rtp for ipcc old students exam due in may 15
Transcription
rtp for ipcc old students exam due in may 15
KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 1 BASIC SUMS ON TAX COMPUTATION Question 1: Compute Tax Liability of Mr. X from the following information` A. SALARIES 15,00,000 B. HOUSE PROPERTY 10,00,000 C. BUSINESS/PROFESSION 15,00,000 D. CAPITAL GAINS LTCG on listed equity shares (STT) Exempted LTCG on building 4,00,000 STCG on building 3,00,000 STCG on listed equity shares (STT) 2,00,000 E. OTHER SOURCES Interest income Winning from lotteries 1,00,000 4,00,000 Question 2: Compute Tax Liability of Mr. X from the following information` A. Business Income 1,00,000 B. LTCG on Building 15,00,000 Question 3: Compute Tax Liability of Mr. X from the following informationLTCG ON BUILDING ` 20,00,000 Question 4: Compute Tax Liability of Mr. X from the following informationWinning from lotteries ` 10,00,000 Question 5: Compute Tax Liability of Mr. X from the following informationA. Business Income B. LTCG on Building ` 20,00,000 ` 5,00,000 Deduction under Chapter VIA ` 2,00,000 Question 6: Compute Tax Liability of Mr. X from the following informationLTCG on Building Deduction u/s. 80C ` 10,00,000 ` 70,000 Question 7: From the following particulars, you are required to work out the tax payable by Mrs. Pinto, aged 70 years (i) Family Pension Gross `75,000 (ii) Income from House Property (Net) `3,24,000 (iii) Income from Other Sources : (a) Interest on Bank Deposits `15,000 (b) Income from Horse Racing `20,000 (iv) Capital gains on transfer of Land - Long-term `15,000 253 KS: The Tax-Age VIVEK SONI Question 8: Compute tax liability of Mrs. X from the following information: Short term Capital Gain on Sale of Shares(STT) 4,50,000 Business Income 90,000 Deduction U/s 80C 70,000 Deduction U/s 80GGC 60,000 Question 9: Mr. X is having Business Income ` 450000 and Agricultural income ` 120000. Compute tax payable for the A.Y 2015-16. Question 10: Mrs. X is having Business Income ` 500000 and Agricultural income ` 80000. Compute tax payable for the A.Y 2015-16. Question 11: Mr. X is engaged in growing of sugarcane & manufacturing sugar following are other details: ` (1) Sale of Sugar 8,00,000 (2) Market value of sugar cane grown 80,000 (3) Cost of sugar cane grown 76,000 (4) Other expenses 2,00,000 Question 12: Compute Tax liability of Mr. X in the following cases(1) Total Income is ` 1,20,00,000 (2) Total Income is ` 1,50,00,000 (3) Total Income is ` 1,02,00,000 (4) Total Income is ` 1,04,20,000 (5) Total Income is ` 1,05,00,000 ----------------------------------------------------------------------------------------------------------------------------------SOLUTION TO RTP 1 Solution to Question 11: Computation of Tax Liability ` Profit or gains from business or profession Sale of Sugar 8,00,000 Less: Market value of sugar cane grown Other expenses 80,000 2,00,000 PGBP/GTI/TI 2,80,000 5,20,000 Add: Agricultural income for rate purposes ` (80,000 – 76,000) = 4,000 [as it does not exceed ` 5,000] NIL ________ 5,20,000 Tax on Total Income Upto `2,50,000 Next ` 2,50,000 @ 10% Bal. 20,000 @ 20% NIL 25,000 4,000 29,000 870 29,870 Add: EC & SHEC @ 3% ----------------------------------------------------------------------------------------------------------------------------------254 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 2 DEDUCTION UNDER CHAPTER VI A Question 1: X is a salaried employee. His basic salary is `40,000 p.m. He gets one month salary as bonus. He has been provided with rent free unfurnished accommodation which is owned by the employer company at the place of his posting i.e. Chennai. Both employer and employee contribute 15% of salary to Recognised Provident Fund. He gets bank interest on Fixed Deposit of `10,000. He made the following investments during the year: Life insurance premium on his own life (sum assured `80,000) 9,000 Notified equity linked saving scheme of UTI 12,000 Repayment of principal amount of housing loan (self occupied property) 27,000 Payment of interest on the above loan 2,60,000 Tuition fees of two children (14,000 + 26,000) 40,000 Deposit in Home loan account scheme of NHB 12,000 Pension fund of LIC 14,000 ---------------------------------------------------------------------------------------------------------------------------------Question 2: Mr. X is a Central Government employee having a basic salary of `2,25,000 p.a. and `75,000 Dearness Allowance (Forming part of salary). Both he and the employer each contributed `40,000 each to the Pension Fund referred to section 80CCD. Amount invested in PPF ` 130000. Compute his Total Income. ---------------------------------------------------------------------------------------------------------------------------------Question 3: Mr. Prasad is the Karta of HUF. The family declares a gross total income `4,00,000 for the assessment year . The gross total income includes taxable long-term capital gain `65,000 and short-term capital gain `35,000 which is taxable @ 15% u/s. 111A of the Income-tax Act, 1961. The details of HUF fund investment made during the year 2014-15 are: ` ` i) Amount deposited in PPF in the name of members of HUF 19,000 ii) Contribution made to (a) Indira Gandhi Memorial Trust (b) Delhi University (declared as an institution of national eminence) (c) Zila Saksharta Samiti (d) An approved charitable trust (e) Government for the purpose of promoting family planning (f) Hanuman Temple in Mohalla 7,000 3,000 5,000 30,000 10,000 20,000 75,000 Compute total income of HUF chargeable to tax for the assessment year . ---------------------------------------------------------------------------------------------------------------------------------Question 4: Mr. X furnishes you the following information to compute his total income, given that his Gross Total Income ` 5,60,000. Premium paid ` 20,000 on LIP of ` 1,00,000 on the life of the assessee. [policy issued after 1.4.2012] Premium paid ` 10,000 on a LIP of ` 1,50,000 on the life of his wife. 255 KS: The Tax-Age VIVEK SONI Premium paid ` 5,000 on LIP of ` 50,000 on the life of the mother of the assessee. Contribution to Recognised Provident Fund ` 15,000 Contribution to ULIP ` 10,000 Repayment of housing loan taken from the State Bank of India ` 15,000 (`9,000 as the principal and ` 6,000 as interest). The loan was utilised by the assessee to purchase a flat for his own residential purpose in the year 1994. Subscription to units of Mutual Fund notified u/s 10(23D) ` 18,000 Contribution to 15 year Post office Savings Bank (Cumulative Time Deposits) ` 8,000. Tuition fees of Children for three children ` 15,000 each Contribution to LIC Pension Fund ` 1,85,000 ---------------------------------------------------------------------------------------------------------------------------------Question 5: Mr. A, a business man submits the following particulars: a) Income from House property at Kolkata `30,000 b) Business income `40,000 c) Long term capital gains `30,000 d) Deduction U/s 80C `12,000 He pays `2,000 p.m. as rent for his residential accommodation in Delhi. Neither, he nor his family owns any residential accommodation. Compute Total income. --------------------------------------------------------------------------------------------------------------------------------Question 6: Compute Total Income of Mr. X from the following information for the A.Y 2015-16. ` Salaries 5,00,000 Post office saving A/c. interest 8,000 Bank saving A/c. interest 12,000 (1) LIC premium paid for dependent parents ` 10,000 and for major son (disabled u/s. 80U) ` 16,000. Policy is taken on 1.5.2014 and the assured sum is ` 2,00,000 and ` 1,00,000 respectively. (2) Amount donated for scientific research in cash ` 12,000. (3) Amount donated in cash for National Children’s Fund ` 8,000. (4) Amount given as donation to political party in cash ` 5,000 (5) Medical insurance premium paid in cash for self ` 8,000 and also expenses incurred in cash for preventive health check up parents ` 8,000. (6) Mr. X is a retail investor invested for the first time in the notified listed equity shares u/s. 80CCG ` 70,000. (7) Loan taken from bank for purchase of House property ` 20 lakhs on 1.1.2014. The value of property ` 35 lakhs. The property is self occupied and the assessee does not own any other house. Total Interest on loan ` 2,50,000. 256 KS: The Tax-Age VIVEK SONI SOLUTION TO RTP-2 Answer to Question 2: (I) Salaries Computation of Total Income ` Basic salary Dearness Allowances Employers contribution to pension Fund - taxable Gross Total Income ` 2,25,000 75,000 40,000 3,40,000 Less: Deduction under Chapter VIA: a) Under section 80C: Amount invested in PPF 1,30,000 b) Under section 80CCD: Employees contribution to pension Fund – (i) Amount contributed ` 40,000 (ii) 10% of salary (2,25,000 + 75000) ` 30,000 (iii) Maximum (W.e.f A.Y 2015-16) ` 1,00,000 Whichever is lower Maximum limit u/s. 80CCE c) Under section 80CCD: Employer’s contribution to pension Fund – Amount contributed ` 40,000 Maximum (10% of 3,00,000) ` 30,000 Whichever is lower 30,000 30,000 1,60,000 1,50,000 30,000 Total Income 1,80,000 1,60,000 Solution to Question 4: Gross Total Income Less: Deduction Under Chapter VIA Deduction U/s 80C Insurance Premium on his life [20,000 or 10% of 1,00,000, lower] Insurance Premium on the life of his wife Insurance Premium on the life of his mother Contribution to Recognised Provident Fund Contribution to ULIP Repayment of housing loan to SBI- principal amount only Contribution to Post office savings Bank – CTD Tuition fees of maximum 2 children Mutual Fund referred to u/s 10(23D) Maximum ` 1,50,000 Deduction U/s 80CCC for contribution to LIC Pension Fund – amount contributed or `1,00,000 whichever is lower 5,60,000 10,000 10,000 --15,000 10,000 9,000 8,000 30,000 18,000 1,10,000 1,10,000 1,00,000 257 KS: The Tax-Age VIVEK SONI 2,10,000 Maximum Deduction U/s 80CCC and 80C - `1,00,000 as per Section 80CCE 1,50,000 Total Income Solution to Question 5: a) Income from House property b) Business income c) Long term capital gains Gross Total Income Less: Deductions under chapter VIA i) Deduction u/s. 80C ii) u/s. 80GG (Note 1) 1,50,000 ----------4,10,000 Amount (`) 30,000 40,000 30,000 1,00,000 12,000 14,500 73,500 Total Income Note 1: Deduction u/s. 80GG shall be the minimum of the following three amounts – a) Rent paid – 10% of Adjusted Gross Total Income = 24,000 – 5,800 = 18,200 b) 25% of Adjusted Gross Total Income = 14,500 c) `2,000 p.m. = 24,000 Adjusted Gross Total Income = GTI – LTCG – Deduction u/s. 80C to 80U except u/s. 80GG = 1,00,000 – 30,000 – 12,000 = 58,000 Solution to Question 6: ` 5,00,000 (1) Salaries (2) House property Net Annual Value Less: Interest on loan (maximum) (2) Other Sources Post office saving A/c. interest Less: Exempted u/s. 10(15(i) Bank saving A/c. interest Gross Total Income Nil 2,00,000 8,000 3,500 4,500 12,000 Less: Deduction Under Chapter VIA Refer working Notes Total Income (2,00,000) 16,500 3,16,500 1,13,000 2,03,500 Working Notes: Computation of Deduction allowed under chapter VIA (1) Section 80C: LIC premium paid For parents: Not allowed For Major son: Allowed Maximum 15% of sum assured on policy taken on or after 1.4.2013 for disabled person (2) Section 80CCG: Amount invested in notified listed equity shares 258 15,000 KS: The Tax-Age VIVEK SONI 50% of 70,000 or 25,000; lower [Since the GTI of Mr. X does not exceed ` 12 lakhs] 25,000 (3) Section 80D: Mediclaim premium paid in cash – not allowed Preventive health check up of parents – allowed even if paid in cash – ` 8,000 or maximum ` 5,000; lower 5,000 (4) Section 80G: Donation to National Children’s Fund (100% without ceiling limit) – upto ` 10,000 cash payment allowed 8,000 (5) Section 80GGA Donation for Scientific research – not allowed since cash payment exceeds ` 10,000 NIL (6) Section 80GGC Donation to political party – 100% - not allowed Where payment made in cash NIL (7) Section 80TTA: Saving A/c. interest included in GTI (i) Post office ` 4,500 (ii) Bank ` 12,000 16,500 Maximum limit 10,000; lower (8) Deduction u/s. 80EE Interest on House Loan 2,50,000 Less: Already deducted u/s. 24(b) 2,00,000 50,000 Maximum deduction u/s. 80EE 1,00,000 Lower Total Deduction under chapter VIA 10,000 50,000 1,13,000 259 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 3 ADVANCE SUMS ON TAX LIABILITY Question 1: Following details are furnished by Sundaram for the year ending March 31, 2015 Rupees Director’s Remuneration (net of tax and own contribution to Provident Fund) 5,00,000 Sundaram's contribution to Provident Fund 30,000 Employer's contribution to Provident Fund 30,000 Leave Travel Allowance received (entire amount spent in traveling) 10,000 Free use of car of 1500 cc provided by the company. (Expenses borne by employer – partly personal and partly official) Medical expenses reimbursed by the company 18,000 Tax deduction at source on Salary 12,000 Sundaram was occupying a bungalow on rent at New Delhi since November, 1986. He agreed to transfer his tenancy right in the said bungalow in favour of Bala Ltd. for a sum of `2,00,000. He invested `80,000 in bonds of NHAI. Sundaram acquired 2,000 shares of `5 Lakhs during 1985-86 . Company allotted him Bonus shares in March 2014 @ 1:1. The entire shares held in the company have been sold by him during November, 2014 @`1,100 per share.[STT 0.125%] On 1/12/2014 Sundaram received from his friend 10,000 shares in ABC Ltd. as gift Market Value `2,00,000. He also received `3,00,000 as gift from Spouse of his Father brother on his birthday on 1/1/2015 Dividends from ACC Ltd., an Indian Company 2,500 Dividend collection charge 200 Question 2: Smt. Savita Rani born on 1.7.1943. She is a Deputy Manager in a company in Mumbai. She is getting a monthly salary and D.A. of `45,000 and 12,000 respectively [Only 50% of DA forms part of salary] . She also gets a House Rent Allowance of `6,000 per month. She is a member of Recognized P.F. wherein she contributes 15% of her salary and half D.A. Her employer also contributes an equal amount. (b) She is living in the house of her minor son in Mumbai. © During the previous year her minor son has earned an income of `30,000(computed) as Rent from a House Property, which had been transferred to him by Smt. Savita Rani without consideration a few years back. (d) During the previous year she sold Govt. of India Capital Indexed Bonds for `1,50,000 on 30.9.2014, which she purchased on 1.7.2000 for `80,000 260 KS: The Tax-Age VIVEK SONI (e) Her employer gave her an interest free loan of `1,50,000 on 1.10.2014 to one of her son’s wife for the purchase of an Alto Maruti Car. Nothing has been paid to the company towards the loan. Take 10.5% as SBI Rate] (f) During the previous year she paid `15,000 by cheque to GIC towards Medical Insurance Premium of her dependent mother. Compute the taxable income and tax liability of Mrs. Savita Rani. [Answer: Salaries ` 7,82,235;House Property ` 30,000;] Question 3: The following is the profit & loss account for the year ended 31/3/2015 M/s. ABC of which Sri Daga is the owner: ` ` 5,00,000 By Sales 12,00,000 92,795 By Rent from agricultural 1,000 land To Fine paid to excise department 2,000 By Interest Income (net of 16,000 TDS of ` 4000) To Salary & Wages 1,21,445 By Dividend Received from 10,000 Indian Company To General Charges 16,750 By Sale of listed shares 50,000 subjected to STT (long Term) To Interest on Bank Loan 21,000 To Daga’s Remuneration 38,750 To Depreciation 91,000 To Advance Tax 25,000 To Donation to Electoral Trust 16,000 To Net Profit 3,52,360 12,77,000 12,77,000 Compute the income from business of Sri Daga from the Sugar Mill after taking into account the following information into consideration: To Manufacturing Expenses To Excise Duty (i) Depreciation in respect of all assets has been ascertained at `50,000 as per Income Tax rules. Question 4: From the following information, compute tax liability: Director’s Remuneration in a company having only Agricultural Income Share of Profit from a partnership firm ` 1,50,000 80,000 Income from business of letting cars on hire 1,40,000 Salary received as a partner from a firm manufacturing tea 36,000 Lease rent received from lands given to tenants for agricultural Operations In cash In Kind 30,000 18,000 Sale of agricultural produce 60,000 261 KS: The Tax-Age VIVEK SONI Share of Income from HUF 40,000 Sale proceeds of agricultural lands situated in a village Fixed deposit interest received 1,20,000 18,000 Dividends from an Indian Company having rubber plantations 6,000 Payment of government tax on agricultural lands 16,000 Purchase of seeds – in cash 21,000 Tractor hire charges (for agricultural operations) 2,500 Question 5: Mr. Tenzingh is engaged in composite business of growing and curing (further processing) Coffee in Coorg, Karnataka. The whole of coffee grown in his plantation is cured. Relevant information pertaining to year ended 31.3.2015 are given below: (`) WDV of Car as on 1.4.2014 3, 00, 000 WDV of machinery as on 31.3.2014(15% rate) 15, 00, 000 Expenses incurred for growing coffee 3, 10, 000 Expenditure for curing coffee 3, 00, 000 Sale value of cured coffee 22, 00, 000 Besides being used for agricultural operations, the car is also used for personal use; disallowance for personal use may be taken at 20%. The expenses incurred for car running and maintenance are ` 50, 000. The machines were used in coffee curing business operations. He also has estates in Rubber and Tea. He derives income from them as under: Manufacture of rubber Manufacture of Tea Sale of seedlings from Nursery 5,00,000 7,00,000 1,00,000 Compute the income arising from the above activities for the assessment year. Question 6: Mrs. X, an American national came to India on 15th October, 2014 and returned on 1st March, 2015. While in India, she had purchased a show room which was leased out to a company on a rent of `25,000 per month from Nov 1, 2014. She had taken loan from a bank for purchased of this show room on which bank had charged interest of ` 95,000 up to March 31, 2015. She had received the following gifts in India: ` - From parents of husband 51,000 - From married sister of husband 11,000 - From friends 3,50,000 Income from Business in USA and received there: `2,00,000 Determine her residential status and compute the total income chargeable to tax along with the amount of tax payable on such income for the assessment year . Question 7: Mrs. X of Canada, aged 60 years, furnishes the following information for the previous year ended March 31, 2015 Particulars ` Pension received from Canadian Government received in Canada 20,000 262 KS: The Tax-Age VIVEK SONI Long-term capital gain on sale of land at Mumbai 1,00,000 Short-term capital gain on sale of shares of Indian listed companies in respect of which STT was paid 20,000 Premium paid to Canadian Life Insurance Corporation at Canada 10,000 Mediclaim policy premium paid 2,000 Tax saving bond purchased in March 2015 30,000 Rent received in respect of house property at Mumbai 70,000 2,000 Amount spent for medical treatment of disabled brother Compute the tax liability. ----------------------------------------------------------------------------------------------------------------------------------Solution to Question 2: Particulars Amount Amount A. Salary (i) Basic salary (45000 ×12) 5,40,000 (ii) Dearness Allowances (12000 ×12) 1,44,000 (iii) House Rent Allowances(6000 ×12) 72,000 (iv) Employer’s contribution to RPF 91,800 Less Exempted upto 12% of salary 73,440 18,360 (v) Perquisite value of interest free loan 7,875 Salary (A) 7,82,235 B. House Property Income from house property (B) 30,000 (Deemed owner) C. Capital Gain Full value of consideration 1,50,000 Less: (i) Selling Expenses NIL (ii) Indexed cost of Acquisition (80000 ×1024) 2,01,773 (2,01,773) 406 Long term capital loss to be c/f (51,773) Gross Total Income (A + B) 8,12,235 Less: Deduction under Chapter VIA (i) Deduction u/s 80C Employee’s contribution to RPF (ii) Deduction u/s 80D Medical insurance premium Total Income Rounded off u/s 288A 91,800 15,000 Tax on Normal Income of ` 7,05,440 :Upto ` 2,50,000 NIL Next ` 2,50,000 @ 10% 25,000 Bal. 2,05,440 @ 20% 41,088 66,088 Add: EC & SHEC @ 3% 1,983 68,071 Rounded off u/s. 288B 68,070 263 1,06,800 7,05,435 7,05,440 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 4 Question 1: Mr. Malik owns a factory building on which he had been claiming depreciation for past few years. It is the only asset in the block. The factory building and land appurtenant there to were sold during the year. The following details are available: ` Building completed in September, 2002 for …. 10,00,000 Land appurtenant thereto purchased in April, 2001 for …. 12,00,000 Advance received from a prospective buyer for land in May, 2002 forfeited in favour of Assessee, as negotiations failed …. 50,000 WDV of the building block as on 01-04-2014 …. 8,74,800 Sale value of Factory building in November, 2014 …. 8,00,000 Sale value of Appurtenant land 60,00,000 The Assessee is ready of invest in long-term specified Assets under section 54EC, within specified time. Compute the amount of taxable capital gain and the amount to be invested under section 54EC for availing the maximum exemption. [CII 2001-02: 426] Question 2: Mr. Rajesh is serving in a Public Limited Company as General Manager (Finance). His total emoluments for the year ended 31st March, 2015 are as follows : `5,40,000 `1,80,000 ` 12,400 Basic Salary HRA (Computed) Transport allowance Apart from the above, his employer has sold the following Assets to him on 1st January, 2015 (i) (ii) Laptop computer for `20,000 (Acquired in September, 2012 for `1,20,000). Car 1800 cc for `3,20,000 (Purchased in April, 2011 for `8,50,000) He also owns a residential house, let out for a monthly rent of `15,000. The fair rental value of the property for the let out period is `1,50,000. The House was self-occupied by him from 1st January, 2015 to 31st March, 2015. He has taken a loan of `20 lacs for the construction of the property, and has paid interest `40,000 during the year. He is also engaged in the business of retail trade for which sales amounted to `10,00,000. His father was engaged in the business of electronic goods. His father died in 2007-08. During the year he received `10,000 from a customer relating to his father’s business. Mr. Rajesh sold shares of different Indian companies on 14th April, 2014: Name A Ltd. B Ltd. Sale value (per share) `150 `82 Purchase price (per share) `120 `65 Acquired on 2nd May, 2011 16th April, 2014 No. of shares 200 125 Sale proceeds were subject to brokerages of 0.1% and securities transaction tax of 0.085% on the gross consideration. He received I.T. refund of `5,750 (including interest `750) relating to the Asst. Year 2008– 09. Vacant site lease rent received amounted to `20,000. Interest income of minor child amounted to `2,500. Compute the tax liability of Mr. Rajesh. [CII OF 2010-11: 711, 2011-12: 785; 2012-13 = 852] [Answer: Salaries ` 8,48,000; Gross Total Income ` 10,61,865] 264 KS: The Tax-Age VIVEK SONI Question 3: Dr. Krishna furnishes you the following information : Income and Expenditure Account for the year ended 31st March, 2015 To Medicines consumed To Staff Salary To Hospital consumables To Rent paid To Administrative expenses To Net Income ` 242000 165000 47500 60000 By Fee receipts By Rent By Dividend from Indian companies ` 847500 27000 9000 123000 246000 883500 883500 i) Rent paid includes rent for his residential accommodation of `30000 (paid by Cheque). ii) Hospital equipments 1.4.2014 Opening WDV `5,00,000 7.12.2014 Acquired (Cost) `2,00,000 iii) Medicines consumed include medicines (cost) `10,000 used for Dr. Krishna’s family. iv) Rent received --- relates to a property situated at Mysore (Gross Annual Value). The municipal tax of `2,000 paid in December, 2014 has been included in the administrative expenses”. v) He received `5,000 per month as salary from Full Cure Hospital. This has not been included in the “fee receipts” credited to income and expenditure account. Compute Gross Total Income. Question 4: R retired from Government service in March 2014 and got a sum of `20 Lakhs on account of retirement benefits. Out of the aforesaid sum R purchased on 26th April, 2014, two heavy goods vehicles for `8 Lakhs, four medium goods vehicles for `4 Lakhs and two light commercial vehicles for `2 Lakhs for the purpose of carrying on business of plying, hiring and leasing goods carriages. However R could actually start business of plying the aforesaid vehicles on 4th July, 2014, only though R had got the delivery of the aforesaid vehicles on the date of purchase itself. However, he did not maintain any regular books of accounts and also the vouchers in respect of the aforesaid business. As per R's Diary his gross receipts during the financial year ending 31st March, 2015 are `1,77,600 and the sum total of the entire business expenditure (other than Depreciation) is `52,100. R had inherited a house from his father. During financial year 2014-15 R was able to let out this house only for eight months at a monthly rent of `5,000. R has also furnished the following information in relation to this house : Municipal taxes paid by the tenant during financial year, 2014-15, based on Municipal Valuation of `53,000 `5,300 Interest paid on loan taken for renovation of the house `12,000 Actual repair & renovation expenses incurred during Water taxes levied and paid to Municipal Corporation working under the State Government `8,000 `400 On 4th April, 2014, R was able to recover the unrealised rent of `22,000, but R had to pay a sum of `11,000 on account of Litigation expenses with the old tenant (including Advocate's fee) during financial year, 201415 During financial year 2014-15, R received `60,000 on account of pension from Government. R requires you to compute his total income. 265 KS: The Tax-Age VIVEK SONI Question 5: Ram owns a building consisting of three identical units, the construction of which was completed on 1/4/2014. The building was occupied from 1/4/2014. The particulars pertaining to the 3 units for the year ended 31/3/2015 are given below: PARTICULARS Fair Rent Rent Received Municipal Taxes Paid Outstanding Municipal Taxes Land revenue due but not paid Ground Rent paid Nature of occupation UNIT I 50,000 3,000 3,000 1,200 2,400 Self occupied UNIT II 50,000 72,000 5,000 5,000 1,200 2,400 Let out UNIT III 50,000 3,000 3,000 1,200 2,400 Used for business On 1/4/2013 Ram had borrowed a sum of `5,00,000 bearing interest @ 12% p.a. for construction of the building. The total construction cost came to `12,00,000. The business income before considering any item connected with property was `2,10,000. Municipal Taxes and Land revenue due on 31/3/2015 were however paid on 1/7/2015. [Due date of return 31/7/2015] Compute tax liability. [Answer HP (-) 1,100; Profits or Gains of Business or Profession 1,38,400] 266 KS: The Tax-Age VIVEK SONI Solution to Question 5: Note 1: Pre construction interest from 1/4/2012 to 31/3/2013 = ` 5,00,000 x 12% = ` 60,000 For each unit = ` 20,000 (1/3rd of ` 60000) Particulars (A)INCOME FROM HOUSEPROPERTY Amount(`)______________ Unit1 Annual value Less: Interest on loan Current year interest (60,000 x 1/3) Pre construction interest (1/5th of 20,000) UNIT 1 (A) Unit 2 Fair rental value Rent received Gross annual value Less: Municipal taxes paid Net annual value Less : standard deduction u/s 24(a) Interest on loan u/s 24(b) [20000+ 4000] UNIT2 (B) INCOME FROM HOUSE PROPERTY (A+B) Nil 20,000 4,000 50,000 72,000 72,000 5,000 67,000 (20,100) (24,000) 22,900 (1,100) (B) BUSINESS AND PROFESSION Income from business Less: (1) (2) (3) (4) (5) 24,000 (24,000) 2,10,000 Municipal Taxes Land revenue Ground rent Interest on loan Depreciation [10% of (4,0000+20000)] [pre-construction interest capitalized under PGBP] 6,000 1,200 2,400 20,000 42,000 71,600 INCOME FROM PGBP 1,38,400 GROSS TOTAL INCOME (A + B) 1,37,300 ----------------------------------------------------------------------------------------------------------------------------------- 267 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 5 (SOLVED) SALARIES Question 1: Compute the taxable salaries of Mr. X for the P.Y 2014-15 from the following informationi) Basic Salary (` 12,000-2,000-14,000-4,000-22,000) date of Joining 1.7.2012. Bonus allowed one month’s basic salary based on salary at the end of the year. ii) Medical facility worth ` 18,000 given to his Spouse in a hospital owned by the company. iii) The actual cost of LCD; furniture and air conditioner provided for personal use of the employee is ` 1,80,000. iv) A gift voucher worth ` 10,000 in kind received on the occasion of his marriage anniversary. v) Employer provides Free education to his two children A and B. The cost of such education in a similar Institute for A is ` 900 per month and for B is ` 1,200 per month. vi) Salary of watchman is ` 1,500 per month is reimbursed by the employer. Question 2: From the Following information compute taxable salaries. (a) Basic Salary 3,60,000 (b) D.A – 15% [Forming part of retirement benefits] (c) RFA provided by the employer. Rent paid by the employer ` 12,000 p.m. (d) Laptop provided for personal use costing ` 40,000. (e) Reimbursed the medical treatment bill of dependent brother of ` 20,000. (f) Conveyance allowance of ` 1,200 per month is given by the company towards actual reimbursement. (g) Premium on Personal accident policy ` 5,000 paid by the employer. (h) Telephone allowance received ` 500 per month. (i) Medical insurance premium of his family paid by employer ` 10,000 (j) Contribution to RPF both the employer and employee 15% of salary. Question 3: Mr. X retired from the services on 31.1.2015 after doing service for 5 years. He received the following amounts from the employer for the P.Y 2014-15. Compute his Taxable Salaries. (i) Basic Salary ` 12,000 p.m (ii) D.A ` 6,000 p.m [does not form part of retirement benefit], (iii) City compensatory allowance ` 1,000 p.m (iv) Night duty allowance of `1,000. (V) Pension @ 20% of basic salary from 1.2.2015. (vi) Leave salary of received ` 1,00,000 for 225 days of leave accumulated during 5 years @ 45 days leave in each year. He has not availed any earned leave during his tenure of 5 years. (vii) Gratuity of ` 1,50,000.[ Assuming employee is not covered under Payment of Gratuity Act] ----------------------------------------------------------------------------------------------------------------------------------- HOUSE PROPERTY Question 4: X and Y are co-owners of a house property with equal share. The property was constructed during the financial year 1998-1999. The property consists of eight identical units. During the financial year 2014-15, each co-owner occupied one unit for residence and the balance of six units were let out at a rent of ` 10,000 per month per unit. The municipal value of the house property is ` 268 KS: The Tax-Age VIVEK SONI 12,00,000 and the municipal taxes are 20% of municipal value, which were paid during the year. The other expenses were as follows: (i) Repairs 40,000 (ii) Depreciation 15,000 (iii) Interest payable on loan taken for construction of house 4,00,000 One of the let out units remained vacant for four months during the year. Compute the income under the head ‘Income from House Property’ of X and Y. ----------------------------------------------------------------------------------------------------------------------------------PROFIT OR GAINS FROM BUSINESS OR PROFESSIONS Question 5: Mr. X is engaged in wholesale trade. The turnover from such business amounts to ` 98,50,000 and income as per books of accounts is ` 5,90,000 for the financial year 2014-15. Discuss the following(i) Is the assessee eligible to opt for presumptive taxation scheme u/s. 44AD for the A.Y ? If yes, then determined the business income under such scheme. (ii) In case the assessee does not opt for presumptive taxation scheme, what are the obligations under the Income-tax Act, 1961? (iii) What is the due date for filing his return of income under both the options? Question 6: Answer the following with reference to the provisions of the Income-tax Act, 1961 : (a) Bad debt claim disallowed in an earlier assessment year, recovered subsequently. Is this recovery is taxable ? (b) Tax deducted at source on salary paid to employees not remitted till the ‘due date’ for filing the return prescribed in section 139. Is the expenditure to be disallowed under section 40(a)(ia)? (c) A Ltd. paid ` 100 lakhs as compensation as per approved Voluntary Retirement Scheme (VRS) during the financial year 2014-15. How much is deductible under section 35DDA for the assessment year ? Question 7: Compute Taxable Income of X Ltd. under the head “Profit or gains from business and professions”. From the following information(1) Commenced the business of operating a three star hotel on 1-4-2014. (2) Following Expenditures were capitalized on 1.4.2013 in the books of the company (i) Cost of land (acquired in June 2012) ` 60 lakhs (ii) Cost of construction of hotel building Financial year 2013-13 ` 30 lakhs Financial year 2014-15 ` 150 lakhs (3) New Plant and Machineries acquired during financial year 2014-15 ` 40 lakhs. Net profit before depreciation for the financial year 2014-15 ` 100 lakhs Question 8: Compute the Income Taxable under the head “ Profit or gains from Business or professions” from the following Trading and Profit & Loss Account for the year ended 31.03.2015. Trading and Profit & Loss Account for the year ended 31.03.2015 269 KS: The Tax-Age VIVEK SONI To Opening Stock To Purchase of Raw Materials To Manufacturing costs To Gross Profit 91,000 16,79,000 5,70,000 10,60,000 34,00,000 By Sales By Closing stock 30,00,000 4,00,000 To Other business expenses To State VAT penalty To State VAT paid To General Expenses To Interest to Bank To Depreciation To Net Profit 3,20,000 5,000 1,12,000 58,000 60,000 2,00,000 5,00,000 12,55,000 By Gross Profit 10,60,000 By Dividend from domestic Companies1,80,000 By Income tax refund 15,000 _________ 34,00,000 ________ 12,55,000 Additional information: (i) Other business expenses include ` 38,000 paid as commission to sister. Fair market value ` 24,000. (ii) The assessee paid ` 33,000 in cash to a transport carrier on 29.12.2014. This amount is included in manufacturing expenses (Assume that the provisions relating to TDS are not applicable to this payment.) (iii) ` 60,000 was paid to a staff but wrongly omitted to be recorded in the books. (iv) Bank term loan interest actually paid upto 31.03.2015 was ` 20,000 and the balance was paid in December 2015. (v) Depreciation allowable under the Act is to be computed on the basis of following information: Plant & Machinery (Depreciation rate @ 15%) ` Opening WDV (as on 01.04.2014) 12,00,000 Additions during the year (used for more than 180 days) 2,00,000 Total additions during the year 4,00,000 Sales during the year 1,00,000 Note: (i) Ignore additional depreciation under section 32(1)(iia); Question 9: State with reasons, whether the following statements are true or false, with regard to the provisions of the Income-tax Act, 1961: (a) Payment made in respect of a business expenditure incurred on 16th February, 2014 for ` 25,000 through a cheque duly crossed as "& Co." is hit by the provisions of section 40A(3). (b) (i) It is a pre-requisite condition that the assessee is required to write off in the books of account, the amount due from debtor to claim deduction for bad debt. (ii) Failure to deduct tax at source in accordance with the provisions of Chapter XVII-B, inter alia, from the amounts payable to a resident as rent or royalty, will result in disallowance while computing the business income. Question 10: X Ltd., which follows mercantile system of accounting, obtained telecom license on 1.6.2014 for 10 years. The total license fee payable is ` 18,00,000. The relevant details are: Year ended 31st March License fee payable for the year Date 270 Payments Made Amount KS: The Tax-Age VIVEK SONI 2015 10,00,000 2016 8,00,000 30.03.2015 15.05.2015 28.02.2016 3,70,000 6,30,000 5,40,000 Balance of ` 2,60,000 is pending as on 31.3.2016. Compute the amount of deduction available to the assessee under section 35ABB for the assessment years 2015-16 and A.Y 2016-17. Can assessee also claim depreciation on license fees? Question 11: State with reasons, for the following sub-divisions, whether the following statements are true or false having regard to the provisions of the Income-tax Act, 1961: i) For a dealer in shares and securities, securities transaction tax paid in a recognized stock exchange is permissible business expenditure. (ii) An existing assessee engaged in trading activities, can claim additional depreciation under Section 32(1)(iia) in respect of new plant acquired and installed in the trading concern, where the increase in value of such plant as compared to the approved base year is more than 10%. (iii) It is mandatory for an assessee to claim depreciation under section 32 of the Income-tax Act, 1961. (iv) The mediclaim premium paid to GIC by Mr. Lomesh for his employees, by a draft, on 27.12.2014 is a deductible expenditure under section 36. (v) Under section 35DDA, amortization of expenditure incurred under eligible Voluntary Retirement Scheme at the time of retirement alone, can be done. (vi) Where a person follows mercantile system of accounting, an expenditure of ` 25,000 has been allowed on accrual basis and in a later year, in respect of the said expenditure, assessee makes the payment of ` 25,000 through a cheque crossed "& Co.”, disallowance of ` 25,000 under section 40A(3) can be made in the year of payment. Question 12: Mr. X furnishes you the following information for the year ended 31.03.2015. (i) Income from plying of vehicles (computed as per books) (He owned 5 heavy goods vehicle throughout the year) ` 2,10,400 (ii) Income from retail trade of garments (Computed as per books) (Sales turnover ` 21,70,000) ` 75,000 (iii) He has brought forward depreciation relating to A.Y. 2013-14 ` 1,00,000 Compute taxable income of Mr. X for A.Y . ----------------------------------------------------------------------------------------------------------------------------------CAPITAL GAINS Question 13: X ` 25,00,000 on 23.02.2015 on transfer of his residential building in a transaction of reverse mortgage under a scheme notified by the Central Government. The building was acquired in March 1991 for ` 8,00,000. Is the amount received on reverse mortgage chargeable to tax in the hands of X under the head ‘Capital gains’? CII for F.Y 1990-91 – 182, F.Y 2015-16 – 1024. Question 14: From the following particulars compute income under the head “Capital gains” of Mr. X for the A.Y - 271 KS: The Tax-Age VIVEK SONI Mr. X owned a residential house at Pune. It was acquired on 10.10.1986 for ` 4,00,000. It was sold for ` 55,00,000 on 4.11.2014. The State stamp valuation authority fixed the value of the property at ` 65,00,000. The assessee paid 2% of the sale consideration as brokerage for the sale of said property. Mr. X acquired a residential house at Mumbai on 10.12.2014 for ` 15,00,000 and deposited ` 10,00,000 on 10.4.2015 in the capital gain bond of Rural Electrification Corporation Ltd. (RECL). He deposited `5,00,000 on 6.07.2015 in the Capital Gain Deposit Scheme in a nationalized bank for construction of additional floor on the residential house property acquired at Mumbai. CII: F.Y 1986-87 = 140; F.Y: 2014-15 = 1024 Question 15: State, 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 and notified by the Central Government is treated as "transfer" for the purpose of capital gains. (ii) Zero coupon bonds of eligible corporation, held for more than 12 months, will be longterm capital assets. (iii) In the case of a dealer in shares, income by way of dividend is taxable under the head "Profits and gains of business or profession". (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 and the compensation is fixed by the State Government, resultant capital gain is exempt. Question 16: Mr. X gets a land on the partial partition of his HUF on 1.4.1981. FMV on 1.4.1981 was ` 1,10,000. Later on a residential building was constructed by Mr. X on this land at a cost of ` 3,20,000 during the F.Y 2003-04. Both Land and building has been transferred on 2.01.2015 for ` 12 lakhs. Value adopted by stamp valuation authority, which was not contested by Mr. A `20 lakhs. Value ascertained by Valuation Officer on reference by the Assessing Officer ` 22 lakhs. Mr. X seeks your advice as to the amount to be invested in NHAI/RECL bonds so as to be exempt from clutches of capital gain tax. CII for the financial years 1981-82, 2003-04 & 2014-15 are 100, 463 and 1024 respectively. ----------------------------------------------------------------------------------------------------------------------------------- OTHER SOURCES Question 17: Compute amount taxable of the following gifts received by Mrs. X during the previous year 2014-15. (i) Received a cash gift of ` 22,000 from a friend. (ii) Received a cell phone worth ` 37,000 as gift from a friend. (iii) On the occasion of his marriage, ` 70,000 as gift out of which ` 30,000 from relatives and balance from friends. (iv) Received cash gift of ` 18,000 from cousin of her mother. (v) Cash gift of ` 25,000 from the elder brother of her husband's grandfather. ----------------------------------------------------------------------------------------------------------------------------------CLUBBING Question 18: Mr. X gifts cash of ` 1,00,000 to his brother’s wife Mrs. Y. Mr. Y gifts cash of ` 1,00,000 to Mrs. X. From the cash gifted to her, Mrs. Y invests in a fixed deposit, income there from is ` 10,000. Aforesaid ` 10,000 will be included in the total income of …………. Fill up the blanks. Question 19: Compute the total income of Mr. & Mrs. X from the following information. 272 KS: The Tax-Age VIVEK SONI (a) Salary income (computed) of Mrs.X 2,30,000 (b) Income from profession of Mr.X 3,90,000 (c) Income of minor son B from company deposit 15,000 (d) Income of minor daughter C from special talent 32,000 (e) Interest from bank received by C on term deposit made out of her special talent 3,000 (f) Gift received by C on 30.09.2014 from friend of Mrs.X 2,500 Question 20: Mr. X has four minor children consisting 2 daughters and 2 sons. The annual income of 2 daughters was ` 7,500 (lottery income) and ` 5,000 and of sons was ` 5,500 (Interest on FD) and ` 1,250 (from Interest on FD) respectively. The daughter who was having income of ` 5,000 was suffering from a disability specified u/s. 80U. Compute the Gross Total income of Mr. X. Salary income of Mr. X ` 4,00,000 (computed). ----------------------------------------------------------------------------------------------------------------------------------SET OFF & CARRY FORWARD OF LOSSES Question 21: Ms. X, a resident individual, provides the following details of her income / losses for the year ended 31.3.2015: (i) Salary received as a partner from a partnership firm ` 7,50,000. (ii) Loss on sale of shares listed in BSE ` 3,00,000. Shares were held for 15 months and STT paid on sale. (iii) Long-term capital gain on sale of land ` 5,00,000. (iv) ` 70,000 received in cash from friends in party. (v) ` 30, 000, received towards dividend on listed equity shares of domestic companies. (vi) Brought forward business loss of assessment year 2014-15 ` 12,50,000. The return for assessment year 2015-16 was filed in time. ----------------------------------------------------------------------------------------------------------------------------------DEDUCTION UNDER CHAPTER VIA Question 22: From the following details Compute the total income of Mr. X for the A.Y (i) Gross Total Income ` 8,00,000 [does not include any income under the head ‘Profits and gains of business or profession, including interest on saving bank deposit of ` 5,000] (ii) Deposited ` 70,000 in tax saver deposit in the name of major son in a nationalized bank. (iii) Paid ` 30,000 towards premium on life insurance policy of his married daughter. Minimum sum assured ` 2,00,000. (iv) Contributed ` 10,000 to Prime Minister's National Relief Fund. (v) Donated ` 20,000 to a Government recognized institution for scientific research. Question 23: Discuss the allowability of the following of Mr. X: (i) Paid for hospital treatment ` 32,000 and spent nothing for life insurance or for maintenance of handicapped dependent. (ii) Incurred for treatment ` Nil in the previous year and deposited ` 15,000 with LIC for maintenance of handicapped dependant. (iii) Incurred ` 10,000 for treatment and ` 15,000 was deposited with LIC for maintenance of handicapped dependant. Question 24: Mr. X, an individual, made payment of health insurance premium to GIC in an approved scheme. Premium paid on his health is ` 10,000 and his spouse’s health is ` 15,000 during the year 2014-15. 273 KS: The Tax-Age VIVEK SONI He also paid health insurance premium of ` 25,000 on his father’s (age 68) health and not dependent on him. The payments have not been made by cash. Compute the amount of deduction under section 80D, available to Mr. X for the assessment year . ----------------------------------------------------------------------------------------------------------------------------------TAX DEDUCTION AT SOURCE Question 25: Mr. X is engaged in manufacture and wholesale trade furnishes you the following information : Total turnover for the financial year 2013-14 ` 105,00,000 and for 2014-15 ` 85,00,000. State whether tax deduction at source provisions are attracted for the below said expenses incurred during the financial year 2014-15: i) Interest paid to UCO Bank ` 41,000 ii) Contract payment to Mr. Y (2 contracts of ` 12,000 each) 24,000 iii) Shop rent paid (one payee) ` 1,90,000 iv) Commission paid to Mr. A ` 7,000 Question 26: Mr X, a landlord, derived income from rent from letting a house property to M/s Y Corporation Ltd. of ` 1,00,000 per month. Mr. X charged service tax @ 12.36% on lease rent charges. Calculate the deduction of tax at source (TDS) to be made by M/s Y Corporation Ltd. on payment made to Mr. X. ----------------------------------------------------------------------------------------------------------------------------------- 274 KS: The Tax-Age VIVEK SONI SOLUTIONS TO REVISIONARY TEST PAPER 5 SALARIES Answer to Question 1: Computation of Salary of Mr. X for the P.Y 2014-15 ` Particulars i) Basic Salary [Note 1] 2,04,000 Bonus 18,000 ii) Medical facility to family members at owned hospital -Exempted iii) Perquisite value of use of movable assets- 10% of 1,80,000 iv) Perquisite value of gift – taxable in excess of ` 5,000 v) Perquisite value of Education facility – For A- NIL – since cost of education in similar institution does not exceeds ` 1,000. For B- fully taxable since cost of education in similar institution exceeds ` 1000 [case of Delhi Public School] – 1200 x 12 vi) Reimbursement of Salary of watchman – taxable perquisites[1500 x 12] Taxable Salary NIL 18,000 5,000 14,400 18,000 2,77,400 Note 1: Basic salary For 2014-15 1.7.2012 to 30.6.2013 = 12,000 1.7.2013 to 30.6.2014 = 14,000 1.7.2014 to 30.6.2015= 18,000 For P.Y 2014-15 = April 14 to June 14 – 14,000 x 3 = 42,000 July 14 to March 15 –18,000 x 9 = 1,62,000 2,04,000 Answer to Question 2: Computation of Income Taxable under the head Salaries for the P.Y 2014-15 ` (a) Basic Salary 3,60,000 (b) D.A – 15% of 3,60,000 54,000 (c) Perquisite value of Rent Free Accommodation [Note 1] 63,000 (d) Perquisite value of Laptop provided for personal use- exempted NIL (e) Perquisite value of the medical treatment of dependent brother . [ ` 15,000 exempted balance taxable] 5,000 (f) Conveyance allowance of ` 1,200 per month. Exempted upto amount incurred for official purpose NIL (g) Premium on Personal accident policy ` 5,000. Exempted perquisites NIL (h) Telephone allowance- fully taxable [500 x 12] 6,000 (i) Medical insurance premium of his family ` 10,000 – Exempted perquisites NIL (j) Employer’s Contribution to RPF in excess of 12 % taxable [ 3% of (3,60,000 +54,000)] 12,420 Taxable salary 5,00,420 Note 1: Salary for the purpose of RFA = 3,60,000 + 54,000 + 6,000 = 4,20,000 Perquisites Value = 15% of salary (15% of 4,20,000) = 63,000; or Rent paid by the employer i.e, 1,44,000; whichever is lower = = ` 63,000 275 KS: The Tax-Age VIVEK SONI ----------------------------------------------------------------------------------------------------------------------------------Answer to Question 3: Computation of Taxable Salaries Assessee: Mr. X A.Y 2015-16 P.Y 2014-15 `___ ` Particulars Basic salary [12,000 x10] Taxable allowances: Dearness Allowances [6000 x 10] City compensatory allowance [1000 x 10] Night duty allowance [1000 x 10] 1,20,000 60,000 10,000 10,000 Pension – uncommuted pension fully taxable [2400 x 2] Leave salary received at retirement Less: least of the following Exempted u/s. 10(10AA) i) Amount actually received 1,00,000 ii) Last 10 months total salary 1,20,000 iii) Leave encashment as per IT 60,000 Gross leave = 30 days x 5 = 150 days Less: leave availed Nil_____ Unavailed leave 150 days 12000/30 x 150 = ` 60,000 iv) maximum limit 3,00,000 Gratuity received Less: least of the following exempted u/s. 10(10) i) Amount actually received 4,800 1,00,000 60,000 1,50,000 40,000 30,000 1,20,000 1,50,000 ii) ½ x Avg. salary of last 10 months x completed year of service [1/2 x 12,000 x 5] 30,000 iii) Maximum limit 10,00,000 Taxable Salaries 3,64,800 HOUSE PROPERTY Answer to Question 4: Let out unit [Note 1] Self occupied Unit [Note 2] Taxable Income From House Property X 1,02,000 (30,000) 72,000 Y___ 1,02,000 (30,000) 72,000 Note (1): Let out unit [6/8: 75% of the total Area] Gross Municipal Value [75% of 12,00,000]/Expected Rent Annual rent 10,000 x 12 X 6 7,20,000 Less: Vacancy [10,000 x 4] 40,000 Gross Annual Value [Actual rent is lower than expected rent but not due to vacancy, Therefore Expected rent is the GAV] 9,00,000 6,80,000 9,00,000 Less: Municipal tax paid [20% of 9,00,000] 1,80,000 Net Annual value 7,20,000 Less: Standard Deduction @ 30% u/s. 24(a) 2,16,000 276 KS: The Tax-Age VIVEK SONI Interest on loan (75% of 4,00,000) 3,00,000 5,16,000 2,04,000 Share of Mr. X (50%) ` 1,02,000 Share of Mr. Y (50%) ` 1,02,000 Note 2: Self occupied unit [2/8- 25% of Total Area]: Net Annual value Less: Interest on loan u/s. 24(b) 25% of 4,00,00 x 50% = 50,000 for each co-owner But maximum limit for each co-owner Income From self occupied unit Nil NIL 30,000 (30,000) 30,000 (30,000) Note 3: Repair and Depreciation is not allowed as deduction under House property. PROFIT OR GAINS FROM BUSINESS OR PROFESSIONS Answer to Question 5: (i) Since the turnover of the assessee does not exceeds ` 100 lakhs, therefore the assessee is eligible to opt presumptive taxation scheme u/s. 44AD and his business income u/s. 44AD should be 8% on 98,50,000 = ` 7,88,000. (ii) In case the assessee does not opt for the presumptive taxation scheme u/s. 44AD, and claims that his income under normal provisions is lower than the income under presumptive taxation scheme i.e., ` 5,90,000 < ` 7,88,000, then the assessee is required to maintain his books of accounts as per section 44AA. Further, he is also required to gets his accounts audited u/s. 44AB of the Income Tax Act, since his total income exceeds the basic exemption limit i.e, ` 2,00,000. (iii) If the assessee opts for the presumptive taxation scheme u/s. 44AD: the due date would be 31st July, 2014. If the assessee opt for normal provisions by claiming income under presumptive taxation scheme is higher , then he has to get his accounts audited u/s. 44AB and therefore the due date of filing of returns would be 30th September, 2015. Answer to Question 6: (a) Section 41(4) provides that if bad debt was allowed as deduction earlier and latter on its recovery is taxable. However, if earlier it was not allowed for deduction then now its recovery is not taxable. Therefore, in the given case the recovery amount is not taxable. (b) Section 40(a)(ia):- The Finance (No.2) Act, 2014 has extended the scope in relation to any payment instead of some specified payment as provided before. Now, the amended sections reads as under Where any sum is payable to resident, then tax must be deducted at source as per the TDS provisions and paid within the previous year or return filing date. If the above condition is satisfied then the expenditure shall be allowed as deduction. If the condition is not satisfied then 30% of the expenditure shall not be allowed as deduction. However, if paid in subsequent year, then it shall be allowed as deduction in such subsequent year. Since the assessee fails to deposit the tax therefore 30% disallowance will attracted in the F.Y 2014-15. (c) As per section 35DDA 1/5th of VRS expenditure shall be allowed as deduction over 5 successive years. Therefore, in the given case deduction for P.Y 2014-15 is allowed ` 20 lakhs [1/5th X 100 lakhs] 277 KS: The Tax-Age VIVEK SONI Answer to Question 7: Student should first write the provisions of section 35AD. Accordingly, the computation is as underNet profit before depreciation 100 lakhs Less: Deduction allowed u/s. 35AD Pre-commencement expenditure capitalized on 1.4.2014 Land: not allowed NIL Building: 100% of 180 lakhs = 180 lakhs Current year expenditure Plant & Machinery @ 100% of 40 lakhs = 40 lakhs Business loss To be c/f for unlimited period u/s. 73A for set off with income of any specified business. (220 lakhs) 120 lakhs Note: No depreciation shall be allowed u/d. 32, since the entire cost of plant and machinery and building qualifies for deduction u/s. 35AD. Answer to Question 8: Computation of income from PGBP PARTICULARS AMOUNT Net profit as per P/L a/c AMOUNT 5,00,000 Add: Items debited but not allowed State VAT penalty – [Disallowed under explanation to sec. 37(1)] 5,000 Depreciation as per books 2,00,000 Excess commission to sister 14,000 (Excess payment to relatives disallowed u/s40A(2) Interest on bank loan- disallowed u/s. 43B 40,000 2,59,000 7,59,000 Less: Items credited but not an income or Expenses allowed but not debited Dividend from domestic companies-exempted Income tax refund – not taxable Salary paid but not recorded Depreciation as per Income Tax Act (Note 1) Income from business and profession NOTE 1 – Calculation of depreciation Opening WDV Add Additions during the year For more than 180 days – 2,00,000 Less than 180 days – 2,00,000 Less Sale proceeds during the year Depreciation allowable 1,80,000 15,000 60,000 2,10,000 4,65,000 2,94,000 12,000,00 4,00,000 16,00,000 1,00,000 15,00,000 13,00,000 x 15% 2,00,000 x 7.5% 278 1,95,00 15,000 2,10,000 KS: The Tax-Age VIVEK SONI Note 2: In case cash payment is made to transporter, then disallowances u/s. 40A(3) is attracted if the amount exceeds ` 35,000. Since in the given case payment does not exceed ` 35,000, therefore allowable as deduction. Since, it is already debited to P/L A/c, no adjustment is required. Answer to Question 9: (a) True: Disallowances u/s. 40A(3) attracts where payment in excess of ` 20,000 is made other than through A/c. payee cheque. Therefore, payment through crossed cheque is disallowed u/s. 40A(3). (b) (i) True : As per section 36(1)(vii), in order to get deduction for bad debts the assessee is required to write off such amount in the books first. (ii) True: Section 40(a)(ia) provides that failure to deduct tax at source from rent or royalty payable to a resident, in accordance with the provisions of TDS, will result in disallowance of such expenditure. Answer to Question 10: First write provisions of Section 35ABB. Accordingly, the deduction u/s. 35ABB are as underFor A.Y 2015-16: Amount paid/un expired lease period = 3,70,000/10 = ` 37,000 (Allowed for 10 years starting from P.Y 14-15) For A.Y 2016-17: ` 37,000 + Amount paid/un expired lease period = ` 37,000 + 11,70,000/9 = ` 1,67,000 (allowed for 9 years starting from P.Y 2015-16) Note: Depreciation u/s. 32 is not allowed where deduction u/s. 35ABB is allowed. Answer to Question 11: (i) True : Since, it is incurred in the course of business, therefore allowable. ii) False : Since assessee is engaged in trading activities and not in manufacturing activity, therefore additional depreciation is not allowed. (iii) True : According to the Explanation 5 to section 32(1), allowance of depreciation is mandatory. Therefore, depreciation has to be provided mandatorily while calculating income from business / profession whether or not the assessee has claimed the same while computing his total income. (iv) True : Section 36(1)(ib) provides deduction in respect of premium paid by an employer to keep in force an insurance on the health of his employees under a scheme framed in this behalf by GIC or any other insurer. The medical insurance premium can be paid by any mode other than cash, to be eligible for deduction under section 36(1)(ib). (v) False : Amortisation of VRS expenditure is allowed as 1/5th over 5 years from the year in which payment is made and not when employee retires. (vi) True : As per section 40A(3), in the case of an assessee following mercantile system of accounting, if an expenditure has been allowed as deduction in any previous year on due basis, and payment exceeding ` 20,000 has been made in the subsequent year otherwise than by account payee cheque or account payee bank draft, then the payment so made shall be deemed to be the income of the subsequent year in which such payment has been made. Answer to Question 12: I) Profit or gains from Business or professions ` a) Plying of vehicles: 279 KS: The Tax-Age VIVEK SONI Normal provisions ` 2,10,400 As per section 44AE: 5 x 7500 x 12= ` 4,50,000 Whichever is lower [Note 1] 2,10,400 b) Income from retail trade Normal provisions ` 75,000 As per sec. 44AD: 21,70,000 x 8% = 1,73,600; lower [Note 1] 75,000 2,85,400 Less: B/f. unabsorbed depreciation of A.Y 2012-13 To be set off against normal income Income from Business or profession 1,00,000 85,400 Note 1: Since the normal income is lower, therefore assessee Must opt for normal income. However, he is required to Maintains accounts u/s. 44AA and gets his accounts audited as per section 44AB. ----------------------------------------------------------------------------------------------------------------------------------CAPITAL GAINS Answer to Question 13: As per section 47(xvi), any transfer of a capital asset in a transaction of Reverse Mortgage under a scheme made and notified by the Central Government will not be regarded as a transfer. Therefore, capital gains tax liability is not attracted. Further, Section 10(43) provides that the amount received by a senior citizen as a loan, either in lump sum or in installments, in a transaction of Reverse Mortgage would be exempt from income tax. Therefore, the amount received by X in a transaction of Reverse Mortgage of his residential building is exempt under section 10(43). Answer to Question 14: Computation of taxable Capital gains Nature of Assets: Residential House Period of Holding: 10.10.1986 to 4.11.2014 [Long-term] Particulars Full value of consideration [Since the sale value is lower than the value adopted or assessed or assessable by the stamp valuation authority, therefore as per section 50C, the value of stamp valuation authority should be considered] Less: (a) Selling expenses [2% of 55,00,000] (b) Indexed Cost of Acquisition [4,00,000 x 1024/140] A.Y- 2015-16 P.Y- 2014-15 ` ` 65,00,000 1,10,000 29,25,714 Gross Long term capital gains 30,35,714 34,64,286 Less: Exemptions 1) Under section 54: i) Residential house purchased at Mumbai ii) Amount Deposited in CGDS before return filing date for construction of additional floor on the residential house purchased at Mumbai 15,00,000 5,00,000 20,00,000 2) Under section 54EC: Amount deposited in the bonds of RECL within 6 months Taxable Long-term capital Gains 280 10,00,000 30,00,000 4,64,286 KS: The Tax-Age VIVEK SONI Answer to Question 15: i) False : As per section 47(xvi), such alienation in a transaction of reverse mortgage under a scheme made and notified by the Central Government is treated as exempted transfer. (ii) 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 long-term capital asset. (iii) False : Dividend, if not exempted shall always be taxable under the head “Other Sources”. (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 transfer, and the same is compulsorily acquired under any law and the compensation is determined or approved by the Central Government or the Reserve Bank of India, resultant capital gain will be exempt. In this case, the compensation has been fixed by the State Government and hence the exemption will not be available. Answer to Question 16: Computation of Capital Gains of Mr. X for the A.Y Nature of Capital Asset: Land & building Period of holding: Land: 1.4.1981 to 2.01.2015 (Long-term) Building: 2003-04 to 2.01.2015 (Long-term) ` ` Full value of consideration [Deemed value as per section 50C] 20,00,000 Less: Indexed Cost of Acquisition Land: 1,10,000 x 1024/100 Building: 3,20,000 x 1024/463 Lon-term capital gains 11,26,400 7,07,732 18,34,132 1,65,868 Amount to be invested in NHAI / RECL bonds ` 1,65,868 in order to get full exemptions. Notes : 1. In the case of Land or Building or both where the value of Stamp Valuation authority assessed or assessable or adopted exceeds the Sales Value then the Value of Stamp Valuation authority shall be regarded as Full value of consideration. Further, In case the assessee requests the A.O. to get FMV of the asset done then the Full Value of Consideration shall be the value of Stamp Valuation authority or FMV, whichever is lower. Therefore, in the given case the ` 20 lakh is considered as FVC. 2. Transfer of assets to members by HUF on partition is exempted transfer. Further, as per section 49(1) the cost of land for Mr. X is cost of previous owner, but since asset was acquired before 1.4.1981, therefore original cost or FMV on 1.4.1981, higher is taken. Further, period of holding and Indexation also to be considered as that of previous owner. Since date and cost of acquisition to the previous owner are not given, fair market value as on 1.4.1981 is taken as the cost and indexed. 3. Section 54EC provides exemption is respect of long-term capital gains, if the assessee invest within 6 months in the bonds of NHAI/RECL from the date of transfer of the assets. ----------------------------------------------------------------------------------------------------------------------------------INCOME FROM OTHER SOURCES ` Answer to Question 17: 281 KS: The Tax-Age VIVEK SONI i) Cash gift from friend – taxable ii) Received cell phones- Not taxable[Since cell phone is not an assets u/s. 56(2)(vii)] iii) Gift received on the occasion of marriage – Exempted. [Exempted whether received from relatives or friends] 22,000 NIL iv) Gift received from mother’s cousin – taxable 18,000 v) cash gift from elder brother of husband’s Grandfather – taxable since not a relative Total 25,000 65,000 NIL Since the aggregate cash gift exceeds during the year ` 50,000, therefore the entire amount is taxable u/s. 56(2)(vii). ----------------------------------------------------------------------------------------------------------------------------------CLUBBING Answer to Question 18: Mr. Y [ case of cross transfer] Answer to Question 19: Section 64(1A) provides that, the income of a minor child has to be clubbed in the hands of that parent whose total income (excluding the income of the minor) is higher. In the given case, total income of Mr. X excluding the income of minor child is higher than Mrs. X, therefore the income of minor child has to be clubbed in the hands of Mr. X after giving an exemption of ` 1500 for each minor child u/s. 10(32). Further, income of minor child earned through special skill/ talent is not to be clubbed but taxable in the hands of such minor child. Therefore, in the given case income of minor daughter earned though special talent will not be clubbed in the hands of Mr. X but it is taxable in the hands of daughter C. However, interest from bank deposit has to be clubbed even when deposit is made out of income arising from application of special talent. Accordingly, the computation is as underParticulars Mr. X Mrs. X Daughter C 1. Income from salaries 2. Income from profession 3. Income from other sources Minor son BIncome from company deposits Less: Exemption u/s. 10(32) 3,90,000 2,30,000 - 32,000 - - 2,30,000 32,000 15,000 1,500 Minor daughter C:Interest on bank deposits 3,000 Cash Gift from friend nil Of Mrs. X - not taxable [Since the aggregate amount does not exceeds ` 50,000] ______ 3,000 Less: Exemption u/s. 10(32) 1,500 Gross total income 13,500 1,500 4,05,000 Answer to Question 20: Computation of Gross Total Income of Mr. X ` 282 ` KS: The Tax-Age VIVEK SONI 1. Income from Salaries 2. Income from other sourcesDaughter 1 Less: Ex. u/s. 10(32) 4,00,000 7,500 1,500 5,500 Daughter 2 – would not be clubbed NIL Son 1: Interest on FD Less: Ex. u/s. 10(32) 5,000 1,500 3,500 Son 2: Interest On FD Less: Ex. u/s. 10(32) Gross Total Income 1,250 1,250 Nil 9,000 4,09,000 Note: The income of daughter suffering from disability specified under section 80U is not to be clubbed with the income of Mr. X. ----------------------------------------------------------------------------------------------------------------------------------SET OFF & CARRY FORWARD OF LOSSES ` Answer to Question 21: Income from Business/professions Salary received from partnership firm [assuming the firm has got full deduction In computing Business Income] Less: B/f. business loss of A.Y 14-15-` 12,50,000 Balance to be c/f ` 5,00,000 ` 7,50,000 7,50,000 Capital Gains Long-term capital gain on sale of land Long term capital loss on shares (STT) paid Benefit of loss is not allowed, since income is Exempted. Neither set off, nor c/f. NIL 5,00,000 NIL ________ Other sources Cash gift from friend- taxable u/s. 56(2)(vii) Since exceeds ` 50,000. 5,00,000 70,000 Dividend from Indian company- Exempted u/s. 10(34) NIL__ 70,000 Gross Total income 5,70,000 ----------------------------------------------------------------------------------------------------------------------------------DEDUCTION UNDER CHAPTER VIA Answer to Question 22: Computation of Total Income of Mr. X ` Gross Total Income Less: Deduction under chapter VIA i) Under section 80C Tax saving deposit - [in name of son not allowed, only in the name of assessee is allowed NIL LIC premium of married daughter 30,000 20,000 20,000 (Subject to 10% of 2,00,000) 283 ` 8,00,000 KS: The Tax-Age VIVEK SONI ii) u/s. 80G 100% of amount contributed to Prime minister National relief fund 10,000 iii) u/s. 80GGA 100% of amount contributed for scientific research (Assuming payment is made by mode other than cash) iv) u/s. 80TTA Interest on bank saving A/c. Maximum Lower of the above Total Income 20,000 5,000 10,000 5,000 55,000 7,45,000 Answer to Question 23: In all the above cases deduction allowable u/s. 80DD to Mr. X shall be ` 50,000. In the case of dependant with severe disability, the deduction allowable is ` 1,00,000. It is assumed that dependent has not claimed deduction u/s. 80U. Answer to Question 24: As per section 80D,the assessee will be eligible to get deduction on payment of health insurance premium to GIC in a medical insurance scheme approved by the Central Government. The premium is paid otherwise than by way of cash and hence qualifies for deduction under section 80D. i) For self and Spouse (10,000 + 15,000 = 25,000) Maximum allowed ` 15,000 ii) For father (whether dependent or not) ` 25,000 maximum allowed ` 20,000 Total Deduction u/s. 80D ` 35,000 ----------------------------------------------------------------------------------------------------------------------------------TAX DEDUCTION AT SOURCE Answer to Question 25: Since the payer is an Individual, therefore he can only be liable to deduct tax at source if during the preceding year i.e. 2013-14, the turnover exceeds ` 100 lakhs (means the assessee is required to tax audit u/s. 44AB during 2013-14). In the given case, the turnover of the assessee during 201314 is ` 105 lakhs, therefore in 2013-14 the assessee is required to tax audit u/s. 44AB. Hence, responsible to deduct tax at source as per the provisions of the Act. i) Interest paid to UCO Bank: NIL. The provisions of TDS is not attracted where payment is made to Banks ii) Contract payment of ` 12,000 each. Total ` 24,000: No deduction u/s. 194C, since section 194C is attracted if the single contracts exceeds ` 30,000 or the aggregate payment exceeds ` 75,000 during the year. iii) Shop Rent paid to one payee – TDS u/s. 194I attracts @ 10% on ` 1,90,000= 19,000, since the amount of rent exceeds ` 1.8 lakhs. iv) Commission paid: TDS u/s. 194H @ 10% on ` 7,000 i.e, ` 700, as the amount of commissions exceeds ` 5,000. Answer to Question 26: Since the aggregate payment during the year exceeds ` 1,80,000 i.e, in the given case ` 12,00,000. Therefore TDS u/s. 194I gets attracted in the case. Further, as per Circular No. 4/2008 dated 28/4/2008, Tax has to be deducted excluding the amount of service Tax. Accordingly, TDS per month would amount to ` 10,000. [` 1,00,000 @ 10%] ----------------------------------------------------------------------------------------------------------------------------------284 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 6 (SOLVED) Question 1: R who does not maintain books of account for the year ended 31-03-2015 requests you to compute his total income and the tax payable thereon for the assessment year from the following: (i) Basic salary CCA HRA 20,000 p.m. 1,000 p.m. 5,000 p.m. (ii) R resides in Chennai paying a rent of `6,000 p.m. (iii) R is paid an education allowance of `500 p.m. per child for all the three of his children. Actual expenses (tuition fees only) amounts to `15,000, `10,000 and `5,000 respectively. (iv) Employer’s contribution to Staff Group Insurance Scheme `5,440. (v) He brought a heavy goods vehicle on 07-06-2014 and has been letting it on hire from the same date. He declares as income of `34,900 from the same. (vi) Interest from company deposits is `15,000 and bank interest on saving A/c. is `5,000. (vii) Interest is payable on bank loans availed for buying the truck and making company deposits as follows: Purpose Date of Loan Amount Interest rate Truck purchase 01.04.2014 5,00,000 10% p.a Company deposit 01.10.2014 1,00,000 9% p.a (viii) Loss carried forward arising from speculating in shares during the preceding previous year and eligible for setoff is `1,00,000. (ix) R has invested `12,000 in notified equity linked saving scheme of UTI, `52,000 In NSC , `9,000 as life insurance premium on his own life (sum assured `80,000) and `15,000 towards pension fund of LIC. Question 2: Compute the total income and tax liability of Harish for the A.Y.2015-16 from the following particulars: Particulars ` (1) Income from house property (computed) 3,15,000 (2) Income from textile business before adjusting the following: 1,20,000 (a) Business loss brought forward 80,000 (b) Current depreciation 40,000 (c) Unabsorbed depreciation brought forward 1,20,000 (3) Short-term capital gains on sale of land 1,25,000 (4) Long-term capital loss on sale of shares sold through a recognised stock exchange (securities transaction tax paid) 25,000 (5) Long term capital gain on sale debentures 50,000 (6) Dividend on shares held as stock-in-trade 5,000 (7) Dividend from a company carrying on agricultural operation 7,000 (8) Income from growing and manufacturing coffee (cured and roasted) 80,000 During the previous year 2014-15, Harish has donated `50,000 to an approved Local Authority for promotion of family planning and repaid `90,000 towards principal portion of housing loan. Question 3: Mr. Raman is a co-owner of a house property along with his brother. Municipal value of the Property ` 1,60,000 Fair Rent ` 1,50,000 Standard rent under Rent Control Act ` 1,70,000 Rent received ` 15,000 p.m. 285 KS: The Tax-Age VIVEK SONI The loan for the construction of this property is jointly taken and the interest charged by the bank is ` 25,000 out of which ` 21, 000 have been paid. Interest on the unpaid interest is ` 450. To repay this loan, Raman and his brother have taken a fresh loan and interest charged on this loan is ` 5, 000. The Municipal Taxes of `5,100 have been paid by the tenant. Compute the income from this property chargeable in the hands of Mr. Raman. -------------------------------------------------------------------------------------------------286 KS: The Tax-Age VIVEK SONI SOLUTIONS TO RTP 6 Solution to Question 1: Computation of total income and tax payable by R for the A.Y. 2015-16 . ` Income from salary (1) Basic salary (20,000 x 12) (2) CCA (`1,000 x 12) (3) HRA actual amount received Less: Exempt: Minimum of following (a) 50% of salary 1,20,000 (b) Rent paid – 10% of salary (`72,000- 24,000) 48,000 (c) Actual HRA received 60,000 (4) Education allowance (`500 x 5 x 12) Less: Exempt ( (`100 x 2 x 12) (5)staff group insurance – Exempt ` 2,40,000 12,000 ` 60,000 48,000 18,000 2,400 Less: Deduction 12,000 15,600 Nil____ 2,79,600 NIL__ 2,79,600 75,000 Income from business Presumptive income u/s 44AE (7500 x 10) Income from other sources Interest on Company deposits 15000 Less: Interest paid 4500 Bank interest Gross total income Less: Deductions (1) U/s 80C (i)Tuition fee 25000 (ii)Equity linked saving scheme 12000 (iii)NSC 52000 (iv)LIP (Limited to 10% of sum assured) 8000 (2) U/s 80 CCC Pension fund `15,000 However as per section 80CCE, the aggregate of deduction under section 80C and 80CCC cannot exceed `1,50,000 (3) U/s 80 TTA Interest from saving bank Total income Tax on ` 2,53,000 On first `2,50,000 Nil Balance `3,000@10% 300 300 Less: Rebate u/s. 87A 300 NIL Solution to Question 2: Computation of total income of Mr. Harish for A.Y Particulars ` Income from house property 287 10,500 5,000 15,500_ 3,70,100 97,000 15,000 112000 5000 1,05,000 ` 1,17,000 2,53,000 ----------- ` 3,15,000 KS: The Tax-Age VIVEK SONI Profits and gains of business or profession Income from textile business Income from coffee business (40% of `80,000) Less: (1) Current year depreciation (2) Brought forward business loss Capital Gains Short term capital gain-land Long-term capital gain- debentures Income from other resources Dividend on shares held as stock-in-trade [Exempt u/s 10(34)] Dividend from agricultural company [Exempt u/s 10(34)] Less: Unabsorbed depreciation Gross total income Less: Deduction u/s 80C – Repayment of housing long Deduction u/s 80G @ 100% of `50,000 subject to [10% of (4,02,000 – 90,000 (80C) – 50,000(LTCG)) Total income 1,20,000 32,000 40,000 80,000 1,52,000 1,20,000 32,000 1,25,000 50,000 1,75,000 - - 5,22,000 1,20,000 4,02,000 90,000 26,200 1,16,200 2,85,800 Computation of tax liability Particulars Tax on non-agricultural income plus agricultural income i.e. `48,000 (i.e. 60% of `80,000) + `2,85,800 = `3,33,800 Tax on LTCG of `50,000 @ 20% Tax on balance income `2,83,800 Less: Tax on agricultural income plus basic exemption limit i.e. (`48,000 + `2,50,000) = `2,98,000 Tax payable Less: Rebate u/s. 87A ` 10,000 3,380 ` 13,380 __4,800 8,580 2,000 6,580 Add: Education Cess @ 2% 132 Add: Secondary and higher education Cess @ 1% 66 Total Tax payable 6778 Total tax payable (rounded off) 6780 Note: Loss from an exempt source cannot be set-off against income from a taxable source. Therefore, longterm capital loss on sale of shares cannot be set-off against long-term capital gains on sale of debentures. Solution to Question 3: ` (a) Expected Rent: Higher of MV or Fair rent but subjected to Standard rent 1,60,000 (b) Actual rent 1,80,000 Gross Annual value ½ of higher of “a” or “b” (½ of 1,80,000) Less: Standard deduction @ 30% 27,000 Interest on borrowed capital (1/2 of 25,000+5,000) 15,000 Income from house property 288 ` 90,000 42,000 48,000 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 7 (SOLVED) Question 1: Mr. Dinesh Karthik, a resident individual aged 45, furnishes the following information pertaining to the year ended 31.3.2015: (i) He is a partner in Badrinath & Co. He has received the following amounts from the firm: Interest on capital at 15% ` 3, 00, 000 Salary as working partner (at 1% of firm’s sales) ` 90, 000 (ii) He is engaged in a business in which he manufactures wheat. The Profit and Loss account pertaining to this business (summarized form) is as under: To Salaries Bonus Car expenses Machinery repairs Advance tax Depreciation: Car Machinery Net Profit ` By ` 1, 20, 000 Gross profit 12, 50, 000 48, 000 Interest on Bank FD (Net of TDS 5, 000) 45, 000 50, 000 Agriculture Income 60, 000 2, 34, 000 Pension from LIC Jeevandhara 24, 000 70, 000 3, 00, 000 1, 25, 000 4, 32, 000 13, 79, 000 __________ 13, 79, 000 Depreciation as per IT Rules ` 2,74,750. One-fifth of the car expenses are towards estimated personal use of the assessee. (iii) In March, 2009, he had sold a house at Chennai. Arrears of rent relating to this house amounting to ` 75, 000 was received in February, 2015. ` (iv) Details of his Savings and Investments are as under: Life Insurance premium for policy in the name of his major son employed in LMN Ltd. at a salary of ` 6 lakh p.a. sum assured ` 4, 00, 000 50, 000 Contribution to Pension Fund of National Housing Bank 70,000 Medical Insurance premium for his father aged 70, who is not dependent on him 22, 000 (v) Rent received from vacant site ` 60,000 You are required to compute the total income of Mr. Dinesh Karthik for the assessment year and the tax payable by him. Question 2:Dr. Shuba is medical practitioner. Her age is 60 as on 1 Jan 2015. The Receipts account of 2014-15 of her is as under: To By Balance B/f : 10,000 Purchase of commercial vehicle Receipts from sale of Medicine 2,50,000 (Before 30 Sep. 2014) Consultation fee 50,000 Drawing Visiting fee 2,00,000 Deposit in bank for 5 years 289 and payments 4,00,000 2,50,000 1,50,000 KS: The Tax-Age Lecturers Family pension Saving bank interest Loan from bank Share from HUF Agriculture income Income from lottery (net after deduction of TDS @ 30%) VIVEK SONI 5,000 2,80,000 1,000 3,00,000 50,000 1,00,000 35,000 Surgical instrument purchased Before 30 Sep. 2014 Installment of loan paid (including interest ` 22,333) Medical insurance premium Installment of housing loan (Principal component ` 48,000) Advance tax paid Purchase of medicine Payment for medical journal Vehicle expenses Balance C/f : Total 12,81,000 50,000 1,21,000 32,000 1,08,000 20,000 47,000 5,000 50,000 48,000 Total 12,81,000 Other relevant information is as under : (i) She resides in her own house which was constructed in 1998 with a loan from LIC Housing of 10,00,000 out of which 6,00,000 was still due. She got it refinanced from SBI on 01.04.11 at the rate of10%. One fourth portion of the house is used for clinic purposes. (WDV as on 1.4.2014 ` 2,82,430) (ii) She invested in term deposit 1,50,000 in Bank of Baroda on 01.07.14 for a period of 5 years in the name of her minor daughter at 9% interest p.a. (iii) She purchased a commercial vehicle on 1 July 2014 at 4,00,000. A loan of 3,00,000 was taken to buy the van at 8% interest. One fourth use of vehicle is estimated to be personal. (iv) She paid medical insurance premium for herself of 16,000 and for her mother 16,000. Her mother is dependent on her. (v) She got her share from HUF’s income of 50,000. Compute Total Income. Question 3: Mr. Raj Kumar sold a house to his friend Mr. Dhruv on 1/11/2014 for a consideration of `25,00,000. The Sub-Registrar refused to register the document for the said value, as according to him, stamp duty had to be paid on `45,00,000, which was the Government guideline value. Mr. Raj Kumar preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ` 32,00,000 (`22,00,000 for land and balance for building portion). The differential stamp duty was paid, accepting the said value determined. Assuming that the fair market value is ` 32,00,000, what are the tax implications in the hands of Mr. Raj Kumar and Mr. Dhruv for the assessment year ? Mr. Raj Kumar had purchased the land on 1st June, 2007 for ` 5,19,000 and completed the construction of house on 1st October, 2012 for ` 14,00,000. Question 4: Rao & Jain, a partnership firm consisting of two partners, reports a net profit of ` 7,00,000 before deduction of the following items (i) Salary of ` 20,000 each per month payable to two working partners of the firm (as authorised by the deed of partnership). (ii) Depreciation on plant and machinery under section 32 (Computed) ` 1,50,000 (iii) Interest on capital at 15% per annum (as per the deed partnership). The amount of capital eligible for interest `5,00,000 Compute the business Income of the Firm. 290 KS: The Tax-Age VIVEK SONI Question 5: Mr. X (age 45) is a resident individual. His Profit and Loss account for the year ending 31 st March, 2015 is given below: To Amount By Amount ` ` General charges 35, 650 Gross Profit 4,64,660 Fire Insurance 3, 500 Commission 68,000 Safety salary 1, 12, 560 Rent received 37,500 Donation to political party 1, 000 Interest on debentures Wealth tax 2, 400 (Net amount ` 22, 450 Depreciation 1, 25, 656 plus TDS ` 2,550) 25,000 Administrative expenses 42, 500 Agricultural income 45,000 Advance Tax 17, 000 Short-term Profit on sale Net Profit 3, 44, 894 on investment (STT) 33,200 Dividend from Indian Company 11,800 6, 85, 160 6,85, 160 i) Depreciation has been calculated as per the Income Tax Rules at ` 75, 000. ii) He has deposited ` 35, 000 in a notified scheme under Post Office Time Deposit Rules, 1981 for five year time. iii) Income tax department refunds ` 42,580 (including interest of ` 1, 470) which were directly credited in his personal savings account. iv) He incurred expenditure of ` 40,000 on treatment of his dependent father who was suffering from specified disease as defined in rule 11DD of Income Tax Rules, 1962. The payment of medical expenses was made by cheque and an amount of ` 7,500 was reimbursed to him by an insurance company. v) Bad debt of a business which was discontinued in earlier years, recovered during the year ` 15, 000. Compute total Income and Tax payable there on by Mr. X for the assessment year . ---------------------------------------------------------------------------------------------------------------- 291 KS: The Tax-Age VIVEK SONI SOLUTION TO RTP 7 Solution to Question 1: Computation of total income for the A.Y 2015-16 Particulars ` (1) Income from House property Arrear of rent – taxable u/s. 25B 75,000 Less: Standard deduction 30% 22,500 52,500 (2) Profit and gains from business or professions (a) Firm – Interest on capital taxable only to the extent of 12% which is exempted in the hands of firm. Salary of working partner – taxable assuming fully deducted in the hands of firm 2,40,000 90,000 3,30,000 5,33,250 (b) own Business – Note 1 (3) Income from other sources: Interest on bank fixed deposit (gross) Pension from LIC Jevandhara Rental income from vacant site Gross Total Income 50,000 24,000 60,000 8,63,250 1,34,000 10,49,750 Less: Deduction under Chapter VIA Section 80C Life Insurance premium (subject to 10% of sum assured) Contribution to Pension Fund of NHB Section 80D Medical Insurance premium for his father aged 70, (even though not dependent)- restricted to 20,000 Total Income Add: Agricultural Income for rate purpose 40, 000 70,000 1,10,000 20, 000 Income Tax on agricultural and non-agricultural income Less: Income tax on Agricultural Income and Basic exemption (60,000 +2,50,000) 6,000 1,14,950 3,449 1,18,399 70,000 5,000 43,399 43,400 Add: EC & SHEC @ 3% Tax liability Less: Advance Tax TDS Tax Payable Rounded off Note 1: Computation of income from wheat business Net profit as per P/L a/c. Less: Item credited but treated separately Interest on Bank FD 45,000 Agricultural income 60,000 Pension from LIC 24,000 292 1,30,000 9,19,750 60,000 9,79,750 1,20,950 4,32,000 1,29,000 KS: The Tax-Age VIVEK SONI 3,03,000 ADD: Item debited to P/L a/c. to be disallowed. Advance tax 70,000 Depreciation as per books 4,25,000 Car expenses being 1/5th of total expense 10,000 5,05,000 8,08,000 2,74,750 5,33,250 Less: Depreciation as per IT Rules Income from wheat business Solution to Question 2: Computation of total income of Dr. Shuba for A.Y. 2015-16 Particulars ` ` Income from house property: Annual value of self-occupied house Nil Less: Interest on loan [`45,000, being [3/4th of `60,000] (Restricted to `30,000) (30,000) (30,000) Income from profession: Sale of medicine Consultation fees Visiting fee Total income (a) Less: Expenses Medicine purchases Medical journal DepreciationSurgical instrument (15% of `50,000) Vehicle (3/4th of 15% of `4,00,000) On House (1/4 10% of 2,82,430) Vehicle expenses (3/4th) Interest on loan (3/4th ) Interest on housing loan(1/4th) Total expenses (b) Income from profession (a-b) Income from other sources 2,50,000 50,000 2,00,000 5,00,000 47,000 5,000 7,500 45,000 7,061 37,500 16,750 15,000 1,80,811 3,19, 189 Family Pension Less : 33 1/3% or `15,000 whichever is lower 2,80,000 15,000 2,65,000 Lecture fees 5,000 Savings bank interest 1,000 Interest on bank FD in the name of minor daughter [1,50,000 x 9% x 9/12] 10,125 Less: Exempt u/s 10(32) 1,500 8,625 Winnings from lottery 50,000 Gross Total Income Less: Deductions under Chapter VI-A U/s. 80C Repayment of housing loan (48,000 x 3/4) U/s. 80D Medical Insurance Premium: Own (Senior Citizen, hence fully allowed since premium is less than `20,000) 16,000 293 3,29,625 6,18,814 36,000 KS: The Tax-Age VIVEK SONI Mother (Senior Citizen, hence fully allowed since premium is less than `20,000) U/s 80TTA Interest On Savings Bank Deposit Total income Rounded off u/s. 288A 16,000 32,000 1,000 5,49,814 5,49,810 Notes: (1) Since the residential house was constructed before 01.04.1999,the deduction for interest is restricted to `30,000. (2) Since 1/4th portion of house is used for business purposes, therefore, 1/4th share of interest paid is deductible while computing business income. (3) Agricultural income is exempt u/s. 10(1) and share of income from HUF is exempt u/s. 10(2). (4) Term deposit of `1,50,000 in the name of minor daughter does not qualify for deduction under section 80C. However, principal repayment of housing loan (3/4th) would qualify for deduction under section 80C. Therefore, the deduction under section 80C would be `36,000 (i.e. 3/4th of `48,000). Solution to Question 3: In the hands of Raj Kumar In this case land has been held for a period exceeding 36 months and building for a period less than 36 months. Therefore, land is long term and building is short term. ` 22,00,000 9,64,530 12,35,470 Long term capital gain for sale of land Sale consideration as per section 50C Less: Indexed cost of Acquisition (5,19,000 x 1024/551) LTCG Short term capital gain on sale of building Sale consideration as per section 50C Less: Cost of Acquisition STCL STCL can be set off against LTCG . Net taxable LTCG 10,00,000 14,00,000 (4,00,000) __________ 8,35,470 In the hands of Dhruv: Since the difference between the purchase price and stamp duty value of immovable property exceeds ` 50,000. Therefore the entire difference i.e, 32,00,000 – 25,00,000 = 7,00,000 is taxable under the head “other sources” by virtue of section 56(2)(vii). Solution to Question 4: Computation of business income of Firm for the P.Y 2014-15 Net profit 7,00,000 Less: (1) Depreciation as per IT Rules 1,50,000 (2) Interest on capital- 12% of ` 5,00,000 60,000 2,10,000 Profit before deducting remuneration (Book Profit) Less: Allowable Remuneration –lower of the following (a) Actual Remuneration ` 20,000 x 12 x 2 = 4,80,000 (b) Remuneration allowed u/s. 40(b) On first 3,00,000 of book profit @ 90% = 2,70,000 On balance 1,90,000 of book profit @ 60% = 1,14,000 3,84,000 4,90,000 3,84,000 _______ 1,06,000 294 KS: The Tax-Age VIVEK SONI Solution to Question 5: ` (I) Income From House property Net Annual Value Less: Standard Deduction @ 30% (II) Income from Business Net profit Add: Adjustments (a)Item debited to P/L. but not allowed Donation to political party 1,000 Wealth tax disallowed u/s. 40(a) 2,400 Advance tax 17,000 Depreciation as per books 1,25,656 (b) Recovery of bad debts -deemed income 15,000 Less: Adjustments (a) Item credited but treated separately Rent received Interest on debenture Agricultural Income –exempted u/s. 10(1) Short term profit on sale of investment Dividend from Indian company -exempted (b) Depreciation as per IT Rules Income from Business 37,500 25,000 45,000 33,200 11,800 75,000 37,500 11,250 ` 26,250 3,44,894 1,61,056 5,05,950 2,27,500 2,78,450 (III) Income from Capital Gains Net short term capital gain (STT) (IV) Income From Other Sources Interest on Debentures Interest on income tax refund Gross Total Income Less: Deduction under chapter VIA Section 80C – Post office term deposit Section 80DDB ( ` 40,000 – ` 7500) Section 80GGC – Donation to political party (assuming other than cash) Total Income Add: Agricultural income for rate purpose 33,200 25,000 1,470 35,000 32,500 1,000 26,470 3,64,370 68,500 2,95,870 45,000 3,40,870 Income tax on above – Special tax 15% on short term capital gains on transfer of shares on which STT is paid (15% x 33,200) on balance 3,07,670 – Normal tax rate Less: Income tax on (45,000 + 2,50,000) Less: Rebate u/s. 87A Add: EC and SHEC Tax liability (Rounded off) Less: Advance tax paid Less: TDS Net tax Refundable 295 4,980 5,767 10,747 4,500 6,247 2,000 4,247 127 4,374 4,370 17,000 2,550 15,180 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 8 (SOLVED) Question 1: From the following details compute the Gross total income of Siddhant of Delhi for the A.Y 2015-16 : ` Salary including dearness allowance 3,35,000 Bonus 11,000 Salary of Servant provided by the employer 12,000 Bills paid by the Employer for Gas, Electricity and Water provided free of cost at the above flat 11,000 Siddhant was provided with Company’s Car (1.6 ltr cubic capacity -Self driven) also for personal use and it is not possible to determine expenditure on personal use and all expenses were borne by the employer. Siddhant purchased a Flat in Co-operative Housing Society for ` 4,75,000 in April, 1990, which was financed by a loan from Life Insurance Corporation of India of ` 1,60,000 @ 15% interest, his own savings of ` 85,000 and a deposit from a nationalized bank for ` 2,50,000 to whom this flat was given on lease for ten years. The rent payable was ` 3,500 per month. The following particulars are relevant: ` (a) Municipal Taxes paid 4,300 (per annum) (b) Society charges for passage lights, watchman’s salary (c) Insurance 1,900 (per annum ) 860 (d) He earned ` 2,700 in share speculation business and lost ` 4,200 in Cotton Speculation business. (e) In the year 2011-12 he had gifted ` 30,000 to his wife and ` 20,000 to his minor son. The gifted amounts were advanced to Mr. Rajesh, who was paying interest @ 19% per annum. (f) Siddhant received a gift of ` 25, 000 each from four friends. (h) He received national award for humanitarian work from the Central Government in the form of land whose fair market value is ` 5,00,000 as on 31st March, 2014. Question 2: Mr. X gifted to his wife Mrs. X 200 listed shares on 21-3-2014, which had been bought by him on 19-4-2013 ` 2,000 per share. On 1-6-2014, bonus shares were allotted in the ratio of 1:1. All these shares were sold by Mrs. X as underDate of sale Manner of sale No. of Net sales shares value (`) 21.5.2014 Sold in recognized stock exchange, STT paid 100 2,20,000 21.7.2014 Private sale to an outsider All bonus 1,25,000 share 28.2.2015 Private sale to her friend Mrs. Z(market value on this 100 1,70,000 date was ` 2,10,000) Briefly state the income tax consequences in respect of the sale of the shares by Mrs.X showing clearly the person in whose hands the same is chargeable, the quantum and the head of income in respect of the above transactions. Detailed computation of total income is not required. Net sales value represents the amount credited after all taxes, levies, brokerages, etc., and the same may be adopted for computing the capital gains. 296 KS: The Tax-Age VIVEK SONI Question 3: Mr. Selvan, acquired a residential house in January, 2000 for ` 10,00,000 and made some improvements by way of additional construction to the house, incurring expenditure of ` 2,00,000 in October, 2004. He sold the property in October, 2014 for ` 75,00,000. The value of property was adopted as ` 80,00,000 by the state stamp valuation authority for registration purpose. He acquired a residential house in January, 2015 for ` 25,00,000. He deposited ` 20,00,000 in capital gain bonds issued by National Highways Authority of India (NHAI) in June 2015. Compute the capital gain chargeable to tax for the assessment year . What would be the tax consequence and in which assessment year it would be taxable, if the house property acquired in January 2015 is sold for ` 40,00,000 in March, 2016 ? Cost of Inflation Index: F.Y. 1999-2000 = 389; F.Y. 2004-2005 = 480; F.Y. 2014-15 = 1024. Question 4: Ramji Ltd. engaged in manufactured of medicines (pharmaceuticals furnishes the following information for the year ended 31-03- 2015. (i) Municipal tax relating to office building ` 51,000 not paid till 30-09- 2015. (ii) Patent acquired for ` 20,00,000 on 01-09-2014 and used from the same month. (iii) Capital expenditure (other than building) on scientific research ` 10,00,000 which includes cost of land ` 2,00,000. (iv) Amount due from customer X outstanding for more than 3 years written off as bad debt in the books ` 5,00,000. (v) Income-tax paid ` 90,000 by the company in respect of non-monetary perquisites provided to its employees. (vi) Provident fund contribution of employer ` 5,50,000 remitted in July 2015. (vii) Expenditure towards advertisement in souvenir of a political party ` 1,50,000. (viii) Refund of sales tax ` 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 under the income-tax Act, 1961. Note: Computation of total income is not required Question 5: From the following information of Mrs. X for the year ending 31.3.2015. Compute the income taxable under the head “other sources” (a) Cash gift of ` 51,000 received from friend on the occasion of “Shastipatha Poorthi”, a wedding function celebrated on her husband completing 60 years of age. This was also her 25th wedding anniversary. (b) On the above occasion, a diamond necklace worth ` 2 lacs was presented by her sister living in Dubai. (c) When she celebrated her daughter’s wedding on 21.2.2015, her friend assigned in Mrs. X favour, a fixed deposit held by the said friend in a schedule bank; the value of the fixed deposit and the accrued interest on the said date was ` 51,000. ----------------------------------------------------------------------------------------------------------------------------------297 KS: The Tax-Age VIVEK SONI SOLUTION TO RTP 8 Solution to Question 1: (I) Income from salary Basic Salary including DA Bonus Salary of servant provided by employer Perquisite value of gas, electricity, water etc. Perquisite value of motor car (1800 x 12) Income under the head salaries (II) Income under the head House property Gross annual value (3500 x 12) Less: Municipal tax paid Net annual value Less: Deduction u/s. 24 Standard deduction @ 30% 11,310 Interest on borrowed capital (15% of 1,60,000) 24,000 ` 3,35,000 11,000 12,000 11,000 21,600 ` 3,90,600 42,000 4,300 37,700 35,310 (III) Income under the head Business/ Profession Speculative income from share business 2,700 Speculative loss from cotton business (4,200) Speculative loss can be Set off against speculative income and balance to be carried forward (1500) 2,390 NIL (IV) Income from Other sources Interest income on gift to wife to be clubbed – (30,000 x 19%) 5,700 Interest income on gift to minor child to be clubbed – 20,000 x 19% = 3,800 less: Exemption 1,500 2,300 Gift from friends (25,000 x 4) 1,00,000 1,08,000 Note 1: Assumption – Loan taken from LIC is not paid so far. Solution to Question 2: Where an asset has been transferred by an individual to his spouse otherwise than for adequate consideration, the income earned by the spouse from sale of the said assets will be clubbed and taxable in the hands of the individual. However, where there is any accretion to the asset transferred, income arising to the transferee from such accretion will not be clubbed. Therefore, in the given case capital gains arising from sale of original shares has to be clubbed in the hands of Mr. X, and the capital gains arising from the sale of bonus shares would be taxable in the hands of Mrs. X. A) Computation of long term capital gain/loss to be clubbed in the hands of Mr. X ` i) 100 shares sold on 21-5-2014 in a recognized stock exchange, STT paid – Exempted u/s. 10(38) ii) Shares sold to a friend on 28.2.2015 298 NIL KS: The Tax-Age VIVEK SONI P.H: From 19.4.2013 to 28.2.2015 (Long term since exceed 12 months) Full value of consideration Less: Indexed cost of acquisition of 100 shares [2000 x 100 x 1024/852] Long term capital loss 1,70,000 2,40,376 (70,376) Note: In case the asset is acquired by way of gift, the period of holding and cost of acquisition of the previous owner is considered. Further, as per the case of Manjula J. Shah, the indexation is also to be done when the previous owner had acquired the assets. B) Short-term capital gains taxable in the hands of Mrs. X (on sale of 100 bonus shares) ` Full value of consideration 1,25,000 Less: Cost of Acquisition Nil Short term capital gains 1,25,000 C) No tax u/s. 56(2)(vii) under the head “other sources” is liable in the hands of Mrs. Z since the difference between the fair market value of shares and actual sale consideration does not exceed ` 50,000. Solution to Question 3: Computation of Capital Gains for the A.Y 2015-16. Period of Holding: Jan, 2000 to October 2014 (Long term) Nature of Asset: Residential House Full value of consideration (by virtue of section 50C) Less: Indexed cost of acquisition (10,00,000 x 1024/389) Indexed cost of Improvement (2,00,000 x 1024/480) ` 80,00,000 26,32,391 4,26,667 30,59,058 Gross Long Term Capital Gains 49,40,942 Less: Exemption u/s. 54 = cost of new residential house purchased Exemption u/s. 54EC- no exemption shall be available Since invested after 6 months from the transfer of assets, 25,00,000 NIL_____ Taxable LTCG 24,40,942 Note: Students are required to write provisions of section 50C and Section 54 and section 54EC. Consequences if new house is sold within 3 years from its purchase Section 54 provides that in order to avail the exemption the assessee should not sold the new house within 3 year from the date of its purchase. However, if the assessee sold it within 3 years then the earlier exemption granted shall be reduced from the cost of acquisition of new house. Computation of capital Gains on sold of new house in A.Y 16-17 Period of Holding – Jan 2015 to March 2016 (short term) Full value of consideration Less: Cost of acquisition 25,00,000 Capital gain exempted earlier 25,00,000 40,00,000 Short term capital Gain 40,00,000 NIL____ 299 KS: The Tax-Age VIVEK SONI Solution to Question 4: i) Disallowed u/s. 43B since not paid within the return filing date i.e., in this case 30.9.2014. ii) Patent being an intangible assets is eligible for depreciation u/s. 32 @ 25% . since used for more than 180 days during the first year of acquisition, therefore full rate of 25% on ` 20,00,000 i.e, ` 5,00,000 shall be allowed as depreciation for the P.Y 2014-15. iii) As per section 35(2AB) deduction @ 200% shall be allowed on In house scientific research expenditure other than land to a company assessee engaged in manufacturing goods other than goods of 11th schedule. However, on building 100% deduction shall be allowed. In the given case the company is manufacturing goods other than goods of 11th schedule and assuming it has entered with an agreement with department for co-operation and audit. Hence, deduction u/s. 35(2AB) shall be 200% of ` 8,00,000 (` 10,00,000 - ` 2,00,000) = ` 16,00,000. iv) Bad debt written off is allowed as deduction u/s. 36(1)(vii). v) Income tax Paid on non-monetary perquisites of employees shall not be allowed as deduction in the hands of company by virtue of section 40(a)(v). vi) Since paid before return filing date, therefore allowed as deduction in P.Y 2014-15. vii) Expenditure towards advertisement in souvenir of a political party shall not be allowed as deduction u/s. 37(2B) while computing business income. However, the same shall be allowed as deduction u/s. 80GGB from Gross Total Income. viii) Refund of sales tax paid of earlier year shall be taxable in the year of receipts as deemed income by virtue of section 41. Solution to Question 5: Particulars a) Any sum of money received by an individual on the occasion of the individual marriage is exempt. However, exemption is not available in case cash gift is received during a wedding function celebrated on completion of 60 years of age. Further, since the gift is received from a non-relative, therefore chargeable to tax u/s. 56(2)(vii) b) since the gift is received from a relative therefore the provisions of section 56(2)(vii) is not attracted. Hence nothing taxable ` 51,000 Nil c) Exemption from section 56(2)(vii) is attracted when gift is received on the occasion of the marriage of the individual and not that of individuals son’s or daughter. Therefore, this exemption provision is not attracted in this case. Further, the word “sum of money” has, however, not been defined u/s. 56(2)(vii), therefore there are two possible view – View 1: Since fixed deposit does not fall under meaning of “ sum of money” and also it is not included in the definition of “property” , therefore section 56(2)(vii) shall not be attracted . hence nothing taxable Or View 2: Fixed deposit falls within the meaning of “sum of money” . hence taxable Income from other sources if view-1 is followed Income from other sources if view-2 is followed 300 Nil 51,000 51,000 Or 1,02,000 KS: The Tax-Age VIVEK SONI REVISIONARY TEST PAPER 9 (SOLVED) Question 1: Mr A, a resident individual aged 64, is a partner in ABC & CO., a partnership firm. He also runs a wholesale business in medical products. From the following details compute the total income of the assessee for the A.Y 2015-16. Particulars 1) Interest on capital received from ABC & Co. at 15% ` ` 1,50,000 2) Interest from bank on fixed deposit (Net of TDS of ` 1500) 13,500 3) Income-tax refund received relating to A.Y 2011-12 including interest of ` 2,300 34,500 4) Net profit from wholesale business Amount debited include the following Depreciation as per books Motor car expenses [20% used for personal purpose] Municipal taxes for the shop (for two half years; payment for one half year made on 12.6.2015 and for the other on 14.11.2015) Salary to manager for whom single cash payment was made for 5,60,000 5) Depreciation as per IT Rules 34,000 40,000 7000 21,000 1,10,400 6) LIP paid for major son 60,000 PPF of his wife 70,000 Question 2: On 10-10-2014, Mr. Govind (a bank employee) received ` 5,00,000 towards interest on enhanced compensation from State Government in respect of compulsory acquisition of his land effected during the financial year 2005-06. Out of this interest, `1,50,000 relates to the financial year 2009-10; ` 1,65,000 to the financial year 2010-11 and ` 1,85,000 to the financial year 2011-12. He incurred ` 50,000 by way of legal expenses to receive the interest on such enhanced compensation. How much of interest on enhanced compensation would be chargeable to tax for the assessment year ? Question 3: During the financial year 2014-15, the following payments/ expenditure were made/incurred by Mr. A, a resident individual (whose turnover during the year ended 31.3.2014 was ` 39 lacs) a) Interest of ` 12,000 was paid to M/s. B & Co., a resident partnership firm, without deduction of tax at source; b) interest of ` 4,000 was paid as interest to Mr. C, a non-resident, without deduction of tax at source. c) ` 3,00,000 was paid as salary to a resident individual without deduction of tax at source; d) He had sold goods worth ` 5 lacs to Mr. D. he gave Mr. D a cash discount of ` 12,000 later. Commission of ` 15,000 was paid to Mr. E on 2.7.2014. In none of these transactions, tax was deducted at source. 301 KS: The Tax-Age VIVEK SONI Briefly discuss whether any disallowances arises under the provisions of section 40(a)(i)/40(a)(ia) of the Income-tax Act, 1961. Question 4: Mr. Chandran (aged 38) owned 6 heavy goods vehicles as on 01-04-2014. He acquired 2 more heavy goods vehicle on 01-07-2014.He is solely engaged in the business of plying goods vehicles on hire since financial year 2008-09. He did not opt. for presumptive provision contained in section 44AE for the financial year 2013-14. His books were audited under section 44AB and the return of income was filled on 05-08-2014. He has unabsorbed depreciation of ` 70,000 and business loss of ` 1,00,000 for the financial year 2013-14. Following further information is provided to you: (i) Deposited ` 20,000 in Tax Saver Deposit with UCO bank in the name of married son. (ii) Paid medical insurance premium of ` 23,000 for his parents (both aged above 70) by means of bank demand draft. (iii) Paid premium on life insurance policy of his married daughter ` 25,000. (iv) Repaid principal of ` 40,000 and interest of `15,000 to Canara Bank towards education loan of his daughter, who completed B.E. two years ago. She is employed after completion of her studies. Assuming that Mr. Chandran has opted for presumptive provision contained in section 44 AE of the Incometax Act, 1961.Compute the total income of Mr. Chandran for the assessment year 2015-16. Question 5: State the applicability of TDS provisions and TDS amount in the following cases – a) Rent paid for hire of machinery by B Ltd. to Mr. Raman ` 2,10,000 b) Fee paid to Dr. Srivatsan by Sunder (HUF) ` 35,000 for surgery performed to a member of the family. -----------------------------------------------------------------------------------------------------------------------SOLUTION TO RTP 9 Solution to Question 1: Computation of total income of Mr. A for the A.Y ` Particulars (1)Profit and gains of business or profession Income from own business Net profit as per books Add: Items not allowed but debited to P/L Account Depreciation as per books Disallowance of municipal taxes paid for the second half year u/s. 43B, since the same was paid after the due date of filing of return (` 7000/2) Disallowance u/s. 40A(3) in respect of salary paid in cash since the same exceeds ` 20,000 20% of car expenses for personal use Less: Depreciation allowable as per IT Rules Income from firm Interest on capital from partnership firm (Note 1) ` 5,60,000 34,000 3,500 21,000 8000 66,500 6,26,500 1,10,400 5,16,100 1,20,000 302 KS: The Tax-Age VIVEK SONI 6,36,100 (2)Income from other sources Interest on bank fixed deposit (Gross) Interest on income tax refund Gross total income Less: Deduction under chapter VIA (Note 2) Total Income 15,000 __2,300 __17,300 6,53,400 _1,30,000 5,23,400 (1) Only to the extent the interest is allowed as deduction in the hands of the firm, the same is includible as business income in the hands of the partner. Maximum interest allowable as deduction in the hands of the firm is 12% p.a. It is assumed that the partnership deed provides for the same and hence is allowable to this extent in the hands of the firm. Therefore, interest @ 12% p.a. amounting to ` 1,20,000 would be treated as the business income of Mr. A. (2) Deduction under chapter VI-A Particulars Under section 80C LIP for major son PPF paid in wife’s name ` ` 60,000 70,000 1,30,000 Maximum deduction u/s. 80C and 80CCE ` 1,50,000 Solution to Question 2: Interest on enhanced compensation shall be taxable under the head “other sources” in the year receipt and also the assessee will get a standard deduction of 50% on such income. However, actual expenses shall not be allowed for deduction. Therefore, legal expenses is not deductible. Computation of income under the head ‘other sources’ Interest on enhance compensation taxable u/s. 56(2)(viii) Less: Deduction u/s. 57(iv) 50% of 5,00,000 5,00,000 2,50,000 2,50,000 Solution to Question 3: Disallowances u/s 40(a)(i)/40(a)(ia) is attracted where the assessee fails to deduct tax at source as is required under Act, or having deducted tax at source, fails to remit the same to the credit of the Central Govt. within the stipulated time limit. The assessee is a resident individual, who was not subjected to tax audit during the immediately preceding previous year i.e, in 2013-14 (as his turnover is less than ` 100 lacs in that year) and the TDS provisions have to be considered bearing this in minda) The obligation to deduct tax at source from interest paid to resident arises u/s. 194A in the case of individual, only where he was subjected to tax audit u/s. 44AB in the immediately preceding previous year, i.e. P.Y 2013-14. Hence, in the given case disallowable u/s. 40(a)(i) is not attracted. b) In the case of interest paid to a non-resident, there is obligation to deduct tax at source u/s. 195, hence non-deduction of tax at source will attract 100% disallowances u/s. 40(a)(i). c) 30% Disallowances u/s. 40(a)(ia) will attracted by virtue of amendment made by the Finance (No. 2) 2014, where any payment made to a resident on which tax was required to be deductible but not so deducted/deposited. Therefore, in the given case 30% of ` 3, 00,000 is disallowed. Further, in respect of payment of salary the payer shall liable to deduct tax whether or not the payer was liable for tax audit in the preceding F.Y. d) The obligation to deduct tax at source u/s. 194-H from commission paid in excess of ` 5,000 to a resident arises in case of an individual, only where he was subjected to tax audit u/s. 44AB in the immediately preceding previous year. In the given case, the assessee was not liable to tax audit u/s. 44AB in the P.Y 2013-14. Hence, there is no obligation to deduct tax at source u/s. 194H during the P.Y 2013-14. Therefore, disallowances u/s. 40(a)(ia) is not attracted in this case. 303 KS: The Tax-Age VIVEK SONI Solution to Question 4: I) Business Income As per section 44AE – 7500 x 12 x 6 = 5,40,000 7500 x 9 x 2 = 1,35,000 ` 6,75,000 Less: B/F Business loss of P.Y 2013-14 Less: Unabsorbed depreciation of 2013-14 [Any deduction u/s. 30 to 38 shall not be allowed. since Unabsorbed depreciation is allowed u/s. 32 therefore not allowed] Business Income/ Gross Total Income Less: Deduction under Chapter VIA Section 80C : Fixed deposit in the name of married son (not allowed for deduction) NIL Life insurance premium paid for insurance of married daughter 1,00,000 NIL__ 5,75,000 25,000 25,000 Section 80D Medical Insurance paid for insurance of parents Since parents are senior citizen therefore maximum deduction 20,000 Section 80E Interest paid on education loan taken for higher Studies of children (whether dependent or not). However, no deduction is available on principal amount. Total Income 15,000 60,000 5,15,000 Solution to Question 5: (a) Since the rent paid on hire of machinery exceeds ` 1,80,000 therefore B Ltd. is required to deduct tax @ 2% on ` 2,10,000 as per section 194I i.e, ` 4,200. Note: Incase the deductee does not furnish PAN No. to the deductor the tax shall be deducted tax at source @ 20% on ` 2,10,000 by virtue of section 206AA. (b) HUF is required to deduct tax at source only when it is subjected to tax audit during the immediately preceding financial year. However, as per section 194J where payment for professional service is made exclusively for the personal purpose of any members of HUF, then Tax shall not be deductible on such payment. Hence, in the given case provisions of TDS shall not be applicable. ----------------------------------------------------------------------------------------------------------------------------------304