Tax Book 2023

Income From Salary Chapter- 07

Example: Mr. Arif received taxable salary of Rs. 600,000 in tax year 202 3. He retired on 1st day of

May, 202 3 and received an amount of Golden Handshake of Rs. 900,000. If the following further

information has been provided you are required to compute the tax payable by him.

Last 3 years tax liability under normal tax regime 145,000

Last 3 years taxable income under normal tax regime 1,200,000

Solution: A person who receives Golden handshake has two options available to him. He may opt to

include this amount in his taxable income or he may opt to tax this amount as a separate block of

income.

Mr. Arif

Tax year 20 23

Computation of taxable income and tax liability: Rs.

Option 1 (included the golden handshake in the current year income)

Income from salary:

Salary 6 00,000

Golden handshake 900,000

Taxable income 1,500,000

Computation of tax liability:

Tax on Rs. 1,500,000 [ 15 ,000+12.5% x (1,500,000 – 1, 200 ,000)] 52 , 500

Option 2 (offered on the basis of last three years average rate)

Income from salary:

Salary 600,0 00

Taxable income 600,000

Computation of tax liability:

Tax on Rs. 600,000 0

Tax on golden handshake

[Rs. 900,000 x 12.08% as per note attached) 108,720

Tax liability 108 ,720

Rate for golden handshake = 145,000/1,200,000 x 100 = 12.08%

Lower tax is payable in option 1, hence same shall be opted by the tax payer.

4.2 Computation of tax on tax [u/s 12(3) & (4)]

Any tax liability of employee paid by employer on behalf of employee shall be added in the income of

the employee by such amount.

The grossed up amount may be calculated under the following cases.

Where normal rates are feasible:

Example: An employee of a company has received total salary of Rs. 800,000. As per appointment

letter the employer shall pay Rs. 22,500 as tax free salary to employee. Compute the tax liability for

the tax year 202 3.

SOLUTION

Taxable salary excluding tax paid by the employer 800,000

Tax paid by employer 22,500

Total taxable income 822,500

Computation of taxable income and tax liability

Tax on Rs. 822,500 [2.5% x (82 2 , 500 - 6 00,000)] 5,563