NARSEE MONJEE INSTITUTE OF MANAGEMENT STUDIES (NMIMS)

GLOBAL ACCESS SCHOOL FOR CONTINUING EDUCATION

(NGA-SCE)

INTERNAL ASSIGNMENT

COURSE: TAXATION DIRECT AND INDIRECT

APPLICABLE FOR SEPTEMBER 2022 EXAMINATION
NMIMS GLOBAL ACCESS SCHOOL FOR CONTINUING EDUCATION (NGA-
SCE)
COURSE: TAXATION DIRECT AND INDIRECT
INTERNAL ASSIGNMENT APPLICABLE FOR SEPTEMBER 2022
EXAMINATION

QUES 1.) Mr. Vinay is an IT associate at Mittal Enterprises Ltd. During this COVID
time his company plans and started paying fixed medical allowance Rs10000 per month
to the employees working in India. The company also offers medical facilities worth
Rs30000 to the employees working in the various department.
Discuss about the taxability provisions in relation to the fixed medical allowance at the
end of the year. Further, share your insights in relation to the instances when medical
facilities are not regarded as taxable perquisites.
(10 Marks)

ANSW 1.) FIXED MEDICAL ALLOWANCE

TAXABILITY PROVISION IN RELATION TO FIXED MEDICAL

ALLOWANCE AT THE END OF THE YEAR
Particulars Amount
Fixed medical allowance @Rs. 10,000p.m.*12 months 1,20,000
Medical facilities to employees working in various 30,000
departments
Taxable amount of medical perquisite 1,50,000

Less: Exemption available under section 80C (1,50,000)

TAXABLE AMOUNT NIL

Notes:

1. Amount of fixed medical allowance is taxable in the hands of the person liable to
pay because it is taxable in India but as the amount is mentioned per month wise,
so it is multiplied by number of months i.e. 12 months.
2. Medical facilities to employees is to taken as a whole amount as it is not given
month wise.
 3. Since Section 80C is covered under this type of perquisite and it is paid under the
period of Covid, therefore whole amount is under exempt limit and therefore not
taxable in the hands of the employee.

INSTANCES WHERE FIXED MEDICAL ALLOWANCE ARE NOT TREATED

AS TAXABLE PERQUISITE
Fixed medical allowance is always fully taxable. However, medical facilities provided by
an employer to an employee are taxable subject to certain specified limits under
Provision to Section 17(2).Medical facilities are not regarded as perquisite , and hence,
are not taxable (fully exempt to tax) if:
 Provided by an employer in respect of medical treatment of employee or any
member of his family in a hospital owned and maintained by the employer.
 The value of medical facility is reimbursed by an employer to an employee in
respect of medical treatment of employee or any member of his family in a
central, state or any local hospital/ a private hospital recommended by the
Government.
 The value of specified medical facility for prescribed diseases reimbursed by an
employer in respect of medical treatment of an employer or any member of his
family in a hospital approved by the Chief Commissioner. Value of specified
medical facility for prescribed diseases reimbursed by an employer in respect
of medical treatment of an employee or nay member of his family in a hospital
approved by the Chief Commissioner.
 Any medical health insurance premium paid by the employer on behalf of an
employee on the health of the employee or a member of his family under a
scheme approved by the Central Government or IRDA.
 Boarding or lodging expenses incurred on the medical treatment of the
employee or any of his/ her family members plus one attendant outside India
would be treated as tax free perquisite to the extent permitted by Reserve Bank
of India.
 Treatment expenses are exempted from tax up to an extent permitted by the
Reserve Bank of India.
 Travel expenses of the patient (employee or his/ her family member) along with
one attendant of the patient shall be tax free provided that the gross
total income of employee does not exceed Rs. 2,00,000 p.a. For gross total
income greater than Rs. 2,00,000 p.a. these will be fully taxable.
QUES 2.) Mr. Amit owns a flat. On 5-4-2020, he decides and starts a business of dealing
in sale and purchase of flats. He treats this flat as a part of stock in trade for this newly
commenced business. He entered into a deal of selling this flat to one of his client on
30/.3/2021 and booked a profit of Rs5 Lakhs. Discuss the term capital asset, the relevant
provision applicable, implications of above transaction, provision in his hand under the
relevant head of Indian Income Tax Act.
(10 Marks)
ANSW 2.) CAPITAL ASSET
Capital assets are significant pieces of property such as homes, cars, investment
properties, stocks, bonds, and even collectibles or art. For businesses, a capital asset is an
asset with a useful life longer than a year that is not intended for sale in the regular course
of the business's operation.
This also makes it a type of production cost. For example, if one company buys a
computer to use in its office, the computer is a capital asset. If another company buys the
same computer to sell, it is considered inventory.
A capital asset is generally owned for its role in contributing to the business’s ability to
generate profits. Furthermore, it is expected that the benefits gained from the asset will
extend beyond a time pan of one year. On a business’s balance sheet, capital assets are
represented by the property, plant and equipment (PP&E) figure.
Examples of PP&E include land, buildings, and machinery. These assets may be
liquidated in worst-case scenarios, such as if a company is restructuring or declares
bankruptcy. In other cases, a business disposes off capital assets if the business is
growing and needs something better. For example, a business may sell one property and
buy a larger one in a better location.

PROVISIONS APPLICABLE IN CASE OF CAPITAL ASSET AND

TAXABILITY AS PER RELEVANT HEAD OF INCOME TAX ACT
SHORT TERM CAPITAL ASSET
Capital asset held for not more than 36 months immediately prior to the date of transfer
shall be deemed as short-term capital asset. However, following assets held for not more
than 12 months shall be treated as short-term capital assets:
a) Equity or preference shares in a company which are listed in any recognized stock
exchange in India;
b) Other listed securities;
c) Units of UTI;
d) Units of equity oriented funds; or
e) Zero coupon bonds
 Note: Unlisted shares and immovable property (being land or building or both) held
for not more than 24 months immediately prior to the date of transfer shall be treated
as short-term capital asset.

LONG TERM CAPITAL ASSET

Capital Asset that held for more than 36 months or 24 months or 12 months, as the
case may be, immediately preceding the date of transfer is treated as long-term capital
asset.

QUES 3.) Mrs. Viraj is an individual aged 50 years working with an undertaking of
State Government. For the previous year, he earned various income like
i. Dividend Income Rs4500
ii. Rs 50000, as share of income from HUF
iii. Winning from Lotteries Rs80000
iv. Interest on securities Rs35000
v. Income received by letting out a “flour grinding machine’ Rs4000
a. Compute his total taxable income (5
Marks)
b. tax liability on the winning from lotteries and the type of income it is, and give
reasons for the treatment of items(i,ii,v) as mentioned here
(5 Marks)

Answ 3. a) COMPUTATION OF TOTAL TAXABLE INCOME OF MRS. VIRAJ FOR

THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR

Assessee’s Name : Mrs. Viraj

Status : Resident Ordinary Individual
Age : 50 years

Computation of the total taxable Income

Particulars Amount

Income Under Other Sources

80,000
Winnings from Lotteries 35,000
Interest on Securities 4,000
Income received by letting out a flour grinding machine 4,500
Dividend 4,500
 TOTAL TAXABLE INCOME 123,500

Explanation

As question is silent, it is assumed that total taxable income is calculated for the F.Y. 2021-22.

Answ 3b.)

Tax liability on the winning from lotteries

Reasons for treatment

The reason for the exemption of the dividend is because it violate the Taxation Act, section 8,
which states as below:

Dividend, which includes deemed dividend, shall be taxed in the year in which dividend is paid,
declared or distributed, or paid. The Interim dividend is subjected to taxation on receipt basis.