towards and unrecognised provident fund.
He claimed Rs. 500 p.m. as transport expenses.
Required: Net (assessable) Income from Employment.
SOLUTION
Computation of assessable income from employment of Mr. Pradhan for the previous year
|
Particulars
|
Rs.
|
| Salary (Rs. 12,000 × 12)
Dearness allowances (10% of Rs. 144,000) Dashain allowance (50% of Rs. 12,000) Facilities provided by the employer: – electricity bill (Rs. 200 × 12) – telephone bill (Rs. 150 × 12)
|
144,000
14,400 6,000
2,400 1,800
|
| Assessable income from employment
|
168,600
|