Professional Documents
Culture Documents
4. Unit 4: [5 + 10 = 15 Marks]
Deduction u/s 80 C to 80 U 102 – 112
Set-off & carry forward of losses 113 – 117
Clubbing of Income 118 – 121
i
4th Semester: Honours & General
TAXATION-I
Internal Assessment: 20 marks; Semester-end Examinations: 80 marks
[4 Questions of 5 Marks] [2 Question with option]
[3 Questions of 10 Marks] [2 Question with option]
[2 Questions of 15 Marks] [1 Question with option]
Unit 1 : [5 + 5 =10 Marks]
a) Basic Concepts and Definitions under IT Act
Assessee, Previous year, Assessment year, Person, Income, Sources of income, Heads of
income, Gross total income, Total income, Maximum marginal rate of tax, Tax Evasion, Tax
avoidance, Tax planning.
b) Residential Status and Incidence of Tax: Residential status of all persons except company
c) Incomes which do not form part of Total Income Except section 10AA.
d) Agricultural Income: Definition, determination of agricultural and non-agricultural Income,
assessment of tax liability when there are both agricultural and non-agricultural income
Unit 4: (5 + 10 = 15 Marks)
a) Income of other Persons included in Assessee’s Total Income: Remuneration of
spouse, income from assets transferred to spouse and Son’s wife, income of minor.
b) Set off and Carry Forward of Losses: Mode of set off and carry forward, inter source and
inter head set off, carry forward and set off of losses u/s 71B, 72, 73, 74, 74A.
c) Deductions from Gross Total Income: Basic concepts, deductions u/s 80C, 80CCC, 80CCD,
80CCE, 80D, 80DD, 80DDB, 80E, 80G, 80GG, 80GGC, 80TTA, 80U
d) Rebate u/s 87A
ii
Expected Question Pattern:
Group A: [4 Qns of 5 Marks: 20 Marks]
[2 Questions with options]
1 Practical Question from Residential Status
1 Practical Question from Agriculture Income, theory may be in option from Basic concept & definition
1 Practical Question from Deduction, Theory from clubbing of income may be in option
[1 Practical Question of 10 Marks from Deductions] [1 Practical from Set off may be in option]
iii
Course Fees For 2nd Semester:
Regular Course:
Cost: ₹ 2,500
Law/MMHRM/PMEC: ₹ 1,500
All Subjects: ₹ 7,000
(For 1st 50 students who were enrolled at bhalotia classes in
earlier semesters, Course fees for All Subjects will be
5,500)
Course Fees For 4th Semester:
Regular Course:
Cost/Tax: ₹ 2,500
EDBE/Economics: ₹ 1,500
All Subjects: ₹ 8,000
(For 1st 50 students who were enrolled at bhalotia classes
in earlier semesters, Course fees for All Subjects will be
6,500)
Course Fees For 6th Semester:
Regular Course:
FRFSA/FM: ₹ 2,500
E-Filing: ₹ 2,000
All Subjects (Excl EVS) ₹ 7,000
(For 1st 50 students who were enrolled at bhalotia classes in
earlier semesters, Course fees for All Subjects will be
5,500)
iv
Bhalotia Classes (9883034569): Taxation I (4th Semester AY 2021-22)
incidence & a tax is said to be direct when impact and if impact of tax is on one person and
impact incidence of a tax are on one and same incidence on the another, the tax is called
person. ‘indirect’
Burden direct tax is imposed on the individual indirect tax is imposed on commodities
organisation and burden of tax cannot and allows the tax burden to shift.
be shifted to others.
Viability of direct taxes are lesser burden then indirect indirect taxes are borne by the consumers
payment taxes to people as direct taxes are based on of commodities and services irrespective
income earning ability of people. of financial ability as the MRP Includes all
taxes.
administrative the administrative cost of collecting direct Cost of collecting indirect taxes is very
viability taxes is more and improper administration less as indirect taxes are wrapped up in
may result in tax evasion. prices of goods and services and
cannot be evaded.
Penalty it is levied on the assessee. it is levied on supplier of Goods &
Services.
Chapter 2:
Basic Concepts & Definitions:
Sections (IncomeTax Act, 1961) Details
2. Individual
The word ‘individual’ means a natural person, i.e. human being. “Individual” includes a minor or a
person of unsound mind.
Examples: Mr. A, Mrs. B, Miss C
4. Company
It include domestic company, Foreign company, company in which public are substantially interested.
Examples: ABCL Limited, Life The Life Insurance Corporation of India.
5. Firm
A firm includes a partnership firm whether registered or not and shall include a Limited Liability
Partnership as defined in the Limited Liability Partnership Act, 2008.
Examples: Roy Sen & Co., a partnership firm.
6. Association of Person :
Two or more persons join in for a common purpose or common action to produce income, profits or
gains.
It may consist of individuals, HUF, companies, firms, etc. as members
The object must be to produce income. it is not enough that the persons receive the income
jointly.
Examples: Co-operative Society, All india Bank Union
7. Body of Individuals
Body of Individuals denote the status of persons who are assessable in like manner and to the same
extent as the beneficiaries individually.
Only individuals can be the members
individuals join together for common purposes
Examples: Co-heirs, co-donees, Club etc.
9. Local Authority****
A local authority means a municipal committee, district board, body of Port Commissioners, Panchayat,
Cantonment Board, or other authorities legally entitled to or entrusted by the Government with the
control and management of a municipal or local fund.
Example: Kolkata Municipal corporation etc.
Example 2 :
A joins an indian company on February 17, 2020. Prior to joining this indian company he was not in
employment nor does he have any other source of income. determine the previous year of a for the
assessment years 2020-21 and 2021-22.
Answer : Previous years for the assessment years 2020-21 and 2021-22 will be as follows.
Previous year Assessment year
Feb. 17, 2020 to March 31, 2020 2020-21
April 1, 2020 to March 31, 2021 2021-22
Chapter 3:
Income Exempted from Tax.
1. Mention any five incomes Which are fully Exempt
under the Income – tax Act, 1961.****
Sec. 10 enlists the various income which are exempt from tax i.e. does not form part of total income of the
assessee. These are –
Chapter 4:
Rate of Taxation.
Tax On Casual Income: 30%
Tax On Long term capital Gain: 20%
Tax On Balance Income : Slab Rate
Slab Rate:
(I) Individual below 60 years and HUF
(II) For resident senior citizen (who is of 60 years but less than 80 years at any time during the previous year)
(1) Where the total income does not Nil;
exceed ₹ 3,00,000
(2) Where the total income exceeds ₹ 5 % of amount by which the total income exceeds
3,00,000 but does not exceed ₹ 3,00,000
5,00,000
(3) Where the total income exceeds ₹
5,00,000 but does not exceed ₹ ₹ 10,000 + 20% of the amount by which the total
10,00,000 income exceeds ₹ 5,00,000
(4) Where the total income exceeds ₹ ₹ 1,10,000 + 30% of the amount by which the to
10,00,000 income exceeds ₹ 10,00,000
(III) For resident super senior citizen (who is of 80 years during the previous year)
Quantum of rebate:
The rebate shall be equal to:
(a) the amount of income-tax payable on the total income for any assessment year or
(b) ₹ 12,500,
whichever is less.
Chapter 5:
Residential Status
1. Residential status of an individual [Section 6 (1)]
Residential status of Individuals
Note:
Where the exact arrival and departure time is not available then the day he comes to India and the day he
leaves India is counted as stay in India.
Non-resident HUF:
An HUF is non-resident in India if the control & management of its affairs is wholly situated outside India.
The place of central control & management is situated where the head, the seat & the directing power is
situated.
i) Since he left India for employment purpose, condition of sec. 6(1)(c) shall not be applicable on such
assessee. He will be treated as resident in India, if and only if, he resided in India for at least 182 days
during the previous year. Hence, Mr. X is a non-resident in India for the previous year 2020-21.
ii) Since he left India on world tour, which is not an exception of sec. 6(1), satisfaction of any one
condition of sec. 6(1) makes him resident in India for the previous year 2020-21. As he satisfies 2nd
condition of sec. 6(1) [shown above], he is resident in India. Further, he also satisfies dual conditions
specified u/s 6(6) (since he left India for first time). Therefore, he is an ordinarily resident for the
previous year 2020-21.
(b) Since Miss Monica stayed for 100 days during the previous year 2020-21 and for 400 days (100 days
X 4 years) during the 4 years immediately preceding the previous year, hence, she is satisfying sec.
6(1)(c). Thus, she is resident for the previous year 2020-21. Further, she resides for only 700 days
(100 days X 7 years) during the 7 years immediately preceding the previous year. Hence, she does not
satisfy one of the conditions of sec. 6(6). Thus, she is resident but not ordinarily resident for the
previous year 2020-21.
Income from the sale of tea grown and manufactured by 60% 40%
the seller
Example:
If an assessee earns ₹ 5 lakh (as per sec. 28) from the business of growing & manufacturing tea in India, then
his business income will be ₹ 2 lakh (i.e., 40% of ₹ 5 lakh) & agro income will be ₹ 3 lakh (i.e. 60% of ₹
5 lakh)
Practical Questions:
6. Tax computation
Question:
Mr. X aged 42 years has non-agro income of ₹ 3,25,000 and agro income of ₹ 2,55,000. Compute his tax
liability for the A.Y. 2021-22.
Answer:
Computation of tax liability of Mr. X for the A.Y. 2021-22
Particulars ₹
Income Tax on ₹ 5,80,000 (i.e. agro income ₹ 2,55,000 + non agro ₹ 3,25,000) 28,500
Less: Tax on ₹ 5,05,000 (i.e. agro income ₹ 2,55,000 + maximum exempted limit ₹ 2,50,000) 13,500
Tax liability 15,000
Less: Rebate u/s 87A 12,500
2,500
Add: Health & Education Cess (4% of ₹ 2,500) 100
Tax and cess payable (Rounded off u/s 288B) 2,600
Chapter 7:
INCOME FROM SALARY:
1. Basis of charge (u/s 15)
(1) There should be employer employee relationship.
(2) If an employee is paid tax-free salary than gross salary is chargeable u/s 15 and deduction for tax is
allowable u/s 16(iii)
(3) Salary is taxable on “Due” or “Receipt” basis whichever is earlier
10. Bonus
Bonus: Bonus may be contracted or voluntary.
Treatment:
a. Fully taxable.
b. It is taxable in the year of receipt.
Case C: Gratuity received by non–government employee, covered by the Payment of Gratuity Act.
In such case, minimum of the following shall be exempted from tax u/s 10(10)(ii):
(a) Actual Gratuity received;
(b) ₹ 20,00,000; or
(c) 15 working days salary for every completed year of service
[Arithmetically, 15/26 x Completed year of service x Salary p.m.]
Notes:
(a) Completed year of service includes any fraction in excess of 6 months. (e.g. 7 years 9 months will be
treated as 8 years; 7 years 5 months will be treated as 7 years and 7 years 6 months will be treated as 7
years).
(b) Salary here means Basic + DA, last drawn
Case C: Gratuity received by non–government employee, not covered by the Payment of Gratuity Act.
In such case, minimum of the following shall be exempted from tax u/s 10(10)(iii):
(a) Actual Gratuity received;
(b) ₹ 20,00,000; or
(c) ½ x Completed year of service x Average Salary p.m.
Notes:
(a) While calculating completed year of service ignore any fraction of the year. (e.g. 7 years 9 months
will be treated as 7 years only)
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Bhalotia Classes (9883034569): Taxation I (4th Semester AY 2021-22)
(b) Average Salary here means, Basic + DA (forming part of salary for retirement benefit) + Commission
(being a fixed percentage on turnover), being last 10 months average salary, immediately preceding
the month of retirement. (E.g. If an employee retires on 18/11/2020 then 10 months average salary
shall be a period starting from Jan’ 2020 and ending on Oct’ 2020).
(c) If DA is not forming a part of retirement benefit then the same shall not be included in salary for
above purpose. However, DA itself shall be fully taxable.
Case C: Commuted pension received by an employee who also received gratuity [Sec. 10(10A)(ii)]
One third of total pension (which assessee is normally entitled for) commuted is exempt.
Case D: Commuted pension received by an employee who does not receive gratuity [Sec. 10(10A)(ii)]
One half of total pension (which assessee is normally entitled for) commuted is exempt.
20. Valuation of rent free accommodation under rule 3 (1): U/s 17 (2) (i)
Valuation of rent free unfurnished accommodation
(a) When provided by the government to its employee: - License fees as determined
(b) Other Employees:
The value of perquisite is determined as per the following table:
Any other city 7.5% of salary for the period during which
the employee occupied the said
accommodation.
Notes:
Here salary = Basic + DA (forming part of retirement benefit) + bonus + commission + all other taxable
allowance (only taxable amount) + any other monetary payment changeable to tax (excluding perquisites,
Retirement benefits, Gratuity, Contribution to Provident Fund etc)
Valuation of Rent-free furnished accommodation
Value of Furnished accommodation = Value of accommodation + Value of furniture
Valuation of Furniture: As per the following table
Case Taxable value
Furniture owned by the employer 10% of original cost of furniture
Furniture hired by the employer Actual hire charges paid/payable by the employer
Notes:
(a) Furniture includes Television sets, radio, refrigerator, other household appliance, air-conditioning plant
or equipment.
(b) The above rule is applicable to Government as well as Non-Government Employees.
(b) Recognised Provident Fund (RPF): The provident fund scheme is framed under the Employee’s
Provident Fund and Miscellaneous Provisions Act, 1952 (hereinafter referred as PF Act).
(c) Unrecognised Provident Fund (URPF): If a provident fund scheme is created by an employer,
which is not recognised by the Commissioner of Income tax, then such fund is known as
Unrecognised provident fund.
(d) Public Provident Fund (PPF): Any member of the public, whether salaried or self-employed, can
contribute to the fund by opening a provident fund account at any branch of the State Bank of India
or its subsidiaries or other specified bank. Interest is credited every year but payable only at the time
of maturity. Interest earned on this fund is exempt from tax u/s 10(11).
Tax Treatment
Particulars SPF RPF URPF PPF
Exempted up to 12% of Salary
Not taxable in the
Employer’s (here, salary means Basic + DA year of deposit, Not
Not taxable
Contribution forming part of salary for retirement but taxable in the Applicable
benefit + year of withdrawl
Commission as a fixed percentage on
Turnover)
Eligible for Not eligible for Eligible for
Employee’s
deduction u/s Eligible for deduction u/s 80C deduction u/s deduction
Contribution
80C 80C u/s 80C
Accumulated interest on employer’s contribution Fully taxable under the head Salaries
Accumulated interest on employee’s contribution Fully taxable as income from other sources
Chapter 8:
Income from House property
Chargeability (sec22):
Annual value of a property consisting of any building or land appurtenant thereto of which the assessee is the
owner is chargeable to tax under the head Income From House Property. The annual value is chargeable to
Income From House Property if the following three conditions are satisfied:
i) The property must consist of building and land appurtenant thereto
ii) The Assessee must be the owner of such property
iii) The property should not be used by the owner for the purpose of any business or any profession carried
on by him, the profits of which are chargeable to tax.
Notes:
(a) Land appurtenant to a building includes car parking area, approach roads, backyards, courtyards, etc.
attached to such building.
(b) Vacant land is not a house property. Hence, income from letting of vacant land is not taxable under
this head but taxed as income from other sources.
(c) Income from sub-letting is not taxable under IFHP but under the head ‘Income from other sources’.
(d) When a person carries on business or profession in his own house property, annual value thereof is
not taxable u/s 22 but it is chargeable under the head “Profits & gains of business or profession”.
(e) If an assessee lets out the property to his employee, where such letting out supports smooth flow of
his business, then such letting out shall be shall be chargeable under the head “Profits & gains of
business or profession”.
(f) If a building consists of several flats, then each flat is considered as a separate house property.
Computation of Income
(a) Let out property [Sec. 23(1)]
(b) Property not actually occupied by the owner [Sec. 23(2)(b)]
(c) Self-occupied property [Sec. 23(2)(a)].
(d) Partly let out and partly self occupied property [Sec. 23(3)]
(e) Deemed to be let out property [Sec. 23(4)].
(f) Recovery of arrears of rent and unrealized rent [Sec. 25A]
Notes:
While computing actual rent receivable, outstanding rent shall be considered but advance rent
received during the financial year is not to be considered.
Steps Particulars H1 H2 H3 H4 H5
1 st Calculation of RER
Gross Municipal Value 90 500 30 100 315
Fair Rent 300 300 300 300 300
Higher of the above [A] 300 500 300 300 315
Standard Rent [B] 50 800 240 250 500
Reasonable Expected Rent [lower of A and B] [C] 50 500 240 250 315
Solution:
Computation of Gross Annual Value (₹ in ‘000)
Step Particulars Working H1 H2 H3 H4 H5 H6
1st Calculation of RER Higher of GMV and FR (RER cannot exceed 300 180 280 225 250 240
SR)
2nd ARR For the period actually let out 550 675 250 220 180 220
3 rd
Higher of above Higher of Step 1 & Step 2 550 675 280 225 250 240
4th Gross Annual Value 5501 6751 2502 2202 2503 2204
1. In H1 and H2 Actual rent receivable is already higher than RER therefore vacancy period is not
making any impact on GAV.
2. In H3 & H4, ARR is less than RER due to vacancy (otherwise ARR would have been ₹ 3,00,000 & ₹
2,40,000 respectively). Therefore, GAV will be the ARR computed in step 2.
3. In H5, ARR is less than RER not only due to vacancy but also due to other factors. In such case, value
of RER shall be taken as GAV.
4. In H6, ARR is less than RER due to vacancy period otherwise ARR would have been equal to RER.
Municipal Tax
Municipal Tax includes services tax like Water Tax and Sewerage Tax levied by any local authority. It can
be claimed as a deduction from the Gross Annual Value of the Property.
Conditions:
(a) It should be actually paid during the previous year. It must be paid by the assessee (owner)
(b) Municipal Tax can be claimed as a deduction only in respect of let out or deemed to be let out
properties.
(c) It must be related to the previous year or any year preceding the previous year.
(d) Payment of municipal tax in advance (liability in respect of which has not yet incurred) shall not be
allowed as deduction in the year of payment.
(e) Municipal taxes met by tenant are not allowed as deduction.
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Bhalotia Classes (9883034569): Taxation I (4th Semester AY 2021-22)
Deductions
Deduction u/s 24
1. Standard deduction u/s 24(a)
2. Interest on loan or interest on borrowed capital u/s 24(b).
No deduction can be claimed in respect of expenditures which are not specified under this section e.g., no
deduction is allowed for repairs, collection charges, insurance, ground rent, land revenue, etc.
Combination Treated as
Fully self occupied Self occupied property
Partly self occupied & partly vacant Self occupied property
Partly self occupied & partly let out Partly self occupied & partly let out (discussed later)
Partly self occupied & partly use for own business Self occupied to the extent used for self occupation
Particulars Amount
Net Annual Value Nil
Less: Interest on borrowed capital u/s 24(b) ***
Income from house property (***)
Standard deduction u/s 24(a) is not available
Net Annual value
Net Annual value of two self-occupied house properties, at the choice of the assessee, is taken as nil. He can
choose those house properties as self-occupied through which tax liability can be reduced.
Tax Treatment
The amount so received shall be taxable under the head ‘Income from house property’ in the year of
receipt after deducting standard deduction @ 30% of such amount.
Notes:
(a) No other deduction shall be allowed from such income except standard deduction i.e. 30% of
such receipt. (even legal expenditure shall not be allowed as deduction)
(c) Such receipt shall be chargeable as income from house property although the assessee is not the
owner of such property in the year of receipt.
Short Questions
1. Income from House Property [B.com 2002 Honours]*
From the following data calculate the “Gross annual value of the following houses:
House I II III IV V
Municipal Value(gross) 20,000 36,000 15,000 45,000 32,000
Rent received 24,000 27,000 18,000 48,000 40,000
Fair rent 23,000 30,000 16,000 42,000 44,000
Standard Rent 22,000 33,000 20,000 N.A N.A
[GAV: ₹ 24,000; ₹ 33,000; ₹ 18,000; ₹ 48,000; ₹ 44000]
Workings:
(a) Fair Rent: Since 1st house is let out by assessee to his friend @ ₹ 10,000 p.m. and the same property is let
out to other tenant @ ₹ 15,000 p.m., this signifies that 2nd houses has fair rent is ₹ 15,000*12 = ₹ 1,80,000.
(b) Calculation of interest to be deducted in A.Y. 2021-22
Month Interest
Pre-construction Interest
2017-18 10 4,00,000
1/5 of pre-construction interest
th 80,000
Post construction interest (b)[₹ 40,00,000 x 12% x 9/12] 9 3,60,000
Total interest charged (a)+(b) 4,40,000
50% for ground floor 2,20,000
4. CAPITAL GAIN
Short-term Capital Gain means the gain arising on transfer of short-term capital asset.
Long-term Capital Gain means the gain arising on transfer of long-term capital asset.
Cost of acquisition If an asset is acquired before 1/4/2001 then its cost of acquisition shall be
higher of the following:
Indexation benefit Indexation benefit shall be available from the year when the improvement expenditure incurred
on cost of whether by current owner or by the previous owner.
improvement
Taxpoint: Index of the year of transfer
Indexed cost of improvement = Cost of improvement ×
Index of the year of improvement
Previous owner means the last owner who acquired such asset through a mode other than the modes mentioned above.
The capital asset which forms a part of a block of assets in respect of which
depreciation has been allowed u/s 32 as per WDV method.
E.g. a residential house property being not used for business purpose, on which no
Meaning
depreciation is allowed under Income tax Act shall be treated as a non- depreciable
asset. Whereas if the same house is used for the residence of employee of the
business and depreciation has been claimed under I.T. Act then it shall be treated as
depreciable asset.
Capital gain arising on transfer of depreciable asset shall always be a short-term capital
Nature of Capital gain
gain.
Benefit of indexation Indexation benefit cannot be claimed on such asset.
For computation of capital gain on transfer of such asset, refer Depreciation (u/s 32) of
Computation
the chapter “Profits & gains of business or profession”
Note: Depreciable asset itself may be a long term capital asset or short term capital asset depending upon the period
of holding (whether held for more than 36 months or not), however gain on transfer of aforesaid depreciable asset shall
always be short term capital gain.
19. Capital gain in case of transfer of Right share and Right entitlement
Tax treatment of right issue and right entitlements shall be as under:
Cost of Acquisition Right issue price Nil Amount paid for acquisition of
right entitlements + Amount paid
to company for right share
Period of holding The date of allotment of The date of declaration of The date of allotment of such
starts from such shares such right by the company shares
Sale consideration Amount charged from Amount charged from Amount charged from
transferee transferee transferee
(c) Motor car used for business As it is not held for personal use, it is a ‘capital asset’.
(d) Motor car for personal use As it is a movable asset and held for personal use, it is not a
‘capital asset’
(e) Ornaments held for personal use Though ornaments are movable assets and held for personal
use, these are ‘capital assets’ as per section 2 (14)
(h) Agricultural land in India within the ‘specified It is a ‘capital assets’ as per section 2 (14) (iii).
distance’ of the municipality
(i) Agricultural land in India in rural area It is not a ‘capital asset’ as per section 2 (14) (iii).
(k) House property held by a dealer in house property As house property is stock-in-trade of the dealer’s business,
is not a ‘capital asset’ as per section 2 (14) (i).
(l) Goodwill of a business (Self-generated) It is a ‘capital asset’.
Chapter 10:
Income From other sources
1. Basis of charge
As per sec. 56(1), any income, which is not specifically exempted and not chargeable under any other heads
of income, shall be chargeable under the head “Income from other sources”. This is the last and residuary
head of income.
A receipt shall be taxable under this head if the following conditions are satisfied:
• Such receipt shall be a taxable income; and
• Such income does not specifically fall under any one of the other four heads of income
2. List of incomes u/s 56(2) which are specifically taxable under this head
Income absolutely charged under this head:
The following income shall be chargeable to income-tax under the head 'Income from other sources:
(a) Dividends (Dividends from Indian company & Dividend from foreign Company both are taxable)****
(b) Casual Income (any winnings from lotteries, crossword puzzles, races including horse-races, card games
and other games of any sort or from gambling or betting of any form or nature whatsoever)****
(c) Gifts (Where any sum of money exceeding ₹ 50,000 received by an individual or a Hindu undivided
family without consideration from a specified person)
Income chargeable under this head if not charged under the head ‘Profits and gains of business or
profession’
(d) Interest on securities
(e) Income from letting of machinery, plant or furniture
(f) Composite Rent
5. Admissible deductions from Incomes under the head ‘Income from other
sources’
(a) Deduction for computing income from dividend: Any reasonable sum paid by way of commission or
remuneration to a banker or any other person for the purpose of realising dividend or interest on behalf
of the assessee shall be deducted.
(b) Deduction in respect of rental income from machinery, plant or furniture: current repairs and
insurance premium paid in respect of the premises ; amount paid in respect of repairs and insurance of
machinery, plant and furniture ; depreciation of buildings, machinery, plant or furniture
(c) Deduction in respect of income by way of family pension: One-third of such pension or ₹ 15,000,
whichever is less, will be allowed as deduction. For this purpose, 'family pension' means a regular
monthly amount payable by the employer to a person belonging to the family of an employee in the
event of his death.*****
Method of Depreciation
Depreciation shall be allowed on written down value method at the rates prescribed.
Rates of depreciation
Plant/Machinery 15% In general (if nothing is mentioned regarding nature of plant & machinery and
including motor car not used for hiring purpose)
Furniture 10% Any furniture including electrical fittings
Buildings 5% Residential building other than hotels and boarding
Buildings 10% Non residential building, godown, office, factory, etc. including hotels
Intangible assets 25% Acquired after 31/3/98
Practical Questions
1. Depreciation u/s 32 [W.D.V. reduces to zero and the block ceases to exist]
From the undernoted particulars for the year 2020-21, calculate the amount of depreciation and capital gain
(or loss):
W.D.V. of the block of plant and machinery on April 1, 2020 ₹
(Consisting of plants A and B – depreciation rate 15%) 1, 50,000
Cost of plant C (Depreciation rate 15%) acquired during the year 50,000
All plants are sold during the year for (i) ₹ 1,80,000 and (ii) ₹ 2, 50,000.
Solution:
Computation of depreciation allowance and capital gain (or loss) for the previous year 2020-21
Case no. (i) Case no. (ii)
₹ ₹
W.D.V. of the block of plant and machinery on April 1, 2020 1, 50,00 1, 50,000
Add: Cost of plant C acquired during the year 50,000 50,000
2, 00,000 2, 00,000
Less: Sale proceeds of plant A, B & C 1, 80,000 2, 50,000
Short-term capital gain (+) / loss (-) (-) 20,000 (+) 50,000
Notes:
1. W.D.V. of the block for the year 2020-21 is nil irrespective of the sale proceeds of plants, as no plant
exists in the block on the last date of the previous year.
2. Depreciation allowance is not admissible for the previous year 2020-21 on this block as such block
ceases to exist on the last date of the previous year.
3. Excess and shortfall of sale proceeds are treated as short-term capital gains and short-term capital loss
respectively in view of the provision of section 50 (2).
Chapter 12:
Expenditure on scientific research
1. Scientific Research [Sec. 35]
Scientific research means any activity for the extension of knowledge in the fields of natural or applied
science including agriculture, animal husbandry or fisheries [Sec. 43(4)]
Such research can be categorised either as –
(A) In-House research : Research done by the assessee himself (in connection with his business).
(B) Research through outside institutions: Any sum paid to outside agencies, engaged in scientific
research, to be used for scientific research.
3. Contribution/donation to outsiders
Deduction @ 100% shall be allowed in respect of expenditure on Research through outside institution.
Chapter 13:
Profits and gains of business
1. Chargeability:
Under sec 28 (i) an income will be chargeable to tax if the following conditions are satisfied:
There should be a business or profession
The business or profession should be carried on by the assessee
The business or profession should be carried for some time during the PY
2. Business Loss:
Following business loss is deductible in computing profits & gains of business or profession:
i. Loss on account of embezzlement by an employee
ii. Loss of stock-in-trade by fire and other natural calamities
iii. Loss on account of robbery and theft
iv. Loss due to non-recovery of advances for supply of supply raw-materials
v. Loss caused due to breach of contract for delivery of goods
Particulars Amount
Amount recovered ******
Less: Bad debt claimed – Bad debt allowed as deduction ******
Taxable bad debt recovery ******
Xxx
Add: Loss debited to Profit and Loss Account but not to be charged under
This head as per the Act:
Loss on sale of capital asset
Xxx
Loss of security deposit, etc.
Xxx Xxx
Income from business
Xxx
Long Question:
1. Profit & Gains of Business or profession [Admissibility]
Discuss the admissibility of the following losses in computing the income chargeable under section 28:
(a) The cashier of a concern has been entrusted to collect the dues from one of its customers who have
collected the same but embezzled.
(b) Loss suffered by a bank due to dacoity where huge amount of cash along with ornaments kept by the
customers in safe deposit lockers have been carried away by the dacoits at mid-night.
(c) Compensation paid by a concern due to delay in delivery of the goods as per contract.
(d) A deposit was made in a bank which has become sick and the assessee could not recover 60% of such
deposit.
Solution:
(a) Embezzlement of cash by the cashier, in such a case, is a trading loss as collection of cash by the cashier
is a normal practice in the course of trade and hence allowable as deduction
(b) Loss of cash and ornaments suffered by the bank due to dacoity even after office hours is a trading loss
and hence allowable as deduction
(c) Compensation paid by the concern due to delay in delivery of the goods is treated as normal loss
incidental to business and hence allowable
(d) Loss for non-recovery of advances made in the bank caused by the failure of such bank should be treated
as a loss incidental to trade and hence allowable
53,800
Notes:
1. Dividends and interest on fixed deposits are assessable under the head ‘Income from other sources’.
2. Sale of land is assessable under the head ‘Capital gains’.
3. The following expenses are not allowed as deduction as such expenses are not related to profession: LIC premium,
household expenses and personal travelling expenses. Purchase of T.V. set is a capital expenditure and hence not
allowed as deduction.
4. It is assumed that depreciation on motor car of ₹ 5,000 given in the problem represents the amount of depreciation
allowable for the portion of the motor car used for the purpose of the profession.
5. Fees payable to Indian Medical Association are allowed as deduction on the assumption that accounts are
maintained on mercantile system.
6. Professional tax not paid within the previous year is not allowed as deduction on the assumption that it is not paid
on or before the due date of furnishing the return of income.
1, 63,340
Less: Admissible expenses:
Depreciation as per Income-tax rules 9,700
1, 53,640
Less: Income not taxable:
Income tax refund 1,800
Interest from US 64 Bonds 5,200 7,000
1, 46,640
Less: Income not taxable under this head:
Bank interest
7,900
Profit on sale of machinery
12,500 20,400
Income from business 1, 26,240
Notes:
(i) Gift from patient is incidental to his profession, so it shall be treated as professional income. However,
gift on birthday, is personal nature gift, hence not taxable.
(ii) We assume assessee follows cash basis of accounting, hence consultation fees will be chargeable in the
year of receipt & & Rent will be allowed as deduction in the year of payment.
(iii) Household expenditure are personal in nature hence not deductible.
(iv) Income tax is not deductible.
(v) As 1/3rd use of motor car is related to private purpose, hence 2/3rd of motor car expenses will be
allowed as deduction. Further 1/3rd use of car is used for personal purpose, hence only 2/3rd
depreciation is allowed.
(vi) Assume that books and surgical equipment are used for less than 180 days hence entitle for half
depreciation. Depreciation on books ₹ 5,000; Depreciation on car (3,00,000 - 22,500 = 2,77,500) x 15 %
= ₹ 41,625 x 2/3rd = 27750]
Compute his Income from Business for the assessment year 2021-22 considering the following additional
information:
i. Stocks are overvalued by 10%
ii. Depreciation as per IT Rules amounts to ₹ 20,000
iii. 1/3 rd of motor car expenses are in connection with personal use.
Notes:
1. Income tax is specifically disallowed u/s 40(a)
2. Personal expenditure is not allowed as deduction
3. Any anticipated loss is not allowed as deduction.
4. Sales, salary to himself on capital to proprietor is not allowed as no one can earn from himself.
5. Depreciation as per I.T Rules shall be allowed.
6. A fine paid in contravention of law is disallowed.
(b) Any contribution by the employee towards a statutory provident fund (SPF) or recognised provident
fund (RPF) or public provident fund (PPF); (No Deductions u/s 80C for Employer’s Contribution to
any Provident fund & Contribution to Unrecognised Provident Fund)
(d) Any interest accrued on national saving certificates which is deemed to be reinvested also qualifies
for deduction [Excluding sixth year interest]
(e) Any sum paid as tuition fees [Excluding development fees or donations] to any university, college,
school, or other educational institution situated within India for full time education [For maximum of
2 children]. Private tuition fee is not covered.
(f) Repayment of housing loan taken from Government; any Bank; Life insurance corporation etc.
[Excluding Interest]
Quantum of deduction
Deduction under this section shall be minimum of the following:
(a) Aggregate of the eligible contributions, expenditure or investments (discussed above)
(b) ₹ 1,50,000
Conditions to be satisfied
(a) Donation in kind shall not qualify for deduction
(b) Cash donation upto ₹ 2,000 shall qualify for deduction.
(c) Donation in excess of ₹ 2,000 shall be made by any mode other than cash.
(A) Donations made to following are eligible for 100% deduction without any qualifying limit:
(a) National Defence Fund set up by the Central Government.
(b) Prime Minister's National Relief Fund;
(c) National Foundation for Communal Harmony;
(d) University/Educational Institution of National Eminence approved by the prescribed authority;
(e) Chief Minister's Earthquake Relief Fund
(f) Prime Minister Cares Fund (PM Cares Fund)
(g) Swachh Bharat Kosh
(B) Donations made to the following are eligible for 50% deduction without any qualifying limit:
(a) Jawaharlal Nehru Memorial Fund;
(b) Prime Minister's Drought Relief Fund;
(c) Indira Gandhi Memorial Trust;
(d) Rajiv Gandhi Foundation.
(e) National Children's Fund;
(C) Donations to the following are eligible for 100% deduction subject to qualifying limit:
(a) Government or any approved local authority, institution or association to be utilised for the purpose
of promoting family planning
(D) Donations to the following are eligible for 50% deduction subject to qualifying limit:
(a) Government or any local authority to be utilised for any charitable purpose other than the purpose of
promoting family planning
(b) Any other fund or institution which satisfies the conditions of section 80G(5).
(c) Any notified temple, mosque, gurdwara, church or other place notified by the Central Government to
be of historic, archaeological or artistic importance, for renovation or repair of such place.
Qualifying Limit:
Least of the following
(i) Aggregate donations made to funds/institutions covered under (C) and (D)
(ii) 10 % of Adjusted Gross Total Income.
Practical Questions:
1. Practical problem on Deduction Under Section 80C****
Mr. X makes the following payments/investments during the previous year 2020–21:
₹
Life insurance premium on wife’s life (sum assured ₹ 1, 00,000) 12,500
Life insurance premium on son’s life (sum assured ₹ 2, 00,000) 45,000
Life insurance premium on mother’s life (sum assured ₹ 3, 00,000) 15,000
Life insurance premium on own life (sum assured ₹ 5, 00,000) 12,000
(Due on March 31, 2021 but paid on April 15, 2021)
Deposit in PPF 20,000
Investment in NSC 20,000
Repayment of house building loan to LICI (including interest ₹ 1, 03,000) 1, 45,000
Fess of two children (Tuition fees ₹ 35,000 + Development fees ₹ 50,000) 85,000
Calculate the amount of deduction under section 80C. Assume that all the above life insurance policies are
taken before April 1, 2012.
Solution:
Amount of deduction under section 80C is calculated as follows:
(A) Qualifying amount: ₹
Life insurance premium on wife’s life 12,500
Life insurance premium on son’s life (restricted to 20% of sum assured) 40,000
Life insurance premium on mother’s life (does not qualify) Nil
Life insurance premium on own life due but not paid before March 31, 2016 Nil
Deposit in PPF 20,000
Investment in NSC 20,000
Repayment of principal amount of house building loan to LICI 42,000
Tuition fees of two children 35,000
Qualifying amount 1, 69,500
(B)Amount of deduction: The amount of deduction is ₹ 1, 50,000 (Qualifying amount i.e. ₹ 1, 69,500 or ₹
1, 50,000, whichever is lower).
6. Practical problem on Deduction under Section 80C, 80D [B.com 2013 Honours]***
The gross total income of Sk. M. Islam for the assessment year 2021-22, is ₹ 10,00,000. He has made the
following investments/payments during the previous year 2020–21:
₹
Life Insurance Premium paid (sum assured ₹ 2,00,000) (policy taken after 1.4.12) 50,000
Deposit in Public Provident Fund 40,000
Payment made to LIC pension fund 30,000
Investment in infrastructure bonds of IDBI Ltd. 25,000
Medical insurance premium paid by cheque for self, wife and dependent children 20,000
Compute eligible deductions under chapter VI – A for the assessment year 2021–22.
[Deduction u/s 80C ₹ 85,000; 80D ₹ 20,000; 80CCC ₹ 30,000]
15. Practical problem on Deduction under Section 80GG [B.com 2015 Honours]***
From the following information calculate deduction allowable under section 80GG and taxable income of
Mr. Tarun Pradhan for the assessment year 2021-22.
Income from Business 2,25,000
Interest on Bank Deposit 25,000
Deduction u/s 80D 15,000
Rent paid by Mr. Pradhan for house Occupied for his residential purpose 3,750 p.m.
[Deduction u/s 80GG: ₹ 21,500]
Chapter 15:
Set-off & carry forward of losses
1. Introduction
For computation of Gross Total Income (GTI), income from various sources is computed under the five
heads of income. If all the sources and heads are having positive income (i.e. profit) then the same can
simply be added to compute GTI. However, if certain sources or certain heads have negative income (i.e.
loss) then such loss needs to be adjusted with income of another sources or heads. Set off means adjustment
of loss from one source or one head against income from another source or another head.
If a negative income is not fully set off in the current year, then the unabsorbed loss shall be carried forward
to subsequent years subject to certain restrictions and conditions [e.g. Income from other sources (other than
losses from activity of owning and maintaining horse races) cannot be carried forward.]
11. Set off and carried forward [B.com Honours 2014 type]: ****
Compute Gross Total Income for the Assessment year 2021-22 and losses to be carried forward:
₹
Net Profit from cotton business 1,60,000
Net Loss from automobile business (90,000)
Loss from house property in Kolkata (75,000)
Income from house property in Mumbai 70,000
Loss from Speculative business (1,20,000)
Income from Salary 72,000
Short-term capital loss on Jewellery (1,20,000)
Long-term capital Gain on Shares 90,000
[Gross Total income ₹ 1,37,000; Losses to be carried forward: Speculative business ₹ 1,20,000; Short
term capital loss ₹ 30,000]
12. Set off and carried forward [B.com Honours 2010]: ****
Compute Total Income for the Assessment year 2021-22 and losses to be carried forward:
₹
Income from owning & maintaining race horses in Delhi 80,000
Loss from non-speculative business 20,000
Income from Salary 40,000
Loss from the activity of owning & maintaining race horses in Chennai 1,80,000
Brought forward Loss under the head Long term Capital Gain for AY 2020-21 36,000
Short-term capital loss 20,000
Long-term capital Gain 60,000
[Total income ₹ 40,000; Losses to be carried forward: owning & maintaining race horses ₹ 1,00,000;
Long term capital loss (AY 2015-16) ₹ 16,000]
When both, husband and wife, are not having Remuneration from such concern will not be clubbed.
any other income
When both, husband and wife, have substantial
interest in a concern and both are drawing
remuneration from that concern without
possessing any specific qualification and both
are not having any other income apart from the
said remuneration.
Exceptions
The above clubbing provision shall not apply in the following cases -
a) The income arises or accrues to the minor child due to any manual work done by him; or
b) The income arises or accrues to the minor child due to his skill, talent, specialised knowledge or
experience; or
c) The minor child is suffering from any disability of nature specified u/s 80U.
5. Illustration**
Compute the total income of Mr. and Mrs. A from the following information:
Particulars Amount
1. Salary income (computed) of Mrs. A 2, 30,000
2. Income from profession of Mr. A 3, 90,000
3. Income of minor son B from company deposit 15,000
4. Income of minor daughter C from special talent 32,000
5. Interest from bank received by C on deposit made out of her special talent 3,000
6. Gift received by C on 30.09.2020 from friend of Mrs. A 2,500
Detailed computation under various heads of income is not required.
Solution
Computation of Total Income for A.Y. 2021–22
Particulars Mr. A MRS. A
Salaries: Salary income (computed) of Mrs. A 2, 30,000
Profits & gains of business or profession: Income from 3, 90,000
Profession of Mr. A
Income from Other sources
Income of minor son B clubbed in hands of Mr. A u/s 64(1A)
Income from company deposit 15,000
Less: Exemption u/s 10(32) (1,500) 13,500
Income of minor daughter C clubbed in hands of Mr. A u/s 64(1A)
Income of minor daughter C from special talent Nil
Interest from bank received by C on deposit made out of her talent 3000
Gift received by C as amount is below ₹ 50,000 Nil
Less: Exemption u/s 10(32) (1,500) 1,500 15,000
Total Income 4, 05,000 2, 30,000
7. Clubbing of Income
Mr. Singh is trader. Particulars of his income and those of the members of his family are given below. These
incomes relate to the previous year ended 31st March, 2021
Particulars Amount (₹)
Income from business (Mr. Singh’s) 90,000
Salary derived from an educational institution by Mrs. Singh. She is the principal of the 50,000
institution
Interest on company deposits derived by Master Deep Singh (minor son). These deposits were 12,000
made in the name of Deep Singh by his father’s father about 6 years ago.
Receipts from sale of painting and drawings made by minor Dipali Singh (minor daughter of 60,000
Mr. & Mrs. Singh and noted child artists).
Income by way of lottery earnings by Master Dipindar Singh (minor son of Mr. Singh) 6,000
Discuss whether the above will form part of the assessable income of any individual and also compute the
assessable income of Mr. Singh.
Solution
Computation of Total Income for the A.Y. 2021-22
Particulars Details Amount
Mr. Singh Mrs. Singh Minor Daughter
Salaries
Salary of Mrs. Singh 50,000
Profits and gains of business or profession
Business income 90,000
Sale of painting & drawing (made by daughter) 60,000
Income from other sources
Interest income of 1st minor son 12,000
Less: Exemption u/s 10(32) 1,500 10,500
Lottery Income of 2nd minor son 6,000
Less: Exemption u/s 10(32) 1,500 4,500
Gross Total Income 1,05,000 50,000 60,000
Less: Deduction under Chapter VI A Nil Nil Nil
Total Income 1,05,000 50,000 60,000
8. Clubbing of Income
Balu is a Karta of HUF, whose members derives income as given below:
Particulars Amount
Income from Balu’s own business 50,000
Mrs. Balu a dermatologists (taxable salary) 80,000
Minor son Deepak (earning interest on fixed deposits with ABC Ltd., which were 15,000
gifted to him by his grandfather)
Minor daughter Priya gave a dance performance and received remuneration 1,00,000
Deepak got wining from lottery (gross) 2,00,000
Question 2:
State whether the following incomes are treated as agricultural income for the purpose of income tax:
(a) Compensation received from the Government for the requisition of land which has been used for
agricultural purposes.
(b) Dividend received from a company whose major income constitutes agricultural income.
(c) Profit earned from the sale of wild grass of spontaneous growth.
(d) Income earned from the sale of tea grown and manufactured by the assessee.
(e) Income by way of selling rice produced from the paddy purchased by the assessee.
Question 3:
Imtiaz submits the following particulars of the incomes and outgoings for the year 2020-21:
(a) Income from lottery (net after deduction of tax @ 30%) ₹ 84,000.
(b) Rent from sub-letting of house ₹ 1,08,000; rent collection charge ₹ 1,800; Insurance premium ₹
4,800; rent paid ₹ 84,000.
(c) Dividend from ABPL Ltd., an Indian Company ₹ 24,000.
(d) Dividend from Johnson Ltd., a foreign company ₹ 72,000.
Compute his income from other sources for the assessment year 2021-22.
Question 4:
State the provisions of the Income Tax Act regarding clubbing of income of minor with the income of
parents.
OR
Compute amount of deductions available to the assessee u/s 80 in the following cases:
(a) Shubhraj incurred medical expenditure of ₹ 75,000 for treatment of his dependent father who is 66
years old and suffering from cancer (certified by an approval doctor). He recovered ₹ 50,000 from
the insurance company.
(b) Suvankar has deposited ₹ 50,000 under a scheme framed by LIC for maintenance of his dependent
brother with severe disability (90%). The disability is certified by the competent medical authority.
(c) Saswata had taken a loan from bank for doing MBA. During the previous year he repaid ₹ 50,000
including interest ₹ 10,000.
Question 6:
Smt. Samprit Karak furnished the following information for the previous year 2020–21:
1. Income from Business ₹
Toy business (+) 20,000
Cloth business (+)46,000
Readymade garments business (-) 12,000
Speculative business (+) 18,000
2. Income from House Property (+) 38,000
3. Income from Capital Gain
Long-term on sale of Land (+) 44,000
Short-term on sale of Gold (-) 21,000
4. Income from other Sources
Interest on Bank Deposits (+) 12,000
Winning from Lottery (Gross) (+) 12,000
5. Brought forward losses
Speculation loss from 2018-2019 20,000
Loss from Cloth business 8,000
Unabsorbed depreciation of Cosmetics business
(discontinued from 2012-13) for the P.Y. 2012-13 5,000
Compute total income of Smt. Karak for the A.Y. 2021-22.
OR
Mr. Manik Das (aged 32 years) submits the following particulars for the assessment year 2021-22:
₹
Income from House Property 50,400
Income from Business 72,600
Long-term capital gains on sale of building 21,840
Interest from fixed deposit with a bank 18,000
Donations made to:
Approved University of national eminence 3,600
Prime Minister’s Drought Relief Fund (in kind) 1,800
Prime Minister’s National Relief Fund 4,500
J.L. Nehru Memorial Fund 2,500
Approved charitable Institution (paid by cheque) 16,200
Approved Political Party 10,000
Payment of medical insurance premium on his own health to GICI by cheque 31,600
Compute the amount of allowable deduction under section 80G.
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Question 7:
During the previous year 2020-21, Mr. Madhusudhan sold the following capital assets.
Assets Sale Proceeds Cost of acquisition Date of Fair Market value as
(₹ ) (₹ ) Acquisition (₹ ) on 01.04.2001
Debentures 2,48,000 1,85,000 30.06.2007 1,68,000
Gold 18,22,000 8,42,400 25.08.2005 8,10,000
Building 22,11,900 9,00,000 10.05.2008 9,86,400
Assuming that his business income is ₹ 3,47,500, determine his income for the assessment year 2021-22.
(c) Mr. Sourav Sikdar was working with a company at a salary of ₹ 20,000 p.m. on 31.12.2020 he left the
job and received ₹ 2,50,000 as refund from Unrecognized Provident Fund (URPF). The amount of ₹
2,50,000 includes ₹ 50,000 as accumulated interest. Both Sourav and his employer contributed equal
amount to the provident fund. How the amount received by Mr. Sikdar will be treated for income tax
purpose during the A.Y. 2021-22?
Question 9:
Sarju Middley is the owner of 2 houses in Kolkata. From the following particulars of the houses, compute his
income from house property for the assessment year 2021-22:
House A: Let-out to an employee of the business of Sarju @ ₹ 5,000 p.m. which is necessary for the
purpose of business. Municipal tax paid ₹ 3,000 and interest on loan taken for purchasing the house
amounted to ₹ 9,000.
House B: The House consists of 3 identical flats. First flat is used by him for his own business. Second flat is
used by him for his own residence. The third flat is let out at a monthly rent of ₹ 15,000. Municipal taxes
paid @ 5% amounted to ₹ 20,250.
Other information:
(a) Unrealized rent for the P.Y. 2020-21 relating to third flat of House B amounted to ₹ 10,000.
(b) A loan of ₹ 20,00,000 was taken on 01.07.2017 for construction of the House B. Construction of
House B was completed on 01.06.2019. interest on loan is 12% p.a. No repayment was made.
Question 2:
Mr. X came in India for the first time on April 16, 2020 and left India on December 13, 2020. During his
stay in India, he was in Delhi up to 30.06.2020 and thereafter in Mumbai. Determine his residential status for
the assessment year 2021-22.
Question 3:
From the particulars given below by Amit, compute the amount of deduction u/s 80C for assessment year
2021-22:
Particulars Amount (₹ )
Deposits in PPF account 45,000
Life insurance premium paid on the life of minor son 25,000
(Policy value ₹ 2,00,000 taken on 01.07.2018)
Life insurance premium paid on the life of mother (aged 62 years) 27,000
Repayment of house building loan from SBI (including interest of ₹ 10,000) 77,000
Purchase of NSC (VIII issue) 24,000
Question 4:
Mr. Z is a private sector employee covered by the Payment of Gratuity Act 1972, retired on Nov. 30, 2020
after a continuous services of 22 years and 10 months in the concern and received Gratuity of ₹ 35,000 on
Dec. 15, 2020. His basic pay and dearness allowance for the last month was ₹ 2,800.
Compute the amount of gratuity taxable in hands of MR. Z.
OR
Sudipta an employee of PQR Ltd. received basic salary ₹ 38,000 per month, dearness allowance ₹ 27,000
per month and house rent allowance (HRA) ₹ 8,000 per month. He gets a commission @ 5% on the annual
turnover of ₹ 7,00,000 achieved by him. He resides in a rented house in Kolkata and pay ₹ 5,000 per month
as rent.
Compute his taxable HRA for the assessment year 2021-22.
Question 6:
(a) What do you mean by short-term and long-term capital assets?
(b) Mr. R purchased a house on 12.02.1998 for ₹ 3,40,000 (Fair market value on 01.04.2001 ₹ 5,00,000).
On 05.02.2021 he sold the house for ₹ 20,00,000 and paid brokerage @ 2%. Compute his capital gain
for the assessment year 2021-22.
[CII for 2001-02 : 100; 2020-21 : 301]
OR
Mr. E submits the following particulars for the previous year 2020-21:
(a) Dividend received from X Co. Ltd, an Indian company, ₹ 4,160.
(b) Family Pension received ₹ 36,000
(c) Winning from horse races ₹ 13,200; expenses incurred for the same ₹ 2,000.
(d) Dividend received from a foreign company ₹ 12,000.
(e) Winning from lottery (after deduction of tax @ 30%) ₹ 8,400.
(f) Rent by way of letting plant and machinery along with a building (rent of building is not separable) ₹
18,000; Rent collection charge ₹ 250; Insurance premium ₹ 1,200; Depreciation of building plant
and machinery ₹ 4,500.
Compute his income from other sources for the assessment year 2021-22.
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Bhalotia Classes (9883034569): Taxation I (4th Semester AY 2021-22)
Question 7:
Mr. Sen is the owner of 3 houses. Following are the particulars of these houses for the previous year 2020-
21:
Used for House No. 1 House No. 2 House No. 3
Owner’s Tenant’s business Tenant’s
Residence residence
Municipal Value (₹ ) 24,000 30,000 20,000
Rent received (₹ ) -- 36,000 24,000
Municipal tax paid by owner (₹ ) 2,400 3,000 2,000
Repair charges paid by owner (₹ ) 2,000 4,000 3,000
Insurance Premium paid (₹ ) 250 300 200
Interest on Loan Taken –
(i) For construction of the house(₹ ) -- 3,000 --
(j) For relative’s marriage (₹ ) -- -- 1,500
Compute income from house property of Mr. Sen for the assessment year 2021-22.
(b) From the following information, compute the admissible deduction under Section 35 in hands of Mr.
B for the assessment year 2021-22:
(i) Purchased machine of ₹ 2,50,000 for in-house scientific research.
(ii) Purchased land of ₹ 5,00,000 for in-home scientific research.
(iii) Constructed building of ₹ 7,50,000 for in-house scientific research.
(iv) Contributed to IIT Delhi for scientific research ₹ 64,000
(v) Contributed to Indian Statistical Institute for statistical research ₹ 45,000.
(c) Discuss the admissibility of the following payments or expenses debited to Profit and Loss account
for computation of business income for the assessment year 2021-22:
(i) Provision for bad and doubtful debt of ₹ 10,000.
(ii) Bad debt of ₹ 8,000.
(iii) Payment of ₹ 15,000 in cash to a creditor.
(iv) Payment of interest of ₹ 45,000 on term loan taken from bank after the due date of
submission of return.
(v) Penalty of 10,000 paid to customs authority.