Problems on Computation of Taxable Income and Tax Liability, MAT Provisions

1. Suppose Taxable Income of company is Rs. 60,00,000. Book Profits of current year is Rs. 1,01,00,000. Determine Tax
liability of company.
Solution
Case 1: Normal Provision
Particulars Amount
Taxable Income 60,00,000
Tax@30% 18,00,000
Add: Surcharge (if applicable) 7% -
Add: Cess @ 4% 72,000
Tax Liability Rounded Off 18,72,000

Case 2: MAT Provision

Particulars Amount
Book Profits 1,01,00,000
Tax@15% 15,15,000
Add: Surcharge (if applicable) 7% 1,06,050
Tax+Surcharge 16,21,050
Add: Cess @ 4% 64,842
Tax Liability 16,85,892
Tax Liability Rounded Off 16,85,890

Conclusion: Tax Liability of Company is case 1 & 2 whichever is higher. Tax Liability of the company is Rs. 18,72,000

2. The business income of X Ltd company before claiming depreciation for previous year is Rs. 15,00,000. The Book Profits of
the company U/S 115JB is Rs. 8,00,000. The other details are as follows:
• Current Year depreciation Rs. 2,80,000
• Brought Forward business loss Rs. 8,00,000
• Brought Forward unabsorbed depreciation Rs. 5,20,000
Compute Tax liability of the company.

Solution:
Computation of Taxable Income Under Normal Provisions
Case 1
Assessee: X Ltd PY: 2020-21
Status: Resident AY:2021-22

Particulars Amount Amount

Business Income 15,00,000
(Deduction): Current Year Depreciation 2,80,000
(Deduction): B/F Business Loss 8,00,000
(Deduction): Unabsorbed Depreciation 4,20,000 15,00,000
Taxable Income NIL
Since Taxable Income is NIL there is NO tax liability for current AY. The balance unabsored depreciation of 1,00,000 can be
carried forward for Infinite Years to set off

Case 2 Under MAT Provision

Particulars Amount Amount

Book Profits 8,00,000
Tax @ 15% on Book Profit 1,20,000
Add: Surcharge (If any)@7% -
Tax+ Surcharge 1,20,000
Add: Cess @ 4% 4,800
Tax Liability 1,24,800
Conclusion: Tax Liability of the company is case 1 or 2 whichever is Higher. Hence Tax Payable is Rs.1,24,800. Tax paid on
account of MAT provision as Tax Credit. Tax Credit: 124800-0 = 124800 can be Carried forward for next 15 financial years to
Set off.
3. Z Ltd is domestic company in which public are substantially interested. The following are details furnished.
 • Interest on Government securities Rs. 2,00,000
• Income of business Rs. 50,00,000
• Short term capital gain Rs. 1,50,000
• Long term capital gain Rs. 3,30,000
• Dividend from Indian Co. Rs. 1,00,000; Foreign Co. Rs. 1,00,000
• Interest on other securities Rs. 2,00,000
• Interest from bank deposit Rs. 2,00,000
• Book profits Rs. 90,00,000
Ascertain Tax Liability of company.

Solution:
Computation of Taxable Income Under Normal Provisions
Case 1
Assessee: Z Ltd PY: 2020-21
Status: Resident AY:2021-22

Particulars Amount Amount

Business Income 50,00,000
Income from Capital Gain
1,50,000
Short Term Capital Gain 1,50,000
Income from other sources
Dividend from foregin company 1,00,000
Interest on Govt Securities 2,00,000
Interest from other securities 2,00,000
Interest on bank securities 2,00,000
Dividend from domestic company Exempt 7,00,000
Gross Total Income 58,50,000
(-)Deductions - -
Add: Long term capital gain 3,30,000
Taxable Income 61,80,000

Particulars Amount
Taxable Income 61,80,000
Tax on Long term capital gain (3,30,000*20%) 66,000
Tax@30% (61,80,000-3,30,000) 17,55,000
Total Tax 18,21,000
Add: Surcharge (if applicable) 7% -
Add: Cess @ 4% 72,840
Tax Liability Rounded Off 18,93,840

Case 2 Under MAT Provision

Particulars Amount Amount
Book Profits 90,00,000
Tax @ 15% on Book Profit 13,50,000
Add: Surcharge (If any)@7% -
Tax+ Surcharge 13,50,000
Add: Cess @ 4% 54,000
Tax Liability 14,04,000

Conclusion: Tax Liability of the company is case 1 or 2 whichever is Higher. Hence Tax Payable is Rs.18,93,840.

4. P Ltd Company is widely held company. Following are particulars submitted by company.
• Income from Business Rs.1,00,00,000
• Interest on Government Securities Rs. 2,00,000
• Short term capital gain Rs. 3,00,000
• Long term capital gain Rs. 6,60,000
• Short term capital gain u/s III A Rs. 10,60,000
• Dividend from Domestic company Rs. 2,00,000; Foreign Company Rs. 2,00,000
• Book Profits 1,80,00,000
• Company donated Rs. 5,00,000 under allowable deduction sec
Compute Tax payable by the company.

Solution:
Computation of Taxable Income Under Normal Provisions
Case 1
Assessee: P Ltd PY: 2020-21
Status: Resident AY:2021-22
Particulars Amount Amount
Business Income 1,00,00,000
Income from Capital Gain
3,00,000
Short Term Capital Gain 3,00,000
Income from other sources
2,00,000
Interest on Govt Securities
Exempt
Dividend from domestic co
2,00,000
Dividend from foregin co 4,00,000
Gross Total Income 1,07,00,000
(-)Deductions
5,00,000
Donation 5,00,000
Add: Long term capital gain 6,60,000
Short term capital gain 10,60,000 1720000
Taxable Income 1,19,20,000

Particulars Amount
Taxable Income 1,19,20,000
Tax on Long term capital gain (6,60,000*20%) 1,32,000
Tax on Short term capital gain (10,60,000*15%) 1,59,000
Tax@30% (1,19,20,000-6,60,000-10,60,000) 30,60,000
Total Tax 33,51,000
Add: Surcharge (if applicable) 7% 2,34,570
Add: Cess @ 4% 1,43,423
Tax Liability Rounded Off 37,28,993

Case 2 Under MAT Provision

Particulars Amount
Book Profits 1,80,00,000
Tax @ 15% on Book Profit 27,00,000
Add: Surcharge (If any)@7% 1,89,000
Tax+ Surcharge 28,89,000
Add: Cess @ 4% 1,15,560
Tax Liability 30,04,560

5. R Ltd is Indian Company and furnished following details

Dr Cr
Particulars Amount Particulars Amount
To Raw Material 10,00,000 By Domestic Sales 25,00,000
To Salary and wages 1,20,000 By Export Sales 6,00,000
To Entertainment expenses 20,000 By Other receipts 2,00,000
To Travelling Expenses 30,000 By Dividends from Domestic Company 1,00,000
To IT 2,00,000
By Long term capital gain on account of sale of
To Wealth Tax 5,000 shares in stock exchange 2,22,000
To Outstanding Excise Duty 15,000
To Provision for Uncertainty 40,000
To Proposed dividend 50,000
To Dividend Distribution Tax 8,498

To Depreciation on Assets after

revaluation 6,40,000
To STT on sale of share 2,000
To Net Profits 14,91,502
Additional Information:
• Allowable deduction U/s 80 IB (30%of 1491502)
 • Custom duty Rs. 50,000 relating to earlier year was paid during this year
• Depreciation as per IT rules Rs. 6,00,000
• Assets value revalued from Rs. 10,00,000 to Rs. 20,00,000
Particulars Tax Purpose Books of accounts
Brought forward Business Loss 7,40,000 8,00,000
Unabsorbed Depreciation 3,00,000 4,50,000
Ascertain Tax liability of the company.’

Solution:
Computation of Taxable Income Under Normal Provisions
Case 1
Assessee: R ltd PY: 2020-21
Status: Resident AY:2021-22
Particulars Amount Amount
Net Profits as per P&L A/c 14,91,502
Add: Inadmissible Expenses
2,00,000
IT
5,000
Wealth tax
15,000
O/S Excise duty
40,000
Provision for uncertain liability
50,000
Proposed dividend
8498
DDT
6,40,000
Depreciation on revaluation
2,000
STT 9,60,498
Deduction:
1,00,000
Dividend from Domestic Co
2,22,000
LTCG
50,000
Custom duty
6,00,000
Depreciation 9.72,000
14,80,000
Deduction:
7,40,000
B/F Business loss
3,00,000
Unabsorbed Depreciation 10,40,000
Income from Business 4,40,000
Deduction:
U/S 80 IB (4,40,000*30%) 1,32,000
Taxable Income 3,08,000

Particulars Amount
Taxable Income 3,08,000
Tax@30% 92,400
(1,19,20,000-6,60,000-10,60,000)
Total Tax 92,400
Add: Surcharge (if applicable) 7% -
Add: Cess @ 4% 3,696
Tax Liability 96,096
Tax Liability Rounded Off 96,100

Case 2 Under MAT Provision

Particulars Amount Amount
Net Profits as per P&L A/c 14,91,502
Add:
2,00,000
IT
40,000
Provision for uncertain liability
50,000
Proposed dividend
8498
DDT
6,40,000
Depreciation on revaluation 9,38,498
24,30,000
Deduction: 1,00,000 8,70,000
Dividend from Domestic Co 4,50,000
B/F Business loss (8,00,000)
Or (Whichever is less)
B/F unabsorbed Depreciation (4,50,000)
 Depreciation
20,00,000-6,40,000 3,20,000
10,00,000-?
Book Profits 15,60,000

Particulars Amount
Book Profits 15,60,000
Tax @ 15% on Book Profit 2,34,000
Add: Surcharge (If any)@7% -
Tax+ Surcharge 2,34,000
Add: Cess @ 4% 9,360
Tax Liability 2,43,360

Conclusion: Tax Liability of the company is case 1 or 2 whichever is Higher. Hence Tax Payable is Rs. 2,43,360. Tax paid on
account of MAT provision as Tax Credit. Tax Credit: 2,43,360-96,100 = 1,47,260 can be Carried forward for next 15 financial
years to Set off.

6. Y Ltd is Indian company which furnishes the following details

Particulars Amount
Receipts:
Sale Proceeds ( Domestic) 22,23,900
Sale Proceeds (Export) 5,76,100
Amount withdrawn from General Reserves 2,00,000
Amount withdrawn from Revaluation Reserves 1,50,000
Total 31,50,000
Expenses:
Depreciation 6,16,000
Extra depreciation an account of revaluation 2,70,000
Salary and wages 2,10,000
Wealth Tax 10,000
IT 3,50,000
Outstanding Custom Duty 17,500
Dividend Proposed 60,000
Consultant Fee to Tax Expert 21,000
Other Expenses 1,39,000
Net Profits 14,56,500
Total 31,50,000

Additional Information:
• Deduction allowable U/s 80IB @30% on Rs. 14,56,500
• Depreciation U/s 32 is Rs. 5,36,000
• Company claims following:
Particulars Tax Purpose Books of accounts
Brought forward Business Loss 14,80,000 4,00,000
Unabsorbed Depreciation - 70,000
Ascertain Tax liability of firm by assuming Long term capital gain of Rs. 60,000.

Solution:
Computation of Taxable Income Under Normal Provisions
Case 1
Assessee: Y ltd PY: 2020-21
Status: Resident AY:2021-22
Particulars Amount Amount
Net Profits as per P&L A/c 14,56,500
Add: Inadmissible Expenses
6,16,000
Depreciation
2,70,000
Extra Depreciation on revaluation
10,000
Wealth Tax
3,50,000
IT
17,500
Custom Duty
60,000
Dividend Proposed 13,23,500
27,80,000
 Deduction:
5,36,000
Depreciation
2,00,000
Amount withdrawn from GR
1,50,000
Amount withdrawn from RR 8,86,000
18,94,000
Deduction:
14,80,000
B/F Business loss
Income from Business 4,14,000
Deduction:
U/S 80 IB (4,14,000*30%) 1,24,200
2,89,800
Add: Long Term Capital Gain 60,000
Taxable Income 3,49,800

Particulars Amount
Taxable Income 3,49,800
Tax on LTCG @20% 12,000
Tax@30% (3,49,800-60,000) 86,940
(1,19,20,000-6,60,000-10,60,000)
Total Tax 98,940
Add: Surcharge (if applicable) 7% -
Add: Cess @ 4% 3,958
Tax Liability 1,02,898
Tax Liability Rounded Off 1,02,900

Case 2 Under MAT Provision

Particulars Amount Amount
Net Profits as per P&L A/c 14,56,500
Add:
6,16,000
Depreciation
2,70,000
Extra Depreciation on revaluation
3,50,000
IT
60,000
Dividend Proposed 12,96,000
27,52,500
Deduction:
Depreciation
Amount withdrawn from GR 6,16,000
Amount withdrawn from RR 2,00,000
B/F Business loss (4,00,000) 1,50,000
Or (Whichever is less) 70,000
B/F unabsorbed Depreciation (70,000)
10,36,000
Book Profits 17,16,500

Particulars Amount
Book Profits 17,16,500
Tax @ 15% on Book Profit 2,57,475
Add: Surcharge (If any)@7% -
Tax+ Surcharge 2,57,475
Add: Cess @ 4% 10,299
Tax Liability 2,67,774
Tax Liability Rounded Off 2,67,770

Conclusion: Tax Liability of the company is case 1 or 2 whichever is Higher. Hence Tax Payable is Rs. 2,67,770. Tax paid on
account of MAT provision as Tax Credit. Tax Credit: 2,67,770-1,02,900 = 1,64,870 can be Carried forward for next 15
financial years to Set off.