Chapter 1

Basic Concepts
Question 1
Who is an “Assessee”?

Answer:
As per section 2(7), assessee means a person by whom any tax or any other sum of money is payable
under the Income-tax Act, 1961.

In addition, the term includes –

§ Every person in respect of whom any proceeding under the Act has been taken for the
assessment of –

• his income; or

• the income of any other person in respect of which he is assessable; or

• the loss sustained by him or by such other person; or

• the amount of refund due to him or to such other person.

§ Every person who is deemed to be an assessee under any provision of the Act;
§ Every person who is deemed to be an assessee in default under any provision of the Act.

Question 2
State any four instances where the income of the previous year is assessable in the previous year itself
instead of the assessment year.

Answer:
The income of an assessee for a previous year is charged to income-tax in the assessment year
following the previous year. However, in a few cases, the income is taxed in the previous year in which
it is earned. These exceptions have been made to protect the interests of revenue. The exceptions are
as follows:

(i) Where a ship, belonging to or chartered by a non-resident, carries passengers, livestock,

mail or goods shipped at a port in India, the ship is allowed to leave the port only when
the tax has been paid or satisfactory arrangement has been made for payment thereof.
7.5% of the freight paid or payable to the owner or the charterer or to any person on his

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 behalf, whether in India or outside India on account of such carriage is deemed to be his
income which is charged to tax in the same year in which it is earned.
(ii) Where it appears to the Assessing Officer that any individual may leave India during the
current assessment year or shortly after its expiry and he has no present intention of
returning to India, the total income of such individual for the period from the expiry of the
respective previous year up to the probable date of his departure from India is chargeable
to tax in that assessment year.
(iii) If an AOP/BOI etc. is formed or established for a particular event or purpose and the
Assessing Officer apprehends that the AOP/BOI is likely to be dissolved in the same year
or in the next year, he can make assessment of the income up to the date of dissolution
as income of the relevant assessment year.
(iv) During the current assessment year, if it appears to the Assessing Officer that a person is
likely to charge, sell, transfer, dispose of or otherwise part with any of his assets to avoid
payment of any liability under this Act, the total income of such person for the period
from the expiry of the previous year to the date, when the Assessing Officer commences
proceedings under this section is chargeable to tax in that assessment year.
(v) Where any business or profession is discontinued in any assessment year, the income of
the period from the expiry of the previous year up to the date of such discontinuance may,
at the discretion of the Assessing Officer, be charged to tax in that assessment year.

Question 3
What are the Components of Income Tax Law?

Answer:
The following are the components of Income Tax Law. They are:

§ Income Tax Act, 1961

§ Income Tax Rules, 1962
§ The Finance Act
§ Circulars and Notifications
§ Case laws

Question 4
Determine the Steps of computation of Income Tax.

Answer:
Step 1 – Determination of Residential Status

Step 2 – Classification of income under different heads

Step 3 – Computation of Income under each head

Step 4 – Clubbing of income of spouse, minor child etc

Step 5 – Set-off or carry forward and set-off of losses

Step 6 – Computation of Gross Total Income

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Step 7 – Deductions from Gross Total Income

Step 8 – Total income after deductions

Step 9 – Application of the rates of tax on the total income

Step 10 – Surcharge / Rebate under section 87A If applicable

Step 11 – Apply Health and education cess on income-tax

Step 12 – Deduct Advance tax and tax deducted at source from Gross Tax Liability

Step 13 – Tax Payable/Tax Refundable

Question 5
Define the term “Person” as per Income Tax Act, 1961.

Answer:
As per section 2 (31) of Income Tax Act, 1961, the term " person" includes-
§ an individual,
§ a Hindu undivided family,
§ a company,
§ a firm,
§ an association of persons or a body of individuals, whether incorporated or not,
§ a local authority, and
§ every artificial juridical person, not falling within any of the preceding sub- clauses.

Question 6
What is an Assessment year and Previous Year as per Income Tax Act, 1961?

Answer:
As per Section 2(9), an Assessment year is a period of 12 months commencing on 1st April every year.
The year in which income is earned is the previous year and such income is taxable in the immediately
following year which is the assessment year.

As per section 3, Previous year means the financial year immediately preceding the assessment year.

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Question 7
Compute the Income Tax Liability of Dheenabandhu Co-operative Society for AY – 2024-25, whose
total income in the PY 2023-24 is computed as

(a) Rs. 3,400

(b) Rs. 14,000
(c) Rs. 69,000

Assume that it does not opt for concessional rate of tax.

Answer:
(a) For Rs. 3,400 @10 % = 340 + HEC @4% = 354

(b) For Rs. 14,000

First 10,000 @10% = 1,000

Remaining 4,000 @20% = 800

Gross tax liability = 1,800

Add: Health and Education Cess @4% = 72

Total Tax Liability = 1,872

(c) For Rs. 69,000

First 10,000 10,000 @10% = 1,000

10,001 - 20,000 10,000 @20% = 2,000

20,001 – 69,000 49,000 @30% = 14,700

Gross tax liability = 17,700

Add: Health and Education Cess @4% = 708

Total Tax Liability = 18,408

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Question 8
Mr. Sharma aged 60 years and a resident in India, has a total income of Rs. 2,30,00,000, comprising
long term capital gain taxable under section 112 of Rs. 52,00,000, short term capital gain taxable under
section 111A of Rs. 64,00,000 and other income of Rs. 1,14,00,000.

Compute his tax liability for A.Y.2024-25.

Assume that Mr. Sharma has not opted for the provisions of section 115BAC.

Answer:
Computation of tax liability of Mr. Sharma for A.Y. 2024-25

Particulars Amount

Tax on total income of Rs. 2,30,00,000

Tax@20% on LTCG of Rs. 52,00,000 10,40,000

Tax@15% on STCG of Rs 64,00,000 9,60,000

Tax on other income of Rs. 1,14,00,000

Rs. 0 – Rs. 3,00,000 Nill 0

Rs. 3,00,000 – Rs. 5,00,000 @5% 10,000

Rs. 5,00,000 – Rs. 10,00,000 @20% 1,00,000

Rs. 10,00,000 – Rs. 1,14,00,000 @30% 31,20,000 32,20,000

52,30,000

Add Surcharge @15% 7,84,500

Gross Tax Liability 60,14,500

Add: Health and education cess @4% 2,40,580

Net Tax Liability 62,55,080

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Question 9
Compute the tax liability of Mr. Ranadev a 40-year-old resident individual wherein his total income is
Rs. 2,00,50,000, assuming that there is no income in nature of Capital gains.

Answer:
Tax on Total Income of Rs. 2,00,50,000 (including surcharge @ 25%) = Rs. 72,84,375

Tax on Rs. 2,00,00,000 (including surcharge @ 15%) = Rs. 66,84,375

Marginal Relief = Rs. 72,84,375 – (Rs. 66,84,375 + Rs. 50,000) = Rs. 5,50,000

Tax Liability = (Rs. 72,84,375 – Rs. 5,50,000) + 4% of Rs. 67,34,375 = Rs. 70,03,750

Question 10
Tom deposited Rs. 10,000 into PPF account and purchased NSC for Rs. 5,000 to reduce his tax liability.
On the other hand, Jerry did not show his interest on bank deposit amounting to Rs. 8,000 and thereby
reduced his tax liability.

Comment on the nature of tax saving policies adopted by Tom and Jerry.

Answer:
Tax planning is a way to reduce tax liability by taking full advantages provided by the Act through
various exemptions, deductions & relief. Tax evasion is the illegal way to reduce tax liability by
deliberately suppressing income or sale or by increasing expenses, etc., which results in reduction of
total income of the assessee. In respect of Tom, it is tax planning and on the other hand in case of
Jerry it is tax evasion.

Question 11
Discuss the constitutional validity of levying income tax.

Answer:
The Constitution of India is the supreme law of India. It consists of a Preamble, 22 parts containing
444 articles and 12 schedules. Any tax law, which is not in conformity with the Constitution, is called
ultra vires the Constitution and held as illegal and void. Some of the provisions of the Constitution are
given below: Article 265 of the Constitution lays down that no tax shall be levied or collected except
by the authority of law. It means tax proposed to be levied must be within the legislative competence
of the legislature imposing the tax.

Article 246 read with Schedule VII divides subject matter of law made by legislature into three
categories:

• Union list (only Central Government has power of legislation on subject matters covered in
the list)
• State list (only State Government has power of legislation on subject matters covered in the
list)
• Concurrent list (both Central & State Government can pass legislation on subject matters).

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If a state law relating to an entry in List III is repugnant to a Union law relating to that entry, the Union
law will prevail, and the state law shall, to the extent of such repugnancy, be void. (Article 254).

Following major entries in the respective list enable the legislature to make law on the matter:

Union List (List I) Entry 82 – Taxes on income other than agricultural income i.e. Income-tax

State List (List II) Entry 46 – Taxes on agricultural income.

Question 12
Mr. Santhanam starts a new business on March 29, 2023. He closes the first set of books of accounts
on March 31, 2023. He wants that income generated during this period should be chargeable to tax
for the assessment year 2024-25. Is he legally, correct?

Answer:
Previous year ends on March 31 immediately before the commencement of assessment year. For
instance, for the assessment year 2021-22, previous year is the period which ends on March 31, 2021.

In this case, the period which commences on March 29, 2023 and ends on March 31, 2023, is the
previous year for the assessment year 2024-25. In other words, income generated by X during March
29, 2023 and March 31, 2023 is chargeable to tax for the assessment year 2024-25. X does not have
any option to include this income in the income of the assessment year 2024-25. Previous year and
assessment year, in this case, will be determined as follows-

First previous year - March 29, Income of this previous year will be taxable in the assessment year
2023 to March 31, 2023 2023-24.
Second previous year- April 1, Income of the previous year 2024-25 will be taxable in the
2023 to March 31, 2024 assessment year 2024-25.

Question 13
Mr. X a resident, aged 56 years, till recently was a successful businessman filing his return of incomes
regularly and promptly ever since he obtained PAN card. During the COVID Pandemic period his
business suffered severely and he incurred huge losses. He was not able to continue his business and
finally on 1st January, 2024 he decided to wind-up his business which he also promptly intimated to
the jurisdictional Assessing Officer about the closure of his business.

The Assessing Officer sent him a notice to tax income of A.Y. 2024-25 during the AY. 2023-24 itself.
Does the Assessing Officer have the power to do so? Are there any exceptions to the general rule
“Income of the previous year is assessed in the assessment year following the previous year?

Answer:
Yes, he has the power to do so.

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Since the business of Mr. X is discontinued on 1st January, 2022, the income of the period from
01.04.2023 to 01.01.2024 may, at the discretion of the Assessing Officer, be charged to tax in A.Y.2023-
24 itself.

Following are the other exceptions to the general rule “Income of the previous year is assessed in the
assessment year following the previous year” i.e., the income of the previous year is assessed in the
previous year itself.

i. Shipping business of non-resident

ii. Persons leaving India with no present intention of returning
iii. AOP/BOI/Artificial Juridical Person formed for a particular event or purpose and likely to be
dissolved
iv. Persons likely to transfer property to avoid tax.

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Multiple choice questions
1. _________ is not a head of income.
a. Income from House Property
b. Salaries
c. Income from Interest on securities
d. Capital Gain

2. Mr. X, partner of M/s XYZ, is assessable as –

a. Firm
b. Individual
c. HUF
d. None of the above

3. If total income of a person is Rs. 2,67,888.34, it shall be rounded off to –

a. Rs. 2,67,888/-
b. Rs. 2,67,890/-
c. Rs. 2,67,880/-
d. Rs. 2,67,889/-

4. For the purpose of levying tax on income other than agricultural income, Union List contained
entry ________.
a. 82
b. 92D
c. 92C
d. 92E

5. The basic exemption limit for a resident super senior citizen above the age of 80 is
a. Rs. 2,00,000
b. Rs. 2,50,000
c. Rs. 5,00,000
d. None of the above

6. Rate of surcharge applicable to a foreign company having total income of Rs. 8 crore is :
a. Nil
b. 2%
c. 5%
d. 10%

7. Rebate u/s 87A is allowed to an Individual who is resident in India and whose total income
does not exceed ________.
a. Rs. 2,50,000
b. Rs. 3,00,000
c. Rs. 5,00,000

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 d. None of the above

8. The tax liability of Mr. Sree ram, a resident, who has reached the age of 60 years on 01.04.2023
and does not opt for the provisions of section 115BAC for the P.Y. 2023-24, on the total income
of Rs. 5,60,000, comprising of salary income and interest on fixed deposits would be –
a. Rs. 9,880
b. Rs. 22,880
c. Rs. 25,480
d. Nil

9. What is the amount of marginal relief available to Oriental Tea Ltd., a domestic company, on
the total income of Rs.10,03,50,000 for P.Y. 2023-24 (comprising only of business income)
whose turnover in P.Y. 2019-20 is Rs.450 Crore, paying tax as per regular provisions of Income-
tax Act? Assume that the company does not exercise option under section 115BAA.
a. Rs. 9,98,000
b. Rs. 12,67,600
c. Rs. 3,50,000
d. Rs. 13,32,304

10. The tax payable by Dharma LLP on total income of Rs. 1,01,00,000 for P.Y. 2023-24 is –
a. Rs. 35,29,340
b. Rs. 32,24,000
c. Rs. 33,21,500
d. Rs. 31,51,200

11. Mr. Raman, aged 64 years, was not able to provide satisfactory explanation to the Assessing
Officer for the investments of Rs. 7 lakhs not recorded in the books of accounts. What shall
be the tax payable by him on the value of such investments considered to be deemed income
as per section 69?
a. Rs. 2,18,400
b. Rs. 55,000
c. Rs. 5,46,000
d. Rs. 54,600

12. Mr. Ajay is a recently qualified doctor. He joined a reputed hospital in Delhi on 01.01.2024. He
earned total income of Rs. 3,40,000 till 31.03.2024. His employer advised him to claim rebate
u/s 87A while filing return of income for A.Y. 2024-25. He approached his father, a tax
professional, to enquire regarding what is rebate u/s 87A of the Act. What would have his
father told him?
i. An individual who is resident in India and whose total income does not exceed
Rs. 5,00,000 is entitled to claim rebate under section 87A.
ii. An individual who is resident in India and whose total income does not exceed
Rs. 3,50,000 is entitled to claim rebate under section 87A.
iii. Maximum rebate allowable under section 87A is Rs. 5,000.

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 iv. Rebate under section 87A is available in the form of exemption from total
income.
v. Maximum rebate allowable under section 87A is Rs. 12,500.
vi. Rebate under section 87A is available in the form of deduction from basic tax
liability.

Choose the correct option from the following:

(a) (ii), (iii), (vi)

(b) (i), (v), (vi)

(c) (ii), (iii), (iv)

(d) (i), (iv), (v)

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Chapter 2
Residential Status &
Scope of Total Income
Question 1
Determine the residential status and total income of Mr. Raghu Nandan for the A.Y. 2024-25 from
the information given below.
Mr. Raghu Nandan (age 62 years), an American citizen, is employed with a multinational company
in Gurugram. Mr. Raghu Nandan has held a senior level position as researcher in the company,
since 2009. To share his knowledge and finding in research, company gave him an opportunity to
travel to other group companies outside India while continuing to be based at the Gurugram office.
The details of his travel outside India for the F.Y. 2023-24 are as under:

Country Period of Stay

USA 25 August 2023 to 10 November, 2023
UK 20 November 2023 to 23 December, 2023
Germany 10 January 2024 to 24 March, 2024
During the last four years preceding the P.Y. 2023-24, he was present in India for 380 days. During
the last seven previous years preceding the P.Y. 2022 -23, he was present in India for 700 days.
During the P.Y. 2023-24, he earned the following incomes:

(1) Salary Rs. 15,80,000. The entire salary is paid by the Indian company in his Indian bank
account.
(2) Dividend amounting to Rs. 48,000 received from Treat Ltd., a Singapore based company,which
was transferred to his bank account in Singapore.
(3) Interest on fixed deposit with Punjab National Bank (Delhi) amounting to Rs. 10,500 was
credited to his saving account.
Answer:
Determination of residential status

Mr. Raghu Nandan would be a resident in India in P.Y. 2023-24, if he satisfies any one of the
following conditions:
(i) He has been in India during the previous year for a total period of 182 days or more, or

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(ii) He has been in India during the 4 years immediately preceding the previous year for a total
periodof 365 days or more and has been in India for at least 60 days in the previous year.
If he satisfies any one of the mentioned above, he is a resident. If both the above conditions are not
satisfied, he would be a non-resident.
During the P.Y. 2023-24 Mr. Raghu Nandan stayed in India for 179 days i.e., 365 days – 186 days [78
days + 34 days + 74 days] and 380 days i.e., more than 365 days during the 4 preceding previous
years. He satisfies the second basic condition of being a resident. Hence, he is a resident in India
for A.Y. 2024-25.
A person would be “Not ordinarily Resident” in India in any previous year, if such person, inter alia:
(a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
(b) has during the 7 previous years immediately preceding the relevant previous year been in India
for 729 days or less.
For the P.Y. 2023-24, Mr. Raghu Nandan would be “Resident but not ordinarily resident” since
he stayed for less than 729 days during the 7 previous years immediately preceding P.Y. 2023-
24.
Computation of total income of Mr. Raghu for A.Y. 2024-25

Particulars Amount (Rs. )

(1) Salary from Indian company received in a bank account in

15,00,000
India
Less: Standard deduction u/s 16(i a) 50,000 14,50,000
(2) Dividend of Rs. 48,000 received from Singapore based company transferred to
his bank account in Singapore is not taxable in the hands of the resident but
Nil
not ordinarily resident since the income has neither accrued or arisen in India
nor has it been received in India.
(3) Interest on fixed deposit with PNB credited to his savings bank account is
taxable in the hands of Mr. Raghu as Income from other sources since it has 10,500
accrued and arisen in India and is also received in India.
Gross Total Income 14,60,500
Less: Deduction u/s 80TTB 10,500
Total Income 14,50,000

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Question 2
Mr. Shyam Singha Roy, an Indian Citizen, left India for the purpose of employment in USA for the first
time on 1st October 2019. He came back to India on 15th March 2024 for visit and returned to USA
on the next day. During the P.Y. 2023-24, he earned the following Income:

(i) Salary earned in USA Rs. 5,00,000 (computed) and credited in USA.
(ii) Interest received in India out of Fixed Deposit in Bank Rs. 1,20,000.

Determine his residential status and Tax Incidence in India for the A.Y. 2024-25.

Answer:

During the previous year, Mr. Shyam Singha Roy was in India as under

P.Y. Apr May June July Aug Sept Oct Nov Dec Jan Feb Mar Total
23-24 30 31 30 31 31 30 1 - - - - 2 186

Since, Mr. Roy resided in India for 186 days (as shown above) in the P.Y. 2023-24, hence he satisfies
condition of sec. 6(1)(a). He is, therefore, a resident in India for the A.Y. 2024-25. Further, he is leaving
India for the first time, hence he is also satisfying both the conditions mentioned u/s 6(6). Thus, his
residential status for the year is resident and ordinarily resident. Accordingly, tax incidence is as
follows:

Particulars Amount
Salary earned in USA 5,00,000
Interest of fixed deposit in bank 1,20,000
Income liable to be taxed in India 6,20,000

Question 3
During the F.Y. 2023-24, Mr. Prabhakar had the following incomes. Compute the income liable to be
taxed in India of Mr. Prabhakar if he is

(i) Not Ordinarily resident, and

(ii) Non-resident in India.
i. Income from profession in India but received in USA Rs. 1,00,000
ii. Agricultural income accrued and received in Australia Rs. 20,000
iii. Income from business in Indonesia not brought into India Rs. 3,00,000. The business
is controlled from India.
iv. Property income accrued and received in London (out of which Rs. 40,000 was
remitted to India) Rs. 1,30,000
v. Interest from deposits with an African company but received in India Rs. 75,000

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Answer:

Computation of income liable to be taxed in India of Mr. Prabhakar for the A.Y. 2024-25

Particulars Case (i) Case (ii)

i. Income from profession in India but received in USA 1,00,000 1,00,000
ii. Agricultural income accrued and received in Australia - -
iii. Income from business in Indonesia not brought into India 3,00,000 -
iv. Property income accrued and received in London - -
v. Interest from deposits with an African company but received in India 75,000 75,000
Income liable to be taxed in India 4,75,000 1,75,000

Question 4
Miss. Raquel Murillo, a citizen of Spain came to India for the first time in P.Y. 2019-20 and stayed for
100 days in that year. During the previous year’s 2020-21, 2021-22, 2022-23 and 2023-24 he stayed in
India for 120 days, 110 days, 80 days, and 90 days respectively. What is the residential status of Miss.
Raquel Murillo for the A.Y. 2024-25?

Answer:

During the P.Y. 2023-24, Miss. Raquel Murillo was in India for 90 days & during 4 years immediately
preceding the previous year, he was in India for 410 days as shown below:

Year 2019-20 2020-21 2021-22 2023-24 Total

No. of days stayed in India 100 120 110 80 410

Thus, she satisfies one of the conditions given u/s 6(1) & consequently, she is a resident in India for
the P.Y. 2023-24.

However, she does not satisfy conditions specified u/s 6(6), hence she is resident but not ordinarily
resident in India.

Question 5
Mr. Anand is an Indian citizen and a member of the crew of a Hong-Kong bound Indian ship engaged
in carriage of passengers in international traffic departing from Chennai port on 6th June 2022. From
the following details for the P.Y. 2023-24, determine the residential status of Mr. Anand for A.Y. 2024-
25, assuming that his stay in India in the last 4 previous years (preceding P.Y. 2023-24) is 400 days:

Particulars Date
Date entered into the Continuous Discharge Certificate in respect of joining
6th June, 2023
the ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect of signing
9th December, 2023
off the ship by Mr. Anand

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Answer:

In this case, since Mr. Anand is an Indian citizen and leaving India during P.Y. 2023-24 as a member of
the crew of the Indian ship, he would be resident in India if he stayed in India for 182 days or more.

The voyage is undertaken by an Indian ship engaged in the carriage of passengers in international
traffic, originating from a port in India (i.e., the Chennai port) and having its destination at a port
outside India (i.e., the Singapore port). Hence, the voyage is an eligible voyage for the purposes of
section 6(1).

Therefore, the period beginning from 6th June, 2023 and ending on 9th December, 2023, being the
dates entered into the Continuous Discharge Certificate in respect of joining the ship and signing off
from the ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be
excluded for computing the period of his stay in India. Accordingly, 187 days [25+31+31+30+31+30+9]
have to be excluded from the period of his stay in India.

Consequently, Mr. Anand’s period of stay in India during the P.Y. 2023-24 would be 178 days [i.e., 365
days – 187 days].

Since his period of stay in India during the P.Y. 2023-24 is less than 182 days, he is a non-resident for
A.Y. 2024-25.

Question 6
Brett Lee, an Australian cricket player visits India for 100 days in every financial year. This has been his
practice for the past 10 financial years.

a. Find out his residential status for the A.Y. 2024-25.

b. Would your answer change if the above facts relate to Srinath, an Indian citizen who resides in
Australia and represents the Australian cricket team?

c. What would be your answer if Srinath had visited India for 120 days instead of 100 days every
year, including P.Y.2023-24?

Answer:

(a) Determination of Residential Status of Mr. Brett Lee for the A.Y. 2024-25: -

Period of stay during previous year 2023-24 = 100 days

Calculation of period of stay during 4 preceding previous years (100 x 4 = 400 days)

Mr. Brett Lee has been in India for a period more than 60 days during P.Y. 2023-24 and for a period
of more than 365 days during the 4 immediately preceding previous years. Therefore, since he
satisfies one of the basic conditions under section 6(1), he is a resident for the A.Y. 2024-25

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 Computation of period of stay during 7 preceding previous years = 100 x 7 = 700 days
Since his period of stay in India during the past 7 previous years is less than 730 days, he is a not-
ordinarily resident during the A.Y. 2024-25. (See Note below)

Therefore, Mr. Brett Lee is a resident but not ordinarily resident during the P.Y. 2023-24 relevant
to the A.Y. 2024-25.

Note: An individual, not being an Indian citizen, would be not-ordinarily resident person if he
satisfies any one of the conditions specified under section 6(6), i.e.,

(i) If such individual has been non-resident in India in any 9 out of the 10 previous years
preceding the relevant previous year, or

(ii) If such individual has during the 7 previous years preceding the relevant previous year
been in India for a period of 729 days or less. In this case, since Mr. Brett Lee satisfies
condition (ii), he is a not-ordinarily resident for the A.Y. 2024-25.

(b) If the above facts relate to Mr. Srinath, an Indian citizen, who residing in Australia, comes on a
visit to India, he would be treated as non-resident in India, irrespective of his total income
(excluding income from foreign sources), since his stay in India in the current financial year is, in
any case, less than 120 days.

(c) In this case, if Srinath’s total income (excluding income from foreign sources) exceeds Rs. 15
lakhs, he would be treated as resident but not ordinarily resident in India for P.Y.2023-24, since
his stay in India is 120 days in the P.Y.2023-24 and 480 days (i.e., 120 days x 4 years) in the
immediately four preceding previous years. If his total income (excluding income from foreign
sources) does not exceed Rs. 15 lakh, he would be treated as non-resident in India for the
P.Y.2023-24, since his stay in India is less than 182 days in the P.Y.2023-24.

Question 7
Mr. Sergio Subramanyam is a foreign citizen. He, his grandparents were not born in undivided India.
However, his relatives were born in undivided India. His period of stay in India is as follows –

Previous Year Presence in India

2023-24 147 Days
2022-23 140 Days
2021-22 300 Days
2020-21 25 Days
2019-20 32 Days
2018-19 Nil

Find out the Residential Status of Mr. Sergio Subramanyam for the A.Y. 2024-25.

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Answer:

Mr. Sergio Subramanyam is a foreign citizen. He is not a person of Indian origin. During the P.Y. 2023-
24, he was in India for 147 days and during preceding 4 years he was in India for 497 days. By satisfying
the second basic condition, he becomes resident in India. However, he is not in a position to satisfy
the two additional conditions, he will be resident but not ordinarily resident in India for the A.Y. 2024-
25.

Question 8
Mr. X (45 years) is an Indian citizen. He leaves India for the first time on July 3, 2023. He comes back
on April 5, 2024. He gives the following information regarding his income pertaining to the A.Y. 2024-
25-

Particulars Amount (Rs. )

Salary (after standard deduction) from an Indian company for rendering service
9,45,000
in India
Royalty from the Government of India (received outside India) 2,00,000
Technical fees from a foreign company (received outside India and technical fees
9,28,000
pertain to a project of the foreign company situated in India)
Technical fees from an Indian Company (received outside India and technical fees
11,24,000
pertain to a project of the Indian company situated outside India)
Dividend from an Indian company (received in India) 14,00,000
Dividend from a foreign company (received outside India) 3,10,000

From the information given above find out the taxable income of X for the A.Y. 2024-25 in the following
two situations-

Situation 1 - X leaves India on July 3, 2023, to meet his friends and relatives.
Situation 2- X leaves India on July 3, 2023, for the purpose of employment.
Answer:

During the P.Y. 2023-24, X is India for a period of 94 days. Since he leaves India for abroad for the first
time on July 3, 2023, he satisfies the following propositions-

1. He was in India for more than 365 days during last 4 years.
2. He was in India for more than 730 days during last 7 years.
3. He was resident in India in last 10 years.

Residential status in Situation 1 - In Situation 1, X can become resident in India if he satisfies any one
or two of the basic conditions. As he is in India for 94 days during the P.Y. 2023-24 and more than 365
days in last 4 years, he is resident in India. Moreover, he can satisfy the two additional conditions (as
he was never out of India before July 3, 2023).

Situation 1 Situation 2
Particulars
ROR NR

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 Salary from an Indian company for rendering service in India
9,45,000 9,45,000
(Indian income always chargeable to tax)
Royalty from the Government of India
2,00,000 2,00,000
(Is deemed to be earned in India and Taxable in India)
Technical fees from a foreign company
9,28,000 9,28,000
(Project is in India, Indian income and taxable in India)
Technical fees from an Indian Company
(Foreign project, foreign income, not taxable in the hands of Non- 11,24,000 Nil
Resident)
Dividend from an Indian company
(Accrued in India, Indian income is Taxable in India) 14,00,000 14,00,000

Dividend from a foreign company

(Accrues in foreign, Foreign Income is not taxable in the hands of 3,10,000 Nil
Non-Resident)
Net Income 49,07,000 34,73,000

Question 9
Skynet Inc. is a Foreign Company. However, persons holding more than 90 percent shares in the
company are citizens and as well as residents of India. The business of the company is controlled partly
from India and partly from Outside India by a team of professionals. Find out the residential status of
X inc. and net income for the A.Y. 2024-25 on the basis of the following information –

Particulars Amount
Income from a property situated in Canada (rent is received outside India) 20,40,000
Income from a property situated in Mumbai (rent is received outside India) 23,10,000
Royalty from Government of India (paid outside of India) 6,00,000
Technical fees received from a Canadian Company (paid outside India but it is utilised
18,00,000
by the Canadian company for carrying business in India)
Income from Business in India 8,00,000

Answer:

Skynet Inc. is a Foreign Company. Business of foreign company is controlled partly from India and
partly from Outside India. Consequently, it is a Non-resident of India

In case of Non-Resident, only Indian Income is Chargeable to tax in India.

Income of Skynet Inc. for the A.Y. 2024-25 shall be calculated as follows-

Nature of
Particulars Amount
Income
Income from a property situated in Canada Foreign Income Nil
Income from a property situated in Mumbai Indian Income 23,10,000

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 Royalty from Government of India Indian Income 6,00,000
Technical fees received from a Canadian Company Indian Income 18,00,000
Income from Business in India Indian Income 8,00,000
Net Income 55,10,000

Question 10
Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practising in
Colombo, specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara is a
non-resident. The consultancy is related to a project in India with possible Ceylonese collaboration. Is
this payment chargeable to tax in India in the hands of Mr. Kulasekhara since the services were used
in India?

Answer:

A non-resident is chargeable to tax in respect of income received outside India only if such income
accrues or arises or is deemed to accrue or arise to him in India.

The income deemed to accrue or arise in India under section 9 comprises, inter alia, income by way of
fees for technical services, which includes any consideration for rendering of any managerial, technical
or consultancy services. Therefore, payment to a management consultant relating to project financing
is covered within the scope of “fees for technical services”.

The Explanation below section 9(2) clarifies that income by way of, inter alia, fees for technical
services, from services utilized in India would be deemed to accrue or arise in India in case of a non-
resident and be included in his total income, whether or not such services were rendered in India or
whether or not the non-resident has a residence or place of business or business connection in India.

In the instant case, since the services were utilized in India, the payment received by Mr. Kulasekhara,
a non-resident, in Colombo is chargeable to tax in his hands in India, as it is deemed to accrue or arise
in India.

Question 11
From the following particulars of income furnished by Mr. Ananth, aged 60 years, pertaining to year
ended 31.03.2023, compute the total income for the A.Y. 2024-25, if he is

a) Resident and Ordinarily Resident

b) Non-Resident

Particulars Amount
Capital Gain on sale of land in Jaipur to Mr Ramesh, a Non-Resident, outside
1. 1,50,000
India. The consideration was also received outside India in foreign currency
Rent from property in Delhi, let out to a branch of a foreign company. The rent
2. 1,20,000
agreement is agreed outside India. Monthly rent is also received outside India.

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 3. Agricultural income from a land situated in Nepal, Received in Nepal 55,000
4. Interest on savings bank deposit in UCO Bank, Delhi 18,000
Income earned from business in London which is controlled from Delhi (Rs.
5. 60,000
35,000 is received in India)
6. Gift Received from his daughter on his birthday 55,000
7. Past Foreign taxed income brought to India 37,000
Fee for technical services rendered in Shine Ltd., a foreign company, for
8. 12,000
business outside India and received also outside India
Answer:

Computation of total income of Mr. Ananth for A.Y. 2023-24

Particulars ROR (Rs. ) NR (Rs. )

Capital Gain on sale of land in Jaipur to Mr Ramesh, a Non-Resident,
1,50,000 1,50,000
outside India
Rent from property in Delhi, let out to a branch of a foreign company
1,20,000 84,000
[Rs. 1,20,000 – 30% of Rs. 1,20,000 u/s 24(a)]
Agricultural income from a land situated in Nepal, Received in Nepal 55,000 -
Interest on savings bank deposit in UCO Bank, Delhi 18,000 18,000
Income earned from business in London which is controlled from
60,000 35,000
Delhi (Rs. 35,000 is received in India)
Gift Received from his daughter on his birthday
- -
[Not taxable since Daughter falls under the definition of Relative]
Past Foreign taxed income brought to India
- -
[Not Taxable]
Fee for technical services rendered in Shine Ltd., a foreign company,
12,000 -
for business outside India and received also outside India
Gross Total Income 3,79,000 2,87,000
Less: Deduction U/s 80TTA – Interest on Savings Bank Deposit 10,000
Less: Deduction U/s 80TTB – Interest on Savings Bank Deposit 18,000
Total Income 3,61,000 2,77,000

Notes –

1. In case of a resident and ordinarily resident, global income is taxable as per section 5(1). However,
as per section 5(2), in case of a non-resident, only the following incomes are chargeable to tax:
a. Income received or deemed to be received in India; and
b. Income accruing or arising or deemed to accrue or arise in India.
Therefore, agricultural income from a land situated in Nepal, income earned from business in
London which is controlled from Delhi, received outside India and fees for technical services from
a non-resident for business outside India is not taxable in case of non-resident.
2. In case of a senior citizen, being a resident aged 60 years or more, interest up to Rs. 50,000 from
saving account with, inter alia, a bank is allowable as deduction under section 80TTB while in case
of a non-resident, interest up to Rs. 10,000 from a savings account with, inter alia, a bank is
allowable as a deduction under section 80TTA.

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Question 12
99 Spices Pvt Ltd., a foreign company, incorporated in Abu Dhabi and engaged in the manufacturing
and distribution of Spices, set up a branch office in India in June 2023. The branch office was required
to purchase processed and raw spices from dealers of Mumbai and export them to Abu Dhabi. During
the P.Y. 2023-24, profit from such export amounted to Rs. 75 lakhs.

Out of 20 shareholders of 99 Spices Pvt Ltd., 12 shareholders are non-resident in India. All the major
decisions were taken through Board Meetings held at Abu Dhabi.

(i) Determine the residential status of 99 Spices Pvt Ltd. for the A.Y. 2024-25.

(ii) Discuss the tax treatment of profit from export business.

Answer:

(i) Residential Status of 99 Spices Pvt Ltd.: According to Section 6(3) of the Income tax Act, 1961, a
foreign company is said to be resident in India in any previous year, if its place of effective
management, in that year, is in India.

"Place of effective management" means a place where key management and commercial decisions
that are necessary for the conduct of the business of an entity as a whole, are in substance made.

Since in case of 99 Spices Pvt Ltd., all the major decisions were taken through Board Meetings held at
Abu Dhabi, hence it will be non-resident in India.

(ii) According to Explanation 1(b) to Section 9(1)(i), in the case of a non-resident, no income shall be
deemed to accrue or arise in India to him through or from operations which are confined to the
purchase of goods in India for the purpose of export. Thus, export profits of Rs. 75 lakhs shall not be
taxable in India in hands of 99 Spices Pvt Ltd.

Question 13
Mr. Saravana Arul, is an Indian Citizen. Currently he is in Employment with an overseas Company
located in Dubai. His Passport reveals the following information about his stay in India.

2023-24 from April 3rd to May 11th

2022-23 from June 22nd to June 11th

2021-22 from February 10th to March 26th

2020-21 from September 7th to March 8th

2019-20 from May 17th to September 30th

2018-19 from April 3rd to July 11th

2017-18 from April 3rd to July 11th

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 2016-17 from April 3rd to July 11th

2015-16 from April 3rd to July 11th

Find out her residential status for the A.Y. 2024-25 if Mrs. X is not taxable in Dubai or any other country
or territory by reason of her domicile or residence. Income of MRs. X in India for P.Y. 2023-24 (other
than income from foreign sources) is Rs. 20,00,000.

Answer:

An individual is said to be a Resident in India in any previous year if he satisfies one or both basic
conditions as given under section 6(1).

(i) Basic conditions:

• He must be in India for a period of 182 days or more during the previous year, or
• He must be in India for a period of 60 days or more during the previous year and 365 days or
more during the four years preceding the previous year.

(ii) If he does not satisfy either of these conditions, he would be a non-resident unless his case falls
u/s 6(1A). conditions:

(1) He must be citizen of India.

(2) His total income, other than the income from foreign sources, must exceed Rs. 15 lakhs during
the previous year, and
(3) He is not liable to tax in any other country or territory be reason of his domicile or residence
or any other criteria of similar nature.

If these conditions are satisfied, he is deemed to be Not Ordinarily resident in India as per Section
6(6)(d). During the P.Y. 2023-24, MRs. X was in India for 39 days (April: 28 + May: 11) Thus, she does
not satisfy any of the basic condition as per Section 6(1) of the Act. However, she satisfies the
conditions of Section 6(1A) read with Section 6(6)(d), hence she is resident but not ordinarily resident
in India.

Question 14
Aarthi gives you the following information pertaining to the P.Y. ending on March 31, 2023

Particulars Amount
Royalty from a patent registered in USA (royalty is received outside India from a foreign 20,00,000
company and the foreign company has used the patent for manufacturing purposes in India)
Dividend from an Italian company (X holds 55 per cent shares in the Italian company, 18,00,000
business of the company is partly controlled from India and dividends are received outside
India)
Profit of a sole proprietary business situated in Dubai, received in Mauritius (business is 4,50,000
entirely controlled from India)
Loss from a business situated in Pakistan (controlled from Pakistan) (2,00,000)
Rent of a commercial property situated in Bhutan (received in Nepal) 2,35,000

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Speculation profit earned and received in India on April 1, 2023 4,00,000
Profit on sale of a house property situated in UK (50 per cent is received in Chennai and 50 1,77,000
per cent is received in UK)
Income from a profession set up in Bangalore (consultancy is provided in UK and amount is 8,32,000
received in UK)

Find out net income of Aarthi for the A.Y. 2024-25 on the assumption that

(a) Aarthi is resident and ordinarily resident in India (ROR),

(b) Aarthi is resident but not ordinarily resident (RNOR),

(c) Aarthi is non-resident (NR) in India

Answer:

Computation of Income of Aarthi for the A.Y. 2024-25

Nature of ROR RNOR NR

Particulars
Income (Rs. ) (Rs. ) (Rs. )
Royalty Indian Income 20,00,000 20,00,000 20,00,000
Dividend Foreign 18,00,000 - -
Income
Business Income Foreign 4,50,000 4,50,000 -
Income
Loss from Pakistan Business Foreign Loss (2,00,000) - -
Rent Foreign 2,35,000 - -
Income
Speculation Profit Income of next - - -
year
Sale of House Property (50% received in India) Indian Income 88,500 88,500 88,500
Sale of House Property (50% received in Foreign) Foreign 88,500 - -
Income
Professional Income Foreign 8,32,000 8,32,000 -
Income
Net Income 52,94,000 33,70,500 20,88,500

Foreign income is taxable in the case of resident but not ordinarily resident taxpayer only if it is
business income (from a business controlled from India) or if it is professional income (from a
profession set up in India).

Question 15
Examine the tax implications of the following transactions for the A.Y. 2024-25: (Give brief reason)

(i) Government of India has appointed Mr. Rahul as an ambassador in Japan. He received
salary of Rs. 7,50,000 and allowances of Rs. 2,40,000 during the P.Y. 2023-24 for rendering

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 his services in Japan. He is an Indian citizen having status of non-resident in India for the
P.Y. 2023-24.
(ii) Ms. Juhi, a non-resident in India is engaged in operations which are confined to purchase
of goods in India for the purpose of export. She has earned Rs. 2,50,000 during the P.Y.
2023-24
(iii) Mr. Naveen, a non-resident in India, has earned Rs. 3,00,000 as royalty for a patent right
made available to Mr. Rakesh who is also a non-resident. Mr. Rakesh has utilized patent
rights for development of a product in India and 50% royalty is received in India and 50%
outside India.

(iv) Mr. James, a NRI, borrowed Rs. 10,00,000 on 01.04.2023 from Mr. Akash who is also a
non-resident and invested such money in the shares of an Indian Company. Mr. Akash has
received interest @ 12% per annum.

Answer:

1. As per section 9(1)(iii), salaries (including, inter alia, allowances) payable by the
Government to a citizen of India for services rendered outside India shall be deemed to
accrue or arise in India. Thus, salary received from Government by Mr. Rahul, being a non-
resident of Rs. 7,50,000 for rendering services in Japan would be taxable in his hands,
after allowing standard deduction of Rs. 50,000. However, any allowance or perquisites
paid or allowed outside India by the Government to a citizen of India for rendering services
outside India will be fully exempt u/s 10(7). Hence, Rs. 2,40,000, being the allowance
would be exempt.

2. In the case of a non-resident, no income shall be deemed to accrue or arise in India to him
through or from operations which are confined to the purchase of goods in India for the
purpose of export.

Thus, income of Rs. 2,50,000 arising in the hands of Ms. Juhi would not be taxable in her
hands in India since her operations are confined to purchase of goods in India for the
purpose of export.

3. Royalty payable by a non-resident would be deemed to accrue or arise in India in the

hands of the recipient only when such royalty is payable in respect of any right, property
or information used for the purposes of a business or profession carried on by such non-
resident in India or earning any income from any source in India.

In the present case, since Mr. Rakesh, a non-resident, paid the royalty of Rs. 3,00,000 for
a patent right used for development of a product in India, the same would be taxable in
India in the hands of the recipient, Mr. Naveen, a non-resident, irrespective of the fact
that only 50% of the royalty is received in India.

4. Interest payable by a non-resident on the money borrowed for any purpose other than a
business or profession in India, would not be deemed to accrue or arise in India.

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 In the present case, since Mr. James, a non-resident borrowed the money for investment
in shares of an Indian company, the interest on such borrowing of Rs. 1,20,000 (Rs.
10,00,000 x 12%) payable to Mr. Akash, a non-resident would not be deemed to accrue
or arise to him in India. Hence, the same would not be taxable in India in the hands of Mr.
Akash.

Question 16
Mrs. Rohini, aged 60 years, was born, and brought up in New Delhi. She got married in Russia in 1996
and settled there since then. Since her marriage, she visits India for 60 days each year during her
summer break. The following are the details of her income for the P.Y. ended 31.03.2024:

S. No. Particulars Amount

1 Pension received from Russian Government 65,000
2 Long-term capital gain on sale of land at New Delhi (computed) 3,00,000
3 Short-term capital gain on sale of shares of Indian listed companies in
respect of which STT was paid both at the time of acquisition as well as 60,000
at the time of sale (computed)
4 Premium paid to Russian Life Insurance Corporation at Russia 75,000
5 Rent received (equivalent to Annual Value) in respect of house property
90,000
in New Delhi

You are required to ascertain the residential status of MRs. Rohini and compute her total income and
tax liability in India for A.Y. 2024-25.

Answer:

An Indian citizen or a person of Indian origin who, being outside India, comes on a visit to India (and
whose total income, other than from foreign sources, does not exceed Rs. 15,00,000) would be
resident in India only if he or she stays in India for a period of 182 days or more during the previous
year.

Since Mrs. Rohini is a person of Indian origin who comes on a visit to India only for 60 days in the P.Y.
2023-24 and her income other than from foreign sources does not exceed Rs. 15,00,000, she is non-
resident for the A.Y. 2024-25.

A non-resident is chargeable to tax in respect of income received or deemed to be received in India

and income which accrues or arises or is deemed to accrue or arise to her in India.

Question 17
Mr. Dhanush, an Indian citizen aged 35 years, worked in ABC Ltd. in Mumbai. He got a job offer from
XYZ Inc., USA on 01.06.2022. He left India for the first time on 31.07.2021 and joined XYZ Inc. on
08.08.2022. During the P.Y. 2023-24, Mr. Dhanush visited India from 25.05.2023 to 22.09.2023. He
has received the following income for the P.Y. 2023-24 –

Particulars Rs.

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 Salary from XYZ Inc., USA received in USA 7,00,000
Dividend from Indian Companies 5,50,000
Agricultural Income from land situated in Punjab 55,000
Rent Received/receivable from House property in Lucknow 4,00,000
Profits from a profession in USA, which was set up in India, received there 6,00,000

Determine the residential status of Mr. Dhanush and compute his total income for the A.Y. 2023-24

Answer:

As per section 6(1), an Indian citizen or a person of Indian origin who, being outside India, comes on a
visit to India would be resident in India if he or she stays in India for a period of 182 days or more
during the relevant previous year in case such person has total income, other than the income from
foreign sources, not exceeding Rs. 15 lakhs. However, if such person has total income, other than the
income from foreign sources, exceeding Rs. 15 lakhs, he would also be a resident if he has been in
India for at least 120 days during the relevant previous year and has been in India during the 4 years
immediately preceding the previous year for a total period of 365 days or more. In such a case, he
would be resident but not ordinarily resident in India.

Income from foreign sources means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India) and which is not deemed to
accrue or arise in India.

In this case, total income, other than the income from foreign sources, of Mr. Dhanush for P.Y. 2023-
24 would be

Particulars Amount (Rs.)

Salary from XYZ Inc., USA received in USA (Not included in total income, since it is
-
income from foreign source)

Dividend from Indian companies (Included in total income, since deemed to accrue
5,50,000
or arise in India)

Agricultural income from land situated in Punjab [Exempt u/s 10(1)] -

Rent received/receivable from house property in

Lucknow (Included in total income, since deemed to 4,00,000
accrue or arise in India)

Less: 30% of Rs. 4 lakhs 1,20,000 2,80,000

Profits from a profession in USA, which was set up in India, received there 6,00,000

Total income, other than the income from foreign sources 14,30,000

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Since, Mr. Dhanush is an Indian citizen who comes on a visit to India only for 121 days in the P.Y. 2023-
24 and his total income, other than income from foreign sources does not exceed Rs. 15 lakhs, he
would be non-resident for the A.Y. 2024-25.

A non-resident is chargeable to tax in respect of income received or deemed to receive in India and
income which accrues or arises or is deemed to accrue or arise to him in India. Accordingly, his total
income would be as follow –

Particulars Amount (Rs.)

Salary from XYZ Inc., USA received in USA (Not included in total income, since it is
-
income from foreign source)

Dividend from Indian companies (Included in total income, since deemed to accrue
5,50,000
or arise in India)

Agricultural income from land situated in Punjab [Exempt u/s 10(1)] -

Rent received/receivable from house property in

Lucknow (Included in total income, since deemed to 4,00,000
accrue or arise in India)

Less: 30% of Rs. 4 lakhs 1,20,000 2,80,000

Profits from a profession in USA, which was set up in India, received there -

Total income, other than the income from foreign sources 8,30,000

Question 18
Mrs. Roma, an Indian Citizen, is a government employee working for the Indian Government. She
submits the following information for the previous year ending 31.03.2024:

S.No. Particulars Rs.

1 Salary income received in Malaysia for services rendered there 2,00,000
2 Profit from business carried on in Orissa 80,000
3 Loss from business carried on in Baroda -20,000
4 Profit from business carried on in Paris (income is earned and received in 42,000
Sydney and business is controlled from Paris)
5 Loss from business carried on in Canada (though profits are not received -46,000
in India, business is controlled from Dehradun)
6 Unabsorbed depreciation of business in Canada 16,000
7 Profit from Indonesia business (controlled form Delhi) and 60% of profit 70,000
deposited in a bank in Indonesia and 40% received in India
8 Rent from house property situated in Canada and received in Canada 1,92,000

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Determine the gross total income of Roma for the A.Y. 2024-25 ignoring the provisions of section
115BAC on the assumption that she is:

(1) Resident but not ordinarily resident in India

(2) Non-resident in India.

Answer:

Computation of gross total Income of Mrs. Roma for the A.Y. 2024-25

Resident but Non-

Particulars of income not ordinarily Resident
Resident (Rs.) (Rs.)
1 Salary income received in Malaysia for services rendered there
(Note 1) 2,00,000 2,00,000
Less: Standard deduction under section 16(ia) 50,000 50,000
1,50,000 1,50,000
2 Profit from business carried on in Orissa [Since it accrues or
arises in India] 80,000 80,000
3 Loss from business carried on in Baroda [Since it accrues or
arises in India] -20,000 -20,000
4 Profit from business carried on in Paris (income is Nil Nil
earned and received in Sydney and business is
controlled from Paris) [Since it accrues or arises
outside India]
5 Loss from business carried on in Canada (business is
controlled from Dehradun) -46,000 Nil
6 Unabsorbed depreciation of business in Canada -16,000 Nil
7 Profit from Indonesia business (business is controlled from
70,000 28,000
Delhi)
8 Rent from property situated in Canada and received in Canada Nil Nil
Gross Total Income 2,18,000 2,38,000

Note 1 - Income from “Salaries” payable by the Government to a citizen of India for services rendered
outside India is deemed to accrue or arise in India as per section 9(1)(iii). Standard deduction under
section 16(ia) is allowable, irrespective of residential status.

Note 2 – In case of a non-resident, only income received or deemed to be received in India and income
accruing or arising or deemed to accrue or arise in India is chargeable to tax. However, in case of a
resident but not ordinarily resident, income derived from a business controlled in or profession set up
in India is also taxable even though it accrues or arises outside India.

Therefore, income referred to in S. No. 1, 2 and 3 are taxable in the hands of Mrs. Roma in both cases
if she is a resident but not ordinarily resident or if she is a non-resident.

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Loss from business carried on in Canada, unabsorbed depreciation of business in Canada and Profit
from Indonesia business would be fully chargeable to tax in India if she is a resident but not ordinarily
resident as it derived from a business controlled in India. However, Profit from Indonesia business is
taxable in case of non-resident to the extent of such profits received in India.

Question 19
Mr. Manekshaw, a person of Indian origin and citizen of USA, got married to Ms. Anjali, an Indian
citizen residing in USA, on 24th January, 2023 and came to India on 25-03-2023. He left for Country X
on 10th July, 2023. He returned to India again on 24-02-2024 with his wife to spend some time with
his parents-in law for 30 days and thereafter returned to USA. He stayed in India for 400 days during
the 4 years preceding the P.Y. 2023-24.

He received the following gifts from his relatives and friends of her wife during 01-04-2023 to 31-03-
2024 in India:

- From wife’s parents Rs.1,51,000

- From wife’s sister Rs.21,000

- From very close friends of his wife Rs.16,00,000

Determine his residential status and compute the total income chargeable to tax along with the
amount of tax liability on such income for the A.Y. 2024-25.

Answer:

Under section 6(1), an individual, being a person of Indian origin and who comes on a visit to India and
he is having total income other than income from foreign sources exceeding Rs.15 lakhs during the
previous year, such individual is said to be resident in India, if he stays in India during the previous
year for 120 days or more and for 365 days or more during the 4 years immediately preceding the
relevant previous year. As per section 6(6), such individual whose stay in India is for 120 days or more
but less than 182 days in the P.Y. 2023-24 would be resident but not ordinarily resident.

Mr. Manekshaw is a person of Indian origin who has come on a visit to India during the previous year.
Since his total income other than income from foreign sources exceeds Rs.15,00,000, he would be a
resident in India if he stays in India during the previous year for 120 days or more and for 365 days or
more during the 4 years immediately preceding the relevant previous year.

His stay in India during the P.Y. 2023-24 is as under:

P.Y. 2023-24 Days

01.04.2023 to 10.07.2023 - 101 days

24.02.2024 to 25.03.2024 - 30 days

Total - 131 days

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Since he stays in India is for 131 days during the P.Y. 2023-24 and for 400 days during the 4 years
immediately preceding the P.Y. 2023-24, he is resident but not ordinarily resident in India for the P.Y.
2023-24.

In such case, his total income and tax liability would be computed in the following manner:

Computation of total income and tax liability of Mr. Manekshaw for the A.Y. 2024-25

Particulars Rs.
Income from other sources
Cash gifts received from non-relatives is chargeable to tax as per section
56(2)(x) if the aggregate value of such gifts exceeds Rs.50,000.
- Rs.1,51,000 received from parents of wife would be exempt, since wife’s Nil
parents fall within the definition of ‘relatives’ and gifts from a relative are
not chargeable to tax.
- Rs.21,000 received from married sister-in-law is exempt, since sister of Nil
wife falls within the definition of relative and gifts from a relative are not
chargeable to tax.
- Gift received from close friends of his wife of Rs.16,00,000 is taxable under
section 56(2)(x) since the amount of cash gifts exceeds Rs.50,000. 16,00,000
Total Income 16,00,000
Tax on total income of Rs.16,00,000 1,80,000
Upto Rs.3,00,000 – Nil
Rs.3,00,001 – Rs.6,00,000 [Rs.3,00,000 @ 5%] 15,000
Rs.6,00,001 – Rs.9,00,000 [Rs.3,00,000 @ 10%] 30,000
Rs.9,00,001 – Rs.12,00,000 [Rs.3,00,000 @ 15%] 45,000
Rs.12,00,001 – Rs.15,00,000 [Rs.3,00,000 @ 20%] 60,000
Rs.15,00,001 – Rs.16,00,000 [Rs.1,00,000 @ 30%] 30,000
Add: Health and Education cess@4% 7,200
Tax liability 1,87,200

Note – Since his tax liability as per normal provisions is Rs.3,04,200 [Rs.2,92,500 (Rs.1,12,500 plus
30% on Rs.6,00,000 income exceeding Rs.10,00,000) plus Rs.11,700, being health and education cess
@4%], which is higher than the tax liability computed as per concessional tax rates available under
section 115BAC, it is beneficial for him to opt for section 115BAC.

Question 20
Mr. Sarthak, an individual and Indian citizen living in Dubai, since year 2005 and never came to India
for a single day since then, earned the following incomes during P.Y. 2023-24:

Particulars Amount (in Rs.)

(i) Income accrued and arisen in Dubai but he is not liable to tax in Dubai 20,00,000
(ii) Income accrued and arisen in India 5,00,000
(iii) Income deemed to accrue and arise in India 8,00,000
(iv) Income arising in Dubai from a profession set up in India 10,00,000

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 i. Determine the residential status of Mr. Sarthak and taxable income for the P.Y. 2023-24
(assuming no other income arise during the previous year).
ii. What would be your answer if income arising in Dubai from a profession set up in India is Rs. 2
lakhs instead of Rs. 10 lakhs?
iii. What would be your answer, if Mr. Sarthak is not an Indian citizen but his parents were born
in India?

Answer:

I. Mr. Sarthak is an Indian citizen living in Dubai since 2005 who never came to India for a single day
since then, he would not be a resident in India for the P.Y. 2023 -24 on the basis of number of days
of his stay in India as per section 6(1).

However, since he is an Indian citizen

• having total income (excluding income from foreign sources) of Rs. 23 lakhs, which exceeds
the threshold of Rs. 15 lakhs during the previous year; and
• not liable to tax in Dubai,

he would be deemed resident in India for the P.Y. 2023-24 by virtue of section 6(1A). A deemed
resident is always a resident but not ordinarily resident in India (RNOR).

Computation of Total Income for A.Y. 2024-25

Particulars Amount (in Rs.)

(i) Income accrued and arisen in Dubai but he is not liable to tax in Dubai 0
(ii) Income accrued and arisen in India 5,00,000
(iii) Income deemed to accrue and arise in India 8,00,000
(iv) Income arising in Dubai from a profession set up in India 10,00,000
Total Income 23,00,000

II. If income arising in Dubai from a profession set up in India is Rs. 2 lakhs instead of Rs. 10 lakhs, his
total income (excluding income from foreign sources) would be only Rs. 15 lakhs. Since the same does
not exceed the threshold limit of Rs. 15 lakhs, he would not be deemed resident.

Accordingly, he would be non-resident in India for the P.Y. 2023-24 and hence, his total income would
be only Rs. 13 lakhs (aggregate of (ii) and (iii) above i.e., Rs. 5 lakhs + Rs. 8 lakhs).

III. If Mr. Sarthak is not an Indian citizen and his parents were born in India, he would be person of
Indian origin. In such case, the provisions relating to deemed resident would not apply to him.

Accordingly, he would be non-resident in India during the P.Y. 2023-24 and his total income would be
Rs. 13 lakhs.

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Multiple choice questions
1. If Anirudh, a citizen of India, has stayed in India in the P.Y. 2023-24 for 181 days, and he is non-
resident in 9 out of 10 years immediately preceding the current previous year and he has
stayed in India for 365 days in all in the 4 years immediately preceding the current previous
year and 420 days in all in the 7 years immediately preceding the current previous year, his
residential status for the A.Y. 2024-25 would be –

a. Resident and ordinarily resident

b. Resident but not ordinarily resident
c. Non-resident
d. Deemed resident but not ordinarily resident

2. Raman, a citizen of India, was employed in Hindustan Lever Ltd. He resigned on 27.09.2023.
He received a salary of Rs. 40,000 p.m. from 1.4.2023 to 27.9.2023 from Hindustan Lever Ltd.
Thereafter he left for Dubai for the first time on 1.10.2023 and got salary of rupee equivalent
of Rs. 80,000 p.m. from 1.10.2023 to 31.3.2024 in Dubai. His salary for October to December
2023 was credited in his Dubai bank account and the salary for January to March 2024 was
credited in his Mumbai account directly. He is liable to tax in respect of –

a. income received in India from Hindustan Lever Ltd.

b. income received in India and in Dubai.
c. income received in India from Hindustan Lever Ltd. and income directly credited in India.
d. income received in Dubai.

3. The incidence of taxation depends on the –

a. Residential status of the assessee

b. Accommodation of the assessee
c. Citizenship of the assessee
d. Marital status of the assessee

4. Income accruing in Sri Lanka and received in India is taxable in India in case of –

a. Resident and ordinary resident only

b. Non-resident
c. Resident but not ordinary resident
d. All assessee irrespective of his residential status

5. A person is said to be a person of Indian origin if –

a. He or either of his parents were born in undivided India

b. He or either of his siblings were born in undivided India
c. He or either of his parents or either of his grandparents were born in undivided India
d. He was born in India

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6. An individual is said to be a resident in India in the previous year (in which the Feb month has
29 days) if he is in India in that year for a period of ___.

a. 182 days or more

b. 183 days or more
c. 70 days or more
d. 150 days or more

7. Income accrued and received out of India, from a business controlled from Tokyo, in the
previous year is taxable in the hands of –

a. Resident and Ordinarily Resident

b. Non-Resident
c. All assessee irrespective of residential status
d. Non-ordinarily resident

8. The basic exemption limit in case of a non-resident firm is:

a. Rs. 2,50,000
b. Rs. 3,00,000
c. Rs. 5,00,000
d. None of these

9. An Indian Company, where place of effective management is outside India, shall be:

a. Resident in India
b. Non-resident in India
c. Not ordinarily resident in India
d. None of the above

10. A partnership firm will become resident in India if

a. Its control and management is totally in India

b. Its control and management is totally or partly in India
c. Its place of effective management is in India
d. Its partners become resident in India

11. A Hindu Undivided family is said to be resident in India if

a. The family has a house in India where some of its members reside
b. The member of such HUF is in India during the previous year
c. Control and management of its affairs wholly or partly situated in India

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 d. The Karta has been resident in India in at least 9 out of 10 previous years preceding the
relevant previous year

12. An individual is said to be resident in India if

a. He has a house in India

b. He is in India in the previous year for a period of 182 days or more
c. He is in India for a period of 30 days or more during the previous year and for 365 or more
days during 4 previous years immediately preceding the relevant previous year
d. His parents are Indian citizen.

13. An individual, being foreign national, came to India first time during the previous year 2023-
24 on 01-01-2023 for 200 days, his residential status for the previous year 2023-24 is.

a. Non-resident
b. Resident but not ordinarily resident in India
c. Resident and ordinarily resident in India
d. Resident in India.

14. Following income of a resident and ordinarily resident is taxable in India, that is

a. Bank interest from State Bank of India, Delhi

b. Bank interest from Bank of America, New York Branch
c. Rental income from house property located in London
d. All of the above

15. Mr. Suhaan (aged 35 years), a non-resident, earned dividend income of Rs. 12,50,000 from an
Indian company which was declared on 30.09.2023 and credited directly to his bank account
on 05.10.2023 in France and Rs. 15,000 as interest in saving A/c from State Bank of India for
the P.Y. 2023-24.
Assuming that he has no other income, what will be amount of income chargeable to tax in
his hands in India for A.Y. 2024-25?

a. Rs. 2,55,000
b. Rs. 12,65,000
c. Rs. 12,50,000
d. Rs. 12,55,000

16. Aashish earns the following income during the P.Y. 2023-24:
o Interest on U.K. Development Bonds (1/4th being received in India): Rs. 4,00,000
o Capital gain on sale of a building located in India but received in Holland: Rs. 6,00,000
If Aashish is a resident but not ordinarily resident in India, then what will be amount of income
chargeable to tax in India for A.Y. 2024-25?

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 a. Rs. 7,00,000
b. Rs. 10,00,000
c. Rs. 6,00,000
d. Rs. 1,00,000

17. Mr. Square, an Indian citizen, currently resides in Dubai. He came to India on a visit and his
total stay in India during the F.Y. 2023-24 was 135 days. He is not liable to pay any tax in Dubai.
Following is his details of stay in India in the preceding previous years:

Financial Year Days of Stay in India

2022-23 100
2021-22 125
2020-21 106
2019-20 83
2018-19 78
2017-18 37
2016-17 40

What shall be his residential status for the P.Y. 2023-24 if his total income (other than income
from foreign sources) is Rs. 10 lakhs?

a. Resident but not ordinary resident

b. Resident and ordinary resident
c. Non-resident
d. Deemed resident but not ordinarily resident

18. Dividend income from Australian company received in Australia in the year 2021, brought to
India during the P.Y. 2023-24 is taxable in the A.Y. 2024-25 in the case of –

a. resident and ordinarily resident only

b. both resident and ordinarily resident and resident but not ordinarily resident
c. non-resident
d. None of the above

19. Mr. Ramesh, a citizen of India, is employed in the Indian embassy in Australia. He is a non-
resident for A.Y. 2024-25. He received salary and allowances in Australia from the Government
of India for the year ended 31.03.2023 for services rendered by him in Australia. In addition,
he was allowed perquisites by the Government. Which of the following statements are
correct?

a. Salary, allowances, and perquisites received outside India are not taxable in the hands of Mr.
Ramesh since he is non-resident.

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 b. Salary, allowances, and perquisites received outside India by Mr. Ramesh are taxable in India
since they are deemed to accrue or arise in India.
c. Salary received by Mr. Ramesh is taxable in India, but allowances and perquisites are
exempt.
d. Salary received by Mr. Ramesh is exempt in India, but allowances and perquisites are taxable.

20. Mr. Nishant, a resident but not ordinarily resident for the P.Y. 2023-23 and resident and
ordinarily resident for the P.Y. 2023-24, has received rent from property in Canada amounting
to Rs. 1,00,000 during the P.Y. 2023-24 in a bank in Canada. During the F.Y. 2023-24, he
remitted this amount to India through approved banking channels. Is such rent taxable in
India, and if so, how much and in which year?

a. Yes, Rs. 70,000 was taxable in India during the P.Y. 2022-23.
b. Yes, Rs. 1,00,000 was taxable in India during the P.Y. 2022-23.
c. Yes, Rs. 70,000 was taxable in India during the P.Y. 2023-24.
d. No; such rent is not taxable in India either during the P.Y. 2022-21 or during the P.Y. 2023-
24.

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Chapter 3
Income from Salary
Question 1
Mr. Pushpa Raj is the CEO of Pushpa Sandalwood Ltd. His basic salary is ₹6,00,000 p.m. He is paid 8%
as D.A. He contributes 10% of his pay and D.A. towards his recognized provident fund and the company
contributes the same amount. The accumulated balance in recognized provident fund as on 1.4.2022,
31.3.2023 and 31.3.2024 is ₹ 50,35,000, ₹ 71,46,700, and ₹ 94,57,700, respectively. Compute the
perquisite value chargeable to tax in the hands of Mr. Sunil u/s 17(2)(vii) and 17(2)(viia) for the A.Y.
2023-24 and A.Y. 2024-25.

Answer:

Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y. 2023-24

1. Perquisite value taxable u/s 17(2)(vii) = ₹7,77,600, being employer’s contribution to

recognized provident fund during the P.Y. 2020-21 – ₹7,50,000
= ₹27,600
2. Perquisite value taxable u/s 17(2)(viia)
= Annual accretion on perquisite taxable u/s 17(2)(vii) = (PC/2)*R + (PC1 + TP1)*R
= (27,600/2) x 0.0914 + 0
= ₹1,261

PC Pushpa Sandalwood Ltd.’s contribution in excess of ₹7.5 lakh to recognized provident fund
during P.Y. 2022-23 = ₹27,600
PC 1 Nil
TP 1 Nil
R I/Favg = 5,56,500/60,90,850
= 0.0914
I RPF balance as on 31.3.2022 – employee’s and employer’s contribution during the year – RPF
balance as on 1.4.2021 = ₹ 5,56,500 (₹ 71,46,700 – ₹ 7,77,600 – ₹ 7,77,600 – ₹ 50,35,000)
F avg Balance to the credit of recognized provident fund as on 1st April, 2022 + Balance to the credit
of recognized provident fund as on 31st March, 2023)/2 =
(₹ 50,35,000 + ₹ 71,46,700)/2 = ₹ 60,90,850

Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y. 2024-25

1. Perquisite value taxable u/s 17(2)(vii) = ₹ 7,77,600, being employer’s contribution to

recognized provident fund during the P.Y. 2022-23 – ₹ 7,50,000

CA CMA SHIVA TEJA Page | 38

 = ₹ 27,600
2. Perquisite value taxable u/s 17(2)(viia) = Annual accretion on perquisite taxable u/s 17(2)(vii)
= (PC/2)*R + (PC1 + TP1)*R
= (27,600/2) x 0.0910 + (27,600 + 1,261) x 0.0910
= ₹ 1,256 + ₹ 2,626
= ₹ 3,882

PC Pushpa Sandalwood Ltd.’s contribution in excess of ₹ 7.5 lakh to recognized provident fund
during P.Y. 2023-24 = ₹ 27,600
PC 1 Amount of employer’s contribution in excess of ₹ 7,50,000 to RPF in P.Y. 2022-22 = ₹ 27,600
TP 1 Taxable perquisite under section 17(2)(viia) for the P.Y. 2023-24 = ₹ 1,261
R I/Favg = 7,55,800/83,02,200
= 0.0910
I RPF balance as on 31.3.2023 – employee’s and employer’s contribution during the year – RPF
balance as on 1.4.2023 = ₹ 7,55,800 (₹ 94,57,700 – ₹ 7,77,600 – ₹ 7,77,600 – ₹ 71,46,700)
F avg Balance to the credit of recognized provident fund as on 1st April, 2022 + Balance to the credit
of recognized provident fund as on 31st March, 2023)/2 =
(₹ 71,46,700 + ₹ 94,57,700)/2 = ₹ 83,02,200

Note – Since the employee’s contribution to RPF exceeds ₹ 2,50,000 in the P.Y.2023-24, interest on ₹
5,27,600 (i.e., ₹ 7,77,600 – ₹ 2,50,000) will also be chargeable to tax.

Question 2
Ms. Sukanya is a Finance manager in ABC limited. She has given the details of her income for the P.Y.
2023-24. You are required to compute the income chargeable to tax under the head "Salaries" in the
hands of Ms. Sukanya from the details given below:

Basic Salary Rs. 60,000 p.m

Dearness Allowance Rs. 24,000 p.m (40% of which forms part of retirement benefits)
Bonus Rs. 21,000 p.m.

Motor car owned by the employer (cubic capacity of engine exceeds 1.6 litres) provided to Ms.
Sukanya from 1st October, 2023 which is used for both official and personal purposes. Repair and
running expenses of Rs. 60,000 were fully met by the company. The motor car was self-driven by the
employee.
Professional tax paid Rs. 2,500 out of which Rs. 2,000 was paid by the employer.

Her employer has provided her with an accommodation on 1st April 2023 at a concessional rent. The
house was taken on lease by ABC Ltd. for Rs. 12,000 p.m. Ms. Sukanya occupied the house from 1st
December, 2023, Rs. 4,800 p.m. is recovered from the salary of Ms. Sukanya.

The employer gave her a gift voucher of Rs. 8,000 on her birthday.

CA CMA SHIVA TEJA Page | 39

 Ms. Sukanya contributes 15% of her salary (Basic Pay plus DA) towards recognised provident fund and
the company contributes the same amount.

The company pays medical insurance premium to effect insurance on the health of Ms. Sukanya Rs.
20,000.

Answer:

Computation of income chargeable to tax under the head "Salaries" in the hands of Ms.
Sukanya for A. Y. 2024-25

Particulars Rs.
Basi Salary [(Rs. 60,000 x 12 )] 7,20,000
Dearness Allowance [(Rs. 24,000 x 12 )] 2,88,000
Bonus [(Rs. 21,000 x 12 )] 2,52,000
Perquisite for Motor Car [(Rs. 2,400 x 6)] [WN-1] 14,400
Professional Tax paid by Employer [WN-2] 2,000
Perquisite value in respect of concessional rent [WN-3] 28,800
Gift voucher given by employer on Birthday [WN-4] 8,000
Employer's contribution to RPF in excess of 12% of salary [WN-5] 50,976
Medical insurance premium paid by the employer Nil
Gross Salary 13,64,176
Less: Standard Deduction U/s 16(ia) 50,000
Less: Professional Tax U/s 16(iii) 2,500 52,500
Salary Income Chargeable to Tax 13,11,676

Notes:

1. In case a motor car (engine cubic capacity more than 1.6 litres) owned by employer is provided to
an employee without chauffeur for both official and personal purpose, where the expenses are fully
met by the employer, the value of perquisite would be Rs. 2,400 p.m. The car was provided to Ms.
Sukanya on 1.10.2023, therefore, the perquisite value has been calculated for 6 months.

2. As per section 17(2)(iv), a "perquisite" includes any sum paid by the employer in respect of any
obligation which, but for such payment, would have been payable by the assessee. Therefore,
professional tax of Rs. 2,000 paid by the employer is taxable as a perquisite in the hands of Ms.
Sukanya. As per section 16(iii), a deduction from the salary is provided on account of tax on
employment i.e. professional tax paid during the year. Therefore, in the present case, the
professional tax paid by the employer on behalf of the employee Rs. 2,000 is first included in the
salary and deduction of the entire professional tax of Rs. 2,500 is provided from salary.

3. Where the accommodation is taken on lease or rent by the employer, the actual amount of lease
rent paid or payable by the employer or 15% of salary, whichever is lower, in respect of the period
during which the house is occupied by the employee, as reduced by the rent recoverable from the
employee, is the value of the perquisite.

CA CMA SHIVA TEJA Page | 40

 • Actual rent paid by the employer from 01.12.2023 to 31.3.2024 = Rs. 48,000 [Rs. 12,000 x 4
months]
• 15% of salary Rs 54,360 [15% (Rs. 60,000+ Rs. 9.600+ Rs. 21,000) x 4 months]
Salary = Basic Salary + Dearness Allowance (to the extent it forms part of pay for retirement benefits)
+ Bonus
Lower of the above is Rs. 48,000 which is to be reduced by the rent recovered from the employee.
Hence, the perquisite value of concessional rent = Rs. 48,000 Rs. 19,200 [Rs. 4,800 × 4 months]
= Rs. 28,800

4. As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his
household on ceremonial occasions or otherwise from the employer shall be determined as the sum
equal to the amount of such gift. However, the value of any gift or voucher received by the employee
or by member of his household below Rs. 5,000 in aggregate during the previous year would be
exempt as per the proviso to Rule 3(7)(iv).
In this case, the gift voucher of Rs. 8,000 was received by Ms. Sukanya from her employer on the
occasion of her birthday. Since the value of the gift voucher exceeds the limit of Rs. 5,000, the entire
amount of Rs. 8,000 is liable to tax as perquisite. The above solution has been worked out
accordingly.

Alternative view- An alternate view is also possible is that only the sum in excess of Rs. 5,000 tr
taxable in view of the language of Circular No.15/2001 dated 12.12.2001, which states such up to
Rs 5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a
perquisite. As per this view, the value of perquisite would be Rs. 3,000. The salary chargeable to tax,
in this case, would be Rs. 13,06,676)

5. Employer's contribution to recognized provident fund in excess of 12% of salary = 15% X [(Rs.
60,000+ Rs. 24,000) x 12] 12% x {[Rs. 60,000+ Rs. 9,600 (being 40% of Rs. 24,000)] 12} = 1,51,200-
1,00,224 [Salary = Basic Salary + Dearness allowance, to the extent it forms part of pay for retirement
benefits]

Question 3
Mr. Ravi Kumar is an area manager of M/s Anusha Enterprises. During the P.Y. 2023-24 he gets
following emoluments from his employer:

Basic Salary: Up to 31-08-2023 Rs. 20,000 p.m.

From 01-09-2023 Rs. 25,000 p.m.
Transport Allowance Rs. 2000 p.m.

Contribution to RPF 15% of Basic Salary and D.A.

Children Education allowance Rs. 500 p.m. for two children

City Compensatory allowance Rs. 300 p.m.

Hostel expenses allowance Rs. 380 p.m. for two children

CA CMA SHIVA TEJA Page | 41

Tiffin Allowance (actual expenses Rs. 3,700) Rs. 5,000 p.a.

Tax paid on Employment Rs. 2,500

Compute taxable salary of Mr. Ravi Kumar, if he has not opted for the provisions of Section 115BAC.

Answer:

Computation of income from Salary of Mr. Ravi Kumar for A.Y. 2024-25

Particulars Rs.
Basic Salary [(Rs. 20,000 x 5) + (Rs. 25,000 x 7 )] 2,75,000
Transportation Allowance [Rs. 2000 x 12] 24,000
Less: Exempt - 24,000
Children Education Allowance [Rs. 500 x 12] 6,000
Less: Exempt (Rs. 100 x 2 x 12) (2,400) 3,600
City Compensatory Allowance 3,600
Hostel Expenses Allowance (Rs. 380 x 12) 4,560
Less: Exempt (Rs. 300 x 2 x 12) or actual whichever Is less (4,560) -
Tiffin Allowance (Fully Taxable) 5,000
Tax Paid on Employment (Employee's obligation met by Employer) 2,500
Employer's Contribution to RPF in Excess of 12% of salary 8,250
Gross Salary 3,21,950
Less: Standard Deduction U/s 16(ia) 50,000
Less: Entertainment Tax U/s 16(iii) 2,500 52,500
Salary Income chargeable to Tax 2,69,450

Note:

1. The question states that contribution to recognised provident fund is at 15% of Basic salary +
D.A. However, since the amount or rate of D.A. is not given in the question, contribution to
recognised provident fund has been taken as 15% of basic salary.
2. Employment tax paid by employer should be included in the salary of Mr. M as a perquisite
since it is discharge of monetary obligation of the employee by the employer. Thereafter,
deduction of employment tax paid is allowed to the employee from his gross salary.
3. As per Section 16(ia), standard deduction will be allowed from gross salary amounting Rs.
50,000 or the amount of salary, whichever is less.

Question 4
Mr. Thomas Shelby is a Marketing Manager in Peaky Blinders Ltd. From the following information, you
are required to compute his income chargeable under the head salary for A.Y. 2024-25.

i. Basic salary is Rs. 70,000 per month

ii. Dearness allowance @ 40% of basic salary

CA CMA SHIVA TEJA Page | 42

 iii. He is provided health insurance scheme approved by IRDA for which 20,000 incurred by Smile
Ltd. Received 10,000 as gift voucher on the occasion of his marriage anniversary from Smile
Ltd.
iv. Smile Ltd allotted 800 sweat equity shares in August 2023. The shares were allotted at 450
per share and the fair market value on the date of exercising the option by Mr. Thomas Shelby
was 700 per share
v. He was provided with furniture during September 2019, the furniture is used at his residence
for personal purpose. The actual cost of the furniture was 1,10,000. On 31st March, 2023, the
company offered the furniture to him at free of cost. No amount was recovered from him
towards the furniture till date.
vi. Received 10,000 towards entertainment allowance.
vii. Housing Loan@ 4.5% pa provided by Smile Ltd., amount outstanding as on 01.04.2023 is 15
Lakhs. 50,000 is paid by Mr. Thomas Shelby every quarter towards principal starting from June
2022. The lending rate of SBI for similar loan as on 01.04.2021 was 8%.
viii. Facility of laptop costing 50,000

Answer:
Computation of income from Salary of Mr. Thomas Shelby

Particulars Rs.
Basic Salary [(Rs. 70,000 x 12 )] 2,75,000
Transportation Allowance [40% of Rs. 8,40,000] 3,36,000
Entertainment allowance 10,000
Interest on housing loan given at concessional rate, would be
perquisite, since the amount of loan exceeds ₹ 20,000, For
computation, the lending rate of SBI on 1.4.2023 @8% has to be 49,291
considered. Thus, perquisite value would be determined @ 3.5% (8% -
4.5%) [See Working Note]
Health insurance premium paid by the employer [tax free perquisite] Nill
Gift voucher on the occasion of his marriage anniversary [As per Rule
3(7)(iv), the value of any gift or voucher or token in lieu of gift received
10,000
by the employee or by member of his household exceeding ₹ 5,000 in
aggregate during the previous year is fully taxable] (See note below)
Allotment of sweat equity shares
Fair market value of 800 sweat equity shares @ ₹700 each 5,60,000
Less: Amount recovered @ ₹450 each 3,60,000 2,00,000
Use of furniture by employee
10% p.a. of the actual cost of ₹ 1,10,000 11,000
Use of Laptop
Facility of use of laptop is not a taxable perquisite Nill
Transfer of asset to employee
Value of furniture transferred to Mr. Thomas Shelby 1,10,000
Less: Normal wear and tear @10% for each completed year
of usage on SLM basis [1,10,000 x 10% x 4 years (from 44,000 66,000
September 2019 to September 2023)]

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 Gross Salary 15,22,291
Less: Standard Deduction U/s 16(ia) 50,000
Salary Income chargeable to Tax 14,72,291
Working Note:

Computation of perquisite value of loan given at concessional rate

For computation, the lending rate of SBI on 1.4.2023 @8% has to be considered. Thus, perquisite
value would be determined @ 3.5% (8% - 4.5%)

Month Maximum outstanding balance as on last date Perquisite value at

of month (₹) 3.5% for the month (₹)
April, 2023 15,00,000 4,375
May, 2023 15,00,000 4,375
June, 2023 14,50,000 4,229
July, 2023 14,50,000 4,229
August, 2023 14,50,000 4,229
September, 2023 14,00,000 4,083
October, 2023 14,00,000 4,083
November, 2023 14,00,000 4,083
December, 2023 13,50,000 3,937.50
January, 2024 13,50,000 3,937.50
February, 2024 13,50,000 3,937.50
March, 2024 13,00,000 3,792
Note:
An alternate view possible is that only the sum in excess of ₹ 5,000 is taxable. In such a case, the value
of perquisite would be ₹ 5,000 and gross salary and net salary would be ₹ 15,17,291 and ₹ 14,67,291,
respectively.

Question 5
A Father has two sons. He is in receipt of children education allowance of ₹ 150 p.m. for his elder son
and ₹ 70 p.m. for his younger son. Both his sons are going to school. He also receives the following
allowances:

Transport allowance: ₹ 1,800 p.m.

Tribal area allowance: ₹ 500 p.m.

Compute his taxable allowances.

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Answer:

Taxable allowance in the hands of Father is computed as under-

Children Education Allowance:

Elder son ((150-100) p.m. x 12 months] = Rs. 600
Younger son [(70-70) p.m. x 12 months) = Nil 600
Transport allowance (1,800 p.m. x 12 months) 21,600
Tribal area allowance [(500-200) p.m. x 12 months] 3,600
Taxable Allowance 25,800

Question 6
Absolute Barbeques Co. Ltd. allotted 1000 sweat equity shares to Mr. Kumbhkarn in June 2022. The
shares were allotted at ₹ 200 per share as against the fair market value of ₹ 300 per share on the date
of exercise of option by the allottee viz. Mr. Kumbhakarn. The fair market value was computed in
accordance with the method prescribed under the Act.

i. What is the perquisite value of sweat equity shares allotted to Mr. Kumbhakarn?
ii. In the case of subsequent sale of those shares by Mr. Kumbhakarn, what would be the cost of
acquisition of those sweat equity shares?

Answer:

(i) As per section 17(2)(vi), the value of sweat equity shares chargeable to tax as perquisite shall be
the fair market value of such shares on the date on which the option is exercised by the assessee as
reduced by the amount actually paid by, or recovered from, the assessee in respect of such shares.

Particulars Amount
Fair market value of 1000 sweat equity shares @300 each 3,00,000
Less: Amount recovered from Mr. Kumbhakarn 1000 shares @ 200 each 2,00,000
Value of perquisite of sweat equity shares allotted to Mr. Kumbhakarn 1,00,000

(ii) As per section 49(2AA), where capital gain arises from transfer of sweat equity shares, the cost of
acquisition of such shares shall be the fair market value which has been taken into account for
perquisite valuation under section 17(2)(vi).

Therefore, in case of subsequent sale of sweat equity shares by Mr. Kumbhkarn, the cost of acquisition
would be 3,00,000.

Question 7
Mr. Shahjahan is employed with Taj Hotels Ltd. on a monthly salary of ₹ 25,000 per month and an
entertainment allowance and commission of ₹ 1,000 p.m. each. The company provides him with the
following benefits:

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 1. A company owned accommodation is provided to him in Delhi. Furniture costing ₹ 2,40,000
was provided on 01.08.2023.
2. A personal loan of ₹ 5,00,000 on 01.07.2023 on which it charges interest @ 6.75% p.a. The
entire loan is still outstanding. (Assume SBI rate of interest on 01.04.2023 was 12.75% p.a.)
3. His son is allowed to use a motorcycle belonging to the company. The company had purchased
this motorcycle for ₹ 60,000 on 1.5.2020. The motorcycle was finally sold to him on 1.8.2023
for ₹ 30,000.
4. Professional tax paid by Mr. Shahjahan is ₹ 2,000.

Compute the income from salary of Mr. Shahjahan for the A.Y. 2024-25 assuming Mr. Shahjahan has
not opted for the provisions of section 115BAC.

Answer:

Computation of Income from Salary of Mr. Shahjahan for the A.Y. 2024-25

Particulars Rs. Rs.

Basic salary [₹25,000 × 12] 3,00,000
Commission [₹1,000 × 12] 12,000
Entertainment allowance [₹1,000 × 12] 12,000
Rent free accommodation [Note 1] 48,600
Add: Value of furniture [₹2,40,000 × 10% p.a. for 8 months] 16,000 64,600
Interest on personal loan [Note 2] 22,500
Use of motorcycle [₹60,000 × 10% p.a. for 4 months] 2,000
Transfer of motorcycle [Note 3] 12,000
Gross Salary 4,25,100
Less: Deduction Under section 16(ia) – Standard deduction 50,000
Less: Deduction Under section 16(iii) – Professional Tax Paid 2,000 52,000
Income from Salary 3,73,100

Note 1: Value of rent-free unfurnished accommodation

= 15% of salary for the relevant period
= 15% of (₹ 3,00,000 + ₹ 12,000 + ₹ 12,000)
= ₹48,600

Note 2: Value of perquisite for interest on personal loan

= [₹5,00,000 × (12.75% - 6.75%) for 9 months]
= ₹22,500

Note 3: Depreciated value of the motorcycle

= Original cost – Depreciation @ 10% p.a. for 3 completed years.
= ₹ 60,000 – (₹ 60,000 × 10% p.a. × 3 years)
= ₹ 42,000 – Perquisite
= ₹ 42,000 – ₹ 30,000
= ₹ 12,000.

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Question 8
Mr. Nishanth is working with a domestic company having a production unit in the Sydney for last 15
years. He has been regularly visiting India for export promotion of company's product. He has been
staying in India for at least 184 days every year.

He submits the following information:

Salary received outside India (For 6 months) Rs. 50,000 p.m.
Salary received in India (For 6 months) Rs. 50,000 p.m.
He has been provided a car of 2000 C.C capacity in Sydney which is used by him for both office and
private purposes. The actual cost of the car is Rs. 8,00,000. But when he is in India, the car is used by
him and the members of his family only for personal purpose. The monthly expenditure of car is Rs.
5,000. His elder son is studying in India for which his employer spends Rs. 12,000 per year whereas his
younger son is studying in Sydney and stays in a hostel for which Mr. Nishanth gets Rs. 3,000 per
month as combined allowance.

He has been given rent free accommodation in Sydney for which company pays Rs. 15,000 per month
as rent, but when he comes to India, he stays in the guest house of the company. During this period,
he is given free lunch facility. During the previous year company incurred an expenditure of Rs. 48,000
on this facility.

The company has taken an accident insurance policy and a life insurance policy. During the previous
year the company paid premium of Rs. 5,000 and Rs. 10,000 respectively.

Compute Mr. Honey's taxable income from salary for the A.Y. 2024-25 if he has not opted for the
provisions of Section 115 BAC.

Answer:

Since Mr. Nishanth was in India for more than 182 days during the previous year, he is a resident in
India for A.Y. 2024-25. Hence, his worldwide income will be taxable in India.

Particulars Rs.
Basi Salary [(Rs. 50,000 x 6) + (Rs. 50,000 x 6 )] 6,00,000
Hostel and Education Allowance [Rs. 3000 x 12] [WN-1] 36,000
Education facility for Elder Child [WN-2] 12,000
Car Facility for official and personal use in Sydney (Rs. 2,400 x 6) [WN-3] 14,400
Car Facility for personal use [WN-4] 70,000
Guest House [WN-5] Nil
Lunch Facility [WN-5] 48,000
Rent-free Accommodation [WN-6] 95,400
Premium of Rs. 5,000 paid by company for personal Accident Policy [WN-7] Exempt
Life Insurance Premium Paid 10,000
Gross Salary 8,85,800
Less: Standard Deduction U/s 16(ia) 50,000
Salary Income Chargable to Tax 8,35,800

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Working Notes:

1. No exemption is available in respect of allowance received for any education or hostel

facility of children outside India.

2. If employer incurs expenditure on providing education facility to member of household,

it is fully taxable.

3. Since car (2000 C.C.) is used for official and personal purpose when Mr. Nishanth is in
Sydney Rs. 2,400 p.m. will be taxable.

4. When Mr. Nishanth is in India, Car is used for personal purpose by his family members.
Hence amount to be taxable is arrived as under:

Deprecation of car @ 10% p.a. of original cost of car [Rs. 8,00,000 10% x 6/12] 40,000
Monthly expenditure incurred by employer [Rs. 5,000 x 6] 30,000
Total 70,000

5. Guest house facility is not taxable since it is provided for stay when he visits India wholly
for official purposes. Expenditure incurred on providing lunch facility is taxable.

6. Value of taxable RFA- Lower of the two-

a. 15% of salary i.e. Rs. 95,400
b. Lease rent Rs. 15,000 x 12 - Rs. 1,80,000

Salary for rent free accommodation:

Basic Pay 6,00,000

Hostel and Education Allowance 36,000
Total 6,36,000
15% of Salary 95,400

7. Premium of Rs 5.000 paid by company for personal accident policy is not liable to tax

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 Question 9
Mr. Bhavesh was employed in M/s. Rao & Associates. After completion 40 years and 8 months of
service he retired on 31st October 2023. From the following information, compute the amount of
taxable leave salary-

Salary at the time of retirement - Rs. 10,000 p.m.

Average monthly salary for 10 months ending on 31" October 2023 - Rs. 9,500 p.m.
Leave entitlement 11/2 months for each completed year of service.
Leave encashment received on the basis of salary at the time of retirement - Rs. 5,00,000

Answer:

Computation of Taxable Leave Encashment for Mr. Bhavesh for A.Y. 2024-25

Particulars Rs.
Leave Salary received 5,00,000
Exemption: least of the following is Exempt
Actual earned salary received 5,00,000
10 months average salary 95,000
earned leave to the credit x Average Salary (Rs. 30 x Rs. 9,500) 2,85,000
Amount Notified by Central Government 3,00,000 95,000
Taxable Leave Encashment = Sum Received - Exemption 4,05,000

Working Note: Computation of leave at the credit of employee

As per
Amount of
Particulars Company
Exemption
Rules
Leave entitlement for completed year 1.5 months 1 month
Completed years of Service 40 40
Total Leave entitlement (months) 60 40
Leave availed while in service (months) 10 10
Balance leaves at his credit (months) 50 30

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Question 10
Mr. Singhania after serving for 22 years and 9 months of service in a private concern in Kharagpur, retires on
December 31, 2023 and receives gratuity of Rs. 35,000. His basic salary and dearness allowance at the date of
retirement was Rs. 3,500 and Rs. 1,750 (50% of basic salary) per month respectively. His annual increment of
salary of Rs. 100 per month fell due on 1st April each year.

Calculate the taxable amount of gratuity for Mr. Singhania

Answer:

Computation of Taxable Gratuity, assuming Singha is not covered by Payment of Gratuity Act:

Particulars Rs.
Gratuity received 35,000
Exemption: Minimum of the following is exempted as per sec. 10(10)
Actual gratuity received 35,000
Statutory amount 20,00,000
½ x completed year of service x salary p.m. [1/2 x 22 x Rs. 5,220] 57,420 35,000
Taxable Gratuity = Sum Received - Exemption -

Working Note:

1. Completed year of service 22 years.

2. Salary here means Basic + Dearness Allowance + Commission on turnover (last 10 months
average just preceding the month of retirement) as shown below:

1 2 3 4 5 6 7 8 9 10
Total
Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Basic 3,400 3,400 3,500 3,500 3,500 3,500 3,500 3,500 3,500 3,500 34,800
D.A 1,700 1,700 1,750 1,750 1,750 1,750 1,750 1,750 1,750 1,750 17,400
Commission - - - - - - - - - - -
Total 52,200

Average salary = Rs. 52,200 / 10 months = Rs. 5,220

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 Question 11
Mr. Aadishankar retired from service on 01-06-2023. As on that date, his monthly salary was Basic Rs.
5,000 p.m., Commission on turnover 5%. Total turnover achieved by him during last 10 months
(occurred evenly) Rs. 5,00,000. On retirement, after 20 years 6 months of service, he received gratuity
Rs. 5,00,000, leave salary Rs. 3,00,000. He is entitled to pension of Rs. 1,500 p.m. On 01-01-2024, he
commuted 60% of his pension and received Rs. 90,000.

Compute gross salary assuming he is covered by the Payment of Gratuity Act.

Answer:

Computation of Gross Salary of Mr. Narayan for the A.Y. 2024-25

Particulars Rs. Rs.

Basic Salary (5,000 x 2) 10,000
Commission on turnover (5,00,000/10x2) x 5% 5,000
Gratuity 5,00,000
Less: Minimum shall be exempted u/s 10(10)(ii)
a) Actual Amount Received 5,00,000
b) Statutory Amount 20,00,000
c) (15/26 x 20 years x Rs. 5,000) 57,692 (57,692) 4,42,308
Leave Encashment 3,00,000
Less: Minimum shall be exempted u/s 10(10AA)(ii)
a) Actual Amount Received 3,00,000
b) Statutory Amount 3,00,000
c) 10 x Rs. 7,500 75,000
d) 1 x 20 x Rs. 7,500 1,50,000 (75,000) 2,25,000
Pension
Uncommuted Pension (1500 x 7) + (600 x 3) 12,300
Commuted Pension Received 90,000
Less: Exempted u/s 10(10A)(ii) (1/3rd x 1,50,000) (50,000) 40,000
Gross Salary 7,34,608

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Question 11
Mahesh was employed in Apna-Apna Ltd., Mumbai. He received a salary of Rs. 45,000 p.m. from
1.04.2023 to 20.09.2023. He resigned and left for Dubai for the first time on 28.09.2023 and got
monthly salary of rupee equivalent of Rs. 90,000 from 1.10.2023 to 31.03.2024. His salary for October
to December was credited in his Mumbai bank account directly and the salary for January to March
2024 was credited in his Dubai bank account.

The cost of his air tickets to Dubai costing Rs. 1,50,000 was funded by her sister staying in London. The
cost of his initial stay at Dubai costing Rs. 40,000 was funded by one of his friends staying in Delhi.

He further received interest of Rs. 10,500 on his fixed deposits and Rs. 7,500 on his savings a/c with
his Mumbai bank. He also paid LIC Premiums of Rs. 15,000 for self, Rs. 10,000 for spouse and Rs.
25,000 for dependent mother aged 71 years.

Compute taxable income of Mr. Mahesh for the A.Y. 2024-25.

Answer:

Computation of taxable income of Mr. Mahesh for A.Y. 2024-25

Particulars Rs. Rs.

Salary
Salary from 1.4.2023 to 20.9.2023 [45,000 x 5 + 45,000 x 20/30] 2,55,000
Salary from 1.10.2023 to 31.12.2023 [90,000 x 3] 2,70,000
Gross Salary 5,25,000
Less: Standard Deduction U/s 16(ia) 50,000
Net Salary 4,75,000
Income from Other Sources
Interest from Fixed deposits 10,500
Interest from Savings Account 7,500 18,000
Gross Total Income 4,93,000
Less: Deduction under Chapter VI-A
- Deduction under section 80C 25,000
LIC premium for self and spouse [LIC premium for mother is
not allowed for deduction]
- Deduction under section 80TTA 7,500
Deduction under section 80TTA [Interest on savings account
with Mumbai bank]
Total Income 4,60,500

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 Question 13
Mr. Shiva retired from the services of Kailasa Ltd. on 31.01.2023, after completing service of 30 years
and one month. He had joined the company on 1.1.1993 at the age of 30 years and received the
following on his retirement:

(i) Gratuity Rs. 5,50,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of Rs. 3,30,000 for 330 days leave balance in his account. He was credited 30
days leave for each completed year of service.
(iii) As per the scheme of the company, he was offered a car on 31.01.2024 which was purchased
on 01.03.2021 by the company for Rs. 5,00,000. Company has recovered Rs. 2,00,000 from him
for the car. Company depreciates the vehicles at the rate of 15% on Straight Line Method.
(iv) An amount of Rs. 3,00,000 as commutation of pension for 2/3 of his pension commutation.
(v) Company presented him a gift voucher worth Rs. 8,000 on his retirement.

Following are the other particulars:

(i) He has drawn a basic salary of Rs. 20,000 and dearness allowance @50% of basic salary
for the period from 01.04.2023 to 31.01.2023. Dearness allowance does not form part of
pay for retirement benefits.
(ii) Received pension of Rs. 7,000 per month for the period 01.02.2024 to 31.03.2024 after
commutation of pension

Compute his income taxable under the head “Salaries” for A.Y. 2024-25.

Answer:

Computation of income chargeable under head “Salaries” of Mr. Shiva for A.Y. 2024-25

Particulars Rs. Rs.

Basic Salary (20,000 x 10) 2,00,000
Dearness Allowance (50% of Basic Salary) 1,00,000
Gift Voucher Note 1 8,000
Transfer of Car Note 2 1,20,000
Gratuity 5,50,000
Less: Minimum shall be exempted u/s 10(10)(ii)
a) Actual Amount Received 5,50,000
b) Statutory Amount 20,00,000
c) 15/26 x 30 x Rs. 30,000 (Basic 20,0000 + D.A. 10,000) 5,19,231 (5,19,231) 30,769
Leave Encashment 3,30,000
Less: Minimum shall be exempted u/s 10(10AA)(ii)
a) Actual Amount Received 3,30,000
b) Statutory Amount 3,00,000
c) 10 x Rs. 20,000 2,00,000
d) 330 / 30 x Rs. 20,000 1,50,000 (2,00,000) 1,30,000

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Pension
Uncommuted Pension (Rs. 7000 x 2) 14,000
Commuted Pension Received 3,00,000
Less: Exempted u/s 10(10A)(ii) (1/3 x 2/3 x 3,00,000) 1,50,000 1,50,000
Gross Salary 7,52,769
Less: Standard Deduction U/s 16(ia) 50,000
Salary Income Chargeable to Tax 7,02,769

Notes:

(1) As per Rule 3(7)(iv), the value of any gift or voucher or token in lieu of gift received by the
employee or by member of his household not exceeding Rs. 5,000 in aggregate during the
previous year is exempt. In this case, the amount was received on his retirement and the sum
exceeds the limit of Rs. 5,000. Therefore, the entire amount of Rs. 8,000 is liable to tax as
perquisite.

Note - An alternate view is possible that only the sum in excess of Rs. 5,000 is taxable in view of
the language of Circular No.15/2001 dated 12.12.2001. Gifts upto Rs. 5,000 in the aggregate per
annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the
value of perquisite would be Rs. 3,000 and gross total income would be Rs. 7,47,769.

(2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to the employee
arising from the transfer of an asset, being a motor car, by the employer is the actual cost of the
motor car to the employer as reduced by 20% on a written down value basis for each completed
year during which such motor car was put to use by the employer. Therefore, the value of
perquisite on transfer of motor car, in this case, would be:

Particulars Rs.
Purchase Price (01-03-2020) 5,00,000
Less: Depreciation @ 20% 1,00,000
WDV as on 29-02-2021 4,00,000
Less: Depreciation @ 20% 80,000
WDV as on 29-02-2022 3,20,000
Less: Amount Recovered 2,00,000
Value of Perquisite 1,20,000

Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee arising from the
transfer of any movable asset, the normal wear and tear is to be calculated in respect of each
completed year during which the asset was put to use by the employer.

In the given case, the third year of use of car is completed on 28.2.2022 whereas the car was sold to
the employee on 31.1.2022. Accordingly, wear and tear have to be calculated @20% on reducing
balance method for only two years. The rate of 15% as well as the straight-line method adopted by

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the company for depreciation of vehicle is not relevant for calculation of perquisite value of car in the
hands of Mr. Shiva.

Question 14
You are required to compute the income chargeable under the head salaries in the hands of Mr.
Badrinath for the A.Y. 2024-25 from the following details pertaining to the F.Y. 2023-24:

Particulars Rs.
Basic salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 25,000
Profession tax (of this, 50% paid by employer) 3,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 15,000
Life insurance premium of Narayan paid by employer 42,000
Laptop provided for use at home. Actual cost of Laptop to employer [Children
45,000
of the assessee are also using the laptop at home]
Annual credit card fees paid by employer [Credit card is not exclusively used
5,000
for official purposes]

Additionally, Employer company owns a motor car, which was provided to the assessee, both for
official and personal use. All repair and maintenance expenses are fully reimbursed by the employer.
No driver was provided. (Engine cubic capacity less than 1.6 litres).

Answer:

Computation of income chargeable under head “Salaries” of Mr. Badrinath for A.Y. 2023-24

Particulars Rs.
Basic salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500

Medical expenses reimbursed by the employer is an exempt perquisite to the extent of Rs.
15,000 [Clause (v) of proviso to section 17(2)]. Therefore, Rs. 10,000, being the 10,000
reimbursement in excess of Rs. 15,000 is a taxable perquisite.

Professional tax paid by the employer is a taxable perquisite as per section 17(2)(iv), since
1,500
it is an obligation of the employee which is paid by the employer

Health insurance premium of Rs. 9,000 paid by the employer is an exempt perquisite
-
[Clause (iii) of proviso to section 17(2)]

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 Gift voucher given by employer on Mr. Narayan’s birthday (entire amount is taxable since
15,000
the perquisite value exceeds Rs. 5,000) as per Rule 3(7)(iv) [See Note below]

Life insurance premium of Mr. Narayan paid by employer is a taxable perquisite as per
42,000
section 17(2)(v)

Laptop provided for use at home is an exempt perquisite as per Rule 3(7)(vii) -

Provision of motor car (engine cubic capacity less than 1.6 litres) owned by employer to
employee for both official and personal purposes – perquisite value would be Rs. 21,600 21600
[Rs. 1,800 ×12] as per Rule 3(2)

Annual credit card fees paid by employer is a taxable perquisite as per Rule 3(7)(v) since
5,000
the credit card is not exclusively used for official purposes.

Gross Salary 12,42,600

Less: Standard Deduction U/s 16(ia) 50,000
Less: Entertainment allowance U/s 16(ii) is not allowed because the assessee is not a
-
government Employee
Less: Professional tax paid U/s 16(iii) 3,000
Salary Income Chargeable to Tax 11,89,600

Note:

As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his
household on ceremonial occasions or otherwise from the employer shall be determined as the sum
equal to the amount of such gift.

However, the value of any gift or voucher received by the employee or by member of his household
below Rs. 5,000 in aggregate during the previous year would be exempt as per the proviso to Rule
3(7)(iv). In this case, the gift voucher of Rs. 15,000 was received by Mr. Badrinath from his employer
on the occasion of his birthday.

Since the value of the gift voucher exceeds the limit of Rs. 5,000, the entire amount of Rs. 15,000 is
liable to tax as perquisite.

Question 15
Ms. Aarthi is the HR manager in Yeshwanth limited. She gives you the following particulars:

Basic Salary - Rs. 70,000 p.m.

Dearness Allowance - Rs. 24,000 p.m. (30% of which forms part of retirement benefits)
Bonus - Rs. 21,000 p.m.

Her employer has provided her with an accommodation on 1st April 2023 at a concessional rent. The
house was taken on lease by Yeshwanth Ltd. for Rs. 12,000 p.m. Ms. Aarthi occupied the house from
1st November, 2023, Rs. 4,800 p.m. is recovered from the salary of Ms. Aarthi.

CA CMA SHIVA TEJA Page | 56

The employer gave her a gift voucher of Rs. 10,000 on her birthday. She contributes 18% of her salary
(Basic Pay plus DA) towards recognised provident fund and the company contributes the same
amount. The company pays medical insurance premium to effect insurance on the health of Ms. Aarthi
Rs. 20,000.

Motor car owned by the employer (cubic capacity of engine exceeds 1.6 litres) provided to Ms. Aarthi
from 1st November, 2023 which is used for both official and personal purposes. Repair and running
expenses of Rs. 70,000 were fully met by the company. The motor car was self-driven by the employee.

Compute the income chargeable to tax under the head "Salaries" in the hands of Ms. Aarthi for the
A.Y. 2024-25.
Answer:

Computation of income chargeable under head “Salaries” of Ms. Aarthi for A.Y. 2023-24

Particulars Rs.
Basic Salary [Rs. 70,000 x 12] 8,40,000
Dearness allowance [Rs. 24,000 x 12] 2,88,000
Bonus [Rs. 21,000 x 12] 2,52,000
Perquisite value in respect of concessional rent [See Working Note below] 36,000

Gift voucher given by employer on Ms. Aarthi’s birthday (entire amount is taxable
10,000
since the perquisite value exceeds Rs. 5,000) [See Note for Alternative view]

Employer’s contribution to recognized provident fund in excess of 12% of salary =

18% x [(Rs. 70,000 + Rs. 24,000) x 12] – 12% x {[Rs. 70,000 + Rs. 7,200
(being 30% of Rs. 24,000)] x 12} = 2,03,040 – 1,11,168 91,872
[Salary = Basic Salary + Dearness allowance, to the extent it forms
part of pay for retirement benefits]
Provision of motor car (engine cubic capacity more than 1.6 litres) owned by
employer to an employee without chauffeur for both official and personal purpose,
12,000
where the expenses are fully met by the employer - the perquisite value would be
Rs. 2400/- p.m. [Rs. 2,400 × 5 months]
Medical insurance premium of Rs. 20,000 paid by the employer to affect an
-
insurance on the health of an employee is an exempt perquisite
Gross Salary 15,29,872
Less: Standard Deduction U/s 16(ia) 50,000
Salary Income Chargeable to Tax 14,79,872

Working Note:

Where the accommodation is taken on lease or rent by the employer, the actual amount of lease rent
paid or payable by the employer or 15% of salary, whichever is lower, in respect of the period during
which the house is occupied by the employee, as reduced by the rent recoverable from the employee,
is the value of the perquisite.

Actual rent paid by the employer from 1.11.2023 to 31.3.2024

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= Rs. 60,000 [ Rs. 12,000 x 5 months] 15% of salary
= Rs. 73,650 [15% x (Rs. 70,000 + Rs. 7,200 + Rs. 21,000) x 5 months]
Salary = Basic Salary + Dearness Allowance, to the extent it forms part of pay for retirement benefits
+ Bonus Lower of the above is Rs. 60,000 which is to be reduced by the rent recovered from the
employee.
Hence, the perquisite value of concessional rent = Rs. 60,000 – Rs.24,000 [Rs. 4,800 x 5 months]
= Rs. 36,000

Note:

As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his
household on ceremonial occasions or otherwise from the employer shall be determined as the sum
equal to the amount of such gift. However, the value of any gift or voucher received by the employee
or by member of his household below Rs. 5,000 in aggregate during the previous year would be
exempt as per the proviso to Rule 3(7)(iv).

In this case, the gift voucher of Rs. 10,000 was received by Ms. Aarthi from her employer on the
occasion of her birthday. Since the value of the gift voucher exceeds the limit of Rs. 5,000, the entire
amount of Rs. 10,000 is liable to tax as perquisite. The above solution has been worked out
accordingly.

Alternative view - An alternate view is also possible is that only the sum in excess of Rs. 5,000 is taxable
in view of the language of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto Rs.
5,000 in the aggregate per annum would be exempt, beyond which it would be taxed as a perquisite.
As per this view, the value of perquisite would be Rs. 5,000. The salary chargeable to tax, in this case,
would be Rs. 14,84,872.

Question 16
Ms. Suhasini, a resident individual, aged 33 years, is an assistant manager of Chiranjeevi Ltd. She is
getting a salary of Rs. 48,000 per month. During the P.Y. 2023-24, she received the following amounts
from her employer.

(i) Dearness allowance (10% of basic pay which forms part of salary for retirement benefits).
(ii) Bonus for the previous year 2022-23 amounting to Rs. 52,000 was received on 30th
November, 2023.
(iii) Fixed Medical allowance of Rs. 48,000 for meeting medical expenditure.
(iv) She was also reimbursed the medical bill of her father dependent on her amounting to Rs.
4,900.
(v) Ms. Suhasini was provided.
a. a laptop both for official and personal use. Laptop was acquired by the company on
1st June, 2019 at Rs. 35,000.
b. a domestic servant at a monthly salary of Rs. 5,000 which was reimbursed by her
employer.
(vi) Chiranjeevi Ltd. allotted 700 equity shares in the month of October 2023 @ Rs. 170 per
share against the fair market value of Rs. 280 per share on the date of exercise of option

CA CMA SHIVA TEJA Page | 58

 by Ms. Suhasini. The fair market value was computed in accordance with the method
prescribed under the Act.
(vii) Professional tax Rs. 2,200 (out of which Rs. 1,400 was paid by the employer).

Compute the Income under the head “Salaries” of Ms. Suhasini for the A.Y. 2024-25.

Answer:

Computation of Income under the head “Salaries” in the hands of Ms. Suhasini for the A.Y. 2024-25

Particulars Rs.
Basic Salary [Rs. 48,000 x 12] 5,76,000
Dearness allowance [10% of Basic Salary] 57,600
Bonus [Taxable in the P.Y. 2023-22, since it is taxable on receipt basis] 52,000
Fixed Medical Allowance [Taxable] 48,000
Reimbursement of Medical expenditure incurred for her father
[Fully taxable from A.Y. 2020-21, even though father is included in the meaning of
4,900
“family” on account of standard deduction being introduced in lieu of reimbursement
of medical expenditure].
Facility of laptop
[Facility of laptop is an exempt perquisite, whether used for official or personal -
purpose or both]
Reimbursement of salary of domestic servant
[Rs. 5,000 x 12] [Fully taxable, since perquisite includes any sum paid by the employer 60,000
in respect of any obligation which would have been payable by the employee]
Value of equity shares allotted
[700 equity shares x Rs. 110 (Rs. 280, being the fair market value – Rs. 170, being the 77,000
amount recovered)]
Professional tax paid by the employer [Perquisite includes any sum paid by the
employer in respect of any obligation which would have been payable by the 1,400
employee]
Gross Salary 8,76,900
Less: Standard Deduction U/s 16(ia) 50,000
Less: Professional tax paid U/s 16(iii) 2,200
Salary Income Chargeable to Tax 8,24,700

Question 17
Examine with brief reasons, whether the following are chargeable to income-tax and the amount liable
to tax with reference to the provisions of the Income-tax Act, 1961:

(i) Allowance of Rs. 18,000 p.m. received by an employee, Mr. Prakash, working in a
transport system granted to meet his personal expenditure while on duty. He is not in
receipt of any daily allowance from his employer.

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 (ii) During the P.Y. 2023-24, Mrs. Aaradhya, a resident in India, received a sum of Rs. 9,63,000
as dividend from Indian companies and Rs. 4,34,000 as dividend from units of equity
oriented mutual fund.

Answer:

Amount
Chargeability Liable Reason
to Tax
Any allowance granted to an employee working in a transport
system to meet his personal expenditure during his duty is exempt
provided he is not in receipt of any daily allowance. The exemption
is 70% of such allowance (i.e., Rs. 12,600 per month being, 70% of
(i) Partly taxable
96,000 Rs. 18,000, in the present case) or Rs. 10,000 per month, whichever
is less. Hence, Rs. 1,20,000 (i.e., Rs. 10,000 x 12) is exempt. Balance
Rs. 96,000 (Rs. 2,16,000 – Rs. 1,20,000) is taxable in the hands of
Mr. Prakash

Rs. 9,63,000, being the dividend from Indian companies and Rs.
4,34,000, being the dividend from units of equity oriented mutual
(ii) Fully Taxable
9,63,000 fund is fully taxable in the hands of Mrs. Aaradhya under the head
Income from other Sources.

Question 18
Compute income under the head Salary of Mr. Raghav for the A.Y. 2024-25 from the following details:
Mr. Raghav (aged, 61 years) working in a private company from last 10 years. His salary details for the
F.Y. 2023-24 are:

(i) Basic Salary - Rs. 1,70,000 p.m.

(ii) Dearness Allowance (forms part of retirement benefits) - Rs. 80,000 p.m.
(iii) Commission - Rs. 32,000 p.m.
(iv) Transport Allowance - Rs. 5,000 p.m.
(v) Medical Reimbursement - Rs. 40,000

Mr. Raghav resigned from the services on 30th November, 2023 after completing 10 years and 5
months of service. He was paid gratuity of Rs. 25 lakhs on his retirement. He is not covered under the
Payment of Gratuity Act, 1972

There was no change in salary of Mr. Raghav from last two years. He does not opt to pay tax as per
section 115BAC.

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Answer:

Computation of Total Income of Mr. Raghav for the A.Y.2024-25

Particulars Rs. Rs.

Basic Salary [Rs. 1,70,000 x 8] 13,60,000
Dearness allowance [Rs. 80,000 x 8] 6,40,000
Commission [Rs. 32,000 x 8] 2,56,000
Transport Allowance [Rs. 5,000 x 8] 40,000
Medical reimbursement [Fully taxable] 40,000
Gratuity 25,00,000
Less: Minimum shall be exempted u/s 10(10)(ii)
a) Actual Amount Received 25,00,000
b) Statutory Amount 20,00,000
c) 1/2 x 10 x Rs. 2,50,000 12,50,000 (12,50,000) 12,50,000
Gross Salary 35,86,000
Less: Standard Deduction U/s 16(ia) 50,000
Salary Income chargeable to Tax 35,36,000

Question 19
Find out the taxable value of the perquisite in the following cases for the A.Y. 2024-25:

1. Mr. X is given a laptop by his employer for using it for private purpose. Cost of the laptop is
Rs. 96,000.
2. On 18.10.2023, the company gives its music system to Mr. X for domestic use. Ownership is
not transferred. Cost of music system (in 2010) to the employer is Rs. 30,000.
3. The employer sells the following assets to the employees on 01.01.2024.

Name of the Employee W X Y

Assets sold Car Computer Fridge
Cost of Asset to the employer Rs. 8,50,000 Rs. 95,000 Rs. 30,000
Date of purchase [put to use on the same day) 15-05-2017 15-05-2017 15-05-2017
Sale price Rs. 3,00,000 Rs. 19,000 Rs. 10,000

Before sale on 1.1.2020, these assets were used for business purpose by the employer.

Answer:

1. Free use of laptop is not a taxable perquisite.

2. X is provided a music system by the employer. Taxable perquisite is determined @ 10% p.a.
of cost for the period of use (From 18.10.2023 – 31.3.2024). Thus, Taxable perquisite
= Rs. 1,356 [Rs. 30,000 x 10% x 165/365].
3. The taxable value of the perquisite in the hands of W, X & Y shall be determined as follows:

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 Particulars Car Computer Fridge
Cost of the asset on 14.05.2021 8,50,000 95,000 30,000
Less: Normal wear & tear for first year ending 13.05.2022
1,70,000 47,500 3,000
(20% of Rs. 8,50,000; 50% of Rs. 95,000; 10% of Rs.30,000)
Balance on 14.05.2022 6,80,000 47,500 27,000
Less: Normal wear & tear for second year ending 13.05.2023
3,60,000 23,750 3,000
(20% of Rs. 6,80,000; 50% of Rs.47,500; 10% of Rs. 30,000)
Balance on 14.05.2024 5,44,000 23,750 24,000
Less: Sale consideration 3,00,000 19,000 10,000
Taxable value of the perquisite 2,44,000 4,750 14,000

Question 20
Ms. Akansha, a salaried employee, furnishes the following details for the F.Y. 2023-24:

Particulars Rs.
Basic salary 6,20,000
Dearness allowance 4,20,000
Commission 75,000
Entertainment allowance 9,000
Medical expenses reimbursed by the employer 18,000
Profession tax (of this, 50% paid by employer) 4,000
Health insurance premium paid by employer 8,000
Gift voucher given by employer on her birthday 10,000
Life insurance premium of Akansha paid by employer 26,000
Laptop provided for use at home. Actual cost of Laptop to employer Children of the 45,000
assessee are also using the laptop at home]
Employer company owns a Maruti Suzuki Swift car, which was provided to the
assessee, both for official and personal use. Driver was also provided. (Engine cubic
capacity more than 1.6 litres). All expenses are met by the employer
Annual credit card fees paid by employer [Credit card is not exclusively used for official 7,000
purposes; details of usage are not available]

You are required to compute the income chargeable under the head Salaries for the A.Y. 2024-25.

Answer:

Computation of income chargeable under the head “Salaries” of Ms. Akansha for A.Y.2024-25

Particulars Rs.
Basic Salary 6,20,000
Dearness Allowance 4,20,000
Commission 75,000
Entertainment allowance 9,000
Medical expenses reimbursed by the employer is fully taxable 18,000

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 Professional tax paid by the employer is a taxable perquisite as per section 17(2)(iv),
since it is an obligation of the employee which is paid by the employer 2,000
Health insurance premium of Rs. 8,000 paid by the employer is an exempt perquisite
[Clause (iii) of proviso to section 17(2)] Nil
Gift voucher given by employer on Ms. Akansha birthday (entire amount is taxable
since the perquisite value exceeds Rs. 5,000) as per Rule 3(7)(iv) 10,000
Life insurance premium of Ms. Akansha paid by employer is a taxable perquisite as
per section 17(2)(v) 26,000
Laptop provided for use at home is an exempt perquisite as per Rule 3(7)(vii) Nil
Provision of motor car with driver (engine cubic capacity more than 1.6 litres) owned
by employer to employee, the perquisite value would be Rs.39,600 [Rs. (2,400+ 900) 39,600
×12] as per Rule 3(2)
Annual credit card fees paid by employer is a taxable perquisite as per Rule 3(7)(v)
since the credit card is not exclusively used for official purposes and details of usage 7,000
are not available
Gross Salary 12,26,600
Less: Deductions under section 16
Standard Deduction as per section 16(ia) 50,000
Entertainment allowance (deduction not allowable since Ms. Akansha is not a
government employee) Nil
Professional tax paid allowable as deduction as per section 16(iii) 4,000
Income chargeable under the head “Salaries” 11,72,600

Note:

As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his
household on ceremonial occasions or otherwise from the employer shall be determined as the sum
equal to the amount of such gift. However, the value of any gift or voucher received by the employee
or by member of his household below Rs. 5,000 in aggregate during the previous year would be
exempt as per the proviso to Rule 3(7)(iv). In this case, the gift voucher of Rs.10,000 was received by
Ms. Akansha from her employer on the occasion of her birthday.

Since the value of the gift voucher exceeds the limit of Rs. 5,000, the entire amount of Rs. 10,000 is
liable to tax as perquisite. The above solution has been worked out accordingly.

An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable in view of the language
of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto Rs. 5,000 in the aggregate
per annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the
value of perquisite would be Rs. 5,000. Accordingly, the gross salary and net salary would be 12,21,600
and 11,67,600, respectively.

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Question 21
Mr. Sonu, General Manager of Akon Ltd., Delhi, furnishes the following particulars for the F.Y. 2023-
24:

(i) Salary Rs. 46,000 per month

(ii) 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 given on 01.04.2019 at the interest rate of 6% p.a. (No repayment
made during the year). The rate of interest charged by State Bank of India (SBI) as on
01.04.2023 in respect of housing loan is 10%.
(v) Gifts in kind made by the company on the occasion of wedding anniversary of Mr. Sonu Z
4,750.
(vi) A four-seater dining table was provided to Mr. Sonu at his residence. This was purchased by
the company on 1.5.2020 for Rs. 60,000 and sold to Mr. Sonu on 01.08.2023 for Rs. 30,000.
(vii) Personal purchases through credit card provided by the company amounting to Rs. 10,000
was paid by the company. No part of the amount was recovered from Mr. Sonu.
(viii) A Maruti Suzuki car which was purchased by the company on 16.07.2020 for Rs. 2,50,000 was
sold to Mr. Sonu on 14.07.2023 for Rs. 80,000.
(ix) Contribution to LIC towards premium under section 80CCC – Rs. 1,00,000.
(x) Deposit in PPF Account made during the year 2023-24 – Rs. 40,000.

Other income received by the assessee during the P.Y. 2023-24:

Particulars Rs.
(a) Interest on Fixed Deposits with a company 5,000
(b) Income from specified mutual fund 3,000
(c) Interest on bank fixed deposits of a minor married daughter 3,000

Compute the taxable income of Mr. Sonu for the A.Y. 2024-25 assuming he is not opting for section
115BAC.

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Answer:

Computation of taxable income of Mr. Sonu for the A.Y. 2024-25

Particulars Rs. Rs.

(a) Income from Salaries (See Working Note below) 7,12,800
(b) Income from Other Sources
(i) Interest on fixed deposit with a company 5,000
(ii) Income from specified mutual fund 3,000
(iii) Interest on Fixed Deposit received by
minor
(Rs. daughter
3,000 - Rs. 1500) 1,500 9,500
Gross total income 7,22,300
Less: Deductions under Chapter V1-A
Section 80C — PPF 40,000
Section 80CCC 1,00,000 1,40,000
Total Income 5,82,300

Working Note:

Computation of salary income of Mr. Sonu for the A.Y. 2024-25

Particulars Rs. Rs.

Salary [Rs. 46,000 x 12] 5,52,000
Medical facility [in the hospital maintained by the company is 5,52,000
exempt]
Rent free accommodation 82,800
15% of salary is taxable (i.e. Rs. 5,52,000 x 15% as per Rule 82,800
3(1))
Valuation of perquisite of interest on loan 24,000
[Rule 3(7)(i)] — Perquisite value would be 10% as reduced by
actual rate of interest charged i.e. [10% - 6% = 4% x Rs.
6,00,000]
Gift given on the occasion of wedding anniversary Rs. 4,750 is
-
exempt, since its value is less than Rs. 5,000
Use of dining table for 4 months
[Rs. 60,000 x 101100 x 4 /12] 2,000
Perquisite on sale of dining table 2,000
Cost 60,000
Less: Depreciation on straight line method @ 10% for 3 years 60,00018,00015452
18,000
Written Down Value 42,000
Less: Amount paid by the assessee 30,000 12,000
Purchase through credit card — not being a privilege but
10,000
covered by section 17(2)(iv)
Perquisite on sale of car
Original cost of car 2,50,000
Less: Depreciation from 16.7.2020 to 15.7.2021 @ 20% 50,000
2,00,000
Less: Depreciation from 16.7.2021 to 15.7.2022 @ 20% 40,000
Value as on 14.07.2023- being the date of sale to employee 1,60,000
Less: Amount received from the assessee on 14.07.2023 80,000 80,000

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Gross Salary 7,62,800
Less: Standard deduction under section 16(ia) 50,000
Taxable Salary 7,12,800

Note: Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee arising
from the transfer of any movable asset, the normal wear and tear is to be calculated in respect of each
completed year during which the asset was put to use by the employer. In the given case the third
year of use of car is completed on 15.07.2023 whereas the car was sold to the employee on
14.07.2023. The solution worked out above provides for wear and tear for only two years.

Question 22
Mr. B is a sales manager in PQR Ltd. During F.Y. 2023-24 he has received the following towards his
salary and allowances/perquisites;

(i) Basic pay Rs. 85,000 per month upto December 2023 and thereafter an increase of < 2,000
per month.
(ii) Dearness allowance 40% of basic pay forming part of retirement benefits.
(iii) Bonus 1-month basic pay based on the salary drawn during January month every year.
(iv) He contributes 14% of his basic pay & DA towards his recognized provident fund and his
employer company contributes the same amount.
(v) Travelling allowance of 5,000 per month towards on duty tours.
(vi) Research and training allowance Rs. 3,000 per month.
(vii) Children education allowance of Rs. 600 per month, per child for his 2 sons and 1 daughter.
(viii) Accommodation owned by PQR Ltd. was provided to him in Hyderabad for the whole year and
furniture of 2,00,000 was provided from 15th October, 2023.
(ix) Reimbursement of medical expenses on his treatment in private hospital Rs. 15,000, medical
allowance Rs. 1,500 per month. Company has paid premium on medical policy purchased on
his health Rs. 12,500.

You are required to:

I. Compute the income chargeable to tax under the head "Income from Salary", assuming that
he does not opt for the provisions under section 115BAC.
II. What will be the income under the head “Salaries”, if he opts for the provisions under section
115BAC?

Answer:

Computation of income chargeable to tax under the head “Salaries” for A.Y.2024-25, if Mr. B does
not opt for the provisions of section 115BAC

Particulars Rs. Rs.

Basic Pay [Rs. 85,000 x 9 + Rs. 87,000 x 3] 10,26,000
Dearness Allowance [Rs. 10,26,000 x 40%] 4,10,400
Bonus 87,000

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Travelling allowance [Exempt, since provided towards duty
-
tours]
Research and training allowance [Rs. 3,000 x 12] 36,000
Medical allowance [Rs. 1500 x 12] 18,000 18,000
Children Education allowance [Rs. 600 x 12 x 3] 21,600
Less: Exempt [Rs. 100 x 12x 2] 2,400 19,200
Salary (for the purpose of valuation of Rent-free
15,96,600
accommodation)
Value of Rent-free accommodation [15% of Rs. 15,96,600] 2,39,490
Add: Value of fumniture [Rs. 2,00,000 x 10% p.a. for 6 months] 10,000 2,49,490
Reimbursement of medical expenses [taxable, since amount is 15,000
reimbursed for treatment in private hospital]
Health insurance premium paid by PQR Ltd. [Exempt] -
Employers’ contribution to RPF in excess of 12% of salary = 2% 28,728
of Rs. 14,36,400 (Rs. 10,26,000 + Rs. 4,10,400)
Gross Salary 18,89,818
Less: Deductions under section 16
Standard deduction 50,000
Income chargeable under the head “Salaries” 18,39,818

Computation of income chargeable to tax under the head “Salaries” for A.Y.2024-25, if Mr. B opts
for the provisions of section 115BAC

Particulars Rs. Rs.

Income chargeable under the head “Salaries” 18,39,818
Add: Exemption in respect of children education allowance [Not 2,400
allowable as per section 115BAC]
Add: Standard deduction [Not allowable as per section 115BAC] 50,000
18,92,218
Less: Value of rent-free accommodation (As per regular
2,49,490
provisions)
16,42,728
Add: Value of Rent-free accommodation [15% of Rs. 15,99,000 2,39,850
(Rs. 15,96,600 (as calculated above) + Rs. 2,400)]
Add: Value of furniture [Rs. 2,00,000 x 10% p.a. for 6 months] 10,000 2,49,850
Income chargeable under the head “Salaries” 18,92,578

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Multiple Choice Questions
1. Sourabh stays in Mumbai. His basic salary is ₹ 10,000 p.m., D.A. (60% of which forms part of
pay) is ₹ 6,000 p.m., HRA is ₹ 5,000 p.m. and he is entitled to a commission of 1% on the
turnover achieved by him. Sourabh pays a rent of ₹ 5,500 p.m. The turnover achieved by him
during the current year is ₹ 12 lakhs. The amount of HRA exempt under section 10(13A) is
a. ₹ 48,480
b. ₹ 45,600
c. ₹ 49,680
d. ₹ 46,800

2. Mr. Varanasi received voluntary retirement compensation of ₹ 7,00,000 after 30 years 4

months of service. He still has 6 years of service left. At the time of voluntary retirement, he
was drawing basic salary ₹ 20,000 p.m.; Dearness allowance (which forms part of pay) ₹ 5,000
p.m. Compute his taxable voluntary retirement compensation, assuming that he does not
claim any relief under section 89
a. ₹ 7,00,000
b. (b) ₹ 5,00,000
c. (c) ₹ 2,00,000
d. (d) Nil

3. Anandi is provided with furniture to the value of ₹ 70,000 along with house from February,
2023. The actual hire charges paid by his employer for hire of furniture is ₹ 5,000 p.a. The
value of furniture to be included along with value of unfurnished house for A.Y. 2024-25 is-
a. ₹ 5,000
b. ₹ 7,000
c. ₹ 10,500
d. ₹ 14,000

4. Mr. Prashanth received basic salary of ₹ 20,000 p.m. from his employer. He also received
children education allowance of ₹ 3,000 for three children and transport allowance of ₹ 1,800
p.m. Assume he is not opting to pay tax under section 115BAC. The amount of salary
chargeable to tax for P.Y. 2023 -24 is –
a. ₹ 2,62,600
b. ₹ 2,12,600
c. ₹ 2,11,600
d. ₹ 2,12,200

5. Mr. Jagan Mohan is an employee in accounts department of Bharathi Ltd., a cement company
operating in the regions of South India. It is engaged in manufacturing of Cement. During F.Y.
2023 -24, following transactions were undertaken by Mr. Jagan Mohan:
(i) He attended a seminar on “Perquisite Valuation”. Seminar fees of ₹ 12,500 was paid
by Bharati Ltd.

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 (ii) Tuition fees of Mr. Harsha (son of Mr. Jagan Mohan) paid to private coaching classes
(not having any tie-up with Bharat Ltd.) was reimbursed by Bharathi Ltd. Amount of
fees was ₹ 25,000.
(iii) Ms. Varsha (daughter of Mr. Jagan Mohan) studies in Stanford Public School (owned
and maintained by Bharati Ltd.). Tuition fees paid for Ms. Varsha was ₹ 750 per month,
by Mr. Jagan Mohan. Cost of education in similar institution is ₹ 5,250 per month.
What shall be the amount which is chargeable to tax under the head “Salaries” in
hands of Mr. Jagan Mohan for A.Y. 2024-25? –
a. ₹ 25,000
b. ₹ 37,500
c. ₹ 66,500
d. ₹ 79,000

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Case Scenario - 1
1. Mr. Nobita, aged 38 years, working in Shizuka Pvt. Limited as Senior Manager- Finance. His yearly
payslip for the F.Y. 2023-24 is as follows:
Earnings Amount Deductions Amount

Employee's Contribution to
Basic Pay 6,34,068 1,14,132
Provident Fund

D.A. 1,26,814 Professional Tax 2,400

HRA 3,17,040 Income Tax 2,32,830
Transport Allowance 19,200 Net Pay 13,03,848
Personal Allowance 5,09,088

Children Education allowance for

12,000
two Children

Medical allowance 15,000

Bonus 20,000
16,53,210 16,53,210

1. His employer also contributes equivalent amount of contribution towards provident fund
2. Dearness allowance forms part of retirement benefits
3. He has intimated to his company that he would opt for 115BAC for the A.Y. 2024-25.
Consequently, he has not submitted any investment proof to company
4. He has paid ₹ 55,212 towards Mediclaim premium for his parents (aged above 65 years) by
accountpayee cheque.
5. He has purchased a house of ₹ 38,00,000 during the year 2014 and taken a loan of ₹
28,00,000 from HDFC to purchase this house. He is paying EMI of ₹ 22,835. Possession of
house received on 01/04/2022. He himself is occupying this house. Total principal and interest
paid for full year is ₹ 55,037 and ₹ 2,18,983,respectively, as per interest certificate received
from bank for F.Y. 2022 -23
6. He has 3 children, studying in Don Bosco International School.
The following are the components of school fees paid for the Academic Session 2023-24

School Fees Component Child 1 Child 2 Child 3 Total

Tuition Fees 30,000 37,000 40,000 1,07,000
Admission fees 20,000 - - 20,000
Books, Uniform and Stationery 8,000 12,000 15,000 35,000
Infrastructure Fund 25,000 30,000 35,000 90,000
Commute cost 8,000 8,000 8,000 24,000
Activity Fees 6,000 7,000 8,000 21,000
Total fees 97,000 94,000 1,06,000 2,97,000

7. He has invested ₹ 5000 in HDFC ULIP and taken a LIC policy for his wife for ₹ 10,000

8. He has invested ₹ 12,500 and ₹ 25,000 towards NPS Tier I A/c and Tier II A/c, respectively.

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 9. He has also donated ₹ 50,000 in PM CARES fund.

10. He has invested ₹ 40,000 in listed equity shares of Shaktimaan Power Solution Limited on
01/03/2022 at ₹ 200 per share and sells 100 shares at ₹ 350 per share on 01/11/2023. STT is paid
both at thetime of sale and purchase of these shares.

Based on the facts of the case scenario given above, choose the most appropriate answer to the
following questions: -

1. What would be the amount of income chargeable to tax under the head “Salaries” in the hands
of Mr.Nobita for the A.Y. 2024-25?
a. ₹ 16,53,210
b. ₹ 16,21,236
c. ₹ 16,76,036
d. ₹ 16,71,236

2. Whether the tax deducted at source by Shizuka Pvt Ltd. on the salary paid to Mr. Sarthak based
on theintimation submitted by him, is correct?
a. Yes, the amount of ₹ 2,32,830 deducted as tax at source is correct.
b. No, the correct amount of tax to be deducted at source is ₹ 2,49,920.
c. No, the correct amount of tax to be deducted at source is ₹ 2,42,800.
d. No, the correct amount of tax to be deducted at source is ₹ 2,41,300.

3. What would be the total income (without rounding off) of Mr. Nobita for the A.Y.
2024-25, assumethat he does not opt for section 115BAC?
a. ₹ 11,73,736
b. ₹ 11,76,699
c. ₹ 11,61,699
d. ₹ 11,58,736

4. What would be tax liability of Mr. Nobita for the A.Y. 2023 -24, if he does not opt for section
115BAC?
a. ₹ 1,66,530
b. ₹ 1,68,870
c. ₹ 1,71,210
d. ₹ 1,67,450

5. Assuming for the purpose of answering this question only that no contribution is made by Mr.
Nobita and his employer towards provident fund, what amount of deduction is available to
Mr. Nobita under Chapter VI-A for the previous year 2023-24, if he does not opt for section
115BAC?
a. ₹ 2,62,500
b. ₹ 2,59,537
c. ₹ 2,50,000
d. ₹ 2,04,500

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Chapter 4
Income from House
Property
Question 1
Mr. Ranjan owns a shop whose construction got completed in August 2022. He took a loan of Rs. 22
lakhs from Bank of Baroda on 1-8-2021 and had been paying interest calculated at 9% per annum.

During the F.Y. 2023-24, the shop was let out at a monthly rent of Rs. 45,000. He paid municipal tax of
Rs. 18,000 each for the F.Y. 2022-23 and 2023-24 on 25-5-2022 and 15-4-2023, respectively

Compute income under the head 'House Property' of Mr. Ranjan for the A.Y. 2024-25, assuming that
the entire amount of loan is outstanding on the last day of the current previous year.

Answer:

Computation of income under the head “House Property” of Mr. Ranjan for A.Y.2024-25

Particulars Rs. Rs.

Gross Annual Value [Rs. 45,000 x 12] 5,40,000
Less: Municipal Taxes (See Working Note 1) 18,000
Net Annual Value (NAV) 5,22,000
Less: Deductions under Section 24
(i) 30% of NAV 1,56,600
(ii) Interest on Housing Loan (see Working Note 2) 2,24,400 3,81,000
Income chargeable under the head “House Property” 1,41,000

Working Notes:

Municipal taxes deductible from Gross Annual Value As per proviso to section
23(1), municipal taxes actually paid by the owner during the previous year is
1 allowed to be deducted from Gross Annual Value. Accordingly, only Rs. 18,000
paid on 25.05.2023 is allowed to be deducted from Gross Annual Value, while
computing income from house property of the previous year 2023-24

Interest on housing loan allowable as deduction under section 24 As per

2 section 24(b), interest for the current year (Rs. 22,00,000 x 9%) 1,98,000
Pre-Construction Interest

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 Pre-construction interest for the period 01.08.2022 to 31.03.2023 (Rs.
22,00,000 x 9% x 8/12) = Rs. 1,32,000
Rs. 1,32,000 allowed in 5 equal installments (Rs. 1,32,000/5) from P.Y. 2023- 26,400
23 to P.Y. 2023-24 = Rs. 26,400
Deduction under section 24(b), in respect of interest on housing loan for let
3
out property, fully allowed without any limit 2,24,400

Question 2
Mr. Mahaan is a resident but not ordinarily resident in India during the A.Y. 2024-25. He furnishes the
following information regarding his income/expenditure pertaining to his house properties for the P.Y.
2023-24:

• He owns two houses, one in Singapore and the other in Pune.

• The house in Singapore is let out there at a rent of SGD 4,000 p.m. The entire rent is received in
India. He paid Property tax of SGD 1250 and Sewerage Tax SGD 750 there. (1SGD=INR 51)
• The house in Pune is self-occupied. He had taken a loan of Rs. 25,00,000 to construct the house
on 1st June, 2020 @12%. The construction was completed on 31st May, 2022 and he occupied
the house on 1st June, 2022.

The entire loan is outstanding as on 31st March, 2022. Property tax paid in respect of the second
house is Rs. 2,800.

Compute the income chargeable under the head "Income from House property" in the hands of Mr.
Mahaan for the A.Y. 2024-25.

Answer:

Computation of income from house property of Mr. Mahaan for A.Y. 2024-25

Particulars Rs. Rs.

1. Income from let-out property in Singapore [See Note 1 below]
Gross Annual Value [SGD 4,000 p.m. x 12 months x Rs. 51] 24,48,000
Less: Municipal taxes paid during the year [SGD 2,000
1,02,000
(SGD 1,250 + SGD 750) x Rs.51]
Net Annual Value (NAV) 23,46,000
Less: Deductions under Section 24
(i) 30% of NAV 7,03,800
(ii) Interest on Housing Loan - 7,03,800
16,42,200
2. Income from self-occupied property in Pune
Annual Value [Nil, since the property is self-occupied] Nil
[No deduction is allowable in respect of municipal taxes paid in respect of self-
occupied property
Less: Deduction in respect of interest on housing loan [See Note 2 below] 200000
(2,00,000)

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Income from deemed to be let-out house property 18,42,200

Notes:

(1) Since Mr. Vihaan is a resident but not ordinarily resident in India for A.Y. 2023-24, income
which is, inter alia, received in India shall be taxable in India, even if such income has accrued
or arisen outside India by virtue of the provisions of section 5(1). Accordingly, rent received
from house property in Singapore would be taxable in India since such income is received by
him in India
(2) Interest on housing loan for construction of self-occupied property allowable as deduction
under section 24

Interest on housing loan allowable as deduction under section 24 As per

3,00,000
section 24(b), interest for the current year (Rs. 25,00,000 x 12%)
Pre-Construction Interest
Pre-construction interest for the period 01.08.2020 to 31.03.2022 (Rs.
25,00,000 x 12% x 22/12) = Rs. 5,50,000 1,10,000
Rs. 5,50,000 allowed in 5 equal instalments (Rs. 5,50,000/5) = Rs. 1,10,000
4,10,000
In case of self-occupied property, interest deduction to be restricted to Rs.
2,00,000
2,00,000

Question 3
Mrs. Daya, a resident of India, owns a house property at Panipat in Haryana. The Municipal value of
the property is Rs. 8,50,000, Fair Rent of the property is Rs. 7,30,000 and Standard Rent is Rs. 8,20,000
per annum.

The property was let out for Rs. 85,000 per month for the period April 2019 to December 2019.

Thereafter, the tenant vacated the property and Mrs. Daya used the house for self-occupation. Rent
for the months of November and December 2019 could not be realized from the tenant.

Mrs. Daya has not instituted any legal proceedings for recovery of the unpaid rent. She paid municipal
taxes @ 12% during the year and paid interest of Rs. 50,000 during the year for amount borrowed
towards repairs of the house property.

You are required to compute her income from house property for the A.Y. 2024-25

Answer:

Computation of income from house property of Mrs. Daya for the A.Y.2024-25

Particulars Rs. Rs.

Computation of Gross Annual Value

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Expected Rent for the whole year = Higher of Municipal Value of Rs. 8,50,000
8,20,000
and Fair Rent of Rs. 7,30,000, but restricted to Standard Rent of Rs. 8,20,000
Actual rent receivable for the let-out period = Rs. 85,000 x 9 months 7,65,000
[Unrealised rent is not deductible from actual rent in this case since Mrs. Daya
has not instituted any legal proceedings for recovery of unpaid rent. Hence,
one of the conditions laid out in Rule 4 has not been fulfilled]
GAV is the higher of Expected Rent for the whole year and Actual rent
8,20,000
received/receivable for the let-out period
Gross Annual Value 8,20,000
Less: Municipal Taxes [12% of Rs. 8,50,000] 1,02,000
Net Annual Value (NAV) 7,18,000
Less: Deductions under Section 24
(i) 30% of NAV 2,15,400
(ii) Interest on amount borrowed for repairs [fully allowable as
50,000 2,65,400
deduction, since it pertains to let-out property]
Income chargeable under the head “House Property” 4,52,600

Question 4
Mr Krishna sold his residential property in March 2022. In June 2021, he recovered rent of ₹35,000
from Mr Ravindra to whom he had let out his house for 2 years from April 2016 to March 2018.

He could not realise two months’ rent of ₹40,000 from him and to that extent his actual rent was
reduced while computing income from house property for assessment year 2024-25.

Further he had let out his property from April 2018 to February 2022 to Mr Kamlesh. In April 2021 he
had increased the rent from ₹20,000 to ₹25,000 per month and the same was a subject matter of
dispute. In September 2022 the matter was finally settled, and Mr Krishna received ₹1,15,000 as areas
of rent for the period April 2021 to February 2022.

Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr Krishna, and
if so in which year?

Answer:

Since the unrealised rent was recovered in P.Y. 2022- 23, the same would be taxable in the A.Y. 2023
- 24 under section 25 A. Irrespective of the fact that Mr Krishna was not the owner of the House in
that year.

Further, the arrears of rent were also received in the P.Y. 2022 - 23 and hence the same would be
taxable in the A.Y. 2023 - 24 under section 25, even though Mr Krishna was not the. Owner of the
house in that year

At deduction of 30% of unrealised rent recovered and the Arrears of rent would be allowed while
computing income from house property of Mr Krishna for A.Y. 2023 - 24.

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 Computation of income from house property of Mr. Krishna for A.Y. 2023- 24.

(i) Unrealised Rent recovered 35,000

(ii) Arrears of Rent Received 1,15,000
1,50,000
Less: Deduction @ 30% of NAV 45,000
Income chargeable under the head “House Property” 1,05,000

Question 5
Ownership is the criterion for assessment of Income from property under section 22, However, there
are instances in which the income from property is assessable in the hands of an assessee, who is not
the legal owner thereof. Enumerate these cases.

Answer:

Deemed Ownership (Section 27]: For the purposes of Section 22 to 26, the following persons shall be
deemed to be the Owner of house property-

1. Transfer to spouse or minor child otherwise than for adequate consideration: An individual who
Transfers otherwise than for adequate consideration his house property to-

(a) His or her spouse, not being a transfer in connection with an agreement to live apart; or

(b) Minor child, not being married daughter;

shall be d9eemed to be the owner of the house property so transferred.

2. Holder of an Impartible Estate: The holder of impartible estate shall be deemed to be the individual
owner of all the properties comprised in the estate.

3. Property allotted under house building scheme: A member of a co-operative society, company or
other association of persons to whom a building or part thereof is allotted or leased under a house-
building scheme of the society, company or association, as the case may be, shall be deemed to be
owner of that building or part thereof.

4. Possession part performance of contract: A person who is allowed to take or retain possession of
any building or part thereof in part performance of a contract of the nature referred to in section 53A
of the Transfer of Property Act, 1882, shall be deemed to be the owner of that building or part thereof.

5. Holder of substantial lease or other rights for not less than 12 years: A person who acquires any
rights (excluding any rights by way of a lease from month to month or for a period not exceeding one
year) in or with respect to any building or part thereof, by virtue of any transaction as is referred to
under section 269UA (f), shall be deemed to be the owner of that building or part thereof.

Note: According to Section 269UA(f)- Transfer means,

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 (a) Transfer of property by way of sale or exchange or lease for a term of not less than 12 years,
and includes allowing the possession of such property to be taken or retained a part performance
of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882.

(b) doing of anything (whether by way of admitting as a member of or by way of transfer of shares
in a co-operation society or company or other association of persons or by way of any agreement
or arrangement or in any other manner whatsoever) which has the effect of transferring, or
enabling the enjoyment of, such property-]

Only deemed owner liable to tax: Since the above-mentioned persons are the deemed owners of the
property. Hence the income there from will be assessable in their hands and not in the hands of the
legal owner.

Question 6
For A.Y. 2023 - 24, Mr. Ashwin submits the following information, Determine the taxable income of
Mr. Ashwin for the A.Y. 2024 - 25.

Particulars House A House B

Fair Rent 1,20,000 1,40,000
Actual Rent 1,32,000 1,06,000
Standard Rent 1,26,000 1,20,000
Municipal Tax due 18,000 20,000
Repairs 6,000 8,000
Insurance 3,000 4,000
Land revenue (paid) 4,000 2,000
Ground rent 2,000 5,000
Interest on capital borrowed by mortgaging A (funds are used for construction 30,000
of B)
Answer:

Computation of taxable income of Mr. Ashwin

Particulars House A House B

Gross Annual Value 1,32,000 1,20,000
Less: Municipal taxes [Not paid] Nil Nil
Net Annual Value 1,32,000 1,20,000
Less: Deduction u/s 24
24(a): Standard deduction @ 30% (39,600) (36,000)
24(b): Interest - (30,000)
Income from house property 92,400 54,000

Income from house property [Rs. 92,400+ Rs. 54,000] = 1,46,400

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Question 7
Ravi is the owner of a residential house whose construction was completed on 31.8.2022. It has been
let out from 01.01.2023 for residential purposes. Its particulars for the F.Y. 2023-24 are given below:

Municipal valuation (p.a.) 65,000

Fair Rent (p.a.) 72,000
Standard rent under the Rent Control Act (p.m.) 7,000
Actual rent (p.m.) 7,000
Municipal taxes paid (including Rs. 5,000 paid by tenant) 20,000
Water/sewerage benefit tax, levied by State Government paid under protest 5,000
Interest on loan taken for the construction of the house. Interest has been paid o/s 15,000
India to NR without TDS (NR had agreed to pay income-tax on such Interest direct to
the Government)
Legal charges for the recovery of rent 4,000
Stamp duty & registration charges incurred in respect of lease agreement of house 2,000

The unrealized rent for P.Y. 2023 - 24 is recovered of Rs. 20,000 from the defaulting tenants.
Compute Income from house property for the A.Y. 2024 - 25.

Answer:

Computation of Income from House Property

Particulars Rs.
Gross Annual rent 84,000
Less: Municipal taxes paid by owner 15,000
Net Annual value 69,000
Less: Deduction u/s 24
24(a) - Standard deduction @ 30% (20,700)
24(a) - Interest: Paid to NR without deducting TDS, hence, not deductible Nil (20,700)
48,300
Add: Unrealised rent recovered [20,000 * 70%] 14,000
Income from house property 62,300

Question 8
Mrs. R is the owner of a two storied house in Madras. She gets a monthly rent Rs. 7,000 from her
tenant on the ground floor. The first floor, identical in all respect with the ground floor used to be
occupied by a friend of Mrs. R from whom she charged a rent of Rs. 5,000 per month. During the year
ended 31.03.2024, the friend stayed in Mrs. R house up to 31.12.2023. On 01.01.2024 it was again let
out to tenant at a rent of Rs.7,000 per month.
Details of expenses incurred by Mrs. R during the year ending 31.3.2024 in respect of the house were

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as under:

a) Cost of repairing ground floor: Rs. 7,500.

b) Cost of repairing first floor: Rs. 50,000.
c) Interest on loan taken for construction of first floor: Rs. 20,000.
d) Municipal, tax paid by owner: Rs. 6,000.
e) Monthly salary of an employee for collecting rent: Rs. 1,000.

Compute Mrs. R's income from house property for A.Y. 2024-25.

Answer:

Computation of Income from house property of Mrs. R

Particulars Rs. Rs. Rs.

Ground Floor
Gross Annual Value 84,000
Less: Municipal Taxes paid 3,000
Net Annual Value (NAV) 81,000
Less: Deductions under Section 24
(i) 30% of NAV 24,300
Income from ground floor 56,700
First Floor
Gross Annual Value, higher of the following two:
Expected Rent [7,000 x 12] 84,000
Actual Rent [5,000 x 9] + [7,000 x 3] 66,000 84,000
Less: Municipal tax paid 3,000
Net Annual Value (NAV) 81,000
Less: Deductions under Section 24
(i) 30% of NAV 24,300
(ii) Interest on Housing Loan 20,000 44,300
Income from first floor 36,700
Total income from House Property 93,400

Question 9

Mr. Rakshith owns a house in Madhurai. During P.Y. 2023-24, 2/3rd portion of the house was self-
rd
occupied & 1/3 portion was let out for residential purposes at a rent of Rs. 8,000 p.m. MV = Rs.
3,00,000 p.a., FR = Rs. 2,70,000 p.a. & SR = Rs. 3,30,000 p.a. He paid MT @10% during the year. A loan
of Rs. 25,00,000 was taken by him during the year 2017 for acquiring the property. Interest on loan
paid during P.Y. 2023-24 was Rs. 1,20,000.

Compute Prem’s income from house property for the A.Y. 2024-25

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Answer:
a. There are two units of the house. Unit I with 2/3rd area is used by Prem for self- occupation
throughout the year & no benefit is derived from that unit, hence it will be treated as SOP & its
NAV will be Nil.

b. Unit 2 with 1/3rd area is let-out throughout the previous year & its NAV has to be determined as
per sec 23(1).

Computation of Income from house property of Mr. Rakshith for AY 2024-25

Unit I (2/3rd area: Self-occupied)

Particulars Amount
Net Annual Value Nil
Less: Deduction u/s 24(b) 2/3rd of Rs. 1,20,000 (80,000)

Unit II (1/3rd area: Let out)

Particulars Working Amount

Gross Annual Value Higher of ER = 1,00,000; ARR: 8,000 x 12 = Rs. 1,00,000
96,000
Less: Municipal tax paid [1/3rd of (10% of Rs. 3 lacs)] = Rs. 30,000/3 (10,000)
Net Annual Value GAV – MT 90,000
Less: Deduction u/s 24
24(a): Std Deduction @ 30% of Rs. 90,000 (27,000)
30%
24(b): Interest 1/3rd of Rs. 1,20,000 (40,000)
Income from Unit II (let-out) Rs. 23,000

Total Income (Loss) from House Property = (Rs. 80,000) + Rs. 23,000 = (Rs. 57,000)

Question 10
Mrs. Deepika (aged 40 years) is working with M/s Honest Company Ltd, a manufacturer of bikes based
at Mumbai, has received the following payments during the P.Y. 2023-24 from her employer:

(a) Basic Salary – Rs. 60,000 per month;

(b) Dearness Allowance – 40% of Basic Salary.

Her employer has taken on rent her own house on a monthly rent of Rs. 15,000 & the same has been
provided for the residence of Mrs. Deepika. The company is recovering Rs. 2,000 per month as rent of
house.
Mrs. Deepali has further furnished the following details:
i. Contribution to PPF Rs. 60,000.
ii. She has paid Professional Tax of Rs. 6,000 during F.Y. 2023-24.
iii. She is owning only one house & payment of Interest of Rs. 1,75,000 & Principal of Rs. 1,00,000 was

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 made for Housing Loan taken for purchase of House.
iv. She has also taken a Loan of Rs. 2,00,000 from her employer for studies of her son. SBI Rate for
such Loan is 10%. Her employer has recovered Rs. 10,000 as Interest from her Salary for such Loan
during the year.

Compute Taxable Income & Tax Liability for A.Y. 2023-24.

Answer:

Computation of Total Income and Tax Liability

Particulars Rs. Rs. Rs.

Income under the Head Salary
Basic Salary [60,000 x 12] 7,20,000
Dearness Allowance [40% of 7,20,000] 2,88,000
Value of Accommodation taken on Lease by the
1,27,200
Employer Least of:
(i) Rent paid by employer [15,000 x 12] (ii) 15% of Salary
1,80,000
[15% of 10,08,000]
Less: Amount Recovered from Employee [2,000 x 12] 1,51,200
(24,000)
Taxable value of Concessional Loan (Loan o/s @ SBI
Rate – Actual Rate is Taxable) = (2,00,000 x 10%)- 10,000
10,000
Gross Salary 11,45,200
Less: Standard Deduction U/s 16(ia) (40,000)
Less: Professional tax paid U/s 16(iii) (6,000) 10,99,200
Income u/h House Property: Let out Property
Gross Annual Value (15,000 x 12) 1,80,000
Less : Deduction u/s 24 @ 30% of NAV (54,000)
Less : Interest on Housing Loan (1,75,000) (49,000)
Gross Total Income 10,50,200
Less : Deduction under Chapter VI A
U/s 80C - Housing Loan Principal
(1,50,000)
1,00,000 + NSC 60,000 (Max. 1,50,000)
Total Taxable Income 9,00,200
Tax on Total Income = [12,500 + (9,00,200 – 5,00,000) x 20%] + HEC @ 4%
= 92,540 + 3,702
= Rs. 96,240

Question 11
Mr. Akash owns a residential house property whose Municipal Value, Fair Rent and Standard Rent are
Rs. 1,60,000, Rs. 1,70,000 and Rs. 1,90,000, respectively. The house has two independent units. Unit I
(25% of floor area) is utilized for the purpose of his profession and Unit II (75% of floor area) is let out
for residential purposes at a monthly rent of Rs. 8,500. Municipal taxes @8% of the Municipal Value

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were paid during the year by Mr. Akash. He made the following payments in respect of the house
property during the P.Y. 2024 - 25:

Light and Water charges Rs. 2,000, Repairs Rs. 1,45,000, Interest on loan taken for the repair of
property Rs. 36,000. Mr. Akash has taken a loan of Rs. 5,00,000 in July, 2017 for the construction of
the above house property. Construction was completed on 30th June, 2020. He paid interest on loan
@12% per annum and every month such interest was paid. No repayment of loan has been made so
far.

Income of Mr. Akash from his profession amounted to Rs. 8,00,000 during the year (without debiting
house rent and other incidental expenditure including admissible depreciation of Rs. 8,000 on the
portion of house used for profession).

Determine the Gross total income of Mr. Akash for the A.Y. 2024-25 ignoring the provisions of section
115BAC.

Answer:
Computation of Gross total income of Mr. Akash for the A.Y. 2024 – 25

Particulars Rs. Rs.

I Income from House Property
Unit-II (75% of floor area)
Gross Annual Value
(a) Actual rent received (Rs. 8,500 x 12) 1,02,000.00
(b) Expected rent 1,27,500.00
[Higher of municipal value (i.e. Rs. 1,60,000)
and fair rent
(i.e. Rs.1,70,000) but restricted to standard rent
(i.e.
Rs. 1,90,000) Rs.1,70,000 x 75%]
Higher of (a) or (b) is GAV 1,27,500.00
Less: Municipal taxes (Rs. 1,60,000 x 8% x 75%) 9,600.00
NAV 1,17,900.00
Less: Deductions u/s 24
(a) 30% of NAV 35,370.00
(b) Interest on loan (See note) 96,750.00 1,32,120.00 -14,220.00
II Profits & Gains of business & profession
Income from Profession 8,00,000.00
Less: Light & Water Charges (25% of Rs. 2,000) 500.00
Municipal taxes (25% of Rs. 12,800) 3,200.00
Repairs (25% of Rs. 1,45,000) 36,250.00
Interest on loan taken for repair
9,000.00
(25% of Rs. 36,000)
Interest on loan taken for construction of house
property (25% of Rs. 60,000) 15,000.00

Depreciation 8,000.00 71,950.00 7,28,050.00

Gross Total Income 7,13,830.00

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Note:

Computation of Interest on Loan

Particulars Rs.
Interest for the year (Rs. 5,00,000 x 12%) 60,000
Pre-construction period Interest-
12% of Rs. 5,00,000 for 33 months = Rs. 1,65,000
To be allowed in 5 equal instalments from the year of completion (Rs. 1,65,000 x 1/5) 33,000
Interest on loan taken for repair (no restriction for let out property) 36,000
Total Interest deduction u/s 24(b) 1,29,000
Total Interest deduction u/s 24(b) for let out property (75% x Rs. 1,29,000) 96,750

Multiple Choice Questions

1. Rent after deducting municipal taxes is Rs. 2,00,000, the amount of taxable income from
house property is:
a. Rs. 2,00,000
b. Rs. 1,40,000
c. Rs. 2,60,000
d. None of above

2. The time limit for acquisition or construction of self-occupied house property for claiming
deduction of interest is:
a. 3 years
b. 5 years
c. 8 years
d. 10 years

3. In case of self-occupied house property, following category of person are considered:

a. All assessee
b. All assessee other than company
c. All Assessee other than HUF
d. Individual and HUF

4. One out of the following house properties is not exempted,

a. House property of a political party
b. House property let out for the purpose of own business of tenant.
c. House property of a local authority
d. None of the Above

5. A house property located outside India is:

a. Taxable in hands of all assessee

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 b. Taxable in hands of non-resident assessee
c. Taxable in hands of resident and ordinarily resident assessee
d. Exempted from tax in India.

6. Deduction u/s 24(a) is

a. 30% of net annual value of the house property
b. 30% of gross annual value of house property
c. 30% of actual rent received
d. None of the Above

7. Interest relating to pre-construction period is allowable:

a. In 5 equal instalments from the year in which it was incurred.
b. In the year in which it was incurred
c. In the year in which house property was constructed
d. None of the Above
8. For the purpose of claiming higher deduction u/s 24(b), while computing
income of a self-occupied property, assessee is required to take:
a. Loan on or before 01-04-1999
b. Loan on or after 01-04-1999
c. Loan after01-04-1999
d. Loan on 01-04-1999

9. Income from sub-letting is:

a. Taxable under the head ‘Income from House Property’
b. Taxable under the head ‘Income from Other Sources’
c. Exempted
d. None of the above

10. Deduction u/s 24(a) is not available when:

a. Net annual value is zero
b. Net annual value is positive
c. Net annual value is zero or negative
d. None of the above

11. Which of the following deductions is /are not allowed in case of a deemed to
be let-out house?
a. New construction allowance
b. Repairs
c. Vacancy allowance
d. All of the above

12. Which of the following is not a case of deemed ownership of house property?
a. Transfer to spouse for inadequate consideration
b. Transfer to minor child for inadequate consideration
c. Co-owner of a Property

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 d. None of the above

13. Mr. Raghav has three houses for self-occupation. What would be the tax treatment for A.Y.
2024 - 25 in respect of income from house property?
a. One house, at the option of Mr. Raghav, would be treated as self-occupied. The other
two houses would be deemed to be let out.
b. Two houses, at the option of Mr. Raghav, would be treated as self-occupied. The
other house would be deemed to be let out.
c. One house, at the option of Assessing Officer, would be treated as self-occupied. The
other two houses would be deemed to be let out.
d. Two houses, at the option of Assessing Officer, would be treated as self-occupied. The
other house would be deemed to be let out.

14. Mr. Aarav gifted a house property valued at Rs. 50 lakhs to his wife, Geetha, who in turn has
gifted the same to her daughter-in-law Deepa. The house was let out at Rs. 25,000 per month
throughout the P.Y.2023-24. Compute income from house property for A.Y.2024-25. In whose
hands is the income from house property chargeable to tax? One house, at the option of Mr.
Raghav, would be treated as self-occupied. The other two houses would be deemed to be let
out.
a. Rs. 3,00,000 in the hands of Mr. Aarav
b. Rs. 2,10,000 in the hands of Mr. Aarav
c. Rs. 2,10,000 in the hands of Geetha
d. Rs. 2,10,000 in the hands of Deepa

Case Scenario – 1
Ananya Gupta, a citizen of India, lives with her family in New York since the year 2000. She visited
India from 21st March, 2022 to 28th September, 2023 to take care of her ailing mother. In the last
four years, she has been visiting India for 100 days every year to be with her mother. She owns an
apartment at New York, which is used as her residence. The expected rent of the house is $ 32,000
p.a. The value of one USD ($) may be taken as ₹ 75. Municipal taxes paid in New York in January, 2024
are $ 2,000.

She took ownership and possession of her house in New Delhi on 25th March, 2024, for self-
occupation, while she is in India. The municipal valuation is ₹ 4,20,000 p.a. and the fair rent is ₹
4,50,000 p.a. She paid property tax of ₹ 22,000 to Delhi Municipal Corporation on 21st March, 2024.
She had taken a loan of ₹ 16 lakhs @ 10% p.a. from IDBI Bank on 1st April, 2019 for constructing this
house and the construction got completed on 20th March, 2023. No amount has been paid towards
principal repayment so far. The house is vacant for the rest of the year i.e., from October 2023 to
March 2024.

She had a house property in Mumbai, which was sold on 28th March, 2024. In respect of this house,
she received arrears of rent of ₹ 3,00,000 on 4th February, 2024. This amount has not been charged
to tax earlier.

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She does not have any income under any other source in India during P.Y. in 2023 - 24. Ananya Gupta
does not want to opt for the new tax regime under section 115BAC for A.Y. 2024 - 25.

Based on the facts of the case scenario given above, choose the most appropriate answer to the
following questions:

1. What would be the residential status of Ananya Gupta for A.Y. 2024 -25?
a. Resident and ordinarily resident
b. Resident but not ordinarily resident
c. Deemed resident but not ordinarily resident in India
d. Non-resident

2. Ms. Ananya Gupta can claim benefit of “Nil” Annual Value under section 23(2) in respect of -

a. Her Delhi house

b. Her New York house, since it is more beneficial; her Delhi house will be deemed to be
let out andexpected rent would be the annual value.

c. Her Delhi house alone; her New York house will be deemed to be let out and
expected rent would bethe annual value.

d. Both her Delhi house and New York house, since benefit of Nil Annual value
u/s 23(2) is available in respect of two-house properties.

3. What is the income chargeable under the head “Income from house property” of Ananya
Gupta for A.Y. 2024 - 25?
a. ₹ 15,65,000
b. ₹ 3,09,600
c. ₹ 1,00,000
d. ₹ 10,000

4. Assuming that, for the purpose of this question alone, Ananya Gupta has let out her flat in New
Yorkduring the six months (April to September) when she is in India, for a sum of $ 6,000 p.m.
Such rent was received in a bank account in New York and then remitted to India through
approved banking channels. What would be the income from house property chargeable to tax
in her hands in India for A.Y. 2023 -24?
a. ₹ 10,000
b. ₹ 17,85,000
c. ₹ 17,95,000
d. ₹ 18,85,000

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Chapter 5
Profits and Gains from
Business or Profession
Question 1
Mr. Parthasarathi, a resident individual, aged 45 years, is a Chartered Accountant in practice. He
maintains his accounts on cash basis. His profit & Loss Account for the year ended 31st March, 2024 is
as follows:

Profit & Loss Account for the year ending March 31, 2024

Expenditure Amount Income Amount

Staff salary 18,25,000 Fees earned
Rent of the office 6,00,000 (i) Audit 43,00,000
Premises (ii) Taxation 34,50,000
Administrative expenses 5,75,000 (iii) Consultancy services 10,00,000
Stipend to Articled clerks 1,85,000 relating to syndication of loan
Meeting, seminars & conferences 36,500 Gifts 1,00,000
Depreciation 55,000 Dividends from Indian Company 12,00,000
Printing & Stationery 8,75,000 Interest on Gold deposit 15,000
certificates
Net Profit 59,13,500
1,00,65,000 1,00,65,000
Other Information:

1. Depreciation allowable under Income-Tax Act Rs. 1,25,000.

2. Administrative expenses include Rs. 55,000 paid to a tax consultant in cash for assisting Mr.
Pandey.
3. Gifts represent fair market value of a LED TV which was given by one of the clients for successful
presentation of case in the Income Tax Appellate Tribunal.
4. Last month’s rent of Rs. 50,000 was paid without deduction of tax at source.
5. Mr. Pandey had taken a loan of Rs. 32,00,000 for the purchase of a house property valuing Rs.
45,00,000 from a recognized financial institution on 1st May 2022. He repaid Rs. 1,50,000 on
31st March, 2024 out of which Rs. 1,00,000 is towards principal payment & the balance is for
interest on loan. The possession of the property will be handed over to him in October 2024.
6. Mr. Pandey paid the medical insurance premium of his parents (senior citizens & not dependent
on him) by cheque of Rs. 27,000. He also paid Rs. 8,500 in cash towards preventive health check-

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 up for himself & his spouse.

Compute the total income of Mr. Pandey & tax payable by him for A.Y. 2024 - 25.
Answer:

Computation of Total Income of Mr. Pandey for A.Y. 2024 - 25

Income under the head Business/Profession Rs.

Net Profit as per profit & loss account 59,13,500
Add: Expenses disallowable
Depreciation as per books of accounts 55,000
Administrative expense paid in cash in excess of Rs. 10,000 section 40A (3) 55,000
Rent Paid without deduction of TDS Section 40(a)(ia) (Disallowed 30%) 15,000
Less: Expenses allowable/ Income considered in other heads etc.
Dividends (12,00,000)
Interest on deposit certificate issued under Gold Monetization scheme (15,000)
Depreciation as per Income Tax Act (1,25,000)
Income under the head Business/Profession 46,98,500
IFOS: Dividend Income 12,00,000
Interest on deposit certificate issued under Gold Monetization scheme Nil
Income under the head other sources 12,00,000
Gross Total Income 58,98,500
Less: Deduction u/s 80D: Medical Insurance of Parents (27,000)
PHC of himself limited to Rs. 5,000 (5,000)
Total Income 58,66,500

Note:

1. Deduction u/s 80C is not allowed for repayment of loan as possession of property will be given
in next year.

2. Deduction of payment made in cash for preventive health checkup is allowed u/s 80D.

3. Gift received from Client shall be considered as Professional Income as per section 28.

4. Interest income from certificate issued under Gold Monetization scheme is exempt u/s 10(15).

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Question 2
Abracadabra Ltd., engaged in manufacture of medicines furnishes the following information for the
P.Y. 2024 - 25:

i. Municipal tax relating to office building Rs. 51,000 not paid till 30.09.2020.
ii. Patent acquired for Rs. 20,00,000 on 01.09.2022 & used from the same month.
iii. Capital expenditure on scientific research Rs. 10,00,000 which includes cost of land Rs. 2,00,000.
iv. Amount due from customer X outstanding for more than 3 years written off as bad debt - Rs.
5,00,000.
v. Income tax paid Rs. 90,000 by the company in respect of non-monetary perquisites provided to
its employees.

vi. Employee’s contribution towards PF - Rs. 5,50,000 of salary of July 2023 was deposited on 27th
Aug 2023.
vii. Expenditure towards advertisement in souvenir of a political party Rs. 1,50,000.
viii. Refund of GST Rs. 75,000 received during the year, which was claimed as expenditure in an earlier
year.
State with reasons the taxability or deductibility of the items given above.

Answer:

i. Municipal taxes relating to office building not paid till the last date of filing of the return is not
allowed as deduction as per sec 43 B.

ii. Patent acquired for 20,00,000.

Depreciation shall be allowed @ 25% of 20,00,000 = Rs. 5,00,000.00
iii. Capital expenditure on scientific research shall be allowed Rs. 8,00,000 u/s 35. Further
deduction allowed shall be 150%. No deduction shall be allowed for land.

iv. Amount written off as bad debts shall be allowed as deduction as per section 36(1).

v. Income Tax paid Rs. 90,000 shall not be allowed as deduction u/s 40(a).

vi. Provident fund paid on 27th August 2023 is not allowed because employer should pay such
contribution within 15 days of subsequent month. In this case, amount is remitted on
27.08.2023, hence expenditure is not allowed.

vii. Expenditure towards advertisement in souvenir of political party is not allowed as deduction
u/s 37(2B).

viii. As per sec 41(1), refund of GST shall be treated as income since it was claimed as expenditure
in earlier year.

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Question 3
State with reasons allowability of following expenses while computing income from “PGBP” for A.Y.
2024 - 25:

i. Provision made on the basis of actuarial valuation for payment of gratuity Rs. 5,00,000.
However, no payment on account of gratuity was made before due date of filing return.

ii. Purchase of oil seeds of Rs. 50,000 in cash from a farmer on a banking day.

iii. Payment of Rs. 50,000 by using credit cards for fire insurance.

iv. Salary payment of Rs. 2,00,000 by a company outside India without deduction of tax.

v. GST deposited in cash Rs. 5 0,000 with State Bank of India.

vi. Payment made in cash Rs. 30,000 to a transporter in a day for carriage of goods.

Answer:

i. Allowed, provision made on the basis of actuarial valuation is allowed as business expense.

ii. Allowed, cash payment of Rs. 50,000 for purchase of oil seeds is allowed as business expense.

iii. Allowed, payment through credit card is allowed.

iv. If tax is neither deducted nor paid, it is not allowed. In the given question it is not mentioned
that tax is paid hence it is presumed that tax is not paid & in that case, it is disallowed.

v. Allowed, payment of GST in cash shall be allowed & deductible as per Rule 6DD.

vi. Allowed, as per section 40A(3), payment in cash to a transporter upto Rs. 35,000 is allowed.

Question 4
State under which heads the following incomes are taxable:

i. Rental income in case of dealer in property

ii. Dividend on shares in case of a dealer in shares

iii. Salary by a partner from his partnership firm

iv. Rental income of machinery

v. Winnings from lotteries by a person having the same as business activity

vi. Salaries payable to a Member of Parliament

vii. Receipts without consideration

viii. In the case of retirement, interest on employee’s contribution if provident fund is

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 unrecognized.

Answer:

Particulars Head of Income

(i) Rental income in case of dealer in property Income from house property
(ii) Dividend on shares in case of a dealer in shares Income from other sources
(iii) Salary by partner from his partnership firm PGBP
(iv) Rental income of machinery (See Note below) IFOS/PGBP
Winnings from lotteries by a person having the same as Income from other sources
(v)
business activity
(vi) Salaries payable to a Member of Parliament Income from other sources
(vii) Receipts without consideration Income from other sources
(viii) Interest on employee’s contribution from URPF. Income from other sources
Note: As per section 56, rental income of machinery would be chargeable to tax u/h “Income from
Other Sources”, if the same is not chargeable to income-tax under the head “Profits & gains of business
or profession”.

Question 5
Net profit as per the profit & loss account of Mr. Purnachandra is Rs. 7,70,000 for the year ending 31st
March, 2024. The following information is noted from the accounts:

(a) Advertisement expenditure debited to profit & loss account includes the following:

i. Expenditure incurred outside India: Rs. 56,000 (Tax has been deducted at source & paid
during the year)

ii. Articles presented by way of advertisement (60 articles cost of each being Rs. 700, & 36
articles cost of each being Rs. 1,500);

iii. Rs. 20,000 being the cost of advertisement which appeared in a newspaper owned by a
political party;

iv. Rs. 14,400 being capital expenditure on advertisement; (eligible for dep. @ 25%)

v. Rs. 9,000 paid in cash

vi. Rs. 9,000 paid to a concern in which X has substantial interest (Excessive amount is Rs.
1,800)

(b) Out of salary to the employees debited to the profit & loss account:

i. Rs. 60,000 is the employee’s contribution to the recognized provident fund, Rs. 47,500 of
which is credited in the employee’s account in the relevant fund before the due date for
provident fund.

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 ii. Rs. 58,000 is bonus which is paid on 13th November 2023.

iii. Rs. 44,000 is commission which is paid on 1st December 2023.

iv. Rs. 25,000 is an incentive to workers, which is paid on 10th December 2023.

v. Rs. 46,000 is paid outside India in respect of which tax is not deducted at source.

vi. Rs. 6,000 being capital expenditure for promoting family planning amongst employees; &

vii. Rs. 55,000 being entertainment allowance given to employees.

(c) Entertainment expenses debited to profit & loss account is Rs. 12,000.

Determine the Total Income & Tax Liability of Mr. X for the A.Y. 2024 - 25.

Answer:
Computation of Total Income

Particulars Rs.
Net profit as per profit & loss account 7,70,000
Add: Inadmissible items
Advertisement in a newspaper owned by a political party (Sec 37(2B)) 20,000
Capital expenditure on advertisement 14,400
Excess amount paid to a concern in which ‘X’ has substantial interest 1,800
Employee contribution to recognized provident fund
(to the extent not deposited before the due date) 12,500
Bonus being paid to employee after the due date of filing the return 58,000
Commission to employee after the due date of filing the return 44,000
Salary paid outside India in respect of which tax is not deducted at source 46,000
Capital expenditure for promoting family planning
amongst employees (allowed only to a company assessee) 6,000
Less: Depreciation on capital expenditure on advertisement @ 25% of Rs. 14,400 (3,600)
Income under the head Business/Profession 9,69,100

Question 6
Mr. PC submits the profit & loss account for the year ending 31.03.2023 as under:

(Debits) Rs. (Credits) Rs.

Household expense 20,000 Gross Profit 5,28,500
Interest on loan taken from Mrs. X 2,000 Income tax refund 3,000
Income tax 12,000 Interest on income tax refund 300
Interest on loan for payment of income tax 1,200 GST refund 1,000
Contribution to Unrecognized Provident 4,000 Interest on GST refund 400

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Fund
Expenditure on advertisement (revenue) 25,000 Bad debts recovered 5,000
Public provident fund contribution 7,000 Dividends from foreign company 3,000
Investment in post- office saving bank 12,000
account
Purchase of car (paid by A/c payee cheque) 2,45,000
Purchase of computer (paid by A/c payee 35,000
cheque)
Purchase of plant (paid by A/c payee 23,000
cheque)
Net Profit 1,55,000
5,41,200 5,41,200
Additional Information: Car, computer & P&M were purchased on 01.10.2022 & were put to
use on the same date. Compute Total Income of Mr. PC for the A.Y. 2024 - 25.

Answer:

Computation of Total Income

Particulars Rs.
Net Profit as per profit & loss account 1,55,000
Add: Inadmissible Expenses
• Household expenses 20,000
• Income tax 12,000
• Interest on loan for payment of income tax 1,200
• Contribution to Unrecognized provident fund 4,000
• Contribution to public provident fund 7,000
• Investment in post office saving bank account 12,000
• Purchase of car 2,45,000
• Purchase of computer 35,000
• Purchase of plant 23,000
Less:
• Income tax refund (3,000)
• Interest on Income tax Refund (300)
• Dividends (3,000)
• Depreciation on car (2,45,000 x 15%) (36,750)
• Depreciation on computer (35,000 x 40%) (14,000)
• Depreciation (23,000 x 15%) on plant (3,450)
Income under the head Business/Profession 4,53,700
Income under the head Other Sources
Interest on income tax Refund 300
Dividends from foreign company 3,000
Income under the head Other Sources 3,300

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 Gross Total Income 4,57,000
Less: Deductions u/s 80C (7,000)
Total Income 4,50,000

Question 7
From the following P & L A/c of Mr. Lavan for the P.Y. 2023 - 24, compute his total income for A.Y.
2023 - 24:

Debits Rs. Credits Rs.

Opening Stock 9,50,000 Sales 101,06,000
Purchases 80,50,000 Closing Stock 3,60,000
Salaries 7,00,000 LTCG on sale of house property 36,000
Rent, rates & taxes 1,25,000 Dividends from foreign 12,000
company
Deposit in National Saving Certificate 42,000 Winnings of a lottery (gross) 5,00,000
Miscellaneous Expenses 21,000
Provision for Income Tax 31,000
Provision for gratuity 24,000
Provision for GST 45,000
Salary to Mrs. Lavan 48,000
Purchased a computer on 1.11.2022 & 40,000
put to use on the same date
Net Profit 9,38,000

Additional information:

I. Purchases include

a) Purchase of Rs. 1,00,000 from a relative (market price Rs. 80,000) & payment was made in
cash.

b) Purchase of Rs. 25,000 being the products manufactured without aid of power in a
cottage industry & the payment was made to its producer & payment was made in
cash.

c) Purchases of Rs. 35,000 from a person residing in village having no bank & payment was made
in cash.

II. Opening & closing stock were overvalued by 10%.

III. Salary includes Rs. 25,000 being bonus paid to the staff on 01.11.2019 on the occasion of Diwali.

IV. Rent, rates & taxes include Municipal tax paid on 01.11.2019 Rs. 30,000

V. Provision for Gratuity is on actuarial basis.

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VI. Mrs. Lavan is a housewife & payment is excessive by Rs. 48,000.

Mr. Lavan has not opted for presumptive taxation of Income u/s 44AD.

Answer:

Computation of Total income of Mr. Lavan for A.Y. 2024-25

Particulars Rs.
Net profit as per profit & loss account 9,38,000
Add: Expenses debited to P & L A/c but not allowable
Deposit in NSC (not an expenditure) 42,000.00
Provision for income tax 31,000.00
Provision for GST 45,000.00
Salary to Mrs. Lavan [Sec 40A(2)] 48,000.00
Purchase of computer (capital expenditure) 40,000.00
Purchase from relative [Sec 40A(2)] 20,000.00
Payment in cash [Sec 40A(3)] 80,000.00
Adjustment for opening stock (9,50,000 x 10 / 110) 86,363.64
Bonus paid after due date (Sec 43B) 25,000.00
Municipal tax paid after due date (Sec 43B) 30,000.00
Less: Permissible Expenses
Depreciation on computer (40,000 x 40% x ½) (8,000.00)
Closing stock overvalued (3,60,000 x 10/110) (32,727.27)
Less: Incomes taxable under other head but not u/h PGBP
Long term capital gain (36,000.00)
Dividend from foreign company (12,000.00)
Winnings of lottery (5,00,000.00)
Business income 7,96,636.37
Income from Other Sources
Dividend from foreign company 12,000.00
Winnings from lottery 5,00,000.00
Income from Other Sources 5,12,000.00
Income under the head Capital Gains (LTCG) 36,000.00
Gross Total Income 13,44,636.37
Less: Deduction u/s 80C [Deposit in NSC] (42,000.00)
Total Income (rounded off u/s 288A) 13,02,640.00

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Question 8
Income & Expenditure A/c of Dr. Damodar for the P.Y. 2023 - 24 is as follows:

Expenditure Amount Income Amount

To Medicines Consumed 2,52,000 By Fee Receipts 8,49,500
To Staff Salary 1,55,000 By Rental income from house 29,000
property
To Hospital Consumables 48,500 By Dividend from Indian companies 15,000
To Rent Paid 60,000
To Administrative Expenses 1,28,000
To Net Income 2,50,000
Additional Information:

I. Rent paid includes rent for his residential accommodation of Rs. 38,000 (paid in cash).

II. Medicines consumed include medicines (cost) Rs. 12,000 used for Dr. Damodar’s family.

III. Rent received relates to a property situated at Chennai. Municipal tax of Rs. 3,500 paid in
December, 2023 has been included in the “administrative expenses.”

IV. He received Rs. 10,000 p.m as salary from ‘Total Heal Hospital’. This has not been included in “Fee
Receipts”.

V. Hospital equipment (eligible for depreciation @ 15%):

01.04.2022: Opening WDV: Rs. 5,50,000;

VI. Acquired by A/c payee cheque (cost) on 7.12.2023 & put to use on the same date: Rs. 2,50,000.

Compute Dr. Damodar’s Taxable Income for P.Y. 2023 - 24.

Answer:

Computation of Income of Dr. Damodar

Particulars Rs.
Net profit as per profit & loss account 2,50,000
Add: Inadmissible expenses
• Rent for residential accommodation 38,000
• Medicines for personal use 12,000
• Municipal taxes 3,500
Less: Admissible Expenses/Exempt Incomes or not taxable u/h PGBP but other
heads
• Depreciation on hospital equipment [Note 1] (1,01,250)
• Rental income from house property (29,000)
• Dividend from Indian companies (15,000)
Income under the head Business/Profession 1,58,250

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 Income from Salary
Salary (10,000 x 12) 1,20,000
Less: Standard deduction (40,000)
Income under the head Salary 80,000
Income from House Property
Gross Annual Value 29,000
Less: Municipal Taxes (3,500)
Net Annual Value 25,500
Less: 30% of NAV u/s 24(a) (7,650)
Income under the head House Property 17,850
Income under the head Other Sources - Dividend from Indian company 15,000
Gross Total Income 3,11,100

Note: Computation of Depreciation: = Rs. 5,50,000 @ 15% + Rs. 2,50,000 @ 7.5%

= 82,500 + 18,750
= 1,01,250.

Question 9
Mr. Best, aged 75 years, has submitted his profit & loss account for the year ending 31.03.2023 as
given below:
Particulars Amount Particulars Amount
Opening Stock 13,50,000 Sales 105,00,000
Purchases 75,00,000 Gift from friend 1,200
Franchises 1,00,000 Bad debts recovered 2,900
Advertisement 9,000 Rental income from House Property 1,40,000
Income Tax of the PY 2021-22 7,000 Income tax refund 700
Advance Tax 1,200 Dividends from a foreign company 3,000
Addition to the office building 45,000 Closing stock 1,80,000
Investment in public provident fund 70,000
Net Profit 17,45,600
108,27,800 108,27,800
Additional information:

1. Opening & closing stocks are undervalued by 10%.

2. Franchises were purchased on 01.07.2023 & were put to use on 03.10.2023.
3. Advertisement expenditure relates to a neon sign board which was purchased & put to use on
01.08.2023
4. Office building has WDV of Rs. 56 lacs on 01.04.2023 & addition was made to the building by
constructing additional room on the roof. Construction was completed on 01.11.2023 & it was put
to use on the same date. Expenditure of Rs. 45,000 includes cost of wiring & switches of Rs. 4,500.
No depreciation has been debited with regard to the building.
5. Sale includes sale of Rs. 1,20,000 to the proprietor & the cost of these goods was Rs. 1,00,000 &
FMV is Rs. 1,25,000.

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 6. Bad debts recovered were allowed earlier.
Mr. Best has not opted for presumptive taxation of Income u/s 44AD.

Compute his Taxable Income for A.Y. 2024 - 25.

Answer:

Computation of Total Income in the hands of Mr. Best for A.Y. 2024 - 25

Particulars Rs. Rs. Rs.

Net Profit as per profit & loss account 17,45,600
Add: Inadmissible Expenses already debited to P & L A/c
Franchises, being capital expenditure 1,00,000
Advertisement, being capital expenditure 9,000
Income tax (income tax is not allowed as per sec 40(a)) 8,200
Addition to office building, being capital expenditure 45,000
Investment in public provident fund (not a revenue expenditure) 70,000
Add: Incomes not credited to profit & loss account
Closing stock undervalued by 10% (1,80,000 x 10/90) 20,000
Deduct expenditures not debited to profit & loss account
Opening stock undervalued by 10% (13,50,000 x 10/90) (15,00,000)
Depreciation - Working Note
1. Franchises (1,00,000 x 25%) 25,000
2. Furniture/fixture @ 10%
- Neon sign board: (9,000 x 10%) 900
- Wirings etc. in the building: (4,500 x 5%) 225
3. Office building: (56,00,000 x 10% + Addition: 40,500 x 5%) 5,62,025
Total Depreciation (5,88,150)
Less: Incomes credited to P&L A/c but not taxable u/h PGBP/ are
Exempt
1. Gift from friend (only gift received from client is taxable u/h
(1,200)
PGBP)
2. Rental income from House Property (1,40,000)
3. Income tax refund (700)
4. Dividends from a foreign company (to be taxed under the
(3,000)
head other sources)
5. Sale to the proprietor should be at cost price (20,000)
Income under the head business/profession 10,94,750
Income under the head other sources: Dividends from a foreign
3,000
company
Income under the head house property
NAV = GAV – Municipal Tax paid = Rs. 1,40,000 – Nil = Rs. 1,40,000 1,40,000
Less: 30% of NAV u/s 24(a) (42,000)
Income under the head House Property 98,000
Gross Total Income 11,95,750
Less: Deduction u/s 80C (70,000)

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Total Income 11,25,750

Question 10
Parasakthi Ltd. has started a new business of manufacturing paints on 1.4.2022. The company has
purchased the following assets during F.Y. 2023 - 24.
Date of Date when it is
Asset Actual COA ROD
purchase put to use
Furniture 6,00,000 20.04.2023 10% 20.04.2023
AC installed in office 3,00,000 10.06.2023 15% 22.06.2023
Motor Car 24,00,000 15.07.2023 15% 16.07.2023
Plant A 1,50,00,000 22.04.2023 15% 25.04.2023
Plant B 60,00,000 14.09.2023 15% 14.11.2023
Plant C 2,40,000 05.08.2023 100% 18.09.2023
Computer in office 3,00,000 09.07.2023 60% 09.07.2023
Computer for factory 4,50,000 08.07.2023 60% 12.07.2023

Compute normal & additional depreciation allowable for A.Y. 2024 - 25 to Parasakthi Ltd.

Answer:

Computation of Normal & Additional depreciation AY 2024-25

Furniture Plant
Asset Plant (60%) Plant& Car (15%)
(10%) (100%)
Opening WDV as on 01.04.2023 Nil Nil Nil Nil
Add: Cost of Assets acquired during PY 6,00,000 7,50,000 2,37,00,000 2,40,000
WDV as on 31.3.2024 6,00,000 7,50,000 2,37,00,000 2,40,000
Less: Normal Depreciation 60,000 4,50,000 (WN 2) 31,05,000 (WN 3) 2,40,000
Additional Depreciation Nil (WN 1) 90,000 (WN 2) 36,00,000 (WN 4) Nil
WDV as on 01.04.2024 5,40,000 2,10,000 1,69,95,000 Nil
Working Note:
1. Additional depreciation is not available on furniture as the same does not cover u/s 32 (1)(iia).

2. The Block of Plant also consists of computers. A computer installed in office is not eligible for
additional depreciation.
Normal depreciation @ 60% on Rs. 7,50,000 Rs. 4,50,000
Additional Depreciation @ 20% on Rs. 4,50,000 Rs. 90,000
3. Normal Depreciation on Plant (inclusive of Motorcar) has been calculated as under:
Depreciation @ 15% on Rs. 1,77,00,000 Rs. 26,55,000
Depreciation @ 7.5% on Rs. 60,00,000 (as put to use for less than 180 days) Rs. 4,50,000
Total Depreciation Rs. 31,05,000
4. Additional Depreciation on Plant (inclusive of Motorcar) as under:
Asset Plant A Plant B Plant C
Actual cost Rs. 1,50,00,000 Rs. 60,00,000 -

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Additional Depreciation Rs. 30,00,000 Rs. 6,00,000 Nil

Question 11
Venumadhav Ltd., engaged in manufacture of pesticides, furnishes the following particulars
relating to its manufacturing unit at Chennai (for the year ending 31.03.2024):

Opening WDV of Plant & Machinery 20 Lacs

New machinery purchased on 01.09.2023 10 Lacs
New car purchased on 01.12.2023 8 Lacs
Computer purchased on 03.01.2024 4 Lacs
Additional information:

• All assets were put to use immediately.

• Computer has been installed in the office.
• During the year ended 31.03.2024, a new machinery had been purchased on 5.10.2023, for Rs.
10 lacs. Additional depreciation, besides normal depreciation, had been claimed thereon.
• Depreciation rate for machinery may be taken as 15%.

Compute the depreciation available & WDV of different blocks of assets on 31.03.2024.

Answer:
Computation of depreciation allowable for A.Y. 2024-25

Block of Assets Rs.

Block 1: Plant - rate 40%
Computer 4,00,000
Less: depreciation 4,00,000 @ 40% x ½ (80,000)
WDV as on 31.03.2024 3,20,000
Block 2: Plant & Machinery - Rate 15%
Opening WDV of the block 20,00,000
Add: Machinery purchased on 01.09.2023 10,00,000
Less: Depreciation 30,00,000 @ 15% (4,50,000)
Less: Additional depreciation 10,00,000 @ 20% (2,00,000)
Less: Additional depreciation 10,00,000 @ 10% (1,00,000)
WDV as on 31.03.2024 22,50,000
Block 3: Motor Car - rate 15%
Opening WDV of the block Nil
Add: Car purchased on 01.12.2023 8,00,000
Less: Depreciation - 8,00,000 @ 15% x ½ (60,000)
WDV as on 31.03.2024 7,40,000

Note:

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 1. Additional depreciation shall not be allowed on any machinery installed in office & road transport
vehicles.

2. If asset is put to use for less than 180 days then additional depreciation is allowed at half of the
normal rate in the year of purchase & balance shall be allowed in the subsequent year.

3. If asset is used for less than 180 days then depreciation shall be allowed at half of the normal rate.

Question 12
Aananda Ltd. engaged in the business of generation & distribution of power has claimed depreciation
on SLM basis. You are informed that a second-hand Diesel Electric & Gas Plant was acquired for Rs. 60
lacs & depreciation at 8.24% was claimed for 2 years on SLM basis. Assuming that the said Plant is sold
for a consideration of

(i) Rs. 36,00,000: or (ii) Rs. 55,00,000; or (iii) Rs. 62,00,000 during P.Y. 2023 - 24.

Examine the treatment.

Answer:

Depreciation = (Rs. 60,00,000 X 8.24% X 2) = Rs. 9,88,880.

1. Sale price Rs. 36,00,000

The actual cost of the plant is Rs. 60,00,000. The depreciation claimed is Rs. 9,88,800 & consequently,
the depreciated value after 2 years is Rs. 50,11,200.

The sale consideration of Rs. 36,00,000 being less than the depreciated value, the short fall of Rs.
14,11,200 shall be allowed to be written off under clause (iii) of sub- section (1) of Sec. 32. This is
normally known as Terminal Depreciation.

2. Sale price Rs.55,00,000

The sale consideration of Rs. 55,00,000 is more than the depreciated value of Rs. 50,11,200 but not
more than the actual cost of Rs. 60,00,000.

Therefore, the surplus of Rs. 4,88,800 shall be assessed to tax u/s. 41 (2) as balancing charge.

3. Sale price Rs. 62,00,000

The sale consideration of Rs. 62,00,000 is not only more than the depreciated value of Rs. 50,11,200
but also more than the actual cost of Rs. 60,00,000.

Therefore, the surplus of Rs. 9,88,800 (Rs. 60,00,000 less Rs. 50,11,200) shall be assessed to tax u/s.
41 (2) as balancing charge under the head “Profits & gains of business or profession” & the remaining
surplus of Rs. 2,00,000 (Rs. 62,00,000 – Rs. 60,00,000) shall be taxed as STCG.

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 Question 13
Mr. Vidyasagar, Resident Individual aged 64, is a Partner in Oscar Musicals & Co, a Partnership Firm.
He also runs a wholesale business in medical products. The following details are made available for
P.Y. 2023 - 24:

Particulars Rs. Rs.

1. Interest on Capital received from Oscar Musicals & Co at 15% 1,50,000
2. Interest from Bank on Fixed Deposit (Net of TDS Rs. 1,500) 13,500
3. I.T. Refund received relating to AY 2021-2022 including interest of Rs. 2,300 34,500
4. Net Profit from Wholesale Business 5,60,000
Amount debited include the following:
Depreciation as per Books 34,000
Motor Car Expenses 40,000
Municipal Taxes for the Shop (For two half years, payment for one half year 7,000
made on 12.06.2023 &for other, on 14.11.2023)
Salary to Manager for whom single Cash Payment was made for 21,000
5. WDV of Assets (as on 01.04.2022 used in above business is as under:
Computers 1,20,000
Motor Car (20% used for personal use) 3,20,000
6. LIP paid for major son 60,000
PPF of his wife 70,000
NSC 30,000
Compute the Total Income of the Assessee for the A.Y. 2024 - 25. The computation should show the
proper heads of Income. Also compute the WDV of the different Blocks of Assets as on 31.03.2024.

Answer:
Computation of Total Income

Particulars Rs. Rs.

Net profit as per Profit & Loss 5,60,000
Add: Depreciation as per books 34,000
Add: Depreciation as per IT act 7,000
Add: Salary to manager 21,000
Add: Interest on capital upto 12% taxable (1,50,000 x 12%/15%) 1,20,000
Add: Motor car expense (20% for personal purpose disallowed) 8,000
Less: Municipal tax (86,400 + 3,500) (89,900) 1,00,100
Profits & Gains from Business or Profession 6,60,100
Income from Other Sources: Interest from Fixed Deposits (13,500 + 1,500) 15,000
Interest on I.T Refund 2,300 17,300
Gross Total Income 6,77,400

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Less: Deductions under Chapter VI-A
(i) U/s 80C - LIP for Major Son – irrespective of dependent or not: 60,000
(ii) U/s 80C - NSC: 30,000
(iii) U/s 80C - Contribution to PPF for his wife 70,000 Restricted to Rs. 1,50,000 (1,50,000)
Total Income 5,27,400

Working Notes:

1. Computation of WDV

Particulars Computer (40%) Motor Car (15%)

Opening WDV as on 01.04.2022 1,20,000 3,20,000
Less: Current Year Depreciation (1,20,000 x 40%) = 48,000 (3,20,000 x 15%) = 48,000
Closing WDV as on 31.03.2024 72,000 2,72,000

Total Depreciation for the year = Rs. 48,000 (computer)+ 80% of Rs. 48,000 (Car)
= Rs. 86,400.
20% of Depreciation on Motor Car used for Personal Purpose is not allowed as deduction.
2. Payment made in cash: U/s 40A(3), where an Assessee incurs any expenditure in respect of
which aggregate of payments on a single day in excess of Rs. 10,000 is made, otherwise than
by an Account Payee Cheque drawn on a Bank or an Account Payee Bank Draft, whole of such
expenditure shall not be allowed as a deduction. In the given case, salary payment of Rs.
21,000 to Manager is made in cash, hence the entire amount is not allowed as a deduction.

3. Income Tax Refund: It is not income u/h “PGBP”. Interest on Income Tax Refund is taxable u/h
“IFOS”.

Question 14
Mr. Rajiv (age 50) Resident Individual & Practicing CA gives you Receipts & Payments A/c for P.Y. 2023-
24:
Receipts & Payments A/c

Receipts Rs. Payments Rs.

Op. Bal – Cash in Hand & Bank 12,000 Staff Salary, Bonus & Stipend to 1,50,000
Articled Clerks
Fee from Professional Services 9,38,000 Other Administrative Expenses 48,000
Car Loan @ 9% p.a from Bank 2,50,000 Office Rent 30,000
Rent 50,000 Housing Loan repaid to SBI (Inch Int. of 1,88,000
Rs. 88,000)
Life Insurance Premium 24,000
Motor Car (acquired in January 2022) 4,25,000
Medical Insurance Premium (for Self & 18,000

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 Wife)

Books bought of Annual Publications 20,000

Computer acquired on 01.11.2022 30,000
(Professional use)
Domestic Drawings 2,72,000
Public Provident Fund subscription 20,000
Motor Car Maintenance 10,000
Cl. Bal – Cash in Hand & Cash at Bank 15,000

Following further information is given to you:

1. He occupies 50% of the building for own residence & let-out the balance for residential use at
a monthly rent of Rs. 5,000. The building was constructed during the year 1998-1999.

2. Motor Car was put to use both for Official & Personal purpose. One-Fifth of the Motor Car use
is for personal purpose. No Car Loan Interest was paid during the year.

3. WDV of Assets on 01.04.2023 F&F: 60,000; P&M (AC, Photocopiers): 80,000; Computers:
50,000.

Mr. Rajiv follows regularly Cash System of Accounting.

Compute the Total Income of for the A.Y. 2024-25

Answer:

Computation of Taxable Income & Tax Liability

Particulars Rs.
1. Income from House Property [WN 1] (39,000)
2. Profits & Gains from Business or Profession (9,38,000 – 3,38,500) 6,24,500
Particulars Deduction Addition
Fees from Professional Services 9,38,000
Staff Salary, Bonus & Stipend paid to Articled Clerks 1,50,000
Other Administrative Expenses 48,000
Office Rent 30,000
Depreciation [W.N. 2) 77,500
Motor Car Maintenance [10,000 x 4/5] 8,000
Total 3,13,500 9,38,000
Gross Total Income 5,85,500
Less: Deductions under Chapter VI-A [WN 3] (1,62,000)
Total Income 4,23,500
Tax payable = (4,23,500 – Rs. 2,50,000) x 5% 8,675
Add: HEC@ 4% 347

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 Net tax liability (Rounded off) 9,000
Working Notes:

1. Income from House Property:

Nature: 50% Self Occupied
i. Annual Value u/s 23(2) Nil
Less: Deduction u/s 24: Interest on Borrowed Capital (88,000/2 = 44,000) (30,000) (30,000)
(Since Construction is prior to 01.04.1999, Maximum Interest allowable is Rs. 30,000)
Nature: 50% Let-Out 50,000
Annual Value u/s 23(1)(a)/(b) = Actual Rent (5,000 x 12 = 60,000. It is assumed that
the House Property is vacant for 2 months. Therefore, owing to vacancy the Annual
Value is reduced to Rs. 50,000)
Less: Municipal Taxes NIL
Net Annual Value 50,000
Less: Deduction u/s 24(a) 30% of Net Annual Value (15,000)
Less: Deduction u/s 24(b) Interest on borrowed Capital (Rs. 88,000 2) (44,000) (9,000)
Net Income from House Property (39,000)

2. Computation of Depreciation:
Particulars Rs.
(a) Books bought of Annual Publication at 40% (Rs. 20,000 x 40%) 8,000
(b) Furniture & Fitting at 10% (Rs. 60,000 x 10%) 6,000
(c) Plant & Machinery at 15% (Rs. 80,000 x 15%) 12,000
(d) Computers: Opening 50,000 at 40% (+) Additions 30,000 (Less than 180 days) at 50% of 40%. 26,000
(e) Motor Car at 15% (Less than 180 days). Therefore 4,25,000 * 15% x 50% x 4/5 for Official Use 25,500
Total 77,500

3. Deduction under Chapter VI-A:

Particulars Rs. Rs.
(a) U/s 80C: Housing Loan Repayment (Principal Portion = 1,88,000 - 88,000) 1,00,000
Life Insurance Premium 24,000
PPF 20,000 1,44,000
(b) u/s 80D: Lower of Medical Insurance Premium of Rs. 18,000, or Rs. 25,000 18,000
Total 1,62,000

4. Motor Car Loan is not considered since it is a Capital Receipt. Interest is not paid during the year. Since
the Assessee follows Cash Basis of Accounting, it is not considered in the Profits & Gains of Business or
Profession.

5. Domestic Drawings is not considered since it is a Personal Expenditure.

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 Multiple Choice Questions
1. Expenditure incurred by a businessman for ready to use software is entitled to benefit of
a) 15% as depreciation
b) 30% as depreciation
c) 60% as depreciation
d) 100% as revenue expenditure

2. New plant and machinery acquired and put to use by an assessee engaged in transmission
of power is eligible for additional depreciation at _________ of actual cost.
a) 10%
b) 12.5%
c) 15%
d) 20%

3. Amortization of preliminary expenses has been restricted to of

the cost of project.
a) 2%
b) 3%
c) 5%
d) 8%

4. In case of an assessee engaged in the business of manufacturing of tea, his agricultural

income is:
a) 60% of total receipt of the business
b) 60% of income of the business
c) Nil
d) Total business income

5. Which of the following is not allowed as a deduction for computation of business Income?
a) Loss incurred due to theft in factory after workinghours
b) Anticipated future losses
c) Loss caused by white ants
d) Loss due to accidental fire in stock-in-trade

6. Preliminary expenses are incurred in every business. What are the expenses that qualify for
deduction u/s.35D?
a) Expenses for drafting memorandum and articles of association
b) Payment of duty at the office of Registrar of Companies
c) Expenditure incurred in preparation of project report
d) All of the above

7. Expenditure incurred by a company for the purpose of promoting family planning among its
employees, being of a capital nature

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 a) Is not allowed as a deduction
b) Allowed as deduction in 4 equal installments in 4 years
c) 1/5 of expenditure is allowed as deduction in the previous year
d) 4/5 of expenditure is allowed as deduction in 4 equal installments
in 4 years after the previous year

8. Expenditure on promotion of family planning is an allowance as deduction u/s. 36(1)(ix) of

the Income Tax Act, 1961 in case of
a) Individual
b) Firm
c) HUF
d) Company

9. Deduction u/s 35AD is available in respect of expenditure on specified business, one of them
is:
a) Setting up and operating a cold chain facility
b) Setting up and operating a power plant
c) Setting up and operating an industrial unit
d) All of the above

10. In case of loss, a partnership firm may claim deduction in respect of remuneration to partner
to the extent of:
a) Rs. 1,50,000/-
b) Rs. 1,50,000/- or remuneration paid, whichever is lower
c) Rs. 1,50,000/- or 90% of book profit, whichever is lower
d) Nil

11. Block of asset is required to be increased by an amount which is actual cost of the asset being
covered u/s 35AD that amount is:
a) Actual expenditure
b) Nil
c) 50% of actual expenditure
d) None of the above.

12. A payment of Rs. 25,000 is made to the road transport-operator on 20-02-2023 in cash,
consequently, amount disallowed u/s 40A(3) is
a) Nil
b) Rs. 25,000
c) Rs. 5,000
d) None of the above

13. An electricity company charging depreciation on straight line method on each asset
separately, sells one of its machinery in April, 2023 at Rs.1,20,000. The WDV of the machinery

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 at the beginning of the year i.e., on 1st April, 2023 is Rs. 1,35,000. No new machinery was
purchased during the year. The shortfall of Rs. 15,000 is treated as –
a) Terminal depreciation
b) Short-term capital loss
c) Normal depreciation
d) Any of the above, at the option of the assessee

14. Mr. X acquires an asset in the year 2016-17 for the use for scientific research for Rs.2,75,000. He
claimed deduction under section 35(1)(iv) in the P.Y. 2017-18. The asset was brought into use for
the business of Mr. X in the P.Y. 2023 - 24, after the research was completed. The actual cost of the
asset to be included in the block of assets is -
a) Nil
b) Market value of the asset on the date of transfer to business
c) Rs.2,75,000 less notional depreciation under section 32 upto the date of transfer.
d) Actual cost of the asset i.e., Rs.2,75,000

15. Mr. X, a retailer, acquired furniture on 10th May 2023 for Rs.10,000 in cash and on 15th May 2023,
for Rs.15,000 and Rs.20,000 by a bearer cheque and account payee cheque, respectively.
Depreciation allowable for A.Y. 2024 - 25 would be –
a) Rs.2,000
b) Rs.3,000
c) Rs.3,500
d) Rs.4,500

16. The W.D.V. of a block (Plant and Machinery, rate of depreciation 15%) as on 01.04.2023 is
Rs.3,20,000. A second-hand machinery costing Rs.50,000 was acquired on 01.09.2023 through
account payee cheque but put to use on 01.11.2023. During January 2024, part of this block was
sold for Rs.2,00,000. The depreciation for A.Y. 2024 - 25 would be -
a) Rs.21,750
b) Rs.25,500
c) Rs.21,125
d) Rs.12,750

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Chapter 6
Capital Gains
Question 1
Mrs. Sandesh, an Individual Resident Woman, wanted to know whether tax is attracted on sale
of gold & jewellery gifted to her by her parent at the occasion of her marriage in the year 2000
which was purchased at a total cost of Rs. 2,00,000?

Answer:

• Jewellery & Gold being a capital asset as defined u/s 2(14) will be liable to capital gains.

• Since Mrs. X has acquired the property by way of Gift before 01.04.2001, cost of
acquisition shall be higher of Cost of Purchase of the Jewellery by the Previous Owner
(or) (ii) FMV of the Asset on 01.04.2001.

• As the asset is a Long-Term Capital Asset & is acquired before 01.04.2001, the Assessee
shall be eligible for Indexation Benefit as applicable to the Previous Year 2001-2002, i.e.
100.

Question 2
A piece of land was purchased in April 2011 & the building was constructed on it during 2012-
2013. The building was sold in June 2012. Is the Capital Gain arising out of sale, Long-Term or
Short-Term Capital Gain?

Answer:

• Land & Building are two separate Capital Assets for the purpose of computation of Capital
Gains.

• So, composite consideration received for Land & Building should be apportioned b/w Land
& Superstructure.

• In the instant case, Capital Gain arising out of Land will be LTCG (since Holding Period is >
24months).

• Capital Gain arising out of super-structure will be STCG (since Holding Period is < 24 months).

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Question 3
Mr. Pandarinath (62 years old), pledged his residential house to a bank under a notified reverse
mortgage scheme. He was getting loan from bank in monthly instalments. Mr. Pandarinath did not
repay the loan on maturity & hence gave possession of the house to the bank to discharge his loan.
How will the treatment of long-term capital gain be on such reverse mortgage transaction? or Explain
Reverse Mortgage.

Answer:

• As per section 47, reverse mortgage shall not be considered to be transfer for the purpose
of capital gain. Under reverse mortgage, a senior citizen can mortgage his house property
to the bank & the bank shall grant a loan against the security of house property & such loan
shall be given in monthly installments & the amount so received shall not be considered to
be income of the mortgagor u/s 10(43).

• The purpose of the scheme is to make available regular amount to the persons who do not
have regular income but are the owners of the house property.

• In general, the mortgagors repay the loan in installments but in this case mortgagee i.e.
bank is paying installment to the mortgagor & hence it is called reverse mortgage.

• After the death of the mortgagor the bank shall have right to sell off the property & shall
adjust loan & interest & shall compute capital gains for the deceased person & shall pay tax
to the government.

Question 4
Mr. Paramahamsa sold a house, held as a capital asset, to his friend Mr. Y on 01.12.2022 for 25 lacs.
SDV was 45 lacs. Mr. Paramahamsa preferred an appeal to the Revenue Divisional Officer, who fixed
the value of the house @ 35 lacs (22 lacs for land & balance for building portion). Differential stamp
duty was paid, accepting the said value determined. Mr. Paramahamsa purchased land on 01.06.2006
for 5,19,000 & completed the construction of the house on January, 2017 for 14 lacs. Compute the
capital gains chargeable to tax. [CII for F.Y. 2006 - 07: 122; & F.Y. 2023-24: 348].

Answer:

• As per section 50C, FVC shall be taken as Rs. 22 lacs for land & 13 lacs for building.

• In the given problem, land has been held for > 24 months & building for a period less than
24 months.

• Therefore, land is a long-term capital asset, whereas building is a short-term capital asset.

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 Computation of Capital Gains chargeable to tax

Particulars Rs. Rs.

(i) Long term capital gain on sale of land
Full Value of consideration 22,00,000
Less: Indexed COA [Rs. 5,19,000 x 348/122] (14,80,426)
Long-term capital gain on sale of Land 7,19,574
(ii) Short-term capital loss on sale of building
Full Value of consideration 13,00,000
Less: COA (14,00,000)
Short term capital loss (B) (1,00,000)
Taxable Long-term capital gain (A - B) 6,19,574

Question 5
Examine, with reasons, whether the following statements are True or False:

(i) Alienation of a residential house in a transaction of reverse mortgage under a scheme made &
notified by the Central Government is treated as “transfer” for the purpose of capital gains.

(ii) ZCBs means a bond on which no payment & benefits are received or receivable before maturity or
redemption.

(iii) Zero coupon bonds of eligible corporation, held for more than 12 months, will be LTCAs.

(iv) Where an urban agricultural land owned by an individual, continuously used by him for agricultural
purposes for a period of two years prior to the date of transfer, is compulsorily acquired under law
& the compensation is fixed by the State Government, resultant capital gain is exempt.

Answer:

(i) False: As per section 47(xvi), such alienation in a transaction of reverse mortgage under a scheme
made & notified by the Central Government is not regarded as “transfer” for the purpose of
capital gains.

(ii) True: As per section 2(48), ‘Zero Coupon Bond’ means a bond issued by any infrastructure capital
company or infrastructure capital fund or a public sector company, or Scheduled Bank on or after
1st June 2005, in respect of which no payment & benefit is received or receivable before maturity
or redemption from such issuing entity & which the Central Government may notify in this behalf.

(iii) True: Section 2(42A) defines the term ‘short-term capital asset’. Under the proviso to section
2(42A), zero coupon bond held for not more than 12 months will be treated as a short-term
capital asset. Consequently, such bond held for more than 12 months will be a LTCA.

(iv) False: As per section 10(37), where an individual owns urban agricultural land which has been
used for agricultural purposes for a period of two years immediately preceding the date of

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 transfer, & the same is compulsorily acquired under any law & the compensation is determined
or approved by the Central Government or the Reserve Bank of India, resultant capital gain will
be exempt.

Question 6
Mr. Raj purchased 2,000 equity shares of ABC Ltd. (a listed company) on 01.04.2018 at Rs. 20 per share.
He sold all the shares on 01.06.2023 at Rs. 50 per share. He also had to pay securities transaction tax
(STT) on the same. Explain the taxability in the hands of Mr. Raj in the year of transfer i.e. A.Y. 2024 -
25.

Answer:

In the given problem, since the listed equity shares of ABC Ltd. are being sold after 12 months & also
STT has been paid, it is exempt upto Rs. 1,00,000 u/s 112A & excess over Rs. 1,00,000 is taxable @ 10%.

Question 7
Will your answer be different if these shares were preference shares & not equity shares? Explain.

Answer:

Since section 112A is not applicable to preference shares, capital gains shall be taxable @ 20%.

Question 8
Will your answer be different if these shares were not listed in a recognised stock exchange? Explain.

Answer:

Since the shares are not listed, section 112A is not applicable, capital gains shall be taxable @ 20%.

Question 9
Capital gain of Rs. 75 lacs arising from transfer of long-term capital assets will be exempt from tax if
such capital gain is invested in the bonds redeemable after three years, issued by NHAI u/s 54EC of the
Act.

Answer:

The statement is false.

• Exemption u/s 54EC has been restricted, by limiting the maximum investment in long term
specified assets (i.e. bonds of NHAI or RECL, redeemable after 5 years) to Rs. 50 Lac during
any financial year.

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 • Therefore, in this case, the exemption u/s 54EC can be availed only to the extent of Rs. 50
Lac.

Question 10
What are the circumstances under which the Assessing Officer can make reference to the Valuation
Officer u/s 55A of the Income Tax Act, 1961?

Answer:

Section 55A provides that the Assessing Officer may refer the valuation of a capital asset to a Valuation
Officer in the following circumstances with a view to ascertaining the fair market value of the capital
asset for the purposes of capital gains –

(i) Where the value of the asset claimed is equal to the estimate made by a registered valuer,
the Assessing Officer is of the opinion that the claimed value and the fair market value differ.
In this case, the Assessing Officer can make a reference to the Valuation Officer regarding
fair market value to be taken as the sale consideration of the asset.

(ii) He can also refer to the Valuation Officer in a case where the fair market value of the asset
as on 01.04.2001 is taken as the cost of the asset and he is on a view that there variation
between the value as on 01.04.2001 claimed by the assessee in accordance with the estimate
made by a registered valuer and the fair market value of the asset on that date.

(iii) If the Assessing Officer is of the opinion that the fair market value of the asset exceeds the
value of the asset as claimed by the assessee by more than 15% of the value of asset as
claimed or by more than Rs. 25,000 of the value of the asset as claimed by the assessee.

(iv) The Assessing Officer is of the opinion that, having regard to the nature of asset and other
relevant circumstances, it is necessary to make the reference.

Question 11
Compute capital gains of Mr. X in the following Individual situations for the A.Y. 2024 - 25
Asset Gold Land Residential House
Date of purchase 01.07.1990 01.04.1992 01.07.1994
Cost price 4,00,000 6,00,000 8,00,000
Cost of improvement 1,00,000 2,00,000 4,00,000
Year of improvement 1999-2000 2000-01 2005-06
Fair market value on 01.04.2001 30,00,000 60,00,000 5,00,000
Date of Sale 01.01.2024 01.01.2024 01.01.2024
Full value of consideration 200,00,000 300,00,000 400,00,000
Answer:
Residential
Asset Gold Land
House
Full value of consideration 2,00,00,000 3,00,00,000 4,00,00,000

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 Less: Indexed cost of acquisition (1,04,40,000) (2,08,80,000) (27,84,000)
(30,00,000 x (60,00,000 x (8,00,000 x
348/100) 348/100) 348/100)
Less: Indexed cost of - - (13,92,000)
improvement (4,00,000 x
348/117)
Long term capital gain 95,60,000 91,20,000 3,58,24,000

Question 12
Mrs. Padmini owned two motorcars, which were mainly used for business purposes. The Written
Down Value on 01.04.2023 of the Block of Assets comprising of only these two cars, both of which
were purchased in May 2012, was Rs.1,81,000. These two cars were sold in June 2023, for Rs.
1,50,000. In February 2023, she sold 1,000 Shares in X Ltd (unlisted), an Indian Company, for Rs.
3,50,000. She had purchased the same during January 2024 for Rs. 2,44,000. A House Plot purchased
by her in March 2012 for Rs.2,73,000 was sold by her for Rs. 6,50,000 on 18.01.2024.

Compute Capital Gains for the A.Y. 2024 - 25.

Answer:

Computation of Capital Gain on Sale of Assets

Particulars Motor cars Share in X Ltd. House plot

Sale Consideration 1,50,000 3,50,000 6,50,000
Less: Expenses on Transfer NIL NIL NIL
Net Sale Consideration 1,50,000 3,50,000 6,50,000
Less: WDV/Indexed Cost of Acquisition (1,81,000) (2,82,100) (5,16,326)
(2,44,000 x (2,73,000 ×
348/301) 348/184)
LTCG/STCG/(Loss) (31,000) 67,900 1,33,674

Net Taxable LTCG = Rs. 2,09,577

Notes:
1. Gain/Loss on Sale of Depreciable Assets will be treated as Short Term Capital Gain/Loss Only.

2. Shares in X Ltd, a Financial Asset, is held for more than 24 months & hence is a LTCA.

3. The Current Year Short Term Capital Loss can be adjusted against any Capital Gain. (Sec. 70)

Question 13
Mr. X owns a plot of land acquired on 01.06.2006 for the consideration of Rs. 2 Lacs. He enters into an
agreement to sell the property on 15.03.2024 for a consideration of Rs. 20 Lacs. In part performance
of the contract, he handed over the possession of land on 21.03.2024 on which date he received full
consideration. As on 31st March 2024 the sale was not registered. Discuss the liability to capital gain
for the A.Y. 2024 - 25.

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Answer:

Computation of Capital Gains

Full value of consideration 20,00,000

Less: Indexed cost of acquisition = 2,00,000 x 348 / 117 = Rs. 5,94,872 (5,94,872)
Long Term Capital Gain 14,05,128

Question 14
Mr. Bhuvan purchased one house on 01.07.2002 for Rs. 3,50,000. He constructed its first floor on
01.10.2011 by incurring Rs. 4 lacs & constructed its second floor on 01.10.2012 by incurring Rs.
6,00,000 & third floor on 01.10.2014 by incurring Rs. 7,00,000. Finally, sold the building on 01.01.2024
for Rs. 1,20,00,000 & selling expenses were 2% of the sale price. He has deposited Rs. 1,00,000 in NSC.

Compute his total income for A.Y. 2024 - 25.

Answer:

Computation of Capital Gains

Particulars Rs.
Full value of consideration 1,20,00,000
Less: Selling Expenses = 2% of Rs. 120,00,000 (2,40,000)
Net Sale Consideration 1,17,60,000
Less: Indexed cost of acquisition = 3,50,000 x 348 / 105 = Rs. 11,60,000 (11,60,000)
Less: Indexed COI - Cost of constructing 1st floor = 4,00,000 x 348 / 184 (7,56,522)
Less: Indexed COI - Cost of constructing 2nd floor = 6,00,000 x 348 / 200 (10,44,000)
Less: Indexed COI - Cost of constructing third floor = 7,00,000 x 348 / 240 (10,15,000)
Long Term Capital Gain 77,84,474
Income under the head Capital Gain (LTCG) 77,84,474
Gross Total Income 77,84,474
Less: Deduction u/s 80C to 80U Nil
Total Income (Rounded off u/s 288A) 77,84,470

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Question 15
Dinesh received a vacant site as Gift from his friend in November 2015. The site was acquired by his
friend for Rs. 6,00,000 in April 2010. Dinesh constructed a Residential Building during the year 2017
- 2018 in the said site for Rs. 25,00,000. He carried out some Further extension of the construction in
P.Y. 2017 - 18 for Rs. 6,00,000. Dinesh sold the Residential Building for Rs. 55,00,000 in August 2023
but the State Stamp Valuation Authority adopted Rs. 65,00,000 as value for the purpose of Stamp
Duty. Compute his LTCG for A.Y. 2024 - 25.
[CII: FY 2010-2011: 167, FY 2011-2012: 184, FY 2017-2018: 272, FY 2019-2020: 289, 2023-2024: 348]

Answer:

• As per section 50C, where Sale Consideration is less than the value adopted or assessed or
assessable by the State Government Authority (referred to as “Stamp Valuation Authority”) for
the purpose of payment of Stamp Duty, Value adopted by the Stamp Valuation Authority is
adopted as the Sale Consideration.
• Since the property was gifted to Mr. Dinesh, benefit of indexation in respect of Cost of Acquisition
can be availed from the date of original acquisition by his friend (Cost to the Previous Owner).

Computation of Taxable Long-Term Capital Gains

Particulars Rs.
Sale Consideration u/s 50C 65,00,000
Less: Indexed Cost of Acquisition = Rs. 6,00,000 × 331/167 (12,50,300)
Less: Indexed Cost of Improvement = Cost of Improvement x CII of year of Transfer (39,66,177)
/ CII of year of Improvement = Rs. 25,00,000 x 348 /272 + Rs.6,00,000 x 348 /272
(31,98,530 + 7,67,647)
Long Term Capital Gains 12,83,523
Note: For the Buyer of Property at a Consideration below SDV, difference is taxable u/s 56 as “IFOS”.

Question 16
Mrs. X transferred a house to her friend Mrs. Y for Rs. 35,00,000 on 01.10.2015. The Sub Registrar
valued the land at Rs. 48,00,000. Mrs. X contested the valuation & the matter was referred to Divisional
Revenue Officer, who valued the house at Rs. 41,00,000. Accepting the said value, differential stamp
duty was also paid & the transferred was completed.

Total income of Mrs. X & Mrs. Y for A.Y. 2023 - 24, before considering the transfer of said house are
Rs. 2,80,000 & Rs. 3,45,000, respectively. Mrs. X had purchased the house on 15th May 2015 for Rs. 25
lacs & registration expenses paid at the time of purchase of the house were Rs. 1,50,000.

Determine the total income of both Mrs. X & Mrs. Y taking into account the above-said transactions.

CII for FY 2015-16: 254 & FY 2023-24: 331

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Answer:

Computation of Total Income of Mrs. X for AY 2024-25

Computation of Long-term Capital Gain

Particulars Rs.
Sale consideration as per section 50C of the Act 41,00,000.00
Less: Indexed cost of acquisition = 26,50,000 x 348/254 (36,30,709)
Long term capital gain 4,69,291
Other Income 2,80,000
Gross Total Income 7,49,291
Note: If value by VO > Actual sale consideration but is less than SDV, then FVC = Value by VO.

Computation of Total Income of Mrs. Y for AY 2024-25

Income under the head other sources
Gift (41,00,000 - 35,00,000) 6,00,000.00
Other Income 3,45,000.00
Gross Total Income 9,45,000.00

Question 17
Mr. X inherited a house in Jaipur under the will of his father in May, 2003. The house was purchased by
his father in Jan 2001 for Rs. 2,50,000. FMV of house on 1.4.2001 was Rs. 2,70,000. He invested Rs. 7
lacs in construction of one more floor in this house in June 2005. The house was sold by him in
November 2023 for 37.5 lacs. Stamp duty value was 47,25,000. But as per assessee’s request, AO made
a reference to Valuation Officer. The value determined by the Valuation Officer was 47,50,000.
Brokerage @ 1% of sale consideration was paid by Mr. X.

Compute capital gain A.Y. 2024 - 25.

[CII: F.Y. 2023 - 24: 348; F.Y. 2003 - 04: 109 & F.Y. 2005 - 06: 117]
Answer:
Computation of Long-term Capital Gain for A.Y. 2024 - 25
Particulars Rs.
Full Value of consideration (As per section 50C of the Act) 47,25,000
Less: @ 1% of sale consideration of Rs. 37.50 lacs (37,500)
Less: Indexed cost of acquisition = 2,70,000 x 348/100 (9,39,600)
Less: Indexed cost of improvement = 7,00,000 x 348/117 (20,82,051)
Long term capital gain 16,65,849

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Question 18
Mr. Karnan, a resident individual, aged 55 years, purchased 10 Plots in F.Y. 2007-08 for Rs. 12 Lac. On
01.04.2008, he started a business of property dealing & converted all 10 plots into SIT of his business
& recorded Rs. 40 Lac in his books being FMV the said date.

On 31st March 2015, he sold all 10 Plots for Rs. 55 Lacs & purchased a residential house property for
Rs. 50 Lacs. He constructed 2 rooms in this residential house in June 2015 & has spent 8 Lacs.

He sold the above residential house on 05.02.2024 for 80 Lacs. Stamp duty value was 105 Lacs. On the
request of Mr. Karnan, AO made a reference to valuation officer. Valuation Officer determined the
value at 108 Lac. Mr. Karnan paid the brokerage 1% of sale consideration.

Compute Capital gains of Mr. Karnan for A.Y. 2024 - 25.

(CII: 2007-08-129; 2008-09-137; 2014-15-240; 2015-16-254; 2023-24-348)

Answer:

Computation of capital gains of Mr. X for A.Y. 2024 - 25

Particulars Rs.
Full value of consideration [Note 1] 1,05,00,000
Less: Brokerage @ 1% of sale consideration (80,000)
Less: Indexed cost of acquisition (Rs. 50,00,000 x 348/240) (72,50,000)
Less: Indexed cost of improvement (Rs. 8,00,000 x 348/254) (10,96,063)
Long-term capital gain 20,73,937

Note: If SC < SDV & SDV < Value by VO, SDV shall be taken as full value of consideration.

Question 19
Mr. Lankesh sold his residential house property on 08.06.2023 for 70 Lacs which was purchased by him
for 20 Lacs on 05.05.2010. He paid 1 Lac as brokerage for sale of said property. SDV assessed by sub
registrar was Rs. 80 Lacs.

He bought another house property on 25.12.2023 for 11 Lacs. He deposited Rs. 8 Lacs on 10.11.2023 in
the capital gain bond of NHAI. He deposited another 10 Lacs on 10.7.2023 in capital gain deposit scheme
for construction of additional floor of house property.

Compute income u/h “Capital Gains” for A.Y. 2024 - 25.

[CII: FY 2010-11 = 167; 2023-24-348].

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Answer:
Computation of Capital Gains of Mr. X for AY 2024-25

Particulars Rs.
Full value of consideration 80,00,000
Less: Brokerage (1,00,000)
Less: Indexed cost of acquisition of building (20,00,000 x 348/167) (41,67,665)
Long term capital gain 37,32,335
Less: Investment in house property: Section 54 (11,00,000)
Less: Investment in NHAI section 54EC (assumed redeemable after 5 years) (8,00,000)
Less: Deposited in Capital Gain Account Scheme (10,00,000)
Long Term Capital Gains 8,32,335

Question 20
Mr. Surinder furnishes the following particulars for P.Y. 2023 - 24. He had a Residential House,
inherited from his father in December 2010, FMV of which on 01.04.2001 is Rs. 15 Lacs. In P.Y. 2013-
14, further construction & improvements costed Rs. 10 Lacs. On 10.05.2023, House was sold for 75
Lacs. Transfer Expenses were 50,000. On 20.12.2023, he purchased a Residential House for Rs. 20
Lacs.

(a) Compute the taxable Capital Gain for A.Y. 2024 - 25.

(b) What will be the taxable Capital Gain, if the cost of the new Residential House is only Rs.8 Lacs?

Answer:

Computation of Capital Gain on Sale of Inherited Property

Particulars Rs.
Full value of consideration 75,00,000
Less: Expenses on Transfer (50,000)
Net Sale Consideration 74,50,000
Less: Indexed Cost of Acquisition [Rs. 15 00,000 x 348/100] (52,20,000)
Less: Indexed Cost of improvement [(10,00,000 × 348/220)] (15,81,818)
Long Term Capital Gains 6,48,182
Less: Exemption u/s 54 (6,48,182)
Taxable Long-Term Capital Gains Nil
(b) If Cost of New House is Rs. 8,00,000, exemption u/s 54 will be least of Rs. 6,48,182 & Rs. 8,00,000,
i.e. Rs. 8,00,000. In such case, Taxable Capital Gains will be Rs. 80,455.
Note: Since Mr. Surinder inherited the property, indexation benefit for Cost of Acquisition can be
availed from the date of original acquisition by his father. [CIT vs Manjula J. Shah 204 Taxmann 691
(Bom.)]
Note:
1. U/s 54, newly acquired property shall be held by Assessee for 3 years from the date of

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 acquisition/completion.
2. If new property is being transferred within 3 years, then STCG on newly acquired property shall
be calculated by reducing the amount of Capital Gains exempted u/s 54 from the cost of the newly
acquired property.

Question 21
Mr. Ramesh entered into an agreement with Mr. Vikas to sell a plot on 05.04.2023 for Rs. 45 lakhs.
He received an advance of Rs. 15 lakhs from him on the date of agreement by account payee
cheque. Transfer took place on 10-9-2023. The valuation determined by the stamp valuation
authority on the date of agreement and transfer was Rs. 49 lakhs and Rs. 53 lakhs, respectively.

Mr. Vikas has sold this plot to Ms. Babli on 21-3-2024 for Rs. 55 lakhs.

The valuation as per stamp valuation authority was Rs. 54 lakhs on 21-3-2024.

Discuss the tax consequences of above, in the hands of Mr. Ramesh and Mr. Vikas. Also, compute
the capital gain in the hands of Mr. Vikas.

Note: None of the parties viz Mr. Ramesh, Mr. Vikas & Ms. Babli are related to each other; the
transactions are between outsiders.

Answer:

Tax consequences in the hands of Mr. Ramesh

As per section 50C, where the actual sale consideration is less than the value adopted by the Stamp
Valuation Authority for the purpose of charging stamp duty, and such stamp duty value exceeds 110%
of the actual sale consideration, then, the value adopted by the Stamp Valuation Authority shall be
taken to be the full value of consideration.

In a case where the date of agreement is different from the date of registration, stamp duty value on
the date of agreement can be considered provided the whole or part of the consideration is received
by way of account payee cheque/bank draft or by way of ECS through bank account or through such
other electronic mode as may be prescribed, on or before the date of agreement.

In this case, since Rs. 15 lakhs is received through account payee cheque on the date of agreement,
stamp duty value on the date of agreement would be considered for determining the full value of
consideration.

Accordingly, in this case, capital gains would be computed in the hands of Mr. Ramesh, for A.Y.2024-
25, taking the actual consideration of Rs. 45 lakh of plot as the full value of consideration arising on
transfer of such plot, since the stamp duty value on the date of agreement does not exceed 110% of
the actual consideration.

Note – If it is assumed that Mr. Ramesh is a property dealer, the income would be taxable as his
business income under section 43CA

Tax consequences in the hands of Mr. Vikas

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In case, immovable property is received for inadequate consideration, the difference between the
stamp duty value and actual consideration would be taxable under section 56(2)(x) in the hands of the
recipient, if such difference exceeds the higher of Rs. 50,000 or 10% of actual sales consideration.

In a case where the date of agreement is different from the date of registration, stamp duty value on
the date of agreement can be considered provided the whole or part of the consideration is paid by
way of account payee cheque/bank draft or by way of ECS through bank account or through such
other electronic mode as may be prescribed, on or before the date of agreement.

In this case, since Rs. 15 lakhs is paid through account payee cheque on the date of agreement, stamp
duty value on the date of agreement would be considered.

Therefore, nothing would be taxable in the hands of Mr. Vikas under the head “Income from Other
Sources” in A.Y.2024-25 since the difference between stamp duty value on the date of agreement and
actual consideration does not exceed Rs. 4,50,000, being the higher of Rs. 50,000 and 10% of
consideration.

At the time of subsequent sale of property by Mr. Vikas to Ms. Babli (on 21.03.2024), short-term
capital gains would arise in the hands of Mr. Vikas in A.Y.2024-25, since the property is held by him
for less than 24 months.

Particulars Rs.
Full value of consideration (Since actual consideration of Rs. 55 lakh is 55 lakh
higher than stamp duty value of Rs. 54 lakh)
Less: Cost of acquisition 45 lakh
Short-term capital gains 10 lakh

Question 22
Mr. Shiva purchased a house property on February 15, 1979 for Rs. 3,24,000. In addition, he has also
paid stamp duty value @10% on the stamp duty value of Rs. 3,50,000.

In April, 2008, Mr. Shiva entered into an agreement with Mr. Mohan for sale of such property for Rs.
14,35,000 and received an amount of Rs. 1,11,000 as advance. However, the sale consideration did
not materialize and Mr. Shiva forfeited the advance. In May 2015, he again entered into an agreement
for sale of said house for Rs. 20,25,000 to Ms. Deepshikha and received Rs. 1,51,000 as advance.
However, as Ms. Deepshikha did not pay the balance amount, Mr. Shiva forfeited the advance. In
August, 2015, Mr. Shiva constructed the first floor by incurring a cost of Rs. 3,90,000.

On November 15, 2023, Mr. Shiva entered into an agreement with Mr. Manish for sale of such house
for Rs. 30,50,000 and received an amount of Rs. 1,50,000 as advance through an account payee
cheque. Mr. Manish paid the balance entire sum and Mr. Shiva transferred the house to Mr. Manish
on February 20, 2024. Mr. Shiva has paid the brokerage @1% of sale consideration to the broker.

On April 1, 2001, fair market value of the house property was Rs. 11,85,000 and Stamp duty value was
Rs. 10,70,000. Further, the Valuation as per Stamp duty Authority of such house on 15th November,
2022 was Rs. 39,00,000 and on 20th February, 2023 was Rs. 41,00,000.

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Compute the capital gains in the hands of Mr. Shiva for A.Y. 2024 - 25.

CII for F.Y. 2001-02: 100; F.Y. 2008-09: 137; F.Y. 2015-16: 254; F.Y. 2022-23: 348

Answer:

Computation of Capital gains in the hands of Mr. Shiva for A.Y. 2023-24

Particulars Rs. Rs.

Actual sale consideration
Valuation as per Stamp duty Authority on the date of 30,50,000
agreement 39,00,000
(Where the actual sale consideration is less than the value
adopted by the Stamp Valuation Authority for the purpose of
charging stamp duty, and such stamp duty value exceeds
110% of the actual sale consideration then, the value adopted
by the Stamp Valuation Authority shall be taken to be the full
value of consideration as per section 50C.
However, where the date of agreement is different from the
date of registration, stamp duty value on the date of
agreement can be considered, provided the whole or part of
the consideration is received by way of account payee
cheque/bank draft or by way of ECS through bank account or
such other electronic mode as may be prescribed on or before
the date of agreement.
In the present case, since part of the payment is made by
account payee cheque on the date of agreement, the stamp
duty value on the date of agreement would be considered as
full value of consideration)
Deemed Full value of consideration [Since stamp duty value on
the date of agreement exceeds 110% of the actual
consideration, stamp duty value would be deemed as Full Value 39,00,000
of Consideration]
Less: Expenses on transfer (Brokerage @1% of Rs. 30,50,000)
30,500
Net sale consideration
38,69,500

Less: Indexed cost of acquisition (Note 1) 33,37,320

Less: Indexed cost of improvement (Note 2) 5,34,330 38,71,650

Long term capital gain 2,150

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Notes:

(1) Computation of indexed cost of acquisition.

Particulars Rs. Rs.

Cost of acquisition, 10,70,000
Being the higher of 10,70,000
(i) lower of Fair market value i.e., Rs. 11,85,000 and Stamp
duty value i.e., Rs. 10,70,000, on April 1, 2001
(ii) Actual cost of acquisition (Rs. 3,24,000 + Rs. 35,000,
3,59,000
being stamp duty @10% of Rs. 3,50,000)
Less: Advance money taken from Mr. Mohan and forfeited 1,11,000
Cost of acquisition for indexation
Indexed cost of acquisition (Rs. 9,59,000 x 348/100) 9,59,000
33,37,320

(2) Computation of indexed cost of improvement

Particulars Rs.
Cost of construction of first floor in August, 2015
3,90,000
Indexed cost of improvement (Rs. 3,90,000 x 348/254)
5,34,330

(3) Where advance money has been received by the assessee, and retained by him, as a result of
failure of the negotiations, section 51 will apply. The advance retained by the assessee will go to
reduce the cost of acquisition. Indexation is to be done on the cost of acquisition so arrived at after
reducing the advance money forfeited [i.e. Rs. 10,70,000 – Rs. 1,11,000 (being the advance money
forfeited during the P.Y. 2008 - 09) = Rs. 9,59,000]. However, where the advance money is forfeited
during the P.Y. 2014 - 15 or thereafter, the amount forfeited would be taxable under the head "Income
from Other Sources" and such amount will not be deducted from the cost of acquisition of such asset
while calculating capital gains. Hence, Rs. 1,51,000, being the advance received from Ms. Deepshikha
and retained by him, would have been taxable under the head "Income from other sources" in the
hands of Mr. Shiva in A.Y.2016-17.

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Multiple Choice Questions
1. Short term capital gain not covered u/s 111A is:
a. Exempt
b. Taxable @ 15%
c. Taxable at normal rate applicable to the assessee
d. None of above

2. Tax payable by a resident individual, if he has long term capital gain of Rs. 2,60,000 but has no
other income is:
a. Rs. 1000 plus cess
b. Rs. 26,000 plus cess
c. Rs. 52,000 plus cess
d. None of above

3. Tax payable by a non-resident individual, if he has long term capital gain of Rs. 2,60,000 but
has no other income is:
a. Rs. 1000 plus cess
b. Rs. 26,000 plus cess
c. Rs. 52,000 plus cess
d. None of above

4. For the purpose of computation of capital gain, securities transaction tax is:
a. Allowed as deduction
b. Form part of cost
c. Neither allowed as deduction nor form part of cost
d. None of the above

5. Long term capital gain arising from transfer of unlisted securities in the hands of nonresident
/ foreign company is chargeable to tax at
a. 10%
b. 20%
c. 30%
d. 40%

6. U/s 54, capital gain will be allowed as exemption if the house property under transfer is held
for
a. Less than 12 months preceding the date of transfer
b. More than 12 months preceding the date of transfer
c. Less than 36 months preceding the date of transfer
d. More than 24 months preceding the date of transfer

7. Capital gain on Slump sale is

a. always short-term capital gain
b. always long-term capital gain

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 c. Depends on period of holding of capital asset being undertaking transferred
d. Not taxable

8. While computing capital gain on sale of immovable property, full value of consideration shall
be:
a. Actual consideration
b. Actual consideration less expenses on transfer
c. Actual consideration or stamp duty value of the property transferred, whichever is
higher
d. Stamp Value of the property transferred.

9. Cost of acquisition of capital asset being immovable property acquired through gift covered
u/s 49(4) is:
a. Actual cost of acquisition to the previous owner
b. Nil
c. Stamp duty value of the property as considered while computing income u/s 56(2)
d. Actual cost of acquisition to the assessee.

10. Caution money forfeited by the assessee on or after 1.4.2014 is:

a. Taxable in the year of forfeiture under the head “Income from Other Sources”
b. Exempt fully
c. Taxable in the year of forfeiture under the head “Capital Gain”
d. Considered as casual income and liable to tax @ 30%.

11. Gift of a capital asset is not considered as transfer, however exception is:
a. Shares acquired under the Employees Stock Option Plan
b. Jewellery
c. Immovable property
d. Nil

12. Cost of acquisition of self-generated asset is nil, the exception is:

a. Goodwill
b. Route permit
c. Bonus shares acquired before 01-04-2001
d. Loom hours

13. Interest on delayed compensation or enhanced compensation is taxable:

a. On accrual basis
b. On receipt basis
c. Exempt from tax
d. As per the method of accounting of the assessee.

14. While computing taxable interest on delayed compensation, a standard deduction is allowed
@
a. 50%

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 b. 30%
c. 15%
d. Nil

15. For an assessee, who is a salaried employee who invests in equity shares, what is the benefit
available in respect of securities transaction tax paid by him on sale and acquisition of 100
listed shares of X Ltd. which has been held by him for 14 months before sale?
a. Rebate under section 88E is allowable in respect of securities transaction tax paid
b. Securities transaction tax paid is treated as expenses of transfer and deducted from
sale consideration.
c. Capital gains without deducting STT paid is taxable at a concessional rate of 10% on
such capital gains exceeding Rs. 1 lakh
d. Capital gains without deducting STT paid is taxable at concessional rate of 15%

16. Under section 54EC, capital gains on transfer of land or building or both are exempted if
invested in the bonds issued by NHAI & RECL or other notified bond –
a. within a period of 6 months after the date of such transfer
b. within a period of 6 months from the end of the relevant previous year
c. within a period of 6 months from the end of the previous year or the due date for
filing the return of income under section 139(1), whichever is earlier
d. At any time before the end of the relevant previous year.

17. Mr. Kashyap acquired a building from his friend on 10.10.2021 for Rs. 15,00,000. The stamp
duty value of the building on the date of purchase is Rs. 16,20,000. Income chargeable to tax
in the hands of Mr. Kashyap is
a. Rs. 70,000
b. Rs. 50,000
c. Nil
d. Rs. 1, 20,000

18. Unexhausted basic exemption limit of a resident individual can be adjusted against –
a. only LTCG taxable @20% u/s 112
b. only STCG taxable @15% u/s 111A
c. both (a) and (b)
d. casual income taxable @30% u/s 115BB

19. Unexhausted basic exemption limit of a non-resident individual can be adjusted against
a. only LTCG taxable @20% u/s 112
b. only STCG taxable @15% u/s 111A
c. both (a) and (b)
d. neither (a) nor (b)

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Chapter 7
Income from Other Sources
Question 1
Mr. PC (25 years) gives following information for P.Y. 2023 - 24:

1. He gets gift of House A from his friend Goldy (stamp duty value is determined at Rs. 6,00,000).

2. He gets gift of House B from Mr. Raju (who is father-in-law of his younger brother) (SDV

is Rs. 40,000 & FMV is Rs. 65,000).

3. Mr. PC purchases a second-hand car for Rs. 70,000 from Babbu (FMV is Rs. 3,00,000).

4. Mr. PC purchases a work of art for Rs. 5,00,000 from Suraj (FMV is Rs. 5,30,000).

5. Mr. PC purchases jewellery for Rs. 7,00,000 from F (FMV is Rs. 7,25,000). F is not a registered

dealer.

6. Mr. PC purchases a painting for Rs. 4,00,000 from GD (who is brother of Mrs. PC) (FMV is Rs.

7,00,000).

7. Mr. PC purchases a commercial property for Rs. 1,16 lacs from Bharat (FMV is Rs. 220 lacs).

8. Mr. PC gets a gift of 100 preference shares in A Ltd. from SS (Stock exchanges are

closed on this date & lowest quotation on immediately preceding working day in

National Stock Exchange is Rs. 450).

9. Mr. PC gets a gift of Government security from K (K is husband of Mr. PC father's sister) (FMV

is Rs. 4 lacs).

10. Mr. PC gets a gift cheque of Rs. 1,00,000 from his friend Gattu on his birthday.

11. Chota PC, minor son of Mr. PC gets the gift of Rs. 55,000 from elder brother of Mr. PC's

Grandfather).

Determine the amount of income taxable u/h “IFOS” in the hands of Mr. PC for A.Y. 2024 - 25.

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Answer:

Computation of income taxable u/h "Income from other sources"

Category Transactions Taxable

1. Cash Gifts (i) Gift from a friend : Rs. 1,00,000
(ii) Gift received by minor son (taxable in hands of Mr.
PC): Rs. 55,000 – Rs. 1500 Exempt u/s 10(32) Rs. 1,53,500
2A. Movable (i) Gift of Government securities - It is gift received
Property received from a "relative" & not taxable.
without (ii) Gift of 100 preference shares : Rs. 45,000.
consideration (As there is no other gift chargeable to tax & aggregate
Nil
FMV is not more than Rs. 50,000, it is not chargeable to
tax)
2A. Movable (i) Purchase of car - It is not covered & thus not taxable.
Property received (ii) Purchase of painting from relative – Not taxable
for inadequate (iii) Purchase of work of art: Rs. 30,000 [530000 – 500000]
consideration (iv) Purchase of jewellery : Rs. 25,000 [725000 –
Rs. 55,000
700000]
Total Discount: Rs. 55,000 (Aggregate discount > Rs.
50,000, discount is taxable)
3. Gift of House A Received from a friend & SDV > Rs. 50,000, SDV is taxable Rs. 6,00,000
4. Gift of House B Received from C who is not "relative" of X. However, Nil
nothing is taxable, as stamp duty value is not more than Rs.
50,000
5. Purchase of Purchase of an immovable property for a consideration Rs. 104 lacs
commercial which is lower than stamp duty value, (stamp duty value
property exceeds 105% of consideration) is chargeable to tax.
for inadequate Discount = Rs. 220 lacs – Rs. 116 lacs = Rs. 104 lacs is taxable
consideration
Total 1,12,08,500

Question 2
Smt. Laxmi reports the following transactions -
1. Received Cash Gifts on her marriage on 18.07.2023 of 1,20,000 including 20,000 received
from non-relatives.
2. On 01.08.2023 being her birthday, she received a gift of 40,000 by cheque from her mother's
maternal uncle.
3. On 01.12.2023, she acquired a vacant site from her friend for Rs. 1,05,000. SDV is Rs.
2,80,000.
4. She bought 100 Equity Shares of a Listed Company from another friend for Rs. 60,000. FMV
was Rs. 1,15,000.
5. A cell phone worth 21,000 is gifted by his friend on 16.08.2023.

Determine the amounts chargeable to tax in the hands of Smt. Laxmi for A.Y. 2023 - 24.

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Answer:

1. Gift received from Relatives or Friends on the occasion of marriage of individual is not taxable.
Thus Nothing will be taxable in this case.

2. Gift received from a Relative is exempt from tax. However, Relative does not include mother’s
maternal uncle.

3. But sum of money does not exceed Rs. 50,000. Hence Nothing will be taxable.

4. If Immovable Property is acquired for inadequate consideration, discount is taxable if the

difference between SDV & Consideration exceeds Higher of (i) Rs. 50,000 or (ii) 5% of
Consideration.

5. Hence, taxable amount is Rs. 2,80,000- Rs. 1,05,000 = Rs. 1,75,000.

6. If any property is acquired for inadequate consideration, it is taxable if the difference between
its FMV & Consideration exceeds Rs. 50,000. Hence, taxable amount is Rs. 1,15,000 – Rs.
60,000 = Rs. 55,000.

7. Cell phone being a personal effect is not a Movable Property as defined u/s 56(2)(x). Thus
nothing is taxable.

Question 3
Discuss the taxability of the given transactions under the Income Tax Act , 1961.
1. Cash Gift of Rs. 51,000 received from her friend on the occasion of her "Shastiaptha Poorthi",
a wedding function celebrated on her husband completing 60 years of age. This was also her
25th Wedding Anniversary.
2. On the above occasion, a diamond necklace worth Rs. 2 Lacs was presented by her sister living
in Dubai.
3. When she celebrated her daughter's wedding on 21.02.2024, her friend assigned in Mrs.
Hemali's favour a Fixed Deposit held by the said friend in a Scheduled Bank, the value of the
Fixed Deposit & the accrued interest on the said date was Rs. 51,000.
4. Received a car from his friend on payment of Rs. 2,50,000, the FMV of which was Rs. 5,50,000.
5. Rs. 51,000 received from his sister living in US on 01.06.2023.

Compute the Income assessable u/h “Income from Other Sources” for A.Y. 2024 - 25.
Answer:

Computation of Income from Other Sources

1. Gift received from any other person other than a Relative is taxable. So, gift received from
friend is taxable. (Shastiaptha Poorthi is not a marriage occasion). Rs. 51,000 is taxable.
2. Gift received from a Relative is exempt from tax.

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 3. Gift received from Relatives or Friends on the occasion of marriage of individual is not taxable.
However, here the gift is received on the marriage occasion of Assessee’s daughter. Hence Rs.
51,000 is taxable in the hands of Assessee.
4. Motor Car is not a Movable Property as defined u/s 56(2)(x). Thus nothing will be taxable in
this case.
5. Gift received from any other person other than a Relative is taxable. Since, gift is received from
Sister, the same is not taxable.

Question 4
Discuss the taxability of the following in the hands of the recipient u/s 56(2)(x):

1. Shivam HUF gifted a car to daughter of Karta for winning the first prize in all India music
competition.
2. Mrs. Parth received 200 shares of ABC Ltd. from her friend as a gift on occasion of her 50th
marriage anniversary. The FMV on that date was 150 per share. She also received jewellery worth
Rs. 35,000 (FMV) from her niece on the same day.
3. Manish HUF received Rs. 55,000 in cash from nephew of Manish (son of Manish’s sister). Manish
is the Karta of Manish HUF.
4. Shivang, a member of his father’s HUF, transferred a house property to the HUF without
consideration. The stamp duty value of the house property is 12,00,000.
5. Sharma’s son transferred shares of XYZ Ltd. to Sharma HUF without any consideration. The
FMV of the shares is 3.25 Lac.
6. Mr. Tejpal received a painting by M. F. Hussain worth 2 Lac from his nephew on his 10th wedding
anniversary.

Answer:

1. “Car” is not included in the definition of property for Sec 56(2)(x), therefore, the same shall not
be taxable.

2. As per the provisions of section 56(2)(vii), in case the aggregate FMV of property of the movable
property received without consideration exceeds Rs. 50,000, Aggregate FMV shall be taxable.

3. In this case, aggregate FMV of the shares (Rs. 30,000) & jewellery (Rs. 35,000) exceeds Rs. 50,000
(Niece is not covered within the definition of relative), hence entire amount of Rs. 65,000 shall
be taxable.

4. Sum of money exceeding Rs.50,000 received without consideration from a non-relative is taxable
u/s 56(2)(x). Son of Mr. Manish’s sister is not a relative of Manish HUF, since he is not a member
of Manish HUF.

5. Immovable property received without consideration by a HUF from its relative is not taxable u/s
56(2)(x). Since Shivang is a member of the HUF, he is a relative of the HUF.

Any property received without consideration by a HUF from its relative is not taxable u/s
56(2)(x). Since Sharma’s son is a member of Sharma HUF, he is a “relative” of the HUF.

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 Therefore, if Sharma HUF receives any property (shares, in this case) from its member, i.e.,
Sharma’s son, without consideration, then, the FMV of such shares will not be chargeable to
tax in the hands of the HUF, since gift received from a “relative” is excluded from the scope of
section 56(2)(x).

6. Paintings are included in the definition of “property”. Thus, when paintings are received without
consideration & aggregate FMV of paintings exceed Rs. 50,000, FMV shall be taxable u/s
56(2)(x).

Therefore, Rs. 2,00,000, being the value of painting gifted by his nephew, would be taxable u/s
56(2)(x) in the hands of Mr. Tejpal, since “nephew” is not included in the definition of “relative”.

Question 5
Mr. Vishnu received the Gift (Scholarship) of Rs. 2 lacs received from Young CA’s association towards
financial assistance for pursuing CA classes. The association is not registered u/s. 12AA of the Income
– tax Act. Discuss.
Answer:
• Gift received from registered charitable trust is not taxable.
• However in this case, the association is not registered & thus the amount of Rs. 2 lacs is taxable
in the hands of Mr. Vishnu.

Question 6
Discuss the taxability of the above transactions in case of the company assessee:
1. Sunnyvale (P) Ltd. purchased 10,500 equity shares of Solid (P) Ltd. at 95 per share. FMV of the
share on the date of transaction is Rs. 115.

2. Balaji (P) Ltd. issued 26,000 equity shares of Rs. 10 each at a premium of 7. FMV on the date
of issue is Rs. 13.

3. RAU (P) Ltd. issued 30,000 equity shares of 10 @ Rs. 9. FMV of each share on the date of issue
is Rs. 5.

Answer:

1. Difference b/w aggregate FMV of shares of closely held company & consideration paid for
purchase of such shares = Income of the purchasing company u/s 56(2)(viia), if the
difference exceeds Rs. 50,000. Accordingly, in this case, the difference of Rs. 2,10,000
[i.e.,(Rs. 115 –Rs. 95) × 10,500] is taxable u/s 56(2)(viia) in the hands of Sunnyvale (P) Ltd.
2. The provisions of section 56(2)(viib) are attracted since the shares of a closely held
company are issued at a premium & issue price exceeds the FMV of such shares.
Consideration received by the company in excess of FMV of the shares would be taxable u/s
56(2)(viib). Therefore, Rs. 1,04,000 [i.e., Rs.17 – Rs.13) x 26,000 shares] shall be the income
chargeable u/s 56(2)(viib) in the hands of Balaji (P) Ltd.
3. The provisions of section 56(2)(viib) are not attracted in this case since shares of a closely
held company are not issued at a premium. Thus even if issue price exceeds the FMV of the
shares, nothing shall be taxable since section 56(2)(viib) is not attracted.

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Question 7
Mr. A received an Advance of Rs. 50,000 on 1.9.2018 against the sale of his house. However, due to
non- payment of instalment in time, the Contract has cancelled & the amount of Rs. 50,000 was
forfeited.
Answer:
Advance Forfeited on or after 1.4.2014 on failed negotiation for transfer of Capital Asset is Taxable
under “Income from Other Sources” u/s 56 in the hands of Mr. A.

Question 8
Rahul holding 28% of Equity Shares in a Company took a Loan of Rs. 5,00,000 from the same Company.
On the date of granting the Loan, the Company had accumulated Profit of Rs. 4,00,000. The Company
is engaged in some Manufacturing Activity.

1. Is the amount of Loan taxable as Deemed Dividend in the hands of Rahul, if the Company is
a Company in which the Public are Substantially Interested?
2. What would be your answer, if the lending Company is Private Limited Company (i.e) a
Company in which the Public are not Substantially Interested?

Answer:

1. The amount of Deemed Dividend is taxable in the hands of Rahul.

2. In this case, the Company is a Company in which Public are not Substantially Interested &
Rahul holds more than 10% of Equity Shares (i.e. Voting Power). Hence, the amount is
Taxable as Deemed Dividend u/s 2(22)(e) to the extent of accumulated profits i.e. Rs.
4,00,000.

Question 9
Mr. Rakesh has 15% Shareholding in RSL (P) Ltd & has also 50% Share in Rakesh & Sons, a Partnership
Firm. The Accumulated Profit of RSL(P) Ltd is Rs. 20 Lacs. Rakesh & Sons had taken a Loan of Rs. 25
Lacs from RSL (P) Ltd. Explain, whether the above loan is treated as Dividend, as per the provisions of
Income Tax Act, 1961.
Answer:
• RSL(P) Ltd is a Company in which Public are not substantially Interested. It has Accumulated Profit
of 20 Lac.
• Mr. Rakesh’s Shareholding in RSL(P) Ltd > 10% & Mr. Rakesh’s Share in the Partnership Firm >
20%.
• Thus all the conditions given u/s 2(22)(e) are satisfied.
• Out of the Loan of Rs.25 Lac, Rs.20 Lac shall be treated as Deemed Dividend u/s 2(22)(e).

Question 10
Bharat Hurkat, a resident individual, submits the following particulars of his income for P.Y. 2023 - 24.

(i) Royalty from a coal mine 15,000

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 (iii) Salary as a member of Parliament 5,00,000
(iv) Daily allowance as a member of Parliament 2,50,000
(v) Dividend received from a cooperative society 50,000
(vi) He has incurred the following expenses
(a) Paid collection charges for collecting dividends 1,000
(b) Amount spent for earning & collecting royalty income 4,000

Compute his “Income from other sources” for the A.Y. 2024 - 25.
Answer:
Particulars Rs. Rs.
Royalty from coal mine Rs. 15,000
Less: Collection charges (Rs. 4,000) Rs. 11,000
Salary as a member of Parliament Rs. 5,00,000
Daily allowance as a member of Parliament – Exempt Nil
Dividend from a Co-operative Society Rs. 50,000
Less: Collection charge (Rs. 1,000) Rs. 49,000
Total Income u/h IFOS Rs. 5,60,000

Question 11
Ms. Chhaya transferred a vacant site to Ms. Dayama for Rs. 4,25,000. The Stamp Valuation Authority
fixed the value of vacant site for Stamp Duty purpose at Rs. 6,00,000. The Total Income of Chhaya &
Dayama before considering the transfer of vacant site are Rs. 50,000 & Rs. 2,05,000 respectively.

The Indexed Cost of Acquisition for Ms. Chhaya in respect of vacant site is Rs. 4,00,000 (computed).
Determine the Total Income of both Ms. Chhaya & Ms. Dayama taking into account the above said
transaction.

Answer:

Computation of Total Income of Ms. Chayya

I. Long Term Capital Gains:

Sale Consideration [Amount fixed by the Stamp Valuation Authority] 6,00,000
Less: Indexed Cost of Acquisition – Computed 4,00,000
Long-term Capital Gains 2,00,000
II. Other income 50,000
Total income 2,50,000

Computation of Total Income of Ms. Dayama

Income from Other Sources: Gift (See Note) [6,00,000 – 4,25,000] 1,75,000
Other Income 2,05,000
Total Income 3,80,000

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Note: If Immovable Property is received for inadequate consideration, & shortfall / inadequacy exceeds
Rs.50,000, then, the Taxable Value of Gift is the difference between the Stamp Duty Value &
Consideration paid.

Question 12
Mr. Yash submits the following information pertaining to the year ended 31.03.2023:

1. On 30.11.2023, when he attained the age of 60, his friends in India gave a fiat at Surat as
a gift, each contributing a sum of Rs. 20,000 in cash. The cost of the flat purchased using
the various gifts was Rs. 3.4 Lacs.

2. His close friend in abroad sent him a Cash Gift of Rs. 75,000 through his relative, for the
above occasion.

3. Mr. Yash sold the above flat on 30.01.2024 for Rs. 3 Lacs. The Registrar's valuation for
stamp duty purposes was Rs. 3.7 Lacs. Neither Mr. Y nor the buyer, questioned the value
fixed by the Registrar.

4. He purchased some Equity Shares in X Pvt Ltd (unlisted)on 05.02.2023 for Rs. 3.5 Lacs,
which were sold on 15.03.2024 for Rs. 3.20 Lacs.

You are requested to calculate the Total Income of Yash for A.Y. 2023 - 24.

Answer:

Computation of Total Income

1. Short Term Capital Gain:

Full Value of consideration [SDV using Section 50C] 3,70,000
Less: Cost of Acquisition (Cost to Previous Owner since the asset is (3,40,000) 30,000
received by Gift)
2. Long Term Capital Gain:
Full Value of Consideration 3,20,000
Less: Indexed Cost of Acquisition (Rs. 3,50,000 x 280/272) (3,60,294)
Long Term Capital Loss (To be carry fwd. & set-off only against LTCG) (40,294)
Income from Other Sources
Gift Received by way of Flat (Gift received in Kind or Cash is 3,40,000 4,15,000
taxable) Gift from Friend (Fully taxable as aggregate amount 75,000
exceeds Rs. 50,000)
Gross Total Income 4,45,000
Less: Deduction under Chapter VI-A NIL
Total Income 4,45,000
Note: LTCL can be set-off only against LTCG. It shall be carried forward for 8 AYs & can be set-off only
against LTCG

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Question 13
Examine the following transactions in the context of Income-tax Act, 1961:

(i) Mr. Koshi transferred 300 shares of Style Pvt Ltd. to Moksh Pvt. Ltd. on 10.09.2023 for Rs.
3,00,000 when the market price was Rs. 5,00,000. The indexed cost of acquisition of shares
for Mr. Koshi was computed at Rs. 4,45,000. The transfer was not subjected to securities
transaction tax.
Determine the income chargeable to tax in the hands of Mr. Koshi and Moksh Pvt. Ltd. because
of the above said transaction.

(ii) Mr. Chetan is employed in a company with taxable salary income of Rs. 4,00,000. He received
a cash gift of Rs. 1,00,000 from Help Charitable Trust (registered under section 12AB) in March
2024 for meeting his medical expenses.
Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chetan?

Answer:
(i) Any movable property received for inadequate consideration by any person is chargeable to
tax under section 56(2)(x), if the difference between aggregate Fair Market Value of the
property and consideration exceeds Rs. 50,000.
Thus, share received by Moksh Pvt. Ltd. from Mr Koshi for inadequate consideration is
chargeable to tax under section 56(2)(x) to the extent of Rs. 2,00,000.
As per section 50CA, since, the consideration is less than the fair market value of unquoted
shares of Style Pvt. Ltd., fair market value of shares of the company would be deemed to be
the full value of consideration. It is presumed that the shares of Style Pvt. Ltd are unquoted
shares.
The full value of consideration (Rs. 5,00,000) less the indexed cost of acquisition (Rs. 4,45,000)
would result in a long-term capital gain of Rs. 55,000 in the hands of Mr. Koshi.

(ii) The provisions of section 56(2)(x) would not apply to any sum of money or any property
received from any trust or institution registered under section 12AB. Therefore, the cash gift
of Rs. 1 lakh received from Help Charitable Trust, being a trust registered under section 12AB,
for meeting medical expenses would not be chargeable to tax under section 56(2)(x) in the
hands of Mr. Chetan.

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Multiple Choice Questions
1. Mr. X, aged 61 years, earned dividend of ₹ 12,00,000 from ABC Ltd. in P.Y. 2023 - 24. Interest
on loan taken for the purpose of investment in ABC Ltd., is ₹3,00,000. Income included in the
hands of Mr. X for P.Y. 2023 - 24 would be –
a. ₹ 12,00,000
b. ₹ 9,60,000
c. ₹ 9,00,000
d. ₹ 2,00,000

2. Mr. Mayank has received a sum of ₹ 75,000 on 24.10.2021 from his friend on the occasion of
his marriage anniversary. What would be the taxability of the said sum in the hands of Mr.
Mayank? -
a. Entire ₹ 75,000 is chargeable to tax
b. Entire ₹ 75,000 is exempt from tax
c. Only ₹ 25,000 is chargeable to tax
d. Only 50% i.e., ₹ 37,500 is chargeable to tax

3. Mr. Vikas received a gold ring worth ₹ 60,000 on the occasion of his daughter’s wedding from
his best friend Mr. Vishnu. Mr. Vishnu also gifted a gold chain to Kavya, daughter of Mr. Vikas,
worth ₹ 80,000 on the said occasion. Would such gifts be taxable in the hands of Mr. Vikas
and Ms. Kavya?
a. Yes, the gift of gold ring and gold chain is taxable in the hands of Mr.
Vikas and Ms. Kavya,respectively

b. Such gifts are not taxable in the hands of Mr. Vikas nor in the hands of Ms. Kavya

c. Value of gold ring is taxable in the hands of Mr. Vikas but value of gold
chain is not taxable in the hands of Ms. Kavya

d. Value of gold chain is taxable in the hands of Ms. Kavya but value of gold
ring is not taxable in thehands of Mr. Vikas

4. Ms. Shalini received interest on enhanced compensation of ₹ 5,00,000. Out of this interest, ₹
1,50,000 relates to the P.Y. 2021 - 22, ₹ 1,90,000 relates to P.Y. 2022 - 23 and ₹ 1,60,000 relates
to P.Y. 2023 - 24. She paid ₹ 1 lakh to her advocate for his efforts in the matter. What amount
wouldbe taxable in P.Y. 2023 - 24 and taxable, if any, under which head of income.
a. ₹ 2,50,000 under the head “income from other sources”
b. ₹ 4,00,000 under the head “income from other sources”
c. ₹ 1,60,000 under the head “income from other sources”
d. ₹ 1,60,000 under the head “Capital gains”

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Chapter 8
Clubbing of Income
Question 1
Mr. Karanjit gifted a sum of Rs. 9 lakhs to his brother’s minor son on 01-05-2023. On the same date,
his brother gifted debentures worth Rs. 10 lakhs to Mrs. Karanjit. Son of Mr. Karanjit’s brother invested
the amount in fixed deposit with Canara Bank @ 9% p.a. interest and Mrs. Karanjit received interest
of Rs. 81,000 on these debentures during the P.Y. 2023 - 24. Discuss the tax implications under the
provisions of the Income- tax Act, 1961.

Answer:

In the given case, Mr. Karanjit gifted a sum of Rs. 9 lakhs to his brother’s minor son on 01.05.2023 and
simultaneously, his brother gifted debentures worth Rs. 10 lakhs to Mr. Karanjit’s wife on the same
date. Mr. Karanjit’s brother’s minor son invested the gifted amount of Rs. 9 lakhs in fixed deposit with
Canara Bank.

These transfers are in the nature of cross transfers. Accordingly, the income from the assets
transferred would be assessed in the hands of the deemed transferor because the transfers are so
intimately connected to form part of a single transaction and each transfer constitutes consideration
for the other by being mutual or otherwise.

If two transactions are inter-connected and are part of the same transaction in such a way that it can
be said that the circuitous method was adopted as a device to evade tax, the implication of clubbing
provisions would be attracted.

As per section 64(1A), all income of a minor child is includible in the hands of the parent, whose total
income, before including minor’s income is higher. Accordingly, the interest income arising to Mr.
Karanjit’s brother’s son from fixed deposits would be included in the total income of Mr. Karanjit’s
brother, assuming that Mr. Karanjit’s brother’s total income is higher than his wife’s total income,
before including minor’s income. Mr. Karanjit’s brother can claim exemption of Rs. 1,500 under
section 10(32).

Interest on debentures arising in the hands of Mrs. Karanjit would be taxable in the hands of Mr.
Karanjit as per section 64(1)(iv).

This is because both Mr. Karanjit and his brother are the indirect transferors of the income to their
spouse and minor son, respectively, with an intention to reduce their burden of taxation.

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In the hands of Mr. Karanjit, interest received by his spouse on debentures of Rs. 9 lakhs alone would
be included and not the entire interest income on the debentures of Rs.10 lakhs since the cross
transfer is only to the extent of Rs. 9 lakhs.

Hence, only proportional interest (i.e., 9/10th of interest on debentures received) Rs. 72,900 would
be includible in the hands of Mr. Karanjit.

The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred or value of
debentures transferred, since in both the cases, the transfer is from a relative.

Question 2
Rayudu gifted Rs. 15 lakhs to his wife, Sagar on her birthday on, 23rd February, 2024. Sagar lent Rs.
8,00,000 out of the gifted amount to Karuna on 1st April, 2023 for six months on which she received
interest of Rs. 80,000. The said sum of Rs. 80,000 was invested in shares of a listed company on 5th
October, 2023, which were sold for Rs. 96,000 on 28th March, 2024. Securities transactions tax was
paid on purchase and sale of such shares. The balance amount of gift was invested on 1st April 2023,
as capital by Sagar in her new business. She suffered loss of Rs. 52,000 in the business in F.Y. 2023 -
24.

In whose hands the above income and loss shall be included in A.Y. 2024 - 25, assuming that capital
invested in the business was entirely out of the funds gifted by her husband. Support your answer
with brief reasons.

Answer:

In computing the total income of any individual, there shall be included all such income as arises
directly or indirectly, to the spouse of such individual from assets transferred directly or indirectly, to
the spouse by such individual otherwise than for adequate consideration or in connection with an
agreement to live apart.

Interest on loan: Accordingly, Rs. 80,000, being the amount of interest on loan received by Mrs. Sagar,
wife of Mr. Rayudu, would be includible in the total income of Mr. Rayudu, since such loan was given
out of the sum of money received by her as gift from her husband.

Loss from business: As per Explanation 2 to section 64, income includes loss. Thus, clubbing provisions
would be attracted even if there is loss and not income.

Thus, the entire loss of Rs. 52,000 from the business carried on by Mrs. Sagar would also be includible
in the total income of Mr. Rayudu, since as on 1st April 2023, the capital invested was entirely out of
the funds gifted by her husband.

Short-term capital gain: Income from the accretion of the transferred asset is not liable to be included
in the hands of the transferor and, therefore, short-term capital gain of Rs. 16,000 (Rs. 96,000, being
the sale consideration less Rs. 80,000, being the cost of acquisition) arising in the hands of Mrs. Sagar
from sale of shares acquired by investing the interest income of Rs. 80,000 earned by her (from the

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loan given out of the sum gifted by her husband), would not be included in the hands of Mr. Rayudu.
Thus, such income is taxable in the hands of Mrs. Sagar.

Question 3
A proprietary business was started by Mrs. Rajini In the year 2022. As on 1-4-2023, her capital in
business was Rs. 3,00,000. Her husband gifted Rs. 2,00,000 on 10-4-2023, that amount Mrs. Rajini
invested in her business on the same date. Mrs. Rajini earned profits from her proprietary business
for the F.Y. 2022 – 23, Rs. 1,50,000 and F.Y. 2023 - 24 Rs. 3,90,000.

Compute the income to be clubbed in the hands of Rajini's husband for the A.Y. 2024 – 25 with
reasons.

Answer:

Assessment year 2023-24

There shall be no clubbing of income in the hands of Mr. Rajini in the A.Y. 2023 - 24 as no investment
was made by Mrs Rajini in the business out of Mr. Rajini's funds as on the first day of the previous year
i.e. 01-04-2022. Thus, profits of Rs. 1,50,000 is to be fully taxed in the hands of Mrs. Rajini for the A.Y.
2023 - 24.

Assessment year 2024 - 25

Total capital as on 1st day of the previous year i.e., 01.04.2023 = Rs 3,00,000+ Rs. 2,00,000+ Rs.
1,50,000

(Profits of F.Y. 2022-23) = Rs.6,50,000 out of which Rs. 2,00,000 represents investment of Mr. Rajini's
funds.

Therefore, income to be clubbed in the total income of Mr. Rajini

= (Rs. 2,00,000 + Rs. 6,50,000) x Rs, 3,90,000

= Rs. 1,20,000

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Question 4
The following details of income of Mr. X and his wife, for the A.Y. 2024 - 25 are made available to you:

Mr. X Mrs. X
Income from own business/profession 1,20,000 90,000
Income from other sources 2,10,000 1,10,000
Interest received from Z & Co. 20,000 4,10,000
Salary received from Z & Co. 96,000 84,000

Mr. X and Mrs. X are partners in Z & Co., each having 10% share in profits. Determine the total income
of Mr. X and Mrs. X. Will your answer be different?

(a) If each one of them hold 8% of shares in profit of Z & Co.?

(b) If Mr. X and Mrs. X both possess professional qualifications.

Answer:

Computation of Income of Mr. X and Mrs. X are as under:

Particulars Mr. X Mrs. X

Own business income 1,20,000 90,000
Interest received from Z & Co. 20,000 4,10,000
Income from other sources 2,10,000 1,10,000
3,50,000 6,10,000
Salary received from Z & Co. 84,000
Add: Salary received from Z & Co. by Mr. X 96,000
Gross Total Income 3,50,000 7,90,000

In both the alternative situations, clubbing provisions are not applicable. Accordingly, income of Mr.
X will be Rs. 4,46,000 (i.e. Rs. 3,50,000 + Rs. 96,000) and that of Mrs. X will be Rs. 6,94,000 (i.e. Rs.
7,90,000 – Rs. 96,000).

Question 5
Mrs. Sukanya is a qualified cost accountant. She is a salaried employee in a firm of cost accountants
in which Mr. Ashok (her husband) is a partner. Mr. Ashok’s share in the firm is 10%. His younger
brother holds 10% share in this firm. Mrs. Sukanya draws a salary of Rs. 18,000 per month from the
firm. This is however paid in kind and not in cash. Mr. Ashok’s income by way of sitting fees from the
various boards of the companies in which he is an independent director is Rs. 3,50,000. Will Mrs.
Sukanya’s income be clubbed with that of Mr. Ashok under Section 64 of the Income-tax Act, 1961?

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Answer:

Income generated through technical or professional qualification of the spouse is not to be clubbed in
the total income of the individual. The term technical or professional qualification must be construed
in a liberal manner as the term has not been defined in the Act.

It does not necessarily relate to technical or professional qualification acquired by obtaining a

certificate, diploma or degree or in any other form, from a recognised body like University or Institute.
It can be treated as fitness to do a job or to undertake an occupation requiring intellectual skill and
also includes technicality generated through experience, skill etc. Technical qualification includes
specialization in a particular subject (e.g. accountancy, management, commerce, science, technology
etc.).

Since, Mrs. Sukanya possess technical or professional qualification for her job, hence her income from
firm cannot be clubbed with her husband.

Question 6
Explain the tax incidence in the case of a transfer of a let-out property, which is not revocable during
the lifetime of the transferee.

Answer:

Revocable Transfer [Sec. 61] If an assessee transfers an asset under a revocable transfer, then income
generated from such asset, shall be clubbed in the hands of the transferor.

As per sec. 63(a), a transfer shall be deemed to be revocable if –

• It contains any provision for the retransfer (directly or indirectly) of any part or whole of the
income/assets to the transferor; or
• It, in any way, gives the transferor a right to re-assume power (directly or indirectly) over any part
or whole of the income/assets.
Exceptions [Sec. 62]

As per sec. 62(1), the provision of sec. 61 shall not apply to an income arising to a person by virtue of
–

(i) A transfer by way of creation of a trust which is irrevocable during the lifetime of the
beneficiary.
(ii) Any transfer which is irrevocable during the lifetime of the transferee
(iii) Any transfer made before 01.04.1961, which is not revocable for a period exceeding 6
years. Thus, the income is taxable in hands of transfree.

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Question 7
In whose hand the following incomes will be taxable?

a) Interest on Debentures of ABC Ltd. received by Mrs. Y when the Debentures were transferred
by Mr. X to Mrs. Y assuming that:

(i) Such transfer was made before marriage.

(ii) Such transfer was made at a time when there is husband-wife relationship between Mr.
X and Mrs. Y.

b) Mr. P held 22% shares of Star Ltd. where Mrs. Q. wife of Mr. P, is employed as Finance
Manager at a salary of Rs. 50,000 p.a. Mrs. Q is a Chartered Accountant and also holds MBA
(Finance) degree.
c) Nipa is the minor child of Mr. and Mrs. Bose. Mr. Bose has salary income of Rs.and0 and Mrs.
Bose has income from other sources of Rs. 5,00,000. Nipa earns income of Rs. 50,000 from a
T.V. Reality show and Rs. 10,000 interest on fixed deposit with a bank.

Answer:

a) (i) Interest shall be taxable in hands of Mr. X; (ii) Interest shall be taxable in hands of Mrs. X.
b) Remuneration shall be taxable in hands of Mrs. Q
c) Income from TV Realty show shall be taxable in hands of Nipa and Interest on fixed deposit
shall be taxable in hands of Mrs. Bose.

Question 8
An assessee is not only liable in respect of his own incomes for tax purposes, but his liability may
extend to income of other persons also. Comment.

Answer:

Generally, an assessee is taxed on income accruing to him only and he is not liable to tax for income
of another person. However, there are certain exceptions to the above rule (mentioned u/s 60 to 64).
Sec. 60 to 64 deals with the provisions of clubbing of income, under which an assessee may be taxed
in respect of income accrued to another person. These provisions have been enacted to counteract
the tendency on the part of the taxpayers to dispose-off their income or income generating assets to
escape tax liability.

Following are the income covered u/s 60 to 64:

a. Transfer of income without transferring assets

b. Revocable transfer
c. Remuneration to spouse from a concern in which assessee has substantial interest
d. Income from assets transferred to spouse directly or otherwise

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e. Income from assets transferred to son’s wife directly or otherwise
f. Income of minor child
g. Conversion of self-acquired property into HUF property

Question 9
Yash, a minor, who is a physically handicapped (suffering from disability of the nature specified in sec.
80U), earns bank interest of Rs. 50,000 and Rs. 60,000 from making bags manually by himself. State
whether income of Yash should be clubbed with the income of his parents as per sec.64(1A).

Answer:

The clubbing provision of sec. 64(1A) is not apply in the following cases –

1. The income arises or accrues to the minor child due to any manual work done by him; or
2. The income arises or accrues to the minor child due to his skill, talent, specialised knowledge or
experience; or
3. The minor child is suffering from any disability of nature specified u/s 80U. Hence, such income
shall be taxable in hands of Yash.

Question 10
A proprietary business was started by Smt. Rani in the year 2020. As on 01.04.2022 her capital in
business was Rs. 3,00,000.

Her husband gifted Rs. 2,00,000, on 10.04.2022, which amount Smt. Rani invested in her business on
the same date. Smt. Rani earned profits from her proprietary business for the F.Y. 2022 - 23, Rs.
1,50,000 and F.Y. 2023 - 24 Rs. 3,90,000.

Compute the income, to be clubbed in the hands of Rani’s husband for the A.Y. 2024-25 with reasons.

Answer:

Where asset transferred to spouse is invested in the proprietary business then proportionate share
being calculated in following manner shall be clubbed in the hands of transferor:

= Income of such business * Value of such assets as on the 1st day of the P.Y.
Total investment in the business by the transferee as on the 1st day of the P.Y.

= Rs.3,90,000 x Rs. 2,00,000 / Rs. 6,50,000

= Rs. 1,20,000

Hence, Rs. 1,20,000 shall be clubbed in the hands of husband of Smt. Rani

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 Computation of total investment in the business

Particulars Rs.
Investment as on 1-4-2022 3,00,000
Add: Investment of gift from husband on 10-4-2022 2,00,000
Add: Net profit earned during the year 2022-23 1,50,000
(Assumed reinvested in the business)
Total investment in the business as on 1-4-2023 6,50,000

Income arising from accretion to transferred asset shall not be liable to clubbing.

Assume, Net profit earned during the year 2021-22 is retained in the business.

Question 11

Vimal gifted Rs. 10 Lacs to his wife, Kanchana on her birthday on, 1st Jan 2023. Kanchana lent Rs.
5,00,000 out of the gifted amount to Krishna on 1st April, 2023 for 6 months on which she received
interest of Rs. 50,000. The said sum of Rs. 50,000 was invested in shares of a listed company on 15th
Oct 2023, which were sold for Rs. 75000 on 30th Dec 2023. STT was paid on such sale. The balance
amount of gift was invested as capital by Kanchana in a business. She suffered loss of Rs. 15,000 in
the business in F.Y. 2023-24. In whose hands the above income & loss shall be included in AY 2024-
25.

Answer:

As per section 64(1),

• If any person has transferred any asset to his or her spouse without adequate
consideration in such case Income shall be clubbed in the income of the transferor,
hence Interest income of Rs. 50,000 shall be clubbed in the income of Mr. Vimal.

• If asset received by the spouse has been invested in the proprietor business, income
from the business shall be clubbed in the income of transferor & if there is any loss,
it will also be clubbed.

• In the given case there is a loss of Rs. 15,000 from business, such loss shall be clubbed
in the income of Mr. Vimal.

• If any person has transferred the asset to the spouse, income from the asset shall be
clubbed but if same income is invested further, any subsequent income shall not be
clubbed as decided in the case of M.P. BIRLA.

• In the given case, Mrs. Kanchana has invested interest income in the shares & there
was capital gain on the sale of shares, such capital gain shall not be clubbed rather it
will be taxable in the hands of Mrs. Kanchana.

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Question 12
Mrs. Pavan transferred her immovable property to Kalyan Co. Ltd. subject to a condition that out of
the rental income, a sum of Rs. 36,000 per annum shall be utilized for the benefit of her son’s wife.

Mrs. X claims that the amount of Rs. 36,000 (utilized by her son’s wife) should not be included
in her total income as she no longer owned the property. State with reasons whether the
contention of Mrs. X is valid in law.

Answer:

• Clubbing provisions are attracted in case of transfer of any asset otherwise than for
adequate consideration, to any person to the extent to which income from such asset is
for immediate or deferred benefit of son’s wife.

• Such income shall be included in computing the total income of the transferor individual.

• Therefore, income of Rs. 36,000 for benefit of daughter-in-law is taxable in hands of transferor
(Smt. Pavan).

• The contention of Smt. Pavan is, hence, not valid in law.

Question 13
Mr. Venkat transferred 2,000 debentures of Rs. 100 each of Wild Fox Ltd. to Mrs. Venkat on
03.04.2023 without consideration. The company paid interest of Rs. 30,000 in September, 2023 which
was deposited by Mrs. Venkat with Manappuram Finance Co. in October, 2023. Manappuram Finance
Co. paid interest of Rs. 3,000 upto March, 2024. How would the interest income be charged to tax in
A.Y. 2024 - 25?

Answer:

• As per section 64(1), income arising from assets transferred without adequate consideration by
an individual to his spouse is liable to be clubbed in the hands of the individual, but if there is any
further income from such income, it will not be clubbed.
• Therefore, Rs. 30,000, being the interest on debentures received by Mrs. Venkat in September
2023 will be clubbed with the income of Mr. Venkat, since he had transferred the debentures of
the company without consideration to her.
• However, the interest of Rs. 3,000 upto March 2024 earned by Mrs. Venkat on the interest of the
debentures deposited by her with Manappuram Finance Company shall be taxable in her
individual capacity & will not be clubbed with the income of Mr. Venkat.

Question 14
Mrs. Satyabhama received the following amounts during F.Y. 2023 - 24:

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 Gross Salary 5,30,000
Family Pension (10,000 x 12) 1,20,000
Income of a minor child 49,000
Accumulated balance in PF of her husband after his death 1,00,000
Gratuity received after the death of husband 1,00,000

Calculate taxable income of Mrs. Satyabhama & tax liability for A.Y. 2024 - 25.

Answer:

Computation of taxable income of Mrs. Satyabhama for A.Y. 2024 - 25

(i) Income from Salary

Gross salary 5,30,000
Less: Standard Deduction u/s 16(ia) (40,000) 4,90,000
(ii) Income from other sources
Family pension 1,20,000
Less: Deduction u/s 56 (Lower of 1/3rd of amount received or 15,000) (15,000) 1,05,000
Income of a minor child - Less: Exemption u/s 10(32) [49,000 - 1,500] 47,500
Gross total income 6,42,500

Note: Accumulated balance in PF & amount of gratuity received after the death of husband is
exempt from tax.

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 Question 15
Mr. Birbal is the Karta of a HUF, whose members derive income as given below:

(a) Income from B's profession 4,50,000

(b) Mrs. B's salary as fashion designer 7,60,000
(c) Minor son D (interest on fixed deposits with a bank which were gifted to him by his 10,000
uncle)
(d) Minor daughter P's earnings from sports 95,000
(e) D's winnings from lottery (gross) 1,95,000

Discuss the tax implications in the hands of Mr. & Mrs. Birbal.
Answer:

Tax Implications:

a) Income of Rs. 4,50,000 from Mr. B's profession shall be taxable in the hands of Mr. B u/h “PGBP”.

b) Salary of Rs. 7,60,000 received by Mrs. B as a fashion designer shall be taxable as "Salaries" in hands
of Mrs. B.

c) Income from fixed deposit of Rs. 10,000 arising to the minor son D, shall be clubbed in the hands of
the mother, Mrs. B as Income u/h "IFOS", since her income is greater than income of Mr. B before
including the income of the minor child. As per Section 10(32), income of a minor child is exempt
upto Rs. 1,500 per child (if clubbed).

d) Income of Rs. 95,000 arising to the minor daughter P from sports shall not be included in the hands
of the parent, since such income has arisen on account of an activity involving application of her skill.

e) Income of Rs. 1,95,000 arising to minor son D from lottery shall be included in the hands of Mrs. B as
"IFOS", since her income is greater than the income of Mr. B before including the income of minor
child.

Note: She can reduce the tax deducted at source from such lottery income while computing her net
tax liability.
Computation of income of Mr. Birbal & Mrs. Birbal
Particulars Mr. Birbal Mrs. Birbal
Income from X’s Business 4,50,000
Salary as fashion designer - 7,60,000
Bank Interest to Minor Son D (10,000-1,500) Rs. 1,500 exempt u/s 10(32) - 8,500
Income of Minor Daughter from Sports (since she is earning income from - -
her (own talent, sports, income is not to be clubbed)
Lottery income to minor son D - 1,95,000
Total 4,50,000 9,63,500
Note: Whether exemption u/s 10(32) shall be allowed from casual income or not is controversial.

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 Question 16
Mr. Sathish & his wife Mrs. Sheetal furnish the following information:

(i) Salary income (computed) of Mrs. Sheetal 4,60,000

(ii) Income of minor son 'B' who suffers from disability specified in Section 80U 1,08,000
(iii) Income of minor daughter 'C' from singing 86,000
(iv) Income from profession of Mr. Sathish 750,000
(v) Cash gift received by C on 02.10.2019 from a friend of Mrs. Sheetal on winning the
48,000
competition
(vi) Income of minor married daughter 'A' from company deposit. 30,000

Compute the total income of Mr. Sathish & Mrs. Sheetal for A.Y. 2024 - 25.

Answer:

Computation of total income of Mr. Sathish & Mrs. Sheetal for A.Y. 2024 - 25.

Mr. Mrs.
Particulars
Sathish Sheetal
Salary income - 4,60,000
Income from profession of Mr. Sathish 7,50,000 -
Income of minor married daughter 'A' from company deposits Rs. 30,000 -
Less: Exemption U/s 10(32) (1500) -
Total income 7,78,500 4,60,000
Note:

a) U/s 56(2)(vi), cash gifts received from any person/persons exceeding Rs. 50,000 during the year in
aggregate is taxable. Since the cash gift in this case does not exceed Rs. 50,000 the same is not
taxable.

b) The clubbing provisions are attracted even in respect of income of minor married daughter. Hence,
income of minor married daughter 'A’ from company deposit shall be clubbed in the hands of the
Mr. Sathish.

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Question 17
Mr. Arjun has 4 minor children consisting of three daughters & a son. Their annual income for A.Y.
2024 - 25 are:

First daughter (including Scholarship received Rs. 5,000) 10,000

Second Daughter 8,500
Third Daughter (Suffering from disability specified U/s 80U) 4,500
Minor Son 40,000

Mr. Arjun gifted 2 lac to his minor Son who invested them in the business & derived income of 20,000
which is included above. Compute the Income earned by Minor Children to be clubbed in the hands of
Mr. Arjun.
Answer:

Computation of Income of minor children to be clubbed in income of Mr. X

Particulars Rs. Rs.

(i) Income of First Daughter 10,000
Less: Scholarship received exempt u/s 10(16) (assumed received for
(5,000)
education)
Less: Exempt u/s 10(32) (1,500)
Income to be clubbed 3,500
(ii) Income of Second Daughter 8,500
Less: Exempt u/s 10(32) (1,500)
Income to be clubbed 7,000
(iii) Income of Third Daughter who is suffering from disability shall not be
clubbed
(iv) Income of Son 40,000
Less: Exempt u/s 10(32) (1,500)
Income to be clubbed 38,500
Total Income to be clubbed (3,500 + 7,000 + 38,500) 49,000

Question 18
Examine the tax implication of each transaction and compute the total income of Mr. Tushar and
Mrs. Tushar and their minor son for the A.Y. 2024 - 25, assuming they do not wish to opt for section
115BAC.

1. Mr. Tushar has a fixed deposit of Rs. 6,00,000 in State bank of India. He instructed the bank
to credit the interest on the deposit @9% from 1st April, 2023 to 31st March, 2024 to the
savings bank account of Mr. Raj, son of his brother, to help him in his education.
2. Mr. Tushar started a proprietary business on 1st May, 2023 with capital of Rs. 6,00,000. His
wife, Mrs. Tushar, a software Engineer, gave cash of Rs. 5,00,000 on 1st May, 2023, which
was immediately invested in the business by Mr. Tushar. He earned a profit of Rs. 4,00,000
during the P.Y. 2023 - 24.

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 3. Mr. Tushar's minor son derived an income of Rs. 20,000 through a business activity involving
application of his skill and talent.

Answer:

Computation of total income of Mr. Tushar and Mrs. Tushar and minor son for the A.Y. 2024 - 25

Amount Amount Amount

Particulars (Rs.) (Rs.) (Rs.)
Mr. Tushar Mrs. Tushar Minor Son
Interest on Mr. Tushar fixed Deposit with State bank
of India (Rs. 6,00,000 x 9%)
As per section 60, in case there is a transfer of income
without transfer of assets from which such income is
derived, such income shall be treated as income of the 54,000
transferor. Therefore, the fixed deposit interest of Rs.
54,000 transferred by Mr. Tushar to Mr. Raj shall be
included in the total income of Mr. Tushar
Profit for P.Y. 2023-24 to be apportioned on the basis
of capital employed on the first day of previous year
i.e. as on 1st May, 2023, since business started on
1.5.2023 (6:5)
Share of income of Mr. Tushar [Rs. 4,00,000 x 6/11]
Share of Income of Mrs. Tushar [Rs. 4,00,000 x 5/11] 2,18,182 1,81,818
Section 64(1)(iv) of the Income-tax Act, 1961 provided
for the clubbing of income in the hands of the
individual, if the income earned is form the assets
(other than house property) transferred directly or
indirectly to the spouse of the individual, otherwise
than for adequate consideration or in connection with
an agreement to live apart.
Income of minor son through a business activity
involving application his skill and talent.
In case the income earned by minor child is on
account of any activity involving application of any
skill or talent, then, such income of the minor child
shall not be included in the income of the parent, but 20,000
shall be taxable in the hands of the minor child.
Therefore, the income of Rs. 20,000 derived by minor
son through a business activity involving the
application of his skill and talent shall not be clubbed
in the hands of the parent. Such income will be
taxable in the hands of the minor son.
Total Income 2,72,182 1,81,818 20,000

Question 19
Mr. Raja gifted a sum of Rs. 8 lakhs to his brother’s minor son on 14-05-2023. On the same date, his
brother gifted debentures worth Rs. 10 lakhs to Mrs. Raja. Son of Mr. Raja’s brother invested the
amount in fixed deposit with SBI@ 9% p.a. interest and Mrs. Raja received interest of Rs. 81,000 on

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these debentures during the previous year 2023-24. Discuss the tax implications under the provisions
of the Income-tax Act, 1961.

Answer:

In the given case, Mr. Raja gifted a sum of Rs.8 lakhs to his brother’s minor son on 14.5.2021 and
simultaneously, his brother gifted debentures worth Rs.10 lakhs to Mr. Raja’s wife on the same date.
Mr. Raja’s brother’s minor son invested the gifted amount of Rs.8 lakhs in fixed deposit with SBI.

These transfers are in the nature of cross transfers. Accordingly, the income from the assets
transferred would be assessed in the hands of the deemed transferor because the transfers are so
intimately connected to form part of a single transaction and each transfer constitutes consideration
for the other by being mutual or otherwise.

If two transactions are inter-connected and are part of the same transaction in such a way that it can
be said that the circuitous method was adopted as a device to evade tax, the implication of clubbing
provisions would be attracted1.

As per section 64(1A), all income of a minor child is includible in the hands of the parent, whose total
income, before including minor’s income is higher. Accordingly, the interest income arising to Mr.
Raja’s brother’s son from fixed deposits would be included in the total income of Mr. Raja’s brother,
assuming that Mr. Raja’s brother’s total income is higher than his wife’s total income, before including
minor’s income. Mr. Raja’s brother can claim exemption of Rs.1,500 under section 10(32).

Interest on debentures arising in the hands of Mrs. Raja would be taxable in the hands of Mr. Raja as
per section 64(1)(iv).

This is because both Mr. Raja and his brother are the indirect transferors of the income to their spouse
and minor son, respectively, with an intention to reduce their burden of taxation.

In the hands of Mr. Raja, interest received by his spouse on debentures of Rs.8 lakhs alone would be
included and not the entire interest income on the debentures of `10 lakhs, since the cross transfer is
only to the extent of Rs.8 lakhs.

Hence, only proportional interest (i.e., 8/10th of interest on debentures received) Rs.64,800 would be
includible in the hands of Mr. Raja.

The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred or value of
debentures transferred, since in both the cases, the transfer is from a relative.

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Question 20
Nishant gifted Rs. 10 lakhs to his wife, Nisha on her birthday on, 1st January, 2024. Nisha lent Rs.
5,00,000 out of the gifted amount to Krish on 1st April, 2023 for six months on which she received
interest of Rs. 50,000. The said sum of Rs. 50,000 was invested in shares of a listed company on 15th
October, 2023, which were sold for Rs. 75,000 on 30th December, 2023. Securities transaction tax was
paid on such sale. The balance amount of gift was invested as capital by Nisha in a newly business
started on 01.04.2023. She suffered loss of Rs. 15,000 in the business in F.Y. 2023 - 24.

In whose hands the above income and loss shall be included in A.Y. 2024 - 25? Support your answer
with brief reasons.

Answer:

Interest on loan

As per section 64(1)(iv), in computing the total income of any individual, there shall be included all
such income as arises directly or indirectly, to the spouse of such individual from assets transferred
directly or indirectly, to the spouse by such individual otherwise than for adequate consideration or
in connection with an agreement to live apart.

Accordingly, Rs. 50,000, being the amount of interest on loan received by Ms. Nisha, wife of Mr.
Nishant, would be includible in the total income of Mr. Nishant, since such loan was given by her out
of the sum of money received by her as gift from her husband.

Loss from business

Since the capital was invested in business by Ms. Nisha on 1st April, 2023, and capital invested was
entirely out of the funds gifted by her husband, the entire loss of Rs. 15,000 from the business carried
on by Ms. Nisha would also be includible in the total income of Mr. Nishant.

Since income includes loss as per Explanation 2 to section 64, clubbing provisions would be attracted
even if there is loss and not income.

Capital Gain on sale of shares of listed company

The short-term capital gain of Rs. 25,000 (Rs. 75,000, being the sale consideration less Rs. 50,000,
being the cost of acquisition) arising in the hands of Ms. Nisha from sale of shares acquired by investing
the interest income of Rs. 50,000 earned by her (from the loan given out of the sum gifted to her by
her husband), would not be included in the hands of Mr. Nishant.

Income from the accretion of the transferred asset is not liable to be included in the hands of the
transferor and therefore such income is taxable in the hands of Ms. Nisha. Since securities transaction
tax has been paid, such short-term capital gain on sale of listed shares is taxable@15% in the hands of
Ms. Nisha.

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Question 21
Mr. Om has gifted a house property valued at Rs. 50 lakhs to his wife, Mrs. Uma, who in turn has gifted
the same to Mrs. Pallavi, their daughter-in-law. The house was let out at Rs. 25,000 per month
throughout the year. Compute the total income of Mr. Om and Mrs. Pallavi.

Will your answer be different if the said property was gifted to his son, husband of Mrs. Pallavi?

Answer:

As per section 27(i), an individual who transfers otherwise than for adequate consideration any house
property to his spouse, not being a transfer in connection with an agreement to live apart, shall be
deemed to be the owner of the house property so transferred.

Therefore, in this case, Mr. Om would be the deemed owner of the house property transferred to his
wife Mrs. Uma without consideration.

As per section 64(1)(vi), income arising to the son's wife from assets transferred, directly or indirectly,
to her by an individual otherwise than for adequate consideration would be included in the total
income of such individual.

Income from let-out property is Rs. 2,10,000 [i.e., Rs. 3,00,000, being the actual rent calculated at Rs.
25,000 per month less Rs. 90,000, being deduction under section 24@30% of Rs. 3,00,000]

In this case, income of Rs. 2,10,000 from let-out property arising to Mrs. Pallavi, being Mr. Om's son's
wife, would be included in the income of Mr. Om, applying the provisions of section 27(i) and section
64(1)(vi). Such income would, therefore, not be taxable in the hands of Mrs. Pallavi.

In case the property was gifted to Mr. Om's son, the clubbing provisions under section 64 would not
apply, since the son is not a minor child. Therefore, the income of Rs. 2,10,000 from letting out of
property gifted to the son would be taxable in the hands of the son.

It may be noted that the provisions of section 56(2)(x) would not be attracted in the hands of the
recipient of house property, since the receipt of property in each case was from a "relative" of such
individual. Therefore, the stamp duty value of house property would not be chargeable to tax in the
hands of the recipient of immovable property, even though the house property was received by her
or him without consideration.

Note - The first part of the question can also be answered by applying the provisions of section
64(1)(vi) directly to include the income of Rs. 12,10,000 arising to Mrs. Pallavi in the hands of Mr. Om.
[without first applying the provisions of section 27(i) to deem Mr. Om as the owner of the house
property transferred to his wife Mrs. Uma without consideration], since section 64(1)(vi) speaks of
clubbing of income arising to son's wife from indirect transfer of assets to her by her husband's parent,
without consideration. Gift of house property by Mr. Om to Mrs. Pallavi, via Mrs. Uma, can be viewed
as an indirect transfer by Mr. Om to Mrs. Pallavi.

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Multiple Choice Questions
1. As per Sec.60, income is clubbed if –
a. Asset yielding income is transferred as revocable transfer
b. Income is transferred without transferring asset yielding income
c. Asset yielding income is transferred as irrevocable transfer
d. Asset is transferred without transferring income

2. Any income from an asset transferred to spouse without adequate consideration is clubbed in
the hands of the transferor if –
a. Such asset is hold by the spouse as on the last day of the previous year
b. Relationship between them exist as on the date of accrual of income
c. Transferee is not a senior citizen
d. Such asset is hold by the spouse during the previous year

3. For the purpose of Sec.64, an individual has substantial interest in a company if he holds 20%
of voting right along with his relative. Here, relative do not include –
a. Father
b. Spouse
c. Brother of father
d. Brother

4. When income of a minor is clubbed, assessee will get deduction u/s 10(32) of:
a. Rs. 1,500/-
b. Income clubbed subject to maximum of Rs. 1,500
c. Such deduction is not available u/s 10(32) but u/s 10(33)
d. Rs. 100 per month

5. Mr. X’s minor daughter earned Rs. 50,000 from his special talent. This income will be clubbed
with –
a. The income of Mr. X
b. The income of Mrs. X
c. Mr. X or Mrs. X, whoever’s income is higher
d. It will not be clubbed

6. Mr. A gifted debenture of Rs. 1,00,000 to his wife. She received Rs. 10,000 interest which she
reinvests and earns Rs. 1,000. This Rs. 1,000 will be taxable in the hands of –
a. Mr. A
b. Mrs. A
c. Not Taxable
d. Mr. A or Mrs. A, at the choice of the Assessing Officer

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 7. Income arising to a minor married daughter shall be –
a. assessed in the hands of minor married daughter
b. clubbed with the income of that parent whose total income is higher
c. Exempt from tax
d. clubbed with the income of her spouse

8. In certain cases, income of other person is included in the income of assessee. It is called –
a. Clubbing of income
b. Addition to income
c. Increase in income
d. Set-off of income

9. Transfer of income without transfer of asset would be taxable in the hands of –

a. Transferor only
b. Transferee only
c. Either transferor or transferee
d. Both transferor and transferee

10. Income of a minor child suffering from any disability of the nature specified in section 80U shall
be:
a. assessed in the hands of minor
b. clubbed with the income of that parent whose total income is higher
c. Exempt from tax
d. taxable in hands of provider of income like reverse charge

11. If the converted property is subsequently partitioned among the members of the family, the
income derived from such converted property as is received by the spouse of the transferor will
be taxable -
a. as the income of the karta of the HUF
b. as the income of the spouse of the transferor
c. as the income of the HUF.
d. as the income of the transferor

12. Mr. Aarav gifted a house property valued at ₹ 50 lakhs to his wife, Geetha, who in turn has
gifted the same to her daughter-in-law Deepa. The house was let out at ₹ 25,000 per month
throughout the P.Y. 2023 - 24.
Compute income from house property for A.Y. 2024 - 25. In whose hands is the income from
house property chargeable to tax?
a. ₹ 3,00,000 in the hands of Mr. Aarav
b. ₹ 2,10,000 in the hands of Mr. Aarav
c. ₹ 2,10,000 in the hands of Geetha
d. ₹ 2,10,000 in the hands of Geetha

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Case Scenario – 1
Mr. Akshath celebrated his 26th birthday on 15th May 2023 and arranged a grand party at Radisson
Green hotel. On this occasion, he invited his friends, blood relatives and distant relatives to attend the
party. The ceremony was very grand, the feast was also very spectacular. All the arrangements and
decorations were wonderful. At the end of party, Mr. Akshath was awarded by gifts and flower’s
bouquet as infra:

Gift Received from Type of Gift Remarks

One 22K Gold
Mother She purchased on the same day for ₹37,822
Chain
One 22K Gold
Father He purchased on the same day for ₹56,075
Bracelet
She purchased these rings on 15.05.2023 for ₹ 35,500
Wife 4 Gold Rings each. Fair market value on 15th May 2023 is ₹ 37,429
each.
This painting is made by her. Fair market value is ₹
Sister Painting
45,000.
Cousin brother
One Gold
(Father’s brother’s He purchased it on the same day for ₹ 18,200.
chain
son)
Closest cousins
(mother’s sister’s Santro Car Value of ₹ 4,10,000
sons/daughters)
Friends and other
Cash ₹ 1,51,000
distant relatives

Mr. Akshath desires to set up a new manufacturing unit with his friend in partnership on 01.12.2023.
For making investment in the firm, he sold following jewellery which he has received on his 26th
birthday celebration as gifts:

- Mother’s gifted Gold Chain for ₹ 42,150

- Father’s gifted Gold Bracelet for ₹ 60,180
- Cousin brother’s gifted Gold Chain for ₹ 20,600
His wife gave him ₹ 1 lakh as a gift so that he could invest sufficient money in the unit.

On 1st December 2023, he invested ₹ 6,00,000 (including the amount received on sale of above gifts
and amount received from his wife) and his friend invested ₹ 4,00,000 in the firm.

On 1st February 2024, his wife again gave him ₹ 1 lakh as a gift to invest such money in the firm and
apart from that he invested ₹ 50,000 more from his individual savings. On this day, his friend also
invested ₹ 1,00,000 in the firm.

Since the firm is a manufacturing unit and at initial stage, the firm requires sufficient fund so Mr.
Akshath sold his wife’s gifted Gold Rings for ₹ 40,250 each as on 31st March 2024 and he deployed
the funds as partner’s capital in the firm on 01st April, 2023.

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Based on the facts of the case scenario given above, choose the most appropriate answer to the
following questions:

1.1. What is the amount of capital gain taxable in the hand of Mr. Akshath for P.Y. 2023 - 24?

(a) Short term capital gains ₹ 10,833

(b) Short term capital gains ₹ 29,833

(c) Short term capital gains ₹ 22,117

(d) No, capital gains are taxable in his hands since he received the capital assets as gift.

1.2. What is the gift amount not considered as income under section 56(2)(x) for P.Y. 2023 - 24?

(a) ₹ 8,98,613

(b) ₹ 3,06,813

(c) ₹ 9,16,813

(d) ₹ 7,16,813

1.3 What is the gift amount taxable in the hands of Mr. Akshath for P.Y. 2023 - 24?

(a) ₹ 1,51,000

(b) ₹ 1,69,200

(c) ₹ 5,79,200

(d) ₹ 5,61,000

1.4 Is any amount taxable in the hands of Akshath’s wife in respect of sale of jewellery by Mr.
Akshath, if yes, what shall be the taxable amount in her hands for P.Y. 2023 – 24?

(a) No

(b) Yes; ₹ 15,284

(c) Yes; ₹ 19,000

(d) Yes; ₹ 11,284

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Chapter 9
Set off and Carry Forward
of Losses
Question 1
Mrs. Archana has income & losses as given below:

1. Income under the head salary 5,00,000

2. Loss under the head House Property 10,00,000
3. Income under the head Business/Profession 12,00,000
4. Income from STCG 2,00,000
5. Income from STCG u/s 111A 10,00,000
6. Casual Income 3,00,000
7. Brought forward Business/Profession loss for
- Previous year 2014-15 3,00,000
- Previous year 2016-17 6,00,000
- Previous year 2017-18 3,00,000
Deduction u/s 80C to 80U 1,00,000

Compute tax liability of Mrs. Archana for A.Y. 2024-25.

Answer:

Option 1: Loss of house property is set off from normal income

Particulars Rs.
Income under the head Salary 5,00,000
Less: Loss of house property (2,00,000)
Income under the head Salary 3,00,000
Income under the head Business/Profession 12,00,000
Less: Brought forward business/profession loss P.Y. 2016-17 (6,00,000)
Less: Brought forward business/profession loss P.Y. 2017-18 (3,00,000)
Income under the head Business/Profession 3,00,000
Short term capital gain 2,00,000
Short term capital gain u/s 111A 10,00,000
Casual Income 3,00,000
Gross Total Income 21,00,000

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 Less: Deduction u/s 80C to 80U (1,00,000)
Total Income 20,00,000
Computation of Tax Liability
Tax on STCG u/s 111A Rs. 10,00,000 @ 15% 1,50,000
Tax on Casual income Rs. 3,00,000 @ 30% 90,000
Tax on Normal income Rs. 7,00,000 at slab rate 52,500
Tax before HEC + HEC @ 4% [2,92,500 + 4 %] 3,04,200

Option II: Loss of house property is set off from STCG u/s 111 A

Income under the head salary 5,00,000

Income under the head Business/Profession 12,00,000
Less: Brought forward business/profession loss P.Y. 2016-17 (6,00,000)
Less: Brought forward business/profession loss P.Y. 2017-18 (3,00,000)
Income under the head Business/Profession 3,00,000
Short term capital gain 2,00,000
Short term capital gain u/s 111A 10,00,000
Less: loss of house property (2,00,000)
Short term capital gain u/s 111A 8,00,000
Casual Income 3,00,000
Gross Total Income 21,00,000
Less: Deduction u/s 80C to 80U (1,00,000)
Total Income 20,00,000
Computation of Tax Liability
Tax on STCG u/s 111A Rs. 8,00,000 @ 15% 1,20,000
Tax on Casual income Rs. 3,00,000 @ 30% 90,000
Tax on Normal income Rs. 9,00,000 at slab rate 92,500
Tax before HEC + HEC @ 4% [3,02,500 + 4 %] 3,14,600

Conclusion: Option I is better.

Question 2
Mr. Bhanu, a resident individual, furnishes the following particulars for the P.Y. 2023 - 24:
Income from salary (Net) 45,000
Income from house property (24,000)
Income from business – non-speculative (22,000)
Income from speculative business (4,000)
Loss from Specified Business (60,000)
Short-term capital losses (25,000)
Long-term capital gains 19,000
What is the total income chargeable to tax for the A.Y. 2024 - 25?

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Answer:
Total income of Mr. Bhanu for A.Y. 2024 - 25

Particulars Amount Amount

Income from salaries 45,000
Income from house property (24,000) 21,000
Profits & gains of business & profession
Business loss to be carried forward [Note 1] (22,000)
Speculative loss to be carried forward [Note 2] (4,000)
Capital Gains
LTCG 19,000
STCL (25,000)
STCL to be carried forward [Note 3] (6,000)
Taxable income 21,000

Note:

1. Business loss cannot be set-off against salary income. Therefore, loss of Rs. 22,000 from the non-
speculative business cannot be set off against the income from salaries. Hence, such loss has to
be carried forward to the next year for set-off against business profits, if any.

2. Loss of Rs. 4,000 from the speculative business can be set off only against the income from the
speculative business. Hence, such loss must be carried forward.

3. STCL can be set off against both STCG & LTCG. Therefore, STCL of Rs. 25,000 can be set- off against
long-term capital gains to the extent of Rs. 19,000. The balance STCL of Rs. 6,000 cannot be set-
off against any other income & has to be carried forward to the next year for set-off against
capital gains, if any.

4. Loss from specified business can be set off against specified business income only. Thus, it will be
carried forward to next year & set off against specified business income only.

Question 3
Determine the total income of Mr. Arun from the following information for A.Y. 2024 - 25:

Interest received on enhanced compensation (It relates to transfer of land in F.Y. 2018- 4,00,000
19) Out of the above Rs. 65,000 relates to F.Y. 2023 - 24 & the balance relate to
preceding years)
Business loss relating to discontinued business of A.Y. 2018 - 19 brought forward 1,50,000
Current year business income (i.e. F.Y. 2023 - 24) (Computed) 1,10,000

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Answer:

Computation of total income of Mr. Arun for A.Y. 2024 - 25

Particulars Amount Amount

Profits & gains of business or profession 1,10,000
Current year business income
Less: B/f business loss of discontinued business Rs. 1,50,000 (1,10,000) Nil
Income from other sources
Interest on enhanced compensation taxable on receipt basis u/s 56(2) 4,00,000
Less: Deduction u/s 57 @ 50% (2,00,000) 2.00,000
Total Income 2.00,000
Note:
Unabsorbed business loss of Rs. 40,000 (Rs. 1,50,000 - Rs. 1,10,000) of A.Y. 2018-19 relating to
discontinued business will be carried forward for set-off against income from any business in the next
year.

Question 4
Mr. Shyam, a resident of Chandigarh, provides the following information for P.Y. 2023 - 24:

Particulars Rs.
Income from textile business 4,60,000
Income from speculation business 25,000
Loss from gambling 12,000
Loss on maintenance of racehorse 15,000
Eligible current year depreciation of textile business not adjusted in income given above 5,000
Unabsorbed depreciation of A.Y. 2023 - 24 brought forward 10,000
Speculation business loss of A.Y. 2023 - 24 30,000

Compute GTI of Mr. Shyam for A.Y. 2024 - 25 & any other loss eligible for carry forward.

Answer:

Computation of Gross Total Income

Income from Textile Business 4,60,000

Less: Current year depreciation (5,000)
Less: Unabsorbed depreciation (10,000)
Income from Textile Business 4,45,000
Income from speculation business 25,000
Less: Brought forward speculation loss (Section 73) (25,000)
Income from Speculation business Nil
Gross Total Income 4,45,000

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Note:

1. As per sec 73, Unadjusted Brought Forward Speculation loss of A.Y. 2023 - 24 shall be carried
forward of 5,000.

2. Loss from Gambling shall not be treated as loss & have no treatment.

3. Loss on maintenance of racehorse shall be allowed to be set off from income of maintenance
of race horse only & unadjusted loss of Rs. 15,000 shall be carried forward for 4 years as per
section 74A.

Question 5
Mr. Pandit provides the following details for the previous year ending 31.03.2023.

(i) Salary from XYZ Ltd. 50,000 p.m

(ii) Interest on FD with SBI for F.Y. 2023 - 24 (Net) 72,000
(iii) LTCL of A.Y. 2022 - 23 96,000
(iv) Long term Capital gain 75,000
(v) Loss of minor son (Mr. Pandit transferred his own house to his minor son
without adequate consideration few years back & minor son let it out & suffered 90,000
loss)
(vi) Loss of his wife’s business (She carried business with funds which Mr. Pandit
(2,00,000)
gifted to her)

You are required to compute taxable income of Mr. Pandit for the A.Y. 2024 - 25.

Answer:

Computation of taxable income of Mr. Pandit for A.Y. 2024-25

Income under the head Salary 6,00,000

Less: Loss under the head house property (Loss of minor son) (90,000)
Income under the head Salary 5,10,000
Income under the head capital Gains
Long Term Capital Gain 75,000
Less: Loss from Business of his wife (75,000)
Income under the head capital Gains Nil
Income under the head other sources
Interest Income from Fixed Deposit 80,000
Less: Loss from Business of his wife (80,000)
Income under the head other sources Nil
(Balance Loss of Rs. 45,000 of his wife’s is to be carried forward)
Gross Total Income 5,10,000

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Note:

1. Mr. Pandit shall be deemed owner of house property transferred to minor son. Thus, it will be
considered as Pandit’s Loss.
2. Loss from business of Mrs. Pandit shall also be clubbed.
3. Brought Forward LTCL of A.Y. 2022-23 to be carried forward Rs. 96,000.

Question 6
Mr. Javed furnishes you the following details for P.Y. 2023 - 24:

Income (loss) from house property

House – 1 36,000
House – 2 (Self occupied) (20,000)
House – 3 60,000
Profits & gains from Business or Profession
Textile Business 2,00,000
Automobile Business (3,00,000)
Speculation Business 2,00,000
Capital Gains
Long-term capital gain from sale of shares (STT paid) 1,50,000
Long-term capital gain from sale of vacant site 2,00,000
Short-term capital loss from sale of building 1,00,000
Other sources:
Gift from a Friend (non-relative) on 05.06.2023 60,000
Gift from Maternal Uncle on 25.02.2024 1,00,000
Gift from Grandfather’s Younger Brother on 10.02.2024 1,00,000

Compute the total income of Mr. Javed for A.Y. 2024 - 25.

Answer:

Computation of total income of Mr. Javed for A.Y. 2024 - 25

Income (loss) House property

House -I 36,000
House-2 -Self occupied (20,000)
House-3 60,000
Income from House Property 76,000
Profits & gains of business & profession
Textile business 2,00,000
Automobile business (3,00,000)
Speculation business Income from business or profession representing
2,00,000
speculation business profit (after set off of loss of automobile business) 1,00,000
Capital Gains
LTCG from sale of shares (STT paid) [Taxable over Rs. 1 lac u/s 112A] 50,000

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Long term capital gain from sale of vacant site 2,00,000
Less: STCL set off against LTCG from sale of vacant site (1,00,000) 1,50,000
Income from Other sources
Gift from a friend on 05.06.2023 60,000
Gift from maternal uncle (on 25.02.2024) Rs. 1,00,000, not taxable since
Nil
maternal uncle is a ‘relative’ given in explanation to section 56(2)
Gift from grandfather’s younger brother on 10.02.2024 – (taxable as
1,00,000 1,60,000
grandfather’s younger brother is not covered by the definition of ‘relative’)
Gross Total Income 4,86,000
Less: Deduction u/s 80C to 80U Nil
Total income 4,86,000

Question 7
Mr. Tavuji an assessee aged 61 years gives the following information for the previous year 31.03.2024:

Loss from profession 1,05,000

Capital loss on the sale of property-short term 55,000
Capital gains on sale of shares-long term 2,05,000
Loss in respect of self-occupied property 15,000
Loss in respect of let out property 30,000
Share of loss from firm 1,60,000
Income from card games 55,000
Winnings from lotteries 1,00,000
Loss from horse races in Mumbai 40,000
Medical insurance premium paid by cheque 18,000

Compute the total income of Mr. X for A.Y. 2023-24.

Answer:
(i) Income under the head Capital Gains
Long term capital Gain 2,05,000
Less: Short term capital loss on sale of property (55,000)
Less: Loss from profession (1,05,000)
Less: Loss from House Property (45,000) Nil
(ii) Income under the head Other Sources
Winning from lottery 1,00,000
Income from card game 55,000 1,55,000
Gross Total Income 1,55,000
Less: Deduction u/s 80D (Deductions are not allowed from casual Nil
income)
Total Income 1,55,000

Working Notes:

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 1. Share of loss from firm is not allowed to be set off by the partner.

2. Loss from races can neither be set off nor be carried forward.

Question 8
Mr. Partha furnishes the following details for year ended 31.03.2024.

Short term capital gain 1,40,000

Loss from speculative business (60,000)
Long term capital gain on sale of land 30,000
Long term capital loss on sale of shares (securities transaction tax not paid) 1,00,000
Income from business of textile (after allowing current year depreciation) 50,000
Income from activity of owning & maintaining race horses 15,000
Income from salary 1,00,000
Loss from house property (40,000)

Following are the carried forward losses:

(i) Losses from activity of owning & maintaining racehorses-pertaining to A.Y. 2021 - 22 Rs. 25,000.

(ii) Carry forward loss from business of textile Rs. 60,000 - Loss pertains to A.Y. 2017 - 18.

Compute gross total income of Mr. Partha for A.Y. 2024 - 25.

Answer:

Calculation of Gross Total Income of Mr. Partha for AY 2024-25

Income under the head Salary

Salary Income 1,00,000
Less: Loss from house property (40,000) 60,000
Income under the head Business/Profession
Income from Business of textile 50,000
Less: Loss Carried forward from textile business (A.Y. 2017 - 18) (50,000)
(Balance loss of Rs. 10,000 shall lapse)
Income under the head Capital Gains
Short Term Capital Gains 1,40,000
Long Term Capital Gains 30,000
Less: Long term loss (Balance of loss of 70,000 shall be carried forward) (30,000) 1,40,000
Income under the head Other Sources
Income from owning & maintaining race horses 15,000
Less: Loss carried forward to be adjusted (A.Y. 2021 - 22) (Balance b/f loss (15,000) Nil
of Rs. 10,000 to be c/f to next year)
Gross Total Income 2,00,000
Note: Loss from speculative business of A.Y. 2024 - 25: Rs. 60,000 to be c/f for 4 AYs starting from A.Y.

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2024 - 25.

Question 9
Write a note on “Unabsorbed Depreciation” u/s 32(2).

Answer:

• An assessee having business or profession shall debit all expenditures of business/profession

before debiting depreciation i.e. depreciation shall be debited at the end.

• If there is a loss by debiting other expenditure, it will be called loss under the head
business/profession.

• Depreciation shall be debited only if income is available under the head business/profession
& the depreciation which cannot be debited shall be called unabsorbed depreciation & it will
be allowed to be adjusted from any income under any head except casual income.

• If it cannot be adjusted in the same year, its carry forward is allowed for unlimited period &
in the subsequent years, it can be set off from any income under any head except casual
income.

• If any assessee has brought forward business loss as well as depreciation, business loss shall
be adjusted first & depreciation afterwards.

Question 10
Mr. Prakash Raj submits the following information for P.Y. 2023 - 24 relevant to the A.Y. 2024 - 25:

1. Profit from Business X situated in Bangalore 2,80,000

2. Profit from Business Y situated in Hyderabad 1,25,000
3. Loss from Business Z carried in Germany (business is controlled from India but 85,000
profits are not received in India)
4. Unabsorbed depreciation of business Z 45,000
5. Income from house property situated in India 30,000
6. Income from house property situated in London (rent received in London) 50,000

Find out the GTI of Mr. PC for A.Y. 2024 - 25 if he is (a) ROR (b) RNOR & (c) NR.

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Answer:

Particulars ROR RNOR NR

(i) Business Income
Business X (Profit) 2,80,000 2,80,000 2,80,000
Business Y (Profit) 1,25,000 1,25,000 1,25,000
Less: Business Z (Loss); [controlled from India but received o/s India] (85,000) (85,000) Nil
Less: Unabsorbed depreciation of business Z (45,000) (45,000) Nil
Total 2,75,000 2,75,000 4,05,000
(ii) Income from house property -
Property in India 30,000 30,000 30,000
Property in London 50,000 - -
Gross total income 3,55,000 3,05,000 4,35,000

Multiple Choice Questions

1. Mr. A incurred short-term capital loss of ₹ 10,000 on sale of shares through the National Stock
Exchange. Such loss -
a) can be set-off only against short-term capital gains
b) can be set-off against both short-term capital gains and long- term capital gains.
c) can be set off against any head of income.
d) not allowed to be set off.

2. According to section 80, no loss which has not been determined in pursuance of a return filed
in accordance with the provisions of section 139(3), shall be carried forward. The exceptions
to this are -
a) Loss from specified business under section 73A
b) Loss under the head “Capital Gains” and unabsorbed depreciation carried forward
under section 32(2)
c) Loss from house property and unabsorbed depreciation carried forward under
section 32(2)
d) Loss from speculation business under section 73

3. Brought forward loss from house property of ₹ 3,10,000 of A.Y. 2022 - 23 is allowed to be set-
off against income from house property of A.Y. 2024 - 25 of ₹ 5,00,000 to the extent of –
a) ₹ 2,00,000
b) ₹ 3,10,000
c) ₹ 2,50,000
d) ₹ 1,00,000

4. Mr. Rohan incurred loss of ₹ 3 lakh in the P.Y. 2022 - 23 in retail trade business. Against which
of the following income during the same year, can he set-off such loss? -
a) profit of ₹ 1 lakh from wholesale cloth business

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 b) long-term capital gains of ₹ 1.50 lakhs on sale of land
c) speculative business income of ₹ 40,000
d) All of the above

5. Virat runs a business of manufacturing of shoes since the P.Y. 2020 - 21. During the P.Y.
2021 - 22 and P.Y. 2023 - 24, Virat had incurred business losses. For P.Y. 2023 - 24, he
earned business profit (computed) of ₹ 3 lakhs. Considering he may/may not have
sufficient business income to set off his earlier losses, which of the following order of set
off shall be considered: -
(He does not have income from any other source)
a) First adjustment for loss of P.Y. 2020-21, then loss for P.Y. 2023-24 and then
unabsorbed depreciation, if any.
b) First adjustment for loss of P.Y. 2022 -23, then loss for P.Y. 2020 -21 and then
unabsorbed depreciation, if any.
c) First adjustment for unabsorbed depreciation, then loss of P.Y. 2022 -23 and then
loss for P.Y. 2020 - 2021 if any.
d) First adjustment for unabsorbed depreciation, then loss of P.Y. 2020 -21 and then
loss for P.Y. 2022 - 23, if any.

6. Mr. Ravi incurred loss of ₹ 4 lakh in the P.Y.2021 -22 in leather business. Against which of the
following incomes earned during the same year, can he set-off such loss? -
i. Profit of ₹ 1 lakh from apparel business
ii. Long-term capital gains of ₹ 2 lakhs on sale of jewellery
iii. Salary income of ₹ 1 lakh
a) First from (ii) and thereafter from (i); the remaining loss has to be carried forward
b) First from (i) and thereafter from (ii) and (iii)
c) First from (i) and thereafter from (iii); the remaining loss has to be carried forward
d) First from (i) and thereafter from (ii); the remaining loss has to be carried

7. During the A.Y. 2024 - 25, Mr. A has a loss of ₹ 8 lakhs under the head “Income from house
property” which could not be set off against any other head of income as per the provisions
of section 71. The due date for filing return of income u/s 139(1) in case of Mr. A has already
expired and Mr. A forgot to file his return of income within the said due date. However, Mr. A
filed his belated return of income for A.Y. 2024 - 25.
Now, while filing return of income for A.Y. 2023 - 24, Mr. A wish to set off the said loss against
income from house property for the P.Y. 2022 - 23. Determine whether Mr. A can claim the
said set off. -
a) No, Mr. A cannot claim set off of loss of ₹ 8 lakhs during A.Y. 2023 -24 as he failed to
file his return of income u/s 139(1) for A.Y. 2023 - 24.
b) Yes, Mr. A can claim set off of loss of ₹ 2 lakhs, out of ₹ 8 lakhs, from his income from
house property during A.Y. 2023 - 24, if any, and the balance has to be carried forward
to A.Y. 2024 - 25.
c) Yes, Mr. A can claim set off of loss of ₹ 2 lakhs, out of ₹ 8 lakhs, from his income from
any head during A.Y. 2024 - 25 and the balance has to be carried forward to A.Y. 2024
- 25.

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 d) Yes, Mr. A can claim set off of loss of ₹ 8 lakhs during A.Y. 2024 - 25 from his income
from house property, if any, and the balance has to be carried forward to A.Y. 2024
- 25.

8. The maximum period for which speculation loss can be carried forward is –
a) 4 years
b) 8 years
c) Indefinitely
d) Cannot be carried forward

9. Mr. A incurred long term capital loss of Rs 10,000 on sale of land. Such loss can be set off:
a) Against Long Term Capital Gain
b) Against both Short Term Capital Gain & Long-Term Capital Gain
c) Against any head of income
d) Against Short Term Capital Gain

10. Which of the following loss cannot be carried forward?

a) Loss from speculative business
b) Loss under the head Capital gain
c) Loss under the head Income from Other Sources
d) Loss under the head Income from House Property

11. Unabsorbed depreciation cannot be set off against –

a) Income under the head ‘Income from Other Sources’
b) Income under the head ‘Income from House Property’
c) Income under the head ‘Salaries’
d) Capital Gains

12. Loss which cannot be set off against inter-head adjustment is –

a) Loss under the head Capital Gains
b) Non speculative Business Loss
c) Loss under the head ‘Income from House Property’
d) Loss under the head ‘Income from Other Sources’

13. Accumulated losses of a firm which is converted into Limited Liability Partnership can be
carried
forward for –
a) 8 years
b) 7 years
c) 4 years
d) Cannot be carried forward

14. The maximum period for which business loss can be carried forward is –
a) 8 years

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 b) 4 years
c) any number of years
d) Not carried forward

15. Loss from activity of owning and maintaining horse race can be carried forward for –
a) 8 Years
b) 4 Years
c) Indefinite years
d) 2 Years

16. Short term capital loss can be set off from –

a) Any capital gains
b) Long term capital gain only
c) Income from business or profession
d) Income from salary

17. The details of income/loss of Mr. Kumar for A.Y. 2024 - 25 are as follows:
Particulars Amount
Income from Salary (computed) 5,20,000
Loss from self-occupied house property 95,000
Loss from let-out house property 2,25,000
Loss from specified business u/s 35AD 2,80,000
Loss from medical business 1,20,000
Long term capital gain 1,60,000
Income from other sources 80,000

What shall be the gross total income of Mr. Kumar for A.Y. 2024 - 25?
a) ₹ 4,40,000
b) ₹ 3,20,000
c) ₹ 1,60,000
d) ₹ 4,80,000

18. Mr. Arpan (aged 35 years) submits the following particulars for the purpose of computing his
total income:
Particulars Amount
Income from salary (computed) 4,00,000
Loss from let-out house property (-) 2,20,000
Brought forward loss from let-out house (-)2,30,000
property for the A.Y. 2023 - 24
Business loss (-)1,00,000
Bank interest (FD) received 80,000

Compute the total income of Mr. Arpan for the A.Y. 2024 - 25 and the amount of loss that can
be carried forward for the subsequent assessment year? -

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 a) Total income ₹ 2,00,000 and loss from house property of ₹ 2,50,000 and business
loss of ₹ 20,000 to be carried forward to subsequent assessment year.
b) Total income ₹ 1,60,000 and loss from house property of ₹ 2,30,000 to be carried
forward to subsequent assessment year.
c) Total income ₹ 1,80,000 and loss from house property of ₹ 2,30,000 and business loss
of ₹ 20,000 to be carried forward to subsequent assessment year.
d) Total income is Nil and loss from house property of ₹ 70,000 to be carried forward to
subsequent assessment year.

19. During the A.Y. 2024 - 25, Mr. Kabir has a loss of ₹ 6 lakhs under the head “Income from house
property”, loss of ₹ 5 lakhs from business of profession and income of ₹ 3 lakhs from long term
capital gains. He filed his return of income for the A.Y. 2024 - 25 on 31.12.2024. Determine
the total income of Mr. Kabir for A.Y. 2023 - 24 and the amount of loss which can be carried
forward in a manner most beneficial to him? -
a) Total income Nil; loss of ₹ 4,00,000 from house property and loss of ₹ 4,00,000 from
business or profession.
b) Total income ₹ 1,00,000; loss of ₹ 4,00,000 from house property.
c) Total income Nil; No loss is allowed to be carried forward.
d) Total income Nil; loss of ₹ 6,00,000 from house property.

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 Chapter 10
Deductions
Question 1
Mr. X furnishes you the following information:

Raw material purchased Rs. 5,00,000

Manufacturing expenses (revenue nature) Rs. 2,00,000
Sale price Rs. 18,00,000
Plant & machinery acquired [Depreciation @ 15%. Rs. 2,60,000

He has made the investments as given below:

I. Fixed deposit with State Bank for two years Rs. 5,000.

II. Investment in National Saving Certificates Rs. 5,000.

III. Deposit in Public Provident Fund Account in the name of major married independent son Rs.
5,000.

IV. Deposit in Public Provident Fund Account in the name of minor son Rs. 5,000.

V. Payment of premium for LIC policy in name of major married independent daughter on
15.09.2023 Rs. 5,000. (sum assured Rs. 1,00,000).

VI. Payment of premium for LIC policy in name of major married independent son on 11.11.2023 Rs.
5,000. (sum assured Rs. 20,000)

VII. Investment in Home Loan Account Scheme of National Housing Bank Rs. 5,000 (Investment was
made out of past savings).

VIII. Investment in units of Mutual Funds notified u/s 10(23D) Rs. 5,000. (Investment was made out of
current income exempt from income tax).

IX. Investment in Equity Shares of Infrastructure Companies Rs. 5,000.

X. Payment of Tuition fees of his son to a private coaching centre for coaching in taxation Rs. 5,000.
Compute his income & tax liability for A.Y. 2024 - 25.

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Answer:

Computation of income under the head Business/profession

Particulars Rs.
Sale price 18,00,000
Less: Purchase Price (5,00,000)
Less: Manufacturing expenses (2,00,000)
Less: Depreciation on plant & machinery (2,60,000 x 15%) (39,000)
Income under the head Business/profession/ Gross Total Income 10,61,000
Less: Deduction u/s 80C
National Saving Certificate (5,000)
Public Provident Fund (10,000)
LIC policy in name of major married independent daughter (5,000)
LIC policy in name of major married independent son (2,000)
Home Loan Account Scheme (5,000)
Units of Mutual Funds (5,000)
Equity Shares of Infrastructure Companies (5,000)
Total Income 10,24,000

Computation of Tax Liability

Tax on Rs. 10,24,000 at slab rate 1,19,700

Add: HEC @ 4% 4,788
Tax Liability 1,24,488
Rounded off u/s 288B 1,24,490

Question 2
The particulars of income of Mrs. Spandana. aged 55 years for the F.Y. 2023 - 24 are given below:

Gross salary received from M/s ABC Ltd. for the year 4,00,000
Rental income received from a commercial complex 1,44,000
Arrears of rent received from the complex, which were not taxed in any earlier years 30,000
Interest paid on loan taken from bank for purchase of house used as residence 30,000
Repayment of instalments of loan taken from bank for purchase of above property 60,000
Deposits in PPF A/c Out of current year’s income 40,000
Investment made in units of a mutual fund approved by the board u/s 80C 40,000

Compute the total income of Mrs. Spandana & the tax payable thereon in respect of A.Y. 2024 - 25.

Answer:

Computation of total income & tax liability Mrs. Spandana Income from salary

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 Income under the head Salary 4,00,000
Income from house property
Let out commercial complex
Gross Annual Value (12,000 x 12) 1,44,000
Less: Municipal taxes Nil
Net Annual Value 1,44,000
Less: 30% of NAV u/s 24(a) (43,200)
Less: Interest on capital borrowed u/s 24(b) Nil
Income from let out property 1,00,800
Property self- occupied for residence Nil
Net Annual Value Nil
Less: Interest on capital borrowed u/s 24(b) (30,000)
Income from self-occupied property (30,000)

Arrears of rent Section 25A [70% taxable] 21,000

Income u/h House Property 91,800
Gross Total Income 4,91,800
Less: Deduction u/s 80C (1,40,000)
Repayment of loan taken to purchase residential house property 60,000
Deposit in public provident fund out of current income 40,000
Investment made in units of mutual fund for infrastructure facility 40,000
Total Income 3,51,800

Computation of Tax Liability

Tax on Rs. 3,51,800 at slab rate 5,090

Add: HEC @ 4% 204
Tax Liability 5,294
Rounded off u/s 288B 5,290

Question 3
From following particulars, Compute deduction under Chapter VI-A for A.Y. 2024 - 25 of Mr. Hemant,
employed with Varun Ltd.

(a) Contribution to PPF 20,000

(b) Life Insurance Premium for self (Policy taken on 01.05.2016, Sum Assured Rs. 1,00,000) 35,000
(c) Deposit in 5-Year Term Deposit with Bank 20,000
(d) Contribution to NPS (15% of his Salary, Matching Contribution was made by Arun Ltd) 1,80,000
(e) Subscription to Sukanya Samriddhi Account paid by Mr. H for his girl 10,000
(f) Payment of tuition fees to Meridian School, New Delhi, for education of his son studying 20,000
in XI
(g) Repayment of housing loan taken from HSBC Bank 15,000
(h) Contribution to approved pension fund of LIC 5,000

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Answer:

Computation of Deduction under Chapter VI-A

Particulars Rs. Rs.

Sec. 80C: Deposit in Public Provident Fund 20,000
LIC Premium (Restricted to 10% of Sum Assured) 10,000
5-Year Term Deposit with Bank 20,000
Subscription to Sukanya Samriddhi Account 30,000
Payment of tuition fees for education of his son studying in Class XI 20,000
Repayment of housing loan taken from HSBC Bank 15,000
Total of above u/s 80C 1,15,000 1,15,000
80CCC: Contribution to approved pension fund of LIC 5,000 5,000
80CCD(1): Contribution to NPS by Mr. H (upto 10% of 30,000
1,20,000
Salary)(1,80,000/15%)*10% (Note 1)
80CCE: Total Deduction u/s 80C + 80CCC + 80CCD(1) cannot Exceed 150000 1,50,000
80CCD(1B): Additional deduction: Contribution to NPS by Mr. H (Note 2) 50,000
80CCD(2): Contribution to NPS by Varun Ltd (1,80,000/15%)*10%
(Note 2 & 3) 1,20,000

Total Deduction under Chapter VI-A 3,20,000

Note:

1. U/s 80CCE, Maximum Deduction u/s 80C, 80CCC & 80CCD(1) cannot exceed Rs.
1,50,000. Since deduction u/s 80C & 80CCC is Rs. 1,20,000 (being the maximum
limit), only Rs. 30,000 will be allowed as deduction u/s 80CCD(1). However,
Employee can claim additional deduction of Rs. 50,000 u/s 80CCD(1B) for balance
amount.

2. Eligible contribution u/s.80CCD(1B) & 80CCD(2) are not covered in overall limit of Rs.
1,50,000 u/s 80CCE.

3. Employer’s contribution to NPS has been included as income of employee u/h ‘Salaries’
while computing his

4. Gross Total Income & then, deduction u/s 80CCD(2) can be claimed.

Question 4
Mr. Yathish, aged 40 years, paid medical insurance premium of Rs. 22,000 during P.Y. 2023 - 24 to insure
his health as well as the health of his spouse & dependent children. He also paid medical insurance
premium of Rs. 33,000 during the year to insure the health of his mother, aged 67 years, who is not
dependent on him. He incurred medical expenditure of Rs. 20,000 on his father, aged 71 years, who is
not covered under Mediclaim policy. His father is also not dependent upon him. He contributed Rs.
6,000 to Central Government Health Scheme during the year.

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Compute deduction allowable u/s 80D for the A.Y. 2024 - 25.
Answer:

Deduction allowable u/s 80D for the A.Y. 2024 - 25

Particulars Rs. Deduction

Medical Insurance Premium paid for self, spouse & Dependent children 22,000
Contribution to CGHS 6,000
Total Expenditure for Family 28,000 25,000
Medi-claim premium paid for mother, who is over 60 years 33,000
Medical expenditure incurred for father, who is over 60 years of age & not 20,000
covered by any insurance
Total Expenditure for Parents 53,000 50,000
Total Deduction u/s 80D = Rs. 25,000 + Rs. 50,000 = Rs. 75,000.

Question 5
Mr. Raj Kumar (aged 65 years) is retired from a Public Sector Undertaking. He resides in Delhi. He
provides you the following particulars of his income and certain payments/investments for the P.Y.
2023 - 24:

• Pension income of Rs.8,50,000

• Interest from fixed deposits with SBI of Rs.3,35,000 (Gross)
• Life insurance premium paid by cheque Rs.27,500 for insurance of his life. The insurance policy
was taken on 10-07-2019 and the sum assured is Rs.2,40,000.
• Premium of Rs.37,500 paid by cheque for health insurance of self and his wife, who is also a
senior citizen.
• Rs.3,000 paid in cash for his health check-up and Rs.4,500 paid through cheque for preventive
health check-up of his father aged 90 years.
• Paid interest of Rs.8,500 on loan taken from bank for MBA course pursued by his son.
• A sum of Rs.1,20,000 donated by cheque to an institution approved for the purpose of section
80G for promoting family planning.
• Rs.10,000 contributed towards PM CARES Fund by cheque.

Compute the total income of Mr. Raj Kumar for the A.Y. 2024 - 25, assuming he does not opt for
section 115BAC.

Answer:
Computation of total income of Mr. Raj Kumar for A.Y. 2024 - 25

Particulars Rs. Rs. Rs.

Income under the head “Salaries”
Pension 8,50,000
Less: Standard deduction u/s 16(i a)
Lower of Rs. 50,000 or actual salary/pension 50,000 8,00,000
Income from Other Sources

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Interest from bank on fixed deposit (Gross) 3,35,000
Gross Total Income 11,35,000
Less: Deduction under Chapter VI-A
Deduction under section 80C
LIC premium of Rs.27,500 (restricted to 10% of Rs.2,40,000, 24,000
being the sum assured, as the policy is taken after
31.3.2012)
Deduction under section 80D
Premium for health insurance for self and his wife paid by 37,500
cheque, allowed up to Rs. 50,000 since Mr. Raj Kumar is a senior
citizen
Preventive health check-up for self, Rs.3,000, and for his father, 5,000
Rs.4,500, restricted to Rs.5,000 (deduction allowed even if the
same is paid in cash)
42,500
Deduction under section 80E
Interest on loan taken from bank for MBA course pursued by his 8,500
son
Deduction under section 80G
Donation to PM CARES Fund – 100% allowable 10,000
Donation to an approved institution for promoting family 1,01,000
planning – 100% allowable subject to qualifying limit of
Rs.1,01,000 i.e., 10% of Rs.10,10,000 being the adjusted total
income
Deduction under section 80TTB
Interest on fixed deposit with bank allowable as deduction up to 50,000
Rs. 50,000, since Mr. Raj Kumar is a senior citizen
2,36,000
Total Income 8,99,000

Multiple Choice Questions

1. Mr. Srivastav, aged 72 years, paid medical insurance premium of ₹ 52,000 by cheque and ₹
4,000 by cash during May, 2023 under a Medical Insurance Scheme of the General Insurance
Corporation. The above sum was paid for insurance of his own health. He would be entitled
to a deduction under section 80D of a sum of
a. ₹ 30,000
b. ₹ 50,000
c. ₹ 52,000
d. ₹ 56,000

2. Mr. Ramesh pays a rent of ₹ 5,000 per month. His total income is ₹ 2,80,000 (i.e., Gross Total
Income as reduced by deductions under Chapter VI-A except section 80GG). He is also in
receipt of HRA. He would be eligible for a deduction under section 80GG of an amount of-
a. ₹ 60,000
b. ₹ 32,000

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 c. ₹ 70,000
d. Nil

3. An individual has paid life insurance premium of ₹ 25,000 during the previous year for a policy
of ₹ 1,00,000 taken on 01.04.2023. He shall –
a. not be allowed deduction u/s 80C
b. be allowed deduction of ₹ 20,000 u/s 80C
c. be allowed deduction of ₹ 25,000 u/s 80C
d. be allowed deduction of ₹ 10,000 u/s 80C

4. The maximum amount which can be donated in cash for claiming deduction under section
80G for the P.Y. 2023 - 24 is –
a. ₹ 5,000
b. ₹ 10,000
c. ₹ 1,000
d. ₹ 2,000

5. Rajan, a resident Indian, has incurred ₹ 15,000 for medical treatment of his dependent
brother, who is a person with severe disability and has deposited ₹ 20,000 with LIC for his
maintenance. For A.Y. 2024 - 25, Rajan would be eligible for deduction under section 80DD of
an amount equal to –
a. (a) ₹ 15,000
b. (b) ₹ 35,000
c. (c) ₹ 75,000
d. (d) ₹ 1,25,000

6. Mr. X, a resident, is due to receive ₹ 4.50 lakhs on 31.3.2024, towards maturity proceeds of
LIC policy taken on 01.04.2019, for which the sum assured is ₹ 4 lakhs and the annual premium
is ₹ 1,25,000. Mr. Z, a resident, is due to receive ₹ 95,000 on 01.10.2023 towards maturity
proceeds of LIC policy taken on 01.10.2013 for which the sum assured is ₹ 90,000 and the
annual premium is ₹ 10,000. -
a. Tax is required to be deducted on income comprised in maturity proceeds payable to
Mr. X and Mr. Z
b. Tax is required to be deducted on income comprised in maturity proceeds payable
to Mr. X
c. Tax is required to be deducted on income comprised in maturity proceeds payable to
Mr. Z
d. No tax is required to be deducted on income comprised in maturity proceeds payable
to either Mr. X or Mr. Z

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Chapter 11
TDS, TCS and Advance Tax
Question 1
Examine TDS implications in case of following transactions, briefly explaining provisions involved
assuming that all the payees are residents; state the rate and amount to be deducted, in case TDS is
required to be deducted

1. Harsha & Co, an LLP withdrew from its bank account Rs. 40 lakhs by cash on 01.05.2023, Rs.
35 lakhs on 07.09.2023 and Rs. 55 lakhs on 28.02.2024. The purpose of withdrawal from bank
was for buying agricultural produce, from farmers/agriculturist, being raw material required
for manufacture of finished products by it. Mrinal & Sons regularly files its return of income
before the due date.
2. Mr. Mukesh, aged 75 years, holds 6% Gold Bonds, 1977 of Rs. 2,50,000 and 7% Gold Bonds of
Rs. 3,50,000. He received interest on these bonds on 31.01.2024.

Answer:

1. Harsha & Co has withdrawn aggregate cash of Rs. 1.30 crores during the P.Y. 2023 - 24. Since
aggregate amount cash withdrawals exceed Rs. 1 crore, bank is required deducted tax at
source 2% on the amount exceeding Rs. 1 crore i.e., Rs. 30 lakhs though he withdraws the
same for buying agricultural produce from farmers, agriculturists, being raw material required
for manufacture of finished products by it.

TDS@2% of Rs. 30 lakhs = Rs. 60,000

2. Tax (10% under section 193 is to be deducted on interest on 6% Gold Bonds, 1977 and 7%
Gold Bands 1980)
Interest on 6% gold bonds, 1977 = Rs. 2,50,000 x 6% = Rs. 15,000
Interest on 7% gold bonds, 1980 = Rs. 3,50,000 x 7% = Rs. 24,500
Total interest = Rs. 39,500
Tax to be deducted at source = (Rs. 39,500 x 10%) = Rs. 3,950

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Question 2
Briefly discuss the clarification issued by the CBDT on the cross application of TDS under section 194-
Q and TCS under section 206C(1H).

Answer:

As per section 206C (1H) tax is not required to be collected under the said section if the buyer is liable
to deduct tax at source under any other provision of the Act on the goods purchased by him from the
seller and has deducted such tax.

As per section 194Q, the provision of section 194Q would not apply to a transaction on which tax is
collectible under the provisions of section 206C, other than a transaction on which section 206C(1H)
applies.

If a transaction is within the purview of both section 194Q and section 206C (IH), the tax is required
to be deducted under section 194Q. The transaction would come out of the purview of section
206C(1H) after tax has been deducted by the buyer on that transaction. Once the buyer has deducted
the tax on a transaction, the seller is not required to collect the tax under section 206C(1H) on the
same transaction. However, if, for any reason, tax has been collected by the seller under section
206C(1H) before the buyer could deduct tax under section 194Q on the same transaction, such
transaction would not be subjected to tax deduction again by the buyer

Question 3
Discuss the liability of tax deduction at source under the Income-tax Act, 1961 in respect of the
following cases with reference to A.Y. 2024-25.

(i) XY a partnership firm is selling its product 'R' through the E-commerce Platform
provided by AB Ltd. (E-commerce Operator). AB Ltd., credited in its books of
account, the account of XY on 28th February, 2024 by sum of Rs. 4,90,000 for the
sale of product R, made during the month February, 2024. Mr. Rai, who purchased
product 'R' through the platform provided by AB Ltd. made payment of Rs. 60,000
directly to XY on 21st February, 2024.
(ii) ABC Ltd is a producer of natural gas. During the year it sold natural gas worth Rs.
26,50,000 to M/s Deep Co., a partnership firm. It also incurred Rs. 1,70,000 as
freight for the transportation of gas. It raised the invoice and clearly segregated
the value of gas as well as the transportation charges.
(iii) ABC LLP paid job charges to XYZ, a partnership firm for doing embroidery work on
the fabric supplied by the ABC LLP during the previous year 2023-24 as under:
Bill No. Date Amount
1 30-04-2023 27,000
57 30-06-2023 25,000
105 30-09-2023 28,000
151 30-12-2023 32,000

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Answer:

i. AB Ltd, an e-commerce operator is required to deduct tax @1% under section 194-O on Rs.
5,50,000 (i.e., Rs. 4,90,000 credited on 28.2.2024 plus deemed payment of Rs. 60,000 on
21.2.2023, being payment directly made by Mr. Rai to the e-commerce participant XY), being
the gross amount of sale of product ‘R’ of XY, an e-commerce participant, since such sale is
affected in February, 2024 is facilitated by AB Ltd. through its e-commerce platform. Hence,
TDS u/s 194O = 1% on Rs. 5,50,000 = Rs. 5,500

ii. Since ABC Ltd., being the producer of the natural gas, sells as well as transports the gas to M/s.
Deep Co., the purchaser, till the point of delivery, where the ownership of gas is
simultaneously transferred to M/s. Deep Co, the manner of raising the invoice (whether the
transportation charges are embedded in the cost of gas or shown separately) does not alter
the basic nature of such contract which remains essentially a ‘contract for sale’ and not a
‘works contract’ as envisaged in section 194C. Therefore, in such circumstances, the TDS
provisions would not be attracted on Rs.1,70,000, being the component of gas transportation
charges paid by M/s. Deep Co. to ABC Ltd.

Alternate Answer: The above solution is based on Circular No. 9/2012 dated 17.10.2012,
wherein it has been clarified that in case the Owner/Seller of the gas sells as well as transports
the gas to the purchaser till the point of delivery, where the ownership of gas to the purchaser
is simultaneously transferred, the manner of raising the sale bill, does not alter the basic
nature of such contract which remains essentially a 'contract for sale' and not a 'works
contract' as envisaged in section 194C of the Act.
Since, the question is silent on the timing of the transfer of ownership of the gas to the
purchaser, an assumption that the ownership of the gas to the purchaser is transferred before
its transportation is possible.

In such a case, the transportation of gas after transfer of ownership may be considered as a
separate contract for transportation of gas i.e. ‘works contract’ u/s 194C, and hence TDS @
2% has to be deducted by M/s. Deep Co. on Rs. 1,70,000/- i.e. Rs. 3,400/-

iii. In this case, the individual contract payments (through the bills dated 30.4.2023, 30.6.2023
and 30.9.2023) made by ABC LLP to XYZ does not exceed Rs. 30,000. However, since the
aggregate amount paid to XYZ during the P.Y. 2023 - 24 exceeds Rs. 1,00,000 (on account of
the last payment of Rs. 32,000, due on 30.12.2023, taking the total from Rs. 80,000 to Rs.
1,12,000), the TDS provisions under section 194C would get attracted on the entire sum of Rs.
1,12,000.

Tax has to be deducted @ 2% (since payment is to a firm, XYZ) on the entire amount of Rs.
1,12,000, from the last payment of Rs. 32,000 on 30.12.2023.
Hence, TDS u/s 194C = Rs. 2,240

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Question 4
State in brief the applicability of provisions of tax deduction at source, the rate and amount of tax
deduction in the following cases for the F.Y. 2023 - 24 under Income-tax Act, 1961. Assume that all
payments are made to residents:

(i) Mr. Mahesh has paid Rs. 6,00,000 on 15.10.2023 to M/s Fresh Cold Storage Pvt. Ltd. for
preservation of fruits and vegetables. He is engaged in the wholesale business of fruits &
vegetable in India having turnover of Rs. 3 Crores during the P.Y. 2023 - 24.
(ii) Mr. Ramu, a salaried individual, has paid rent of Rs. 60,000 per month to Mr. Shiv Kumar
from 1st July, 2023 to 31st March, 2024. Mr. Shiv Kumar has not furnished his Permanent
Account Number.

Answer:

i. The arrangement between Mr. Mahesh, the customer, and M/s. Fresh Cold Storage Pvt. Ltd.,
the cold storage owner, is basically contractual in nature and main object of the cold storage
is to preserve perishable goods by mechanical process and storage of such goods is only
incidental. Hence, the provisions of section 194C will be applicable to the amount of Rs. 6 lakh
paid by Mr. Mahesh to the cold storage company.

Accordingly, tax has to be deducted@2% on Rs. 6 lakh.

TDS u/s 194C = 2% x Rs. 6 lakh = Rs. 12,000

ii. Mr. Ramu, being a salaried individual, has to deduct tax at source @ 5% u/s 194-IB on the
annual rent paid by him from the last month’s rent (rent of March, 2024), since the rent paid
by him exceeds Rs. 50,000 p.m. Since his landlord Mr. Shiv Kumar has not furnished his PAN
to Mr. Ramu, tax has to be deducted @ 20% instead of 5%. However, the same cannot exceed
Rs. 60,000, being rent for March, 2024.

TDS u/s 194-IB = Rs. 5,40,000 (Rs. 60,000 x 9) x 20% = Rs. 1,08,000, but restricted to Rs. 60,000,
being rent for March, 2024.

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Question 5
Examine the following transactions with reference to applicability of the provision of tax collected at
source and the rate and amount of the TCS for the A.Y. 2024 - 25.

(i) Mr. Kalpit bought an overseas tour programme package for Singapore for himself and his
family of Rs. 5 lakhs on 01-11-2023 from an agent who is engaged in organising foreign
tours in course of his business. He made the payment by an account payee cheque and
provided the permanent account number to the seller. Assuming Kalpit is not liable to
deduct tax at source under any other provisions of the Act.

(ii) Mr. Anu doing business of textile as a proprietor. His turnover in the business is Rs. 11
crores in the P.Y. 2023 - 24. He received payment against sale of textile goods from Mr.
Ram of Rs. 75 lakhs against the sales made to him in the previous year and preceding
previous years. (Assuming all the sales are domestic sales and Mr. Ram is neither liable to
deduct tax on the purchase from Mr. Anu nor he deducted any tax at source).

Answer:

(i) Tax @ 5% is required to be collected u/s 206C by the seller of an overseas tour programme
package, from Mr. Kalpit, being the buyer of an overseas tour package, even if payment is
made by account payee cheque.

Accordingly, tax has to be collected@5% on Rs. 5 lakh. TCS = 5% x Rs. 5 lakh = Rs. 25,000

(ii) Mr. Anu is required to collect tax @0.1% u/s 206C from Mr. Ram, since his turnover in the
P.Y. 2023 - 24 exceeds Rs.10 crores, and the sales receipts from Mr. Ram in the P.Y. 2023-
24 exceeds Rs. 50 lakhs. Tax has to be collected by Mr. Anu on Rs. 25 lakhs, being the
amount exceeding Rs. 50 lakhs, at the time of receipt. Since receipt is in the P.Y. 2023 -
24, TCS provisions are attracted even though part of the sales may relate to the preceding
previous years.

TCS = 0.1% x Rs. 25 lakhs = Rs. 2,500

Note – It is assumed that sales receipts to the tune of at least Rs. 25 lakhs were received
on or after 01.10.2020, being the date when the provisions of section 206C(1H) became
effective. Alternatively, it is also possible to assume that the entire receipts of Rs. 75 lakhs
was received before 01.10.2020. In such a case, the provisions of section 206C(IH) would
not be applicable and no tax would be required to be collected.

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Question 6
Examine whether TDS provisions would be attracted in the following cases, and if so, under which
section. Also specify the rate of TDS and amount required to be deducted at source as applicable in
each case. Assume that all payments are made to residents.

Aggregate of payments
S.
Particulars of the payer Nature of payment made in the F.Y. 2023-
No.
24 (Amt. in Rs.)
Contractual payment made during
Mr. Kale, receiving pension April 2022 for reconstruction of his
A 52,50,000
from Central Government residential house in Arunachal
Pradesh
Contract payment for construction of
Mr. Rahul, a wholesale trader
office godown during January to
B of spices whose turnover was 50,00,000
March 2022 to Mr. Akhilesh, an
Rs. 5 crores F.Y. 2021-22
individual
Mr. Golu, an individual carrying Payment of commission to Mr. Vinay
garment trading business with for securing a contract from a big
C 1,20,000
turnover of Rs. 95 lakhs in F.Y. business house in November 2022
2021- 2022
Payment by way of cash withdrawal,
by ABC & Co. a partnership firm,
amounting Rs. 1.2 crores during
D XYZ Urban Co-operative bank 1,20,00,000
Financial Year 2023-24. ABC & Co.
has filed its tax returns for the last 3
financial years within time.

Answer:

A. Mr. Kale, being a pensioner, would not be liable to deduct tax at source under section
194C. However, he has to deduct tax at source @ 5% u/s 194M, since the aggregate
amount of payment to the contractor for his personal purposes i.e., for reconstruction of
his residential house in Arunachal Pradesh, exceeds the threshold limit of Rs. 50,00,000.

Therefore, TDS u/s 194M would be = Rs. 52,50,000 x 5% = Rs. 2,62,500.

B. Mr. Rahul is required to deduct tax at source u/s 194C, since his turnover from business
in the financial year 2021-22, being the financial year immediately preceding F.Y.2023-24
in which such sum is paid, exceeds Rs. 1 crore. Tax is to be deducted at source at the rate
1% as the payment is made to an Individual.

Therefore, TDS u/s 194C would be = Rs. 50,00,000 x 2% = Rs. 1,00,000

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 C. Tax is required to be deducted u/s 194H, if the payer is an individual whose turnover from
business carried on by him in the financial year immediately preceding the financial year
in which commission is paid, exceeds Rs. 1 crore. However, where TDS u/s 194H is not
applicable, tax is required to be deducted u/s 194M where payment of commission during
the relevant previous year exceeds Rs. 50 lakhs In the present case, Mr. Golu is not
required to deduct tax at source u/s 194H on the commission paid to Mr. Vinay in the P.Y.
2023 - 24 since his turnover from his business does not exceed Rs. 1 crore during the P.Y.
2022-23. Further, Mr. Golu is also not required to deduct tax at source u/s 194M on the
said commission paid to Mr. Vinay since the commission paid does not exceed Rs. 50 lakhs
during the P.Y. 2023-24.

D. A co-operative bank which is responsible for paying any sum, being the amount or
aggregate of amounts, as the case may be, in cash exceeding Rs. 1 crore during the
previous year, to any person from an account maintained by such person with it, has to
deduct an amount equal to 2% of such sum, as income-tax at the time of payment.
Accordingly, since XYZ Urban Co-operative is responsible for paying a sum exceeding Rs.
1 crore (Rs. 1.2 crore, in this case) in cash to ABC & Co., a partnership firm, during the F.Y.
2023 - 24, the bank is required deduct tax at source @ 2% of such sum.

Therefore, TDS u/s 194N would be = Rs. 20,00,000 x 2% = Rs. 40,000

Question 7
Examine TDS/TCS implications in case of following transactions, briefly explaining provisions involved
assuming that all the payees are residents; state the rate and amount to be deducted, in case TDS/TCS
is required to be deducted/collected.

(i) On 01.05.2023, Mr. Brijesh made three fixed deposits of nine months each of Rs. 3 lakh
each, carrying interest @ 9% with Mumbai Branch, Delhi Branch and Chandigarh Branch
of CBZ Bank, a bank which had adopted CBS. These Fixed Deposits mature on 31.01.2024.
(ii) Mr. Marwah, aged 80 years, holds 6½% Gold Bonds, 1977 of Rs. 2,00,000 and 7% Gold
Bonds 1980 of Rs. 3,00,000. He received yearly interest on these bonds on 28.02.2024.
(iii) M/s AG Pvt. Ltd. took a loan of Rs. 50,00,000 from Mr. Haridas. It credited interest of Rs.
79,000 payable to Mr. Haridas during the P.Y. 2023-24. M/s AG Pvt. Ltd. is not liable for
tax audit during previous years 2022-23 and 2023-24.
(iv) Mr. Prabhakar is due to receive Rs. 6 lakh on 31.03.2024 towards maturity proceeds of LIC
policy taken on 1.4.2019, for which the sum assured is Rs. 5 lakhs and the annual premium
is Rs. 1,40,000.

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Answer:

(i) CBZ Bank has to deduct tax at source @10% under section 194A, since the aggregate
interest on fixed deposit with the three branches of the bank is Rs. 60,750 [3,00,000 x 9%
x 3 x 9/12], which exceeds the threshold limit of Rs. 40,000.
Since CBZ Bank has adopted core banking solution (CBS), the aggregate interest
credited/paid by all branches has to be considered.

Tax to be deducted at source = Rs. 60,750 x 10% = Rs. 6,0751

(ii) Tax @10% under section 193 is to be deducted on interest on 6½ Gold Bonds, 1977 and
7% Gold Bonds 1980, since the nominal value of the bonds held by Mr. Marwah i.e., Rs.
5,00,000 exceed Rs. 10,000.
Interest on 6½ Gold Bonds, 1977 = Rs. 2,00,000 x 6.5% = Rs. 13,000
Interest on 7% Gold Bonds 1980 = Rs. 3,00,000 x 7% = Rs. 21,000
Tax to be deducted at source = Rs. 34,000 x 10% = Rs. 3,400

(iii) M/s AG Pvt. Ltd. has to deduct tax at source @10% under section 194A, since the interest
on loan payable is Rs. 79,000 which exceeds the threshold limit of Rs. 5,000. M/s AG Pvt.
Ltd., being a company, has to deduct tax at source irrespective of the fact that it is not
liable to tax audit during P.Y. 2022-23 and 2023-24.

Tax to be deducted at source = Rs. 79,000 x 10% = Rs. 7,900

(iv) Since the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.03.2012, the maturity proceeds of Rs. 6 lakhs due on 31.3.2024 are not exempt under
section 10(10D) in the hands of Mr. Prabhakar. Therefore, tax is required to be deducted
@5% under section 194DA on the amount of income comprised therein i.e., on Rs. 40,000
[Rs. 6,00,000, being maturity proceeds - Rs. 5,60,000, being the amount of insurance
premium paid.

Tax to be deducted at source = Rs. 40,000 x 5% = Rs. 2,000

Question 8
Mr. Gupta, a resident Indian, is in retail business and his turnover for F.Y. 2022-23 was Rs. 12 crores.
He regularly purchases goods from another resident, Mr. Agarwal, a wholesaler, and the aggregate
payments during the F.Y. 2023 - 24 was Rs. 95 lakh (Rs. 20 lakh on 01-06-2023, Rs. 25 lakh on 12-08-
2023, Rs. 22 lakh on 23-11-2023 and Rs. 28 lakh on 25-03-2024). Assume that the said amounts were
credited to Mr. Agarwal's account in the books of Mr. Gupta on the same date. Mr. Agarwal's turnover
for F.Y. 2023 - 24 was Rs. 15 crores.

1) Based on the above facts, examine the TDS/TCS implications, if any, under the Income-tax Act,
1961.

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 2) Would your answer be different if Mr. Gupta's turnover for F.Y. 2022 - 23 was other facts
remaining the same? 8 crores, all
3) Would your answer to (1) and (2) change, if PAN has not been furnished by the buyer or seller,
as required?

Answer:

(1) Since Mr. Gupta’s turnover for F.Y.2021-22 exceeds 10 crores, and payments made by him to
Mr. Agarwal, a resident seller exceed Rs. 50 lakhs in the P.Y. 2023 - 24, he is liable to deduct
[email protected]% of Rs. 45 lakhs (being the sum exceeding Rs. 50 lakhs) in the following manner –

i. No tax is to be deducted u/s 194Q on the payments made on 01.06.2023 and

12.08.2023, since the aggregate payments till that date i.e. 45 lakhs, has not
exceeded the threshold of Rs. 50 lakhs.

ii. Tax of Rs. 1,700 (i.e., 0.1% of Rs. 17 lakhs) has to be deducted u/s 194Q from
the payment/ credit of Rs. 22 lakh on 23.11.2023 [Rs. 22 lakh – Rs. 5 lakhs,
being the balance unexhausted threshold limit].

iii. Tax of Rs. 2,800 (i.e., 0.1% of Rs. 28 lakhs) has to be deducted u/s 194Q from
the payment/ credit of Rs. 28 lakhs on 25.03.2024.
Note – In this case, since both section 194Q and 206C(1H) applies, tax has to
be deducted u/s 194Q.

(2) If Mr. Gupta’s turnover for the F.Y. 2022 - 23 was only Rs. 8 crores, TDS provisions under
section 194Q would not be attracted. However, TCS provisions under section 206C(1H) would
be attracted in the hands of Mr. Agarwal, since his turnover exceeds Rs. 10 crores in the F.Y.
2022-23 and his receipts from Mr. Gupta exceed Rs. 50 lakhs.

i. No tax is to be collected u/s 206C(1H) on 01.06.2023 and 12.8.2023, since the

aggregate receipts till that date i.e. 45 lakhs, has not exceeded the threshold
of Rs. 50 lakhs.

ii. Tax of Rs. 1,700 (i.e., 0.1% of Rs. 17 lakhs) has to be collected u/s 206C(1H) on
23.11.2023 (Rs. 22 lakh – Rs. 5 lakhs, being the balance unexhausted
threshold limit).

iii. Tax of Rs. 2,800 (i.e., 0.1% of Rs. 28 lakhs) has to be collected u/s 206C(1H) on
25.03.2024.

(3) In case (1), if PAN is not furnished by Mr. Agarwal to Mr. Gupta, then, Mr. Gupta has to deduct
tax@5%, instead of 0.1%. Accordingly, tax of Rs. 85,000 (i.e., 5% of Rs. 17 lakhs) and Rs.
1,40,000 (5% of Rs. 28 lakhs) has to be deducted by Mr. Gupta u/s 194Q on 23.11.2023 and
25.03.2024, respectively.

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 In case (2), if PAN is not furnished by Mr. Gupta to Mr. Agarwal, then, Mr. Agarwal has to
collect tax@1% instead of 0.1%. Accordingly, tax of Rs. 17,000 (i.e., 1% of Rs. 17 lakhs) and Rs.
28,000 (1% of Rs. 28 lakhs) has to be collected by Mr. Agarwal u/s 206C(1H) on 23.11.2023
and 25.03.2024, respectively.

Question 9
Examine the TDS/TCS implications in the cases mentioned hereunder–

(i) On 01.06.2023, Mr. Ganesh made three nine months fixed deposits of Rs. 3 lakh each,
carrying interest@9% p.a. with Dwarka Branch, Janakpuri Branch and Rohini Branch of
XYZ Bank, a bank which has adopted CBS. The fixed deposits mature on 28.02.2024.
(ii) On 01.10.2023, Mr. Rajesh started a six months recurring deposit of Rs. 2,00,000 per
month@8% p.a. with PQR Bank. The recurring deposit matures on 31.3.2024

(iii) Mr. X, a resident, is due to receive Rs. 4.50 lakhs on 31.03.2024, towards maturity
proceeds of LIC policy taken on 01.04.2020, for which the sum assured is Rs. 4 lakhs
and the annual premium is Rs.1,25,000.

(iv) Mr. Y, a resident, is due to receive Rs. 3.95 lakhs on 31.03.2024 on LIC policy taken on
31.03.2013, for which the sum assured is Rs. 3.50 lakhs and the annual premium is Rs.
30,100.

(v) Mr. Z, a resident, is due to receive Rs. 95,000 on 01.08.2023 towards maturity proceeds
of LIC policy taken on 01.08.2016 for which the sum assured is Rs. 90,000 and the annual
premium was Rs.10,000.

(vi) Payment made to Smith, an Australian cricketer non-resident in India, by a newspaper

for contribution of articles Rs.25,000.

(vii) Mr. X, a salaried individual, pays rent of Rs. 55,000 per month to Mr. Y from June, 2023
for immovable property. Is he required to deduct tax at source? If so, when ishe
required to deduct tax? Also, compute the amount of tax to be deducted at source.

Would your answer change if Mr. X vacated the premises on 31st December, 2023? Also,
what would be your answer if Mr. Y does not provide his PAN to Mr. X?

(viii) XYZ Ltd. makes a payment of Rs. 28,000 to Mr. Ganesh on 02.08.2023 towards fees for
professional services and another payment of Rs. 25,000 to him on the same date
towards fees for technical services. Discuss whether TDS provisions under section 194J
are attracted.

(ix) Payment of Rs. 2,00,000 to Mr. R by S Ltd., a transporter who owns 8 goods carriages
throughout the previous year and furnishes a declaration to this effect along with his
PAN.

(x) ABC and Co. Ltd. paid Rs.19,000 to one of its directors as sitting fees on 01-01-2024.

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 (xi) Fee paid on 01.12.2023 to Dr. Srivatsan by Sundar (HUF) Rs. 35,000 for surgery
performed on a member of the family.

(xii) Rs. 2,00,000 paid to Mr. A, a resident individual, on 22-02-2024 by the State of Uttar
Pradesh on compulsory acquisition of his urban land.

(xiii) Mr. Rohit transferred a residential house property to Mr. Arun for Rs. 45 lacs. The stamp
duty value of such property is Rs.55 lacs.

(xiv) Rashi Limited is engaged by Jigar Limited for the sole purpose of business of operation
of call centre. On 18-03-2024, the total amount credited by Jigar Limited in the ledger
account of Rashi Limited is Rs. 70,000 regarding service charges of call centre. The
amount is paid through cheque on 28-03-2024 by Jigar Limited.

(xv) Ms. Mohit won a lucky draw prize of Rs. 21,000. The lucky draw was organized by M/s.
Maximus Retail Ltd. for its customer.

Answer:

(i) XYZ Bank has to deduct tax at source@10% u/s 194A, since the aggregate interest on
fixed deposit with the three branches of the bank is Rs. 60,750 [3,00,000 × 3 × 9% × 9/12],
which exceeds the threshold limit of Rs.40,000. Since XYZ Bank has adopted CBS, the
aggregate interest credited/paid by all branches has to be considered. Since the
aggregate interest of Rs. 60,750 exceeds the threshold limit of Rs.40,000, tax has to be
deducted@10% u/s 194A.

(ii) No tax has to be deducted under section 194A by PQR Bank on the interest of Rs. 28,000
falling due on recurring deposit on 31.03.2024 to Mr. Rajesh, since such interest does
not exceed the threshold limit of Rs.40,000.

(iii) Since the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.03.2012, the maturity proceeds of Rs. 4.50 lakhs due on 31.03.2024 are not exempt
under section 10(10D) in the hands of Mr. X. Therefore, tax is required to be
deducted@5% under section 194DA on the amount of income comprised therein i.e., on
Rs. 75,000 (Rs. 4,50,000, being maturity proceeds - Rs. 3,75,000, being the aggregate
amount of insurance premium paid).

(iv) Since the annual premium is less than 20% of sum assured in respect of a policy taken
before 01.04.2012, the sum of Rs. 3.95 lakhs due to Mr. Y would be exempt under section
10(10D) in his hands. Hence, no tax is required to be deducted at source under section
194DA on such sum payable to Mr. Y.

(v) Even though the annual premium exceeds 10% of sum assured in respect of a policy
taken after 31.03.2012, and consequently, the maturity proceeds of Rs. 95,000 due on
01.08.2023 would not be exempt under section 10(10D) in the hands of Mr. Z, the tax
deduction provisions under section 194DA are not attracted since the maturity proceeds
are less than Rs.1 lakh.

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 (vi) Under section 194E, the person responsible for payment of any amount to a non-
resident sportsman for contribution of articles relating to any game or sport in India in a
newspaper shall deduct tax @20%. Further, since Smith is a non-resident, health and
education cess @4% on TDS would also be added. Therefore, tax to be deducted = Rs.
25,000 x 20.8% = Rs.5,200.

(vii) Since Mr. X pays rent exceeding Rs. 50,000 per month in the F.Y. 2023 - 24, he is liable to
deduct tax at source @5% of such rent for F.Y. 2023 - 24 under section 194-IB. Thus, Rs.
27,500 [Rs.55,000x 5% x 10] has to be deducted from rent payable for March, 2024.

If Mr. X vacated the premises in December 2023, then tax of Rs.19,250 [Rs.55,000 x 5%
x 7] has to be deducted from rent payable for December 2023.

In case Mr. Y does not provide his PAN to Mr. X, tax would be deductible@20%, instead
of 5%.

In case 1 above, this would amount to Rs.1,10,000 [Rs.55,000 x 20% x 10], but the same
has to be restricted to Rs.55,000, being rent for March, 2024.

In case 2 above, this would amount to Rs. 77,000 [Rs. 55,000 x 20% x 7], but the same
has to be restricted to Rs.55,000, being rent for December, 2023.

(viii) TDS provisions under section 194J would not get attracted, since the limit of Rs. 30,000
is applicable for fees for professional services and fees for technical services, separately.
It is assumed that there is no other payment to Mr. Ganesh towards fees for professional
services and fees for technical services during the P.Y. 2023 - 24

(ix) No tax is required to be deducted at source under section 194C by M/s S Ltd. on payment
to transporter Mr. R, since he satisfies the following conditions:

-He owns ten or less goods carriages at any time during the previous year.

-He is engaged in the business of plying, hiring or leasing goods carriages;

-He has furnished a declaration to this effect along with his PAN.

(x) Section 194J provides for deduction of tax at source @10% from any sum paid by way of
any remuneration or fees or commission, by whatever name called, to a resident
director, which is notin the nature of salary on which tax is deductible under section 192.
The threshold limit of Rs. 30,000 upto which the provisions of tax deduction at source
are not attracted in respect of every other payment covered under section 194J is,
however, not applicable in respect of sum paid to a director.

Therefore, tax@10% has to be deducted at source under section 194J in respect of the
sum of Rs. 19,000 paid by ABC Ltd. to its director.

Therefore, the amount of tax to be deducted at source: = Rs.19,000 x 10% = Rs.1,900

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 (xi) As per the provisions of section 194J, a Hindu Undivided Family is required to deduct tax
at source on fees paid for professional services only if the total sales, gross receipts or
turnover formthe business or profession exceed Rs.1 crore in case of business or Rs.50
lakhs in case of profession,as the case may be, in the financial year preceding the current
financial year and such payment made for professional services is not exclusively for the
personal purpose of any member of Hindu Undivided Family.

Section 194M, provides for deduction of tax at source by a HUF (which is not required to
deduct tax at source under section 194J) in respect of fees for professional service if such
sum or aggregate of such sum exceeds Rs.50 lakhs during the financial year.

In the given case, the fee for professional service to Dr. Srivatsan is paid on 01.12.2023
for a personal purpose, therefore, section 194J is not attracted. Section 194M would
have been attracted, if the payment or aggregate of payments exceeded Rs. 50 lakhs in
the P.Y. 2023 - 24. However, since the payment does not exceed Rs. 50 lakh in this case,
there is no liability to deduct tax at source under section 194M also.

(xii) As per section 194LA, any person responsible for payment to a resident, any sum in the
nature of compensation or consideration on account of compulsory acquisition under
any law, of any immovable property, is required to deduct tax at source, if such payment
or the aggregate amount of such payments to the resident during the financial year
exceeds Rs.2,50,000.

In the given case, there is no liability to deduct tax at source as the payment made to Mr.
A does not exceed Rs.2,50,000.

(xiii) On payment of sale consideration for purchase of residential house property - Since the
sale consideration of house property is less than Rs. 50 lakhs, Mr. Arun is not required to
deduct tax at source u/s 194-IA, irrespective of the fact that the stamp duty value is more
than the sale consideration as well as the threshold limit of Rs.50 lakhs.

(xiv) On payment of call centre service charges - Since Rashi Limited is engaged only in the
business of operation of call centre, Jigar Limited is required deduct tax at source@2%
on the amount of Rs.70,000 u/s 194J on 18.03.2024 i.e., at the time of credit of call
centre service charges to theaccount of Rashi Limited, since the said date is earlier than
the payment date i.e., 28.03.2024.

(xv) On payment of prize winnings of Rs. 21,000 -Tax is deductible @ 30% under section 194B
by M/s. Maximus Retail Ltd.., from the prize money of Rs. 21,000 payable to the
customer, since the winnings exceed Rs.10,000.

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Question 10
Explain the consequences of not deducting tax and paying to Government account u/s 201 of the
Income-tax Act, 1961.

Answer:

Consequences of failure to deduct or pay [Section 201]:

1. Persons deemed to be assessee in default: The following persons shall be deemed to be an assessee
in default if they do not deduct the whole or any part of the tax or after deducting fails to pay the tax,-

(a) Any person who is required to deduct any sum according to the Act; or

(b) An employer paying tax on non-monetary perquisites under section 192(1A).

Deductor not to be treated as assessee in default: However, such person who fails to deduct the whole
or any part of the tax on the sum paid/credited to a payee shall not be deemed to be an assessee in
default in respect of such tax if such payee,-

(a) has furnished Iris return of income under section 139;

(b) has taken into account such sum for computing income in such return of income; and has
paid the tax due on the income declared by him in such return of income, and the person
furnishes a certificate to this effect from a chartered Accountant in such form as may be
prescribed.

(2) Penalty: No penalty shall be charged unless the Assessing Officer is satisfied that such person has
failed to deduct and pay the tax without good and sufficient reasons.

(3) Liable to pay interest: The defaulter shall be liable to pay simple interest as follows-

(i) Rate of interest and amount on which payable: In case of

Interest at 1% per month or part thereof on amount of such tax for the
Non – Deduction period from the date on which such tax was deductible/collectible to the date
on which such tax is deducted; and
Interest at 1% per month or part thereof on amount of such tax for the
Non – Payment period from the date on which such tax was deducted to the date
on which such tax is actually paid

(ii) Time of payment of interest: Such interest shall be paid before furnishing the periodical statement.

(iii) Mandatory nature of interest: Such interest is of mandatory nature, thus it is mandatory for the
Assessing Officer to charge the interest on non-compliance of deduction of payment of tax.

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It has been provided that in case of any person, including the principal officer of a company, who fails
to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the
sum paid to a payee or on the sum credited to the account of a payee, and not deemed to be an
assessee in default under section 201, the interest shall be payable from the date on which such tax
was deductible to the date of furnishing of return of income by such payee.

Expenditure not deductible: Disallowance under section 40(a) would be attracted in respect of
expenditure which is subject to TDS, if tax is not deducted therefrom during the relevant previous year
or after being deducted, is not paid within the prescribed time.

Question 11
Examine & explain the TDS implications in the following cases along with reasons thereof, assuming
that the deductees are residents and having a PAN which they have duly furnished to the respective
deductors.

(i) Mr. Kunal received a sum of Rs. 10,20,000 on 28.02.2024 as pre-mature withdrawal from Employees
Provident Fund Scheme before continuous service of 5 years on account of termination of
employment due to ill-health

(ii) Indian Bank sanctioned and disbursed a loan of Rs. 12 crores to B Ltd. on 31-12-2023. B Ltd. paid a
sum of Rs. 1,20,000 as service fee to Indian Bank for processing the loan application. (iii) Mr. Agam,
working in a private company, is on deputation for 5 months (from October, 2023 to February, 2024)
at Mumbai where he pays a monthly house rent of Rs. 32,000 for those five months, totalling to Rs.
1,60,000. Rent is paid by him on the first day of the relevant month.

Answer:

TDS implications

(i) On pre-mature withdrawal from EPF

No tax is deductible under section 192A even though the employee, Mr. Kunal, has not completed 5
years of continuous service, since termination of employment is on account of his ill-health. Hence,
Rule 8 of Part A of the Fourth Schedule is applicable in this case.

(ii) On payment of service fee to bank

Even though service fee is included in the definition of “interest” under section 2(28A), no tax is
deductible at source under section 194A, since the service fee is paid to a banking company, i.e., Indian
Bank.

(iii) On payment of rent by a salaried individual

Mr. Agam, a salaried individual, is not liable to deduct tax at source @5% under section 194-IB on Rs.
1,60,000 (being rent for 5 months from October 2023 to February 2024) from the rent of Rs. 32,000
payable on 1st day of every month, since the monthly rent does not exceed Rs. 50,000.

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Question 12
State Government of Madhya Pradesh grants a lease of coal mine to ABC Co. Ltd., an Indian company,
on 01.10.2022 and charged Rs. 8 crores for the lease. ABC Co. Ltd. sold coal for Rs. 2 crores to
Mahapower Ltd., another Indian company, during the P.Y. 2023 - 24. Mahapower Ltd. furnishes a
declaration to ABC Co. Ltd. that the coal is to be utilized for the purpose of generation of power. The
turnover of ABC Co. Ltd. and Mahapower Ltd. for the F.Y. 2022 - 23 amounted to Rs. 11 crores and Rs.
12 crores, respectively.

What is the amount of tax required to be deducted or collected at source in respect of the above
transactions, if any?

Answer:

Section 206C(1) provides for collection of tax @2% by every person who grants a lease in any mine or
a quarry to another person for the use of such mine or quarry for the purposes of business.
Accordingly, State Government of Madhya Pradesh is required to collect tax at source of Rs. 16,00,000,
being 2% on Rs. 8 crores, being the charges for lease of coal mine.

Under section 206C(1), seller of certain goods, inter alia, coal is required to collect tax from the buyers
@1%. However, no collection would be made under section 206C(1), in case of a resident buyer, if
such buyer furnishes to the person responsible for collecting tax, a declaration to the effect that goods
are to be utilized for the purpose of generation of power.

In the present case, ABC Co. Ltd. is not required to collect tax at source u/s 206C(1) in respect of coal
sold to Mahapower Ltd. since Mahapower Ltd. has furnished a declaration to ABC Co. Ltd. that the
coal is to be utilized for the purpose of generation of power.

As per section 206C(1H), tax is to be collected in respect of sale of goods other than the goods which
have been covered under section 206C(1). In case of goods which are covered under section 206C(1)
but exempted under section 206C(1A), tax will not be collectible under either section 206C(1) or
section 206C(1H).

Section 194Q requires any person, being a buyer who is responsible for paying any sum to resident for
purchase of any goods of the value exceeding Rs. 50 lakhs in any previous year, to deduct tax @0.1%
of such sum exceeding Rs. 50 lakhs. The provisions of section 194Q do not apply in respect to those
transactions where tax is collectible under section 206C [except under section 206C(1H).

Buyer means a person whose turnover from the business carried on by him exceeds Rs. 10 crores
during the financial year preceding the financial year in which goods are purchased.

In this case, since Mahapower Ltd.’s turnover for P.Y. 2022 - 23 exceeds Rs. 10 crores, it is a buyer as
per section 194Q. Since, tax is not required to be collected on sale of coal to Mahapower Ltd., the
provisions of section 194Q would apply and Mahapower Ltd. is required to deduct tax of Rs. 15,000
under section 194Q, being 0.1% of Rs. 1.5 crores, being the sum exceeding Rs. 50 lakhs.

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Question 13
Briefly discuss the provisions of tax deducted at source and compute the amount of TDS under the
Income-tax Act in respect of the following payments:

(i) Rs.51,000 paid to Mr. A, a resident individual as interest income on compensation awarded
by Motor Accidents Claims Tribunal by a transport company.
(ii) Ms. Asha deposited Rs.35,00,000 @10% p.a. on 1.7.2023 with ABC Co-operative bank
limited.
(iii) Mr. Naresh won Rs.15,00,000 in Kon Banega Crorepati
(iv) Mr. Avinash deposited Rs.2,00,000 @11% p.a. on 01.05.2023 for half year with Hike
Investment LLP.

Answer:

(i) Tax has to be deducted at source by the transport company @10% under section 194A on
payment of Rs.51,000 made to Mr. A, a resident individual, as interest income on
compensation awarded by Motor Accidents Claims Tribunal by a transport company, since
the interest paid exceeds the specified threshold of Rs.50,000.

Tax to be deducted = Rs.51,000 x 10%

= Rs.5,100

(ii) Tax has to be deducted at source by the ABC Co-operative Bank @10% under section 194A
on interest of Rs.2,62,500 [Rs.35,00,000 x 10% p.a. x 9/12] on deposits made by Ms. Asha,
since the same exceeds the specified threshold of Rs.40,000.

Tax to be deducted = Rs.2,62,500 x 10%

= Rs.26,250

(iii) Tax has to be deducted @30% under section 194B on payment of Rs.15,00,000 made to Mr.
Naresh for winnings in Kon Banega Crorepati.

Tax to be deducted = Rs.15,00,000 x 30%

= Rs.4,50,000

(iv) Tax has to be deducted at source by Hike Investment LLP @10% under section 194A on
interest of Rs.11,000 [Rs.2,00,000 x 11% x 6/12] on deposits made by Mr. Avinash, since the
same exceeds the specified threshold of Rs.5,000.

Tax to be deducted = Rs.11,000 x 10%

= Rs.1,100

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Question 15
State in brief the applicability of tax deduction at source provisions, the rate and amount of tax
deduction in the following cases for the F.Y. 2023 - 24 under the Income-tax Act, 1961.

Assume that all payments are made to residents:

a) Sahil, a resident Indian individual, not deriving any income from business or profession makes
payments of Rs.10 lakh in January, 2024, Rs.25 lakh in February, 2024 and Rs.25 lakh in March,
2024 to Madan, a contractor for reconstruction of his residential house.

b) XYZ Ltd. makes the payment of Rs.2,00,000 to Ramesh, an individual transporter who owned
6 goods carriages throughout the previous year. He does not furnish his PAN.

Answer:

TDS implications

a) On payments made to contractor

Tax is deductible @5% under section 194M, since payments to Mr. Madan, a contractor, for
reconstruction of his residential house exceeds Rs.50 lakhs in aggregate during the F.Y. 2023 - 24.

Amount of tax to be deducted = 5% of Rs.60 lakhs

= Rs.3,00,000

b) Payment to transporter who has not furnished PAN

Under section 194C, no tax is deductible in respect of payments to a transporter, who owns ten
or less goods carriages at any time during the year and furnishes a declaration to that effect along
with his PAN to the person paying or crediting such sum.

However, in this case, this exemption from TDS would not be available, since Ramesh has not
furnished his PAN to XYZ Ltd. As per section 206AA, due to non-furnishing of PAN, tax would be
deductible at a higher rate of 20% and not @1% provided under section 194C.

Amount of tax to be deducted = Rs.2,00,000 x 20%

= Rs.40,000

Question 16
Examine the applicability and the amount of TDS to be deducted in the following cases for F.Y. 2023-
24:

(i) S and Co. Ltd. paid Rs. 25,000 to one of its director’s as sitting fees on 02-02-2024.

(ii) Rs. 2,20,000 paid to Mr. Mohan, a resident individual, on 28-02-2024 by the State of Haryana
on compulsory acquisition of his urban land.

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(iii) Mr. Purushotham, a resident Indian, dealing in hardware goods has a turnover of Rs. 12 crores
in the P.Y. 2022 - 23. He purchased goods from Mr. Agarwal, a resident seller, regularly in the
course of his business. The aggregate purchase made during the P.Y. 2023 - 24 on various
dates is Rs. 80 lakhs which are as under:

10-06-2023 Rs. 25,00,000

20-08-2023 Rs. 27,00,000
12-10-2023 Rs. 28,00,000
He credited Mr. Agarwal's account in the books of accounts on the same date and made the
payment on the 28-02-2024 Rs. 80 lakhs. Mr. Agarwal's turnover for the F.Y. 2022 - 23 is Rs.
20 crores.

(iv) M/s ABC & Sons, a resident HUF is selling bags and wallets manufactured by them through E-
commerce platform provided by PQ Ltd. Mr. A buys bag for Rs. 6,00,000 from PQ Ltd. online
and directly made the payment to ABC & Sons on 1st October, 2023.

Answer:

TDS implications

(i) Tax @10% has to be deducted by S and Co. Ltd. under section 194J on directors sitting fees of
Rs. 25,000. The threshold limit of Rs. 30,000 is not applicable in respect of sum paid to a
director.

The amount of tax to be deducted at source = Rs. 25,000 x 10%

= Rs. 2,500

(ii) There is no liability to deduct tax at source under section 194LA, since the payment to Mr.
Mohan, a resident, by State of Haryana on compulsory acquisition of his urban land does not
exceed Rs. 2,50,000.

(iii) Since Mr. Purushotham’s turnover for F.Y. 2022 - 23 exceeds Rs. 10 crores, and value of goods
purchased from Mr. Agarwal, a resident seller, exceeds Rs. 50 lakhs in the P.Y. 2023 - 24, he is
liable to deduct [email protected]% on Rs. 30 lakhs (being the sum exceeding Rs. 50 lakhs), at the time
of credit or payment, whichever is earlier.

On 10.06.2023 = Nil
(No tax is to be deducted u/s 194Q on the purchases made on 10.06.2022 since the purchases
made till that date has not exceeded the threshold of Rs. 50 lakhs)

On 20.8.2023 = 0.1% of Rs. 2 lakhs

= Rs. 200
(Rs. 27 lakhs - Rs. 25 lakhs, being balance unexhausted limit)

On 12.10.2023 = 0.1% of Rs. 28 lakhs

= Rs. 2,800.

(iv) The E commerce operator, PQ Ltd. is required to deduct tax at the rate of 1% of the gross sale
amount. The sale amount exceeds Rs. 5,00,000, hence section 194-O is applicable to the e-
commerce participant i.e., M/s ABC & Sons, HUF, on the sales facilitated by PQ Ltd. Therefore,

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 TDS of Rs. 6,000 (1% of 6,00,000) shall be deducted by PQ Ltd. on 1 st October, 2023. Direct
payment by Mr. A shall be deemed to be payment made by PQ Ltd. to the HUF.

Question 17
State in brief the applicability of provisions of tax deduction at source, the rate and amount of tax
deduction in the following cases for the F.Y. 2023-24 under Income-tax Act, 1961. Assume that all
payments are made to residents:

(i) Mr. Amar has paid Rs. 6,00,000 on 15.10.2023 to M/s Fresh Cold Storage Pvt. Ltd. For
preservation of fruits and vegetables. He is engaged in the wholesale business of fruits &
vegetable in India having turnover of Rs. 3 crores during the P.Y. 2023-24.

(ii) Mr. Ramu, a salaried individual, has paid rent of Rs. 60,000 per month to Mr. Shiv Kumar from
1st July, 2023 to 31st March, 2024. Mr. Shiv Kumar has not furnished his Permanent Account
Number.

Answer:

TDS implications

(i) The arrangement between Mr. Amar, the customer, and M/s. Fresh Cold Storage Pvt. Ltd., the
cold storage owner, is basically contractual in nature and main object of the cold storage is to
preserve perishable goods by mechanical process and storage of such goods is only incidental.

Hence, the provisions of section 194C will be applicable to the amount of Rs. 6 lakh paid by
Mr. Amar to the cold storage company.

Accordingly, tax has to be deducted@2% on Rs. 6 lakh.

TDS u/s 194C = 2% x Rs. 6 lakh

= Rs. 12,000

(ii) Mr. Ramu, being a salaried individual, has to deduct tax at source @ 5% u/s 194-IB on the
annual rent paid by him from the last month's rent (rent of March, 2024), since the rent paid
by him exceeds Rs. 50,000 p.m. Since his landlord Mr. Shiv Kumar has not furnished his PAN
to Mr. Ramu, tax has to be deducted @ 20% instead of 5%. However, the same cannot exceed
Rs. 60,000, being rent for March, 2024.

TDS u/s 194-IB = Rs. 5,40,000 (Rs. 60,000 x 9) x 20%

= Rs. 1,08,000, but restricted to Rs. 60,000, being rent for March, 2024.

Question 18
Examine the following transactions with reference to applicability of the provision of tax collected at
source and the rate and amount of the TCS for the A.Y. 2024 - 25.

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(i) Mr. Kalpit bought an overseas tour programme package for Singapore for himself and his
family of Rs. 5 lakhs on 01-11-2023 from an agent who is engaged in organising foreign tours
in course of his business. He made the payment by an account payee cheque and provided
the permanent account number to the seller.

Assuming Kalpit is not liable to deduct tax at source under any other provisions of the Act.

(ii) Mr. Anuj doing business of textile as a proprietor. His turnover in the business is Rs.11 crores
in the P.Y. 2023 - 24. He received payment against sale of textile goods from Mr. Ram of Rs.
75 lakhs against the sales made to him in the P.Y. 2023 - 24. Mr. Ram's turnover for the P.Y.
2023 - 24 was Rs. 5 crores. (Assuming all the sales are domestic sales).

Answer:

TCS implications

(i) Tax @ 5% is required to be collected u/s 206C(1G) by the seller of an overseas tour programme
package from Mr. Kalpit, being the buyer of an overseas tour package, even if payment is
made by account payee cheque.

Accordingly, tax has to be collected@5% on Rs. 5 lakh.

TCS = 5% x Rs. 5 lakh

= Rs. 25,000

(ii) Mr. Anuj is required to collect tax @0.1% u/s 206C(1H) from Mr. Ram, since his turnover in
the P.Y. 2023 - 24 exceeds Rs.10 crores, and the sales receipts from Mr. Ram in the P.Y. 2023
- 24 exceeds Rs. 50 lakhs. Tax has to be collected by Mr. Anuj on Rs. 25 lakhs, being the amount
exceeding Rs. 50 lakhs, at the time of receipt.

TCS = 0.1% x Rs. 25 lakhs

= Rs. 2,500

Question 19
Examine the applicability and the amount of TDS to be deducted in the following cases for F.Y. 2023 -
24:

(i) S and Co. Ltd. paid 25,000 to one of its Directors as sitting fees on 02-02-2024.

(ii) Rs. 2,20,000 paid to Mr. Mohan, a resident individual, on 28-02-2024 by the State of Haryana on
compulsory acquisition of his urban land.

(iii) Mr. Purushotham, a resident Indian, dealing in hardware goods has a turnover of Rs. 12 crores in
the P.Y. 2022 - 23. He purchased goods from Mr. Agarwal a resident seller, regularly in the course of
his business. The aggregate purchase made during the P.Y. 2023 - 24 on various dates is Rs. 80 lakhs
which are as under:

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 10-06-2023 Rs. 25,00,000
20-08-2023 Rs. 27,00,000
12-10-2023 Rs. 28,00,000
He credited Mr. Agarwal's account in the books of accounts on the same date and made the payment
on the 28-02-2024 Rs. 80 lakh. Mr. Agarwal's turnover for the F.Y. 2023 - 24 is Rs. 20 crores.

Answer:

() Tax @10% has to be deducted by S and Co. Ltd. under section 194J on directors sitting fees of Rs.
25,000. The threshold limit of Rs. 30,000 is not applicable in respect of sum paid to a director.

The amount of tax to be deducted at source = Rs. 25,000 x 10%

= Rs. 2,500

There is no liability to deduct tax at source under section 194LA, since the payment to Mr. Mohan, a
resident, by State of Haryana on compulsory acquisition of his urban land does not exceed Rs.
2,50,000.

(iii) Since Mr. Purushotham'’s turnover for F.Y. 2022 - 23 exceeds Rs. 10 crores, and value of goods
purchased from Mr. Agarwal, a resident seller, exceeds Rs. 50 lakhs in the P.Y. 2023 - 24, he is liable
to deduct [email protected]% on Rs. 30 lakhs (being the sum exceeding Rs. 50 lakhs), at the time of credit or
payment, whichever is earlier.

On 10.06.2023 = Nil (No tax is to be deducted u/s 194Q on the purchases made on 10.06.2023 since
the purchases made till that date has not exceeded the threshold of Rs. 50 lakhs and
TDS provisions u/s 194Q was effective from 01.07.2021)

On 20.08.2023 = 0.1% of Rs. 2 lakhs (amount exceeding Rs. 50 lakhs)

= Rs. 200

On 12.10.2023 = 0.1% of Rs. 28 lakhs

= Rs. 2,800.

Multiple Choice Questions

1. Dr. Sargun, maintained two bank A/c’s, one current A/c with Canara Bank for her profession and a
Saving Bank A/c with State Bank of India. The following are the details of her withdrawals from these
A/c during the P.Y. 2023-24:

Date of withdrawals Canara Bank State Bank of India

25.04.2023 25,00,000
27.04.2023 15,50,000
31.08.2023 29,00,000
01.09.2023 14,20,000
05.09.2023 14,00,000

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 07.10.2023 18,21,000
11.12.2023 26,23,000
12.02.2024 7,56,000
25.03.2024 16,13,000

She furnished her return of income for the A.Y. 2023 - 24 and A.Y. 2022 - 23 on or before the time limit
prescribed u/s 139(1). However, for the A.Y. 2020 - 21 and A.Y. 2021 - 22, she has furnished her return
of income belatedly.

1. Is any tax deductible at source u/s 194N on the withdrawals made by Dr. Sargun from Canara Bank
and SBI Bank? If yes, at what rate and what amount?

a) TDS is deductible at source on Rs. 33,79,000 @ 5% by Canara Bank and no tax is deductible by
SBI.
b) TDS is deductible at source on Rs. 20,20,000 @ 5% by Canara Bank and no tax is deductible by
SBI.
c) TDS is deductible at source on Rs. 20,20,000 @ 2% by Canara Bank and no tax is deductible
by SBI.
d) TDS is deductible at source on Rs. 75,00,000 @ 5% and on Rs. 20,20,000 @ 2% by Canara Bank
and tax is deductible at source @5% on Rs.25,63,000 by SBI.

2. Mr. T, an Indian Citizen and resident of India, earned dividend income of Rs. 4,500 from an Indian
company, which was declared on 01.10.2023 and paid in cash to Mr. T. What are the tax implications
with respect to the dividend in the hands of Mr. T and Indian Company?

a) Such dividend is taxable in the hands of Mr. T and Indian company is required to deduct tax
at source @7.5%.
b) Such dividend is taxable in the hands of Mr. T and Indian company is required to deduct tax
at source @10%.
c) Such dividend is taxable in the hands of Mr. T. However, Indian company is not required to
deduct tax at source since it does not exceed Rs. 5,000.
d) Such dividend is exempt in the hands of Mr. T. Hence, Indian company is not required to
deduct tax at source.

3. Mr. A, whose total sales is ₹ 201 lakhs, declares profit of ₹ 10 lakhs for the F.Y. 2023 - 24. He is liable
to pay advance tax –

(a) in one instalment

(b) in two instalments

(c) in three instalments

(d) in four instalments

4. Mr. Raj (a non-resident and aged 65 years) is a retired person, earning rental income of ₹ 40,000
per month from a property located in Delhi. He is residing in Canada. Apart from rental income, he
does not have any other source of income. Is he liable to pay advance tax in India? –

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 (a) Yes, he is liable to pay advance tax in India as he is a non- resident and his tax liability in
India exceeds ₹ 10,000.

(b) No, he is not liable to pay advance tax in India as his tax liability in India is less than ₹
10,000.

(c) No, he is not liable to pay advance tax in India as he has no income chargeable under the
head “Profits and gains of business or profession” and he is of the age of 65 years.

(d) Both (b) and (c)

5. An amount of ₹ 40,000 was paid to Mr. X on 01.07.2023 towards fees for professional services
without deduction of tax at source. Subsequently, another payment of ₹ 50,000 was due to Mr. X on
28.02.2024, from which tax @10% (amounting to ₹ 9,000) on the entire amount of ₹ 90,000 was
deducted and the net amount was paid on the same day to Mr. X. However, this tax of ₹ 9,000 was
deposited only on 22.06.2024. The interest chargeable under section 201(1A) would be: -

(a) ₹ 320

(b) ₹ 860

(c) ₹ 1,620

(d) ₹ 540

6. The benefit of payment of advance tax in one instalment on or before 15th March is available to
assessees computing profits on presumptive basis –

(a) only under section 44AD

(b) under section 44AD and 44ADA

(c) under section 44AD and 44AE

(d) under section 44AD, 44ADA and 44AE

7. Mr. Ramesh, Mr. Mahesh and Mr. Suresh, jointly owned a flat in Mathura, which was let out to Dr.
Rajesh from 01.04.2023. The annual rent paid by Dr. Rajesh for the flat was ₹ 5,40,000, credited
equally to each of their account. Mr. Rajesh approached his tax consultant to seek clarity in relation
to deduction of tax on payment of the rent. He informed his consultant that he occupied such flat for
his personal accommodation and his receipts from his profession during the P.Y. 2023-24 was ₹ 58
lakhs. As tax consultant, choose the correct answer –

(a) No tax at source is required to be deducted since the rental payments are towards flat
occupied for personal purpose

(b) Tax is required to be deducted at source since the rent payment exceeds ₹ 2,40,000 and Dr.
Rajesh is an individual having gross receipts from profession exceeding ₹ 50 lakh in the preceding
financial year.

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 (c) No tax is required to be deducted at source since the rent credited to each co-owner is less
than ₹ 2,40,000

(d) No tax is required to be deducted at source since Dr. Rajesh’s gross receipts during the
preceding financial year were less than ₹ 1 crore

8. Mr. Jha, an employee of FX Ltd, attained 60 years of age on 15.05.2023. He is resident in India during
F.Y. 2023-24 and earned salary income of ₹ 5 lakhs (computed). During the year, he earned ₹ 7 lakhs
from winning of lotteries. What shall be his advance tax liability for A.Y. 2024 -25 if all tax deductible
at source has been duly deducted and remitted to the credit of Central Government on time? Assume
he does not opt to pay tax under section 115BAC. –

(a) ₹ 2,20,000 + Cess ₹ 8,800 = ₹ 2,28,800, being the tax payable on total income of ₹ 12 lakhs

(b) ₹ 2,10,000 + Cess ₹ 8,400 = ₹ 2,18,400, being the tax payable on lottery income of ₹ 7 lakhs

(c) ₹ 10,000 + Cess ₹ 8,800 = ₹ 18,800, being the net tax payable on salary income since tax would
have been deducted at source from lottery income.

(d) Nil

9. Mr. Prakash is employed with XYZ Ltd. from 05.11.2018. He resigned on 31.03.2024 and wants to
withdraw the accumulated balance of employer’s contribution in his EPF Account i.e., ₹ 55,000. The
tax deducted on such withdrawal would be –

(a) ₹ 500 u/s 192

(b) ₹ 5,500 u/s 192

(c) ₹ 4,125 u/s 192A

(d) ₹ 5,500 u/s 192A

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Chapter 12
Total Income
Question 1
Dr. Gurunandan, a resident individual at Madurai, aged 50 years is running a clinic. His Income

and Expenditure Account for the year ending 31st March, 2023 is as under:

Expenditure ₹ Income ₹
To Medicine Consumed 8,40,000 By Consultation and Medical charges 21,00,000
By Income Tax Refund (principal ₹
To Staff Salary 4,25,000 16,500
15,000, interest ₹ 1,500)
By Dividend from Indian companies
To Clinic Consumables 1,55,000 27,000
(Gross)
By Winning from lottery (Net of TDS) 35,000
To Rent Paid 1,20,000
By Rent 54000
To Administrative Expenses 3,00,000
To Donation paid to IIT Delhi for
1,00,000
research approved u/s 35(2AA)
To Net Profit 2,92,500
22,32,500 22,32,500

Particulars:

I. Rent paid includes ₹ 36,000 paid by cheque towards rent for his residence.
II. Clinic equipments are :
• 01.04.2023 Opening WDV ₹ 4,50,000
• 07.02.2024 Acquired (cost) ₹ 1,00,000
III. Rent received relates to property let out at Madurai. Gross Annual Value ₹ 54,000. The
municipal tax of ₹ 9,000, paid in January 2023 has been included in “administrative expenses”.
IV. Dr. Gurunandan availed a loan of ₹ 5,50,000 from a bank for higher education of his daughter.
He repaid principal of ₹ 50,000, and interest thereon ₹ 65,000 during the year 2023-24.
V. He paid ₹ 60,000 as tuition fee to the university for full time education of his son.

From the above, compute the total income of Dr. Gurunandan for the A.Y. 2024-25. Ignore Section
115BAC.

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Answer:

Computation of total income of Dr. Gurunandan for the A.Y. 2024 - 25

Particulars ₹ ₹ ₹
I Income from profession
Net profit as per Income and Expenditure account 2,92,500
Less: Items of income to be treated separately
16,500
Ø Income tax refund (including interest)
27,000
Ø Dividend from Indian companies
35,000
Ø Winning from lottery (net of TDS)
54,000 1,32,500
Ø Rent received
1,60,000

Add: Expenditure debited but not allowable

36,000
Ø Rent for his residence
Ø Municipal tax paid relating to residential 45,000
9,000
house at Madurai included in administrative
2,05,000
expenses

Less: Expenditure allowable but not debited 67,500

Depreciation on Clinic equipments u/s 32 7,500
Ø on ₹ 4,50,000 @ 15%
Ø on ₹ 1,00,000 @ 7.5% (i.e.50% of 15%) 75,000 1,30,000
Deduction of 100% in respect of amount paid to IIT -
[100% is available in respect of such payment
under section 35(2AA), no adjustment is needed]
II Income from house property
Gross Annual Value (GAV) 54,000
Less : Municipal taxes aid 9,000 31,500
Net Annual Value (NAV) 45,000
Less : Deduction under section 24 @ 30% 13,500
III Income from other sources
Interest on Income-tax refund 1,500 78,500
Dividend from Indian companies (now taxable) 27,000
Winnings from lottery (See Note 1) 50,000
Gross Total Income 2,40,000
Less: Deductions under Chapter VI A:
• Under section 80C
60,000
Tuition fee paid to university for full time education
of his son
65,000
• Under section 80E
1,25,000 113,000
Interest on loan taken for higher education of
daughter
v but restricted to (See Note 2)
Total income 1,27,000

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Note:

1. Winnings from lottery should be grossed up for the chargeability under the head “Income
from other sources”. The applicable rate of TDS is 30%. Gross income from lottery, would,
therefore, be ₹ 35,000/70% = ₹ 50,000

2. Deduction under Chapter VI-A cannot exceed Gross Total Income. Further, no deduction is
allowable from income by way of winning from lottery. Therefore, the maximum deduction
allowable would be ₹ 1,13,000.

Gross Total Income 1,63,000

Less: Winnings from lottery 50,000
Maximum deduction under Chapter VI-A 113,000

The total income of ₹ 50,000 would, therefore, represent winnings from lottery taxable at a
flat rate of 30%, without any basic exemption limit.

3. Dr. Gurunandan is staying in a rented premises in Madurai itself. Hence, he would not be
eligible for deduction under section 80GG, since he owns a house in Madurai which he has let
out.

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Question 2
Mr. Rajiv aged 50 years, a resident individual and practicing Chartered Accountant, furnishes you the
receipts and payments account for the F.Y. 2023 - 24.

Receipts and Payments Account

Receipts Rs. Payments Rs.
Opening balance (01.04.2023) 12,000 Staff salary, bonus and stipend to 21,50,000
Cash on hand and at Bank articled clerks
Fee from professional services 59,38,000 Other administrative expenses 11,48,000
(Gross)
Rent 50,000 Office rent 30,000
Motor car loan from Union Bank 2,50,000 Housing loan repaid to SBI 1,88,000
(@ 9% p.a.) (includes interest of Rs. 88,000)

Life insurance premium (10% of 24,000

sum assured)
Motor car (acquired in Jan. 2024 by 4,25,000
A/c payee cheque)
Medical insurance premium (for 18,000
self and wife) (paid by A/c Payee
cheque)
Books bought on 01.07.2023 20,000
(annual publications byA/c payee
cheque)
Computer acquired on 01.11.2023 30,000
by A/c payee cheque (for
professional use)

Domestic drawings 2,72,000

Public provident fund subscription 20,000
Motor car maintenance 10,000
Closing balance (31.3.2024) Cash 19,15,000
on hand and at Bank
62,50,000 62,50,000

Following further information is given to you:

(1) He occupies 50% of the building for own residence and let out the balance for
residential use at a monthly rent of Rs. 5,000. The building was constructed during
the year 1998-99, when the housing loan was taken.

(2) Motor car was put to use both for official and personal purpose. One-fifth of the
motor car use is for personal purpose. No car loan interest was paid during the year.

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 (3) The written down value of assets as on 01-04-2023 are given below:
Furniture & Fittings Rs. 60,000
Plant & Machinery Rs. 80,000
(Air-conditioners, Photocopiers, etc.)
Computers Rs. 50,000

Note: Mr. Rajiv regularly follows the cash system of accounting.

Compute the total income of Mr. Rajiv for the A.Y. 2024 - 25 assuming that he has not opted to pay
tax under section 115BAC.
Answer:
Computation of Total Income of Mr. Rajiv for A.Y. 2024 - 25
Particulars Rs. Rs. Rs.

Income from house property

Self-occupied
Annual value Nil
Less: Deduction under section 24(b) Interest on
housing loan
50% of Rs. 88,000 = 44,000 but limited to 30,000
Loss from self-occupied property (30,000)
Let out property
Annual value (Rent receivable has been taken as the 60,000
annual value in the absence of otherinformation)
Less: Deductions u/s 24
30% of Net Annual Value 18,000
Interest on housing loan (50% of Rs. 88,000) 44,000 62,000 (2,000)
Loss from house property
Profits and gains of business or Profession
Fees from professional services
59,38,000
Less: Expenses allowable as deduction (32,000)
Staff salary,bonus and stipend 21,50,000
Other administrative expenses 11,48,000
Office rent 30,000
Motor car maintenance (10,000 x 4/5) 8,000
Car loan interest – not allowable (since the same has Nil 33,36,000
not been paid and the assessee follows cash system

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 of accounting)
26,02,000

Motor car Depreciation Rs. 4,25,000 x 7.5% x 4/5 25,500

Books being annual publications@40% 8,000
Furniture and fittings@10% of Rs. 60,000 6,000
Plant and machinery@15% of Rs. 80,000 12,000
Computer@40% of Rs. 50,000 20,000
Computer (New) Rs. 30,000 @ 40% x 50% 6,000 77,500

25,24,500
Gross Total income 24,92,500
Less: Deductions under Chapter VI-A
Deduction under section 80C
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000
Total amount of R s . 1,44,000 is allowed as 1,44,000
deductionsince it is within the limit of Rs. 1,50,000
Deduction under section 80D
Medical insurance premium paid Rs. 18,000 18,000 1,62,000
Total income 23,30,500

Question 3
From the following details, compute the total income and tax liability of Siddhant, aged 31 years, of
Delhi both as per the regular provisions of the Income-tax Act, 1961 and as per section 115BAC for the
A.Y. 2024 – 25. Advise Mr. Siddhant whether he would opt for section 115BAC:

Particulars Rs.
Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by the employer 12,000
Rent paid by Siddhant for his accommodation 49,600
Bills paid by the employer for gas, electricity and water provided free of costat the 11,000
above flat

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Siddhant purchased a flat in a co-operative housing society in Delhi for Rs. 4,75,000 in April, 2017,
which was financed by a loan from Life Insurance Corporation of India of Rs. 1,60,000@15% interest,
his own savings of Rs. 65,000 and a deposit from a nationalized bank for Rs. 2,50,000 to whom this
flat was given on lease for ten years. The rent payable by the bank was Rs. 3,500 per month. The
following particulars are relevant:

a. Municipal taxes paid by Mr. Siddhant Rs. 4,300 (per annum)

b. House Insurance Rs. 860
c. He earned Rs. 2,700 in share speculation business and lost Rs. 4,200 in cotton speculation business.
d. In the year 2017-18, he had gifted Rs. 30,000 to his wife and Rs. 20,000 to his son who was aged
11. The gifted amounts were advanced to Mr. Rajesh, who was paying interest@19% per annum.
e. Siddhant received a gift of Rs. 30,000 each from four friends.
f. He contributed Rs. 50,000 to Public Provident Fund.

Compute total income and tax liability assuming that he has opted out of default tax regime.
Answer:

Computation of total income and tax liability of Siddhant for the A.Y. 2024 - 25

Particulars Rs. Rs.

Salary Income
Salary including dearness allowance 3,35,000
Bonus 11,000
Value of perquisites:
(i) Salary of servant 12,000
(ii) Free gas, electricity and water 11,000 23,000

3,69,000
Less: Standard deduction under section 16(ia) 50,000
3,19,000

Income from house property

Gross Annual Value (GAV) (Rent receivable is taken as GAV in the
absence of other information) (Rs. 3,500 × 12) 42,000
Less: Municipal taxes paid 4,300
Net Annual Value (NAV) 37,700
Less: Deductions under section 24
(i) 30% of NAV Rs. 11,310
(ii) Interest on loan from LIC @15% of Rs. 1,60,000 Rs. 24,000 35,310 2,390
[SeeNote 2]

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Income from speculative business
Income from share speculation business 2,700

Less: Loss of Rs. 4,200 from cotton speculation business set-off to the 2,700 Nil
extent of Rs. 2,700
Balance loss of Rs. 1,500 from cotton speculation business has to be
carried forward to the next year as it cannot be set off against any other
head of income.
Income from Other Sources
3,800
(i) Income on account of interest earned from advancing money gifted
to his minor son is includible in the hands of Siddhant as per section
64(1A) 1,500

Less: Exempt under section 10(32) 2,300

5,700
(ii) Interest income earned from advancing money gifted to wife has to
be clubbed with the income of the assessee as per section 64(1)
1,20,000 1,28,000
(iii) Gift received from four friends (taxable under section 56(2)(x) as
the aggregate amount received during the year exceeds Rs. 50,000)

Gross Total Income 4,49,390

Less: Deduction under section 80C
Contribution to Public Provident Fund
50,000
Total Income 3,99,390
Tax on total income of Rs. 3,99,390 [Rs. 3,99,390 – Rs. 2,50,000 = Rs. 1,49,390@5%] 7,470
Less: Rebate u/s 87A, since total income does not exceed Rs. 5,00,000 7,470

Tax liability Nil

Notes:

(1) It is assumed that the entire loan of Rs. 1,60,000 is outstanding as on 31.03.2024
(2) Since Siddhant’s own flat in a co-operative housing society, which he has rented out to a
nationalized bank, is also in Delhi, he is not eligible for deduction under section 80GG in respect
of rent paid by him for his accommodation in Delhi, since one of the conditions to be satisfied for
claiming deduction under section 80GG is that the assessee should not own any residential
accommodation in the same place.
(3) Alternatively, computation total income as per the special provisions of section 115BAC can also
be presented as follows:

Particulars Rs. Rs.

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Total Income as per regular provisions of the Income-tax Act 3,99,390

Add:(i) Standard deduction u/s 16(ia), as it would not be allowable under

the special provisions 50,000
(ii) Exemption under section 10(32), as it would not be available under the 1,500
special provisions
(iii) Deduction under section 80C, as no deduction under Chapter VI-A 50,000 1,01,500
would be allowed under the special provisions
Total Income 5,00,890

Question 4
Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1982 and settled at
Canada since 1982. Mary got married and settled in Mumbai. Both of them are below 60 years. The
following are the details of their income for the previous year ended 31.03.2023:

Rosy Mary
S. No. Particulars
Rs. Rs.
1. Pension received from State Government -- 60,000

2. Pension received from Canadian Government 20,000 --

3. Long-term capital gain on sale of land at Mumbai 1,00,000 1,00,000

4. Short-term capital gain on sale of shares of Indian listed 20,000 2,50,000

companies in respect of which STT was Paid
5. LIC premium paid -- 10,000

6. Premium paid to Canadian Life Insurance Corporation at 40,000 --

Canada
7. Mediclaim policy premium paid by A/c Payee Cheque -- 25,000

8. Deposit in PPF -- 20,000

9. Rent received in respect of house property at Mumbai 60,000 30,000

Compute the taxable income and tax liability of Mrs. Rosy and Mrs. Mary for the A.Y. 2024 - 25 and
tax thereon. Ignore the provisions of section 115BAC.

Answer:

Computation of taxable income of Mrs. Rosy and Mrs. Mary for the A.Y. 2024 - 25

Mrs. Mary
S. Particulars Mrs. Rosy
(ROR)

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 No. (Non-
resident)
Rs. Rs.
(I) Salaries
Pension received from State Govt. 60,000
Less: Standard deduction u/s 16(ia)
50,000 - 10,000
Pension received from Canadian Government is not taxable in - -
the case of a non-resident since it is earned and received
outside India
- 10,000

(II) Income from house property

Rent received from house property at Mumbai (assumed to be 60,000 30,000
the annual value in the absence of other information)

Less: Deduction under section 24(a)@30% 18,000 9,000

42,000 21,000

(III) Capital gains

Long-term capital gain on sale of land at Mumbai 1,00,000 1,00,000
Short term capital gain on sale of shares of Indian listed 20,000 2,50,000
companies in respect of which STT was paid
1,20,000 3,50,000
(A) Gross Total Income [(I)+(II)+(III)] 1,62,000 3,81,000
Less: Deductions under Chapter VIA
1. Deduction under section 80C
1. LIC Premium paid - 10,000
2. Premium paid to Canadian Life Insurance Corporation 40,000 -
3. Deposit in PPF - 20,000
40,000 30,000
2. Deduction under section 80D – Mediclaim premium paid 25,000
40,000 55,000
(B) Total deduction under Chapter VI-A is restricted to income 40,000 31,000
other than capital gains taxable under sections 111A & 112
(C) Total income (A-B) 1,22,000 3,50,000
Tax liability of Mrs. Rosy for A.Y. 2024 - 25
Tax on long-term capital gains @20% of Rs. 1,00,000 20,000
Tax on short-term capital gains @15% of Rs. 20,000 3,000

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 Tax on balance income of Rs. 2,000 Nil
23,000

Tax liability of Mrs. Mary for A.Y. 2024-25

Tax on STCG @15% of Rs. 1,00,000 [i.e., Rs. 2,50,000 less Rs. 15,000
1,50,000, being the unexhausted basic exemption limit as per
proviso to section 111A] [See Notes 3 & 4 below]
Less: Rebate under section 87A would be lower of Rs. 12,500 12,500
ortax liability, since total income does not exceed Rs.5,00,000
2,500
Add: Health and Education cess@4% 920 100
Total tax liability 23,920 2,600
Notes:

1. Long-term capital gains on sale of land is chargeable to tax@20% as per section 112.

2. Short-term capital gains on transfer of equity shares in respect of which securities

transaction taxis paid is subject to tax@15% as per section 111A.

3. In case of resident individuals, if the basic exemption limit is not fully exhausted against
other income, then, the long-term capital gains u/s 112/short-term capital gains u/s 111A
will be reduced by the unexhausted basic exemption limit and only the balance will be taxed
at 20%/15%, respectively. However, this benefit is not available to non-residents. Therefore,
while Mrs. Mary can adjust unexhausted basic exemption limit against long-term capital
gains taxable under section 112 and short-term capital gains taxable under section 111A,
Mrs. Rosy cannot do so.

4. Since long-term capital gains is taxable at the rate of 20% and short-term capital gains is
taxable at the rate of 15%, it is more beneficial for Mrs. Mary to first exhaust her basic
exemption limit of Rs. 2,50,000 against long-term capital gains of Rs. 1,00,000 and the
balance limit of Rs. 1,50,000 (i.e., Rs. 2,50,000 – Rs.1,50,000) against short-term capital
gains.

5. Rebate under section 87A would not be available to Mrs. Rosy even though her total
incomedoes not exceed Rs. 5,00,000, since she is non-resident for the A.Y. 2024 - 25.

Question 5
Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in the financial year 2018- 19 for
production of Ceiling Fans. The unit fulfils all the conditions of section 10AA of the Income-tax Act,
1961. During the financial year 2021-22, he has also set up a warehousing facility in a district of Tamil
Nadu for storage of agricultural produce. It fulfills all the conditions of section 35AD. Capital
expenditure in respect of warehouse amounted to Rs. 75 lakhs (including cost of land Rs. 10 lakhs).
The warehouse became operational with effect from 1st April, 2022 and the expenditure of Rs. 75
lakhs was capitalized in the books on that date. Relevant details for the F.Y. 2023-24 are as follows:

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 Particulars Rs.

Profit of unit located in SEZ 40,00,000

Export sales of above unit 80,00,000

Domestic sales of above unit 20,00,000

Profit from operation of warehousing facility (before considering deduction under

1,05,00,000
Section 35AD)

Compute income-tax (including AMT under Section 115JC) liability of Mr. X for A.Y. 2024 - 25 both as
per regular provisions of the Income-tax Act and as per section 115BAC for A.Y. 2024 - 25. Advise Mr.
X whether he should opt for section 115BAC.

Answer:
Computation of total income and tax liability of Mr. X for A.Y. 2024 - 25
(under the regular provisions of the Income-tax Act, 1961)
Particulars ₹ ₹
Profits and gains of business or profession
Profit from unit in SEZ 40,00,000
Less: Deduction u/s 10AA [See Note (1) below] 32,00,000
Business income of SEZ unit chargeable to tax 8,00,000
Profit from operation of warehousing facility 1,05,00,000
Less: Deduction u/s 35AD [See Note (2) below] 65,00,000
Business income of warehousing facility chargeable to tax 40,00,000
Total Income 48,00,000
Computation of tax liability (under the normal/regular provisions)
Tax on Rs. 48,00,000 12,52,500
Add: Health and Education cess@4% 50,100
Total tax liability 13,02,600

Computation of adjusted total income of Mr. X for levy of Alternate Minimum Tax

Particulars Rs. Rs.

Total Income 48,00,000
(Computed above as per regular provisionsof income tax)
Add: Deduction under section 10AA 32,00,000

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 80,00,000

Add: Deduction under section 35AD 65,00,000

Less: Depreciation under section 32
On building @10% of Rs. 65 lakhs 6,50,000 58,50,000
Adjusted Total Income 1,38,50,000
Alternate Minimum [email protected]% 25,62,250
Add: Surcharge@15% 3,84,338
(Since adjusted total income > Rs. 1crore)
29,46,588
Add: Health and Education cess@4% 1,17,863
30,64,451
Tax liability u/s 115JC (rounded off) 30,64,450

Since the regular income-tax payable is less than the alternate minimum tax payable, the adjusted total
income shall be deemed to be the total income and tax is leviable @18.5% thereof plus surcharge@15%
and cess@4%. Therefore, tax liability as per section 115JC is Rs. 30,64,450.

Question 6
Mr. Dheeraj, aged 48 years, a resident Indian has furnished the following particulars for the year ended
31.03.2024:

(i) He occupies ground floor of his residential building and has let out first floor for
residential use at an annual rent of Rs. 3,34,000. He has paid municipal taxes of Rs. 30,000
for the current financial year. Both these floors are of equal size.
(ii) As per interest certificate from ICICI bank, he paid Rs. 1,80,000 as interest and Rs. 95,000
towards principal repayment of housing loan borrowed for the above residential building
in the year 2015.
(iii) He owns an industrial undertaking established in a SEZ and which had commenced
operation during the financial year 2019-20. Total turnover of the undertaking was Rs.
400lakhs, which includes Rs. 120 lakhs from export turnover. This industrial undertaking
fulfills all the conditions of section 10AA of the Income-tax Act, 1961. Profit from this
industry is Rs. 45 lakhs.
(iv) He employed 20 new employees for the said industrial undertaking during the previous
year 2023-23. Out of 20 employees, 12 were employed on 1st May 2022 on monthly
emoluments of Rs. 18,000 and remaining were employed on 1st August 2022 on monthly
emoluments of Rs. 12,000. All these employees participate in recognised provident fund
and they are paid their emoluments directly to their bank accounts.
(v) He earned Rs. 30,000 and Rs. 45,000 as interest on saving bank deposits and fixed
deposits respectively.

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 (vi) He also sold his vacant land on 01.12.2023 for Rs. 13 lakhs. The stamp duty value of land
at the time of transfer was Rs. 14 lakhs. The FMV of the land as on 1st April, 2001 was
Rs. 3.8 lakhs and Stamp duty value on the said date was Rs. 3 lakhs. This land was acquired
by him on 15.9.1997 for Rs. 2.80 lakhs. He had incurred registration expenses of Rs.
12,000 at that time.
The cost of inflation index for the F.Y. 2023 - 24 and 2001-02 are 348 and 100 respectively.
(vii) He paid insurance premium of Rs. 49,000 towards life insurance policy of his son, who is
not dependent on him.
You are requested to compute his total income and tax liability of Mr. Dheeraj for the A.Y. 2023 - 24, in
the manner so that he can make maximum tax savings.
Answer:

Computation of Total Income of Mr. Dheeraj for A.Y. 2024 - 25

Particulars Rs. Rs. Rs.

I Income from house property

Let out portion [First floor]

Gross Annual Value [Rent received is taken as GAV, in 3,34,000

the absence of other information]
Less: Municipal taxes paid by him in the P.Y. 2023-24
pertaining to let out portion [Rs. 30,000/2] 15,000
Net Annual Value (NAV) 3,19,000

Less: Deduction u/s 24

(a) 30% of Rs. 3,19,000 95,700

(b) Interest on housing loan [Rs. 1,80,000/2] 90,000 1,85,700

1,33,300
Self-occupied portion [Ground Floor]
Annual Value Nil

[No deduction is allowable in respect of municipaltaxes

paid]
Less: Interest on housing loan 90,000

(90,000)
Income from house property [Rs. 1,33,300 – Rs. 90,000] 43,300
II Profits and gains of business or profession

Income from SEZ unit 45,00,000

III Capital Gains

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 Long-term capital gains on sale of land (since held for
more than 24 months)
Full Value of Consideration [Actual consideration of Rs. 13,00,000
13 lakhs since stamp duty value of Rs. 14 lakhs does not
exceed actual consideration by more than 10%]
Less: Indexed Cost of acquisition [ Rs. 3,00,000 x 10,44,000 2,56,000
348/100]
Cost of acquisition

Higher of -

- Actual cost Rs. 2.80 lakhs + Rs. 0.12 lakhs = Rs. 2.92
lakhs and
- Fair Market Value (FMV) as on 1.4.2001 = Rs. 3.8 lakhs
but cannot exceed stamp duty value of Rs. 3 lakhs.
IV Income from Other Sources

Interest on savings bank deposits 30,000

Interest on fixed deposits 45,000 75,000

Gross Total Income 48,74,300

Less: Deduction u/s 10AA 13,50,000

[Since the industrial undertaking is established in SEZ, it
is entitled to deduction u/s 10AA@100% of export
profits, since P.Y.2023-24 being the 3rd year of
operations]
[Profits of the SEZ x Export Turnover/Total Turnover]x
100%
[ Rs. 45 lakhs x Rs. 120 lakhs/ Rs. 400 lakhs x 100%]

Less: Deduction under Chapter VI-A

Deduction under section 80C

Repayment of principal amount of housing loan 95,000

Insurance premium paid on life insurance policy of son

allowable, even though not dependent on Mr. Dheeraj 49,000 1,44,000
Deduction under section 80JJAA 9,43,200

30% of the employee cost of the new employees

employed during the P.Y. 2023-24 allowable as
deduction [30%of Rs. 31,44,000 [Rs. 23,76,000
(12 x 18,000 x11) + Rs. 7,68,000 (8 x 12,000 x 8)]

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 Deduction under section 80TTA
Interest on savings bank account, restricted to Rs.
10,000
10,000
10,97,200

Total income 24,27,100

Computation of tax liability of Mr. Dheeraj for A.Y.2024-25 under the normal provisions of
the Act

Particulars Rs. Rs.

Tax on total income of Rs. 24,27,100
Tax on LTCG of Rs. 2,56,000@20% 51,200
Tax on remaining total income of 21,71,100
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 – Rs. 5,00,000[@5% of Rs. 2.50 lakh] 12,500
Rs. 5,00,001 – Rs. 10,00,000[@20% of Rs. 5,00,000] 1,00,000
Rs. 10,00,001 – Rs. 21,71,100[@30% of Rs. 11,71,100] 3,51,330 4,63,830
5,15,030
Add: Health and education cess@4% 20,601
Total tax liability 5,35,631
Tax liability (rounded off) 5,35,630
Computation of tax liability of Mr. Dheeraj for A.Y. 2024 - 25 under the special provisions
of theAct (Alternate Minimum Tax)

Particulars Rs.
Computation of adjusted total income
Total income as per the normal provisions of the Act 24,27,100
Add: Deduction u/s 10AA 13,50,000
Deduction u/s 80JJAA 9,43,200
47,20,300
[email protected]% 8,73,255
Add: HEC@4% 34,930
AMT liability 9,08,186
AMT liability (rounded off) 9,08,190

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Since the regular income tax payable is less than the AMT, the adjusted total income of 47,20,300
would be deemed to be the total income and tax would be payable @18.5% plus HEC@4%. The total
tax liability would be Rs 8,82,690. In this case, AMT credit of 3,53,760 (9,18,000 – 5,64,240) can be
carried forward.

Question 7
Mr. Rakesh, aged 45 years, a resident Indian has provided you the following information for the
previous year ended 31.03.2023

i. He received royalty of Rs. 2,88,000 from abroad for a book authored by him in the nature of
artistic. The rate of royalty as 18% of value of books and expenditure made for earning this
royalty was Rs. 40,000. The amount remitted to India till 30th September, 2023 is Rs. 2,30,000.
ii. He owns an industrial undertaking established in a SEZ and which had commenced operation
during the F.Y. 2020-21. Total turnover of the undertaking was Rs. 200 lakhs, which includes
Rs.140 lakhs from export turnover. This industrial undertaking fulfills all the conditions of
section 10AA of the Income-tax Act, 1961. Profit from this industry is Rs. 25 lakhs.
iii. He also sold his vacant land on 10.11.2023 for Rs.13 lakhs. The stamp duty value of land at the
time of transfer was Rs. 18 lakhs. The FMV of the land as on 1st April, 2001 was Rs. 5 lakhs.
This land was acquired by him on 05.08.1995 for Rs. 1.75 lakhs. He had incurred registration
expenses of Rs. 20,000 at that time. The cost of inflation index for the year 2023-24 and 2001-
02 are 348 and 100 respectively.
iv. Received Rs.40,000 as interest on saving bank deposits.

v. He occupies ground floor of his residential building and has let out first floor for residential
use at an annual rent of Rs. 2,28,000. He has paid municipal taxes of Rs. 60,000 for the
current financial year. Both floor are of equal size.

vi. He paid insurance premium of Rs. 39,000 on life insurance policy of son, who is not
dependent on him and Rs.48,000 on life insurance policy of his dependent father.

vii. He paid tuition fees of Rs. 42,000 for his three children to a school. The fees being
Rs.14,000 p.a. per child.

You are required to compute the total income and tax liability of Mr. Rakesh under normal
provisions as well as under section 115BAC for the A.Y. 2024 - 25. Ignore AMT provisions.

CA CMA SHIVA TEJA Page | 220

Answer:

Computation of total income of Mr. Rakesh for A.Y. 2023-24

Particulars Rs. Rs. Rs.

I Income from house property

Let out portion [First floor]
Gross Annual Value [Rent received is taken as GAV, inthe
absence of other information]
Less: Municipal taxes paid by him in the P.Y. 2021-22
2,28,000
pertaining to let out portion [Rs.60,000/2]

30,000
Net Annual Value (NAV)
Less: Deduction u/s 24 (a) 1,98,000
30% of Rs.1,98,000 59,400

1,38,600

Self-occupied portion [Ground Floor]

Annual Value Nil

[No deduction is allowable in respect of municipaltaxes

paid] 1,38,600

II Profits and gains of business or profession

Income from SEZ unit
25,00,000
III Capital Gains
Long-term capital gains on sale of land (since held for
more than 24 months)
Full Value of Consideration [Higher of stamp duty value 18,00,000
of Rs. 18 lakhs and Actual consideration of Rs. 13 lakhs,
since stamp duty value exceeds actual consideration by
more than 10%]
Less: Indexed Cost of acquisition [Rs. 5,00,000 x 17,40,000 60,000
348/100]
Cost of acquisition
Higher of -
- Actual cost Rs. 1.75 lakhs + Rs. 0.20 lakhs = Rs. 1.95
lakhsand
- Fair Market Value (FMV) as on 1.4.2001 = Rs.5 lakhs

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 Income from Other Sources
IV Royalty from artistic book
Less: Expenses incurred for earning royalty 2,88,000
40,000
2,48,000
Interest on savings bank deposits 40,000
2,88,000

Gross Total Income 29,86,600

Less: Deduction u/s 10AA [Since the industrial 17,50,000
undertaking is established in SEZ, it is entitled to
deduction u/s 10AA @100% of export profits, since
P.Y.2023-24, being the 4th year of operations]
[Profits of the SEZ x Export Turnover/Total Turnover]x
100%[Rs.25 lakhs x Rs.140 lakhs/ Rs.200 lakhs x 100%]
Less: Deduction under Chapter VI-A
Deduction under section 80C
Tuition fee paid for maximum of two children is
28,000
allowable (Rs.14,000 x 2)
Insurance premium paid on life insurance policy of son
allowable, even though not dependent on Mr. Rakesh 39,000
Insurance premium paid on life insurance policy of
father not allowable, even though father is dependent
onMr. Rakesh
-
Deduction under section 80QQB 67,000

Royalty [Rs. 2,88,000 x 15/18 = Rs. 2,40,000, restricted

to amount brought into India in convertible foreign
exchange Rs. 2,30,000 minus Rs. 40,000 expenses
1,90,000
already allowed as deduction while computing royalty
income]
Deduction under section 80TTA 10,000

Interest on savings bank account, restricted to Rs.10,000

2,67,000
Total Income 9,69,600

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Computation of tax liability of Mr. Rakesh for A.Y.2024-25 under the normal provisions of the Act
Particulars Rs. Rs.
Tax on total income of Rs. 9,69,600
Tax on LTCG of Rs. 60,000 @ 20% 12,000
Tax on remaining total income of 9,09,600
Upto Rs.2,50,000 Nil
Rs.2,50,001 – Rs.5,00,000[@5% of Rs.2.50 lakh] 12,500
Rs.5,00,001 – Rs.9,09,600[@20% of Rs.4,09,600] 81,920 94,420
1,06,420
Add: Health and education cess@4% 4,257
Total tax liability 1,10,677
Tax liability (rounded off) 1,10,680

Question 8
Mr. Kamal, having business of manufacturing of consumer items and other products, gives the
following Trading and Profit & Loss Account for the year ended 31.03.2024:

Trading and Profit & Loss Account

Particulars Rs. Particulars Rs.

Opening Stock 5,62,500 Sales 2,33,25,000
Purchases 1,88,62,500 Closing Stock 6,75,000
Freight & Cartage 1,89,000
Gross profit 43,86,000
2,40,00,000 2,40,00,000
Bonus to staff 71,250 Gross profit 43,86,000
Rent of premises 80,250 Income-tax refund 30,000
Advertisement 7,500 Warehousing charges 22,50,000
Bad Debts 1,12,500
Interest on loans 2,51,250
Depreciation 1,07,250
Goods and Services tax demand paid 1,62,525
Miscellaneous expenses 7,88,475
Net profit of the year 50,85,000
66,66,000 66,66,000

Following are the further information relating to the F.Y. 2023-24:

a) Income-tax refund includes amount of Rs. 4,570 of interest allowed thereon.

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 b) Bonus to staff includes an amount of Rs. 7,500 relating to P.Y. 2022-23, paid in the month of
December 2023.
c) Advertisement expenses include an amount of Rs. 2,500 paid for advertisement published in
the souvenir issued by a political party. The payment is made by way of an account payee
cheque.
d) Miscellaneous expenses include:
a. amount of Rs. 15,000 paid towards penalty for non-fulfilment of delivery conditions
of a contract of sale for the reasons beyond control,
b. amount of Rs. 1,00,000 paid to Political Party by cheque.
e) Goods and Services Tax demand paid includes an amount of Rs. 5,300 charged as penalty for
delayed filing of returns and Rs. 12,750 towards interest for delay in deposit of tax.
f) Mr. Kamal had purchased a warehouse building of Rs. 20 lakhs in rural area for the purpose
of storage of agricultural produce. This was made available for use from 15.07.2023 and the
income from this activity is credited in the Profit and Loss account under the head
“Warehousing charges”.
g) Depreciation under the Income-tax Act, 1961 works out at Rs. 65,000
h) Interest on loans includes an amount of Rs. 80,000 paid to Mr. X, a resident, on which tax
was not deducted.

Compute the total income and tax liability of Mr. Kamal for the A.Y. 2024-25 in a most beneficial
manner.

Answer:
Computation of total income of Mr. Kamal for the A.Y.2023-24

Particulars Rs.
Net profit as per profit and loss account 50,85,000
Income-tax refund credited in the profit and loss account, out of which interest on such
Less: refund is only taxable, which is to be considered separately under the head “Income 30,000
from other sources”

Expenses either not allowable or to be considered separately but charged 50,55,000

Add:
in the profit & loss account
- Advertisement in the souvenir of political party not allowable as per
2,500
section 37(2B) (See Note 2)
- Payment made to political party by cheque (See Note 4) 1,00,000
- Penalty levied by the Goods and Services tax department for delayed filing
5,300
of returns not allowable as being paid for infraction of law (See Note 5)
- Depreciation as per books 1,07,250
- 30% of interest paid on loan paid to Mr. X, a resident, without deduction
24,000
of tax at source not allowable as per section 40(a)(ia)
52,94,050
Less: Depreciation allowable as per Income-tax Act, 1961 65,000
52,29,050
Income from specified business (warehousing charges) credited to profit
Less: 22,50,000
and loss account, to be considered separately
Income from business (other than specified business) 29,79,050

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Computation of income/ loss from specified business
Rs.
Income from specified business
22,50,000

Less: Deduction under section 35AD @ 100% of Rs. 20 lakhs (See Note 6)
Rs.
20,00,000
Income from specified business 2,50,000
Profits and gains from business or profession 32,29,050
Income from Other Sources
Interest on income-tax refund 4,570
Gross Total Income 32,33,620
Less: Deduction under section 80GGC
Contribution to Political Party (See Note 4) 1,00,000
Total Income 31,33,620

Notes –

(1) Bonus for the P.Y. 2022-23 paid after the due date for filing return for that year would have
been disallowed under section 43B for the P.Y.2022-23. However, when the same has been paid
in December 2023, it should be allowed as deduction in the P.Y.2023-24 (A.Y.2024-25). Since it
is already included in the figure of bonus to staff debited to profit and loss account of this year,
no further adjustment is required.
(2) The amount of Rs. 2,500 paid for advertisement in the souvenir issued by a political party
attracts disallowance under section 37(2B).
(3) The penalty of Rs. 15,000 paid for non-fulfilment of delivery conditions of a contract for reasons
beyond control is not for the breach of law but was paid for breach of contractual obligations
and therefore, is an allowable expense.
(4) Payment to political party qualifies for deduction under section 80GGC since the payment is
made by way of a cheque. However, since the amount has been debited to profit and loss
account, the same has to be added back for computing business income.
(5) The interest of Rs. 12,750 paid on the delayed deposit of goods and services tax is for breach of
contract and hence, is allowable as deduction. However, penalty of Rs. 5,300 for delay in filing
of returns is not allowable since it is for breach of law.
(6) Deduction @ 100% of the capital expenditure is available under section 35AD in respect of
specified business of setting up and operating a warehouse facility for storage of agricultural
produce which commences operation on or after 1.04.2009.

Computation of tax liability of Mr. Kamal for A.Y. 2024 - 25 under the regular provisions of the Act

Particulars Rs. Rs.

Tax on total income of Rs. 31,33,620
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 – Rs. 5,00,000 [@5% of Rs. 2.50 lakh] 12,500
Rs. 5,00,001 – Rs. 10,00,000 [@20% of Rs. 5,00,000] 1,00,000
Rs. 10,00,001- Rs. 31,33,620 [@30% of Rs. 21,33,620] 6,40,086 7,52,586

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 Add: Health and education cess@4% 30,103
Total tax liability 7,82,689
Total tax liability (rounded off) 7,82,690

Computation of adjusted total income and AMT of Mr. Kamal for A.Y. 2024-25

Particulars Rs. Rs.

Total Income (computed above as per regular provisions of income tax) 31,33,620
Add: Deduction under section 35AD 20,00,000
Less: Depreciation under section 32 on building [Rs. 20 lakhs x 10%] -2,00,000 18,00,000
Adjusted Total Income 49,33,620
Alternative Minimum [email protected]% 9,12,720
Add: Health and education cess@4% 36,509
Total tax liability 9,49,229
Total tax liability (rounded off) 9,49,230
Since the regular income-tax payable is less than the alternate minimum tax payable, the adjusted
total income shall be deemed to be the total income and tax is leviable @18.5% thereof plus
cess@4%. Therefore, liability as per section 115JC is Rs. 9,49,230.

Computation of total income of Mr. Kamal as per section 115BAC for A.Y. 2024-25

Particulars Rs. Rs.

Gross Total Income as per regular provisions of the Income-tax Act 32,33,620
Add: Deduction under section 35AD 20,00,000
Less: Depreciation on building [Rs. 20 lakhs x 10%] -2,00,000 18,00,000
Gross Total Income/Total Income as per section 115BAC
50,33,620
[No deduction under Chapter VI-A allowable]

Computation of tax liability as per section 115BAC

Particulars Rs. Rs.

Tax on total income of Rs. 50,33,620
Up to Rs. 3,00,000 Nil
Rs. 3,00,001 – Rs. 6,00,000 [@5% of Rs. 3.00 lakhs] 15,000
Rs. 6,00,001 – Rs. 9,00,000 [@10% of Rs. 3.00 lakhs] 30,000
Rs. 9,00,001 – Rs. 12,00,000 [@15% of Rs. 3.00 lakhs] 45,000
Rs. 12,00,001 – Rs. 15,00,000 [@20% of Rs. 3.00 lakhs] 60,000
Rs. 15,00,001 – Rs. 50,33,620 [@30% of Rs. 35,33,620] 10,60,086
12,10,086
Add: Surcharge @10% [Since, the total income exceeds
Rs. 50 lakhs but does not exceed Rs. 1 crore] 1,21,009
13,31,095
Less: Marginal relief (See computation below) 1,38,725
11,92,370
Add: Health and education cess@4% 47,695

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 Total tax liability 12,40,064
Total tax liability (Rounded off) 12,40,060

Computation of Marginal Relief

Particulars Rs.

(A) Tax payable including surcharge on total income of Rs. 50,33,620 as per section 115BAC 13,72,345

(B) Tax payable on total income of Rs. 50 lakhs as per section 115BAC 12,00,000

(C) Excess tax payable (A-B) 1,72,345

Marginal relief (Rs. 1,72,345 – Rs. 33,620, being the amount of income in excess of Rs.
(D) 1,38,725
50 lakhs)

Notes:

(1) Deduction under section 35AD is not allowable as per section 115BAC(2). However, normal
depreciation u/s 32 is allowable.
(2) An individual exercising option u/s 115BAC is not liable to alternate minimum tax u/s 115JC.

Since the tax liability of Mr. Kamal under section 115JC is lower than the tax liability as computed u/s
115BAC, it would be beneficial for him not to opt for section 115BAC for A.Y. 2024-25. Moreover,
benefit of alternate minimum tax credit is also available to the extent of tax paid in excess of regular
tax.

AMT credit to be carried forward under section 115JEE

Particulars Rs.
Tax liability under section 115JC 9,49,230
Less: Tax liability under the regular provisions of the Income-tax Act, 1961 7,82,690
1,66,540

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Question 9
Mr. Samar, a resident individual, aged 43 years, provides professional services in the field of interior
decoration. His Income & Expenditure A/c for the year ended 31st March, 2024 is as under:

Expenditure Rs. Income Rs.

To Employees' Remuneration &
13,66,000 By Consultancy Charges 58,80,000
Benefits
To Office & Administrative Exp. 3,14,000 By Interest on Public Provident Fund 60,000
(PPF) Account
To General Expenses 75,000 By Interest on Savings Bank Account 20,000
By Interest on National Savings
To Electricity Expenses 65,000 21,000
Certificates VIII Issue (for 3rd year)
To Medical Expenses 80,000
To Purchase of Furniture 48,000
To Depreciation 90,000
To Excess of income over exp. 39,43,000
59,81,000 59,81,000

The following other information relates to financial year 2023-24:

(i) The expenses on Employees' Remuneration & Benefits includes:

(a) Family Planning expenditure of Rs. 20,000 incurred for the employees which was revenue in
nature. The same was paid through account payee cheque.

(b) Payment of salary of Rs. 25,000 per month to sister-in-law of Mr. Samar, who was in-charge
of the Accounts & Receivables department. However, in comparison to similar work profile,
the reasonable salary at market rates is Rs. 20,000 per month.

(ii) Amount received by Mr. Samar as Employees' Contribution to EPF for the month of February,
2024 – Rs. 10,000 was deposited after the due date under the relevant Act relating to EPF.

(iii) Medical Expenses of Rs. 80,000 as appearing in the Income & Expenditure A/c was expensed for
the treatment of father of Mr. Samar. His father was 72 years old and was not covered by any health
insurance policy. The said payment of Rs. 80,000 was made through account payee cheque.

(iv) General expenses as appearing in the Income & Expenditure A/c, includes a sum of Rs. 25,000
paid to Ms. Anjaleen on 5th January, 2024 as commission for securing work from new clients. This
payment was made to her without deduction of tax at source.

(v) Written down value of the depreciable assets as on 1st April, 2024 were as follows: Professional

Books = Rs. 90,000

Computers = Rs. 35,000

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 (vi) The new Furniture as appearing in the Income & Expenditure A/c was purchased on 31st August,
2023 and was put to use on the same day. The payment was made as under:

• Rs. 18,000 paid in cash at the time of purchase of new furniture on 31.08.2022.
• Rs. 19,000 paid by account payee cheque on 05.09.2022 as balance cost of new furniture and
• Rs. 11,000 paid in cash on 31.08.2022 to the transporter as freight charges for the new furniture.

(vii) Mr. Samar purchased a car on 02.04.2021 for Rs. 3,35,000 for personal use. However, on
30.04.2022 he brought the said car for use in his profession. The fair market value of the car
as on 30.04.2022 was Rs. 2,50,000.

(viii) Mr. Samar made a contribution of Rs. 1,00,000 in his PPF A/c on 31.01.2023.

(ix) The Gross Professional Receipts of Mr. Samar for P.Y. 2021-22 was Rs. 52,00,000.

Compute the total income and tax liability of Mr. Samar for A.Y. 2023-24, assuming that he has not
opted for payment of tax under section 115BAC.

Ignore provisions under section 14A relating to disallowance of expenditure incurred in relation to
income not includible in total income.

Answer:
Computation of total income of Mr. Samar for A.Y. 2023-24

Particulars Rs. Rs. Rs.

1 Income from business or profession
Excess of income over expenditure 39,43,000
Add: Items debited but not allowable while computing business
income
Family planning expenditure incurred for employees [not allowable
as deduction since expenditure on family planning for employees is
allowed only to a company assessee / not allowed in case of
20,000
individuals. Since the amount is debited to Income and Expenditure
Account, the same has to be added back for computing business
income]
Salary payment to sister-in-law in excess of market rate [Any Nil
expenditurenoincurred
Therefore, for which
adjustment payment
is required is madesalary
for excess to a relative, to
paid to Mr.
the extent it is considered
Samar's sister-in-law] unreasonable is disallowed. However,
sister-in-law is not included in the definition of "relative", for the
Medical
purpose expenses
of sectionfor the treatment of father [ Not allowed as
40A(2).
deduction since it is a personal expenditure / not an expenditure
incurred for the purpose of business of Mr. Samar. Since the 80,000
amount is debited to Income and Expenditure Account, the same
has to be added back for computing business income]

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 Commission to Ms. Anjaleen without deduction of tax at source
[Mr. Samar would be liable to deduct tax at source on commission
since his gross receipts from profession exceeded Rs. 50 lakhs
during F.Y.2021-22. Since commission has been paid without
7,500
deduction of tax at source, hence 30% of Rs. 25,000, being
commission paid without deducting tax at source, would be
disallowed under section 40(a)(ia) while computing the business
income of A.Y.2023-24]
Depreciation as per books of account 90,000
Purchase of Furniture [not allowable, since it is a capital 48,000 2,45,500
expenditure] 41,88,500
Add: Employees' Contribution to EPF [Sum received by the assessee
from his employees as contribution to EPF is income of the 10,000
employer.
Since the amount is not credited to Income and Expenditure
Account, the same has to be added for computing business income.
Deduction in respect of such sum is allowed only if such amount is
credited to the employee's account on or before due date under the
relevant Act. Since, the employees contribution to EPF for February
2023 is deposited after the due date under the relevant Act, no
deduction would be available]
41,98,500
Less: Depreciation as per Income-tax Rules
On Professional Books [Rs. 90,000 x 40%] 36,000
On Computers [Rs. 35,000 x 40%] 14,000
On Furniture [Rs. 19,000 x 10%, since it has been put to use for
1,900
more than 180 days during the year]
[Any expenditure for acquisition of any asset in respect of which
payment or aggregate of payment made to a person, otherwise
than by an A/c payee cheque/ bank draft or use of ECS or through
prescribed electronic mode, exceeds Rs. 10,000 in a day, such
expenditure would not form part of actual cost of such asset.
Hence, Rs. 18,000 and Rs. 11,000 paid on 31.8.2022 in cash would
not be included in the actual cost of furniture]
On Car [Rs. 3,35,000 x 15%] [Actual cost of car would be the
50,250 1,02,150
purchase price of the car to Mr. Samar, i.e., Rs. 3,35,000]
40,96,350
Less: Items of income credited but not taxable or taxable under any
other head of income
Interest on Public Provident Fund [Exempt] 60,000
Interest on savings bank account [Taxable under the head "Income
20,000
from other sources"]
Interest on National Savings Certificates VIII Issue (3rd Year)
21,000 1,01,000
[Taxable under the head "Income from other sources"]
39,95,350
II Income from Other Sources
Interest on savings bank account 20,000
Interest on National Savings Certificates VIII Issue (3rd Year) 21,000 41,000
Gross Total Income 40,36,350

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 Less: Deduction under Chapter VI-A
Deduction under section 80C
Contribution to PPF 1,00,000
Interest on NSC (3rd Year) (Reinvested) 21,000 1,21,000
Deduction under section 80D
Medical expenses for the treatment of father 50,000
[Since Mr. Samar's father is a senior citizen and not covered by any
health insurance policy, payment for medical expenditure by a
mode other than cash would be allowed as deduction to the extent
of Rs. 50,000]
Deduction under section 8OTTA 10,000 1,81,000
Interest on savings bank account to the extent of Rs. 10,000
Total Income 38,55,350

Computation of tax liability of Mr. Samar for A.Y.2023-24

Particulars Rs. Rs.

Tax on total income of Rs. 38,55,350
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 — Rs. 5,00,000[@5% of Rs. 2.50 lakh] 12,500
Rs. 5,00,001 — Rs. 10,00,000[@20% of Rs. 5 lakh] 1,00,000
Rs. 10,00,001 — Rs. 38,55,350 [@30% of Rs. 28,55,350] 8,56,605
9,69,105
Add: Health and education cess@4% 38,764
Tax liability 10,07,869
Tax liability (rounded off) 10,07,870

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Question 10
Dr. Rohan, 82 years old resident surgeon, having his Nursing Home in Mumbai, gives the following
particulars for the year ended on 31.03.2024.

Receipts Rs. Payments Rs.

Opening Balance b/d Salary to Staff
1,25,000 3,50,000
Fees from visits to other hospitals (net) Taxes & Insurance
5,85,000 26,000
Fees for March, 2021 received in April, Entertainment Expenses
2021 1,10,000
IPD - 40,000
OPD - 45,000 Purchase for Television
85,000 48,000
Dividend from shares (net) Gift to daughter-in law
18,900 60,000
Fees received during the year Interest on loan for repairs
10,25,000 to property 65,000
Gifts received from relatives of patients Personal Medical Expenses
45,000 70,000
Honorarium for painting services in Jai Deposits in PPF A/c
Hind Art School (net) 22,500 55,000

Income-tax Refund (Including interest Nursing Home Expenses

Rs. 1,500) 12,100 3,75,000
Prof. fees paid for
consulting services 1,20,000
Purchase of furniture at 1,35,000
home
Personal Expenses 3,00,000

Balance c/f 2,04,500

19,18,500 19,18,500

Other Information:
1. He keeps his books of accounts on cash basis and has not opted for the provisions of section
44ADA.
2. Salary includes 60,000 paid to his sister who is a qualified nurse paid in cash.
3. Entertainment expenses include & 25,000 for dinner to doctors in a five-star hotel.
4. Interest on loan for repairs to property includes < 40,000 for his residential property.
5. His daughter in law earned income of & 10,000 from the amount received as gift.
6. Fixed Assets values as on 01.04.2023 are as under:
Nursing Home Equipment's < 2,20,000, Medical Books (incl. annual publications < 10,000)
35,000, Laptop 40,000.
7. Television purchased for nursing home purpose on 21.09.2023 is put to use on 03.10.2023.

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 8. He has donated 10,000 towards PM CARES Fund on 15.08.2023 .

You are required to

(i) Compute the total income and tax payable by him for AY 2022-23 as per the regular
provisions of the Income-tax Act, 1961. Assume that he has not opted for section 115BAC.

(ii) What will be his total income and tax payable, if he opts for the provisions of section 44ADA?
Will it be more beneficial for him to adopt 44ADA?

Answer:

Computation of total income and tax payable by Dr. Rohan for A.Y. 2024-25 as per the regular
provisions of the Act

Particulars Rs. Rs. Rs.

I Income from House Property
Annual value [Assuming residential property self-occupied] Nil
Less: Deduction under section 24(b)
Interest on loan for repairs to property, Rs. 40,000, restricted
30,000
to
Loss from House Property -30,000
[can be set-off against Profits and gains of business or
profession or Income from other sources]
II Profits and gains from business and profession
Gross Receipts
Fees from visits to other hospitals [5,85,000/90%] 6,50,000
Fees for March 2021 received in April 2021 85,000
[Fees for March 2021 is chargeable to tax during P.Y. 2021-22,
since Dr. Rohan is following cash system of accounting] [40,000
+ 45,000]
Fees received during the year 10,25,000
Gifts received from relatives of patients [taxable as business
45,000 18,05,000
income]
Less: Permissible deductions
Salary to staff [Salary paid to his sister who is a qualified nurse
in cash disallowed under section 40A(3), since such cash 2,90,000
payment exceeds Rs. 10,000] [ 3,50,000 - 3,60,000]
Taxes and insurance 26,000
Entertainment expenses, including dinner to doctors [Assuming
that the entire sum was incurred wholly and exclusively for 1,10,000
business purpose]
Interest on loan for repair to property [to the extent relating to
business] = Rs. 65,000 - Rs. 40,000, relating to residential 25,000
property
Nursing home expenses 3,75,000
Professional fees paid for consulting services 1,20,000 9,46,000
8,59,000

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 Less: Depreciation under section 32
Nursing home equipment's [2,20,000 x 15%] 33,000
Note — Nursing home equipment would be eligible for
depreciation @15%, being the general rate for plant and
machinery. The main
solution has, accordingly, been worked out applying 15%.
However, if such equipment are in the nature of life saving
medical equipment, they would be eligible for higher
depreciation @40%. If 40% rate is applied, depreciation would
be Rs. 88,000
Medical books [35,000 x 40%] 14,000
Laptop [40,000 x 40%] 16,000
Television [48,000 x 15%, since the television is put to use for 7,200 70,200
180 days during the PY]
Note - Television would be eligible for depreciation @15%.
However, television connected to laptop or other medical
equipment and used by Doctor may be classified as plant and
machinery eligible for depreciation @40%. If 40% rate is
applied, depreciation for TV would be 19,200.
Also, it is possible to take a view that Television is fumiture and
fixtures qualifying for depreciation@10%. If 10% rate is applied, 7,88,800
depreciation for TV would be 4,800.
III Income from Other Sources
Dividend from shares [18,900/90%)] 21,000
Honorarium for painting services in Jai Hind Art School
25,000
[22,500/90%]
Honorarium (Alternative without TDS) - Rs. 22,500
Note — In the question, it is mentioned that Dr. Rohan has
received Honorarium for painting services in Jai Hind Art School
(Net) of & 22,500. Since the threshold limit for deducting tax at
source under section 194J is 30,000, there is no requirement to
deduct tax at source on such income. Accordingly, question can
be answered without grossing up the amount of honorarium of
Rs. 22,500.
Interest on income-tax refund 1,500
Income earned from gift to daughter in law [Income earned by
daughter in law from asset gifted without consideration to her 10,000 57,500
by Dr. Rohan is includible in the hands of Dr. Rohan]
Gross Total Income 8,16,300
Less: Deduction under Chapter VI-A
Deduction under section 80C
Deposits in PPF 55,000
Deduction under section 80D
Medical expenses to the extent of Rs. 50,000 since Dr. Rohan is
a senior citizen (assuming he has not taken any medical 50,000
insurance policy)
Deduction under section 80G
Donation towards PM CARES Fund 10,000 1,15,000

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 Total Income 7,01,300
Tax Payable
Upto Rs. 5,00,000 [since Dr. Rohan is aged 80 years or above] Nil
Rs. 5,00,001 to Rs. 7,01,300 [Rs. 2,01,300@20%] 40,260
40,260
Add: HEC@4% 1,610
Tax Liability 41,870
Less: TDS
TDS on fees from visits to other hospitals 65,000
TDS on dividend from shares 2,100
TDS on honorarium for painting services in Jai Hind art School 2,500 69,600
Tax Refundable 27,730

Computation of total income and tax payable by Dr. Rohan for A.Y. 2022-23 if he opt for section
44ADA
Particulars Rs. Rs.
I Income from House Property
Loss from House Property -30,000
II Profits and gains from business and profession
Income from profession [18,05,000 x 50%] [No other 9,02,500
expenditure or depreciation is allowed]
III Income from Other Sources 57,500
Gross Total Income 9,30,000
Less: Deduction under Chapter VI-A 1,15,000
Total Income 8,15,000
Tax Payable
Up to Rs. 5,00,000 nil
Rs. 5,00,001 to Rs. 8,15,000 [3,15,000@20%] 63,000
63,000
Less: HEC@4% 2,520
Tax Liability 65,520
Less: TDS 69,600
Tax Refundable 4,080

Since tax refundable in case Dr. Rohan opts for the provisions of section 44ADA is lower than the
regular provisions of the Act, it would be beneficial for him not to opt for section 44ADA and get his
books of account audited and declare income under the regular provisions.

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Chapter 13
Return of Income
Question 1
Mr. X would like to furnish his updated return for the A.Y. 2022 - 23. In case he furnished his updated
return of income, he would be liable to pay Rs. 2,50,000 towards tax and Rs. 35,000 towards interest
after adjusting tax and interest paid at the time filing earlier return. You are required to examine
whether Mr. X can furnish updated return

(i) as on 31.03.2024

(ii) as on 28.02.2025

(iii) as on 31.05.2025

If yes, compute the amount of additional income-tax payable by Mr. X at the time of filing his updated
return.

Answer:

Mr. X may furnish an updated return of his income for A.Y. 2022 - 23 at any time within 24 months
from the end of the relevant assessment year i.e., 31.03.2025.

Accordingly, Mr. X can furnish updated return for A.Y. 2022 - 23 as on 31.03.2024 and on 28.02.2025.
However, he cannot furnish such return as on 31.05.2025, since such date falls after 31.03.2025.

Mr. X would be liable to pay additional income-tax

• @25% of tax and interest payable, if updated return is furnished after the expiry of the time
limit available under section 139(4) or 139(5) i.e., 31st December 2023 and before the expiry
of 12 months from end of relevant assessment year i.e., 31.03.2024
• @50% of tax and interest payable, if updated return is furnished after the expiry of 12 months
from end of relevant assessment year i.e., 31.03.2024 and before the expiry of 24 months
from end of relevant assessment year i.e., 31.03.2025.

Accordingly, Mr. X is liable to pay additional income-tax in case he furnished his updated return as on

i. 31.03.2024 - Rs. 71,250

[25% of 2,85,000, being tax of Rs. 2,50,000 plus interest of Rs. 35,000]

ii. 28.02.2025 of Rs. 1,42,500

[50% of 2,85,000, being tax of Rs. 2,50,000 plus interest of Rs. 35,000]

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Question 2
Mr. Aakash has undertaken certain transactions during the F.Y. 2023 - 24, which are listed below. You
are required to identify the transactions in respect of which quoting of PAN is mandatory in the related
documents.

S. No. Transaction
1 Opening a current account with HDFC Bank
2 Sale of shares of ABC (P) Ltd. for Rs. 1,50,000
3 Purchase of two-wheeler motor vehicle of Rs. 1 lakh
4 Purchase of a professional laptop of Rs. 3 lakhs

Answer:
Transaction Is quoting of PAN mandatory in related documents?
Opening a current account with Yes, quoting of PAN is mandatory on opening of a
1
HDFC Bank current account by a person with bank.
Sale of shares of ABC (P) Ltd. for Rs. Yes, since the amount for sale of unlisted shares
2
1,50,000 exceeds Rs. 1,00,000
Purchase of two-wheeler motor Since the purchase is of two-wheeler motor vehicle,
3
vehicle of Rs. 1 lakh quoting of PAN is not mandatory
Purchase of a professional laptop of Yes, since the amount paid exceeds Rs. 2,00,000
4
Rs. 3 lakhs

Question 3
Enumerate the cases where a return of loss has to be filed on or before the due date specified u/s
139(1) for carry forward of the losses. Also enumerate the cases where losses can be carried forward
even though the return of loss has not been filed on or before the due date.

Answer:
As per section 139(3), an assessee is required to file a return of loss within the due date specified u/s
139(1).

As per section 80, certain losses which have not been determined in pursuance of a return filed under
section 139(3) on or before the due date specified under section 139(1) cannot be carried forward and
set-off. Thus, the assessee has to file a return of loss under section 139(3) within the time allowed u/s
139(1) in order to carry forward and set off of following losses:

- loss under the head “Capital Gains”,

- loss from activity of owning and maintaining race horses.

- business loss,

- speculation business loss and

- loss from specified business.

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However, following can be carried forward for set-off even if the return of loss has not been filed
before the due date:

- Loss under the head “Income from house property” and

- Unabsorbed depreciation.

Question 4
Mr. Vikas, a resident in India aged 80 years, is having a house property in Mumbai. He has let out the
house property to ABC Ltd. for a rent of Rs. 50,000 per month from 01.04.2023. He does not have any
other source of income. Is Mr. Vikas required to file his return of income for A.Y. 2024 - 25. If yes, why?

Answer:

An individual whose total income exceeds the maximum amount not chargeable to tax i.e., Rs.
5,00,000 in this case since Mr. Vikas is of 80 years, is required to file a return of income on or before
the due date under section 139(1) i.e., 31st July, 2024.

Clause (iv) of seventh proviso to section 139(1) provides that a person (other than a company or a
firm) who is not required to furnish a return u/s 139(1) has to furnish return on or before the due date
if the person fulfils such other conditions as may be prescribed.

Accordingly, vide Notification no. 3/2022 dated 21.04.2022, the CBDT inserted Rule 12AB which
prescribes, inter alia, that in case of resident individual who is aged 60 years or more at any time
during the relevant P.Y. is required to file his return of income if the aggregate of tax deducted at
source and tax collected at source, in his case, during the P.Y. is Rs. 50,000 or more.

In this case, Mr. Vikas’s total income would comprise of only income from house property from let out
of house property in Mumbai. His total income would be Rs. 4,20,000 [Rs. 6,00,000 – 30% under
section 24(a)], which is below the basic exemption limit of Rs. 5,00,000.

ABC Ltd. is required to deduct tax at source u/s 194-I @10% of Rs. 6,00,000. Tax deductible would be
Rs. 60,000. Since tax deducted at source in case of Mr. Vikas is more than Rs. 50,000, he has to furnish
his return of income for A.Y. 2022 - 23 on or before 31.07.2022, even though his total income is below
the basic exemption limit of Rs. 5,00,000.

Note – It is assumed that Mr. Vikas has neither made an application to the Assessing Officer u/s 197
nor furnished declaration to ABC Ltd. u/s 197A for non-deduction of tax. In case, he has obtained the
certificate u/s 197 or furnished declaration to ABC Ltd. u/s 197A, no tax would have been deducted
by ABC Ltd. on rental income. Consequently, Mr. Vikas would not be required to file his return of
income.

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Question 5
Mr. Ram furnished his return of income for the A.Y. 2024 - 25 on 20.07.2023. Due to missing
information for payment of taxes in the return of income, the Assessing Officer considers it defective
under section 139(9) of the Income-tax Act, 1961.

(i) What are the consequences if defect is not rectified within the time allowed?

(ii) Specify the remedies available if not rectified within time allowed by the Assessing Officer?

Answer:

(i) If the defect is not rectified within the period of 15 days or such further extended period, then,
the return would be treated as an invalid return. The consequential effect would be the same
as if the assessee had failed to furnish the return.
(ii) The Assessing Officer has the power to condone the delay and treat the return as a valid
return, if the assessee has rectified the return after the expiry of 15 days or the further
extended period, but before the assessment is made.

Question 6
Mr. A employed with B Pvt. Ltd. residing in Chennai, filed his return of Income on 30th July. He has no
other income other than salary. He however has failed to link his Aadhar with PAN as on return filing
date.

(i) What is the last date for linking Aadhar with PAN?

(ii) What is the consequence for him if he has linked the Aadhar with PAN on 31st August 2024?

Answer:
Every person who has been allotted PAN as on 1st July, 2017, and who is eligible to obtain Aadhar
Number, has to intimate his Aadhar Number to prescribed authority on or before 31st March, 2024.

Since, Mr. A fails to link his Aadhar number with PAN on or before 31.03.2024, consequently, at the
time of linking his Aadhaar number with PAN on 31.08.2023, he would be liable to pay fee of Rs. 1,000
as per section 234H.

Yes, the following are the exceptions –

An individual who does not possess the Aadhar number or Enrolment ID and is:

(i) residing in Assam, Jammu & Kashmir and Meghalaya;

(i) anon-resident as per Income-tax Act, 1961;

(iii) of the age of 80 years or more at any time during the previous year;

(iv) not a citizen of India

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