Income Tax Law and Practice Solved Paper 2021 CBCS Pattern
Dibrugarh
University B. Com 3rd Sem Question Papers
3
SEM TDC ITLP (CBCS) C 306
Income
Tax Law and Practice’ 2021
(Held
in January/February, 2022)
COMMERCE
(Core)
Paper:
C-306
Full
Marks: 80
Pass
Marks: 32
Time:
3 hours
The
figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks: 1x4=4
(1) Residential status is determined with reference to the individual’s physical presence in India.
(2) Gratuity is ordinarily taxable as salary.
(3) All those assets to which one rate of depreciation is applicable are
known as block of asset.
(4) The Permanent Account Number is a 10 (Ten) digit alpha numeric number which is issued by an
assessing officer of the income tax department.
(b)
Write True or False: 1x4=4
(1) The present Income-tax Act came into force with effect from 1st
April, 1961. False, 1-4-1962
(2) The annual value of house property must consist of any building or
lands appurtenant thereto. True
(3) Long-term capital gains on sale of securities listed in stock
exchange are taxed u/s 115A of the Income-tax Act, 1961. False, 112A
(4) Total income is also known as taxable income. False
2.
Write short notes on any four of the following: 4x4=16
(a) Standard deduction (u/s 16).
Ans: Deductions from
Salaries [Section 16]: While computing the salary
income an employee, the following three deductions are allowed under section
16:
i. Standard Deduction
[Section 16 (ia)]: Standard deduction of Rs. 50,000
from the Assessment year 2020-21 is allowed to every employee.
ii.
Entertainment Allowance [Section 16 (ii)]: Entertainment
allowance is fully exempted for non-government employees. But in case of a
government employee’s a deduction is allowed u/s 16(ii) at the least of the
following:
a) Statutory limit: 5000
b) 1/5th of basic salary
c) Actual entertainment allowance
iii. Tax on
Employment (Professional Tax) [Section 16 (iii)]: As
per the Constitution of India, the State Governments/Local Authorities are
empowered to make law and collect taxes on professions, trades, callings and
employment.
(b) Home loan.
Ans: Home Loan: Buying
or constructing a house is not an easy task in present situation. But home loan
facilities by government and other financial institutions made this easy.
Having a house is dream of everyone. The Indian government always encourage
citizens to invest in houses by providing them multiple tax benefit u/s 54 and
also tax deduction under Section 80C. Many schemes like Pradhan Mantri Jan
Dhan Yojana are flashing green light on the Indian housing sector by striving
to bring down the issues of affordability and accessibility.
The Income Tax Act, 1961 offers various provisions for a tax rebate on
home loans. The following are the three major areas where such a borrower can
claim exemptions:
1. Principal repayment of home loans can net annual tax deductions of up
to Rs.1.5 lakh under Section 80C of The Income Tax Act, 1961
2. On the interest payments for a home loan, tax deductions of up to
Rs.2 lakhs can be claimed, as per Section 24 of the Income Tax Act.
3. Additional tax deductions of up to Rs.50000 can also be availed under
sec. 80EE.
(c) Deduction u/s 54.
Ans: Capital
Gains from Transfer of a Residential House: [Sec.54]: Any long-term capital
gains arising on the transfer of a residential house (including self-occupied
house), to an individual or HUF, will be exempt from tax if the assessee has
within a period of one year before or two years after the date of such transfer
purchased, or within a period of three years constructed, two residential house
in India. This exemption is allowed only once in the lifetime of the assessee
provided amount of capital gains does not exceed Rs. 2 crores.
Amount of exemption: The amount of exemption available is equal to
the amount so utilised or the amount of capital gain, whichever is less. If the
whole or any part of the capital gain cannot be so utilised for acquisition of
a residential house before filing the return, the same should be deposited in
Capital Gains Account Scheme, 1988 in order to claim exemption, before the due
date for furnishing the return.
For availing this exemption, the assessee must not transfer the
new house, within a period of three years from the date of its purchase or
construction, as the case may be. Otherwise the exemption allowed under this section
shall be reduced from the cost of the new house, in computing the capital gains
arising there from.
(d) Unexplained investment (u/s
69)
Ans: Unexplained
Investments [Section 69]: Where, in the financial year immediately preceding
the assessment year, the assessee has made investments which are not recorded
in the books of accounts and the assessee fails to furnish any satisfactory
explanation as and from where this money came or if the Assessing Officer is
not satisfied with the explanation the value of such unexplained investment may
be deemed to be the income of the assessee of such financial year.
(e) Filing of return of income.
Ans: An Income tax return (ITR) is a form
used by assessees to file information about their
income
under various heads to the Income Tax Department. As per the
income tax Act 1961, the return must
be filed every year by an assessee that earns any
income during a financial year. The tax liability
of a taxpayer is calculated based on his or her income. The income of an assessee
can be from salary, house property, business or profession, capital gains and
income from other sources.
Tax returns have to be filed by an individual or a business before
a specified date. If a taxpayer fails to abide by the deadline, he
or she has to pay a penalty if his income is above basic exemption
limit. A delay in filing returns will not only attract late filing fees but
also hamper chances of getting a loan or a visa for travel purposes.
Tax liability of an assessee is to be
calculated at a predetermined rate. Some assesse is required to pay their taxes
in advance. In case the return shows that excess tax has been paid during a
year, then the individual will be eligible to receive income tax
refund from the Income Tax Department.
3.
(a) Explain the following (any two): 4x2=8
(a) Assessee.
Ans: Assessee [Section 2 (7)]: Assessee means a person by whom any tax or any
other sum of money payable under the Act and include:
i)
Every person in respect of whom any proceeding has been initiated
under the act for the assessment of his income or the income of any other
person. These assessee are also called ordinary assessee. It also includes that
person to whom tax refund is due or by whom any amount of tax or interest or
penalty is payable under this Act.
ii) A person who is deemed to be an
assessee under any provision of the Act. A person who is not only liable for
his own income but also for the income of another person is called deemed
assessee or representative assessee. E.g., Guardian of minor or a lunatic etc.
iii) A person who is deemed to be an
assessee in default in any of the provision of the Act. Assesses in default is
a person who fails to fulfill his statutory obligations. E.g., in case of an
employer paying salary, he has to deduct tax at source and deposit the same in
the government treasury. If he fails, then he is called assessee in default.
Every person by whom any amount is payable under the
Income Tax Act is called assessee. But all person mentioned above is not liable
to pay taxes.
A. Following persons are liable to pay income tax if
their taxable income’ in a year exceeds the basic exemption limit for the year:
1. Individuals (including non-residents),
2. Hindu Undivided Families (HUFs)
3. Association of Persons (AOPs)/Bodies of Individuals (BOIs) (where
the individual shares of the members are known)
4. Artificial juridical persons, such as deities of temples
5. Societies and charitable/religious trusts
B. Following persons are liable to pay income-tax irrespective of
their income:
1. All partnership firms (including limited liability partnership
firms)
2. Co-operative societies
3. Companies
4. Local authorities
5. AOP/BOI where shares of the members are indeterminate or unknown.
(b) Agricultural income.
Ans: Agriculture Income [Section 2
(1A)]: Agriculture income is fully exempted from tax
u/s 10(1) and as such does not form part of total income. As per Section 2(1A),
agriculture income includes:
a) Any rent or revenue derived from land
which is situated in India and is used for agricultural purpose;
b) Any income derived from such land by
agriculture or by the process employed to render the product fit for market or
by the sale of such produce by the cultivator or receiver of rent in Kind.
c) Any income derived from any building
provided the following conditions were satisfied:
Ø The building is or on the immediate
vicinity of the agricultural land;
Ø It is occupied by the cultivator or
receiver of rent or revenue
Ø It is used as a dwelling house or
storehouse or outhouse;
Ø The land is assessed to land revenue
and it is not situated within the specified area.
(c) Gross total income.
Ans: Section
14: As per section 14, all income, for purposes of income-tax, will be
classified under the following heads of income.
(i) Income under the head Salaries (Sections 15 to 17),
(ii) Income from House Property (Sections 22 to 27),
(iii) Profits and gains of business or profession (Sections 28 to
44)
(iv) Capital gains (Sections 45 to 55)
(v) Income from other sources (Sections 56 to 59)
Incomes earn under different heads are calculated separately and
then aggregated. The aggregate of incomes computed under the above 5 heads,
after applying clubbing provisions and making adjustments of set-off and carry
forward of losses, is known, as gross total income (GTI) [Sec. 80B]
From the gross total income computed above, deductions allowed
under Sections 80C to 80U is deducted to find the total income and on this
income tax is calculated.
Or
(b)
Enumerate any four items of income which are fully exempted from income tax.
Also mention any four such incomes which are partially exempted from income
tax. 4+4=8
Ans: Incomes Fully Exempted from tax under Sec. 10:
1. Agricultural Income: Income
from agriculture is exempt. However, if the net agricultural income exceeds
Rs.5, 000, it is taken into account for determining the rates of income-tax on
incomes liable to tax. [Sec.10 (1)]
2. Receipt from Hindu Undivided Family: Any
sum received by an individual as a member of Hindu Undivided Family where such
sum has been paid out of the income of the family or in the case of any
Impartible estate, where such sum has been paid out of the income of the estate
belonging to the family, irrespective of whether tax is payable or not by the
HUF on its total income. However, certain receipts from HUF are liable to be
clubbed in the hands of an individual member u/s 64(2). [Sec.10 (2)]
3. Partner’s Share in the Firm’s Income: In
the case of a person being a partner of a firm which is separately assessed as
such, partner’s share in the total income of the firm is exempt. Share of a
partner of the firm shall be computed by dividing the total income of the firm
in the profit-sharing ratio mentioned in the Partnership Deed. [Sec.10 (2A)]
4. Value of Leave Travel Concession: Value of any
leave travel concession or assistance received by or due from the employer to
the employee (including noncitizens) and his family (spouse, children and
dependent- father, mother, brother, sister dependent on him) in connection with
his proceeding on leave or after retirement or termination of his service to
any part of India. [Sec.10 (5)]
Partly taxable allowance: Partly
taxable allowance includes the following: (A+B+C)
A) House Rent allowance [Sec.10 (13A)]:
House rent allowance (HRA) received by an employee from his employer is an
exempted income. If the actual house rent allowance received by the employee is
in excess of the lowest limit as prescribed, the excess sum will be taxable
salary. HRA is exempt from tax to the lower of the following.
(a) 50% of
Salary in Mumbai, Kolkata, Chennai, Delhi; 40% of salary in other cases.
(b) Actual
amount of house rent allowance received; or
(c) The
excess of rent paid over 10% of salary.
If the
employee is living in his own house or in a house where he is not paying any
rent, HRA is fully taxable.
Salary for
this purpose means basic salary and dearness allowance if the terms of
employment so provide. It also includes any commission based on a fixed
percentage of turnover achieved by the employee, as per the terms of the
service contract. However, it excludes all other allowances and perquisites.
B) Entertainment Allowance: Entertainment allowance is fully taxable for non-government
employees. But in case of a government employee’s a deduction is allowed u/s
16(ii) at the least of the following:
(a) Statutory limit: 5000
(b) 1/5th of basic salary
(c) Actual entertainment allowance
C)
Children Education Allowance: Children Education allowance is
exempted upto Rs. 100 per month per child for a maximum of two children.
D) Hostel
Expenditure allowance: Hostel expenditure allowance is
exempted upto Rs. 300 per month per child for a maximum of two children.
4.
(a) Explain the following relating to Income from salary: 3x3=9
(1) House Rent Allowance.
Ans:
House Rent allowance [Sec.10 (13A)]: House
rent allowance (HRA) received by an employee from his employer is an exempted
income. If the actual house rent allowance received by the employee is in
excess of the lowest limit as prescribed, the excess sum will be taxable
salary. HRA is exempt from tax to the lower of the following.
(a) 50% of
Salary in Mumbai, Kolkata, Chennai, Delhi; 40% of salary in other cases.
(b) Actual
amount of house rent allowance received; or
(c) The
excess of rent paid over 10% of salary.
If the
employee is living in his own house or in a house where he is not paying any
rent, HRA is fully taxable.
Salary for
this purpose means basic salary and dearness allowance if the terms of
employment so provide. It also includes any commission based on a fixed percentage
of turnover achieved by the employee, as per the terms of the service contract.
However, it excludes all other allowances and perquisites.
(2) Gratuity.
Ans: Gratuity [Sec. 10(10)]:
Gratuity is the sum paid by the employer to its employees in appreciation of
its past services. Taxability of perquisites is given below for various types
of employees:
|
Government employees |
Employees covered under the
Gratuity Act |
Any other employee |
|
Fully
exempt |
Minimum
of the following 3 limits: |
Minimum
of the following 3 limits: |
|
(1)
Actual gratuity received, or (2)
15 day's salary for every completed year, or part thereof exceeding six
months (7 day's salary for each season for an employee in a seasonal
establishment); or (3)Rs.
20,00,000 |
(1)
Actual gratuity received, or (2)
Half months average salary of each completed year of service. (3)
Rs.20,00,000 |
|
|
Meaning
of Salary: (i)
Basic salary plus Dearness allowance. (ii)
Last drawn salary (average salary of the preceding three months in case of
piece rated employee) (iii)
No. of days in a month to be taken as 26 |
Meaning
of Salary: (i)
Basic Salary plus D.A. to the extent the terms of employment so provide
Commission, if a fixed percentage of turnover. (ii)
Average salary of last 10 months preceding the month in which event occurs. (iii)
Only completed a year of service is to be taken. |
(3) Recognized Provident Fund.
Ans: Recognized
Provident Fund (RPF): This scheme is applicable to an
organization which employs 20 or more employees. An organization can also voluntarily
opt for this scheme. All RPF schemes must be approved by The Commissioner of
Income Tax. Here the company can either opt for a government-approved scheme or
the employer and employees can together start a PF scheme by forming a Trust.
The Trust so created shall invest funds in a specified manner. The income of
the trust shall also be exempt from income taxes.
Taxability
of Recognised Provident Funds
|
Particulars |
Taxability |
|
1. Employee's/ assessee's contribution |
Deduction
u/s 80C is available from gross total income subject to the limit specified
therein |
|
2.Employer's contribution |
Exempt
up to 12% of salary. Amount in excess of 12% is included in gross salary. |
|
3. Interest on Provident Fund |
Exempt
u/s 10 up to 9.5% p.a. Interest credited in excess of 9.5% p.a. is included
in gross salary |
|
4.Repayment of lump-sum amount on retirement / resignation
/termination |
Exempt
if the employee has rendered a minimum of 5 years of continuous service |
Or
(b) Mr. Rajiv is a
production manager of an industrial unit at Chennai. The particulars of his
salary income are as follows:
|
Particulars |
Rs. (p.m.) |
|
Basic Salary DA (given under the
terms of employment) Entertainment allowance Medical allowance House Rent allowance Rent paid for the house |
40,000 15,000 1,000 500 12,000 15,000 |
Car of 1.2 litre capacity
provided by employer for private and official use. Employer meets of car. He
and his employer (each) contribute 13% of salary to Recognized Provident Fund.
Mr. Rajiv had taken
interest-free loan of Rs. 15,000 to purchase refrigerator. Compute income under
the head salary for the AY, 2020-21.9
Ans:
Available on our YouTube Channel or Download our mobile application for
Solutions.
5. (a) From the particulars
given below, compute income from house property which consists of two
independent units having 1/3rd and 2/3rd area: 10
|
Date of completion Municipal rental value Fair rental value Self-occupied Let out Municipal taxes Fire insurance premium Ground rent Interest on loan |
01-11-2013 Rs. 96,000 Rs. 84,000 2/3rd
portion. 1/3rd portion
from 01-04-2018 to 31-08-2018 @ Rs. 7,200 p.m. and self-occupied from
01-09-2018 onwards. Rs. 6,000 p.a. Rs. 2,000 p.a. Rs. 4,000 p.a. Rs. 7,500 |
Ans:
Available on our YouTube Channel or Download our mobile application for
Solutions.
Or
(b)
What is ‘annual value’? How is it determined? What deductions are allowed from
the annual value in computing taxable income from house property? 2+3+5=10
Ans: Annual Value (Section 23)
The Annual Value
of a house property is the inherent capacity of the property to earn income and
it has been defined as the amount for which the property may reasonably be
expected to be let out from year to year. It is not necessary that the property
should actually be let out. It is also not necessary that the reasonable return
from property should be equal to the actual rent realized when the property is,
in fact, let out.
Computation of
annual value: Computation
of Annual Value for the determination of Income from House property requires
three steps.
Ø STEP 1 Determine the Gross Annual Value(GAV)
Ø STEP 2 Determine the value of Municipal taxes
Ø STEP 3 Compute the Net Annual Value
STEP 1- Determine the Gross Annual
Value (GAV):
Calculation of GAV
based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar
to the house property the GAV of which is to be determined) in the same
locality would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration
as determined by the Municipal authorities for the purpose of levying Municipal
taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can
recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is
higher, subject to the Standard rent.
5) Unrealised rent:
The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in
the actual amount of rent receivable from the house property if all the
following for conditions are satisfied:
a) Tenancy is in
good-faith.
b) The defaulting
tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting
tenant doesn't continue to occupy any other property of the assessee.
d) Assessee has taken
all the reasonable steps to proceed against the defaulting tenant legally or he
must satisfy the assessing officer that if such steps are taken, it will be of
no use.
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference
between the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner because of
his employment, business or profession being in some other place and he resides
at that place in a property not owned by him.
It should be noted
that the procedure for the determination of Gross Annual Value is not the same
in all the cases. It varies according to the given situation. Various
situations and the respective procedures for computation of GAV are given
below:
1) Property is let-out
throughout the previous year (Section
23(1) (a)/ (b)): GAV = ERV or ARR,
whichever is higher.
2) Let out property is vacant
for a part of the year (Section 23(1)
(c)): If the ARR < ERV only
because the property was vacant for a part of the year, GAV = ERV.
If the ARR < ERV for any other reason, GAV =
ERV. If the ARR > ERV even
though it was vacant for a part of the year, GAV = ARR. In all the cases, ARR is computed for the let-out
period only and the ERV is for the whole year as usual.
3) Self-occupied or Unoccupied
property (Section 23(2)): The gross annual value of two self-occupied house
property is Nil.
4) Let out for a part of the
year and self-occupied for a part of the year (Section 23(3)): GAV =
Higher of ERV (calculated for the whole year) and ARR (calculated for let out
period only)
5) Deemed to be let out property (Section 23(4)): This case arises when the assessee has more than two Self-occupied
properties in a previous year. In such case, only two of such properties are
treated as self-occupied and the remaining shall be treated as Deemed to be let
out properties. Here, GAV = ERV.
6) A portion of the property is
let out and the remaining portion is self-occupied: GAV is calculated separately for self-occupied part
and the let out part. The values of FR, MV, SR and Municipal taxes are
apportioned on the given basis.
Thus, there is a
scope for charging tax on Notional rent too. This happens when the GAV
determined according to the above steps is the ERV.
Now that the Gross
Annual Value of the house property is determined, the next step is to determine
the value of Municipal taxes paid that is deductible from the Gross Annual
Value.
STEP 2 - Determine the value of
Municipal taxes:
The municipal tax or
the property tax paid is allowed as a deduction from the Gross Annual Value if
the following two conditions are satisfied.
(a) The
property is let out during the whole or any part of the previous year,
(b) The Municipal
taxes must be borne by the landlord. If the Municipal taxes or any part thereof
are borne by the tenant, it will not be allowed.
(c) The
Municipal taxes must be paid during the year. Where the municipal taxes become
due but have not been actually paid, it will not be allowed.
STEP 3 - Compute the Net Annual Value:
Gross
Annual Value ++++++
Less:
Municipal Taxes ++++++
Net
Annual Value ++++++
Deductions
allowable under section 24 of the income tax act
Following two
deductions will be allowable from the net annual value to arrive at the taxable
income under the head ‘income from house property’:-
(a) Statutory
deduction: 30 per cent of the net annual value will be allowed as a deduction
towards repairs and collection of rent for the property, irrespective of the
actual expenditure incurred.
(b) Interest
on borrowed capital: The interest on borrowed capital will be allowable as a
deduction on an accrual basis if the money has been borrowed to buy or
construct the house. It is immaterial whether the interest has actually been
paid during the year or not. If money is borrowed for some other purpose,
interest payable thereon cannot be claimed as a deduction.
Limit of deduction
u/s 24(b)
A. In case
of Let out/ deemed to be let out house property: Interest
on Money borrowed is allowed as deduction without any limit. Here interest on
money borrowed = interest of P/Y + 1/5 of Pre-construction
period (PCP) interest. PCP
started from the date of borrowing and ended on 31st Mar immediately
preceding (Before) the year of
completion.
B. In Case
of Self Occupied House Property: Max.
Rs. 2,00,000 is allowed as deduction if the following conditions are satisfied:
Ø A loan taken after 1 – 4 – 99
Ø For construction/purchase (Capital expenditure) of house
Ø Construction completed within 5 years
from the end of the financial year in
which loan is borrowed.
Ø Loan certificate is obtained
For all other cases, the maximum allowed deduction is Rs. 30000
6. (a) Dr. Kunal is a
medical practitioner. He gives you the following summary of cashbook for the
year ending on 31.03.2020:
|
|
Rs. |
|
Rs. |
|
To Balance b/d ‘’ Consultation fee ‘’ Visiting fee ‘’ Gifts and presents ‘’ Sale of medicine ‘’ dividend from UTI ‘’ Life insurance
maturity ‘’ Dividend from NDS |
10,000 60,000 45,000 8,000 42,000 6,000 1,00,000 6,000 |
By Rent of clinic ‘’ Purchase of medicine ‘’ Staff salaries ‘’ Surgical equipment ‘’ Motor car expenses ‘’ Purchase of motorcar ‘’ Household expenses ‘’ Balance c/d |
18,000 38,000 24,000 40,000 8,000 1,40,000 7,000 2,000 |
|
|
2,77,000 |
|
2,77,000 |
Other
Informations:
(1)
50% of the motorcar expenses incurred in connection with profession.
Car was purchased in December 2019.
(2)
Household expenses include Rs. 6,800 for insurance premium.
(3)
Gift and presents include Rs. 3,000 from relatives.
(4)
Closing stock for medicine for Rs. 12,000 and opening stock on
01-04-2019 was Rs. 4,000.
Compute his professional
gain for the Assessment Year, 2020-21. 10
Ans:
Available on our YouTube Channel or Download our mobile application for
Solutions.
Or
(b)
Mention ten examples of expenses allowable as deduction u/s 37 of the
Income-tax act while computing the profits and gains of business or profession.
10
Ans: General Deductions
[Sec.37]: Under Sec.37, deductions of a general
nature are allowed subject to the conditions as specified. The language of this
section may be stretched to claim deduction for many items of expenditure which
is not specifically covered elsewhere under this head, though there are
restrictions with regard to expenditure on entertainment, advertising,
traveling etc., as also under Sec.40 and 40A.
Conditions of deduction under Sec.37:
1. The expenditure is not of the nature described in
Sec 30 to 36.
2. It is not in the nature of capital expenditure
3. It is not in the nature of personal expenses of the
assessee
4. It is laid out wholly and exclusively for purposes
of the business or profession of the assessee.
The
followings are some of the examples of expenses allowable as deduction u/s 37
1. All expenses in the nature of advertisement to push up sales.
2. Sales-tax and expenses incurred in relation to sales tax
appeal.
3. Reasonable expenses incurred at the time of puja, mahurat, Diwali,
etc.
4. Royalty paid in connection with the use of trade marks,
patents, copyrights, etc.
5. Compensation paid to an agent in connection with the
termination or modifications in the terms and conditions of his agency.
6. Installation expenses of new telephone and payment made under
'Own Your Telephone' (O.Y.T.) scheme.
7. Legal expenses incurred to claim damages or compensation in
case of non-fulfilment of a contract.
8. Gifts given to the employees but such gifts should not fall in
the category of perquisites.
9. Any compensation paid to an employee on the termination of his
service compensation paid to a managing agent on the termination of his agency.
10. Insurance premium paid to get insurance of employees against
injury, accident while working and also any compensation paid to employees due
to such injury or accident.
7.
(a) Mr. Sudip purchased a house on 12-04-2018 for Rs. 11,00,000 and spent Rs.
1,80,000 on its improvement on 14-07-2018. On 16-12-2019, he sold the house for
Rs. 21,50,000 (stamp duty value Rs. 23,00,000) and incurred Rs. 12,000 as
expenses on transfer. Compute the amount of capital gains from the AY,
2020-21. 9
Ans:
Available on our YouTube Channel or Download our mobile application for
Solutions.
Or
(b)
Mention the different kinds of incomes specifically mentioned as chargeable to
tax under the head, ‘Income from other sources’. 9
Ans: Income from
other sources is the last and residual head of income. A source of income that
does not specifically fall under any one of the other four heads of income
(viz., “Salaries”, income from house property”, profits and gain of business or
profession’’, Capital gain’’) is to be computed and brought to charge under
section 56 under the head’ ’Income from other source’’.
To put the
aforesaid matter differently, the residuary heads of income can be invoked only
if all the following conditions are satisfied:
1. Income –There
is an income.
2. Income shall
not be exempt – That income is not exempt from tax under section 10 to 13 A.
3. Not covered by
other heads -That income is neither salary income, nor income from house
property, nor income from business /profession, and neither capital gains.
These four categories of income are not chargeable to tax under head ‘‘Income
from other sources’’.
If
the above three condition are satisfied, the income is taxable under the head
‘‘Income from other sources’’. All incomes chargeable to tax under this head
are divided into 2 categories:
A. General Incomes [Sec. 56(1)]
B. Specific Incomes [Sec. 56(2)]
[Sec. 56(2)]: Specific Incomes: Following
incomes are the specific incomes which are chargeable to tax under the head
“Income from other sources”
a) Dividend: if such income is not
chargeable to income-tax under the head "Profits and gains of business of
profession.
b) Winning from Lotteries, etc.: it
includes any winning from lotteries, crossword puzzle, races including horse
races, card games and other games of any sort or from gambling or betting of
any form or nature whatsoever.
c) Interest on securities: Interest on
Debentures, Government securities / bonds is taxable under the head “Income
from other sources”
d) Rental income of machinery, plant or
furniture: Rental income from machinery, plant, or furniture let on hire is
taxable as income from other sources.
e) Rental income of letting out of plant,
machinery or furniture along with letting out of building and the two meetings
are not separable.
f)
Sum
received under Keyman Insurance Policy.
g) Gift: if any sum of money is received
during a previous year without consideration by an individual or a HUF from any
person or persons exceeds Rs. 50,000 the whole of such amount is taxable in the
hands of the recipient as income from other sources.
Income chargeable
under this head is computed in accordance with the method of accounting
regularly employed by the taxpayer. For instance, if book of accounts are kept
on basis of mercantile system, income is taxable and expenditure is deductible
on ‘‘due basis, whereas if books of account are kept on the basis of cash
system, income is taxable on ‘‘receipt’’ basis and expenditure is deductible on
‘‘payment’ ’basis.
8. (a) From the following
information relating to Financial Year, 2019-20 furnished by Mr. Shiv Prasad
Gupta, compute his gross total income for the AY, 2020-21: 10
(1)
Income from salary (computed) Rs. 7,00,000.
(2)
Interest of Rs. 80,000 on the bank fixed deposit for the Financial
Year, 2019-20 was credited to the Savings Bank A/c of Raman, his nephew (son of
his sister).
(3)
He gifted a flat to his wife on 01-04-2019. The income from house
property (computed) for the Financial Year, 2019-20 was Rs. 3,20,000.
(4)
Cash gift received by his minor son Bimal during his 10th
birthday celebration Rs. 92,000.
(5)
Income of minor daughter Sangita from fixed deposit in a bank Rs.
50,000.
(6)
Minor son’s income from fixed deposit in a bank Rs. 2,400.
Ans:
Available on our YouTube Channel or Download our mobile application for
Solutions.
Or
(b) Explain the provisions of
the Income-tax Act regarding set-off and carry forward of the following:
3+3+4=10
1) Loss from house property.
Ans: Loss under head House Property: The
loss under the head house property, let out or self-occupied, can be carried
forward to the subsequent year’s subject to a limit of 8 assessment years. The
loss is to be set off against the income from house property only. Loss under
the head `house property’ may be set off against income under any other head upto a maximum of Rs.2,00,000 [Sec.71(3A)].
2) Capital loss.
Ans: Loss under the head “Capital Gain’: Where
in respect of any assessment year, the net result of the computation under the
head `Capital gains’ is a loss to the assessee, whether short-term or long-term
such short-term and long-term capital losses shall be separately carried
forward. Further, such carried forward short-term capital loss can be set off
in the subsequent assessment year from income under the head capital gains
whether short-term or long-term. But brought forward long-term capital loss
shall be allowed to be set off only from long-term capital gain. Such capital
losses can also be carried forward to a maximum of 8 assessment years,
immediately succeeding the assessment year for which the loss was first
computed.
3) Loss of the discontinued
business.
Ans:
Discontinued business [Section 176]: In case
any business or profession is discontinued during a previous year the income of
the period from the expiry of last previous year till the date of
discontinuation will be assessed to tax in the current previous year itself.
The power of the Assessing Officer to invoke the provisions of section 176 is
discretionary and concerning the other provisions mentioned above, it is
mandatory.
In the above cases, the income of the previous year may be taxed
as the income of the assessment year immediately preceding the normal
assessment at the rates applicable to that assessment year.
According to the proviso to section 72(1), if there is any loss of
a business which is discontinued in the circumstances specified in section 33B
and it is re-established, reconstructed or revived by the assessee at any time
before the expiry of a period of three years from the end of the previous year
in which it was discontinued, then the loss of the previous year in which such
business is discontinued including the brought forward loss:
1. Shall be allowed to be set off against the profit and gains, if
any, of that business or any other business carried on by him and assessable
for that assessment year; and
2. If the loss cannot be wholly so set off, the amount of balance
loss be carried to the following assessment year and so on for seven assessment
years immediately succeeding provided such reestablished business is continued
to be carried by the assessee. Continuity of the business is not necessary for
the loss to be carried forward by the assessee during the year in which brought
forward loss is sought to be set off but it cannot be carried forward for more
than eight assessment years.
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