Direct Tax Question Bank

Question Bank - Chapter 1 Compiled by Neeraj Arora and TEAM
Chapter 1 - Introduction & Basics of Income Tax

Part I : Descriptive Questions
Q1. Explain the meaning and types of tax. Under which head will you classify “Income Tax” ?
Tax is a compulsory contribution levied by the Governments to meet the common welfare expenditure of the society. Taxes
are considered to be the “cost of living in a society”.
There are two types of tax :

(i) Direct Tax: If tax is levied directly on the income or wealth of a person, then, it is a direct tax. The person who pays the tax
to the Government cannot recover it from somebody else i.e. the burden of a direct tax cannot be shifted.
(ii) Indirect Taxes: If tax is levied on the price of a good or service, then, it is an indirect tax e.g. Goods and Services Tax
(GST) or Custom Duty. In the case of indirect taxes, the person paying the tax passes on the incidence to another person.
Since, Income Tax is levied directly on the income or wealth of a person, it is a direct tax.
Q2. Write a short note on various Lists provided under Seventh Schedule to the Constitution of India.
Seventh Schedule to Article 246 of the constitution contains three lists which enumerate the matters under which the Union
and the State Governments have the authority to make laws.
(i) List - I (UNION LIST) : It contains the matters in respect of which the Parliament (Central Government) has the exclusive
rights to make laws.
(ii) List - II (STATE LIST) : It contains the matters in respect of which the State Government has the exclusive rights to make
laws.
(iii) List - III (CONCURRENT LIST) : It contains the matters in respect of which both the Central and State Governments have
power to make laws.
Q3. List the components of Income Tax Law.
The components of Income Tax Law are :

● Income Tax Act
● Annual Finance Act
● Income-tax Rules
● Circulars and Notifications
● Legal Decisions of Courts
Q4. Define the following terms.

(i) Sub-section
(ii) Clause
(iii) Proviso
(iv) Explanation
(i) Sub-section : “Sub section” refers to such parts of a section where each part is related with other and all sub sections
taken together completes the concept propounded in that section.
(ii) Clause : When each part of the section is independent of each other and one is not related with other, such parts are
called a “Clause”.
(iii) Proviso : The Proviso(s) to a section/sub-section/clause spells out the exception(s)/condition(s) to the provision
contained in the respective section/sub-section/clause, i.e., the proviso spells out the cases where the provision
contained in the respective section/sub-section/clause would not apply or where the provision would apply with certain
modification.
(iv) Explanation : The Explanation to a section/sub-section/clause gives a clarification relating to the provision contained in
the respective section/sub-section/clause.
Q5. Define Circulars and Notifications.
Circulars
● Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts
regarding the scope and meaning of certain provisions of the Act.
● Circulars are issued for the guidance of the officers and/or assessees.
Income tax QB C1 - Page No 1

● The department is bound by the circulars. While such circulars are not binding on the assessees, they can take
advantage of beneficial circulars.
Notifications
Notifications are issued by the Central Government to give effect to the provisions of the Act. The CBDT is also empowered to
make and amend rules for the purposes of the Act by issue of notifications which are binding on both department and
assessees.
Q6. Write a short note on ‘Health and Education cess” under Income Tax.
The amount of income tax as increased by the union surcharge, if applicable, should be further increased by an additional
surcharge called the “Health and Education Cess on income tax’’ calculated at the rate of 4% of such Income tax and
surcharge , if applicable. Health and Education Cess is leviable on all assessees i.e individuals, HUF, AOP/ BOI, firms, local
authorities, co-operative societies and companies.
It is leviable to fulfill the commitment of the Government to provide and finance quality health services and universalised
quality basic education and secondary and higher education.
Q7. Compute the tax liability of Mr. Naman, aged 63 years, having a total income of ₹ 27,00,000 for the A.Y. 2024-25, under default
tax regime.
Computation of Tax liability of Mr. Naman (aged 63 years) under default tax regime
First ₹ 3,00,000 - Nil

Next ₹ 3,00,001 – ₹ 6,00,000 - @ 5% of ₹ 3,00,000 = ₹ 15,000
Next ₹ 6,00,001 – ₹ 9,00,000 - @ 10% of ₹ 3,00,000 = ₹ 30,000
Next ₹ 9,00,001 – ₹ 12,00,000 - @ 15% of ₹ 3,00,000 = ₹ 45,000
Next ₹ 12,00,001 – ₹ 15,00,000 - @ 20% of ₹ 3,00,000 = ₹ 60,000
Balance i.e., ₹ 27,00,000 minus ₹ 15,00,000 - @ 30% of ₹ 12,00,000 = ₹ 3,60,000
= ₹ 5,10,000
Add: Health and Education cess @ 4% = ₹ 20,400
Total tax liability = ₹ 5,30,400
Q8. Compute the tax liability of Mr. Yash, aged 35 years, having a total income of ₹ 7,25,000 for the A.Y. 2024-25, under both
default tax regime and optional tax regime. Which one is beneficial?
Computation of Tax liability of Mr. Yash (aged 35 years) under default tax regime
(A) Total income - ₹ 7 lakhs i.e 7,25,000 - 7,00,000 = ₹ 25,000
(B) Tax liability on ₹ 7,25,000

First ₹ 3,00,000 - Nil
Next ₹ 3,00,001 – ₹ 6,00,000 - @ 5% of ₹ 3,00,000 = ₹ 15,000
Balance i.e., ₹ 7,25,000 minus ₹ 6,00,000 - @ 10% of ₹ 1,25,000 = ₹ 12,500
₹ 27,500
(C ) Since, B > A, Rebate u/s 87A i.e B-A = ₹ 2,500
₹ 25,000
= ₹ 1,000
Add: Health and Education cess @ 4%
₹ 26,000
Total tax liability
Computation of Tax liability of Mr. Yash (aged 35 years) under optional tax regime

First ₹ 2,50,000 - Nil

Next ₹ 2,50,001 – ₹ 5,00,000 - @ 5% of ₹ 2,50,000 = ₹ 12,500
Balance i.e., ₹ 7,25,000 minus ₹ 5,00,000 - @ 20% of ₹ 2,25,000 = ₹ 45,000
₹ 57,500
Add: Health and Education cess @ 4% = ₹ 2,300
Total tax liability ₹ 59,800
Since tax liability is lower in default tax regime, Mr Yash should opt for default tax regime.
Q9. Compute the tax liability of Mr. Nikhil, aged 82 years, having a total income of ₹ 5,05,00,000 for the A.Y. 2024-25. Assume that
Mr. Nikhil has exercised the option to shift out of default tax regime i.e section 115BAC.
Will your answer be different if he opts for default tax regime? If yes, calculate tax liability in that case.
Computation of Tax liability of Mr. Nikhil, (aged 82 years) for the A.Y. 2024-25 under optional tax regime
(A) Tax on ₹ 5,05,00,000
First ₹ 5,00,000 - Nil

Next ₹ 5,00,001 – ₹ 10,00,000 - @ 20% of ₹ 5,00,000 = ₹ 1,00,000
Balance i.e., ₹ 5,05,00,000 minus ₹ 10,00,000 - @ 30% of ₹ 4,95,00,000 = ₹ 1,48,50,000
₹ 1,49,50,000
Add: Surcharge @ 37% = ₹ 55,31,500
Tax liability ₹ 2,04,81,500
(B) Tax on ₹ 5,00,00,000
First ₹ 5,00,000 - Nil

Next ₹ 5,00,001 – ₹ 10,00,000 - @ 20% of ₹ 5,00,000 = ₹ 1,00,000
₹ 1,48,00,000
Add: Surcharge @ 25% = ₹ 37,00,000
(C) Total Income less ₹ 5 crore = ₹ 5,00,000
(D) Tax computed on total income of ₹ 5 crore plus the excess of total income over ₹ 5 = ₹ 1,90,00,000
crore (B + C)
(E) Tax liability (A) or (D), whichever is lower = ₹ 1,90,00,000

Add : Health and education cess @ 4% = ₹ 7,60,000
Total tax liability = ₹ 1,97,60,000
(F) Marginal relief (A - D) = ₹ 14,81,500
Alternative method

(A) Tax on ₹ 5,05,00,000
First ₹ 5,00,000 - Nil

Next ₹ 5,00,001 – ₹ 10,00,000 - @ 20% of ₹ 5,00,000 = ₹ 1,00,000
₹ 1,49,50,000
Add: Surcharge @ 37% = ₹ 55,31,500
(B) Tax on ₹ 5,00,00,000
First ₹ 5,00,000 - Nil

Next ₹ 5,00,001 – ₹ 10,00,000 - @ 20% of ₹ 5,00,000 = ₹ 1,00,000
₹ 1,48,00,000
Add: Surcharge @ 25% = ₹ 37,00,000
(C) Excess tax payable (A) - (B) = ₹ 19,81,500
(D) Marginal Relief (₹ 19,81,500 - ₹ 5,00,000 being the amount of income in excess of = ₹ 14,81,500
₹ 5 crores
(E) Tax liability (A) - (D) = ₹ 1,90,00,000

Yes, the answer will change if Mr. Nikhil opts for a default tax regime.
Computation of Tax liability of Mr. Naman (aged 63 years) under default tax regime
First ₹ 3,00,000 - Nil

Next ₹ 3,00,001 – ₹ 6,00,000 - @ 5% of ₹ 3,00,000 = ₹ 15,000
Next ₹ 6,00,001 – ₹ 9,00,000 - @ 10% of ₹ 3,00,000 = ₹ 30,000
Next ₹ 9,00,001 – ₹ 12,00,000 - @ 15% of ₹ 3,00,000 = ₹ 45,000
Next ₹ 12,00,001 – ₹ 15,00,000 - @ 20% of ₹ 3,00,000 = ₹ 60,000
= ₹ 1,48,50,000
Add: Surcharge @ 25% = ₹ 37,12,500
₹ 1,85,62,500
Add: Health and Education cess @ 4% = ₹ 7,42,500
Total tax liability = ₹1,93,05,000

Q10. Compute the tax liability of Ananta Developers LLP having a total income of ₹ 1,01,00,000 for the A.Y. 2024-25.
Computation of Tax liability of Ananta Developers LLP for the A.Y. 2024-25
(A) Tax on ₹ 1,01,00,000 : Tax @ 30% = ₹ 30,30,000
Add: Surcharge @ 12% = ₹ 3,63,600
₹ 33,93,600
(B) Tax on ₹ 1,00,00,000 : Tax @ 30% = ₹ 30,00,000
(C) Total Income less ₹ 1 crore = ₹ 1,00,000
(D) Tax computed on total income of ₹ 1 crore plus the excess of total income over ₹ 1 = ₹ 31,00,000
crore (B + C)
(E) Tax liability (A) or (D), whichever is lower = ₹ 31,00,000

(F) Marginal relief (A - D) = ₹ 2,93,600
Alternative method
(A) Tax on ₹ 1,01,00,000 : Tax @ 30% = ₹ 30,30,000

Add: Surcharge @ 12% = ₹ 3,63,600
₹ 33,93,600
(B) Tax on ₹ 1,00,00,000 : Tax @ 30% = ₹ 30,00,000
(C) Excess tax payable (A) - (B) = ₹ 3,93,600
(D) Marginal Relief (₹ 3,93,600 - ₹ 1,00,000 being the amount of income in excess of ₹ 1 = ₹ 2,93,600
crores)
(E) Tax liability (A) - (D) = ₹ 31,00,000

Q11. Venus Pvt Ltd., a domestic company, reported a total income of ₹ 5,00,00,000 during the P.Y. 2023-24. It had a total turnover of
₹ 450 crores and ₹ 300 crores during the P.Y. 2021-22 and P.Y. 2022-23 respectively. Calculate its tax liability for the A.Y.
2024-25.
Since Venus Pvt Ltd.’s total turnover during the P.Y. 2021-22 exceeds ₹ 400 crore, tax will be calculated @ 30%.
Computation of Tax liability of Venus Pvt Ltd. for the A.Y. 2024-25
Tax on ₹ 5,00,00,000 @ 30% = ₹ 1,50,00,000

Add: Surcharge @ 7% = ₹ 10,50,000
= ₹ 1,60,50,000
Add: Health and education cess @ 4% = ₹ 6,42,000

Q12. The Assessing Officer found, during the course of scrutiny assessment of Mr. Ravi, that he incurred an expenditure of ₹ 30
lakhs on a family occasion. The said expenditure was neither recorded in the books of account maintained nor was the
explanation offered by Mr. Ravi satisfactory. What are the consequences applicable in this case?
Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such
expenditure or the explanation is unsatisfactory in the opinion of the Assessing Officer, Assessing Officer can treat such
unexplained expenditure as the income of the assessee for such financial year.
Therefore, in this case the expenditure of ₹ 30 lakhs incurred by Mr. Ravi on a family occasion will be deemed as income of
Mr. Ravi as per section 69C.
Further, such unexplained expenditure which is deemed as the income of Mr. Ravi shall not be allowed as deduction under any
head of income.
Further, such deemed income would be taxed at the rate of 78% (i.e. 60% plus surcharge 25% plus cess @ 4%) as per section
115BBE.
Further, no basic exemption or allowance or expenditure shall be allowed to Mr. Ravi under any provision of the Income-tax
Act, 1961 in computing such deemed income.
Part II : Multiple Choice Questions

Q1. Under the provisions of the Income-tax Act, 1961, the term “Person” would not include:
(a) A body corporate incorporated in a country outside India

(b) A Limited Liability Partnership (LLP)
(c) Indian branch of a foreign company
(d) A local authority
Correct answer : (c) Indian branch of a foreign company

Explanation:
The term person includes:
● Individual
● HUF
● Company (It includes a body corporate incorporated by or under the laws of a country outside India)
● Firm
● AOP/BOI
● Local Authority
● Artificial Judicial Person
Indian branch of a foreign company is not included in the term “person”.
Q2. XYZ LLP falls under which category of person?
(a) Firm
(b) Company
(c) Association of persons
(d) Artificial judicial person
Correct answer : (a) Firm

Explanation:
LLP falls under a firm.
Q3. The Gupta HUF in Maharashtra comprises of Mr. Harsh Gupta, his wife Mrs. Nidhi Gupta, his son Mr. Deepak Gupta, his
daughter-in-law Mrs. Deepti Gupta, his daughter Miss Preeti Gupta. Which of the members of the HUF are eligible for
coparcenary rights?
(a) Only Mr. Harsh Gupta and Mr. Deepak Gupta

(b) Only Mr. Harsh Gupta, Mr. Deepak Gupta and Miss Preeti Gupta
(c) Only Mr. Harsh Gupta, Mr. Deepak Gupta, Mrs. Nidhi Gupta and Mrs. Deepti Gupta
(d) All the members are co-parceners
Correct answer : (b) Only Mr. Harsh Gupta, Mr. Deepak Gupta and Miss Preeti Gupta
Explanation:
Mitakshara school of Law is prevalent in Maharashtra. Every child born in the family acquires a right/share in the family
Property including daughters. However, wife or daughter- in-law of a coparcener are not eligible for such coparcenary rights.
Q4. 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. ________ 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.
(a) 5%
(b) 6.5 %
(c) 7.5 %
(d) 10 %
Correct answer : (c) 7.5 %

Explanation:
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.
Q5. What is the amount of marginal relief available to Sadvichar Ltd., a domestic company, on the total income of ₹ 10,03,50,000
for P.Y. 2023-24 (comprising only of business income) whose turnover in P.Y. 2021-22 is ₹ 450 crore, paying tax as per regular
provisions of Income-tax Act? Assume that the company does not exercise option under section 115BAA
(a) ₹ 9,98,000
(b) ₹ 12,67,600
(c) ₹ 3,50,000
(d) ₹ 13,32,304
Correct answer : (b) ₹ 12,67,600

Explanation:
Since, total turnover in the P.Y. 2021-22 exceeds ₹ 400 crores, tax will be charged @ 30%.
Tax on 10,03,50,000
= 30% of 10,03,50,000 + Surcharge @ 12%
= ₹ 3,01,05,000 + 36,12,600
= 3,37,17,600
Tax on 10,00,00,000 = 3,00,00,000 + Surcharge @ 7% = 3,21,00,000
Increase in income = ₹ 3,50,000, Increase in tax = ₹ 16,17,600
Marginal relief = 16,17,600 - 3,50,000 = 12,67,600
Q6. The tax liability of a cooperative society having a total income of ₹ 50,000 for P.Y. 2023-24 is
(a) ₹ 15,000
(b) ₹ 12,000

(c) ₹ 12,480
(d) ₹ 15,600
Correct answer : (c) ₹ 12,480

Explanation:
First 10,000 @ 10% : 1,000
Next 10,000 @ 20% : 2,000
Balance 30,000 @ 30% : 9,000
Total = ₹ 12,000 + HEC @ 4% = ₹ 12,480
Q7. Mr. Sonu is found to be the owner of two gold chains of 50 gms each (market value of which is ₹ 1,45,000 each) during the
financial year ending 31.3.2024 but he has recorded to spent ₹ 50,000 on acquiring these gold chains and could not offer any
satisfactory explanation for it. As per section 115BBE, Mr. Sonu would be liable to pay tax of –
(a) ₹ 1,87,200
(b) ₹ 2,26,200
(c) ₹ 1,49,760
(d) ₹ 1,80,960
Correct answer : (a) ₹ 1,87,200

Explanation:
The difference between the amount recorded and the market value will be taxed at the rate of 78% u/s 115BBEE. Therefore, tax
liability = [(1,45,000*2) - 50,000] * 78% = 1,87,200.
Q8. Mr. Ajay is a recently qualified doctor. He joined a reputed hospital in Delhi on 01.01.2023. He earned total income of ₹
3,40,000 till 31.03.2024. He exercised the option to shift out of the default tax regime. His employer advised him to claim
rebate u/s 87A while filing return of income for A.Y. 2024-25. He approached his father to enquire regarding what is rebate u/s
87A under optional tax regime. His father told him:
(i) An individual who is resident in India and whose total income does not exceed ₹ 3,50,000 is entitled to claim rebate
under section 87A.
(ii) An individual who is resident in India and whose total income does not exceed ₹ 5,00,000 is entitled to claim rebate
under section 87A.
(iii) Maximum rebate allowable under section 87A is ₹ 5,000.
(iv) Rebate under section 87A is available in the form of exemption from total income.
(v) Maximum rebate allowable under section 87A is ₹ 12,500.
(vi) Rebate under section 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), (vi)

(b) (ii), (v), (vi)
(c) (ii), (iii), (iv)
(d) (i), (iv), (v)
Correct answer : (b) (ii), (v), (vi)

Explanation:
In order to provide tax relief to the individual taxpayers, section 87A provides a rebate from the tax payable by an assessee,
being an individual resident in India, whose total income does not exceed ₹ 5,00,000 under the optional tax regime. The
rebate shall be equal to the amount of income- tax payable on the total income for any assessment year or an amount of ₹
12,500, whichever is less. Rebate under section 87A is allowed from tax payable before adding Health and education cess on
income-tax.

Q9. Which of the following statements are correct?
(i) Circulars are binding on both departments and assesses.

(ii) Notifications are bounding on department only.
(iii) Circulars are bounding on department only.
(iv) Notifications are binding on both department and assesses.
(a) (ii) and (iii)

(b) (i), (ii), (iv)
(c) (iii) and (iv)
(d) (iii) only
Correct answer : (c) (iii) and (iv)

Explanation:
The department is bound by the circulars. While such circulars are not binding on the assessees, they can take advantage of
beneficial circulars. Notifications are binding on both department and assessees.

Chapter 2 - Residential Status

Q1. The following are the particulars of income of Miss Sara, a resident but not ordinary resident in India for the previous
year 2023-24.
Particulars Amount (₹)
Rent from a property in Mumbai received in USA 90,000

Income from a Business in USA controlled from Delhi 1,80,000
Income from a business in Bangalore controlled from USA 2,60,000
Rent from a property in USA received there but subsequently remitted to India 60,000
Interest from deposits with an Indian company received in USA 20,000
Profits for the year 2022-23 of a business in USA remitted to India during the previous 2023-24 (not 75,000
taxed earlier)
Gifts received from his parents 45,000
Compute her income for the assessment year 2024-25.
Computation of income of Miss Sara for the AY 2024-25

Rent from a property in Mumbai received in USA (Income earned/deemed to accrue/arise in India) 90,000
Income from a Business in USA controlled from Delhi (Income earned and received outside India, 1,80,000
from a business controlled from India)
Income from a business in Bangalore controlled from USA (Income earned/deemed to accrue/arise 2,60,000
in India)
Rent from a property in USA received there but subsequently remitted to India -
Interest from deposits with an Indian company received in USA 20,000
Profits for the year 2022-23 of a business in USA remitted to India during the previous 2023-24 (not -
taxed earlier)
Gifts received from his parents -
Total income 5,50,000
Notes:
1. Profits of 2022-23 are not income of the previous year 2023-24 and hence cannot be included in the income for
assessment year 2024-25.
2. Gifts received from relatives are not taxable.
Q2. Determine the taxability of income of US based company Fin Ltd., in India on entering following transactions during the
financial year 2023-24.
(i) ₹ 8 lakhs received from an Indian domestic company for providing technical know how in India.
(ii) ₹ 9.5 lakhs from an Indian firm for conducting the feasibility study for the new project in Finland.
(iii) ₹ 2 lakhs from a non-resident for use of a patent for a business in India.
(iv) ₹ 5 lakhs from a non-resident Indian for use of know-how for a business in Malaysia.
(v) ₹ 8 lakhs for supply of manuals and designs for the business to be established in Singapore.
A non resident is chargeable to tax in India 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, taxability of income is determined in following manner :

S.No Particulars Amount (₹)
(i) Amount received from an Indian domestic company for providing technical know-how in India is
from Business Connection in India, therefore taxable in India. 8,00,000
(ii) Conducting the feasibility study for the new project in Finland for the Indian firm is not taxable in
India as done for the business outside India. Nil
(iii) The income from business set up in India is taxable in India. Therefore, money received from a

non-resident for use of a patent for a business in India is taxable in India. 2,00,000
(iv) Money received from a non resident India for use of know-how for a business in Malaysia is for
the business outside India, therefore non taxable in India. Nil
(v) Payment made for supply of manuals and designs for the business to be established in
Singapore is not taxable in India. Nil
Total Income taxable in India 10,00,000
Q3. The following are the incomes of Mr Satish, a citizen of India, for the previous year 2023-24:
(i) Income from business in India ₹ 2,00,000. The business is controlled from Australia and ₹ 50,000 were remitted to
Australia.
(ii) Profits from business earned in Japan ₹ 70,000 of which ₹ 20,000 were received in India. This business is controlled from
India.
(iii) Untaxed income of ₹ 2,00,000 for the year 2020-21 of a business in England which was brought in India on 5th March,
2024.
(iv) Royalty of ₹ 4,00,000 received from Mr Ratan, a resident, for technical service provided to run a business outside India.
(v) Agricultural income of ₹ 80,000 in Nepal.
(vi) Income of ₹ 87,000 from house property in Dubai, which was deposited in a bank in Dubai.
Compute Gross Total Income of Mr Satish for the A.Y. 2024-25, if he is -

(1) A Resident and Ordinarily Resident; and
(2) A Resident but Not Ordinarily Resident
Computation of Gross Total Income of Mr Satish for the A.Y. 2024-25
S.No. Particulars Resident and Resident but Not

Ordinarily Resident Ordinarily
[ROR] Resident [RNOR]
(₹) (₹)
(i) Income from business in India, controlled from Australia [Taxable 2,00,000 2,00,000
both in the hands ROR and RNOR, since income accrues/arises from
business in India, irrespective of the fact that business is controlled
from Australia]
(ii) Profits earned from business in Japan 70,000 70,000

[Profits from business in Japan are taxable in the hands of ROR, since
global income is taxable in the hands of ROR. Moreover, entire profit
of ₹ 70,000 would be taxable in the hands of RNOR, even if only ₹
20,000 is received in India, since the business in Japan is controlled
from India]
(iii) Untaxed income for the year 2020-21 of a business in England which Nil Nil
was brought in India during the P.Y. 2023-24 [Not taxable either in the
hands of ROR or RNOR, since such income is not related to the P.Y.
2023-24]
(iv) Royalty received from a resident for technical service provided to run 4,00,000 Nil
a business outside India [Taxable in the hands of ROR, since global
income is taxable in the hands of ROR.Not taxable in the hands RNOR,
since royalty income is not deemed to accrue or arise in India as such
income is paid by a resident for technical services used to run a
business outside India.]
(v) Agricultural Income in Nepal [Since agricultural income 80,000 Nil

accrues/arises outside India, it is taxable only in the hands of ROR. No
exemption is available in respect of agricultural income earned
outside India]
(vi) Income from house property in Dubai, which was deposited in a bank 60,900 Nil
at Dubai Since income accrues/arises outside India and is also

received outside India, it is taxable only in the hands of ROR

(₹ 87,000 less standard deduction 30% of ₹ 87,000)
Gross total income 8,10,900 2,70,000
Note: Since the words “Income from house property” appears to indicate that the same is the income computed under that
head of income, it is possible to consider the said amount of ₹ 87,000 as income computed under the head “Income from
house property” after providing deduction @ 30% under section 24(a).
Q4. Mr. Thomas, a non-resident and citizen of Japan, entered into following transactions during the previous year ended
31.03.2024. Examine the tax implications in the hands of Mr. Thomas for the Assessment Year 2024-25 as per Income-tax
Act, 1961. (Give brief reasoning)
1) Interest received from Mr. Tom, a non-resident outside India (The borrowed fund is used by Mr. Tom for investing in an
Indian company's debt fund for earning interest).
2) Received ₹ 12 lakhs in Japan from a business enterprise in India for granting license for computer software (not
hardware specific).
3) He is also engaged in the business of running a news agency and earned income of ₹ 10 lakhs from collection of news
and views in India for transmission outside India.
4) He entered into an agreement with MK & Co., a partnership firm for transfer of technical documents and design and for
providing services relating thereto, to set up a Denim Jeans manufacturing plant, in Surat (India). He charged ₹ 10 lakhs
for these services from MK & Co.
1) Interest received from Mr. Tom, a non-resident outside India

Not taxable, since interest payable by a non-resident to another non-resident would be deemed to accrue or arise in
India only if the borrowed fund is used for the purposes of business or profession carried on by him in India. In this
case, it is used for investing in an Indian company’s debt fund for earning interest and not for the purposes of business
or profession. Hence, it is not taxable in India.
2) Received ₹ 12 lakhs in Japan from a business enterprise in India for granting license for computer software
Royalty includes, inter alia, consideration for grant of license for computer software. Hence, the amount of ₹ 12 lakhs
payable by a resident (business enterprise in India) for grant of license for computer software would be royalty which is
deemed to accrue or arise in India in the hands of Mr. Thomas, a nonresident, since it is for the purpose of business in
India. Hence, the royalty is taxable in India.
3) Business of running a news agency and earned income of ₹ 10 lakhs from collection of news and views in India for
transmission outside India
No income shall be deemed to accrue or arise to Mr. Thomas through or from activities which are confined to the
collection of news and views in India for transmission outside India. Hence, ₹ 10 lakhs is not taxable in India in the
hands of Mr. Thomas.
4) Agreement with MK & Co., a partnership firm for transfer of technical documents and design and for providing
services to set up a Denim Jeans manufacturing plant in India
₹ 10 lakhs is deemed to accrue or arise in India to Mr. Thomas, a non-resident, since it represents royalty/fees for
technical services paid for services utilized in India, in this case, for setting up a Denim Jeans manufacturing plant in
Surat. Hence, the same would be taxable in India in the hands of Mr. Thomas.
Q5. Shine Limited, a foreign company incorporated in the USA and engaged in manufacturing and distribution of diamonds,
set up a branch office in India in July 2023. The branch office was required to purchase uncut and un-assorted diamonds
from dealers of Mumbai and export them to the USA. During the previous year 2023-24, profit from such exports
amounted to ₹ 80 lakhs. Out of 30 shareholders of Shine Limited, 18 shareholders are non-resident in India. All the major
decisions were taken through Board meetings held in the USA.
(i) Determine the residential status of Shine Limited for the AY 2024-25.
(ii) Discuss the tax treatment of profit from export business.
(i) According to section 6(3) of the Income tax Act, 1961, a foreign company is said to be resident in India in any previous
year, if its place of effective management, in that year, is in India.
“Place of effective management” 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.
Since in the case of Shine Limited, all the major decisions were taken through Board meetings held in the USA, hence it
will be non-resident in India

(ii) According to Explanation I(b) to Section 9(1)(i), in the case of a non-resident, no income shall be deemed to accrue or
arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of
export. Thus, export profits of ₹ 80 lakhs shall not be taxable in India in hands of Shine Ltd.
Q6. Examine the tax implications of the following transactions for the assessment year 2024-25: (Give brief reason)
(i) Government of India has appointed Mr. Ravi as an ambassador in Japan. He received a salary of ₹ 7,50,000 and
allowances of ₹ 2,40,000 during the previous year 2023-24 for rendering his services in Japan. He is an Indian citizen
having status of non-resident in India for the previous year 2023-24.
(ii) Ms. Julie, a non-resident in India, is engaged in operations which are confined to purchase of goods in India for the
purpose of export. She has earned ₹ 2,50,000 during the previous year 2023-24.
(iii) Mr. Naman, a non-resident in India, has earned ₹ 3,00,000 as royalty for a patent right made available to Mr. Ramesh who
is also a non-resident. Mr. Ramesh has utilized patent rights for development of a product in India and 50% royalty is
received in India and 50% outside India.
(iv) Mr. Arun, a NRI, borrowed ₹ 10,00,000 on 01.04.2023 from Mr. Archit who is also a non-resident and invested such
money in the shares of an Indian Company. Mr. Archit has received interest @ 12% per annum.
(i) As per section 9(1)(iii), salaries (including, inter alia, allowances) payable by the Government to a citizen of India for
services rendered outside India shall be deemed to accrue or arise in India. Thus, salary received from Government by
Mr. Ravi, being a non-resident of ₹ 7,50,000 for rendering services in Japan would be taxable in his hands, after allowing
standard deduction of ₹ 50,000. However, any allowance or perquisites paid or allowed outside India by the Government
to a citizen of India for rendering services outside India will be fully exempt u/s 10(7). Hence, ₹ 2,40,000, being the
allowance, would be exempt.
(ii) In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations
which are confined to the purchase of goods in India for the purpose of export. Thus, income of ₹ 2,50,000 arising in the
hands of Ms. Julie would not be taxable in her hands in India, since her operations are confined to purchase of goods in
India for the purpose of export.
(iii) Royalty payable by a non-resident would be deemed to accrue or arise in India in the hands of the recipient only when
such royalty is payable in respect of any right, property or information used for the purposes of a business or profession
carried on by such non-resident in India or earning any income from any source in India. In the present case, since Mr.
Ramesh, a non-resident, paid the royalty of ₹ 3,00,000 for a patent right used for development of a product in India, the
same would be taxable in India in the hands of the recipient, Mr. Naman, a non-resident, irrespective of the fact that only
50% of the royalty is received in India.
(iv) Interest payable by a non-resident on the money borrowed for any purpose other than a business or profession in India,
would not be deemed to accrue or arise in India. In the present case, since Mr. Arun, a non-resident borrowed the money
for investment in shares of an Indian company, the interest on such borrowing of ₹ 1,20,000 (₹ 10,00,000 x 12%) payable
to Mr. Archit, a non-resident would not be deemed to accrue or arise to him in India. Hence, the same would not be
taxable in India in the hands of Mr. Archit.
Q7. Mr. Dhruv, a Non-Resident, entered into the following transactions during PY 2023-24:
(a) Received ₹ 20 Lakhs from a Non-Resident for use of a patent for a business in India.
(b) Received foreign currency equivalent to ₹ 15 Lakhs from a Non-Resident Indian for use of know-how for a business in Sri
Lanka & this amount was received in Korea.
(c) Received ₹ 7 Lakhs from XYZ Ltd., an Indian company as fees for providing technical services in India.
(d) Received ₹ 5 Lakhs 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 ₹ 8 Lakhs 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.
S. No. Taxability Explanation
(a) Taxable Amount of ₹ 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 ₹ 15 lakhs received in Korea from a Non-Resident 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 in respect of 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 ₹ 7 lakhs received from XYZ 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 ₹ 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 ₹ 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.
Q8. You are required to determine residential status of Mr. Dinesh, a citizen of India, for PY 2023-24. Mr. Dinesh is a member of
crew of a Singapore bound Indian ship, carrying passengers in the international waters, which left Kochi port in Kerala, on 16th
August, 2023. Following details are made available to you for PY 2023-24:
Particulars Date
Date entered into the CDC in respect of joining the ship by Mr. Dinesh 16th August, 2023
Date entered into the CDC in respect of signing off the ship by Mr. Dinesh 21st January, 2024
In June, 2023, he had gone out of India to Dubai on a private tour for a continuous period of 27 days. During the last 4 years
preceding the PY 2023-24, he was present in India for 425 days. During the last 7 PYs preceding the PY 2023-24, he was
present in India for 830 days.
Determination of residential status of Mr. Dinesh for PY 2023-24

As per Explanation 1 to section 6(1), where an Indian citizen leaves India as a member of crew of an Indian ship, he will be
resident in India only if he stayed in India for 182 days during the relevant PY. As per Explanation 2 to section 6(1)1, in case of
an individual, being a citizen of India & a member of the crew of a foreign bound ship leaving India, the period or periods of
stay in India shall, in respect of an eligible voyage, not include the period commencing from the date entered into the
Continuous Discharge Certificate in respect of joining of ship by the said individual for the eligible voyage & ending on the date
entered into the Continuous Discharge Certificate in respect of signing off by that individual from the ship in respect of such
voyage.
Therefore, the period from 16th August, 2023 & ending on 21st January, 2024 has to be excluded for computing the period of
stay of Mr. Dinesh in India. Accordingly, the period of 159 days [16+30+31+30+31+21] has to be excluded for computing
period of his stay in India during PY 2023-24. Further, since Mr. Dinesh had also gone out of India to Dubai on a private tour for
a continuous period of 27 days in June, 2023, such period has also to be excluded for computing his period of stay in India
during PY 2023-24.
Consequently, the period of stay in India during PY 2023-24 would be 180 days [i.e., 366 days – 159 days – 27 days], which is
less than 182 days. Thus, Mr. Dinesh would be a Non-Resident for AY. 2024-25.
Q9. Mrs. Ankita, aged 64 years, was born and brought up in New Delhi. She got married in America in 1996 and settled there since
then. Since her marriage, she visits India for 60 days each year during her summer break. The following are the details of her
income for the previous year ended 31.03.2024:
S. No. Particulars Amount (₹)
1. Pension received from American Government 60,000

2. Long-term capital gain on sale of land at New Delhi (computed) 2,00,000
3. Short-term capital gain on sale of shares of Indian listed companies in respect of which STT 50,000
was paid both at the time of acquisition as well as at the time of sale (computed)
4. Premium paid to American Life Insurance Corporation at America 75,000
5. Rent received (equivalent to Annual Value) in respect of house property in New Delhi 1,00,000

You are required to ascertain the residential status of Mrs. Ankita and compute her total income and tax liability in India for
Assessment Year 2024-25. Assume that she has exercised the option to shift out of the default tax regime.
An Indian citizen or a person of Indian origin who, being outside India, comes on a visit to India (and whose total income, other
than from foreign sources, does not exceed ₹ 15,00,000) would be resident in India only if he or she stays in India for a period
of 182 days or more during the previous year.
Since Mrs. Ankita is a person of Indian origin who comes on a visit to India only for 60 days in the P.Y.2023-24 and her income
other than from foreign sources does not exceed ₹ 15,00,000, she is non-resident for the A.Y. 2024-25.
A non-resident is chargeable to tax in respect of income received or deemed to be received in India and income which accrues
or arises or is deemed to accrue or arise to her in India.
Accordingly, her total income and tax liability would be determined in the following manner:
Computation of total income and tax liability of Mrs. Ankita for A.Y. 2024-25
Salaries
Pension received from American Government [Not taxable, since it neither accrues or arises in India nor is -
it received in India]
Income from House Property

Annual Value [Rental Income from house property in New Delhi is taxable, since it is 1,00,000
deemed to accrue or arise in India, as it accrues or arises from a property situated
in India]
Less: Deduction u/s 24(a) @ 30% 30,000 70,000
Capital Gains
Long-term capital gains on sale of land at New Delhi [Taxable, since it is deemed to accrue or arise in 2,00,000
India as it is arising from transfer of land situated in India]
Short-term capital gains on sale of shares of Indian listed companies in respect of which STT was paid 50,000
[Taxable, since it is deemed to accrue or arise in India, as such income arises on transfer of shares of
Indian listed companies]
Gross Total Income 3,20,000

Less: Deduction under Chapter VI-A
Deduction under section 80C
- Life insurance premium of 75,000 [Premium paid to American Life Insurance Corporation 70,000
allowable as deduction. However, the same has to be restricted to gross total income
excluding LTCG and STCG, as Chapter VI-A deductions are not allowable against such income
chargeable to tax u/s 112 and 111A, respectively]
Total Income 2,50,000

Computation of Tax Liability
Long-term capital gains taxable @ 20% u/s 112 [2,00,000 x 20%] 40,000
Short-term capital gains taxable @15% u/s 111A [50,000 x 15%] 7,500
47,500
Add: Health and Education Cess @4% 1,900
Tax Liability 49,400
Note - The benefit of adjustment of unexhausted basic exemption limit against long-term capital gains taxable u/s 112 and
short-term capital gains taxable u/s 111A is not available in case of non-resident. Further, rebate u/s 87A is not allowable to a
non-resident, even if his income does not exceed ₹ 5 lakh.
Q10. Mr. Kaushik (aged 58 years), a citizen of India, serving in the Ministry of Finance in India, was transferred to the Indian
Embassy in UK on 15th March 2023. His income during the financial year 2023-24 is given hereunder:
Particulars ₹
Rent from a house situated at UK, received in UK. Thereafter, remitted to an Indian bank account. 5,00,000
Interest on Post office savings bank account in India 5,000

Salary from Government of India 9,00,000

Foreign Allowances from Government of India 7,00,000
Mr. Kaushik did not come to India during the financial year 2023-24. Compute his total income for the Assessment year
2024-25. Assume that he opts to pay tax under default tax regime.
Mr. Kaushik is a non-resident for the A.Y. 2024-25, since he was not present in India at any time during the previous year
2023-24 [Section 6(1)].
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; and
(ii) Income accruing or arising or income deemed to accrue or arise in India.
Computation of Total Income of Mr. Kaushik for A.Y. 2024-25

Particulars ₹
Salaries
Salary from Government of India 9,00,000
(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. Kaushik, a citizen of India, even though he is a non-resident
and rendering services outside India)
Foreign Allowance from Government of India Nil

[Any 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)].
Gross Salary 9,00,000

Less: Standard Deduction under section 16(ia) of ₹ 50,000, being lower of gross salary or ₹ 50,000 50,000
8,50,000
Rent from a house situated at UK, received in UK Nil
(Income from property situated outside India would not be taxable in India in the
hands of a non-resident, since it neither accrues or arises in India nor is it deemed to accrue or arise in
India nor is it received in India)
Income from Other Sources

Interest on Post office savings bank account – exempt upto ₹ 3,500 1,500

Less: Deduction under section 80TTA (Note) Nil
Note : Deduction under section 80TTA is available only if the individual exercises the option of shifting out of the default tax
regime provided under section 115BAC(1A).
Q11. Mr. Divyam, an Indian citizen aged 40 years, worked in ABC Ltd. in Mumbai. He got a job offer from XYZ Inc., USA on
01.06.2022. He left India for the first time on 31.07.2022 and joined XYZ Inc. on 08.08.2022. During the P.Y. 2023-24, Mr.
Divyam visited India from 25.05.2023 to 22.09.2023. He has received the following income for the previous year 2023-24
Particulars ₹
Salary from XYZ Inc., USA received in USA 8,00,000

Dividend from Indian companies 5,00,000
Agricultural income from land situated in Punjab 60,000
Rent received/receivable from house property in Lucknow 3,00,000
Profits from a profession in USA, which was set up in India, received there 7,00,000
Determine the residential status of Mr. Divyam and compute his total income for the A.Y. 2024-25.

As per section 6(1), an Indian citizen or a person of Indian origin who, being outside India, comes on a visit to India would be
resident in India if he or she stays in India for a period of 182 days or more during the relevant previous year in case such
person has total income, other than the income from foreign sources, not exceeding ₹ 15 lakhs. However, if such person has
total income, other than the income from foreign sources, exceeding ₹ 15 lakhs, he would also be a resident if he has been in
India for at least 120 days during the relevant previous year and has been in India during the 4 years immediately preceding the
previous year for a total period of 365 days or more. In such a case, he would be resident but not ordinarily resident in India.
Income from foreign sources means income which accrues or arises outside India (except income derived from a business
controlled in or a profession set up in India) and which is not deemed to accrue or arise in India.
In this case, total income, other than the income from foreign sources, of Mr. Divyam for P.Y. 2023-24 would be
Particulars ₹
Salary from XYZ Inc., USA received in USA (Not included in total income, since it is income from foreign -
source)
Dividend from Indian companies (Included in total income, since deemed to accrue or arise in India) 5,00,000
Agricultural income from land situated in Punjab [Exempt u/s 10(1)]
Rent received/receivable from house property in Lucknow 3,00,000 -
(Included in total income, since deemed to accrue or arise in India)
Less: 30% of ₹ 3 lakhs 90,000 2,10,000
Profits from a profession in USA, which was set up in India, received there 7,00,000
Total income, other than the income from foreign sources 14,10,000
Since, Mr. Divyam is an Indian citizen who comes on a visit to India only for 121 days in the P.Y. 2023-24 and his total income,
other than income from foreign sources does not exceed ₹ 15 lakhs, he would be non-resident for the A.Y. 2024-25. A
non-resident is chargeable to tax in respect of income received or deemed to receive in India and income which accrues or
arises or is deemed to accrue or arise to him in India. Accordingly, his total income would be as follow –
Particulars ₹
Salary from XYZ Inc., USA received in USA (Not taxable, since it neither accrues or arises in India nor is -
it received in India)
Dividend from Indian companies (Taxable, since deemed to accrue or arise in India) 5,00,000
Agricultural income from land situated in Punjab [Exempt u/s 10(1)] -
Rent received/receivable from house property in Lucknow 3,00,000
(Taxable, since deemed to accrue or arise in India)
Less: 30% of ₹ 3 lakhs 90,000 2,10,000
Profits from a profession in USA, which was set up in India, received there -
Gross Total Income/ Total income 7,10,000
Q12. Determine the residential status and total income of Mr. Shiva for the assessment year 2024-25 from the information given
below.
Mr. Shiva (age 65 years), an American citizen, is employed with a multinational company in Gurugram. Mr. Shiva holds a
senior level position as researcher in the company, since 2009. To share his knowledge and finding in research, company
gave him an opportunity to travel to other group companies outside India while continuing to be based at the Gurugram
office.
The details of his travel outside India for the financial year 2023-24 are as under:
Country Period of stay
USA 25 August, 2023 to 10 November, 2023
UK 20 November, 2023 to 23 December, 2023
Germany 10 January, 2024 to 24 March, 2024

During the last four years preceding the previous year 2023-24, he was present in India for 380 days. During the last
seven previous years preceding the previous year 2023-24, he was present in India for 700 days. During the P.Y. 2023-24,
he earned the following incomes:
(1) Salary ₹ 15,00,000. The entire salary is paid by the Indian company in his Indian bank account.
(2) Dividend amounting to ₹ 40,000 received from Treat Ltd., a Singapore based company, which was transferred to his
bank account in Singapore.
(3) Interest on a fixed deposit with Punjab National Bank (Delhi) amounting to ₹ 10,000 was credited to his saving
account.
Assume that he has exercised the option to shift out of the default tax regime.
Determination of residential status

Mr. Shiva would be a resident in India in P.Y. 2023-24, if he satisfies any one of the following conditions:
(i) He has been in India during the previous year for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding the previous year for a total period of 365 days or more and
has been in India for at least 60 days in the previous year.
If he satisfies any one of the conditions mentioned above, he is a resident. If both the above conditions are not satisfied, he
would be a non-resident.
During the P.Y. 2023-24 Mr. Shiva stayed in India for 179 days i.e., 366 days – 187 days [78 days + 34 days + 75 days] and 380
days i.e., more than 365 days during the 4 preceding previous years. He satisfies the second basic condition for being a
resident. Hence, he is a resident in India for A.Y. 2024-25.
A person would be “Not ordinarily Resident” in India in any previous year, if such person, inter alia,:
(a) has been a non-resident in 9 out of 10 previous years preceding the relevant previous year; or
(b) has during the 7 previous years immediately preceding the relevant previous year been in India for 729 days or less.
For the previous year 2023-24, Mr. Shiva would be “Resident but not ordinarily resident” since he stayed for less than 729 days
during the 7 previous years immediately preceding P.Y. 2023- 24.
Computation of total income of Mr. Shiva for A.Y. 2024-25

(1) Salary from Indian company received in a bank account in India 15,00,000
Less: Standard deduction u/s 16(ia) 50,000 14,50,000
(2) Dividend of Rs. 40,000 received from Singapore based company transferred to his bank account Nil
in Singapore is not taxable in the hands of the resident but not ordinarily resident since the
income has neither accrued or arisen in India nor has it been received in India
(3) Interest on fixed deposit with PNB credited to his savings bank account is taxable in the hands 10,000
of Mr. Shiva as Income from other sources, since it has accrued and arisen in India and is also
received in India.

Less: Deduction u/s 80TTB 10,000

Q1. Mr. Happy, a US citizen, came to India for an assignment from 11.01.2020 to 09.10.2020 and went back to his home country on
completion of the same. He thereafter, visited India on 05.07.2022 again for an assignment, which ended on 26.05.2023. What
is the latest date by which Mr. Happy should depart from India after completing the assignment so as to qualify as non-resident
for P.Y. 2023-24? (Assume that he shall not be visiting India again during the year)
(a) 29-05-2023
(b) 30-05-2023
(c) 31-05-2023
(d) 28-09-2023
Correct answer : (a) 29-05-2023

Explanation:
Mr. Happy has been in India for more than 365 days during the 4 years immediately preceding the previous year, therefore in

order to be non-resident, he should be in India for less than 60 days during this previous year.
Since 60 days completes on 30-05-2023, he should leave India on 59th day only i.e. 29-05-2023.
Q2. Which of the following incomes is not deemed to accrue or arise in India under section 9(1)(i) of the Income-tax Act, 1961?
(a) Income from any business connection in India

(b) Income through or from any property in India
(c) Income arising from transfer of a capital asset situated in India
(d) Income relating to operations which are confined to purchase of goods in India for the purpose of export
Correct answer : (d) Income relating to operations which are confined to purchase of goods in India for the purpose of export
Explanation:
Following incomes are deemed to accrue or arise in India even though they may actually accrue or arise outside India:
(a) through or from any business connection in India,

(b) through or from any property in India,
(c) through or from any asset or source of income in India or
(d) through the transfer of a capital asset situated in India
In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which
are confined to the purchase of goods in India for the purpose of export.
Q3. On 31.08.2023, Mr. Kashyap moved to Japan for employment. His family accompanied him, owing to long term nature of
employment. Mrs. Kashyap is also planning to start a fashion boutique in Japan soon, once she gets settled. Both Mr. & Mrs.
Kashyap are Indian citizens and have been working in India for more than a decade now. Comment on their residential status
for A.Y. 2024-25, assuming they did not visit India after August 2023 -
(a) Mr. & Mrs. Kashyap will qualify to be non-resident

(b) Mr. Kashyap will qualify to be non-resident and Mrs. Kashyap will be resident but not ordinarily resident
(c) Mr. Kashyap will qualify to be non-resident and Mrs. Kashyap will be resident and ordinarily resident
(d) Mr. & Mrs. Kashyap will qualify to be resident but not ordinarily resident
Correct answer : (c) Mr. Kashyap will qualify to be non-resident and Mrs. Kashyap will be resident and ordinarily resident
Explanation:
Since Mr. Kashyap, an Indian citizen leaves India for the purpose of employment, he will be considered as a resident only if his
total stay in India is 182 days or more during the previous year. Since his total stay during the P.Y. 2023-24 is 153 days, he will
be non-resident.
Mrs. Kashyap did not leave India for employment, and was in India for a period of 60 days or more during the previous year
and 365 days or more during the 4 years immediately preceding the previous year, she is a resident. Also, she was resident in
9 years out of the 10 previous years preceding the relevant previous year since she has working there for more than a decade.
Therefore, Mrs Kashyap is a resident and ordinarily resident.
Q4. Mr. Raj, an Indian citizen and a Government employee, left India for the first time on 25.03.2023 on account of his
transfer to High Commission in Singapore. During P.Y. 2023-24, he visited India only for ten days on occasion of his
sister’s marriage. During F.Y. 2023-24, his income composition includes salary, foreign allowances, rent from property in
Singapore and interest earned from fixed deposits maintained with SBI. His taxable income for P.Y. 2023-24 will include:
(a) All of them, since Mr. Raj is a resident in India, hence his global income will be taxable
(b) Only interest earned from fixed deposits maintained in India
(c) No income shall be taxable since Mr. Raj is a non-resident in India for P.Y. 2023-24
(d) Salary and interest income of fixed deposits with SBI
Correct answer : (d) Salary and interest income of fixed deposits with SBI
Explanation:

Since Mr. Raj, an Indian citizen leaves India for the purpose of employment, he will be considered as a resident only if his total
stay in India is 182 days or more during the previous year. Since his total stay during the P.Y. 2023-24 is 10 days, he will be
non-resident.
Interest earned from fixed deposits maintained with SBI accrues or arises in India.Also, Income from salaries payable by the
Government to a citizen of India for services rendered outside India would be deemed to accrue or arise in India. Therefore,
salary and income income will be taxable in India.
Q5. Mr. Nishant, a resident but not ordinarily resident for the previous year 2022-23 and resident and ordinarily resident for
the previous year 2023-24 has received rent from property in Canada amounting to ₹ 1,00,000 during the P.Y .2022-23.
He has deposited the same in a bank in Canada. During the financial year 2023-24, he remitted this amount
to India through approved banking channels. Is such rent taxable in India, and if so, how much and in which year?
(a) Yes; ₹ 70,000 was taxable in India during the previous year 2022-23.
(b) Yes; ₹ 1,00,000 was taxable in India during the previous year 2022-23.
(c) Yes; ₹ 70,000 was taxable in India during the previous year 2023-24.
(d) No; such rent is not taxable in India either during the previous year 2022-23 or during the previous year 2023-24.
Correct answer : (d) No; such rent is not taxable in India either during the previous year 2022-23 or during the previous year
2023-24.
Explanation:
Since income accrues and arises outside India and Mr. Nishant was resident and not ordinarily resident in that year, it will not
be taxable in India.
Income is to be included in the total income of the assessee immediately on its actual or deemed receipt. When once an
amount is received as income, remittance or transmission of that amount from one place or person to another does not
constitute receipt of income in the hands of the subsequent recipient or at the place of subsequent receipt. Therefore, the
remittance of such income to India in further years will not make any difference.
Q6. Mr. Tejas, an Indian Citizen, left India permanently with his wife and two children, for extending his retail trade business of toys
in Canada in the year 2018. From Canada, he is managing his retail business of toys in India. For the purpose his Indian
business, he visits India every year from 1st September to 31st January. His business income is ₹ 23.50 lakhs and ₹ 18 lakhs
from retail trade business in Canada and in India, respectively for the F.Y. 2023-24. He has no other income during the P.Y.
2023-24. Determine his residential status and income taxable in his hands for the A.Y. 2024-25.
(a) Resident and ordinarily resident in India and income of ₹ 18 lakhs and ₹ 23.50 lakhs would be taxable.
(b) Non-Resident and ₹ 18 lakhs from Indian retail trade business would only be taxable.
(c) Resident but not ordinarily Resident and ₹ 18 lakhs from Indian retail trade business would only be taxable.
(d) Deemed resident and ₹ 18 lakhs from Indian retail trade business would only be taxable.
Correct answer : (c) Resident but not ordinarily Resident and ₹ 18 lakhs from Indian retail trade business would only be
taxable.
Explanation:
Mr. Tejas is an Indian citizen who comes to visit in India and has a total income (other than foreign sources) of ₹ 18 lakhs.
During the P.Y 2023-24, he was in India for 153 days i.e. more than 120 days but less than 182 days and for more than 365
days during the last 4 previous years, therefore he is resident but not ordinarily resident. Therefore income that accrue or arise
in India will only be taxable i.e. ₹ 18 lakhs.
Q7. Determine residential status of Sundaram (HUF) which carries out its transactions in Malaysia. Its affairs are partly
controlled from India. The Karta of HUF, Mr. Sundaram who is from Chennai visits India on 01.06.2023 and leaves to
Malaysia on 10.02.2024. He has not visited India for the past 11 years.
(a) Non-resident
(b) Resident but not ordinarily resident
(c) Deemed resident
(d) Resident and ordinarily resident

Correct answer : (b) Resident but not ordinarily resident

Explanation:
Since the control and management of its affairs is partly in India, it is resident in India.
Since Karta has not visited India for the past 11 years, he does not satisfy the condition of being ordinarily resident.
Therefore, HUF is resident but not ordinarily resident.
Q8. Mr. Rajesh, aged 53 years, and his wife, Mrs. Sowmya, aged 50 years, are citizens of Country X. They are living in Country X
since birth. They are not liable to tax in Country X. Both of them have keen interest in Indian Culture. Mr. Rajesh’s parents and
grandparents were born in Country X. Mrs. Sowmya visits India along with Mr. Rajesh for four months every year to be with her
parents, who were born in Delhi and have always lived in Delhi. During their stay in India, they organize Cultural Programme in
Delhi-NCR. Income of Mr. Rajesh and Mrs. Sowmya from the Indian sources for the P.Y. 2023-24 is ₹ 18 lakhs and ₹ 16 lakhs,
respectively.
What is the residential status of Mr. Rajesh and Mrs. Sowmya for A.Y. 2024-25?
(a) Both are resident and ordinarily resident in India

(b) Both are non-resident in India
(c) Mr. Rajesh is resident but not ordinarily resident in India and Mrs. Sowmya is non- resident
(d) Mrs. Sowmya is resident but not ordinarily resident in India and Mr. Rajesh is resident and ordinarily resident in India.
Correct answer : (d) Mrs. Sowmya is resident but not ordinarily resident in India and Mr. Rajesh is resident and ordinarily
resident in India.
Explanation:
Mrs. Soumya is an Indian citizen who comes to visit in India and has a total income (other than foreign sources) of ₹ 16 lakhs.
During the P.Y 2023-24, she was in India for at least 120 days but less than 182 days and for more than 365 days during the
last 4 previous years, therefore she is resident but not ordinarily resident.
Mr. Rajesh was in India for more than 60 days during the previous year and more than 365 days during the 4 years immediately
preceding the previous year. Also, he was in India for 840 days in 7 previous years preceding the previous years. Therefore, he
is resident and ordinarily resident.

(i) A person of Indian Origin and an India citizen can be deemed resident.
(ii) Stay in India is not necessary for being a deemed resident.
(iii) A deemed resident can be ROR or RNOR.
(a) (i) and (iii)

(b) (ii) only
(c) (iii) only
(d) (ii) and (iii)
Correct answer : (b) (ii) only

Explanation:
(i) Only Indian citizen can be deemed resident. An individual who is not an Indian citizen but a person of Indian Origin cannot
be deemed resident.
(ii) Stay in India is not necessary for being a deemed resident.
(iii) A deemed resident is always a RNOR.
Q10. Mr. Sumit is an Indian citizen and 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, 2023. From the following details for the P.Y. 2023-24, determine the
residential status of Mr. Sumit for A.Y. 2024-25, assuming that his stay in India in the last 4 previous years preceding P.Y.
2023-24 is 365 days and last seven previous years preceding P.Y. 2023-24 is 730 days:
Date entered in the Continuous Discharge Certificate in respect of joining the ship by Mr. Sumit: 25th April, 2023

Date entered in the Continuous Discharge Certificate in respect of signing off the ship by Mr. Sumit: 24th October, 2023
Mr. Sumit has been filing his income tax return in India as a Resident for previous 2 years.
What is his residential status for A.Y. 2024-25:
(a) Resident and ordinarily resident

(b) Resident but not-ordinarily resident
(c) Non-resident
(d) Non-resident till 24.10.2023 and resident till 31.03.2024
Correct answer : (a) Resident and ordinarily resident

Explanation:
In this case, since Mr. Sumit is an Indian citizen and leaving India during P.Y. 2023-24 as a member of the crew of the Indian
ship, he would be resident in India if he stayed in India for 182 days or more..
The period beginning from 25th April, 2023 and ending on 24th October, 2023, being the dates entered into the Continuous
Discharge Certificate in respect of joining the ship and signing off from the ship by Mr. Sumit, 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, 183 days
[6+31+30+31+31+30+24] have to be excluded from the period of his stay in India. Consequently, Mr. Sumit’s period of stay in
India during the P.Y. 2023-24 would be 183 days [i.e., 366 days – 183 days]. Also, his stay in India in the last 4 previous years
preceding P.Y. 2023-24 is 365 days and the last seven previous years preceding P.Y. 2023-24 is 730 days. Therefore, he is
resident and ordinarily resident.

Chapter 3 - Salaries

Q1. Mr. Samay is tax manager in ABC Co, Jaipur. He has submitted the following particulars of his income for the financial
year 2023-24:
(i) Basic salary ₹ 2,40,000
(ii) Dearness Allowance ₹ 5,000 p.m. (₹ 200 p.m. enters into retirement benefits).
(iii) Education allowance for two children at ₹ 150 p.m. per child.
(iv) Commission on sales 1% of turnover of ₹ 10,00,000.
(v) Entertainment allowance ₹ 700 p.m.
(vi) Travelling Allowance for his official tours ₹ 25,000. The entire amount is spent on the official tour.
(vii) He was given cloth worth ₹ 4,500 by his employer free of cost.
(viii) He resides in the flat of the company. Its market rent is ₹ 12,000 p.m. A watchman and a cook have been provided
by the company at the bungalow who are paid ₹ 500 p.m. each.
(ix) He has been provided with a motor car of 1.8 ltr engine capacity for his official as well as personal use. The running
and maintenance costs are borne by the Company.
(x) Employer's contribution to R.P.F. is ₹ 40,000 and the interest credited to this fund at 13% rate amounted to ₹
16,250.
(xi) Contribution by Mr. Samay to recognised provident fund ₹ 40,000
(xii) Rent of house recovered from Mr. Samay ₹ 1500 p.m.
(xiii) Tax deducted at source from the above payments ₹ 5,000.
Compute income from salaries for the assessment year 2024-25. Assume the population of Jaipur is 26 lakhs per 2001
census and he has exercised the option to shift out of the default tax regime.
Computation of Taxable Salary of Mr Samay for AY 2024- 25

Particulars Amount (in ₹)
Basic Salary 2,40,000

Dearness Allowance (₹ 5,000 x 12) 60,000
Education Allowance (₹ 3,600 - ₹ 2,400) 1,200
Commission on Sales 10,000
Entertainment Allowance @ ₹ 700 p.m. 8,400
Travelling Allowance (₹ 25,000 - ₹ 25,000) -
Cloth given free of cost (tax free perquisites as it does not exceed ₹ 5,000) -
Value of accommodation at concessional rate (See note 2) 21,300
Value of facility of cook @ ₹ 500 p.m. 6,000
Value of facility of watchman @ ₹ 500 p.m. 6,000
Value of car facility (₹ 2,400 x 12) 28,800
Employer's contribution to RPF (see note 3) 9,712
Interest credited to RPF (see note 4) 4,375
Less. Standard deduction u/s 16(ia) 50,000
Income from Salary 3,45,787
Working notes:
1. Commission on sales has been taken to be a part of salary as it is a fixed percentage on turnover.
2. Salary for purpose of accommodation will include
Basic 2,40,000
DA 2,400
Education Allowance 1,200
Commission 10,000
Entertainment Allowance 8,400
Total 2,62,000

Taxable value = 15% of salary in respect of the period of occupation (–) rent recovered from employee
= 262,000 x 15% - 1,500 x 12 = ₹ 21,300
For the purpose of calculation, salary does not include dearness allowance unless it enters into the computation of
superannuation or retirement benefits of the employee concerned, employer’s contribution to the provident fund
account of the employee; allowances which are exempted from the payment of tax; value of the perquisites specified
in section 17(2).
3. Employer's contribution to RPF = ₹ 40,000

Less: 12% of Salary i.e. ₹ 2,52,400 = ₹ 30,288
Taxable value = ₹ 9,712
Salary for this purpose means basic salary and dearness allowance - if provided in the terms of employment for
retirement benefits and commission as a percentage of turnover.
4. Interest credited to RPF = ₹ 16,250

Less: Exempt 9.5% p.a. = ₹ 11,875
Taxable value = ₹ 4,375
Q2. Mr. Mike has been working with a domestic company having a production unit in the U.S.A. for the last 18 years. He has been
regularly visiting India for export promotion of the company's product. He has been staying in India for at least 185 days every
year.
He submits the following information :
Salary received outside India (For 6 months) ₹ 40,000 p.m.

Salary received in India (For 6 months) ₹ 45,000 p.m.
He has been given rent free accommodation in the U.S.A. for which the company pays ₹ 12,000 per month as rent, but when
he comes to India, he stays in the guest house of the company. During this period he is given a free lunch facility. During the
previous year the company incurred an expenditure of ₹ 48,000 on this facility.
He has been provided a car of 2000 cc capacity in the U.S.A. which is used by him for both office and private purposes. The
actual cost of the car is ₹ 8,00,000. But when he is in India, the car is used by him and the members of his family only for
personal purposes. The monthly expenditure of the car is ₹ 5,000. His elder son is studying in India for which his employer
spends ₹ 12,000 per year whereas his younger son is studying in U.S.A. and stays in a hostel for which Mr. Mike gets ₹ 3,000
per month as combined allowance.
The company has taken an accident insurance policy and a life insurance policy. During the previous year the company paid a
premium of ₹ 15,000 and ₹ 20,000 respectively.
Compute Mr. Mike ’s taxable income from salary for the Assessment Year 2024-25 if he has exercised the option to shift
out of the default tax regime.
Since Mr Mike was in India for more than 182 days during the previous year, he is a resident in India for assessment year
2024-25. Hence, his worldwide income will be taxable in India.
Particulars Note no ₹
Basic Salary [₹ 40,000 x 6) + (₹ 45,000 x 6)] 5,10,000

Hostel and education allowance [₹ 3000 x 12] 1 36,000
Education facility for elder child 2 12,000
Car facility for official and personal use in the U.S.A. (₹ 2,400 x 6) 3 14,400
Car facility for personal use 4 70,000
Guest House 5 NIL
Lunch facility 5 48,000
Rent-free accommodation (lease rent paid or 15% of salary whichever is less 6 81,900
Premium of ₹ 15,000 paid by the company for personal accident policy 7 Exempt
Life Insurance premium paid 20,000

Less: Standard deduction u/s 16(ia) 50,000
Salary Income chargeable to Tax 7,42,300
Working notes:
1. No exemption is available in respect of allowance received for any education or hostel facility of children outside India.

2. If the employer incurs expenditure on providing education facility to member of the household, it is fully taxable.
3. Since a car (2000cc) is used for official and personal purpose when Mr. Mike is in the USA ₹ 2,400 p.m. will be taxable.
4. When Mr. Mike is in India, Car is used for personal purposes by his family members. Hence amount to be taxable is
arrived as under :
Depreciation of car @ 10% p.a. of original cost of car [₹ 8,00,000 x 10% x 6/12] 40,000
Monthly expenditure incurred by employer [₹ 5000 x 6] 30,000
Total 70,000
5. Guest house facility is not taxable, since it is provided for stay when he visits India wholly for official purposes.
Expenditure incurred on providing lunch facility is taxable.
6. Value of taxable RFA = Lower of the two
a) 15% of salary i.e. ₹ 81,900
b) Lease rent ₹ 12,000 x 12 = ₹ 1,44,000
Salary for rent free accommodation :
Basic pay 5,10,000
Hostel and education allowance 36,000
Total 5,46,000
15% of salary 81,900
7. Premium of ₹ 15,000 paid by the company for personal accident policy is not liable to tax.
Q3. Mr. Harvey, a salaried employee, furnishes the following details for the financial year 2023-24:
1. Basic salary up to 30.11.2023 Rs 60,000 p.m.

Basic salary from 1.12.2023 Rs 80,000 p.m.
Note: Salary is due & paid on the last day of every month.
2. Dearness allowance @ 20% of basic salary
3. Commission of ₹ 40,000
4. Contribution of employer to RPF A/c of the employee @ 18% of basic salary, employee also contribute an equivalent
amount.
5. Profession Tax of ₹ 7,000 (out of this, 50% was paid by employer)
6. Medical expenses of ₹ 25,000 were reimbursed by the employer
7. Employer-Company owns a Tata Nano car, which was provided to the assessee, both for official and personal use. No
driver was provided. (Engine cubic capacity less than 1.6 litres)
8. Gift voucher of ₹ 12,000 was given by employer on his birthday
9. Leave travel concession given to Mr. Harvey , his wife & three children (one daughter aged 7 & twin sons aged 10). Cost
of air tickets (economy class) reimbursed by the employer 20,000 for adults & lump sum of 30,000 for three children. Mr.
Harvey is eligible for availing exemption this year to the extent it is permissible under Income-tax Act, 1961.
You are required to compute the income chargeable under the head "Salaries" for the AY 2024-25 if he has exercised the
option to shift out of the default tax regime.
Computation of Taxable Salary of Mr Harvey for AY 2024- 25

Basic Salary (60,000 x 8)+ (80,000 x 4) 8,00,000

Dearness allowance 1,60,000
Commission 40,000
Employer’s Contribution to RPF (8,00,000 x 6%) (WN 1) 48,000
Professional Tax paid by the employer section 17(2)(iv) (WN 2) 3,500
Medical expenses reimbursed by the employer (Fully Taxable) 25,000
Car facility for official and personal use [1,800 p.m. is taxable, since engine cubic capacity less than 1.6 21,600
litres [1800 x 12]
Gift voucher given by employer on his birthday (taxable, as it is not below 5000) (WN 3) 12,000
Leave Travel concession [Section 10(5)/Rule 2B] (WN 4) 10,000

Less: Standard Deduction u/ s 16(ia) 50,000

Less: Professional Tax 7,000
Income chargeable to tax under 'Salaries' 10,63,100
Note:
(1) As per section 10(12), Employer’s contribution up to 12% of retirement benefit salary shall be exempt & excess
amount shall be taxable.
(2) Professional tax paid by the employer shall be added to the gross salary of the employee then deduction u/s 16(iii) shall
be allowed for professional tax paid.
(3) An alternate view possible is that only the sum in excess of Rs 5,000 is taxable.
(4) As per section 10(5) read with Rule 2B, Leave Travel Concession shall be allowed to the employee & his family.
Exemption shall be allowed for expenditure incurred during the trip. Family shall include spouse, two children &
dependent parents, brothers & sisters of the employee. However, in this case the number of children are three and the
daughter was born after two twin sons, hence, the exemption will be available only in respect of 2 children. Therefore
taxable value = 30,000/3 = 10,000.
Q4. Mr Abhinav, a purchase manager of Golden Pvt. Ltd. Pune is offered an employment with the following two alternative
packages:
Particulars I II
Basic Pay per annum 6,50,000 6,50,000

Conveyance allowance for private use 28,000 -
Motor car facility for private use of X and his family members (valued) - 28,000
Entertainment Allowance 80,000 -
Club facility (Valued) - 80,000
Children Education Allowance (for 2 children) 19,400 -
Free Education Facility in an institution run by the employer for Children (Valued) - 19,400
Rent Free unfurnished house with fair rental value 1,20,000 1,20,000
Which of the two packages should Mr Abhinav opt for on the assumption that both employer and employee will
contribute 20% of the basic pay towards an unrecognised provident fund. Assume the population of Pune is more than
25 lakhs as per 2001 census. Assume Mr Abhinav has exercised the option to shift out of the default tax regime.
The taxable income of Mr Abhinav under the two options will be as under:
Particulars I II
Basic Pay per annum 6,50,000 6,50,000

Conveyance allowance for private use 28,000 -
Motor car facility for private use of Mr Abhinav and his family members - 28,000
Entertainment Allowance 80,000 -
Club facility - 80,000
Children Education Allowance (₹ 19,400 - ₹ 2,400) 17,000 -
Free Education Facility for children - -
Rent Free unfurnished house with fair rental value (see note 2) 1,16,250 97,500
Gross Salary 8,91,250 8,55,500

Less: Standard deduction u/s 16(ia) 50,000 50,000
Salary Income chargeable to Tax 841,250 8,05,500
The taxable income in the second package is less therefore, Mr Abhinav should opt for the second package.
Working notes:
1. Employer’s Contribution to unrecognised PF is not taxable at the time of contribution
2. In case of option 1
Value of taxable RFA = Lower of the two

a) 15% of salary i.e. ₹ 1,16,250
b) Lease rent = ₹ 1,20,000
Salary for rent free accommodation :

Basic pay 6,50,000

Conveyance allowance for private use 28,000
Entertainment Allowance 80,000
Children Education Allowance 17,000
Total 7,75,000
15% of salary 1,16,250
In case of option 2
Value of taxable RFA = Lower of the two

a) 15% of salary i.e. ₹ 97,500
b) Lease rent = ₹ 1,20,000
Salary for rent free accommodation = ₹ 6,50,000
For the purpose of calculation, the value of the perquisites specified in section 17(2) and allowances which are
exempted from the payment of tax do not form part of a salary.
Q5. Nikhil joined a Company on 01-06-2023 and was paid the following emoluments and allowed perquisites as under-
Emoluments : Basic pay ₹ 30,000 per month ; DA ₹ 15,000 per month; Bonus ₹ 40,000 per month.
Perquisites:
a) Furnished accommodation owned by the employer and provided free of cost. Value of furniture therein ₹ 3,00,000
b) Motorcar owned by the Company (with engine cubic capacity less than 1.6 litres) along with chauffeur for official
and personal use.
c) Sweeper salary paid by Company ₹ 1,800 per month.
d) Watchman salary paid by Company ₹ 2,000 per month.
e) Educational facility for 2 children provided free of cost. School is owned and maintained by company,
f) Interest free loan of ₹ 5,00,000 given on 1-10-2023 for purchase of a house. No repayment was made during the
year. (SBI Rate 12.25%)
g) Interest free loan for purchase of computer ₹ 50,000 given on 1-1-2024. No repayment was made during the(SBI
Rate 15.25%)
h) Corporate membership of a club. The initial fee of ₹ 2,00,000 was paid by the Company. Nikhil paid the bills for his
use of club facilities.
You are required to compute the income of Nikhil under the Head "Salaries" if he has exercised the option to shift out of
default tax regime. Suitable assumptions may be made, wherever necessary.
Computation of Income of Nikhil under the Head "Salaries"
Particulars Note no Amount (in ₹)
Basic Salary (₹ 30,000 x 10) 3,00,000

Dearness allowance (₹ 15,000 x 10) 1 1,50,000
Bonus (₹ 40,000 x 10 months) 4,00,000
Value of Accommodation 2&3 1,52,500
Sweeper Salary paid by employer (₹ 1,800 x 10) 18,000
Watchman Salary paid by employer (₹ 2,000 x 10) 20,000
Car facility 4 27,000
Club facility 5 Nil
Education facility to children 6 Nil
Interest free housing Loan (₹ 5,00,000 x 12.25% x 6/12) 30,625
Interest free Computer Loan (₹ 50,000 x 15.25% p.a. x 3/12) 1,906

Less: Standard deduction u/s 16(ia) 50,000
Salary Income chargeable to Tax 10,50,031
Working Notes
1. It is assumed that DA forms the part of salary for retirement benefits.

2. It is assumed that the place of accommodation has population exceeding 25 lakhs

3. Taxable value of Rent Free furnished Accommodation
Valuation of rent free accommodation 15% of salary

Valuation of rent free accommodation (₹ 8,50,000 x 15%) 1,27,500
Add: Furniture (10% p.a. of original cost of furniture) (₹ 3,00,000 x 10% x 10/12) 25,000
Taxable value of furnished accommodation
Salary for rent free accommodation 1,52,500
Basic Pay 3,00,000

DA 1,50,000
Bonus 4,00,000
8,50,000
4. The car is used partly for personal and partly for official use. Assuming that the maintenance and running expenses
are met by the owner-company, value of car facility = (₹ 1800 + ₹ 900) x 10 = ₹ 27,000
5. The initial fee for corporate membership is exempt from tax
6. It is assumed that the cost of education per child does not exceed ₹ 1,000 p.m.
Q6. Mr. Janakaraj, employed as General Manager in Rajus Refractories Pvt. Ltd., furnishes you the undermentioned information for
year ended 31.3.2024:
1. Basic salary ₹ 9,00,000 p.a.

2. Bonus equal to one-month salary. This was paid in November, 2023 on basic salary
3. He was allowed to use the video camera belonging to the company. The company had purchased this camera for ₹ 60,000
on 1st May 2020. This camera was sold to him on 1st August 2023 for ₹ 30,000.
4. Annual credit card fees of ₹ 5,000 was paid by employer [Credit card is not exclusively used for official purposes; details of
usage are not available]
5. The monthly salary of ₹ 2,000 of a house keeper is reimbursed by the company.
6. Facility of laptop was provided to Janakaraj for both official & personal use. Cost of laptop ₹ 65,000 & was purchased by
the company on 11.10.2023.
7. Health insurance premium of ₹ 15,000 was paid by employer
Compute the taxable salary of Mr. Janakaraj. If he has exercised the option to shift out of default tax regime.
Computation of Income from Salary of Mr. Janakaraj (amount in ₹):

Bonus 75,000
Use of Video Camera [WN 1] 2,000
Sale of Video Camera [WN 2] 12,000
Annual credit card fees paid by employer 5,000
Reimbursement of salary of housekeeper - Taxable u/s 17(2)(iv) (2000 x 12) 24,000
Facility of Laptop/computer [Section 17(2)(viii)/Rule 3(7)(vii)] Exempt
Health insurance premium paid by employer [Exempt from tax] Exempt

Less: Deduction u/s 16(ia) 50,000
Taxable Salary 9,68,000
Working Notes:
1. Taxable value for use of video camera = ₹ 60,000 * 10% * 4/12 = ₹ 2,000
2. Taxable value for sale of video camera = WDV - Sale price = (₹ 60,000 - Dep @ 10% for 3 years ₹ 18,000) - ₹ 30,000 = ₹
12,000
Q7. Mr. Varun, an employee of PQR Co. Ltd. at Mumbai and covered by Payment of Gratuity Act, retires at the age of 62 years on
31-12-2023 after completing 33 years and 7 months of service. At the time of retirement, his employer pays ₹ 21,00,000 as
Gratuity. He is also entitled for a monthly pension of ₹ 8,000. He gets 75% of pension commuted for Rs 4,50,000 on 1st
February, 2024. Determine the salary chargeable to tax for Mr. Varun for the AY 2024-25 with the help of following information:
Basic Salary (₹ 80,000 * 9) 7,20,000
Bonus 36,000

House Rent Allowance (₹ 15,000 * 9) 1,35,000

Rent paid by Mr. Varun (₹ 10,000 * 12) 1,20,000
Professional Tax paid by Mr. Varun 2,000
Note: Salary and Pension falls due on the last day of each month. He has opted to pay tax under default tax regime.
Computation of Income from Salary (amount in ₹):

Basic Salary (80,000 x 9) 7,20,000
Bonus 36,000
Taxable House Rent Allowance (Fully taxable under default tax regime) 1,35,000
Taxable Gratuity (WN 1) 5,30,769
Uncommuted Pension 12,000
(₹ 8,000 * 1 month (Jan 2023) + (₹ 2000 * 2 (Feb 2024 to Mar 2024) (WN 2)
Taxable portion of commuted value of pension (WN 3) 2,50,000

Less: Deduction u/s 16(ia) 50,000
Less: Deduction of professional tax [Not allowed under default tax regime] Nil
Working Notes:
(1) Computation of taxable gratuity (amount in ₹)
Completed years of service (Part thereof in excess of 6 months shall be rounded off to higher 34
side)
Exemption u/s 10(10) : Least of the following is exempt -
(a) Gratuity received 21,00,000
(b) 15/26 * Salary last drawn * Completed years of service 15,69,231
(c) Specified limit 20,00,000
Taxable Gratuity = Gratuity received - Exemption 5,30,769
(2) Uncommuted pension : Since Mr. Varun commuted 75% pension in Feb, 2024. His uncommuted pension from Feb, 2024
onward shall be (₹ 8,000 * 25%) = ₹ 2,000 p.m.
(3) Commuted pension:
(a) % of pension commuted = 75%
(b) Commuted value of pension (Pension received + % commuted) = ₹ 4,50,000 / 75% = ₹ 6,00,000
(c) Exemption = 1/3rd of commuted value of pension (₹ 6,00,000) = ₹ 2,00,000
(d) Taxable portion of commuted pension = ₹ 4,50,000 - ₹ 2,00,000 = ₹ 2,50,000
Q8. You are required to compute the income from salary of Mr. Amit from the following particulars for the year ended 31-03-2024
assuming that he has exercised the option to shift out of default tax regime.
(i) He retired on 31-10-2023 at the age of 60, after putting in 40 years and 7 months of service, from a private company in
Delhi.
(ii) He was paid a salary of ₹ 60,000 p.m. and dearness allowance of ₹ 10,000 p.m.
(iii) On retirement, he was paid a gratuity of ₹ 22,00,000. He was covered by the payment of the Gratuity Act, 1972. He had
not received any other gratuity at any point of time earlier, other than this gratuity.
(iv) He was entitled to leave of 1 ½ month for each completed year of service. A sum of ₹ 5,00,000 was received by him in
this regard. He availed a total of 10 months leave during his service.
(v) He is receiving ₹ 1,500 p.m. as pension. On 1.2.2024, he commuted 60% of his pension and received ₹ 90,000.
Computation of income under the head “Salaries” of Mr. Amit for the A.Y. 2024-25
Particulars ₹ ₹
Basic Salary = ₹ 60,000 x 7 months 4,20,000

Dearness Allowance = ₹ 10,000 x 7 months 70,000
Gratuity 22,00,000
Less: Least of the following exempt under section 10(10)(ii) 16,55,769 5,44,231
(i) Actual Gratuity received ₹ 22,00,000
(ii) 15 days salary for every year of completed service [15/26 x ₹ 70,000 x 41] = ₹
16,55,769
(iii) Notified limit = ₹ 20,00,000
Leave encashment 22,00,000

Less: Least of the following exempt under section 10(10AA) 7,00,000 15,00,000
(i) ₹ 25,00,000
(ii) Leave salary actually received ₹ 22,00,000
(iii) ₹ 7,00,000, being 10 months’ salary [(60,000 + 10,000) * 10]
(iv) Cash equivalent of leave standing at the credit of the employee based on the
average salary of last 10 months’ (max. 30 days per year of service) for every year
of actual service rendered for the employer from whose service he has retired
30 x ₹ 70,000 = ₹ 21,00,000 (Note)
Uncommuted Pension received [₹ 1,500 x 3) + (₹ 1,500 x 2/ 5 x 2) 5,700

Commuted Pension received [90,000 / 60%] 1,50,000
Less: Exempt under section 10(10A) [1/3 of 1,50,000] 50,000 1,00,000

Less: Standard deduction u/s 16 [Actual salary or ₹ 50,000, whichever is less] 50,000
Net Salary 26,30,315
Q9. Mr. Anuj, aged 35 years, is entitled to a salary of ₹ 40,000 per month. He is given an option by his employer either to take
house rent allowance or a rent free accommodation which is owned by the company. The HRA amount payable was ₹ 7,500
per month. The rent for the hired accommodation was ₹ 7,000 per month at New Delhi. Advice Mr. Anuj whether it would be
beneficial for him to avail HRA or Rent Free Accommodation. Give your advice on the basis of “Net Take Home Cash benefits”.
Assume Mr. Anuj has exercised the option to shift out of the default tax regime.
Computation of tax liability of Mr. Anuj under both the options

Particulars Option I – HRA Option II – RFA
(₹) (₹)
Basic Salary (₹ 40,000 x 12 Months) 4,80,000 4,80,000

Perquisite value of rent-free accommodation (15% of ₹ 4,80,000) N.A 72,000
House rent Allowance (Rs. 7,500 x 12 Months) ₹ 90,000
Less: Exempt u/s 10(13A) – least of the following -
- 50% of Basic Salary ₹ 2,40,000
- Actual HRA received ₹ 90,000
- Rent paid less 10% of salary ₹ 36,000 ₹ 36,000 54,000
Gross Salary 5,34,000 5,52,000

Less: Deduction u/s 16(ia) 50,000 50,000
Net Salary 4,84,000 5,02,000

Less: Deduction under Chapter VI-A Nil
Total Income 4,84,000 5,02,000
Tax on total income 11,700 12,900

Less: Rebate under section 87A - Lower of ₹ 12,500 or income-tax of ₹ 11,700, since 11,700 Nil
total income does not exceed ₹ 5,00,000
Nil 12,900
Add: Health and Education cess @ 4% Nil 516
Total tax payable Nil 13,416
Tax Payable (Rounded off) Nil 13,420

Cash Flow Statement
Particulars Option I – HRA Option II – RFA

(₹) (₹)
Inflow: Salary 5,70,000 4,80,000

Less: Outflow: Rent paid (84,000) -
Tax on total income Nil (13,420)
Net Inflow 4,86,000 4,66,580
Since the net cash inflow under Option I (HRA) is higher than in Option II (RFA), it is beneficial for Mr. Anuj to avail Option I, i.e.,
House Rent Allowance.
Q10. Ms. Riya is a Finance manager in XYZ limited. She has given the details of her income for the P.Y. 2023-24. You are required to
compute the income chargeable to tax under the head "Salaries" in the hands of Ms. Riya from the details given below:
Basic Salary ₹ 60,000 p.m.

Dearness Allowance ₹ 24,000 p.m. (40% of which forms part of retirement benefits)
Bonus ₹ 21,000 p.m.
Motor car owned by the employer (cubic capacity of engine exceeds 1.6 litres) provided to Ms. Riya from 1st October, 2023
which is used for both official and personal purposes. Repair and running expenses of ₹ 60,000 were fully met by the
company. The motor car was self-driven by the employee.
Professional tax paid ₹ 2,500 out of which ₹ 2,000 was paid by the employer.
Her employer has provided her with an accommodation on 1st April 2023 at a concessional rent. The house was taken on
lease by XYZ Ltd. for ₹ 12,000 p.m. Ms. Riya occupied the house from 1st December, 2023, ₹ 4,800 p.m. is recovered from the
salary of Ms. Riya.
The employer gave her a gift voucher of ₹ 8,000 on her birthday.
Ms. Riya contributes 15% of her salary (Basic Pay plus DA) towards recognised provident fund and the company contributes
the same amount.
The company pays medical insurance premium to effect insurance on the health of Ms. Riya ₹ 20,000.
Assume that she has exercised the option to shift out of the default tax regime.
Computation of income chargeable to tax under the head “Salaries” in the hands of Ms. Riya for A.Y. 2024-25
Particulars ₹
Basic Salary [₹ 60,000 x 12] 7,20,000

Dearness allowance [₹ 24,000 x 12] 2,88,000
Bonus [₹ 21,000 x 12] 2,52,000
Perquisite of Motor car (₹ 2,400 × 6 months) [See Note 1] 14,400
Professional tax paid by employer [See Note 2] 2,000
Perquisite value in respect of concessional rent [See Note 3] 28,800
Gift voucher given by employer on Ms. Riya’s birthday (entire amount is taxable since the perquisite
value exceeds ₹ 5,000) [See Note 4] 8,000
Employer’s contribution to recognized provident fund in excess of 12% of salary = 15% x [(₹ 60,000 +
₹ 24,000) x 12] – 12% x {[₹ 60,000 + ₹ 9,600 (being 40% of ₹ 24,000)] x 12} = 1,51,200 – 1,00,224 50,976
[Salary = Basic Salary + Dearness allowance, to the extent it forms part of pay for retirement benefits]
Medical insurance premium of ₹ 20,000 paid by the employer to effect an insurance on the health of
an employee is an exempt perquisite -

Less: Standard Deduction u/s 16(ia) 50,000
Professional tax u/s 16(iii) [See Note 2] 2,500
Notes:

1. In case a motor car (engine cubic capacity more than 1.6 litres) owned by employer is provided to an employee without
chauffeur for both official and personal purpose, where the expenses are fully met by the employer, the value of perquisite
would be ₹ 2,400 p.m. The car was provided to Ms. Riya on 1.10.2023, therefore, the perquisite value has been calculated
for 6 months.
2. As per section 17(2)(iv), a “perquisite” includes any sum paid by the employer in respect of any obligation which, but for
such payment, would have been payable by the assessee. Therefore, professional tax of ₹ 2,000 paid by the employer is
taxable as a perquisite in the hands of Ms. Riya. As per section 16(iii), a deduction from the salary is provided on account
of tax on employment i.e. professional tax paid during the year.
Therefore, in the present case, the professional tax paid by the employer on behalf of the employee ₹ 2,000 is first included
in the salary and deduction of the entire professional tax of ₹ 2,500 is provided from salary.
3. Where the accommodation is taken on lease or rent by the employer, the actual amount of lease rent paid or payable by
the employer or 15% of salary, whichever is lower, in respect of the period during which the house is occupied by the
employee, as reduced by the rent recoverable from the employee, is the value of the perquisite.
Actual rent paid by the employer from 1.12.2023 to 31.3.2024 = ₹ 48,000 [₹ 12,000 x 4 months]
15% of salary = ₹ 54,360 [15% x (₹ 60,000 + ₹ 9,600 + ₹ 21,000) x 4 months]
Salary = Basic Salary + Dearness Allowance, to the extent it forms part of pay for retirement benefits + Bonus
Lower of the above is ₹ 48,000 which is to be reduced by the rent recovered from the employee.
Hence, the perquisite value of concessional rent = ₹ 48,000 – ₹ 19,200 [₹ 4,800 x 4 months] = ₹ 28,800
4. As per Rule 3(7)(iv), the value of any gift or voucher received by the employee or by member of his household on
ceremonial occasions or otherwise from the employer shall be determined as the sum equal to the amount of such gift.
However, the value of any gift or voucher received by the employee or by member of his household below ₹ 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 ₹ 8,000 was received by Ms. Riya from her employer on the occasion of her birthday. Since
the value of the gift voucher exceeds the limit of ₹ 5,000, the entire amount of ₹ 8,000 is liable to tax as perquisite. The
above solution has been worked out accordingly.
Alternative view - An alternate view is also possible is that only the sum in excess of ₹ 5,000 is taxable in view of the
language of Circular No.15/2001 dated 12.12.2001, which states that such gifts upto ₹ 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 ₹3,000.
The salary chargeable to tax, in this case, would be ₹ 13,06,676.

Q1. Miss Riya has started working in a reputed company. This is her first job. She earned a total income of ₹ 8 Lakhs in P.Y. 2023-24.
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 ₹ 1600 p.m. in respect of
the said allowance can be claimed. According to you, what is the correct treatment for the same?
(a) Transport allowance upto a maximum ₹ 1600 per month can be claimed.
(b) Transport allowance upto a maximum ₹ 800 per month can be claimed.
(c) No separate deduction for transport allowance is allowed. However, a standard deduction of ₹ 50,000 is allowed to
salaried assessees.
(d) Deduction of transport allowance is allowed without any monetary limit.
Correct answer : (c) No separate deduction for transport allowance is allowed. However, a standard deduction of ₹ 50,000 is
allowed to salaried assessees.
Explanation:
Transport allowance is fully taxable. A deduction of ₹ 3,200 is allowed only in case of blind/ deaf and dumb/ orthopedically
handicapped employees.
A standard deduction of ₹ 50,000 is allowed to all salaried employees.
Q2. X is an employee of Z Ltd who receives ₹ 1,25,000 as gratuity (he is covered under the Payment of Gratuity Act, 1972). He
retires on 31.01.2024 after service of 29 years and 8 months. At the time of retirement, X drew monthly salary of ₹ 5,200 and
monthly bonus of ₹ 2,000. Compute the amount of gratuity exempt from tax in the instant case u/s 10(10) of the Income-tax
Act, 1961.
(a) ₹ 90,000
(b) ₹ 1,25,000
(c) ₹ 78,000
(d) ₹ 87,000

Correct answer : (a) ₹ 90,000

Explanation:
Least of the following is exempt under section 10(10)(ii)
(i) Actual Gratuity received ₹ 1,25,000

(ii) 15 days salary for every year of completed service [15/26 x ₹ 5,200 x 30] = ₹ 90,000
(iii) Notified limit = ₹ 20,00,000
Q3. Employers contribution to Public Provident Fund is
(a) Fully taxable.

(b) Fully exempt
(c) Exempt upto 12% of the salary
(d) None of the above
Correct answer : (d) None of the above

Explanation:
There is only employee’s contribution in public provident fund.
Q4. Provision of rent free accommodation and motor car owned by Alpha Ltd. to its employee Mr. Anurag, where motor car is
allowed to be used by Mr. Anurag both for official and personal purposes, is a -
(a) perquisite taxable in case of all employees

(b) perquisite taxable only in case of specified employees
(c) perquisite of rent free accommodation is taxable in case of all employees whereas perquisite of motor car is taxable only
in case of specified employees
(d) perquisite of rent free accommodation is taxable only in case of specified employees whereas perquisite of motor car is
taxable in case of all employees
Correct answer : (c) perquisite of rent free accommodation is taxable in case of all employees whereas perquisite of motor car
is taxable only in case of specified employees
Q5. Mr. Karan completed his MBA in April 2023 and joined XYZ Ltd from 01.05.2023. His basic salary is ₹ 2,25,000 p.m. He is
paid 12% of basic salary as D.A forming part of retirement benefits. He contributed 11% of his pay and D.A. towards
recognized provident fund and the company contributes the same amount. Accumulated interest on provident fund as
on 31.3.2024 is ₹ 49,325. What would be the income chargeable to tax under the head “Salaries” of Mr. Karan for the A.Y.
2024-25 if he has exercised the option to shift out of the default tax regime?
(a) ₹ 27,26,442
(b) ₹ 27,30,884
(c) ₹ 27,22,000
(d) ₹ 27,71,325

Explanation:
Basic salary : 24,75,000
DA : 2,97,000
Employers contribution to RPF : Exempt upto 12%
Interest taxable : 4,442
Total : ₹ 27,76,442
Less standard deduction : 50,000
Taxable salary : 27,26,442
Working note :
Employees contribution to RPF = 11% of (24,75,000 + 2,97,000) = 3,04,920
Since it exceeds ₹ 2,50,000, interest on excess contribution will be taxable.

Excess interest taxable = 49325/ 6,09,840 * 54,920 = ₹ 4,442
Employees contribution to RPF is exempt.
Q6. Mr. Suresh received retrenchment compensation of ₹ 10,00,000 after 30 years 4 months of service. At the tme of
retrenchment, he was receiving basic salary of ₹ 20,000 p.m.; dearness allowance of ₹ 5,000 p.m. What will be the amount of
retrenchment compensation exempt from tax?
(a) ₹ 5,00,000
(b) ₹ 4,32,692
(c) ₹ 5,67,308.
(d) ₹ 6,65,000

Explanation:
Least of the following is exempt:
(i) Actual amount received : ₹ 10,00,000
(ii) Statutory limit : ₹ 5,00,000
(iii) 15 days Average salary * completed year of service [15/26 x ₹ 25,000 x 30] = ₹ 4,32,692
Q7. Rajat is entitled to get a pension of ₹ 1,500 p.m. from Star Ltd. He gets three-fifth of the pension commuted and receives ₹
90,000. Compute the taxable portion of commuted value of pension if she does not receive gratuity.
(a) ₹ 1,50,000
(b) ₹ 75,000
(c) ₹ 15,000
(d) ₹ 40,000

Explanation:
% of pension commuted = 3/ 5 = 60%
Commuted value of pension = ₹ 90,000 / 60% = ₹ 1,50,000
Exemption = 1/ 2 of commuted value of pension = 1/ 2 * 1,50,000 = ₹ 75,000
Taxable value = ₹ 90,000 - ₹ 75,000 = ₹ 15,000
Q8. For the purpose of determining the perquisite value of loan at concessional rate given to the employee, the lending rate of
State Bank of India as on _________ is required.
(a) The date of loan

(b) 1st day of the relevant previous year
(c) Last day of the relevant previous year
(d) 1st day of the relevant assessment year
Correct answer : (b) 1st day of the relevant previous year

Explanation:
For the purpose of determining the perquisite value of loan at concessional rate given to the employee, the lending rate of
State Bank of India as on the 1st day of the relevant previous year is required.
Q9. For the purpose of computing perquisite value of computers and electronic items, depreciation is computed @ _________ on
WDV for each completed year of uasge.
(a) 10%
(b) 15%
(c) 40%
(d) 50%

Correct answer : (d) 50%

Explanation:
For the purpose of computing perquisite value of computers and electronic items, depreciation is computed @ 50% on WDV
for each completed year of usage.

Chapter 4 - Income from House Property

Q1. Mr. Anuj owns a house property in Delhi, which has been let out for ₹ 2,00,000 p.a. The other details of the house are as
follows:
Municipal Value 1,70,000 p.a.
Fair Rent 1,90,000 p.a.
Standard Rent 1,60,000 p.a.
The local taxes payable by the owner amount to 10% of municipal value but as per agreement between the tenant and
the landlord, the tenant has paid the amount directly to the municipality. The landlord, however, bears the following
expenses on tenant's amenities:
Extension of water connection 2,000
Water charges 1,800
Lift maintenance 1,500
Salary of gardener 1,000
Lighting of stairs 1,200
Maintenance of swimming pool 500
Compute the Income from house property for the A.Y. 2024-25.
Computation of Income from house property for the A.Y. 2024-25
Particulars Amounts (₹)
Expected Rent = Higher of Municipal Value of ₹ 1,70,000 and Fair Rent of ₹ 1,90,000, but restricted to 1,60,000
Standard Rent of ₹ 1,60,000]
Actual Rent Received [W.N 1] 1,92,000
Gross Annual Value [Higher of ER and AR] 1,92,000

Less : Municipal tax paid [W.N 2] Nil
Net Annual Value 1,92,000

Less: Standard deduction @ 30% 57,600
Income from House Property 1,34,400
Working Notes:
1. Actual Rent Received = Total sum received from tenant - Sum incurred towards tenant’s amenities
= 2,00,000 - (2,000 + 1,800 + 1,500 + 1,000 + 1,200 + 500)
= 1,92,000
2. Deduction of Municipal tax is not allowed as the same have been paid by tenant.
Q2. Mrs. Rekha, a resident of India, owns a house property at Panipat in Haryana. The Municipal value of the property is ₹
9,50,000, Fair Rent of the property is ₹ 8,30,000 and Standard Rent is ₹ 8,00,000 per annum.
The property was let out for ₹ 70,000 per month for the period April 2023 to December 2023 and the property remained
vacant after that. Rent for the months of November and December 2023 could not be realized from the tenant. The

tenancy was bonafide but the defaulting tenant was in occupation of another property of the assessee, paying rent
regularly.
She paid municipal taxes @ 12% during the year.
You are required to compute Income from House Property for the A.Y. 2024-25.
Computation of Income from House Property for the A.Y. 2024-25

Particulars Amounts (₹)
Expected Rent for the whole year = Higher of Municipal Value of ₹ 9,50,000 and Fair
Rent of ₹ 8,30,000, but restricted to Standard Rent of ₹ 8,00,000 8,00,000
Actual rent receivable for the let-out period = ₹ 70,000 × 9 6,30,000
[Unrealised rent is not deductible from actual rent in this case since one of the
conditions laid out in Rule 4 has not been fulfilled]
Gross Annual Value (GAV) [Working Note] 6,30,000
Less: Municipal taxes (paid by the owner during the previous year) = 12% of Rs
9,50,000 1,14,000
Net Annual Value (NAV) 5,16,000

Less: Standard Deduction @ 30% 1,54,800
Income from House Property 3,61,200
Working Note:
The actual rent of 6,30,000 is lower than ER of 8,00,000 owing to vacancy, since, had the property not been vacant the
actual rent would have been 8,40,000 (6,30,000+ 2,10,000, being notional rent for three months. Therefore, actual rent is
the GAV.
Q3. Mr. Varun owns a house property consisting of 2 units in Lucknow. The first unit of the house is self occupied and the second
unit is let out for ₹ 20,000 p.m. The expected rent of the house property is ₹ 18,000 p.m. He paid municipal tax of ₹ 15,000
during the year. For the acquisition of house property, he took a loan of ₹ 5 lakhs @ 10% p.a. on 01.04.2023. He did not repay
any amount during the year. Calculate the income from house property of Mr. Varun for the A.Y. 2024-25 if he opts to pay tax
under default tax regime.
Computation of Income from House Property of Mr. Varun for A.Y. 2024-25 (Amounts in ₹)
Particulars Unit I Unit II
Expected Rent (18,000 x 12) - 2,16,000

Actual Rent (20,000 x 12) - 2,40,000
Gross Annual Value - 2,40,000

Municipal tax paid [15,000 * ½] - 7,500
Net Annual Value Nil 2,32,500

Less : Statutory deduction @ 30% - 69,750
Interest on borrowed capital - 25,000
Income from House Property Nil 1,37,750
Working Note :
1. Deduction in respect of interest on loan on self occupied property is not allowed if assessee opts to pay tax under
default tax regime.
2. Interest on borrowed capital for let out portion
= (5,00,000 * 10%) * ½ = 25,000
Q4. Mr. Vishal owned a house property in Bangalore in which he and his family resides. He also commenced construction of a
residential house intended exclusively for his residence on 01.08.2021. He raised a loan of ₹ 15,00,000 @ 10% on 01.07.2022
for the construction of this house. The construction of the house was completed on 01.12.2023. He has not repaid any
amount so far. During the year 2023-24, he also took a loan of ₹ 8 lakhs @ 10% on 01.10.2023 for repairs in Pune house.
Compute the interest allowable u/s 24 assuming that he does not opt to pay tax under default tax regime.

For Bangalore House:

Pre-construction period : 01.07.2022 to 31.03.2023
Pre-construction interest : 15,00,000 * 10% * 9 / 12 = 1,12,500
Pre-construction interest allowed in A.Y. 2024-25 : 1/ 5 * 1,12,500 = 22,500
Current year interest = 15,00,000 * 10% = 1,50,000
Total interest = 22,500 + 1,50,000 = 1,72,500
For Pune House :
Interest = 8,00,000 * 10% * 6/12 = 40,000

Maximum deduction allowed = 30,000
Total Interest for both self occupied properties = 1,72,500 + 30,000 = 2,02,500
Maximum interest allowed to Mr. Vishal u/s 24 in respect of both self occupied properties = 2,00,000
Q5. Mr. Sushant, a resident individual, owns a house in the USA. He receives rent @ $ 3,000 per month. He paid municipal taxes
of $ 2000 during the financial year 2023-24. He also owns a two storied house in Delhi, ground floor is used for her residence
and first floor is let out at a monthly rent of ₹ 15,000. Standard rent for each floor is ₹ 12,000 per month. Municipal taxes paid
for the house amounts to ₹ 9000. Mr. Sushant had constructed the house by taking a loan from a nationalised bank on
20-06-2021. He repaid the loan of ₹ 60,000 including interest of ₹ 25,000. The value of one dollar is to be taken as ₹ 70.
Compute total income from house property of Mr. Sushant assuming he does not opt to pay tax under default tax regime.
Computation of total income from House Property of Mr. Sushant (amounts in ₹) -
(1) Delhi House - Ground Floor :

Net Annual Value Nil
Less: Interest on borrowed capital (See Note) 12,500
Net Income from Ground Floor (12,500)
Note: Interest on capital borrowed for construction = ₹ 25,000 * 1/ 2 = Rs 12,500, remaining half is for 1st floor.
(2) Delhi House - First Floor :

Gross Annual Value being actual rent (WN 1) 1,80,000
Less: Municipal taxes paid (WN 2) 4500

Less: Deductions under section 24 -
(a) Standard deduction @ 30% of NAV 52,650
(b) Interest on capital borrowed 12,500
Income from first floor of Delhi House 1,10,350
Working Notes:
(1) GAV = ₹ 15,000 * 12 = ₹ 1,80,000
(2) Municipal taxes paid in respect of first floor = ₹ 9000 * 1/ 2 = ₹ 4500, as balance half is for ground floor
(3) Interest on capital borrowed for construction = ₹ 25,000 * 1/ 2 = ₹ 12,500
(3) USA House :

Gross Annual Value 25,20,000
Less: Municipal taxes paid 1,40,000

(c) Standard deduction @ 30% of NAV 7,14,000
(d) Interest on capital borrowed Nil
Income from USA House 16,66,000

Working Notes:
(1) GAV = $ 3000 * 12 * 70 per dollar = ₹ 25,20,000
(2) Municipal taxes paid = $ 2000 * 70 = ₹ 1,40,000
Therefore, total Income from House Property of Mr. Sushant = ₹ (12,500) + ₹ 1,10,350 + ₹ 16,66,000 = ₹ 17,63,850
Q6. Nitish and Sanchit construct their houses on a piece of land purchased by them at Bangalore. The built up area of each
house is 1,000 sq.ft. (ground floor and an equal area in the first floor). Nitish starts construction on April 1, 2022 and
completed it on March 31, 2023. Sanchit starts the construction on April 1, 2022 and completes on June 30, 2023 and
lets out the first floor for a rent of Rs 17,000 per month. The tenant vacates the house on December 31, 2023 and
Sanchit occupies the entire house during the period January 1, 2024 to March 31, 2024.
The following are the other informations (amount in ₹ ):
Fair rental value of each unit (ground floor/ first floor) (per annum) 95,000
Municipal value of each unit (ground floor/ first floor) (per annum) 1,20,000
Municipal taxes paid by - Nitish 10,000
- Sanchit 10,000
Repair and maintenance charges paid by - Nitish 32,000
- Sanchit 35,000
Nitish has availed a housing loan of ₹ 25 lakhs @ 10% on April 1, 2022. Sanchit has availed a housing loan of ₹ 15 lakhs
@ 12% on July 1, 2022. No repayment is made by either of them till March 31, 2024.
Compute the Income from house property.
Computation of Income from House Property of Nitish and Sanchit (amounts in ₹)-
(1) In case of Nitish :

Net annual value (Self - occupied) Nil
Less: Interest on borrowed capital (WN) 2,00,000
Income from House Property (2,00,000)
Working Note: Nitish started construction on 01-04-2022, which ended on 31-03-2023. Since Nitish had taken loan
on 01-04-2022 and the construction was completed on 31-03-2023, there is no pre-construction period. Thus, interest
from 01-04-2023 to 31-03-2024 i.e Rs 2,50,000 shall be deductible, subject to a maximum of Rs 2,00,000.
(2) In case of Sanchit :

Particulars Unit 1 - Self occupied Unit 2 - Partly SOP and
partly let out
Expected Rent (WN 1) - 90,000

ARR (Rs 17,000 * 6) - 1,02,000
Gross Annual Value (WN 2) - 1,02,000
Less: Municipal taxes (50% of 10,000) - 5,000
Net Annual Value Nil 97,000

(a) Statutory deduction @ 30% of NAV - 29,100
(b) Interest on borrowed capital (WN 3) 1,03,500 1,03,500
Income from House Property (1,03,500) (35,600)
Working Notes:
(1) ER = Municipal value (of 9 months) or Fair rent (of 9 months), whichever is higher = higher of ₹ 90,000 or ₹ 71,250 =
₹ 90,000. Sanchit has occupied the ground floor for self - occupation from 01-07-2023. Its annual value will be
computed as per Section 23(2). The first floor is let for a part of the year and then it is self- occupied. Its annual
value will also be computed as per Section 23(1). However, since the house has come into existence on
01-07-2023, the annual fair value and annual municipal value for the period when the property was in existence (9
months) shall be considered for computing GAV.
(2) Since ARR is greater than ER, hence GAV = ARR.

(3) The pre- construction period starts from 01-07-2022 (date of loan) and ends on 31-03-2023. The interest for the
said period i.e for 9 months shall be - ₹ 15,00,000 * 12% * (9/12) = ₹ 1,35,000 ; ₹ 67,500 for ground floor and ₹
67,500 for 1st floor. Such interest is deductible in 5 equal installments starting with previous year 2023-24, each
installment being ₹ 13,500 (i.e ₹ 67500/5). Interest of ₹ 1,80,000 for current year will be apportioned between the 2
units at ₹ 90,000 each. Therefore, total interest deductible = ₹ 1,03,500 (i.e ₹ 90,000 + ₹ 13,500) in each case.
Q7. Mr. Anugrah constructed a shopping complex. He had taken a loan of ₹ 30 lakhs for construction of the said property on
01-08-2021 from ICICI Bank @ 12% for 5 years. The construction was completed on 30-06-2022. Rental income received
from the shopping complex is ₹ 25,000 per month - let out for the whole year. Municipal taxes paid for the shopping
complex is ₹ 11,000.
Arrears of rent received from the shopping complex is ₹ 1,00,000.
Interest paid on loan taken from ICICI Bank for purchase of house for use as own residence for the period 2023-24 is ₹
2,20,000.
You are required to compute Income from House Property of Mr. Anugrah for A.Y 2024-25 assuming that he does not opt to
pay tax under default tax regime.
Computation of Income from House Property of Mr. Anugrah (amounts in ₹) -

Let out property (Shopping complex)
Gross Annual Value (₹ 25,000 * 12) 3,00,000
Less: Municipal taxes paid 11,000

Less: Deductions under section 24
(a) Standard deduction @ 30% of NAV 86,700
(b) Interest on housing loan (WN 2) 4,08,000
(2,05,700)
Add: Arrears of rent received (WN 3) 70,000
Income from let out property (A) (1,35,700)
Self occupied house:

Net Annual Value Nil
Less: Interest on borrowed capital (WN 1) 2,00,000
Income from Self occupied property (B) (2,00,000)
Income from House Property (A + B) (3,35,700)
Working Notes:
(1) The maximum amount of interest on borrowed capital to be allowed as deduction in case of self occupied house is
₹ 2,00,000.
(2) The pre-construction period starts from 01-08-2021 (date of loan) and ends on 31-03-2022. The interest for the
said period i.e for 8 months shall be : ₹ 30,00,000 * 12% * 8/ 12 = ₹ 2,40,000. Such interest is deductible in 5 equal
annual installments starting with previous year 2022-23, each installment being ₹ 48,000 (i.e ₹ 2,40,000 / 5).
Interest of ₹ 3,60,000 for current year will be deductible. Therefore, total interest deductible = ₹ 4,08,000 (i.e ₹
48,000 + ₹ 3,60,000).
(3) Taxable value of arrears of rent under section 25A = ₹ 1,00,000 - 30% of ₹ 1,00,000 = ₹ 70,000.
Q8. Mr Samay is the owner of a residential house, whose construction was completed on 31.10.1998. It has been let out
from 01.12.1998 for residential purposes. Its particulars for the financial year 2023-24 are given below:
SNo Particulars Amount (₹)
(i) Municipal valuation 50,000
(ii) Expected fair rent per annum 60,000
(iii) Standard rent under the Rent Control Act 6,000 p.m.
(iv) Actual monthly rent 6,000 p.m.

(v) Municipal taxes (including Rs 2,000 paid by tenant) paid 12,000
(vi) Water/sewage benefit tax levied by State Government but disputed in Court 8,500
(vii) Fire Insurance payable 750
(viii) Interest on loan taken for the construction of the house. The interest has been paid 20,000
outside India to a nonresident without deduction of tax at source, as the non-resident
agreed to pay income tax on such interest directly to the Government.
(ix) Legal charges for the recovery of rent 5,500
(x) Stamp duty and registration charges incurred in respect of the lease agreement of the 3,500
house
The unrealised rent of the earlier years amounted to ₹ 10,000 but a deduction claimed so far was only for ₹ 7,000. Now,
there is a recovery of ₹ 8,000 from the defaulting tenants.
Compute the taxable income of Mr Samay from the house property for A.Y. 2024-25 if he opts to pay tax under default
tax regime.
Computation of income from house property of Mr Samay for A.Y. 2024-25

Particulars ₹ ₹
Gross annual value shall be higher of following two

a) Expected rent (Municipal Value ₹ 50,000 or FRV ₹ 60,000 whichever is higher 60,000
i.e. ₹ 60,000 compared to standard rent of ₹ 72,000, whichever is lower)
b) Annual rent received (₹ 6,000 x 12) 72,000 72,000
Less Municipal taxes (₹ 12,000 - ₹ 2,000) 10,000
Net annual Value 62,000
Less: Deduction under section 24
a) 30% of NAV 18,600
b) Interest on loan taken for the house -
Income from Let out house property (A) 43,400
Unrealised rent recovered and allowed earlier deduction 5,000

(8,000 - 3,000)
Less: Deduction under Section 25A(2) 1,500
Deemed Income from house property (B) 3,500
Income from head House Property (A+B) 46,900
Q9. Mr Anand sold his residential house property in March 2023.
In June, 2023, he recovered rent of ₹ 10,000 from Mr. Ankit, to whom he had let out his house for two years from April 2017 to
March 2019. He could not realise two months rent of ₹ 20,000 from him and to that extent his actual rent was reduced while
computing income from house property for AY 2019-20.
Further, he had let out his property from April, 2019 to February, 2023 to Mr. Nikhil. In April, 2021, he had increased the rent
from ₹ 12,000 to ₹ 15,000 per month and the same was a subject matter of dispute. In September, 2023, the matter was finally
settled and Mr. Anand received ₹ 69,000 as arrears of rent for the period April, 2021 to February, 2023.
Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand and if so, in which year?
Since the unrealised rent was recovered in the PY 2023-24, the same would be taxable in the AY 2024-25 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 2023-24 and hence, the same would be taxable in the AY 2024-25 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 and arrears of
rent would be allowed while computing income from house property of Mr. Anand for AY 2024-25.
Computation of income from house property of Mr. Anand for AY 2024-25

Particulars ₹

(i) Unrealised rent recovered 10,000

(ii) Arrears of rent received 69,000
79,000
Less: Deduction @ 30% 23,700
Income from house property 55,300
Q10. Mr. Sushant co - owns a residential house property in Calcutta along with his brother Mr. Arnav where his brother’s family
resides. Both of them have equal share in the property and the same is used by them for self-occupation. Interest is payable in
respect of loan of ₹ 50,00,000 @ 10% taken on 01.04.2022 for acquisition of such property. In addition, Mr. Sushant owns a
flat in Pune in which he and his parents reside. He has taken a loan of ₹ 3,00,000 @ 12% on 01.10.2022 for repairs of this flat.
No amount has been repaid for both the loans so far. Compute the deduction which would be available to Mr. Sushant and Mr.
Arnav under section 24(b) for AY 2024-25. Assume that Mr. Sushant and Mr. Arnav does not opt to pay tax under default tax
regime.
Computation of deduction u/s 24(b) available to Mr. Sushant for AY 2024-25

Particulars ₹
(I) Interest on loan taken for acquisition of residential house property at Calcutta
₹ 50,00,000 * 10% = ₹ 5,00,000
Mr. Sushant’s share = 50% of ₹ 5,00,000 = ₹ 2,50,000
Restricted to ₹ 2,00,000 2,00,000
(II) Interest on loan taken for repair of flat at Pune

₹ 3,00,000 * 12% = Rs 36,000
Restricted to ₹ 30,000 30,000
Total interest 2,30,000
Deduction u/s 24(b) in respect of (I) and (II) above to be restricted to 2,00,000
Computation of deduction u/s 24(b) available to Mr. Arnav for AY 2024-25

Particulars ₹
Interest on loan taken for acquisition of residential house property at Calcutta

₹ 50,00,000 * 10% = ₹ 5,00,000
Mr. Arnav’s share = 50% of ₹ 5,00,000 = ₹ 2,50,000
Restricted to ₹ 2,00,000 2,00,000
Deduction u/s 24(b) 2,00,000
Q11. Mr. Nikhil co-owns a house property along with his brother in Mumbai. The property is let out for ₹ 12,000 p.m. The other
details of the house property are as follows :
Municipal value : ₹ 1,30,000
Fair rent : ₹ 1,50,000
Standard rent : ₹ 1,40,000
The municipal tax for the house property is ₹ 5,000. Municipal tax of P.Y. 2022-23 amounting to ₹ 5,000 was also paid
during this F.Y.
For the construction of this property, a loan of ₹ 8,00,000 @ 12% was jointly taken by Mr. Nikhil and his brother on
01.06.2023. No amount was repaid during the F.Y.
Compute the taxable income from the house property of Mr Nikhil for A.Y. 2024-25 if he opts to pay tax under default tax
regime.
Computation of income from house property of Mr Nikhil for A.Y. 2024-25

Particulars ₹
Expected rent (Municipal Value ₹ 1,30,000 or FR ₹ 1,50,000 whichever is higher i.e. ₹ 1,50,000
compared to standard rent of ₹ 1,40,000, whichever is lower) 1,40,000

Annual rent received (₹ 12,000 x 12) 1,44,000

Less Municipal taxes (WN 1) 10,000
Net annual Value 1,34,000
c) 30% of NAV 40,200
d) Interest on loan taken for the house [8,00,000 * 12% * 10/12] 80,000
Income from house property 13,800
Income taxable in Nikhil’s hands [13,800 * 50%] 6,900
Working Notes:
1. Municipal taxes paid by the owner shall be deducted in the year in which it is paid by him irrespective of the period to
which it relates.
2. Interest on let out property is allowed irrespective of the regime opted by the assessee.
Q12. Mr. Sumit is the co-owner of a house property along with his sister Riya in Panipat. The property consists of 4 identical units.
Each co-owner occupied one unit for residence and remaining 2 units were let out for ₹ 9,000 p.m. The Municipal value of the
house is ₹ 1,00,000, Fair rent is ₹ 1,20,000 and Standard rent is ₹ 1,25,000
The municipal tax paid for the house property is 10%.
A loan was jointly taken by Mr. Sumit and Riya for the construction of this property for which interest charged by bank is ₹
30,000. Out of this, ₹ 20,000 has been paid. Interest on unpaid interest amounts to ₹ 600. Mr. Sumit and Riya takes a fresh loan
to repay this loan and the amount of interest charged on this fresh loan is ₹ 10,000.
Compute the income from the house property of Mr Sumit and Riya for A.Y. 2024-25.
Assume that Mr. Sumit opts to pay tax under default tax regime whereas Riya does not opt to pay tax under default tax regime.
Computation of income from house property for A.Y. 2024-25

Particulars Mr. Sumit Riya
Self Occupied Portion

Annual Value Nil Nil
Less : Interest on loan [W.N 1] - 10,000
Income from self occupied portion Nil (10,000)
Let out portion

Income from let out portion [WN 2] 28,500 28,500
Income from house property 28,500 18,500
Working Notes:
1. Since 2 units have been let out, let out portion = 2/4 * 100 = 50%
Self occupied portion = 50%
Interest on loan (allowed on accrual basis) : 30,000
Interest on fresh loan : 10,000
Total interest allowed u/s 24 : 40,000
Interest on unpaid interest is not allowed as deduction u/s 24.
Interest for self occupied portion : 40,000 * 50% = 20,000

Share of each co-owner : 50% i.e. 10,000
Interest on loan is not allowed on self occupied property if assessee opts to pay tax under default tax regime.
Therefore, no deduction will be allowed to Mr. sumit for interest on self occupied portion.
2. Computation of Income from Let out portion
Particulars Amoun
(₹)
Expected Rent 1,20,000

[Higher of fair rent ₹ 1,20,000 and municipal value ₹ 1,00,000 subject to standard rent of ₹
1,25,000]
Actual Rent [9,000 * 12] 1,08,000


Less Municipal taxes paid [1,00,000 * 10%] 10,000
Less : Statutory deduction @ 30% 33,000
Interest on loan [40,000 * 50%] 20,000
Income from let out portion 57,000
Share of each co-owner 28,500
Q13. How will the following income be taxed?
(1) Mr. Mayank transferred a house property to his wife Mrs. Ishita in connection with an agreement to live apart. The
income from such house property is ₹ 1,20,000.
(2) Mr. Naman gives his house property to Mr. Aman on lease for 15 years. However, the lease is to be renewed by Mr. Aman
every year.
(3) Mr. Vihaan purchased a house property worth ₹ 50,00,000 from Mr. Mohan. Although sale deed was not executed, Mr.
Vihaan was allowed to take the possession of the property on the basis of an agreement to sale. The income from such
property is ₹ 6,00,000.
(4) Mr. Vicky gifted a house property worth ₹ 20,00,000 to his minor son, Rahul. The income from such house property
is ₹ 1,00,000. Discuss in whose hands will this income be taxable?
Will your answer be different if Mr. Vicky gave cash of ₹ 20,00,000 to his son, Rahul and Rahul acquires house
property from such cash?
(5) What will be your answer if in case (5), Mr. Vicky gifted house property to his minor married daughter, Rashmi?
(1) In case of transfer of house property to spouse in connection with an agreement to live apart, the transferor will not
be deemed to be the owner. The transferee will be the owner of the house property. Therefore, income of ₹ 1,20,000
will be assessed in the hands of Mrs. Ishita.
(2) If a person acquires any right by way of lease from month to month or for a period not exceeding one year, such
person will not be deemed to be the owner. Therefore, even though lease period exceeds 12 years but the same is
to be renewed every year i.e. for a period not exceeding one year. Thus, Mr. Aman will be the deemed owner and
income from such property will be taxed in his hands.
(3) Even when sale deed is not executed in favour of the buyer, but he is allowed to take possession of the property on
certain other documents like power of attorney/ agreement to sale/ will etc., the buyer shall be deemed to be the
owner of that house property. Therefore, the income of ₹ 6,00,000 will be taxable in the hands of Mr. Vihaan.
(4) In case of transfer of house property by an individual to his or her minor child otherwise than for inadequate
consideration, the transferor would be deemed to be the owner of the house property transferred. Therefore, Mr.
Vicky will be the deemed owner and income of ₹ 1,00,000 will be taxable in his hands.
Yes, the answer will be different. Where cash is transferred to minor child and the transferred acquires property out
of such cash, then, the transferor shall not be treated as deemed owner of the property. Therefore, in this case,
income of ₹ 1,00,000 will be taxable in the hands of Rahul.
(5) In case of transfer of property to a minor married daughter, the transferor is not deemed to be the owner. Therefore,
in this case, income of ₹ 1,00,000 will be taxable in the hands of Rashmi.
Q14. Mr. Veer owns a house in Kolkata. During the previous year 2023-24, 3/4th portion of the house was self-occupied and 1/4th
portion was let out for residential purposes at a rent of ₹ 12,000 p.m. The tenant vacated the property on 28th February, 2024.
The property was vacant during March, 2023. Rent for the months of January 2024 and February 2024 could not be realised in
spite of the owner’s efforts. All the conditions prescribed under Rule 4 are satisfied.
Municipal value of the property is ₹ 4,50,000 p.a., fair rent is ₹ 4,70,000 p.a. and standard rent is ₹ 5,00,000. He paid municipal
taxes @10% of municipal value during the year. A loan of ₹ 30,00,000 was taken by him during the year 2013 for acquiring the
property. Interest on loan paid during the previous year 2023-24 was ₹ 1,51,000. Compute Veer’s income from house property
for the A.Y. 2024-25.

There are two units of the house. Unit I with 3/4th area is used by Mr. Veer for self occupation throughout the year and
no benefit is derived from that unit, hence, it will be treated as self-occupied and its annual value will be Nil. Unit 2 with
1/4th area is let-out during the previous year and its annual value has to be determined as per section 23(1).
Computation of Income from house property of Mr. Veer for the A.Y. 2024-25
Particulars ₹
Unit I (3/4th area – self-occupied)

Annual Value Nil
Less: Deduction under section 24(b) 3/4th of ₹ 1,51,000 1,13,250
Income from Unit I (self-occupied) (1,13,250)
Unit II (1/4th area – let out)

Computation of GAV
Step 1 – Computation of Expected Rent (ER)
ER = Higher of municipal value (MV) and fair rent (FR), but restricted to standard rent 1,17,500
(SR).
However, in this case, standard rent of ₹ 1,25,000 (1/4th of ₹ 5,00,000) is more than the
higher of MV of ₹ 1,12,500 (1/4th of ₹ 4,50,000) and FR of ₹ 1,17,500 (1/4th of ₹
4,70,000). Hence the higher of MV and FR is the ER. In this case, it is the fair rent.
Step 2 – Computation of actual rent received/ receivable
₹ 12,000 x 9 = 1,08,000 1,08,000
[The property was let-out for 11 months. However, rent for 2 months i.e., January and
February, 2024 could not be realized. Actual rent should not include any amount of rent
which is not capable of being realized. Therefore, actual rent has been computed for 9
months]
Step 3 – Computation of GAV
The actual rent of Rs 1,08,000 is lower than expected rent of ₹ 1,17,500 owing to
vacancy, since had the property not been vacant in March 2024, the actual rent would 1,08,000
have been ₹ 1,20,000 (i.e. ₹ 1,08,000 + ₹ 12,000), which is higher than the ER of ₹
1,17,500. Therefore, actual rent is the GAV.
Gross Annual Value (GAV)
Less: Municipal taxes paid by the owner during the previous year relating to let-out 1,08,000
portion
1/4th of (10% of ₹ 4,50,000) = ₹ 45,000/4 = ₹ 11,250 11,250
Net Annual Value (NAV) 96,750

Less: Deductions under section 24
(a) 30% of NAV = 30% of ₹ 96,750 29,025
(b) Interest paid on borrowed capital (relating to let out portion) [1/4th of ₹ 1,51,000] 37,750 66,775
Income from Unit II (let-out) 29,975
Loss under the head “Income from house property” (-1,13,250 + 29,975) -83,275
Note – Alternatively, as per income-tax returns, unrealized rent can be deducted from GAV. In such a case, GAV would be
₹ 1,32,000, being higher of expected rent of ₹ 1,17,500 and actual rent of ₹ 1,32,000. Thereafter, unrealized rent of ₹
24,000 and municipal taxes of ₹ 11,250 would be deducted from GAV of ₹ 1,32,000 to arrive at the NAV of ₹ 96,750.
Q15. Mr Rajesh works as a product manager in BNC & Co. located at Mumbai. He owns two residential houses. The first is in
Delhi and was constructed on 30.12.1991. This house has been let out for residential purpose at a monthly rent of ₹
25,000. The second house is in Mumbai which was constructed on 1.3.2023 and has been occupied by him for his own
residence since then. He took a loan of ₹ 12,00,000 on 1.9.2021 @ 8% per annum interest for the purpose of
construction of this house. The entire loan is still outstanding.
Other relevant particulars in respect of these houses are given below:
Particulars Delhi House (₹) Mumbai House (₹)
Municipal valuation 2,16,000 2,40,000
Municipal Tax 10% of Municipal value 12% of Municipal Value

Expenses on repairs 15,000 45,000
Fire insurance premium 1,500 -
Ground rent 2,050 1,700
Land revenue 12,000 8,500
The ground rent of the Delhi house and the municipal tax and land revenue of the Mumbai house are unpaid.
Mr Rajesh was transferred to Surat, Gujarat on 1.12.2023 where he resides in a house with a monthly rent of ₹ 35,000
and his house at Mumbai was let out on the same day on rent of ₹ 30,000 per month.
Compute the “Income from house property” in respect of Mr Rajesh for the assessment year 2024-25. Assume Mr
Rajesh does not opt to be taxed under default tax regime.
Computation of income from house property of Mr Rajesh for A.Y. 2024-25

Particulars ₹ ₹
Delhi House
Gross Annual Value
a) Municipal value - ₹ 2,16,000
b) Actual rent - ₹ 3,00,000 (₹ 25,000 x 12)
- whichever is higher 3,00,000
Less: Municipal taxes (2,16,000 x 10%) 21,600
Less: Deductions u/s 24
30% of NAV 83,520
Income from house property (A) 194,880
Mumbai House
Gross Annual Value (See Note 1) 3,60,000
Less: Municipal taxes (See Note 2) -
i) 30% of NAV 1,08,000
ii) Interest on loan taken for the house (See Note 3) 1,07,200
Income from house property (B) 1,44,800
Income from house property (A + B) 3,39,680
Working notes:
1. This is a case where a house property is let-out for part of the year and self occupied for part of the year. If a
single unit of a property is self-occupied for part of the year and let-out for the remaining part of the year, then the
ER for the whole year shall be taken into account for determining the GAV. The ER for the whole year shall be
compared with the actual rent for the let out period and whichever is higher shall be adopted as the GAV.
Gross annual valuer higher of the following two:

a) Municipal value or fair rent whichever is more i.e., 2,40,000 or 3,60,000
b) Actual rent received or receivable (30,000 x 4) = Rs 1,20,000
The Mumbai house has been let out @ Rs 30,000 p.m., in the absence of other information, the expected rent or
fair rent shall be 30,000 x 12 = Rs 3,60,000.
2. Municipal taxes actually paid by the owner during the previous year, in respect of the deemed let out properties, can
be claimed as deduction. Since taxes were not paid in respect of Mumbai House so no deduction will be available.
3. Since Mumbai’s house construction was completed on 01.03.2023, pre construction period is considered up to
31.03.2022. Interest for the pre-construction period i.e., from 1.9.2021 to 31.3.2022 amounting to ₹ 56,000
(12,00,000 x 8/100 x 7/12) is allowable in five installments i.e. ₹ 11,200 (56,000/5) for five years.
Current year’s interest = ₹ 12,00,000 x 8% = 96,000

Pre construction interest = ₹ 11,200

Total interest = ₹ 1,07,200
4. No deduction will be allowed separately for Fire insurance premium, Ground rent, Land revenue and repairs.

Q1. Mr. Raghav has three houses for self-occupation. What would be the tax treatment for A.Y 2024-25 in respect of income from
house property?
(a) One house, at the option of Mr. Raghav , would be treated as self-occupied. The other two houses would be deemed to be
let out.
(b) Two houses, at the option of Mr. Raghav , would be treated as self-occupied. The other house would be deemed to be let
out.
(c) One house, at the option of Assessing Officer, would be treated as self-occupied. The other two houses would be deemed
to be let out.
(d) Two houses, at the option of Assessing Officer, would be treated as self-occupied. The other house would be deemed to be
let out.
Correct answer : (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.
Explanation:
Where the assessee owns more than two house properties for the purpose of self-occupation, the annual value of any two of
those properties, at the option of the assessee, will be nil and the other properties are deemed to be let-out and income has to
be computed on a notional basis by taking the Expected Rent (ER) as the GAV.
Q2. Vidya received ₹ 90,000 in May, 2023 towards recovery of unrealised rent, which was deducted from actual rent during the P.Y
2021-22 for determining annual value. Legal expense incurred in relation to unrealised rent is ₹ 20,000. The amount taxable
under section 25A for A.Y 2024-25 would be
(a) ₹ 70,000
(b) ₹ 63,000
(c) ₹ 90,000
(d) ₹ 49,000
Correct answer : (b) ₹ 63,000

Explanation:
Unrealised rent is taxable in the year of receipt. A deduction of 30% is allowed from such rent received. No other expenses are
allowed.
Therefore, taxable amount = 90,000 - 30% of 90,000 = ₹ 63,000
Q3. Mr. Vikas took a loan of ₹ 15,00,000 @ 10% p.a. On 1-4-2021 for the construction of residential house for self-occupation. The
construction of the house began in June 2021 and was completed on 30-6-2023. He has not repaid any amount of loan so far.
If he exercises the option to shift out of the default tax regime, the amount of interest deduction u/s 24(b) for A.Y 2024-25 is -
(a) ₹ 1,50,000
(b) ₹ 1,80,000
(c) ₹ 2,00,000
(d) ₹ 2,10,000
Correct answer : (c) ₹ 2,00,000

Explanation:
Pre-construction period = 1-4-2021 to 31-3-2023
Pre-construction interest = 15,00,000 * 10% * 2 = 3,00,000
Pre-construction interest allowed in AY 2024-25 = 60,000
Current year interest = 15,00,000 * 10% = 1,50,000

Total interest = 2,10,000

Maximum deduction allowed = 2,00,000
Q4. Mr. Pankaj has a house property in Delhi whose Municipal value is ₹ 1,00,000 and the Fair Rental Value is ₹ 1,20,000. The
standard rent is fixed at ₹ 1,08,000. It was self-occupied by Mr. Pankaj from 01.04.2023 to 31.07.2023. With effect from
01.08.2023, it was let out at ₹ 10,000 per month. Compute the net annual value of the house property for A.Y. 2024-25 if
the municipal taxes paid by him during the year were ₹ 20,000.
(a) ₹ 1,00,000
(b) ₹ 88,000
(c) ₹ 60,000
(d) ₹ 1,08,000

Explanation:
Expected Rent = Higher of fair rent or municipal value subject to standard rent = 1,08,000
Actual rent received = 80,000
GAV = 1,08,000
NAV = 1,08,000 - 20,000 = 88,000
Q5. Mr. Agarwal moved to Mumbai. He took a property on rent for his residential purpose. However, the property was not fully
occupied by him. He let out the property to his friend at ₹ 15,000 p.m. from 01.04.2023 to 31.03.2024. Mr. Agarwal is of the
view that income from subletting of property is taxable as Income from House Property. As tax advisor of Mr. Agarwal, find
out whether his view is correct.
(a) Correct, as any income from a house property is taxable under the head Income from House Property.
(b) Incorrect, as Mr. Agarwal is not the owner of the property let out by him. The income from subletting shall be taxable
under the head Profits and Gains of Business or Profession.
(c) Incorrect, as Mr. Agarwal is not the owner of the property let out by him. The income from subletting shall be taxable
under the head Income from other sources.
(d) Correct, as income from subletting of a property is directly attributable to the property itself and hence, chargeable to tax
as income from house property.
Correct answer : (c) Incorrect, as Mr. Agarwal is not the owner of the property let out by him. The income from subletting shall
be taxable under the head Income from other sources.
Explanation:
Income from sub-letting is taxable under the head “Other sources”.
Q6. Ganesh and Rajesh are co-owners of a self-occupied property. They own 50% share each. The interest paid by each co-owner
during the previous year 2023-24 on loan (taken for acquisition of property during the year 2004) is ₹ 2,05,000. If they exercise
the option to shift out of the default tax regime, the amount of allowable deduction in respect of each co-owner is
(a) ₹ 2,05,000
(b) ₹ 1,02,500
(c) ₹ 2,00,000
(d) ₹ 1,00,000

Explanation:
Each owner is entitled to a deduction of ₹ 2,00,000 in respect of the self occupied property.
Q7. Mr. Arvind gifted a house property to his wife, Ms. Meena and a flat to his daughter in law, Ms. Seetha. Both the properties
were let out. Which of the following statements is correct?
(a) Income from both properties is to be included in the hands of Mr. Arvind by virtue of section 64.
(b) Income from property gifted to wife alone is to be included in Mr. Arvind’s hands by virtue of section 64.
(c) Mr. Arvind is the deemed owner of house property gifted to Ms. Meena and Ms. Seetha.

(d) Mr. Arvind is the deemed owner of property gifted to Ms. Meena. Income from property gifted to Ms. Seetha would be
included in his hands by virtue of section 64.
Correct answer : (d) Mr. Arvind is the deemed owner of property gifted to Ms. Meena. Income from property gifted to Ms.
Seetha would be included in his hands by virtue of section 64.
Explanation:
In case of transfer of house property by an individual to his or her spouse otherwise than for adequate consideration, the
transferor is deemed to be the owner of the transferred property.
Q8. Ms. Sheetal and her brother jointly own a bungalow. They had taken a housing loan to purchase the bungalow. The loan is
sanctioned in the name of Ms. Sheetal and her brother in the year 2020. Interest on housing loan for the P.Y. 2023-24
amounted to ₹ 4,50,000 which is paid by Ms. Sheetal (₹ 2,25,000) and her brother (₹ 2,25,000). The bungalow is used by them
for their residence. In this case, what will be the amount of deduction available under section 24(b) to Ms. Sheetal and her
brother? Assume that they exercise the option to shift out of the default tax regime.
(a) ₹ 30,000 each

(b) ₹ 2,00,000 each
(c) ₹ 2,25,000 each
(d) ₹ 4,50,000 each
Correct answer : (b) ₹ 2,00,000 each

Explanation:
Each owner is entitled to a deduction of ₹ 2,00,000 in respect of the self occupied property.

Chapter 5 - Profit and Gains of Business or Profession

Q1. Mr. Vishal engaged in trading business furnishes the following particulars for the P.Y. 2023-24:
Plant and Machinery (WDV) : ₹ 10,00,000
Additions : 28-07-2023 : ₹ 2,00,000
15-01-2024 : ₹ 1,00,000
Sales : 01-12-2023 : ₹ 4,00,000
Furniture (WDV) : ₹ 3,00,000
Additions : 30-11-2023 : ₹ 50,000
Laptop (WDV) : ₹ 70,000
Motor Car (WDV) : ₹ 1,00,000
Compute the depreciation allowable to Mr. Vishal for the A.Y. 2024-25 assuming that he exercises the option to shift out of the
default tax regime.
Computation of depreciation allowable for the assessment year 2024-25
Particulars Block 1- Plant & Block 2 - Furniture Block 3 - Laptop

Machinery & Motor Car and Fittings (40%)
(15%) (10%)
WDV as on 01.04.2023 11,00,000 3,00,000 70,000

Add : Actual cost of assets acquired during the year
Used for more than 180 days 2,00,000 -
Used for less than 180 days 1,00,000 50,000 -
Less: Sales (4,00,000) - -
WDV as on 31.03.2024 10,00,000 3,50,000 70,000
Depreciation at block rates
On assets used for more than 180 days 1,35,000 30,000 28,000
On assets used for less than 180 days 7,500 2,500 -
Total Depreciation allowable 1,42,500 32,500 28,000
WDV as on 01.04.2024 8,57,500 3,17,500 42,000
Working notes:
Additional depreciation will not be available as assessee is carrying on trading business.
Q2. Mr. Mohit engaged in the manufacturing business furnishes the following particulars for the year ended 31.03.2024:
Factory building (Opening WDV) : ₹ 40,00,000
Opening WDV of Plant and machinery : ₹ 15,00,000
The details of new machineries purchased during the year are as follows:
Particulars Cost of acquisition Date of acquisition Date of put to use
Machine 1 ₹ 5,00,000 01.06.2023 01.08.2023
Machine 2 ₹ 6,00,000 01.08.2023 25.09.2023
Machine 3 (second hand) ₹ 3,00,000 02.10.2023 25.11.2023
Machine 4 ₹ 4,00,000 10.11.2023 01.02.2024
Fire extinguisher ₹ 10,000 10.04.2023 No instance arose of its use

during F.Y. 2023-24
Air conditioner (installed in ₹ 1,50,000 01.06.2023 05.06.2023

the office)

Compute the amount of depreciation allowable to Mr. Mohit for the A.Y. 2024-25 if he exercises the option to shift out of the
default tax regime.
Computation of depreciation allowable for the assessment year 2024-25
Particulars Block 1 - Buildings Block 2- Plant &

(10%) Machinery (15%)
WDV as on 01.04.2023 40,00,000 15,00,000

Add : Actual cost of assets acquired during the year
Used for more than 180 days [W.N 1] - 12,60,000
Used for less than 180 days - 7,00,000
WDV as on 31.03.2024 40,00,000 34,60,000
Normal Depreciation
On assets used for more than 180 days 4,00,000 4,14,000
P/M (15,00,000+12,60,000)*15% -
On assets used for less than 180 days 52,500
Additional Depreciation -
On assets used for more than 180 days [W.N. 2] 2,22,000
On assets used for less than 180 days [W.N. 2] - 40,000
Total Depreciation allowable 4,00,000 728,500
WDV as on 01.04.2024 36,00,000 27,31,500
Working notes:
(1) Depreciation on fire extinguishers will be available even if it is not actually put to use because of its nature.
(2) No additional depreciation shall be allowed in respect of -

(a) Machinery 3 (second hand) which before its installation by the assessee, was used by any other person
(b) Air conditioner since the same is installed in office premises.
Q3. Mr. Kartik has furnished following particulars relating to payments made towards scientific research for the year ended
31.03.2024 :
1. Payments made to XYZ Research Ltd., an approved research institution 15,00,000
2. Payment made to Sahitya College, an approved scientific research institution 10,00,000
3. Machinery purchased for in-house scientific research 8,00,000
4. Salaries to research staff engaged in in-house scientific research 6,00,000
5. Payment made to National Laboratory 4,00,000
Compute the amount of deduction available to Mr. Kartik under section 35 if he opts to pay tax under default tax regime.
Computation of deduction available under section 35
S. No. Particulars Section % of Amount of

deduction deduction
1. Payments made to XYZ Research Ltd., an approved research institution 35(1)(iia) - Nil
[W.N. 1]
2. Payment made to Sahitya College, an approved scientific research 35(1)(ii) - Nil

institution [W.N. 1]
3. Machinery purchased for in-house scientific research [W.N. 2] 35(1)(iv) 100% 8,00,000

4. Salaries to research staff engaged in in-house scientific research [W.N. 2] 35(1)(i) 100% 6,00,000
5. Payment made to National Laboratory [W.N. 1] 35(2AA) - Nil
Working Note :
1. Payments made under section 35(1)(ii), 35(1)(iia) and 35(2AA) are not eligible for deduction since the assessee pays tax
under default tax regime.
2. Payments made under section 35(1)(i) and 35(1)(iv) are eligible for deduction irrespective of the regime opted by the
assessee.
Q4. Star Limited commenced the business of operating a three star hotel In Shimla on 1-4-2023.
(i) Cost of land (acquired in June 2021) : ₹ 65 lakhs
(ii) Cost of construction of hotel building :
Financial year 2022-23 : ₹ 40 lakhs
Financial year 2023-24: ₹ 130 lakhs
[Out of Expenditure of ₹ 130 lakhs, ₹ 1,50,000 is paid in cash to contractor on 10-9-2023 and ₹ 50,000 is paid in cash on
15-01-2022 and balance through account payee cheque.]
(iii) Plant and machinery (all new) acquired during financial year 2023-24 : ₹ 30 lakhs
[All the above expenditures were capitalised in the books of the company]
Net profit before depreciation for the financial year 2023-24 : ₹ 90 lakhs
Determine the amount eligible for deduction under section 35AD of the Income Tax Act for AY 2024-25 if he exercises the
option to shift out of default tax regime.
As per section 35AD in case an assessee is engaged in the business of operating a hotel of 2-star or above category (i.e., 3-
star category) on or after 1st April 2010, it is eligible for deduction under section 35AD if he exercises the option to shift out of
default tax regime. Since, Star Limited Is engaged in the business of operating a hotel of 3 star category, and also exercises
the option to shift out of the default tax regime, hence, it is eligible for deduction under section 35AD. Deduction shall be
allowed in respect of the capital expenditure incurred in the earlier years (i.e. years earlier than the previous year 2023-24), as
the expenditure has been capitalised in the books of accounts in the current financial year; and the expenditure incurred in the
previous year.
Any expenditure of capital nature shall not include any expenditure in respect of which the payment or aggregate of payments
made to a person in a day, otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or
use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed,
exceeds ₹ 10,000 or any expenditure incurred on the acquisition of any land or goodwill or financial instrument.
The relevant computations are (Rs in lakhs) -

Net profit before depreciation for the financial year 2023-24 90
Less: Deduction u/s 35AD
Cost of construction of hotel building (₹ 128 + ₹ 40) (₹ 1.5 and ₹0.5 lakhs shall not be (168)
eligible for deduction since the same is paid in cash)
Plant and machinery (all new) acquired during financial year 2023-24 (30) (198)
Loss to be carried forward under section 73A for indefinite period (to be set off only against
business specified in section 35AD) (108)
Q5. Kartik, Aman and Kunal are partners in a firm with equal shares. The profit and loss account for the year ending 31st
March, 2024 shows a net profit of ₹ 42,000 after debiting the following items
1) Salary of ₹ 80,000 each to Kartik and Aman.
2) Bonus to Kunal ₹ 65,000.
3) Commission of ₹ 18,000, ₹ 20,000 and ₹ 45,000 to Kartik, Aman and Kunal respectively.
4) Interest on capital @ 15% amounting to ₹ 4,500, ₹ 6,000 and ₹ 15,000 was paid to Kartik, Aman and Kunal
respectively.
Assuming that all partners are working partners and the firm fulfils the conditions of Section 184, compute the total Income of
the firm and taxable income of the partners in the firm
Calculation of total income of the firm

Particulars Amount (₹) Amount (₹)
Net profit as per Profit and Loss A/c 42,000

Add: Disallowed items

Salary to Partners (Kartik ₹ 80,000 + Aman ₹ 80,000) 1,60,000
Bonus to Kunal 65,000
Commission to Partners (Kartik ₹ 18,000 + Aman ₹ 20,000 + Kunal ₹ 45,000) 83,000 3,08,000
Interest to partners in excess of 12% p.a.

Kartik = (₹ 4,500 x 3)/15 900
Aman = (₹ 6,000 x 3)/15 1,200
Kunal = (₹ 15,000 x 3)/15 3,000 5,100
Book profits 3,55,100
Less: Allowable remuneration allowable under section 40(b), being lower of the
following
(a) Actual remuneration; or 3,08,000
(b) Allowable u/s 40(b) [₹ 3,00,000 x 90% + ₹ 55,100 x 60%] 3,03,060 3,03,060
Total Income 52,040
Calculation of total income of each partner of the firm

Particulars Kartik Aman Kunal
Interest on capital @ 12% (to the extent allowed in hands of 3,600 4,800 12,000
the firm)
Salary, Bonus & Commission (taxable only upto ₹ 3,03,060 96,428 98,396 1,08,236
since the same is allowed in hands of the firm
Total Income 1,00,028 1,03,196 1,20,236
Q6. M/s Apsara Traders, a firm constituting of partners Divyam, Shubham and Mehul, is engaged in trading of sarees and
made the following payments towards purchases of sarees on 01/10/2023–
Party Mode of Payment Amount (₹) Fair Value (₹)
Mr. Varun (Bill No. 200) Crossed cheque 12,000 9,000

Mr. Varun (Bill No. 201) Cash 6,000 8,000
Yatin Ltd. Cash 50,000 10,000
Sonia and Co. Account payee cheque 60,000 60,000
Freight paid to Bittu Transporters Cash 15,000 15,000
Divyam holds 21% equity shares of Yatin Ltd. Shubham’s son Rajat is 55% partner in Sonia and Co. Mr. Varun is brother
of Mehul. What amount will be disallowed as per Income-tax Act, 1961?
Here, Divyam and Shubham have substantial interest in Yatin Ltd. and Sonia and Co. respectively; and Mr. Varun is a
relative of Mehul. Thus, all the three parties are specified persons as per Section 40A(2). So, firstly, disallowance will be
made as per Section 40A(2); and Section 40A(3) will apply to amount available after disallowance under section 40A(2).
The amount of disallowance will be computed as follows (amounts in ₹) :

Purchases from Disallowance u/s 40A(2) [Expenditure – fair Value] Disallowance u/s 40A(3) for cash payment
exceeding ₹ 10,000
Mr. Varun ₹ 3,000 [₹ 12,000 - ₹ 9,000 for 1st purchase] ₹ 15,000 [WN - 1]
Nil [for 2nd purchase, as FMV is higher]
Yatin Ltd. ₹ 40,000 [₹ 50,000 - ₹ 10,000] Nil [WN-2]
Sonia and Co. Nil Nil [Since payment is made through

account payee cheque]
Bittu Transporters Nil Nil [WN-3]
Total ₹ 43,000 ₹ 15,000

Working Notes :
(1) While individuals bills do not exceed ₹ 10,000, but since cash payment made to Mr. Varun on the day exceeds ₹ 10,000,
hence, it will be disallowed.
(2) After disallowance under section 40A(2) of ₹ 40,000, remaining allowable expenditure is ₹ 10,000. Since, the amount
does not exceed ₹ 10,000 i.e within the prescribed limit of Section 40A(3), disallowance under section 40A(3) is not
attracted.
(3) Payment to goods transport agency in cash shall be allowed as deduction since maximum limit for cash payment in such
case is ₹ 35,000.
Q7. Mr. Tapan is a businessman. During the year ended 31-03-2024 he was engaged in the business of Hypermarket and
SuperMarket. He maintains proper books of accounts for both businesses in the mercantile system. Sales from
Hypermarket achieved a turnover of ₹ 70 lakhs and all receipts were in cash. However, Supermarket business is through
online and entire receipts of ₹ 40 lakhs during the year were received online in his bank account. The expenses were
incurred in the ratio 65:35.
Following additional information is furnished:

To Salary : ₹ 8,00,000
To Repairs on building : ₹ 1,50,000
To Interest : ₹ 1,00,000
To Travelling : ₹ 1,30,000
To Depreciation : ₹ 7,00,000
Net Profit : ₹ 3,50,000
(a) In addition to above, repairs of ₹ 90,000 were incurred for building a new room which was debited to P&L A/c.
(b) Depreciation as per Income tax Act is ₹ 6,20,000
(c) ₹ 60,000 was paid in cash on 30-09-2023 to Mrs. Swati, an accountant for preparation of the accounts for the year
ended 31-03-2022 and adjusted under the head “expenses payable” account.
(d) He was forced to shut down his furniture business in the year 2020 as his accountant absconded with cash of ₹ 4
lakhs and fully allowed in that year. Unabsorbed business loss of furniture business is ₹ 2 lakhs. ₹ 3 lakhs was
received as insurance compensation on 31-03-2024 for the cash theft.
(e) Mr. Tapan wants to declare income under the “Presumptive income” basis.
Compute the income chargeable under the head profit and gains of business or profession of Mr. Tapan under
Presumptive Income scheme u/s 44AD and his Total Income for the year ended 31-03-2024.
(1) As per Section 44AD, in case of an eligible assessee engaged in eligible business -
(a) A sum equal to 8% of the total turnover or gross receipts of the assessee in the previous year on account of
such business (6% of the amount of total turnover or gross receipts which is received by an account payee
cheque or an account payee bank draft or use of electronic clearing system through a bank account during the
previous year or before the due date specified in Section 139(1) in respect of that previous year) ; or
(b) A sum higher than the aforesaid sum claimed to have been earned by the eligible assessee,
Shall be deemed to be the profits and gains of such business chargeable to tax under the head “Profits and gains of
Business or Profession”.
(2) Any deduction allowable under the provisions of Sections 30 to 38 (including unabsorbed depreciation, unabsorbed
capital expenditure on scientific research/ family planning) shall be deemed to have been already deducted and no
further deduction under those sections shall be allowed.
Thus, his presumptive income under Section 44 AD is as under = 8% of turnover of ₹ 70,00,000 + 6% of turnover of ₹
40,00,000 = ₹ 8,00,000.
Particulars ₹ ₹
Presumptive Income under Section 44AD 8,00,000

Furniture business recovery against deduction taxable as business profits (WN 1) 3,00,000
Less: Unabsorbed business loss as per Section 41(5) (WN 2) 2,00,000 1,00,000
Profits and Gains of Business and Profession/ Total Income 9,00,000
In the question, it is stated that Mr. Tapan “maintains proper books of accounts for both businesses in the mercantile
system”. The income as per regular books of account has to be computed and if such income is more than the
presumptive income computed under section 44A, the higher income can be declared under section 44AD. Hence,
income of Mr. Tapan for the assessment year 2024-25 as per books of account is computed below:

Particulars ₹ ₹
Income under the head Profits and Gains of Business and Profession 3,50,000
Net Profit as per Profit and Loss Account
Add : Expenses not allowable -
Depreciation debited in Profit and Loss Account 7,00,000
Cash payment in excess of ₹ 10,000 made in a day in the current year in
respect of expenditure allowed on mercantile basis in the previous year,
would be deemed as income in the current year 60,000
Building construction expenditure debited to P&L A/c 90,000 12,00,000
Less : Expenses allowable under this head -
Depreciation as per Income tax Act, 1961 6,20,000
Depreciation on building extension of a room @ 10% 9,000 6,29,000
Profits and gains computed as per books of account 5,71,000
Note: The assessee’s total income from hypermarket and supermarket business computed as per books of account is
less than the income computed under section 44AD. The question states that the assessee wants to declare income
under presumptive provision i.e section 44AD. Hence, the total income computation would include only the presumptive
income computed under section 44AD for both hypermarket and supermarket business.
Computation of Total Income (amount in ₹) :

Particulars ₹ ₹
Presumptive Income under Section 44AD 8,00,000

Furniture business recovery against deduction taxable as business profits (WN 1) 3,00,000
Less: Unabsorbed business loss as per Section 41(5) (WN 2) 2,00,000 1,00,000
Profits and Gains of Business and Profession/ Total Income 9,00,000
Working Note:
(1) As per provisions of Section 41(1), recovery of any amount in respect of any loss which was earlier claimed as
deduction is chargeable to tax under the head Profits and gains of business whether the business is in existence or
not. Hence, Rs 3,00,000 shall be treated as taxable profits.
(2) As per Section 41(5), where the business or profession is no longer in existence; and there is income chargeable to
tax under section 41(1) in respect of that business or profession any loss, not being a loss sustained in speculation
business, which arose in that business or profession during the previous year in which it is ceased to exist and
which could not be set off against any other income of that previous year shall be set off against such deemed
profits to the extent of such profits. Thus, loss of ₹ 2,00,000 shall be set off from such recovery of ₹ 3,00,000 and
balance amount will be taxable.
Q8. Ms Anaika is a Chartered Accountant in practice. She maintains her accounts on a cash basis. Her income and expenditure
account for the year ended 31st March, 2024 reads as follows:
Expenditure ₹ Income ₹
Salary to staff 5,00,000 Fees earned :

Stipend to articled assistants 40,000 Audit 17,80,000
Incentive to articled assistants 2,000 Taxation services 5,40,000
Office rent 25,000 Consultancy 2,50,000
Printing and stationery 20,000 Rent received from residential flat let out 85,000
Meeting, seminar and conference 31,000
Purchase of car 90,000
Repair, maintenance and petrol of car 4,000
Travelling expenses 35,000
Municipal tax paid in respect of house 2,000
property
Net Profit 19,06,000
26,55,000 26,55,000

Other Information:
i) Allowable rate of depreciation on motor car is 15%.
ii) Incentives to articled assistants represent the amount paid to two articled assistants for passing IPCC Examination
at first attempt.
iii) Salary includes ₹ 12,000 to a computer specialist in cash on 15-07-2023 for assisting Ms Anaika in one professional
assignment.
On the basis of above information, determine whether Ms Anaika should opt for presumptive basis taxation for computation
of her Gross total Income for AY 2024-25.
Computation of the Gross Total Income for the assessment year 2024-25.
CASE I : When Ms. Anaika opt for the provisions of Section 44ADA :
Computation of gross total income
Particulars ₹ ₹
Income from house property

Actual Rent Received [Being Gross Annual Value u/ s 23(1)] 85,000
Less: Standard deduction u/s 24 @ 30% of NAV 24,900 58,100
Income under the head Profits & Gains of Business and Profession
50% of the Gross receipts i.e. 50% of ₹ 25,70,000 (₹ 17,80,000 + ₹ 5,40,000 + ₹ 12,85,000
2,50,000) is deemed profits from profession under Section 44ADA
CASE II: When income is computed as per normal provisions of the Act.
Computation of gross total income
Particulars ₹ ₹

Actual Rent Received [Being Gross Annual Value u/ s 23(1)] 85,000
Less: Standard deduction u/s 24 @ 30% of NAV 24,900 58,100
Income under the head Profits & Gains of Business and Profession
Net profit as per Income and Expenditure Account 19,06,000
Add: Expenses debited but not allowable
i) Municipal Taxes of house property in respect of residential flat let out 2,000
ii) Salary paid to computer specialist in cash disallowed u/ s 40A(3),
since such cash payment is in excess of ₹ 10,000 12,000
iii) Amount paid for purchase of car is not allowable u/ s 37(1) since it is a
capital expenditure 90,000
Less: Income credited but not taxable under this head
i) Rent received from residential flat let out [The same is taxable under
the 'Income from house property'] 85,000
Less Depreciation on Motor Car @ 15% (WN) 13,500 19,11,500
Working Note: It has been assumed that the motor car was put to use for more than 180 days during the previous year and
hence, full depreciation@ 15% has been provided for under section 32(1) (ii).

Conclusion: The assessee should opt for the provisions of Section 44ADA since her income from profession as per the said
section is ₹ 12,85,000 which is less than actual income of ₹ 19,11,500.
Q9. Mr. Pulkit is in the business of operating goods vehicles. As on 1st April, 2023, he had the following vehicles
Vehicle Gross Vehicle Weight (in Kgs.) Date of Purchase Put to use during F.Y. 2023-24
A 8,800 05-04-2022 Yes

B 13,000 15-05-2022 Yes
C 12,000 10-08-2022 No (as under repairs)
During P.Y. 2023-24, he purchased the following vehicles :
Vehicle Gross Vehicle Weight (in Kgs.) Date of Purchase Put to use during F.Y. 2023-24
D 10,500 30-04-2023 10-05-2023

E 15,000 20-05-2023 18-05-2023
Compute his income under section 44AE of the Income-tax Act,1961 for A.Y. 2024-25.
Since Mr. Pulkit does not own more than 10 vehicles at any time during the previous year 2023-24, he is eligible to opt for
presumptive taxation scheme under section 44AE. As per section 44AE, Rs 1,000 per ton of gross vehicle weight or unladen
weight, as the case may be, per month or part of the month for each heavy goods vehicle and ₹ 7,500 per month or part of
month for each goods carriage other than heavy goods vehicle, owned by him would be deemed as his profits and gains from
such goods carriage. Heavy goods vehicle means any goods carriage, the gross vehicle weight of which exceeds 12,000 kg.
Computation of income under section 44AE :

Type of carriage Number of Date of purchase No. of months for Deemed income Amount (₹)
vehicles which vehicle is owned per month
For Heavy goods B 15-05-2022 12 13,000 1,56,000

vehicle E 20-05-2023 11 15,000 1,65,000
For Goods vehicles A 05-04-2022 12 7,500 90.000

other than heavy C 10-08-2022 12 7,500 90,000
goods vehicle D 30-04-2023 12 7,500 90,000
Profits from the business referred to u/s 44AE 5,91,000
The “put to use” date of the vehicle is not relevant for the purpose of computation of presumptive income under section 44AE,
since the presumptive income has to be calculated per month or part of the month for which the vehicle is owned by Mr.
Pulkit.
Q10. Mr. Mohit furnishes you the following information for the year ended 31-03-2024 (amounts in Rs) :
(i) Income from plying of vehicles (computed as per books) (He owned 5 light goods vehicle throughout the year) : ₹
5,00,000
(ii) Income from retail trade of garments (computed as per books) (Sales turnover ₹ 41,50,000) : ₹ 2,50,000
(iii) Brought forward depreciation related to assessment year 2023-24 : ₹ 1,00,000
(iv) Amount deposited into PPF Account on 07-04-2024.
Compute taxable income of Mr. Mohit under the head PGBP if sale proceeds of garments is received through account payee
cheque.
If Mr. Mohit opts for presumptive taxation under section 44AD and 44AE, then, any deduction allowable under the provisions
of Sections 30 to 38 (including unabsorbed depreciation, unabsorbed capital expenditure on scientific research/ family
planning) shall be deemed to have been already deducted and no further deduction under those sections shall be allowed.
The relevant computation is as under :
Computation of taxable income of Mr. Mohit (amounts in ₹) -

Particulars Presumptive taxation Income as per books
Income from plying of vehicles (Rs 7500 * 12 * 5) 4,50,000 5,00,000

Income from retail trade business (6% of ₹ 41,50,000) (Since sale 2,49,000 2,50,000
proceeds are received through account payee cheque)
6,99,000 7,50,000
- 1,00,000
Less: Unabsorbed depreciation
6,99,000 6,50,000
Gross Total Income
Gross Total Income (WN 1) 6,50,000

Less: Deduction u/s 80C in respect of PPF (WN 2) Nil
Taxable Income 6,50,000
Working Notes:
(1) Since total income as per books of accounts is lower than presumptive income under section 44AD and Section 44AE,
therefore, Mr. Mohit should claim his income as per books and get his such books of accounts audited.
(2) Deduction in respect of PPF is not allowable as it is not paid upto 31-03-2024.
Q11. Mr. Hardik., a resident and ordinarily resident in India, has derived the following income for the year ended 31-3-2024
S.No. Particulars Amounts (₹)
(i) Income from sale of block rubbers processed from rubber plants grown in Orissa 2,00,000
(ii) Income from sale of coffee grown and cured in Munnar, Kerala 3,00,000
(iii) Income from sale of coffee grown, cured, roasted and grounded in Karnataka 4,00,000
(iv) Income from sale of tea grown and manufactured in Assam 6,00,000
(v) Sale of plants from nursery 1,00,000
Compute the business income and agricultural income of Mr. Hardik for the A.Y. 2024-25.
Compute the business income and agricultural income of Mr. Hardik (Amounts in ₹)
S.No. Particulars Business Agricultural

Income Income
(i) Income from sale of centrifuged latex processed from rubber plants grown in 70,000 1,30,000
Darjeeling (Rule 7A) - 35% : 65%
(ii) Income from sale of coffee grown and cured in Munnar, Kerala (Rule 7B) - 25% : 75,000 2,25,000
75%
(iii) Income from sale of coffee grown, cured, roasted and grounded in Karnataka (Rule 1,60,000 2,40,000
7B) - 40% : 60%
(iv) Income from sale of tea grown and manufactured in Assam (Rule 8) - 40% : 60% 2,40,000 3,60,000
(v) Sale of plants from nursery [W.Note] - 1,00,000
Total Income 5,45,000 10,55,000
Working Note:
Sale of plants from nursery is deemed agricultural income whether or not basic operations have been carried out on land.
Q12. Following is the Profit and Loss account of Mr. Harshad (amounts in ₹) -
To Repairs on building 1,00,000 By Gross Profit 5,00,000
To Advertisement 45,000 By IT Refund 4000
By Interest from company deposits 5000

To Amount paid to Scientific Research 80,000 By Dividends 3500

Association approved u/s 35 90,000
To Interest 1,10,000
To Travelling 500
To Miscellaneous Expenditure 87,000
To Net Profit
5,12,500 5,12,500
Following additional information is furnished:

(i) Repairs on building includes ₹ 70,000 being cost of raising a compound wall for the own business premises.
(ii) Interest payment include interest of ₹ 10,000 payable to a resident Indian on which tax has not been deducted and
penalty of ₹ 20,000 for contravention of Central Goods and Services Tax Act.
Compute the income chargeable under the head ‘Profits and gains of business or profession’ of Mr. Harshad ignoring
depreciation. Assume that he has exercised the option to shift out of the default tax regime.
Profits and gains of business or profession of Mr. Harshad (amounts in ₹) -

Net Profit as per Profit and Loss Account 87,000
Expenses on raising a compound wall (WN - 1) 70,000
Penalty for contravention of CGST Act (WN - 2) 20,000
Interest payable to a resident, as tax has not been deducted on the
same ( ₹ 10,000 * 30%) (WN - 5) 3,000 93,000
Less : Income not forming part of business income -

Interest from company deposits (WN- 3) 5,000
I.T. Refund (WN - 4) 4,000
Dividend (WN - 6) 3,500 12,500
Profits and Gains of Business or Profession 1,67,500
Working Notes:
(1) Expenses on raising a compound wall shall not be deductible as it is a capital expenditure.
(2) Penalty paid for violation or infringement of any law is not allowable as deduction under section 37(1).
(3) Interest from company deposits shall not form part of business income as it is taxable as Income from other
sources.
(4) I.T. Refund is not taxable, as it is not ‘income’.
(5) 30% of interest payable to a resident, as tax has not been deducted on the same shall not be allowed as deduction
under section 40(a).
(6) Dividend from shares of Indian company is taxable in the hands of shareholders under the head Income from Other
sources.
(7) Amount paid to Scientific Research Association approved u/s 35 is eligible for 100% deduction. Since the same is
debited to profit and loss account, hence no adjustment will be required.
Q13. Ekta Ltd., engaged in manufacturing of plastic sheets furnishes the following information for the year ended 31-03-2024:
i) Patent acquired for ₹ 18,00,000 on 01-08-2023 and used from the same month.
ii) Capital expenditure on scientific research ₹ 15,00,000 which includes cost of land ₹ 4,00,000.
iii) Refund of Goods and Services Tax ₹ 60,000 received during the year, which was claimed as expenditure in an earlier
year.
iv) Income tax paid Rs 80,000 by the company in respect of non-monetary perquisites provided to its employees.
v) Municipal tax relating to office building ₹ 55,000 not paid till 31-10-2024.
vi) Amount due from customer A outstanding for more than 3 years written off as bad debt in the books ₹ 7,00,000.
vii) Expenditure towards advertisement in souvenir of a political party ₹ 1,00,000
viii) Provident fund contribution of employees ₹ 4,00,000 remitted in July 2024.
State with reasons the taxability or deductibility of the items given above under Income Tax Act, 1961.
Note: Computation of total income is not required.
The treatment is as under -
i) Patent is an intangible asset eligible for depreciation @ 25%. Since, it has been acquired and put to use for more than
180 days during the previous year 2023-24, full depreciation of ₹ 4,50,000 (i.e 25% of ₹ 18,00,000) is allowable as
deduction under section 32.

ii) Deduction @ 100% is available under section 35(2AB) in respect of expenditure incurred by a company on scientific
research on in-house research and development facility as approved by the prescribed authority. However, cost of
land is not eligible for deduction.
iii) Refund of a trading liability is taxable under section 41(1), if a deduction was allowed in respect of the same to the
taxpayer in an earlier year. Since, Goods and Services Tax was claimed as expenditure in an earlier year, refund of the
same during the year would attract the provisions of section 41(1).
iv) As per section 40(a)(v), income tax of Rs 80,000 paid by the company in respect of non monetary perquisites
provided to its employees, exempt in the employees hands under section 10(10CC), is not deductible while
computing business income of the employer-company.
v) As per section 43B, Municipal tax is not deductible for assessment year 2024-25 since it is not paid on or before
31-10-2024, being the due date of filing the return for assessment year 2024-25.
vi) Bad debts i.e Rs 7,00,000 written off in the books of accounts as irrecoverable is deductible under section 36(1)(vii),
Provided that the debt has been taken into account in computing the income of the company in the current previous
year or any of the earlier previous years.
vii) Expenditure towards advertisement in the souvenir of a political party is disallowed under section 37(2B) while
computing business income. However, the same is deductible under section 80GGB from gross total income.
viii) The employee's contribution to provident fund is taxable in the hands of the company since it is included in the
definition of income under section 2(24)(x). As per section 36(1)(va), provident fund contribution of employees is
deductible only if such some is credited to the Employees Provident Fund account on or before the due date under
the Employees Provident Fund and Miscellaneous Provisions Act 1952. In this case, since it is remitted after the due
date under the said act it is not deductible.
Q14. Moon Ltd., engaged in the business of manufacturing, shows a net profit of ₹ 400 lakhs in its profit and loss account for the
year ended 31.03.2024 after debiting and crediting the following items:
(i) Depreciation provided in books of accounts as per straight line method : ₹ 20 lakhs
(ii) The company has made cash payments as follows:
On 01.04.2023 : ₹ 10 lakhs (a bank holiday)
On 30.07.2023 : ₹ 5 lakhs (for purchase of agricultural produce)
(iii) It incurred revenue expenditure of ₹ 7 lakhs towards scientific research on in-house approved research and development
facility under section 35(2AB).
(iv) The company has purchased goods of ₹ 50 lakhs from M/s XYZ Ltd. in which directors have substantial interest. The
market value of the goods is ₹ 40 lakhs.
(v) Employers contribution of ₹ 4 lakhs to the Provident Fund for the month of March, 2024 was remitted on 11th August,
2024. Employee’s contribution for the whole year was deposited on or before the due date as per the specified act.
(vi) It paid ₹ 70,000 to an electoral trust by cash and ₹ 1,00,000 by cheque to a registered political party.
Additional Information:
(1) Depreciation allowed as per Income tax Act is ₹ 30 lakhs.

(2) There was a purchase of second hand machinery of ₹ 50 lakhs on 25.10.2023 by a bearer cheque in single payment.
Depreciation of this machinery has not been included in point (1) above.
(3) Out of an amount of ₹ 5 lakhs written off in the F.Y. 2016-17 as irrevocable from a debtor, ₹ 2 lakhs was recovered on
20-09-2023 and credited to the reserve account.
Compute the income taxable under head PGBP of Moon Ltd. for the A.Y. 2024-25.
Computation of income taxable under the head PGBP
Net Profit as per Profit and Loss Account 4,00,00,000

Depreciation provided on straight line method [W.N 1] 20,00,000
Disallowance under section 40A(3) [W.N 2] 10,00,000
Expenditure on in-house scientific research [W.N 3] -
Disallowance under section 40A(2) [W.N 4] 10,00,000
Employer’s contribution to EPF [W.N 5] -
Donations to electoral trust and registered political party [W.N 6] 1,70,000 41,70,000
Less : Expenses allowable -

Depreciation allowed under Income tax Act [W.N 7] (30,00,000) (30,00,000)

Add : Income taxable under this head

Recovery of bad debts [W.N 8] 2,00,000 2,00,000
Income taxable under the head PGBP 4,13,70,000
Working Notes:
(1) Depreciation will be allowed as per income tax act. Therefore, depreciation as per straight line method needs to be
added back.
(2) Cash payments exceeding ₹ 10,000 in a day attracts disallowance under section 40A(3). However Rule 6DD allows
certain payments in cash exceeding ₹ 10,000 which includes payment for agricultural produce. Cash payment on
bank holiday is not covered by Rule 6DD, hence disallowed.
(3) 100% expenditure is allowed for expenditure incurred on inhouse research approved u/s 35(2AB). Since it is already
debited, no further adjustment is required.
(4) Since payment is made to a related person, excess payment will be disallowed under section 40A(2).
(5) Employers contribution to EPF is allowed as deduction since the same has been deposited before the due date of
filing of return of income. Since it is already debited, no further adjustment is required.
(6) Donation to electoral trust and political party does not qualify for deduction under section 37.
(7) Where the assessee incurs any expenditure for acquisition of any asset or part thereof in respect of which a
payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn
on a bank or an account payee bank draft or use of electronic clearing system through a bank account, exceeds ten
thousand rupees, such expenditure shall be ignored for the purposes of determination of actual cost. Since,
payment is made by bearer cheque. depreciation will not be provided on this machine.
(8) Recovery of bad debts which was earlier written off under section 36(1)(vii) and was allowed as deduction is
chargeable to tax under section 41(4) in the year of recovery.
Q15. Mr. Ajay, a resident individual, aged 45 years, provides professional services in the field of interior decoration. His Income &
Expenditure A/c for the year ended 31st March, 2024 is as under:
Expenditure ₹ Income ₹
To Employees Remuneration & Benefits 13,00,000 By Consultancy Charges 55,00,000

To Office & Administrative Expenses 4,00,000
To General Expenses 80,000
To Electricity Expenses 50,000
To Medical Expenses 60,000
To Purchase of Furniture 50,000
To Depreciation 1,00,000
To Excess of income over expense 34,60,000
55,00,000 55,00,000
The following other information relates to financial year 2023-24:

(i) The expenses on Employees' Remuneration & Benefits includes:
(a) Family Planning expenditure of ₹ 20,000 incurred for the employees which was revenue in nature. The same was
paid through account payee cheque.
(b) Payment of salary of ₹ 25,000 per month to sister-in-law of Mr. Ajay, who was in- charge of the Accounts &
Receivables department. However, in comparison to a similar work profile, the reasonable salary at market rates is
₹ 20,000 per month.
(ii) Amount received by Mr. Ajay as Employees' Contribution to EPF for the month of February, 2024 - ₹ 10,000 was deposited
after the due date under the relevant Act relating to EPF.

(iii) Medical Expenses of ₹ 60,000 as appearing in the Income & Expenditure was expensed for the treatment of father of Mr.
Ajay. His father was 72 years old and was not covered by any health insurance policy. The said payment of ₹ 60,000 was
made through account payee cheque.
(iv) General expenses as appearing in the Income & Expenditure A/c, includes a sum of ₹ 25,000 paid to Ms. Sonia on 5th
January, 2024 as commission for securing work from new clients. This payment was made to her without deduction of
tax at source.
(v) Written down value of the depreciable assets as on 1st April, 2023 were as follows:
Professional Books ₹ 90,000
Computers ₹ 35,000
(vi) The new Furniture as appearing in the Income & Expenditure A/c was purchased on 31st August, 2023 and was put to
use on the same day. The payment was made as under:
- ₹ 18,000 paid in cash at the time of purchase of new furniture on 31/08/23.
- ₹ 19,000 paid by account payee cheque on 05/09/2023 as balance cost of new furniture and
- ₹ 11,000 paid in cash on 31/08/23 to the transporter as freight charges for the new furniture.
(vii) Mr. Ajay purchased a car on 02/04/2022 for ₹ 3,35,000 for personal use. However, on 30/04/2023 he brought the said car
for use in his profession. The fair market value of the car as on 30/04/2023 was ₹ 2,50,000.
(viii) Mr. Ajay made a contribution of ₹ 1,00,000 in his PPF A/c on 31/01/2024.
(ix) The Gross Professional Receipts of Mr. Ajay for P.Y. 2022-23 was ₹ 51,00,000.
Compute the income taxable of Mr. Ajay under the head PGBP for the A.Y. 2024-25.
Computation of income taxable under the head PGBP

Excess of income over expenditure 34,60,000

Family planning expenditure incurred for employees [W.N 1] 20,000
Salary payment to sister-in-law in excess of market rate [W.N 2] -
Employees’ Contribution to EPF [W.N 3] 10,000
Medical expenses for the treatment of father [W.N 4] 60,000
Commission to Ms. Sonia without deduction of tax at source [W.N 5] 7,500
Depreciation as per books of account [W.N 6] 1,00,000
Purchase of Furniture [capital expenditure] 50,000 2,47,500
Less : Expenses allowable -

Depreciation allowed under Income tax Act [W.N 7] (1,02,150) (1,02,150)
Income taxable under the head PGBP 36,05,350
Working Notes:
(1) Family planning expenditure incurred for employees is not allowable as deduction since expenditure on family
planning for employees is allowed only to a company assessee/not allowed in case of individuals.
(2) Any expenditure incurred for which payment is made to a relative, to the extent it is considered unreasonable is
disallowed. However, sister-in-law is not included in the definition of “relative” for the purpose of section 40A(2).
Therefore, no adjustment is required for excess salary paid to Mr. Ashish’s sister-in-law.
(3) Sum received by the assessee from his employees as contribution to EPF is income of the employer. Deduction in
respect of such sum is allowed only if such amount is credited to the employee’s account on or before due date
under the relevant Act. Since, the employees contribution to EPF for February 2024 is deposited after the due date
under the relevant Act, deduction would not be available]
(4) Medical expenses for the treatment of a father is not allowed as a deduction since it is a personal expenditure.
(5) Mr. Ajay would be liable to deduct tax at source on commission since his gross receipts from profession exceeded
₹ 50 lakhs during F.Y.2023-24. Since commission has been paid without deduction of tax at source, hence 30% of ₹
25,000, being commission paid without deducting tax at source, would be disallowed under section 40(a)(ia) while
computing the business income of A.Y.2024-25.
(6) Depreciation will be calculated as follows:

On professional books [90,000 * 40%] : ₹ 36,000

On Computers [35,000 * 40%] : ₹ 14,000

On Car [3,35,000 * 15%] : ₹ 50,250
On Furniture [19,000 * 10%] : ₹ 1,900
Total : ₹ 1,02,150
● Actual cost of the car would be the purchase price of car to Mr. Ajay.
● Any expenditure for acquisition of any asset in respect of which payment or aggregate of payment made to a
person, otherwise than by an a/c payee cheque/ bank draft or use of ECS or through prescribed electronic
mode, exceeds ₹ 10,000 in a day, such expenditure would not form part of actual cost of such asset. Hence, ₹
18,000 and ₹ 11,000 paid on 31.8.2023 in cash would not be included in the actual cost of furniture.

Q1. The W.D.V. of a block (Plant and Machinery, rate of depreciation 15%) as on 1.4.2023 is ₹ 3,20,000. A new machinery costing ₹
50,000 was acquired on 1.9.2023 through account payee cheque but put to use on 1.11.2023. During Jan 2023, part of this
block was sold for ₹ 2,00,000. Assuming that the assessee opts to pay tax under default tax regime, the depreciation for A.Y.
2024-25 would be ________.
(a) ₹ 21,750
(b) ₹ 25,500
(c) ₹ 21,125
(d) ₹ 12,750

Explanation:
Opening WDV : ₹ 3,20,000
(+) Purchases : 50,000
(-) Sales : 2,00,000
Closing WDV : 1,70,000
Dep on 1,20,000 @ 15% : 18,000
Dep on 50,000 @ 7.5% : 3,750
Total depreciation : 21,750
Additional dep is not available to an assessee paying tax under default tax regime.
Q2. The W.D.V. of a block (Plant and Machinery, rate of depreciation 15%) as on 1.4.2023 is ₹ 3,20,000. A new machinery costing ₹
50,000 was acquired on 1.9.2023 through account payee cheque but put to use on 1.11.2023. During Jan 2023, part of this
block was sold for ₹ 2,00,000. Assuming that the assessee opts to pay tax under default tax regime, the depreciation for A.Y.
2024-25 would be ________.
(e) ₹ 21,750
(f) ₹ 25,500
(g) ₹ 21,125
(h) ₹ 12,750

Explanation:
Opening WDV : ₹ 3,20,000
(+) Purchases : 50,000
(-) Sales : 2,00,000
Closing WDV : 1,70,000
Dep on 1,20,000 @ 15% : 18,000
Dep on 50,000 @ 7.5% : 3,750
Total depreciation : 21,750
Additional dep is not available to an assessee paying tax under default tax regime.

Q3. XYZ Ltd. incurred capital expenditure of ₹ 1,50,000 on 1.4.2023 for acquisition of patents and copyrights. Such expenditure is
_________.
(a) Eligible for deduction in 10 years from A.Y 2024-25

(b) Eligible for deduction in 5 years from A.Y. 2024-25
(c) Subject to depreciation @ 25% under section 32
(d) Subject of depreciation @ 15% under section 32
Correct answer : (c) Subject to depreciation @ 25% under section 3

Explanation:
Patents and copyright being intangible assets are eligible for depreciation @ 25% u/s 32.
Q4. Mr. Shahid, a wholesale supplier of dyes, provides you with the details of the following cash payments he made throughout
the year:
- 12.06.2023: Loan repayment of ₹ 27,000 taken for business purpose from his friend Kunal. The repayment also includes
interest of ₹ 5,000.
- 19.08.2023: Portable dye machinery purchased for ₹ 15,000. The payment was made in cash in three weekly instalments.
- 26.01.2024: Payment of ₹ 10,000 made to electrician due to unforeseen electric circuit at shop
- 28.02.2024: Purchases made from unregistered dealer for ₹ 13,500
What will be disallowance under 40A(3), if any, if Mr. Shahid opts to declare his income as per the provisions of section 44AD?
(a) ₹ 18,500
(b) ₹ 28,500
(c) ₹ 13,500
(d) ₹ Nil
Correct answer : (d) Nil

Explanation:
(i) Sec 40A(3) does not apply to loan transactions. Since interest payment does not exceed ₹ 10,000, sec 40A(3) is not
applicable in this case.
(ii) Since payment is made in three weekly installments and not in a single day. Section 40A(3) is not attracted.
(iii) Since payment does not exceed ₹ 10,000, sec 40A(3) is not applicable in this case.
(iv) Payment of ₹ 13,500 is disallowed u/s 40A(3)
But since no expenditure is allowed in section 44AD, there will be no disallowance as well. Therefore, disallowance will be Nil.
Q5. M/s Thakural & Sons, paid ₹ 11,00,000 as remuneration to its partner. The same was in accordance with partnership
deed. Partners are also entitled to interest on capital @ 11% as per partnership deed. Total interest paid during the year
is ₹ 1,30,000. The book profit before interest on capital and remuneration is ₹ 37,00,000. The salary allowable as
deduction to M/S Thakural & Sons is _________________.
(a) ₹ 22,62,000
(b) ₹ 11,00,000
(c) ₹ 23,10,000
(d) ₹ 22,32,000

Explanation:
Remuneration allowable =
On first ₹ 3,00,0000 [₹ 1,50,000 or 90% of ₹ 3,00,000 whichever is more] = ₹ 2,70,000

On next ₹ 34,00,000 @ 60% = ₹ 20,40,000
Total allowable = ₹ 23,10,000

Since salary paid is within this limit, it is fully allowed as deduction.
Q6. Under section 44AE, presumptive taxation is applicable at a particular rate provided the Assessee is the owner of a maximum
of certain number of goods carriages. The rate per month or part of the month relevant for A.Y. 2024-25 and the maximum
number specified under the section are __________________.
(a) ₹ 7,500 for each goods carriage in the case of an Assessee owning not more than 10 goods carriages at any time during
the year
(b) ₹ 7,500 for each goods carriage in the case of an Assessee owning less than 10 goods carriages at any time during the
year
(c) ₹ 3,500 per carriage for an Assessee owing not more than 10 goods carriages at the end of the previous year
(d) ₹ 1,000 per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month for
heavy goods vehicle and ₹ 7,500 for every month or part of a month for other goods vehicle for an Assessee owning not
more than 10 goods carriages at the end of the previous year
Correct answer : (d) ₹ 1,000 per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a
month for heavy goods vehicle and ₹ 7,500 for every month or part of a month for other goods vehicle for an Assessee owning
not more than 10 goods carriages at the end of the previous year
Explanation:
In case of an assessee covered u/s 44AE, income is calculated as ₹ 1000 per ton of gross vehicle weight or unladen weight in
case of each heavy goods vehicle and ₹ 7,500 for each vehicle, other than heavy goods vehicle, for every month
or part of the month for which the vehicle is owned by the assesse].
Q7. Mr. Kunal is a doctor by profession engaged in his medical practice from last 15 years. His gross receipts from the profession
in FY 2020-21, 2021-22, 2022-23 were ₹ 2,00,000, ₹ 16,00,000 and ₹ 18,50,000 respectively. Further, Kunal follows cash system
of accounting. Determine which of the following books of accounts and documents are required to be kept and maintained by
Kunal.
i. Cash Book
ii. Journal
iii. Inventory of the stock of drugs, medicines, etc.
iv. A daily case register
(a) (i) and (ii)

(b) (i), (ii), (iii) and (iv)
(c) (i), (iii) and (iv)
Correct answer : (c) (i), (iii) and (iv)

Explanation:
Since gross receipts exceed ₹ 1,50,000 in all the three immediately preceding previous years, the following books of account
and other documents are required to be maintained.
(i) a cash book;
(ii) a journal, if accounts are maintained on mercantile basis ;
(iii) a ledger;
(iv) Carbon copies of bills and receipts issued by the person whether machine numbered or otherwise serially numbered, in
relation to sums exceeding ₹ 25;
(v) Original bills and receipts issued to the person in respect of expenditure incurred by the person, or where such bills and
receipts are not issued, payment vouchers prepared and signed by the person, if the amount does not exceed ₹ 50.
In case of a person carrying on medical profession, he will be required to maintain the following in addition to the list given
above:
(i) a daily case register in Form 3C.
(ii) an inventory under broad heads of the stock of drugs, medicines and other consumable accessories as on the first and
last day of the previous year used for his profession.

Since in given case, accounts are maintained on cash basis, journal is not required.
Q8. K is a working partner in a firm on behalf of his HUF and the HUF has contributed ₹ 3,00,000 as its capital contribution. Apart
from this, K has given a loan of ₹ 50,000 to the firm in his individual capacity. The firm pays interest as per market rate of
15% per annum on capital as well as loan. Compute the amount of interest that shall be allowed to the firm while calculating
its business income assuming that the interest is authorized by the partnership deed.
(a) ₹ 42,000
(b) ₹ 51,000
(c) ₹ 52,500
(d) ₹ 43,500
Correct answer : (d) ₹ 43,500

Explanation:
Any interest paid to partners in excess of 12% is disallowed. However, Where an individual is a partner in a firm in a
representative capacity, interest paid by the firm to such individual otherwise than as a partner in a representative capacity
shall be allowed even if it exceeds 12%.
Therefore, interest on capital will be disallowed above 12% butsince loan is out of personal funds and not of HUF, interest
above 15% is also allowed.
Allowable interest = (3,00,000 * 12%) + (50,000 * 15%) = 43,500
Q9. Employer’s contribution to provident fund/superannuation fund/gratuity fund is allowed as deduction in computing income
under the head “Profits and gains of business or profession”, provided it has been paid
(a) Before the end of previous year

(b) On or before the due date by which the employer is required to credit an employee’s contribution to the employee’s
account in the relevant fund.
(c) On or before the due date for filing the return of income under section 139(1)
(d) Before the end of relevant assessment year
Correct answer : (c) On or before the due date for filing the return of income under section 139(1)
Explanation:
Employer’s contribution to provident fund/superannuation fund/gratuity fund is allowed as deduction in computing income
under the head “Profits and gains of business or profession”, provided it has been paid on or before the due date for filing the
return of income under section 139(1).
Q10. An Assessee purchases furniture worth ₹ 80,000 on 05.09.2023 and makes the payment of ₹ 45,000 by account payee cheque
and ₹ 20,000 in cash on the same date. The balance of ₹ 15,000 is paid by the Assessee by bearer cheque on 06.09.2023
when the furniture is delivered in his office. Compute the amount of actual cost of furniture to the Assessee.
(a) ₹ 45,000
(b) ₹ 80,000
(c) ₹ 60,000
(d) ₹ 65,000

Explanation:
Where an assessee incurs any expenditure for acquisition of any asset or part thereof in respect of which a payment or
aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account
payee bank draft or use of electronic clearing system through a bank account or through such other prescribed electronic
mode, exceeds ₹ 10,000, such expenditure shall not form part of actual cost of such asset [Second proviso to section 43(1)].

Q11. An electricity company charging depreciation on straight line method on each asset separately, sells one of its machinery in
April, 2023 at ₹ 1,20,000. The WDV of the machinery at the beginning of the year i.e., on 1st April, 2023 is ₹ 1,35,000. No new
machinery was purchased during the year. The shortfall of ₹ 15,000 is treated as _________.
(a) Terminal depreciation

(b) Short-term capital loss
(c) Normal depreciation
(d) Any of the above, at the option of the assessee
Correct answer : (a) Terminal depreciation

Explanation:
In case of a power concern if any asset is sold, discarded, demolished or otherwise destroyed in the previous year and the
monies payable is less than the WDV of the asset, then such shortfall of monies payable over WDV shall be treated as
Terminal Depreciation.
Q12. Which of the following persons are compulsorily required to get their accounts audited u/s 44AB of the Incometax Act, 1961?
(i) An Assessee, who has not opted for presumptive taxation and his turnover during the P.Y. is ₹ 2 crore.
(ii) A professional whose gross receipts during the previous year amounts to ₹ 50 lakhs, who declares his profits and gains
from profession u/s 44ADA.
(iii) An Assessee having turnover of ₹ 1.5 crore, who declares his profits and gains from business u/s 44AD.
(iv) A lawyer having gross receipts of ₹ 40 lakhs during the P.Y. who claims his profits and gains from the legal profession to
be 40% of the gross receipts.
(v) An individual who opts out of the presumptive taxation scheme u/s 44AD during the P.Y., however, his total income for
the said year is ₹ 2,00,000.
(a) (i), (iv)

(b) (i), (iv), (v)
(c) (i), (ii), (v)
(d) (iv), (v)
Correct answer : (a) (i), (iv)

Explanation:
(i) Since his total sales, turnover or gross receipts in business < ₹ 1 crore in the relevant PY, he is not required to get their
accounts audited
(ii) Since 50% of gross receipts is declared as income as per section 44ADA, audit is not required in given case.
(iii) The requirement of audit u/s 44AB does not apply to a person who declares profits and gains on presumptive basis u/s
44AD and his total sales, turnover, or gross receipts does not exceed ₹ 2 crore.
(iv) A person carrying on profession is required to get their accounts audited if such resident assessee claims that the
profits and gains from such profession in the relevant PY are lower than the profits and gains computed on a
presumptive basis u/s 44ADA (50% of gross receipts) and his income exceeds the basic exemption limit in that PY.
Therefore, audit is required in given case.
(v) Since his total sales, turnover or gross receipts in business < ₹ 1 crore in the relevant PY, he is not required to get their
accounts audited.

Chapter 6 - Capital Gains

Q1. Mr. Sunil purchased a plot of land on 6th July, 2009 for ₹ 4,00,000. On 1st June, 2023, he entered into an agreement with Anil
to transfer the plot of land for ₹ 90,00,000 when the stamp duty value was ₹ 96,00,000. He got an advance of Rs 1,00,000 by
an account payee cheque from Mr. Anil on the date of agreement. The Conveyance deed was registered on 6th July, 2023
when the stamp duty value was ₹ 1,00,00,000.
Compute the capital gains in the hands of Mr. Sunil.
What would your answer be in case Rs 1,00,000 is received on 2nd June, 2023, instead of 1st June, 2023.
Cost inflation index : FY 2009-10 : 148, FY 2023-24 : 348
(i) When Sunil has received an advance on the date of agreement : In this case, stamp duty value on the date of agreement is
different from stamp duty on the date of registration. Sunil has received an advance of ₹ 1,00,000 by an account-payee cheque
on or before the date of agreement. Consequently, stamp duty value on the date of agreement will be taken into consideration.
Capital gain will be calculated as follows -
Full value of consideration (110% of actual consideration of ₹ 90,00,000 is ₹ 99,00,000. Stamp duty 90,00,000
value is ₹ 96,00,000. As stamp duty value does not exceed 110% of actual consideration, stamp duty
value is not considered).
Less: Indexed cost of acquisition (₹ 4,00,000 * 348/148) 9,40,541
Long term capital gain 80,59,459
(ii) When Sunil has received an advance after the date of agreement : Sunil has received an advance of ₹ 1,00,000 after the
date of agreement. Consequently, stamp duty value on the date of registration will be taken into consideration. Capital gain
will be calculated as follows -
Full value of consideration (110% of actual consideration of ₹ 90,00,000 is ₹ 99,00,000. Stamp duty 1,00,00,000
value is ₹ 1,00,00,000. As stamp duty value exceed 110% of actual consideration, stamp duty value is
taken as full value of consideration).
Less: Indexed cost of acquisition (₹ 4,00,000 * 348/148) 9,40,541
Q2. Mr. Aman is a proprietor of Aman Enterprises since 17.05.2007. He decided to transfer his shop by way of slump sale for a
total consideration of ₹ 70 lakhs on 01.04.2023. The fair market value of the assets on 01.04.2023 is ₹ 80 lakhs. The
professional fees and brokerage fees paid for this sale are ₹ 4,00,000. The balance sheet as on 31.3.2023 is as under:
Liabilities Amount (₹) Assets Amount (₹)
Paid Up Share Capital 30,00,000 Fixed Assets 25,00,000

Bank Loan 12,00,000 Debtors 14,00,000
Trade Creditors 8,00,000 Other Assets 16,00,000
Unsecured Loan 5,00,000
Total 55,00,000 Total 55,00,000
Other Information:
1. No individual value of any asset is considered in the transfer deed.
2. Other assets include trademarks valuing ₹ 1,00,000 as on 01-04-2023 on which no depreciation has been provided.
3. Unsecured loan includes ₹ 50,000 as advance received from his wife, which she has agreed to waive off.
4. Fixed assets includes land which was purchased at ₹ 2,00,000 in the year 2014 and was revalued at ₹ 10,00,000.

5. Other fixed assets are reflected at ₹ 15,00,000 (i.e. 25,00,000 - less value of land) which represents written down value of
those assets as per books. The written down value of these assets as per Income Tax Act is ₹ 12,00,000.
Compute the capital gain for A.Y. 2024-25.
CII for F.Y. 2007-08 : 129, F.Y. 2023-24 : 348
Computation of capital gains on slump sale of shop (amount in ₹) :

Full value of consideration [Higher of FMV of capital assets on 01.04.2023 or FMV of monetary 80,00,000
consideration received]
Less: Expenses on transfer [professional fees and brokerage] 4,00,000
Net sale consideration 76,00,000

Less: Net worth (W.N 1) 19,25,000
Long-term capital gain [Since shop is held for more than 36 months immediately preceding the date 56,75,000
of transfer] [W.N 2]
Working Note:
(1) Computation of net worth of shop (amount in Rs) :

Fixed Assets
Land (excluding revaluation) 2,00,000
Other fixed assets [WDV as per Income Tax Act] 12,00,000 14,00,000
Other Assets
Total Value 16,00,000
Less: Depreciation on ₹ 1,00,000 @ 25%, being intangible asset 25,000 15,75,000
Debtors 14,00,000 14,00,000
Total assets 43,75,000

Less: Bank loan 12,00,000
Trade creditors 8,00,000
Unsecured loan ₹ 5,00,000 less ₹ 50,000, being the amount waived off by 4,50,000 24,50,000
his wife
Net worth 19,25,000
(2) Indexation benefit is not available is not available in case of slump sale.
Q3. Raghav purchased 1000 listed equity shares of XYZ Ltd. at ₹ 30 per share from a broker on 3rd June, 1990. He paid ₹ 2,000 as
brokerage. On 10th March, 1999, he was given bonus shares by the company on the basis of one share for every two shares
held. On 31.01.2015, he again got bonus shares on the basis of one share for every five shares held. The Fair Market value of
the shares as on April, 2001 is ₹ 60.
On 31.01.2023, he was given a right to acquire 1,000 right shares @ ₹ 90 per share. He acquired 50% of the right shares
offered and sold the balance 50% of the rights entitlement for a sum of ₹ 65,000 on 10th April, 2023. The right shares were
allotted to him on 30th April, 2023.
All the shares held by him were sold on 25th September 2023 @ ₹ 350 per share through a recognised stock exchange.
The FMV of the shares on 31.01.2018 is ₹ 120 per share.
Compute the capital gain in the hands of Mr. Raghav if

(a) XYZ Ltd. is unlisted co. and securities transaction tax was not applicable at the time of sale.
(b) XYZ Ltd. is listed co. and shares are sold at recognised stock exchange and securities transaction tax was paid at the
time of purchase and sale.
CII for F.Y. 2023-24 : 348
(a) Computation of capital gains (unlisted shares) (amount in Rs) -
Particulars Original 1st Bonus IInd Bonus Right Right shares

shares shares shares entitlement
No. of shares 1,000 500 300 500 500

Full value of consideration (@ Rs 350 3,50,000 1,75,000 1,05,000 65,000 1,75,000

per share)
Less: Cost of acquisition 2,08,800 1,04,400 NIL NIL 45,000
[W.N 1] [W.N 2]
Long term capital gains/ Short term 1,41,200 70,600 1,05,000 65,000 1,30,000
capital gains [W.N 5]
(b) Computation of capital gains (Listed shares) (amount in Rs) -
Particulars Original 1st Bonus IInd Bonus Right Right shares

shares shares shares entitlement
No. of shares 1,000 500 300 500 500

Full value of consideration (@ Rs 350 3,50,000 1,75,000 1,05,000 65,000 1,75,000
per share)
Less: Cost of acquisition [W.N 6] 1,20,000 60,000 NIL NIL 45,000
[W.N 3] [W.N 4]
Long term capital gains/ Short term
capital gains 2,30,000 1,15,000 1,05,000 65,000 1,30,000
Working Notes:
(1) If shares are purchased before 01.04.2001, FMV as on 01.04.2001 will be taken as cost of acquisition.
Therefore, Indexed Cost of acquisition of original shares = 60 * 1000 * 348/100 = 2,08,800
(2) Cost of Acquisition of Bonus shares shall be Nil. But in case of bonus shares allotted before 01.04.2001, assessee may
opt for fair market value as on 01.04.2001 as the cost of acquisition of such bonus shares.
Therefore, Indexed Cost of acquisition of 1st bonus shares = 60 * 500 * 348/100 = 1,04,400
(3) The cost of acquisition in relation to long term capital asset being equity shares in a company on which STT is paid both
at the time of purchase and transfer acquired before 1.2.2018 shall be higher of
(i) Cost of acquisition (FMV as on 01.04.2001) : ₹ 60,000

(ii) Lower of:
(a) Fair market value as on 31.01.2018 : ₹ 1,20,000
(b) Full value of consideration : ₹ 3,50,000
(4) The cost of acquisition in relation to bonus shares allotted before 1.2.2018 on which STT is paid at the time of transfer
shall be higher of
(i) Cost of acquisition (FMV as on 01.04.2001) : ₹ 30,000

(ii) Lower of:
(c) Fair market value as on 31.01.2018 : ₹ 60,000
(d) Full value of consideration : ₹ 1,75,000
(5) Long term capital gain would arise on sale of original shares and bonus shares whereas short term capital gain would
arise on transfer of IInd bonus shares, right shares and right entitlement.
(6) The benefit of indexation is not available in case of long term capital gains arising from transfer of equity share on which
STT is paid both at the time of acquisition and transfer.
Q4. Mr. Rajat owned a residential house in Lucknow. It was acquired on 06.09.2010 for ₹ 40,00,000. He sold it for ₹ 1,60,00,000 on
07.01.2020.
Mr. Rajat utilized the sale proceeds of the above property to acquire a residential house in Panchkula for ₹ 2,00,00,000 on
20.07.2020. The said house property was sold on 31.05.2023 and he purchased another residential house in Delhi for ₹
2,50,00,000 on 02.03.2024. The property at Panchkula was sold for ₹ 3,25,00,000.
Calculate capital gains chargeable to tax for the assessment year 2020-21 and 2024-25. All workings should form part of your
answer.
Cost inflation index for various financial years are as under : 2010-11 : 167, 2019-20: 289, 2020-21 : 301, 2023-24: 348

Computation of capital gains chargeable to tax for A.Y. 2020-21
Sale of residential house in Lucknow

Full value of consideration 1,60,00,000
Less: Indexed cost of acquisition [₹ 40,00,000 x 289/167] 69,22,156
Long-term capital gain 90,77,844

Less: Exemption under section 54 (since investment in new residential house in Panchkula exceeds 90,77,844
the capital gains, entire capital gains shall be exempt from tax)
Taxable long term capital gain Nil
Computation of capital gains chargeable to tax for A.Y. 2024-25
Sale of residential house in Panchkula

Full value of consideration received on 3,25,00,000
Less: Indexed cost of acquisition (see note) 1,26,27,609
Long-term capital gain 1,98,72,391

Less: Exemption under section 54 (on purchase of new house at Delhi) 1,98,72,391
Taxable long term capital gain Nil
Note:
The house purchased in Panchkula has been transferred before 3 years from date of its acquisition, hence cost of the asset
will be reduced by capital gains exempted earlier for computing capital gains.
Cost of acquisition = 2,00,00,000 - 90,77,844 = ₹ 1,09,22,156
Indexed Cost of acquisition = 1,09,22,156 * 348/301 = ₹ 1,26,27,609
Q5. Mr. Kunal purchased a house property in 2008-09 for ₹ 10,00,000. This property was compulsorily acquired by the Government
on 26.07.2014 for ₹ 25,00,000. The assessee filed an appeal against the consideration so determined. The Court by an interim
order enhanced the compensation amount by ₹ 5,00,000 which was paid to the assessee on 20.10.2018. The court by final
order further enhanced compensation by ₹ 5,00,000 and this amount was paid to the assessee on 01.02.2024. Discuss how
will these amounts be taxable under the head “Capital Gains”.
CII for F.Y. 2008-09 : 137, 2014-15 : 240, 2018-19 : 280, 2023-24 : 348
The amount of original compensation is taxable in the previous year in which such compensation or part thereof is first
received by the assessee.
Computation of capital gains on original compensation taxable in the P.Y. 2014-15
Full value of consideration 25,00,000

Less: Indexed cost of acquisition [₹ 10,00,000 x 240/ 137] 17,51,825

The amount of compensation received in pursuance of an interim order of a court, it will be chargeable to tax under head
“Capital Gains” in the previous year in which the final order of such court is made. Therefore, compensation received in
2018-19 through interim order will also be taxable in A.Y. 2024-25.
Computation of capital gains on enhanced compensation taxable in the P.Y. 2023-24

Full value of consideration received on 10,00,000

Less: Indexed cost of acquisition Nil
Q6. Mrs. Kavita, an individual, aged 68 years, mortgaged her Residential Property, purchased for ₹ 3 lakhs on 01-10-2002, with a
bank, under a notified reverse mortgage scheme and was sanctioned a loan of ₹ 20 lakhs. As per the said scheme she was
receiving the loan amount in equal monthly installments of ₹ 30,000 per month from the bank. Mrs. Kavita was not able to
repay the loan on maturity and in lieu of settlement of the loan surrenders the residential property to the bank, Bank sold the
property for ₹ 25 lakhs on 22-07-2023. She had no other income during the year. Discuss the Tax consequences and compute
tax for the Assessment Year 2024-25. Assume that Mrs. Kavita exercises the option of shifting out of the default tax regime.
Cost Inflation Index: 2002-03 = 105 and 2023-24 = 348
The tax consequences in hands of Mrs. Kavita are as under:
1) At the time of mortgage

● As per section 47(xvi), any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government will not be regarded as a transfer. Therefore, capital gains tax liability is not
attracted.
● Section 10(43) provides that the amount received by a senior citizen as a loan, either in lump sum or in installments,
in a transaction of reverse mortgage would be exempt from income-tax. Therefore, the amount received by Mrs.
Kavita in a transaction of reverse mortgage of her residential building is exempt under section 10(43).
2) At the time of alienation of house property: When the bank alienates the property for the purpose of recovery of the loan
on non-payment of the loan, then the same will constitute 'transfer' and the capital gains so computed will be taxed
accordingly.
Thus, Capital Gains in hands of Mrs. Kavita is as under:

Less: Indexed cost of acquisition (Rs 3,00,000 x 348/105) 9,94286
Long-term capital gains/ Gross Total Income 15,05,714

Less: Deduction under Chapter VI-A -
Total Income (rounded off) 15,05,700
Tax on long-term capital gains 2,61,710
Less: Tax rebate u/ s 87A (Nil, since her Total Income exceeds Rs 5,00,000) -
Balance tax 2,61,710
Add: HEC @ 4% 10,468
Tax payable (rounded off) 2,72,178
Q7. Mr. Nayan owns a residential house, which is self occupied, and also a plot of land (he owns no other house). He sells the
house on October 2, 2023 and the plot on November 10, 2023 for ₹ 14,00,000 and ₹ 12,00,000 respectively. The house was
purchased on June, 2001 for ₹ 4,00,000 and the plot on March 31, 2002 for ₹ 3,00,000. Mr. Nayan purchased a new residential
house on April 22, 2024 for ₹ 6,00,000 and claims exemption in respect of such house. On 1-1-2025, he transfers the said
residential house for ₹ 8,00,000 and purchases a new house on 31-3-2026 for ₹ 10,00,000. Compute the capital gains for
relevant years.
Cost inflation index : FY 2001-02 : 100, FY 2023-234 : 348
Mr. Nayan can claim exemption under section 54 in respect of capital gains on sale of residential house and exemption under
section 54F in respect of capital gains on sale of plot. Since the exemption under section 54 is available on investment of
capital gains, therefore, first of all, exemption under section 54 will be claimed. Thereafter, exemption under section 54F, which
is available on investment of net consideration, shall be claimed. The exemption under section 54F will be available only in
respect of balance cost of new house i.e. Original cost of new house - Exemption u/s 54.
Computation of capital gains for assessment year 2024-25 (amounts in ₹)

Particulars Residential house Plot
Full value of consideration 14,00,000 12,00,000

Less: Indexed cost [ (4,00,000 * 348/100) ; (3,00,000 * 348/ 100) ] 13,92,000 10,44,000
Long term capital gains 8,000 1,56,000

Less: Exemption u/s 54 8,000
Exemption u/s 54F (WN) 76,960
Taxable long term capital gains Nil 79,040
Working Note: Exemption under section 54F:

Capital gains * (cost of new house - exemption u/s 54) / Net consideration of plot
= ₹ 1,56,000 * (₹ 6,00,000 - ₹ 8,000) / ₹ 12,00,000 = ₹ 76,960
Computation of capital gains on sale of residential house for assessment year 2025-26 (amounts in ₹) -
Sale price of the residential house (acquired on 22-04-2024) 8,00,000
Less: Cost of acquisition (Rs 6,00,000 - Rs 8,000 i.e. exemption claimed u/s 54) 5,92,000
Short term capital gains for assessment year 2025-26 2,08,000

Long term capital gains (Exemption claimed u/s 54F shall be chargeable as long term capital gains
of the year in which the house is transferred i.e. assessment year 2025-26) 76,960
Note: No exemption u/s 54 or 54F will be available in respect of second new house acquired on 31-03-2026 since the house
transferred on 01-01-2025 is a short term capital asset.
Q8. Mr. Arjun purchased a house property on 05th November, 1997 for ₹ 9,00,000. He entered into an agreement with Mr. Ujjawal
for sale of house on 20.04.2004 & received an advance of ₹ 30,000. However, since Mr. Ujjawal did not remit the balance
amount, Mr. Arjun forfeited the advance. Later on, he gifted the house to his friend Mr. Sunny on 18.07.2008.
Following renovations were carried out by Mr. Arjun & Mr. Sunny to the House Property:
By Mr. Arjun during FY 1997-1998 : ₹ 20,000

By Mr. Arjun during FY 2005-06 : ₹ 50,000
By Mr. Sunny during FY 2009-10 : ₹ 1,60,000
The Fair Market Value of the property as on 01.04.2001 is ₹ 10,00,000.

Mr. Sunny entered into an agreement with Mr. Veer for sale of the House on 1st June 2014 & received an advance of Rs.
1,00,000. The said amount was forfeited by Mr. Sunny, since Mr. Veer could not fulfil the terms of the agreement. Finally, the
House was sold by Mr. Sunny to Mr. Mayank on 25th August, 2023 for ₹ 45 lakhs. Compute taxable Capital Gains in the hands
of Mr. Sunny for AY 2024-25.
CII for FY 2004-05 : 113, 2005-06 : 117, 2008-09: 137, 2009-10 : 148, 2014-15 : 240, 2023-24 : 348
Computation of Capital Gains in the hands of Mr. Sunny for A.Y 2024-25

Less : Indexed cost of acquisition [10,00,000 * 348/ 100] [W.N 1] 34,80,000
Less : Indexed cost of improvement by Mr. Arjun [50,000 * 348/ 117] [W.N 2] 1,48,718
Less : Indexed cost of improvement by Mr. Sunny [1,60,000 * 348/ 148] 3,76,216
Long Term Capital Gains [W.N 3] 4,95,066
Working Notes:
(1) Since advance was received and forfeited by Mr. Sunny on or after 01.04.2014, advance forfeited will not be deducted
from cost of acquisition. It will be taxable under the head “Other Sources” in the year of forfeiture of advance.
Forfeiture made by Mr. Arjun (previous owner) shall be ignored.
(2) Cost of improvement before 01.04.2001 shall be ignored.
(3) Mr. Sunny acquired the property from Mr. Arjun by way of gift [one of the modes specified in Section 49(1)], hence, period
of holding = 05.11.1997 to 25.08.2023, i.e more than 2 years. Therefore, it will be long term capital gain.
Q9. Mr. Mohit bought a vacant land for ₹ 70 lakhs in March 2010. Registration and other expenses were 10% of the cost of land.
He constructed a residential building on the said land for ₹ 90 lakhs during the financial year 2011-12.

He entered into an agreement for sale of the above said residential house with Mr. Udit (not a relative) on 9th April 2023 and
received ₹ 10 lakhs as advance in cash on that date. The stamp duty value on that date was ₹ 750 lakhs. The actual sale
consideration was, however, fixed at ₹ 700 lakhs.
The sale deed was executed and registered on 10-6-2023 for the agreed consideration. However, the State stamp valuation
authority had revised the values, hence, the value of property for stamp duty purposes was ₹ 780 lakhs. Mr. Mohit paid 1% as
brokerage on sale consideration received.
Subsequent to sale, Mr. Mohit made following investments:
(i) Acquired a residential house in Mumbai for ₹ 100 lakhs.
(ii) Acquired a residential house in London for ₹ 150 lakhs.
(iii) Subscribed to NHAI bond: ₹ 40 lakhs on 29-8-2023 and ₹ 60 lakhs on 12-10-2023.
Compute the income chargeable under the head “Capital Gains” for A.Y. 2024-25. The choice of exemption must be in the
manner most beneficial to the assessee.
CII for FY 2009-10 : 148, 2011-12 : 184, 2023-24 : 348
Computation of Capital Gains for the A.Y 2024-25

Particulars Amount (₹ in
lakhs)
Capital Gains on sale of residential building

Actual sale consideration ₹ 700 lakhs
Value adopted by Stamp Valuation Authority ₹ 780 lakhs [W.N 1]
Gross Sale consideration [W.N 2] 780
Less: Brokerage@1% of sale consideration (1% of ₹ 700 lakhs) 7
Net Sale consideration 773

Less: Indexed cost of acquisition
- Cost of vacant land, ₹ 70 lakhs, plus registration and other expenses i.e., ₹ 7 lakhs, being (181.05)
10% of cost of land [₹ 77 lakhs × 348/148]
- Construction cost of residential building (₹ 90 lakhs x 348/184) (170.22)
Long-term capital gains before exemption [W.N 3] 421.73

Less: Exemption under section 54 [W.N 4] (100)
Less: Exemption under section 54EC [W.N 5] (50)
Long term capital gains chargeable to tax 271.73
Working Notes:
(1) In a case where the date of agreement is different from the date of registration, stamp duty value on the date of
agreement can be considered provided the whole or part of the consideration is paid by way of account payee
cheque/bank draft or by way of ECS through bank account on or before the date of agreement. In this case, since an
advance of ₹ 10 lakh is paid by cash, stamp duty value of ₹ 750 lakhs on the date of agreement cannot be adopted as
the full value of consideration. Stamp duty value on the date of registration would be the full value of consideration.
(2) In case the actual sale consideration declared by the assessee is less than the value adopted by the Stamp Valuation
Authority for the purpose of charging stamp duty, then, the value adopted by the Stamp Valuation Authority shall be
taken to be the full value of consideration as per section 50C.
(3) Since, the residential house property was held by Mr. Mohit for more than 24 months immediately preceding the date of
its transfer, the resultant gain is a long-term capital gain.
(4) The 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 one residential house property in India one year before or two years after the
date of transfer of original asset. Therefore, in the present case, the exemption would be available only in respect of the
residential house acquired at Mumbai and not in respect of the residential house in London.
(5) Amount deposited in capital gains bonds of NHAI within six months from the date of transfer (i.e., on or before
09.12.2023) would qualify for exemption, to the maximum extent of ₹ 50 lakhs. Therefore, in the present case, exemption
can be availed only to the extent of ₹ 50 lakh out of ₹ 100 lakhs, even if the both the investments are made on or before
09.12.2023 (i.e., within six months from the date of transfer).
Q10. Mr Archit provides you the following details with regard to sale of certain securities by him during FY 2023-24.

(i) Sold 10,000 shares of X Ltd. on 05-04-2023 @ ₹ 550 per share
X Ltd. is a listed company. These shares were acquired by Mr. Archit on 02-04-2017 @ ₹ 100 per share. STT was paid both at
the time of acquisition as well as at the time of transfer of such shares which was affected through a recognized stock
exchange. On 31-01-2018, the shares of X Ltd. were traded on a recognized stock exchange as under :
Highest price - ₹ 300 per share

Average price - ₹ 290 per share
Lowest price - ₹ 280 per share
(ii) Sold 1,000 units of Y Mutual Fund on 15-05-2023 @ ₹ 50 per unit
Y Mutual Fund is an equity oriented fund. These units were acquired by Mr. Archit on 15-04-2017 @ ₹ 10 per unit. STT was
paid only at the time of transfer of such units. On 31- 01-2018, the Net Asset Value of the units of Y Mutual Fund was ₹ 55 per
unit. The units of Y Mutual Fund were not listed on the stock exchange as on 31.1.2018.
(iii) Sold 100 shares of Z Ltd. on 25-04-2023 @ ₹ 320 per share
Z Ltd. is an unlisted company. These shares were issued by the company as bonus shares on 30-09-1997. The Fair Market
Value of these shares as on 01-04-2001 was ₹ 80 per share
Calculate the amount chargeable to tax under the head and also calculate tax on such gains for A.Y. 2024-25 assuming that
the other incomes of Mr. Archit exceeds the maximum amount not chargeable to tax. (Ignore surcharge and cess)
Cost Inflation Index for various financial years are as under : 2001-02 - 100, 2017-18 - 272 , 2023-24 -348
Computation of amount chargeable to tax under the head “Capital Gains” in the hands of Mr. Archit
Particulars ₹
(i) Sale of 10,000 shares of X Ltd. on 05.04.2023 @ 550 per share
Sales consideration (10,000 x ₹ 550) 55,00,000

Less: Expenses on transfer Nil
Net consideration 55,00,000

Less: Cost of acquisition (Benefit of indexation is not available) 30,00,000
Long-term capital gain under section 112A 25,00,000
(ii) Sale of 1,000 units of Y Mutual Fund on 15.05.2023 @ ₹ 50 per unit
Sale consideration (1,000 x ₹ 50) 50,000

Net consideration 50,000

Less: Cost of acquisition (Benefit of indexation is not available) 50,000
Long-term capital gain under section 112A NIL
(iii) Sale of 100 shares of Z Ltd. on 25-04-2023 @ 320 per share
Sale consideration (100 x ₹ 320) 32,000

Net consideration 32,000

Less: Indexed Cost of acquisition [100 x ₹ 80 (being FMV on 1.4.2001) x 27,840
348/100]
Long-term capital gain under section 112 4,160
Computation of tax on such capital gains for A.Y. 2024-25

Particulars ₹
Tax under section 112A @ 10% on long-term capital gains of Rs. 24,00,000 [LTCG of ₹ 25,00,000 (-) ₹ 2,40,000
1,00,000] arising on sale of shares of X Ltd.
Tax under section 112 @ 20% on long-term capital gains of ₹ 4,160 arising on sale of unlisted shares of 832
Z Ltd.
Total tax payable 2,40,832
Working Notes:
(1) The cost of acquisition of equity shares shall be determined as under -

Step 1 : Cost of acquisition of such equity shares (₹ 100 * 10,000) i.e ₹ 10,00,000
Step 2 : Lower of - (a) the fair market value of such asset as on 31.1.2018 (being Highest price of the shares traded on
31.1.2018) i.e ₹ 300 * 10,000 or (b) the full value of consideration received or accruing as a result of the transfer of the
capital asset i.e. ₹ 55,00,000 = ₹ 30,00,000
Step 3: Cost of acquisition shall be deemed to the amount computed at Step 1 or Step 2 whichever is higher i.e. ₹
30,00,000.
(2) The cost of acquisition of mutual fund units shall be determined as under -
Step 1 : Cost of acquisition of such units (₹ 10 * 1,000) i.e ₹ 10,000
Step 2 : Lower of - (a) the fair market value of such asset as on 31.1.2018 (₹ 55 per unit) i.e. ₹ 55 * 1000; or (b) the full
value of consideration received or accruing as a result of the transfer of the capital asset i.e. ₹ 50,000 = Rs 50,000
Step 3: Cost of acquisition shall be deemed to the amount computed at Step 1 or Step 2 whichever is higher i.e. ₹ 50,000.

Q1. Mr. A (aged 45 years) sold an agricultural land for ₹ 52 lakhs on 04.10.2023 acquired at a cost of ₹ 49.25 lakhs on 13.09.2022
situated at 7 kms from the jurisdiction of municipality having population of 4,00,000 and also sold another agricultural land for
₹ 53 lakhs on 12.12.2023 acquired at a cost of ₹ 46 lakhs on 15.02.2022 situated at 1.5 kms from the jurisdiction of
municipality having population of 12,000. What would be the amount of capital gain chargeable to tax in the hands of Mr. A for
the assessment year 2024-25? Cost inflation index for F.Y. 2021-22: 317; 2022-23: 331, FY 2023-24: 348
(a) Short-term capital gain of ₹ 9.75 lakhs

(b) Short-term capital gain of ₹ 7 lakhs
(c) Long-term capital gain of ₹ 2,54,325
(d) Long-term capital gain of ₹ 2,67,531
Correct answer : (b) Short-term capital gain of ₹ 7 lakhs

Explanation:
Agricultural land acquired on 13.09.2022 is a rural agricultural land and therefore not a capital asset since at aerial distance of
7 km, population should be more than 10,00,000.
Agricultural land acquired on 15.02.2022 satisfies the condition of urban agricultural land and is sold on 12.12.2023, therefore
capital gain will arise.
Capital gain = 53 lakhs - 46 lakhs = 7 lakhs
Q2. Mr. Vikas transferred 600 unlisted shares of XYZ (P) Ltd. to ABC (P) Ltd. on 15.12.2023 for ₹ 3,50,000 when the market price
was ₹ 5,15,000. The indexed cost of acquisition of shares for Mr. Vikas was computed at ₹ 4,25,000. Determine the income
chargeable to tax in the hands of Mr. Vikas and ABC (P) Ltd. in respect of the above transaction.
(a) ₹ 90,000 chargeable to tax in the hands of Mr. Vikas as long- term capital gains and nothing is taxable in the hands of
ABC Ltd.
(b) ₹ 75,000 chargeable to tax in the hands of Mr. Vikas as long- term capital gains and nothing is taxable in the hands of
ABC ltd.
(c) ₹ 90,000 chargeable to tax in the hands of Mr. Vikas as long- term capital gains and 1,65,000 is taxable under the head
“Income from other sources” in the hands of ABC (P) Ltd.
(d) ₹ 75,000 chargeable to tax in the hands of Mr. Vikas as long- term capital gains and 1,65,000 is taxable under the head
“Income from other sources” in the hands of ABC (P) Ltd.

Correct answer : (c) ₹ 90,000 chargeable to tax in the hands of Mr. Vikas as long- term capital gains and 1,65,000 is taxable
under the head “Income from other sources” in the hands of ABC (P) Ltd.
Explanation:
Since market price is higher, market price is considered as full value of consideration.
Therefore, capital gain = 5,15,000 - 4,25,000 = 90,000
Income from other sources = 5,15,000 - 3,50,000 = 1,65,000
Q3. A building was acquired on 1.4.1995 for 20,00,000 and sold for 80,00,000 on 01.06.2023. The stamp duty value on the date of
transfer was 85,00,000. The fair market value of the building on 1.4.2001 was 25,00,000. Its stamp duty value on the same
date was 22,00,000. Determine the capital gains on sale of such building for the A.Y. 2024-25? Cost Inflation Index for F.Y.
2001-02: 100; F.Y. 2023-24: 348
(a) ₹ 10,26,000
(b) ₹ 15,26,000
(c) ₹ 3,44,000
(d) ₹ 75,000

Explanation:
Full value of consideration = 80,00,000 (since stamp duty value does not exceed 110% of consideration)
(-) Indexed Cost of acquisition = 22,00,000 * 348/ 100 = 76,56,000
Q4. Neha sold her residential house for ₹ 85 lakhs on 11.08.2023. Value adopted by the Stamp Valuation Authority on the
date of registration of the Conveyance Deed i.e., 17.08.2023 was ₹ 150 lakhs. Neha disputed the valuation done by the
said authority before the Assessing Officer and filed an application before him to refer her case to the Valuation Officer.
The Valuation Officer determined the value of the house on date of registration of Conveyance Deed at ₹ 160 lakhs. In
light of these facts, compute the full value of consideration to be taken in case of Neha for the purpose of calculation of
capital gains in her hands.
(a) ₹ 85 lakhs
(b) ₹ 150 lakhs
(c) ₹ 160 lakhs
(d) ₹ 89.25 lakhs
Correct answer : (b) ₹ 150 lakhs

Explanation:
Where the value ascertained by Valuation Officer exceeds the value adopted/ assessed/ assessable by the stamp
valuation authority, the value so adopted/ assessed/ assessable by such authority shall be taken as the full value of the
consideration.
Q5. Mr. Rana is a resident of India residing in Meerut. During F.Y. 2010-11 he purchased an agricultural land situated in Bahadurpur
for ₹ 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 F.Y. 2023-24, Mr. Rana sold this
land to Mr. Jeet for ₹ 25 lacs on 29.1.2024. Mr. Rana invested ₹ 5 lakhs in bonds of NHAI on 31.7.2024. Cost inflation index for
F.Y. 2010-11 and F.Y. 2023-24 is 167 and 348 respectively. Compute the amount of capital gain taxable in hands of Mr. Rana
for A.Y. 2024-25:
(a) ₹ 2,69,461
(b) ₹ 7,69,461
(c) ₹ 10,00,000
Correct answer : (d) None of the above

Explanation:
This is a rural agricultural land and therefore not a capital asset since at aerial distance of 3 km, population should be more
than 1,00,000 but less than 10,00,000 to qualify as capital asset.

Q6. Capital gain on transfer of depreciable asset would be ______________
(a) long term capital gain, if held for more than 36 months
(b) long term capital gain, if held for more than 24 months
(c) long term capital gain, if held for more than 12 months
(d) short term capital gain, irrespective of the period of holding
Correct answer : (d) short term capital gain, irrespective of the period of holding
Explanation:
In case of depreciable assets, capital gain is always a short term capital gain, irrespective of the period of holding
Q7. In case of compulsory acquisition, the period for investment in specified assets u/s 54, 54B, 54D and 54F shall be reckoned
from ______________
(a) The date of transfer

(b) The date when the part or full compensation is received
(c) The date as and when compulsory acquisition is done
(d) The date as and when full compensation is received
Correct answer : (b) The date when the part or full compensation is received
Explanation:
In case of compulsory acquisition of the original asset, where the compensation is not received on the date of transfer, the
period available for acquiring a new asset or making investment in CGAS under sections 54, 54B, 54D, 54EC and 54F would be
considered from the date of receipt of such compensation and not from the date of the transfer.
Q8. LTCG on 15th Oct 2023 is ₹ 105 Lakhs. Assessee invested ₹ 50 Lakhs in RECL bonds on 31st March 2024 and ₹ 55 Lakhs in
NHAI bonds on 18th May 2024. Exemption eligible u/s 54EC is __________
(a) Nil
(b) ₹ 50 lakhs
(c) ₹ 55 lakhs
(d) ₹ 105 lakhs
Correct answer : (b) ₹ 50 lakhs

Explanation:
Maximum exemption allowed under section 54EC is ₹ 50 lakhs.
Q9. In case of compulsory acquisition, if enhanced compensation is received, then for purpose of computation of capital gain,
cost of acquisition and cost improvement in that case shall be taken as ___________.
(a) Always taken to be Nil

(b) Cost of acquisition or cost of improvement which was in excess of initial compensation earlier received
(c) Any amount of cost decided by the government
(d) Any amount of cost decided by the Assessee
Correct answer : (a) Always taken to be Nil

Explanation:
In case of compulsory acquisition, if enhanced compensation is received, then for purpose of computation of capital gain,
cost of acquisition and cost improvement in that case shall always taken to be Nil.

Chapter 7 - Income from Other Sources

Q1. From the following transactions relating to Mr. Jatin, determine the taxable amount in his hands for AY 2024-25. Your answer
should be supported by reasons:
(i) Received cash gifts on the occasion of his marriage on 19.11.2023 of ₹ 2,00,000. It includes a gift of ₹ 70,000 received
from non-relatives.
(ii) On 04.02.2024, being his birthday, he received a gift of ₹ 30,000 by means of cheque from his father's maternal uncle.
(iii) On 10.03.2024, he acquired a vacant site from his friend for ₹ 1,00,000. The State stamp valuation authority fixed the
value of the site at ₹ 1,55,000 for stamp duty purposes.
(iv) He bought 50 equity shares of a private company from another friend for ₹ 60,000. FMV of such shares on the date of
purchase was Rs. 1,20,000.
Computation of amount chargeable to tax in hands of Mr. Jatin for A.Y. 2024-25
S.No. Particulars Amount (₹)
(i) Cash gift of ₹ 2,00,000 received on the occasion of his marriage is not taxable, since gifts Nil
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.
(ii) Even though father’s maternal uncle does not fall within the definition of “relative” u/s 56(2)(x), Nil
gift of ₹ 30,000 received from him by cheque is not chargeable to tax since the aggregate sum of
money received by Mr. Jatin without consideration from non-relatives (other than on the
occasion of marriage) during PY 2023-24 does not exceed ₹ 50,000.
(iii) Purchase of vacant site for inadequate consideration on 10.3.2024 would attract the provisions 55,000
of section 56(2)(x). Where immovable property is received for a consideration which is less than
the Stamp Duty Value by an amount exceeding ₹ 50,000 or 10% of the consideration, then the
difference between stamp duty value & actual consideration shall be chargeable to tax as
income from other sources. Therefore, in the given case ₹ 55,000 (₹ 1,55,000 - ₹ 1,00,000) is
taxable in the hands of Mrs. Sonu.
(iv) Since shares are included in the definition of “property” & difference between purchase value & 60,000
FMV of shares is ₹ 60,000 (₹ 1,20,000 - ₹ 60,000) i.e. it exceeds ₹ 50,000, difference would be
taxable u/s 56(2)(x).
Amount chargeable to tax 1,15,000
Q2. Fancy Pvt Ltd. is a company in which the public are not substantially interested. Rekha is a shareholder of the company
holding 15% of the equity shares. The accumulated profits of the company as on 1.10.2023 amounted to ₹ 10,00,000. The
company lent ₹ 1,00,000 to Rekha by an account payee bank draft on 1.10.2023. The loan was not connected with the
business of the company. Rekha repaid the loan to the company by an account payee bank draft on 30.3.2024. Examine the
effect of the borrowal and repayment of the loan by Rekha on the computation of her total income for the assessment year
2024-25.
As per section 2(22)(e), any payment by a company, in which the public are not substantially interested, 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 the voting power, shall
be treated as dividend to the extent to which the company possesses accumulated profits.
In the instant case, Fancy Pvt Ltd. is a company in which the public are not substantially interested. The company has
accumulated profits of ₹ 10,00,000 on 1.10.2023. The loan given by the company to Rekha was not in the course of its
business. Rekha holds more than 10% of the equity shares in the company. Therefore, assuming that Rekha has voting power
equivalent to his shareholding, section 2(22)(e) comes into play and Rekha has to pay tax on ₹ 1,00,000, representing the
amount lent by the company to Rekha.
Under section 2(22)(e), the liability arises the moment the loan is borrowed by the shareholder and it is immaterial whether the
loan is repaid before the end of the accounting year or not. Therefore, the repayment of loan by Rekha to the company on
30.3.2024 will not affect the taxability of the sum of ₹ 1,00,000 as deemed dividend.
Q3. Mr. Naman sold a house plot to Mr. Pulkit for ₹ 40 lakhs on 10-06-2023. The valuation determined by the stamp valuation
authority was ₹ 52 lakhs. Discuss the tax consequences of above, in the hands of each one of them i.e. Mr. Naman and Mr.

Pulkit. Mr. Pulkit has sold this plot to Mr. Abhay on 19-03-2024 for ₹ 56 lakhs. The valuation as per stamp valuation authority
remains the same at ₹ 52 lakhs. Compute the capital gains arising on sale of the house plot by Mr. Pulkit.
Note: None of the parties i.e. Mr. Naman, Mr. Pulkit and Mr. Abhay are related to each other; the transactions are between
outsiders.
Tax implications in hands of Mr. Naman : As per Section 50C, where the value adopted or assessed or assessable by the
stamp valuation authority exceeds 110% of the consideration received, the stamp duty value shall be deemed to be the full
value of the consideration. Hence, in the given case, Sales consideration = ₹ 40,00,000, 110% of Sale consideration = ₹
44,00,000, Stamp duty value = ₹ 52,00,000. Hence, Rs 52,00,000 will be taken as Full value of consideration in hands of Mr.
Naman for computing his capital gains.
Tax implications in hands of Mr. Pulkit on purchase of immovable property : Difference between the stamp duty value of ₹
52,00,000 and the actual consideration of ₹ 40,00,000 paid is taxable under section 56(2)(x) since the difference exceeds ₹
4,00,000 being, the higher of ₹ 50,000 and 10% of consideration i.e. ₹ 4,00,000. Thus, Income from other sources taxable in
hands of Mr. Pulkit = ₹ 12,00,000 [₹ 52,00,000 - ₹ 40,00,000].
Sale of immovable property to Mr. Abhay: Capital gains will arise in hands of Mr. Pulkit on sale of immovable property to
Abhay. Since immovable property is not held for more than 24 months, the resultant capital gains shall be short term capital
gains. The stamp duty value so taken into account for computing Income from other sources shall become cost of acquisition
in hands of Pulkit as per provisions of Section 49(4).
Short term capital gains : [₹ 56,00,000 - ₹ 52,00,000] = ₹ 4,00,000
Q4. Rakul Investments (P) Ltd. was incorporated during the previous year 2023-24 having a paid up capital of ₹ 8 lakhs. In order to
increase its capital, the company further issued 80,000 shares (having face value of ₹ 100 each) during the year at par as on
01-09-2023. The FMV of such shares as on 01-09-2022 was ₹ 85.
(i) Determine the tax implications of the above transaction in the hands of the company, assuming it is the only transaction
made during the year.
(ii) Will your answer change, if shares were issued at ₹ 105 each?
(iii) What will be your answer, if shares were issued at ₹ 105 and FMV of the share was ₹ 120 as on 01-09-2023?
According to Section 56(2)(viib), where a company, not being a company in which the public are substantially interested,
receives, in any previous year, from any person, being a resident, any consideration for issue of shares that exceeds the face
value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares
shall be taxable as Income from other sources in hands of company.
(i) In this case, since Rakul Investments (P) Ltd., a closely held company issued 80,000 shares (having face value of ₹ 100
each) at par i.e. ₹ 100 each though issue price is greater than FMV, no amount would be chargeable to tax as income
from other sources.
(ii) In case shares are issued at premium of ₹ 5 per share, the difference between issue price and FMV of shares i.e. (₹ 105 -
₹ 85) * 80,000 = ₹ 16,00,000 shall be taxable as Income from other sources.
(iii) If shares are issued at ₹ 105 each and FMV of share is ₹ 120 each, no amount would be chargeable to tax even though
the shares were issued at a premium, since shares are issued at a price which is less than the fair market value but for
shareholder, the same may be taxable in his hands under section 56(2)(x), since the shares are purchased for inadequate
consideration and the difference exceeds ₹ 50,000.
Q5. Mr. Raman asks you to compute his taxable income from the following transactions which took place with his friends during
January 2024
(i) Cash gifts received by him from Mr. A and Mr. Z : ₹ 35,000 each;
(ii) Two plot of lands gifted to him by Mr. B and Mr. C whose stamp values are ₹ 3,50,000 and ₹ 50,000 respectively ;
(iii) He purchased a residential house at ₹ 6,00,000 from Mr. D, which was not registered, but the prevalent stamp value of
which was ₹ 7,50,000
(iv) A sculpture and jewellery worth ₹ 25,000 and ₹ 35,000 respectively were gifted by Mr. E and Mr. F
(v) A silver coin purchased by him at ₹ 10 lakhs from Mr. G, when prevalent market value is ₹ 10.5 lakhs and shares
purchased by him at ₹ 3 lakhs from Mr. H, when fair market value thereof was ₹ 3.3 lakhs
(vi) A diamond ring purchased at ₹ 55 lakhs from M/s Pearl Jewels (a jewellery shop of his close friend) when the fair
market value was ₹ 60 lakhs for the purpose of Raman Gem and Jewellery Mart (a jewellery shop owned by Mr. Raman)
Mr. Raman has received cash and various items of property, which are covered by Section 56(2)(x). Hence, the taxability of
these amounts in view of said section is as follows:
Particulars Note no Amount (₹)

Cash gifts received from Mr. A and Mr. Z 1 70,000

Gift of plot of land from Mr. B (fully taxable, as stamp value exceeds Rs 50,000) 3,50,000
Gift of plot of land from Mr. C (not taxable, as stamp value doesn't exceed Rs 50,000) Nil
Residential house acquired for inadequate consideration 2 1,50,000
Sculpture and jewellery gifted by Mr. E and Mr. F 3 60,000
Silver coin and shares purchased by him from Mr. G and Mr. H 4 80,000
Diamond ring purchased from M/s Pearl Jewels 5 Nil
Working notes:
(1) Aggregate of cash gifts received by Mr. Raman = ₹ 35,000 x 2 = ₹ 70,000 i.e. exceeding ₹ 50,000, hence fully taxable.
(2) Difference between the stamp duty value of ₹ 7,50,000 and the actual consideration of ₹ 6,00,000 paid is taxable under
section 56(2)(x) since the difference exceeds ₹ 50,000 being, the higher of ₹ 50,000 and 10% of consideration i.e. ₹
60,000
(3) Aggregate value of gift in form of movable properties = ₹ 25,000 + ₹ 35,000 = ₹ 60,000 i.e. exceeding ₹ 50,000, hence
fully taxable
(4) Aggregate value of inadequate consideration of movable properties = (₹ 10.5 lakhs - ₹ 10 lakhs) + (₹ 3.3 lakhs - ₹ 3 lakhs)
= ₹ 80,000 i.e. exceeding ₹ 50,000, hence the whole of the difference will be taxable.
(5) Purchase of diamond ring for business purposes at less than fair market value cannot be treated as gift in hands of Mr.
Raman since the said ring is held as stock-in-trade by Mr. Raman, hence cannot be regarded as property in the hands of
Mr. Raman, as the same is specifically excluded from the definition of capital asset. Accordingly, inadequacy of
consideration is not taxable.
Q6. The land owned by Ganesh was acquired by NHAI in the year 2013 and since then the litigation was going on for
enhancement of compensation. The issue was resolved on 11.09.2023 and the court ordered finally to make payment to
Ganesh of the enhanced compensation and the following amounts for interest on such enhanced compensation:
Financial year Amount (₹)
2020-21 1,25,000
2021-22 2,00,000
2022-23 2,65,000
2023-24 3,00,000
Explain the provisions of the Act and also work out the amount of interest and the assessment year in which the same shall
be taxed.
Section 145B provides that the interest received by an assessee on compensation or on enhanced compensation shall be
deemed to be the income for the year in which it is received, irrespective of the method of accounting followed by the
assessee.
Clause (viii) inserted in section 56(2) provides that income by way of interest received on compensation or on enhanced
compensation shall be assessed as “Income from other sources” in the year in which it is received. Clause (iv) inserted in
section 57 allows a deduction of 50% of such income. It is further clarified that no other deduction would be allowable under
any other clause of section 57 in respect of such income.
Therefore, the entire interest income of Rs 8,90,000 received by Ganesh for the different years would be taxable under the
head “Income from other sources” in the year of receipt i.e., P.Y.2023 -24 (A.Y. 2024-25):-
Particulars ₹
Interest on enhanced compensation taxable under section 56(2)(viii) 8,90,000

Less: Deduction under section 57 @ 50% 4,45,000
Interest chargeable under the head “Income from other sources” 4,45,000
Q7. Mr. Anmol submits the following particulars of his income for the P.Y. 2023-24:
(i) Interest on Bank Deposits 5,000

(ii) Winnings from Lotteries (Net) 35,000
(iii) Interest on debentures listed in stock exchange (net of taxes) 6,300
(iv) Interest on Post Office Saving Bank Account 3,000
(v) Winning from horse race (Gross) 6,000
(vi) Family Pension 30,000
(vii) Lectures in Seminars 10,000
Compute income taxable under the head “Other Sources”.
Compute income taxable under the head “Other Sources”
(i) Interest on Bank Deposits 5,000
(ii) Winnings from Lotteries [W.N 1] 50,000
(iii) Interest on debentures listed in stock exchange [W.N 2] 7,000
(iv) Interest on Post Office Saving Bank Account [W.N 3] Nil
(v) Winning from horse race (Gross) 6,000
(vi) Family Pension [W.N 4] 20,000
(vii) Lectures in Seminars 10,000
Income from Other Sources 98,000
Working Notes:
(1) Winnings from lotteries are taxable @ 30%. Therefore, gross winnings from lotteries = 35,000 * 100/70 = 50,000
(2) Interest on debenture is taxable @ 10%. Therefore, gross interest on debenture = 6,300 * 100/90 = 7,000
(3) Interest on Post Office Saving Bank Account is exempt upto ₹ 3,500.
(4) Lower of 33 1/3 % or ₹ 15,000 is allowed as deduction from family pension.
Q8. From the following particulars provided by Mr. Vinod for the P.Y. 2023-24, calculate the income taxable under the head “Other
Sources”.
Particulars Dividend from Interest on units of

Domestic Companies different mutual funds
Income received ₹ 55,000 ₹ 70,000
Expenditure incurred on collection of such income ₹ 4,000 ₹ 6,000
Interest on capital borrowed for investment in shares/ mutual funds ₹ 15,000 ₹ 20,000
In the case of dividend or income in respect of units of a mutual fund or income in respect of units of a specified company,
interest expenditure to earn such income is allowed as deduction subject to a maximum of 20% of such income included in
the total income, without deduction under this section.
Computation of income taxable under the head “Other Sources”

Total income received [55,000 + 70,000] 1,25,000
Expenditure incurred on collection of such income [not allowed as deduction] Nil
Interest expenditure [20% of 1,25,000] (25,000)
Income from Other Sources 1,00,000
Q9. In September 2023, Mr. Harshit employed as Marketing Manager in a Pharma company, received a Maruti car as gift from a
distributor of the company. The value of the gifted car is estimated at ₹ 4,50,000. Is the value of car taxable as income? If so,
under what head it is taxable?
Mr. Harshit, an employee of a Pharma company, has received a car as a gift from a distributor of the company. Since there is
no employer-employee relationship in this case between the distributor and Mr. Harshit, the value of gift is not a perquisite
chargeable to tax under the head “Salaries”.
Section 56(2)(x), brings within its scope the value of any property received by any person. For this purpose, “property” means
immovable property being land or building or both, shares and securities, jewellery, archaeological collections, drawings,
paintings, sculptures, any work of art or bullion.
Therefore, for the purpose of attracting the provisions of section 56(2)(x) for chargeability under the head “Income from Other
Sources”, an individual should be in receipt of property as defined therein. Since a car is not included in the definition of
“property”, the provisions of section 56(2)(x) would not be attracted in the hands of Mr. Harshit.
Q10. Discuss the taxability or otherwise of the following transactions:
(i) Mr. Akash purchased 10 acres of agricultural land from Mr. Kartik at the rate of ₹ 2 lakh per acre on 10-05- 2023. The
guideline value of the land on the date of the transaction was ₹ 3 lakhs per acre. However, he had entered into an
agreement for purchase of the land on 10-03-2023 when the guideline value was ₹ 2.50 lakhs per acre. He had paid a
token advance of ₹ 1 lakh by account payee cheque.
(ii) Mr. Rohit received a cash gift of ₹ 4.75 lakhs from Mr. Suraj on the occasion of his wedding anniversary which was
celebrated like marriage as per tradition, and ₹ 25,000 from Mrs. Nidhi. Both Mr. Suraj and Mrs. Nidhi are his distant
relatives.
(iii) Mr. Deepak contributed ₹ 2 lakhs to a Trust created for the purpose of marriage of his friend's daughter.
Note: (Guideline value means Assessable stamp duty value)
(i) Agricultural land is not a capital asset and hence, there would be no tax implications in the hands of the seller, Mr. Kartik.
In the hands of the buyer, Mr. Akash, the provisions of section 56(2)(x) would be attracted where any property is received
without consideration or for inadequate consideration. “Property” means a capital asset, namely, immovable property
being land or building or both. In this case, since agricultural land is not a capital asset, it would not fall within the
definition of property to attract the provisions of section 56(2)(x). Therefore, the provisions of section 56(2)(x) would not
be attracted in the hands of Mr. Akash.
Note - If it is assumed that the agricultural land is an urban agricultural land, the tax implications would be as follows:
Mr. Kartik, the seller, can consider the stamp duty value of ₹ 2.50 lakhs per acre on 10.3.2023, being the date of
agreement, as the full value of consideration as per section 50C for computation of capital gains (instead of the stamp
duty value of ₹ 3 lakhs per acre on 10.5.2022, being the date of sale), since he has received an advance of ₹ 1 lakh by
account payee cheque at the time of entering into an agreement. In the hands of the buyer, Mr. Akash, ₹ 5 lakhs would be
taxable under section 56(2) as “Income from other sources”, by considering the difference between the stamp duty value
of ₹ 2.50 lakhs per acre on 10.3.2023 and the actual purchase price of ₹ 2 lakh per acre [(₹ 2.50 lakhs – ₹ 2 lakhs) x 10
acres].
(ii) Since the question mentions that Mr. Suraj and Mrs. Nidhi are Mr. Rohit’s distant relatives, it is assumed that they do not
fall within the definition of “relative” under section 56(2). Since cash gift exceeding ₹ 50,000 in aggregate from
non-relatives, B & C, was received, not on the occasion of marriage but on the occasion of Mr. Rohit’s wedding
anniversary, the said sum of ₹ 5 lakhs [i.e., ₹ 4.75 lakhs from Mr. Suraj and ₹ 25,000 from Mrs. Nidhi] is taxable under
section 56(2)(x) as “Income from Other Sources” in the hands of Mr. Rohit.
(iii) Section 56(2)(x) excludes from its scope, any sum of money received from an individual by a trust created or established
solely for the benefit of a relative of the individual. In this case, this exclusion would not apply, since ₹ 2 lakhs was
received from Mr. Dileep by a trust created for the benefit of his friend’s daughter and not his relative. Thus, ₹ 2 lakhs
would be chargeable to tax in the hands of the trust.

Q11. Discuss the tax implications under section 56(2) in respect of each of the following transactions:
(i) Mr. Tej received a painting by M. F. Hussain worth ₹ 5 lakh from his nephew on his 10th wedding anniversary
(ii) Verma's son transferred shares of D Ltd. to Verma HUF without any consideration. The fair market value of the
shares is ₹ 3.5 lakhs
(iii) Moon (P) Ltd. purchased 9,500 equity shares of Saturn (P) Ltd. at ₹ 86 per share. The fair market value of the share
on the date of transaction is ₹ 105.
(iv) Beta (P) Ltd. issued 28,000 equity shares of ₹ 10 each at a premium of ₹ 8. The fair market value of each share on
the date of issue is ₹ 15.
(v) Mr. Shahid's land was acquired by the Government in August 2011. He received interest of ₹ 5,40,000 on enhanced
compensation in August, 2023, out of which ₹ 1,20,000 related to the year 2020-21, ₹ 1,60,000 related to the year
2021-22, Rs 2,00,000 related to the year 2022-23 and 60,000 related to the year 2023-24.
(vi) Mr. Raj decided to sell capital asset to Mr. Manoj and received an advance of ₹ 2,00,000 on 1st October,2023. Mr.
Manoj could not pay the balance sum and advance money was forfeited by Mr. Raj on 15th January, 2024.
Tax implications under section 56(2):
(i) Since paintings are included in the definition of "property", therefore, when paintings are received without consideration,
the same is taxable under section 56(2)(x), as the aggregate fair market value of paintings exceeds ₹50,000. Therefore, ₹
5,00,000, being the value of painting gifted by his nephew, would be taxable under section 56(2)(x) in the hands of Mr.
Tej, since "nephew" is not included in the definition of "relative" thereunder.
(ii) Any property received without consideration by a HUF from its relative is not taxable under section 56(2)(x). Since
Verma's son is a member of Verma HUF, he is a "relative" of the HUF. Therefore, if Verma HUF receives any Property
(shares, in this case) from its member, i.e., Verma's son, without consideration, then, the fair market value of such shares
will not be chargeable to tax in the hands of the HUF, since gift received from a "relative" is excluded from the scope of
section 56(2)(x).
(iii) The difference between the aggregate fair market value of shares of a closely held company and the consideration paid
for purchase of such shares is deemed as income in the hands of the purchasing company u/s 56(2)(x), if the difference
exceeds ₹ 50,000
Accordingly, in this case, the difference of ₹ 1,80,500 [i.e., (₹ 105 - ₹ 86) x ₹ 9,500] is taxable u/ s 56(2)(x) in the hands of
Moon (P) Ltd.
(iv) The provisions of Section 56(2)(viib) are attracted in this case since the shares of a closely held company are issued at a
premium (i.e., the issue price of Rs 18 per share exceeds the face value of Rs 10 per share) and issue price exceeds the
fair market value of such shares.
The consideration received by the company in excess of the fair market value of the shares would be taxable under
section 56(2) (viib).
Therefore, ₹ 84,000 [i.e., (₹ 18 - ₹ 15) x 28,000 shares] shall be the income chargeable under section 56(2)(viib) in the
hands of Beta (P) Ltd.
(v) As per section 145B(1), interest received on enhanced compensation shall be deemed to be the income of the previous
year in which it is received, irrespective of the method of accounting followed by the assessee. Therefore in this case,
interest on enhanced compensation received by Mr. Shahid in August, 2023 shall be deemed to be be income of P.Y.
2023-24, i.e., the year of receipt, irrespective of the method of accounting followed by him. Such interest is taxable under
section 56(2) (viii).
(₹ 1,20,000 + ₹ 1,60,000 + ₹ 2,00,000 + ₹ 60,000) = ₹ 5,40,000

Less: Deduction under section 57(iv) @ 50% of ₹ 5,40,000 = ₹ 2,70,000
(vi) Any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset if
such sum is forfeited and the negotiations do not result in transfer of such capital asset. Hence, amount of ₹ 2,00,000
received by Mr. Raj will be taxable as income from other sources.

Q1. Mr. Nitin has received a sum of ₹ 75,000 on 24.10.2023 from his friend on the occasion of his marriage anniversary. What
would be the taxability of the said sum in the hands of Mr. Nitin?
(a) Entire ₹ 75,000 is chargeable to tax.

(b) Entire ₹ 75,000 is exempt from tax

(c) Only ₹ 25,000 is chargeable to tax

(d) Only 50% i.e., ₹ 37,500 is chargeable to tax
Correct answer : (a) Entire ₹ 75,000 is chargeable to tax

Explanation:
Sum received on occasion of marriage is fully exempt. However, since the above amount is received on marriage anniversary,
it will be fully taxable.
Q2. Mr. X receives the following gifts during the previous year 2023-24:
● On 20.09.2023, he gets a gift of ₹ 7,00,000 from his grandmother.

● On 30.12.2023, he gets by way of gift a commercial flat from the elder brother of his father-in-law (stamp duty value is ₹
25,00,000).
● On 20.01.2024, he gets a wrist watch by gift from his friend B (Fair market value: ₹ 1,00,000).
● On 10.02.2024, he gets by way of gift a plot of land in Pune from a partnership firm. The partnership firm has only two
partners- father of Mr. X and Mrs. X. The stamp duty value of the plot of land is ₹ 19,00,000.
Compute the amount chargeable to tax in the hands of X under the head “Income from other sources” for the A.Y. 2024-25.
(a) ₹ 25,00,000
(b) ₹ 44,00,000
(c) ₹ 45,00,000
(d) ₹ 52,00,000

Explanation:
● Gift from grandmother is exempt since received from a relative.
● Entire amount of ₹ 25,00,000 is taxable since stamp duty value exceeds ₹ 50,000.
● Wrist watch is not a capital asset, therefore not taxable.
● Entire amount of ₹ 19,00,000 is taxable since stamp duty value exceeds ₹ 50,000.
Q3. A member of parliament is entitled to salary, constituency allowance and daily allowance when the Parliament is in session.
Which of the following statements are correct?
(a) His entire income is taxable under the head "Salaries".

(b) Only his salary component is taxable under the head "Salaries". Constituency allowance and daily allowance are exempt.
(c) Only his salary component is taxable under the head "Income from other sources". Constituency allowance and daily
allowance are exempt.
(d) His salary component and constituency allowance is taxable under the head "Income from other sources". Daily
allowance is exempt.
Correct answer : (c) Only his salary component is taxable under the head "Income from other sources". Constituency
allowance and daily allowance are exempt.
Explanation:
Salary received by MP/MLAs will not be chargeable to tax under head “salaries” but will be charged to tax under head “Other
Sources”.
However, following incomes of Members of Parliament or State Legislature will be exempt u/s 10(17);
● Daily allowance
● Constituency allowance of MPs received under Members of Parliament (Constituency Allowance) Rules, 1986
● Constituency allowance of MLAs
Q4. Mr. X aged, 61 years, received dividend of ₹ 12,00,000 from ABC Ltd. in P.Y. 2023-24. Interest on loan taken for the
purpose of investment in ABC Ltd., is ₹ 3,00,000. Income included in the hands of Mr. X for P.Y. 2023-24 would be -
(a) ₹ 12,00,000
(b) ₹ 9,60,000
(c) ₹ 9,00,000
(d) ₹ 2,00,000


Explanation:
Maximum deduction of 20% is allowed from dividend income. Therefore, amount taxable = 12,00,000 - 20% of 12,00,000 = ₹
9,60,000.
Q5. Neeraj was working as an accountant with the company Ujala Ltd. He died on 30.04.2023 and on account of his death,
his wife Neha started receiving a pension of ₹ 10,000 per month w.e.f. 01.06.2023. Determine under which head of
income, the pension received by Neha during F.Y. 2023-24 shall be taxable. Also, compute the taxable amount in her
hands.
(a) Income from other sources: ₹ 1,00,000

(b) Income from other sources: ₹ 85,000
(c) Income from Salary: ₹ 1,00,000
(d) Income from Salary: ₹ 85,000
Correct answer : (b) Income from other sources: ₹ 85,000

Explanation:
Pension amount is taxable under the head “Other sources”.
Deduction allowed = 33 ⅓% ₹ 1,00,000 i.e. 33,333 or ₹ 15,000 whichever is less.
Therefore, amount taxable = 1,00,000 - 15,000 = ₹ 85,000
Q6. APM Ltd. is a pioneer company in textile industry. At the end of F.Y. 2023-24, 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 ₹ 25 lakhs. Mr. A is an equity shareholder of APM Ltd. holding 10% of share capital. During F.Y. 2023-24, Mr. A
received deposit certificates (without interest) valuing ₹ 5,00,000 from APM Ltd. Comment upon taxability of receipt of
deposit certificates in the hands of Mr. A.
(a) Deposit Receipts (without interest) are taxable to the extent of INR 2,50,000 under Income from Other Sources.
(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.
Correct answer : (a) Deposit Receipts (without interest) are taxable to the extent of INR 2,50,000 under Income from Other
Sources.
Explanation:
Mr. A’s share in accumulated profits = 10% ₹ 25 lakhs i.e. ₹ 2.5 lakhs.
Therefore, Deposit Receipts (without interest) are taxable to the extent of INR 2,50,000 under Income from Other Sources.
Q7. Ms. Shalini received interest on enhanced compensation of ₹ 5,00,000. Out of this interest, ₹ 1,50,000 relates to the previous
year 2021-22, ₹ 1,90,000 relates to previous year 2022-23 and ₹ 1,60,000 relates to previous year 2023-24. She paid ₹ 1 lakh
to her advocate for his efforts in the matter. What amount would be taxable in P.Y. 2023-24 and taxable, if any, under which
head of income.
(a) ₹ 2,50,000 under the head “income from other sources”

(b) ₹ 4,00,000 under the head “income from other sources”
(c) ₹ 1,60,000 under the head “income from other sources”
(d) ₹ 1,60,000 under the head “Capital gains”
Correct answer : (a) ₹ 2,50,000 under the head “income from other sources”
Explanation:
Interest received on enhanced compensation is taxable in the receipt under the head “other sources”. A deduction of 50% is
allowed from this interest.
Therefore, taxable amount = 5,00,000 - 50% of 5,00,000 = ₹ 2,50,000

Q8. Interest on post saving account is exempt upto __________ in case of a joint account.
(a) ₹ 3,500
(b) ₹ 5,000
(c) ₹ 7,000
(d) ₹ 10,000

Explanation:
Interest on post saving account is exempt upto ₹ 7,000 in case of a joint account.
Q9. Which of the following statements relating to winnings from online games are correct?
(i) Such income are taxable at a flat rate of 30% plus surcharge if any, plus HEC @ 4%
(ii) Expenditure of maximum 20% is allowed from such income
(iii) Adjustment of basic exemption limit is permissible from such income.
(iv) Deduction under chapter- VI A is not allowed from such income.
(a) (i), (ii) and (iii)

(b) (i) only
(c) (ii), (iii) and (iv)
(d) (i) and (iv)
Correct answer : (d) (i) and (iv)

Explanation:
(i) Such income are taxable at a flat rate of 30% plus surcharge if any, plus HEC @ 4%
(ii) No deduction of any expenditure or exemption is allowed from such income.
(iii) Adjustment of unexhausted basic exemption limit is not permitted against such income.
(iv) No deduction under chapter VI-A shall be allowed.
Q10. Mr. Vikas received a gold ring worth ₹ 60,000 on the occasion of his daughter’s wedding from his best friend Mr. Vishnu. Mr.
Vishnu also gifted a gold chain to Kavya, daughter of Mr. Vikas, worth ₹ 80,000 on the said occasion. Would such gifts be
taxable in the hands of Mr. Vikas and Ms. Kavya?
(a) Yes, the gift of gold ring and gold chain is taxable in the hands of Mr. Vikas and Ms. Kavya, respectively
(b) Such gifts are not taxable in the hands of Mr. Vikas nor in the hands of Ms. Kavya
(c) Value of gold ring is taxable in the hands of Mr. Vikas but value of gold chain is not taxable in the hands of Ms. Kavya
(d) Value of gold chain is taxable in the hands of Ms. Kavya but value of gold ring is not taxable in the hands of Mr. Vikas
Correct answer : (c) Value of gold ring is taxable in the hands of Mr. Vikas but value of gold chain is not taxable in the hands of
Ms. Kavya
Explanation:
Gift received on marriage of the individual is exempt. Therefore, gift received by Kavya will be exempt. But since, in the given
case, gold ring is received on daughter’s wedding, it is taxable in hands of Mr. Vikas

CA LEGENDS - LEGENDSWALE
Follow us On Instagram
( Click on icon to follow )
Follow us On Telegram
( Click on icon to follow )
Subscribe On Youtube
( Click on icon to Subscribe )
For Buying Classes @

Best Price
Visit Our Website

Chapter 8 - Income of Other Persons included in Assessee’s Total Income

Q1. Mr. Ankit made a gift of ₹ 250,000 to his handicapped son, Master Avnish who was aged 12 years as on 31st March
2022, which he deposited in a fixed deposit account in a Nationalized bank at 10% interest p.a. compounded annually.
The balance in this account as on 1st April, 2023 was ₹ 2,75,000 and the bank credited a sum of ₹ 27,500 as interest on
31st March, 2024.
Ankit's father gifted equity shares worth ₹ 50,000 of an Indian company (unlisted) to Master Manan, another son of Mr.
Ankit (Date of birth 10th April, 2013) in July 2013 which were purchased by him on 8th December, 2006 for ₹ 80,000.
Manan received a dividend of ₹ 8,000 on these shares in October 2023. He sold these shares on 1st November, 2023 for
₹ 5,00,000 and deposited ₹ 3,00,000 in a company at 15% interest per annum.
Cost Inflation Index : Financial Year 2006-07 = 122, 2012-13 = 200 and 2023-24 = 348.
Mr. Ankit has a taxable income of ₹ 4,90,000 from his profession during the financial year 2023-24.
Compute his Gross Total Income for the A.Y. 2024-25. Assume that he has exercised the option to shift out of the default
tax regime.
Computation of Gross Total Income for the A.Y. 2024-25
Taxable Income from Profession 4,90,000

Capital Gains
Full Value of consideration 5,00,000
Less: Indexed cost of acquisition [₹ 80,000 x 348/ 122] 2,28,197 2,71,803

Dividend from shares of Indian company [Taxable in hands of shareholder] 8,000
Interest received by Master Avnish (Income cannot be clubbed in hands of Ankit,
since Master Avnish is suffering from disability specified under Section 80U) -
Interest on company deposits invested by Master Manan will be clubbed in hands of
Ankit [₹ 3,00,000 x 15% x 5/12] 18,750
Less: Exemption under Section 10(32) (1500) 25,250
Gross total Income 7,87,053
Q2. Mrs and Mr. Vishal Sharma have two minor children M and N. The following are the receipts in the hands of M and N
during the year ended 31-03-2024 :
M received a gift of ₹ 80,000 from her friend's father on the occasion of her birthday.
M won a prize money of ₹ 2,00,000 in the National Quiz competition.
This was invested in debentures of a company, from which interest of ₹ 18,000 (gross) accrued during the year.
N won a prize in a lottery. The net amount received after deduction of tax at source was ₹ 1,05,000
Mr. Vishal Sharma’s income before considering clubbing provisions is higher than that of his wife. Discuss how these
items will be considered for taxation under the provisions of the Income-tax Act, 1961. Detailed computation of income
is not required.
Assume that Mr. Vishal Sharma and his wife have exercised the option to shift out of the default tax regime.
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 the minor child to be 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 ₹ 1,500 per child if he/she exercises the option
of shifting out of the default tax regime provided under section 115 BAC(1A).
However, the 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.
Since the income of Mr. Vishal Sharma (before considering the clubbing provisions) is higher than that of his wife, the income
accrued to minor child will be clubbed in his income. Thus, the treatment of various income of minor child shall be as under :

● Gift received by M amounting ₹ 80,000 from her friend's father on the occasion of her birthday will be clubbed in
hands of Mr. Vishal Sharma under the head Income from other sources.
● ₹ 2,00,000 earned by M in National Quiz competition shall not be clubbed in hands of her father as the same has
been earned by her application of skill or talent. Interest from debentures amounting ₹ 18,000 is liable to be clubbed
even when investment is made out of income arising from application of special talent.
● Income of ₹ 1,50,000 (gross) arising to minor N from lottery shall be included in the hands of Mr. Vishal Sharma as
"Income from other sources".
From the income so clubbed Mr. Vishal Sharma will be entitled to deduction of ₹ 1,500 per child under Section 10(32) of the
Act.
Q3. Mr. Mohit, a renowned artist of Jaipur and his wife Mrs. Disha furnished the following information relating to the Assessment
Year 2024-25.
S.No Particulars ₹
1 Income of Mr. Mohit - Artist (computed) 8,25,000

2 Salary income of Mrs. Disha (computed) 6,00,000
3 Loan received by Mrs. Disha from Ram & Jay (Pvt) Ltd. (Mrs. Disha holds 35% shares of the 1,50,000
company. The company has incurred losses since its inception 2 years back)
4 Income of their minor son Gagan from winning a singing reality show on T.V. 2,50,000
5 Cash gift received by Gagan from friend of Mr. Mohit on winning the show 21,000
6 Interest income received by minor married daughter Gudia from deposit with Ram & Jay Pvt 40,000
Ltd.
Compute total taxable income of Mr. Mohit & Mrs. Disha for the Assessment Year 2024-25 assuming that both of them
opts to pay tax under default tax regime.
Computation of Taxable income of Mr. Mohit for A.Y. 2024-25
Particulars ₹
Professional income (Artist) 8,25,000

Income of minor son – Gagan
- Income from winning a singing reality show on T.V. Nil
Income derived by a minor child from any activity involving application of his/her skill, talent,
specialized knowledge and experience is not to be included in the hands of the parent. Hence, Rs.
2,50,000 earned by minor son Gagan from reality show on TV would not be included in the income of
either parent.
- Cash gift received by Gagan from friend of Mr. Mohit on winning the show Nil
The cash gift received by his minor son Gagan (not on account of her skill) from his friends would not
be taxable, since its value does not exceed Rs. 50,000.
Income of minor married daughter – Gudia

Interest income on deposit with Ram & Jay Pvt. Ltd. 40,000
40,000
Less: Exemption under section 10(32) (not available under default tax regime) Nil
(Income of the minor daughter would be included in the hands of Mr. Mohit, since his income, before
including the minor daughter’s income, is higher than his wife’s income).
Computation of Taxable income of Mrs. Disha for A.Y. 2024-25
Particulars ₹
Salary income (computed) 6,00,000

Loan received from Ram & Jay (Pvt.) Ltd. NIL
[Such loan amount would not be considered as a deemed dividend under section 2(22)(e), even though
Mrs. Disha has substantial interest (holding 20% shares or more) in the Ram & Jay (Pvt.) Ltd., a closely
held company, since the company does not have any accumulated profits on account of losses

incurred in last 2 years from inception]
Q4. Mr. Mayank who is 45 years old and his wife Mrs. Priya who is 44 years old furnished the following information:
S. No. Particulars Amount (in ₹)
(i) Salary income (computed) of Mrs. Priya 8,80,000

(ii) Income of minor son "A" who suffers from disability specified in section 80U 3,50,000
(iii) Income of minor daughter "C" from script writing for Television Serials 2,15,000
(iv) Income from trading business of Mr. Mayank 10,50,000
(v) Cash gift received by minor daughter "C" on 02-10-2023 from friend of Mrs. Priya, on winning of 48,000
a story writing competition
(vi) Income of minor son "B" form scholarship received from his school 1,00,000
(vii) Income of minor son "B" from fixed deposit with Punjab National Bank, made out of income 5,000
earned from scholarship
Compute the total income of Mr. Mayank and his wife Mrs. Priya for Assessment Year 2024-25 assuming that they have
exercised the option to shift out of default tax regime.
Computation of Total Income of Mr. Mayank and Mrs. Priya for A.Y. 2024-25
Particulars Mr. Mayank Mrs. Priya
Amount (in ₹)
Salary income (computed) 8,80,000

Income from trading business 10,50,000
Total Income before including income of minor children 10,50,000 8,80,000
Income of minor son “A”

Income of ₹ 3,50,000 of minor son A who suffers from disability specified in section
80U [Since minor child A is suffering from disability specified under section 80U,
hence, his income would not be included in the income of the parent but would be
taxable in the hands of the minor child]
Income of minor son “B”

Income of ₹ 1,00,000 from scholarship [Exempt u/s 10(16)] -
Income from fixed deposit with PNB 5,000
[Since Mr. Mayank’s income is greater than that of Mrs. Priya, income of
minor son B from fixed deposit would be included in the hands of Mr.
Mayank. Interest from bank deposit has to be included in Mr. Mayank’s
income, even if deposit is made out of income earned from scholarship] 3,500
Less: Exemption under section 10(32) 1,500
Income of minor daughter “C”

Income of ₹ 2,15,000 from script writing for television serials [Income derived by a
minor child from any activity involving application of his/her skill, talent, specialised
knowledge and experience is not to be included in the hands of the parent] Nil
Hence, clubbing provisions will not apply in this case/no adjustment is required.
Cash gifts of ₹ 48,000 received from friend of Mrs. Priya [Gift not exceeding ₹ 50,000
received from a non-relative is not taxable under section 56(2)(x)] Nil
Hence, clubbing provisions will not apply in this case / no adjustment is required.
Gross Total Income/ Total Income 10,53,500 8,80,000

Note - As per section 10(16), scholarships granted to meet the cost of education is exempt from tax. The purpose of
scholarship received by minor son B is explicitly not mentioned in the question. However, scholarships given by schools are
generally in the form of financial assistance for meeting the cost of education. Hence, it is logical to assume that the
scholarship to B has been granted to him to meet his cost of education. Based on this assumption, the same has been treated
as exempt from tax u/s 10(16).
Alternate view - However, in absence of specific information, it is possible to assume that such scholarship has been granted
on account of B’s exceptional academic achievements i.e., involving application of his skill, talent, specialized knowledge and
experience and hence would be covered under the proviso to section 64(1A) and thus should not be included in the income of
parent.
Q5. Determine the Gross Total Income of Mr Abhinav and his wife Mrs Shreya from the following particulars for the year ending
31.3.2024:
1. Abhinav and his wife Shreya are partners in a firm carrying on textile business, their respective shares of profit being ₹
80,000 and ₹ 40,000.
2. Their 16 years old son has been admitted to the benefits of another firm from which he received ₹ 72,000 as his share of
profit in the firm and ₹80,000 as interest on capital. The capital was invested out of the minor’s own funds amounting to
₹ 9,00,000.
3. A house property in the name of Abhinav was transferred to his wife on 1.12.2023 for adequate consideration. The
property has been rented for ₹ 40,000 p.m.
4. Debentures of a company of ₹ 1,40,000 and ₹ 1,12,000 purchased two years ago are in the names of Abhinav and his
wife Shreya respectively, on which interest is receivable at 10% p.a. His wife had in the past transferred ₹ 70,000 out of
her income to Mr Abhinav for the purpose of the debentures in Abhinav’s name.
5. Abhinav had transferred Rs 50,000 to his wife in the year 2015 without any consideration which was given as a loan by
her to a friend Sara. She earned ₹ 20,000 as interest during the earlier previous years which was also given on loan to
Sara. During the financial year 2023-24, She received interest at 10% p.a. on ₹ 70,000.
6. Abhinav 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 utilised for the benefit of his son’s wife and ₹ 2,500 for the benefit of his son’s minor child.
Assume that both of them have exercised the option to shift out of the default tax regime.
Computation of Gross Total Income of Mr Abhinav for the assessment year 2024 -25
SNo Particulars ₹ ₹
I Income from House Property:

Rental Value for 8 months (i.e., before transfer) (8 x 40,000) 3,20,000
Less: 30% as a statutory deduction 96,000 2,24,000
II Income from business or profession:

Share from a firm (Exempt) -
Minor Son’s share in another firm (Exempt) -
Interest on minor’s Capital with firm (₹ 80,000 - Exemption under section 78,500 78,500
10(32) ₹ 1,500)
III Income from other sources:

Interest @ 10% on ₹ 70,000 Debentures (Only one-half of ₹ 1,40,000 7,000
were bought by own funds
Interest received by his wife @ 10% on ₹ 50,000 (being transferred 5,000
without any consideration)
Interest on ₹ 50,000 from his trust (Interest income utilized for the 5,000 17,000
benefit of son’s wife)
Computation of Gross Total Income of Mrs Shreya for the assessment year 2024-25
SNo Particulars ₹ ₹

I Income from House Property

Rental value for 4 months (i.e., after transfer) (₹ 40,000 x 4) 1,60,000
Less 30% as a statutory deduction 48,000 1,12,000
II Income from business or profession:

Share from the firm (Exempt) - -
III Income from other sources:

Interest on ₹ 1,12,000 10% Debentures 11,200
Interest on ₹ 70,000 10% Debentures in husband’s name but funds 7,000
invested by her.
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 and interest on such accrued income
is treated as the income of the transferee, although the income on the
transferred amount is treated as the income of the transferor as it was
transferred without any consideration).
Working notes:
1. Shares of profit from a firm, which is assessed as such, is fully exempt under section 10(2A) in the hands of the partners,
although husband and wife may be partners in the same firm. 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 the 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. Similarly, the minor son’s income though clubbed, but as the share of the profit from the firm is exempt, will not affect the
Total Income. 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.
3. Where the asset is transferred to a Trust for the benefit of the son’s wife, the income from such asset is taxable in the
hands of the transferor. However, income utilised for the benefit of the son's minor son, shall be clubbed in the hands of
that parent of the son’s minor son, whose income is greater. It shall, therefore, not be clubbed in the hands of the transferor
i.e., Abhinav.
Q6. Mr. Karan gifted a sum of ₹ 9 lakhs to his brother’s minor son on 1.5.2023. On the same date, his brother gifted debentures
worth ₹ 10 lakhs to Mrs. Karan. Son of Mr. Karan’s brother invested the amount in fixed deposit with Canara Bank @ 9% p.a.
interest & Mrs. Karan received interest of ₹ 81,000 on these debentures during PY 2023-24. Discuss tax implications.
In the given case, Mr. Karan gifted a sum of ₹ 9 lakhs to his brother’s minor son on 1.5.2023 & simultaneously, his brother
gifted debentures worth ₹ 10 lakhs to Mr. Karan’s wife on the same date. Mr. Karan’s brother’s minor son invested a gifted
amount of ₹ 9 lakhs in FD with Canara Bank.
These transfers are in the nature of cross transfers. Accordingly, income from the assets transferred would be assessed in
hands of deemed transferor because the transfers are so intimately connected to form part of a single transaction & each
transfer constitutes consideration for the 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.
As per section 64(1A), all income of a minor child is includible in the hands of the parent, whose total income, before including
minor’s income, is higher. Accordingly, interest income arising to Mr. Karan’s brother’s son from FD would be included in total
income of Mr. Karan’s brother, assuming that Mr. Karan’s brother’s total income is higher than his wife’s total income, before
including minor’s income. Mr. Karan’s brother can claim exemption of ₹ 1,500 u/s 10(32).
Interest on debentures arising in the hands of Mrs. Karan would be taxable in the hands of Mr. Karan as per section 64(1)(iv).
This is because both Mr. Karan & his brother are the indirect transferors of income to their spouse & minor son, respectively,
with an intention to reduce their burden of taxation.
In the hands of Mr. Karan, interest received by his spouse on debentures of 9 lakhs alone would be included & not the entire
interest income on the debentures of ₹ 10 lakhs, since the cross transfer is only to the extent of ₹ 9 lakhs.Hence, only
proportional interest (i.e., 9/10th of interest on debentures received) ₹ 72,900 would be includible in the hands of Mr. Karan.
The provisions of section 56(2)(x) are not attracted in respect of sum of money transferred or value of debentures transferred,
since in both the cases, the transfer is from a relative.

Q7. Saharsh gifted ₹ 12 lakhs to his wife, Sandhya on her birthday on 1.2.2023. Sandhya lent ₹ 6,00,000 out of the gifted amount
to Karuna on 1.4.2023 for 6 months on which she received interest of ₹ 60,000. The said sum of ₹ 60,000 was invested in
shares of a listed company on 3.10.2023 which were sold for ₹ 85,000 on 30.3.2024. STT was paid on such sale. The balance
amount of gift was invested on 1.4.2023, as capital by Sandhya in her new business. She suffered loss of ₹ 25,000 in the
business in the PY 2023-24. In whose hands the above income and loss shall be included in AY 2024-25, assume that capital
invested in the business was entirely out of the funds gifted by her husband.
In computing the total income of any individual, there shall be included all such income as arises directly/indirectly, to the
spouse of such individual from assets transferred directly/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, ₹ 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 a loan was given by her out of the sum of money received
as a 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 & not income. Thus, the entire loss of ₹ 25,000 from the business carried on by Mrs. Sandhya would be
includible in the total income of Mr. Saharsh, since as on 1.4.2023, capital invested was entirely out of the funds gifted by her
husband.
STCG: STCG of ₹ 25,000 [₹ 85,000 (sale consideration) - ₹ 60,000 (COA)] arising in the hands of Mrs. Sandhya from sale of
shares acquired by investing the interest income of ₹ 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 STCG 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.
Q8. Mr. Yash, out of his own funds, had taken an FDR for ₹ 10,00,000 bearing interest @ 10% p.a. payable half-yearly in the name
of his wife Peehu. The interest earned during the financial year 2023- 24 of ₹ 1,00,000 was invested by Mrs. Peehu in the
business which resulted in a net profit of ₹ 55,000 for the year ended 31.03.2024. How shall the interest on FDR and income
from business be taxed for the Assessment Year 2024-25?
Section 64(1)(iv) specifies that the income derived by the spouse of an assessee from the assets transferred directly or
indirectly without adequate consideration or intention to live apart shall be clubbed with the income of the transferor.
Therefore, the interest income of ₹ 1 lakh on the FDR of ₹ 10 lakhs for the F.Y. 2023-24 shall be clubbed with the income of Mr.
Yash. When Mrs. Peehu invested the interest income in a business and earned profits therefrom, such profits shall not be
clubbed with the income of her husband but shall be taxable in her individual capacity. This is so because the income from the
accretion of the transferred assets is not to be clubbed with the income of the transferor.
Q9. Arpit, an individual engaged in the business of finance, advances ₹ 7,00,000 to his HUF on interest @ 10% p.a. which is the
prevailing market rate. The HUF invests the amount in its business and earns profit of ₹ 3 lakhs from this money.
The Assessing Officer wants to add a sum of ₹ 2,10,000 (3,00,000 - 70,000) as income of Arpit under Section 64(2) of the
Income Tax Act. Discuss whether this action of the Assessing Officer is correct or not.
Section 64(2) shall be applicable only where an individual member of HUF converts his property into the property of HUF or
throws it into the common stock of the HUF without adequate consideration.
In this case, Arpit does not transfer money to his HUF but only lends an amount of ₹ 7 lakhs to his HUF at an interest of 10%
which is the prevailing market rate. This is a transaction of loan, which pre-supposes repayment. Arpit continues to be the
owner of the amount lent. Thus, there is no transfer of property from Arpit to the HUF.
Therefore, the action of the Assessing Officer is not correct and the income shall be taxable in the hands of HUF only.
Q10. Mr. Sahil gifted a house property valued at ₹ 50 lakhs to his wife Deepa, who in turn gifted the same to Suhana, their
daughter-in-law. The property was let out at ₹ 20,000 per month. Discuss in whose hands the income will be taxable.
Will your answer be different if Deepa transfers the said property to his son.
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. Sahil would be the deemed owner of the house property transferred to his wife Deepa
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 ₹ 1,68,000 [i.e., ₹ 2,40,000, being the actual rent calculated at ₹ 20,000 per month less ₹
72,000, being deduction under section 24 @ 30% of ₹ 3,00,000.]

In this case, income of ₹ 1,68,000 from let-out property arising to Suhana , being Mr. Sahil’s son’s wife, would be included in
the income of Mr. Sahil, applying the provisions of section 27(i) and section 64(1)(vi). Such income would, therefore, not be
taxable in the hands of Suhana.
In case the property was gifted to Mr. Sahil’s son, the clubbing provisions under section 64 would not apply, since the son is
not a minor child. Therefore, the income of ₹ 1,68,000 from letting out of property gifted to the son would be taxable in the
hands of the son.
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 ₹ 1,68,000 arising to Suhana in the hands of Mr. Suhan [without first applying the provisions of section 27(i) to
deem Mr. Sahil as the owner of the house property transferred to his wife Deepa 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. Sahil to Suhana, via Deepa, can be viewed as an indirect transfer by Mr.
Sahil to Suhana.

Q1. Mr. X purchases debentures of ABC Ltd. for ₹ 1 lakh in name of his wife. Mrs. X receives the interest of ₹ 10,000 on such
debentures which she deposited in a bank and consequently, earned interest of ₹ 500 from it. In whose hands these income will
be taxable.
(a) ₹ 10,500 will be taxable in the hands of Mr. X

(b) ₹ 10,000 will be taxable in the hands of Mr. X and ₹ 500 in Mrs. X ‘s hands.
(c) ₹ 10,500 will be taxable in the hands of Mrs. X
(d) ₹ 5,250 will be taxable in the hands of Mr. X and ₹ 5,250 in Mrs. X ‘s hands
Correct answer : (b) ₹ 10,000 will be taxable in the hands of Mr. X and ₹ 500 in Mrs. X ‘s hands.
Explanation:
Only that part of the income is clubbed which arises from the transferred assets. In case, the transferee invests income arising
from transferred assets and earns income on such investments, then, such income arising from investments cannot be
clubbed. Therefore, ₹ 10,000 will be taxable in the hands of Mr. X and ₹ 500 in Mrs. X ‘s hands.
Q2. Ram owns 500, 15% debentures of Reliance Industries Ltd. of ₹ 500 each. Annual interest of ₹ 37,500 was declared on these
debentures for P.Y. 2023-24. He transfers interest income to his friend Shyam, without transferring the ownership of these
debentures. While filing return of income for A.Y. 2024-25, Shyam showed ₹ 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.
Correct answer : (b) No, since Ram has not transferred debentures to Shyam, interest income on the debentures is not taxable
income of Shyam.
Explanation:
If any person transfers the income from any asset without transferring the asset itself, such income is to be included in the
total income of the transferor.
Q3. A proprietary business was started by Mrs. Rekha in the year 2023. As on 1-4-2023, her capital in business was ₹ 3,00,000.
Her husband gifted ₹ 2,00,000 on 10-4-2023, which was invested by Mrs. Rekha in her business on the same date. Mrs. Rekha
earned profit of ₹ 1,50,000 from her proprietary business for the financial year 2023-24. What will the amount to be clubbed in
the hands of Ms. Rekha’s husband?
(a) ₹ 1,50,000

(b) ₹ 1,20,000
(c) ₹ 2,00,000
(d) Nil

Explanation:
There shall be no clubbing in the hands of Mrs. Rekha’s husband as no investment was made by Mrs. Rekha in the business
out of her husband’s funds as on the first day of the previous year i.e. 1-4-2023. The profit of ₹ 1,50,000 will be fully taxable in
Mrs. Rekha’s hands.
Q4. Mr. Aman has four minor children consisting of 2 daughters and 2 sons. The annual income of 2 daughters was ₹ 7,500
and ₹ 5,000 and of sons was ₹ 5,500 and ₹ 1,250 respectively. The daughter who was having income of ₹ 5,000 was
suffering from a disability specified under section 80U. What will be the amount of income earned by minor children to
be clubbed in the hands of Mr. Aman. Assume that Mr. Aman opts to pay tax under default tax regime.
(a) ₹ 9,250
(b) ₹ 14,250
(c) ₹ 9,750
(d) ₹ 10,000

Explanation:
Income of minor child suffering from disability under section 80U will not be clubbed.
Total income to be clubbed = 7500 + 5500 + 1250 = 14,250

Exemption u/s 10(32) since Mr. Aman opts to pay tax under default tax regime.
Q5. On 20.10.2023, Pihu (minor child) gets a gift of ₹ 20,00,000 from her father’s friend. On the same day, the amount is
deposited as fixed deposit in Pihu’s bank account. On the said deposit, interest of ₹ 13,000 was earned during the P.Y.
2023-24. In whose hands the income of Pihu shall be taxable? Also, compute the amount of income that shall be taxable
if they exercise the option to shift out of the default tax regime.
(a) Income of ₹ 20,11,500 shall be taxable in the hands of Pihu’s father.

(b) Income of ₹ 20,13,000 shall be taxable in the hands of Pihu’s father.
(c) Income of ₹ 20,11,500 shall be taxable in the hands of Pihu’s father or mother, whose income before this clubbing is
higher.
(d) Income of ₹ 20,13,000 shall be taxable in the hands of Pihu’s father or mother, whose income before this clubbing is
higher.
Correct answer : (c) Income of ₹ 20,11,500 shall be taxable in the hands of Pihu’s father or mother, whose income before this
clubbing is higher.
Explanation:
All Income of a minor child shall be taxable in the hands of Pihu’s father or mother, whose income before this clubbing is
higher.
Income to be clubbed = 20,00,000 + 13,000 - 1,500 = ₹ 20,11,500.
(a) No deduction, exemptions, rebates shall be allowed to the assessee from the income clubbed in his hands.
(b) All deductions exemptions, rebates in respect of the clubbed income should be allowed to the assessee.
(c) Only a deduction of 30% from income clubbed should be allowed. No other expenditures shall be allowed.
(d) Only a deduction of ₹ 1,500 from income clubbed should be allowed. No other expenditures shall be allowed.
Correct answer : (b) All deductions, exemptions, rebates in respect of the clubbed income should be allowed to the assessee.
Explanation:

All deductions exemptions, rebates in respect of the clubbed income should be allowed in the hands of such person subject to
the limits applicable to his case.
Q7. A transfer which contains any provision for the re-transfer, directly or indirectly, of the whole or any part of the income or
asset to the transferor, regarded as:
(a) Transfer of income without transfer of asset

(b) Indirect transfer
(c) Revocable transfer
(d) Irrevocable transfer
Correct answer : (c) Revocable transfer

Explanation:
The transfer is deemed to be revocable if it contains any provision for the re-transfer, directly or indirectly, of the whole or any
part of the income or asset to the transferor.
Q8. X transfers his house property to a trust for benefit of Y till his death. In this case, till death of Y, the income from house
property shall be taxable in the hands of _______ and afterwards in the hands of _________
(a) X, Y
(b) X, X
(c) Y, legal heirs of Y
(d) Y, X
Correct answer : (d) Y, X

Explanation:
If there is a transfer of asset which is not revocable during the life time of the transferee, the income from the transferred
asset is not includible in the total income of the transferor if the transferor derives no direct or indirect benefit from such
income.
After the death of the transferee, it will be includible in the hands of the transferor as the transfer has become revocable.

Chapter 9 - Aggregation of Income, Set-off and Carry Forward of Losses

Q1. Mr. Vimal provides the following details for the previous year 2023-2024 :
(i) Salary from MRO Group Ltd. : ₹ 65,000 per month
(ii) Interest on FD with SBI for the Financial Year 2023-24 : ₹ 49,500 (Net of TDS)
(iii) Brought forward long term capital loss of AY 2022-23 : ₹ 98,000
(iv) Long term Capital Gain : ₹ 80,000
(v) Loss of minor son ₹ 90,000 computed in accordance with the provisions of Income- tax Act. Mr. Vimal transferred his
own house to his minor son without adequate consideration a few years back and the minor son let it out and suffered
loss.
(vi) Loss of his wife's business. She carried on business with funds which Mr. Vimal gifted it to her : ₹ 2,25,000
You are required to compute taxable income of Mr. Vimal for the AY 2024-25 assuming that he has exercised the option to
shift out of the default tax regime.
Computation of total income of Mr. Vimal for the assessment year 2024-25
Income from Salary

Salary from MRO Group Ltd. (₹ 65,000 x 12) 7,80,000
Less: Loss from House property 90,000 6,40,000

Loss from House property transferred to his minor son shall be set off from —
Salaries
Profits and gains of business or profession

Loss from his wife’s business to be clubbed with Mr. Vimal (to be set off from —
Capital gains and Income from other sources) (see note 1)
Capital Gains
Long-term capital gains 80,000
Less: Business Loss (see note 2) (80,000) Nil
Income from other sources

Income from fixed deposit (Gross) [₹ 49,500 x 100/ 90] 55,000
Less: Loss from business (55,000) Nil
Gross total income 6,40,000

Less: Deduction under Chapter VIA –
Working notes:
1. Loss from business or profession can be set off from any head of income except income from salaries.
2. Current year loss will be given priority over set off of brought forward losses. Hence, brought forward loss of ₹ 98,000
will be carried forward as the current year income after setting off of business loss is nil.
3. Rate of TDS on income from FD is 10%
4. Remaining business loss of ₹ 90,000 (₹ 2,25,000 - ₹ 80,000 - ₹ 55,000) shall be carried forward.
Q2. Mr Radhey, a resident individual submits the following information, relevant to the previous year ending March 31, 2024:
SNo. Particulars Amount (in ₹)
(i) Income from Salary (Computed) 2,52,000

(ii) Income from House Property

- House in Delhi 42,000
- House in Chennai (-) 2,60,000
- House in Mumbai (self-occupied) (-) 40,000
(iii) Profit and gains from business or profession

- Textile business 18,000
- Cosmetics business (-) 22,000
- Speculative business 1 (-) 74,000
- Speculative business 2 46,000
(iv) Capital gains

Short term capital loss from sale of property (-) 27,000
Long term capital gains from sale of property 24,400
(v) Income from other sources (Computed)

- Income from betting 42,000
- Income from card games 55,000
- Loss on maintenance of race horses (-)24,500
Determine the gross total income of Mr Radhey for the assessment year 2024-25 and the losses to be carried forward
assuming that he opts to pay tax under default tax regime.
Computation of Gross Total Income of Mr Radhey for A.Y. 2024-25
Particulars Amount (in ₹) Amount (in ₹)
Salaries
Income from salary (computed) 2,52,000 2,52,000

- House in Delhi 42,000
- House in Chennai (2,60,000)
- House in Mumbai (self-occupied) (40,000)
Loss from house property cannot be set off from any other head if assessee opts (2,58,000)
to pay tax under default tax regime. Therefore, loss of ₹ 2,58,000 has to be carried
forward to A.Y. 2025-26
Profits and gains from business or profession

46,000
Profits from Speculative business – 2
(46,000)
Less: Loss of ₹ 74,000 from speculation business - 1 set off to the extent of
profits of ₹ 46,000 as per section 73(1) from another speculation business. Loss
from speculation business cannot be set-off against any income other than profit
and gains of another speculation business.
-
Hence, the balance loss of ₹ 28,000 from speculative business has to be carried
forward to A.Y. 2025-26
Profits from textile business 18,000
Less: Loss from cosmetic business of ₹ 22,000 set off against profits from textile (18,000)
business to the extent of ₹ 18,000 as per section 70(1).
Balance loss of ₹ 4,000 from cosmetic business has to be carried forward to A.Y.
2025-26, since the same cannot be set-off against salary income.
Capital Gains -
24,400
Long term capital gain from sale of property
(24,400)
Less: Short-term capital loss can be set-off against both short-term capital gains
and long-term capital gains. Short term capital loss of ₹27,000 set off against

long term capital gains to the extent of ₹ 24,400 as per section 74(1).
Balance short term capital loss of ₹ 2,600 has to be carry forward to A.Y. 2025-26

Income from betting [No loss is allowed to be set off against such income] 42,000
Income from card games [No loss is allowed to be set off against such income] 55,000 -
Loss on activity of owning and maintenance of race horses [Loss incurred on
activity of owning and maintenance of race horses cannot be set-off against
income from any source other than the activity of owning and maintaining race
horses. Hence, such loss of ₹ 24,500 has to be carried forward to A.Y. 2025-26] NIL
97,000
Q3. Ms. Deeksha, a resident individual, provides the following details of her income/losses for the year ended 31.03.2024:
(i) Income from salary (computed) 22,20,000

(ii) Rent received from house property situated in Delhi 6,00,000
(iii) Interest on loan taken for purchase of above property. Loan was taken from a friend 7,50,000
(iv) Rent received from house property situated in Jaipur 3,20,000
(v) Interest on loan taken for house property in Mumbai, which is self occupied. Loan was taken 1,57,000
from PNB on 01.01.1999 for purchase of this property.
(vi) Interest on loan taken for repair of house properties situated in Mumbai and Delhi. Loan was 1,50,000
taken on 01-04-19 and was utilized in 50:50 ratio for house properties situated in Mumbai and
Delhi, respectively.
(vii) Long-term capital gains on sale of equity shares computed in accordance with section 112A 8,95,000
(viii) Interest on fixed deposit 73,000
(ix) Loss from textile business 7,50,000
(x) Speculation profit 2,30,000
(xi) Lottery income 82,000
(xii) Loss incurred by the firm in which she is a partner 1,60,000
(xiii) Salary received as a partner from a partnership firm. The same was allowed to firm 50,000
(xiv) Brought forward short-term capital loss on sale of gold 2,75,000
(xv) Brought forward loss on sale of equity shares of the nature specified u/s 111A 25,000
(xvi) Life insurance premium paid for her son who is 30 years of age and is working in USA 15,000
Compute total income of Ms. Deeksha for the assessment year 2024-25 and the amount of loss that can be carried forward.
For the above solution, you may assume principal repayment of loan as under:
1) Loan taken for purchase of house property in Delhi - ₹ 2,50,000
2) Loan taken for purchase of house property in Mumbai - ₹ 50,000
3) Loan taken for repair of house properties in Delhi and Mumbai - ₹ 75,000
Working notes should form part of your answer. Wherever necessary, suitable assumptions may be made by the candidates
and disclosed by way of note.
Computation of total income of Ms. Deeksha for the A.Y. 2024-25
Particulars Amount (₹) Amount (₹) Amount (₹)
Income from salary (computed) 22,20,000
(i) House property at Delhi (Let out)

Rent received (taken as Annual Value in the absence of 6,00,000

information relating to Fair Rent and Municipal Value)
Less: Deduction u/s 24
(a) 30% of Annual Value
(b) Interest on borrowed capital 1,80,000
(Rs 7,50,000 + 50% of Rs 1,50,000) 8,25,000 (4,05,000)
(ii) House property at Jaipur (Let out)

Rent received 3,20,000
Less: Standard deduction @30% 96,000 2,24,000
(iii) House property at Mumbai (Self-occupied)

Annual value of self-occupied property Nil
Less: Interest on loan for purchase and repairs (to be restricted to 30,000 (30,000)
₹ 30,000, since loan for purchase was taken prior to 1.4.1999)
Loss from house property

Loss from house property to be set-off against salary income to (2,11,000) (2,00,000)
the extent of ₹ 2,00,000
Balance loss of ₹ 11,000 shall be carried forward to next year

Speculation profit (assumed as business income) 2,30,000
Salary received as partner of firm is taxable in her hands since 50,000
the entire salary was allowed as deduction in the hands of the
firm
Set-off of loss from textile business to the extent of

2,80,000 Nil
Note – Share of loss of Rs 1,60,000 incurred by the firm in which
(2,80,000)
she is partner cannot be set-off against salary received as
partner of firm or any other income, since loss from an exempt
source cannot be set-off against profit from a taxable source.
Capital Gains
Long-term capital gains on sale of equity shares computed in
accordance with section 112A
8,95,000
Less: Loss from textile business
3,97,000
Less Brought forward short term capital loss on sale of gold
2,75,000
Less Brought forward loss on sale of equity shares of the nature
specified u/s 111A 25,000 1,98,000

Winning from Lottery 82,000
Interest on fixed deposit 73,000
Less Loss from textile business (73,000) 82,000

Life insurance premium paid 15,000
Life insurance premium paid to insure the life of her son
allowable as deduction even if he is major, resides abroad and is
not dependent on her
Repayment of housing loan Nil
₹ 2,50,000, for house property in Delhi, not allowable since loan is
taken from a friend 50,000
₹ 50,000 for house property in Mumbai, allowable since loan is
taken from a bank for purchase of property Nil 65,000
₹ 75,000, for house properties in Mumbai and Delhi, not allowable

since loan is taken for repairs of properties

Q4. Following are the details of incomes/losses of Mr. Ratan for the F.Y. 2023-24:
Taxable salary income (computed) 5,85,000

Taxable income from house property (computed)
- from rented house property X 1,20,000
- from rented house property Y (3,40,000)
Taxable profit from business (computed)
- business P 2,30,000
- business Q (12,000)
- business R (speculative business) 15,000
- business T (speculative business) (25,000)
Taxable Income from other sources :
- from card games 22,000
- from owning & maintenance of race horses (9,000)
- interest on securities 12,000
You are required to determine the Gross total income of Mr. Ratan for Assessment Year 2024-25 assuming that he has
exercised the option to shift out of the default tax regime.
Computation of gross total income of Mr. Ratan for the A.Y. 2024-25
Income from salary

Salary Income (computed) 5,85,000
Less: Loss from house property set off against salary income as per section 71 (2,00,000) 3,85,000

Property X 1,20,000
Property Y (3,40,000)
Loss from house property (2,20,000)
Less: Loss to the extent of ₹ 2,00,000 shall be set off from salary and balance loss
of ₹ 20,000 shall be carried forward to the next year
Profit and gains from business or profession

Business P 2,30,000
Business Q (12,000) 2,18,000
Business R (speculative business) 15,000
Business T (speculative business) (25,000)
Speculative loss to be carried forward to the next year (10,000)
Income from other sources :

Interest on securities 12,000
Winning from card games 22,000 34,000
Loss of ₹ 9,000 from owning & maintenance of race horses to be carried forward to
be set off from profits of owning & maintenance of race horses

Q5. Mr. Jay is a chartered accountant and his income from profession the year 2023-24 is ₹ 12,00,000. He provides you with the
following information for the year 2023-24.
Income of minor son Ben from company deposit 1,25,000

Income of minor daughter Chhaya (professional dancer) 12,00,000
Interest from SBI received by Chhaya on deposit made in 2020 out of her special talent 25,000
Gift received by Chhaya on 30-09-2023 from friends of Mr. Jay on winning National award 42,500
Short term capital loss of Mr. Jay 6,00,000
Long term capital gain of Mr. Jay 4,00,000
Long term capital gains from shares (STT paid) of Mr. Jay 10,00,000
Short term capital loss under section 111A of Mr. Jay 10,00,000
Compute the Gross total Income of Mr Jay for Assessment Year 2024-25 (assuming that he has exercised the option to shift
out of the default tax regime) and the losses to be carried forward assuming that he files his income tax returns every year
before the due date.
Computation of total income of Mr. Jay
Profits and Gains of Business or profession (Professional Income of Mr. Jay) 12,00,000
Capital Gains
Long term capital gains from shares (STT paid) (See note 1) 10,00,000
Less: Short term capital loss shall be set-off to the extent of LTCG (6,00,000)
Less: Short term capital loss u/ s 111A (8,00,000)

Income of minor son Ben from company deposit to be clubbed in Income of Mr. Jay (see note 2) 1,25,000
Income of minor daughter Chhaya (professional dancer) (income arising out of professional skills
cannot be clubbed in hands of Mr. Jay) (see note 3) -
Interest from SBI received by Chhaya on deposit made in 2020 out of her special talent shall be clubbed
in hands of Mr. Jay since it is not out of professional skill (see note 3) 25,000
Gift Received by Chhayaon 30-09-2023 from friends of Mr. Jay on winning National award
(Since the value of gift does not exceed ₹ 50,000, the same shall not be taxable.) Nil
Less: Exemption under Section 10(32) [₹ 1,500 + ₹ 1,500] (see note 2) 3,000
Losses to be carried forward to A.Y. 2025-26

Short term capital loss (₹ 6,00,000 + ₹ 10,00,000 (STCL of section 111A) - ₹ 14,00,000 set off) = ₹ 2,00,000
Working notes:
1. The long term capital gain on equity shares through a recognized stock exchange on which security transaction tax has
been paid is taxable under Section 112A exceeding ₹ 1,00,000. Hence, short term capital loss shall be set off to the
extent of long term capital gains and balance loss shall be carried forward.
2. 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 the minor child to be 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 ₹ 1,500 per child.
3. In case the 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 ₹ 12,00,000 derived by Mr. Jay’s minor daughter through activity involving
application of her skill and talent shall not be clubbed in the hands of the parent. Such income shall be taxable in the
hands of the minor daughter. However, income from bank deposit is liable to be clubbed even when deposit is made out
of income arising from application of special talent.
Q6. S, a resident of Chandigarh, provides following information for FY 2023-24:

Income from textile business 4,60,000
Income from speculation business 25,000
Loss from gambling 12,000
Loss from 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 2023-24 brought forward 10,000
Speculation business loss of AY 2023-24 30,000
Compute Gross Total Income of S for AY 2024-25 & any other item of expense or loss eligible for carry forward. Assume that
she has exercised the option to shift out of the default tax regime.
Computation of Gross Total Income of S
Income from textile business: 4,60,000
Less: Current year depreciation 5,000
Less: Unabsorbed depreciation of AY 2023-24 10,000 (15,000)
4,45,000
Income from speculation business: 25,000
Less: Brought forward speculative loss restricted to Speculative Income 25,000 Nil
Gross total income 4,45,000
Notes:
1. Loss from gambling is neither allowed to be set off nor eligible for carry forward.
2. As per section 74A, losses on maintenance of race horses shall be carried forward for 4 subsequent AYs, & can be set-off
only against Income from such activity. Therefore, in this case, ₹ 15,000 is to be carried forward.
3. Losses from speculative business can be carried forward for 4 AY, & set off only against Income from speculative business.
Hence, in this case, set-off is allowed only to the extent of income from speculative business, i.e.,₹ 25,000. The balance ₹
5,000 is to be carried forward for next 3 AYs.
Q7. Ms. Aarti, a resident, provides following information of her income/losses for PY 2023-24:
1 Income from salary (Computed) 8,20,000
2 Income from House Property let out (Net Annual Value) 1,20,000
3 Share of profit from firm in which she is partner 48,000
4 Loss from specified business covered u/s 35AD 67,000
5 Income from textile business before adjusting following items: 3,30,000

(a) Current year depreciation 53,000
(b) Unabsorbed depreciation of earlier year 1,85,000
(c) Brought forward loss of textile business of AY 2022-23 1,90,000
6 LTCG on sale of debentures (unlisted) 1,50,000
7 LTCL on sale of equity shares (STT not paid) 1,50,000
8 LTCG on sale of equity shares listed in Recognised Stock Exchange (STT paid at time of 2,50,000
acquisition & sale)
9 Dividend from units of UTI 1,15,000
10 Repayment towards housing loan taken from a scheduled bank. Out of this 3,28,000 4,85,000
was towards payment of interest & rest towards principal.
Compute Gross total Income of Ms. Aarti & ascertain amount of loss that can be carried forward. Ms. Aarti has always filed
her Return Of Income within the due date specified u/s 139(1). She does not want to opt for 115BAC.
Computation of Gross Total Income of Ms. Aarti
Income from salary

Salary Income (computed) 8,20,000
Less: Loss from house property set off against salary income as per section 71 (2,00,000) 6,20,000

Net Annua;l Value
Less: Deduction u/s 24 - (a) 30% of NAV 1,20,000
(b) Interest on housing loan (36,000)
Loss from house property (3,28,000)
Less: Loss to the extent of Rs 2,00,000 shall be set off from salary and balance loss (2,44,000)
of Rs 44,000 shall be carried forward to the next year

Share of profit from firm [Exempt u/s 10(2A)] Nil
Specified business Loss u/s 35AD: Rs. 67,000 [can be set-off against specified
business income. Hence, it has to be c/f to AY 2024-25] Nil
Income from textile business 3,30,000
Less: Current year depreciation (53,000)
Less: Brought forward loss of textile business (1,90,000)
Nil
Less: Set-off of unabsorbed depreciation to the extent of Rs. 87,000 against business (87,000)
income
Capital Gains
2,50,000 1,52,000
LTCG on sale of listed equity shares (STT paid)
(98,000)
Less: Balance unabsorbed depreciation of 98,000 set-off
LTCG on sale of listed equity shares [Tax is payable u/s 112A @ 10% on amount
exceeding 1,00,000]
1,50,000
LTCG on sale of debentures
Less: Set-off of LTCL on sale of equity shares (STT not paid) [Since LTCG on sale of
unlisted debentures are taxable @ 20% & LTCG on sale of listed shares in excess of
1,00,000 taxable @10%, it is beneficial to set-off LTCG against LTCG on sale of
Nil

debentures] (1,50,000)
Income from other sources : 1,15,000

Dividend from units of UTI [Taxable in the hands of unitholders]
Losses to be carried forward to A.Y 2025-26
1 Losses from specified business 67,000

[can be carried forward indefinitely for set-off against income from any specified business]
2 Loss from HP 44,000

[can be carried forward up to 8 successive AY for set-off against income from HP]
Q8. Compute the gross total income of Mr. Hitesh for the A.Y. 2024-25 from the information given below assuming that he has
exercised the option to shift out of the default tax regime.
Income from house property (computed) 1,00,000

Income from business (before providing for depreciation) 1,50,000
Short term capital gains on sale of shares 60,000
Long term capital loss from sale of property (brought forward from A.Y. 2023-24) 80,000
Income from tea business 1,30,000
Dividends from Indian companies (Gross) 1,20,000
Current year depreciation 25,000
Brought forward business loss (loss incurred six years ago) 40,000
Computation of Gross Total Income of Mr. Hitesh for the A.Y. 2024-25

Income from house property 1,00,000

Profits before depreciation 1,50,000
Less: Current year depreciation 25,000
Less: Brought forward business loss of textile business 40,000
Income from tea business (40% is business income) 52,000 1,37,000
Capital Gains
Short term capital gains 60,000
Income from other sources :

Dividend from Indian companies chargeable to tax in the hands of shareholders Nil 1,20,000
Notes:
(1) Dividend from Indian companies of ₹ 1,20,000 is taxable in the hands of shareholders at normal rate of tax.
(2) 60% of the income from tea business is treated as agricultural income and therefore, exempt from tax;
(3) Long-term capital loss can be set-off only against long-term capital gains. Therefore, long- term capital loss of ₹ 80,000
brought forward from A.Y. 2023-24 cannot be set-off in the A.Y. 2024-25. It has to be carried forward for set-off against
long-term capital gains, if any, during A.Y. 2025-26.


Q1. Loss under the head "Profits and Gains of business or profession" cannot be set off against -
(a) Income under the head salaries.

(b) Income under the head capital gains.
(c) Income under the head house property.
(d) All of the above.
Correct answer : (a) Income under the head salaries

Explanation:
Where the net result of the computation under the head “Profits and gains of business or profession” is a loss, such loss cannot
be set off against income under the head “Salaries”.
Q2. Mr. A incurred short-term capital loss of ₹ 10,000 on sale of shares through the National Stock Exchange. Such loss -
(a) Can be set off only against short-term capital gains

(b) Can be set off against both short-term capital gains and long term capital gains
(c) Can be set off against any head of income
(d) Not allowed to be set off
Correct answer : (b) Can be set off against both short-term capital gains and long term capital gains
Explanation:
Short-term capital loss is allowed to be set off against both short-term capital gain and long-term capital gain.
Q3. Virat runs a business of manufacturing of shoes since the P.Y. 2021- 22. During the P.Y. 2021-22 and P.Y. 2022-23, Virat had
incurred business losses. For P.Y. 2023-24, he earned business profit (computed) of ₹ 3 lakhs. Considering he may/may not
have sufficient business income to set off his earlier losses, which of the following order of set off shall be considered: (He
does not have income from any other source)
(a) First adjustment for loss of P.Y. 2021-22, then loss for P.Y. 2022-23 and then unabsorbed depreciation, if any.
(b) First adjustment for loss of P.Y. 2022-23, then loss for P.Y. 2021-22 and then unabsorbed depreciation, if any.
(c) First adjustment for unabsorbed depreciation, then loss of P.Y. 2022-23 and then loss for P.Y. 2021-22, if any
(d) First adjustment for unabsorbed depreciation, then loss of P.Y. 2021-22 and then loss for P.Y. 2022-23, if any.
Correct answer : (a) First adjustment for loss of P.Y. 2021-22, then loss for P.Y. 2022-23 and then unabsorbed depreciation, if
any
Explanation:
The order in which set-off will be effected is as follows -
(a) Current year depreciation [Section 32(1)];

(b) Current year capital expenditure on scientific research and current year expenditure on family planning, to the extent
allowed.
(c) Brought forward loss from business/profession [Section 72(1)];
(d) Unabsorbed depreciation [Section 32(2)];
(e) Unabsorbed capital expenditure on scientific research [Section 35(4)];
(f) Unabsorbed expenditure on family planning [Section 36(1)(ix)].
Q4. Mr. Ram had incurred loss in activity of owning and maintaining race horses of ₹ 90,000; Winnings from lottery (net) ₹
70,000; Loss in card game ₹ 4,000 find out his gross total income for A.Y 2024-25.
(a) ₹ 1,00,000
(b) ₹ 6,000
(c) ₹ 10,000
(d) Nil


Explanation:
Loss from the activity of owning and maintaining race horses can be set-off only against income from the activity of
owning and maintaining race horses.
Loss from gambling, betting, card games etc. cannot be set-off or carried forward.
Therefore, gross total income = 70,000 / 70% = 1,00,000
Q5. Loss from house property and losses in speculation business can be carried forward respectively for
(a) 8 Years and 4 Years

(b) 4 Years and 8 Years
(c) 8 Years and 8 Years
(d) 4 Years and 4 Years
Correct answer : (a) 8 Years and 4 Years

Explanation:
Loss from house property and losses in speculation business can be carried forward respectively for 8 Years and 4 Years
Q6. Mr. X has earned salary income of ₹ 5,00,000 and he has suffered loss from house property amounting₹ 2,00,000. General
business loss – ₹ 1,00,000 Find out the gross total income if he opts to pay tax under default tax regime.
(a) ₹ 5,00,000
(b) ₹ 3,00,000
(c) ₹ 2,00,000
(d) ₹ 4,00,000

Explanation:
Loss under the head business or profession cannot be set off against salary income.
Loss from house property cannot be set off from any other head if assessee pays tax under default tax regime.
Q7. Loss from specified business u/s 35AD can be carried forward for
(a) 8 years
(b) 4 years
(c) Indefinite period
(d) 5 years
Correct answer : (c) Indefinite period

Explanation:
Loss from specified business u/s 35AD can be carried forward for Indefinite period.
Q8. If assessee exercises the option to shift out of the default tax regime, Loss from house property can be set off from other
head to the extent of ___________
(a) ₹ 1,00,000
(b) ₹ 2,00,000
(c) ₹ 3,00,000
(d) Cannot be set off from any other head

Explanation:
If assessee exercises the option to shift out of the default tax regime, Loss from house property can be set off from other
head to the extent of ₹ 2,00,000 only.

Chapter 11 - TDS

Q1. Examine whether TDS provisions would be attracted in the following cases, and if so, under which section. Also specify
the rate of TDS and amount required to be deducted at source as applicable in each case. Assume that all payments are
made to residents.
S.No. Particulars of the payer Nature of payment Aggregate of

payments made in
the F.Y. 2023-24
(Amounts in ₹)
1. Mr. Piyush, receiving pension from Contractual payment made during April 2023 for 52,00,000
Central Government reconstruction of his residential house in
Arunachal Pradesh
2. Mr. Rakesh, a wholesale trader of Contract payment for construction of office 50,00,000
spices whose turnover was ₹ 5 crores godown during January to March 2024 to Mr.
in F.Y. 2022-23 Kamal, an individual
3. Mr. Tapan, an individual carrying Payment of commission to Mr. Vikas for 1,50,000
garment trading business with securing a contract from a big business house in
turnover of ₹ 95 lakhs in F.Y. 2022-23 November 2023
4. ABC Urban Co-operative bank Payment by way of cash withdrawal, by XYZ & 1,20,00,000
Co. a partnership firm, amounting ₹ 1.2 crores
during F.Y 2023-24. XYZ & Co. has filed its tax
returns for the last 3 financial years within time.
(i) Mr. Piyush being a pensioner, would not be liable to deduct tax at source under section 194C. However, he has to deduct
tax at source @ 5% u/s 194M, since the aggregate amount of payment to the contractor for his personal purposes i.e.,
for reconstruction of his residential house in Arunachal Pradesh, exceeds the threshold limit of ₹ 50,00,000.
Therefore, TDS u/s 194M would be = ₹ 52,00,000 x 5% = ₹ 2,60,000.
(ii) Mr. Rakesh is required to deduct tax at source u/s 194C, since his turnover from business in the financial year 2022-23,
being the financial year immediately preceding F.Y. 2023-24 in which such sum is paid, exceeds ₹ 1 crore. Tax is to be
deducted at source at the rate 1% as the payment is made to an Individual.
Therefore, TDS u/s 194C would be = ₹ 50,00,000 x 1% = ₹ 50,000
(iii) Tax is required to be deducted u/s 194H, if the payer is an individual whose turnover from business carried on by him in
the financial year immediately preceding the financial year in which commission is paid, exceeds ₹ 1 crore. However,
where TDS u/s 194H is not applicable, tax is required to be deducted u/s 194M where payment of commission during
the relevant previous year exceeds ₹ 50 lakhs
In the present case, Mr. Tapan is not required to deduct tax at source u/s 194H on the commission paid to Mr. Vikas in
the P.Y. 2023-24 since his turnover from his business does not exceed ₹ 1 crore during the P.Y. 2022-23.
Further, Mr. Tapan is also not required to deduct tax at source u/s 194M on the said commission paid to Mr. Vikas since
the commission paid does not exceed ₹ 50 lakhs during the P.Y. 2023-24.
(iv) A co-operative bank which is responsible for paying any sum, being the amount or aggregate of amounts, as the case
may be, in cash exceeding ₹ 1 crore during the previous year, to any person from an account maintained by such person
with it, has to deduct an amount equal to 2% of such sum, as income-tax at the time of payment. Accordingly, since ABC
Urban Co-operative is responsible for paying a sum exceeding ₹ 1 crore (₹ 1.2 crore, in this case) in cash to XYZ & Co., a
partnership firm, during the F.Y.2023-24, the bank is required deduct tax at source @ 2% of such sum.
Therefore, TDS u/s 194N would be = ₹ 20,00,000 x 2% = ₹ 40,000.
Q2. Compute the amount of TDS on the following payments made:

(i) Payment of royalty of ₹ 20,000 & fee for technical services of ₹ 24,000 to Mr. Nitish, who is having PAN, were made during
the Previous Year 2023-24 by M/s. Ajanta Ltd.
(ii) Moon Ltd., paid ₹ 18,000 to one of its directors as sitting fees on 02.02.2024.

(iii) ₹ 2,35,000 paid to Mr. Sanchit, a resident Individual on 26.12.2023 by the State of Tamil Nadu on Compulsory Acquisition
of his urban land.
(i) Royalty & Fee for technical services

Tax is not required to be deducted at source under section 194J on payment of royalty of ₹ 20,000 and fee for technical
services of Rs. 24,000 to Mr. Nitish, since the limit of ₹ 30,000 for non-deduction of tax at source is applicable for royalty
and fees for technical services, separately.
(ii) Director’s sitting fees

Moon Ltd. is required to deduct tax at source @10% under section 194J, on the amount of sitting fees of ₹ 18,000 paid to
a director, since the threshold limit of ₹ 30,000 is not applicable in respect of sum paid to a director.
Therefore, tax to be deducted at source = ₹ 18,000 @ 10% = ₹ 1,800
(iii) Compensation on compulsory acquisition of urban land

As per section 194LA, no tax is required to be deducted at source on the amount of ₹ 2,35,000 paid to Mr. Sumit by the
State Government on compulsory acquisition of his urban land, since the amount does not exceed ₹ 2,50,000.
Q3. Examine TDS implications in case of following transactions, briefly explaining provisions involved assuming that all the payees
are residents; state the rate and amount to be deducted, in case TDS is required to be deducted
(i) Ajay & Sons, a LLP withdrew from its bank account ₹ 40 lakhs by cash on 1.5.2023, ₹ 35 lakhs on 7.9.2023 and ₹ 55 lakhs
on 28.2.2024. The purpose of withdrawal from the bank was for buying agricultural produce, from farmers/ agriculturists,
being raw material required for manufacture of finished products by it. Ajay & Sons regularly files its return of income
before the due date.
(ii) Mr. Manish, aged 75 years, holds 6 1⁄2% Gold Bonds, 1977 of ₹ 2,50,000 and 7% Gold Bonds of ₹ 3,50,000. He received
interest on these bonds on 31.1.2024.
(i) Ajay & Sons has withdrawn aggregate cash of ₹ 1.30 crores during the previous year 2023-24. Since aggregate amount
cash withdrawals exceed ₹ 1 crore, bank is required deducted tax at source @ 2% under section 194N on the amount
exceeding ₹ 1 crore i.e., ₹ 30 lakhs though he withdraws the same for buying agricultural produce from farmers,
agriculturists, being raw material required for manufacture of finished products by it.
TDS = 2% of ₹ 30 lakhs = ₹ 60,000
(ii) Tax @ 10% under section 193 is to be deducted on interest on 6 1/2 Gold Bonds, 1977 and 7% Gold Bonds 1980, since
the nominal value of the bonds held by Mr. Manish i.e., ₹ 6,00,000 exceed ₹ 10,000.
Interest on 6 1/2 Gold Bonds, 1977 = ₹ 2,50,000 x 6.5% = ₹ 16,250
Interest on 7% Gold Bonds 1980 = ₹ 3,50,000 x 7% = ₹ 24,500
Tax to be deducted at source = ₹ 40,750 x 10% = ₹ 4,075
Q4. Examine TDS/TCS implications in case of following transactions, briefly explaining provisions involved assuming that all the
payees are residents; state the rate and amount to be deducted, in case TDS/TCS is required to be deducted/collected.
(i) On 1.7.2023, Mr. Bimal made three fixed deposits of nine months each of ₹ 2.5 lakh each, carrying interest @ 9% p.a. with
Mumbai Branch, Delhi Branch and Chandigarh Branch of CBZ Bank, a bank which had adopted CBS. These Fixed
Deposits mature on 31.03.2024.
(ii) Mr. Mahesh, aged 80 years, holds 6½ % Gold Bonds, 1977 of ₹ 3,00,000 and 7% Gold Bonds 1980 of ₹ 2,50,000. He
received yearly interest on these bonds on 28.02.2024.
(iii) M/s MNS Pvt. Ltd. took a loan of ₹ 50,00,000 from Mr. Haridas. It credited interest of ₹ 82,000 payable to Mr. Haridas
during the previous year 2023-24. M/s MNS Pvt. Ltd. is not liable for tax audit during previous years 2022-23 and
2023-24
(iv) Mr. Pratham is due to receive ₹ 6 lakh on 31.3.2024 towards maturity proceeds of LIC policy taken on 1.4.2020, for which
the sum assured is ₹ 5 lakhs and the annual premium is ₹ 1,40,000.
(i) CBZ Bank has to deduct tax at source @ 10% under section 194A, since the aggregate interest on fixed deposit with the
three branches of the bank is ₹ 50,625 [2,50,000 x 9% x 3 x 9/12], which exceeds the threshold limit of ₹ 40,000.
Since CBZ Bank has adopted a core banking solution (CBS), the aggregate interest credited/paid by all branches has to
be considered. Tax to be deducted at source = ₹ 50,625 x 10% = ₹ 5,063
(ii) Tax @10% under section 193 is to be deducted on interest on 6½ Gold Bonds, 1977 and 7% Gold Bonds 1980, since the
nominal value of the bonds held by Mr. Mahesh i.e., ₹ 5,00,000 exceeds ₹ 10,000.

Interest on 6½ Gold Bonds, 1977 = ₹ 3,00,000 x 6.5% = ₹ 19,500

Interest on 7% Gold Bonds 1980 = ₹ 2,50,000 x 7% = ₹ 17,500
(iii) M/s MNS Pvt. Ltd. has to deduct tax at source @ 10% under section 194A, since the interest on loan payable is ₹ 82,000
which exceeds the threshold limit of ₹ 5,000.
M/s MNS Pvt. Ltd., being a company, has to deduct tax at source irrespective of the fact that it is not liable to tax audit
during P.Y. 2022-23 and 2023-24
(iv) Since the annual premium exceeds 10% of sum assured in respect of a policy taken after 31.3.2012, the maturity
proceeds of ₹ 6 lakhs due on 31.3.2024 are not exempt under section 10(10D) in the hands of Mr. Pratham.
Therefore, tax is required to be deducted @ 5% under section 194DA on the amount of income comprised therein i.e., on
₹ 40,000 [₹ 6,00,000, being maturity proceeds - ₹ 5,60,000, being the amount of insurance premium paid.
Q5. Discuss the liability of tax deduction at source under the Income-tax Act, 1961 in respect of the following cases with
reference to A.Y. 2024-25.
(i) XYZ Ltd. makes the payment of ₹ 1,80,000 to Naresh, an individual transporter who owned 5 goods carriages
throughout the previous year. He does not furnish his PAN.
(ii) Payment of ₹ 1,60,000 made to Mr. Vinay for purchase of calendar according to specifications of M/s Neon Ltd.
However, no material was supplied for such a calendar by Neon Ltd. to Mr. Vinay.
(iii) PQR LLP paid job charges to LMN, a partnership firm for doing embroidery work on the fabric supplied by the PQR
LLP during the previous year 2023-24 as under:
Bill No. Date Amount (₹)
1 30-4-2023 27,000
52 30-6-2023 25,000
103 30-09-2023 28,000
152 30-12-2023 32,000
(i) Under section 194C, no tax is deductible in respect of payments to a transporter, who owns ten or less goods carriages
at any time during the year and furnishes a declaration to that effect along with his PAN to the person paying or crediting
such sum. However, in this case, this exemption from TDS would not be available, since Naresh has not furnished his
PAN to XYZ Ltd. As per section 206AA, due to non-furnishing of PAN, tax would be deductible at a higher rate of 20% and
not @1% provided under section 194C.
Amount of tax to be deducted = ₹ 1,80,000 x 20% = ₹ 36,000.
(ii) According to Section 194C, the definition of “work” does not include manufacturing or supplying a product according to
the specification of a customer by using material purchased from a person, other than such customer or associate of
such customer.
Therefore, there is no liability to deduct tax at source in respect of payment of ₹ 1,60,000 to Mr. Vinay, since the contract
is a contract for sale.
(iii) In this case, the individual contract payments (through the bills dated 30.4.2023, 30.6.2023 and 30.9.2023) made by PQR
LLP to LMN does not exceed ₹ 30,000. However, since the aggregate amount paid to LMN during the P.Y. 2023-24
exceeds ₹ 1,00,000 (on account of the last payment of ₹ 32,000, due on 30.12.2023, taking the total from ₹ 80,000 to ₹
1,12,000), the TDS provisions under section 194C would get attracted on the entire sum of ₹ 1,12,000. Tax has to be
deducted @ 2% (since payment is to a firm, LMN) on the entire amount of ₹ 1,12,000, from the last payment of ₹ 32,000
on 30.12.2023. Hence, TDS u/s 194C = ₹ 2,240.
Q6. Examine & explain the TDS implications in the following cases along with reasons thereof, assuming that the deductees are
residents and having a PAN which they have duly furnished to the respective deductors.
(i) Mr. Verma received a sum of ₹ 2,25,000 as premature withdrawal from Employees Provident Fund Scheme before
continuous service of 5 years on account of termination of employment due to ill-health.
(ii) A sum of ₹ 44,000 has been credited as interest on recurring deposit by a banking company to the account of Mr. Harish
(aged 62 years).
(iii) Ms. Kashi won a lucky draw prize of ₹ 32,000. The lucky draw was organized by M/s. Goods Retail Ltd. for its customers.

(iv) Apna Bank Ltd. sanctioned and disbursed a loan of ₹ 12 crores to Borrower Ltd. on 31-3-2024. Borrower Ltd. paid a sum
of ₹ 1,20,000 as service fee to Apna Bank Ltd. for processing the loan application.
(v) Mr. Aman, working in a private company, is on deputation for 3 months (from December, 2023 to February, 2024) at
Jaipur where he pays a monthly house rent of ₹ 55,000 for those three months, totalling to ₹ 1,65,000. Rent is paid by him
on the first day of the relevant month.
(i) No TDS liability: Section 192A provides for deduction of tax @ 10% on premature taxable withdrawal from employees
provident fund scheme. Accordingly, in a case where the accumulated balance due to an employee participating in a
recognized provident fund is includible in his total income, tax is to be deducted at source. In the given case the amount
received on pre-mature withdrawal from EPF on account of termination of employment due to ill health of Mr. Verma is
exempt from tax in his hands. Hence no tax is required to be deducted at source under Section 192A of the Act.
(ii) No TDS liability : As per Section 194A, tax has to be deducted under section 194A @ 10% of the interest income on
recurring deposit as "recurring deposit" is included in the definition of "time deposit". However, as per the third proviso to
section 194A(3), no tax is required to be deducted at source in the case of senior citizens where the amount of interest
or the aggregate of the amount of interest credited or paid during the financial year by a banking company, co-operative
society engaged in banking business or post office does not exceed ₹ 50,000. Since in this case Mr. Harish is a senior
citizen and the amount of interest credited to the RD account is ₹ 44,000, tax is not required to be deducted at source.
(iii) TDS liability @ 30% : In respect of lucky dip conducted by M/S. Goods Retails Ltd., the provisions of Section 194B would
apply. As per Section 194B, winning from lottery or crossword puzzle or card game of any sort exceeding ₹ 10,000
payable by any person to any other person, is subject to tax deduction @ 30%. Since the value of prize is ₹ 32,000,
therefore, tax is deductible at source @ 30% of ₹ 32,000 = ₹ 9,600.
(iv) No TDS Liability : Tax is deducted at source under Section 194A in respect of Interest other than Interest on securities,
As per Section 2(28A) of Income-tax Act, 1961, the term "interest" means interest payable in any manner in respect of
any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any
service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which
has not been utilised. Though service fees falls under the ambit of interest but no tax is to be deducted at source in
respect of interest income credited or paid to, any banking company or any co-operative society engaged in carrying on
the business of banking (including a co-operative land mortgage bank).
Therefore, there is no liability to deduct tax at source in respect of payment of ₹ 120,000 to Apna Bank Ltd
(v) Since Mr Aman pays rent exceeding ₹ 50,000 per month in the FY 2023-24, he is liable to deduct tax at source @ 5% of
such rent for FY 2023-24 under section 194IB. Thus, ₹ 8,250 (₹ 55000 x 5% x 3) has to be deducted from rent payable for
Feb 2024.
Q7. Discuss the liability for tax deduction in these cases and also calculate the amount of TDS.
(i) State Government pays ₹ 30,000 as commission to one of its agents on sale of lottery tickets.
(ii) Mr. Anish transferred a residential house property to Mr. Archit for ₹ 40 lakhs. The stamp duty value of such property is ₹
50 lakhs.
(iii) Rent of ₹ 1,80,000 paid by a partnership firm for use of plant and machinery.
(iv) An insurance company paid ₹ 35,000 as commission to its agent Mr. Sushant.
(i) Under Section 194G, the person responsible for paying to any person stocking, distributing, purchasing or selling lottery
tickets, shall at the time of credit of the commission or payment thereof, whichever is earlier, deduct tax @ 5%. Such
deduction shall be made only if the amount of commission exceeds ₹ 15,000.
TDS = 30,000 * 5% = ₹ 1,500
(ii) Tax is required to be deducted under Section 194-IA if the consideration for transfer of immovable property exceeds ₹ 50
lakhs. Since the sale consideration of residential house property does not exceed ₹ 50 lakh, Mr. Anish is not required to
deduct tax at source under Section 194-IA.
(iii) No deduction shall be made under Section 194-I where the amount of rental income credited or paid or likely to be
credited or paid during the financial year to the account of, or to, the payee does not exceed ₹ 2,40,000. Since rent of ₹
1,80,000 was paid, no tax shall be deducted at source.
(iv) As per Section 194D, any person paying insurance commission in excess of ₹ 15,000 to any resident person is liable to
deduct tax @ 5%.
TDS = 35,000 * 5% = ₹ 1,750
Q8. Mr. Ankur is regular in deducting tax at source and depositing the same. In respect of the quarter ended 31st December, 2023
a sum of ₹ 70,000 was deducted at source from the contractors. The statement of tax deducted at source under section 200
was filed on 23rd March 2024 for the quarter ended 31.12.2023.
(i) Is there any delay on the part of Mr. Ankur in filing the statement of TDS?

(ii) If the answer to (i) above is in the affirmative, how much amount can be levied on Mr. Ankur for such default under
section 234E?
(i) Yes, there has been a delay on the part of Mr. Ankur in filing the statement of TDS. As per section 200(3) read with Rule
31A, the statement of tax deducted at source for the quarter ended 31st December, 2023 has to be filed on or before
31st January, 2024. However, the same has been filed only on 23rd March, 2024. Hence, there has been a 52 days delay
on the part of Mr. Ankur in filing the statement of TDS.
(ii) As per section 234E of the Income-tax Act, 1961, where a person fails to file deliver or cause to be delivered the
statement of tax deducted at source within the prescribed time, then, he shall be liable to pay, by way of fee, a sum of ₹
200 for every day during which the failure continues. The amount of fee shall not, however, exceed the amount of tax
deductible. In this case, since Mr. Ankur has delayed filing the statement of TDS by 52 days, he would be liable to pay a
fee of ₹ 10,400 (₹ 200 * 52 days) under section 234E. The said fee does not exceed the tax deductible (₹ 70,000, in this
case).
Q9. Swastik Hospitals Pvt. Ltd., has recently been accorded recognition by several insurance companies to admit and treat
patients on cashless hospitalization basis. Payment to the assessee hospital will be made by Third Party Administrators
(TPA) who will process the claims of the patients admitted and make payments to the various hospitals including the
assessee. All TPAs are corporate entities. The assessee wants to know whether the TPAs are bound to deduct tax at source
under section 194J or under section 194C?
As per provisions of section 194J, any person, who is responsible for paying to a resident any sum by way of fees for
professional services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in
cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to 10%of such sum.
As per Section 194J, “professional services” includes services rendered by a person in the course of carrying on medical
profession.
The CBDT has through, Circular No.8/2009 dated 24.11.2009, has clarified that TPAs (Third Party Administrators) who are
making payment on behalf of insurance companies to hospitals for settlement of medical/ insurance claims etc. under
various schemes including cashless schemes are liable to deduct tax at source under section 194J on all such payments to
hospitals etc. This is because services rendered by hospitals to various patients are primarily medical services and, therefore,
the provisions of section 194J are applicable on payments made by TPAs to hospitals etc.
Q10. An amount of ₹ 50,000 was paid to Mr. Shubham on 1.7.2023 towards fees for professional services without deduction of tax
at source. Subsequently, another payment of ₹ 60,000 was due to Mr. Shubham on 28.2.2024, from which tax @ 10%
(amounting to ₹ 11,000) on the entire amount of ₹ 1,10,000 was deducted. However, this tax of ₹ 11,000 was deposited only
on 22.6.2024. Compute the interest chargeable under section 201(1A).
Interest under section 201(1A) would be computed as follows –
Particulars ₹
1% on tax deductible but not deducted i.e., 1% on ₹ 5,000 for 8 months 400
1½% on tax deducted but not deposited i.e. 1½% on ₹ 11,000 for 4 months 660
Total Interest 1060

Q1. On 1-7-2023, Mr. Amit made three nine month fixed deposits of ₹ 5,00,000 each carrying interest @ 8% p.a. With Bapu Nagar
Branch, Malviya Nagar Branch and Ambey Nagar Branches of PNB Bank, a bank which has adopted CBS. The fixed deposits
mature on 31-03-2024. What are the TDS implications?
(a) TDS @ 10% needs to deducted since aggregate interest exceeds ₹ 10,000.
(b) TDS @ 10% needs to deducted since aggregate interest exceeds ₹ 40,000.
(c) TDS is not required to be deducted as individual payment does not exceed ₹ 10,000
(d) TDS is not required to be deducted as individual payment does not exceed ₹ 40,000
Correct answer : (b) TDS @ 10% needs to deducted since aggregate interest exceeds ₹ 40,000.
Explanation:

Since bank has opted for CBS, aggregate limit of ₹ 40,000 needs to be considered.
Total interest = 5,00,000 * 3 * 8% * 9/ 12 = 90,000
Therefore, tds @ 10% is to be deducted.
Q2. XYZ Ltd. makes a payment of ₹ 29,000 to Mr. Sudhir on 1-10-2023 towards fee for professional services and another payment
of ₹ 22,000 to him on the same date towards fee for technical services. What will be the amount of TDS if no other payments
are made to Mr. Sudhir during the year.
(a) ₹ 1,020
(b) ₹ 5,100
(c) ₹ 3,340
(d) Nil

Explanation:
TDS provisions will not be attracted since the limit of ₹ 30,000 is applicable to fees for professional services and technical
services separately.
Q3. Mr. P is a professional who is responsible for paying a sum of ₹ 2,50,000 as rent for use of building to Mr. Harshit for the
month of February, 2024. The gross receipts of Mr. P are as under:
From 01.04.2022 to 31.03.2024: ₹ 55,00,000
From 01.04.2023 to 28.02.2024: ₹ 45,00,000
Find out whether Mr. P is responsible for deducting any tax at source from the rent of ₹ 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.
Correct answer : (a) Tax at source is required to be deducted u/s 194-I at the rate of 10%
Explanation:
Since, gross receipts exceeds ₹ 50,00,000 in the immediately preceding financial year and rent paid exceeds ₹ 2,40,000, tax is
required to be deducted @ 10% u/s 194-I.
Q4. Mr. Nihar maintains a savings A/c and a current A/c in Mera Bank Ltd. The details of withdrawals on various dates during the
previous year 2023-24 are as follows:
Date of cash withdrawal Saving Account Current Account
05.04.2023 15,00,000 -
10.05.2023 - 22,00,000
25.06.2023 20,00,000 -
17.07.2023 - 5,00,000
28.10.2023 35,00,000 -
10.11.2023 - 38,00,000
12.12.2023 25,00,000 -
Mr. Nihar regularly files his return of income. Is Mera Bank Limited required to deduct tax at source on the withdrawals made
by Mr. Nihar during the previous year 2023-24? If yes, what would be the amount of tax deducted at source?
(a) TDS of ₹ 3,20,000 is required to be deducted.

(b) No, TDS is not required to be deducted as the cash withdrawal does not exceed ₹ 1 crore neither in saving account nor in
current account.
(c) TDS of ₹ 3,00,000 is required to be deducted.
(d) TDS of ₹ 1,20,000 is required to be deducted
Correct answer : (d) TDS of ₹ 1,20,000 is required to be deducted

Explanation:
Since the total withdrawals exceeds 1 crore, tds @ 2% will be deducted on the amount exceeding ₹ 1 crore
Total withdrawals = 1,60,00,000
TDS = 60,00,000 * 2%
= 1,20,000
Q5. By virtue of an agreement with with Nationalised Bank, a Catering Organisation [Pvt Ltd Co.] receives ₹ 50,000 p.m. towards
supply of food, water, snacks etc. during office hours to the employees of bank. What will be the amount of TDS.
(a) ₹ 6,000
(b) ₹ 12,000
(c) ₹ 15,000
(d) Nil

Explanation:
Catering services are covered under the expression “work” and catering organisation will be considered as contractor. Since
the payment exceeds ₹ 30,000, TDS needs to be deducted @ 2% u/s 194C.
TDS = 50,000 * 12 * 2% = 12,000
Q6. The due date of furnishing TDS statement for the quarter ending 31st March is
(a) 30th June of the next financial year

(b) 30th April of the next financial year
(c) 31st May of the next financial year
(d) 30th September of the next financial year
Correct answer : (c) 31st May of the next financial year

Explanation:
The due date of furnishing TDS statement for the quarter ending 31st March is 31st May of the next financial year.
Q7. The due date of issuance of Form 16A is
(a) By 15th June of the immediately following financial year

(b) By 31st May of the immediately following financial year
(c) Within 15 days from the due date of furnishing quarterly statement of TDS
(d) Within 30 days from the due date of furnishing quarterly statement of TDS
Correct answer : (c) Within 15 days from the due date of furnishing quarterly statement of TDS
Explanation:
Form 16A should be issued within 15 days from the due date of furnishing quarterly statement of TDS
Q8. Interest shall be levied @ _________ if the person fails to deposit the amount of TDS deducted by him.
(a) 1% per month

(b) 1.5% per month
(c) 2% per month
(d) 5% per month

Correct answer : (c) 2% per month

Explanation:
Interest shall be levied @ 2% per month if the person fails to deposit the amount of TDS deducted by him.

Chapter 12 - Introduction to TCS

Q1. Examine the following transactions with reference to applicability of the provision of tax collected at source and the rate
and amount of the TCS for the Assessment year 2024-25.
(i) Mr. Kapil bought an overseas tour programme package for Singapore for himself and his family of ₹ 5 lakhs on
01-11-2023 from an agent who is engaged in organising foreign tours in the course of his business. He made the
payment by an account payee cheque and provided the permanent account number to the seller. Assuming Kapil is
not liable to deduct tax at source under any other provisions of the Act.
(ii) Mr. Udit doing business of textile as a proprietor. His turnover in the business was ₹ 11 crores in the previous year
2022-23. He received payment against sale of textile goods from Mr. Aman of ₹ 75 lakhs against the sales made to
him in the previous year and preceding previous years. (Assuming all the sales are domestic sales and Mr. Aman is
neither liable to deduct tax on the purchase from Mr. Udit nor he deducted any tax at source).
(i) Tax @ 5% is required to be collected u/s 206C by the seller of an overseas tour programme package, from Mr. Kapil, being
the buyer of an overseas tour package, even if payment is made by account payee cheque.
Accordingly, tax has to be collected @ 5% on ₹ 5 lakh.
TCS = 5% x ₹ 5 lakh = ₹ 25,000
(ii) Mr. Udit is required to collect tax @ 0.1% u/s 206C from Mr. Aman, since his turnover in the P.Y. 2022-23 exceeds ₹ 10
crores, and the sales receipts from Mr. Aman in the P.Y. 2023-24 exceeds ₹ 50 lakhs. Tax has to be collected by Mr. Udit on
₹ 25 lakhs, being the amount exceeding ₹ 50 lakhs, at the time of receipt. Since receipt is in the P.Y. 2023-24, TCS
provisions are attracted even though part of the sales may relate to the preceding previous years.
TCS = 0.1% x ₹ 25 lakhs = ₹ 2,500
Q2. Rahil & Co., a partnership firm is having a car dealership show-room. They have purchased cars for 2 crores from XYZ Ltd., car
manufacturers, cost of each car being more than ₹ 12 lakhs. They sell the cars to individual buyers at a price yielding 10%
margin on cost. State whether there will be any obligation to collect tax in the above two situations.
As per section 206C(1F), every seller, who receives a consideration in excess of ₹ 10 lakhs from sale of a motor vehicle, is
liable to collect TCS @ 1% of sales consideration from the buyer. However, provisions of this section are applicable only in
case of retail sale & thus, it will not apply on sale of motor vehicles by manufacturer to distributors/ dealers.
In a given case, TCS shall not be applicable in case of sale of a car from manufacturer to dealer. Hence, XYZ Ltd. is not
required to collect TCS on sale of motor vehicle to Rahil & Co., being the dealer.
However, on sale of cars to individual buyers, Rahil & Co. shall be required to collect TCS @ 1% on sales consideration, as the
same exceeds 10 lakhs. Since, sales consideration of each car is 13,20,000 (inclusive of 10% margin on cost of 12 lakhs),
Rahil & Co. shall be required to collect TCS @ 1% of 13,20,000 i.e., ₹ 13,200.
Q3. Jatin Motors Ltd. Amritsar is a dealer in cars of Ford and Maruti and also runs a service station. The sale of cars of Jatin
Motors for F.Y. 2023-24 is ₹ 9.80 Crores. The sale of spare parts and service stations is ₹ 60 lakhs. M/s Jai Ltd. dealing in
textile manufacturing bought the following cars from Jatin Motors during the F.Y. 2023-24 for business purposes :
Model of the car Date of Invoice Value of the Car
Maruti 14.07.2023 35 lakhs
Ford 18.10.2023 8 lakhs
The payment against each invoice was made on the date of invoice itself.
You are required to calculate the amount of TCS applicable, if any, to be collected by Jatin Motors Ltd. as per provisions of
Section 206C.
As per Section 206C, TCS at 1% is to be collected from the buyer on the amount of sale of motor car, if the value of the car
exceeds 10,00,000.
Calculation of the amount of TCS to be collected by Raghav Motors Ltd.
Date of Invoice Value of the Car TCS @ 1%

14.07.2023 35 lakhs 35,000
12.08.2023 20 lakhs 20,000
18.10.2023 8 lakhs Nil (As the value of the car purchased is below 10,00,000)
05.11.2023 15 lakhs 15,000
The total amount of TCS to be collected is ₹ 70,000.
Q4. What are the clarifications given by CBDT with respect to section 206C(1F) relating to following issues :
(i) Whether TCS on sale of motor vehicles is applicable only to luxury cars?
(ii) Whether TCS is applicable on each sale or aggregate value of sale of motor vehicle, exceeding ₹ 10 lakhs ?
(iii) Whether TCS is applicable in the case of an individual?
(iv) Whether TCS on sale of motor vehicles is at retail level also or only by manufacturer to distributor or dealer ?
(i) No, as per section 206C(1F), the seller shall collect tax @ 1% from the purchaser on sale of any motor vehicle of the
value exceeding ₹ 10 lakhs.
(ii) Tax is to be collected at source @ 1% on sale consideration of a motor vehicle exceeding ₹ 10 lakhs. It is applicable to
each sale and not to aggregate the value of sale made during the year.
(iii) The definition of "Seller" as given in clause (c) of the Explanation below section 206C(11) shall be applicable in the case
of sale of motor vehicles also.
Accordingly, an individual whose turnover from business exceeds ₹ 100 lakh in the financial year immediately preceding
the financial year in which the motor vehicle is sold shall be liable for collection of tax at source on sale of motor vehicle
by him.
(iv) To bring high value transactions within the tax net, section 206C has been amended to provide that the seller shall collect
the tax @ 1% from the purchaser on sale of motor vehicles of the value exceeding ₹ 10 lakhs. This is brought to cover all
transactions of retail sales and accordingly, it will not apply on sale of motor vehicles by manufacturers to
dealers/distributors.
Q5. Examine the following transactions with reference to applicability of the provision of tax collected at source.
(i) Saransh takes an education loan from Axis Bank for his son’s MBA Course in Oxford University. Out of the sanctioned loan,
₹ 30 lakh is remitted by Saransh through X Ltd. (an authorized agent) on Nov 5, 2023.
(ii) Mohit’s son wants to complete his PHD from the London School of Business. Total cost of education (including boarding
and lodging) is ₹ 1.25 crores. Mohit takes a loan of ₹ 70 lakhs from State Bank and the balance amount is financed out of
his past savings. On March 5, 2024, he remits ₹ 1 crore through Y Ltd. (an authorized agent) as follows-
● ₹ 60 lakhs is remitted out of loan sanctioned by State Bank; and
● ₹ 40 lakhs is remitted out of past savings of Mohit.
(i) As per Section 206C (1G), Where the amount being remitted out is a loan obtained from any financial institution as defined
in section 80E, for the purpose of pursuing any education, tax is to be collected @ 0.5% of the amount or aggregate of
amounts in excess of Rs 7 lakhs. Therefore, X Ltd. will collect tax at source at the rate of 0.5% on ₹ 23 lakhs i.e ₹ 11,500.
(ii) Y Ltd. will collect tax at source under section 206C (1G) as follows:
Particulars ₹
Remittance of ₹ 60 lakhs out of education loan (0.5% of ₹ 53,00,000) 26,500

Remittance of ₹ 40 lakhs out of sources other than education loan (5% of ₹ 33,00,000) 1,65,000
Total 1,91,500

Q1. Tax shall be collected at source on alcoholic liquor for human consumption @ _______.

(a) 1%
(b) 2.5%
(c) 5%
(d) No tax shall be deducted at source on alcoholic liquor for human consumption
Correct answer : (a) 1%

Explanation:
Tax shall be collected at source on alcoholic liquor for human consumption @ 1%.
Q2. Every seller shall collect tax at source from the buyer
(a) At the time of receipt of such amount

(b) At the time of debit of amount payable
(c) At the time of debit or receipt whichever is earlier
(d) At the time of debit or receipt whichever is later
Correct answer : (c) At the time of debit or receipt whichever is earlier

Explanation:
Every seller shall collect tax at source from the buyer at the time of debit or receipt whichever is earlier
Q3. Hero Motors Ltd., a manufacturer of motor vehicles sold motor vehicles worth ₹ 18 lakhs to Mr. Varun, a dealer of motor
vehicles. Calculate the amount of tax to be collected at source on such sale by Hero Motors Ltd.
(a) ₹ 18,000
(b) ₹ 8,000
(c) ₹ 4,000
(d) Nil

Explanation:
Section 206C is applicable to retail sales only. It does not apply on sale of motor vehicles by manufacturers to dealers/
distributors.
Q4. Tax @ _______ shall be collected at source by every person who transfers any right or interest in mining and quarrying of
petroleum and natural gas.
(a) 1%
(b) 2%
(c) 5%
(d) No tax shall be collected at source
Correct answer : (d) No tax shall be collected at source

Explanation:
Tax @ 2% shall be collected at source by every person who transfers any right or interest in mining and quarrying.
However, mining and quarrying does not include mining and quarrying of mineral oil i.e. petroleum and natural gas.
Q5. No collection of tax shall be made under section 206C(1), in the case of a esident buyer, if such buyer furnishes to the
person responsible for collecting tax, a declaration in writing. The person responsible for collecting tax under this
section shall deliver or cause to be delivered to the Chief Commissioner or Commissioner one copy of the declaration
(a) On or before 7th of the month following the month in which the declaration is furnished to him.
(b) On or before 10th of the month following the month in which the declaration is furnished to him.
(c) Before the end of the month in which the declaration is furnished to him.
(d) Before the end of the financial year
Correct answer : (a) On or before 7th of the month following the month in which the declaration is furnished to him.

Explanation:
The person responsible for collecting tax under this section shall deliver or cause to be delivered to the Chief Commissioner
or Commissioner one copy of the declaration on or before 7th of the month following the month in which the declaration is
furnished to him.

CA LEGENDS - LEGENDSWALE
CA Inter Legends
(Main Channel)
Click to Join
CLICK to Join Channels to Get Subject Wise Notes
Visit our Website to Buy

Lecture of Top Faculties
at Best Price
Chapter 13 - Advance Tax

Q1. Mr. Sachin, a resident individual aged 55, furnishes income details as under:
(i) Wholesale Cloth business, whose turnover is ₹ 150 lakhs, for which accounts are audited u/s 44AB. Income from such
business ₹ 8,20,000.
(ii) Income from other sources ₹ 3,00,000.
(iii) Tax deducted at source ₹ 30,000.
(iv) Advance tax paid ₹ 1,04,000 on 14-3-2024.
Return of income will be filed on 11-12-2024. The assessee is willing to pay the requisite self-assessment tax. Calculate the
interest payable under section 234B of the income-tax Act, 1961. Assume that the return of income would be processed on
the same day of filing of return.
Assume that he exercises the option to shift out of the default tax regime.
An assessee shall be liable to pay interest u/ s 234B(1) where the advance tax paid by the assessee is less than 90% of the
assessed tax. Assessed tax means tax on assessed income - TDS.
The tax liability shall be computed as under:


Tax on total income 1,48,500
Add: HEC @ 4% 5,940
Tax payable 1,54,440
Less: Tax deducted at source 30,000
Assessed tax 1,24,440
90% of assessed tax 1,11,996
Advance tax deposited 1,04,000
Since advance tax deposited falls short off 90% of assessed tax, assessee shall be liable to pay
interest under Section 234B
Amount on which interest payable = Assessed tax - Advance tax paid 20,440
Period for which interest is to be paid = 01-04-2024 to 11-12-2024 (Number of months) 9
Rate of interest (per month or part thereof) 1%
Interest payable under Section 234B 1,840
Q2. Mr. Shikhar, aged 52 years, provides you the following information & requests you to determine his advance tax liability with
due dates for P.Y 2023-24.
Estimated tax liability for PY 2023-24: ₹ 85,000; TDS = ₹ 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?
Determination of Advance Tax Liability of Mr. Shikhar

Tax payable = Estimated tax liability for FY 2023-24 (₹ 85,000) – TDS (₹ 15,000) = ₹ 70,000.
Instalment Date Cumulative Amount payable Amount in ₹
15th June, 2023 15% of advance tax liability 10,500
15th Sep 2023 45% of advance tax liability 21,000 (₹ 31,500, being 45% of ₹ 70,000 – ₹ 10,500)
15th Dec 2023 75% of advance tax liability 21,000 (₹ 52,500, being 75% of ₹ 70,000 – ₹ 31,500)
15th March 2024 100% of advance tax liability 17,500 (₹ 70,000, being 100% of ₹ 70,000 - ₹ 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 instalment on or before 15.03.2024, 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 instalments as indicated above, failing which interest u/s 234C would be attracted.
Q3. Answer the following:
(a) Obligation to pay advance tax arises in every case where advance tax payable is ₹ 10,000 or more. State exception to this
rule.
(b) Mr. Abhimanyu (age 42 years) is engaged in the business of producing & selling toys. During PY 2023-24 his turnover
was ₹ 1.80 crores. He opted for paying tax as per presumptive taxation scheme laid down in u/s 44AD. He has no other
income during PY. Is he liable to pay advance tax & if so, what is minimum amount of advance tax to be paid & due date
for payment of such advance tax?
(a) Although in every case, advance tax is payable if advance tax payable is ₹ 10,000 or more, but in case of senior citizen,
no advance tax is payable provided such an individual does not have income taxable u/h PGBP.
(b) Yes, Mr. Abhimanyu is liable to pay advance tax. As per section 211 (1)(b), an eligible assessee in respect of an eligible
business referred to in section 44AD has to pay advance tax, to the extent of the whole amount of such advance tax
during each FY on or before 15th March. Advance tax shall be computed as under:
Particulars Amount
Presumptive business income (8% of 1.80 crore) 14,40,000
Tax on 14,40,000 2,44,500
Add: Health & education cess @ 4% 9,780
Total tax (rounded off) 2,54,280
Q4. Mr. Narayan is engaged in the retail business of groceries. During PY 2023-24, his turnover was ₹ 1.65 crores. Out of this,
receipt of ₹ 1.30 crore represents online transactions & ₹ 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 2023-24. 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?
Advance tax liability in the hands of Mr. Narayan opting for presumptive taxation: An eligible assessee, opting for
computation of profits or gains of business on presumptive basis in respect of an eligible business referred to in section
44AD, shall be required to pay advance tax of whole amount in one instalment on/before 15th March of PY. Thus, Mr. Narayan
is required to pay advance tax by 15.03.2024. 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 2024.
Advance tax liability = Business Income = (8% of ₹ 35 Lacs) + (6% of ₹ 130 Lacs) = ₹ 10,60,000. in respect of 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 2023-24,
business income would be the total income.
Computation of tax liability

Upto ₹ 2,50,000 Nil
₹ 2,50,001 to ₹ 5,00,000 @ 5% 12,500
₹ 5,00,001 to ₹ 10,00,000 @ 20% 1,00,000
Above ₹ 10,00,001 @ 30% 18,000 1,30,500
Add: Health & Education cess @ 4% 5,220
Total Tax Payable 1,35,720
He is required to pay ₹ 1,35,720 as minimum amount of advance tax by 15th March 2024.

Q5. Ms. Vidhi (aged 30 years), a resident individual, is a dealer of scooters. During the previous year 2023-24, total turnover
of her business was ₹ 110 lakhs (out of which ₹ 25 lakhs was received by way of account payee cheques and balance in
cash). Ms. Vidhi exercises the option to shift out of the default tax regime.
What would be your advice to Ms. Vidhi relating to the provisions of advance tax with its due date along with the amount
payable, assuming that she wishes to make maximum tax savings.
Computation of advance tax of Ms. Vidhi under Presumptive Income scheme as per section 44AD
The total turnover of Ms. Vidhi, a dealer of scooter, is ₹ 110 lakhs. Since her total turnover from such business is less than ₹
200 lakhs and she does not wish to get his books of account audited, she can opt for presumptive tax scheme under section
44AD.
Profits and gains from business computed under section 44AD:
Particulars ₹
6% of ₹ 25 lakhs, being turnover effected through account payee cheque 1,50,000

8% of ₹ 85 lakhs, being cash turnover 6,80,000
8,30,000
An eligible assessee opting for computation of profits and gains of business on presumptive basis under section 44AD in
respect of eligible business is required to pay advance tax of the whole amount on or before 15th March of the financial year.
Computation of tax liability of Ms. Vidhi as per normal provisions of Income-tax Act, 1961
Particulars ₹ ₹

Tax on ₹ 8,30,000
Upto ₹ 2,50,000 Nil
₹ 2,50,001 – ₹ 5,00,000 @ 5% 12,500
₹ 5,00,001 – ₹ 8,30,000 @ 20% 66,000 78,500
Add: Health and Education cess@4% 3,140
Tax liability 81,640
Accordingly, she is required to pay advance tax of ₹ 81,640 on or before 15th March of the financial year. However, any amount
by way of advance tax on or before 31st March of the financial year shall also be treated as advance tax paid during the
financial year ending on that day for all the purposes of the Act.

Q1. Mr. Kabir (a non-resident and aged 70 years) is a retired person, earning rental income of ₹ 45,000 per month from a property
located in Mumbai. He is residing in Canada. Apart from rental income, he does not have any other source of income. Is he
liable to pay advance tax in India? Assume that he exercises the option to shift out of the default tax regime.
(a) Yes, he is liable to pay advance tax in India as he is a non-resident and his tax liability in India exceeds ₹10,000.
(b) No, he is not liable to pay advance tax in India as his tax liability in India is less than ₹10,000.
(c) No, he is not liable to pay advance tax in India as he is a senior citizen and has no income chargeable under the head
“Profits and gains of business or profession”.
(d) Both (b) and (c)
Correct answer : (b) No, he is not liable to pay advance tax in India as his tax liability in India is less than ₹ 10,000.
Explanation:
No advance tax shall be payable by a resident individual who is of the age of 60 years or more at any time during the previous
year if he does not have any income chargeable under the head “Profits and gains of business or profession”. Since Mr. Kabir is
a non-resident, this provision is not applicable to him.
Income from house property = (45,000 * 12) - 30% = ₹ 3,78,000
Tax liability = ₹ 6,400
Since tax liability is less than ₹ 10,000, no advance tax needs to be paid.

Q2. An assessee shall be liable to pay interest u/s 234B (1) where the advance tax paid by the assessee is less than _______ of the
assessed tax.
(a) 50%
(b) 60%
(c) 80%.
(d) 90%
Correct answer : (d) 90%

Explanation:
An assessee shall be liable to pay interest u/s 234B (1) where the advance tax paid by the assessee is less than 90% of the
assessed tax.
Q3. Mr. Jai, a resident Indian aged 60 years, won ₹ 9 lakhs and Mr. Veeru, resident Indian aged 55 years, won ₹ 8 lakhs from
lotteries. Tax deductible at source under section 194B was duly deducted. Assuming that this is the only source of income of
Mr. Jai and Mr. Veeru for A.Y. 2024-25, are Mr. Jai and Mr. Veeru liable to pay advance tax for that year?
(a) No, Mr. Jai and Mr. Veeru are not liable to pay advance tax
(b) Yes, Mr. Jai and Mr. Veeru are liable to pay advance tax
(c) Mr. Jai is liable to pay advance tax but Mr. Veeru is not liable to pay advance tax
(d) Mr. Veeru is liable to pay advance tax but Mr. Jai is not liable to pay advance tax
Correct answer : (a) No, Mr. Jai and Mr. Veeru are not liable to pay advance tax
Explanation:
Since TDS is already being deducted, there is no advance tax liability.
Q4. If the net tax payable by Mr. Abhay for the P.Y. 2023-24 amounts to ₹ 1,09,720, what will be the amount of net installment
payable by him on 15-12-2023.
(a) ₹ 858
(b) ₹ 1,716
(c) ₹ 4,290
(d) ₹ 1,05,430
Correct answer : (d) ₹ 1,05,430

Explanation:
Advance Tax will be paid as follows:
On 15-06-2023 : 15 % of 1,09,720 = ₹ 858
On 15-09-2023 : (45 % of 1,09,720) - 858 = ₹ 1,716
On 15-12-2023 : (75 % of 1,09,720) - (858 + 1,716) = ₹ 1,716
On 15-03-2024 : (100 % of 1,09,720) - (858 + 1,716 + 1,716) = ₹ 1,05,430
Q5. Where the assesee pays self assessment tax u/s 140A and advance tax paid by the assessee is less than 90% of the
assessed tax, interest needs to be calculated on
(a) Assessed tax - Tax paid on self assessment u/s 140A

(b) Assessed tax - Advance tax paid by the assessee
(c) Assessed tax - Advance tax paid by the assessee - Tax paid on self assessment u/s 140A
(d) Advance tax paid by the assessee - Tax paid on self assessment u/s 140A
Correct answer : (c) Assessed tax - Advance tax paid by the assessee - Tax paid on self assessment u/s 140A
Explanation:
Where the assesee pays self assessment tax u/s 140A and advance tax paid by the assessee is less than 90% of the
assessed tax, interest needs to be calculated on Assessed tax - Advance tax paid by the assessee - Tax paid on self
assessment u/s 140A.

Chapter 14 - Computation of Total Income and Tax Payable

Q1. Compute total income and tax liability thereon of Mr. Raghav for the A.Y. 2024-25 from the following details:
Mr. Raghav (aged, 61 years) working in a private company for the last 10 years. His salary details for the financial year
2023-24 are:
(i) Basic Salary 1,70,000 p.m.

(ii) Dearness Allowance (forms part of retirement benefits) 80,000 p.m.
(iii) Commission 32,000 p.m.
(iv) Transport Allowance 5,000 p.m.
(v) Medical Reimbursement 40,000
Mr. Raghav resigned from the services on 30th November, 2023 after completing 10 years and 5 months of service. He was
paid gratuity of ₹ 25 lakhs on his retirement. He is not covered under the Payment of Gratuity Act, 1972.
He started the business of hiring of goods vehicles, purchased 4 small goods vehicles on 10th December, 2023 and 4 heavy
vehicles having gross weight of 20 MTs each on 1st January, 2024. He did not maintain books of accounts for the business of
hiring of goods vehicles. Mr. Shivpal, his very close friend, gifted him ₹ 2 lakhs to purchase the vehicles.
He was holding 30% equity shares in TSP (P) Ltd., an Indian company. The paid up share capital of the company as on 31st
March, 2023 was ₹ 20 lakh divided into 2 lakh shares of ₹ 10 each which were issued at a premium of ₹ 30 each. Company
allotted shares to shareholders on 1st October, 2014.
He sold all these shares on 30th April, 2023 for ₹ 60 per share. Equity shares of TSP (P) Ltd. are listed on National Stock
Exchange and Mr. Raghav has paid STT both at the time of acquisition and transfer of such shares. FMV on 31.1.2018 was
Rs. 50 per share.
On 12.2.2024, interest of fixed deposits of ₹ 90,000 credited to his SBI Bank. On 30.4.2023, ₹ 5,500 and on 30.12.2023, ₹ 8,500
credited to interest on saving bank A/c with SBI Bank.
He deposited ₹ 1,10,000 in PPF A/c. He paid an insurance premium of ₹ 20,000 on his life policy during the financial year
2023-24. The policy was taken in April 2011 and the sum assured was ₹ 3,00,000. He also made payment of ₹ 25,000 towards
L.I.C. pension fund and premium of ₹ 40,000 towards mediclaim policy for self and ₹ 20,000 for his wife. All the payment he
made by A/c payee cheque.
There was no change in salary of Mr. Raghav from the last two years. He does not opt to pay tax as per section 115BAC.
Cost inflation Index is:
Financial Year Cost Inflation Index
2014-15 240
2023-24 348
Assume that he exercises the option to shift out of the default tax regime.
Computation of Total Income of Mr. Raghav for the A.Y. 2024-25
Particulars ₹ ₹
Salaries
Basic Salary = 1,70,000 x 8 13,60,000
Dearness Allowance = 80,000 x 8 6,40,000
Commission = 32,000 x 8 2,56,000
Transport Allowance = 5,000 x 8 40,000
Medical reimbursement [Fully taxable] 40,000
Gratuity – Amount received 25,00,000

Less: Least of the following exempt u/s 10(10)

(i) Actual Gratuity received ₹25,00,000
(ii) ½ month’s salary for every year of completed service [ ½ x 2,50,000 (Basic salary
plus DA) + x 10] = ₹ 12,50,000
(iii) Notified limit of ₹ 20,00,000
Least of the above is exempt 12,50,000 12,50,000
Less: Standard deduction u/s 16(ia) [Actual salary or Rs. 50,000, whichever is less] 50,000
Net Salary 35,36,000

Income from business of hiring goods vehicle
Other than heavy goods vehicles = 4 x (₹ 7,500 p.m.) x (4 months) 1,20,000
Heavy goods vehicles = 4 x (20 MTs x ₹ 1,000 per MT) x (3 months) 2,40,000 3,60,000
Capital Gains
On transfer of 60,000 shares (2,00,000 x 30%)
Sales consideration [60,000 x ₹ 60 per share] 36,00,000
Less: Cost of acquisition, higher of – 30,00,000
- Actual cost [60,000 x ₹ 40 per share] 24,00,000
- Lower of
• FMV on 31.1.2018 [60,000 x 50] 30,00,000
• Actual sales consideration [60,000 x 60] 36,00,000
Long-term capital gains u/s 112A (since shares are held for a period of more than
12 months before transfer)
6,00,000

Gift from friend taxable u/s 56(2)(x) since the same exceeds Rs 50,000. It is fully
2,00,000
taxable
Interest on Saving A/c with SBI Bank
14,000
Interest on Fixed deposits with SBI Bank
1,00,000 3,14,000
[Since interest is credited after deduction of at source @ 10%, as the amount of
interest exceeds ₹ 50,000, amount included in the total income need to be grossed
up (₹ 90,000 x 100/90)]

Section 80C
Deposits in PPF A/c 1,10,000
Life Insurance premium [fully deductible, since, in respect of a policy taken before
1.4.2012, the actual premium paid (₹ 20,000) or 20% of the sum assured (₹
3,00,000 x 20% = ₹ 60,000), whichever is lower, has to be deducted]
20,000
1,30,000
Section 80CCC
Payment to LIC Pension Fund
25,000
1,55,000
Restricted to ₹ 1,50,000, being the maximum allowable deduction
1,50,000
Section 80D
Medical insurance premium for self and spouse ₹ 60,000, allowable to the extent of

₹ 50,000, since Mr. Raghav is a senior citizen 50,000
Section 80TTB
Deduction in respect of interest on fixed deposits and saving bank allowable as
deduction under section 80TTB, since Mr. Raghav is a senior citizen, to the extent
of ₹ 50,000 50,000
Computation of tax liability of Mr. Raghav for A.Y. 2024-25
Particulars ₹ ₹
Tax on total income of ₹ 45,60,000

Tax on long-term capital gains of ₹ 6,00,000 arising from transfer of listed shares 50,000
@10% under section 112A after deducting ₹ 1 lakh.
Tax on other income of ₹ 39,60,000 [₹ 45,60,000 – ₹ 6,00,000 capital gains]
Upto ₹ 3,00,000 Nil

₹ 3,00,001 – ₹ 5,00,000 [i.e., ₹ 3,00,000 @ 5%] 10,000
₹ 5,00,001 – ₹ 10,00,000 [i.e., ₹ 5,00,000 @ 20%] 1,00,000
₹ 10,00,001 – ₹ 39,60,000 [i.e., ₹ 29,60,000 @ 30%] 8,88,000 9,98,000
10,48,000
Add: Health and Education cess @ 4%
41,920
Tax liability 10,89,920
Q2. Mr Narayan, aged 48 years, is a lawyer of Delhi High Court. He keeps his accounts on a cash basis. His receipt and payments
A/c for the year ending 31.3.2024 is given below:
Receipts and Payments Account for the year ending 31.3.2024
Dr. Cr.
Particulars ₹ ₹ Particulars ₹
Balance b/d 3,820 Subscriptions and membership 4,500
Legal Fees Purchase of legal books 7,500
2023-24 53,45,000 Rent 47,500
2022-23 1,00,000 54,45,000 Car expenses 14,000
Special commission Fees 5,500 Office expenses 8,500
Salary from law College as 1,37,000 Electricity expenses 4,000

part-time lecture
Exam Remuneration 1,480 Income Tax 8,000
Interest on Saving Bank Deposit 3,500 Gift to daughter 12,000
Sale proceeds of residential 2,92,000 Domestic expenses 35,000

property

Dividend from Co-operative 1,000 Donation to Institutions approved 2,000

society u/s 80G
Dividend received from the units 2,000 Car purchased 5,20,000

of UTI
Rent from house property 15,000 Life insurance premium 60,000
Agricultural Income 64,000 Salary to Staff 15,00,000
Balance c/f 37,47,300
59,70,300 59,70,300
The following information is available:

1. The Rent and electric expenses are related to a house, of which half portion is used for self-residence and the remaining
half portion is used for an office.
2. The car is used only for professional purposes.
3. Outstanding legal fees ₹ 10,000.
4. Rent has been paid for 10 months only.
5. The car was purchased on 25.9.2023. Law books purchased are annual publications out of which books of ₹ 2,000 were
purchased on 6.4.2023 and the balance on 31.10.2023.
6. The house was purchased in April 2001 for ₹ 1,16,000 and sold on 1.7.2023. (Cost Inflation Index: 2001-02: 100, 2023-24:
348)
7. Rent of the property which has been sold was ₹ 5,000 p.m. The property was vacated by the tenant on 30.6.2023.
Compute his total income and tax payable for the assessment year 2024-25. Assume that he exercises the option to shift out
of the default tax regime.
Computation of total income of Mr Narayan for the assessment year 2024-25
Particulars ₹ ₹ ₹
Income from salary

Salary as a part-time lecturer 1,37,000
Less: Standard deduction 50,000 87,000

Gross Annual Value
[₹ 5,000 x 12 = ₹ 60,000, Proportionate for 3 months 60,000 x
3/12] 15,000
Less: Municipal taxes -
Net Annual value 15,000
Less: Standard deductions @ 30% 4,500 10,500
Income from profession

Professional Earnings:
Legal Fees 54,45,000
Special Commission 5,500
54,50,500
Less: Allowable expenses
Subscription 4,500
½ rent (office) 23,750
Car expenses 14,000
½ electronic charges 2,000

Office expenses 8,500

Depreciation on car @ 15% 78,000
Depreciation on books 1,900
Salary to staff 15,00,000 16,32,650 38,17,850
Capital gains
Sale Consideration 2,92,000
Less: Indexed cost of acquisition ₹ 1,16,000 x 348/100 4,03,680
Long term capital loss to be carried forward 1,11,680

Interest on bank deposit 3,500
Examiner’s fees 1,480
Dividend from Co-operative Society 1,000
Dividend From UTI 2,000 7,980

Less: Deductions
80C -LIP 60,000
80G - Donation @ 50% of ₹ 2,000 1,000
80TTA 3,500 64,500
Total Income (rounded off) 38,58,830

Tax on ₹ 38,58,830 9,70,149
Add: H&EC @4% 38,806
Total tax (rounded off) 10,08,960
Working notes:
1. As the assessee follows the cash system of accounting, the amount actually received and payment actually made on
account of expenditure, during the year, shall be considered for computing the income. Therefore, any outstanding receipts
will not be included in the Total Income. Similarly, rent not paid for two months will not be allowed as a deduction.
2. The system of accounting does not effect the computation of income from salary, house property and capital gains.
Therefore, in this case, rent for three months, though not received (as it has not been shown in the Receipt and payment
Account) shall be taken into account in computing the income under the head house property.
3. Car was purchased and put to use for more than 180 days. Therefore, full depreciation @15% has been claimed.
4. Law books worth ₹ 2,000 were purchased and put to use for more than 180 days and are, therefore, eligible for
depreciation @ 40%. The balance books worth ₹ 5,500 were purchased on 31.10.2023; therefore 50% of the normal
depreciation of 40% will be allowed as the books were purchased and put to use for less than 180 days. The total
depreciation shall, therefore, be ₹ 800 + 20% of ₹ 5,500 = ₹ 1,900
Q3. Miss Sakshi, a resident individual, aged 35 years, furnishes the following particulars relating to the year ended 31-3-2024:
(a) Analysis of her bank account in her ledger reveals the under-mentioned data:
(i) Winnings from a TV Game show (Net) - ₹ 70,000
(ii) Gift received from mother's father - ₹ 80,000
(iii) Gift received from Ramya, her close friend - ₹ 60,000
(iv) Interest on capital received from Vidyut & Co., a partnership firm in which she is a partner (@15% p.a.) - ₹
3,00,000
(v) Rent received for a vacant plot of land - ₹ 2,00,000
(vi) Amount received from Sharks Pvt. Ltd., for a house at Salem for which she had been in negotiation for
enhanced rent three years back. This has not been taxed in any earlier year. The house was, however, sold off in
March, 2023 - ₹ 1,50,000
(vii) Amount received under Keyman Insurance Policy - ₹ 2,20,000
(viii) Amount forfeited by a buyer of her vacant plot, since the buyer could not finalize the deal as per agreement - ₹
3,10,000

(b) Donation given in cash to a charitable trust registered u/s 12AA - ₹ 12,000
(c) She owns agricultural lands at Colombo, Sri Lanka. She has derived agricultural income therefrom - ₹ 1,80,000
(d) (i) Public Provident Fund paid in the name of her minor daughter - ₹ 75,000
(ii) Interest credited in the said PPF account during the year - ₹ 8,900
(e) Share of profits received from Vidyut & Co., - ₹ 1,90,000
You are required to compute the total income of the assessee and the tax payable for the assessment year 2024-25.
Computation should be made under proper heads of income.
Assume that she exercises the option to shift out of the default tax regime.
Computation of total income and tax payable of Miss Sakshi for A.Y. 2024-25

Arrears of rent [Taxable, even if Ms. Sakshi is no longer the owner of house 1,50,000
property]
Less: 30% of arrears of rent 45,000 1,05,000

Interest on capital @12%, being the maximum allowable interest [₹ 2,40,000
3,00,000/15% x 12%] assuming interest@12% is authorized by the partnership
deed and has been allowed as deduction while computing the income of the
firm
Share of profit from Vidyut & Co., a firm [Exempt] -
Amount received under Keyman Insurance Policy 2,20,000 4,60,000

Winning from a TV Game show (Gross) [₹ 70,000 x 100/(100-30)] 1,00,000
Gift received from non-relatives exceeding ₹ 50,000 in aggregate
- Gift received from mother’s father, since mother’s father does not fall within
the definition of relative ₹ 80,000
- Gift received from Ramya, her close friend ₹ 60,000 1,40,000
Rent received for a vacant plot of land 2,00,000
Amount forfeited on cancellation of agreement for transfer of vacant plot 3,10,000
Agricultural income from agricultural land at Colombo, Sri Lanka [not exempt,
since such income is derived from land outside India]
1,80,000
Interest credited in PPF account [Exempt]
- 9,30,000
Gross Total Income

14,95,000
Less: Deductions under Chapter VI-A
Section 80C PPF subscription in the name of minor daughter
75,000
Section 80G Donation of ₹ 12,000 to a charitable trust registered u/s 12AA is

not allowable as deduction since the same is made in cash in excess of ₹
2,000
Nil 75,000
Total Income
14,20,000
Computation of tax liability:
Tax on winnings of ₹ 1,00,000 from TV game show @ 30%
Tax on balance income of ₹ 13,20,000 30,000
Total Tax 2,08,500
Add HEC @ 4% 2,38,500
Tax liability 9,540
Less: TDS 2,48,040
Tax payable 30,000

2,18,040
Q4. From the following particulars of Shri Mahesh (aged 59 years) for the Assessment Year 2024-25, you are required to find
out his taxable income and net tax liability.
(i) Basic Salary @ ₹ 51,000 per month, Dearness allowance @ ₹ 10,000 per month (Part of salary for retirement
benefits), House rent allowance ₹ 4,000 per month and rent paid for a house in Mumbai is ₹ 7,000 per month.
(ii) He owns a commercial building at New Delhi, which is let out on 01-07-2023 at a monthly rent of ₹ 46,000. He paid
municipal taxes of ₹ 27,000 and ₹ 25,000 for the financial year 2022- 23 and 2023-24 on 31-3-2024 and 20-4-2024,
respectively.
(iii) He deals in shares. During the financial year 2023-24, he earned ₹ 1,70,000 from his share business and paid ₹
30,000 as securities transaction tax.
(iv) He purchased 4000 unlisted shares of Shyam Limited on 16-1-2008 for ₹ 80,000. Company declared a bonus in the
ratio of 1:1 on 1st February, 2008. Shri Mahesh sold 3000 Bonus Shares on 28-12-2023 for ₹ 2,00,000 to his friend
Mr. Mehul through an unrecognized stock exchange. (Cost Inflation Index: 2007-08: 129, 2023-24: 348)
(v) He received a net dividend of ₹ 11,70,000 as dividend income from a listed domestic company. Interest from saving
bank account deposits with IDBI Bank ₹ 15,000 and lottery winnings (Net of TDS @ 30%) is ₹ 21,000.
He paid the following amount out of his taxable income:

(a) Deposits in Public Provident Fund ₹ 2,00,000.
(b) Medical insurance premium paid for the health of his wife ₹ 19,000 and for the health of dependent son ₹ 12,000
through cheque.
Assume that he opts to pay tax under default tax regime.
Computation of total income of Mr Mahesh for A.Y. 2024-25
Particulars ₹ ₹
Salaries
Basic Salary = ₹ 51,000 x 12 6,12,000
Dearness Allowance (DA) = ₹ 10,000 x 12 1,20,000
House Rent Allowance (HRA) = ₹ 4,000 x 12 [Fully taxable under default tax
regime] 48,000


Gross Annual Value [₹ 46,000 x 9] 4,14,000
Less: Municipal tax paid during the P.Y. 2023-24 27,000
Less: Deduction u/s 24 [30% of Net Annual Value] 1,16,100 2,70,900

Profits from share business 1,70,000
Less: Securities transaction tax paid deductible u/s 36(1)(xv) 30,000 1,40,000
Capital Gains
Less: Indexed cost of acquisition (Cost of acquisition of bonus shares is Nil as Nil
per section 55. Since the bonus shares were allotted on 1-2-2008, the period of
2,00,000
holding of bonus shares exceeds 2 years, therefore it is a long term capital asset)

13,00,000
Dividend received from domestic company [11,70,000 x 100/90]

Interest from saving bank account deposits with IDBI Bank 15,000
Lottery winnings [21,000 x 100/70] 30,000
13,45,000
Gross Total Income
26,85,900
Section 80C [Not allowed under default tax regime] -
Section 80D [Not allowed under default tax regime] -
Section 80TTA [Not allowed under default tax regime] -
26,85,900
Total Income
Tax on long-term capital gains of ₹ 2,00,000 @ 20% u/s 112 40,000

Tax on lottery income of ₹ 30,000 @ 30% u/s 115BB 9,000
Balance income taxable at normal rates ₹ 26,85,900 - ₹ 30,000 - ₹ 2,00,000 i.e. ₹ 4,36,770
24,55,900
Total tax 4,85,770
Add HEC @4% 19,431
Total tax liability [rounded off] 5,05,201
Less : TDS on dividends (₹ 13,00,000 x 10%) 1,30,000
Less : TDS on lottery winnings (₹ 30,000 x 30%) 9,000
3,66,201
Tax payable
Q5. Mr. Rajat, a resident individual aged 35 years, furnished the following information from his Profit and Loss Account for
the year ended 31st March 2024:
(i) The net profit was ₹ 6,50,000.
(ii) The following incomes were credited in the Profit & Loss Account:
● Interest on government securities ₹ 25,000
● Dividend from a foreign company ₹ 18,000.
● Gold coins worth ₹ 55,000 received as a gift from his father.
(iii) Depreciation debited in the books of account was Rs 85,000. Depreciation allowed as per Income-tax Act, 1961 was
₹ 96,000.
(iv) Interest on loan amounting to ₹ 68,000 was paid in respect of capital borrowed for the purchase of the new asset
which has not been put to use till 31st March, 2024.
(v) General expenses included:
● An expenditure of ₹ 20,500 which was paid by a bearer cheque.
● Compensation of ₹ 4,500 paid to an employee while terminating his services in the business unit.
(vi) He contributed the following amounts by cheque:
● ₹ 45,000 in Sukanya Samridhi Scheme in the name of his minor daughter Alpa.
● ₹ 20,000 to the Swachh Bharat Kosh set up by the Central Government.
● ₹ 28,000 towards premium for health insurance and ₹ 2,500 on account of preventive health check up for self
and his wife.
● ₹ 35,000 on account of medical expenses of his father aged 82 years (no insurance scheme had been availed
on the health of his father).
You are required to compute the total income of Mr. Raghav for the Assessment Year 2024-25. Assume that he
exercises the option to shift out of the default tax regime.
Computation of total income of Mr. Rajat for the Assessment Year 2024-25

Net profit as per profit and loss account 6,50,000

Add Expenses debited to P&L A/c but not allowable as deduction

Interest on loan amounting to was paid in respect of capital borrowed for the 68,000
purchase of the new asset which has not been put to use till 31-3-2024 [WN-1]
Expenditure which was paid by a bearer cheque. [WN-2] 20,500
Depreciation debited in the books of account 85,000
Compensation paid to an employee while terminating his services in the business -
unit. [WN-3]
Less: Income credited to profit and loss account but not taxable under this head
Interest on government securities 25,000
Dividend from foreign company 18,000
Gift of gold coins received from his father 55,000
Depreciation allowable under the Income-tax Rules, 1962 96,000 6,29,500

Interest on Government Securities 25,000
Dividend from foreign company [WN-4] 18,000
Gift of gold coins received from his father [WN-5] -
43,000

U/s 80C : Sukanya Samridhi Scheme 45,000
U/s 80D : Insurance premium [WN-6] 25,000
Medical Expenses of Father (82 Yrs) [WN-6] 35,000
U/s 80G : Contribution to Swachh Bharat Kosh [WN-7] 20,000 1,25,000
Working notes:
1. As per Section 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. As per Section 40A(3), expenditure in respect of which aggregate payments made to a person in a day, in excess of
₹ 10,000, made otherwise than by way of account payee cheque/demand draft is disallowed in full.
3. Compensation of ₹ 4,500 paid to an employee while terminating his services in the business unit is allowed as
deduction under section 37.
4. Dividend from Foreign Company is Taxable under the Head "Income from Other Sources".
5. As per Section 56(2)(x), a gift received from a relative (father) is exempt from tax.
6. Deduction in respect of health insurance premium paid on the health of himself and preventive health check up for
self and his wife shall be allowed subject to a maximum of ₹ 25,000.
Deduction under section 80D in respect of medical expenditure of his father who is a senior citizen shall be allowed
of ₹ 35,000.
7. 100% deduction under section 80G for contribution to Swachh Bharat Kosh set up by the Central Government shall
be allowed without any restriction.
Q6. Mr. Vansh Kumar, resident, aged 64, furnishes the following information pertaining to the year ended 31-3-2024:
(i) Pension received (Net of TDS) 6,27,000

(ii) Short-term capital gains (from sale of listed shares) 65,000
(iii) Long-term capital gains (from sale of listed shares) 1,24,000
(iv) Interest on fixed deposit from bank 1,60,000
(v) Pertaining to consultancy services provided by him:

Gross receipts 12,60,000

Expenses:
Rent for premises 1,44,000
Salary of P.A. 1,20,000
Stenographer's salary 1,00,000
Business Development expenditure 91,000
Conveyance 3,00,000
(vi) Contribution to PPF 1,10,000
(vii) Premium on life insurance policy taken on 10-1-2022 (sum assured Rs 5,00,000) 60,000
(viii) Mediclaim Insurance Premium for self (paid otherwise than by cash) 47,000
Preventive health checkup expenses (in cash) 6,000
(ix) Donation given in cash to a charitable trust registered under Section 12AA (eligible for
deduction under section 80G) of the Income-tax Act, 1961 14,000
(x) Interest received from Post Office Savings A/c 18,000
Additional information:
● TDS from pension: ₹ 25,000
● 1/4th of conveyance expenses is estimated for personal use.
● Listed shares were sold in recognized stock exchange.
Compute the total income of the assessee for the assessment year 2024-25, under proper heads of income. Ignore the
provisions of section 44ADA. Assume that he exercises the option to shift out of the default tax regime.
Computation of total income of Mr. Vansh Kumar for the Assessment Year 2024-25
Income from Salary

Pension received (net of TDS) 6,27,000
Add: Tax deducted at source 25,000
Gross salary 6,52,000

Gross Receipts 12,60,000
Less: Rent for premises 1,44,000
Salary of P.A. 1,20,000
Stenographer’s salary 1,00,000
Business development expenditure 91,000
Conveyance for official use [WN 1] 2,25,000 5,80,000
Capital Gains
Short term capital gains (from sale of listed shares) 65,000
Long term capital gains (from sale of listed shares) [WN 2] 24,000 89,000

Interest on fixed deposit from bank 1,60,000
Interest on Post Office Savings Account [₹ 18,000 - ₹ 3,500] [WN 3] 14,500 1,74,500

Less: Deduction u/s 80C
Contribution to PPF 1,10,000
Premium on life insurance policy taken on 10-1-2022 (sum assured ₹ 5,00,000) 50,000

[WN 4]
Amount of deduction under Section 80C cannot exceed ₹ 1,50,000 1,60,000 1,50,000
Deduction u/s 80D

Mediclaim Insurance Premium for self (paid otherwise than by cash) 47,000
Preventive health checkup expenses (in cash) [WN 5] 5,000
52,000 50,000
Deduction u/s 80TTB (Interest on fixed deposit from bank) [WN 6] 50,000
Deduction u/s 80G (Donation in cash exceeding ₹ 2,000 is not eligible for Nil
deduction)
Working notes:
1. Since 1/4th of the conveyance expenses is estimated for personal use, hence, the same shall not be allowed under
Section 37(1). Therefore, allowable conveyance expenses is 3/4th of ₹ 3,00,000 = ₹ 2,25,000
2. Long-term capital gain on sale of shares on which STT is paid both at the time of acquisition & sale is exempt upto
₹ 1 lakh as per section 112A.
3. Interest from post office saving bank account is exempt from tax u/ s 10(15) upto ₹ 3,500
4. Deduction shall be allowed in respect of premium paid for life insurance only to the extent of 10% of sum assured
in respect of insurance policy issued after 01-04-2013. Thus, 10% of ₹ 5,00,000 = ₹ 50,000 shall be eligible for
deduction u/ s 80C.
5. As per section 80D, in case the premium is paid in respect of health of a person specified therein and for health
check-up of such person who is a senior citizen i.e., aged 60 years or more, deduction shall be allowed up to ₹
50,000. Further, deduction up to ₹ 5,000 in aggregate (within the monetary limits of ₹ 50,000) shall be allowed in
respect of health check-up of self, spouse, children and parents. In order to claim deduction under section 80D, the
payment for health-check up 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. Hence, a maximum of ₹ 50,000 shall be eligible in the above
case.
6. In case of resident individuals of the age of 60 or more, interest on bank fixed deposits qualifies for deduction upto
₹ 50,000 under section 80TTB.
Q7. Mr. Uday Shankar (aged 67 years) is retired from a PSU. He resides in Indore, Madhya Pradesh. He provides you following
particulars of his income & certain payments/investments for PY 2023-24:
(i) Pension Income 7,80,000

(ii) Interest from FD (Gross) 2,35,000
(iii) Life insurance premium paid by cheque for insurance of his life. Insurance policy was taken
on 08.09.2016 & the sum assured is 2,50,000. 25,500
(iv) Premium paid by cheque for health insurance of self & his wife, who is also senior citizen 36,000
(v) Paid in cash for his health check-up 3,500
(vi) Paid through cheque for preventive health check-up of his mother aged 90 years 4,500
(vii) Paid interest on loan taken from bank for MBA course pursued by his daughter 9,500
(viii) Donated by cheque to an institution approved for sec. 80G for promoting family planning 95,000
(ix) Contributed towards PM CARES Fund by cheque 20,000
Compute total income of Mr. Uday Shankar for the AY 2024-25, assuming he exercises the option to shift out of the default
tax regime.
Computation of total income of Mr. Uday Shankar for the Assessment Year 2024-25
Income from Salary

Pension 7,80,000

Interest on fixed deposit from bank (Gross) 2,35,000

Less: Deduction u/s chapter V1 A
Deduction u/s 80C

LIC premium of ₹ 25,500 (restricted to 10% of ₹ 2,50,000, being sum assured as 25,000
the policy is taken after 31.3.2012)
Deduction u/s 80D

Premium for health insurance for self & his wife paid by cheque, allowed upto ₹
50,000 since Mr. Uday Shankar is a senior citizen 36,000
Preventive health check-up for self ₹ 3,500 & for his mother ₹ 4,500, restricted to
₹ 5,000 (deduction allowed even if same is paid in cash) 5,000 41,000
Deduction u/s 80E

Interest on loan taken from bank for MBA course pursued by his daughter
9,500
Deduction u/s 80G

Donation to PM CARES Fund – 100% allowable 20,000
Donation to an approved institution for promoting family planning – 100% 83,950 1,03,950
allowable subject to qualifying limit of ₹ 83,950 i.e., 10% of ₹ 8,39,500 being the
adjusted total income
Deduction u/s 80TTB

Interest on FD with bank allowable as deduction upto ₹ 50,000, since Mr. Uday 50,000
Shankar is a senior citizen
Q8. Determine Gross total Income of Shri Ravi Kumar & Smt Ravi Kumar for AY 2024-25 from the following:
(1) Salary received by Shri Ravi Kumar from a company ₹ 1,80,000 p.a. & Smt Ravi Kumar also doing job in a company &
getting salary of ₹ 2,40,000 p.a.
(2) Shri Ravi Kumar transferred a flat to his wife Smt Ravi Kumar on 1.9.2023 for adequate consideration. The rent received
from this let-out flat is ₹ 9,000 p.m.
(3) Shri Ravi Kumar & his wife Smt. Ravi Kumar both are partners in a firm. Shri Ravi Kumar received ₹ 36,000 & Smt. Ravi
Kumar received ₹ 64,000 as interest from the firm & also had a share of profit of ₹ 12,000 & ₹ 26,000 respectively.
(4) Smt. Ravi Kumar transferred 10% debentures worth ₹ 3,00,000 to Shri Rav Kumar. The whole amount of ₹ 3,30,000
invested by Shri Ravi Kumar in the similar investments & earned income of ₹ 39,000.
(5) Mother of Shri Ravi Kumar transferred a property to Master Mohit (son of Shri Ravi Kumar) in the year 2022. Master Mohit
(Aged 13 years) received ₹ 15,000 as income from this property on 20.2.2024. Assume Shri Ravi Kumar & Smt Ravi
Kumar exercises the option to shift out of the default tax regime.
Computation of total income for the Assessment Year 2024-25
Particulars Shri Ravi Kumar Smt Ravi Kumar
Income from Salary

(1,80,000 - Standard deduction of 50,000) 1,30,000

(2,40,000 - Standard deduction of 50,000) 1,90,000

(9,000 x 5 = 45,000 - Standard deduction @ 30% i.e., 13,500) 31,500
(9,000 x 7 = 63,000 - Standard deduction @ 30% i.e., 18,900) 44,100
Interest on debentures (as debentures were transferred from Smt. Ravi Kumar) 39,000
Income from property of minor son (15,000 - exemption u/s 10(32) of 1,500) 13,500
[clubbed in income of Mrs. Ravi Kumar as her other income excluding income
from partnership firm is greater)
Interest from partnership firm 64,000 + 36,000 of her spouse as her total income 1,00,000
is higher
Share of profit (exempt) Nil
Gross Total Income 1,61,500 3,86,600
Q9. From the following particulars furnished by Mr. Ganesh, aged 58 years, a resident Indian for PY ended 31.3.2024, you are
requested to compute his total income & tax liability (including AMT) under optional as well as default tax regime for AY
2024-25.
(1) He occupies ground floor of his residential building & has let out the first floor for residential use at an annual rent of
2,28,000. He has paid municipal taxes of 60,000 for current FY.
(2) He owns an industrial undertaking established in a SEZ & which had commenced operation during FY 2020-21. Total
turnover of the undertaking was 200 lakhs, which includes 140 lakhs from export turnover. This industrial undertaking
fulfills all the conditions of section 10AA of Income-Tax Act, 1961. Profit from this industry is 25 lakhs.
(3) He received royalty of 2,88,000 from abroad for a book authored by him on the nature of artistic. The rate of royalty as
18% of value of books & expenditure made for earning this royalty was 40,000. The amount remitted to India till
30.9.2024 is 2,30,000.
(4) Received 40,000 as interest on saving bank deposits.
(5) Received 47,000 as share of profit from an AOP where all the members are individuals & which had paid the tax by normal
rates of income tax.
(6) He also sold his vacant land on 10.11.2023 for 10 lakhs. SDV of land at the time of transfer was 14.64 lakhs. FMV of land
as on 1.4.2001 was 4 lakhs. This land was acquired by him on 5.8.1995 for 1.80 lacs. He had incurred registration
expenses of 10,000 at that time. Cost of inflation index for year 2023-24 & 2001-02 are 348 & 100 respectively.
(7) He paid the following amounts, out of his taxable income:
(a) Insurance premium of 39,000 paid on life insurance policy of son, who is not dependent on him.
(b) Insurance premium of 48,000 on policy of his dependent father,
(c) Tuition fees of 42,000 for his three children to a school. The fees being 14,000 p.a. per child.
Computation of total income of Mr. Ganesh for the Assessment Year 2024-25 (optional tax regime)

(a) Let out
Less: Municipal taxes 30,000
Net Annual value 1,98,000
Less: Standard deductions @ 30% 59,400 1,38,600
(b) Self occupied


Income from business or profession

Profit from unit in SEZ 25,00,000
Share of profit from AOP 47,000 25,47,000
Long term Capital Gains

Deemed sale consideration as per section 50C 14,64,000
Less: Indexed cost of acquisition 4,00,000 x 348/100 13,92,000 72,000

Royalty received Less: Expenditure 2,48,000
Bank interest 40,000 2,88,000

Less: Deduction u/s 10AA (25,00,000 x 140/200) 17,50,000
Less: Deduction u/s 80C
Premium paid on life of son 39,000
Premium paid life of dependent father Nil
Tuition fee for 2 children 28,000 67,000
Deduction u/s 80QQB

Royalty amount brought into India 2,30,000 - expense already allowed as 1,90,000
deduction
Deduction u/s 80TTA

Bank Interest 10,000
Tax payable under optional tax regime
Particulars ₹ ₹
Tax on long-term capital gains of ₹ 72,000 @ 20% 14,400

Tax on other income of ₹ 9,56,600
Upto ₹ 2,50,000 Nil
₹ 2,50,001 – ₹ 5,00,000 [i.e., ₹ 2,50,000 @ 5%] 12,500
₹ 5,00,001 – ₹ 9,56,600 [i.e., ₹ 4,56,600 @ 20%] 91,320 1,03,820
1,18,220
Add: Health and Education cess @ 4% 4,729
Computation of Alternate Minimum Tax u/s 115JC
Particulars ₹
Total income as per normal provision 10,28,600

Add: Deduction u/s 10AA 17,50,000
Deduction u/s 80QQB 1,90,000

Adjusted Total Income 29,68,600

AMT @ 18.5% 5,49,191
AMT Liability 5,71,159
Since tax payable under normal provisions is less than AMT, adjusted total income would be deemed as total income.
Therefore, tax liability will be Rs 5,71,159.
Computation of total income of Mr. Ganesh for the Assessment Year 2024-25 (default tax regime)

(a) Let out
Less: Municipal taxes 30,000
Net Annual value 1,98,000
Less: Standard deductions @ 30% 59,400 1,38,600
(b) Self occupied


Profit from unit in SEZ 25,00,000
Share of profit from AOP 47,000 25,47,000
Long term Capital Gains

Deemed sale consideration as per section 50C 14,64,000
Less: Indexed cost of acquisition 4,00,000 x 348/100 13,92,000 72,000

Royalty received Less: Expenditure 2,48,000
Bank interest 40,000 2,88,000

Less: Deduction u/s 10AA (Not allowed under default tax regime) Nil
Less: Deduction u/s 80C (Not allowed under default tax regime) -
Deduction u/s 80QQB (Not allowed under default tax regime) -
Deduction u/s 80TTA (Not allowed under default tax regime) -
Tax payable under default tax regime
Particulars ₹ ₹
Tax on long-term capital gains of ₹ 72,000 @ 20% 14,400

Tax on other income of ₹ 29,73,600 5,92,080

Note: Mr. Ganesh is not liable to alternate minimum tax under default tax regime.
Conclusion : Since tax liability under section 115JC is lower than tax liability computed under section 115BAC, it would be
beneficial for him to opt out of the default tax regime.
Q10. Mr. Aniket, a resident individual, aged 51 years, is engaged in the business of manufacturing clothes. He earned profit of ₹
82,45,000 as per profit and loss account after debiting and crediting the following items:
(i) Depreciation ₹ 15,40,000
(ii) Short term capital gains on transfer of listed equity shares in a company on which STT is paid ₹ 10,00,000
(iii) He received income-tax refund of ₹ 15,550 which includes interest on refund of ₹ 4,550.
(iv) Dividend income from Indian companies ₹ 15,00,000
Additional information –
(i) Mr. Aniket installed new plant and machinery for ₹ 65 lakhs on 1.10.2023 which was put to use on 1.1.2024. Depreciation
(including additional depreciation) on this amount of ₹ 65 lakhs is included in the depreciation debited to profit and loss
account which has been computed as per Income-tax Rules.
(ii) Mr. Rishabh took a loan from SBI of ₹ 50 lakhs on 15.9.2023 @ 10.5% p.a. To purchase such plant and machinery. Total
interest upto 31.3.2024 has been paid on 31.3.2024 and the same has been debited to profit and loss account.
(iii) Advance tax paid during the year is ₹ 17,50,000
(iv) Rishabh purchased goods for ₹ 40 lakhs from Mr. Ram, his brother. The market value of the goods is ₹ 35 lakhs.
(v) He paid ₹ 40,000 as life insurance premium taken on the life of his married daughter who is not dependent on him. The
sum assured is ₹ 5,00,000 and the policy was taken on 1.4.2016.
(vi) He paid ₹ 45,000 by cheque towards health insurance policy covering himself, his spouse and his children.
(vii) On 1.7.2023, Mr. Aniket withdrew ₹ 1.5 crores in cash from three current accounts maintained by him with HSBC. There
are no other withdrawals during the year. He regularly files his return of income.
You are required to compute the total income and tax payable by Mr. Aniket for the A.Y. 2024-25, in the manner so that he can
make maximum tax savings.
Computation of total income of Mr. Aniket for A.Y. 2024-25 under the regular provisions of the Act

Net profit as per profit and loss account 82,45,000
Add: Items of expenditure not allowable while computing business
Income
(i) Interest on loan taken for purchase of plant & machinery 1,53,125
[Interest from the date on which capital was borrowed till the
date on which asset was first put to use, not allowable as
deduction under section 36(1)(iii). Accordingly, interest of ₹
1,53,125 [₹ 50,00,000 x 10.5% x 3.5/12] has to be added back,
since the same is debited to the profit and loss account]
(ii) Purchase of goods at a price higher than the fair market value 5,00,000
[The difference between the purchase price (₹ 40 lakhs) and the
fair market value (₹ 35 lakhs) has to be added back as per
section 40A(2) since the purchase is from a related party, i.e.,
his brother and at a price higher than the fair market value] 6,53,125
88,98,125
Less: Items of income to be treated separately under the respective
head of income
(i) Income-tax refund including interest on refund of ₹ 4,550 15,550
(ii) Dividend from Indian companies 15,00,000
(iii) Short term capital gains on transfer of listed equity shares 10,00,000 25,15,550
63,82,575

Less: Depreciation on interest on loan capitalised to plant and

machinery
₹ 1,53,125, being the amount of interest on loan taken for purchase
of plant and machinery from the date on which capital was borrowed
till the date on which asset was first put to use, shall be capitalized
Normal depreciation @15% x 50% on such interest 11,484
26,797
Additional depreciation @ 20% x 50% on such interest 15,313
[Since plant & machinery was put to use for less than 180 days in P.Y. 63,55,778
2023-24, it is eligible for 50% of the rate of depreciation]
Capital Gains
Short term capital gains on transfer of listed equity shares 10,00,000
Interest on income-tax refund 4,550
Dividend from Indian companies 15,00,000 15,04,550

- Deduction under section 80C 40,000
Life insurance premium for married daughter [Allowable as
deduction though she is not dependent, since child of an individual
whether dependent or not falls within the meaning of term
“Person”. Accordingly, whole of the amount of ₹ 40,000 is allowable
as it does not exceed 10% of the ₹ 5, 00,000, being the sum
assured]
- Deduction under section 80D 25,000 65,000
Health insurance premium for self, spouse and children [Allowable
as deduction, since it is paid otherwise than by way of cash.
However, it is to be restricted to ₹ 25,000
Total Income (Rounded off) 87,95,330
Computation of tax payable by Mr. Aniket for A.Y. 2024-25 under the regular provisions of the Act
Particulars ₹ ₹

Tax on short term capital gains on transfer of listed equity shares @15% u/s 111A [₹ 1,50,000
10,00,000 x 15%]
Tax on other income of ₹ 77,95,330
Upto ₹ 2,50,000 Nil
₹ 2,50,001 – ₹ 5,00,000 [i.e., ₹ 2,50,000 @ 5%] 12,500
₹ 5,00,001 – ₹ 10,00,000 [i.e., ₹ 5,00,000 @ 20%] 1,00,000
₹ 10,00,001- ₹ 77,95,330 [i.e. ₹ 67,95,330 @ 30%] 20,38,599 21,51,099
23,01,099
Add: Surcharge @10%, since total income exceeds ₹ 50,00,000 but does not exceed
₹ 1 crore 2,30,110
25,31,209
Add: Health and Education cess @ 4% 1,01,248
Total tax liability 26,32,457

Less: TDS u/s 194N @ 2% on ₹ 50 lakhs, being the cash withdrawals exceeding ₹ 1 1,00,000

crore
Less: Advance tax paid 17,50,000 18,50,000
Computation of total income of Mr. Aniket as per section 115BAC for A.Y. 2024-25
Particulars ₹ ₹
Gross Total Income as per regular provisions of the Income-tax Act 88,60,328
Add: Additional depreciation on plant and machinery -
- On interest which is capitalised 15,313
- On cost of plant and machinery 6,50,000 6,65,313
Gross Total Income/ Total Income as per section 115BAC 95,25,641

[No deduction under section 10AA or under Chapter VI-A allowable except u/s
80JJAA]
Total Income as per section 115BAC (rounded off) 95,25,640
Computation of tax liability as per section 115BAC
Particulars ₹

Tax on STCG of ₹ 10,00,000 @ 15% u/s 111A 1,50,000
Add: Surcharge @10%, since total income exceeds ₹ 50,00,000 but does not exceed ₹ 1 crore 2,40,769
26,48,462
Add: Health and Education cess @ 4% 1,05,938

Less: TDS u/s 194N @ 2% on ₹ 50 lakhs, being the cash withdrawals exceeding ₹ 1 crore 1,00,000
Less: Advance tax paid 17,50,000
Since tax liability as per section 115BAC is higher than the tax computed as per normal provisions of the Income-tax Act,
1961, it is beneficial for Mr. Aniket not to exercise the option under section 115BAC. In such a case, the tax payable by
him would be ₹ 7,82,460 as per the regular provisions of the Act.
Q11. Mr. Abhay, aged 42 years, a resident Indian has provided you the following information for the previous year ended 31.03.2024
(i) He received royalty of ₹ 2,88,000 from abroad for a book authored by him in the nature of artistic. The rate of royalty as
18% of value of books and expenditure made for earning this royalty was ₹ 40,000. The amount remitted to India till 30th
September, 2024 is ₹ 2,30,000.
(ii) He owns an industrial undertaking established in a SEZ and which had commenced operation during the financial year
2021-22. Total turnover of the undertaking was ₹ 200 lakhs, which includes ₹ 140 lakhs from export turnover. This
industrial undertaking fulfills all the conditions of section 10AA of the Income-tax Act, 1961. Profit from this industry is ₹
25 lakhs.
(iii) He also sold his vacant land on 10.11.2023 for ₹ 16 lakhs. The stamp duty value of land at the time of transfer was ₹ 20
lakhs. The FMV of the land as on 1st April, 2001 was ₹ 5 lakhs. This land was acquired by him on 05.08.1995 for ₹ 1.75

lakhs. He had incurred registration expenses of ₹ 20,000 at that time. The cost of inflation index for the year 2023-24 and
2001-02 are 348 and 100 respectively.
(iv) Received ₹ 40,000 as interest on saving bank deposits.
(v) He occupies the ground floor of his residential building and has let out the first floor for residential use at an annual rent
of ₹ 2,28,000. He has paid municipal taxes of ₹ 60,000 for the current financial year. Both floors are of equal size.
(vi) He paid an insurance premium of ₹ 39,000 on the life insurance policy of son, who is not dependent on him and ₹ 48,000
on the life insurance policy of his dependent father.
(vii) He paid tuition fees of ₹ 42,000 for his three children to a school. The fees being ₹ 14,000 p.a. per child.
You are required to compute the total income and tax liability of Mr. Abhay under normal provisions as well as under section
115BAC for the A.Y. 2024-25. Ignore AMT provisions.
Computation of total income of Mr. Abhay for A.Y. 2024-25 under the normal provisions of the Act

Let out portion [First floor]
Gross Annual Value [Rent received is taken as GAV, in the absence of other 2,28,000
information]
Less: Municipal taxes paid by him in the P.Y. 2023-24 pertaining to let out 30,000
portion [₹ 60,000/2]
Net Annual Value (NAV) 1,98,000
Less: Deduction u/s 24
(a) 30% of ₹ 1,98,000 59,400
1,38,600
Self-occupied portion [Ground Floor]

Annual Value Nil
[No deduction is allowable in respect of municipal taxes paid]
1,38,600

Income from SEZ unit 25,00,000
Capital Gains
Long-term capital gain on sale of land (since held for more than 24
months)
20,00,000
Full Value of Consideration [Higher of stamp duty value of ₹ 20 lakhs and
Actual consideration of ₹ 16 lakhs, since stamp duty value exceeds actual
consideration by more than 10%]
17,40,000
Less: Indexed Cost of acquisition [₹ 5,00,000 x 348/100] 2,60,000
Cost of acquisition
Higher of -
- Actual cost ₹ 1.75 lakhs + ₹ 0.20 lakhs = ₹ 1.95 lakhs and
- Fair Market Value (FMV) as on 1.4.2001 = ₹ 5 lakhs

Royalty from artistic book 2,88,000
Less: Expenses incurred for earning royalty 40,000
2,48,000
Interest on savings bank deposits 40,000 2,88,000

Less: Deduction u/s 10AA [Since the industrial undertaking is established in 17,50,000
SEZ, it is entitled to deduction u/s 10AA @100% of export profits, since P.Y.
2023-24, being the 3rd year of operations]

[Profits of the SEZ x Export Turnover/Total Turnover] x 100%

[₹ 25 lakhs x ₹ 140 lakhs/ ₹ 200 lakhs x 100%]
Deduction under section 80C
28,000
Tuition fee paid for maximum of two children is allowable (₹ 14,000 x 2)
39,000
Insurance premium paid on life insurance policy of son allowable, even
though not dependent on Mr. Abhay
-
Insurance premium paid on life insurance policy of father not allowable, even
though father is dependent on Mr. Abhay
67,000
Deduction under section 80QQB
Royalty [₹ 2,88,000 x 15/18 = ₹ 2,40,000, restricted to amount brought into
1,90,000
India in convertible foreign exchange ₹ 2,30,000 minus ₹ 40,000 expenses
already allowed as deduction while computing royalty income]
Deduction under section 80TTA
Interest on savings bank account, restricted to ₹ 10,000 10,000 2,67,000
11,69,600
Computation of tax liability of Mr. Abhay for A.Y. 2024-25 under the normal provisions of the Act
Particulars ₹ ₹

Tax on LTCG of ₹ 2,60,000 @ 20% 52,000
Tax on remaining total income of 9,09,600
Upto ₹ 2,50,000 Nil
₹ 2,50,001 – ₹ 5,00,000 [i.e., ₹ 2,50,000 @ 5%] 12,500
₹ 5,00,001 – ₹ 9,09,000 [i.e., ₹ 4,09,000 @ 20%] 81,920 94,420
1,46,420
Computation of tax liability of Mr. Abhay as per section 115BAC for A.Y. 2024-25
Particulars ₹
Gross total Income as per regular provisions of the Act 31,86,600

Less: Deduction u/s 10AA/ Deduction under Chapter VI-A [No deduction under section 10AA or -
under Chapter VI-A is allowed]
Total Income as per section 115BAC 31,86,600

Tax on LTCG of ₹ 2,60,000 @ 20% 52,000
6,29,980

Since tax liability as per section 115BAC is higher than the tax liability under normal provisions of the Act, it is beneficial
for Mr. Abhay not to exercise the option under section 115BAC.
Q12. Mr. Anant, an employee of the Central Government is posted at New Delhi. He joined the service on 1st February, 2019. Details
of his income for the previous year 2023-24, are as follows:
(i) Basic salary : ₹ 3,80,000
(ii) Dearness allowance : ₹ 1,20,000 (40% forms part of pay for retirement benefits)
(iii) Both Mr. Anant and the Government contribute 20% of basic salary to the pension scheme referred to in section 80CCD.
(iv) Gift received by Anant’s minor son on his birthday from friend: ₹ 70,000. (No other gift is received by him during the
previous year 2023-24)
(v) During the year 2013-14, Mr. Anant gifted a sum of ₹ 6,00,000 to his wife Mrs. Mishka. She started a business by
introducing such amounts as her capital. On 1st April, 2023, her total investments in business was ₹ 10,00,000. During
the previous year 2023-24, she has loss from such business ₹ 1,30,000
(vi) Mr. Anant deposited ₹ 70,000 in Sukanya Samridhi account on 23.01.2024. He also contributed ₹ 40,000 in an approved
annuity plan of LIC to claim deduction u/s 80CCC.
(vii) He has taken an educational loan for his major son who is pursuing an MBA course from Gujarat University. He has paid
₹ 15,000 as interest on such loan which includes ₹ 5,000 for the financial year 2022-23.
Determine the total income of Mr. Anant for the assessment year 2024-25. Assume that he exercises the option to shift out of
the default tax regime.
Computation of total income of Mr. Anant for the A.Y 2024-25
Particulars ₹ ₹
Income from Salary

Dearness Allowance 1,20,000
Employer contribution to NPS = 20% of ₹ 3,80,000 76,000
5,76,000
Less: Standard deduction 50,000
5,26,000
[₹ 50,000 or ₹ 5,76,000, whichever is lower]

Where the amount gifted by Mr. Anant (₹ 6 lakh, in this case) is invested by Mrs. Mishka
in a business as her capital, proportionate share of profit or loss, as the case may be,
computed by taking into account the value of the investment as on 1.4.2023 to the total
investment in the business (₹ 10 lakh) would be included in the income of Mr. Anant (78,000)
[loss of ₹ 1,30,000 x 6/10]

70,000
All income of the minor son would be included in the income of the parent Mr. Anant,
since his income is higher than the income of Mrs. Mishka (loss of ₹ 52,000, based on
the information given in the question). Accordingly, ₹ 70,000, being the amount of gift
received by minor son during the P.Y. 2023-24, would be included in the income of Mr.
Anant as the amount of gift exceeds ₹ 50,000.
1,500
Less: Exemption in respect of income of minor child included in Mr. Anant’s income
68,500
68,500
Less: Business loss of ₹ 78,000 set-off to the extent of
Nil
(Balance business loss of ₹ 9,500 to be carried forward to the next year, since the same
cannot be set-off against salary income)
5,26,000
Gross Total Income

Under section 80C – deposit in Sukanya Samridhi Account
70,000
Under section 80CCC – Contribution to LIC Annuity Plan
40,000

Under section 80CCD(1) – Employee contribution to NPS (₹ 76,000 – ₹ 50,000 deduction 26,000
claimed u/s 80CCD(1B)], since it is lower than ₹ 42,800, being 10% of salary (₹ 3,80,000 +
₹ 48,000)
Allowable in full, since less than ₹ 1,50,000, being the maximum permissible deduction 1,36,000
u/s 80C, 80CCC & 80CCD(1)
Under section 80CCD(1B) – Employee contribution to NPS 50,000
Under section 80CCD(2) – Employer contribution to NPS restricted to 14% of basic 59,920
salary + DA forming part of pay, since employer is Central Government = 14% x (₹
3,80,000 + ₹ 48,000)
Under section 80E – Interest paid on loan taken for higher education 15,000
2,60,920
Notes - The following assumptions have been made while solving the question –
(i) Loan is taken from a financial institution or approved charitable institution, and hence, interest paid on such loan
qualifies for deduction under section 80E.
(ii) The question mentions that gift of ₹ 6 lakhs is given by Mr. Anant to Mrs. Mishka during the P.Y. 2013-14. However,
the date of investment in business is not given. It has been assumed that it was invested between 2.4.2021 to
1.4.2023 for solving the problem, in the absence of other information in the question.

Q1. The provisions of AMT are not applicable to Individual, HUF, AOPs, BoIs, artificial juridical person if the adjusted total income
of such person does not exceed ________.
(a) ₹ 10,00,000
(b) ₹ 5,00,000
(c) ₹ 20,00,000
(d) ₹ 50,00,000

Explanation:
The provisions of AMT are not applicable to Individual, HUF, AOPs, BoIs, artificial juridical person if the adjusted total income of
such person does not exceed ₹ 20,00,000.
Q2. AMT Credit can be carried forward for set off upto a maximum period of
(a) 4 years
(b) 8 years
(c) 15 years
(d) Indefinite period
Correct answer : (c) 15 years

Explanation:
AMT Credit can be carried forward for set off upto a maximum period of
Q3. If regular income tax payable for a previous year is less than the alternate minimum tax payable then the adjusted total
income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay tax on such
income @ _______ of adjusted total income.
(a) 15%
(b) 15.6%
(c) 18%
(d) 18.5%
Correct answer : (d) 18.5%

Explanation:
If regular income tax payable for a previous year is less than the alternate minimum tax payable then the adjusted total
income shall be deemed to be the total income of that person for such previous year and he shall be liable to pay tax on such
income @ 18.5% of adjusted total income.
Q4. AMT provisions are applicable to assessees
(a) Paying tax under the default tax regime u/s 115BAc
(b) Exercising the option to shift out of the default tax regime
(c) All the assessees irrespective of the tax regime
Correct answer : (b) Exercising the option to shift out of the default tax regime
Explanation:
AMT provisions are not applicable to paying tax under the default tax regime u/s 115BAC.

Chapter 15 - Provisions for filing Return of Income and Self-assessment

Q1. State with reasons whether return of income is to be filed in the following cases for the A.Y 2024-25:
(i) Mr. Anil, a resident individual, aged 80 years, has a total income of ₹ 3,00,000. He has claimed deduction of ₹ 1,50,000
under section 80C. Assume that he has exercised the option to shift out of the default tax regime.
Would your answer change if Mr. Anil has incurred ₹ 1,20,000 towards payment of electricity bills for F.Y. 2023-24?
(ii) ABC, a partnership firm, has a loss of ₹ 10,000 during the previous year 2023-24.
(iii) Mrs. Alisha was born in Germany and married in India. Her residential status under section 6(6) of the Income-tax Act,
1961 is 'resident and ordinarily resident'. She owns a car in Germany which she uses for her personal purposes during her
visit to her parents' place in that country.
(i) As per the provisions of section 139(1), every person, whose total income without giving effect to the provisions of
Chapter VI-A exceeds the maximum amount not chargeable to tax, is required to furnish the return of income for the
relevant assessment year on or before the due date. The gross total income of Mr. Anil before giving effect to deduction
of ₹ 1,50,000 under section 80C is ₹ 4,50,000, which is less than the basic exemption limit of ₹ 5,00,000 applicable to an
individual aged 80 years or more. Therefore, Mr. Anil need not furnish his return of income for the A.Y. 2024-25.
Yes, the answer would change, since Mr. Anil has incurred expenditure of an amount exceeding ₹ 1 lakh towards
consumption of electricity. In such a case, he would have to file his return for A.Y. 2024-25 on or before the due date u/s
139(1).
(ii) As per section 139(1), it is mandatory for a firm to furnish its return of income or loss on or before the specified due
date. Therefore, M/s ABC has to furnish its return of loss for the A.Y. 2023-24 on or before the due date under section
139(1), even if it has incurred a loss.
(iii) Every person, being a resident other than not ordinarily resident in India would be required to file a return of income or
loss for the previous year on or before the due date, even if his or her total income does not exceed the basic exemption
limit, if such person, at any time during the previous year, inter alia, holds any asset located outside India.
In this case, though Mrs. Alisha owns a car in Germany, the same does not fall within the ambit of “capital asset” as it is
a personal effect. Hence, Mrs. Alisha is not required to file her return of income for A.Y. 2024-25 on account of owning a
car for personal purposes in Germany.
Note – “Asset” for the purpose of the fourth provision to section 139(1) has not been specifically defined in the said
section or elsewhere in the Act. Schedule FA of the income-tax return forms, however, requires details of foreign assets
for the purpose of filing of return of income under this provision. The foreign assets listed in the said Schedule does not
include cars. It, however, includes “any other capital assets outside India”. Car used for personal purposes is not a capital
asset as it is a “personal effect”. Hence, it is not included in the meaning of “asset” for the purpose of the fourth proviso
to section 139(1). The above answer is based on the view taken regarding the ambit of the term “asset”, based on the list
of assets detailed in the relevant schedule of the income-tax return forms.
Alternative view - On the plain reading of the fourth proviso to section 139(1) and the general meaning attributable to the
word “asset”, it is possible to take a view that Mrs. Alisha is required to file her return of income as she owns an asset,
i.e., a car in Germany.
Q2. Mr. Shridhar filed a return on 30th September, 2024 related to Assessment Year 2024-25. In the month of October 2024, his
tax consultant found that the interest on fixed deposit was omitted in the tax return.
(i) What is the time limit for filing a belated return?

(ii) Can Mr. Shridhar file a revised return?
Justify the above with the relevant provisions under section 139.
Assume that the due date for furnishing return of income was 31st July, 2024 and the assessment was not completed till the
month of October 2024.
(i) Belated return [Section 139(4)]

Any person who has not furnished a return within the time allowed to him under section 139(1) may furnish the return for
any previous year at any time -
● before three months prior to the end of the relevant assessment year ; or
● before the completion of the assessment, whichever is earlier
Hence for AY 2024-25, belated return can be furnished upto 31-12-2024.

(ii) Yes, Mr Shridhar can revise the return. As per section 139(5), if any person, having furnished a return u/s 139(1) or
139(4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time-
● before three months prior to the end of the relevant assessment year ; or
● before the completion of the assessment, whichever is earlier
Hence, belated return filed u/s 139(4) by Mr Shridhar can be revised u/s 139(5) upto 31-12-2024.
Q3. Discuss the provisions of section 139A(1) which provides the persons who are compulsorily required to apply for allotment of
Permanent Account Number (PAN) with the Assessing Officer.
Persons who are mandatorily required to apply for PAN as per section 139A(1)
(i) Every person, if his total income or the total income of any other person in respect of which he is assessable under the
Act during any previous year exceeds the maximum amount which is not chargeable to income-tax
(ii) Every person carrying on any business or profession whose total sales, turnover or gross receipts are or is likely to
exceed ₹ 5 lakhs in any previous year
(iii) Every person being a resident, other than an individual, which enters into a financial transaction of an amount
aggregating to ₹ 2,50,000 or more in a financial year
(iv) Every person who is a managing director, director, partner, trustee, author, founder, karta, chief executive officer, principal
officer or office bearer of any person referred in (iii) above or any person competent to act on behalf of such person
referred in (iii) above.
Q4. Enumerate the cases where a return of loss has to be filed on or before the due date specified u/s 139(1) for carry
forward of the losses. Also enumerate the cases where losses can be carried forward even though the return of loss has
not been filed on or before the due date.
As per section 139(3), an assessee is required to file a return of loss within the due date specified u/s 139(1) for filing return
of income.
As per section 80, certain losses which have not been determined in pursuance of a return filed under section 139(3) on or
before the due date specified under section 139(1) cannot be carried forward and set-off. Thus, the assessee has to file a
return of loss under section 139(3) within the time allowed u/s 139(1) in order to carry forward and set off of following losses:
● loss under the head “Capital Gains”,
● loss from activity of owning and maintaining race horses.
● business loss,
● speculation business loss and
● loss from specified business.
However, following can be carried forward for set-off even if the return of loss has not been filed before the due date:
● Loss under the head “Income from house property” and
● Unabsorbed depreciation
Q5. Elaborate the conditions, non-fulfilment of which would render a return of income filed by an assessee not maintaining
regular books of accounts, defective.
Where regular books of account are not maintained by the assessee, the return should be accompanied by -
(i) a statement indicating -

● the amount of turnover or gross receipts,
● gross profit,
● expenses; and
● net profit of the business or profession;
(ii) the basis on which such amounts mentioned in (i) above have been computed ,
(iii) the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.
Note: The above answer is based on the provisions of section 139(9) of the Income -tax Act, 1961. However, since returns are
now required to be e-filed, many of the details need to be incorporated as part of the relevant return form itself.
Q6. State whether quoting of PAN in the following transactions is mandatory or not, as per the provisions of Income-tax Act, 1961
for A.Y. 2024-25:
(i) Mr. Avnish makes a cash payment to a hotel Radisson BIu, Ahmedabad of ₹ 50,000 against the bill raised by the hotel.
(ii) Mr. Abhishek, in a single transaction, makes a contract of ₹ 1,10,000 for sale/purchase of securities (other than shares)
as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956.

(iii) Payment to Mutual Funds of ₹ 65,000 for purchase of its units.
Your answers must be supported with reasons.
Requirement of quoting PAN in respect of certain transactions
(i) PAN not required to be quoted: Mr. Avnish is not required to quote his PAN while making payment ₹ 50,000 in cash to a
hotel Radisson Blu, Ahmedabad, since payment in cash of an amount exceeding ₹ 50,000 requires quoting of PAN.
(ii) PAN is mandatorily required to be quoted: Mr. Abhishek is required to quote his PAN while making a contract of ₹
1,10,000 for sale/purchase of securities (other than shares) as defined in section 2(h) of the Securities Contracts
(Regulation) Act, 1956, since the amount of the transaction exceeds ₹ 1,00,000 per transaction
(iii) PAN is required to be quoted: PAN has to be mandatorily quoted while making payment of ₹ 65,000 to Mutual Funds for
purchase of its units, since quoting of PAN is necessary for an amount exceeding ₹ 50,000 per transaction.
Q7. Mr. Naveen failed to file his return of income for AY 2024-25 on or before the due date of filing such return of income.
(a) Can he file the above return after the due date of filing return of income? If yes, which is the last date?
(b) What are the consequences of non-filing the return within the due date u/s 139(1)?
(a) If any person fails to furnish a return within the time limit u/s 139(1), he may furnish belated return for any PY at any
time before 3 months prior to end of the relevant AY; or before completion of the assessment, whichever is earlier.
Last date for filing a belated return of income for AY 2024-25 is 31.12.2024. Thereafter, Mr. Naveen cannot furnish a
belated return after this date.
(b) Consequences for non-filing Return of Income Within 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 & maintaining race horses, would not be allowed to
be carried forward for set-off against income of subsequent years, where return of income is not furnished within
the time allowed u/s 139(1).
● Interest u/s 234A: Interest u/s 234A @ 1% p.m. 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 ₹ 5,000 would be payable u/s 234F, if return of income is not filed on/before due date
specified u/s 139(1). If total income of a person does not exceed 5 lakhs, the fee payable shall not exceed ₹ 1,000.
Q8. Mr. Udit furnishes you following details for PY 2023-24:
● Loss from business carried on by him as a proprietor: ₹ 11,20,000.

● Deduction u/s 80-IB: ₹ 5,50,000.
● Unabsorbed Depreciation: ₹ 4,80,000.
● Loss from House Property: ₹ 2,50,000.
Due date for filing return for Mr. Prakash was 31.7.2024 u/s 139(1). However, he filed the return on 29.9.2024. Discuss if the
losses & deductions could be carried forward or claimed by Mr. Prakash.
If a person has sustained a loss u/h PGBP or Capital Gains & claims that such loss should be carried forward, then he may
furnish a return of loss within the time limit u/s 139(1) & all the provisions of this Act shall apply as if it were a return u/s
139(1). [Section 139(3)]
It is not mandatory to file a return of loss (except for company or a firm) as there is no taxable income.
However, business losses cannot be carried forward unless return of loss is filed on/before the due date u/s 139(1) & it is duly
assessed. If return of loss is not submitted or is submitted after the due date, losses cannot be carried forward.
However, Loss from House Property & unabsorbed depreciation can be carried forward even if return of loss is submitted after
the time limit u/s 139(1).
Since, return of loss has been furnished after due date, business loss of ₹ 11,20,000 shall not be allowed to be carried
forward.
However, loss from House Property amounting to ₹ 2,50,000 & unabsorbed depreciation amounting to ₹ 4,80,000 shall be
allowed to be carried forward even if return of income has been furnished after the due date.
Further, as per section 80AC, deduction u/s 80-IA or 80-1AB or 80-IB or 80-IC or 80-ID or 80-IE shall not be allowed unless the
assessee furnishes a return of his income for such AY on/before the due date specified u/s 139(1). Hence, deduction of ₹
5,50,000 shall not be allowed as return of income has been filed after the due date.
Q9. Mrs. Sunita is a US Citizen. She got married to Mr. Ajay, an Indian citizen and resident of India, in the year 2015. Since then,
she has been staying in India. She has a Bank account in the US. She sold a residential house in the US and earned a long
term capital gain of ₹ 2 lakhs. She invested the whole sales consideration in Capital Gain bonds under section 54EC so that no

long term capital gain is taxable. She does not have any source of income in India during the P.Y. 2023-24. Is she required to
furnish her return of income? If yes, can she furnish a belated return?
An individual whose total income without giving effect to, inter alia, section 54EC exceeds the maximum amount not
chargeable to tax i.e., ₹ 2,50,000, is required to file a return of income on or before the due date under section 139(1) i.e., 31st
July, 2024.
Every person, being a resident other than not ordinarily resident in India, would be required to file a return of income or loss for
the previous year, even if his total income does not exceed the basic exemption limit, if such person, at any time during the
previous year, inter alia, holds any asset located outside India or has a signing authority in any account located outside India.
In this case, Mrs. Sunita is a resident and ordinarily resident in India for A.Y. 2024-25 since she has been staying in India since
the year 2015. Total income of Mrs. Sunita without giving effect to, inter alia, section 54EC is ₹ 2 lakhs, which is below the
basic exemption limit. However, since she has a bank account in US, she has to furnish her return of income for A.Y. 2024-25
on or before 31.07.2024.
Yes, she can furnish a belated return under section 139(4), if she has not furnished her return on or before 31.7.2024, at any
time before the –
(i) three months prior to the end of the relevant assessment year i.e., 31.12.2024; or
(ii) completion of the assessment
whichever is earlier.
Q10. What are the consequences of failure to intimate Aadhar Number. Is there any fee for such a default?
If a person, who has been allotted PAN as on 1st July, 2017 and is required to intimate his Aadhaar number under section
139AA, has failed to intimate the same on or before 31st March, 2022, the PAN of such person would become inoperative and
he would be liable for payment of fee in accordance with section 234H read with Rule 114(5A) i.e. Rs 1,000.
Where such person who has not intimated his Aadhaar number on or before 31 st March, 2022, intimates his Aadhar number
under section 139AA(2) after 31st March, 2022 after payment of fee specified in section 234H read with Rule 114(5A), his
PAN would become operative within 30 days from the date of intimation of Aadhar number.
Q11. Mr. Manoj born on 1.4.1964 furnished his original return for Assessment Year 2024-25 on 30.07.2024. He has shown a salary
income of ₹ 7.50 lakhs (computed) and interest from his savings bank of ₹ 12,000 and from his fixed deposits of ₹ 40,000. He
also claimed deduction under section 80C of ₹ 1.50 lakhs. He had claimed a deduction u/s 80D of ₹ 25,000. He also claimed a
deduction u/s 80TTA of ₹ 10,000. His employer had deducted TDS of ₹ 37,340 from his salary, which he adjusted fully against
tax payable. He paid a health insurance premium of ₹ 38,000 by account payee cheque for self and wife. He paid ₹ 1,500 in
cash for his health check-up and ₹ 4,000 by cheque for preventive health check-up of his parents. He also paid a medical
insurance premium of ₹ 33,000 during the year to insure the health of his mother, aged 80 years, staying with his younger
brother. He further incurred medical expenditure of ₹ 25,000 on his father, aged 81 years, who is staying with him. His father is
not covered under any mediclaim policy.
He seeks your advice about the possibility of revising his return and if possible file his revised return. Analyse the above
narrated facts as per applicable provisions of the Income-tax Act, 1961. Does he need to revise his return and for what
reasons? Please advise him suitably and if needed, re-compute his income and tax payable or refund due for the Assessment
Year 2024-25.
Assume that he has exercised to shift out of the default tax regime.
Computation of total income of Mr. Manoj for A.Y. 2024-25 [As per the original return filed by him]
Particulars ₹ ₹
Salaries (Computed) 7,50,000

Interest on savings bank account 12,000
Interest on fixed deposits 40,000 52,000
8,02,000
Deduction u/s 80C 1,50,000
Deduction u/s 80D 25,000
Deduction u/s 80TTA 10,000 1,85,000
Computation of tax liability of Mr. Manoj for A.Y. 2024-25 (As per original return)
Particulars ₹

Tax on total income [20% of ₹ 1,17,000 (i.e., ₹ 6,17,000 – ₹ 5,00,000) + ₹ 12,500] 35,900
Add: HEC @ 4% 1,436
Tax payable on total income 37,336
Tax payable on total income (rounded off) 37,340

Less: Tax deducted at source u/s 192 37,340
Tax Payable Nil
Need for filing revised return - Analysis

Since Mr. Manoj’s birthday falls on 1.4.2024, he would be treated as having completed 60 years of age in the P.Y .2023-24, and
hence, he would be eligible for the benefit of higher deduction u/s 80D, higher deduction of up-to ₹ 50,000 u/s 80TTB (instead
of ₹ 10,000 u/s 80TTA) while computing his total income as well as for higher basic exemption limit of ₹ 3,00,000 in the P.Y.
2023-24 itself while computing his tax liability. Also, he would be entitled to deduction in respect of medical insurance
premium paid to insure the health of his mother and medical expenses incurred on his father who is not covered under any
Mediclaim policy. Accordingly, having discovered such omissions in the original return, he has to file his revised return of
income u/s 139(5) on or before 31.3.2024 to avail these benefits which he has not availed while filing his original return of
income. The computation of total income and tax liability (refund due) as per the revised return are worked out hereunder -
Computation of Total Income of Mr. Manoj for the A.Y. 2024-25 [As per the Revised Return]
Particulars ₹ ₹ ₹ ₹
Salaries (Computed) 7,50,000

Interest on fixed deposits 40,000 52,000
8,02,000
Deduction u/s 80C 1,50,000
Deduction u/s 80D

Medical insurance premium for self and spouse 38,000
Preventive health check-up for self (allowable even if paid in 1,500
cash)
Fully allowed as it is within the overall limit of ₹ 50,000 for family 39,500
Medical insurance premium for mother 33,000

Medical expenditure for father not covered under any policy 25,000
Preventive health check-up for parents (₹ 4,000, restricted to ₹ 3,500
3,500, being ₹ 5,000 – ₹ 1,500 claimed for self and spouse)
Restricted to maximum of ₹ 50,000 for parents 61,500 50,000 89,500
Deduction u/s 80TTB

Interest on fixed deposits 40,000
52,000
Restricted to maximum of ₹ 50,000 50,000 2,89,500
Computation of tax liability of Mr. Manoj for A.Y. 2024-25 (As per revised return)
Particulars ₹
Tax on total income [5% of ₹ 2,12,500 (i.e., ₹ 5,12,500 – ₹ 3,00,000 basic exemption limit) 10,625
Add: HEC @ 4% 425
Tax payable on total income 11,050

Tax payable on total income (rounded off) 11,050

Less: Tax deducted at source u/s 192 37,340
Refund Due 26,290
Therefore, Mr. Manoj has to file a revised return showing the above revised computation of total income and tax liability on or
before 31.12.2024 to claim the enhanced deductions which he had not claimed in the original return and get refund of the
entire income-tax of ₹ 26,290 deducted at source by his employer.

Q1. A person other than a company or firm is required to file return of income if the deposit in one or more savings bank account of
the person during the previous year is ____________ or more.
(a) ₹ 10 lakhs
(b) ₹ 25 lakhs
(c) ₹ 50 lakhs
(d) ₹ 60 lakhs
Correct answer : (c) ₹ 50 lakhs

Explanation:
A person other than a company or firm is required to file return of income if the deposit in one or more savings bank account of
the person during the previous year is ₹ 50 lakhs or more.
Q2. The additional income tax payable at the time of furnishing of return the updated return is 50% of the aggregate of tax and
interest payable if
(a) Such return is furnished after expiry of the time available u/s 139(4) or 139(5) of the assessment year and before
completion of the period of 12 months from the end of the relevant assessment year.
(b) Such return is furnished after expiry of the time available u/s 139(4) or 139(5) of the assessment year and before
(c) Such return is furnished after expiry of the time available u/s 139(4) or 139(5) of the assessment year and before
(d) Such return is furnished after expiry of the 12 months from the end of the relevant assessment year but before
Correct answer : (d) Such return is furnished after expiry of the 12 months from the end of the relevant assessment year but
before completion of the period of 24 months from the end of the relevant assessment year
Explanation:
The additional income tax payable at the time of furnishing of return the updated return is 50% of the aggregate of tax and
interest payable if Such return is furnished after expiry of the 12 months from the end of the relevant assessment year but
before completion of the period of 24 months from the end of the relevant assessment year.
Q3. Mr. Alex is a resident but not ordinarily resident in India for P.Y. 2023-24. He is doing job in M/s Kothari Chemicals as
Accountant & earns ₹ 25,000 per month. He had no other income in India but having a vacant land in Canada which he had got
from his father after his demise. He had no income from Canada also. Mr. Alex come to you for consulting whether he is
required to file his return of income for A.Y. 2024-25? Assume that he opts to pay tax under default tax regime.
(a) Alex is not required to file his return of income as his total income does not exceed the basic exemption limit
(b) Alex is required to file his return of income as he is beneficiary of the assets located outside India
(c) Alex is not required to file his return of income as his total income does not exceed the basic exemption limit and he is
resident but not ordinarily resident during the P.Y. 2023-24
(d) Alex is required to file his return of income as his total income exceeds the basic exemption limit
Correct answer : (c) Alex is not required to file his return of income as his total income does not exceed the basic exemption
limit and he is resident but not ordinarily resident during the P.Y. 2023-24.

Explanation:
A resident other than ordinarily resident is required to file return of income if holds as a beneficial owner, any asset located
outside India. Since, Mr. Alex is resident and ordinarily resident and his total income does not exceed the basic exemption
limit, he is not required to file return of income.
Q4. Every person being a resident, other than an individual, which enters into a financial transaction of an amount aggregating to
₹ 2,50,000 or more in a financial year shall apply for PAN
(a) On or before 30th April of the assessment year for which such income is assessable
(b) Before that financial year
(c) On or before 31st March of the assessment year for which such income is assessable
(d) On or before 31st May of the immediately following financial year for which such income is assessable
Correct answer : (d) On or before 31st May of the immediately following financial year for which such income is assessable
Explanation:
Every person being a resident, other than an individual, which enters into a financial transaction of an amount aggregating to
₹ 2,50,000 or more in a financial year shall apply for PAN on or before 31st May of the immediately following financial year
for which such income is assessable
Q5. It is necessary to file return of income to carry forward ans set off loss. However, some loss can be carried forward and
set off even if return is not filed. These are:
(a) Loss and house property and loss from business and profession
(b) Capital loss and loss from house property
(c) Loss from house property and unabsorbed depreciation
(d) Loss from house property, loss from business and profession and unabsorbed depreciation
Correct answer : (c) Loss from house property and unabsorbed depreciation
Explanation:
Loss from house property and unabsorbed depreciation can be set off even if return is not filed. To carry forward and set off
oher losses, it is compulsory to file return of income.
Q6. Mr. Dinesh, a resident in India, has gross total income of ₹ 2,30,000 comprising of interest on saving A/c and rental income
during the previous year 2023-24. He incurred expenditure of ₹ 2,00,000 for his son for a study tour to Europe. Whether he is
required to file return of income for the A.Y. 2024-25? If yes, what is the due date? Assume that he exercises the option to shift
out of the default tax regime.
(a) Yes, 31st July of A.Y

(b) Yes, 30th September of A.Y
(c) Yes, 31st October of A.Y
(d) No, he is not required to file return of income
Correct answer : (d) No, he is not required to file return of income

Explanation:
A person is compulsory required to file return if he has incurred expenditure exceeding ₹ 2,00,000 for himself or any other
person for travel to a foreign country. Since the amount of expenditure does not exceed ₹ 2,00,000 and also income does not
exceed basic exemption limit, he is not required to file return of income.
Q7. In which of the following transactions, quoting of PAN is mandatory by the person entering into the said transaction?
(i) Opening a Basic savings bank deposit account with a bank

(ii) Applying to a bank for issue of a credit card.
(iii)Payment of ₹ 40,000 to mutual fund for purchase of its units
(iv) Cash deposit with a post office of ₹ 1,00,000 during a day.
(v) A fixed deposit of ₹ 30,000 with a NBFC registered with RBI aggregating the total deposits to ₹ 3,50,000 for the F.Y upto to
the date of this deposit made.
(vi) Sale of shares of an unlisted company for an amount of ₹ 60,000

Choose the correct answer:
(a) (ii), (iv)

(b) (ii), (iii), (iv)
(c) (i), (ii), (iii), (v), (vi)
(d) (ii), (iv), (vi)
Correct answer : (a) (ii), (iv)

Explanation:
(i) PAN is not required for opening a saving bank deposit account.
(ii) PAN is mandatorily required while applying for issue of credit or debit card.
(iii) PAN not required since payment is less than ₹ 50,000
(iv) Pan required since amount exceeds ₹ 50,000
(v) PAN not required since total amount in FY is less than ₹ 5,00,000
(vi) PAN not required since amount is less than ₹ 1 lakh.
Q8. Where a person, who is required to furnish a return of income under section 139, fails to do so within the prescribed time limit
under section 139(1), he shall pay, by way of fee, a sum of ___________. However, if the total income of the person does not
exceed ₹ 5 lakhs, the fees payable shall not exceed ___________.
(a) ₹ 10,000; ₹ 5,000

(b) ₹ 5,000; ₹ 1,000
(c) ₹ 7,000; ₹ 2,000
(d) ₹ 4,000; 1,000
Correct answer : (b) ₹ 5,000; ₹ 1,000

Explanation:
Where a person, who is required to furnish a return of income under section 139, fails to do so within the prescribed time limit
under section 139(1), he shall pay, by way of fee, a sum of ₹ 5,000. However, if the total income of the person does not exceed
₹ 5 lakhs, the fees payable shall not exceed ₹ 1,000.
Q9. Quoting of PAN is mandatory for sale or purchase of any immovable property for an amount exceeding _____________ or
valued by stamp valuation authority referred to in section 50C at an amount exceeding ___________.
(a) ₹ 10 lakhs; ₹ 50 lakhs
(b) ₹ 10 lakhs; ₹ 20 lakhs
(c) ₹ 10 lakhs; ₹ 10 lakhs
(d) ₹ 50 lakhs; 10 lakhs
Correct answer : (c) ₹ 10 lakhs; ₹ 10 lakhs

Explanation:
Quoting of PAN is mandatory for sale or purchase of any immovable property for an amount exceeding ₹ 10 lakhs or
valued by stamp valuation authority referred to in section 50C at an amount exceeding ₹ 10 lakhs.

Chapter 16 - Incomes which do not form part of Total Income

Q1. Mr. Tarun grows cotton and uses the same for the purpose of manufacturing cotton cloth in his own factory. The cost of
cultivation of 40% of cotton produce is ₹ 5,00,000 which is sold for ₹ 12,00,000 and the cost of cultivation of balance
60% of cotton is ₹ 8,00,000 and the market value of such cotton is ₹ 16,00,000. To manufacture the cotton cloth, he
incurred ₹ 4,00,000 in the manufacturing process on the balance (60%) cotton. The cotton cloth was sold for ₹ 25,00,000
Compute the business income and agricultural income of Mr. Tarun for the A.Y. 2024-25.
Compute the business income and agricultural income of Mr. Tarun
Particulars Amounts (₹) Amounts (₹)
Agricultural Income
Sale value of cotton 12,00,000
Less : Cost of cultivation 5,00,000 7,00,000
Market value of cotton used for production of cloth 16,00,000

Less : Cost of cultivation 8,00,000 8,00,000
15,00,000
Business Income
Sale value of Cotton cloth 25,00,000
Less : Cost of Cotton [Market value] 16,00,000
Less : Further processing cost 4,00,000 5,00,000
5,00,000
Q2. 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 ₹ 47 Lacs. Cost of growing rubber plants was ₹ 25 Lacs & the cost of
manufacturing rubber was ₹ 7 Lacs. He has no other income during PY 2023-24. Compute his tax liability for AY 2024-25.
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 = ₹ 47 Lacs – ₹ 25 Lacs – ₹ 7 Lacs = ₹ 15 Lacs.
Agricultural Income = 65% of ₹ 15 Lacs = ₹ 9.75 Lacs.
Business Income = 35% of ₹ 15 Lacs = ₹ 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 ₹ 5,000 p.a & his non- agricultural
income exceeds Basic exemption limit i.e. ₹ 2,50,000.
Accordingly, his tax liability would be computed in the following manner:
Computation of tax liability of Mr. Rana for A.Y 2024-25:
Particulars ₹
Tax on total income of ₹ 15,00,000 [Agricultural + Non-agricultural income] 2,62,500
Less: Tax on Agricultural income + Basic exemption limit = ₹ 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

Q3. Mr. Suraj has set up an undertaking in SEZ (Unit A) and another undertaking in DTA (Unit B) in the financial year 2018-19. In the
previous year 2023-24, total turnover of unit A is ₹ 200 lakhs and total turnover of Unit B is ₹ 140 lakhs. Export turnover of Unit
A for the year is ₹ 180 lakhs and the profit for unit A is ₹ 80 lakhs.
Calculate the deduction available, if any, to Mr. Suraj under, section 10AA of the Income-tax Act, 1961, for the Assessment year
2024-25, if the manufacturing started in Unit A in the financial year 2018-19.
Assume that Mr. Suraj has exercised the option to shift out of the default tax regime.
As per section 10AA, in computing the total income of Mr. Suraj from his unit located in a Special Economic Zone (SEZ), which
begins to manufacture or produce any article or thing on or after 01-04-2005 but before 1-4-2020, there shall be allowed a
deduction of 100% of the profit derived from export of such article or thing for the first 5 year period commencing from the
year of manufacture or production of articles or things by the Unit in SEZ and 50% of such profits for further 5 years subject to
fulfillment of other conditions specified in section 10AA. The relevant particulars are as under :
Particulars Unit A in SEZ (₹ in lakhs)
Total Turnover 200

Export turnover 180
Net profit 80
If Unit in SEZ was set up and began manufacturing in FY 2018-19 : Since it is the 6th year of operation of the eligible unit, it
shall be eligible for deduction upto 50% of the profit of such unit assuming all the other conditions specified in section 10AA
are fulfilled.
= Profits of Unit in SEZ x Export turnover of Unit in SEZ x 50%

Total turnover of Unit in SEZ
= 80 lakhs x 180 lakhs/ 200 lakhs x 50% = ₹ 36 lakhs
Hence, amount of deduction under section 10AA = ₹ 36,00,000
Q4. Sun Aviation Ltd. is running two industrial undertakings, one in a SEZ (Unit S in 3rd year of operation) and another in a
normal area (Unit N). The brief summarized details for the year ended 31-3-2024 are as under;
Particulars ₹ in Lakhs
S N
Domestic turnover 30 150

Export turnover 120 Nil
Gross profit 20 10
Less: Expenses and depreciation 7 6
Profits derived from the unit 13 4
The brought forward business loss pertaining to Unit N is ₹ 2 lakhs. Briefly compute the business income of the assessee.
Unit S located in Special Economic Zone is eligible for deduction under section 10AA of Act and such deduction is to be
computed undertaking-wise. 100% of the profit derived therefrom will be eligible as deduction assuming that the previous year
falls within the first 5 years commencing from the year of manufacture or production of articles or things or provisions of
services by the Unit in the SEZ.
Computation of the business income :
Particulars ₹ in Lakhs
Profits of Unit S
Profits derived 13
Less: Deduction u/s 10AA [WN] 10.4
Taxable Profits of Unit S 2.6
Profits of Unit N 4
Set-off of brought forward business loss pertaining to Unit N (2)
Taxable Profits of Unit N 2

Income under the head 'Profits and Gains of Business or Profession 4.6
Working note:
Deduction eligible u/s 10AA
= Profits of Unit in SEZ x Export turnover of the undertaking x 100%
Total turnover of the undertaking
= 13 x 120/150 x 100%
= ₹ 10,40,000
Q5. M/s Surya, a proprietorship has two units namely, Unit X and Unit Y. Unit X located in the Special Economic Zone and
Unit Y in the Domestic Tariff Area (DTA). The following are the details for the financial year 2023-24:
Particulars Unit Y (₹) M/s Surya (₹)
Total sales 50,00,000 75,00,000

Export sales 28,00,000 50,00,000
Domestic sales 22,00,000 25,00,000
Net Profit 4,00,000 10,00,000
Total Sales of F.Y. 2023-24 include freight of ₹ 5 lakhs for delivery of goods outside India with respect to Unit X. Both the
units were set up and started manufacturing from 20.6.2020. Compute the amount of deduction available to M/s Surya
under section 10AA for the A.Y. 2024-25.
Computation of deduction under section 10AA for A.Y. 2024-25

Since A.Y. 2024-25 is the 4th assessment year from A.Y. 2021-22, relevant to the previous year 2020-21, in which the SEZ
unit began manufacturing of articles or things or provide any services, it shall be eligible for deduction of 100% of the
profits derived from export of such articles or things or from services, assuming all the other conditions specified in
section 10AA are fulfilled
= Profits of Unit in SEZ x Export turnover of Unit in SEZ x 100%
= 6,00,000 x 17,00,000 x 100%

20,00,000
= ₹ 5,10,000
Working Note:
Computation of total sales, export sales and net profit of Unit X
Particulars M/s Surya (₹) Unit Y (₹) Unit X (₹)
Total sales 75,00,000 50,00,000 25,00,000

Export sales 50,00,000 28,00,000 22,00,000
Domestic sales 25,00,000 22,00,000 3,00,000
Net Profit 10,00,000 4,00,000 6,00,000
Export Turnover
Sale proceeds 22,00,000
Less: Freight not includible in export turnover 5,00,000
17,00,000
Total turnover 25,00,000

Less: Freight not includible [Since freight has been excluded from export turnover, the same has to
be excluded from total turnover also] 5,00,000
20,00,000
Q6. Mrs. Vibha Gupta, a resident individual, is running a SEZ unit, as well as a unit in DTA. She furnishes following details relating
to the year ended 31.3.2024, pertaining to these two units
(Amount in lakhs)

Particulars DTA Unit SEZ Unit
Export turnover 100 1000
Total turnover 400 1100
Net profit 50 220
Compute deduction available u/s 10AA when SEZ unit had been set up on (a) 12.03.2016 & (b) 12.08.2021.
(a) Where SEZ Unit has been set up on 12.03.2016, PY 2023-24 would falls in the next 5 year period commencing from year
of manufacture/production of articles/things/provision of services by unit in SEZ. Thus, for PY 2023-24, 50% of profit
derived from export is eligible for deduction u/s 10AA. = Profit of business of unit in SEZ x Export Turnover of Unit in
SEZ/Total Turnover of Unit in SEZ = 50% of 220 lakhs x 1000 lakhs/1100 lakhs = 50% x 200 lakhs = 100 lakhs.
(b) Where SEZ unit has been set up on 12.8.2021, PY 2023-24 would fall in first 5 year period commencing from year of
manufacture/production of articles/things/provision of services by unit in SEZ. Thus, for PY 2023-24, 100% of profit
derived from export of articles/things/services is eligible for deduction u/s 10AA = Profit of business of unit in SEZ x
Export Turnover of unit in SEZ/Total Turnover of unit in SEZ = 100% of 220 lakhs x 1000 lakhs/1100 lakhs = 100% x 200
lakhs = 200 lakhs.
Q7. Discuss the taxability of the following transactions giving reasons, in the light of relevant provisions, for your conclusion.
(i) Mr. Raj took land on rent from Ms. Sheena on a monthly rent of Rs 20,000. He sublets the land to Mr. Manish for a
monthly rent of ₹ 21,500. Manish uses the land for grazing of cattle required for agricultural activities. Mr. Raj wants to
claim deduction of ₹ 20,000 (being rent paid by him to Ms. Sheena) from the rental income received by it from Mr.
Manish.
(ii) Mr. Mike grows paddy on land. He then employs mechanical operations on grain to make it fit for sale in the market, like
removing hay and chaff from the grain, filtering the grain and finally packing the rice in gunny bags. He claims that the
entire income earned by him from sale of rice is agricultural income not liable to income tax since paddy as grown on
land is not fit for sale in its original form.
(i) The rent or revenue derived from land situated in India and used for agricultural purposes would be agricultural income
under section 2(1A)(a). Therefore, rent received from subletting of the land used for grazing of cattle required for
agriculture activities is agricultural income. The rent can either be received by the owner of the land or by the original
tenant from the sub-tenant. Accordingly, rent received by Mr. Raj from Mr. Manish for using land for grazing of cattle
required for agricultural activities is agricultural income exempt u/s 10(1). As per section 14A, no deduction is allowable
in respect of exempt income.
(ii) The income from the process ordinarily employed to render the produce fit to be taken to the market would be agricultural
income under section 2(1A)(b)(ii). The process of making the rice ready from paddy for the market may involve manual
operations or mechanical operations, both of which constitute processes ordinarily employed to make the product fit for
the market. Accordingly, the entire income earned by Mr. Mike from the sale of rice is agricultural income.
Q8. Explain with brief reasons, whether the following income can be regarded as agricultural income, as per the provisions of
the Income-tax Act, 1961:
(i) Rent received for letting out agricultural land for a movie shooting.
(ii) Income from sale of seedlings in a nursery adjacent to the agricultural lands owned by an assessee.
(iii) Agricultural income of ₹ 1,30,000 of Mr. Sunil from a land situated in Canada.
(i) As per section 2(1A), “agricultural income” means, inter alia,

● any rent or revenue derived from land
● which is situated in India and 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 an
agricultural purpose and hence, it does not constitute agricultural income.
(ii) As per Explanation 3 to section 2(1A), income derived from saplings or seedlings grown in a nursery is deemed to be
agricultural income, whether or not the basic operations were carried out on land.
Therefore, the amount received from sale of seedlings in a nursery adjacent to the agricultural lands owned by the
assessee constitutes agricultural income.

(iii) 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, the agricultural income of ₹ 1,30,000 of Mr. Sunil from land situated in Canada is taxable.

Q1. The concept of partial integration of agricultural income with non-agricultural income is applicable to
(a) only individuals and HUF

(b) only firms and companies
(c) Individuals, HUF, AOP/BOI and Artificial person
(d) All persons
Correct answer : (c) Individuals, HUF, AOP/BOI and Artificial person

Explanation:
The concept of partial integration of agricultural income with non-agricultural income is applicable to Individuals, HUF, AOP/BOI
and Artificial person.
Q2. The proportion of agricultural and business income in case of income derived from the sale of coffee grown and cured by the
seller in India is ______________.
(a) 65% and 35%, respectively

(b) 75% and 25%, respectively
(c) 60% and 40%, respectively
(d) 70% and 30%, respectively
Correct answer : (b) 75% and 25%, respectively

Explanation:
The proportion of agricultural and business income in case of income derived from the sale of coffee grown and cured by the
seller in India is 75% and 25%, respectively.
Q3. Mr. Anay (aged 25) has agricultural income of ₹ 2,10,000 and business income of ₹ 2,35,000. Which of the following
statement is correct if she exercises the option to shift out of the default tax regime.
(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 ₹ 5,000
Correct answer : (b) No aggregation is required since business income which constitutes his total income, is less than basic
exemption limit
Explanation:
Aggregation is required if non agricultural income exceeds the maximum amount not chargeable to tax.
Q4. Rudra Ltd. has two units, one unit at Special Economic Zone (SEZ) and other unit at Domestic Tariff Area (DTA). The unit in
SEZ was set up and started manufacturing from 22.5.2019 and unit in DTA from 10.7.2020. Total turnover of Rudra Ltd. and
Unit in DTA is 7,50,00,000 and 2,75,00,000, respectively. Export sales of unit in SEZ and DTA is 3,25,00,000 and 1,50,00,000,
respectively and net profit of Unit in SEZ and DTA is 60,00,000 and 40,00,000, respectively. If Rudra Ltd. exercises the option
to shift out of the default tax regime for AY 2024-25, he would be eligible for deduction under section 10AA for –
(a) 41,05,263
(b) 20,52,632
(c) 26,00,000
(d) 13,00,000
Correct answer : (a) 41,05,263

Explanation:

Since SEZ was set up in 2019, it is 5th year of operation and therefore, 100 % deduction shall be allowed.
Deduction = Profits of Unit in SEZ x Export turnover of Unit in SEZ x 100%

= 60,00,000 * 3,25,00,000/ 4,75,00,000 * 100%
= 41,05,263
Q5. Income derived from farm building situated in the immediate vicinity of an agricultural land (not assessed to land
revenue) would be treated as agricultural income if such land is situated in –
(a) an area at a distance of 3 kms from the local limits of a municipality and has population of 80,000 as per last census
(b) an area within 1.5 kms from the local limits of a municipality and has a population of 12,000 as per last census
(c) an area within 2 kms from the local limits of a municipality and has a population of 11,00,000 as per last census
(d) an area within 8 kms from the local limits of a municipality and has a population of 10,50,000 as per last census
Correct answer : (a) an area at a distance of 3 kms from the local limits of a municipality and has population of 80,000 as per
last census
Explanation:
Income derived from farm building situated in the immediate vicinity of an agricultural land (not assessed to land revenue)
would be treated as agricultural income if such land is situated in an area at a distance of 3 kms from the local limits of a
municipality and has population of 80,000 as per last census.
Q6. Which of the following statements is/are true in respect of taxability of agricultural income under the Income-tax Act, 1961?
(i) Any income derived from saplings or seedlings grown in a nursery is agricultural income exempt from tax u/s 10(1).
(ii) 60% of dividend received from shares held in a tea company is agricultural income exempt from tax u/s 10(1).
(iii) While computing income tax liability of an assessee aged 50 years, agricultural income is required to be added to total
income only if net agricultural income for the P.Y. exceeds Rs 5,000 and the total income (including net agricultural
income) exceeds Rs 2,50,000.
(iv) While computing income tax liability of an assessee aged 50 years, agricultural income is required to be added to total
income only if net agricultural income for the P.Y. exceeds Rs 5,000 and the total income (excluding net agricultural
Choose the correct answer:
(a) (i) and (iii)

(b) (ii) and (iii)
(c) (i) and (iv)
(d) (i), (ii) and (iv)
Correct answer : (a) (i) and (iv)

Explanation:
(i) Any income derived from saplings or seedlings grown in a nursery is agricultural income exempt from tax u/s 10(1).
(ii) Dividend income is fully taxable.
(iii) While computing income tax liability of an assessee aged 50 years, agricultural income is required to be added to total
income only if net agricultural income for the P.Y. exceeds Rs 5,000 and the total income (excluding net agricultural

CA INTER LEGENDS
TELEGRAM CHANNEL
Click On Below Image To join our channel

Direct Tax Question Bank

Uploaded by

Copyright:

Available Formats

Direct Tax Question Bank

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Direct Tax Question Bank

Uploaded by

Copyright:

Available Formats

Question Bank - Chapter 1 Compiled by Neeraj Arora and TEAM

Chapter 1 - Introduction & Basics of Income Tax

There are two types of tax :

Q3. List the components of Income Tax Law.

The components of Income Tax Law are :

Q4. Define the following terms.

Q5. Define Circulars and Notifications.

Income tax QB C1 - Page No 1

First ₹ 3,00,000 - Nil

Total tax liability = ₹ 5,30,400

(A) Total income - ₹ 7 lakhs i.e 7,25,000 - 7,00,000 = ₹ 25,000

(B) Tax liability on ₹ 7,25,000

Income tax QB C1 - Page No 2

First ₹ 2,50,000 - Nil

Total tax liability ₹ 59,800

(A) Tax on ₹ 5,05,00,000

First ₹ 5,00,000 - Nil

Tax liability ₹ 2,04,81,500

(B) Tax on ₹ 5,00,00,000

First ₹ 5,00,000 - Nil

Tax liability ₹ 1,85,00,000

(C) Total Income less ₹ 5 crore = ₹ 5,00,000

(E) Tax liability (A) or (D), whichever is lower = ₹ 1,90,00,000

Total tax liability = ₹ 1,97,60,000

(F) Marginal relief (A - D) = ₹ 14,81,500

Income tax QB C1 - Page No 3

(A) Tax on ₹ 5,05,00,000

First ₹ 5,00,000 - Nil

Tax liability ₹ 2,04,81,500

(B) Tax on ₹ 5,00,00,000

First ₹ 5,00,000 - Nil

Tax liability ₹ 1,85,00,000

(C) Excess tax payable (A) - (B) = ₹ 19,81,500

(E) Tax liability (A) - (D) = ₹ 1,90,00,000

Total tax liability = ₹ 1,97,60,000

First ₹ 3,00,000 - Nil

Total tax liability = ₹1,93,05,000

Income tax QB C1 - Page No 4

(B) Tax on ₹ 1,00,00,000 : Tax @ 30% = ₹ 30,00,000

(C) Total Income less ₹ 1 crore = ₹ 1,00,000

(E) Tax liability (A) or (D), whichever is lower = ₹ 31,00,000

Total tax liability = ₹ 32,24,000

(F) Marginal relief (A - D) = ₹ 2,93,600

(A) Tax on ₹ 1,01,00,000 : Tax @ 30% = ₹ 30,30,000

(B) Tax on ₹ 1,00,00,000 : Tax @ 30% = ₹ 30,00,000

(C) Excess tax payable (A) - (B) = ₹ 3,93,600

(E) Tax liability (A) - (D) = ₹ 31,00,000

Total tax liability = ₹ 32,24,000

Tax on ₹ 5,00,00,000 @ 30% = ₹ 1,50,00,000

Income tax QB C1 - Page No 5

Total tax liability = ₹ 1,66,92,000

Part II : Multiple Choice Questions

(a) A body corporate incorporated in a country outside India

Correct answer : (c) Indian branch of a foreign company

Q2. XYZ LLP falls under which category of person?

Correct answer : (a) Firm

(a) Only Mr. Harsh Gupta and Mr. Deepak Gupta

Income tax QB C1 - Page No 6

Correct answer : (c) 7.5 %

Correct answer : (b) ₹ 12,67,600