Q.Mr. F is employed with a private company in Kolkata (a city with a population exceeding 40 lakh as per the 2011 census). During the previous year 2025-26, relevant to Assessment Year 2026-27, he received the following: Basic Salary ₹50,000 per month; Dearness Allowance ₹20,000 per month (forming part of salary for retirement benefits); City Compensatory Allowance ₹2,000 per month; House Rent Allowance ₹15,000 per month (he paid rent of ₹18,000 per month for a flat in Kolkata); Bonus ₹60,000 during the year; Children Education Allowance ₹500 per month per child, for his two children; and Transport Allowance ₹2,000 per month (he is not specially-abled). His employer also provided him unfurnished rent-free accommodation, owned by the company, in Kolkata throughout the year, free of rent. During the year, Mr. F paid ₹2,500 as professional tax out of his own salary to the West Bengal Government. Compute Mr. F's Income from Salary for Assessment Year 2026-27.

This problem brings together every component of this chapter — taxable allowances after their own exemptions, a rent-free-accommodation perquisite valued on the resulting 'salary' figure, and finally the professional tax deduction under Section 16(iii).

Step 1 — HRA exemption. "Salary" for HRA = Basic + DA = (₹50,000 + ₹20,000) × 12 = ₹8,40,000. Exemption = least of: actual HRA (₹15,000 × 12 = ₹1,80,000); rent paid minus 10% of salary (₹18,000 × 12 − 10% × ₹8,40,000 = ₹2,16,000 − ₹84,000 = ₹1,32,000); 50% of salary, Kolkata being a metro (50% × ₹8,40,000 = ₹4,20,000). Least = ₹1,32,000 exempt; taxable HRA = ₹1,80,000 − ₹1,32,000 = ₹48,000.

Step 2 — Children Education Allowance. Received = ₹500 × 2 children × 12 = ₹12,000. Exemption = ₹100 × 2 × 12 = ₹2,400. Taxable CEA = ₹12,000 − ₹2,400 = ₹9,600.

Step 3 — Transport Allowance. Mr. F is not specially-abled, so no exemption applies: fully taxable = ₹2,000 × 12 = ₹24,000.

Step 4 — Subtotal from allowances (also the 'salary' figure the accommodation perquisite will be valued on):

Two errors are common in a composite problem like this: (i) adding allowances at their FULL received value instead of their taxable (post-exemption) value before computing the accommodation perquisite's 'salary' base — the accommodation percentage must be applied to the ALREADY-net figure; and (ii) forgetting Step …