Q1. Income tax is a tax on income and not on receipts.

Discuss this statement and give the essential

characteristics of the term income.

Income tax is a tax that every person is liable to pay on their earnings. It is a direct and only tax charged by the
Government on the income as per the assessment year. It is a source of revenue for the Government. Every
taxpayer should file an income tax return annually to know their tax obligations.

Q2. Explain the following term:

 Previous year - The year in which income is earned is known as the previous year. In layman
language the current financial year is known as the previous year. The financial year starts from 1st
April and end on 31st March of the next year.
 Assesse - The term 'assesse' covers everyone who has been assessed for his income, the income of
another person for which he is assessable, or the profit and loss he has sustained.
 Income - The term “income” generally refers to the amount of money, property, and other transfers
of value received over a set period of time by individuals or entities as compensation for services,
payment for products, returns on investments, pension distributions, gifts, and myriad other
transfer of value.
 Assessment year - The assessment year (AY) is the year that comes after the FY. This is the time in
which the income earned during FY is assessed and taxed. Both FY and AY start on 1 April and end
on 31 March. For instance, for FY 2020-21, the assessment year is AY 2021-22.

Q3. Distinguish between “tax planning and tax evasion”.

Tax planning and tax evasion are both methods of reducing the amount of taxes paid. The essential
difference between tax planning and tax evasion is legality: tax planning is perfectly legal, while tax
evasion is illegal.
Tax evasion can come in many forms: two examples are cash income that is earned but not reported, and a
charitable donation claimed that was not actually donated. The penalties for tax evasion can be severe: a
person convicted could face fines of up to $100,000 ($500,000 for corporations), and/or a prison sentence
of up to 5 years.
Tax planning uses legal methods to reduce taxes payable as much as possible. There are many ways to
reduce taxes legally: some examples include optimizing RRSP contributions, taking advantage of the small
business deduction, and declaring business expenses such as a home office or CCA.

Q4. What is gross total income?

Gross income for an individual—also known as gross pay when it's on a pay check—is an individual's total
earnings before taxes or other deductions. This includes income from all sources, not just employment,
and is not limited to income received in cash; it also includes property or services received.

Q5. Explain in brief “deemed assesse”

An individual might be assigned the responsibility of paying taxes by the legal authorities and such
individuals are called deemed assessees.
Deemed assessees can be:
 The eldest son or a legal heir of a deceased person who has expired without writing a will.
 The executor or a legal heir of the property of a deceased person who has passed on his property to the
executor in a writing.
 The guardian of a lunatic, an idiot, or a minor.
 The agent of a non-resident Indian receiving income from India.
For example, Mr P owns a commercial building from which he earns rent income. He has prepared and signed a will
stating the property should be handed over to his niece after his death. Upon his death, his niece will be considered
as the executor of the property, i.e. deemed assessee. She will be responsible for paying tax on the rental income
thereon.
Q6. What are the different categories into which the assesses are divided with regards to residence? Give a
brief account of each of them.
Q7. What is meant by perquisites? Give five examples of tax free perquisites?
Perquisites are fringe benefits that are received over and above an employee’s salary. These fringe benefits or
perquisites can be taxable or non-taxable depending upon their nature. There are a number of benefits which come
in addition to an individual’s salary and are grouped under fringe benefits or perks. These components are taxed
separately from the employer’s account so as to maintain transparency and accountability. Amenities that are made
available to employees by the company are included in perquisites and are subject to taxation as per the rules and
conditions as prescribed. Here we have talked about what exactly are perquisites in salary, its types, benefits,
example, calculation and taxation.

Tax-free perquisites include:

 Leave travel concessions subject to conditions and the only actual amount spent
 Medical Facilities & Reimbursements
 Computer / Laptop for official / personal use
 Initial fees paid for corporate membership
 Refreshment provided during working hours in office premises
 Payment of annual premium on personal accident policy
 Subscription to periodicals and journals required for the discharge of work
 Provision of Medical Facilities
 Gifts not exceeding Rs. 5000 per annum etc.

Q8. What do you mean by “Transfer of capital assets”? Kindly divide the capital assets on their holding
period.
“ Transfer” in relation to Capital asset, includes the sale, exchange or relinquishment of the asset, or the
extinguishment of any rights therein or the compulsory acquisition thereof under any law or in a case where the
asset is converted by the owner thereof into, or is treated by him as stock- in- trade of a business carried on by
him, such  conversion or treatment; or the maturity or redemption of a zero coupon bond.

Transfer of movable property is complete when delivery or possession is complete.

Transfer of immovable property includes possession of immovable property given without registration of
conveyance deed; and also transactions in agreements to buy or sell any immovable property or any rights
thereon.

From the above one can understand that following kinds of transaction are to be considered as transfer.

 Sale of asset, Exchange of asset and relinquishment of right from asset, though the person who
relinquish the right, did not get any amount.
 Extinguishment of right from asset.
 Compulsory acquisition of asset under any law. Corporation or Government may acquire any asset for
furtherance of any public project. For metro rail project many assets are being acquire by corporation,
for bullet train project government acquire land. In acquisition of asset, there is no choice of the owner of
the asset.
 Transfer of asset in to stock in trade is not a transfer, but when asset is sold, will considered as transfer.

Following transactions are not considered as Transfer:

 Distribution of assets by a company to its shareholders on its liquidation. In the case of HUF, at the time
of total or partial partition, distribution of assets are not considered as transfer.
 Any transfer of a capital asset under a gift or by will or an irrevocable trust.
 Any transfer of a capital asset by a company to its subsidiary company and by subsidiary company to
main company, provided the transferee is an Indian Company and the entire share capital of the
subsidiary company is held by the parent company or its nominees.
  Any transfer of asset, in a scheme of amalgamation, of a capital asset by the amalgamating company to
the amalgamating company, if the amalgamated company is an Indian company.
 Any transfer of agriculture land in India before 1st March, 1970 Any transfer of capital asset, being any
work of art, archaeological, scientific or art collection, book etc., to Government or the National Museum,
National Art Gallery, National Archives or a University or any notified public museum or institution.
 Any transfer by way of conversion of bond or debenture-stock or deposit certificates in any form, of a
company in to shares or debenture of that company.
 Any transfer of capital asset including intangible asset by a firm/sole proprietary concern to a company
in certain cases.
 A member of a recognized stock exchange in India transfers his membership card(right), for acquisition
of shares and trading or clearing rights acquired by him in the same stock exchange, in accordance with
a scheme for demutualization or corporatization approved by the SEBI.
 Any transfer capital asset in a transaction of reverse mortgage under notified scheme.
 Any transfer by way of conversion of preference shares of a company  in to equity shares of that
company.

Q9. Define “annual value” and state the deductions that are allowed from the annual value in computing the
income from house property.
The annual value of a property is the sum for which a property is reasonably expected to be let from
year to year. Hence, the annual value of a property is the amount of notional rent which could have been
derived, had the property been let.

Deductions Under House Property

Municipal tax – Municipal taxes is the annual amount paid to the municipal corporation of that
area. Municipal taxes are to be deducted from the Gross Annual value to derive the Net annual
value of the house property. Deduction of municipal tax is allowed only if it has been borne by
the owner and paid during that financial year.
Standard Deduction – Standard Deduction is 30% of the Net Annual Value calculated above.
This 30% deduction is allowed even when your actual expenditure on the property is higher or
lower. Therefore, this deduction is irrespective of the actual expenditure you may have
incurred on insurance, repairs, electricity, water supply etc. For a self-occupied house property,
since the Annual Value is Nil, the standard deduction is also zero on such a property.
Deduction of Interest on Home Loan for the property –Homeowners can claim a deduction of
up to Rs.2 lakh on their home loan interest if the owner or his family reside in the house
property. The same treatment applies when the house is vacant. If you have rented out the
property, the entire interest on the home loan is allowed as a deduction. Your deduction on
interest is limited to Rs.30,000 if you fail to meet any of the conditions given below for the Rs.2
lakh rebate.-
The home loan must be for the purchase and construction of a property;
The loan must be taken on or after 1 April 1999;
The purchase or construction must be completed within 5 years from the end of the financial
year in which the loan was taken

Q10. What are the provisions of the income tax act regarding the admissibility of the interest on loan
taken for the construction of the house for the period prior to the completion of construction of the house?
When you have taken a loan for the purchase or construction of a house property, you can claim
a deduction on pre-construction interest. However, this is not allowed in the case of the loan for
repairs or reconstruction.

The total amount of pre-construction interest and interest on a housing loan that can be claimed
in a year should not exceed Rs 2 lakh in any case. The deduction for this interest is allowed in 5
equal instalments starting from the year in which the house is purchased or the construction is
completed.

For example, if the construction of your property completed in FY 2018-19, on 25 June 2018,
you can claim 1/5th of interest paid up till 31 March 2018 when you file your return for FY
2018-19.
Q11. Explain the meaning of business and profession.
1. Meaning
Business is an economic activity where people sell goods or services.
Profession is an economic activity where people work with their knowledge and skill.
2. Qualification
No minimum qualification is required in case of business.
Educational or professional degree or specified knowledge is required in case of profession.
3. Transfer of interest
Transfer of interest is possible in case of business.
Generally transfer of interest is not possible in case of profession.
4. Accounting Type
Generally, Manufacturing / Trading / Profit & Loss a/c is maintained in case of Business.
Generally, Income & Expenditure a/c is maintained in case of Profession.
5. Reward
Reward for business is known as ‘profit’
Reward for profession is known as ‘professional fee’
6. Tax Audit 
Tax audit u/s. 44AB is required if annual turnover or gross receipt exceeds Rs. 1cr. (2 cr. for
presumptive income scheme u/s 44AD) in case of business.
Tax audit u/s 44AB is required if gross receipt exceeds Rs. 50 lakh in case of a profession.

Q12. Define speculative transaction.

Speculative transaction is a transaction of purchase or sale of a commodity including stocks and
shares settled otherwise than by actual delivery or transfer of the commodity or scrip (Section 43(5)
of the Income-tax Act)

Q13. What deduction is allowed to a businessman in computing profits? Specify the expenses disallowed.
Any interest, royalties, fees for technical services or other sum allowable as an expense, which is payable, outside
India; or in India to a non-resident, or a foreign company, for which TDS is applicable but not deducted or after
deduction, has not been paid during the previous year, or before due date u/s 200(1).

Q14. What do you understand by the term capital gains used in the income tax act? What are the rules
regarding exemption of capital gains?
Under the Income Tax Act, 1961, the interest earned by an individual through an asset whose net worth has
increased over a period of time is eligible for capital gain exemption after factoring the indexed cost of acquisition
and inflation.

Under the Income Tax Act, 1961, the interest earned by an individual through an asset whose net worth has
increased over a period of time is eligible for capital gain exemption after factoring the indexed cost of acquisition
and inflation.
Capital gain is the increase in value of an asset that gives the asset a higher worth than the purchase price. The
capital gain can be short term or long term. Long term capital gains are usually taxed at a lower rate.

For instance, Sheetal bought a house in the year 2004 for Rs.50 lakhs. The value of the house stands at Rs.1.5 crore.
And since the property was held for over 3 years, the gain will be a long-term capital gain. The cost price of the
house is adjusted according to the inflation and indexed cost of acquisition. After the cost of acquisition is indexed,
the adjusted cost of the house will be Rs.1.06 crore, the net capital gain will be Rs.44 lakhs. Long term capital gain is
taxed at 20 percent and for the net capital gain of Rs.44 lakhs, Sheetal will have to pay Rs.8,80,000 towards tax.
However, this tax outgo can be lowered by taking the benefits of exemption provided by the Income Tax Act, 1961.

Q15. Explain the following:

Capital Assets - Capital assets are significant pieces of property such as homes, cars, investment properties,
stocks, bonds, and even collectibles or art. For businesses, a capital asset is an asset with a useful life longer than a
year that is not intended for sale in the regular course of the business's operation.
Short-term capital assets - Short term capital assets refer to any asset owned by a taxpayer for under than 36
months from date of initial transfer. For example, Miss Rita purchases a building in January 2018 and sells it in
January 2019, holding it for just a year. Here, her building will be considered as a short term capital asset.
Cost of acquisition of capital assets - Cost of Acquisition (COA) means any capital expense at the time of
acquiring capital asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring date in
the form of registration, storage etc. expenses incurred on completing transfer.
Capital Gains - A capital gain is the increase in a capital asset's value and is realized when the asset is sold.
Capital gains apply to any type of asset, including investments and those purchased for personal use. The gain may
be short-term (one year or less) or long-term (more than one year) and must be claimed on income taxes.

Q16. What is indexed cost of improvement?

Indexed cost of improvement calculated?

Indexed cost of improvement = cost of improvement x cost inflation index of the year of
transfer/cost inflation index of the year of improvement.

Q17. Describe the method of computing income under the head ‘income from other sources’?
Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the
method of accounting regularly employed by the assessee. Hence, if the assessee follows mercantile system, then
income will be computed on accrual basis.

Q18. Explain clearly the meaning of the following:

 Tax free non- government securities - The law has approved to issue tax-free, secured, convertible as
well as non-convertible bonds. There are quite a few government sector undertakings that makes funds by
issuing tax free bonds, namely, HUDCO, IREDA (Indian Renewable Energy Development Agency), IRFC,
NHAI, NHPC, NTPC, PFC, REC etc.
 Less tax securities - Less tax securities refers to those securities where interest is paid to the
assesses after deducting tax at source.

Q19. Describe any ten item of income which can be included under the head income from other sources

The following types of receipts of income fall under the Income from Other Sources’ category –

1. Dividends
Dividends are taxable under ‘income from other sources,’ based on the residential status of the
source company that paid out the dividend.

2. Dividend from an Indian company

If any company has paid Dividend Distribution Tax (or DDT) on this receipt of income, the
dividend is exempted from tax. Under Section 115BBDA of the Act, however, if a resident
individual, firm, or HUF receives dividends over Rs 10 lakhs from an Indian company, then the
excess amount over Rs 10 lakhs is subject to taxation at 10%.

3. Dividend from a foreign company

 Dividends received from any foreign company are subject to taxation under ‘Income from Other
Sources.’

4. One-time income
One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games,
gambling or betting of any form are categorized under ‘Income from Other Sources.’

5. Interest on compensation
Interest received by you (as assesse) on the amount of reimbursement or compensation paid
out in situations such as compulsory acquisition is subject to taxation under ‘Income from Other
Sources’ head.

6. Gifts
Gifts received in the form of any sum of money, movable or immovable property, are also
taxable.

Then, there are the following receipts of income, which can only be classified under ‘Income
from Other Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –

 Employees’ contribution to any welfare scheme

 Interest on securities such as debentures or government bonds
 Rental income received from letting out the plant, furniture, or machinery owned by the
assessee
 Rental income received from letting out the plant, furniture, or machinery along with a building
(here, these two cases of letting out are inseparable)
 Receipts of income under a Keyman Insurance Policy
Examples of receipts that are chargeable Under ‘Income from Other Sources’
The following are some of the examples of other receipts of income that automatically fall under
the ‘Income from Other Sources’ category –

 Income received from subletting a house property by a tenant

 Insurance commissions received by you (i.e., assesse)
 Casual income
 Family pension payments received by the lawful heirs of dead employees
 Interest earned on deposits with companies and bank deposits
 Interest on loans
 Remuneration received by the Members of Parliament (MP)
 Rental income earned from a vacant plot of land
 Agricultural income received from an agricultural land situated outside of India
 Interest paid out by the Government on excess payment of advance tax

Q20. Explain rebate and relief of tax

Tax rebate is a refund on taxes when the tax liability is less than the taxes the individual has paid.
Taxpayers usually get a refund on their income tax if they have paid more than what they owe. The tax
refund money is given back at the end of the financial year.
Tax relief refers to any government program or policy designed to help individuals and businesses reduce
their tax burdens or resolve their tax-related debts.
Tax relief may be in the form of universal tax cuts, targeted programs that benefit specific groups of
taxpayers, or initiatives that bolster particular goals of the government. For example, the child tax credit
gives a tax break to parents of minor children, while the tax credit for green improvements (e.g., energy-
efficient windows) furthers the goal of U.S. energy independence and cleaner air

Q21. Write short notes on:

 Deduction u/s 80 C - Section 80C is one of the most popular and favourite sections amongst the
taxpayers as it allows to reduce taxable income by making tax saving investments or incurring
eligible expenses. It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total
income.
The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership
firms, LLPs cannot avail the benefit of this deduction.

 Deduction u/s 80DDB - Deduction for Medical Expenditure on Self or Dependent Relative
a. For individuals and HUFs below age 60
A deduction up to Rs.40,000 is available to a resident individual or a HUF. It is available with respect to any expense
incurred towards treatment of specified medical diseases or ailments for himself or any of his dependents. For an
HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for
any of the HUF members.
b. For senior citizens and super senior citizens
In case the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF
taxpayer can claim a deduction up to Rs 1 lakh. Until FY 2017-18, the deduction that could be claimed for a senior
citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively. This has now become a common
deduction available upto Rs 1 lakh for all senior citizens (including super senior citizens) unlike earlier.
c. For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction
the taxpayer can claim under this section.
Also remember that you need to get a prescription for such medical treatment from the concerned specialist in
order to claim such deduction. Read our detailed article on Section 80DDB.

 Deduction u/s 80 D - Deduction for the premium paid for Medical Insurance
You (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse
and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are less
than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000, which has been increased
in Budget 2018 from Rs 30,000.

In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up
to Rs.1 lakh.

Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under
section 80D is Rs. 100,000.
From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check.  

 Deduction u/s 80 E - Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have
been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.
80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid)
or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.

 Deduction u/s 80 TTA - Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings
account’ in the Income Tax Act.
Here are the salient features of this section:
 1. You can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.
2. The savings account can be held in any of the following financial institution:
3. Bank
4. Cooperative society
5. Post office
6. You can claim exemption on any number of savings accounts as long as the total amount you are
seeking exemption on is less than Rs. 10,000.

Q22. Kindly write meaning and need of GST? Define the term CGST, SGST, IGST.
The goods and services tax (GST) is a tax on goods and services sold domestically for consumption.
The tax is included in the final price and paid by consumers at point of sale and passed to the government
by the seller. The GST is a common tax used by the majority of countries globally.

GST has replaced multiple taxes like sales tax, service tax, etc., which made India more of an
integrated national market and brought more people into the taxation net is the need for gst. By
improving efficiency, it can add substantially to finances as well as the growth of the country.

 About the Central Goods and Services Tax (CGST)

Under GST, CGST is a tax levied on Intra State supplies of both goods and services by the
Central Government and will be governed by the CGST Act. SGST will also be levied on the
same Intra State supply but will be governed by the State Government.
This implies that both the Central and the State governments will agree on combining their
levies with an appropriate proportion for revenue sharing between them. However, it is clearly
mentioned in Section 8 of the GST Act that the taxes be levied on all Intra-State supplies of
goods and/or services but the rate of tax shall not be exceeding 14%, each.
 Meaning of the State Goods and Services Tax (SGST)
Under GST, SGST is a tax levied on Intra State supplies of both goods and services by the State
Government and will be governed by the SGST Act. As explained above, CGST will also be levied
on the same Intra State supply but will be governed by the Central Government.
Note: Any tax liability obtained under SGST can be set off against SGST or IGST input tax credit
only.
An example for CGST and SGST:
Let’s suppose Rajesh is a dealer in Maharashtra who sold goods to Anand in Maharashtra
worth Rs. 10,000. The GST rate is 18% comprising of CGST rate of 9% and SGST rate of 9%. In
such case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government and
Rs. 900 will go to the Maharashtra Government.

 What is Integrated Goods and Services Tax (IGST)?

Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or services and will be
governed by the IGST Act. IGST will be applicable on any supply of goods and/or services in
both cases of import into India and export from India.
Note: Under IGST,
Exports would be zero-rated.
Tax will be shared between the Central and State Government.
An example for IGST:
Consider that a businessman Rajesh from Maharashtra had sold goods to Anand from Gujarat
worth Rs. 1,00,000. The GST rate is 18% referring to 18% IGST. In such a case, the dealer has to
charge Rs. 18,000 as IGST. This IGST will go to the Centre.

Q23. Difference between VAT, Service tax And Excise duty with GST.

The following are the major differences between VAT and Service Tax:

1. The tax imposed on the production and sale of a commodity is known as Value Added Tax (VAT).
Tax on services rendered is known as Service Tax.
2. VAT is a multi-point tax, whereas Service Tax is a single point tax.
3. VAT is charged on physical items i.e. goods while Service Tax is charged on non-physical items i.e.
services.
4. The State Government imposes VAT, but Central Government imposes services Tax.
5. VAT is governed by the statute of the respective state. On the other hand, Service Tax is governed
by the Finance Act, 1994.
6. VAT was introduced in the year 2005, all over the country. Conversely, Service Tax was introduced
in the year 1994.
7. The VAT rate is different for different category of commodities. In contrast to Service Tax, has a flat
rate.
8. VAT is applicable within the jurisdiction of the state, whereas Service Tax is applicable all over the
country except in Jammu & Kashmir.

Comparison Table Between VAT and Excise Duty (in

Tabular Form)
 Parameter of
VAT Excise Duty
Comparison

Tax added on goods as it travels from the point Tax added on the manufacturing
Definition
of production to the point of sale. of stocks.

After the product has entered the final stage of After the product has been
Imposed
selling. manufactured.

The company who is

Paid by Customers who buy the product.
manufacturing the product.

Implementation Method of collection and timing of collection. Ad valorem and specific.

Examples Biscuits, candy, soap, toothpaste, shoes. Tobacco, alcohol, fuel.

Q24. Mr. Malkiat owns two houses, the particulars of which are given below for the previous year 2015-16:

House A Rs. House A Rs.

Annual rent Nil 1,72,000 p.a.

Fair rent 5,00,000 p.a. 1,80,000 p.a.

Standard rent 5,00,000 p.a. 1,50,000 p.a.

Municipal valuation 4,90,000 p.a. 1,60,000 p.a.

Municipal taxes (paid) 49,000 p.a. 16,000 p.a.

Fire Insurance (due) 5,000 p.a. 3,000 p.a.

Ground rent paid 4,500 p.a. 3,900

Unrealized rent (pertaining to this year) Nil 6,000

Interest on money borrowed during 1998-99 for construction of 36,000 p.a. 48,000 p.a.
house (50% paid)

Nature of occupation Self occupied Let out

Compute income from house property for the assessment year 2016-17 assuming that the assessing
officer is satisfied with the non recovery of rent.

Q25. From the following information compute taxable business income of Mr. Parm for the
assessment year 2016-17. His Profit and Loss Account for the year ending March 31 st, 2015 is as
follows:

Particulars Rs. Particulars Rs.

To salary to staff 6,10,000 By Gross Profit 25,65,600
To advertisement expenses paid in 28,000 By Sundry receipts 26,000
cash
To Office expenses 1,06,000 By bad debts recovered 16,000
To rent and repairs 84,000 By Custom duty recovered (not 12,000
allowed as deduction earlier)
To Legal expenses for filling income tax 16,000 By Interest on Bank deposits 1,08,000
 appeal
To Bad Debts 42,000 By Profit on sale of import license 65,000
To Depreciation 2,10,000 By Gift from father 18,000
To Reserve for bad doubtful debts 18,000 By profit on sale of shares 80,000
To Interest on bank loans 78,000
To Commission 22,000
To Interest on own capital 14,000
To Household expenses 36,000
To Income -tax for 2014-15 15,000
To Donation to Political party 10,000
To Sales tax 36,000
To Sales tax penalty 12,000
To Entertainment expenses 20,000
To Extension of business premises 2,00,000
To Net Profit 13,33,600
28,90,600 28,90,600
Following further information is given :

a) Salary to staff includes salary paid to a relative employee which is unreasonable uptoRs.10,000.
b) Office expenses include a payment of Rs. 16,000 given to notified
university for carrying on research.
c) Depreciation includes depreciation of personal car of manager Rs.24,000.

Q26. From the following information find out the income from salary of Mr X:-

 Basic pay 30,000 p.m

 D.A 30% of basic pay
 Percent wise fixed commission 20000 p.a
 Medical allowance 4000 p.m.
 Family allowance 1000 p.m
 Tiffin allowance 400 p.m
 Uniform allowance 2000 p.a (actual exp. 600)
 Children education allowance 400 p.m ( for 1 child)
 Tribal Area Allowance 300 p.m
 Underground allowance 500 p.m
 H.R.A 8000 p.m
 Rent paid by Mr.X 10,000 p.m
(Kindly show the working properly

Q27. Write down the list of the income which shall be taxable under head profit and gain from business and
profession (PGBP)
The following incomes will be chargeable to income tax under the head “Profits and gains of business or
profession”:

1. Profit and gains of any business which was carried on by the assessee at any time during the financial
year
2. Any compensation or other payment due to or received by:
 o Any person in connection with termination/modification of an agreement for managing the whole
or substantially the whole of affairs of an Indian company or any other company.
o Any person holding an agency in India for any part of the activities relating to the business of any
other person at or in connection with the termination or modification of the terms of the agency.
o Any person for or in connection with the vesting in the Government, or in any corporation owned
by or controlled by the Government, under any law for the time being imposed, of the
management of any property or business.
3. Income derived by trade, professional or similar association from specific services performed for its
members. This is an exception to the general principle that a surplus arising to a mutual association
cannot be regarded as income chargeable to tax.
4. Export incentives which include:
o Profits on sales of import licenses granted under Imports (Control) Order on account of exports.
o Cash assistance, by whatever name called, received or receivable against export.
o Duty drawbacks of Customs and Central Excise duties.
o Any profit on the transfer of the Duty Entitlement Pass Book Scheme.
o Any profit on the transfer of the Duty Free Replenishment Certificate.
5. Value of any benefit or perquisite, whether convertible into money or not, arising during the course of the
carrying on of any business or profession.
6. Any interest, salary, bonus, commission or remuneration due to or received by a Partner of a Firm from
the firm in which he is a partner.
7. Any sum received or receivable in cash or in kind under an agreement for:
o Not carrying out activity in relation to any business or profession.
o Not sharing any know-how, patent, copyright, trademark, license, 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 services.
8. Any sum received under a Key man Insurance Policy including the sum allocated by way of bonus on
such policy.
9. Any sum whether received or receivable, in cash or kind, on account of any capital asset being
demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset
has been allowed as a deduction under Section 35AD.