2 Income under the head other sources Interest from axis bank saving account 10,000 Interest credited in recognised provident fund in excess of 9.5% 2

Transcription

1 OLD COURSE INCOME TAX SOLUTIONS Question No.1 is compulsory. Attempt any four questions from the REST. In case, any candidate answers extra questions (s)/sub questions (s) over and above the required number, than only the requisite number of questions first answered in the answer book shall be valued and subsequent extra questions (s) shall be ignored. Working notes should form part of the respective answers. All questions pertaining to income Tax relate to Assessment Year unless stated otherwise in the question. Question 1 Marks Mrs. Babu, working as journalist with ABC Limited provides the following information for the year ended Basic salary `25,000 p.m. DA (50% of it is meant for retirement benefits) 50% Basic Pay Own contribution to Recognized Provident fund (R.P.F.) `30,000 Employer s contribution to R.P.F 20% of Basic Salary Interest credited in the 15% `15,000 Arrears of rent received from ABC Limited `69,000 Received interest `10,000 from Axis Bank Savings account during the year, and interest of `12,040 from the debentures of M/s. Coal India ltd. She made payment through cheque `12,500 for Mediclaim Insurance Policy for her major daughter. She had contributed `1,196 pm towords Atal Pension Yojana and `5,000 pm towards Sukanya Samridhi account. M/s. ABC Limited has taken residential house of Mrs. Babu as Company s guest house and later purchased from her in the 2016 at market value for `75 lakhs. Purchased cost was only `10 lakhs in April, During August, 2017 Mrs. Babu had lost her gold chain and a diamond ring which she had purchased in April, 2004 for `1,13,000 and market value of these two items were `2,50,000 and she has received insurance compensation of `2,75,000 during Feb.,2018 Compute Total Income for the Asst. year (CII FOR = 113, = 264, and =272) Basic Pay (25,000 x 12) 3,00,000 Dearness allowance (12,500 x 12) 1,50,000 Employer s contribution to recognised provident fund in excess of 12% of retirement benefit salary 15,000 Working Note: RBS = 3,00, ,000 = 3,75,000 12% of RBS = 45,000 Employer s contribution = 3,00,000 x 20% = 60,000 60,000 45,000 = 15,000 Interest credited in recognised provident fund in excess of 9.5% 2,750 (15,000/15% x 5.5%)/2 Gross Salary 4,67,750

2 2 Income under the head other sources Interest from axis bank saving account 10,000 Interest credited in recognised provident fund in excess of 9.5% 2,750 (15,000/15% x 5.5%)/2 Interest from debentures 12,040 Income under the head other sources 24,790 Income from house property Arrears of rent 69,000 Less: 30% u/s 25A (20,700) Income from house property 48,300 Income under the head Capital Gains Gold chain and diamond ring lost Full Value of Consideration 2,75, Less: Indexed cost of acquisition (1,13,000/113 x 272) (2,72,000.00) Long term capital gains 3, Gross Total Income Income under the head Salary 4,67,750 Income under the head other sources 24,790 Income from house property 48,300 Long term capital gains 3,000 Gross Total Income 5,43,840 Less: Deduction u/s 80C Employee contribution to RPF 30,000 Sukanya Samridhi account 60,000 (90,000) Less: Deduction u/s 80D for major daughter (12,500) Less: Deduction u/s 80CCD Contribution to Pension fund (1,196 x 12) (14,352) Less: Deduction u/s 80TTA (10,000) Total Income 4,16,988 Rounded off u/s 288A 4,16,990 Note: 1. Interest on debentures is presumed to be gross receipts. 2. Residential house is sold in 2016 hence tax on such Income is already given in 2016 hence no treatment is done in current year. Question 2 (a) Marks 5 Miss. Kavita, a resident and ordinarily resident in India, has derived the following income for the year ended ` (i) Income from sale of centrifuged latex processed from rubber plants grown in Darjeeling. 1,00,000 (ii) Income from sale of coffee grown and cured in Yercaud, Tamil Nadu 2,00,000 (iii) Income from sale of coffee grown, cured, Roasted and grounded in Colombo. 5,00,000 Sale Consideration was received in Chennai. (iv) Income from sale of tea grown and manufactured in Shimla. 10,00,000 (v) Income from sapling and seedling grown in a nursery at Cochin. 2,00,000 Basic operations were not carried out by her on land.

3 3 You are required to compute the business income and agricultural Income of Miss. Kavita for the Assessment Year Computation of Business Income & Agriculture Income Agricultural Income Business Income (i) Income from growing and manufacturing of Rubber {Rule 7A} Agricultural income 65% and business income 35% 65,000 35,000 (ii) Income from Coffee grown and cured {Rule 7B} Agricultural income 75% and business income 25% 1,50,000 50,000 (iii) Income from Coffee grown and cured outside India - 5,00,000 (iv) Income from growing and manufacturing of Tea {Rule 8} Agricultural income 60% and business income 40% 6,00,000 4,00,000 (v) Income from sapling and seedling grown in a nursery at Cochin 2,00,000 - Total 10,15,000 9,85,000 Note: As per Rule 7B, it is applicable for sale of coffee grown, cured, Roasted and grounded in India hence if it is outside India then whole will be treated as business Income. Question 2 (b) Marks 5 Mrs. Mahalakshmi an individual, aged 68 years, mortgaged her Residential Property, purchased for `3 lakhs on , with a bank, under a notified reverse mortgage scheme and was sanctioned a loan of `20 lakh. As per the said scheme she was receiving the loan amount in equal monthly installments of `30 thousand per month from the bank. Mrs. Mahalakshmi 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 She had no other income during the year. Discuss the Tax consequences and compute tax for the Asst. Year Cost inflation index As per section 47, reverse mortgage shall not be considered to be transfer for the purpose of capital gain. Under reverse mortgage, an individual can mortgage his house property to the bank and the bank shall grant a loan against the security of house property and such loan shall be given in monthly/quarterly installments and the amount so received shall not be considered to be income of the mortgagor under section 10(43). After the death of the mortgagor the bank shall have right to sell off the property and shall adjust loan and interest and shall compute capital gains for the deceased person and shall pay tax to the government. The purpose of the scheme is to make available regular amount to the persons who do not have regular income but are the owners of the house property. In general, the mortgagor repay the loan in installments but in this case mortgagee i.e. bank is paying installment to the mortgagor and hence it is called reverse mortgage. Computation of Capital Gains in the hands of Mrs. Mahalashmi AY Full Value of Consideration 25,00, Less: Indexed Cost of Acquisition (3,00,000/105 x 272) (7,77,142.86) Long term Capital Gains 17,22, Gross Total Income 17,22, Less: Deduction u/s 80C to 80U Nil Total Income 17,22, Rounded off u/s 288A 17,22,860.00

4 4 Computation of Tax Liability Tax on LTCG u/s 112 on 14,22,860 20% 2,84, Add: Education 3% 8, Tax Liability 2,93, Rounded off u/s 288A 2,93, Question 3 (a) Marks 5 Mrs. Karuna kapoor, is a Hollywood actress. Her passport reveals the Following information about her stay in India From April 3 rd to July 11 th From June 22 nd to July 11 th From Feb 10 th to March 26 th From Sept 7 th to March 26 th From May 17 th to September 30 th From April 3 rd to July 11 th From April 3 rd to July 11 th From April 3 rd to July 11 th From April 3 rd to July 11 th Find out her residential status for the assessment year Under section 6(1), an individual is said to be resident in India in any previous year, if he satisfies any one of the following conditions: (i) He stays in India for 182 days or more during the relevant previous year (ii) He stays in India for 60 days or more and also for 365 days or more during 4 years preceding the relevant previous year. If the individual satisfies any one of the conditions mentioned above, he is a resident, otherwise the individual is a non-resident. Meaning of Not-ordinarily resident Section 6(6)(a) An individual who is resident of India shall be considered to be NOR if he has complied with at least one of the conditions given below: (i) If such individual has during the 7 previous years preceding the relevant previous year been in India for a period of 729 days or less or (ii) If such individual has been non-resident in India in 9 years out of 10 previous years preceding the relevant previous year If he has not complied with even a single condition, he will be considered to be ROR. Stay and Status of Mrs. Karuna Kapoor in various years is as given below. In P.Y {April 28, May 31, June 30, July-11} Days of stay in India are 100, so she is non-resident. In P.Y {April 28, May 31, June 30, July-11} Days of stay in India are 100, so she is non-resident. In P.Y {April 28, May 31, June 30, July-11} Days of stay in India are 100, so she is non-resident. In P.Y {April 28, May 31, June 30, July-11} Days of stay in India are 100, so she is non-resident.

5 5 In P.Y { May 14, June 30, July-31, August- 31, September - 30 } Days of stay in India are 136, so she is resident and also she is non-resident in at least 9 years out of 10 years preceding the relevant previous year, hence she is NOR. In P.Y { September 24, October 31, November 30, December 31, January 31, February 28, March 26} Days of stay in India are 201, so she is resident and also she is non-resident in at least 9 years out of 10 years preceding the relevant previous year, hence she is NOR. In P.Y {February 20, March 26} Days of stay in India are 46. So, she is non - resident. In P.Y {June 9, July 11} Days of stay in India are 20. So, she is non resident In P.Y {April 28, May 31, June 30, July 11} Days of stay in India are 100. So, she is resident and also her stay during seven years preceding the relevant previous year is 729 days or less, hence she is NOR. Question 3 (b) Marks 5 Mr. Rohan a residential individual, owns 3 houses in Chennai. One house is self occupied by him, second house is self occupied by his major son and the third house is vacant during the year. You are required to highlight the steps involved to compute Income from House Property for Mr. Rohan under deemed to be let out concept. More than one house which are self-occupied (deemed to be let out property) Section 23(4) If any assessee has more than one house which are self-occupied, in such cases only one of these houses shall be considered to be self-occupied and income shall be computed under section 23(2) and all other houses shall be deemed to be let out and income shall be computed in the similar manner as in case of let out house. Expected rent shall be considered to be GAV of the house. As per section 23(1)(c), if any House Property is lying vacant throughout the year, it will be considered to be deemed to be let out and income shall be computed in the similar manner as in case of a let out house. Expected Rent shall be considered to be Gross annual value. As per section 23 (5), Where the property consisting of any building or land appurtenant thereto is held as stock-in trade and the property or any part of the property is not let during the whole of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil. Question 4 Marks 10 Mr. Querashi is a business man. During the year ended he was engaged in the business of Hypermarket and Super Market. He maintains proper books of accounts for both businesses in mercantile system. Sales from Hypermarket achieved a turnover of `75 lakhs and all receipts were in cash. However, Supermarket business is through online and entire receipts of `50 lakhs during the year were received through online in his bank account. The expenses were incurred in ratio 65:35.

6 Following additional information is furnished ` To salary 10,00,000 To repairs on building 1,81,000 To Interest 1,10,000 To Travelling 1,30,550 To depreciation 8,12,000 Net profit 3,93,950 6 (a) In addition to he above, repairs of `1,00,000 was incurred for building anew room which was debited to P & L a/c. (b) Depreciation as per income tax Act is `7,17,000. (c) `75,000 was paid in cash on to Mrs. Ann, accountant for preparation of the accounts for the year ended and adjusted under the head expenses payable account. (d) He was forced to shutdown his furniture business in the year 2015 as his accountant absconded business loss of furniture business is `3 lakhs. `4 lakhs was received as insurance compensation on for the cash theft. Mr. Querashi wants to declare income under Presumptive income basis. Compute the income chargeable under the head profits and gains of business or profession of Mr. Querashi under Presumptive Income scheme under section 44AD and his Total Income for the year ended As per section 44AD, If any assessee has turnover of his business upto `200 lakhs, such assessee is allowed to compute income on presumptive basis and income under the head business/profession shall be presumed to be 8% of the turnover and no further deduction is allowed under section 30 to 38. Brought forward business loss is allowed to be adjusted from such income but brought forward depreciation is not allowed to be adjusted from such income. Rate of 6% shall be applied instead of 8% if 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. Computation of Total Income ` Sales from Hyper Market in cash 75,00,000 Presumptive Income u/s 44AD (8% of 75,00,000) 6,00,000 Sales from Super Market online 50,00,000 Presumptive Income u/s 44AD (6% of 50,00,000) 3,00,000 Income under the head Business Profession 9,00,000 Insurance compensation received section 41(1) 4,00,000 Less: B/F business loss section 72 (3,00,000) Income under the head Business Profession 10,00,000 Gross Total Income 10,00,000 Less: Deduction u/s 80C to 80U Nil Total Income 10,00,000 Question 5 (a) Marks 5 Mr. Jaji is a chartered accountant and his income from profession for the year is `10,00,000. he provides you with the following information for the year ` Income of minor son Biju from company deposit 1,50,000 Income of minor daughter Chitra (professional dancer) 20,00,000 Interest from SBI received by Chitra on deposit made in 2015 out of her special talent 20,000

7 7 Gift received by Chitra on from friends of Mr. Jaji on winning national award 45,000 Short term capital loss of Mr. Jaji 6,00,000 Long term capital gains of Mr. Jaji 4,00,000 long term capital gains shares (STT paid ) of Mr. Jaji 10,00,000 Short term capital loss under section 111A of Mr. Jaji 10,00,000 Compute the total income of Mr. Jaji for Asst. Year and the losses to be carried forward assuming that he files his income tax returns every year before due date. Computation of Total Income of Mr. Jaji ` Income from Profession 10,00,000 Income under the head Capital Gains LTCG 4,00,000 Less: Short term capital Loss (4,00,000) Nil (Balance 2,00,000 shall be carried forward) Income under the head other sources Clubbing of Income of Minor son Biju u/s 64(1A) 1,50,000 Less: Exempt u/s 10(32) (1,500) 1,48,500 Interest Income of Minor daughter u/s 64(1A) 20,000 Less: Exempt u/s 10(32) (1,500) 18,500 Income under the head other sources 1,67,000 Gross Total Income/Total Income 11,67,000 Losses to be carried forward for next assessment year 1. STCG 111A 10,00, STCG 2,00,000 Note: 1. As per section 64(1A), Income of minor child shall be clubbed in the income of parents having higher Income but clubbing provision shall not be applicable if minor earns income from personal talent hence of 20,00,000 shall not be clubbed. 2. Long term capital gains from shares on which STT is paid shall be exempt u/s 10(38). Question 5 (b) (i) Marks 3 XYZ Ltd. A domestic company, declared dividend of `150 lakh For the Financial Year and distributed the same on Mr. A holding 10% share XYZ Ltd. Received dividend of `15 lakh in July, Mr. B holding 5 % share in XYZ Ltd. received dividend of `7.5 lakh in July Discuss the tax liabilities in the hands of Mr. A and Mr. B assuming that Mr. A and Mr. B have not received dividend from any other domestic company during the year. Answer: As per section 115BBDA, Dividend received by All Assessee except a domestic company or a fund or institution or trust or any university, exceeding `10 lakh shall be 10%. No further deduction or expenditure shall be allowed from such income. Tax Liability of Mr. A Dividend received 15,00,000 Less: Exempt (10,00,000) Balance 10% u/s 115BBDA 5,00,000

8 8 Computation of Tax Liability Tax on ` 10% u/s 115BBDA 50,000 Add: 3% 1,500 Tax Liability 51,500 Tax Liability of Mr. B Dividend received 7,50,000 Less: Exempt (7,50,000) Balance Taxable Nil Tax Liability Nil Question 5 (b) (ii) Marks 2 Explain the amount of fees to be paid for default in furnishing return of income under section 234F of the Income Tax Act, Answer: Fee for default in furnishing return of income. Section 234F where a person required to furnish a return of income under section 139, fails to do so within the time prescribed u/s 139(1), he shall pay, by way of fee, a sum of, - ` 5,000, if the return is furnished on or before the 31st day of December of the assessment year; - ` 10,000 in any other case. Provided that if the total income of the person does not exceed `5,00,000 the fee payable under this section shall not exceed ` 1,000. Example: For the P.Y.18-19, Mr. X has Total Income `7,00,000 and he files his return on 10 th August 2019, in this case Penalty of `5000 is payable and if he files his return on 10 th January 2020, Penalty is `10,000 but if his total income is upto `5,00,000, Penalty shall be `1000 in either case. 6. Answer any two sub divisions: Question 6 (a) Marks 5 Discuss the applicability of provisions of Tax Deduction at source, the rate and amount of tax deduction to be made in the following cases for the financial year (A) Mr. Bobby, a resident whose turnover during the previous financial year is `205 Lakhs and for the current year it is `80 lakhs. (i) Shop rent paid to Mr. Rajasekharan, aresident `20,000 per month. (ii) On paid towards fee for technical services `25,000 and royalty of `20,000 to Mr. Swamy, a resident who is having PAN. No other payment made to Mr. Swamy. (iii) On payment of `2,00,000 made to Mr. A for purchase of diaries according to specifications. However, no material was supplied for such diaries. (iv) Contract payments made to Mr. Satheesan on for painting `25,000 and another contract for interior furnishing on for `20,000. (B) Mr. Thrilok an individual not assessed to tax pays towards rent ` per month. Answer: (A) As the turnover of Mr. Bobby for F.Y , i.e. `205 lakh, has exceeded the monetary limit prescribed under section 44AB, he has to comply with the tax deduction provisions during the financial year (i) As per Section 194-I TDS is required to be 10% as the Rent amount does exceeds `1,80,000 TDS per month = 20,000 x 10% = 2,000 (ii) As per section 194J, Limit of 30,000 per annum shall be considered separately for each services hence no TDS is required to be deducted as payment made for technical services and royalty both is not exceeding 30,000 separately. (iii) Tax shall not be deducted at source in case of purchase of goods.

9 9 (iv) It is covered under section 194C but payment is not exceeding `30,000 hence no tax shall be deducted at source. (B) As per section 194-IB, Any person, being an individual or a Hindu undivided family not liable to audit in the preceding financial year, responsible for paying to a resident any income by way of rent exceeding `50,000 for a month or part of a month during the previous year, shall deduct 5%. In the given case rent is exceeding `50,000 hence TDS shall be deducted 5%. TDS = 60,000 x 12 x 5% = 36,000. Question 6 (b) Marks 5 Write any four cases where seller of certain goods is required to collect tax from buyers and also state the circumstances where TCS is not applicable. Answer: As per section 206C, tax collection at source means the person receiving payment for selling of alcoholic liquor shall collect tax at source from the buyer and also in some other cases, tax has to be collected at source and is given below: (i) Alcoholic Liquor for human consumption One per cent (ii) Timber obtained under a forest lease (iii) Scrap (iv) Parking lot (v) Toll plaza (vi) Mining (vii) Minerals, being coal or lignite or iron ore (viii) Motor vehicle, value exceeding ten lakh rupees Two and one-half per cent One per cent Two per cent Two per cent Two per cent One per cent One per cent No collection of tax shall be made in the case of a buyer, who is resident in India, if such buyer furnishes to the person responsible for collecting tax, a declaration in writing in duplicate in the prescribed form and verified in the prescribed manner to the effect that the goods are to be utilised for the purposes of manufacturing, processing or producing articles or things or for the purposes of generation of power and not for trading purposes. Question 6 (c) Marks 5 Pertaining to the following transactions, what is the minimum amount above which quoting of permanent account number is mandatory? (i) Sale or purchase of car. (ii) Payment to a hotel or restaurant against a bill or bills at any one time. (iii) Payment in connection with travel to any foreign country. (iv) Payment to the Reserve bank of India for acquiring bonds issued by it. (v) A Time Deposit with a Post Office. (vi) Payment as Life Insurance Premium to an insurer. (vii) Sale or purchase, of shares of a company not listed in a recognized stock exchange (viii) Sale or purchase of any immovable property. Answer: (i) As per section 139A, Quoting of PAN is mandatory in case of sale or purchase of motor vehicle without any limit. (ii) As per section 139A, Quoting of PAN is mandatory in case of making a Cash payment of hotel or restaurant bill exceeding ` 50,000

10 10 (iii) As per section 139A, Quoting of PAN is mandatory in case of Payment in cash in connection with travel to any foreign country or purchase of foreign currency of an amount exceeding `50,000 at any one time. (iv) As per section 139A, Quoting of PAN is mandatory in case of Payment of an amount exceeding `50,000 to the Reserve Bank of India, for acquiring bonds issued by it. (v) As per section 139A, Quoting of PAN is mandatory in case of Opening time deposit account in a Bank, Coop Bank, Post office, Nidhi, NBFC companies for an amount aggregating to more than `5,00,000 during the year. (vi) As per section 139A, Quoting of PAN is mandatory in case of Payment of an amount exceeding `50,000 in a year as life insurance premium to an insurer. (vii) As per section 139A, Quoting of PAN is mandatory in case of Purchase or sales of shares of an unlisted company for an amount exceeding `1,00,000 per transaction (viii) As per section 139A, Quoting of PAN is mandatory in case of Sale/Purchase of immovable property exceeding `10 lakhs. Properties valued by Stamp Valuation Authority at amount exceeding `10 lakhs.