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Illustration 1

Following is the statement of Profit and Loss of RP Ltd., an Indian Company for the previous
year 2021-22 showing a net profit of Rs. 5,40,000.
Items charged Rs. Items credited Rs.
Raw material 15,00,000 Sales 60,00,000
Wages and Salaries 25,00,000
Advertisement 2,50,000
Expenses
Insurance 35,000
Audit fees 80,000
Depreciation 70,000
Provision for 50,000
Income Tax
Provision for 45,000
Contingent liabilities
Transfer to general 1,00,000
reserve
Proposed dividend 2,00,000
Office Expenses 3,00,000
Losses of Subsidiary 2,00,000
Co.
Legal charges 75,000
Repairs to 55,000
Machinery

Additional Information:
(i) The above statement of Profit and Loss has been prepared as per Companies Act,
2013.
(ii) Brought forward losses and depreciation
As per Books of A/c As per I. Tax Act
Brought forward business loss 2,00,000 2,50,000
Unabsorbed Depreciation 1,00,000 2,00,000
Calculate:
(i) Total income tax liability as per normal provisions of I.T. Act.
(ii) Book Profits and Tax liability as per sec 115 JB
(iii) Ultimate Tax liability of the Company
Solution:

I. Computation of Business Income for AY 2022-23


Net Profit as Per P7L A/C 5,40,000
Add: Disallowed Exps
Prov for IT 50,000
Prov for Contingent liability 45,000
Transfer to Gen Reserve 1,00,000
Proposed dividend 2,00,000
Losses of subsidiary 2,00,000
5,95,000
Less: Non-business income credited to P&L A/c Nil
Income under the head Profits and Gains 11,35,000

Computation of Total Income:


Income under the head Profits and Gains 11,35,000
Any other income Nil
11,35,000
Less: B/F business loss 2,50,000
Unabsorbed depreciation 2,00,000 4,50,000
6,85,000

Computation of tax liability


Tax on 6,85,000 at 25% 1,71,250
Surcharge (NA as total income does not exceed Rs. 1 crore) Nil
1,71,250
Health and Education Cess @ 4% of tax and surcharge 6,850
Tax Liability under Normal provisions 178,100

II) Calculation of Book Profits


NP as per P&L A/C 5,40,000
Add: Statutory Additions
IT Provision 50,000
Transfer to Gen Reserve 1,00,000
Prov for contingent liability 45,000
Proposed dividend 2,00,000
Losses of subsidiary 2,00,000
Depreciation 70,000 6,65,000
12,05,000
Less Statutory Deductions
Depreciation(excluding depn on revaluation assets)
B/F loss or unabsorbed depn Whichever is lesser 70,000
1,00,000 1,70,000
Book Profits 10,35,000
Tax Liability under MAT
Tax @15% on Book Profits 1,55,250
Add Surcharge Nil
Tax and Surcharge 1,55,250
Add Health and Education Cess @4% of Tax and Surcharge 6,210
Tax Under MAT provisions 1,61,460

Ultimate Tax Liability


Tax Liability under Normal provisions or Tax Under MAT provisions Whichever is Lesser
Therefore Ultimate Tax Liability is Rs. 178,100

Illustration 2
Following is the Statement of Profit and Loss of YZ, an Indian Company for the assessment
year 2022-23 which showed a net profit of Rs. 8,10,000.
Items debited Rs. Items credited Rs.
Material Consumed 22,50,000 Sales 90,00,000
Salaries 37,50,000
Advertisement 3,75,000
Provision for 37,500
doubtful debts
Insurance 52,500
Audit fess 1,20,000
Depreciation.. 1,05,000
Provision of Income 75,000
Tax..
Provision for 30,000
Contingent
liabilities..
Transfer to general 1,50,000
Reserve..
Proposed dividend.. 3,00,000
Office Expenses 4,50,000
Losses of Subsidiary 3,00,000
Co..
Legal fees 1,12,500
Repair to P and M 82,500

Additional Information:
1. Provision for doubtful includes Bad debt RS. 20,000.
2. The company has various depreciable assts. During the year, a block of plant and
machinery (15%) was revalued at the start of current previous year from 2 lacs to 3
lacs. However, depreciation as per sec 32 of Income Tax Act is Rs. 1,00,000.
3. Provision for Income tax includes advance Income tax for Assessment Year 2022-23
Rs. 25,000
4. B/F losses and unabsorbed depreciation.
As per books As per Income
B/F business 2,20,000 2,70,000
Unabsorbed dep. 62,500 2,00,000
Calculate, for the Assessment year 2021-22:
A. Total Income as per normal provisions of IT Act.
B. Book profits under MAT
C. Final Tax liability
D. Tax credit allowable to Co. under Sec 115 JAA.

Solution:
(A) Computation of Total Income as per Income Tax Act
i) Calculation of Business Income

Net Profit as per Statement of Profit and Loss 8,10,000

Add: Disallowed Expenses


Losses of subsidiary Company 3,00,000
Proposed dividend 3,00,000
Provision for contingent liabilities 30,000
Provision for Income Tax 75,000
Provision for doubtful debts 17,500
Depreciation 1,05,000
Transfer to General Reserve 1.50.000
9.77,500
17,87,500
Less: Allowed Expenses Allowable depreciation 1,00,000
Business Income 16.87.500
(i) Statement of Total Income
16,87,500
Business Income
Any other income Nil
16,87,500
Less: B/F Business Loss 2,70,000
B/F unabsorbed depreciation Gross total Income 2,00,000
4.70.000
12,17,500
Less: Deduction u/s 80 Nil
Total Income 12,17,500
(B) Calculation of Book Profit u/s 115 JB

Net profit as per P and L A/c 8,10,000

Add: Statutory Additions


Losses of Subsidiary company 3,00,000
Proposed dividend 3,00,000
Transfer to general Reserve 1,50,000
Provision for contingent liabilities 30,000
Provision for Income tax 75,000
Provision for Doubtful debt 17,500
Depreciation 1.05.000
9,77,500
17,87,500
Less: Statutory Deductions

Depreciation (Excluding dep, on revaluation of 90,000


Assets) (1.05,000-15,000)
Any withdrawn from reserve Nil
Exempted Income(if any) Nil
B/F loss or unabsorbed depreciation (as per a/cs) 62,500
Whichever is less 1,52,500
Book profits 16,35,000

(c) Computation of Tax Liability under Normal Provisions

Tax on 12,17,500 @ 25%* 3,04,375


Add: Surcharge [Total Income does not exceed ? 1 crore) Nil
Tax and surcharge 3,04,375
Add: Health and Education Cess @ 4% of Tax and surcharge 12,175
Total tax under normal Provisions 3,16,550

*"It is assumed that the total turnover of the company for the previous year 2019-20 did not
exceed 400 crores. Hence, tax rate applicable for AY. 2022-23 is 25%,

Tax Liability u/s 115 JB:


15% on 16,35,000 2,45,250
Add: Surcharge (Total income/Book Profits does not exceed one Nil
crore)
Tax and surcharge 2,45,250
Add: Health and Education cess @ 4% of Tax and surcharge 9,810
Total Tax as per MAT provisions 2,55,060

Final Tax Liability

As per normal provisions – 3,16,550


Or
As per MAT - 2,55,060
Whichever is Higher
Total Tax liability - 3,16,550

(D) As the company is not required to pay tax under MAT, therefore, no tax credit is
allowable t company in the future years.

ILLUSTRATION 3
The statement of Profit and Loss of Sonia Co. Ltd. for the year ended 31.03.22 showed a net
profit of Rs. 5,75,000. Compute the taxable income of the company for Assessment Year
2022-23.

Items debited Rs. Items credited Rs.


Purchases 2,25,000 Sales 14,00,000
General charges 40,000 Agriculture Income 55,000
Commission and 1,80,000 Transfer from 2,00,000
brokerage Investment Reserve
Income Tax 1,15,000 L.T.C.G. (Plot) 2,50,000
Legal expenses 65,000
Fines and penalties 25,000
Depreciation 2,60,000
Provision for 70,000
Contingent liability
Proposed dividend 1,50,000

Loss of subsidiary 2,00,000

Additional Information:
1. General charges include donation to Prime Minister’s Relief Fund of Rs.22,000.
2. Depreciation as per Income tax Act Rs. 3,00,000.
3. Brought forward Business Losses and Depreciation.
As per A/cs. As per I.T. tax
B/P business Losses 3,00,000 4,00,000
Unabsorbed Depreciation 50,000 1,50,000
4. Investment Reserve was created during Previous year 2000-01 as a result of profit on
revolution of investment directly credited.
5. The LTCG has been invested in NHAI Bonds as per sec. 54EC.
Calculate the tax liability as per Normal provisions of I.T. Act and as per MAT.Is the
company entitled to any tax credit under section 115 JAA?
Solution:
Computation of Total Income Under Normal Provisions

Particulars Rs. Rs
NP as per P&L Account 5,75,000
Add:
Income tax 15,000
Fine 25,000
Provision for Contingent Liability 70,000
Proposed dividend 1,50,000
Loss of subsidiary Company 2,00,000
Donation 22,000 582,000
11,57,000
Less:
Agricultural Income 55,000
Transfer from Investment Reserve 2,00,000
LTCG 2,50,000
5,05,000
6,52,000
40,000
Less allowable depreciation
6,12,000
Business Income

Business Income 6,12,000


Income under the head capital gains 2,50,000
Less exemption under sec 54EC 2,50,000 Nil
6,12,000
Less B/F Business Loss 4,00,000
Unabsorbed depreciation 1,5,0000 5,50,000
62,000

Less deduction u/s 80G 22,000


Total Income
40,000

Tax Liability as Per Normal Provisions:


Particulars Rs
Total Income 40,000
Tax @ 25% 10,000
Surcharge Nil
10,000
Health and Education Cess @4% 400
Tax liability under Normal Provisions 10,400

Calculation of Book Profits

Particulars Rs. Rs.


NP as per P&L A/C 5,75,000
Add:
Income tax 1,15,000
Proposed Dividend 1,50,000
Provision of Loss of Subsidiary company 2,00,000
Provision for contingent losses 70,000
Depreciation 2,60,000
7,95,000
13,70,000
Less:
Agricultural income 55,000
Depreciation 2,60,000
Brought forward losses or unabsorbed 50,000
depreciation WIL
3,65,000
10,05,000
Book Profits

Tax Liability Under MAT:


Particulars Rs.
Book Profits 10,05,000
MAT@15% of book profits 1,50,750
Surcharge Nil
1,50,750
Add HEC @4% of tax 6,030
Minimum Alternate Tax Liability 1,56,780

Ultimate Tax Liability or Final Tax Liability is Tax as per normal provisions or MAT
WIH
Therefore, Tax liability would be Rs.1,56,780

Tax Credit = MAT – Tax Liability under normal provisions


= 1,56,780 – 10,400 = Rs.1,46,380

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