REVISION

PREVIOUS EXAMINATION QUESTIONS

Question No.1
Mr. Ashok owns a property consisting of two blocks of identical size. The first block is used for business purposes. The other block has been let out from 01.04.2007 to his cousin for Rs.10, 000 p.m. the cost of construction of each block is Rs.5 lacs (fully met from bank loan); rate of interest on bank loan is 10% p.a. The construction was completed on 31.03.2006. During the year ended 31.03.2008., he had to pay a penal interest of Rs.2,000 in respect of each block on account of delayed payments to the bank for the borrowings. The normal interest paid by him in respect of each block was Rs.42, 000. Principal repayment for each block was Rs.23, 000. An identical block in the same neighborhood fetches a rent of Rs.15, 000 per month. Municipal tax paid in respect of each block was Rs.12, 000. The income from business prior to adjustment towards depreciation on any asset is Rs.2, 20,000. He follows mercantile system of accounting. Depreciation on Equipments used for business is Rs.30, 000. On 23.03.2007, he sold shares of B Ltd., a listed share in BSE for Rs.2, 30,000. The share had been purchased 10 months back for Rs.1, 80,000. Security transaction tax paid may be taken as Rs.220. Brought forward business loss of a business discontinued on 12.01.2006 is Rs. 80, 000. This loss has been determined in pursuance of a return of income filed in time and the current year is the seventh year. The following payments were effected by him during the year: (i). (ii). LIP of Rs.20, 000 on his life and Rs.12, 000 for his son aged 22, engaged as a Mediclaim premium of Rs.6, 000 for himself and Rs.5, 000 for above son. The

software engineer and drawing salary of Rs.25, 000 p.m. premiums were paid by Cheque. You are required to compute the total income for the assessment year 2008-09 and the tax payable. The various heads of income should be properly shown. Ignore the interest on bank loan for the period prior to 1.4.2005, as the bank had waived the same.

Question No.2
Following is the Profit & Loss Account of Mr. A, a dealer in shares and securities for the year ended 31st March 2008: Particulars Rs. Particulars Rs.

To Trading Expenses To Administrative Expenses To Financial Expenses To Demat & Delivery Charges To Securities transaction tax

62,60,000 By Sales By Interest on FD with 1,05,000 Bank By Dividend from Indian 48,265 Co., By Interest on I.T. Refund 4,350 (A.Y.2005-06) 5,500

72,54,000 16,500 64,360 230

To Net Profit before depreciation 9,11,975

Total

73,35,090

Total

73,35,090

Compute the rebate available under Section 88 E. Question No.3

Compute the total income of Mr. And Mrs. A from the following information:
(a) Salary Income (Computed) of Mrs. A (b) Income from profession of Mr. A ( c) Income of minor son B from company deposit (d) Income of minor daughter C from special talent (e ) Interest from bank received by C on deposit made out of her special talent (e) Gift received by C on 30.09.2006 from friend of Mrs. A required. Rs.2, 30,000 Rs.3, 90,000 Rs.15, 000 Rs.32, 000 Rs.3, 000 Rs.2, 500

Brief working is sufficient. Detailed computation under various heads of income is NOT

4.

From the following particulars furnished by Mr.X for the year-ended 31.03.2008, you are requested to compute his income and tax payable for the year. (a). Mr.X retired on 31.12.2007 at the age of 58, after putting in 25 years and 9 months of service, from a Private company at Mumbai. (b). He was paid a salary of Rs.25, 000 p.m. and house rent allowance of Rs.6, 000 p.m. He paid rent of Rs.6, 500 p.m. during his tenure of service. ( c). On retirement, he was paid a gratuity of Rs.3,50,000. He was not covered by the payment of Gratuity Act. His average salary in this regard may be taken as Rs.24, 500. Mr.X has not received any other gratuity at any point of time earlier, other than this gratuity. (d). He had accumulated leave of 15 days per annum during the period of his service; this was encashed by Mr.X at the time of his retirement. A sum of Rs.3, 15,000 was received by him in this regard. His average salary may be taken as Rs.24,500. (e). After retirement, he ventured into textile business and incurred a loss of Rs.80,000 for the period up to 31.3.2008. (f). Mr.X has invested Rs.22, 500 in recognized Provident Fund, Rs. 40,000 in public provident fund and Rs.37, 500 in National Savings Certificates. 5. (a). Smt.Savita Rani born on 01.07.1939. She is a Deputy Manager in a company in Mumbai. She is getting a monthly salary and D.A. of Rs.45, 000 and Rs.12, 000 respectively. She also gets a House Rent allowance of Rs.6, 000 per month. She is a member of Recognized P.F. wherein she contributes 15% of her salary and half D.A. Her employer also contributes an equal amount. (b). She is living in the house of her minor son in Mumbai. (c ). During the previous year 2007-08, her minor son has earned an income of Rs.30,000/- (COMPUTED) AS RENT FROM A house property, which had been transferred to him by Smt.SAVITA RANI without consideration a few years back. (d). During the previous year 2007-2008, she sold Government of India Capital Indexed Bonds for Rs.1,50,000 on 30.09.2006, which she purchased on 01.07.2001 for Rs.80,000 (e). Her employer have her an interest free loan of Rs.1,50,000 on 01.10.2007 to one of her son’s wife for the purchase of an Alto Maruti Car. Nothing has been repaid to the company towards the loan. (f). During the previous year 2007-08, she paid Rs.15,000/- by cheque to GIC towards Medical Insurance Premium of her dependent mother. Compute the taxable income and tax liability of Mrs.Savita Rani

6. Dr. Krishna furnished you the following information: Income and Expenditure Account for the year ended 31st March 2008.
Expenditure Rs. Income Rs.

To Medicines consumed To Staff Salary To Hospital consumables To Rent Paid To Administrative Expenses To Net Income Total

2,42,000 By Fee Receipts 1,65,000 By Rent 47,500 By Dividend from Indian Companies 60,000 1,23,000 2,46,000 8,83,500 Total

8,47,500 27,000 9,000

8,83,500

(i). Rent paid includes rent for his residential accommodation of Rs.30, 000 (paid by cheque). (ii). Hospital equipments (eligible for depreciation @ 15%) 01.04.2007 Opening WDV Rs.5, 00,000 07.12.2007 Acquired (cost) Rs.2, 00,000 (iii). Medicines consumed include medicines (cost) Rs.10, 000 used for Dr.Krishna’s family. (iv). Rent received-relates to a property situated at Mysore (Gross Annual Value). The municipal tax of Rs.2, 000 paid in December 2006 has been included in the “Administrative Expenses”. (v). He received Rs.5, 000 per month as salary from Full Cure Hospital. This has not been included in the “fee receipts” credited to income and expenditure account. (vi). He sold a vacant site in July 2007 for Rs.5, 00,000. It was inherited by him from his father in January 2000. The site was acquired by his father in December 1991 for Rs.1, 50,000. Compute Dr.Krishna’s taxable income for theyear-ended 31.03.2008. 7. Ramesh retired as General Manager of XYZ Co., Ltd., on 30.11.2007 after rendering service for 20 years and 10 months. He received Rs.3, 00,000 as gratuity from the employer. (He is not covered by Gratuity Act, 1972) His salary particulars are given below: Basic pay – Rs.10, 000 per month up to 30.06.2007 Basic Pay – Rs.12, 000 per month from 01.07.2007 Dearness allowance (Eligible for retirement benefits) – 50% of basic pay Transport allowance-Rs.1, 500 per month He resides in his own house. Interest on monies borrowed for the self-occupied house is Rs.24, 000 for the year-ended 31.03.2008 From a fixed deposit with a bank he earned interest income of Rs.18, 000 for the yearended 31.03.2008. Compute taxable income of Ramesh for the year-ended 31.03.2008. 8. Mr.A furnishes you the following information for the year-ended 31.03.2008.

(i). Income from plying of vehicles (computed as per books) [He owned 5 heavy goods vehicle-throughout the year] (ii). Income from retail trade of garments (computed as per books) [Sales turnover Rs.21, 70,000]

2,10,400

75,000 (iii) He has brought forward depreciation allowance relating to Assessment Year 2005-2006 (iv) He deposited Rs.1, 00,000 into his PPF account on 06.11.2007 Compute taxable Income of Mr.A and his tax liability for the Assessment Year with reasons for your Computation 1,00,000

9.Mr.Murali provides the following information for the year ending 31.03.2008: i. Sales (Retail Trade in Garments] (no books of account maintained] ii) Rent from house property at Chennai iii) Vacant site lease rent iv) Murali purchased 20,000 shares of X Co.Ltd. Who declared 1:1 bonus on 01.01.2002. Murali sold 1000 bonus shares in September 2007 for Rs.1, 20,000/v) Received Rs.50,000 on 12.02.2008 being amount due from Mr.X relating to Electronic goods supplied by Murali’s father, which was written off as bad debt by his father in A.Y 2004-05 and allowed as deduction. Murali’s father dies in August 2003. vi) Brought forward business loss related to discontinued automobile business of Murali relating to A.Y.2004-05 vii) Brought forward depreciation relating to discontinued automobile business of Murali. viii. Murali contributed Rs.1 5,000 to Prime `Minister’s National Relief Fund and Rs.10,000 to Heritage Charitable Trust enjoying exemption u/s. 80G 32,00,000 10,000 p.m. 12,000

2,00,000 1,50,000

Compute Taxable income of Mr.Murali for the previous year ended 31.03.2008. 10.Shri. Hari is the General Manager of ABC Ltd. From the following details compute the taxable income for the A.Y

Basic Salary (per month) Dearness allowance 30% of basic salary Transport allowance (per month) Expenditure on accommodation in hotels while touring on official duties met by the employer

Rs. 20,000 2,000 30,000

Loan from recognized provident fund (maintained by The employer) 40,000 Computer (cost Rs.50, 000) kept by the employer in the residence of Hari from 01.10.2007 Hari made the following payments: Medical insurance premium: Paid in Cash Rs.2, 000 Paid by Cheque Rs.3, 200 11. Mr.Vignesh, Finance Manager of KLM Ltd., Mumbai, furnishes the following particulars for the financial year 2007-08:
Salary Rs.46, 000 per month; Value of medical facility in a hospital maintained by the company Rs.7, 000. iii. Rent free accommodation owned by the company. iv. Housing loan of Rs.6, 00,000/- repayable in 15 years at the interest rate of 5% p.a.(No repayment made during the year) v. A wooden table and 4 chairs were provided to Mr.Vignesh at his residence (dining table). This was purchased on 01.05.2005 for Rs.60, 000/- and sold to Mr.Vignesh on 01.08.2007 for Rs.30, 000/vi. Personal purchases through credit card provided by the company amounting to Rs.10, 000/- was paid by the company. No party of the amount was recovered from Mr.Vignesh. vii. An ambassador car which was purchased by the company on 16.07.2003 for Rs.2, 50,000/- was sold to the assessee on 14.07.2007 for Rs.80, 000/-. Other income received by the Assessee during the previous year 2007-08. a. Interest on fixed deposits with a company Rs. 5,000 b. Income from specified mutual fund Rs. 3,000 c. Interest on bank deposits of a minor married daughter Rs. 3,000 d. Income from UTI received by his handicapped minor son Rs. 1,200 e. Contribution to LIC towards premium u/s.80 CCC Rs. 10, 000 f. Deposit in PPF Account made during the year Rs. 75,000 g. Bonds of ICICI (Tax Savings) eligible for Sec.80G Rs. 25, 000 i. ii.

Compute the taxable income of Mr.Vignesh and the tax thereon for the Assessment Year. 12. Compute the tax liability of Mr.Madhavan for the AY. from the following particulars: Particulars Rs.

i. Net House property Income as computed under the head :Income from House Property” ii. Income from business before adjusting the following 2,70,000

90,000 (a) Carried forward business loss 70,000 (b) Current Depreciation 30,000 (c) Carried forward unabsorbed depreciation 1,40,000 v. Short Term Capital Gains-Jewellery 1,60,000 vi. Long Term Capital Loss-Shares 40,000 vii. Long Term Capital Gain-Debentures 2,00,000 viii. Dividend on shares held as stock in trade 10,000 ix. Dividend from a company carrying on agricultural operation 12,000 x. Income from growing and manufacturing coffee 1,00,000 (cured and roasted) During the previous year, the assessee has donated Rs.35, 000/- to an approved local authority for the promotion of family planning and subscribed deferred annuity policy for Rs.1, 00,000/-, where annuity is paid by cash. 13. Mrs. Lakshmi aged about 66 years is a Finance Manager of M/s. Lakshmi & Co. PVT Ltd based at Calcutta. She is in continuous service from 1963 and receives the following salary and perks from the company during the year. i. Basic Salary (50,000 x 12) = Rs. 6,00, 000 ii. D.A. (20,000 x 12) = Rs.2, 40, 000 iii. Bonus – 2 months Basic pay iv. Commission- 0.1% of the Turnover of the Company. The turnover for the Financial Year was Rs.15.00 crores v. Contribution of the Employer and employee to the RPF Account Rs.3, 00,000 each vi. Interest credited to P.F. Account at 9.5%- Rs. 60,000 vii. Rent Free unfurnished accommodation provided by the company for which the company pays a rent of Rs.70, 000 per annum viii. Entertainment Allowance- Rs. 30,000 ix. Childrens education allowance to meet the hostel expenditure of three children –Rs. 5,000 each She makes the following payments and investments i. Premium paid to insure the life of her major son – Rs. 15,000 ii. Medical Insurance premium for self- Rs. 5,000: spouse- Rs.5, 000 iii. Donation to a Public Charitable Institution registered u/s. 80 G- Rs. 2,00,000 iv. LIC Pension fund – Rs. 12,000 Determine the tax liability for the A.Y 14. Mr. A, a senior citizen, has furnished the following particulars relating to his House Properties.

Name of Occupation

House I Self occupied Rs.

House II Let out Rs.

Municipal Valuation Fair Rent Standard Rent Actual Rent per Month Municipal Taxes Paid Interest on Capital Borrowed

60,000 90,000 75,000 -6,000 70,000

1,20,000 1,50,000 90,000 9,000 12,000 90,000

Loan for both houses were taken on 1.04.1999. House II was remained vacant for 4 months Besides the above two houses, A has inherited during the year an old house from his grandfather. Due to Business Commitments, he sold the house immediately for a sum of Rs.250 lakhs. The house was purchased in 1962 by his grandfather for a sum of Rs.2.00 lakhs. However the fair market value as on 1.04.1981 was Rs.20.00 lakhs. With the sale proceeds, A purchased a new house in March, 2008 for a sum of Rs. 100 lakhs and the balance was used in his business. The other Income Particulars of Mr.A besides the above are as follows Business Loss Income from other sources (Bank Interest) Investments made during the year PPF ICICI infrastructure Bond 2,00,000 1,00,000 70,000 30,000

Compute total income of Mr. A and his tax liability for the A.Y. 15. For the A.Y., the Gross Total Income of Mr. Chaturvedi was Rs.1,68,240 which includes Long Term Capital gain of Rs. 45,000 and Short Term Capital gain of Rs. 8,000. The Gross Total Income also includes interest income from Banks of Rs.12,000. Mr. Chaturvedi has invested in PPF Rs. 60, 000 and also paid a medical insurance premium Rs.11, 000. Mr.Chaturvedi also contributed Rs.15,000 to public Charitable Trust eligible for deduction u/s. 80 G. Compute the Income and tax thereon of Mr.Chaturvedi, who is 70 years old .. 16. Compute the taxable income of Mr.Ramesh for the A.Y

Net Income from Tyre Business Interest on Post office Savings Bank Account Share of profit from a Partnership Concern Short Term capital gain on land Long Term Capital gain on sale of House Property Share of Income from HUF in which he is a Member Winning from Camel Race Interest on Bank Deposits: -Deposits in his own name -in the name of minor son Expenditure incurred for the Medical treatment of his Handicapped 67 years old brother, a person with disability (Dependent of Mr.Ramesh] Repayment of Loan taken for part-time studies for Graduate Course in Management Donation to Prime Ministers National Relief Fund

30,000 900 22,000 24,000 1,20,000 8,200 10,000 4,000 1,300 42,000 10,000 20,000

17. Smt. Uma, a resident attained the age of 65 years on 23.12.2005. She had following income for the previous year. Rs. i. Short Term Capital on sale of shares 26,000 ii. Long –Term Capital gain on sale of land 1,76,000 You are required to compute the tax liability of Smt. Uma for the A.Y. 18. Mr.Manohar submits the following information for the year, from his proprietory business: Net profit (As per Profit and Loss Account) The following expenditure was part of debits to the Trading and Profit and Loss Account: i. He used goods for his personal use. The value was credited to sales was Rs.25, 000. The cost of which was Rs.20, 000 ii. Rent of Residence Rs.3, 000 per month iii. Payments in cash for purchases exceeding Rs.20, 000 iv. Sales tax in dispute provided v. Interest on Term Loan from State Bank of India, Paid in the month of May, 2007 The following amounts were credited to Profit and Loss Account: i. Agricultural Income ii. Income from Unit Trust of India (Monthly income plan) iii. Winnings from Lottery Gross (Tax deducted at source Rs.30, 000) 1,12,500

36,000 4,00,000 20,000 70,000 50,000 30,000 1,00,000

Compute the taxable income, assuming Mr.Manohar has no residential house. Give reasons for the claim under each head of income. 19. Raghav furnished the following particulars and requests you to compute his taxable income for the previous year: i. Joined service on 01.10.2007, on a consolidated salary of Rs.15, 000 per month. ii. He was paid Rs.30, 000 in September 2007, so that he should not join elsewhere. He makes following contributions (a). Life insurance premium Rs.20, 000 (b). National Savings Certificate Rs.10, 000 20. From the following particulars furnished by Kiran for the previous year , compute the taxable income for Assessment Year i. ii. iii. He owns a house property in Metro City. The fair rental value per annum is Rs.27, 000 and the Municipal value is Rs.24, 000. The house was let out from 01.04.2007 to 31.08.2008 at a monthly rent of Rs.2, 100. From 01.09.2007 Kiran occupies for his residence (self) Expenditure incurred on property and paid: (a). Municipal Tax Rs.4, 000 (b). Fire Insurance Rs.2, 500 (c ). Land Revenue Rs.4,600 (d). Repairs Rs.1, 000 Interest paid on borrowings for construction: (a). For the year Rs.21, 600 (b). Proportionate pre-construction interest Rs.12, 960 Income from Firm (Partnership Firm Account) as partners: (a). (b). (c). Salary Interest on Capital Share Income 25,000 20,000 35,000

iv). v).

21. Mr.Pramod, a writer and a professional furnishes the following particulars for the previous year: (a). (b). (c ). (d). Royalty on Books Expenditure relating to royalty income Income from profession Deposited in Public Provident Fund 42,000 8,000 1,30,000 80,000

You are required to compute- (i) taxable income (ii) Tax payable, for Assessment Year 22. The particulars of income of Mrs.K, aged 55 years, for the financial year are given below:

1. 2. 3. 4. 5. 6.

Gross salary received from M/s.ABC Ltd., for the year 4,00,000 Rental income received from a commercial complex per men sum 12,000 Arrears of rent received from the complex, which were not charged to tax in any earlier years. 30,000 Interest paid on loan taken for the purchase of a House from a Scheduled Bank for use as own Residence 1,20,000 Repayment of installments of loan taken from the bank for purchase of the above property 60,000 Deposits in Public provided Fund Account i. Out of earlier loan taken from PPF Account 20,000 ii. Out of Current year’s income 40,000 Investment made in units of a Mutual Fund approved by the Board u/s.80C of the I.T.Act. 40,000

Compute the Total Income Tax of Mrs.K and the tax payable thereon in respect of Assessment Year . 23.From the following particulars, you are required to work out the tax payable by Mrs.Pinto, aged 70 years; in respect of Assessment Year . i. Family Pension Gross ii. Income from House Property (Net) iii. Income from Other sources: a). Interest on Bank Deposits b). Income from Horse Racing iv. Capital Gains on transfer of Land-Long-Term v. Agricultural Income 75,000 24,000

15,000 20,000 15,000 25,000 ----------Total Rs.1,74,000 ====== 24.Following details are furnished by Sundaram, an Indian citizen for the year ending March 31,2008. Salary (Net of tax and Sundaram’s contribution to Provident fund) 48,000 Sundaram’s contribution to Provident Fund 4,950 Employer’s contribution to Provident Fund 14,000 Interest credited to Provident Fund @ 3.75% p.a.) 3,600 Leave Travel Allowance received 4,500 House Rent Allowance (Rent paid on house in Hyderabd, Rs.4,500) 2,500 Dividend collection charge 200 Tax deduction at source on salary 1,500 Contribution to Public Provident Fund 4,000

Contribution to National Laboratory approved u/s.35 Amount received on maturity of a Keyman Insurance Policy

5,000 6,000

Sundaram acquired 2,000 shares of Rs.5 lakhs during 1988-1989. Company allotted him equal value of bonus shares during 1996-1997. Second bonus issue made during March 2005, when he received 1 bonus share for every 2 shares held by him. The entire shares held in the company have been sold by him during November 2007 @ Rs.1, 100 per share. Determine the total income of Sundaram for the Assessment Year. 25. Pritam occupied two flats for his residential purposes, particulars of which are as follows: Particulars Flat 1 Rs. 90,000 1,20,000 80,000 10% 1,000 40,000 Flat 2 Rs. 45,000 40,000 Not Available 10% 600 NIL

Municipal Valuation Fair Rent Fair rent under Rent control Act Municipal Taxes paid Fire Insurance Interest payable on Capital borrowed for purchase of flat

Income of Pritam from his proprietory business-Pritam Warehousing Corporation is Rs.6,50,000. Determine the taxable income and tax liability for the Assessment Year, on the assumption that he contributes Rs.80,000 towards the Public Provident Fund. You are informed that he Pritam could not occupy Flat 2 for two months commencing from December 1, 2007 and that he has attained the age of 65 on on 23rd August 2007. 26. Mr.Rahul Jadav furnishes the following particulars relating to his house properties and other
incomes and expenditure for the Assessment Year. i. First House: This is taken by him on lease for 10 years which is let to a tenant, for his residence, at a monthly rent of Rs.2, 400. He has incurred the following expenses during this year: Lease rent Rs.1, 000 per month. Salary of Durban Rs.200 per month. Interest on loan taken to pay for the acquisition of the lease Rs.200 per month. ii) Second House: This house was constructed by him in 1992, but was transferred to his wife in 1996 out of love and affection. He, however, continues to stay in this house with his wife till date. He has taken a loan for the construction of this house for which interest of Rs.6,000 becomes due for the year, but had not been paid by him. He has paid repair expenses of Rs.1,000 during the year. iii. Taxable income from business for this year amounts to Rs.64, 000.

Compute gross total income of Mr.Rahul Jadav for the Assessment Year.

27. From the following information, compute taxable income for the Assessment year: Income from business-letting cycles on hire 40,000 Lease rent received from lands given to tenants for Agricultural operations 48,000 Sale of agricultural produce [landlord’s share] 30,000 Sale proceeds of agricultural lands situated in a village 1,20,000 Fixed deposit interest received from companies on deposits made of sale proceeds of land 18,000 Dividends from an Indian company having rubber plantations 6,000 Salary received as a partner from a firm growing and Manufacturing tea 36,000 Payment of Government tax on agricultural lands 6,000 Expenses on power, irrigation cess and farm labour 10,000 Purchase of seeds 1,000 Tractor hire charges (for agricultural operations) 2,500 Your answer must indicate reasons for the treatment given to the items mentioned above. 28.R retired from Government service in Mar’ 2007and got a sum of Rs. 20 lakhs on account of retirement benefits. Out of the aforesaid sum R purchased on 26th April, 2006, two heavy goods vehicles for Rs.8 lakhs, four medium goods vehicles for Rs.4 lakhs and two light commercial vehicles for Rs.2 lakhs for the purpose of carrying on business of plying, hiring and leasing goods carriages. However, R could actually start business of plying the aforesaid vehicles on 4th July, 2007 only, though R had got the delivery of the aforesaid vehicles on the date of purchase itself. R had been keeing a full record of all receipts and expenditure incurred in a diary in respect of the aforesaid business. However, he did not maintain the regular books of accounts and also the vouchers in respect of the aforesaid business. As per R’s diary his gross receipts during the financial year ending 31st March, 2008 are Rs. 1,77,600 and the sum total of the entire business expenditure (other than Depreciation) is Rs.52,100.
R had inherited a house from his father in the year 1995 with the condition that R shall pay a sum of Rs.1,000 per month to his ailing grandfather throughout his life, irrespective of the fact whether the said house was fetching any rent or not. During financial year 2007-08 R was able to let out this house only for eight months at a monthly rent of Rs.5,000 R has also furnished the following information in relation to this house: Municipal taxes paid by the tenant during the F.Y based on municipal valuation of Rs.53,000 Insurance premium to insure the house, paid by the tenant During F Y Interest paid on loan taken for renovation of the house During F Y 5,300 1300 12,000

Actual repair & renovation expenses incurred During F Y

8,000

Actual collection expenses while recovering the rent During F Y 400 Water taxes levied and paid to Municipal Corporation working under the State Government during F Y 400 After inheriting the aforesaid house in the year 1995, R decided to sell his personal house, which was being let out earlier. R finally sold his personal house on 4th April 1997, During thisA.Y, R was able to recover the unrealized rent of Rs.22, 000 but R had to pay a sum of Rs.11, 000 on account of Litigation expenses with the old tenant (including Advocate’s fee) During F.Y, R received Rs.60,000 on account of pension from Government. R contributed the entire sum of Rs.60,000 in his P P F Account during F.Y. R’s P.P.F Account was also credited with Rs.44,000 on account of interest during F.Y During F.Y, R also suffered long-term capital loss on account of sale of shares on various dates, amounting to Rs.44,000. R requires you to compute his total income for A.Y.. R also requires you to give reasons in respect of each and every item given above and further state the relief’s to what R is entitles to. 29. In respect of A.Y., an author of textbooks furnishes the following particulars and requests you to work out his tax liability: 1. Royalty from printers Ltd. On publications of books 2. Long term capital Gain 3. Other Sources:(a) Interest on bank Deposits (b) Dividend Income (c) Income from Units of UTI Gross Total Income Deductions: (i) Contribution towards: (a) LIC Pension Scheme (b) LIC Premium (ii) Contribution to public provident fund (iii) Tuition fee paid for part-time course for daughter (iv) Expenditure on medical treatment of handicapped dependent 1,20,000 60,000 12,000 3,000 5,000 2,00,000 =======

15,000 10,000 10,000 50,000 20,000

30. Mr. Aravind owns a building consisting of three identical units, the construction of which was completed on 1st April 2002. The building was occupied from 1st April 2002 onwards. The particulars pertaining to the three units for the year ended 31st March 2008 are given below. Particulars Fair rent Rent received Municipal taxes –paid -Due but not yet paid Land revenue due but outstanding Ground rent due, not yet paid Nature of occupation own Unit I 60,000 -3,000 3,000 1,200 2,400 Self occupied Unit II 60,000 72,000 5,000 5,000 1,200 2,400 Let out for Unit III 60,000 -3,000 3,000 1,200 2,400 Used for

For residence residence Business On 01.04.2000 Mr.Aravind had borrowed a sum of Rs. 5,00,000-bearing interest at 12% p.a. for construction. Cost of this building was Rs.12,00,000 The business income of Mr. Aravind for the year ended 31st March 2008 is Rs.2,10,000 (before taking into account any item connected with the above property). The accounts of the business are regularly maintained on mercantile basis. Compute the gross total income of Mr. Aravind for the A.Y.

CAPITAL GAINS - 6 Capital asset excludes following items; i) stock in trade ii) personal effects of movable nature(excluding jewellery , precious items,archeological collections,drawings,paintings, any art work) iii) agricultural land located outside specified area. iv) Gold bonds v) Special bearer bonds Any profit or loss arising out of transfer of a capital asset is taxable under the head CAPITAL GAINS The term transfer means; Sec 2(47) i) sale ,exchange ii) Extinguishments, relinquishment of rights to any such capital asset. iii) Compulsory acquisition of any asset under any law. iv) Conversion of any asset into stock in trade v) Maturity or redemption of zero coupon bonds. vi) Possession of property under part performance of contract u/s 53A of transfer of property act vii) Transaction which has the effect of enabling enjoyment of any immovable property. Capital asset held by an assessee for not more than 36 months before the date of transfer is called SHORT TERM CAPITAL ASSET. If it is held for more than 36 months before the date of transfer it is LONG TERM CAPITAL ASSET. For following assets 12 months instead of 36 months. i) equity /pref shares of a company. ii) Listed securities iii) Uti /units of mutual fund u/s 10(23D) iv) Zero coupon bonds Redemption of preference shares is relinquishment of right. Hence it amount to transfer. Compensation received from insurers on account of destruction of capital asset is chargeable as income. Tax treatment in case of conversion of capital asset into stock in trade When capital asset is transferred into stock in trade it amounts to transfer. transfer is deemed to have made in the year in which conversion is made. But tax liability arise only in the year in which sale of stock is effected. Calculation of income is as under. Capital gain =fair market value on the date of conversion – cost/ indexed cost Business income=actual sale value of stock- fair market value on the date of conversion. In the case of long term capital assets the benefit of indexation can be claimed. No such benefit for short term capital asset.
Insurance compensation received upon damage of asset attracts Capital Gains. Taxability Sec 45(1A) Damage may be as result of : a) Natural calamities b) Enemy action c) Riot/ civil disturbances d) Accidental fire or explosion

If any machinery is damaged and the same is repaired, the repair charges can be claimed u/s 31. If subsequently any insurance compensation received to the extent deduction claimed shall be taxable u/s 41(1). Excess amount is only a receipt in capital nature which is not liable to tax. Sale of demat shares . i) taxable in the hands of beneficial owner. ii) Cost of acquisition and period of holding determined under FIFO basis iii) Shares which are demat first is deemed to have been sold first. If any partner introduces capital in the form of capital asset into a partner ship firm it amounts to transfer and capital gains arises for the partner. Capital gains = amount recorded as value in firms books – cost / indexed cost of acquisition. Upon dissolution if any partner takes over any capital asset of the firm,then capital gain arises for the firm. Gain is calculated as under; Fair market value- cost / indexed cost If a firm transfers any capital asset to a retiring partner it is relinquishment of right hence taxable for firm. Compulsory acquisition is also transfer. Transfer is considered to have taken place in the year of compulsory acquisition. In the case of enhanced compensation the cost of acquisition is NIL If initial compensation is of long term nature then enhanced compensation also will have the same character. Else vice versa. If any interest is received on compensation / enhanced compensation it is chargeable under INCOME FROM OTHER SOURCES. Compensation received in the hands of legal heirs is taxable in their hands. In the case of repurchase of units referred u/s 80CCB capital gains arises . Capital gains =repurchase price – amount invested.( no index benefit) Capital gains upon distribution of assets on liquidation of accompany If the assets are sold by the liquidator and cash realized then capital gains will be taxable in the hands of the company. If capital assets are distributed in specie among the share holders it is not transfer. Hence no capital gains for the company.(sec 46(1) ). But in the hands of the share holders the treatment is as under; Amt recd= fmv of assets + amt recd in cash Distribution to the extent of accumulated profit is treated as deemed divident u/s2(22)(c ) Consideration for calculating capital gain = amt recd – deemed divident Capital gain = above consideration – cost / indexed cost of shares. In the case of depreciable asset there will be only short term capital gains. Detemination of capital gains on transfer of shares / debentures of Indian company held by non residents. i) sale value in Indian rupee should be converted into foreign currency at avg rate on the date of sale ii) less expense on transfer in Indian rupee converted at above rates from ( I ) iii) result is net consideration iv) purchase price should be converted into foreign currency at avg rate prevailing on the date of purchase . v) item 3 – 4 in foreign currency result is capital gain in foreign currency vi) finally item 5 should be re converted into Indian rupee at buying rates on the date of transfer. Avg rate = selling rate on a day + buying rate on that day/ 2 Rates shall be based on TT rates of STATE BANK OF INDIA.

Income from deep discount bonds Income is based on market value. Market value to be determined as on 31st march of every year. Market value means value as determined by RBI or PRIMARY DEALERS

ASSOCIATION OF INDIA. Income from deep discount bond will be interest for investors and business income for traders. Such income is calculated as under; A ) Market value as on closing date - market value as on previous closing date. If the DDB is purchased in between a year then treatment is as under; INCOME = MARKET VALUE AS ON CLOSING DATE – PURCHASE PRICE . but from the next year onwards formula (A) is to be adopted. If the bond is transferred before maturity there will be capital gains in the case of investors and business income in the case of traders. Capital gains always will be short term capital gains. Capital gains will be calculated as under; Sale value – market value as on previous valuation date. If the DDB is redeemed upon maturity difference between redemption value and market value as on previous valuation date is reckoned as interest/ business income in the case of investors / traders. ZERO COUPON BONDS Means bond issued by infra structure company or infrastructure capital fund or a public sector company where no benefit is received before maturity. Zero coupon bond should be notified by the govt. issue date shall be on or after01-06-2005. Determination of cost of acquisition A ) In the case of inherited property cost of acquisition will be the cost incurred by the previous owner. B ) In the case of property acquired before 01- 04 – 1981 cost of acquisition will be cost of acquisition or fair market value as on 01- 04 – 1981 which ever is more . C ) If in the case ( b ) above FMV is adopted cost of improvement incurred prior to 01 – 04 – 1981 is to be ignored. In the case of long term capital asset benefit of indexation can be claimed. No such benefit for short term capital asset. Calculation of capital gains Gross consideration received ********** Less: expenses on transfer ********** ---------------net consideration ********** less cost of acquisition ********** cost of improvement ********** -----------------short term capital gains ********** ============ note : if long term capital asset instead of cost of acquisition indexed cost of acquisition is to be deducted. Same provision relate to improvement cost also. Indexation is done as under; index in the year of sale Cost of acquisition X index in the year of purchase special provision in the case of slump sale slump sale means industrial undertaking as a whole is sold without assigning individual value for each asset. If the undertaking is existing for more than 36 months then result is long term capital gain else short term capital gain. Individual purchase date of each asset

is not relevant. But no benefit of indexation will be available in the case of long term capital asset. Capital gain = sale value – net worth. Net worth = assets – liabilities. Valuation of the assets; 1) if depreciable asset then depreciated value as per IT ACT 2) other assets at book value or original value ie ; there should be no effect of revaluation. Other relevant points (general ) If any advance is received against the sale of property and later on the advance is forfeited then the advance is to be reduced from cost of acquisition and the balance will be the revised cost of acquisition. Indexation if applicable should be on this revised cost. Sec51 If actual consideration is less than the value fixed for stamp duty purpose then the value fixed for stamp duty purpose shall be deemed to be the gross consideration. If the assessee claims before the valuation officer that value adopted for stamp duty purpose is higher but does not appeal before any authority or court then AO shall refer the matter to the valuation officer. Reference to valuation officer sec55A arises when AO is of the opinion that i) FMV of the asset exceeds the value as claimed by the assessee by more than 15% or by more than Rs 25,000. ii) Or by any other reason the AO is of the opinion that the matter has to be so referred. EXEMPTIONS AVAILABLE IN THE CASE OF CAPITAL GAINS
SECTION 54 1) CAN BE CLAIMED BY INDIVIDUALS & HUF 2) ASSET TRANSFERRED SHOULD BE RESIDENTIAL HOUSE 3) IT SHOULD BE A LONG TERM CAPITAL ASSET 4) MAX EXEMPTION = LTCG OR AMOUNT INVESTED IN SPECIFIED ASSET WHICHEVER IS LOWER. 5) SPECIFIED ASSET = CONST / PURCHASE OF RESI HOUSE. 6) IF PURCHASE IT SHOULD BE MADE WITHIN 1 YEAR BEFORE OR WITHIN 2 YEARS AFTER THE DATE OF TRANSFER. 7) IF CONSTRUCTION IT SHOULD BE WITHIN 3 YEARS AFTER THE DATE OF TRANSFER. 8) UNUTILISED AMOUNT IF ANY SHOULD BE INVESTED IN CAPITAL GAIN ACCOUNT SCHEME WITH ANY NATIONALISED BANK BEFORE DUE DATE OF FILING RETURN OF INCOME. 9) HOLDING PERIOD OF NEW ASSET IS 3 YEARS FROM THE DATE OF PURCHASE OR CONSTRUCTION. 10) IFSOLD WITHIN HOLDING PERIOD RESULT IS SHORT TERM CAPITAL GAIN. 11) STCG = SALE VALUE – ADJUSTED COST 12) ADJUSTED COST = COST OF NEW ASSET – LTCG EXEMPTED EARLIER.

SECTION 54B 1) Exemption applicable only for individuals.

2) Asset transferred should be urban agricultural land 3) The land should have been used either by the assessee or by his parents for agriculture for two years prior to the date of transfer. 4) Asset can be either short term or long term. 5) Within two years from the date of transfer new agricultural land should be purchased. 6) Exemption is lower of capital gain or value of new asset . 7) New asset should be held for a min period of 3 years from the date of acquisition. 8) If sale within holding period result is STCG. 9) STCG = sale value – adj cost. 10) ADJ COST = cost – CG exempted earlier. SECTION 54D 1) Applicable for all assessees. 2) There should be compulsory acquisition of land and building forming part of an industrial undertaking. 3) Asset can be either short term or long term. 4) Asset should have been used for the purpose of industry for two years before the date of transfer. 5) Within 3 years from the date of transfer new asset of same nature to be acquired. 6) Exemption is lower of capital gain or value of new asset . 7) New asset should be held for a min period of 3 years from the date of acquisition. 8) If sale within holding period result is STCG. 9) STCG = sale value – adj cost. 10) ADJ COST = cost – CG exempted earlier. Applicable for all assessees SECTION 54G
1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) Applicable for all assessees ANY CAPITAL ASSET. Asset transferred should be land , building , plant used by industrial undertaking Transfer should be on account of shifting from urban area to rural area. Asset acquired should be of same nature. Shifting expenses also qualifies for deduction under this head. Exemption is lower of new asset + shifting expenses or capital gains. Investment should be made within 1year before or within 3 years from the date of transfer. New asset should be held for a min period of 3 years from the date of acquisition. If sale within holding period result is STCG. STCG = sale value – adj cost ADJ COST = cost – CG exempted earlier.

SECTION 54GA
1) Applicable for all assessees 2) ANY CAPITAL ASSET 3) Asset transferred should be land, building, plant used by industrial undertaking .

4) Transfer should be on account of shifting from urban area to any area in special economic zone. Sez may be in urban or rural area. 5) Asset acquired should be of same nature. Shifting expenses also qualifies for deduction under this head. 6) Exemption is lower of new asset + shifting expenses or capital gains. 7) Investment should be made within 1year before or within 3 years from the date of transfer. 8) New asset should be held for a min period of 3 years from the date of acquisition. 9) If sale within holding period result is STCG. 10) STCG = sale value – adj cost 11) ADJ COST = cost – CG exempted earlier. In all the above cases unutilized amount should be deposited in capital gain account scheme with any nationalized bank and the amount should be utilized within time limit. Investment in the account shall be made on or before due date of filling return. SECTION 54EC 1) Applicable to all assessees 2) Asset transferred can be any long term capital asset. 3) New asset to be acquired is notified bonds issued by NHAI or RECL 4) Exemption is lower of amount invested or LTCG 5) Investment to be made within 6 months from the date of transfer 6) Holding period of the asset is 3 years. 7) If sold within holding period capital gain exempted will be taxable in the year in which the new asset is sold. 8) Even if the asset is pledged and cash raised it amount to transfer. SECTION 54F 1) Applicable to individuals and HUF 2) Asset transferred is a long term capital asset 3) It should not be a residential house 4) Within 1 year before or within 2 years from the date of transfer a new residential house should be purchased or within 3 years a new residential house should be constructed 5) As on the date of transfer assessee should not own more than 1 residential house. 6) Assessee shall not within 1 year after the date of transfer purchase or within a period of 3 years construct any residential house other than the new asset 7) Holding period of new asset is 3 years 8) Amount of exemption is calculated as under; i) if cost of new asset is equal to more than net consideration then entire capital gain is exempted. ii) Else proportionate exemption is as under; capital gain* cost of new asset /net consideration. 9) if new asset is transferred within holding period then capital gain exempted earlier will be now taxed.

ANALYSIS OF EXEMPTIONS: sec10(36),10(37),10(38)…. Sec 10(36)- capital gain arising out of transfer of long term capital asset being eligible equity share being a constuent of BSE 500 is exempted if following is satisfied; 1) share is purchased on or after 01-03-2003 and before 01-03-2004 . 2) shares are held for more than 12 months before it is sold. Sec 10(37)- in the case of individuals and HUF capital gains arising out of sale of agricultural land is exempted if ; i) land was used for the purpose of agriculture by the assessee or by his parent for the purpose of agriculture. ii) Land is transferred by way of compulsory acquisition. iii) Compensation / enhanced compensation is received on or after 0104-2004 Sec 10 (38)- long term capital gain arising out of sale of listed security is fully exempted if transaction should take place in a recognized stock exchange and; i) Security transaction tax is paid. ii) Listed security should be equity share or a unit of equity oriented fund. iii) Transfer takes place on or after 01-10-2004 Equity oriented fund means a fund where the investable funds are invested by way of equity shares in domestic company to the extent of more than 65% of the total proceeds of such fund and which has been set up under the scheme of mutual fund u\s 10(23D). the percent is calculated by taking annual average of monthly average of opening and closing figures. While determining capital gains no deduction shall be permitted for STT deducted TAX ON CAPITAL GAINS LONG TERM CAPITAL GAINS- 20% FLAT In the case of Resident individuals and huf if the basic exemption is not exhausted by other income then ; LTCG – UNEXHAUSTED BASIC EXEMPTION Only will be taxed at flat rate of 20%. SHORT TERM CAPITAL GAINS – TAXED AT NORMAL RATES IN THE CASE OF STCG ARISING ON OR AFTER 01-10-2004 WILL BE TAXED AT FLAT RATE OF 10% IF; a. there is transfer of listed security being equity share in a company or unit of equity oriented fund. b. Transaction take place through a recognized stock exchange. Zero coupon bonds are not entitled for exemption. But long term capital gain are entitled for 20% rate with indexation or 10 % rate without index. However shortterm capital gain is taxable at normal rates. Renounciation of right in respect of rights issue results in short term capital gains. Consideration will be the amount received for renouncing the right. Cost of

acquisition will be nil . and for a person to whom such right is renounced cost means cost of shares + amount paid to the person who renounced the right to him Capital Gain Account Scheme Deposit can be withdrawn for the purpose U/s 54,54B, 54D, 54F,54G,54GA. In the case of compulsory acquisition the time limit for investment is reckoned only from the date of receipt of compensation. One house can be used for claiming exemption U/s54 & 54F Transactions which are not transfer 1) distribution of capital asset on total or partial partition of HUF 2) transfer by way of gift or will 3) transfer of capital asset by holding co to its subsidiary or vice versa if i) holding co or its subsidiary holds 100 % shares in subsidiary. ii) Transferee co is an Indian co. 4) transfer of capital asset in the scheme of amalgamation , by amalgamating co to amalgamated co if amalgamated co is an Indian co . 5) transfer in the scheme of amalgamation between two foreign co if; i) asset transferred is shares in Indian co. ii) 25% of shareholders of amalgamating co continues to be shareholders of amalgamated foreign co iii) such transaction shall not attract capital gains tax in the country in which amalgamating co is incorporated. 6) transfer of capital asset by demerged co to an Indian co if resulting co is an Indian co. 7) transfer of capital asset being shares in Indian co in a scheme of demerger between two foreign co if i) not less than 75% shareholders of demerged foreign co continue to be shareholders of resulting co. ii) such transfer shall not attract capital gain tax in the country in which the demerged co is incorporated. 8) under the scheme of demerger the shares of demerged co is transferred to resulting co ,if only consideration received is in the form of shares. 9) Transfer of shares in the amalgamating co by its shareholders in lieu of shares in amalgamated co provided i) amalgamated co is an Indian co. ii) shares are the sole consideration received. 10) transfer of any work of art , books, paintings, murals etc if transfer is made to government, museum, national art gallery etc 11) transfer by way of conversion of bonds , shares , debentures etc into shares, stock depository certificates etc…. 12) transfer of land of a sick industrial co 13) transfer of capital asset by a banking company to a banking institution in a scheme of amalgamation. 14) Conversion of proprietory / partnership into company is not transfer if following conditions are satisfied; (i) all assets and liabilities of firm now become asseta and liabilities of company.

(ii) the proprietor/ partners shareholding in the company shall not be less than 50% in aggregate. (iii) proprietor/ partners should not receive any other consideration other than shares in the company (iv) they shall enjoy 50% voting power for atleast 5 years. From the date of succession by the company. (v) All the partners immediately before the succession shall become shareholders of the company and shall hold shares in the ratio of their capital. 15) Any transfer of capital asset in the scheme of business re organization of preceeder co operative bank to successor co operative bank 16) In the scheme of re organization the share holders of preceeder co operative bank surrender their shares and in lieu of that they receive shares of successor provided shares are the only consideration recieved WITHDRAWAL OF EXEMPTION IN THE CASE OF HOLDING CO IF ANY OF THE FOLLOWING EVENT HAPPENS WITHIN 8 YEARS EXEMPTION SHALL BE WITHDRAWN; 1) transferee Co converts capital asset into stock in trade 2) holding Co or its nominee ceases to hold 100% shares in subsidiary co.

Income from other sources - 7 List of items that can be considered under this head i) dividends ii) winnings from lottery , horse races, gambling , betting, crossword puzzles, etc iii) amount of interest on employees contribution to URPF . iv) interest v) income from letting machine , furniture on hire if not chargeable under the head “ business “ vi) agri income from land outside India

vii) viii) ix) x) xi) xii) xiii) xiv) xv) xvi)

casual or non recurring income family pension income from subletting house property sitting fee to director income from undisclosed sources sum received under keyman insurance policy land rent received commission if not charged under the head “business ‘’ gratuity received not as an employee on or after 01-04-2006 any sum of money exceeding 50,000/- received by an individual or HUF from any person without consideration then whole of such sum will be taxable.

Following gifts are not taxable; 1) gift in kind 2) gift from a relative 3) gift on the occasion of marriage 4) gift in contemplation of death of payer 5) gift under will or inheritance 6) gift from any local authority 7) gift from fund referred u\s 10(23C) 8) GIFT FROM SEC12AA registered charitable institution relative means i) ii) iii) iv) v) Spouse of individual Brother / sister of individual Brother / sister of spouse of individual Brother / sister of either of parents of individual Any lineal ascendant / descendant of the individual or the spouse of the individual vi) spouses of persons referred to in (ii) to (v) above. Deduction eligible while calculating INCOME FROM OTHER SOURCES. i) all reasonable expenses can be claimed as deduction ii) in case of family pension 1/3 of family pension or 15000 whichever is lower can be claimed as deduction. iii) All expenses incurred for earning income can be claimed as deduction Treatment of winnings from lottery/incomes of relevant nature. Sec 115BB i) ii) iii) iv) taxed at flat rate of 30% not eligible for deduction under chapter vi A loss can’t be set off no basic exemption can be claimed.

What is deemed dividend
i) ii) distribution of debentures, debenture stock, deposit certificates in any form , distribution of bonus shares to preference shareholders to the extent company possess accumulated profits distribution of assets among shareholders to the extent accumulated profits of the company( in the case of compulsory acquisition of company by govt or govt owned corporations the accumulated profits shall not include profits of company prior to 3 consecutive years preceding the previous year in which such acquisition took place) any payment made by company to a shareholder who is a beneficial owner of 10 % or more shares provided; a) such advance is not in the normal course of business b) public is not substantially interested in the company any amount paid by a company to a firm, huf or AOP in following cases; a) there is no substantial PUBLIC interest in the company b) the share holder is beneficial owner of 10% or more shares in that co and 20 % or more interest in the income of the firm

iii)

iv)

CLUBBING OF INCOME, SET OFF OF LOSSES - 8 Cases when income is clubbed 1) Income is transferred without transfer of asset. 2) Revocable transfer of assets 3) Transfer of assets to spouse, minor children or sons wife 4) Income of minor child 5) Transfer of asset to huf 6) Any income earned by spouse from a concern in which individual has substantial interest. Clubbing of income earned by spouse arises when; 1) Asset is transferred to spouse for inadequate consideration. 2) Income is transferred without transfer of asset. 3) Any cash gifted by assessee invested by spouse income arising out of the same is includible in assessee’s income. 4) Income arising from a concern in which assessee is having substantial interest 5) Natural love and affection is not a consideration Income not clubbed in following cases; 1) If assets are transferred before marriage. 1) If transfer of asset is in connection to live apart. 3) If at the time of accrual of income transferee is not the spouse of assessee 4) if transfer is for adequate consideration 5) if income is earned by application of own skill or talent or knowledge. Other points for review 1) If both husband and wife is having substantial interest in a concern income will be clubbed in the hands of that person whose total income is greater before including the income from that concern. 2) Even if the transferee converts the asset received without paying adequate consideration to some other asset the income from latter asset also will be clubbed. 3) Income arising out of accretion of asset shall not be clubbed. 4) Income earned out of transferred asset alone shall be clubbed. Income earned out of such income shall not be clubbed. INCOME OF MINOR CHILD TO BE CLUBBED 1) income of minor child including minor married daughter shall be clubbed in the hands of parent whose income before clubbing minors income is more. Child is meant to include step child, adopted child also. 2) If marriage of the parents does not subsist the income of the child will be clubbed in the hands of that parent who maintains the child.

3) Income earned by the minor child by application of own skill , knowledge or profession shall not be clubbed. But income out of investment of the same shall not escape clubbing. 4) If the minor child is handicapped and eligible for deduction u/s80U income of minor child shall not be clubbed. 5) If the minor has no parents in that case income of such child shall not be clubbed. 6) In respect of each minor child income clubbed exemption u/s10(32) can be claimed at Rs 1500 per child or each minor child’s income which ever is lower. 7) Agriculture income of minor child shall not be clubbed. It shall be taxed in the hands of minor child if he is having non agriculture income above exemption limit. Income of spouse not clubbed if 1) Asset is transferred to spouse for adequate consideration. 2) Asset is transferred in connection with an agreement to live apart. 3) Only if asset is transferred for inadequate consideration or if income is transferred without transfer of asset the income is clubbed. But income arising out of investment of the above income shall not be clubbed. 4) Income arising out of asset accretion shall not be clubbed. INCOME OF HUF—CLUBBING PROVISIONS sec64(2) 1) if an individual transfers for inadequate consideration his assets to huf in which he is a member income arising out of the same is clubbed in the hands of the transferor. 2) Subsequently if the huf is partitioned income arising to spouse only shall be clubbed in the hands of the individual. Substantial interest for the purpose of clubbing—means that a person is deemed to be having substantial interest if he along with his relatives hold 20% or more 1) share of profits in a concern if it is a non corporate entity. 2) Equity shares with voting rights in the case of corporate entity Once minor becomes major clubbing shall ceases to exist.
TREATMENT OF UNEXPLAINED INCOMES & EXPENDITURES

UNEXPLAINED CASH CREDITS SEC 68 Means; 1) Any sum is found credited in the books of accounts of assessee. 2) Assessee does not offer any explanation for such credit to the assessing officer or the explanation offered is not satisfactory. 3) Such credit will be charged as the income of the assessee. Unexplained investments sec69

Means; 1) Asseesee is found to have made some investments of any nature. 2) Assessee does not offer any explanation for such investments or such explanation is not satisfactory. 3) Such investment will be deemed to be the income of the assessee. Unexplained money, jewellery etc sec69A Means; 1) Assessee is found to be the owner of such money, jewellery etc 2) Assessee does not offer any explanation for such investments or such explanation is not satisfactory. 3) Such investment will be deemed to be the income of the assessee INVESTMENTS NOT FULLY DISCLOSED sec69B Means; 1) assessee is found to be the owner of money, bullion, investments etc 2) assessee has not fully disclosed such investments 3) such undisclosed portion will be treated as the income of the assessee. Unexplained expenditure sec69C Means; 1) assessee has incurred some expenditure 2) assessee does not offer any explanation regarding the sources of such expenditure. 3) Such expenditure not fully disclosed will be treated as the income of the assessee. Amount borrowed/ repaid on hundi sec69D When any amount is borrowed or repaid on hundi otherwise than by way of account payee cheque or demand draft then such amount will be treated as the income of the borrower. Amount repaid include principle as well as interest repaid. SET OFF AND CARRY FORWARD OF LOSS Inter source adjustment – sec70 Means ; Loss under a head of income is adjusted against the profit under the same head. But there are certain restriction to the same. The restriction apply to; 1) Loss from speculative business – can be set off only against profit from speculative business. Else it has to be carried forward to next year. 2) Loss from the activity of owning and maintaining race horses. – can be set off only against profit from owning and maintaining race horses. Else it has to be carried forward 3) Long term capital loss – can be set off only against long term capital gains. Else it has to be carried forward. Inter head adjustment – sec 71 Means; Loss under one head set off against profit under another head. But restriction apply for the following losses;

1) Loss from speculation business – if inter source not possible then has to be carried forward. 2) Loss from the activity of owning and maintaining race horses. – if inter source not possible then it has to be carried forward 3) Long term capital loss –.– if inter source not possible then it has to be carried forward 4) Short term capital loss - inter source adjustment against long term as well as short term capital gain possible. But loss after intersource adjustment has to be carried forward. 5) Business loss cannot be set off against salary income.( applicable for unabsorbed depreciation also )
Carry forward of loss House property loss - carry forward upto 8 years. Normal business loss – carry forward upto 8 years. Speculation business loss – carry forward upto 4 years. Loss from owning and maintaining race horses – carry forward upto 4 years. Unabsorbed depreciation – carry forward for infinite period Capital loss ( long term and short term ) carry forward upto 8 years In the case of amalgamation loss can be carried forward for 8 years from the date of amalgamation. Loss can be carried forward by the amalgamating company. In the case of demerger the resulting company can carry forward the loss for the unexpired period out of the total 8 years. In the case of demerger if the loss s not fully attributable to the business of the resulting company then loss benefit can be claimed by the resulting company in the ratio of assets taken over by them out of total assets. Only that proportion of loss can be carry forward. In the case of amalgamation carry forward of loss and set off is permissible only if following conditions are satisfied;

Conditions to be satisfied by amalgamating company; 1) amalgamating company has been carrying on the business in which loss remains unabsorbed for 3 or more years. 2) At least 3/4th assets of amalgamating company should be those assets which it has been holding for atleast 2 years prior to the date of amalgamation. Conditions for amalgamated company; 1) amalgamated company holds continuously for aperiod of five years from the date of amalgamation at least 3/4th of assets acquired in amalgamation. 2) Business of amalgamating company should be carried on by the amalgamated company for atleast 5 years from the date of amalgamation. 3) Amalgamated company should reach atleast 50% production of installed capacity by the end of 4 years from the date of amalgamation abd this level is to be continued upto the end of 5th year. 4) Certificate from the chartered accountant has to be obtained. Carry forward of loss in the case of succession of business/ change in constitution 1) loss attributable to the retiring partner cannot be carry forward by the remaining partners. 2) But upon death of partner if he is succeeded by legal heir firm is eligible for carry forward of loss.

3) If a sole proprietor dies and if the business is carried on by his legal heirs who constitute a partnership firm then they can enjoy the benefit of carry forward of loss. 4) There are no restriction whatsoever in connection with carry forward of unabsorbed depreciation. Carry forward of loss in the case of closely held company Loss can be carry forward only if atleast 51% shareholding as on the last day of the financial year in which loss is incurred and last day of the financial year in which loss is to be set off are the same. But this 51% restriction is not applicable if transfer of share is on accout of death of shareholder or if shares are gifted by share HOLDER TO HIS /HER RELATIVE.