PRACTICE MANUAL
Integrated Professional Competence Course

PAPER : 4

TAXATION
[As amended by the Finance Act, 2011] Assessment Year 2012 – 13

VOLUME – II

BOARD OF STUDIES THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

This Practice Manual has been prepared by the faculty of the Board of Studies. The objective of the Practice Manual is to provide teaching material to the students to enable them to obtain knowledge and skills in the subject. Students should also supplement their study by reference to the recommended text books. In case students need any clarifications or have any suggestions to make for further improvement of the material contained herein, they may write to the Director of Studies. All care has been taken to provide interpretations and discussions in a manner useful for the students. However, the Practice Manual has not been specifically discussed by the Council of the Institute or any of its Committees and the views expressed herein may not be taken to necessarily represent the views of the Council or any of its Committees. Permission of the Institute is essential for reproduction of any portion of this material.
© THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

All rights reserved. No part of this book may be reproduced, stored in retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior permission in writing from the publisher. Edition Reprint Website E-mail Committee / Department ISBN No. Price Published by : : : : : : : : December, 2011 July, 2012 www.icai.org bosnoida@icai.org Board of Studies 978-81-8441- 444-8 ` The Publication Department on behalf of The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi – 110 002 Sahitya Bhawan Publications, Hospital Road, Agra-282 003. July/2012/30,000 Copies (Reprint)

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A WORD ABOUT PRACTICE MANUAL
The Board of Studies has been instrumental in imparting theoretical education for the students of Chartered Accountancy Course. The distinctive characteristic of the course i.e., distance education, has emphasized the need for bridging the gap between the students and the Institute and for this purpose, the Board of Studies has been providing a variety of educational inputs for the students. Bringing out a series of subject-wise Practice Manuals is one of the quality services provided by the Institute. These Practice Manuals are highly useful to the students preparing for the examinations, since they are able to get answers for all important questions relating to a subject at one place and that too, grouped chapter-wise. The Practice Manual in the subject of “Taxation” is divided into 10 chapters in Income-tax and 6 chapters in Service-tax and VAT in line with Volume I of the Study Material (as amended by the Finance Act, 2011). This will help the students to correlate the Practice Manual with the Study Material and facilitate in complete revision of each chapter. In case of theoretical questions, answers to which are directly available in Volume I of the Study Material, reference has been given to the page number of the Study Material. This Practice Manual has been prepared on the basis of the law as amended by the Finance Act, 2011. The relevant assessment year for Income-tax is A.Y.2012-13. This Practice Manual covers a wide range of questions on income-tax, service-tax and VAT. It includes questions from past examinations at PE-II, PCC & IPCC levels as well as other important questions, which would facilitate in thorough understanding of the provisions contained in the chapters of Volume I of the Study Material. The Practice Manual also contains a matrix showing the topic-wise distribution of examination questions to make you aware of the weightage given to the various chapters in the examination. The Practice Manual will serve as a useful and handy reference guide while preparing for Integrated Professional Competence Examination. It will guide the students to improve their performance in the examinations and also help them to work upon their grey areas and plan a strategy to tackle problems in income-tax, service-tax and VAT. Happy Reading and Best Wishes!

Paper – 4 Taxation Statement showing topic-wise distribution of Examination Questions along with Marks
Term of Examination May 2010 Nov. 2010 May 2011 Nov. 2011 Q M Q 7(a)(ii) 3 4 2(a) 4(b) 4 2(a)(i) 4(a)(ii) 4 4 1(b) 5 8 10 2(a)(i) 4 6(a)(i) 21 20 10 47 7(a)(iii) 6(a) 2(a)(ii) 5(a) 4 5 7(a)(ii) 4 8 4 8 8 4 1(a) 4(a) 7(a)(i) 3(a) 6(a)(ii) 1(a) 4 10 1(a) 5 4(a) 5 8 4 8 4 5 8 41 14 5 27 4 4 4 18 M Q M Q M Total Marks Avg. Marks

Chapter
Q M

Nov. 2009

0.8 3.6 4.2 4 2 9.4 8.2 2.8 1.0 5.4

PART-I : INCOME TAX 1 Basic Concepts 2 Residence and Scope of Total Income 3 Incomes which do not form Part of Total Income 4 Heads of Income Unit-1 Income from Salaries 6 2(a) 2(b) 6 2(a)(ii) 1(b) 6 6(a) 7(a)(i) 5(a) 7(a)(iii) 4 8 4

4(c)

Unit-2

2(b)

Unit-3

Income from House Property Profits and Gains of Business or Profession

Unit-4

Capital Gains

Unit-5

2(c) 4(b) 2(a)

6 4 6

5

6

Income from Other Sources Income of other Persons included in Assessee’s Total Income Set-off and Carry Forward of Losses

4(d) 3

7 16 4 4(c) 4 7(a)(i) 4 7(a)(iii) 4 12 2.4 4(a) 4 4(a)(i) 4 7(a)(ii) 4 16 3.2 1 16 3(a) 8 3(a) 8 1(b) 5 53 10.6

5(a)

8

8

1.6

1

4(a)

Deductions from Gross Total Income 8 Computation of Total Income and Tax Payable 9 Provisions concerning Advance Tax and TDS 10 Provisions for filing of Return of Income PART-II : SERVICE TAX AND VAT 1 Concepts and General Principles of Service Tax 5(a) 2 4(b) 4 6 1.2

2 5(b) 2 1(c) 2(b) 5 4 2 6(b)(ii) 4(b) 2 4 3(b)

Charge of Service Tax and Valuation Unit-1 Charge of Service Tax Unit-2 Valuation of Taxable Services

5(d)

4

4 19

0.8 3.8

3 2 3 5(c) 7(a) 7(d) 8(b)(i) 2 2 3 1(d) 3(c) 7(c) 2 5(b) 4 5 4 4 6(b)(ii) 3 6(b)(iii) 3 2(b) 3(b) 4 4

Payment of Service Tax and Filing of Returns Unit-1 Payment of Service Tax

5(a) 6(b)(iii)

7.8 39 19 1(d) 2(c) 5(c) 5 4 4 1(d) 2(c) 5(c) 5 4 4 71 3.8 14.2

Unit-2

Filing of Returns

3(b)(i) 3(b)(ii) 5(b) 7(b)

2 2 4 4

2(b) 4(b) 6(b) 5(b)

4 4 4 4

4

VAT-Concepts and General Principles

5(b) 6(b)(ii) 7(c) 8(a) 8(b)(i)

2 3 2 8 3

6(c) 7(c) 3 8(a) 7(c) 7(b) 2 8(b)(ii) 3 8(b)(iii) 3 32 2(c) 4(c) 4 4 4(c)(i) 4(c)(ii) 4(c)(iii) 6(c) 1 1 1 4 6.4 8 2 6(c) 5(c) 4 4 4(c) 3(c) 4 4 4(c)(iv) 3(c) 1 4 20 14 4 2.8

4 4

7(c)

4

5

8(b)(iii)

6

Input Tax Credit and Composition Scheme for Small Dealers Unit-1 Input Tax Credit Unit-2 Composition Scheme For Small Dealers VAT Procedures 2 2 2 3

7(a) 7(b) 7(d) 8(b)(ii)

Note: ‘Q’ represents question numbers as they appeared in the question paper of respective examination. ‘M’ represents the marks which each question carries. The question papers of all the past attempts of IPCC can be accessed from the BOS Knowledge Portal on the Institute’s website www.icai.org.

120 4.1 – 2.121 –4.1 – 5.12 6.1 – 7.40 – 4.1 – 3.1 – 4.1 – 9.83 – 4.1 – 8.1 – 6.39 4.23 4.1 – 10.14 4.CONTENTS Chapter PART I : INCOME TAX Chapter Heading Page No. 1 2 3 4 Basic Concepts Residence and Scope of Total Income Incomes which do not form Part of Total Income Heads of Income Unit-1: Income from Salaries Unit-2: Income from House Property Unit-3: Profits and Gains of Business or Profession Unit-4: Capital Gains Unit-5: Income from Other Sources 1.10 8.1 – 4.1 – 1.130 4.130 5.5 2.6 10.15 3.20 7.76 9.24 – 4.82 4.7 5 6 7 8 9 10 Income of other Persons included in Assessee’s Total Income Set-off and Carry Forward of Losses Deductions from Gross Total Income Computation of Total Income and Tax Payable Provisions concerning Advance Tax and Tax Deducted at Source Provisions for filing of Return of Income .

16 4.1 – 3.3 – 2.5 5.1 – 5.16 3.1 – 2.PART II : SERVICE TAX AND VAT 1 2 Concepts and General Principles of Service Tax Charge of Service Tax and Valuation Unit-1: Charge of Service Tax Unit-2: Valuation of Taxable Services 3 Payment of Service Tax and Filing of Returns Unit-1: Payment of Service Tax Unit-2: Filing of Returns 4 5 VAT – Concepts and General Principles Input Tax Credit and Composition Scheme for Small Dealers Unit-1: Input Tax Credit Unit-2: Composition Scheme For Small Dealers 6 VAT Procedures 1.4 2.1 – 2.1 – 4.1 – 1.8 5.12 3.8 6.6 .1 – 3.20 2.13 – 3.16 5.1 – 6.1 – 5.6 – 5.9 3.2 2.

PART I INCOME .TAX .

if any (c) Surcharge (d) Not payable by any assessee Answer (b) i. 2012-13 every domestic company must pay surcharge @ 5% if the total income exceeds ` 1 crore. 1961. Can an income which has been taxed on accrual basis be assessed again on receipt basis? .000 the income-tax payable is ` …………… and surcharge payable is ` …………. Answer Refer to Page 1. In the case of companies other than domestic companies. income tax plus surcharge if any. the surcharge payable is 2% if the total income exceeds ` 1 crore.. No surcharge is levied on other persons) Question 2 Fill in the blanks: Where the total income of an artificial juridical person is ` 3.000.Y. (Note : For the A.1 BASIC CONCEPTS Question 1 Choose the correct answer with reference to the provisions of the Income-tax Act.e. surcharge – nil.30 of Study Material Question 4 Write short note on “Income accruing” and “Income due”. Education cess @ 2% and secondary and higher education cess @ 1% is payable on (a) Income-tax (b) Income-tax plus surcharge. Question 3 Briefly discuss about the exceptions to the rule that income of an assessee for a previous year will be charged to tax in the subsequent assessment year.10. Answer ` 13.

00. Marginal relief is available in case of companies having a total income exceeding ` 1 crore. L. the tax cannot exceed the tax of ` 30. Example: The tax payable on total income of ` 1. The additional amount of income-tax payable (together with surcharge) on the excess of income over ` 1 crore should not be more than the amount of income exceeding ` 1 crore.e.01. The marginal relief is ` 81. Answer In the instant case.000+1.000 (30. the amount paid by the employer to a charity as per the employee’s directions is taxable in the hands of the employee. day to day.e. as it will amount to double taxation. 1961.00.1. the salary which has been foregone after its accrual in the hands of the employee is taxable. interest payable on specified dates arise during the period of holding. Russel (1964) 52 ITR 91. on Government securities.81. it is an application of income and in the nature of foregoing of salary.00. the tax payable on ` 1.500 .00.81.500. Question 6 Explain the concept of “Marginal Relief” under the Income-tax Act.01.. computed@ 31.g.500 (i.W. Therefore. whereas ‘due’ refers to the right to enforce payment of the same.00.Y.000). Income which has been taxed on accrual basis cannot be assessed again on receipt basis. According to the Supreme Court judgment in CIT v.00.` 31.5% (including surcharge) is ` 31. Question 7 Write short notes on: (a) Infrastructure Capital Company . However. amounts received on maturity of such deposit including interest thereon cannot be treated as income again.2010-11. being the amount of total income exceeding ` 1 crore. ` 31. For example. Similarly. Answer The concept of marginal relief is applicable only in the case of companies w. salary for work done in December will ‘accrue’ throughout the month.2 Answer Taxation ‘Accrue’ refers to the right to receive income.000 would be ` 31. Question 5 An employee instructs his employer to pay a certain portion of his salary to a charity and claims it as exempt as it is diverted by over riding charge / title – Comment. day to day.000). Hence. but will become ‘due’ for payment on the specified dates.000 of X Ltd.f. when interest on bank deposit is offered on accrual basis.000. For e. but will become ‘due’ on the salary bill being passed on 31st December or 1st January.00.000 payable on total income of ` 1 crore by more than the ` 1.00. A.

if any) applicable in relation to the highest slab of income in the case of an individual. he shall be deemed to be an assessee in default. Answer Assessee Refer to the definition of “assessee” in section 2(7) in page 1. then. For example. Suppose an employer who pays salary or other person who pays interest. AOP or BOI.21 & 1. as the case may be. every representative assessee shall be deemed to be an assessee for the purposes of the Act. Likewise. 1961 . professional fees etc. Section 2(29C) defines "Maximum marginal rate" to mean the rate of income-tax (including surcharge on the income-tax. Assessee in default A person is said to be an assessee in default if he fails to comply with the duties imposed upon him under the Income-tax Act. Question 9 Who is an “Assessee”? Who is a “Deemed Assessee”? Who is an “Assessee in Default”? Explain with suitable examples. The basic source of income-tax law is a) Income-tax Act.Basic Concepts (b) Infrastructure Capital Fund Answer Refer to pages 1. if a person does not pay advance tax. but does not deduct tax at source and deposit into government treasury. then. "Average Rate of tax" means the rate arrived at by dividing the amount of tax calculated on the total income. section 160(1) defines “Representative assessee”. 1961. Self-Examination Questions 1. commission. Section 160(2) states that. by such total income. he shall be deemed to be an assessee-in-default. 1961.22 of Study Material Question 8 1. Answer As per section 2(10). under section 218. as specified in Finance Act of the relevant year.8 of Study Material Deemed Assessee Assessee includes every person who is deemed to be an assessee under the provisions of the Act.3 Describe average rate of tax and maximum marginal rate under section 2(10) and 2(29C) of the Income-tax Act.

Judgments of Courts Only an Indian company A domestic company means - Taxation Only a foreign company which has made the prescribed arrangements for declaration and payment of dividends in India Indian company and a foreign company which has made the prescribed arrangements for declaration and payment of dividends in India.000 6.50. The surcharge applicable in the case of an individual is a) b) c) 5. a) b) c) 3.000 Higher basic exemption limit of ` 2.000 Higher basic exemption limit of ` 1. 2012-13 is a) b) c) 8.1. 10% of tax payable 10% of tax payable if total income exceeds ` 10 lakh Nil The rates of income tax are mentioned in a) b) c) 4.000 is available b) Higher basic exemption of ` 2. The additional benefit available to a resident woman assessee below the age of 60 years at any time during the previous year 2011-12 is a) b) c) Higher basic exemption limit of ` 1. 1961 and the Annual Finance Acts. who is of the age of 60 years or more at any time during the previous year 2011-12. The surcharge applicable to a domestic company for A.50. 1961 The Annual Finance Acts Both in the Income-tax Act.Y.90. In respect of a resident assessee. a) Higher basic exemption of ` 2.Y.4 b) Circulars/Notifications issued by CBDT c) 2. 2012-13 is a) . Income-tax Act.40.80.000 is available c) Higher basic exemption of ` 2.000 is available.60. 7. 30% 35% 40% 10% if total income exceeds ` 1 crore. The rate of tax applicable to a domestic company for A.

“Income of a previous year will be charged to tax in the assessment year following the previous year”. unexplained investment. a) b) c) a) b) c) (i) (ii) 7.5% if the total income exceeds ` 1 crore. . c. The rate of tax applicable to a firm for A. c.5 The surcharge applicable to a foreign company for A. unexplained money or unexplained jewellery etc. 2012-13 is - 10. a. 10. Answers 1. 30% 35% 40% Assessee Person 1.Y. What is the previous year for charging such income to tax? Explain. 2. 2. unexplained cash credit.Y. a. 14. c. 9. 8.Basic Concepts b) c) 9. Define the following terms under the Income-tax Act. a. 1961 - (iii) Previous year 12. 7. a. b. Nil 2% if the total income exceeds ` 1crore. Write short notes on the following (i) (ii) Year of accrual of dividend Marginal relief 13. 5. 6. b.5% if total income exceeds ` 1 crore 5% if the total income exceeds ` 1crore. is detected by the Assessing Officer.Discuss the exceptions to this general rule. c. In certain cases. 3. 2012-13 is - 11. 4.

The income deemed to accrue or arise in India under section 9 comprises. 1961: (i) Income accruing in Japan and received there is taxable in India in the case of (a) Resident and ordinarily resident only (b) Both resident and ordinarily resident and resident but not ordinarily resident (c) Both resident and non-resident (d) Non-resident (ii) A company. inter alia. its control and management is situated: (a) Wholly in India (b) Partly in India (c) Wholly or partly in India (d) None of the above. Mr. income by way of fees for technical services. since the services were used in India? Answer A non-resident is chargeable to tax in respect of income received outside India only if such income accrues or arises or is deemed to accrue or arise to him in India. would be treated as a resident in India for the previous year 2011-12 if. Is this payment chargeable to tax in India in the hands of Mr. which includes any consideration for rendering of any . a management consultant practising in Colombo. Kulasekhara. other than an Indian company. specializing in project financing. Answer (i) (a) Resident and ordinarily resident only.2 RESIDENCE AND SCOPE OF TOTAL INCOME Question 1 Choose the correct answer with reference to the provisions of the Income-tax Act. Kulasekhara. during that year. The consultancy is related to a project in India with possible Ceylonese collaboration. (ii) (a) Wholly in India Question 2 Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara is a non-resident. The payment was made in Colombo.

Kulasekhara. In the case of Indian citizens leaving India for employment. the period of stay during the previous year must be 182 days instead of 60 days given in (ii) above. from services utilized in India would be deemed to accrue or arise in India in case of a non-resident and be included in his total income. since the services were utilized in India. if he is: (i) (ii) Resident and ordinary resident. an individual is said to be resident in India in any previous year if he satisfies any one of the following conditions (i) (ii) He has been in India during the previous year for a total period of 182 days or more. Therefore. was in India for 175 days only (i. the payment received by Mr. Question 3 Mr. In the instant case.Y. 1961. Mr. (iii) Non-resident . During the previous year 2011-12.e 30+31+30+31+31+22 days). Anirudh pertaining to the year ended 31. Resident but not ordinarily resident.Ram. 2012-13. an Indian citizen.2012. a non-resident.2 managerial.2011 for the first time to work as an officer of a company in Germany. Since he does not satisfy the minimum criteria of 182 days. technical or consultancy services. compute the total income for the assessment year 2012-13. whether or not such services were rendered in India. he is a non-resident for the A. fees for technical services. or He has been in India during the 4 years immediately preceding the previous year for a total period of 365 days or more and has been in India for atleast 60 days in the previous year. Thereafter. Ram.09. he left India for employment purposes. left India on 22.3. in Colombo is chargeable to tax in his hands in India. Question 4 From the following particulars of income furnished by Mr. an Indian citizen. Answer Under section 6(1). payment to a management consultant relating to project financing is covered within the scope of “fees for technical services”. inter alia.Residence and Scope of Total Income 2. The Explanation below section 9(2) has been substituted to clarify that income by way of. as it is deemed to accrue or arise in India. Determine the residential status of Ram for the assessment year 2012-13 and explain the conditions to be fulfilled for the same under the Income-tax Act.

500 52. deduction @30% under section 24..Y.3 Taxation Particulars Amount (` ) 15. Therefore.000 10.2. 2012-13 Particulars Resident & ordinarily resident 15.500 77. an Indian Company [See Note (ii) below] 5) Agricultural income from land in Gujarat [See Note (iii) below] TOTAL INCOME Notes (i) 15.. 3) Rent from property in London deposited in a bank in London [See Note (i) below] 4) Dividend from RP Ltd.000 15. .000) 75.000 75. Anirudh for the A.000 (a) (b) (c) (d) (e) Profit on sale of shares in Indian Company received in Germany Dividend from a Japanese Company received in Japan Rent from property in London deposited in a bank in London.500 Income from house property (ii) Dividend from Indian company is exempt under section 10(34) (iii) Agricultural income is exempt under section 10(1).000 NonResident 1) Profit on sale of shares of an Indian company. an Indian Company Agricultural income from lands in Gujarat Answer Computation of total income of Mr. Rent received (assumed as gross annual value) Less: Deduction under section 24 (30% of ` 75.000 22. received in Germany 2) Dividend from a Japanese company.000 25.000 52.000 6.000 It has been assumed that the rental income is the gross annual value of the property. later on remitted to India through approved banking channels Dividend from RP Ltd.500 Resident but not ordinarily resident 15.000 10.000 15. received in Japan. has been provided and the net income so computed is taken into account for determining the total income of a resident and ordinarily resident.

or .Y.4 Discuss the provisions relating to determination of residential status of Hindu undivided family. the firm would be considered as a non-resident. then the status of its Karta determines whether it is resident and ordinarily resident or resident but not ordinarily resident. Residential status of a company: A company is said to be resident in India in any previous year if : (a) it is an Indian company as defined under section 2(26) . Dey.Y. What will be his residential status for assessment years 2011-12 and 2012-13? Answer Mr. respectively. a company other than an Indian company.2010-11 and P. residing in US since 1960. If the control and management of its affairs is situated wholly outside India during the relevant previous year. Question 6 Mr.Y. Answer Residential status of a HUF: A HUF would be resident in India if the control and management of its affairs is situated wholly or partly in India during the relevant previous year. As per section 6(6).Y. a non-resident. partnership firm and company. every Indian company is resident in India irrespective of the fact whether the control and management of its affairs is exercised from India or outside. would become resident in India only if the entire control and management of its affairs is in India during the relevant previous year. Thus.or (b) its control and management is situated wholly in India during that year.2011-12. Where the control and management of the affairs is situated wholly outside India during the relevant previous year. If the HUF is resident.2010 for permanent settlement.4.2011-12 and A. a person will be “Not ordinarily Resident” in India in any previous year. However.2012-13 since he has stayed in India for a period of 365 days (more than 182 days) during the P. Residential status of a firm: A firm would be resident in India if the control and management of its affairs is situated wholly or partly in India during the relevant previous year. came back to India on 1.Residence and Scope of Total Income Question 5 2. if such person : (a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year. it would be considered as a non-resident. Dey is a resident in A.

For the previous year 2011-12 (A.Y. no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. 2012-13 – “Resident but not ordinarily resident” Question 7 State the activities and operations. 2011-12) will be “Resident but not ordinarily resident”. applying the above. income from which is not deemed to accrue or arise in India. the income of the business deemed to accrue or arise in India shall be only such part of income as is reasonably attributable to the operations carried out in India.Y. it follows that such part of income which cannot be reasonably attributed to the operations in India. In the case of a business. he would be a resident and ordinarily resident. They are given below: 1. the status of Mr. Dey for the previous year 2010-11 (A.2.5 Taxation (b) has during the 7 previous years immediately preceding the relevant previous year been in India for 729 days or less. Collection of news and views in India for transmission out of India [Explanation 1(c) to section 9(1)(i)] In the case of a non-resident. In the instant case. Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)] In the case of a non-resident. 2012-13) his status would continue to be Resident but not ordinarily resident since he was non-resident in 9 out 10 previous years immediately preceding the previous year and also had stayed for less than 729 days in 7 previous years immediately preceding the previous year. is not deemed to accrue or arise in India. 2011-12 – “Resident but not ordinarily resident” A. 2. . magazines or journals. Therefore his status for A. being a person engaged in the business of running a news agency or of publishing newspapers. If he does not satisfy either of these conditions. Answer Explanation 1 to section 9(1)(i) lists out income which shall not be deemed to accrue or arise in India. Therefore.Y.Y. in respect of which all the operations are not carried out in India [Explanation 1(a) to section 9(1)(i)] In the case of a business of which all the operations are not carried out in India. no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India. 3.

He is in India for a period or periods amounting in all to 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the relevant previous year. or He has been in India for a period of 729 days or less during 7 previous years immediately preceding the relevant previous year. 1961? Answer Individual – An individual is said to be a resident in India in any previous year if he fulfills any one of the following two basic conditions : (i) (ii) He is in India during the previous year for a period or periods amounting in all to 182 days or more.Residence and Scope of Total Income 4. Exception – If an Indian citizen leaves India for the purpose of employment or as a member of crew of an Indian ship or if an Indian citizen or person of Indian origin who is residing outside India comes to India on a visit in a previous year. (ii) above. Question 8 When is an individual/HUF said to be “Resident and ordinarily Resident” under the Income tax Act. no income shall be deemed to accrue or arise in India through or from operations which are confined to the shooting of any cinematograph film in India. who is not a citizen of India or a firm which does not have any partner who is a citizen of India or who is resident in India . he will be treated as ‘resident and ordinarily resident’. Thus in brief. an individual fulfilling any one of the basic conditions and none of the additional conditions will be “Resident and ordinarily resident”.6 In the case of a non-resident. Additional conditions : (i) (ii) He has been a non-resident in India in 9 out of 10 previous years preceding the relevant previous year . he would be considered as resident in India in that year only if he has been in India in that year for 182 days or more instead 60 days referred to in. . if such non-resident is : (i) (ii) an individual. Resident and Ordinarily Resident: If an individual satisfies any one of the basic conditions and none of the following additional conditions. or (iii) a company which does not have any shareholder who is a citizen of India or who is resident in India. Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)] 2.

a sailor has remained on ship for a private company owning ocean going ships as follows : (1) (2) Outside the territorial waters of India for 183 days. Inside the territorial waters of India for 183 days. Karta of HUF. firms can be either a resident or non-resident. royalty and fee for technical services is taxable in India irrespective of territorial nexus. he has been India for 365 days or more. claims that the HUF is non-resident as the business of HUF is transacted from UK and all the policy decisions are taken there. 1961: (a) Only individuals and HUFs can be resident. Question 10 State with reasons. X. and He has been in India for a period of 729 days or less during the 7 previous years preceding the relevant previous year.2. period of stay in India is more than 182 days. In the given case. the sailor is treated as a resident in India for the Assessment Year 2012-13. This sub-section relates to only . with regard to the provisions of the Income-tax Act. (c) Mr. or (b) In the preceding four years. (b) Income deemed to accrue or arise in India to a non-resident by way of interest. and has been in India for 60 days or more in that year. Answer (a) True : A person is said to be “not-ordinarily resident” in India if he satisfies either of the conditions given in sub-section (6) of section 6. Question 9 In the previous year 2011-12. Therefore. Is he considered to be resident or not for the Assessment Year 2012-13 (Previous Year 201112)? Comment. whether the following statements are true or false. the HUF shall be considered as resident and ordinarily resident – (i) (ii) He has been non resident in India in 9 out of 10 previous years preceding the relevant previous year . Answer An individual is treated as a resident in India in any previous year if he fulfills any of the following two conditions laid down in section 6(1): (a) He is in India for a period or periods amounting to 182 days or more in that year.7 Taxation HUF: If the control and management of the affairs of the HUF is wholly or partly situated in India and if the manager of the HUF does not satisfy any of the following two additional conditions. but not ordinarily resident in India.

In the given case. . If both the above conditions are not satisfied.2011. She had received the following gifts from her relatives and friends during 1. Answer Under section 6(1).000 ` 51. only individuals and Hindu Undivided Families can be resident.000 ` 1.72. shall be included in the total income of the non-resident.2011 and came to India for the first time on 16.03.m.2012. Firms and companies can.2011 to 30.Residence and Scope of Total Income 2. therefore. the individual is a non-resident. she had purchased a show room in Mumbai on 22. since all the policy decisions of HUF are taken from UK.From married sister of husband .03. an individual is said to be resident in India in any previous year. or (ii) the non-resident has rendered services in India (c) True : A HUF is considered to be a non-resident where the control and management of its affairs are situated wholly outside India. from 1.From two very close friends of her husband.000 ` 11.04.9. Question 11 Miss Charlie.9.2012. which was leased out to a company on a rent of ` 25. She remained in India up till 19. While in India.2011: . (vi) and (vii) of section 9(1). ` 1. If an individual satisfies any one of the conditions mentioned above. or He has been in India during the 4 years immediately preceding the previous year for a total period of 365 days or more and has been in India for at least 60 days in the previous year.05. (b) True : Explanation to section 9 clarifies that income by way of interest. She returned to India again on 27.03.000 and ` 21.2011 She had taken loan from a bank for purchase of this show room on which bank had charged interest of ` 97.51.4. he is a resident. royalty or fee for technical services which is deemed to accrue or arise in India by virtue of clauses (v). got married to Mr. Radhey of India in USA on 2.2011.From parents of husband .6.500 upto 31. the HUF is a non-resident. an American national.2011 and left for USA on 20.000 Determine her residential status and compute the total income chargeable to tax alongwith the amount of tax payable on such income for the Asst.03.000 p.2011. Year 2012-13. All other classes of assessees can be either a resident or non-resident for the purpose of income-tax. if he satisfies any one of the following conditions: (i) (ii) He has been in India during the previous year for a total period of 182 days or more. but not ordinarily resident in India.8 individuals and Hindu Undivided Families. either be a resident or non-resident. Therefore. whether or not (i) non-resident has a residence or place of business or business connection in India.

80.4. the residential status of Miss Charlie.2012 to 31. Computation of total income of Miss Charlie for the A.09.2008] Total -16 days Nil Nil Nil 16 days 172 days 5 days 177 days The total stay of the assessee during the previous year in India was less than 182 days and during the four years preceding this year was for 16 days.000 95.2012 Total Four preceding previous years P. P.2011 27.03. 2012-13 Particulars Income from house property Show room located in Mumbai remained on rent from 01.2007 to 31.3.2.2009 to 31.m.75.p.4. for A.2009-10 [1.2011 to 19.2008 to 31.500 97.2012 @ ` 25.2009] P.2012-13 has to be determined on the basis of her stay in India during the previous year relevant to A.Y. Her stay in India during the previous year 2011-12 and in the preceding four years are as under : P.2011] P.04.4.3.Y.2008-09 [1.2011-12 01.000. an American National.2011-12 and in the preceding four assessment years.3.Y.9 Taxation Therefore.2010] P.000/.Y.500 1.2007-08 [1. due to non-fulfillment of any of the two conditions for a resident. Gross Annual Value [25. she would be treated as non-resident for the Assessment Year 2012-13.2011 to 31.75.4.Y.000 x 11] (See Note 1 below) Less: Municipal taxes Net Annual Value (NAV) Less: Deduction under section 24 82.03. Therefore.e.03.2010 to 31.000 30% of NAV Interest on loan Income from other sources Gifts received from non-relatives is chargeable to tax as per section 56(2)(vii) if the aggregate value of such gifts exceeds of ` 50.Y.000 Nil 2.000 .05.3. ` ` 2.Y.Y.Y. 201213 i.2010-11 [1.

e.000 is taxable under section 56(2)(vii) since the aggregate of ` 1.. ` 6 lacs from an Indian firm for conducting the feasibility study for the new project in Finland. 2.000 aggregating to ` 1. (see Note 2 below) 2.90.000 Total income Computation of tax payable by Miss Charlie for the A. the aggregate value of taxable gifts received) is taxable. she cannot avail the benefit of higher basic exemption limit of ` 1. In this case.000. Gift received from two friends of husband ` 1. ` 11. the entire amount of ` 1. fair rental value and standard rent) in the question. Municipal value.961 Actual rent received has been taken as the gross annual value in the absence of other information (i. Particulars Tax on total income of ` 2.Residence and Scope of Total Income ` 50. since the assessee is a non-resident.67. ` 8.Y. .67.700 174 87 8. since sister-in-law falls within the definition of relative and gifts from a relative are not chargeable to tax. since parents of husband fall within the definition of relatives and gifts from a relative are not chargeable to tax.72.000 received from parents of husband would be exempt.000 during the year. in India on entering following transactions during the financial year 2011-12: (i) (ii) ` 5 lacs received from an Indian domestic company for providing technical knowhow in India.72. 2012-13.000.e. If the aggregate value of taxable gifts received from non-relatives exceeds ` 50. Therefore. the entire amount received (i.10 Nil - Nil - 1.72. The increased basic exemption limit of ` 1.72.51.90.000 is available only for resident women.000 exceeds ` 50.72.000 is taxable under section 56(2)(vii).000 received from married sister of husband is exempt.000 1. Question 12 Determine the taxability of income of US based company Heli Ltd. 3.000 (see note 3 below) Add: Education cess@2% Add : Secondary and higher education cess @1% Total tax payable Notes : 1.000 and ` 21.000 2.

therefore. Income received from a non-resident for use of patent for a business in India is taxable in India as it is deemed to accrue or arise in India. (ii). (v) ` 10 lacs for supply of manuals and designs for the business to be established in Singapore. Rakesh settled in U. It is not taxable in India since it does not accrue or arise in India nor is it deemed to accrue or arise in India. taxability of income is determined in following manner : (ii) Nil (iii) 4 lacs (iv) Nil (v) Nil 9 lacs Note : It is assumed that the income referred to S. since it does not accrue or arise in India nor is it deemed to accrue or arise in India. Question 13 Mr. taxable in India.11 Taxation (iii) ` 4 lacs from a non-resident for use of patent for a business in India. (iv) and (v) are received outside India. Compute the total income for the Assessment Year 2012-13. in the year 1975 and Mr.No. . Answer A non-resident is chargeable to tax in India in respect of following incomes: (i) (ii) Income received or deemed to be received in India. No. Conducting the feasibility study for the new project in Finland for the Indian firm is not taxable in India as the income accrues outside India since such study is done for a business outside India. (iv) ` 8 lacs from a non-resident Indian for use of know how for a business in Singapore. Total Income Amount (` ) 5 lacs In view of the above provisions. Income received for supply of manuals and designs for the business to be established in Singapore is not taxable in India. Rakesh and Mr. Anish are brothers and they earned the following incomes during the financial year 2011-12.K. (i) Transaction details Amount received from an Indian domestic company for providing technical knowhow in India is deemed to accrue or arise in India and is.2. Income received from a non-resident Indian for use of knowhow for a business in Singapore. Mr. S. Anish settled in Surat. and Income accruing or arising or deemed to accrue or arise in India.

12 Mr. Bangalore Agricultural income from a land in Rajasthan [(Exempt u/s. 2012-13 Sl.000 12.000 50.00.000 8.000 5.000 25.Y.000 50.000 12.000 20. Anish 25.000 20.000 48. 5. 9. 50% of interest received in India Dividend from British Company received in London Profit from a business in Mumbai. 3.000 25. 8.000 72.Residence and Scope of Total Income Sr.000 Mr. 8.000 80. Development Bonds Dividend from British Company received in London Profit from a business in Mumbai but managed directly from London Profit on sale of shares of an Indian company received in India Income from a business in Delhi Fees for technical services rendered in India but received in London Interest on savings bank deposit in SBI.000 20.000 20.000 15.000 25. 3.500 10.000 1. 7.000 10.000 33. 10(1)] Rent received in respect of House property at Bangalore (See Note 1) . Answer Computation of total income of Mr. Anish for the A. 4.000 10. Bangalore Agricultural income from a land situated in Rajasthan Rent received in respect of house property at Bangalore LIP premium paid 2. 4.000 50.000 5. Particulars No.000 15. Rakesh and Mr.K. Anish Resident (`) 20. Rakesh Mr. 2.000 1. Interest on U. 6. development bonds. No.000 20. 9.600 1. 5. but managed directly from London Profit on sale of shares of an Indian company received in India Income from a business in Delhi Fees for technical services rendered in India. Mr. 10. but received in London Interest on savings bank deposit in SBI.K.000 80. 6.400 Interest on U. 2. 7. Rakesh NonResident (`) 12.000 10.00. Particulars 1.

1961 in case of both non-resident and resident assessees. 1961. but may be a resident in India.400 33. by a non-resident assessee is not taxable income.9 of Study Material .900 1. Question 15 Explain the term “Business Connection” under section 9(1). but may not be a resident in India. 3.000 14.90. Agricultural income from a land situated in the State of Rajasthan. is allowed to hold two different citizenship simultaneously. while the same received by a resident assessee is taxable and not entitled to exemption under section 10(34) of Income-tax Act. A person may be an Indian national /citizen.2. Is the citizenship a determining factor for residential status of an individual? Answer Citizenship of a country and residential status of that country are separate concepts. Dividend received from British company in London. Answer Refer to Page 2. Anish (`) 48. a person may be a foreign national /citizen.600 50. The provisions of section 6 of the Income-tax Act. is exempted under section 10(1) of Income-tax Act.600 2. On the other hand.000 1.600 2.900 25.400 Mr. 1961 are the determining factor of residential status of an individual.65. are determined on the basis of number of days an individual actually stays in India during the previous year. who is an Indian resident.47. Question 14 An individual.000 21. Income from house property Rent received Less : Deduction u/s 24 @ 30% Mr.47. The citizenship of an individual has no role in determining the residential status of an individual. non-resident.600 1. etc. Rakesh (`) 72.13 Taxation Gross Total income Less : Deduction under Chapter VI-A under section 80C LIC Premium paid Total Income Notes : 2. The residential status of resident.

14 Self-Examination Questions 1.2012-13 would be a) b) c) 2. from 1.Y. When is an individual said to be “Resident and ordinarily resident” under the Income-tax Act. A company. other than an Indian company. Income received in India and in Dubai.Residence and Scope of Total Income 2. 6. 2011-12 for 181 days. and income directly credited in India. Income accruing in London and received there is taxable in India in the case of a) b) c) 5. would be a resident in India for the P.2011. Resident and ordinarily resident Resident but not ordinarily resident Non-resident Raman was employed in Hindustan Lever Ltd. He is liable to tax in respect of a) b) c) Income received in India from Hindustan Lever Ltd.000 p.2011 to 27. resident and ordinarily resident only both resident and ordinarily resident and resident but not ordinarily resident both resident and non-resident 4. Income received in India from Hindustan Lever Ltd. its control and management is situated a) b) c) wholly in India partly in India wholly or partly in India.201112 if.10. 1961? How is royalty defined under section 9 of the Income-tax Act? Write short notes on a) Business connection . his residential status for the A.3.10.2011 and got salary of rupee equivalent of ` 80.000 p.m.2011 to 31.Y.m.2012.9. His salary for October to December 2011 was credited in his Dubai bank account and the salary for January to March 2012 was credited in his Bombay account directly.Y. He received a salary at ` 40. and he is non-resident in 9 out of 10 years immediately preceding the current previous year and he has stayed in India for 365 days in all in the 4 years immediately preceding the current previous year and 420 days in all in the 7 years immediately preceding the current previous year . He resigned and left for Dubai for the first time on 1. 7.4. If Anirudh has stayed in India in the P. from 1. during that year. 3.

” Answers 1. Discuss the provisions relating to determination of residential status of individuals. 4. royalty and fees for technical services is to be taxed irrespective of territorial nexus. a. . Discuss the correctness or otherwise of the statement – “Income deemed to accrue or arise in India to a non-resident by way of interest.15 b) 8. 2. b. 9. When are the following income deemed to accrue or arise in India? a) b) Interest Fees for technical services. a. 10. 3. b.2. Taxation Income deemed to accrue or arise in India.

the maximum annual allowance exempt under section 10(14) is (a) ` 10. (iv) The deduction allowable in respect of the family pension taxable under “income from other sources” is: (a) 33 1/3% of the pension (b) 30% of the pension or ` 15. Abhishek.000 whichever is less (d) Nil .200 (c) ` 9.3 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME Question 1 Choose the correct answer with reference to the provisions of the Income-tax Act. 1961. Amar & Co. (i) For an employee in receipt of hostel expenditure allowance for his three children.800 (b) ` 7. who is a partner in M/s. is: (a) Exempt from tax (b) Taxable as his business income (c) Taxable as his salary (d) Taxable as income from other sources.600 (d) ` 3.600 (ii) A charitable or religious institution is required to file an application for registration (a) within 1 year from its creation (b) within 30 days from its creation (c) within the financial year of its creation (d) before the expiry of the financial year from which the benefit of exemption is sought (iii) Share of profit of Mr.000 whichever is lower (c) 33 1/3 % of the pension or ` 15.

Mr.200 [300 х 12 х 2] (ii) (d) before the expiry of the financial year from which the benefit of exemption is sought (iii) (a) exempt from tax (iv) (c) 33-1/3% of the pension or ` 15.2003 and for which a one time premium of ` 10 lakh was paid. is Answer (i) (ii) exempt Question 3 State with reasons in brief whether the following statements are true or false with reference to the provisions of the Income-tax Act. is not genuine. Where the Commissioner of Income-tax is satisfied that the activities of the charitable trust.000 received by a political party.3. he can cancel the registration by passing an order in writing. (v) Mr. where the sum assured was ` 15 lakh.2012 from Life Insurance Corporation of India in respect of a policy. 1961. only in respect of income from any source in the State of Sikkim.. A. (is / is not ) exempt under section 10(10C). there is no need to maintain books of account.000 as his share from the income of the HUF. .10.000 whichever is less Question 2 Fill in the blanks by choosing the correct answer from the brackets. a member of a HUF. received ` 10. The same is to be included in his chargeable income.e.Jaimin from his employer.(exempt/not exempt). (iii) In respect of voluntary contributions in excess of ` 20. exemption under section 13A is available where proper details about the donations are maintained. which has been accorded registration. his share of total income of the firm is …………. Roy received a sum of ` 20 lakh on 31.. (vi) Mr. In the case of a person being a partner of a firm which is separately assessed as such. taken on 1.Roy claims that the amount is totally exempt under section 10(10D)(c) of the Income-tax Act. Indian Institute of Technology ……………. 1961: (i) (ii) Exemption is available to a Sikkimese individual. ` 7.3.2 Answer (i) Taxation (b) i. (iv) Pension received by a recipient of gallantry award is exempt from income-tax. (i) (ii) A compensation of ` 4 lakhs received by Mr.

by passing a written order. (iv) True : Section 10(18) exempts any income by way of pension received by individual who has been awarded “Param Vir Chakra” or “Maha Vir Chakra” or “Vir Chakra” or such other gallantry award as the Central Government.e. any amount received or receivable as compensation by an individual or his/her legal heir on account of any disaster from the Central Government.000 is over and above the obligation to maintain such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom. universities and educational institutions are not taxable as the definition of income in section 2(24) does not cover the same. inter alia. However. holding 16% shares. by notification in the Official Gazette. in respect of which the premium payable for any year during the term of the policy exceeds 20% of actual capital sum assured. 1961. hence exempted under section 10(34) of the Income-tax Act. Hence. where he is satisfied.4. State Government or a local authority is exempt from tax. shall not be exempt from tax. being 20% of ` 15 lakh].Incomes which do not form part of Total Income 3.000 should not be included in Mr. (viii) Compensation on account of disaster received from a local authority by an individual or his/her legal heir is taxable. Therefore. Answer (i) False : Exemption under section 10(26AAA) is available to a Sikkimese individual not only in respect of the said income. (vii) False : Section 2(24) defining the term ‘income’ includes voluntary contributions received by any trust. the statement is not correct. university or educational institution. may. Roy is not correct since the one-time premium of ` 10 lakh paid by him is in excess of 20% of the sum assured [i. any sum received under an insurance policy issued on or after 1. a shareholder of a closely held company.A’s chargeable income. the trust should be given a reasonable opportunity of being heard before such cancellation. P. received advances from that company which is to be deemed as dividend from an Indian Company. (viii) False : As per section 10(10BC). (ii) True : As per section 12AA(3). (iii) False : The obligation under section 13A to maintain proper details of voluntary contributions in excess of ` 20. it exceeds ` 3 lakh.03. the Commissioner has power to cancel the registration of the trust. (ix) Mr.3 (vii) Voluntary contributions received by charitable trusts. (vi) False : As per section 10(10D)(c). that the activities of the trust are not genuine. (v) False : Section 10(2) exempts any sum received by an individual as a member of a HUF where such sum has been paid out of the income of the family. specify in this behalf. ` 10. . the contention of Mr. Hence. but also in respect of income by way of dividend or interest on securities.

which has already been allowed as deduction under the Act. or by accident or negligence. or damage to. Question 4 Which income of Sikkimese individual is exempted from tax under section 10(26AAA)? Answer Exemption of income of Sikkimese individual under section 10(26AAA) The following income which accrues or arises to a Sikkimese individual would be exempt from income-tax : (a) income from any source in the State of Sikkim or (b) income by way of dividend or interest on securities This exemption will not be available to a Sikkimese woman who. property. Question 5 Explain the provisions regarding exemption of compensation received on account of disaster under section 10(10BC) of the Income-tax Act. (iv) “Disaster” means a catastrophe. or degradation of. such deemed dividend is not exempt under section 10(34). marries a non-Sikkimese individual. mishap. which is beyond the coping capacity of the community of the affected area. Answer Exemption of compensation received on account of disaster under section 10(10BC) (i) (ii) Section 10(10BC) exempts any amount received or receivable as compensation by an individual or his / her legal heir on account of any disaster. arising from natural or man made causes. calamity or grave occurrence in any area.3.4 Taxation (ix) False : As per section 10(34). (iii) Exemption would not be available in respect of the compensation for alleviating any damage or loss. Such compensation should be granted by the Central or State Government or by a local authority. environment. 2008. and destruction of. Corporate dividend tax is not leviable on deemed dividend under section 2(22)(e) and hence. only income by way of dividend referred to in section 115O shall be exempt in the hands of shareholders. (vi) It should be of such a nature or magnitude. (v) It should have the effect of causing substantial loss of life or human suffering. on or after 1st April. or damage to. . 1961.

23 of Study Material.000 [Exempt u/s 10(4)(ii). Answer (i) Refer to page 3. would not make any difference. Mr. 2012-13 Particulars Income from other sources Interest earned from Non-resident (External) Account ` 1.000 An Individual is required to furnish a return of income under section 139(1) if his total income exceeds the maximum amount not chargeable to tax i. He also earned ` 4. (ii) Refer to page 3. ` 20.26 of Study Material.ft in Mumbai.92.80. . Is Mr.000 was credited to his Non-resident (External) Account with the SBI. Question 7 Mr. 2011-12. A is a resident Indian.80. 2012-13).000 being interest on fixed deposit with SBI was credited to his savings bank account during this period. During the F.Y.ft.A has been permitted by RBI to maintain the aforesaid account] Interest on bank fixed deposit Interest on savings bank account Total Income ` NIL 20. assuming that Mr. Hence.Incomes which do not form part of Total Income Question 6 Write short notes on : (i) (ii) Exemption for retrenchment compensation under section 10(10B). ? Answer Computation of total income of Mr.Y. The aspect of Mr. ` 1. interest of ` 1.000. A is not required to file a return of income as his total income is below ` 1.000 24.000 4.92. (iii) ‘Encashment of Earned Leave’ and its taxability under the Act. A required to file return of income? What will be your answer. (iii) Refer to section 10(10AA) in page 3.000 as interest on this savings account.A occupying / owning a shop area of 130 sq.5 Exceptions under section 10(10D) as regards exemption of any sum received under a life insurance policy.000 (for AY.e.21 of Study Material. if he owns one shop in Mumbai of area 130 sq. 3. A for A.

000.80.00.A. ` 1.000 20. .000 Less: Income tax on basic exemption limit + agricultural income i.000 + 2.80.80. the Finance Act prescribes slab rates of income-tax and in such cases. The procedure for computation of tax payable on nonagricultural income after aggregation of agricultural income is as follows– (i) (ii) Aggregate the agricultural income with non-agricultural income and determine the tax payable on such amount. companies etc. (iii) The difference between the tax computed in step (i) and step (ii) will be the tax payable in respect of non-agricultural income.960 Total Income + agricultural income (` 4.00.e. Aggregate the agricultural income with the basic exemption limit (i.000 52. HUF.000 32. Question 9 State the provisions relating to the exemption in respect of long-term capital gains on transfer of listed equity shares.00.000) In the case of assessees such as partnership firms.000 = ` 3. agricultural income has to be aggregated for rate purposes. However. Tax thereon Tax before cess Add : Education cess @ 2% and SHEC @ 1% Total tax liability Assessment year 2012-13 6. aggregation of agricultural income has no effect. Example : Mr. In the case of every individual.3.6 Taxation Question 8 Briefly explain about aggregation of agricultural income for rate purposes. ` 1.00. Answer Refer to section 10(38) in page 3. This is provided for in the Finance Act of each year.00.e.000 960 32. (age below 60 years) Income tax on ` 6. How will income-tax be computed where an individual derives agricultural as well as non-agricultural income? Answer Agricultural income is exempt from tax under section 10(1).000 + ` 2. it is to be included for determining the rate at which non-agricultural income is chargeable to tax. whose income is chargeable to tax at a flat rate.000) and determine the tax payable on such amount.51 of Study Material. AOP or BOI and every artificial juridical person.

2012 are as under: (` in lacs) S N 10 100 120 Nil 20 10 7 6 13 4 Domestic turnover Export turnover Gross profit Less: Expenses and depreciation Profits derived from the unit . The brief summarized details for the year ended 31.3. Question 11 How is exemption granted by section 10(10CC) in respect of income-tax paid by employer? Answer Refer page 3. is running two industrial undertakings. Question 13 Explain the exemption of income received in a transaction of “reverse mortgage’” entered into by an individual with a bank.1 of Study Material. whether or not the basic operations were carried out on land.53-3.26 of Study Material.54 of Study Material. Question 12 Whether the income derived from saplings or seedlings grown in a nursery is taxable under the Income-tax Act.Incomes which do not form part of Total Income Question 10 3. Answer Refer to section 10(43) in page 3. income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income and exempt from tax. Answer Refer to Section 14A in page 3. one in a SEZ (Unit S) and another in a normal area (Unit N). 1961? Answer As per Explanation 3 to section 2(1A) of the Act.7 Briefly discuss about the provisions relating to deductibility of expenditure incurred in relation to income not includible in assessee's total income. Question 14 Nathan Aviation Ltd.

Assume F. furnishes you the following information for the year ended 31. 2011-12 falls within the first 5 year period commencing from the year of manufacture or production of articles or things or provisions of services by the Unit S.2012: Total turnover of Unit A located in Special Economic Zone Profit of the business of Unit A Export turnover of Unit A Total turnover of Unit B located in Domestic Tariff Area (DTA) Profit of the business of Unit B Compute deduction under section 10AA for the A. Ltd. Answer Computation of business income of Nathan Aviation Ltd.3.3. Briefly compute the business income of the assessee.Y.8 Taxation The brought forward business loss pertaining to Unit N is ` 2 lacs. 2012-13. Particulars Total profit dervied from Units S & N (` 13 lacs + ` 4 lacs) Less: Exemption under section 10AA [See Working Note below] Less: Brought forward business loss ` (in lacs) 17 12 5 2 3 ` (in lacs) 10 120 130 13 12 Working Note Computation of exemption under section 10AA in respect of Unit S located in a SEZ Domestic turnover of Unit S Export turnover of Unit S Total turnover of Unit S Profit derived from Unit S Exemption under section 10AA Export turnover of unit S 120 Profit of Unit S x Total turnover of Unit S = 13 х 130 = Question 15 Y Co. ` 100 lakhs 30 lakhs 50 lakhs 200 lakhs 20 lakhs .Y.

e.55 of Study Material. assuming that F.Incomes which do not form part of Total Income Answer 3. being the Unit. the exemption would be available only with effect from . Question 17 Answer the following question with regard to the provisions of the Income-tax Act. (ii) (iii) Accordingly. 2007. The requirement of filing an application for registration within one year of creation of the religious or charitable trust or institution has been removed.Y. The application can be filed at any time now. 1961: What are the conditions to be fulfilled by a Charitable Trust under section 12A for applicability of exemption provisions contained in sections 11 and 12? Answer Conditions for applicability of sections 11 and 12 [Section 12A] The exemption provisions contained in sections 11 and 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled (i) An application for registration of the trust or institution in the prescribed form and in the prescribed manner should be made to the Commissioner and the trust or institution should be registered under section 12AA. Deduction under section 10AA = = Profit of the business of Unit A x ` 30 lakhs x 50 = ` 15 lakhs 100 Export Turnover of Unit A Total Turnover of Unit A Question 16 What are the incentives for newly established units in Special Economic Zone (Section 10AA)? Answer Refer to page 3.2011-12 falls within the first five year period commencing from the year of manufacture or production of articles or things or provision of services by the Unit in SEZ.9 100% of the profit derived from export of articles or things or services is eligible for deduction under section 10AA. in respect of applications made on or after 1st June. the profit derived from export of articles or things or services shall be the amount which bears to the profits of the business of the undertaking. As per section 10AA(7). the provisions of sections 11 and 12 shall apply from the assessment year relevant to the financial year in which the application is made i. the same proportion as the export turnover in respect of articles or things or services bears to the total turnover of the business carried on by the undertaking.

“advancement of any other object of general public utility” would continue to be a “charitable purpose”.71 of Study Material. commerce or business. commerce or business. According to section 2(15).4.3. education. or (ii) any activity of rendering of any service in relation to any trade. the accounts of the trust or institution must be audited by a Chartered Accountant and the report of such audit in the prescribed form duly signed and verified by such accountant setting forth such prescribed particulars. medical relief. The proviso to section 2(15) of the Act provides that “advancement of any other object of general public utility" shall not be a charitable purpose. charitable purpose includes relief of the poor. the further conditions are : (a) the trust should not be created for the benefit of a particular religious community or caste . if it involves carrying on of: (i) any activity in the nature of trade. (iv) Where the total income of the trust or institution. However. 1961 on an application in the prescribed form. 1961? Answer A charitable trust can avail the benefits under section 11 & 12 of the Act if it satisfies the following conditions : (i) The trust has been granted registration by the Commissioner of Income-tax under section 12AA of the Income-tax Act. without giving effect to the provisions of sections 11 and 12. or any activity of rendering any service in relation to any trade. Question 19 When can a charitable trust avail benefits under section 11 & 12 of the Income-tax Act. should be furnished along with the return of income. It would not be available in respect of any earlier assessment year. . for a cess or fee or any other consideration. (ii) The property from which income is derived should be held under a trust or other legal obligation. irrespective of the nature of use or application of the income from such activity or the retention of such income. (iv) In the case of a charitable trust created on or after 1. preservation of environment and preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.1962. if the total receipts from any activity in the nature of trade. commerce or business does not exceed ` 25 lakh in the previous year. exceeds the maximum amount which is not chargeable to income-tax in any previous year.10 Taxation the assessment year relevant to the previous year in which the application is filed. commerce or business. (iii) The property should be held for charitable purposes. Question 18 What is the procedure for registration of charitable trusts under section 12AA? Answer Refer to page 3. by the concerned entity.

directly or indirectly. if it involves carrying on of: (i) (ii) any activity in the nature of trade. Question 21 When is a charitable trust required to file its audit report alongwith return of income? Answer A charitable trust is required to get its accounts audited by a Chartered Accountant and file the audit report in the prescribed form. and (c) the property should be held wholly for charitable purposes. (3) 15% of the income. ` 1. for the benefit of the settlor or other specified persons . along with its return of income when the total income of the trust before giving effect to section 11 and 12 exceeds the maximum amount not chargeable to tax i. (2) At least 85% of the income is required to be applied for achieving the objects of the trust/ institution. Answer The proviso to section 2(15) of the Act provides that “advancement of any other object of general public utility" shall not be a charitable purpose. investment in shares in a public sector company is allowed to be made by a charitable trust.80. . a charitable trust holding shares in a public sector company can continue to claim exemption. commerce or business. Therefore.11 (b) no part of the income should enure. Question 22 Explain the meaning of expression "advancement of any other object of general public utility" in the context of "Charitable Purpose" defined under section 2(15) of the Act. Question 20 Will a charitable trust forfeit the exemption granted to it. which can be accumulated or set apart.4. then the accounts of the trust have to be audited and an audit report in the prescribed form must be filed along with the return of income.80. should be preferably invested or deposited in the forms or modes specified in section 11(5). The conditions mentioned in (b) and (c) would also apply to religious trusts created on or after 1. commerce or business. or any activity of rendering of any service in relation to any trade. if it holds shares in a public sector company? Answer According to section 13(1)(d).e.000 for the previous year 2011-12).Incomes which do not form part of Total Income 3.000. duly signed and verified by such accountant. (1) Where the total income of the trust without giving effect to sections 11 & 12 exceeds the maximum amount which is not chargeable to income tax in any previous year (` 1.1962.

irrespective of the nature of use or application of the income from such activity or the retention of such income. 1951. the object should not be for the benefit of specified individuals. 1972 is a) b) c) 3. 1961 grants exemption from tax to political parties in respect of their income. commerce or business. However. Answer Refer to section 13A in page 3.77 of Study Material. However.50. (iii) The accounts of the political party must be audited by a chartered accountant. State the incomes so exempt.000 . can claim exemption under the following heads .000 10. if the total receipts from any activity in the nature of trade. a political party registered under section 29A of the Representation of the People Act. The maximum ceiling limit for exemption under section 10(10) in respect of gratuity for employees covered by the Payment of Gratuity Act. capital gains and income from other sources.00.12 Taxation for a cess or fee or any other consideration. These exemptions are subject to the following conditions:(i) (ii) The political party must keep and maintain such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom. by the concerned entity.000 and the names and addresses of such contributors. The expression "advancement of any other object of general public utility" includes any object which will be beneficial even to a segment of society and not necessarily to the whole mankind. Question 24 The Income-tax Act.000 5. or any activity of rendering any service in relation to any trade. as per the provisions of the Act. Question 23 Can a political party claim exemption of its income under section 13A of the Income-tax Act. 1961? Answer Under section 13A. “advancement of any other object of general public utility” would continue to be a “charitable purpose”.Income from house property.00.3. Self-Examination Questions 1. The political party should keep and maintain a record of each such voluntary contribution in excess of ` 20. The income by way of voluntary contributions received by such political party is also exempt under section 13A. commerce or business does not exceed ` 25 lakh in the previous year.

000 p.000 5.480 ` 45.Y.500 p. (60% of which forms part of pay) is 6.000 3. 95% of the aggregate donations received by it 6.13 The maximum ceiling limit for exemption under section 10(10C) with respect to compensation received on voluntary retirement is a) b) c) 3.000 p. HRA is ` 5.A..600 ` 49. and he is entitled to a commission of 1% on the turnover achieved by him. The entire income is required to be applied for the approved purposes. His basic salary is ` 10. The income derived from property held under trust wholly for charitable or religious purpose is exempt from tax under section 11 subject to fulfillment of certain conditions. 3.m. Anirudh pays a rent of ` 5. 8. In case of a trade union registered under the Trade Unions Act. Fully taxable Fully exempt from tax Exempt only if the trust distributes to a registered political party during the year.00. Voluntary contributions received by electoral trusts during the P.000 3. The HRA paid to an employee residing in Patna is exempt up to the lower of actual HRA.2010-11 is a) b) c) 7. 1926 formed for regulating relations between workmen and employers or between workmen and workmen. excess of rent paid over 10% of salary and a) b) c) 40% of salary 50% of salary 60% of salary 4. Income by way of voluntary contributions of political parties is exempt provided - .m.m.00.50.. At least 85% of the income is required to be applied for the approved purposes. One of the conditions is that a) b) c) At least 75% of the income is required to be applied for the approved purposes. The turnover achieved by him during the current year is 12 lakhs.680 5. D.000 p.Incomes which do not form part of Total Income 2. the following incomes are exempt from tax a) Capital gains and Income from other sources. c) Income from house property and income from other sources. Anirudh stays in New Delhi.m. The amount of HRA exempt under section 10(13A) is – a) b) c) ` 48. b) Income from house property and capital gains.

10. a. c. c. 9. c. State the incomes so exempted as per the provisions of the Act.000 and of the name and address of the person who made such contribution. b. 6. Explain the meaning of the following terms in the context of section 10AA inserted by the Special Economic Zones Act. Explain about aggregation of agricultural income for rate purposes. Is benefit of deduction under section 10B available to undertakings set up in domestic tariff area (DTA) subsequently approved as a 100% export oriented undertaking (100% EOU)? If yes. 8. 1961? Answers 1. 2. the political party keeps and maintains a record of each such voluntary contribution in excess of ` 30. (a) Discuss the exemption available under the Income-tax Act in respect of specified income arising from any international sporting event in India. the political party keeps and maintains a record of each such voluntary contribution in excess of ` 20. The Income-tax Act grants exemption from tax to political parties in respect of their income. a. 2005 (a) Export. 3. How will income-tax be computed where an individual derives agricultural as well as non-agricultural income? 15. (b) Export turnover. b .3. the maximum annual allowance exempt under section 10(14) is a) b) c) ` 10. 11. b) c) 9. from which year and for what period is such deduction available? 13. 5.000 and of the name and address of the person who made such contribution.14 a) Taxation the political party keeps and maintains a record of each such voluntary contribution in excess of ` 10.600.000 and of the name and address of the person who made such contribution. (b) What are the exemptions available under section 10 in respect of companies engaged in the business of generation or transmission or distribution of power and subsidiaries of such companies? What are the conditions to be fulfilled to avail such exemptions? 14. For an employee in receipt of hostel expenditure allowance for his three children. 12. 7. b. b. When can a charitable trust avail benefits under section 11 & 12 of the Income-tax Act.200 ` 3. (c) Manufacture.800 ` 7. 4.

The actual cost of such assets provided to the employee is ` 1. It is given by the company to all employees above certain grade. the value of perquisite is Nil. (ii) . State the taxability or otherwise of the above said perquisites and compute the total value of taxable perquisites. Regardless of the estimated value of benefit arising from such facility to the employee.10. Therefore.500 × 12 = ` 18.500 per month. as Finance Manager gives you the list of perquisites provided by the company to him for the entire financial year 2011-12: (i) (ii) Medical facility given to his family in a hospital maintained by the company. Answer Taxability of perquisites provided by ABC Co.4 UNIT 1 : INCOME FROM SALARIES Question 1 Shri Bala employed in ABC Co. It is taxable as perquisite for all categories of employees. to Shri Bala (i) Medical facility to employees’ family in a hospital maintained by the employer is not a taxable perquisite. (v) A gift voucher worth ` 10.000.200 per month.000. (iv) The employer has provided movable assets such as television. it is exempt from tax. Salary of domestic servant is ` 1.000. The servant was engaged by him and the salary is reimbursed by the company (employer). Domestic servant was employed by the employee and the salary of such domestic servant was paid/reimbursed by the employer. Ltd. The cost of such education for Arthy is computed at ` 900 per month and for Ashok at ` 1. In case the company has employed the domestic servant. Ltd.000 was given on the occasion of his marriage anniversary. The estimated value of benefit because of such facility is ` 40. Domestic servant was provided at the residence of Bala. Taxable perquisite value = ` 1. No amount was recovered by the company for such education facility from Bala. refrigerator and airconditioner at the residence of Bala. what is the value of perquisite? (iii) Free education was provided to his two children Arthy and Ashok in a school maintained and owned by the company.

000 in the aggregate per annum would be exempt. . The value of the taxable perquisite in such a case also would be ` 18. being 10% of ` 1. The taxable perquisite value would be ` 14.000. (v) The value of any gift or voucher or token in lieu of gift received by the employee or by member of his household not exceeding ` 5.2001 that such gifts upto ` 5.400 [i.10. ` 11. the movable assets are television. since the cost does not exceed ` 1.400. As per this view. (iii) Where the educational institution is owned by the employer.000 + 14. since the cost exceeds ` 1. ` 18. this will not apply to laptops and computers.000 per month is taxable. beyond which it would be taxed as a perquisite.000. the amount was received on the occasion of marriage anniversary and the sum exceeds the limit of ` 5. However. (iv) Where the employer has provided movable assets to the employee or any member of his household.000+5. In this case. Note .10.000.e. the value of perquisite in respect of free education facility shall be determined with reference to the reasonable cost of such education in a similar institution in or near the locality.. In this case. ` 18. the value of perquisite would be ` 2.400 + 11.An alternate view possible is that only the sum in excess of ` 5.000. Therefore.000 per month. However. refrigerator and air conditioner and actual cost of such assets is ` 1.000 is taxable in view of the language of Circular No.000.2 Taxation If the company had employed the domestic servant and the facility of such servant is given to the employee. then the perquisite is taxable only in the case of specified employees.000 is liable to tax as perquisite. However.e.000 + 10. Note . Note – An alternate view possible is that only the sum in excess of ` 1. 10% per annum of the actual cost of such asset owned or the amount of hire charges incurred by the employer shall be the value of perquisite. In such a case. the value of perquisite would be ` 5.000].e.In case the alternate views are taken for items (iii) & (v).000 per month. The perquisite value would be 10% of the actual cost i.. there would be no perquisite if the cost of such education per child does not exceed ` 1.400 (` 1.4. the cost of free education provided to his child Ashok would be taxable.15/2001 dated 12.000 +2.12.000 in aggregate during the previous year is exempt. there would be no perquisite in respect of cost of free education provided to his child Arthy.200 × 12).000. Total value of taxable perquisite = ` 53. Therefore.400+11. the total value of taxable perquisite would be ` 36.000 per month. the entire amount of ` 10.400 [i.000].

Shah.56. Hence. In this case.700[(` 25.00. Compute the gratuity taxable in the hands of Mr. half-month’s salary should be multiplied by the number of years of completed service and any fraction of a year has to be ignored.000/.10. 1972.000/10 = ` 26. Shah.67. average salary would be ` 26.m.000 p.000×7+27. 2011-12 As per section 10(10)(iii).9.000 Therefore.00. has retired from JK Ltd.000/. The salary is ` 25.1. half-month’s salary should be multiplied by 30 and the fraction of 7 months should be ignored. 2012.000/. calculated on the basis of average salary for the ten months immediately preceding the month of retirement.00. an Accounts Manager.99.000×3) Dearness allowance (2. on 15.Y.000 2. He also gets ` 2. average salary for the months of March 2011 to December 2011 have to be considered.000 .2011 and ` 27. Shah for the P.000 11.thereafter.p.` 8. The balance ` 3.m. ` 4.700 Half-month’s salary for every year of completed service (fraction is to be ignored) [30 × 26.500) would be taxable.Income from Salaries Question 2 4.m.500 (i.00. in this case. Therefore.500 ` 2. as dearness allowance (55% of it is a part of salary for computing retirement benefits). Note:One of the limits for calculation of gratuity exempt under section 10(10)(iii) is one-half-month’s salary for each year of completed service (fraction of a year to be ignored). His salary is ` 25.67.000 × 10 × 55%) Average salary = 2. upto 30. Answer Computation of gratuity taxable in the hands of Mr. from 1.00. the month of retirement is January.2011 and ` 27. He is not covered by the Payment of Gratuity Act.p.000 – ` 4.09.500 10.000 × 7) + (` 27.3 Mr.000 4.00. Further. upto 30.000 p.500 would be exempt under section 10(10)(iii).2011.000 × 3) + (2000× 55%×10)]/10.2012 after rendering services for 30 years 7 months. gratuity received by an employee would be exempt upto the least of the following limits ` (i) (ii) (iii) Gratuity received Half-month’s salary for every year of completed service (See Note below) Monetary limit 8.700/2] 4.e.m. Computation of average salary Basic salary March 2011 to December 2011 25. He has received ` 8 Lacs as gratuity from the employer company. Therefore.00.

(viii) Company pays medical insurance premium of his family of ` 10.000 is paid by the company. which is relevant for employees not covered under the Payment of Gratuity Act.00. (vi) He is provided personal accident policy for which premium of ` 5. He is provided free housing facility which has been taken on rent by the company at ` 10. (iii) The monthly salary of ` 1. X is a regular employee of Rama & Co. Company reimbursed the medical treatment bill of his brother of ` 25.50.43/2010 dated 11th June.A.000 per month. in Gurgaon. the Central Government has enhanced the notified limit under section 10(10)(iii) from ` 3. . & Bonus equivalent to one month pay.000 in relation to employees who retire or become incapacitated prior to such retirement or die on or after 24th May. Question 3 From the following details. 2010. He was appointed on 1.50. He is paid 10% D. 1972.000.000-30. In effect. 2010.4 Taxation Ceiling for gratuity exemption raised to ` 10 lakhs Section 10(10)(ii) exempts any gratuity received under the Payment of Gratuity Act. to the extent it does not exceed an amount calculated in accordance with the provisions of sub-sections (2) and (3) of section 4 of that Act. He contributes 15% of his pay and D. find out the salary chargeable to tax for the assessment year 201213 Mr. 2010 dated 17th May. who is dependent on him.1.000 by the Payment of Gratuity (Amendment) Act.A.4. has also been increased to ` 10 lakh vide Central Government Notification No. the ceiling for gratuity exemption under section 10(10)(iii). Thereafter.000 to ` 10. (v) Conveyance allowance of ` 1.000 of a house keeper is reimbursed by the company.000.000.00. He is also provided with following facilities: (i) (ii) Facility of laptop costing ` 50. The limit specified under sub-section (3) of section 4 has been increased from ` 3.000 on the occasion of his marriage anniversary. towards his recognized provident fund and the company contributes the same amount.000 to ` 10.000. 2010 or whose employment is terminated on or after the said date. (iv) A gift voucher of ` 10. 1972.2011 in the scale of 20.000-1. (vii) He is getting telephone allowance @` 500 per month.000 per month is given by the company towards actual reimbursement.

145 10. 3.2011 or by taking into account the average basic pay for the year i.000 +63.000 Dearness allowance [10% of basic pay] Bonus [See Note 1 below] Employer’s contribution to recognized provident fund in excess of 12% (15%-12% =3% of ` 2.000 .15. In the alternative.000 24.e.43. the value of rentfree accommodation provided to employee would be actual amount of lease rental paid or payable by the employer or 15% of salary.000) [See Note 5 below] Reimbursement of salary of housekeeper Gift voucher Salary income chargeable to tax Notes: 1.80. salary includes: (i) (ii) Basic salary i. 2012-13 Particulars Basic pay [(20. ` 2..e.000. It has been assumed that dearness allowance forms part of salary for retirement benefits and accordingly.000 (iv) Telephone allowance i. ` 6. Where the accommodation is taken on lease or rent by the employer.000.. (iii) Bonus i.e. the problem can also be worked out by taking bonus as ` 20.000 44.000 . being one month’s basic pay upto 31.464 Bonus has been taken as one month’s basic pay as at the end of the year i.000 8.12. ` 4. the perquisite value of rent-free accommodation and employer’s contribution to recognized provident fund have been worked out.67.5 2. ` 21.X for A.000 Dearness allowance (assuming that it is included for calculating retirement benefits) i.250.000×3)] = 1.e.019 6.Y.` 21. ` 20.000 3.300 21.e.000 12.000 10.Income from Salaries Answer Computation of taxable salary of Mr. ` 24. For the purposes of valuation of rent free house.43..000×9) + (21.300) [See Note 2 below] Taxable allowances Telephone allowance Taxable perquisites Rent-free accommodation [See Note 2 & 3 below] Medical reimbursement (25.e.78. whichever is lower.300 2.

` 1. Clause (v) of the proviso to section 17(2) exempts any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family to the extent of ` 15. Premium of ` 5.. Ltd. or recovered from.94. Therefore.300 + 21. (i) (ii) What is the perquisite value of sweat equity shares allotted to Sri Chand? In the case of subsequent sale of those shares by Sri Chand.145 Value of rent-free house = Lower of rent paid by the employer (i. Facility of use of laptop is not a taxable perquisite. salary works out to 2.e.000) is a taxable perquisite. 15% of salary = 2.00.145).000) or 15% of salary (i.000 paid by the company for personal accident policy is not liable to tax.000. what would be the cost of acquisition of those sweat equity shares? As per section 17(2)(vi).145.000 + 24.000 1.94.000 Answer (i) . the value of sweat equity shares chargeable to tax as perquisite shall be the fair market value of such shares on the date on which the option is exercised by the assessee as reduced by the amount actually paid by. ` 25. 4. Sri Chand. Question 4 AB Co.300 × 15/100 = 44.000 2. 6.43.e. in this case.000 (i. Medical insurance premium paid by employer is exempt.300.000 – ` 15.6 Taxation Therefore.e. 7. the perquisite value is ` 44.20. ` 44.4. 5.00. Therefore.000 = 2.. the assessee in respect of such shares. Conveyance allowance is exempt since it is based on actual reimbursement for official purposes.000 +6. Particulars Fair market value of 1000 sweat equity shares @ ` 300 each Less: Amount recovered from Sri Chand 1000 shares @ ` 200 each Value of perquisite of sweat equity shares allotted to Sri Chand ` 3. The fair market value was computed in accordance with the method prescribed under the Act. the balance of ` 10. The shares were allotted at ` 200 per share as against the fair market value of ` 300 per share on the date of exercise of option by the allottee viz. allotted 1000 sweat equity shares to Sri Chand in June 2011.00.

000 per month to the landlord and recovers a sum of ` 2.000) Least of the above is ` 60.20. The balance of ` 40.000 Mr. Khanna.000 a month.000 1.e. in respect of house rent allowance received. Question 5 (i) Mr.7 (ii) As per section 49(2AA).000. 1. a private sector company. an employee of IOL.000 ` 1. received the following for the financial year 2011-12: ` 1.Income from Salaries 4.000 is includible in his total income.000) (c) 50% of salary (i. . Basic pay House rent allowance 1. what will be the perquisite value in respect of such rent free accommodation? (iii) Which of the above would be beneficial to Mr.000 x 12) Less: 10% of basic pay (i.08.000 1. 10% of ` 1. New Delhi. where capital gain arises from transfer of sweat equity shares.00. the cost of acquisition of such shares shall be the fair market value which has been taken into account for perquisite valuation under section 17(2)(vi). Khanna which was in excess of his entitlement.000 60. (ii) If Mr. in case of subsequent sale of sweat equity shares by Sri Chand.20.00. Khanna i. 1961..000 3.00. house rent allowance or rent free accommodation? Answer (i) The eligible exemption under section 10(13A) in respect of house rent allowance received would be least of the following: ` (a) (b) Actual house rent allowance (HRA) received Excess of rent paid over 10% of basic salary Rent paid (10.000 12.20. Special allowance 30. 50% of ` 1. Therefore.e.20. 2. Khanna would be exempt to the extent of ` 60. the cost of acquisition would be ` 3. Compute the eligible exemption under section 10(13A) of the Income-tax Act.000 under section 10(13A). Khanna was residing at New Delhi and was paying a rent of ` 10.000.000 The house rent allowance received by Mr.500 per month from Mr.e. Khanna opts for rent free accommodation whereby IOL would be paying a rent of ` 10.

50.20. which would be more beneficial to him.000 1.000 Nil 30. (iii) We have to see the cash flow from both the options to find out which is more beneficial.20.000 ` .21.4.000 1.000 x 12 = ` 1.000 Net cash flow 1. the actual amount of lease rental paid or payable by the employer or 15% of salary.000 paid by the employee (i. (a) Actual rent paid by the employer = ` 10.970 ` ` 2. nil.000 1.50.000 (b) 15% of salary = 15% of basic pay plus special allowance = 15% of ` 1. actually paid by the employee is the value of the perquisite.8 Taxation (ii) Perquisite value in respect of concessional accommodation As per rule 3(1). if any.20. Computation of tax under Option 1 (HRA): Salary: Basic Pay HRA (taxable) Special allowance 1.030 1.28. whichever is lower.000 Since the net cash flow is higher in Option 1.e. The perquisite value is.500 Lower of the above is ` 22. Working Notes : 1.500 × 12 = 30.030 1.500. Khanna should opt for HRA. 2.000 30. Option 1: HRA Cash inflows [Basic Pay + HRA + Special Allowance] Less: Cash outflows: Rent paid Tax (See Working Note 1 below) Net cash flow Option 2: Concessional accommodation Cash inflows [Basic Pay + Special Allowance] Less: Cash outflows: Rent recovery Tax (See Working Note 2 below) 30. as reduced by the rent.000 = ` 22. Mr. which should be reduced by the rent of ` 30. therefore.000 40.50.000).20. where the accommodation is taken on lease or rent by the employer.

000 1.90. compute the taxable income for the Assessment year 2012-13 : Basic salary Dearness allowance Transport allowance (for commuting between place of residence and office) Motor car running and maintenance charges fully paid by employer ` 20. Salary: Basic Pay Special allowance Concessional accommodation Total salary Tax on ` 1.50.50.Income from Salaries Total salary Tax on ` 1.9 Computation of tax under Option 2 (Concessional accommodation) Shri Hari is the General Manager of ABC Ltd. Question 8 1.000 per month ` 36. The motor car is used for both official and personal purpose by the employee) Expenditure on accommodation in hotels while touring on official duties met by the employer. Loan from recognised provident fund (maintained by the employer) ` 30.000 Nil 1.90.20.000 . Answer Refer sub rule 7(ii) of Rule 3 in page 4. Question 7 Write short note on valuation of paid holidays for perquisite purposes under section 17(2).000 ` 40.60 litres.000 30.000 (including cess) 2. Answer Refer Para 1.30 of Study Material.000 per month 30% of basic salary ` 2. From the following details.000 Question 6 Explain the term “Profit in lieu of salary”.000 Nil 1. The engine cubic capacity is below 1.000 (The motor car is owned and driven by employee Hari.4 of Study Material.030 4.5 in page 4.

000 ` 12. 3.000 x 12) Dearness allowance @ 30% Transport allowance (` 2.000-` 21.e.600 (i.m. 1.000 9.000 72.40..) Motor car maintenance borne by employer [` 36.2011 Hari made the following payments: Medical insurance premium : Paid in cash Paid by cheque Answer Computation of taxable income of Shri Hari for the A.10(14) (read with Rule 2BB @ ` 800 p.800 × 12)] Expenditure on accommodation while on official duty not a perquisite and hence not chargeable to tax Loan from recognized provident fund – not chargeable to tax Value of lunch provided during working hours – not chargeable to tax Computer provided in the residence of employee by the employer – not chargeable to tax [Rule 3(7)(vii)] Gross Salary Less :Deduction under chapter VI-A Deduction under section 80D in respect of medical insurance premium paid by cheque Premium paid in cash not eligible for deduction Taxable income Question 9 Distinguish between foregoing of salary and surrender of salary. Cost to the employer Computer (cost ` 50.200 Nil 3.600 24.200 3.400 Nil Nil Nil Nil 3.10 Taxation Lunch provided by the employer during office hours.800 ` ` 2.37.10.400 14.000 x 12) Less : Exemption u/s.000 ` 2.4.200 .000 ` 3.40.Y. 2012-13 Particulars Basic salary (` 20.000) kept by the employer in the residence of Hari from 1.600 14.

(i) (ii) Salary ` 46. Hence. Answer In the case of Mr. 1961.a.04. X.11 Foregoing of salary – Waiver by an employee of his salary is foregoing of salary. X and and Mr. Y. . Once salary accrues. Surrender of salary – If any employee surrenders his salary to the Central Government under the Voluntary Surrender of Salaries (Exemption from Taxation) Act. Finance Manager of KLM Ltd. Vignesh.000 (iii) Rent free accommodation owned by the company (iv) Housing loan of ` 6. Hence. the following perquisites were offered: (i) (ii) For Mr. In the case of Mr.000 per month Value of medical facility in a hospital maintained by the company ` 7. X and Mr. who engaged a domestic servant for ` 500 per month. Gama Ltd. Y. Y are working for M/s. the perquisite will be covered under section 17(2)(iv) and will be taxable in the hands of Mr. he was provided with a domestic servant @ ` 500 per month as part of remuneration package. You are required to comment on the taxability of the above in the hands of Mr. who are not specified employees. it becomes an obligation which the employee would have discharged even if the employer did not reimburse the same. This is taxable in the case of all employees.2011 in respect of housing loan is 10%.000 given on 01.04. Y. Question 10 Mr. X. the surrendered salary would not be included in computing his taxable income. The rate of interest charged by State Bank of India (SBI) as on 01. furnishes the following particulars for the financial year 2011-12.2011 at the interest rate of 6% p. The employee might choose not to have a domestic servant. it cannot be considered as an obligation which the employee would meet. (No repayment made during the year). Mumbai. Question 11 Mr. This is taxable only in the case of specified employees covered by section 17(2)(iii). subsequent waiver does not absolve him from liability to income-tax. his employer reimbursed the entire salary paid to the domestic servant i. Y. there is no perquisite element in the hands of Mr. As per salary fixation norms. For Mr. X.00. whether he is a private sector/public sector or Government employee..e.Income from Salaries Answer 4. ` 500 per month.

This was purchased on 1.50.000 was paid by the company.000 ` 30. Answer Computation of taxable income of Mr. Vignesh for the Assessment Year 2012-13 ` Income under the head “salaries” Salary [ ` 46.Vignesh.000 3.7.000. (vii) Personal purchases through credit card provided by the company amounting to ` 10.000 82.12 Taxation (v) Gifts in kind made by the company on the occasion of wedding anniversary of Mr. No part of the amount was recovered from Mr.000 x 12 ] Medical facility [ in the hospital maintained by the company is exempt] Rent free accommodation [Rule 3(1) ] – 15% of salary is taxable Use of dining table for 4 months [` 60.000 3.800 5.000 ` 70.4.000 _ .7.000 2. Vignesh at his residence (dining table).2008 for ` 2.000 and sold to Mr.8.000 (ix) Contribution to LIC towards premium under section 80CCC (x) Deposit in PPF Account made during the year 2011-12 (xi) Bonds of ICICI (Tax savings) eligible for deduction under section 80C ` 10.2011 for ` 30.750. ` (a) (b) (c) Interest on Fixed Deposits with a company Income from specified mutual fund Interest on bank deposits of a minor married daughter 5. (vi) A wooden table and 4 chairs were provided to Mr. Other income received by the assessee during the previous year 2011-12.5.000 was sold to the assessee on 14. Vignesh on 1.000 Compute the taxable income of Mr.e.2011 for ` 80.000.000 x 10 /100 x 4 /12] Valuation of perquisite of interest on loan [ Rule 3(7)(i)] – 10% is taxable which is to be reduced by actual rate of interest charged i.6% = 4%] 24. [ 10% .52. (viii) An ambassador car which was purchased by the company on 16. Vignesh ` 4.2008 for ` 60. Vignesh and the tax thereon for the Assessment year 2012-13.

7.00.being the date of sale to employee Less : Amount received from the assessee on 14.60.2011 Gross salary Computation of taxable income (a) (b) Income from salaries Income from other sources (i) (ii) Interest on fixed deposit with a company Income from specified mutual fund exempt under section 10(35) 5.000 50.69.000 42.300 .62.800 (iii) Interest received by minor daughter (3. since its value is less than ` 5.000 18.2009 to 15.000 1.000 10.50.D.2008 to 15.000 1.800 7.000 4.000 7.13 - 12.2010 @ 20% on WDV Value as on 14.00.000 Nil 1.500 7.500 2.000 10.62.000 6.07.Income from Salaries Gift given on the occasion of wedding anniversary ` 4.2009 @ 20% Less: Depreciation from 16.00.07.000 60.300 1.000 80.750 is exempt.000 80.000 Perquisite on sale of dining tables Cost Less: Depreciation on straight line method @ 10% for 3 years W.7.7.2011.000 -1500) Gross total income Less: Chapter VI-A deductions Section 80C – PPF & ICICI bonds Section 80CCC – LIC Overall deduction limited to ` 1 lakh as per section 80 CCE Total Income 6.000 2.7.000 30.69.V Less: Amount paid by the assessee Purchase through credit card – not being a privilege but covered by section 17(2)(iv) Original cost of car Less: Depreciation from 16.000 40.

2012 : (i) (ii) Basic Salary (` 50.00 crores. Lakshmi & Co.5% . She is in continuous service since 1965 and receives the following salary and perks from the company during the year ending 31. Question 12 Mrs.000.00.000 x 12) = ` 2.000. the normal wear and tear is to be calculated in respect of each completed year during which the asset was put to use by the employer. based at Calcutta. (iv) LIC Pension Fund – ` 12. Pvt. (` 20. (vi) Interest credited to recognized provident fund Account at 9. (v) Contribution of the employer and employee to the recognized provident fund Account ` 3. (ix) Hostel allowance for three children – ` 5.317 659 67.00.000 per annum.840 Note : Under Rule 3(7)(viii). Ltd.000 (forms part of pay for retirement benefits) (iii) Bonus – 2 months basic pay. In the given case the third year of use of ambassador car is completed on 15..Y. 2011-12 was ` 15.2011. The solution worked out above provides for wear and tear for only two years. (iii) Donation to a public charitable institution registered under 80G ` 2. The turnover for the F.000 x 12) = ` 6.03.1% of the turnover of the company.000 .A.7. She makes the following payments and investments : (i) (ii) Premium paid to insure the life of her major son – ` 15.000. (viii) Entertainment Allowance – ` 30.2011 where as the car was sold to the employee on 14. .000.860 1. (iv) Commission – 0.000 each. Spouse – ` 6.000. while calculating the perquisite value of benefit to the employee arising from the transfer of any movable asset.` 60.836 67.000 each.00. Lakshmi aged about 66 years is a Finance Manager of M/s.40.7.000 D.4.14 Taxation Tax on income Add : Education cess @ 2% Add : Secondary and Higher Education cess @ 1% Total tax liability Total tax liability (rounded off) 65. Determine the tax liability for the Assessment Year 2012-13.000. Medical Insurance premium for self – ` 6. (vii) Rent free unfurnished accommodation provided by the company for which the company pays a rent of ` 70.

280 .000 7.000 1.095 4.000 1.00.Y.650 2.67.278 2.000 15.000 1.Income from Salaries Answer Computation of Total Income of Mrs. Lakshmi for A.00.000 12.03.12.000 15.800 70.50.061 2.000 3.00.000 3.000 1.700 (10% total income) Total income Tax on total income Add : Education cess @ 2% Add : Secondary and higher education cess @ 1% Total tax liability Rounded off ` ` 4.122 2. 2012-13 Particulars Income from salary Basic salary Dearness allowance Bonus Commission (calculated as percentage of turnover) Entertainment allowance Children’s hostel allowance Less : Exemption (` 300 x 12 x 2) Interest credited to recognized provident fund account (exempt) Rent free unfurnished accommodation (Refer working Note 1) Excess contribution to PF by employer (Refer working Note 2) Gross salary Less : Deduction under section 80C Life insurance premium paid Contribution to recognized provident fund Deduction under section 80CCC in respect of LIC pension fund Deduction limited to ` 1.81.15 6.000 2.27.06.200 7.79.000 12.000 12.000 63.000 as per section 80CCE Deduction under section 80D Total income before deduction under section 80G Deduction under section 80G : 50% of ` 1.350 12.00.200 13.40.12.000 30.26.00.

4.000 have been given to Mr. Value of rent free unfurnished accommodation Basic salary Dearness allowance Bonus Commission @ 0.000 1.4.Y.000 ` 90.000 2.40.170 70. Badri for the A.800 11.50.00. dearness allowance & commission 12% of ` 9.000 1.00.000 per month towards principal. Compute the chargeable perquisite in the hands of Mr.000.00. Answer Perquisite value for housing loan The value of the benefit to the assessee resulting from the provision of interest-free or concessional loan made available to the employee or any member of his household during the relevant previous year by the employer or any person on his behalf shall be determined as the .2011 for housing loan may be taken as 10%. Employer’s contribution to P. to one of its employees Mr.200 6.00.800 1. on 5th of each month.90.00. Mr.000 7.2011 is ` 6.4.000 Question 13 Following benefits have been granted by Ved Software Ltd.27. Amount outstanding on 1.800 1.81. The lending rate of State Bank of India as on 1. 2012-13. Badri for 3. in excess of 12% of salary Employer’s contribution Less : 12% of basic salary.000 1.F.000.1% of turnover Entertainment allowance Children’s hostel allowance Gross Salary 15% of salary Actual rent paid by the company The least of the above is chargeable perquisite.000 30.16 Taxation Working Notes: 1. Badri: (i) (ii) Housing loan @ 6% per annum.69.18. 2. Air-conditioners purchased 4 years back for ` 2. Badri pays ` 12.

2012 Maximum outstanding balance as on last date of month 5.520 20.40. if any. 2011 July. 2011 December. This rate should be applied on the maximum outstanding monthly balance and the resulting amount should be reduced by the interest.880 1.000 90. 2011 June.6% = 4% Month April.52.720 1.000 Total value of this perquisite Perquisite Value of Air Conditioners ` Original cost Depreciation on SLM basis for 4 years @10% i. 2012 February.640 1. 2011 May.000 x10% x 4 Written down value Amount recovered from the employee Perquisite value 2.64.00.000 5. 2012 March.000 4. ` 2. 2011 October.560 1.000 4.56.000 80.04. 2011 August.88.000 1.800 1.000 5.17 sum equal to the interest computed at the rate charged per annum by the State Bank of India (SBI) as on the 1st day of the relevant previous year in respect of loans for the same purpose advanced by it.e.16. 2011 November.000 5.80. “Maximum outstanding monthly balance” means the aggregate outstanding balance for loan as on the last day of each month.76. 2011 January.840 1. The perquisite value for computation is 10% .680 1.00.Income from Salaries 4.68.000 5.000 4.000 5.000 4.920 1.000 5. actually paid by him.20.000 Perquisite value at 4% for the month 1.000 5.880 .600 1.92.960 1.000 30.760 1. 2011 September.28.

m..000 6. Leave salary of ` 75. Leave Salary Less: Exempt under section 10(10AA) (Note1) Gratuity Less: Exempt under section 10(10) (Note2) Total Income 75.000 25.1. ♦ Compute the total income of Mr.2011 to 31.4.3.18 Taxation Chargeable perquisite in the hands of Mr.000 p. Dearness allowance of ` 3. Narendra. Answer Computation of total income of Mr.16.000. on 31. Pension @ 30% of basic salary from 1.2. City compensatory allowance of ` 2. He has not availed any earned leave during his tenure of 5 years and utilized only his casual leave.1.60.000 50. Gratuity of ` 50.000 p.000.880 Mr.Y.000 Amount (` ) Amount (` ) .000.000 25. 2012-13 Particulars Income from Salaries Gross salary received during 1.000 50.000 and Night duty allowance of ` 1.m.2012.000. Narendra for A. Narendra for the assessment year 2012-13.2012: ♦ ♦ ♦ Salary @ ` 16.000 p.000 1.000 for 225 days of leave accumulated during 5 years @ 45 days leave in each year.000 x 10) Pension for 2 months @ 30% of the basic salary of ` 10.m.880 30.2012 after putting on service for 5 years. who retired from the services of Hotel Samode Ltd.4. Badri for the assessment year 2012-13 ` Housing loan Air Conditioner Total Question 14 20.000 50. comprising of basic salary of ` 10.000 25. (` 16.000 2. received the following amounts from the employer for the year ending on 31.2012 @ ` 16.

19 Amount (` ) 3. It cannot be taxed as salary.000 is exempt under section 10(10). which is repayable in certain specified installments.000) Amount (`) 10. irrespective of the fact whether it is due or not. It is an advance taken by the employee from his employer.00. the loan amount cannot be brought to tax as salary of the employee.000 (iii) Actual gratuity received 50.000 75. When an employee takes a loan from his employer.000 1. Gratuity is exempt to the extent of least of the following : Particulars (i) (ii) Statutory limit Half month’s salary for 5 years of service ( 5 x ` 5.000 ×150/30) 10 months average salary (10 x ` 10.Income from Salaries Notes: 1.00. Leave encashment is exempt to the extent of least of the following : Particulars (i) (ii) (iii) Statutory limit Cash equivalent of leave for 30 days for 5 years (` 10.000 25.000 (iv) Actual amount received Therefore. Similarly. ` 50. It is assumed that the employee is not covered under The Payment of Gratuity Act. Question 15 How is advance salary taxed in the hands of an employee? Is the tax treatment same for loan or advance against salary? Answer Advance Salary Advance salary is taxable when it is received by the employee.000 50. the rate of tax at which the employee is assessed may be higher than the normal rate of tax to which he would have been assessed. It may so happen that when advance salary is included and charged in a particular previous year. 2. Loan or Advance against salary Loan is different from salary. This advance is generally adjusted against his salary over a specified time period.00. 1972. advance against salary is different from advance salary.000 Therefore. ` 25. Section 89(1) provides for relief in these types of cases.000 is exempt under section 10(10AA). .000) 4.

4. ` 25.000 p.000 ` 20. he gets the following emoluments from his employer: Basic Salary Up to 31.400 3. 15% of basic salary ` 500 p. M is an area manager of M/s N.000 p.600 3.m. M. ` 2.000 x 5) +(` 25.600 6.75. Steels Co. for two children ` 5.2011 Transport allowance Contribution to recognised provident fund Children education allowance City compensatory allowance Hostel expenses allowance Tiffin allowance (actual expenses ` 3.e 3% of ` 2.000 p.500 Compute taxable salary of Mr.12.600 14.500 3.560 4. .m.m.9.000 2.400 Amount (` ) Amount (` ) 2.20 Taxation Question 16 Mr.m. M for the Assessment year 2012-13. for the Assessment Year 2012-13 Particulars Basic Salary (` 20.000 x 7) Transport allowance ( ` 2.850 24.2011 From 1.000) Gross Salary Less : Tax on employment under section 16(iii) Taxable salary 4.m.000 x 12) Less : Exempt under section 10(14) (` 800 x 12) Children education allowance (` 500 x 12) Less: Exempt under section 10(14) ( ` 100 x 2 x 12) City Compensatory Allowance (` 300 x 12) Hostel Expenses Allowance (` 380 x 12) Less: Exempt under section 10(14) ( ` 300 x 2 x 12 i. ` 2.560) Tiffin allowance (fully taxable) Tax paid on employment [See Note Below] Employer’s contribution to recognized provident fund in excess of 12% of salary (i.m.000 p. for two children ` 300 p.250 3. During the financial year 2011-12.e.500 8.000 2.350 2.75.09.700) Tax paid on employment Answer Computation of taxable salary of Mr.000 9. Ltd.200 but restricted to the actual allowance of ` 4. ` 7.8.a. ` 380 p.560 Nil 5.

65.40.2012: ` i.3. Assessed Income for the Financial Year 2006-07 1.000 On ` 1.000 Add: Arrears relating to Financial Year 2006-07 40.00.000 iii.50.00.000 5.000 You are requested by the assessee to compute relief under section 89 of the Income-tax Act. deduction of professional tax paid is allowed to the employee from his gross salary. M as a perquisite since it is discharge of monetary obligation of the employee by the employer. Salary for Financial Year 2006-07 received during the year 40.000 Nil 0 Next ` 3.50.000 – ` 2. Ashok Kumar.000 Assessment year 2012-13 Tax on ` 5. Question 17 Mr.000 Education cess Answer Computation of Relief under section 89 for the Assessment Year 2012-13 Particulars ` ` Salary Income for the year excluding the arrears 5.000 Balance 65.350 Tax Rate (%) Nil 10 20 30 2 .000 45.20.000 ii.000 Total Income 5. Salary income for the year 5.50.80.000 – ` 1.21 Professional tax paid by employer should be included in the salary of Mr.000 On ` 1.000 20% 13.000 First ` 1. furnishes the following particulars for the previous year ending 31. The rates of Income-tax for the assessment year 2007-08 are: On first ` 1.65.65.25.000 10% 32.000 Above ` 2.50.000 Add: Education cess @ 2% 900 Secondary and higher education cess @1% 450 Tax on total income (including arrears) (A) 46. 1961. in terms of tax payable for assessment year 2012-13.Income from Salaries Note: 4. Thereafter. an employee of a PSU.25.

1/5th of basic salary and - . Where there is a decision to increase the D.80.000 4. the increase is taxable a) b) c) 2.20.000 5. 2012-13 (` 46.000 Add: Education Cess @ 2% Tax on total income (excluding arrears) (D) Difference between C & D II (C) Relief under section 89 (I – II) Tax payable for A.000 1. in March.000 Add: Education Cess @ 2% Tax on total income (including arrears) Total Income excluding arrears Tax on ` 1.250 Total Income excluding arrears Tax on ` 5. 2012 with retrospective effect from 1.000 0 32. in the previous year 2011-12 in the previous year 2012-13 in the respective years to which they relate.100) Self-Examination Questions 1.000 37.4.25.40.220 1.40.000 Add : Education cess @ 2% Secondary and higher education cess @ 1% Tax on total income (excluding arrears) (B) Difference between A & B I Assessment Year 2007-08 Total Income assessed Add: Arrears relating to Financial year 2006-07 Total income (including arrears) Tax on ` 1.000 40.110 8.80.22 Taxation 5.100 45.000 220 11. is received in April.25.2009.080 7.240 1.Y.4.000 10% Balance ` 25.40.000 20% 5. The entertainment allowance received by a Government employee is exempt up to the lower of the actual entertainment allowance received.A. and the increased D.000 First ` 1.140 1.80.000 740 370 38.A. 2012.25.000 11.000 80 4.350 – ` 1.000 Nil Next ` 3.

c. Can an assessee claim relief under section 89 in respect of VRS compensation of ` 6 lakh received by him from his employer. Ltd.000 ` 6.Income from Salaries a) b) c) 3.000 ` 14.2012-13 isa) b) c) ` 5. XY Pvt. which is owned by his employer. a.Y. Employer’s contribution to superannuation fund during the previous year 2011-12 is a) b) c) 6. Distinguish between foregoing of salary and surrender of salary.000 ` 7. a.23 Rajesh is provided with a rent free unfurnished accommodation.000 along with house from February. c . if he has claimed exemption of ` 5 lakh in respect of the same under section 10(10C)? Discuss. b. 4. Write short notes on a) b) Profits in lieu of salary Specified employees 8. The value of perquisite in the hands of Rajesh is a) b) c) 20% of salary 15% of salary 10% of salary 4.000 ` 5. Anirudh is provided with furniture to the value of ` 70. Is retrenchment compensation received by workmen taxable under the Act? If yes. 10. ` 4. 5. The value of furniture to be included along with value of unfurnished house for A..a. in New Delhi. Answers 1. 5.000 p. to what extent is it taxable? When is provision of medical facilities or assistance by an employer not treated as a perquisite in the hands of the employee? Discuss. 2.000 subject to fringe benefits in the hands of the employer fully taxable as perquisite in the hands of the employee taxable as perquisite in the hands of the employee if it exceeds ` 1 lakh. 9.000. 7. 2011. The actual hire charges paid by his employer are ` 5. 3. 4.

which were paid during the year. though his claim is under dispute.000 3. Generally.000 (iii) Interest payable on loan taken for construction of house One of the let out units remained vacant for four months during the year. The municipal value of the house property is ` 9. each co-owner occupied one unit for residence and the balance of six units were let out at a rent of ` 12.000 per month per unit.000 and the municipal taxes are 20% of municipal value. During the financial year 2011-12. The property consists of eight identical units and is situated at Cochin. . A resident but not ordinarily resident or a non resident is taxable in respect of income from such property if the income is received in India during the previous year.UNIT 2 : INCOME FROM HOUSE PROPERTY Question 1 Explain briefly the applicability of section 22 for chargeability of income-tax for: (i) (ii) House property situated in foreign country and House property with disputed ownership. The other expenses were as follows: ` (i) (ii) Repairs Insurance premium (paid) 40.00. the annual value will be computed as if the property is situated in India.000 15. a person who receives the income or who enjoys the possession of the house property as owner. The property was constructed during the financial year 1998-1999. is assessable to tax under section 22. Once incidence of tax is attracted under section 22. Answer Applicability of section 22 for chargeability of income-tax for – (i) House property situated in foreign country A resident assessee is taxable under section 22 in respect of annual value of a house property situated in foreign country. Question 2 Two brothers Arun and Bimal are co-owners of a house property with equal share.00. the decision about who is the owner lies with the Income tax Department. (ii) House property with disputed ownership If the title of ownership of the house property is under dispute in a court of law. The assessment cannot be held up for such dispute.

850 30.` 48. Self-occupied portion (25%) Annual value Less: Deduction under section 24(b) Interest on loan taken for construction ` 75. Answer Computation of total income for the A.90.80.000. respectively.25.80.90.000 (being 25% of ` 3 lakh) in total restricted to maximum of ` 30.000 x 1 x 4)] = ` 8. Let-out portion (75%) – See Working Note below Income from house property Other Income Total Income Particulars Let-out portion (75%) Gross Annual Value (a) Municipal value (75% of ` 9 lakh) (b) Actual rent [(12000 x 6 x 12) – (` 12. He does not own any other house.300 2.000) 1.000 for each co-owner Loss from self occupied property II.Y.000 2.Income from House Property 4.000 .000 (30.16. Arun and Mr.25 Arun could not occupy his unit for six months as he was transferred to Chennai.64.16.000 (30.000 Less: Less: .850 Working Note – Computation of income from let-out portion of house property ` ` 6. 2012-13 Particulars Income from house property I. Bimal are ` 2.80.000 3.75.000 8.25. The other income of Mr.000 .000 and ` 1.850 95. for the financial year 2011-12.000 6.85.04.000 2.000 8.000 (20% of ` 9 lakh) Net Annual Value (NAV) Deduction under section 24 (a) 30% of NAV (b) Interest on loan taken for the house [75% of ` 3 lakh] Arun ` Nil Bimal ` Nil 30. Compute the income under the head ‘Income from House Property’ and the total income of two brothers for the assessment year 2012-13.whichever is higher Municipal taxes 75% of 1.75.25.850 95.81.000 1.35.850 2.000) 1.850 1.

000 Rent received 15.80. but restricted to standard rent.000 Standard rent under the Rent Control Act 1. Raman and his brother have taken a fresh loan and interest charged on this loan is ` 5.000 54.000 Fair rent 1.000 5.850 Income from let-out portion of house property Share of each co-owner (50%) Question 3 Mr. Answer Computation of income from house property of Shri Raman for A.Y.100 have been paid by the tenant.700 1.000. 2012-13.000 96.50. To repay this loan.4. ALV is the higher of municipal value and fair rent. ` Municipal value of the property 1. Raman for the A. 2012-13 Particulars Gross Annual Value (See Note 1 below) Less: Municipal taxes – paid by the tenant. Compute the income from this property chargeable in the hands of Mr.000 25.29. Raman is a co-owner of a house property alongwith his brother.000.000 . The municipal taxes of ` 5.000 48.60.000 p.80.300 2.000 has been paid. out of which ` 21.000 Nil 1. The loan for the construction of this property is jointly taken and the interest charged by the bank is ` 25.25. hence not deductible Net Annual Value (NAV) Less: Deductions under section 24 (i) 30% of NAV (ii) Interest on housing loan (See Note 2 below) Interest on loan taken from bank Interest on fresh loan to repay old loan for this property Income from house property 50% share taxable in the hands of Shri Raman (See Note 3 below) Notes: 1.m.Y.26 Taxation 4.51.70.000 84. Interest on the unpaid interest is ` 450. ` ` 1. Computation of Gross Annual Value (GAV) GAV is the higher of Annual Letting Value (ALV) and actual rent received.

60. which was sold in March. This amount has not been charged to tax earlier.800 She had taken a loan from Standard Chartered Bank for purchasing this flat. as computed in accordance with sections 22 to 25.7.60.800 1. Question 4 Mrs.. is a resident and ordinarily resident in India during the financial year 2011-12. she received arrears of rent of ` 60.000 (e) Annual Letting Value [lower of (c) and (d)] 1.000 (b) Fair rent 1. Rohini Ravi. which is used as her residence.S. Particulars ` ` ` ` (a) Municipal value of property 1. the share of each such person in the income of house property. interest on fresh loan taken to repay old loan is also allowable as deduction.000 Interest on housing loan is allowable as a deduction under section 24 on accrual basis. She owns a house property at Los Angeles.27 2.60. . who is a co-owner of the house property.2011 to 30.3.000 x 12] 1.6. 3..000 p.2011 to 31.a.Income from House Property 4.m.000 (d) Standard rent 1.200 ` 1. She took ownership and possession of a flat in Chennai on 1.2011. Further.000 (f) Actual rent [15. Raman. The annual value of the house is $20. has 50% share in the house property.2012 49.2011 1. interest on unpaid interest is not allowable as deduction under section 24.300 She had a house property in Bangalore.A.31. shall be included in his respective total income. the problem has been solved assuming that Mr. while she is in India. In this case. She paid the following to Corporation of Chennai : Property Tax Sewerage Tax ` 16.and the fair rent is ` 4.80. which is used for selfoccupation. 2012. Section 26 provides that where a house property is owned by two or more persons whose shares are definite and ascertainable.000 in March.S.2011 1.000.000 (g) Gross Annual Value [higher of (e) and (f)] 1. a citizen of the U. 2009. In respect of this house.4.70.2012. U.4. The flat was used by her for 7 months only during the year ended 31. However.A. The value of one USD ($) may be taken as ` 45.50. The municipal valuation is ` 32. Interest on loan was as under: ` Period prior to 1.80.200 50.3.20.000 p.000 (c) Higher of (a) and (b) 1.7.

000 and the Chennai flat is ` 3. Particulars Self-occupied house at Los Angeles Annual value Less: Deduction under section 24 Chargeable income from this house property Deemed let out house property at Chennai Annual value (Higher of municipal value and fair rent) [4.20. Since the annual value of Los Angeles house is obviously more.4.100 1. The Chennai house will. Rohini Ravi will be calculated as under: 1.000 89. it will be beneficial for her to opt for choosing the same as self-occupied. therefore. the income from house property of Mrs.000 2.960 3. As regards the Bangalore house.97. At her option. The annual value of the Los Angeles house is ` 9. 30% of the arrears of rent shall be allowed as deduction. Answer Since the assessee is a resident and ordinarily resident in India. She possesses a self-occupied house at Los Angeles as well as at Chennai. Income chargeable under the head "Income from house property” . income earned in India as well as outside India will form part of her total income.81.15.000 57. The other selfoccupied house property will be treated as "deemed let out property”. Arrears in respect of Bangalore property Arrears of rent received Less: Deduction @ 30% 60.. It is not essential that the assessee should continue to be the owner.28 Taxation Compute the income chargeable from house property of Mrs.00. whose annual value will be nil.000 18.000 18. her global income would form part of her total income i.040 15.e. be treated as "deemed let out property".000.15. Rohini Ravi for the assessment year 2012-13. Accordingly.91.940 2.000 x 9/12] Less: Municipal Taxes (Property tax + Sewerage tax) Net Annual Value (NAV) Less: Deductions under section 24 30% of NAV Interest on borrowed capital (See Note below) ` Nil Nil Nil 3.000 42. one house shall be treated as self-occupied. exercising the most beneficial option available. arrears of rent will be chargeable to tax as income from house property in the year of receipt under section 25B.960 ` 2.

Holder of an impartible estate – shall be deemed to be the individual owner of all the properties comprised in the estate.800 + ` 1.44 of Study Material. (v) Acquisition of rights in or with respect to any building or part thereof.300) Add: 1/5th of pre-construction interest (` 49. (iv) A person who is allowed to take or retain possession of any building or part thereof is the deemed owner of such building or part thereof if such possession is obtained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act.840 1. . the charge of tax is on the deemed owner and not on the legal owner.Income from House Property Note : Interest on borrowed capital Interest for the current year (` 50.82. Therefore. (ii) (iii) A member of a co-operative society/company/AOP to whom a building or part thereof is allotted or leased under a house building scheme – shall be deemed to be the owner of building or part thereof. Question 6 Ownership itself is the criteria for assessment under the head income from house property.200 x 1/5) Interest deduction allowable under section 24 Question 5 4. In these specific cases.91. The exceptions are given below: (i) In case of transfer of house property to spouse (not being a transfer in connection with an agreement to live apart) or minor child (not being a married daughter) without adequate consideration . 1961? Answer Refer para 2.31.940 What do you understand by “Composite Rent”? What is the tax treatment of Composite Rent under the Income-tax Act. Answer Section 27 enumerates certain cases. Discuss. where the legal ownership may vest with one person whereas the taxability is cast on another person who is deemed to be the owner.29 ` 1.100 9. legal ownership itself is not the criteria for assessment of income under the head “Income from house property”. whether by way of admitting as a member of or by way of transfer of shares in cooperative society or company or other association of persons etc. 1882. – person acquiring such rights shall be the deemed owner.transferor is the deemed owner.3 in page 4.

Compute income from house property for A and B for the previous year 2011-12 (A. the tenant vacated the house on 31-12-2011 and B occupied the entire house during the period 01-01-2012 to 31-03-2012.00. B occupied the ground floor on 01-07-2011 and let out the first floor for a rent of ` 15.4.000 A has availed a housing loan of ` 20 lakhs @ 12% p.000 2.50.000 1.000 per annum A – 8. on 01-07-2010.50.000 (iv) Repair and maintenance charges paid by A – 28. Answer Computation of income from house property of Mr.000 sq. interest deduction restricted to Loss under the head “income from house property” of Mr. ground floor and an equal area in the first floor.000) . 2012-13 Particulars Annual value is nil (since house is self occupied) Less : Deduction under section 24(b) Interest paid on borrowed capital ` 20. A and B constructed their houses on a piece of land purchased by them at New Delhi.00. B has availed a housing loan of ` 12 lakhs @ 10% p. No repayment was made by either of them till 31-03-2012. Question 7 Mr.a. The built up area of each house was 1. the provisions of section 25AA and 25B dealing with receipt of unrealised rent and arrears of rent also fall in this category.Y. A for A.88.000 48. A ` ` Nil 2. The receipt is considered as income under the head ‘house property’ though the recipient may not have legal ownership of the property to which the receipt relates.a. B started the construction on 1-04-2010 and completed the construction on 30-06-2011.Y.40.000 B – 8.000 per annum ` 72. A occupied the entire house on 01-04-2011.000 @ 12% Pre-construction interest ` 2.ft. However.000 / 5 As per second proviso to section 24(b).40. on 01-04-2010.000 B – 30.000 (1. A started construction on 1-04-2010 and completed on 1-04-2011. Following are the other information (i) (ii) (iii) Fair rental value of each unit (ground floor /first floor) Municipal value of each unit (ground floor / first floor) Municipal taxes paid by ` 1.000 per month.30 Taxation Also. 2012-13).

Y. In this case. for 6 months from July to December.m.B (77.800 Income from house property (A)-(B) (69. Properties which are used for agricultural purposes.2011.00. The Annual Letting Value (ALV) is the higher of fair rent and municipal value.000 90.000 94.000 Net annual value (A) Nil 86.000 (` 15.000 Municipal value = 72.000 p.000) (8.000 being higher of Fair rent = 1.800) (both ground floor and first floor) Note : Computation of Gross Annual Value (GAV) of first floor of B’s house – If a single unit of property (in this case the first floor of B’s house) is let out for some months and self-occupied for the other months. The ALV shall be compared with the actual rent and whichever is higher shall be adopted as the annual value.000 (being higher of ALV of ` 75.000 and actual rent of ` 90.000 60.000 allowed in 5 equal instalments 9.000 x 10% x 9/12 = 90.00.6.000 per annum Total deduction under section 24 (B) 69.000 x 9 /12 = ` 75.000) Question 8 Discuss the following issues relating to Income from house property : (i) (ii) Income earned by residents from house properties situated in foreign countries.800 (b) interest on borrowed capital Current year interest 12. This should be considered for 9 months since the construction of property was completed only on 30.Income from House Property 4.000 9.000 Less :Municipal taxes (for first floor) 4. then the annual letting value (ALV) of the property shall be taken into account for determining the annual value. B for A.000 Less : Deduction under section 24 (a) 30% of net annual value 25.000 x 9/12 = ` 54.000 60. Annual letting value = ` 75.20.31 Computation of income from house property of Mr. .000 Pre-construction interest 12.800) Loss under the head “income from house property” of Mr. 2011 ) Gross annual value = ` 90.000 x 10% = 1. the actual rent shall be the rent for the period for which the property was let out during the previous year.00.000 Actual rent = ` 90.000 90000 / 5 = ` 18. 2012-13 Particulars Ground floor First floor (Self occupied) Gross annual value (See note below) Nil 90.

32 Answer (i) Taxation In case of resident individual. Answer As per Explanation to section 23(1). whether or not the assessee is the owner of the property at the time of receipt of unrealised rent. Therefore. The Madras High Court in CIT v. his global income is taxable in India.4. the annual value of such property would be treated as “Agricultural Income” as per section 2(1A)(c) and it is exempt under section 10(1) of the Act. (ii) If the property is used for agricultural purposes. state the head of income under which the receipt is to be assessed and comment. If the income from house properties situated outside India is chargeable to tax in India the annual value of such property would be computed as if the property is situated in India. the amount of rent which the owner cannot realize shall not be taxed / included while determining the annual value of the property. the unrealised rent when realised is chargeable to tax as income under the head ‘house property’. Question 10 In the following cases. . As per section 25AA. However. Venugopala Reddiar [1965] 58 ITR 439 observed that while computing taxable income. if the house property is used for purpose other than agriculture the annual value of such property cannot be treated as agricultural income. No deduction is allowable against the sum received towards unrealised rent. no distinction should be made between a house property situated in India and a house property situated abroad. which are to be satisfied for excluding the unrealised rent from income which are given below: (a) the tenancy must be bonafide (b) the defaulting tenant has vacated or steps have been taken to compel him to vacate the property. Rule 4 prescribes the conditions. income earned by residents from house properties situated in foreign countries is taxable in India. municipal taxes paid under the laws of that country can also be deducted while arriving at the Annual Value of the property. Further. Question 9 Discuss the treatment of unrealised rent and its recovery in subsequent years. (c) the defaulting tenant is not in the occupation any other property of the assessee and (d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of unpaid rent or satisfies the Assessing Officer that the legal proceedings would be useless.

the amount so received shall be chargeable to tax under the head “Income from House Property”. It is not assessable as income from house property. even though the construction was completed only after the closure of the year? . It shall be charged to tax as the income of the previous year in which such rent is received even if the assessee is no longer the owner of such property.2012. 30% shall be allowed as a deduction and consequently 70% alone shall be chargeable to tax. (3) Z uses his property for his own business. Can be claim depreciation? Answer (1) Sub-letting receipt in the hands of Y can be assessed as “Income from Other Sources” or as “Profits and gains from business or profession” depending upon the facts and circumstances of each case. Question 12 Mr. Kalpesh can claim deduction under Section 24 in respect of interest for the assessment year 2012-13. Kalpesh borrowed a sum of ` 30 lakhs from the National Housing Bank towards purchase of a residential flat. 30% of Net Annual Value is allowed as deduction under section 24. insurance and collection charges in all amounting to 40% of receipts. where the assessee receives any amount by way of arrears of rent in respect of any property consisting of buildings or land appurtenant thereto of which he is the owner. state: (i) (ii) Whether Mr. (2) Y has built a house on a leasehold land. Answer As per section 25B. He is entitled to depreciation under section 32(1)(ii) on the building. 2012.33 (1) X let out his property to Y. The loan amount was disbursed directly to the flat promoter by the bank. Y sublets it. Question 11 Discuss the tax liability in respect of arrears of rent. In computing the income chargeable to tax in respect of the arrears so received. The deduction of 30% is irrespective of the actual expenditure incurred. Whether deduction under Section 80C can be claimed for the above assessment year. He has let out the property and claims income from house property under “Other sources” and deducted expenses on repairs. Though the construction was completed in May.Income from House Property 4. (3) Where the assessee uses his property for business. security charges.3. it is not assessable as property income. In the light of the above facts. repayments towards principal and interest had been made during the year ended 31. (2) It is assessable as “Income from house property” since ownership of land is not a prerequisite for assessment of income under this head. How is sub-letting receipt to be assessed in the hands of Y.

construction. 2012-13. deduction under section 80C cannot be claimed for A.000 p.Y. the income from which is chargeable to tax under the head ‘Income from house property’. X for the A.000 p.m.90.4.85. X owns one residential house in Mumbai. However.000 p. renewal or reconstruction of house property can be claimed as deduction. ` 1. 1. can be claimed as deduction over a period of 5 years in equal annual installments commencing from the year of acquisition or completion of construction. Hence. deduction is prima facie eligible only if the income from such property is chargeable to tax under the head “Income from House Property”. . 1. 2012-13. 2012.a. X) Light and water charges Interest on borrowed capital Lease money Insurance charges ` 1. The particulars of the house for the previous year 2011-12 are as under: Standard rent Municipal valuation Fair rent Municipal tax (Paid by Mr. a 15% of municipal valuation Repairs 12.m. Such payment covers repayment of any amount borrowed from the National Housing Bank. repairs.m. It is stated that the construction is completed only in May.34 Answer (i) Taxation Interest on borrowed capital is allowed as deduction under section 24(b) As per section 24(b). Question 13 Mr. ` ` ` ` ` 500 p. deduction in respect of interest on housing loan cannot be claimed in the assessment year 2012-13.a. First unit of the house is self occupied by Mr.a.500 p. 3. (ii) Clause (xviii) of section 80C is attracted where there is any payment for the purpose of purchase or construction of a residential house property.000 p. The rented unit was vacant for 2 months during the year.000 p.a. Hence. there is no such income chargeable under this head. During the assessment year 2012-13.a. The house is having two identical units. Interest payable on loans borrowed for the purpose of acquisition.62. Compute income from house property of Mr.Y.000 p. Interest payable on borrowed capital for the period prior to the previous year in which the property has been acquired or constructed. ` 1.200 p. X and another unit is rented for ` 8.

000 x ½) Standard rent (` 1.000 x ½) Fair rent (` 1.000 x 12) Step III – Computation of Gross Annual Value Actual rent received owing to vacancy (` 96. .000 96.000) Net Annual value Less : Deductions under section 24 (i) (ii) 30% of net annual value Interest on borrowed capital (` 750 x 12) 19.Y.000 81. 2012-13 (A) Rented unit (50% of total area – See Note 1 below) Step I .90.725 37.000) Since.35 ` 80.000 14.000 28.Computation of Annual letting Value Municipal valuation (` 1. insurance charges and repairs. lease money paid.000 x ½) Annual letting value is higher of municipal valuation and fair rent.85.000 4.000 80.750 28.500 81. owing to vacancy the actual rent received is lower than the annual letting value.000 ` 95.62.Actual Rent Rent receivable for the whole year (` 8.725 9.250 65. but restricted to standard rent Step II .Income from House Property Answer Computation of Income from house property for A.000 92.000 – ` 16. the actual rent received is the Gross Annual value Gross annual value Less: Municipal taxes (15% of ` 95.000 Nil 9.025 Taxable income from let out portion (B) Self occupied unit (50% of total area – See Note 1 below) Annual value Less : Deduction under section 24 Interest on borrowed capital (` 750 x 12) Income from house property Notes: 9.025 No deduction will be allowed separately for light and water charges.

She repaid the loan of ` 54.03.000.36 Taxation Question 14 Mrs.000 1.500 during the financial year 2011-12. She paid municipal taxes of $ 1.20.000 per month and fair rent is ` 10.4. She also owns a two storied house in Mumbai.out portion .000 x 12) 1. owns a house in U.80. Standard rent for each floor is ` 11.A.6.000 Fair rent (` 10.750 ` 1.000 x 12 ) 1.000 per month.500) Net Annual Value (NAV) Less : Deduction under section 24 30% of NAV 34. Municipal taxes paid for the house amounts to ` 7.000 Income from House property in Mumbai (Selfoccupied portion .750 7. She receives rent @ $ 2.20. Mrs.32.000 67.750 1.Ground Floor) Gross annual value ` 10.2007.000 including interest of ` 24. x ` 45 per USD x 12 months) Less : Municipal taxes paid ($1500 x ` 45 per USD) Net Annual Value (NAV) Less : Deduction under section 24 30% of NAV House property in Mumbai ( Let.08.875 Interest on housing loan (50% of ` 24.000 × 12) Gross Annual Value (higher of ALV and actual rent) Less : Municipal taxes paid (50% of ` 7. Compute total income from house property of Mrs.500.000) 12. a resident individual.000.20. ground floor is used for her residence and first floor is let out at a monthly rent of ` 10. Indu. Indu for the Assessment Year 2012-13 Particulars House property in USA GAV– Rent received {treated as fair rent} ($2000 p.000 per month.500 10.375 Nil .First Floor) Annual Letting Value (lower of standard rent and fair rent) Standard Rent (` 11.12.20.000 1.250 46.S. The value of one dollar is to be taken as ` 45. Indu. Indu had constructed the house by taking a loan from a nationalised bank on 20.16.875 69.000 Actual rent received (10.m.500 3.000 3. Answer Computation of Income from House Property of Mrs.

37 (-) 12. a) b) c) 3. 1961: Nil Nil Nil 12.000 per annum (c) No limit (d) 30% of NAV Answer (a) ` 30. Income from house property Business income Income from other sources To be deducted from annual letting value To be deducted from actual rent To be deducted under section 24 from annual value Vacant site lease rent is taxable as Treatment of unrealized rent for determining income from house property . One of the flats is allotted to Ganesh. a) b) c) Co-operative Society Ganesh Neither of the above.000) Income from house property Question 15 Choose the correct answer with reference to the provisions of Income-tax Act.000 7.000 4. The society is the owner of the flats constructed by it.125 The ceiling limit of deduction under section 24(b) in respect of interest on loan taken on 1. Ganesh is a member of a house building co-operative society.66.2007 for repairs of a self-occupied house is: (a) ` 30.000 per annum Self-Examination Questions 1.Income from House Property Less: Municipal taxes Net Annual Value (NAV) Less : Deduction under section 24 30% of NAV Interest on housing loan (50% of ` 24.000 per annum (b) ` 1.50. The income from that flat will be assessed in the hands of a) b) c) 2.4.

000 p.000 10.000 p.4. 2010-11 for determining annual value. 2011-12. Taxation Municipal taxes to be deducted from GAV should be a) b) c) Paid by the tenant during the previous year Paid by the owner during the previous year Accrued during the previous year 1/3rd of NAV repairs actually incurred by the owner 30% of NAV 5. No limit 8.10 for repairs of a self-occupied house is a) b) c) ` 30. Interest on borrowed capital accrued up to the end of the previous year prior to the year of completion of construction is allowed a) b) c) as a deduction in the year of completion of construction in 5 equal annual installments from the year of completion of construction In the respective year in which the interest accrues 7.000 21.a. 2011 towards recovery of unrealised rent. The ceiling limit of deduction under section 24(b) in respect of interest on loan taken on 1.000 as arrears of rent during the P. Deduction under section 24(a) is a) b) c) 6. ` 1.Y.Y.38 4.2012-13 would be a) 90.000 20. The amount taxable under section 25AA for A. Where an assessee has two house properties for self-occupation. the benefit of nil annual value will be available in respect of a) b) c) Both the properties The property which has been acquired/constructed first Any one of the properties. which was deducted from actual rent during the P. Vidya received ` 90. at the option of the assessee 9.4.000 .000 in May. Leena received ` 30.a.50.Y. The amount taxable under section 25B would be a) b) c) 30.

Ganesh and Rajesh are co-owners of a self-occupied property. b. 3. 2011 and therefore. security charges.000 Income earned by residents from house properties situated in foreign countries. In the following cases. he let out the property w. who was deriving income from house property.000 1.Income from House Property b) c) 63. Y sublets it. He claims that this amount should be considered under the head “Income from house property” and not “Income from other sources”. realised a sum of ` 52. Answers 1. The interest paid by each co-owner during the previous year on loan (taken for acquisition of property during the year 2003) is ` 1.000 on account of display of advertisement hoardings of various concerns on the roof of the building.f. An assessee. The amount of allowable deduction in respect of each co-owner is – a) b) c) (i) (ii) 1.62. c. a. Discuss the following issues relating to Income from house property - 13. b.2012. He has let-out the above property and claims income from house property under "Other sources" and deducted expenses on repairs. c. 11.62.000 75. a. (2) X has built a house on a leasehold land. b. ` 37. Ram owned a house property at Chennai which was occupied by him for the purpose of his residence. 5. 14. b.50. He was transferred to Mumbai in June.000. How do you deal with the following issue under the provisions of the Income-tax Act? 15.e. b. The corporation tax payable in respect of the property was ` 2. 6. They own 50% share each. Compute the income from house property for the A. How is subletting receipt to be assessed in the hands of Y.7. 4.000 60.39 11.700 . 1.3. 2.000 4. state the head of income under which the receipt is to be assessed and comment.000. 12.000 of which 50% was paid by him before 31.2012-13. 10.2011 on a monthly rent of ` 8. Properties which are used for agricultural purposes. 9. c. 7. insurance and collection charges in all amounting to 40% of receipts. 8.000. C 15. (1) X let out his property to Y.Y. Interest on money borrowed for the construction of the property amounted to ` 12.

Vidyasagar on 2. fails to remit the same to the credit of the Central Government within the stipulated time limit. (i) The obligation to deduct tax at source from interest paid to a resident arises under section 194A in the case of an individual.000 was paid to Rehman & Co. a non-resident. i. (iv) Commission of ` 15. a resident individual (whose turnover during the year ended 31. Briefly discuss whether any disallowance arises under the provisions of section 40(a)(i)/40(a)(ia) of the Income-tax Act. only where he was subject to tax audit under section 44AB in the immediately preceding previous year. P. Yuvan Raja.. disallowance under section 40(a)(ia) is not attracted in this case. (ii) (iii) Disallowance under section 40(a)(ia) is not attracted for failure to deduct tax at source under section 192 from salaries.00. R.000 was paid as interest to Mr. 1961 is attracted where the assessee fails to deduct tax at source as is required under the Act. hence non-deduction of tax at source will attract disallowance under section 40(a)(i). without deduction of tax at source. the following payments/expenditure were made/incurred by Mr.3.D.UNIT 3 : PROFITS AND GAINS OF BUSINESS OR PROFESSION Question 1 During the financial year 2011-12. it is clear that he was not subject to tax audit under section 44AB in the P. Hence.000 was paid to Mr.2010-11.000 was paid as salary to a resident individual without deduction of tax at source. In the case of interest paid to a non-resident. a resident partnership firm.e. Burman..2011. The assessee is a resident individual. Answer Disallowance under section 40(a)(i)/40(a)(ia) of the Income-tax Act. . (iii) ` 3. From the data given..e. Interest of ` 4.Y.Y. there is obligation to deduct tax at source under section 195.Y. who was not subjected to tax audit during the immediately preceding previous year i. without deduction of tax at source. P.2010-11. 1961.2010-11 (as his turnover is less than ` 60 lakh in that year) and the TDS obligations have to be considered bearing this in mind. or having deducted tax at source. without deduction of tax at source.7.2011 was ` 39 lacs) : (i) (ii) Interest of ` 12.

Y. 2008-09) ` 5.00.000 to a resident arises in the case of an individual.000 3.00.000 12.Y. explain the tax treatment of the above in the hands of the LLP. there is no obligation to deduct tax at source under section 194H during the P. 2011-12. Answer Tax treatment of depreciation and unabsorbed business loss of a private company on its conversion into a LLP The LLP would be allowed to carry forward and set-off the business loss and unabsorbed depreciation of the predecessor company [Section 72A(6A)].Y.2012. The following particulars are available to you: (i) (ii) (iii) (iv) (v) (vi) Cost of land WDV of machinery as on 1.2011 (A.00. only where he was subject to tax audit under section 44AB in the immediately preceding previous year. disallowance under section 40(a)(ia) is not attracted in this case. Therefore. Assuming that the necessary conditions laid down in section 47(xiiib) of the Income-tax Act.2011 Building acquired on 12. in any previous year.Profits and Gains of Business or Profession 4. Above building was revalued as on the date of conversion into LLP as Unabsorbed business loss as on 1.1.00. Such depreciation shall be apportioned between the predecessor company and the successor LLP in the ratio of the number of days for which the assets were used by them [Section 32(1)] Therefore. it is clear that he was not subject to tax audit under section 44AB in the P. depreciation has to be first calculated as if the conversion had not taken place and .3. From the data given.30. Hence. there was disruption of business and the assets were put into use by the LLP only from 1st March. The company earned profits of ` 8 lacs prior to computation of depreciation.2011 Patents acquired on 1.6.00.000 Though the conversion into LLP took place on 1. Depreciation The aggregate depreciation allowable to the predecessor company and successor LLP shall not exceed. 1961 have been complied with.2010-11. Question 2 Harish Jayaraj Pvt. 1.41 (iv) The obligation to deduct tax at source under section 194-H from commission paid in excess of ` 5. is converted into Harish Jayaraj LLP on 1.000 3.000 7.1. 2012 onwards.4. the depreciation calculated at the prescribed rates as if the conversion had not taken place.2012.000 9.4.2010 for which deduction was allowed under section 35AD. Ltd.

1. Block I Block II Machinery Patents ` 3. The WDV as on 1.000 25% ` 49.000 2.510 1.09. ` 8.005 9.00.00.485 = ` 2.6.1.09.2012 = 3.500 Allocation of depreciation Depreciation on machinery and patents have to be apportioned between the company and the LLP in the ratio of the number of days for which the assets were used by them.000 1.995 6.000 – 44.515 and ` 2. of Depreciation days of usage 275 44. WDV of Machinery as on 1.995 Particulars Profits of the company before depreciation Less: Current year depreciation Business income of the company after depreciation Brought forward business loss Unabsorbed business loss as on 31.34.4.85.85.000 1.490.2011 to be carried forward by the LLP 3. respectively. Therefore.30.42 Taxation then apportioned between the company and the LLP in the ratio of the number of days for which the assets were used by them.500 Company No.00. of days of usage 31 31 LLP Depreciation Machinery Patents 5.2012 for Machinery and Patents are ` 2. the depreciation on assets has to be allocated between the company and LLP as follows – Asset Total depreciation for the year 49.30. depreciation to be allowed in the hands of the company is ` 1. Since patents were acquired only on 1.2011.09. it could have been used by the company for 214 days only.505. Actual cost of assets to the LLP (1) The actual cost of the block of assets in case of the LLP shall be the WDV of the block of assets as in the case of the company on the date of conversion.000 1.09.500 75.490 14.24.12.500 75.505 Therefore.24. which would be the actual cost in the case of the LLP.015 9.995 and depreciation to be allowed in the hands of the LLP is ` 14. 2.995 No.485 214 65. Unabsorbed business loss to be carried forward by the LLP.515 .000 15% 3.90.

00. Answer Computation of deduction allowable under section 35 Particulars Amount (` in lacs) Section % of weighted deduction Amount of deduction (` in lacs) Payment for scientific research K Research Ltd.Profits and Gains of Business or Profession WDV of Patents as on 1.00 .510 = ` 2.3.2012 : (` in lacs) (i) (ii) (iii) Payments made to K Research Ltd. Payment made to LMN College Payment made to OPQ College Note: K Research Ltd. as increased by the cost of improvement. [See Note 3] LMN College OPQ College [See Note 1] National Laboratory [See Note 4] In-house research [See Note 2] 20 15 10 8 35(1)(ii) 35(1)(ii) 35(2AA) 175% 175% Nil 200% 35.000 – 65. and LMN College are approved research institutions and these payments are to be used for the purposes of scientific research. 1961 while arriving at the business income of the assessee.00 26.43 (2) Land is not a depreciable asset. Hence. deduction had been allowed in the earlier year under section 35AD. The cost of acquisition of land to the LLP would be the cost for which the company acquired it. there is no question of depreciation during the current year. The actual cost of the building to the LLP would be Nil. Question 3 Mr.25 Nil 16. (3) In respect of the building.34.490 4.2012 = 3.1. Praveen Kumar has furnished the following particulars relating to payments made towards scientific research for the year ended 31. (iv) (v) (vi) Payment made to National Laboratory Machinery purchased for in-house scientific research Salaries to research staff engaged in in-house scientific research 8 25 12 20 15 10 Compute the amount of deduction available under section 35 of the Income-tax Act.

4.Y.25 lacs. has increased the percentage of weighted deduction under section 35(2AA) in respect of amount paid to National Laboratory fron 175% to 200% w. in this case. Ltd. (Alternative Answer) : Any sum paid to a company registered in India which has as its main object scientific research. 2011. and LMN College (mentioned in item (i) and (ii). Payment to OPQ College : Since the note in the question below item (iii) clearly mentions that only K Research Ltd. The weighted deduction under section 35(1)(iia) would be ` 25 lacs (i.00 12. 2. it is a logical conclusion that OPQ College mentioned in item (iii) is not an approved research institution.. 35(2) 35(1)(i) 100% 100% 25. 3.e. Is the expenditure to be disallowed under section 40(a)(ia)? (c) X Co. Payment to National Laboratory : The Finance Act. respectively) are approved research institutions. the assessee is an individual. assuming that such expenditure is laid out or expended on scientific research related to his business. A. qualifies for a weighted deduction of 125% under section 35(1)(iia). is a company. 2012-13. it is also possible to take a view that payment of ` 20 lakhs to K Research Ltd.44 Taxation 25 35(1)(iv) r. he would be entitled to deduction@100% of the revenue expenditure incurred under section 35(1)(i) and 100% of the capital expenditure incurred under section 35(1)(iv) read with section 35(2). Therefore. Payment to K Research Ltd. However. in which case. Question 4 Answer the following with reference to the provisions of the Income-tax Act. Therefore.w. payment to OPQ College would not qualify for deduction under section 35. qualifies for a weighted deduction of 125% under section 35(1)(iia) since K Research Ltd.00 114. 4. paid ` 120 lakhs as compensation as per approved Voluntary Retirement Scheme (VRS) during the financial year 2011-12. 1961 : (a) Bad debt claim disallowed in an earlier assessment year. Therefore. as is approved by the prescribed authority.f. the total deduction under section 35 would be ` 104. chargeable to tax? (b) Tax deducted at source on salary paid to employees not remitted till the ‘due date’ for filing the return prescribed in section 139. How much is deductible under section 35DDA for the assessment year 2012-13? .e. Deduction for in-house research and development : Only company assessees are entitled to weighted deduction@200% under section 35(2AB) in respect of in-house research and development. Is the sum recovered. recovered subsequently. 125% of ` 20 lacs).25 Capital expenditure Revenue expenditure 12 Deduction allowable under section 35 Notes :1.

He has brought forward business loss of ` 50.Profits and Gains of Business or Profession Answer 4. is deductible under section 35DDA for the A.4. (3) It should have been incurred by the assessee during the previous year. 1961? Answer The following conditions are to be fulfilled for the allowability of expenditure under section 37 (1) The expenditure should not be of the nature described in section 30 to 36.2011.45 (a) Recovery of a bad debt claim disallowed in the earlier year cannot be brought to tax under section 41(4).000 relating to assessment year 2008-09 of a discontinued business.Y. (c) It is deductible in 5 equal annual instalments commencing from the previous year of payment. Question 5 What are the conditions to be satisfied for the allowability of expenditure under section 37 of the Income-tax Act. The disallowance under section 40(a)(ia) will not apply for non-deduction of tax at source from income chargeable under the head “Salaries”. (6) It should not have been incurred for any propose which is an offence or which is prohibited by law. (5) It should not be in the nature of a capital expenditure. Assuming that he opts for presumptive taxation of income as per section 44AE. Question 6 (a) Ramamurthy had 4 heavy goods vehicles as on 1.2012-13. (4) The expenditure should have been laid out or expended wholly or exclusively for the purposes of the business or profession. Section 41(4) can be invoked only in a case where bad debts or part thereof has been allowed as deduction earlier under section 36(1)(vii). It furnishes you the following information: .2011.6. being 1/5th of ` 120 lakhs. (b) Win Limited commenced the business of operating a three star hotel in Tirupati on 1-42011.2011. compute his total income chargeable to tax for the assessment year 2012-13. He sold 2 heavy goods vehicles on 31. (2) It should not be in the nature of personal expenditure of the assessee. (b) The salary expenditure is allowable while computing the income of the employer even though TDS has not been deposited within the due date under section 139(1).5. ` 24 lakhs. He acquired 7 heavy goods vehicles on 27.

50. would be allowed as deduction from the business income.40. for the assessment year 2012-13.000 x10) Business Income Less: Brought forward business loss of discontinued business Total Income 40. which includes the business of building and operating a hotel of two-star or above category anywhere in India which commences its operations on or after 1.000 50. Further. Ramamurthy for A.2012-13 Particulars Presumptive business income under section 44AE 4 heavy goods vehicles for 2 months (4 x ` 5. since he did not own more than 10 goods carriages at any time during the previous year.00. for the purpose of specified business prior to commencement of operation would be allowed as deduction during the previous year in which the assessee commences operation of his specified business.000 ` Note: The assessee is eligible for computing the income from goods carriages applying the presumptive provisions of section 44AE. A condition has been inserted that such amount incurred prior to commencement should be capitalized in the books of account of the assessee on the date of commencement of its operations.4. goodwill or financial instrument would not be eligible for deduction.000 4. Answer (a) Computation of total income of Mr.Y. expenditure incurred on acquisition of any land. the expenditure incurred.4. .000 1.46 (i) (ii) Taxation Cost of land (acquired in June 2009) ` 60 lakhs Cost of construction of hotel building Financial year 2009-10 ` 30 lakhs Financial year 2010-11 ` 150 lakhs (iii) Plant and Machineries (all new) acquired during financial year ` 30 lakhs 2010-11 [All the above expenditures were capitalized in the books of the company] ` 80 lakhs Net profit before depreciation for the financial year 2011-12 Determine the amount eligible for deduction under section 35AD of the Income-tax Act. wholly and exclusively for the specified business. However.000 4.000 x 10) 7 heavy goods vehicles for 10 months (7 x ` 5. 1961. (b) Under section 35AD.2010. 100% of the capital expenditure incurred during the previous year.90.000 x 2) Balance 2 heavy goods vehicles for 10 months (2 x ` 5.000 3. wholly and exclusively.

determine his income from retail trade as per the applicable presumptive provision. Since his total turnover for the F. ` 210 lakhs – ` 80 lakhs). he is eligible to opt for presumptive taxation scheme under section 44AD in respect of his retail trade business. the deduction under section 35AD for the A.50.2011. if any. Praveen eligible to opt for presumptive determination of his income chargeable to tax for the assessment year 2012-13? If so.000 for the financial year 2011-12.Y. Retail trade is the only source of income for Mr. applying the presumptive tax provisions under section 44AD. the same does not qualify for deduction under section 32. would be ` 4. being 8% of ` 58. what are his obligations under the Income-tax Act.4. 1961? (iv) What is the due date for filing his return of income under both the options? Answer (i) Yes. Praveen does not opt for presumptive taxation of income from retail trade. (ii) . (i) (ii) Is Mr.000.Y. The unabsorbed loss.50.000. (2) Since the entire cost of plant and machinery and building qualifies for deduction under section 35AD.Profits and Gains of Business or Profession 4.000.Y.2012-13. the loss from specified business of operating a three star hotel would be ` 130 lakhs (i. ` (in lakhs) Nil 180 30 210 (iii) In case Mr. His income from the said business as per books of account is computed at ` 2. would be calculated as follows. reports a turnover of ` 58.90.e. Praveen.68. Praveen engaged in retail trade. if any. of any other specified business. will be carried forward for set off against profits and gains of any specified business in the following assessment year. As per section 73A. assuming that the expenditures were capitalised in the books of the company on 1. any loss computed in respect of the specified business referred to in section 35AD shall be set off only against profits and gains. being the date of commencement of operationsParticulars Cost of land (not eligible for deduction under section 35AD) Cost of construction of hotel building (` 30 lakhs + ` 150 lakhs) Cost of plant and machinery Deduction under section 35AD Note:(1) For A.2012-13 in the case of Win Ltd. His income from retail trade.2011-12 is below ` 60 lakhs. Question 7 Mr.47 Accordingly.

08.08.00. the due date would be 31st July. In case he does not opt for the presumptive taxation scheme and claims that his income is ` 2. for the previous year ended on 31.00.80.68.000 (which is lower than the presumptive business income of ` 4.48 Taxation (iii) In case he does not opt for the presumptive taxation scheme under section 44AD.000 × 61/152 Amount ` 40.00.000 7.40 lacs and put to use on the same day.Y.000 × 275/366 ` 1.2012.40.40.000 1. he has to maintain books of account as required under section 44AA(2) and also get them audited and furnish a report of such audit under section 44AB.000). in which case the due date for filing of return would be 30th September. 2012. since his total income exceeds the basic exemption limit of ` 1.2011 for ` 14.90.5% Total depreciation for the year Apportionment between two companies: (a) Amalgamating company. for P. has a block of assets carrying 15% rate of depreciation. ` 6. Sai Ltd. Question 8 Sai Ltd.4. 2012. at ` 60 lacs. 2011-12 Particulars Written down value (WDV) as on 1.00.2012 assuming the assets transferred to Shirdi Ltd. then he has to get his books of account audited under section 44AB.90.04.000 14. & Shirdi Ltd.000 @ 7.2011 was ` 40 lacs. & Shirdi Ltd.162 . Sai Ltd. Answer Statement showing computation of depreciation allowable to Sai Ltd.000 4. It purchased another asset of the same block on 01.94.2011 Addition during the year (used for less than 180 days) Total Depreciation on ` 40.000 @ 15% Depreciation on ` 14.50. with effect from 01. You are required to compute the depreciation allowable to Sai Ltd.08.820 43.40. whose written down value on 01.03. and claims that his income is ` 2. was amalgamated with Shirdi Ltd.01.000 6.000 as per books of account. (iv) In case he opts for the presumptive taxation scheme under section 44AD.000.000 54.342 4.4.11.

000.e.e. 1961. 1961 are (1) There must be a debt – i. Question 10 M/s Arora Ltd. Interior works done by Mr.Profits and Gains of Business or Profession (b) Amalgamated company.000 × 91/152 4. Rao ` 15. ` 60 lacs.49 1.00.2012..06. in respect of depreciation allowable to the amalgamating company and amalgamated company in the case of amalgamation shall not exceed in any case.838 Notes: (1) The aggregate deduction. Answer The conditions for deductibility of bad debts written off under the Income-tax Act.10. ` 6. Tax deducted in March 2012 was paid on 30. (2) The debt must be incidental to the business or profession of the assessee. Question 9 State the conditions for deductibility of bad debt written off under the Income-tax Act. Tax was not deducted at source.00. has no implication in computing eligible depreciation. (iii) Factory Rent paid to Mr. (3) The debt must have been taken into account in computing the assessable income – No such deduction shall be allowed unless such debt or part thereof was taken into account in computing the income of the assessee of the previous year in which it was written off or of an earlier previous year or it represents money lent in the ordinary course of business of banking or money lending carried on by the assessee.2012. Shirdi Ltd.49. (2) The price at which the assets were transferred.13. submits the following details of expenditure pertaining to the financial year 2011-12: (i) (ii) Payment of professional fees to Mr. Such deduction shall be apportioned between the amalgamating company and the amalgamated company in the ratio of the number of days for which the assets were used by them. Mani ` 50. i. .00. Tax deducted at source and paid on 01. (4) The debt must have been written off as irrecoverable in the books of account of the assessee... Hari for ` 2.658 2. the deduction calculated at the prescribed rates as if the amalgamation had not taken place.08. a bad debt presupposes the existence of a debt and relationship of a debtor and creditor.000 × 91/366 ` 1.180 64.000 on a contract basis.000. Payment made in the month of March 2012.

2011 and paid on 28.Y. (iii) (iv) Question 11 Mr. Since no tax is deducted at source.e. 2012-13 (i) (ii) Payment of professional fees is subject to TDS under section 194J.000 10. disallowance would not be attracted since tax deducted during December 2011 was deposited before 30th Sep 2012 i. Raju. Since the tax was deducted in March. Answer Allowability of expenses of M/s.000 To Administrative charges To State VAT penalty 3. on 28.000 15.00.000 By Gross Profit 5.03.03. The maximum time allowable for deposit of tax deducted at source is upto the due date of filing of return i. the expenditure of ` 50.000 16.09. In this case.000 2. for the P. Arora Ltd for the A.000. P.00.60.000 By Sales By Closing stock ` 32. Manufacturing.50 Taxation (iv) Interest paid on Fixed Deposits ` 2. In this case.26. 30th September.2012..Y.e.e. disallowance under section 40(a)(ia) is not attracted.00.00.e. You answer must be with reference to section 40(a) read with relevant tax deduction at source provisions. The tax deducted at source could be deposited on or before the due date of filing of return to avoid disallowance under section 40(a)(ia).000 is disallowed under section 40(a)(ia).000 5.. 2012). 1961.12.000 is disallowed under section 40(a)(ia).2012. 2012 and paid on or before the due date of filing the return (i. 2011-12.00. Trading and Profit & Loss Account for the year ended 31.99.000 34. gives the following Manufacturing.70. Hence.4.000 By Dividend from domestic companies . Trading and Profit & Loss Account for the year ended 31.000 ________ 34.09.000 10. the expenditure can be claimed only in the subsequent year i.60. 2012. the expenditure on interior works will be allowed as deduction.Y. a manufacturer at Chennai.2012 ` To Opening Stock To Purchase of Raw Materials To Manufacturing Wages & Expenses To Gross Profit 71.. Hence. 2012-13.00. on or before September 30th. Examine the above with reference to allowability of the same in the assessment year 2012-13 under the Income-tax Act. Tax deducted on 31.2012. the expenditure of ` 15. since tax deducted under section 194-I was paid after the due date of filing the return.

000 2. Interest on housing loan was ` 23.000 By Income from agriculture (net) 4.000.000 .2011. Raju for the assessment year 2012-13. (vi) Depreciation allowable under the Act is to be computed on the basis of following information: Plant & Machinery (Depreciation rate @ 15%) Opening WDV (as on 01.000 54.000 60.55.000 and the balance was paid in October 2012.2012 was ` 20. (v) Housing loan principal repaid during the year was ` 50.00.000 and it relates to residential property occupied by him.51 1. The assessee paid ` 33.000 in cash to a transport carrier on 29.80. The commission amount at the market rate is ` 36.000 12.03. Housing loan was taken from Canara Bank.000 2.000 ________ 12.00.) (iii) A sum of ` 4.00.000 5.000 per month was paid as salary to a staff throughout the year and this has not been recorded in the books of account.2011) Additions during the year (used for more than 180 days) Total additions during the year Note: Ignore additional depreciation under section 32(1)(iia) Compute the total income of Mr. Note: Ignore application of section 14A for disallowance of expenditures in respect of any exempt income.55.00.10. This amount is included in manufacturing expenses (Assume that the provisions relating to TDS are not applicable to this payment.12.00.000.04.000 4.000 paid as commission to brother of the assessee. These amounts were not dealt with in the profit and loss account given above.000 Following are the further information relating to the financial year 2011-12: (i) (ii) Administrative charges include ` 46. (iv) Bank term loan interest actually paid upto 31.Profits and Gains of Business or Profession To State VAT paid To General Expenses To Interest to Bank (On machinery term loan) To Depreciation To Net Profit 1. ` 12.

000 5.000 2.000 in respect of payment to transport operators. Therefore.000 Nil Add: 48.25.80.000 3.000 40.000 __50.000 10.000 paid in cash to a transport carrier is allowable as deduction.Y.000 2. Salary paid to staff not recorded in the books (Assuming that the expenditure is in the nature of unexplained expenditure and hence. 1961 (As per working note) ` ` 5. amount of ` 33.60.00.03.000 15.000 4.000 3.20.000 Less: Less: Income from house property Annual value of self-occupied property Deduction under section 24(b) – interest on housing loan Gross Total Income Deduction under section 80C in respect of Principal repayment of housing loan Total Income Nil 23.000 (23.10. 2012-13 Particulars Profits and gains of business or profession Net profit as per profit and loss account Excess commission paid to brother disallowed under section 40A(2) Disallowance under section 40A(3) is not attracted since the limit for one time cash payment is ` 35.83.03.00. is deemed to be income as per section 69C – no deduction allowable in respect of such expenditure) [See Note 1 below] Bank term loan interest paid after the due date of filing of return under section 139(1) – disallowed as per section 43B State VAT penalty paid disallowed [See Note 2 below] Depreciation debited to profit and loss account Dividend from domestic companies [Exempt under section 10(34)] Income from agriculture [Exempt under section 10(1)] Depreciation under the Income-tax Act.000 3.000) 3.000 8. Raju for the A.000 1.4.52 Answer Taxation Computation of total income of Mr.000 Less .

000 15. ` 4.53 2.000 15. not deductible. the same should not be added back as unexplained expenditure. 2.2011 (15% rate) Expenses incurred for growing coffee Expenditure for curing coffee Sale value of cured coffee 3.000 It is also possible to take a view that the salary not recorded in the books of account was an erroneous omission and that the assessee has offered satisfactory explanation for the same. it has been assumed that the levy is not compensatory and therefore. if the levy is compensatory in nature. Karnataka. Where the imposition of penalty is not for delay in payment of sales tax or VAT but for contravention of provisions of the Sales Tax Act (or VAT Act).25. Question 12 Mr.Profits and Gains of Business or Profession Working Note: Computation of depreciation under the Income-tax Act. Where it is a composite levy.10.5% on ` 2 lakh (Cost of assets used for less than 180 days) Notes (Alternate views): 1.3. the portion which is compensatory is allowable and that portion which is penal is to be disallowed.05. 1961 Particulars Depreciation@15% on ` 14 lakh (Opening WDV of ` 12 lakh plus assets purchased during the year and used for more than 180 days ` 2 lakh) Depreciation @7. The whole of coffee grown in his plantation is cured. but would be allowable as deduction while computing profits and gains of business and profession. the levy is not compensatory and therefore.2012 are given below: ` WDV of car as on 1.00. Since the question only mentions “State VAT penalty paid” and the reason for levy of penalty is not given.000 . Tenzingh is engaged in composite business of growing and curing (further processing) coffee in Coorg.000 2. the total income would be ` 3. In such a case.00.000 3.00.000 22.2011 WDV of machinery as on 1. However.4.000. not deductible. In such a case. It is also possible to assume that such levy is compensatory in nature and hence. Relevant information pertaining to the year ended 31.00.10.4. allowable as deduction. it would be fully allowable.000 3.

2012.000) Total costs of agricultural operations Expenditure for coffee curing operations Add: Depreciation on machinery (15% of 15.00.00. Show the WDV of the assets as on 31.000 _36.000 5.000 2. and 25% of such income shall be deemed to be income liable to tax.000.4.10.11.000 ` ` 3.000 12.25. The machines were used in coffee curing business operations.25.000 .66.000 3. as per Rule 7B of the Income-tax Rules. As per the above Rule. The expenses incurred for car running and maintenance are ` 50.000 9.000 40.2011 Depreciation thereon at 15% Less: Disallowance @20% for personal use 45. the income will be segregated between agricultural income and business income.000 3.89.3. income derived from sale of coffee grown and cured by the seller in India shall be computed as if it were income derived from business.3.86.000 ` ` ` 3. Compute the income arising from the above activities for the assessment year 2012-13.22.2012 Particulars Car Opening value as on 1.000 3.000 _9. Particulars Sale value of cured coffee Less: Expenses for growing coffee Car expenses (80% of ` 50.00. disallowance for personal use may be taken at 20%. The balance 75% will be treated as agricultural income.250 9.750 ` 22.00.000) (See Note below) Total cost of the curing operations Total cost of composite operations Total profits from composite activities Amount regarded as business income (25% of above) Amount treated as agricultural income (75% of above) Computation of value of depreciable assets as on 31.54 Taxation Besides being used for agricultural operations.4. 1962.00.000) Depreciation on car (80% of 15% of ` 3. Answer Where an assessee is engaged in the composite business of growing and curing of coffee. the car is also used for personal use.

The depreciation so computed shall be deemed to have been “actually allowed” to the assessee.000 - . Question 13 Miss Vivitha. Tamil Nadu.000 1.00.000 75.25.64. cured.00.000 Income from sapling and seedling grown in a nursery at Cochin.75.55 2.2011 Less: Depreciation @ 15% Closing value as on 31.4. roasted and grounded. in 2. Income from sale of coffee grown and cured in Yercaud. cured. Sale of coffee grown and cured in India.000 Income from sale of coffee grown. Income from sale of tea grown and manufactured in Shimla. You are required to compute the business income and agricultural income of Miss Vivitha for the assessment year 2012-13. 1.2012-13 Sl. Answer Computation of business income and agricultural income of Ms. Source of income Gross (` ) Business income % (i) (ii) (iii) Sale of centrifuged latex from rubber plants grown in India. 3. has derived the following income from various operations (relating to plantations and estates owned by her) during the year ended 31-3-2012: ` (i) (ii) (iii) (iv) (v) Income from sale of centrifuged latex processed from rubber plants 3.95.000 2.50.2012 15.3.00.50.000 operations were not carried out by her on land. the total amount of depreciation shall be computed as if the entire composite income of the assessee (and not just 25%) is chargeable under the head “Profits and gains of business or profession”.Profits and Gains of Business or Profession Depreciation actually allowed Closing value as on 31.000 Colombo.000 36.Vivitha for the A.000 2. Sale consideration was received at Chennai. Sale of coffee grown.000 25.000 12.3.000 35% 25% 100% Amount (` ) 1.00. Basic 80.05. 4.000 4. a resident and ordinarily resident in India.000 Explanation 7 to section 43(6) provides that in cases of ‘composite income’.Y.00.00.2012 Machinery Opening value as on 1.000 2. No.000 grown in Darjeeling. for the purpose of computing written down value of assets acquired before the previous year.50.000 Agricultur al income Amount (` ) 1.

His gross receipts from profession are as under: ` Financial year 2009-10 Financial year 2010-11 Financial year 2011-12 1. 40% of such income is taken as business income and the balance as agricultural income. 1961. Question 14 Vinod is a person carrying on profession as film artist.000 80. Sri lanka. Where income is derived from sale of coffee grown. in this question. these operations are done in Colombo. there is no question of such apportionment and the whole income is taxable as business income.000 Nil 5. 2.000 80.000 5. Thus. cured. the income arising outside India is also chargeable to tax. being a resident and ordinarily resident.15.80.000 Notes: 1.90. In the case of an assessee. Hence. (See Note 1 below) Sale of tea grown and manufactured in India Saplings and seedlings grown in nursery in India (See Note 2 below) Total (iv) (v) 4.000 2. roasted and grounded by the seller in India. to maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of the Income-tax Act.4.56 Taxation roasted and grounded outside India.000 40% 1.00.000 2.000 What is his obligation regarding maintenance of books of accounts for each Assessment Year under section 44AA of Income-tax Act.10. 1961? Answer Section 44AA(1) requires every person carrying on any profession. notified by the Board in the Official Gazette (in addition to the professions already specified therein).000 1. Explanation 3 to section 2(1A) provides that the income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income whether or nor the basic operations were carried out on land.40. However.60.40. a person carrying on a notified profession shall be required to maintain specified books of accounts : . Receipt of sale proceeds in India does not make this agricultural income.

50. Since his gross receipts have not exceeded ` 1. a sole proprietary concern is converted into a company. 2011 Building 10% ` 3.00.2011 Depreciation@10% Furniture WDV as on 1. Sidhant Co. purchased a plant for ` 1.000 50. or if it is a new profession which is setup in the relevant previous year. Ltd.50.2012-13 Particulars Building WDV as on 1.000 Plant and Machinery 15% ` 2. In the present case. and (ii) Sidhant Co. After conversion. the requirement under section 44AA to compulsorily maintain the prescribed books of account is not applicable to him.50.57 if his gross receipts in all the three years immediately preceding the relevant previous year has exceeded ` 1. M/s Sidhant & Co.000 in financial year 2009-10.50.000 in that previous year.000 Furniture 10% ` 50. It is assumed that in this case. year 2012-13. the conditions specified in section 47(xiv) are satisfied.4. Ltd. Compute the depreciation available to (i) M/s Sidhant & Co.000 ` . the company added another plant worth ` 50.000 35.000.00. Thereafter. 2011.000 (rate of depreciation 15%). Vinod is a person carrying on profession as film artist.Profits and Gains of Business or Profession (i) (ii) 4. for Asst. on October 15. the depreciation should be first calculated for the whole year assuming that no succession had taken place. 2011 is as follows: Items Rate of Depreciation WDV as on 1st April..Y. with effect from November 29.000 5. Answer In the case of conversion of sole proprietary concern into a company as per section 47(xiv).2011 Depreciation@10% ` 3. Question 15 M/s Sidhant & Co. it is likely to exceed ` 1.4.000 (rate of depreciation 15%). 2011. Computation of depreciation allowable to Sidhant & Co. which is a notified profession. The written down value of assets as on April 1. for A. the depreciation should be apportioned between the sole proprietary concern and the company in the ratio of the number of days for which the assets were used by them.000 Further.50.

being the value of plant purchased after conversion.e. for 242 days On existing assets (i.000 1. Ltd.500 46.000 37.000 + 7. additional depreciation is not provided for.000 51. ` ` 29.284 1.503 (ii) Depreciation @ 50% of normal rate of 15% on ` 50. Ltd.969 Note: Since it has not been specifically mentioned that M/s Sidhant & Co.00. which was put to use for less than 180 days Depreciation allowable to Sidhant Co.500 2. A for the year ended 31.500) (Depreciation on new machinery is restricted to 50% of eligible depreciation.00. 45/169 × ` 7.58 Taxation Plant and Machinery WDV as on 1. for A.000.000 4.00.2011 to 28.2011 Add: Additions during the year (purchased on 15. since the asset is put to use for less than 180 days in that year) Total depreciation for the year Proportionate depreciation allowable to Sidhant & Co.281 Computation of depreciation allowable to Sidhant Co.3. are manufacturing concerns.000 1.716 + 5.000 3.10.00.000 + 50% of 15% of ` 1. Ltd. and Sidhant & Co.000) On new machine for 45 days i.500) = 23.219 3.01. 242/366 x ` 70.00. Question 16 Following is the profit and loss account of Mr..11.2012: ` To Repairs on building To Advertisement To Amount paid to Scientific Research Association 1.00.400 .e.500 6.2011) Less: Depreciation for the year (15% of ` 2.997 48.750 32.4. 1. after conversion period (124/366 x ` 70.e.4.Y.000) (30.500 77.30.000 By Gross profit By IncomeTax Refund By Interest from company deposits ` 6.000)+ (124/169 × 7.2012-13 Particulars (i) Depreciation on the assets on conversion Proportionately for 124 days i.4.2011) (i.e.

59 1.600 6.000 1.000 24.2012 Particulars Net profit as per profit and loss account Add: Expenses not allowable (i) Expenses on raising compound wall – capital expenditure. hence disallowed (ii) Interest payable outside India to a resident.15.36.10.000 94.600 4.3.2012 ignoring depreciation. .500 14.00.000 1.11.31.000 being cost of raising a compound wall for the own business premises. A for the year ended 31.3.30.000 Note: Contribution to approved scientific research association qualifies for deduction @ 175% under section 35(1)(ii).000 payable outside India to a resident Indian on which tax has not been deducted and penalty of ` 24.000 3.000 for contravention of Central Sales Tax Act. Compute the income chargeable under the head ‘Profits and gains of business or profession’ of Mr.500 Following additional information is furnished: (1) Repairs on building includes ` 95. A for the year ended 31.500 6. (2) Interest payments include interest of ` 12.500 By Dividends 3.15.400 3. as tax has not been deducted at source [Section 40(a)] (iii) Penalty for contravention of CST Act [Penalty paid for violation or infringement of any law is not allowable as deduction under section 37(1)] (iv) Contribution for scientific research (to be treated separately) Less: Income not forming part of business income Interest from company deposits Dividend Income Tax refund Less: Deduction under section 35 for scientific research [See Note below] Profit and gains of business or profession ` ` 94.75.Profits and Gains of Business or Profession approved u/s 35 To Interest To Traveling To Net Profit 4. Answer Profits and gains of business or profession of Mr.000 1.000 2.500 6.500 95.25.500 3.000 1.000 12.

Question 18 (i) (ii) Deductibility of contributions for Rural Development Programmes under section 35CCA. Further. or (b) not sharing any know-how. trade mark. . Answer Compensation received in restraint of trade is an income chargeable to tax under the head “Profits and gains of business or profession” as per the provisions of section 28(va). till the date on which such asset was first put to use. State the provisions relating to expenditure by way of payment to institutions carrying rural development programmes. franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services. Question 19 Explain briefly the tax treatment of compensation received in restraint of trade. section 2(24) which defines “income” includes any sum referred to in section 28(va). Also. Interest in respect of capital borrowed for any period from the date of borrowing to the date on which the asset was first put to use should. under section 28(va). be capitalized in the case of extension of existing business or profession. licence. patent. The proviso to section 36(1)(iii) provides that no deduction shall be allowed in respect of any amount of interest paid. copyright. Answer See page 4.60 Taxation Question 17 Briefly discuss about the provisions relating to deductibility of interest on capital borrowed for the purpose of business or profession. however. Explanation 8 to section 43(1) clarifies that interest relatable to a period after the asset is first put to use cannot be capitalized. deduction is allowed in respect of interest on capital borrowed for the purposes of business or profession while computing income under the head “Profits and gains of business or profession”. Answer Under section 36(1)(iii). in cash or kind.106 of Study Material. It includes any sum whether received or receivable. under an agreement for : (a) not carrying out any activity in relation to any business.4. in respect of capital borrowed for acquisition of a new asset or for extension of existing business or profession (whether capitalized in the books of account or not) for any period beginning from the date on which the capital was borrowed for acquisition of the asset.

They are to be depreciated at the rate of 25%. on account of transfer of the right to manufacture. processing. clause (a) given above will not cover : (i) 4. . advertising. insurance. (ii) In the above context. conveying of news or information. According to Explanation 3(b) to section 32(1). communication. “service” would mean service of any description which is made available to potential users. entertainment. It includes the provision of services in connection with business of any industrial or commercial nature such as accounting. “agreement” includes any arrangement or understanding or action in concert. storage.61 any sum. not capable of being touched. whether received or receivable. boarding and lodging. supply of electrical or other energy. amusement. real estate. Such assets are represented by rights of the persons through them. whether or not the same is formal or in writing or whether it is intended to be enforceable by legal proceedings. in accordance with the terms of agreement entered into with Government of India.. construction. produce or process any article or thing or right to carry on any business which is chargeable under the head “Capital gains”. in cash or kind. transport. from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone Layer under the United Nations Environment Programme. it is to be noted that : (i) (ii) Question 20 What are intangible assets? Give four examples.e. any sum received as compensation. What is the rate of depreciation on a block of intangible assets? Answer Intangible assets are assets which are not corporeal i. chit funds. the following are intangible assets : (a) Know-how (b) Patents (c) Copyrights (d) Trade Marks (e) Licences (f) Franchises (g) any other business or commercial rights of similar nature. education. financing.Profits and Gains of Business or Profession However. banking.

000 8.70.500.75.500 and his total income would be ` 1. Sukhvinder since he is engaged in the business of plying goods carriages and owns not more than ten goods carriages at any time during the previous year. Sukhvinder’s business income calculated applying the provisions of section 44AE is ` 5.45.62 Taxation Question 21 Mr. On 1st April.000 instead of ` 5.000.000 from a heavy goods vehicle and ` 4.000 1. 2011.000 45.25.500 (See Notes 1 & 2 below) and his total income would be ` 6.15.500 from a vehicle other than a heavy goods vehicle . Compute the total income of Mr. Sukhvinder may claim lower profits and gains if he keeps and maintains proper books of account as per section 44AA and gets the same audited and furnishes a report of such audit as required under section 44AB. The income shall be deemed to be ` 5.000 70. 2011. taking note of the following data : ` Freight charges collected Less : Operational expenses Depreciation as per section 32 Other office expenses Net Profit Other business and non – business income Answer 6.000 Section 44AE would apply in the case of Mr. he sold one of the heavy goods vehicles and purchased a light goods vehicle on 6th May. However.000 15. Sukhvinder is engaged in the business of plying goods carriages.75. .85. he owns 10 trucks (out of which 6 are heavy goods vehicles). as per section 44AE(7). Mr. On 2nd May.25. If he does so.Sukhvinder for the assessment year 2012-13. Mr. then his income for tax purposes from goods carriages would be ` 45. 2011.4.for every month or part the month during which such goods vehicle is owned by the assessee in the previous year or such higher sums as declared by the assessee in his return of income. Section 44AE provides for computation of business income of such assessees on a presumptive basis.000 ` 8. This new vehicle could however be put to use only on 15th June. 2011.

the car was purchased for personal use on 10.Y.00.500 Rate per month (3) 4. Sukhvinder for A.000 and subsequently brought into the business of the assessee on 1.2011.25.50. full depreciation is available for the year even if it is put to use for less than 180 days during the previous year.12.000. Calculation of presumptive income as per section 44AE Type of carriage (1) 4 light goods vehicle – held throughout the year 1 heavy goods vehicle – held upto 2nd May 5 heavy goods vehicle – held throughout the year 1 light goods vehicle – held from 6th May Question 22 No.000 49.25.750 (i. 2012-13 Particulars Presumptive income 4.45.000 1.500 Total A car purchased by S on 10. Answer In this case.000).500 5.16. of months (2) 12 2 12 11 5. when its market value is ` 1.25.000 4.500 5.25.63 Where books are maintained 45.12.000 Amount (4) 2.15% of ` 3. .000 for personal use is brought into the business of the assessee on 01.8.75. The condition of restricting depreciation to 50% of the prescribed percentage would apply only where the asset was acquired by the assessee in the previous year.2007 for ` 3.000 10. The “actual cost” of car is ` 3.2012-13 is ` 48.75.500 70.000.000 3.2011. Compute the actual cost of the car and the amount of depreciation for the Assessment year 2012-2013 assuming the rate of depreciation to be 15%. This Explanation does not apply to any other asset in as much as it refers only to buildings.2007 for ` 3.000 5.000 70.15.Profits and Gains of Business or Profession Notes : 1. As the car was not acquired during the previous year 2011-12. Computation of total income of Mr.8. Explanation 5 to section 43(1) provides for determination of “actual cost” of building used for private purposes subsequently brought into business.Y. The admissible depreciation for A.500 Income from business of plying goods carriages [ See Note 2 Below ] Other business and non business income Total Income 2.e.000 6.

V.00. and therefore.25.000 10.000 1.50.000 10.Y. Answer Computation of depreciation for Gopichand Industries for A.2012-13 Particulars Block 1 : Plant & machinery (Rate of depreciation – 15%) WDV as on 1st April (10 looms) Add : Additions during the year 5 looms acquired on 5th July 2 looms acquired on 10th January Less : Assets sold during the year 15 looms sold on W.00.000 1.00.D.000 12.000 7th December 5.64 Taxation Question 23 Gopichand Industries furnishes you the following information : Block I WDV of Plant and machinery (consisting of 10 looms) Rate of depreciation 15% Block II WDV of Buildings (consisting of 3 buildings) Rate of depreciation 10% Acquired on 5-07-2011 – 5 looms for Sold on 7-12-2011 – 15 looms for Acquired on 10-01-2012 – 2 looms for Compute depreciation claim for the Assessment year 2012-13. These looms have been put to use or less than 180 days during the previous year.000 15.00.000 (Rupees) 5. No additional depreciation @ 20% of the cost of new plant and machinery is provided for assuming that all conditions contained in the section 32(1)(iia) have not been fulfilled.000 3.00. .000 @ 10% Total depreciation for the year Notes: 1.00.00.4.000 2.00. as on 31st March (2 looms) Depreciation on ` 2 lakhs @ 15% (limited to 50%) Block II:Buildings (Rate of depreciation – 10%) WDV as on 1st April (3 buildings) Depreciation on ` 12.50.000 4.00. only 50% of normal depreciation is permissible. Closing balance of Block 1 : Plant and machinery represents the looms acquired on 10th January.000 12.000 4. 12.40.50.000 ` ` 2.000 3.00.

Sivam.20.000 minus 26. a sole proprietary concern. Answer Computation of depreciation in the case of transfer of business. Compute the depreciation that would be allocated between the sole proprietary concern and the successor company.000 x 213 /366) The depreciation of ` 12.000.60. Ex–sole proprietary concern 1st April to 31st August = 153 days 63.000 [50% of 15% on ` 1. QQ & Co.336 .60. the company has purchased the same type of Plant on 1.1.9. whose WDV as on 1.000. Question 25 Mr. a new plant of the same block was purchased for ` 1. a retail trader of Cochin gives the following Trading and Profit and Loss Account for the year ended 31st March.00. was converted into a company on 1.65 M/s.2011 was ` 3.000 Depreciation @ 15% 63.2012 for ` 1.000] in respect of asset purchased by the successor company on 1st January is fully allowable in the hands of the successor company.00.20. additional depreciation has not been provided for. After the conversion.000 Allocation of depreciation between sole proprietary concern and the successor company The depreciation of ` 63.000.Profits and Gains of Business or Profession Question 24 4.2011. 2012: = 26.20.000 x 153 / 366 Successor company 63. On 1st April itself. Note : Since it has not been specified that the company is a manufacturing company. Before the conversion.000 is to be allocated in the ratio of number of days the assets were used by the sole proprietary concern and the company.664 (i.336 = 36. ` 63.000 1.e. the sole proprietary concern had a Block of Plant and Machinery (Rate of depreciation 15%).000 Nil 4.000 4. Depreciation is to be calculated as if there is no succession. WDV as on 1st April Add : Additions made before succession Less : Sale consideration of the asset sold 3.20..4.

which is unreasonable to the extent of ` 2.05.000 15.4.000 as on 01. .060 50.04.00.2011. A new plant falling under the same Block of depreciation was bought on 1. Sivam whether he can offer his business income under section 44AD i.640 8. the values of which were : ` 9.000 By Closing stock 14.000 1.000.66 Taxation Trading and Profit and Loss Account for the year ended 31.10.7. presumptive taxation.000 23.11.000.100 7.06.000 ` 12. (iii) The whole amount of printing and stationery was paid in cash by way of one time payment.03.000 60.400 1.000 It was found that some stocks were omitted to be included in both the Opening and Closing Stock.000 By Income from UTI 3.000 (ii) Salary includes ` 10. Two old plants were sold on 1.000 3.2012 ` To Opening stock To Purchases To Gross Profit 90.00.000 paid as donation to a Public Charitable Trust.04.000 Opening stock Closing stock ` 18. You are required to advise Mr.2011 for ` 70.20. (vi) Other general expenses include ` 2.000 3. (iv) The depreciation provided in the Profit and Loss Account ` 1.86.500 2.000 By Sales 10.05.000 paid to his brother.100 14.06. (v) Rent and rates includes sales tax liability of ` 3.000.06.e.4.2012.200 1.400 paid on 7.06.000 By Gross profit b/d 36.000 To Salary To Rent and rates To Interest on loan To Depreciation To Printing & stationery To Postage & telegram To Loss on sale of shares (Short term) To Other general expenses To Net Profit Additional Information : (i) 3.000 was based on the following information : The written down value of plant and machinery is ` 4.2011 for ` 50.

2012 Depreciation @ 15% No additional depreciation is allowable as the assessee is not engaged in manufacture or production of any article. 2012-13.000 1.e.08.900 66.Y.4.90.000 4.200 1.58.96.400 Less 11.100 2.500 x 8 /100 = ` 96.920.3.000 70.30. 4.000 66.000 4.67 ` Net Profit as per profit and loss account Add Inadmissible expenses / losses Under valuation of closing stock Salary paid to brother – unreasonable [Section 40A(2)] Printing and stationery paid in cash [Section 40A(3)] Depreciation (considered separately) Short term capital loss on shares Donation to public charitable trust Less Deductions items: Under valuation of opening stock Income from UTI [Exempt u/s 10(35)] Business income before depreciation Depreciation (See Note 1) ` 50. 12.000 . Note 1 Calculation of depreciation WDV of the block of plant & machinery as on 1.000 50.11.000 2.05. As the business income under section 44AD is lower than the business income as per the normal provisions of the Act.000 23.2011 Add :Cost of new plant & machinery Less : Sale proceeds of assets sold WDV of the block of plant & machinery as on 31.000 8.400 1.40.900 Computation of business income as per section 44AD As per section 44AD.300 2..000 1. Sivam to offer his business income under section 44AD of the Act.000 2. Sivam for the A. the business income would be 8% of turnover i.Profits and Gains of Business or Profession Answer Computation of business income of Mr.000 18. 4.300 9. it is advisable for Mr.20.920 The business income under section 44AD is ` 96.

with regard to the provisions of the Income-tax Act. will result in disallowance while computing the business income. in order to claim the same as bad debt under section 36(1)(vii). (ii) Failure to deduct tax at source in accordance with the provisions of Chapter XVII-B.000 in a day. no disallowance gets attracted under section 40A(3) of the Income-tax Act. (ii) True : Section 40(a)(ia) provides that failure to deduct tax at source from rent or royalty payable to a resident. in excess of ` 20. 1962. the same is deductible. payment in respect of the business expenditure ought to have been made through an account payee cheque. the amount due from debtor to claim deduction for bad debt. Question 26 Discuss the provisions of tax audit under section 44AB of the Income-tax Act. Payment through a cheque crossed as “& Co. (c) Co-operative banks are not allowed to claim provision for bad and doubtful debts in respect of advances made by rural branches of such banks. whether the following statements are true or false. inter alia.000 through a cheque duly crossed as "& Co. Answer See page 4. 1961. 2012 for ` 25. .68 Note 2 Taxation Since sales-tax liability has been paid before the due date of filing return of income under section 139(1). (b) (i) True : It is mandatory to write off the amount due from a debtor as not receivable. 1961: (a) Payment made in respect of a business expenditure incurred on 16th February.4. will result in disallowance of such expenditure. in accordance with the provisions of Chapter XVII-B. (b) (i) It is a condition precedent to write off in the books of account.145 of Study Material. 1961." is hit by the provisions of section 40A(3).” will attract disallowance under section 40A(3). Question 27 State with reasons. Answer (a) True : In order to escape the disallowance specified in section 40A(3). (d) Where the payment is made in cash by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payer. read with Rule 6DD of the Income-tax Rules. from the amounts payable to a resident as rent or royalty.

no disallowance gets attracted under section 40A(3) of the Income-tax Act.00. it is possible to take a view that the net amount after adjustment was made in cash and since such net payment exceeds ` 20.70.000 ` 3. Question 28 Swadeshi Ltd.000 28.00.02.05. If such a view is adopted. the deduction should not exceed 10% of the aggregate average advances made by the rural branches of such banks computed in the prescribed manner.00. .000.3.2011 2012 8. 2011 10. obtained licence on 1.30.000 6. (d) True : As per Rule 6DD.000 is pending as on 31. disallowance under section 40A(3) would be attracted.2012 Balance of ` 2. The relevant details are: Year ended 31st March Licence fee payable for the year Date Payments made Amount ` 30.2012.60. Therefore. any amount actually paid for obtaining licence to operate telecommunication services.Profits and Gains of Business or Profession 4. Can any deduction be claimed under section 32 also? Answer As per section 35ABB.03.40. the statement would be false. the year of actual payment is relevant and not the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee.000 5. shall be allowed as deduction in equal installments during the number of years for which the licence is in force. However.2010 from the Department of telecommunication for a period of 10 years. where the payment is made by way of adjustment against the amount of any liability incurred by the payee for any goods supplied or services rendered by the assessee to such payee. The total licence fee payable is ` 18.. which follows mercantile system of accounting.000 Compute the amount of deduction available to the assessee under section 35ABB for the assessment years 2011-12 and 2012-13.6.69 (c) False : Sub-clause (a) of section 36(1)(viia) allows the co-operative banks to claim deduction for provision for bad and doubtful debts in respect of advances made by rural branches of such banks.2011 15. 1961.000 in a day. Alternate Answer Since the question mentions that the payment is made in cash by way of adjustment.

00. Question 30 Vivitha Bio-medicals Ltd.2012) has been converted into loan.e.2009 (Incurred after 1.70.30. deduction under section 32(1) cannot be allowed for the same previous year or any subsequent previous year 4.2011-12.12 [P.000 25.03.Y. Therefore.67. and hence would not be allowed as deduction.03.Y.Y. interest of ` 4 lakhs (including interest of ` 1.2008) 31.000 2012-13 37.70.000 [i.2011-12] Unexpired period of licence 9 years Hence.000 + 1. ` 11.Y. Taxation ` 3. Explanation 3D to section 43B provides that if any interest payable by the assessee is converted into a loan.2010 Item Land Building Plant and machinery Amount (` ) 10.2011 [P. Question 29 X Ltd. ` 3.000 5.000/10] can be claimed under section 35ABB for period of 10 years commencing from A.000 paid on 30.00. The following expenses were incurred in respect of activities connected with scientific research: Year ended 31.2 lakhs converted into loan cannot be claimed as business expenditure.4.000 = 1. the interest of ` 1.e.9.000 paid during year ended 31.03.03.70. the interest so converted and not “actually paid” shall not be deemed as actual payment.03.2 lakhs pertaining to year ended 31.00. 3. follows mercantile system of accounting. is engaged in the business of manufacture of bio-medical items. Amount of deduction u/s 35ABB Assessment year Amount (` ) 2011-12 37. Can the interest of ` 1.000 .000 [i. 2.30.2012-13.000 Where deduction under section 35ABB is claimed and allowed. After negotiations with the bank. ` 1. ` 11. interest on term loans and advances to scheduled banks shall be allowed only in the year of payment of such interest irrespective of the method of accounting followed by the assessee.70 1.000/9] can be claimed under section 35ABB for a period of 9 years commencing from A.2010-11] Unexpired period of licence 10 years Hence ` 37.2 lakhs so capitalized be claimed as business expenditure? Answer Under section 43B.70.

000 [200% of ` 1.000 1.80.00.71 The business was commenced on 01-09-2011.2012. the existing plant and machinery were sold for ` 8. be: Particulars (a) (b) (c) (d) Land Building Revenue expenses of last 3 years Capital expenditure of last 3 years: Plant and machinery ` Nil 25. or capital expenditure incurred other than expenditure on acquisition of land [actual expenditure qualifies for deduction under section 35(1)]. it is eligible for claiming weighted deduction of a sum equal to 200% of the eligible expenditure. (b) Any expenditure incurred during earlier 3 years immediately preceding the date of commencement of business on payment of salary or purchase of materials. the business of biotechnology incurs any expenditure on scientific research during the current year.03.00.00.2012 Raw materials Raw materials and salaries 2.20.000 3.000 5. The deduction available under section 35 for scientific research will.80. Discuss the implications of the above for the assessment year 2012-13 along with brief computation of deduction permissible under section 35 assuming that necessary conditions have been fulfilled. where a company engaged in. As per section 35. the lower of sale proceeds or the total amount of deduction earlier allowed under section 35 will be considered as income from .60.000 Expenditure allowable under section 35(1) Current year revenue expenditure ` 1. The eligible expenditure and quantum of deduction will be: (a) Current year capital expenditure except expenditure in the nature of cost of any land or building or revenue expenditure incurred for scientific research (weighted deduction @ 200%).Profits and Gains of Business or Profession 31.03.80.20. Section 41(3) provides that where a capital asset used for scientific research is sold.80. Answer 1.20.000 is allowable under section 35(2AB)] Total deduction under section 35 2. You are informed that the assessee’s line of business is eligible for claiming deduction under section 35 at 200% on eligible items.2011 31. inter alia.03.000 on 1. without having been used for other purposes.000 35. therefore. In view of availability of better model of plant and machinery.000 2.000 32.000 4.

4.72

Taxation business of the previous year in which the sale took place. Therefore, the income chargeable to tax under section 41(3) should be lower of the following: (1) Sale proceeds i.e. ` 8,00,000 (2) Total amount of deduction earlier allowed under section 35 i.e. ` 5,00,000 ` 5,00,000 will be deemed to be the income chargeable to tax under section 41(3).

3.

The difference between sale proceeds and business income under section 41(3) will be treated as short-term capital gain. Sale proceeds of plant and machinery Less: Business Income as per section 41(3) Short-term capital gain 8,00,000 5,00,000 3,00,000_

Question 31 Mr. B.A. Patel, a non-resident, operates an aircraft between London to Ahmedabad. For the Financial year ended on 31st March, 2012, he received the amounts as under: (i) (ii) For carrying passengers from Ahmedabad ` 50 lacs. For carrying passengers from London ` 75 lacs received in India.

(iii) For carrying of goods from Ahmedabad ` 25 lacs. The total expenditure incurred by Mr. B.A. Patel for the purposes of the business for the financial year 2011-12 was ` 1.4 crores. Compute the income of Mr. B.A. Patel under the head “Profits and Gains from business or profession” for the financial year ended on 31st March 2012 relevant to assessment year 201213. Answer Under section 44BBA, in case of an assessee, being a non-resident, engaged in the business of operation of aircraft, a sum equal to 5% of the aggregate of the following amounts shall be deemed to be his business income: (a) the amount paid or payable, whether in or out of India, to the assessee on account of carriage of passengers, goods etc. from any place in India; and (b) the amount received or deemed to be received in India by the assessee on account of carriage of passengers, goods etc. from any place outside India. Hence, the income of Mr. B.A. Patel chargeable to tax in India under the head “Profits and Gains of business or profession” is determined as under:

Profits and Gains of Business or Profession Particulars (i) For carrying passengers from Ahmedabad (ii) For carrying passengers from London, amount received in India (iii) For carrying goods from Ahmedabad Total

4.73

` 50,00,000 75,00,000 25,00,000 1,50,00,000

Hence, income from business computed on presumptive basis as per section 44BBA is ` 7,50,000, being 5% of ` 1,50,00,000. Note: No deduction is allowable in respect of any expenditure incurred for the purpose of the business. Question 32 Comment on the allowability of the following claim made by the assessee: Mr. Achal, a hotelier, claimed expenditure on replacement of Linen and carpets in his hotel as revenue expenditure. Answer The expenditure on replacement of linen and carpets in a hotel are in the nature of expenses incurred for the business and are allowable as revenue expenses under section 37(1). Question 33 List six items of expenses which otherwise are deductible shall be disallowed, unless payments are actually made within the due date for furnishing the return of income under Section 139(1). When can the deduction be claimed, if paid after the said date? Answer Section 43B provides that the following expenses shall not be allowed as deduction unless the payments are actually made within the due date for furnishing the return of income under section 139(1): (i) (ii) Any tax, duty, cess or fees under any law in force. Employer’s contribution to provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees;

(iii) Any bonus or commission for services rendered payable to employees; (iv) Any interest on any loan or borrowings from any public financial institution or State financial corporation or State industrial investment corporation; (v) Interest on loans and advances from a scheduled bank; (vi) Any sum paid as an employer in lieu of earned leave at the credit of his employee. In case the payment is made after the due date of filing of return of income, deduction can be claimed only in the year of actual payment.

4.74

Taxation

Question 34 Briefly explain the term "substantial interest". State three situations in which the same assumes importance. Answer As per Explanation to section 40A(2), a person shall be deemed to have a substantial interest in a business or profession, if, (1) in case where the business or profession is carried on by a company, such person is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits), carrying not less than 20% of the voting power. (2) In any other case, such person is beneficially entitled to not less than 20% of the profits of such business or profession. Following are the situations under which the substantial interest assumes importance (i) (ii) Taxability of deemed dividend under section 2(22)(e); Disallowance of excessive or unreasonable expenditure under section 40A(2) to an individual who has a substantial interest in the business or profession of the assessee, and

(iii) Clubbing of salary income of spouse, under section 64(1)(ii) in respect of remuneration received by the spouse from a concern in which the individual has a substantial interest. Question 35 Mr. Tony had estates in Rubber, Tea and Coffee. He derives income from them. He has also a nursery wherein he grows and sells plants. For the previous year ending 31.3.2012, he furnishes the following particulars of his sources of income from estates and sale of plants. You are requested to compute the taxable income for the Assessment year 2012-2013:

`
(i) (ii) (iii) (iv) Manufacture of Rubber Manufacture of Coffee grown and cured Manufacture of Tea Sale of plants from Nursery 5,00,000 3,50,000 7,00,000 1,00,000

Profits and Gains of Business or Profession Answer Computation of taxable income of Mr. Tony for A.Y.2012-13 Particulars Business Income

4.75

Agricultural Income

`
(a) Income from manufacture of rubber (Rule 7A) Business income is 35% of ` 5,00,000 Agricultural income is 65% of ` 5,00,000 Income from growing and curing of coffee (Rule 7B) Business income is 25% of ` 3,50,000 Agricultural income is 75% of ` 3,50,000 Income from manufacture of tea (Rule 8) Business income is 40% of ` 7,00,000 Agricultural income is 60% of ` 7,00,000 Income from sale of plants in nursery is agricultural income [See Note below] 1,75,000

`

3,25,000 87,500 2,62,500 2,80,000 4,20,000 Nil 5,42,500 1,00,000 11,07,500

(b)

(c)

(d)

Note: Explanation 3 to Section 2(1A) provides that the income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural income, whether or not the basic operations were carried out on land. Question 36 Who are the persons and what are the circumstances which require maintaining books of accounts compulsorily? State the period for which such books are required to be kept and maintained. Answer Refer to section 44AA in page 4.143 of Study Material. Question 37 Fill in the blanks: (i) Where a company has incurred a capital expenditure of ` 1,00,000 towards promoting family planning amongst employees, ` ……… will be allowed as deduction in the current year and the balance in ……… succeeding years. A motor car is the only asset in a block. Cost ` 2,00,000. Rate of depreciation is 15%. 20% is disallowed for estimated personal use. WDV of the block is ` ............

(ii)

4.76

Taxation

(iii) In case of an eligible assessee, in respect of imported second hand machinery never put to use by any person in India before, additional or accelerated depreciation is allowable at the rate of ---------- on the actual cost of machinery. (iv) A private limited company incurred a capital expenditure of ` 5,00,000 on 1.4.2011 for acquisition of patents and copyrights, such expenditure is ……………………….(eligible for deduction in 5 years/subject to depreciation under section 32). (v) Under section 54EC, capital gains are exempted if invested in the bonds issued by NHAI and RECL within a period of 6 months from the …………………(date of transfer of the asset/end of the previous year). Answer (i) 20,000, four (ii) ` 1,76,000. (iii) Nil / 0 %. (iv) subject to depreciation under section 32 (v) date of transfer of the asset. Question 38 Choose the correct answer with reference to the provisions of the Income-tax Act, 1961: Under section 44AE, presumptive taxation is applicable at a particular rate provided the assessee is the owner of a maximum of certain number of goods carriages. The rate per month or part of the month and maximum number specified under the section are : (a) ` 5,000 for a heavy goods carriage and ` 4,500 for other goods carriages for an assessee owning not more than 10 goods carriages at any time during the year (b) ` 5,000 per carriage for an assessee owning not more than 10 goods carriages at the end of the previous year (c) ` 3,500 for a heavy goods carriage and ` 3,150 for other goods carriages for an assessee owning not more than 12 goods carriages at the end of the previous year (d) ` 3,150 per carriage for an assessee owning not more than 10 goods carriages at the end of the previous year. Answer (a) ` 5,000 for a heavy goods carriage and ` 4,500 for other goods carriages for an assessee owning not more than 10 goods carriages at any time during the year Question 39 State with reasons, for the following sub-divisions, whether the following statements are true or false having regard to the provisions of the Income-tax Act, 1961:

Profits and Gains of Business or Profession (i) (ii)

4.77

For a dealer in shares and securities, securities transaction tax paid in a recognized stock exchange is permissible business expenditure. Where a person follows mercantile system of accounting, an expenditure of ` 25,000 has been allowed on accrual basis and in a later year, in respect of the said expenditure, assessee makes the payment of ` 25,000 through a cheque crossed "& Co.”, disallowance of ` 25,000 under section 40A(3) can be made in the year of payment.

(iii) It is mandatory for an assessee to claim depreciation under section 32 of the Income-tax Act, 1961. (iv) The mediclaim premium paid to GIC by Mr. Lomesh for his employees, by a draft, on 27.12.2011 is a deductible expenditure under section 36. (v) Under section 35DDA, amortization of expenditure incurred under eligible Voluntary Retirement Scheme at the time of retirement alone, can be done. (vi) An existing assessee engaged in trading activities, can claim additional depreciation under Section 32(1)(iia) in respect of new plant acquired and installed in the trading concern, where the increase in value of such plant as compared to the approved base year is more than 10%. Answer (i) True : Section 36(1)(xv) allows a deduction of the amount of securities transaction tax paid by the assessee in respect of taxable securities transactions entered into in the course of business during the previous year as deduction from the business income of a dealer in shares and securities. True : As per section 40A(3), in the case of an assessee following mercantile system of accounting, if an expenditure has been allowed as deduction in any previous year on due basis, and payment exceeding ` 20,000 has been made in the subsequent year otherwise than by account payee cheque or account payee bank draft, then the payment so made shall be deemed to be the income of the subsequent year in which such payment has been made.

(ii)

(iii) True : According to the Explanation 5 to section 32(1), allowance of depreciation is mandatory. Therefore, depreciation has to be provided mandatorily while calculating income from business / profession whether or not the assessee has claimed the same while computing his total income. (iv) True : Section 36(1)(ib) provides deduction in respect of premium paid by an employer to keep in force an insurance on the health of his employees under a scheme framed in this behalf by GIC or any other insurer. The medical insurance premium can be paid by any mode other than cash, to be eligible for deduction under section 36(1)(ib). (v) False : Expenditure incurred in making payment to the employee in connection with his voluntary retirement either in the year of retirement or in any subsequent year, will be entitled to deduction in 5 equal annual installments beginning from the year in which each payment is made to the employee.

4.78

Taxation

(vi) False : Additional depreciation can be claimed only in respect of eligible plant and machinery acquired and installed by an assessee engaged in the business of manufacture or production of any article or thing. In this case, the assessee is engaged in trading activities and the new plant has been acquired and installed in a trading concern. Hence, the assessee will not be entitled to claim additional depreciation under section 32(1)(iia). Question 40 Write short notes on: (i) (ii) Shipping business in case of non-resident. The circumstances where the provisions of section 40A(3), regarding cash payments in excess of ` 20,000, does not apply.

(iii) Amortisation of expenditure under voluntary retirement scheme. (iv) Restrictions on deductions allowable to the partnership firm in respect of salary and interest to its partners under section 40(b) of the Income-tax Act, 1961. (v) Deduction to be allowed on actual payment basis. (vi) Carry forward and set off of unabsorbed depreciation. (vii) Special provisions under section 44DA for computing income by way of royalty, fee for technical services, etc. in case of non-residents. (viii) Additional depreciation. Answer (i) Shipping business in case of non-resident See section 44B in page 4.148 of Study Material. (ii) The circumstances where the provisions of section 40A(3) regarding cash payments in excess of ` 20,000, do not apply See Rule 6DD in page 4.130 of Study Material. (iii) Amortisation of expenditure incurred under voluntary retirement scheme See section 35DDA in page 4.109 of Study Material (iv) In the case of a partnership firm, the deduction on account of interest and salary paid to its partners are as subject to the following restrictions contained in section 40(b) (i) (ii) It should be authorised by and in accordance with the terms of the partnership deed. It should not relate to a period before the date of such deed.

(iii) Remuneration should be paid to a working partner.

whichever is more @ 60% (v) See section 43B in page 4.a. effect shall first be given to current year depreciation.50.79 Simple interest up to 12% p. in the order of set-off losses under different heads of income. . bonus. the unabsorbed depreciation of the earlier previous year shall become the depreciation allowance of that year.3. However. Consequently. then to brought forward business losses and finally to unabsorbed depreciation. (2) In the case of salary.000 or 90% of book profit.138 of Study Material. in any previous year. Similarly.000 of the book profit or in case of loss On the balance of the book profit ` 1. (vii) See page 4. a further sum equal to 20% of the actual cost of such machinery or plant shall be allowable as a deduction. the restriction is also not applicable if a person who is a partner in his individual capacity receives interest for and on behalf of someone else from the firm in which he is a partner. such unabsorbed depreciation can be set-off not only against income under the head “Profits and gains of business or profession” but also against income under any other head. Where.Profits and Gains of Business or Profession (iv) The amounts allowable are subject to the following limits (1) In the case of interest 4. This restriction is not applicable if a person is a partner in his representative capacity in the firm and he receives interest from the firm in his individual capacity. (viii) Section 32(1)(iia) provides that in the case of any new machinery or plant (other than ships and aircraft) acquired and installed after 31.151 of Study Material. commission or remuneration paid by a firm to its working partners – It should not exceed the amount specified in the table below For all firms (a) (b) On the first ` 3.00. Further. the profits or gains chargeable are not sufficient to give full effect to the depreciation allowance. If there is no depreciation allowance for that previous year. such unabsorbed depreciation shall be added to the depreciation allowance for the following previous year and shall be deemed to be part of that allowance. the unabsorbed depreciation can be carried forward indefinitely till it is fully set off. (vi) Section 32(2) provides for carry forward of unabsorbed depreciation.2005 by an assessee engaged in the business of manufacture or production of any article or thing. is allowable. The effect of the provisions of section 32(2) is that unabsorbed depreciation brought forward shall be deemed as the current year depreciation.

or installed in any office premises. This can be carried forward - .000.75. 2011 is ` 1. The asset was brought into use for the business of X Ltd. current repairs plus 1/5th of capital expenditure on repairs..000 less notional depreciation under section 32 upto the date of transfer. (B) any office appliances or road transport vehicles. residential accommodation including accommodation used in the nature of guest house . The shortfall of ` 15. X Ltd.e.2011-12.Y. sells one of its machinery in April. Under section 31.000. The WDV of the machinery at the beginning of the year i.000 for the P. An electricity company charging depreciation on straight line method on each asset separately. Additional depreciation is not available in respect of the following assets : (A) any machinery or plant (i) (ii) which has been used in India or outside India by any other person before its installation by the assessee.80 Taxation The additional depreciation is available to a new machinery or plant used in the manufacture or production of any article or thing. An assessee uses plant and machinery for the purpose of carrying on his business. has unabsorbed depreciation of ` 4. No new machinery was purchased during the year.20.4. A Ltd.50.000. or (iii) the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income under the head “Profits and gains of business or profession” of any one previous year. Self Examination Questions 1. he shall be eligible for deduction on account of a) both capital and revenue expenditure on repairs b) current repairs c) 2. Additional depreciation will be taken into consideration for computing the WDV of the relevant block of assets. acquires an asset which was previously used for scientific research for ` 2.75. on 1st April. 2011 at ` 1.000 is treated as a) b) c) 3. Terminal depreciation Short-term capital loss Normal depreciation.35. after the research was completed. 4. The actual cost of the asset to be included in the block of assets is a) b) c) Nil Market value of the asset on the date of transfer to business ` 2.

In the case of a non-resident engaged in the business of operation of aircraft.000. The rate per month or part of the month relevant for A.000.Profits and Gains of Business or Profession a) b) c) 5.500 for other goods carriages for an assessee owning not more than 10 goods carriages at any time during the year ` 3.V. part of this block was sold for ` 2. presumptive taxation is applicable at a particular rate provided the assessee is the owner of a maximum of certain number of goods carriages.2012-13 Subject to depreciation under section 32 7.750 . Indefinitely and set-off against any head of income.4.2011.000 for a heavy goods carriage and ` 4.50.2011 but put to use on 1. The depreciation for A.Y. A machinery costing ` 50. 4.3.11. for a maximum period of 8 years and set-off against business income.81 Deduction under section 33AB is allowed to an assessee provided the assessee deposits the profits with NABARD a) b) c) before the end of the previous year within 6 months from the end of the previous year within 6 months from the end of the previous year or before the due date for filing the return of income.2012-13 Eligible for deduction in 5 years from A.000 on 1.2011 is ` 3.Y.20.2012-13 and the maximum number specified under the section are a) b) c) ` 5.500 per carriage for an assessee owning not more than 10 goods carriages at the end of the previous year ` 5. of a block (Plant and Machinery. the income is determined under section 44BBA at a) b) c) 7. During Jan’2012. The W.500 for other goods carriages for an assessee owning not more than 12 goods carriages at the end of the previous year 8.00.D. XYZ Ltd. Indefinitely and set-off against business income.000 was acquired on 1.2011 for acquisition of patents and copyrights.Y.Y. incurred capital expenditure of ` 1.000 for a heavy goods carriage and ` 4. 6.5% of turnover 10% of turnover 5% of turnover 9. rate of depreciation 15%) as on 31. whichever is earlier.9. Under section 44AE. Such expenditure is a) b) c) Eligible for deduction in 14 years from A.2012-13 would be a) ` 21.

13.500 ` 21.4. 2011. Which are the deductions allowable only on actual payment under section 43B? 16. a.2011 for purchase of new plant and machinery for extension of its existing business. 3.a. c 18. The new plant and machinery was purchased on the same date but was put to use only w. 9. on or before the due date for filing the return of income under section 139(1).000 as on 1st April.000@10%p.2011. 1961. on which date. from ICICI Bank on 1. c. 8. Compute the depreciation admissible under section 32 for the A. The written down value of plant and machinery in the books of Alpha Ltd. 14. 7. a.11. 10.2012-13. Employer’s contribution to provident fund/superannuation fund/gratuity fund is allowed as deduction in computing income under the head “Profits and gains of business or profession”. 6.375. 1. What is the tax treatment regarding cash payments in excess of limits prescribed in section 40A(3)? 18. assuming the applicable rate of depreciation on plant and machinery to be 15%. 17. which would increase its installed capacity to 13. a. 2. borrowed ` 10. ` 13. Discuss the provisions dealing with the computation of business income on a presumptive basis in case of resident assessees. b. is ` 75.000 tons. 4.000 tons. Is it compulsory for an assessee to claim depreciation under section 32 of the Income-tax Act. 1961? 12.8. c. Write short notes on (i) (ii) Enhanced depreciation Set-off and carry forward of unabsorbed depreciation. Alpha Ltd. 15. Answers 1.Y. the installed capacity of the company was 12. c. .e. 11.125 10. 5. c. provided it has been paid a) b) c) before the end of the previous year on or before the due date by which the employer is required to credit an employee’s contribution to the employee’s account in the relevant fund. Discuss the concept of “block of assets” under the Income-tax Act.00.04.f. a. Write short notes on the following (a) Compulsory maintenance of books of accounts (b) Compulsory tax audit.82 b) c) Taxation ` 25.00.

000 By Mr. Later on. The said amount was forfeited by Mr. Finally.00.000. Cost inflation indices are as under: Financial Year 1981-82 1983-84 1986-87 1993-94 2011-12 Answer Computation of capital gains chargeable to tax in the hands of Mr. A to Mr.000 By Mr. 1995 and received an advance of ` 80.1981 is ` 1. Rakesh and Mr. since Mr. However. C could not fulfil the terms of the agreement. A Particulars Sale consideration Less: Indexed cost of acquisition (Note 1) Amount (` ) 12. B for the sale of house on 15th September. A during FY 1993-94 1. Rakesh during FY 1979-80 10.500 Cost inflation index 100 116 140 244 785 .50. since Mr. A for the assessment year 2012-13. He entered into an agreement with Mr.92.000 The fair market value of the property as on 1. 2012 for a consideration of ` 12. A entered into an agreement with Mr. Compute the capital gains chargeable to tax in the hands of Mr. C for sale of the house on 1st June. A. 1979 for ` 1.00. B did not remit the balance amount. Following renovations were carried out by Mr. 1986. he gifted the house property to his friend Mr. Mr. 1982 and received an advance of ` 25. Rakesh purchased a house property on 14th April. A on 15th June. Rakesh forfeited the advance.UNIT 4 : CAPITAL GAINS Question 1 Mr. Sanjay on 2nd January. Mr. Rakesh during FY 1983-84 50.05.90.000.000.000.000 3.4. the house was sold by Mr. A to the house property: Amount (`) By Mr.000.

(P) Ltd.50.4.000 Fair Market Value on 1st April.270 9.000 × 785/140) 140 is the Cost Inflation Index for F. 1981 should not be considered Expenditure incurred on or after 1st April. Rakesh. Mr. should.. year 2011-12 : Business loss brought forward (These are related to erstwhile X Co. not be deducted) Cost of acquisition Indexed cost of acquisition (70. is to be taken as cost of acquisition of Mr.000 3. being the first year in which property is held by Mr.92.49.) Total income of All Trade LLP. for the financial year 2011-12 (Before set off of brought forward business losses of erstwhile company i.e. 1981. however.132) Less: Indexed cost of improvement (Note 2) Long term capital loss Note 1 Indexed cost of acquisition is determined as under: Cost to the previous owner i.00. A (as per section 51) (Note : Advance forfeited by Mr.000 × 785/244] Total indexed cost of improvement Question 2 1.49. 1986-87. A and 785 is the Cost Inflation Index for F.000 ` 5.Y.000 .000 80.000 × 785/116] During 1993-94 Indexed cost of Improvement [1.11. with effect from 01.500 NIL 3.) ` 2.50.Y.90. converted into a Limited Liability Partnership (LLP) by name All Trade LLP. being the year in which the property is sold. The following details are given to you: Asst. year 2004-05 : Business loss brought forward Asst.362 6.84 Taxation 8.00. Rakesh is ` 1.42.000 Cost to the previous owner or FMV on 1st April. 1981 is ` 1.e.05. whichever is more.2011.632 X Co. (P) Ltd. the previous owner.07. (P) Ltd. A Less: Advance money forfeited by Mr.04.000 70. Note 2 Indexed cost of Improvement is determined as under: Expenditure incurred before 1st April. X Co.500 9.000 ` 6.00. 1981 During 1983-84 Indexed cost of Improvement [50. 2011-12.632 (1.38.

The unabsorbed business loss of ` 1 Lac. (ii) Section 47(xiiib) requires that the shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company. Dayama taking into account the above said transaction.000 (computed).85 Assume that all the conditions prescribed in section 47(xiiib) were satisfied by X Co. against its business income for the F.000. Dayama. in the hands of transferee. Chhaya in respect of vacant site is ` 4..Y. notwithstanding anything contained in any other provision of the Income-tax Act.? State whether any change in partners of All Trade LLP at later date would have any tax consequence. Determine the total income of both Ms. The total income of Chhaya and Dayama before considering the transfer of vacant site are ` 50. If the entity fails to fulfil this condition. relating to A. the benefit of set-off of business loss availed by the LLP would be deemed to be the profits and gains of the LLP chargeable to tax in the previous year in which the LLP fails to fulfil the condition. respectively. Dayama for ` 4. the erstwhile shareholders of the company should continue to be entitled to receive at least 50% of the profits of the LLP for a period of 5 years from the date of conversion.25.000. i. provides that where a private company is succeeded by a LLP fulfilling the conditions laid down in the proviso to section 47(xiiib). However. the provisions of section 56(2)(vii) would not be attracted.e. Question 3 Ms.00.Y. 2011-12. (i) (ii) Explain whether All Trade LLP can set off and carry forward the business loss of its predecessor i. Answer Transfer of immovable property for inadequate consideration will not have any tax implication in the hands of transferee under section 56(2)(vii).05. Further.000 and ` 2. Ms.e. Section 72A(6A).000. All Trade LLP can carry forward and set-off the business loss of ` 7 lakh of erstwhile X Co (P) Ltd. the accumulated loss and unabsorbed depreciation of the predecessor company shall be deemed to be the loss or allowance for depreciation of the successor LLP for the purpose of the previous year in which the business reorganisation was effected and other provisions of the Act relating to set-off and carry forward of losses and depreciation allowance shall apply accordingly. 1961. The stamp valuation authority fixed the value of vacant site for stamp duty purpose at 6. X Co. Therefore. (P) Ltd. for the Answer (i) . The indexed cost of acquisition for Ms. then. Chhaya transferred a vacant site to Ms. at the time of conversion in to LLP.2011-12. Therefore.Capital Gains 4. will be carried forward to the next year. (P) Ltd. Chhaya and Ms.00.

2012. Again.05.2000.000 19.Y.856 .000 10.144 80.3.4.99.Y.00.03.50.2012.856 50. The site was acquired for ` 9.67.86 Taxation transferor.300 on 30.000 Mr.00.2012-13 Particulars Sale consideration Less: Indexed cost of acquisition 9. Ms. Compute the chargeable capital gain in the hands of Chandru for the A.000 Dayama (Transferee) ` Capital gains Deemed sale consideration under section 50C Less: Indexed cost of acquisition Other income (computed) Total income Question 4 2.000 50. Chandru transferred a vacant site on 28.00.000 Cost Inflation Index 406 785 70.000 2. he deposited ` 20 lakhs in eligible bonds issued by National Highways Authority of India (NHAI) on 16. He deposited ` 50 lakhs in eligible bonds issued by Rural Electrification Corporation Ltd. Chandru for the A.6. the value adopted for stamp duty purpose will be taken as the deemed sale consideration under section 50C for computation of capital gains. ` ` 1.04.00.000 4.300 × 785/406= Less: Deduction under section 54EC 20.67.2012 RECL bonds 16.00.10.32.000 2.4. it is a longterm capital asset and the capital gain arising upon its transfer is long-term capital gain. Chhaya. (REC) on 20.00.99.2012 NHAI bonds Long term capital gain Note: (1) Since the site was held for more than 36 months prior to the date of transfer.2011 for ` 100 lakhs.05. Particulars Chhaya (Transferor) ` 6.00.000 20. 2012-13. Financial year 2000-01 2011-12 Answer Computation of chargeable capital gain of Mr.00.000 2.

. any immovable property is a transfer as per section 2(47)(vi). he is eligible to claim exemption of ` 70 lakhs under section 54EC. or acquiring shares in. Mr.2011 is as under: .The period of holding shall be reckoned from the date of allotment of shares in the society and will end with the date of transfer.Y. He transferred on 1. both within six months from the date of transfer.e. (3) Flat in a co-operative society . (2) Bonus shares .The period after the date on which the company goes into liquidation shall be excluded while calculating the period of holding.The period of holding shall be reckoned from the date of allotment of bonus shares and will end with the date of transfer. (3) However. Therefore. The first-in-first-out (FIFO) method will be adopted for determining the period of holding. investments made in such bonds by an assessee during any financial year cannot exceed ` 50 lakhs. In this case. Hence. Question 5 How will you calculate the period of holding in case of the following assets? (1) Shares held in a company in liquidation (2) Bonus shares (3) Flat in a co-operative society (4) Transfer of a security by a depository (i.4. He has.87 (2) In order to claim exemption under section 54EC. the period of holding shall commence from the date of acquisition and end with the date on which the company goes into liquidation.The period of holding shall be computed from the date on which the securities were credited to the demat account and will end with the date of transfer (sale). demat account) Answer (1) Shares held in a company in liquidation .2011 his unit 1 by way of slump sale for a total consideration of ` 25 lacs. or enabling enjoyment of. Note – Any transaction whether by way of becoming a member of.Capital Gains 4.3. Chandru has invested ` 50 lakhs in RECL bonds in the F. A is a proprietor of Akash Enterprises having 2 units. therefore. a co-operative society or by way of any agreement or any arrangement or in any other manner whatsoever which has the effect of transferring.000. His Balance Sheet as on 31.Y. The expenses incurred for this transfer were ` 28. Chandru has to invest in specified bonds of RECL or NHAI within a period of 6 months from the date of transfer of the asset.2012-13. Question 6 Mr. it is possible to take a view that any date from which such right is obtained may be taken as the date of acquisition. Mr. (4) Transfer of security by a depository . fulfilled both the conditions and hence.2011-12 and ` 20 lakhs in NHAI bonds in the F.

125 _1.88 Taxation Total (`) 15.000 1.000 1.50.000 1. (iii) Other assets of unit 1 include patents acquired on 1.000 Revaluation reserve is created by revising upward the value of the building of unit 1.00.000 – ` 50.000 40.00.000 4.00.00.00.00.000 Other information: (i) (ii) Other assets Total 1.000 unit 1) Trade creditors (25% for unit 1) 1.50.000 Own Capital Revaluation Reserve (for building of unit 1) Bank loan (70% for 2.000 Total (`) 14.000 12.7.50.000 1.000 2.000 60.375 37.50.50.00.625 12.4.00.00.2009 for ` 50.125 ` 25.000 14.00.500 .50.00.000) Total assets Less: Creditors ` ` 9.00.000 Liabilities (`) 12. Answer Computation of capital gains on slump sale of Unit 1 Particulars Sale value Less: Expenses on sale Net sale consideration Less: Net worth (See Note 1 below) Long term capital gain Notes: 1 : Computation of net worth of Unit 1 of Akash Enterprises Particulars Building (excluding ` 3 lakhs on account of revaluation) Machinery Debtors Patents (See Note 2 below) Other assets (` 1.00. Compute the capital gain for the assessment year 2012-13.000 17.10.00.72.000 3.000 24.40.000 3.00.000 Assets Building Machinery Debtors Unit 1 Unit 2 (`) 2.000 28.000 on which no depreciation has been charged.21.28.000 Total 21.000 3.000 ___28.000 21.00.50.000 4. No individual value of any asset is considered in the transfer deed.

It was acquired by Mukesh on 10.000.375 28. respectively. any transfer of a capital asset in a transaction of Reverse Mortgage under a scheme made and notified by the Central Government will not be regarded as a transfer. Question 8 Mukesh (aged 55 years) owned a residential house at Nagpur.2009 Less: Depreciation @ 25% for Financial Year 2009-10 WDV as on 1. It was sold for ` 55.1986 for ` 4.625 4.00.000 on 4. Therefore.50. of Unit 1. the written down value determined as per section 43(6) has to be considered in the case of depreciable assets. Question 7 Sachin received ` 15.000 on 23.Capital Gains Bank Loan Net worth 2 : Written down value of patents as on 1. either in lump sum or in installments. in a transaction of Reverse Mortgage would be exempt from incometax. The State stamp valuation authority fixed the value of the property at ` 60.00.77.500 12.182 Financial year 2011-12 .2012 on transfer of his residential building in a transaction of reverse mortgage under a scheme notified by the Central Government.000.7.10.125 1.4.2011.00.4.00. Section 10(43) provides that the amount received by a senior citizen as a loan. The problem has been solved assuming that the Balance Sheet values of ` 3 lakh and ` 9 lakh (` 12 lakh – ` 3 lakh) represent the written down value of machinery and building.500 _9. The building was acquired in March 1991 for ` 8. capital gains tax liability is not attracted.2011 ` 50. . The assessee paid 2% of the sale consideration as brokerage for the sale of said property.11.2011 Value of patents: Cost as on 1. Therefore.500 37.000 12.01. Is the amount received on reverse mortgage chargeable to tax in the hands of Sachin under the head ‘Capital gains’? Cost inflation index for the Financial year 1990-91 .40.2010 Less: Depreciation for Financial Year 2010-11 WDV as on 1.000.785 Answer As per section 47(xvi).000 1. the amount received by Sachin in a transaction of Reverse Mortgage of his residential building is exempt under section 10(43).89 For the purposes of computation of net worth.4.00.

428 1.000 20.67.000 ×785/140) Less: Exemption under sections 54 and 54EC Exemption under section 54 in respect of – (i) residential house acquired at Chennai on 10.4.000 22.231 Taxable long-term capital gain Computation of tax liability of Mr.143 less basic exemption limit of ` 1.00.47.000 30.143 15.00.00.2012 (within six months from the date of transfer) ` ` 60.2012 in the capital gain bond of Rural Electrification Corporation Ltd.00.07.2012-13 Tax on ` 4.04.2012 in the Capital Gain Deposit Scheme in a nationalized bank for construction of additional floor on the residential house property acquired at Chennai.07.143 (i.12. Compute the capital gain chargeable to tax in the hands of Mr.2011 (ii) amount deposited in Capital Gains Accounts Scheme on 06.90.80.000 Net sale consideration Less: Indexed cost of acquisition (4.Y.000 on 10.e. long term capital gain ` 6. Cost inflation index : Financial year 1986-87 = 140 Financial year 2011-12 = 785 Answer Computation of capital gains in the hands of Mukesh for the A. Mukesh for the assessment year 2012-13.143 93.000 on 6.000) @20% Add: Education cess @ 2% Secondary and higher education cess@1% Total tax liability .10..000 58.000 and deposited ` 10.000 1.857 36.000 10.12. 2012-13 Particulars Deemed sale consideration (under section 50C) Less: Brokerage @ 2% of ` 55.00.47. (RECL).4.2011 for ` 15.00.47. He deposited ` 5.Y. Mukesh for A.000 6.00.00.42.2012 (before the due date of filing of return) for construction of additional floor on the residential house property acquired at Chennai Deduction under section 54EC in respect of amount deposited in RECL bonds on 10.00. Calculate the income-tax payable on the assumption that he has no other income chargeable to tax.00.90 Taxation Mukesh acquired a residential house at Chennai on 10.00.000 5.869 934 96.

000 x 785/582 Long-term capital gain (A) Short-term capital loss on sale of building Consideration received or accruing from transfer of building Less: Cost of acquisition Short term capital loss (B) ` 22.99. such value will be regarded as the consideration received or accruing as a result of transfer.000 14.00.000 (` 22.00.974 (i. while building is a short-term capital asset.00. Answer In the hands of the seller.. In the given problem.91 Mr. Dhuruv for the assessment year 2012-13? Mr.000 7.000.000 4.974 – ` 4. Where the assessee appeals against the stamp valuation and the value is reduced in appeal by the appellate authority (Revenue Divisional Officer.00. which was the Government guideline value.Capital Gains Question 9 4. stamp duty had to be paid on ` 45. 2008 for ` 5. 2011 for a consideration of ` 25. Mr. accepting the said value determined.00. Raj Kumar and Mr. Raj Kumar had purchased the land on 1st June. Dhuruv on 1st November.00. where the consideration received or accruing as a result of transfer of land or building or both.00. Cost inflation indices may be taken as 582 for the financial year 2008-09. Raj Kumar sold a house to his friend Mr. Raj Kumar As per section 50C(1). The Sub-Registrar refused to register the document for the said value. short-term capital loss can be set-off against long-term capital gains.19. ` 14.000.000 and completed the construction of house on 1st October. So land is a long-term capital asset. 2009 for ` 14. as according to him. land has been held for a period exceeding 36 months and building for a period less than 36 months immediately preceding the date of transfer. in this case).00.00.000 for land and the balance for building portion). the net taxable long-term capital gains would be ` 10.00. what are the tax implications in the hands of Mr.00.026 14. the value adopted or assessed or assessable by the stamp valuation authority shall be deemed to be the full value of consideration received or accruing as a result of transfer. .974 10.99. Raj Kumar preferred an appeal to the Revenue Divisional Officer.e. is less than the value adopted or assessed or assessable by the stamp valuation authority.000.000 As per section 70. 632 for the financial year 2009-10 and 785 for the financial year 2011-12. Assuming that the fair market value is ` 32.19. Particulars Long term capital gain on sale of land Consideration received or accruing as a result of transfer of land Less: Indexed cost of acquisition 5.000.000).00.99. Mr. who fixed the value of the house as ` 32. The differential stamp duty was paid. Therefore.

2012. only transfer of immovable property without consideration would fall within the scope of section 56(2)(vii).000 × 785 331 ` 15.00.80.5.000 and was used as a residence by the owner.92 Taxation In the hands of the buyer Mr. any immovable property without consideration. The owner. and the stamp value (or the value reduced by the appellate authority.50. The property was sold in April.00.331 2011-12 .1997-98 .208 .80. the provisions of section 56(2)(vii) would not be attracted in case if transfer of immovable property for inadequate consideration. The owner had contracted to sell this property in June.01. invested ` 4 lacs in a new residential house in January. 2007 for ` 10 lacs and had received an advance of ` 70. Question 10 Compute the net taxable capital gains of Smt.000.792 4. from out of sale proceeds.000 3. Megha on the basis of the following informationA house was purchased on 1.98. The intending purchaser did not proceed with the transaction and the advance was forfeited by the owner.000. 2011 for ` 15.000 Nil 15. where an individual receives from a non-relative.Y.000 1.1997 for ` 4.2012-13 Particulars Full value of consideration Less: Expenses on transfer Net sale consideration Less: Indexed cost of acquisition (See Working note below) Long term capital gain (since the period of holding is more than 3 years) Less: Exemption under section 54 (See Note 1 below) Taxable long term capital gain Working Note: Indexed cost of acquisition Purchase price Less: Amount forfeited (See Note 2 below) Cost of acquisition Indexed cost of acquisition 3.98.208 5.50. Accordingly.00.01.000 9. Dhuruv As per section 56(2)(vii).785 Answer Computation of net taxable capital gains of Smt.792 4. Therefore.4.000 9. Cost inflation index :. as in this case) exceeds ` 50.00.000 towards sale. then the stamp duty value of such property is chargeable to tax as income from other sources.000 70. Megha for the A.

will be longterm capital assets. Question 11 What are the circumstances under which the Assessing Officer can make a reference to the Valuation Officer under section 55A of the Income-tax Act.Capital Gains Notes: 4.200 of Study Material. income by way of dividend is taxable under the head "Profits and gains of business or profession". resultant capital gain is exempt. Zero coupon bonds of eligible corporation.. Question 12 State.93 (1) Exemption under section 54 is available if a new residential house is purchased within two years from the date of transfer of existing residential house. continuously used by him for agricultural purposes for a period of two years prior to the date of transfer. is compulsorily acquired under law and the compensation is fixed by the State Government.e. (vi) Income from growing and manufacturing tea in India is treated as agricultural income wholly. . held for more than 12 months. (v) Zero Coupon Bond means a bond on which no payment and benefits are received or receivable before maturity or redemption. shall be deducted from the purchase price for computing the cost of acquisition of the asset. 1961? Answer Reference to Valuation Officer See page 4. (i) Alienation of a residential house in a transaction of reverse mortgage under a scheme made and notified by the Central Government is treated as "transfer" for the purpose of capital gains. whether the following statements are True or False. (iv) Where an urban agricultural land owned by an individual. Since the cost of new residential house is less than the long-term capital gains. as a result of earlier negotiations for sale of the asset. any advance received and retained by the assessee. (2) As per section 51. (ii) (iii) In the case of a dealer in shares. which is a long-term capital asset. with reasons. is exempt under section 54. i. capital gains to the extent of cost of new house. ` 4 lakh.

Three of the old machines were sold on 10th June. Question 13 Singhania & Co.000.000 on 30th November. such bond held for more than 12 months will be a long-term capital asset. where an individual owns urban agricultural land which has been used for agricultural purposes for a period of two years immediately preceding the date of transfer.000.94 Answer (i) Taxation False : As per section 47(xvi). will there be any difference in your above workings? Explain. the dividend referred in to in section 115-O is exempt under section 10(34). resultant capital gain will be exempt. (iv) False: As per section 10(37). Consequently.000. A new plant was bought for ` 8. 2011 for ` 11. (ii) True : Section 2(42A) defines the term 'short-term capital asset'. The depreciation on these machines is charged @ 15%. 1962]. such alienation in a transaction of reverse mortgage under a scheme made and notified by the Central Government is not regarded as "transfer" for the purpose of capital gains. 2011. and the same is compulsorily acquired under any law and the compensation is determined or approved by the Central Government or the Reserve Bank of India. put in use for business in March. (vi) False : Only 60% of the income derived from the sale of tea grown and manufactured by the seller in India is treated as agricultural income and the balance 40% of the income shall be non-agricultural income chargeable to tax [Rule 8 of Income-tax Rules. the compensation has been fixed by the State Government and hence the exemption will not be available.50.00. compute the capital gains liable to tax for Assessment Year 2012-13.50. You are required to: (i) (ii) determine the claim of depreciation for Assessment Year 2012-13. in respect of which no payment and benefit is received or receivable before maturity or redemption from such issuing entity and which the Central Government may notify in this behalf. (v) True : As per section 2(48). dividend income is taxable under the head "Income from other sources" in the case of all assessees. ‘Zero Coupon Bond’ means a bond issued by any infrastructure capital company or infrastructure capital fund or a public sector company on or after 1st June 2005. had sold the three machines in June. 2011. . 2011 for ` 21.4. zero coupon bond held for not more than 12 months will be treated as a short-term capital asset. The written down value of these machines as on 1st April. 2011 was ` 8. (iii) If Singhania & Co. own six machines. (iii) False : In view of the provisions of section 56(2)(i).00. In this case. Under the proviso to section 2(42A). However.

95 ` 8. Since in the first two cases.000 17.000.000 11.50. Therefore. since the written down value exceeds the sale consideration. of the machines as on 1.000 Since the value of the block as on 31.50.50.V.03. being 7½% of ` 6.00.Capital Gains Answer (i) Computation of depreciation for A. since the sale consideration is more than the aggregate of the written down value of the block at the beginning of the year and the additions made during the year. depreciation is restricted to 7½%. In the third case.000.000 _6.000 8.00.It is assumed that the firm is not eligible for additional depreciation.V. (ii) The provisions under section 50 for computation of capital gains in the case of depreciable assets can be invoked only under the following circumstances: (a) When one or some of the assets in the block are re-sold for consideration more than the value of the block. 2011 for ` 21. Note.000 17. the resultant figure would be a short term capital loss.2012 comprises of a new asset which has been put to use for less than 180 days.00. of the block as on 1. the computation would result in short term capital gains.00.D.e.000 _8.00. (b) When all the assets are transferred for a consideration more than the value of the block.000 .2012 4. capital gains will not arise as the block of asset continues to exist.00.V of the block as on 31.D.000 _8.00. Particulars Sale consideration Less: W.2011 Add: Purchase of new plant during the year Less: Sale consideration of old machinery during the year W.3. depreciation is restricted to 50% of the prescribed percentage of 15% i. (iii) If the three machines are sold in June.00.Y. the sale consideration is more than the written down value of the block.2012-13 Particulars W. In the given case. (c) When all the assets are transferred for a consideration less than the value of the block.000.4.000 _4. and some of the assets are sold for a price which is lesser than the written down value of the block. then short term capital gains would arise. the depreciation allowable for the year is ` 45.4.2011 Purchase of new plant during the year Short term capital gains ` ` 21.D.50.

372 1.4.000 × 785/447 Long term capital gain Total income Tax liability Income-tax @ 20% on ` 5.95. deductions under Chapter VI-A are not allowable against long term capital gain.2011. she has paid through e-banking ` 15.074 21 11 1. compute her total income and tax payable for the Assessment Year 2012-13.934 17. ` 50.95.000 towards PPF.000 shares of Hetal Ltd.000 towards L. She is.106 447 785 2. Cost Inflation Index: F. entitled to reduce the long-term capital gain by the unexhausted basic exemption limit and pay tax on the balance @20% as per section 112. however.562 1.Y. .2002. her brother.Y.370 1.12. As per section 112. she is not entitled to claim exemption under section 10(38) in respect of long term capital gain.I.. In this case. During the financial year 2011-12.12 Answer Computation of total income and tax liability of Paulomi for Assessment year 2012-13 Particulars Sale consideration Less: Indexed cost of acquisition 10. Since Paulomi has not transferred her shares through the Stock Exchange and.95.000 towards medical premium.5. and ` 25.96 Taxation Question 14 Paulomi has transferred 1.P. therefore. has not paid securities transaction tax.370 [` 1.934 on 15. since she ` 2. (which she acquired at a cost of ` 10.90. at a consideration of ` 2.370 – ` 1.000 in the financial year 2002-03) to Dhaval. Paulomi is not entitled to deduction under section 80C in respect of payment of LIP and contribution to PPF.12.000] Add: Education Cess @ 2% Secondary and Higher Education Cess @ 1% Total tax liability Notes : 1.2011 privately. Therefore.03 F. She is also not entitled to deduction under section 80D in respect of medical insurance premium paid by her. 3. Assuming she has no other source of income.

Capital Gains 4. The cost inflation index of the financial year in which the conversion took place should be considered for computing indexed cost of acquisition. Find out the taxable income.000 into stock-in-trade on 31st March.189-4.Y. 2012-13. Refer to section 50B in page 4.711 . . in the context of capital gains liability.189 of Study Material. The sale price less the fair market value on the date of conversion would be treated as the business income of the year in which the stock-in-trade is sold.25.Y. 2011.90. It is presumed that Paulomi is a resident assessee.000 can be reduced from the long-term capital gain. 2010 – 2011 F.3. Therefore. in this problem. The fair market value as on 31. Special provision for full value of consideration in certain cases.190 of Study Material. 2011 – 2012 Answer Conversion of a capital asset into stock-in-trade is a transfer within the meaning of section 2(47) in the previous year in which the asset is so converted. if any.188-4. 2012. 2002 for ` 80. the capital gains will be charged to tax only in the year in which the stock-in-trade is sold.785 . the fair market value on the date of conversion would be deemed to be the full value of consideration for transfer of the asset as per section 45(2). and if so under which ‘head of income’ and for which Assessment Year? Cost Inflation Index: F.000.447 .Y. Refer to section 50C in page 4. However.Y.90.000 in the month of January. Question 15 Write short notes on: (i) (ii) Special provision for computation of capital gains in the case of slump sale.97 has no other source of income. Further. both capital gains and business income would be charged to tax in the A. Answer (i) (ii) Question 16 Aarav converts his plot of land purchased in July. 2002 – 2003 F. The stock-in-trade was sold for ` 2. the entire basic exemption limit of ` 1.2011 was ` 1.

90.188 of Study Material. Question 18 What do you understand by the reference to Valuation Officer under section 55A of the Income-tax Act.000 1.25. as per section 45(2).752 Capital Gains Full value of consideration (Fair market value on the date of conversion) Less: Expenses on transfer Net sale consideration Less: Indexed cost of acquisition (` 80.000 62.000 1. Answer See page 4.27. However. Answer The conversion of a capital asset into stock-in-trade is treated as a transfer under section 2(47).90.000 35. Question 19 Discuss the tax implications arising consequent to conversion of a capital asset into stock-intrade of business and its subsequent sale.000 Nil 1.2012-13 Particulars Profits and gains from business or profession Long term capital gains Question 17 2. the profits or gains arising from the transfer by .000 × 711/447) Long-term capital gain Profits & Gains of Business or Profession Sale price of stock-in-trade Less: Fair market value on the date of conversion Computation of taxable income of Mr.200 of Study Material. Aarav for A.752 97. 1961? Answer See page 4.98 Taxation Particulars ` 1.Y.4.248 62.752 Explain the computation of capital gain in case of depreciable asset under section 50.000 ` 35.90. It would be treated as a transfer in the year in which the capital asset is converted into stock-in-trade.

For example.99 way of conversion of capital assets into stock-in-trade will be chargeable to tax only in the year in which the stock-in-trade is sold. For the purpose of computing capital gains in such cases. B for ` 2 lacs. A. Question 21 Mr. B. then transfer of such asset is not taxable and consequently the gains thereon cannot be brought to charge. It is the only asset in the block. the cost of acquisition will be the cost to the previous owner if the previous owner paid for it. If the above capital assets are self-generated. Question 20 What is the cost of acquisition of self-generated assets. the cost of acquisition is the amount of the purchase price. the fair market value of the capital asset on the date on which it was converted into stock-in-trade shall be deemed to be the full value of consideration received or accruing as a result of the transfer of the capital asset. Cost of acquisition of other self-generated assets not covered under section 55(2)(a): In respect of self-generated goodwill of a profession and other self-generated assets not specifically covered under section 55(2)(a). the Supreme Court held that if the cost of acquisition of a self-generated asset is incapable of determination. the decision of the Supreme Court in CIT v. 2. the cost of acquisition shall be taken as nil. The factory building and land appurtenant thereto were sold during the year. Malik owns a factory building on which he had been claiming depreciation for the past few years. However. The business income chargeable to tax would be the difference between the price at which the stock-in-trade is sold and the fair market value on the date of conversion of the capital asset into stock-in-trade. if Mr.C. (ii) (iii) In case the capital asset is acquired by any mode given under clauses (i) to (iv) of section 49(1). A purchases a stage carriage permit from Mr. tenancy rights. if it was self-generated by the previous owner. business profits would arise. Cost of acquisition of a capital asset. stage carriage permits and loom hours [Section 55(2)(a)] (i) If the above capital assets have been purchased by the assessee. the cost of acquisition will be taken as nil. . being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture. or right to carry on any business.Capital Gains 4. produce or process any article or thing. that will be the cost of acquisition for Mr. The following details are available. Srinivasa Setty [1981] 128 ITR 294 will apply. In that case. for the purpose of computation of capital gains? Answer 1. On subsequent sale of such stock-in-trade.

as negotiations failed WDV of the building block as on 1.50. within specified time.4.19. are long-term capital assets.000 Advance received from a prospective buyer for land in May. Exemption under section 54EC is available if the capital gains arising from transfer of a long-term capital asset are invested in long-term specified assets like bonds of National Highways Authority of India and Rural Electrification Corporation Ltd.100 Taxation ` Building completed in September.00.800 (-) 74.2011 Short-term capital loss on sale of building Land appurtenant to the above building Sale value of land Less: Indexed cost of acquisition 11.00.800 Sale value of factory building in November.74.000 The assessee is ready to invest in long-term specified assets under section 54EC.000 Land appurtenant thereto purchased in April.800 25.131 3. within 6 months from the date of transfer.00.000 21. Cost inflation indices are as under : Financial Year 2001-02 2002-03 2011-12 Answer Computation of taxable capital gain of Mr. the amount to be invested for availing ` 8.000 × 785/426 Long-term capital gains on sale of land Chargeable long term capital gain Investment under section 54EC In this case.Y.869 3..00.000 Sale value of appurtenant land in November.4. 2001 for 12.00.74.4.069 ` Cost inflation index 426 447 785 .000 8.00.000 favour of assessee. 2002. Malik for A. 2007 for 10. both land and building have been held for more than 36 months and hence. 2011 25. forfeited in 50.2011 8.2012-13 Particulars Factory building Sale price of building Less: WDV as on 1.06. 2011 8.80. Compute the amount of taxable capital gain for the assessment year 2012-13 and the amount to be invested under section 54EC for availing the maximum exemption. As per section 54EC.

indexation benefit is available. and no indexation benefit is available. section 51 will apply.101 the maximum exemption is the net amount of capital gain arising from transfer of long-term capital asset. short term capital loss can be set-off against any income under the head “Capital gains”.80. Land is not a depreciable asset.20. is a depreciable asset. A is an individual carrying on business. Answer (i) Compensation towards loss of stock : Any compensation received from the insurance company towards loss/damage to stock in trade is to be construed as a trading receipt. short-term capital loss of ` 74. hence section 50 will not apply. .80.000. 1961. His stock and machinery were damaged and destroyed in a fire accident. Therefore. Factory building on which depreciation has been claimed. Profit / loss arising on sale is deemed to be short-term capital gain/loss as per section 50. Question 22 Mr. The opening WDV of the block as on 1-4-2011 was ` 10.000.00.Capital Gains 4. Mr.50.80.80. 2003 for ` 1. which is ` 3. As per section 74.06.869. as a result of failure of the negotiations. and retained by him. A lost his gold chain and a diamond ring. A received the following amounts from the insurance company: (i) (ii) Towards loss of stock Towards damage of machinery ` 4.000 (iii) Towards gold chain and diamond ring You are requested to briefly comment on the tax treatment of the above three items under the provisions of the Income-tax Act.000 received as insurance claim for loss of stock has to be assessed under the head “Profit and gains of business or profession”. Where advance money has been received by the assessee. Indexation is to be done on the cost of acquisition so arrived at after reducing the advance money forfeited.000 ` 6. Certain portion of the machinery could be salvaged.000.80.000 ` 1. in this case. Mr.069 in this case. ` 4.80. 4. Being a long-term capital asset (held for more than 36 months). During the process of safeguarding machinery and in the fire fighting operations. Hence.000. 3. which he had purchased in April. The advance retained by the assessee will go to reduce the cost of acquisition. The value of stock lost (total damaged) was ` 6. long-term or short-term. 2.800 can be set-off against long-term capital gain of ` 3. Notes : 1. The market value of these two items as on the date of fire accident was ` 1.

000.2012. Note – If new machinery is purchased in the next year. (iii) Value ascertained by Valuation Officer on reference by the Assessing Officer ` 20 lakhs.20.000.12.01.102 Taxation Note . Fair market value of the land as on 1. ` 4. Assuming that the salvaged machinery is taken over by the Insurance company.80. As per section 45(1A). and there was no fresh addition of machinery during the year. A at a cost of ` 3.4.10. Question 23 Mr.80. which was not contested by Mr. .e.81 was ` 1. (iv) This land was distributed to Mr. (vi) Brought forward unabsorbed short-term capital loss ( incurred on sale of shares during the financial year 2008-2009) ` 2. 2003-04 & 2011-12 are 100. Cost inflation indices for the financial years 1981-82.2003) during the financial year 2003-2004.A ` 18 lakhs. eligible for deduction while computing income under the head “Profits and gains of business or profession”. Mr. They are not “personal effects”. on which depreciation can be claimed for that year.05.e ` 10. which alone are to be excluded. if any profit or gain arises in a previous year owing to receipt of insurance claim.000) will be assessable as a short-term capital loss. (ii) Compensation towards damage to machinery: The question does not mention whether the salvaged machinery is taken over by the Insurance company or whether there was any replacement of machinery during the year.000 being the excess of written down value (i.4.4.000 (construction completed on 1. the block of machinery will cease to exist. furnishes the following information: (i) (ii) Net consideration received ` 12 lakhs. A on the partial partition of his HUF on 1. (v) A residential building was constructed on the above land by Mr. 463 and 785 respectively.The assessee can claim the value of stock destroyed by fire as revenue loss.1981.000) over the insurance compensation (i.000. Value adopted by stamp valuation authority. A who transfers land and building on 2. the same shall be chargeable to tax as capital gains. it will constitute the new block of machinery.00. ` 6. The capital gains has to be computed by reducing the indexed cost of acquisition of jewellery from the insurance compensation of ` 1. (iii) Compensation towards loss of gold chain and diamond ring: Gold chain and diamond ring are capital assets as envisaged by section 2(14). Therefore.80. A seeks your advice as to the amount to be invested in NHAI/RECL bonds so as to be exempt from clutches of capital gain tax.

[Section 50C(1)].951 Where the consideration received or accruing as a result of transfer of a capital asset.00.103 ` 18. such value adopted or assessed shall be deemed to be the full value of the consideration received or accruing as a result of such transfer. ` 18 lakhs). short term or long term. Such investment is required to be made within a period of 6 .000 8. (iv) Brought forward unabsorbed short term capital loss can be set off against any capital gains.500 5. Since date and cost of acquisition to the previous owner are not given. is less than the value adopted or assessed by any authority of a State Government (Stamp Valuation Authority) for the purpose of payment of stamp duty in respect of such asset and the same is not contested by the assessee. if such capital gains are invested in the bonds issued by the NHAI / RECL redeemable after 3 years. for 8 assessment years immediately succeeding the assessment year for which the loss was first computed.e.549 14.951 2.88.000 × 785/ 463) Long-term capital gain Less: Brought forward short-term capital loss set off Amount to be invested in NHAI / RECL bonds Notes : (i) ` 4. Since the value ascertained by the valuation officer (i.20. full value of consideration will be ` 18 lakhs in this case. an assessee can avail exemption in respect of long-term capital gains. being land or building or both. fair market value as on 1. (ii) (iii) Cost of land which is acquired on partition of HUF is the cost to the previous owner. Accordingly.1981 is taken as the cost and indexed. ` 20 lakhs) is higher than the value adopted by the stamp valuation authority (i. the full value of consideration in this case is ` 18 lakhs. It is further provided in section 50C(3) that where the valuation is referred by the Assessing Officer to Valuation Officer and the value ascertained by such Valuation Officer exceeds the value adopted or assessed by the stamp valuation authority. A for the Assessment Year 2012-13 Particulars Full value of consideration (deemed) (Indexation benefit is available since land and buildings are longterm capital assets) Less: Indexed cost of land (1.05.42.Capital Gains Answer Computation of Capital Gains of Mr.e.10.63. (v) As per section 54EC.000 1.06.049 3. the value adopted or assessed by the stamp valuation authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.4.000 × 785/100) Indexed cost of building (3.93.

Advise X as to the tax consequences. Under section 54D.104 Taxation months from the date of transfer of the asset. in order to reduce tax liability.4. 54D. Since all the above conditions are fulfilled in this case. is allowed as exemption. the consideration for which is determined or approved by the RBI or the Central Government. if an individual transfers his agricultural land which has been used by him or his parents for agricultural purposes for a period of two years immediately preceding the date of transfer and he purchases another agricultural land within a period of two years from the date of such transfer. Such land and building should have been used for the purpose of the business of the undertaking for at least two years immediately preceding the date of compulsory acquisition and another land or building should be purchased or constructed within a period of three years for the use of existing or newly set-up industrial (ii) . this land is compulsorily acquired by the Government of India on a compensation fixed and paid by it for ` 10 lakhs. which is used for agricultural purposes during the preceeding 3 years by his father. X is entitled to exemption under section 10(37) of the entire capital gains arising on sale of agricultural land. deduction is allowable to any assessee. Answer Section 10(37) exempts the capital gains arising to an individual or a Hindu Undivided Family from transfer of agricultural land by way of compulsory acquisition. is received on or after 1st April. 54G and 54GA can be claimed in respect of income from short term capital gains in order to reduce tax liability. On 4. the amount of capital gain or the actual amount invested in purchasing the new agricultural land whichever is lower. Such exemption is available where the compensation or the enhanced compensation or consideration. 2004 and the land has been used for agricultural purposes during the preceding two years by such individual or a parent of his or by such Hindu undivided family. assuming that the entire amount is invested in purchase of shares. Question 24 X is in possession of agricultural land situated within urban limits. being an industrial undertaking on compulsory acquisition of land and building forming part of the industrial undertaking. whichever is less. as the case may be. Answer Deduction under sections 54B. The exemption shall be the amount of capital gain or the amount of such investment made. or a transfer.4. (i) Under section 54B. Question 25 Briefly discuss about the provisions relating to claiming of exemption in respect of short-term capital gains.2011.

2007 for ` 3. In such a case. plant. each contributing a sum of ` 20.5 lacs. within a period of one year before or three years after the date of transfer. 2012. building or land. (iv) Section 54GA exempts capital gain on transfer of capital asset. 2011-12: 785] . F. Y nor the buyer.000 in cash. or in consequence of the shifting of such industrial undertaking to any special economic zone whether developed in any urban area or any other area. whichever is lower. (iv) He had purchased some equity shares in X Pvt. within a period of one year before or three years after the date of transfer. and or any rights in building or land used for the purposes of the business of an industrial undertaking situated in an urban area.000 through his relative for the above occasion. 2006-07 – 519. questioned the value fixed by the Registrar. should. plant or acquire building or land or construct building and complete shifting to the new area. The Registrar’s valuation for stamp duty purposes was ` 3. Neither Mr. [Cost Inflation Index for F.8 lacs.1. plant or acquire building or land or construct building and complete shifting to the special economic zone. the capital gain or the amount invested in the new land and building. 2010-11 – 711. The assessee. The assessee.2012 for ` 2. In such a case. (iii) Section 54G exempts capital gain on transfer of assets. on 5. should. used for the business of an industrial undertaking situated in an urban area consequent to shifting of such industrial undertaking to any area other than an urban area.11.40 lacs. effected in course of.2011.Capital Gains 4. His close friend abroad sent him a cash gift of ` 75. You are requested to calculate the total income of Mr.Y. plant.2. when he attained the age of 60. purchase machinery. In such a case. The cost of the flat purchased using the various gifts was ` 3. would go to reduce income from short term capital gains. purchase machinery.3. the short term capital gain would be reduced to the extent of the cost of the new assets and expenses incurred for shifting the industrial undertaking Question 26 Mr.105 undertaking. building. Ltd. Y for the assessment year 2012-13. Y submits the following information pertaining to the year ended 31st March.2012 for ` 3. the short term capital gain would be reduced to the extent of the cost of the new assets and expenses incurred for shifting the industrial undertaking. being machinery. his friends in India gave a flat at Surat as a gift.6 lacs. These shares were sold on 15. being an industrial undertaking..7 lacs. (ii) (iii) Mr.Y. being machinery. Y sold the above flat on 30. being an industrial undertaking. (i) On 30.

70.000 3. ` ` ` 3. The loss arising from sale of such shares.40.2011 [ See Note 3 below]. In the given problem.60.000 30.11. cost to be taken into consideration for 56(2)(vii) will be the cost of acquisition] Long term capital loss on sale of equity shares of X Pvt.000 4.000 3. Ltd Sale consideration Less: Indexed cost of acquisition (3.29.000 75. shares have been held for more than 12 months hence. is therefore a longterm capital loss.383 2. constitute a long term capital asset. However. such long-term capital loss can be carried forward to the next year for set-off against long-term capital gains arising in that year.Y.000 2.49.50.40. since it is higher than sale consideration) Less: Cost of acquisition [As per section 49(4).Y for A. 2012-13 Particulars Capital Gains Short term capital gains (on sale of flat) (i) Sale consideration (ii) Stamp duty valuation Consideration for the purpose of capital gains as per section 50C (stamp duty value. Therefore.000 × 785/519) Long term capital loss to be carried forward (See Note 1 below) Income from other sources: Gift from friends by way of immovable property on 30.000 2.80.000 3.000 5.4. . Gift received from a close friend (unrelated person) [See Note 2 below ] Total income Notes: 1. Any sum received from an unrelated person will be deemed as income and taxed as income from other sources if the aggregate sum received exceeds ` 50.000 in a year [Section 56(2)(vii)]. long-term capital loss cannot be set-off against shortterm capital gains.70.45. long term capital loss can be set-off only against long-term capital gains. As per section 70(3).106 Answer Taxation Computation of total income of Mr.383 3.

1994 at the price of ` 125 per share (3.1985 (2.000 fixed by the State Stamp Valuation Authority. 4.000 shares).3.000 in number were sold on 31. (b) The above shares of 10.039 8.000 4.2011 for ` 7.00.2012.50..7.5.00.1980 (5.00.1995 for ` 1.Capital Gains 3. In this case.10.2012-13 Deemed sale consideration as per section 50C Less : Indexed cost of acquisition (1.000 shares). on 21.2.000.000 X 785 /281) Taxable long term capital gain ` 13. (a) Unlisted Equity Shares of AB Ltd. 10. ‘X’ furnishes the following data for the previous year ending 31.00.6.00.2011. Bonus shares received from AB Ltd. It was acquired by him on 01.81 ` 50 per share. then the value so adopted or assessed or assessable by the State Stamp Valuation Authority shall be deemed to be the full value of the consideration received or accruing as a result of the transfer. (iii) Purchased on 1. where the consideration received or accruing as a result of the transfer of land or building or both is less than the value adopted or assessed or assessable by the State Stamp Valuation Authority for the purpose of payment of stamp duty in respect of such transfer.Y. The State stamp valuation authority fixed the value of the site at the time of transfer @ ` 13.50.000 were acquired by ‘X’ in the following manner: (i) (ii) Received as gift from his father on 1.000.000 shares) the market price on 1.107 Receipt of immovable property without consideration would attract the provisions of [Section 56(2)(vii)].09.80. Cost inflation index : (1995-96 = 281 and 2011-12 = 785) Answer Computation of capital gains of Shri Bala for the A.000. the value adopted by the State Stamp Valuation Authority is deemed to be the full value of consideration and capital gains is calculated accordingly. since the consideration of ` 7.4. Compute capital gains in the hands of Bala and give your reasons for computation. .000 received on transfer of land is less than the value of ` 13.19. at ` 350 for each share.961 Note: According to section 50C(1). Question 27 Bala sold his vacant site on 21. Question 28 Mr.

.955 3.2012 from the sale proceeds of shares.00.Y. (Cost Inflation Index – Financial year 1993-94: 244.6. Therefore.4.000 bonus shares received from AB Ltd Bonus shares are acquired on 21. the cost is Nil.500 Nil 12.000 shares @ ` 350 each Less: Indexed cost of acquisition (a) 5.36.000 shares received as gift from father on 1. he is entitled to exemption under section 54F.1985 (i.1980 Indexed cost 5000 x 50 x 785/100 (b) 2. the assessee has fulfilled the two conditions mentioned above. The indexed cost is 3000 x 125 x 785/244 Long term capital gain Less : Exemption under section 54F (See Note below) 3.000 19.00.31. He has no other source of income chargeable to tax. (d) ‘X’ is already owning a residential house.5. In this case.31.62.06.455 31.045 x 25. on 1. Financial year 2011-2012 : 785) Answer Computation of taxable capital gain of Mr. even before the purchase of above house.000 Taxable long term capital gain Note: Exemption under section 54F can be availed by the assessee subject to fulfillment of the following conditions : (a) The assessee should not own more than one residential house on the date of transfer of the long-term capital asset.68. 2012-13 Particulars Sale consideration received on sale of 10.e after the year 1980 when the original shares were purchased). (c) 3000 shares purchased on 1.1994 @ ` 125 per share.000 / 35. (b) The assessee should purchase a residential house within a period of 1 year before or 2 years after the date of transfer or construct a residential house within a period of 3 years from the date of transfer of the long-term capital asset.584 .461 94. Hence. ` ` 35. ‘X’ for A.7.2.045 2.108 Taxation (c) Purchased one residential house at ` 25 lakhs. You are required to compute the taxable capital gain.00.

50.55.000 30.109 What are the transactions not regarded as transfer as per section 47 of the Income-tax Act. Vimla for A.000 on 01-07-2011. The investment in REC/NHAI Capital Gains bonds was made only in March 2012.50.14. Compute her taxable capital gain.00. Cost inflation index 1997-98 2011-12 Answer Computation of taxable capital gain of Ms.000 on 01-06-1997. Question 30 Ms.14.000 4.2012.1.000 3.000 x 785/331 Less: Deduction u/s. She paid brokerage @ 2% at the time of sale of the building.740 11.00.2011 and the 6 months period within which the deposit should be made for the purpose of section 54EC would expire by 1.7.260 7.167 of Study Material. 2012.000 ` 14. She invested ` 7 lakhs in purchase of a residential building in December 2011 and deposited ` 2 lakhs in NHAI Capital Gains Bond in March.Vimla sold a residential building at Jodhpur for ` 15. . 1961? Answer Refer page 4. Therefore. The building was acquired for ` 1. In this case.00.260 Note : One of the conditions for claiming deduction u/s 54EC for the investment in RECL/NHAI Capital Gains bonds is that the deposit should be made within 6 months from the date of transfer.Capital Gains Question 29 4.70.785 ` 15.54 for purchase of new residential house in December 2010 Taxable long term capital gain .Y. the transfer took place on 1.331 . the assessee is not eligible for section 54EC deduction.2012-13 Particulars Sale price of residential building Less : Brokerage @ 2% Net consideration Less :Indexed cost of acquisition 1.

Malini Hari shifted her industrial undertaking located in corporation limits of Faridabad.000 3.000 .26.000 5.000 2. exemption under section 54GA would be available in such a case.4. to a Special Economic Zone (SEZ) on 1.2011 Sold for (d) Expenses on shifting the undertaking (e) Assets acquired for the undertaking in the SEZ (on or before 25.000 6.00.15.04.20.20.12.000 8.00.39. The capital gain.000 1.000 1. building. plant and machinery in the existing undertaking would be exempt under section 54GA if the assessee. (i) acquires plant and machinery for use in the undertaking in the SEZ.03.000 22.2005] WDV of building as on 01.110 Taxation Question 31 Mrs.00.06. within a period of one year before or three years after the date on which the transfer took place. Compute the exemption available under section 54GA for the assessment year 2012-13. arising from transfer of land.000 4. Index 447 785 ` 4.04. Cost inflation indices are: Financial year 2002-03 2011-12 Answer Where an assessee shifts an existing undertaking from an urban area to a SEZ and incurs expenses for shifting and acquires new assets for the undertaking in the SEZ.01.2011 : The following particulars are available: (a) Land: Purchased on 20.000 50.000 7.000 11.40.00.00.2011 Sold for (c) WDV of cars as on 01. short-term or long-term.00.2003 Sold for (b) Building [Construction completed on 14.2012): (i) Land (ii) Building (iii) Computers (iv) Car (v) Machinery (Second hand) (vi) Furniture There is no intention of investing in any other asset in this undertaking.

19. ` 14.000 16.000 1.20.00.00.51.000 3.000 8.Capital Gains (ii) 4.000 1.19.40.00.00.26.000 7.e.000 6.000 2.40.20.121 14.000 7.879+ ` 1.000 11.000 – ` 1.79.879 Exemption under section 54GA is available in respect of the following assets acquired and expenses incurred: Land Building Plant: Computers Car Machinery Expenses of shifting Total Exemption ` 3.00.15.79.111 acquires land or building or constructs building for the business of the undertaking in the SEZ.879 (iii) incurs expenses on shifting of the undertaking.000 1. Computation of capital gain : (a) Land: Sale price Less: Indexed cost of acquisition 4.000 5.000 16.000 (-)1.00.35.000 4.30.000 x 785/447 Long-term capital gain (b) Building: Sale value Less: Opening WDV Short-term capital gain under section 50 (c) Plant: Car Sale value Less: Opening WDV Short term capital loss under section 50 Net short term capital gain (` 3.51.48.000) Total capital gain (LTCG+STCG) i.39.40.000 22. .

70. Hence. the amount of exemption available under section 54GA is ` 16.879.1981 was ` 2.000 × 785/463) Indexed cost of improvement (7.30. You are required to compute the amount of capital gain chargeable to tax for A.Y.000 in construction of one more floor in this house in June.50.50.24.112 Taxation Note: 1.50.000 . The house was purchased by his father in January.775 37. The value determined by the Valuation officer was ` 47.000. The taxable capital gains would be Nil. 1980 for ` 2.Y. He invested an amount of ` 7. 2003-04 : 463. 2011 for ` 37. Sunil.50 lacs Less: Indexed cost of acquisition (Note-2) (2. 2012-13 Sale consideration as per section 50C of the Act (Note-I) Less: Expenses incurred on transfer being brokerage @ 1% of sale consideration of ` 37. The house was sold by him in November. 2005-06 as 497. F. 2. Answer Computation of Long term Capital Gain for A.000 which was not contested by the buyer. Furniture purchased is not eligible for exemption under section 54GA. the Assessing Officer made a reference to Valuation officer.00.Y. There is no restriction regarding purchase of second hand machinery. 4.000.091 = 4. 2011-12 as 785 and for F. 2005.00. 2003.57.70.Y.000.000 × 785/497) Long term capital gain = 11. Thomas to Mr.Y.634 15.500 46. 2012-13 with the help of given information and by taking CII for the F.30.000. but as per assessee’s request. Thomas inherited a house in Jaipur under will of his father in May.25. 3. The valuation adopted by the registration authorities for charge of stamp duty was ` 47.04.35. Brokerage @ 1% of sale consideration was paid by Mr.000.63. The total exemption available under section 54GA is the lower of capital gains of ` 16. The market value of house as on 01. Computers and car would constitute Plant.500 47. Question 32 Mr.879 or the amount of investment which is ` 16.87.4.409 31.05.25.

Capital Gains Notes: 1.

4.113

As per section 50C, where the consideration received or accruing as a result of transfer of a capital asset, being land or building or both, is less than the valuation by the stamp valuation authority, such value adopted or assessed by the stamp valuation authority shall be deemed to be the full value of consideration. Where a reference is made to the valuation officer, and the value ascertained by the valuation officer exceeds the value adopted by the stamp valuation authority, the value adopted by the stamp valuation authority shall be taken as the full value of consideration. Sale consideration Valuation made by registration authority for stamp duty Valuation made by the valuation officer on a reference ` 37,50,000 ` 47,25,000 ` 47,50,000

Applying the provisions of section 50C to the present case, ` 47,25,000, being, the value adopted by the registration authority for stamp duty, shall be taken as the sale consideration for the purpose of charge of capital gain. 2. The house was inherited by Mr. Thomas under the will of his father and therefore the cost incurred by the previous owner shall be taken as the cost. Value as on 01.04.81 accordingly shall be adopted as the cost of acquisition of the house property. However, indexation benefit will be given from the year in which Mr. Thomas first held the asset i.e. P.Y.2003-04.

Question 33 Ms. Vasudha contends that sale of a work of art held by her is not exigible to capital gains tax. Is she correct? Answer As per section 2(14)(ii), the term “personal effect” excludes any work of art. As a result, any work of art will be considered as a capital asset and sale of the same will attract capital gains tax. Thus, the contention of Ms. Vasudha is not correct. Question 34 Ms. Vasumathi purchased 10,000 equity shares of ABC Co. Pvt. Ltd. on 28.2.2005 for ` 1,20,000. The company was wound up on 31.7.2011. The following is the summarized financial position of the company as on 31.7.2011: Liabilities 60,000 Equity shares General reserve Provision for taxation

` Assets
6,00,000 Agricultural lands 40,00,000 Cash at bank 2,50,000 48,50,000

`
42,00,000 6,50,000 48,50,000

4.114

Taxation

The tax liability (towards dividend distribution tax) was ascertained at ` 3,00,000, after considering refund due to the company. The remaining assets were distributed to the shareholders in the proportion of their shareholding. The market value of 6 acres of agricultural land (in an urban area) as on 31.7.2011 is ` 10,00,000 per acre. The agricultural land received above was sold by Ms. Vasumathi on 28.2.2012 for ` 15,00,000. Discuss the tax consequences in the hands of the company and Ms. Vasumathi. Cost inflation indices are: Financial year Cost Inflation index 2004-05 480 2011-12 785 Answer In the hands of the company As per section 46(1), distribution of capital assets amongst the shareholders on liquidation of the company is not regarded as “transfer” in the hands of the company. Consequently, there will be no capital gains in the hands of the company. In the hands of Ms. Vasumathi (shareholder) Section 46(2) provides that such capital gains would be chargeable in the hands of the shareholder. Particulars Ms. Vasumathi holds 1/6th of the shareholding of the company Market value of agricultural land received (1acre @ ` 10 Lakhs) Cash at bank [1/6th of (` 6,50,000 – ` 3,00,000)] Less: Deemed dividend under section 2(22)(c) - 1/6th of (` 40,00,000` 50,000) Consideration for computing Capital Gain Less: Indexed cost of acquisition of Shares (` 1,20,000 x 785/ 480) Long term capital gains Notes: 1. Where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to capital gains in respect of that asset under section 46, the cost of acquisition means the fair market value of the asset on the date of distribution. Hence, the short-term capital gains in the hands of Ms. Vasumathi (shareholder) at the time of sale of urban agricultural land should be computed as follows: Amount (` ) 10,00,000 58,333 10,58,333 6,58,333 4,00,000 1,96,250 2,03,750

Capital Gains Particulars Sale consideration Less : Fair market value of the agricultural land on the date of distribution Short term capital gain 2. 3.

4.115

` 15,00,000 10,00,000 5,00,000

Dividend under section 2(22)(c) amounting to ` 6,58,333 will be exempt under section 10(34). Since the question states that there is refund due to the company, it is assumed that the provision for taxation of ` 2,50,000 shown in Balance Sheet is in respect of dividend distribution tax. Therefore, the tax liability in respect of dividend distribution tax ascertained at ` 3,00,000 has to be reduced from bank balance while computing full value of consideration under section 46(2). ` 50,000, being the difference between ` 3,00,000 and ` 2,50,000, has to be reduced from General Reserve for calculating deemed dividend under section 2(22)(c).

Question 35 State with reasons whether the following statements are true or false having regard to the provisions of the Income-tax Act, 1961: (a) Capital gain of ` 75 lakh arising from transfer of long term capital assets on 1.5.2011 will be exempt from tax if such capital gain is invested in the bonds redeemable after three years, issued by NHAI under section 54EC of the Act. (b) As per section 49(2A), read with section 47(xa) of the Income-tax Act, 1961, no capital gains would arise on conversion of foreign currency exchangeable bonds into shares or debentures, for facilitating the issue of FCEBs by companies. Answer (a) False : The exemption under section 54EC has been restricted, by limiting the maximum investment in long term specified assets (i.e. bonds of NHAI or RECL, redeemable after 3 years) to ` 50 lakh during any financial year. Therefore, in this case, the exemption under section 54EC can be availed only to the extent of ` 50 lakh, provided the investment is made before 1.11.2011 (i.e., within six months from the date of transfer). (b) True : As per section 47(xa), any transfer by way of conversion of bonds referred to in section 115AC into shares and debentures of any company is not regarded as transfer. Therefore, there will be no capital gains on conversion of foreign currency exchangeable bonds into shares or debentures. Question 36 Mrs. X, an individual resident woman, wanted to know whether income-tax is attracted on sale of gold and jewellery gifted to her by her parents on the occasion of her marriage in the year 1979 which was purchased at a total cost of ` 2,00,000?

4.116 Answer

Taxation

The definition of capital asset under section 2(14) includes jewellery. Therefore, capital gains is attracted on sale of jewellery, since jewellery is excluded from personal effects. The cost to the previous owner or the fair market value as on 1/4/1981, whichever is more beneficial to the assessee, would be treated as the cost of acquisition. Accordingly, in this case, long term capital gain @ 20% will be attracted in the year in which the gold and jewellery is sold by Mrs.X. Question 37 Mr. Kumar is the owner of a residential house which was purchased in September, 1993 for ` 5,00,000. He sold the said house on 5th August, 2011 for ` 24,00,000. Valuation as per stamp valuation authority of the said residential house was ` 35,00,000. He invested ` 5,00,000 in NHAI Bonds on 12th January, 2012. He purchased a residential house on 5th July, 2012 for ` 12,00,000. He gives other particulars as follows:

` 32,000 Interest on Bank Deposit Investment in public provident fund ` 50,000 You are requested to calculate the taxable income for the assessment year 2012-13 and the tax liability, if any.
Cost inflation index for F.Y. 1993-94 and 2011-12 are 244 and 785, respectively. Answer Computation of total income and tax liability of Mr. Kumar for the A.Y.2012-13 Particulars Capital Gains: Sale price of the residential house Valuation as per Stamp Valuation authority (Value to be taken is the higher of actual sale price or valuation adopted for stamp duty purpose as per section 50C) Therefore, Consideration for the purpose of Capital Gains Less: Indexed Cost of Acquisition = 5,00,000 x 785 / 244 Less: Exemption under section 54 Exemption under section 54EC Long-term Capital Gain Income from other sources: Interest on bank deposits Gross Total Income Less: Deduction under Chapter VI-A ` 12,00,000 ` 5,00,000 ` 24,00,000 35,00,000 `

35,00,000 16,08,607 18,91,393 17,00,000 1,91,393

32,000 2,23,393

Capital Gains Section 80C – Investment in PPF (restricted to ` 32,000) Total Income Tax liability Tax @ 20% on ` 11,393, being (` 1,91,393 – ` 1,80,000) Add: Education Cess @ 2% Secondary and Higher Education Cess @ 1% Note:

4.117

32,000 1,91,393 2,279 46 23 2,348

(1) The basic exemption limit can be adjusted against long term capital gains, since the entire income comprises of only long term capital gains. The balance long term capital gains of ` 11,393 is taxable @ 20% plus education cess @ 2% and secondary and higher education cess @ 1%. (2) Deduction under section 80C should be restricted to gross total income excluding long term capital gain. Question 38 Mr. Abhik's father, who is a senior citizen, had pledged his residential house to a bank under a notified reverse mortgage scheme. He was getting loan from bank in monthly installments. Mr. Abhik's father did not repay the loan on maturity and gave possession of the house to the bank to discharge his loan. How will the treatment of long-term capital gain be made on such reverse mortgage transaction? Answer Section 47(xvi) provides that any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the Central Government shall not be considered as a transfer for the purpose of capital gain. Accordingly, the transaction made by Mr. Abhik's father will not be regarded as a transfer. Therefore, no capital gain will be charged on such transaction. Further, section 10(43) provides that the amount received by the senior citizen as a loan, either in lump sum or in installment, in a transaction of reverse mortgage would be exempt from income-tax. However, capital gains tax liability would be attracted at the stage of alienation of the mortgaged property by the bank for the purposes of recovering the loan. Question 39 Mr. Pranav, a resident individual had purchased a plot of land at a cost of ` 75,000 in June, 1999. He constructed a house for his residence on that land at a cost of ` 1,25,000 in August, 2001. He sold that house in May, 2011 at ` 15,00,000 and purchased another residential house in June, 2011 for ` 8,00,000. He furnishes other income and investment as follows :

4.118

Taxation

`
Interest on fixed deposit with a bank (Net of TDS ` 5,000) Investment in PPF 45,000 20,000

Cost inflation index for financial year 1999-2000, 2001-02 and 2011-12 are 389, 426 and 785 respectively You are required to compute taxable income and tax payable by Mr. Pranav for the assessment year 2012-13. Answer Computation of taxable income and tax payable by Mr. Pranav for the A.Y. 2012-13 ` 1. Income from Capital Gains Full value of consideration Less : Indexed cost of acquisition of land (` 75,000 × 785/389) Less : Indexed cost of construction of house (` 1,25,000 × 785/426) Less : Deduction under section 54 Cost of new residential house Long term capital gains 2. Income from other sources Interest on Bank deposit (Net) Add : Tax deducted at source Gross total income Less: Deduction under Chapter VIA : Deduction under section 80C Investment in PPF Taxable income Components of Total income Special income Long-term Capital gains Normal Income (` 50,000 – ` 20,000) 45,000 5,000 8,00,000 3,18,310 ` 15,00,000 1,51,350 13,48,650 2,30,340 11,18,310

50,000 3,68,310 20,000 3,48,310

3,18,310 30,000 3,48,310 Nil 33,662 33,662

Tax on normal income of ` 30,000 Tax on LTCG LTCG (Maximum amount not chargeable to tax - Normal Income) @ 20% under section112 = {` 3,18,310 – (1,80,000 – 30,000)} x 20%

Capital Gains Add : Education cess @ 2% Secondary and higher education cess @ 1% Tax payable Less: Tax deducted at source Tax payable (rounded off)

4.119 673 337 34,672 5,000 29,672 29,670

Self-Examination Questions
1. Distribution of assets at the time of liquidation of a company (a) is not a transfer in the hands of the company or the shareholders (b) is not a transfer in the hands of the company but capital gains is chargeable to tax on such distribution in the hands of the shareholders (c) is not a transfer in the hands of the shareholders but capital gains is chargeable to tax on such distribution in the hands of the company. 2. For an assessee, who is a salaried employee who invests in shares, what is the benefit available in respect of securities transaction tax paid by him on sale of 100 listed shares of X Ltd. which has been held by him for 14 months before sale? (a) Rebate under section 88E is allowable in respect of securities transaction tax paid (b) Securities transaction tax paid is treated as expenses of transfer and deducted from sale consideration. (c) Long term capital gains is completely exempt under section 10(38) 3. Under section 50C, the guideline value for stamp duty is taken as the full value of consideration only if (a) the asset transferred is building and the actual consideration is less than the guideline value (b) the asset transferred is either land or building or both and the actual consideration is less than the guideline value (c) the asset transferred is building, irrespective of the actual consideration. 4. When there is a reduction of capital by a company and amounts are distributed to shareholders, (a) the entire distribution is subject to capital gains tax. (b) the entire distribution is subject to tax under the head “Income from other sources”. (c) The distribution attributable to accumulated profits is chargeable as deemed dividend and distribution attributable to capital is subject to capital gains tax. 5. Where there is a transfer of a capital asset by a partner to the firm by way of capital contribution or otherwise, the consideration would be taken as (a) The market value of the capital asset on the date of transfer

as the case may be (c) exempt from taxation 8. Write short notes on (i) (ii) Capital gains in the case of slump sale under section 50B Reference to Valuation Officer under section 55A 11. which is forfeited. Any payment made by a company on purchase of its own shares from a shareholder in accordance with the provisions of section 77A of the Companies Act. of capital gains arising on transfer of assets in case of shifting of industrial undertaking from an urban area to any special economic zone? Discuss. a. 8. 12. Under section 54EC. If an assessee receives advance money in any earlier occasion of transfer. then such forfeited amount would be (a) taxable in the year of receipt (b) deducted from the cost of acquisition of the asset or fair market value or written down value. b. Answers 1. b. c. 1956 (a) shall be regarded as dividend (b) shall not be regarded as dividend but capital gains tax liability is attracted in the hands of the shareholder (c) shall neither be regarded as dividend nor will it attract capital gains tax in the hands of the shareholder. 5. Discuss the conditions to be satisfied for claiming exemption of tax in respect of (a) Capital gains on compulsory acquisition of agricultural land situated within specified urban limits (b) Capital gains on sale of listed equity shares/units of an equity oriented fund. 6. capital gains are exempted if invested in the bonds issued by NHAI & RECL (a) within a period of 6 months from the date of transfer of the asset (b) within a period of 6 months from the end of the previous year (c) within a period of 6 months from the end of the previous year or the due date for filing the return of income under section 139(1). 9. c. b. Discuss the provisions relating to the same.120 Taxation (b) The cost less notional depreciation of the capital asset (c) The value of the asset recorded in the books of the firm. 2. 3. 6. 4. whichever is earlier 7. b . c. 7. What is the tax treatment. since the transfer eventually did not materialize. List ten transactions which are not regarded as transfer for the purpose of capital gains. 10.4. under the Income-tax Act.

(ii) (iii) When she celebrated her daughter's wedding on 21. this exemption provision is not attracted in this case.UNIT 5 : INCOME FROM OTHER SOURCES Question 1 The following details have been furnished by Mrs. not that of the individual’s son or daughter. therefore. assessable as income from other sources.2012. Hemali's favour. a diamond necklace worth ` 2 lacs was presented by her sister living in Dubai.2012 : (i) Cash gift of ` 51. Therefore. Answer (i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt. a wedding function celebrated on her husband completing 60 years of age. if the aggregate value exceeds ` 50. Hemali. even though jewellery falls within the definition of “property”. It may be noted that fixed deposit is also not included in the definition of “property”. .000 in a year. This was also her 25th wedding anniversary.000 received from a non-relative is. Therefore. not been defined under section 56(2)(vii).2. (ii) The provisions of section 56(2)(vii) are not attracted in respect of any sum of money or property received from a relative. there are two possible views in respect of the value of fixed deposit assigned in favour of Mrs. not applicable to a cash gift received during a wedding function celebrated on completion of 60 years of age. This provision is. a fixed deposit held by the said friend in a scheduled bank. if any. however. the property should be received on the occasion of the marriage of the individual.3. Compute the income. Hemali pertaining to the year ended 31. The gift of ` 51. the provisions of section 56(2)(vii) are not attracted. On the above occasion. chargeable to tax under section 56(2)(vii) in the hands of Mrs. her friend assigned in Mrs. Any sum of money received without consideration by an individual is chargeable to tax under section 56(2)(vii). however. (iii) To be exempt from applicability of section 56(2)(vii).000 received from her friend on the occasion of her “Shastiaptha Poorthi”. Thus. the gift of diamond necklace received from her sister is not taxable under section 56(2)(vii). the value of the fixed deposit and the accrued interest on the said date was ` 51. “Sum of money” has. Hemali – (1) The first view is that fixed deposit does not fall within the meaning of “sum of money” and therefore.000.

Therefore. B Co. which is eligible for set off against any other long term capital gain. the provisions of section 56(2)(viia) would not be attracted in the hands of M/s. (ii) Mr. Chezian is employed in a company with taxable salary income of ` 5. being cash gift received from a friend on her Shastiaptha Poorthi. the shares of Reliance Industries Ltd.00. B Co (P) Ltd. The indexed cost of acquisition of shares for Mr. The indexed cost of acquisition (` 4.02.00.000) less the actual sale consideration (` 3.000 + ` 51.000 (` 51. 1961 : (i) Mr. the provisions of section 56(2)(vii) would be attracted in respect of the fixed deposit assigned and the “Income from other sources” of Mrs. As per the second view. Since Reliance Industries Ltd. is a company in which public are substantially interested. He received a cash gift of ` 1. B Co. to M/s. the cash gift of ` 1 lakh received from Atma Charitable Trust.45. B was computed at ` 4.000 when the market price was ` 5. B. (P) Ltd.000 in the hands of Mr.000.000. Question 2 Decide the following transactions in the context of Income-tax Act. Hemali falls within the meaning of “sum of money” received. transfer of shares of a company in which public are substantially interested.45. The purpose of this provision is to prevent the practice of transferring unlisted shares at prices much below the fair market value.10. B and M/s. In this case. Hemali would be ` 1. Is the cash gift so received from the trust chargeable to tax in the hands of Mr. The transfer was not subjected to securities transaction tax. because of the above said transaction.4. Chezian? Answer (i) Transfer of shares without consideration or for inadequate consideration would attract the provisions of section 56(2)(viia). B transferred 500 shares of Reliance Industries Ltd. however.2011 for ` 3.00.000). on 10. (P) Ltd.122 Taxation (2) However.45. the total amount chargeable to tax as “Income from other sources” would be ` 51. another possible view is that fixed deposit assigned in favour of Mrs. not be attracted in the case of. if the recipient is a firm or a company.000) would result in a long term capital loss of ` 1. are transferred. (ii) The provisions of section 56(2)(vii) would not apply to any sum of money or any property received from any trust or institution registered under section 12AA.000. The provisions of section 56(2)(viia) would. inter alia. Determine the income chargeable to tax in the hands of Mr. Income assessable as “Income from other sources” If the first view is taken. being a trust registered under .000.000 from Atma Charitable Trust (registered under section 12AA) in December 2011 for meeting his medical expenses.00.00.

00. if the loan is taken from a private company (i. exceed the accumulated profits held by the company on the date of giving the loan. if the company is a company in which the public are substantially interested? What would be your answer. Question 4 From the following particulars of Pankaj for the previous year ended 31st March. (i) (ii) Is the amount of loan taxable as deemed dividend in the hands of Rahul. (i) The provisions of section 2(22)(e).00. 2012.123 section 12AA. will not apply where the loan is given by a company in which public are substantially interested.000 3. however. the company had accumulated profit of ` 4. The amount chargeable as deemed dividend cannot. if the lending company is a private limited company i.00. then. the loan would not be taxable as deemed dividend in the hands of Rahul.e.000 . is deemed as dividend under section 2(22)(e). the amount taxable as deemed dividend in the hands of Rahul would be limited to the accumulated profit i. Therefore.e. the provisions of section 2(22)(e) would be attracted. Chezian. a company in which the public are not substantially interested). compute the income chargeable under the head “Income from other sources”: (ii) ` (i) (ii) (iii) Directors fee from a company Interest on bank deposits Income from undisclosed source 10.e.000 12. a company in which the public are not substantially interested? Answer Any payment by a company. ` 4. being a person who is the beneficial owner of shares holding not less than 10% of the voting power.Income from Other Sources 4. However. since Rahul holds more than 10% of the equity shares in the company. On the date of granting the loan. In such a case.000 and not the amount of loan which is ` 5. of any sum by way of advance or loan to an equity shareholder. other than a company in which the public are substantially interested. which is a manufacturing company and not a company where lending of money is a substantial part of the business of the company. Question 3 Rahul holding 28% of equity shares in a company took a loan of ` 5.00. for meeting medical expenses would not be chargeable to tax under section 56(2)(vii) in the hands of Mr. however..000.000 from the same company. to the extent the company possesses accumulated profits. The company is engaged in some manufacturing activity.000.

4.124 (iv) (v) (vi) Taxation Winnings from lotteries (Net) Royalty on a book written by him Lectures in seminars Interest on loan given to a relative Interest on debentures of a company (listed in a recognised stock exchange) net of taxes Interest on Post Office Savings Bank Account Interest on Government Securities Interest on Monthly Income Scheme of Post Office 35.Y.000 5. 2. Interest on Post Office Monthly Income Scheme .000 5.000 for typing the manuscript of book written by him. 2012-13 Particulars 1.000 8.4.000 3.200 33. 9.000 7. 5. Answer Computation of income of Pankaj chargeable under the head “Income from other sources” for the A. 6.000 (vii) (viii) (ix) (x) (xi) He paid ` 1.000 7.600 400 4.000 9.200 33. 3. Directors’ fees Interest on bank deposit Income from undisclosed source Royalty on books written (See Note below) Less: expenses Lectures in seminars Interest on loan given to a relative Interest on listed debentures Net Received Add: T.000 1.000 ` ` 10. 7.600 500 2.000 12.000 3.000 3600 ×10 100 − 10 8.D. @ 10% 3.S.000 9.000 2. Interest on Post Office Savings Bank [exempt under section 10(15)] Interest on Government securities 10.

200 Income from Other Sources Note – Royalty income would be charged to tax under the head “Income from Other Sources”. 1961. @ 30% 35. (i) Rakesh received ` 70.000 × 30 100 − 30 15.000 is taxable (b) ` 20. Question 5 Choose the correct answer with reference to the provisions of the Income-tax Act. only if it is not chargeable to tax under the head “Profits and gains of business or profession”. (ii) Family pension received by a widow of a member of the armed forces where the death of the member has occurred in the course of the operational duties in the circumstances and subject to prescribed conditions. . 2011 through account payee cheque from a nonrelative regularly assessed to income-tax.Income from Other Sources 11.000 (b) Exempt upto ` 3.000 4. is chargeable to tax under the head “Income from other sources”.50.125 35.000 received on 10th July.000 50.D. is (a) A capital receipt not chargeable to tax (b) Chargeable to tax as income from other sources (c) Chargeable to tax as business income (d) Exempt upto ` 50.000 is taxable (c) The entire amount is exempt (d) None of the above. Winnings from lotteries Net Add: T.34.000 1.S. This problem has been solved assuming that the same is not taxable under the head “Profits and gains of business or profession” and hence.00.000 from his friend on the occasion of his birthday. is (a) Exempt upto ` 3.00.000 (c) Totally exempt under section 10(19) (d) Totally chargeable to tax (iii) Gift of ` 5. (a) The entire amount of ` 70.000 and balance chargeable to tax as income from other sources.

.2011. brother of father-in-law is not included in the definition of relative. she has received ` 90. Answer False : As per section 56(2)(vii). On 12.9.000/-. therefore. Rashmi during the previous year 2011-12 and compute the taxable income from gifts for Assessment Year 2012-13: (i) (ii) On the occasion of her marriage on 14. totally exempt under section 10(19) (ii) (c) (iii) (b) Chargeable to tax as income from other sources Question 6 State whether True/False with proper reasons of the following statements with regard to provisions of Income-tax Act.2011. As such.126 Answer (i) (a) Taxation The entire amount of ` 70. inter-alia.12.4.2011. false.000 is gifted by her friend on 15. where any sum of money is received without consideration by an individual or a Hindu undivided family from any person or persons and the aggregate value of all such sums received during the previous year exceeds ` 50.8.000 from cousin of her mother. However. Question 7 Check the taxability of the following gifts received by Mrs.12. ` 1 lakh is taxable under the head “Income from other sources”.2011 and ` 1 lakh from the brother of his father-in-law on 31. ` 2 lakh received from friends on the occasion of marriage is exempt. any sum received on the occasion of the marriage of the individual and any sum received from any relative.2011. (v) She has received a cash gift of ` 12. which includes. in order to avoid hardship in genuine cases. The statement that ` 3 lakh is includible in A’s income is. (iv) She gets a cash gift of ` 25.2011. (iii) A cell phone worth ` 21. Hence. the whole of the aggregate value of such sum shall be included in the total income of such individual or Hindu undivided family under the head “Income from other sources”.000 from the elder brother of her husband's grandfather on 25. A’s income includible under “other sources” for the previous year 2011-12 would be ` 3 lakh. However.2011.8.000 are from relatives and balance from friends.4.10.000 is taxable. certain sums of money received have been exempted.000 from her friend on 14. she has received gift of ` 18.000 as gift out of which ` 70. 1961: “A” receives ` 2 lakh from his friends on the occasion of his marriage on 22.

No. it is not taxable. 1961.000 55.127 Reason for taxability or otherwise of each gift 1. as the case may be. . the whole of the amount is chargeable to tax under section 56(2)(vii) of the Income-tax Act. Rashmi’s mother Friend Nil 18. Hence. Question 8 What are the deductions allowable under section 57 of the Income-tax Act. 1961. 12.000 Gifts received on the occasion of marriage are not taxable.000 5. 2. Elder brother of husband’s grandfather Friend Aggregate value of gifts 25. the cash gift is taxable.000 Since the sum of money received by Mrs. Brother of husband’s grandfather is not a relative. Hence.000. the cash gift is taxable.Y. distributed or paid. - 4. Hence. Question 9 When would the dividend income be taxed in the hands of a shareholder? Answer The provisions relating to the year of taxability of dividend are contained in section 8 of the Income-tax Act.212 of Study Material.2012-13 Sl. Cell phone is not included in the definition of property as per Explanation to section 56(2)(vii). Cousin of Mrs. Particulars Taxable amount ` 4. Cash gift from friend is taxable. 1961 in respect of “Income from other sources”? Answer See page 4. Rashmi’s mother is not a relative. Relatives and friends Cousin of Mrs.Income from Other Sources Answer Computation of taxable income of Mrs. 3. Rashmi from gifts for A. Rashmi without consideration during the previous year 2011-12 exceeds ` 50. (a) Any dividend declared by a company or distributed or paid by it within the meaning of section 2(22) of the Act shall be deemed to be the income of the previous year in which it is so declared.

1961? Answer According to section 94(7). Income from letting of machinery. if any. the loss. always chargeable to tax under the head “Profits and gains of business and profession” always chargeable to tax under the head “Income from other sources” chargeable under the head “Income from other sources” only if not chargeable under the head “Profits and gains of business and profession”. arising to him on account of such purchase and sale of securities or units. a) b) no deduction under Chapter VI-A is allowed and basic exemption limit cannot be exhausted. Students may note that any dividend which is liable for dividend distribution tax covered by section 115-O (being a dividend declared by a domestic company) is exempt under section 10(34) and hence would not be chargeable to tax. crossword puzzle or race including horse race or card game etc. has to be ignored for the purposes of computing his income chargeable to tax. Question 10 How is “dividend stripping” enforced by section 94(7) of the Income-tax Act. no deduction under Chapter VI-A but unexhausted basic exemption can be exhausted. and (c) the dividend or income on such securities or units received or receivable by such person is exempt from tax.128 Taxation (b) Any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it. then.4.where : (a) any person buys or acquires any securities or units within a period of three months prior to the record date . . plant and furniture is a) b) c) 2. and (b) such person sells or transfers such securities within a period of three months after such record date or transfers such units within a period of nine months after such record date . Self-Examination Questions 1. to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or units. In respect of winnings from lottery.

000 . assuming that his income from house property (computed) is ` 62. a) b) c) 5.Y.000. Which are incomes chargeable under the head “Income from other sources” only if they are not chargeable under the head “Profits and gains of business or profession”? What are the deductions allowable from the following income a) b) Dividend Income from letting on hire machinery. a) b) c) 6. 1961. 11. a) b) c) 4. What are the inadmissible deductions while computing income under the head “Income from other sources”. 33-1/3% of the pension 30% of the pension or ` 15. plant or furniture.129 c) 3. The deduction allowable in respect of family pension taxable under “Income from other sources” is Deemed dividend under section 2(22)(e) is chargeable to tax - Ganesh received ` 60. Compute his total income for the A. ` 25. 2012-13. whichever is less On the basis of method of accounting regularly employed by the assessee On the basis of mercantile system of accounting only On payment basis as prescribed under section 8 of the Income-tax Act.30. 9.000 is taxable. whichever is less 33-1/3% of the pension or ` 15. a) b) 7.000 from his friend on the occasion of his birthday.Income from Other Sources 4. 10. 8. Bond washing transactions Dividend stripping Write short notes on - State the incomes which are chargeable only under the head “Income from other sources”.000.000 is taxable.000. The entire amount of ` 60. Both deduction under Chapter VI-A and basic exemption are allowed. The entire amount is exempt. Karan’s bank account shows the following deposits during the financial year 2011-12. (i) Gift from his sister in Amsterdam ` 2.

97.600 ` 25. 3. c.000 ` 12. 4.130 Taxation (ii) Gift from his friend on his birthday ` 10. A 11. c.000 . a.000 ` 25. 2.000 (iii) Dividend from shares of various Indian companies (iv) Gift from his mother’s friend on his engagement (v) Gift from his fianceé (vi) Interest on bank deposits Answers 1.4. ` 1.000 ` 75. c. 5.

A gifts cash of ` 1. is higher (c) completely exempt from tax (d) to be clubbed with the income of her husband. before including minor's income.000 will be included in the total income of ………… Answer Mr. Aforesaid ` 10. The total income of Mr. B gifts cash of ` 1.000 from marking bags manually by himself.B. is higher.B. . income therefrom is ` 10.000 and ` 60. who is a physically handicapped minor (suffering from a disability of the nature specified in section 80U). earns bank interest of ` 50. B invests in a fixed deposit. Question 3 State True or False. From the cash gifted to her.00.5 INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME Question 1 Choose the correct answer with reference to the provisions of the Income-tax Act.00. before including minor's income. Mrs.000 to Mrs.000. Question 2 Fill up the blanks: Mr. 1961 : Income arising to a minor married daughter is (a) to be assessed in the hands of the minor married daughter (b) to be clubbed with the income of that parent whose total income.000 to his brother’s wife Mrs.Y shall be computed in his hands separately. A. Y. with reasons: Mr. Mr. Answer (b) to be clubbed with the income of that parent whose total income.

Hence. brokerage. which had been bought by him on 19-4-2010 at ` 2. and the same may be adopted for computing the capital gains.7. Detailed computation of total income is NOT required. income arising to the transferee from such accretion will not be clubbed. the profit from sale of bonus shares allotted to Mrs. Thilagam as under: Date of sale 21. All these shares were sold by Mrs..000 28.000 Briefly state the income-tax consequences in respect of the sale of the shares by Mrs. The clubbing provisions of section 64(1A) are not applicable in a case where the minor child is suffering from any disability of the nature specified in section 80U.2011 21. Therefore. Y will be assessed in his hands.25. STT paid Private sale to an outsider No. of shares 100 All bonus shares 100 Net sales value (` ) 2. and the capital gains arising from the sale of bonus shares would be taxable in the hands of Mrs. Thilagam. Thilagam. the capital gains arising from the sale of the original shares has to be included in the hands of Mr. On 1-6-2011. Thilagam 200 listed shares.5.2011 Manner of sale Sold in recognized stock exchange.5. Janak. Where there is any accretion to the asset transferred.10. the income arising from the sale of the said asset by the spouse will be clubbed in the hands of the individual. The income of such minor child will not be clubbed in the hands of either of the parents.000 per share. etc. the total income of Mr.70. Mr.2. Net sales value represents the amount credited after all taxes. Janak gifted to his wife Mrs. showing clearly the person in whose hands the same is chargeable. . Hema (Market value on this date was ` 2. Cost inflation index for the FY 2011-12 is 785 and for the FY 2010-11 is 711. Answer Where an asset has been transferred by an individual to his spouse otherwise than for adequate consideration. levies.20. Thilagam will be chargeable to tax in the hands of Mrs. bonus shares were allotted in the ratio of 1:1. Consequently.000) 1.000 1.2 Answer Taxation True. Question 4 On 21-3-2011.2012 Private sale to her friend Mrs. Thilagam. the quantum and the head of income in respect of the above transactions.

2012 Sale consideration Less: Indexed cost of acquisition of 100 shares (` 2. to any person to the extent to 1. a sum of ` 36.000 . otherwise than for adequate consideration. Kasturi is valid in law.816 (50. Answer The clubbing provisions under section 64(1)(viii) are attracted in case of transfer of any asset. Ltd. the provisions of section 56(2)(vii) would not be attracted in the hands of Mrs. Kasturi claims that the amount of ` 36. directly or indirectly. Janak Long-term capital gains/loss Particulars (i) 100 shares sold on 21.2011 in a recognized stock exchange. Hema has received shares from her friend. Thilagam. Income/loss to be clubbed in the hands of Mr. Mrs. for inadequate consideration. Thilagam Short-term capital gains (on sale of 100 bonus shares) Particulars Sale consideration Less: Cost of acquisition of bonus shares Short-term capital gains Taxability in the hands of Mrs. The cost to the previous owner has to be taken as the cost of acquisition.000.5. State with reasons whether the contention of Mrs. Hema under the head “Income from other sources” Mrs.2. Long-term capital gains on sale of such shares is exempt under section 10(38) Shares sold to a friend on 28. Mrs. Kasturi transferred her immovable property to ABC Co. Question 5 Mrs.70. Even though shares fall within the definition of “property” under section 56(2)(vii).20. STT paid.000 2. Janak Income taxable in the hands of Mrs.000 Nil 1.000 x 100 x 785/711) Long term capital loss to be included in the hands of Mr. Hema.25.3 Where an asset received by way of gift has been sold. since the difference between the fair market value of shares and actual sale consideration does not exceed ` 50. the period of holding of the previous owner should be considered for determining whether the capital gain is long term or short term. subject to a condition that out of the rental income.Income of Other Persons included in the Assessee’s Total Income 5.25.000 (utilized by her son’s wife) should not be included in her total income as she no longer owned the property.000 per annum shall be utilized for the benefit of her son’s wife.816) ` Nil (ii) ` 1.

hence. Question 6 Discuss the tax implications of income arising from revocable transfer of assets.4 Taxation which the income from such asset is for the immediate or deferred benefit of son’s wife. Note . the provisions of section 64(1)(viii) would not be attracted. in any way. or (b) it gives. of the whole or any part of the income or assets to the transferor. Answer Refer to page 5. If it is presumed that the transfer was for adequate consideration. Mrs. directly or indirectly. the transferor. over the whole or any part of the income or the assets. income of ` 36. Kasturi in this case.e. The contention of Mrs. Kasturi is. In this case. a right to re-assume power. . Therefore.7 of Study Material. the transfer should be otherwise than for adequate consideration. not valid in law. If the transferor receives direct or indirect benefit from such income.5. A transfer is deemed to be revocable if : (a) it contains any provision for the re-transfer. such income is to be included in his total income even though the transfer may not be revocable during the life time of the beneficiary or transferee. the income from the transferred asset is not includible in the total income of the transferor provided the transferor derives no direct or indirect benefit from such income. the clubbing provisions are attracted. even where there is revocable transfer of assets? Answer Income arising from revocable transfer of assets [Sections 61 & 63] (i) (ii) All income arising to any person by virtue of a revocable transfer of assets is to be included in the total income of the transferor. directly or indirectly. Question 7 Discuss the cross transfers in the context of Income-tax. When will the clubbing provisions not apply at present. Such income shall be included in computing the total income of the transferor-individual. Transfer not revocable during the life time of the beneficiary or the transferee [Section 62] If there is a transfer of asset which is not revocable during the life time of the beneficiary or transferee.In order to attract the clubbing provisions under section 64(1)(viii).. it is presumed that the transfer is otherwise than for adequate consideration and therefore.000 meant for the benefit of daughter-in-law is chargeable to tax in the hands of transferor i.

000 32. An individual shall be deemed to have substantial interest in a concern under the following circumstances : (a) If the concern is a company. if such person is entitled. is greater. However.000 15.5 Explain the provisions of the Income-tax Act. equity shares carrying not less than 20% of the voting power are. such rule does not apply where the spouse possesses technical or professional qualification and the income of the spouse is solely attributable to the application of his or her technical or professional knowledge and experience.A Income from profession of Mr. fees or any other form of remuneration. would be clubbed. any income arising directly or indirectly to the spouse of an individual by way of salary. However. Where both husband and wife have substantial interest in a concern and both are in receipt of salary etc.000 3. at any time during the previous year. owned beneficially by such person or partly by such person and partly by one or more of his relatives. 1961.Income of Other Persons included in the Assessee’s Total Income Question 8 5. whether in cash or in kind. excluding such income. (b) In any other case. from a concern in which such individual has a substantial interest.000 . Question 9 Compute the total income of Mr. A from the following information. As per section 64(1)(iv).A Income of minor son B from company deposit Income of minor daughter C from special talent 2. to not less than 20% of the profits of such concern. commission. such income will be clubbed with the income of the spouse whose total income. any income from the accretion of transferred asset is not liable to be clubbed. at any time during the previous year.90. & Mrs. ` (a) (b) (c) (d) Salary income (computed) of Mrs. from the said concern. or such person and one or more of his relatives are entitled in the aggregate. directly or indirectly from one spouse to another. with regard to clubbing of income of spouse under section 64. It may be noted that natural love and affection will not constitute adequate consideration for the purpose of section 64(1). Answer As per section 64(1)(ii). where there is a transfer of an asset other than house property.30. otherwise than for adequate consideration or in connection with an agreement to live apart. any income that arises either directly or indirectly to the transferee from the transfer of the asset shall be included in the total income of the transferor.

1961. A. Detailed computation under various heads of income is NOT required. Less : Exemption under section 10(32) Gross Total Income ` 15. A giving effect to the provisions of section 64(1A) is as follows : Computation of total income of Mr. interest from bank deposit has to be clubbed even when deposit is made out of income arising from application of special talent. all the income of a minor child has to be clubbed in the hands of that parent whose total income (excluding the income of the minor) is greater. A for the A.30.2011 from friend of Mrs. The total income of Mrs.000 Nil 3. A. The income of Mr.A 2.000 .5. Hence. 2012-13 Particulars Income from profession Income of minor son B from company deposit Less: Exemption under section 10(32) Income of minor daughter C From special talent – not to be clubbed Interest from bank Gift of ` 2.90.30.500 ` 3. Income derived by a minor child from any activity involving application of his/her skill.90.09. talent. A is ` 2. However.500 4.500 3.000.500 1.000 1. Answer As per the provisions of section 64(1A) of the Income-tax Act.6 (e) Taxation Interest from bank received by C on deposit made out of her special talent 3.000 1. the income of minor child C from exercise of special talent will not be clubbed. A is ` 2. the income of the minor children have to be clubbed in the hands of Mr. Since the income of Mr.500 received from a non-relative is not taxable under section 56(2)(vii) being less than the aggregate limit of ` 50.Y.000 (f) Gift received by C on 30.05. The total income of Mr.000 and income of Mrs. specialised knowledge and experience is not to be clubbed.500 Brief working is sufficient. A is ` 3.000.000. A is greater than that of Mrs. It is assumed that this is the first year when clubbing provisions are attracted.000 13.

In this case Smt.Rani’s Capital Contribution ` 3.00.Y. Rani earned profits from her proprietory business for the Financial year 20102011. . Question 11 Write short notes on: Clubbing of income of minor children in the hands of parent. on 1.00. 45 : 20) 2.Y.00. if the income earned is from the assets transferred directly or indirectly to the spouse of the individual. Rani invested in her business on the same date.2011 4. Rani’s husband for A.2010 Investment on 10.50.2010 out of gift received from her husband ` 3.000 2.00.000. which amount Smt. Smt.000 5.Income of Other Persons included in the Assessee’s Total Income Question 10 5.4.50.50.4.000 and Financial year 2011-2012 ` 3.7 A proprietary business was started by Smt.000 Total Capital as at 1.4.00.2010 her capital in business was ` 3.000 2. 1961 provides for the clubbing of income in the hands of the individual.4.000 Capital Contribution Out of gift from husband ` -2.Y.000 Profit for F.000 Capital employed as at 1. otherwise than for adequate consideration. As on 1.20.e. If both parents are having income.2011-12 to be apportioned on the basis of capital employed as at 1.e.00.2012-13 is computed as under : Particulars Smt. Her husband gifted ` 2.Rani’s husband for A.00.00.000 from her husband which she invested in her business. Rani received a gift of ` 2. ` 1.000 1. to be clubbed in the hands of Rani’s husband for the Assessment year 2012-2013 with reasons. Rani in the year 2009.00.000 1.2011 (i.90.000 Profit for F.4.000 3. Answer Section 64(1) of the Income-tax Act.4. the income to be clubbed in the hands of Smt. The income to be clubbed in the hands of Smt.00. Answer Income earned by a minor child would be clubbed in the hands of the parent.2010. Compute the income.50.000.90.2012-13 is ` 1.000 Therefore. 2010-11 to be apportioned on the basis of capital employed on the first day of the previous year i.Y.04.50.000 2.00.2010 1. then income of minor child would be clubbed in the hands of that parent whose income is higher before clubbing the income of minor child.70.000 3.000.000 on 10.000 6.20.

5.8

Taxation

Under the following situations the income of the minor child would not be clubbed in the hands of parent :(a) Income earned by minor child through manual work done by him. (b) Income from activity involving application of his skill, talent or specialised knowledge and experience. If the relationship of husband and wife does not subsist between the parents, the income of the minor child would be clubbed in the hands of the parent who maintains the child during the previous year. The parent is entitled to claim an exemption under section 10(32) upto ` 1,500 per minor child if the income of the minor child is included in his total income. Where any such income is once included in the total income of either parent, any such income arising in any succeeding previous year shall not be included in the total income of the other parent, unless the Assessing Officer is satisfied after giving that parent an opportunity of being heard, that it is necessary to do so. Question 12 How does the Income-tax Act, 1961 deal with conversion of a self-acquired property into the property of a Hindu Undivided Family? Answer Refer to section 64(2) in page 5.8 of Study Material. Question 13 Mr. Ghose has four minor children consisting 2 daughters and 2 sons. The annual income of 2 daughters was ` 7,500 and ` 5,000 and of sons was ` 5,500 and ` 1,250 respectively. The daughter who was having income of ` 5,000 was suffering from a disability specified under section 80U. Work out the amount of income earned by minor children to be clubbed in the hands of Mr. Ghose. Answer Income earned by minor children to be clubbed with the income of Mr. Ghose (i) Income of two daughters (` 7,500 + Nil) Less: Income exempt u/s 10(32) Total (A) Income of two sons (` 5,500 + ` 1,250) Less: Income exempt u/s 10(32) (` 1,500 + ` 1,250) Total (B) Total Income to be clubbed as per section 64(1A) (A+B) 7,500 1,500 6,000 6,750 2,750 4,000 10,000

(ii)

The income of daughter suffering from disability specified under section 80U is not to be clubbed with the income of Mr. Ghose.

Income of Other Persons included in the Assessee’s Total Income Question 14

5.9

Mr. Vatsan has transferred, through a duly registered document, the income arising from a godown to his son, without transferring the godown. In whose hands will the rental income from godown be charged? Answer Section 60 expressly states that where there is transfer of income from an asset without transfer of the asset itself, such income shall be included in the total income of the transferor. Hence, the rental income derived from the godown shall be clubbed in the hands of Mr. Vatsan. Question 15 Mr. Dhaval and his wife Mrs. Hetal furnish the following information:

`
(i) (ii) (iii) (iv) (v) (vi) Salary income (computed) of Mrs. Hetal Income of minor son ‘B’ who suffers from disability specified in Section 80U Income of minor daughter ‘C' from singing Income from profession of Mr. Dhaval Cash gift received by 'C' on 2.10.2011 from friend of Mrs. Hetal on winning of singing competition Income of minor married daughter ‘A’ from company deposit 4,60,000 1,08,000 86,000 7,50,000 48,000 30,000

Compute the total income of Mr. Dhaval and Mrs. Hetal for the Assessment Year 2012-13. Answer Computation of Total Income of Mr. Dhaval and Mrs. Hetal for the A.Y. 2012-13 Particulars Salaries Profits and gains of business or profession Income from other sources Income by way of interest from company deposit earned by minor daughter A [See Note (d)] Less : Exemption under section 10(32) Total Income Notes : (a) The income of a minor child suffering from any disability of the nature specified in section 80U shall not be included in the hands of the parents. Hence, ` 1,08,000, being the Mr. Dhaval ` 7,50,000 30,000 1,500 28,500 7,78,500 Mrs. Hetal ` 4,60,000

4,60,000

5.10

Taxation income of minor son ‘B’ who suffers from disability specified under section 80U, shall not be included in the hands of either of his parents.

(b) The income derived by the minor from manual work or from any activity involving exercise of his skill, talent or specialised knowledge or experience will not be included in the income of his parent. Hence, in the given case, ` 86,000 being the income of the minor daughter ‘C’ shall not be clubbed in the hands of the parents. (c) Under section 56(2)(vii), cash gifts received from any person/persons exceeding ` 50,000 during the year in aggregate is taxable. Since the cash gift in this case does not exceed ` 50,000, the same is not taxable. (d) The clubbing provisions are attracted even in respect of income of minor married daughter. The income of the minor will be included in the income of that parent whose total income is greater. Hence, income of minor married daughter ‘A’ from company deposit shall be clubbed in the hands of the Mr. Dhaval and exemption under section 10(32) of ` 1,500 per child shall be allowed in respect of such income. Question 16 Mr. Dhaval has an income from salary of ` 3,50,000 and his minor children’s income are as under:

`
Minor daughter has earned the following income: From a TV show From interest on FD with a bank (deposited by Mr. Dhaval from his income) Minor son has earned the following income: From the sale of a own painting From interest on FD with a bank (deposited by Mr. Dhaval from his income) Answer Computation of Gross Total Income of Mr. Dhaval Amount (`) Income from Salary Income from other sources: Minor Daughter’s income Income from T.V. show (See Note below) Interest income from FD with a Bank Less : Exempt under section 10(32) Minor son’s income Income from sale of self made painting (See Note below) Amount (` ) 3,50,000 50,000 5,000 10,000 1,000

Nil 5,000 1,500 3,500 Nil

Income of Other Persons included in the Assessee’s Total Income Interest income from FD with a Bank Less : Exempt under section 10(32) Gross Total Income Note: 1,000 1,000

5.11

Nil 3,53,500

The income derived by the minor from manual work or from any activity involving exercise of his skill, talent or specialised knowledge or experience will not be included in the income of his parent. Hence, in the given case ` 50,000 being the income of the minor daughter from TV show and ` 10,000 being the income of minor son from sale of own painting, shall not be clubbed in the hands of Mr. Dhaval.

Self-Examination Questions
1. Income of a minor child suffering from any disability of the nature specified in section 80U is a) b) c) 2. a) b) c) 3. to be assessed in the hands of the minor child to be clubbed with the income of that parent whose total income, before including minor’s income, is higher completely exempt from tax to be assessed in the hands of the minor married daughter to be clubbed with the income of that parent whose total income, before including minor’s income, is higher completely exempt from tax

Income arising to a minor married daughter is -

Where a member of a HUF has converted or transferred his self-acquired property for inadequate consideration into joint family property, income arising therefrom is taxable a) b) c) as the income of the transferor-member in the hands of the HUF in the hands of the karta of the HUF

4.

If such converted property is subsequently partitioned among the members of the family, the income derived from such converted property as is received by the spouse of the transferor will be taxable a) b) c) as the income of the transferor-member as the income of the spouse of the transferor as the income of the HUF.

5.12 5.

Taxation Exemption of a certain amount (not exceeding the income clubbed) is available under section 10(32), where a minor’s income is clubbed with the income of the parent. The maximum exemption available is a) b) c) upto ` 1,200 in respect of each minor child upto ` 1,500 in respect of each minor child upto ` 2,000 in respect of each minor child Substantial interest Transfer and revocable transfer.

6.

Write short notes on the following in the context of clubbing of income a) b)

7. 8. 9.

Under what circumstances can an income arising to the spouse of an individual be included in the income of the individual? Discuss. State when the income arising to the son’s wife can be included in the hands of the individual. When can income arising to a minor child be clubbed in the hands of the father or mother? Discuss.

10. Discuss the tax consequences arising on conversion of self-acquired property into joint family property. 11. Compute the total income of Mr. & Mrs. A for the A.Y.2012-13 from the following information relevant for P.Y.2011-12 Particulars ` (a) Salary income (computed) of Mrs. A 2,30,000 (b) Income from profession of Mr. A 3,90,000 (c) Income of minor son B from company deposit 15,000 (d) Income of minor daughter C from application of her painting skills 32,000 (e) Interest from bank received by C on deposit made out of income 3,000 earned by application of her painting skills (f) Gift received by C from friend of Mrs. A 2,500 12. A proprietory business was started by Smt. Poorna in the year 2009. As on 1.4.2010, her capital in business was ` 3,00,000. Her husband gifted ` 2,00,000, on 10.4.2010, which amount Smt. Poorna invested in her business on the same date. Smt. Poorna earned profits from her proprietory business for the P.Y.2010-11, ` 1,50,000 and P.Y.2011-12, ` 3,90,000. Compute the income to be clubbed in the hands of Poorna's husband for the A.Y.2012-13 with reasons.

Answers
1. a; 2. b; 3. a; 4. a; 5. b. 11. Mr.A – ` 4,05,000; Mrs. A – ` 2,30,000. 12. ` 1,20,000.

6
SET OFF AND CARRY FORWARD OF LOSSES
Question 1 Fill in the blanks having regard to the provisions of the Income-tax Act, 1961: (i) (ii) Business loss is ……….(eligible/not eligible) for set off against income from salaries. The maximum period for which speculation loss can be carried forward is ……….. years.

(iii) The first item in the order of priority of set off as between unabsorbed capital expenditure on scientific research, current year depreciation, and brought forward business loss is. Answer (i) not eligible (ii) Four (iii) Current year depreciation. Question 2 Choose the correct answer with reference to the provisions of the Income-tax Act, 1961: Mr. B incurred short-term capital loss of ` 10,000 on sale of shares through the National Stock Exchange. Such loss can be set-off (a) Only against short-term capital gains (b) Against both short-term capital gains and long-term capital gains (c) Against any head of income (d) None of the above. Answer (b) Against both short-term capital gains and long-term capital gains Question 3 The following are the details relating to Mr. Srivatsan, a resident Indian, aged 57, relating to the year ended 31.3.2012 : Income from salaries Loss from house property ` 2,20,000 1,90,000

6.2

Taxation 2,40,000 30,000 20,000 2,50,000 1,10,000 32,000 45,000 1,20,000

Loss from cloth business Income from speculation business Loss from specified business covered by section 35AD Long-term capital gains from sale of urban land Long-term capital loss from sale of listed shares in recognized stock exchange (STT paid) Loss from card games Income from betting Life Insurance Premium paid Compute the total income and show the items eligible for carry forward. Answer Computation of total income of Mr. Srivatsan for the A.Y.2012-13 Particulars Salaries Income from salaries Less: Loss from house property Profits and gains of business or profession Income from speculation business Less: Loss from cloth business set off Capital gains Long-term capital gains from sale of urban land Less: Loss from cloth business set off Income from other sources Income from betting Gross total income Less: Deduction under section 80C (life insurance premium paid) Total income Losses to be carried forward (1) Loss from cloth business (2,40,000-30,000-2,10,000) (2) Loss from specified business covered by section 35AD Notes (i) ` 2,20,000 1,90,000

`

30,000 30,000 30,000 Nil 2,50,000 2,10,000

40,000 45,000 1,15,000 30,000 85,000 ` Nil 20,000

Long-term capital gains from sale of listed shares in a recognized stock exchange is

Therefore.000. nor can any loss be set-off against such income.00.20.000 [i.000 (LTCG) – ` 45.000.000.000. nor can it be carried forward. such loss cannot be set off against any other income.15.00 1. (vi) Income from betting is chargeable at a flat rate of 30% under section 115BB and no expenditure or allowance can be allowed as deduction from such income.000.e.000. However.000. long-term capital loss on sale of listed shares cannot be set-off against long-term capital gains from sale of urban land.00 60.000.00 .000 from sale of urban land.00 6.000.10.00 10.000 – ` 30.00 20. the deduction under section 80C in respect of life insurance premium paid has to be restricted to ` 30.00 10. (iii) Business loss cannot be set off against salary income. Gross Total Income of ` 1. Consequently. Therefore. gross total income has to be reduced by the amount of long-term capital gains and casual income..00 40.3 exempt under section 10(38). the balance business loss of ` 2.000. Loss from an exempt source cannot be set off against profits from a taxable source.00 5. Soohan submits the following details of his income for the assessment year 2012-13. (v) For providing deduction under Chapter VIA.000 (Casual income)].00 40.00 50.40.000.000. ` 3. (iv) Loss from card games can neither be set off against any other income.000. (ii) Loss from specified business covered by section 35AD can be set-off only against profits and gains of any other specified business. Question 4 Mr. The unabsorbed loss has to be carried forward for set-off against profits and gains of any specified business in the following year.000. Particulars Income from salary Loss from let out house property Income from sugar business Loss from iron ore business b/f (discontinued in 2005-06) Short term capital loss Long term capital gain Dividend Income received from lottery winning (Gross) Winnings in card games Agricultural income Long term capital gain from shares (STT paid) Short term capital loss under section 111A Bank interest Calculate gross total income and losses to be carried forward. Therefore.000 set-off against income from speculation business) can be set-off against long-term capital gains of ` 2.Set off and Carry Forward of Losses 6. the taxable long-term capital gains would be ` 40.000 – ` 40.50.00 5.000 (` 2.00 50.

6.00.Y. Agricultural income [Exempt under section 10(1)] ` 3.000) 2.Y.000 (iii) Long-term capital gains on which STT is paid [Exempt under section 10(38)] .21.Y.000 50.000 70.000 5.2012-13 Particulars Salaries Income from salary Less: Loss from house property set-off against salary income as per section 71 Profits and gains of business or profession Income from sugar business Less: Brought forward loss from iron-ore business set-off as per section 72(1) Balance business loss of ` 70.000) ` Nil 40.000 (40. assuming that dividend is received from a domestic company. The following income are exempt under section 10 – (i) (ii) Dividend income [Exempt under section 10(34)].000 (50.000) Nil 50.4 Answer Taxation Computation of gross total income of Mr.000 of P.2005-06 carried forward to A.000 30.000 (40.000 under section 111A to be carried forward Income from other sources Winnings from lottery Winnings from card games Bank interest Gross Total Income Losses to be carried forward to A.000 6.000 3.000 61.000 to be carried forward Short-term capital loss of ` 10.2013-14 Loss of iron-ore business Short term capital loss Notes: 1. Soohan for the A.60.2013-14 Capital gains Long term capital gain Less: Short term capital loss set-off Balance short-term capital loss of ` 20.Y.

(i) He has two houses : (a) (b) (ii) (a) House No.00.000 50. 6. 1961.14 of Study Material.Y. II – Current year loss Textile Business : (i) Discontinued from 31st October.2005-06.000 16. Question 5 Discuss briefly on carry forward and set off of losses in the case of change in constitution of firm or on succession under section 78 of the Income-tax Act.000 1.000 35.000 95.000 40.2008-09 (b) Chemical Business : (i) Discontinued from 1st March. 2010 – hence no profit/loss (ii) Bad debts allowed in earlier years recovered during this year (iii) Brought forward business loss of A. Answer Carry forward and set off of losses in case of change in constitution of firm or on succession [Section 78] See page 6. 2012. 2011 – Current year loss (ii) Brought forward business loss of A.550 60.Y. He desires that you should: (a) Compute the total income and (b) Ascertain the amount of losses that can be carried forward.Y. 2010-11 (c) (d) (iii) (iv) (a) (b) Leather Business : Profit for the current year Share of profit in a firm in which he is partner since 2002 Short-term capital gain Long-term capital loss Nil 35. the year in which the business was discontinued.Set off and Carry Forward of Losses 2. Rajat submits the following information for the financial year ending 31st March. Question 6 Mr.000 (30. I – Income after all statutory deductions House No.000) He has three proprietary businesses : Contribution to LIC towards premium .000 ` 72.5 It is presumed that loss from iron-ore business relates to P.000 10.

Y.000 1. 1961. it has to be carried forward to the next year to be set-off against long-term capital gains of that year.000 92. .000 1.550 is exempt under section 10(2A).00.02.Y.000 (-) 30. 2012-13 Particulars 1.000 10.2008-09 set off against the business income of current year 3. Profits and gains of business or profession Profit from leather business Less: Current year loss of textile business Bad debts recovered taxable under section 41(4) Less: Brought forward business loss of textile business for A.000 (-) 40.1 House No. Therefore.000 (2) Long-term capital loss cannot be set-off against short-term capital gains.000 95.Y. Question 7 Explain the provisions of carry forward and set off of business losses under section 72 of the Income-tax Act. Rajat for the A.Y.000 35.2 2.000 Statement of losses to be carried forward to A. 2013-14 Particulars Business loss of A.Y.6 Answer Taxation Computation of total income of Mr.000 95. 2012-13 to be carried forward under section 74 Notes: (1) Share of profit from firm of ` 16.6. 2010-11 to be carried forward under section 72 Long term capital loss of A.000 60. Capital Gains Short-term capital gain Gross Total Income Less: Deduction under Chapter VI-A Under section 80C – LIC premium paid Total Income ` 72.000 ` 42. Income from house property House No. ` 50.000 35.000 Nil 60.

(v) Business loss cannot be carried forward for more than 8 assessment years immediately succeeding the assessment year for which the loss was first computed. (vi) Under section 72(2). business loss brought forward should be adjusted first and thereafter unabsorbed depreciation. though not necessarily against the income from same business in which the loss was incurred. if the amalgamation is within the meaning of section 72A. where any person carrying on business or profession has been succeeded in such capacity by another person otherwise than by inheritance. Question 8 Write short notes on: (a) Loss can be carried forward only by the person who has incurred the loss. However. such loss should not be in the nature of speculation business loss (ii) (iii) Business loss carried forward can be set off only against the income under the head “Profits and gains of business or profession”. should be adjusted.Set off and Carry Forward of Losses Answer (i) 6. in a scheme of demerger.7 Section 72 applies where the net result of the computation under the head “Profits and gains of business and profession” for any assessment year is a loss to the assessee and such loss cannot be wholly set off against income under any head of income in accordance with the provisions of section 71. subject to fulfillment of certain conditions which the Central Government may for this purpose notify. (b) Carry forward and set off of losses by closely held companies. However. there are certain exceptions. (iv) Business loss can be carried forward and set off even if the business in respect of which it was incurred and computed has been discontinued. which are briefed hereunder: (i) Carry forward and set off of accumulated business loss of the amalgamating company against the income of the amalgamated company. unabsorbed scientific research expenditure etc. or a sole proprietary concern is succeeded . (ii) (iii) In the case of reorganization of business. to ensure that the demerger is for genuine business purposes . Such unabsorbed business loss can be carried forward to the subsequent assessment year for set off against the business income of that year and so on. then the successor cannot have the loss of the predecessor being carried forward and set off against his income. Carry forward and set off of accumulated business loss of the demerged company in the hands of the resulting company. where a firm is succeeded by a company as per the provisions of section 47(xiii). Answer (a) As per section 78(2).

on 31.03. Question 9 State the conditions to be fulfilled by an amalgamated company for carry forward of the accumulated losses and unabsorbed depreciation of the amalgamating company. the accumulated loss of the firm or sole proprietor shall be deemed to be the loss of the successor company for the previous year in which the business reorganization was effected and the carry forward provisions shall be applicable to the successor company . This restriction is not applicable if the change in the said voting power takes place due to the death of a shareholder or transfer of shares by way of gift by a shareholder to his relative. Answer Refer to page 6. (iv) Where a business carried on by one person is acquired by another person through inheritance.e.6. then the loss of assessment year 200809 (previous year 2007-08) is eligible for set off against the income of the assessment year 2012-13. Further. Question 10 What are the consequences of demerger as to the accumulated loss and unabsorbed depreciation? . if 60% of shareholders of the previous year 2007-08 continue to hold shares without interruption up to the previous year 2011-12 i.2012. the shares of the company carrying not less than 51% of the voting power are continued to be held by the persons who held 51% of the total voting power on the last day of the previous year in which the loss was incurred. the restriction placed under section 79 is not applicable where there is a change in the shareholding of an Indian company which is a subsidiary of a foreign company as a result of amalgamation or demerger of a foreign company. in the case of a company in which public are not substantially interested. the unabsorbed business loss relating to any assessment year can be carried forward and set-off against the income in a subsequent assessment year subject to the fulfillment of the following condition:As on the last day of the previous year in which the loss is sought to be carry forward and set off. For example.8 Taxation by a company as per the provisions of section 47(xiv).6 of Study Material. then the successor can carry-forward and set-off the loss of the predecessor against his income. (v) Carry forward and set off of business loss and unabsorbed depreciation of a predecessor company against the income of successor Limited Liability partnership if the conditions specified in Section 47(xiiib) are fulfilled. (b) According to section 79. provided 51% of the shareholders of the amalgamating or demerged foreign company continue to be shareholders of the amalgamated or the resulting foreign company.

Set off and Carry Forward of Losses Answer Refer to page 6.00.000 (iv) He deposited ` 70.12 of Study Material. 2012-13. Particulars Income from retail trade – as per books (See Note 1 below) Income from plying of vehicles – as per books (See Note 2 below) (i) ` 75.000 (Computed as per books) (Sales turnover ` 21.2012.70.03.000) (iii) He has brought forward depreciation relating to A. Income from plying of vehicles (computed as per books) (He owned 5 heavy goods vehicle throughout the year) 2.7 of Study Material.Y. A furnishes you the following information for the year ended 31. Answer Refer to section 74 in page 6.400 (ii) Income from retail trade of garments 75.14 of Study Material. 2011-12 1. A for the A. Question 14 Mr.2012 and ` 30.000 2.10. Answer Computation of total income of Mr.1. Question 12 6.10.9 State the factors to be borne in mind relating to carry forward and set off of losses in case of change in constitution of firm or succession under section 78.000 in 5 year bank fixed deposit Compute taxable income of Mr. Question 13 Discuss in brief the provisions relating to set off and carry forward of losses in speculation business.400 .11 of Study Material. Answer Refer to section 73 in page 6. Answer Refer to page 6. A and his tax liability for the assessment year 2012-13 with reasons for your computation. Question 11 Discuss about set off and carry forward of losses under the head Capital Gains.000 into his PPF account on 6.Y.

the income from plying of vehicles as per books is ` 2.73. Since the income computed as per books is lower than the income deemed under section 44AD.000 1. would arise only if the total income exceeds the basic exemption limit. this mandatory requirement does not arise. If the assessee opted for income to be assessed on presumptive basis.400 1. It is to be further noted that in both the above cases.70.600 i. In this case. 2011-12 Gross total income Less: Deduction u/s.000 calculated as per section 44AE(1).400. The requirement to maintain books of accounts under section 44AA and to get them audited under section 44AB in case the assessee claims the profit and gains of business to be lower than the presumptive income determined under section 44AD. the income computed as per books is ` 75. which is lower than the presumptive income of ` 3. Out of this. However.85.00.000 which is to be further reduced by the amount of unabsorbed depreciation. the assessee can adopt the income as per books i. However.Y.e. Therefore. had presumptive income provisions been opted. The total unabsorbed depreciation is ` 1.400.e. his total income would be as under: .000 remains to be set-off from income from plying of vehicles.85.85. ` 1. the assessee can adopt the income as per books. since the total income does not exceed the basic exemption limit. Income from plying of vehicles : Income calculated under section 44AE(1) would be ` 5. all deductions under sections 30 to 38.00.000.10.000.00.85.00.000 can be set-off against income from retail trade.400 less ` 25.000 x 12 x 5 which is equal to ` 3.400 1.400 Nil Less : Set off of brought forward depreciation relating to A. ` 75. The balance of ` 25.80C – Contribution to PPF and bank fixed deposit Taxable income Tax liability Note : 1.6. the income from plying of vehicles as per books is ` 1. 2.000. Income from retail trade : Presumptive business income under section 44AD is ` 1. 8% of turnover of ` 21. provided he maintains books of account as per section 44AA and gets his accounts audited and furnishes an audit report as required under section 44AB.000 85. including depreciation would have been deemed to have been given full effect to and no further deduction under those sections would be allowable. Hence.10 Taxation 2.000. being the balance unabsorbed depreciation remaining to be set-off under section 32(2).00.

360 581 19. Madhavan for the Assessment year 2012-13 from the following particulars: ` (i) (ii) Net house property income as computed under the head “Income from house property” Income from business before adjusting the following (a) Brought forward business loss (b) Current year depreciation (c) Brought forward unabsorbed depreciation Short term capital gain – jewellery Long term capital loss –listed equity shares (STT paid) Long term capital gains – Debentures Dividend on shares held as stock in trade Dividend from a company carrying on agricultural operation Income from growing and manufacturing coffee (cured and roasted) 2.Set off and Carry Forward of Losses Particulars Income from retail trade u/s 44AD [` 21.000 3.600 1.00.73.70.00.000 90.000 30.73.600 Nil 4.000 4. Question 15 Compute the tax liability of Mr.000 40.000 70.000 (iii) (iv) (v) (vi) (vii) (viii) During the previous year 2011-12.000 1.000 @ 8%] Income from plying of vehicles u/s 44AE [` 5. the assessee has donated ` 35.000 12.11 ` 1. then.000 to an approved local authority for the promotion of family planning and purchased NSC VIII issue for ` 1. .941 If the assessee has not maintained books of account as required under section 44AA for the business of plying of vehicles.600 19.00.000 1.73.00.70.Contribution to PPF and bank fixed deposit Taxable income Tax thereon Add : Education cess @ 2% and Secondary and higher education cess @ 1% Total tax liability Note: 6.60.000 x 12 x 5] Less: Set off of brought forward depreciation – not possible and it is deemed that it has been allowed and set off Gross total income Less: Deduction under section 80C .00.73. he has to offer income only on presumptive basis given above.000.000 1.000 2.000 10.40.600 3.

Net income from house property Income from business Income from business Income from coffee (cured and roasted) @ 40% Less :Current year depreciation [Section 32(1)] Less : Brought forward business loss Capital gains Long term capital gain – debentures Short term capital gain – Jewellery Income from other sources Dividend on shares (including shares in company carrying on agricultural operations)– exempt under section 10(34) Less: Brought forward unabsorbed depreciation Gross total income Less :Chapter VI-A deductions Section 80C : NSC VIII issue purchase Section 80G : Donation to a local authority for family planning.000 Less :Long term capital gain 2.000 3.000 4.000 .60.00.000 donation is to be restricted to 10% of gross total income as adjusted below Gross total income 4.60.000 70.000 1.40.000 30.98.000 30.000 IV Nil 6.000 22. Madhavan for the A.20.000 90.20.20. Amount donated ` 35.000 III 3.000 1.000 1.000 Deduction limited to 10% of gross total income ` 22.20.00.6. II.000 2.000 1.12 Answer Taxation Computation of taxable income of Mr.00.000 2.000 5.000 1.Y 2012-13 ` I.60.000 @ 100% Total income ` 2.00.70.30.000 40.

000 Compute the total income of Simran for the A.800 Less : Tax on ` 2. Year 2011-12 Short-term loss on sale of securities and shares Profit of speculative transactions entered into during the year Loss of speculative transactions of Asst.13 Computation of tax liability after applying the aggregation of agricultural income with non-agricultural income Agricultural income + non agricultural income = Total income = 60.000 4.000 Tax on LTCG of ` 2. engaged in various types of activities.000 agricultural income 6.000 12.000 + 3.40. . Question 16 Simran.2012: ` (a) (b) (c) (d) (e) (f) Profit of business of consumer and house-hold products Loss of business of readymade garments Brought forward loss of catering business which was closed in Asst.000 Tax liability 41.3.000 plus ` 60.054 Total tax liability (rounded off) 43.Set off and Carry Forward of Losses 6.800 Add : Education cess and Secondary and higher education cess @ 3% 1. Year 2011-12 50.000 @ 20% 40.000 Tax on the remainder at slab rate 7.98.00.80.000 15.050 Note: Loss from an exempt source cannot be set-off against gains from a taxable source.000 10.500 15. Therefore. Year 2007-08 not set off till Asst.000 being basic exemption limit ` 1.000 15.800 47. 2012-13.254 Total tax liability 43.Y. long-term capital loss on sale of listed equity shares cannot be set-off against longterm capital gains on sale of debentures.58. gives the following particulars of her income for the year ended 31.

000 10. Vivitha & Co. furnishes the following details.Y.000 Unabsorbed long-term capital losses: -from shares ` 1.2011-12.000 Unabsorbed business loss ` 1.Y. ` 50.2012-13. 2012-13 Particulars Profit of business of consumer and house-hold products Less: Loss of business of readymade garments for the year adjusted under section 70(1) Less: Brought forward loss of catering business closed in A.Y.e. Short term capital loss of ` 15. The loss is to be carried forward for set off in future years against income chargeable under the head Capital Gains. 2011-12 set off against business income for the current year as per section 72(1) Profit of speculative transaction Total Income Notes : 1. such loss can be carried forward for set-off for a maximum period of 4 years only i. with four partners A.000 15. Loss of speculative transaction of A. up to A.Y.500 ` 2.000 40. Such loss can be carried forward for a maximum period of 8 assessment years.90.20.4.6.14 Answer Taxation Computation of total income of Simran for the A..2012-13.000 -from building ` 1. Question 17 M/s.500 37. a partnership firm.000 on sale of securities and shares has to be carried forward as per section 74 since there is no income under the head Capital Gains for the A. . 2007-08 is not allowed to be set off against the profit of speculative transaction of the A. B.000 25. C and D having equal shares. as per the provisions of section 73(4). summarized from the valid returns of income filed by it: Assessment year 2010-11 2011-12 2011-12 2011-12 Item eligible for carry forward and set off Unabsorbed business loss ` 1. retired from the firm with effect from 1.Y.Y.2011.000 Unabsorbed depreciation ` 1.000 C who was a partner during the last three years.90.000 12.10.20. since.

000 3.Y.000 Set off of items in the hands of M/s.90. 2012-13 Particulars 1. where there is a change in the constitution of the firm.Y.500 75. the loss relatable to outgoing partner (whether by way of retirement or death) has to be excluded for the purposes of carry forward.Set off and Carry Forward of Losses The summarized results of the firm for the assessment year 2012-13 are as under: 6.000 2.000 2.000 (-) 50.000 2.Y. Income from house property Current year income Less: Brought forward unabsorbed depreciation (See Note 1) Profits and gains of business or profession Current year speculative business profits Less: Current year Non-speculation loss set off (See Note 2) Amount (` ) 70. in the manner most beneficial to the assessee.000 50.2011-12 Long term capital loss of A.000 Amount (` ) NIL 2.10.00.15 ` Income from house property Income from business: Speculation Non-speculation Capital gains Short-term (from sale of shares) Long-term (from sale of building) Income from other sources 70.000 1.000 1.500 2. Vivitha & Co.Y. how the items brought forward from earlier years can be set off in the hands of the firm for the assessment year 2012-13.2010-11 Business loss of A. However.70. Answer According to section 78(1). is entitled to carry forward the losses to the extent detailed herebelow : Item Loss (` ) Relatable to C (` ) 30. this provision does not apply in the case of unabsorbed depreciation.000 60. Accordingly.000 47.20.25.20.20.000 Briefly discuss.000 40. Vivitha & Co. . Also show the items to be carried forward.000 1.000 70.42.000 Business loss of A. for the A.000 Balance eligible for carry forward (` ) 90.2011-12 1. M/s.

2011-12. Hence.000) Both these losses relate to A.000 NIL 4.Y. (5) The set-off and carry forward of losses should be most beneficial to the assessee. If the students set off brought forward depreciation against current year’s business income first.000 10.500 . (4) According to section 74.000) Long term capital loss (` 2.000 62.000 70. P.000 – ` 2. This will not be beneficial to the assessee. 1.2011-12 (See Note 4) Income from other sources Current year before set off Less: Brought forward depreciation (See Note 1) Total Income Losses to be carried forward to A.000 and 2011-12 ` 80.000 50. non-speculation business loss can be set off against speculation business income.000 Notes: (1) Unabsorbed depreciation can be set off against income from any head.000) (See Note 3) Capital gain Short term (from sale of shares) Long-term (from sale of building) Less: Brought forward long term capital loss of A.25. 2. it will be advantageous to set off unabsorbed depreciation against income from house property and income from other sources. (3) Brought forward non-speculation business loss can also be set off against speculation business income of current year.500 15. furnishes the following particulars of his income and other details for the previous year 2011-12: ` (i) (ii) (iii) Income from salary Net annual value of house property Income from business 18. (2) In the current year. then the quantum of brought forward business loss which can set off against current year’s business income will be lower. Question 18 Mr.10.10.70.6.000 NIL 40. brought forward long-term capital losses shall be set off only against long-term capital gains of current year.000 50. 2013-14 Business loss (` 1.Y.000 3. 60.16 Taxation Less: Brought forward business losses of earlier year (2010-11 ` 90. a resident individual.Y.42.` 80.10.000 .000 2.000 80.

comes to ` 8.e.000 – ` 12. ` (i) (ii) Income from salary Income from House Property Net annual value Less : Deduction under section 24 (30% of ` 70.000 49. for the Assessment year 2012-13.38.000 15.000 9.000 7. The other details of unabsorbed depreciation and brought forward losses (pertaining to A.000 (i.Y.800 8. and the amount of loss that can or cannot be carried forward. 2011-12) are: ` (i) (ii) (iii) Unabsorbed depreciation Loss from speculative business Short term capital loss 9.800 9.000 70.000 .17 12.000 8.000) (iii) Income from business and profession (a) Income from business Less : Current year depreciation Less : Unabsorbed depreciation (b) Income from speculative business Less : Brought forward loss from speculative business (Balance loss of ` 4.000 8. P. 2012-13.000 12. Answer Computation of Gross Total Income of Mr.000 Depreciation allowable under the Income-tax Act. P for the A.000 for which no treatment is given above.800 Compute the gross total income of Mr. 1961.000 16. ` 16.000 80.000 63.000 1.000) can be carried forward to the next year) (iv) Income from capital gain Long term capital gain on sale of land Less : Brought forward short term capital loss Gross total income ` 18.Set off and Carry Forward of Losses (iv) (v) (vi) (vii) Income from speculative business Long term capital gain on sale of land Loss on maintenance of race horse Loss on gambling 6.800 7.000 72.000 21.000 12.000 Nil 15.Y.

3. (v) ` 55. (iii) Speculative business loss can set off only against income from speculative business of the current year and the balance loss can be carried forward to A. (iii) Long-term capital gain on sale of land ` 5.000. the loss incurred on maintenance of race horses cannot be set-off against income from any other source other than the activity of owning and maintaining race horses.18 Taxation Amount of loss to be carried forward to the next year Particulars Loss from speculative business (to be carried forward as per section 73) Loss on maintenance of race horses (to be carried forward as per section 74A) Notes : (i) (ii) Loss on gambling can neither be set-off nor be carried forward. Geeta for the Assessment Year 2012 -13 and ascertain the amount of loss that can be carried forward.Y.00. 2013-14.50.6.000. Answer Computation of Gross Total Income of Ms. Loss on sale of shares listed in BSE ` 3.50. a resident individual. Geeta. The return for assessment year 2011-12 was filed in time. Such loss can be carried forward for a maximum period of 4 assessment years. ` 4.000 9.50.2012: (i) (ii) Salary received as a partner from a partnership firm ` 7. (iv) ` 51. It may be noted that speculative business loss can be carried forward for a maximum of four years as per section 73(4).000.000 received in cash from friends in party. received towards dividend on listed equity shares of domestic companies. Compute gross total income of Ms.000 7. Question 19 Ms. Geeta for the Assessment Year 2012-13 Particulars Profits and gains of business and profession Salary received as a partner from a partnership firm is taxable under the head “Profits and gains of business and profession” Less: brought forward business loss of Assessment Year 2011-12 to be setoff against business income ` 7.50.00.000 As per section 74A(3). provides the following details of her income / losses for the year ended 31.000. Shares were held for 15 months and STT paid on sale.000.000 . (vi) Brought forward business loss of assessment year 2011-12 ` 12.

shall be carried forward.000 Nil 51.000 51. the partnership firm can carry forward and set-off the loss of the predecessor.000 Balance brought forward business loss of assessment year 2011-12 of ` 5. 2. The exceptions to this are a) b) c) Only loss under the head “Capital Gains” under section 74.19 Nil Capital Gains Long term capital gain on sale of land – (See Note 2) Income from other sources Cash gift received from friends . the entire sum is taxable Dividend received from a domestic company is exempt under section 10(34) Gross Total Income Notes : 1.51. the partnership firm cannot carry forward and set-off the loss of the predecessor. it cannot be set-off against long-term capital gain on sale of land. Self-Examination Questions 1.Set off and Carry Forward of Losses 6. . 5.000.000 has to be carried forward to the next year.00. Since long-term capital gain on sale of listed shares on which STT is paid is exempt under section 10(38). loss on sale of listed shares is a loss from an exempt source.000 5.00. Long-term capital loss on sale of shares cannot be set-off against long-term capital gain on sale of land since loss from an exempt source cannot be set-off against profit from a taxable source. the loss of the predecessor can be carried forward and set-off only by the individual partners in proportion to the share of profits of the firm. no loss which has not been determined in pursuance of a return filed in accordance with the provisions of section 139(3). then a) b) c) 2. In a case where the business is succeeded by inheritance. Loss under the head “Capital Gains” and unabsorbed depreciation carried forward under section 32(2) Loss from house property and unabsorbed depreciation carried forward under section 32(2). According to section 80. and the legal heirs constitute themselves as a partnership firm. which is a profit from a taxable source.since the value of cash gift exceeds ` 50. So.

1961 regarding set-off and carry forward of the following losses a) b) Loss under the head “Capital Gains” Loss from the activity of owning and maintaining race horses. 4.6. The exceptions to this section are a) b) c) Loss under the head “Capital Gains”. State the conditions to be fulfilled by an amalgamated company for carry forward of the accumulated loss and unabsorbed depreciation of the amalgamating company. Mr. 3. The maximum period for which speculation loss can be carried forward is a) b) c) 5. Carry forward and set-off of losses by closely held companies Set-off and carry forward of speculation business loss. Discuss the correctness of the following statements (i) (ii) 8. Loss from speculative business and loss from the activity of owning and maintaining race horses Short-term capital loss and loss from speculative business 4 years 8 years indefinitely 4. 2. Answers 1. b . Long term capital loss can be set-off against short-term capital gains arising in that year. 5. Taxation Section 70 enables set off of losses under one source of income against income from any other source under the same head. b. 6. Discuss briefly on a) b) 9. 10. Write short notes on a) b) 7.A incurred short-term capital loss of ` 10. Discuss the provisions of the Income-tax Act. c. a. Inter-head adjustment Inter-source adjustment.20 3. Business loss can be set-off against salary income arising in that year. Loss from speculative business and loss from the activity of owning and maintaining race horses Long-term capital loss.000 on sale of shares through the National Stock Exchange. Such loss can be set-off a) b) a) only against short-term capital gains against both short-term capital gains and long-term capital gains against any head of income. a.

(iv) Contributed ` 10.000 in January 2012. ` 20. . the .000 towards principal and ` 60.000 towards premium on life insurance policy of his married daughter. deduction available under section 80E is ` (iv) Deduction under Section 80GGC in respect of contribution to approved political parties given by a local authority partly funded by the Government is……… (v) The maximum qualifying limit for deduction under section 80C.2008. (iii) Purchased approved long-term infrastructure bonds for ` 25.000 Question 2 Mr. years is available under section 80-ID. Paid ` 25.000 (iv) Nil / not allowed (v) ` 1. three and four star hotels started in the specified districts on or after 1.00.000 to a Government recognized institution for scientific research.7 DEDUCTIONS FROM GROSS TOTAL INCOME Question 1 Fill in the blanks having regard to the provisions of the Income-tax Act.2011 as tuition fees to a university in Australia.4.000 towards interest on eligible education loan from an approved bank. 2012-13 is ` ………. Z has paid a sum of ` 65.000 in tax saver deposit in the name of major son in a nationalized bank.000 for the financial year 2011-12 furnishes you the following information: (i) (ii) Deposited ` 50.35. Answer (i) (ii) Five Nil (iii) ` 60. The amount deductible under section 80C for A.Y..11. (v) Donated ` 20. Mr. Chaturvedi having gross total income of ` 6. 80CCC and 80CCD(1) is ` ……………….000 on 30. (iii) Where an individual has repaid in the second year. 1961: (i) (ii) For new two. tax holiday of ………….000 to Prime Minister's National Relief Fund.

Subscription to notified bonds of NABARD would qualify for deduction under section 80C. His son is already employed in a firm. ` ` 6.000 eligible for deduction under section 80CCF.2012-13 Particulars Gross total income Less: Deductions under Chapter VI-A (i) Deposit of ` 50. should be made from out of income chargeable to tax.000 20. Amit paid interest on loan availed by him for his son's higher education. 1961: (i) During the financial year 2011-12. investment/contribution/ subscription etc.7. subject to a maximum of ` 20.000 5.000 - 25. Chaturvedi does not include any income under the head ‘Profits and gains of business or profession’. Mr. . Compute the total income of Mr. Mr.60.000 75.000 (ii) (iii) In order to be eligible to claim deduction under section 80C.Eligible for deduction under section 80GGA Total Income Question 3 State with proper reasons whether the following statements are True/False with regard to the provisions of the Income-tax Act.2 Taxation Note : Assume that the gross total income of Mr.000 20. Chaturvedi for the assessment year 2012-13.000 to PM’s National Relief Fund. eligible for 100% deduction under section 80G (v) Payment of ` 20.000 in tax saver deposit in the name of major son in a nationalized bank – Fixed deposit in the name of son does not qualify for deduction under section 80C (ii) Premium on life insurance policy of his married daughter Eligible for deduction under section 80C (iii) Long term infrastructure bonds ` 25. in eligible or approved modes.000 10.000 (iv) Contribution of ` 10. Amit will get the deduction under section 80E. Answer Computation of total income of Mr.35.000 to a Government recognized institution for scientific research .Y. Chaturvedi for the A.

relative means spouse and children of the individual. Amit’s eligibility for deduction under section 80E.21 of Study Material. Hence. . (ii) True : Under section 80C(2) subscription to such bonds issued by NABARD (as the Central Government may notify in the Official Gazette) would qualify for deduction under section 80C. Amit will get the deduction under section 80E. For this purpose. Answer Deduction under section 80DD Refer to page 7. This would not affect Mr. (b) Deduction from Gross Total Income under section 80GG. Question 5 Write briefly about the provisions regarding deductions from gross total income in respect of medical treatment of dependent disabled under section 80DD of the Income-tax Act. should be made from out of income chargeable to tax.14 of Study Material. Mr. (b) Deduction in respect of rent paid [Section 80GG] Refer to page 7.3 (iv) Where an individual repays a sum of ` 30. Question 4 Write short notes on: (a) Deduction in respect of royalty income on patents.000. the deduction allowable under section 80E is ` 44. etc. (iii) False : There is no stipulation under section 80C that the investment. Therefore. subscription. Answer (i) True :The deduction under section 80E available to an individual in respect of interest on loan taken for his higher education or for the higher education of his relative. the deduction will be limited to ` 14.53 of Study Material. 1961 and in respect of medical treatment of assessee himself/dependent under section 80DDB of the Income-tax Act.000 as interest in respect of loan taken from a bank for pursuing eligible higher studies.Deductions from Gross Total Income 7. 1961. Answer (a) Deduction in respect of royalty income on patents [Section 80RRB] Refer to page 7. (iv) False : Deduction under section 80E is in respect of interest paid on education loan.000.000 towards principal and ` 14. It is immaterial that his son is already employed in a firm.

1961. such contribution is now deductible under section 80GGB in the case of companies and under section 80GGC in the case of other assessees (ii) . However. under section 80E of the Income-tax Act. For the purposes of this section. (i) any donation/subscription/payment caused to be given by a company on its behalf or on its account to a person who is carrying on any activity which is likely to effect public support for a political party is deemed to be a contribution for political purpose.16 of Study Material. brochure. pamphlet or the like published by a political party is not eligible for deduction as per section 37(2B). any amount of expenditure incurred.4 Taxation Deduction under section 80DDB Refer to page 7. Question 8 Explain whether any deduction is available from the gross total income of a company in respect of any contribution given to a political party.52 of Study Material. Answer Any sum contributed by an Indian company in the previous year to any political party shall be allowed as deduction under section 80GGB while computing its total income. to be a contribution for a political purpose. to be a contribution of such amount to such political party. tract.15 of Study Material. Question 7 Discuss briefly about the deductibility of interest on loan taken for higher education. Question 6 List out the conditions for availing deduction under section 80QQB of Income-tax Act. brochure. the word “contribute” has the meaning assigned to it under section 293A of the Companies Act. pamphlet or the like) by or on behalf of a political party or for its advantage shall also be deemed – (a) where such publication is by or on behalf of a political party.7. Students may note that expenditure incurred by an assessee on advertisement in any souvenir. by a company on advertisement in any publication (being a publication in the nature of a souvenir. Answer Refer to page 7. 1961. 1956. Accordingly. and (b) where such publication is not by or on behalf of but for the advantage of a political party. directly or indirectly. Answer Refer to page 7. tract.

000 irrespective of the actual amount spent on maintenance of handicapped dependent and/or actual amount deposited with LIC. 1961.00.000 with LIC for maintenance of handicapped dependant. The assessee Rajan has deposited ` 25. the deduction will be ` 50.00.000 is allowed in full irrespective of the amount deposited with LIC. Answer Refer to page 7. If the dependant is a person with severe disability the quantum of deduction is ` 1.00.000.5 (except local authority and every artificial juridical person which wholly or partly funded by the Government). Therefore.42 of Study Material. In the case of dependant with severe disability. (ii) (iii) Section 80DD allows a deduction of ` 50.000. (iii) Rajan has incurred ` 20.000. . Answer (i) The deduction of ` 50. Question 10 Explain the deduction in respect of donations for Scientific Research and Development under section 80GGA of the Income-tax Act.000 since the deduction of ` 50. the deduction allowable is ` 1. Question 9 State the special provisions in respect of certain undertakings or enterprises in certain special category states as laid down under Section 80-IC of the Act.000 for maintenance of handicapped dependent.000 for treatment and ` 25. Question 11 Discuss the allowability of the following: (i) (ii) Rajan has to pay to a hospital for treatment ` 42.000 under section 80DD is allowed in full irrespective of whether the expenditure was actually incurred or paid by the assessee. eligible to claim ` 50. Answer Refer to page 7.000. has incurred for treatment ` Nil in the previous year and deposited ` 25. Raja.22 of Study Material. a resident Indian.000 even though the total amount incurred/deposited is ` 45. the deduction allowable is ` 1. The assessee is.000 and spent nothing for life insurance or for maintenance of handicapped dependent.000 was deposited with LIC for maintenance of handicapped dependant.Deductions from Gross Total Income 7. If the expenditure is incurred in respect of a dependant with severe disability. however.

240 15.68.224 15.000) Working note: Computation of deduction under section 80G Gross total income (excluding long term capital gains) Less : Deduction u/s.740 1. Chaturvedi has invested in PPF ` 60.500 1.000 7. Answer Computation of total income and tax payable by Mr.000 11. Chaturvedi Particulars Gross total income including long term capital gain Less : Long term capital gain Less : Deductions under chapter VI-A: Under section 80C in respect of PPF deposit Under section 80D (it is assumed that premium is paid by otherwise than by cash and since the amount paid is less than ` 20. a resident in India.000 7.000 15. Chaturvedi also contributed ` 15.23.6 Taxation Question 12 For the Assessment year 2012-13.000 it is fully deductible) Under section 80G (See Working note below) Total income (excluding long term capital gains) Total income (including long term capital gains) Tax on total income (including long-term capital gains of ` 45.000 and also paid a medical insurance premium ` 11.23.240 which includes long-term capital gain of ` 45.2012. The Gross Total Income also includes interest income from banks of ` 12.000 2.000 and Short-term capital gain of ` 8. Mr.240 71. Compute the total income and tax thereon of Mr. Chaturvedi.44.500 78.7.000.89. Chaturvedi.000 ` ` 2.500 .000. who is 70 years old as on 31.240 45.000 1. the Gross Total Income of Mr. Mr.740 Nil 2.000.000 to Public Charitable Trust eligible for deduction under section 80G.240 60.52. was ` 2.80C and 80D 10% of the above Contribution made Lower of the two eligible for 80G deduction Deduction under section 80G – 50% of ` 15.3.68.

000. 1961: (a) For grant of deduction under section 80-IB. the deduction has been extended to self-employed individuals also. . inter alia. since the total income of ` 1.000) is less than the basic exemption limit of ` 2. a PCARB is entitled to claim deduction under section 80P in respect of income derived from the business of banking. inter alia. the statement is incorrect. With effect from A. to be eligible to claim deduction under. a primary co-operative agricultural and rural development bank (PCARB). there would be no tax liability. Therefore. other than.Y. under section 80-IB. Question 13 State with reasons. inter alia. the unexhausted basic exemption limit can be exhausted against long-term capital gains. filing of audit report in prescribed form is must for a corporate assessee. 1961 will debar an assessee from claiming deduction under sections 80-lD or 80-IE of the Act. Thus. Answer The deduction under section 80CCD is available to the individuals employed by the Central Government or any other employer. the assessee has to furnish his return of income on or before the due date specified under section 139(1). Answer (a) False : Section 80AC stipulates compulsory filing of return of income on or before the due date specified under section 139(1). Therefore. (b) True : As per section 80AC.740 (inclusive of long-term capital gains of ` 45. Discuss the correctness of this statement. 2010-11. section 80-ID or 80-IE.50. filing of return within the due date laid down in section 139(1) is not required. Question 14 Can a Primary Co-operative Agricultural and Rural Development Bank claim deduction under section 80P in respect of income derived from the business of banking? Answer Sub-section (4) to section 80P provides that the provisions of section 80P shall not apply to any co-operative bank.7 Note: As per section 112. with regard to the provisions of the Income-tax Act. as a pre-condition for availing the benefit of deduction. whether the following statements are true or false. Question 15 Deduction under section 80CCD is available only to individuals employed by the Central Government. (b) Filing of belated return under section 139(4) of the Income-tax Act.89.Deductions from Gross Total Income 7.

an individual. 2011 under a Medical Insurance Scheme of the General Insurance Corporation. made payment of health insurance premium to GIC in an approved scheme. in respect of deduction available on permanent physical disability.000 20.7. aged 72 years. ` 25. Therefore.000 Mr. the amount of deduction under section 80D would be – Particulars On health insurance premium paid on the health of himself and his spouse (` 10.000 on his father’s health who is a senior citizen and not dependent on him. He also paid health insurance premium of ` 25. Premium paid on his health is ` 10. ` 22. His total income is ` 2.000 Self-Examination Questions 1.000 during the year 2011-12. Gross Total Income as reduced by deductions under Chapter VIA except section 80GG).000 in the case of a parent.000 ` 15.40. He is also in receipt of HRA. Answer Mr. who is a senior citizen (whether dependent or not) Total deduction under section 80D Amount (` ) 15. Srivastav.000 per month.000 and his spouse’s health is ` 15.000 35. 1961. Ramesh pays a rent of ` 5.000 by cash during May. paid medical insurance premium of ` 22.000 but restricted to ` 20.8 Taxation Question 16 Briefly explain provisions of section 80U of the Income-tax Act.000 = ` 25.000.000 ` 20.e.000) On health insurance premium paid on the health of his father. Abhik from his gross total income for the assessment year 2012-13. Compute the amount of deduction under section 80D. He would be eligible for a deduction under section 80GG of an . The premium is paid otherwise than by way of cash and hence qualifies for deduction under section 80D. available to Mr.000 by cheque and ` 1. He would be entitled to a deduction under section 80D of a sum of a) b) c) 2. Mr.000 + ` 15.54 of Study Material. Question 17 Mr. Abhik. The above sum was paid for insurance of his own health. Answer Refer to page 7. Abhik will be eligible to claim deduction under section 80D on payment of health insurance premium to GIC in a medical insurance scheme approved by the Central Government. The payments have not been made by cash. but restricted to ` 15.000 (i.

00. Under section 80GGB. being a company located in the State of Himachal Pradesh.000 Nil.000 ` 36. ` 1 lakh is the maximum qualifying limit for deduction under a) b) . which newly commences business of manufacture or production of an article or thing other than what is specified in the Thirteenth Schedule isa) b) c) 100% of profits for the first 5 assessment years and 25% of the profit for the next 5 assessment years thereafter 100% of profits for the first 5 assessment years and 30% of the profit for the next 5 assessment years thereafter 100% of profits for the first 10 assessment years 6.00.00. The deduction under section 80-IC permissible to an undertaking or an enterprise.000 c) ` 5.000 5. ` 24. The deduction under section 80QQB in respect of royalty income of authors of certain books is subject to a maximum limit of a) ` 1.9 The deduction allowable under section 80LA in respect of eligible income of Offshore Banking Units and International Financial Services Centre is a) b) c) 50% of such income for 5 consecutive assessment years 100% of such income for 10 consecutive assessment years 100% of such income for 5 consecutive assessment years and 50% of such income for 5 consecutive assessment years thereafter 4. 7.000 b) ` 3. Sections 80C and 80CCC 7. deduction is allowable in respect of contribution to political parties by a) b) c) any person other than local authority and every artificial juridical person wholly or partly funded by the Government Local authority and every artificial juridical person wholly or partly funded by the Government An Indian company Section 80C alone.Deductions from Gross Total Income amount of a) b) c) 3.

7. List the conditions to be satisfied for claiming deduction under section 80E. c . 4. c. c. 12.10 c) 8. Who are the assessees eligible to claim deduction under section 80LA? What is the quantum of deduction available under this section? What are the conditions to be fulfilled for claiming such deduction? 11. b. 3. Deduction in respect of royalty income on patents Deduction in respect of royalty income of authors of certain books. 6. Write short notes on - What is the deduction available from the gross total income of a company in respect of any contribution given to a political party? 10.7. What are the special provisions in respect of certain undertakings or enterprises in certain special category states as laid down under section 80-IC of the Act. Discuss the provisions of section 80-IAB relating to deduction in respect of profits and gains derived by an undertaking or enterprise engaged in the development of a special economic zone. What are the conditions to be fulfilled by a convention centre to be eligible for deduction under section 80-ID? 14. 5. Medical insurance premium paid is deductible under section 80D. b. 13. 15. What are the conditions to be fulfilled to claim such deduction and what is the maximum deduction that can be claimed if such conditions are fulfilled? Answers 1. 80CCC and 80CCD(1). 2. (i) (ii) 9. c. b. Taxation Sections 80C.

payment for one half year made on 12.. The following details are made available for the year ended 31.2012: ` (i) (ii) (iii) (iv) Interest on capital received from Oscar Musicals & Co. a resident individual aged 64.000 30.11.2012 and for the other. .20. Vidyasagar. is a partner in Oscar Musicals & Co.000 Compute the total income of the assessee for the assessment year 2012-13. Also compute the WDV of the different blocks of assets as on 31.000 70. a partnership firm.500 5. on 14.. at 15% Interest from bank on fixed deposit (Net of TDS ` 1.000 3.000 21.4.20.300 Net profit from wholesale business Amounts debited include the following: Depreciation as per books Motor car expenses Municipal taxes for the shop (For two half years. He also runs a wholesale business in medical products.000 40.6.500) Income-tax refund received relating to assessment year 2010-11 including interest of ` 2.50.60.000 (v) (vi) 1.000 13.2012.000 34.3.2011) used in above wholesale business is as under: Computers Motor car (20% used for personal use) LIP paid for major son PPF of his wife Long-term infrastructure bonds (Approved) ` 1.2012) Salary to manager for whom single cash payment was made for The WDV of the assets (as on 1. The computation should show the proper heads of income.3.8 COMPUTATION OF TOTAL INCOME AND TAX PAYABLE Question 1 Mr.000 7.000 60.500 34.

2012-13 Particulars Profits and gains of business or profession Income from wholesale business Net profit as per books Add: Depreciation as per books Disallowance of municipal taxes paid for the second half-year under section 43B.000/2) Disallowance under section 40A(3) in respect of salary paid in cash since the same exceeds ` 20.000 20% of car expenses for personal use Less: Depreciation allowable (Note 1) ` ` 5.000 5. since the same was paid after the due date of filing of return (` 7.36.10.10.000 48.300 6.400 2.26.20.000 Rate Depreciation Block 1 Block 2 Computer 60% s Motor Car 3.2 Answer Taxation Computation of total income of Mr.500 21. 1962 Opening WDV 1.20.400 1.Y.000 15% Less: 20% disallowance for personal use Closing WDV 72.000 8.16.300 17.000 48.20.000 34.000 2.20.60.000 66. Vidyasagar for the A.500 1.000 3.400 1.33.600 .100 15.8.400 5.100 1.500 6.400 Income from firm Interest on capital from partnership firm (Note 2) Income from other sources Interest on bank fixed deposit (Gross) Interest on income-tax refund Gross total income Less: Deductions under Chapter VIA (Note 3) Total Income Notes: (1) Depreciation allowable under the Income-tax Rules.81.53.600 38.000 9.000 6.

000) (15. 45.20.a.30.000 1. deduction is restricted to Under section 80CCF Approved Infrastructure bonds (` 30.00.2012 Particulars Salaries Less: Loss from house property Net Salary (after set off of loss from house property) ` 60.000 ` 60.000 1.000) 3. Vidyasagar. It is assumed that the partnership deed provides for the same and hence is allowable to this extent in the hands of the firm.00. Therefore.000) ` ` (1. Maximum interest allowable as deduction in the hands of the firm is 12% p. amounting to ` 1.000 .000 but restricted to ` 20.000 ` 20.Computation of Total Income and Tax Payable 8.00.000 would be treated as the business income of Mr.000 Compute his total income.03.000 (15.20.000 70.000 60.3 (2) Only to the extent the interest is allowed as deduction in the hands of the firm. tax liability and advance tax obligations.35. interest @12% p.000 70.000 1. the same is includible as business income in the hands of the partner.000. being the maximum deduction allowable u/s 80CCF) Total deduction Question 2 Balamurugan furnishes the following information for the year ended 31-03-2012: Income from business Income from house property Lottery winning (Gross) Speculation business income Income by way of salary Long term capital gain Answer Computation of total income of Balamurugan for the year ended 31. (3) Deduction under Chapter VI-A Particulars Under section 80C LIP for major son PPF paid in wife’s name As per section 80CCE.a.000 1.

the entire amount of tax payable (after considering TDS) on such income should be paid in the remaining instalments of advance tax which are due.000 (excluding lottery winning) On lottery winnings of ` 3.000 (1.00.00.000) 70.000. tax would have been deducted at source @ 30% under section 194B. .000 @ 30% Add: Education Cess @ 2% and Secondary and higher education cess@1% Total tax liability 1.700 (` 92. the entire tax should be paid by 31st March.000 as per section 112. Since the remaining tax liability of ` 2. in respect of lottery income.000 2.35.000 (35. but not against lottery winnings which are taxable at a flat rate of 30% under section 115BB.80.00.000 ` Nil 90.000 3.000. Further.000) is less than ` 10. (2) The first proviso to section 234C(1) provides that since it is not possible for the assessee to estimate his income from lotteries. Note (1) The basic exemption limit of ` 1.700 – ` 90.80.000) (35.000 can be adjusted against long-term capital gains of ` 35.4 Taxation Profits and gains of business or profession Speculation business income Less: Business loss set-off Net business loss to be set-off against long-term capital gain Capital Gains Long term capital gain Less: Business loss set-off Long term capital gain after set off of business loss Income from other sources Lottery winnings (Gross) Total Income Computation of tax liability Particulars On total income of ` 80. The unexhausted basic exemption limit of ` 1.000 3.700 92.8.000 has to be first exhausted against salary income of ` 45. The first proviso to section 234C(1) would be attracted in case of non-deduction or short-deduction of tax at source under section 194B.000) 35. 2012.700 The assessee need not pay advance tax since the total income (excluding lottery income) liable to tax is below the basic exemption limit. Where no such instalment is due.35. advance tax liability is not attracted.

2011) Cash on hand and at Bank Fee from professional services Rent Motor car loan from Canara Bank (@ 9% per annum) Payments Staff salary.000 Motor car (acquired in Jan.50.000 24.000.000 48.38.50. aged 50 years.72.000 (1) He occupies 50% of the building for own residence and let out the balance for residential use at a monthly rent of ` 5.000 10.88. (2) Motor car was put to use both for official and personal purpose.2012) Cash on hand and at Bank ________ 12. bonus and stipend to articled clerks 12.000 20. No car loan interest was paid during the year.000 15.2011 (for professional use) Domestic drawings Public provident fund subscription Motor car maintenance Closing balance (31.50.000 Life insurance premium ` 1. The building was constructed during the year 1997-98.000 Other administrative expenses 9.000 2.Computation of Total Income and Tax Payable Question 3 8.11.000 Following further information is given to you: 4. furnishes you the receipts and payments account for the financial year 2011-12.50.000 Housing loan repaid to SBI (includes interest of ` 88.000 30.4. 2012) Medical insurance premium (for self and wife) Books bought (annual publications) Computer acquired on 1.000 1. Rajiv. Receipts and Payments Account Receipts Opening balance (1.3.000 30.000) 2. (3) The written down value of assets as on 1-4-2011 are given below: .000 20.25. One-fifth of the motor car use is for personal purpose. a resident individual and practicing Chartered Accountant.000 12.5 Mr.000 18.000 Office rent ` 50.

) Computers = ` 50.38. Rajiv for the assessment year 2012-13. Compute the total income of Mr.000) 44.50. Rajiv for the assessment year 2012-13 Particulars Income from house property Self-occupied Annual value Less: Deduction under section 24(b) Interest on housing loan 50% of ` 88.000) (32.000 = 44.000 48.000 but limited to Loss from self occupied property Let out property Annual value (Rent receivable has been taken as the annual value in the absence of other information) Less: Deductions under section 24 (a) 30% of Net Annual Value 18.000 x 4/5) Car loan interest – not allowable (since the same has not been paid and the assessee follows cash ` ` ` Nil 30.000 30.000) 60. bonus and stipend Other administrative expenses Office rent Motor car maintenance (10. Answer Computation of total income of Mr.000 (b) Interest on housing loan (50% of ` 88. Photocopiers.6 Taxation Furniture & Fittings Plant & Machinery (Air-conditioners.000 Loss from house property Profits and gains of business or profession Fees from professional services Less: Expenses allowable as deduction Staff salary.000 8.000 62.000 = ` 60.8.000 Note: Mr.000 (30.000 = ` 80.000 1. etc.000 .000 (2. Rajiv follows regularly the cash system of accounting.000) 9.

52.500 20.36.7 5.000 12.000 Computer (New) ` 30.000 Plant and machinery @ 15% of ` 80.02.000 @ 60% x ½ thereon 25.000 30.000 9.000 x 7.25. .15.99.500 Gross Total income Less: Deduction under Chapter VI-A Deduction under section 80C Housing loan principal repayment PPF subscription Life insurance premium Total ` 1.000 7.000 4.000 1.00.000 24.Computation of Total Income and Tax Payable system of accounting) Nil 2. interest on employee’s contribution if provident fund is unrecognized.500 (iii) Salary by a partner from his partnership firm (iv) Rental income of machinery (v) Winnings from lotteries by a person having the same as business activity (vi) Salaries payable to a Member of Parliament (vii) Receipts without consideration (viii) In case of retirement.000 6.000 but limited to Deduction under section 80D Medical insurance premium paid ` 18.000 20.44.000 but limited to Total income Question 4 State under which heads the following incomes are taxable: (i) (ii) Rental income in case of dealer in property Dividend on shares in case of a dealer in shares 8.000 Computer @ 60% of ` 50.000 1.02.00.5% x 4/5 Books being annual publications @ 100% Furniture and fittings @ 10% of ` 60.000 15.000 1.000 Less: Depreciation Motor car ` 4.67.500 5.500 1.

333) 1.000 Medical insurance premium 3.000 1.000 Instalment of housing loan (Principal component ` 48.000 before 30 Sep.00.000 .000 Deposit in bank for 5 years 2.000 50.50. Her age is 64 as on 1st January.8. Question 5 Dr.21. if the same is not chargeable to income-tax under the head “Profits and gains of business or profession”.00. 2011 2.000 47.00.000 2. Shuba is a medical practitioner.00.000 Payment for medical journal ` 4.000 32. The receipts and payments account of 2011-12 of her is as under: To Balance B/f Receipts from sale of medicine Consultation fee Visiting fee Lecture fees Family pension Savings bank interest Loan from bank Share from HUF Agricultural income Income from lottery ` By 10. interest on employee’s contribution if provident fund is unrecognized Head of Income Income from house property Income from other sources Profit and gains of business or profession Income from other sources/ Profits and gains of business or profession Income from other sources Income from other sources Income from other sources Income from other sources Note .50.08.50.000 Advance tax paid 1.000 Drawings 50. 2011 2.As per section 56(2)(ii). rental income of machinery would be chargeable to tax under the head “Income from Other Sources”.000) 50.80.000 Purchase of commercial vehicle before 30 Sep.000 Surgical instrument purchased 5. 2012.000 20.8 Answer (i) (ii) (iii) (iv) Taxation Particulars Rental income in case of dealer in property Dividend on shares in case of a dealer in shares Salary by partner from his partnership firm Rental income of machinery (See Note below) (v) (vi) (vii) (viii) Winnings from lotteries by a person having the same as business activity Salaries payable to a Member of Parliament Receipts without consideration In case of retirement.000 1.000 Instalment of loan paid (including interest ` 22.000 5.000 1.000 Purchase of medicine 35.

Her mother is dependent on her.000.50. Compute total income of Dr.Y. (iv) She paid medical insurance premium for herself of ` 16. Shuba for A. She invested in term deposit ` 1.00.750 (30.000.00.000) 2. (ii) (iii) She purchased a commercial vehicle on 1st July 2009 at ` 4.00.000 47. One fourth use of vehicle is estimated to be personal.000 Vehicle expenses Balance C/f Other relevant information is as under: 8.000) .000 50. 2012-13 Particulars Income from house property: Annual value of self-occupied house Less: Interest on loan [` 45. (v) She got her share from HUF’s income of ` 50. One-fourth portion of the house is used for clinic purposes.000 and for mother ` 16.000 12.000 48.Computation of Total Income and Tax Payable (net after deduction of TDS@30%) Total (i) 12.000 5.000.00.9 50.000 out of which ` 6.50.000 was still due.000] (Restricted to ` 30.000 37.000 5.a.000 2.000 was taken to buy the vehicle at 8% interest. She got it refinanced from SBI on 01-042011 at the rate of 10%.000 She resides in her own house which was constructed in 1998 with a loan from LIC Housing of ` 10.81.000. Answer Computation of total income of Dr. being 3/4th of ` 60. A loan of ` 3.00.000) Income from profession: Sale of medicine Consultation fees Visiting fee Total income Less: Expenses Medicine purchases Medical journal Vehicle expenses (3/4th) Interest on loan (3/4th) ` ` Nil ` ` (30.81.00.000 in Bank of Baroda on 01-07-2011 for a period of 5 years in the name of her minor daughter at 9% interest p. Shuba.500 16.

000 × ¾) Under section 80D Medical Insurance Premium Own (` 16.80.21. Term deposit of ` 1.00.000 67. whichever is lower Lecture fees Savings bank interest Interest on bank FD in the name of minor daughter [1.000 2.10 Taxation 15.78.20. 4.000) Total deduction Total income Notes: 1.000 16.50.000 31.875 Since the residential house was constructed before 01.65.04.000 5.125 1.000 15.50. hence fully allowed since premium is less than ` 20.000. the deduction for interest is restricted to ` 30.875 Gross Total Income Less: Deductions under Chapter VI-A Under section 80C Repayment of housing loan (48.000) Total expenses Income from other sources Family Pension Less : 33⅓ % or ` 15.000) Mother (Senior Citizen.000.500 8.250 Interest on housing loan (1/4th) Depreciation Surgical instrument(15% of ` 50.000 7.53.50.1999.8. ¼th share of interest paid is deductible while computing business income.000 4. therefore.29.000 1.500 1.000 10.000 3.000 in the name of minor daughter does not qualify for deduction . 36.750 2.000 × 9% × 9/12] Less : Exempt u/s 10(32) Winnings from lottery 2. 2.625 5.000) Vehicle (3/4th of 50% of ` 4. Since ¼th portion of house is used for business purposes. 3.000 restricted to ` 15.625 50.000 15. Agricultural income is exempt under section 10(1) and share of income from HUF is exempt under section 10(2).000 2.

(v) Telephone provided at the residence of employee and the bill aggregating to ` 25. Answer The taxation scheme of LLPs is on the same lines as applicable for general partnership firms. However. principal repayment of housing loan (3/4th) would qualify for deduction under section 80C. and subject to the limits specified in section 40(b)(v). surgical laser) and therefore. Assume that all the facts given above relate to financial year 2011-2012.000 or 90% of book profit and on the balance of book profit.Computation of Total Income and Tax Payable 8.000 written off and allowed in the financial year 2009-10 recovered in the financial year 2011-12. Since the tax treatment accorded to a LLP and a general partnership is the same. He is not receiving any daily allowance.e. the conversion from a general partnership to an LLP will have no tax implications if the rights and obligations of the partners remain the same after conversion and there is no transfer of asset or liability after conversion.000 (i. (vi) Payment of ` 50. on the first ` 3 lakh of book profit or in case of loss. Question 7 State with reasons the taxability/deductibility of the following items in the context of Incometax Act. The definition of the terms “partner”. Therefore.000 to an electoral trust by an Indian company. “firm” and “partnership” have been amended to include a limited liability partnership.000 paid by the employer. 3/4th of ` 48. It is also possible to assume that the surgical instruments mentioned in the question are life-saving medical equipment (for example. the limit would be the higher of ` 1.50.11 under section 80C. Determine the perquisite value taxable in the hands of employee. the limit would be 60%. 1961. 5. 1961: (i) (ii) Agricultural income to a resident of India from a land situated in Malaysia. the deduction under section 80C would be ` 36.000 per month to meet his personal expenditure while in duty. (iv) Amount withdrawn from Public Provident Fund as per relevant rules. eligible for depreciation@40%. An LLP is eligible for deduction of remuneration paid to working partners.000). An LLP is entitled to deduction of interest paid to partners if such payment is authorized by the partnership deed and the rate of interest does not exceed 12% simple interest per annum.. (iii) Allowance received by an employee working in a transport system at ` 10. Question 6 Explain the tax treatment of Limited Liability Partnership under the Income-tax Act. Depreciation@15% has been provided on surgical instruments. . Bad debt of ` 50.e. if the same is authorized by the partnership deed. i.

12 Answer (i) Taxation Agricultural income from a land in any foreign country is taxable in the case of resident taxpayers as income under the head “Income from other sources”. Such exemption is provided in section 10(11). (iv) Any amount withdrawn from public provident fund as per relevant rules is not exigible to tax. Question 8 Mr.03. any allowance granted to an employee working in a transport system to meet his personal expenditure during his duty is exempt provided he is not in receipt of daily allowance. The exemption is 70% of such allowance (i. in this case.2011-12 (A.50.. Marketing Manager of KL Ltd. Raghu..Y.000 × 12) is allowable as deduction under section 10(14). Cerbral Palsy. As per section 41(4).e.Y. any amount recovered by the assessee against bad debt earlier allowed as deduction shall be taxed as income in the year in which it is received. Exemption under section 10(1) is not available in respect of such income.000 (i. based at Mumbai furnishes you the following information for the year ended 31.000 per month. ` (i) (ii) (iii) (iv) Recognised Provident Fund contribution made by Raghu Health insurance premium for his family Health insurance premium in respect of parents (senior citizens) Medical expenses of dependent brother with ‘severe disability’ (covered by Section 2(o) of National Trust for Welfare of Persons with Austism. 7. Therefore.2012: Basic salary Dearness allowance (Forming part of salary for retirement benefits) Bonus Contribution of employer to Recognised Provident Fund - ` 1.2012-13). Hence. (v) Telephone provided at the residence of the employee and payment of bill by the employer is a tax free perquisite (vi) Amount paid by an Indian Company to an electoral trust is eligible for deduction under section 80GGB from gross total income. being 70% of ` 10.e.. ` 84. 1999).000 6.000 per month.00.000 28.000 would be taxable in the F. Mental Retardation and Multiple Disabilities Act.000 per month 2 Months basic salary 15% of basic salary plus dearness allowance Rent free unfurnished accommodation was provided by the company at Mumbai (accommodation owned by the company).000 20. ` 7.000) or ` 10. (ii) (iii) Under section 10(14). ` 50. 1. whichever is less.000 per month ` 50.8.000 .

Com (fulltime) in a recognized college.00.Sc.Com.his son studying B.000 2.13 (v) Interest on loan taken for education of his son studying B.000 .54. (vi) Interest on loan taken for education of a student for whom Mr. for whom he is the legal 20.000 restricted to 20.000 guardian ` ` 12. Raghu is the legal guardian for pursuing B.000 .000 44.Computation of Total Income and Tax Payable 8.000 23.79.75.000 35.000 Total income Question 9 Determine the total income of Mr. 24.00.000 1.000 3.00.50.000 54.000 Parents (Senior Citizens) ` 28.000 restricted to Section 80D – Health insurance premium 15.000 6.000 24. Answer Computation of total income of Mr.00.00.a student studying B.000) Rent free accommodation @ 15% of ` 20 lakh (basic salary + dearness allowance + bonus) [See Note below] Less: Deductions under Chapter VI-A Section 80C Contribution to recognized provident fund ` 1.00. Compute the total income of Mr. Raghu for the assessment year 2012-13.000 restricted to Section 80DD Medical treatment of dependent brother with severe disability (flat deduction irrespective of expenditure incurred) Section 80E – Interest on loan taken for full-time education of .000 1.00. Chand from the following information for the Assessment Year 2012-13: 2.000 20.Sc. Raghu for the assessment year 2012-13 Particulars Basic salary Dearness allowance Bonus Employer contribution to recognised provident fund in excess of 12% is taxable (3% of 18.000 Family ` 20. (Physics) (full-time) in a recognized university.000 20.

00.3.000 ` 90. furnishes the following information pertaining to the year ended 31.000 (` 1.50.Y.000 2.000 1.00.000 2.000 Nil 4. Question 10 Mr.00.000 set-off to the extent of current year business income as per section 72 Income from other sources Interest on enhanced compensation taxable on receipt basis under section 56(2)(viii) Deduction under section 57(iv) @ 50% Total Income Amount (` ) 1. He has received the following amounts from the firm: Interest on capital at 15% Salary as working partner (at 1% of firm's sales) (ii) : : ` 3.Y.e.2012-13 Particulars Profits and gains of business or profession Current year business income Brought forward business loss of discontinued business ` 1.000 – ` 1.10.10.00.000 1. ` 65. A.14 Taxation ` (i) Interest received on enhanced compensation (It relates to transfer of land in the financial year 2006-07.000 2.000 Less: Less: The unabsorbed business loss of ` 40. a resident individual aged 45.50. Out of the above.2013-14.2006-07 relating to discontinued business will be carried forward for set-off against income from any business in the next year i.00. financial year 2011-12) (computed) Answer Computation of total income of Mr. Chand for A.000) of A.8.10.50.000 He is engaged in a business of manufacturing wheat flour from wheat.10.Y. The Profit and Loss account pertaining to this business (summarised form) is as under: .00.000 1.000 relates to financial year 2011-12 and the balance relate to preceding years) (ii) Business loss relating to discontinued business of the assessment year 2006-07 brought forward and eligible for set off (iii) Current year business income (i.2012: (i) He is a partner in Badrinath & Co.e.000 Amount (` ) 4. Dinesh Karthik.

000 ` 12. he had sold a house at Chennai. 2010.50.000) 2. (iii) In March.000 1.000 6. 2012.000 1.000) Contribution to Pension Fund of National Housing Bank (This was met partially from out of premature withdrawal of deposit in Post Office Time Deposit made on 12.00.2011 New purchased on 12.000 24.000 45.000 3.000 ` Life insurance premium for policy in the name of his major son employed in LMN Ltd.2011 Old purchased on 12. (iv) Details of his Savings and Investments are as under: 2.9.000 Agricultural income 70.34.50.20.00.32.25.000 Gross profit 48. ` 15.000 70.000 Opening WDV of assets are as under: ` Car Machinery (Used during the year for 170 days) Additions to machinery New purchased on 23.15 To Salaries Bonus Car expenses Machinery repairs Advance tax Depreciation: Car Machinery Net profit ` By 1.000 22.000 was paid on 11.2011. (Sum assured ` 2.2011 (All assets added during the year were put to use immediately after purchase) Of the total bonus amount.000 3.000) Medical Insurance premium for his father aged 70.00.000 (Net of TDS 5.11.000 and Interest ` 5.4. who is not dependent on him 50.00.10.3.000 13.000 was received in February.000 Pension from LIC Jeevan Dhara 3. One-fifth of the car expenses are towards estimated personal use of the assessee. Arrears of rent relating to this house amounting to ` 75.000 60.Computation of Total Income and Tax Payable 8.2006 Principal component ` 55. at a salary of ` 6 lacs p.25.000 Interest on Bank FD 50.000 .79.a.000 4.00.000 13.79.

under sections 234A and 234B are payable.00.e.000 9.000 70.000 . chargeable in the hands of the partner only to the extent allowable as deduction in the firm’s hand i. Dinesh Karthik for the A. is NOT required.16 Taxation You are required to compute the total income of Mr. if any. a senior citizen ` Note 2 75.8. assuming that the return was filed on 28th September.000 1.000 22. Answer Computation of total income of Mr. @12%] Salary of working partner [Assumed as fully allowed in firm’s hands] Income from other sources (a) LIC Jeevan Dhara pension (b) Interest from bank FD (gross) Gross Total Income Less: Deductions under Chapter VIA Section 80C Life insurance premium for policy in the name of major son not dependent on the assessee.Y. Also indicate whether interest.e. 2012. 20% of ` 2. if any.00.000 3.000 74.500 Note 3 2.500 52.250 ` 90.89.000 50.000 24.33.000. Computation of interest.10. Dinesh Karthik for the assessment year 2012-13 and the tax payable by him.40.30. Contribution to pension fund of NHB Total qualifying amount Restriction as per section 80CCE (A) Section 80D Mediclaim premium for father.000 5.000 1.000 22.750 40. restricted to 20% of sum assured i. 2012-13 Particulars Income from house property Arrears of rent received in respect of the Chennai house taxable under section 25B Less: Deduction @ 30% Profits and gains of business or profession (a) Own business (b) Income from partnership firm (See Note 1) Interest on capital [As per section 28(v).

80. Dinesh Karthik is a working partner in a partnership firm whose accounts are subject to tax audit.925 6.750 1.000 20.925 2. to the extent allowed as deduction in the hands of the firm under section 40(b).000 1. in which he is a partner.69.69. ` 60.17 (qualifies for deduction. Dinesh Karthik receives salary of ` 90.. even though the father is not dependent on the assessee) Maximum amount allowable (B) Total deduction under Chapter VI-A (A) + (B) Total Income Computation of tax payable Tax on aggregate of non-agricultural income and agricultural income i.30.20.000) Add: Education cess@2% Secondary and higher education cess@1% Less: Advance tax TDS Tax payable Interest under section 234A Mr.29. the firm is subject to tax audit.499 1. ` 8.000 from the firm. ` 9. in this case.000 (i. Notes: (1) The income by way of interest on capital and salary of Mr.750 (being.000 8.e. Therefore. the turnover of the firm is ` 90 lakh. has to be included in the business income of the partner 70. Dinesh Karthik from the firm.249 1.24. Interest under section 234B Under section 208.40. his due date for filing of return would be 30th September. 2012.673 75.. being 90.e. Since the turnover of the firm exceeds ` 60 lakhs.000 5.e. ` 2.000) Less: Tax on the aggregate of agricultural income and basic exemption limit i.Computation of Total Income and Tax Payable 8. Badrinath & Co. Badrinath & Co. which is given as 1% of the firm’s sales. obligation to pay advance tax arises in every case where the advance tax payable is ` 10.000 + ` 1. Since Mr. Interest under section 234B is attracted for non-payment of advance tax or payment of advance tax of an amount less than 90% of the assessed tax..673 . interest under section 234B would be attracted on the balance tax payable.000 1.000 53.750 + ` 60. no interest is payable under section 234A. Since the return was filed before the due date. Therefore.000 or more..000/1%..28.

after deducting a sum equal to 30% of such arrears.46.250 .00.750 5.000 10. (2) As per section 25B.25.000 5.50.000 Block II Machinery Opening WDV 6.000 (interest@12%)] should be included in his business income. 1961 Block I Car 15% on 3.250 36.00.000 3.000 45. whether or not the assessee remains the owner of the house property. as income from house property in the year of receipt.000 1.18 Taxation as per section 28(v).29.32.000 Additions during the year (Used for more than 180 days) 3.74.33.000 Depreciation at 15% on 9.000 3.08.75.05.000 th Less: 1/5 for personal use 9.000 24.000 1.8.000 (salary) + ` 2. Accordingly.000 1.000 2. (3) Computation of income from own business Particulars Net profit as per profit and loss account Less: Items credited to profit and loss account not treated as business income Interest on bank FD (net of TDS 5. ` 3. ` 90. It has been assumed that salary has been allowed in full in the hands of the firm. any arrears of rent received will be chargeable to tax.000 45.000 70.25.30.40.000 60.000 Additions during the year (used for less than ` ` 4.000 8.03.000) Agricultural income Pension from LIC Jeevan Dhara Add: Items debited to profit and loss account to be disallowed/considered separately Advance tax Depreciation Car Machinery Car expenses disallowed Less: Depreciation (See Working Note below) Income from own business Working Note Computation of depreciation allowable under the Income-tax Act.e.000 [i..

000 11.2008-09.f. In the question. Clause (xxiv) was inserted by the Finance Act. A.Y.f.35.000 2. Question 11 From the following details. This restriction does not apply to assets acquired in an earlier year.Y. Simultaneously.000 12.00.04. Therefore.e.2006.750 ` Salary including dearness allowance Bonus Salary of servant provided by the employer Rent paid by Siddhant for his accommodation Bills paid by the employer for gas.Y.00.74. it is clearly mentioned that the deposit was made on 12.000 Total additional depreciation (B) Total permissible depreciation (A) + (B) (4) Withdrawal from Post Office Time Deposit The deduction under section 80C is allowable in respect of any sum deposited in a five year time deposit in an account under Post Office Time Deposit Rules.5% on Total normal depreciation (A) Where an asset acquired during the year is put to use for less than 180 days.2008-09.Y.2012-13: 3.00.2008-09.2005-06 in respect of such deposit.600 11.000 30.Computation of Total Income and Tax Payable 8. 1981 w. since clause (xxiv) providing for deduction was inserted by the Finance Act. 2008 in section 80C(2) providing this deduction with effect from A.750 40.Y.Y. Additional depreciation New machinery Used for more than 180 days at 20% 2. sub-section (6A) bringing to tax the withdrawal would not apply in respect of such deposit for which no deduction was allowed under section 80C.000 .e. 2008 only w.000 22.500 2. A.e. compute the total income of Siddhant of Delhi and tax payable for the A. 50% of the rate of depreciation is allowable. sub-section (6A) was inserted in section 80C w.19 180 days) Hence.f. A. electricity and water provided free of cost at the above flat 3.2008-09 to bring to tax pre-mature withdrawal (before five years) of the amount so deposited and interest thereon.3. no deduction under section 80C would have been allowable in the P. Consequently.000 Used for less than 180 days at 10% 3. depreciation at 7.000 70.000 49.

000 to Unit Linked Insurance Plan.8.000 23. 2012.60. 2012-13 Particulars Salary Income Salary including dearness allowance Bonus Value of perquisites: (i) Salary of servant (ii) Free gas.00.700 35. electricity and water Income from house property Gross Annual Value (GAV) (Rent receivable is taken as GAV in the absence of other information) (3. he had gifted ` 30. 1990. his own savings of ` 65.000 3.000 4.000 to his wife and ` 20.000 to whom this flat was given on lease for ten years.700 in share speculation business and lost ` 4.69. The gifted amounts were advanced to Mr.390 . (e) Siddhant received a gift of ` 25.Y.75.000 as on 31st March.200 in cotton speculation business.50.500 × 12) Less: Municipal taxes paid Net Annual Value (NAV) Less: Deductions under section 24 (i) 30% of NAV 11. Siddhant (b) Insurance ` 4.600 to Public Provident Fund and ` 4. The rent payable by the bank was ` 3.000 11.000 each from four friends.000 12.000 and a deposit from a nationalized bank for ` 2. which was financed by a loan from Life Insurance Corporation of India of ` 1.300 (per annum) ` 860 (c) He earned ` 2.000 11. (g) He received national award for humanitarian work from the Central Government in the form of a land whose fair market value is ` 5. The following particulars are relevant: (a) Municipal taxes paid by Mr. (f) He contributed ` 5.000 42.000 @ 15% interest. Answer Computation of total income and tax liability of Siddhant for the A.000 to his son who was aged 11. Rajesh. who was paying interest @ 19% per annum. (d) In the year 2006-07.300 37.60.000 24.20 Taxation Siddhant purchased a flat in a co-operative housing society for ` 4.500 per month.310 (ii) Interest on loan from LIC @15% of 1.000 in April.35.310 2.000 [See Note 2] ` ` 3.

500 3.500 2.700 to be clubbed with the income of the assessee as per section 64(1) (iii) Gift received from four friends (taxable under section 56(2)(vii) as the aggregate amount received during the year exceeds ` 50. 1961.000 is outstanding as on 31.000 Gross Total Income Less: Deduction under section 80C Contribution to Public Provident Fund Unit Linked Insurance Plan Total Income Particulars Tax on total income Add: Education cess@2% Add: Secondary and higher education cess@1% Tax liability (rounded off) Notes: (1) National Award for humanitarian work given by the Central Government is exempt under section 10(17A) of the Income-tax Act.850 .300 (ii) Interest income earned from advancing money gifted to wife has 5.Computation of Total Income and Tax Payable 8.3.000 4.200 1.700 4. which he has 1. (2) It is assumed that the entire loan of ` 1.790 ` 28.000) 1.08. Income from Other Sources (i) Income on account of interest earned from advancing money gifted to his minor son is includible in the hands of Siddhant as per section 64(1A) Less: Exempt under section 10(32) 2.600 4.800 1. and (3) It has been assumed that Siddhant’s own flat in a co-operative housing society.390 5.979 580 290 29.60.600 4.21 Income from speculative business Income from share speculation business Less: Loss from cotton speculation business Net Loss Net loss from speculative business has to be carried forward as it cannot be set off against any other head of income.000 9.2012.69.849 29.79.00.

.000 (vii) Mr. (iv) The employer-company was contributing ` 7. Question 12 Mr.000 for his married daughter. is also in Delhi. The following amounts were received from the employer from 1st April.4.000 and the written down value as on 1. Jaipur. (ii) The company had also provided to Mr. Janak has two sons. Janak. with a private insurance company ` 30.10. 2011: Basic Salary Dearness Allowance Ex-gratia (lump sum) In addition to the above – (i) The company had taken on lease a residential house at Jaipur.m. (vi) Subsequent to his retirement. (viii) Mr.000.m. (v) Professional tax paid by the employer ` 3. working as Finance Manager in Thilagam Realty Ltd.11.000 p. investments and outgoings : A. vacated the said premises on 31. (iii) Mr.10. The cost of such education in a similar school is ` 1.m.000 p. Life insurance premium.m. (40% reckoned for superannuation benefits) ` 15. The original cost of these assets was ` 40.m. towards aforesaid rent.22 Taxation rented out to a nationalised bank.000 for his son and ` 20.3.2011 at the age of 60.800 p. to Central Government Pension Scheme. The results of the said business from 15. Janak a cooking range and micro-wave oven owned by it.000. He received a sum of ` 42. ` 20. retired from the company on 31.2012 were: (i) (ii) Business loss (excluding current depreciation) Current year's depreciation ` 90. who was paying to the company ` 6.2011 to 31. he is not eligible for deduction under section 80GG in respect of rent paid by him for his accommodation in Delhi. Janak started his own business on 15-11-2011.8. Janak furnishes the under-mentioned data relating to savings.000 after deduction of tax at source to the tune of ` 18.2011 was ` 22.000 ` 9.000 p. Janak. Mr. His second son was studying in a school run by the employercompany throughout the financial year 2011-12.000 ` 60.000 p. since one of the conditions to be satisfied for claiming deduction under section 80GG is that the assessee should not own any residential accommodation in the same place.m.000 p. paying a lease rent of ` 30. The education facility was provided free of cost. 2011 to 31st October.2011.000. Mr.. Therefore. Janak won a prize in a TV game show.

000 4.083 Less : Deduction under section 16(iii) Professional tax 3.000 x 7 Professional tax paid by employer 3.000 + 16.23 B. 2012-13 Particulars Basic salary = ` 30.000 + 20.29.880 . Medical insurance premium of ` 12.000 for himself and ` 16. His father is however not dependent on him.800 x 7) (See Note 12.000 x 7 Dearness Allowance = ` 20.000 Total Income Total income (rounded off) ` 2.000 x 7 Ex-gratia Employers’ contribution to Central Government Pension Scheme = ` 7.000) Gross Total Income Less : Deductions under Chapter VI-A 80C Life insurance premium (30.32. Janak for A.31.66.000 Total deduction under section 80C & 80CCD(1) 76.600 Employer’s Contribution to pension scheme(to be restricted to 10% 26.000) × 7 = ` 2. You are required to compute the total income of Mr.000 1.083 60.000 for his father (aged 82).883 3.600 of salary) Salary = (30.200 3.57.000 + ` 18.000 Net salary Income from other sources Winnings from TV Game Show (` 42.000) (See Note 7) 28.000 ` 4.000 + 8.600 4) Gross salary 4. paid by credit card.083 1. Janak (showing clearly the computation under various heads of income) and tax payable by him for the assessment year 2012-13.000) 50.40.Y. Answer Computation of total income of Mr.000 15.000 49.333 Value of concessional educational facility = (1.89.10.Computation of Total Income and Tax Payable 8.57.600 of salary) [Section 80CCD(2)] [See Note 6] 80D (` 12.000 80CCD(1) (See Notes 5) Employee’s contribution to pension scheme (to be restricted to 10% 26.000 Concessional accommodation (See Notes 1 & 2) 150 Value of furniture (See Note 3) 2.

the perquisite value is 10% p. it is apparent that if the cost of education per child exceeds ` 1. of actual cost.000].788 22. 40% of dearness allowance (i. being 9. In such a case.24 Taxation Computation of tax liability of Mr. ` 42.. ` 63.000 per month is taxable.150. (3) The value of furniture owned by employer and provided to the employee is 10% p. Janak for the A.000 x 7/12].e. there would be no change in the answer since in such a case also. the entire cost will be taken as the value of the perquisite. ` 42. since the question clearly mentions that only 40% is to be reckoned for superannuation benefits. the value of perquisite would be ` 5.150 – ` 42. ` 42. This value (i.000) should be taken into consideration as forming part of salary. (` 30.472 18. ` 1.800 × 7).97.800 per month is taxable as perquisite.8.000 x 7) and 15% of salary [ i.880 Add : Education cess @ 2% Secondary and higher education cess @ 1% Total Tax Liability Less : TDS Net Tax Payable Notes: 456 228 ` 18. Accordingly. It is also possible to consider the cooking range and micro-wave oven provided by employer to the employee as a perquisite on account of use of movable assets of the employer by the employee. the value of the perquisite would be ` 12. The gross salary in that .000.e.333 [i.000 + ` 8.150) would be reduced by the rent paid by the employee (i.000) x 7 + 15.81.788 684 23. the full amount of ` 1. The value of concessional accommodation is ` 150 [i.000 4.e. being 15% of ` 2. In such a case. of actual cost which amounts to ` 2. Even it is so assumed.e.000 from game show (See Note 8) Tax on balance income of ` 2.000 [i. the value of perquisite would be lower of the actual amount of lease rental paid or payable by the employer [i.600 (i. ` 8. Particulars ` Tax @ 30% on winnings of ` 60.81. (2) In a case where the accommodation is taken on lease or rent by the employer and provided to the employee.e.e.000].000 x 7).000 per month..472 (1) For computation of perquisite value of concessional accommodation. Therefore.Y.a.e. (4) In determining the value of perquisite resulting from the provision of free or concessional educational facilities.600. ` 42.000. 10% of 40. from a plain reading of the proviso to Rule 3(5).e.000 5. Note – An alternate view possible is that only the sum in excess of ` 1. salary for the purpose of perquisite valuation would be ` 2. being 6.e.a.. 2012-13.000].

000 1.Computation of Total Income and Tax Payable 8. .083.000 paid for father is allowable in full under section 80D. receives the following emoluments during the previous year 2011-12: ` Basic salary D. No loss can be set-off against such income.000 (for self) + ` 16.000 (for father) = ` 28.000 per month.000 Bonus Medical allowance Special allowance ` 8. a production manager working in ABC Ltd. the problem has been solved assuming that the employee has made a contribution of ` 7.25 case shall be ` 4. From a plain reading of the provisions of section 71(2A). Even if it is assumed that the employee has contributed only 10% of salary.000 Education Allowance (including allowance for hostel expenditure) for two sons who are engineering students at Mumbai . However. employer’s contribution to pension scheme would be outside the overall limit of ` 1 lakh stipulated under section 80CCE. (6) The entire employer’s contribution to Central Government Pension scheme should be included in salary and deduction under section 80CCD(2) should be restricted to 10% of salary. (7) The deduction for medical insurance premium of ` 16. as the maximum limit is ` 20. New Delhi.000. Therefore. (5) Employee’s contribution to Central Government Pension Scheme is not given in the question. the employer makes a matching contribution.22. since his father is a senior citizen. Therefore.40.A. 2011. the total deduction under section 80D would be ` 12. business loss cannot be set-off against such income. the assessee shall not be entitled to have such loss set-off against such income.000.000 5.000 18. (8) Winnings from TV game show is chargeable at a flat rate of 30% under section 115BB.000. The total income and tax liability shall accordingly vary. Section 71(2A) provides that where the net result of the computation under the head “Profits and gains of business or profession” is a loss and the assessee has income chargeable under the head “Salaries”.083 and net salary would be ` 4. since deduction under section 80CCD is to be restricted to 10% of salary. business loss cannot be set-off against salary income. Therefore.` 16.. (not forming part of salary) Commission on extra production 1. both business loss and current depreciation cannot be set-off against salary income. therefore. it is possible to take a view that even depreciation cannot be set-off against salary income. the same would not affect the answer.75.000 per month to the pension account and generally. As per Amendment made by Finance Act. since the employer is contributing ` 7. Question 13 Mr.000 12.25. (9) As per section 71(2A). Mahesh.

8.000 and that of laptop is ` 40. 2012-13.80.3.000 3.000 + ` 3. (vii) His agricultural income during the year is ` 45. (vi) He has deposited ` 10.85.052 1.000.2012-13 Step 1 ` Add: Agricultural income and Non-agricultural income (` 45. for him during the previous year are of ` 11. Ownership of both the assets have not been transferred.2012. She has earned income of ` 30.Y.000 + ` 4.000 from his grandfather on 10. 2012-13 Particulars Income from salary (as per note 3) Business Income (assuming that his wife carries on the business of hiring of cars) [Income of wife from hiring of car clubbed under section 64(1)(iv)] Gross Total Income Less: Deduction under section 80C (as per note 4) Total income Total income (rounded off) Computation of tax liability of Mr. Mahesh for the A.000.2011. (iv) His investments during the previous year are: (1) Notified mutual fund (2) PPF ` 25.40.052 3.2012. Compute the total income and tax payable of Mr.505 Step 2 Add: Basic exemption limit to agricultural income (` 1.000 (v) He has paid tuition fees of his sons on 17.Y.000. Answer Computation of total income of Mr.050 20.000 from hiring the same during the previous year. (viii) He has received gift of ` 25.000 4.Y.2011.40.050 ` .10.1.6.26 (i) (ii) Taxation His employer has provided rent free house to him in New Delhi.2011 of ` 60.050) Tax on ` 3.5.000 in Five Year Time Deposit Scheme in Post Office on 25.500.40.000 ` 15. Mahesh for the A.052 30.40.00.12. The cost of CD player is ` 20. (ix) He has gifted his car to his wife on 15. (iii) On 1. Electricity bills paid by ABC Ltd. his employer company has given him a CD player for domestic use and a laptop for office and personal use. Mahesh for the A.

Income from salary Basic pay DA Bonus Commission Special Allowance Taxable education allowance (See Working Note below) Medical Allowance Total 1. ` 1.400 33.000 3.40. Valuation of rent free house Basic salary DA (not to be considered as it is not forming part of salary) Commission on extra production Bonus Special allowance Education allowance (See Note 3) Medical allowance Salary for the purpose of valuation of rent-free house Value of rent-free house = 15% of ` 2. of cost of the CD player w.000 x 91/366 = ` 492 Provision of laptop by the employer is a tax-free perquisite.64.000 1.000 8.000 6.005 480 16.a.490 2.000) Tax on ` 2.24.000 18.660 4.e.500) Add: Education cess @2% and Secondary and higher education cess @ 1% Total tax liability Rounded off Notes: ` 1.e.400 Valuation of perquisite of CD Player given for use by the employee Taxable value of this perquisite is 10% p. 1.000 = 2.000 Step 3 Tax on non-agricultural income (Tax under step 1 – Tax under step 2) (` 20.75.2011 (i.Computation of Total Income and Tax Payable 8.000 18.000 2.000 Nil 12.000 6.27 ` 45.000 8.75. 3.505 – ` 4. for 90 days) 10% of ` 20.500 16.000 12.400 5.25.485 16.1.f.400 .24.400 5.

He is a Resident and ordinarily resident in India.e. i.10. He maintains his accounts on cash basis.000 10.10.000 15. Grandfather is a relative as per the definition of “relative” given in the Explanation to section 56(2)(vii) and hence ` 25. This restriction is contained in section 80CCE.000.600 = ` 6.600 .000 33.65.8. 2012 reads as follows: Expenditure Salary to staff Stipend to articled assistants Incentive to articled assistants Income 5.660 11. Question 14 Rajat is a Chartered Accountant in practice.000 – ` 9. (100×2×12) + (300×2×12) =2400+7200 = ` 9.000 Audit 5. the total deduction under section 80C cannot exceed ` 1.000. is not taxable. However.00. Electricity Bill paid by employer 3.600 Therefore. Particulars of investments/payments deductible under section 80C Investment in notified mutual fund Investment in PPF Investment in 5 year Time Deposit in Post Office Tuition fees of children (assumed to be paid to an eligible educational institution – hence qualifies for deduction under section 80C) ` 25.000 Taxability of gift received from grandfather Gift from a relative is not taxable under section 56(2)(vii).652 4.000 Fees earned: 18.00. His income and expenditure account for the year ended March 31. 4.25.052 5. CD Player given by employer (Note 2) Taxable salary Working Note .400.28 Taxation Add : Taxable perquisites : 1.000 1. being gift received from grandfather.Education allowance exempt under section 10(14) Education allowance of ` 100 per month per child for a maximum of 2 children plus hostel allowance of ` 300 per month per child for a maximum of 2 children is exempt.800 4.000 60.000 Taxation services ` ` 6. Rent free accommodation (Note 1) 2. the permissible deduction under section 80C = 1.500 492 45.68. Therefore. taxable education allowance would be ` 16.

605 ____ 16.48.620 38. has been debited to the drawing account of Mr.000 which was within the RBI norms.000 Postage.500.76.400 9.000 16.48. (iv) Salary include ` 30.2011 to 30. Rajat in one professional assignment.000 to a computer specialist in cash for assisting Mr. (vi) Medical Insurance Premium on the health of: Amount Self Dependent brother Major son dependent on him 10.000 6.600 for the period from 1. Incentive to articled assistants represent amount paid to two articled assistants for passing IPCC Examination at first attempt. seminar and conference Repairs.000 3.600 15.605 The total travelling expenses incurred on foreign tour was ` 20.600 Consultancy Dividend on shares of Indian companies (gross) Income from Unit Trust of India Profit on sale of shares 3.000 15. Rajat. telegram and fax Depreciation Travelling expenses Municipal tax paid in respect of house property Net profit Other information: (i) (ii) Honorarium received from various institutions for valuation of answer papers 32. (iii) Repairs and maintenance of car includes ` 1.2012.Computation of Total Income and Tax Payable 8.000 Mode of payment By Cheque By Cheque By Cash .400 15.82.635 6.16.10. maintenance and petrol of car Subscription and periodicals 24. interest on loan paid to LIC on the security of his Life Insurance Policy and utilised for repair of computer.000 8.500 Rent received from residential flat let out 29. (v) ` 1.000 5.000 1.500 55.005 16.09.29 Office rent Printing and stationery Meeting.600 22.350 84.

121 1.07.620 16. 1 2 3 4 5 Amount in ` 58.32.620 8.139 1.47.000 24.300 15.01. (viii) Rajat paid life membership subscription of ` 1.000 6. The amount was debited to his drawings account.30 Taxation Minor married daughter Wife dependent on assessee 2. Rajat for Assessment Year 2012-13.250 1. 1961.870 8.870 15.07.73.100 .370 15.63.000 By Cheque By Cheque (vii) Shares sold were held for 10 months before sale.018 3.100 7.675 2.500 8.900 Working Note Nos.350 8.140 58.47.000 1. Particulars Income from House Property Profit and gains of Business or Profession Short-term capital gains Income from other sources Gross Total Income Less: Deduction under Chapter VI-A Total Income Tax on total income Total Income Less: Short-term capital gains (See Note 9 below) Normal Income Tax on normal income Tax on short-term capital gains @15% Add: Education cess @ 2% and SHEC @ 1% Total tax liability Total tax liability (rounded off) Notes : (1) Income from House Property Gross annual value Less: Municipal taxes paid by owner Net Annual Value (NAV) Less: Deduction under section 24 @ 30% of NAV 84.343 1.8.000 to Chartered Accountants Benevolent Fund.000 83.04. Compute the total income and tax payable of Rajat for the Assessment year 2012-13 Answer Computation of Total Income of Mr. The Chartered Accountants Benevolent Fund is an approved fund under section 80G of Income-tax.

350 Honorarium for valuation of answer papers .635 Income from UTI Less: Exempt under section 10(35) 6.000 1.07.600 (2) 8.350 16. Income under the head “Profits & Gains of Business or Profession” Net profit as per Profit & Loss Account Add: Expenses debited to the Profit & Loss Account but not allowable (i) Salary paid to computer specialist in cash disallowed under section 40A(3).635 6.600 15.300 15.000 (ii) Municipal Taxes paid in respect of residential flat let out Less: Expenses allowable but not debited to profit and loss account Interest paid on loan taken from LIC used for repair of computer Less: Income credited to Profit & Loss Account but not taxable under this head: (i) Dividend on shares of Indian companies (ii) Income from UTI (iii) Profit on sale of shares (iv) Honorarium for valuation of answer papers (v) Rent received from letting out of residential flat (3) (4) Capital gains: Short term capital gain on sale of shares Income from other sources: Dividend on shares of Indian companies 9. since such cash payment exceeds ` 20.005 1.000 __31.505 9.205 7.32. Fair Rent and Standard Rent.005 30.500 9.000 1.600 6.620 Nil Nil 16.620 16.31 Rent received has been taken as the Gross Annual Value in the absence of other information relating to Municipal Value.000 9.350 84.05.Computation of Total Income and Tax Payable 8.635 Less: Exempt under section 10(34) 9.73.76.

Premium paid to insure the health of son is not eligible for deduction since payment is made in cash. 15. Therefore.000 expended on foreign tour is allowable as deduction assuming that it was incurred in connection with his professional work. (9) It is assumed that the transaction of sale of shares has been entered into in a recognized stock exchange and that securities transaction tax has been paid on such sale.000 Nil Wife dependent on assessee 6. the profit arising therefrom is a short-term capital gain chargeable to tax at 15% under section 111A.9.000 500 15.000 Nil Major son dependent on him 3.000) Total deduction under Chapter VI-A Note – Premium paid to insure the health of brother is not eligible for deduction under section 80D.32 (5) Taxation Deduction under Chapter VI-A : Deduction under section 80D (Medical Insurance Premium) Policy holder Amount of Amt. Premium paid to insure the health of minor married daughter is not eligible for deduction as she is not dependent on Mr.2012 to 30. Sparsh Kumar is running a clinic.e.8. Rajat is following the cash system of accounting.Rajat. (8) Repairs and maintenance paid in advance for the period 1.000 Amount of deduction is restricted to ` 15.000 Dependent brother 5. His Income and Expenditure account for the year ending .000 6.000 10. (7) Incentive to articled assistants passing IPCC examination in their first attempt is deductible under section 37(1). (6) ` 20.2012 i.000 16. Since the period of holding of these shares is less than 12 months.500 Question 15 Dr.000 Deduction under section 80G (Donation) Donation to CA Benevolent Fund (50% of ` 1. for 6 months amounting to ` 800 will be allowed since Mr.000 Nil Minor married daughter 2. it requires no further treatment.4. eligible for Premium (` ) deduction (` ) Self 10.

compute the income and tax payable of Dr. Medicines consumed include medicine of (cost) ` 16.64.860 on maturity of one LIC Policy.785. year 2012-13.00.850 Total ____ 13.000 per month as salary from a City Care Centre. 1998 for ` 4. 1998-99 – 351.000) 91.Y.03. Sparsh Kumar for the Asst.600 9. (vi) He received ` 6.Y.63.000 on account of Agricultural Income which had not been included in the above Income and Expenditure Account.33 31st March. From the above. The land was acquired by him in October.850 Depreciation in respect of all assets has been ascertained at ` 50.000 honorarium for valuing medical examination answer books. (vii) He has sold land in June.000 (sum assured ` 50. (iv) He has also received ` 80.750 2.000).47. (iii) Fees Receipts include ` 14.30.000 By Income-tax refund 1.250 ` 12. F. 2012 is given below: Expenditure To Staff Salary To Consumables To Medicine consumed To Depreciation To Administrative Expenses To Donation to Prime Minister's National Relief Fund To Excess of Income over expenditure Total (i) (ii) Amount Income Amount ` By Fees Receipts By Dividend from Indian Companies 3. . Cost Inflation Index: F.46.000 as per Income-tax Rules.000 4.000). (v) He has also received ` 57. (ix) He has paid ` 2.800 13.800 By Winning from Lotteries (Net of TDS of ` 12.500 28.000.03.00. 2011-12 . (viii) He has paid premium of another LIC Policy ` 12. This has not been included in the 'Fees Receipts' credited to Income and Expenditure Account. 2011 for ` 6.50. not included in the above Income and Expenditure Account.000 2.000 15.000 used for his family.000 (valuation as per stamp valuation authority ` 11.000 9.500 for purchase of lottery tickets.Computation of Total Income and Tax Payable 8.

734 12.800 41.19.140 25.361 46. Computation of salary income Particulars Gross Salary (6.000 ` 72.000 2.34 Answer Taxation Computation of total income and tax liability of Dr.500 2.000) Cost of medicine for self-use Donation to Prime Minister’s Relief Fund Less: Dividend from Indian companies Income-tax refund ` ` 2.47.8.550 93.000 Nil 72.750 72.000 16.373 1.000 .730 Computation of income under the head “Profits and gains of business or profession” Particulars Net Income as per Income and Expenditure Account Add: Expenses disallowed: Depreciation (91.50.734 34.000 9.000 15.60.000 4.000 34.6) Add: Education cess @ 2% and SHEC @1% Total tax liability Less: Tax deducted at source (TDS) Tax payable Rounded off Working Notes: 1.000 3. 2012-13 Particulars Income from salary (Working Note – 1) Income from business (Working Note – 2) Long-term capital gains (Working Note – 3) Income from other sources (Working Note – 4) Gross Total Income Less: Deduction under Chapter VI-A (Working Note – 5) Total Income Tax on total income (Working Note . ` 72.65.140 45.000×12) Less: Deduction under section 16 Net Salary 2.000 4. Sparsh Kumar for the A.85.Y.590 54.800 .

Particulars ` ` Dividend from Indian Companies [Exempt u/s 10(34)] Honorarium for valuing answer books 14.000 40.80.250 2.60.000 Income from other sources 54. no expense or deduction is allowable in respect of winnings from lotteries.410 93.000 25.00.Computation of Total Income and Tax Payable 8.e. Computation of tax on total income Particulars Tax on agricultural income plus non-agricultural income i.000. (being ` 80.000 54.000x785/351 Long term capital gain Computation of income under the head “Income from other sources” ` 6.06.00. Computation of deduction under Chapter VI-A Particulars U/s 80C Life Insurance Premium (maximum 20% of sum assured) U/s 80G Donation to Prime Minister’s Relief Fund [See Note below] Total deduction under Chapter VI-A ` 10.373 . tax on ` 5. tax on ` 2.000 Winning from Lotteries (Net) 28.140) [See Note below] Less: Tax on agricultural income plus basic exemption limit i.000) Tax on total income ` 53.35 Winning from Lotteries Honorarium for valuing answer books 3. 6.000 45. 5.140.40.000 + 4.60.e.000 10.373 8.000 11.000 Note : As per section 58(4).00.590 4.(being ` 80. Computation of Capital Gains Particulars Sale consideration Valuation as per Stamp Valuation Authority (Value to be taken higher of actual sale consideration or valuation adopted for stamp duty purposes as per section 50C) Consideration for the purpose of capital gain Less: Cost of acquisition = 4.000 Add: TDS 12.65.000 14.550 11.50.000 Note –The donation made to the Prime Minister’s National Relief Fund qualifies for 100% deduction under section 80G.000 15.000 + 1.000 ` 28.

.2011 Acquired (Cost) ` 2.500 Rent paid includes rent for his residential accommodation of ` 30.04.00.000 (paid by cheque) at Bangalore.60.12.000 8.000 9.00.718 12.655 53.500 60. The municipal tax of ` 2.42.23.000 2. Krishna furnishes you the following information: Income and Expenditure Account for the year ended 31st March 2012.000 07. (iv) Rent received – relates to a property situated at Mysore (Gross Annual Value).000 (iii) Medicines consumed include medicines (cost) ` 10. Question 16 Dr.000 47.26. Krishna’s family.000 8.83. It is considered for rate purpose only.47.36 Taxation Note : Tax on ` 4.8.140 plus agricultural income of ` 80.000 used for Dr.000 22.000 paid in December.590 @ 20% Tax on winnings from lotteries ` 40.500 (i) (ii) By Fee receipts By Rent By Dividend from Indian companies ` 8.000 1.000 1.65. 2011 has been included in the “administrative expenses”. Hospital equipments (eligible for depreciation @ 15%) 01.373 Note : Agricultural income is exempt from tax.83.000) ` 18.46.550+ 80. ` To Medicines consumed To Staff salary To Hospital consumables To Rent paid To Administrative expenses To Net Income 2. Any sum received under a life insurance policy is wholly exempt from tax under section 10(10D).000 @ 30% Tax on balance income of (` 3.000 is computed hereunder : Particulars Tax on long term capital gain ` 93. 7.2011 Opening WDV ` 5.500 27.

000 7.500 17.000 30. This has not been included in the “fee receipts” credited to income and expenditure account.50.000 5. (vi) He sold a vacant site in July.55.000 27. rent paid would be allowable as a deduction to the extent of the last of the following ` ` 60. 2011 for ` 5.37 (v) He received ` 5.00.000 per month Income from house property Gross annual value Less: Municipal tax Net annual value Less: Deduction under section 24 @ 30% Income from business or profession Net income as per income & expenditure account Add: Rent paid to residence Medicines consumed – personal use Municipal tax relating to let out property included in administrative expenses – disallowed Less: Depreciation (See working note 2) Rent credited to income & expenditure account Dividend from Indian companies [Exempt under section 10(34) ] Capital Gains (Long term capital gains) Sale consideration Less: Indexed cost acquisition (1.44.Computation of Total Income and Tax Payable 8.000 1.000 10.03. It was inherited by him from his father in January. 1998.2012 Particulars Income from Salaries Salary received @ ` 5. Answer Computation of taxable income of Dr.000 2.000 3.62.000 25.000 90.000.000 per month as salary from Full Cure Hospital.000 27.00.2012.000. 1990 for ` 1.260 3.83. Krishna’s taxable income for the year ended 31.88.50.740 1.000 x 785/331 ] Gross Total income Less: Deduction under chapter VIA – Section 80GG Under section 80GG. (Cost inflation index 1990-91 = 182.500 2. The site was acquired by his father in December.Krishna for the previous year ended 31.46.000 9. 1997-98 = 331 and 2011-12 = 785) Compute Dr.000 2.000 2.760 .03.

furnishes particulars of his income and other details as under: ♦ ♦ ♦ ♦ Salary @ ` 6.000 p. for the purpose of allowing deduction u/s 80GG. On 1.m.4. ` On opening WDV of ` 5. The stamp valuation authority had assessed the value of said house plot at ` 6.2012 for ` 5.00.39.e.000.000 90.Y.00.000 p.00. Deduction under section 80GG is to be made from Gross Total Income.050 24.83.e.050 3. Gross Total Income = 3.1979 for ` 10. However.710 25% of total income = 25% of ` 2. Long term capital gains have to be reduced from Gross Total Income and Chapter VI-A deductions should be allowed as if the Gross Total income so reduced were the Gross Total Income of the assessee.950) (iii) ` 2. since acquired in December) 3. Under section 112(2)..500 Excess of rent paid over 10% of total income (30. 75. A house plot at Ernakulam sold on 1. for July 2011 to Nov 2011.1981 was ` 15. Depreciation on plant & machinery 2.500. Krishna in this case) first held the asset i.000 (The cost inflation index for the year 2011-12 is 785).00.20. . Question 17 Mr. 1997-98. Therefore.77.8. Pension @ ` 3.000 per month Least of the above Total Income Note : 1.000 15.000 which was neither disputed by the buyer nor by him. The value of this house plot as on 1.6.11.000 6. before making any deduction under Chapter VI-A.12.760 – 1.000 @ 15% (50% thereon. aged 58 years. F. the cost of acquisition to him will be the cost to the previous owner. Gross Total Income as defined under section 80B(5) means the total income computed in accordance with the provisions of this Act. in this case.2011. Dr.000.44. he got 1/3rd of his pension commuted for ` 1.2011.000 @ 15% On equipment acquired ` 2. indexation will be from the year in which the assessee (i. Krishna through inheritance.m.000 Since the property was acquired by Dr.39. who retired from the services of the Central Government on 30.260 = 2. Pankaj.38 (i) (ii) Taxation 59.875 6.000 23.000 had been purchased by him on 3.2.

500.2012 Sale consideration received is ` 5.Y.39 ♦ Received interest on bank FDRs of ` 72.00.82. Pankaj for A.Computation of Total Income and Tax Payable 8. However.250 6.000 4.12.500.000. Income from salaries ` 18.000 .000 15.02. (2.m. ♦ Compute the total income of Mr. (b) if he wants to avail exemption under section 54EC. Pankaj for A.20.000 and payment for mediclaim insurance for self and wife of ` 12.Y.2012-13 Particulars Income from salaries (See Working Note 1) Capital gains (See Working Note 2) Income from other sources (See Working Note 3) Gross Total Income Less: Deductions under Chapter VI-A (See Working Note 4) Total Income Working Notes: 1. In the event of Mr.m.000 was already disclosed by him on accrual basis in the returns upto assessment year 2011-12. what will be the amount to be invested and the period within which the same should be invested? (a) if he wishes to avail exemption under section 54F by constructing a new residential house. 2012-13.750 1.000 Note : Commuted value of pension of ` 1.000 and interest on maturity of NSC of ` 50. Pankaj being ready to make appropriate investment for availing exemption in respect of capital gain arising from sale of house plot.05. Answer Computation of total income of Mr.000 p. (3000 x 5) Pension for 4 months from Dec 2011 to March 2012 @ ` 2.500 4.000 8.500 6. since the value ` Particulars Salary for 3 months received from Government of India (6000 x 3) Pension for 5 months from July 2011 to Nov 2011 @ ` 3000 p. 2.93. Made investment in Tax Magnum units of Mutual Fund of SBI of ` 80. Capital gains Particulars Long term capital gains on sale of house plot at Ernakulam on 01.000. Investment in purchase of NSC for ` 30. dividend on mutual fund units of ` 15.000 41.000x4) ` 41.250 82.000 received from the Central Government is fully exempt under section 10(10A).000 out of which an amount of ` 40.00.

such value assessed is deemed to be the full value of the consideration received or accruing as a result of such transfer as per section 50C Less: Indexed cost of acquisition 15000 x785/100 1.00.e.40 Taxation assessed by the stamp valuation authority (i.000 40.10.00.750 4.500 4. the entire net consideration received from sale of house plot should be invested.250 3. If only part of the net consideration is invested.000 80.500 Investment in approved modes Section 54F (by constructing a new house) In order to avail exemption under section 54F by constructing a new residential house. the assessee should construct a residential house within three years from the date of transfer of house plot.17.500 (assumed to have been paid by cheque) ` 30.500 - 50.82. Income from other sources Particulars Interest on bank FDRs Dividend of ` 15.000 1.500 1.e.000 ` 12. ` 6. To avail the maximum exemption.000 82.000 10. Deductions under Chapter VI-A Particulars Under section 80C Purchase of NSC Tax Magnum units of Mutual Fund of SBI Total Maximum deduction available under section 80C Under section 80D Medical insurance premium paid ` 12.000 1. Long term capital gain × Amount invested in new residential house Net sale consideration .12. then proportionate exemption of long term capital gains would be available i.000 on units of Mutual Fund [exempt under section 10(35)] Interest on maturity of NSC Less: Interest already shown on accrual basis in the past returns ` ` 72.8.000) is higher than the sale consideration.

41 Section 54EC In order to avail maximum exemption under section 54EC. the assessee should invest the entire long-term capital gain arising from transfer of the house plot. i.90.000 20.10.82.80.000 ` ` 4. Prize winning from a T. within six months from the date of sale of house plot. Rinku has paid the following: LIC premium of self LIC premium of husband Compute the tax payable by Mrs. in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation Ltd.000 2.50. ` 4. born on 30th March.000 – 20. Ltd. show Business income Net agricultural income Mrs.Computation of Total Income and Tax Payable 8.000 Nil 42.30.000 4.000 + ` 40. (RECL).000) Tax on ` 2.50.000 (unexhausted basic exemption limit)] Tax on winnings of ` 20. then the exemption would be restricted to the amount invested in such bonds.000 2.000 Step 2 Basic exemption limit to agricultural income (` 2.000 40.000 6.e.V. Question 18 The broad break-up of tax and allied details of Mrs.250.000 Add (i) (ii) (iii) 36.00.000 from a T.2012-13 Particulars Step 1 Agricultural income and Non-agricultural income (` 40. 1947 are as under: ` Long-term capital gains on sale of house Short-term capital gains on sale of shares in B Pvt. show @ 30% Tax on balance income of ` 2. Rinku for the assessment year 2012-13.20.000 2.Y. see Note 1 below] Tax on the above income Tax on long-term capital gain of ` 1.V.90.000 40. If only part of the capital gain is invested.000 20. Rinku for the A. Answer Computation of tax payable by Mrs.000 30.000 + ` 4. Rinku.00.50.000 @ 20% [2.000) [For computation of non-agricultural income.000 Add .000 Total tax on ` 4.

m. .000 Mrs. th Gold Ring worth ` 10.Y. Ltd Prize winnings from a T.5 % Commission as a percentage of turnover of the Company ` 50 lacs Turnover of the Company ` 50. 3. Rinku is of 65 years of age during the P.m.000 20.2012: − − − − − − − − − − ` 15.10.000 4.F..000 Bonus ` 30.2012-13 Particulars Business income Long term capital gains on sale of house Short term capital gains on sale of shares in B Pvt.000 60. provides the following information for the year ended 31.000. Computation of total income of Mrs.2011-12.20.000 20. is taxable at normal rates.000 4.000) Add: Education cess @ 2% Add: Secondary and higher education cess @ 1% Tax payable by Mrs.00.000 – ` 4.P. Therefore. DA (50% of it is meant for retirement benefits) 0. Basic Salary ` 12.V.000 was given by employer on his 25 wedding anniversary.000 30. Rinku 38.000 Gratuity ` 30.a. Short-term capital gains on sale of shares in B Pvt.F.000 760 380 39. show Gross Total Income Less: Deduction under section 80C Life insurance premium of self Life insurance premium of husband Total Income 2.50.140 Notes : 1. account @ 15% p.F. Rinku for the A. Ltd.P.000 p. ` 15.03.P. 20% of basic salary Employer’s contribution to R.42 Taxation Step 3 Tax on non-agricultural income (Tax under step 1 – Tax under step 2) (` 42.Y.000 Interest credited in the R. she is a senior citizen entitled to the higher basic exemption limit of ` 2.000 40.000 2.8.000 p.70. ` ` 2. Question 19 Ramdin working as Manager (Sales) with Frozen Foods Ltd.000 Own Contribution to R..

5% p.m.e. Made payment by cheques of ` 15.m. 10% of ` 85.500 4.000 25.a.43 − − − − − − Music System purchased on 01.000 x12) Commission on Turnover (0. 2012-13.04.000 50.m.500 2.240 15.500 for Mediclaim Insurance policy.000 and in FDR of SBI for 7 years ` 50.000 9.80.Y.Computation of Total Income and Tax Payable 8.500 10.500 p.760 1.760 5.000 30. Less: Exempt upto 9.000x 2 x12). Gift of gold ring worth ` 10.260 from shares of Indian Companies and interest of ` 7.5% of ` 50 lacs) Bonus Gratuity (Note 1) Employer’s contribution to recognized provident fund Actual contribution [20% of ` 1.000] Less: Exempt (Note 2) Interest credited in RPF account @ 15% p.000 8. ` ` 1.e.000 p.000. Two old heavy goods vehicles owned by him were leased to a transport company against the fixed charges of ` 6.000 on 25th wedding anniversary by employer (See Note 4) Perquisite value of music system given for personal use (being 10% of actual cost) i. for each of the two trucks (5.100 to Prime Minister’s National Relief Fund were given during the year. In this case.55. Donations of ` 11.a.000 x 12) Dearness Allowance (12. Received interest of ` 5.000 .000 1. ` 5.80.000 36.2011 by the company for ` 85.000 and was given to him for personal use.44.860 on bank FDRs.540 from the debentures of Indian Companies.20.000 to an institution approved u/s 80G and of ` 5.000 Profits and Gains of Business or Profession Lease of 2 trucks on contract basis against fixed charges of ` 6. dividend of ` 1. He cannot claim lower profits and gains since he has not maintained books of account. Books of account are not maintained. presumptive tax provisions of section 44AE will apply i. Invested in 6 years NSC ` 30. Answer Computation of Total Income for the A.500 p.Y. Compute the total income and tax payable thereon for the A. 2012-13 Particulars Income from Salaries Basic Salary (15.370 towards premium of Life Insurance policies and ` 12.000 33.

000 = ` 33.000) (amount contributed ` 11.77.e.25.000 1.80. Deduction under section 80G is computed as under: Donation to PM National Relief Fund (100%) Donation to institution approved under section 80G (50% of ` 11.100 4.000 12. 5.000) = 12% of 2.606 572 286 29.000 or 10% of Adjusted Gross Total Income i.600 1.00.540 Nil 13.000 50.500 10.100 .400 5.000)+ ` 25.000+ (50% of ` 1. 2.160 15.370 1.66. Gratuity received during service is fully taxable.370 30.860 7.240 3.e.000 30.464 29.89.23.44 Taxation Income from Other Sources Interest on bank FDRs Interest from debentures Dividend on shares [Exempt under section 10(34)] Gross total Income Less: Deductions under Chapter VI-A Section 80C Premium on life insurance policy Investment in NSC FDR of SBI for 7 years Employee’s contribution to recognised provident fund Total Limited to Section 80D Mediclaim Insurance Section 80G (Note 3) Total Income Tax on total income Income-tax Add: Education cess @ 2% Add: Secondary and higher education cess @ 1% Total Tax Payable Tax Payable (rounded off) Notes: 1. 12% of (Basic Salary + DA for retirement benefits + Commission based on turnover) = 12% of (` 1.8.060 28.44.P. is exempt up to 12% of the salary i.460 Employer’s contribution in the R.F. ` 5.

000 By Dividend from units of UTI 90.4. Gross Annual Value ` 27.450 10.000.` 2.40.666.2011 Opening W.000 By Consultation and Medical charges 3.000 27.63. (net of TDS of ` 15. 2011.500 = ` 4.000 By Income-tax refund (Principal ` 5.00. has been included in "administrative expenses".10.600 Adjusted Gross Total Income = Gross Total Income − Deductions under section 80C and 80D = ` 5.160 − ` 1. Clinic equipments are: 1. The municipal tax of ` 2. As per this view.400 19. .50. 2012 is as under: Expenditure To Medicine consumed To Staff salary To Clinic consumables To Rent paid To Administrative expenses To Amount paid to scientific research association approved under section 35 To Net profit (i) (ii) Amount (` ) 5. Her Income and Expenditure Account for the year ending March 31st.000. whichever is lower) Total deduction 5.000 .000) 2.2011 7.38. the value of perquisite would be ` 5.000 paid by cheque towards rent for her residential house. 4.V.800 ____ 19.Computation of Total Income and Tax Payable 8.500 10.500 p. aged 60 years is running a clinic.89. interest ` 450) 1.760. beyond which it would be taxed as a perquisite.85. paid in December.000.000 (iii) Rent received relates to property situated at Surat.80.` 5.76. Question 20 Dr.000 By winning from game show on T.50.45 ` 47.12.55.D. from "Full Cure Hospital" which has not been included in the "consultation and medical charges".000 By Rent 1.000 is taxable in view of the language of Circular No.V.00. An alternate view possible is that only the sum in excess of ` 5.800 Rent paid includes ` 30.15/2001 dated 12. In such a case the Income from Salaries would be ` 4.000 in the aggregate per annum would be exempt.500 35. a resident individual.m. Acquired (cost) . (iv) She received salary of ` 7.2001 that such gifts upto ` 5.660.12.000. Niranjana.850 5.12.400 Income Amount (` ) 18.000 4.63.

50. 2012 for her medical insurance premium.000 from a bank for higher education of her daughter.Y.00. She repaid principal of ` 1.000 as tuition fee (not in the nature of development fees/ donation) to the university for full time education of her daughter. (net of TDS) (iv) Income tax refund Less : Allowable expenditure Depreciation on Clinic equipments on ` 5.00.000 5. 2012-13 Particulars I II Income from Salary Basic Salary (` 7.400 27.000 10.000 . Niranjana for the Assessment year 2012-13.000 has also been paid by cheque on 27th March. compute the total income and tax payable thereon by Dr.V. Niranjana for A.450 75.00.00.40. (vi) She paid ` 1.46 Taxation (v) Dr.500 III 4.450 77. Niranjana availed a loan of ` 5.000 @ 7.62.000) Income from profession Net profit as per Income and Expenditure account Less : Items of income to be treated separately (i) Rent received (ii) Dividend from units of UTI (iii) Winning from game show on T.8.5% (On equipments acquired during the year after September 2011 she is entitled to depreciation @ 50% of normal depreciation) Amount (` ) Amount (` ) Amount (` ) 90.000. Answer Computation of total income and tax liability of Dr.000 15.950 3.500 17.000 27.000 2.500 35. and interest thereon ` 55. (vii) An amount of ` 18.000 @ 15% on ` 2.000 25. From the above.000 during the year 2011-12. Smt.000 7.500 x 12) Income from house property Gross Annual Value (GAV) Less : Municipal taxes paid Net Annual Value (NAV) Less : Deduction under section 24 (@ 30% of ` 25.

000) (c) Deduction under section 80E Interest on loan taken for higher education is deductible Total income Tax Payable Tax @ 30% on winnings of ` 50.59.V.000) Gross Total Income Less: Deductions under Chapter VI A: (a) Deduction under section 80C Tuition fee paid to university for full time education of her daughter (b) Deduction under section 80D Medical insurance premium (maximum allowable upto ` 15. game show Tax on balance income of ` 1.70.500 2.000 50.000 1.47 Additional deduction of 75% for amount paid to scientific research association (Since weighted deduction of 175% is available in respect of such payment) Add: Items of expenditure not allowable while computing business income (i) Rent for her residential accommodation included in Income and Expenditure A/c (ii) Municipal tax paid relating to residential house at Surat included in administrative expenses IV Income from other sources (a) Interest on income-tax refund (b) Dividend from UTI Less : Exempt under section 10(35) (c) Winnings from the game show on T.500 Nil 50.000 15.Computation of Total Income and Tax Payable 8. (` 35.900 15.500 1.000 + ` 15.950 450 10.000 55.91.000 1.000 300 150 .V.79.000 2.000 Nil 15.900 Add: Education cess @ 2% Add: Secondary and higher education cess @ 1% 1.49.900 1.000 32.29.000 from T.500 10.12.000 1.950 30.450 3.00.02.

12. on 5.47. on 15.000 should be deducted to arrive at the tax payable.000). since she owns a house in Surat which she has let out. (ii) (iii) It has been assumed that Dr.2011 @ ` 98 each and sold the .000 16.8.500 17. TDS of ` 15. while computing tax liability.560 1.48 Taxation Total Tax payable Less: TDS Net Tax Payable 15.12.85.8. X is a resident individual.800 37.160 Depreciation has been calculated as per the Income Tax Rules at ` 75. Interest received will be taxed under the head “Income from other sources”. Hence. 150 shares of PQ Co.2011 @ ` 60 each.500) Agricultural income Short term capital gain on sale of investment Dividend from Indian Company Amount 5.25.500 plus TDS ` 2.000 in a notified scheme under Post Office Time Deposit Rules. she would not be eligible for deduction u/s 80GG. should be grossed up for the chargeability under the head “Income from other sources” (` 35.000 450 Notes: (i) The principal amount received towards income-tax refund will be excluded from computation of total income.09.2011 @ ` 112 each and 150 shares of AB Co.160 By Gross Profit Commission Rent received Interest on debentures (Net amount ` 22.V. Winnings from game show are subject to tax @30% as per section 115BB.2010 @ ` 75 each.294 6.25. on 3. Ltd.000 He has deposited ` 35.500 25. Thereafter.85.500 1.656 42. (iii) He had bought 200 shares of AB Co.650 3. 1981 for a five year time period. Ltd. Winnings from game show on T. Ltd.000 3.000 45. Niranjana is staying in a rented premises in Surat itself.000 29. Question 21 Mr. 2012 is given below: To General charges Insurance Staff Salary Donation to political party Depreciation Administrative expenses Advance tax Net Profit (i) (ii) Amount 35. His Profit and Loss account for the year ending 31st March.12.450 15. on 05.860 6.000 + ` 15. Ltd.000 1. He sold all the shares of AB Co.000 __ 6.

X for the assessment year 2012-2013.000 40. (v) Donation to the political party represented the contribution made to a political party registered under section 29A of the Representation of the People Act.500 was reimbursed to him by an insurance company.850.64.2011. (vii) He incurred expenditure of ` 40.Computation of Total Income and Tax Payable 8. X for the Assessment year 2012-13 1.500 1. (iv) One of his life insurance policies matured on 14. 1951. 4. Ltd. All shares were sold in National Stock Exchange through a registered broker.500 2. recovered during the year ` 15. Particulars Income from House Property ( Note 1) Profits and gain of business or profession (Note 2) Capital gains (Note 3) Income from other sources (Note 4) Gross Total income Less : Deductions under Chapter VIA (i) Deduction under section 80C (Note 5) (ii) Deduction under section 80DDB in respect of expenditure on medical treatment incurred on treatment of his father Less: Expenditure reimbursed by insurance company (iii) Deduction under section 80GGC in respect of contribution to the Political Party (Note 11) Total income Components of total income Special Income ` ` ` 26.000.870 . Compute total income and tax payable thereon by Mr. 1962.000 on treatment of his dependent father who was suffering from specified disease as defined in rule 11DD of Income Tax Rules.500 32.95. The payment of medical expenses was made by cheque and an amount of ` 7.250 2.580 (including interest of ` 1. (vi) Income tax department refunds ` 42.2012 @ ` 102 each.00.450 33.62. (vii) Bad debt of a business which was discontinued in earlier years.000 and amount received on maturity was ` 1.470 3.000 68.370 35. on 10.000 7.470) which was directly credited in his personal savings account.78.3. 2. The sum assured was ` 1.49 shares of PQ CO.6.200 26. Answer Computation of taxable income and tax payable by Mr. 3.

667 16.151 2.91.670 Less: Tax on agricultural income plus basic exemption limit aggregating to ` 2.500 Nil 37.500 4.56.500 11.349 1.000 7.50 Taxation Short-term capital gains from sale of shares (chargeable at a special rate of 15% u/s 111A) Normal income 4.670 2.000 Income tax payable Add : Education cess @ 2% Secondary and higher education cess@1% Total tax Less : Tax deducted at source 630 NIL 10% 0 15.200 Tax on agricultural income plus nonagricultural income aggregating to ` 3.000 Next 45.95. X for the A.651 17.670 First 1. 2013-14 Tax on short-term capital gains from sale of shares @ 15% of ` 4.25.297 Nil 10% 0 4.797 236 118 12.870 Computation of tax payable by Mr.80.000 2.Y.500 4.8.80.500 9.000 Next 1.36. Less: Advance tax paid Tax refundable Notes: Computation of Income from House Property Gross Annual Value (GAV) Rent received is taken as the GAV in the absence of other information Less: Municipal taxes paid Net Annual Value (NAV) 37.000 First 1.667 15.500 .667 15.200 2.670 3.25.36.

000 5.000 Donation to political party 1.000 14.656 Advance tax (Note 9) 17. Since the holding period of 200 shares of AB Ltd.800 (1500) 4.250 26. Ltd.950 37.000 2.200 Long term capital gains on sale of shares Long-term capital gains on sale of 200 shares of AB Co. is more than twelve . Ltd.47.300 16. Computation of Profits and gains of business or profession Net profit as per Profit & Loss account Add : Inadmissible expenses Depreciation charges 1.000 5.000 45.500 3. Sale consideration 150 shares @ ` 98 each Less: Cost of 150 shares @ ` 60 each Shares of PQ Co.656 15.450 75. Sale consideration 150 shares @ ` 102 each Less: Cost of 150 shares @ ` 112 each 11.25.700 9.450 29. is exempt under section 10(38).200 33.Computation of Total Income and Tax Payable 8.53. Computation of Capital Gains Short term capital gains on sale of investment Short term capital gains on sale of shares Shares of AB Co.000 16.294 1.05.43.000 Add: Recovery of bad debt (Note 8) Less : Income chargeable under any other head / exempt income Rent received Interest on debentures (gross) Agricultural income (Note 10) Short term capital gain on sale of investment Dividend from Indian Company (Note 10) Less: Depreciation as per Income-tax Act 3.000 1.500 25.250 3.78.51 Less: Deduction under section 24 @ 30% of NAV 2. Ltd.000 29.700 15.52.

000 86.000 7.470 Income from other sources 26. However.000 Consultation fees 6.000 7.470 5. Capital Gains Nil 33.000 Interest on Post Office MIS 2.000 Cost of medicines recovered 66. Recovery of bad debts. is eligible for deduction under section 80C.000 Interest on refund from IT authority (Note 7) 1. is taxable under section 41(4). 1981. whether or not the business or profession in respect of which the deduction has been allowed is in existence at the time when it is recovered.35.35.52 Taxation months. His Income and Expenditure Account for the year ending 31st March. 11.000 20. 6. ` 3.400 ` 11. 1951 is deductible under section 80GGC.85. 10.000) 5.000) 5. the capital gain on sale of such shares is a long-term capital gain and hence.400 .200 Computation of Income from other sources Interest on debentures 25. Contribution to a Political Party registered under section 29A of the Representation of the People Act.40.000 25.35.000 Interest on Time Deposit with bank (Net of TDS ` 3.000 Rent received 42. Five year time deposit in an account under Post Office Time Deposit Rules.900 21.400 27. assumed to be allowed in full in an earlier year.98. 9.500 Winning from lotteries (Net of TDS ` 3.70.000 21. Question 22 Dr.78.85. Refund of income tax is not taxable.000 Stock of medicine 1. 8. Parekh is a resident individual. The maturity proceeds of the life insurance policy are exempt under section 10(10D) assuming that the policy does not fall under the exceptions stated under that section. Advance tax is not allowable as deduction. exempt from income-tax. Agricultural income is exempt under section 10(1) and dividend from an Indian company is exempt from tax under section 10(34). interest on such refund is chargeable to tax under the head “Income from other sources”. 7.8. 2012 is given below: To Salary to staff Cost of medicine Rent Administrative cost Advance tax Membership fees Depreciation on apparatus Net profit Amount By Amount 4.

(v) Paid ` 22.000 for his own life. (viii) Depreciation as per Income-tax Rules. He received salary of ` 1. 3.000 Rate of depreciation @ 15% (ix) Cost of lottery tickets amounting to ` 350 has not been debited to Income and Expenditure account. Parekh for the A. Parekh for the assessment year 2012-13.Computation of Total Income and Tax Payable 8.60. 1962 to be computed as follows: WDV as on 1.000 10. 2.50.00.000 1.500 by cheque as mediclaim insurance premium for his medical treatment.00.) Parekh is also an equal partner.71.300 (i) 1.900 8.2011 Rs 3. (iii) He received fees of ` 50.15.28.000 2.300 .000 Life insurance premium paid 80. 2012-13 1.400 11.000 (ii) 15.4.53 (i) (ii) He has deposited ` 70. You are required to compute the total income and tax payable thereon by Dr.000 from University of Trividad as lecturer.000 paid for municipal tax for the house let out to a tenant.500 Deduction restricted to Total income ` ` 11.000 from LIC Jeevan Suraksha. (iv) Received pension of ` 84.000 from a nursing home in which Dr. (vi) He paid LIC premium of ` 80.000 in PPF.000 and commission of ` 50. Answer Computation of total Income and tax payable by Dr. (vii) Cost of administration includes ` 3. (Mrs. ` Income from House Property (Note 1) Profits and gains of business or profession (Note 2) Income from other sources (Note 3) Gross Total income Less: Deductions under Chapter VIA Deduction under section 80C Investment in PPF 70.43.50.000 Deduction restricted to Deduction under section 80D Mediclaim premium paid by cheque for himself 22. Y.000 1.

000 65.300) First 1.900 .000 Nil Next 3.000 Computation of Tax Tax on winnings from lotteries @ 30% Tax on normal income (` 10.490 1.490 1.000 10% Next 3.300 10.490 1.20.18.59.80.100 11.18.000 17.40.000 1.900 5.65.210 1.18.8.305 3.000 6.57.28.57.00.60.605 1.000 (-) 80.695 Working Notes: Note 1 Computation of Income from House Property Gross Annual Value – Rent received (treated as fair rent) Less : Municipal taxes paid Net Annual Value (NAV) Less : Statutory deduction under section 24 @ 30% of NAV Income from House Property Note 2 Computation of Profits and gains of business or profession Net Profit as per Income & Expenditure Account Add : 20.000 3.000 60.300 3.18.000 20% Balance 2.000 5.54 Taxation Components of Total Income Special income : Winning from lotteries (chargeable at special rate @ 30% u/s 115BB) Normal income 10.300 Income tax payable Add: Education cess @2% Secondary and higher education cess @1% Total Tax Payable Less: Tax deducted at source from Interest from lottery income Less : Advance tax paid Refund 0 32.70.000 3.490 3.305 2.000 10.300 30% 10.

000 Note 3 Computation of Income from Other Sources Interest Post Office MIS 86. . amount spent on lottery tickets being ` 350.000 Commission from Nursing home as partner 50.000 7.400 6.400 Note 4 Advance Tax is not allowable as deduction.400 27.000 2. Note 5 Depreciation of Apparatus : WDV as on 1.3.00. 1961 42.50.000 Pension from LIC Jeevan Suraksha 84.71.000 Income from business 8.000 Winning from lotteries (Gross) 10.000 WDV as on 31.Computation of Total Income and Tax Payable 8.000 Fees from University of Trividad 50.2012 2.40.55.500 3. Therefore.400 20.00.85. commission or remuneration by whatever name called due to or received by a partner of a firm from the firm shall not be treated as salary but it shall be treated as income from business or profession for the purposes of section 28. no expenditure can be allowed against winnings from lotteries.500 8.000 2.000 86.000 2. Note 7 As per section 58(4).56. cannot be allowed as deduction from income from winnings of lotteries.000 Depreciation @15% 45.2011 3.55 Depreciation charged Municipal Taxes paid Advance Tax (See Note-4) Less: Rent received Interest on Post Office MIS Interest on Term Deposit with bank (Net of TDS) Winning from lotteries (Net of TDS) Depreciation as per Income-tax Act.000 Salary from Nursing Home as partner 1.000 Note 6 Any salary.000 45.71.85.400 Interest on Term Deposit with Bank (Gross) 30. bonus.000 1.4.000 Income from Other Sources 2.60.

000 36. (f) Mr. other than this gratuity.000 3.8.45. after putting in 25 years and 9 months of service.m. Computation of total income of Mr.15.Y.2012-13 Particulars Income from Salaries Basic salary (` 25.15.000 p.2011 at the age of 58. His average salary in this regard may be taken as ` 24.250 3.500 p.000.000 for the period upto 31.56. (e) After retirement. Mr.000 p. He was not covered by the payment of Gratuity Act. (a) Mr.500 in National Savings Certificates.56 Taxation Note 8 Pension from LIC Jeevan Suraksha is taxable as Income from other sources. (b) He was paid a salary of ` 25. during his tenure of service.06.500. and house rent allowance of ` 6.2012.000 3.000 2.000 43. he was paid a gratuity of ` 3. He paid rent of ` 6.500 in public provident fund and ` 37.3.3.000 was received by him in this regard. X at the time of his retirement.000 Answer 18.000 x 9 months) House rent allowance Actual amount received Less : Exemption under section 10(13A)(Note 1) Gratuity Actual amount received Less: Exemption under section 10(10)(iii) (Note 2) Leave encashment Actual amount received Less : Exemption under section 10(10AA) (Note 3) Gross Salary ` ` ` 2.12.500. His average salary may be taken as ` 24. he ventured into textile business and incurred a loss of ` 80. (d) He had accumulated leave of 15 days per annum during the period of his service. A sum of ` 3. X for the year ended 31.m. from a private company at Mumbai.2012. you are requested to compute his total income and tax payable for the assessment year 2012-13. X for A.m.000 3.000 54. (c) On retirement.25.50. X has invested ` 62.750 . Question 23 From the following particulars furnished by Mr. X retired on 31.750 70. this was encashed by Mr.50. X had not received any other gratuity at any point of time earlier.

00.000 (iii) Cash equivalent of unavailed leave calculated on the basis of maximum 30 days for every year of actual service rendered to the 3.250 employer from whose service he retired (see note 4 below) (iv) Statutory limit 3.750 7.06.00.000 (ii) 10 months average salary (24. X had accumulated 15 days per annum during .00.910 (iii) 50% salary (2) Gratuity of ` 3.500 37.500 – ` 2.500 x 10) 2.500) x 9 months 54. house rent allowance will be exempt to the extent of least of the following three amounts: (i) (ii) HRA actually received (6.15.000 36.56.000 of 3. being the minimum of the following amounts : Actual amount received Half month average salary for each year completed service (1/2 x 24. Since Mr. Gross Total income Less : Deduction under section 80C Investment in Public Provident Fund Investment in NSC Total income Tax on total income Add : Education cess @ 2%and Secondary and higher education cess @ 1% Tax payable Tax payable (rounded off) Note : (1) As per section 10(13A).50.750 62.000 (4) The leave entitlement of Mr.000 (i) Actual amount received 3.905 7.56.57 Profits and gains of business or profession Business loss of ` 80. It is assumed that the leave entitlement of Mr.06.675 230 7.500 x 25) (iii) Statutory limit (3) Leave enchashment is exempt upto the least of the following: (i) (ii) 3.500 Nil 3.000 1. X as per his employer’s rules is not given in the question.000 x 9) Rent paid in excess of 10% of salary (` 6.06.12.500 1.000 to be carried forward as the same cannot be set off against salary income.Computation of Total Income and Tax Payable 8.45.250 10. X as per his employer’s rules is 30 days credit for each year of service.000 2.250 is exempt under section 10(10)(iii).

07.Y.2011.000 p.07.2011. She is a member of Recognised P.000.Y. 50% of DA forms part of pay. Nothing has been repaid to the company towards the loan.X on the basis of 30 days for every year of actual service rendered by him to the employer Less: Leave taken /availed by Mr. She is getting a monthly salary and D.000 + 6. she sold Government of India Capital Indexed Bonds for ` 1.000 on 30.250 Question 24 (i) Smt. he would have availed/taken the balance 15 days leave every year. wherein she contributes 15% of her salary of ` 51.500 /30 = ` 3.000 respectively.10. The lending rate on SBI for a similar loan ia 8% as on 01.being 50% of DA).m. (v) Her employer gave her an interest free loan of ` 1.000 (computed) as rent from a House Property.58 Taxation the period of his service. Leave entitlement of Mr.50. which she purchased on 01. She is a Deputy Manager in a Company in Mumbai. Savita Rani without consideration a few years back.X at the time of his retirement Cash equivalent of earned leave to the credit of Mr. Compute the taxable income and tax liability of Mrs. Her employer also contributes an equal amount. which had been transferred to him by Smt.A.09.50.2011 to one of her son’s wife for the purchase of an Alto Maruti Car. .06. 2011-2012: 785).Y.000 on 01. (vi) During the previous year 2011-2012 she paid ` 15.X at the time of his retirement = 30 days/year x 25 = 750 days = 15 days/year x 25 = 375 days 375 days = 375 × 24. Savita Rani for the A. Savita Rani was born on 01. (ii) (iii) During the previous year 2011-2012. her minor son has earned an income of ` 30. (iv) During the previous year 2011-2012. 2012-2013.000 per month.2001 for ` 80. (45.04.8. of ` 45. She is living in the house of her minor son in Mumbai.000 by cheque to GIC towards Medical Insurance Premium of her dependent mother.F.000 (Cost inflation index – F.000 and ` 12. 2001-2002: 426 and for the F.1944. She also gets a House Rent Allowance of ` 6.X during the period of his service Earned leave to the credit of Mr.

000 516 LTCG 65.800 Excess contribution is (` 91.47. 2012-13.50.e.2001. ` 7.59 Answer Computation of taxable income and tax liability of Smt. ` 7.220 Add : Education cess and Secondary and higher education cess @ 3% Total tax payable Total tax payable (rounded off) .800 – ` 73.000 1.2011 Gross Total Income Deduction under section 80C – in respect of contribution towards recognized provident fund Deduction under section 80D – Mediclaim Total Income Income tax payable on long term capital gains: (i) 20% on ` 2.712 66.000 x 8% x ½) Net Salary Income from house property (of which Smt.9.44.000 x 785/426) * Purchased on 01.e.440) Perquisite in respect of interest free loan (` 1.582 8. Savita Rani is the deemed owner) – (See Note below) Long term Capital Gain: Sale consideration of GOI capital indexed bonds Less: Indexed cost of acquisition (80.582) i.06.228 1.12.50. ` Income from salary Basic salary (` 45. which is ` 91.800 15. Employer’s contribution is 15% of salary.03.000 1. Savita Rani for A.000 (under section 112) Tax on long term capital gain – whichever is less Income tax payable on income other than (i.215 68.142 – 2.360 6.000 72.582 or (ii) 10% of ` 70.000 7.Y.000 1.440.Computation of Total Income and Tax Payable 8.800 7.000 х 12) Dearness Allowance (` 12000 х 12) House Rent allowance (fully taxable) Employer’s contribution to recognized provident fund in excess of 12% is taxable as salary income 12% of salary is ` 73.987 68.06.07.360 30.40.560 ` 5.06.000 1.80.142 516 7.000 18. Transferred on 30.418 2.942 91.

2011 50% of basic pay ` 1.8.62.000 (iii) Actual amount received = ` 3.500 per month He resides in his own house. His salary particulars are given below : Basic pay Basic pay Dearness allowance (Eligible for retirement benefits) Transport allowance ` 10.2011 ` 12.62.00.11.60 Taxation Note: As per section 27. Question 25 Ramesh retired as General manager of XYZ Co.000 60.000 as gratuity from the employer. on 30.00.000 Least of the above i.2011 after rendering service for 20 years and 10 months. Balance is taxable (3.000 is exempt.400) Gratuity (i) Statutory limit ` 10.6. he earned interest income of ` 18.e. Interest on monies borrowed for the self occupied house is ` 24.000 for the year ended 31.000 per month up to 30.03.000 – 1.00.2012.000 . From a fixed deposit with a bank.000 for the year ended 31. Savita Rani.600 1.000 (ii) Half month average salary [See Note below] ` 8. Therefore. (He is not covered by Gratuity Act.000 – 6. ` 1.7.000 45. Ltd.000 (computed) is to be assessed in the hands of Smt.000 х 5) Dearness allowance @ 50% basic pay Transport allowance (` 1500 х 8) less exemption @ ` 800 per month (12.000 5.38. Compute taxable income of Ramesh for the year ended 31. 1972).2012.100 х 20 yrs = 1.62.000 х 3) Basic pay : July to November (12.000) ` 30.000 per month from 1. He received ` 3. the income from house property of ` 30.00. any property transferred to the minor child without adequate consideration would be deemed to be the property of the assessee.03.03.2012 Answer Computation of taxable income of Ramesh for the assessment year 2012-13 ` Income from salary Basic pay : April to June (10.

000 1.000 1.000 1. 1.000 10. The following are the details of their income for the previous year ended 31.000 .62. Both of them are below 60 years. born and brought up at Mumbai. 3.000 -50.000 54.62.Computation of Total Income and Tax Payable 8.000 x 4 Total Add: 50% DA – eligible for retirement benefits Average salary : 1.3. 7.000 2.000 20. Rosy got married in 1979 and settled at Canada since 1979.08.00.000 16.00.61 2.200 8.72.200 / 2 Question 26 Rosy and Mary are sisters.000 -- ` 10.000/10 Half month average salary 16. 2.600 60.100 ` 20. 4.000 2.600 Income from house property: Self occupied – ALV Less: Interest on monies borrowed under section 24 Income from other sources: Fixed deposit interest Total income Note : Average salary of 10 months preceding the date of retirement is to be computed : Basic pay 10.000 -10.78. Particulars Pension received from State Government Pension received from Canadian Government Long-term capital gain on sale of land at Mumbai Short-term capital gain on sale of shares of Indian listed companies in respect of which STT was paid LIC premium paid Premium paid to Canadian Life Insurance Corporation at Canada Mediclaim policy premium paid Rosy Mary Nil 24. 6.000 48.No.2012: S.000 -5. 5.000) 18.000 (24.000 x 6 Basic pay 12. Mary got married and settled at Mumbai.

000 9. 2.00. Gross Total Income [(I)+(II)+(III)] Less: Deductions under Chapter VIA Deduction under section 80C 1. Mary ` 10.62. Taxation Tax saving bond purchased in March.000 Tax Saving Bond (assuming that they are notified .000 2. 3.2012-13 S. Rosy ` (I) Salaries Pension received from State Government Pension received from Canadian Government is not taxable in the case of a non-resident since it is earned and received outside India (II) Income from house property Rent received from house property at Mumbai (assumed to be the annual value in the absence of other information i. Answer Computation of taxable income of Mrs.000 Compute the taxable income of Mrs.000 Mrs. 9. Mary for the Assessment Year 2012-13 and tax thereon.8.000 1.20.Y. fair rent and standard rent) Less: Deduction under section 24(a) @ 30% (III) Capital gains Long-term capital gain on sale of land at Mumbai Short term capital gain on sale of shares of Indian listed companies in respect of which STT was paid (A) 1. No. Rosy and Mrs.00.000 30. Particulars Mrs. Mary for the A. Rosy and Mrs.000 30.000 21.000 2.e.000 60.000 50.000 2. LIC Premium paid Premium paid Corporation to Canadian Life Insurance 10.000 1.81.50.62 8.000 60.000 10.000 42.000 18.000 20.000 10. municipal value.000 20. 2012 Rent received in respect of house property at Mumbai 30.000 1.

Mary can set-off unexhausted basic exemption limit against long-term capital gains and short-term capital gains taxable under section 111A.270 20.000 35.22. (3) In case of resident individuals.000 31.000 40. Deduction under section 80D – Mediclaim premium paid (assuming that the same is paid by cheque) 40. However. Rosy cannot do so. while Mrs.e. if the basic exemption limit is not fully exhausted against other income.000 1. then the long-term capital gains/short-term capital gains will be reduced by the unexhausted basic exemption limit and only the balance will be taxed at 20%/10% respectively.000 (C) .000 (i.000 270 9.40. Therefore. ` 2. (4) Since long-term capital gains is taxable at the rate of 20% and short-term capital gains is taxable at the rate of 15%. (2) Short-term capital gains on transfer of equity shares in respect of which securities transaction tax is paid is subject to tax @ 15% as per section 111A. Mrs.000 and the balance limit of ` 1. it is more beneficial for Mrs.000 less ` 1. 690 23. 1.50.000 5.Y.000 Nil 30.. Mary to first exhaust her basic exemption limit of ` 1.000 3.000.000 23. 2012-13 Tax on long-term capital gains @ 20% Tax on short-term capital gains @ 15% Tax liability of Mrs.000) against short-term capital gains.Y.000 – 50.000 (B) otal deduction under Chapter VIA is restricted to income other than capital gains taxable under sections 111A & 112 Total income (A-B) Tax liability of Mrs. Mary for A. Rosy for A.000 30. being the unexhausted basic exemption limit as per proviso to section 111A] Education cess @ 2% & SHEC@ 1% Total tax payable Note : (1) Long-term capital gains is chargeable to tax @ 20% as per section 112.000 20.690 9. this benefit is not available to non-residents.63 infrastructure bonds eligible for deduction under section 80C) 2.90.e.00.000 2.000 against long-term capital gains of ` 50.90.000 40.Computation of Total Income and Tax Payable 8.000 [i.2012-13 Tax on short-term capital gains @ 15% of ` 60.40.

He also owns a residential house. 2009 for ` 8.000). 2012 are as follows: Basic Salary HRA (Computed) Transport allowance (i) (ii) Rs 5.89. Mr.64 Taxation Question 27 Mr. 2011: Name A Ltd. and has repaid ` 1. Compute the total income of Mr.T.400 Apart from the above.000 . of shares 200 125 ` 150 ` 82 ` 120 ` 65 Sale proceeds were subject to brokerage of 0.000 (purchased in April. 2012: Laptop computer for ` 20. his employer has sold the following assets to him on 1st January.750 (including interest ` 750) relating to the assessment year 2010-11.115 750 10. Answer Computation of total income of Mr. The fair rental value of the property for the let out period is ` 1. The house was self-occupied by him from 1st January.1% and securities transaction tax of 0. Rajesh for the A.000 (Acquired in September.665 9.8.000. 2010 for ` 1.20.Y.000) during the year.000). let out for a monthly rent of ` 15. He has taken a loan of ` 20 lacs for the construction of the property.40.05.075% on the gross consideration.86.50. B Ltd.000. Sale value (per share) Purchase price (per share) Acquired on 2nd May. His total emoluments for the year ended 31st March. 2012.00. Car 1800 cc for ` 3.000 ` 1. He received income-tax refund of ` 5. Rajesh for the Assessment Year 2012-13.000 (including interest ` 40. Rajesh is serving in a public limited company as General Manager (Finance).20.000 ` 12. Rajesh sold shares of different Indian companies on 14th April. 2012-13 ` Income from salaries (Working note 1) Income from house property (Working note 2) Capital gains Short-term capital gains (Working note 3) Income from other sources: Interest on I. refund Gross Total Income 2. 2006 16th April. 2012 to 31st March.50.800 1. 2010 No.80.

000 8. 2011] Less: Amount paid to the employer Perquisite value of laptop (A) Car Cost [April.40.Computation of Total Income and Tax Payable 8.24. Working Notes : ` 1.000 1.000 2.36.20.50.64. Income from salaries Basic Salary HRA (computed) Transport allowance Less: Exempt under section 10(14) [` 800 ×12] Perquisites (relating to sale of movable assets by employer) Laptop Computer Cost [September.000 5.000 1.65 Less: Deduction under Chapter VIA Deduction under section 80C Repayment of housing loan (principal) [See Note below] Total Income Total Income (rounded off) 65.000 20.24.000 2.000 40.600 2.800 . a bank) for the purpose of availing deduction under that section.000 12. 2011] Less: Amount paid to the employer Perquisite value of car (B) Perquisite value (A) + (B) Income chargeable under the head “Salaries” ` 5.80.665 10.44.70.800 1.000 9.20.000 6.400 9.000 10. 2009] Less: Depreciation for the 1st year (April’09 to March’10) @ 20% of WDV WDV [April.000 3.86.000 1. 2010] Less: Depreciation at 50% for one completed year WDV [September.80. 2010] Less: Depreciation for the 2nd year (April’10 to March’11) @ 20% of WDV WDV [April.670 Note : It is presumed that the housing loan has been taken from a borrower approved under section 80C (for example.000 60.24.000 60.

This implies that the benefit of taking the annual value as nil would be available only if the house is self-occupied for the whole year. since the transaction is subject to securities transaction tax. for more than 12 months. Shares in B Ltd. In such a case. Since Mr. Accordingly.66 2.Rajesh has held shares of A Ltd.000 40. Taxation Income from house property Section 23(2) provides that the annual value of a self-occupied house shall be taken as Nil. the fair rent for the whole year should be compared with the actual rent for the let-out period and whichever is higher shall be adopted as the Gross Annual Value. 3. that securities transaction tax is not a deductible expenditure.000 Note : It is presumed that the interest of ` 40.000 × 12/9 Actual rent received Less: Municipal taxes Net Annual Value (NAV) Less: Deductions under section 24 30% of NAV Interest on loan [See Note below] Income from house property 60. which is exempt under section 10(38). if such transaction is chargeable to securities transaction tax. Income chargeable as “Capital Gains” Section 10(38) exempts long-term capital gain on sale of equity shares of a company.000 = ` 15.000 paid on housing loan represents the interest actually due for the year.000 Nil 2. Short-term capital gains arising from sale of shares of B Ltd. therefore. since securities transaction tax has been paid on such sale. are held for less than 12 months and hence the capital gains arising on sale of such shares is a short-term capital gain chargeable to tax @15% as per section 111A. Particulars Gross Annual Value (higher of fair rent for the whole year and actual rent for the let-out period) Fair rent for the whole year = ` 1. the benefit of taking annual value as Nil is not available since the house is self-occupied only for 3 months. Sale consideration (82 × 125) 10.000 ` ` 2. however.50. section 23(3) provides that the benefit of self-occupation would not be available if the house is actually let during the whole or part of the previous year. It may be noted.250 . the gross annual value has to be computed as per section 23(1). However.000 1.00.000 × 9 2.00.00.000 1.00.000 1.8. the gains arising from sale of such shares is a long-term capital gain. In this case.35.00.

900 from the same.000.10.m.a.000 and bank interest is ` 5.1.000 p. He declares an income of ` 34. ` 9.1% Net sale consideration Cost of acquisition (65 x 125) Question 28 Mr. Ram for the Assessment Year 2012-13 ` Income from Salary Basic Salary ( ` 20.000 × 12) ` 2. 10 10.2012.2011 5 lakhs 10% p.67 Less: Brokerage @ 0.Computation of Total Income and Tax Payable 8.000 and ` 5. paying a rent of ` 6. (v) Interest from company deposits is ` 15. .2011 1 lakh 9 % p.000.125 2. requests you to compute his total income and the tax payable thereon for the assessment year 2012-2013 from the following: (i) Basic Salary CCA HRA (ii) .000 per month.00. Ram.20. (vii) Loss carried forward arising from speculating in shares during the preceding previous year and eligible for set-off is ` 1.000 towards pension fund of LIC.115 Ram resides in Chennai. (viii) Ram has invested ` 12.000 in PPF. (vi) Interest is payable on bank loans availed for buying the truck and making company deposits as follows:Purpose Date of loan Amount Interest rate Truck purchase 1.000 respectively.000) and ` 15. ` 52.m. ` 10.000 as life insurance premium on his own life (sum assured ` 40.6.m.240 8.000 p.000.2011 and has been letting it on hire from the same date. Answer Computation of total income of Mr.3.40.000 p. (iii) Ram is paid an education allowance of ` 500 per month per child for all the three of his children. who does not maintain books of account for the year ended 31. Actual expenses (tuition fees only) amounts to ` 15.000 in notified equity linked saving scheme of UTI.4.5. .a. Company deposit 1.000 . (iv) He bought a heavy goods vehicle on 7.

100 Add: Education cess @ 2% and SHEC @ 1% Tax Payable Notes : 50. estimated income from each heavy vehicle will be deemed to be ` 5.000 Least of the above i.000 – ` 24.e.000 = ` 1.000 48.000 1.e.400 12.45.000 1.000 15.100 97.000 (3) Actual HRA received = 5.79.00.600 CCA (` 1.100 6.2012-13 Tax on ` 2.000 15.000 4.500 3.000×10) [See Note 2 below] Income from Other Sources Interest from company deposits Bank interest Less: Deduction under section 57 ` 1.000 × 12 = ` 60.000 20.for every .40.000 (2) Excess of rent paid over 10% of salary = ` 72.510 195 6.12.000 × 12) Less: Exempt u/s 10(13A) [See Note 1 below] Education Allowance (500×12×3) Less: Exempt u/s 10(14) (100×12×2) Income from Salary Profits and gains from business or profession Income from the business of letting on hire.8.45.000 18.Y.45.68 Taxation 12.` 48.000 × 12) HRA (` 5.500 15.00.000 60. 50% of ` 2.000 5.000 2.000 15. a heavy vehicle u/s 44AE (5.000 @ 9% for 6 months–towards loan interest Gross Total Income Less: Deduction under Chapter VI-A Under section 80C [See Note 4 below] Under section 80CCC restricted to Total Income Computation of tax payable for the A.000 2.000 = ` 48.20.000 is exempt under section 10(13A) (2) In the case of a person owning not more than 10 vehicles at any time during the previous year.000/.600 2.705 (1) HRA is exempt to the extent of the least of the following under section 10(13A) (1) 50% of salary (as the city is Chennai ) i.

3. however.000. The construction was completed on 31. On 23.m. it cannot be considered.000. 12. The cost of construction of each block is ` 5 lacs (fully met from bank loan). Also. such amount will be considered as income. (3) Brought forward loss from speculation business can be set off only against income from speculation business and not against other business income.4.3. since the assessee declares a lower amount.20.000 8. The income computed in respect of business prior to adjustment towards depreciation on any asset is ` 2. (6) Total deduction under sections 80C. Municipal tax paid in respect of each block was ` 12.000 52. The other block has been let out from 1. Presumptive income = ` 5.2012. since no books of account are maintained. Question 29 Mr.2011 to his cousin for ` 10. he sold shares of B Ltd. the assessee declares a higher amount.2012.2011. he had to pay a penal interest of ` 2.000 as per section 80CCE.3.000 25.. 80CC and 80CCD is limited to ` 1. Securities transaction tax paid may be taken as ` 220.000 97. In the instant case. Principal repayment for each block was ` 23.80.000 is deductible under section 80CCC.000 made at the end of the year. Ashok owns a property consisting of two block of identical size.30.000 .000 If.Computation of Total Income and Tax Payable 8. An identical block in the same neighbourhood fetches a rent of ` 15.00.000 in respect of each block on account of delayed payments to the bank for the borrowings.000 per month.000. The normal interest paid by him in respect of each block was ` 42. During the year ended 31.69 month or part of the month during which the heavy vehicle is owned by the assessee during the previous year [Section 44AE]. (4) Deduction under section 80C: Investment in notified equity linked saving scheme of UTI Investment in PPF Life insurance premium on own life restricted to 20% of sum assured Tuition fees paid for two of his children (Most favourable to Ram) (5) Contribution to pension fund of LIC ` 15.a. Depreciation on equipments used for business is ` 30. The first block is used for business purposes. interest is not deductible.000.000 × 10 = 50.000 p.000. a listed share in BSE for ` 2. since under section 44AE.000. rate of interest on bank loan is 10% p. The share had been purchased 10 months back for ` 1. all deductions under sections 30 to 38 are deemed to have been allowed.

Ashok for the A.000 for his son aged 22.000 1. Ignore the interest on bank loan for the period prior to 1.80.600 Nil 1. The premiums were paid by cheque.400 67.20. engaged as a software engineer and drawing salary of ` 25.000 60.68.000 on his life and ` 12.000 ` ` ` Profits and gains of business or profession [See Note II] Income prior to adjustment for depreciation Less : Depreciation on equipments used for business Depreciation on building ` 5.000 50.000 .70 Taxation Brought forward business loss of a business discontinued on 12.40. Mediclaim premium of ` 6.m.000 for himself and ` 5.000 80.000 1.Y. You are required to compute the total income for the assessment year 2012-13 and the tax payable. as the bank had waived the same.000 @ 10% Less: Set off of brought forward business loss relating to discontinued business [ See Note III] 30.000 50.000 p. The following payments were effected by him during the year : (i) (ii) LIP of ` 20.00.000 1.000 for above son. hence ALV House block 2 let out (higher of fair rent and rent receivable) Less: Municipal tax paid Net annual value (NAV) Less: Deductions under section 24 (a) 30% of NAV (b) Interest on bank loan @ 10% on ` 5.000 2.2011.2012-13 Particulars Income from house property [ See Note I ] House block 1 used for business. The various heads of income should be properly shown.2011 is ` 80.4.400 50. This loss has been determined in pursuance of a return of income filed in time and the current year is the seventh year.1.000 80.000. Answer Computation of total income of Mr.000 12.8.00.00.

e.) or the actual rent received (` 10. Hence the depreciation allowable during the year is ` 80.000 50.80. The depreciation on the first block is ` 50.m. the annual value of the first block is not chargeable to tax under the head “Income from house property”.00.000 Deduction under section 80D (for self) Total income Tax on total income Notes : I– On computation of Income from house property (i) The annual value of the house property which is used for business would not fall under the head “Income from house property”.m.m.16. As regards the second block. penal interest is not deductible. Interest due during the year in respect of the second block is ` 50.000 1. However. 10% of ` 5 lakhs). Ashok can claim depreciation @ 10% on the building used by him for business purposes.000 (being 10% of ` 5. Therefore. II – On computation of Profits and gains of business or profession Mr. ` 15. The Gross Annual Value (GAV) of the block is the higher of fair rent (i.. ` 15.000 p. .000 (i.000 p. which is allowable as deduction under section 24(b).71 Capital Gains [See Note IV] Short term capital gains from sale of listed shares Full value of consideration Less : Cost of acquisition Gross Total Income Less : Deduction under section 80C in respect of LIP ` 32.77. the sum for which the property may be reasonably expected to be let is ` 15.600 Nil (ii) (iii) Under section 24(b).) 55.) Hence. interest on bank loan for construction of house is deductible.e.000 1. the GAV of the second block is ` 1.000 (i.Computation of Total Income and Tax Payable 8.000) and depreciation on equipments used for business is ` 30.000 1.80.000 and housing loan repayment in respect of II block ` 23.e.600 6.000.30. However. depreciation there on at 10% has been claimed while computing the income from business.000 61.000 per month.000 p.000 2.000.

10. It includes an income of ` 22. Answer Computation of tax liability of Mrs. 2012-13. A.P. a senior citizen.500 20. IV – On treatment of short-term capital gains (STCG) The listed shares have been sold and securities transaction tax is paid.F. Priti for A.500. Priti. hence it is taxable at 15% as per section 111A. Question 31 Mr.Y. It is assumed Block 2 let out to cousin was used for residential purpose and accordingly principal repayment was considered for deduction under section 80C. aged 59.94. For the purpose of providing deduction under Chapter VI-A. business loss relating to discontinued business is eligible for set off.500.Y.000 from the business of dealing in shares on which she has paid securities transaction tax of ` 1. Question 30 Total income of Mrs.500 2.09. Mediclaim premium paid for self of ` 6. However.000 1. a resident of Mumbai for the financial year 2011-12 is ` 2. Compute her tax liability for the A. V – On computation of deductions under sections 80C and 80D Deduction under section 80C can be claimed in respect of life insurance premium paid for major son.8.000) (before deduction under section 80C) Income from business of dealing in shares – See Note Gross Total Income Less : Deduction under section 80C in respect of PPF deposit Total income ` ` 1. the gross total income should be reduced by the STCG on listed shares.000 in her P. account with the State Bank of India.000 Tax on total income ` 400 plus education cess @ 2% and SHEC @ 1% = ` 412 Note: ` 22.000 is eligible for deduction.000 15.000 less amount of ` 1.88.500 paid towards securities transaction tax eligible for deduction under section 36(1)(xv).500 – ` 22. even though he is not dependent on the assessee. has furnished the following particulars relating to his house properties: .72 Taxation III – On set off of business loss As per section 72.10. She has also deposited ` 15. 2012-13 Particulars Total income other than business of dealing in shares (` 2. deduction under section 80D cannot be claimed in respect of mediclaim premium paid for non-dependant son.

000) (1. 2012-13 ` 1. A and his tax liability for the assessment year 2012-13 Gross total income Less : Deduction under chapter VI-A . House II remained vacant for 4 months. he sold the house immediately for a sum of ` 250 lakhs.000 6.000 785 Compute total income of Mr.18.000 70.000 Loan for both houses were taken on 1.000 12. the fair market value as on 1. With the sale proceeds. A besides the above are as follows (Assessment Year 2012-13) Business loss Income from other sources (Bank interest) Investments made during the year : PPF NABARD bonds Cost inflation index (F.000 90.000 ` 1.000 1.50.Y. Besides the above two houses.000 1.2007. Profits and gains of business Capital gains – long term (See working note 2) Income from other sources – Bank interest (70.00.00.000 75. However.27. The house was purchased in 1960 by his grand father for a sum of ` 2 lakhs.000 9. Income from house property – House I – House II (See working note 1) 2. 2012 for a sum of ` 100 lakhs and the balance was used in his business.73 House I Self occupied House II Let out Nature of occupation Municipal valuation Fair rent Standard rent Actual rent per month Municipal taxes paid Interest on capital borrowed ` 60.000 90.1981 was ` 20 lakhs.000 ` ` 2 lakhs ` 1 lakh ` 70. Due to business commitments. The other income particulars of Mr. 2011-12) Answer Computation of Total Income and Tax liability of Mr.00.000 1.Computation of Total Income and Tax Payable 8.30.20.000) (48.82. 4. A purchased a new house in March. A for A.Y.000) 1. 3.000 90.4.4.000) (2.000 ` 30. A has inherited during the year an old house from his grand father.

Calculation of income from house property House I – Self occupied Annual value Less : Interest as per section 24(b) Loss from house property (House I) House II .74 Taxation 1.86.000 (48.000 @ 20% Education cess@2% and Secondary and higher education cess@1% Total tax payable Working notes: 1.30. ` 72.000 Deduction under section 80C (PPF and NABARD Bonds) Total income Tax liability Total income other than long term capital gain is Nil. As per section 23(1)(c).000] On long term capital gains of ` 1.000 [i.000) account of vacancy and therefore.000) ` 72. Taxable long term capital gain is = 1.000 1.8. ` 1.e. ` 90.000 – basic exemption limit of ` 2.000 x 8) Less :Municipal taxes Net Annual Value (NAV) Less : Deductions under section 24 30% of NAV 18. the actual rent received is taken as the Gross Annual Value.000 (70.e.24.000 60.Let out Gross annual value (` 9.e.000) Note : Interest on capital borrowed will be allowed in full for let out properties.32. the actual rent received (i.000 Interest on borrowed capital 90.60.26.992 ` Nil 70.000) is lesser than the annual letting value on (i.00.000 1.82.24.400 74. where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the annual letting value. In this case.592 25.000 12.50.32.000 Loss from house property (house II) 24.08. then the actual rent received or receivable would be the Gross Annual Value of the property. .00.18.000 – ` 3.

Computation of Total Income and Tax Payable 8.75 2. Computation of Capital Gains Sale consideration Less :Cost of acquisition Less : Exemption under section 54 Taxable long term capital gain ` 2,50,00,000 20,00,000 2,30,00,000 1,00,00,000 `

1,30,00,000

As per the definition in the Explanation to section 48, “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as the Cost Inflation Index for the year in which the asset transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st April, 1981, whichever is later. 3. It has been assumed that the loss from house property and business loss have been setoff fully against long term capital gains. Therefore, ` 1 lakh relating to section 80C investments are deducted against “Income from other sources”. The taxable income represents long term capital gains only and the tax liability is computed accordingly.

Self-Examination Questions
1. Income under the Income-tax Act, 1961, is to be computed under a) b) c) 2. five heads six heads four heads

What is the basic exemption limit for a woman assessee below the age of 60 years at any time during the previous year 2011-12? a) b) c) ` 1,80,000 ` 1,85,000 ` 1,90,000 10% 2.5% Nil

3.

What is the rate of surcharge applicable to individuals? a) b) c)

4.

What is the basic exemption limit for Mrs.X, who is of the age of 60 years as on 30.3.2012? a) ` 1,90,000

8.76 b) c) 5. a) b) c) 6. 7.

Taxation ` 2,40,000 ` 2,50,000 exempt from tax taxable as his business income taxable as his salary

Share of profit of Mr. P, who is a partner in M/s PQR is –

Explain the meaning of total income under the Income-tax Act, 1961. Explain briefly the tax treatment of the following income of Mr. X, who is a partner in the firm M/s. XYZ – (i) (ii) Salary received by Mr. X from M/s. XYZ. Interest (on loan) received from M/s. XYZ.

(iii) Share of profit from the firm. 8. Discuss the tax treatment of the following income of Mr. A, who is a member of a HUF(i) (ii) 9. Share of income from HUF. Income from an impartible estate of the HUF.

(iii) Income from self-acquired property converted into joint family property. Explain the various steps involved in computation of total income and tax liability of individuals.

Answers
1. a; 2. c; 3. c; 4.c; 5. a

9
PROVISIONS CONCERNING ADVANCE TAX AND TAX DEDUCTED AT SOURCE
Question 1 Ashwin doing manufacture and wholesale trade furnishes you the following information : Total turnover for the financial year ` 2010-11 65,00,000 2011-12 55,00,000 State whether tax deduction at source provisions are attracted for the below said expenses incurred during the financial year 2011-12: Interest paid to UCO Bank Contract payment to Raj (2 contracts of ` 12,000 each) Shop rent paid (one payee) Commission paid to Balu Answer As the turnover of Ashwin for F.Y.2010-11, i.e. ` 65 lakh, has exceeded the monetary limit of ` 60 lakh prescribed under section 44AB, he has to comply with the tax deduction provisions during the financial year 2011-12, subject to, however, the exemptions provided for under the relevant sections for applicability of TDS provisions. Interest paid to UCO Bank TDS under section 194A is not attracted in respect of interest paid to a banking company. Contract payment of ` 24,000 to Raj for 2 contracts of ` 12,000 each TDS provisions under section 194C would not be attracted if the amount paid to a contractor does not exceed ` 30,000 in a single payment or ` 75,000 in the aggregate during the financial year. Therefore, TDS provisions under section 194C are not attracted in this case. Shop Rent paid to one payee – Tax has to be deducted under section 194-I as the rental payment exceeds ` 1,80,000. ` 41,000 24,000 1,90,000 7,000

9.2

Taxation

Commission paid to Balu – Tax has to be deducted under section 194-H as the commission exceeds ` 5,000. Question 2 List any 5 instances where the tax deductible at source in terms of section 194A will not apply. Answer The provisions of section 194A will not apply where the interest credited or paid does not exceed ` 10,000 where the payer is a banking company or a cooperative society engaged in the business of banking or where the interest is on any deposit with post office under any scheme framed by the Central Government and notified by it. In respect of other cases, TDS provisions under section 194A would not apply where the interest credited or paid or likely to be credited or paid during the financial year does not exceed ` 5,000. The provisions of section 194A will not apply in the following cases where the (1) interest is credited or paid by a firm to a partner of the firm; (2) interest is credited or paid to any banking company or any financial corporation established by or under a Central, State or Provincial Act or Life Insurance Corporation of India or Unit Trust of India or any company or co-operative society carrying on the business of insurance or such other institution, association or body or class of institutions, associations or bodies notified by the Central Government; (3) interest credited or paid by a co-operative society to a member thereof or to any other cooperative society; (4) interest credited or paid in respect of deposits under any scheme framed by the Central Government and notified by it in this behalf; (5) interest credited or paid in respect of deposits with primary agricultural credit society or a primary credit society or a co-operative land mortgage bank or a co-operative land development bank; (6) interest income credited or paid by the Central Government under any provision of the Income-tax Act, the Estate Duty Act, the Wealth-tax Act etc.; (7) income credited or paid by way of interest on the compensation amount awarded by the Motor Accidents Claims Tribunal where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid during the financial year does not exceed ` 50,000; (8) income paid or payable by an infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank in relation to a zero coupon bond issued on or after 1.6.2005. Note – Any five of the above mentioned may be given in the answer.

Provisions concerning Advance Tax and Tax Deducted at Source Question 3 Answer the following question with regard to the provisions of the Income-tax Act, 1961:

9.3

State the concessions granted to transport operators onwards in the context of cash payments under section 40A(3) and deduction of tax at source under section 194-C. Answer Section 40A(3) provides for disallowance of expenditure incurred in respect of which payment or aggregate of payments made to a person in a day exceeds ` 20,000, and such payment or payments are made otherwise than by account payee cheque or account payee bank draft. However, in case of payment made to transport operators for plying, hiring or leasing goods carriages, the disallowance will be attracted only if the payments made to a person in a day exceeds ` 35,000. Therefore, payment or aggregate of payments up to ` 35,000 in a day can be made to a transport operator otherwise than by way of account payee cheque or account payee bank draft, without attracting disallowance under section 40A(3). Under section 194C, tax had to be deducted in respect of payments made to contractors at the rate of 1% in case the payment is made to individual or Hindu Undivided Family or at the rate of 2% in any other case. However, no deduction is required to be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor, during the course of the business of plying, hiring or leasing goods carriages, if the contractor furnishes his permanent account number (PAN) to the person paying or crediting such sum. Question 4 Briefly discuss the provisions relating to payment of advance tax on income arising from capital gains and casual income. Answer The proviso to section 234C contains the provisions for payment of advance tax in case of capital gains and casual income. Advance tax is payable by an assessee on his/its total income, which includes capital gains and casual income like income from lotteries, crossword puzzles, etc. Since it is not possible for the assessee to estimate his capital gains, or income from lotteries etc. it has been provided that if any such income arises after the due date for any installment, then, the entire amount of the tax payable (after considering tax deducted at source) on such capital gains or casual income should be paid in the remaining installments of advance tax, which are due. Where no such installment is due, the entire tax should be paid by 31st March of the relevant financial year. No interest liability on late payment would arise if the entire tax liability is so paid.

9.4

Taxation

Question 5 What are the due dates of instalments and the quantum of advance tax payable by companies? Answer The due dates of installments and quantum of advance tax payable by a company assessee are as under: Due date of installment On or before the 15th June On or before the 15th September On or before the 15th December On or before the 15th March Question 6 What are the consequences of failure to deduct tax at source or pay the tax deducted at source to the credit of Central Government? Answer Refer to pages 9.27 of Study Material. Question 7 Briefly explain the provisions of section 197 in respect of obtaining certificate for deduction of tax at a lower rate. Answer Refer to page 9.23 of Study Material Question 8 When will tax not required to be deducted at source under section 193 on interest payable to a resident on any security issued by a company ? Answer As per section 193, no tax is required to be deducted at source on any interest payable to a resident on any security issued by a company, where the following conditions are satisfied (i) (ii) where such security is in dematerialised form and is listed on a recognised stock exchange in India. Amount payable Not less than 15% of advance tax liability Not less than 45% of advance tax liability as reduced by the amount paid in earlier installment Not less than 75% of advance tax liability as reduced by the amount paid in earlier installments The whole amount of advance tax liability as reduced by the amount paid in earlier installments

Provisions concerning Advance Tax and Tax Deducted at Source Question 9

9.5

Mrs. Indira, a landlord, derived income from rent from letting a house property to M/s Vaibhav Corporation Ltd. of ` 1,00,000 per month. She charged service tax @ 10.3% on lease rent charges. Calculate the deduction of tax at source (TDS) to be made by M/s Vaibhavi Corporation Ltd. on payment made to Mrs. Indira and narrate related formalities in relation to TDS. What are the consequences of failure to deduct or pay tax? Answer (1) As per Circular No. 4/2008 dated 28th April, 2008 issued by the CBDT, the service tax paid by the tenant does not partake the nature of income of the landlord. The landlord only acts as a collecting agency for collection of service tax. Therefore, tax deducted at source under section 194-I would be required to be made on the amount of rent paid or payable excluding the amount of service tax, i.e. tax has to be deducted under section 194-I on ` 12 lakh. (2) Tax is deductible @ 10% under section 194-I. (3) Hence, in the given case, TDS under section 194-I would amount to ` 10,000, to be deducted every month. (4) Tax deducted should be deposited within prescribed time i,.e. on or before seven days from the end of the month in which the deduction is made and upto 30th April for the month of march. Consequences of failure to deduct or pay tax (Section 201) Refer pages 9.27 of Study Material. Question 10 Explain the difference between tax deduction at source and tax collection at source. Answer Tax deduction at source means any tax which has been deducted at source by the payer at the time of accrual or payment to the payee. Persons responsible for making payment of income covered by the scheme of tax deduction are required to be deducting tax at source at the prescribed rates. Tax so deducted should be deposited within the prescribed time. Tax is largely deducted on expense and not supply of goods. Tax collection at source is effected by the seller from the buyer at the time of debiting the amount to the account of the buyer or at the time of receipt of amount, whichever is earlier. Certain specified goods when sold must be subjected to tax collection at source and taxes collected thereon must be remitted into government's account within the prescribed time.

Self-Examination Questions
1. Under section 194G, any person making payment by way of commission or remuneration exceeding ` 1000 to any person stocking, distributing, purchasing or selling lottery tickets is liable to deduct tax at the rate of a) 10%

5. 2. a. 10. c. are vested with the liability to deduct tax at source? Discuss. The rate of TDS on rental payments of plant. machinery or equipment is a) b) c) 4. Taxation 20% 30% Any person responsible for paying to a resident any sum exceeding ` 1 lakh towards compensation for compulsory acquisition of his urban industrial land under any law has to deduct income-tax at the rate of a) b) c) 10% 15% 20% 2% 5% 10% interest is payable under section 234A interest is payable under section 234B interest is payable under section 234C interest is payable under section 234A interest is payable under section 234B interest is payable under section 234C 3.9. What is the time-limit for passing an order under section 201(1) deeming a person to be an assessee-in-default for failure to deduct tax from a person resident in India? Answers 1. a. Explain the meaning of the following terms in the context of section 194J (a) Professional services (b) Fees for technical services 8.6 b) c) 2. who are liable to get their accounts audited under section 44AB. Write short notes on (a) Certificate for deduction of tax at lower rate (b) Installments of advance tax and due dates for payment of advance tax (c) Payment of advance tax in case of capital gains 7. For deferment of advance tax a) b) c) 6. 4. 9. . For non-payment or short payment of advance tax a) b) c) 5. Who are the “persons responsible for paying” taxes deducted at source as per section 204? Which are the payments for which individuals and HUFs. 3. a. b.

and Limited Liability Partnership (LLP).where there is no designated partner. . which can be rectified and not an invalid return. it is a defective return. Local authority. or Any partner. . Association of persons. . I (i) (ii) (iii) (iv) II Political party Local authority Association of Persons LLP III Chief Executive Officer of such party (whether known as secretary or by any other designation). Principal Officer thereof. the return of income filed under section 139 of the Income-tax Act.10 PROVISIONS FOR FILING RETURN OF INCOME Question 1 Specify the persons who are authorized to sign and verify under section 140. to sign and verify the return of income filed under section 139.where the designated partner is not able to sign and verify the return for any unavoidable reason. Designated partner. Political party. 1961 in the case of: (i) (ii) (iii) (iv) Answer The following persons (mentioned in Column III below) are authorised as per section 140. Any member of the association or the principal officer thereof. Question 2 Return of income of a company (resident in India) was signed by the Company Secretary. Is the return a valid return? Answer Where the return of income of a company was signed by a company secretary although it is supposed to be signed by a Managing Director or a Director (in the absence of a Managing Director).

2012-13. a research association referred to in section 10(21) must file its return of income within the due date under section 139(1) if its total income. if its total income computed as per the provisions of the Income-tax Act. (iii) (iv) (i) Answer . (iv) As per third proviso to section 139(1). even though it has incurred a loss. is not a defective return but an invalid return and thus.80. (iii) As per section 139(4A). having total income of ` 1. A Limited Liability Partnership (LLP) with business loss of ` 1. without giving effect to the provisions of section 10.Y. without giving effect to the provisions of sections 11 and 12.000.90. exceeds the maximum amount which is not chargeable to income-tax. every company or firm shall furnish on or before the due date the return in respect of its income or loss in every previous year.Y.000 A charitable trust registered under section 12AA. Since the total income of the research association exceeds the basic exemption limit of ` 1.000. 1961. which is not signed and verified by the Managing Director or Director.000. As per section 139(4C). void-ab-initio. it has to file its return of income for the A.10. it need not file its return of income for the A.Y.10. (ii) As per section 139(4C). exceeds the maximum amount which is not chargeable to income-tax. a registered trade union referred to in section 10(24) must file its return of income if the total income exceeds the basic exemption limit without giving effect to the provisions of section 10.2 Taxation Note: There is an alternate view that the return of income of a company. 2012-13. Question 3 State whether filing of income-tax return is mandatory for the assessment year 2012-13 in respect of the following cases: (i) (ii) Research association eligible for exemption under section 10(21) having total income of ` 2. a charitable trust registered under section 12AA must file its return of income.000.80. 1961. it has to file its return mandatorily.80.30. Since LLP is included in the definition of firm under the Income-tax Act.000 Registered trade union eligible for exemption under section 10(24) having following incomes: Income from house property (computed) ` 60.000 Income from other sources (computed) ` 40.2012-13. Since the total income of the charitable trust exceeds ` 1.000. Since the total income of the trade union is less than the basic exemption limit of ` 1. it has to file its return of income for the A.

the return of income can be signed by any male member of the family. Her . an individual engaged in the business of Beauty Parlour. in the manner and in accordance with the procedure as may be prescribed. Question 7 Comment on the allowability of the following claims made by the assessee: Mrs. 1961: (i) (ii) The Assessing Officer has the power. inter alia.Provisions for Filing Return of Income Question 4 10. 2012 audited under section 44AB. Hetal. however. should file the return of income if its total income without giving effect to the exemption under section 10. with regard to the provisions of the Income-tax Act. Answer (i) (ii) False : Section 140(b) provides that where the Karta of a HUF is absent from India. exceeds the basic exemption limit. a university referred to in section 10(23C). also allot a PAN to any other person. Question 5 Discuss briefly about the scheme to facilitate submission of return of income through Tax Return Preparers. Question 6 The total income of a university without giving effect to exemption under section 10(23C) is ` 46 lacs. to allot PAN to any person by whom no tax is payable. The provisions of the Act will apply as if it were a return required to be furnished under section 139(1). having regard to the nature of transactions as may be prescribed. it has to file its return of income.12 of Study Material. Answer Refer to page 10. the return of income can be signed by any other adult member of the family. whether the following statements are true or false. Its total income. whether any tax is payable by him or not. Where the Karta of a HUF is absent from India. is nil. since the total income of the University before giving effect to the exemption exceeds the basic exemption limit.3 State with reasons. has got her books of account for the Financial year ended on 31st March. Should the University file its return of income? Answer Section 139(4C) enjoins that. True : Section 139A(2) provides that the Assessing Officer may. such member can be a male or female member. In the given case.

Answer See Page No. Therefore.10 of Study Material. it is not applicable to persons whose books of account are required to be audited under section 44AB.000. Question 11 Explain with brief reasons whether the return of income can be revised under section 139(5) of the Income-tax Act. However. return of income can be signed by an individual even if he is absent from India. Question 10 Briefly discuss about the interest chargeable under section 234A for delay or default in furnishing return of income.2012-13 through a tax return preparer. . Hetal cannot furnish her return of income for A. Alternatively.Y. 1961 in the following cases: (i) (ii) Defective or incomplete return filed under section 139(9). sign the return of income from outside India? Is there any other option? Answer As per section 140. She wants to furnish her return of income for assessment year 2012-13 through a tax return preparer Answer Section 139B provides a scheme for submission of return of income for any assessment year through a tax return preparer.4 Taxation total income for the assessment year 2012-13 is ` 2. However. Belated return filed under section 139(4). who is not in India. Question 9 Can an individual. Mrs. such power of attorney should be attached along with the return of income. Answer Refer to page 10. an individual can himself sign the return of income from a place outside India. (iv) Return of loss filed under section 139(3).35. (iii) Return already revised once under section 139(5). 10. Hence.10.3 of Study Material. any person holding a valid power of attorney and duly authorised by the individual can also sign the return of income. Question 8 Enumerate eight transactions for which quoting of Permanent Account Number is mandatory.

1961: The due date for filing of a return of income for a company for Assessment year 2012-13 is : (a) 31st July. 2012 (d) 31st August.80. whichever is earlier. has to file a return of income if his total income is in excess of a) b) c) 2. This statement is - . (iv) A return of loss filed under section 139(3) is deemed to be return filed under section 139(1). if the assessee discovers any omission or wrong statement in such a revised return. Only a return furnished under section 139(1) or in pursuance of a notice issued under section 142(1) can be revised. A belated return filed under section 139(4) cannot be revised. 2012 (c) 31st October.000 Entities getting exemption in respect of various items of income mentioned in clauses of section 10 need not file return of income. `1. Therefore. However. Question 12 Choose the correct answer with reference to the provisions of Income-tax Act.5 Any person who has furnished a return under section 139(1) or in pursuance of a notice issued under section 142(1) can file a revised return if he discovers any omission or any wrong statement in the return filed earlier. Akash. he can furnish a second revised return within the prescribed time i. within one year from the end of the relevant assessment year or before the completion of assessment. and therefore. can be revised under section 139(5). 2012 (b) 30th September.Provisions for Filing Return of Income Answer 10. Accordingly.000 `1.000 `1.60.e. the defect can be removed. 2012 Self-Examination Questions 1. (i) (ii) A defective or incomplete return filed under section 139(9) cannot be revised. (iii) A return revised earlier can be revised again as the first revised return replaces the original return. 2012 Answer (b) 30th September.50. who is 32 years old.

2012-13 is a) b) c) 6. 31st July.6 a) b) c) 3. the Income-tax Act.11. whichever is earlier a) b) one year from the end of the relevant assessment year two years from the end of the relevant assessment year .11. Taxation correct incorrect partly correct For filing returns of income in respect of various entities. Political parties a) b) c) 5. The Assessing Officer finds a defect in the return submitted by Kaushik and intimated the defect to him vide letter dated 12. 2012 31st October.11. 2012 the Managing Director or Director the General Manager The Secretary 4.Y. he would have to rectify the defect by a) b) c) 1. 2012 30th September. 1961 has prescribed a) b) c) Two due dates Three due dates Four due dates need not file their return of income should always file their return of income should file their return of income if the total income computed without giving effect to the provisions of section 13A exceeds the basic exemption limit.2011 27.12. The due date for filing of return for a company for A. The return of a company has to be signed by a) b) c) 7.2011 30.2011.10.11. Assuming that Kaushik has not applied for extension of time.2011 which was received by Kaushik on 16.2011 8. An assessee can file a revised return of income at any time before the completion of assessment or before expiry of the following period.

a. 6. 3.2012 audited under section 44AB. 2012-13 is ` 2. Answers 1. b. filing of returns is compulsory for - 10.50.Provisions for Filing Return of Income c) 9. Who are the persons authorised to sign the return of income in the case of a) b) c) Hindu Undivided Family Company Partnership firm 13. 12. 5. c. Bhuvan. a) b) c) a) b) six months from the end of the relevant assessment year companies only firms only both companies and firms Belated return Revised return 10. 7.Y. an individual. 9.3. 4.7 As per section 139(1).000. b. He desires to know if he can furnish his return of income for the A. What are the circumstances when a return of income can be treated as defective? 14. His total income for the A. 15. c. has got his books of account for the year ending 31. Filing of return of income on or before due date is necessary for carry forward of losses Discuss the correctness of this statement. 2. Write short notes on the following - 11. 2012-13 through a Tax Return Preparer. c.Y. Mr. a. 8. a. a. List ten transactions for which quoting of permanent account number is mandatory. .

PART II SERVICE TAX AND VAT .

the date on which the Finance Bill receives the assent of the President of India. usage of some goods during the course of rendering the service would not mean that there is no ‘service’. come into force from the date of enactment of the Finance Bill i. for cash. which is to be studied to arrive at a conclusion. 1994 states that taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member thereof. as it is intangible. become effective from a date to be notified after the enactment of the Finance Bill. certain amendments like new taxable services introduced vide the Finance Bill and alteration in the scope of existing taxable services. services provided within Indian territorial waters are liable to service tax.. trade. as the levy of service tax extends to the whole of India except Jammu and Kashmir and India includes Indian territorial waters.e. (c) Amendments made by the Finance Bill. Thus. It is the predominant factor in each case. wherever it is specifically provided so in the Finance Bill. Indian territorial waters extend upto 12 nautical miles from the Indian land mass. (b) Service tax is a tax on services. . in respect of service tax matters. however. service is a value addition that can be perceived but cannot be seen. Basically.1 CONCEPTS AND GENERAL PRINCIPLES OF SERVICE TAX Question 1 Briefly answer the following:(a) Is an unincorporated association liable to pay any service tax? (b) Briefly explain the nature of service tax. an unincorporated association providing service to its members can also be a “person” for purpose of service-tax. However. This is not a tax on profession. there is no tax. If there is no service. deferred payment or any other valuable consideration. and be liable to pay service tax. (d) Yes. in respect of service tax matters come into force? (d) Is service tax payable in respect of services provided in the Indian territorial waters? Answer (a) Explanation to section 65(121) of the Finance Act. (c) Explain as to how and when the amendments made in Finance Bill. calling or employment but is in respect of service rendered.

1994. Answer Correct Reason: As per Article 370 of the Constitution. the sources of service tax law are:(i) (ii) Finance Act.2 Taxation Question 2 Answer the following questions: (a) What are the sources of service tax law? (b) Which Act and Rule govern the levy of service tax in India? Answer (a) There is no independent statute on service tax as yet. For what purposes are such rules made? Name any four such rules issued by the Central Government so far. Export of Services Rules. Since. no such concurrence has been obtained in respect of Finance Act. 1994. . However.1. 1994 and the rules made there under govern the levy of service tax in India. Question 4 State the provisions which enable the Central Government to make rules for administering service tax. 1994. 2005 etc. 2006. any Act of Parliament applies to Jammu and Kashmir only with the concurrence of the State Government. Question 3 State with reasons in brief whether the following statement is correct or incorrect with reference to the provisions of service tax. 1994 Rules on service tax (iii) Notifications on service tax (iv) Circulars or Office Letters (Instructions) on service tax (v) Orders on service tax and (vi) Trade notices on service tax (b) Finance Act. Service Tax (Determination of Value) Rules. The significant rules relating to service tax are the Service Tax Rules. Service tax provisions are not applicable in Jammu and Kashmir because State Government concurrence was not obtained in respect of Finance Act. service tax provisions are not applicable in Jammu and Kashmir.

2004 (d) Export of Service Rules. 2003 (c) CENVAT Credit Rules. (d) none of the above . Which of the following statement is true? (a) Rules can override the provisions of the Act. 1992 (d) Income-tax Act. (c) Rules can never override the provisions of the Act. 2005 (f) Service Tax (Determination of Value) Rules. 2006. So far. Rules can never override the Act and cannot be in conflict with the same. 1992 (b) Finance Act. Self-Examination Questions 1. (b) Only in certain exceptional circumstances can the rules override the provisions of the Act. 1961 3. 1944 grant power to Central Government to make rules for carrying out the provisions of these Chapters.3 Section 94 of Chapter V and section 96-I of Chapter VA of the Finance Act. The provisions relating to service tax are contained in: (a) Service tax Act. Service tax was introduced in India in the year: (a) 1994 (b) 1996 (c) 1995 (d) 1991 2. the Central Government has issued the following rules for administering service tax – (a) Service Tax Rules. 2005 (e) Service Tax (Registration of Special Category of Persons) Rules. 2006 and (g) Taxation of Services (Provided from Outside India and Received in India) Rules. Note: Any four rules may be mentioned. 1994 (c) Finance Act. 1994 (b) Service Tax (Advance Ruling) Rules. Rules should be read with the statutory provisions contained in the Act.Concepts and General Principles of Service Tax Answer 1.

Write a note on administration of service tax.(c). 1994 relating to service tax? 11. 5. 9. (a) 200 (b) 24 (c) 12 (d) none of the above 7. Chelliah. 6.(c). Write briefly about the role of a chartered accountant in the field of service tax consultancy. 3.(c).(a). Raja J. 8. General insurance and Stock brokers. 1994 empower the Central Government to make rules. 4.(d). Answers 1. What is the extent and application of the provisions of Finance Act. Taxation Director General (Service tax) coordinates between ________________ and ________. 7. Sections ________ and _______ of the Finance Act. 12. Telephones. What do you mean by selective and comprehensive coverage of services for the purpose of service tax? Which system is being adopted in India? 13. 9. Tax Reforms Committee headed by Dr. (a) 64 and 65 (b) 94 and 96-I (c) 93 and 94 (d) none of the above 6.(b).4 4. Indian Territorial Waters extend up to _____________ nautical miles from the Indian land mass. 2. . (a) CBEC and CBDT (b) Chief Commissioner of Central Excise and Commissioner of Central Excise (c) Department of Revenue and CBEC (d) CBEC and Central Excise Commissionerates 5. In which of the following cases service tax will not be attracted? (a) a person from Jammu provides service at New Delhi (b) a person having office at Srinagar provides service at New Delhi (c) a person from New Delhi provides service at Jammu (d) all of the above 8. Which committee recommended the introduction of service tax? Which were the first three services to be brought under the service tax net? 10.1.(b).

96/7/2007-ST dated 23. However.2007 has clarified that service tax shall not be leviable on fee collected by public authorities while performing statutory functions under the provisions of law.2 CHARGE OF SERVICE TAX AND VALUATION UNIT 1: CHARGE OF SERVICE TAX Question 1 Is service tax leviable on fee collected by public authorities while performing statutory functions under the provisions of law? Answer Circular No. as is in excess of the rate of 10% of the value of taxable services. Self-Examination Questions 1. it may be noted that Notification No.000.2006. With effect from 18. It provides the applicable rate of service tax which is to be levied on the value of various taxable services.04. Answer Section 66 is the charging section of the Finance Act. service tax may be leviable if it is a taxable service. Question 2 Briefly explain about the charge of service tax. the rate of service tax prescribed by section 66 is 12% of the value of taxable services referred to in section 65(105) of the Act. Service tax payable on it is: (a) ` 1030 (b) ` 1200 . The value of a taxable service is ` 10.02. Therefore. The prescribed manner for collection and payment of tax is provided in the Service Tax Rules. 1994. However. 8/2009 ST dated 24. 1994 ("the Act") which deals with the levy and collection of service tax.08. if the service is not in the course of statutory function and such service is undertaken for a consideration. the effective rate of service tax is 10%.2009 exempted all the taxable services specified in sub-section (105) of section 65 of the Finance Act from so much of service tax leviable thereon under section 66 of the Finance Act.

2. 2.2 Taxation (c) ` 1224 (d) ` 1020 2.(b).(c) . What is education cess? Why is it being levied? What is the source of levy of education cess? Does service tax law provide for any exemption to small service providers? If yes. The said organisations are: (a) only the United Nations (b) only an International Organisation (c) the United Nations or an International Organisation (d) none of the above 4. All the taxable services specified in section 65 of the Act provided by any person to certain organisations are exempt from whole of the service tax. The charge of service tax is on the: (a) service provided (b) service provided or to be provided (c) service to be provided (d) none of the above 3. 5. 3.(a). then what is the quantum of such exemption? Answers 1.

No service tax was separately charged in the bill. Priya rendered a taxable service to a client. the value of such service shall be the amount as may be determined in the manner prescribed under the Service Tax (Determination of Value) Rules.5.000 was raised on 29. With effect from 18.2006. (b) Section 67 of the Finance Act.000 was received from the client on 1. the same cannot form part of value of taxable services? (b) How is the value of taxable services determined when the consideration against taxable services is received in other than monetary terms? Answer (a) No.000 on behalf of an architect by a service receiver be included in the value of taxable services? Answer Service tax chargeable on any taxable service is on the basis of gross amount charged by service provider for such service provided or to be provided by him. what is the value of taxable service and the service tax payable? . Question 3 Ms. The provisions of section 67. Question 2 Answer the following questions: (a) Can it be said that if the taxable service is not capable of ascertainment. Hence. Priya liable to pay service tax.4. the hotel bill met by the client would be includible in the value of taxable services. It is not necessary that the service receiver should pay the consideration only to the service provider. 2006 has introduced detailed provisions for valuation of taxable services.2011.3 Will the payment to a hotelier of ` 10. any money paid to the third party is also includible. state clearly that if the consideration for a taxable service is not ascertainable.2011. 2006. with the addition of service tax charged. is equivalent to the consideration.5. 1994 as amended provides that if the consideration for a taxable service is not wholly or partly in terms of money.2011 and the balance on 23. then the value of such service shall be such amount in money.Charge of Service Tax and Valuation UNIT 2: VALUATION OF TAXABLE SERVICES Question 1 2. A bill for ` 40. The questions are: (a) Is Ms.4. ` 15. it cannot be said so. as amended. the Finance Act. even though the same has not been charged by her? (b) In case she is liable.

to the extent of such payment.30% 40. Value of taxable service = Value of taxable service = Gross amount charged × 100 (100 + Effective rate) 10% = = = 0.000 × 100 = ` 36. However. where the person providing the service.265 110. the amount recovered from the client in lieu of having rendered the service will be taken to be inclusive of service tax and accordingly tax payable will be calculated by making back calculations.4 Answer Taxation Section 68 of the Finance Act. The statutory liability does not get extinguished if the service provider fails to realize or charge the service tax from the service receiver. in case the invoice is not issued within 14 days of the completion of the provision of the service. a partnership firm. However.735 110. The point of taxation shall be (a) the time when the invoice for the service provided/to be provided is issued. receives a payment before the time specified in clause (a).20% 0. (b) in a case. The rates of service tax payable are: Basic rate Education cess (2% of 10%) Secondary and higher education cess (1% of 10%) Effective rate of service tax As per Rule 3 of point of taxation Rules. This liability is not contingent upon the service provider realizing or charging the service tax at the prevailing rate.30 Service tax payable Question 4 = J. Hence. Professionals.2.11: . the point of taxation shall be date of such completion.30 = ` 3. gives the following particulars relating to the services provided to various clients by them for the half-year ended as on 30. when he receives such payment. Priya is liable to pay service tax.10% 10. the time. Hence.2011.C. Ms.30 40. in these cases.000 × 10. 1994 casts the liability to pay service tax upon the service provider or upon the person liable to pay service tax as per rule 2(1)(d). sometimes it may happen that the assessee is not able to charge service tax because of the nature of service or he fails to recover the service tax from the client / customer as he is not aware that his services are taxable.09.

Professionals for the half year ending on 30. Note: The aforesaid amounts are exclusive of service tax. a proprietress of Royal Security Agency received ` 1. She received ` 5.75. Point of taxation is date of issue of invoice or receipt of payment whichever is earlier [Rule 3 of Point of Taxation Rules. Question 5 Ms.11. 3.2011: Particulars Total bills raised(Note 1) Less : Bill raised on an approved International Organisation (Note 2) Add: Advance received for the services to be provided in October ’11 (Note 3) Taxable value of services Computation of service tax payable Taxable value of services Service tax @ 10% Add: Education cess @ 2% Add: Secondary and higher education cess @ 1% Total service tax payable Notes: ` 8.000 by an account payee cheque as advance while signing a contract for providing taxable service.2002. 2.09.09. Amount of ` 50.000 were not received till 30.00. Answer Computation of taxable value of services provided by the J.000 .700 850 87. 2011] Services provided to an International Organisation are exempt from the service tax vide Notification No.08.00.550 1.000 8.00.50.000 85.000 75000 8.Charge of Service Tax and Valuation (i) 2. Any advance received for providing any taxable services forms part of the value of taxable service [Section 67 of the Finance Act.000 was received as an advance from XYZ Ltd. Further in case of advance point of taxation is the date of receipt of advance.50.000 was raised on an approved International Organisation and payments of bills for ` 1.000 50.[Rule 3 of Point of Taxation Rules. on 25. (ii) You are required to work out the: (a) taxable value of services (b) amount of service tax payable. 1994].C.00.75.09. 2011]. 16/2002 ST dated 02.11 to whom the services were to be provided in October. Priyanka.000 1.000 out of which bill for ` 75.000 8.5 Total bills raised for ` 8. 11.

. pay order. deduction from account and any form of payment by issue of credit notes/debit notes and book adjustment. postal remittance and other similar instruments but does not include currency that is held for its numismatic value. The amount of service tax has been charged separately. Question 6 State with reason in brief whether the following statement is true or false with reference to the provisions of service tax: Mr. money order. Hence.100 1.00. Gross amount charged includes payment by credit card.000 by a pay order after completion of service on January 31.00.00. service tax will be payable on the gross fee of ` 5 lakh.13.000 5.300 Total service tax payable Notes: 1.00. an architect has received the fees of ` 4. 2012.500. cheque. Money includes any cheque.10.000 2.6 Taxation by credit card while providing the service and another ` 5. All three transactions took place during financial year 2011-12. Salim.200 1. letter of credit.00.500 after the deduction of income-tax of ` 51.000 Add: (i) Education cess @ 2% on service tax Add: (ii) Secondary and higher education cess @ 1% on service tax 1. Service tax will be payable on ` 4. the gross receipts are to be considered for tax calculation. She seeks your advice about her liability towards value of taxable service and the service tax payable by her. currency. Answer False: As the charge of the service tax is on the services provided.000 11.48. promissory note. Answer Computation of taxable service of Ms. 2. traveller’s cheque.2.000 5. Priyanka for financial year 2011-12 Particulars ` Advance received by an account payee cheque Amount received while providing service through credit card Amount received on completion of service by a pay order Value of taxable service Calculation of service tax liability Particulars 1.000 ` Service tax @10% on ` 11.500.00.48. draft.

service tax has been charged separately and received from clients. Answer Computation of value of taxable services and service tax payable by M/s Pareesh & Co.000 4.2011 : (` ) (i) (ii) Amounts collected from companies for pre-recruitment screening Amounts collected from companies for recruitment of Permanent staff Temporary staff (iii) Advances received from prospective employers for conducting campus interviews in colleges 3. The firm.:Particulars Amount of taxable services (` ) Amount of service tax (` ) Amounts collected from companies for pre-recruitment screening Amounts collected from companies for recruitment of permanent staff Amounts collected from companies for recruitment of temporary staff (It is also a taxable service) Advances received from prospective employers for conducting campus interview in colleges (Note – 1) Total Notes: 2. Service tax on advance has been calculated on the presumption that the same is inclusive of service tax ⎡ 1.750 30.00.900 41.338 1.07.000 × 100 ⎤ ⎢ ⎥.40. is a partnership firm engaged in the business of recruitment and supply of labourers.662 9. 110.000 3.200 90.00.00.3 ⎣ ⎦ .7 Pareesh & Co.50.000 2.00.Charge of Service Tax and Valuation Question 7 2. which had rendered taxable services to the tune of ` 20.188 1.50.000 25.000 1.000 4.00. Compute the value of taxable services rendered and the service tax payable by the assessee for the relevant half year.9. furnishes the following details pertaining to the half year ended on 30.000 Wherever applicable.662 10..00.2 lacs in the financial year 2010-11. Amounts received as advance are also liable to service tax.

6. it is not eligible for the exemption available to the small service provider.3%. Question 8 During the year ended 31.2012. Kohli & Co.06. Advance would be chargeable to service tax in the quarter ended 30.50. has collected a sum of ` 10.365 Notes: 1..77.` 20. However. on 30.8 Taxation 2.000 3.00.00. running a coaching centre.2 lacs as service tax.2011.4.000 × 10.2 lakh).e.2011:Particulars Amount of service tax (` ) Nil 1.350 Free coaching rendered ⎡ 14.50.3 ⎣ ⎦ .000 × 10. 2.2012 Determine the service tax liability for the quarter and indicate the date by which the service tax has to be remitted by the assessee. Advance has been assumed to be inclusive ⎡ 3. Advance receipt is chargeable to service tax. no coaching was conducted and the money was returned on 12.3 ⎤ of service tax ⎢ ⎥ 110.2011 are as under: Particulars Amount (` ) Value of free coaching rendered 20. It is immaterial that no coaching was conducted and the money was returned on 12.4. the assessee is not a small service provider. ` 70. Hence.2011.6. for the quarter ended 30.49.3.2.2011 28. 3.015 1.000 was met through Cenvat credit and the balance was paid by cheques on various dates. Answer Computation of service tax liability of Kohli & Co. Free coaching is not exigible to service tax Coaching fees collected from students will be liable to service tax @ 10.000 Advance received from a college for coaching their students.3 ⎤ Coaching fees collected from students ⎢ ⎥ 100 ⎣ ⎦ Advance received from a college for coaching their students Total service tax liability for the quarter ended 30. Since the value of taxable services rendered in the preceding year is more than ` 10 lakh (i.000 Coaching fees collected from students (Service tax collected separately) 14.2011. The details pertaining to the quarter ended 30.06.06.

2. during the current financial year.(d).(b) . inclusive of CENVAT credit availed was more than ` 10 lakh.(c).06. 1994 (d) none of the above 2. (noncorporate assessee) for the quarter ended 30.Charge of Service Tax and Valuation 2.9 During the preceding financial year. 3. Gross amount charged for the taxable service includes: (a) only the amount received before the provision of taxable service (b) any amount received before. 2011. the service tax liability met by the assessee. Self-Examination Questions 1. Money for the purpose of valuation of taxable service includes: (a) promissory note (b) cheque (c) postal remittance (d) all of the above 3. the last date for making the payment of service tax by Kohli & Co. payment of service tax will have to be made electronically. How will a taxable service be valued when the gross amount charged for it includes service tax payable? Answers 1. during or after the provision of taxable service (c) only the amount received during the provision of taxable service (d) only the amount received after the provision of taxable service How will a taxable service be valued when the consideration thereof is not in wholly or partly in terms of money? 5. Which section governs the valuation of taxable services? (a) section 65 of the Finance Act.2011 is 6th July. 1994 (b) section 67 of the Service Tax Act. for all quarters. Hence. 1994 (c) section 67 of the Finance Act. Therefore.

7. Vignesh has provided this service on 20.3 PAYMENT OF SERVICE TAX AND FILING OF RETURNS UNIT 1: PAYMENT OF SERVICE TAX Question 1 Briefly answer the following questions:(a) Should service tax be paid even if not collected from the client or service receiver? (b) Where a service provider maintains books of accounts on mercantile basis relating to taxable services provided by him.2011.7. 1994.6. 1994 casts the liability to pay service tax upon the service provider or upon the person liable to pay service tax as per rule 2(1)(d) of the Service Tax Rules. This liability is not contingent upon the service provider realizing or charging the service tax at the prevailing rate. Should the amount so collected be remitted to the credit of the Central Government? (f) Who is liable to make e-payment of service tax? (g) Whether life insurer carrying on life insurance business has option to calculate service tax at different rate? (h) Mr. therefore.2011. He. was of the opinion that a particular service was not liable for service tax.07.2011 and issued the invoice on 2. How will service tax liability of Mr. Mr.2011. will service tax be payable on accrual basis? (c) Is a service provider allowed to pay service tax on a provisional basis? (d) A particular service has been brought into the service tax net with effect from 1. X. X be determined in such case? (i) (j) How can the excess payment of service tax be adjusted? Can an assessee file a revised service tax return? Answer (a) Section 68 of the Finance Act. the payment for the same was received on 10. did not charge service tax in his bill. a service provider who pays service tax regularly. He received the bill amount without service tax. Is service tax payable on the same? (e) Mr. The statutory liability does not get . even though no service tax is chargeable for such service. Saravanan has collected a sum of ` 15.000 as service tax from a client mistakenly.

(f) The assessee who has paid service tax of ` 10. (b) Service tax is payable as per Point of Taxation Rules. Saravanan has to remit the service tax collected by him on the non taxable services to the credit of the Central Government before the due date. through internet banking in the current financial year. he should also immediately pay the amount so collected to the credit of the Central Government. where any person has collected any amount. (c) In case the assessee is unable to correctly estimate. is taxed for the first time. then.00. (b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within the period referred to in rule 4A of the Service Tax Rules. at the time of the deposit. The facts given in the question does not fall under any of the above two clauses.5% of the gross amount of premium charged from a policy holder in all other cases.2011 and the method of accounting is irrelevant for making payment of service tax. which is not required to be collected from any other person. 1.Payment of Service Tax and Filing of Returns 3.Hence service tax is payable on the same. or savings on behalf of policy holder. not being a service covered by rule 6. if such amount is intimated to the policy holder at the time of providing of service. 1994 casts an obligation on every person who has collected service tax from any recipient of service in any manner as representing service tax.2 extinguished if the service provider fails to realize or charge the service tax from the service receiver. (d) Payment of tax in cases of new services [Rule 5 of Point of Taxation Rules 2011] Where a service. (e) Section 73A of the Finance Act. (i) on the gross premium charged from a policy holder reduced by the amount allocated for investment. The concerned officer may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him.or above in the preceding financial year has to compulsorily deposit the service tax liable to be paid by him electronically. he may make a written request to Assistant/Deputy Commissioner of Central Excise for making payment of service tax on provisional basis. in any manner as representing service tax. to remit the same to the credit of the Central Government. 1994. – (a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable. On account of this provision.000/. the actual amount of service tax for any month or quarter. Hence. Mr. towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66 of Chapter V of the said Act. (g) An insurer carrying on life insurance business has the option to pay tax: (ii) .

The statutory liability does not get extinguished if the service provider fails to realize or charge the service tax from the service receiver. (b) Who is liable to pay service tax in relation to services provided by a goods transport agency? . (iv) The details of self-adjustment should be intimated to the Superintendent of Central Excise within a period of 15 days from the date of such adjustment. However. valuation or applicability of any exemption notification. such an adjustment would be subject to the following conditions mentioned below: (i) Self-adjustment of excess credit would not be allowed in case of reasons involving interpretation of law. service tax payable by the service provider shall be ascertained by making back calculations in the following manner:- Service tax payable = (i) Amount received × Service tax rate (100 + Service tax rate ) Where an assessee has paid to the credit of Central Government any amount in excess of the amount required to be paid towards service tax liability for a month or quarter. taxability. within a period of 90 days from the date of submission of the original return. the assessee may adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter. against his forthcoming service tax liability. in Form ST-3 in triplicate. as the case may be. This liability is not contingent upon the service provider realizing or charging the service tax at the prevailing rate. (j) An assessee can submit a revised return. as the case may be. Accordingly.00. Question 2 Answer the following questions: (a) An assessee who has collected service tax from a client is unable to perform the service. In this case. 1994. Briefly explain the situations in which and the conditions subject to which he can adjust the service tax relating to above.3 Taxation However such option shall not be available in cases where the entire premium paid by the policy holder is only towards risk cover in life insurance.3. (ii) Excess amount paid and proposed to be adjusted should not exceed ` 2. to correct a mistake or omission in the original return. the amount received from the service receiver will be taken to be inclusive of service tax. classification. 1994 casts the liability to pay service tax upon the service provider or upon the person liable to pay service tax as per rule 2(1)(d) of the Service Tax Rules. (iii) Adjustment can be made only in the succeeding month or quarter. (h) Section 68 of the Finance Act.000 for the relevant month or quarter except in case of assessees opting for centralized registration.

or (b) has issued a credit note for the value of the service not so provided to the person to whom such an invoice had been issued. (f) any dealer of excisable goods. However. If there is no consideration i. but has not charged or received any fee from the client.e. who is registered under the Central Excise Act. or any terms contained in a contract. (b) In relation to taxable service provided by a goods transport agency. 1860 or under any law corresponding to that Act in force in any part of India. 1948. (d) any society registered under Societies Registration Act. so received for the service provided to the person from whom it was received. (b) any company formed or registered under the Companies Act. these provisions apply only when there is consideration. (c) any corporation established by or under any law. by or under any law. or received any payment. where the consignor or consignee of goods is- (a) any factory registered under or governed by the Factories Act. Is service tax payable on such free service? (d) What are the due dates for payment of service tax? (e) What is the late fee payable for delay in furnishing the service tax return? Can the same be waived? Answer (a) Where an assessee has issued an invoice. in case of free service. a service to a client which is taxable. 1944 or the rules made thereunder. The person liable for paying service tax is any person who pays or is liable to pay freight either himself or through his agent for the transportation of such goods by road in a goods carriage. if the assessee: (a) has refunded the payment or part thereof. .4 (c) Mr. or a partnership firm registered. or (g) any body corporate established..Payment of Service Tax and Filing of Returns 3. Vasudevan has rendered freely. (c) Section 67(1)(iii) of the Finance Act. against a service to be provided which is not so provided by him either wholly or partially for any reason or where the amount of invoice is renegotiated due to deficient provision of service. (e) any co-operative society established by or under any law. 1994 ensures payment of service tax based on valuation even when consideration is not ascertainable. 1956. section 67 cannot apply. the assessee may take the credit of such excess service tax paid by him.

. Waiver of late fee: Where the gross amount of service tax payable is nil. this principle applies only when there is really a 'free service' and not when its cost is recovered through other means. if the duty is deposited electronically through internet banking. Period of delay (No. if the duty is deposited electronically through internet banking. of days from the due date of filing the return) Late fee (` ) Monthly (a) (b) (c) 15 days 16 – 30 days Beyond 30 days 500 1000 ` 1000 plus ` 100 for every day of delay beyond 30 days. in any other case.000.3. 1994 provides that service tax on the value of taxable services received shall be paid to the credit of the Central Government in the following manner:Assessee Duration of payment Due date of payment Individual. Proprietary concern or a partnership firm Any other Assessee Quarterly (i) by the 6th day of the month. and (ii) by the 5th day of the month. the tax will also be zero even though the service may be taxable. or the quarter ending in March. immediately following the calendar month in which the payments are received. on being satisfied that there was sufficient cause for the delay. and (ii) by the 5th day of the month. However. no service tax is payable when value of services is zero.* (i) by the 6th day of the month. (e) The late fee payable for delay in submitting the service tax return is furnished below: S. in any other case. immediately following the quarter in which the payments are received. shall be paid to the credit of the Central Government by the 31st day of March of the calendar year. However.5 Taxation Thus. Hence if the value is zero. towards the value of taxable services. towards the value of taxable services. (d) Rule 6(1) of the Service Tax Rules.* *Also. reduce or waive the late fee. the Central Excise Officer may. the service tax on the value of taxable services received during the month of March. as the charging section 66 provides that service tax is chargeable on the value of taxable service. as the case may be. the total late fee payable shall not exceed ` 20.No.

consideration and service tax are charged separately. (b) in a case. where the person providing the service. 2012 Above includes non-taxable services of 60. However.2011 Advance received in September.10.000 = 2. in case the invoice is not issued within 14 days of the completion of the provision of the service. service tax is charged separately) . Guru.000 × 2. 2012 When does the liability to pay service tax arise and for what amount? Contract contains clear details of services.6 Ajay Ltd. 2011 towards all services Total value of services. the point of taxation shall be the date of receipt of each such advance. Advance portion Particulars ` Advance received towards all services in September.000 – 70. has agreed to render services to Mr.40.40.000 = 40.000 2. as mutually agreed upon. The point of taxation shall be (a) the time when the invoice for the service provided/to be provided is issued. 2011. receives a payment before the time specified in clause (a).000 ⎤ ⎡ = ⎢60.Payment of Service Tax and Filing of Returns Question 3 3.000 = 1. 2011 Amount billed for taxable services = 60. Answer As per Rule 3 of point of taxation Rules.000 ` Balance amount is received in March. The following are the chronological events: Particulars Contract for services entered into on 31.8. when he receives such payment. is received by the service provider towards the provision of taxable service.10.000 1.000 ⎥ ⎣ ⎦ = 40. For the purpose of this rule. the time. the point of taxation shall be date of such completion.000 70. to the extent of such payment.10.000 x 10% Advance received towards taxable services Service tax @ 10% (since. billed in February. wherever any advance by whatever name known.

000) = 1.000-40.720 (including service tax) on his client for consulting services rendered by him in June. 2012.000 =` (1.00.40. A partial payment of ` 1. 2012. 2011.68. Balance portion Particulars ` Amount billed for taxable services Advance received towards taxable services Amount billed but not received towards taxable services Service tax @ 10% Education cess @ 2% Secondary and higher education cess @ 1% Total service tax liability =` 1. Compute the service tax amount payable by Mr.7 Taxation = 4. Y and the due date by which service tax can be deposited.24.000 x 10% = 10. a consulting engineer raised a bill of ` 2. Answer Rule 7 of Point of Taxation Rules 2011. 2011.000 = 1.40. Y in March.000 = = 200 100 = 10.300 In this case. the due date for payment of service tax will be 5th October.3.000 Education cess @ 2% Secondary and higher education cess @ 1% = = 80 40 Total service tax liability = 4. Question 4 Mr.inter alia provides that in case of Individuals or proprietary firms or partnership firms providing the any of the following taxable services:(a) Architect’s Services (b) Interior Decorator’s Services (c) Practicing Chartered Accountant’s Services (d) Practicing Cost Accountant’s Services (e) Practicing Company Secretary’s Services (f) Scientific or Technical Consultancy Services (g) Legal Consultancy Services . the due date for payment of service tax will be 5th March.00. Y.000 =40.540 was received by Mr.120 In this case.

3.000 ` 550 + 0.03.06. including an authorised dealer in foreign exchange or an authorized money changer.05 % of the gross amount of currency exchanged 2. amount of service tax liable to be paid by Mr. Question 5 Does a service provider have an option to pay service tax at a rate different from the general rate applicable on gross value of taxable services.00.000 whichever is lower However. in the case of purchase or sale of foreign currency? Answer Yes.00.Payment of Service Tax and Filing of Returns 3.30 = 15.30 Mr. including money changing.739 on or before 31.000 Exceeding ` 10. For an amount Service tax shall be calculated at the rate of 1. the person providing the service shall exercise such option for a financial year and such option shall not be withdrawn during the remaining part of that financial year Question 6 What is the due date for payment in case of e-payment of service tax? .000 and upto ` 10. Upto ` 100.00.68. referred to in section 65(105)(zm) and section 65(105)(zzk) as amended has the option to pay an amount at the following rates instead of paying service tax @ 10%:S.8 (h) Consulting Engineer’s Services (inserted vide Notification No. Y is required to deposit service tax of ` 15.1 % of the gross amount of currency exchanged or ` 25 whichever is higher ` 100 + 0.No.540 × 10. the person liable to pay service tax in relation to purchase or sale of foreign currency.000 0. Y = = Gross Amount × Rate of tax (100 + Rate of tax ) 1.739 110.2011) the date of receipt or payment of consideration would be the point of taxation In the given case.2012. Exceeding ` 1. provided by a foreign exchange broker. 41/2011 ST dated 27.01 % of the gross amount of currency exchanged or ` 5.

Answer In case the assessee is unable to correctly estimate. Question 8 Write a note in brief on provisional payment of service tax. Question 7 How can an assessee adjust the excess payment of service tax against his liability of service tax for subsequent periods? What is the basic condition for it? Answer If the assessee has paid to the credit of Central Government any amount in excess of the payment required to be paid towards service tax liability for a month or quarter. and in other cases (company & HUF) during any calendar month is payable by the 6th day of the month immediately following the said calendar month. provided the excess payment is on account of delayed receipt of details of payments from branch offices. The due date for the month of March is 31st March. he may make a written request to Assistant/ Deputy Commissioner of Central Excise for making payment of service tax on provisional basis. taxability. (ii) (iii) Adjustment can be made only in the succeeding month or quarter. classification. (v) The details of self-adjustment should be intimated to the Superintendent of Central Excise within a period of 15 days from the date of such adjustment. 1994. as the case may be. valuation or applicability of any exemption notification. If the assessee has opted for centralized registration. excess amount can be adjusted without monetary limit. the service tax on value of taxable service received: (i) (ii) by an individual or a proprietary firm or a partnership firm during any quarter is payable by the 6th day of the month immediately following the said quarter. The concerned officer may allow payment of service tax on provisional basis on such value of taxable service as may be specified by him.9 Answer Taxation As per rule 6(1) of the Service Tax Rules. the actual amount of service tax for any month or quarter.3. where service-tax is paid electronically through internet banking. Excess amount paid and proposed to be adjusted should not exceed ` 2 lakh for the relevant month or quarter. he can adjust such excess amount paid by him against his service tax liability for the succeeding month or quarter. as the case may be. . at the time of the deposit. subject to following conditions:(i) Self-adjustment of excess credit would not be allowed in case of reasons involving interpretation of law.

then the value of such service shall be such amount in money.05.2007. Such facility shall be available when the assessee: . However. where the service rendered is for a consideration not wholly or partly consisting of money the value of the taxable service is equivalent to the total value of the consideration. where any amount in excess of the amount required to be paid towards service tax liability has been paid on account of non-availment of such deduction. if the consideration for a taxable service is not wholly or partly in terms of money. with the addition of service tax charged. Answer In case of renting of immovable property service. the assessee is required to file a statement in form ST . The Assistant/Deputy Commissioner of Central Excise. Question 11 Briefly explain the provisions relating to advance payment of service tax Answer The assessee has been provided with a facility to make advance payment of service tax on his own volition and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period.10 For the purpose of provisional assessment at the time of filing the return. is equivalent to the consideration. Question 10 Briefly discuss about the adjustment of excess amount of service tax paid in case of renting of immovable property service. 1994. Question 9 How will a taxable service be valued when the consideration thereof is not wholly or partly in terms of money? Answer As per section 67(2) of the Finance Act.3A giving detail of difference between service tax deposited and the service tax liable to be paid for each month. The details of such adjustment have to be intimated to the Superintendent of Central Excise having jurisdiction over the service provider within a period of 15 days from the date of such adjustment. The quarterly or half yearly statements should also accompany. However. on the basis of memorandum in form ST 3A may complete the assessment after calling for necessary documents or records. such excess amount may be adjusted against the service tax liability within one year from the date of payment of such property tax.27/2007 ST dated 22. In other words. a deduction of property taxes paid in respect of the immovable property is allowed from the gross amount charged for renting of the said immovable property vide Notification No.Payment of Service Tax and Filing of Returns 3. if need be. the total of such money and non-money values of the consideration has to be treated as inclusive of the service tax payable thereon. owing to property tax payment.

When should ‘X Ltd.2010.2010 (d) on or before 30.08.2010. and indicates the details of the advance payment made.06. the person liable to pay service tax is the chartered accountant. ‘X Ltd.07. the person liable to pay service tax is the mutual fund or asset management company receiving such service. What is the due date for payment of service tax in case of a partnership firm? (a) 5th day of the month immediately following every month (b) 25th day of the month immediately following every quarter (c) 5th day of the month immediately following every quarter (d) 25th day of the month immediately following every month 3.07.2010 (c) on or before 31. to the Jurisdictional Superintendent of Central Excise within a period of 15 days from the date of such payment. ‘X Ltd.’ receives the payment from ‘Y’ on 15. and its adjustment. Service tax is payable to the credit of the Central Government in: (a) Form ST-3 (b) GAR-7 challan (c) Form F (d) none of the above .11 Taxation (i) intimates the details of the amount of service tax paid in advance.2010 4.06.’ pay the service tax? (a) on or before 05. Which of the following statement is false? (a) In case of insurance auxiliary service provided by an insurance agent.’ provides management consultancy service to ‘Y’ for a consideration of ` 20. ‘X Ltd.’ raises the bill on ‘Y’ on 05. if any in the subsequent return to be filed under section 70. (c) In case of accounting services rendered by a chartered accountant. (ii) Self-Examination Questions 1. the person liable to pay service tax is the person carrying on the insurance business in India. (d) none of the above 2.2010 (b) on or before 05.000.07. (b) In case of business auxiliary service of distribution of mutual fund by a mutual fund distributor.3.

2.00.000. For the month of August 2010.70. Write a brief note on provisional payment of service tax. (i) (ii) 8. Ltd.50.(b) .Payment of Service Tax and Filing of Returns 3. Adlaps Pvt. In this context.(b). 5.30. ‘A’ charges ` 10. (c) ` 926 is payable by ‘A’ as service tax.000 In the financial year 2009-10. which date is considered as date of payment of service tax? Is it the date on which the cheque for the same is deposited/tendered in the designated Bank or the date on which the amount is credited? What is the special provision regarding payment of tax in respect of an air travel agent? Does payment of service tax in a branch of the Bank other than the nominated Bank for the Central Excise Commissionerate amount to non-payment of service tax? 7.000 at source. (d) ` 909 is payable by ‘A’ as service tax. Answers 1. is service tax leviable only on the amount actually received by the assessee from his client/customer or does it also extend to the amount of income tax deducted at source? In case of payment of service tax by cheque.(d).000 as service tax. (i) (ii) 9. Adlaps Pvt. The break up of these receipts is as follows:Month in which services are performed Receipts (`) July August 4. 3. 10.000 is made by a client/ customer to an assessee after deducting income -tax of ` 1. for the month of August 2010 and the date by which it is required to make the payment. He does not charge service tax from ‘B’.(d). Ltd. State the amount of service tax payable by Adlaps Pvt.000 2. is engaged in providing advertising services.000 from ‘B’ towards the taxable services provided by him.000 September 5. Ltd had paid ` 15. which of the following statement is true? (a) No service tax is payable by ‘A’.(a). 4. (b) ` 934 is payable by ‘A’ as service tax. In such a case.50.12 5. (i) (ii) What is the due date for payment of service tax in case of a company for the month of February and March? Who is responsible to make the payment of service tax in case of service rendered by a Goods Transport Agency? A payment of ` 11. its gross receipts were ` 12. 6.

provides that every person liable to pay service tax shall himself assess the tax due on the services provided by him and shall furnish a return to the Superintendent of Central Excise. Sub-section (2) of section 70 stipulates that certain notified person or class of persons shall also furnish to the Superintendent of the Central Excise.3. e-filing of service tax returns is permitted under service tax law. the following documents should be attached: (i) (ii) copies of GAR-7 challans which indicate the payment of service tax for the months/quarter covered in the half-yearly return. State with reasons whether he can do so? Answer (a) Yes.04.e.13 Taxation UNIT 2: FILING OF RETURNS Question 1 Answer the following questions:(a) Is e-filing of service tax return permitted? (b) Which are the documents to be submitted along with service tax return? (c) What are the due dates for filing of service tax returns? (d) Who are the persons liable to file service tax returns? (e) Whether service tax return can be furnished after the due date? (f) Mr. 1994.2010. (c) The service tax return (in Form ST-3) should be filed on half yearly basis by the 25th of the month following the particular half-year. With effect from 01. . (d) Section 70 of the Finance Act. This memorandum (Form ST-3A) is to be attached only when the assessee opts for provisional payment of service tax. a return in such form and in such manner and at such frequency as may be prescribed. the assessee can file the return on the immediately succeeding working day. inter alia. either 25th October or 25th April falls on a public holiday. (b) Along with service tax (ST-3) return. The due dates on this basis are as under: Half year Due date st th 1 April to 30 September 25 th October 25 th April 1 st October to 31 st March In case the due date of the filing of return i. memorandum in Form ST-3A giving full details of the difference between the amount of provisional amount of tax deposited and the actual amount payable for each month. Raju is a multiple service provider and files only a single return. e-filing of returns has been made mandatory for the assessee who has paid total service tax of ` 10 lakh or more including the amount of service tax paid by utilization of CENVAT credit in the preceding financial year.

Whether she is required to file service tax return? Answer (a) An assessee can submit a revised return. instead of showing a lump sum figure for all the services together.14 (e) A delayed return can be furnished by paying the prescribed late fee. whether taxable or exempted. within a period of 90 days from the date of submission of the original return. Question 2 Answer the following: (a) Can service tax return be revised by a person? (b) Ms. 1994 as amended. Ms. (iv) other activities such as manufacture and sale of goods. a registered service provider did not render any services during the financial year 2011-12. He has to furnish the details in each of the columns of the Form No.000/-. Therefore. Amrapali. Mr. purchase. then which of the services are eligible for this facility? . as the case may be. manufacture. Thus. receipt or procurement of input services and payment for them. Even if there is no service provided during a half year. a Nil return has to be filed. Answer Every assessee shall furnish to the Superintendent of Central Excise at the time of filing the return for the first time or 31st January. Section 70(1) of the Finance Act. to correct a mistake or omission. (b) all other financial records maintained by him in the normal course of business. in regard to inputs and capital goods. sale or delivery. inter alia. Question 3 List the documents to be submitted alongwith the first service tax return. 2008 whichever is later. if any. in triplicate. service-wise details should be provided in the return. Raju can file a single return though he is a multiple service provider. (iii) receipt.Payment of Service Tax and Filing of Returns 3. (f) Yes. a list of following documents in duplicate: (a) all the records prepared or maintained by the assessee for accounting of transactions in regard to (i) (ii) providing of any service. (b) Every assessee shall file a half yearly return in Form ST-3. Amrapali is required to file a service tax return. in Form ST-3.ST-3 separately for each of the taxable services rendered by him. storage. provides for filing of periodical return after the due date with the prescribed late fee of not more than ` 20. Question 4 What do you mean by e-filing of returns? Is there any facility of e-filing of service tax returns? If yes.

The prescribes late is given hereunder: S.000 prescribed for submission of the return.3.in) has been withdrawn and the assessees are now required to file their returns online or by uploading the downloadable off-line return utilities to the new ACES website (http://www. residence or any other place of choice.in). However.nic. No.15 Answer Taxation E-filing is a facility for the electronic filing of service tax returns by the assessee from his office.000 . Beyond 30 days from the date prescribed for submission of the An amount of ` return 1.aces. the assessee can file the return on the immediately succeeding working day. through the internet. The facility of e-filing of returns on the website (http://exciseandservicetax.2010. by using a computer.000 plus ` 100 for every day from the 31st day till the date of furnishing the said return. the total late fee for delayed submission should not exceed ` 20. late fee will be levied for delay in furnishing of the service tax return. The due dates on this basis are as under: Half year Due date 1st April to 30th September 25th October 25th April 1st October to 31st March In case the due date of filing of return falls on a public holiday. Yes.gov. e-filing of service tax returns has been made mandatory for the assessees who have paid total service tax of ` 10 lakh or more including the amount of service tax paid by utilization of CENVAT credit in the preceding financial year. With effect from 01. Question 5 State the due dates for filing of service tax returns. This facility is available to all service providers. how much? Answer The service tax return (in Form ST-3) should be filed on half yearly basis by the 25th of the month following the particular half-year. Will the delayed filing of service tax return result in payment of any late fee? If so. Period of delay Particulars Late fee ` (a) (b) (c) 15 days from the date prescribed for submission of the return 500 Beyond 15 days but not later than 30 days from the date 1.04.

3. (b) A quarterly return is to be filed by each assessee.(d). ‘X’.16 Self-Examination Questions 1. (d) An annual return is to be filed by each assessee. For an assesee who provides 3 taxable services: (a) filing of return is not compulsory at all (b) filing of a single return is sufficient (c) filing of separate returns for all 3 services is necessary 6.(c). Should he file any return for this period? Give your opinion. 5.(c). (c) A monthly return is to be filed by each assessee. Which of the following statement is true with regards to service tax return? (a) A half yearly return is to be filed by each assessee.Payment of Service Tax and Filing of Returns 3. 2. then which of the services are eligible for this facility? Answers 1.(b) . Which documents are to be submitted along with the first return? 7. 9. 3. The prescribed form for service tax return is: (a) Form 3CD (b) Form 2E (c) Form ST-3 (d) Form GAR-7 4.(a). When should the return be filed if the due date happens to be a public holiday? 8. Write a note on the manner of payment of service tax. has not provided any services in the half year period of April to September. 4. What is the due date for filing returns? (a) 5th of the month following the particular quarter (b) 25th of the month following the particular month (c) 25th of the month following the particular half year (d) 5th of April each year. an individual. 2. What do you mean by e-filing of returns? Is there any facility of e-filing of service tax returns? If yes. The contents of the service tax return do not include: (a) amount billed for exempted services and services exported without payment of tax (b) amount received towards taxable service (c) amount received in advance towards taxable service to be provided (d) the income or loss of the service provider 5. 10.

certainty. this system brings certainty to a great extent. Under this method. sales price. Thus there is no need to go through complicated definitions like sales. tax is imposed at each and every stage of sales on the entire sale value.4 VAT – CONCEPTS AND GENERAL PRINCIPLES Question 1 Briefly answer the following questions:(a) Which is the most popular and common method for computing VAT liability and at what stage is the tax imposed? (b) Is it correct to state that VAT usually increases the retail price. (d) VAT system has many advantages like no tax evasion. it increases the working capital requirements and the interest burden on the same. The tax is also broad-based and applicable to all sales in business leaving little room for different interpretations. Thus. However. turnover of purchases and turnover of sales. since the VAT is imposed or paid at various stages and not at last stage. (f) What is the demerit of VAT from the view point that it is a form of consumption tax? (g) Discuss the word “transparency” in the context of VAT system. In this way. (c) The VAT is a system based simply on transactions. and the tax paid at the earlier stage is allowed as set-off. reduction in cascading effect of taxes etc. how? (d) Can VAT be said to be non-beneficial as compared to single stage-last point system? (e) Briefly explain the income variant of VAT. it may be considered to be non-beneficial as . (b) The statement is not correct as VAT is a multi-point tax where tax is imposed at each and every stage of sales and tax paid at the earlier stage is allowed as set-off. transparency. as the tax is payable on the first sale price? (c) Can it be said that VAT brings about certainty to a great extent in the matter of interpretational issues? If so. (h) What are the items aggregated in the addition method to calculate the VAT payable?When is this method mainly used? Answer (a) Invoice method is the most common and popular method for computing the tax liability under the VAT system.

(g) Out of total consideration paid for purchase of material. the buyer knows the tax component under a VAT system. this weakness is inherent in all the forms of consumption tax. (f) VAT is a form of consumption tax. Since the proportion of income spent on consumption is larger for the poor than for the rich. this rigour can be brought down through input credits on purchases. VAT tends to be regressive. What are its other names? (b) What are the different variants of VAT and how is deduction available for tax paid on inputs including capital inputs? (c) What are the different stages of VAT? Can it be said that the entire burden falls on the final consumer? (d) Briefly explain how VAT helps in checking tax evasion and in achieving neutrality.2 compared to the single stage-last point taxation system though to a certain extent. This method is mainly used with income variant of VAT. Thus. it is a great aid to the Government while taking decisions with regards to rate of tax etc. which create complications for administration. However. are added to arrive at the value addition on which VAT rate is applied to compute the VAT payable. it is always advisable to moderate the distribution considerations through other programmes rather than concessions or exemptions.VAT-Concepts And General Principles 4. While it may be possible to moderate the distribution impact of VAT by taxing necessities at a lower rate. This transparency enables the State Government to know as to what is the exact amount of tax coming at each stage. In practice. Question 2 Answer the following: (a) Briefly explain the invoice method of computing tax liability under the VAT system. (e) How can an auditor play a role to ensure that the tax payers discharge their tax liability properly under the VAT system? . (i) (ii) All the factor payments. (h) In the addition method. This method provides incentives to classify purchases as current expenditure to claim set-off. there are many difficulties connected with the specification of any method of measuring depreciation. the system ensures transparency. (e) The income variant of VAT allows for deductions of purchases of raw materials and components as well as depreciation on capital goods. which basically depends on the life of an asset as well as on the rate of inflation. however. and Profit. Thus.

VAT is collected at each stage of production and distribution process. In India also. Thus. tax paid on non-capital inputs and depreciation on capital inputs is allowed. Consumption variant: Under this variant.4. (d) It is said that VAT is a logical beauty.e. at the stage of purchases is set-off. (b) There are three variants of VAT viz. Therefore. other costs and profits. In an economy. the manufacturer or retailer will claim input credit. Gross Product Variant: Under this variant. This method is also called the ‘Tax Credit Method’ or ‘Voucher Method’. Under this method. and in principle. The wholesaler might supply to retailer. (c) The Value Added Tax (VAT) is a multistage tax levied as a proportion of the value added (i. Discuss Answer (a) Invoice method is the most common and popular method for computing the tax liability under ‘VAT’ system. apart from the manufacturers and final consumers. The most important aspect of this method is that at each stage. VAT will be collected at each stage. tax is imposed at each stage of sales on the entire sale value and the tax paid at the earlier stage is allowed as set-off. suppression of purchases or production will be difficult because it will lead to loss of revenue. it is not possible to claim credit. and each one of them could supply to the manufacturer and the end consumer. credit of duty paid is allowed against the liability on the final product manufactured or sold.e. Income Variant: Under this variant. gross product variant. sale minus purchase) which is equivalent to wages plus interest. unless proper records are kept in respect of various inputs. In other words. tax paid at the earlier stage i. who does not get any tax credit. and at every stage the differential tax is being paid.3 (f) Taxation Discuss the ‘subtraction method’ for computation of VAT. and wherever applicable. deduction is allowed for tax paid on all business inputs including capital inputs. this method is followed.. Thus VAT is a broad-based tax covering the value added to each commodity by parties during the various stages of production and distribution. out of tax so calculated. deduction is allowed for tax paid on all inputs excluding capital inputs. income variant and consumption variant. . under the VAT law as introduced in several Sates and Central Excise Law. A perfect system of VAT will be a perfect chain where tax evasion is difficult. Hence. This method is very popular in western countries. (g) VAT would increase the working capital requirements and the interest burden. Under VAT. tax is to be charged separately in the invoice. its entire burden falls on the final consumer. there would be wholesalers and retailers also.

How much value is added and at what stage it is added in the system of production/distribution is of no consequence. but only a few VAT returns will be taken up for scrutiny assessment. It will not be also seen whether proper records have been maintained by the trader.000 and added a profit ` 15. (e) Under the VAT system. VAT facilitates precise identification and rebate of the tax on purchases and thus ensures that there is no cascading effect of tax. helping the client in interpretation of the provisions of VAT law. The rate of VAT on purchases and sales is 12. (i) (ii) (iii) (iv) (f) . the return filed by the trader will be accepted. (g) One of the demerits of VAT is that it increases the working capital requirements and the interest burden. Under the subtraction method. This is because the system has anti-cascading effect. All other things remaining the same. The system is neutral with regard to choice of production technique. as there will be no regular assessment of all VAT returns. and performing audit of VAT accounts. Chartered Accountants can ensure tax compliance by:helping the client in systematic record keeping.VAT-Concepts And General Principles 4. a check on compliance becomes essential. As a consequence. the question of grant of claim for set-off or tax credit does not arise.000. This method is normally applied where the tax is not charged separately. reporting the under-assessment. In other cases. The tax is imposed or paid at various stages and not on last stage only. ‘value added’ is simply taken as the difference between sales and purchases. trust has been reposed on tax payers. as well as business organisation. Question 3 Compute the invoice value to be charged and amount of tax payable under VAT by a dealer who had purchased goods for ` 1. In short. the allocation of resources is left to be decided by the free play of market forces and competition. Under this method for imposing tax.000 while selling the same. made by the dealer requiring additional payment or (v) reporting any excess payment of tax warranting refund to the tax payers.4 Further. It increases the requirement of working capital and also the interest element as compared to single stage-last point taxation system.5%. Since. the issue of tax liability does not vary the decision about the source of purchase.20. if any. He incurred expenses of ` 10. the total value of goods sold is not taken into account. the greatest advantage of the system is that it does not interfere in the choice of decision for purchases. the tax is charged only on the value added at each stage of the sale of the goods.

500 27.5%.000 Invoice value after 10% profit margin VAT charged in invoice Less : VAT input credit (2.500 ` 10.125 Note: It has been assumed that the purchase price of ` 1.20. A Note: Profit has been computed as 10% of the cost price of the goods.125 1.25.000 15. .125 15.5% on ` 2.00.5% on 1.000 (including VAT) and earns 10% profit on sale to retailers.5 VAT payable by Mr.000 27. Amount ( `) 2.000 3.000 25.47.500 2.20. A who purchases goods from a manufacturer on payment of ` 2.5)/112.45.000 2.000 is exclusive of VAT.000 Tax Payable under VAT Question 4 Compute the VAT amount payable by Mr.000 18.4.000 25.000 2.20.25.000 2.000 ` 1.000 20.63.5 Purchase price Add : Profit margin (10% of Cost Price) Sale price before VAT Add : VAT @ 12. Answer Computation of VAT payable by Mr.20.125 18.20.000 1.5 Answer Taxation Computation of invoice value:Particulars Cost of goods purchased Add: Expenses Add: Profit margin Product Sale Value Add: VAT @ 12.5)/112.25.000 x 12.000 x 12.25.500 25. A:Payment made to manufacturer Less : VAT paid (2.5% Invoice Value Computation of amount of tax payable under VAT VAT charged on sales Less: Input credit of VAT paid on purchases @ 12. VAT rate on purchase and sale is 12.

5% 25.500 Answer Computation of VAT and invoice value:Particulars Imported material cost [Since. Assume the rate of VAT @ 12. it will form part of cost of input] Add : Cost of local materials 2.500 4.50%: ` (1) (2) (3) Cost of imported materials (from other State) excluding tax Cost of local materials including VAT Other expenditure including storage. ` 1.VAT-Concepts And General Principles Question 5 4.000 87. He imports his stock in trade as well as purchases the same from the local markets.000 2. Goenka is a trader selling raw materials to a manufacturer of finished products.000 would be available.6 Mr.25. Following transaction took place during financial year 2011-12:Calculate the VAT and invoice value charged by him to a manufacturer.500 87. Therefore. Goenka to the manufacturer VAT charged by Mr. Goenka is ` 50.000 2. unless proper records are kept in respect of various inputs.Under VAT. it will not be included in cost of input] Add : Other expenses and profit Sales Price of goods Add : VAT on the above @12.000 Less : VAT @12. suppression of purchases or production will be difficult because it will lead to loss of revenue. transport.25.000 50.5% Invoice value charged by Mr.00.000. it is not possible to claim credit. credit of duty paid is allowed against the liability on the final product manufactured or sold. credit of ` 25.00. this is not a VAT levied inside the State. Question 6 What are the merits of VAT in the context of tax evasion.00.000 . neutrality and transparency? Answer (1) No tax evasion: . Hence.00.000 4. interest and loading and unloading and profit earned by him 1.000 [Since.000 12.50.

Mr. B’s tax liability will be ` 300 (` 2.000 @ 12.000.The greatest advantage of VAT system is that it does not interfere in the choice of decision for purchases.7 Taxation (2) Neutrality: .400.400 @ 12.Under VAT system. The system is neutral with regard to choice of production technique. Thus. as well as business organization. X. a distributor for ` 2. VAT Liability 250 Less VAT Credit Tax payable to Government 250 2. B sells goods to Mr.5%). 300 250 50 3. the system ensures transparency also. Answer Computation of tax liability. sells to retailer at ` 3.000 @ 12. the distributor.400. All other things remaining the same. a manufacturer sells goods to Mr. for ` 2. Thus. tax payable by him will be ` 50. Thus. the issue of tax liability does not vary the decision about the source of purchase. the distributor. 375 300 75 . sells to B. a wholesale dealer for ` 2. He will get set off of tax paid at earlier stage of ` 250. K. wholesale dealer and retailer under invoice method assuming VAT rate @ 12. He will get set off of tax paid at earlier stage of ` 300. for ` 2. input credit availed and tax payable by the manufacturer.5%).5%).4. who ultimately sells to the consumers for ` 4.000 (excluding VAT). How much value is added and at what stage it is added in the system of production/distribution is of no consequence. Question 7 Mr. K.000. B. Compute the tax liability. Particulars X. the manufacturer. He will not have any VAT credit.5%.000. The wholesale dealer sells the goods to a retailer for ` 3. the wholesaler dealer. distributor. sells goods to K. tax payable by him will be ` 75. B. Therefore his tax liability will be ` 250 (` 2. (3) Transparency: .000. K’s tax liability will be ` 375 (` 3. This is because the system has anti-cascading effect. the wholesale dealer. input tax credit availed and tax payable under invoice method Stage 1. the buyer knows the tax component out of the total consideration paid for purchase of material.

50. His tax liability will be ` 500 (` 4.29.(excluding custom duty @ 10% of ` 18. wages and other manufacturing expenses excluding tax ` 1. the wholesale dealer and the retailer are also exclusive of VAT.45.03. Retailer sells goods to consumers at ` 4. Rajesh is a registered dealer and gives the following information.VAT-Concepts And General Principles 4. (i) Intra State purchases of raw material ` 2.5%).5% of sales.000/.500 .5%) (iii) High seas purchases of raw materials are ` 1. He will get set off of tax paid at earlier stage of ` 375.8 Note: It has been assumed that sales made by the distributor.500 51.000/.000/.000 @ 12.50.(including VAT @ 12. Thus.000. Question 8 Mr.85.000 2.000) Purchases of raw materials from unregistered dealer [Refer Note 1] High seas purchases of raw materials [Refer Note 2] Purchase of raw materials from other States [Refer Note 3] Transportation charges.(excluding VAT @ 4%) (ii) Purchases of raw materials from an unregistered dealer ` 80.000 1.000 7. You are required to compute the net tax liability and total sales value under value added tax: Rajesh sells his products to dealers in his State and in other States.000/(v) Transportation charges. The profit margin is 15% of cost of production and VAT rate is 12.000 80. wages and manufacturing expenses Cost of production 2. tax payable by him will be ` 125/500 375 125 4.000/(vi) Interest paid on bank loan ` 70.45.000/Answer Computation of net VAT liability and total sales value ` Intra-State purchases of raw material (excluding VAT` 10.500) (iv) Purchases of raw materials from other States (excluding CST @ 2%) ` 50.

5% Less:Set off of VAT on purchases: From high seas From intra-State [Refer Note 4] From inter-State From unregistered dealer Net VAT payable Notes: 1. so the input tax credit is not available in respect of the same and it is a part of cost of production. Duty paid on high seas purchases i. Present them in schematic diagram and explain each one briefly. 2. Interest on loan has been excluded for calculating the cost of production on the presumption that the loan is availed for purposes other than working capital. It has been assumed that the entire production is sold.000.791 Add : Profit margin 15% Add: VAT @ 12. VAT paid thereon is a part of cost of production.5% Computation of VAT liability:VAT on above sales price @ 12. As credit of the same will be available.e.09.4.9 Taxation 1. ` 1.43.04.04.866 Input tax credit is not available on the purchases of raw materials from unregistered dealer. 4. it is not included in the cost of production. 5. Set-off of tax paid on inter-state purchases is not allowed. imports is not a State VAT. 3. 6. Tax on intra-State purchases is ` . Hence. Answer VAT has following three variants: (a) Gross product variant (b) Income variant (c) Consumption variant These variants are presented in a schematic diagram given below: ..000 94.10.425 8.866 Nil 10.000 Nil Nil 10.925 1.866 Total sales value 9.38. Question 9 State the variants of VAT.

Answer Computation of VAT payable by Mr. This method provides incentives to classify purchases as current expenditure to claim set-off. Thus. (c) Consumption variant: Consumption variant of VAT allows for deduction on all business purchases including capital assets.16. who purchased goods from a manufacturer on payment of ` 4. Income variant Tax is levied on all sales with set-off for tax paid on inputs and only depreciation on capital goods. there are many difficulties connected with the specification of any method of measuring depreciation. however. Question 10 Compute the VAT payable by Mr. It neither distinguishes between capital and current expenditures nor specifies the life of assets or depreciation allowances for different assets.000/104) x 4] Purchase price 4. gross investment is deductible in calculating value added. (b) Income variant: The income variant of VAT on the other hand allows for deductions on purchases of raw materials and components as well as depreciation on capital goods.10 Gross product variant Tax is levied on all sales and deduction for tax paid on inputs excluding capital inputs is allowed.16. taxes on capital goods such as plant and machinery are not deductible from the tax base in the year of purchase and tax on the depreciated part of the plant and machinery is not deductible in the subsequent years.000 (including VAT) and earned 20% profit on purchase price. That is. Shyam ` Payment made to manufacturer Less: VAT paid [(4. In practice. which basically depends on the life of an asset as well as on the rate of inflation.VAT-Concepts And General Principles Different variants of VAT 4. (a) Gross product variant: The gross product variant allows deductions for taxes on all purchases of raw materials and components.00. Shyam.000 16. VAT rate on both purchases and sales is 4%. Consumption variant Tax is levied on all sales with deduction for tax paid on all business inputs (including capital goods).000 .000 4. but no deduction is allowed for taxes on capital inputs.16.

3.000 4.20.000 2. inclusive of VAT levy at 4% Sale of goods within State.000 19.50.2011. a registered dealer.000 Capital goods purchased on 1. Expenses Sale of taxable goods within State.80.000 3.2012:Particulars Input tax credit: Intra-State purchases of 1000 units raw materials [Refer Note 1] Inter-State purchases of raw materials [Refer Note 2] 30. effected by Vasudha & Co.000 . for the year ended 31.30.000 4. etc.3. Answer Computation of VAT liability of Vasudha & Co. sales.3.000 3.5. inclusive of VAT levy at 6% Inter-State purchases of raw materials. inclusive of VAT levy at 10% (input credit to be spread over 2 financial years) Other manufacturing.000 7.000 Less: Input credit VAT payable by Mr.11 Taxation 80.2012 : Particulars Purchase of raw materials within State.200 16. exempt from levy of VAT (Goods were manufactured from the Inter-State purchase of raw materials) Closing stock as on 31.200 Add: Profit margin @ 20% on purchase price Sale price before VAT VAT @ 4% on ` 4. Shyam Question 11 The following are details of purchases.000 1.80.000 1. Compute the VAT liability of the dealer for the year ended 31.2012. 1000 units. for the year ended 31.000 Amount (` ) Amount (`) 5.30.28..4.35. inclusive of CST at 2% Import of raw materials.3.04. inclusive of customs duty of ` 35.2012 was 100 units of raw materials purchased within the State Input credit is allowed only on raw materials used in manufacture of the taxable goods.

30.000 x 4)/104] Sale of exempted goods within State [Refer Note 6] Total VAT payable (B) Net VAT liability (VAT credit to be carried forward) [(B)-(A)] Notes:1.28.000 28.000 × 6 ⎤ VAT paid on intra-State purchases is eligible for input tax credit ⎢ ⎥. However. Further.000 × 10 ⎤ has to be spread over a period of two years ⎢ ⎥.000 45. since these goods were manufactured from the inter-State purchases of raw materials (nonvattable inputs).000 28. ⎡ 5. irrespective of when the supplies/inputs purchased are utilized/sold. Therefore. Note: The statement in the question. input tax credit in respect of closing stock of raw materials need not be reduced from total input tax credit available. 5. 7. Customs duty is not eligible for input tax credit. ⎣ 110 × 2 ⎦ No input tax credit can be availed on expenses incurred on manufacturing. the same ⎡ 3.VAT-Concepts And General Principles Import of raw materials [Refer Note 3] Purchase of Capital Goods [Refer Note 4] Other manufacturing expenses [Refer Note 5] Total input tax credit available (A): Output VAT payable: Sale of taxable goods within State [(7. Question 12 Which variant of VAT is most widely used in the world and why? Are some services also included in the VAT net by such countries? . 2. “Input credit is allowed only on raw materials used in manufacture of the taxable goods”. 6. 106 ⎣ ⎦ 4. VAT system allows credit in respect of purchases made during a period to be set-off against the taxable sales during that period. implies that the same is not allowable in respect of sale of goods within the State which are exempt from levy of VAT. VAT paid on purchase of capital goods is eligible for input tax credit. input tax credit is not affected. No VAT will be payable on sale of goods exempted from levy of VAT.30.000 (17000) CST paid on intra-State purchases is not eligible for input tax credit. 4. 3.12 15.

the administrative cost to the States has increased on account of number of dealers going up significantly. etc. the advantage of neutrality is confined only for purchases within the State. Hence. most VAT countries include many services in the tax base. Consequently. therefore. it does not affect decisions regarding investment because the tax on capital goods is also set-off against the VAT liability. Since the business gets set-off for the tax on services. it is difficult to put the purchases from other States at par with the purchases within the State. Distortion occurs on account of different rates of VAT. being a consumption tax. the system is tax neutral in respect of techniques of production (labour or capital-intensive). Therefore. Question 13 What are the major deficiencies of VAT system in India ? Answer The major deficiencies of VAT system in India are as under: (1) There is lack of uniformity in the rates of VAT in different States. Several countries of Europe and other countries have adopted this variant. difference in classification of goods.13 Answer Taxation Among the three variants of VAT. most countries use the consumption variant. exemptions. Note: Any four points may be mentioned. (5) VAT. Also. (4) VAT is paid at various stages and not at last stage. The reasons for preference of this variant are: Firstly. (2) Central Sales Tax is not integrated with the State VAT. the consumption variant is widely used. composition Scheme. (3) For complying with the VAT provisions. tends to be regressive since the proportion of income spent on consumption is large for the poor than the rich. Secondly. it does not cause any cascading effect. This has increased the requirement of working capital and the interest burden on the same. (6) As a result of introduction of VAT. In practice.4. the accounting cost has increased which may not be commensurate with the benefit to traders and small firms. Question 14 How can a Chartered Accountant help a client in the handling of VAT audit called for by the Department and in conducting external audit of VAT records? . the consumption variant is convenient from the point of administrative expediency as it simplifies tax administration by obviating the need to distinguish between purchases of intermediate and capital goods on the one hand and consumption goods on the other hand.

In other cases. but only few returns will be scrutinized. Chartered Accountants can play a very vital role in ensuring tax compliance by audit of VAT accounts.e ` .2500/ (c) ` .000 on which he pays the duty of ` . A trader purchases raw material from the local market worth ` . Self-Examination Questions 1. 3.VAT-Concepts And General Principles Answer Handling audit by Departmental Auditors 4. trust has been reposed on tax payers as there will be no regular assessment of all VAT returns.50% i.10.3750/ (d) None of the above.20.14 There are audit wings in VAT Departments and certain percentage of dealers are taken up for audit every year on scientific basis. a check on compliance becomes necessary.500/. Chartered Accountants can ensure proper record keeping to satisfy the Departmental auditors. He also imports the material worth ` . Which was the first country to introduce VAT? (a) France (b) Brazil (c) Senegal (d) Denmark 4. External audit of VAT records Under VAT system. returns filed by dealers will be accepted.1250.1250/ (b) ` . The professional expertise of a Chartered Accountant will help him in effectively replying audit queries and sorting out audit objections. Value added tax is levied at: (a) first stage of sale (b) multistage (c) last stage of sale (d) none of the above 2. Thus. CENVAT is applicable in respect of: (a) excise duties (b) custom duties (c) service tax (d) excise duty and service tax .000 and pays VAT @12. He can avail the input credit of: (a) ` .2.

(d) White Paper on State Level VAT provides a framework for drafting various State VAT Legislations. (a). 6. 3. 9. What are the three variants of VAT? Explain briefly. Taxation The method for computation of tax in which all the factor payments including profits are aggregated to arrive at the total value addition on which the rate is applied to calculate the tax is: (a) Invoice method (b) Subtraction method (c) Addition method (d) Direct subtraction method 6. Which of the following statements are true? Give proper explanation for your answer (a) CENVAT is paid on the value of goods purchased in India. 7. Which variant/variants is/are widely used among the three variants of VAT? (a) Consumption variant (b) Gross product variant (c) Income variant (d) Consumption and income variant 8. the State-Level VAT has replaced: (a) the excise duty (b) the State-sales tax (c) the import duty (d) none of the above 7. 14. 15. Write a note on different methods of computation of VAT.(d) . (b). Discuss the role of Committee of State Finance Ministers in the implementation of State Level VAT in India. 5. (c) VAT is inflationary in nature. (c). Discuss the role of Chartered Accountants in successful implementation of VAT. Explain briefly the concept of central value added tax (CENVAT). 4. 2. 13.4. In India. (a). (b). Answers 1. (d). (b). 12. Discuss the merits and demerits of VAT system.(b). 11.15 5. (b) A trader can take credit of the inputs purchased by him only if he has obtained proper tax invoice from the vendor. Briefly mention the contents of White Paper on State-Level VAT in India. 8. 10.

500 . X.000 1.50.50. Compute the turnover.000 4.000 2.00. X.3. The same is fixed to provide relief to small traders.000 33. Answer Goods A B (See Note) C Purchases ` 2.50. (iv) His unutilized balance of VAT input credit on 1.20.00.000 5.000 (VAT rate 4%). as per the White Paper? If yes.00. as per the White Paper is ` 5 lakh. Question 2 Mr.000 Output VAT ` 27.500 6.000 and sold for ` 2.2012 was ` 1.000 6. submits the following information pertaining to the month of March.25.500. (ii) Goods 'B' purchased for ` 2.000.5 INPUT TAX CREDIT AND COMPOSITION SCHEME FOR SMALL DEALERS UNIT 1: INPUT TAX CREDIT Question 1 Is any threshold exemption limit fixed for dealers to obtain VAT registration. a dealer in Mumbai dealing in consumer goods.50. 2012: (i) Exempt goods 'A' purchased for ` 2.000 2.000 (including VAT) and sold at a margin of 10% profit on purchases (VAT rate 12. The same was subsequently increased to ` 10 lakh.000 29. Output VAT and Net VAT payable by Mr.00.00.000 (excluding VAT) and sold for ` 1.000 Sales (Turnover) ` 2. Input VAT.00.000 1.20.000 Input VAT credit ` 25. why is the same provided? Answer The threshold limit for small traders.5%) (iii) Goods 'C' purchased for ` 1.

the tax paid on: (i) (ii) inputs used in the manufacture of finished goods which are stock transferred.000 30.000 25.20. 2012 Total Input VAT credit available Less: Output VAT payable on taxable turnover Net VAT payable Note:Goods B purchase value (including VAT) Less: VAT included in above 12.5 2.000 2.20. Question 3 2.2 Taxation ` ` Exempt turnover Taxable turnover Total turnover Opening balance of Input VAT credit Add: Input VAT credit for March.500 33.500 Discuss the tax consequences of inter-state stock transfer under the VAT scheme.000 6. The same position is continued under VAT. or purchases of goods which are stock transferred is available as input tax credit after retention of 2% of such tax by the State Governments.5 2. However.000 × 112.500 29. therefore they are not subjected to sales tax.000 3.500 3.000 Purchase price excluding VAT Add: Profit on above @ 10% Selling price before VAT VAT @ 12. Question 4 List the purchases which are not eligible for input tax credit.00.70.000 1.000 27.25.000 2.25.5. Answer Inter-State stock transfers do not involve sale and.5% on selling price Note : Profit margin of 10% is taken at purchase value excluding VAT.000 20.50. .

Thus. This amount will be adjusted/rebated against the tax payable by the purchasing dealer on his sales. (g) purchase of goods used for personal use or consumption or provided free of charge as gifts. (h) goods imported from other States. 5. goods in stock which have suffered tax under an earlier Act but under VAT Act they are covered under exempted items.Input Tax Credit and Composition Scheme for Small Dealers Answer The following purchases are not eligible for input tax credit: (a) purchases from unregistered dealers. The essence of VAT is in providing set-off for the tax paid earlier. (i) (j) goods imported from outside the territory of India. input tax credit in relation to any period can be set off by the registered dealer against the amount of his output tax. Input tax is (a) the tax charged in the course of business for the sale of any goods made to any dealer of the State. This credit availability is called input tax credit (ITC). It can also be referred to as tax credit on a sale within the State or in the course of intra-State trade or commerce. and this is given effect through the concept of input tax credit/rebate.3 (b) purchases from registered dealers who opt for composition scheme under the provisions of the Act. (b) the tax paid in the course of business on purchases of any goods made from any . Self-Examination Questions 1. (f) purchase of goods which are being utilized in the manufacture of exempted goods. (e) purchase of goods where invoice does not show the amount of tax separately. (c) purchase of goods as may be notified by the State Government. Question 5 What is meant by input tax credit in the context of VAT provisions? How does input tax credit help in achieving the essence of VAT? Answer The tax paid by a registered dealer on the earlier point is called input tax. (d) purchase of goods where the purchase invoice is not available with the claimant or there is evidence that the same has not been issued by the registered selling dealer from whom the goods are purported to have been purchased.

5. (b) setting off the amount of output tax by a registered dealer against the amount of his input tax. (c) the tax charged or chargeable by any dealer for the sale of goods in the course of business. 2. (c) setting off the amount of input tax by any dealer against the amount of his output tax. input tax paid in excess of ___________ will be eligible for tax credit. (a) 4% (b) 10% (c) 5% (d) 2% 5. (d) All of the above 4. (c) the tax paid or payable in the course of business on purchases of any goods made from a registered dealer of the State. Input tax credit in relation to any period means (a) setting off the amount of input tax by a registered dealer against the amount of his output tax. (b) the tax paid or payable by any dealer for the purchase of goods in the course of business. For stock transfer/consignment transfers/branch transfer of goods out of the State. (d) the tax charged or chargeable in the course of business for the sale of any goods made to a registered dealer of the State.4 Taxation dealer of the State. (d) None of the above 3. Which of the following purchases is not eligible for input tax credit? (a) Purchases made for sale to other parts of India in the course of inter-State trade or commerce (b) Purchases to be used in the packing of manufactured goods intended for sale in the State or in the course of inter-State trade or commerce (c) Purchases to be used as capital goods required for the purpose of manufacture or resale of taxable goods (d) Purchases from unregistered dealers . Output tax is (a) the tax charged or chargeable by a registered dealer for the sale of goods in the course of business.

Can input tax credit be carried forward? Discuss.Input Tax Credit and Composition Scheme for Small Dealers 6. Explain whether units in SEZ and EOU units are required to pay input tax on purchases made by them? 12. Enumerate the eligible purchases in respect of which input tax credit can be availed. 6.5 (a) Set off of input tax credit on capital goods is available to both traders and manufacturers.(c).(b). (b) Set off of input tax credit on capital goods is available only to manufacturers. Mention the purchases which are not eligible for input tax credit. 7. 9. 2.(a). 8. Answers 1. (d) None of the above. (c) Set off of input tax credit on capital goods is available only to traders.(a) . Which of the following statement is true? 5. 4. 5. 13. Discuss the procedural requirements to be fulfilled in order to claim input tax credit on capital goods. 10. How will the input tax credit be availed when common inputs are used for taxable and tax-free good? 11.(d). Discuss the policy contained in the White Paper with regard to availment of input tax credit on capital goods. 3.(d).

a registered dealer under the local VAT law. Only the records for purchases. (iii) The dealer should not have any stock of goods which were brought from outside the State on the date he opts to pay tax under composition scheme and should not use such goods after such date. having stock of goods purchased from outside the State.5. If he avails this scheme. Advise him whether the same is possible. the VAT chain is broken. he is not required to maintain any statutory records as prescribed under the Act. The benefit of tax paid earlier will not be passed on to subsequent buyers. he cannot claim input credit of the tax paid on the purchases. Staruss & Co. and the subsequent buyers? Answer As soon as the dealer opts for the composition scheme. (iv) The dealer should not claim input tax credit on the inventory available on the date on which he opts for composition scheme. Will the VAT chain be broken if the dealer opts for the said scheme? Answer As per the principles laid down in the White Paper. wishes to opt for the Composition Scheme. sales and inventory should be maintained. Question 2 What are the conditions to be fulfilled by the dealer accepting the composition scheme under the value added tax? Answer The dealer accepting the composition scheme should fulfill the following conditions: (i) (ii) He should intimate to the Commissioner of VAT in writing that he is opting to such scheme for a year or a part of the year in which he gets himself registered.6 Taxation UNIT 2: COMPOSITION SCHEME FOR SMALL DEALERS Question 1 Is the VAT chain continued when a purchasing dealer opts for VAT composition scheme? What is the loss to the seller and buyer opting for the composition scheme. a dealer desirous of availing the benefits of VAT Composition Scheme should not have stock of the goods purchased from . When a composition scheme is availed by a seller or buyer. This will add to the cost of the goods.. Question 3 M/s.

as soon as any dealer opts for the Composition Scheme. (b) Under the composition scheme. . a dealer cannot avail input tax credit.50 lakhs (b) the dealer whose total turnover exceeds Rs. Which of the following statement is true? (a) The composition scheme is optional. Self-Examination Questions 1. he must ensure that he does not possess stock of such goods as on the date of exercise of option. (c) Under the composition scheme. a dealer can pass on credit by issuing a supplementary invoice. Hence. 3.Input Tax Credit and Composition Scheme for Small Dealers 5.7 outside the State. a dealer cannot issue tax invoice. Which of the following statement is false? (a) Under the composition scheme. (d) None of the above. which of the following dealer may opt for composition scheme? (a) the dealer whose total turnover does not exceed Rs.50 lakhs 2. As per the White Paper. A purchasing dealer buying goods from a dealer operating under the Composition Scheme will not get any tax credit for the goods purchased. if the dealer wishes to avail the benefit of the scheme.70 lakhs (c) the dealer whose total turnover exceeds Rs. Advice is to be tendered on above lines. Therefore. Which of the following dealer cannot opt for composition scheme? (a) a manufacturer or a dealer who sells goods in the course of inter-state trade or commerce (b) a dealer who sells goods in the course of import into or export out of the territory of India (c) a dealer transferring goods outside the State otherwise than by way of sale or for execution of works contract (d) All of the above 4. The selling dealer will not be able to pass on the benefit of the input credit when he opts for the Composition Scheme. (c) A dealer availing composition scheme should not have stock of goods brought from outside the State on the day he exercises his option and should not use any goods brought from outside the State after such date. (b) A dealer availing composition scheme need not maintain any statutory records as prescribed under the State VAT Act. the VAT chain is broken.60 lakhs (d) the dealer whose total turnover exceeds Rs.

8 Taxation (d) All of the above 5. 3.(a). 7. 9. 6. . What do you understand by a composition scheme under VAT laws? What is the eligible turnover to avail the benefit of this scheme? What are the special features of this scheme? Who is not entitled to the benefits of the composition scheme? How does the composite scheme affect the VAT chain? Answers 1.(d). 2. 8.(d). (c). 4.5.

e. (iv) assists in performing audit and investigation activities effectively and checks evasion of tax. (iii) promotes assurance of invoices. (ii) facilitates multi-point taxation on the value addition.. Answer (a) To reduce the multiplicity of sales-tax rates between various States in India. bullion etc. In the absence of invoices VAT paid by the dealer earlier cannot be claimed as set off. Question 2 Answer the following questions: (a) What are the different rates under VAT system? (b) Under what circumstances registration can be cancelled under VAT? (c) State with reasons in brief whether the following statement is true or false with reference to the provisions of value added tax. it was recommended that VAT will have broadly the following tax rates: (a) Zero rate for tax free goods. Answer Invoices are crucial documents for administering VAT.6 VAT PROCEDURES Question 1 State the importance of VAT invoice/tax invoice in administering VAT. The VAT rate on sale of lottery ticket is 4%. . A VAT invoice: (i) helps in determining the input tax credit and prevents cascading effect of taxes. (b) 1% on precious or semi-precious metals i.

They should contain details of output tax liability.6. or (ii) disposal of business. or (iii) transfer of business to new location.2 Taxation (c) 4% on items of basic necessities. value of input tax credit and payment of VAT and should be filed within the prescribed time schedule. capital goods and declared goods (d) 20% on non VAT goods (e) 12. Since VAT is not applicable on sale of lottery tickets. (c) False. In case of any mistakes. Sales records.5% on other goods. or (iv) annual turnover falling below the specified limit. The returns will be checked and any deficiency in payment of tax may have to be made good. agricultural and industrial inputs. revised returns may be filed. Filing of returns is designed with a view: (i) to reduce cost of compliance (ii) to encourage businesses to comply with their obligations. Answer VAT returns are to be filed monthly/quarterly/annually along with tax paid challans according to the provisions of the State Acts. the question of rate does not arise. Question 3 Discuss filing of return under VAT. . (b) VAT registration can be cancelled on: (i) discontinuance of business. Question 4 What records should be maintained under VAT system by a registered dealer? Answer The following records should be maintained under VAT system: (i) (ii) Purchase records. and (iii) to ensure efficient processing of data.

receipt for payment of customs duty or tax and credit and debit notes received to be filed chronologically either by date of receipt or under each supplier’s name. that time. unless such details are available at the time of supply in invoices issued at. A registered dealer is compulsorily required to get its books of accounts audited under VAT laws of different States irrespective of limit of turnover. in order to claim input credit. in chronological order. Question 6 Briefly list out the contents of V AT invoice. Question 5 State with reasons in brief whether the following statements are correct or incorrect with reference to the provision of value added tax.e. the following records should also be kept and produced to an Officer: (i) Copies of invoices issued. or before. as the case may be.3 (iii) All purchase invoices. 6. copies of customs entries. Answer (i) . Further. (v) Total of the output tax and the input tax in each period and a net total of the tax payable or the excess carried forward. (ii) Copies of all credit & debit notes issued. (vi) Details of goods manufactured and delivered from the factory of the taxable person. (vii) Details of each supply of goods from the business premises. at the end of each month. (iv) Separate record of any exempt sale. in serial number. aggregate of sales price & VAT.VAT Procedures (iii) VAT account. (i) (ii) It is permitted to issue ‘tax invoice’ inclusive of VAT i. Incorrect Reason: One of the requirements under the contents of the tax invoice is that rate and amount of tax charged in respect of taxable goods should be distinctly shown in the ‘tax invoice'. (ii) Incorrect Reason: Different States have determined different turnover limits above which a registered dealer will have to get its books of accounts audited under VAT laws. (iv) Details of amount of tax charged on each sale or purchase.

The registration can be cancelled on: (a) discontinuance of business (b) disposal of business (c) transfer of business to a new location (d) All of the above . pre-printed or self-generated serial numbers. registration number of the selling dealer. Who should obtain registration under VAT laws? (a) Any person who desires to provide taxable services. (b) Any dealer.6. quantity and value of goods sold. the various legislations provide that the tax invoice should have the following contents: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) the words tax invoice in a prominent place. description. signature of the selling dealer or his regular employee duly authorized by him for such purposes. (d) None of the above 2. name and address of the purchasing dealer. Self-Examination Questions 1. rate and amount of tax charged in respect of taxable goods. who intends to carry on the business of purchase and sale of goods in the State. Generally. registration number of the purchasing dealer (may not be required under all VAT legislations). name and address of the selling dealer.4 Answer Taxation VAT legislations of all the States provide for the tax invoice. date of issue. (c) Any dealer. who intends to carry on the business of purchase and sale of goods in the State and is liable to pay tax.

What is the eligible limit of turnover for registration under VAT laws? When can the registration be cancelled? 10. Differentiate between voluntary and compulsory registration.VAT Procedures 3. Write a brief note on tax payer’s identification number. 12. Which of the following records should be maintained under VAT laws? (a) Purchase records (b) Sales records (c) VAT account (d) All of the above 8.5% and 1% (b) 4% and 12.5 The taxpayer’s identification number will consist of ________ digit numerals throughout the country. 4% and 10% (d) 3%. Under VAT system: (a) there will be compulsory assessment at the end of each year (b) the VAT liability will be self-assessed by the dealer himself. 4% and 8% 7. 9. List the records to be maintained under VAT system. The tax invoice shall be dated and signed: (a) only by the dealer (b) only by his regular employee (c) by the dealer or his regular employee (d) None of the above 5. The basic tax rates prescribed under VAT laws are: (a) 4%. 6. (c) either compulsory assessment or self-assessment will be made (d) None of the above 6. 11. 12. . (a) 10 (b) 12 (c) 11 (d) 9 4.5% (c) 2%.

7. 14.6 Taxation 13.(c). What are the provisions in respect of returns under VAT Acts? 15. 4. 18. Discuss the importance of a tax invoice.(a).(d). Answers 1. What are the various types of audits prescribed under VAT provisions? 17. 6.(d) .(b). Explain the provisions in respect of tax invoice.(c). 19. 2. 5. 20. Does VAT system recognize self-assessment? Discuss.(b). Does VAT system require declaration forms? Discuss.6. Enlist the various contents of the tax invoice. 16. Briefly explain the system of cross checking under VAT laws. 3.