CHAPTER - 1

INTRODUCTION

Tax is the cost of civilization. In the civilized society, government constructs Roads, Bridges and Railways tracks.
Govt. provides protection through police and military. In order to provide such service govt. needs revenue. Tax is
government’s revenue. Tax is individual’s contribution towards government’s revenue.

Types of Taxes

Direct Tax Indirect Tax

A Tax which is paid by one

A Tax which is paid by one Peron
Peron and born by the same
and born by the other person
person

Its burden cannot be shifted The tax burden shifted to other

to other person person

This tax is imposed on This tax is imposed on Goods &

Persons Services

Examples: Income Tax, Examples: GST, Custom Duty,

Wealth Tax, Property Tax Excise Duty

INCOME TAX
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 1. Income Tax is a Tax on Income.
2. Income cannot be defined.
3. Income Tax is tax on a person
4. Income Tax is tax on Total Income.
(All sources of income are added and a total income tax is applied)
5. Income Tax is yearly Tax (Annual)
6. Income Tax extends to the whole of India
7. Income Tax is direct Tax.
8. There are Two income :-
a) Gross Income
b) Net Income (after claiming deductions)
9. Income Tax is Tax on net income
10. In India Income Tax is governed by 2 set of laws:-
a) Income Tax Act 1961 = Qualifies income.
b) Income Tax Rules 1962 = Quantifies income.
11. The T.Y. syllabus only covers calculation of net income. In other words, Tax calculation is not in the syllabus

Income Tax Act: contents of various sections:

Sec 2 – Definition
Sec 4&5 – Scope of Income Tax
Sec 6 – determination of residential status.
Sec 10 – Exempt Incomes
Sec 14 – Different Types of Incomes
Sec 15 to 58 – Calculation of Income – Quantification
Sec 80 – Deductions from the income

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 CHAPTER – 2
Definitions
[Section – 2]

There are two types of Definitions:-

1. Exhaustive Definition: – Complete definition; where there is no room for Assumption, concepts are clear.
2. Inclusive Definition: - Incomplete definition; only a list of similar things are given.

I. Person includes;
a) Individual – living human beings.
b) Partnership firm – whether registered or unregistered
c) Hindu Undivided Family - (HUF)-lineal descendants from common ancestor.
d) Company – Whether Private or Public, whether Indian or Foreign.
e) Association of persons(AOP) and Body of individuals(BOI) e.g. Housing , Co-operative society,
club, Religious trusts, Bar council etc
f) Local Authority – Bombay University, BMC
g) Any Artificial Juridical person not falling in any of the category given above.

II. Assessee:-
 A person by whom any tax, surcharges, Interest and penalty payable under the Income tax Act.
 Assesses is a person who has to pay any sum under Income Tax Act.
 A person against whom a case is pending under Income Tax Act is an Assesses.
 A person receiving the income on behalf of the other person is an Assesses.
Based on Legal status, Assesse can be classified into 7 different categories:-
a) Individuals
b) Firm (partnership)
c) H.U.F
d) Company
e) Association of person & Body of Individual.
f) Local Authority.
g) Artificial juridical person

Based on residential status, Assesses are classified in to two broad categories

A. Resident Assessee
B. Non Resident Assessee

III. Previous Year: - Income Tax is tax on total income. Income Tax is tax on Annual income.
Income of a particular year can only be calculated at the end of the year. It is therefore previous years is the
period during which income is earned, which is taxable now.
“Previous years is the year immediately preceding the Assessment year”
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 The previous year under consideration is the period from 1st April 2021- 31stMarch 2022
As per the Income Tax Act, there is a uniformity in Previous Year i.e. every person has to follow the
year of April to March.
In general, Previous Year is a period of 12 months starting from 1 st April till 31st March. However, if a
new business is started or a new source of income comes into existence, the Previous Year can be a shorter
period i.e. starting from the date of new business till 31 st March
E.g.:- Mr. R starts a business on 1st Nov 2021 his previous year will be from 1-11-21 to 31-3-22 (5 months).

IV. Assessment Year: - It is a period of 12months starting 1st April after the previous year gets over.
For the previous year from 1-April-2021 to 31-March-2022.,
Assessment Year will be from 1-April-2022 to 31-March-2023
Assessment is the act of calculating correct income and imposing correct tax. Income earned in the
previous year, has to be taxed in the Assessment Year.
Previous year may be a shorter period but Assessment Year has to be a period of 12 months.

V. Company: - The concept of company is wider under Income Tax Act as compared to the concept under
Company Law.
 Company includes the following :-
a) An Indian company registered Indian Company Act OR
b) A foreign company Registered under and foreign Law/Statute OR
c) Any Assessee which has been taxed as company earlier will be considered as company.
d) A company under liquidation is a Company.
e) Any other Association which the Act considers as Company.
Under Income Tax Act, companies include both private and public. Under Income Tax Act even
Government Company is a company. Under Income Tax Act, a company in the process of formation is a
company.

VI. Income: - Income Tax is a tax on Income. The concept of income assumes great importance. The Law has not
defined income. Following are examples of incomes:-
a) Salary received;
b) Rent received;
c) Business profits;
d) Professional income;
e) Profit on sale of assets & investment;
f) Interest & Dividend received etc
 Under Income Tax Act, legal & illegal both are income.
 Under Income Tax Act, income includes both cash & kind.
 Under Income Tax Act, income is taxable either when it is record or when it becomes due but not twice.
 An income earned in past, taxed in the past & brought in India from outside India will not be taxed again.

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 CHAPTER - 3
Scope of Income Tax/ Residential Status
[Section 5 & 6]

The impact of Income Tax depends on Residential status of a person. Tax incidence is different for different types
of Residential Status.
Particular income may be taxable for one type of person, may not be taxable for other type of person. Various
incomes are taxable for resident and not taxable for Non Residents.

Residential Status of Individual

1. Individual Residential Status depends on number of days stay in India.

2. Residential status is calculated with respect to the previous years.[1-4-21 to 31-3-22]
3. Period of stay may be at a starch or periodical intervals.
4. While calculating number of days, dates of arrival & date of departure, both are included.
5. Residential status has nothing to do with the place of origin, Nationality or citizenship.

Sec-6, has laid down two basic conditions for Residential Statues;

BASIC CONDITION

b
a. He should stay in India for He should stay in India
.
at least 182 days in the for at least 60days in the
OR
Previous Year * Previous Year AND

365days in four Previous

Year prior to the Previous
Year
* An Indian citizen/origin leaves India for employment or come back to India on leave. For him, only 1 st condition
is applicable.
An Individual satisfying any one of the two conditions or both is Resident and if fails to satisfy any one of the
condition is a Non-Resident.

1. Resident :- Satisfy either [A or B] or [A+B]

2. Non-Resident:- Fail to satisfy even A or B.
A Resident individual can be further classified into 2 categories, for which there are 2 additional conditions.

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 ADDITIONAL CONDITION

a He should be a resident b He should stay in India

. in India for at least 2 . for at least 730 days in
years out of 10 previous AND the 7 Previous Year
years prior to the prior to the previous
previous year year
1. Ordinary Resident :- Satisfies both the condition
2. Not Ordinary Resident :- Fails to satisfy anyone of the two or both

Residential Status for persons other than individuals:-

In case of other persons, Residential status is determined on the basis of the existence of its control & management in
India.
A. Regarding company:- when even a part of control as a management is in India, it is a Resident otherwise Non
Resident
B. Regarding AOP, Firm, HUF, and BOI: - When full control is in India, It is Resident.

Steps in calculation of Residential Status:-

1) Write down, condition of sec-6
2) Calculate number of days stay in India.
3) Conclusion.

Practice Problems

1) Mr. Trayambak, an Austrian citizen came to India, for the first time, on 1 st April, 2018 and started a business in Mumbai. He
went out of India on 1 st April, 2021 and came back to India on 1 st January, 2022 and was in India thereafter. Find out his
Residential Status for the Assessment year 2022-23.

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Sol.
Year Working Days Status
01-04-2018

to Full Year 365 R

31-03-2019
01-04-2019

to Full Year 366 R

31-03-2020
01-04-2020

to Full Year 365 R

31-03-2021
01-04-2021 A M J J A S
1 0 0 0 0 0
to 91 R
O N D J F M
31-03-2022 0 0 0 31 28 31

Mr.Traymbak is an Austrian citizen

A) To check whether he is a Resident Or Non-Resident of India following BASIC Condition need to satisfy:
a) He should stay in India for at least 182 days in the Previous year (2021-22)
He does not satisfy this condition (92 Days in P.Y.)
OR
b) He should stay in India for at least 60 days in the Previous year and 365 days in the 4 preceding Previous year
He satisfies this condition (92 Days in P.Y and 1095 days in 4 preceding P.Y.)

Comment: Since he is not an Indian Citizen, for him any of the above 2 conditions are applicable, he satisfies Condition (b),
he is Resident of India

B) To check whether he a Resident & Ordinary Resident (R&OR) or Resident but not ordinary resident of India (R but NOR),
following of two conditions need to satisfy:
a) He should be a Resident of India for at least 2 years out of 10 Preceding P.Y.
He satisfies this condition (3 Years Resident)
AND
b) He should stay in India for at least 730 days in the 7 Preceding P.Y.
He Satisfies this condition (1095 days in 7 Preceding P.Y.)

Conclusion: Since he satisfies both the above conditions (a & b), he a Resident and Ordinary Resident of India (R&OR)

Q.2) -

Year Working Days Status

01-04-2015
to 365 - 30 335 R
31-03-2016
01-04-2016
Full Year 365 R

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 to
31-03-2017
01-04-2017
to Full Year 365 R
31-03-2018
01-04-2018 A M J J A S
30 1 0 0 0 0
to 31 NR
O N D J F M
31-03-2019 0 0 0 0 0 0
01-04-2019
to Full Year 366 R
31-03-2020
01-04-2020 A M J J A S
30 31 30 31 31 30
to 245 R
O N D J F M
31-03-2021 31 30 1 0 0 0
01-04-2021 A M J J A S
0 0 0 0 0 0
to 70 R
O N D J F M
31-03-2022 0 0 0 12 28 30

Mr.Brijesh from USA

A) To check whether he is a Resident Or Non-Resident of India following BASIC Condition need to satisfy:
c) He should stay in India for at least 182 days in the Previous year (2021-22)
He does not satisfy this condition (92 Days in P.Y.)
OR
d) He should stay in India for at least 60 days in the Previous year and 365 days in the 4 preceding Previous year
He satisfies this condition (71 Days in P.Y and 1006 days in 4 preceding P.Y.)

Comment: Since he is not an Indian Citizen, for him any of the above 2 conditions are applicable, he satisfies Condition (b),
he is Resident of India

B) To check whether he a Resident & Ordinary Resident (R&OR) or Resident but not ordinary resident of India (R but NOR),
following of two conditions need to satisfy:
c) He should be a Resident of India for at least 2 years out of 10 Preceding P.Y.
He satisfies this condition (5 Years Resident)
AND
d) He should stay in India for at least 730 days in the 7 Preceding P.Y.
He Satisfies this condition (1736 days in 7 Preceding P.Y.)

Conclusion: Since he satisfies both the above conditions (a & b), he a Resident and Ordinary Resident of India (R&OR)

3) Mr. Ratan Gaware who is an Indian citizen and a professional cricketer, toured South Africa, Australia, U.K, West Indies
and Zimbabwe on various dates. The details of departure from and arrival in India are as under:

Country Date of Departure Date of Arrival

South Africa 1/3/2021 25/3/2021

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 Australia 15/4/2021 1/5/2021
U.K 5/5/2021 11/7/2021
West Indies 31/8/2021 14/09/2021
Zimbabwe 1/1/2022 23/03/2022
Determine his residential status for the Assessment Year 2022-23. Give your working and explanation.

Q.4) Professor Alpa a UK citizen (not a person of Indian origin) is a visiting faculty at JNO University, provides you the
details of her visit to India during the last 7 years.

Previous year No. of days stay in India

Prior to 2021 – 2022 179 01/04/2015 she did
not visit India. 2020 – 2021 195 Find out her
residential 2019 – 2020 15 status for the
A.Y.2022-23 2018 – 2019 130
2017 – 2018 190
5. Aastha, a citizen of USA has been
2016 – 2017 100
staying in India since 1998. She
2015 – 2016 125
leaves India on 16th July 2020 on a
visit to USA and returns on 4th January 2021. Determine her residential status for the previous year 2021 – 2022.

6. Ms. Vidhi a South African but of Indian origin came to India on 1 st November 2016 for the first time. Her total say in India was
as under:

Year Ended No. of days

2016 – 2017 24
2017 -2018 80
2018 – 2019 182
2019 - 2020 75
2020 – 2021 26
She informs you that she was in India from 1 April to 30 June 2021. Determine her residential status for the previous year
st th

2021 – 22.

6. Mr. Sumeet an Indian citizen went to U.S.A for the first time for the purpose of employment on 10 th May, 2021. He came back
to India on 19th November, 2021. Find out his residential status for Assessment Year 2022 – 23.

7. Mr. Ganesh born in Japan is an Indian citizen. He came to India at the age of 19 and never went outside India till the age of 29
years. He left for U.S.A on 1.5.2019 for further studies after staying in India for 10years continuously and again came back to
India on 1st March, 2021. He again leaves India on 1 st August 2021 for the purpose of employment in U.K and did not return in
India till 31st March, 2022.
Find out the residential status for the Assessment Year 2022 – 23.

Year Working Days Status

01-04-2019 31 NR

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 to

31-03-2020
01-04-2020 A M J J A S
to 31 NR
O N D J F M
31-03-2021 31
01-04-2021 A M J J A S
to 30 31 30 31 1 0 123 NR
O N D J F M
31-03-2022 0 0 0 0 0 0

SCOPE OF INCOME TAX

Resident & Resident but

Ordinary Non ordinary Non Resident
Particulars
Resident Resident [NR]
[R&OR] [R&NOR]

1 Income generated/ accrued and received in India Taxable Taxable Taxable

2 Income generated in India but received abroad Taxable Taxable Taxable

3 Income generated in abroad but received in India Taxable Taxable Taxable

4 Income generated abroad, received abroad

a. Business controlled from India Taxable Taxable Not taxable
b. Business controlled from abroad Taxable Not taxable Not taxable

5 Not taxable Not taxable Not taxable

Income generated earlier, taxed earlier brought in India
Classification of Income (Sec- 14)
 Income tax is a tax on total income of a person/individual.
 The Act has not defined income but it is to be understood from general understanding.
 For proper administration, regulation and tax imposition, income has been classified into 5 groups/Heads.

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 Problems on Scope of Income

Q.1. Mr. Sahil, a British citizen had the following income during the year

Particular Rs.
1. Income from house property in India. 15,000
2. Income from property in Rome 10,000
3.Interest from bank account in India 1,200
4. Income from business in Bangladesh. 16,000
(40% received in India and balance received outside India)
5. Interest on bank account in U.S.A 11,000
6.Salary earned and received in Tokyo 12,000
7. Income earned and received in London 13,000
8. Dividend from British Company received in India 17,000
Compute his Total Income for the, if he is:
(i) A Resident and ordinarily Resident
(ii) A Resident but not ordinarily Resident
(iii) A Non- Resident.

Sol. Computation of Total Taxable Income of Mr.Sahil

SR.N
R&OR R&NOR NR
O PARTICULARE
1 Income from house property in India. 15,000 15,000 15,000

2 Income from property in Rome 10,000 EXEMPT EXEMPT

3 Interest from bank account in India 1,200 1,200 1,200

4 Income from business in Bangladesh. (40% in India) 6,400 6,400 6,400

(60% Received out side India) 9,600 EXEMPT EXEMPT
5
Interest on bank account in U.S.A 11,000 EXEMPT EXEMPT

6 Salary earned and received in Tokyo 12,000 EXEMPT EXEMPT

7 Income earned and received in London 13,000 EXEMPT EXEMPT

8 Dividend from British Company received in India 17,000 17,000 17,000

TOTAL TAXABLE INCOME 95,200 39,600 39,600

2. Mr. Ganesh an Indian citizen, furnishes the following particulars of his income earned during the previous year relevant to
assessment year.

Particular Rs.
1.Professional Fees Received in India 11,000
2. Income earned in India but received in Rome 12,000

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 3. Dividend on share of Indian Companies
(i) Received in India 6,000
(ii) Received Abroad 7,000
4. Salary earned and received in Paris 14,000
5. Income from agriculture in Nepal 15,000
6. Income from business in U.K controlled from India 16,000
Compute his total income for the assessment year, assuming the Residential Status as:
(i) Resident and Ordinarily Resident, (ii) Resident but not ordinarily Resident
(iii) Non Resident in India

3. Mr. Ashok had the following incomes during the previous year ended 31st March.

Particular Rs.
1.Professional Fees Received in India for three months 9,000
2. Payment received in the United Kingdom for the services rendered in India 8,000
3. Income from business in Bangladesh, being controlled from India 7,000
4. Income from agriculture in Indonesia 6,000
5. Interest received in Paris in respect of securities in French companies 5,000
6. Amount brought into India out of the past untaxed profits earned in Germany 4,000
You are required to compute his Total Income, if he is:
(ii) Resident and Ordinarily Resident, (ii) Resident but not ordinarily Resident
(iv) Non Resident in India

4. Miss Vidhi, a foreign national, furnishes the following particulars of her income earned during the previous year relevant to
Assessment year.
Find out her Gross Total Income, if she is
(iii) Resident and Ordinarily Resident, (ii) Resident but not ordinarily Resident
(v) Non Resident in India

1) Income from Property in Rome received in India Rs.1,000

2) Dividends from Shares from Foreign Companies:
(i) Received Abroad Rs.2,000
(ii) Received in India Rs.3,000
3) Profit from business in Mumbai and Managed from U.S.A Rs.4,000
4) Income from House Property in India Rs.5,000
5) Interest on Bank Accounts in London Rs.6,000
6) Income earned in past but brought in India during the year Rs.7,000

5. Mr. Sambhaji, a Citizen of France gives you the following information for the year ended 31st March
1) Interest on fixed deposits with banks received in India Rs.10,000.
2) Income from House Property in India Rs.15,000.

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 3) Income from business in Singapore controlled from India Rs.50,000.
4) Income from business in India earned in India but received in France Rs.1,00,000
5) Dividends from American Company received in India Rs.22,000.
6) Interest on bank accounts in France Rs.25,000.
7) Salary earned and received in France Rs.1,50,000.
8) Income from agriculture in Bhutan Rs.10,000/-
9) Income from agriculture in India Rs.25,000/-.
Compute his total income for the Assessment Year, if he is alternative
(i) Resident and Ordinarily Resident, (ii) Resident but not ordinarily Resident
(vi) Non Resident in India

CHAPTER - 4
Income From salary
[Sec 15 to 17]

Salary is a remuneration of any kind, paid for personal services rendered. To make a remuneration salary, there
should be a personal service.

In Taxation of salary, there are two parties:-

A. Giver/Employer – For him, salary is expenses deducted while calculating other head of income
B. Receiver/Employee – For him, salary is income. Here, salary for employee is considered

Features of Salary:-

1) Relationship of Employer & Employee:- A remuneration is salary if, there exist a relationship of employer
&employee.
Following remuneration are salary:- but not taxed as salary in the absence of relationship of employer and
employee:
a) Salary of partner from the firm (Partnership firm)
b) Salary of Directors.
c) Salary of MLA/ MP.

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 2) Cash/kind:- Salary in kind (perquisites) is converted into cash equivalent and then taxed.
3) From past/present/future Employer:-
4) Salary is taxable either when it is received or when it becomes due whichever date is earlier. For example:- in
the Previous Year salary is received only up to Feb 2014 but, for Income Tax, salary for March is also included as
it has become due.
 If, in the Previous Year, Salary for next April is received in advance. This salary is taxable, as it is received.
 A salary becomes due on the date when its payment is fixed.
 The act has not defined a salary but, salary includes following:
a) Salary, Wages, Bonus
b) Commission (received from same employer)
c) Award / Reward. (received from same employer)
d) Allowances, Perquisites
e) Pension.
f) Annuity
g) Leave Encashment.
h) Gratuity (Retirement Benefits)
i) Employers contribution to P.F
j) Interest on P.F
k) Any amount received from employer.

COMPUTATION OF TAXABLE SALARY

Particular Rs. Rs.
Basic Salary (____ x 12 months) ++
Dearness Allowance ++
Provident Fund ++
Allowance ++
Less: Exempt -- ++
Perquisites ++
Retirement Benefits ++
GROSS SALARY ++
Less: Deduction U/S 16
Professional Tax --
Entertainment Allowance -- --
NET TAXABLE SALARY +++
01) BASIC SALARY: - It is the amount received every month. Gross Basic Salary is taxable. Gross salary means
amount of salary before any deduction. If, not salary is given all deduction should be added back to get gross
salary. Basis Salary is taxable.
E.g.:- If, Mr. X receives Rs.11,000/- as monthly salary after having following deductions.
 Contribution to P.F. Rs 1,200;
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  Tax Deducted at Source Rs.300;
 Loan installment Rs. 1,500;
Calculation of Gross Salary
Particular Rs.
Net Salary 11,000
Add: Contribution to P.F. 1,200
T.D.S 300
Loan installment 1,500
GROSS SALARY (To be taxed) 14,000

02) Dearness Allowance: - It is the extra amount received from the employer to meet high cost of living.
There are two types of D.A.:-
a) Forming part of the salary: If D.A is given, as per the terms of employment it is considered as part of the salary,
it will be added in the salary for calculating all future benefits.
b) Not forming part of the salary: If D.A is not mentioned in the terms of employment, it is not forming part of the
salary and such D.A will not be included in the salary for calculating future benefits.
 D.A whether a part of the salary or not is taxable.

03) Provident Fund:(P.F):- Compulsory saving for employees:

Concept of P.F:-

i. A fixed amount is contributed by the employee every month called employee’s contribution
ii. Similar amount is contributed by the owner is called employer’s contribution.
iii. The total amount is invested in securities.
iv. Interest is accumulated on it.
v. At the time of Death/ Retirement, full amount is received.

P.F has three components parts;

a) Employee’s contribution: Part of basis salary, Part of taxed profit, No fresh income, Savings.
b) Employer’s contribution: One & above the basis salary, Fresh Income
c) Interest: Fresh Income.

Employee’s Employer’s
Contribution to P.F. Contribution to P.F.
[a] [b]
a.
A fixed amount is A fixed amount is
contributed every contributed every
month to P.F. A/C month to P.F. A/C
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 P.F. [a+b]
Invested in Securities
Interest accumulated(c)

At the time of Retirement/Death full money is received (a + b + c)

There are four types of P.F’s;

1. PPF – Not related to salary;
2. Statutory Provident Fund – For Government Employees;
3. Recognised Provident Fund – For Non Government Employees;
4. UnRecognised Provident Fund – For Non Government Employees;

Taxability of P.F
Statutory Recognised UnRecognised
Particular
Provident Fund Provident Fund Provident Fund
(SPF) (RPF) (URPF)
Employee's
a) Exempt Exempt Exempt
Contribution

Taxable in
Employer's
b) Exempt Excess of 12% of Exempt
Contribution
salary*

Taxable in
c) Interest thereon Exempt Exempt
Excess of 9.5%

Total amount
d) received at the time Exempt Exempt Taxable (b + c)
of maturity
*Salary – include = Basic + D.A + Commission (forming Part)

04) Allowances: - Allowances are extra money received over and above the basic Salary to meet some extra
expenditure related to employment. Allowances are received in cash.

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 Tax Treatment of Allowances:- Allowance are first included in the salary (inner column) and then to the extent
exempt, it is deducted and balance taxable (outer column)
Based on Taxability, allowances are classified into three categories:-

ALLOWANCES
A Fully Exempt (Non Taxable) B Fully Taxable
i Laundry allowance Payment received under a Key man
i
ii Employee's contribution to any P.F. Insurance policy
Gratuity, Pension, S.P.F., RPF., Leave Advance Salary or Arrears of salary
ii ii
encashment received by Govt Employee when received
i
at the time of retirement iii Fees and Commission and Bonus
* iv Annuity from employer
Except ii & iii above, allowances are
exempted up to the amount spent i.e. if, v City Compensatory Allowance
anything is saved, it is taxable. Tiffin allowance, Fixed medical
vi
allowance and savant allowance
but in the absence of information, it is
assumed that fully amount is spent. Salary in lieu of notice - when
vii
received
vii
C Partly Exempt-Partly Taxable Unrecognised P.F. received at the
i
time of retirement
i Children Education Allowance ix
If any retirement benefit received
Exempt upto Rs.100p.m, per child subject
x by the employee but before
to max two children;
retirement
ii Children’s Hostel Allowance
Exempt upto Rs.300, per month, per child
subject to max 2 children
ii
House Rent Allowance (HRA)
i
Exemption is lower of the three
i.  Actual H.R.A received or
ii. Rent paid – 10% of the salary
iii.50% of the Salary if place of stay is
Mumbai, Delhi, Calcutta, Madras and
40% for any other place.
Medical treatment reimbursement upto
iv
Rs.15,000 is exempt
v Travelling allowance between home
and office
Rs.1,600 p.m. for all normal individuals
Rs.3,200 p.m. for blind or handicapped.
Gratuity. Pension, Leave encashment
vi
from Non Govt Employee- refer notes

05) Perquisites: - Casuals emoluments/ benefits attached to an office/ Place of work.

Perquisites are extra benefits received buy an employee.
Unlike allowance, perquisites are received in kind

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Tax Treatment of Perquisites:- Perquisites are in kind, first converted into cash equivalent and included in the
salary (inner column). Exempted portion is deducted from it, balance taxable.
PERQUISITS
A Fully Exempt (Non Taxable)
Cost of medical treatment of employee or
i any of his family in a hospital maintained by
the employer
Reimbursement of medical treatment of
ii employee or any of his family in a hospital
maintained by the Govt or local authority
Any sum paid by an employer Or
(Reimbursement by employer to
employee)directly to the hospital, approved
iii
by the Chief Commissioner of Income Tax,
for medical treatment of employee or
member of his family.
Reimbursement of medical expenses upto
iv Rs.15,000 incurred by employee on medical
treatment of himself or his family member
Premium on employee health insurance
v under any scheme approved by the central
Govt.
Premium on medi-claim on health of
vi employee or any member of family for the
purpose of Section 80D
vii Expenditure incurred by employer on
a) Medical treatment of employee or any
member of his family out side India
b) Travel or stay abroad for medical
treatment purpose
c) travel or stay abroad of one attendant who
accompanies the patient in connection of
such treatment
d) Expenditure incurred by employer on
medical in foreign is exempt only to the
extent permitted by RBI
e) Expenditure on travel shall be exempt only
if Gross Total Income of such employee does
not exceed Rs.2 Lakhs in the P.Y.
vii
Allowance to Judge of High Court
i
B Fully Taxable
Gas, Electricity or Water supply provided
i
free of cost
Free education facilities for family
ii
members of employee
Free domestic servants such as Sweeper,
iii
Watchman, Gardner, Cook, etc.
Rent free accommodation or concessional
iv
rent charge by the employer
Vacation at holiday homes or holiday trips
v
at the cost of employer
Income tax due on salary paid by
vi
employer
vi Use of motor car with or without a driver
vi
Any obligation of the employee
i
discharged by the employees.
C Partly Exempt-Partly Taxable
i Interest Free / Concessional interest loan:
If, the employee takes loan from employer,
the loan amount is a liability, repayable,
cannot be treated as income.
However, the interest on such loan, if not
charged by the Employer, will be
considered as income for employee
such interest is at concessional rate, then
the concession in the interest is income.
The Act has given following rates of
interest:-
a.       If loan amount is less than Rs.20,000:-
Interest NIL.
b.       If loan is taken for car or House :-
Interest 10%
c. For other purpose :- Interest rate 13%
18 | P a g e
 Allowance to employees of United Nation
ix
Org.(UNO)
x Recreation provided to employee as a group
xi Expenses on training of employees
Goods manufactured by employer sold to
xii
employee at concessional rate.
xii Free Lunch or dinner or refreshments by
i employer
xi Conveyance facility between residence to
v office

xv Goods sold by employer to employees at

concessional rate

06) Retirement Benefits:- At the time of retirement, an outgoing employee receive the following:-
a) Salary & arrear of salary :- Taxable
b) Provident Fund:- (Already discussed) c) Leave Encashment
d) Gratuity f) Pension

C. Leave Encashment: - It is the amount received converting unavailed leave into cash. Leave encashment
means, receiving cash equivalent to salary for unutilized part of leave.

Tax treatment:-

Tax Treatment of Leave Encashment

Leave Encashment Leave Encashment

received before received at the
retirement time of retirement

Fully Taxable for For Govt For Non Govt Employees

all Employees Employees
(Govt and Non
Govt)
Fully
Exemption is lower of the
Exempt
three:

a) Actual Amount Received

b) Rs. 3,00,000
19 | P a g e
c) Salary of Last 10 months
D. Gratuity: -
It is the extra amount received by an outgoing employee, over & above his dues.
 Gratuity is a kind of gift given by employer.
 Gratuity is extra payment made by employer out of Gratitude /Respect.

Tax Treatment:-
Gratuity is a part of salary, 1st included in the inner column and to the extent exempt deducted, balance taxable.
 For government employees – entire amount of gratuity received - exempt.
 For private employees – the following provisions apply.
When Gratuity Act Applies Where Gratuity Act does not Apply
Amount exempt lower of 3 Amount exempt lower of 3
1. Actual amount received 1. Actual amount received
OR OR
2. Rs.10,00,000 2. Rs.10,00,000
OR OR
3.Salary x 15/26 x Completed yrs of service 3.Salary x 1/2 x Completed yrs of service

i. Salary means Basic + D.A i. Salary means Basic + D.A + Commission

ii. Salary means last drawn salary ii. Salary means average salary for last 10months.
iii. Completed yrs means rounded off iii. Completed yrs means only completed yrs

E. Pension (Amount Received post retirement)

Uncommuted Commuted Pension

Pension

Lump sum amount received

Monthly payment
instead of monthly payment
received

Taxable for all

For Govt For Non Govt
Eomployees (Govt
Employess Employess
and non Govt
Employees)
Fully Exempt a) If gratuity received –
1/3 exempt
b) If gratuity not
received – ½ exempt 20 | P a g e
07) Deductions from Salary (sec.16):- Deduction means concession & rebate from Taxable salary. Deduction reduces
taxable salary, in turn reduce Tax.
Deductions are Kind of gift, received from Government. Deductions are of two types:-
a. From individual head (Salary , House Property etc)
b. From gross Total Income.
However, for one thing, there cannot be two deductions.

Deductions from Salary:-Section 16

i. Standard Deduction - Lump-sum Rs.50,000
i. Entertainment Allowance: - To whom allowed- Only Government employees.
Amount of deduction:-
Lower of the three;
a. Actual amount received; or
b. 1/5 of the basic salary; or
c. Rs.5000
ii. Professional Tax: - To whom allowed- All employees.
Amount of Deduction:-
Actual amount paid.
However, this deduction is only allowed;
a. Provided paid.(Not outstanding)
b. Borne by employee.(It should be paid & borne by employee)

Problems on Income From Salary

Q.1) Mr. Vafadar, an employee of Bahar Ltd. Submits the following details in respect of previous year.
1) He is entitled to salary @ Rs.5,000 per month due on the last day of each month
2) He has received salary for April in Advance in March Current year.
3) He has received arrears of salary amounting to Rs.10,000 in respect of 2016-2017 in October.
Compute the amount of Salary subject to tax during the relevant previous year.

Name of The Assessee : Mr.Vafadar

Previous Year - 2019-20

Assessment Year - 2020-21

21 | P a g e
 Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF INCOME FROM SALARY

PARTIULARS Rs. Rs.

Basic Salary (5,000 X 12 Months) 60,000

Advance Salary (Salary for Apr-2020) 5,000

Arrears of Slary Received in Oct-2019 10,000

GROSS SALARY 75,000

i. Standard Deduction 50,000

ii. Entertainment Allowance N.A.

iii. Professional Tax N.A. 50,000

Net Taxable Salary 25,000

Q.2) Ashok joined a service on 1 st of August.2014 in the grade of Rs.3,700 – 125 – 4,700 – 150 – 5,300 and his salary
was fixed at Rs.4,575 from the date of joining. Compute his basic salary for the Assessment year 2020-21.

Q.3) Miss Madhuri is working for Jet Airways. She earns the following:
1. Basic Salary Rs. 50.000
2. D.A. in terms Rs.18,000
3. Fixed Commission Rs.12,000
4. Commission at 1% on turnover of Rs.5,00,000
5. Employee’s contribution to R.P.F. Rs.12,000
6. Employer’s contribution to R.P.F. Rs.12,000

22 | P a g e
7. Interest on R.P.F. to 13% p.a. Rs.3,900.
Can Miss Madhuri claim the full amount contributed to the Provident Fund and Interest received on P.F. as fully
exempted?

Name of The Assessee : Ms.Madhuri

Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR
Legal Status - Individual

COMPUTATION OF INCOME FROM SALARY

PARTIULARS Rs. Rs.
i Basic Salary 50,000
ii Dearnes Allowance Interms 18,000
iii Fixed Commission 12,000
iv Variable Commission (5,00,000 X 1%) 5,000
v Employees Contribution to RPF - Fully Exampt
vi Employer's Contribution to RPF -
Received - 12,000
Less Exempt (50000+18000+12000+5000) X 12% 10,200 1,800
vii Interest on RPF 13% 3,900
Less Exempt up to 9.5% 2,850 1,050

GROSS SALARY 87,850

i. Standard Deduction 50,000
ii. Entertainment Allowance N.A.
iii. Professional Tax N.A. 50,000
Net Taxable Salary 37,850

Q.4) Compute the taxable salary of Mr.Ranjit, a resident Indian citizen, for the Assessment Year 2020-21, using the
following information:
a) Basic Salary of Rs.13,000 per month.
b) Dearness Allowance of Rs.3,000 p.m.
c) Rent-Free furnished house provided by employer (Taxable value – Rs.30,000)
d) Bonus Rs.15,000
e) Salary for 3 months taken in advance on 31-3-2020. Rs. 39,000
f) Education allowance received for 3 children @ Rs.40 p.m.(Exempt under Rules @ Rs.100 p.m. each for
only 2 children)

23 | P a g e
g) Professional tax paid Rs.2,500

Name of The Assessee : Mr. Ranjit

Previous Year - 2019-20
Assessment Year - 2020-21
Residential Status - R&OR
Legal Status - Individual

COMPUTATION OF INCOME FROM SALARY

PARTIULARS Rs. Rs. Note
i Basic Salary (13,000 X 12) 1,56,000 i Bonus is assumed Received
ii Dearnes Allowance (3,000 X 12) 36,000 ii DA is forming part of salary
iii Taxable Value of Rent Free House 30,000
iv Bonus 15,000
v Advance Salary for 3 Months 39,000
vi Education Allowance for 3 Children
Received - Rs.40 X 12 M X 3 Children 1,440
Less Exempt - Rs.40 X 12 M X 2 Children 960 480

GROSS SALARY 2,76,480

i. Standard Deduction 50,000
ii. Entertainment Allowance N.A.
iii. Professional Tax 2,500 - 52,500
Net Taxable Salary 2,23,980

Q.5) For the current assessment year Vrinda furnishes the following information about her income:
i Net Salary (after deducting Income Tax/ Vrindas contribution to a 24,000
Recognised Provident Fund & Professional Tax)
ii Income Tax deducted at source 4,000
iii Vrindas Contribution to P.F. 4,000
iv Professional Tax 500
v Employer's Contribution to P.F. 4,900
vi Interest on P.F. @10% 4,000
vii Passage money for journey to his native place 3,000
Assuming that Vrindas has no other source of income, compute his total income.

Name of The Assessee : Vrinda

24 | P a g e
 Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF INCOME FROM SALARY

PARTIULARS Rs. Rs. Note

i Gross Basic Salary

The total Deduction U/S 16 can
Net Salary 24,000 i
not be more than Gross Salary
Add: Income Tax Deducted at source 4,000

Add: Vrinda's Contribution to PF 4,000

Add: Professional Tax 500 32,500

ii Employer's Contribution to PF 4,900

Less: Exempt - 32500 X 12% -3,900 1,000

iii Interest on RPF 10% 4,000

Less Exempt 9.5% -3,800 200

iv Passage money for Journey to native place 3,000

GROSS SALARY 36,700

i. Standard Deduction (50,000) 50,000

ii. Entertainment Allowance N.A.

iii. Professional Tax 500 36,700

Net Taxable Salary 0

Q.6) For the previous year ended 31st March, Alpa submits the following particulars of her income:
a) Basic Salary @ Rs.10,000 per month
b) Dearness Allowance, @ Rs.4,000 per month (Forming part of salary)

25 | P a g e
 c) Entertainment allowance, @rs.2,000 per month (Actual amount spent on entertainment is Rs.6,000)
d) Educational & Hostel Expenditure allowance for her three children @Rs.400 and Rs.600 per child per month
respectively.
e) Her contribution to a Recognised Provident Fund Rs.20,000 ( not an income)
f) Her employers contribution to the same Rs.25,000
g) She has been given a 16 H.P. car without driver which she uses for both official and private work. Value of
perquisite is Rs.10,000
h) Professional tax paid by her Rs.2,000
Assuming that she has no other source of income, compute her salary income for the current assessment year.

Q.7) X, is a lecturer in a college at Mumbai. The details of his salary and other expenses for the previous year are as
follows:
a. Basic Salary 40,000
b. Dearness Allowance(Forming Part of Salary) 7,000
c. City Compensatory Allowance 3,000
d. Education Allowance for his son
(Exempt under rules, @ Rs.100 p.m. for two children) 4,000
e. House Rent Allowance 6,200
Rent Paid 7,100
(Exempt u/s 10(13A) 2,400
f. Remuneration from Mumbai University for acting as an examiner Rs.3,000 and Remuneration from Delhi
University for acting as a paper setter Rs.5,000.
g. Allowance for looking after the evening shift of the college Rs.500. p.m.
h. He incurred an expenditure of Rs.1,000 for attending a seminar at Nagpur. Expenditure was reimbursed by the
college.
i. During the year he spent Rs.3,000 on purchase of books for teaching purposes.
j. Professional Tax was Rs.1,600
Determine the taxable salary of Mr.X for the assessment year.

Q.8) Mr. Penpusher retired from Government Srvice on 30-6-2018. From 1-11-2019 he joined as Superintendent of a
Nursing Home. He furnishes the following particulars for the Previous year ending 31 st March 2020. Compute his
taxable salary for the assessment year 2020-21.
Particulars Rs.
Basic Salary & D.A. upto 30-9-2018 60,000
Entertainment Allowance from Government upto 30-9-2018 5,000
Pension p.m. from 1-10-2018 @ Rs.1,500 9,000
Leave salary in respect of earned leave to his credit 13,500
Gratuity 1,10,000
Provident Fund 1,50,000
26 | P a g e
 Computed Pension 32,000
Salary from Nursing Home 30,000

Q.9) Mr. Abbas Ali Baig was the General Manager of P Ltd. He retired on December 31,2020 after thirty years of
service. Following information is available:
1) Salary Rs.5,000 p.m. upto December 31,2020. House Rent Allowance Rs.2,000 p.m. upto December 31,2020. He
resides in his own house.
2) Mr. Baig and his family went to his home town and the expenses of Rs.5,600 being the cost of first class rail ticket
were reimbursed by the employer. This is as per the prescribed conditions.
3) Mr. Baig contributes 20 percent regular and 10 percent additional voluntary contribution, to Recognised Provident
Fund and the company matches his regular contribution.
4) He received Rs.75,000 as Gratuity. He is not covered under the payment of Gratuity Act. His salary for the
calendar year ending December 31, 2018, 2019, 2020 was as follows
 Year ending December 31, 2018 Rs.36,000
 Year ending December 31. 2019 Rs.42,000
 Year ending December 31, 20120 Rs.60,000
5) He received Rs. 50,000 for encashment of leave, being 10 months leave not availed of.
6) Professional Tax is Rs.600.

Q.10) Mr.C who is currently employed with JSM Ltd. Furnishes you with the following information:
1) The details of monthly salary for the year ended are as under: Rs.
Basic salary per month 5,000
Dearness Allowance per month
From 1-4 to 30-09 25% of Basic
From 1-10 to 31-3 32% of Basic
Professional Tax deducted per month 120
2) Taxable Conveyance allowance 3,500
3) Bonus @ 20% on Basic Plus Dearness Allowance
4) Mediclaim premium paid by employer on behalf of Mr.C 2,800
Compute his taxable salary for the assessment year.

Q.11) Mr. Dutta is employed with Cybertech Ltd. He provides the following information for the assessment year.
1) Net salary per month Rs.9,000
2) Income Tax deducted at source Rs.900 per month
3) Professional Tax deducted at source Rs.100 per month.
4) He has been employed since 1 st April 1984 and received entertainment allowance of Rs.750 per month, since
that date.
5) Perquisite value of Water, Gas and Electricity Rs. 10,000
6) Received Bonus during the year in respect of earlier year Rs. 6,000.

27 | P a g e
 7) Received arrears of salary for 2008-09 Rs. 6000
8) The employer paid LIC premium of Mr. Dutta amounting to Rs.5,000
9) Took advance salary of Rs.10,000 on account of marriage of his son and loan of Rs.6,000
10) Mr. Dutta, who is also a director in the company received Rs. 2,000 as directors sitting fees during the year.
11) Mediclaim premium paid by the company Rs.2,500
12) He incurred the expenses incidental to employment, such as purchase of books, car expenses etc. amounting to
Rs.12,000
13) He received Rs.16,000 as salary from M/S Reema perfumes ( a partnership firm) where he is a partner.
14) He also received an amount of Rs.8,000 for his work as an agent for the life insurance Corporation on India as
commission and travelling allowance.
Compute his taxable salary for the assessment year.

Q.12) Mr. Krishnakant Pandurang Waghmare is an employee of Q Ltd. at Bangalore. He gives you the following
information for the current previous year.
i. Basic salary Rs.6,000 per month
ii. D.A. Rs.1,000 per month (Rs.100 per month enters into retirement benefits)
iii. Family Allowance Rs.300 per month
iv. City Compensatory allowance Rs.500 per month
v. Education Allowance for two children at Rs.250 per month per child
vi. Perquisite value of company’s own accommodation given to him Rs.8,000
vii. Company has provided a free telephone at his residence by meeting the expenses, Rs.5,000 per annum.
viii. He is allowed to use one motor car of 16 H.P. only for all official purpose. Running and maintenance cost was
Rs. 5,000 paid by the company.
ix. Reimbursement of medical expenses incurred for his and his wife’s treatment abroad Rs.70,000 and their
travelling and stay expenses Rs.50,000
x. The company has paid his income tax Rs. 3,000 during the previous year.
xi. Conveyance allowance of Rs. 5,000 per annum for visiting branches.
xii. Provisions of the following domestic servants who are employed by the company:
 Watchman Rs. 100 per month
 Sweeper Rs. 200 per month
 Gardner Rs. 300 per month
 Cook Rs. 400 per month
xiii. Company has contributed to his Recognised Provident Fund account 12% of basic salary and has credited Rs.
7,000 as interest at 14% per annum. Compute the salary income.

PRACTICE PROBLEM

28 | P a g e
Q.1 (GRATUITY): Shri Hrithik was employed since 1 st January,1995 in KNPH ltd. during the current previous year 2019-
20,his salary was ; Rs.15,200 p.m. between April & June & Rs 15,600 p.m. thereafter. He got 15% of his salary as
dearness allowance which is treated as salary for computation of retirement benefits. He retired from service on 1 st
February, 2020. He received Ds 3,40,000 as gratuity from his employer. Calculate the exempt amount of gratuity for
the assessment year 2020-21. If:
1) Payment of gratuity Act, 1972 applies.
2) Payment of gratuity Act, 1972 does not applies.

Sol)

MONTH SALARY DA (15%) TOTAL

APR 15200 2280 17480

MAY 15200 2280 17480

JUN 15200 2280 17480

JUL 15600 2340 17940

AUG 15600 2340 17940

SEP 15600 2340 17940

OCT 15600 2340 17940

NOV 15600 2340 17940

DEC 15600 2340 17940

JAN 15600 2340 17940

Total 10Month's Salary 178020

Average Salary 17802

Gratuity Act Applies Gratuity Act Not Applies

Particulars Rs. Rs. Particulars Rs. Rs.
Grauity Received 3,40,000Grauity Received 3,40,000
Less: Exempt Less: Exempt
1) Actual Amt Received 3,40,000 1) Actual Amt Received 3,40,000
2) Rs.Lumpsum 20,00,000 2) Rs.Lumpsum 20,00,000
3) 17940 X (15/26) X 25 2,58,750 - 2,58,750 3) 17802 X (1/2) X 25 2,22,525 - 2,22,525
Taxable Grauity 81,250Taxable Grauity 1,17,475

29 | P a g e
Q.2 (Gratuity): Ashok an employee of KBC Ltd. receives Rs.2,05,000 as gratuity under the payment of gratuity Act 1972.
He had joined on 10th January 1983 he retries on September 2019 after rendering service for 35 years and 7 months.
The last drawn salary was Rs.2,700 p.m. calculate the amount of gratuity chargeable to tax.

Q.3 {Commutation of pension with no gratuity}: A is entitled to get a pension of Rs 800 per month from a private
company. He gets two fifth of the pension commuted and receives Rs.40,000. Compute the taxable portion of the
commuted value, if he does not receives any gratuity.
Name of The Assessee :           A
Previous Year -2019-20
Assessment Year -2020-21
Residential Status -R&OR
Legal Status -Individual

COMPUTATION OF TAXABLE SALARY (PENSION)
PARTIULARS Rs. Rs.
i Uncommuted (Monthly Pension) 480 X 12 5,760

ii Uncommuted (Lumpsum) - 40,000
Less: Half Exempt - 20,000 20,000

Taxable Pension 25,760

Q.4.(Commutation of pension with gratuity): x retires from services of PQR {P} ltd. On 31 st march, 2020.PQR {p} Ltd.
Pays Rs.900 per month as pension but does not pay any gratuity. On the request of X, PQR (P) Ltd. Pays Rs 13,000 in
lieu of commutation of 30% of pension with effect from 1 st February, 2016.determine the amount of gross taxable
pension for the assessment year 2020-21 on the assumption that pension becomes due on the last day of the month.

Q.5.(Commutation of pension, with gratuity):A joined a company on 1-7-2003 and resigned from the service on 15-9-
2019.his salary was Rs 16,500 per month on since 1-7-2013.he received an increment of Rs 500 per month w.e.f 1-7-
2019. He was also entitled to dearness allowance @50%, which forms part of salary for retirement benefits. On
retirement, he received a gratuity of Rs 2,40,000{payment of gratuity act is not applicable}.he was entitled to a
pension of Rs 8,000 per month

Q.6. (Leave encashment): An employee of ABC Ltd. retired from service w.e.f. 1.01.2020 after serving for 16 years and 7
months. At the time of retirement he received a sum of Rs. 50,000 as leave encashment for unavailed leave of 300
days. He was entitled to 40 days leave for each year of completed service. He was getting a salary of Rs. 5,000 per
month at the time of the retirement. He received increment of Rs 500 w.e.f. 1.07.2019. Compute the amount of
leave encashment exempt from tax.

Q.7. (Leave Encashment): Determine the amount of taxable leave salary for the assessment year 2020-2021 from the
following information in respect of an employee who retired from a private service on 31.12.2019.
1. Salary at the time of retirement: Rs.25, 000 p.m.

30 | P a g e
 2. Average salary received from 1.04.2019 to 30.09.2019: Rs.24,000 p.m.
3. Average salary received from 1.10.2019 to 31.12.2019: Rs.25,000 p.m.
4. Duration of service : 26 years
5. Leave entitlement for each year of service: 1 1/2 months.
6. Leave availed while in service: 8 months.
7. Leave at the credit of employee at the time of retirement: 31 months.
8. Leave salary paid at the time of retirement: Rs.7,75,000.

Q.8.(Gratuity, Pension and Leave encashment): A was employed with XYZ Ltd. He retired w.e.f. 1.02.2020 after
completing a service of 24 years and 4 months. He submits the following information:
 Basic salary Rs.10, 000 per month [at the time of retirement]
 Dearness allowance 120% of basic salary [40% of basic salary forms part of salary of retirement benefits].
 Last increment Rs.1, 000 w.e.f. 1.07.2019
His pension was determined at Rs.6, 000 per month. He got 50% of the pension commuted w.e.f. 1.03. 2020 and
received a sum of Rs.2, 00,000 as commuted pension. In addition to this, he received a gratuity of Rs.2,40,000 and
leave encashment amounting to Rs.1,12,000 on account of accumulated leave of 240 days. He was entitled to 40
days leave for every year of service. Compute his gross salary for assessment year 2017-2018 assuming that he is not
covered under Payment of Gratuity Act.

Q.9. (Gratuity, Pension and Leave encashment): Shri Sirjee was employed in kashti Ltd. He retired on 1 st January, 2020
after completing a service of 26 years and 5 months. He had been getting a salary of Rs.23, 000 per month and a
dearness allowance of Rs.2, 000 per month (forming part of retirement benefits) for the last four years. His pension
was determined @ Rs 9,000 per month and ¾ portion of it was commuted of 30 days earned leave for each year of
service, he also received Rs.3,00,000 for encashment of earned leave of 12 months during the previous year.
Compute gross income from salaries of Shri Sirjee for the assessment year 2020-2021 assuming he is not covered
under payment of gratuity Act.

Q.10. Mrs.Arora is a lecturer in Swami Vivekanand College, Pune. She furnishes you the following details:
1) Monthly salary Rs.3, 600.
2) House rent allowance Rs.450.p.m. (of which Rs.200 p.m. is exempt)
3) Allowance for looking after the evening shift of the college Rs.500.p.m
4) Examinership fees from Pune University Rs.2,000 and from Baroda University Rs.1, 200.
5) Expenditure on books for her Rs.3, 700.
6) Professional tax deducted at source Rs.600.
7) Expenditure on attending a seminar at Goa Rs.1, 750 was re-imbursed by college.
You are required to compute income from salaries of Mrs. Arora for assessment year.

Q.11. Compute the income of Mr. Kumar under the head salaries for the year ended 31.03.2020.
1) Salaries received during the year Rs.60,000.
2) Travelling allowance Rs.4,500. Expenses for travel on official duty Rs.2, 000.
31 | P a g e
 3) Received D.A. arrears for last three years on February 15, 2020 Rs.6, 500.
4) Mr.Kumar received an entertainment allowance amounting to Rs.15, 000 for entertaining the customers on
behalf of the company. Out of this sum he has spent Rs.11,500 only.
5) Received bonus during the year equivalent to two months basic salary.
6) He has incurred following expenses during the year.
(a) Professional tax paid Rs.600
(b) Books required for employment purposes purchased worth Rs.3,200.

Q.12. (Grade System) Mr. Rane a resident in India, furnishes the following particulars of his income for the year ended
march 31, 2020.
1) He joined the service on 1st July 2016 in the grade of 6,000 - 2,000 – 12,000.
2) City compensatory allowance Rs.50,000.
3) Residential house made available to him free of rent. This perquisite is valued at 10% of the basic salary.
4) Life insurance premium of Rs.2, 000 was paid by his employer.
5) Reimbursement of medical bills Rs.15,000.
6) Professional tax paid by him Rs.2500.
Compute his net taxable salary for the assessment year 2020-2021.

Q.13. Mr. Pital a resident individual gives the following particulars of his income earned during the year ending 31 st
march 2020.
1. Net salary received Rs.89,000
2. Deduction for contribution to recognised fund Rs.10,000
3. Tax deduction at source @ 10% of salary
4. Taxable conveyance allowance Rs. 2,000
5. Education Allowance for two children’s at Rs.130 p.m. each
(Exempt under rules @ Rs.100 p.m. each)
6. Employer’s contribution to statutory provident fund Rs.15, 000. interest credited to the PF is Rs.16,250
Compute his income under the head salaries for the assessment year 2020-2021.

Q.14. Mr.Narendra is working as Planning and Development Engineer with Sri Ram Agencies during the year he
received.
1. Salary Rs.60,000
2. Bonus Rs.4,500
3. Commission on value of project undertaken Rs.11,000
4. Tour allowance received Rs.10,300 spent Rs.4,300
5. Transport allowance (for travel between residence and office) received Rs.10900 amount exempt U/S 10,
@Rs.800p.m.
6. Other taxable allowance Rs.18,000
Compute his income from salary for A.Y.2020-21.

32 | P a g e
Q.15) Textile Company. He furnishes you the following information for the assessment year 2020-21 and asks you to
compute his income taxable under “Salaries” for that period.
1. Salary @ Rs 50, 000 p.m.
2. Bonus equal to 1 month salary was paid
3. Uniform Allowance of Rs.1,700 was received from the company of which Rs.1,500 was actually spent
4. Personal expenses of Rs 750 were paid by the company.
5. Mr. Pathak took the salary for April 2020 in advance on March 21, 2020.
6. The following expenses on the medical treatment of his major son in the U.A.S. were paid by his employer-
(a) Actual medical expenses Rest 2,50,000 (permitted by the reserve bank of India Rs.2,20,000)
(b) Stay in the USA of his son and one attendant Rs 75,000 each (allowed by RBI Rs 55,000 each)
(c) Travelling for his son and the attendant Rs 1, 50,000 each.

Q.16 Mr Vinayak is working as a chief personnel officer in the bank of Kashmir. The following are the particular of his
income for the year ending March 31, 2020.
1. Basic salary Rs 5,500 p.m.
2. Dearness allowance Rs 1,000 p.m.
3. Special Executive Allowance Rs 500 p.m.
4. Taxable conveyance allowance Rs 5,200
5. He received two month’s basic salary as bonus.
6. He receives Rs 750 p.m.as entertainment allowance of which he spends Rs 5,000 p.m. on an average for office
purposes only.
7. During the year he received Rs 4,800 as Leave Travel Allowance to go to Mysore with his family. He incurred Rs
4,200 expenses on his tour
8. He spent Rs 2,000 on purchase of law books which are necessary for his job.
9. Employer deducted profession tax Rs 600 for the year
You are required to compute taxable income for salaries of Mr.Vinayak for the assessment year 2020-21.

Q.17 {RNQR}:Mr.Sunil a Resident but not ordinary resident individual.is employed by an Indian company. For the
previous year 2019-20 he submits the following information.
1. Salary of 5 month of service in U.S.A.Rs 1, 50,000.
2. Salary of 7 month of service in Mumbai Rs 21,000
3. Bonus for the year 2019, Rs. 10,000
4. Taxable car allowance at Mumbai Rs. 4,000.
5. Car allowance in USA @ Rs 15,000 p.m.
6. Employer provided a rent –free furnished flat at U.S.A perquisite value U.S.A flat is Rs 10,000 taxable value of
house rent allowance paid during service at Mumbai is Rs 8,500.
7. He received an award of Rs 10,000 from Employer Company in U.S.A for excellent work done there.
Determine his taxable service for the A.Y. 2020-21.

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Q.18. (Retiring Govt. Employee): Mr.Dasgupta was a government employee he retired on October 1 st, 2019 and joined
a PVT. Company from the date. He provides you the following information for the year ended 31 st march, 2020.
1. Basic salary from government Rs.3, 200 p.m.
2. Dearness allowance Rs 800 p.m.
3. House rent allowance Rs 7,500 (exempt u/s 10(13A) Rs.4, 800.
4. Leave salary in respect of earned leave at his credit at the time of retirement Rs.13, 500.
5. He received Rs.33, 000 – the value of commuted pension on January 15, 2020.
6. Pension per month from October 2019, Rs 2200.
7. Gratuity received on retirement Rs 95000
8. Provident fund received on retirement Rs 1,10,000
9. Salary from private company which he joined immediate after retirement Rs 3000 p.m. (all inclusive)
10. He received arrears of salary from government on march 30,2020, Rs 4600
Compute his taxable income under the head salaries for the assessment year 2020-21.

Q.19. (Retiring Rly. Employee): Mr.Prabhakar was working as senior Foreman in Central Railway. He retired on 31 st
August, 2018. Following are the particulars of his income relating to the year ending March 31, 2020.
1. Salary received Rs.20, 000 p.m.
2. Arrears of salary received Rs.37, 000 on April 2, 2019.
3. During September 2019, he received gratuity Rs.2, 50,000.
4. He received Rs.2, 40,000 as commuted value of pension on October 25, 2019. In addition to that he will also get
Rs.8, 000 p.m. from September, 2019 as uncommuted pension from Railways.
5. He incurred the expenses incidental to employment Rs.1, 500.
6. He was re-imbursed Rs 35,000 being the medical expenses incurred by him on the medical treatment of his son
in a Government hospital.
You are required to compute his taxable income for the assessment year 2020-2021.

Q.20. (Retirement & Re-employment): Mr.Robin Singh was working with BCCI Ltd. till august 31, 2019. During this
period he received.
1) Salary @ Rs.20, 000 p.m.
2) Rs.3,08,000 from an unrecognised provident fund on the termination of services made up of
i) Employee’s contribution Rs.1, 60,000.
ii) Interest on employee’s contribution Rs.16, 000.
iii) Employer’s contribution Rs.1, 20,000.
iv) Interest on employer’s contribution Rs.15, 000.
3) Re-imbursement of air-fare for himself and his wife for going to his Madras after retirement on 5 th September,
2018, Rs.20, 000 each.
On October 1, 2018, he was absorbed by MCC Ltd. on the following terms and conditions.
1) Remuneration of Rs.25, 000 p.m. with a promise to increase it by Rs.2, 500 p.a.

34 | P a g e
 2) Leave travel concession for going to West Indies for self and Family in March 2020 Rs.1, 15,000.
You are requested to compute his income from salaries for A.Y.2020-2021.

Q.21. (Retirement & Re-employment): M, an individual retired from the services of a company on 31-10-2019. He
joined another employer on 1-11-2019 and was in service till 31-03-2020 when he furnishes the following details:
Amounts received from the first employer
1. Basic salary Rs 2,000 p.m.
2. Dearness allowance Rs 600 p.m.
3. Conveyance allowance Rs.300 p.m.
Amounts received from the second employer
1. Basic salary Rs.2, 500 p.m.
2. Fixed conveyance allowance Rs.500 p.m.
M received Rs 1,250 from his second employer against encashment of 15 days earned leave to his credit during his
service. After retirement from the first employer, M received Rs.45, 000 from the Regional Provident Fund
Commissioner. It is found that the entire conveyance allowance received by him from his employers had been fully
spent on travel for official purpose. One insurance policy matured during the year and M received Rs.80,000.
Compute the amount taxable income for the assessment year 2020-2021.

Q.22. (Retiring Private Employee): Sandeep from Ahsas Ltd. Pune on October 31, 2019 after service of 18 years and 8
months. At the time of retirement his employers pays a gratuity of Rs.60,000. His average monthly salary of
preceding 10 months is Rs.4,200. He also receives pension of Rs.1,000 per month but on December 1, 2019, he
gets 70% of his pension commuted for Rs.35, 000. In addition, he received the following monthly emoluments
from Ahsas Ltd. Basic pay (Rs.4,600), House Rent Allowance Rs.600 (rent paid Rs.850 p.m.; exempt as per rules is
equal to excess of rent paid over 10% of salary), Entertainment allowance (Rs.600 p.m.; upto march 31, 2000 it
was Rs1, 200 per year), repayment from recognised provident fund (contribution of employer: 10% of salary).
Determine the taxable amount of salary of Sandeep for the assessment year 2020-2021.

Q.23. (Retiring Private Employee – Comprehensive): Mr. Arun was a manager in a factory in Mumbai. He got Rs14,000
p.m. basic pay Rs 1,400 per month as dearness allowance (not counted for retirement benefits) and Rs.2,500
p.m. as house rent allowance. He resides in his own house. He got Rs.40,000 as re-imbursement for expenses on
official tour and medical allowance of Rs.80,000. He retired on 1 st January, 2020 and got Rs.1, 40,000 as gratuity
and Rs.1,50,000 as accumulated balance in his Unrecognised Provident Fund. His own contribution and that of
the factory to this fund was equal. He also received Rs.2,60,000 being the amount of salary for 20 months earned
leave to his credit at the time of retirement. Leave accrued at 40 days per year of actual service. He was granted
a pension of Rs. 4,000 per month, three-fourth of which was commuted for Rs.1,20,000. He commenced service
of the factory on 1st august, 1984 and his average salary during the ten months immediately preceding his
retirement was Rs.13,000. Compute the taxable income from salary of Mr. Arun for the assessment year 2020-
2021.

35 | P a g e
 CHAPTER - 5
Income from House Property
[Sec.22 to 27]

House Property: - The term House Property has not been defined in the Act: It is to be understood from general &
common understanding and various court decisions.

House Property
A. Only a plain land cannot be considered as H.P
B. H.P must have minimum four walls. (including mud walls)
C. H.P must have a roof.
D. H.P includes- House and its Surrounding areas. E.g. Swimming pool, Parking Space, Lawn, garden and
Servant Quarter attached to House Property.

Income from House Property: Income from House Property is the compensation received for allowing other
person to use House Property .i.e. Rent.
Only rent income is taxed as income from House Property
Following incomes from House property are not taxed as income from House property:
a. Agricultural Income
b. Profit on sale of House Property.(Capital Gains)

Who is taxed? : - It means the person who will be taxed for House property. In case of House Property, there are two
owners.
A. Legal Owner: - The owner of the property, who’s name appears in municipal records, whose name is registered.
B. Beneficial Owner:- One who holds the property, Physically owns, E.g. Tenets
If the Legal owner receives the rent, it is considered as income from House Property.
If the beneficial Owner/Tenet receives the rent from subletting, it is considered as income from other sources.
What is taxed? : - Income from House Property is taxed. In case of House Property, the income is not real income but
notional income is taxed. In other words, the rent received is not the real taxable income but Gross Annual Value
(G.A.V) is taxable income

Gross Annual Value

36 | P a g e
 When Standard Rent is not Given When Standard Rent Is Given
* *
Actual Rent Received/Receivable * Fair Rent *
* *
Municipal Valuation * Municipal Valuation *
* *
Fair Rent * Higher of above 2 *
* *
GAV - Higher of three * Standard Rent *
*
Lower of above 2 (RLV) *
*
Actual Rent *
*
Higher of above 2 (GAV) *

RLV - Reasonable Lettable Value

a. Actual rent received – It is the amount of rent actually received or receivable. It is real income, OR
b. Municipal Valuation – It is the value of the property as per municipal records. It is ratable value of the property
Municipal taxes are applied on this value, OR
c. Fair Value – It is the reasonable rent. It is the rent received by similar other properties. However, while
comparing rents of two properties, certain adjustments have to be made with respect to location, approach road,
type of construction etc.

Types of Properties: - There are three types of House Property

A. Used for Business & Profession – Shops, Galas, offices and factories etc. All expenses incurred on such property
are charged to business. In other words, this property is not considered here.
B. Self Occupied Property (S.O.P):- Property used for owner’s self residence throughout the year, GAV-Nil.
However, one person can have only one S.O.P. In other words, if a person owns & uses more than one house as
S.O.P, then of his choice one house will be S.O.P and other will be deemed to be let out.
C. Let Out Property: - Property given on lease .i.e. rent is received. The income from such House Property is taxed
here. It is irrelevant whether the let out Property is used by the tenant for Residential or Commercial purpose.

How to compute income from House Property.

Computation of Income from House Property
Particulars Amount Amount
Gross Annual Value +
Less: Municipal Tax -
Net Annual Value X
less: Deduction U/S 24
Standard Deduction 24a +
Interest on Loan 24b - -
Net Taxable income from House Property XX
(1) Gross Annual Value: - Higher of Actual Rant, Municipal Valuation or Fair rent.
(2) Municipal Taxes:
37 | P a g e
 a. To whom allowed:- All let out houses (.i.e. not for S.O.P)
b. Amount of deduction:- Actual Taxes paid (outstanding not allowed)
c. Condition:- Must be borne by the owner himself (If tenant bears, deduction not allowed)
(3) Standard deductions (U/s 24):- Deductions relating to expenses connected with House Property. Deduction for
repairs, Maintenance, Rent collection, Insurance, Accounts writing charges etc. this deduction is for all expenses
connected with House Property.
a. To whom allowed :- All let out properties (.i.e. not for S.O.P)
b. Amount of deduction: - 30% of N.A.V.
c. Condition: - Once this deduction is allowed no specific deduction can be claimed for separate expenses.
(4) Interest on Loan: - Interest on loan taken for purchase, Construction, repairs, renewed of the House Property.
Even loan taken to repay the earlier loan is allowed as deduction.
However, interest paid during construction period is allowed as deduction in five equal installments up to five
years from the Construction
a. To whom allowed: - All Houses i.e. Let out & S.O.P’s.
b. Amount of deduction:-
i. For Let out – Deduction equal to actual interest paid without any maximum limit.
ii. For S.O.P – Maximum amount of deduction is;
Rs. 30,000 p.a – Loan taken prior to 1st April 1999
Rs. 2,00,000 p.a – Loan after 1st April 1999
c. Condition: - The loan amount must be used for construction, repairs & renewals of house & purchase of
House Property only. That House property in other words, the deduction is no allowed if the money has
been used for any other purpose.

Property for Business &

Particulars S.O.P Let Out Property
Profession
Gross Annual Value Not Applicable NIL HIGHER OF 3
a) Actual Rent received
b) Municipal Valuation
c) Fair rent

Considered as Business Deduction From Actual

Municipal Taxes No deduction
and Profession amount paid

Standard Deduction Not Applicable Not Applicable 30% of N.A.V.

Deduction with max

Interest on Loan Business Expenses Deduction Unlimited
limit (30,000/2,00,000)

01) Unrealised rent: - Tenant occupied the place rent has become due, tenant not paid the rent .i.e. Bad debt of rent.

38 | P a g e
 Unrealised rent is considered as a part of G.A.V in the earlier year in which it was due. However, since the rent is
not received a deduction is claimed from income of House4 Property.

Should be added to Net Income from H.P., i.e.

If I.T.
WhenOfficer
such allowed deduction
rent is received, as unrealised
considered as If I.T.
Should
WhenOfficer
notsuch did
rentnot
be shown allowed will
isanywhere,
received, deduction
i.e. will notasbe
not be
after claiming all the deductions (No further Unrealised Rent
rent
income
in earlier
from year
H.P. unrealised
considered
rent in
as earlier
taxed income. year
deduction is available)

02) Arrears of Rent: - (Rent in dispute), where tenant is not acknowledging but land lord is charging. Such arrears of
rent are not considered as income in the years in which they are due. Such arrears of rent are not considered as
income in the year in which actually received. It is therefore, arrears of rent when received, it is added to G.A.V.
and deduction are claimed on it

Special Adjustments:-
1. Vacancy Allowance: - Vacancy is a period during which the House Property reminds vacant. The deduction of
vacancy allowance is based on the principle that no tenant, no income, hence no tax.
Deduction of vacancy allowance is available from G.A.V. While calculation of G.A.V. whether Fair Rent,
Municipal Valuation OR Actual Rent Received, whatever is accepted the deduction of vacancy allowance is
deducted.

2. Unrealised Rent:- It means, tenant occupies the property, rent has become due, but could not be received i.e. Bad
Debt
Deduction of unrealised rent is only allowed provided actual rent received is accepted as G.A.V.
However, vacancy allowance & unrealised rent are calculated at the rate of actual rent.

PROBLEM ON INCOME FROM HOUSE PROPERTY

Q.1. M owns six houses in Mumbai, details of which are as under:
Particulars 1 2 3 4 5 6

Municipal value 20,000 24,000 36,000 42,000 48,000 45,000

Standard rent N.A 24,000 50,000 30,000 N.A 48,000

Fair rent 24,000 24,000 40,000 42,000 50,000 50,000

Actual Rent 18,000 36,000 48,000 36,000 54,000 42,000

Q.2. Mr Gharwala owns 4 houses let to different tenants, details of which are as follows. Determine the Annual Value
of each house.
Particulars 1 2 3 4

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 Municipal value 90,000 90,000 90,000 90,000

Fair Rent (Rent of similar property) 1,40,000 1,10,000 1,10,000 1,40,000

Standard rent under Rent Control Act 1,20,000 1,20,000 1,20,000 1,20,000

Actual Rent per month 12,000 8,000 12,000 12,000

Months Let Out 12 12 11 9

Months Vacant Nil Nil 1 3

Q.3. Municipal valuation of a bungalow, constructed in 2011 is Rs.24, 000 and rent realised is Rs.21,000. Municipal
taxes borne by the owner Mr.Parekh are Rs.4, 000.Cost of repairs is Rs.2,000 and collection charges are Rs.1,000.
Insurance premium on property is Rs.2,000.Ground rent due is Rs.5, 000.Annual charge secured against the
property is Rs.3, 000. Determine the income from house property.

Q.4. Mr X took a loan of Rs. 1, 00,000 @ 15% interest p.a. from H.D.F.C. on 1-04- 2016 for the purpose of the
construction of his house. The house was completed on 23-3-2019. Calculate the deductible amount of interest
from the annual value for the previous year 2017-18 if the house is let out.

Q.5. Mr A had written off Rs. 20,000 as irrecoverable rent. He was allowed, by the Income-tax officer, to deduct Rs.
14,000. He received from his tenant Rs. 16,000 in 2019-2020 out of the above dues. Calculate the amount taxable
u/s 25 A.

Q.6. A tenant paying rent of Rs. 2,000 from 1-4-2017 agrees in March 2020 to revise the rent @ Rs.2,800 right from 1-
4-2017. He pays the arrears for 2008-09 in March 2020 amounting to Rs.7, 200. Discuss the taxability.

Q.7. Mr.Mehra owns a house at Delhi, which is let out. Fair rent of the house is Rs.24, 000 whereas actual rent received
is Rs.30,000. He also received Rs.10,000 from the tenant for charges towards lift, generator and security. He
makes the following expenditure in respect of the house property.
Particulars Rs. Particulars Rs.
Municipal taxes paid by Mehra 4,000 Repairs 2,000
Fire Insurance 2,400 Land Revenue 3,800
Collection Charges 500 Ground rent paid 2,000
Interest on borrowed capital during the previous year 2021-22 is Rs.4,000. Funds borrowed on April 1 2018.
Rs.40,000 @ 10% interest p.a. were used for construction of the house which was completed on March 31, 2022.
Compute the income earned by Mr. Mehra from his let-out house property during the assessment year 2022-23.

Sol.

Name of The Assessee :

Mr.Mehra

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 Previous Year - 2019-
WN - 1
20

Assessment Year - 2020-

Gross Annual Value (GAV) Rs.
21

Residential Status - R&OR Fair Market Value 24,000

Legal Status -
Municipal Value N.A.
Individual

Highr of the 2 24,000

COMPUTATION OF INCOME FROM HOUSE PROPERTY Standard Rent N.A.

PARTIULARS Rs. Rs. Lower of the 2 (RLV) 24,000

Gross Annual Value (GAV) - WN 1 40,000 Actual Rent 40,000

Less: Municipal Tax 4,000 Highr of the 2 (GAV) 40,000

Net Annual Value 36,000

Interest on Loan for

Less: Deduction U/S 24
Construction

i) Standard Deduction U/S 24 a 10,800 YEAR Interest

(30% of NAV) 2016-17 4,000

ii) Interest on Loan for HP US 24

4,000 2017-18 4,000 12,000
b

iii) Interest on Construction for

2,400 17,200 2018-19 4,000
HP

Net Taxable Total Income from HP 18,800 2019-20 12000 / 5 2400

Note: 1) Extra money towards Lif, Generator and Security is considere as Compositrent and included in Actual rent
received, 2) Expenses on Fire Insurance, Cllection Charge, Repairs, Laand Reenue and gound rent can not
be claimed as deduction as Standar duction U/S 24 is available

Q.8. A has residential property, details of which are given below:

Particulars Rs.
Municipal Valuation 1,15,000
Rent Receivable p.m. 10,000

41 | P a g e
 The following expenses were paid by A: (1) Municipal taxes Rs. 10,000. (2) Collection charges Rs. 8,000. (3)
Insurance Rs. 10,000. The house remained vacant for one month during the year. Compute his income from house
property for the assessment year 2022-23.

Q.9. Refer above illustration. Compute A’s income from house property for the assessment year 2022-23, if the
Municipal Valuation of his property is Rs. 1,00,000.

Q.10. Compute the income from House Property from the following particulars in respect of a new property owned by
M which was let out from 1-4-2014 onwards:
Particulars Rs.
Fair Rent 60,000
Actual rent receivable 7,500 p.m.
Rent actually received(for 10 months only due to vacancy period of 2 months) 75,000
Municipal taxes paid (including arrears for earlier year) 14,400
Interest on borrowed paid prior to 1-4-2014 23,000
Collection charges 3,400
Unrealised rent claimed as deduction in earlier year, but received during the year 2019-
20 11,000
Arrears of rent for earlier years received during the year 8,000
Expenditure on repairs to property 3,000
Ground rent paid 4,500
Insurance premium paid, relating to the property 2,200
Expenditure incurred on collecting unrealised rent 3,500

Q.11. M has a residential property, details of which are given below:

Particulars Rs.
Municipal Valuation 1,00,000
Fair Rent p.m. 15,000
Standard Rent p.m. 9,600
Municipal Taxes paid @ 20% of municipal valuation
Interest on loan for purchase of this house 20,000
Rent receivable p.m. 10,000
The house property was vacated by the tenant on the last day of October, 2019. It could then be let out only from
1st January, 2020 at Rs.14 000 p.m. Rent for March 2020 could not be realised (the conditions under the relevant
income-tax rules were satisfied). Compute his income house property for the assessment year 2020-21.

Q.12. X has a house in Mumbai, which was used for his own residence in the previous year 2019-20. Due to his transfer
to Nagpur, he could not occupy his house in the previous year 2019-20. He stays in a rented house in Nagpur.
Following further information is available in connection with Mumbai house.

42 | P a g e
 Particulars Rs.
(1)Reasonable letting value of Mumbai house 36,000
(2)Repairs expenditure 1,000
(3)Interest for above house(loan taken in March, 1999) 30,970
Calculate house property income of Mr X assuming that X has derived no benefit from Mumbai house during the
assessment year 2020-21.

Q.13. Ascertain the deduction for interest on loans taken in respect of a self-occupied property from the following
details
Particulars Rs.
(1)Interest on loan taken before 1-4-1999 for construction 21,000
(2)Interest on loan taken after 1-4-1999 for repairs 11,000
(3)Interest on loan taken after 1-4-1999 for acquisition 94,000

Q.14. Refer above illustration 13. Rework your answer if (1) above is Rs.62,000; (2) above is Nil and (3) above is
Rs.1,23,000.

Q.15. X occupied three houses for his own residential purposes, particulars of which are as follows:
Particulars House-1 House-2 House-3
Standard Rent 18,000 20,000 Not Applicable
Municipal Valuation 11,500 30,000 30,000
Fair Rent 15,000 25,000 35,000
Municipal taxes paid 1,200 2,400 3,600
Repairs 2,000 Nil 4,200
Interest paid on loan taken against
Houses for meeting personal expenses 2,200 2,500 3,000
Compute the income from house property for X, for the assessment year 2020-21. House-1 in his home-town was
vacant throughout the year as he resided in House-3 in Mumbai where he works. House-2 in Vashi was used by
him only for 2 months in summer vacation.

Q.16. Mr Pedro and his 3 sons Congo, Bongo and Chongo are equal Co-owners of a house property consisting of
20(twenty) residential flats. Out of the above one flat each is occupied by Pedro and his sons for own residential
purpose (self-occupied). The balance 16(sixteen) flats are let out at the rent of Rs.2,000 per month per flat.
The reasonable letting value of each flat is Rs.10,000 per annum. The municipal taxes paid for each flat is @ 50% of
the reasonable letting value.
The following expenses were incurred by them during the year ended 31 st March, 2020 in respect of the property.
1) Fire Insurance Premium Rs.12, 000 (for 20 flats)
2) Interest on Money borrowed for Construction of Property Rs.60, 000 (for 20 flats)

43 | P a g e
 Compute the income from house property chargeable in the hands of all the co-owners for the assessment Year
2020-21.

Q.17. Ram owned a house property at Madras which was occupied by him for the purpose of his residence. He was
transferred to Delhi in June 2019 and therefore he let out the property with effect from July 1, 2019 on a monthly
rent of Rs.3, 000. The Municipal tax payable in respect of property @ 25 % of the rateable value was Rs. 6,000 of
which 50% was paid by him before March 31, 2020. Fair rent of the property is Rs. 20,000. Interest on money
borrowed for the construction of the property amounted to Rs. 20,000. Compute the income from house property
for the assessment year 2020-21.

Q.18. Mr.Suneet is the owner of a house property. One-third of the house is used for business and the remaining is let-
out at the rate of Rs. 3,000 per month. The property was vacant for 4 months. Following additional information is
available to you.

Particulars Rs.
(1)Municipal taxes paid 1,500
(2)Interest on funds borrowed for repairs 6,000
(3)Repairs (borne by tenant) 2,000
(4)Municipal rateable value 48,000
Mr.Suneet receives during the year unrealised rent of the previous year i.e. 2015-16 Rs.750.
You are required to ascertain the income chargeable to tax under the head ‘Income from House Property’ of
Mr.Suneet for the assessment year 2020-21.

Q.19. Mr.Kunal is the owner of two house properties. From the following information furnished by him for the year
ending 31st March, 2020, compute his taxable income for the assessment year 2020-21.
Particulars Property No. 1 Property No.2
Nature of Occupancy Self-occupied Let out for business
Annual Rateable Value Rs.20,000 Rs.30,000
Construction Commenced on 1-4-2001 1-4-2000
Construction Completed on 1-4-2002 28-2-2003
Municipal taxes paid for the period 1-4-2019 to31-3-2020 Rs.8,000 Rs.9,600
Insurance Premium paid for the period 1-10-2019 to 30-9-2020
Interest on loan borrowed for construction Rs.2,000 Rs.2,000
Rs.6,000 Rs.6,000

Q.20. B owns a building consisting of three identical units whose construction was completed on March 31, 2019. The
building was occupied from April 1, 2019 onwards. The particulars pertaining to the three units for the year
ended March 31, 2020 are given below:
Particulars Unit 1 Unit 2 Unit 3
Rs. Rs. Rs.
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 Fair Rent 60,000 60,000 60,000
Rent received - 72,000 -
Municipal taxes
-paid 3,000 5,000 3,000
-due but not yet paid 3,000 5,000 3,000
Land revenue due but outstanding 1,200 1,200 1,200
Ground rent due ,not yet paid 2,400 2,400 2,400
Nature of occupation: Unit 1- Self occupied for residence: Unit 2 –Let out for residence: Unit 3- Used for own
business.
On April 1, 2019 he had borrowed a sum of Rs.5, 00,000 bearing interest at 12 percent per annum for
construction of this building. The total cost of the building – Rs.12, 00,000. Compute the income from house
property of B for the assessment year 2020-21.

Q.21. Compute the income from the following houses belonging to Mr. Gharwala:
Particulars/House No. 1 2 3 4 5 6
Nature of occupation Let Let Let Let Let Let
Municipal valuation(after
deducting taxes @ 10% of
gross value) 27,000 27,000 27,000 27,000 27,000 27,000
Actual Rent Per month 3,000 3,750 3,000 3,000 3,000 4,000
Months Let Out 12 10 12 9 12 12
Months’ Rent Received 12 10 12 8 8 8
Whether unrealised rent
allowable NA NA NA No Yes No
Fair Rent 42,000 42,000 42,000 42,000 42,000 42,000
Standard Rent 39,000 39,000 50,000 Not Not Not
applicable applicable applicable
Municipal Taxes @ 5% paid due paid Paid by paid paid
tenant

45 | P a g e
 Practice Problems on Income from House Property

Q.1) The particulars of a residential house of Mr.Mahesh for the year ending 31st March are given below

Particulars Rs.
Municipal Value 7,000
Annual Rent Received 7,200
Fair Market Value 6,500
Municipal Taxes Paid 1,800
Ground Rent 60
Insurance Premium 80
Interest on money borrowed for Purchase of the House 400
Collection Charges Paid 300
Land Revenue Charges 400
Compute Income from House Property.

Sol.

Name of The Assessee : Mr.Mahesh

Previous Year - 2019-20
Assessment Year - 2020-21
Residential Status - R&OR
Legal Status - Individual

COMPUTATION OF INCOME FROM HOUSE PROPERTY

PARTIULARS Rs. Rs. WN - 1
Gross Annual Value (GAV) - WN 1 7,200 Gross Annual Value (GAV) Rs.
Less: Municipal Tax 1,800 Fair Market Value 6,500
Net Annual Value 5,400 Municipal Value 7,000
Less: Deduction U/S 24 Higher of the 2 7,000
i) Standard Deduction U/S 24 a 1,620 Standard Rent N.A.
(30% of NAV) Lower of the 2 (RLV) 7,000
ii) Interest on Loan for HP US 24 b 400 2,020 Actual Rent 7,200
Net Taxable Total Income from HP 3,380 Higher of the 2 (GAV) 7,200
Note: The deduction on ground Rent, Insurance Premium, Collection Charges, Land Revenue; can not be claimed
separately as Standard Deduction U/S 24 a is available.

Q.2) A is the owner of a residential house property. The particulars of the residential house property are given below:

Particulars Rs.
1
) Municipal Rental Value 42,000
2
) The Bulding has been let out on a monthly Rent of 4,000
inclusive of Rs. 300 as rent of furniture.
3
) Municipal Taxes paid 4,180
46 | P a g e
 4
) Ground Rent Due but not paid 200
5
) Insurance Charges paid 150
6
) Interest accrued for the year on money borrowed 16,000
for purchase of the property.
7
) Collection charges paid 1,500
8
) Spent Rs. 2,500 on repairs of the house
Compute the income from House Property for the A.Y.

Sol.

Name of The Assessee : Mr.A

Previous Year - 2019-20
Assessment Year - 2020-21
Residential Status - R&OR
Legal Status - Individual

COMPUTATION OF INCOME FROM HOUSE PROPERTY

PARTIULARS Rs. Rs. WN - 1
Gross Annual Value (GAV) - WN 1 44,400 Gross Annual Value (GAV) Rs.
Less: Municipal Tax 4,180 Fair Market Value N.A.
Net Annual Value 40,220 Municipal Value 42,000
Less: Deduction U/S 24 Higher of the 2 42,000
i) Standard Deduction U/S 24 a 12,066 Standard Rent N.A.
(30% of NAV) Lower of the 2 (RLV) 42,000
ii) Interest on Loan for HP US 24 b 16,000 28,066 Actual Rent 44,400
Net Taxable Total Income from HP 12,154 Higher of the 2 (GAV) 44,400
Note: Te Deduction on Ground Rent, Insurance Charges, Collection Charges and Repair can not be claimed
separately as Standard Deduction is available

Q.3) Mr. Shetty has let out his house property situated in Bombay for residential purposes. Particulars of which are as
follows:

Particulars Rs.
1
) Rent Received 30,000
2
) Municipal valuation 36,000
3
) Municipal Taxes paid by Tenant 3,600

47 | P a g e
 4
) Repairs (Met by Tenant) 4,600
5
) Insurance Premium paid 1,356
6
) Collection charges 3,300
7
) Interest on borrowed capital for the current year 1,950
(out of which Rs. 950/- are outstanding)
8
) Land Revenue 1,750
9
) Ground Rent 864
Determine the taxable income of Mr. Shetty for the A.Y.

Q.4) The following are the particulars in respect of a property owned by which was let out throughout during the
financial year.

Particulars Rs.
Municipal Valuation 21,000
Reasonable Rent 26,000
Standard Rent 27,000
Actual Rent Receivable at Rs. 2,500 p.m. 30,000
Municipal Taxes Paid 2,600
Interest on loan for construction 11,000
Collection charges 1,400
The property remained vacant from 1-9 to 31-10 and no rent was received for this period. Compute the income
from House Property.

Q.5) Mr. Chananjeet submits the details regarding the two house properties owned by him for the year ending 31 st
March.

Particulars
House No.1 House No. 2
Fair Rent 25,000 35,000
Rent Received 28,000 25,000
Municipal Valuation 26,000 25,000
Municipal Taxes Paid 3,000 4,000
Repairs 5,000 8,000
Insurance Premium for the period 2,000 3,000
Land Revenue paid 2,500 4,000

48 | P a g e
 Ground Rent Payable 1,600 6,000
Interest on funds borrowed on mortgaging House No.1 4,000 --
(Amount borrowed utilised for the consruction of House No.2)
Other information:
1. House No.1 was vacant for 3 months during the year
2. As per the decree of the court, Mr. Chananjeet to pay Rs. 250 p.m. to his widow sister towards her maintenance
out of the income of House No.2
Compute his Taxable income for the Assessment Year.

Name of The Assessee : Mr.Chananjit

Previous Year - 2019-20
Assessment Year - 2020-21
Residential Status - R&OR
Legal Status - Individual WN - 1
Gross Annual Value (GAV) House 1 House 2
COMPUTATION OF INCOME FROM HOUSE PROPERTY Fair Market Value 25,000 35,000
PARTIULARS House 1 House 2 Municipal Value 26,000 25,000
Gross Annual Value (GAV) - WN 1 28,000 35,000 Highr of the 2 26,000 35,000
Less: Municipal Tax 3,000 4,000 Standard Rent N.A. N.A.
Net Annual Value 25,000 31,000 Lower of the 2 (RLV) 26,000 35,000
Less: Deduction U/S 24 Actual Rent 28,000 25,000
i) Standard Deduction U/S 24 a 7,500 9,300 Highr of the 2 (GAV) 28,000 35,000
(30% of NAV)
ii) Interest on Loan for HP US 24 b NA 8,00

Net Taxable Total Income from HP 17,500 20,900

Q.6) Amar owns the following let out properties:

Residential
Bungalo Godow
w Shop n
30,00
Fair Rental Value 70,000 0 20,000
Municipal Tax thereon 12,600 4,050 1,800
24,00
Let out for annual Rent of 75,000 0 21,000
Insurance premium 500 150 180
Ground Rent 600 100 150
Repairs expenses - actual 30,000 - -
Interest on borrowing for construction 16,000 8,000 10,000
Wealth Tax 200 50 80

49 | P a g e
 HDFC loan repaid 30,000 - -
Amar informs you that in the previous year 2014-15 he had claimed a sum of Rs. 25,000 on account of unrealized
rent on Shop. Assessing Officer however allowed a deduction of Rs. 10,000. During the previous year he was able
to recover Rs. 15,000. To recover this amount he had to spent Rs. 5,000
The Godown was received by him on his father’s death. Under the will he is supposed to pay a sum of Rs. 25,000
per annum to his sister in America. During the previous year he has paid the amount to her.
Compute his Taxable Income from House Property for A.Y.

Name of The Assessee : Amar

Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR

Legal Status -
Individual

COMPUTATION OF INCOME FROM HOUSE PROPERTY

Bunglo
PARTIULARS Shop Godown WN - 1
w

Gross Annual Value Bunglo Godow

Gross Annual Value (GAV) - WN 1 75,000 30,000 21,000 Shop
(GAV) w n

Less: Municipal Tax 12,600 4,050 1,800 Fair Market Value 70,000 30,000 20,000

Add: Unrealised Rent Recovered - Municipal Value NA N.A. NA

Net Annual Value 62,400 25,950 19,200 Highr of the 2 70,000 30,000 20,000

Less: Deduction U/S 24 Standard Rent N.A. N.A. N.A.

i) Standard Deduction U/S 24 a 18,720 7,785 5,760

(30% of NAV) Lower of the 2 (RLV) 70,000 30,000 20,000

ii) Interest on Loan for HP US 24

3,200 1,600 2,000 Actual Rent 75,000 24,000 21,000
b

Highr of the 2 (GAV) 75,000 30,000 21,000

Net Taxable Total Income from HP 40,480 16,565 11,440

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Q.7) Mr. Rajesh has occupied two houses for his own residential purpose viz. Pushpa Bhuvan and Ganesh Bhuvan.
Particulars of which are as follows:

Pushpa Ganesh
Bhuvan Bhuvan
Municipal Valuation 80,000 40,000
1,00,00
Fair Rent 0 44,000
Municipal Taxes Paid 10% 10%
Interest on borrowed capital 10,000 16,000
Fire Insurance 500 300
Ground Rent 750 1,000
Land Revenue 3,850 2,000
You are required to ascertain which property should be treated as self occupied and determine taxable income for
the assessment year of Mr. Rajesh assuming that both the loans were taken prior to 1 st April, 2001.

Name of The Assessee : Mr.Rajesh

Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF INCOME FROM HOUSE PROPERTY WN - 1

Pushpa Ganesh
Pushpa Ganesh
PARTIULARS Bhwan Bhuwan Gross Annual Value (GAV)
Bhwan Bhuwan
(SOP) (LOP)

Gross Annual Value (GAV) - WN 1 NIL 44,000 Fair Market Value 1,00,000 44,000

Less: Municipal Tax NA 4,000 Municipal Value 80,000 40,000

Highr of the 2 1,00,000 44,000

Net Annual Value NIL 40,000 Standard Rent N.A. N.A.

Less: Deduction U/S 24

i) Standard Deduction U/S 24 a NIL 12,000 Lower of the 2 (RLV) 1,00,000 44,000

(30% of NAV) Actual Rent 0 0

51 | P a g e
 ii) Interest on Loan for HP US 24 b 10,000 16,000 Highr of the 2 (GAV) 1,00,000 44,000

Note: Pushpa Bhuwan will be considered as

Taxable Income from HP -10,000 12,000 SOP and Ganesh Bhuwan will be as DLOP

NET TAXABLE INCOME FROM HP 2,000

Q.8) Mr. Prakash and Mr. Akash are equal owners of residential house property viz. Kailash Dham consisting of 6
units. They borrowed Rs. 1,00,000 for construction of the house, from Mr. Tom Alter, a British Resident, @ 10%
p.a. interest was payable yearly. No tax has been deducted from the interest payable. Mr. Tom Alter is not
assessed to tax in India and no any other person is taxable as his representative in India. All 6 units were let out at
a monthly rent of Rs. 500/- per month. Other particulars of the property for the year ended 31 st March are given
belows:

Particulars Rs
Municipal Taxes Paid 3,600
Insurance 840
Land Revenue 250
Ground Revenue 350
Repairs 2,000
Collection Charges 400
The owners recovered Rs. 1,500 which were allowed as a deduction as unrealized rent in the assessment of earlier
years. They intend to claim that Rs. 3,500 which were included in the income of previous year and have been
proved to be irrecoverable.
Mr. Prakash is employed with M/s. Consulting Engineers Pvt Ltd. on a salary for Rs. 5,000/- p.m. and no other
benefits derived from the employer.
You are required to ascertain the Gross Total Income of Mr. Prakash for the Assessment Year.

Q.9) Ganesh owns a big house, 50% of whose floor area is let out on a monthly rent of Rs. 3,200. However, this portion
remained vacant for one month during the previous year. 25% of the floor area is used by the owner for the
purpose of his profession while remaining 25% is used for his own residence. Other particulars are as follows:

Particulars Rs
Municipal Valuation 60,000
Standard Rent 90,000
Municipal Taxes Paid 12,000
Repairs 3,000
Interest on capital borrowed for construction 28,000
Ground Rent 4,000
Annual Charges 6,000

52 | P a g e
 Fire Insurance Premium 12,000
Compute Ganesh’s Taxable Income from House Property for the A.Y.

Q.10) Mr. Suresh owns a house, which is let out for residential purpose, on a monthly rent of Rs. 2,000 from April 1 to
May 31 and from December 1 to March 31. House has been used for residential purpose by the owner for the
remaining part of the previous year. Determine the taxable income from house after considering the following
additional information:
Particulars Rs
Fair Rent 24,000
Municipal Valuation 5,000
Interest on borrowed capital 6,600
Q.11) Mr. A is the owner of a residential house. Its particulars for the financial year are given below:
Particulars Rs
1 Municipal Valuation 55,000
2 Expected Fair Rent Per Annum 60,000
House remained vacant for 2 months during the year.
3 Actual Monthly Rent 6,000
4 Municipal Taxes (Including Rs. 5,000 paid by the tenant) 1,500
5 Water/ Sewage benefit tax levid by State Govt 6,000
but disputed in Court
6 Fire Insurance Payable 800
7 Interest on loan taken for the construction of the house 10,000
The interest has been paid outside India to a non resident
without deduction of tax at source. As the non-resident
agreed to pay income tax on such interest directly to the Govt
8 Legal Charges for the recevery of rent 4,000
9 Stamp duty and registration charges incurred in respect 2,000
of the lease agreement of the house.
1
0 The unrealised rent of the yearlier years amounted to Rs. 10,000 but a
deduction allowed was only for Rs. 7,000. Now, there is a recovery of Rs.
8,000 from the defaulting tenant
Compute his income from house property for the assessment year.

CHAPTER - 6
53 | P a g e
 Income from Business / Profession
[Sec.28 to 44]

Business: Any activity with an intension to make profit. Even one time activity is considered as business for Income
Tax Act. Hence speculation profits are business profits.
Profession: Any activity of profit where human skills are required. Human skills can be physical or mental. E.g.
Doctors, Lawyers, Painters, etc.

 Income from business & Profession means Profit or Surplus.

 A business man calculates profit by preparing Profit and Loss A/c.
 A Professional calculates profit by preparing Income and Expenditure A/c.
 Hence, profit/surplus shown by P&L A/c / Income & Expenditure A/c is Income from Business & Profession.

Given In the Question: Profit & Loss Account/ Income & Expenditure of the business.
Required to do: Calculate taxable profit of business.

 The profit shown by P&L A/c is book profit, i.e. Profits as per the accounts. However for Income Tax Act, taxable
profits are calculated as per the Income Tax (I.T.) Rules.

Allowable Business Incomes

Business incomes are those incomes which are exclusively related to business. In other words, such incomes are not to
be taxed anywhere else.

i. Gross Profit, Commission received, Discount received, Royalty received, etc.

ii. Fees and Service charges received.
iii. Any sum received under a Keyman Insurance Policy
iv. Speculation profits.
v. Any amount received by way of compensation either for terminating or for modifying agency agreement.
vi. Cash compensation, subsidy and Duty Drawback received from the Govt.
vii. Salary received by a partner from the firm, etc.
 If a particular income is taxable under any other head, will not be considered as business income.

Allowable Business Expenses

Business expenses are those:
a) Related to business: (not a personal)
b) For the business
c) Not capital expenditure (Fixed Assets)
d) Not expressly disallowed.

Examples of Business Expenditures:

i. Rent (only for business Asset, not a personal asset)
ii. Rates and Taxes
iii. Repairs and Maintenance
54 | P a g e
 iv. Depreciation (as per the I.T. Rules)
v. Insurance (Not on life of the proprietor)
vi. Interest on Loan (Amount used for business)
vii. Salaries
viii. Electricity charges
ix. Telephone charges
x. Postage & Telegrams
xi. Printing & Stationary
xii. General Expenses
xiii. Bad Debt ( Not R.D.D.)
xiv. Advertisement (But not to a political Party)
xv. Unreasonable remuneration to relatives not allowed
xvi. Payment made to foreign national without deducting T.D.S.
xvii. Any expenditure in excess of Rs.20,000; if paid other than crossed cheque, will be disallowed.
xviii. Any payment made by breaking of Law is disallowed.
xix. Certain expenditure only allowed as business expenditure if actual payment is made. E.g. Bonus, Contribution
to Provident Fund (PF), Gratuity and Taxes.

Disallowable Expenses (Add) + Disallowable Incomes (Less) -

Expenses not related to business Incomes not related to business

Personal Expneses (Drawings, PPF, LIC Premium, Inerest Income Received from Investment
on Capital, etc)

Capital Expenses (Purchase of Fixed Assestes) Winning from Lottery

Illegal Expenses (Penlaty, Breach of Law, Etc) Gift Received from Relatives

RDD (Doubt Full Debt) Refund of Income Tax

Gift to relatives

Outstanding Govt Exp (GST, Custom Duty, Exice Duty etc

Outstanding Bonus, PF, Gratuity, Pension, Leave

encashment

Advertisement for Political Party

Depreciation if not charge as per IT rules

Income Tax, Wealth Tax (All Direct Tax)

55 | P a g e
Cash psyments to a person in a day more than Rs.10,000

Unreasonable Payment (Expenss) to Relatives

DEPRECIATION – [U/S 32]

Depreciation is reduction in the value of an asset. Depreciation is invisible expenditure, it is only felt when the
quality of that asset is reduced.
Depreciation is for the assets, which are used in the business/Profession. It is therefore, Depreciation is allowable
business expenditure. Depreciation is not allowed as expenditure under any other heads of income.
Rules of Depreciation:

i. Asset may be tangible or Intangible

ii. Asset must be owned by the business man(Partly/Wholly)
iii. Asset must be used for the business
iv. Asset must be used in the year
v. If an asset is owned by two or more people jointly and used in two or more business, only proportionate
depreciation is allowed in every business.
vi. Full year’s depreciation is allowed on the asset purchased on or before 30 th September 2017. However
half year’s depreciation is allowed on asset purchased after 30 th September 2017.
vii. Depreciation is charged on WDV basis.
viii. Income Tax Act has prescribed different rates for different assets:

Name of the Asset Rate

Intangible Assets 25%
Land 0%
Building
Residential 5%
Commercial 10%
Plant and Machinery 25%
Furniture and Fixture 10% to 15%
Motor 20%
Computers 60%
ix. Depreciation is charged not on individual asset but on ‘Block’ of asset
Block of Asset: It means group of asset. Block means sum total of all the assets falling in the same category.
Block means total of all assets, where same rate of depreciation is applied.
Gross Block is the value of the asset before depreciation.
Net Block: Value of the asset after depreciation.

How to calculate Depreciation under I.T. Act:

Particulars Rs.

56 | P a g e
 Opening W.D.V. of the Block as on 1-4-2015 xx
Add: Assets purchased during the year xx
xx
Less: Selling price of the asset sold (x x)
W.D.V. before Depreciation xx
Less: Current year's Depreciation (x x)
W.D.V. after Depreciation xx
(Closing W.D.V. as on 31-3-2016)
 If the W.D.V. before depreciation becomes negative or Zero, No Depreciation is charged on that Block.
 If the entire block of asset is sold and if the W.D.V. before depreciation is negative, then the negative amount
is taxed as “Short Term Capital Gain”
 For professionals, books and periodicals are considered as a Plant and Machinery.

Problems on Income from Business / Profession

Q.1) The following is the Profit & Loss Account of Ram on the basis of which compute his income from business for
the current assessment year.
Profit and Loss A/c for the year ended 31st March

Particulars Rs. Particulars Rs.

To Salaries and Wages 12,000 By Gross Profit 48,200
To Rent, Rates and Taxes 3,200 By By Rent from House 5,400
To Trade Expenses 1,450 Property

To Advertisement 950 By Dividend from Indian 2,400

To Household Expenses 3,500 Company

To Discounts and Rebates 1,250

To Postage and stationary 275
To Fire Insurance (House) 300
To Life Insurance Premium 2,000
To Donation 1,000
To Income Tax 3,300
To Repairs(House Property) 500
To Audit Fees 300
To Loss of Stock in trade 2,000
To Interest on capital 200
To Net profit 23,775
56,000 56,000

57 | P a g e
Sol.

Name of The Assessee : Mr.Ram

Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF TAXABLE INCOME FROM BUSINESS

PARTIULARS Rs. Rs.

Net Profit as per P&L A/C 23,775

Add: Expenses Disallowable as per IT Rules

1 Household Expenses 3,500

2 Fire Insurance (House) 300

3 Life Insurance Premium 2,000

4 Donation 1,000

5 Income Tax 3,300

6 Repairs (House Property) 500

7 Interest on Capital 200 10,800

Less: Incomes Disallowable as per IT Rules

1 Rent from House Property 5,400

2 Dividend from Indian Company 2,400 -7,800

Net Taxable Income from Business 26,775

Q.2) Mr. Kapur is the owner of Samadhan Stores. Following is the Profit & Loss Account for the previous year ended
31st March. On the basis of this information compute the income from Business.
Profit and Loss A/c for the year ended 31st March
58 | P a g e
 Particulars Rs. Particulars Rs.
T B 1,90,00
o Opening Stock 7,500 y Sales 0
T B
Closing Stock
o Purchase 52,500 y 60,000
T B
Gift from Father
o Salaries 6,000 y 15,000
T B
Winning from Lotteries
o Insurance of Shop 750 y 5,000
T
o Rent, Rates & Electricity 3,250
Charges
T
o Bonus to Staff 300
T
o Embezzlement of Cash by 3,700
cashier
T
o Penalty for breach of 4,500
weight & Measure Rules
T
o Reserve for Bad Debt 4,500
T 1,87,00
o Net Profit 0
2,70,00 2,70,00
0 0
Sol.

Name of The Assessee : Mr.Kapoor

Previous Year - 2021-2022

Assessment Year - 2022-23

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF TAXABLE INCOME FROM BUSINESS

PARTIULARS Rs. Rs.

59 | P a g e
 Net Profit as per P&L A/C 1,87,000

Add: Expenses Disallowable as per IT Rules

1 Penalty for breach of weight & Measure Rules 4,500

2 Reserve for Bad Debt 4,500 9,000

Less: Incomes Disallowable as per IT Rules

1 Gift from Father 15,000

2 Winning from Lotteries 5,000 -20,000

Net Taxable Income from Business 1,76,000

Q.3) The following is the Profit & Loss A/c of Anil, the owner of a textile shop, for the year ended 31 st March on the
basis of which compute his business income.
Profit and Loss A/c for the year ended 31st March

Particulars Rs. Particulars Rs.

T B
o Trade Expenses 2,650 y Gross Profit 60,000
T B
Rent from property
o Salaries to staff 15,000 y 12,000
T B
Interest(Net)
o House Tax (Residence) 1,200 y 8,000
T
(Gross 10,000)(TDS 2,000)
o Discount and Allowances 1,600
T
o Advertisement 3,000
T
o Stationery & Postage 700
T
o Repairs and renewals 1,000
T
o Donations to approved 3,100
institutions
T Life Insurance Premium 2,500

60 | P a g e
 o
(Self)
T
o Gifts and presents 1,000
T
o Audit Fees 1,950
T
o Charities 2,600
T
o Wealth Tax 2,200
T
o Interest on capital 2,400
T
o Net Profit 39,100
80,000 80,000
Additional information:
i. Salaries include Rs.5,000 drawn by Anil himself.
ii. Gifts and Presents were given to close relatives.

Name of The Assessee : Mr.Anil

Previous Year - 2019-20

Assessment Year - 2020-21

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF TAXABLE INCOME FROM BUSINESS

PARTIULARS Rs. Rs.

Net Profit as per P&L A/C 39,100

Add: Expenses Disallowable as per IT Rules

1 House Tax (Residence) 1,200

2 Donations to approved institutions 3,100

3 Life Insurance Premium (Self) 2,500

4 Gifts and presents 1,000

61 | P a g e
 5 Charities 2,600

6 Wealth Tax 2,200

7 Interest on Capital 2,400 15,000

Less: Incomes Disallowable as per IT Rules

1 Rent from property 12,000

2 Interest(Net) 8,000 -20,000

Net Taxable Income from Business 34,100

Q.4) The following is the Profit and Loss A/c. of the Nagesh Oil Mills on the basis of which and also other information,
compute its business income.
Profit and Loss A/c for the year ended 31st March

Particulars Rs. Particulars Rs.

To Office salaries 5,000 By Gross Profit 95,000
To Proprietors salary 10,000 By Recovery of Bad Debts 5,000
To Interest on Capital 3,000 By Interest on Govt. Securities 3,500
To General expenses 17,000 By Dividend 3,500
To Bad Debts 1,000 By Gift Received 5,000
To Advertising Expenses 3,700
To Insurance Premium(Fire) 1,500
To Depreciation 5,000
To Reserve for Bad Debts 3,000
To Income Tax Paid 4,000
To Advance Income Tax 2,000
To Donation to a school 2,500
To Car Expenses 2,000
To Net Profit 52,300
1,12,000 1,12,000
Additional Information:
1) General expenses include (a) Rs.2,500 as compensation paid to an accountant who had to be removed from
service in the interest of the business and (b) Rs.7,300 as contribution paid to the Govt. for laying electric cables
for the company plant.
2) Depreciation as regards the relevant blocks of assets under the I.T. Act Rs.3,500

62 | P a g e
 3) Advertising expenses include Rs.1,000 the cost of a new sign board. Expenses Rs.4,000, on printing calendars and
diaries, are also included therein.
4) In the assessment year 2016-17, the ITO had refused to allow deduction for the bad debts of Rs.5,000, which is
now recovered.
5) Car expenses include Rs.500 attributable to use of car for personal work.
Sol.

Name of The Assessee : Mr.Nagesh Oil Mill

Previous Year - 2021-2022

Assessment Year - 2022-23

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF TAXABLE INCOME FROM BUSINESS

PARTIULARS Rs. Rs. Note:

Net Profit as per P&L A/C 52,300 Rs.25,00 paid to an accountant is

1) considered as Allowable business
A Add: Expenses Disallowable as per IT Rules expense

General Exp (Cap Exp paid from Plant

1 7,300 Advertisement Expenses are related to
Cable)
2)
business, hence allowable expenses
2 Proprietor Salary 10,000

3 Interest on Capital 3,000

Gift Receied Rs.5000 - In the absence
Depreciation as per P&L A/C 5,000 3) of information, it is assumed that Gift
is received from the Suppliers
Reserve for Bad Debts 3,000

Income Tax Paid 4,000

Advance Income Tax 2,000

Donation to School 2,500

Personal Car Exp 500 37,300

B Add: Incomes alloable as per IT Rules but not

included in P&L A/C

63 | P a g e
C Less: Incomes Disallowable as per IT Rules

1 Disallowed Recovery of Bad Debt 5,000

2 Interest on Securities 3,500

Dividend Received 3,500 -12,000

D Less: Exp Allowable as per IT Rules but not

included in P&L A/c

1Depreciation as per IT Rules 3,500 -3,500

Net Taxable Income from Business 74,100

Q.5) Mr. Rajeshwar Rao who is physically handicapped and whose capacity to work is substantially reduced is a
proprietor of M/s. Pacific Laundry. He furnishes you the following account:
Receipt and Payment Account for the year ended 31st March

Particulars Rs. Particulars Rs.

T B
o Cash on hand ( 1-4-) 1,500 y Washing charges 90,000
T 1,40,00 B
Salary
o Laundry Receipt 0 y 25,000
T B
Electricity charges
o Ironing receipt 30,000 y 6,000
T Refund from L.I.C. of India B
Rent
o on anticipated life policy 5,400 y 12,000
B Compensation for loss of
y clothes 1,200
T
o Winning from Lottery 10,000
B
y Income Tax 10,000
B
y Life Insurance Premium 4,000
B
y Tailoring Charges 3,600
B
y Miscellaneous Expenses 1,200

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 B
y Closing balance 33,900
1,86,90 1,86,90
0 0
Compute business income of Mr. Rajeshwar Rao for the current Assessment Year.
Sol.

Name of The Assessee : Mr. Rajeshwar Rao

Previous Year - 2021-2022

Assessment Year - 2022-23

Residential Status - R&OR

Legal Status - Individual

COMPUTATION OF TAXABLE INCOME FROM PROFESSION

PARTIULARS Rs. Rs.

ALLOWABLE INCOMES AS PER IT RULES

1 Laundry Receipt 1,40,000

1 Ironing receipt 30,000 1,70,000

LESS: ALLOWABLE EXPENSES AS PER IT RULES

1 Washing charges 90,000

2 Salary 25,000

3 Electricity charges 6,000

4 Rent 12,000

5 Compensation for loss of clothes 1,200

6 Tailoring Charges 3,600

7 Miscellaneous Expenses 1,200 - 1,39,000

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 Net Taxable Income from Profession 31,000

Q.6.) Shri Mitesh furnishes you the following revenue statement for the year ended 31 st March.

Particulars Rs. Particulars Rs.

T B 6,20,00
o Opening Stock 10,000 y Sales 0
T 5,30,00 B
Closing Stock
o Purchases 0 y 5,000
T B
Interest on Securities
o Rent 25,000 y 23,000
T B
Net Loss
o Office Expenses 12,000 y 8,000
T
o Interest on Borrowing 60,000
T
o Interest on Capital 10,000
T
o Donation 4,000
T
o Income Tax 5,000
6,56,00 6,56,00
0 0
1) You are informed that purchases include cost of moped Rs.15,000, Cost of Computer Rs.15,000 and Cost of
acquiring a license Rs.10,000. All these assets were put into use during the year and were eligible for Depreciation
at 25%.
2) Sales include sales proceeds of Gold Bonds which had cost Rs.3,000 in 1985 and which realized Rs.20,000. He is
not a dealer in Gold Bonds.
3) Office expenses include Rs.1,000 relating to school fees of Mitesh’s son. Rent for office premises is paid to the
landlord, Mrs. Mitesh.
4) Interest on borrowing is entirely in respect of money raised to invest in securities.
5) His capital account shows a credit of Rs.6,000 being amount recovered from Mahesh who was a customer whose
balance was written off as bad debt in earlier years and in respect of which allowance was availed of in those
years.

Q.7) Mr. Kamesh provides you the following information on the basis of which you are required to compute his income
from business.
a) Gross Profit Rs. 2,79,750/-
b) Particulars of Assets owned

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 Rate of Purchased Sold
Sr. W.D.V. on 1-
Name of the Asset Depreciatio during the during
No 4-2019 (Rs.)
n year the year
1 Plant & Machinery 25% 1,00,000 30,000 ---
2 Furniture 10% 20,000 50,000 15,000
3 Building 5% 1,00,000 --- ---
c) Salary to staff Rs.55,000
d) Profession Tax Rs.1,500
e) Electricity bill Rs.11,760
f) Life Insurance premium Rs.9,000
g) General Expenses Rs.15,750
h) Bonus to staff Rs.13,650
i) Insurance and repairs of Building Rs.12,000
j) The W.D.V. of the furniture sold is Rs.8,000

Q.8) Mr. A has assets A, B and C in the Block of Machinery (25% rate). The opening value of the block is Rs.20,000.
During the year, on 18th December, he purchased another machinery D costing Rs.40,000. On 8 th Feb. he sells
assets B. Calculate depreciation allowed u/s 32.
a) S.P. of asset B is Rs.5,000
b) S.P. of asset B is Rs.30,000
c) S.P. of asset B is Rs.75,000
d) What would be the depreciation if all assets (i.e. A,B,C and D) are sold out at a total price of Rs.15,000

Q.9) Mr. Jagjit is the owner of Jagjit industries particulars of which for the year ended 31 st March is given below:

Particulars Rs. Particulars Rs.

To Salary to staff 3,60,000 By Gross Profit 10,00,000
To Rent 60,000 By L.I.C. 5,00,000
To Commission to Dealers 1,00,000 (Amount Received under
To Reserve for Bad debts 80,000 Key man Insurance)
To Depreciation on Machinery 80,000
To Entertainment Expenses 1,75,000
To Advertisement 47,500
To Bonus to Staff 22,500
To Research Expensiture 45,000
To L.I.C. Premium
Own Life 30,000
Staff (Accident) 30,000 60,000
To Vehicle runnig expenses 70,000
To Net Profit 4,00,000

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 15,00,000 15,00,000
Following additional information has been provided:
a) Commission to dealers include Rs.15,000 paid for medical expenses incurred by the proprietor himself.
b) Rs.15,000 included in advertisement has been incurred for advertisement in souvenir published by a political
party.
c) Entertainment Expenses amounting Rs.30,000 was not related to business purpose.
d) Half of research expenditure is capital expenditure.
e) New Machine costing Rs.60,000 purchased on 29 th March,2014. Opening BV of the machine Rs.2,00,000. The
rate of Depreciation allowable on machine is 25%.
Compute the income from business for the assessment year.

Q.10) Mr.S filed the return for the current assessment year and its trading and profit and loss account are extracted
below:

Particulars Rs. Particulars Rs.

To Opening Stock 1,20,714 By Sales 11,57,63,830
To Purchases 9,40,61,226 By Closing Stock 9,55,220
To Gross Profit 2,25,37,110
To 11,67,19,050 11,67,19,050
To Salaries, Commission By Gross Profit 2,25,37,110
& Bonus 37,28,450
To Interest 8,03,720
To Income Tax --
To Provision for Gratuity 12,58,500
To Depreciation 15,65,600
To Travelling Expnese 7,50,050
To General Expense 21,75,800
To Net Profit 1,22,54,990
2,25,37,110 2,25,37,110
The records of the case and examination of accounts revealed the following:
a) Cash payments in excess of Rs.20,000 to various parties amounted to Rs.4,50,000
b) General Expenses included Rs.3,50,000 paid to R for technical services rendered by him. R. a brother of the
company’s M.D. had no experience or qualification to provide such technical service.
c) The company did not show in the profit and loss account bad debt recovered during the year amounting to
Rs.5,25,000. The bad debt concerned had been allowed as deduction for a prior assessment year.
d) An amount of Rs.40,000 paid to an advocate to defend the managing director in a criminal case was included in
the general expenses. The company claims that although the criminal case was not directly connected to the affairs
of the company, yet the reputation of the company would be affected by an adverse decision against the managing
director and, hence, the legal expenses incurred by the company must be taken to have been incurred for the
purpose of its business.

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 e) General expenses include Rs.5,75,000 being fee for technical services paid outside India. The assessee did not pay
or deduct any tax under chapter XVII B of the Act.
f) A senior officer of the company is found to have spent 15 days outside the headquarters. His expenses for stay and
meals amounted to Rs.45,000 and they have been included in travelling expenses.
Find out the correct amount of total income for the assessment year.

Q.11) Mr. Kaushal is an eminent lawyer of Bombay High Court. His receipt and payments account is given as under:

Receipt and Payment A/C for the year ended 31st March
Particulars Rs. Particulars Rs.
T B 1,45,00
o Balance B/F y Drawings 0
B 1,08,00
Salaries
Cash in hand 750 y 0
B
Investment
Cash with Bank 2,250 3,000 y
T 4,90,00 2,25,00
in N.S.C. VIIIth issue
o Professional Fees 0 0
T B
Telephone Expenese
o L.I.C. y 13,685
B
(Amount received on y Conveyance 21,445
3,50,00 B
maturity of the policy) 0 y Rent 36,000
T B
o Gift from a client on y Subscription 11,370
B
successfully completing y Purchase of Electronic
a legal complecated case 5,000 Type witer 30,000
T B
o Interest on bank A/C 12,000 y Stationery 42,000
B
y Donation to Jain Sahity
Prakashan Sanstha 25,000
B
y Advance Income Tax 65,000
B
y Bonus and Gift to staff 21,000
B
y Balance C/F

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 Cash in hand 6,000
1,16,00
Cash at Bank 1,10,000 0
8,60,00 8,60,00
0 0
Depreciation allowable on Typewriter and furniture amounts to Rs.13,500/- as per the income tax rules.
Determine the income taxable under the head income from business and profession of Mr. Kaushal for the
assessment year.

Q.12) Shri Laloo Prasad is registered medical practitioner. He has prepared the following income and expenditure
Account for the year ending 31st March. You are required to prepare a statement showing his income for
profession.

Income and Expenditure Account

Particulars Rs. Particulars Rs.
To Household expenses 20,000 By Consultation Fees 10,000
To Car Purchase 30,000 By Visiting Fees 20,000
To Travelling Expense 4,000 By Gains on Race(Gross) 10,000
To Charity & Donations 1,000 By Share in sale proceeds 34,000
To Income Tax 2,000 of a joint family house
To Salaries 8,000 By Profit on sale of securities 6,000
To Gift to Daughter 7,000 By Dividend on shares 5,000
To Establishment Expenses 1,000 By Interest on P.O. Saving 600
To Surgical Equipments 4,000 Bank A/c
To Books 1,200 By Gift from Father in Law 4,000
To Life Insurance Premium 2,000 By Interest on F.D. (Gross) 1,300
To Wealth Tax 1,000
To Interest on capital 1,000
To Surplus 8,700
90,900 90,900
Rate of depreciation allowable on car and surgical equipments is @ 20% & 25% respectively.

Q.13) Abhay is a Charted Accointant, maintains his books as per Cash system. A summary of his cash book is as
follows, on the basis of which and other information, compute his professional income.

Receipts Rs. Payments Rs.

To Opening Balance 13,000 By Office Salaries 18,400
To Audit Fees 75,000 By Office Rent 3,600
To Examiner's Fees 3,000 By Membership Fees 200
To House Rent Received 7,500 By Personal Expenses 30,000
To Dividends 2,400 By Income Tax 2,400

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 To Consultancy Fees 7,900 By Expenses on Car 3,000
To Receipts from LIC on 30,000 By Insurance Premium on House 500
Maturity of policy By L.I.C. Premium 1,000
By Repairs to House 3,500
By Closing Balance 76,200
1,38,80
1,38,800 0
Additional Information:
i. 50% of car expenses relate to personal use.
ii. Salaries include Rs.1,200 paid to the cook working in Abhay’s house
iii. Allowable depreciation on car amounts to Rs.2,000

Q.14) Shri Ramesh Pandit is a leading Charted Accountant of Mumbai. His receipts and payment account for the year is
as under. Compute his business income.

Receipts Rs. Payments Rs.

To Balance B/d 7,500 By Salaries 14,000
To Professional Fees 1,52,000 By Telephone Expenses 800
To Salary as a Part time 14,000 By Rent(Office) 4,500
lecturer in a college By Subscription 2,750
To Rent received from 22,500 By Car Expenses 9,000
Rented house By Office Expenses 6,290
To Received from his Father's 15,140 By Purchase of Motor Car 15,000
HUF being his share By Advance Tax 40,000
To Prize received from Lions 5,000 By Donations 10,000
Club for the best member By Personal Drawings 62,500
of the year By Expenses for rented house 5,000
Municipal Tax
By Repairs 1,500
By Insurance on Building 1,600
By Rent Collection Charges 2,200
By Balance C/d 41,000
2,16,140 2,16,140

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 CHAPTER - 7
Income from Other Sources
[Sec.56 to 58]

Income from Other sources include those incomes which could not be taxed anywhere. Any income which
escapes tax from earlier heads will be taxed here. It is a leftover section, i.e. an income which is not taxed in earlier heads
will be taxed here.

List of Incomes Deduction available

1 Salaries of M.P.s and M.L.A.s No Deduction

2 Director's remuneration No Deduction

Slandered Deduction
3 Family Pension
1/3 OR Rs.15,000 (Whichever is Lower)

4 Income from subletting of property Repairs, Maintenance, Insurance Premium.

Rent received from any other than House Repairs, Maintenance, Insurance and
5
Property(Including Ground) Depreciation

Amount received on Key man Insurance

6 Policy (Provided not included in Business No Deduction
income)

Amount deposited in P.F. A/c before due

7 Provident Fund Contribution received
date of filling I.T. return.

72 | P a g e
 8 Interest
Bank charges, Collection charges, A/C
writing charges, Interest paid on borrowing
9 Dividend received from foreign company
fund used for investment

10 Agricultural Income from Foreign company No Deduction

All expenses incurred in connection with

11 Royalty Received
making of Manu script

12 Casual and non recurring income No Deduction

Income of other person, included in our

13 Rs.1,500
income

CHAPTER - 8
Deductions from Gross Total Income
[Under Section - 80 OR Chapter VI A]
TABULAR SUMMARY OF DEDUCTIONS CHAPTER VI-A
SR. Payment, income or person in To whom the Maximum
Sectio
NO respect of which the deduction deduction is Deduction allowable deduction
n
. is available allowable allowable

Contribution to LIP, PPF and

1 80 C Individuals, / HUF Lower of Entire Amount OR Rs. 1,50,000
others

80 Contribution to Certain Pension

2 Individuals
CCC Funds

Entire premium paid

Payment of Insurance Premium (by Cheque only, but Rs. 25,000 / Rs.
on health of Assessee, his/her in the absence of 50,000 if the
3 80 D Individuals / HUF
spouse or dependent parents or information assume person is insured is
children premium paid by a senior citizen.
cheque only.)

Payment of maintenance (include

Lump sum (Rs.75,000 - Normal disability) /
4 80 DD medical treatment) of a dependent Individuals / HUF
(Rs.1,25,000 Sever disability)
who is a person with disability

Payment of interest on loan for Allowable for

5 80 E Individuals Entire interest paid
higher education (for Asseee/ initial year plus 7
73 | P a g e
 succeeding
Spouse/children/relatives)
assessment years.

Resident Lump sum (Rs.75,000 - Normal disability) /

6 80 U Disability
Individuals (Rs.1,25,000Sever disability)

Income by way of interest on Actual Amount Received OR Rs. 10,000

80
7 saving bank A/c with Banks, Co- Individuals / HUF whichever is lower (Deduction is not
TTA
op soc., or Post office available on Interest in F.D.

SR. NO. 1) [U/S 80 C] Which payments qualify for deduction:

a) Life Insurance Premium : Paid for the life of an assessee or his/her spouse or any child ( in the case of
individual) - Condition - The Premium paid shold not exceed 20% of Sum Assured
b) Deferred Annuity : Deferred annuity plan by LIC, Tata AIG and ICICI prudential Life insurance Co.
c) Contribution to PF: Public Provident Fund, Statutory PF, Recognised PF.
d) Contribution to Super Annuation Fund:
e) P.O. Time Deposits(CTD): 10 years or 15 years account under the Post Office Saving Bank (CTD) Rules.
f) National Saving Scheme(NSS):
g) National Saving Certificate: ( NSC VI, VII, VIII)
h) Unit Linked Insurance Plan (ULIPS)/ Dhanraksha/ Jeevan Dhara/ Jeevan Akshay/ Equity Linked
Saving Scheme of Mutual Fund(UTI)
i) Pension Fund of MF / UTI: Retirement plan
j) Home Loan Account of National Housing Bank(NHB): ( Interest Accrued thereon is also eligible for
deduction as it is treated as re-invested)
k) Housing Finance Deposit:
l) New House:
m) Tuition Fees: Amount paid to the university, college or other educational institution situated in India.
Condition: It is paid for full time, Paid for any two children, children need not be dependent upon the
assessee.
n) Infrastructure Debenture/ Shares/ Units: (Infrastructure, Power or Telecommunication Sector)
o) Bank FD: Term Deposits for 5 years.
p) NABARD Bonds
q) Senior Citizen Saving Scheme(SCSS)
r) Post Office Five year Time Deposits Scheme(PO-TD)

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  As per the section 80 CCE, the total deduction an assessee can claim u/s 80C, 80CCC, and
80CCD shall be restricted in aggregate to Rs.1,50,000

 Regarding Section 80DD and 80U:

Below 40% disability No disability No deduction
40% to 79% disability Normal Disability Rs.75,000 Deduction
80% and Above Disability Severe Disability Rs.1,25,000 Deduction

CHAPTER - 9
Non – Taxable Income
[Under Section 10]

Sec.10 of the Act contains a list of items totally exempted from Tax i.e. Tax-Free Income. These items do not form part of
total income. They are to be totally ignored while computing the taxable income.

I. Agricultural Income [Sec.10(1)] :

Agricultural income in India is exempt from tax. However it is added with other incomes for determining the rate
of tax applicable.

75 | P a g e
 Agricultural income means any income derived from land which is used for agricultural purpose. Such income
must be in the form of rent or revenue and derived from land for agricultural purpose.

II. Share of income from HUF [Sec.10(2)]:

Any amount received by a member of a HUF from the income of HUF is not taxable. HUF pays the tax and not its
member.

III. Share of Profit from Partnership Firm [Sec.10(2A)]:

The share of a partner in the income of a firm is not taxable at all. Firm pays tax separately under the Act.
This exemption, however, does not apply to any interest, salary received by the partner from the firm. They are
taxable under the Income from Business for a partner.

IV. Receipts under LIC Policies. [Sec.10(10D)]:

Any sum received under Life Insurance Policy is exempt from tax full.

V. Scholarship [Sec.10(16)]:
Any Scholarship granted to meet the cost of education is exempt from tax.

VI. Allowance of M.P./M.L.A. [Sec.10(17)]:

Any daily allowance and constituency allowance received by M.P. or M.L.A. is exempt in full. All other
allowances are exempt upto Rs.2000 p.m.
VII. Government Award/Reward.[Sec.10(17A):
Any Award received from the Government or approved by the government, for any approved purpose, is exempt
from tax. Such award may be in cash or in kind.
VIII. Pension to Family Member of Gallantry Award Winner [Sec.10(18)]:
IX. Education Scholarship received from Central or State Govt. [Sec.10(16)]
X. Special Income:[Sec.10(15)]: Interest on P.P.F. and Interest on Post Office Saving Account.

76 | P a g e
 CHAPTER - 10
Computation of Total Income
Computation of Total Income Sec 14 (Taxable Income)
1
Income from Salary ++
)
(sec 15 to sec 17)
2
Income from House property ++
)
(Sec 22 to Sec 27)
3
Income from Business and profession ++
)
(Sec 28 to Sec 44)
4
Income from other Sources ++
)
(Sec 56 to Sec 59)
Gross Total Income [GTI] +++
Less: Deduction U/s 80
U/s 80 C, CCC, CCD ++
U/S 80 D ++
U/S 80 DD ++
U/S 80 E ++
U/S 80 EE ++
U/S 80 U ++
(+
U/S 80 TTA ++
+)
Net taxable Total Income +++

PRACTICE PROBLEMS
Q.1) M/s Alpa a practicing Lawyer, furnishes you the following particulars of her receipts and payment account
prepared for the year ended 31st March.
Receipts Rs. Payments Rs.
To Balance b/f 50,000 By Computer repairs 3,00,000
To Fees from clients 12,50,00 By Interest on loan from UBI 1,20,000
To Salary from college 4,50,000 By General Expenses 2,20,000
as a lecturer By Office salaries 2,00,000
To L.I.C.(Policy Matured) 4,00,000 By Computer stationery 1,00,000
To Gift from a client 1,50,000 By Gift to staff and clients 1,00,000
To Income Tax Refund 50,000 By Mediclaim insurance 1,20,000
To Interest on PPF A/c 50,000 By Household withdrawals 8,20,000
To Gift from Mother 1,00,000 By Membership fees 50,000
To Interest on Saving Account 50,000 By Income Tax Paid 2,00,000
By Interest on loan for higher 1,00,000

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 education of daughter
By Car Expenses 1,00,000
By Balance c/d 1,20,000
25,50,000 25,50,000
Other information:
1) Half of the car expenses are for personal use.
2) The loan from UBI was taken for purchase of furniture for her residence
3) LIC Preimium Pad worth Rs.20,000 are included in general Expenses.
4) Household withdrawals include rent paid for her own residence Rs.1,000 per month.
Compute her total income for the assessment year.

Sol.

Name of the Assess -

Previous Year - 01-04-2019

Assessment Year - 31-03-202

Residential Status - R & OR

Leagal Status - Individual

Computation to Total Taxable Income

PARTICULARS Rs. Rs.

INCOME FROM SALARY 4,00,000

INCOME FROM HOUSE PROPERTY NIL

INCOME FROM BUSINESS / PROFESSION 3,60,000

INCOME FROM OTHER SOURCES 50,000

GROSS TOTAL INCOME 8,10,000

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 Less: DEDUCTIONS U/S 80

80 C/CCC/CCD - Specific Investments

LIC Preimium 20,000

80 E - Interest on Higher Education Loan 1,00,000

80 TTA - Interest on Saving Account

Subject to Maximum 10,000 10,000 - 1,30,000

Net Taxable Total Income 6,80,000

Computation of Total Income

Particulars Rs. Rs.

INCOME FROM SALARY

Salary from College 4,50,000

Less: Deduction U/S 16

Standard Deduction -50,000 4,00,000

INCOME FROM PROFESSION

Allowable Income as per IT

Fees from Client 12,50,000

Gift from a client 1,50,000

14,00,000

Less: Expenses disallowable as per IT Rules

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 Computer repairs 3,00,000

General Expenses 2,00,000

Office salaries 2,00,000

Computer stationery 1,00,000

Gift to staff and clients 1,00,000

Membership fees 50,000

Car Expenses 50,000

- 10,20,000 3,60,000

INCOME FROM OTHER SOURCES

1) LIC (Policy Matured) 4,00,000

L ess: Exempt U/S 10 4,00,000 NIL

2) Interest on PPF 50,000

Less: Exempt U/S 10 50,000 NIL

3) Gift from Mother 1,00,000

Less: Exempt 50,000 50,000

Q.2) M/s Pushpa a practicing Charted Accountant, furnishes the following particulars of her receipt and payment
account for the year ending 31st March.

Receipts Rs. Payments Rs.

To Balance b/f 5,000 By Salary and Bonus(including to 80,000
1,25,00
a son Rs.24,000)
To Professional Fees from clients 0
To Gift from father 15,000 By Printing & Statinery 5,500
To Present from clients for 15,000 By Books & Periodicals 2,400
winning the case By Conveyance Expenses 9,000
To Salary from College 20,600 By Interest on loan for higher 10,000
as a lecturer(Net after education of son
deducting I.T. Rs.10,000) By Purchase of a car 1,20,000
To Loan from a Bank for 50,000 By Motor car expenses 20,000
purchase of a car By Mediclaim Ins.Premium 6,500

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 To Prize received from a 4,500 By Interest on Bank loan for car 5,000
Rotary Club as the best By Income Tax 8,500
member of the year By Professional Tax 800
By Balance c/d 12,000
2,74,00
0 2,74,000
Other information
a) Depreciation allowable on a Motor Car, as per the Income Tax Rules is 20%
b) Motor Car is used for office as well as for personal use, and in the past 25% of the expenses were treated as for
personal use.
Compute the taxable income of Mrs. Pushpa for the assessment year.

Q.3) Mr.C who is physically handicapped (to the extent of 50%) is currently employed with JSM Ltd. furnishes you
with the following information:
1) The details of monthly salary for the year ended 31st March is as under:
Basic Salary per month Rs.5,000
Dearness Allowance per month:
From 1-4 to 31-12 20% of Basic
From 1-1 to 31-3 31% of Basic
Professional Tax deducted per month Rs.120
2) Bonus @ 20% on basic plus Dearness Allowance
3) Other Allowances Rs.3,500
4) Mediclaim Premium paid by employer on behalf of Mr. C Rs.2,800.
Other information provided by Mr. C is as follows:
a.) He owns a residential house at Virar which is rented to his friend.
Fair Rent Rs. 27,000 and Municipal Valuation Rs. 24,000
Rent received ( for 10 months period actually let) Rs.25,000
b.) He spent the following amounts during the year in respect of Virar house:
 Municipal Taxes paid ( for 18 months) Rs.9,000
 Repairs to house Rs.4,000
 Insurance premium paid for Rs. 1,500
c.) He also owns a residential house at Andheri which Is self occupied.
Fair Rent Rs.80,000 and Minicipal valuation Rs.75,000
d.) He spent following amounts during the year in respect of Andheru house:
 Municipal Taxes paid Rs.18,000
 Repairs to house Rs. 6,000
 Interest on Loan from HDFC for purchase of house.
Paid for the year 2009-10 during 2013-14 Rs. 1,500
Paid for the year 2013-14 Rs. 8,000

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 Outstanding for the year 2013-14 Rs. 2,000
 Repayment of the above loan during the year Rs. 14,000
Compute the taxable income of Mr. C for the assessment year.

Q.4) Followings are the particulars of income of Ms. Kalpana for the assessment year.
a) Salary @ Rs. 5,000 p.m. from M/s Kashi products Ltd. She also receives ex-gratia payment Rs. 5,000 and Rs.
8,000 as Bonus.
b) She was owning a flat which is let out for Rs. 27,000 p.a.
c) She incurred following expenses in respect of house property.
 Repiars Rs. 8,000
 Collection Charges Rs. 1,000
 Interest on borrowed loan Rs. 3,200 taken for purchase of house.
 Municipal Taxes paid Rs. 3,000
d) During the year she paid Rs. 4,080 for LIC Pension plan premium.
e) She is physically handicapped person ( to the extent of 55%). Compute the taxable income of Ms Kalpana for the
assessment year.

Q.5) Mr. Dutta is employed with Cybertech Ltd. He provides the following information for the assessment year.
a) Net salary per month Rs.9,000
b) Income Tax deducted at source Rs.900 per month
c) Professional Tax deducted at source Rs.100 per month.
d) He has been employed since 1st April 1983 and received entertainment allowance of Rs.750 per month, since that
date.
e) Perquisite value of Water, Gas and Electricity Rs. 10,000
f) Received Bonus during the year in respect of earlier year Rs. 6,000.
g) Received arrears of salary for 2007-08 Rs. 6000
h) The employer paid LIC premium of Mr. Dutta amounting to Rs.5,000
i) Took advance salary of Rs.10,000 on account of marriage of his son and loan of Rs.6,000
j) Mr. Dutta, who is also a director in the company received Rs. 2,000 as directors sitting fees during the year.
k) Mediclaim premium paid by the company Rs.2,500
l) He incurred the expenses incidental to employment, such as purchase of books, car expenses etc. amounting to
Rs.12,000
m) He received Rs.16,000 as salary from M/S Reema perfumes ( a partnership firm) where he is a partner.
n) He also received an amount of Rs.8,000 for his work as an agent for the life insurance Corporation on India as
commission and travelling allowance.
o) Repayment of loan from SBI for pursuing higher education of his son amounting to Rs. 50,000. Interest paid on
such loan Rs. 9,000
Compute his taxable income for the assessment year.

Q.6) Mr. Ram Nene is employed with Madhuri hospital as a full time Doctor. Following are details of his income for
the year ended 31st March.
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 (1) Basic salary Rs. 12,000 per month. (Gross)
(2) D.A. @ 30% of Basic.
(3) H.R.A. Rs. 10,000 [ Exempt u/s 10(13A) Rs. 4,500]
(4) He is provided conveyance facility for journey from his residence to hospital and back costing the hospital Rs.
10,000
(5) Entertainment allowance Rs. 500 p.m.
(6) Arrears of salary Rs. 6,000
(7) Professional tax deducted by hospital Rs. 2,400
(8) Best Doctor Award given to him by Madhuri Hospital Rs. 2,500
(9) He was selected the best surgeon by the state government and was awarded The Dhanvantari award instituted
in public Interest Rs. 10,000
(10) He received honorarium for presenting papers in various seminars Rs. 3,000
(11) He was owning a surgical equipment which was given on higher to Dr. Laxman Prasad. Higher charges
received by him Rs. 3,000. The expenses on maintenance amounted to Rs. 2,500 and allowable depreciation
Rs. 4,500.
(12) He paid Rs. 16,000 by cash to LIC for pension fund.
(13) He paid by cheque for medical insurance as follows:
a) For self Rs. 2,670
b) For Wife Rs. 2,670
c) Dependent Children Rs. 2,670
d) Independent Parents Rs. 2,670
Rs. 10,680

Compute his Net Taxable Income for the A.Y.

Q.7) Mr. Ganesh is the owner of a house in Mumbai. It has been let out for Rs. 1,00,000. The Municipal Taxes of Rs.
10,000 is payable by the owner, but as per the agreement entered into by the owner with the tenant, the tenant
would pay the municipal taxes directly to the municipality.
Mr. Ganesh claims the following deductions

Particulars Rs. Particulars Rs.

Repairs (50% met by tenant) 20,000 Interest on Loan taken 20,000
Land Revenue Due 3,000 before 1-4-01 for repairing
Land Revenue Paid 2,000 Collection charges 2,700
during the year Ground Rent due but not paid 1,500
Fire Insurance Premium paid 3,000
His other incomes are as follows:
 Dividend received from foreign company Rs. 10,000
 Interest on Post Office Saving Account Rs. 3,000
 Interest accrued on National saving Certificate Rs. 5,000
 Bank Interest on Fixed Deposits Rs. 8,000
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  Winning from house Races Rs. 5,500
Compute total income of Mr. Ganesh for Assessment year.

Q.8) Mrs. Vrinda Daga owns two houses in Mumbai. The particulars of her income from properties for the year ended
31st March is as follows:

House Property House

Particulars
I Property II
1 Nature of occupancy Self Occupied Let out
2 Fair Rent (Rs.) 4,00,000 6,00,000
3 Municipal Valuation (Rs.) 4,20,000 6,10,000
4 Rent Received (Rs.) NIL 6,50,000
5 Municipal Taxes Paid on 15.03.21(Rs.) 30,000 40,000
6 Fire Insurance Premium paid(Rs.) 8,000 10,000
7 Rent Collection charges(Rs.) - 8,000
8 Land Revenue payable(Rs.) 2,000 3,000
9 Interest paid on loan taken for(Rs.) 1,60,000 1,50,000
construction of house property
10 Date on which loan taken 26-11-2010 22-10-2009
11 Repayment of principal amount of loan(Rs.) 30,000 NIL
Mrs. Vrinda also received the following other incomes:
a) Dividend from Mafatlal industries Rs. 10,000
b) Interest on Fixed deposits with bank of India Rs. 20,000.
c) She paid Medical Insurance premium of Rs. 18,000 for self by cheque.
Compute her Net Taxable Income for the Assessment Year.

Q.9) Mr. Shivaji Raje, proprietor of SR and Co. furnishes you the following information for the year ended 31/3

Expenses Rs. Incomes Rs.

To Salaries 24,000 By Gross Profit 4,10,000
To Fire Insurance Premiums 12,000 By Interest on Fixed Deposit 8,000
To Staff welfare expenses 11,000 with Bank Of India
To Interest on Proprietors capital 5,000 By Interest on PPF 15,000
To Salary to proprietor 12,000
To General Expenses 22,000
To Advertisement 15,000
To Provision for Bad Debts 7,000
To Travelling expenses 40,000
To Repairs & Maintenance 5,000
To Investment in PPF 70,000
To Advance Income Tax 8,000

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 To Audit Fees 15,000
To Depreciation 13,000
To Net Profit 1,09,000
4,33,000 4,33,000
Additional information:
a) Depreciation as per Income Tax Rule is Rs. 16,000
b) Advertisement includes advertisement of Rs. 10,000 in a Souvenir published by a political party.
c) Repairs and Maintenance Expenses are fully incurred for residential house of proprietor.
d) He paid mediclaim insurance of Rs. 18,000 by cheque for himself. You are required to compute his total taxable
income for the assessment year.

Q.10) From the following profit and loss account of Mr. Sonavane, compute his total taxable income for the assessment
year.

Expenses Rs. Incomes Rs.

To Opening Stock 3,34,000 By Sales 10,40,000
To Purchases 9,00,000 By Closing Stock 3,05,000
To Office Salaries 71,000 By Income Tax refund (including 15,000
To Bad Debt Written off 25,000 Interest Rs. 2,000)
To Advertisement 10,500 By Dividend from U.T.I. 50,000

To Fire Insurance Premium 4,500 By Lottery prize received 1,10,000

To Conveyance 6,000
To Interest on Proprietors 25,000
Capital
To General Expenses 55,000
To Wealth Tax 5,000
To Sales Tax Penalty 4,000
To Depreciation 30,000
To Net Profit 50,000
15,20,000 15,20,000
Additional information:
a) General expenses include Advance Income Tax Rs. 10,000 and Rs. 500 for purchase of lottery tickets
b) Depreciation allowable as per Income Tax Rule is Rs. 25,000
c) Purchase include Rs. 80,000 paid for cash purchase and exceeding the limit of Rs. 20,000 prescribed under section
40 A(3) of Income Tax Act 1961.
d) Office salaries include Bonus due but not paid Rs. 16,500.
e) Mr. Sonavane who is physically handicapped person with 60% disability paid premium for LIC Pension Policy
Rs. 15,000

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 CHAPTER - 11
Income from Capital Gain
[Sec.45 to 55]

“Capital Gain is profit earned on transfer of capital asset during the previous year.”

Features of Capital Gain:

1) There must be a Capital Asset

2) The asset must be transferred
3) Transfer must be in the previous year
4) Transfer must result into a profit

1) Capital Asset:

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  Property of any kind
 Tangible or intangible
 Movable or immovable
 Purchased or constructed
 Short term or long term
 But does not include Business Stock (Profit on which is taxed as Income from Business and Profession)
 Capital Assets include Fixed Assets and Investments
Not Capital Assets Capital Assets
Stock In Trade for Business & Profession
Rural Agricultural Land Urban Agricultural Land
Personal Asset Jewelries
Excl. Jewelry, ornaments, etc Personal Immovable Property
Bearer Bond (e.g. House, Building)
Gold Bond
Movable Property

2) Transfer: There must be a transfer of capital asset. Transfer must be a change of ownership. In other words, mere
physical transfer is not transfer.
Various modes of transfer:
a) Sale
b) Barter
c) Gift
d) Legacy
e) Relinquishment
f) Extinguishment

3) Transfer must be in the previous year: The previous year under consideration is between 1-4-2012 to 31-3-2013.
Transfer means the exact point at which ownership is transfer.
4) There must be profit on transfer:
 Capital Gain is profit on transfer of capital asset.
 Profit means excess of selling price over Cost price
 In order to calculate capital gain, capital assets are classifies into two categories:
a. Short Term Capital Assets
b. Long Term Capital Assets.

 To determine whether a particular asset is short term or long term, the number of days for which it is held
by the owner (Transferor) are considered.

Shares
Held up to Short Term
& Securities
12 months HeldOther CAPITAL ASSET
Assets
up to 36 months Long
Assets which areTerm
not short term

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  Depreciable Assets are always Short term.
 Debentures are always Short term
 The criteria of 26 months have been reduced to 24 months in case of immovable property (Provided that
property is sold after 31st March 2017

In order to calculate number of days the asset is held, following points must be considered:

a) If an asset is acquired by way of gift or legacy, the period of holding will commence from the date asset is acquired
by the previous owner.
b) If shares of a new company are received under the scheme of amalgamation or merger, then period of holding will
commence from the date from which the shares of the old entity were purchased.
c) If a company goes into liquidation, then period of holding will come to an end from the date from which the order of
liquidation is passed.

SHORT TERM CAPITAL GAIN LONG TERM CAPITAL GAIN

Gross Selling Price + Gross Selling Price +

Less: Exp. Incurred in connection Less: Exp. Incurred in connection with
(+) (+)
with sales sales
Net Selling Price + Net Selling Price +
Less: Cost of Asset (+) Less: Indexed Cost of Asset (+)
Less: Cost of Improvement (+) Less: Indexed Cost of Improvement (+)
Short Term Capital Gain ** Long Term Capital Gain **

A. Gross Selling Price: It is full consideration received.

 If part payment received in cash and part received in kind, the kind is converted into cash and added to the cash
component.
 In case of Barter, the fair market value of the asset received is the selling price of the asset delivered.
 If the payment is received in installments, the total of all the installments is Gross Selling Price.
B. Expenses in connection with sale: Exclusively related to sale
 Brokerage & Commission
 Transfer charges
 Legal Charges
 Stamp Duty and

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  Expenses paid to Tenant for vacating the property.
C. Cost of the Asset: Purchase price + All incidental expenses.
 If an asset is self generated, cost means cost of construction.
 If the asset is self generated Intangible(Goodwill), Cost is NIL
 For Bonus Shares, Cost is NIL
 If an asset is acquired by way of gift or legacy, cost is cost of previous owner.
D. Cost of Improvement: Expenses incurred for repairs and renovation
 These expenses are allowed as deduction only if they are not claimed as deduction anywhere else.

E. Exemption on Capital Gains: The Capital Gain Tax can be lowered by taking benefits of exemptions provided
by the Income Tax Act on capital gain when profit from the sale is reinvested into buying another assets.

 Section 54 – Exemption on sale of House Property on Purchase of another house property.

i. The new property must be purchases either 1 year before the sale or 2 years after the sale
ii.


INDEXATION
In case of Long Term Capital Asset, asset is acquired long back and sold now. In long term capital gain, the cost is
incurred years back and selling price is realized now.
It is therefore unreasonable to compare selling price with the cost. The reason being the cost remain invested for a
long period of time. The interest which could have been earned, had not been earned. This interest should be taken into
consideration. It is therefore indexation is carried out.
Index numbers are the representatives of Whole Sale Price prevailing in the market. For setting up Index numbers,
1 April.1981 (1981-82) was considered as base and price prevailing in that year were assumed to 100.
st

Therefore, based on the whole sale price every year, indexed numbers are revised.
For the current previous year (2012-13), the index number is
 Indexation is not applicable to Debentures and Bonds

How to apply Index Numbers

a) Indexation of Cost of Purchase:
Cost of Purchase
Index no. of the
Indexed no. of the year in which
current year
Cost is incurred

b) Indexation of Cost of improvement:

Cost of Improvement
Index no. of the
Indexed no. of the year in which
current year
Improvement is incurred out

 However, if an asset is acquired prior to 1-4-1981, then cost of asset is taken as higher of the Two:
a) Original Cost of the Asset
b) Fair Market Value as on 1-4-1981
If the fair Market Value as on 1-4-1981 is taken as cost, then all expenses incurred for improvement prior to
April-1981 have to be ignored.

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 How to calculate capital gain on Depreciable Asset

 In Income Tax, Depreciable Assets are always considered as Short Term Capital Assets.
 On Depreciable Assets, Indexation is not applied
 Depreciation is an allowable expenditure under the head business and profession.
How to calculate Depreciation:

Particulars Rs.
Opening W.D.V. as on 1-4-2012 +
Add: Cost of Assets Purchased +
+
Less: Selling price of the asset sold (+)
W.D.V. before Depreciation/ (S.T.C.G) +/-
 However, if the selling price is more than the total of opening W.D.V., then the surplus is known as ‘Short Term
Capital Gain’ (STCG)
 There are two possibilities:
a. If entire Block of Asset is sold: It means no asset is left out in that block. Hence no W.D.V. need to be carried
for the next year.
If there is gain (+), it will be known as Short Term Capital Gain, and
If loss(-), it will be known as Short Term Capital Loss.
b. If Part of the block is sold: It means few assets are carried in that block. In such case, if some W.D.V.
remains, it will be carried to the next year.
If Selling price is more (+), the gain will Short Term Capital Gain and no W.D.V. carried to the next year.
If Selling price is less (-), no capital gain or loss, but the balance will be known as W.D.V. of the reaming
block to be carried to the next year.

Entire Block is Sold Rs. Part of the Block is Sold Rs.

Gross Selling Price + Gross Selling Price +
Less. Exp. In connection with sales (+) Less. Exp. In connection with sales (+)
Net Selling Price + Net Selling Price +
Less: Opening W.D.V.(1-4-12) (+) Less: Opening W.D.V.(1-4-12) (+)
Less: Cost of Asset Purchased (+) Less: Cost of Asset Purchased (+)
S.T.C.G. / ( S.T.C.L) + / (+) S.T.C.G. /( W.D.V. of the Block) + / (+)

COST OF INFLATION

Financial Year Inflation Rate Financial Year Inflation Rate

2001 - 02 100 2002 - 03 105
2003 - 04 109 2004 - 05 113
2005 - 06 117 2006 - 07 122
2007 - 08 129 2008 - 09 137
2009 - 10 148 2010 - 11 167
2011 - 12 184 2012 - 13 200
2013 - 14 220 2014 - 15 240
2015 - 16 254 2016 - 17 264
2017 - 18 272 2018 - 19 280
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 2019 - 2O 289 2020 - 21 301
2021 - 22 317 2022-23

Q.1) State whether the following are capital Assets within the definition of section 2(14)

a) Goodwill of the business.

b) A house for personal use
c) Personal scooter
d) Utensils
e) Vacant land
f) Jewelry
g) Share of AB ltd
h) Debenture of XY Ltd.
i) Refrigerator used in house
j) Gold coins used for puja of goddess Laxmi, in puja room in the house.
k) Agricultural Land situated in Afghanistan.

Q.2) Classify the gains arising from the followings, into short term capital gains and long term capital gains.
a. Mr. A purchases a building on 1-1-2004 and sells it on 1-1-2020
b. Mr. A purchases a building on 1-1-201 and sells it on 1-1-2020
c. Mr. A acquire shares on 1-5-2016 and sells them on 1-3-2020
d. Mr. A acquires Units Trust of UTI on 1-5-2015 and sells them on 1-4-2020

Q.3) An assessee acquired a house property on 27-11-2014, and sold it on 25-11 2019. Ascertain whether the asset will
be treated as a long term or short term capital asset.

Q.4) An assessee purchased shares on 27-2-1017 and sold them on 4-3-2020. Ascertain whether the asset will be
treated as long term or short term capital gain.

Q.5) Mrs. Karina sells the following capital asset (i.e. shares) during the previous year
a) Sales consideration 150 shares of Infosys Ltd. @ Rs.2,880 per share on 31-10-2019
b) These shares were acquired in the year 2011-12 @ Rs.1,800
c) Brokerage paid Rs.3,289
Compute the capital gain for A.Y.
Sol. The Capital Asset is Long Term in nature as the Holding period is more than 12 monnths

Gross Selling Price (2,880 X 150) 4,32,000
Less: Exp. Incurred in connection with sales - 3,289

Net Selling Price (Vaalue of Consideation) 4,28,711
Less: Indexed Cost of Asset (2,70,000 / 184) X 289) - 4,24,076
Less: Indexed Cost of Improvement NIL
Long Term Capital Gain 4,635

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Q.6) A purchased a piece of land on 4-1-1999 for Rs.50,000. This land was sold by him on 20-9-2021 for
Rs.20,00,000. Tha market value of the land as on 2001 was Rs.1,60,000. Expenses on transfer were 2% of the sale
price. Compute the capital gain for assessment year 2022-23

Sol. The Capital Asset is Long Term in nature as the Holding period is more than 24 months

Gross Selling Price 20,00,000
Less: Exp. Incurred in connection with sales (2%) - 40,000

Net Selling Price (Value of Consideation) 19,60,000
Less: Indexed Cost of Asset (1,60,000/ 100 ) X 289) - 4,62,400
Less: Indexed Cost of Improvement NIL
Long Term Capital Gain 14,97,600

Q.7) Mrs. Kavita purchased a house property for Rs.2,00,000 in the year 1989-90. Following expenses were incurred
for the house property.
a) Cost of construction in the year 1992-93, Rs.1,50,000
b) Cost of construction of 1st floor in 2004-05 is Rs.3,90,000
c) Alteration of house property in 2013-14, Rs.3,50,000
d) Fair market value of the property on 1 st April 2001 is Rs.8,00,000. The house property is sold to Mr. Alok in the
previous year 2021-22 for Rs.1,00,00,000.
e) Expenses incurred on transfer during the previous year is Rs.1,00,000

PARTICULARS RS.

Gross Selling Price 1,00,00,000

Less: Exp. Incurred in connection with sales 1,00,000

Net Selling Price (Value of Consideation) 99,00,000

Less: Indexed Cost of Asset (8,00,000 / 100 ) X 289) - 23,12,000

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 Less: Indexed Cost of Improvement (2004-05) (3,90,000 / 113 ) X 289) - 9,97,434

Less: Indexed Cost of improvement (2011-12) (3,50,000 / 184 ) X 289) - 549,728

Long Term Capital Gain 60,35,838

Q.8) Mr. Prasad purchases one Bungalow for Rs.51,000 in the year 1970-71. He constructed 2 additional rooms in the
year 1980-81 by spending Rs.1,00,000. He dies on 1 st October, 1999 and as per his will the house is transferred to
his son Mr. Firdosh. Mr. Firdosh spends Rs.35,000 for repairs in the year 2001-02 and constructs an additional
room in the year 2007-08 for Rs.60,000. Mr. Firdosh sell the above house property for Rs. 80,00,000 on 30 th
March, 2020, brokerage being paid Rs.80,000. The fair market value of the property as on 1 st April, 2001 is
Rs.2,00,000. Find out the amount of capital gain taxable in the hands of Mr. Firdosh for A.Y. 2020-21.

Gross Selling Price 80,00,000
Less: Exp. Incurred in connection with sales - 80,000

Net Selling Price (Value of Consideation) 79,20,000
Less: Indexed Cost of Asset (2001-02)
(2,00,000/ 100 ) X 289) - 5,78,000
Less: Indexed Cost of Improvement (2007-08) (60,000 /
129) X 289 - 1,34,418
Long Term Capital Gain 72,07,582

Q,9) Mr. Kamal Prasad purchased a property on 14 th may, 1989 at a cost of Rs.90,000. He builds 1 st floor at a cost of
Rs.76,508 in the year 1995-96. Mr. Kamal built up 2 more rooms at the cost of Rs.50,000 in 2003-04. Mr. Kamal
gifts the above property to his friend Mr. Sharma on 13 th May, 2004-05 who makes certain improvement at a cost
of Rs. 1,70,000 in the same year after acquisition. The fair market value as on 1 st April, 2001 was Rs.1,90,000
Subsequently due to the daughter’s marriage Mr. Sharma had to sell this house property at Rs. 90,00,000 during
the previous year 2019-20. Compute the capital gain chargeable to tax in the hands of Mr. Sharma for the
assessment year 2020-21.

Gross Selling Price
Less: Exp. Incurred in connection with sales
Net Selling Price (Value of Consideation)
Less: Indexed Cost of Asset ( /  ) X 289)
Less: Indexed Cost of Improvement
Long Term Capital Gain

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Q.10) Mr. Shrimant converts his capital assets acquired on 16 th July, 1979 of Rs.70,000 into stock in trade on 15th July,
2019. The fair market value on 1st April, 2001 was Rs. 1,90,000 and 15th July, 2019 is Rs. 4,89,000.

The stock in trade was subsequently sold in the previous year for Rs. 36,00,000 on 16-07-2019. Determine the
amount of capital gain.

PARTICULARS RS.

Gross Selling Price 4,89,000

Less: Exp. Incurred in connection with sales NIL

Net Selling Price (Value of Consideation)

Less: Indexed Cost of Asset (1,90,000 / 100 ) X 289) - 5,49,100

Long Term Capital Loss - 60,100

Q.11) Ms. Sita and Gita formed a partnership firm. Ms Sita brought on 14 th Augast, 2019 of the previous year the
following assets as her capital construction:

Gold Rs Silver Rs
FMV as on the date of transfer 6,40,000 1,72,000
Amount recorded in the books of the account 7,00,000 1,50,000
Actual cost 1,30,000 1,12,000
Year of acquisition 2004-05 2015-16
Rs. 10,50,000 is credited in the capital account of Ms. Sita by the firm. Is Ms. Sita chargeable to tax in this case.

Q.12) Mamta, Samta and Kavita are 3 parteners of a firm M/s Technova Engineers. On 29 th March, 2019 of the previous
year, the firm is dissolved. The following assets are distributed among the partners.

Residential Share Land

House (taken (Taken by (Taken by
By Mamta) Samta) Kavita)
FMV as on 29th March, 2019 15,20,000 80,000 2,40,000
Agreed Value as per Dissolution Deed 11,70,000 46,000 32,000
Cost of Acquisition 40,000 5,000 8,000
Year of acquisition 1949-50 1992-93 1983-84
FMV as on 1-4-2001 3,00,000 - -
Determine the amount of Capital Gain of the firm for the A.Y. 2020-21

Q.13) The written down value of the block of asset on 1-4-2019 was Rs.5,00,000. An asset of the same block was
acquired on 11-5-2019 for Rs.3,00,000. There was a fire on 18-9-2019 and the assets were destroyed by fire and
the assessee received a sum of Rs.11,00,000 from the insurance company.
Compute the capital gain assuming:
a) All assets were destroyed by fire

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 b) Part of the assets was destroyed by fire.
What will be the answer if an assessee received Rs.6,00,000 from insurance company and assume:
a) All the assets were destroyed by fire.
b) Part of the assets was destroyed by fire.

Q.14) Mr.K is the owner of the following assets as on 1-4-2019.

Block: Plant & Machinery, Rate – 15%

Cost of Date of WDV as on

Assets
Acquisition Acquisition 1-4-2014
Machinery A 2,00,000 1/4/2012 17,500
Machinery B 2,50,000 1/5/2016 22,000
Machinery C 20,000 31/7/2017 15,000
During the previous year 2019-20 he acquired Machinery D on 3-6-2019 for Rs.10,000 and sold Machinery A for
Rs.72,000 on 1-8-19.

Q.15) Compute the Capital Gains in the following cases:

a) M commenced business on 1-4-2001. He sold this business on 1-4-2019 and received inter alia (Among others)
Rs. 5,00,000 towards goodwill.
b) M had acquired a business from V on 1-4-2013-14 by paying Rs.2,00,000 towards goodwill. He sold this business
on 1-4-2019 and received Rs.9,00,000 towards goodwill.
c) M is staying in a rented flat since July 2004. The land lord paid Rs.1,00,000 to M as compensation for surrender
of tenancy in June 2019.
d) M purchased tenancy rights on 1-7-2001 for Rs.2,50,000. He transferred the tenancy rights on 1-6-2019 for
Rs.27,50,000
e) V is lawyer practicing in Mumbai since 2006. He transfer his practice to C on 25-09-2019 and charges
Rs.7,50,000 towards goodwill.

How much Tax you need to pay?

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General Public Senior Citizens Super Senior Citizens

(Below 60 Years of Age) (60 to 80 years of Age) (More than 80 Years of Age)
Income Tac Slab Tax Income Tax Slab Tax Income Tac Slab Tax
Up to Rs.2.5 Lakhs NIL Up to Rs.3 Lakhs NIL Up to Rs.5 Lakhs NIL

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Above 10 Lakhs 30% Above 10 Lakhs 30%

- Education + Health Cess of 4 %

- Surcharge of 10% on 50 Lacs to Rs. 1 Crore Plus income earners
- Surcharge of 15% on Rs.1 Crore Plus Income Earners
- Tax credit of Rs.2,500 for income up to Rs.3.5 Lacs U/S 87A
- Standard Deduction of Rs.50,000 for salaried and Pensioners
- There are no separate slab for Male and Female.

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