Dr.JAYARAM.A.

Surana College, Centre for Post-Graduation Studies CHAPTER-1

Contact num- 9620843555 Bangalore University, Bangalore
Calculation of Income from Business

Assessee: Previous Year: 2019 - 2020

Status: Assessment Year: 2020 - 2021

Particulars Amount Amount

Net Profit as per P&L A/c XXX
Add:
a. Inadmissible expenses debited to P&L A/c XXX
b. Business Income not credited to P&L A/c
(Adjustment) XXX
c. Overvaluation of Opening Stock (Adjustment) XXX
d. Undervaluation of Closing Stock (Adjustment) XXX
XXX
XXX
Less:
a. Admissible expenses not debited to P&L A/c
(Adjustment) XXX
b. Tax free incomes credited to P&L A/c XXX
c. Non-Business Income credited to P&L A/c XXX
d. Under valuation of Opening Stock (Adjustment) XXX
e. Over valuation of Closing Stock (Adjustment) XXX
XXX
Taxable Income from Business XXX

Calculation of Taxable Income from House Property

Particulars Amount
Rent from House Property XXX
Less : Municipal tax XXX
Net Annual Value XXX
Less : Standard Deduction u/s 24
a. 30 % of NAV XXX
Taxable Income from House Property XXX

Calculation of Total Taxable Income

Particulars Amount Amount

(Rs.) (Rs.)
a. Income from House Property XXX
b. Income from Business and Profession XXX
c. STCG (other than STT) XXX
d. Income from other sources XXX
Gross Total Income XXX
Less: Deductions u/s 80 G to 80 JJA XXX
Other Taxable Income XXX
Add:
STCG (Liable to STT) XXX
LTCG XXX
Casual Income XXX XXX
Total Taxable Income XXX

Problems on Total taxable Income P a g e 1 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Calculation of Tax Liability

1. Tax on Other Taxable Income (25%)

2. Tax on LTCG (20%)
3. Tax on STCG (15%)
4. Tax on Casual Income (30%)
Sub Total
Add: Surcharge, if applicable
Sub Total
Add: Edu.cess and SHEC (4%)
Tax liability as per normal provision

LIST OF DISALLOWED EXPENSES / INADMISSIBLE EXPENSES (to be added

back to NP)
1) Household exp.
2) Rent of residential Building.
3) Repair of Residential Building.
4) Insurance of Residential Building.
5) Electricity of Residential Building.
6) Depreciation of personal Car
7) Expenses of personal car
8) Medical exp. of owner
9) Salary of domestic servant
10) Any donation except for (Business association)
11) Wealth Tax paid
12) Income tax paid
13) Advance tax paid
14) Int. as personal loan
15) Charity
16) Reserve for Bad-debt
17) Gifts and present (except given to clients)
18) Life Insurance Premium (self)
19) Interest on capital
20) Interest as personal loans
21) Reserve for Sales tax
22) Fire Insurance of let out

Problems on Total taxable Income P a g e 2 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
23) Any other expenses of let out
24) Proprietor Salary
25) Aid to poor student
26) Gift to son
27) Education exp of children
28) Welfare fund
29) Contribution to sinking fund
30) Proposed dividend
31) Gift to relatives
32) Any exp (if TDS not deducted)
33) Loss as sale of any asset
34) Reserve for any loss
35) Provisions for gratuity
36) Wife Salary
37) Outstanding sale tax
38) Outstanding excise duty
39) Agricultural exp
40) Acquisition of any fixed Asset (capital exp)
41) Acquisition of any intangible asset (capital exp)
42) Transfer of any reserve/fund/provisions

LIST OF INCOMES OF OTHER HEADS/ DEDUCTIBLE EXPENSES (TO BE

DEDUCTED FROM NP)

1) Interest as securities
2) Dividend received
3) Rent of house property
4) Sale of any asset
5) Profit on sale of any asset
6) Gift received (personal)
7) Refund of tax
8) Bad debt recovered (after deduction of bed debt allowed earlier)
9) Interest as post office deposits
10) Proceeds from life insurance policy
11) Sale of agricultural product
12) Custom duty or sale tax recovered
Problems on Total taxable Income P a g e 3 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
13) Income from lottery
14) Income from House Races
15) Capital gain as any Asset

Problem – 1
Rent from House Property Rs. 1,00,000
Municipal tax paid by the owner Rs. 10,000
Municipal tax paid by the tenant Rs. 5,000
Solution:
Calculation of Taxable Income from House Property

Particulars Amount
Rent from House Property 1,00,000
Less : Municipal tax 10,000
Net Annual Value 90,000
Less : Standard Deduction u/s 24
a. 30 % of NAV (90,000 x 30%) 27,000
Taxable Income from House Property 63,000

Problem – 2
Problems on Income from Business
The following profit and loss a/c

Particular Amount Particular Amount

To Provision for tax 1,50,000 By Gross profit 6,50,000
To Rent and taxes 15,000 By profit on sale of 18,000
To fire insurance 8,500 machinery 12,500
To establishment expenses 1,35,000 By interest on securities
To depreciation 30,000 By dividend received from 50,000
To donation and charity 3,500 Indian company
To general expenses 32,500
To reserve for doubtful debts 5,500
To entertainment 7,500
To Net profit 3,43,000

7,30,500 7,30,500

Additional Information:
a. Allowable depreciation as per IT Rs. 20,000.
b. Machinery were purchased in August 2018 and sold in march 2020

Problems on Total taxable Income P a g e 4 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Solution:

Calculation of Income from Business

Particulars Amount Amount
Net Profit as per P&L A/c 3,43,000
Add:
Inadmissible expenses debited to P&L A/c
 Provision for Tax 1,50,000
 Depreciation as per P&L A/c 30,000
 Donation and charity 3,500
 Reserve for doubtful debts 5,500

Business Income not credited to P&L A/c

(Adjustment) --
Overvaluation of Opening Stock (Adjustment) --
Undervaluation of Closing Stock (Adjustment) -- 1,89,000
5,32,000
Less:
Admissible expenses not debited to P&L A/c
(Adjustment)
 Depreciation as per IT 20,000

Non-Business Income credited to P&L A/c

 Profit on sale of machinery 18,000
 Interest on securities 12,500
 dividend received from Indian company 50,000
Under valuation of Opening Stock (Adjustment) -- 1,00,500
Over valuation of Closing Stock (Adjustment) --
Taxable Income from Business 4,31,500

Problem – 3
X ltd. is engaged in the business of manufacture of garments:

Particulars Rs.
Sale proceeds of goods (domestic sale) 22,23,900
Sale proceeds of goods (export sale) 5,76,100
Amount withdrawn from general reserve (reserve was created in
1996-97 by debiting P&L A/C) 2,00,000
Amount withdrawn from revaluation reserve 1,50,000
Total 31,50,000
Less: Expenses
Depreciation (normal) 6,16,000
Depreciation (extra depreciation because of revaluation) 2,70,000
Salary and wages 2,10,000
Wealth tax 10,000
Income tax 3,50,000
Outstanding customs duty (not paid as yet) 17,500
Proposed dividend 60,000
Problems on Total taxable Income P a g e 5 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Consultation fees paid to a tax expert 21,000
Other expenses 1,39,000
Net Profit 14,56,500
For tax purposes the company wants to claim the following:
- Deduction u/s 80 IB (30 percent of Rs.14,56,500)
- Deprecation u/s 32 Rs. 5,36,000

The company want to set off the following losses/allowances:

Particulars Tax Accounting

purposes purposes
Brought forward loss of 2013-14 14,80,000 4,00,000
Unabsorbed depreciation ---- 70,000

Compute the net income and tax liability of X ltd. For the assessment year 2019-20
assuming that X ltd. has a (deemed) long term capital gain of Rs. 60,000 under
provision (i) to section 54D (2) which is not credited in profit and loss account.
Solution:

Calculation of Income from Business

Particulars Amount Amount
Net Profit as per P&L A/c 14,56,500
Add:
Inadmissible expenses debited to P&L A/c
 Depreciation as per P&L A/c 8,86,000
 Wealth tax 10,000
 Income tax 3,50,000
 Custom duty which is not paid 17,500
 Proposed dividend 60,000

Business Income not credited to P&L A/c

(Adjustment) --
Overvaluation of Opening Stock (Adjustment) --
Undervaluation of Closing Stock (Adjustment) -- 13,23,500
27,80,000
Less:
Admissible expenses not debited to P&L A/c
(Adjustment)
 Depreciation as per IT 5,36,000
Non-Business Income credited to P&L A/c
 Amount withdrawn from general reserve 2,00,000
 Amount withdrawn from revaluation reserve
(1,50,000 or 2,70,000) W.E.L 1,50,000

Under valuation of Opening Stock (Adjustment) --

Over valuation of Closing Stock (Adjustment) -- 8,86,000
Taxable Income from Business before set off 18,94,000
Problems on Total taxable Income P a g e 6 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Less:
a. Brought forward Business Loss 14,80,000
Taxable Income from Business 4,14,000

Calculation of Total Taxable Income

Particulars Amount Amount

(Rs.) (Rs.)
Income from House Property --
Income from Business and Profession 4,14,000
STCG (other than STT) --
Income from other sources --
Gross Total Income 4,14,000
Less: Deductions u/s 80 G to 80 JJA -
Other Taxable Income 4,14,000
Add:
STCG (Liable to STT) -
LTCG 60,000
Casual Income - 60,000
Total Taxable Income 4,74,000

Calculation of Tax Liability

Tax on Other Taxable Income (4,14,000 x 25%) 1,03,500
Tax on LTCG (60,000 x 20%) 12,000
Tax on STCG (15%) --
Tax on Casual Income (30%) --
Sub Total 1,15,500
Add: Surcharge, if applicable --
Sub Total 1,15,500
Add: Edu.cess and SHEC (1,15,500 x 4%) 4,620
Tax liability as per normal provision 1,20,120

Calculation of Book Profit

Particulars Amount Amount

Net Profit as per P & L A/c 14,56,500
Add: Statutory Addition
a. Depreciation (6,16,000 + 2,70,000) 8,86,000
b. Income tax 3,50,000
c. Proposed Dividend 60,000 12,96,000
Sub Total 27,52,500
Less: Statutory Deletion
a. Brought forward Business Loss or Unabsorbed
depreciation (W.E.L) (4,00,000 or 70,000) 70,000
b. Amount withdrawn from general reserve 2,00,000
c. Depreciation (excluding revaluation) 6,16,000
Problems on Total taxable Income P a g e 7 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
d. Amount withdrawn from revaluation reserve 1,50,000 10,36,000
Book Profit 17,16,500

Tax Liability as per MAT Provision

Tax on Book Profit (17,16,500 x 18.5%) 3,17,552.5
Add: Edu and SHE cess (3,17,460 x 4%) 12,702.1
Tax Liability as per MAT Provision 3,30,254.6 (3,30,250)

Tax Liability of the company

Tax Liability as per IT provision 87,830

Tax Liability as per MAT Provision 3,30,250
W.E.H. 3,30,250

Tax Credit = MAT – IT

3,30,250 – 87,830
Tax Credit = 2,42,420
Problem 4
Balaji Ltd., a well-diversified group, gives below its profit and loss account for the
accounting year 2018-19:

Particulars Rs. Particulars Rs.

Manufacturing expenses 10,00,000 Sale of manufactured 30,00,000
Salaries/Wages 5,50,000 goods 10,00,000
Cultivation expenses 4,00,000 Sale of agricultural
Power produce Receipt from 15,00,000
generation/distribution 4,00,000 generation /distribution of
expense 6,00,000 power 15,00,000
Irrigation expenses Receipt from water
Expenses of I.U. located in 5,00,000 supply/ irrigation projects 10,00,000
backward district. Receipt from I.U. located
Provision for losses of 4,00,000 set up in backward district 9,50,000
subsidiary co. 30,000 in July 2015 50,000
Sundry expenses Transfer from capital
Provision for bad and 2,00,000 reserve 90,000
doubtful debts Receipts from UTI
Provision for bills under 50,000 Withdrawal from
discount Revaluation Reserve
Provision for sales tax, Account
wealth tax against 3,30,000
demand notice
Income tax provision 3,00,000
against demand notice
Dividend paid on 2,00,000
preference shares
Problems on Total taxable Income P a g e 8 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Proposed dividend on 4,00,000
equity shares 75,000
Corporate dividend tax 15,000
Securities transaction tax 1,00,000
Transfer to general reserve 2,00,000
Dividend equalization
reserve 60,000
Penalties under direct tax 50,000
laws 2,00,000
Goodwill written off 30,000
Depreciation 30,00,000
Amortization of patent
rights
Net profit
Total 90,90,000 Total 90,90,000

The following additional information is provided:

a. Capital reserve was directly created by transferring capital profits on the sale
of land during the previous year 2013-14.
b. Depreciation of Rs. 2,00,000 includes extra depreciation of Rs. 60,000 on
account of revaluation of assets.
c. Past year losses/profits before depreciation are given below:
Year Loss (Rs.) Depreciation
(Rs.)
2014-2015 5,00,000 6,00,000
2015-2016 Nil 5,00,000
2016-2017 7,00,000 4,00,000
2017-2018 5,00,000 Nil

Compute Book Profits for the previous year 2018-2019 for MAT under section
115JB.
Solution:
Computation of Book Profit

Particulars Amount Amount

Net Profit as per P&L A/c 30,00,000
Add: Statutory Addition (PRIDE)
i. Cultivation expenses (expenditure relating to
exempted income) 4,00,000
ii. Provision for losses of subsidiary company
iii. Provision for bad debts, (unascertained) 4,00,000
iv. Provision for bills under discounted 2,00,000
(unascertained) 50,000
v. Income tax provision 3,00,000
vi. Dividends on preference shares 2,00,000
vii. Proposed dividends on equity shares 4,00,000
viii. Corporate dividend tax 75,000
ix. Transfer to general reserve 1,00,000
x. Dividend on equalization reserve 2,00,000
xi. Depreciation 2,00,000 25,25,000
Problems on Total taxable Income P a g e 9 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Sub Total 55,25,000
Less: Statutory Deletion (BRIDE)
a. Brought forward Business loss or unabsorbed
depreciation (W.E.L) (17,00,000 or 15,00,000) 15,00,000
b. Sale of agricultural produce (Exempted Income) 10,00,000
c. Receipts from UTI (Exempted Income) 50,000
d. Depreciation (excluding revaluation) (2,00,000 -
60,000) 1,40,000
e. Withdrawn from revaluation reserve (90,000 or
60,000) (W.E.L) 60,000 27,50,000
Book Profit 27,75,000

Tax Liability as per MAT Provision

Tax on Book Profit (27,75,000 x 18.5%) 5,13,375
Add: Edu and SHE cess (5,13,375x 4%) 20,535
Tax Liability as per MAT Provision 5,33,910 (5,33,910)

Problem 7

The Net profit of AJ Ltd., as per profit and loss account for the previous year 2018-
19 is Rs. 100 Lakhs after debiting/Crediting the following items:
I. Provision for income tax Rs. 15 Lakhs.
II. Provision for deferred tax Rs. 8 Lakhs
III. Proposed dividend Rs. 20 Lakhs
IV. Depreciation debited to profit and loss Account is Rs. 12 Lakhs. This includes
depreciation on revaluation of assets to the tune of Rs. 2 Lakhs.
V. Profit from unit established in special Economic Zone Rs. 30 Lakhs
VI. Provision for permanent diminution in value of investments Rs. 2 Lakhs.
Brought forward losses and unabsorbed deprecation as per books of the company
are as follows:

Previous Brought Forward Loss(in Unabsorbed Depreciation (in

Year Lakh) Lakh)
2015-16 2 5
2016-17 -- 3
2017-18 10 2
Compute book profit of the company u/s 115 JB for Assessment 2019-20.
Solution:
Calculation of Book Profit (Lakhs)

Particulars Amount Amount

Net Profit as per P & L A/c 100
Add: Statutory Addition
Provision for income tax 15
Provision for deferred tax 8
Proposed dividend 20

Problems on Total taxable Income P a g e 10 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Depreciation 12
Provision for permanent diminution in value of 2 57
investments
Sub Total 157
Less: Statutory Deletion
Brought forward Business Loss or Unabsorbed
depreciation (W.E.L) (12 or 10) 10
Profit from unit established in special Economic Zone 30
Depreciation (excluding revaluation) 10 50
Book Profit 107

Problem 8

DJ Ltd., a closely- held Indian company, is engaged in the business of manufacture

of chemical goods (value of plant and machinery owned by the company is Rs.55
Lakhs). The following information for the financial year 2018-19 are given:

Sale Proceed of goods (domestic use) 20,00,000

Sale proceeds of goods (export sale) 5,00,000
Amount withdrawn from general reserve (reserve was created in
1996-97 by debiting P&L A/c) 1,50,000
Amount withdrawn from Revaluation Reserve 1,00,000
Total 27,50,000
Less: Expenses
Deprecation (normal) 5,50,000
Depreciation (extra depreciation because of Revaluation) 1,70,000
Salary and wages 1,30,000
Wealth-tax 20,000
Income-tax 1,80,000
Outstanding custom duty (not paid as yet) 15,500
Proposed dividend 40,000
Consultation fees paid to a tax expert 11,000
Other expenses 1,39,000
Net Profit 14,94,500
For tax purposes the company wants to claim the following:
 Deduction u/s 80 IB (30% of Rs. 14,94,500).
 Depreciation u/s 32 is Rs. 4,50,000
The company wants to set-off the following losses/allowances:

For Tax Purposes For Accounting

Purposes
Brought forward loss 2012-13 9,80,000 3,00,000
Unabsorbed Depreciation 20,000 30,000
Compute the tax liability of the company for the assessment year 2019-20 assuming
that DJ ltd., gets a long-term Capital gain of Rs. 50,000 which is not credited in
profit and loss account.
Solution:
Calculation of Income from Business
Particulars Amount Amount
Net Profit as per P&L A/c 14,94,500
Problems on Total taxable Income P a g e 11 | 14
Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Add:
Inadmissible expenses debited to P&L A/c
 Depreciation as per P&L A/c 7,20,000
 Wealth tax 20,000
 Income tax 1,80,000
 Custom duty which is not paid 15,500
 Proposed dividend 40,000

Business Income not credited to P&L A/c

(Adjustment) --
Overvaluation of Opening Stock (Adjustment) --
Undervaluation of Closing Stock (Adjustment) -- 9,75,500
24,70,000
Less:
Admissible expenses not debited to P&L A/c
(Adjustment)
 Depreciation as per IT 4,50,000
Non-Business Income credited to P&L A/c
 Amount withdrawn from general reserve 1,50,000
 Amount withdrawn from revaluation reserve 1,00,000

Under valuation of Opening Stock (Adjustment) --

Over valuation of Closing Stock (Adjustment) -- 7,00,000
Taxable Income from Business before set off 17,70,000
Less:
Brought forward Business Loss 9,80,000
Unabsorbed Depreciation 20,000
Taxable Income from Business 7,70,000

Calculation of Total Taxable Income

Particulars Amount Amount

(Rs.) (Rs.)
Income from House Property --
Income from Business and Profession 7,70,000
STCG (other than STT) --
Income from other sources --
Gross Total Income 7,70,000
Less: Deductions u/s 80 G to 80 JJA -
Other Taxable Income 7,70,000
Add:
STCG (Liable to STT) -
LTCG 50,000
Casual Income - 50,000
Total Taxable Income 8,20,000

Calculation of Tax Liability

Problems on Total taxable Income P a g e 12 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Tax on Other Taxable Income (7,70,000 x 25%) 1,92,500
Tax on LTCG (50,000 x 20%) 10,000
Tax on STCG (15%) --
Tax on Casual Income (30%) --
Sub Total 2,02,500
Add: Surcharge, if applicable --
Sub Total 2,02,500
Add: Edu.cess and SHEC (2,02,500 x 4%) 8,100
Tax liability as per normal provision 2,10,600

Calculation of Book Profit

Particulars Amount Amount

Net Profit as per P & L A/c 14,56,500
Add: Statutory Addition
Depreciation (5,50,000 + 1,70,000) 7,20,000
Income tax 1,80,000
Proposed Dividend 40,000 9,40,000
Sub Total 23,96,500
Less: Statutory Deletion
Brought forward Business Loss or Unabsorbed
depreciation (W.E.L) (3,00,000 or 30,000) 30,000
Amount withdrawn from general reserve 1,50,000
Depreciation (excluding revaluation) 5,50,000
Amount withdrawn from revaluation reserve
(1,00,000 or 1,70,000) W.E.L 1,00,000 8,30,000
Book Profit 15,66,500

Tax Liability as per MAT Provision

Tax on Book Profit (15,66,500 x 18.5%) 2,89,802.5
Add: Edu and SHE cess (2,89,802.5x 4%) 11,592.1
Tax Liability as per MAT Provision 3,01,394.6 (3,01,390)

Tax Liability of the company

Tax Liability as per IT provision 2,10,600

Tax Liability as per MAT Provision 3,01,390
W.E.H. 3,01,390

Tax Credit = MAT – IT

3,01,390 – 2,10,600

Problems on Total taxable Income P a g e 13 | 14

Dr.JAYARAM.A.
Surana College, Centre for Post-Graduation Studies CHAPTER-1
Contact num- 9620843555 Bangalore University, Bangalore
Tax Credit = 90,790

Problems on Total taxable Income P a g e 14 | 14