Income Tax Full QB May 21 June 21 Compressed

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ERRORLESS TAXATION
BY CA PRANAV CHANDAK
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ICAI MODULE QUESTIONS

SM 1. Mr. X has a total income of Rs. 12,00,000 for PY 2020-21, comprising of income from house property
& interest on fixed deposits. Compute his tax liability for AY 2021- 22 assuming his age is -
(a) 45 years (b) 63 years (c) 82 days
Assume that Mr. X has not opted for the provisions of section 115BAC.
Answer:
(a) Computation of Tax liability of Mr. X (age 45 years)
First Rs. 2,50,000 Nil
Next Rs. 2,50,001 – Rs. 5,00,000 @ 5% of Rs. 2,50,000 Rs. 12,500
Next Rs. 5,00,001 – Rs.10,00,000 @ 20% of Rs. 5,00,000 Rs. 1,00,000
Balance i.e., Rs. 12,00,000 minus Rs. 10,00,000 @ 30% of Rs. 2,00,000 Rs. 60,000
Rs.1,72,500
Add: Health & Education cess@ 4% Rs. 6,900
Rs. 1,79,400
(b) Computation of Tax liability of Mr. X (age 63 years)
Next Rs. 3,00,001 – Rs. 5,00,000 @ 5% of Rs. 2,00,000 Rs. 10,000
Next Rs. 5,00,001 – Rs. 10,00,000 @ 20% of Rs. 5,00,000 Rs. 1,00,000
Balance i.e., Rs. 12,00,000 minus Rs. 10,00,000 @ 30% of Rs. 2,00,000 Rs. 60,000
Rs. 1,70,000
Rs. 1,76,800
(c) Computation of Tax liability of Mr. X (age 82 years)
First 5,00,000 Nil
Next 5,00,001 - 10,00,000 @ 20% of 5,00,000 Rs. 1,00,000
Balance i.e., 12,00,000 - 10,00,000 @ 30% of 2,00,000 Rs. 60,000
Rs. 1,60,000
Rs. 1,66,400
SM 2. Compute the tax liability of Mr. A (aged 42), having total income of Rs. 51 lakhs for AY 2021-22. Assume
that his total income comprises of salary income, Income from house property & interest on fixed deposit.
Assume that Mr. A has not opted for the provisions of section 115BAC.
Answer: Computation of tax liability of Mr. A for AY 2021-22
(A) Tax payable including surcharge on total income of Rs. 51,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 51,00,000 @ 30% Rs. 12,30,000
Total Rs. 13,42,000
Add: Surcharge @ 10% Rs. 1,34,250 Rs. 14,76,750
1
(B) Tax Payable on total income of

50 lakhs (Rs. 12,500 + Rs. 1,00,000 + Rs. 12,00,000) Rs. 13,12,500
(C) Total Income Less 50 lakhs Rs. 1,00,000
(D) Tax payable on TI of 50 lakhs + excess of total income over 50 lakhs (B +C) Rs. 14,12,500
(E) Tax payable: lower of (A) & (D) Rs. 14,12,500
Add: Health & education cess @4% Rs. 56,500
Tax liability Rs. 14,69,000
(F) Marginal Relief (A – D) Rs. 64,250
Alternative method
(A) Tax payable including surcharge on total income of Rs. 51,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs.1,00,000
Rs. 10,00,001 – Rs. 51,00,000 @ 30% Rs.12,30,000
Total Rs.13,42,000
Add: Surcharge @ 10% Rs. 1,34,250 Rs. 14,76,750
(B) Tax Payable on total income of Rs. 50 lakhs (Rs. 12,500 + Rs. Rs.1,00,000 + Rs. Rs.13,12,500
12,00,000)
(C) Excess tax payable (A)-(B) Rs.1,64,250
(D) Marginal Relief (Rs. 1,64,250 – Rs. 1,00,000, being the amount of income in excess Rs. 64,250
of Rs. 50,00,000)
(E) Tax payable: (A) - (D) Rs. 14,12,500
Add: Health & education cess @4% Rs. 56,500
SM 3. Compute the tax liability of Mr. B (aged 51), having total income of Rs. 1,01,00,000 for AY 2021-22.
Assume that his total income comprises of salary income, Income from house property & interest on fixed
deposit. Assume that Mr. B has not opted for the provisions of section 115BAC.
Answer: Computation of tax liability of Mr. B for AY 2021-22
(A) Tax payable including surcharge on total income of Rs.1,01,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 1,01,00,000 @ 30% Rs. 27,30,000
Total Rs. 28,42,500
Add: Surcharge @ 15% Rs. 4,26,375
Tax liability without marginal relief Rs. 32,68,875
(B) Tax Payable on total income of 1 crore (Rs. 12,500 + Rs.1,00,000 + Rs.27,00,000) Rs.28,12,500
Add: Surcharge@10% Rs. 2,81,250
Rs. 30,93,750
(C) Total Income Less 1 crore Rs. 1,00,000
(D) Tax payable on total income of 1 crore + excess of total income over 1 crore (B +C) Rs. 31,93,750
2
(E) Tax payable: lower of (A) & (B) Rs. 31,93,750

Add: Health & education cess @4% Rs. 1,27,750
(F) Marginal relief (A –D) Rs. 75,125
Alternative method:
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 1,01,00,000 @ 30% Rs. 27,30,000
Total Rs. 28,42,500
Tax liability without marginal relief Rs. 32,68,875
(B) Tax Payable on Rs. 1 crore (Rs. 12,500 + Rs. 1 Lac + Rs. 27 Lacs + Surcharge@10%) Rs. 30,93,750
(C) Excess tax payable (A)-(B) Rs. 1,75,125
(D) Marginal Relief (Rs. 1,75,125 – Rs. 1,00,000, being the amount of income in excess Rs. 75,125
of Rs. 1,00,00,000)
SM 4. Compute the tax liability of Mr. C (aged 58), having total income of Rs. 2,01,00,000 for AY 2021-22.
Assume that his total income comprises of salary income, Income from house property & interest on fixed
deposit. Assume that Mr. C has not opted for the provisions of section 115BAC.
Answer: Computation of tax liability of Mr. B for the AY 2021-22
(A) Tax payable including surcharge on total income of Rs.
2,01,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 2,01,00,000 @ 30% Rs. 57,30,000
Total Rs.
58,42,500
Rs. 73,03,125
(B) Tax Payable on total income of 2 crore (Rs. 12,500 + Rs.1,00,000 + Rs. 57,00,000) Rs. 8,71,875
Rs. 66,84,375
(C) Total Income Less Rs. 2 crore Rs. 1,00,000
(D) Tax payable on total income of 2 crore + excess of total income over 2 cr (B +C) Rs. 67,84,375
(E) Tax payable A or D, whichever is lower Rs. 67,84,375
3

(F) Marginal relief (A-D) Rs. 5,18,750
Alternative method:
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 2,01,00,000 @ 30% Rs.57,30,000
Total Rs.58,42,500
Add: Surcharge @ 25% Rs.14,60,625 Rs. 73,03,125
(B) Tax Payable on Rs. 2 Cr. (Rs. 12,500 + Rs. 1 Lac + Rs. 57 Lac + Surcharge@15%) Rs. 66,84,375
(D) Marginal Relief (Rs. 6,18,750 – Rs. 1,00,000) Rs. 5,18,750
SM 5. Compute the tax liability of Mr. D (aged 37), having total income of 5,01,00,000 for AY
2021-22. Assume that his total income comprises of salary income, Income from house property & interest
on fixed deposit. Assume that Mr. D has not opted for the provisions of section 115BAC.
Answer: Computation of tax liability of Mr. B for the A.Y. 2021-22
(A) Tax payable including surcharge on total income of Rs. 5,01,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 5,01,00,000 @ 30% Rs. 1,47,30,000
Total Rs. 1,48,42,500
Rs. 2,03,34,225
(B) Tax Payable on total income of Rs. 5 Cr. (Rs. 12,500 + Rs.1,00,000 + Rs. 1,47,00,000) Rs. 1,48,12,500
Rs. 1,85,15,625
(C) Total Income Less 5 crore Rs. 1,00,000
(D) Tax payable on total income of Rs. 5 crore + the excess of total income over Rs. 5 Rs. 1,86,15,625
crore (B +C)
(E) Tax payable A or D, whichever is lower Rs. 1,86,15,625
Add: Health & education cess @4% Rs. T7,44,625
Tax liability Rs. 1,93,60,250
(F) Marginal relief (A-D) Rs. 17,18,600
4
Alternative method:
(A) Tax payable including surcharge on total income of Rs. 5,01,00,000
Rs. 2,50,000 – Rs. 5,00,000 @ 5% Rs. 12,500
Rs. 5,00,001 – Rs. 10,00,000 @ 20% Rs. 1,00,000
Rs. 10,00,001 – Rs. 5,01,00,000 @ 30% Rs. 1,47,30,000
Total Rs. 1,48,42,500
Add: Surcharge @ 37% Rs. 54,91,725 Rs. 2,03,34,225
(B) Tax Payable on total income of Rs. 5 crore (Rs. 12,500 + Rs. 1,00,000 + Rs. Rs. 1,85,15,625
1,47,00,000 Plus Surcharge@25%)
(D) Marginal Relief (Rs. 18,18,600 – Rs. 1,00,000, being the amount of income in Rs. 17,18,600
excess of Rs. 5,00,00,000)
(E) Tax payable: (A) - (D) Rs. 1,86,15,625
Tax liability Rs. 1,93,60,250
SM 6. Mr. Raghav aged 26 years & a resident in India, has a total income of Rs.4,40,000, comprising his
salary income & interest on bank fixed deposit. Compute his tax liability for AY 2021-22.
Answer: Computation of tax liability of Mr. Raghav for A.Y. 2021-22
Particulars Amount
Tax on total income of Rs. 4,40,000
Tax@5%of 1,90,000 (Rs. 4,40,000 – Rs. 2,50,000) Rs. 9,500
Less: Rebate u/s 87A (Lower of tax payable or Rs. 12,500) Rs. 9,500
Tax Liability Nil
5
TEST YOUR KNOWLEDGE - ICAI MODULE

Q1. Who is an “Assessee”?
Answer:
As per section 2(7), assessee means a person by whom any tax or any other sum of money is payable
under the Income-tax Act, 1961.
In addition, the term includes -
▪ Every person in respect of whom any proceeding under the Act has been taken for the assessment of –
- his income; or
- the income of any other person in respect of which he is assessable; or
- the loss sustained by him or by such other person; or
- the amount of refund due to him or to such other person.
▪ Every person who is deemed to be an assessee under any provision of the Act;
▪ Every person who is deemed to be an assessee in default under any provision of the Act.
Q2. State any four instances where the income of the previous year is assessable in the previous year itself
instead of AY.
Answer:
The income of an assessee for a previous year is charged to income-tax in AY following the previous year.
However, in a few cases, the income is taxed in the previous year in which it is earned. These exceptions
have been made to protect the interests of revenue. The exceptions are as follows:
1. Where a ship, belonging to or chartered by a non-resident, carries passengers, livestock, mail or goods
shipped at a port in India, the ship is allowed to leave the port only when the tax has been paid or
satisfactory arrangement has been made for payment thereof. 7.5% of the freight paid or payable to
the owner or the charterer or to any person on his behalf, whether in India or outside India on account
of such carriage is deemed to be his income which is charged to tax in the same year in which it is
earned.
2. Where it appears to the Assessing Officer that any individual may leave India during the current
assessment year or shortly after its expiry & he has no present intention of returning to India, the total
income of such individual for the period from the expiry of the respective previous year up to the
probable date of his departure from India is chargeable to tax in that assessment year.
3. If an AOP/BOI etc. is formed or established for a particular event or purpose & the Assessing Officer
apprehends that the AOP/BOI is likely to be dissolved in the same year or in the next year, he can make
assessment of the income up to the date of dissolution as income of the relevant assessment year.
4. During the current assessment year, if it appears to the Assessing Officer that a person is likely to
charge, sell, transfer, dispose of or otherwise part with any of his assets to avoid payment of any liability
under this Act, the total income of such person for the period from the expiry of the previous year to
the date, when the Assessing Officer commences proceedings under this section is chargeable to tax in
that assessment year.
5. Where any business or profession is discontinued in any assessment year, the income of the period from
the expiry of the previous year up to the date of such discontinuance may, at the discretion of the
Assessing Officer, be charged to tax in that assessment year.
6
PAST RTP QUESTIONS

May 2018 No Direct Question was asked.
Nov 2018 No Direct Question was asked.
May 2019 Q1. Mr. Ajay is a recently qualified doctor. He joined a reputed hospital in Delhi on
01.01.2021. He earned total income of Rs. 3,40,000 till 31.03.2021. His employer advised him
to claim rebate u/s 87A while filing return of income for AY 2021-22. He approached his
father to enquire regarding what is rebate u/s 87A of the Act. His father told him:
(i) An individual who is resident in India & whose total income does not exceed Rs.
5,00,000 is entitled to claim rebate u/s 87A.
(ii) An individual who is resident in India & whose total income does not exceed Rs.
3,50,000 is entitled to claim rebate u/s 87A.
(iii) Maximum rebate allowable u/s 87A is Rs. 12,500.
(iv) Rebate u/s 87A is available in the form of exemption from total income.
(v) Maximum rebate allowable u/s 87A is Rs. 2,500.
(vi) Rebate u/s 87A is available in the form of deduction from tax liability.
As a tax expert, do you agree with the explanation given by Mr. Ajay’s father? Choose the
correct option from the following:
(a) (ii), (iii), (v) (b) (ii), (v), (vi) (c) (i), (iii), (vi) (d) (i), (iv), (v)
Nov 2019 Q2. Mr. Ajay is found to be the owner of two gold chains of 50 gms each (market value of
which is Rs. 1,45,000 each) during FY 2020-21 but he could offer satisfactory explanation
for Rs. 50,000 spent on acquiring these gold chains. As per section 115BBE, Mr. Ajay would
be liable to pay tax of:
(a) Rs. 1,87,200 (b) Rs. 2,26,200 (c) Rs. 1,49,760 (d) Rs. 1,80,960
Q3. Mr. Sunil Patni (age 45) furnishes following details of his TI for AY 2021-22:
Income from Salaries (computed) Rs. 26,56,000
Income from House Property (computed) Rs. 16,90,000
Interest income from FDRs Rs. 7,34,000
He has not claimed any Chapter VI-A deduction. Compute his tax liability for AY 2021-22.
Answer: Computation of tax liability of Mr. Sunil Patni for AY 2021-22
➢ Total Income = Rs. 26,56,000 + Rs. 16,90,000 + Rs. 7,34,000 = Rs. 50,80,000.
➢ Tax Liability: First Rs. 10 Lacs = Rs. 1,12,500 + Next Rs. 40,80,000 @ 30% = Rs. 12,24,000.
➢ Total Tax Liability = Rs. 1,12,500 + 12,24,000 = Rs. 13, 36,500.
➢ Surcharge @ 10% of Rs. 13, 36,500 = Rs. 1,33,650.
Calculation of Relief u/s 89

(a) Tax on Rs. 50 Lacs: Rs. 13,12,500.
(b) Tax on Rs. 50,80,000: Rs. 13,36,500 + Rs. 1,33,650 = Rs. 14,70,150.
 Extra Tax = Rs. 14,70,150 - Rs. 13,12,500 = Rs. 1,57,650 ____(i)
 Extra Income = Rs. 50,80,000 – Rs. 50,00,000 = Rs. 80,000 ____(ii)
 Marginal Relief u/s 89 = Extra Tax – Extra Income = Rs. 77,650 _____(iii)
7
Tax payable (b) - (iii) [Rs. 14,70,150 – Rs. 77,650] = Rs. 13,92,500 + 4% HEC = Rs. 14,48,200.
May 2020 Q4. During the PY 2020-21, Mr. Ranjit has STCG of Rs. 95 lacs taxable u/s 111A, LTCG of Rs.
110 lacs taxable u/s 112A & business income of Rs. 90 lacs. Which of the following statements
is correct?
(a) Surcharge @ 25% is leviable on income-tax computed on total income of Rs. 2.95 crore,
since total income exceeds Rs. 2 crore.
(b) Surcharge @ 15% is leviable on income-tax computed on total income of Rs. 2.95 cr.
(c) Surcharge @ 15% is leviable i.r.o income-tax computed on capital gains of Rs. 2.05 cr;
i.r.o business income, surcharge is leviable@25% on income- tax, since total income
exceeds Rs. 2 crore.
(d) Surcharge @ 15% is leviable i.r.o income-tax computed on capital gains of Rs. 2.05 crore;
surcharge @ 10% is leviable on income-tax computed on business income, since the same
exceeds Rs. 50 lacs but is less than Rs. 1 crore.
Answer: (b) [Hint: 5th Point in Errorless Income Tax Book on Page 21]
PAST EXAM QUESTIONS

May 2018 Q5. Briefly Explain the purpose for which the words “Proviso” & “Explanations” are
(New) incorporated under the various sections of the Income Tax Act, 1961.
Q7(b) Answer: Already Discussed in the chapter.
Nov 2018 Q6. Mr. Rajat Saini (age 32) furnishes following details of his total income for AY 2021-22:
(New) Income from Salaries (computed) Rs. 27,88,000
Q6(c) Income from House Property (computed) Rs. 15,80,000
Interest income from FDRs Rs. 7,22,000
He has not claimed any Chapter VI-A deduction. Compute his tax liability for AY 2020-21.
Answer: Computation of tax liability of Mr. Sunil Patni for AY 2021-22
➢ Total Income = Rs. 27,88,000 + Rs. 15,80,000 + Rs. 7,22,000 = Rs. 50,90,000.
➢ Tax Liability: First Rs. 10 Lacs = Rs. 1,12,500 + Next Rs. 40,90,000 @ 30% = Rs. 12,27,000.
➢ Total Tax Liability = Rs. 1,12,500 + 12,24,000 = Rs. 13, 39,500.
➢ Surcharge @ 10% of Rs. 13, 39,500 = Rs. 1,33,950.
Calculation of Relief u/s 89
(a) Tax on Rs. 50 Lacs: Rs. 13,12,500.
(b) Tax on Rs. 50,90,000: Rs. 13,39,500 + Rs. 1,33,950 = Rs. 14,73,450.
 Extra Tax = Rs. 14,73,450 - Rs. 13,12,500 = Rs. 1,60,950 ____(i)
 Extra Income = Rs. 50,90,000 – Rs. 50,00,000 = Rs. 90,000 ____(ii)
 Marginal Relief u/s 89 = Extra Tax – Extra Income = Rs. 70,950 _____(iii)
Tax payable (b) - (iii) [Rs. 14,73,450 – Rs. 70,950] = Rs. 14,02,500 + 4% HEC = Rs. 14,58,600.
8
PRACTICE QUESTION BANK

PQ1. Compute tax liability of Mr. X (44 years) whose total income for AY 2021-22 is Rs. 12 Lacs. [SM Q1]
Solution:
Next Rs. 2,50,000 @ 5% Rs. 12,500
Next Rs. 5,00,000 @ 20% Rs. 1,00,000
Balance Rs. 2 Lacs @ 30% Rs. 60,000
Total Rs. 1,72,500
Add: 4% HEC Rs. 6,900
Total Tax (rounded off) Rs. 1,79,400
PC Note: Tax on Rs. 10 Lacs = Rs. 1,12,500 in case of Normal Individual (Remember this). Only Tax
on Income above Rs. 10 Lacs shall be calculated & such amount shall be added by Rs. 1,12,500 to
arrive at final tax amount.
PQ2. Total income of Mrs. X (44 years) resident for AY 2021-22 is Rs. 12 Lacs. Compute tax liability.
Solution: BEL is same for male & female Assessee. Thus Mrs. X will get the same BEL of Rs. 2,50,000.
Tax on Rs. 10 Lacs Rs. 1,12,500
Total Rs. 1,72,500
Add: 4% HEC Rs. 6,900
PQ3. Total income of Mr. Rahim (63 years) is Rs. 12 Lacs. Compute his tax liability for AY 2021-22.
Solution: Since Mr. Rahim is a senior citizen, he will get the BEL of Rs. 3 Lacs.
Next Rs. 2,00,000 @ 5% Rs. 10,000
Next Rs. 5,00,000 @ 20% Rs. 1,00,000
Balance Rs. 2,00,000 @ 30% Rs. 60,000
Total Rs. 1,70,000
Add: 4% HEC Rs. 6,800
Tax rounded off Rs. 1,76,800
PQ4. Total income of Mr. Ram (83 years) is Rs. 12 Lacs. Compute his tax liability for AY 2021-22.
Solution: Since Mr. X is a super-senior citizen, he will get BEL of Rs. 5 lacs.
First Rs. 500,000 Nil
Next Rs. 5,00,000 @ 20% Rs. 1,00,000
Balance Rs. 2,00,000 @ 30% Rs. 60,000
Total Rs. 1,60,000
Add: 4% HEC Rs. 6,400
Tax rounded off Rs. 1,66,400
9
PQ5. Total income of Jon (70 years) Non-resident for PY 2020-21 is Rs. 12 lacs. Compute his tax liability.
Solution: Mr. Joe is not eligible for higher BEL since he is a NR. He is eligible for BEL of Rs. 2,50,000.
Tax on Rs. 10 Lacs Rs. 1,12,500
Total Rs. 1,72,500
Add: 4% HEC Rs. 6,900
PQ6. Total income of Mr. Raghav (26 years) is Rs. 4,40,000. Compute tax liability for AY 2021-22.
Solution: Since Mr. Raghav is a resident having Total Income < Rs. 5,00,000, rebate u/s 87A is
available.
Next Rs. 1,90,000 @ 5% Rs. 9,500
Less: Rebate u/s 87A = Lower of (i) Tax payable i.e Rs. 9,500; OR (ii) Rs. 12,500 (Rs. 9,500)
Tax payable after rebate u/s 87A Nil
PQ7. Total income of Mr. Anup (22 years) resident in India is Rs. 5,00,000. Compute tax liability for AY
2021-22.
Solution: Since Mr. Anup is a resident having Total Income = Rs. 5,00,000, rebate u/s 87A is available.
Next Rs. 2,50,000 @ 5% Rs. 12,500
Total Rs. 12,500
Rebate u/s 87A = Lower of (i) Tax payable or (ii) Rs. 12,500 (Rs. 12,500)
Tax payable after rebate u/s 87A Nil
PQ8. Total income of Mr. Rahul (22 years) resident in India is Rs. 5,00,100. Compute tax liability for AY
2021-22.
Solution: Since Mr. Rahul is a resident having TI > Rs. 5,00,000, rebate u/s 87A is NOT available.
Next Rs. 2,50,000 @ 5% Rs. 12,500
Next Rs. 100 @ 20% Rs. 20
Total Rs. 12,520
Rebate u/s 87A = Lower of (i) Tax payable or (ii) Rs. 12,500 NA
Add: 4% HEC Rs. 500.80
Tax payable (rounded off) Rs. 13, 020
PQ9. Total income of Mr. John aged 35 years (NR) in India is Rs. 4,50,000. Compute tax liability for AY
2021-22.
Solution: Since Mr. John is a Non- Resident, rebate u/s 87A is Not available.
Next Rs. 2,00,000 @ 5% Rs. 10,000
Total Rs. 10,000
Add: 4% HEC Rs. 400
Tax rounded off Rs. 10,400
10
PQ10. Compute the tax liability of Mr. A (Age 25), having total income of Rs. 51 Lacs for AY 2021-22.
Solution: Computation of tax liability of Mr. A for AY 2021-22
1. Tax payable including surcharge on Total Income of Rs. 51,00,000 Rs 14,76,750.
2. Tax Payable on total income of Rs. 50 Lacs Rs. 13,12,500.
3. Excess tax payable = [(1) - (2)] = Rs. 14,76,750 – Rs. 13,12,500 Rs. 1,64,250.
4. Marginal Relief = [(Rs. 1,64,250- Rs. 1,00,000) Income in excess of Rs. 50,00,000] Rs. 64,250.
5. Tax Payable = Rs. 14,76,750 – Rs. 64,250 (Mar. Relief) = Rs. 14,12,500 + 4% HEC Rs. 14,69,000
PQ11. Compute tax liability of Mr. B (Age 42), having total income of Rs. 101 Lacs for AY 2021-22.
Solution: Computation of tax liability of Mr. B for AY 2021-22
1. Tax payable including surcharge on total income of Rs. 1,01,00,000 @ 15% Rs. 32,68,875.
2. Tax Payable on total income of Rs. 1 crore [SC @ 10%] Rs. 30,93,750.
3. Excess tax payable = [(1) - (2)] = Rs. 32,68,875 - Rs. 30,93,750 Rs. 1,75,125.
4. Marginal Relief = [(Rs. 1,75,125 - Rs. 1,00,000) Income in excess of Rs. 50,00,000] Rs. 75,125.
5. Tax Payable = Rs. 32,68,875 - Rs. 75,125 (Mar. Relief) = Rs. 31,93,750 + 4% HEC Rs. 33,21,500
PQ12. Compute tax liability of Mr. C (Age 58), having total income of Rs. 2,01,00,000 for AY 2021-22.
Solution: Computation of tax liability of Mr. C for AY 2021-22
1. Tax payable including surcharge on total income of Rs. 2,01,00,000 Rs. 73,03,125
2. Tax Payable on total income of Rs. 2 crore Rs. 66,84,375
3. Excess tax payable = [(1) - (2)] = Rs. 73,03,125 - Rs. 66,84,375 Rs. 6,18,750
4. Marginal Relief = [(Rs. Rs. 6,18,750 - Rs. 1,00,000)] Rs. 5,18,750
5. Tax Payable = Rs. 73,03,125 - Rs. 5,18,750 (Mar. Relief) = Rs. 67,84,375 + 4% HEC Rs. 70,55,750
PQ13. Compute tax liability of Mr. D (Age 37), having total income of Rs. 5,01,00,000 for AY 2021-22.
Solution: Computation of tax liability of Mr. D for AY 2021-22
1. Tax payable including surcharge on total income of Rs. 5,01,00,000 Rs. 2,03,34,225
2. Tax Payable on total income of Rs. 5 Crores. Rs. 1,85,15,625
3. Excess tax payable = [(1) - (2)] = Rs. 2,03,34,225 - Rs. 1,85,15,625 Rs. 18,18,600
4. Marginal Relief = [Rs. 18,18,600 - Rs. 1,00,000)] Rs. 17,18,600
5. Tax Payable = Rs. 2,03,34,225 - Rs. 17,18,600 (Mar. Relief) = 1,86,15,625 + 4% HEC Rs. 1,93,60,250
PQ 14. Compute Marginal relief available to Y Ltd., a domestic company, assuming that the total income of
Y Ltd. for AY 2021-22 is Rs. 10,01,00,000 & TI does not include any income in the nature of capital gains.
Assume that the company has not exercised option u/s 115BAA or 115BAB. (Gross Receipts of Y Ltd. for the
PY 2018-19 is Rs. 410 Cr) [CA FINAL SM Q5]
Solution:
▪ Tax payable on TI of Rs. 10,01,00,000 of Y Ltd. computed@ 33.6% (including SC @ 12%) is Rs. 3,36,33,600.
▪ However, tax cannot exceed Rs. 3,22,00,000 [i.e., tax of Rs. 3,21,00,000 (32.1% of Rs. 10 crore) payable
on TI of Rs. 10 Cr + Rs. 1,00,000, being the amount of total income exceeding Rs. 10 Cr].
▪ Therefore, tax payable on Rs. 10,01,00,000 would be Rs. 3,22,00,000.
▪ Marginal relief is Rs. 14,33,600 (i.e., Rs. 3,36,33,600 - Rs. 3,22,00,000).
11
MC1. Compute tax liability & Marginal Relief for Resident Assessee in following situations for PY 2020-2021:
Name Mr. Pranav Mr. Akshay Mr. Bharat
Age of Assessee 25 years 62 years 81 years
Total Income Rs. 1.01 Cr Rs. 1.01 Cr Rs. 1.01 Cr
Note: Any of the assessee does not have any income in the nature of Capital gains u/s 111A & 112A.
Solution:
SN Particulars Mr. Amar Mr. Akbar Mr. Anthony
1(a) Tax on Total Income 1,12,500 + (91 L x 30%) 1,10,000 + (91 L x 1,00,000 + (91 L x 30%)
= Rs. 28,42,500 30%) = Rs. 28,30,000
= Rs. 28,40,000
1(b) SC @ 15% on 1(a) Rs. 4,26,375 Rs. 4,26,000 Rs. 4,24,500
1 Total Tax = 1(a) + 1(b) Rs. 32,68,875 Rs. 32,66,000 Rs. 32,54,500
2(a) Tax if Income = Rs. 1 1,12,500 + (90 L x 1,10,000 + (90 L x 1,00,000+ (90 L x
Cr 30%) 30%) 30%)
= Rs. 28,12,500 = Rs. 28,10,000 = Rs. 28,00,000
2(b) SC @ 10% on 2(a) Rs. 2,81,250 Rs. 2,81,000 Rs. 2,80,000
2 Total Tax = 2(a) + Rs. 30,93,750 Rs. 30,91,000 Rs. 30,80,000
2(b)
3 Excess Tax payable Rs. 1,75,125 Rs. 1,75,000 Rs. 1,74,500
4 Excess Income (i.e > 1 Rs. 1,00,000 Rs. 1,00,000 Rs. 1,00,000
Cr)
5 Marginal Relief (3 – Rs. 75,125 Rs. 75,000 Rs. 74,500
4)
6 Tax Payable (1 - 5) Rs. 31,93,750 Rs. 31,91,000 Rs. 31,80,000
7 HEC at 4 % on (6) Rs. 1,27,750 Rs. 1,27,640 Rs. 1,27,200
8 Tax Liability Rs. 33,21,500 Rs. 33,18,640 Rs. 33,07,200
12
ICAI EXERCISE [CA FINAL MODULE]

Q1. Based on “Application of Income Vs. Diversion of Income”
Mr. Bhargava, a leading advocate on corporate law, decided to reduce his practice & to accept briefs
only for paying his taxes & making charities with the fees received on such briefs. In a particular
case, he agreed to appear to defend one company in Supreme Court on the condition that he would
be provided with Rs. 5 lacs for a public charitable trust that he would create. He defended the
company & was paid Rs. 5 Lacs by the company. He created a trust of that sum by executing a trust
deed. Decide whether the amount received by Mr. Bhargava is assessable in his hands as income from
profession.
Answer: In instant case, the trust was created by Mr. Bhargava himself out of his professional
income. The client did not create the trust. The client did not impose any obligation in the
nature of a trust binding on Mr. Bhargava. Thus, there is no diversion of the money to the trust
before it became professional income in the hands of Mr. Bhargava. This case is one of
application of professional income & not of diversion of income by overriding title. Therefore,
amount received by Mr. Bhargava is chargeable to tax u/h ‘PGBP’.

XYZ Ltd. took over the running business of a sole-proprietor by sale deed. As per the sale deed, XYZ
Ltd. undertook to pay overriding charges of Rs. 15,000 p.a. to the wife of the sole-proprietor in
addition to the sale consideration. The sale deed also specifically mentioned that the amount was
charged on the net profits of XYZ Ltd., who had accepted that obligation as a condition of purchase
of the going concern. Is payment of overriding charges by XYZ Ltd. to wife of sole-proprietor
‘diversion of income’ or ‘application of income’? Discuss.
Answer: Allahabad High Court observed that the overriding charge which had been created in
favour of the wife of the sole-proprietor was an integral part of the sale deed by which the going
concern was transferred to the assessee. The obligation, therefore, was attached to the very
source of income i.e. the going concern transferred to the assessee by the sale deed. The sale
deed also specifically mentioned that amount in question was charged on the net profits of the
assessee-company & the assessee-company had accepted that obligation as a condition of
purchase of the going concern. Hence, it is clearly a case of diversion of income by an overriding
charge & not a mere application of income. [Jit & Pal X-Rays (P.) Ltd. v. CIT (2004) 267 ITR 370
(All)]

MKG Agency is a partnership firm consisting of father & 3 major sons. Partnership deed provided
that after the death of father, business shall be continued by the sons, subject to the condition
that the firm shall pay 20% of the profits to the mother. Father died in March 2020. In PY 2020-
21, reconstituted firm paid Rs. 1 Lac (20%) to the mother & claimed the amount as deduction from
its income. Examine the correctness of claim of the firm.
Answer: Amount of Rs. 1 Lacs, being 20% of profits of the firm, paid to the mother gets diverted
at source by the charge created in her favour as per the terms of the partnership deed. Such
income does not reach the assessee-firm. Rather, such income stands diverted to the other
person as such other person has a better title on such income than the title of the assessee. The
firm might have received the said amount but it so received for & on behalf of the mother, who
possesses the overriding title. Therefore, the amount paid to the mother should be excluded from
the income of the firm. [CIT vs. Nariman B. Bharucha & Sons (1981) 130 ITR 863 (Bom)]
13
Q4. Based on ‘Existence of HUF having Single Male Member’

Anand was the Karta of HUF. He died leaving behind his major son Prem, his widow, his
grandmother & brother’s wife. Can the HUF retain its status as such or the surviving persons
would become co-owners?
Answer: SC has made it clear that there need not be more than one male member to form a HUF.
Under Hindu Law, a joint family may consist of a single male member & widows of deceased male
members. Therefore, property of a joint HUF does not cease to belong to the family merely
because the family is represented by a single co-parcener who possesses the right which an
owner of property may possess. Therefore, HUF would retain its status as such (as before).
Q5. Based on “Amount borrowed on Hundi u/s 69D”

Mr. C borrowed on Hundi, a sum of Rs. 25,000 by way of bearer cheque on 11-09-2020 & repaid
the same with interest amounting to Rs. 30,000 by A/c payee cheque on 12-10-2020. AO wants to
treat the amount borrowed as income during the previous year. Is the action of AO valid?
Answer: Section 69D provides that where any amount is borrowed on a hundi or any amount due
thereon is repaid otherwise than by way of A/c Payee cheque, amount so borrowed or repaid
shall be deemed to be the income of the person borrowing or repaying the amount for PY in which
the amount was so borrowed or repaid.
Mr. C has borrowed Rs. 25,000 on Hundi by way of bearer cheque. Therefore, it shall be deemed
to be income of Mr. C for PY 2020-21.
Since the repayment of the same along with interest was made by A/c payee cheque, it would not
be taxed.
 If the amount is deemed as an Income at the time of borrowing, it will not be taxed again
on repayment.
 Therefore, action of AO treating the amount borrowed as income during PY is valid in law.
Q6. Based on “Unexplained Expenditure u/s 69C”

AO found, during the course of assessment of a firm, that it had paid rent i.r.o its business
premises of Rs. 60,000, which was not debited in the books of A/c for PY 2020-21. Firm did not
explain the source for payment of rent. AO proposes to make an addition of Rs. 60,000 in the
hands of the firm for AY 2021-22. Firm claims that even if the addition is made, the sum of Rs.
60,000 should be allowed as deduction while computing its business income since it has been
expended for purposes of its business. Examine the claim of the firm.
Answer:
Action of AO in making addition of Rs. 60,000, being payment of rent not debited in the books of
A/c (for which the firm failed to explain the source of payment) is correct in law since it is an
unexplained expenditure u/s 69C. Proviso to section 69C states that such unexplained
expenditure, which is deemed to be the income of the assessee, shall not be allowed as a
deduction under any head of income. Claim of the firm for deduction of Rs. 60,000 in computing
its business income is not tenable.
TQ7. An employee instructs his employer to pay a certain portion of his salary to a charity & claims it
as exempt as it is diverted by overriding charge/title. Comment.
Answer: In the instant case, it is an application of income & in the nature of foregoing of salary.
According to the Supreme Court judgment in CIT v. L.W. Russel (1964) 52 ITR 91, the salary which
has been foregone after its accrual in the hands of the employee is taxable. Hence, the amount paid
by the employer to a charity as per the employee’s directions is taxable in the hands of the employee.
14
AZ
CA Pranav Chandak's
DT Question Bank
2. Residential Status & Scope of Total
Income


SM 1. Mr. Anand is an Indian citizen & a member of the crew of a Singapore bound Indian ship engaged in
carriage of passengers in international traffic departing from Chennai port on 6 th June, 2020. From the
following details for the PY 2020-21, determine the residential status of Mr. Anand for AY 2021-22, assuming
that his stay in India in the last 4 previous years (preceding PY 2020- 21) is 400 days:
Particulars Date
Date entered into the Continuous Discharge Certificate in respect of joining the 6th June, 2020
ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect of signing off 9th December, 2020
the ship by Mr. Anand
Answer: In this case, since Mr. Anand is an Indian citizen & leaving India during P.Y. 2020-21 as a member
of the crew of the Indian ship, he would be resident in India if he stayed in India for 182 days or more.
The voyage is undertaken by an Indian ship engaged in the carriage of passengers in international traffic,
originating from a port in India (i.e., the Chennai port) & having its destination at a port outside India (i.e.,
the Singapore port). Hence, the voyage is an eligible voyage for the purposes of section 6(1).
Therefore, the period beginning from 6th June, 2020 & ending on 9th December, 2020, being the dates
entered into the Continuous Discharge Certificate in respect of joining the ship and signing off from the
ship by Mr. Anand, an Indian citizen who is a member of the crew of the ship, has to be excluded for
computing the period of his stay in India. Accordingly, 187 days [25+31+31+30+31+30+9] have to be excluded
from the period of his stay in India. Consequently, Mr. Anand’s period of stay in India during the P.Y. 2020-
21 would be 178 days [i.e., 365 days – 187 days]. Since his period of stay in India during the P.Y. 2020-21 is
less than 182 days, he is a non-resident for AY 2021-22.
SM 2. Brett Lee, an Australian cricket player visits India for 100 days in every financial year. This has been
his practice for the past 10 financial years.
(a) Find out his residential status for the assessment year 2021-22
(b) Would your answer change if the above facts relate to Srinath, an Indian citizen who resides in Australia
and represents the Australian cricket team?
(c) What would be your answer if Srinath had visited India for 120 days instead of 100 days every year,
including P.Y.2020-21?
Answer:
(a) Determination of Residential Status of Mr. Brett Lee for AY 2021-22:
Period of stay during PY 2020-21 = 100 days. Stay during 4 preceding PYs (100 x 4=400 days).
2019-20 100 days
2018-19 100 days
2017-18 100 days
2016-17 100 days
Total 400 days
Mr. Brett Lee has been in India for a period more than 60 days during previous year 2020-21 and for a
period of more than 365 days during the 4 immediately preceding previous years. Therefore, since he
satisfies one of the basic conditions under section 6(1), he is a resident for AY 2021-22.
Computation of period of stay during 7 preceding previous years = 100 x 7 =700 days.
2019-20 100 days
2018-19 100 days
2017-18 100 days
Mobile App: Pranav Chandak Academy 15
2016-17 100 days

2015-16 100 days
2014-15 100 days
2013-14 100 days
Total 700 days
Since his period of stay in India during the past 7 previous years is less than 730 days, he is a not-ordinarily
resident during the assessment year 2021-22. (See Note below)
Therefore, Mr. Brett Lee is a resident but not ordinarily resident during the previous year 2020-21 relevant
to the assessment year 2021-22.
Note: An individual, not being an Indian citizen, would be not-ordinarily resident person if he satisfies any
one of the conditions specified under section 6(6), i.e.,
(i) If such individual has been non-resident in India in any 9 out of the 10 previous years preceding the
relevant previous year, or
(ii) If such individual has during the 7 previous years preceding the relevant previous year been in India
for a period of 729 days or less.
In this case, since Mr. Brett Lee satisfies condition (ii), he is a not-ordinarily resident for the A.Y. 2021-22.
(b) If the above facts relate to Mr. Srinath, an Indian citizen, who residing in Australia, comes on a visit to
India, he would be treated as non-resident in India, irrespective of his total income (excluding income
from foreign sources), since his stay in India in the current financial year is, in any case, less than 120
days.
(c) In this case, if Srinath’s total income (excluding income from foreign sources) exceeds 15 lakh, he would
be treated as resident but not ordinarily resident in India for P.Y.2020-21, since his stay in India is 120
days in the P.Y.2020-21 & 480 days (i.e., 120 days x 4 years) in the immediately four preceding previous
years.
If his total income (excluding income from foreign sources) does not exceed 15 lakh, he would be treated
as non-resident in India for the P.Y.2020-21, since his stay in India is less than 182 days in the P.Y.2020-21.
SM 3. Mr. B, a Canadian citizen, comes to India for the first time during the P.Y. 2016-17. During the
financial years 2016-17, 2017-18, 2018-19 2019-20 & 2020-21, he was in India for 55 days, 60 days, 90 days,
150 days & 70 days, respectively. Determine his residential status for the A.Y. 2021-22.
Answer: During the previous year 2020-21, Mr. B was in India for 70 days & during the 4 years preceding the
previous year 2020-21, he was in India for 355 days (i.e. 55+ 60+ 90+150 days).
Thus, he does not satisfy section 6(1). Therefore, he is a non-resident for the previous year 2020-21.
SM 4. The business of a HUF is transacted from Australia & all the policy decisions are taken there. Mr. E,
the Karta of the HUF, who was born in Kolkata, visits India during the P.Y. 2020-21 after 15 years. He comes
to India on 1.4.2020 & leaves for Australia on 1.12.2020. Determine the residential status of Mr. E & the HUF
for A.Y. 2021-22.
Answer:
(a) During the P.Y. 2020-21, Mr. E has stayed in India for 245 days (i.e. 30+31+30+31+31+ 30+31+30+1 days).
Therefore, he is a resident. However, since he has come to India after 15 years, he does not satisfy the
condition for being ordinarily resident.
Therefore, the residential status of Mr. E for the P.Y. 2020-21 is resident but not ordinarily resident.
Since the business of the HUF is transacted from Australia & policy decisions are taken there, it is
assumed that the control & management is in Australia i.e., the control & management is wholly
outside India. Therefore, the HUF is a non-resident for the P.Y. 2020-21.
SM 5. From the following particulars of income furnished by Mr. Anirudh pertaining to the year ended
31.3.2021, compute the total income for AY 2021-22, if he is:
(a) Resident & ordinary resident; (b) Resident but not ordinarily resident; (c) Non-resident
(a) Short term capital gains on sale of shares of an Indian Company received in Germany Rs.15,000
(b) Dividend from a Japanese Company received in Japan Rs.10,000
(c) Rent from property in London deposited in a bank in London, later on remitted to Rs.75,000
India through approved banking channels
(d) Dividend from RP Ltd., an Indian Company Rs. 6,000
(e) Agricultural income from land in Gujarat Rs.25,000
Answer: Computation of total income of Mr. Anirudh for AY 2021-22
Particulars ROR RNOR NR
(1) Short term capital gains on sale of shares of an Indian Rs.15,000 Rs. 15,000 Rs.15,000
company, received in Germany
(2) Dividend from a Japanese company, received in Japan Rs.10,000 - -
(3) Rent from property in London deposited in a bank in London Rs. 52,500 - -
(4) Dividend from RP Ltd. Indian Company (w.e.f AY 2021-22) Rs. 6,000 Rs. 6,000 Rs. 6,000
(5) Agricultural income from land in Gujarat [See Note (ii)] - - -
Total Income Rs. 83,500 Rs. 21,000 Rs. 21,000
Notes:
(i) It has been assumed that the rental income is the gross annual value of the property. Therefore,
deduction @30% under section 24, has been provided & the net income so computed is taken into account
for determining the total income of a resident & ordinarily resident.
Rent received (assumed as gross annual value) Rs. 75,000
Less: Deduction under section 24 (30% of 75,000) Rs. 22,500
Income from house property Rs. 52,500
(ii) Agricultural income is exempt under section 10(1).
SM 6. Mr. David, an Indian citizen aged 40 years, a Government employee serving in the Ministry of External
Affairs, left India for the first time on 31.03.2020 due to his transfer to High Commission of Canada. He did
not visit India any time during PY 2020-21. He has received the following income for PY 2020-21:
SN Particulars
(i) Salary (Computed) Rs. 5,00,000
(ii) Foreign Allowance Rs. 4,00,000
(iii) Interest on fixed deposit from bank in India Rs. 1,00,000
(iv) Income from agriculture in Nepal Rs. 2,00,000
(v) Income from house property in Nepal Rs. 2,50,000
Compute his Gross Total Income for AY 2021-22.
Answer:
❖ As per section 6(1), Mr. David is a non-resident for AY 2021-22, since he was not present in India at any
time during PY 2020-21.
❖ As per section 5(2), a non-resident is chargeable to tax in India only in respect of following incomes:
(i) Income received or deemed to be received in India; &
(ii) Income accruing or arising or deemed to accrue or arise in India.
❖ In view of the above provisions, income from agriculture in Nepal & income from house property in Nepal
would not be chargeable to tax in the hands of David, assuming that the same were received in Nepal.
Income from ‘Salaries’ payable by the Government to a citizen of India for services rendered outside
India is deemed to accrue or arise in India as per section 9(1)(iii). Hence, such income is taxable in the
hands of Mr. David, even though he is a non-resident.
❖ However, allowances or perquisites paid or allowed as such outside India by the Government to a citizen
of India for rendering service outside India is exempt under section 10(7). Hence, foreign allowance of
4,00,000 is exempt under section 10(7) in the hands of Mr. David.
Gross Total Income of Mr. David for AY 2021-22

Particulars Rs.
Salaries (computed) Rs. 5,00,000
Income from other sources (Interest on fixed deposit in India) Rs. 1,00,000
Gross Total Income Rs. 6,00,000
SM7. Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practising in
Colombo, specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara is a non-
resident. The consultancy is related to a project in India with possible Ceylonese collaboration. Is this
payment chargeable to tax in India in the hands of Mr. Kulasekhara, since the services were used in India?
Answer:
❖ A non-resident is chargeable to tax in respect of income received outside India only if such income
accrues or arises or is deemed to accrue or arise to him in India.
❖ The income deemed to accrue or arise in India under section 9 comprises, inter alia, income by way of
fees for technical services, which includes any consideration for rendering of any managerial, technical
or consultancy services. Therefore, payment to a management consultant relating to project financing
is covered within the scope of “fees for technical services”.
❖ The Explanation below section 9(2) clarifies that income by way of, inter alia, fees for technical services,
from services utilized in India would be deemed to accrue or arise in India in case of a non-resident
and be included in his total income, whether or not such services were rendered in India or whether or
not the non-resident has a residence or place of business or business connection in India.
❖ In this case, since the services were utilized in India, payment received by Mr. Kulasekhara, a non-
resident, in Colombo is taxable in his hands in India, as it is deemed to accrue or arise in India.
SM 8. Compute the total income in the hands of an individual aged 35 years, being a resident & ordinarily
resident, resident but not ordinarily resident, & non-resident for the AY 2021-22.
Particulars Amount
Interest on UK Development Bonds, 50% of interest received in India Rs. 10,000
Income from a business in Chennai (50% is received in India) Rs. 20,000
Short term capital gains on sale of shares of an Indian company received in London Rs. 20,000
Dividend from British company received in London Rs. 5,000

Long term capital gains on sale of plant at Germany, 50% of profits are received in India Rs. 40,000
Income earned from business in Germany which is controlled from Delhi (40,000 is Rs. 70,000
received in India)
Profits from a business in Delhi but managed entirely from London Rs. 15,000
Income from house property in London deposited in a Bank at London, brought to India Rs.50,000
(Computed)
Interest on debentures in an Indian company received in London Rs. 12,000
Fees for technical services rendered in India but received in London Rs. 8,000
Profits from a business in Mumbai managed from London Rs. 26,000
Incomefrom property situated in Nepal received there (Computed) Rs. 16,000
Past foreign untaxed income brought to India during the previous year Rs. 5,000
Income from agricultural land in Nepal, received there & then brought to India Rs. 18,000
Income from profession in Kenya which was set up in India, received there but spent in Rs. 5,000
India
Gift received on the occasion of his wedding Rs. 20,000
Interest on savings bank deposit in State Bank of India Rs. 12,000
Income from a business in Russia, controlled from Russia Rs. 20,000
Dividend from Reliance Petroleum Limited, an Indian Company Rs. 5,000
Agricultural income from a land in Rajasthan Rs. 15,000
Answer: Computation of total income for the AY 2021-22
Interest on UK Development Bonds, 50% of interest Rs.10,000 Rs. 5,000 Rs. 5,000
received in India
Income from a business in Chennai (50% is received in Rs. 20,000 Rs.20,000 Rs. 20,000
India)
Short term capital gains on sale of shares of an Indian Rs. 20,000 Rs.20,000 Rs.20,000
company received in London
Dividend from British company received in London Rs. 5,000 - -
Long term Capital gains on sale of plant at Germany, Rs. 40,000 Rs. 20,000 Rs. 20,000
50% of profits are received in India
Income earned from business in Germany which is Rs. 70,000 Rs. 70,000 Rs. 40,000
controlled from Delhi, out of which 40,000 is received
in India
Profits from a business in Delhi but managed entirely Rs. 15,000 Rs. 15,000 Rs.15,000
from London
Income from house property in London deposited in a Rs. 50,000 - -
Bank at London, later on remitted to India
Interest on debentures in an Indian company received Rs.12,000 Rs. 12,000 Rs. 12,000
in London
Fees for technical services rendered in India but Rs. 8,000 Rs. 8,000 Rs.8,000
received in London
Profits from a business in Mumbai managed from Rs. 26,000 Rs. 26,000 Rs. 26,000
London
Income from property situated in Nepal & received Rs. 16,000 - -
there
Past foreign untaxed income brought to India during the - - -
previous year
Income from agricultural land in Nepal, received there Rs. 18,000 - -
& then brought to India
Income from profession in Kenya which was set up in Rs. 5,000 Rs. 5,000 -
India, received there but spent in India
Gift received on the occasion of his wedding [not - - -
taxable]
Interest on savings bank deposit in State Bank of India Rs. 12,000 Rs. 12,000 Rs. 12,000
Income from a business in Russia, controlled from Russia Rs. 20,000 - -
Dividend from Reliance Petroleum Limited, an Indian Rs. 5,000 Rs. 5,000 Rs. 5,000
Company
Agricultural income from a land in Rajasthan [Exempt
under section 10(1)] - -
Gross Total Income Rs. 3,52,000 Rs. 2,18,000 Rs.
1,83,000
Less: Deduction under section 80TTA
[Interest on savings bank account subject to a maximum
of Rs.10,000] Rs.10,000 Rs.10,000 Rs. 10,000
Total Income Rs. 3,42,000 Rs.2,08,000 Rs.
1,73,000

Q1. Mr. Ram, an Indian citizen, left India on 22.09.2020 for the first time to work as an officer of a company
in Germany. Determine the residential status of Ram for the AY 2021-22.
Answer: Under section 6(1), an individual is said to be resident in India in any previous year if he satisfies
any one of the following conditions –
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total period of
365 days or more & has been in India for at least 60 days in the previous year.
In the case of Indian citizens leaving India for employment, the period of stay during the previous year
must be 182 days instead of 60 days given in (ii) above.
During the previous year 2020-21, Mr. Ram, an Indian citizen, was in India for 175 days only (i.e.,
30+31+30+31+31+22 days). Thereafter, he left India for employment purposes.
Since he does not satisfy the minimum criteria of 182 days stay in India during the relevant previous year,
he is a non-resident for the AY 2021-22.
Q2. Mr. Dey, a non-resident, residing in US since 1990, came back to India on 1.4.2019 for permanent
settlement. What will be his residential status for AY 2021-22?
Answer: Mr. Dey is a resident in AY 2021-22 since he has stayed in India for a period of 365 days (more
than 182 days) during the PY 2020-21.
As per section 6(6), a person will be “Not ordinarily Resident” in India in any previous year, if such person,
inter alia,
a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
b) has during the 7 previous years immediately preceding the relevant previous year been in India for
729 days or less.
If he does not satisfy either of these conditions, he would be a resident & ordinarily resident.
For the previous year 2020-21 (A.Y. 2021-22), his status would be “Resident but not ordinarily resident”
since he was non-resident in 9 out of 10 previous years immediately preceding the P.Y. 2020-21. He can be
resident but not ordinarily resident also due to the fact that he has stayed in India only for 366 days (i.e.,
less than 730 days) in 7 previous years immediately preceding the P.Y. 2020-21.
Q3. Mr. Ramesh & Mr. Suresh are brothers & they earned the following incomes during the financial year
2020-21. Mr. Ramesh settled in Canada in the year 1996 & Mr. Suresh settled in Delhi. Compute the total
income for the A.Y. 2021-22.
Sr. Particulars Mr. Ramesh Mr. Suresh
No.
1. Interest on Canada Development Bonds (only 50% of interest Rs. 35,000 Rs. 40,000
received in India)
2. Dividend from British company received in London Rs. 28,000 Rs. 20,000
3. Profits from a business in Nagpur, but managed directly from Rs. 1,00,000 Rs. 1,40,000
London
4. Short term capital gain on sale of shares of an Indian Rs. 60,000 Rs. 90,000
company received in India
5. Income from a business in Chennai Rs. 80,000 Rs. 70,000
6. Fees for technical services rendered in India, but received Rs. 1,00,000 ----
in Canada
7. Interest on savings bank deposit in UCO Bank, Delhi Rs. 7,000 Rs. 12,000
8. Agricultural income from a land situated in Andhra Pradesh Rs. 55,000 Rs. 45,000
9. Rent received in respect of house property at Bhopal Rs. 1,00,000 Rs. 60,000
10. Life insurance premium paid --- Rs. 30,000
Answer:
Computation of total income of Mr. Ramesh & Mr. Suresh for the AY 2021-22
SN Particulars Mr. Ramesh Mr. Suresh
(Non- Resident) (Resident)
1. Interest on Canada Development Bond (See Note 2) Rs. 17,500 Rs. 40,000
2. Dividend from British Company received in London (See - Rs. 20,000
Note 3)
3. Profits from a business in Nagpur but managed directly from Rs. 1,00,000 Rs. 1,40,000
London (See Note 2)
4. Short term capital gain on sale of shares of an Indian Rs. 60,000 Rs. 90,000
company received in India (See Note 2)
5. Income from a business in Chennai (See Note 2) Rs. 80,000 Rs. 70,000
6. Fees for technical services rendered in India, but received Rs. 1,00,000 -
in Canada (See Note 2)
7. Interest on savings bank deposit in UCO Bank, Delhi (See Rs. 7,000 Rs. 12,000
Note 2)
8. Agricultural income from a land situated in Andhra Pradesh - -
(See Note 4)
9. Income from house property at Bhopal (See Note 5) Rs. 70,000 Rs. 42,000
Gross Total income Rs. 4,34,500 Rs. 4,14,000
Less: Deduction under Chapter VI-A
Section 80C - Life insurance premium - Rs. 30,000
Section 80TTA (See Note 6) Rs. 7,000 Rs. 10,000
Total Income Rs. 4,27,500 Rs. 3,74,000
Notes:
1. Mr. Ramesh is a non-resident since he has been living in Canada since 1996. Mr. Suresh, is settled in
Delhi, & thus, assumed as a resident & ordinarily resident.
2. In case of a resident & ordinarily resident, his global income is taxable as per section 5(1). However, as
per section 5(2), in case of a non-resident, only the following incomes are chargeable to tax:
(i) Income received or deemed to be received in India; &
(ii) Income accruing or arising or deemed to accrue or arise in India
Therefore, fees for technical services rendered in India would be taxable in the hands of Mr. Ramesh,
even though he is a non-resident.
Income referred to in Sl. No. 3,4,5 & 7 are taxable in the hands of both Mr. Ramesh & Mr. Suresh since
they accrue or arise/ deemed to accrue or arise in India.
Interest on Canada Development Bond would be fully taxable in the hands of Mr. Suresh, whereas only
50%, which is received in India, is taxable in the hands of Mr. Ramesh.
3. Dividend received from British company in London by Mr Ramesh (NR) is not taxable since it accrued &
is received outside India. However, such dividend received by Mr. Suresh is taxable, since he is ROR.
4. Agricultural income from a land situated in India is exempt under section 10(1) in the case of both non-
residents and residents.
5. Income from house property -
Mr. Ramesh Mr. Suresh
Rent received Rs. 1,00,000 Rs. 60,000
Less: Deduction under section 24(a) @30% Rs. 30,000 Rs. 18,000
Net income from house property Rs. 70,000 Rs. 42,000
Net income from house property in India would be taxable in the hands of both Mr. Ramesh and Mr.
Suresh, since the accrual & receipt of the same are in India.
6. In case of an individual, interest upto Rs. 10,000 from savings account with, inter alia, a bank is allowable
as deduction under section 80TTA.
Q4. Examine the correctness of the statement. “Income deemed to accrue or arise in India to a NR by way
of interest, royalty & fees for technical services is to be taxed irrespective of territorial nexus”.
Answer: This statement is correct.
As per Explanation to section 9, income by way of interest, royalty or fees for technical services which is
deemed to accrue or arise in India by virtue of clauses (v), (vi) & (vii) of section 9(1), shall be included in
the total income of the non- resident, whether or not-
(i) NR has a residence or place of business or business connection in India; or
(ii) NR has rendered services in India.
In effect, income by way of fees for technical services, interest or royalty from services utilised in India
would be deemed to accrue or arise in India in case of a non-resident & be included in his total income,
whether or not such services were rendered in India & irrespective of whether the non-resident has a
residence or place of business or business connection in India.
Q5. Examine with reasons whether the following transactions attract income-tax in India in the hands of
recipients.
(i) Salary paid by Central Government to Mr. John, a citizen of India Rs. 7,00,000 for the services
rendered outside India.
(ii) Interest on moneys borrowed from outside India Rs. 5,00,000 by a non-resident for the purpose of
business within India say, at Mumbai.
(iii) Post office savings bank interest of R s . 19,000 received by a resident Mr. Ram, aged 46 years.
(iv) Royalty paid by a resident to a non-resident in respect of a business carried on outside India.
(v) Legal charges of Rs. 5,00,000 paid in Delhi to a lawyer of United Kingdom who visited India to represent
a case at the Delhi High Court.
Answer:
SN Taxable? Amount Reason
(i) Taxable Rs. 6,50,000 As per section 9(1)(iii), salaries payable by the Government to a
citizen of India for service rendered outside India shall be deemed
to accrue or arise in India. Therefore, salary paid by Central
Government to Mr. John for services rendered outside India would
be deemed to accrue or arise in India since he is a citizen of India.
He would be entitled to standard deduction of Rs. 50,000 u/s 16(ia).
(ii) Taxable Rs. 5,00,000 As per section 9(1)(v)(c), interest payable by a non- resident on
moneys borrowed & used for the purposes of business carried on
by such person in India shall be deemed to accrue or arise in India
in the hands of the recipient.
(iii) Partly Taxable Rs. 5,500 Interest on Post Office Savings Bank a/c, would be exempt u/s
10(15) (i), only to the extent of Rs. 3,500 in case of an individual a/c.
Further, interest upto Rs. 10,000, would be allowed as deduction
u/s 80TTA from Gross Total Income. Balance Rs. 5,500 i.e., Rs.
19,000 – Rs. 3,500 – Rs. 10,000 would be taxable in the hands of
Mr. Ram, a resident.
(iv) Not Taxable - Royalty paid by a resident to a non-resident in respect of a
business carried outside India would not be taxable in the hands of
the non-resident provided the same is not received in India. This
has been provided as an exception to deemed accrual mentioned
in section 9(1)(vi)(b).
(v) Taxable Rs. 5,00,000 In case of a non-resident, any income which accrues or arises in
India or which is deemed to accrue or arise in India or which is
received in India or is deemed to be received in India is taxable in
India. Therefore, legal charges paid in India to a non- resident
lawyer of UK, who visited India to represent a case at the Delhi
High Court would be taxable in India.
PAST RTP QUESTIONS

May 18 Q1. Mr. Kavin, a non-resident, entered into the following transactions during PY 2020-21:
(a) Received Rs. 20 Lacs from a non-resident for use of patent for a business in India.
(b) Received foreign currency equivalent to Rs. 15 Lacs from a non-resident Indian for use
of know-how for a business in Sri Lanka & this amount was received in Korea.
(c) Received Rs. 7 Lacs from RR Ltd., an Indian company as fees for providing technical
services in India.
(d) Received Rs. 5 Lacs from R & Co., Mumbai, resident in India, for conducting the
feasibility study for a new project in Nepal & the payment was made in Nepal.
(e) Received Rs. 8 Lacs towards interest on moneys borrowed by a non-resident for the
purpose of business within India. Amount was received in Korea.
Examine briefly whether the above receipts are chargeable to tax in India.
Answer:
SN Taxability Explanation
(a) Taxable Amount of Rs. 20 lakhs received from a non-resident is deemed to
accrue or arise in India by virtue of section 9(1)(vi)(c), since the patent
was used for a business in India. Therefore, it is taxable to in India.
(b) Not Taxable Foreign currency equivalent to Rs. 15 lakhs received in Korea from a
NR for use of know-how for a business in Sri Lanka is not deemed to
accrue or arise in India as per section 9(1)(vi)(c), since it is i.r.o. a
business carried on outside India. Also, the amount was received
outside India. Therefore, the same is not chargeable to tax in India.
(c) Taxable Amount of Rs. 7 lakhs received from RR Ltd., an Indian Company, is
deemed to accrue or arise in India by virtue of section 9(1)(vii)(b),
since it is for providing technical services in India. Therefore, the
same is chargeable to tax in India.
(d) Not Taxable Amount of Rs. 5 lakhs received in Nepal from R & Co., a resident, for
conducting feasibility study for the new project in Nepal is not deemed
to accrue or arise in India as per section 9(1)(vii)(b), since such study
was done for a project outside India. The amount was also received
outside India. Therefore, the same is not chargeable to tax in India.
(e) Taxable Amount of Rs. 8 lakhs received in Korea towards interest on moneys
borrowed by a non-resident for the purpose of business within India
is deemed to accrue or arise in India by virtue of section 9(v)(c),
since money borrowed was used for the purpose of business in India.
Therefore, the same is chargeable to tax in India.
Nov 18 Q2. Mr. Sahil, a citizen of India, serving in Ministry of Human Resources in India, was
transferred to Indian Embassy in Germany on 15th March 2020. His income during FY 2020-21
is as under:
Particulars Rs.
Rent from a house situated at Australia, received in Australia. Thereafter, 4,80,000
remitted to Indian bank account.
Interest accrued on National Saving Certificate 25,600
Interest on Post office savings bank account 3,200
Salary from Government of India 8,15,000
Foreign Allowances from Government of India 9,00,000

Mr. Sahil did not come to India during FY 2020-21. Compute his GTI for AY 2021-22.
Answer:
▪ Mr. Sahil is NR for AY 2021-22, since he was not present in India at any time during PY
2020-21.
▪ As per section 5(2), a non-resident is chargeable to tax in India only i.r.o. following
incomes:
(i) Income received or deemed to be received in India; AND
(ii) Income accruing or arising or income deemed to accrue or arise in India.
Computation of Gross Total Income of Mr. Sahil for AY 2021-22
Particulars Rs.
1 Salaries
Salary from Government of India 8,15,000
[Income chargeable under the head ‘Salaries’ payable by the Government
to a citizen of India for services rendered outside India is deemed to
accrue or arise in India under section 9(1)(iii). Hence, such income is
taxable in the hands of Mr. Sahil, a citizen of India, even though he is a
non-resident and rendering services outside India]
Foreign Allowances from Government of India Nil
[Any allowances or perquisites paid or allowed as such outside India by
the Government of India to a citizen of India for rendering service
outside India is exempt under section 10(7)].
2 House Property: Rent from a house situated at Australia, received in Nil
Australia.
(Income from property situated outside India would not be taxable in India
in the hands of a non-resident, since it is neither accruing or arising in
India nor is it deeming to accrue or arise in India nor is it received in
India)
3 Income from Other Sources
Interest accrued on NSC is taxable [Will be allowed as deduction u/s 80C] 25,600
Interest on Post office savings bank account [Exempt upto Rs. 3,500] Nil
Gross Total Income 8,40,600
May 19 Q3. Mr. Sumit is an Indian citizen & a member of the crew of an America bound Indian ship
engaged in carriage of freight in international traffic departing from Kochi on 25th April,
2019. Determine the residential status of Mr. Sumit for AY 2021-22, assuming that his stay in
India in the last 4 PYs preceding PY 2020-21 is 365 days & last 7 PYs preceding PY 2020-21 is
730 days:
- Date entered in Continuous Discharge Certificate i.r.o. joining the ship: 25 th April, 2019.
- Date entered in Continuous Discharge Certificate i.r.o. signing off the ship: 24 th Oct 2019.
Mr. Sumit has been filing his income tax return in India as a Resident for previous 2 years.
What is his residential status for AY 2021-22: [Hint: 214 Days in India during PY 2020-21]
(a) Resident & ordinarily resident
(b) Resident but not-ordinarily resident
(c) Non-resident
(d) Non-resident till 24.10.2019 & resident till 31.03.2020.
Q4. Aashish earns the following income during the PY 2020-21:

▪ Interest on U.K. Development Bonds (1/4th being received in India): Rs. 4,00,000.
▪ Capital gain on sale of a building in India but received in Holland: Rs. 6,00,000.
If Aashish is a resident but not ordinarily resident in India, then what will be amount of
income chargeable to tax in India for AY 2021-22?
(a) Rs. 7 Lacs (b) Rs. 10 Lacs (c) Rs. 6 Lacs (d) Rs. 1 Lac
Q5. Determine the residential status of Ms. Nicole Kidman, an Australian actress, for AY
2021-22, from the following information about her stay in India contained in her passport.
FY From To FY From To
2019-20 3rd May 12th August 2014-15 3rd May 12th August
2018-19 23rd July 11th August 2013-14 3rd May 12th August
2017-18 9th Feb 26th March 2012-13 3rd May 12th August
2016-17 8th Sep 26th March 2011-12 3rd May 12th August
2015-16 17th May 30th Sep - - -
Answer: Residential status of Ms. Nicole, a foreign national, would be determined in
following manner:
PY 20-21 19-20 18-19 17-18 16-17 15-16 14-15 13-14 12-13
Stay in
India 102 20 46 201 137 102 102 102 102
❖ First Basic Condition:

▪ Ms. Nicole Kidman’s stay in India during PY 2020-21 is 102 days which is less than 182
days.
▪ Thus, she does not satisfy first basic condition.
❖ Second Basic Condition:

▪ Her stay in India during PY 2020-21 is 102 days, which exceeds 60 days;
▪ Her stay in India during 4 PYs prior to PY 2020-21 is 404 days (20 + 46 + 201 + 137) which
exceeds 365 days. Hence, she is a resident for PY 2020-21.
❖ Additional Condition:
▪ In the present case, her stay in India in the last 7 PYs prior to PY 2020-21 is 710 days
[20 +46 +201+137 +102 +102 +102], which is less than 730 days.
▪ Therefore, she is RNOR for PY 2020-21. No need to check 2nd Additional condition.
Nov 19 Q6. Mr. Rajesh Sharma (aged 62 years), an Indian citizen, travelled frequently out of India
for his business trip as well as for his outings. He left India from Delhi airport on 29 th May
2020 as stamped in the passport & returned on 27th April 2021. He has been in India for less
than 365 days during the 4 years immediately preceding the previous year. Determine his
residential status & his total income for AY 2021-22 from the following information:
(1) STCG on the sale of shares of Tilt India Ltd., a listed Indian company, amounting to Rs.
58,000. The sale proceeds were credited to his bank account in Singapore.
(2) Dividend amounting to Rs. 48,000 received from Treat Ltd., a Singapore based company,
which was transferred to his bank account in Singapore. He had borrowed money from
Mr. Abhay, a non-resident Indian, for the above-mentioned investment on 2nd April, 2020.
Interest on the borrowed money for PY 2020-21 amounted to Rs. 5,800.
(3) Interest on fixed deposit with Punjab National Bank, Delhi amounting to Rs. 9,500 was
credited to his saving bank account.
Answer:
Mr. Rajesh Sharma has not satisfied either of the basic conditions for being a resident,
since he was in India for only 59 days during PY 2020-21. Hence, he is a NR for AY 2021-22.
Computation of total income of Mr. Rajesh Sharma for AY 2021-22
Particulars Amount
1 Short-term capital gain on sale of shares of an Indian listed company is 58,000
chargeable to tax in the hands of Mr. Rajesh Sharma, since it has
accrued and arisen in India even though the sale proceeds were
credited to bank account in Singapore.
2 Dividend of Rs. 48,000 received from Singapore based company
transferred to his bank account in Singapore is not taxable in the hands Nil
of NR since the income has neither accrued or arisen in India nor has
it been received in India. Since dividend is not taxable in India, interest
paid for investment is not allowable as deduction.
3 Interest on fixed deposit with Punjab National Bank, Delhi credited to his
savings bank account is taxable in the hands of Mr. Rajesh Sharma as 9,500
Income from other sources, since it has accrued and arisen in India & is
also received in India. He would not be eligible for deduction u/s 80TTB,
since he is a non-resident.
Total Income 67,500
May 20 Q7. Mr. Shridhar (age 45 years), a citizen of India, serving in the Ministry of Finance in
India, was transferred to Indian Embassy in Australia on 15th March 2020. His income during
PY 2020-21 is as under:
Particulars Rs.
Rent from a house situated at Australia, received in Australia. Thereafter, 5,25,000
remitted to Indian bank account.
Interest on Post office savings bank account in India 4,500
Salary from Government of India [before deduction u/s 16(ia)] 9,25,000
Foreign Allowances from Government of India 8,00,000
Mr. Shridhar did not come to India during PY 202-21. Compute his GTI for AY 2021-22.
[PC Note: Same Question was asked in RTP Nov 2018]
Answer: Computation of Gross Total Income of Mr. Shridhar for AY 2021-22
1 Salaries
Salary from Government of India [9,25,000 - Rs. 50,000 {SD u/s 16(ia)}] 8,75,000
Foreign Allowances from Government of India Nil
2 House Property: Rent from a house situated at Australia, received in Nil
Australia
Interest on Post office savings bank account [Exempt upto Rs. 3,500] 1,000
PC Note: Interest on Post office saving bank A/c of Rs. 1,000 is allowed as deduction u/s
80TTA.

PQ 1. Compute the total income for the AY 2021-22 of Mr. A if he is: (i) ROR (ii) RNOR (iii) NR [RTP N-14]/ICAI SM Q5]
SN Particulars Rs.
(a) STCG on sale of shares in Indian Company received in Germany 9,000
(b) Dividend from a Japanese Company received in Japan 10,000
(c) Rent from property in London deposited in a bank in London, later on remitted to India 75,000
(d) Dividend from RP Ltd., an Indian Company 6,000
(e) Agricultural income from lands in Gujarat 25,000
Solution: Computation of total income of Mr. A for AY 2021-22
(a) STCG on sale of shares of an Indian co., received in Germany 9,000 9,000 9,000
(b) Dividend from a Japanese company, received in Japan 10,000 ⌧ ⌧
(c) Rent from property in London deposited in a bank in London [Note (i)] 52,500 ⌧ ⌧
(d) Dividend from RP Ltd., an Indian Company [Note (ii)] 6000 6000 6000
(e) Agricultural income from land in Gujarat [Note (iii)] Exempt Exempt Exempt
Total Income 77,500 15,000 15,000
Notes:
(i) GAV = Rent Received. Standard deduction u/s 24(a) @ 30% has been taken & NAV is considered for determining TI of
ROR. Income from house property = Rs. 75,000 – 30% = Rs. 52,500.
(ii) Dividend from Indian company is now taxable since DDT u/s 115-O has been abolished.
(iii) Agricultural income from Land in India is exempt u/s 10(1) to all.
PQ 2. Mr. David, a Government employee serving in Ministry of External Affairs, left India for the first time on 31.03.2020 due
to his transfer to High Commission of Pakistan. He did not visit India any time during PY 2020-21. He has received the following
income for PY 2020-21. Discuss tax-treatment of the following receipts. [ICAI SM Q6]
SN Particulars Rs.
1 Salary 5,00,000
2 Foreign Allowance 4,00,000
3 Interest on fixed deposit from bank in India 1,00,000
4 Income from Agriculture in Pakistan 2,00,000
5 Income from House property in Pakistan 2,50,000
Solution: Mr. David is a NR for AY 2021-22, since he was not present in India at any time during PY 2020-21. Thus, Only
Indian Income (being taxable to everyone) will be taxable in his hands.
1. Income from ‘Salaries’ payable by GOI to a citizen of India for services rendered o/s India is deemed to accrue or arise in
India as per section 9(1)(iii) even if services are rendered outside India. Hence, it is an Indian Income & thus taxable in
the hands of Mr. David, even though he is a non- resident. (It has been assumed that Mr. David is a citizen of India).
2. Allowances/perquisites paid or allowed as such outside India by GOI to citizen of India for rendering service o/s India is
exempt u/s 10(7). Hence, foreign allowance of Rs. 4,00,000 is exempt.
3. Interest on fixed deposit from bank in India is taxable as it is an Indian Income.
4 & 5. Income from Agriculture in Pakistan & Income from house property in Pakistan → Foreign Income & Not taxable.
PQ 3. X is a citizen of Pakistan. His maternal grandfather was born in Karachi in 1933. He comes to India on 7th April 2020
to complete a foreign assignment of his employer-company. He goes back on 4.10.2020. Mrs. X is ROR in India for PY 2020-
21. Prior to April 7th 2020, X was in India as follows:
PY 2019-20 2018-19 2017-18 2016-17 2015-16 2014-15
Stay in India 179 182 180 72 175 Nil
Income of Mr. X for PY 2020-21 is as follows:
Salary Income from Pakistani company (received in Pakistan) (for rendering service in Pakistan) 14,34,000
Salary Income from Pakistani company (received in Pakistan) (for rendering service in India) 6,63,000
Business income (Business is situated in UAE & income is received in UAE) 9,95,000
(Business is partly controlled from India from Pakistan & partly from India)
Rental income from a property situated in Mumbai (income is received in Pakistan) [Computed] 2,10,000
Business income (business is situated in UK & it is partly controlled from UK & partly from Pakistan) 10,72,000
(income is received in UK & later on Rs. 50,000 is remitted to India)
Birthday gift (he celebrated his birthday on 10th June 2020, received cash gifts in India from his friends, 74,000
some of them have sent gift cheques from Pakistan)
Find out residential status & taxable income of X for AY 2021-22.
Solution: Maternal Grandfather of Mr. X was born in undivided India in 1933. Thus, he is a person of Indian origin. Thus 2nd
basic condition is not applicable to Mr. X.
▪ Stay in India during PY 2020-21 = 181 days (i.e. 24 + 31 + 30 + 31 + 31 + 30 + 4) [From 7th April 2020 to 4th October 2020]
▪ Thus, he does not satisfy 1st basic condition. Thus, he is a non-resident in India for AY 2021-22.
▪ Being a NR, only Indian Income will be taxable in the hands of Mr. X.
Income of X for AY 2021-22 shall be calculated as follows:
Particulars Nature of Income Amount
Salary of Rs. 14,34,000 for rendering service in Pakistan Foreign Income Nil
Salary of Rs. 6,63,000 for rendering service in India Indian Income 6,63,000
Business income of Rs. 9,95,000 (Business o/s India & received o/s India) * Foreign Income** Nil
Rental income from Mumbai Property Indian Income 2,10,000
Business Income of Rs. 10,72,000 (Business in UK & received in UK) Foreign Income Nil
Birthday gift [Gift received from Resident to NR > Rs. 50K] Indian Income 74,000
Total Income 9,47,000
* Such Foreign Income will be taxable in the hands of RNOR since business is controlled from India.
PQ 4. Mr. Ramesh & Mr. Suresh are brothers & they earned the following income during PY 2020-21. Mr. Ramesh settled in
Canada in the year 2002 & Mr. Suresh settled in Delhi. Compute the Total Income for AY 2021-22. [ICAI Ex. Q3]
SN Particulars Ramesh Suresh
1 Interest on Canada Development Bond (50% of Interest is received in India) 35,000 40,000
2 Dividend from British Company received in London 28,000 20,000
3 STCG on sale of Shares of an Indian Company received in India 60,000 90,000
4 Fees for Technical Services rendered in India, but received in Canada 1,00,000 -
5 Interest on Savings Bank Deposit in UCO Bank, Delhi 7,000 12,000
6 Agricultural Income from a land situated in Andhra Pradesh 55,000 45,000
7 Life Insurance Premium paid - 30,000
Solution:
(a) Ramesh stayed in India for only 20 days every year. Hence, he is a Non-Resident (NR).
(b) Suresh stayed in India for 365 days & hence he is a resident for all 10 preceding PYs. Hence, he is a ROR
Taxability of Income:
NR: Incomes which are deemed to accrue in India (or) Received or deemed to be received is in India, are taxable.
ROR: All Incomes are taxable in India.
Computation of Total Income for AY 2021-22
SN Particulars Ramesh (NR) Suresh (ROR)
1 Interest on Canada Development Bond (50% is received in India) 17,500 40,000
2 Dividend from British Company received in London - 20,000
3 STCG on sale of Shares of an Indian Company received in India 60,000 90,000
4 Fees for Technical Services rendered in India, but received in Canada 1,00,000 -
5 Interest on Savings Bank Deposit in UCO Bank, Delhi 7,000 12,000
6 Agricultural Income from a land situated in Andhra Pradesh - -
Gross Total Income 1,84,500 1,62,000

Less: Deduction u/s 80TTA: Interest on Savings Bank (Max: 10,000) * - (10,000)
Total Taxable Income 1,84,500 1,52,000
PC Note: Interest from Saving Bank A/c is exempt upto Rs. 3500/7,000 u/s 10(15)(i). [Only for Info; No use in this question].
*PQ 5. State whether the following attract Income Tax in India in the hands of Recipients: [Modified ICAI Ex. Q5]
1. Salary of Rs. 7,00,000 paid by Central Governemnt to Mr. John, a Citizen of India, for services rendered outside India.
2. Interest on moneys borrowed from outside India Rs. 5,00,000 by a Non-Resident for the business within India.
3. Post Office Savings Bank Interest of Rs. 12,000 received by a Resident Assessee.
4. Royalty paid by a Resident to a Non-Resident in respect of business carried on outside India.
5. Legal Charges of Rs. 5,00,000 paid to a Lawyer of UK who visited India to represent a case at the Delhi High Court.
6. X Ltd. is a foreign company. It has 10 shareholders, all of them are non-resident & foreign citizens. It has shot a feature
film on location situated in Kerala. The film will be exhibited in UK. However, Kerala Government has power to telecast
it in South India free of charge.
7. Mr. X is a foreign citizen. He is a person of Indian origin. During PY 2020-21, X is in India for a visit of 150 days. He holds
1,000 equity shares in Reliance Industries. However, share certificates are in the office of X situated in Paris where X
normally resides. These shares are transferred by X to a foreign company in UK by signing the agreement in UK.
Certificates are handed over to the purchaser in UK & consideration is received by X in foreign currency in UK. On this
transaction, X has generated a long-term capital gain of Rs. 95,00,000.
8. Mr. Y is a citizen of UK. He is non-resident in India. He is employed by Indian High Commissioner in UK. Salary is paid to
him in UK in pound sterling.
9. What if in (8) above, Mr. Y is an Indian citizen?
Answer:
1. Payer of Salary is Central Government. Salary paid by government to Indian Citizen for services rendered outside India is
deemed to accrue or arise in India. Thus it is an Indian Income. However, Allowances or perquisites are exempt u/s 10(7).
2. Taxable. U/s 9(1)(v), Interest paid by Non-Resident for the purpose of carrying on Business or Profession in India is
deemed to accrue or arise in India. Thus it is an Indian Income & taxable to all.
3. Taxable. Any Income received by Resident is taxable in India. However, it is exempt upto Rs. 3500 u/s 10(15)(i).
4. Not Taxable. Payment relating to a Business/Profession carried on o/s India is not deemed to accrue or arise in India.
5. Taxable. Legal Charges paid to a NR for earning any source of Income in India is deemed to accrue or arise in India.
6. In case of NR, no income shall be deemed to accrue or arise in India through or from operations which are confined to the
shooting of any cinematograph film in India if such NR is a foreign citizen or if such NR is a company & it does not have
any shareholder who is a citizen of India or is resident in India. In this case, nothing is taxable in the hands of X Ltd.
7. Since X is in India only for 150 days, he is a NR in India. Only Indian income is taxable to NR. Shares in a company
incorporated in India are always situated in India. On transfer of such shares, capital profit is deemed to accrue or arise
in India [Section 9(1)(i)]. This rule is applicable even if share certificates are handed over to the purchaser outside India
under an agreement made outside India for which consideration is also payable outside India in foreign currency. Capital
gain of Rs. 95,00,000 is taxable as income of X in India.
8. Salary accrues at a place where services are rendered. In this case, services are rendered outside India & thus salary
accrues outside India. It is received outside India. Thus, salary paid to Mr. Y is foreign Income. Mr. Y (employee) is a NR.
Thus salary paid by High Commission to its NR Employee (Mr. Y) in UK is not taxable in India being a foreign income.
9. If an employee is a citizen of India & service is rendered to Government of India o/s India, salary paid to such Citizen of
India is deemed to be accrued in India & thus it is an Indian Income.
If Y is a citizen of India, then income is deemed to accrue or arise in India & chargeable to tax in India.
PQ 6. Mr. Federer, a Non-Resident residing in Sweden, has received rent from Mr. Nadal, another NR residing in France in
respect of a property taken on lease at Mumbai. Since this income is received outside India from a NR, Federer claims that
his income is not chargeable to tax in India. [Nov 2016]
Answer: As per Sec. 9(1)(i), if the source of Income (directly or indirectly) is through or from a Property or Asset in India, it
shall be deemed to accrue or arise in India & thus it is an Indian Income. Hence, Rent is taxable in India to all.
PQ 7. Mr. A, a Citizen of India, left for USA for the purposes of employment on 1.5.2020. He has not visited India thereafter.
Mr. A borrows money from his friend Mr. B who left India one week before Mr. A's departure, to the extent of Rs. 10 Lacs &
buys Shares in X Ltd, an Indian Company. Discuss the taxability of the interest charged at 10% in B's hands where the same
has been received in New York. [MAY 2006]
Answer:
▪ Stay of Mr. A & Mr. B during PY 2020-21 is less than 60 days. Thus, both of them are non-residents.
▪ Receiver ‘B’ is a Non-Resident.
▪ As per section 9(1 )(v), Interest paid by Non-Resident (Mr. A) to any person (Mr. B) (other than for carrying on business
or profession in India) is not deemed to accrue or arise in India.
▪ Thus, interest Received by Mr. B from Mr. A is not taxable in India.
PQ 8. DAISY Ltd., a foreign company, incorporated in USA and engaged in the Manufacturing and distribution of diamonds,
set up a branch office in India in June 2020. Branch office was required to purchase uncut & unassorted diamonds from the
dealers of Mumbai and export them to USA. Out of 20 shareholders of DAISY Ltd., 12 shareholders are non-resident in India.
All the major decisions were taken through Board Meetings held at USA.
(i) Determine the residential status of DAISY Ltd. for AY 2021-22.
(ii) Discuss the tax treatment of profit from export business. [Nov 2017]
Answer:
(i) As per section 6(3), A company would be resident in India if
(a) it is an Indian Company; or
(b) its place of effective management in that year is in India.
In the given case, DAISY Ltd. a foreign company therefore it would be resident in India if its place of effective management
in that year is in India.
Section 6(3) defines “place of effective management” to mean a place where key management and commercial decisions
that are necessary for the conduct of the business of an entity as a whole are, in substance made. In the case of DAISY Ltd.,
its place of effective management for PY 2020-21 is not in India, since the significant management and commercial
decisions are, in substance, made by the Board of Directors outside India in USA.
Hence, DAISY Ltd, being a foreign company is a non-resident for AY 2021-22, since its place of effective management is
outside India in the PY 2020-21.
(ii) If any NR is purchasing goods from India for the purpose of export, such income shall not be accruing/arising in India,
hence it is not taxable in India.
PQ 9. Mr. Frdie, a non-resident residing in Sweden, has received rent from Mr. Nadal, also a non-resident residing in France
in respect of a property taken on lease at Mumbai. Since this income is received outside India from a non-resident, Frdie
claims that his income is not chargeable to Tax in India. [NOV 2016]
Answer: As per section 9, if source of income is in India, income shall be accruing/arising in India and shall be taxable in all
the three status even if income has been received outside India, hence in the given case Income is chargeable to tax in India
as income is accruing and arising from India as property is situated in India.
PQ 10. Mr. X, an Indian Citizen left India on 20.04.2018 for the first time to setup a software firm in Singapore. On 10.04.2020,
he entered into an agreement with XYZ Ltd (Indian Company) for transfer of technical documents & designs to setup an
automobile factory in Faridabad. He reached India to render the requisite services on 15.05.2020 & was able to complete his
assignment on 20.08.2020. He left for Singapore on 21.08.2020. He charged Rs. 50 Lacs for his services from XYZ Ltd.
Determine the residential status of Mr. X for AY 2021-22 & explain taxability of the fees charged from XYZ Ltd. [NOV 2015]
Answer: Any individual who is a citizen of India & has left India for taking up any business/profession/employment outside
India will be considered to be resident only if they stay in India for 182 days or more. Mr. X’s stay in India during PY 2020-
21 = only 98 days (17 + 30 + 31 + 20) which is less than 182 days. Thus, he is non-resident.
As per section 9, if any non-resident has provided any patent right or any managerial, technical services and such patent
right etc. was used in India, in such cases any royalty or fee received by non-resident shall be considered to be income
accruing/arising in India and shall be taxable and it do not matter that the nonresident do not have residence or place of
business or business connection in India i.e. there is no territorial nexus or non-resident has not rendered services in India.
In the given case, fees charged from XYZ Limited is taxable in India because assesse has transferred technical
documents and designs to setup an automobile factory in Faridabad (i.e. in India).aeg
AZ
CA Pranav Chandak's
DT Question Bank
3. Salary


SM 1. Mr. Raj Kumar has the following receipts from his employer
(1) Basic pay Rs. 40,000 p.m.
(2) Dearness allowance (D.A.) Rs.6,000 p.m.
(3) Commission Rs. 50,000 p.a.
(4) Motor car for personal use (expenses met by the employer) Rs. 1,500 p.m.
(5) House rent allowance Rs. 15,000 p.m
Find out the amount of HRA eligible for exemption to Mr. Raj Kumar assuming that he paid a rent of Rs.
16,000 p.m. for his accommodation at Kanpur. DA forms part of salary for retirement benefits.
Answer:
HRA received Rs. 1,80,000
Less: Exempt under section 10(13A) [Note] Rs. 1,36,800
Taxable HRA Rs. 43,200
Note: Exemption shall be least of the following three limits
(a) the actual amount received (Rs. 15,000 × 12) = Rs. 1,80,000
(b) excess of the actual rent paid by the assessee over 10% of his salary
= Rent Paid (-) 10% of salary for the relevant period
= (Rs. 16,000×Rs. 12) (-) 10% of [(Rs. 40,000+ Rs. 6,000) × 12]
= Rs. 1,92,000 – Rs. 55,200 = Rs. 1,36,800
(c) 40% salary as his accommodation is situated at Kanpur
= 40% of [(Rs. 40,000+ Rs. 6,000) × 12] = Rs. 2,20,800
Note: For the purpose of exemption under section 10(13A), salary includes dearness allowance only when
the terms of employment so provide, but excludes all other allowances & perquisites.
SM 2. Mr. Srikant has two sons. He is in receipt of children education allowance of 150 p.m. for his elder
son & 70 p.m. for his younger son. Both his sons are going to school. He also receives the following
allowances.
Transport allowance Rs. 1,800 p.m
Tribal area allowance Rs. 500 p.m
Compute his taxable allowances.
Answer: Taxable allowance in the hands of Mr. Srikant is computed as under:
Children Education Allowance:
Elder son [(Rs.150 – Rs.100) p.m. × 12 months] Rs. 600
Younger son [(Rs. 70 – Rs.70) p.m. × 12 months] Nil Rs.600
Transport allowance (Rs.1,800 p.m. × 12 months) Rs. 21,600
Tribal area allowance [( Rs.500 – Rs.200) p.m. × 12 months] Rs. 3,600
Taxables allowances Rs. 25,800
SM 3. Mr. Sagar who retired on 1.10.2020 is receiving 5,000 p.m. as pension. On 1.2.2021, he commuted 60%
of his pension & received 3,00,000 as commuted pension. You are required to compute his taxable pension
assuming:
(a) He is a government employee.
33
(b) He is a private sector employee & received gratuity of 5,00,000 at the time of retirement.
(c) He is a private sector employee & did not receive any gratuity at the time of retirement.
Answer: (a) He is a government employee.
Uncommuted pension received (October – March) [(5,000 × 4 months) + Rs. 24,000
(40% of 5,000 × 2 months)]
Commuted pension received Rs.3,00,000
Less: Exempt u/s 10(10A) Rs. 3,00,000 Nil
Taxable pension Rs. 24,000
(b) He is a private sector employee & received gratuity of 5,00,000 at the time of retirement.
Uncommuted pension received (October – March) [(5,000 × 4 months) + Rs. 24,000
(40% of Rs. 5,000 × 2 months)]
Commuted pension received Rs. 3,00,000
Less: Exempt u/s 10(10A)( ×
1 3,00,000
× 100%) Rs. 1,66,667 Rs. 1,33,333
3 60%
Taxable pension Rs. 1,57,333
(c) He is a private sector employee & did not receive any gratuity at the time of retirement.
Uncommuted pension received (October – March) [(Rs. 5,000 × 4 months) Rs. 24,000
+ (40% of 5,000 × 2 months)]
Commuted pension received Rs. 3,00,000
Less: Exempt u/s 10(10A)( ×
1 3,00,000
× 100%) Rs. 2,50,000 Rs. 50,000
2 60%
Taxable pension Rs.74,000
SM 4. Mr. Ravi retired on 15.6.2020 after completion of 26 years 8 months of service & received gratuity
of Rs. 15,00,000. At the time of retirement, his salary was:
Basic Salary Rs. 50,000 p.m.
Dearness Allowance Rs. 10,000 p.m. (60% of which is for retirement benefits)
Commission 1% of turnover (turnover in the last 12 months was Rs. 1,20,00,000)
Bonus Rs. 25,000 p.a.
Compute his taxable gratuity assuming:
a) He is private sector employee & covered by the Payment of Gratuity Act, 1972.
b) He is private sector employee & not covered by Payment of Gratuity Act, 1972.
c) He is a Government employee
Answer: (a) He is covered by the Payment of Gratuity Act 1972
Gratuity received at the time of retirement Rs. 15,00,000
Less: Exemption under section 10(10)
Least of the following:
i. Gratuity received Rs. 15,00,000
ii. Statutory limit Rs. 20,00,000
iii. 15 days’ salary based on last drawn salary for each completed year Rs. 9,34,615 Rs. 9,34,615
of service or part thereof in excess of 6 months.
34
15
× last drawn salary × years of service
26
15
× (Rs. 50,000 + Rs. 10,000) × 27
26
Taxable Gratuity Rs. 5,65,385
(b) He is not covered by the Payment of Gratuity Act 1972

Less: Exemption under section 10(10) (Note) Rs. 8,58,000
Taxable Gratuity Rs. 6,42,000
Note:
Exemption under section 10(10) is least of the following:
(i) Gratuity received Rs. 15,00,000
(ii) Statutory limit Rs. 20,00,000
(iii) Half month’s salary based on average salary of last 10 months preceding the Rs. 8,58,000
month of retirement for each completed year of service
1
i.e. × Average salary × years of service
2
10
1 [(50,000 ×10)+(10,000 ×60% ×10)(1% ×1,20,00,000 × 12)]
= × × 26
2 10
(c) He is a government employee

Less: Exemption under section 10(10) Rs. 15,00,000
Taxable gratuity Nil
SM 5. Mr. Gupta retired on 1.12.2020 after 20 years 10 months of service & received leave salary of Rs.
5,00,000. Other details of his salary income are:
Basic Salary Rs. 5,000 p.m. (1,000 was increased w.e.f. 1.4.2020)
Dearness Allowance Rs. 3,000 p.m. (60% of which is for retirement benefits)
Commission Rs. 500 p.m
Bonus Rs. 1,000 p.m.
Leave availed during service 480 days
He was entitled to 30 days leave every year.
You are required to compute his taxable leave salary assuming:
a) He is a government employee.
b) He is a non government employee.
Answer: (a) He is a government employee.
Leave Salary received at the time of retirement Rs. 5,00,000
Less: Exemption under section 10(10AA) Rs. 5,00,000
Taxable Leave salary Nil
(b) He is a non government employee

Leave Salary received at the time of retirement Rs. 5,00,000
Less: Exemption under section 10(10AA) (See Note Below) Rs. 26,400
35
Taxable Leave salary Rs. 4,73,600

Note:
Exemption under section 10(10AA) is least of the following:
(i) Leave salary received Rs. 5,00,000
(ii) Statutory limit Rs.3,00,000
(iii) 10 months’ salary based on average salary of last 10 months
i.e. [10 ×
𝑆𝑎𝑙𝑎𝑟𝑦 𝑜𝑓 𝑙𝑎𝑠𝑡 10 𝑚𝑜𝑛𝑡ℎ𝑠 𝑖.𝑒.𝐹𝑒𝑏 𝑁𝑜𝑣
] = [10 ×
(5,000 ×8 )+ (4,000 ×2)+ (60% ×3000 ×10)
] Rs. 66,000
10 𝑚𝑜𝑛𝑡ℎ𝑠 10 𝑚𝑜𝑛𝑡ℎ𝑠
Cash equivalent of leave standing at the credit of the employee based on the average Rs. 26,400
salary of last 10 months’ (max. 30 days per year of service)
Leave Due = Leave allowed - Leave taken = (30 days per year × 20 years) - 480 = 120
Leave due (in days) 120 𝑑𝑦𝑎𝑠 66,000
days i.e. [ × Average salary p. m. ] = [ × ]
30 days 30 𝑑𝑎𝑦𝑠 10
SM 6. Mr. A retires from service on December 31, 2020, after 25 years of service. Following are the
particulars of his income/investments for PY 2020-21:
Particulars Amount
Basic pay @ 16,000 per month for 9 months Rs. 1,44,000
Dearness pay (50% forms part of the retirement benefits) 8,000 per month for 9 months Rs. 72,000
Lumpsum payment received from the Unrecognized Provident Fund Rs.
6,00,000
Deposits in the PPF account Rs. 40,000
Out of the amount received from URPF, employer’s contribution was 2,20,000 & the interest thereon Rs.
50,000. The employee’s contribution was Rs. 2,70,000 & the interest thereon 60,000. What is the taxable
portion of the amount received from URPF in the hands of Mr. A for AY 2021-22?
Answer: Taxable portion of amount received from URPF in hands of Mr. A for AY 2021-22 is computed as:
Particulars Amount
Amount taxable under the head “Salaries”:
Employer’s share in the payment received from the URPF Rs. 2,20,000
Interest on the employer’s share Rs. 50,000
Total Rs. 2,70,000
Amount taxable under the head “Income from Other Sources”:
Interest on the employee’s share Rs. 60,000
Total amount taxable from the amount received from the fund Rs. 3,30,000
Note: Since the employee is not eligible for deduction under section 80C for contribution to URPF at the
time of such contribution, the employee’s share received from the URPF is not taxable at the time of
withdrawal as this amount has already been taxed as his salary income.
SM 7. Will your answer be any different if the fund mentioned above was a recognised provident fund?
Answer: Since the fund is a recognised one, & the maturity is taking place after a service of 25 years, the
entire amount received on the maturity of the RPF will be fully exempt from tax.
36
SM 8. Mr. B is working in XYZ Ltd. & has given the details of his income for the PY 2020-21. You are required
to compute his gross salary from the details given below:
Basic Salary 10,000 p.m.
D.A. (50% is for retirement benefits) 8,000 p.m.
Commission as a percentage of turnover 0.1%
Turnover during the year 50,00,000
Bonus 40,000
Gratuity 25,000
His own contribution in the RPF 20,000
Employer’s contribution to RPF 20% of his basic salary
Interest accrued in the RPF @ 13% p.a. 13,000
Answer: Computation of Gross Salary of Mr. B for AY 2021-22
Particulars Amount Amount
Basic Salary [10,000 × 12] Rs. 1,20,000
Dearness Allowance [ 8,000 × 12] Rs. 96,000
Commission on turnover [0.1% × 50,00,000] Rs. 5,000
Bonus Rs. 40,000
Gratuity [Note 1] Rs. 25,000
Employee’s contribution to RPF [Note 2] -
Employers contribution to RPF [20% of 1,20,000] Rs. 24,000
Less: Exempt [Note 3] Rs. 20,760 Rs. 3,240
Interest accrued in the RPF @ 13% p.a. Rs. 13,000

Less: Exempt @ 9.5% p.a. Rs. 9,500 Rs. 3,500
Gross Salary Rs.
2,92,740
Note 1: Gratuity received during service is fully taxable.
Note 2: Employee’s contribution to RPF is not taxable. It is eligible for deduction under section 80C.
Note 3: Employer’s contribution in the RPF is exempt up to 12% of the salary.

i.e., 12% of [Basic Salary + Dearness Allowance forming part of retirement benefits + Commission based on
turnover] = 12% of [Rs. 1,20,000 + (50% × Rs. 96,000) + Rs. 5,000] = 12% of Rs. 1,73,000 = Rs. 20,760
SM 9. Mr. Dutta received voluntary retirement compensation of Rs. 7,00,000 after 30 years 4 months of
service. He still has 6 years of service left. At the time of voluntary retirement, he was drawing basic
salary Rs. 20,000 p.m.; Dearness allowance (which forms part of pay) Rs. 5,000 p.m. Compute his taxable
voluntary retirement compensation, assuming that he does not claim any relief under section 89.
Answer:
Voluntary retirement compensation received Rs. 7,00,000
Less: Exemption under section 10(10C) [See Note below] Rs. 5,00,000
Taxable voluntary retirement compensation Rs. 2,00,000
37
Note: Exemption is to the extent of least of the following:

(i) Compensation actually received Rs. 7,00,000
(ii) Statutory limit Rs. 5,00,000
(iii) 3 months’ salary × Completed years of service = (Rs. 20,000 + Rs. 5,000) × 3 × 30 Rs. 22,50,000
years
(iv) Last drawn salary × Balance months of service left = (Rs. 20,000 + Rs. 5,000) × 6 × Rs. 18,00,000
12 months
SM 10. Mr. D went on a holiday on 25.12.2020 to Delhi with his wife & three children (one son – age 5 years;
twin daughters – age 2 years). They went by flight (economy class) & the total cost of tickets reimbursed
by his employer was Rs. 60,000 (Rs. 45,000 for adults & Rs. 15,000 for the three minor children). Compute
the amount of LTC exempt.
Answer: Since the son’s age is more than the twin daughters, Mr. D can avail exemption for all his three
children. The restriction of two children is not applicable to multiple births after one child. The holiday
being in India & the journey being performed by air (economy class), the entire reimbursement met by the
employer is fully exempt.
SM 11. In the above illustration 10, will there be any difference if among his three children the twins were
5 years old & the son 3 years old? Discuss.
Answer. Since the twins’ age is more than the son, Mr. D cannot avail for exemption for all his three children.
LTC exemption can be availed in respect of only two children. Taxable
LTC exempt would be only Rs. 55,000 (i.e. Rs. 60,000 – Rs. 5,000)
SM 12. Compute the taxable value of the perquisite in respect of medical facilities received by Mr. G from
his employer during PY 2020-21:
Medical premium paid for insuring health of Mr. G Rs. 7,000
Treatment of Mr. G by his family doctor Rs. 5,000
Treatment of Mrs. G in a Government hospital Rs. 25,000
Treatment of Mr. G’s grandfather in a private clinic Rs. 12,000
Treatment of Mr. G’s mother (68 years & dependant) by family doctor Rs. 8,000
Treatment of Mr. G’s sister (dependant) in a nursing home Rs. 3,000
Treatment of Mr. G’s brother (independent) Rs. 6,000
Treatment of Mr. G’s father (75 years & dependent) abroad Rs. 50,000
Expenses of staying abroad of the patient & Rs. 30,000
Limit specified by RBI Rs. 75,000
Answer: Computation of taxable value of perquisite in the hands of Mr. G
Particulars Taxable Amount
Treatment of Mrs. G in a Government hospital -
Treatment of Mr. G’s father (75 years & dependent) abroad Rs. 50,000
Expenses of staying abroad of the patient & attendant Rs. 30,000
Rs. 80,000
Less: Exempt up to limit specified by RBI Rs. 75,000 Rs. 5,000
Medical premium paid for insuring health of Mr. G -
38
Treatment of Mr. G by his family doctor Rs. 5,000

Treatment of Mr. G’s mother (dependent) by family doctor Rs. 8,000
Treatment of Mr. G’s sister (dependent) in a nursing home Rs. 3,000
Treatment of Mr. G’s grandfather in a private clinic Rs. 12,000
Treatment of Mr. G’s brother (independent) Rs. 6,000
Taxable value of perquisite Rs. 39,000
SM 13. Mr. C is a Finance Manager in ABC Ltd. The company has provided him with rent- free unfurnished
accommodation in Mumbai. He gives you the following particulars.
Basic salary Rs. 6,000 p.m.
Dearness Allowance Rs. 2,000 p.m. (30% is for retirement benefits)
Bonus Rs. 1,500 p.m.
Even though the company allotted the house to him on 1.4.2020, he occupied the same only from 1.11.2020.
Calculate the taxable value of the perquisite for AY 2021-22.
Answer: Value of the rent-free unfurnished accommodation
= 15% of salary for the relevant period
= 15% of [(6000 × 5) + (2,000 × 30% × 5) + (1,500 × 5)] [See Note below]
= 15% of Rs. 40,500 = Rs. 6,075
Note: Since, Mr. C occupies the house only from 1.11.2020, we have to include the salary due to him only in
respect of months during which he has occupied the accommodation. Hence salary for 5 months (i.e. from
1.11.2020 to 31.03.2021) will be considered.
SM 14. Using the data given in the previous illustration 13, compute the value of the perquisite if Mr. C is
required to pay a rent of Rs. 1,000 p.m. to the company, for the use of this accommodation.
Answer:
▪ First of all, we have to see whether there is a concession in the matter of rent.
▪ In the case of accommodation owned by the employer in cities having a population exceeding Rs. 25 lacs,
there would be deemed to be a concession in rent if 15% of salary > rent recoverable from the employee.
▪ In this case, 15% of salary would be Rs. 6,075 (i.e. 15% of Rs. 40,500). Rent paid by the employee is 5,000
(i.e., 1,000 x 5).
▪ Since 15% of salary > rent recovered from the employee, there is a deemed concession in rent.
▪ Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the
taxable perquisite.
Value of the rent-free unfurnished accommodation Rs.6,075
Less: Rent paid by the employee (1,000 × 5) Rs. 5,000
Perquisite value of unfurnished accommodation Rs. 1,075
SM 15. Using the data given in illustration 13, compute the value of the perquisite if ABC Ltd. has taken this
accommodation on a lease rent of 1,200 p.m. & Mr. C is required to pay a rent of Rs. 1,000 p.m. to the
company, for the use of this accommodation.
Answer:
▪ Here again, we have to see whether there is a concession in the matter of rent.
▪ In the case of accommodation taken on lease by the employer, there would be deemed to be a concession
in the matter of rent if the rent paid by the employer or 15% of salary (whichever is lower) exceeds rent
recoverable from the employee.
39
▪ In this case, 15% of salary is Rs. 6,075 (i.e. 15% of Rs. 40,500). Rent paid by the employer is Rs. 6,000 (i.e.
1,200 x 5). The lower of the two is Rs. 6,000, which exceeds the rent paid by the employee i.e. Rs. 5,000
(1,000 x 5). Therefore, there is a deemed concession in the matter of rent. Once there is a deemed
concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.
Value of the rent-free unfurnished accommodation [Note] Rs. 6,000
Value of unfurnished accommodation given at concessional rent Rs. 1,000
Note: Value of the rent-free unfurnished accommodation is lower of

(i) Lease rent paid by the company for relevant period = 1,200 × 5 = Rs. 6,000.
(ii) 15% of salary for the relevant period (computed earlier) = Rs. 6,075.
SM 16. Using the data given in illustration 13, compute the value of the perquisite if ABC Ltd. has provided
a television (WDV Rs. 10,000; Cost 25,000) & two air conditioners. The rent paid by the company for the air
conditioners is Rs. 400 p.m. each. The television was provided on 1.1.2020. However, Mr. C is required to
pay a rent of Rs. 1,000 p.m. to the company, for the use of this furnished accommodation.
Answer:
▪ Here again, we have to see whether there is a concession in the matter of rent.
▪ In the case of accommodation owned by the employer in a city having a population exceeding Rs. 25 lacs,
there would be deemed to be a concession in the matter of rent if 15% of salary exceeds rent recoverable
from the employee.
▪ In case of furnished accommodation, the excess of hire charges paid or 10% p.a. of the cost of furniture,
as the case may be, over & above the charges paid or payable by the employee has to be added to the
value arrived at above to determine whether there is a concession in the matter of rent.
▪ In this case, 15% of salary is Rs. 6,075 (i.e. 15% of Rs. 40,500). The rent paid by the employee is Rs. 5,000
(i.e. 1,000 x 5). The value of furniture of Rs. 4,625 (see Note below) is to be added to 15% of salary. The
deemed concession in the matter of rent is Rs. 6,075 + Rs. 4,625 - Rs. 5,000 = Rs. 5,700. Once there is a
deemed concession, the provisions of Rule 3(1) would be applicable in computing the taxable perquisite.
Value of the rent-free unfurnished accommodation (computed earlier) Rs. 6,075
Add: Value of furniture provided by the employer [Note] Rs. 4,625
Value of rent-free furnished accommodation Rs. 10,700
Less: Rent paid by the employee (Rs. 1,000 × Rs. 5) Rs. 5,000
Value of furnished accommodation given at concessional rent Rs. 5,700
Note: Value of the furniture provided = (Rs.400 p.m. × 2 × 5 months) + (Rs. 25,000 × 10% p.a. for 3 months) =
Rs. 4,000 + Rs. 625 = Rs. 4,625
SM 17. Using the data given in illustration 16 above, compute the value of the perquisite if Mr. C is a
government employee. Licence fees determined by the Government for this accommodation was 700 p.m.
Answer:
▪ In the case of Government employees, excess of licence fees determined by the employer as increased
by the value of furniture & fixture over & above the rent recovered/ recoverable from the employee &
the charges paid or payable for furniture by the employee would be deemed to be the concession in the
matter of rent.
▪ Therefore, the deemed concession in the matter of rent is Rs. 3,125 [i.e. Rs. 3,500 (licence fees: 700 x 5)
+ Rs. 4,625 (Value of furniture) – Rs. 5,000 (Rs. 1,000 × 5)].
▪ Once there is a deemed concession, the provisions of Rule 3(1) would be applicable in computing the
taxable perquisite.
40
Value of the rent-free unfurnished accommodation (700 × 5) Rs. 3,500

Add: Value of furniture provided by the employer (computed earlier) Rs. 4,625
Value of rent-free furnished accommodation Rs. 8,125
Perquisite value of furnished accommodation given at concessional rent Rs. 3,125
SM 18. Mr. X & Mr. Y are working for M/s. Gama Ltd. As per salary fixation norms, the following perquisites
were offered.
(i) For Mr. X, who engaged a domestic servant for Rs. 500 per month, his employer reimbursed the entire
salary paid to the domestic servant i.e. Rs. 500 per month.
(ii) For Mr. Y, he was provided with a domestic servant @ Rs. 500 per month as part of remuneration
package.
You are required to comment on the taxability of the above in the hands of Mr. X & Mr. Y, who are not
specified employees.
Answer:
▪ In the case of Mr. X: it becomes an obligation which the employee would have discharged even if the
employer did not reimburse the same. Hence, the perquisite will be covered under section 17(2)(iv) & will
be taxable in the hands of Mr. X. This is taxable in the case of all employees.
▪ In the case of Mr. Y: it cannot be considered as an obligation which the employee would meet. The
employee might choose not to have a domestic servant. This is taxable only in the case of specified
employees covered by section 17(2)(iii). Hence, there is no perquisite element in the hands of Mr. Y.
SM 19. Mr. X retired from the services of M/s Y Ltd. on 31.01.2021, after completing service of 30 years &
one month. He had joined the company on 1.1.1991 at the age of 30 years & received the following on his
retirement.
(i) Gratuity Rs. 6,00,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of Rs. 3,30,000 for 330 days leave balance in his account. He was credited 30 days
leave for each completed year of service.
(iii) As per the scheme of the company, he was offered a car which was purchased on 30.01.2018 by the
company for Rs. 5,00,000. Company has recovered
(iv) Rs. 2,00,000 from him for the car. Company depreciates the vehicles at the rate of 15% on Straight
Line Method.
(v) An amount of Rs. 3,00,000 as commutation of pension for 2/3 of his pension commutation.
(a) Company presented him a gift voucher worth Rs. 6,000 on his retirement.
(b) His colleagues also gifted him a Television (LCD) worth Rs. 50,000 from their own contribution
Following are the other particulars:

(a) He has drawn a basic salary of Rs. 20,000 & 50% dearness allowance per month for the period from
01.04.2020 to 31.01.2021.
(b) Received pension of Rs. 5,000 per month for the period 01.02.2021 to 31.03.2021 after commutation of
pension.
Compute his gross total income for AY 2021-22 assuming he has not opted for section 115BAC.
41
Answer: Computation of Gross Total Income of Mr. X for AY 2021-22

Particulars Amount
Basic Salary = 20,000 x 10 Rs. 2,00,000
Dearness Allowance = 50% of basic salary Rs. 1,00,000
Gift Voucher (See Note - 1) Rs. 6,000
Transfer of car (See Note - 2) Rs. 56,000
Gratuity (See Note - 3) Rs. 80,769
Leave encashment (See Note - 4) Rs. 1,30,000
Uncommuted pension (` 5000 x 2) Rs. 10,000
Commuted pension (See Note - 5) Rs. 1,50,000
Gross Salary Rs. 7,32,769
Less: Standard deduction u/s 16(ia) Rs. 50,000
Taxable Salary /Gross Total Income Rs. 6,82,769
Notes:
(1) As per Rule 3(7)(iv), the value of any gift or voucher or token in lieu of gift received by the employee or
by member of his household not exceeding Rs. 5,000 in aggregate during the previous year is exempt.
In this case, the amount was received on his retirement & the sum exceeds the limit of Rs. Rs. 5,000.
Therefore, the entire amount of Rs. 6,000 is liable to tax as perquisite.
Note: Alternate view possible is that only the sum in excess of Rs. 5,000 is taxable. In such a case, the
value of perquisite would be Rs. 1,000 & gross taxable income would Rs. 7,27,769.
(2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to the employee, arising
from the transfer of an asset, being a motor car, by the employer is the actual cost of the motor car
to the employer as reduced by 20% of WDV of such motor car for each completed year during which
such motor car was put to use by the employer. Therefore, the value of perquisite on transfer of motor
car, in this case, would be:
Particulars Amount
Purchase price (30.1.2018) Rs. 5,00,000
Less: Depreciation @ 20% Rs. 1,00,000
WDV on 29.1.2019 Rs. 4,00,000
Less: Depreciation @ 20% Rs. 80,000
WDV on 29.1.2020 Rs. 3,20,000
Less: Depreciation @ 20% Rs. 64,000
WDV on 29.1.2021 Rs. 2,56,000
Less: Amount recovered Rs. 2,00,000
Value of perquisite Rs. 56,000
Rate of 15% as well as SLM adopted by the company for depreciation of vehicle is not relevant for
calculation of perquisite value of car in the hands of Mr. X.
(3) Taxable gratuity

Gratuity received Rs. 6,00,000
Less: Exempt u/s 10(10) – least of the following:
(i) Notified limit= Rs. 20,00,000
42
(ii) Actual gratuity = Rs. 6,00,000

(iii) 15/26 × last drawn salary × no. of completed years of service of part in excess
of 6 months 15/26 × Rs. 30,000 × 30 = Rs. 5,19,231 Rs. 5,19,231
Taxable Gratuity Rs. 80,769
Note: As per the Payment of Gratuity Act, 1972, D.A. is included in the meaning of salary. Since in this case,
Mr. X is covered under payment of Payment of Gratuity Act, 1972, D.A. has to be included within the meaning
of salary for computation of exemption under section 10(10).
(4) Taxable leave encashment

Particulars
Leave Salary received Rs. 3,30,000
Less: Exempt under section 10(10AA) - Least of the following:
(i) Notified limit Rs. 3,00,000
(ii) Actual leave salary Rs. 3,30,000
(iii) 10 months x 20,000 Rs. 2,00,000
(iv) Cash equivalent of leave to his credit (
330
× 20,000) Rs. 2,20,000 Rs. 2,00,000
30
Taxable Leave encashment Rs. 1,30,000

Note: It has been assumed that dearness allowance does not form part of salary for retirement
benefits. In case it is assumed that dearness allowance forms part of pay for retirement benefits, then,
the third limit for exemption u/s 10(10AA) in respect of leave encashment would be Rs. 3,00,000 (i.e. 10
x Rs. 30,000) & the fourth limit Rs. 3,30,000, in which case, the taxable leave encashment would be Rs.
30,000 (Rs. 3,30,000 - Rs. 3,00,000). In such a case, the gross total income would be Rs. 6,32,769.
(5) Commuted Pension

Since Mr. X is a non-government employee in receipt of gratuity, exemption under section 10(10A) would
be available to the extent of 1/3rd of the amount of the pension which he would have received had he
commuted the whole of the pension.
Particulars
Amount received Rs. 3,00,000
Exemption under section 10(10A) =
1
× [3,00,000 × ]
3
Rs. 1,50,000
3 2
Taxable amount Rs. 1,50,000
(6) Taxability provisions under section 56(2)(x) are not attracted in respect of television received from
colleagues, since television is not included in the definition of capital asset therein.
SM 20. Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the list of perquisites provided by
the company to him for the entire financial year 2020-21:
(i) Domestic servant was provided at the residence of Bala. Salary of domestic servant is Rs. 1,500 per
month. The servant was engaged by him & the salary is reimbursed by the company (employer). In case
the company has employed the domestic servant, what is the value of perquisite?
(ii) Free education was provided to his two children Arthy & Ashok in a school maintained & owned by the
company. The cost of such education for Arthy is computed at 900 per month & for Ashok at 1,200 per
month. No amount was recovered by the company for such education facility from Bala.
(iii) Employer has provided movable assets such as television, refrigerator & air-conditioner at the
residence of Bala. The actual cost of such assets provided to the employee is Rs. 1,10,000
43
(iv) A gift voucher worth Rs. 10,000 was given on the occasion of his marriage anniversary. It is given by
the company to all employees above certain grade
(v) Telephone provided at the residence of Shri Bala & the bill aggregating to Rs. 25,000 paid by the
employer.
(vi) Housing loan @ 6% per annum. Amount outstanding on 1.4.2020 is Rs. 6,00,000. Shri Bala pays Rs. 12,000
per month towards principal, on 5th of each month.
Compute the chargeable perquisite in the hands of Mr. Bala for the AY 2021-22.
The lending rate of State Bank of India as on 1.4.2020 for housing loan may be taken as 10%.
Answer: Taxability of perquisites provided by ABC Co. Ltd. to Shri Bala
(i) Domestic servant was employed by the employee & the salary of such domestic servant was paid/
reimbursed by the employer. It is taxable as perquisite for all categories of employees.
Taxable perquisite value = Rs. 1,500 × 12 = Rs. 18,000.
If the company had employed the domestic servant & the facility of such servant is given to the
employee, then the perquisite is taxable only in the case of specified employees. The value of the
taxable perquisite in such a case also would be Rs. 18,000.
(ii) Where the educational institution is owned by the employer, the value of perquisite in respect of free
education facility shall be determined with reference to the reasonable cost of such education in a
similar institution in or near the locality. However, there would be no perquisite if the cost of such
education per child does not exceed 1,000 per month.
Therefore, there would be no perquisite in respect of cost of free education provided to his child Arthy,
since the cost does not exceed Rs. 1,000 per month.
However, the cost of free education provided to his child Ashok would be taxable, since the cost
exceeds Rs. 1,000 per month. The taxable perquisite value would be Rs. 14,400 (1,200 × 12)
Note – An alternate view possible is that only the sum in excess of Rs. 1,000 per month is taxable. In
such a case, the value of perquisite would be Rs. 2,400.
(iii) Where the employer has provided movable assets to the employee or any member of his household, 10%
per annum of the actual cost of such asset owned or the amount of hire charges incurred by the
employer shall be the value of perquisite. However, this will not apply to laptops & computers. In this
case, the movable assets are television, refrigerator & air conditioner & actual cost of such assets is
Rs. 1,10,000
The perquisite value would be 10% of the actual cost i.e., Rs. 11,000, being 10% of Rs. 1,10,000
(iv) The value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household not exceeding Rs. 5,000 in aggregate during the previous year is exempt. In this case, the
amount was received on the occasion of marriage anniversary & the sum exceeds the limit of Rs. 5,000.
Note: An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable. In such a case,
the value of perquisite would be Rs. 5,000
(v) Telephone provided at the residence of the employee & payment of bill by the employer is a tax-free
perquisite.
(vi) Value of the benefit to the assessee resulting from the provision of interest-free or concessional loan
made available to the employee or any member of his household during the relevant previous year by
the employer or any person on his behalf shall be determined as the sum equal to the interest computed
at the rate charged per annum by the State Bank of India (SBI) as Rs. on the 1st day of the relevant
previous year in respect of loans for the same purpose advanced by it. This rate should be applied on
the maximum outstanding monthly balance & the resulting amount should be reduced by the interest, if
any, actually paid by him.
44
“Maximum outstanding monthly balance” means the aggregate outstanding balance for loan as on the
last day of each month.
The perquisite value for computation is 10% - 6% = 4%
Month Maximum outstanding balance as Perquisite value at 4%
on last date of month for the month
April, 2020 Rs. 5,88,000 1,960
May, 2020 Rs. 5,76,000 1,920
June, 2020 Rs.5,64,000 1,880
July, 2020 Rs. 5,52,000 1,840
August, 2020 Rs. 5,40,000 1,800
September, 2020 Rs. 5,28,000 1,760
October, 2020 Rs. 5,16,000 1,720
November, 2020 Rs.5,04,000 1,680
December, 2020 Rs. 4,92,000 1,640
January, 2021 Rs. 4,80,000 1,600
February, 2021 Rs. 4,68,000 1,560
March, 2021 Rs. 4,56,000 1,520
Total value of this perquisite Rs. 20,880
Total value of taxable perquisite

= Rs. 74,280 [i.e. Rs. 18,000 + Rs. 14,400 + Rs. 11,000 + Rs. 10,000 + Rs. 20,880].
Note: In case the alternate views are taken for items (ii) & (iv), the total value of taxable perquisite
would be Rs. 57,280 [i.e., Rs. 18,000 + Rs. 2,400 + Rs. 11,000 + Rs. 5,000 + Rs. 20,880]
SM 21. AB Co. Ltd. allotted 1000 sweat equity shares to Sri Chand in June 2020. The shares were allotted
at 200 per share as against the fair market value of 300 per share on the date of exercise of option by
the allottee viz. Sri Chand. The fair market value was computed in accordance with the method prescribed
under the Act.
(i) What is the perquisite value of sweat equity shares allotted to Sri Chand?
(ii) In the case of subsequent sale of those shares by Sri Chand, what would be the cost of acquisition of
those sweat equity shares?
Answer.
(i) As per section 17(2)(vi), the value of sweat equity shares chargeable to tax as perquisite shall be the
fair market value of such shares on the date on which the option is exercised by the assessee as
reduced by the amount actually paid by, or recovered from, the assessee in respect of such shares.
Particulars Rs.
Fair market value of 1000 sweat equity shares @ 300 each Rs. 3,00,000
Less: Amount recovered from Sri Chand 1000 shares @ 200 each Rs. 2,00,000
Value of perquisite of sweat equity shares allotted to Sri Chand Rs. 1,00,000
(ii) As per section 49(2AA), where capital gain arises from transfer of sweat equity shares, the cost of
acquisition of such shares shall be the fair market value which has been taken into account for
perquisite valuation under section 17(2)(vi). (The provisions of section 49 are discussed in Unit 4: Capital
Gains of this chapter) Therefore, in case of subsequent sale of sweat equity shares by Sri Chand, the
cost of acquisition would be Rs. 3,00,000.
45
SM 22. X Ltd. provided the following perquisites to its employee Mr. Y for the P.Y. 2020-21-
1. Accommodation taken on lease by X Ltd. for Rs. 15,000 p.m. Rs. 5,000 p.m. is recovered from the salary
of Mr. Y.
2. Furniture, for which the hire charges paid by X Ltd. is Rs. 3,000 p.m. No amount is recovered from the
employee in respect of the same.
3. A Car of 1,200 cc which is owned by X Ltd. & given to Mr. Y to be used both for official and personal
purposes. All running & maintenance expenses are fully met by the employer. He is also provided with a
chauffeur.
4. A gift voucher of 10,000 on his birthday.
Compute the value of perquisites chargeable to tax for the AY2021-22, assuming his salary for perquisite
valuation to be 10 lacs.
Answer: Value of taxable perquisites in the hands of Mr. Y for AY 2021-22
Particulars
(1) Value of concessional accommodation
(a) Actual amount of lease rental paid by X Ltd Rs. 1,80,000
(b) 15% of salary i.e., 15% of Rs. 10,00,000 Rs. 1,50,000
Lower of (a) & (b) Rs. 1,50,000
Less: Rent paid by Mr. Y (5,000 × 12) (Rs. 60,000)
Rs. 90,000
Add: Hire charges paid by X Ltd. for furniture provided Rs. 36,000 Rs. 1,26,000
for the use of Mr. Y (3,000 × 12)
(2) Perquisite value of Santro car owned by X Ltd. & Rs. 32,400
provided to Mr. Y for his pe0rsonal & official use
[(Rs.1,800 + Rs.900) × 12]
(3) Value of gift Vocher Rs. 10,000
Value of perquisites chargeable to tax Rs. 1,68,000
An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable. In such a case, the value
of perquisite would be Rs.,000.
SM 23. Mr. Goyal receives the following emoluments during the previous year ending 31.03.2021.
Basic pay Rs. 40,000
Dearness Allowance Rs. 15,000
Commission Rs. 10,000
Entertainment allowance Rs. 25,000
Professional tax paid Rs. 2,000 (1,000 was paid by his employer)
Mr. Goyal contributes Rs. 5,000 towards recognized provident fund. He has no other income. Determine
the income from salary for AY 2021-22, if Mr. Goyal is a State Government employee.
Answer:
Particulars ` `
Basic Salary Rs. Rs. 40,000
Dearness Allowance Rs. 15,000
Commission Rs. 10,000
Entertainment Allowance received Rs. 4,000
46
Employee’s contribution to RPF [Note] -

Medical expenses reimbursed Rs. 25,000
Professional tax paid by the employer Rs. 1,000
Gross Salary Rs. 95,000
Less: Deductions under section 16
under section 16(ia) - Standard deduction of upto Rs. 50,000 Rs. 50,000
under section 16(ii) - Entertainment allowance
being lowest of:
(a) Allowance received Rs. 4,000
(b) One fifth of basic salary [1/5 × Rs. 40,000] Rs.8,000
(c) Statutory amount Rs. 5,000 Rs. 4,000
under section 16(iii) - Professional tax paid Rs. 2,000
Income from Salary Rs. 39,000
Note: Employee’s contribution to RPF is not taxable. It is eligible for deduction u/s 80C
SM 24. In the case of Mr. Hari, who turned 68 years on 28.03.2021, you are informed that salary (computed)
for PY 2020-21 is 10,20,000 & arrears of salary received is 3,45,000. Further, you are given the following
details relating to the earlier years to which the arrears of salary received is attributable to:
Previous year Taxable Salary (Rs) Arrears now received (Rs)
2010 – 2011 Rs.7,10,000 Rs.1,03,000
2011 – 2012 Rs. 8,25,000 Rs. 1,17,000
2012 – 2013 Rs. 9,50,000 Rs. 1,25,000
Compute the relief available u/s 89 & tax payable for AY 2021-22. Assume that Mr. Hari does not opt for
section 115B AC.
Note: Rates of Taxes
Assessment Slab rates of income-tax
Year For resident individuals of the age of 60 For other resident individuals
years or more at any time during the
previous year
Slabs Rate Slabs Rate
2011–12 Upto Rs. 2,40,000 Nil Upto Rs. 1,60,000 Nil
Rs. 2,40,001 - Rs. 5,00,000 10% Rs. 1,60,001 - Rs. 5,00,000 10%
Rs. 5,00,001 - Rs. 8,00,000 20% Rs. 5,00,001 - Rs. 8,00,000 20%
Above Rs. 8,00,000 30% Above Rs. 8,00,000 30%
Rs. 2,50,001 - Rs. 5,00,000 10% Rs. 1,80,001 - Rs. 5,00,000 10%
Rs. 5,00,001 - Rs. 8,00,000 20% Rs. 5,00,001 - Rs. 8,00,000 20%
Above Rs. Rs. 8,00,000 30% Above Rs. 8,00,000 30%
Rs. 2,50,001 - Rs. 5,00,000 10% Rs. 2,00,001 - Rs. 5,00,000 10%
Rs. 5,00,001 - Rs. 10,00,000 20% Rs. 5,00,001 - Rs. 10,00,000 20%
47
Above Rs. 10,00,000 30% Above Rs. 10,00,000 30%

Note – Education cess@2% & secondary & higher education cess@1% was attracted on the income-tax for
all above preceding years.
Answer: Computation of tax payable by Mr. Hari for AY 2021-22
Particulars Incl. arrears of salary Excl. arrears of salary
Rs. Rs.
Current year salary (computed) Rs. 10,20,000 Rs. 10,20,000
Add: Arrears of salary Rs. 3,45,000 -
Taxable Salary Rs. 13,65,000 Rs. 10,20,000
Income-tax thereon Rs.2,19,500 Rs. 1,16,000
Add : Health & education cess @4% Rs. 8,780 Rs. 4,640
Total payable Rs. 2,28,280 Rs. 1,20,640
Computation of tax payable on arrears of salary if charged to tax in the respective AYs
Particulars AY 2011-12 AY 2012-13 AY 2013-14
Incl. Excl. Incl. Excl. Incl. Excl.
arrears arrears arrears arrears arrears arrears
Rs. Rs. Rs Rs. Rs. Rs.
Taxable Rs. 7,10,000 Rs. 7,10,000 Rs. 8,25,000 Rs. 8,25,000 Rs. 9,50,000 Rs. 9,50,000
salary
Add: Arrears Rs. 1,03,000 - Rs. 1,17,000 - Rs. 1,25,000 -
of salary
Taxable Rs. 8,13,000 Rs. 7,10,000 Rs. 9,42,000 Rs. 8,25,000 Rs. Rs. 9,50,000
salary 10,75,000
Tax on the
above Rs. 97,900 Rs. 76,000 Rs. 1,34,600 Rs. 99,500 Rs. 1,47,500 Rs. 1,15,000
Add:Cess@3% Rs. 2,937 Rs. 2,280 Rs. 4,038 Rs. 2,985 Rs. 4,425 Rs. 3,450
Tax payable 1,00,837 78,280 1,38,638 1,02,485 1,51,925 1,18,450
Computation of relief under section 89

Particulars Rs. Rs.
I Tax payable in AY2021-22 on arrears:
Tax on income including arrears Rs. 2,28,280
Less : Tax on income excluding arrears Rs. 1,20,640 Rs. 1,07,640
II Tax payable in respective years on arrears:
Tax on income including arrears (Rs. 1,00,837 + Rs. 1,38,638 + Rs. Rs. 3,91,400
1,51,925)
Less: Tax on income excluding arrears (Rs. 78,280 + Rs. 1,02,485 + Rs. Rs. 2,99,215 Rs. 92,185
1,18,450)
Relief under section 89 - difference between tax on arrears in AY 2021- Rs. 15,455
22 & tax on arrears in the respective years
48
Tax payable for AY2021-22 after relief under section 89

Particulars Rs.
Income-tax payable on total income including arrears of salary Rs. 2,28,280
Less: Relief under section 89 as computed above Rs. 15,455
Tax payable after claiming relief Rs. 2,12,825

Q1. Mr. Mohit is employed with XY Ltd. on a basic salary of Rs. 10,000 p.m. He is also entitled to dearness
allowance @100% of basic salary, 50% of which is included in salary as per terms of employment. The
company gives him house rent allowance of Rs. 6,000 p.m. which was increased to Rs. 7,000 p.m. with effect
from 01.01.2021. He also got an increment of Rs. 1,000 p.m. in his basic salary with effect from 01.02.2021.
Rent paid by him during PY 2020-21 is as under:
April & May, 2020: Nil, as he stayed with his parents
June to October 2020: Rs. 6,000 p.m. for an accommodation in Ghaziabad November, 2020 to March,
2021 - 8,000 p.m. for an accommodation in Delhi.
Compute his gross salary for AY 2021-22 assuming he has not opted for the provisions of section 115BAC.
Answer: Computation of gross salary of Mr. Mohit for AY 2021-22
Particulars Amount
Basic salary [(Rs.10,000 × Rs. 10) + (Rs. 11,000 × Rs. 2)] Rs. 1,22,000
Dearness Allowance (100% of basic salary) Rs. 1,22,000
House Rent Allowance (See Note below) Rs. 21,300
Gross Salary Rs.,65,300
Note: Computation of Taxable House Rent Allowance (HRA)
Particulars April- June-Oct Nov-Dec Jan Feb-
May March
Basic salary per month Rs. Rs. 10,000 Rs. Rs. Rs. 11,000
10,000 10,000 10,000
Dearness allowance (included in salary as Rs. 5,000 Rs. 5,000 Rs. 5,000 Rs. 5,000 Rs. 5,500
per terms of employment) (50% of basic
salary)
Salary per month for the purpose of Rs. Rs. 15,000 Rs. Rs. Rs. 16,500
computation of house rent allowance 15,000 15,000 15,000
Relevant period (in months) 2 5 2 1 2
Salary for the relevant period (Salary per Rs. Rs. 75,000 Rs. Rs. Rs.
month × relevant period) 30,000 30,000 15,000 33,000
Rent paid for the relevant period Nil Rs. 30,000 Rs. Rs. 8,000 16,000
(6,000×5) 16,000 (8,000×1) (8,000×2)
(8,000×2)
House rent allowance (HRA) received Rs. Rs. 30,000 12,000 Rs. 7,000 14,000
during the relevant period (A) 12,000 (6,000×5) (6,000×2) (7,000×1) (7,000×2)
(6,000×2)
Least of the following is exempt: NA
1. Actual HRA received - Rs. 30,000 12,000 7,000 14,000
49
2. Rent paid (–) 10% of salary - Rs. 22,500 13,000 6,500 12,700
3. 40% of salary (Residence at Ghaziabad - Rs. 30,000 Rs. Rs. 7,500 Rs. 16,500
– June to Oct, 2020) 50% of salary (40% × Rs. 15,000 (50% × (50% ×
(Residence at Delhi– Nov, 20 - March, 21) Rs. (50% × 15,000) Rs. Rs.
75,000) Rs. 33,000)
30,000)
Exempt HRA (B) Nil Rs. 22,500 Rs. Rs. 6,500 Rs. 12,700
12,000
Taxable HRA [Actual HRA (–) Exempt HRA]
(A-B) Rs. Rs. 7,500 Nil Rs.500 Rs.1,300
12,000
Taxable HRA (total) = Rs. 12,000 + Rs. 7,500 + Rs. 500 + Rs. 1,300 = Rs. 21,300
Q2. Ms. Rakhi is an employee in a private company. She receives the following medical benefits from the
company during the previous year 2020-21:
Partiuclrs Amount
1 Reimbursement of following medical expenses incurred by Ms. Rakhi
(A) On treatment of her self-employed daughter in a private clinic Rs.4,000
(B) On treatment of herself by family doctor Rs. 8,000
(C) On treatment of her mother-in-law dependent on her, in a nursing home Rs. 5,000
2 Payment of premium on Mediclaim Policy taken on her health Rs. 7,500
3 Medical Allowance Rs. 2,000 p.m.
4 Medical expenses reimbursed on her son's treatment in a government hospital Rs. 5,000
5 Expenses incurred by company on the treatment of her minor son abroad including Rs. 1,95,000
stay expenses
6 Expenses in relation to foreign travel of Rakhi & her son for medical treatment Rs. 1,20,000
Note -Limit prescribed by RBI for expenditure on medical treatment & stay abroad
is USD Rs. 2,50,000 per financial year under liberalized remittance scheme.
Examine the taxability of the above benefits & allowances in the hands of Rakhi.
Answer: Tax treatment of medical benefits, allowances & mediclaim premium in the hands of Ms. Rakhi for
AY 2021-22
Particulars
1. Reimbursement of medical expenses incurred by Ms. Rakhi
(A) The amount of 4,000 reimbursed by her employer for treatment of her self-employed daughter
in a private clinic is taxable perquisite
(B) The amount of 8,000 reimbursed by the employer for treatment of Ms. Rakhi by family doctor
is taxable perquisite
(C) The amount of 5,000 reimbursed by her employer for treatment of her dependant mother-in-
law in a nursing home is taxable perquisite.
Tne aggregate sum of 17,000 specified in (A) (B) & (C) above reimbursed by the empoyers is taxable
perquisite.
2. Medical insurance premium of 7,500 paid by the employer for insuring health of Ms. Rakhi is a tax
free perquisite as per clause (iii) of the first proviso to section 17(2).
50
3. Medical allowance of 2,000 per month i.e., 24,000 p.a. is a fully taxable allowance.
4. As per clause (ii)(a) of the first proviso to section 17(2), reimbursement of medical expenses of
5,000 on her son’s treatment in a hospital maintained by the Government is a tax free perquisite.
5. As per clause (vi) of the first proviso to section 17(2), the following expenditure incurred by the
& employer would be excluded from perquisite subject to certain conditions –
6. i. Expenditure on medical treatment of the employee, or any member of the family of such
employee, outside India [1,05,000, in this case];
ii. Expenditure on travel & stay abroad of the employee or any member of the family of such
employee for medical treatment & one attendant who accompanies the patient in
connection with such treatment [1,20,000, in this case].
The conditions subject to which the above expenditure would be exempt are as follows -
i. The expenditure on medical treatment & stay abroad would be excluded from perquisite to
the extent permitted by Reserve Bank of India; Since
ii. The expenditure on travel would be excluded from perquisite only in the case of an employee
whose gross total income, as computed before including the said expenditure, does not
exceed ` 2 lakh.
Since the expenditure on medical treatment & stay abroad does not exceed the limit permitted
by RBI, they would be fully exempt. However, the foreign travel expenditure of Ms. Rakhi & her
minor son borne by the employer would be excluded from perquisite only if the gross total income
of Ms. Rakhi, as computed before including the said expenditure, does not exceed ` 2 lakh.
Q3. Mr. X is employed with AB Ltd. on a monthly salary of 25,000 per month & an entertainment allowance
& commission of 1,000 p.m. each. The company provides him with the following benefits:
1. A company owned accommodation is provided to him in Delhi. Furniture costing 2,40,000 was provided
on 1.8.2020.
2. A personal loan of 5,00,000 on 1.7.2020 on which it charges interest @ 6.75% p.a. The entire loan is still
outstanding. (Assume SBI rate of interest on 1.4.2020 was 12.75% p.a.)
3. His son is allowed to use a motor cycle belonging to the company. The company had purchased this
motor cycle for 60,000 on 1.5.2017. The motor cycle was finally sold to him on 1.8.2020 for 30,000.
4. Professional tax paid by Mr. X is 2,000.
Compute the income from salary of Mr. X for the AY 2021-22 assuming Mr. X has not opted for the provisions
of section 115BAC.
Answer: Computation of Income from Salary of Mr. X for the AY 2021-22
Particulars
Basic salary [ Rs. 25,000 × 12] Rs. 3,00,000
Commission [ Rs. 1,000 × 12] Rs.12,000
Entertainment allowance [ Rs. 1,000 × 12] Rs.12,000
Rent free accommodation [Note 1] Rs. 48,000
Add: Value of furniture [ Rs. 2,40,000 × 10% p.a. for 8 months] Rs. 16,000 Rs. 64,600
Interest on personal loan [Note 2] Rs. 22,500
Use of motor cycle [ Rs. 60,000 × 10% p.a. for 4 months] Rs. 2,000
Transfer of motor cycle [Note 3] Rs. 12,000
Less: Deduction under section 16
Under section 16(ia) – Standard deduction Rs. 50,000
51
Under section 16(iii) - Professional tax paid Rs. 2,000 Rs. 52,000
Income from Salary Rs. 3,73,100
Note1: Value of rent free unfurnished accommodation

= 15% of salary for the relevant period
= 15% of (Rs. 3,00,000 + Rs. 12,000 + Rs. 12,000) = Rs. 48,600
Note 2: Value of perquisite for interest on personal loan
= [Rs. 5,00,000 × (12.75% - 6.75%) for 9 months] = Rs. 22,500
Note 3: Depreciated value of the motor cycle
= Original cost – Depreciation @ 10% p.a. for 3 completed years.
= Rs. 60,000 – (Rs. 60,000 × 10% p.a. × 3 years) = Rs. 42,000.
Perquisite = Rs. 42,000 – Rs. 30,000 = Rs. 12,000
Q4. Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the following information for the
year ended 31.03.2021.
(1) Basic salary upto 31.10.2020 Rs. 50,000 p.m.
Basic salary from 01.11.2020 Rs. 60,000 p.m [Note: Salary is due & paid on the last day of every month].
(2) Dearness allowance @ 40% of basic salary.
(3) Bonus = 1 month salary. Paid in October 2020 on basic salary + DA applicable for that month.
(4) Contribution of employer to recognized provident fund account of the employee@16% of basic salary.
(5) Professional tax paid Rs. 2,500 of which Rs. 2,000 was paid by the employer.
(6) Facility of laptop & computer was provided to Balaji for both official & personal use. Cost of laptop Rs.
45,000 & computer Rs. 35,000 were acquired by the company on 01.12.2020
(7) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the
employee from 01.11.2020 meant for both official & personal use. Repair & running expenses of Rs.
45,000 from 01.11.2020 to 31.03.2021, were fully met by the employer. The motor car was self-driven by
the employee.
(8) Leave travel concession given to employee, his wife & 3 children (one daughter aged 7 & twin sons aged
3). Cost of air tickets (economy class) reimbursed by the employer Rs. 30,000 for adults & Rs. 45,000
for 3 children. Balaji is eligible for availing exemption this year to the extent it is permissible in law.
Compute the salary income chargeable to tax in the hands of Mr. Balaji for AY 2021-22.
Answer: Computation of Taxable Salary of Mr. Balaji for AY 2021-22
Particulars Rs. Rs.
Basic salary [(Rs. 50,000 × Rs. 7) + (Rs. 60,000 × Rs. 5)] Rs. 6,50,000
Dearness Allowance (40% of basic salary) Rs. 2,60,000
Bonus (Rs. 50,000 + 40% of Rs. 50,000) (See Note 1) Rs. 70,000
Employer’s contribution to recognised provident fund in excess of 12% Rs. 26,000
of salary = 4% of Rs. 6,50,000 (See Note 2)
Professional tax paid by employer Rs. 2,000
Perquisite of Motor Car (Rs. 2,400 for 5 months) (See Note 4) Rs. 12,000
Standard deduction u/s 16(ia) Rs. 50,000
Professional tax u/s 16(iii) (See Note 6) Rs. 2,500 Rs. 52,500
52
Taxable Salary Rs. 9,67,500

Notes:
1. Since bonus was paid in the month of October, the basic salary of Rs. 50,000 for the month of October
is considered for its calculation.
2. It is assumed that dearness allowance does not form part of salary for computing retirement benefits.
3. As per Rule 3(7)(vii), facility of use of laptop & computer is a tax free perquisite, whether used for
official or personal purpose or both.
4. As per the provisions of Rule 3(2), in case a motor car (engine cubic capacity exceeding 1.60 liters)
owned by the employer is provided to the employee without chauffeur for personal as well as office
use, the value of perquisite shall be Rs. 2,400 per month. The car was provided to the employee from
01.11.2020, therefore the perquisite value has been calculated for 5 months.
5. Mr. Balaji can avail exemption under section 10(5) on the entire amount of 75,000 reimbursed by
the employer towards Leave Travel Concession since the same was availed for himself, his wife & three
children & the journey was undertaken by economy class airfare. The restriction imposed for two
children is not applicable in case of multiple births which take place after the first child.
It is assumed that the Leave Travel Concession was availed for journey within India.
6. As per section 17(2)(iv), a “perquisite” includes any sum paid by the employer in respect of any
obligation which, but for such payment, would have been payable by the assessee. Therefore,
professional tax of Rs. 2,000 paid by the employer is taxable as a perquisite in the hands of Mr. Balaji.
As per section 16(iii), a deduction from the salary is provided on account of tax on employment i.e.
professional tax paid during the year.
7. Therefore, in the present case, the professional tax paid by the employer on behalf of the employee Rs.
Rs. 2,000 is first included in the salary & deduction of the entire professional tax of Rs. 2,500 is
provided from salary.
Q5. From the following details, find out the salary chargeable to tax for AY 2021-22 assuming he has not
opted for the provisions of section 115BAC-
Mr. X is a regular employee of Rama & Co., in Gurgaon. He was appointed on 1.1.2020 in the scale of Rs.
20,000 - Rs. 1,000 - Rs. 30,000. He is paid 10% D.A. & Bonus equivalent to one month pay based on salary of
March every year. He contributes 15% of his pay & D.A. towards his recognized provident fund & the
company contributes the same amount. DA forms part of pay for retirement benefits.
He is provided free housing facility which has been taken on rent by the company at 10,000 per month.
He is also provided with following facilities:
▪ Facility of laptop costing Rs. 50,000.
▪ Company reimbursed the medical treatment bill of his brother of Rs. 25,000, who is dependent on him.
▪ The monthly salary of Rs. Rs. 1,000 of a house keeper is reimbursed by the company.
▪ A gift voucher of Rs. 10,000 on the occasion of his marriage anniversary.
▪ Conveyance allowance of Rs. 1,000 per month is given by the company towards actual reimbursement of
conveyance spent on official duty.
▪ He is provided personal accident policy for which premium of Rs. 5,000 is paid by the company.
▪ He is getting telephone allowance @ Rs. 500 per month.
Answer: Computation of taxable salary of Mr. X for AY 2021-22
Particulars Rs.
Basic pay [(Rs. 20,000× Rs. 9) + (Rs. 21,000× Rs. 3)] = Rs. 1,80,000 + Rs. 63,000 Rs. 2,43,000
Dearness allowance [10% of basic pay] Rs. 24,300
Bonus Rs. 21,000
53
Employer’s contribution to Recognized Provident Fund in excess of 12% (15%-12% =3% of

2,67,300) [See Note 1 below]
Rs. 8,019
Taxable allowances
Telephone allowance Rs. 6,000

Taxable perquisites
Rent-free accommodation [See Note 1 & 2 below] Rs. 44,145
Medical reimbursement Rs. 25,000
Reimbursement of salary of housekeeper Rs. 12,000
Gift voucher [See Note 5 below] Rs. 10,000
Less: Deduction under section 16(ia) – Standard deduction Rs. 50,000
Salary income chargeable to tax Rs. 3,43,464
Notes:
1. Since dearness allowance forms part of salary for retirement benefits, the perquisite value of rent-
free accommodation & employer’s contribution to recognized provident fund have been accordingly
worked out.
2. Where the accommodation is taken on lease or rent by the employer, the value of rent-free
accommodation provided to employee would be actual amount of lease rental paid or payable by the
employer or 15% of salary, whichever is lower.
For the purposes of valuation of rent-free house, salary includes:
▪ Basic salary i.e., Rs. 2,43,000
▪ Dearness allowance (assuming that it is included for calculating retirement benefits) i.e. ` 24,300
▪ Bonus i.e., Rs. 21,000
▪ Telephone allowance i.e., Rs. 6,000
Therefore, salary works out to Rs. 2,43,000 + Rs. 24,300 + Rs. 21,000 + Rs. 6,000 = Rs. 2,94,300.
15% of salary = Rs. 2,94,300 × 15/100 = Rs. 44,145
Value of rent-free house = Lower of rent paid by the employer (i.e. Rs. 1,20,000) or 15% of salary (i.e.,
Rs. 44,145). Therefore, the perquisite value is Rs. 44,145.
3. Facility of use of laptop is not a taxable perquisite.
4. Conveyance allowance is exempt since it is based on actual reimbursement for official purposes.
5. The value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household below Rs. 5,000 in aggregate during the previous year is exempt. In this case, the gift voucher
was received on the occasion of marriage anniversary & the sum exceeds the limit of Rs. 5,000.
Note - An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable. In such a case,
the value of perquisite would be Rs. 5,000.
6. Premium of Rs. 5,000 paid by the company for personal accident policy is not liable to tax.
54
PAST RTP QUESTIONS

May 18 Q1. Mr. Kashyap retired from the services of M/s ABC Ltd. on 31.01.2021, after completing
service of 30 years & one month. He had joined the company on 1.1.1991 at the age of 30
years & received the following on his retirement:
(a) Gratuity: Rs. 5,50,000. He was covered under the Payment of Gratuity Act, 1972.
(b) Leave encashment of Rs. 3,30,000 for 330 days leave balance in his account. He was
credited 30 days leave for each completed year of service.
(c) As per the scheme of the company, he was offered a car on 31.01.2021 which was
purchased on 1.3.2018 by the company for Rs. 5,00,000. Company has recovered Rs.
2,00,000 from him for the car. Company depreciates the vehicles at the rate of 15%
on Straight Line Method.
(d) Amount of Rs. 3,00,000 as commutation of pension for 2/3 of his pension commutation.
(e) Company presented him a gift voucher worth Rs. 8,000 on his retirement.
Following are the other particulars:
▪ He has drawn a basic salary of Rs. 20,000 & dearness allowance @ 50% of basic salary
for the period from 1.04.2020 to 31.01.2021. Dearness allowance does not form part of
pay for retirement benefits.
▪ Received pension of Rs. 7,000 p.m for 1.2.2021 to 31.03.2021 after commutation of
pension.
Compute his income taxable u/h “Salaries” for AY 2021-22.
Ans: Computation of income chargeable u/h “Salaries” of Mr. Kashyap for AY 2021-22
Particulars Rs.
Basic Salary = Rs. 20,000 x 10 2,00,000
Dearness Allowance = 50% of basic salary 1,00,000
Gift Voucher (See Note - 1) 8,000
Transfer of car (See Note - 2) 1,20,000
Gratuity (See Note - 3) 30,769
Leave encashment (See Note - 4) 1,30,000
Uncommuted pension (Rs. 7000 x 2) 14,000
Commuted pension (See Note - 5) 1,50,000
Taxable Salary/Gross Total Income 7,52,769
Notes:
1. As per Rule 3(7)(iv), value of any gift or voucher or token in lieu of gift received by the
employee or by member of his household not exceeding Rs. 5,000 in aggregate during
PY is exempt. In this case, the amount was received on his retirement & the sum exceeds
the limit of Rs. 5,000.
Note: An alternate view is possible that only the sum in excess of Rs. 5,000 is taxable in
view of the language of Circular No.15/2001 dated 12.12.2001. Gifts upto Rs. 5,000 in the
aggregate per annum would be exempt, beyond which it would be taxed as a perquisite.
As per this view, the value of perquisite would be Rs. 3,000 & gross total income would
be Rs. 7,47,769.
2. Perquisite value of transfer of car: As per Rule 3(7)(viii), value of benefit to the
employee arising from transfer of an asset, being a motor car, by the employer is actual
cost to the employer as reduced by 20% on WDV basis for each completed year during
which such motor car was put to use by the employer. Therefore, value of perquisite on
55
transfer of motor car would be:

Particulars Rs.
Purchase price (1.3.2018) 5,00,000
Less: Depreciation @ 20% 1,00,000
WDV on 29.2.2019 4,00,000
Less: Depreciation @ 20% 80,000
WDV on 28.2.2020 3,20,000
Less: Amount recovered 2,00,000
Value of perquisite 1,20,000
Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee
arising from the transfer of any movable asset, the normal wear & tear is to be
calculated i.r.o. each completed year during which the asset was put to use by the
employer. In the given case, third year of use of car is completed on 28.2.2021 whereas
the car was sold to the employee on 31.1.2021. Accordingly, wear & tear has to be
calculated @ 20% on reducing balance method for only two years.
Rate of 15% as well as SLM adopted by the company for depreciation of vehicle is not
relevant for calculation of perquisite value of car in the hands of Mr. Kashyap.
3. Taxable gratuity
Particulars Rs.
Gratuity received 5,50,000
Less: Exempt u/s 10(10) - Least of the following:
(i) Notified limit = Rs. 20,00,000
(ii) Actual gratuity received = Rs. 5,50,000
(iii) 15/26 x last drawn salary x no. of completed years or part in excess of 6 5,19,231
months
15/26 x 30,000 x 30 = Rs. 5,19,231
Taxable Gratuity 30,769
PC Note: As per Payment of Gratuity Act, 1972, dearness allowance is included in the
meaning of salary. Since Mr. Kashyap is covered under Payment of Gratuity Act, 1972,
dearness allowance has to be included within the meaning of salary for computation of
exemption u/s 10(10).
4. Taxable leave encashment
Particulars Rs.
Leave Salary received 3,30,000
Less: Exempt u/s 10(10AA) - Least of the following:
(i) Notified limit: Rs. 3,00,000
(ii) Actual leave salary received: Rs. 3,30,000
(iii) 10 months x Rs. 20,000: Rs. 2,00,000
(iv) Cash equivalent of leave to his credit [
330
x 20,000] = Rs. 2,20,000 2,00,000
30
Taxable Leave encashment 1,30,000
Note: Salary, for the purpose of exemption u/s 10(10AA), would include dearness
allowance only if it forms part of pay for retirement benefits. Therefore, since
dearness allowance does not form part of pay for retirement benefits, only basic salary
has to be considered.
56
5. Commuted Pension
Since Mr. Kashyap is a non-government employee in receipt of gratuity, exemption u/s
10(10A) would be available to the extent of 1/3rd of the amount of the commuted pension
which he would have received had he commuted the whole of the pension.
Particulars Rs.
Amount received 3,00,000
Less: Exemption under section 10(10A) = 1/3 x 3 Lacs x 3/2 1,50,000
Taxable amount 1,50,000
Nov 18 Q2. You are required to compute the income chargeable u/h Salaries in the hands of Mr.
Narayan for AY 2021-2 from the following details pertaining to PY 2020-21:
Particulars Rs.
Basic salary 7,20,000
Dearness allowance 3,60,000
Commission 60,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 25,000
Profession tax (of this, 50% paid by employer) 3,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 15,000
Life insurance premium of Narayan paid by employer 42,000
Laptop provided for use at home. Actual cost of Laptop to employer 45,000
[Children of the assessee are also using the Laptop at home]
Annual credit card fees paid by employer [Credit card is not exclusively used 5,000
for official purposes]
Employer company owns a motor car, which was provided to the assessee,
both for official & personal use. All repair & maintenance expenses are
fully reimbursed by the employer. No driver was provided. (Engine cubic
capacity less than 1.6 litres).
Ans: Computation of income taxable u/h ‘Salaries’ of Mr. Narayan for AY 2021-22
Particulars Rs.
Basic Salary 7,20,000
Commission 60,000
Medical expenses reimbursed by the employer 25,000
Professional tax paid by employer is a taxable perquisite since it is an 1,500
obligation of the employee which is paid by the employer
Health insurance premium paid by the employer is exempt perquisite Nil
Gift voucher given by employer on Mr. Narayan’s birthday (entire amount is 15,000
taxable since the perquisite value exceeds Rs. 5,000) [See Note below]
Life insurance premium of Narayan paid by employer – taxable perquisite 42,000
Laptop provided for use at home is an exempt perquisite Nil
Motor car (CC < 1.6 litres) owned by employer to employee for both official 21,600
& personal purposes - Perquisite value = Rs. 21,600 [Rs.1,800 ×12]
57
Annual credit card fees paid by employer is a taxable perquisite since the 5,000
credit card is not exclusively used for official purposes.
Gross Salary 12,57,600
Less: Standard deduction u/s 16(ia) (50,000)
Less: Professional tax paid allowable as deduction as per section 16(iii) (3,000)
Income chargeable u/h “Salaries” 12,04,600
Note: As per Rule 3(7)(iv), value of any gift or voucher received by the employee or by
member of his household on ceremonial occasions or otherwise from the employer shall be
determined as the sum equal to the amount of such gift. However, value of any gift or
voucher received by the employee or by member of his household below Rs. 5,000 in
aggregate during PY would be exempt. In this case, gift voucher of Rs. 15,000 was received
by Mr. Narayan from his employer on the occasion of his birthday. Since value of the gift
voucher > Rs. 5,000, entire amount of Rs. 15,000 is taxable.
Alternate view possible is that only the sum in excess of Rs. 5,000 is taxable in view of the
language of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto Rs. 5,000
in the aggregate per annum would be exempt, beyond which it would be taxed as a
perquisite. As per this view, value of perquisite would be Rs. 10,000.
May 19 Q3. Miss Riya has started working in a reputed company. This is her first job. She earned
total income of Rs. 8 Lakhs in PY 2020-21. While filing her return of income she had a doubt
with respect to deduction of transport allowance. Her father advised her that she cannot
claim deduction of transport allowance while her friend told that maximum deduction of
Rs. 1600 p.m. i.r.o said allowance can be claimed. According to you, what is the correct
treatment for the same?
(a) Transport allowance upto a maximum Rs. 1600 per month can be claimed.
(b) Transport allowance upto a maximum Rs. 800 per month can be claimed.
(c) No separate deduction for transport allowance is allowed. However, standard
deduction of Rs. 50,000 is allowed to salaried assessees.
(d) Deduction of transport allowance is allowed without any monetary limit.
Q4. Ms. Aarohi is the HR manager in Shipra limited. She gives you the following particulars:
Dearness Allowance (30% forms part of retirement benefits) Rs. 24,000 p.m.
Bonus Rs. 21,000 p.m
▪ Her employer has provided her with an accommodation on 1st April 2020 at a concessional
rent. House was taken on lease by Shipra Ltd. for Rs. 12,000 p.m. Ms. Aarohi occupied the
house from 1st November 2020. Rs. 4,800 p.m. is recovered from the salary of Ms. Aarohi.
▪ Employer gave her a gift voucher of Rs. 10,000 on her birthday. She contributes 18% of
her salary (Basic Pay + DA) towards RPF & company contributes the same amount.
▪ Company pays medical insurance premium to effect insurance on health of Ms. Aarohi Rs.
20,000.
▪ Motor car owned by the employer (Cubic capacity of engine exceeds 1.6 litres) provided
to Ms. Aarohi from 1st Nov. 2020 which is used for both official & personal purposes. Repair
& running expenses of Rs. 70,000 were fully met by the company. Motor car was self-
driven by the employee.
Compute income taxable u/h "Salaries" in the hands of Ms. Aarohi for AY 2021-22.
58
Ans: Computation of ‘Salaries’ in the hands of Ms. Aarohi for AY 2021-22

Particulars Rs.
Basic Salary [Rs. 70,000 x 12] 8,40,000
Dearness allowance [Rs. 24,000 x 12] 2,88,000
Bonus [Rs. 21,000 x 12] 2,52,000
Perquisite value in respect of concessional rent [See Working Note below] 36,000
Gift voucher given by employer on Ms. Aarohi’s birthday (entire amount is
taxable since the perquisite value > Rs. 5,000) [See Note] 10,000
Employer’s contribution to RPF in excess of 12% of salary = 18% x [(70,000 +
24,000) x 12] – 12% x {[Rs. 70,000 + Rs. 7,200 (being 30% of Rs. 24,000)] x 12}
= 2,03,040 – 1,11,168 [Salary = BS + DA (forming part of RB) 91,872
Medical insurance premium of Rs. 20,000 paid by the employer Nil
Provision of motor car = Rs.2400 p.m. [Rs.2,400 × 5 months] 12,000
Gross salary 15,29,872
Less: Standard deduction under section 16(ia) 50,000
Salary chargeable to tax 14,79,872
Working Note:
- Where the accommodation is taken on lease or rent by the employer, Value of perquisite
= Lower of (a) Lease rent paid/payable by the employer or (b) 15% of salary i.r.o. period
during which the house is occupied by the employee, reduced by the rent recoverable
from the employee.
- Actual rent paid by the employer from 1.11.2018 to 31.3.2019 = Rs. 60,000 [ Rs. 12,000 x 5
months]
- 15% of salary = Rs. 73,650 [15% x (Rs. 70,000 + Rs. 7,200 + Rs. 21,000) x 5 months]
- Salary = BS + DA to the extent it forms part of pay for retirement benefits + Bonus
- Lower of the above is Rs. 60,000 which is to be reduced by the rent recovered from the
employee.
- Hence, perquisite value of concessional rent = 60,000 – 24,000 [Rs. 4,800 x 5 months] =
Rs. 36,000
PC Note: As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or
by member of his household on ceremonial occasions or otherwise from the employer shall
be determined as the sum equal to the amount of such gift. However, the value of any gift
or voucher received by the employee or by member of his household below Rs. 5,000 in
aggregate during the previous year would be exempt as per the proviso to Rule 3(7)(iv).
In this case, the gift voucher of Rs. 10,000 was received by Ms. Aarohi from her employer
on the occasion of her birthday. Since the value of the gift voucher exceeds the limit of Rs.
5,000, the entire amount of Rs. 10,000 is liable to tax as perquisite. Above solution has been
worked out accordingly.
Alternative view: Alternate view is also possible is that only the sum in excess of Rs. 5,000
is taxable in view of the language of Circular No.15/2001 dated 12.12.2001, which states that
such gifts upto Rs. 5,000 in the aggregate per annum would be exempt, beyond which it
would be taxed as a perquisite. As per this view, the value of perquisite would be Rs. 5,000.
59
Nov 19 Q5. Mr. Jagat is an employee in accounts department of Bharat Ltd., a cellular company
operating in the regions of eastern India. It is engaged in manufacturing of cellular devices.
During PY 2020-21, following transactions were undertaken by Mr. Jagat:
▪ He attended a seminar on “Perquisite Valuation”. Seminar fees of Rs. 12,500 was paid
by Bharat Ltd.
▪ Tuition fees of Mr. Himanshu (son of Mr. Jagat) was reimbursed by Bharat Ltd. Fees = Rs.
25,000.
▪ Ms. Sapna (daughter of Mr. Jagat) studies in DPS Public School (owned & maintained by
Bharat Ltd.). Tuition fees paid for Ms. Sapna was Rs. 750 per month. Cost of education
in similar institution is Rs. 5,250 per month.
Compute the amount which is chargeable to tax u/h “Salaries” for AY 2021-22.
(a) Rs. 25,000 (b) Rs. 37,500 (c) Rs. 66,500 (d) Rs. 79,000
Q6. Ms. Suhaani, a resident, aged 33 years, is assistant manager of Daily Needs Ltd. She is
getting a salary of Rs. 48,000 per month. During PY 2020-21, she received following amounts
from employer.
▪ Dearness allowance (10% of basic pay which forms part of salary for retirement benefits).
▪ Bonus for PY 2020-21 amounting to Rs. 52,000 was received on 30th November, 2020.
▪ Fixed Medical allowance of Rs. 48,000 for meeting medical expenditure.
▪ She was also reimbursed medical bill of her father (dependent) amounting to Rs.4,900.
▪ Ms. Suhaani was provided;
(a) Laptop for official & personal use. Laptop was acquired by company on 1st June 2018
at Rs. 35,000.
(b) Servant at a monthly salary of Rs. 5,000 which was reimbursed by her employer.
▪ Daily Needs Ltd. allotted 700 equity shares in October 2020 @ Rs. 170 per share against
FMV of Rs. 280/share on date of exercise of option by Ms. Suhaani. FMV computed as per
prescribed method.
▪ Professional tax Rs. 2,200 (out of which Rs. 1,400 was paid by the employer).
Compute the Income u/h “Salaries” of Ms. Suhaani for the AY 2021-22.
Ans: Income u/h “Salaries” in the hands of Ms. Suhaani for AY 2021-22
Particulars Rs.
Basic Salary [Rs. 48,000 x 12] 5,76,000
Dearness allowance [10% of basic salary] 57,600
Bonus [Taxable in the PY 2020-21 since it is taxable on receipt basis] 52,000
Fixed Medical Allowance [Taxable] 48,000
Reimbursement of Medical expenditure incurred for her father [Fully taxable
from AY 2021-22 even though father is included in meaning of “family” on
account of standard deduction being introduced in lieu of reimbursement of
4,900
medical expenditure].
Facility of laptop [Facility of laptop is an exempt perquisite, whether used
for official or personal purpose or both] Nil
Reimbursement of salary of domestic servant [Rs. 5,000 x 12] [Fully taxable,
since perquisite includes any sum paid by the employer in respect of any 60,000
obligation which would have been payable by the employee]
Value of equity shares allotted [700 shares x Rs. 110 (Rs. 280 being FMV - Rs.
170, being the amount recovered)] 77,000
Professional tax paid by the employer [Any sum paid by the employer i.r.o. any
60
obligation which would have been payable by the employee = Perquisite] 1,400
Less: Deduction u/s 16
Less: Professional tax paid 2,200
Less: Standard Deduction (Lower of Rs. 50,000 or amount of salary) 50,000
Taxable Salary 8,34,700
May 20 Mr. Hardik (age 45 years) is appointed as senior executive officer in Sky India Limited,
Mumbai on 01.02.2020 in the scale of Rs. 35,000-3500-65,000. He is paid dearness
allowance @ 40% of salary forming part of retirement benefits. He is given rent free
unfurnished accommodation on 1.5.2020 which he occupied only from 01.10.2020. The
company pays lease rent of Rs. 5,000 p.m. He has been provided a car of 2000 CC which is
used by him for private purposes only. Actual cost of the car is Rs. 8,00,000. The monthly
expenditure of car is Rs. 5,000, which is fully met by the employer. He pays lumpsum premium
of Rs. 1,50,000 towards health insurance for self & his wife for 48 months on 01.10.2020 by
account payee cheque. He also contributes Rs. 1,50,000 towards PPF.
In the light of above facts, you are required to answer the following:
Q7. Value of rent-free accommodation taxable in the hands of Mr. Hardik, would be -
(a) Rs. 44,835 (b) Rs. 44,100 (c) Rs. 45,570 (d) Rs. 30,000
Q8. Mr. Hardik would be eligible for deduction I.r.o. health insurance premium paid during
PY 2020-21 for -
(a) Rs. 30,000 (b) Rs. 18,750 (c) Rs. 25,000 (d) Rs. 37,500
Q9. Perquisite value of car chargeable to tax in the hands of Mr. Hardik would be –
(a) Rs. 28,800 (b) Rs. 21,600 (c) Rs. 60,000 (d) Rs. 1,40,000
61
SALARY - THEORY QUESTIONS

TQ1. Salary in lieu of notice period.
Answer: Normally, if any employer wants to terminate the services of an employee, he gives notice of his intention to do so.
Ex: As per the contract of service, he may have to give three months notice in advance to the employee. This is known as
notice period.
Sometime employer instead of giving him a notice gives him salary for the notice period & terminates him immediately. This
amount paid by employer is known as salary in lieu of notice period & is fully taxable to employee in PY in which it is received.
TQ2. What is Foregoing of salary & surrender of salary? [Refer Text above]
TQ3. What is annuity. Discuss its tax implication.

Answer:
▪ Annuity is treated as salary. Annuity is a sum payable in respect of a particular year. It is a yearly grant. If a person invests
some money entitling him to series of equal annual sums, such annual sums are annuities in the hands of the investor.
▪ Annuity received by a present employer is to be taxed as salary. It does not matter whether it is paid in pursuance of a
contractual obligation or voluntarily.
▪ Annuity received from a past employer is taxable as profit in lieu of salary.
▪ Annuity received from person other than employer is taxable as u/h IFOS.
TQ4. Write a short note on “Profit in lieu of salary”. [Section 17(3)]

Answer: These payments are received by employee in lieu of or in addition to salary. They are:
(a) Terminal Compensation: Compensation received by employee from his present/former employer in connection with
termination (retirement, premature termination, resignation or otherwise) of his employment or the modification of
terms & conditions of the employment.
(b) Payment from URPF/URSF: Accumulated balance of URPF/URSF consists of employee’s contribution plus interest on
employee’s contribution & employer’s contribution plus interest on employer’s contribution.
▪ Employer’s contribution & interest on the employee’s contribution as well as employer’s contribution are not taxed
during the period of employment.
▪ When the accumulated balance is paid to the employee either on retirement or on termination of service, the untaxed
portion, i.e. the employer’s contribution & interest thereon is taxed
▪ Interest on employee’s contribution is taxed as ‘Income from other sources’.
PC Note: Payment received by employee on termination of employment form URPF/URSF to the extent of total
employer’s contribution & interest on such employer’s contribution → Taxable as “profit in lieu of salary”.
Note: Since employee is not eligible for deduction u/s 80C for contribution to URPF, employee’s share received from the
URPF is not taxable at the time of withdrawal.
(c) Payment under Keyman Insurance Policy: Any payment received by an employee, under a Keyman Insurance Policy
including bonus on such policy will be regarded as profit in lieu of salary.
(d) Any amount due or received before joining or after cessation of employment.
(e) Any other sum received by the employee from the employer: This is a comprehensive provision by virtue of which all
payments made by an employer to an employee whether made in pursuance of a legal obligation or voluntarily are
brought to tax under “profit in lieu of salary”.
Following receipts are not termed as ‘profits in lieu of salary’ to the extent they are exempt u/s 10.
Death-cum-retirement gratuity – Sec. 10(10) Commuted Pension – Sec. 10(10A) HRA exempt u/s 10(13A)
Payment received from SPF - Sec 10(11) Payment received from RPF – Sec. 10(12)
Payment from Approved SAF as per Sec. 10(13) Retrenchment compensation received by a workman Sec. 10(10B)
TQ5. The question whether a particular income “Income from Salary” or “Income from Business” depends upon whether the
contracts is a ‘Contract of Service’ or is a ‘Contract for Service’. Discuss.
Answer: Income is taxable u/h ‘salary’, if there is a ‘contract of service’ i.e. the relationship is that of employer-employee. In
other words, the employee does the work for his master. Control and supervision vests in the master.
Contract for service
A ‘contract for service’, on the other hand, is one, in which a person offers his services to any person who is willing to pay
the prescribed charges. He has discretion to do the work in his own way. He is entitled to the fruits of his labour and liable
for its losses. Such receipts constitute income from business in his hands.
62

PQ 1. Mr. Khanna, an Employee of IOL, New Delhi, Private Sector Company, received the following for PY
2020-21: Basic Salary: Rs. 5,20,000; House Rent Allowance: Rs. 90,000; Special Allowance: Rs. 50,000.
Mr. Khanna was residing at New Delhi & was paying a rent of Rs. 10,000 per month.
(a) Compute eligible exemption u/s 10(13A) in respect of House Rent Allowance received.
(b) If Khanna opts for Rent Free Accommodation whereby IOL would be paying a rent of Rs. 10,000 p.m to
the Landlord & recovers Rs. 1,000 p.m from Khanna which was in excess of his entitlement, what will be
perquisite value i.r.o such RFA?
(c) Which of the above would be beneficial to Khanna, i.e. House Rent Allowance or Rent-Free
Accommodation? [Nov. 2007]
Solution: Statement of Total Income & Tax Payable
Particulars HRA Option RFA Option
Basic Salary 5,20,000 5,20,000
Special Allowance 50,000 50,000
House Rent Allowance |WN 1] 22,000 NA
Perquisite Value of Rent-Free Accommodation [WN 2] NA 73,500
Gross Salary 5,92,000 6,43,500
Less: Deduction u/s 16(ia) Standard Deduction (50,000) (50,000)
Income u/h ‘Salaries’ 5,42,000 5,93,500
Total Income 5,42,000 5,93,000
Tax on Total Income 20,900 31,100
Add: HEC at 4% Rs. 836 1244
Total Tax Payable (Rounded off) Rs. 21736 (Opt) Rs. 32344
Working Notes:
1. Computation of Taxable House Rent Allowance
1. Actual House Rent Allowance Received Rs. 90,000
2. HRA Exempt u/s 10(13A) = Least of the following:
(a) Actual Actually Received Rs. 90,000
(b) Rent paid (10,000 x 12) - 10% of Salary (10% x 5,20,000) Rs. 68,000
(c) 50% of Basic Pay: (50% x Rs. 5,20,000) Rs. (Rs. 68,000)
2,60,000
3. Taxable HRA [1 – 2] Rs. 22,000
2. Computation of Perquisite Value of Rent-Free Accommodation:

Lower of (i) Rent paid by Employer (Rs. 1,20,000) or (ii) 15% of Salary [15% of 5,70,000] Rs. 85,500
Less: Amount recovered from Employee [1,000 x 12] (Rs. 12,000)
Value of Perquisite Rs. 73,500
Note: For Valuation of RFA, Salary includes DA if considered for retirement benefits, all Taxable
Allowances, Bonus, Commission & other monetary payments. Therefore, Salary for RFA = Rs. 5,20,000
+ Rs. 50,000 = Rs. 5,70,000.
63
PQ 2. Rakhi receives following medical benefits from her employer (Private company) during PY 2020-21:
1 Reimbursement of following medical expenses incurred by Ms. Rakhi:
(a) On treatment of her self-employed daughter in a private clinic 4,000
(b) On treatment of herself by family doctor 8,000
(c) On treatment of her mother-in-law dependent on her, in a nursing home 5,000
2 Payment of premium on Mediclaim Policy taken on her health 7,500
3 Medical Allowance 2,000 p.m.
4 Medical expenses reimbursed on her son's treatment in a government hospital 5,000
5 Expenses incurred by the company on medical treatment of her minor son abroad 1,05,000
6 Expenses in relation to foreign travel & Stay of Rakhi & her son abroad for medical 1,20,000
treatment (Limit prescribed by RBI: Rs. 2,00,000)
Examine the taxability of the above benefits & allowances in the hands of Rakhi. [ICAI SM Ex. Q2]
Solution: Tax treatment in the hands of Ms. Rakhi for AY 2021-22
SN Particulars Taxable
1 Reimbursement of Medical Expenses incurred by Ms. Rakhi Amount
(a) Rs. 4,000 reimbursed for treatment of her self-employed daughter in private clinic Rs. 4,000
(b) Rs. 8,000 reimbursed for treatment of Ms. Rakhi by family doctor Rs. 8,000
(c) Rs. 5,000 reimbursed for treatment of her dependant mother-in-law in a nursing Rs. 5,000
home.
2 Medical insurance premium of Rs. 7,500 paid by the employer for insuring health of Ms. Exempt
Rakhi
3 Fixed Medical allowance of Rs. 2,000 p.m is a fully taxable allowance Rs. 24,000
4 Reimbursement of medical expenses of Rs. 5,000 on her son’s treatment in a hospital Exempt
maintained by the Government is an exempt perquisite. [clause (ii)(a) of the first
proviso to section 17(2)]
5 Expenditure on medical treatment of the employee/family member outside India [Rs.
1,05,000] [Note 1]
6 Expenditure on travel & stay abroad of the employee/family member for medical
treatment & one attendant who accompanies patient in connection with such
treatment = Rs. 1,20,000
Note:
Conditions subject to which the above expenditure would be exempt are as follows:
(i) Expenditure on medical treatment & stay abroad will be excluded from perquisite to the extent
permitted by RBI;
(ii) Expenditure on travel would be excluded from perquisite only in the case of an employee whose GTI
computed before including the said expenditure, does not exceed Rs. 2 lacs.
Assuming that the limit of Rs. 2 lacs prescribed by RBI pertains to both expenditures on medical treatment
of minor son as well as expenditure on stay abroad of Ms. Rakhi & her minor son, such expenditure would
be excluded from perquisite subject to a maximum of Rs. 2 lacs. If such expenditure is less than Rs. 2 lacs,
it would be fully excluded.
Foreign travel expenditure of Ms. Rakhi & her minor son borne by the employer would be excluded from
perquisite only if GTI of Ms. Rakhi, as computed before including the said expenditure, does not exceed Rs.
2 lacs.
64
PQ 3. Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you following information for PY
2020-21:
SN Particulars
1 Basic salary upto 31.10.2020: Rs. 50,000 p.m.; Basic salary from 1.11.2020: Rs. 60,000 p.m.
2 Dearness allowance @ 40% of basic salary (not forming part of retirement benefits)
3 Bonus: 1-month salary. Paid in Oct 2020 on basic salary + DA applicable for that month.
4 Employer’s Contribution to RPF: 16% of Basic Salary
5 Professional tax paid Rs. 2,500 of which Rs. 2,000 was paid by the employer.
6 Laptop & Computer was provided to Balaji for both official & personal use. Cost of laptop is Rs.
45,000.
7 Car owned by the employer (CC > 1.60 litres) provided to the employee from 1.11.2020 for both
official & personal use. Repair & running expenses were fully met by the employer. Motor car was
self-driven.
8 LTC was given to employee, his wife & three children (one daughter aged 7 & twin sons aged 3).
Cost of Air Tickets (Economy Class) reimbursed by the employer: Rs. 30,000 for adults & Rs. 45,000
for 3 children.
Compute the salary income chargeable to tax in the hands of Mr. Balaji for AY 2021-22.
Solution:
Particulars Amount
Basic salary [(Rs. 50,000 × 7) + (Rs. 60,000 × 5)] 6,50,000
Dearness Allowance (40% of basic salary) 2,60,000
Bonus (Rs. 50,000 + 40% of Rs. 50,000) [Note 1] 70,000
Employer’s contribution to RPF in excess of 12% of salary = 4% of Rs. 6,50,000 [Note 2] 26,000
Professional tax paid by employer 2,000
Perquisite of Motor Car (Rs. 2,400 for 5 months) (See Note 4) 12,000
Less: Deduction u/s 16(ia): Rs. 50,000 + Professional tax u/s 16(iii) (See Note 6) Rs. 2,500 (52,500)
Taxable Salary 9,67,500
Notes:
1. Since bonus was paid in October, basic salary of Rs. 50,000 for October is considered for its calculation.
2. Facility of use of laptop & computer is an exempt perquisite, whether used for official or personal
purpose or both.
3. Value of Perquisite on Motor car (CC > 1.60 liters) owned by the employer & expenses incurred by the
employer = Rs. 2,400 p.m. Car was provided from 01.11.2020. Perquisite value has been calculated for 5
months.
4. Mr. Balaji can avail exemption u/s 10(5) on entire amount of Rs. 75,000 reimbursed by the employer
towards LTC Travel Concession since the same was availed for himself, his wife & three children &
journey was undertaken by economy class airfare. The restriction imposed for two children is not
applicable in case of multiple births which take place after the first child. It is assumed that the Leave
Travel Concession was availed for journey within India.
5. Professional tax of Rs. 2,000 paid by the employer is taxable as a perquisite in the hands of Mr. Balaji.
As per section 16(iii), professional tax paid during PY is allowed as deduction.
Therefore, professional tax paid by the employer on behalf of the employee Rs. 2,000 is first included in
salary & deduction of the entire professional tax of Rs. 2,500 is provided from salary. Therefore,
professional tax paid by the employer on behalf of the employee Rs. 2,000 is first included in the salary
& deduction of entire professional tax of Rs. 2,500 is provided from salary.
65
PQ 4. From the following details, find out the salary chargeable to tax for AY 2021-22:
Mr. X is a regular employee of Rama & Co., in Gurgaon. He was appointed on 1.1.2020 in the scale of Rs.
20,000 - Rs. 1,000 - Rs. 30,000. He is paid 10% Dearness Allowance & Bonus equivalent to one month pay
based on the salary of March every year. He contributes 15% of his basic pay & DA towards his RPF &
company contributes the same amount.
He is provided free housing facility which has been taken on rent by the company at Rs. 10,000 p.m. He is
also provided with following facilities:
▪ Facility of laptop costing Rs. 50,000.
▪ Company reimbursed the medical treatment bill of his brother of Rs. 25,000, who is dependent on him.
▪ Monthly salary of Rs. 1,000 of a house keeper is reimbursed by the company.
▪ A gift voucher of Rs. 10,000 on the occasion of his marriage anniversary.
▪ Conveyance allowance of Rs. 1,000 per month is given by the company towards actual reimbursement.
▪ He is provided personal accident policy for which premium of Rs. 5,000 is paid by the company.
▪ He is getting telephone allowance @ Rs. 500 per month.
Solution:
Particulars Amount in Rs
Basic pay [(Rs. 20,000×9) + (Rs. 21,000×3)] = Rs. 1,80,000 + Rs. 63,000 2,43,000
Dearness allowance [10% of basic pay] 24,300
Bonus 21,000
Employer’s contribution to RPF in excess of 12% (15%-12% =3% of Rs. 2,67,300) [See WN1] 8,019
Telephone allowance 6,000
Taxable perquisites
Rent-free accommodation [See Note 1 & 2 below] 44,145
Medical reimbursement Exempt
Reimbursement of salary of housekeeper 12,000
Gift voucher [See Note 5 below] 10,000
Less: Standard Deduction u/s 16(ia) (50,000)
Taxable Salary Income 3,18,464
Notes:
1. It has been assumed that dearness allowance forms part of salary for retirement benefits & accordingly,
the perquisite value of rent-free accommodation & employer’s contribution to RPF have been worked
out.
2. If house is taken on lease or rent by employer, value of rent-free accommodation provided to employee
= Actual amount of lease rental paid/payable by the employer or 15% of salary, whichever is lower.
For the purposes of valuation of rent-free house, salary includes:
(a) Basic salary i.e., Rs. 2,43,000
(b) Dearness allowance (assuming that it is included for calculating retirement benefits) i.e. Rs. 24,300
(c) Bonus i.e., Rs. 21,000
(d) Telephone allowance i.e., Rs. 6,000.
Therefore, salary works out to Rs. 2,43,000 + Rs. 24,300 + Rs. 21,000 + Rs. 6,000 = Rs. 2,94,300.
15% of salary = Rs. 2,94,300 × 15/100 = Rs. 44,145.
Value of rent-free house = Lower of rent paid by the employer (i.e. Rs. 1,20,000) or 15% of salary (i.e.,
Rs. 44,145). Therefore, the perquisite value is Rs. 44,145.
3. Facility of use of laptop is not a taxable perquisite.
4. Conveyance allowance is exempt since it is based on actual reimbursement for official purposes.
5. Value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household below Rs. 5,000 in aggregate during the PY is not taxable. In this case, gift voucher was
66
received on the occasion of marriage anniversary & the sum exceeds the limit of Rs. 5,000. Therefore,
Rs. 10,000 is liable to tax as perquisite.
Alternate view: only the sum in excess of Rs. 5,000 is taxable. In such a case, value of perquisite = Rs.
5,000.
6. Premium of Rs. 5,000 paid by the company for personal accident policy is not liable to tax.
PQ 5. Raghav requests you to compute his Taxable Income for PY 20-2021 from the following data:
(a) Joined service on 01.10.2020 on a consolidated salary of Rs. 60,000 per month.
(b) He was paid Rs. 30,000 in September 2020 so that he should not join elsewhere.
(c) He contributed towards (i) Life Insurance Premium – Rs. 20,000; (ii) PPF – Rs. 1,50,000. [MAY 2002]
Solution: Computation of Total Income of Mr. Raghav
Consolidated Salary (Rs,60,000 x 6 Months) 3,60,000
Amount received for not to join elsewhere: Profits in Lieu of Salary u/s 17(3)(iii) 30,000
Income u/h Salary/Gross Total Income (Since no other Heads of Income) 3,40,000
Less: Deduction Under Chapter VI-A
U/s 80C – LIC Premium paid (20,000)
- PPF (1,50,000) (1,50,000)
Note: Maximum deduction u/s 80C is restricted to Rs. 1,50,000.
PQ 6. Mr. Nambi, a salaried employee, furnishes the following details for PY 2020-21:
▪ Basic salary: Rs. 6,00,000; Dearness allowance: Rs. 3,20,000; Commission: Rs. 50,000.
▪ Entertainment allowance: Rs. 7,500; Profession Tax (of this, 50% paid by employer): Rs. 7,000.
▪ Health insurance premium paid by employer: 9,000; Life insurance premium Paid by employer: 34,000.
▪ Gift voucher given by employer on his birthday: Rs. 12,000.
▪ Laptop provided for use at home. Actual cost of Laptop to employer: Rs. 30,000. [His Children are also
using it at home]
▪ Employer - Company owns a Tata Nano car, which was provided to the assessee, Both for official &
personal use. No driver was provided. (Engine CC: Less than 1.6 litres)
▪ Annual credit card fees paid by employer [not exclusively used for Official purposes;]: Rs. 2,000. [Details
of usage are not available]
You are required to compute the income chargeable u/h ‘Salaries’ for AY 2021-22. [MAY 2017]
Solution: Computation of Salary Income of Mr. Nambi for AY 2021-22
Dearness Allowance 3,20,000
Commission 50,000
Professional Tax paid by the employer Section 17 (2)(iv) 3,500
Gift voucher given by employer on his birthday 12,000
Facility of Laptop/computer (Rule 3(7)(vii)) Nil
Life Insurance paid by Employer (section 17 (2) (v)) 34,000
Perquisite value of use of motor car (section 17 (2) (iii)/Rule 3(2)) [(1,800 x 12)] 21,600
67
Annual Credit card fees (Rule 3 (7)(v)) 2,000

Less: Deduction of professional tax u/s 16(iii) (7,000)
Income u/h Salary 9,93,600
Working Notes:
▪ As per section 16(ii) Deduction of entertainment allowance is allowed only to Government employees &
not to other employees. Thus, entertainment allowance is fully taxable in the hands of Mr. Nambi.
▪ Professional tax paid by employer shall be added to the gross salary of the employee then deduction
u/s 16 (iii) shall be allowed for professional tax.
▪ As per section 17 (2) (v), Life Insurance premium of employee paid by employer shall be included in his
income as it is a perquisite for an employee.
▪ Credit card facility is exempt only if it is exclusively used for official purpose & employer maintain
complete records.
PQ 7. Mr. X is a regular employee of ABC Ltd. in Mumbai. He was appointed on 1.3.2020 [Pay scale: 25,000
- 2,500 - 35,000].
▪ He is paid dearness allowance (which forms part of salary for retirement benefits) @ 15% of basic pay
& bonus equivalent to one & a half month’s basic pay as at the end of the year.
▪ He contributes 18% of (BS + DA) towards RPF & Company contributes the same amount.
▪ He is provided free housing facility which has been taken on rent by Company at Rs. 15,000 per month.
▪ Monthly salary of Rs. 2,000 of a house keeper is reimbursed by the Company.
▪ He is getting telephone allowance @ Rs. 1,000 per month.
▪ Company pays medical insurance premium to effect an insurance on the health of Mr. X Rs. 12,000.
▪ Motor car running & maintenance charges fully paid by employer of Rs. 36,600. (Car is owned & driven
by Mr. X. CC is below 1.60 litres. Motor car is used for both official & personal purpose by the employee.)
▪ Value of free lunch provided during office hours is Rs. 2,200.
From the following details, find out the salary chargeable to tax of Mr. X for AY 2021-22: [NOV 2013]
Solution: Computation of taxable salary of Mr. X for AY 2021-22
Particulars Rs.
Basic pay [(Rs. 25,000x 11) + (Rs. 27,500x 1)] = Rs. 2,75,000 + Rs. 27,500 3,02,500
Dearness allowance [15% of basic pay] 45,375
Bonus [Rs. 27,500 x 1.5] 41,250
Employer’s contribution to RPF in excess of 12% (18% - 12% = 6% of Rs. 3,47,875) 20,873
Telephone allowance 12,000
Rent-free accommodation [Sec 17(2)(i)/Rule 3(1)]
Lower of (i) 15% of salary (3,02,500 + 45,375 + 41,250 +12,000) or (ii) Rs. 1,80,000 60,169
Reimbursement of salary of housekeeper [Rs. 2,000 x 12] [Sec 17(2)(iv)] 24,000
Motor car owned & driven by employee [36,600 - 21,600 (Rs. 1,800 x 12)] 15,000
Value of free lunch facility (Presuming that value per lunch was upto Rs. 50) -
Income under the head Salary 4,71,167
Note: Medical insurance premium paid by employer to effect an insurance on health of the employee is fully
exempt.
68
PQ 8. Mr. X, Marketing Manager of KL Ltd. based at Mumbai furnishes information for PY 2020-21:
▪ Basic salary: Rs. 1,00,000 per month
▪ Dearness allowance - Rs. 50,000 per month (forming part for retirement benefit salary)
▪ Bonus - 2 Months basic salary
▪ Contribution of employer to RPF @ 15% of basic salary + Dearness allowance
▪ Rent free unfurnished accommodation provided by company at Mumbai (owned by company).
▪ RPF contribution made by Mr. X: Rs. 1,50,000
▪ Health insurance premium for his family paid by cheque: Rs. 20,000
▪ Health insurance premium in respect of parents (senior citizens) paid by cheque: Rs. 28,000
▪ Medical expenses of dependent brother with severe disability (covered): 60,000
▪ Interest on loan taken for education of his son studying B.com (full-time) in a recognized college: 24,000
▪ Interest on loan taken for education of a student for whom Mr. X is a legal guardian for pursuing B. Sc.
(Pyhsics) (full-time) in recognized university: Rs. 20,000.
Compute the Total Income of Mr. X for AY 2021-22. [Nov 2010]
Solution: Computation of Total Income of Mr. X for AY 2021-22
Particulars Rs.
Basic salary 12,00,000
Bonus 2,00,000
Employer contribution to RPF in excess of 12% is taxable (3% of 18,00,000) [See Note] 54,000
Rent free accommodation @ 15% of Rs. 20 lacs [Basic salary + Dearness Allowance + Bonus] 3,00,000
Less: Standard deduction u/s 16 (ia) (50,000)
Income from Salary 23,04,000
Less: Deductions under Chapter VI-A
(i) Section 80C Contribution to RPF: 1,50,000
(ii) Section 80D - Health insurance premium Family: 20,000
(iii) Parents (Senior Citizens) Section 80D: 28,000 (1,98,000)
Medical treatment of dependent brother with severe disability [Sec 80DD] (1,25,000)
Section 80E
Interest on loan taken for his son studying B. Com: 24,000
Interest on loan taken for a student studying B.Sc.: 20,000 (44,000)
PQ 9. Mr. X an employee of XYZ Co. Ltd. at Mumbai & covered by Payment of Gratuity Act, retires at the
age of 64 years on 31.12.2020 after completing 33 years & 7 months of service.
▪ On retirement, his employer pays him Rs. 20,51,640 as Gratuity & Rs. 6 Lacs as RPF accumulated balance.
▪ He is entitled for monthly pension of Rs. 8,000.
▪ He gets 75% of his pension commuted for Rs. 4,50,000 on 01.02.2021.
▪ Basic Salary: (Rs. 80,000 x 9): Rs. 7,20,000; Bonus: Rs. 36,000.
▪ House Rent Allowance (Rs. 15,000 x 9): Rs. 1,35,000.
▪ Rent paid by Mr. X (Rs. 10,000 x 12): Rs. 1,20,000.
▪ Employer contribution towards RPF: Rs. 1,10,000.
▪ Professional Tax paid by Mr. X: Rs. 2,000. Note: Salary & Pension falls due on last day.
Determine taxable salary of Mr. X for AY 2021-22. [Nov 2014]
69
Solution: Computation of income u/h ‘Salary’ of Mr. X

Basic Pay (80,000 x 9) 7,20,000
Bonus 36,000
House rent allowance {Sec 10(13A), Rule 2A} [WN 1] 1,17,000
Employer’s contribution to provident fund {Part A of schedule IV} [WN 2] 23,600
Gratuity {Sec 10(10)} [WN 3] 4,82,409
Uncommuted Pension {Sec 17(1)} 12,000
Commuted Pension (Sec 10(10A)} 2,50,000
Less: Standard Deduction u/s 16(ia) + Deduction u/s 16(iii) - Professional Tax (52,000)
Income under the head Salary 15,88,009
Working Note:
1. HRA [Lowest amount is Exempt] 2. Contribution to PF [Least is exempt]
(a) Amount Received = Rs. 1,35,000 (a) Employer contribution = Rs. 1,10,000
(b) Rs. 90,000 - Rs. 72,000 = Rs. 18,000 (b) Allowed = 12% of Salary = 86,400;
(c) 50% of Salary = 3,60,000. Salary for RPF = Rs. 7,20,000
[Retirement Benefit Salary = 80,000 x 9 = 7,20,000] Exempt = (Rs. 86,400); Taxable = Rs. 23,600
Exempt = (Rs. 18,000); Taxable = Rs. 1,17,000
3. Gratuity [Least of the following is exempt] 4. Pension
1. Rs. 20,51,640 Uncommuted Pension = Rs. 12,000.
2. Rs. 20,00,000 [8,000 x 1 (Jan) + 8,000 x 25% x 2 (Feb & Mar) = Rs.
3. 15/26 x 80,000 x 34 = Rs. 15,69,231 4,000.
Received = Rs. 20,51,640; 5. Uncommuted pension
Exempt = Rs. 15,69,231; Received = 4,50,000; Exempt = 4,50,000/75% x 1/3
Taxable = Rs. 4,82,409. = (2,00,000); Taxable = 2,50,000.
Note: Rs. 6,00,000 as accumulated balance of RPR received from employer is exempt as Mr. X has rendered
continuous service of more than 5 Years with the employer.
PQ 10. Mr. Honey is working with a Domestic Company having a production unit in USA for last 15 years, he
has been regularly visiting India for export promotion of Company's product. He has been staying in India
for at least 184 days every year. He submits the following information:
▪ Salary received outside India (For 6 Months) Rs. 50,000 p.m.
▪ Salary received in India (For 6 months) Rs. 50,000 p.m.
▪ He has been given a rent-free accommodation in USA for which company pays Rs. 15,000 p.m as rent,
but when he comes to India, he stays in the guest house of the company.
▪ During this period, he is given free lunch facility, for which company incurred Rs. 48,000.
▪ He has been provided a car of 2,000 CC in USA which is used by him for both office & private purposes.
Actual cost of the car is Rs. 8 Lacs. But when he is in India, car is used by him & his family members only
for personal purpose. Monthly expenditure of the car is Rs. 5,000.
▪ His elder son is studying in India for which his employer spends Rs. 12,000 per year where as his younger
son is studying in U.S.A & stays in a hostel for which Mr. Honey gets Rs. 3,000 p.m as combined allowance.
▪ Company has taken an accident insurance policy & a life insurance policy. During PY, company paid
premium of Rs. 5,000 & Rs. 10,000 respectively.
Compute Mr. Honey's taxable income from salary for AY 2021-22. [May 2018]
70
Solution: Computation of Income from Salary of Mr. Honey

Particulars Amount
Basic Salary [50,000 x 12] 6,00,000
RFA in USA [WN 1] 95,400
RFA in India [WN 2] Nil
Lunch Facility [(48,000) – (Rs. 50 x 184)] 38,800
Motor Car in USA (2400 x 6) 14,400
Motor Car in India (5000 x 6) + [8,00,000 x 10% x 6/12] 70,000
Education expenditure of Elder Son met in India – Taxable Perquisite 12,000
Education Allowance: Fully taxable – (3,000 x 12) – No exemption for allowance received 36,000
for education & hostel facility of children outside India.
Life Insurance 10,000
Income u/h Salaries 8,26,600
Note:
1. Salary for the purpose of RFA = Basic Salary (6,00,000) + All taxable allowances (36,000) = 6,36,000.
2. Taxable RFA during Stay in USA = 15% of salary or Actual rent paid by Employer (whichever is lower) =
15% on 6,36,000 = 95,400 or 15,000 x 12 = 1,80,000 whichever is lower = 95,400.
3. Taxable RFA during stay in India = since the accommodation is provided to him for his stay in India
entirely for official purpose, it is not taxable.
PQ 11. Compute Total Income & Tax Payable for AY 2020-22 by Mr. X with the help of following information:
(a) X retired on 31.12.2020 (age 58) after 25 years & 9 months of service, from a Pvt. Company situated at
Mumbai.
(b) He was paid a Salary of 40,000 p.m. & HRA of 10,000 p.m. He paid Rent of 13,000 p.m. during his service.
(c) On retirement, he was paid a Gratuity of 6,00,000. He was not covered by the Payment of Gratuity Act.
(d) He had accumulated leave of 15 days per annum during the period of his service, this was encashed by
Mr. X at the time of his retirement. Rs. 5,15,000 was received by him in this regard. [Note: His Average
Salary is Rs. 37,500]
(e) After retirement, he ventured into textile business & incurred a loss of Rs. 80,000 for the period upto
31.3.2021.
(f) Mr. X has invested Rs. 22,500 in RPF; Rs.1,20,000 in PPF & Rs. 37,500 in NSC. [MAY 2005]
Solution: 1. Computation of Total Income
Particulars Rs.
Salary (40,000 x 9) 3,60,000
Taxable HRA (WN 1) 9,000
Taxable Gratuity (WN 2) 1,31,250
Taxable Leave Encashment (WN 3) 2,15,000
Less: Deductions u/s 16 (ia) Standard Deduction of Rs. 50,000 (50,000)
Income under the head “Salaries”/ Gross Total Income 6,65,250
Less: Deduction under Chapter VI A, i.e. Sec. 80C (WN 5) (1,50,000)
71
Tax Payable on Total Income = [12,500 + (5,15,250 – 5,00,000) x 20%] = 15,550 + 4%HEC 16,172
Working Notes: 1. Computation of Taxable HRA u/s 10(13A)

Amount of HRA Received (10,000 x 9) 90,000
Less: Amount exempt u/s 10(13 A) = Least of the following -
(a) Actual HRA Received 90,000
(b) 50% of Salary (Being at Mumbai) = 50% of Rs.3,60,000 1,80,000
(c) Rent Paid Less 10% of Salary = (13,000 x 9) – (10% of 3,60,000) 81,000 (81,000)
Taxable HRA 9,000
Note: Salary = Basic + DA (Considered for Retirement Benefits) + Commission as a percentage of

Turnover.
2. Taxable Gratuity u/s 10(10)

Amount of Gratuity Received 6,00,000
Less: Amount exempt u/s 10(10) = Least of the following -
(a) Actual Gratuity received 6,00,000
(b) ½ x Avg. Salary of 10 months x Completed years of Service (1/2 x 37,500 x 4,68,750
25)
(c) Notified Amount 20,00,000 (4,68,750)
Taxable Gratuity 1,31,250
3. Computation of Taxable Leave Encashment

Amount of Leave Encashment Received 5,15,000
Less: Amount exempt u/s 10(10AA) = Least of the following -
(a) Amount actually received 5,15,000
(b) Average Salary of past 10 months’ Salary x 10 months (37,500 x 10) 3,75,000
(c) Notified Amount 3,00,000
(d) Leave Encashment Calculation on basis of 30 days credit for every 4,68,750 (3,00,000)
completed years of service (15 x 25 x 37,500/30)
Taxable Leave Encashment 2,15,000
4. Treatment of Loss: Loss u/h PGBP cannot be set off against Income under the head Salaries (Sec. 71).
So, it shall be carried forward u/s 72 for a period of 8 Assessment Years & can be set off only against
Business Income.
5. Computation of Deduction u/s 80C
Contribution to RPF 22,500
PPF (Maximum Investment Rs. 1,50,000) 1,20,000
NSC 37,500
Total (Maximum deduction u/s 80C restricted to Rs.1,50,000) 1,80,000
72
PQ 12. Mr. PC is offered an employment by ABC Ltd., Mumbai with the following two alternatives:
Particulars I II
Basic salary 40,000 40,000
Education allowance for 2 children 10,200 -
Education facility for 2 children in an institution maintained by the employer - 10,200
Sweeper allowance 10,000 -
Free sweeper - 10,000
Entertainment allowance 6,000 -
Club facility - 6,000
Conveyance allowance for personal use 12,000 -
Free car facility for personal use - 12,000
Medical allowance 18,000 -
Medical facility for Mr. PC & family members in its own hospital - 18,000
Allowance for gas, electricity & water supply 4,500 -
Free gas, electricity & water supply - 4,500
Rent-free unfurnished house - Fair rent 24,000 24,000
Mr. PC is neither a director nor he has substantial interest in the company. Which of the two alternatives
he should opt assuming that both employer & employee will contribute 10% of salary towards URPF?
Solution:
Particulars Alternative I Alternative II
Basic salary 40,000 40,000
Education allowance (Rs. 10,200 – Rs. 2,400) 7,800 NA
Education facility [Exempt upto Rs. 1,000 per month per child) NA Exempt *
Sweeper allowance 10,000 NA
Free Sweeper NA Exempt *
Entertainment allowance 6,000 Exempt
Club facility NA 6,000
Conveyance allowance 12,000 NA
Car facility NA Exempt *
Medical allowance 18,000 NA
Medical Facility in employer’s hospital NA Exempt
Allowance for gas/electricity/water 4,500 NA
Free facility for gas/electricity/water NA Exempt *
Rent free unfurnished house (Note 2) 15,645* 6,900*
Gross Salary 1,19,945 58,900
Less: Standard Deduction u/s 16(ia) (50,000) (50,000)
Income from Salary 63,945 2,900
Note:
1. Such facilities are exempt in case of Non-Specified Employees. *
2. Salary for the purpose of Rent-free accommodation =
Option I 40,000 + 6000 + 7800 + 10,000 + 6000 + 12,000 + 18,000 + 4500 = 1,04,300 = 1,04,300 ×
15% = 15,645*
Option II (Non-specified employee): Rs. 40,000 + 6,000 = Rs. 46,000 = 15% of Rs. 46,000 = Rs.
6,900*.
73
AZ
CA Pranav Chandak's
DT Question Bank
4. House Property


SM1. Jayashree owns five houses in India, all of which are let-out. Compute the GAV of each house from the
information given below:
Particulars House I House II House III House IV House V
Municipal Value Rs. 80,000 Rs. 55,000 Rs. 65,000 Rs. 24,000 Rs. 80,000
Fair Rent Rs. 90,000 Rs. 60,000 Rs. 65,000 Rs. 25,000 Rs. 75,000
Standard Rent N.A. Rs. 75,000 Rs. 58,000 N.A. Rs. 78,000
Actual rent received/ Rs. 72,000 Rs. 72,000 Rs. 60,000 Rs. 30,000 Rs. 72,000
receivable
Answer: As per section 23(1), Gross Annual Value (GAV) is the higher of Expected rent & actual rent
received. Expected rent is higher of municipal value & fair rent but restricted to standard rent.
Computation of GAV of each house owned by Jayashree
Particulars House I House II House III House IV House V
(i) Municipal value Rs. 80,000 Rs. 55,000 Rs. 65,000 Rs. 24,000 Rs. 80,000
(ii) Fair rent Rs. 90,000 Rs. 60,000 Rs. 65,000 Rs. 25,000 Rs. 75,000
(iii) Higher of (i) & (ii) Rs. 90,000 Rs. 60,000 Rs. 65,000 Rs. 25,000 Rs. 80,000
(iv) Standard rent N.A. Rs. 75,000 Rs. 58,000 N.A. Rs. 78,000
(v) Expected rent Rs. 90,000 Rs. 60,000 Rs. 58,000 Rs. 25,000 Rs. 78,000
[Lower of (iii) &
(iv)]
(vi) Actual rent Rs. 72,000 Rs. 72,000 Rs. 60,000 Rs. 30,000 Rs. 72,000
received/receiv
able
GAV [Higherof Rs. 90,000 Rs. 72,000 Rs. 60,000 Rs. 30,000 Rs. 78,000
(v) & (vi)]
SM2. Rajesh, a British national, is a resident & ordinarily resident in India during the PY 2020-21. He owns
a house in London, which he has let out at £ 10,000 p.m. The municipal taxes paid to the Municipal
Corporation of London is £ 8,000 during the PY 2020-21. Value of one £ in Indian rupee to be taken at 95.
Compute Rajesh’s Net Annual Value of the property for the AY 2021-22.
Answer: For PY 2020-21, Mr. Rajesh, a British national, is resident & ordinarily resident in India. Therefore,
income received by him by way of rent of the house property located in London is to be included in the
total income in India. Municipal taxes paid in London is be to allowed as deduction from GAV.
Computation of Net Annual Value of the property of Mr. Rajesh for AY 2021-22
Particulars Rs.
Gross Annual Value (£ 10,000 × 12 × 95) Rs. 1,14,00,000
Less: Municipal taxes paid (£ 8,000 × 95) Rs. 7,60,000
Net Annual Value (NAV) 1,06,40,000
74
SM3. Mr. Manas owns two house properties one at Bombay, wherein his family resides & the other at Delhi,
which is unoccupied. He lives in Chandigarh for his employment purposes in a rented house. For acquisition
of house property at Bombay, he has taken a loan of Rs. 30 lakh@10% p.a. on 1.4.2019. He has not repaid
any amount so far. In respect of house property at Delhi, he has taken a loan of 5 lakh@11% p.a. on 1.10.2019
towards repairs. Compute the deduction which would be available to him under section 24(b) for AY 2021-
22 in respect of interest payable on such loan.
Answer: Mr. Manas can claim benefit of Nil Annual Value in respect of his house property at Bombay & Delhi,
since no benefit is derived by him from such properties, & he cannot occupy such properties due to reason
of his employment at Chandigarh, where he lives in a rented house.
Computation of deduction u/s 24(b) for AY 2021-22
Particulars Rs.
Interest on loan taken for acquisition of residential house property at Bombay Rs. Rs. 2,00,000
30,00,000 x 10% = Rs. 3,00,000 Restricted to Rs. 2,00,000
Interest on loan taken for repair of residential house property at Delhi Rs. 5,00,000 x Rs. 30,000
11% = Rs. 55,000 Restricted to Rs. 30,000
Total interest Rs. 2,30,000
Deduction under section 24(b) in respect of (I) & (II) above to be restricted to Rs. 2,00,000
SM4. Anirudh has a property whose municipal valuation is Rs. 1,30,000 p.a. The fair rent is Rs. 1,10,000 p.a.
& the standard rent fixed by the Rent Control Act is Rs. 1,20,000 p.a. The property was let out for a rent
of Rs. 11,000 p.m. throughout the previous year. Unrealised rent was Rs. 11,000 & all conditions prescribed
by Rule 4 are satisfied. He paid municipal taxes @10% of municipal valuation. Interest on borrowed capital
was Rs. 40,000 for the year. Compute his income from house property for AY 2021-22.
Answer: Computation of Income from house property of Mr. Anirudh for AY 2021-22
Computation of GAV
Step 1 Compute ER
ER = Higher of MV of Rs. 1,30,000 p.a. & FR of Rs. 1,10,000 p.a. but Rs. 1,20,000
restricted to SR of Rs. 1,20,000 p.a.
Step 2 Compute actual rent received/receivable
Actual rent received/ receivable less unrealized rent as per Rule 4 = Rs. 1,21,000
1,32,000 - 11,000
Step 3 Compare ER of Rs. 1,20,000 & Actual rent received/receivable of
Rs. 1,21,000
Step 4 GAV is the higher of ER & Actual rent received/receivable Rs. 1,21,000
Gross Annual Value (GAV) Rs. 1,21,000
Less: Municipal taxes (paid by the owner during the previous year) =
10% of Rs. Rs. 1,30,000 Rs. 13,000
Net Annual Value (NAV) Rs. 1,08,000
(a) 30% of NAV Rs. 32,400
(b) Interest on borrowed capital (actual without any ceiling limit) Rs. 40,000 Rs. 72,400
Note: Alternatively, if as per income-tax returns, URR is deducted from GAV, then GAV = Rs. 1,32,000, being
higher of expected rent of Rs. 1,20,000 & actual rent of Rs. 1,32,000. Thereafter URR of Rs. 11,000 &
municipal taxes of Rs. 13,000 would be deducted from GAV of Rs. 1,32,000 to arrive at NAV of Rs. 1,08,000.
75
SM5. Ganesh has a property whose municipal valuation is Rs. 2,50,000 p.a. The fair rent is Rs. 2,00,000 p.a.
& the standard rent fixed by the Rent Control Act is Rs. 2,10,000 p.a. The property was let out for a rent
of Rs. 20,000 p.m. However, the tenant vacated the property on 31.1.2021. Unrealised rent was Rs. 20,000.
He paid municipal taxes @8% of municipal valuation. Interest on borrowed capital was Rs. 65,000 for the
year. Compute the income from house property of Ganesh for AY 2021-22.
Answer:
Particulars Amount
Computation of GAV
Step 1 Compute ER
Higher of MV of Rs. 2,50,000 p.a. & FR of Rs. 2,00,000 p.a., but Rs. 2,10,000
restricted to SR of Rs. 2,10,000 p.a.
Step 2 Compute Actual rent received/ receivable
Actual rent received/ receivable for let out period less
unrealized rent as per Rule 4 = Rs. 2,00,000 – Rs. 20,000 Rs. 1,80,000
Step 3 Compare ER & Actual rent received/ receivable
Step 4 In this case the actual rent of Rs.1,80,000 is lower than ER of
Rs. 2,10,000 owing to vacancy, since, had the property not
been vacant the actual rent would have been Rs. 2,20,000 (Rs. Rs. 1,80,000
1,80,000 + Rs. 40,000, being notional rent for February &
March 2020). Therefore, actual rent is the GAV.
Gross Annual Value (GAV) Rs.1,80,000
Less: Municipal taxes (paid by the owner during PY) = 8% of
Rs. 2,50,000 Rs. 20,000
(a) 30% of NAV = 30% of Rs. 1,60,000 Rs. 48,000
(b) Interest on borrowed capital (without any limit) Rs. 65,000 Rs.1,13,000
Note: Alternatively, if as per income-tax returns, unrealized rent is deducted from GAV, then GAV would
be Rs. 2,00,000, being the actual rent, since the actual rent is lower than the expected rent of Rs. 2,10,000
owing to vacancy. Thereafter, unrealized rent of Rs. 20,000 & municipal taxes of Rs. 20,000 would be
deducted from GAV of Rs. 2,00,000 to arrive at the NAV of Rs. 1,60,000.
SM6. Poorna has one house property at Indira Nagar in Bangalore. She stays with her family in the house.
The rent of similar property in the neighbourhood is 25,000 p.m. The municipal valuation is 2,80,000 p.a.
Municipal taxes paid is 8,000. The house construction began in April 2014 with a loan of 20,00,000 taken
from SBI Housing Finance Ltd. @ 9% p.a. on 1.4.2014. The construction was completed on 30.11.2016. The
accumulated interest up to 31.3.2016 is 3,60,000. On 31.3.2021, Poorna paid 2,40,000 which included
1,80,000 as interest. There was no principal repayment prior to this date. Compute Poorna’s income from
house property for AY 2021-22.
Answer: Computation of income from house property of Smt. Poorna for AY 2021-22
Particulars Amount
Annual Value of house used for self-occupation under section 23(2) Nil
Interest on borrowed capital
76
Interest on loan was taken for construction of house on or after 1.4.99 & same was
completed within the prescribed time - interest paid or payable subject to a
maximum of Rs. 2,00,000 (including apportioned pre- construction interest) will be
allowed as deduction.
In this case the total interest is Rs. 1,80,000 + Rs. 72,000 (Being 1/5th of Rs. 3,60,000)
Rs. 2,00,000
= Rs. 2,52,000. However, the interest deduction is restricted to Rs. 2,00,000.
Loss from house property (Rs. 2,00,000)
SM7. Smt. Rajalakshmi owns a house property at Adyar in Chennai. The municipal value of the property is
Rs. 5,00,000, fair rent is Rs. 4,20,000 & standard rent is Rs. 4,80,000. The property was let-out for Rs.
50,000 p.m. up to December 2020. Thereafter, the tenant vacated the property & Smt. Rajalakshmi used
the house for self-occupation. Rent for the months of November & December 2020 could not be realised in
spite of the owner’s efforts. All the conditions prescribed under Rule 4 are satisfied. She paid municipal
taxes @12% during the year. She had paid interest of Rs. 25,000 during the year for amount borrowed for
repairs for the house property. Compute her income from house property for the AY 2021-22.
Answer: Computation of income from house property of Smt. Rajalakshmi for AY 2021-22
Particulars Amount
Computation of GAV
Step 1 Compute ER for the whole year ER = Higher of MV of Rs. 5,00,000 Rs. 4,80,000
& FR of Rs. 4,20,000, but restricted to SR of Rs. 4,80,000
Step 2 Compute Actual rent received/ receivable
Actual rent received/receivable for the period let out less Rs. 3,50,000
unrealized rent as per Rule 4 = (Rs. 50,000 × Rs. 9) - (Rs. 50,000 ×
2) = Rs. 4,50,000 – Rs. 1,00,000
Step 3 Compare ER for the whole year with the actual rent received/
receivable for the let out period i.e. Rs. 4,80,000 & Rs. 3,50,000
Step 4 GAV is the higher of ER computed for the whole year & Actual rent Rs. 4,80,000
received/ receivable computed for the let-out period
Gross Annual Value (GAV) 4,80,000
Less Municipal taxes (paid by the owner during the previous year) = Rs. 60,000
12% of Rs. 5,00,000
Net Annual Value (NAV)
(a) 30% of NAV = 30% of 4,20,000 Rs. 1,26,000
(b) Interest on borrowed capital Rs. 25,000 Rs. 1,51,000
Income from house property 2,69,000
Note: Alternatively, if as per income-tax returns, unrealized rent is deducted from GAV, then GAV would
be Rs. 4,80,000, being higher of expected rent of Rs. 4,80,000 & actual rent of Rs. 4,50,000. Thereafter,
unrealized rent of Rs. 1,00,000 & municipal taxes of Rs. 60,000 would be deducted from GAV of Rs. 4,80,000
to arrive at the NAV of Rs. 3,20,000. The deduction u/s 24(a) would be Rs. 96,000, being 30% of Rs. 3,20,000.
The income from house property would, therefore, be Rs. 1,99,000.
77
SM8. Ganesh has three houses, all of which are self-occupied. The particulars of the houses for the PY
2020-21 are as under:
Particulars House I House II House III
Municipal valuation p.a. Rs. 3,00,000 Rs. 3,60,000 Rs. 3,30,000
Fair rent p.a. Rs. 3,75,000 Rs. 2,75,000 Rs. 3,80,000
Standard rent p.a. Rs. 3,50,000 Rs. 3,70,000 Rs. 3,75,000
Date of completion/purchase 31.3.1999 31.3.2001 01.4.2014
Municipal taxes paid during the year 12% 8% 6%
Interest on money borrowed for repair of property - Rs. 55,000
during the current year
Interest for current year on money borrowed in July Rs. 1,75,000
2014 for purchase of property
Compute Ganesh’s income from house property for AY 2021-22 & suggest which houses should be opted by
Ganesh to be assessed as self-occupied so that his tax liability is minimum.
Answer: Let us first calculate the income from each house property assuming that they are deemed to be
let out.
Particulars Amount in Rs.
House I House II House III
Gross Annual Value (GAV)
ER is the GAV of house property
ER = Higher of MV & FR, but restricted to SR Rs. 3,50,000 Rs. 3,60,000 Rs. 3,75,000
Less: Municipal taxes (paid by the owner during the Rs. 36,000 Rs. 28,800 Rs. 19,800
previous year)
Net Annual Value (NAV) Rs. 3,14,000 Rs. 3,31,200 Rs. 3,55,200
(a) 30% of NAV Rs. 94,200 Rs. 99,360 Rs. 1,06,560
(b) Interest on borrowed capital - Rs. 55,000 Rs. 1,75,000
Income from house property Rs. 2,19,800 Rs. 1,76,840 Rs. 73,640
Ganesh can opt to treat any two of the above house properties as self-occupied.
OPTION 1 (House I & II– self-occupied & House III – deemed to be let out)
If House I & II are opted to be self-occupied, the income from house property shall be –
House I (Self-occupied) Nil
House II (Self-occupied) (interest deduction restricted to Rs. 30,000) (Rs. 30,000)
House III (Deemed to be let-out) Rs. 73,640
OPTION 2 (House I & III – self-occupied & House II – deemed to be let out)
If House I & III are opted to be self-occupied, the income from house property shall be –
House I (Self-occupied) Nil
78
House II (Deemed to be let-out) Rs. 1,76,840

House III (Self-occupied) (Rs. 1,75,000)
OPTION 3 (House II & III – self-occupied & House I – deemed to be let out)
If House II & III are opted to be self-occupied, the income from house property shall be –
House I (Deemed to be let-out) Rs. 2,19,800
House II (Self-occupied) (interest deduction restricted to Rs. (Rs. 30,000)
30,000)
House III (Self-occupied) (Total interest deduction restricted to Rs. (Rs. 1,75,000) (Rs. 2,00,000)
2,00,000)
Since Option 2 is most beneficial, Ganesh should opt to treat House I & III as self- occupied & House
II as deemed to be let out. His income from house property would be 1,840 for the AY 2021-22.
SM9. Prem owns a house in Madras. During the previous year 2020-21, 2/3rd portion of the house was self-
occupied & 1/3rd portion was let out for residential purposes at a rent of Rs. 8,000 p.m. Municipal value of
the property is Rs. 3,00,000 p.a. fair rent is Rs. 2,70,000 p.a. & standard rent is Rs. 3,30,000 p.a. He paid
municipal taxes @10% of municipal value during the year. A loan of Rs. 25,00,000 was taken by him during
the year 2016 for acquiring the property. Interest on loan paid during PY 2020-21 was Rs. 1,20,000. Compute
Prem’s income from house property for the AY 2021-22.
Answer: There are two units of the house. Unit I with 2/3rd area is used by Prem for self- occupation
throughout the year & no other benefit is derived from that unit, hence it will be treated as self-occupied
& its annual value will be Nil. Unit 2 with 1/3rd area is let-out throughout PY & its annual value has to be
determined as per section 23(1).
Computation of income from house property of Mr. Prem for AY 2021-22
Particulars Amount in
Unit I (2/3rd area – self-occupied)
Annual Value Nil
Less: Deduction under section 24(b) 2/3 rd
of 1,20,000 Rs. 80,000
Income from Unit I (self-occupied) (Rs. 80,000)
Unit II (1/3 rd
area – let out)
Computation of GAV
Step 1 Compute ER ER = Higher of MV & FR, restricted to SR However, Rs. 1,00,000
in this case, SR of Rs. 1,10,000 (1/3rd of Rs. 3,30,000) is more
than the higher of MV of Rs. 1,00,000 (1/3rd of Rs. 3,00,000) &
FR of Rs. 90,000 (1/3rd of Rs. 2,70,000). Hence the higher of MV
& FR is the ER. In this case, it is the MV.
Step 2 Compute actual rent received/ receivable Rs. 8,000  12 = Rs. 96,000
Rs. 96,000
Step 3 Compare ER & Actual rent received/ receivable
79
Step 4 GAV is the higher of ER & actual rent received/ receivable i.e. Rs. 1,00,000
higher of Rs. 1,00,000 & Rs. 96,000
Gross Annual Value(GAV) 1,00,000
Less: Municipal taxes paid by the owner during the previous Rs. 10,000
year relating to let-out portion 1/3rd of (10% of
3,00,000) = Rs. 30,000/3 = Rs. 10,000
Net Annual Value(NAV) Rs. 90,000
(a) 30% of NAV = 30% of 90,000 Rs. 27,000
(b) Interest paid on borrowed capital (relating to let out Rs. 40,000 Rs. 67,000
portion) 1/3rd of 1,20,000
Income from Unit II (let-out) Rs. 23,000
Loss under the head “Income from house property” = (Rs. 80,000) + Rs. 23,000 = (Rs. 57,000)
SM10. Mr. Anand sold his residential house property in March, 2020. In June, 2020, he recovered rent of
Rs. 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2014 to March 2016.
He could not realise two months rent of Rs. 20,000 from him & to that extent his actual rent was reduced
while computing income from house property for AY 2016-17.
Further, he had let out his property from April, 2016 to February, 2020 to Mr. Satish. In April, 2018, he had
increased the rent from Rs. 12,000 to Rs. 15,000 per month & the same was a subject matter of dispute. In
September, 2020, the matter was finally settled & Mr. Anand received Rs. 69,000 as arrears of rent for
the period April 2018 to February, 2020.
Would the recovery of unrealised rent & arrears of rent be taxable in the hands of Mr. Anand, & if so in
which year?
Answer: Since the unrealised rent was recovered in the PY 2020-21, the same would be taxable in the A.Y.
2021-22 under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that
year. Further, the arrears of rent was also received in the PY 2020-21, & hence the same would be taxable
in the AY 2021-22 under section 25A, even though Mr. Anand was not the owner of the house in that year.
A deduction of 30% of unrealised rent recovered & arrears of rent would be allowed while computing
income from house property of Mr. Anand for AY 2021-22.
Computation of income from house property of Mr. Anand for AY 2021-22
Particulars Rs.
(i) Unrealised rent recovered Rs. 10,000
(ii) Arrears of rent received Rs. 69,000
Rs. 79,000
Less: Deduction@30% Rs. 23,700
SM11. Ms. Aparna co-owns a residential house property in Calcutta along with her sister Ms. Dimple, where
her sister’s family resides. Both of them have equal share in the property & the same is used by them for
self-occupation. Interest is payable in respect of loan of Rs. 50,00,000 @10% taken on 1.4.2019 for
acquisition of such property. In addition, Ms. Aparna owns a flat in Pune in which she & her parents reside.
She has taken a loan of Rs. 3,00,000@12% on 1.10.2019 for repairs of this flat. Compute the deduction which
would be available to Ms. Aparna & Ms. Dimple under section 24(b) for AY 2021-22.
80
Answer: Computation of deduction u/s 24(b) available to Ms. Aparna for AY 2021-22
Particulars Rs.
I Interest on loan taken for acquisition of residential house
property at Calcutta Rs. 50,00,000 x 10% = Rs. 5,00,000 Ms. Aparna’s share = 50% Rs. 2,00,000
of Rs. 5,00,000 = Rs. 2,50,000 Restricted to Rs. 2,00,000
II Interest on loan taken for repair of flat at Pune Rs. 3,00,000 x 12% = Rs. 36,000
Restricted to Rs. 30,000
Total interest Rs. 2,30,000
Deduction under section 24(b) in respect of (I) & (II) above to be restricted to Rs. 2,00,000
Computation of deduction u/s 24(b) available to Ms. Dimple for AY 2021-22

Particulars Amount
Interest on loan taken for acquisition of residential house property at Calcutta Rs. Rs. 2,00,000
50,00,000 x 10% = Rs. 5,00,000 Ms. Dimple’s share = 50% of Rs. 5,00,000 = Rs. 2,50,000
Restricted to Rs. 2,00,000
Deduction under section 24(b) Rs. 2,00,000
81

Q1. Mr. Raman is a co-owner of a house property along with his brother holding equal share in the property
Particulars Rs.
Municipal value of the property Rs. 1,60,000
Fair rent Rs. 1,50,000
Standard rent under the Rent Control Act Rs. 1,70,000
Rent received Rs. 15,000 p.m.
The loan for the construction of this property is jointly taken & the interest charged by the bank is Rs.
25,000, out of which Rs. 21,000 has been paid. Interest on the unpaid interest is Rs. 450. To repay this loan,
Raman & his brother have taken a fresh loan & interest charged on this loan is Rs. 5,000.
The municipal taxes of Rs. 5,100 have been paid by the tenant.
Compute the income from this property chargeable in the hands of Mr. Raman for the AY 2021-22
Answer: Computation of income from house property of Mr. Raman for AY 2021-22
Particulars Rs.
Gross Annual Value (See Note 1 below) Rs. 1,80,000
Less: Municipal taxes – paid by the tenant, hence not deductible Nil
(i) 30% of NAV Rs. 54,000
(ii) Interest on housing loan (See Note 2 below)
- Interest on loan taken from bank Rs. 25,000
- Interest on fresh loan to repay old loan for this property Rs. 5,000 Rs. 84,000
50% share taxable in the hands of Mr. Raman (See Note 3 below) Rs. 48,000
Notes:
1. Computation of Gross Annual Value (GAV)
GAV is the higher of Expected rent and actual rent received. Expected rent is the higher of municipal
value & fair rent, but restricted to standard rent.
Particulars Rs. Rs. Rs. Rs.
(a) Municipal value of property Rs. 1,60,000
(b) Fair rent Rs. 1,50,000
(c) Higher of (a) & (b) Rs. 1,60,000
(d) Standard rent Rs. 1,70,000
(e) Expected rent [lower of (c) & (d)] Rs. 1,60,000
(f) Actual rent [15,000 x 12] Rs. 1,80,000
(g) Gross Annual Value [Higher of (e) & (f)] Rs. 1,80,000
2. Interest on housing loan is allowable as a deduction under section 24 on accrual basis. Further, interest
on fresh loan taken to repay old loan is also allowable as deduction. However, interest on unpaid
interest is not allowable as deduction under section 24.
82
Q2. Mr. X owns one residential house in Mumbai. The house is having two identical units. First unit of the
house is self-occupied by Mr. X & another unit is rented for Rs. 8,000 p.m. The rented unit was vacant for
2 months during the year. The particulars of the house for the previous year 2020-21 are as under:
Standard rent Rs. 1,62,000 p.a.
Municipal valuation Rs. 1,90,000 p.a.
Fair rent Rs. 1,85,000 p. a
Municipal tax (Paid by Mr. X) 15% of municipal valuation
Light & water charges Rs. 500 p.m.
Interest on borrowed capital Rs. 1,500 p.m.
Lease money Rs. 1,200 p.a.
Insurance charges Rs. 3,000 p.a.
Repairs Rs. 12,000 p.a.
Compute income from house property of Mr. X for the AY 2021-22
Answer:
Particulars Rs. Rs.
(A) Rented unit (50% of total area – See Note below)
Step I - Computation of Expected Rent
Municipal valuation (Rs. 1,90,000 x ½) Rs. 95,000
Fair rent (Rs. 1,85,000 x ½) Rs. 92,500
Standard rent (Rs. 1,62,000 x ½) Rs. 81,000
ER = Higher of MV & FR but restricted to standard rent Rs. 81,000
Step II - Actual Rent
Rent receivable for the whole year (Rs. 8,000 x Rs. 12) Rs. 96,000
Step III – Computation of Gross Annual Value
Actual rent received owing to vacancy (Rs. 96,000 – Rs. 16,000) Rs. 80,000
Since, owing to vacancy, the actual rent received is lower than the
Expected Rent, the actual rent received is the Gross Annual Value
Gross Annual Value Rs. 80,000
Less: Municipal taxes (15% of Rs. 95,000) Rs. 14,250
Net Annual value Rs. 65,750
Less: Deductions under section 24 -
(i) 30% of net annual value Rs. 19,725
(ii) Interest on borrowed capital (750 x 12) Rs. 9,000 Rs. 28,725
Taxable income from let out portion Rs. 37,025
(B) Self occupied unit (50% of total area – See Note below) Rs. 9,000
Annual value Nil
Less: Interest on borrowed capital (750 x 12) Rs. 9,000
Loss from self occupied portion Rs. (9,000)
Note: No deduction will be allowed separately for light & water charges, lease money paid, insurance
charges & repairs.
83
Q3. Mr. Vikas owns a house property whose Municipal Value, Fair Rent & Standard Rent are Rs. 96,000, Rs.
1,26,000 & Rs. 1,08,000 (per annum), respectively.
During FY 2020-21, one-third of the portion of the house was let out for residential purpose at a monthly
rent of Rs. 5,000. The remaining two-third portion was self-occupied by him. Municipal tax @ 11 % of
municipal value was paid during the year.
The construction of the house began in June, 2013 & was completed on 31-5-2016. Vikas took a loan of Rs.
1,00,000 on 1-7-2013 for the construction of building.
He paid interest on loan @ 12% per annum & every month such interest was paid. Compute income from
house property of Mr. Vikas for AY 2021-22.
Answer: Computation of income from house property of Mr. Vikas for AY 2021-22
Particulars
Income from house property
I. Self-occupied portion (Two third)
Net Annual value Nil
Less: Deduction under section 24(b) Interest on loan (See Note below) Rs. 12,400
(Rs. 18,600 x 2/3)
Loss from self occupied property (Rs. 12,400)
II. Let-out portion (One third)
Gross Annual Value
(a) Actual rent received (Rs. 5,000 x Rs. 12) Rs. 60,000
(b) Expected rent Rs. 36,000
[higher of municipal valuation (i.e., Rs. 96,000) & fair rent
(i.e., Rs. 1,26,000) but restricted to standard rent (i.e.
Rs. 1,08,000)] = Rs. 1,08,000 x 1/3
Higher of (a) or (b) Rs. 60,000
Less: Municipal taxes (Rs. 96,000 x 11% x 1/3) Rs. 3,520
Net Annual Value Rs. 56,480
(a) 30% of NAV Rs. 16,944
(b) Interest on loan (See Note below) (18,600 x 1/3) Rs. 6,200 Rs. 33,336
Note: Interest on loan taken for construction of building
Interest for the year (1.4.2020 to 31.3.2021) = 12% of Rs. 1,00,000 = Rs. 12,000
Pre-construction period interest = 12% of Rs. 1,00,000 for 33 months (from 1.07.2013 to 31.3.2016)
= Rs. 33,000
Pre-construction period interest to be allowed in 5 equal annual installments of Rs. 6,600 from the year of
completion of construction i.e. from FY 2016-17 till F.Y. 2020-21.
Therefore, total interest deduction under section 24 = Rs. 12,000 + Rs. 6,600 = Rs. 18,600
84
Q4. Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident & ordinarily resident in India during FY 2020-21.
She owns a house property at Los Angeles, U.S.A., which is used as her residence. The annual value of the
house is $ 20,000. The value of one USD ($) may be taken as 75.
She took ownership & possession of a flat in Chennai on 1.7.2020, which is used for self-occupation, while
she is in India. The flat was used by her for 7 months only during the year ended 31.3.2021. The municipal
valuation is Rs. 3,84,000 p.a. & the fair rent is Rs. 4,20,000 p.a. She paid the following to Corporation of
Chennai:
Property Tax Rs. 16,200
Sewerage Tax Rs. 1,800
She had taken a loan from Standard Chartered Bank in June, 2018 for purchasing this flat. Interest on loan
was as under:
Particulars Rs.
Period prior to 1.4.2020 Rs. 49,200
1.4.2020 to 30.6.2020 Rs. 50,800
1.7.2020 to 31.3.2021 Rs. 1,31,300
She had a house property in Bangalore, which was sold in March, 2017. In respect of this house, she
received arrears of rent of R s . 60,000 in March, 2021. This amount has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini Ravi for AY 2021-22.
Answer: Since the assessee is a resident and ordinarily resident in India, her global income would form
part of her total income i.e., income earned in India as well as outside India will form part of her total
income.
She possesses a self-occupied house at Los Angeles as well as at Chennai. She can take the benefit of “Nil”
Annual Value in respect of both the house properties.
As regards the Bangalore house, arrears of rent will be chargeable to tax as income from house property
in the year of receipt under section 25A. It is not essential that the assessee should continue to be the
owner. 30% of the arrears of rent shall be allowed as deduction.
Accordingly, the income from house property of Mrs. Rohini Ravi for AY 2021-22 will be calculated as
under:
Particulars Amount
1. Self-occupied house at Los Angeles
Annual value Nil
Less: Deduction under section 24 Nil
Chargeable income from this house property Nil
2. Deemed let out house property at Chennai
Annual value Nil
Interest on borrowed capital (See Note below) Rs. 1,91,940
3. Arrears in respect of Bangalore property (Section 25A) (Rs. 1,91,940)
Arrears of rent received Rs. 60,000
Less: Deduction @ 30% u/s 25A(2) Rs. 18,000 Rs. 42,000
Loss under the head "Income from house property” (Rs. 1,49,940)
85
Note: Interest on borrowed capital

Particulars Rs.
Interest for the current year (Rs. 50,800 + Rs. 1,31,300) Rs. 1,82,100
Add: 1/5th of pre-construction interest (Rs. 49,200 x 1/5) Rs. 9,840
Interest deduction allowable under section 24 Rs. 1,91,940
Q5. Two brothers Arun & Bimal are co-owners of a house property with equal share. The property was
constructed during FY 1998-1999. The property consists of eight identical units & is situated at Cochin.
During FY 2020-21, each co-owner occupied one unit for residence & the balance of six units were let out
at a rent of Rs. 12,000 per month per unit. The municipal value of the house property is Rs. 9,00,000 & the
municipal taxes are 20% of municipal value, which were paid during the year. The other expenses were as
follows:
(i) Repairs Rs. 40,000
(ii) Insurance premium (paid) Rs. 15,000
(iii) Interest payable on loan taken for construction of house Rs. 3,00,000
One of the let out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He does not own any other
house.
The other income of Mr. Arun & Mr. Bimal are Rs. 2,90,000 & Rs. 1,80,000, respectively, for FY 2020-21.
Compute the income under the head ‘Income from House Property’ & the total income of two brothers for
AY 2021-22.
Answer:
Particulars Arun Bimal
I. Self-occupied portion (25%)
Annual value Nil Nil
Less: Deduction under section 24(b) Interest on loan taken for Rs. 30,000 Rs. 30,000
construction 37,500 (being 25% of 1.5 lakh) restricted to maximum of Rs.
30,000 for each co-owner since the property was constructed before
1.04.1999. Hence, it is assumed that loan was taken before 1.4.1999
Loss from self occupied property (Rs. 30,000) (Rs. 30,000)
II. Let-out portion (75%) – See Working Note below Rs. 1,25,850 Rs. 1,25,850
Income from house property Rs. 95,850 Rs. 95,850
Other Income Rs. 2,90,000 Rs. 1,80,000
Total Income Rs. Rs. 2,75,850
3,85,850
Working Note – Computation of Income from Let-Out Portion of House Property
Particulars Rs. Rs.
Let-out portion (75%)
Gross Annual Value
(a) Municipal value (75% of 9 lakh) Rs. 6,75,000
(b) Actual rent [(Rs. 12000 x 6 x 12) – (Rs. 12,000 x 1 x 4)] = Rs. 8,64,000 Rs. 8,16,000
- Rs. 48,000
86
- whichever is higher Rs. 8,16,000

Less: Municipal taxes 75% of Rs. 1,80,000 (20% of 9 lakh) Rs. 1,35,000
(a) 30% of NAV Rs. 2,04,300
(b) Interest on loan taken for the house [75% of 3 lakh] Rs. 2,25,000 Rs. 4,29,300
Income from let-out portion of house property Rs. 2,51,700
Share of each co-owner (50%) Rs. 1,25,850
87
PAST RTP QUESTIONS

May 18 Q1. In August 2017, Mr. Kailash, a first-time home buyer, borrowed a sum of Rs. 35 lakhs from
the National Housing Bank for construction of a residential house for Rs. 48 lakhs. The loan
was sanctioned on 12.5.2017. The loan amount was disbursed directly to the flat promoter
by the bank. The construction was completed in May, 2021 & repayments towards principal
and interest commenced immediately after disbursement of loan.
In the light of the above facts, examine:
(a) Whether Mr. Kailash can claim deduction u/s 24 i.r.o interest for AY 2021-22?
(b) Whether deduction u/s 80C and 80EE can be claimed by him for AY 2021-22?
Answer:
(a) As per section 24(b), interest payable on loans borrowed for acquisition, construction,
repairs, renewal or reconstruction of house property can be claimed as deduction.
Interest payable on borrowed capital for the period prior to the previous year in
which the property has been acquired or constructed, can be claimed as deduction
over a period of 5 years in equal annual installments commencing from the year of
acquisition or completion of construction.
It is stated that the construction is completed only in May, 2021. Hence, deduction u/s
24 in respect of interest on housing loan cannot be claimed in AY 2021-22.
(b) Deduction u/s 80C cannot be claimed
Clause (xviii) of section 80C is attracted where there is any payment for the purpose
of purchase or construction of a residential house property, the income from which is
chargeable to tax under the head ‘Income from house property’. Such payment covers
repayment of any amount borrowed from the National Housing Bank.
However, deduction is prima facie eligible only if the income from such property is
chargeable to tax under the head “Income from House Property”. During AY 2021-22,
there is no such income chargeable under this head. Hence, deduction u/s 80C cannot
be claimed for AY 2021-22.
Deduction u/s 80EE cannot be claimed [Answer Updated for AY 2021-22]
As per section 80EE, interest payable on loan taken for acquisition of a residential
house from any financial institution qualifies for deduction, subject to a maximum of
Rs. 50,000, provided:
▪ Such loan is sanctioned during the PY 2016-17.
▪ Value of the house does not exceed Rs. 50 lakhs
▪ Amount of loan sanctioned does not exceed Rs. 35 lacs &
▪ Assessee does not own any residential house on the date of sanction of loan
Since loan was sanctioned in PY 2017-18, interest on such loan would not qualify for
deduction u/s 80EE. However, deduction u/s 80EEA can be claimed.
Nov 18 Q2. Mr. Ranjan owns a shop whose construction got completed in August 2019.
- He took a loan of Rs. 22 lacs from Bank of Baroda on 1.08.2018 & had been paying interest
calculated at 9% p.a.
- During PY 2020-21, shop was let out at a monthly rent of Rs. 45,000.
- He paid municipal tax of Rs. 18,000 each for PY 2020-21 & 2020-21 on 25.05.2020 &
15.04.2021 respectively.
- Compute income u/h 'House Property' of Mr. Ranjan for AY 2021-22, assuming that the
entire amount of loan is outstanding on the last day of the current PY.
88
Answer: Computation of income u/h “House Property” of Mr. Ranjan for AY 2021-22
Particulars Rs. Rs.
Gross Annual Value (45,000 x 12) 5,40,000
Less: Municipal taxes (See Working Note 1) 18,000
Net Annual Value (NAV) 5,22,000
24(a): 30% of NAV 1,56,600
24(b): Interest on housing loan (See Working Note 2) 2,24,400 3,81,000
Income chargeable u/h “House Property” 1,41,000
Working Notes:
1. Municipal taxes deductible from Gross Annual Value
Municipal taxes actually paid by the owner during PY is allowed to be deducted from
GAV. Accordingly, only Rs. 18,000 paid on 25.05.2020 is allowed to be deducted from GAV
while computing income from house property of PY 2020-21.
2. Interest on housing loan allowable as deduction u/s 24
▪ Interest for Current year (Rs. 22,00,000 x 9%) = Rs. 1,98,000
▪ Pre-construction interest
For the period 1.8.2018 to 31.03.2019: (Rs. 22,00,000 x 9% x 8/12) = Rs. 1,32,000.
Rs. 1,32,000 allowed in 5 equal installments (Rs. 1,32,000/5) from PY 2020-21 to PY
2023-24.
Total Deduction u/s 24(b) = Rs. 1,98,000 + Rs. 26,400 = Rs. 2,24,400.
3. Deduction u/s 24(b) i.r.o. interest for let out property, fully allowed without any limit.
May 19 Q3. Shraddha has two flats in Mumbai, both are self-occupied. Particulars of these are given
below:
Particulars Flat at Flat at Navi
Goregaon Mumbai
Municipal Valuation per annum 1,40,000 1,35,000
Standard rent per annum 1,40,000 1,90,000
Date of completion of construction 1-02-2014 24-08-2008
Municipal taxes payable during the year 10% 12%
(paid for Flat at Navi Mumbai only)
Interest on money borrowed - 72,000
for repair of property during current year
Compute Shraddha's income from house property for AY 2021-22. Also, suggest which flat
should be opted by Shraddha to be assessed as self-occupied so that her tax liability is
minimum.
Answer: THIS QUESTION HAS BEEN IRRELEVANT NOW SINCE SHE CAN CLAIM 2 HOUSE
PROPERTIES AS SELF OCCUPIED & THEIR ANNUAL VALUE WILL BE NIL. REFER
QUESTION OF “GANESH” IN ET BOOK.
Q4. In respect of loss from house property, which of the following statements are correct?
(a) While computing income u/h house property, maximum deduction allowable u/s 24 is Rs.
2 lacs.
89
(b) Loss from house property relating to a particular year can be set-off against income
under any other head during that year only to the extent of Rs. 2 lacs.
(c) Loss in excess of Rs. 2 lacs, which is not set-off during the year, can be carried forward
for set-off against any head of income in the succeeding year(s)
(d) All the above
Nov 19 Q5. Mr. Vihaan is a resident but not ordinarily resident in India during AY 2021-22. He
furnishes the following information regarding his income pertaining to his house properties
for PY 2020-21:
▪ He owns two houses, one in Singapore & the other in Pune.
▪ House in Singapore is let out there at a rent of SGD 4,000 p.m. Entire rent is received in
India. He paid Property tax of SGD 1250 & Sewerage Tax SGD 750 there. (1SGD=INR 51).
▪ House in Pune is self-occupied. He had taken a loan of Rs. 25,00,000 to construct the
house on 1st June, 2016 @ 12%. The construction was completed on 31st May, 2018 & he
occupied the house on 1st June, 2018.
▪ Entire loan is outstanding as on 31st March, 2021. Property tax paid i.r.o. 2nd house is Rs.
2,800.
Compute income u/h ‘House property’ in the hands of Mr. Vihaan for AY 2021-22.
Answer: Income from house property of Mr. Vihaan for AY 2021-22
Particulars Rs.
1. Income from let-out property in Singapore [See Note 1 below]
Gross Annual Value (SGD 4,000 p.m. x 12 Month x Rs. 51) 24,48,000
Less: Municipal taxes paid during PY [SGD 2,000 (SGD 1,250 + SGD 750) x Rs. 1,02,000
51]
(a) 30% of NAV 7,03,800
(b) Interest on housing loan Nil
Taxable Income 16,42,200
2. Income from Self-Occupied property in Pune
Net Annual Value Nil
Less: Deduction in respect of interest on housing loan [See Note 2 below] Rs. 2,00,000
Income from house property [Rs. 16,42,200 – Rs. 2,00,000] 14,42,200
Note:
1. Since Mr. Vihaan is a RNOR in India for AY 2021-22, Only Indian Income will be taxable.
Accordingly, rent received from house property in Singapore would be taxable in India
since it is an Indian Income because it is received by him in India.
2. Interest on housing loan for construction of self-occupied property allowable as
deduction u/s 24
▪ Interest for current year = Rs. 3,00,000 (Rs. 25,00,000 x 12%).
▪ Pre-construction interest
For the period 01.06.2016 to 31.03.2018 (Rs. 25,00,000 x 12% x 22/12) = Rs. 5,50,000.
Rs. 5,50,000 allowed in 5 equal installments (Rs. 5,50,000/5) = Rs. 1,10,000.
In case of self-occupied property, interest deduction to be restricted to Rs. 2,00,000
90
May 20 Q6. Mrs. Daya, a resident of India, owns a house property at Panipat in Haryana. Municipal
value is Rs. 8,50,000, Fair Rent of the property is Rs. 7,30,000 & Standard Rent is Rs.
8,20,000 p.a.
Property was let out for Rs. 85,000 per month for the period April 2020 - December 2020.
Thereafter, tenant vacated the property & Mrs. Daya used the house for self- occupation.
Rent for the months of November & December 2019 could not be realized from the tenant.
Mrs. Daya has not instituted any legal proceedings for recovery of the unpaid rent.
She paid municipal taxes @ 12% during the year & paid interest of Rs. 50,000 during the
year for amount borrowed towards repairs of the house property.
You are required to compute her income from house property for AY 2021-22.
Answer: Computation of income from house property of Mrs. Daya for AY 2021-22
Particulars Amount
Expected Rent for the whole year = Higher of Municipal Value of Rs. 8,50,000 8,20,000
& Fair Rent of Rs. 7,30,000, but restricted to Standard Rent of Rs. 8,20,000
Actual rent receivable for the let-out period = Rs. 85,000 x 9 [Note 1] 7,65,000
Gross Annual Value [Higher of ER for whole year & ARR for let-out period] 8,20,000
Less: Municipal taxes (paid by the owner during PY) 12% of Rs. 8,50,000 1,02,000
Less: Standard Deductions u/s 24(a) @ 30% of NAV 2,15,400
Less: u/s 24(b) Interest on amount borrowed for repairs (Fully allowable as 50,000
deduction, since it pertains to let- out property)
Note: URR is not deductible from actual rent since Mrs. Daya has not instituted any legal
proceedings for recovery of unpaid rent. Hence one of the conditions in Rule 4 is not fulfilled.
Q7. Mr. Raghav has three houses for self-occupation. What would be the tax treatment for
AY 2021-22 in respect of income from house property?
(a) One house, at the option of Mr. Raghav, would be treated as self-occupied. The other
two houses would be deemed to be let out.
(b) Two houses, at the option of Mr. Raghav, would be treated as self-occupied. The other
house would be deemed to be let out.
(c) One house, at the option of Assessing Officer, would be treated as self-occupied. The
other two houses would be deemed to be let out.
(d) Two houses, at the option of Assessing Officer, would be treated as self-occupied. The
other house would be deemed to be let out.
Q8. Mr. Ritvik has purchased his first house in Gwalior for self-occupation on 5.4.2020 for
Rs. 45 lacs (stamp duty value being the same) with bank loan sanctioned on 30.3.2020 &
disbursed on 3.4.2020. He paid interest of Rs. 3.8 lacs during PY 2020-21. What is the tax
treatment of interest paid by him?
(a) Interest of Rs. 2 lacs allowable u/s 24.
(b) Interest of Rs. 2 lacs allowable u/s 24 & Rs. 1.8 lacs allowable u/s 80EEA.
(c) Interest of Rs. 2 lacs allowable u/s 24 & Rs. 1.5 lacs allowable u/s 80EEA.
(d) Interest of Rs. 1.5 lacs allowable u/s 24 & Rs. 1.5 lakhs allowable u/s 80EEA.
91

PQ1. Mr. X owns one residential house in Mumbai. The house is having 2 units. 1 st unit of the house is self-
occupied by Mr. X & another unit is rented for Rs. 8,000 p.m. Rented unit was vacant for 2 months during
the year. Particulars of the house for PY 2020-21 are as under:
Standard Rent Rs. 1,62,000 p.a.
Fair Rent Rs. 1,85,000 p.a
Municipal Value Rs. 1,90,000 p.a
Light & Water Charges Rs. 500 p.m.
Insurance charges Rs. 3,000 p.a
Repairs Rs. 1,200 p.m
Municipal Tax paid 15 %
Interest on Borrowed Capital Rs. 1,500 p.m.
Compute Income from House Property of Mr. X for AY 2021-22
[Nov 2013 + Nov 2008 + Nov 2012 + ICAI Ex. Q2]
Solution: Computation of Income from House Property
Particulars 1st Unit SOP 2nd Unit LOP
Gross Annual Value NIL 80,000
Less: Municipal Taxes (assumed as paid during PY) [1,90,000 x 15% x 50%] NIL (14,250)
Net Annual Value NIL 65,750
Deduction at 30% of NAV (Rs. 65,750 x 30%) NIL (19,725)
Interest on Borrowed Capital (Rs. 750 p.m. x 12 months) each for 2 units (9,000) (9,000)
Income from House Property (9,000) 37,025
Taxable Income from House Property 28,025
Working Note:
1. GAV of 2nd Unit is determined as:
ER = Higher of MV (Rs. 95,000) or FR (Rs. 92,500) subject to Maximum of SR (Rs. 81,000) = Rs. 81,000.
Actual Rent Receivable = Rs. 80,000 (8,000 x 10).
If there would have been no vacancy, ARR would be Rs. 96,000.
Thus, we can say that ARR < ER due to vacancy, GAV = ARR = Rs. 80,000.
2. Annual Value of 1st Unit: Since the House Property is self-occupied by the Assessee, GAV is taken as NIL.
3. Light & Water Charges, Lease Money, Insurance charges & Repairs are not allowed as deduction u/s 24.
4. Loss from one House property can be set off against Income from another Property, u/s 70.
PQ2. Prem owns a house in Madras. During PY 2020-21, 2/3rd portion of the house was self-occupied & 1/3rd
portion was let out for residential purposes at a rent of Rs. 8,000 p.m. MV = Rs. 3,00,000 p.a., FR = Rs.
2,70,000 p.a. & SR = Rs. 3,30,000 p.a. He paid MT @ 10% during the year. A loan of Rs. 25,00,000 was taken
by him during the year 2015 for acquiring the property. Interest on loan paid during PY 2020-21 was Rs.
1,20,000. Compute Prem’s income from house property for the AY 2021-22. [Nov 2012 + ICAI SM Q9]
Solution:
▪ There are two units of the house. Unit I with 2/3 rd area is used by Prem for self- occupation throughout
the year & no benefit is derived from that unit, hence it will be treated as SOP & its NAV will be Nil.
▪ Unit 2 with 1/3rd area is let-out throughout the previous year & its NAV has to be determined as per sec
23(1).
92
Computation of Income from House Property of Mr. Prem for AY 2021-22

Unit I (2/3 rd
area: Self-occupied)
NAV Annual Value Nil
Less: Deduction u/s 24(b) 2/3rd of Rs. 1,20,000 (80,000)
Unit II (1/3rd area: Let out)
Gross Annual Value Higher of ER = 1,00,000; ARR: 8,000 x 12 = Rs. 96,000 Rs. 1,00,000
Less: Municipal tax paid [1/3 rd
of (10% of Rs. 3 lacs)] = Rs. 30,000/3 (Rs. 10,000)
Net Annual Value GAV – MT Rs. 90,000
24(a): Std Deduction @ 30% 30% of Rs. 90,000 (Rs. 27,000)
24(b): Interest 1/3 rd
of Rs. 1,20,000 (Rs. 40,000)
Income from Unit II (let-out) Rs. 23,000
Total Income from House Property = (Rs. 80,000) + Rs. 23,000 = (Rs. 57,000).
PQ3. Mr. Raman is a Co-Owner of a House Property along with his brother. [Nov 09 + ICAI Ex. Q1]
Municipal Value of the Property Rs. 1,60,000
Fair Rent Rs. 1,50,000
Standard Rent under the Rent Control Act Rs. 1,70,000
Rent Received Rs. 15,000 p.m.
Loan for the construction of this property is jointly taken & interest charged by the bank is Rs. 25,000 out
of which 21,000 have been paid. Interest on the unpaid interest is 450. To repay this loan, Raman & his
brother has taken a fresh loan & interest charged on this loan is Rs. 5,000. Municipal Taxes of Rs. 5,100
have been paid by Tenant. Compute Income from house property in hands of Mr. Raman for AY 2021-22.
Solution: Shares of each co-owner is not given. If share of each Co-Owner of the property is not definite,
then Income from property will be determined & charged to tax in the capacity of an AOP (Sec. 26).
Computation of Income from House Property
Gross Annual Value [Note 1] Rs. 1,80,000
Less: Municipal Taxes paid [Note 2] (Nil)
Net Annual Value of the House Property Rs. 1,80,000
Less: Deduction u/s 24(a): 30% of NAV = 30% of Rs. 1,80,000 (Rs. 54,000)
Deduction u/s 24(b): Interest on original loan + Loan taken to repay the original loan (Rs. 30,000)
Income from House Property Rs. 96,000
Note:
1. GAV = Higher of ER or ARR.
(i) ER = Higher of FR (1,50,000) & MR (1,60,000) sub to Max. of SR (1,70,000) = 1,60,000
(ii) ARR = Rs. 1,80,000 (15,000 x 12).
2. Since Municipal Taxes have been paid by the tenant, it shall not be allowed as a deduction to owner.
3. Interest on interest of Rs. 450 shall not be allowed as deduction u/s 24.
4. Interest shall be allowed on accrual basis even though it is not paid during the Relevant Previous Year.
5. It is assumed the interest of Rs. 25,000 does not include the interest on interest of Rs. 450.
6. If Mr. Raman is an equal co-owner, Income from House Property in the hands of Mr. Raman = Rs.
48,000 (Rs. 96,000/2).
93
PQ4. A owns a house property at Delhi. 60% of house property is self-occupied for residence & 40% is let
out on monthly rent of Rs. 5,000. Let-out portion was also self-occupied from 1.10.2020 to 31.12.2021.
However, w.e.f. 1.1.2021, entire house was let out for Rs. 12,500 pm. Construction of house property was
completed on 31.12.1998.
The following expenses were incurred for the above house property during the year ending on 31.3.2021.
Municipal Tax paid for PY 2018-19: 5,000 PY 2019-20: 10,000 PY 2020-21: 15,000
Insurance premium paid: 3,000; Land revenue due: 6,000; Interest on money borrowed for construction:
18,000. Calculate income u/h ‘house property’ of A for AY 2021-22. [Expected Rent = Rs. 12,500 per month]
Solution: As both units are let out for the part of the year & self-occupied for some part of the year,
benefit of self-occupied house property will not be available & NAV of both units shall be determined as
per sec. 23(1).
(a) ER [12,500 x 12] 1,50,000
(b) AR [Rs. 5,000 x 6 + Rs. 12,500 x 3] 67,500
Thus GAV = Higher of ER or AR 1,50,000
Less: Municipal tax paid (5,000 + 10,000 + 15,000) [Deductible on Payment basis] (30,000)
Net Annual Value 1,20,000
Less: Standard deduction @ 30% u/s 24(a) (36,000)
Less: Deduction u/s 24(b) on Interest (18,000) (54,000)
Income from House Property 66,000
PQ5. Mrs. Deepali (aged 40 years) is working with M/s Good Company Ltd, a manufacturer of tyres based
at Mumbai, has received the following payments during PY 2020-21 from her employer:
(a) Basic Salary: Rs. 60,000 per month; (b) Dearness Allowance: 40% of Basic Salary.
Her employer has taken on rent her own house on a monthly rent of Rs. 15,000 & the same has been provided
for residence of Mrs. Deepali. Company is recovering Rs. 2,000 per month as rent of house.
Mrs. Deepali has further furnished the following details:
(i) Contribution to PPF Rs. 60,000.
(ii) She has paid Professional Tax of Rs. 6,000 during PY 2020-21.
(iii) She is owning only one house & payment of Interest of Rs. 1,75,000 & Principal of Rs. 1,00,000 was made
for Housing Loan taken for purchase of House.
(iv) She has also taken a Loan of Rs. 2,00,000 from her employer for study of her son. SBI Rate for such
Loan is 10%. Her employer has recovered Rs. 10,000 as interest from her Salary for such Loan during
the year.
Compute Taxable Income & Tax Liability for AY 2021-22. [Nov 2011]
Solution: Computation of Total Income & Tax Liability for AY 2021-22
Particulars Rs. Rs.
Income under the Head Salary
Basic salary (60,000 x 12) 7,20,000
DA (40% of 7,20,000) 2,88,000
Value of Accommodation taken on Lease by the Employer [Least of]
(i) Rent paid by employer (15,000 x 12) 1,80,000
(ii) 15% of Salary (15% of 10,08,000) 1,51,200
Less: Amount Recovered from Employee (2,000 x 12) (24,000) 1,27,200
Concessional Loan (Loan o/s @ SBI Rate – Actual Rate) = (2 Lac x 10%) - 10,000 10,000
Less: Deduction u/s 16(iii) – Professional Tax (6,000) 10,89,200
94
Income u/h House Property (Let out Property)

Gross Annual Value (15,000 x 12) 1,80,000
Less: Deduction u/s 24(a) @ 30% of NAV (54,000)
Less: Deduction u/s 24(b): Interest on Housing Loan (1,75,000) (49,000)
Less: Deduction under Chapter VI A
U/s 80C: Housing Loan Principal (1,00,000) + NSC 60,000 (Max. 1,50,000) (1,50,000)
Total Taxable Income 8,90,200
Note: Tax on Total Income = [12,500 + (8,90,200 – 5,00,000) x 20%] = 90,540 + HEC @ 4% = Rs. 94,160.
95
AZ
CA Pranav Chandak's
DT Question Bank
5. PGBP


SM1. Mr. X, a proprietor engaged in manufacturing business, furnishes the following particulars:
(1) Opening WDV of P&M as on 1.4.2020 Rs. 30,00,000
(2) New P&M purchased & put to use on 08.06.2020 Rs. 20,00,000
(3) New P&M acquired & put to use on 15.12.2020 Rs. 8,00,000
(4) Computer acquired & installed in the office premises on 2.1.2021 Rs. 3,00,000
Compute the amount of depreciation & additional depreciation for AY 2021-22. Assume that all assets were
purchased by way of account payee cheque.
Answer: Computation of depreciation &additional depreciation for AY 2021-22
Particulars P&M Computer
(15%) (40%)
1 Normal depreciation
@ 15% on Rs. 50,00,000 [See W.N. 1 & 2] 7,50,000 -
@ 7.5% (50% of 15%, since put to use < 180 days) on Rs. 8,00,000 60,000
@ 20% (50% of 40%, since put to use < 180 days) on Rs. 3,00,000 60,000
2 Additional Depreciation
@ 20% on Rs. 20 Lacs (New P&M put to use for more than 180 days) 4,00,000 -
@ 10% (50% of 20%, since put to use < 180 days) on Rs. 8,00,000 80,000 -
Total depreciation 12,90,000 60,000
Working Notes:
(1) Computation of written down value of P&M as on 31.03.2021
Written down value as on 1.4.2020 Rs. 30,00,000 -
Add: P&M purchased on 08.6.2020 Rs. 20,00,000 -
Add: P&M acquired on 15.12.2020 Rs. 8,00,000 -
Computer acquired & installed in office premises - Rs. 3,00,000
Written down value as on 31.03.2021 Rs. 58,00,000 Rs. 3,00,000
(2) Composition of P&M included in the WDV as on 31.3.2021
P&M put to use for 180 days or more Rs. 50,00,000
[Rs. 30,00,000 (Opening WDV) + Rs. 20 Lacs (purchased on 8.6.2020)]
P&M put to use for less than 180 days Rs. 8,00,000 -
Computers put to use for less than 180 days - Rs. 3,00,000
Rs. 58,00,000 Rs. 3,00,000
Notes:
1. If asset acquired during PY is put to use for less than 180 days in that PY, normal depreciation &
additional depreciation would be restricted to 50% of amount computed as per the prescribed %.
Therefore, normal depreciation on P&M acquired & put to use on 15.12.2020 & computer acquired &
installed on 02.01.2021, is restricted to 50% of 15% & 40%, respectively. Additional depreciation on said
P&M is restricted to Rs. 80,000, being 10% (i.e., 50% of 20%) of Rs. 8 lakhs.
2. Balance Additional depreciation of Rs. 80,000 would be allowed as deduction in AY 2022-23.
3. Additional depreciation shall not be allowed on P&M installed in office premises, houses etc.
SM2. A car purchased by Dr. Soman on 10.08.2017 for Rs. 5,25,000 for personal use is brought into
professional use on 1.07.2020 by him, when its market value was Rs. 2,50,000.
Compute the actual cost of the car & depreciation for AY 2021-22. [Assuming Rate of depreciation = 15%].
Answer: As per section 43(1), expression “actual cost” would mean the actual cost of asset to the assessee.
Purchase price of Rs. 5,25,000 is, therefore, the actual cost of car to Dr. Soman. Market value (i.e. Rs.
2,50,000) on the date when the asset is brought into professional use is not relevant.
Thus, amount of depreciation on car u/s 32 for A.Y. 21-22 is Rs. 78,750, being Rs. 5,25,000 x 15%.
Note: Explanation 5 to section 43(1) providing for reduction of notional depreciation from the date of
acquisition of asset for personal use to determine actual cost of the asset is applicable only in case of
building which is initially acquired for personal use & later brought into professional use. It is not applicable
i.r.o. other assets.
SM3. A newly qualified Chartered Accountant Mr. Dhaval, commenced practice & has acquired the following
assets in his office during F.Y. 2020-21 at the cost shown against each item. Calculate the amount of
depreciation that can be claimed from his professional income for AY 2021-22. Assume that all the assets
were purchased by way of account payee cheque.
SN Description Acquisition Date Put to use Amount Rs.
1 Computer including computer software 27 Sept., 20 1 Oct., 20 Rs. 35,000
2 Computer UPS 2 Oct., 20 8 Oct., 20 Rs. 8,500
3 Computer printer 1 Oct., 20 1 Oct., 20 Rs. 12,500
4 Books (other than annual publications are of 1 Apr., 20 1 Apr., 20 Rs. 13,000
Rs. 12,000)
5 Office furniture (Acquired from a practicing 1 Apr., 20 1 Apr., 20 Rs. 3,00,000
C.A.)
6 Laptop 26 Sep., 20 8 Oct., 20 Rs. 43,000
Answer: Computation of depreciation allowable for AY 2021-22
Asset Rate Depreciation (Rs.)
Block 1 Furniture [See working note below] 10% Rs. 30,000
Block 2 Plant (Computer including computer software, 40% Rs. 34,500
Computer UPS, Laptop, Printers & Books) [See
working note below]
Total depreciation allowable Rs. 64,500
Working Note: Computation of depreciation

Block of Assets Rs.
Block 1: Furniture – [Rate of depreciation - 10%]
Put to use for more than 180 days [Rs. 3,00,000@10%] Rs. 30,000
Block 2: Plant [Rate of depreciation- 40%]
(a) Computer including computer software (put to use > 180 days) Rs. 35,000 @40% Rs. 14,000
(b) Computer UPS (put to use < 180 days) [Rs. 8,500@ 20%] [See note below] Rs. 1,700
(c) Computer Printer (put to use for more than 180 days) [Rs. 12,500 @ 40%] Rs. 5,000
(d) Laptop (put to use for less than 180 days) [Rs. 43,000 @ 20%] [See note below] Rs. 8,600
(e) Books (being annual publications or other than annual publications) (Put to use for more
than 180 days) [Rs. 13,000 @ 40%] Rs. 5,200
34,500
Note - Where an asset is acquired by the assessee during the PY & is put to use for the purposes of business or
profession for a period of less than 180 days, the deduction on account of depreciation would be restricted to
50% of the prescribed rate. In this case, since Mr. Dhaval commenced his practice in the PY 2020-21 & acquired
the assets during the same year, the restriction of depreciation to 50% of the prescribed rate would apply to
those assets which have been put to use < 180 days in that year, namely, laptop & computer UPS.
SM4. Mr. Gamma, a proprietor started a business of manufacture of tyres & tubes for motor vehicles on
1.1.2020. Manufacturing unit was set up on 1.5.2020. He commenced his manufacturing operations on
1.6.2020. Total cost of P&M installed in the unit is Rs. 120 Cr. The said P&M included second hand P&M bought
for Rs. 20 crores & new P&M for scientific research relating to the business of the assessee acquired at a
cost of Rs. 15 crores. Compute depreciation allowable u/s 32 i.r.o. AY 2021-22. Assume that all the assets
were purchased A/c payee cheque & Mr. Gamma has not opted for the provisions of section 115BAC.
Answer:
Particulars In Crore
Total cost of P&M – P&M used for Scientific Research (Note 1) = 120 – 15 Cr = Rs. 105
Normal Depreciation at 15% on Rs. 105 crores 15.75
Additional Depreciation:
Cost of P&M 120.00
Less: Second hand P&M (Note 2) (20.00)
Less: P&M used for scientific research, the whole of the actual cost of which (15.00) 85.00
is allowable as deduction u/s 35(1)(iv) r/w section 35(2)(ia) (Note 2)
Additional Depreciation at 20% on 85 Crores 17.00
Depreciation allowable for AY 2021-22 32.75
Notes:
1. As per section 35(2)(iv), no depreciation shall be allowed i.r.o. P&M purchased for scientific research
relating to assessee’s business, since deduction is allowable u/s 35 i.r.o. such capital expenditure.
2. As per section 32(1)(iia), additional depreciation is allowable in the case of any new machinery or plant
acquired & installed after 31.03.2005 by an assessee engaged in, inter alia, the business of manufacture
or production of any article or thing, at the rate of 20% of the actual cost of such machinery or plant.
However, additional depreciation shall not be allowed i.r.o.
- any P&M which was used either within or outside India by any other person;
- any P&M, the whole of the actual cost of which is allowed as a deduction.
In view of the above provisions, additional depreciation cannot be claimed i.r.o.
- Second hand P&M;
- New P&M purchased for scientific research relating to assessee’s business i.r.o. which the whole of
the capital expenditure can be claimed as deduction u/s 35(1)(iv) read with section 35(2)(ia) & (iv).
SM5. Mr. A, furnishes the following particulars for PY 2020-21. Compute the deduction allowable u/s 35 for AY
2021-22, while computing his income u/h “PGBP”.
Particulars Rs.
1 Amount paid to notified approved Indian Institute of Science, Bangalore, for scientific 1,00,000
research
2 Amount paid to IIT, Delhi for an approved scientific research programme 2,50,000
3 Amount paid to X Ltd., a company registered in India which has as its main object scientific 4,00,000
R&D, as is approved by the prescribed authority
4 Expenditure incurred on in-house research & development facility as approved by prescribed
authority
(a) Revenue expenditure on scientific research 3,00,000
(b) Capital expenditure (including COA of land Rs. 5,00,000) on scientific research 7,50,000
Answer: Computation of deduction u/s 35 for AY 2021-22

Particulars Rs. Section % deduction Deduction
Payment for scientific research
Indian Institute of Science 1,00,000 35(1)(ii) 100% 1,00,000
IIT, Delhi 2,50,000 35(2AA) 100% 2,50,000
X Ltd. 4,00,000 35(1)(iia) 100% 4,00,000
Expenditure incurred on in-house research &
development facility
Revenue expenditure 3,00,000 35(1)(i) 100% 3,00,000
Capital expenditure (excluding cost of 2,50,000 35(1)(iv) r/w 100% 2,50,000
acquisition of land Rs. 5,00,000) 35(2)(ia)
Deduction allowable u/s 35 13,00,000
Note: Only company assessees are entitled to deduction @ 100% u/s 35(2AB) i.r.o. in-house R&D expenditure
incurred. However, in this case, assessee is an individual. Therefore, he would be entitled to deduction @
100% of revenue expenditure incurred u/s 35(1)(i) & 100% of capital expenditure incurred u/s 35(1)(iv) r/w
35(2), assuming that such expenditure is laid out or expended on scientific research related to his business.
SM6. Mr. A commenced operations of the businesses of setting up a warehousing facility for storage of food
grains, sugar & edible oil on 1.4.2020. He incurred capital expenditure of Rs. 80 Lacs, Rs. 60 Lacs & Rs. 50 Lacs,
respectively, on purchase of land & building during the period January, 2020 to March, 2020 exclusively for the
above businesses, & capitalized the same in its books of account as on 1st April, 2020. The cost of land included
in the above figures is Rs. 50 Lacs, Rs. 40 Lacs & Rs. 30 Lacs, respectively. During PY 2020-21, he incurred capital
expenditure of Rs. 20 Lacs, 15 Lacs & Rs. 10 Lacs, respectively, for extension/ reconstruction of the building
purchased & used exclusively for the above businesses.
Compute the income u/h “PGBP” for the AY 2021-22 & the loss to be carried forward, assuming that Mr. A has
fulfilled all the conditions specified u/s 35AD & wants to claim deduction u/s 35AD & has not claimed any
deduction under Chapter VI-A u/hing “C – Deductions i.r.o. certain incomes”.
The profits from the business of setting up a warehousing facility for storage of food grains, sugar & edible oil
(before claiming deduction u/s 35AD & sec. 32) for A.Y. 2021-22 is Rs. 16 lakhs, Rs. 14 lakhs & Rs. 31 lakhs,
respectively. Also, assume i.r.o. expenditure incurred, the payments are made by account payee cheque or use
of ECS through bank account.
Answer: Computation of profits & gains of business or profession for AY 2021-22
Particulars Rs.
Profit from business of setting up of warehouse for storage of edible oil (before providing for 31 Lacs
depreciation u/s 32)
Less: Depreciation u/s 32 [10% of Rs. 30 Lacs] being (Rs. 50 Lacs – Rs. 30 Lacs + Rs. 10 Lacs) (3 Lacs)
Income chargeable under “Profits & gains from business or profession” 28 Lacs
Computation of income/loss from specified business u/s 35AD

Particulars Foodgrain Sugar Total
(A) Profits from the specified business of setting up a warehousing 16 14 30
facility (before providing deduction u/s 35AD)
Less: Deduction u/s 35AD

(B) Capital expenditure incurred prior to 1.4.2020 (i.e., prior to 30 20 50
commencement of business) & capitalized in the books of account as
on 1.4.2020 (excluding the expenditure incurred on acquisition of land)
= Rs. 30 Lacs (Rs. 80 Lacs – Rs. 50 Lacs) & Rs. 20 Lacs (Rs. 60 Lacs –
Rs. 40 Lacs)
(C) Capital expenditure incurred during the PY 2020-21 20 15 35
(D) Total capital expenditure (B + C) 50 35 85
(E) Deduction u/s 35AD [100% of capital expenditure] 50 35 85
Total deduction u/s 35AD for AY 2021-22 50 35 85
(F) Loss from the specified business of setting up & operating a (34) (21) (55)
warehousing facility (after providing for deduction u/s 35AD) to be
C/F as per section 73A (A-E)
Notes:
1. Deduction of 100% of the capital expenditure is available u/s 35AD for AY 2021-22 i.r.o. specified
business of setting up & operating a warehousing facility for storage of sugar & setting up & operating
a warehousing facility for storage of agricultural produce where operations are commenced on or after
01.04.2012 or on or after 01.04.2009, respectively.
2. However, since setting up & operating a warehousing facility for storage of edible oils is not a specified
business, Mr. A is not eligible for deduction u/s 35AD i.r.o. capital expenditure incurred i.r.o. such
business.
3. Mr. A can, however, claim depreciation@10% u/s 32 i.r.o. the capital expenditure incurred on buildings.
It is presumed that the buildings were put to use for more than 180 days during PY 2020-21.
4. Loss from a specified business can be set-off only against profits from another specified business.
Therefore, loss of Rs. 55 Lacs from specified businesses cannot be set-off against the profits of 28 Lacs
from non-specified business. Such loss can, however, be carried forward indefinitely for set-off against
profits of the same or any other specified business.
SM7. Mr. Suraj, a proprietor, commenced operations of the business of a new three-star hotel in Madurai, Tamil
Nadu on 1.4.2020. He incurred capital expenditure of Rs. 50 Lacs during the period January, 2020 to March, 2020
exclusively for the above business, & capitalized the same in his books of account as on 1st April, 2020. Further,
during PY 2020-21, he incurred capital expenditure of Rs. 2 crores (out of which Rs. 1.50 crore was for acquisition
of land) exclusively for the above business.
Compute the income u/h “PGBP” for AY 2021-22, assuming that he has fulfilled all the conditions specified u/s
35AD & opted for claiming deduction u/s 35AD; & he has not claimed any deduction under Chapter VI-A under
heading “C – Deductions i.r.o. certain incomes”.
Profits from the business of running this hotel (before claiming deduction u/s 35AD for AY 2021-22 is Rs. 25 lakhs.
Assume that he also has another existing business of running a four-star hotel in Coimbatore, which commenced
operations fifteen years back, the profits from which are Rs. 120 lakhs for the A.Y.2021- 22. Also, assume that
payments for capital expenditure were made by net banking.
Answer: Computation of profits & gains of business or profession for AY 2021-22
Particulars Rs.
Profit from specified business of new hotel in Madurai (before deduction u/s 35AD) 25 Lacs
Less: Deduction u/s 35AD
- Capital expenditure during PY 2020-21 (excluding cost of land) = 200 Lacs - Rs. 150 Lacs (50 Lacs)
- Capital expenditure incurred prior to 1.4.2020 (i.e., prior to commencement of business) (50 Lacs)
& capitalized in the books of account as on 1.4.2020
Loss from specified business of new hotel in Madhurai (75 Lacs)
Profit from the existing business of running a hotel in coimbatore 120 Lacs
Net profit from business after set off of lossed of specified business against profit of non- 45 Lacs
specified business u/s 73A
SM8. Mr. Arnav is a proprietor having two units – Unit A carries on specified business of setting up &
operating a warehousing facility for storage of sugar; Unit B carries on non- specified business of operating
a warehousing facility for storage of edible oil.
Unit A commenced operations on 1.4.2019 & it claimed deduction of Rs. 100 lacs incurred on purchase of
two buildings for Rs. 50 lacs each (for operating a warehousing facility for storage of sugar) u/s 35AD for
AY 2020-21. However, in February, 2021, Unit A transferred one of its buildings to Unit B. Examine the tax
implications of such transfer in the hands of Mr. Arnav.
Solution: Since the capital asset, i.r.o which deduction of Rs. 50 lacs was claimed u/s 35AD, has been
transferred by Unit A carrying on specified business to Unit B carrying on non-specified business in PY
2020-21, the deeming provision u/s 35AD(7B) is attracted during the AY 2021-22.
Particulars Amount
Deduction allowed u/s 35AD for AY 2020-21 Rs. 50,00,000
Less: Depreciation allowable u/s 32 for AY 2020-21 [10% of Rs. 50 lacs] (Rs. 5,00,000)
Deemed income u/s 35AD(7B) Rs. 45,00,000
By virtue of section 43(1), Mr. Arnav can claim depreciation u/s 32 on building in Unit B for AY 21-22.
For the purpose of claiming depreciation on building in Unit B, actual cost of the building would be:
Actual cost - Depreciation allowable u/s 32 for AY 2020-21 = Rs. 50 L – Rs. 5 L = Rs. 45 Lacs.
SM9. X Ltd. contributes 20% of basic salary to the account of each employee under a pension scheme
referred to in section 80CCD. Dearness Allowance is 40% of basic salary & it forms part of pay of the
employees.
Compute the amount of deduction allowable u/s 36(1)(iva), if the basic salary of the employees aggregate
to 10 Lacs. Would disallowance u/s 40A(9) be attracted, & if so, to what extent?
Solution: Computation of deduction u/s 36(1)(iva) & disallowance u/s 40A(9)
Particulars Rs.
Dearness Allowance@40% of basic salary [DA forms part of pay] 4,00,000
Salary for the purpose of section 36(1)(iva) (Basic Salary + DA) 14,00,000
Actual contribution (20% of basic salary i.e., 20% of Rs. 10 lacs) 2,00,000
Less: Permissible deduction (10% of basic salary + DA) = 10% of Rs. 14,00,000 = Rs. 1,40,000) (1,40,000)
Excess contribution disallowed u/s 40A(9) 60,000
SM10. Delta Ltd. credited the following amounts to the account of resident payees in the month of March,
2021 without deduction of tax at source. What would be the consequence of non-deduction of tax at source
by Delta Ltd. on these amounts during the FY 2020-21, assuming that the resident payees in all the cases
mentioned below, have not paid the tax, if any, which was required to be deducted by Delta Ltd.?
(1) Salary to its employees (credited & paid in March, 2021) 12,00,000
(2) Directors’ remuneration (credited in March, 2021 & paid in April, 2021) 28,000
Would your answer change if Delta Ltd. has deducted tax on directors’ remuneration in April, 2021 at the
time of payment & remitted the same in July, 2021?
Answer:
Non-deduction of tax at source on any sum payable to a resident on which tax is deductible at source as
per the provisions of Chapter XVII-B would attract disallowance u/s 40(a)(ia).
Therefore, non-deduction of tax at source on any sum paid by way of salary on which tax is deductible u/s
192 or any sum credited or paid by way of directors’ remuneration on which tax is deductible u/s 194J,
would attract disallowance@30% u/s 40(a)(ia). Whereas in case of salary, tax has to be deducted u/s 192
at the time of payment, in case of directors’ remuneration, tax has to be deducted at the time of credit
of such sum to the account of the payee or at the time of payment, whichever is earlier.
Therefore, in both the cases i.e., salary & directors’ remuneration, tax is deductible in PY 2020-21, since
salary was paid in that year & directors’ remuneration was credited in that year. Therefore, the amount
to be disallowed u/s 40(a)(ia) while computing business income for AY 2021-22 is as follows:
Particulars Amount Disallowance u/s
paid 40(a)(ia) @ 30%
(1) Salary [tax is deductible u/s 192] 12,00,000 3,60,000
(2) Directors’ remuneration [tax is deductible u/s 194J without any 28,000 8,400
threshold limit]
Disallowance u/s 40(a)(ia) 3,68,400
SM11. During PY 2020-21, the following payments/expenditure were made/ incurred by Mr. Yuvan Raja, a
resident individual (whose turnover during year ended 31.3.2020 was Rs. 99 lacs):
(a) Interest of Rs. 45,000 was paid to Rehman & Co., a resident partnership firm, without deduction of tax
at source;
(b) 3,00,000 was paid as salary to a resident individual without deduction of tax at source;
(c) Commission of Rs. 16,000 was paid to Mr. Vidyasagar, a resident, on 2.7.2020 without TDS.
Briefly discuss whether any disallowance arises under the provisions of section 40(a)(ia) assuming that the
payees have not paid the tax which was required to be deducted by Mr. Raja?
Answer:
Disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 is attracted where the assessee fails to deduct tax
at source as is required under the Act, or having deducted tax at source, fails to remit the same to the
credit of the CG within the stipulated time limit.
(a) Obligation to deduct tax at source from interest paid to a resident arises u/s 194A in the case of an
individual, whose total turnover in the immediately preceding PY, i.e., PY2019-20 exceeds Rs. 1 crore.
Thus, in present case, since the turnover of the assessee is less than Rs. 1 crore, he is not liable to
deduct tax at source. Hence, disallowance u/s 40(a)(ia) is not attracted in this case.
(b) Disallowance of 30% of the sums payable u/s 40(a)(ia) would be attracted i.r.o. all sums on which tax is
deductible under Chapter XVII-B. Section 192, which requires deduction of tax at source from salary
paid, is covered under Chapter XVII-B.
The obligation to deduct tax at source u/s 192 arises, in the hands all assessee-employer even if the
turnover amount does not exceed Rs. 1 crore in the immediately preceding PY.
Therefore, in the present case, the disallowance u/s 40(a)(ia) is attracted for failure to deduct tax at
source u/s 192 from salary payment. However, only 30% of the amount of salary paid without deduction
of tax at source would be disallowed.
(c) Obligation to deduct tax at source u/s 194-H from commission paid in excess of Rs. 15,000 to a resident
arises in the case of an individual, whose total turnover in the immediately preceding PY, i.e., PY2019-
20 exceeds Rs. 1 crore.
Thus, in present case, since the turnover of the assessee is less than Rs. 1 crore, he is not liable to
deduct tax at source u/s 194H. Mr. Raja is not required to deduct tax at source u/s 194M also since the
aggregate of such commission to Mr. Vidyasagar does not exceed Rs. 50 Lacs during the PY 2020-21.
Therefore, disallowance u/s 40(a)(ia) is not attracted in this case.
SM12. A firm has paid Rs. 7,50,000 as remuneration to its partners for PY 2020-21, in accordance with its
partnership deed, & it has a book profit of Rs. 10 Lacs. What is the remuneration allowable as deduction?
Answer: Allowable remuneration calculated as per the limits specified in section 40(b)(v):
Particulars Rs.
On first Rs. 3 Lacs of book profit [Rs. 3,00,000 × 90%] Rs. 2,70,000
On balance Rs. 7 Lacs of book profit [ Rs. 7,00,000 × 60%] Rs. 4,20,000
Rs. 6,90,000
Excess amount of Rs. 60,000 (i.e., Rs. 7,50,000 – Rs. 6,90,000) is disallowed u/s 40(b)(v) to firm.
SM13. Rao & Jain, a partnership firm consisting of two partners, reports a net profit of Rs. 7,00,000 before
deduction of the following items:
- Salary of Rs. 20,000 each per month payable to two working partners of the firm (as authorized by the
deed of partnership).
- Depreciation on P&M u/s 32 (computed) Rs. 1,50,000.
- Interest on capital at 15% per annum (as per the deed of partnership). The amount of capital eligible for
interest is Rs. 5,00,000.
Compute:
(a) Book-profit of the firm u/s 40(b) of the Income-tax Act, 1961.
(b) Allowable working partner salary for the AY 2021-22 as per section 40(b).
Answer:
(a) As per Explanation 3 to section 40(b), “book profit” shall mean the net profit as per the profit & loss
account for the relevant PY computed in the manner laid down in Chapter IV-D as increased by the
aggregate amount of the remuneration paid or payable to the partners of the firm if the same has been
already deducted while computing the net profit.
In the present case, the net profit given is before deduction of depreciation on P&M, interest on capital
of partners & salary to the working partners. Therefore, the book profit shall be as follows:
Computation of Book Profit of the firm u/s 40(b)
Particulars Rs. Rs.
Net Profit (before deduction of depreciation, salary & interest) 7,00,000
Less: Depreciation u/s 32 (1,50,000)
Less: Interest @ 12% p.a. [being the maximum allowable as per section (60,000) (2,10,000)
40(b)] (5,00,000 × 12%)
Book Profit 4,90,000
(b) Salary actually paid to working partners = Rs. 20,000 × 2 × 12 = Rs. 4,80,000. As per Sec. 40(b)(v), the
salary paid to the working partners is allowed subject to following limits:
On first Rs. 3 Lac of book profit or book loss Higher of (i) Rs. 1,50,000 or (ii) 90% of book profit
On the balance of book profit 60% of the balance book profit
❖ Maximum allowable working partners’ salary for AY 2021-22 in this case would be:
Particulars Rs.
On first Rs. 3 Lacs of book profit [(Higher of (i) Rs. 1,50,000 or (ii) 90% of Rs. 3 Lacs)] 2,70,000
On the balance of book profit [60% of (Rs. 4,90,000 - Rs. 3,00,000)] 1,14,000
Maximum allowable partners’ salary 3,84,000
❖ Hence, allowable working partners’ salary for AY 2021-22 as per section 40(b)(v) = Rs. 3,84,000.
SM14. Hari, an individual, carried on the business of purchase & sale of agricultural commodities like paddy,
wheat, etc. He borrowed the following loans & has not paid interest as detailed hereunder:
- Andhra Pradesh State Financial Corporation (PY 2019-20 & 2020-21): Rs. 15 Lacs.
- Indian Bank (PY 2020-21): Rs. 30 Lacs.
Both APSFC & Indian Bank, while restructuring the loan facilities of Hari during the year 2020-21, converted
the above interest payable by Hari to them as a loan repayable in 60 equal installments. During the year
ended 31.3.2021, Hari paid 5 installments to APSFC & 3 installments to Indian Bank.
Hari claimed entire interest of Rs. 45 Lacs as an expenditure while computing business income of purchase
& sale of agricultural commodities. Examine whether his claim is valid & what is the amount of interest
allowable.
Solution: According to section 43B, any interest payable on the term loans to specified financial institutions
& any interest payable on any loans & advances to, inter alia, scheduled banks shall be allowed only in the
year of payment of such interest irrespective of the method of accounting followed by the assessee. Where
there is default in the payment of interest by the assessee, such unpaid interest may be converted into
loan. Such conversion of unpaid interest into loan shall not be construed as payment of interest for section
43B. Amount of unpaid interest so converted as loan shall be allowed as deduction only in the year in which
converted loan is actually paid.
In this case, unpaid interest of Rs. 15 Lacs due to APSFC & of Rs. 30 Lacs due to Indian Bank was converted
into loan. Such conversion would not amount to payment of interest & would not be eligible for deduction in
the year of such conversion. Hence, claim of Hari that entire interest of Rs. 45 Lacs is to be allowed as
deduction in the year of conversion is not tenable. Deduction shall be allowed only to the extent of
repayment made during FY. Accordingly, amount of interest eligible for deduction for AY 2021-22 shall be
calculated as follows:
Banks Interest Number of Amount per Instalments Interest
outstanding Instalments instalment paid allowable
APSFC 15 lacs 60 25,000 5 1,25,000
Indian Bank 30 lacs 60 50,000 3 1,50,000
Total amount eligible for deduction 2,75,000
SM15. Vinod is a film artist. His gross receipts from profession are as under:
Particulars Rs.
FY 2017-18 1,15,000
FY 2018-19 1,80,000
FY 2019-20 2,10,000
What is his obligation regarding maintenance of books of accounts for AY 2021-22 u/s 44AA?
Answer: Section 44AA(1) requires every person carrying on any specified profession to maintain such books
of account & other documents as may enable AO to compute his total income in accordance with the
provisions of the Income-tax Act, 1961.
Person carrying on notified profession shall be required to maintain specified books of accounts [Rule 6F]:
(i) if his gross receipts in all the three years immediately preceding the relevant PY has exceeded Rs.
1,50,000; or
(ii) if it is a new profession which is setup in the relevant PY, it is likely to exceed Rs. 1,50,000 in that PY.
In the present case, Vinod is a person carrying on profession as film artist, which is a notified profession.
Since his gross receipts have not exceeded Rs. 1,50,000 in FY 2017-18, the requirement u/s 44AA to
compulsorily maintain the prescribed books of account is not applicable to him.
However, Vinod is required to maintain such books of A/cs as would enable AO to compute his total income.
SM16. Mr. Praveen engaged in retail trade, reports a turnover of Rs. 1,98,50,000 for PY 2020-21. His income
from the said business as per books of account is Rs. 13,20,000 computed as per the provisions of Chapter
IV-D “PGBP” of the Income-tax Act, 1961. Retail trade is the only source of income for Mr. Praveen. A.Y.
2020-21 was the first year for which he declared his business income in accordance with the provisions of
presumptive taxation u/s 44AD.
(a) Is Mr. Praveen also eligible to opt for presumptive determination of his income chargeable to tax for
the AY 2021-22?
(b) If so, determine his income from retail trade as per the applicable presumptive provision assuming that
whole of the turnover represents cash receipts.
(c) In case Mr. Praveen does not opt for presumptive taxation of income from retail trade, what are his
obligations under the Income-tax Act, 1961?
(d) What is the due date for filing his return of income under both the options?
Answer:
(a) Yes. Since his total turnover for PY 2020-21 is below Rs. 200 lacs, he is eligible to opt for presumptive
taxation scheme u/s 44AD i.r.o. his retail trade business.
(b) His income from retail trade, applying the presumptive tax provisions u/s 44AD, would be Rs. 15,88,000,
being 8% of Rs. 1,98,50,000.
(c) Mr. Praveen had declared profit for PY 2019-20 in accordance with the presumptive provisions & if he
does not opt for presumptive provisions for any of the 5 consecutive AYs i.e., AY 2021-22 to AY 2025-
26, he would not be eligible to claim the benefit of presumptive taxation for five AYs subsequent to the
AY relevant to the PY in which the profit has not been declared in accordance the presumptive
provisions i.e. if he does not opt for presumptive taxation in (say) PY 2020-21, then he would not be
eligible to claim the benefit of presumptive taxation for AY- 2022-23 to AY 2026-27.
Consequently, Mr. Praveen is required to maintain the books of accounts & get them audited u/s 44AB,
since his income exceeds the basic exemption limit.
(d) In case he opts for the presumptive taxation scheme u/s 44AD, the due date would be 31 st July, 2021.
In case he does not opt for presumptive taxation scheme, he is required to get his books of account
audited, in which case the due date for filing of return of income would be 31 st October, 2021.
SM17. Mr. X commenced the business of operating goods vehicles on 1.4.2020. He purchased the following
vehicles during PY 2020-21. Compute his income u/s 44AE for AY 2021-22.
Gross Vehicle Weight (in kilograms) Number Date of purchase
(1) 7,000 Kgs 2 10.04.2020
(2) 6,500 Kgs 1 15.03.2021
(3) 10,000 Kgs 3 16.07.2020
(4) 11,000 Kgs 1 02.01.2021
(5) 15,000 Kgs 2 29.08.2020
(6) 15,000 Kgs 1 23.02.2021
Would your answer change if goods vehicle purchased in April 20 were put to use only in July 20?
Answer:
Since Mr. X does not own more than 10 vehicles at any time during PY 2020-21, he is eligible to opt for
presumptive taxation scheme u/s 44AE.
Rs. 1,000 per ton of gross vehicle weight/unladen weight per month (or part) for each heavy goods vehicle.
Rs. 7,500 per month (or part) for each goods carriage other than heavy goods vehicle, owned by him would
be deemed as his profits & gains from such goods carriage.
Heavy goods vehicle is any goods carriage, gross vehicle weight of which exceeds 12000 kg.
(1) (2) (3) (4)

Number of Date of No. of months for which vehicle No. of months × No. of vehicles
Vehicles purchase is owned [(1) × (3)]
For Heavy goods vehicle
2 29.08.2020 8 16
1 23.02.2021 2 2
18
For goods vehicle other than heavy goods vehicle
2 10.4.2020 12 24
1 15.3.2021 1 1
3 16.7.2020 9 27
1 02.1.2021 3 3
55
Presumptive income of Mr. X u/s 44AE for AY 2021-22 = Rs. 6,82,500 (55 × Rs. 7,500) being for other than
heavy goods vehicle + 18 x Rs. 1,000 x 15 ton being for heavy goods vehicle.
Answer would remain the same even if 2 vehicles purchased in April, 2020 were put to use only in July, 2020,
since presumptive income has to be calculated per month (or part) for which vehicle is owned by Mr. X.
SM18. Miss Vivitha, a resident & ordinarily resident in India, has derived the following income from various
operations (relating to plantations & estates owned by her) during the year ended 31.03.2021:
SN Particulars Rs.
(i) Income from sale of centrifuged latex processed from rubber plants grown in 3,00,000
Darjeeling.
(ii) Income from sale of coffee grown & cured in Yercaud, Tamil Nadu. 1,00,000
(iii) Income from sale of coffee grown, cured, roasted & grounded, in Colombo. Sale 2,50,000
consideration was received at Chennai.
(iv) Income from sale of tea grown & manufactured in Shimla. 4,00,000
(v) Income from sapling & seedling grown in a nursery at Cochin. Basic operations were not 80,000
carried out by her on land.
You are required to compute the business income & agricultural income of Miss Vivitha for AY 2021-22.
Answer: Computation of business & agricultural income of Ms. Vivitha for the AY 2021-22
Source of income Gross (Rs.) Business income Agri income
% Rs. Rs.
(i) Sale of centrifuged latex from rubber 3,00,000 35% 1,05,000 1,95,000
plants grown in India.
(ii) Sale of coffee grown & cured in India. 1,00,000 25% 25,000 75,000
(iii) Sale of coffee grown, cured, roasted & 2,50,000 100% 2,50,000 -
grounded outside India. (See Note 1 below)
(iv) Sale of tea grown & manufactured in India 4,00,000 40% 1,60,000 2,40,000
(v) Saplings & seedlings grown in nursery in 80,000 Nil 80,000
India (See Note 2)
Total 5,40,000 5,90,000
Notes:
1. Where income is derived from sale of coffee grown, cured, roasted & grounded by the seller in India,
40% of such income is taken as business income & the balance as agricultural income. However, in this
question, these operations are done in Colombo, Sri lanka. Hence, there is no question of such
apportionment & the whole income is taxable as business income. Receipt of sale proceeds in India does
not make this agricultural income. In the case of an assessee, being a resident & ordinarily resident,
the income arising outside India is also chargeable to tax.
2. Explanation 3 to section 2(1A) provides that income derived from saplings or seedlings grown in a nursery
would be deemed to be agricultural income whether or not basic operations were carried out on land.
TEST YOUR KNOWLEDGE

Q1. Mr. Venus., engaged in manufacture of pesticides, furnishes the following particulars relating to its
manufacturing unit at Chennai, for the year ending 31.03.2021:
Opening WDV of P&M 20 Lacs
New machinery purchased on 1-9-2020 10 Lacs
New machinery purchased on 1-12-2020 8 Lacs
Computer purchased on 3-1-2021 4 Lacs
Additional information:
- All assets were purchased by A/c payee cheque.
- All assets were put to use immediately.
- New machinery purchased on 1-12-2020 & computer have been installed in the office.
- During PY 2019-20, a new machinery had been purchased on 31.10.2019 for Rs. 10 lacs. Additional
depreciation, besides normal depreciation, had been claimed thereon.
- Depreciation rate for machinery may be taken as 15%.
Compute depreciation available to the assessee & WDV of different blocks of assets as on 31-3-2021.
Answer: Computation of written down value of block of assets of Venus Ltd. as on 31.3.2021
Particulars P&M (Rs. in lacs) Computer (Rs.in lacs)
Opening written down value (as on 01.04.2020) 20 Nil
Add: Actual cost of new assets acquired during the
year New machinery purchased on 1.9.2020 10 -
Add: New machinery purchased on 1.12.2020 8 -
Add: Computer purchased on 3.1.2021 - 4
Less: Assets sold/discarded/destroyed Nil Nil
Closing Written Down Value (as on 31.03.2021) 38 4
Computation of Depreciation for AY 2021-22

I. Assets put to use for > 180 days, eligible for 100% depreciation calculated applying the eligible
rate of normal depreciation & additional depreciation
Normal Depreciation
- Opening WDV of P&M (Rs. 20 lacs x 15%) 3.00 -
- New Machinery purchased on 1.9.2020 (Rs. 10 lacs x 15%) 1.50 -
(A) 4.50 -
Additional Depreciation
New Machinery purchased on 1.9.2020 (Rs. 10 lakhs x 20%) 2.00 -
Balance additional depreciation i.r.o. new machinery
purchased on 31.10.2019 & put to use for less than 180 days in
PY 2019-20 (Rs. 10 lakhs x 20% x 50%) 1.00
(B) 3.00
II. Assets put to use for less than 180 days, eligible for 50% depreciation calculated applying the
eligible rate of normal depreciation & additional depreciation, if any
Normal Depreciation
New machinery purchased on 1.12.2020 [Rs. 8 lacs x 7.5% (i.e., 0.60 -
50% of 15%)]
Computer purchased on 3.1.2021 [Rs. 4 lacs x 20% (50% of 40%)] - 0.80
(C) 0.60 0.80
Total Depreciation (A+B+C) 8.10 0.80
Notes:
1. As per section 32(1)(iia), additional depreciation is allowable in the case of any new machinery or plant
acquired & installed after 31.3.2005, by an assessee engaged, inter alia, in the business of manufacture
or production of any article or thing, at the rate of 20% of the actual cost of such machinery or plant.
However, additional depreciation shall not be allowed i.r.o. any office appliances or road transport
vehicles & any machinery or plant installed in, inter alia, office premises.
In view of the above provisions, additional depreciation cannot be claimed i.r.o. Machinery purchased
on 1.12.2020, installed in office & Computer purchased on 3.1.2021, installed in office.
2. Balance additional depreciation@10% on new plant or machinery acquired & put to use for less than 180
days in the year of acquisition which has not been allowed in that year, shall be allowed in the
immediately succeeding PY.
Hence, in this case, the balance additional depreciation@10% (i.e., Rs. 1 lakhs, being 10% of Rs. 10 lakhs)
i.r.o. new machinery which had been purchased during the PY 2019-20 & put to use for less than 180
days in that year can be claimed in PY 2020-21 being immediately succeeding PY.
Q2. Mr. Abhimanyu is engaged in the business of generation & distribution of electric power. He opts to
claim depreciation on WDV for income-tax purposes. Compute depreciation for AY 2021-22:
Particulars Rs.
(i) Opening WDV of block (15% rate) 42 Lacs
(ii) New machinery purchased on 12-10-2020 10 Lacs
(iii) Machinery imported from Colombo on 12-4-2020. This machine had been used only in 9 Lacs
Colombo earlier & the assessee is the first user in India.
(iv) New computer installed in generation wing unit on 15-7-2020 2 Lacs
All assets were purchased by A/c payee cheque.
Answer: Computation of depreciation u/s 32 for AY 2021-22

Particulars Rs. Rs.
Normal Depreciation
Depreciation @ 15% on Rs. 51,00,000, being machinery put to use for more 7,65,000
than 180 days [Opening WDV of 42,00,000 + Purchase cost of imported
machinery of 9,00,000]
Depreciation @ 7.5% on Rs. 10,00,000, being new machinery put to use for 75,000
less than 180 days
Depreciation @ 40% on computers purchased 2,00,000 80,000 9,20,000
Additional Depreciation (Refer Note below)
Additional Depreciation @ 10% of 10,00,000 [being actual cost of new 1,00,000
machinery purchased on 12-10-2020]
Additional Depreciation @ 20% on new computer installed in generation
wing of the unit [20% of Rs. 2,00,000] 40,000 1,40,000
Depreciation on P&M 10,60,000
Note:
Benefit of additional depreciation is available to new P&M acquired & installed in power sector
undertakings. Accordingly, additional depreciation is allowable in the case of any new machinery or plant
acquired & installed by an assessee engaged, inter alia, in the business of generation, transmission or
distribution of power, at the rate of 20% of the actual cost of such machinery or plant.
Therefore, new computer installed in generation wing units eligible for additional depreciation@20%.
Since the new machinery was purchased only on 12.10.2020, it was put to use < 180 days during the PY, &
hence, only 10% (i.e., 50% of 20%) is allowable as additional depreciation in the AY 2021-22. The balance
additional depreciation would be allowed in the next year.
However, additional depreciation shall not be allowed i.r.o., inter alia, any machinery or plant which, before
its installation by the assessee, was used either within or outside India by any other person. Therefore,
additional depreciation is not allowable i.r.o. imported machinery, since it was used in Colombo, before its
installation by the assessee.
Q3. Examine with reasons, the allowability of the following expenses incurred by Mr. Manav, a wholesale
dealer of commodities while computing profit & gains from business or profession for AY 2021-22.
(a) Construction of school building in compliance with CSR activities amounting to Rs. 5,60,000.
(b) Purchase of building for the purpose of specified business of setting up & operating a warehousing
facility for storage of food grains amounting to Rs. 4,50,000.
(c) Interest on loan paid to Mr. X (a resident) Rs. 50,000 on which tax has not been deducted. The sales
for the PY 2019-20 was Rs. 202 lakhs. Mr. X has not paid the tax, if any, on such interest.
(d) Commodities transaction tax paid Rs. 20,000 on sale of bullion.
Answer: Allowability of the expenses incurred by Mr. Manav, a wholesale dealer in commodities, while
computing income from PGBP:
(a) Construction of school building in compliance with CSR activities
U/s 37(1), only expenditure not being in the nature of capital expenditure or personal expense & not
covered u/ss 30 to 36, & incurred wholly & exclusively for the purposes of the business is allowed as a
deduction while computing business income. However, any expenditure incurred by an assessee on the
activities relating to corporate social responsibility referred to in Sec. 135 of Companies Act, 2013
shall not be deemed to have been incurred for the purpose of business & hence, shall not be allowed as
deduction u/s 37. Accordingly, the amount of Rs. 5,60,000 incurred by Mr. Manav, towards construction
of school building in compliance with CSR activities shall not be allowed as deduction u/s 37.
(b) Purchase of building for setting up & operating a warehousing facility for storage of food grains
Mr. Manav, would be eligible for investment-linked tax deduction u/s 35AD @100% i.r.o. amount of Rs.
4,50,000 invested in purchase of building for setting up & operating a warehousing facility for storage
of food grains which commences operation on or after 1st April, 2009 (PY2020- 21, in this case).
Therefore, the deduction u/s 35AD while computing business income of such specified business would
be Rs. 4,50,000, if Mr. Manav opts for section 35AD.
(c) Interest on loan paid to Mr. X (a resident) Rs. 50,000 on which tax has not been deducted
As per Sec. 194A, Mr. Manav, being an individual is required to deduct tax at source on amount of
interest on loan paid to Mr. X, since his turnover during PY 2019-20 exceeds Rs. 100 lacs.
Therefore, Rs. 15,000, being 30% of Rs. 50,000, would be disallowed u/s 40(a)(ia) while computing the
business income of Mr. Manav for non- deduction of tax at source u/s 194A on interest of Rs. 50,000
paid by it to Mr. X.
The balance Rs. 35,000 would be allowed as deduction u/s 36(1)(iii), assuming that the amount was
borrowed for the purposes of business.
(d) Commodities transaction tax of Rs. 20,000 paid on sale of bullion
Commodities transaction tax paid i.r.o. taxable commodities transactions entered into in the course of
business during the PY is allowable as deduction, provided the income arising from such taxable
commodities transactions is included in the income computed u/h “Profits & gains of business or
profession”.
Taking that income from this commodities transaction is included while computing the business income
of Mr. Manav, the commodity transaction tax of Rs. 20,000 paid is allowable as deduction u/s 36(1)(xvi).
Q4. Examine 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:
(a) For a dealer in shares & securities, securities transaction tax paid in a recognized stock exchange is
permissible business expenditure.
(b) Where a person follows mercantile system of accounting, an expenditure of Rs. 25,000 has been allowed
on accrual basis & in a later year, i.r.o. the said expenditure, assessee makes the payment of Rs. 25,000
through a cheque crossed as "& Co., Rs. 25,000 can be the profits & gains of business u/s 40A(3A) in
the year of payment.
(c) It is mandatory to provide for depreciation u/s 32 of the Income-tax Act, 1961, while computing income
u/h “Profits & Gains from Business & Profession”.
(d) The mediclaim premium paid to GIC by Mr. Lomesh for his employees, by a draft, on 27.12.2020 is a
deductible expenditure u/s 36.
(e) U/s 35DDA, amortization of expenditure incurred under eligible Voluntary Retirement Scheme at the
time of retirement alone, can be done.
(f) An existing assessee engaged in trading activities, can claim additional depreciation u/s 32(1)(iia) i.r.o.
new plant acquired & installed in the trading concern, where the increase in value of such plant as
compared to the approved base year is more than 10%.
Answer:
(a) True: Section 36(1)(xv) allows a deduction of the amount of securities transaction tax paid by the
assessee i.r.o. taxable securities transactions entered into in the course of business during the PY as
deduction from the business income of a dealer in shares & securities.
(b) True: As per section 40A(3A), in the case of an assessee following mercantile system of accounting, if
an expenditure has been allowed as deduction in any PY on due basis, & payment exceeding Rs. 10,000
has been made in the subsequent year otherwise than by an account payee cheque or an account payee
bank draft or use of ECS through a bank account or through such other prescribed electronic modes
such as credit card, debit card, net banking, IMPS, UPI, RTGS, NEFT, & BHIM Aadhar Pay, then, the
payment so made shall be deemed to be the income of the subsequent year in which such payment has
been made.
(c) 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.
(d) True: Section 36(1)(ib) provides deduction i.r.o. 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 u/s 36(1)(ib).
(e) False: Expenditure incurred in making payment to the employee in connection with his voluntary
retirement either in the year of retirement or in any subsequent year, will be entitled to deduction in
5 equal annual installments beginning from the year in which each payment is made to the employee.
(f) False: Additional depreciation can be claimed only i.r.o. eligible P&M acquired & installed by an
assessee engaged in the business of manufacture or production of any article or thing or in the business
of generation or transmission or distribution of power.
In this case, the assessee is engaged in trading activities & the new plant has been acquired & installed
in a trading concern. Hence, the assessee will not be entitled to claim additional depreciation u/s
32(1)(iia).
Q5. Examine, with reasons, the allowability of the following expenses under the Income- tax Act, 1961 while
computing income from business or profession for the AY 2021-22:
(a) Provision made on the basis of actuarial valuation for payment of gratuity Rs. 5,00,000. However, no
payment on account of gratuity was made before due date of filing return.
(b) Purchase of oil seeds of Rs. 50,000 in cash from a farmer on a banking day.
(c) Tax on non-monetary perquisite provided to an employee Rs. 20,000.
(d) Payment of Rs. 50,000 by using credit card for fire insurance.
(e) Salary payment of Rs. 4,00,000 to Mr. X outside India by a company without deduction of tax assuming
Mr. X has not paid tax on such salary income.
(f) Payment made in cash Rs. 30,000 to a transporter in a day for carriage of goods.
Answer:
(a) Not allowable as deduction: As per section 40A(7), no deduction is allowed in computing business income
i.r.o. any provision made by the assessee in his books of account for the payment of gratuity to his
employees except in the following two cases:
(1) where any provision is made for the purpose of payment of sum by way of contribution towards an
approved gratuity fund or;
(2) where any provision is made for the purpose of making any payment on account of gratuity that has
become payable during the PY.
Therefore, in the present case, provision made on basis of actuarial valuation for payment of gratuity
has to be disallowed u/s 40A (7), since, no payment has been actually made on account of gratuity.
Note: It is assumed that such provision is not for contribution towards an approved gratuity fund.
(b) Allowable as deduction: As per Rule 6DD, in case the payment is made for purchase of agricultural
produce directly to the cultivator, grower or producer of such agricultural produce, no disallowance
u/s 40A(3) is attracted even though the cash payment for the expense exceeds Rs. 10,000. Therefore,
disallowance u/s 40A(3) is not attracted since, cash payment for purchase of oil seeds is made directly
to the farmer.
(c) Not allowable as deduction: Income tax of Rs. 20,000 paid by employer i.r.o. non-monetary perquisites
provided to its employees is exempt in the hands of the employee u/s 10(10CC). As per section 40(a)(v),
such income-tax paid by the employer is not deductible while computing business income.
(d) Allowable as deduction: Payment for fire insurance is allowable as deduction u/s 36(1). Since payment
is made by credit card, which is a prescribed electronic mode, disallowance u/s 40A(3) is not attracted.
(e) Not allowable as deduction: Disallowance u/s 40(a)(iii) is attracted i.r.o. salary payment of Rs. 2,00,000
outside India by a company without deduction of tax at source.
(f) Allowable as deduction: The limit for attracting disallowance u/s 40A(3) for payment otherwise than by
way of account payee cheque or account payee bank draft or use of ECS through a bank account or
through such other prescribed electronic mode is Rs. 35,000 in case of payment made for plying, hiring
or leasing goods carriage. Therefore, in the present case, disallowance u/s 40A(3) is not attracted for
payment of Rs. 30,000 made in cash to a transporter for carriage of goods.
Q6. Examine with reasons, whether the following statements are true or false:
(a) Payment made i.r.o. a business expenditure incurred on 16th February, 2021 for Rs. 25,000 through a
cheque duly crossed as "& Co." is hit by the provisions of section 40A(3).
(b) It is a condition precedent to write off in the books of account, the amount due from debtor to claim
deduction for bad debt.
(c) Failure to deduct tax at source in accordance with the provisions of Chapter XVII-B, inter alia, from
the amounts payable to a non-resident as rent or royalty, will result in disallowance while computing
the business income where the non-resident payee has not paid the tax due on such income.
Answer:
(a) True. In order to escape the disallowance specified in section 40A(3), payment i.r.o. the business
expenditure ought to have been made through an account payee cheque. Payment through a cheque
crossed as “& Co.” will attract disallowance u/s 40A(3).
(b) True. It is mandatory to write off the amount due from a debtor as not receivable in the books of
account, in order to claim the same as bad debt u/s 36(1)(vii). However, where the debt has been taken
into account in computing the income of the assessee on the basis of ICDSs notified u/s 145(2), without
recording the same in the accounts, then, such debt shall be allowed in the PY in which such debt
becomes irrecoverable & it shall be deemed that such debt or part thereof has been written off as
irrecoverable in the accounts for the said purpose.
(c) True. Section 40(a)(i) provides that failure to deduct tax at source from rent or royalty payable to a
NR will result in disallowance of such expenditure if NR payee has not paid the tax due on such income.
Q7. Mr. Sivam, a retail trader of Cochin gives the following Trading & P&L A/c for PY 2020-21:
Trading & Profit & Loss Account for PY 2020-21
Particulars Rs. Particulars Rs.
To Opening stock 90,000 By Sales 1,12,11,500
To Purchases 1,10,04,000 By Closing stock 1,86,100
To Gross Profit 3,03,600 -
1,13,97,600 1,13,97,600
To Salary 60,000 By Gross profit b/d 3,03,600
To Rent & rates 36,000 By Income from UTI 2,400
To Interest on loan 15,000
To Depreciation 1,05,000
To Printing & stationery 23,200
To Postage & telegram 1,640
To Loss on sale of shares (Short term) 8,100
To Other general expenses 7,060
To Net Profit 50,000
3,06,000 3,06,000
Additional Information:
1. It was found that some stocks were omitted to be included in both the Opening & Closing Stock, the
values of which were: Opening stock: Rs. 9,000; Closing stock: Rs. 18,000
2. Salary includes Rs. 10,000 paid to his brother, which is unreasonable to the extent of Rs. 2,000.
3. Whole amount of printing & stationery was paid in cash by way of one-time payment to Mr. Ramesh.
4. Depreciation provided in the Profit & Loss Account Rs. 1,05,000 was based on the following information:
WDV of P&M is Rs. 4,20,000 as on 01.04.2020. A new plant falling under the same block of depreciation
was bought on 01.7.2020 for Rs. 70,000. Two old plants were sold on 1.10.2020 for Rs. 50,000.
5. Rent & rates includes GST liability of Rs. 3,400 paid on 7.4.2021.
6. Other general expenses include Rs. 2,000 paid as donation to a Public Charitable Trust.
You are required to compute the profits & gains of Mr. Sivam under presumptive taxation u/s 44AD &
profits & gains as per normal provisions of the Act assuming he has not opted for the provisions of section
115BAC. Assume that the whole of the amount of turnover received by A/c payee cheque during the PY.
Answer: Computation of business income of Mr. Sivam for AY 2021-22
Particulars Rs. Rs.
Net Profit as per profit & loss account 50,000
Add: Inadmissible expenses/losses
Under valuation of closing stock 18,000
Salary paid to brother – Unreasonable Disallowed [Section 40A(2)] 2,000
Printing & stationery - Whole amount of printing & stationery paid in 23,200
cash would be disallowed, since such amount exceeds Rs. 10,000
[Section 40A(3)]
Depreciation (considered separately) 1,05,000
Short term capital loss on shares 8,100
Donation to public charitable trust 2,000
Less: Under valuation of opening stock 9,000
Income from UTI [Chargeable u/h “IFOS”] 2,400
Less: Depreciation (See Note 1) (66,000)
Income u/h PGBP as per the normal provisions of Income Tax Act 1,30,900
Computation of business income as per section 44AD: As per section 44AD, where the amount of turnover
is received by way of account payee cheque or use of ECS through bank account or prescribed electronic
modes, presumptive business income would be 6% of turnover, i.e., Rs. 1,12,11,500 x 6 /100 = Rs. 6,72,690
1. Calculation of depreciation
Particulars Rs.
WDV of the block of P&M as on 1.4.2020 4,20,000
Add: Cost of new P&M 70,000
Less: Sale proceeds of assets sold Rs. 50,000
WDV of the block of P&M as on 31.3.2021 4,40,000
Depreciation @ 15% Rs. 66,000
No additional depreciation as assessee is not engaged in manufacture or production.
2. Since GST liability has been paid before due date of filing ROI u/s 139(1), the same is deductible.
Q8. Mr. Sukhvinder is engaged in the business of plying goods carriages. On 1st April, 2020, he owns 10 trucks
(out of which 6 are heavy goods vehicles, the gross vehicle weight of such goods vehicle is 15,000 kg each).
On 2nd May 2020, he sold one of the heavy goods vehicles & purchased a light goods vehicle on 6th May
2020. This new vehicle could however be put to use only on 15th June, 2020.
Compute the total income of Mr. Sukhvinder for AY 2021-22, taking note of the following data:
Freight charges collected Rs. 12,70,000
Less: Operational expenses (Rs. 6,25,000)
Less: Depreciation as per section 32 (Rs. 1,85,000)
Less: Other office expenses (Rs. 15,000)
Net Profit Rs. 4,45,000
Other business & non- business income Rs. 70,000
Answer:
▪ Section 44AE would apply in the case of Mr. Sukhvinder since he is engaged in the business of plying
goods carriages & owns not more than ten goods carriages at any time during the PY.
▪ Mr. Sukhvinder’s business income calculated applying the provisions of section 44AE is Rs. 13,72,500 (See
Notes 1 & 2 below) & his total income would be Rs. 14,42,500.
▪ However, as per section 44AE(7), Mr. Sukhvinder may claim lower profits & gains if he keeps & maintains
proper books of account as per section 44AA & gets the same audited & furnishes a report of such audit
as required u/s 44AB.
▪ If he does so, then his income for tax purposes from goods carriages would be Rs. 4,45,000 instead of
Rs. 13,72,500 & his total income would be Rs. 5,15,000.
Notes:
1. Computation of total income of Mr. Sukhvinder for AY 2021-22
Particulars Presumptive income Where books are maintained
Income from business of plying goods carriages Rs. 13,72,500 Rs. 4,45,000
Other business & non-business income Rs. 70,000 Rs. 70,000
Total Income Rs. 14,42,500 Rs. 5,15,000
2. Calculation of presumptive income as per section 44AE

Type of carriage No. of months Rate per ton p.m. Ton Amount
(1) (2) (3) (4)
Heavy goods vehicle
1 goods carriage 2 1,000 15 (15,000/ 1,000) 30,000
upto 1st May
5 goods carriage 12 1,000 15 (15,000/ 1,000) 9,00,000
held throughout
the year
Goods vehicle other than heavy goods vehicle
1 goods carriage 11 7,500 - 82,500
from 6th May
4 goods carriage 12 7,500 - 3,60,000
held throughout
the year
Total 13,72,500
Q9. Mr. Raju, a manufacturer at Chennai, gives following Manufacturing, Trading & P&L A/c for PY 2020-21:
Manufacturing, Trading & Profit & Loss Account for PY 2020-21
To Opening Stock Rs. 71,000 By Sales Rs. 2,32,00,000
To Purchase of Raw Materials Rs. 2,16,99,000 By Closing stock Rs. 2,00,000
To Manufacturing Wages & Expenses Rs. 5,70,000
To Gross Profit Rs. 10,60,000
Rs. 2,34,00,000 Rs. 2,34,00,000
To Administrative charges Rs. 3,26,000 By Gross Profit Rs. 10,60,000
To SGST penalty Rs. 5,000 By Dividend from domestic Rs. 15,000
To GST paid Rs. 1,10,000 companies
To General Expenses Rs. 54,000 By Income from agriculture Rs. 1,80,000

To Interest to Bank (Machinery loan) Rs. 60,000 (net)
To Depreciation Rs. 2,00,000

To Net Profit Rs. 5,00,000
Rs. 12,55,000 Rs. 12,55,000
Following are the further information relating to PY 2020-21:

1. Administrative charges include Rs. 46,000 paid as commission to brother of the assessee. The
commission amount at the market rate is Rs. 36,000.
2. Assessee paid Rs. 33,000 in cash to a transport carrier on 29.12.2020. This amount is included in
manufacturing expenses. (Assume that the provisions relating to TDS are not applicable to this payment)
3. A sum of Rs. 4,000 per month was paid as salary to a staff throughout the year & this has not been
recorded in the books of account.
4. Bank term loan interest actually paid upto 31.03.2021 was Rs. 20,000 & the balance was paid in November
2021.
5. Housing loan principal repaid during the PY was Rs. 50,000 & it relates to residential property acquired
by him in PY 2019-20 for self-occupation. Interest on housing loan was Rs. 23,000. Housing loan was taken
from Canara Bank. These amounts were not dealt with in the profit & loss account given above.
6. Depreciation allowable under the Act is to be computed on the basis of following information:
P&M (Depreciation rate @ 15%)
Opening WDV (as on 01.04.2020) 12,00,000
Additions during the year (used for more than 180 days) 2,00,000
Total additions during the year 4,00,000
Note: Ignore additional depreciation u/s 32(1)(iia)
Compute the total income of Mr. Raju for AY 2021-22 assuming he has not opted for the provisions of sec.
115BAC. [Note: Ignore application of section 14A for disallowance of expenditures i.r.o. any exempt incomes]
Answer: Computation of total income of Mr. Raju for AY 2021-22

Particulars Rs. Rs.
1 Profits & gains of business or profession
Net profit as per profit & loss account 5,00,000
Add: Excess commission paid to brother disallowed u/s 40A(2) 10,000
Add: Disallowance u/s 40A(3) is not attracted since the limit for one time cash Nil
payment is Rs. 35,000 i.r.o. payment to transport operators. Therefore, Rs.
33,000 paid in cash to a transport carrier is allowable as deduction.
Add: Salary paid to staff not recorded in the books (Assuming that the 48,000
expenditure is in the nature of unexplained expenditure & hence, is deemed
to be income as per section 69C & would be taxable @ 60% u/s 115BBE - No
deduction allowable i.r.o. such expenditure) [See Note 1 below]
Add: Bank term loan interest paid after due date of filing ROI u/s 139(1) - 40,000
disallowed as per section 43B
Add: State GST penalty paid disallowed [See Note 2 below] 5,000
Add: Depreciation debited to profit & loss account 2,00,000
Less: Dividend from domestic companies [taxable u/h ‘IFOS’] (15,000)
Less: Income from agriculture [Exempt u/s 10(1)] (1,80,000)
Less: Depreciation under the Income-tax Act, 1961 (As per working note) (2,25,000) 3,83,000
2 Income from house property
Annual value of self-occupied property Nil
Less: Deduction u/s 24(b) – interest on housing loan (23,000) (23,000)
Dividend from domestic companies 15,000 15,000
4 Gross Total Income 3,75,000
Less: Deduction u/s 80C i.r.o. Principal repayment of housing loan (50,000)
5 Total Income 3,25,000
Working Note: Computation of depreciation under the Income-tax Act, 1961

@ 15% on Rs. 14 Lacs (Opening WDV: Rs. 12 Lacs + Assets purchased during PY: Rs. 2 Lacs) Rs. 2,10,000
@ 7.5% on Rs. 2 Lacs (Assets used for less than 180 days) Rs. 15,000
Total Depreciation 2,25,000
Notes (Alternate views):

1. It is also possible to take a view that the salary not recorded in the books of account was an erroneous
omission & that assessee has offered satisfactory explanation. In such case, it should not be added back
as unexplained expenditure, but would be allowable as deduction while computing income u/h ‘PGBP’.
2. Where imposition of penalty is not for delay in payment of sales tax/VAT/GST but for contravention of
provisions of the Sales Tax Act/VAT/GST Law, the levy is not compensatory & therefore, not deductible.
However, if the levy is compensatory in nature, it would be fully allowable. Where it is a composite levy,
the portion which is compensatory is allowable & that portion which is penal is to be disallowed.
Since the question only mentions “GST penalty paid” & the reason for levy of penalty is not given, it has
been assumed that the levy is not compensatory & therefore, not deductible. It is, however, possible to
assume that such levy is compensatory in nature & hence, allowable as deduction.
Q10. Mr. Tenzingh is engaged in composite business of growing & curing (further processing) coffee in
Coorg, Karnataka. The whole of coffee grown in his plantation is cured. Relevant information pertaining to
PY 2020-21 are given below:
Particulars Rs.
WDV of car as on 1.4.2020 3,00,000
WDV of machinery as on 1.4.2020 (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 & maintenance are Rs. 50,000.
The machines were used in coffee curing business operations.
(a) Compute the income arising from the above activities for AY 2021-22.
(b) Show the WDV of the assets as on 1.4.2021.
Answer:
▪ Where an assessee is engaged in the composite business of growing & curing of coffee, income will be
segregated between agricultural income & business income, as per Rule 7B.
▪ As per the above Rule, income derived from sale of coffee grown & cured by the seller in India shall be
computed as if it were income derived from business, & 25% of such income shall be deemed to be income
liable to tax. The balance 75% will be treated as agricultural income.
Particulars Rs. Rs. Rs.

1 Sale value of cured coffee 22,00,000
2 Expenses for growing coffee (3,10,000)
Car expenses (80% of Rs. 50,000) (40,000)
Depreciation on car (80% of 15% of Rs. 3,00,000) [See Computation below] (36,000)
Total cost of agricultural operations (a) (3,86,000)
Expenditure for coffee curing operations 3,00,000
Add: Depreciation on machinery (15% of Rs. 15,00,000) [Computation below] 2,25,000
Total cost of the curing operations (b) 5,25,000
Total cost of composite operations [(a) + (b)] 9,11,000
3 Total profits from composite activities [1 – 2] [Rs. 22,00,000 – Rs. 9,11,000] 12,89,000
4 Business income (25% of above) 3,22,250
Agricultural income (75% of above) 9,66,750
(b) Computation of WDV of depreciable assets as on 31.3.2021

▪ Explanation 7 to section 43(6) provides that in cases of ‘composite income’, for the purpose of
computing written down value of assets acquired before the PY, the total amount of depreciation
shall be computed as if the entire composite income of the assessee (& not just 25%) is chargeable
u/h ‘PGBP’.
▪ Depreciation so computed shall be deemed to have been “actually allowed” to the assessee.
Computation of value of depreciable assets as on 31.3.2021 Rs. Rs. Rs.

1 Car
Opening value as on 1.4.2020 3,00,000
Depreciation thereon at 15% 45,000
Less: Disallowance @20% for personal use 9,000
Depreciation actually allowed 36,000
WDV as on 1.4.2021 2,64,000
2 Machinery
Opening value as on 1.4.2020 15,00,000
Less: Depreciation @ 15% 2,25,000
WDV as on 1.4.2021 12,75,000
PGBP – PRACTICE QUESTION BANK

PQ1. Mr. Vidyasagar, Resident Individual (age 64) is a Partner in Oscar Musicals & Co, a Partnership Firm.
He also runs wholesale business in medical products. Following details are made available for PY 2020-21:
Particulars Rs. Rs.
1 Interest on Capital received from Oscar Musicals & Co. 1,50,000
2 Interest from Bank on Fixed Deposit (Net of TDS of Rs. 1,500) 13,500
3 Income Tax Refund received relating to AY 2019-20 34,500
4 Net Profit from Wholesale Business 5,60,000
Amount debited to P&L A/c includes the following:
- Depreciation as per books of A/c 34,000
- Motor Car Expenses 40,000
- Municipal Taxes for Shop (For 2 half years, payment for one half year made 7,000
on 12.06.2021 & for other on 14.11.2021)
- Salary to Manager 21,000
5 WDV of Assets (as on 1.4.2020 used in above business)
- Computers 1,20,000
- Motor Car (20% used for personal use) 3,20,000
6 LIP paid for major son 60,000
7 PPF of his wife 70,000
8 NSC 30,000
Other Points:
1. Income Tax refund includes interest of Rs. 2,300.
2. Salary to manager was paid in cash.
3. Rate of Interest on Capital received from Oscar Musicals & Co was 15%.
Compute his Total Income for AY 2021-22. Compute WDV of Blocks of Assets as on 31.03.2021. [MAY 11]
Solution: Computation of Total Income of Mr. Vidyasagar
1 Income u/h ‘PGBP’
Net profit as per P&L A/c 5,60,000
Add: Expenses not deductible u/h ‘PGBP’ but debited to P&L A/c
1. Depreciation as per books of A/c 34,000
2. Muncipal taxes paid on 14.11.2020 (Disallowed u/s 43B since paid after 3,500
DD of RoI)
3. Motor Car expenses used for personal purpose [40,000 × 20%] 8,000
4. Salary paid to manager in cash [Disallowed u/s 40A(3)] 21,000
Add: Income taxable u/h ‘PGBP’ but not credited in P&L A/c
Interest on capital (Rs. 1,50,000 x 12% ÷ 15%) [Note 1] 1,20,000
Less: Expense deductible but not debited to P&L A/c
Depreciation as per Income Tax Act [WN 2] (86,400) 6,60,100
2 Income u/h ‘IFOS’

1. Interest from Fixed Deposits (after grossing up) (13,500 + 1,500) 15,000
2. Interest on Income Tax Refund 2,300 17,300
Less: Deductions under Chapter VI-A:
Section 80C: LIP for Major Son 60,000
Section 80C: NSC 30,000
Section 80C: Contribution to PPF for his wife 70,000 1,60,000 (1,50,000)
Total (taxable) Income 5,27,400
Working Notes:
1. Interest upto 12% is deductible in the hands of firm. Interest above 12% is disallowed in the hands of
firm u/s 40(b).
As per sec 28, Remuneration/Interest is taxable in the hands of Partner to the extent it is deductible
to firm.
2. Computation of WDV
Particulars Computer (40%) Motor Car (15%)
Opening WDV as on 01.04.2019 1,20,000 3,20,000
Less: Depreciation for PY (1,20,000 x 40%) = Rs. 48,000 (3,20,000 x 15%) = Rs. 48,000
Closing WDV as on 31.03.2020 Rs. 72,000 Rs. 2,72,000
Total Depreciation for PY = Rs. 48,000 (computer)+ 80% of Rs. 48,000 (Car)= Rs. 86,400. 20% of
Depreciation on Motor Car used for Personal Purpose is not allowed as deduction.
PC Note: Depreciation Rate of 30% is available only if motor car is acquired during 23.8.2019 - 31.3.2020
& put to use on/before 31.3.2020. In this case, since it was purchased earlier, depreciation will be
available @ 15% only.
3. Income Tax Refund: It is not taxable. However, Interest on Income Tax Refund is taxable u/h “IFOS”.
PQ2. Mr. Raghu, a Resident Individual (age 35 years), furnished following information from his P&L A/c for PY 2020-21:
❖ Net Profit as per books of A/c was Rs. 6,50,000.
❖ Following Incomes were credited in the P&L A/c:
▪ Interest on Government Securities: Rs. 25,000.
▪ Dividend from a Foreign Company: Rs. 50,000.
▪ Gold Coins worth Rs. 55,000 received as Gift from his father.
❖ Interest on Loan amounting to Rs. 68,000 was paid i.r.o Capital borrowed for purchase of New Asset which has not
been put to use till 31st March 2021.
❖ General Expenses includes: Compensation of Rs. 4,500 paid to an Employee while terminating his services.
❖ He contributed the following amounts by Cheque:
▪ Rs. 20,000 to the Swachh Bharat Kosh set up by the Central Government.
▪ Rs. 28,000 towards Premium for Health Insurance & Rs. 2,500 for Preventive Health Check up for Self & his wife.
▪ Rs. 35,000 on Medical Expenses of his father (Age 82 yrs) [No Insurance had been taken on health of his father]
You are required to compute the Total Income of Mr. Raghu for AY 2021-22 [Nov 2016]
Solution: Computation of Taxable Income & Tax Liability of Mr. Raghu
I Income u/h ‘PGBP’
Net profit as per P&L A/c 6,50,000
Add: Expenses not deductible u/h ‘PGBP’ but debited to P&L A/c
1. Interest on Loan [Disallowed u/s 36(1)(iii)] [Note 1] 68,000 68,000

Less: Income which are taxable under other heads or Exempt
Incomes but credited to P&L A/c
1. Interest on Government Securities (considered u/h ‘IFOS’) (25,000)
2. Dividend from Foreign Company (considered u/h ‘IFOS’) (50,000)
3. Gold Coins from Father (considered u/h ‘IFOS’) (55,000) (1,30,000) 5,88,000
II Income u/h ‘IFOS’
1. Interest on Government Securities 25,000
2. Dividend from Foreign Company (Taxable since received from foregin company) 50,000
3. Gold Coin from Father (not taxable since received from Relative) Nil 75,000
Section 80D: Health Insurance Premium for Assessee & Spouse [Max. of Rs. 25,000] (25,000)
Section 80D: Medical Expense of his Father (82 Yr) [Senior & thus Max. Limit is Rs. 50,000] (35,000)
(80,000)
Section 80G: Contribution to Swach Bharat Kosh [100% deduction allowed without restriction] (20,000)
Total (taxable) Income 5,83,000
Notes:
1. As per Sec. 36(1)(iii), Interest on Capital borrowed for the purchase of asset, paid from the date on which the capital was
borrowed upto the date such asset was first put to use, shall not be allowed as a deduction.
2. Compensation to Employees for Termination is incurred for business & thus allowed u/s 37.
PQ3. Mr. X, a Chartered Accountant & has prepared the following income & expenditure account for PY 2020-21:
Expenditure Amount Income Amount
Office expenses 12,000 Professional fee 65,00,000
Employee’s salary 20,000 Consultancy Fee 55,000
Magazines & newspapers 800 Dividend from Indian co. 8,500
Entertainment Expenses (Personal) 17,500 Profit on sale of debentures (STCG) 8,450
Donation for a charity show 600 Gift from father in-law 6,050
Interest on loan for professional purpose 800
Income Tax (advance tax) 5,000
Car Expenses 2,500
Purchase of books 2,000
Stationery 21,000
Diwali gift to employees 1,000
Rent of own building 60,000
Municipal tax 1,000
White washing & Painting of building 2,000
Expenses incurred on opening ceremony 3,000
You are required to compute his Total Income for AY 2021-22 considering the following points -
1. The car is used equally for official & personal purposes.
2. Rs. 1,500 for domestic servant’s salary is included in employee’s salary.
3. Books were purchased on 01.09.2020 & were put to use on the same date.
4. Payment of stationery Rs. 20,500 was made by a bearer cheque & Rs. 500 was paid in cash.
5. Mr. X is owner of a building. Opening WDV = Rs. 90,000. Building is used for official purposes. No depreciation is claimed.
6. Furniture having WDV of Rs. 30,000 as on 1.4.2020 is also used for profession. Office chairs & tables were purchased &
put to use on 30.03.2021 for the purpose of a new office which has been inaugurated on 31.03.2021. No depreciation
has been debited to the profit & loss account. Actual cost: Rs. 20,000.
7. Employee’s salary includes bonus of Rs. 5,000 which was paid to one of the employees on 1.7.2021.
Solution: Computation of professional income as per Income & Expenditure A/c
1 Profits & Gains from Business or Profession [Receipts – Expenditures]
A. Receipts Taxable u/h ‘PGBP’
Fees from Professional Services 65,00,000
Consultancy Fee 55,000
B. Expenditures deductible u/h ‘PGBP’
Office expenses (12,000)
Employee’s salary [20,000 – 1500] (18,500)
Magazines & newspapers (800)
Interest on loan for professional purpose (800)
Car Expenses [Rs. 2,500 x ½] (1250)
Diwali gift to employees (1,000)
Municipal tax (1,000)
White washing & Painting of building (2,000)
Expenses incurred on opening ceremony (3,000)
Depreciation on building (Rs. 90,000 @ 10%) (9,000)
Depreciation on books (2,000 @ 40%) (800)
Depreciation on furniture (Rs. 30,000 @ 10%) + (Rs. 20,000 @ 5%) (4,000) 65,00,850
2 Income from other sources

Dividend from Indian company – Exempt u/s 10(34) Nil
Gift from father in-law – Not taxable since received from Relative Nil Nil
3 Income u/h ‘Capital Gains’: STCG on sale of debentures 8,450
Note: Expenses on opening ceremony are allowed u/s 37(1).
*PQ4. From the following P & L A/c of Mr. X for PY 2020-21, compute his gross total income for AY 2021-22:
Debits Rs. Credits Rs.
Opening Stock 9,50,000 Sales 101,06,000
Purchases 80,50,000 Closing Stock 3,60,000
Salaries 7,00,000 LTCG on sale of house property 36,000
Rent, rates & taxes 1,25,000 Dividends from foreign company 12,000
Miscellaneous Expenses 21,000 Winnings of a lottery (gross) 5,00,000
Provision for Income Tax 31,000
Provision for gratuity 24,000
Provision for GST 45,000
Deposit in NSC 42,000
Salary to Mrs. X 48,000
Purchased a computer on 1.11.2020 40,000
Net Profit 9,38,000
Additional information:
1. Purchases include:
(a) Purchase of Rs. 1,00,000 from a relative (market price Rs. 80,000) & payment was made in cash.
(b) Purchase of Rs. 25,000 being the products manufactured without aid of power in a cottage industry & payment
was made to its producer & payment was made in cash.
(c) Purchases of Rs. 35,000 from a person residing in village having no bank & payment was made in cash.
2. Opening & closing stock were overvalued by 10%.
3. Salary includes Rs. 25,000 being bonus paid to the staff on 1.11.2021 on the occasion of Diwali.
4. Rent, rates & taxes include Municipal tax paid on 1.11.2021: Rs. 30,000.
5. Provision for Gratuity is on actuarial basis.
6. Mrs. X is a housewife & payment is excessive by Rs. 48,000.
Note: Mr. X has not opted for presumptive taxation of Income u/s 44AD.
Solution:
Net profit as per profit & loss A/c 9,38,000
Add: Expenses debited to P & L A/c but not allowable
Deposit in NSC (not an expenditure) 42,000
Provision for income tax 31,000
Provision for GST 45,000
Salary to Mrs. X [Sec 40A(2)] 48,000
Purchase of computer (capital expenditure) 40,000
Purchase from relative [Sec 40A(2)] 20,000
Payment in cash [Sec 40A(3)] 80,000
Adjustment for overvalued Opening stock (9,50,000 x 10/110) 86,363
Bonus paid after due date (Sec 43B) 25,000
Municipal tax paid after due date (Sec 43B) 30,000 4,47,363
Less: Permissible Expenses
Depreciation on computer (40,000 x 40% x ½) (8,000)
Closing stock overvalued (3,60,000 x 10/110) (32,727) (40,727)
Less: Incomes taxable under other head but not u/h PGBP
Long term capital gain (36,000)
Dividend from foreign company (12,000)
(5,48,000)
Winnings of lottery (5,00,000)
Income u/h ‘PGBP 7,96,636
Income from Other Sources

Dividend from foreign company 12,000
Winnings from lottery 5,00,000 5,12,000
Income u/h ‘Capital Gains’: LTCG on sale of House (taxable @ 20%) 36,000
PQ5. Mr. PC submits the profit & loss A/c for PY 2020-21:
Debits Rs. Credits Rs.
Household expense 20,000 Gross Profit 5,28,500
Interest on loan taken from Mrs. PC 2,000 Income tax refund 3,000
Income tax 12,000 Interest on income tax refund 300
Interest on loan for payment of income tax 1,200 GST refund 1,000
Contribution to Unrecognised Provident Fund 4,000 Interest on GST refund 400
Expenditure on advertisement (revenue) 25,000 Bad debts recovered 5,000
Public provident fund contribution 7,000 Dividends from foreign company 3,000
Investment in post-office saving bank account 12,000
Purchase of car (A/c payee cheque) 2,45,000
Purchase of Computer (By A/c payee cheque) 35,000
Purchase of plant (By A/c payee cheque) 23,000
Net Profit 1,55,000
Note: Car, Computer, P&M were purchased on 1.10.2020 & were put to use on same date. Compute TI of PC for AY 2021-22.
Solution: Computation of Total Income of Mr. PC for AY 2021-22
1 Profits & gains from business & profession
Net Profit as per profit & loss account 1,55,000
Add: Inadmissible Expenses debited to P&L A/c
Household expenses 20,000
Income tax 12,000
Interest on loan for payment of income tax 1,200
Contribution to Unrecognised provident fund 4,000
Contribution to public provident fund 7,000
Investment in post office saving bank account 12,000
Purchase of car 2,45,000
Purchase of computer 35,000
Purchase of plant 23,000
Less: Inadmissible Expenses
Income tax refund (3,000)
Interest on Income tax Refund (300)
Dividends (3,000)
Depreciation on car (2,45,000 x 15% x ½) [Used for < 180 days] (18,375)
Depreciation on computer (35,000 x 40% x ½) [Used for < 180 days] (7,000)
Depreciation (23,000 x 15% x ½) on plant [Used for < 180 days] (1,725)
Income under the head Business/Profession 4,80,800
2 Income under the head Other Sources
Interest on Income tax Refund 300
Dividends from foreign company 3,000
3 Gross Total Income 4,84,100
Less: Deduction u/s 80C – Contribution to PPF (7,000)
4 Total Income 4,77,100
PQ6. Mr. X is engaged in the business of generation & distribution of electric power. He always claims depreciation on WDV.
From the following details, compute depreciation allowable for AY 2021-22: [Nov 2013]
(a) Opening WDV of block (15% rate) Rs. 42 Lacs
(b) New machinery purchased on 12.10.2020 Rs. 10 Lacs
(c) Machinery imported from Colombo on 12.04.2020. This machine had been used only in Colombo Rs. 9 lacs
earlier & assessee is the first user in India.
(d) New computer installed in generation wing of the unit on 15.07.2020 Rs. 2 lacs
Solution:
Computation of Depreciation allowable u/s 32 for AY 2021-22
Opening WDV as on 01.04.2020 Rs. 42 Lacs
Add: New Machinery purchased & put to use on 12.10.2020 Rs. 10 Lacs
Add: Machinery imported from Colombo purchased & put to use on 12.04.2020 Rs. 9 Lacs
WDV as on 31.03.2021 Rs. 61 Lacs
Normal Depreciation @ 7.5% on Rs. 10,00,000 Rs. 75,000
Normal Depreciation @ 15% on Rs. 51,00,000 Rs. 7,65,000
Total Normal Depreciation Rs. 8,40,000
Additional depreciation on machinery purchased on 12.10.2020 @ 10% on Rs. 10 Lacs Rs. 1 Lacs
Total Depreciation Rs. 9,40,000
Block 40%
New Computer in Generation wing purchased & put to use on 15.07.2020 2,00,000
Normal Depreciation @ 40% on Rs. 2,00,000 80,000
Additional depreciation @ 20% on Rs. 2,00,000 40,000
PQ7. Mr. X engaged in Retails Trade, reports a turnover of Rs. 1,98,50,000 (all payments received in account
payee cheque) for PY 2020-21. His income from the said business as per books of account is computed at
Rs. 13,20,000. Retail trade is the only source of income for Mr. X.
(a) Is Mr. X eligible to opt for presumptive determination of his income chargeable to tax for AY 2021-22?
(b) Is so, determine his income from retail trade as per the applicable presumptive provision.
(c) In case, Mr. X has not opted for presumptive taxation of income from retail trade, what are his
obligations?
(d) What is the ‘due date’ for filing his return of income, under both the options? [MAY 2011]
Solution:
(a) Yes. Since his total turnover for PY 2020-21 is below Rs. 2 crores, he is eligible to opt for presumptive
taxation scheme u/s 44AD in respect of his retail trade business.
(b) His income from retail trade, applying provisions u/s 44AD = Rs. 15,88,000 [6% of Rs. 1,98,50,000].
(c) If he has not opted for presumptive taxation scheme u/s 44AD, & claims that his income is Rs. 13,20,000
(which is lower than the presumptive business income of Rs. 15,88,000), he has to maintain books of
account as required u/s 44AA & also get them audited & furnish a report of such audit u/s 44AB, since
his total income > BEL of Rs. 2,50,000 & he will not be eligible to claim the benefit of presumptive
taxation for 5 AYs.
(d) If he opts for the presumptive taxation scheme u/s 44AD, due date would be 31 st July, 2021.
If he has not opted for presumptive scheme, he has to get his books of account audited u/s 44AB, in
that case the due date for filing of return would be 31st October 2021.
Q1. Mr. Abhay has furnished the following particulars relating to payments made & expenditure
incurred towards scientific research for the year ended 31.3.2021:
SN Particulars Rs (in lacs)
(i) Payments made to an approved Agro Research Association 25
(ii) Payment made to RR University, an approved University 15
(iii) Payment made to XY College 17
(iv) Payment made to IIT, Madras (under approved scientific research) 10
(v) Machinery purchased for in-house scientific research 20
(vi) Salaries to research staff engaged in in-house scientific research 14
Compute the deduction available u/s 35 of the Income-tax Act, 1961 for AY 2021-22 while computing
his income u/h “Profits & gains of business or profession”.
Answer: Computation of deduction allowable u/s 35 for AY 2021-22
Particulars Sec. Ded. (%) Amount
Payment for scientific research
Approved Agro Research Association 35(1)(ii) 100% 25
RR University, an approved University 35(1)(ii) 100% 15
XY College [See Note 1] - Nil Nil
IIT Madras (under approved programme) 35(2AA) 100% 15
In-house research [See Note 2]
Capital expenditure - Purchase of Machinery 35(1)(iv) 100% 20
r/w 35(2)
Revenue expenditure - Salaries to research staff 35(1)(i) 100% 14
engaged in in-house scientific research
Deduction allowable u/s 35 89 Lacs
Notes:
1. Payment to XY College: Since question clearly mentions that only Agro Research Association & RR
University (mentioned in item (i) & (ii) respectively) are approved research institutions, it is logical
to conclude that XY College mentioned in item (iii) is not an approved research institution.
Therefore, payment to XY College would not qualify for deduction u/s 35.
2. Deduction for in-house research & development: Only company assessees are entitled to
deduction @ 100% u/s 35(2AB) i.r.o. expenditure on scientific research on in-house research &
development facility. However, the assessee is an individual.
Therefore, he would be entitled to deduction @ 100% of the revenue expenditure incurred u/s
35(1)(i) & 100% of capital expenditure incurred u/s 35(1)(iv) r/w 35(2), assuming that such
expenditure is laid out or expended on scientific research related to his business.
Q2. Mr. Chauhan is having a trading business & his Trading & P&L A/c for PY 2020-21 is as under:
Particulars Amount Particulars Amount
To Opening stock 1,50,000 By Sales 2,70,00,000
To Purchase 2,49,00,000 By Closing stock 1,00,000
To Gross profit 20,50,000
Total 2,71,00,000 Total 2,71,00,000
Salary to employees 5,00,000 By Gross Profit b/d 20,50,000
(Including Contribution to PF)
Donation to PM Relief Fund 1,00,000
Provision for bad debts 50,000
Bonus to employees 50,000
Interest on bank loan 50,000
Expenditure on Family 20,000
Planning of Employees
Depreciation 30,000
Income-tax 1,00,000
To Net profit 11,50,000
Total 20,50,000 Total 20,50,000
Other information:
1. He incurred expenditure on furniture & fixtures of Rs. 35,000, which is paid in cash on 25.07.2020
to M/s Décor World.
2. Depreciation allowable is Rs. 40,000 [excluding depreciation on furniture & fixtures refer in (1)
above] as per Income-tax Rules, 1962.
3. No deduction of tax at source on payment of interest on bank loan has been made.
4. Out of salary, Rs. 25,000 pertains to his contributions to RPF which was deposited after the due date
of filing return of income. Further, employees’ contribution of Rs. 25,000 was also deposited after
the due date of filing return of income.
Compute business income of Mr. Chauhan for AY 2021-22.
Answer: Computation of Business Income of Mr. Chauhan for AY 2021-22
Particulars Rs. Rs.
Net profit as per Profit and Loss Account 11,50,000
Add: Expenses not deductible
Donation to Prime Minister Relief Fund (Note 1) 1,00,000
Provision for bad debts (Note 2) 50,000
Family Planning Expenditure (Note 3) 20,000
Depreciation as per Profit and Loss Account 30,000
Income tax (Note 4) 1,00,000
Employer’s contribution to RPF (Note 5) 25,000 3,25,000
Less: Expense allowed
Depreciation as per Income-tax Rules, 1962 (Note 6) (40,000)
Add: Employee’s contribution included in income (Note 7) 25,000
Business Income 14,60,000
Notes:
1. Donation to Prime Minister Relief Fund is not allowed as deduction from the business income, since
it is not incurred wholly and exclusively for business. It is allowed as deduction u/s 80G.
2. Provisions for bad debts is allowable as deduction u/s 36(1)(viia) (subject to specified limits) only
in case of banks, public financial institutions, State Financial Corporation & State Industrial
Investment Corporation. Therefore, it is not allowable as deduction to Mr. Chauhan.
3. Expenditure on family planning is allowed as deduction u/s 36(1)(ix) only to a company assessee.
Therefore, such expenditure is not allowable as deduction to Mr. Chauhan.
4. Income-tax paid is not allowable as deduction as per the provisions of section 40(a)(ii).
5. Since Mr. Chauhan’s contribution (Employer’s Contribution) to RPF is deposited after DD of filing
ROI, it is disallowed as per section 43B, in computing business income of AY 2020-21.
6. As per second proviso to section 43(1), the expenditure for acquisition of asset, i.r.o. which payment
to a person in a day exceeds Rs. 10,000 has to be ignored for computing actual cost, if such payment
is made otherwise than by way of A/c payee cheque/bank draft or ECS. Accordingly, depreciation on
furniture & fixtures would not be allowed, since payment exceeding Rs. 10,000 (Rs. 35,000 in this
case) is made in cash. Therefore, no adjustment is required to be made in depreciation computed as
per Income-tax Rules, since such amount does not include depreciation on furniture & fixtures.
7. Employee’s contribution is includible in the income of the employer by virtue of Section 2(24)(x).
Deduction for the same is not provided as it was deposited after DD.
8. TDS provisions u/s 194A are not attracted i.r.o. payment of interest on bank loan. Therefore,
disallowance u/s 40(a)(ia) is not attracted in this case.
Q3. M/s ABC, an eligible assessee, following mercantile system of accounting, carrying on eligible
business u/s 44AD provides the following details:
Total turnover for PY 2020-21 is Rs. 130 lacs. Out of the above:
▪ Rs. 25 lacs received by A/c payee cheque during PY 2020-21;
▪ Rs. 50 lacs received by cash during PY 2020-21;
▪ Rs. 25 lacs received by A/c payee bank draft before the due date of filing ROI of PY 2020-21;
▪ Rs. 30 lacs not received till due date of filing of return.
Compute the amount of deemed profits of M/s ABC u/s 44AD(1) for AY 2021-22.
(a) 10.4 lacs (b) 7.0 lacs (c) 5.5 lacs (d) 9.4 lacs
Q4. Mr. Jai Prakash commenced the business of operating goods vehicles on 1.4.2020. He purchased
the following vehicles during PY 2020-21. Compute his income u/s 44AE.
SN Gross Vehicle Weight (in kilograms) Quantity Date of Purchase
1 8,500 3 11.05.2020
2 9,500 1 16.03.2021
3 10,000 1 21.09.2020
4 11,500 2 12.01.2021
5 15,000 1 21.07.2020
6 15,000 2 23.01.2021
What if the goods vehicles purchased in Jan 2021 were put to use only in July, 2021?
Answer:
- Heavy goods vehicle means any goods carriage whose gross vehicle weight > 12,000 kg.
- Since Mr. Jai Prakash does not own more than 10 vehicles at any time during PY 2020-21, he is eligible
to opt for presumptive taxation scheme u/s 44AE.
- Rs. 1,000 per ton of gross vehicle weight per month (or part) for each heavy goods vehicle &
- Rs. 7,500 per month (or part) for each goods carriage other than heavy goods vehicle, owned by him.
(1) (2) (3) (4)

Number of Vehicles Date of purchase No. of months for No. of months × No. of
which vehicle is owned vehicles [(1) × (3)]
For Heavy goods vehicle
1 21.07.2020 9 9
2 23.01.2021 3 6
15
For goods vehicle other than heavy goods vehicle
3 11.5.2020 11 33
1 16.3.2021 1 1
1 21.9.2020 7 7
2 12.1.2021 3 6
47
- Presumptive income of Mr. Jai Prakash u/s 44AE for AY 2021-22 = Rs. 5,77,500 [Rs. 3,52,500 (47 ×
Rs. 7,500, being for other than heavy goods vehicle) + Rs. 2,25,000 (15 x Rs. 1,000 x 15 ton, being for
heavy goods vehicle).
- Answer would remain the same even if the two vehicles purchased in January, 2021 were put to use
only in July 2021, since the presumptive income has to be calculated per month or part of the month
for which the vehicle is owned by Mr. Jai Prakash.
Q5. Mr. Chirag, set up a manufacturing unit of Baking Soda in notified backward area of Andhra Pradesh
on 18th May, 2020. Following machineries (15% block) purchased by him during PY 2020-21.
SN Particulars Amount
(i) Machinery X, Machinery Y & Machinery Z from Sahaj Limited on credit (installed 58 Lacs
& usage started on 18th July 2020, 25th July 2020 & 1st August 2020, respectively).
Payment is made on 15th April 2021 to Sahaj Limited by net banking.
(ii) Machinery L from Swayam Limited (installed on 8th August, 2020). The Invoice 35 Lacs
was paid through a cash payment on the same day.
(iii) Machinery M (a second-hand machine) from Sunshine Limited on 18th December 15 Lacs
2020 (Payment for purchase invoice was made through NEFT on 5th Jan 2021)
Compute the depreciation allowance u/s 32 of the Income-tax Act, 1961 for AY 2021-22.
Answer: Computation of depreciation u/s 32 for AY 2020-21
Particulars Amount
Machinery X, Machinery Y & Machinery Z acquired from Sahaj Ltd. (Since payment is 58,00,000
made to Sahaj Ltd by way of use of ECS and the machineries were put to use for more
than 180 days during the previous year, depreciation is allowable @ 15%)
Machinery L acquired from Swayam Ltd. in cash & installed on 8.8.2020 [Since Nil
payment of Rs. 35 lacs is made otherwise than by A/c payee cheque/bank draft or use
of ECS, said amount will not be included in actual cost & hence no depreciation]
Second hand Machinery M from Sunshine Ltd on 18.12.2020 assuming it is installed 15,00,000
& put to use in PY 2020-21. [Since payment is made to Sunshine Ltd by ECS]
Actual Cost 73,00,000
Depreciation for PY 2020-21
Depreciation @ 15% on Machinery X, Y & Z on Rs. 58 lacs 8,70,000
Depreciation @ 7.5% (50% of 15%) on Rs. 15 lacs for Machinery M

since it is put to use for less than 180 days 1,12,500 9,82,500
Additional Depreciation @ 20% on Rs. 58 lakhs, since the machinery 11,60,000
is acquired & installed for a manufacturing unit set up in a notified
backward area in the state of Andhra Pradesh
Additional depreciation is not allowable on 2nd hand machinery - Nil
Depreciation u/s 32 for AY 2021-22 21,42,500
Q6. Dr. Arjun runs a clinic in Delhi. As per new rule in the city, private cars can be plied in the city only
on alternate days. He has purchased a car on 25.09.2019, for the purpose of his medical profession, as
per following details:
Cost of car (excluding GST) 15,00,000
Add: Delhi GST at 14% 2,10,000
Add: Central GST at 14% 2,10,000
Total price of car 19,20,000
He put his car to use from 25.9.2019 itself. He estimates the usage of the car for personal purposes will
be 25%. He is advised by his friends that since the car has run only on alternate days, half the
depreciation, which is otherwise allowable, will be actually allowed. He has started using the car
immediately after purchase.
Determine the depreciation allowable on car for the AY 2020-21, if this is the only asset in the block. If
this car would also be used in the subsequent AY 2021-22 on the same terms and conditions above,
what will be the depreciation allowable? Assume that there is no change in the legal position under the
Income-tax Act, 1961.
Answer: Computation of depreciation allowance
Since the car was put to use for more than 180 days in the P.Y.2019-20, full depreciation@30% (higher
rate of depreciation is allowable on the actual cost, since car is purchased during the period 23.8.2019
to 31.3.2020] of Rs. 19,20,000, which is the total price (inclusive of GST) would be allowable.
However, the depreciation actually allowed would be restricted to 75%, since 25% of usage is estimated
for personal use, on which depreciation is not allowable
Depreciation for PY 2019-20 = 30% x Rs. 19,20,000 x 75% = Rs. 4,32,000.
Written Down Value as on 1.4.2020 = Rs. 19,20,000 – Rs.4,32,000 = Rs.14,88,000.
Depreciation for PY 2020-21 = 30% x Rs.14,88,000 x 75% = Rs. 3,34,800.
PC Note: As per section 17(5), ITC would not be available i.r.o. motor vehicles for transportation of
persons having approved seating capacity of not more than thirteen persons (including the driver),
except when they are used for making the taxable supplies, namely, further supply of such motor
vehicles; or transportation of passengers; or imparting training on driving such motor vehicles. Since
Dr. Arjun used the car for his professional purpose and not for any purpose stated in exception cases,
ITC would not be available & hence, both CGST & SGST would form part of actual cost of car.
AZ
CA Pranav Chandak's
DT Question Bank
6. Capital Gains


SM1. How will you calculate the period of holding in case of the following assets?
(a) Shares held in a company in liquidation
(b) Bonus shares
(c) Flat in a co-operative society
Answer:
(a) Shares held in a company in liquidation - The period after the date on which the company goes into
liquidation shall be excluded while calculating the period of holding. Therefore, period of holding shall
commence from the date of acquisition & end with the date on which the company goes into liquidation.
(b) Bonus shares - The period of holding shall be reckoned from the date of allotment of bonus shares &
will end with the date of transfer.
(c) Flat in a co-operative society - The period of holding shall be reckoned from the date of allotment of
shares in the society & will end with the date of transfer.
Note: Any transaction whether by way of becoming a member of, or acquiring shares in, a co-operative
society or by way of any agreement or any arrangement or in any other manner whatsoever which has
the effect of transferring, or enabling enjoyment of, any immovable property is a ‘transfer’ as per
section 2(47)(vi).
Hence, it is possible to take a view that any date from which such right is obtained may be taken as
the date of acquisition.
SM2. A is the owner of a car. On 1-4-2020, he starts a business of purchase & sale of motor cars. He treats
the above car as part of the stock-in-trade of his new business. He sells the same on 31-3-2021 & gets a
profit of 1 lakh. Discuss the tax implication in his hands under the head “Capital gains”.
Answer: Since car is a personal asset, conversion or treatment of the same as the stock-in- trade of his
business will not be trapped by the provisions of section 45(2). Hence, A is not liable to capital gains tax.
SM3. X converts his capital asset (acquired on June 10, 2003 for Rs. 60,000) into stock-in-trade on March
10, 2020. Fair market value on the date of conversion was Rs. 5,50,000. He subsequently sells the stock-in-
trade so converted for Rs. 6,00,000 on June 10, 2020. Discuss the year of chargeability of capital gain.
Answer: Since the capital asset is converted into stock-in-trade during the previous year relevant to the
AY 2021-22, it will be a transfer u/s 2(47) during PY 2019-20. However, profits or gains arising from the
above conversion will be chargeable to tax during the AY 2021-22, since the stock-in-trade has been sold
only on June 10, 2020. For this purpose, the fair market value on the date of such conversion (i.e. 10th March,
2020) will be the full value of consideration.
SM4. M held 2000 shares in a company ABC Ltd. This company amalgamated with another company during
the previous year ending 31-3-2021. Under the scheme of amalgamation, M was allotted 1000 shares in the
new company. The market value of shares allotted is higher by Rs. 50,000 than the value of holding in ABC
Ltd. AO proposes to treat the transaction as an exchange & to tax Rs. 50,000 as capital gain. Is he justified?
Answer: Assuming that amalgamated company is an Indian company, transaction is squarely covered by
the exemption explained above & proposal of AO to treat the transaction as a transfer is not justified.
SM5. In which of the following situations capital gains tax liability does not arise?
(a) Mr. A purchased gold in 1970 for Rs. 25,000. In the PY 2020-21, he gifted it to his son at the time of
marriage. Fair market value (FMV) of the gold on the day the gift was made was Rs. 1,00,000.
(b) A house property is purchased by a HUF in 1945 for Rs. 20,000. It is given to one of the family members
in the PY 2020-21 at the time of partition of the family. FMV on the day of partition was Rs. 12,00,000.
(c) Mr. B purchased Rs. 50 convertible debentures for Rs. 40,000 in 1995 which are converted into 500
shares worth Rs. 85,000 in November 2020 by the company.
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Answer: We know that capital gains arises only when we transfer a capital asset. The liability of capital
gains tax in the situations given above is discussed as follows:
(a) As per the provisions of section 47(iii), transfer of a capital asset under a gift is not regarded as
transfer for the purpose of capital gains. Therefore, capital gains tax liability does not arise.
(b) As per the provisions of section 47(i), transfer of a capital asset (being in kind) on the total or partial
partition of Hindu undivided family is not regarded as transfer for the purpose of capital gains.
Therefore, capital gains tax liability does not arise.
(c) As per the provisions of section 47(x), transfer by way of conversion of bonds or debentures, debenture
stock or deposit certificates of a company into shares or debentures of that company is not regarded
as transfer for the purpose of capital gains. Therefore, capital gains tax liability does not arise.
SM6. Mr. Abhishek a senior citizen, mortgaged his residential house with a bank, under a notified reverse
mortgage scheme. He was getting loan from bank in monthly installments. Mr. Abhishek did not repay the
loan on maturity & hence gave possession of the house to the bank, to discharge his loan. How will the
treatment of long-term capital gain be on such reverse mortgage transaction?
Answer: Section 47(xvi) provides that any transfer of a capital asset in a transaction of reverse mortgage
under a scheme made & notified by the Central Government shall not be considered as a transfer for the
purpose of capital gain.
Accordingly, the mortgaging of residential house with bank by Mr. Abhishek will not be regarded as a
transfer. Therefore, no capital gain will be charged on such transaction.
Further, section 10(43) provides that the amount received by the senior citizen as a loan, either in lump
sum or in installment, in a transaction of reverse mortgage would be exempt from income-tax. Therefore,
the monthly installment amounts received by Mr. Abhishek would not be taxable.
SM7. Examine, with reasons, whether the following statements are True or False.
(a) Alienation of a residential house in a transaction of reverse mortgage under a scheme made & notified
by the Central Government is treated as "transfer" for the purpose of capital gains.
(b) Zero coupon bonds of eligible corporation, held for 14 months, will be long- term capital assets.
(c) ZCB means bond on which no payment & benefit are received/receivable before maturity/redemption.
Answer:
(a) False: As per section 47(xvi), such alienation in a transaction of reverse mortgage under a scheme
made & notified by the Central Government is not regarded as "transfer" for the purpose of capital
gains.
(b) 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.
(c) True: As per section 2(48), ‘Zero Coupon Bond’ means a bond issued by any infrastructure capital
company or infrastructure capital fund or a public sector company, or Scheduled Bank on or after 1st
June 2005, i.r.o. which no payment & benefit is received or receivable before maturity or redemption
from such issuing entity & which the Central Government may notify in this behalf.
SM8. Mr. A converts his capital asset acquired for an amount of Rs. 50,000 in June, 2003 into stock-in-
trade in the month of November, 2016. The fair market value of the asset on the date of conversion is Rs.
4,50,000. The stock-in-trade was sold for an amount of Rs. 6,50,000 in the month of September, 2020. What
will be the tax treatment?
Financial year Cost Inflation Index
2003-04 109
2016-17 264
Answer: The capital gains on the sale of the capital asset converted to stock-in-trade is taxable in the given
case. It arises in the year of conversion (i.e. PY 2016-17) but will be taxable only in the year in which the
stock-in-trade is sold (i.e. PY 2020-21). Profits from business will also be taxable in the year of sale of the
stock-in-trade (PY 2020-21).
Long-term capital gains & business income for the AY 2021-22 are calculated as under:
Particulars Rs. Rs.
A Profits & Gains from Business or Profession
Sale proceeds of the stock-in-trade Rs. 6,50,000
Less: Cost of the stock-in-trade (FMV on the date of conversion) Rs. 4,50,000 Rs. 2,00,000
B Long Term Capital Gains
Full value of the consideration (FMV on the date of the conversion) Rs. 4,50,000
Less: Indexed cost of acquisition (Rs. 50,000 x 264/109) Rs. 1,21,101 Rs. 3,28,899
Note: For the purpose of indexation, CII of PY of conversion of asset into stock-in-trade is considered.
SM9. On January 31, 2021, Mr. A has transferred self-generated goodwill of his profession for a sale
consideration of 70,000 & incurred expenses of Rs. 5,000 for such transfer. You are required to compute
the capital gains chargeable to tax in the hands of Mr. A for the AY 2021-22
Answer: The transfer of self-generated goodwill of profession is not chargeable to tax. It is based upon
the Supreme Court’s ruling in CIT vs. B.C. Srinivasa Shetty.
SM10. Singhania & Co., a sole proprietorship owns six machines, put in use for business in March, 2019. The
depreciation on these machines is charged @15%. The written down value of these machines as on 1st April,
2020 was Rs. 8,50,000. Three of the old machines were sold on 10 thJune, 2020 for Rs. 11,00,000. A second-
hand plant was bought for Rs. 8,50,000 on 30th November, 2020.
You are required to:
(a) Determine the claim of depreciation for AY 2021-22.
(b) Compute the capital gains liable to tax for AY 2021-22.
(c) If Singhania & Co. had sold the three machines in June, 2020 for 21,00,000, will there be any difference
in your above workings? Explain.
Answer:
(a) Computation of depreciation for AY 2021-22
Particulars Rs.
W.D.V. of the block as on 1.4.2020 Rs. 8,50,000
Add: Purchase of second-hand plant during the year Rs. 8,50,000
Less: Sale consideration of old machinery during the year (Rs. 11,00,000)
W.D.V of the block as on 31.03.2021 Rs. 6,00,000
Since the value of the block as on 31.3.2021 comprises of a new asset which has been put to use for less
than 180 days, depreciation is restricted to 50% of the prescribed percentage of 15% i.e. depreciation is
restricted to 7.5%. Therefore, depreciation allowable for the year is Rs. 45,000 (7.5% of Rs. 6,00,000).
(b) Provisions of section 50 for computation of capital gains in case of depreciable assets can be invoked
only under the following circumstances:
▪ When one or some of the assets in the block are sold for consideration more than the value of block.
▪ When all the assets are transferred for a consideration more than the value of the block.
▪ When all the assets are transferred for a consideration less than the value of the block.
❖ Since in the first two cases, sale consideration is more than WDV of the block, the computation
would result in short term capital gains.
❖ In third case, since the written down value of the block exceeds the sale consideration, the
resultant figure would be a short-term capital loss of the block.
In the given case, capital gains will not arise as the block of asset continues to exist, & some of the
assets are sold for a price which is lesser than the written down value of the block.
(c) If 3 machines are sold in June 2020 for Rs. 21,00,000, then STCG would arise, since the sale consideration
is more than aggregate of WDV of the block at the beginning of the year & additions made during the PY.
Particulars
Sale consideration Rs. 21,00,000
Less: W.D.V. of the machines as on 1.4.2020 Rs. 8,50,000
Purchase of second plant during the year Rs. 8,50,000 Rs. 17,00,000
Short term capital gains Rs. 4,00,000
SM11. Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 1.4.2020 his Unit 1 by way
of slump sale for a total consideration of 25 lacs. Unit 1 was started in the year 2005-06. The expenses
incurred for this transfer were Rs. 28,000. His Balance Sheet as on 31.3.2020 is as under:
Liabilities Total Assets Unit 1 (U1) Unit 2 (U2) Total
Own Capital Rs.15,00,000 Building Rs.12,00,000 Rs. 2,00,000 Rs. 14,00,000
Revaluation Reserve Rs. 3,00,000 Machinery Rs. 3,00,000 Rs. 1,00,000 Rs. 4,00,000
(for building of unit 1)
Bank loan (70% for U1) Rs. 2,00,000 Debtors Rs. 1,00,000 Rs. 40,000 Rs. 1,40,000
Creditors (25% for U1) Rs. 1,50,000 Other assets Rs. 1,50,000 Rs. 60,000 Rs. 2,10,000
Total Rs.21,50,000 Total Rs.17,50,000 Rs. 4,00,000 Rs. 21,50,000
Other information:
Revaluation reserve is created by revising upward the value of the building of Unit 1.
▪ No individual value of any asset is considered in the transfer deed.
▪ Other assets of Unit 1 include patents acquired on 1.7.2018 for Rs. 50,000 on which no depreciation has
been charged.
Compute the capital gain for AY 2021-22.
Answer: Computation of capital gains on slump sale of Unit 1
Particulars Rs.
Sale value Rs. 25,00,000
Less: Expenses on sale Rs. 28,000
Net sale consideration Rs. 24,72,000
Less: Net worth (See Note 1 below) Rs. 12,50,625
Long-term capital gain Rs. 12,21,375
Notes: 1. Computation of net worth of Unit 1 of Akash Enterprises

Particulars Rs. Rs.
Building (excluding Rs. 3 lakhs on account of revaluation) Rs. 9,00,000
Machinery Rs. 3,00,000
Debtors Rs. 1,00,000
Patents (See Note2 below) Rs. 28,125

Other assets (Rs. 1,50,000 – Rs. 50,000) Rs. 1,00,000
Total assets Rs. 14,28,125
Less: Creditors (25% of Rs. 1,50,000) Rs. 37,500
Bank Loan (70% of Rs. 2,00,000) Rs. 1,40,000 Rs. 1,77,500
Net worth Rs. 12,50,625
2. Written down value of patents as on 1.4.2020

Value of patents Rs.
Cost as on 1.7.2018 Rs. 50,000
Less: Depreciation @ 25% for FY 2018-19 Rs. 12,500
WDV as on 1.4.2019 Rs. 37,500
Less: Depreciation for FY 2019-20 Rs. 9,375
WDV as on 1.4.2020 Rs. 28,125
For the purposes of computation of net worth, WDV has to be considered in case of depreciable assets.
Problem has been solved assuming that the Balance Sheet values of Rs. 3 lacs & Rs. 9 lacs (Rs. 12 lacs - Rs.
3 lacs) represent the written down value of machinery & building, respectively, of Unit 1.
3. Since the Unit is held for more than 36 months, capital gain arising would be long term capital gain.
However, indexation benefit is not available in case of slump sale.
SM12. Mr. Cee purchased a residential house on July 20, 2018 for Rs. 10,00,000 & made some additions to
the house incurring Rs. 2,00,000 in August 2018. He sold the house property in April 2020 for Rs. 20,00,000.
Out of the sale proceeds, he spent Rs. 5,00,000 to purchase another house property in September 2020.
What is the amount of capital gains taxable in the hands of Mr. Cee for AY 2021-22?
Answer: House is sold before 24 months from the date of purchase. Hence, it is a STCA & & no indexation.
Particulars Rs.
Sale consideration Rs. 20,00,000
Less: Cost of acquisition Rs. 10,00,000
Cost of improvement Rs. 2,00,000
Short-term capital gains Rs. 8,00,000
Note: Exemption u/s 54 is available only in case of LTCA. As house is STCA, exemption u/s 54 is not available.
SM13. Long term capital gain of Rs. 75 lacs arising from transfer of building on 1.5.2020 will be exempt from
tax if such capital gain is invested in the bonds redeemable after five years, issued by NHAI u/s 54EC.
Examine with reasons whether the given statement is true or false having regard to the provisions of the
Income-tax Act, 1961.
Answer:
False: Exemption u/s 54 EC has been restricted, by limiting the maximum investment in long term specified
assets (i.e. bonds of NHAI or RECL or any other bond notified by Central Government in this behalf,
redeemable after 5 years) to 50 lakh, whether such investment is made during the relevant previous year
or the subsequent previous year, or both. Therefore, in this case, the exemption u/s 54EC can be availed
only to the extent of Rs. 50 lacs, provided the investment is made before 1.11.2020 (i.e., within six months
from the date of transfer)

Q1. Mr. Mithun purchased 100 equity shares of M/s Goodmoney Co. Ltd. on 01.04.2005 @ Rs. 1,000 per share
in public issue of the company by paying securities transaction tax.
Company allotted bonus shares in the ratio of 1:1 on 01.12.2019. He has also received dividend of 10 per
share on 01.05.2020.
He has sold all the shares on 01.10.2020 at the rate of Rs. 4,000 per share through a recognized stock
exchange & paid brokerage of 1% & securities transaction tax of 0.02% to celebrate his 75th birthday.
Compute his total income & tax liability for AY 2021-22, assuming that he is having no income other than
given above. Fair market value of shares of M/s Goodmoney Co. Ltd. on 31.1.2018 is Rs. 2,000.
Answer: Computation of total income & tax liability of Mr. Mithun for AY 2021-22
SN Particulars Rs
1 Long term capital gains on sale of original shares
Gross sale consideration (100 x Rs. 4,000) Rs. 4,00,000
Less: Brokerage@1% Rs. 4,000
Less: Cost of acquisition (100 x Rs. 2,000) (Refer Note 2) Rs. 2,00,000
Long term capital gains Rs. 1,96,000
2 Short term capital gains on sale of bonus shares
Gross sale consideration (100 x Rs. 4,000) Rs. 4,00,000
Less: Brokerage@1% Rs. 4,000
Less: Cost of acquisition of bonus shares Nil
Short term capital gains Rs. 3,96,000
Dividend received from M/s Goodmoney Co. Ltd. is taxable in the hands of Rs. 2,000
shareholders [200 shares x 10 per share]
4 Total Income Rs. 5,94,000
5 Tax Liability
Tax on dividend Nil
15% of (Rs. 3,96,000- Rs. 2,98,000, being unexhausted Basic Exemption Limit) Rs. 14,700
10% of (Rs. 1,96,000 - Rs. 1,00,000) Rs. 9,600
Add: Health & education cess @4% (on Rs. 24,300) Rs. 972
6 Tax payable Rs. 25,272
Notes:
1. Rate of Tax on LTCG on sale of original shares through RSE (STT paid) → Taxable u/s 112A @ 10%
(exceeding Rs. 1 lacs) (without indexation).
2. Cost of acquisition of such equity shares acquired before 1.2.2018 is higher of:
(a) Cost of acquisition i.e., 1,000 per share &
(b) Lower of (a) FMV of such asset (Rs. 2,000) or (b) Full value of consideration i.e., Rs. 4,000 per share.
So, Cost of acquisition of original share is Rs. 2,000 per share.
3. Since POH of bonus shares < 12 months, it is STCG taxable @ 15% u/s 111A after adjusting unexhausted
BEL (Rs. 3 Lacs - Rs. 2,000 being dividend). Mithun is a senior citizen, he is entitled for BEL of Rs. 3 Lacs.
4. Brokerage is allowed as expenditure since it is incurred wholly & exclusively in connection with transfer.
5. Cost of bonus shares will be Nil as such shares are allotted after 1.04.2001.
6. Securities transaction tax is not allowable as deduction.
Q2. Aarav converts his plot of land purchased in July 2003 for Rs. 80,000 into SIT on 31st March 2020. Fair
market value as on 31.3.2020 was Rs. 3 Lacs. SIT was sold for Rs. 3,25,000 in Jan. 2021. Find out the taxable
income, if any, & if so under which head of income & for which AY? CII – PY: 2003-04:109; PY 2019-20: 289.
Answer: Conversion of a capital asset into stock-in-trade is a transfer within the meaning of section 2(47)
in the previous year in which the asset is so converted. However, the capital gains will be charged to tax
only in the year in which the stock-in-trade is sold.
Cost inflation index of FY in which conversion took place should be considered for computing indexed cost
of acquisition. Further, FMV on the date of conversion would be deemed to be full value of consideration
for transfer of the asset as per section 45(2). Sale price - Fair market value on the date of conversion
would be treated as the business income of the year in which the stock-in-trade is sold.
Therefore, in this problem, both capital gains & business income would be charged to tax in AY 2021-22.
1 Capital Gains
Full value of consideration (Fair market value on the date of conversion) Rs. 3,00,000
Less: Indexed cost of acquisition (Rs. 80,000 × 289/109) Rs. 2,12,110
Long-term capital gain Rs. 87,890
2 Profits & Gains of Business or Profession
Sale price of stock-in-trade Rs. 3,25,000
Less: Fair market value on the date of conversion Rs. 3,00,000
Rs. 25,000
Computation of taxable income of Mr. Aarav for AY 2021-22

Profits & gains from business or profession Rs. 25,000
Long term capital gains Rs. 87,890
Taxable Income Rs. 1,12,890
Q3. Mrs. Harshita purchased a land at Rs. 35 lacs in PY 2003-04 & held the same as her capital asset till
31st March 2020.
She started her real estate business on 1st April, 2020 & converted the said land into SIT of her business
on the said date, when FMV of the land was Rs. 210 lakhs.
She constructed 15 flats of equal size, quality & dimension. Cost of construction of each flat is Rs. 10 lakhs.
Construction was completed in February, 2021. She sold 10 flats at Rs. 30 lakhs per flat in March, 2021. The
remaining 5 flats were held in stock as on 31st March, 2021.
She invested Rs. 50 lakhs in bonds issued by National Highways Authority of India on 31st March, 2021 &
another 50 lakhs in bonds of Rural Electrification Corporation Ltd. in April, 2021.
Compute taxable capital gain & business income in the hands of Mrs. Harshita for AY 2021-22 indicating
clearly the reasons for treatment for each item. [CII - FY 2003-04: 109; FY 2020-21: 301]
Answer: Computation of capital gains & business income of Harshita for AY 2021-22
1 Capital Gains
Full value of consideration (FMV of land on the date of conversion) Rs. 2,10,00,000
Less: Indexed cost of acquisition [Rs. 35,00,000 × 301/109] (Rs. 96,65,138)
Rs. 1,13,34,862
Proportionate capital gains arising during AY 2021-22 [Rs. 1,13,34,862 x 2/3] Rs. 75,56,575
Less: Exemption u/s 54EC Rs. 50,00,000
Capital gains chargeable to tax for AY 2021-22 Rs. 25,56,575
2 Business Income
Sale price of flats [10 × 30 lakhs] Rs. 3,00,00,000
Less: Cost of flats

Fair market value of land on the date of conversion [ 210 lacs × 2/3] Rs. 1,40,00,000
Cost of construction of flats [10 × 10 lakhs] Rs. 1,00,00,000
Business income chargeable to tax for AY 2021-22 Rs. 60,00,000
Notes:
1. Conversion of a capital asset into stock-in-trade is treated as a transfer u/s 2(47). It would be treated
as a transfer in the year in which the capital asset is converted into stock-in-trade.
2. However, as per section 45(2), the capital gains arising from the transfer by way of conversion of capital
assets into stock-in-trade will be chargeable to tax only in the year in which the stock-in-trade is sold.
3. Indexation benefit for computing indexed cost of acquisition would, however, be available only up to the
year of conversion of capital asset into stock-in-trade and not up to the year of sale of stock-in-trade.
4. For the purpose of computing capital gains, FMV of capital asset on the date on which it was converted
into SIT shall be deemed to be full value of consideration received or accruing as a result of the transfer.
In this case, since only 2/3rd of the stock-in-trade (10 flats out of 15 flats) is sold in the PY 2020-21, only
proportionate capital gains (i.e., 2/3rd) would be chargeable to tax in the AY 2021-22.
5. On sale of such SIT, business income would arise. Business income taxable would be difference b/w the
price at which SIT is sold & FMV on the date of conversion of the capital asset into stock-in-trade.
6. In case of conversion of capital asset into SIT & subsequent sale of SIT, period of 6 months is to be
reckoned from the date of sale of SIT for exemption u/s 54EC. In this case, since investment in bonds of
NHAI has been made within 6 months of sale of flats, it qualifies for exemption u/s 54EC. W.r.t. LTCG
arising on L&B in any FY, maximum deduction u/s 54EC would be Rs. 50 lakhs, whether the investment in
bonds of NHAI/RECL are made in same FY or next FY or partly in same FY & partly in next FY.
Therefore, even though investment of Rs. 50 lacs have been made in bonds of NHAI during PY 2020-21 &
investment of Rs. 50 lakhs have been made in bonds of RECL during PY 2021-22 within 6-month, maximum
deduction allowable for AY 2021-22 i.r.o. LTCG arising on sale of LTCA during PY 2020-21 is Rs. 50 lacs.
Q4. Mr. A is carrying on business. His stock & machinery were damaged & destroyed in fire accident.
Value of stock lost (total damaged) was Rs. 6,50,000. Certain portion of the machinery could be salvaged.
The opening WDV of the block as on 1-4-2020 was Rs. 10,80,000.
During the process of safeguarding machinery & in the fire fighting operations, Mr. A lost his gold chain &
a diamond ring, which he had purchased in April, 2004 for Rs. 1,20,000. FMV of these two items as on the
date of fire accident was Rs. 1,80,000. Mr. A received the following amounts from the insurance company:
Towards loss of stock Towards damage of machinery Towards gold chain & diamond ring
Rs. 4,80,000 Rs. 6,00,000 Rs. 1,80,000
You are requested to briefly comment on tax treatment under the provisions of the Income-tax Act, 1961.
Answer:
(a) Compensation towards loss of stock: Any compensation received from insurance company towards loss
or damage to SIT is to be construed as a trading receipt. Hence, Rs. 4,80,000 received as insurance
claim for loss of stock has to be assessed u/h ‘PGBP’.
Note: Assessee can claim value of stock destroyed by fire as revenue loss eligible for deduction u/h PGBP.
(i) Compensation towards damage to machinery: Question does not mention whether salvaged machinery
is taken over by Insurance company or whether there was any replacement of machinery during PY.
Assuming that salvaged machinery is taken over by Insurance company, & there was no fresh addition
of machinery during PY, block will cease to exist. STCL = Rs. 4,80,000 (WDV - Insurance compensation).
Note: If new machinery is purchased in next year, it will constitute new block of machinery, on which
depreciation can be claimed for that year.
(ii) Compensation towards loss of gold chain & diamond ring: Gold chain & diamond ring are capital assets.
If any profit/gain arises in PY owing to receipt of insurance claim, it is taxable as capital gains. Capital
gains has to be computed by reducing indexed COA of jewellery from insurance compensation.
Q5. Mr. Sarthak entered into an agreement with Mr. Jaikumar to sell his residential house located at Kanpur
on 16.08.2020 for Rs. 1,50,00,000. Sale proceeds were to be paid in the following manner:
▪ 20% through A/c payee bank draft on date of agreement;
▪ 60% on the date of the possession of the property.
▪ Balance after the completion of the registration of the title of the property.
Mr. Jaikumar was handed over the possession of the property on 15.12.2020 & registration process was
completed on 14.01.2021. He paid the sale proceeds as per the sale agreement.
Value determined by Stamp Duty Authority on:
(a) 16.08.2020 was Rs. 170 Lacs; (b) 15.12.2020 was Rs. 171 Lacs; & (c) 14.01.2021 was Rs. 171.5 Lacs.
Mr. Sarthak had acquired the residential house at Kanpur on 01.04.2001 for Rs. 30 Lacs. After recovering
the sale proceeds from Jaikumar, he purchased 2 residential house properties (one in Kanpur for Rs. 20
Lacs on 24.3.2021 & another in Delhi for Rs. 35 Lacs on 28.5.2021). Compute ‘Capital Gains’ of Mr. Sarthak
for AY 2021-22. [CII - FY 2001-02: 100; FY 2020-21 - 301]
Answer: Computation of ‘Capital Gains’ of Mr. Sarthak for AY 2021-22
Particulars Rs. Rs.
Capital Gains on sale of residential house
Actual sale consideration 1,50,00,000
Value adopted by Stamp Valuation Authority on the date of agreement 1,70,00,000
As per section 50C, where ASC < SDV & such SDV > 110% of ASC, then FVC = SDV.
In a case where the date of agreement is different from the date of registration, SDV on the date of
agreement can be considered provided the whole or part of the consideration is paid by way of account
payee cheque/bank draft or by way of ECS through bank account or through such other electronic mode
as may be prescribed, on or before the date of agreement.
In this case, since 20% of 150 lakhs is paid through account payee bank draft on the date of agreement,
SDV on date of agreement would be considered for determining full value of consideration]
Full value of consideration [SDV on date of agreement since it exceeds 110% of ASC] 1,70,00,000
Less: Indexed cost of acquisition of residential house [30 lakhs x 301/100] 90,30,000
Long-term capital gains [Since the residential house property was held by Mr. Sarthak for 79,70,000
more than 24 months immediately preceding the date of its transfer]
Less: Exemption u/s 54 55,00,000
Since LTCG does not exceed 2 crores, he would be eligible for exemption i.r.o. both the residential house
properties purchased in India. Capital gain arising on transfer of a long-term residential property shall
not be taxable to the extent such capital gain is invested in the purchase of these residential house
properties in India within 1 year before or 2 years after the date of transfer of original asset. Thus, he
would be eligible for exemption of Rs. 55,00,000 being Rs. 20,00,000 & Rs. 35,00,000 invested on
acquisition of residential house property in Kanpur & Delhi, respectively.
Long term capital gains chargeable to tax 24,70,000
Q6. Mrs. Yuvika bought a vacant land for 80 lakhs in May 2004. Registration & other expenses were 10% of
the cost of land. She constructed a residential building on the said land for 100 lakhs during PY 2006-07.
She entered into an agreement for sale of the above said residential house with Mr. Ram (not a relative)
in April 2015. Sale consideration was fixed at Rs. 700 lacs & on 23.04.2015, Mrs. Yuvika received Rs. 20 lacs
as advance in cash by executing agreement. However, due to failure on part of Mr. Ram, said negotiation
could not materialise & hence, the said amount of advance was forfeited by Mrs. Yuvika.
Mrs. Yuvika, again entered into an agreement on 01.08.2020 for sale of this house at Rs. 810 lakhs. She
received 80 lakhs as advance by RTGS. The SDV on the date of agreement was Rs. 890 lakhs. The sale deed
was executed & registered on 14.01.2021 for the agreed consideration. However, the State stamp valuation
authority had revised the values, hence, the value of property for stamp duty purposes was Rs. 900 lakhs.
Mrs. Yuvika paid 1% as brokerage on sale consideration received.
Subsequent to sale, Mrs. Yuvika made following investments:
▪ Acquired two residential houses at Delhi for Rs. 130 lakhs & Rs. 50 lakhs on 31.1.2021 & 15.5.2021
▪ Acquired a residential house at UK for Rs. 180 lakhs on 23.3.2021.
▪ Subscribed to NHAI bond (u/s 54EC) for Rs. 50 lacs on 29.03.2021 & for Rs. 40 lacs on 12.05.2021.
Compute 'Capital Gains' of Yuvika for AY 2021-22. [CII – FY 2004-05: 113; FY 2006-07: 122; FY 2020-21: 301.
Answer: Computation of ‘Capital Gains’ of Mrs. Yuvika for AY 2021-22.
Particulars (in lakhs) (in lakhs)
Capital Gains on sale of residential building
Actual sale consideration Rs. 810
Value adopted by Stamp Valuation Authority Rs. 890
If ASC < SDV & such SDV > 110% of ASC, then FVC = SDV. However, where the date of
agreement is different from the date of registration, SDV on date of agreement can be
considered provided the whole/part of consideration is received by way of A/C payee
cheque/bank draft or by way of ECS through bank A/C or through prescribed electronic
modes on/before date of agreement. In this case, since advance of Rs. 80 lacs is
received by RTGS, i.e., one of prescribed modes, FVC = SDV on date of agreement.
However, since SDV on date of agreement does not exceed 110% of ASC, FVC = ASC.
Sale consideration (= ASC since SDV on DOA does not exceed 110% of ASC) Rs. 810.00
Less: Brokerage @1% of sale consideration (1% of Rs. 810 lakhs) Rs. 8.10
Net Sale consideration Rs. 801.90
Less: Indexed COA [Cost of vacant land (Rs. 80 lacs) + Registration & other
expenses i.e., Rs. 8 lakhs, being 10% of cost of land [Rs. 88 lakhs × 301/113] Rs. 234.41
Less: Construction cost of residential building (Rs. 100 lacs x 301/122) Rs. 246.72 Rs. 481.13
Long-term capital gains [Since residential house property was held by Mrs. Rs. 320.77
Yuvika for > 24 months immediately preceding the date of its transfer]
Less: Exemption u/s 54 Rs. 130.00
Where LTCG > 2 Cr, capital gain arising on transfer of a long-term residential property
shall not be chargeable to tax to the extent such capital gain is invested in the purchase
of 1 residential house property in India, 1 year before or 2 years after date of transfer.
Therefore, exemption would be available only i.r.o. the one residential house acquired in
India & not i.r.o. the residential house in UK. It would be more beneficial for her to claim
the cost of acquisition of residential house at Delhi, i.e., Rs. 130 lacs as exemption.
Less: Exemption u/s 54EC Rs. 50.00
Amount invested in NHAI bonds within 6 months after the date of transfer (on/before
13.07.2021) of LTCG (being L&B) would qualify for exemption, to the maximum extent of Rs.
50 lacs, whether such investment is made in current FY or subsequent FY.
Therefore, in the present case, exemption can be availed only to the extent of Rs. 50 lacs
out of Rs. 90 lacs, even if the both the investments are made on or before 13.7.2021(i.e.,
within six months after the date of transfer).
Long term capital gains chargeable to tax Rs. 140.77
Note: Advance of Rs. 20 lacs received from Mr. Ram would have been taxable u/h ‘IFOS’ in AY 2016-17, as
per section 56(2)(ix), since the same was forfeited on/after 01.4.2014 as a result of failure of negotiation.
Hence, the same should not be deducted while computing indexed cost of acquisition.
Q7. Mr. Shiva purchased a house property on February 15, 1979 for Rs. 3,24,000. In addition, he has also
paid SDV @10% on the SDV of Rs. 3,50,000.
In April, 2007, Mr. Shiva entered into an agreement with Mr. Mohan for sale of such property for 14,35,000
& received an amount of Rs. 1,11,000 as advance. However, the sale consideration did not materialize &
Mr. Shiva forfeited the advance. In May 2014, he again entered into an agreement for sale of said house
for 20,25,000 to Ms. Deepshikha & received Rs. 1,51,000 as advance. However, as Ms. Deepshikha did not
pay the balance amount, Mr. Shiva forfeited the advance. In August, 2014, Mr. Shiva constructed the first
floor by incurring a cost of Rs. 3,90,000.
On 15th Nov 2020, Mr. Shiva entered into an agreement with Mr. Manish for sale of such house for 30.5 Lacs
& received an amount of 1,50,000 as advance through A/C payee cheque. Mr. Manish paid the balance
entire sum & Mr. Shiva transferred the house to Mr. Manish on February 20, 2021. Mr. Shiva has paid the
brokerage @1% of sale consideration to the broker.
On April 1, 2001, FMV of house property was 11,85,000 & SDV was Rs. 10,70,000. Valuation as per Stamp duty
Authority of such house on 15th Nov 2020 was Rs. 35 Lacs & on 20th Feb 2021 was Rs. 37 Lacs. Compute the
capital gains for AY 2021-22 [CII - FY 2001-02: 100; FY 2007-08: 129; FY 2014-15: 240; FY 2020-21: 301]
Answer: Computation of Capital gains in hands of Mr. Shiva for AY 2021-22
Particulars Rs
Full value of consideration [If SDC < SDV & SDV > 110% of ASC, then FVC = SDV] 35,00,000
Less: Expenses on transfer (Brokerage @1% of Rs. 30,50,000) (30,500)
Net sale consideration 34,69,500
Less: Indexed cost of acquisition (Note 1) (28,86,590)
Less: Indexed cost of improvement (Note 2) (4,89,125)
Long term capital gain 93,785
Notes: (1) Computation of indexed Cost of Acquisition

Particulars Rs.
Cost of acquisition [Higher of (a) Lower of FMV & SDV or (b) Actual COA] Rs. 10,70,000
Less: Advance money taken from Mr. Mohan & forfeited (Rs. 1,11,000)
Cost of acquisition for indexation Rs. 9,59,000
Indexed cost of acquisition (Rs. 9,59,000 x 301/100) Rs. 28,86,590
2) Computation of indexed cost of improvement

Particulars Amount
Cost of construction of first floor in August, 2014 Rs. 3,90,000
Indexed cost of improvement (Rs. 3,90,000 x 301/240) Rs. 4,89,125
3) Where advance money has been received by the assessee, & retained by him, as a result of failure of
the negotiations, section 51 will apply. The advance retained by the assessee will go to reduce the cost of
acquisition. Indexation is to be done on the cost of acquisition so arrived at after reducing the advance
money forfeited i.e. Rs. 10,70,000 – Rs. 1,11,000 = Rs. 9,59,000. However, where the advance money is
forfeited during the previous year 2014-15 or thereafter, the amount forfeited would be taxable under the
head “Income from Other Sources” & such amount will not be deducted from the cost of acquisition of such
asset while calculating capital gains. Hence, Rs. 1,51,000, being the advance received from Ms. Deepshikha
& retained by him, is taxable under the head “Income from other sources” in the hands of Mr. Shiva.
PAST RTP QUESTIONS

May 18 Q1. Mr. Arjun bought a vacant land for Rs. 80 lacs in March 2005. Registration & other
[IMP] expenses were 10% of cost of land. He constructed a residential building on land for Rs. 100
Lacs during FY 2006-07.
He entered into an agreement for sale of above said residential house with Mr. Jerry (not
a relative) on 9th April 2017 & received Rs. 20 lacs as advance in cash on that date.
SDV on that date was Rs. 740 lacs. Actual sale consideration was fixed at Rs. 700 lacs.
Sale deed was executed & registered on 10.06.2020 for the agreed consideration.
However, State stamp valuation authority had revised the values & hence, value of property
for stamp duty purposes was Rs. 770 Lacs.
Mr. Arjun paid 1% as brokerage on sale consideration received.
Subsequent to sale, Mr. Arjun made following investments:
▪ Acquired a residential house at Mumbai for Rs. 110 Lacs.
▪ Acquired a residential house at London for Rs. 150 Lacs.
▪ Subscribed to NHAI bond: Rs. 45 Lacs on 29.08.2020 & Rs. 50 Lacs on 12.10.2020.
Compute the income chargeable u/h “Capital Gains” for AY 2021-22.
Note: The choice of exemption must be in the manner most beneficial to the assessee.
[CII: FY 2004-05: 113; FY 2006-07: 112; FY 2020-21: 301]
Ans: Computation of ‘Capital Gains’ for AY 2021-22
Particulars In Lacs
Full Value of Consideration [= ASC since SDV does not exceed 110% of ASC] 700
Less: Brokerage@1% of sale consideration (1% of Rs. 700 Lacs) (7)
Net Sale consideration 693
Less: Indexed cost of acquisition – (88 Lacs x 301/113) (234.407)
[Cost of Vacant land (80 Lacs) + Registration Expenses (10% of 80 lacs)]
Less: Indexed COI (Construction Cost of building) (Rs. 100 lacs x 301/122) (246.721)
Long-term capital gains 211.872
Less: Exemption u/s 54 [Note 3] 110
Less: Exemption u/s 54EC [Max. 50 Lacs] 50
Taxable Long Term Capital Gain 61.872
Note:
1. Where ASC < SDV & such SDV exceeds 110% of ASC, FVC = SDV. But in this case, SDV =
110% of ASC & SDV does not exceed 110% of ASC, FVC = ASC.
2. If date of agreement is different from date of registration, SDV on the date of
agreement can be considered provided whole/part of the consideration is paid by way
of A/c payee cheque/bank draft/ECS through bank account on/before the date of
agreement. In this case, since advance of Rs. 20 lacs is paid by cash, SDV of Rs. 740
lacs on date of agreement cannot be adopted as full value of consideration. SDV on
date of registration would be the full value of consideration]
3. In case of capital gain > Rs. 2 crores arising on transfer of LT residential property shall
not be taxable to the extent such capital gain is invested in the purchase of 1 residential
house property in India one year before or two years after the date of transfer of
original asset. Therefore, in the present case, exemption would be available only i.r.o.
residential house acquired at Mumbai & not i.r.o. residential house in London.
Nov 18 Q2. Mr. Sahu entered into an agreement with Mr. Devansh to sell his residential house
located at New Delhi on 27.07.2020 for Rs. 82 Lacs. Mr. Devansh was handed over the
possession of property on 16.12.2020 & registration process was completed on 24.02.2021.
[Mod. Mr. Devansh had paid the sale proceeds in the following manner;
ICAI
▪ 25% through account payee bank draft on the date of agreement.
Ex Q5] ▪ 50% on the date of the possession of the property.
▪ Balance after the completion of the registration of the title of the property.
Value determined by the Stamp Duty Authority on 27.07.2020 was Rs. 92,00,000 whereas
on 24.02.2021, it was Rs. 94,50,000.
Mr. Sahu had acquired the property on 01.04.2002 for Rs. 21 Lacs. After recovering sale
proceeds from Devansh, he purchased another residential house property in Mumbai for Rs.
35 Lacs. [CII for FY 2001-02: 100; FY 2002-03: 105; FY 2020-21: 301]
Compute the total income of Mr. Sahu for AY 2021-22 & his net tax liability/refund due for
that year, assuming that he has earned income of Rs. 12,000 from Savings Bank A/c &
received income of Rs. 84,000 (Net of TDS) from lotteries. Assume that the tax deductible
at source, if any, on consideration for sale of residential house has been deducted.
Ans: Computation of “Capital Gains” for AY 2021-22
Particulars Rs.
Full value of sale consideration [Since SDV > 110% of ASC] 92,00,000
Less: Indexed COA of residential house [Rs. 21 lacs x 301/105] (60,20,000)
LTCG [Since POH of residential house property > 24 months] 31,80,000
Less: Exemption u/s 54 [Lower of investment or Capital Gain] [Note 3] 31,80,000
Taxable LTCG Nil
- Interest on Savings Bank A/c 12,000
- Income from lotteries [Rs. 84,000/70%] 1,20,000
Less: Chapter VI-A Deductions
- Section 80TTA, i.r.o. interest on Savings bank a/c, restricted to 10,000
Calculation of Tax Liability
Tax on Lottery Income = Rs. 1,20,000 x 30% {Other income < BEL] Rs. 36,000
Less: Rebate u/s 87A (Rs. 12,500)
Balance Tax Rs. 23,500
Add: 4% HEC Rs. 940
Tax liability Rs. 24,440
Less: Tax deducted at source
- u/s 194B on income from lotteries Rs. 36,000
- u/s 194-IA on transfer of residential house (1% of Rs. 82,00,000) Rs. 82,000
Tax refundable Rs. 93,560
May 19 Q3. Mr. Pratap, a proprietor has transferred his unit RS to Mr. Raj by way of Slump Sale on
7th Dec 2020. Summarised Balance Sheet of Mr. Pratap as on that date is given below:
Liabilities Amount (in lacs) Assets Amount (in lacs)
Own Capital 1,850 Fixed Assets:
Accumulated P&L A/c 870 Unit PT 250
Liabilities: Unit QL 170
Unit PT 190 Unit RS 950
Unit QL 260 Other Assets:
Unit RS 340 Unit PT 790
Unit QL 860
Unit RS 490
Total 3,510 Total 3,510
Other information:
1. Slump sale consideration on transfer of Unit RS was Rs. 1540 lacs.
2. Fixed Assets of Unit RS includes land which was purchased at Rs. 90 Lacs in 2008 & was
revalued at Rs. 180 lacs.
3. Other fixed assets are reflected at Rs. 770 lacs, (Rs. 950 lacs - Value of land) which
represents WDV of those assets as per books. WDV of these assets is Rs. 630 lacs.
4. Unit RS was set up by Mr. Pratap in December, 2007.
Compute Capital Gains arising in the hands of Mr. Pratap from slump sale of Unit RS for AY
2021-22. [Note: CII for FY 2006-07 & FY 2019-20 are 122 & 289]
Ans: Computation of Capital Gain on Slump Sale of Unit RS for AY 2021-22
Particulars Rs.
Full value of consideration 15,40,00,000
Less: Cost of acquisition (Net worth) [Refer Working Note below] 8,70,00,000
Long-term capital gain [Since the Unit is held for more than 36 months] 6,70,00,000
Working Note: Net worth of Unit RS Rs.

Cost of Land (Revaluation not to be considered) 90,00,000
WDV of other depreciable fixed assets as per the Income-tax Act, 1961 6,30,00,000
Other Assets (book value) 4,90,00,000
Less: Liabilities 3,40,00,000
Net worth 8,70,00,000
Notes:
1. Any change in the value of assets on account of revaluation shall not be considered.
2. For calculating aggregate value of total assets of undertaking/division in case of
depreciable assets, WDV of block of assets is to be considered & for all other assets,
book value is to be considered.
3. Indexation benefit is not available in case of slump sale.
Nov 19 MCQ4. Mr. Rana is a resident of India residing in Meerut. During PY 2010-11, he purchased
agricultural land situated in Bahadurpur for Rs. 10 lacs. This land is situated in an area which
has aerial distance of 3 km from the local limits of Municipality of Bahadurpur. Total
population of this area is 80,000 as per the last preceding census. During PY 2020-21, Mr.
Rana sold this land to Mr. Jeet for Rs. 25 lacs on 29.01.2021. Mr. Rana invested Rs. 5 lacs in
bonds of NHAI on 31.7.2021. CII for FY 2010-11 & 2020-21 is 167 & 301. Compute taxable
capital gain taxable in the hands of Mr. Rana for AY 2021-22.
Q5. SAME QUESTION AS Q6 GIVEN IN ICAI TEST YOUR KNOWLEDGE [Mrs. Yuvika]
May 20 Mr. Sarthak (age 37 years) a share broker, sold a building to his friend Anay, who is a dealer
in automobile spare parts, for Rs. 120 Lacs on 10.11.2019, when the SDV was Rs. 150 Lacs.
The agreement was, however, entered into on 1.9.2019 when the SDV was Rs. 140 Lacs. Mr.
FY not Sarthak had received a down payment of Rs. 15 Lacs by a crossed cheque from Anay on the
changed
date of agreement. Mr. Sarthak purchased the building for Rs. 95 Lacs on 10.5.2017. Further,
to
Mr. Sarthak also sold an agricultural land (situated in a village which has a population of
retain
the 5,800) for Rs. 60 Lacs to Mr. Vivek on 01.03.2020, which he acquired on 15.06.2014 for Rs.
relev- 45 Lacs. SDV of agricultural land as on 1.3.2020 is Rs. 75 lacs. [CII for FY 2014-15: 240;
ancy of FY 2017-18: 272; FY 2019-20: 289]
the In the light of the above facts, you are required to answer the following:
question
Q6. Is there any requirement to deduct tax at source on consideration paid or payable on
transfer of building & agricultural land?
(a) No; no tax is required to be deducted at source on transfer of any capital asset
(b) Yes; Mr. Anay is required to deduct tax at source u/s 194-IA.
(c) Yes; Mr. Vivek is required to deduct tax at source u/s 194-IA.
(d) Yes; Mr. Sarthak is required to deduct tax at source u/s 194-IA.
Q7. I.r.o. transfer of building, capital gains taxable in the hands of Mr. Sarthak would be:
(a) LTCG of Rs. 49,06,250 (b) LTCG of Rs. 39,06,250
(c) STCG of Rs. 45,00,000 (d) STCG of Rs. 55,00,000
Q8. Assuming that Mr. Sarthak has other income exceeding basic exemption limit, the tax
payable (excluding surcharge & HEC) on transfer of building & agricultural land, would be:
(a) Rs. 7,81,250 (b) Rs. 13,97,500 (c) Rs. 9,81,250 (d) Rs. 10,97,500
Q9. I.r.o. purchase of building from Mr. Sarthak, income taxable in the hands of Mr. Anay:
(a) Rs. 20 Lacs (b) Rs. 30 Lacs (c) Rs. 15 Lacs (d) Nil

PQ1. Compute capital gains of Mr. X in the following Individual situations for AY 2021-22:
Asset Gold Land Residential House
Date of purchase 1.7.1990 1.4.1992 1.7.1994
Cost price 4,00,000 6,00,000 8,00,000
Cost of improvement 1,00,000 2,00,000 4,00,000
Year of improvement 1999-2000 2000-01 2005-06
Fair market value on 1.4.2001 30,00,000 60,00,000 5,00,000
Date of Sale 01.01.2021 01.01.2021 01.01.2021
Full value of consideration 95 Lacs 190 Lacs 50 Lacs
Solution:
Asset Gold Land Residential House
Full value of consideration 95 Lacs 190 Lacs 50 Lacs
Less: Indexed COA 90,30,000 180,60,000 (24,08,000)
(30 L x 301/100) (60L x 301/100) (8L x 301/100)
Less: Indexed COI - - (10,29,060)
(4L x 301/117)
Long term capital gain 4,70,000 9,40,000 15,62,940
PQ2. Mr. X owns a plot of land acquired on 1.6.2002 for Rs. 2 Lacs. He enters into an agreement to sell the
property on 15.3.2021 for Rs. 20 Lacs. In part-performance of the contract, he handed over the possession
of land on 21.03.2021 on which date he received the full consideration. As on 31 st March 2021, sale was not
registered. Discuss the liability to capital gain for AY 2021-22.
Solution: Transfer includes Giving possession of IMMOVABLE PROPERTY under Part performance of a
contract. Thus, it is treated as transfer in PY 2020-21 & capital gain will be attracted.
Full value of consideration Rs. 20,00,000
Less: Indexed cost of acquisition [2,00,000 x 301/105] (Rs.5,73,333)
Long Term Capital Gain Rs. 14,26,667
PQ3. Mr. X purchased one house on 1.7.2002 for Rs. 3,50,000. He constructed its first floor on 1.10.2011 by
incurring Rs. 4 lacs & constructed its second floor on 1.10.2012 by incurring Rs. 6,00,000 & third floor on
1.10.2014 by incurring Rs. 7,00,000. Finally, sold the building on 1.1.2021 for Rs. 120 Lacs & selling expenses
were 2% of the sale price. Compute taxable capital gains for AY 2021-22.
Solution:
Full value of consideration 120 Lacs
Less: Selling Expenses = 2% of Rs. 120,00,000 (2,40,000)
Net Sale Consideration 1,17,60,000
Less: Indexed cost of acquisition [3,50,000 x 301/105] (10,03,333)
Less: Indexed COI - Cost of constructing 1st floor [4,00,000 x 301/184] (6,54,348)
Less: Indexed COI - Cost of constructing 2 nd
floor [6,00,000 x 301/200] (9,03,000)
Less: Indexed COI - Cost of constructing third floor [7,00,000 x 301/240] (8,77,917)
Long Term Capital Gain 83,21,400
PQ4. Examine, with reasons, whether the following statements are True or False:
Where an urban agricultural land owned by an individual, continuously used by him for agricultural purposes
for a period of two years prior to the date of transfer, is compulsorily acquired under law & the
compensation is fixed by the State Government, resultant capital gain is exempt.
Answer: False: As per section 10(37), where an individual owns urban agricultural land which has been used
for agricultural purposes for 2 years immediately preceding the date of transfer, & same is compulsorily
acquired under any law & compensation is determined or approved by CG/RBI, capital gain is exempt.
PQ5. Mrs. Padmini owned 2 motor cars, which were mainly used for business purposes. WDV on 1.4.2020 of
the Block of Assets comprising of only these two cars, both of which were purchased in May 2008 was Rs.
1,81,000. These two cars were sold in June 2020 for Rs. 1,50,000. A Plot purchased in March 2008 for Rs.
2,73,000 was sold by her for Rs. 6,50,000 on 18.01.2021. Compute Capital Gains for AY 2021-22. [Nov 1993]
Solution: Computation of Capital Gain on Sale of Assets
Particulars Motor cars House plot
Sale Consideration 1,50,000 6,50,000
Less: WDV/Indexed CoA (1,81,000) (5,55,223) [2,73,000 × 301/148]
Capital Gains STCL of (31,000) LTCG of 94,777
Notes:
1. Gain/Loss on Sale of Depreciable Assets will be treated as Short Term Capital Gain/Loss Only.
2. Current Year Short Term Capital Loss can be adjusted against any Capital Gain. (Section 70)
PQ6. Mr. X owned a Residential House in Ghaziabad. It was acquired by Mr. X on 10.10.2006 for 6 lacs. He
sold it for 53 lacs on 04.11.2020. Stamp duty value = Rs. 70 Lacs. Assessee paid 2% of sale consideration as
brokerage on the sale of the said property. Mr. X Acquired a Residential House property at Kolkata on
10.12.2020 for Rs. 10,00,000 & deposited Rs. 4,00,000 on 10.04.2021 & Rs. 5,00,000 on 15.06.2021 in capital
gains bonds of RECL Ltd. He deposited 4 lacs on 06.07.2021 & 3 lacs on 01.11.2021 in capital gain deposit
scheme in Nationalized Bank for construction of additional floor on house property in Kolkata. Compute
Capital Gain for AY 2021-22. [CII for FY 2006-07 = 122] [MAY 2014]
Solution: Computation of Capital Gains in the hands of Mr. X for AY 2021-22
Full value of Consideration [If ASC < SDV & such SDV > 110% of ASC, then FVC = SDV] 70,00,000
Less: Brokerage @ 2% of ASC (1,06,000)
Less: Indexed cost of acquisition [Rs. 6,00,000 x 301/122] (14,80,328)
Long-term capital gain 54,13,672
Less: Exemption u/s 54: Acquisition of residential house property at Kolkata (10.12.2020) (10,00,000)
Less: Amount deposited in capital gains accounts scheme (10.12.2020) (4,00,000)
Less: Exemption u/s 54EC: Amount deposited in capital gains bonds of RECL on 10.04.2021 (4,00,000)
Taxable Long-term capital gain 36,13,672
Note:
▪ Rs. 5,00,000 invested on 15.06.2021 in capital gains bonds of RECL Ltd will not be eligible for deduction
u/s 54EC since the limit limit of 6 months has expired.
▪ As per the decision of Gauhati High Court in CIT vs Rajesh Kumar Jalan (2006) & Punjab & Haryana High
Court in CIT vs Jagriti Aggarwal (2011), exemption u/s 54 is allowable even if amount of capital gain is
deposited in CGAS after due date u/s 139(1) but before DD for filing belated return u/s 139(4). If we apply
the above interpretation in this case, Mr. X would be eligible for exemption u/s 54 i.r.o. Rs. 3,00,000
deposited in Capital Gains Accounts Scheme on 01.11.2021 also, since the said date falls within the time
specified u/s 139(4). On the basis of this interpretation, taxable LTCG in hands of Mr. X = Rs. 33,13,672.
PQ7. Mr. X, a resident individual, aged 55 years, purchased 10 Plots in PY 2003-04 for Rs. 12 Lac. On
1.4.2004, he started a business of property dealing & converted all 10 plots into SIT of his business &
recorded Rs. 40 Lacs in his books being FMV the said date.
On 31st March 2011, he sold all 10 Plots for Rs. 55 Lacs & purchased a residential house property for Rs. 50
Lacs. He has constructed 2 rooms in this residential house in June 2011 & has spent 8 Lacs.
He sold the above residential house on 05.02.2021 for 80 Lacs. SDV was 105 Lacs. On the request of Mr. X,
AO made a reference to valuation officer. Valuation Officer determined the value at 108 Lacs.
Mr. X paid brokerage 1% of sale consideration. Compute Capital gains of Mr. X for AY 2021-22.
(CII: 2003-04: 109; 2004-05: 113; 2010-11: 167; 2011-12: 184; 2020-21: 301) [Nov 2016]
Solution:
Capital Gains on sale of residential house property
Full value of consideration [If SC < SDV & SDV < Value by VO, then FVC = SDV] 105 Lacs
Less: Brokerage @ 1% of Actual sale consideration (80,000)
Less: Indexed cost of acquisition (Rs. 50,00,000 x 301/167) (90,11,976)
Less: Indexed cost of improvement (Rs. 8,00,000 x 301/184) (13,08,696)
Long-term capital gain 99,328
PQ8. Mr. Rakesh purchased a House Property on 14.4.1996 for Rs. 2,50,000. He entered into an agreement
with Mr. B for sale of house on 15.09.1999 & received an Advance of Rs. 25,000. However, since Mr. B did
not remit the balance amount, Mr. Rakesh forfeited the advance. Later on, he gifted house to his friend
Mr. A on 15.06.2001. Following renovations were carried out by Mr. Rakesh & Mr. A to the House Property:
Particulars Amount
By Mr. Rakesh during FY 1996-97 1,00,000
By Mr. A during FY 2005-06 1,00,000
By Mr. A during FY 2009-10 2,50,000
FMV of the Property on 1.4.2001 is Rs. 2,50,000. Mr. A entered into an agreement with Mr. C for sale of the
House on 1st June 2015 & received an Advance of Rs. 1,00,000. The said amount was forfeited by Mr. A, since
Mr. C could not fulfil the terms of the agreement. Finally, the House was sold by Mr. A to Mr. Sanjay on 2 nd
Jan 2021 for Rs. 20 lacs. Compute taxable Capital Gains in hands of Mr. A for AY 2021-22. [May 2011]
Solution:
Particulars Rs.
Sale Consideration Rs. 20,00,000
Less: Indexed Cost of Acquisition = (2,50,000 x 301/100) (Rs. 7,52,500)
Less: Indexed Cost of Improvement [(1,00,000 x 301/117) + (2,50,000x 301/148)] (Rs. 7,65,711)
Long Term Capital Gain Rs. 4,81,789
Income from Other Sources: Advance Forfeited [Sec. 56(2)(ix)] Rs. 1,00,000
Notes:
1. As per Sec. 51, any Advance Money or any other sum received & retained by the Assessee will be treated
as Income from other Sources. The Cost of Acquisition shall not be reduced by that amount.
2. Advance Money received & forfeited by the Previous Owner shall not be considered u/s 51.
3. Improvement done by the previous owner is also considered if it is done after 1.4.2001.
PQ9. Ms. Gunjan purchased a Land at Rs. 50 Lacs in PY 2008-09 & held the same as her capital asset till
31st Aug 2014. She started her Real Estate Business on 1st Sep 2014 & converted the said Land into SIT of
her business on the said date when FMV of the Land was Rs. 320 Lacs. She constructed 8 Flats of equal
size, quality & dimension. Cost of Construction of each Flat is Rs. 36 Lacs. Construction was completed in
January 2018. She sold 5 Flats at Rs. 90 Lacs per Flat in April 2020.
She invested Rs. 50 Lacs in Bonds issued by National Highways Authority of India on 31 st May 2020. She also
invested another Rs. 50 lakhs in bonds of Rural Electrification Corporation Ltd. in June, 2021.
Compute Capital Gains & Business Income arising from the above transactions in the hands of Ms. Gunjan
for AY 2021-22. [CII: FY 2008-09: 137; FY 2014-15: 240; FY 2015-16: 254; FY 2020-21: 301]
[RTP + Similar to ICAI Ex. Q3]
Solution: Computation of Capital Gain & business income of Ms. Gunjan
Full Value of Consideration [FMV of Land on date of conversion] 320 Lacs
Less: Indexed Cost of Acquisition [Rs. 50,00,000 x 240/137] (87,59,124)
Capital Gains 2,32,40,876
Proportionate LTCG taxable in AY 2021-22 [Rs. 2,32,40,876 × 5/8] 1,45,25,548
Less: Exemption u/s 54EC (restricted to Rs. 50 Lacs) (50 Lacs)
Taxable LTCG 95,25,548
Business Income
Sale Price of Flats (5x Rs.90 Lacs) 450 Lacs
Less: Cost of Flats: (a) FMV of Land on the date of conversion (Rs. 3,20 Lacs x 5/8) (200 Lacs)
(b) Cost of Construction of Flats (5 × Rs. 36 Lacs) (180 Lacs)
Business Income 70 Lacs
Note:
1. Conversion of Capital Asset into SIT is a transfer u/s 2(47). It would be treated as a transfer in PY in
which Capital Asset is converted into SIT. But Capital Gains will be taxable only in PY in which SIT is sold.
2. Indexation is available only upto PY of conversion of Capital Asset to SIT & not upto year of sale of SIT
3. 5 flats out of 8 Flats are sold in PY 2020-21. So, only proportionate Capital Gains (5/8th) is taxable in AY
2021-22.
4. In case of conversion of Capital Asset into SIT & subsequent sale of SIT, period of 6 months, for the
purpose of exemption u/s 54EC, is to be reckoned from the date of sale of SIT. In this case, since
investment in bonds of NHAI has been made within 6 months of sale of flats, exemption u/s 54EC is
available.
5. W.r.t LTCG arising on land or building or both in any FY, maximum deduction u/s 54EC would be Rs. 50
lacs, whether the investment in bonds of NHAI or RECL are made in same FY or next FY.
Therefore, even though investment of Rs. 50 lacs have been made in bonds of NHAI during the PY 2020-
21 & investment of Rs. 50 lacs have been made in bonds of RECL during PY 2021-22, both within the
stipulated six-month period, maximum deduction allowable for AY 2021-22 i.r.o LTCG arising on sale of
LTCA(s) during PY 2020-21 is only Rs. 50 lacs.
PQ10. Star Enterprises has transferred its unit R to A Ltd by way of slump sale on 23 rd Feb 2021. Compute
the Capital Gains arising from slump sale of Unit R for AY 2021-22.
Liabilities Amount (Rs. in Lacs) Assets Amount (in Lacs)
Own Capital 1,750 Fixed Assets:
Accumulated P & L Balance 670 (i) Unit P 200
Liabilities: (ii) Unit Q 150
(i) Unit P 90 (iii) Unit R 600
(ii) Unit Q 160 Other Assets:
(iii) Unit R 140 (i) Unit P 570
(ii) Unit Q 850
(iii) Unit R 440
▪ Slump Sale consideration on transfer of Unit R was Rs. 930 Lacs.
▪ Fixed Assets of Unit R includes land which was purchased at Rs. 110 Lacs in 2009 & was revalued at 140
Lacs.
▪ Other Fixed Assets are reflected at Rs. 460 Lacs, (i.e. Rs. 600 Lacs less value of land) which represents
WDV of those assets as per books. The written down value of these asset is Rs. 430 Lacs.
▪ Unit R was set up by Star Enterprises in 2007. [May 2018]
Answer: Computation of Capital Gains
Particulars (In Lacs)
Sale Consideration 930
Less: Expenses on transfer (Nil)
Net Sale consideration 930
Less: COA = Net Worth [Refer Note below] (840)
Long term Capital Gain 90
Note: Computation of Net Worth

Particulars (in Lacs)
Fixed Assets [Cost of land Rs.110 + Other depreciable assets @ WDV as per IT Act Rs. 430] 540
Other Assets 440
Total Assets taken over 980
Less: Liabilities of Unit R (140)
Net Worth 840
Notes:
1. No Indexation is available on Slump Sale transaction.
2. Revaluation effect shall be ignored for the purpose of computing Cost of Acquisition u/s 50B.
PQ11. Mr. X (age 82) purchased urban agricultural land on 1.10.2001 for Rs. 3 Lacs & it was being used for
agricultural purposes by him. It was sold on 01.01.2021 for Rs. 59,03,000. Mr. X purchased 1 agricultural
land in rural area on 10.01.2021 for Rs. 10 Lacs & this land was sold by him on 11.02.2021 for Rs. 11 Lacs &
has invested Rs. 30,000 in NSC. Compute taxable Capital gains for AY 2021-22.
(b) What if the land was purchased in urban area instead of rural area.
Solution:
(a) Computation of Capital Gains
Full value of consideration 59,03,000
Less: Indexed cost of acquisition [3,00,000 x 301/100] (9,03,000)
Less: Exemption u/s 54B (10,00,000)
Note: If land is purchased in rural area, exemption will be allowed u/s 54B. On sale of Rural
agricultural land, no capital gains will arise since rural agricultural land is not a capital asset.
(b) If newly acquired land is a urban land & it is sold, exemption granted u/s 54B will be withdrawn.
In such case, assessee will have 2 options.
Option 1: Not to take exemption u/s 54B; Option 2: Take exemption u/s 54B.
Option 1: Exemption is ▪ LTCG = Rs. 50,00,000;
not availed ▪ STCG on sale of urban agri. Land = Rs. 11 Lacs - Rs. 10 Lacs = Rs. 1 Lac.
Option 2: Exemption ▪ LTCG = Rs. 40,00,000;
is availed ▪ STCG on sale of urban agri. Land = Rs. 11 Lacs – Rs. 0 Lacs = Rs. 11 Lacs.
Assessee should opt for option I & his tax liability shall be Rs. 9,20,000 + 4% HEC = Rs. 9,56,800.
AZ
CA Pranav Chandak's
DT Question Bank
7. Income from Other Sources


SM1. Rahul holding 28% of equity shares in a company, took a loan of Rs. 5,00,000 from the same company.
On the date of granting the loan, the company had accumulated profit of Rs. 4,00,000. The company is
engaged in some manufacturing activity.
(i) Is the amount of loan taxable as deemed dividend, if the company is a company in which the public are
substantially interested?
(ii) What would be your answer, if the lending company is a private limited company (i.e. a company in which
the public are not substantially interested)?
Answer: Any payment by a company, other than a company in which the public are substantially interested,
of any sum by way of advance or loan to an equity shareholder, being a person who is the beneficial owner
of shares holding not less than 10% of the voting power, is deemed as dividend under section 2(22)(e), to
the extent the company possesses accumulated profits.
(i) The provisions of section 2(22)(e), however, will not apply where the loan is given by a company in which
public are substantially interested. In such a case, the loan would not be taxable as deemed dividend.
(ii) However, if the loan is taken from a private company (i.e. a company in which the public are not
substantially interested), which is a manufacturing company & not a company where lending of money
is a substantial part of the business of the company, then, the provisions of section 2(22)(e) would be
attracted, since Rahul holds more than 10% of the equity shares in the company.
Amount chargeable as deemed dividend cannot, however, exceed the accumulated profits held by the
company on the date of giving the loan. Therefore, the amount taxable as deemed dividend would be
limited to the accumulated profit i.e., Rs. 4,00,000 & not the amount of loan which is Rs. 5,00,000.
SM2. Mr. A (dealer in shares) received following without consideration during PY 2020-21 from his
friend Mr. B:
1) Cash gift of Rs. 75,000 on his anniversary, 15th April, 2020.
2) Bullion, the fair market value of which was Rs. 60,000, on his birthday, 19 th June, 2020.
3) A plot of land at Faridabad on 1st July, 2020, the stamp value of which is 5 lakh on that date. Mr. B had
purchased the land in April, 2009.
Mr. A purchased from his friend Mr. C, who is also a dealer in shares, Rs.1000 shares of X Ltd. @ Rs.
400 each on 19th June, 2020, the fair market value of which was Rs. 600 each on that date. Mr. A sold
these shares in the course of his business on 23rd June, 2020.
Further, on 1st November, 2020, Mr. A took possession of property (building) booked by him two years
back at 20 lacs. The stamp duty value of the property as on 1st November, 2020 was 32 lakh & on the
date of booking was 23 lacs. He had paid 1 lakh by account payee cheque as down payment on the date
of booking.
On 1st March, 2021, he sold the plot of land at Faridabad for 7 lacs.
Compute the income of Mr. A u/h ‘Income from other sources’ & ‘Capital Gains’ for AY 2021-22.
Answer: Computation of “Income from other sources” of Mr. A for AY 2021-22
Particulars Rs.
(1) Cash gift is taxable under section 56(2)(x), since it exceeds Rs. 50,000 Rs. 75,000
(2) Since bullion is included in the definition of property, therefore, when Rs. 60,000
bullion is received without consideration, the same is taxable, since the aggregate
fair market value exceeds Rs. 50,000
(3) Stamp value of plot of land at Faridabad, received without consideration, is Rs. 5,00,000
taxable under section 56(2)(x)
(4) Difference of 2 lakh in the value of shares of X Ltd. Purchased from Mr. C, a dealer -
in shares, is not taxable as it represents the stock-in-trade of Mr. A. Since Mr. A
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is a dealer in shares & it has been mentioned that the shares were subsequently
sold in the course of his business, such shares represent the stock-in-trade of Mr.
A.
(5) Difference between the stamp duty value of 23 lakh on the date of booking & the
actual consideration of 20 lakh paid is taxable under section 56(2)(x) since the Rs. 3,00,000
difference exceeds 1,00,000, being the higher of Rs. 50,000 & 10% of consideration
Income from Other Sources Rs. 9,35,000
Computation of “Capital Gains” of Mr. A for the AY 2021-22

Particulars Rs.
Sale Consideration Rs. 7,00,000
Less: Cost of acquisition [deemed to be the stamp value charged to tax under Rs. 5,00,000
section 56(2)(x) as per section 49(4)]
Short-term capital gains Rs. 2,00,000
Note – The resultant capital gains will be short-term capital gains since for calculating the period of
holding, the period of holding of previous owner is not to be considered.
SM3. Discuss the taxability or otherwise of the following in the hands of the recipient under section 56(2)(x)
the Income-tax Act, 1961 -
(i) Akhil HUF received Rs. 75,000 in cash from niece of Akhil (i.e., daughter of Akhil’s sister). Akhil is the
Karta of the HUF.
(ii) Nitisha, a member of her father’s HUF, transferred a house property to the HUF without consideration.
The stamp duty value of the house property is Rs. Rs. 9,00,000.
(iii) Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th marriage
anniversary. The fair market value on that date was Rs. 100 per share. He also received jewellery worth
Rs. 45,000 (FMV) from his nephew on the same day.
(iv) Kishan HUF gifted a car to son of Karta for achieving good marks in XII board examination. The fair
market value of the car is Rs. 5,25,000.
Answer:
Taxable/ Amount Reason
Non- taxable liable to tax
(i) Taxable Rs. 75,000 Sum of money exceeding Rs. 50,000 received without consideration
from a non-relative is taxable under section 56(2)(x). Daughter of
Mr. Akhil’s sister is not a relative of Akhil HUF, since she is not a
member of Akhil HUF.
(ii) Non- taxable Nil Immovable property received without consideration by a HUF from
its relative is not taxable under section 56(2)(x). Since Nitisha is a
member of the HUF, she is a relative of the HUF. However, income
from such asset would be included in the hands of Nitisha under
64(2).
(iii) Taxable Rs. 55,000 As per provisions of section 56(2)(x), in case the aggregate fair
market value of property, other than immovable property, received
without consideration exceeds 50,000, the whole of the aggregate
value shall be taxable. In this case, the aggregate fair market value
of shares (Rs. 10,000) & jewellery (Rs. 45,000) exceeds Rs. 50,000.
Hence, the entire amount of Rs. 55,000 shall be taxable.
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(iv) Non- taxable Nil Car is not included in the definition of property for the purpose of
section 56(2)(x), therefore, the same shall not be taxable.
SM4. Mr. Hari, a property dealer, sold a building in the course of his business to his friend Rajesh, who is a
dealer in automobile spare parts, for 90 lakh on 1.1.2021, when the stamp duty value was 150 lakh. The
agreement was, however, entered into on 1.9.2020 when the stamp duty value was 140 lakh. Mr. Hari had
received a down payment of 15 lakh by a crossed cheque from Rajesh on the date of agreement. Discuss
the tax implications in the hands of Hari & Rajesh, assuming that Mr. Hari has purchased the building for
75 lakh on 12th July, 2019.
Would your answer be different if Hari was a share broker instead of a property dealer?
Answer: Case 1: Tax implications if Mr. Hari is a property dealer
In the hands of the seller, Mr. Hari In the hands of the buyer, Mr. Rajesh
In the hands of Hari, the provisions of section Since Mr. Rajesh is a dealer in automobile spare
43CA would be attracted, since the building parts, the building purchased would be a capital
represents his stock-in- trade & he has asset in his hands. The provisions of section 56(2)(x)
transferred the same for a consideration less would be attracted in the hands of Mr. Rajesh who
than the stamp duty value; & the stamp duty value has received immovable property, being a capital
exceeds 110% of consideration. asset, for inadequate consideration & the
Under section 43CA, the option to adopt the difference between the consideration & stamp
stamp duty value on the date of agreement can duty value exceeds Rs. 9,00,000, being the higher
be exercised only if whole or part of the of Rs. 50,000 & 10% of consideration. Therefore, 60
consideration has been received on or before lakh, being the difference between the stamp duty
the date of agreement by way of account payee value of the property on the date of registration
cheque or draft or by use of ECS through a bank (i.e., 150 lakh) & the actual consideration (i.e., 90
account or through credit card, debit card, net lakh) would be taxable under section 56(2)(x)
banking, IMPS (Immediate payment Service), UPI in the hands of Mr. Rajesh, since the payment on
(Unified Payment Interface), RTGS (Real Time the date of agreement is made by crossed cheque
Gross Settlement), NEFT (National Electronic & not account payee cheque/draft or ECS or
Funds Transfer), & BHIM (Bharat Interface for through credit card, debit card, net banking, IMPS
Money) Aadhar Pay on or before the date of (Immediate payment Service), UPI (Unified
agreement. In this case, since the down payment Payment Interface), RTGS (Real Time Gross
of Rs. 15 lakh is received on the date of Settlement), NEFT (National Electronic Funds
agreement by crossed cheque & not account Transfer), & BHIM (Bharat Interface for Money)
payee cheque, the option cannot be exercised. Aadhar Pay.
Therefore, Rs. 75 lakh, being the difference
between the stamp duty value on the date of
transfer i.e., Rs. 150 lakh, & the purchase price
i.e., Rs. 75 lakh, would be chargeable as business
income in the hands of Mr. Hari, since stamp
duty value exceeds 110% of the consideration.
Case 2: Tax implications if Mr. Hari is a share broker

In the hands of the seller, Mr. Hari In the hands of the buyer, Mr. Rajesh
In case Mr. Hari is a share broker and not a There would be no difference in the taxability in
property dealer, the building would represent his the hands of Mr. Rajesh, whether Mr. Hari is a
capital asset and not stock- in-trade. In such a property dealer or a stock broker.
case, the provisions of section 50C would be Therefore, the provisions of section 56(2)(x) would
attracted in the hands of Mr. Hari, since building be attracted in the hands of Mr. Rajesh who has
is transferred for a consideration less than the received immovable property, being a capital
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stamp duty value; & the stamp duty value exceeds asset, for inadequate consideration & the
110% of consideration. difference between the consideration & stamp
Thus, Rs. 75 lakh, being the difference between duty value exceeds Rs. 9,00,000, being the higher
the stamp duty value on the date of registration of Rs. 50,000 & 10% of consideration.
(i.e., 150 lakh) & the purchase price (i.e., 75 lakh) Therefore, Rs. 60 lakh, being the difference
would be chargeable as short-term capital gains. between the stamp duty value of the property on
It may be noted that under section 50C, the the date of registration (i.e., Rs. 150 lakh) & the
option to adopt the stamp duty value on the date actual consideration (i.e., Rs. 90 lakh) would be
of agreement can be exercised only if whole or taxable under section 56(2)(x) in the hands of Mr.
part of the consideration has been received on Rajesh, since the payment on the date of
or before the date of agreement by way of agreement is made by crossed cheque & not
account payee cheque or draft or by use of ECS account payee cheque/draft or ECS or through
through a bank account or through credit card, credit card, debit card, net banking, IMPS
debit card, net banking, IMPS (Immediate (Immediate payment Service), UPI (Unified
payment Service), UPI (Unified Payment Payment Interface), RTGS (Real Time Gross
Interface), RTGS (Real Time Gross Settlement), Settlement), NEFT (National Electronic Funds
NEFT (National Electronic Funds Transfer), & Transfer), & BHIM (Bharat Interface for Money)
BHIM (Bharat Interface for Money) Aadhar Pay Aadhar Pay.
on or before the date of agreement. In this case,
since the down payment of 15 lakhs has been
received on the date of agreement by crossed
cheque & not account payee cheque, the option
cannot be exercised.
SM5. Interest on enhanced compensation received by Mr. G during the previous year 2020-21 is Rs.
5,00,000. Out of this interest, Rs. 1,50,000 relates to the previous year 2017-18, Rs. 1,65,000 relates to
previous year 2018-19 & Rs. 1,85,000 relates to previous year 2019-20. Discuss the tax implication, if any,
of such interest income for AY 2021-22.
Answer: The entire interest of Rs. 5,00,000 would be taxable in the year of receipt, namely, PY 2020-21
Particulars Rs.
Interest on enhanced compensation taxable u/s 56(2)(viii) Rs. 5,00,000
Less: Deduction under section 57(iv) @50% Rs. 2,50,000
Interest chargeable under the head “Income from other sources” Rs. 2,50,000
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Q1. Examine under which heads the following incomes are taxable:
(i) Rental income in case property held as stock-in-trade for 3 years
(ii) Dividend on shares in case of a dealer in shares
(iii) Salary received by a partner from his partnership firm
(iv) Rental income of machinery
(v) Winnings from lotteries by a person having the same as business activity
(vi) Salaries payable to a Member of Parliament
(vii) Receipts without consideration
(viii) In case of retirement, interest on employee’s contribution if provident fund is unrecognized.
(ix) Rental income in case of a person engaged in the business of letting out of properties.
Answer:
Particulars Head of Income
(i) Rental income in case property held as stock-in Income from house property
trade for 3 years
(ii) Dividend on shares in case of a dealer in shares Income from other sources
(iii) Salary by partner from his partnership firm Profits & gains of business or profession
(iv) Rental income of machinery Profits & gains of business or
(See Note below) profession/Income from other sources
(v) Winnings from lotteries by a person having the Income from other sources
same as business activity
(vi) Salaries payable to a Member of Parliament Income from other sources
(vii) Receipts without consideration Income from other sources
(viii) In case of retirement, interest on employee’s Income from other sources
contribution if provident fund is unrecognized
(xi) Rental income in case of a person engaged in the Profits & gains from business or profession
business of letting out of properties
Note: As per section 56(2)(ii), rental income of machinery would be taxable u/h ‘Income from Other
Sources’, if it is not taxable u/h ‘Profits & gains of business or profession’.
Q2. Examine whether the following are chargeable to tax & the amount liable to tax:
A sum of Rs. 1,20,000 was received as gift from non-relatives by Raj on the occasion of the marriage of his
son Pravin.
Interest on enhanced compensation of Rs. 96,000 received on 12-3-2021 for acquisition of urban land, of
which 40% relates to PY 2019-20.
Answer:
SN Taxable? Amount liable Reason
to tax
(i) Taxable Rs. 1,20,000 Exemption from applicability of section 56(2)(x) would be
available if, inter alia, gift is received from a relative or gift is
received on the occasion of marriage of the individual himself.
In this case, since gift is received by Mr. Raj from a non-relative
on the occasion of marriage of his son, it would be taxable in his
hands under section 56(2)(x).
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(ii) Taxable Rs. 48,000 As per section 145B(1), interest received by the assessee on
enhanced compensation shall be deemed to be the income of the
year in which it is received, irrespective of the method of
accounting followed by the assessee.
Interest of Rs. 96,000 on enhanced compensation is chargeable
to tax in the year of receipt i.e. PY 2020-21 under section
56(2)(viii) after providing deduction of 50% under section 57(iv).
Therefore, Rs. 48,000 is chargeable to tax under the head
“Income from other sources”.
Q3. On 10.10.2020, Mr. Govind (a bank employee) received Rs. 5,00,000 towards interest on enhanced
compensation from State Government in respect of compulsory acquisition of his land effected during the
financial year 2014-15.
Out of this interest, Rs. 1,50,000 relates to the financial year 2015-16; Rs. 1,65,000 to the financial year
2016-17; & Rs. 1,85,000 to the financial year 2017-18. He incurred Rs. 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 AY 2021-22?
Answer: Section 145B provides that interest received by the assessee on enhanced compensation shall be
deemed to be the income of the assessee of the year in which it is received, irrespective of the method of
accounting followed by the assessee & irrespective of the financial year to which it relates.
Section 56(2)(viii) states that such income shall be taxable as ‘Income from other sources.
50% of such income shall be allowed as deduction by virtue of section 57(iv) & no other deduction shall be
permissible from such Income.
Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be allowed
as deduction from such income.
Computation of interest on enhanced compensation taxable as “Income from other sources” for the
AY 2021-22:
Particulars Rs.
Interest on enhanced compensation taxable under section 56(2)(viii) Rs. 5,00,000
Less: Deduction under section 57(iv) (50% x Rs. 5,00,000) Rs. 2,50,000
Taxable interest on enhanced compensation Rs. 2,50,000
Q4. The following details have been furnished by Mrs. Hemali pertaining to the year ended 31.3.2021:
(i) Cash gift of Rs. 51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a wedding
function celebrated on her husb& completing 60 years of age. This was also her 25th wedding
anniversary.
(ii) On the above occasion, a diamond necklace worth 2 lacs was presented by her sister living in Dubai.
(iii) When she celebrated her daughter's wedding on 21.2.2021, her friend assigned in Mrs. Hemali's favour,
a fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit & the accrued
interest on the said date was Rs. 52,000.
Compute the income, if any, assessable as income from other sources.
Answer:
(i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt.
This provision is, however, not applicable to a cash gift received during a wedding function celebrated
on completion of 60 years of age.
Gift of Rs. 51,000 received from a non-relative is, therefore, chargeable to tax under section 56(2)(x)
in the hands of Mrs. Hemali, since the same exceeds Rs. 50,000.
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(ii) The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property received
from a relative. Thus, the gift of diamond necklace received from her sister is not taxable under section
56(2)(x), even though jewellery falls within the definition of “property”.
(iii) To be exempt from applicability of section 56(2)(x), the property should be received on the occasion of
the marriage of the individual, not that of the individual’s son or daughter. Therefore, this exemption
provision is not attracted in this case.
Any sum of money received without consideration by an individual is chargeable to tax under section
56(2)(x), if the aggregate value exceeds Rs. 50,000 in a year. “Sum of money” has, however, not been
defined under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in favour of
Mrs. Hemali –
1) The first view is that fixed deposit does not fall within the meaning of “sum of money” & therefore, the
provisions of section 56(2)(x) are not attracted. It may be noted that fixed deposit is also not included
in the definition of “property”.
2) However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali falls within the
meaning of “sum of money” received.
Income assessable as “Income from other sources”

If the first view is taken, the total amount chargeable to tax as “Income from other sources” would be Rs.
51,000, being cash gift received from a friend on her Shastiaptha Poorthi.
As per the second view, the provisions of section 56(2)(x) would also be attracted in respect of the fixed
deposit assigned & the “Income from other sources” of Mrs. Hemali would be Rs. 1,03,000 (Rs. 51,000 + Rs.
52,000).
Q5. Examine the following transactions in the context of Income-tax Act, 1961:
(i) Mr. B transferred Rs. 500 shares of R (P) Ltd. to M/s. B Co. (P) Ltd. on 10.10.2020 for Rs. 3,00,000 when
the market price was Rs. 5,00,000. The indexed cost of acquisition of shares for Mr. B was computed
at Rs. 4,45,000. The transfer was not subjected to securities transaction tax.
Determine the income chargeable to tax in the hands of Mr. B & M/s. B Co. (P) Ltd. because of the above
said transaction.
(ii) Mr. Chezian is employed in a company with taxable salary income of Rs. 5,00,000. He received a cash
gift of Rs. 1,00,000 from Atma Charitable Trust (registered under section 12AB) in December 2020 for
meeting his medical expenses.
Is the cash gift so received from the trust chargeable to tax in the hands of Mr. Chezian?
Answer
(i) Any movable property received for inadequate consideration by any person is chargeable to tax under
section 56(2)(x), if the difference between aggregate Fair Market Value of the property & consideration
exceeds 50,000.
Thus, share received by M/s B. Co. (P) Ltd. from Mr B for inadequate consideration is chargeable to tax
under section 56(2)(x) to the extent of Rs. 2,00,000.
As per section 50CA, since, the consideration is less than the fair market value of unquoted shares of
R (P) Ltd., fair market value of shares of the company would be deemed to be the full value of
consideration. It is presumed that the shares of R (P) Ltd are unquoted shares.
The full value of consideration (Rs. 5,00,000) less the indexed cost of acquisition (Rs. 4,55,000) would
result in a long term capital gains of Rs. 55,000 in the hands of Mr. B.
(ii) The provisions of section 56(2)(x) would not apply to any sum of money or any property received from
any trust or institution registered under section 12AB. Therefore, the cash gift of 1 lakh received from
Atma Charitable Trust, being a trust registered under section 12AB, for meeting medical expenses
would not be chargeable to tax under section 56(2)(x) in the hands of Mr. Chezian.
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PAST RTP QUESTIONS

MAY 2018 Q1. From the following transactions relating to Mrs. Sonu, determine taxable amount in
her hands for AY 2021-22. Your answer should be supported by reasons:
(a) Received cash gifts on the occasion of her marriage on 19.11.2020 of Rs. 2,10,000.
It includes gift of Rs. 55,000 received from non-relatives.
(b) On 1.01.2021, being her birthday, she received a gift of Rs. 45,000 by means of
cheque from her father's maternal uncle.
(c) On 12.02.2021, she acquired a vacant site from her friend for Rs. 1,12,000. The State
stamp valuation authority fixed the value of site at Rs. 1,92,000 for stamp duty
purpose.
(d) She bought 50 equity shares of a private company from another friend for Rs.
75,000. Fair market value of such shares on the date of purchase was Rs. 1,33,000.
Answer:
(a) Nil. Cash gift of Rs. 2,10,000 received on the occasion of her marriage is not taxable,
since gifts received by an individual on the occasion of marriage is excluded from
tax u/s 56(2)(x), even if the same are from non-relatives.
(b) Nil. Even though father’s maternal uncle does not fall within the definition of
“relative” u/s 56(2)(x), gift of Rs. 45,000 received from him by cheque is not
chargeable to tax since the aggregate sum of money received by Mrs. Sonu without
consideration from non-relatives (other than on the occasion of marriage) during
PY 2017-18 does not exceed Rs. 50,000.
(c) Rs. 80,000. Purchase of vacant site for inadequate consideration on 12.2.2018 would
attract the provisions of section 56(2)(x). As per section 56(2)(x), where any person
receives from a non-relative, any immovable property for a consideration which is
less than the stamp duty value on the date of agreement or date of registration as
the case may be, & the difference between actual consideration & stamp duty value
so considered is more than the higher of Rs. 50,000 or 5% of the consideration so
received, then the difference between such value & actual consideration of such
property is chargeable to tax as income from other sources. Therefore, in the given
case Rs. 80,000 (Rs. 1,92,000 - Rs. 1,12,000) is taxable in the hands of Mrs. Sonu.
(d) Rs. 58,000. Since shares are included in the definition of “property” & difference
b/w purchase value & FMV of shares is Rs. 58,000 (Rs. 1,33,000 - Rs. 75,000) i.e. it
exceeds Rs. 50,000, the difference would be taxable u/s 56(2)(x).
NOV 2018 Q2. Mr. Pranav has 15% shareholding in TRP (P) Ltd. (engaged in trading business of toys)
& has also 50% share in Pranav & Sons, a partnership firm. Accumulated profit of TRP(P)
Ltd. is Rs. 30 lacs. Pranav & Sons had taken a loan of Rs. 35 lacs from TRP(P) Ltd. Examine
whether the above loan can be treated as dividend as per the provisions of the Income-
tax Act, 1961.
Answer: Section 2(22)(e) provides that any payment by a company, not being a company
in which public are substantially interested, of any sum by way of advance or loan to a
shareholder, being a person who is the beneficial owner of shares holding not less than
10% of voting power, or to any concern in which such shareholder is a partner and in
which he has a substantial interest (i.e., he is beneficially entitled to not less than 20%
of the income of such concern) is deemed as dividend, to the extent the company
possesses accumulated profits.
In present case, loan given by TRP(P) Ltd. to Pranav & Sons, a partnership firm would
be deemed as dividend, since Mr. Pranav is beneficial owner of 15% shareholding in
TRP(P) Ltd. & also has substantial interest in Pranav & Sons (as he is beneficially entitled
to 50% of income of the firm).
159
However, amount of loan would be deemed as dividend only to the extent TRP(P) Ltd.
possesses accumulated profits. Therefore, out of the loan of Rs. 35 lakhs given to Pranav
& Sons, only Rs. 30 lacs, i.e., to the extent of accumulated profit of TRP(P) Ltd., would
be deemed as dividend.
Q3. Discuss the taxability in the hands of the recipients:

(a) MNS Private Limited, a closely held company, issued 12,000 shares at Rs. 125 per
share. (Face value of the share is Rs. 80 per share & FMV of the share is Rs. 110 per
share).
(b) Mr. Arun received advance of Rs. 56,000 on 11.9.2019 against the sale of his house.
However, due to non-payment of instalment in time, contract has cancelled & Rs.
56,000 was forfeited.
(c) Mr. Nitin, transferred a house to his son Mr. Raj without consideration. SDV is Rs. 12
lacs.
(d) Mr. Tanmay gifted a refrigerator to his sister’s daughter on her marriage. FMV =
Rs. 75,000.
Answer:
(a) Taxable. Since MNS Private Limited, a closely held company, issued 12,000 shares at
a premium, ‘Issue price – FMV’ would be taxable u/s 56(2)(viib) in its hands u/h
‘IFOS’. Therefore, Rs. 1,80,000 [12,000 × Rs. 15 (Rs. 125 – Rs. 110)] shall be taxable
as income in the hands of MNS Private Limited u/h “Income from other sources”.
(b) Taxable. Any sum of money received as an advance in the course of negotiations for
transfer of a capital asset would be chargeable to tax u/h “IFOS”, if such amount is
forfeited & negotiations do not result in transfer of such capital asset [Sec.
56(2)(ix)]. Therefore, the amount of Rs. 56,000 received as advance would be
chargeable to tax in the hands of Mr. Arun u/h “IFOS”, since it is forfeited on
account of cancellation of contract for transfer of house, being a capital asset, due
to non-payment of installment in time.
(c) Not Taxable. As per section 56(2)(x), immovable property received without
consideration by any person from his relative is not taxable. In the present case,
since Mr. Nitin is the father of Mr. Raj, Rs. 12 lacs, being the stamp duty value of
house property received, without consideration, would not be chargeable to tax in
the hands of Mr. Raj.
(d) Not Taxable. Refrigerator is not included in the definition of “property”, for the
purpose of taxability u/s 56(2)(x) in the hands of the recipient under the head
“Income from other sources”. Further, the same has been received by Tannu on
occasion of her marriage from her maternal uncle, being a relative. Hence, Rs.
75,000, being the fair market value of refrigerator received without consideration
from a relative on the occasion of her marriage is not taxable in the hands of Tannu,
even though its value exceeds Rs. 50,000.
MAY 2019 Q4. Mr. Suraj sold a house to his friend Mr. Ganesh on 18th Sep 2020 for Rs. 42 Lacs.
[IMP] On the date of registration, SDV of the said property is Rs. 45 Lacs. However, on the
date of agreement SDV of the said property was Rs. 44 Lacs.
Mr. Ganesh had paid 10% of the value of the property by way of A/c payee cheque at
the time of agreement. Assume value of land is 70% of total value of the property.
What are the tax implications in the hands of Mr. Suraj & Mr. Ganesh for AY 2021-22?
Mr. Suraj had purchased the land on 19th February, 2013 for Rs. 9,20,000 & completed
the construction of house on 18th January 2019 for Rs. 15,50,000.
[CII: FY 2012-13: 200; FY 2016-17: 264; FY 2018-19: 289; FY 2019-20: 301]
160
Answer: In the hands of the seller, Mr. Suraj

- As per section 50C, where the consideration received or accruing as a result of
transfer of land or building or both, is less than SDV, SDV shall be deemed to be the
full value of consideration.
- However, where the date of registration & date of agreement are not the same &
part or whole of the consideration is received by way of A/c payee cheque or A/c
payee bank draft or by use of ECS on or before the date of agreement, then stamp
duty value on the date of agreement may be taken to be the full value of consideration.
- Further, where the stamp duty value on the date of agreement or registration, as the
case may be, does not exceed 110% of the amount of consideration received or
receivable then the consideration so received would be deemed to be the full value
of the consideration.
- In the present case, since Mr. Suraj has received 10% of the consideration by way of
A/c payee cheque on the date of agreement, the stamp duty value of Rs. 44,00,000
on the date of agreement would be taken for the purpose of computing FVC.
- Further, since SDV of land & building of Rs. 44,00,000 does not exceed Rs. 46,20,000
i.e., 110% of Rs. 42,00,000, the consideration received i.e., Rs. 42,00,000 i.r.o. land &
building would be deemed to be the full value of consideration.
- In the given problem, land has been held for a period exceeding 24 months & building
for a period less than 24 months immediately preceding the date of transfer. So, Land
is a long-term capital asset, while building is a short-term capital asset.
- Accordingly, capital gains would be determined in the following manner:
Particulars Rs.
Long term capital gain on sale of land
Consideration received/accruing for transfer of land [70% of Rs. 42 Lacs] 29,40,000
Less: Indexed cost of acquisition [Rs. 9,20,000 x 301/200] 13,84,600
Long-term capital gain (A) 15,55,400
Short-term capital loss on sale of building
Consideration received from transfer of building [30% of Rs. 42 Lacs] 12,60,000
Less: Cost of acquisition 15,50,000
Short term capital loss (B) (2,90,000)
STCL can be set-off against LTCG. Therefore, net taxable LTCG = Rs. 13,20,600 (Rs.
16,10,600 – Rs. 2,90,000). It is taxable @ 20% u/s 112, after adjusting unexhausted BEL
against such LTCG.
In the hands of the buyer Mr. Ganesh

As per section 56(2)(x), where any person receives from a non-relative, any immovable
property for a consideration which is less than the stamp duty value on the date of
agreement or date of registration as the case may be, & the difference between actual
consideration & stamp duty value so considered is more than the higher of Rs. 50,000
or 10% of actual consideration, then difference between such value & actual
consideration of such property is chargeable to tax as income from other sources.
Where the date of registration & date of agreement are not the same & part or whole
of the consideration is paid by way of A/c payee cheque or A/c payee bank draft or
by use of ECS on or before the date of agreement, then stamp duty value on the date
of agreement may be taken for the purpose of determining income taxable under the
head “Income from other sources”.
161
Since in the present case, Mr. Ganesh has paid 10% of the consideration by way of A/c
payee cheque, the stamp duty value on the date of agreement has to be taken. Further,
since the difference of Rs. 2,00,000 is not more than Rs. 4,20,000 being higher of Rs.
50,000 & Rs. 4,20,000 (10% of Rs. 42,00,000), no income would be chargeable to tax as
income from other sources in the hands of Mr. Ganesh.
NOV 2019 Q5. APM Ltd. is a pioneer company in textile industry. At the end of PY 2020-21, it
decided to distribute deposit certificates (without interest) to its shareholders
(preference as well as equity shareholders). Total value of accumulated profits of APM
Ltd. was Rs. 25 lacs. Mr. A is an equity shareholder of APM Ltd. holding 10% of share
capital. During PY 2020-21, Mr. A received deposit certificate (without interest) valuing
Rs. 5,00,000 from APM Ltd. Comment upon taxability of receipt of deposit certificates
in the hands of Mr. A. [Updated after abolisition of DDT]
(a) Deposit Receipts (without interest) are taxable to the extent of Rs. 2,50,000 u/h
“IFOS”.
(b) Deposit Receipts (without interest) are fully taxable under Income from other
sources.
(c) Deposit Receipts (without interest) are exempt since DDT is payable by the
company.
(d) Deposit Receipts (without interest) are fully taxable and shall be included in Gross
total income. But such receipt shall be allowed as deduction under Chapter-VI A.
MAY 2020 No Direct Question was asked.

PQ1. Discuss the taxability of the above transactions in case of the company assessee: [May 2015]
(i) Balaji (P) Ltd. issued 26,000 equity shares of Rs. 10 each at a premium of 7. FMV on the date of issue is
Rs. 13.
(ii) RAU (P) Ltd. issued 30,000 equity shares of 10 @ Rs. 9. FMV of each share on the date of issue is Rs. 5.
Answer:
(i) Provisions of section 56(2)(viib) are attracted since the shares of a closely held company are issued
at a premium & issue price exceeds the FMV of such shares.
Consideration received by the company in excess of FMV of the shares would be taxable u/s 56(2)(viib).
Therefore, Rs. 1,04,000 [Rs.17 – Rs.13) x 26,000 shares] shall be taxable u/s 56(2)(viib) in the hands of
Balaji ltd.
(ii) Provisions of section 56(2)(viib) are not attracted in this case since shares of a closely held company
are not issued at a premium.
Thus even if issue price > FMV of the shares, nothing shall be taxable since section 56(2)(viib) is not
attracted.
PQ2. Mr X has the following income for AY 2021-22. Compute the tax payable by Mr. X. [Drafted by PC]
Salary: Rs 6,00,000 (computed) House Property: Rs. 3,00,000
Dividends from domestic company: Rs. 14 Lacs LTCG (STT paid): Rs. 50,000
LTCG (STT not paid): Rs. 3 Lacs. STCG: 2,00,000
162
Solution: Computation of total income of X for AY 2021-22

1. Income under the head salary (computed) 6,00,000
2. Income under the head house property (computed) 3,00,000
3. IFOS (Dividend) {Fully Taxable from AY 2021-22] 14,00,000 14,00,000
Less: Exemption u/s 10(34)/ Section 115BBDA (10,00,000)
4. Capital Gains
LTCG (STT paid) - Not Taxable since < Rs. 1,00,000 Nil
LTCG (STT not paid) 3 Lacs
STCG (Normal) 2 Lacs 5,00,000
Gross total income 28,00,000
Computation of Tax payable

Tax on LTCG @ 20% = (3 lacs x 20%) 60,000
Tax on balance total income of Rs. 25 Lacs @ Slab Rate 8,32,500
Tax payable 8,92,500
Add: 4% HEC 35700
Total Tax Payable 9,28,200
PQ3. Following is the P&L A/c of Mr. A, a Dealer in Shares & Securities for PY 2020-21:
To Trading Expenses 1,87,80,000 By Sales 2,17,62,000
To Administrative Expenses 3,15,000 By Interest on FD with Bank 49,500
To Financial Expenses 1,44,795 By Dividend from Indian Company 1,93,080
To Demat & Delivery Charges 13,050 By Interest on IT Refund (AY 2012-13) 690
To Securities Transaction Tax 16,500
To Net Profit before Depreciation 27,35,925
Compute the Tax Liability of Mr. A for AY 2021-22. [Nov 2006]
Solution: Computation of Total Income & Tax Liability of Mr. A for AY 2021-22
1. Profits & Gains from Business or Profession
Net Profit before Depreciation 27,35,925
Less: Items to be considered u/h “IFOS”
Interest on FD (49,500)
Dividend from Indian Company (1,93,080)
24,92,655
Interest on IT Refund (690) (2,43,270)
(i) Income from Dividend – Taxable w.e.f. AY 2021-22 1,93,080
(ii) Interest on FD 49,500
(iii) Interest on IT Refund 690 2,43,270
163
Less: Deduction under Chapter VI-A Nil

Total Income (Rounded off) 27,35,930
Tax on Total Income [1,12,500 + (27,35930 - 10,00,000) x 30%] 18,48,430
Add: HEC at 4% 73,937
Net Tax Payable (Rounded off) 19,22,370
Note: Securities Transaction Tax is allowed as a deduction u/s 36(1)(xv).
PQ4. Bharat Hurkat, a resident individual, submits the following particulars of his income for PY 2020-21.
(i) Royalty from a coal mine Rs. 15,000
(iii) Salary as a member of Parliament Rs. 5,00,000
(iv) Daily allowance as a member of Parliament Rs. 2,50,000
(v) Dividend received from a cooperative society Rs. 50,000
(vi) He has incurred the following expenses
(a) Paid collection charges for collecting dividends Rs. 1,000
(b) Amount spent for earning & collecting royalty income Rs. 4,000
Compute his “Income from other sources” for AY 2021-22.
Solution:
Royalty from coal mine Rs. 15,000
Less: Collection charges (Rs. 4,000) Rs. 11,000
Salary as a member of Parliament Rs. 5,00,000
Daily allowance as a member of Parliament – Exempt Nil
Dividend from a Co-operative Society Rs. 50,000
Less: Collection charge (Rs. 1,000) Rs. 49,000
Total Income u/h IFOS Rs. 5,60,000
PQ5. Ms. Chhaya transferred a vacant site to Ms. Dayama for Rs. 4,25,000. The Stamp Valuation Authority
fixed the value of vacant site for Stamp Duty purpose at Rs. 6,00,000. Total Income of Chhaya & Dayama
before considering the transfer of vacant site are Rs. 50,000 & Rs. 2,05,000 respectively. Indexed Cost of
Acquisition for Ms. Chhaya i.r.o vacant site is Rs. 4,00,000 (computed). Determine Total Income of both Ms.
Chhaya & Ms. Dayama. [May 2011]
Solution: Computation of Total Income of Ms. Chayya
I. Long Term Capital Gains:
Sale Consideration - Indexed Cost of Acquisition 2,00,000
II. Other income 50,000
Total income 2,50,000
Computation of Total Income of Ms. Dayama
Income from Other Sources: Gift (See Note) [6,00,000 – 4,25,000] 1,75,000
Other Income 2,05,000
Note: If Immovable Property is received for inadequate consideration, & shortfall/inadequacy > Rs. 50,000,
then Taxable Value of Gift is the difference between the Stamp Duty Value & Consideration paid.
164
PQ6. Mr. Y submits the following information pertaining to the year ended 31.03.2021:
(a) On 30.11.2020, when he attained the age of 60, his friends in India gave a flat at Surat as a gift, each
contributing a sum of Rs. 20,000 in cash. The cost of the flat purchased using the various gifts was Rs.
3.4 Lacs.
(b) His close friend in abroad sent him a Cash Gift of Rs. 75,000 through his relative, for the above occasion.
(c) Mr. Y sold the above flat on 30.01.2021 for Rs. 3 Lacs. The Registrar's valuation for stamp duty purposes
was Rs. 3.7 Lacs. Neither Mr. Y nor the buyer, questioned the value fixed by the Registrar.
(d) He purchased some Equity Shares in X Pvt Ltd (unlisted) on 5.2.2020 for Rs. 3.5 Lacs, which were sold
on 15.03.2021 for Rs. 3.20 Lacs.
You are requested to calculate the Total Income of Y for AY 2021-22. [MAY 2005]
Solution: Computation of Total Income of Mr. Y for AY 2021-22
1 STCG on sale of Flat at surat: [For being LTCA, POH for immovable property should be > 24 months
Full Value of consideration [SDV using Section 50C] 3,70,000
Less: COA (Cost to Previous Owner since the asset is received by Gift) (3,40,000) 30,000
2 STCL on sale of unlisted shares: [For being LTCA, POH for unlisted shares should be > 24 months]
Full Value of Consideration 3,20,000
Less: Cost of Acquisition (3,50,000) (30,000)
Gift Received by way of Flat (Gift received in Kind or Cash is taxable) 3,40,000
Gift from Friend (Fully taxable as aggregate amount exceeds Rs. 50,000) 75,000 4,15,000
Note: STCL can be set-off against STCG/LTCG.
PQ7. Discuss the taxability of the following in the hands of the recipient u/s 56(2)(x): [Nov 2013]
(a) Mr. Tejpal received a painting by M. F. Hussain worth 2 Lac from his nephew on his 10th wedding
anniversary.
(b) Mrs. Maya received Cash Gift of Rs. 51,000 from her friend on the occasion of her ‘Shastiaptha Poorthi’,
a wedding function celebrated on her husband completing 60 years of age. This was also her 25th
Wedding Anniversary.
(c) Mrs. Maya also received a diamond necklace of Rs. 2 Lacs from her sister living in Dubai on the above
occasion.
(d) When Mrs. Maya celebrated her daughter's wedding on 21.02.2019, her friend Miss. Saanj assigned in
Mrs. Maya’s avour a FD held in a Bank, (value of the Fixed Deposit & the accrued interest on the said
date was Rs. 51,000).
Answer:
(a) Paintings are included in the definition of “property”. Thus, when paintings are received without
consideration & aggregate FMV of paintings exceed Rs. 50,000, FMV shall be taxable u/s 56(2)(x).
Therefore, Rs. 2,00,000, being the value of painting gifted by his nephew, would be taxable u/s 56(2)(x)
in the hands of Mr. Tejpal, since “nephew” is not included in the definition of “relative”.
(b) Gift received from any other person other than a Relative is taxable. So, gift received from friend is
taxable. (Shastiaptha Poorthi is not a marriage occasion). Rs. 51,000 is taxable.
(c) Sister is a relative & thus, gift received from sister is not taxable in the hands of Mrs. Maya.
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(d) Gift received on marriage of an individual is not taxable. But, in this case, gift is received on marriage
occasion of Assessee’s daughter. Hence Rs. 51,000 is taxable in the hands of Assessee.
PQ8. Mr. Chezian is employed in a Company with Taxable Salary Income of Rs. 5,00,000. He received a
Cash Gift of Rs. 1 lac from Atma Chartiable Trust (registered u/s 12AA) in Dec, 2019 for meeting his Medical
Expenses. Is the Cash Gift so received from the Trust chargeable to Tax in the hands of Mr. Chezian?
[May 2011]
Answer:
▪ Amount received as Gift from any Trust / Institution registered u/s 12AA is exempt u/s 56.
▪ So, the amount of Rs. 1,00,000 is exempt from tax.
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AZ
CA Pranav Chandak's
DT Question Bank
8. Clubbing of Income


SM 1. Mr. Vatsan has transferred, through a duly registered document, the income arising from a godown
to his son, without transferring the godown. In whose hands will the rental income from godown be charged?
Answer: Section 60 expressly states that where there is transfer of income from an asset without transfer
of the asset itself, such income shall be included in the total income of the transferor. Hence, the rental
income derived from the godown shall be clubbed in the hands of Mr. Vatsan.
SM 2. Mr. A holds shares carrying 25% voting power in X Ltd. Mrs. A is working as a computer software
programmer in X Ltd. at a salary of Rs. 30,000 p.m. She is, however, not qualified for the job. The other
income of Mr. A & Mrs. A are Rs. 7,00,000 & Rs. 4,00,000, respectively. Compute the gross total income of
Mr. A & Mrs. A for AY 2021-22.
Answer: Mr. A holds shares carrying 25% voting power in X Ltd i.e. a substantial interest in the company.
His wife is working in the same company without any professional qualifications for the same. Thus, salary
received by Mrs. A from X Ltd. will be clubbed in the hands of Mr. A.
Computation of Gross total income of Mr. A
Particulars Rs. Rs.
Salary received by Mrs. A (Rs. 30,000 × Rs. 12) Rs. 3,60,000
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 3,10,000
Other Income Rs. 7,00,000
Gross total income Rs. 10,10,000
Note: Gross total income of Mrs. A is Rs. 4,00,000.
SM 3. Will your answer be different if Mrs. A was qualified for the job?
Answer: If Mrs. A possesses professional qualifications for job, clubbing provisions shall not be applicable.
Gross total income of Mr. A = Rs. 7,00,000 [other income].
Gross total income of Mrs. A = Salary received by Mrs. A [Rs. 30,000×12] - Rs. 50,000 [SD u/s 16(ia)] + other
income [Rs. 4,00,000] = Rs. 7,10,000.
SM 4. Mr. B holds shares carrying 30% voting power in Y Ltd. Mrs. B is working as accountant in Y Ltd.
getting income under the head salary (computed) of Rs. 3,44,000 without any qualification in accountancy.
Mr. B also receives Rs. 30,000 as interest on securities. Mrs. B owns a house property which she has let
out. Rent received from tenants is Rs. 6,000 p.m. Compute GTI of Mr. B & Mrs. B for AY 2021-22.
Answer: Since Mrs. B is not professionally qualified for the job, the clubbing provisions shall be applicable.
Computation of Gross total income of Mr. B
Income under the head Salary of Mrs. B (Computed) Rs. 3,44,000
Income from other sources - Interest on securities Rs. 30,000
GTI of Mr. B Rs. 3,74,000
Computation of Gross total income of Mrs. B
Income from Salary [clubbed in the hands of Mr. B] Nil
Income from house property: GAV [Rs. 6,000 × 12] = NAV since MT not given Rs. 72,000
Less: Standard deduction u/s 24(a): 30% of NAV i.e., 30% of Rs. 72,000 (Rs. 21,600)
Less: Deduction u/s 24(b): Interest on loan - Rs. 50,400
Gross total income Rs. 50,400
SM 5. Mr. Vaibhav started a proprietary business on 01.04.2019 with a capital of Rs. 5,00,000. He incurred
a loss of Rs. 2,00,000 during the year 2019-20. To overcome the financial position, his wife Mrs. Vaishaly, a
software Engineer, gave a gift of Rs. 5,00,000 on 01.04.2020, which was immediately invested in the
business by Mr. Vaibhav. He earned a profit of Rs. 4,00,000 during the year 2020-21. Compute the amount
to be clubbed in the hands of Mrs. Vaishaly for AY 2021-22. If Mrs. Vaishaly gave the said amount as loan,
what would be the amount to be clubbed?
Answer: Section 64(1)(iv) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of
the individual, if the income earned is from the assets (other than house property) transferred directly or
indirectly to the spouse of the individual, otherwise than for adequate consideration or in connection with
an agreement to live apart.
In this case, Mr. Vaibhav received a gift of Rs. 5,00,000 on 1.4.2020 from his wife Mrs. Vaishaly, which he
invested in his business immediately. The income to be clubbed in the hands of Mrs. Vaishaly for the AY
2021-22is computed as under:
Particulars Mr. Vaibhav’s capital Capital contribution out Total (Rs.)
contribution (Rs) of gift from Mrs.
Vaishaly (Rs.)
Capital as on 1.4.2020 Rs. 3,00,000 Rs. 5,00,000 Rs. 8,00,000
(5,00,000 – 2,00,000)
Profit for PY 2020-21 to be Rs. 1,50,000 Rs. 2,50,000 Rs. 4,00,000
apportioned on the basis of 3 5
(4,00,000 × ) (4,00,000 × )
capital employed on the 8 8
first day of the previous
year i.e. as on 1.4.2020 (3:5)
Therefore, the income to be clubbed in the hands of Mrs. Vaishaly for the AY 2021-22 is Rs. 2,50,000.
In case Mrs. Vaishaly gave the said amount of Rs. 5,00,000 as a bona fide loan, then, clubbing provisions
would not be attracted.
Note: The provisions of section 56(2)(x) would not be attracted in the hands of Mr. Vaibhav, since he has
received a sum of money exceeding Rs. 50,000 without consideration from a relative i.e., his wife.
SM 6. Mrs. Kasturi transferred her immovable property to ABC Co. Ltd. subject to a condition that out of
the rental income, a sum of Rs. 36,000 per annum shall be utilized for the benefit of her son’s wife.
Mrs. Kasturi claims that the amount of Rs. 36,000 (utilized by her son’s wife) should not be included in her
total income as she no longer owned the property.
Examine with reasons whether the contention of Mrs. Kasturi is valid in law.
Answer: The clubbing provisions under section 64(1)(viii) are attracted in case of transfer of any asset,
directly or indirectly, otherwise than for adequate consideration, to any person to the extent to which
the income from such asset is for the immediate or deferred benefit of son’s wife. Such income shall be
included in computing the total income of the transferor-individual.
Therefore, income of Rs. 36,000 meant for the benefit of daughter-in-law is chargeable to tax in the hands
of transferor i.e., Mrs. Kasturi in this case.
The contention of Mrs. Kasturi is, hence, not valid in law.
Note: In order to attract the clubbing provisions under section 64(1)(viii), the transfer should be otherwise
than for adequate consideration. In this case, it is presumed that the transfer is otherwise than for
adequate consideration & therefore, the clubbing provisions are attracted. Moreover, the provisions of
section 56(2)(x) would also get attracted in the hands of ABC Co Ltd., if the conditions specified thereunder
are satisfied.
If it is presumed that the transfer was for adequate consideration, the provisions of section 64(1)(viii)
would not be attracted.
SM 7. Mr. A has three minor children – two twin daughters & one son. Income of the twin daughters is Rs.
2,000 p.a. each & that of the son is Rs. 1,200 p.a. Compute the income, in respect of minor children, to be
clubbed in the hands of Mr. A.
Answer: Taxable income, in respect of minor children, in the hands of Mr. A is:
Particulars Rs. Rs.
Twin minor daughters [Rs. 2,000 × Rs. 2] Rs. 4,000 Rs. 1,000
Less: Exempt under section 10(32) [Rs. 1,500 × Rs. 2] Rs. 3,000
Minor son Rs. 1,200 Nil
Less: Exempt under section 10(32) Rs. 1,200
Income to be clubbed in the hands of Mr. A Rs. 1,000
SM 8. Compute the gross total income of Mr. & Mrs. A from the following information:
Particulars Rs.
(a) Salary income (computed) of Mrs. A Rs. 2,30,000
(b) Income from profession of Mr. A Rs. 3,90,000
(c) Income of minor son B from company deposit Rs. 15,000
(d) Income of minor daughter C from special talent Rs. 32,000
(e) Interest from bank received by C on deposit made out of her special talent Rs. 3,000
(f) Gift received by C on 30.09.2020 from friend of Mrs. A Rs. 2,500
Brief working is sufficient. Detailed computation under various heads of income is not required.
Answer:
▪ As per section 64(1A), all 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 greater.
▪ Income of Mr. A is Rs. 3,90,000 & income of Mrs. A is Rs. 2,30,000. Since income of Mr. A is greater than
that of Mrs. A, income of the minor children have to be clubbed in the hands of Mr. A.
▪ Income derived by a minor child from any activity involving application of his/her skill, talent, specialised
knowledge & experience is not to be clubbed. Hence, the income of minor child C from exercise of special
talent will not be clubbed.
▪ However, interest from bank deposit has to be clubbed even when deposit is made out of income arising
from application of special talent.
▪ Gross Total Income of Mrs. A is Rs. 2,30,000.
Computation of GTI of Mr. A for AY 2021-22
1 Income from profession of Mr. A Rs. 3,90,000
2 Income of minor son B from company deposit Rs. 15,000
Less: Exemption under section 10(32) (Rs. 1,500) Rs. 13,500
3 Income of minor daughter C
- From special talent – not to be clubbed -
- Interest from bank Rs. 3,000
- Gift of Rs. 2,500 received from a non-relative is not taxable u/s 56(2)(x) Nil
Less: Exemption under section 10(32) (Rs. 1,500) Rs. 1,500
SM 9. Mr. Vasudevan gifted a sum of 6 lakhs to his brother's wife on 14.06.2020. On 12.07.2020, his brother
gifted a sum of 5 lacs to Mr. Vasudevan's wife. Gifted amounts were invested as fixed deposits in banks by
Mrs. Vasudevan & wife of Mr. Vasudevan's brother on 01.08.2020 at 9% p.a. Examine the consequences of
the above under the provisions of the Income-tax Act, 1961 in the hands of Mr. Vasudevan & his brother.
Answer: In the given case, Mr. Vasudevan gifted a sum of 6 lakhs to his brother’s wife on 14.06.2020 &
simultaneously, his brother gifted 5 lacs to Mr. Vasudevan’s wife on 12.07.2020. Gifted amounts were
invested as fixed deposits in banks by Mrs. Vasudevan & his brother’s wife. These transfers are in the
nature of cross transfers. Accordingly, the income from the assets transferred would be assessed in the
hands of the deemed transferor because the transfers are so intimately connected to form part of a single
transaction & each transfer constitutes consideration for other by being mutual or otherwise.
If two transactions are inter-connected & are part of the same transaction in such a way that it can be
said that the circuitous method was adopted as a device to evade tax, the implication of clubbing provisions
would be attracted. It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66 ITR 142.
Accordingly, the interest income arising to Mrs. Vasudevan in the form of interest on fixed deposits would
be included in the total income of Mr. Vasudevan & interest income arising in the hands of his brother’s
wife would be taxable in the hands of Mr. Vasudevan’s brother as per section 64(1), to the extent of amount
of cross transfers i.e., Rs. 5 lakhs.
This is because both Mr. Vasudevan & his brother are the indirect transferors of the income to their
respective spouses with an intention to reduce their burden of taxation.
However, the interest income earned by his spouse on fixed deposit of 5 lakhs alone would be included in
the hands of Mr. Vasudevan’s brother & not the interest income on the entire fixed deposit of 6 lakhs, since
the cross transfer is only to the extent of 5 lakhs.

Q1. Mr. Sharma has four children consisting 2 daughters & 2 sons. The annual income of 2 daughters were
9,000 & 4,500 & of sons were Rs. 6,200 & Rs. 4,300, respectively. Daughter who has income of Rs. 4,500 was
suffering from a disability specified u/s 80U. Compute the amount of income earned by minor children to
be clubbed in hands of Mr. Sharma.
Answer: As per section 64(1A), in computing the total income of an individual, all such income accruing or
arising to a minor child shall be included. However, income of a minor child suffering from disability
specified under section 80U would not be included in the income of the parent but would be taxable in the
hands of the minor child. Therefore, in this case, the income of daughter suffering from disability specified
under section 80U should not be clubbed with the income of Mr. Sharma.
Under section 10(32), income of each minor child includible in the hands of the parent under section 64(1A)
would be exempt to the extent of the actual income or Rs. 1,500, whichever is lower. The remaining income
would be included in the hands of the parent.
Computation of income earned by minor children to be clubbed with the income of Mr. Sharma:
Particulars Rs.
(i) Income of one daughter Rs. 9,000
Less: Income exempt under section 10(32) Rs. 1,500
Total (A) Rs 7,500
(ii) Income of two sons (Rs.6,200 + 4,300) Rs. 10,500
Less: Income exempt under section 10(32) (1,500 + 1,500) Rs. 3,000
Total (B) Rs. 7,500
Total Income to be clubbed as per section 64(1A) (A+B) Rs. 15,000
Note: It has been assumed that:
1) All the four children are minor children;
2) The income does not accrue or arise to the minor children on account of any manual work done by them
or activity involving application of their skill, talent or specialized knowledge & experience;
3) The income of Mr. Sharma, before including the minor children’s income, is greater than the income of
Mrs. Sharma, due to which the income of the minor children would be included in his hands; &
4) This is the first year in which clubbing provisions are attracted.
Q2. During PY 2020-21, following transactions occurred in respect of Mr. A.

(a) Mr. A had a fixed deposit of Rs. 5,00,000 in Bank of India. He instructed the bank to credit the interest
on the deposit @ 9% from 1-4-2020 to 31-3-2021 to the savings bank account of Mr. B, son of his brother,
to help him in his education.
(b) Mr. A holds 75% profit share in a partnership firm. Mrs. A received a commission of Rs. 25,000 from the
firm for promoting the sales of the firm. Mrs. A possesses no technical or professional qualification.
(c) Mr. A gifted a flat to Mrs. A on April 1, 2020. During the previous year 2020- 21, Mrs. A’s “Income from
house property” (computed) was Rs. 52,000 from such flat.
(d) Mr. A gifted Rs. 2,00,000 to his minor son who invested the same in a business & he derived income of
Rs. 20,000 from the investment.
(e) Mr. A’s minor son derived an income of Rs. 20,000 through a business activity involving application of
his skill & talent.
During the year, Mr. A got a monthly pension of Rs. 10,000. He had no other income. Mrs. A received salary
of Rs. 20,000 per month from a part time job.
Examine tax implications of each transaction & compute total income of Mr. A, Mrs. A & their minor child.
Answer: Total income of Mr. A, Mrs. A & their minor son for AY 2021-22
Particulars Mr. A Mrs. A Minor Son
Income u/h ‘Salaries’
Salary income (of Mrs. A) - Rs. 2,40,000 -
Pension income (Rs.10,000×12) (of Mr. A) Rs. 1,20,000 -
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 50,000
Rs. 70,000 Rs. 1,90,000
Income from House Property [See Note (3)] Rs. 52,000 - -
Income from other sources
Interest on Mr. A’s fixed deposit with Bank of - -
India (Rs. 5,00,000×9%) [See Note (1) below] Rs. 45,000
Commission received by Mrs. A from a - -
partnership firm, in which Mr. A has substantial Rs. 25,000
Rs. 70,000
interest [See Note (2) below]
Income before including income of minor son Rs. 1,92,000 Rs. 1,90,000 -
under section 64(1A)
Income of the minor son from the investment Rs. 18,500 - -
made in the business out of the amount gifted by
Mr. A [See Note (4) below]
Income of the minor son through a business - - Rs. 20,000
activity involving application of his skill & talent
[See Note (5) below]
Total Income Rs. 2,10,500 Rs. 1,90,000 Rs. 20,000
Notes:
1. As per section 60, in case there is a transfer of income without transfer of asset from which such
income is derived, such income shall be treated as income of the transferor. Therefore, fixed deposit
interest of Rs. 45,000 transferred by Mr. A to Mr. B shall be included in total income of Mr. A.
2. As per section 64(1)(ii), in case the spouse of the individual receives any amount by way of income from
any concern in which the individual has substantial interest (i.e. holding shares carrying at least 20%
voting power or entitled to at least 20% of the profits of the concern), then, such income shall be
included in the total income of the individual. Only exception is in a case where the spouse possesses
any technical or professional qualifications & income earned is solely attributable to the application of
her technical/professional knowledge & experience, in which case, clubbing provisions would not apply.
In this case, the commission income of Rs. 25,000 received by Mrs. A from the partnership firm has to
be included in the total income of Mr. A, as Mrs. A does not possess any technical or professional
qualification for earning such commission & Mr. A has substantial interest in the partnership firm as he
holds 75% profit share in the firm.
3. According to section 27(i), an individual who transfers any house property to his or her spouse otherwise
than for adequate consideration or in connection with an agreement to live apart, shall be deemed to
be the owner of the house property so transferred. Hence, Mr. A shall be deemed to be the owner of
the flat gifted to Mrs. A & hence, the income arising from the same shall be computed in the hands of
Mr. A.
Note: The provisions of section 56(2)(x) would not be attracted in the hands of Mrs. A, since she has
received immovable property without consideration from a relative i.e., her husband.
4. As per section 64(1A), the income of the minor child is to be included in the total income of the parent
whose total income (excluding the income of minor child to be so clubbed) is greater. Further, as per
section 10(32), income of a minor child which is includible in the income of the parent shall be exempt
to the extent of Rs. 1,500 per child.
Therefore, income of Rs. 20,000 received by minor son from the investment made out of the sum gifted
by Mr. A shall, after providing for exemption of Rs. 1,500 under section 10(32), be included in the income
of Mr. A, since Mr. A’s income of Rs. 1,92,000 (before including the income of the minor child) is greater
than Mrs. A’s income of Rs. 1,90,000. Therefore, 18,500 (i.e., Rs. 20,000 – Rs. 1,500) shall be included in
Mr. A’s income. It is assumed that this is the first year in which clubbing provisions are attracted.
Note: Provisions of section 56(2)(x) would not be attracted in the hands of the minor son, since he has
received a sum of money exceeding 50,000 without consideration from a relative i.e., his father.
5. In case, income earned by the minor child is on account of any activity involving application of any skill
or talent, then, such income of the minor child shall not be included in the income of the parent, but
shall be taxable in the hands of the minor child.
Therefore, the income of Rs. 20,000 derived by Mr. A’s minor son through a business activity involving
application of his skill & talent shall not be clubbed in the hands of the parent. Such income shall be
taxable in the hands of the minor son.
Q3. Mr. A has gifted a house property valued at Rs. 50 lakhs to his wife, Mrs. B, who in turn has gifted the
same to Mrs. C, their daughter-in-law. The house was let out at Rs. 25,000 per month throughout the year.
Compute the total income of Mr. A & Mrs. C.
Will your answer be different if the said property was gifted to his son, husband of Mrs. C?
Answer: As per section 27(i), an individual who transfers otherwise than for adequate consideration any
house property to his spouse, not being a transfer in connection with an agreement to live apart, shall be
deemed to be the owner of the house property so transferred. Therefore, in this case, Mr. A would be the
deemed owner of the house property transferred to his wife Mrs. B without consideration.
As per section 64(1)(vi), income arising to the son’s wife from assets transferred, directly or indirectly, to
her by an individual otherwise than for adequate consideration would be included in the total income of
such individual.
Income from let-out property is Rs. 2,10,000 [i.e., Rs. 3,00,000, being the actual rent calculated at Rs.
25,000 per month less 90,000, being deduction under section 24 @ 30% of Rs. 3,00,000].
In this case, income of Rs. 2,10,000 from let-out property arising to Mrs. C, being Mr. A’s son’s wife, would
be included in the income of Mr. A, applying the provisions of section 27(i) & section 64(1)(vi). Such income
would, therefore, not be taxable in the hands of Mrs. C.
In case the property was gifted to Mr. A’s son, the clubbing provisions under section 64 would not apply,
since the son is not a minor child. Therefore, the income of Rs. 2,10,000 from letting out of property gifted
to the son would be taxable in the hands of the son.
It may be noted that the provisions of section 56(2)(x) would not be attracted in the hands of the
recipient of house property, since the receipt of property in each case was from a “relative” of such
individual. Therefore, the stamp duty value of house property would not be chargeable to tax in the hands
of the recipient of immovable property, even though the house property was received by her or him without
consideration.
Note: The first part of the question can also be answered by applying the provisions of section 64(1)(vi)
directly to include the income of 2,10,000 arising to Mrs. C in the hands of Mr. A. [without first applying the
provisions of section 27(i) to deem Mr. A as the owner of the house property transferred to his wife Mrs. B
without consideration], since section 64(1)(vi) speaks of clubbing of income arising to son’s wife from
indirect transfer of assets to her by her husband’s parent, without consideration. Gift of house property
by Mr. A to Mrs. C, via Mrs. B, can be viewed as an indirect transfer by Mr. A to Mrs. C.
Q4. A proprietary business was started by Smt. Rani in the year 2018. As on 1.4.2019 her capital in business
was Rs. 3,00,000.
Her husband gifted Rs. 2,00,000 on 10.4.2019, such sum is invested by Smt. Rani in her business on the same
date. Smt. Rani earned profits from her proprietary business for the Financial year 2019-20, Rs. 1,50,000
& Financial year 2020-21 3,90,000. Compute the income, to be clubbed in the hands of Rani’s husband for
AY 2021-22 with reasons.
Answer: Section 64(1) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of the
individual, if the income earned is from the assets transferred directly or indirectly to the spouse of the
individual, otherwise than for adequate consideration. In this case Smt. Rani received a gift of Rs. 2,00,000
from her husband which she invested in her business. The income to be clubbed in the hands of Smt. Rani’s
husband for AY 2021-22 is computed as under:
Particulars Smt. Rani’s Capital Contribution Out of
Capital gift from husband Total
Contribution
Capital as at 1.4.2019 Rs. 3,00,000 -- Rs. 3,00,000
Investment on 10.04.2019 out of gift Rs. 2,00,000
received from her Husband Rs. 2,00,000
Total Rs. 3,00,000 Rs. 2,00,000 Rs. 5,00,000
Profit for FY 2019-20 to be Rs. 1,50,000 Rs. 1,50,000
apportioned on the basis of capital
employed on 1st day of PY i.e 1.4.2019
Capital employed as at 01.04.2020 Rs. 4,50,000 Rs. 2,00,000 Rs. 6,50,000
Profit for FY 2020-21 to be Rs. 2,70,000 Rs. 1,20,000 Rs. 3,90,000
apportioned on the basis of capital
employed as at 1.4.2020 (i.e., 45 : 20)
Therefore, the income to be clubbed in the hands of Smt. Rani’s husband for AY 2021-22 is Rs. 1,20,000.
Q5. Mr. B is the Karta of a HUF, whose members derive income as given below:
Particulars Rs.
(i) Income from B' s profession Rs. 45,000
(ii) Mrs. B' s salary as fashion designer Rs. 76,000
(iii) Minor son D (interest on fixed deposits with a bank which were gifted to him by his Rs. 10,000
uncle)
(iv) Minor daughter P's earnings from sports Rs. 95,000
(v) D's winnings from lottery (gross) Rs. 1,95,000
Answer: Clubbing of income & other tax implications
As per the provisions of section 64(1A), in case the marriage of the parents subsist, the income of a minor
child shall be clubbed in the hands of the parent whose total income, excluding the income of the minor
child to be clubbed, is greater. In this problem, it has been assumed that the marriage of Mr. B & Mrs. B
subsists.
Further, in case the income arises to the minor child on account of any manual work done by the child or
as a result of any activity involving application of skill, talent, specialized knowledge or experience of the
child, then, the same shall not be clubbed in the hands of the parent.
Tax implications
(i) Income of Rs. 45,000 from Mr. B’s profession shall be taxable in the hands of Mr. B under the head
“Profits & gains of business or profession”.
(ii) Salary of Rs. 26,000 (Rs. 76,000 less standard deduction under section 16(ia) of Rs. 50,000) shall be
taxable as “Salaries” in the hands of Mrs. B.
(iii) Income from fixed deposit of Rs. 10,000 arising to the minor son D, shall be clubbed in the hands of the
father, Mr. B as “Income from other sources”, since his income is greater than income of Mrs. B before
including the income of the minor child.
As per section 10(32), income of a minor child which is includible in the income of the parent shall be
exempt to the extent of Rs. 1,500 per child. The balance income would be clubbed in the hands of the
parent as “Income from other sources”.
(iv) Income of Rs. 95,000 arising to the minor daughter P from sports shall not be included in the hands of
the parent, since such income has arisen to the minor daughter on account of an activity involving
application of her skill.
(v) Income of Rs. 1,95,000 arising to minor son D from lottery shall be included in the hands of Mr. B as
“Income from other sources”, since his income is greater than the income of Mrs. B before including
the income of minor child.
Note: Mr. B can reduce TDS from such lottery income while computing his net tax liability.
RTP QUESTIONS
May 18 Q1. A proprietary business was started by Mrs. Sharma in the year 2018. As on 1.4.2019,
her capital in business was Rs. 5,00,000. Her husband gifted Rs. 3,00,000 on 2.4.2019, which
Mrs. Sharma invested in her business on the same date. Mrs. Sharma earned profits from
her proprietory business for PY 2019-20: Rs. 2,00,000 & PY 2020-21: Rs. 4,20,000. Compute
the income to be included in the hands of Mr. Sharma for AY 2021-22.
Answer:
Section 64(1)(iv) provides for the clubbing of income in the hands of the individual, if
income earned is from the assets transferred directly or indirectly to the spouse of the
individual, otherwise than for adequate consideration or in connection with an agreement
to live apart.
In this case, Mrs. Sharma received a gift of Rs. 3,00,000 from her husband which she
invested in her business. In a case where gift from spouse has been invested in business,
as per Explanation 3 to section 64(1), the income or loss from such business for any previous
year has to be apportioned between the spouses on the basis of the ratio of their capital
employed as on 1st April of the relevant previous year. Accordingly, income to be included
in the hands of Mr. Sharma for AY 2021-22 has to be computed as under:
Particulars Mrs. Capital Total
Sharma’s Contribution
Capital from husband
Contribution gift
Capital as on 1.4.2019 5,00,000 - 5,00,000
Investment on 02.04.2019 out of gift - 3,00,000 3,00,000
received from her husband
Total 5,00,000 3,00,000 8,00,000
Profit for FY 2019-20 to be apportioned on 2,00,000 - 2,00,000
the basis of capital employed on the first day
of PY i.e., on 1.4.2019
Capital employed as on 1.4.2020 7,00,000 3,00,000 10,00,000
Profit for PY 2020-21 to be apportioned on 2,94,000 1,26,000 4,20,000
the basis of capital employed as on 1.4.2020
(i.e., 7:3)
Therefore, income to be included in the hands of Mr. Sharma for AY 2021-22 is Rs. 1,26,000.
Nov 18 Q2. Saharsh gifted Rs. 12 lakhs to his wife, Sandhya on her birthday on 1st February 2020.
Sandhya lent Rs. 6,00,000 out of the gifted amount to Karuna on 1 st April 2020 for 6 months
on which she received interest of Rs. 60,000. The said sum of Rs. 60,000 was invested in
shares of a listed company on 3rd October 2020 which were sold for Rs. 85,000 on 30th March
2021. STT was paid on such sale. The balance amount of gift was invested on 1 st April 2020,
as capital by Sandhya in her new business. She suffered loss of Rs. 25,000 in the business in
the PY 2020-21. In whose hands the above income and loss shall be included in AY 2021-22,
assume that capital invested in the business was entirely out of the funds gifted by her
husband.
Answer: In computing the total income of any individual, there shall be included all such
income as arises directly or indirectly, to the spouse of such individual from assets
transferred directly or indirectly, to the spouse by such individual otherwise than for
adequate consideration or in connection with an agreement to live apart.
Interest on loan: Accordingly, Rs. 60,000, being the amount of interest on loan received by
Mrs. Sandhya, wife of Mr. Saharsh, would be includible in the total income of Mr. Saharsh,
since such loan was given by her out of the sum of money received as gift from her husband.
Loss from business: As per Explanation 2 to section 64, income includes loss. Thus, clubbing
provisions would be attracted even if there is loss and not income.
Thus, the entire loss of Rs. 25,000 from the business carried on by Mrs. Sandhya would be
includible in the total income of Mr. Saharsh, since as on 1st April 2020, capital invested was
entirely out of the funds gifted by her husband.
Short-term capital gain: Short-term capital gain of Rs. 25,000 (Rs. 85,000, being sale
consideration - Rs. 60,000, being the cost of acquisition) arising in the hands of Mrs. Sandhya
from sale of shares acquired by investing the interest income of Rs. 60,000 earned by her
(from the loan given out of the sum gifted to her by her husband), would not be included in
the hands of Mr. Saharsh. Since STT has been paid, such short-term capital gain on sale of
listed shares is taxable @ 15% u/s 111A.
Income from the accretion of the transferred asset is not liable to be included in the
hands of the transferor & therefore, such income is taxable in the hands of Mrs. Sandhya.
May 19 Q3. Ram owns 500, 15% debentures of Reliance Industries Ltd. of Rs. 500 each. Annual
interest of Rs. 37,500 was declared on these debentures for PY 2020-21. He transfers
interest income to his friend Shyam, without transferring the ownership of these
debentures. While filing return of income for AY 2021-22, Shyam showed Rs. 37,500 as his
income from debentures. As tax advisor of Shyam, do you agree with the tax treatment done
by Shyam in his return of income?
(a) Yes, since interest income was transferred to Shyam therefore, after transfer it
becomes his income.
(b) No, since Ram has not transferred debentures to Shyam, interest income on the
debentures is not taxable income of Shyam.
(c) Yes, if debentures are not transferred, interest income on debentures can be declared
by anyone, Ram or Shyam, as taxable income depending upon their discretion.
(d) No, since Shyam should have shown the income as interest income received from Mr.
Ram and not as interest income earned on debentures.
Q4. On 10th April 2020, Mr. Mayur made a gift of Rs. 4,45,000 to his handicapped son, Master
Tanmay aged 10 years. He deposited such amount in a fixed deposit account in a
Nationalised bank. Bank credited a sum of Rs. 42,500 as interest on fixed deposit on 31 st
March, 2021.
Mayur's father gifted 10,000 unlisted equity shares of an Indian company to Master Tejas,
another son of Mr. Mayur (Date of birth 19th June, 2013) in September 2012 which were
purchased by him on 18th Dec 2004 for Rs. 95,000. Tejas received a dividend of Rs. 10,000
on these shares in Oct 2020. He sold those shares on 1st Dec 2020 for Rs. 4,80,000 &
deposited Rs. 3,10,000 in company at 14% interest p.a.
CII of FY 2004-05: 113, 2011-12: 184; 2019-20: 289; 2020-21: 301]
Mr. Mayur has a taxable income of Rs. 4,50,000 from his profession during PY 2020-21.
Compute his Gross Total Income for AY 2021-22.
Answer: Computation of Gross Total Income of Mr. Mayur for AY 2021-22
Income from profession 4,50,000
Income of Minor Son - Tejas
Capital gains
Full value of consideration 4,80,000

Less: Indexed COA [Rs. 95,000 x 301/113] (2,53,053) 2,26,947
Dividend on equity shares [Taxable w.e.f AY 2021-22] 10,000
Interest on company deposit [Rs. 3,10,000 x 14% x 4/12] 14,467 24,467
Less: Exemption u/s 10(32) i.r.o income of minor child (1,500) 2,60,002
Notes:
1. As per section 64(1A), in computing the total income of an individual, all such income
accruing or arising to a minor child shall be included. However, income of a minor child
suffering from disability specified u/s 80U would not be included in the income of the
parent but would be taxable in the hands of the minor child. Therefore, in this case,
interest income of Rs. 42,500 arising to handicapped son, Master Tanmay, would not be
clubbed with the income of Mr. Mayur.
2. Income of the other minor child, Master Tejas, is includible in the hands of Mr. Mayur,
assuming that Mr. Mayur’s income is higher than that of his wife.
3. As per the view expressed by Bombay High Court in CIT v. Manjula J. Shah 16 Taxman 42,
in case the cost of acquisition of the capital asset in the hands of the assessee is taken
to be cost of such asset in the hands of the previous owner, the indexation benefit would
be available from the year in which the capital asset is acquired by the previous owner.
Nov 19 No Direct Question was Asked. A Question based on Combined Provisions with “Set off &
Carry forward of Losses” was asked which is given in Set off & Carry Forward Chapter.
May 20 Q5. Rayaan gifted Rs. 15 lakhs to his wife, Sargam on her birthday on 23 rd February, 2020.
Sargam lent Rs. 8,00,000 out of the gifted amount to Karuna on 1 st April 2020 for 6 months
on which she received interest of Rs. 80,000. It was (Rs. 80,000) was invested in shares of
a listed company on 5th October 2020, which were sold for Rs. 96,000 on 28th March 2021.
STT was paid on purchase & sale of such shares. Balance amount of gift was invested on 1 st
April 2020 as capital by Sargam in her new business. She suffered loss of Rs. 52,000 in the
business in PY 2020-21. In whose hands the above income & loss shall be included in AY 2021-
22, assuming that capital invested in the business was entirely out of the funds gifted by her
husband. [SAME AS Nov 2018]
Answer:
Interest on loan: Accordingly, Rs. 80,000, being the amount of interest on loan received by
Mrs. Sargam, wife of Mr. Rayaan, would be includible in the total income of Mr. Rayaan, since
such loan was given out of the sum of money received by her as gift from her husband.
Loss from business: As per Explanation 2 to section 64, income includes loss. Thus, clubbing
provisions would be attracted even if there is loss and not income. Thus, the entire loss of
Rs. 52,000 from the business carried on by Mrs. Sargam would also be includible in the total
income of Mr. Rayaan, since as on 1st April 2020, capital invested was entirely out of the
funds gifted by her husband.
STCG: Income from the accretion of transferred asset shall not be clubbed & therefore,
STCG of Rs. 16,000 [Rs. 96,000 - Rs. 80,000 (COA)] arising in the hands of Mrs. Sargam from
sale of shares acquired by investing the interest income of Rs. 80,000 earned by her (from
the loan given out of the sum gifted by her husband), would not be included in the hands of
Mr. Rayaan. Thus, such income is taxable in the hands of Mrs. Sargam.

PQ 1. Mr. Vasudevan gifted a sum of Rs. 6 Lacs to his brother's wife on 14.6.2020. On 12.7.2020, his brother
gifted a sum of Rs. 5 Lacs to Mr. Vasudevan's wife. The gifted amounts were invested as fixed deposits in
banks by Mrs. Vasudevan and wife of Mr. Vasudevan's brother on 1.8.2020 at 9% interest. Examine the
consequences of the above under the provisions of the Income-tax Act, 1961 in the hands of Mr. Vasudevan
& his brother. [ICAI Module Q9]
Answer: In the given case, Mr. Vasudevan gifted a sum of Rs. 6 Lacs to his brother’s wife on 14.06.2019 and
simultaneously, his brother gifted a sum of Rs. 5 Lacs to Mr. Vasudevan’s wife on 12.07.2019. The gifted
amounts were invested as fixed deposits in banks by Mrs. Vasudevan and his brother’s wife. These transfers
are in the nature of cross transfers. Accordingly, the income from the assets transferred would be
assessed in the hands of the deemed transferor because the transfers are so intimately connected to form
part of a single transaction and each transfer constitutes consideration for the other by being mutual or
otherwise.
If two transactions are inter-connected and are part of the same transaction in such a way that it can be
said that the circuitous method was adopted as a device to evade tax, the implication of clubbing provisions
would be attracted. It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66 ITR 142.
Accordingly, the interest income arising to Mrs. Vasudevan in the form of interest on fixed deposits would
be included in the total income of Mr. Vasudevan and interest income arising in the hands of his brother’s
wife would be taxable in the hands of Mr. Vasudevan’s brother as per section 64(1), to the extent of amount
of cross transfers i.e., Rs. 5 Lacs.
This is because both Mr. Vasudevan and his brother are the indirect transferors of the income to their
respective spouses with an intention to reduce their burden of taxation.
However, the interest income earned by his spouse on fixed deposit of Rs. 5 Lacs alone would be included
in the hands of Mr. Vasudevan’s brother and not the interest income on the entire fixed deposit of Rs. 6
Lacs, since the cross transfer is only to the extent of Rs. 5 Lacs.
PQ 2. Mr. Madhav made a gift of Rs. 2,50,000 to his handicapped son, Master Tapan (age 12 years) which
he deposited in a fixed deposit A/c @ 10% interest p.a. compounded annually. Balance in this account as
on 1st April, 2020 was Rs. 2,75,000 & bank credited Rs. 27,500 as interest on 31st March 2021.
Madhav's father gifted equity shares worth Rs. 50,000 of an Indian company to Master Manan, another son
of Mr. Madhav (Date of Birth: 10.4.2012) in July 2012 which were purchased by him on 8th Dec 2005 for Rs.
80,000. Manan received a dividend of Rs. 5,000 on these shares in Oct 2020.
He sold these shares on 1.11.2020 for Rs. 5 Lacs & deposited Rs. 3 Lacs in a company at 15% interest p.a.
Mr. Madhav has a taxable income of Rs. 3,50,000 from his profession during PY 2020-21.
Compute his GTI for AY 2021-22. [CII: FY 2005-06: 117; FY 2011-12: 184; FY 2020-21: 301] [MAY 2018]
Solution: Computation of Total Income
Particulars Rs
Income from Profession 3,50,000
Interest Income of Master Tapan [No clubbing since suffering from disability u/s 80U] Nil
Dividend Income of Master Manan [Dividend is now taxable & thus will be clubbed] 5,000
Capital Gain Income of Manan [Refer Note Below] 2,94,188
Interest Income of Manan (Rs. 3,00,000 x 15% × 5/12) 18,750
Less: Exemption u/s 10(32) (1,500)
Note: Computation of Capital gains [It is assumed that shares are not transacted in RSE & no STT is paid]
Full value of Consideration 5,00,000
Less: Indexed Cost of Acquisition (80,000 x 301/117) (2,05,812)

Long Term Capital Gains 2,94,188
PQ3. Kamal gifted Rs. 10 Lacs to his wife, Sulochana on her birthday on, 1 st Jan 2020. Sulochana lent Rs.
5,00,000 out of the gifted amount to Krishna on 1 st April 2020 for 6 months on which she received interest
of Rs. 50,000. The said sum of Rs. 50,000 was invested in shares of a listed company on 15th Oct 2020 which
were sold for Rs. 75,000 on 30th Dec 2020. STT was paid on such sale. The balance amount of gift was
invested as capital by Sulochana in a business. She suffered loss of Rs. 15,000 in the business in PY 2020-
21. In whose hands the above income & loss shall be included in AY 2021-22. [NOV 2017]
Answer: As per section 64(1),
▪ If any person has transferred any asset to his or her spouse without adequate consideration in such case
Income shall be clubbed in the income of the transferor, hence Interest income of Rs. 50,000 shall be
clubbed in the income of Mr. Kamal.
▪ If asset received by the spouse has been invested in the proprietor business, income from the business
shall be clubbed in the income of transferor & if there is any loss, it will also be clubbed.
▪ In the given case there is a loss of Rs. 15,000 from business, such loss shall be clubbed in the income of
Mr. Kamal.
▪ If any person has transferred the asset to the spouse, income from the asset shall be clubbed but if same
income is invested further, any subsequent income shall not be clubbed.
▪ In the given case, Mrs. Sulochana has invested interest income in the shares & there was capital gain on
the sale of shares, such capital gain shall not be clubbed rather it will be taxable in the hands of Mrs.
Sulochana.
PQ 4. Mr. X transferred 2,000 debentures of Rs. 100 each of Wild Fox Ltd. to Mrs. X on 03.04.2020 without
consideration. The company paid interest of Rs. 30,000 in September 2020 which was deposited by Mrs. X
with Kartar Finance Co. in October 2020. Kartar Finance Co. paid interest of Rs. 3,000 upto March, 2021.
How would both the interest income be charged to tax in AY 2021-22.
Answer:
▪ As per section 64(1), income arising from assets transferred without adequate consideration by an
individual to his spouse is liable to be clubbed in the hands of the individual, but if there is any further
income from such income, it will not be clubbed.
▪ Therefore, Rs. 30,000, being the interest on debentures received by Mrs. X in September, 2020 will be
clubbed with the income of Mr. X, since he had transferred the debentures of the company without
consideration to her.
▪ However, the interest of Rs. 3,000 upto March 2021 earned by Mrs. X on the interest of the debentures
deposited by her with Kartar Finance Company shall be taxable in her individual capacity & will not be
clubbed with the income of Mr. X.
PQ 5. Mr. X gifts Rs. 1 Lac to his wife Mrs. X on April 1, 2020 which she invests in a firm on interest rate of
14% p.a. On 1st Jan 2021, Mrs. X withdraws the money & gift it to her son’s wife. She claims that interest
which has accrued to the daughter-in-law, from January 1, 2021 to March 31, 2021 on investment made by
her is not assessable in her hands but in the hands of Mr. X. Is this correct Rs. What would be the position,
if Mrs. X has gifted the money to minor grandson, instead of the daughter-in- law.
Answer:
▪ Section 64(1) provides that in computing the total income of any individual, there shall be clubbed all
such income as arises directly or indirectly to the son’s wife, of such individual, from assets transferred
directly or indirectly to the son’s wife by such individual otherwise than for adequate consideration.
▪ There is an indirect transfer by Mr. X to daughter-in-law & thus interest income shall be clubbed with
income of Mr. X.
▪ If Mrs. X had gifted the money to her minor grandson, then the interest income arising to the minor shall
be clubbed u/s 64(1 A) in total income of that parent (son/daughter-in-law) whose total income (before
including such income) is higher.
PQ6. Mr. X is a trader. Particulars of his income & those of the members of his family are given below.
These incomes relate to the previous year ended 31st March, 2021: [Nov 1998 & Nov 1999]
(i) Income from business of Mr. X 9,00,000
(ii) Salary derived from an educational institution by Mrs. X. (She is the principal) 5,00,000
(iii) Interest on company deposits derived by master Deep Singh (minor son). These deposits 12,000
were made in the name of master Deep Singh by his father’s father about 6 years ago (Gross)
(iv) Receipts from sale of paintings & drawings made by minor Dipali Singh (minor daughter 60,000
& noted child artist)
(v) Income by way of lottery earnings by Master Dipindar Singh (minor son) 6,000
Discuss whether the above will form part of the assessable income of any individual & also compute the
assessable income of Mr. X.
Solution: Since income of Mr. X is higher, income shall be clubbed in the income of Mr. X & such incomes
shall be
Interest income of master Deep Singh (12,000 - 1,500) 10,500
Income of minor daughter Dipali Singh shall not be clubbed Nil
Lottery income of master Dipindar Singh (6,000 - 1,500) 4,500
Total income of Mr. X shall be (9,00,000 + 10,500 + 4,500) 9,15,000
PQ 7. Mr. B is the Karta of a HUF whose members derive income as given below:
(a) Income from B's profession 4,50,000
(b) Mrs. B's salary as fashion designer 7,60,000
(c) Minor son D (interest on fixed deposits with a bank which were gifted to him by his uncle) 10,000
(d) Minor daughter P's earnings from sports 95,000
(e) D's winnings from lottery (gross) 1,95,000
Discuss the tax implications in the hands of Mr. & Mrs. B. [NOV 2012]
Solution:
(a) Income of Rs. 4,50,000 from Mr. B's profession shall be taxable in the hands of Mr. B u/h “PGBP”.
(b) Salary of Rs. 7,60,000 received by Mrs. B as a fashion designer shall be taxable as "Salaries" in hands
of Mrs. B.
(c) Income from fixed deposit of Rs. 10,000 arising to the minor son D, shall be clubbed in the hands of the
mother, Mrs. B as Income u/h ‘IFOS’, since her income is greater than income of Mr. B before including
the income of the minor child. As per Section 10(32), income of a minor child is exempt upto Rs. 1,500
per child (if clubbed).
(d) Income of Rs. 95,000 arising to the minor daughter P from sports shall not be included in the hands of
the parent, since such income has arisen on account of an activity involving application of her skill.
(e) Income of Rs. 1,95,000 arising to minor son D from lottery shall be included in the hands of Mrs. B as
"IFOS", since her income is greater than the income of Mr. B before including the income of minor child.
Note: She can reduce the tax deducted at source from such lottery income while computing her net tax
liability.
Computation of income of Mr. B & Mrs. B
Particulars Mr. B Mrs. B
Income from X’s Business 4,50,000
Salary as fashion designer - 7,60,000

Bank Interest to Minor Son D (10,000 - 1,500) [Rs. 1,500 exempt u/s 10(32)] - 8,500
Income of Minor Daughter from Sports (since she is earning income from - -
her (own talent, sports, income is not to be clubbed)
Lottery income to minor son D - 1,95,000
Total 4,50,000 9,63,500
PQ 8. Mr. Dhaval & his wife Mrs. Hetal furnish the following information:
(i) Salary income (computed) of Mrs. Hetal 4,60,000
(ii) Income of minor son 'B' who suffers from disability specified in Section 80U 1,08,000
(iii) Income of minor daughter 'C' from singing 86,000
(iv) Income from profession of Mr Dhaval 750,000
(v) Cash gift received by C on 2.10.2020 from a friend of Mrs. Hetal on winning the 48,000
competition
(vi) Income of minor married daughter 'A' from company deposit. 30,000
Computation of total income of Mr. Dhaval & Mrs. Hetal for AY 2021-22.
Solution:
Particulars Mr. Dhaval Mrs. Hetal
Salary income - 4,60,000
Income from profession of Mr. Dhaval 7,50,000 -
Income of minor married daughter 'A' from company deposits Rs. 30,000 -
Less: Exemption U/s 10(32) (1500) -
Total income 7,78,500 4,60,000
Note:
(a) u/s 56(2)(vi), cash gifts received from any person/persons exceeding Rs. 50,000 during the year in
aggregate is taxable. Since the cash gift in this case does not exceed Rs. 50,000 the same is not taxable.
(b) The clubbing provisions are attracted even in respect of income of minor married daughter. Hence,
income of minor married daughter 'A’ from company deposit shall be clubbed in the hands of the Mr.
Dhaval.
PQ 9. Mr. X has 4 minor children consisting of three daughters & a son. Their annual income for AY 2021-
22 are:
First daughter (including Scholarship received Rs. 5,000) Rs. 10,000
Second Daughter Rs. 8,500
Third Daughter (Suffering from disability specified U/s 80U) Rs. 4,500
Minor Son Rs. 40,000
Mr. X gifted 2 lacs to his minor Son who invested them in the business & derived income of 20,000 which is
included above. Compute the Income earned by Minor Children to be clubbed in the hands of Mr. X.
[Nov 2014] + May 2012 + Mod. ICAI Ex. Q1]
Solution: Computation of Income of minor children to be clubbed in income of Mr. X
(i) Income of First Daughter 10,000
Less: Scholarship received exempt u/s 10(16) (assumed received for education) (5,000)
Less: Exempt u/s 10(32) (1,500)
Income to be clubbed 3,500
(ii) Income of Second Daughter 8,500
Less: Exempt u/s 10(32) (1,500)

(iii) Income of Third Daughter who is suffering from disability shall not be clubbed
(iv) Income of Son 40,000
Less: Exempt u/s 10(32) (1,500)
Total Income to be clubbed (3,500 + 7,000 + 38,500) 49,000
PQ 10. Determine Gross Total Income of Mr. X & his wife from the following particulars for PY 2020-21:
(i) X & his wife are partners in a firm carrying on cloth business, their shares of profit being 78,000 &
60,000.
(ii) Their 16 years old son has been admitted to the benefits of another firm, from which he received Rs.
80,000 as his share of profit & Rs. 90,000 as interest on capital. Capital was invested out of minor’s
own funds of Rs. 9,00,000.
(iii) A house property in the name of X was transferred to his wife on 1.12.2020 for adequate consideration.
The property has been let at a rent of 30,000 p.m.
(iv) Debentures of a company of 1,40,000 & 1,12,000 purchased two years ago are in the names of X & his
wife respectively, on which interest is receivable at 10% p.a. His wife had in the past transferred
70,000 out of her income to X for the purchase of the debentures in X’s name.
(v) X had transferred 50,000 to his wife in the year 2009 without any consideration which she gave as a
loan to Y. She earned 20,000 as interest during the earlier PYs which was also given on loan to Y.
During PY 2020-21, she received interest at 10% p.a. on Rs. 70,000.
(vi) X transferred 75,000 to a trust, the income accruing from its investment as interest amounted to 7,500,
out of which 5,000 shall be utilized for the benefit of his son’s wife & 2,500 for the benefit of his son’s
minor child.
Solution: Computation of Gross Total Income of X for AY 2021-22
Income from House Property:
Rental value for 8 months (i.e., before transfer) (8 x 30,000) 2,40,000
Less: Deduction u/s 24(a) @ 30% 72,000 1,68,000
Profit from Business:
(i) Share from firm (Exempt) Nil
(ii) Minor Son’s share in another firm (Exempt) Nil
(iii) Interest on minor’s capital with firm (90,000 - 1,500) 88,500 88,500
Income from other Sources:
(i) Interest @ 10% on 70,000 (only half of 1,40,000 were bought by own funds) 7,000
(ii) Interest received by his wife @ 10% on 50,000 (without any consideration) 5,000
(iii) Interest on 50,000 from trust (Interest utilized for benefit of son’s wife) 5,000 17,000
Computation of Gross Total Income of Mrs. X for AY 2021-22

1. Income from House Property
Rental value for 4 months (i.e. after transfer) (30,000 x 4) 1,20,000
Less: Deduction u/s 24(a) @ 30% 36,000 84,000
2. Income from business: Share from firm (Exempt) Nil
3. Income from Other Sources: (i) Interest on 1,120,000 10% Debentures 11,200
(ii) Interest on 10% 70,000 debentures in husband’s name but funds invested by 7,000
her
(iii) Interest on 20,000 @ 10% 2,000 20,200

(This interest is on accrued income of 50,000, which have been transferred to her by the husband &
interest on such accrued income is treated as the income of the transferee, although the income on the
transferred amounts is treated as income of transferor as it was transferred without any consideration).
Notes:
1. Shares of profit from a firm is fully exempt u/s 10(2A) in the hands of the partners. Even in a case where
one spouse gifts some amount to the other spouse to be invested as capital in the firm, the clubbing
provisions though applicable, it will not affect the Total Income since the share of the profit is itself
exempt. However, if interest on capital contribution is received, it will be clubbed to the extent of the
amount invested as capital contribution out of the transfer made without adequate consideration.
2. Minor son’s income though clubbed, but as share of profit from firm is exempt, will not affect the Total
Income.
3. If asset is transferred to a Trust for benefit of son’s wife, income from such asset is taxable in hands of
transferor. However, income utilised for the benefit of son’s minor son shall be clubbed in the hands of
that parent of the son’s minor son, whose income is greater. Therefore, it shall not be clubbed in the
hands of transferor (i.e. X).
PQ 11. Shri Madan (age 67 years) gifted a building owned by him to his son's wife Smt. Hema on 1.10.2020.
The building fetched a rental income of Rs. 10,000 per month throughout the year. Municipal tax for the
first half-year of Rs. 5,000 was paid in June 2020 & municipal tax for the second half-year was not paid till
30.9.2021. Incomes of Shri Madan & Smt. Hema other than income from house property are given below:
Name Business income Capital gain Other sources
Shri. Madan 1,00,000 50,000 (long-term) 1,50,000
Smt. Hema -75000 2,00,000 (short-term) 50,000
Compute the total income of Shri. Madan & Smt. Hema for AY 2021-22. [Nov 2011]
Note: Capital gain does not relate to gain from shares & securities.
Solution: Computation of Total Income of Shri Madan for AY 2021-22
Income from house property (Refer Note 1) 80,500
Long-term Capital Gains 50,000
Income from Other Sources 1,50,000
Computation of Total Income of Smt. Hema for AY 2021-22

Particulars Rs. Rs.
Short-term Capital Gains 2,00,000
Less: Business loss (75,000) 1,25,000
Income from Other Sources 50,000
Working Note:
1. As per section 64(1)(vi), the income arising to the son's wife of an individual, directly or indirectly, from
assets transferred to her, otherwise than for adequate consideration, by such individual, shall be included
in the total income of the individual. Therefore, the rental income from building transferred by Shri Madan
to his son's wife Smt. Hema without consideration on 1.10.2020 is includible in the hands of Shri Madan.
Computation of Income from House property

Particulars Madan Hema
(1.4.2020 -30.9.2020) (1.10.2020 - 31.3.2021)
Gross Annual value (Rs. 10,000 x 6 months) 60,000 60,000
Less: Municipal taxes paid 5000 Nil
Net Annual Value (NAV) 55,000 60,000
Less: Deduction u/s 24(a), 30% of NAV 16,500 18,000
Income from House Property 38,500 42,000
Income of Hema clubbed in hands of Madan - Sec 64(1)(vi) 42,000
Income from house property of Mr. Madan 80,500
PQ 12. During PY 2020-21, following transactions occurred in respect of Mr. X.

(a) Mr. X had a fixed deposit of Rs. 5,00,000 in Bank of India. He instructed the bank to credit the interest
on the deposit @ 9% from 01.04.2020 to 31.03.2021 to the savings bank account of Mr. B, son of his
brother, to help him in his education.
(b) Mr. X holds 75% share in a partnership firm. Mrs. X received a commission of Rs. 25,000 from the firm
for promoting the sales of the firm. Mrs. X possesses no technical or professional qualification.
(c) Mr. X gifted a flat to Mrs. X on April 1, 2020. During PY 2020-21, flat had income under the head House
Property Rs. 52,000 to Mrs. X.
(d) Mr. X gifted Rs. 2,00,000 to his minor son who invested the same in a business and he got a share income
of Rs. 20,000 from the investment.
(e) Mr. X’s minor son derived an income of Rs. 20,000 through a business activity involving application of
his skill and talent.
During the year Mr. X had no other income. Mrs. X received salary of Rs. 20,000 p.m from a part time
job. Discuss the tax implications of each transaction & compute the total income of Mr. X, Mrs. X & their
minor child. [May 2012 + ICAI Ex. Q2]
Answer:
(a) As per Section 60 of the Income Tax Act, if any person has transferred any income without transferring
the asset in such case clubbing provision shall be applicable. In given case, Mr. X transferred interest
on fixed deposit to Mr. B (son of his brother) without transferring the fixed deposit, such income shall
be clubbed in the hands of Mr. X as per section 60. Amount to be clubbed = Rs. 5,00,000 x 9% = Rs.
45,000.
(b) As p er Section 64(1) of the Income Tax Act, if any person is getting salary, commission etc. from a
concern in which his or her spouse has substantial interest and further salary etc. is received without
any professional or technical qualification, in such case, salary etc. so received shall be clubbed in the
income of the spouse having substantial interest.
In the given case Mr. X is having substantial interest in the partnership firm and Mrs. X received a
commission of Rs. 25,000 from the firm for promoting the sales of the firm without any technical or
professional qualification. So the commission shall be clubbed in the hands of Mr. X
(c) As per section 27, An individual who transfers otherwise than for adequate consideration any house
property to his or her spouse, not being a transfer in connection with an agreement to live apart shall
be deemed to be the owner of the house property so transferred. In the given case Mr. X transfers
flat to Mrs. A without adequate consideration on April 1, 2020.
So, Mr. X shall be deemed to be the owner of house property & income Rs. 52,000 shall be considered
as income of Mr. X.
(d) As per section 64(1A), if any income accrues or arises to a minor child, such income shall be clubbed in
the income of mother or father whosoever has higher income before taking in to consideration the
income to be clubbed. So, in the given case, income of Rs. 20,000 shall be clubbed in the income of
mother or father whosoever has higher income before taking in to consideration the income to be
clubbed. Amount to be clubbed = 20,000 - 1500 = Rs. 18,500.
(e) As per section 64(1A), if any minor child has income from manual labour or through activity involving
application of his skill, talent or specialized knowledge and experience, such income shall not be clubbed
but if such income has been invested further, any new income shall be clubbed in the income of mother
or father.
In the given case clubbing provision is not applicable as Mr. X’s minor son derived an income of Rs.
20,000 through a business activity involving application of his skill and talent.
PQ 14. Mr. A has 3 children of 19 years, 15 years & 5 years respectively. The first child derives Rs. 100000
incomes every year. The income details of Mr. A, his second & third child are as follows:
Particulars Mr. A Second child Third child
Business Income 50,000 -- --
Interest on FD invested out of gifts -- 15,000 --
Bank Interest 7,000 8,000 1,000
Salary earned on application of skills 48,000 24,000 --
Interest on salary income saved & invested 8,000 2,000 --
Determine the Gross total income.
Solution: Computation of Gross Total Income of Mr. A & 2nd Child for AY 2021-22
Particulars Mr. A Second Child
1. Salary 48,000 24,000
2. Income from business 50,000
3. Income from other sources
(i) Bank interest 7,000
(ii) Interest on Investment 8,000 15,000
4. Income to be clubbed
(a) Second child’s income
(i) Interest On FD 15,000
(ii) Bank interest 8,000
(iii) Interest on Investment 2,000
Less: Exempt u/s 10(32) (1,500) 23,500
(b) Third child’s Income
(i) Bank interest 1,000
Less: Exemption Restricted to Rs. 1,000 (1,000) Nil
Gross Total Income 1,36,500 24,000
Note:
▪ Income of minor child is clubbed even if it is earned on investment made out of salary.
▪ First child is a major & thus, income not clubbed.
PQ 15. Mr. A is an employee of Larsen Ltd & has substantial interest in it. His salary is Rs. 25,000 p.m.
Mrs. A also is working in that company at a salary of Rs. 10,000 p.m. without any professional qualification.
Mr. A also receives Rs. 30,000 as income from securities.
Mrs. A owns a house property which she has let out. Rent income from house property is Rs. 12,000 p.m.
Mr. & Mrs. A have three minor children-two twin daughters & one son. Income of each twin daughters is Rs.
2,000 p.a. & that of his son is Rs. 1,200 p.a. Compute the income of Mr. A & Mrs. A. [May 2013]
Solution: Computation of Total Income of Mr. A & Mrs. A for AY 2021-22

Particulars Mr. A Mrs. A
Income from Salaries
Salary income of Mr. A (Rs. 25,000 x 12) 3,00,000
Salary income of Mrs. A (Rs. 10,000 x 12) [Note 1] 1,20,000 -
Income from House Property: Rent received (Rs.12,000 x 12) 1,44,000
Less: Deduction u/s 24 @ 30% (43,200) 1,00,800
Income from securities 30,000
Income before including income of minor children u/s 64(1A) (Note 2) 4,50,000 1,00,800
Income of twin daughters (Rs. 2,000 per child x 2) Rs. 4,000
Less: Exempt u/s 10(32) (Rs.1,500 x 2) (Rs. 3,000) 1,000
Income of the minor son Rs. 1,200
Less: Exempt u/s 10(32) Rs. 1,200 Nil
Total Income 4,51,000 1,00,800
Note:
1. As per section 64(1), the salary of Rs. 10,000 p.m. received by Mrs. X from the company has to be
included in the total income of Mr. X, as Mrs. X does not possess any technical or professional
qualification for earning such income & Mr. X has substantial interest in the company.
2. As per section 64(1A), the income of a minor child is to be included in the total income of the parent
whose total income (excluding the income of minor child to be so clubbed) is greater. Further, as per
section 10(32), income of a minor child which is includible in the income of the parent shall be exempt
upto Rs. 1,500 per child.
AZ
CA Pranav Chandak's
DT Question Bank
9. Set off & Carry forward of Losses


SM 1. Mr. A (aged 35 years) submits the following particulars pertaining to the AY 2021-22.
Particulars Rs.
Income from salary (computed) Rs. 4,00,000
Loss from self-occupied property (-) Rs. 70,000
Loss from let-out property (-) Rs. 1,50,000
Business loss (-) Rs. 1,00,000
Bank interest (FD) received Rs. 80,000
Compute the total income of Mr. A for the AY 2021-22.
Answer: Computation of total income of Mr. A for the AY 2021-22
Particulars Amount (Rs) Amount (`)
Income from salary Rs. 4,00,000
Less: Loss from house property of Rs. 2,20,000 to be restricted to 2 (-) Rs. 2,00,000 Rs. 2,00,000
lakhs by virtue of section 71(3A)
Balance loss of Rs. 20,000 from house property to be carried
forward to next AY
Income from other sources (interest on fixed deposit with bank) Rs. 80,000
Business loss set-off Business loss of Rs. 20,000 to be carried (-) Rs. 1,00,000 -
forward for set-off against business income of the next AY
Gross total income [See Note below] Rs. 2,00,000
Total income Rs. 2,00,000
Note: Gross Total Income includes salary income of Rs. 2,00,000 after adjusting loss of Rs. 2,00,000 from
house property. The balance loss of Rs. 20,000 from house property to be carried forward to next
assessment year for set-off against income from house property of that year.
Business loss of Rs. 1,00,000 is set off against bank interest of 80,000 & remaining business loss of Rs.
20,000 will be carried forward as it cannot be set off against salary income.
SM 2. Mr. B, a resident individual, furnishes the following particulars for PY 2020-21:

Particulars Rs.
Income from salary (computed) Rs. 45,000
Income from house property Rs. (24,000)
Income from non-speculative business Rs. (22,000)
Income from speculative business Rs. (4,000)
Short-term capital losses Rs. (25,000)
Long-term capital gains Rs. 19,000
What is the total income chargeable to tax for the AY 2021-22?
187
Answer: Total income of Mr. B for AY 2021-22

Particulars Amount (Rs.) Amount (Rs.)
Income from salaries Rs. 45,000
Profits & gains of business & profession
Business loss to be carried forward [Note 1] Rs. (22,000)
Speculative loss to be carried forward [Note 2] Rs. (4,000) Rs. 21,000
Capital Gains
Long term capital gain Rs. 19,000
Short term capital loss Rs. (25,000)
Short term capital loss to be carried forward [Note 3] Rs. (6,000)
Taxable income Rs. 21,000
Note 1: Business loss cannot be set-off against salary income. Therefore, loss of Rs. 22,000 from the non-
speculative business cannot be set off against the income from salaries. Hence, such loss has to be carried
forward to the next year for set- off against business profits, if any.
Note 2: Loss of Rs. 4,000 from the speculative business can be set off only against the income from the
speculative business. Hence, such loss has to be carried forward.
Note 3: Short term capital loss can be set off against both short term capital gain & long-term capital gain.
Therefore, short term capital loss of Rs. 25,000 can be set-off against long-term capital gains to the extent
of 19,000. The balance short term capital loss of Rs. 6,000 cannot be set-off against any other income &
has to be carried forward to the next year for set-off against capital gains, if any.
SM 3. During the P.Y. 2020-21, Mr. C has the following income & the brought forward losses:
Particulars Rs.
Short term capital gains on sale of shares Rs. 1,50,000
Long term capital loss of AY 2019-20 Rs. (96,000)
Short term capital loss of AY 2021-22 Rs. (37,000)
What is the capital gain taxable in the hands of Mr. C for the AY 2021-22?
Answer: Taxable capital gains of Mr. C for AY 2021-22
Particulars Rs. Rs.
Short term capital gains on sale of shares Rs. 1,50,000
Less: Brought forward short-term capital loss of the AY 2021-22 Rs. (37,000) Rs.1,13,000
Less: Brought forward LTCL of AY 2019-20 [See Note below] Rs. (75,000) Nil
Taxable short-term capital gains 1,13,000
Note: Long-term capital loss cannot be set off against short-term capital gain. Hence, the unadjusted long-
term capital loss of AY 2019-20 of Rs. 21,000 (i.e. Rs. 96,000 – Rs. 75,000) can be carried forward to the
next year to be set-off against long-term capital gains of that year.
188
SM 4. Mr. D has the following income for the PY 2020-21:

Particulars Rs.
Income from the activity of owning & maintaining the race horses Rs. 75,000
Income from textile business Rs. 85,000
Brought forward textile business loss (relating to AY 2020-21) Rs. 50,000
Brought forward loss from the activity of owning & maintaining the race horses (relating Rs. 96,000
to AY 2018-19)
What is the total income in the hands of Mr. D for AY 2021-22?
Answer: Total income of Mr. D for AY 2021-22
Particulars Rs. Rs.
Income from the activity of owning & maintaining race horses Rs. 75,000
Less: Brought forward loss from the activity of owning & maintaining Rs. 96,000
race horses
Loss from the activity of owning & maintaining race horses to be carried Rs. (21,000)
forward to AY 2022-23
Income from textile business Rs.85,000
Less: Brought forward business loss from textile business. Rs. 50,000 Rs. 35,000
Total income Rs. 35,000
Note: Loss from the activity of owning & maintaining race horses cannot be set- off against any other
source/head of income.
SM 5. Mr. E has furnished his details for the AY 2021-22 as under:

Particulars Rs.
Income from salaries (computed) Rs. 1,50,000
Income from speculation business Rs. 60,000
Loss from non-speculation business Rs. (40,000)
Short term capital gain Rs. 80,000
Long term capital loss of AY 2019-20 Rs. (30,000)
Winning from lotteries (Gross) Rs. 20,000
What is the taxable income of Mr. E for the AY 2021-22?
Answer: Computation of taxable income of Mr. E for the AY 2021-22
Particulars Rs. Rs.
Income from salaries Rs. 1,50,000
Less : Loss from non-speculation business Rs. (40,000) Rs. 20,000
Short-term capital gain Rs. 80,000
Winnings from lotteries Rs. 20,000
Taxable income Rs. 2,70,000
Note: Long term capital loss can be set off only against long term capital gain. Therefore, long term capital
loss of Rs. 30,000 has to be carried forward to the next AY.
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TEST YOUR KNOWLEDGE

Q1. Compute the gross total income of Mr. F for AY 2021-22 from the information given below –
Particulars Rs.
Income from house property (computed) Rs. 1,25,000
Income from business (before providing for depreciation) Rs. 1,35,000
Short term capital gains on sale of unlisted shares Rs. 56,000
Long term capital loss from sale of property (brought forward from AY 2020-21) Rs. (90,000)
Income from tea business Rs. 1,20,000
Dividends from Indian companies carrying on agricultural operations (Gross) Rs. 80,000
Current year depreciation Rs. 26,000
Brought forward business loss (loss incurred six years ago) Rs. (45,000)
Answer:
Particulars Rs. Rs.
Income from house property (Computed) Rs. 1,25,000
Income from business
Profits before depreciation Rs. 1,35,000
Less: Current year depreciation Rs. 26,000
Less: Brought forward business loss Rs. 45,000
Rs. 64,000
Income from tea business (40% is business income) Rs. 48,000 Rs. 1,12,000
Capital gains
Short term capital gains Rs. 56,000
Dividend income (taxable in the hands of shareholders) Rs. 80,000
Note:
1. Dividend from Indian companies is fully taxable in the hands of shareholders at normal rates of tax.
2. 60% of the income from tea business is treated as agricultural income & therefore, exempt from tax;
3. Long-term capital loss can be set-off only against long-term capital gains. Therefore, LTCL of Rs. 90,000
brought forward from AY 2021-22 cannot be set-off in the AY 2021-22, since there is no LTCG in that
year. It has to be carried forward for set-off against LTCG, if any, during AY 2022-23.
Q2. Mr. Soohan submits the following details of his income for AY 2021-22:
Particulars Rs.
Loss from let out house property (-) Rs. 40,000
Income from sugar business Rs. 50,000
Loss from iron ore business b/f (discontinued in P.Y. 2015-16) Rs. (-) 1,20,000
Short term capital loss Rs. (-) 60,000
190

Dividend Rs. 5,000
Income received from lottery winning (Gross) Rs. 50,000
Winnings from card games (Gross) Rs. 6,000
Agricultural income Rs. 20,000
Short-term capital loss under section 111A Rs. (-) 10,000
Bank interest on Fixed deposit Rs. 5,000
Calculate gross total income & losses to be carried forward.
Answer: Computation of Gross Total Income of Mr. Soohan for the AY 2021-22
Particulars Rs. Rs.
Salaries
Less: Loss from house property set-off against salary income as per
section 71
Rs. (40,000) Rs. 2,60,000
Profits & gains of business or profession
Income from sugar business Rs. 50,000
Less: Brought forward loss from iron-ore business set- off as per Rs. (50,000) Nil
section 72(1)
Balance business loss of Rs. 70,000 of P.Y.2015-16to be carried
forward to AY 2022-23
Capital gains

Less: Short term capital loss set-off Rs. (40,000) Nil
Balance short-term capital loss of Rs. 20,000 to be carried forward
Short-term capital loss of Rs. 10,000 under section 111A also to be
carried forward
Dividend (fully taxable in the hands of shareholders) Rs. 5,000
Winnings from lottery Rs. 50,000
Winnings from card games Rs. 6,000
Bank interest Rs. 5,000 Rs. 66,000
Losses to be carried forward to AY 2022-23
Loss of iron-ore business (Rs. 1,20,000 – Rs. 50,000) Rs. 70,000
Short term capital loss (Rs. 20,000 + Rs. 10,000) Rs. 30,000
Notes:
1. Agricultural income is exempt under section 10(1)
2. It is presumed that loss from iron-ore business relates to P.Y.2015-16, the year in which the
business was discontinued.
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Q3. Mr. Batra furnishes the following details for year ended 31.03.2021:
Particulars
Short term capital gain Rs. 1,40,000
Loss from speculative business Rs. 60,000
Long term capital gain on sale of land Rs. 30,000
Long term capital loss on sale of unlisted shares Rs. 1,00,000
Income from business of textile (after allowing current year depreciation) Rs. 50,000
Income from activity of owning and maintaining race horses Rs. 15,000
Income from salary (computed) Rs.1,00,000
Loss from house property Rs. 40,000
Following are the brought forward losses:
1. Losses from activity of owning & maintaining race horses-pertaining to AY 2018-19 Rs. 25,000.
2. Brought forward loss from business of textile Rs. 60,000 - Loss pertains to AY 2013-14.
Compute gross total income of Mr. Batra for AY 2021-22. Also determine the losses eligible for carry
forward to the AY 2022-23.
Answer: Computation of Gross Total Income of Mr. Batra for AY 2021-22
Particulars Rs. Rs.
Salaries Rs. 1,00,000 Rs. 60,000
Less: Current year loss from house property Rs. (40,000)
Profit & gains of business or profession
Income from textile business Rs. 50,000
Less: Loss from textile business brought forward from AY 2013-14 Rs. 60,000
Balance business loss of AY 2013-14 [See Note 1] Rs. (10,000) NIL
Income from the activity of owning & maintaining race horses Rs. 15,000
Less: Loss from activity of owning & maintaining race horses brought
forward from AY 2018-19 Rs. 25,000
Loss to be carried forward to AY 2022-23 [See Note 2] Rs. (10,000) NIL
Capital Gain
Short term capital gain Rs. 1,40,000
Long term capital gain on sale of land Rs. 30,000
Less: Long term capital loss on sale of unlisted shares Rs. 1,00,000
Loss to be carried forward to AY 2022-23 [See Note 3] Rs. (70,000) NIL
Gross Total Income Rs.
2,00,000
Losses to be carried forward to AY 2022-23

Particulars Rs.
Current year loss from speculative business [See Note-4] Rs. 60,000
Current year long term capital loss on sale of unlisted shares Rs. 70,000
Loss from activity of owning & maintaining of race horse pertaining to AY 2018-19 Rs. 10,000
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Notes:
1. As per section 72(3), business loss can be carried forward for a maximum of eight AY s immediately
succeeding the AY for which the loss was first computed. Since the eight years period for carry forward
of business loss of AY 2013-14 expired in AY 2021-22, the balance unabsorbed business loss of Rs. 10,000
cannot be carried forward to AY 2022-23.
2. As per section 74 A (3), the loss incurred on maintenance of race horses cannot be set-off against
income from any source other than the activity of owning & maintaining race horses. Such loss can be
carried forward for a maximum period of 4 AY s.
3. Long-term capital loss on sale of unlisted shares can be set-off against long- term capital gain on sale
of land. The balance loss of Rs. 70,000 cannot be set-off against short term capital gain or against any
other head of income. The same has to be carried forward for set-off against long-term capital gain of
the subsequent AY. Such long-term capital loss can be carried forward for a maximum of eight AY s.
4. Loss from speculation business cannot be set-off against any income other than profit & gains of another
speculation business. Such loss can, however, be carried forward for a maximum of four years as per
section 73(4) to be set- off against income from speculation business.
Q4. Mr. A furnishes you the following information for the year ended 31.03.2021:
(i) Income from plying of vehicles (computed as per books) (He owned 5 light goods Rs. 3,20,000
vehicles throughout the year)
(ii) Income from retail trade of garments (Computed as per books) (Sales turnover
1,35,70,000) Rs. 7,50,000
Mr. A had declared income on presumptive basis under section 44AD for the first
time in AY 2020-21. Assume 10% of the turnover during the previous year 2020-21
was received in cash & balance through A/c payee cheque & all the payments in
respect of expenditure were also made through A/c payee cheque or debit card.
(iii) He has brought forward depreciation relating to AY 2019-20 Rs. 1,00,000
Compute taxable income of Mr. A & his tax liability for the AY 2021- 22 with reasons for your computation.
Assuming that he does not opt for section 115 BAC.
Answer: Computation of total income & tax liability of Mr. A for AY 2021-22
Particulars Rs.
Income from retail trade – as per books (See Note 1 below) Rs. 7,50,000
Income from plying of vehicles – as per books (See Note 2 below) Rs. 3,20,000
Rs. 10,70,000
Less : Set off of brought forward depreciation relating to AY 2019- 20 Rs. 1,00,000
Add: Health & Education cess @4% Rs. 4,260
Total tax liability Rs. 1,10,760
Note:
1. Income from retail trade: Presumptive business income under section 44AD is Rs.8,41,340 i.e., 8% of Rs.
13,57,000, being 10% of the turnover received in cash & 6% of Rs. 1,22,13,000, being the amount of sales
turnover received through A/c payee cheque. However, the income computed as per books is Rs.
7,50,000 which is to be further reduced by the amount of unabsorbed depreciation of Rs. 1,00,000.
Since the income computed as per books is lower than the income deemed under section 44AD, the
assessee can adopt the income as per books.
193
However, if he does not opt for presumptive taxation under section 44AD, he has to get his books of
accounts audited under section 44AB, since his turnover exceeds 1 crore (the enhanced limit of Rs. 5
crores would not available, since more than 5% of the turnover is received in cash). Also, his case would
be falling under section 44AD (4) & hence tax audit is mandatory. It may further be noted that he cannot
opt for section 44AD for next five AY if he does not opt for section 44AD this year.
2. Income from plying of light goods vehicles: Income calculated under section 44AE (1) would be Rs. 7,500
x 12 x 5 which is equal to Rs. 4,50,000. However, the income from plying of vehicles as per books is Rs.
3,20,000, which is lower than the presumptive income of Rs. 4,50,000 calculated as per section 44AE
(1). Hence, the assessee can adopt the income as per books i.e. Rs. 3,20,000, provided he maintains
books of account as per section 44AA & gets his accounts audited & furnishes an audit report as
required under section 44AB.
It is to be further noted that in both the above cases, had presumptive income provisions been opted, all
deductions under sections 30 to 38, including depreciation would have been deemed to have been given
full effect to & no further deduction under those sections would be allowable.
If the assessee opted for income to be assessed on presumptive basis, his total income would be as under:
Particulars Rs.
Income from retail trade under section 44AD [Rs. 13,57,000 @ 8% plus Rs. Rs. 8,41,340
1,22,13,000 @6%]
Income from plying of light goods vehicles under section 44AE [Rs. 7,500 x 12 x 5] Rs. 4,50,000
Rs. 12,91,340
Less: Set off of brought forward depreciation – not possible as it is deemed that it Nil
has been allowed & set off
Tax thereon Rs. 1,99,902
Add : Health & Education cess @4% Rs. 7,996
Total tax liability (rounded off) Rs. 2,07,900
Q5. Mr. Aditya furnishes the following details for PY 2020-21:

Loss from speculative business A Rs. 25,000
Income from speculative business B Rs. 5,000
Loss from specified business covered under section 35AD Rs. 20,000
Income from salary (computed) Rs. 3,00,000
Loss from house property Rs. 2,50,000
Income from trading business Rs. 45,000
Long-term capital gain from sale of urban land Rs. 2,00,000
Long-term capital loss on sale of shares (STT not paid) Rs. 75,000
Long-term capital loss on sale of listed shares in recognized stock exchange (STT paid at Rs. 1,02,000
the time of acquisition & sale of shares)
1. Losses from owning & maintaining of race horses pertaining to AY 2019-20 Rs. 2,000.
2. Brought forward loss from trading business Rs. 5,000 relating to AY 2016-17.
Compute the total income of Mr. Aditya & show the items eligible for carry forward.
194
Answer: Computation of total income of Mr. Aditya for the AY 2021-22

Particulars Rs. Rs.
Salaries
Income from Salary Rs. 3,00,000
Less: Loss from house property set-off against salary income as per section
71(3A) Rs. 2,00,000 Rs. 1,00,000
Loss from house property to the extent not set off i.e. Rs. 50,000 (Rs. Rs. 50,000
2,50,000 – Rs. 2,00,000) to be carried forward to AY 2022-23
Income from trading business Rs. 45,000
Less: Brought forward loss from trading business of AY 2016-17 can be set
off against current year income from trading business as per section 72(1),
since the eight year time limit as specified under section 72(3), within which
set-off is permitted, has not expired.
Rs. 5,000 Rs. 40,000
Income from speculative business B Rs. 5,000
Less: Loss from speculative business A set-off as per section 73(1) Rs. 25,000
Loss from speculative business A to be carried forward to AY 2022-23 as
per section 73(2) Rs. 20,000
Loss from specified business covered under section 35AD to be carried
forward for set-off against income from specified business as per section Rs. 20,000
73A.
Capital Gains
Long term capital gain on sale of urban land Rs. 2,00,000
Less: Long term capital loss on sale of shares (STT not paid) set-off as per
section 74(1)] Rs. 75,000
74(1), since long-term capital arising on sale of such shares is taxable under
section 112A Rs. 1,02,000 Rs. 23,000
Q6. Mr. Garg (resident) furnishes the following particulars of his income & other details for PY 2020-21:
(1) Income from Salary (computed) Rs. 15,000
(2) Income from business Rs. 66,000
(3) Long term capital gain on sale of land Rs. 10,800
(4) Loss on maintenance of race horses Rs. 15,000
(5) Loss from gambling Rs. 9,100
Other details of unabsorbed depreciation & brought forward losses pertaining to AY 2021-22 are as follows:
Particulars Rs.
(1) Unabsorbed depreciation Rs. 11,000
(2) Loss from Speculative business Rs. 22,000
(3) Short term capital loss Rs. 9,800
Compute GTI of Mr. Garg for AY 2021-22 & the amount of loss, if any that can be carried forward or not.
195
Answer:
Particulars
(i) Income from salary Rs. 15,000
(ii) Profits & gains of business or profession Rs .66,000
Less: Unabsorbed depreciation brought forward from AY 2021-22
(Unabsorbed depreciation can be set-off against any head of income Rs. 11,000 Rs. 55,000
other than “salary”)
(iii) Capital gains
Long-term capital gain on sale of land Rs. 10,800
Less: Brought forward short-term capital loss
[Short-term capital loss can be set-off against both short-term capital
gains & long-term capital gains as per section 74(1)] Rs. 9, 800 Rs. 1,000
Gross Total Income Rs. 71,000
Amount of loss to be carried forward to AY 2022-23
Particulars Rs.
(1) Loss from speculative business [to be carried forward as per section 73] Rs. 22,000
[Loss from a speculative business can be set off only against income from another
speculative business. Since there is no income from speculative business in the
current year, the entire loss of Rs. 22,000 brought forward from AY 2021-22 has to
be carried forward to AY 2022-23 for set-off against speculative business income
of that year. It may be noted that speculative business loss can be carried forward
for a maximum of four years as per section 73(4), i.e., upto AY 2024-25]
(2) Loss on maintenance of race horses [to be carried forward as per section 74A] Rs. 15,000
[As per section 74A(3), the loss incurred in the activity of owning & maintaining race
horses in any AY cannot be set-off against income from any other source other than
the activity of owning & maintaining race horses. Such loss can be carried forward
for a maximum of four AY s i.e., upto AY 2025-26]
(3) Loss from gambling can neither be set-off nor be carried forward.
Q7. Following are the details relating to Mr. Srivatsan (resident) age 57, relating to PY 2020-21:
Particulars Rs.
Income from salaries (computed) Rs. 2,20,000
Loss from house property Rs. 1,90,000
Loss from cloth business Rs. 2,40,000
Loss from specified business covered by section 35AD Rs. 20,000
Long-term capital gains from sale of urban land Rs. 2,50,000
Loss from card games Rs. 32,000
Income from betting (Gross) Rs. 45,000
Life Insurance Premium paid (10% of the capital sum assured) Rs. 45,000
Compute the total income & show the items eligible for carry forward.
196
Answer: Computation of total income of Mr. Srivatsan for the AY 2021-22

Particulars Rs. Rs.
Salaries
Income from salaries Rs. 2,20,000
Less: Loss from house property Rs. 1,90,000 Rs. 30,000
Less: Loss from cloth business set off Rs. 30,000 Nil
Capital gains
Long-term capital gains from sale of urban land Rs. 2,50,000
Less: Loss from cloth business set off Rs. 2,10,000 Rs. 40,000
Income from betting Rs. 45,000
Less: Deduction under section 80C (life insurance premium paid) Rs. 30,000
Total income Rs.85,000
Losses to be carried forward:
Particulars Rs.
(1) Loss from cloth business (Rs. 2,40,000 – Rs. 30,000 – Rs. 2,10,000) Nil
(2) Loss from specified business covered by section 35AD Rs. 20,000
Notes:
(i) Loss from specified business covered by section 35AD can be set-off only against profits & gains of any
other specified business. Therefore, such loss cannot be set off against any other income. The
unabsorbed loss has to be carried forward for set-off against profits & gains of any specified business
in the following year.
(ii) Business loss cannot be set off against salary income. However, the balance business loss of Rs. 2,10,000
(Rs. 2,40,000 – Rs. 30,000 set-off against income from speculation business) can be set-off against
long-term capital gains of Rs. 2,50,000 from sale of urban land. Consequently, the taxable long-term
capital gains would be Rs. 40,000.
(iii) Loss from card games can neither be set off against any other income, nor can be carried forward.
(iv) For providing deduction under Chapter VI-A, gross total income has to be reduced by the amount of
long-term capital gains & casual income. Therefore, the deduction under section 80C in respect of life
insurance premium paid has to be restricted to Rs. 30,000 [i.e., Gross Total Income of Rs. 1,15,000 –
Rs. 40,000 (LTCG) – Rs. 45,000 (Casual income)].
(v) Income from betting is chargeable at a flat rate of 30% u/s 115BB & no expenditure or allowance can
be allowed as deduction from such income, nor can any loss be set-off against such income.
Q8. Mr. Rajat submits the following information for PY 2020-21. He desires that you should:
(a) Compute the total income & (b) ascertain the amount of losses that can be carried forward.
Particular Amount
(i) He has two houses:
(a) House No. I – Income after all statutory deductions Rs. 72,000
(b) House No. II – Current year loss Rs. (30,000)
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(ii) He has three proprietary businesses:

(a) Textile Business:
(i) Discontinued from 31st October, 2020 – Current year loss Rs. 40,000
(ii) Brought forward business loss of AY 2016-17 Rs. 95,000
(b) Chemical Business:
(i) Discontinued from 1st March, 2018 – hence no profit/loss Nil
(ii) Bad debts allowed in earlier years recovered during this year Rs. 35,000
(iii) Brought forward business loss of AY 2017-18 Rs. 50,000
(c) Leather Business: Profit for the current year Rs. 1,00,000
(d) Share of profit in a firm in which he is partner since 2007 Rs. 16,550
(iii) (a) Short-term capital gain Rs. 60,000
(b) Long-term capital loss Rs. 35,000
(iv) Contribution to LIC towards premium Rs. 10,000
Answer: Computation of total income of Mr. Rajat for AY 2021-22
Particulars Rs. Rs.
1. Income from house property
House No.1 Rs. 72,000
House No.2 (-) Rs. 30,000 Rs. 42,000
2. Profits & gains of business or profession
Profit from leather business Rs. 1,00,000
Bad debts recovered taxable under section 41(4) Rs. 35,000
Rs. 1,35,000
Less: Current year loss of textile business (-) Rs. 40,000
Less: Brought forward business loss of textile business for AY 2016- Rs. Rs.95,000
17 set off against the business income of current year
Rs. 95,000 Nil
3. Capital Gains
Short-term capital gain Rs. 60,000
Under section 80C – LIC premium paid Rs. 10,000
Total Income Rs. 92,000
Statement of losses to be carried forward to AY 2022-23
Particulars
Business loss of AY 2017-18 to be carried forward under section 72 Rs. 50,000
Long term capital loss of AY 2021-22 to be carried forward under section 74 Rs. 35,000
Notes:
1. Share of profit from firm of Rs. 16,550 is exempt under section 10(2A).
2. Long-term capital loss cannot be set-off against short-term capital gains. Therefore, it has to be
carried forward to the next year to be set-off against long-term capital gains of that year.
198
Q9. Ms. Geeta, a resident individual, provides the following details of her income/losses for PY 2020-21:
(i) Salary received as a partner from a partnership firm Rs. 7,50,000. The same was allowed to the firm.
(ii) Loss on sale of shares listed in BSE Rs. 3,00,000. Shares were held for 15 months & STT paid on sale &
acquisition.
(iii) Long-term capital gain on sale of land Rs. 5,00,000.
(iv) Rs. 51,000 received in cash from friends in party.
(v) Rs. 55,000, received towards dividend on listed equity shares of domestic companies.
(vi) Brought forward business loss of AY 2019-20 Rs. 12,50,000.
Compute GTI of Ms. Geeta for AY 2021-22 & ascertain the amount of loss that can be carried forward.
Answer: Computation of Gross Total Income of Ms. Geeta for AY 2021-22
Particulars Rs. Rs.
Profits & gains of business & profession
Salary received as a partner from a partnership firm is taxable under the Rs. 7,50,000
head “Profits & gains of business & profession”
Less: Brought forward business loss of AY 2019-20 to be set-off against Rs. 7,50,000
business income
Capital Gains Nil
Long term capital gain on sale of land Rs. 5,00,000
Less: Long-term capital loss on shares on STT paid (See Note 2) Rs. 3,00,000 Rs. 2,00,000
Cash gift received from friends - since the value of cash gift exceeds Rs. Rs. 51,000
50,000, the entire sum is taxable
Dividend received from a domestic company is fully taxable in the hands Rs. 55,000
of shareholders Rs. 1,06,000
Notes:
1. Balance brought forward business loss of AY 2019-20 of Rs. 5,00,000 has to be carried forward to the
next year.
2. Long-term capital loss on sale of shares on which STT is paid at the time of acquisition & sale can be
set-off against long-term capital gain on sale of land since long-term capital gain on sale of shares (STT
paid) is taxable under section 112A.Therefore, it can be set-off against long-term capital gain on sale
of land as per section 70(3)
Q10. Mr. P (resident) furnishes the following particulars of his income & other details for PY 2020-21:
SN Particulars Rs.
(i) Income from salary (computed) Rs. 18,000
(ii) Net annual value of house property Rs. 70,000
(iii) Income from business Rs. 80,000
(iv) Income from speculative business Rs. 12,000
(v) Long term capital gain on sale of land Rs. 15,800
(vi) Loss on maintenance of race horse Rs. 9,000
(vii) Loss on gambling Rs. 8,000
Depreciation allowable under Income-tax Act, 1961 = Rs. 8,000, for which no treatment is given above.
199
The other details of unabsorbed depreciation & brought forward losses (pertaining to AY 2020-21) are:
SN Particulars Rs.
(i) Unabsorbed depreciation Rs. 9,000
(ii) Loss from speculative business Rs. 16,000
(iii) Short term capital loss Rs. 7,800
Compute GTI of Mr. P for AY 2021-22, & the amount of loss that can or cannot be carried forward.
Answer: Computation of Gross Total Income of Mr. P for AY 2021-22
Particulars
(i) Income from salary Rs. 18,000
(ii) Income from House Property
Net Annual Value Rs. 70,000
Less: Deductionunder section24 (30% of Rs. 70,000) Rs. 21,000 Rs. 49,000
(iii) Income from business & profession
(a) Income from business Rs. 80,000
Less : Current year depreciation Rs. 8,000
Rs. 72,000
Less : Unabsorbed depreciation Rs. 9,000 Rs. 63,000
(b) Income from speculative business Rs. 12,000
Less : Brought forward loss from speculative business Rs. 12,000 Nil
(Balance loss of Rs. 4,000 (i.e. Rs. 16,000 – Rs. 12,000) can be carried
forward to the next year)
(iv) Income from capital gain
Long-term capital gain on sale of l& Rs. 15,800
Less: Brought forward short-term capital loss Rs. 7,800 Rs. 8,000
Gross total income Rs. 1,38,000
Amount of loss to be carried forward to the next year:

Particulars
Loss from speculative business (to be carried forward as per section 73) Rs. 4,000
Loss on maintenance of race horses (to be carried forward as per section 74A) Rs. 9,000
Notes:
i. Loss on gambling can neither be set-off nor be carried forward.
ii. As per section 74A(3), the loss incurred on maintenance of race horses cannot be set-off against
income from any other source other than the activity of owning & maintaining race horses. Such loss
can be carried forward for a maximum period of 4 AY s.
iii. Speculative business loss can be set off only against income from speculative business of the current
year & the balance loss can be carried forward to AY 2022-23. It may be noted that speculative
business loss can be carried forward for a maximum of four years as per section 73(4).
200
PAST RTP QUESTIONS

MAY 2018 Q1. Following are the details relating to Mr. Gupta, a resident, relating to PY 2020-21:
Particulars Rs.
Income from Salaries 2,20,000
LTCL from sale of listed shares in RSE (STT paid at time of sale 1,50,000
acquisition)
Loss from Cloth business 2,40,000
Income from speculation business 30,000
Loss from specified business covered by section 35AD 45,000
Long-term capital gains from sale of urban land 2,50,000
Loss from house property 2,50,000
Loss from card games 40,000
Income from betting (Gross) 35,000
Life Insurance Premium paid (Sum assured Rs. 5,00,000) 25,000
Compute his total income for AY 2021-22 & show the items eligible for carry forward.
Answer: Computation of total income of Mr. Gupta for AY 2021-22

SN Particulars Rs. Rs.
1 Salaries 2,20,000
Less: Loss from house property [See Note ] 2,00,000 20,000
2 Loss from House Property (2,50,000)
Less: Adjusted against salaries to the extent of Rs. 2,00,000. (2,00,000) Nil
[HP Loss of Rs. 50,000 is to be carried forward to next AY]
Less: Loss from cloth business set off [See Note] 30,000 Nil
4 Capital gains
Long-term capital gains from sale of urban land 2,50,000
Less: LTCL from sale of shares in RSE (1,50,000)
Less: Loss from cloth business set off [See Note] 1,00,000 Nil
Income from betting 35,000
Gross Total Income 55,000
Less: Deduction u/s 80C (life insurance premium paid) [Note] 20,000
Total income 75,000
Losses to be carried forward:

1. Loss from house property (Rs. 2,50,000 – Rs. 2,00,000) = Rs. 50,000.
201
2. Loss from cloth business (Rs. 2,40,000 – Rs. 30,000 – Rs. 1,00,000) = 1,10,000.
3. Loss from specified business u/s 35AD = Rs. 45,000.
Notes:
1. Loss from house property can be set-off against income under any other head to the
extent of Rs. 2,00,000 only. Balance loss of Rs. 50,000 can be carried forward to next
year for set-off against income from house property of that year.
2. Loss from specified business covered by section 35AD can be set-off only against
profits & gains of any other specified business. Therefore, such loss cannot be set off
against any other income. Unabsorbed loss has to be carried forward for set-off
against profits of any specified business.
3. Loss from cloth business to the extent of Rs. 30,000 can be set-off against income from
speculation business.
Remaining business loss of Rs. 2,10,000 (Rs. 2,40,000 – Rs. 30,000) can be set-off
against balance LTCG of Rs. 2,00,000 from sale of urban land.
Remaining business loss cannot be set off against salary income due to restriction
contained in section 71(2A).
4. Loss from card games can neither be set off against any income, nor can it be carried
forward.
5. Deduction under Chapter VI-A is not available from Capital gains & casual income.
Therefore, deduction u/s 80C i.r.o life insurance premium paid has to be restricted to
Rs. 20,000 [i.e., Gross Total Income of Rs. 55,000 – Rs. 20,000 (Casual income)].
6. Income from betting is chargeable to tax at a flat rate of 30% u/s 115BB & no
expenditure or allowance can be allowed as deduction nor can any loss be set-off
against such income.
NOV 2018 Q2. From the following information for PY 2020-21, compute the total income of Mr.
Arihant for AY 2021-22 & show eligible items for carry forward & upto which AY:
Particulars Amount
Long-term capital gain from sale of urban land 2,30,000
Long-term capital loss on sale of shares (STT not paid) 85,000
LTCL on sale of listed shares in RSE (STT paid at the time of acquisition & 1,02,000
sale)
Loss from speculative business X 25,000
Income from speculative business Y 15,000
Loss from specified business covered u/s 35AD 40,000
Income from salary 3,50,000
Income from trading business 75,000
Following are details of unabsorbed depreciation & the brought forward losses:
1. Unabsorbed depreciation of Rs. 11,000 pertaining to AY 2020-21.
2. Losses from owning & maintaining of race horses pertaining to AY 2020-21: Rs. 5,000.
3. Brought forward loss from trading business Rs. 8,000 relating to AY 2017-18.
Answer: Computation of total income of Mr. Arihant for AY 2021-22
Particulars Rs. Rs.
1 Income from Salary 3,50,000
202
Less: Loss from house property set-off against salary 1,57,000 1,93,000
income
2 House Property (Loss) 2,20,000
Less: Adjusted against Capital gains u/s 112 43,000
Less: Adjusted against salary income 1,57,000 Nil
[Loss of Rs. 20,000 shall be carried forward to next year]
Income from trading business 75,000
Less: B/f loss from trading business of AY 2017-18 [Since 8
-year time limit within which set- off is permitted has not 8,000
expired]
Less: Unabsorbed depreciation 11,000 56,000
Income from speculative business Y 15,000
Less: Loss from speculative business X 15,000
4 Capital Gains
Long term capital gain on sale of urban land 2,30,000
Less: LTCL on sale of shares (STT not paid) 85,000
Less: LTCL u/s 112A on sale of listed shares [Note 1] 1,02,000
Less: Loss from House Property 43,000 Nil
PC Note: As per section 71(3A), loss from house property to the extent of Rs. 2,00,000
can be set-off against any other head of income. In case of Mr. Avinash, it is more
beneficial to set-off the loss from house property against LTCG since LTCG would be
taxable @ 20%. Accordingly, loss to the extent of Rs. 43,000 is set-off against LTCG & Rs.
1,57,000 set-off against income u/h “Salaries”.
Items eligible for carried forward to AY 2022-23

- Loss from House Property: Rs. 20,000.
- Loss from speculative business X: Rs. 10,000.
- Loss from specified business u/s 35AD: Rs. 40,000.
- Loss from the activity of owning & maintaining race horses: Rs. 5,000.
MAY 2019 Q3. Mr. Rajan incurred loss of Rs. 5.3 lacs in PY 2019-20 in toy business. Against which of
the following income earned during the same year, can he set-off such loss?
(a) Profit of Rs. 2 lacs from wholesale cloth business
(b) Speculative business income of Rs. 80,000
(c) Long-term capital gains of Rs. 1.20 lakhs on sale of land
(d) All of the above
203
Q4. Compute GTI of Mr. Avinash & show the items eligible for carry forward & AYs upto
which such losses can be carry forward from following the information for PY 2020-21:
Particulars Amount
Loss from speculative businesss MNO 12,000
Income from speculative business BPO 25,000
Loss from specified business covered u/s 35AD 45,000
Income from salary (computed) 4,18,000
Income from trading business 2,80,000
Income from owning & maintaining race horses 8,000
Long-term capital gain from sale of urban land 2,05,000
Long-term capital loss on sale of equity shares (STT not paid) 85,000
Long-term capital loss on sale of listed equity shares in recognized stock 1,10,000
exchange (STT paid at the time of acquisition & sale of shares)
1. Losses from owning & maintaining of race horses pertaining to AY 2019-20: Rs. 12,000.
2. Brought forward loss from speculative business MNO 18,000 relating to AY 2018-19.
3. Brought forward loss from trading business of Rs. 12,000 relating to AY 2017-18.
Assume Mr. Avinash has furnished his ROI before DD u/s 139(1) in all the above PYs.
Answer: Computation of Gross total income of Mr. Avinash for AY 2021-22
Particulars Rs. Rs.
1 Income from Salary 4,18,000 2,28,000
Less: Loss from house property set-off against salary 1,90,000
2 House Property (Loss) 2,20,000
Less: Adjusted against LTCG u/s 112 10,000
Less: Adjusted against salary income [Note 1] 1,90,000
Nil
[Loss of Rs. 20,000 shall be carried forward to next year.
Income from trading business 2,80,000
Less: B/f loss from trading business of AY 2016-17 [Since 8-
year time limit within which set- off is permitted has not 12,000 2,68,888
expired]
Income from speculative business BPO 25,000
Less: Loss from speculative business MNO 12,000
Less: B/f Loss from speculative business MNO of AY 2017- 13,000 Nil
18
4 Capital Gains
Long term capital gain on sale of urban land 2,05,000
Less: LTCL on sale of shares (STT not paid) 85,000
Less: LTCL u/s 112A on sale of listed shares [Note 1] 1,10,000 Nil
204
Items eligible for carried forward to AY 2022-23

- Loss from House Property: Rs. 20,000.
- Loss from speculative business MNO: Rs. 5,000.
- Loss from specified business u/s 35AD: Rs. 45,000.
- Loss from the activity of owning & maintaining race horses: Rs. 4,000.
NOV 2019 Q5. The details of income/loss of Mr. Kumar for AY 2021-22 are as follows:
Particulars Amount
Income from Salary (Computed) 5,20,000
Loss from self-occupied house property 95,000
Loss from let-out house property 2,25,000
Loss from specified business u/s 35AD 2,80,000
Loss from medical business 1,20,000
Long term capital gain 1,60,000
Income from other sources 80,000
Compute gross total income of Mr. Kumar for AY 2021-22:

(a) Rs. 4,40,000 (b) Rs. 3,20,000 (c) Rs. 1,60,000 (d) Rs. 4,80,000
Q6. Mr. Raghav is a chartered accountant & his income from profession for PY 2020-21
is Rs. 15 Lacs. He provides you with the following information for PY 2020-21:
Particulars Rs.
Income of minor son Rahul from company deposit 1,75,000
Income of minor daughter Riya from her dance performances (profession) 20,00,000
Interest from Canara bank received by Riya on fixed deposit made in 2017 20,000
out of income earned from her dance performances
Gift received by Riya from friend of Mr. Raghav on winning National award 45,000
Loss from house property (computed) 2,50,000
Short term capital loss 6,00,000
Long term capital gain u/s 112 4,00,000
Short term capital loss u/s 111A 10,00,000
Mr. Raghav income before considering clubbing provisions is higher than that of his wife.
Compute Total Income of Mr. Raghav for AY 2021-22 & losses to be carried forward.
Answer: Computation of Total Income of Mr. Raghav for AY 2021-22
Profits & gains from business & profession
Income from chartered accountancy profession 15,00,000
Less: Loss from house property (can be set-off to 2,00,000 13,00,000
the extent of RS. 2,00,000, as per section 71(3A).
Capital gains
Long term capital gain u/s 112 4,00,000
Less: STCL set off against LTCG (4,00,000) Nil
205
1. Income of minor son Rahul

Income from company deposit includible in the 1,75,000
hands of Mr. Raghav as per section 64(1A)
Less: Exemption i.r.o income of minor child u/s (1,500) 1,73,500
10(32)
2. Income of minor daughter Riya
- Income of Rs. 20 Lacs of minor daughter Riya
(professional dancer) not includible in hands of
parent, since such income is earned on account Nil
of special skills.
- Interest received on deposit with Canara Bank
made out of amount earned on account of her
special talent is includible since interest income 20,000
arises out of deposit made & not on account of
her special skills.
1,92,000
- Gift of Rs. 45,000 received by her from friends Nil
of Mr. Raghav is not taxable u/s 56(2)(x), since (1500) 18,500
the aggregate amount from non-relatives does
not exceed Rs. 50,000
- Less: Exemption i.r.o. income of minor child u/s
10(32)
Losses to be carried forward to AY 2022-23:

Loss from house property [Rs. 2.50,000 – Rs. 2,00,000] 50,000
Short term capital loss u/s 111A 10,00,000
Short term capital loss (other than above) [Rs. 6,00,000 – Rs. 4,00,000] 2,00,000
PC Note: STCL u/s 111A can also be set-off against LTCG u/s 112. In such a case, the losses
to be carried forward to AY 2022-23 would be as under:
Particulars Rs.
Loss from house property [RS. 2.50,000 – RS. 2,00,000] 50,000
Short term capital loss u/s 111A [RS. 10,00,000 – RS. 4,00,000] 6,00,000
Short term capital loss (other than above) 6,00,000
206

PQ 1. Compute GTI of Mr. F for AY 2021-22 from the information given below: [ICAI – PM + ICAI Ex 1]
Particulars Rs.
Net income from house property 1,25,000
Income from business (before depreciation) 1,35,000
Short term capital gains on sales of shares 56,000
Long term capital loss from sale of property (brought forward from AY 2020-21) (90,000)
Income from tea business 1,20,000
Dividend from Indian companies carrying on agricultural operations 80,000
Current year depreciation 26,000
Brought forward business loss (loss incurred six years ago) (45,000)
Solution: Computation of GTI of Mr. F for AY 2021-22
Particulars Rs. Rs.
Income from business: Profits before depreciation 1,35,000
Less: Current year depreciation (26,000)
Less: Brought forward business loss (incurred 6 years ago) (45,000)
Total Income from Business 64,000
Income from tea business (40% is business income) [1,20,000 × 40 %] 48,000 1,12,000
Income from the capital gains: Short term capital gains 56,000
LTCL from property (cannot be set off against STCG & thus c/f) - 56,000
IFOS: Dividend from Indian company [Taxable w.e.f AY 2021-22] 80,000
PQ 2. Mr. Suraj Batra furnishes the following details for PY 2020-21:

Short term capital gain 1,40,000
Loss from speculative business (60,000)
Long term capital gain on sale of land 30,000
Long term capital loss on sale of shares (securities transaction tax not paid) 1,00,000
Income from business of textile (after allowing current year depreciation) 50,000
Income from activity of owning & maintaining race horses 15,000
Loss from house property (40,000)
Following are the carried forward losses:
(i) Losses from activity of owning & maintaining race horses-pertaining to AY 2018-19: Rs. 25,000.
(ii) Carry forward loss from business of textile Rs. 60,000- Loss pertains to AY 2013-14.
Compute gross total income of Mr. Suraj Batra for AY 2021-22. [NOV 11 + ICAI Ex Q3]
207
Solution: Calculation of Gross Total Income of Mr. X for AY 2021-22

1. Income u/h Salary
Salary Income 1,00,000
Less: Loss from house property (40,000) 60,000
2. Income u/h Business/Profession
Income from Business of textile 50,000
Less: Loss b/f from textile business (AY 2013-14) (Balance loss of Rs. 10,000 (50,000) Nil
shall lapse)
3. Income u/h Capital Gains
Short Term Capital Gains 1,40,000
Long Term Capital Gains 30,000
Less: Long term loss (Balance of loss of 70,000 shall be carried forward) (30,000) 1,40,000
Income from owning & maintaining race horses 15,000
Less: Loss b/f to be adjusted (AY 2018-19) (Balance b/f loss of Rs. 10,000 to (15,000) Nil
be c/f)
Note: Loss from speculative business of AY 2021-22: Rs. 60,000 to be c/f for 4 AYs.
PQ 3. Mr. Shyam (resident) provides the following information for PY 2020-21: [MAY 2017]
Particulars Rs.
Income from textile business 4,60,000
Loss from gambling/betting 30,000
Loss on maintenance of race horse 15,000
Eligible current year depreciation of textile business not adjusted in income given above 5,000
Unabsorbed depreciation of AY 2020-21 brought forward 10,000
Speculation business loss of AY 2020-21 30,000
Compute GTI of Mr. Shyam for AY 2021-22 & any other loss eligible for carry forward.
Solution: Computation of Gross Total Income of Mr. Shyam for AY 2021-22
Income from Textile Business 4,60,000
Less: Current year depreciation (5,000)
Less: Unabsorbed depreciation (10,000)
Income from Textile Business 4,45,000
Less: Brought forward speculation loss (Section 73) (25,000)
Income from Speculation business Nil
Note:
1. As per sec 73, Unadjusted Brought Forward Speculation loss of AY 2020-21 shall be carried forward of
5,000.
208
2. Loss from Gambling can neither be set off nor carried forward to next year.
3. Loss on maintenance of race horse shall be allowed to be set off from income of maintenance of race
horse only & unadjusted loss of Rs. 15,000 shall be carried forward for 4 years as per section 74A.
PQ 4. Mr. X provides the following details for PY 2020-21 [NOV 2015]

1. Salary from XYZ Ltd. 50,000 p.m
2. Interest on FD with SBI for PY 2020-21 (Net) 72,000
3. Long Term Capital Loss of AY 2019-20 96,000
4. Long term Capital gain 75,000
5. Loss of minor son (Mr. X transferred his own house to his minor son without 90,000
adequate consideration few years back & minor son let it out & suffered loss)
6. Loss of his wife’s business (She carried business with funds Mr. X gifted to her) (2,00,000)
You are required to compute taxable income of Mr. X for AY 2021-22.
Solution: Computation of taxable income of Mr. X for AY 2021-22
1. Income u/h Salary 6,00,000
Less/ Loss u/h house property adjusted (loss of minor son) (90,000) 5,10,000
2. Income from House property Nil
3. Income u/h capital Gains
Long Term Capital Gain 75,000
Less: Loss from Business of his wife (75,000) Nil
4. Income from other sources
Interest Income from Fixed Deposit 80,000
Less: Loss from Business of his wife (Balance Loss of Rs. 45,000 of his wife is (80,000) Nil
to to be c/f)
Note:
1. X is a deemed owner of house property transferred to minor son. Thus, it will be considered as X’s Loss.
2. Loss from business of Mrs. X shall also be clubbed.
3. Brought Forward LTCL of AY 2019-20 to be carried forward Rs. 96,000.
PQ 5. Mr. X (aged 61 years) gives the following information for PY 2020-21 [NOV 2012]
Loss from profession 1,05,000
Capital loss on the sale of property - short term 55,000
Capital gains on sale of shares - long term 2,05,000
Loss in respect of self-occupied property 15,000
Loss in respect of let out property 30,000
Share of loss from firm 1,60,000
Income from card games 55,000
Winnings from lotteries 1,00,000
Loss from horse races in Mumbai 40,000
Medical insurance premium paid by cheque 18,000
Compute the total income of Mr. X for AY 2021-22.
209
Solution:
1. Income from house property (45,000)
Less: Adjusted against Capital gains 45,000 Nil
2. Profits & gains of business & profession (1,05,000)
Less: Adjusted against Capital gains 1,05,000 Nil
Long term capital Gain 2,05,000
Less: Short term capital loss on sale of property (55,000)
Less: Loss from profession (1,05,000)
Less: Loss from House Property (45,000) Nil
4. Income u/h Other Sources
Winning from lottery 1,00,000
Income from card game 55,000 1,55,000
Less: Deduction u/s 80D (Deductions are not allowed from casual income) Nil
Notes:
1. Share of loss from firm is not allowed to be set off by partner since share of profit from firm is exempt
in the hands of partner u/s 10(2A).
2. Loss from races can neither be set off nor be carried forward.
PQ 6. Mr. PC submits the following information for PY 2020-21:

1 Profit from Business A situated in Nagpur 2,80,000
2 Profit from Business B situated in Pune 1,25,000
3 Loss from Business C in Vegas (business is controlled from India but profits are not 85,000
received in India)
4 Unabsorbed depreciation of business C 45,000
5 Income from house property situated in India 30,000
6 Income from house property situated in USA (rent received in USA) 50,000
Find out the GTI of Mr. PC for AY 2021-22 if he is (a) ROR (b) RNOR & (c) NR.
Solution:
1. Business Income
Business A (Profit) 2,80,000 2,80,000 2,80,000
Business B (Profit) 1,25,000 1,25,000 1,25,000
Less: Business C (Loss); [controlled from India; received o/s India] (85,000) (85,000) Nil
Less: Unabsorbed depreciation of business C (45,000) (45,000) Nil
Total 2,75,000 2,75,000 4,05,000
2. Income from house property -
Property in India 30,000 30,000 30,000
Property in USA 50,000 - -
Gross total income 3,55,000 3,05,000 4,35,000
210
PQ 7. Income from business = Rs. 1.5 lacs for AY 2021-22 without making following adjustments.
(i) Depreciation for the current year 30,000
(ii) Unabsorbed depreciation brought forward from AY 2020-21 15,000
(iii) Long-term capital loss for the current year 12,000
(iv) Unabsorbed business loss brought forward from AY 2011-12 50,000
(v) Unabsorbed speculation loss brought forward from AY 2019-20 15,000
(vi) Short-term capital loss for the current year 24,000
Compute total income for AY 2021-22 & the loss to be carried forward to next year.
Solution:
Less: Depreciation (30,000)
Less: Unabsorbed depreciation b/f from AY 2020-21 (15,000)
Amount to be carried forward to AY 2022-23:

1. LTCL & STCL for AY 2022-23 can be set off against income u/h capital gains only. It can be carried
forward upto 8 years commencing from AY 2022-23.
2. Unabsorbed speculation loss b/f from AY 2019-20 will be c/f to next AY. It can be set-off against
speculation profit only.
Note: Unabsorbed business loss of Rs. 50,000 b/f from AY 2011-12 can neither be set-off against business
profits of AY 2021-22 nor can it be carried forward to next year because 8 years has already expired.
PQ 8. Mrs. X has income & losses as given below:

1. Income from Salary Rs. 5,00,000
2. Loss u/h House Property Rs. 10,00,000
3. Income u/h Business/Profession Rs. 12,00,000
4. Normal STCG Rs. 2,00,000
5. STCG u/s 111A Rs. 10,00,000
6. Casual Income Rs. 3,00,000
7. B/f Business loss for
PY 2010-11 Rs. 2,00,000
PY 2013-14 Rs. 6,00,000
PY 2014-15 Rs. 3,00,000
Compute tax liability of Mrs. X for AY 2021-22.
Solution: Option 1: Loss of house property is set off from normal income (salary)
Less: Loss of house property (2,00,000) 3,00,000
2. Income u/h Business/Profession 12,00,000
Less: B/f business/profession loss PY 2013-14 (6,00,000)
Less: B/f business/profession loss PY 2014-15 (3,00,000) 3,00,000
3. Capital gain
(a) Short term capital gain u/s 111A 10,00,000
211
(b) Normal STCG 2,00,000 12,00,000

4. Income from other sources: Casual Income 3,00,000 3,00,000
Computation of Tax Liability
Tax on STCG u/s 111A Rs. 10,00,000 @ 15% 1,50,000
Tax on Casual income Rs. 3,00,000 @ 30% 90,000
Tax on Normal income Rs. 8,00,000 at slab rate 72,500
Tax before HEC + HEC @ 4% [3,12,500 + 4% HEC] 3,25,000
Option 2: Loss of house property is set off from STCG u/s 111 A
2. Income u/h Business/Profession 12,00,000
Less: B/f business/profession loss PY 2013-14 (6,00,000)
Less: B/f business/profession loss PY 2014-15 (3,00,000) 3,00,000
3. Capital gains 2,00,000
(a) Short term capital gain u/s 111A 10,00,000
Less: loss of house property (2,00,000) 8,00,000
(b) Short term capital gain u/s 111A 8,00,000
4. Income from other sources: Casual Income 3,00,000
Less: Deduction u/s 80C to 80U (1,00,000)
Tax on STCG u/s 111A: Rs. 8,00,000 @ 15% 1,20,000
Tax on Casual income: Rs. 3,00,000 @ 30% 90,000
Tax on Normal income: Rs. 10,00,000 at slab rate 1,12,500
Tax before HEC + HEC @ 4% [3,22,500 + 4% HEC] 3,35,400
Conclusion: Option I is better.
212
AZ
CA Pranav Chandak's
DT Question Bank
10. Chapter VI-A Deductions


SM 1. Examine the following statements with regard to the provisions of the Income-tax Act, 1961:
(a) For grant of deduction u/s 80JJAA, filing of audit report in prescribed form is must for a corporate
assessee; filing of return within the due date laid down in section 139(1) is not required.
(b) Filing of belated return u/s 139(4) of the Income-tax Act, 1961 will debar an assessee from claiming
deduction u/s 80M.
Answer:
(a) Not Correct. Section 80AC stipulates compulsory filing of return of income on or before the due date
specified u/s 139(1), as a pre-condition for availing the benefit of deduction, inter alia, u/s 80JJAA
(b) Correct. As per section 80AC, the assessee has to furnish his return of income on or before the due
date specified u/s 139(1), to be eligible to claim deduction under, inter alia, section 80M.
SM 2. Compute the eligible deduction u/s 80C for AY 2021-22 in respect of life insurance premium paid by
Mr. Ganesh during the PY 2020-21, the details of which are given hereunder-
Date of issue of Person insured Actual capital sum Insurance premium paid
policy assured during PY 2020- 21
(i) 30/3/2012 Self Rs. 5,00,000 Rs. 51,000
(ii) 1/5/2016 Spouse Rs. 1,50,000 Rs. 20,000
(iii) 1/6/2018 Handicapped son Rs. 4,00,000 Rs. 80,000
Answer:
Date of Person insured Actual capital Insurance Deduct- ion Remark
issue of sum assured premium u/s 80C for (restricted
policy paid during AY2021- 22 to % of sum
2020-21 assured)
(i) 30/3/2012 Self Rs. 5,00,000 Rs. 51,000 Rs. 51,000 20%
(ii) 1/5/2016 Spouse Rs. 1,50,000 Rs. 20,000 Rs. 15,000 10%
(iii) 1/6/2018 Handicapped son Rs. 4,00,000 Rs. 80,000 Rs. 60,000 15%
Total Rs. 1,26,000
SM 3. An individual assessee, resident in India, has made the following deposit/payment during the previous
year 2020-21:
Particulars
Contribution to the public provident fund Rs. 1,50,000
Insurance premium paid on life of spouse (policy taken on 1.4.2015) (Assured value 2 Lac) Rs. 25,000
What is the deduction allowable u/s 80C for AY 2021-22?
Answer: Computation of deduction u/s 80C for AY 2021-22
Particulars
Deposit in public provident fund Rs. 1,50,000
Insurance premium paid on the life of the spouse (Maximum 10% of assured value) Rs. 20,000
Total Rs. 1,70,000
However, the maximum permissible deduction u/s 80C is restricted to Rs. 1,50,000
213
SM 4. The basic salary of Mr. A is Rs. 1,00,000 pm He is entitled to dearness allowance, which is 40% of
basic salary. 50% of dearness allowance forms part of pay for retirement benefits. Both Mr. A & his
employer, ABC Ltd., contribute 15% of basic salary to the pension scheme referred to in section 80CCD.
Explain the tax treatment in respect of such contribution in the hands of Mr. A.
Answer: Tax treatment in the hands of Mr. A in respect of employer’s & own contribution to pension scheme
referred to in section 80CCD.
(a) Employer’s contribution to such pension scheme would be treated as salary since it is specifically
included in the definition of “salary” u/s 17(1)(viii). Therefore, Rs. 1,80,000, being 15% of basic salary of
Rs. 12,00,000, will be included in Mr. A’s salary.
(b) Mr. A’s contribution to pension scheme is allowable as deduction u/s 80CCD(1). However, the deduction
is restricted to 10% of salary. Salary, for this purpose, means basic pay plus dearness allowance, if it
forms part of pay.
Therefore, “salary” for the purpose of deduction u/s 80CCD for Mr. A would be -
Particulars Rs.
Basic salary = Rs. 1,00,000 × 12 = Rs. 12,00,000
Dearness allowance = 40% of Rs. 12,00,000 = Rs. 4,80,000 50% of Dearness Allowance Rs. 2,40,000
forms part of pay = 50% of Rs. 4,80,000
Salary for the purpose of deduction u/s 80CCD Rs. 14,40,000
Deduction u/s 80CCD (1) is restricted to 10% of Rs. 14,40,000(as against actual Rs. 1,44,000
contribution of Rs. 1,80,000, being 15% of basic salary of Rs. 12,00,000)
As per section 80CCD(1B), a further deduction of upto Rs. 50,000 is allowable. Rs. 36,000
Therefore, deduction u/s 80CCD(1B) is Rs. 36,000(Rs. 1,80,000 - Rs. 1,44,000).
Rs. 1,44,000 is allowable as deduction u/s 80CCD (1). This would be taken into consideration & be subject
to the overall limit of Rs. 1,50,000 u/s 80CCE. Rs. 36,000 allowable as deduction u/s 80CCD(1B) is outside
the overall limit of Rs. 1,50,000 u/s 80CCE.
In the alternative, Rs. 50,000 can be claimed as deduction u/s 80CCD(1B). The balance Rs. 1,30,000 (Rs.
1,80,000 - Rs. 50,000) can be claimed as deduction u/s 80CCD (1).
(c) Employer’s contribution to pension scheme would be allowable as deduction u/s 80CCD (2), subject to
a maximum of 10% of salary. Therefore, deduction u/s 80CCD (2), would also be restricted to Rs.
1,44,000, even though the entire employer’s contribution of Rs. 1,80,000 is included in salary u/s
17(1)(viii). However, this deduction of employer’s contribution of Rs. 1,44,000 to pension scheme would
be outside the overall limit of Rs. 1,50,000 u/s 80CCE i.e., this deduction would be over & above the
other deductions which are subject to the limit of Rs. 1,50,000.
SM 5. GTI of Mr. X for AY 2021-22 is Rs. 8 Lacs. He has made the following payments during PY 2020-21.
Particulars Rs.
(1) Contribution to PPF Rs. 1,10,000
(2) Payment of tuition fees to Apeejay School, New Delhi, for education of his son Rs. 45,000
studying in Class XI
(3) Repayment of housing loan taken from Standard Chartered Bank Rs. 25,000
(4) Contribution to approved pension fund of LIC Rs. 1,05,000
Compute the eligible deduction under Chapter VI-A for AY 2021-22.
Answer: Computation of deduction under Chapter VI-A for AY 2021-22
Particulars Rs.
Deduction u/s 80C
214
- Contribution to PPF Rs. 1,10,000

- Payment of tuition fees to Apeejay School, New Delhi, for education of his son Rs. 45,000
studying in Class XI
- Repayment of housing loan Rs. 25,000
Rs. 1,80,000
Restricted to 1,50,000, being the maximum permissible deduction u/s 80C Rs. 1,50,000
Deduction u/s 80CCC
- Contribution to approved pension fund of LIC Rs. 1,05,000 Rs. 1,05,000
Rs. 2,55,000
As per section 80CCE, the aggregate deduction u/s 80C, 80CCC & 80CCD (1) has to be restricted to Rs.
1,50,000
Deduction allowable under Chapter VIA for the AY 2021-22 Rs. 1,50,000
SM 6. Mr. A, aged 40 years, paid medical insurance premium of Rs. 20,000 during the PY 2020-21 to insure
his health as well as the health of his spouse. He also paid medical insurance premium of Rs. 47,000 during
the year to insure the health of his father, aged 63 years, who is not dependent on him. He contributed Rs.
3,600 to Central Government Health Scheme during the year. He has incurred Rs. 3,000 in cash on
preventive health check-up of himself & his spouse & Rs. 4,000 by cheque on preventive health check-up of
his father. Compute the deduction allowable u/s 80D for the AY 2021-22.
Answer: Deduction allowable u/s 80D for the AY 2021-22
Particulars Actual Maximum
Payment deduction
allowable
(A) Premium paid & medical expenditure incurred for self & spouse
(i) Medical insurance premium paid for self & spouse Rs. 20,000 Rs. 20,000
(ii) Contribution to CGHS Rs. 3,600 Rs. 3,600
(iii) Exp. on preventive health check-up of self & spouse Rs. 3,000 Rs. 1,400
Rs. 26,600 Rs. 25,000
(B) Premium paid or medical expenditure incurred for father, who is
a senior citizen
(i) Mediclaim premium paid for father, who is over 60 years of age Rs. 47,000 Rs. 47,000
(ii) Expenditure on preventive health check-up of father Rs. 4,000 Rs. 3,000
Rs. 51,000 Rs. 50,000
Total deduction u/s 80D (Rs. 25,000 + Rs. 50,000) Rs. 75,000
Notes:
(1) Total deduction under A. (i), (ii) & (iii) above should not exceed Rs. 25,000. Therefore, the expenditure
on preventive health check-up for self & spouse would be restricted to Rs. 1,400, being (Rs. 25,000 –
Rs. 20,000 - Rs. 3,600).
(2) Total deduction under B. (i) & (ii) above should not exceed Rs. 50,000. Therefore, the expenditure on
preventive health check-up for father would be restricted to Rs. 3,000, being (Rs. 50,000 – Rs. 47,000).
(3) Total deduction allowed on account of expenditure on preventive health check-up of self, spouse &
father is Rs. 4,400 (i.e., Rs. 1,400 + Rs. 3,000), which is within the maximum permissible limit of Rs. 5,000.
215
SM 7. Mr. Y, aged 40 years, paid medical insurance premium of Rs. 22,000 during the PY 2020-21 to insure
his health as well as the health of his spouse & dependent children. He also paid medical insurance premium
of Rs. 33,000 during the year to insure the health of his mother, aged 67 years, who is not dependent on
him. He incurred medical expenditure of Rs. 20,000 on his father, aged 71 years, who is not covered under
mediclaim policy. His father is also not dependent upon him. He contributed Rs. 6,000 to Central
Government Health Scheme during the year. Compute the deduction allowable u/s 80D for the AY 2021-22.
Answer: Deduction allowable u/s 80D for AY 2021-22
Particulars Rs. Rs.
(i) Medical insurance premium paid for self, spouse & dependent children Rs. 22,000
(ii) Contribution to CGHS Rs. 6,000
restricted to Rs. 28,000 Rs. 25,000
(iii) Mediclaim premium paid for mother, who is over 60 years of age Rs. 33,000
(iv) Medical expenditure incurred for father, who is over 60 years of age & Rs. 20,000
not covered by any insurance
But restricted to Rs. 53,000 Rs. 50,000
Total Deduction allowable u/s 80D Rs. 75,000
SM 8. Mr. X is a resident individual. He deposits a sum of Rs. 50,000 with Life Insurance Corporation every
year for the maintenance of his handicapped grandfather who is wholly dependent upon him. The disability
is one which comes under the Persons with Disabilities (Equal Opportunities, Protection of Rights & Full
Participation) Act, 1995. A copy of the certificate from the medical authority is submitted. Compute the
amount of deduction available u/s 80DD for the AY 2021-22.
Answer: Since the amount deposited by Mr. X was for his grandfather, he will not be allowed any deduction
u/s 80DD. The deduction is available if the individual assessee incurs any expense for a dependant disabled
person. Grandfather does not come within the definition of dependant.
SM 9. What will be the deduction if Mr. X had made this deposit for his dependant father?
Answer: Since the expense was incurred for a dependant disabled person, Mr. X will be entitled to claim a
deduction of Rs. 75,000 u/s 80DD, irrespective of the amount deposited. In case his father has severe
disability, the deduction would be Rs. 1,25,000.
SM 10. Mr. B has taken three education loans on April 1, 2020, the details of which are given below:
Loan 1 Loan 2 Loan 3
For whose education loan was taken B Son of B Daughter of B
Purpose of loan MBA B. Sc. B.A.
Amount of loan Rs. 5,00,000 Rs. 2,00,000 Rs.4,00,000
Annual repayment of loan Rs. 1,00,000 Rs. 40,000 Rs. 80,000
Annual repayment of interest Rs. 20,000 Rs. 10,000 Rs. 18,000
Compute the amount deductible u/s 80E for the AY 2021-22.
Answer: Deduction u/s 80E is available to an individual assessee in respect of any interest paid by him in
the previous year in respect of loan taken for pursuing his higher education or higher education of his
spouse or children. Higher education means any course of study pursued after senior secondary
examination. Therefore, interest repayment i.r.o. all the above loans would be eligible for deduction.
Deduction u/s 80E = Rs. 20,000 + Rs. 10,000 + Rs. 18,000 = Rs. 48,000.
216
SM 11. Mr. A purchased a residential house property for self-occupation at a cost of Rs. 45 lakh on 1.4.2017,
in respect of which he took a housing loan of Rs. 35 lakh from Bank of India@11% p.a. on the same date. The
loan was sanctioned on 28th March, 2017. Compute the eligible deduction in respect of interest on housing
loan for AY2021- 22 under the provisions of the Income-tax Act, 1961, assuming that the entire loan was
outstanding as on 31.3.2021 & he does not own any other house property.
Solution: Interest deduction for AY 2021-22
(i) Deduction allowable while computing income u/h ‘Income from house property’
Deduction u/s 24(b) Rs. 3,85,000 [Rs. 35,00,000 × 11%] but Restricted to Rs. 2,00,000
(ii) Deduction under Chapter VI-A from Gross Total Income
Deduction u/s 80EE Rs. 1,85,000 (Rs. 3,85,000 – Rs. 2,00,000) but Restricted to Rs. 50,000
SM 12. Particulars of to Mr. A, Mr. B, Mr. C & Mr. D, salaried individuals, for AY 2021-22 are as follows:
Particulars Mr. A Mr. B Mr. C Mr. D
Amount of loan Rs. 43 lakhs Rs. 45 lakhs Rs. 20 lakhs Rs. 15 lakhs
taken
Loan taken from HFC Deposit taking Deposit taking Public sector bank
NBFC NBFC
Date of sanction of 1.4.2020 1.4.2019 1.4.2019 30.3.2019
loan
Date of 1.5.2020 1.5.2019 1.5.2019 1.5.2019
disbursement of
loan
Purpose of loan Acquisition of Acquisition Purchase of Purchase of
residential house of residential electric vehicle electric vehicle
property for self- house property for for personal use for personal use
occupation self- occupation
Stamp duty value of 45 lakhs 48 lakhs - -
house property
Cost of electric - - 22 lakhs 18 lakhs
vehicle
Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.
Compute the amount of deduction, if any, allowable for AY 2021-22 in the hands of Mr. A, Mr. B, Mr. C & Mr.
D. Assume that there has been no principal repayment during the PY 2020-21 & PY 2020-21.
217
Answer: Interest deduction for AY 2021-22

Mr. A
(i) Deduction allowable while computing income u/h ‘Income from house property'
Deduction u/s 24(b) Rs. 3,54,750 [Rs. Rs. 43,00,000 × 9% x 11/12] Restricted to Rs. 2,00,000
(ii) Deduction under Chapter VI-A from Gross Total Income
Deduction u/s 80EEA: Rs. 1,54,750 (Rs.3,54,750 – Rs. 2,00,000) Restricted to Rs. 1,50,000
Mr. B
(i) Deduction allowable while computing income u/h “Income from house property”
Deduction u/s 24(b) Rs. 4,05,000 [Rs. 45,00,000 × 9%] Restricted to Rs. 2,00,000
(ii) Deduction under Chapter VI-A
Deduction u/s 80EEA is not permissible since Stamp duty value exceeds 45 lacs. Nil
Mr. C
Deduction u/s 80EEB for interest payable on loan taken for purchase of electric vehicle 1,50,000
[Rs. 20 lakhs x 10% = Rs. 2,00,000, restricted to Rs. 1,50,000, being maximum deduction]
Mr. D
Deduction u/s 80EEB is not permissible since loan was sanctioned before 1.4.2019. Nil
SM 13. Mr. Shiva aged 58 years, has gross total income of Rs. 7,75,000 comprising of income from salary &
house property. He has made the following payments & investments:
(1) Premium paid to insure the life of her major daughter (policy taken on 1.4.2017) (Assured value: Rs.
1,80,000): Rs. 20,000.
(2) Medical Insurance premium for self: Rs. 12,000; Spouse: Rs. 14,000.
(3) Donation to a public charitable institution registered u/s 80G: Rs. 50,000 by way of cheque.
(4) LIC Pension Fund: Rs. 60,000.
(5) Donation to National Children’s Fund: Rs. 25,000 by way of cheque
(6) Donation to Jawaharlal Nehru Memorial Fund: Rs. 25,000 by way of cheque
(7) Donation to approved institution for promotion of family planning: Rs. 40,000 by way of cheque
(8) Deposit in PPF: Rs. 1,00,000.
Compute the total income of Mr. Shiva for AY 2021-22.
Answer: Computation of Total Income of Mr. Shiva for AY 2021-22
Particulars
Less: Deduction u/s 80C
Deposit in PPF Rs. 1,00,000
Life insurance premium paid for insurance of major daughter (Maximum Rs. 18,000
10% of assured value Rs. 1,80,000, as the policy is taken after 31.3.2012)
Deduction u/s 80CCC in respect of LIC pension fund Rs. 60,000
As per section 80CCE, deduction u/s 80C & 80CCC is restricted to Rs. 1,78,000 Rs. 1,50,000
Deduction u/s 80D
Medical Insurance premium in respect of self & spouse Restricted to Rs. 26,000 Rs. 25,000
Deduction u/s 80G (See Working Note below) Rs. 87,500
218
Working Note: Computation of deduction u/s 80G

Particulars of donation Amount % of deduction Deduction
donated u/s 80G
(i) National Children’s Fund Rs. 25,000 100% Rs. 25,000
(ii) Jawaharlal Nehru Memorial Rs. 25,000 50% Rs. 12,500
Fund
(iii) Approved institution for Rs. 40,000 100%, subject to qualifying limit Rs. 40,000
promotion of family planning
(iv) Public Charitable Trust Rs. 50,000 50% subject to qualifying limit Rs. 10,000
(See Note below)
Rs. 87,500
Note: Adjusted total income = GTI - deductions u/s 80C to 80U except section 80G = Rs. 6,00,000.
Qualifying Limit = Rs. 60,000 (being 10% of adjusted total income).
Firstly, donation of Rs. 40,000 to approved institution for family planning qualifying for 100% deduction
subject to qualifying limit, has to be adjusted against this amount. Thereafter, donation to public charitable
trust qualifying for 50% deduction, subject to qualifying limit is adjusted. Hence, the contribution of Rs.
50,000 to public charitable trust is restricted to Rs. 20,000 (being, Rs. 60,000 - Rs. 40,000), 50% of which
would be the deduction u/s 80G. Therefore, the deduction u/s 80G in respect of donation to public
charitable trust would be Rs. Rs. 10,000, which is 50% of Rs. 20,000.
SM 14. Mr. Ganesh, a businessman, whose total income (before allowing deduction u/s 80GG) for AY 2021-
22 is Rs. 4,60,000, paid house rent at Rs. 12,000 p.m. in respect of residential accommodation occupied by
him at Mumbai. Compute the deduction allowable to him u/s 80GG for AY2021-22.
Answer: The deduction u/s 80GG will be computed as follows:
10 ×4,60,000
(i) Actual rent paid less 10% of total income = Rs. 1,44,000 (-) =Rs. 98,000 (A)
100
25 ×4,60,000
(ii) 25% of total income = = Rs. 1,15,000 (B)
100
(iii) Amount calculated at Rs. 5,000 p.m. = Rs. 60,000 (C)
Deduction allowable [least of (i) (ii) & (iii)] = Rs. 60,000
SM 15. During the PY 2020-21, ABC Ltd., an Indian company,

(a) contributed a sum of 2 lakh to an electoral trust; &
(b) incurred expenditure of Rs. 25,000 on advertisement in a brochure of a political party.
Is the company eligible for deduction in respect of such contribution/expenditure, assuming that the
contribution was made by cheque? If so, what is the quantum of deduction?
Answer: An Indian company is eligible for deduction u/s 80GGB in respect of any sum contributed by it in
the previous year to any political party or an electoral trust. Further, the word “contribute” in section
80GGB has the meaning assigned to it in section 293A of the Companies Act, 1956, & accordingly, it includes
the amount of expenditure incurred on advertisement in a brochure of a political party.
Therefore, ABC Ltd. is eligible for a deduction of Rs. 2,25,000 u/s 80GGB i.r.o. sum of 2 lakh contributed to
an electoral trust & Rs. 25,000 incurred by it on advertisement in a brochure of a political party.
It may be noted that there is a specific disallowance u/s 37(2B) in respect of expenditure incurred on
advertisement in a brochure of a political party. Therefore, the expenditure of Rs. 25,000 would be
disallowed while computing business income/gross total income. However, the said expenditure incurred
by an Indian company is allowable as a deduction from gross total income u/s 80GGB.
219
SM 16. Mr. A has commenced the business of manufacture of computers on 1.4.2020. He employed 350 new
employees during PY 2020-21, the details of whom are as follows:
No. of employees Date of employment Regular/ Casual Total monthly emoluments per
employee
(i) 75 1.4.2020 Regular Rs. 24,000
(ii) 125 1.5.2020 Regular Rs. 26,000
(iii) 50 1.8.2020 Casual Rs. 24,500
(iv) 100 1.9.2020 Regular Rs. 24,000
Regular employees participate in recognized provident fund while the casual employees do not. Compute
the deduction, if any, available to Mr. A for AY 2021- 22, if the profits & gains derived from manufacture of
computers that year is Rs. 75 lakhs & his total turnover is 5.16 crores.
What would be your answer if Mr. A has commenced the business of manufacture of footwear on 1.4.2020?
Answer: Mr. A is eligible for deduction u/s 80JJAA since he is subject to tax audit u/s 44AB for AY 2021-22
& he has employed “additional employees” during the PY 2020-21.
I. If Mr. A is engaged in the business of manufacture of computers
- Additional employee cost = Rs. 24,000 × 12 × 75 [See Working Note below] = Rs. 2,16,00,000
- Deduction u/s 80JJAA = 30% of Rs. 2,16,00,000 = Rs. 64,80,000
Working Note: Number of additional employees
Particulars No. of Workers
Total number of employees employed during the year 350
Less: Casual employees employed on 1.8.2020 who do not participate in RPF 50
Less: Employees employed on 1.5.2020 since their monthly emoluments > Rs. 25,000 125
Less: Employees employed on 1.9.2020 (Employed for < 240 days in PY 2020-21) 100 275
Number of “additional employees” 75
Notes:
(1) Since casual employees do not participate in recognized provident fund, they do not qualify as
additional employees. Further, 125 regular employees employed on 1.5.2020 also do not qualify as
additional employees since their monthly emoluments exceed Rs. 25,000. Also, 100 regular employees
employed on 1.9.2020 do not qualify as additional employees for the PY 2020-21, since they are employed
for less than 240 days in that year. Therefore, only 75 employees employed on 1.4.2020 qualify as
additional employees, & the total emoluments paid or payable to them during the PY 2020-21 is deemed
to be the additional employee cost.
(2) As regards 100 regular employees employed on 1.9.2020, they would be treated as additional employees
for previous year 2021-22, if they continue to be employees in that year for a minimum period of 240
days. Accordingly, 30% of additional employee cost in respect of such employees would be allowable as
deduction u/s 80JJAA in the hands of Mr. A for the AY 2022-23.
II. If Mr. A is engaged in the business of manufacture of footwear

If Mr. A is engaged in the business of manufacture of footwear, then, he would be entitled to deduction u/s
80JJAA in respect of employee cost of regular employees employed on 1.9.2020, since they have been
employed for more than 150 days in the previous year 2020-21.
Additional employee cost = Rs. 2,16,00,000 +Rs. 24,000 × 7 × 100 = Rs. 3,84,00,000 Deduction u/s 80JJAA =
30% of Rs. 3,84,00,000 = Rs. 1,15,20,000
220
SM 17. Mr. A, a resident individual aged 61 years, has earned business income (computed) of Rs. 1,35,000,
lottery income of Rs. 1,20,000 (gross) during the PY 2020-21. He also has interest on Fixed Deposit of Rs.
30,000 with banks. He invested an amount of Rs. 1,50,000 in Public Provident Fund account. What is the
total income of Mr. A for the AY 2021-22?
Answer: Computation of total income of Mr. A for AY2021-22
Particulars Rs. Rs.
Profits and gains of business or profession Rs. 1,35,000
- Interest on Fixed Deposit with banks Rs. 30,000
- lottery income Rs. 1,20,000
Less: Deductions under Chapter VIA [See Note below]
U/s 80C: Deposit in Public Provident Fund Rs. 1,50,000
U/s 80TTB: Interest on fixed deposits with banks Rs. 30,000
Rs. 1,80,000
Restricted to (since not available from casual income) Rs. 1,65,000
Total Income Rs. 1,20,000
Note: In case of resident individuals of the age of 60 years or more, interest on bank fixed deposits
qualifies for deduction upto 50,000 u/s 80TTB.
Though the aggregate of deductions under Chapter VI-A is Rs. 1,80,000, however, the maximum permissible
deduction cannot exceed GTI exclusive of LTCG u/s 112 & 112A, STCG u/s 111A & winnings from lotteries.
Therefore, maximum permissible deduction = Rs. Rs. 2,85,000 – Rs. Rs. 1,20,000 = 1,65,000.
SM 18. Mr. Gurnam, aged 42 years, has salary income (computed) of Rs. 5,50,000 for the previous year
ended 31.03.2021. He has earned interest of Rs. 14,500 on the saving bank account with State Bank of India
during the year. Compute the total income of Mr. Gurnam for the assessment year 2021-22 from the following
particulars:
(1) Life insurance premium paid to Birla Sunlife Insurance in cash amounting to Rs. 25,000 for insurance of
life of his dependent parents. The insurance policy was taken on 15.07.2018 & the sum assured on life
of his dependent parents is Rs. 2,00,000.
(2) Life insurance premium of Rs. 25,500 paid for the insurance of life of his major son who is not dependent
on him. The sum assured on life of his son is Rs. 2,50,000 & the life insurance policy was taken on
30.3.2012.
(3) Life insurance premium paid by cheque of Rs. 22,500 for insurance of his life. The insurance policy was
taken on 08.09.2017 & the sum assured isRs 2,00,000.
(4) Premium of Rs. 26,000 paid by cheque for health insurance of self & his wife.
(5) Rs. 1,500 paid in cash for his health check-up & Rs. 4,500 paid in cheque for preventive health check-
up for his parents, who are senior citizens.
(6) Paid interest of Rs. 6,500 on loan taken from bank for MBA course pursued by his daughter.
(7) A sum of Rs. 5,000 donated in cash to an institution approved for purpose of section 80G for promoting
family planning.
Answer:
Interest on saving bank deposit Rs. 14,500
221

Less: Deduction under Chapter VIA
U/s 80C (See Note 1)
Life insurance premium paid for life insurance of:
- major son Rs. 25,500
- self 22,500 restricted to 10% of 2,00,000 Rs. 20,000 Rs. 45,500
U/s 80D (See Note 2)
Premium paid for 26,000 health insurance of self & wife by
cheque, restricted to Rs. 25,000
Payment made for health check-up for parents Rs. 4,500 Rs. 29,500
U/s 80E
For payment of interest on loan taken from bank for MBA Rs. 6,500
course of his daughter
U/s 80TTA (See Note 4)
Interest on savings bank account 14,500 restricted to Rs. 10,000 Rs. 91,500
Notes:
1. As per section 80C, no deduction is allowed in respect of premium paid for life insurance of parents,
whether they are dependent or not. Therefore, no deduction is allowable in respect of ` Rs. 25,000 paid
as premium for life insurance of dependent parents of Mr. Gurnam.
In respect of insurance policy issued on or after 01.04.2012, deduction shall be allowed for life insurance
premium paid only to the extent of 10% of sum assured. In case the insurance policy is issued before
01.04.2012, deduction of premium paid on life insurance policy shall be allowed up to 20% of sum assured.
Therefore, in the present case, deduction of Rs. 25,500 is allowable in full in respect of life insurance of
Mr. Gurnam’s son since the insurance policy was issued before 01.04.2012 & the premium amount is less
than 20% of Rs. 2,50,000. However, in respect of premium paid for life insurance policy of Mr. Gurnam
himself, deduction is allowable only up to 10% of Rs. 2,00,000 since, the policy was issued on or after
01.04.2012 & the premium amount exceeds 10% of sum assured.
2. As per section 80D, in case the premium is paid in respect of health of a person specified therein & for
health check-up of such person, deduction shall be allowed up to Rs. 25,000. Further, deduction up to Rs.
5,000 in aggregate shall be allowed in respect of health check-up of self, spouse, children & parents. In
order to claim deduction u/s 80D, the payment for health-checkup can be made in any mode including
cash. However, the payment for health insurance premium has to be paid in any mode other than cash.
Therefore, in the present case, in respect of premium of Rs. 26,000 paid for health insurance of self &
wife, deduction would be restricted to Rs.25,000. Since the limit of Rs. 25,000 has been exhausted
against medical insurance premium, no deduction is allowable for preventive health check-up for self
& wife. However, deduction of Rs. 4,500 is allowable in respect of health check-up of his parents, since
it falls within the limit of Rs. 5,000.
3. No deduction shall be allowed u/s 80G in case the donation is made in cash of a sum exceeding Rs. 2,000.
Therefore, deduction u/s 80G is not allowable in respect of cash donation of Rs. 5,000 made to an
institution approved for the purpose of section 80G for promotion of family planning.
4. As per section 80TTA, deduction shall be allowed from the gross total income of an individual or Hindu
Undivided Family in respect of income by way of interest on deposit in the savings account included in
the assessee’s gross total income, subject to a maximum of Rs. 10,000. Therefore, deduction of Rs. 10,000
is allowable from the gross total income of Mr. Gurnam, though the interest from savings bank account
is Rs. 14,500.
222

Q1. Examine the following statements with regard to the provisions of the Income-tax Act, 1961:
(a) During the financial year 2020-21, Mr. Amit paid interest on loan availed by him for his son's higher
education. His son is already employed in a firm. Mr. Amit will get the deduction u/s 80E.
(b) Subscription to notified bonds of NABARD would qualify for deduction u/s 80C.
(c) In order to be eligible to claim deduction u/s 80C, investment/contribution/subscription etc. in eligible
or approved modes, should be made from out of income chargeable to tax.
(d) Where an individual repays a sum of Rs. 30,000 towards principal & Rs. 14,000 as interest in respect
of loan taken from a bank for pursuing eligible higher studies, the deduction allowable u/s 80E is Rs.
44,000.
(e) Mrs. Sheela, widow of Mr. Satish (who was an employee of M/s. XYZ Ltd.), received 7 lakhs on 1.5.2020,
being amount standing to the credit of Mr. Satish in his NPS Account, in respect of which deduction
has been allowed u/s 80CCD to Mr. Satish in the earlier previous years. Such amount received by her
as a nominee on closure of the account is deemed to be her income for AY2021-22.
(f) Mr. Vishal, a Central Government employee, contributed Rs. 50,000 towards Tier II account of NPS.
The same would be eligible for deduction u/s 80CCD.
Answer:
(a) Correct. Deduction u/s 80E available to an individual in respect of interest on loan taken for his higher
education or for higher education of his relative. For this purpose, relative means, inter alia, spouse
& children of the individual. Therefore, Mr. Amit will get the deduction u/s 80E. It is immaterial that
his son is already employed in a firm. This would not affect Mr. Amit’s eligibility for deduction u/s 80E.
(b) Correct. U/s 80C(2) subscription to such bonds issued by NABARD (as the Central Government may
notify in the Official Gazette) would qualify for deduction u/s 80C.
(c) Not correct. There is no stipulation u/s 80C that the investment, subscription, etc. should be made
from out of income chargeable to tax.
(d) Not correct. Deduction u/s 80E is in respect of interest paid on education loan. Hence, the deduction
will be limited to Rs. 14,000.
(e) Correct. Proviso to section 80CCD(3) provides that the amount received by the nominee, on closure
of NPS account on the death of the assessee, shall not be deemed to be the income of the nominee.
Hence, amount received by Mrs. Sheela would not be deemed to be her income for AY 2021-22.
(f) Not correct. Contribution to Tier II NPS A/c would qualify for deduction u/s 80C & not u/s 80CCD.
Q2. Examine the allowability of the following:

(a) Rajan has to pay to a hospital for treatment Rs. 62,000 & spent nothing for life insurance or for
maintenance of handicapped dependent.
(b) Raja, a resident Indian, has spent nothing for treatment in the previous year & deposited Rs. 25,000
with LIC for maintenance of handicapped dependant.
(c) Rajan has incurred Rs. 20,000 for treatment & Rs. 25,000 was deposited with LIC for maintenance of
handicapped dependant.
(d) Payment of Rs. 50,000 by cheque to an electoral trust by an Indian company.
Answer
(a) Deduction of Rs. 75,000 u/s 80DD is allowed in full, irrespective of the amount of expenditure incurred
or paid by the assessee. If the expenditure is incurred in respect of a dependant with severe disability,
deduction allowable is Rs. 1,25,000.
(b) Rajan has deposited Rs. 25,000 for maintenance of handicapped dependent. Assessee is, however,
eligible to claim Rs. 75,000 since the deduction of Rs. 75,000 is allowed in full, irrespective of the amount
deposited with LIC. In the case of dependant with severe disability, deduction allowable is Rs. 1,25,000.
223
(c) Section 80DD allows a deduction of Rs. 75,000 irrespective of actual amount spent on maintenance of
handicapped dependent &/or actual amount deposited with LIC. Therefore, the deduction will be Rs.
75,000 even though total amount incurred/deposited is only Rs. 45,000.
If dependant is a person with severe disability, deduction = Rs. 1,25,000.
(d) Amount paid by an Indian Company to an electoral trust is eligible for deduction u/s 80GGB from gross
total income, since such payment is made otherwise than by way of cash.
Q3. For AY 2021-22, GTI of Mr. Chaturvedi, a resident in India, was 8,18,240 which includes long-term capital
gain of Rs. 2,45,000 taxable u/s 112 and Short-term capital gain of Rs. 58,000. The Gross Total Income also
includes interest income of Rs. 12,000 from savings bank deposits with banks & Rs. 40,000 interest on
fixed deposits with banks. Mr. Chaturvedi has invested in PPF Rs. 1,20,000 & also paid a medical insurance
premium Rs. 51,000. Mr. Chaturvedi also contributed Rs. 50,000 to Public Charitable Trust eligible for
deduction u/s 80G by way of an account payee cheque. Compute the total income & tax thereon of Mr.
Chaturvedi, who is 70 years old as on 31.3.2021. Ignore the provisions of section 115BAC.
Answer: Computation of total income & tax payable by Mr. Chaturvedi for AY 2021-22
Particulars Rs. Rs.
Gross total income including long term capital gain Rs.8,18,240
Less: Long term capital gain Rs. 2,45,000
Less: Deductions under Chapter VI-A: Rs. 5,73,240
U/s 80C in respect of PPF deposit Rs. 1,20,000
U/s 80D (it is assumed that premium of Rs. 51,000 is paid by otherwise Rs. 50,000
than by cash. The deduction would be restricted to Rs. 50,000, since
Mr. Chaturvedi is a senior citizen)
U/s 80G (See Notes 1 & 2 below) Rs. 17,662
U/s 80TTB (See Note 3 below) Rs. 50,000 Rs. 2,37,662
Total income (excluding long term capital gains) Rs. 3,35,578
Total income (including long term capital gains) Rs. 5,80,578
Total income (rounded off) Rs. 5,80,580
Tax on total income (including long-term capital gains of ` Rs. 2,45,000)
LTCG Rs. 2,45,000 x 20% Rs. 49,000
Balance total income Rs. 3,35,580 (See Note 4 below) Rs. 1,779
Rs. 50,779
Add: Health & Education cess @4% Rs. 2,031
Total tax liability Rs. 52,810
Notes:
1. Computation of deduction u/s 80G:
Particulars Rs.
Gross total income (excluding long term capital gains) Rs. 5,73,240
Less: Deduction u/s 80C, 80D & 80TTB Rs. 2,20,000
Rs. 3,53,240
10% of the above Rs. 35,324
Contribution made Rs. 50,000
224
Lower of the two eligible for deduction u/s 80G Rs. 35,324
Deduction u/s 80G – 50% of Rs. 35,324 Rs. 17,662
2. Deduction u/s 80G is allowed only if amount is paid by any mode other than cash, in case of amount
exceeding Rs. 2,000. Therefore, the contribution made to public charitable trust is eligible for deduction
since it is made by way of an account payee cheque.
3. Deduction of upto Rs. 50,000 u/s 80TTB is allowed to a senior citizen if gross total income includes
interest income on bank deposits, both fixed deposits & savings account.
4. Mr. Chaturvedi, being a senior citizen is eligible for basic exemption of Rs. 3,00,000.
Q4. Mr. Rajmohan whose GTI was Rs. 6,40,000 for PY 2020- 21, furnishes you the following information:
(i) Stamp duty paid on acquisition of residential house (self-occupied) - Rs. 50,000.
(ii) Fiveyear post office time deposit - Rs. 20,000.
(iii) Donation to a recognized charitable trust Rs. 25,000 which is eligible for deduction u/s 80G at the
applicable rate.
(iv) Interest on loan taken for higher education of spouse paid during the year - Rs. 10,000.
Compute the total income of Mr. Rajmohan for the Assessment year 2021-22
Answer: Computation of total income of Mr. Rajmohan for AY 2021-22
Particulars Rs. Rs.
U/s 80C
Stamp duty paid on acquisition of residential House Rs. 50,000
Five-year time deposit with Post Office Rs. 20,000
Rs. 70,000
U/s 80E
Interest on loan taken for higher education of spouse, being a relative. Rs. 10,000
U/s 80G (See Note below)
Donation to recognized charitable trust (50% of 25,000) Rs. 12,500 Rs. 92,500
Note: In case of deduction u/s 80G in respect of donation to a charitable trust, the net qualifying amount
has to be restricted to 10% of adjusted total income, i.e., gross total income less deductions under Chapter
VI-A except 80G. The adjusted total income is, therefore, Rs. 5,60,000 (i.e. Rs. 6,40,000 – Rs. 80,000), 10%
of which is Rs. 56,000, which is higher than the actual donation of Rs. 25,000. Therefore, the deduction u/s
80G would be Rs. 12,500, being 50% of the actual donation of Rs. 25,000.
Q5. Compute the eligible deduction under Chapter VI-A for the AY 2021-22 of Ms. Roma, aged 40 years,
who has a gross total income of Rs. 15,00,000 for the AY 2021-22 & provides the following information about
her investments/payments during the PY 2020-21:
SN Particulars Amount
1. Life Insurance premium paid (Policy taken on 31.03.2012 & sum assured is Rs. Rs. 35,000
3,40,000)
2. Public Provident Fund contribution Rs. 1,50,000
225
3. Repayment of housing loan to Bhartiya Mahila Bank, Bangalore Rs. 20,000

4. Payment to L.I.C. Pension Fund Rs. 1,40,000
5. Mediclaim Policy taken for self, wife & dependent children, premium paid by cheque Rs. 30,000
6. Medical Insurance premium paid by cheque for parents (Senior Citizens) Rs. 52,000
Answer: Computation of eligible deduction under Chapter VI-A of Ms. Roma for AY 2021-22
Particulars Rs. Rs.
Deduction u/s 80C
Life insurance premium paid Rs. 35,000 Rs. 35,000
(allowed in full since the same is within the limit of 20% of the sum
assured, the policy being taken before 1.4.2012)
Public Provident Fund Rs. 1,50,000
Repayment of housing loan to Bhartiya Mahila Bank, Bangalore Rs. 20,000
Rs. 2,05,000
Restricted to a maximum of Rs. 1,50,000 Rs. 1,50,000
Deduction u/s 80CCC for payment towards LIC pension fund Rs. 1,40,000
Rs. 2,90,000
As per section 80CCE, aggregate deduction under, inter alia, section Rs. 1,50,000
80C & 80CCC, is restricted to
Deduction u/s 80D
Payment of medical insurance premium of Rs. 30,000 towards medical
policy taken for self, wife & dependent children restricted to Rs. 25,000
Medical insurance premium paid Rs. 52,000 for parents, being senior
citizens, restricted to Rs. 50,000 Rs. 75,000
Eligible deduction under Chapter VI-A Rs. 2,25,000
226
RTP QUESTIONS
MAY 2018 Q1. For AY 2021-22, GTI of Mr. Raja, a resident in India, was Rs. 8 Lacs which includes
LTCG of Rs. 2.5 Lacs & STCG of Rs. 50,000. GTI also includes interest income of Rs.
15,000 from savings bank deposits with banks. Mr. Raja has invested in PPF Rs. 1,40,000
& also paid a medical insurance premium Rs. 35,000 for self. Mr. Raja also contributed
Rs. 50,000 to Public Charitable Trust eligible for deduction u/s 80G by way of A/c Payee
cheque. Compute total income & tax of Mr. Raja (age is 65 years).
Answer: Computation of total income & tax payable by Mr. Raja for AY 2021-22
Particulars Rs. Rs.
Gross total income including long term capital gain 8,00,000
Less: Long term capital gain (2,50,000)
5,50,000
- Section 80C in respect of PPF deposit 1,40,000
- Section 80D (it is assumed that premium of Rs. 35,000 is 35,000
paid by otherwise than by cash. [Maximum deduction for
Mr. Raja who is a resident senior citizen is Rs. 50,000]
- Section 80G (See Notes 1 & 2 below) 18,500
- Section 80TTA (See Note 3 below) 10,000 (2,03,500)
Total income (excluding LTCG) 3,46,500
Total income (including LTCG) 5,96,500
Tax on total income
LTCG Rs. 2,50,000 x 20% 50,000
Balance total income: Rs. 3,46,500 - Tax @ 5% on Rs. 46,500 2,325
(Rs. 3,46,500 – Rs. 3,00,000 being BEL for senior citizen)
Total 52,325
Add: 4% HEC 2093
Total tax liability 54,418
Notes:
1. Computation of deduction u/s 80G:
Gross total income (excluding long term capital gains) 5,50,000
Less: Deduction u/s 80C, 80D & 80TTA 1,80,000
Adjusted Total Income 3,70,000
Qualifying Limit: 10% Adjusted Total Income 37,000
Contribution made to Public Charitable Trust 50,000
Lower of the two eligible for deduction u/s 80G 37,000
Deduction u/s 80G - 50% of Rs. 37,000 18,500
2. Deduction of upto Rs. 10,000 u/s 80TTA is allowed to individual assessee i.r.o interest
income of Rs. 15,000 on savings bank deposit.
NOV 2018 Q2. Mr. Anay manufactures toys in a factory located in Noida. His profit from the
manufacture of toys for AY 2021-22 is Rs. 1.85 crore & total turnover is Rs. 18.70 crore.
227
On 1st April 2020, there were 100 employees engaged in his factory. Due to increase in
demand of his products, he employed 140 additional employees during PY 2020-21
comprises of:
(a) 15 casual employees employed on 15th April 2020 till 31st January 2021 on monthly
emolument of Rs. 22,000 per month.
(b) 40 regular employees employed on 1st May 2020 on monthly emolument of Rs. 22,000
per month.
(c) 25 contractual employees employed on 1st July 2020 for 2 years on monthly
emolument of Rs. 15,000 per month.
(d) 35 regular employees employed on 1st August 2020 on monthly emolument of Rs.
30,000 per month.
(e) 25 regular employees employed on 1st October 2020 on monthly emolument of Rs.
22,000 per month.
Compute the deduction u/s 80JJAA, if available to Mr. Anay for AY 2021-22, assuming
that monthly emoluments were paid by use of Electonic Clearing System. Regular and
contractual employees participate in RPF while casual employees do not.
(II) Would your answer be different if Mr. Anay is engaged in the manufacture of
apparel?
[Note: Ignore the amount of deduction available u/s 80JJAA to Mr. Anay for employees
employed in preceding PYs while computing the deduction u/s 80JJAA for AY 2021-22].
Answer: Computation of deduction u/s 80JJAA for AY 2021-22
❖ Mr. Anay is eligible for deduction u/s 80JJAA since he is subject to tax audit u/s 44AB
for AY 2021-22, as his total turnover from business exceeds Rs. 1 crore & he has
employed “additional employees” during PY 2020-21.
❖ Additional Employee Cost = [Rs. 22,000 × 40 new regular employees × 11 months] +
[Rs. 15,000 per month × 9 months × 25 new contractual employees] = Rs. 96,80,000 +
Rs. 33,75,000 = Rs. 1,30,55,000.
❖ Deduction u/s 80JJAA = 30% of Rs. 1,30,55,000 = Rs. 39,16,500.
Working Note: Number of Additional employees employed during PY 2020-21

Particulars Additional employees
Total no. of additional employees employed during PY 140
Less: Casual workmen employed on 15th April 2020 who do not (15)
participate in RPF
Less: Regular employees employed on 1st Aug 2020 since (35)
their total monthly emoluments exceed Rs. 25,000
Less: Regular employees employed on 1st Oct 2020 for a
period of less than 240 days during the PY 2020-21 (25)
Total Additional employees employed during PY 2020-21 65
(II) Yes, the answer would be different, if Mr. Anay is engaged in the business of
manufacture of apparel.
▪ Since the number of days of employment in a year has been relaxed from 240 days to
150 days in case of apparel industry, wages paid to regular employees employed on
1.10.2020 would also qualify for deduction u/s 80JJAA for AY 2021-22.
▪ Additional Employee Cost = Rs. 1,30,55,000 + Rs. 33,00,000 (Rs. 22,000 x 6 x 25) = Rs.
1,63,55,000
▪ Deduction u/s 80JJAA = 30% of Rs. 1,63,55,000 = Rs. 49,06,500.
228
MAY 2019 Q3. Mr. Darshan (age 61 years) working with G Ltd., submits the following particulars of
investments and payments made by him during PY 2020-21:
- Deposit of Rs. 1,50,000 in public provident fund
- Payment of life insurance premium of Rs. 62,000 on the policy taken on 01.4.2017 to
insure his life (Sum assured – Rs. 3,00,000).
- Deposit of Rs. 55,000 in a five-year term deposit with bank.
- Contributed Rs. 1,95,000 being 15% of his salary (basic salary + dearness allowance,
which forms part of retirement benefits) to National Pension Scheme of Central
Government. A matching contribution was made by G Ltd.
- On 1.4.2020, mediclaim premium of Rs. 1,08,000 & Rs. 80,000 paid as lumpsum to insure
his & his wife (aged 58 years) health, respectively for 4-years medical insurance &
incurred Rs. 46,000 towards medical expenditure of his father, aged 90 years, not
dependent on him. No insurance policy taken for his father.
- He spent Rs. 6,000 for the preventive health-check up of his wife.
- He has incurred an expenditure of Rs. 90,000 for the medical treatment of his mother,
being a person with severe disability.
- His income comprises of income from salary of Rs. 18,50,000 & interest on FD of Rs.
75,000.
Compute the deduction available to Mr. Darshan under Chapter VI-A for AY 2021-22.
Would your answer be different, if Mr. Darshan contributed Rs. 1,30,000 (being, 10% of
his salary) towards NPS of the Central Government?
Answer: Deduction available to Mr. Darshan for AY 2021-22
Section Particulars Rs Rs
80C Deposit in public provident fund 1,50,000
Life insurance premium paid Rs. 62,000 30,000
(restricted to Rs. 30,000, being 10% of Rs. 3 Lacs
which is sum assured, since policy was taken
on/after 1.4.2012)
Five-year term deposit with bank 55,000
Deduction u/s 80C Restricted to 1,50,000
80CCD(1) Contribution to NPS of CG: Rs. 1,45,000 [Rs.
1,95,000 – Rs. 50,000, being deduction u/s 1,30,000
80CCD(1B)], restricted to 10% of salary
[1,95,000/15 x 10] [Note 1]
2,80,000
80CCE Aggregate deduction u/s 80C & 80CCD(1) = Rs. 1,50,000
2,80,000 but restricted to Rs. 1,50,000
80CCD(1B) Rs. 50,000 would be eligible for deduction i.r.o
contribution to NPS of the Central Government 50,000
80CCD(2) Employer contribution to NPS, restricted to 10%
of salary [See Note 2] 1,30,000
80D (i) (a) Medical insurance premium for self & his
wife, Deduction = Rs. 47,000 (Rs. 27,000 + Rs.
20,000), being 1/4th of lumpsum premium, 47,000
since policies would be in force for 4 PYs.
(b) Preventive health check up Rs. 6,000 for
wife restricted to Rs. 3,000 (Rs. 50,000 - Rs.
229
47,000, since maximum allowable deduction is

Rs. 50,000 in case assessee or one of the
family members is senior citizen) 3,000 50,000
(ii) Medical Expenditure for his father would be
fully allowed as deduction, since no insurance 46,000
policy is taken on his name
80DD Deduction of Rs. 1,25,000 i.r.o. expenditure on
medical treatment of his mother, being a person
with severe disability would be allowed
irrespective of the fact that amount of
1,25,000
expenditure incurred is Rs. 90,000
80TTB Interest on fixed deposits with bank of Rs.
75,000, deduction restricted to Rs. 50,000 50,000
Deduction under Chapter VI-A 6,01,000
Notes:
1. Deduction u/s 80CCD(1B) would not be subject to overall limit of Rs. 1.50 lacs u/s
80CCE. Therefore, it is more beneficial for Mr. Darshan to claim deduction u/s
80CCD(1B) first in respect of contribution to NPS. Thereafter, remaining amount of
Rs. 1,45,000 can be claimed as deduction u/s 80CCD(1), subject to a maximum limit of
10% of salary i.e. Rs. 1,30,000.
2. Entire employer’s contribution to notified pension scheme has to be first included
u/h “Salaries” while computing gross total income and thereafter, deduction u/s
80CCD(2) would be allowed, subject to a maximum of 10% of salary. Deduction u/s
80CCD(2) is also not subject to the overall limit of Rs. 1,50,000 u/s 80CCE.
3. If contribution towards NPS is Rs. 1,30,000, here again, it is beneficial for Mr.
Darshan to first claim deduction of Rs. 50,000 u/s 80CCD(1B) and the balance of Rs.
80,000 can be claimed u/s 80CCD(1), since the deduction available u/s 80CCD(1B) is
over and above the aggregate limit of Rs. 1,50,000 u/s 80CCE. In any case, the
aggregate deduction of Rs. 2,30,000 [i.e., Rs. 1,50,000 u/s 80C and Rs. 80,000 u/s
80CCD(1)] cannot exceed the overall limit of Rs. 1,50,000 u/s 80CCE. The total
deduction under Chapter VIA would remain the same i.e., Rs. 6,01,000.
NOV 2019 Q4. Mr. Arihant, a resident individual aged 40 years, has GTI of Rs. 7,50,000 comprising
of income from Salary and income from house property for AY 2021-22. He provides the
following information:
- Paid Rs. 70,000 towards premium for life insurance policy of his handicapped son
(section 80U disability). Sum assured Rs. 4,00,000; & date of issue of policy 01.08.2017.
- Deposited Rs. 90,000 in tax saver deposit in the name of his major son in Punjab
National Bank of India.
- Paid Rs. 78,000 towards medical insurance for the term of 3 years as a lumpsum
payment for himself and his spouse. Also, incurred Rs. 54,000 on medical expenditure
of his father, a resident aged 68 years. No medical insurance policy is taken in the
name of his father. His father earned Rs. 4,50,000 interest from fixed deposit.
- Contributed Rs. 25,000 to the Clean Ganga Fund, set up by the Central Government.
Compute the Total Income and deduction under Chapter VI-A for AY 2021-22.
230
Answer: Computation of Total Income of Mr. Arihant for AY 2021-22

GTI 7,50,000
Section 80C
- Life insurance premium of Rs. 70,000
(restricted to Rs. 60,000 i.e., 15% of Rs.
4,00,000 (sum assured), since policy has been
taken on/ after 1.4.2013, i.r.o. his handicapped
son suffering from disability u/s 80U) 60,000
- Tax saver deposit of Rs. 90,000 in the name of
his major son – No deduction u/s 80C, since
such deposit has to be made in name of
assessee himself. Nil 60,000
Section 80D
- Medical insurance premium for self & his wife,
pertaining to PY 2020-21 is Rs. 26,000, being
1/3rd of Rs. 78,000, lumpsum premium, since
policy would be in force for 3 PYs. Said
deduction would be restricted to 25,000
- Deduction i.r.o medical expenditure of Rs.
54,000 for his father, being senior citizen would
be allowable, since no insurance policy is taken
in his name, to the extent of 50,000 75,000
Section 80G
- Contribution by a resident towards Clean
Ganga Fund would be eligible for 100%
deduction without any qualifying limit. 25,000
231

PQ1. Mr. Arjun (52 years old) furnishes the following particulars in respect of the following payments:
Premium paid for insuring the health of:
▪ Self 10,000
▪ Spouse 8,000
▪ Dependant son 4,000
▪ Mother 18,000
Paid for Preventive Health Check-up of
▪ Himself 2,000
▪ Spouse 1,500
▪ Mother 4,000
Incurred medical expenditure of Rs. 25,000 & Rs. 15,000 for his mother, aged 80 years & father, age
85 years.
Compute the deduction available to Mr. Arjun u/s 80D for AY 2021-22.
Solution: Computation of deduction u/s 80D for AY 2021-22
Particulars Amt Amt
(a) Deduction in respect of premium paid for insuring the health of:
▪ Self 10,000
▪ Spouse 8,000
▪ Dependent Son 4,000 22,000
(b) Deduction in respect of expenditure on preventive health check-up of:
▪ Self 2,000
▪ Spouse 1,500
Restricted to [25,000 - 22,000] = Rs. 3,000 since maximum deduction is 25,000] 3,500 3,000
Aggregate of deduction (a+b) under (1) is restricted to 25,000
(a) Payment towards health insurance premium for his mother 18,000
(b) Preventive health check-up of his mother: 4000 restricted to 2000 (5000 -3000)
[since maximum deduction for preventive health check-up u/s 80D is Rs. 5,000] 2,000
(c) Medical expenditure for father would only be eligible for deduction [Note below] 15,000 35,000
Total deduction u/s 80D [(1) + (2)] 60,000
Note: Irrespective of the fact that the mother of Arjun is a very senior citizen, deduction u/s 80D would
not available to him in respect of medical expenditure incurred for his mother, since Mr. Arjun has taken a
health insurance policy for his mother.
PQ2. Ram has computed his income under various heads for PY 2020-21 as under: [V. IMP Question]
Income from Salary 1,25,000 Donations to -
Income u/h House Property (15,000) Prime Minister's Drought Relief Fund 3,000
Profits & Gains of Business/Profession 90,000 National Fund for Communal Harmony 4,000
Short-term Capital Gains 30,000 Jawaharlal Nehru Memorial Fund 4,000
Long-term Capital gains 40,000 Prime Minister's National Relief Fund 4,200
Income from Other Sources - Government for Family Planning 13,000
232
Winnings of Lotteries 15,000 Approved Charitable Institution 7,000

Interest on Govt Securities 20,000 Deposits in PPF A/c 70,000
Payment for Mediclaim Policy (Cheque) 5,000 Re-payment of loan including interest of 35,000
Expenses on Medical treatment of 25,000 Rs. 15,000 to Canara Bank taken for
dependent handicapped son pursuing approved higher education
Compute (a) Total Income for AY 2021-22 & (b) Tax Liability for AY 2021-22.
Solution: Computation of Total Income & Tax Payable
Particulars Rs. Rs.
Salaries 1,25,000
Income from House Property (Loss): Adjusted against Salary Income (15,000)
Profits & Gains of Business or Profession 90,000
Capital Gains
(i) Short Term Capital Gain 30,000
(ii) Long Term Capital Gain 40,000 70,000
(i) Winnings from Lotteries 15,000
(ii) Interest on Government Securities 20,000 35,000
u/s 80C Contribution to PPF 70,000
u/s 80D Medical Insurance Premium Paid 5,000
u/s 80DD Expenditure on Medical Treatment of Dependent Son 75,000
u/s 80E Interest paid on Repayment of Education Loan 15,000,
u/s 80G Donations (See Note below) 21,700 (1,86,700)
Tax on Total Income
1. Income taxable @ slab rate: (Rs. 1,18,300 - 15,000 - 40,000 = Rs. 63,300) Nil
2. Income chargeable at Special Rates
(a) Lottery Income = Rs. 15,000 x 30% 4,500
(b) LTCG [Unexhuasted BEL = 186,700 (2,50,000 – 63,300)] Nil 4,500
Less: Rebate u/s 87A (4,500)
Tax Payable Nil
Working Note: Computation of Deduction u/s 80G

1. Computation of 10% of Adjusted Total income
Particulars Rs. Rs.
Less: LTCG 40,000
Less: Deduction u/s 80C to 80U Excluding Sec. 80G (70,000 + 5,000 + 75,000 + 1,65,000 2,05,000
15,000)
Adjusted Total Income 1,00,000
Qualifying Limit = 10% of Adjusted Total Income (10% x Rs. 1,00,000) Rs. 10,000
Note: It is assumed that STCG is not arising from transfer of Listed Securities (i.e. not covered by Sec.
111A) & hence, not reduced to determine Adjusted Total Income.
233
2. Computation of Amount of Donation & Deduction u/s 80G

Nature of Donation Amt donated Eligible % of Deduction
deduction
National Fund for Communal Harmony 4,000 100% without QL 4,000
Prime Minister’s National Relief Fund 4,200 100% without QL 4,200
Prime Minister’s Drought Relief Fund 3,000 50% without QL 1,500
Jawaharlal Nehru Memorial Fund 4,000 50% without QL 2,000
Family Planning (Government) 13,000 100% with QL (WN3)
Approved Charitable Institutions 7,000 50% with QL (WN3) 10,000
Total 35,200 21,700
3. Maximum amount of Donation eligible for deduction = Qualifying Limit = Rs. 10,000. Thus, we will first
apply the limit towards donations which qualify for 100% deduction.
4. Amount of Restricted Deduction is computed as under, out of the total eligible limit of Rs. 10,000
Particulars Rs.
Eligible for 100%: Family Planning = Rs. 13,000 x 100% but restricted to Qualifying limit 10,000
of Rs. 10,000.
Eligible for 50%: Approved Charitable Institutions = 7,000 × 50% = 3,500 but restricted Nil
to Qualifying limit of Rs. 10,000 which is exhausted in 100% category.
Deduction available u/s 80G under this category of Donation (WN 3) 10,000
5. Assumed that Assesse is Resident. Hence, LTCG is not liable to tax since it is less than unexhausted BEL.
PQ3. Mr. Pramod, a Writer & a Professional, furnishes following particulars for PY 2020-21: [NOV 2001]
Royalty on Books Rs. 1,26,000; Expenditure relating to Royalty Income Rs. 24,000
Income from Profession: Rs. 7,20,000 Deposited in PPF A/c: Rs. 1,40,000 (15.03.2020)
Compute (a) Taxable Income for AY 2021-22 & (b) Tax Payable for AY 2021-22. [HomeWork Question]
Solution: Computation of Total Income & Tax Liability
Particulars Rs. Rs.
1. Profits & Gains of Business or Profession 7,20,000
2. Income from Other Sources: Royalty on Books 1,26,000
Less: Expenditure incurred on realising Royalty Income (24,000) 1,02,000
U/s 80C Deposit in PPF (Maximum Rs. 1,50,000) 1,40,000
U/s 80QQB Royalty on Books: Least of Rs. 3,00,000 or Royalty Income 1,02,000 (2,42,000)
Total Income (Round Off) 5,80,000
Tax on Total Income [Rs. 12,500 + (Rs. 5,80,000 – Rs. 5,00,000) x 20%] 28,500
Add: HEC at 4% 1,140
Total Tax Payable (Rounded Off) 29,640
234
PQ4. Ms. X, employed in a private company, furnishes following information for PY 2020-21: [MAY 2012]
Bank interest on savings bank account 15,000
Tax on non-monetary perquisite paid by employer 20,000
Amount contributed by her during the year of given below:
Contribution to Recognized Provident Fund 60,000
Health Insurance Premium on self (paid by crossed cheque) 7,000
Medical expenditure for dependent sister with disability 20,000
Compute the total income of Ms. X for AY 2021-22. [HomeWork Question]
Solution: Computation of Total Income of Ms. X for AY 2021-22
Income u/h Salary 3,45,000
Income u/h Other Sources (Bank Interest) 15,000
Less: Deduction u/s 80C - Contribution to Recognized Provident Fund (60,000)
Less: Deduction u/s 80D - Health Insurance Premium (7,000)
Less: Deduction u/s 80DD - Medical expenditure for dependent sister with disability (75,000)
Less: Deduction u/s 80TTA (10,000 or 15,000 whichever is less) (10,000)
Note: Tax on non-monetary perquisite paid by employer is exempt u/s 10(10CC).
PQ5. Mr. X declares GTI of Rs. 4 Lacs for AY 2021-22. It includes taxable LTCG of Rs. 65,000 & STCG u/s
111A of Rs. 35,000. The details of fund investment made during PY 2020-21 are: [HomeWork Question]
Medical insurance premium paid by cheque:
(a) in the name of Mr. X 4,000
(b) in name of Mrs. X 5,000
Contribution made to:
(a) Indira Gandhi Memorial Trust by cheque 7,000
(b) Delhi University (declared as an institution of national eminence) by cheque 3,000
(c) Zila Saksharta Samiti by cheque 5,000
(d) An approved charitable institute by cheque 30,000
(e) Government by cheque for the purpose of promoting family planning 10,000
(f) Hanuman Temple in Mohalla by cheque 20,000
Compute total income of Mr. X for AY 2021-22 & compute his tax liability. [Nov 2008]
Solution: Computation of Total Income of Mr. X for AY 2021-22
Less: Deduction u/s 80D: Medical insurance premium (4,000 + 5,000) (9,000)
Deduction u/s 80G
(i) Donation to Indira Gandhi Memorial trust = 50% of Rs. 7,000 (3,500)
(ii) Donation to Delhi University @ 100% (3,000)
(iii) Donation to Zila Saksharta Samiti @ 100% (5,000)
(iv) Other donations u/s 80G [Refer working Note below] (19,550)
235
Working Note:
1 Donations subject to Qualifying Limit:
Donation to Government for promoting family planning 10,000
Donation to approved Charitable Institute 30,000
Total 40,000
2 Adjusted GTI = GTI – LTCG - STCG u/s 111A - Deduction u/s 80C to 80U (Except 80G)
= Rs. 4,00,000 - 65,000 - 35,000 - 9,000 = 2,91,000
3 Qualifying amount = 10% of Adjusted GTI = Rs. 29,100.
(a) Deduction for family planning = 100 % of Rs. 10,000 = Rs. 10,000;
(b) Approved charitable Institute = 50% of balance amount (i.e. 19,100) = Rs. 9,550;
(c) Total deduction = 10,000 + 9,550 = 19,550;
Note: Donation to hanuman temple in Mohalla is not deductible u/s 80G.
PQ6. GTI of Mr. A for PY 2020-21 is Rs. 3,50,000 (includes LTCG: Rs. 2,80,000 & STCG: Rs. 10,000).
1. He has deposited Rs. 12,000 to effect a contract for Annuity Plan of LIC.
2. He paid following premium to New India Assurance Ltd for Mediclaim scheme for himself & his relatives.
(i) His own health 1,000
(ii) For health of Spouse 600
(iii) Major Son not dependent on him 800
(iv) Mother dependent on him 1,200
(v) Brother dependent on him 1,100
3. His brothers is totally blind & dependent on him for medical treatment. Mr. A spends 10,000 on his blind
brother. He has also deposited Rs. 25,000 in a Scheme framed by UTI for maintenance of his dependent
brother.
Compute his Total Income & Tax Payable for AY 2021-22.
Solution: Computation of Total Income & Tax Payable
Particulars Rs Rs
Gross Total Income (including LTCG of Rs. 2,80,000) 3,50,000
U/s 80CCC – Contribution to Pension Fund 12,000
U/s 80D – Medical Insurance Premium (1,000 + 600 + 1,200) (Note 1) 2,800
U/s 80DD – Medical Expenditure on Dependent (Note 2) 1,25,000
Total Eligible Deduction [Note 3] 1,39,800 (70,000)
Tax on Total Income [2,80,000 – 2,50,000 (Unexhausted BEL)] x 20% 6,000
Tax Payable Nil
Note:
1. Mediclaim Premium:
(a) Premium paid on Major Son not dependent on the Assessee is not eligible for deduction.
(b) Premium paid on dependent brother is not eligible for deduction.
2. Deduction of 1,25,000 is available irrespective of the amount spent for severe disable person.
3. Deduction restricted to Rs. 70,000 [GTI of Rs. 3,50,000 - LTCG of Rs. 2,80,000] since (a) LTCG is not
eligible for Chapter VI-A Deduction, & (b) Deductions cannot exceed GTI exclusive of LTCG]
236
PQ7. Mr. A has commenced the business of manufacture of computers on 1.4.2019. He employed 350 new
employees during PY 2020-21, the details of whom are as follows: [HW Question]
No. of employees Date of employment Regular/ Casual Total monthly emoluments per employee
75 1.4.2020 Regular 24,000
125 1.5.2020 Regular 26,000
50 1.8.2020 Casual 25,500
100 1.9.2020 Regular 24,000
Regular employees participate in RPF while casual employees do not. Compute the deduction available to
Mr. A for AY 2021-22, if the profits & gains derived from manufacture of computers that year is Rs. 75 lacs
& his total turnover is Rs. 2.16 crores. What if Mr. A has commenced business of manufacture of apparel on
1.4.2020? [ICAI SM Q16]
Solution:
Mr. A is eligible for deduction u/s 80JJAA since he is subject to tax audit u/s 44AB for AY 2021-22, as his
total turnover from business > Rs. 1 Cr. & he has employed “additional employees” during PY 2020-21.
1. If Mr. A is engaged in the business of manufacture of computers:

▪ Additional employee cost = Rs. 24,000 × 12 × 75 [See Working Note below] = Rs. 2,16,00,000.
▪ Deduction u/s 80JJAA = 30% of Rs. 2,16,00,000 = Rs. 64,80,000.
Working Note: Number of Additional Employees

Particulars No. of workmen
Total number of employees employed during the year 350
Less: Casual employees employed on 1.8.2020 who do not participate in RPF (50)
Less: Regular employees employed on 1.5.2020 [Total monthly emoluments > 25,000] (125)
Less: Regular employees employed on 1.9.2020 [Employed for < 240 days in PY (100) (275)
2020-21
Number of “Additional Employees” 75
Therefore, only 75 employees employed on 1.4.2020 qualify as additional employees, & total emoluments
paid or payable to them during the PY 2020-21 is deemed to be the additional employee cost.
2. If Mr. A is engaged in the business of manufacture of apparel:

▪ If Mr. A is engaged in manufacture of apparel, then, he would be entitled to deduction u/s 80JJAA
i.r.o employee cost of regular employees employed on 1.9.2020 since they have been employed > 150
days in PY 2020-21.
▪ Additional employee cost = Rs. 2,16,00,000 + Rs. 24,000 × 7 × 100 = Rs. 3,84,00,000.
▪ Deduction u/s 80JJAA = 30% of Rs. 3,84,00,000 = Rs. 1,15,20,000.
237
AZ
CA Pranav Chandak's
DT Question Bank
11. Agricultural Income & Exempt Income
u/s 10


SM 1. Mr. B grows sugarcane & uses the same for the purpose of manufacturing sugar in his factory. 30%
of sugarcane produce is sold for Rs. 10 lacs, & the cost of cultivation of such sugarcane is Rs.5 lacs. The
cost of cultivation of the balance sugarcane (70%) is Rs.14 lacs & the market value of the same is Rs. 22
lacs. After incurring Rs. 1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was sold
for 25 lacs. Compute B’s business income & agricultural income.
Answer - Computation of Business Income & Agriculture Income of Mr. B
Particulars Business Income Agricultural Income
Sale of Sugar
Business income
Sale Proceeds of sugar Rs. 25,00,000
Less: Market value of sugar (70%) Rs. 22,00,000
Less: Manufacturing exp. Rs. 1,50,000
Rs. 1,50,000
Agricultural income
Market value of sugar (70%) Rs. 22,00,000
Less: Cost of cultivation Rs. 14,00,000
Rs. 8,00,000
Sale of sugarcane
Agricultural Income
Sale proceeds of sugarcane (30%) Rs. 10,00,000
Less: Cost of cultivation Rs. 5,00,000
Rs. 5,00,000
Rs. 13,00,000
SM 2. Mr. C manufactures latex from the rubber plants grown by him in India. These are then sold in the
market for Rs. 30 lacs. The cost of growing rubber plants is Rs. 10 lacs & that of manufacturing latex is Rs.
8 lacs. Compute his total income.
Answer - The total income of Mr. C comprises of agricultural income & business income.
Total profits from the sale of latex = Rs. 30 lacs – Rs. 10 lacs – Rs. 8 lacs = Rs. 12 lacs.
Agricultural income = 65% of Rs. 12 lacs = Rs. 7.8 lacs
Business income = 35% of Rs. 12 lacs = Rs. 4.2 lacs
SM 3. Mr. X, a resident, has provided the following particulars of his income for the PY 2020-21
i. Income from salary (computed) Rs. 2,80,000
ii. Agricultural income from a land in Jaipur Rs. 4,80,000
iii. Expenses incurred for earning agricultural income Rs. 1,70,000
Compute his tax liability assuming his age is –
(a) 45 years (b) 70 years
Assuming Mr. X does not opt for the provisions of section 115BAC
Answer: Computation of total income of Mr. X for the AY 2021-22
(a) Computation of tax liability (age 45 years)
238
For the purpose of partial integration of taxes, Mr. X has satisfied both the conditions i.e.
1. Net agricultural income exceeds Rs. 5,000 p.a., &
2. Non-agricultural income exceeds the basic exemption limit of Rs. 2,50,000
His tax liability is computed in the following manner
Income from house property Rs. 2,50,000
Net agricultural income [Rs. 4,80,000 – Rs. 1,70,000] Rs. 3,10,000
Less: Exempt under section 10(1) Rs. (3,10,000) -
Less: Deductions under Chapter VI-A -
Step 1: Rs. 5,30,000 + Rs. 3,10,000 = Rs. 8,40,000 Tax on Rs. 8,40,000 = Rs. 80,500
(i.e., 5% of Rs. 2,50,000 plus 20% of Rs. 3,40,000)
(i.e. 5% of Rs. 2,50,000 plus 20% of Rs. 60,000)
Step 3: Rs. 80,500 – Rs. 24,500 = Rs. 56,000
Step 4 & 5: Total tax payable = Rs. 56,000
= Rs. 56,000 + 4% of Rs. 56,000 = Rs. 58,240.
(b) Computation of tax liability (age 70 years)

For the purpose of partial integration of taxes, Mr. X has satisfied both the conditions i.e.
1. Net agricultural income exceeds Rs. 5,000 p.a., &
2. Non-agricultural income exceeds the basic exemption limit of Rs. 3,00,000.
His tax liability is computed in the following manner:
(i.e., 5% of Rs. 2,00,000 plus 20% of Rs. 3,40,000)
(i.e. 5% of Rs. 2,00,000 plus 20% of Rs. 1,10,000)
Step 3: Rs. 78,000 – Rs. 32,000 = Rs. 46,000
Step 4 & 5: Total tax payable = Rs. 46,000

= Rs. 46,000 + 4% of Rs. 46,000 = Rs. 47,840
SM 4. Mr. A, a member of a HUF, received Rs. 10,000 as his share from the income of the HUF. Is such
income includible in his chargeable income? Examine with reference to the provisions of the Income-tax
Act, 1961.
Answer: No. Such income is not includible in Mr. A’s chargeable income since section 10(2) exempts any sum
received by an individual as a member of a HUF where such sum has been paid out of the income of the
family.
SM 5. Compensation on account of disaster received from a local authority by an individual or his/her legal
heir is taxable. Examine the correctness of the statement with reference to the provisions of the Income-
tax Act, 1961.
239
Answer: The statement is not correct. As per section 10(10BC), any amount received or receivable as
compensation by an individual or his/her legal heir on account of any disaster from the Central Government,
State Government or a local authority is exempt from tax. However, the exemption is not available to the
extent such individual or legal heir has already been allowed a deduction under this Act on account of such
loss or damage caused by such disaster.
SM 6. “Exemption is available to a Sikkimese individual, only in respect of income from any source in the
State of Sikkim”. Examine the correctness of the statement with reference to the provisions of the Income-
tax Act, 1961.
Answer: The statement is not correct. Exemption under section 10(26AAA) is available to a Sikkimese
individual not only in respect of the said income, but also in respect of income by way of dividend or interest
on securities.
SM 7. Y Ltd. furnishes you the following information for the year ended 31.3.2021:
Particulars Rs. (in lacs)
Total turnover of Unit A located in Special Economic Zone Rs. 100
Profit of the business of Unit A Rs. 30
Export turnover of Unit A Rs. 50
Total turnover of Unit B located in Domestic Tariff Area (DTA) Rs. 200
Profit of the business of Unit B Rs. 20
Compute deduction under section 10AA for the AY 2021-22, assuming that Y Ltd. commenced operations in
SEZ & DTA in the year 2016-17.
Answer: 100% of the profit derived from export of articles or things or services is eligible for deduction
under section 10AA, assuming that F.Y. 2020-21 falls within the first fiveyear period commencing from the
year of manufacture or production of articles or things or provision of services by the Unit in SEZ. As per
section 10A A(7), the profit derived from export of articles or things or services shall be the amount which
bears to the profits of the business of the undertaking, being the Unit, the same proportion as the export
turnover in respect of articles or things or services bears to the total turnover of the business carried on
by the undertaking.
Deduction under section 10AA =
𝐸𝑥𝑝𝑒𝑟𝑡 𝑇𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝐴
Profit of the business of Unit A × × 100
𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝐴
50
= Rs. 30 lakhs × × 100% = Rs. 15 lakhs
100
Note: No deduction u/s 10AA is allowable i.r.o. profits of business of Unit B located in DTA.
240

Q1. Examine whether the following incomes are chargeable to tax, & if so, compute the amount liable to
tax:
(i) Arvind received Rs. 20,000 as his share from the income of the HUF.
(ii) Mr. Xavier, a ‘Param Vir Chakra’ awardee, who was formerly in the service of the Central Government,
received a pension of Rs. 2,20,000 during the financial year 2020-21.
(iii) Agricultural income of Rs. 1,27,000 earned by a resident of India from a land situated in Malaysia.
(iv) Rent of Rs. 72,000 received for letting out agricultural land for a movie shooting.
Answer.
S.No. Taxable/ Not Amount Reason
Taxable liable to tax
(Rs.)
(i) Not Taxable - Share received by member out of the income of the HUF is exempt
under section 10(2).
(ii) Not Taxable - Pension received by Mr. Xavier, a former Central Government
employee who is a ‘Param Vir Chakra’ awardee, is exempt under
section 10(18).
(iii) Taxable Rs. 1,27,000 Agricultural income from a land in any foreign country is taxable
in the case of a resident taxpayer as income under the head
“Income from other sources”. Exemption under section 10(1) is not
available in respect of such income.
(iv) Taxable Rs. 72,000 Agricultural income is exempt from tax as per section 10(1).
Agricultural income means, inter alia, any rent or revenue derived
from land which is situated in India & is used for agricultural
purposes. In the present case, rent is being derived from letting
out of agricultural land for a movie shoot, which is not
anagricultural purpose. In effect, the land is not being put to use
for agricultural purposes. Therefore, Rs. 72,000, being rent
received from letting out of agricultural land for movie shooting,
is not exempt u/s 10(1). The same is chargeable to tax u/h “IFOS”.
Q2. Examine the taxability of agricultural income under the Income-tax Act, 1961. How will income be
computed where an individual derives agricultural & non- agricultural income.
Answer. Agricultural income is exempt from tax as per section 10(1). However, aggregation of agricultural
& non-agricultural income is to be done to determine the rate at which the non-agricultural income shall
be chargeable to tax. In case the agricultural income is not more than Rs. 5,000 or the tax-payer has non-
agricultural income not more than the basic exemption limit, then no such aggregation needs to be done.
Further, such aggregation has to be done only if the tax-payer is an individual, HUF, AOP, BOI or an artificial
juridical person, since the Finance Act prescribes slab rates of income-tax for these assesses.
In the case of other assessees such as partnership firms, companies etc., whose income is chargeable to
tax at a flat rate, aggregation of agricultural income would have no effect.
Since the second part of the question requires the manner of computation of income where an individual
derives agricultural & non-agricultural income, the same can be answered on the basis of Rules 7A, 7B & 8
of the Income-tax Rules, 1962 dealing with composite income.
Rule Particulars Business Income Agricultural
Income
241
Rule 7A Income from sale of rubber products derived from 35% 65%
rubber plants grown by the seller in India.
Rule 7B Income from sale of coffee
- grown & cured by the seller in India 25% 75%
- grown, cured, roasted & grounded by the seller in 40% 60%
India
Rule 8 Income from sale of tea grown & manufactured by 40% 60%
the seller in India
Thereafter, income-tax shall be computed by aggregating the agricultural income & the non-agricultural
income in the manner described below:
1) Aggregate the agricultural income with non-agricultural income & determine tax payable on such
amount.
2) Aggregate the agricultural income with the basic exemption limit of the assessee i.e., Rs. 2,50,000/ Rs.
3,00,000/ Rs. 5,00,000, as the case may be, & determine tax on such amount.
3) Compute the difference between the tax computed in Step (1) & Step (2), which shall be the tax payable
in respect of non-agricultural income.
4) The tax payable so computed in step (3) shall be increased by surcharge, if applicable or reduced by
rebate under section 87A, if the total income does not exceed Rs. 5 lakh. Thereafter, health & education
cess@4% has to be added to compute the total tax liability.
Q3. Examine with reasons in brief whether the following statements are true or false with reference to the
provisions of the Income-tax Act, 1961.
(i) Exemption is available to a Sikkimese individual, only in respect of income from any source in the State
of Sikkim.
(ii) Pension received by a recipient of gallantry award, who was a former employee of Central
Government, is exempt from income-tax.
(iii) Mr. A, a member of a HUF, received Rs. 10,000 as his share from the income of the HUF. The same is to
be included in his chargeable income.
Answer:
(i) False: Exemption under section 10(26AAA) is available to a Sikkimese individual not only in respect of
the said income, but also in respect of income by way of dividend or interest on securities.
(ii) True: Section 10(18) exempts any income by way of pension received by individual who has been in
service of Central Government & has been awarded “ParamVir Chakra” or “MahaVir Chakra” or “Vir
Chakra” or such other gallantry award as the Central Government, may, by notification in the Official
Gazette, specify in this behalf.
(iii) False: Section 10(2) exempts any sum received by an individual as a member of a HUF where such sum
has been paid out of the income of the family. Therefore, Rs. 10,000 should not be included in Mr. A’s
chargeable income.
Q4. Rudra Ltd. has one unit at Special Economic Zone (SEZ) & other unit at Domestic Tariff Area (DTA). The
company provides the following details for the PY 2020-21.
Particulars Rudra Ltd. Unit in DTA
Total Sales Rs. 6,00,00,000 Rs. 2,00,00,000
Export Sales Rs. 4,60,00,000 Rs. 1,60,00,000
Net Profit Rs. 80,00,000 Rs. 20,00,000
242
Calculate the eligible deduction under section 10AA of the Income-tax Act, 1961, for AY 2021-22, in the
following situations.
(i) If both the units were set up & start manufacturing from 22-05-2013.
(ii) If both the units were set up & start manufacturing from 14-05-2017.
Answer: Computation of deduction under section 10AA of the Income-tax Act, 1961
As per section 10AA, in computing the total income of Rudra Ltd. from its unit located in a Special Economic
Zone (SEZ), which begins to manufacture or produce articles or things or provide any services during the
PY relevant to AY commencing on or after 01.04.2006 but before 01.04.2021, there shall be allowed a
deduction of 100% of the profit & gains derived from export of such articles or things or from services for
a period of five consecutive assessment years beginning with AY relevant to the PY in which the Unit begins
to manufacture or produce such articles or things or provide services, as the case may be, & 50% of such
profits for further five AY.
Computation of eligible deduction under section 10AA [See Working Note below]
i. If Unit in SEZ was set up & began manufacturing from 22-05-2013:
Since AY 2021-22 is the 8th assessment year from AY 2014-15, relevant to the PY 2013-14, in which
the SEZ unit began manufacturing of articles or things, it shall be eligible for deduction of 50% of the
profits derived from export of such articles or things, assuming all the other conditions specified in
section 10AA are fulfilled.
𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑖𝑛 𝑆𝐸𝑍
= profits of units × × 50%
𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑖𝑛 𝑆𝐸𝑍
𝑅𝑠.300 𝑙𝑎𝑘ℎ𝑠
=Rs. 60 lakhs × × 50% = Rs. 22.50 lakhs
ii. If Unit in SEZ was set up & began manufacturing from 14-05-2017:
Since AY 2021-22 is the 4th assessment year from AY 2018-19, relevant to the PY 2017-18, in which
the SEZ unit began manufacturing of articles or things, it shall be eligible for deduction of 100% of
the profits derived from export of such articles or things, assuming all the other conditions
specified in section 10AA are fulfilled.
𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑖𝑛 𝑆𝐸𝑍
= profits of units in SEZ × × 100%
𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑜𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡𝑠 𝑖𝑛 𝑆𝐸𝑍
𝑅𝑠. 300 𝑙𝑎𝑘ℎ𝑠
= Rs. 60 lakhs × × 100% = Rs. 45 lakhs
Unit set up in Domestic Tariff Area is not eligible for the benefit of deduction under section 10AA in respect
of its export profits, in both the situations.
Working Note: Computation of total sales, export sales & net profit of unit in SEZ
Particulars Rudra Ltd. Unit in DTA Unit in SEZ
Total Sales Rs. 6,00,00,000 Rs. 2,00,00,000 Rs. 4,00,00,000
Export Sales Rs. 4,60,00,000 Rs. 1,60,00,000 Rs. 3,00,00,000
Net Profit Rs. 80,00,000 Rs. 20,00,000 Rs. 60,00,000
243
PAST RTP QUESTIONS

MAY 2018 Q1. Examine with reasons whether the following receipts are taxable or not under the
provisions of Income-tax Act, 1961.
(a) Mr. Akash received Rs. 3 Lacs as compensation from “Sahayata Foundation” towards
the loss of property on account of Flood Disaster at Chennai.
(b) Rent of Rs. 60,000 received for letting out agricultural land for a movie shooting.
(c) Dividend of Rs. 17 lacs received by Mr. Yatin during PY 2020-21 from A Ltd., a domestic
company.
(d) Agricultural income of Rs. 1,30,000 of Mr. Sunil from a land situated in Canada.
Answer:
(a) Taxable. As per section 10(10BC), any amount received/receivable by an individual as
compensation, on account of any disaster from CG/SG/LA is exempt from tax, to the
extent the individual has not been allowed deduction on account of any loss caused
by such disaster.
However, Mr. Akash has received a compensation of Rs. 3 Lacs from Sahayata
Foundation, & not from CG/SG/LA, no exemption will be available u/s 10(10BC) & is
thus taxable.
(b) Taxable. Agricultural income is exempt from income-tax as per section 10(1).
Agriculture income means, inter alia, any rent or revenue derived from land which is
situated in India & is used for agricultural purposes.
In this case, rent is being derived from letting out of agricultural land for a movie
shoot, which is not an agricultural purpose. In effect, the land is not being put to use
for agricultural purposes. Therefore, Rs. 60,000, being rent received from letting out
agricultural land for movie shooting, is not exempt u/s 10(1) & the same is chargeable
to tax.
(c) Taxable. Dividend received from a domestic company is now taxable in the hands of
shareholders w.e.f. 1.4.2020 since dividend distribution tax u/s 115-O has been
abolished.
(d) Taxable. Agricultural income from a land situated in any foreign country is not exempt
u/s 10(1) & hence, is chargeable to tax. Therefore, in this case, agricultural income
of Rs. 1,30,000 of Mr. Sunil from land situated in Canada is taxable.
NOV 2018 Q2. Mr. Charan grows paddy & uses the same for the purpose of manufacturing of rice in
his own Rice Mill. He furnished the following details for PY 2020-21:
- Cost of cultivation of 40% of paddy produce is Rs. 9,00,000 which is sold for Rs.
18,50,000.
- Cost of cultivation of balance 60% of paddy is Rs. 14,40,000 & the market value of such
paddy is Rs. 28,60,000.
- Incurred Rs. 3,60,000 in the manufacturing process of rice on the balance (60%)
paddy.
- The rice was sold for Rs. 38,00,000.
Compute the Business income & Agricultural Income of Mr. Charan for AY 2020-21.
Answer:
Particulars Business Agricultural Income
Income
A. Sale of Rice
1. Business income
244
Sale Proceeds of Rice 38,00,000

Less: Market Value of paddy 28,60,000
(60%)
Less: Manufacturing expenses 3,60,000
5,80,000
2. Agricultural Income
Market value of paddy (60%) 28,60,000
Less: Cost of cultivation 14,40,000 14,20,000
B. Sale of Paddy
Agricultural Income
Sale proceeds of paddy produce 18,50,000
(40%)
Less: Cost of cultivation 9,00,000 9,50,000
23,70,000
MAY 2019 Q3. Mr. Anay (aged 25) has agricultural income of Rs. 2,10,000 & business income of Rs.
2,35,000. Which of the following statement is correct?
(a) Agricultural income always has to be aggregated with business income for rate
purposes
(b) No aggregation is required since business income which constitutes his total
income, is less than basic exemption limit.
(c) No aggregation is required since agricultural income is less than basic exemption
limit
(d) Agricultural income is exempt under section 10(1) but the same has to be
aggregated with business income, since it exceeds Rs. 5,000.
Q4. Mr. Rana, a resident & ordinarily resident aged 42 years, manufactures rubber from
the latex processed from rubber plants grown in Kerala. Thereafter, he sold the rubber
for Rs. 47 Lacs. Cost of growing rubber plants was Rs. 25 Lacs & the cost of manufacturing
rubber was Rs. 7 Lacs. He has no other income during PY 2020-21. Compute his tax liability
for AY 2021-22.
Answer: In cases where the assessee himself grows rubber plants & manufactures rubber
processed from latex obtained from rubber plants in India, then, as per Rule 7A, 35% of
profit on sale of rubber is taxable as business income under the head “Profits & gains
from business or profession”, & the balance 65% is agricultural income, which is exempt
from tax.
- Profits from manufacture & sale of rubber = Rs. 47 Lacs – Rs. 25 Lacs – Rs. 7 Lacs =
Rs. 15 Lacs.
- Agricultural Income = 65% of Rs. 15 Lacs = Rs. 9.75 Lacs.
- Business Income = 35% of Rs. 15 Lacs = Rs. 5.25 Lacs.
Tax liability of Mr. Rana has to be computed applying the concept of partial integration,
since his total income comprises of both agricultural income & non- agricultural income
& his agricultural income exceeds Rs. 5,000 p.a & his non- agricultural income exceeds
BEL i.e., Rs. 2,50,000.
Accordingly, his tax liability would be computed in the following manner:
Computation of tax liability of Mr. Rana for AY 2021-22:
Particulars Rs.
Tax on total income of Rs. 15,00,000 [Agricultural + Non-agricultural 2,62,500
245
income]
Less: Tax on Agricultural income + BEL = Rs. 12,25,000 (9,75,000 + 2,50,000) 1,80,000
82,500
Add: Health & Education cess @ 4% 3,300
Total Tax liability 85,800
NOV 2019 Q5. XYZ Ltd. has two units, one unit at Special Economic Zone (SEZ) & another unit at
Domestic Tariff Area (DTA). The unit in SEZ was set up & started manufacturing from
12.03.2013 & unit in DTA from 15.06.2016. Total turnover of XYZ Ltd. & Unit in DTA is Rs.
850 Lacs & 325 Lacs respectively. Export sales of unit in SEZ & DTA is Rs. 250 Lacs & Rs.
125 Lacs respectively & net profit of Unit in SEZ & DTA is Rs. 80 Lacs & Rs. 45 Lacs
respectively. XYZ Ltd. would be eligible for deduction u/s 10AA for ___.
(a) Rs. 38,09,524 (b) Rs. 19,04,762 (c) Rs. 23,52,941 (d) Rs. 11,76,471
Q6. Examine with brief reasons, whether the following are chargeable to income-tax &
the amount liable to tax with reference to the provisions of the Income-tax Act, 1961:
a) Allowance of Rs. 18,000 p.m. received by an employee, Mr. Uttam Prakash, working in
a transport system granted to meet his personal expenditure while on duty. He is not
in receipt of any daily allowance from his employer.
b) During PY 2020-21, Mrs. Aadhya, a resident in India, received a sum of Rs. 9,63,000 as
dividend from Indian companies & Rs. 4,34,000 as dividend from units of equity
oriented mutual fund.
Answer:
a) Any allowance granted to an employee working in a transport system to meet his
personal expenditure during his duty is exempt provided he is not in receipt of any
daily allowance. Exemption = 70% of such allowance (i.e. Rs. 12,600 per month being,
70% of Rs. 18,000, in the present case) or Rs. 10,000 per month, whichever is less.
Hence, Rs. 1,20,000 (i.e., Rs. 10,000 x 12) is exempt.
Balance Rs. 96,000 (Rs. 2,16,000 – Rs. 1,20,000) is taxable in the hands of Mr. Uttam
Prakash.
b) Dividend received from a domestic company is now taxable in the hands of
shareholders w.e.f. 1.4.2020 since dividend distribution tax u/s 115-O has been
abolished.
Also, income received from units of mutual fund is now taxable from AY 2021-22.
Hence Rs. 9,63,000, being the dividend from Indian companies & Rs. 4,34,000, being
the dividend from units of equity oriented mutual fund is taxable in the hands of Mrs.
Aadhya.
MAY 2020 Q7. Mr. Ramesh furnishes the following particulars for PY 2020-21 i.r.o. an industrial
undertaking established in ‘SEZ’ in March 2015. It began manufacturing in April 2015.
Particulars Rs
Total sales 85,00,000
Export sales [proceeds received in India] 45,00,000
Domestic sales 40,00,000
Profit from the above undertaking 20,00,000
Export Sales of PY 2020-21 include freight & insurance of Rs. 5 lacs for delivery of goods
outside India. Compute amount of deduction available to Mr. Ramesh u/s 10AA for AY
2021-22.
246
Answer:
Since AY 2021-22 is 6th AY from AY 2016-17 relevant to PY 2015-16, in which the SEZ unit
began manufacturing of articles, it shall be eligible for deduction of 50% of export
profits.
Export turnover of Unit in SEZ 40 Lacs
= Profits of Unit in SEZ x x 50% = 20,00,000 x 50% = Rs. 5 Lacs.
Total turnover of Unit in SEZ 80 Lacs
Working Note:
Particulars Rs.
Export Turnover
Sale proceeds received in India 45,00,000
Less: Freight & insurance for delivery of goods outside
India to be excluded from export turnover (5,00,000) 40,00,000
Total turnover 85,00,000
Less: Freight & insurance not includible [Since freight &
insurance has been excluded from export turnover, the
same has to be excluded from total turnover also]. (5,00,000) 80,00,000
247

PQ 1. State with reasons whether the receipt is taxable under the Income Tax Act, 1961 for AY 2021-22?
(a) Mr. Suri received a sum of Rs. 5,00,000 as compensation, from 'Yatra Foundation', towards the loss of
property on account of Flood Disaster. [Nov 2016]
(b) Amount received by an individual/his legal heir as compensation for natural disaster from CG/SG is
taxable. [May 2016]
(c) Rent Received for letting out Agricultural Land for a movie shooting – Rs. 7,00,000. [Nov 2013]
Answer:
(a) Disaster Compensation received/receivable from CG/SG/Local Authority is exempt u/s 10(1OBC). In
this case, since Yatra Foundation is not covered in the above, the receipt is taxable in Suri’s hands.
(b) According to Section 10(10BC), any amount received or receivable as compensation by an individual or
his legal heir on account of any disaster is exempt from tax if Such compensation should be granted by
CG/SG/LA.
(c) Rent Received for letting out Agricultural Land for movie shooting is taxable, as it is not an Agricultural
Income.
PQ 2. The Government of India pays a salary of US $ 80,000 to a Non-Resident for services rendered by
him in USA. Such NR is Indian Citizen. In addition, he gets allowances & Perquisites of US$ 20,000. Discuss
the tax consequence.
Solution:
▪ As per section 9(1)(iii), salary income for service rendered outside India shall be deemed to accrue or
arise in India if all the following conditions are satisfied:
(a) Salary is paid to a citizen of India. (b) Salary must be paid by Government. (c) Paid for services
rendered outside India.
▪ However, any allowances/perquisites paid outside India by the Government shall be exempt u/s 10(7).
▪ Thus, salary of US $ 80,000 is taxable in India. But Allowances & perquisites of US $ 20,000 is exempt u/s
10(7).
PQ 3. Calculate tax liability of Mrs. Mahima who is 50 years for AY 2021-22 [HomeWork Question]
Share of profit from partnership firm 40,000
Income from salary (Computed) 2,00,000
Receipt of accumulated balance in PPF 80,000
Lottery income (Gross) 7,000
Income from Horse Race 13,000
Income of his minor child 1,500
Income of his wife 2,00,000
Solution: Computation of taxable income of Mrs. Mahima
1. Income from salary 2,00,000
2. Income from other sources: Lottery Income 7,000
Winning from Horse Race 13,000
Income of Minor Child after exemption of Rs. 1,500 Nil 20,000
Tax on Rs. 20,000 of lottery income + Horse Race @ 30% 6,000
248
Tax on Rs. 2,00,000 Nil 6,000

Total Tax Nil
Notes:
1. Share of profit from firm is exempt u/s 10(2A).
2. Receipt of accumulated balance in PPF is exempt u/s 10(11).
3. Minor's income will be clubbed in the hands of that parent whose income from all other sources is higher.
PQ 4. X Ltd. is a manufacturing & trading company. It owns 3 units. Unit A manufactures goods in SEZ since
2017 for export purposes & qualified for exemption u/s 1OAA. Unit B is a manufacturing unit & goods are
sold in domestic market. It is not qualified for tax holiday. Unit C owns retail outlets in different parts of
the country. Calculate Net income for AY 2021-22:
Particulars Unit A Unit B Unit C
Net profit as per profit & loss account 90 (-) 40 10
Total Turnover 1200 400 150
Export Turnover included in Total Turnover 1180 10 -
Amount remitted in convertible foreign exchange upto 30 Sep 2021 1002 2 -
Freight & insurance (charged over & above sale price from importers & 10 - -
included in amount remitted in convertible foreign exchange & turnover
above)
Solution: Exemption u/s 10AA shall be calculated as follows
(a) Net profit of Unit A Rs. 90 Lacs
(b) Export turnover of Unit A (Rs. 1002 Lac - freight & insurance: Rs. 10 Lac) Rs. 992 Lacs
(c) Total turnover of Unit A (Rs. 1200 Lac - freight & insurance: Rs. 10 Lac) Rs. 1190 Lacs
(d) Exemption u/s 10AA = Profits from unit in SEZ ×
Export Turnover of unit in SEZ
= 90 ×
992
Rs. 75.03 Lacs
Total turnover of Unit in SEZ 1190
Computation of Income of X Ltd

Income of Unit A (Rs. 90 Lac - deduction u/s 10AA: Rs. 75.03 Lac) 14.97
Income of Unit B (40)
Income of Unit C 10
Loss to be carried forward (15.03)
PQ5. Mr. Bharat is running 2 Units, Unit A in SEZ & Unit B in DTA. Details for PY 2020-21: [HW Question]
Particulars Unit A Unit B
Domestic Turnover 10 Lacs 100 Lacs
Export Turnover 120 Lacs Nil Lacs
Gross Profit 20 Lacs 10 Lacs
Expenses & Depreciation 07 Lacs 06 Lacs
Profits derived from the Units 13 Lacs 04 Lacs
Brought Forward Business Loss pertaining to AY 2019-20 for Unit B is Rs. 3.2 Lacs. Compute Business Income
of Mr. Bharat.
249
Solution: Computation of Business Income

Particulars Unit A Unit B
Total Profits derived 13 4
Exemption u/s 10AA = Profits from unit in SEZ ×
Export Turnover of unit in SEZ
= 13 ×
120
(12) NA
Total turnover of Unit in SEZ 130
Taxable Profits 1.00 4.00
Less: Brought Forward Business Loss - (3.20)
Business Income 1.00 0.80
Note: It is assumed that the above Financial Year falls within the first 5-year period commencing from the
year of manufacture or production of articles / things, or provision of services, by Unit A.
PQ 6. X Ltd, SEZ Unit, provides you the following particulars relating to its first year of operation:
[Homework Question]
Total receipts from providing services 64 Lacs
Receipts from export of services 50 Lacs
Profits of business 7 Lacs
▪ Out of the total exports, Rs. 5 Lacs could not be realized on account of death of the Foreign Service
recipient.
▪ Plant & machinery used in the business had been depreciated @ 20% on SLM basis & depreciation of Rs.
4 Lacs was charged in the P & L A/c. Compute the taxable income of the company.
Solution: Computation of taxable income of X Ltd
Net Profit as per P&L A/ c Rs. 7,00,000
Add: Depreciation charged in the books of A/c Rs. 4,00,000
Less: Depreciation as per IT Rules (15% of Rs. 20 Lacs) (WN 1) Rs. 3,00,000
Profits & Gains of Business Rs. 8,00,000
Less: Deduction u/s 10AA (WN 2) Rs. 5,62,500
Taxable Income Rs. 2,37,500
Working Note:
1. Cost of machinery = Rs. 4 lacs/20% = Rs. 20 Lacs.
2. Deduction allowable u/s 10AA = 100% of [(Profits × Export Turnover realised (net of bad debts) ÷ Total
turnover]
= Rs. 8,00,000 × Rs. 45,00,000 ÷ Rs. 64,00,000 = Rs. 5,62,500.
PQ 7. Following are the details of Mrs. Mansi born on 1st April 1961. Compute the tax payable by her for AY
2021-22:
Net Agricultural Income [Ignore Partial Integration of Tax] 4,40,000
Long-term capital gains on sale of house Rs. 2,00,000
STCG on sale of shares in B Ltd. (STT paid) Rs. 30,000
Prize winning from a TV show 20,000
Deduction allowed u/s 80C to 80U 60,000
(b) What if her Business Income is Rs. 5 Lacs instead of Rs. 2,90,000. Consider Partial Intergration of Tax.
[May 2007]
250
Solution: Computation of Total Income of Mrs. Mansi

1. PGBP: Business Income Rs. 2,90,000
2. Capital Gains:
Long term capital gain on sale of house: Rs. 2,00,000
STCG on sale of shares in B Ltd. (STT paid): Rs. 30,000 Rs. 2,30,000
3. IFOS: Casual Income (Prize winning from a TV show) Rs. 20,000
Less: Deduction u/s 80C to 80U (Rs. 60,000)
Computation of Tax Payable by Mrs. Mansi for AY 2021-22

Tax on winnings from a TV show: Rs. 20,000 @ 30% Rs. 6,000
Tax on short term capital gain: Rs. 30,000 @ 15% Rs. 4,500
Tax on long-term capital gain of Rs. 1,30,000 (Rs. 2,00,000 – Rs. 70,000) @ 20% Rs. 26,000
Tax on balance income of Rs. 3,00,000 at slab rate Nil
Tax on Total Income Rs. 36,500
Less: Rebate u/s 87A (Rs. 12,500)
Balance Tax Payable 24,000
Add: HEC @ 4% Rs. 960
Tax payable by Mrs. Mansi Rs. 24,960
Note:
1. Unexhausted BEL of Rs. 3,00,000 - (Rs. 2,90,000 - Rs. 60,000) = Rs. 70,000 has been allowed from LTCG.
2. Mrs. Mansi has completed 60 years of age on 1st April 2021 i.e. she has completed the age of 60 years on
the last day of PY. Therefore, she is entitled to the higher basic exemption limit of Rs. 3,00,000.
(b) Presume income from business is Rs. 5,00,000.

Long term capital gain on sale of house 2,00,000
Short-term capital gains on sale of shares in B Ltd. (STT paid) 30,000
Casual Income (Prize winning from a T.V. show) 20,000
Less: Deduction u/s 80C to 80U (60,000)
Total (Non- Agricultural) Income 6,90,000
Computation of Tax payable by Mrs. Mansi for AY 2021-22

1. Tax on Agricultural + Non-Agricultural Income = Tax on Rs. 11,30,000.
Tax on long-term capital gain of Rs. 2,00,000 @ 20% 40,000
Tax on short term capital gain of Rs. 30,000 @ 15% 4,500
Tax on winnings of Rs. 20,000 from a TV show @ 30% 6,000
Tax on balance income of Rs. 8,80,000 86,000
Total Tax 1,36,500
2. Tax on Agricultural Income + BEL = Tax on Rs. 7,40,000 = Rs. 58,000.
3. Tax payable = 1 - 2 = Rs. 1,36,500 – Rs. 58,000 = Rs. 78,500.
4. Add 4 % HEC on (3) above = 3140.
5. Tax payable by Mrs. X = Rs. 81,640.
251
AZ
CA Pranav Chandak's
DT Question Bank
12, TDS, TCS & Advance Tax & Interest
u/s 234


SM 1. Examine the TDS implications u/s 194A in the cases mentioned hereunder-
(a) On 1.10.2020, Mr. Harish made a six-month fixed deposit of Rs. 10 lacs @ 9% p.a. with ABC Co-operative
Bank. Fixed deposit matures on 31.3.2021.
(b) On 1.6.2020, Mr. Ganesh made 3 nine-months fixed deposits of Rs. 3 Lacs each, carrying interest @ 9%
with Dwarka Branch, Janakpuri Branch & Rohini Branch of XYZ Bank, a bank which has adopted CBS.
Fixed deposits mature on 28.2.2021.
(c) On 1.10.2020, Mr. Rajesh started a six months recurring deposit of Rs. 2,00,000 per month@8% p.a. with
PQR Bank. The recurring deposit matures on 31.3.2021.
Answer:
(a) ABC Co-operative Bank has to deduct tax at [email protected]% on the interest of Rs. 45,000 (9% × Rs. 10 Lac
× ½) u/s 194A. The tax deductible at source u/s 194A from such interest is, therefore, Rs. 3,375.
(b) XYZ Bank has to deduct tax at [email protected]% u/s 194A, since the aggregate interest on fixed deposit
with the three branches of the bank is Rs. 60,750 [3,00,000 × 3 × 9% × 9/12], which exceeds the threshold
limit of Rs. 40,000. Since XYZ Bank has adopted CBS, aggregate interest credited/paid by all branches
has to be considered. Since aggregate interest of Rs. 60,750 exceeds the threshold limit of Rs. 40,000,
tax has to be [email protected]% u/s 194A.
(c) No tax has to be deducted u/s 194A by PQR Bank on the interest of Rs. 28,000 falling due on recurring
deposit on 31.3.2021 to Mr. Rajesh, since such interest does not exceed the threshold limit of Rs. 40,000.
SM 2. ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during PY 2020-21:
- Rs. 20,000 on 1.5.2020; - Rs. 25,000 on 1.8.2020; - Rs. 28,000 on 1.12.2020
On 1.3.2021, a payment of 30,000 is due to Mr. X on account of a contract work.
Discuss whether ABC Ltd. is liable to deduct tax at source u/s 194C from payments made to Mr. X.
Answer: Individual contract payments made to Mr. X does not exceed Rs. 30,000. However, since the
aggregate amount paid to Mr. X during PY 2020-21 exceeds Rs. 1,00,000 (on account of the last payment
of Rs. 30,000, due on 1.3.2021, taking the total from Rs. 73,000 to Rs. 1,03,000), TDS provisions u/s 194C
would get attracted. Tax has to be [email protected]% on the entire amount of Rs. 1,03,000 from the last
payment of Rs. 30,000 & the balance of Rs. 29,227 (i.e., Rs. 30,000 – Rs. 773) has to be paid to Mr. X.
SM 3. Certain concessions are granted to transport operators in the context of cash payments u/s 40A(3)
& deduction of tax at source u/s 194-C. Elucidate.
Answer: Section 40A(3) provides for disallowance of expenditure incurred i.r.o which payment or
aggregate of payments made to a person in a day exceeds Rs. 10,000, & such payment or payments are
made otherwise than by A/c payee cheque/draft or use of ECS through bank A/c or through other
prescribed electronic modes.
However, in case of payment made to transport operators for plying, hiring or leasing goods carriages, the
disallowance will be attracted only if the payment made to a person in a day exceeds Rs. 35,000.
Therefore, aggregate of payments upto Rs. 35,000 in a day can be made to a transport operator otherwise
than by way of A/c payee cheque/bank draft or use of ECS through bank A/c or through other prescribed
electronic modes, without attracting disallowance u/s 40A(3).
Tax had to be deducted u/s 194C i.r.o payments made to contractors at the rate of 1% (Ind/HUF) or at the
rate of 2%/1.5%, in any other case.
However, no deduction is required to be made from any sum credited or paid or likely to be credited or
paid during PY to the account of a contractor, during the course of the business of plying, hiring or leasing
goods carriages, if the following conditions are fulfilled:
(i) He owns ten or less goods carriages at any time during the previous year.
(ii) He is engaged in the business of plying, hiring or leasing goods carriages & furnished PAN.
SM 4. Examine the applicability of the provisions for tax deduction at source u/s 194DA in following cases:
(a) Mr. X, a resident, is due to receive Rs. 4.50 Lacs on 31.3.2021, towards maturity proceeds of LIC policy
taken on 1.4.2018, for which the sum assured is 4 Lacs & the annual premium is Rs. 1,25,000.
(b) Mr. Y, a resident, is due to receive Rs. 3.25 Lacs on 31.3.2021 on LIC policy taken on Rs. 31.3.2012, for
which the sum assured is Rs. 3 Lacs & the annual premium is Rs. 30,100.
(c) Mr. Z, a resident, is due to receive 95,000 on 1.8.2020 towards maturity proceeds of LIC policy taken
on 1.8.2014 for which the sum assured is Rs. 90,000 & the annual premium was Rs. 10,000.
Answer:
(a) Since the annual premium exceeds 10% of sum assured i.r.o a policy taken after 31.3.2012, the maturity
proceeds of 4.50 Lacs due on 31.3.2021 are not exempt u/s 10(10D) in the hands of Mr. X. Therefore, tax
is required to be [email protected]% u/s 194DA on the amount of income comprised therein i.e., on Rs.
75,000 (Rs. 4,50,000, being maturity proceeds - Rs. 3,75,000, being the entire amount of insurance
premium paid).
(b) Since the annual premium is less than 20% of sum assured i.r.o a policy taken before 1.4.2012, the sum
of Rs. 3.25 Lacs due to Mr. Y would be exempt u/s 10(10D) in his hands. Hence, no tax is required to be
deducted at source u/s 194DA on such sum payable to Mr. Y.
(c) Even though the annual premium exceeds 10% of sum assured i.r.o a policy taken after 31.3.2012, &
consequently, the maturity proceeds of Rs. 95,000 due on 1.8.2020 would not be exempt u/s 10(10D) in
the hands of Mr. Z, tax deduction provisions u/s 194DA are not attracted since the maturity proceeds
are less than Rs. 1 Lac.
SM 5. Calculate the amount of tax to be deducted at source (TDS) on payment made to Ricky Ponting, an
Australian cricketer non-resident in India, by a newspaper for contribution of articles Rs. 25,000.
Answer: Under section 194E, person responsible for payment of any amount to a non-resident sportsman
for contribution of articles relating to any game or sport in India in a newspaper shall deduct tax @ 20%.
Further, since Ricky Ponting is a non-resident, health & education cess @4% on TDS would also be added.
Therefore, tax to be deducted = Rs. 25,000 x 20.8% = Rs. 5,200
SM 6. Moon TV, a television channel, made payment of Rs. 50 Lacs to a production house for production of
programme for telecasting as per the specifications given by the channel. The copyright of the programme
is also transferred to Moon TV. Would such payment be liable for tax deduction at source u/s 194C? Discuss.
Also, examine whether the provisions of tax deduction at source u/s 194C would be attracted if the payment
was made by Moon TV for acquisition of telecasting rights of the content already produced by the
production house.
Answer:
❖ In this case, since the programme is produced by the production house as per the specifications given
by Moon TV, a television channel, & the copyright is also transferred to the television channel, the same
falls within the scope of definition of the term ‘work’ u/s 194C. Therefore, the payment of Rs. 50 Lacs
made by Moon TV to the production house would be subject to tax deduction at source u/s 194C.
❖ If, however, the payment was made by Moon TV for acquisition of telecasting rights of the content
already produced by the production house, there is no contract for ‘’carrying out any work”, as required
in section 194C(1). Therefore, such payment would not be liable for tax deduction at source u/s 194C.
SM 7. Mr. X sold his house property in Bangalore as well as his rural agricultural land for a consideration
of Rs. 60 Lac & Rs. 15 Lac, respectively, to Mr. Y on 1.8.2020. He has purchased the house property & the
land in the year 2019 for Rs. 40 Lac & 10 Lac, respectively. The stamp duty value on the date of transfer,
i.e., 1.8.2020, is Rs. 85 Lac & Rs. 20 Lac for the house property & rural agricultural land, respectively.
Examine the tax implications in the hands of Mr. X & Mr. Y & the TDS implications, if any, in the hands of Mr.
Y, assuming that both Mr. X & Mr. Y are resident Indians.
Answer:
(i) Tax implications in the hands of Mr. X
▪ As per section 50C, stamp duty value of house property (i.e. Rs. 85 Lac) would be deemed to be
the full value of consideration arising on transfer of property, since the stamp duty value
exceeds 110% of the consideration received.
▪ Therefore, Rs. 45 Lac (i.e., Rs. 85 Lac – Rs. 40 Lac, being the purchase price) would be taxable
as STCG in the A.Y.2021-22.
▪ Since rural agricultural land is not a capital asset, gains arising on sale of such land is not taxable
in the hands of Mr. X.
(ii) Tax implications in the hands of Mr. Y
▪ If immovable property is received for inadequate consideration, difference b/w stamp value &
actual consideration would be taxable u/s 56(2)(x), if such difference exceeds the higher of Rs.
50,000 & 10% of the consideration.
▪ Therefore, in this case Rs. 25 Lac (Rs. 85 Lac – Rs. 60 Lac) would be taxable in the hands of Mr.
Y u/s 56(2)(x).
▪ Since agricultural land is not a capital asset, the provisions of section 56(2)(x) are not attracted
i.r.o receipt of agricultural land for inadequate consideration, since the definition of “property”
u/s 56(2)(x) includes only capital assets specified thereunder.
(iii) TDS implications in the hands of Mr. Y
▪ Since sale consideration of house property exceeds Rs. 50 Lac, Mr. Y is required to deduct tax
at source u/s 194-IA. Tax to be deducted u/s 194-IA would be 45,000, being 0.75% of 60 Lac.
▪ TDS provisions u/s 194-IA are not attracted i.r.o transfer of rural agricultural land.
SM 8. Mr. X, a salaried individual, pays rent of Rs. 55,000 per month to Mr. Y from June, 2020. Is he required
to deduct tax at source? If so, when is he required to deduct tax? Also, compute the amount of tax to be
deducted at source.
Would your answer change if Mr. X vacated the premises on 31st December, 2020? Also, what would be your
answer if Mr. Y does not provide his PAN to Mr. X?
Answer:
▪ Since Mr. X pays rent exceeding Rs. 50,000 per month in the FY 2020-21, he is liable to deduct tax at
source @3.75% of such rent for FY 2020-21 u/s 194-IB. Thus, Rs. 20,625 [55,000 x 3.75% x 10] has to be
deducted from rent payable for March, 2021.
▪ If Mr. X vacated the premises in December, 2020, then tax of Rs. 14,438 [55,000 x 3.75% x 7] has to be
deducted from rent payable for December, 2020.
▪ In case Mr. Y does not provide his PAN to Mr. X, tax would be deductible@20%, instead of 3.75%.
▪ In case 1 above, this would amount to Rs. 1,10,000 [55,000 x 20% x 10] but the same has to be restricted
to 55,000, being rent for March, 2021.
▪ In case 2 above, this would amount to Rs. 77,000 [55,000 x 20% x 7] but the same has to be restricted to
55,000, being rent for December, 2020.
SM 9. XYZ Ltd. makes a payment of Rs. 28,000 to Mr. Ganesh on 2.8.2020 towards fees for professional
services & another payment of Rs. 25,000 to him on the same date towards fees for technical services.
Discuss whether TDS provisions u/s 194J are attracted.
Answer: TDS provisions u/s 194J would not get attracted, since limit of Rs. 30,000 is applicable for fees for
professional services & fees for technical services, separately. It is assumed that there is no other payment
to Mr. Ganesh towards fees for professional services & fees for technical services during PY 2020-21.
SM 10. Examine whether TDS provisions would be attracted in the following cases, & if so, under which
section. Also specify the rate of TDS applicable in each case. Assume that all payments are made to
residents.
Particulars of the payer Nature of payment Aggregate of payments
made in the FY 2020-21
1 Mr. Ganesh, an individual Contract Payment for repair of Rs. 5 Lacs
carrying on retail business with residential house
turnover of Rs. 2.5 crores in the
PY 2019-20
Payment of commission to Mr. Rs. 80,000
Vallish for business purposes
2. Mr. Rajesh, a wholesale trader Contract Payment for Rs. 20 Lacs in January,
whose turnover was Rs. 95 Lacs reconstruction of residential house 2021, Rs. 15 Lacs in Feb
in PY 2019-20. (made during the period January- 2021 & Rs. 20 Lacs in
March, 2021) March 2021.
3. Mr. Satish, a salaried individual Payment of brokerage for buying a Rs. 51 Lacs
residential house in March, 2021
4. Mr. Dheeraj, a pensioner Contract payment made during Rs. 48 Lacs
October-November 2020 for
reconstruction of residential house
Answer:
Particulars of Nature of payment Aggregate Whether TDS provisions are
the payer payments in attracted?
FY 2020- 21
1 Mr. Ganesh, an Contract Payment for Rs. 5 Lacs TDS u/s 194C is not attracted since
individualCarrying repair of residential payment is for personal purpose.
on retail business house TDS u/s 194M is not attracted as
with turnover of aggregate of contract payment
2.5 crores in the to the payee in PY 2020-21 does not
PY 2019-20 exceed Rs. 50 Lac.
Payment of commission Rs. 80,000 Yes, u/s 194H, since payment > Rs.
to Mr. Vallish for 15,000, & Mr. Ganesh’s turnover
business purposes exceeds Rs. 1 crore in PY 2019-20.
2. Mr. Rajesh, a Contract Payment for Rs. 55 Lacs Yes, u/s 194M, since aggregate of
Wholesale trader Reconstruction of payments (i.e., Rs. 55 Lacs) > Rs. 50
whose turnover residential house Lacs. Since, his turnover does not
was 95 Lacs in PY exceed Rs. 1 crore in PY 2019-20,
2019-20 Sec. 194C is not attracted i.r.o
payments made in PY 2020-21.
3. Mr. Satish, a Payment of brokerage Rs. 51 Lacs Yes, u/s 194M, since payment of Rs.
salaried for buying a residential 51 Lacs made in March 2021 > 50
individual House Lacs. Since Mr. Satish is a salaried
individual, sec 194H is not applicable
4. Mr. Dheeraj, a Contract payment for Rs. 48 Lacs Sec. 194C are not attracted since
pensioner reconstruction Mr. Dheeraj is a pensioner. Sec.
of residential 194M is not applicable since payment
of Rs. 48 Lacs < Rs. 50 Lacs.
house
SM 11. An amount of Rs. 40,000 was paid to Mr. X on 1.7.2020 towards fees for professional services without
deduction of tax at source. Subsequently, another payment of Rs. 50,000 was due to Mr. X on 28.2.2021,
from which [email protected]% (amounting to 6,750) on the entire amount of 90,000 was deducted. However, this tax
of Rs. 6,750 was deposited only on 22.6.2021. Compute the interest chargeable u/s 201(1A).
Answer: Interest u/s 201(1A) would be computed as follows:
Particulars Rs.
1% on tax deductible but not deducted i.e., 1% on Rs. 3,000 for 8 months Rs. 240
1½% on tax deducted but not deposited i.e. 1½% on Rs. 6,750 for 4 months6 Rs. 405
Rs. 645
(i) Such interest should be paid before furnishing the statements in accordance with section 200(3).
(ii) Where the payer fails to deduct the whole or any part of the tax on the amount credited or payment
made to a payee & is not deemed to be an assessee-in-default u/s 201(1) on account of payment of taxes
by such payee, interest u/s 201(1A)(i) i.e.,@1% p.m. or part of month,shall be payable by the payer from the
date on which such tax was deductibleto the date of furnishing of return of income by such payee. The
date of deduction & payment of taxes by the payer shall be deemed to be the dateon which return of income
has been furnished by the payee.
(iii) Where the tax has not been paid after it is deducted, the amount of the tax together with the amount
of simple interest thereon shall be a charge upon all the assets of the person or the company, as the
case may be.

Q1. Ashwin doing manufacture & wholesale trade furnishes you following information:
Particulars Rs.
Total turnover for FY 2019-20 Rs. 1,05,00,000
Total turnover for FY 2020-21 Rs. 95,00,000
Examine whether TDS provisions are attracted for the below said expenses incurred during FY 2020-21:
Particulars Rs.
Interest paid to UCO Bank on 15.8.2020 Rs. 41,000
Contract payment to Raj (2 contracts of Rs. 12,000 each) on 12.12.2020 Rs. 24,000
Shop rent paid (one payee) on 21.1.2021 Rs. 2,50,000
Commission paid to Balu on 15.3.2021 Rs. 7,000
Answer: As the turnover of business carried on by Ashwin for FY 2019-20, has exceeded 1 crore, he has to
comply with the tax deduction provisions during PY 2020-21, subject to, the exemptions provided for under
the relevant sections for applicability of TDS provisions.
❖ Interest paid to UCO Bank: TDS u/s 194A is not attracted i.r.o interest paid to a banking company.
❖ Contract payment of 24,000 to Raj for 2 contracts of 12,000 each: TDS provisions u/s 194C would not
be attracted if the amount paid to a contractor does not exceed Rs. 30,000 in a single payment or Rs.
1,00,000 in the aggregate during FY. Therefore, TDS provisions u/s 194C are not attracted in this case.
❖ Shop Rent paid to one payee – Tax has to be [email protected]% u/s 194- I as the annual rental payment
exceeds Rs. 2,40,000.
❖ Commission paid to Balu: No TDS u/s 194-H as commission does not exceed Rs. 15,000.
Q2. Compute the amount of tax deduction at source on the following payments made by M/s. S Ltd. during
PY 2020-21 as per the provisions of the Income-tax Act, 1961.
SN Date Nature of Payment
(a) 1-10-2020 Payment of Rs. 2,00,000 to Mr. “R” a transporter who owns 8 goods carriages
throughout the previous year & furnishes a declaration to this effect alongwith
his PAN.
(b) 1-11-2020 Payment of fee for technical services of 25,000 & Royalty of Rs. 20,000 to Mr.
Shyam who is having PAN.
(c) 30-06-2020 Payment of Rs. 25,000 to M/s X Ltd. for repair of building.
(d) 01-01-2021 Payment of Rs. 2,00,000 made to Mr. A for purchase of diaries made according
to specifications of M/s S Ltd.
However, no material was supplied for such diaries to Mr. A by M/s S Ltd or its
associates.
(e) 01-01-2021 Payment made Rs. 1,80,000 to Mr. Bharat for compulsory acquisition of his house
as per law of the State Government.
(f) 01-02-2021 Payment of commission of Rs. 14,000 to Mr. Y.
Answer:
(a) No tax is required to be deducted at source u/s 194C by M/s S Ltd. on payment to transporter Mr. R,
since he satisfies the following conditions:
▪ He owns ten or less goods carriages at any time during the previous year.
▪ He is engaged in the business of plying, hiring or leasing goods carriages;

▪ He has furnished a declaration to this effect along with his PAN.
(b) As per section 194J, liability to deduct tax is attracted only in case the payment made as fees for
technical services & royalty, individually, exceeds Rs. 30,000 during the financial year. In the given
case, since, the individual payments for fee of technical services i.e., Rs. 25,000 & royalty Rs. 20,000
is less than Rs. 30,000 each, there is no liability to deduct tax at source. It is assumed that no other
payment towards fees for technical services & royalty were made during the year to Mr. Shyam.
(c) Provisions of section 194C are not attracted in this case, since the payment for repair of building on
30.06.2020 to M/s. X Ltd. is less than the threshold limit of Rs. 30,000.
(d) According to section 194C, the definition of “work” does not include the manufacturing or supply of
product according to the specification by customer in case the material is purchased from a person
other than the customer or associate of such customer. Therefore, there is no liability to deduct tax
at source i.r.o payment of Rs. 2,00,000 to Mr. A, since the contract is a contract for ‘sale’.
(e) As per section 194LA, any person responsible for payment to a resident, any sum in the nature of
compensation or consideration on account of compulsory acquisition under any law, of any immovable
property, is responsible for deduction of tax at source if such payment or the aggregate amount of
such payments to the resident during the financial year exceeds Rs. 2,50,000. In the given case, no
liability to deduct tax at source is attracted as the payment made does not exceed Rs. 2,50,000.
(f) As per section 194H, tax is deductible at source if amount of commission or brokerage or aggregate of
amounts of commission or brokerage credited or paid during FY exceeds Rs. 15,000. Since commission
payment made to Mr. Y does not exceed Rs. 15,000, provisions of section 194H are not attracted.
Q3. Examine the applicability of TDS provisions & TDS amount in the following cases:
(a) Rent paid for hire of machinery by B Ltd. to Mr. Raman Rs. 2,60,000 on 27.9.2020.
(b) Fee paid on 1.12.2020 to Dr. Srivatsan by Sundar (HUF) Rs. 35,000 for surgery performed on a member
of the family.
(c) ABC & Co. Ltd. paid Rs. 19,000 to one of its Directors as sitting fees on 01-01-2021.
Answer:
(a) Since the rent paid for hire of machinery by B. Ltd. to Mr. Raman exceeds Rs. 2,40,000, the provisions
of section 194-I for deduction of tax at source are attracted. Rate for TDS u/s 194-I on rent paid for
hire of plant & machinery is 1.5%, assuming that Mr. Raman had furnished his permanent account number
to B Ltd. Therefore, the amount of tax to be deducted at source: = Rs. 2,60,000 x 1.5% = Rs. 3,900.
Note: In case Mr. Raman does not furnish his permanent account number to B Ltd., tax shall be deducted
@ 20% on Rs. 2,60,000, by virtue of provisions of section 206AA.
(b) Fees for professional service to Dr. Srivatsan is paid on 1.12.2020 for a personal purpose, therefore,
section 194J is not attracted. Section 194M would have been attracted, if the payment or aggregate of
payments exceeded 50 Lacs in the PY 2020-21. However, since the payment does not exceed Rs. 50 Lac
in this case, there is no liability to deduct tax at source u/s 194M also.
(c) Section 194J provides for deduction of tax at source @7.5% from any sum paid by way of any
remuneration or fees or commission, by whatever name called, to a resident director, which is not in
the nature of salary on which tax is deductible u/s 192. The threshold limit of Rs. 30,000 upto which the
provisions of tax deduction at source are not attracted i.r.o every other payment covered u/s 194J is,
however, not applicable i.r.o sum paid to a director.
Therefore, tax @ 7.5% has to be deducted at source u/s 194J i.r.o the sum of Rs. 19,000 paid by ABC
Ltd. to its director. Therefore, TDS = Rs. 19,000 x 7.5% = Rs. 1,425
Q4. Examine the applicability of TDS, rate & amount of tax deduction in following cases for PY 2020-21:
(a) Payment of Rs. 27,000 made to Jacques Kallis, a South African cricketer, by an Indian newspaper agency
on 02-07-2020 for contribution of articles in relation to the sport of cricket.
(b) Payment made by a company to Mr. Ram, sub-contractor, Rs. 3,00,000 with outstanding balance of Rs.
1,20,000 shown in the books as on 31-03-2021.
(c) Winning from horse race Rs. 1,50,000 paid to Mr. Shyam, an Indian resident.
(d) Rs. 2,00,000 paid to Mr. A, a resident individual, on 22-02-2021 by the State of Uttar Pradesh on
compulsory acquisition of his urban land.
Answer:
(a) Section 194E provides that person responsible for payment of any amount to a non-resident sportsman
who is not a citizen of India for contribution of articles relating to any game or sport in India in a
newspaper has to deduct tax at source @ 20%. Further, since Jacques Kallis, a South African cricketer,
is a non-resident, HEC @ 4% on TDS should also be added. TDS = Rs. 27,000 x 20.80% = Rs. 5,616.
(b) Section 194C are attracted i.r.o payment by a company to a sub-contractor. U/s 194C, tax is deductible
at the time of credit or payment, whichever is earlier @ 0.75% in case the payment is made to individual.
Since aggregate amount credited/paid during PY is Rs. 4,20,000, TDS @ 0.75% on Rs. 4,20,000. Tax to
be deducted = Rs. 4,20,000 x 0.75% = Rs. 3,150.
(c) U/s 194BB, tax is to be deducted at source, if the winnings from horse races exceed Rs. 10,000. The
rate of deduction of tax at source is 30%. Hence, tax to be deducted = Rs. 1,50,000 x 30% = Rs. 45,000.
(d) As per section 194LA, any person responsible for payment to a resident, any sum in the nature of
compensation or consideration on account of compulsory acquisition under any law, of any immovable
property, is required to deduct tax at source, if such aggregate payments during PY > Rs. 2,50,000. In
the given case, there is no liability of TDS as payment made to Mr. A does not exceed Rs. 2,50,000.
Q5. Briefly discuss the provisions relating to payment of advance tax on income arising from capital gains
& casual income.
Answer:
▪ Proviso to section 234C contains the provisions for advance tax i.r.o. capital gains & casual income.
▪ Advance tax is payable by an assessee on his/its total income, which includes capital gains & casual
income like income from lotteries, crossword puzzles, etc.
▪ Since it is not possible for the assessee to estimate his capital gains, or income from lotteries etc., it
has been provided that if any such income arises after the due date for any instalment, then, the entire
amount of the tax payable (after considering tax deducted at source) on such capital gains or casual
income should be paid in the remaining instalments of advance tax, which are due.
▪ Where no such instalment is due, the entire tax should be paid by 31st March of the relevant financial
year. No interest liability on late payment would arise if the entire tax liability is so paid.
Note: In case of casual income the entire tax liability is fully deductible at source @ 30% u/s 194B & 194BB.
Therefore, advance tax liability would arise only if surcharge (if any) & HEC @ 4% i.r.o. along with tax
liability i.r.o other income, if any, is Rs. 10,000 or more.
Q6. Mr. Jay having total income of Rs. 8,70,000, did not pay any advance tax during the previous year 2020-
21. He wishes to pay the whole of the tax, along with interest if any, on filing the return in the month of July,
2021. What is total tax which Mr. Jay has to deposit as self-assessment tax along with interest, if he files
the return on 29.07.2021? Assume that he does not exercise the option u/s 115BAC.
Answer Obligation to pay advance tax arises in every case, where the advance tax payable is Rs. 10,000
or more. As a consequence of such failure, assessee may be charged with interest u/s 234B & 234C. In the
given case, since Mr. Jay did not deposit any amount of advance tax during the previous year, he will need
to pay the total tax due on his income along with interest on default of payment of advance tax (section
234B) & interest for deferment of advance tax (section 234C) before filing of his return.
Total tax due on returned income of Rs. 8,70,000 is Rs. 89,960 [(20% of Rs. 3,70,000 + Rs. 12,500) + cess@4%]
Interest u/s 234B

Interest u/s 234B is attracted:
(a) When the assessee, who is liable to pay advance tax has failed to pay such tax; or
(b) Where the advance tax paid by the assessee is less than 90% of the assessed tax.
Since, Mr. Jay did not pay any amount as advance tax, interest u/s 234B at 1% per month or part of the
month will be levied beginning from 1st April of the following year i.e. 01.04.2021 till the time he deposits
the whole tax under self-assessment.
Interest will be levied on tax liability of Rs. 89,900 (rounded off to nearest hundred, ignoring fraction) at
1% for four months i.e. from 1st April to 29thJuly. Interest u/s 234B amount to Rs. 3,596.
Interest u/s 234C

Assessees, other than assessee who declares profits & gains in accordance with provision of section
44AD(1) or section 44ADA(1), are liable to pay advance tax in 4 installments during the previous year.
Section 234C is attracted, if the actual instalment paid by the assessee is less than amount required to be
paid by him on such instalments.
Interest shall be calculated at 1% per month or part of the month for short payment or non-payment of
each instalment.
In the given scenario, since Mr. Jay, did not deposit any amount as advance tax, interest u/s 234C is
calculated as under:
Date of Specified Amount due & unpaid Period Interest @ 1%
Instalment % of estimated (rounded off to nearest
tax 100, ignoring fraction)
15th June 2020 15% Rs. 13,400 3 months Rs. 402
15th Sep 2020 45% Rs. 40,400 3 months Rs. 1,212
15 Dec 2020
th
75% Rs. 67,400 3 months Rs. 2,022
15th March 2021 100% Rs. 89,900 1 month Rs. 899
Total interest u/s 234C Rs. 4,535
Mr. Jay needs to pay Rs. 98,091 as total of tax & interest on/before filing ROI in the month of July, 2021.
RTP QUESTIONS – TDS & Advance Tax

May 18 Q1. Mention the significant differences between TDS and TCS.
Answer: Significant Differences between TDS and TCS
TDS TCS
1 TDS is tax deduction at source TCS is tax collection at source.
2 Person responsible for paying is required Seller of certain goods or provider of
to deduct tax at source at the services is responsible for collecting tax at
prescribed rate. source at the prescribed rate from the
buyer.
Person who grants licence or lease (i.r.o any
parking lot, toll plaza, mine or quarry) is
responsible for collecting tax at source at
the prescribed rate from the licensee or
lessee, as the case may be.
3 Generally, tax is required to be Generally, tax is required to be collected
deducted at the time of credit to the at source at the time of debiting of the
account of the payee or at the time of amount payable by the buyer of certain
payment, whichever is earlier. goods to the account of the buyer or at the
However, in certain cases, tax is time of receipt of such amount from the said
required to be deducted at the time of buyer, whichever is earlier.
payment. For e.g., in case of payment of However, in case of sale of motor vehicle of
salary, payment i.r.o life insurance policy the value exceeding RS. 10 Lacs, tax
collection at source is required at the time
of receipt of sale consideration.
Nov 18 Q2. Shurya Bank Ltd., a banking company to which Banking Regulations Act, 1949 applies,
has paid interest of Rs. 7,000 to Mr. Bhuwan, a resident Indian, from its Lucknow branch &
Rs. 8,000 from Kanpur branch. If the bank has not adopted core banking solutions, is tax
required to be deducted at source from such interest payments made on 31.03.2021?
Examine the provisions of the Income-tax Act, 1961 in this regard.
(b) Will your answer be different if the bank has adopted core banking solutions?
Answer:
▪ Tax is deductible @10% u/s 194A i.r.o interest credited or paid by a banking company, if
the same exceeds Rs. 10,000.
▪ This threshold is with reference to interest credited or paid by a branch of the bank,
where the bank has not adopted core banking solutions.
▪ On the other hand, if the bank has adopted core banking solutions, then, the threshold of
Rs. 10,000 would apply i.r.o the aggregate interest credited or paid by all the branches
of the bank.
▪ Therefore, if Shurya Bank Ltd. has not adopted core banking solutions, it need not deduct
tax on interest of Rs. 7,000 and Rs. 8,000 paid by its Lucknow Branch and Kanpur Branch,
respectively, to Mr. Bhuwan, since the interest paid by each branch does not exceed Rs.
10,000.
▪ However, if Shurya Bank Ltd. has adopted core banking solutions, it has to deduct tax at
source @ 10% on Rs. 15,000 (Rs. 7,000 + Rs. 8,000) u/s 194A, since the aggregate interest
paid by its Lucknow and Kanpur branches exceed Rs. 10,000.
Q3. When and at what rate, a seller is required to collect tax source on sale of motor
vehicle. Discuss whether tax is required to be collected at source on sale of motor vehicle
by manufacturers to dealers.
Answer:
▪ As per section 206(1F), every person, being a seller, who receives any amount as
consideration for sale of a motor vehicle of the value exceeding Rs. 10 lacs, shall collect
tax from the buyer @ 1% of the sale consideration.
▪ In case of sale of motor vehicle, tax shall be collected at the time of receipt of amount.
▪ CBDT has clarified that TCS on all transactions of retail sales & accordingly, it will not
apply on sale of motor vehicles by manufacturers to dealers/distributors.
May 19 Q4. Mr. P is a professional who is responsible for paying a sum of Rs. 2,00,000 as rent for
use of building to Mr. Harshit for the month of February 2021. Gross receipts of Mr. P are
as under: FY 2018-19: Rs. 55,00,000 & FY 2019-20: Rs. 45,00,000.
Find out whether Mr. P is responsible for deducting any tax at source from the rent of Rs.
2,00,000 payable to Mr. Harshit.
(a) Tax at source is required to be deducted u/s 194-I at the rate of 10%.
(b) Tax at source is required to be deducted u/s 194-IB at the rate of 5%.
(c) Tax at source is required to be deducted u/s 194-IB at the rate of 10%.
(d) No tax is required to be deducted at source.
RTP QUESTIONS – TDS & Advance Tax

May 18 Q1. Mr. Sachal, a resident individual aged 54, furnishes his income & other details for the
PY 2020-21:
- Income of Rs. 8,10,000 from wholesale cloth business, whose accounts are audited u/s
44AB.
- Income from other sources Rs. 2,70,000.
- Tax deducted at source Rs. 25,000.
- Advance tax paid Rs. 1,03,000 during PY 2020-21.
- Return of income filed on 11.12.2021.
Calculate the interest payable u/s 234B. Assume that ROI would be processed on the same
day of filing of return. What are the consequences for delay in furnishing ROI.
Answer: Computation of interest payable u/s 234B by Mr. Sachal
Particulars Rs.
Tax on total income of Rs. 10,80,000
[Business income of Rs. 8,10,000 + Income from other sources of Rs. 2,70,000] 1,36,500
Add: HEC @ 4% 5,460
Tax on total income 1,41,960
Less: Tax deducted at source (25,000)
Assessed Tax 1,16,960
90% of assessed tax 1,05,264
Advance tax paid 1,03,000
Interest u/s 234B is leviable since advance tax paid < 1,05,264 being 90% of assessed tax
Number of months from 1st April, 2021 to 11th December, 2021 9
Interest u/s 234B @ 1% per month or part for 9 months on Rs. 13,960 [i.e.,
difference b/w assessed tax of Rs. 1,16,960 & advance tax of Rs. 1,03,000] 1256
Consequences for delay in filing return of income on or before the due date: Interest u/s
234A & fee u/s 234F would be attracted for filing ROI beyond due date specified u/s 139(1).
Interest u/s 234A: Since Mr. Sachal’s accounts are audited u/s 44AB, the due date for filing
of return for AY 2021-22 is 30.10.2021. Mr. Sachal has filed his return on 11.12.2021 i.e.,
interest u/s 234A will be payable for 3 months (from 1.10.2021 to 11.12.2021) @ 1% per month
or part of month on the amount of tax payable on total income - TDS & advance tax paid =
i.e., Rs. 13,960. Interest u/s 234A = Rs. 13,960 x 1% x 3 = Rs. 419.
Fee for late filing of return u/s 234F: Since Mr. Sachal has furnished his ROI after due
date but before 31.12.2021 & his total income > Rs. 5 lacs, a fee of Rs. 5,000 will be payable.
Nov 18 Q2. Mr. Shikhar, aged 52 years, provides you the following information & requests you to
determine his advance tax liability with due dates for PY 2020-21.
- Estimated tax liability for PY 2020-21: Rs. 85,000; TDS = Rs. 15,000;
Would your answer change if Mr. Shikhar is eligible for & has opted for presumptive tax
provisions u/s 44AD & his tax liability is entirely on account of such income (ignore TDS)?
What would be your answer if, instead of section 44AD, he is eligible for & has opted for
presumptive tax provisions u/s 44AE?
Answer: Determination of Advance Tax Liability of Mr. Shikhar
Tax payable = Estimated tax liability for FY 2020-21 (Rs. 85,000) – TDS (15,000) = Rs. 70,000.
Installment Date Cumulative Amount payable Amount in Rs.
15 June, 2020
th
15% of advance tax liability 10,500
15 Sep 2020 45% of Advance tax liability 21,000 (Rs. 31,500, being 45% of Rs.
70,000 – Rs. 10,500)
15 Dec 2020 75% of advance tax liability 21,000 (52,500, being 60% of
Rs. 70,000 – Rs. 31,500)
15 March 2021 100% of advance tax liability 17,500 (70,000, being 100% of
Rs. 70,000 - Rs. 52,500)
In case he is eligible for presumptive tax provisions u/s 44AD & his entire tax liability is on
account of such income, he can pay his entire advance tax liability in one installment on or
before 15.03.2021, without attracting interest u/s 243C.
This benefit would, however, not be available if he is eligible for & has opted for presumptive
tax provisions u/s 44AE, in which case he has to pay his advance tax in four installments as
indicated above, failing which interest u/s 234C would be attracted.
May 19 Q3. Mr. Narayan is engaged in the retail business of groceries. During PY 2020-21, his
turnover was Rs. 1.65 crores. Out of this, receipt of Rs. 1.30 crore represents online
transactions & Rs. 35 Lacs cash transactions. He opted for paying tax as per presumptive
taxation scheme laid down in section 44AD. He has no other income during PY 2020-21. Is he
liable to pay advance tax & if so, what is the minimum amount of advance tax to be paid &
the due date for payment of such advance tax?
Answer: Advance tax liability in the hands of Mr. Narayan opting for presumptive taxation:
As per section 211, eligible assessee, opting for computation of profits or gains of business
on presumptive basis i.r.o an eligible business referred to in section 44AD, shall be required
to pay advance tax of the whole amount in one instalment on/before 15th March of PY. Thus,
Mr. Narayan is required to pay advance tax by 15th March 2021.
However, any amount paid by way of advance tax on/before 31st March shall also be treated
as advance tax paid during that PY on/before 15th March 2021.
Advance tax liability = Business Income = (8% of 35 Lacs) + (6% of 130 Lacs) = Rs. 10,60,000.
I.r.o the amount of turnover received by A/c payee cheque/bank draft or use of ECS
through a bank A/c, assessee can declare 6% (instead of 8%) of such turnover as
presumptive income u/s 44AD. Since Mr. Narayan does not have any other income during PY
2020-21, business income would be the total income.
Tax liability
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 @ 5% 12,500
Rs.5,00,001 to Rs. 10,00,000 @ 20% 1,00,000
Above Rs. 10,00,001 @ 30% 18,000 1,30,500
Add: Health & Education cess @ 4% 5,220
He required pay Rs. 1,35,720 as minimum amount of advance tax by 15 th March 2021.
Nov 19 Q4. Mr. Jha, an employee of FX Ltd, attained 60 years of age on 15.05.2020. He is resident
in India during PY 2020-21 & earned salary income of Rs.5 lacs (computed). During the
year, he earned Rs. 7 lacs from winning of lotteries. Compute his advance tax liability for
AY 2021-22:
(a) Rs. 2,20,000 + Cess Rs. 8,800 = Rs.2,28,800, being the tax payable on total income of
Rs.12 lacs
(b) Rs. 2,10,000 + Cess Rs. 8,400 = Rs.2,18,400, being the tax payable on lottery income of
Rs.7 lacs
(c) Rs. 10,000 + Cess Rs.400 = Rs. 20,400, being the tax payable on salary income, since
tax would have been deducted at source from lottery income.
(d) Nil
Q5. Mr. Pawan is engaged in the business of roasting & grinding coffee beans. During PY
2020-21, his total income is Rs. 4.5 lacs. Mr. Pawan filed its ROI for AY 2021-22 on 3rd March,
2022. Compute fee payable for default in furnishing in ROI for Mr. Pawan for AY 2021-22:
(a) Rs. 5,000 (b) Not exceeding Rs. 1,000 (c) Rs. 10,000 (d) No fees.
Q6. Mr. Chandra Prakash, a resident aged 54, is planning to pay SAT & furnish his ROI on
15.12.2021. He furnishes the following details of his income, TDS & advance tax paid for PY
2020-21 as under:
- Toy business whose turnover is Rs. 185 lacs [received Rs. 90 Lacs by A/c payee cheque,
Rs. 50 Lacs through ECS & balance in cash]. He opts for presumptive tax u/s 44AD.
- Income from other sources: Rs. 3,05,000.
- Tax deducted at source: Rs. 55,000 & Advance tax paid Rs. 1,45,000 on 14.03.2021.
Calculate the interest payable u/s 234B of the income-tax Act, 1961.
Answer: Computation of interest payable u/s 234B by Mr. Chandra Prakash
Particulars Rs.
Tax on total income of Rs. 15,05,000 [Business income of Rs. 12 Lacs (See 2,64,000
Note below) + Income from other sources of Rs. 3,05,000]
Add: HEC @ 4% 10,560
Tax on total income 2,74,560
Less: Tax deducted at source 55,000
Assessed Tax 2,19,560
90% of assessed tax 1,97,604
Advance tax paid on 14.03.2021 1,45,000

Interest u/s 234B is leviable since advance tax of Rs. 1,45,000 paid < 90% of
assessed tax (i.e Rs. 1,97,604)
Number of months from 1st April 2021 to 15th December 2021 9
Interest u/s 234B @ 1% per month or part for 9 months on Rs. 74,500 [i.e.,
difference b/w assessed tax of Rs. 2,19,560 & advance tax of Rs.1,45,000 6,705
paid being RS. 74,560 which is rounded off to RS. 74,5004]
PC Note: Income u/s 44AD = Rs. 12 lacs, being 8% of RS. 45 lacs & 6% of Rs. 140 lacs.
May 20 Q7. Following details are provided by Mr. Divakar, an individual, for AY 2021-22:
Total estimated tax payable: Rs. 4,40,000; TDS (deductible but not deducted): 55,000
Determine the advance tax payable with their due dates for AY 2021-22.
Answer: Computation of Advance Tax Payable for AY 2021-22
Particulars Rs.
Tax Payable 4,40,000
TDS (deductible but not deducted) cannot be reduced for computing tax liability Nil
Net Tax Payable 4,40,000
Due dates for payment of advance tax

Due date Amount payable
15 June 2020
th
Rs. 66,000 [15% of Rs. 4,40,000]
15 Sep 2020
th
Rs. 1,32,000 [Rs. 1,98,000 (45% of Rs. 4,40,000) - Rs. 66,000
15 Dec 2020
th
Rs. 132,000 [Rs. 3,30,000 (75% of Rs. 4,40,000) - Rs. 1,98,000
15 March 2021
th
Rs. 1,10,000 [Rs. 4,40,000 (whole amount of advance tax liability - Rs.
3,30,000)

▪ As per section 197B: Rate of TDS has been reduced to 75% from 14th May 2020 to 31st March, 2021
other than section 192, 192B, 194B, 194BB, 194E, 194N.
▪ However, no effect has been given to the answers in “Practice Question Bank”.
▪ Students are advised to revise all the answers to 75% (expect for these sections 192, 192B, 194B,
194BB, 194E, 194N) if payment is made from 14th May 2020 to 31st March, 2021.
PQ 1. State, in brief, the Applicability of Rate & Amount of TDS in the following cases for PY 2020-21:
(a) Payment of Royalty of Rs. 25,000 & fee for Professional Services of Rs. 28,000 to Mr. Varun.
(b) Payment of Rs. 1,98,000 to Mr. Karan for Compulsory Acquisition of his Urban Land by State Government.
(c) Company pays to a doctor monthly retainership of Rs. 1,500 for attending outpatient clinic at its factory.
(d) Fee paid to Dr. Srivatsan by Sundar (HUF) of Rs. 35000 for surgery performed to a member of the family.
(e) A Ltd paid Rs. 19,000 to its Director as Sitting Fees on 01.01.2021. [RTP Compilation]
Answer:
(a) Section 194J will be attracted only if payment made as fees for Professional Services & Royalty
individually, exceeds Rs. 30,000 during FY. In the given case, since, individual payment for fee of Rs.
28,000 for professional services & royalty of Rs. 25,000 is < Rs. 30,000 each, there is no TDS liability.
(b) U/s 194LA, TDS has to be deducted on compensation on compulsory acquisition, if the aggregate
payment exceeds Rs. 2,50,000. In the given case, there is no TDS liability as the payment made does
not exceed Rs. 2,50,000.
(c) Section 194J provides that any person, other than Individual/HUF, who is responsible for paying to a
resident any sum by way of fees for professional or technical services, shall deduct tax @ 10% on income
comprised therein.
However, no tax is to be deducted if the aggregate amounts of such fees does not exceed Rs. 30,000 in
FY.
In present case, total payment is Rs. 18000 (Rs. 1,500 x 12) & thus NO TDS.
(d) As per the provisions of section 194J, Individual/HUF is required to deduct tax at source on fees paid
for professional services only if it is subject to tax audit u/s 44AB(a)/(b) in last PY. However, if such
payment is made for professional services exclusively for personal purpose of any member of HUF, then
liability to deduct tax is not attracted.
Therefore, in the given case, even if Sundar (HUF) is liable to tax audit in last PY, liability to deduct tax
at source is not attracted in this case since, the fees for professional service to Dr. Srivatsan is paid
for a personal purpose i.e. the surgery of a member of the family.
(e) Under section 194J, tax is deductible for any payment made which is in the nature of any Remuneration
or Fees or Commission other than those on which Tax is deductible u/s 192, to a Director of a Company.
▪ Tax @ 10% should be deducted.
▪ There is no Exemption Limit for Deduction of Tax on payments to a Director.
▪ Hence, ABC & Co Ltd should deduct tax of Rs. 1,900 on Sitting Fee paid, being 10% of Rs. 19,000.
Note: If sitting fee is paid to a Whole Time Director in Employment with the Company, the same may be
considered as taxable u/s 192, in which case provisions of Section 194J may not be applicable.
PQ 2. State the applicability of rate & amount of TDS in the following cases for PY 2020-21: [Nov 2012]
(a) Payment made by a firm to the sub-contractor of Rs. 3 Lacs with outstanding balance of Rs. 1,20,000
shown in the books as on 31.03.2021.
(b) Rent paid for P&M: Rs. 1.5 Lacs by a firm having Sales Turnover of Rs. 20 Lacs & Net Loss of Rs. 15,000.
Answer:
(a) Payment by firm to sub-contractor of Rs. 3 Lac with outstanding balance on 31.03.2021 of Rs. 1,20,000.
Under section 194C, Tax shall be deducted at the time of payment or credit, whichever is earlier.
For the payment & also for the credit, Tax will have to be deducted.
Thus, tax should be deducted on Rs. 4,20,000. TDS = 4,20,000 x 1% = 4,200.
(b) As per section 194I, all assessees except individual & HUF, who are not subject to tax audit u/s 44AB
during the preceding FY are liable to deduct tax. Thus, section 194I is always applicable to the Firm
whether or not it is subject to Tax Audit. However, since payment < Rs. 2,40,000, no TDS is required.
PQ 3. Compute amount of tax to be deducted at source on the following payments made by M/s ABC Ltd.
during PY 2020-21 as per the provisions of the Income-Tax Act, 1961.
(a) Payment of Rs. 2,00,000 to Mr. “X” a transporter who is having PAN & who do not have more than 10
goods carriages on 1.10.2020.
(b) Payment of fee for technical services of Rs. 45,000 to Mr. X who is having PAN on 1.11.2020.
(c) Payment of Rs. 25,000 to M/s X Ltd. for repair of building on 30.12.2020.
(d) Payment of Rs. 2,00,000 made to Mr. Y for purchase of diaries made according to specifications of M/s
ABC Ltd. However, no material was supplied for such diaries to Mr. Y by M/s ABC Ltd on 01.01.2021.
(e) Payment of commission of 25,000 to Mr. A on 01.02.2021. [Nov 2011]
Answer:
(a) No tax shall be deducted at source in case of payment to a transporter who has submitted his PAN.
(b) TDS u/s 194J @ 10% because total amount payable > Rs. 30,000. TDS = 45,000 x 10% = Rs. 4,500.
(c) It is covered u/s 194C but payment is not exceeding Rs. 30,000 & hence no TDS is required.
(d) Tax shall not be deducted at source in case of purchase of goods.
(e) Tax shall be deducted at source u/s 194H & shall be = 25,000 x 5% = Rs. 1,250.
PQ 4. State whether TDS provisions are applicable to the following transactions: [May 2010]
(a) X & Co. (Firm) engaged in wholesale business assigned a contract for construction of its godown building
to Mr. X, a contractor. It paid Rs. 25,00,000 to Mr. X as contract payment.
(b) Y & Co. engaged in real estate business conducted a lucky dip & gave Maruti car to a prize winner.
(c) An Insurance Company paid Rs. 45,000 as Insurance Commission to its agent Mr. Y.
(d) AB Ltd. allowed a discount of 50,000 to X & Co. (firm) on prompt payment towards supply of auto parts.
Answer:
(a) Section 194C provides for TDS from payment made to contractors & sub-contractors. Therefore, TDS
u/s 194C for the contract payments made for the construction of godown building. Rate of TDS u/s 194C
on payments made to contractors who are individuals/HUF shall be @ 1%. Hence, X & Co. (firm) must
deduct tax at source on the contract payments made to Mr. X.
(b) As per Section 194B, winning from lottery or crossword puzzle or card game or other game of any sort
exceeding Rs. 10,000 payable by any person to any other person, subject to TDS @ 30%. Since the value
of prize i.e. Maruti car would exceed Rs. 10,000 tax is deductible at source @ 30%. As the winning is in
kind, winner must deposit 30% of the prize value to Y&Co. for remitting as tax. Only after such
deduction/recovery, the Maruti car is to be delivered to the prize winner.
(c) As per section 194D, any person paying insurance commission in excess of Rs. 15,000 to any resident
person is liable to deduct tax @ 5% in case of all assesses. Therefore, insurance company must deduct
tax at source @ 5% i.r.o the insurance commission paid to Mr. Y.
(d) Discount allowed to a customer for prompt payment is not covered by any of the TDS provisions. Thus,
AB Ltd. need not deduct TDS since no payment was involved in allowing discount to its customer.
PQ 5. State the applicability of TDS rate & amount of TDS in the following cases for PY 2020-21: [Nov 2014]
(a) Payment of Rs. 27,000 made to a South African cricketer, by Indian newspaper agency on 02.07.2020
for contribution of articles in relation to the sport of cricket.
(b) Winning from horse race - Rs. 1,50,000.
(c) Rs. 2 Lacs paid to Mr. X (resident) on 22.02.2021 by UP State on compulsory acquisition of his urban land.
(d) Mr. PC, an employee of CG receives arrears of salary for 3 earlier years. He is liable for deduction of
tax on the entire amount during PY.
(e) TV channel pays Rs. 11 Lacs on 01.07.2020 as prize money to the winner of quiz, "A Millionaire".
(f) SBI pays Rs. 50,000 pm as rent to the CG for a building in which one of its branches is situated.
(g) Television company pays Rs.50,000 to cameraman for shooting of film.
(h) A turf club awards a jackpot of Rs. 5 lacs to the winner of one of its races.
Answer:
(a) TDS shall be deducted u/s 194E @ 20% + 4%HEC. TDS shall be 20.8% of Rs. 27,000 = Rs. 5,616.
(b) TDS shall be deducted u/s 194BB @ 30% as the amount exceeds Rs. 10,000. TDS = Rs. 45,000.
(c) As per Section 194LA, No TDS is deductible by State of UP as amount paid does not exceed Rs. 2,50,000.
(d) Arrears of salary are taxable in PY in which there are paid & thus shall be liable for TDS. However, if
an employee receives any salary in arrears, he can claim relief as per sec 89 r/w rule 21A provided the
employee furnishes the details of such arrears in Form No. 10E to the employer. Further, relief u/s 89
shall be given to concerned employee while deducting tax at source u/s 192.
(e) As per sec 194B, TV channel is required to deduct tax @ 30% at the time of payment of Rs. 11,00,000.
(f) As per sec 196 where payee is Government, there is no requirement to deduct tax at source on income
by way of 'rent' & therefore SBI is not liable to deduct tax while paying rent to the CG.
(g) Television company shall deduct tax @ 10% u/s 194J at the time of making payment to the cameraman.
(h) Payer shall deduct tax at source @ 30% u/s 194BB at the time of making payment. TDS = Rs. 1,50,000.
PQ 6. Ashwin a resident Individual carrying on business, furnishes you the following information:
(i) Total turnover of PY 2019-20: Rs. 120 lacs; (ii) Total turnover of PY 2020-21: Rs. 98 lacs. State whether
provisions of TDS are attracted for the under-mentioned expenses during the PY 2020-21:
(a) Commission paid to Babloo 18,500
(b) Payment to Vijay for repair of office building 23,000
(c) Payment of fees for Technical Services, to Vivek 35,000
(d) Interest paid to Indian Bank on Term Loan 92,800
(e) Advertisement expenses to Mr. X (2 individual expense of Rs. 24,000 & Rs. 58,000
34,000)
(f) Factory rent paid to C 2,50,000
(g) Brokerage paid to B, a sub-broker 16,000
(h) Rent paid by a partnership firm for use of plant & machinery 1,70,000
All payments are made to residents. State the amount of tax to be deducted at source for PY 2020-21.
[May 2016 + Nov 2012 + Modified ICAI Exercise Q1]
Answer:
As the turnover of Mr. Ashwin for PY 2019-20 (Rs. 120 lacs) has exceeded the limit prescribed u/s 44AB, he
has to comply with the tax deduction provisions during PY 2020-21.
(a) Commission paid to Babloo: Tax has to be deducted u/s 194-H as the commission exceeds Rs. 15,000.
Tax shall be deducted at source u/s 194H & shall be = 18,500 x 5% = Rs. 925.
(b) Contract payment of Rs. 23,000 to Mr. Vijav: TDS provisions u/s 194C would not be attracted if the
amount paid to a contractor does not exceed Rs. 30,000 in a single payment or Rs. 1,00,000 in the
aggregate during the financial year. Therefore, TDS provisions u/s 194C are not attracted in this case.
(c) Payment of fees for Technical Services to Vivek: Tax shall be deducted at source u/s 194J @ 10%
because total amount payable is exceeding Rs. 30,000. TDS = 35,000 x 10% = Rs. 3,500.
(d) Interest paid to Indian Bank on Term Loan: TDS u/s 194A is not attracted i.r.o. interest paid to a
banking company.
(e) Advertisement expenses to Mr. X: TDS on Rs. 34,000 @ 1% = Rs. 340 (Sec 194C is applicable if single
payment > Rs. 30,000 or aggregate payment > Rs. 1,00,000).
(f) Factory rent paid to C: Tax has to be deducted u/s 194I @ 10% as rent > Rs. 2,40,000. TDS = Rs. 25,000.
(g) Brokerage paid to B (sub-broker): TDS u/s 194H as commission > Rs. 15,000. TDS @ 5% on 16,000 = 800.
(h) Rent of Rs. 1,70,000 paid by a partnership firm for use of plant & machinery: As per Section 194I TDS
is not required to be deducted as the Rent amount does not exceeds Rs. 2,40,000. Thus, NO TDS.
PQ 7. Discuss the following issues with specific reference to clarification given by CBDT:
(a) Moon TV, a television channel, made payment of Rs. 50 Lacs to a production house for production of
programme for telecasting as per the specifications given by the channel. The copyright of the
programme is also transferred to Moon TV. Would such payment be liable for tax deduction at source
u/s 194C? Examine whether the provisions of TDS u/s 194C would be Attracted if the payment was made
by Moon TV for acquisition of telecasting rights of the content already produced by production house.
(b) Mudra Adco Ltd., an advertising company, has retained 15 Lacs, towards charges for procuring &
canvassing advertisements, from payment of 1 crore due to Cloud TV, a television channel, & remitted
85 Lacs to television channel. State whether TDS u/s 194H be attracted on 15 Lacs retained by the
advertising company? [ICAI Module Q6]
Answer:
(a) Since programme is produced by production house as per specifications given by Moon TV & copyright
is also transferred to television channel, the same falls within the scope of ‘work’ u/s 194C. Therefore,
payment of 50 Lacs made by Moon TV to production house is subject to TDS u/s 194C.
However, if the payment was made by Moon TV for acquisition of telecasting rights of the content
already produced by production house, there is no contract for “carrying out any work”, as required
in section 194C(1). Therefore, such payment would not be liable for tax deduction at source u/s 194C.
(b) Issue of whether fees/charges taken or retained by advertising companies from media companies for
canvasing/booking advertisements (typically 15% of the billing) is ‘commission’ or ‘discount’ to attract
the provisions of TDS has been clarified by the CBDT vide its Circular No.5/2016 dated 29.2.2016.
Relation b/w media company & advertising agency is that of ‘principal-to-principal’ & thus not liable
for TDS u/s 194H.
In view of the same, CBDT has clarified that no liability to deduct tax is attracted on payments made
by television channels to advertising agency for booking/procuring of or canvassing for advertisements.
Accordingly, no tax is deductible at source on the amount of 15 Lacs retained by Mudra Adco Ltd., the
advertising company, from payment due to Cloud TV, a television channel.
PQ 8. ABC Ltd. has given orders to Mr. X to stitch uniform for their employees. Mr. X purchased material
from the market & has stitched uniform for ABC Ltd & has charged Rs. 7,00,000. Calculate the amount of
TDS. What if Mr. X has used material purchased from ABC Ltd. & charged Rs. 1,10,000 as labour charge.
Answer:
▪ Section 194C deals with the provisions of TDS in case of payment to contractors.
▪ It deals with payment of any sum for carrying out any work in pursuance of contract for Manufacturing
or supplying a product according as per the requirement or Specification of customer using materials
purchased from the customer.
▪ Thus, in this case, since material has been purchased from market, section 194C is not applicable. Thus
no tax is required to be deducted if material is supplied by ABC Ltd.
▪ (b) Mr. X has charged Rs. 1,10,000 as labour charges. Thus, TDS shall be @ 1 % i.e. Rs. 1100.
PQ 9. A Foreign Enterprise enters into a contract for Fabrication & supply of components for Machinery
with X & Co. (a Firm in India). X & Co sub-contracts the work to Y (an Individual & pays him Rs. 20 Lacs
during PY 2020-21. X & Co. receives payment of Rs. 50 lacs from a foreign enterprise. Discuss TDS
implications. [Mod. Nov 1998 (Final)]
Answer:
▪ U/s 194C, Payments to Contractors (including Sub-Contractors) for contracts shall be subject to TDS @
1% if the Payee is a Resident Individual/HUF & 2% in case of other Resident Payees.
▪ Foreign Enterprise is liable to deduct Tax on its payment to Main Contractor (X & Co) @ 2% (Payee - firm)
▪ Payment made by foreign enterprise to X & Co. shall be subject to TDS at 2% [Rs. 50 lacs × 2 % = 1 lac].
▪ Amount payable by foreign enterprise to X & Co. = Rs. 50 lacs – Rs. 1 lac = Rs. 49 lacs.
▪ Payment made by X & Co. to Mr. Y shall be subject to TDS at 1% [i.e. Rs. 20 lacs × 1% = 20,000].
▪ Since the payment is made to an Individual, Rs. 20 Lacs shall be subject to TDS at 1% i.e. Rs. 20,000.
▪ X & Co should deduct Rs. 20,000 from the amount payable to Mr. Y & pay the balance of Rs. 19,80,000.
PQ 10. A Ltd. has taken a building on lease. It has sub-leased the building & furniture & fixtures to B Ltd.
from 1.04.2020 but separate agreement has been made for both the sub-leases. A Ltd. receives the
following amounts on 31.3.2021 as consideration for the sub-lease from B Ltd. during the PY 2020-21:
Rent for the period 1.4.2020 to 31.3.2021 of building 2,20000
Furniture hire charges for the period 1.4.2020 to 31.3.2021 12000
Non-refundable deposit received during the year 50000
What is the liability of A Ltd. for deduction for tax at source u/s 194-I for PY 2020-21? [#MustSolve]
Answer:
▪ Section 194I provides that where any person, is responsible for paying to any person, any income by way
of the rent, amounting in aggregate > Rs. 2,40,000 in a financial year, he shall deduct income-tax thereon.
▪ Limit of Rs. 2,40,000 for TDS u/s 194-I applies to the aggregate rent of all the assets i.e. whether such
asset is building or machinery or plant or equipment, etc.
▪ If there are separate agreements, one for sub-lease of building & other for hiring of machinery, rent &
hire charges under two agreements have to be aggregated for the purpose of application of the limit
of Rs. 2,40,000.
▪ Rate of TDS u/s 194-I in case of rent from land & building & Furniture & fixtures is 10%.
▪ It is to be noted that Non-refundable deposit received during the year shall also be subject to TDS.
▪ Tax should be deducted at the time of payment of rent or at the time of its credit whichever is earlier.
▪ TDS Liability of B Ltd: Total payment = (2,20,000 + 12,000 + 50,000) = 2,82,000. TDS @ 10% = Rs. 28,200.
PQ 11. Mr. PC has deposited in fixed deposit with the company Rs. 2 Lacs @ 8% p.a. for 3 years. He submits
declaration in Form 15G & claims interest payment without tax deduction. The accountant feels that Form
15G submitted is incorrect & wants to ignore the same & deduct tax @ 10%. Is he justified?
Answer: Sec 194A provides for TDS from interest. Where depositor furnish declaration in Form 15G, tax is
not deductible u/s 194A. Deductor is not authorized to scrutinize the same. Thus accountant is not justified.
PQ12. ABC Ltd. has estimated its tax payable to be Rs. 5 Lacs for PY 2020-21 & has paid advance tax
accordingly but actual tax liability was found to be Rs. 5.5 Lacs & difference of tax amount was paid on
10.12.2021. Compute interest u/s 234.
Solution:
(i) Interest u/s 234A shall be computed from 1.11.2021 to 10.12.2021 = 50,000 x 1% x 2 Months = Rs. 1,500.
(ii) Interest u/s 234B: Advance tax paid is more than 90% of actual tax liability, no interest is payable.
(iii) Interest u/s 234C shall be computed in the manner given below:
Date Tax Payable Tax Paid Default
15.06.2020 82,500 (66,000 @12%) 75,000 7,500
Interest u/s 234C = Nil (because advance tax paid is more than 12%)
15.09.2020 2,47,500 (1,98,000 @ 36%) 2,25,000 22,500
Interest u/s 234C = Nil (because advance tax paid is more than 36%)
15.12.2020 4,12,500 3,75,000 37,500
Interest u/s 234C = 37,500 x 1 % x 3 months = Rs. 1,125
15.03.2021 5,50,000 5,00,000 50,000
Interest u/s 234C = 50,000 x 1% x 1 month = Rs. 500
PQ 13. Calculate Interest Payable u/s 234B by Mr. Sachal, a Resident Individual (age 54) from the following:
1. Wholesale Cloth Business, whose turnover is Rs. 150 Lacs. Income from such Business is Rs. 8,10,000;
2. Income from Other Sources: Rs. 2,70,000;
3. Tax Deducted at Source: Rs. 25,000;
4. Advance Tax paid: Rs. 1,03,000 on 14.03.2021;
ROI will be filed on 11.12.2021. Assessee is willing to pay the requisite SAT u/s 140A. [May 2017]
Solution:
1. Total Income = Income from Cloth Business (Rs. 8,10,000) + IFOS (Rs. 2,70,000) Rs. 10,80,000
2. Tax thereon = [(Rs, 10,80,000 - Rs. 10,00,000) x 30% + 1,12,500] Rs. 1,36,500
3. Add: HEC at 4% Rs. 5,460
4. Total Tax & Cess Payable (2+3) Rs. 1,41,960
Less: Tax Deducted at Source (Rs. 25,000)
Advance Tax liability (Assessed Tax) Rs. 1,16,960
Advance Tax paid on 14.03.2020 Rs. 1,03,000
Balance Payable before considering Interest Rs. 13,960
Computation of Interest u/s 234B:

▪ 90% of Assessed Tax = 90% of Rs. 1,16,960 = Rs. 1,05,264.
▪ Since Advance Tax paid (Rs. 1,03,000) is less than 90% of Assessed Tax, Interest u/s 234B is applicable.
▪ Interest u/s 234B = Shortfall, i.e. (1,16,960 – 1,03,000) x 1% x 9 months (April to Dec 2021) = Rs. 1,257.
PQ 14. A Firm made the following payments of Advance Tax during PY 2020-21:
15.06.2020 15.09.2020 15.12.2020 15.03.2021 Total Advance tax
Rs. 4,00,000 Rs. 5,00,000 Rs. 9,00,000 Rs. 12,00,000 Rs. 30,00,000
Income returned is Rs. 100 Lacs u/h ‘PGBP’ & Rs. 10 Lacs by way of LTCG on sale of a property effected on
01.03.2021. What is the interest payable by the Assessee u/s 234B & 234C? ROI is filed on 31.07.2021 & Tax
is fully paid upon self-assessment.
Solution: 1. Computation of Actual Tax Payable by the Firm
Particulars Rs. Rs.
Profits and Gains of Business or Profession 100,00,000
Capital Gains – Long Term Capital Gain 10,00,000
Tax on LTCG of Rs. 10 Lac at 20% + HEC @ 4% 2,08,000
On Business Income of Rs. 100 Lacs @ 30% + HEC @ 4% 31,20,000
Net Tax Payable 33,28,000
Calculation of Interest u/s 234B
90% of Tax Payable (Rs. 33,28,000 x 90%) 29,95,200
Advance Tax paid (given) 30,00,000
Since Advance Tax paid (Rs. 30 lacs) > 90% of Assessed Tax, Interest u/s 234B is not applicable.
Calculation of Interest u/s 234C

Due date Advance Tax payable Cumulative Difference Month Interest at 1 %
Advance tax paid (2) - (3) s p.m
(1) (2) (3) (4) (5) (6) = (4) x (5) x 1%
15.6.2020 15% of 31,20,000 = 4,68,000 4,00,000 Nil 3 Nil
12% of 31,20,000 = 3,74,400
15.9.2020 45% of 31,20,000 = 14,04,000 9,00,000 5,04,000 3 15,120
36% of 31,20,000 = 11,23,200
15.12.2020 75% of 31,20,000 = 23,40,000 18,00,000 5,40,000 3 16,200
15.03.2021 100% of 33,28,000 = 33,28,000 30,00,000 3,28,000 1 3,280
Note:
1. Tax on Business Income alone considered for computation of 1st, 2nd & 3rd instalments.
2. Tax on LTCG has been considered only for 3rd instalment, as such gain had arisen only on 1.3.2020.
PQ 15. Tax liability of Mr. X (53 years), a resident individual for PY 2020-21 is computed as Rs. 1,00,000.
Mr. X has paid advance tax as follows: (i) 10th Sep 2020: Rs. 20,000; (ii) 21st Dec 2020: Rs. 30,000; (iii) 11th
March 2021: Rs. 35,000.
Mr. X intends to file his return with balance tax & interest payable. Compute the tax & interest payable if:
1. Balance tax & interest are paid on 21st July 2021 & return is filed on same date.
2. Balance tax & interest are paid on 4th Jan 2022 & he files return on same date.
3. Balance tax & interest are paid on 21st July 2021 but he forgot to file ROI & ROI is filed on 4th Jan 2022.
Solution: Computation of interest payable u/s 234C for deferment of advance tax:
DD of payment of Amount which should Amount actually Difference Interest Interest
Advance tax have been paid paid (moths) @ 1 % p.m
15 June 2020 15,000 Nil 15,000 3 450
15 Sep 2020 45,000 20,000 25,000 3 750
15 Dec 2020 75,000 20,000 55,000 3 1,650
15 March 2021 1,00,000 85,000 15,000 1 150
Interest u/s 234C (in all cases) 3,000
Computation of interest payable u/s 234B for default in payment of Advance Tax:
▪ Case 1: (on Rs. 15,000 for 4 months @1% per month) = Rs. 600.
▪ Case 2: (on Rs. 15,000 for 10 months @1% per month) = Rs. 1,500.
▪ Case 3: (on Rs. 15,000 for 4 months @1% per month) = Rs. 600.
Computation of interest payable u/s 234A for default in filing Return of Income:
▪ Case 1: No interest u/s 234A as ROI for AY 2020-21 is filed before due date of filing ROI (July 31, 2020).
▪ Case 2: There is delay in filing ROI by 6 months & interest payable u/s 234A is Rs. 900 (15,000 for 6
months @1% p.m)
▪ Case 3: Interest u/s 234A is not applicable as balance tax & interest are paid before DD of filing ROI
though the return is actually filed in January 2021.
Final Answer
Particulars Tax payable u/s 234A u/s 234B u/s 234C Tax & interest
Case 1 15,000 Nil 600 3,000 18,600
Case 2 15,000 900 1500 3,000 20,400
Case 3 15,000 Nil 600 3,000 18,600
AZ
CA Pranav Chandak's
DT Question Bank
13. Return of Income


SM 1. Paras aged 55 years is a resident of India. During PY 2020-21, interest of Rs. 2,88,000 was credited
to his Non-resident (External) Account with SBI. Rs. 30,000, being interest on fixed deposit with SBI, was
credited to his saving bank account during this period. He also earned Rs. 3,000 as interest on this saving
account. Is Paras required to file return of income?
What will be your answer, if he has incurred Rs. 3 Lacs as travel expenditure of self & spouse to US to stay
with his married daughter for some time?
Answer: An individual is required to furnish a return of income u/s 139(1) if his total income, before giving
effect to the deductions under Chapter VI-A or exemption u/s 54/54B/54D/54EC or 54F, exceeds the
maximum amount not chargeable to tax i.e. Rs. 2,50,000 (for AY 2021-22).
Computation of total income of Mr. Paras for AY 2021-22
Interest from Non-resident External A/c: Rs. 2,88,000 [Exempt u/s 10(4)(ii), assuming NIL
that Mr. Paras has been permitted by RBI to maintain the aforesaid account]
Interest on fixed deposit with SBI Rs. 30,000
Interest on savings bank account Rs. 3,000
Gross Total Income Rs. 33,000
Less: Deduction u/s 80TTA (Interest on saving bank account) Rs. 3,000
Total Income Rs. 30,000
Since total income of Mr. Paras for AY 2021-22, before giving effect to the deductions under Chapter VI-
A, is less than basic exemption limit of Rs. 2,50,000, he is not required to file ROI for AY 2021-22.
Note: In the above solution, interest of Rs. 2,88,000 earned from Non-resident (External) account has been
taken as exempt on the assumption that Mr. Paras, a resident, has been permitted by RBI to maintain the
aforesaid account. However, in case he has not been so permitted, the said interest would be taxable. In
such a case, his total income, before giving effect, inter alia, to the deductions under Chapter VI-A, would
be Rs. 3,21,000 (Rs. 30,000 + Rs. 2,88,000 + Rs. 3,000), which is higher than the basic exemption limit of Rs.
2,50,000. Consequently, he would be required to file return of income for AY 2021-22.
If he has incurred expenditure of Rs. 3 Lacs on foreign travel of self & spouse, he has to mandatorily file
his return of income on or before the due date u/s 139(1).
SM 2. Explain with brief reasons whether the return of income can be revised u/s 139(5) of the Income-tax
Act, 1961 in the following cases:
(a) Belated return filed u/s 139(4).
(b) Return already revised once u/s 139(5).
(c) Return of loss filed u/s 139(3)
Answer:
(a) Any person who has furnished a return u/s 139(1) or 139(4) can file a revised return at any time before
the end of relevant AY or before completion of assessment (whichever is earlier) if he discovers any
omission or any wrong statement in ROI filed earlier. Thus, belated ROI filed u/s 139(4) can be revised.
(b) Return revised earlier can be revised again as revised return replaces the original return. Therefore,
if the assessee discovers any omission or wrong statement in such a revised return, he can furnish
second revised ROI within prescribed time [i.e. within the end of relevant AY or before completion of
assessment, whichever is earlier]. Thus, ROI can be revised more than once within prescribed time.
(c) A return of loss filed u/s 139(3) is deemed to be return filed u/s 139(1), & therefore, can be revised.
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SM 3. Mrs. Hetal, an individual engaged in the business of Beauty Parlour, has got her books of account for
the financial year ended on 31st March 2021 audited u/s 44AB. Her total income for AY 2021-22 is Rs.
6,35,000. She wants to furnish her ROI for AY 2021-22 through a tax return preparer. Can she do so?
Answer: Section 139B provides a scheme for submission of return of income for any assessment year through
a Tax Return Preparer. However, it is not applicable to persons whose books of account are required to
be audited u/s 44AB. Therefore, Mrs. Hetal cannot furnish her return of income for AY 2021-22 through a
Tax Return Preparer.

Q1. State with reasons whether you agree or disagree with the following statements:
a) Return of income of Limited Liability Partnership (LLP) could be verified by any partner.
b) Time limit for filing return u/s 139(1) in the case of Mr. A having total turnover of Rs. 160 Lacs
(Rs. 100 Lacs received in cash) for the year ended 31.03.2021, whether or not opting to offer
presumptive income u/s 44AD, is 31st October 2021.
Answer:
a) Disagree: Return of income of LLP should be verified by a designated partner.
Any other partner can verify the Return of Income of LLP only in the following cases:
▪ where for any unavoidable reason such designated partner is not able to verify or,
▪ where there is no designated partner.
b) Disagree
▪ In case Mr. A opts to offer his income as per the presumptive taxation provisions of section
44AD, then, the due date u/s 139(1) for filing ROI for PY 2020-21 shall be 31st July, 2021.
▪ In case, Mr. A does not opt for presumptive taxation provisions u/s 44AD, he has to get his
accounts audited u/s 44AB, since his turnover exceeds 1 crore, due date for filing ROI would
be 31st October, 2021.
Q2. Mr. Vineet submits his return of income on 12.09.2021 for AY 2021-22 consisting of income u/h
“Salaries”, “Income from house property” & bank interest. On 21.01.2022, he realized that he had
not claimed deduction u/s 80TTA i.r.o. his interest income on the Savings Bank Account. He wants
to revise his return of income. Can he do so? Examine. Would your answer be different if he
discovered this omission on 21.04.2022?
Answer Since Mr. Vineet has income only u/h “Salaries”, “Income from house property” & “Income
from other sources”, he does not fall under the category of a person whose accounts are required
to be audited under the Income-tax Act, 1961 or any other law in force. Therefore, due date of
filing return for AY 2021-22 u/s 139(1), in his case, is 31st July, 2021. Since Mr. Vineet had submitted
his return only on 12.09.2021, the said return is a belated return u/s 139(4).
As per section 139(5), a return furnished u/s 139(1) or a belated return u/s 139(4) can be revised.
Thus, a belated return u/s 139(4) can also be revised. Therefore, Mr. Vineet can revise the return
of income filed by him u/s 139(4) in January 2022, to claim deduction u/s 80TTA, since the time
limit for filing a revised return is upto the end of the relevant assessment year, which is
31.03.2022.
However, he cannot revise return had he discovered this omission only on 21-04-2022, since it is
beyond 31.03.2022, being the end of AY 2021-22.
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Q3. Examine with reasons, whether the following statements are true or false:
(a) AO has the power, inter alia, to allot PAN to any person by whom no tax is payable.
(b) Where the Karta of a HUF is absent from India, the return of income can be verified by any
male member of the family.
Answer:
(a) True: Section 139A(2) provides that the Assessing Officer may, having regard to the nature of
transactions as may be prescribed, also allot a PAN to any other person, whether any tax is
payable by him or not, in the manner & in accordance with the procedure as may be
prescribed.
(b) False: Section 140(b) provides that where the Karta of a HUF is absent from India, the return
of income can be verified by any other adult member of the family; such member can be a
male or female member.
Q4. Explain the term “return of loss” under the Income-tax Act, 1961. Can any loss be carried
forward even if return of loss has not been filed as required?
Answer:
A return of loss is a return which shows certain losses. Section 80 provides that the losses
specified therein cannot be carried forward, unless such losses are determined in pursuance of
return filed under the provisions of section 139(3).
Section 139(3) states that to carry forward the losses specified therein, the return should be
filed within the time specified in section 139(1).
Following losses are covered by section 139(3):
▪ business loss to be carried forward u/s 72(1),
▪ speculation business loss to be carried forward u/s 73(2),
▪ loss from specified business to be carried forward u/s 73A(2).
▪ loss under the head “Capital Gains” to be carried forward u/s 74(1); &
▪ loss incurred in the activity of owning & maintaining race horses to be carried forward u/s
74A(3).
However, loss from house property to be carried forward u/s 71B & unabsorbed depreciation
u/s 32 can be carried forward even if return of loss has not been filed as required u/s 139(3).
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PAST RTP QUESTIONS

May 18 Q1. Ms. Geetha submits her return of income on 29.09.2021 for AY 2021-22 consisting of
income u/h “Salaries”, “Income from house property” & bank interest. On 01.02.2022, she
realized that she had not claimed deduction u/s 80D i.r.o. medical insurance premium of Rs.
15,000 paid for her mother. She wants to revise her return of income. Can she do so?
Examine. Would your answer be different if she discovered this omission on 02.04.2022?
Answer:
▪ Since Ms. Geetha has income only u/s “Salaries”, “Income from house property” &
“Income from other sources”, she does not fall under the category of a person whose
accounts are required to be audited under the Income-tax Act, 1961. Therefore, the
due date of filing return for AY 2021-22 u/s 139(1), in her case, is 31st July, 2021.
▪ Since Ms. Geetha had submitted her return only on 29.09.2021, the said return is a
belated return u/s 139(4).
▪ As per section 139(5), a return furnished u/s 139(1) or a belated return u/s 139(4) can
be revised, if she discovers any omission or wrong statement therein. Thus, a belated
return u/s 139(4) can also be revised.
▪ Therefore, Ms. Geetha can revise the return of income filed by her u/s 139(4) in February
2022, to claim deduction u/s 80D, since the time limit for filing a revised return is upto
the end of the relevant assessment year, which is 31.03.2022.
▪ However, she cannot revise return had she discovered this omission only on 02.04.2022,
since it is beyond 31.03.2022, being the end of AY 2021-22.
Nov 18 Q2. Mr. Atharv filed his ROI on 30th Sep 2021 related to AY 2021-22. In October 2021, his tax
consultant found that interest on fixed deposit was omitted in ROI. Can Mr. Atharv file a
revised return? Assume that the due date for furnishing return of income in his case, was
31st July 2021 & assessment was not completed till the month of October 2021.
Answer:
▪ As per section 139(5), if any person, having furnished a return u/s 139(1), within the due
date or a belated return u/s 139(4), discovers any omission or any wrong statement
therein, he may furnish a revised return at any time:
(a) before the end of the relevant assessment year or
(b) before the completion of assessment, whichever is earlier.
▪ For AY 2021-22, belated return has to be furnished before 31st March 2022 or before
completion of assessment, whichever is earlier.
▪ Since Mr. Atharv has filed his return after 31.7.2021, being the due date of filing return
of income u/s 139(1) in his case, but before 31.3.2022 or completion of assessment, the
said return is a belated return.
▪ Thus, Mr. Atharv can file a revised return, since he has found an omission in belated
return filed by him for AY 2021-22 & assessment is yet to be completed.
May 19 Q3. Mr. Shivpal, a very senior citizen, has reported a Total Income Rs. 4,90,000 & deductions
eligible under Chapter VI-A amounting to Rs. 1,70,000 for PY 2020-21. Is he liable to file his
return of income u/s 139(1) for AY 2021-22? If so why?
Answer:
As per 6th proviso to section 139(1), every person, being an individual whose total income
without giving effect to the provisions of Chapter VI-A & deductions u/s 54 exceeds BEL, is
compulsorily required to furnish return of income on or before due date.
Therefore. Mr. Shivpal, a very senior citizen is required to file ROI, since his total income
of Rs. 6,60,000 before giving effect to the deduction of Rs. 1,70,000 under Chapter VI-A,
exceeds the basic exemption limit of Rs. 5,00,000 applicable in his case.
276
Nov 19 Q4. Mr. Suhaan (aged 35 years), a non-resident earned dividend income of Rs. 12,50,000
from an Indian Company which is credited directly to its bank account in France & Rs. 15,000
as interest in Saving A/c from State Bank of India during PY 2020-21. Assuming that he has
no other income, what will be amount of income chargeable to tax in his hands in India for
AY 2021-22?
(a) Rs. 2,55,000 (b) Rs. 2,65,000 (c) Rs. 15,000 (d) Rs. 5,000
Q6. Examine whether the following losses/deductions can be carried forward/claimed by

Mr. Sharma. These losses/deductions are i.r.o. PY 2020-21.
- Loss from the business carried on by him as a proprietor: Rs. 9,80,000 (computed).
- Unabsorbed Depreciation: Rs. 3,25,000 (computed).
- Loss from House property: Rs. 50,000 (computed).
Due date for filing the return for Mr. Sharma was 31st July 2021 u/s 139(1). However, he filed
the return on 25.09.2021.
Answer:
▪ Mr. Sharma has furnished his ROI for AY 2021-22 on 25.09.2021, i.e., after 31st July 2021,
being the due date specified u/s 139(1). Hence, it is a belated return u/s 139(4). As per
section 80 r/w section 139(3), specified losses, which have not been determined in
pursuance of a return of loss filed within the time specified in section 139(1), cannot be
carried forward to the subsequent year for set-off against income of that year.
▪ Specified losses include, inter alia, business loss but does not include loss from house
property and unabsorbed depreciation.
▪ Accordingly, business loss of Rs. 9,80,000 of Mr. Sharma for AY 2021-22, not determined
in pursuance of a return of loss, filed within time specified in sec. 139(1), cannot be carried
forward to AY 2022-23.
▪ However, the loss of Rs. 50,000 from house property & unabsorbed depreciation of Rs.
3,25,000 pertaining to AY 2021-22 can be carried forward to AY 2022-23 for set-off, even
though Mr. Sharma has filed the return of loss for AY 2021-22 belatedly.
May 20 Q7. Arun’s gross total income of PY 2020-21 is Rs. 2,45,000. He deposits Rs. 45,000 in PPF.
He pays electricity bills aggregating to Rs. 1.20 Lacs in PY 2020-21. Which of the statements
is correct?
(a) Arun is not required to file his return of income u/s 139(1) for PY 2020-21, since his total
income before giving effect to deduction u/s 80C does not exceed the basic exemption
limit.
(b) Arun is not required to file his return of income u/s 139(1) for PY 2020-21, since his
electricity bills do not exceed Rs. 2,00,000 for the PY 2020-21.
(c) Arun is not required to file his return of income u/s 139(1) for PY 2020-21, since neither
his total income before giving effect to deduction u/s 80C exceeds BEL nor his
electricity bills exceed Rs. 2 lacs for PY 2020-21.
(d) Arun is required to file his return of income u/s 139(1) for PY 2020-21, since his
electricity bills exceed Rs. 1 lac for PY 2020-21.
Q8. Mr. Sudarshan failed to file his ROI for AY 2021-22 on or before DD of filing such ROI.
(i) Can he file the above return after due date of filing ROI? If yes, which is the last date?
(ii) What are the consequences of non-filing the return within the due date u/s 139(1)?
Answer: If any person fails to furnish a return within the time allowed to him u/s 139(1), he
may furnish the belated return for any previous year at any time before the end of the
relevant assessment year; or before completion of the assessment, whichever is earlier.
277
Last date for filing belated return of income for AY 2021-22 is 31st March 2022. Thereafter,
Mr. Sudarshan cannot furnish a belated return after this date.
Consequences for non-filing return of Income within the due date u/s 139(1).
- Carry forward & set-off of certain losses: Business loss, speculation business loss, loss
from specified business u/s 35AD, loss u/h “Capital Gains”; & loss from activity of owning
and maintaining race horses, would not be allowed to be carried forward for set-off
against income of subsequent years, where ROI is not furnished within the time allowed
u/s 139(1).
- Interest u/s 234A: Interest u/s 234A@1% per month or part for the period commencing
from the date immediately following the due date u/s 139(1) till the date of furnishing of
return of income is payable, where the return of income is furnished after the due date.
- Fee u/s 234F: Fee of Rs. 5,000 would be payable u/s 234F, if ROI is not filed on/before
DD specified u/s 139(1) but filed on/before 31st Dec of AY & Rs. 10,000 where ROI is
furnished after 31st December of AY. Such fee cannot exceed Rs. 1,000, if total income
does not exceed Rs. 5,00,000.
278

PQ 1. Mr. Yogesh, 80 years of age, carrying on retail trade business with turnover of Rs. 160 lacs for PY
2020-21, declares his business income from such trade u/s 44AD as Rs. 4,80,000 (which also represents his
taxable income) in his ROI. What will be the Due Date of filing ROI to Mr. Yogesh for AY 2021-22?
Answer:
▪ Although Mr. Yogesh is showing his income lower than 8% of total turnover, his total income is not
exceeding the BEL of Rs. 5,00,000 (since Mr. Yogesh is 80 years of age).
▪ Therefore, he is not required to maintain books of A/c as per section 44AA & get his accounts audited
u/s 44AB.
▪ In such case, due date for filing return would be 31st July, 2021.
PQ 2. X & Co. is a partnership firm of chartered accountants. For PY 2020-21, taxable income is Rs. 7,10,000
& gross receipt is Rs. 24,50,000. What is the due date of submission of return of income?
Answer:
▪ Since gross receipt is not more than Rs. 50 Lacs, books of the firm are not required to be audited.
▪ Due date of submission of return of income is 31st July 2021.
PQ 3. What will be the Time limit for filing return of income u/s 139(1) in the case of a firm having total
turnover of Rs. 80 lacs for PY 2020-21, whether or not opting to offer presumptive income u/s 44AD.
Answer:
▪ In case an assessee opts to offer his income as per the presumptive taxation provisions of section 44AD,
then, due date u/s 139(1) for filing of ROI for PY 2020-21 shall be 31st July, 2021.
▪ Where an assessee does not opt for presumptive taxation u/s 44AD & offers income lower than 8% of
total turnover & his total income exceeds BEL, he has to maintain books of account as per section 44AA
& get his accounts audited u/s 44AB. In such case, due date for filing return would be 31st October 2021.
PQ 4. Mr. X is a working partner in a firm: X & Co. Turnover of the firm for PY 2020-21 is 107 lacs. X gets 5
lacs as salary & 10 lacs as interest from firm. Payment of interest is authorized by partnership deed.
However, there is no provision in partnership deed to pay any remuneration to working partners. Other
incomes of X are:
(i) Capital gains: Rs. 80,000; (ii) House property Income: Rs. 2,70,000; (iii) Interest: Rs. 23,000.
What is the due date of submission of ROI?
Answer:
▪ X is a partner in a firm whose books of account are required to be audited.
▪ Due date of submission of return of income by X is, therefore, 31st October 2021.
▪ This rule is applicable even if salary paid to working partner is not deductible in the hands of firm.
▪ Since turnover of the firm is more than Rs. 1 crore, return should be submitted on/before 31.10.2021.
PQ 5. Return of loss of Mr. X for AY 2021-22 was filed in December 2021, in which he has claimed carry
forward of current year non-speculation Business loss of Rs. 1 lac & unabsorbed depreciation of Rs. 50,000
(relating to AY 2011-12). Discuss provisions of carry forward for current year non-speculation business loss
& b/f unabsorbed depreciation?
Answer: As per section 139(3), any person who has sustained loss u/h ‘PGBP’ is allowed to carry forward
such a loss u/s 72(1), only if he has filed the return of loss within the time allowed u/s 139(1).
▪ Also, section 80 specifies that a loss which has not been determined as per the return filed u/s 139(3)
shall not be allowed to be carried forward & set-off u/s 72(1).
▪ However, there is no such condition for carry forward of unabsorbed depreciation u/s 32(2).
▪ In the given case, assessee has filed its return of loss in December 2021, which is a belated return filed
u/s 139(4) & therefore, the benefit of carry forward of business loss u/s 72(1) shall not be available.
▪ However, assessee shall be entitled to c/f unabsorbed depreciation as per section 32(2).
279
PQ 6. X whose Income consists of Salary only, files his ROI for AY 2021-22 on 02.04.2022. Is it a valid return?
Answer:
▪ As per section 139(4), where an Assessee who fails to file ROI within the due date u/s 139(1), may file a
Belated Return u/s 139(4) either before the completion of assessment or the end of the relevant AY.
▪ In the given case, Mr. X filed ROI for AY 2021-22 on 02.04.2022, i.e. after time limit u/s 139(4).
▪ Thus, it is an invalid ROI.
PQ 7. Mr. Sachin filed his ROI on 30.09.2021 related to AY 2021-22. In october 2021, his tax consultant found
that the interest on fixed deposit was omitted in the tax return. [Nov 2017]
(a) What is the time limit for filing a belated return. (b) Can Mr. Sachin file a revised return.
Answer:
(a) As per sec 139(4), any person who has not furnished ROI within the time allowed to him u/s 139(1) may
furnish ROI for any PY at any time before end of relevant AY or before completion of the assessment
whichever is earlier. Therefore, in the given question, Mr. Sachin can file his belated return on or before
31st March, 2022.
(b) As per sec 139(5), if any person having furnished a return u/s 139(1) or belated return u/s 139(4),
discover any omission or wrong statement, he may furnish a revised return at any time before the end
of the relevant AY or before completion of assessment, whichever is earlier. Hence Mr. Sachin can
revise his return on/before 31.3.2022.
PQ 8. Mr. X submits his ROI on 12.09.2021 for AY 2021-22 consisting of Income u/h ‘HP’ & ‘IFOS’. On 21.1.2022,
he realized that he had not claimed deduction u/s 80 TTA i.r.o. his Interest on Savings Bank A/c. He wants
to revise his ROI since one year has not elapsed from the end of Relevant AY. [May 2014 & Nov 2016]
Answer:
▪ Since Mr. X has income only u/h “Income from house property” & “IFOS”, he does not fall under the
category of a person whose accounts are required to be audited.
▪ Therefore, the due date of filing return for AY 2021-22 u/s 139(1) is 31st July, 2021.
▪ Since Mr. X had submitted his return only on 12.09.2021, the said return is a belated return u/s 139(4).
▪ U/s 139(5), any Return filed within the due date u/s 139(1) can be revised before the end of the relevant
AY or completion of assessment whichever is earlier.
▪ As per section 139(5), a return furnished u/s 139(1) or u/s 139(4) can be revised.
▪ Therefore, Mr. X can revise ROI filed by him u/s 139(4), to claim deduction u/s 80TTA.
PQ 9. Mr. X filed a ROI for PY 2020-21 on 31.7.2021. He later files a revised return on 15.12.2021 declaring
a loss of Rs. 1,00,000. Can the loss be allowed to be carried forward?
Answer:
▪ Revised return substitutes the original return.
▪ Since original ROI was filed within DD u/s 139(1), revised ROL shall be deemed to have been filed within
DD & thus, loss of Rs. 1,00,000 shall be allowed to be carried forward.
PQ 10. By whom should the return of income be signed in the case of following persons: [May 2017]
(a) Political Party; (b) Company which is being wound up;
(c) Hindu Undivided Family, when karta is unable to sign (d) Scientific research association.
Answer: As per section 140, Return should be signed by the authorised person, as given below:
(a) Political Party: In the case of a political party, Return can be signed by Chief Executive Officer.
(b) Company which is being wound up: If company is in liquidation, ROI can be signed by Official liquidator.
(c) HUF when karta is unable to sign: By any other adult member (male or female) of such family.
(d) Scientific research association: If such Association is -
▪ A Company: MD or Any other Director if MD not able to sign or there is no MD.
▪ An AOP: Any Member or Principal Officer.
▪ Any other Person: That Other Person or some other person who is competent to sign on his behalf.
280
PQ 11. X, an individual, filed his ROI for AY 2021-22 on 15.06.2021. He later discovered that he had not
claimed deduction u/s 80C in the said return. He claimed the said deduction through a letter addressed
to AO. AO completed the assessment without allowing deduction claimed by X. Is AO justified in doing so?
Answer:
▪ AO does not have the power to entertain a claim for deduction made after filing of return of income in
a way other than by way of a revised return u/s 139(5). Thus, Assessing Officer is justified in his action.
▪ Thus, Mr. X should have filed revised ROI u/s 139(5) with the prescribed time limit.
PQ 12. ROI for AY 2021-22 was filed in time as per sec 139(1). Assessee during the course of assessment
proceeding u/s 143(2), noticed certain omissions &, therefore, filed a revised return on 18.04.2022. AO
ignoring the revised return so filed framed the order on April 27, 2022. Is the action of Assessing Officer
correct?
Answer: In this case, Revised return can be filed up to 31st March 2022. Since the revised return is filed
after the said date, it is not a valid revised return. The action of the Assessing Officer is legally correct.
281
AZ
CA Pranav Chandak's
DT Question Bank
14. Alternate Minimum Tax & Computatio
of Total Income

TEST YOUR KNOWLEDGE

Q1. Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.03.2020 & came to
India for the first time on 16.03.2020. She left for USA on 19.9.2020. She returned to India again on
27.03.2021. While in India, she had purchased a show room in Mumbai on 22.04.2020, which was leased out
to a company on a rent of Rs. 25,000 p.m. from 1.05.2020. She had taken loan from a bank for purchase of
this show room on which bank had charged interest of Rs. 97,500 upto 31.03.2021. She had received the
following cash gifts from her relatives & friends during 1.4.2020 to 31.3.2021:
From parents of husband Rs. 51,000
From married sister of husband Rs. 11,000
From two very close friends of her husband (Rs. 1,51,000 & Rs. 21,000) Rs. 1,72,000
(a) Determine her residential status & compute the total income chargeable to tax along with the amount
of tax liability on such income for AY 2021- 22.
(b) Would her residential status undergo any change, assuming that she is a person of Indian origin & her
total income from Indian sources is Rs. 18,00,000 & she is not liable to tax in USA?
Answer:
(a) U/s 6(1), an individual is said to be resident in India in any PY, if he satisfies any one of the following
conditions:
(i) He has been in India during PY for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding PY for a total period of 365 days or
more & has been in India for at least 60 days in PY.
If an individual satisfies any one of the conditions mentioned above, he is a resident.
If both the above conditions are not satisfied, the individual is a non- resident.
Therefore, residential status of Miss Charlie, an American National, for AY 2021-22 has to be determined
on the basis of her stay in India during PY 2020-21 & in the preceding 4 AYs.
Her stay in India during PY 2020-21 & in the preceding four years are as under:
Stay in PY 2020-21:
01.04.2020 to 19.09.2020 172 days
27.03.2021 to 31.03.2021 5 days
Total 177 days
Stay in Last 4 PYs

PY 2020-21 [1.4.2019 to 31.3.2020] 16 days
PY 2018-19 [1.4.2018 to 31.3.2019] Nil
PY 2017-18 [1.4.2017 to 31.3.2018] Nil
PY 2016-17 [1.4.2016 to 31.3.2017] Nil
Total 16 days
Total stay of the assessee during PY 2020-21 in India < 182 days & during last 4 PYs = 16 days.
Therefore, due to non-fulfillment of any of the two conditions for a resident, she would be treated as non-
resident for AY 2021-22.
Computation of total income of Miss Charlie for AY 2021-22

Gross Annual Value [Rs. 25,000 x 11] (See Note 1 below) [Show room located Rs. 2,75,000
in Mumbai on rent from 01.05.2020 to 31.03.2021 @ Rs. 25,000 p.m.]
Less: Municipal taxes Nil
Less: Deduction u/s 24(a): 30% of NAV Rs. 82,500
Less: Deduction u/s 24(b): Interest on loan Rs. 97,500 Rs. 95,000
Rs. 50,000 received from parents of husband would be exempt, since Nil
parents of husband are ‘relative’ & gifts from a relative are not taxable.
Rs. 11,000 received from married sister of husband is exempt, since Nil
sister-in-law falls in relative & gifts from a relative are not taxable.
Gift received from 2 friends of husband Rs. 1,51,000 & Rs. 21,000 Rs. 1,72,000 Rs. 1,72,000
aggregating to Rs. 1,72,000 is taxable u/s 56(2)(x) since > Rs. 50,000
Computation of tax liability by Miss Charlie for AY 2021-22

Tax on total income of Rs. 2,67,000 Rs. 850
Add: Health & Education cess@4% Rs. 34
Total tax liability Rs. 884
Notes:
1. Actual rent received has been taken as the gross annual value in the absence of other information (i.e.
Municipal value, fair rental value & standard rent) in the question.
2. If the aggregate value of taxable gifts received from non-relatives exceed Rs. 50,000 during the year,
the entire amount received (i.e. the aggregate value of taxable gifts received) is taxable. Therefore,
the entire amount of Rs. 1,72,000 is taxable u/s 56(2)(x).
3. Since Miss Charlie is a non-resident for the AY 2021-22, rebate u/s 87A would not be available to her,
even though her total income does not exceed 5 lacs.
4. Tax liability of Miss Charlie would be the same even if she opts to pay tax as per section 115BAC, since
she would be eligible for deduction u/s 24(b), for interest on housing loan i.r.o. let out property under
regular provisions as well as u/s 115BAC of the Income- tax Act, 1961.
(b) Residential status of Miss Charlie in case she is a person of Indian origin & her total income from
Indian sources exceeds Rs. 18,00,000.
▪ If she is a person of Indian origin & her total income from Indian sources exceeds Rs. 15,00,000 (Rs.
18,00,000, in her case), condition of stay in India for a period exceeding 120 days during PY & 365 days
during last 4 PYs would be applicable for being treated as a resident.
▪ Since her stay in India exceeds 120 days in PY 2020-21 but her stay in India during last 4 PYs < 365 days
(only 16 days), her residential status would continue to be same i.e., non-resident in India.
▪ Further, since she is not a citizen of India, the provisions of section 6(1A) deeming an individual to be a
citizen of India would not get attracted in her case, even though she is a person of Indian origin & her
total income from Indian sources exceeds Rs. 5,00,000 & she is not liable to pay tax in USA.
▪ Therefore, her residential status would be non-resident in India for PY 2020-21.
Q2. Dr. Niranjana, a resident individual, aged 60 years is running a clinic in Surat. Her Income & Expenditure
Account for PY 2021-2022 is as under:
Expenditure Rs. Income Rs.
To Medicine consumed Rs. 35,38,400 By Consultation & medical charges Rs. 58,85,850
To Staff salary Rs. 13,80,000 By Income-tax refund (Principal: Rs. Rs. 5,450
5,000 & Interest: Rs. 450)
To Clinic consumables Rs. 1,10,000 By Dividend from units of UTI (Gross) Rs. 10,500
To Rent paid Rs. 90,000 By Winning from game show on TV Rs. 35,000
(Net of TDS of Rs.15,000)
Administrative expenses Rs. 2,55,000 By Rent Rs. 27,000
To Amount paid to scientific Rs. 1,50,000
Research association u/s 35
To Net profit Rs. 4,40,000
Rs. 59,63,800 Rs. 59,63,800
(a) Rent paid includes Rs. 30,000 paid by cheque towards rent for her residential house in Surat.
(b) Clinic equipments are:
01.04.2020 Opening WDV Rs. 5,00,000
07.12.2020 Acquired (cost) by cheque Rs. 2,00,000
(c) Rent received relates to property situated at Surat. Gross Annual Value Rs. 27,000. The municipal tax
of Rs. 2,000, paid in December, 2020, has been included in "administrative expenses".
(d) She received salary of Rs. 7,500 p.m. from "Full Cure Hospital" which has not been included in the
"consultation & medical charges".
(e) Dr. Niranjana availed a loan of Rs. 5,50,000 from a bank for higher education of her daughter. She
repaid principal of Rs. 1,00,000, & interest thereon Rs. 55,000 during PY 2020-21.
(f) She paid Rs. 1,00,000 as tuition fee (not in the nature of development fees/ donation) to the university
for full time education of her daughter.
(g) Rs. 28,000 has also been paid by cheque on 27th March, 2021 for her medical insurance premium.
Compute total income of Dr. Smt. Niranjana for AY 2021-22 under the regular provisions of the Income-tax
Act, 1961, assuming that she has not opted for to pay tax u/s 115BAC.
Answer: Computation of total income of Dr. Niranjana for AY 2021-22
SN Particulars Rs. Rs. Rs.
I Income from Salary
Basic Salary (Rs. 7,500 x 12) Rs. 90,000
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 40,000
II Income from house property
Gross Annual Value (GAV) Rs. 27,000
Less: Municipal taxes paid Rs. 2,000
Net Annual Value (NAV) Rs. 25,000
Less: Deduction u/s 24 @ 30% of Rs. 25,000 Rs. 7,500 Rs. 17,500
III Income from profession
Net profit as per Income & Expenditure A/c Rs. 4,40,400
Less: Items of income to be treated separately
(i) Rent received (taxable u/h ‘House property’) Rs. 27,000

(ii) Dividend from units of UTI (taxable u/h ‘IFOS’) Rs. 10,500
(iii) Winning from game show (Net) [Taxable u/h ‘IFOS’] Rs. 35,000
(iv) Income tax refund Rs. 5,450 Rs. 77,950
Less: Allowable expenditure
Depreciation on clinic equipments
- on Rs. 5,00,000@15% Rs. 75,000
- on 2,00,000 @ 7.5% (On equipments acquired in Rs. 15,000 (Rs. 90,000)
December 2020, she is entitled to depreciation @
50% of normal depreciation, since the same are put
to use for < 180 days during the year)
Add: Expenditure not allowable while computing business income
(i) Rent for her residential accommodation included in Rs. 30,000
Income & Expenditure A/c
(ii) Municipal tax paid relating to residential house at
Surat included in administrative expenses Rs. 2,000 Rs. 3,04,450
IV Income from other sources
(a) Interest on income-tax refund Rs. 450
(b) Dividend from UTI (taxable in the hands of unit holders) Rs. 10,500
(c) Winnings from TV game show (Rs. 35,000 + Rs. 15,000) Rs. 50,000 Rs. 60,950
Less: Deductions under Chapter VI-A:
(a) Section 80C: Tuition fee paid to university for full time education
of her daughter Rs. 1,00,000
(b) Section 80D: Medical insurance premium (fully allowed since she
is a senior citizen) Rs. 28,000
(c) Section 80E: Interest on loan taken for higher education is
deductible Rs. 55,000 Rs. 1,83,000
Notes:
1. The principal amount received towards income-tax refund will be excluded from computation of total
income. Interest received will be taxed u/h “Income from other sources”.
2. Winnings from game show on T.V. should be grossed up for the chargeability u/h “Income from other
sources” (Rs. 35,000 + Rs. 15,000). Thereafter, while computing tax liability, TDS of Rs. 15,000 should be
deducted to arrive at the tax payable. Winnings from game show are subject to tax @30% as per section
115BB.
3. Dr. Niranjana would not be eligible for deduction u/s 80GG, as she owns a house in Surat, a place where
she is residing as well as carrying on her profession.
4. 100% deduction is allowable i.r.o. the amount paid to scientific research association allowable, since
whole of the amount is already debited to Income & Expenditure A/c, no further adjustment is required.
Q3. Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her accounts on cash
basis. Her Income & Expenditure account for the year ended March 31, 2021 reads as follows:
Expenditure Rs. Income Rs. Rs.
Salary to staff Rs.15,50,000 Fees earned:
Stipend to articled Rs. 1,37,000 Audit Rs. 27,88,000
Assistants Taxation services Rs. 15,40,300
Incentive to articled Rs. 13,000 Consultancy Rs. 12,70,000 Rs. 55,98,300
Assistants Dividend received on 30.4.2020 Rs. 10,524
on shares of X Ltd., an Indian
company (Gross)
Office rent Rs.12,24,000 Income from UTI (Gross), Rs. 7,600
received on 25.4.2020
Printing & stationery Rs.12,22,000 Honorarium received from Rs. 15,800
various institutions for Valuation
of answer papers
Meeting, seminar & Rs. 31,600 Rent received from residential Rs. 85,600
Conference flat let out
Purchase of car (for Rs. 80,000
official use)
Repair, maintenance & Rs. 4,000
petrol of car
Travelling expenses Rs. 5,25,000
Municipal tax paid Rs. 3,000
i.r.o. house property
Net Profit Rs. 9,28,224
Rs.57,17,824 Rs.57,17,824
(a) Allowable rate of depreciation on motor car is 15%.
(b) Value of benefits received from clients during the course of profession is Rs. 10,500.
(c) Incentives to articled assistants represent amount paid to two articled assistants for passing IPCC
Examination at first attempt.
(d) Repairs & maintenance of car include Rs. 2,000 for the period from 01.10.2020 to 30.09.2021.
(e) Salary include Rs. 30,000 to a computer specialist in cash for assisting Ms. Purvi in one professional
assignment.
(f) Travelling expenses include expenditure incurred on foreign tour of Rs. 32,000 which was within the
RBI norms.
(g) Medical Insurance Premium on the health of dependent brother & major son dependent on her amounts
to Rs. 5,000 & Rs. 10,000, respectively, paid in cash.
(h) She invested an amount of Rs. 10,000 in National Saving Certificate.
(i) She has paid Rs. 70,000 towards advance tax during the PY 2020-21
Compute the total income & tax payable of Ms. Purvi for AY 2021-22.
Answer: Computation of total income & tax payable of Ms. Purvi for AY 2021-22
Particulars Rs. Rs.
Income from house property (See Working Note 1) Rs.57,820
Profit &gains of business or profession (See Working Note 2) Rs. 9,20,200
Income from other sources (See Working Note 3) Rs. 33,924
Less: Deductions under Chapter VI-A (See Working Note 4) Rs. 10,000
Total Income (rounded off) Rs. 10,01,940
Tax on total income
Rs. 2,50,001 - Rs. 5,00,000 @5% Rs. 12,500
Rs. 5,00,001 - Rs. 10,00,000 @20% Rs. 1,00,000
Rs. 10,00,001 - Rs. 10,01,940 @ 30% Rs. 582 Rs. 1,13,082
Add: Health & Education cess @ 4% Rs. 4,523
Less: Advance tax paid Rs. 70,000
Less: TDS on dividend from Indian Company u/s 194 Rs. 1,052
Less: TDS on income from UTI u/s 194K Rs. 760 Rs. 1,812
Tax Payable Rs. 45,793
Tax Payable (rounded off) Rs. 45,790
Computation of tax payable in accordance with the provisions of section 115BAC

Particulars Rs. Rs.
[Income u/h “Income from house property” “Profits & gains from business or
profession” & “Income from other sources” would remain the same even if Ms.
Purvi opts for special provisions u/s 115BAC, since deduction claimed by her
under these heads is allowable even u/s 115BAC]
Less: Deductions under Chapter VI-A [No deduction is allowable under Nil
Chapter VI-A, by virtue of section 115BAC(2)]
Total Income Rs.10,11,944
Total Income (rounded off) Rs.10,11,940
Tax on total income
Rs. 2,50,001 – Rs. 5,00,000 @5% Rs. 12,500
Rs. 5,00,000 - Rs. 7,50,000 @10% Rs. 25,000
Rs. 7,50,000 - Rs. 10,00,000 @15% Rs. 37,500
Rs. 10,00,000 – Rs. 10,11,940 @ 20% Rs. 2,388 Rs. 77,388
Total tax liability Rs. 80,484
Less: Advance tax paid Rs. 70,000

Less: TDS on dividend income from Indian Companies u/s 194 Rs. 1,052
Tax deducted at source on income from UTI u/s 194K Rs. 760 Rs. 1,812
Tax Payable Rs. 8,672
Tax Payable (rounded off) Rs. 8,670
Since tax payable as per the provisions of section 115BAC is lower than the tax payable under the regular
provisions of the Income-tax Act, 1961, it would be beneficial for Ms. Purvi to opt for section 115BAC. She
has to exercise this option on or before the due date of furnishing the return of income i.e., 31st October
2021, in her case since she is liable to get her books of account audited. Further, since she is having income
from business or profession during PY 2020- 21, if she opts for section 115BAC for this PY, the said provisions
would apply for subsequent assessment years as well.
Working Notes:
(1) Income from House Property
Particulars Rs. Rs.
Gross Annual Value u/s 23(1) Rs. 85,600 Rs. 57,820
Less: Deduction u/s 24@30% of NAV Rs. 24,780
Note: Rent received has been taken as the Gross Annual Value in the absence of other information relating
to Municipal Value, Fair Rent & Standard Rent.
(2) Income u/h “Profits & Gains of Business or Profession”

Particulars Rs. Rs.
Net profit as per Income & Expenditure account Rs. 9,28,224
Add: Expenses debited but not allowable
(i) Salary paid to computer specialist in cash disallowed u/s 40A(3), since
such cash payment exceeds Rs. 10,000 Rs. 30,000
(ii) Amount paid for purchase of car is not allowable u/s 37(1) since it is a
capital expenditure Rs. 80,000
(ii) Municipal Taxes paid i.r.o. residential flat let out Rs. 3,000
Add: Value of benefit received from clients during the course of profession Rs. 10,500
[taxable as business income u/s 28(iv)]
Less: Income credited but not taxable under this head:
(i) Dividend on shares of X Ltd., an Indian company (taxable u/h “IFOS ") Rs. 10,524
(ii) Income from UTI (taxable u/h “Income from other sources") Rs. 7,600
(iii) Honorarium for valuation of answer papers Rs. 15,800
(iv) Rent received from letting out of residential flat Rs. 85,600 Rs. 1,19,524
Less: Depreciation on motor car @15% (See Note (i) below) Rs. 12,000
Rs. 9,20,200
Notes:
1. It has been assumed that the motor car was put to use for more than 180 days during PY & hence, full
depreciation @ 15% has been provided for u/s 32(1)(ii).
Note: Alternatively, the question can be solved by assuming that motor car has been put to use for less
than 180 days & accordingly, only 50% of depreciation would be allowable as per the second proviso
below section 32(1)(ii).
2. Incentive to articled assistants for passing IPCC examination in their first attempt is deductible u/s
37(1).
3. Repairs & maintenance paid in advance for the period 1.4.2021 to 30.9.2021 i.e. for 6 months amounting
to Rs. 1,000 is allowable since Ms. Purvi is following the cash system of accounting.
4. Rs. 32,000 expended on foreign tour is allowable as deduction assuming that it was incurred in
connection with her professional work. Since it has already been debited to income & expenditure
account, no further adjustment is required.
(3) Income from other sources

Particulars Rs.
Dividend on shares of X Ltd., an Indian company (taxable in the hands of Rs. 10,524
shareholders)
Income from UTI (taxable in the hands of unit holders) Rs. 7,600
Honorarium for valuation of answer papers Rs. 15,800
Rs. 33,924
(4) Deduction under Chapter VI-A

Particulars Rs.
Deduction u/s 80C (Investment in NSC) Rs. 10,000
Deduction u/s 80D (See Notes (i) & (ii) below) Nil
Total deduction under Chapter VI-A Rs. 10,000
Notes:
1. Premium paid to insure the health of brother is not eligible for deduction u/s 80D, even though he is a
dependent, since brother is not included in the definition of “family” u/s 80D.
2. Premium paid to insure the health of major son is not eligible for deduction, even though he is a
dependent, since payment is made in cash.
Q4. Mr. Y carries on his own business. Analysis of his trading & P&L A/c for PY 2020-21 reveals the following:
1 Net profit was Rs. 11,20,000 [Mod. MAY 2012]
2 following incomes were credited in the profit & loss account:
(a) Dividend from UTI Rs. 22,000 (Gross)
(b) Interest on debentures Rs. 17,500 (Gross)
(c) Winnings from horse races Rs. 15,000 (Gross)
3 It was found that some stocks were omitted to be included in both the opening & closing stocks, the
value of which were: Opening stock Rs. 8,000 & Closing stock Rs. 12,000
4 Rs. 1,00,000 was debited in P&L A/c being contribution to University approved u/s 35 (1) (ii)
5 Salary includes Rs. 20,000 paid to his brother which is unreasonable to the extent of Rs. 2,500
6 Advertisement expenses include 15 gift packets of dry fruits of Rs. 1,000/packet presented to
important customers.
7 Total expenses on car were Rs.78,000. The car was used both for business & personal purposes. ¾th
is for business purposes
8 Miscellaneous expenses included Rs. 30,000 paid to A &Co., a goods transport operator in cash on
31.01.2021 for distribution of the company’s product to the warehouses
9 Depreciation debited in books was Rs. 55,000. Depreciation allowed as per Income-tax = Rs. 50,000.
10 Drawings Rs. 10,000
11 Investment in NSC Rs. 15,000
Compute the total income of Mr. Y for AY 2021-22, assuming that he has not opted to pay tax u/s 115BAC.
Answer:
Computation of total income of Mr. Y for the AY 2021-22
Profits & gains of business or profession (See Working Note 1 below) Rs. 11,21,500
Income from other sources (See Working Note 2 below) Rs. 54,500
Less: Deduction u/s 80C (Investment in NSC) Rs. 15,000
Working Note: Computation of PGBP Income Rs. Rs.

Net profit as per profit & loss account Rs. 11,20,000
Add: Expenses debited to profits & loss account but not allowable as deduction
Salary paid to brother disallowed to the extent unreasonable [Sec 40A(2)] Rs. 2,500
Motor car expenses related to personal use - Disallowed (Rs. 78,000 × ¼) Rs. 19,500
Depreciation debited in the books of account Rs. 55,000
Drawings (not allowable since it is personal in nature) [See Note (iii)] Rs. 10,000
Investment in NSC [See Note (iii)] Rs. 15,000 Rs. 1,02,000
Add: Under statement of closing stock Rs. 12,000
Less: Under statement of opening stock (Rs. 8,000)
Less: Incomes credited to profit & loss account but not taxable as business income
Income from UTI [taxable u/h “Income from other sources”] Rs. 22,000
Interest on debentures (taxable u/h “Income from other sources”) Rs. 17,500
Winnings from horse races (taxable u/h “Income from other sources”) Rs. 15,000 (Rs. 54,500)
Less: Depreciation allowable under the Income- tax Rules, 1962 (Rs. 50,000)
Rs. 11,21,500
Notes:
1. Advertisement expenses of revenue nature, gift of dry fruits to important customers, is incurred wholly
& exclusively for business purposes. Hence, the same is allowable as deduction u/s 37.
2. Disallowance u/s 40A(3) is not attracted i.r.o. cash payment exceeding Rs. 10,000 to A & Co., a goods
transport operator, since, in case of payment made for plying, hiring or leasing goods carriages, an
increased limit of Rs. 35,000 is applicable (i.e., payment of upto Rs. 35,000 can be made in cash without
attracting disallowance u/s 40A(3)).
3. Since drawings & investment in NSC have been given effect to in the profit & loss account, the same have
to be added back to arrive at the business income.
4. In point no. 9 of the question, it has been given that depreciation as per Income-tax Rules, 1962 is Rs.
50,000. It has been assumed that, in the said figure of Rs. 50,000, only the proportional depreciation
(i.e., 75% for business purposes) has been included i.r.o. motor car.
Computation of “Income from Other Sources”

Dividend from UTI Rs. 22,000
Interest on debentures Rs. 17,500
Winnings from races Rs. 15,000
Income from other sources Rs. 54,500
Q5. Balamurugan furnishes the following information for the year ended 31-03-2021.
Particulars Rs.
Income from textile business Rs. (1,35,000)
Lottery winning (Gross) Rs. 5,00,000
Speculation business income Rs. 1,00,000
Income by way of salary (Computed) Rs. 60,000
Long term capital gain u/s 112 Rs. 70,000
Compute his total income, tax liability & advance tax. Assume he does not opt for section 115BAC.
Answer:
Computation of total income of Balamurugan for the PY 2020 - 2021
Salaries Rs. 60,000
Less: Loss from house property Rs. (15,000)
Net Salary (after set off of loss from house property) Rs. 45,000
Speculation business income Rs. 1,00,000
Less: Business loss set-off Rs. (1,35,000)
Net business loss to be set-off against long-term capital gain Rs. (35,000)
Capital Gains
Less: Business loss set-off Rs. (35,000)

Long term capital gain after set off of business loss Rs. 35,000
Lottery winnings (Gross) Rs. 5,00,000
Computation of tax liability for AY 2021-22

On total income of Rs. 80,000 (excluding lottery winning) Nil
On lottery winnings of Rs. 5,00,000 @ 30% Rs. 1,50,000
Rs. 1,50,000
The assessee need not pay advance tax since the total income (excluding lottery income) liable to tax is
below the basic exemption limit. Further, i.r.o. lottery income, tax would have been deducted at source @
30% u/s 194B. Since the remaining tax liability of Rs. 6,000 (Rs. 1,56,000 – Rs. 1,50,000) is less than Rs.
10,000, advance tax liability is not attracted.
Notes:
1. BEL of Rs. 2,50,000 has to be first exhausted against salary income of Rs. 45,000. Unexhausted BEL of
Rs. 2,05,000 can be adjusted against LTCG of Rs. 35,000 as per section 112, but not against lottery
winnings which are taxable at a flat rate of 30% u/s 115BB.
2. First proviso to section 234C (1) provides that since it is not possible for the assessee to estimate his
income from lotteries, the entire amount of tax payable (after considering TDS) on such income should
be paid in the remaining instalments of advance tax which are due. Where no such instalment is due,
the entire tax should be paid by 31st March, 2021.The first proviso to section 234C(1) would be attracted
only in case of non-deduction or short-deduction of tax at source u/s 194B. In this case, it has been
assumed that tax has been deducted at source from lottery income.
Q6. Mr. Rajiv, aged 50 years, a resident individual & practicing Chartered Accountant, furnishes you the
receipts & payments account for the FY 2020-21. [MAY 11 + NOV 18 + ICAI Ex. Q6]
Receipts & Payments Account
Receipts Rs. Payments Rs.
Opening balance (1.4.2020) Cash Rs. 12,000 Staff salary, bonus & stipend Rs. 21,50,000
on hand & at Bank to articled clerks
Fee from professional services Rs. 59,38,000 Other administrative expenses Rs. 11,48,000
(Gross)
Rent Rs. 50,000 Office rent Rs. 30,000
Motor car loan from Canara Bank Rs. 2,50,000 Housing loan repaid to SBI Rs. 1,88,000
(@ 9% p.a.) (includes interest of Rs. 88,000)
Life insurance premium (10% of Rs. 24,000
sum assured)
Motor car (acquired in Jan. 2021 Rs. 4,25,000
by A/c payee cheque)
Medical insurance premium (for Rs. 18,000

self & wife)(paid by A/c Payee
cheque)
Books bought on 1.07.2020 Rs. 20,000
(annual publications by A/c
payee cheque)
Computer acquired on 1.11.2020 Rs. 30,000
by A/c payee cheque (for
professional use)
Domestic drawings Rs. 2,72,000
Public provident fund Rs. 20,000
subscription
Motor car maintenance Rs. 10,000
Closing balance (31.3.2021) Cash Rs. 19,15,000
on hand & at Bank
Rs. 62,50,000 Rs. 62,50,000
Following further information is given to you:
1. He occupies 50% of the building for own residence & let out the balance for residential use at a monthly
rent of Rs. 5,000. The building was constructed during the year 1997-98, when the housing loan was taken.
2. Motor car was put to use both for official & personal purpose. One-fifth of the motor car use is for
personal purpose. No car loan interest was paid during the year.
3. The written down value of assets as on 1-4-2020 are given below.
Furniture & Fittings Rs. 60,000
Plant & Machinery Rs. 80,000
(Air-conditioners, Photocopiers, etc.)
Computers Rs. 50,000
Note: Mr. Rajiv follows regularly the cash system of accounting. Compute the total income of Mr. Rajiv for
AY 2021-22 assuming that he has not opted to pay tax u/s 115BAC.
Solution: Computation of Taxable Income and Tax Liability
1 Income from house property
(a) Self-occupied Property: Annual value Nil
Less: Deduction u/s 24(b): Interest on housing loan 50% of Rs.
88,000 = 44,000 but limited to (30,000)
Loss from self occupied property (30,000)
(b) Let out property: Annual value (Rent receivable has been
taken as the annual value in the absence of other information) Rs. 60,000
Sec 24(a): 30% of Net Annual Value: Rs. 18,000
Sec 24(b): Interest on housing loan (50% of Rs. 88,000) Rs. 44,000 (2,000)
Loss from house property (32,000)
2 Profits and gains of business or profession
Fees from professional services 59,38,000
Less: Expenses allowable as deduction
Staff salary, bonus and stipend (21,50,000)
Other administrative expenses (11,48,000)
Office rent (30,000)

Motor car maintenance (10,000 x 4/5) (8,000)
Car loan interest – not allowable (since the same has not been Nil 33,36,000
paid and the assessee follows cash system of accounting)
Motor car (Rs. 4,25,000 x 7.5% x 4/5) 25,500
Books being annual publications @ 40% 8,000
Furniture and fittings @ 10% of Rs. 60,000 6,000
Plant and machinery @ 15% of Rs. 80,000 12,000
Computer @ 40% of Rs. 50,000 20,000
Computer (New) Rs. 30,000 @ 40% x 50% 6,000 77,500 25,24,500
Gross Total income 24,92,500
3 Less: Deduction under Chapter VI-A
1. Deduction u/s 80C 1,44,000
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000 1,44,000
2. Deduction u/s 80D: Medical insurance premium paid 18,000 18,000 (1,62,000)
Q7. From the following details, compute the total income & tax liability of Siddhant, aged 31 years, of Delhi
both as per the regular provisions of the Income-tax Act, 1961 & as per section 115BAC for AY 2021-22.
Advise Mr. Siddhant whether he would opt for section 115BAC:
Particulars Rs.
Salary including dearness allowance Rs. 3,35,000
Bonus Rs. 11,000
Salary of servant provided by the employer Rs. 12,000
Rent paid by Siddhant for his accommodation Rs. 49,600
Bills paid by the employer for gas, electricity & water provided free of cost at the flat Rs. 11,000
Siddhant purchased a flat in a co-operative housing society in Delhi for Rs. 4,75,000 in April, 2014, which
was financed by a loan from Life Insurance Corporation of India of Rs. 1,60,000 @ 15% interest, his own
savings of Rs. 65,000 & a deposit from nationalized bank for Rs. 2,50,000 to whom this flat was given on
lease for 10 years. Rent payable by bank was Rs. 3,500 per month.
The following particulars are relevant:
(a) Municipal taxes paid by Mr. Siddhant: Rs. 4,300 (per annum)
(b) House Insurance: Rs. 860
(c) He earned Rs. 2,700 in share speculation business & lost Rs. 4,200 in cotton speculation business.
(d) In PY 2015-16, he had gifted Rs. 30,000 to his wife & Rs. 20,000 to his son who was aged 11. The gifted
amounts were advanced to Mr. Rajesh, who was paying interest @ 19% per annum.
(e) Siddhant received a gift of Rs. 30,000 each from four friends.
(f) He contributed Rs. 50,000 to Public Provident Fund. [Mod. Nov 2007]
Answer:
Computation of total income & tax liability of Siddhant for AY 2021-22
Salary Income
Bonus Rs. 11,000
Value of perquisites: (i) Salary of servant Rs. 12,000
Value of perquisites: (ii) Free gas, electricity & water Rs. 11,000
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 3,19,000
Gross Annual Value (GAV) (Rent receivable is taken as GAV) (3,500 × 12) Rs. 42,000
Less: Deduction u/s 24(a): 30% of NAV Rs. 11,310
Less: 24(b): (ii) Interest on loan from LIC @ 15% of Rs. 1,60,000 [Note 2] Rs. 24,000 Rs. 2,390
Income from speculative business
Income from share speculation business Rs. 2,700
Less: Loss from cotton speculation business Rs. 4,200
Net Loss Rs. 1,500
Net loss from speculative business has to be carried forward as it cannot be set off
against any other head of income.
(i) Income on account of interest earned from advancing money gifted to Rs. 3,800
his minor son is includible in the hands of Siddhant as per section 64(1A)
Less: Exempt u/s 10(32) (Rs. 1,500)
(ii) Interest income earned from advancing money gifted to wife has to Rs. 5,700
be clubbed with the income of the assessee as per section 64(1)
(iii) Gift received from four friends (taxable u/s 56(2)(x) as the aggregate Rs. 1,20,000 Rs. 1,28,000
amount received during the year exceeds Rs. 50,000)
Less: Deduction u/s 80C: Contribution to Public Provident Fund (Rs. 50,000)
Particulars Rs.
Tax on total income of Rs. 3,99,390 @ 5% Rs. 7,470
Less: Rebate u/s 87A, since total income does not exceed Rs. 5,00,000 Rs. 7,470
Tax liability Nil
Computation of total income & tax liability of Siddhant as per section 115BAC for AY 2021-22
Particulars Rs. Rs.
Salary Income
Bonus Rs. 11,000
Value of perquisites:
(i) Salary of servant Rs. 12,000
(ii) Free gas, electricity & water Rs. 11,000 Rs. 23,000
Rs. 3,69,000
Less: Standard deduction u/s 16(ia) [not allowable as per section Nil
115BAC(2)]
Income from house property Rs. 3,69,000
Gross Annual Value (GAV) (Rent receivable is taken as GAV in the Rs. 42,000
absence of other information) (3,500 × 12)
Less: Deductions u/s 24
(i) 30% of NAV Rs. 11,310
(ii) Interest on loan from LIC @15% of 1,60,000 [See Note 2] Rs. 24,000 Rs. 35,310 Rs. 2,390
Income from speculative business
Income from share speculation business Rs. 2,700
Less: Loss from cotton speculation business Rs. 4,200
Net Loss Rs. 1,500
Net loss from speculative business has to be carried forward as it
cannot be set off against any other head of income.
(i) Income on account of interest earned from advancing money gifted Rs. 3,800
to his minor son is includible in the hands of Siddhant as per section
64(1A) [Exemption u/s 10(32) would not be available]
(ii) Interest income earned from advancing money gifted to wife has to
be clubbed with the income of the assessee as per section 64(1) Rs. 5,700
(iii) Gift received from four friends (taxable u/s 56(2)(x) as the
aggregate amount received during the year exceeds Rs. 50,000) Rs. 1,20,000 Rs. 1,29,500
Deduction u/s 80C [No deduction under Chapter VI-A would be allowed
as per section 115BAC(2)] Nil
Particulars
Tax on total income Rs. 12,589
Less: Rebate u/s 87A (not available, since total income exceeds Rs. 5,00,000) Nil
Add: Health & education cess @4% Rs. 504
Rs. 13,093
Tax liability Rs. 13,093
Tax liability (rounded off) Rs. 13,090
Since Mr. Siddhant is not liable to pay any tax as per the regular provisions of the Income-tax Act, 1961, it
would be beneficial for him to not opt for section 115BAC for AY2021-22.
Notes:
1. It is assumed that the entire loan of Rs. 1,60,000 is outstanding as on 31.3.2021;
2. Since Siddhant’s own flat in a co-operative housing society, which he has rented out to a nationalized
bank, is also in Delhi, he is not eligible for deduction u/s 80GG i.r.o. rent paid by him for his
accommodation in Delhi, since one of the conditions to be satisfied for claiming deduction u/s 80GG is
that the assessee should not own any residential accommodation in the same place.
3. Alternatively, computation total income as per the special provisions of section 115BAC can also be
presented as follows:
Particulars Rs. Rs.
Total Income as per regular provisions of the Income-tax Act Rs. 3,99,390
Add: (i) Standard deduction u/s 16(ia) as it would not be
allowable under the special provisions Rs. 50,000
(ii) Exemption u/s 10(32) as it would not be available under the Rs. 1,500
special provisions
(iii) Deduction u/s 80C as no deduction under Chapter VI-A
would be allowed under the special provisions Rs. 50,000 Rs. 1,01,500
Q8. Ramdin, aged 33 years, working as Manager (Sales) with Frozen Foods Ltd., provides the following
information for the PY 2020-21:
DA (50% of it is meant for retirement benefits) Rs. 2,000 p.m
Commission as percentage of turnover of Company 0.5 %
Turnover of the Company Rs. 50 lacs
Bonus Rs. 50,000
Gratuity Rs. 30,000
Own Contribution to R.P.F. Rs. 30,000
Employer’s contribution to R.P.F. 20% of basic salary
Interest credited in the R.P.F. account @ 15% p.a Rs. 15,000
Gold Ring given by employer on his 25th wedding anniversary Rs. 10,000
Music System purchased on 01.04.2020 by the company for personal use Rs. 85,000
Two old light goods vehicles owned by him were leased to a transport company Rs. 6,500 p.m.
against the fixed charges of Rs. 6,500 p.m. Books of account are not maintained.
Received interest on bank FDRs on 24.4.2020 (net) Rs. 5,860
Received interest from debentures of Indian Companies on 5.5.2020 (net) Rs. 6,786
Made payment by cheques of Rs. 15,370 towards premium on Life Insurance policies Rs. 15,370
Rs. 22,500 for Mediclaim Insurance policy for self & spouse Rs. 22,500
Invested in NSC Rs. 30,000 Rs. 30,000

In FDR of SBI for 5 years Rs. 50,000 Rs. 50,000
Donation of Rs. 11,000 to an institution approved u/s 80G was given during the year Rs. 11,000
by way of cheque.
Donation of Rs. 5,100 to Prime Minister’s National Relief Fund was given during the Rs. 5,100
year by way of cheque.
Compute the total income & tax payable thereon for the AY 2021-22. Assume Ramdin does not opt for
section 115BAC
Answer:
Computation of Total Income for the AY2021-22
Basic Salary (Rs. 15,000 x 12) Rs. 1,80,000
Dearness Allowance (Rs. 12,000 x12) Rs. 1,44,000
Commission on Turnover (0.5% of 50 lacs) Rs. 25,000
Bonus Rs. 50,000
Gratuity (See Note 1) Rs. 30,000
Employer’s contribution to recognized provident fund
Actual contribution [20% of Rs. 1,80,000] Rs. 36,000
Less: Exempt (See Note 2) Rs. 33,240 Rs. 2,760
Interest credited in recognized provident fund account @15% p.a. Rs. 15,000
Less: Exempt upto 9.5% p.a. Rs. 9,500 Rs. 5,500
Gift of gold ring worth Rs. 10,000 on 25 wedding anniversary by employer
th
(See Note 3) Rs. 10,000

Perquisite value of music system given for personal use (being 10% of
actual cost) i.e. 10% of Rs. 85,000 Rs. 8,500
Rs. 4,05,760
Profits & Gains of Business or Profession
Lease of 2 light goods vehicles on contract basis against fixed charges of Rs. 6,500 p.m.
In this case, presumptive tax provisions of section 44AE will apply i.e. Rs. 7,500 p.m. for Rs. 1,80,000
each of the two light goods vehicle (Rs. 7,500 x 2 x 12). He cannot claim lower profits &
gains since he has not maintained books of account.
Interest on bank FDRs Rs. 5,860
Interest from debentures (Rs. 6786 x 100/90) Rs. 7,540 Rs. 13,400
Gross total Income Rs. 5,99,160
Section 80C
Premium on life insurance policy Rs. 15,370
Investment in NSC Rs. 30,000
FDR of SBI for 5 years Rs. 50,000
Employee’s contribution to recognized provident fund Rs. 30,000 Rs. 1,25,370

Section 80D – Mediclaim Insurance Rs. 22,500
Section 80G (See Note 4) Rs. 10,600
Tax on total income
Income-tax Rs. 9,535
Add: Rebate u/s 87A, since total income does not exceed Rs. 5,00,000 Rs. 9,535
Total Tax Payable Nil
Less: Tax deducted at source (Rs. 7,540 – Rs. 6,786) Rs. 754
Net tax refundable Rs. 754
Tax refundable (rounded off) Rs. 750
Notes:
1. Gratuity received during service is fully taxable.
2. Employer’s contribution in the recognized provident fund is exempt up to 12% of the salary i.e. 12% of
(Basic Salary + DA for retirement benefits + Commission based on turnover)
=12% of (Rs. 1,80,000+ (50% of Rs. 1,44,000) + Rs. 25,000)
=12% of Rs. 2,77,000 = Rs. 33,240
3. An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable in view of the language
of Circular No.15/2001 dated 12.12.2001 that such gifts upto Rs. 5,000 in the aggregate per annum would
be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite
would be 5,000. In such a case the Income from Salaries would be Rs. 4,00,760.
4. Deduction u/s 80G is computed as under:
Particulars Rs.
Donation to PM National Relief Fund (100%) Rs. 5,100
Donation to institution approved u/s 80G (50% of Rs. 11,000) (amount contributed Rs.
11,000 or 10% of Adjusted Gross Total Income i.e. 45,129, whichever is lower)
Rs. 5,500
Total deduction Rs. 10,600
Adjusted Gross Total Income =Gross Total Income - Deductions u/s 80C & 80D= Rs. 5,99,160 - Rs. 1,47,870
= Rs. 4,51,290
Q9. From the following particulars furnished by Mr. X for PY 2020-2021, you are requested to compute his
total income & tax payable for AY 2021-22, assuming that he does not opt for paying tax u/s 115BAC.
(a) Mr. X retired on 31.12.2020 at the age of 58, after putting in 25 years & 9 months of service, from a
private company at Mumbai.
(b) He was paid a salary of Rs. 25,000 p.m. & house rent allowance of Rs. 6,000 p.m. He paid rent of Rs.
6,500 p.m. during his tenure of service.
(c) On retirement, he was paid a gratuity of Rs. 3,50,000. He was covered by the payment of Gratuity Act.
Mr. X had not received any other gratuity at any point of time earlier, other than this gratuity.
(d) He had accumulated leave of 15 days per annum during the period of his service; this was encashed by
Mr. X at the time of his retirement. A sum of Rs. 3,15,000 was received by him in this regard. His average
salary may be taken as 24,500. Employer allowed 30 days leave per annum.
(e) After retirement, he ventured into textile business & incurred a loss of Rs. 80,000 upto 31.3.2021.
(f) Mr. X has deposited Rs. 1,00,000 in public provident fund.
Answer:
Computation of total income of Mr. X for AY 2021-22
Basic salary (Rs. 25,000 x 9 months) Rs. 2,25,000
House rent allowance:
Actual amount received (Rs. 6,000 x 9 months) Rs. 54,000
Less: Exemption u/s 10(13A)(Note 1) Rs. 36,000 Rs. 18,000
Gratuity:
Actual amount received Rs. 3,50,000
Less: Exemption u/s 10(10)(ii) (Note 2) Rs. 3,50,000 -
Leave encashment: Rs. 3,15,000
Actual amount received
Less: Exemption u/s 10(10AA) (Note 3) Rs. 2,45,000 Rs. 70,000
Profits and gains of business or profession Rs. 2,63,000
Business loss of Rs. 80,000 to be carried forward as the same cannot be
set off against salary income Nil
Gross Total income Rs. 2,63,000
Less: Deduction u/s 80C
Deposit in Public Provident Fund Rs. 1,00,000
Tax on total income Nil
Notes:
1. House rent allowance will be exempt to the extent of least of the following three amounts:
(i) HRA actually received (Rs. 6,000 x 9) Rs. 54,000
(ii) Rent paid in excess of 10% of salary (Rs. 6,500 – Rs. 2,500) x 9 months Rs. 36,000
(iii) 50% of salary Rs. 1,12,500
2. Gratuity of Rs. 3,50,000 is exempt u/s 10(10)(ii), being the minimum of the following amounts:
(i) Actual amount received Rs. 3,50,000
(ii) 15 days salary x Length of Service [(Rs. 25,000 x 15/26) x 26 years] Rs. 3,75,000
(iii) Statutory limit Rs. 20,00,000
3. Leave encashment is exempt upto the least of the following:

Actual amount received Rs. 3,15,000
10 months average salary (Rs. 24,500 x 10) Rs. 2,45,000
Cash equivalent of unavailed leave calculated on the basis of maximum 30 days
for every year of actual service rendered to the employer from whose service
he retired (See Note 4 below) Rs. 3,06,250
Statutory limit Rs. 3,00,000
4. Since the leave entitlement of Mr. X as per his employer’s rules is 30 days credit for each year of
service & he had accumulated 15 days per annum during the period of his service, he would have
availed/taken the balance 15 days leave every year.
Leave entitlement of Mr. X on the basis of 30 days for every = 30 days/year x 25= 750 days
year of actual service rendered by him to the employer
Less: Leave taken /availed by Mr. X during the period of his = 15 days/year x 25= 375 days
service
Earned leave to the credit of Mr. X at the time of his 375 days
retirement
Cash equivalent of earned leave to the credit of Mr. X at = 375 × Rs. 24,500/30 = Rs. 3,06,250
the time of his retirement
Q10. Rosy & Mary are sisters, born & brought up at Mumbai. Rosy got married in 1982 & settled at Canada
since 1982. Mary got married & settled in Mumbai. Both of them are below 60 years. The following are the
details of their income for PY ended 31.3.2021:
SN Particulars Rosy Mary
1 Pension received from State Government -- 60,000
2 Pension received from Canadian Government Rs. 20,000 --
3 Long-term capital gain on sale of land at Mumbai Rs. 1 Lac Rs. 1 Lac
4 Short-term capital gain on sale of shares of Indian listed companies i.r.o. Rs. 20,000 Rs. 2.5 Lacs
which STT was paid
5 LIC premium paid -- Rs. 10,000
6 Premium paid to Canadian Life Insurance Corporation at Canada Rs. 40,000 --
7 Mediclaim policy premium paid by A/c Payee Cheque -- Rs. 25,000
8 Deposit in PPF -- Rs. 20,000
9 Rent received i.r.o. house property at Mumbai Rs. 60,000 Rs. 30,000
Compute the taxable income & tax liability of Mrs. Rosy & Mrs. Mary for AY 2021-22 & tax thereon. Ignore
the provisions of section 115BAC.
Answer: Computation of taxable income of Mrs. Rosy & Mrs. Mary for AY 2021-22
Particulars Rosy Marry
[NR] [ROR]
1. Income u/h Salaries:
Pension from State Government 60,000
Less: Standard deduction u/s 16(ia) (50,000) Nil 10,000
Mrs. Rosy is a Non-Resident. Hence, Pension received from Canadian Government is not taxable.
2. Income from House Property:
Gross Annual Value 60,000 30,000
Less: Municipal Tax paid Nil Nil
Net Annual Value 60,000 30,000
Less: Deduction u/s 24(a): 30% of NAV – [60,000 x 30% & 30,000 x 30% ] (18,000) (9,000)
Income from House Property 42,000 21,000
STCG on sale of Listed Securities of Indian Co. [STT paid] 20,000 2,50,000
LTCG on sale of Land at Mumbai 1,00,000 1,00,000

Income u/h “Capital Gains” 1,20,000 3,50,000
Gross Total Income 1,62,000 3,81,000
80C: Life Insurance Premium (10,000)
80C: PPF (20,000)
80C: Premium paid to Canadian Life insurance corporation (40,000)
80D: Midiclaim Premium paid - (25,000)
Chapter VIA deduction is restricted to incomes other than Cap. Gains (40,000) (31,000)
Total Income 1,22,000 3,50,000
Tax on Total Income of Mrs. Rosy for AY 2021-22

Long Term Capital Gain u/s 112 at 20% = [1,00,000 x 20%] 20,000
Short Term Capital Gain u/s 111A at 15% = [20,000 x 15%] 3,000
Tax on Balance Income of Rs. 2,000 Nil 23,000
Add: HEC at 4% 920
Net Tax Payable (rounded off) 23,920
Tax on Total Income of Mrs. Marry for AY 2021-22

STCG u/s 111A @ 15% of Rs. 1 Lac [Rs. 2.5 Lacs - Rs. 1.5 Lacs (being unexhausted BEL)] 15,000
Less: Rebate u/s 87A (12,500) 2,500
Add: HEC at 4% 100
Net Tax Payable (rounded off) 2,600
Notes:
1. LTCG on sale of land is chargeable to tax @ 20% as per section 112.
2. Short-term capital gains on transfer of equity shares i.r.o. which securities transaction tax is paid is
subject to tax@15% as per section 111A.
3. In case of resident individuals, if the basic exemption limit is not fully exhausted against other income,
then, the long-term capital gains/short-term capital gains will be reduced by the unexhausted basic
exemption limit and only the balance will be taxed at 20%/15%, respectively. However, this benefit is
not available to non-residents. Therefore, while Mrs. Mary can adjust unexhausted basic exemption limit
against long-term capital gains taxable u/s 112 & short-term capital gains taxable u/s 111A, Mrs. Rosy
cannot do so.
4. Since long-term capital gains is taxable at the rate of 20% & short-term capital gains is taxable at the
rate of 15%, it is more beneficial for Mrs. Mary to first exhaust her basic exemption limit of Rs. 2,50,000
against long-term capital gains of Rs. 100,000 & the balance limit of Rs. 1,50,000 (i.e., Rs. 2,50,000 –
Rs. 1,50,000) against short-term capital gains.
5. Rebate u/s 87A would not be available to Mrs. Rosy even though her total income does not exceed Rs.
5,00,000, since she is non-resident for the AY 2021-22.
Q11. Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in PY 2016-17 for production of washing
machines. The unit fulfills all the conditions of section 10AA of the Income-tax Act, 1961. During the financial
year 2019-20, he has also set up a warehousing facility in a district of Tamil Nadu for storage of agricultural
produce. It fulfills all the conditions of section 35AD. Capital expenditure i.r.o. warehouse amounted to 75
Lacs (including cost of land 10 Lacs). The warehouse became operational w.e.f. 1st April, 2020 & expenditure
of Rs. 75 Lacs was capitalized in the books on that date. Relevant details for PY 2020-21 are as follows:
Particulars Rs.
Profit of unit located in SEZ 40,00,000
Export sales of above unit 80,00,000
Domestic sales of above unit 20,00,000
Profit from operation of warehousing facility (before considering deduction u/s 35AD) 1,05,00,000
Compute income tax (including AMT u/s 115JC) payable by Mr. X for AY 2021-22.
Solution: Computation of total income & tax liability of Mr. X for AY 2021-22 (under regular provisions)
Particulars Rs. Rs.
Profits and gains of business or profession
Profit from unit in SEZ 40,00,000
Less: Deduction under section 10AA [See Note (1) below] 32,00,000
Business income of SEZ unit chargeable to tax 8,00,000
Profit from operation of warehousing facility 1,05,00,000
Less: Deduction u/s 35AD 65,00,000
Business income of warehousing facility chargeable to tax 40,00,000
Computation of tax liability (under the normal/ regular provisions)
Tax on Rs. 48,00,000 12,52,500
Add: HEC @ 4% 50,100
Total tax liability 13,02,500
Computation of Adjusted Total Income of Mr. X for levy of Alternate Minimum Tax
Particulars Rs. Rs.
Total Income (as computed above) 48,00,000
Add: Deduction under section 10AA 32,00,000
80,00,000
Add: Deduction under section 35AD 65,00,000
Less: Depreciation under section 32 (On building @ 10% of Rs. 65 lakhs) 6,50,000 58,50,000
Adjusted Total Income 1,38,50,00
Alternate Minimum [email protected]% 25,62,250
Add: Surcharge@15% (since adjusted total income > Rs. 1 crore) 3,84,338
29,46,588
Add: HEC @ 4% 1,17,863
Tax liability under section 115JC (rounded off) 30,64,450
Note:
❖ It is assumed that the capital expenditure of Rs. 65 lakhs is incurred entirely on buildings.
❖ Since regular tax payable is < AMT, adjusted total income shall be deemed to be total income & tax is leviable
@ 18.5% + surcharge @ 15% & HEC @ 4%. Therefore, tax liability is Rs. 30,64,450.
❖ AMT Credit to be c/f u/s 115JEE = Tax liability u/s 115JC - Tax liability under regular provisions = Rs. 17,61,850.
Notes:
1. Deduction u/s 10AA i.r.o. Unit in SEZ = Profits from unit in SEZ × (Export Turnover of unit in SEZ)/(Total turnover
of Unit in SEZ) = Rs. 40,000 × 80L/100L = Rs. 32,000.
2. Further, expenditure incurred wholly & exclusively for the purposes of such specified business, shall be
allowed as deduction during PY in which he commences operations of his specified business if expenditure is
incurred prior to the commencement of its operations & amount is capitalized in books of A/c of the assessee
on the date of commencement.
3. Deduction u/s 35AD would not be available on expenditure incurred on acquisition of land. Since capital
expenditure of Rs. 65 lacs (i.e. Rs. 75 lacs – Rs. 10 lacs being expenditure on acquisition of land) has been
incurred in PY 2020-21 & capitalized in books of A/c on 1.4.2020, being the date when the warehouse became
operational, Rs. 65,00,000, being 100% of Rs. 65 lakhs would qualify for deduction u/s 35AD.
TOTAL COMPUTATION – PRACTICE QUESTION BANK

PQ1. Following is the Profit & Loss Account of Mr. Aditya, aged 58 years, a resident, for PY 2020-21:
Particulars Rs Particualrs Rs.
Rent 60,000 Gross Profit 1,85,000
Repair of Car 3,000 Gift of Cash from a Friend (received on 15.09.2020) 25,000
Wealth Tax 5,000 Sale of Car 17,000
Medical Expenses 4,500 Interest on Income-Tax refund 3,000
Salary 18,000
Depreciation on Car 3,000
Advance Income-Tax 1,500
Net Profit 1,35,000
Total 2,30,000 Total 2,30,000
Other information:
1. Aditya bought a car during PY 2020-21 for Rs. 20,000. He charged depreciation @ 15%. The above Car was
sold during PY for Rs. 17,000. The use of the car was 3/4th for business & 1/4th for personal use.
2. Medical Expenses were incurred for the treatment of Nikita, his wife.
3. Salary had been paid on account of Car Driver.
4. Rent includes Arrears of Rent from April 2020 to October 2020 @ Rs. 5,000 p.m. paid in cash on 1.11.2020.
5. Mr. Aditya had let out a House Property @ monthly rent of Rs. 25,000. Annual letting value is considered to be
Rs. 2,50,000. Municipal Taxes are Rs. 6,000, out of which Rs. 3,000 are paid by Tenant & Rs. 3,000 are yet to
be paid by Mr. Aditya.
6. Interest on Loan taken for the House Property is Rs. 20,000.
7. Mr. Aditya's Minor Daughter received Rs. 75,000 from Stage Acting. Interest on Company Deposits of Mr.
Aditya's daughter (Deposit was made out of Income from Stage Acting) was Rs. 10,000.
8. Aditya incurred Rs. 50,000 on the medical treatment of his dependent son, who has disability of > 80%.
9. Aditya had taken a Loan during PY 2020-21 for education of his son, who is pursuing B.Com. in Delhi University.
Interest paid during the year was Rs. 10,000. Compute Total Income of Mr. Aditya for AY 2021-22. [Nov 2013]
Particualrs Rs. Rs.
Gross Annual Value (25000 x 12) 3,00,000
Less: Municipal Taxes paid (Amount paid by Tenant is not allowable as deduction) Nil
Net Annual Value 3,00,000
Less: Deduction u/s 24(a): 30% of NAV (Rs. 3,00,000 × 30%) (90,000)
Less: Deduction u/s 24(b): Interest on Borrowed Capital (20,000) 1,90,000
2. Profits & Gains of Business or Profession
Net Profit as per Profit & Loss Account 1,35,000
Add: Inadmissible expenses debited to P&L A/c
Repairs of Car: 1/4th not allowed being personal use = 1/4th of 3,000 750
Wealth Tax, not allowable u/s 40(a)(iia) 5,000
Medical Expenses incurred for Spouse, being personal expenses disallowed 4,500
Car Driver Salary: 1/4th of Driver Salary not allowed being used for personal use 4,500
Depreciation on Car: considered separately 3,000
Advance Income Tax [not allowable u/s 40(a)(ii)] 1,500

Arrears of Rent paid in Cash, disallowed u/s 40A(3) (Apr to Oct = 7 * 5,000 pm) 35,000
Less: Incomes considered under other heads/Exempt Incomes
Gift from Friend – considered separately (25,000)
Sale of Car – considered separately (17,000)
Interest on Income Tax Refund – considered separately (3,000) 1,44,250
Interest on Income Tax Refund 3,000
Cash Gift from Friend (not taxable since amount is less than Rs. 50,000) Nil
Interest on Bank Deposit shall be clubbed in Parent’s hands u/s 64(1A) 10,000
Less: Exemption u/s 10(32) (1,500) 11,500
Less: Deduction under chapter VI-A: 80E: Interest on Education Loan (10,000)
80DD: Expenses on Medical Treatment of Son (Severe Disability) (1,25,000) (1,35,000)
Note: STCL can be set off only against Capital Gain. Rs. 3,000 [20,000 – 17,000] will be c/f to succeeding AYs.
Note: Income earned by Minor Daughter from Stage Acting (i.e. by exercise of Skill, Talent, etc.), is assessable
only in her hands & not clubbed in the Parent’s hands.
PQ2. Mr. Devansh, an Indian Resident aged 38 years carries on his own business. He gives the following details:
Salary 48,000 Gross Profit 4,30,400
Advertisement 24,000 Cash Gift (on Marriage) 1,20,000
Sundry Expenses 54,500 Interest on Listed Debentures 3,600
Fire Insurance (Rs. 10,000 relates to House) 30,000 [Net]
Income Tax & Wealth Tax 27,000

Household Expenses 42,500
Depreciation (Allowable) 23,800
Contribution to University approved u/s 35(1)(ii) 1,00,000
Municipal Taxes paid for House 36,000
Printing & Stationery 12,000
Repairs & Maintenance 24,000
Net Profit 1,32,200
Other Information:
1. Mr. Devansh owns a House Property which is being used by him for the following purposes:
- 25% for Own Business; - 25% for Self-Residence; - 50% Let Out for Residential Purpose.
2. Rent Received from 50% Let Out Portion during the year was Rs. 1,65,000.
3. On 1.12.2020, he acquired a vacant site from his friend for Rs. 1,05,000. SDV is Rs. 2,55,000.
4. He received interest on Post Office Savings Bank Account amounting to Rs. 500.
5. Cash Gift on the occasion of Marriage includes gift of Rs. 20,000 from Non-Relatives.
6. LIC Premium Paid (Policy Value - 3,00,000 taken on 1.6.2018) - 60,000 for his handicapped son.
7. He purchased 10,000 Shares of a Company on 1.1.2015 for Rs. 1,00,000 & received a 1:1 Bonus on 1.1.2019. He
sold 5,000 Bonus Shares in September 2020 for Rs. 2,20,000. (Shares are not listed & STT not paid)
Compute Total Income & Net Tax Payable of Mr. Devansh for AY 2021-22. [Nov 2014]
Solution: Computation of Taxable Income & Tax Liability
Particualrs Rs.
1. Income from House Property [Note 1] 1,02,000
2. Profits & Gains from Business or Profession |Note 2| 1,12,600
3. Income from Other Sources [Note 3] 1,54,000
4. Income u/h “Capital Gains” [Note 4] 2,20,000
Less: Deductions under Chapter VI-A [WN 5] (1,20,000)
Tax thereon = (4,69,500 – Rs. 2,50,000) x 5% [WN 6] 10,950
Net Tax Payable Nil
Less: TDS on Interest on Debentures (4,000 – 3,600) (400)
Tax Refund 400
Working Notes:
1. Income from House Property: (25% used for Business, So, such Portion is not covered under this Head).
Particulars SOP LOP
Gross Annual Value - 1,65,000
Less: Municipal Taxes for let out portion = (Rs. 36,000 x 50%) - (18,000)
Net Annual Value Nil 1,47,000
Less: Deduction u/s 24(a): 30% of Net Annual Value - (44,100)
Less: Deduction u/s 24(b): Interest on Borrowed Capital Nil Nil
Income from House Property Nil 1,02,900
2. Profits & Cains from Business or Profession

Profit as per P&L Account 1,32,200
Fire Insurance relating to House disallowed (10,000x75%) [Personal] 7,500
Income Tax & Wealth Tax disallowed u/s 40 27,000
Household Expenses, Personal in nature, disallowed 42,500
Contribution to Notified University 1,00,000
Municipal Tax relating to House is disallowed (36,000x 75%) 27,000 2,04,000
Less: Admissible Expenses not debited to P&L A/c
Contribution to University notified u/s 35(1)(ii) [100% ×1,00,000] (1,00,000) (1,00,000)
Less: Incomes considered under other heads/ Exempt Incomes
Cash Gifts considered under Income from Other Sources (1,20,000)
Interest on Debentures considered under Income from Other Sources (3,600) (1,23,600)
Income from PGBP 1,12,600

Particulars Rs.
(a) Cash Gifts on Marriage [exempt under Proviso to Sec.56(2)(vii)] NIL
(b) Interest on Debentures Received [Rs. 3,600/90%] after grossing up 4,000
(c) Interest on Post Office Savings Bank Account Rs. 500 - Exempt u/s 10(15) upto Rs. 3,500 Nil
(d) Acquisition of Immovable Property @ < SDV [Sec. 56(2)(vii)(b)] (2,55,000 – 1,05,000) 1,50,000
Total 1,54,000
4. Cost of Acquisition of Bonus shares = Nil since allotted after 1.4.2001. Thus, whole Sale Proceeds shall be
taxable.
[Date of Allotment: 1.1.2019 & Date of Sale: September 2020; Holding Period < 24 months & hence it is STCA].
5. Deductions under Chapter VI A

Particulars Rs.
80C: LIC Premium (Assessee’s son is handicapped with Sec.80U Disability, Premium deductible 45,000
= least of 15% of Sum Assured, or Sum Paid, i.e. (3,00,000x 15%) or Rs. 60,000.
80DD: Assessee’s son is handicapped with Sec 80U Disability. It is assumed that no separate 75,000
assessment for Son & thus assessee is eligible for deduction u/s 80DD
Total 1,20,000
Note: If it is assumed that Son claims 80U Deduction in his assessment & he is not dependent on Mr. Devansh,
above 80DD deduction shall is not available to Mr. Devansh.
6. Since STCG Shares are not listed & STT not paid, normal Slab Rate of Tax is applicable.
PQ3. Mr. DK, resident individual aged 45, Partner in B & Co has received the following amounts from the Firm:
▪ Interest on Capital at 15%: Rs. 3,00,000;
▪ Salary as Working Partner (At 0.75% of Firm's Sales): Rs. 90,000
▪ He is engaged in a business in which he manufactures wheat flour from wheat.
Profit & Loss A/c pertaining to this business (Summarized Form)
Particulars Amount Particulars Amount
Salaries 1,20,000 Gross Profit 12,50,000
Bonus 48,000 Interest on Bank FD (Net) 45,000
Car Expenses 50,000 Agricutlure Income 60,000
Machinery Repairs 2,34,000 Pension from LIC Jeevandhara 24,000
Advance Tax 70,000
Depreciation: Car 3,00,000
Depreciation: Machinery 1,25,000
Net profit 4,32000
Opening WDV of Assets

Car 3,00,000
Machinery (Used during the year for 170 days) Addition to Machinery 6,50,000
New purchased on 23.09.2020 2,00,000
New purchased on 12.11.2020 3,00,000

Old purchased on 12.04.2020 (All assets added were put to use immediately after purchase) 1,25,000
Out of the total bonus amount, Rs. 15,000 was paid on October 11, 2020. One-fifth of the car expenses are
towards estimated personal use of the Assessee. In March 2020, he sold a house at Chennai. Arrears of rent
relating to this house amounting to Rs. 75,000 was received in February, 2021.
Details of his Saving & Investments
Life Insurance Premium for policy in the name of his major son employed in LMN Ltd at a Salary 50,000
of Rs. 6 Lacs p.a – Sum assured Rs. 2,00,000.
Contribution to Pension Fund of National Housing Bank 70,000
(This was met partially from out of premature withdrawal of deposit in Post Office Time Deposit
made on 12.3.2013: Principal component Rs. 55,000 & Interest Rs. 5,000)
Medical Expenditure for his father aged 85 (being very Senior Citizen) 22,000
Compute the Total Income of Mr. Dinesh Karthik for AY 2021-22 & tax payable by him. Also indicate whether
Interest, if any, u/s 234A & 234B are payable, assuming that the return was filed on 28.9.2021. [May 2010]
Solution: Computation of Total Income & Tax Liability
Arrears of Rent received for sold property taxable in PY of receipt @ 70% 52,500
2. Profits & Gains from Business or Profession
Interest on Capital from the firm “M/s Badrinath & Co” (to the extent allowed 2,40,000
as deduction for Firm) (Rs. 3,00,000 x 12%/15%)
Salary as Working Partner (to the extent deductible to the Firm) [assumed 90,000
that Salary is fully deductible for Firm & is within the limits u/s 40(b)]
Profits & Gains of Business or Profession from Wheat Flour Business
Net Profit as per Profit & Loss Account 4,32,000
Bonus [Assumed balance of Rs. 33,000 (48,000 – 15,000) is not paid] 33,000
Car Expenses disallowed – Used for personal purposes (1/5 of 50,000)
th
10,000
Advance Tax disallowed, as it is not a Business Expense u/s 40(a) 70,000
Depreciation as per Books [3,00,000 (Car) +1,25,000 (Machinery)] 4,25,000
Less: Admissible expenses not debited to P&L A/c
Depreciation as per Income Tax Act, 1961 (WN 2) (2,74,750)
Less: Incomes considered under other heads/ Exempt Incomes
Interest on Bank FD – Considered as “Income from Other Sources” (45,000)
Agricultural Income – Exempt u/s 10(1) (60,000)
Pension from LIC Jeevandhara – as “Income from Other Sources” (24,000) 8,96,250
Interest on Bank FD – [45,000/90%] 50,000
Pension from LIC Jeevandhara – Taxable as it is not a Life Insurance Policy 24,000
Premature Withdrawal of Post Office Time Deposits - Principal amount is 55,000
taxable whereas interest is not taxable
Interest on Post Office Time Deposit – Not taxable [assumed to be taxed in Nil 1,29,000
year of accrual]

80C: LIC Premium for Son – [to the extent of 10% of sum assured] 20,000
80C: Contribution to Pension Fund of National Housing Bank 70,000
80D: Medical Expenditure on Senior Citizen: [Max. 50,000] 22,000 1,12,000
Add: Agricultural Income 60,000
Total Income including Agricultural Income 10,25,750

Tax on Rs. 10,25,750 [Rs. 1,12,500 + [(10,25,750 – 10,00,000) x 30%] 1,20,225
Less: Tax on (BEL + Agri. Income) = Tax on Rs. [(2,50,000 + 60,000) – 2,50,000] x 5% (3,000) 1,17,225
Tax Payable + HEC @ 4% 1,21,914
Less: TDS on Interest on Fixed Deposits (5,000)
Less: Advance Tax Paid (70,000) (75,000)
Net Tax Payable (Rounded Off) 46,914
1. Computation of Depreciation:
Particulars Car (15%) Machinery (15%)
Opening WDV 3,00,000 6,50,000
Add: Additions during PY Nil 6,25,000
Less: Sale Value during PY Nil Nil
WDV for depreciation 3,00,000 12,75,000
(i) WDV of asset used < 180 days Nil = Nil 3,00,000 × 15 × ½ = 22,500
(ii) Balance WDV 3,00,000 × 15 % = 45,000 × 4/5 9,75,000 × 15 = 1,46,250
Total Normal Depreciation 36,000 1,68,750
Addition Depreciation - 2L × 20% = 40,000 +
3L × 20% × ½ = 30,000
Total Depeciation 36,000 2,38,750
Note:
(a) Car used for personal purposes: Only 4/5 of actual depreciation shall be allowed as deduction u/s 32.
(b) Opening WDV used for 170 days: Restriction of 50% shall be applicable only for new machinery bought
during PY & used for less than 180 days during that PY.
(c) Additional Depreciation: Opening WDV shall be eligible for full depreciation. However, Additional
Depreciation shall be allowed only for New P&M purchased & not for second-hand machinery. Since New
Machinery of Rs. 3 lacs is used for < 180 days, only 50% of Additional Depreciation is allowable. Balance
50% shall be allowed in next PY.
2. Production of Wheat Flour from wheat is considered as business, & not as agriculture.
3. Interest u/s 234A: Assessee is a Partner of M/s Badrinath & Co, which is subject to Tax Audit u/s 44AB during
PY 2019-20, as Turnover of the Firm (i.e. 90,000 = 0.75% = 120 Lacs) exceeds Rs. 1 Cr. Hence, due date of filing
ROI shall be 30th Sep 2020. As he had filed his Return on 28.09.2020, he need not pay interest u/s 234A.
4. Interest u/s 234B: Interest u/s 234B is attracted when the total Advance Tax paid is < 90% of Assessed Tax.
Total Advance Tax paid (Rs. 70,000) is less than 90% of Tax Payable [90% of (Rs. 1,21,914 – Rs. 5,000) = Rs.
1,05,226], Interest u/s 234B shall get attracted.
PQ4. Dr. Shuba is medical practitioner (age 64). Her Receipts & Payments account of PY 2020-21 is as under:
Receipts (To) Amount Payment (By) Amount
Balance B/f 10,000 Purchase of Commercial Vehicle 4,00,000
Receipts from Sale of Medicine 2,50,000 Drawings 2,50,000
Consultation Fee 50,000 Deposit in Bank for 5 years 1,50,000
Visiting Fee 2,00,000 Surgical Instrument purchased (RoD = 50,000
40%) [Used for more than 180 days]
Lectures (Part-time employment) 5,000 Loan Repayment (Including Interest of 1,21,000
Rs. 22,333)
Family Pension 2,80,000 Medical Insurance Premium 32,000
Saving Bank Interest 1,000 Instalment of Housing Loan (Principal 1,08,000
component Rs. 48,000)
Loan from Bank @ 8% 3,00,000 Advance Income Tax paid 20,000
Share from HUF 50,000 Purchase of Medicine 47,000
Income from Lottery (Net) 35,000 Payment of Medical Journal 5,000
Expenses of Commercial Vehicle 50,000
Balance C/f 48,000
(i) She resides in her own house which was constructed in 2013 with Loan of Rs. 10 lacs out of which 6 lacs was
still due. She got it refinanced from SBI on 1.4.2020 @ 10%. 1/4th portion of house is used for clinic purposes.
(ii) She invested in Term Deposit 1,50,000 in BOI on 1.7.2020 for 5 years in name of her minor daughter @ 9% p.a.
(iii) She purchased a commercial vehicle on 1st July 2020 at Rs. 4,00,000. A Loan of Rs. 3,00,000 was taken to buy
the van at 8% interest. 1/4th use of vehicle is estimated to be personal.
(iv) She paid Medical Insurance Premium for herself: 46,000 & Mother: 30,000. Her mother is dependent on her.
(v) She got her share from HUF's Income of Rs. 50,000. Compute the Total Income of Dr. Shuba. [Nov 2010]
1. Income u/h “Salaries”: Part – time Lectures [WN1] 5,000
Less: Deduction u/s 16(ia) Standard Deduction (5,000) Nil
2. Income from House Property: SOP & thus NAV = Nil. Nil
Less: Deduction u/s 24(b) = Interest (6,00,000 x 10% x 3/4) (45,000) (45,000)
3. Income u/h “Profits & Gains of Business or Profession”
A. Receipts from “Profession”
Receipts from Sale of Medicine 2,50,000
Consultation Fee 50,000
Visiting Fee 2,00,000 5,00,000
B. Expenditures incurred for profession
Interest Paid on House Property used for Clinic (60,000 x 1/4) (15,000)
Medicines Consumed (Assumed to be fully consumed) (47,000)
Payment fee Medical Journal (5,000)
Depreciation on Surgical Lazer (50,000 x 40%) (20,000)
Depreciation on Motor Car (4,00,000 x 15% x 3/4) (45,000)
Vehicle Expenses: For Business Purposes – (50,000 x 3/4) (37,500)
Interest paid on Vehicle Loan: (3 lacs x 8 % x 9/12)= 18,000 x ¾ (13,500) (1,83,000) 3,17,000
(i) Family Pension 2,80,000
Less: Exempt u/s 57 = Least of 15,000 or 1/3 rd
of 2,80,000 (15,000) 2,65,000
(ii) Savings Bank Interest 1,000
(iii) Interest on Deposit in BOI Clubbed (1,50,000 x 9% x 9/12) 10,125
Less: Exempt u/s 10(32) = Rs. 1,500 per Child (1,500) 8,625
(iv) Income from Lottery: Gross = (35,000/70%) 50,000 3,24,625
80C: Housing Loan Repayment (Principal Portion) 48,000
80D: Medical Insurance Premium
- Herself, being senior citizen (Lower of 46,000 or 50,000) 46,000
- Mother (Senior Citizen Max. deduction is Rs. 50,000) 30,000 76,000
80EE: Repayment of Housing Loan Interest [Refinance is also 50,000
eligible] subject to a maximum of Rs. 50,000
80TTB: Interest on Savings Bank A/c 1,000 (1,75,000)
Working Notes:
1. Amount of Salary or Rs. 50,000 whichever is less, shall be allowed as deduction u/s 16(ia).
2. Share Income from HUF is exempt u/s 10(2).
3. Drawings, Advance Tax Paid are not allowable expenditures.
4. Loan taken of Rs. 3,00,000 is not an income & thus not taxable under any head of Income.
5. Advance Income Tax paid is not deductible.
PQ5. Following is the P&L A/c for PY 2020-21 of Western Sugar Mills, of which Shri. Daga is the owner:
Particulars Rs. Particulars Rs
To Manufacturing Expenses 7,01,000 By Sale of Sugar & Molasses 11,62,300
To Excise Duty 92,795 By Rent from Agricultural Land 950
To Establishment Charges 49,200 By Revenue from Fisheries 4,000
To Fine paid to Excise Dept 2,000 By Sale Proceeds from Canes 6,05,055
To Salary & Wages 1,21,445 By Profit on Sale of Motor Truck 3,230
To General Charges 16,750
To Interest on Bank Loan 21,000
To Daga's Remuneration 38,750
To Depreciation 91,000
To Income Tax 25,000
To Cultivation Expenses 4,37,500
To Net Profit 1,79,095
Compute the Income from Business of Shri Daga from Sugar Mill for AY 2021-22 after considering the following:
(a) Sale Proceeds of Cane include Rs. 5,32,000 on account of cane produced & consumed in the Factory, &
debited to Manufacturing Expenses, the Average Market Price of such Cane being Rs. 6,00,000.
(b) Motor Truck sold during the year for Rs. 7,230 was purchased in the past for Rs. 19,000. Depreciation claimed
in respect thereof in past assessment was Rs. 15,000.
(c) General Charges include: (i) Rs. 2,000 being the legal expenses incurred in defending a suit regarding the
Company's title to certain agricultural lands, & (ii) Rs. 10,000 paid to Daga's son who is an employee in the
Sugar Mill, for a trip to Hawaii to study modern methods of manufacture.
(d) Depreciation in respect of all assets has been ascertained at Rs. 50,000 as per Income Tax Rules.
Answer: Computation of Profits & Gains of Business or Profession
Particulars Rs. Rs.
1. Income under the head “PGBP”
Net Profit as per P&L A/c 1,79,095
Add: Inadmissible Expenses debited to P & L A/c
(i) Depreciation as per Books of A/c 91,000
(ii) Expenditure incurred to protect the title of the assets of the Company 2,000
related to Agricultural Land shall not be allowed as a deduction.
(iii) Fine paid to Excise Department = Disallowed since it is spent for violation 2,000
of law
(iv) Daga’s Remuneration – Personal in nature & hence not eligible u/s 37 38,750
(v) Income Tax – Not allowed as an expenditure u/s 40(a) 25,000
(vi) Cultivation Expenses (WN 1) (disallowed since FMV is considered) 4,37,500 5,96,250
Less: Admissible Expenses but not debited to P & L A/c
(i) Depreciation as per IT Act (50,000)
(ii) Difference in Average Market Price of Agricultural Produce (WN 1) (68,000) (1,18,000)
Less: Incomes taxable under other heads or Exempt Incomes
(i) STCG on sale of Truck to be considered separately (WN 2) (3,230)
(ii) Rent from Agricultural Land [Exempt from tax u/s 10(1)] (950)
(iii) Revenue from Fisheries = Taxable as Income from Other Sources (4,000)
(iv) Sale Proceeds of Sugarcane [Exempt] (FMV is considered in WN 1) (6,05,055) (6,13,235)
Profits & Gains of Business or Profession (7,75,345 – 7,31,235) (44,120)
Working Notes:
1. Adjustment in respect of Average Market Price: Under Rule 7, where Agricultural Produce is used as a Raw
Material for consumption, FMV of Agricultural Produce consumed shall be charged to Manufacturing A/c. No
other expenditure relating to agricultural activity shall be considered. Adjustment for this item is as under:
FMV of Agricultural Produce consumed - Amount already debited as Manufacturing Expenses = 6,00,000 -
5,32,000 = 68,000 (Balance to be debited to P & L A/c).
2. Computation of Short-Term Capital Gain:
Particulars Rs.
WDV of Motor Truck = Cost – Depreciation [19,000 – 15,000] 4,000
Less: Sale Value 7,230
Short Term Capital Gain [Sale Value Rs. 7,230 – WDV Rs. 4,000] 3,230
3. Expenditure relating to Mr. Daga’s son, who is an Employee, is incurred for the purpose of business & no
portion of the expenditure is considered to be excessive u/s 40A(2). Hence, it is fully allowed as a deduction.
PQ6. Mr. Raju, a Manufacturer at Chennai, gives the following Manufacturing, Trading & P&L A/c for PY 2020-21.
Manufacturing & Trading & Profit & Loss Account for PY 2020-21
To Opening Stock 71,000 By Sales 42,00,000
To Purchase of Raw Materials 16,99,000 By Closing Stock 2,00,000
To Manufacturing Wages & Expenses 5,70,000
To Gross Profit 20,60,000
To Administrative Charges 2,86,000 By Gross Profit 20,60,000

To State VAT Penalty paid 5,000 By Dividend from Domestic Companies 15,000
To State VAT paid 1,10,000
To General Expenses 54,000
To Interest to Bank (on Machinery Loan) 60,000
To Depreciation 2,00,000
To Net Profit 15,40,000
Following are the further information relating to PY 2020-21:

(i) Administrative Charges includes 46,000 paid as Commission to brother. Commission @ market rate is 36,000.
(ii) Assessee paid 33,000 in Cash to Transport Carrier on 29.12.2020. This is included in Manufacturing Expenses.
(iii) Rs. 4000 p.m was paid as Salary to a Staff throughout the year & this has not been recorded in the books.
(iv) Bank Term Loan Interest actually paid upto 31.3.2021 was Rs. 20,000 & the balance was paid in October 2021.
(v) Housing Loan Principal repaid during the year was 50,000 & it relates to Residential Property occupied by
him. Interest on Housing Loan was Rs. 2,60,000. Housing Loan was taken from Canara Bank. (Value of HP = Rs.
45 Lacs, Loan Value = Rs. 25 Lacs & Sanction date = 31.03.2017). (Assume housing loan is eligible for 80EE).
These amounts were not dealt with in the Profit & Loss Account given above.
(vi) Depreciation allowable under the Act is to be computed on the basis of following information:
Plant & Machinery (Depreciation Rate @ 15%)
Opening WDV (as on 1.4.2020) 12,00,000
Additions during the year (used for more than 180 days) 2,00,000
Total Additions during the year 4,00,000
Ignore Additional Depreciation. Compute Taxable Income & Tax Liability of Mr. Raju for AY 2021-22. [Nov 2010]
Note: Ignore application of Sec. 14A for disallowance of expenditures in respect of any Exempt Income.
Solution: Computation of Taxable Income & Tax Liability
Particulars Rs. Rs.
Net Annual Value Nil
Less: Deduction u/s 24(b) - Interest on Housing Loan (200000)
Income from House Property (A) (200000)
2. Profits & Gains of Business or Profession
Net profit as per P & L A/c 15,40,000
Add: Inadmissible Expenses debited to P & L A/c
State VAT Penalty 5,000
Interest to bank (WN 1) 40,000
Commission to Brother (46,000 – 36,000) – Disallowed u/s 40A(2) 10,000

Depreciation as per books of A/c 2,00,000
Less: Admissible Expenses not debited to P & L A/c
Salary to staff not deducted (48,000)
Depreciation as per Income tax act (2,25,000)
Less: Income taxable under different head or Exempt Incomes:
Dividend from Domestic Companies, Exempt u/s 10(34) (15,000)
Income from Agriculture (1,80,000) 13,27,000
Less: Deduction u/s 80C – Housing Loan Principal Repayment (50,000)
Total Income (Excluding Agricultural Income) 10,770,000
Computation of Tax Payable
A. Tax on Total Income including Agricultural Income [10,77,000 + 1,80,000] [Tax on 12,57,000] 1,89,600
B. Tax on Agricultural Income + BEL = [Rs. 1,80,000 + Rs. 2,50,000] 9,000
Net Tax Payable [Tax on A – Tax on B] [Rs. 1,89,600 – Rs. 9,000] = 1,80,600 + 4 % HEC 1,87,830
Working Notes:
1. As per Sec. 43B, Payments not made within DD u/s 139 are not allowed as deduction. Thus, Rs. 40,000 is not
allowed as deduction in the Current year.
2. Depreciation: Rs. 14,00,000 × 15% = 2,10,000 + Rs. 2,00,000 × 7.5% = 15,000.
3. Where an Assessee incurs any expenditure, for which aggregate of payments is made to a person in a day is
in excess of Rs. 10,000. (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages),
otherwise than by an A/C Payee Cheque/draft or ECS, whole of such expenditure shall not be allowed as a
deduction. Since payment is < Rs. 35,000, (being made to a Transport Carrier) it is an allowable expenditure.
Since it is already debited in P & L A/c, no adjustment need be made.
4. U/s 80EE Repayment of Interest on eligible Housing loan is restricted to Rs. 50,000 only.
PQ7. Mr. Janak, working as Finance Manager in Thilak Reality Ltd, Jaipur, retired from the Company on 31.10.2020
at the age of 58. The following amounts were received from the Employer from 1st April 2020 to 31st Oct 2020:
- Basic Salary: Rs. 90,000 p.m; Dearness Allowance: Rs. 60,000 p.m. (40% reckoned for Superannuation Benefit)
- Ex-gratia (lump sum): Rs. 45,000.
In addition to the above:

1. Company had taken on lease a Residential House at Jaipur, paying a Lease Rent of 27,000 p.m. Mr. Janak, who
was paying to the Company Rs. 18,000 p.m. towards the aforesaid Rent, vacated the premises on 31.10.2020.
2. The Company had also provided to Mr. Janak a Cooking Range & Microwave Oven by it. The original cost of
these assets was Rs. 1,20,000 & the Written Down Value as on 1.4.2020 was Rs. 66,000.
3. Mr. Janak has 2 sons. His second son was studying in a school run by the Employer Company throughout PY
2020-21. Cost of such education in a similar school is Rs. 5,400 per month.
4. Employer-Company was contributing Rs. 21,000 p.m to Central Government Pension Scheme.
5. Profession Tax paid by the Employer: Rs. 9,000.
6. Subsequent to his retirement, Mr. Janak started his own business on 15.11.2020 to 31.03.2021: Business Loss
(excluding Current Depreciation): Rs. 2,70,000 Current year's Depreciation: Rs. 1,80,000.
7. Mr. Janak won a prize in a TV Game Show. Rs. 1,26,000 after deduction of tax at source of Rs. 54,000.
8. Mr. Janak furnishes the under-mentioned data relating to savings investments & outgoings:
(i) Life Insurance Premium, with a Private Insurance Company Rs. 30,000 for his son & Rs. 20,000 for his
married daughter. PPF contribution: Rs. 60,000.
(ii) Medical Insurance Premium of Rs. 12,000 for himself & Rs. 16,000 for his father (aged 82) paid by credit
card. His father is however not dependent on him.
You are required to compute Total Income of Mr. Janak & tax payable by him for AY 2021-22. [May 2009]

1. Income u/h “Salaries”
Basic Salary (Rs. 90,000 x 7 months) 6,30,000
Dearness Allowance (Rs. 60,000 x 7 months) 4,20,000
Ex-gratia received in lumpsum 45,000
Contribution by Employer to CG Pension Scheme (21,000 x 7 Mnths) 1,47,000 12,42,000
Value of Accommodation leased by employer (WN 1) 23,850
Use of Movable Assets (WN 2) 7,000
Free Education to son in School owned by Employer (WN 3) 37,800
Professional Tax paid by Employer 9,000
Less: Deduction u/s 16(ia) Standard Deduction (50,000)
Less: Deduction u/s 16(iii): Professional Tax paid by employer (9,000) (59,000) 12,60,650
2. Business Income Current Year’s Depreciation set off (WN 4) (1,80,000)
3. Income from Other Sources: Winnings from Game Shows on TV [1,26,000/70%] 1,80,000
80C: Premium on Life Insurance Policy (30,000 + 20,000) + PPF 60,000 1,10,000
80CCD: Employer’s Contribution to Central Government Pension Scheme
[Maximum of 10% of Basic Salary + DA for Retirement Benefits]
10% of Rs. 6,30,000 + (4,20,000 x 40%)] i.e. 79,800 or Rs. 1,47,000 (WN 6) 79,800
80D: (Himself – 12,000 & Father Senior Citizen- 16,000) 28,000 (2,17,800)
Income Tax payable
(a) Special Rates: Winnings from Game Shows [30% of Rs. 1,80,000] 54,000
(b) Normal Rates: Rs. 12,500 + [(10,42,850 – 1,80,000 -5,00,000) x 20%] 85,070 1,39,070
Add: HEC at 4% 5,563
Less: Tax Deducted at Source on Winnings from Game Shows (54,000)
Net Tax Payable (Rounded Off) 90,630
Working Notes:
1 Value of Accommodation taken on lease by Employer
Basic Salary (Rs. 90,000 x 7 months) 6,30,000
Dearness Allowance forming part of retirement benefits (Rs. 60,000 x 7 months x 40%) 1,68,000
Ex-Gratia 45,000
Contribution by the Employer to Central Government Pension Schem (See Note Below) 1,47,000
Professional Tax Paid by the Employer 9,000
Salary 9,99,000
Lower of Rent paid by employer or 15% of Salary = (27,000 x 7 = 1,89,000) or (9,99,000 x 15% = 1,49,850
Less: Rent recovered from employee (18,000 x 7 months) (1,26,000)

Taxable Value of Leased Accommodation 23,850
Note: Contribution by the Employer to Central Govt Pension Scheme & Professional Tax Paid by Employer
comes within the meaning of “Monetary Payment from the Employer”.
2 Use of Movable Asset: Taxable value [10% p.a. of Actual Cost] = 1,20,000 x 10% x 7/12 = Rs. 7,000.
3 If cost of Education exceeds Rs. 1,000 p.m, the entire amount is taxable in the Employee’s hands, i.e.
without any reduction of Rs. 1,000 p.m, per child. [CIT (TDS) vs Delhi Public School (2011) 14 taxmann.com
45 (P&H)|. Perquisites shall be taxable as Salaries only during the Subsistence of Employer-Employee
Relationship. Hence, the valuation is considered for only 7 months [(Rs. 5,400 x 7 months= Rs. 37,800).
4 Set off of Depreciation Loss: Since Sec.32(2) is silent about the set off of Current Year Depreciation
against Income under any other head, & no Court decisions are available in that regard, the benefit of
set off is given to the Assessee in above question. However, alternative assumption of non-availability of
set off could also be followed.
5 Set off Current year Business Losses:
(a) Against Salary: Business Losses cannot be set off against Salary Income as per Sec.71.
(b) Against Winnings from Game Show: Not possible.
6 Amount contributed by the Employer to Central Government Pension Scheme u/s 80CCD is excluded while
computing the deduction limit of Rs. 1,50,000 u/s 80CCE.

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Knowledge should be gained through minute by minute efforts. Money should be

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ICAI MODULE QUESTIONS

(B) Tax Payable on total income of

(E) Tax payable: lower of (A) & (B) Rs. 31,93,750

Tax liability Rs. 70,55,750

TEST YOUR KNOWLEDGE - ICAI MODULE

PAST RTP QUESTIONS

Nov 2018 No Direct Question was asked.

Calculation of Relief u/s 89

PAST EXAM QUESTIONS

May 2019 No Direct Question was asked.

Nov 2019 No Direct Question was asked.

PRACTICE QUESTION BANK

ICAI EXERCISE [CA FINAL MODULE]

Q2. Based on “Application of Income Vs. Diversion of Income”

Q3. Based on “Application of Income Vs. Diversion of Income”

Q4. Based on ‘Existence of HUF having Single Male Member’

Q5. Based on “Amount borrowed on Hundi u/s 69D”

Q6. Based on “Unexplained Expenditure u/s 69C”

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ICAI MODULE QUESTIONS

2016-17 100 days

(ii) Agricultural income is exempt under section 10(1).

Compute his Gross Total Income for AY 2021-22.

Gross Total Income of Mr. David for AY 2021-22

Dividend from British company received in London Rs. 5,000

TEST YOUR KNOWLEDGE - ICAI MODULE

PAST RTP QUESTIONS

Foreign Allowances from Government of India 9,00,000

Q4. Aashish earns the following income during the PY 2020-21:

❖ First Basic Condition:

❖ Second Basic Condition:

PRACTICE QUESTION BANK

Gross Total Income 1,84,500 1,62,000

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ICAI MODULE QUESTIONS

Taxable pension Rs. 1,57,333

Taxable pension Rs.74,000

Taxable Gratuity Rs. 5,65,385

(b) He is not covered by the Payment of Gratuity Act 1972

(c) He is a government employee

(b) He is a non government employee

Taxable Leave salary Rs. 4,73,600

Interest accrued in the RPF @ 13% p.a. Rs. 13,000

Note 1: Gratuity received during service is fully taxable.

Note 3: Employer’s contribution in the RPF is exempt up to 12% of the salary.

Note: Exemption is to the extent of least of the following:

Treatment of Mr. G by his family doctor Rs. 5,000

Note: Value of the rent-free unfurnished accommodation is lower of

Value of the rent-free unfurnished accommodation (700 × 5) Rs. 3,500

Following are the other particulars:

Answer: Computation of Gross Total Income of Mr. X for AY 2021-22

(3) Taxable gratuity

(ii) Actual gratuity = Rs. 6,00,000

(4) Taxable leave encashment

Taxable Leave encashment Rs. 1,30,000

(5) Commuted Pension