Q1.a) “Find out the taxes paid by both Mr. Sarthak and Mr. Bhavesh for the A.Y.

2021-
22.”
TAXES PAID BY MR. SARTHAK
Mr. Sarthak is an individual who is a resident of India. As the question is silent, we will assume
that Mr. Sarthak is aged below 60 years.
Assessment Year: 2021-22
Previous Year: 2020-21

STEP 1: Calculation of Net Agricultural Income

PARTICULARS AMOUNT (IN Rs.)

Receipts from sale of agricultural produce

Sale of Produce in the local market 5,00,000

Sale to Reliance Fresh 7,00,000

Sale to Wholesalers at NCR 10,00,000 22,00,000

Less: Expenses

Land Tilling Cost (1,50,000)

Manure Culture Cost (22,000)

Processing Cost (30,000)

Brokerage Paid (8,000) (2,10,000)

Net Agricultural Income 19,90,000

Agricultural income is not taxed, but if a taxpayer has both agricultural and non-agricultural
income, then such agricultural income is considered in his total income for the goal of
calculating non-agricultural income tax. This is often referred to as the partial integration of
agriculture with non-agricultural income. This is an indirect method of bringing agricultural
income under tax liability.

Main conditions for application of Partial Integration is:

 1. Agricultural income must exceed Rs. 5000.
2. Non-agricultural income must be greater than the maximum amount not subject to tax (as
determined by the slab rates), which is Rs. 2,50,000 (Basic Exemption Limit).
3. It is applicable on Individuals and HUFs.

NOTE: Since, net agricultural income is more than Rs. 5000, Partial Integration provisions will
apply for calculation of tax liability of Mr. Sarthak.

STEP 2: Calculation of Non-Agricultural Income

Here, non-agricultural income is only under the head - Profits and Gains of Business or
Profession (PGBP).

PARTICULARS AMOUNT (IN Rs.)

Profits and Gains of Business or Profession

Sale of Agricultural Tools 14,50,000

Less: Cost of Agricultural Tools (10,00,000)

PGBP Net Profit/ Total Non-Agricultural Income 4,50,000

NOTE: Since, non-agricultural income is more than Rs. 2,50,000, Partial Integration provisions
will apply for calculation of tax liability of Mr. Sarthak.

STEP 3: Deductions (In case of Old Tax Regime)

Kisan Vikas Patra (KVP)

Mr. Sarthak bought Kisan Vikas Patra from the post-office worth Rs. 15,000. KVP is essentially
an attempt by the Indian government to promote small savings in the nation in order to provide a
stable future to the investor. However, KVP investments do not qualify for a deduction under
Section 80C of the Income Tax Act, 1961 (hereinafter the Act).1 Thus, this transaction does not
require any adjustment in calculation of taxable income.

1 Income Tax Act, 1961, § 80C, No. 43, Acts of Parliament, 1961 (India).
Public Provident Fund (PPF)
PPF is an investment option instrument that comes within the Exempt-Exempt-Exempt (EEE)
class. Therefore, all PPF deposits are eligible for deduction under Section 80C of the Act.

PARTICULARS AMOUNT (IN Rs.)

Gross Taxable Income

Net Agricultural Income 19,90,000

Total Non-Agricultural Income 4,50,000 24,40,000

Less: Deductions

Contribution to PPF (S.80C) (10,000)

Net Taxable Income 24,30,000

NOTE - No deduction will be allowed under the new tax regime (if the taxpayer opts for
taxation under Section 115BAC of the Act).

STEP 4: Calculating Tax Liability using Partial Integration Method

Since, net agricultural income is more than Rs. 5000 and non-agricultural income is more than
Rs. 2,50,000, Partial Integration provisions will apply for calculation of tax liability of Mr.
Sarthak. This method applies as follows:

STEP 4.1: Determining tax liability for on net taxable income (agricultural and non-agricultural
income) without cess.

PARTICULARS AMOUNT (IN Rs.)

AS PER OLD TAX REGIME

Net Taxable Income (deduction under S.80C) 24,30,000

Slab Rates under Old Tax Regime

 Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

5,00,001 to 10,00,000 - @20% 1,00,000

Beyond 10,00,000 - @30% 4,29,000 5,41,500

AS PER NEW TAX REGIME

Net Taxable Income (no deductions) 24,40,000

Slab Rates under New Tax Regime

Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

5,00,001 to 7,50,000 - @10% 25,000

7,50,001 to 10,00,000 - @15% 37,500

10,00,001 to 12,50,000 - @20% 50,000

12,50,001 to 15,00,000 - @25% 62,500

Beyond 15,00,000 - @30% 2,82,000 4,69,500

STEP 4.2: Determining tax liability for the sum of agricultural income and Basic Exemption
Limit (BEL) without cess.

PARTICULARS AMOUNT (IN Rs.)

Taxable Income

Agricultural Income 19,90,000

Basic Exemption Limit 2,50,000 22,40,000

AS PER OLD TAX REGIME

Slab Rates under Old Tax Regime

Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

 5,00,001 to 10,00,000 - @20% 1,00,000

Beyond 10,00,000 - @30% 3,72,000 4,84,500

AS PER NEW TAX REGIME

Slab Rates under New Tax Regime

Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

5,00,001 to 7,50,000 - @10% 25,000

7,50,001 to 10,00,000 - @15% 37,500

10,00,001 to 12,50,000 - @20% 50,000

12,50,001 to 15,00,000 - @25% 62,500

Beyond 15,00,000 - @30% 2,22,000 4,09,500

STEP 4.3: Calculating the difference between the values for Steps 4.1 and 4.2 and applying cess.

PARTICULARS AMOUNT (IN Rs.)

AS PER OLD TAX REGIME

Requisite Difference

Tax Liability at STEP 4.1 5,41,500

Less: Tax Liability at STEP 4.2 4,84,500 57,000

Less: Rebate u/s 87A (12,500)

44,500

Add: Health and Education Cess @4% 1,780

Total Tax Liability 46,280

AS PER NEW TAX REGIME

Requisite Difference

Tax Liability at STEP 4.1 4,69,500

 Less: Tax Liability at STEP 4.2 4,09,500 60,000

Less: Rebate u/s 87A (12,500)

47,500

Add: Health and Education Cess @4% 1,900

Total Tax Liability 49,400

CONCLUSION

Since, tax liability is less under Old Tax Regime, Mr. Sarthak will pay taxes according to those
slab rates and will not opt for taxation under Section 115BAC, i.e. New Tax Regime.

Thus, taxes paid by Mr. Sarthak for AY 2021-22 are Rs. 46,280.

TAXES PAID BY MR. BHAVESH

Mr. Bhavesh is an individual who is a resident of India. As the question is silent, we will assume
that Mr. Bhavesh is aged below 60 years.
Assessment Year: 2021-22
Previous Year: 2020-21

Tax Liability as per Old Tax Regime

Mr. Bhavnesh has income under the head salary and negative income under the head house
property. Income from house property is negative because Mr. Bhavesh is not getting any
income on repaying the house loan. Rather, he has to pay interest which is allowed as a
deduction under Section 24 of the Act. Nevertheless, only two heads of income are involved.

However, since the question has provided with Gross Total Income of Mr. Bhavesh, the
Standard Deduction of Rs. 50,000 u/s 16(ia) and interest paid of Rs. 77,000 will not be deducted.
Gross Total Income is already adjusted for these transactions because it is the “total income one
earns by adding all heads of income: Income from salary, property, other sources, business or
profession, and capital gains earned in a financial year. But will not include any deductions from
section 80C to 80U.”

PARTICULARS AMOUNT (IN Rs.)

Gross Total Income 92,00,000

Deductions u/s 80C [Max. - 1,50,000]*

Less: Repayment of Housing Loan - 2,00,000 -

Less: Tax Saving Mutual Funds - 15,00,000 - (1,50,000)

Other Deductions

Less: NPS Self-Contribution u/s 80CCD(1B)** (50,000)

Less: Donation to PMCAREs Fund u/s 80G (1,65,000) (2,15,000)

Total Taxable Income 88,35,000

Tax on Total Income

Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

5,00,001 to 10,00,000 - @20% 1,00,000

Beyond 10,00,000 - @30% 23,50,500 24,63,000

Add: Surcharge @10%*** 2,46,300

27,09,300

Add: Health and Education Cess @4% 1,08,372

 Net Tax Liability payable by Mr. Bhavesh 28,17,672

*Deductions u/s 80C [Max. - 1,50,000]

Section 80C is among the most appreciated sections among taxpayers since it permits them to
lower their tax liability by undertaking tax-saving transactions or paying deductible costs.
However, it permits the taxpayer to deduct a maximum of Rs. 1,50,000 from their total income
annually.

In our case, Mr. Bhavesh made repayment of a housing loan for Rs. 2,00,000 and invested in Tax
Saving Mutual Funds worth Rs. 15,00,000 amounting to a total of Rs. 17,00,000. However,
according to the maximum deduction limit under Section 80C, the allowed deduction will be Rs.
1,50,000.

**NPS Self-Contribution u/s 80CCD(1B)

Taxpayers who make deposits under NPS are eligible for deductions under Section 80CCD of
the Act. The National Pension System (NPS) is a retirement plan that is offered to both
government employees and private residents. NPS is among the most common approaches for
people wishing to build a retirement fund while still receiving a recurring monthly payment.
Section 80CCD(1B) allows for a supplementary deduction of Rs. 50,000 above and beyond the
maximum limit of Rs. 1,50,000 allowed as a deduction under Section 80C. As a result, the
maximum deduction amount has been raised to Rs. 2,00,000.

In our case, NPS Self-Contribution by Mr. Bhavesh is Rs. 2,00,000 covered u/s 80CCD(1B). But
according to the additional limit, the maximum deduction allowed will be Rs. 50,000.

***Surcharge @10%
An income tax surcharge is a charge that is added to the tax burden. It is an additional tax
imposed on taxpayers who have a higher income inflow within a certain fiscal year. Varying
surcharge rates apply to different categories of taxpayers. Individuals with a net income of more
than Rs.50 lakhs but less than Rs.1 crore are subject to a 10% surcharge on their tax liability.

In our case, Mr. Bhavesh falls into this category with net income of Rs. 88,35,000 and therefore,
he is subject to 10% surcharge.
Tax Liability as per New Tax Regime
Beginning from Fiscal Year 2020-21, taxpayers will have the option of paying income tax under
a new tax scheme available under Section 115BAC of the Act. Individuals and HUFs can benefit
from the new taxation system, which has lower tax rates and limited tax deductions. A salaried
taxpayer can choose the new taxation system at the start of fiscal year 2020-21 and notify their
employers. During the fiscal year, the individual cannot reverse their decision. They could,
however, change their minds while submitting their tax return. If employees do not adopt the
new taxation system at the start of the fiscal year, the employers will charge tax (TDS) in
accordance with the old tax regime. As a result, a salaried taxpayer has the option of opting in
and out annually.

Following this, under the new tax regime, Mr. Bhavesh will not be allowed any deduction for:
● Tax Saving Mutual Funds
● NPS Self-Contribution
● Donation to PMCAREs Fund
● Interest Paid on Housing Loan
● Repayment of Housing Loan

NOTE: Now, since the question has given us Gross Total Income, there shall be no Standard
Deduction u/s 16(ia) and no allowance for payment of interest on self-occupied house loan u/s
24. Therefore, both of them will be added to get taxable income under the new regime.

PARTICULARS AMOUNT (IN Rs.)

Gross Total Income 92,00,000

Add: Standard Deduction allowed u/s 16(ia) 50,000

Add: Interest on House Loan allowed u/s 24 77,000 1,27,000

Total Taxable Income 93,27,000

Tax on Total Income

 Upto 2,50,000 - Nil -

2,50,001 to 5,00,000 - @5% 12,500

5,00,001 to 7,50,000 - @10% 25,000

7,50,001 to 10,00,000 - @15% 37,500

10,00,001 to 12,50,000 - @20% 50,000

12,50,001 to 15,00,000 - @25% 62,500

Beyond 15,00,000 - @30% 23,48,100 25,35,600

Add: Surcharge @10%* 2,53,560

27,89,160

Add: Health and Education Cess @4% 1,11,566

Net Tax Liability payable by Mr. Bhavesh 29,00,726

*Surcharge @10%
An income tax surcharge is a charge that is added to the tax burden. It is an additional tax
imposed on taxpayers who have a higher income inflow within a certain fiscal year. Varying
surcharge rates apply to different categories of taxpayers. Individuals with a net income of more
than Rs.50 lakhs but less than Rs.1 crore are subject to a 10% surcharge on their tax liability.

In our case, Mr. Bhavesh falls into this category with total income of Rs. 93,27,000 and
therefore, he is subject to 10% surcharge.
CONCLUSION

Since, tax liability is less under Old Tax Regime, Mr. Bhavesh will pay taxes according to those
slab rates and will not opt for taxation under Section 115BAC, i.e. New Tax Regime.

Thus, taxes paid by Mr. Bhavesh for AY 2021-22 are Rs. 28,17,672.
Q1.b) “Which tax slab rate and calculation method would be best for tax saving purposes
by assesses?”
As is already clear from the above calculations, for both Mr. Sarthak and Mr. Bhavesh, the Old
Tax Regime is best for tax saving purposes.
(in Rs.)

TAXPAYER OLD TAX REGIME NEW TAX REGIME

MR. SARTHAK 46,280 49,400

MR. BHAVESH 28,17,672 29,00,726

SLAB RATES

OLD TAX REGIME NEW TAX REGIME

Upto 2,50,000 - Nil Upto 2,50,000 - Nil

2,50,001 to 5,00,000 - @5% 2,50,001 to 5,00,000 - @5%

5,00,001 to 10,00,000 - @20% 5,00,001 to 7,50,000 - @10%

Beyond 10,00,000 - @30% 7,50,001 to 10,00,000 - @15%

10,00,001 to 12,50,000 - @20%

12,50,001 to 15,00,000 - @25%

Beyond 15,00,000 - @30%

It is evident that tax liability, in the present case, is less when calculated through the old slab
rates, therefore, the same is best for tax saving purposes. Also, the old calculation method seems
better than the slab rates under Section 115BAC for the present assesses.
Q1.b) “Critically analyze the jurisprudence behind the tax laws and its applicability on a
high salaried entity, a poor farmer and a rich farmer.”
Every nation’s government needs resources to carry out its essential roles and responsibilities.
Managing government agencies, improving the quality of human life, and funding public benefit
schemes and projects are all examples of its role. A government earns the funds needed for these
facilities by taxing its population in return for offering such services.

Every nation has a comprehensive taxation system established by its government to make
collection of taxes more effective. India, with its vast income earning population and revenue
sources, is no exception. India has a well-structured taxation regime, with two characteristics
determining the relevance of taxes: progressive and proportional. It is progressive because the
tax is applied at higher rates to higher income and revenue groups. At the same time, it is
proportional in the sense that the tax rate is proportional to the total earnings being charged.

Just about all taxes in India's tax regime fall into one of two classifications: direct and indirect
taxes.

Direct Taxes
These are taxes that are imposed straight on the taxable revenue earned by people and
businesses. These taxes are significant because they are payable directly to the government and
account for a major part of India’s collection of taxes. The burden of direct taxes cannot be
shifted to anyone else. They incidence to pay and the liability to pay falls on the same person.

Applicability - Direct taxes are computed depending on a person's ability to pay. So, a high
salaried entity, a poor farmer and a rich farmer, all would be taxed differently depending upon
their individual income. Accordingly, different slab rates and tax liability would apply to each
one. With its progressive taxation system, direct taxes help to eliminate income disparities and
concentration of wealth in a few hands. Individuals are charged in accordance to their financial
situation, and thus, promoting social and economic equality.

Indirect Taxes
These are taxes that are imposed indirectly on a taxpayer's earnings when they use or buy goods
and services. These taxes are a part of the price payable by the buyer to the supplier or vendor.
The burden of direct taxes can be shifted to another. They incidence to pay and the liability to
pay falls on different people. The Goods and Services Tax (GST), which has absorbed a huge
amount of indirect taxes which existed before 2017, is the most significant indirect tax.

Applicability - Indirect taxes do not take into account the taxpayer’s economic state. They apply
at a flat rate to everyone who purchases a product or service. So, a high salaried entity, a poor
farmer and a rich farmer, all would be liable to pay the same amount of tax on the purchase of a
particular product irrespective of their individual income.