2

INDEX

SL TOPIC PG. NO
NO
1 BASIC CONCEPTS 2-5

2 RESIDENCE AND SCOPE OF TOTAL INCOME 6-37

3 INCOME FROM SALARY 38-73

4 INCOME FROM HOUSE PROPERTY 74-84

5 PGBP 85-100

6 CAPITAL GAIN 101-118

7 INCOME FROM OTHER SOURCE 119-121

8 CLUBBING, SET OFF AND CHAPTER VI A DEDUCTION 122-141

9 TDS, TCS, ADVANCE TAX 142-151

10 RETURN FILING 152-162

3
 BASIC CONCEPTS
In all the questions Compute Tax Liability under default Tax Scheme and Optional Tax
Scheme
1. Mr. Venu, a resident born on 1st April, 1944 derives income of Rs. 7,80,000 for the FY
2023-24. Compute tax liability.
Answer: Default Scheme: 34,320, Optional Scheme:58,240
2. Annual income of Mr. Jagan is Rs.6,90,000. Compute his tax liability for the AY.2024-25.
Answer: Default Scheme: Tax Liability- Nil, Rebate- 24,000 Optional Scheme:52,520
3. Mr. Amar, aged 35 has a taxable income of Rs. 6,68,000 for the AY 2024-25. Compute his
tax liability.
Answer: Default Scheme: Tax Liability- Nil, Rebate- 21,800 Optional Scheme:47,940
4. Mr. Zaheer, aged 40 informs you that his total income for the AY 2024-25 is Rs. 11,00,000.
You are required to compute his tax liability.
Answer: Default Scheme: 78,000, Optional Scheme:1,48,200
5. Mr. A, aged 35 informs you that his total income computed under the income-tax Act is
Rs. 8,00,000. You are required to calculate his tax liability for the AY 2024-25
Answer: Default Scheme: 36,400 Optional Scheme:75,400
6. Mr. A derives agricultural income of Rs. 3,40,000, and non-agricultural income of Rs.
8,00,000, what will be his tax liability?
Answer: Default Scheme: 64,480 Optional Scheme:1,28,960
7. Mrs. Malathi aged 40, informs you that her total income computed under the provisions
of Income- tax Act is Rs. 10,50,000. Compute her tax liability for the AY 2024-25.
Answer: Default Scheme: 70,200 Optional Scheme:1,32,600
8. In illustration P7, above, in case Mrs. Malathi is aged 62 years would your answer be
different?
Answer: Default Scheme: 70,200 Optional Scheme:1,30,000
9. In illustration P7, above, in case Mrs. Malathi is aged 82 years would your answer be
different?
Answer: Default Scheme: 70,200 Optional Scheme:1,19,600
[Link]. Mohit, aged 50 has a taxable income of Rs. 1,07,00,000. Compute his tax liability.
Answer: Default Scheme: 34,80,360 Optional Scheme:36,14,910
[Link] illustration P10, above, in case Mr. Mohit has taxable income of Rs.99,00,000, would
your answer be different?
Answer: Default Scheme 30,54,480, Optional Scheme 31,83,180
[Link] total Non-agricultural income of Mr. Kailash, aged 40 is Rs.15,00,000. The agricultural
income earned is Rs.75,000. Life insurance premium paid qualifying for deduction u/s.80C
is Rs.10,000. Determine the tax payable by Mr. Kailash for AY 2024-25
Answer: Default Scheme- 1,75,500, Optional Scheme- NAI-14,90,000, AI- 75,000, TL-
2,89,380

BASIC CONCEPTS 2
[Link] total non- agricultural income of Mr. Chandru, aged 55 years is Rs.4,60,000. The
agricultural income earned is Rs.50,000. Life Insurance premium paid qualifying for
deduction u/s 80C is Rs.10,000. Determine the tax payable by Mr. Chandru for the AY
2024-25
Answer: Default Scheme- Rebate-8,000 Tax Liability- Nil, Optional Scheme- Rebate-
10,000 Tax Liability – Nil
[Link] total income of Mr. Vikram for the AY 2024-25 is Rs. 12,00,000. Compute the tax
payable.
Answer: Default Scheme- 93,600, Optional Scheme-1,79,400
[Link]. Subramaniam, aged 72 years, informs that his total income for the AY 2024-25 is Rs.
8,92,700.
Answer: Default Scheme- 46,040, Optional Scheme- 92,080
[Link] total income of Mrs. Urmila, aged 45 years is Rs. 11,75,000. Compute the tax payable
for the AY 2024-25.
Answer: Default Scheme-89,700, Optional Scheme- 1,71,600
[Link] the case of Mr. Prabu, you are informed that the total income computed under the
provisions of the Income-tax Act is Rs. 1,90,000 and the agricultural income is Rs. 80,000.
Determine the Income-tax payable in his case for the AY 2024-25.
Answer: Default Scheme- Nil, Optional Scheme- Nil
(Hint: Non-Agricultural income less than basic exemption limit)
[Link] non-agricultural income of Mr. Patel for the previous year 2023-24 is Rs. 3,00,000
and the agricultural income derived is Rs. 1,50,000 Advise Him about the tax payable for
the AY 2024-25.
Answer: Default Scheme Nil, Optional Scheme- Nil
[Link]. Rohit has estates in Rubber, Tea and Coffee in Kerala. He derives income from them.
He has also a nursery wherein he grows plants and sells. For the previous year ending
31.03.2024, he furnishes the following particulars of his sources of income from estates
and sale of plants. You are requested to compute the taxable income for the AY 2024-25
Sl no Particulars Rs.
(i) Growing and Manufacture of Rubber 6,00,000
(ii) Manufacture of coffee grown and cured 3,50,000
(iii) Manufacture and growing of tea 8,00,000
(vi) Sale of plants grown in nursery 2,00,000
Answer: Computation of Taxable Income of Mr. Rohit for the AY 2024-25
Sl No Income Rule Agricultural Business Total
No Income Income
(i) Manufacture of Rubber 7A 3,90,000 2,10,000 6,00,000
(65:35)
(ii) Manufacture of coffee grown 7B 2,62,500 87,500 3,50,000

BASIC CONCEPTS 3
 and cured (75:25)
(iii) Manufacture and growing of 8 4,80,000 3,20,000 8,00,000
tea (60:40)
(vi) Sale of plants grown in 2,00,000 NIL 2,00,000
nursery
TOTAL 13,32500 6,17,500 19,50,00
20. Mr. Tata an individual, is in the business of growing and manufacturing of tea in India.
The total income derived from the activities for the year ending 31.03.2024 is Rs. 50
crores. a) Compute taxable income of the assessee for the AY 2024-25. 1) Will your
answer be different if the assessee is carrying on only the manufacturing of tea in India.
Answer:
a) Income computed as per Rule 8 is as follows:
Profits of the business =Rs. 50 crores x 40% = Rs. 20 crores
Agricultural income Rs. 50 crores X 60%= Rs. 30 crores
Accordingly, Rs. 30 crores is exempt from tax u/s. 10(1) as agricultural income and
the
balance of Rs. 20 crores shall form part of the taxable income of the assessee.
However,
aggregation concept is applicable.
b) Rule 8 is applicable only to those assesses who are carrying on growing and
manufacturing activity of tea in India. In the given case, as the assessee is not carrying
on the activity of growing of tea, entire sum of Rs. 50 crores shall be subjected to tax
under the head "Profit and gains of business or profession
21. Coimbatore Cotton Mills is engaged in the business of growing cotton and manufacturing
thread. For the PY 2023-24, the company manufactured 5000 spools of thread and sold
them for a value of Rs. 60,00,000. They used 2000 bales of cotton grown by them.
Determine the total income in the following situations for AY 2024-25:
a. The market price bale of cotton is Rs.1500. Cultivation expenses incurred for
producing 2,000 bales of cotton were Rs.38,00,000
b. The Market price per bale of cotton is Rs. 1,500. Cultivation expenses incurred
for producing 2,000 bales of cotton were Rs.20,00,000
Answer:
a. Computation of business income of Coimbatore cotton mils for the AY 2024-25
Particulars Rs.
Sale proceeds 60,00,000
Less: Market value of cotton utilized -2,000 bales 30,00,000
@Rs.1,500(actual cost shall not be considered)
Taxable Business Income 30,00,000
Computation of Agricultural income

BASIC CONCEPTS 4
 Particulars Rs
Market price of Bale cotton 30,00,000
Less: Agricultural Expense 38,00,000
Agricultural Income (8,00,000)

b. Computation of business income of Coimbatore cotton mils

Particulars Rs
Sale proceeds 60,00,000
Less: Market value of cotton utilized -2000 bales 30,00,000
@Rs.1,500(actual)
Taxable Business Income 30,00,000
Computation of Agricultural income
Particulars Rs
Market price of Bale cotton 30,00,000
Less: Agricultural Expense 20,00,000
Agricultural Income 10,00,000
Note: As per Rule 7, market price of the produce shall be allowed as deduction
irrespective of the actual cost of cultivation where such produce is ordinarily sold in the
market. Accordingly, market prices of the cotton bales are considered.
[Link]. Raman derived income of Rs. 8,20,000 from the activity of sale of coffee grown and
cured by him for the year ended 31.03.2024. Compute the tax liability for the AY 2024-25.
Answer: According to Rule 7B, Rs. 2,05,000 being 25% of Rs. 8,20,000 shall be treated
as business income and the balance of Rs. 6,15,000 shall be treated as net agricultural
income. Since, non-agricultural income is less than the basic exemption limit, agricultural
income should not be aggregated. Therefore, the tax liability of Mr. Raman for the AY
2024-25 is nil.
[Link] illustration P22. above, in case Mr. Raman is engaged in roasting and grounding of
coffee apart from growing and curing what will be the tax liability for the AY 2024-25.
Answer:
Default Scheme: Agriculture income – 60% of 8,20,000 4,92,000
Non- Agricultural Income: 40% of 8,20,000 3,28,000
Rebate: 2,800, Tax Liability - Nil
Optional Scheme - Rebate u/s. 87A – Rs.12,500, Tax Liability Rs. 3,220
[Link]. Katrina has completed 60 years of age on 29.09.2023. Her total income for the year
worked out to Rs.1,04,00,000. You are approached to guide her in computing the tax
liability for the AY 2024-25
Answer: Default Scheme- 33,72,720, Optional Scheme- 35,04,280
25.X Ltd is a domestic company having total income of Rs. 20 Crore during PY 2023-24. its
turn over during FY 2021-22 was 250 crores. Compute tax liability for AY 2024-25
Answer: Default Scheme- 5,82,40,000

BASIC CONCEPTS 5
In all the questions Compute Tax Liability under default Tax Scheme and Optional Tax Scheme
1. Mr. Rahav is an Indian citizen, currently he Is in employment in Abu Dhabi (11AE). The
details of stay in the last 10 years is as follows
Financial Period of
Financial Year Period of stay
Year stay
2023-24 59 2018-19 200
2022-23 185 2017-18 250
2021-22 190 2016-17 75
2020-21 170 2015-16 71
2019-20 200 2014-15 50
For the financial year 2023-24 Mr. Rahav is not taxable in Abu Dhabi and his Indian income
for the year ended 31-03-2024 is Rs. 20 lakhs. He wants to know his residential status for
the FY 2023-24.
Answer:
Mr. Rahav is in India for 59 days during the financial year 2023-24, not satisfied the basic
conditions. However, he satisfies following 3 conditions as per section 6(1A)-
a. Mr. Rahav is an Indian citizen;
b. His total Indian income Is exceeds Rs.15 lakhs;
c. He is not taxed in Abu Dhabi (UAE).
He is deemed to be resident in India as per section 6(1A). Hence, he is resident but not
ordinarily resident in India.
2. In the above illustration Mr. Rahav is a foreign citizen but his mother was born in
undivided India in 1945 would your answer differ,
Ans: Mr. Rahav is a foreign citizen but he is person of Indian origin. In the case of foreign
citizen, section 6(1A) is not applicable. Further, he is unable to satisfy any of the basic
condition. Hence, Mr. Rahav is non-resident in India for the previous year 2023-24.

3. Mr. A, a British national, comes to India for the first time during 2019-20 During the
previous year's 2019-20; 2020-21; 2021-22, 2022-23 and 2023-24 he stayed in India for 55
days, 60 days, 80 days, 160 days and 70 days respectively. Determine his residential status
for AY 2024-25.

Ans: Mr. A does not stay for 182 days during the previous year 2023-24. Therefore, he fails
to fulfill the first basic condition. Having stayed for more than 60 days (actual stay 70 days)
during PY 2023- 24, he has stayed only for 355 days during the preceding four previous
years. Thus, he fails to fulfill even the second basic condition. Consequently, his residential
status for AY 2024-25 is that of a non- resident.

RESIDENCE AND SCOPE OF TOTAL INCOME 6

4. Mr. A, a Malaysian citizen leaves India after a period of 10 years stay on 01.06.2022.
During the previous year 2022-23, he comes to India for a period of 46 days. Later he
returns to India for good on 10.10.2023. Determine his residential status for AY 2024-25.

Ans: During the previous year 2023-24, Mr. A stays in India from 10.10.2023 onwards,
amounting to 174 days. Therefore, he does not fulfill the first basic condition, but he fulfills
the second basic condition as he has stayed for more than 60 days during 2023-24 and he
has stayed for more than 365 days during the 4 preceding previous years. Hence, he is a
resident. He was resident in 9 out of 10 preceding previous years and was staying for more
than 730 days during the 7 preceding previous years. Therefore, he satisfy the both
additional conditions. Hence, Mr. A is a resident and ordinarily resident for AY 2024-25.

5. Mr. C, who is a citizen of Singapore, has stayed in India for a period of 150 days during
the previous year 2023-24. Mr. C stayed in India throughout the previous year 2022-23.
However, he stayed in his home country for 330 days and 350 days during the previous
year’s 2021-22 and 2020-21 respectively. Determine his residential status for AY 2024-
25.

Answer:

In the given problem, Mr. Chas stayed for 150 days during 2023-24 and 365 days during
2022-23. Therefore, he fulfills the second basic condition to become a resident. He
satisfiesthe additional condition of being a nonresident in 9 out 10 preceding previous
years. His period of stay in India during 7 preceding previous years is less than 729 days.
Therefore, Mr. C is a resident but not ordinarily resident.

6. Ms. Christine furnishes the information about her period of stay in India during the
previousyear’s 2013-14 to 2024-25 which is as follows
PY Days PY Days PY Days
2013-14 365 days 2017-18 75 days 2021-22 62 days
2014-15 365 days 2018-19 67 days 2022-23 70 days
2015-16 365 days 2019-20 178 days 2023-24 100 days
2016-17 110 days 2020-21 65 days
Determine her residential status for the AY 2024-25.

Answer: Ms. Christine has stayed for 100 days during the previous year 2023-24 and
375days during the immediately preceding 4 previous years. She thus fulfils the second
basic condition. Therefore, she is a resident. In order to determine whether she is
ordinarily resident or not ordinarily resident, the fulfilment of either of the additional

RESIDENCE AND SCOPE OF TOTAL INCOME 7

 conditions must be examined. On verifying the period of stay for the preceding 10
years, it is clear that she is resident in all the 10 preceding previous years by fulfilling
the first basic condition of 182 days stay during the previous year’s 2013-14 to 2015-16
and by fulfillingthe second basic condition for the previous year’s 2016-17 to 2022-23.
So, she does not
satisfy the first additional condition of being a non-resident in 9 out of 10 preceding
previous years. However, Christine fulfills the second additional condition of staying
fora period of 729 days or less during the 7 immediately preceding previous years. The
aggregate period of stay during the 7 immediately preceding previous years works out
to627 days only. Therefore, Christine is a resident but not ordinarily resident for AY
2024-25.

7. Mr. Augustine. a Canadian citizen visits India for the first time on 06.04.2022. He was
inIndia throughout the previous year 2023-24. Determine his residential status for the
AY 2024-25.

Answer: Mr. Augustine had resided for more than 182 days during the previous year
2023-24. Thus, he fulfills the first basic condition and hence he is a resident. In order
to determine whether he is an ordinarily resident or not, the fulfillment of additional
conditions needs to be examined. Mr. Augustine has been a non-resident in India in 9
outof the 10 preceding previous years and has not stayed for a period exceeding 729
days during the 7 preceding previous years. Therefore, the residential status of Mr.
Augustinefor the AY 2024-25 is resident but not ordinarily resident.

8. Maxwell, an Australian cricket player visits India for 100 days in every previous year.
This has been his practice for the past 10 previous years. Find out his residential status
for AY 2024-25.

Answer: Mr. Maxwell hid resided for 100 days during the previous year 2023-24.
Therefore, he does not fulfill the first basic condition, but he fulfills the second basic
condition as he has stayed for more than 60 days during 2023-24 and he has stayed for
more than 365 days during the 4 preceding previous years. Hence, he is a resident. In
order to determine whether he is an ordinarily resident or not, the fulfillment of additional
conditions needs to be examined. Mr. Maxwell has not been a non- resident in India in
9out of the 10 preceding previous years, but he has not stayed for a period exceeding
729days during the 7 preceding previous years.
Therefore, the residential status of Mr. Maxwell for the AY 2024-25 is resident but not
ordinarily resident.

RESIDENCE AND SCOPE OF TOTAL INCOME 8

 9. During the last four years preceding the financial year 2023-24, Mr. Shankar, a citizen
of India, was present in India for 430 days. During the last seven previous years
preceding the previous year 2023- 24, he was present in India for 830 days. Mr. Shankar
is a member of crew of a Dubai bound Indian ship, carrying passengers in the
international waters, which left Kochi port in Kerala, on 12'hAugust, 2023. Following
details are made available to you for the previous year 2023-24:
Particulars Date
Date entered into the Continuous Discharge Certificate in 12 August, 2023
respect of joining the ship by Mr. Shankar
Date entered into the Continuous Discharge Certificate in 21 january,2024
respect of signing off the ship by Mr. Shankar
In May, 2023 he had gone out of India to Singapore and Malaysia on a private tour for
a continuous period of 29 days. You are required to determine the residential status of
Mr. Shankar for the previous year 2023-24.

Ans:
a. As per section 6 of the Income tax Act, 1961, an individual is said to be a resident
forany previous year
i. if he is in India for a period of 182 days or more,
ii. has been in India for a period of 365 clays or more during four years preceding
thatprevious year and has been in India for a period of 60 days or more in that
previousyear However, Explanation 1 states that in the case of an Indian Citizen
who has left India as a crew member of a ship, he will be resident in India only
if he stayedfor 182 days or more during the previous year.
b. As per Rule 126 of the Income tax Rules, 1962, for the purpose of calculating period
ofstay, the period of stay in India shall not include the period beginning on the date
of entering into the Continuous Discharge Certificate in respect of joining the ship
and ending on the date of entering into Continuous Discharge Certificate in respect of
signing off by that individual from the ship.
Determination of stay of Mr. Shankar in India:
Period between joining and signing off as entered in Continuous Discharge Certificate
is163 days Stay in Singapore and Malaysia is 29 days
Total Stay outside India is 192 days
Total stay in India is 366 - 192 days =174 days
Since Mr. Shankar has stayed for less than 182 days in India, his residential status is non-
resident for the previous year 2023-24.

RESIDENCE AND SCOPE OF TOTAL INCOME 9

[Link]. Clinton, an American Citizen, comes to India for the first time in 2019-20 and stays
for 120 days in that year. During 2020-21 2021-22, 2022.23 and 2023-24 he stayed in India
for 50 days, 110 days, 80 days and 90 days respectively. Determine his residential status
for the AY 2024-25. [Ans: Non-resident

[Link]. Thatcher, a British national, visits India on 15.10.2023 and stays up to 20.12.2023
before leaving for London. During 2021-22 she stayed in India for 310 days and in 2022-
23 for 57 days. Prior to 2021-22 she never visited India. Determine the residential status
AY 2024-25. Ans. Resident but not ordinarily resident)

[Link]. Jackie Chan, a Foreign National, leaves India after 10 years of stay on 15.06.2022 to
settle down in China for doing business. During 2023-24, he visits India on 02.01.2024 and
leaves on the last day of March 2024. Determine his residential status for the AY 2024-25.
[Ans: Resident and ordinarily resident)

[Link]. Shane Watson, a foreign national, visited India for the first time during 2019-20 and
stayed for 150 days. During the subsequent years 2020-21, 2021-22, 2022-23 and 2023-
24 his stay in India was for 40 days, 90 days, 105 days and 70 days respectively.
Determine his residential status for the AY 2024-25.

[Ans: Resident but not ordinarily resident)

[Link]. HepzI, furnishes the information about her period of stay in India during PY 2013-
14 to PY 2023-24 which is as follows:
PY Days PY Days PY Days
2013-14 60 days 2017-18 45 days 2021-22 115 days
2014-15 60 days 2018-19 70 days 2022-23 35 days
2015-16 155 days 2019-20 180 days 2023-24 65 days
2016-17 75 days 2020-21 35 days

Determine her residential status for the AY 2024-25. [Ans: Resident but not ordinarily
resident)

[Link], an Indian citizen, left India for the first time as a member of the crew of an Indian
ship on 15th November 2021. Thereafter he settles down abroad on employment and
comes back on a visit to India on 10.06.2023 and stays for 190 days. Determine his
residential status for AY 2024-25. Ans: Resident and Ordinary Resident

[Link], an Indian citizen left India on appointment by the Government of Korea for the
first time on 27.09.2022 to join her duty. During the previous year 2023-24, she came to
India and stayed for 175 days. Determine her residential status for AY 2024-25.

RESIDENCE AND SCOPE OF TOTAL INCOME 10

 Ans: In this case, during the previous year 2023-24, Aparna has stayed in India for less
than 182 days (175 days stay) on her visit. She is covered by the first exception and
therefore does not fulfill the first basic condition. Thus, she is a non-resident for AY 2024-
25.

[Link] individual, who is an Indian resident, is allowed to hold two different citizenships
simultaneously. Is the citizenship a determining factor for residential status of an
individual?

Ans: Citizenship of a country and residential status of that country are separate concepts.
A person may be an India national/citizen, but may not be a resident in India. On the other
hand, a person may be a foreign national/citizen but may be resident in India. The
citizenship of an Individual has no role in determining the residential status of an
individual. The residential status is determined on the basis of number of days an individual
actually, stays in India during the previous year. The provisions of Sec.6 of the Income-
taxAct, 1961 are the determining factor of residential status of an individual.

[Link] the residential status of the following persons for AY 2024-25: a) Mr. A, Indian
citizen leaves India for taking up employment in Singapore on 15.09.2023. b) Mr. B. a
person of Indian origin settled in Australia, visits India for the first time during 2023-24
and stays for 191 days c) Mr. C, holding Indian passport and staying in Canada since
2012,arrives in India on 14.11.2022 and leaves for Canada on 22.09.2023.

Ans: (a) Non-resident: (b) Resident hut not ordinarily resident; (c) Non- resident

[Link] the Gross Total Income in the bands of an individual, if he is a resident

and ordinary resident; and a non-resident for the A.Y.2024-25.
S. Particulars Rs.
No.
Interest from German Derivatives Bonds (1/3 received in
1 21,000
India)
Income from agriculture land situated in Malaysia,
2 51,000
remitted to India
Income earned from business in Dubai, controlled from
3 75,000
India ( 20,000 received in India)
4 Profit from business in Mumbai, controlled from Australia 1,75,000
Interest received from Mr. Ashok (NRI) on loan provided
5 35,000
to him for business in India
6 Dividend from Brown Ltd., an Indian Co. 30,000

RESIDENCE AND SCOPE OF TOTAL INCOME 11

 Profit from business in Canada controlled from Mumbai
7 (60% of profits deposited in a bank in Canada and 40% 60,000
directly remitted to bank account in Mumbai, India)
Amount received from an NRI for the use of know-how
8 8,00,000
for his business in Singapore
9 Dividend received from foreign company in India 25,000
10 Past years untaxed foreign income brought to India 50,000

Ans:
Computation of Gross Total Income in hands of Individual for the AY 2024-25

Particulars Resident and Non-

ordinary Resident
resident
[Link] from German derivatives bond 21,000 7,000
[Link] from agricultural land situated in 51,000 -
Malaysia, remitted to India
[Link] earned from business in Dubai, 75,000 20,000
controlled from India
[Link] from business in Mumbai, controlled 1,75,000 1,75,000
from Australia
[Link] received from Mr. Ashok (NRI) on 35,000 35,000
loanprovided to him for business in India
[Link] from Brown Ltd., an Indian Co. 30,000 30,000
[Link] from business in Canada controlled from 60,000 24,000
Mumbai (60% of profits deposited in a bank in
Canada and 40% directly remitted to bank
accountin Mumbai, India)
[Link] received from NRI for the use of 8,00,000
Know-how for his business in Singapore
[Link] Received from foreign company in 25,000 25,000
India
[Link] Years untaxed foreign income brought to - -
India
Gross Total income 12,72,000 3,16,000

20. Mr. Rajesh living in United Kingdom has let out his Property at Mumbai to Mr. Richie
Rich for £10,000 p.m. payable at United Kingdom. Discuss the taxability of such amount
in India.

Ans: Where the property is situated in India, and any income accrues or arises there from,

RESIDENCE AND SCOPE OF TOTAL INCOME 12

 such income shall be covered under the definition of income deemed to accrue or arise
inIndia. Accordingly, in the given case even if the transaction is settled outside India,
the income derived by Mr. Rajesh shall be subject to tax in India.

21. Mr. Prashant Nair; a non-resident, residing at Sharjah has transferred his House property
situated at Kottayam (Kerala) to Mr. Jian Ju of Tokyo for a sum of 36,00,000. Discuss
Taxability?

Ans: According to Sec. 9, where any capital asset situated in India is transferred, the
resultant capital gains, if any, shall be subject to tax in India as it is the income deemed
toaccrue or arise in India. Accordingly, Mr. Prashant Nair, even though a non-resident
executing the transaction outside India is subject to tax in India.

22. Mr. Arun came to India on deputation to an Indian Company for a period of 55 days during
the previous year. He was paid a sum of Rs.2,00,000 as salary from the Indian Company.
Determine the taxability of this Income in India.

Ans: Mr. Arun was in India only for a period of 55 days during the previous year. As
per Sec. 6, his residential status remains as a non-resident during the previous year.
However,since the salary income is earned in India, the same shall be treated as income
deemed to accrue or arise in India. Therefore, Rs.2,00,000 paid to Mr. Arun from the
Indian Companyshall be taxable in India.
23. Will your answer differ, if in the above illustration, instead of Indian Company paying
thesalary to Mr. Arun, the same is paid by the original employer outside India, without
routingthrough the Indian company?

Ans: No Any Income paid to any person, as salary towards services rendered in India shall
be treated as income deemed to accrue or arise in India. Therefore, in such circumstances.
The salary shall always be taxable in India

24. Following incomes are derived by Mr. Krishna Kumar during the year ended 31-3-
2024:Pension received from the US Government 3,20,000
Agricultural income from lands in Malaysia 2,70,000
Rent received from let out property in Colombo, Sri Lanka • 4,20,000
Discuss the taxability of the above items where the assessee is (i) Resident (II) Non-
resident. (Optional Tax Scheme)

Ans
Computation of Taxable income in the hands of Mr. Krishna Kumar for the AY 2024-25

RESIDENCE AND SCOPE OF TOTAL INCOME 13

 Particulars Non-
Resident
Resident
[Link] received from US Government
2,70,000 Nil
(3,20,000-50,000)
[Link] income from land in Malaysia 2,70,000 Nil
[Link] received from Let-Out property in
2,94.000 WI
Sri Lanka (Note i)
Taxable Income 8,34 ,000
Note: i Computation of Income from house property
Particulars Rs.
Rent received (assumed as gross annual value) 4,20,000
Less: Deduction u/s. 24 (30% of Rs. 4,20,000) 1.26.000
Income from house property 2,94,000

ii) It is assumed that all incomes of Mr. Krishna Kumar (non-resident) are not receivedIn
India. It can be assumed the other way, that all incomes are received in India. In that case,
taxable amount in the hands of Mr. Krishna Kumar would be Rs. 8,34,000.

25. Sai Engineering Company a Singapore based company and non-resident under the
Income-tax Act derived the following income by way of royalty. Advise about the
taxability of these incomes in India:
a. Government of India paid Rs.10,00,000 under approved agreement.
b. Chennai based company paid Rs.12,00,000 for import of drawings and designs for
usein the project being executed in Malaysia.
c. A South Korean company paid Rs.5,00,000 for use of know-how in South Korea and
Rs.7,50,000 for the formula used in India
Ans: a) Taxable; b) Not-Taxable; c) Rs.5,00,000 - Not taxable; Rs.7,50,000 -
Taxable]

26. Mrs. Vinitha, a resident in India during the PY 2023-24, furnishes the following particulars
of income
Particulars Rs.
Income received by way of rent from the let - out property In 2,00,000
Chennai (computed after all deductions)
Income from agricultural land situated in Australia received in 1,00,000
Australia
Income by way of rent from the let-out property situated in 1,50,000
USA received In India(Computed after all deductions
income from business in Chennai, controlled from USA 15,00,000

RESIDENCE AND SCOPE OF TOTAL INCOME 14

 Income received from business situated in China, controlled 4,00,000
from China
Income from business in Russia, controlled in India 5,00,000
Interest income from fixed deposit in State Bank of India in M 50,000
withal
Gift received from Father (resident in India) credited to account 2,00000
of Mrs. Vinitha in London
Find out the taxable income of Mrs. Vinitha for the AY 2024-25. Would your answer be
different if she was a resident but not ordinary resident or a non-resident?

Ans: Computation of Total Income of Mrs. Vinitha for the AY 2024-25

Particulars Resident Residentbut Non-
and not resident
ordinarily ordinarily
resident resident
Income from property let out in Chennai 2,00,000 2,00,000 2,00,000
Income from agricultural land in Australia 1,00,000 Nil Nil
- Note (ii)
Income from property let out in USA, 1,50,000 1,50,000 1,50,000
received in India.
Income from business located in Chennai 15,00,000 15,00,000 15,00,000
Income from business located in China – 4,00,000 Nil Nil
Note (iii)
Income from business in Russia, 5,00,000 5,00,000 Nil
controlled in India - Note (iv)
Interest from SRI in Mumbai 50,000 50,000 50,000
Gift received from relative - Not taxable - Nil Nil Nil
Note(v)
Total Income 29,00,000 24,00,000 19,00,000
Notes:
(i) Global income is taxable for a resident;
(ii) Income from agricultural land in Australia is exempt in the hands of Resident but
not ordinarily resident and non-resident since it does not accrue or arise in India;
(iii) Income from business in China is earned and accrues in China and hence it is
nottaxable for Resident but not ordinarily resident and non-resident;
(iv) Income earned from mere control does not constitute the accrual income in that
country in which the control is situated. Hence, Income from business in
Russia Is exempt for non-resident;
(v) Father being a relative, gift received is exempt from tax as per sec. 56(2)(x).
27. Determine the taxability of income of Canada based company Saho Inc., in India

RESIDENCE AND SCOPE OF TOTAL INCOME 15

 onentering following transactions during the previous year 2023-24:
i. Rs.10 lakhs received from an Indian domestic company for providing
technicalknowhow in India.
ii. Rs.12 lakhs from an Indian firm for conducting the Feasibility study for
thenew project in land.
iii. Rs.8 lakhs from a non-resident for use of patent for a business in India.
iv. Rs.16 lakhs from a non-resident Indian for use of knowhow for a business
inSingapore.
v. Rs.20 lakhs for supply of manuals and designs for the business to be
establishedin Singapore.

Ans: Computation of Taxability of Income by Saho Inc. for the AY 2024-25

Particulars Taxability
Income received from an Indian domestic for providing
Taxable
technical knowhow in India.
Income received from an Indian firm for conducting the
Not Taxable
feasibility study for the new project in Finland.
Income received from a non-resident for use of patent for a
Taxable
business in India.
Income received from a non-resident Indian for use of know
Not taxable
how technical for a business in Singapore.
Income received for supply of manuals and design for the
Not taxable
business to be established in Singapore.
28. Find out the taxable income of Mr. Rain for the AY 2024-25. Would your answer be
different if she was a resident but not ordinary resident or a non-resident?
(Optional Tax Scheme)
Particulars Rs
[Link] from agricultural land situated in Germany 2,50,000
received in Germany
[Link] from Business in Mumbai but managed from China 5,00,000
[Link] from debentures in India received in Delhi 1,50,000
[Link] from business in London, controlled from London 3,25,000
[Link] income received in India; property situated in 2,50,000
Chennai (computed)
[Link] Income received in India, property situated In 3,75,000
London (computed)
[Link] from business in UK, controlled in India 5,00,000
[Link] for service rendered in China, received in India 1,00,000

[Ans: a) Resident-24,00,000, Resident but not ordinary resident-18,25,000,

RESIDENCE AND SCOPE OF TOTAL INCOME 16

 non-resident- 13,25,000]
29. Sandya a citizen of India, furnishes the following information for the year
ended31.03.2024
Particulars Rs.
Interest on savings bank deposit in Canara bank, Bangalore 24,000
income from agriculture in Pakistan 10,000
Dividends received in USA from an English company (Out of 24,000
which Rs.4,000was remitted to India)
Salary drawn for two months for working in Indian Embassy's 96,000
office in Sri Lanka and salary received there
Income from house property situated in Afghanistan 50,000
(computed)
Pension received in Holland for services rendered In India with 20,000
a Limited company(computed)
You are required to compute his gross total income for the Assessment year 2024.25 if
heis (a) a resident and ordinarily resident, (b) not ordinarily resident, and (c) a non -
resident.
Ans: Resident and Ordinary Resident - 2,24,000; Resident and Not
OrdinaryResident -1.40,000; Non Resident - 1,40,000)
30. The following are the incomes of Shri Subhash Chandra, a citizen of India for the previous
year 2023.24: income from business In India Rs.2,00,000. The business iscontrolled from
London and Rs.60,000 were remitted to London.
i. Profits from business earned in Japan Rs.70,000 of which Rs.20,000
werereceived in India. The business is controlled from India.
ii. Untaxed income of Rs.1,30,000 for the year 2018.19 of a business in
Englandwhich was bought in India on 3rd March, 2024.
iii. Royalty of Rs.4,00,000 received from Shri Ramesh, a resident for
technicalservice provided to run a business outside India.
iv. Agricultural income of Rs. 90,000 in Bhutan.
v. Income of Rs.73,000 from house property in Dubai, which was deposited in
bankat Dubai. Compute Gross total income of Shri Subhash Chandra for the AY
2024-25, if he is-
1) A Resident and Ordinary Resident, and
2) A Resident and Not Ordinarily Resident, and
(Ans: Resident and ordinary resident Rs.8,11,100, Resident but not ordinary
residentRs.2,70,000)

RESIDENCE AND SCOPE OF TOTAL INCOME 17

 PAST EXAMINATION
1. Miss Asha is an Indian citizen. She is a lawyer by profession. She started her consultancy
profession in India in 2020 with the name “New way associates”. In May 2022, she got
married to Mr. Ram, an American citizen. Mr. Ram came to India for the first time on 1st
May 2021 when he joined an MNC in India. He got a promotion and was transferred to
Dubai. He left for Dubai on 1st October, 2022. Mrs. Asha accompanied him to Dubai. She
started providing consultancy there. Both of them came to India for 3 months from June to
August in 2023 to spend time with Asha’s family. Following incomes were earned by Mr.
Ram and Mrs. Asha during the P.Y. 2023 -24.
Income of Mr. Ram Rs.
1 Salary from company in Dubai (not liable to tax in Dubai) 13,00,000
2 Long term capital gain on sale of shares of an Indian company 2,50,000
3 Income from house property in Delhi (computed) 4,60,000
4 Dividend from shares of an Indian company 65,000

Income of Mrs. Asha Rs.

1 Profit from consultancy profession in Dubai which was set up in India 12,00,000
(not liable to tax in Dubai)
2 Profit from consultancy profession in India 3,00,000
3 Long term capital gain on sale of shares of British company, credited 60,000
to her Dubai bank account
4 Short term capital loss on sale of listed shares of an Indian company (42,000)
Determine the residential status of Mr. Ram and Mrs. Asha and their total income for the
A.Y. 2024-25 ignoring the provisions of section 115BAC. [RTP Nov 23]
Ans: Determination of residential status of Mr. Ram
Mr. Ram is an American citizen who comes on a visit to India during the P.Y. 2023-24 for 3 months.
He has been in India from 1st May 2021 to 1st October 2022. Since Mr. Ram has been in India for
a period of more than 60 days (i.e., 92 days) during the P.Y. 2023-24 and for a period of more than
365 days (i.e., 519 days) during the 4 immediately preceding previous years, he satisfies one of the
basic conditions and he is a resident for the A.Y. 2024-25.
Since his period of stay in India during the preceding 7 previous years is less than 730 days (i.e., 519
days), he is a resident but not-ordinarily resident in India during the A.Y. 2024- 25.
Since Mr. Ram is a resident but not-ordinarily resident, income which accrues or arises in India,
deemed to accrue or arises in India, received in India, deemed to be received in India and income
derived from business controlled in or a profession set up in India is chargeable to tax in India in his
hands.
Computation of total Income of Mr. Ram for the A.Y. 2024-25

RESIDENCE AND SCOPE OF TOTAL INCOME 18

 Particulars of income (Rs.)
1 Salary from company in Dubai [Not taxable, since it accrues and -
arises outside India]
2 Long term capital gain on sale of shares of an Indian company 2,50,000
[Taxable, since it accrues and arises in India]
3 Income from house property in Delhi [Taxable, since it accrues and arises in 4,60,000
India]
4 Dividend from shares of an Indian company [Taxable, since it accrues 65,000
and arises in India]
7,75,000
Determination of residential status of Mrs. Asha
Mrs. Asha is an Indian citizen who comes on a visit to India during the P.Y. 2023 -24 for 3
months i.e., 92 days. Since she does not satisfy any of the basic conditions of staying in India
for 182 days or 120 days during the P.Y. 2023-24, she is not a resident in India as per section
6(1).
Mrs. Asha would be a deemed resident under section 6(1A) if her total income other than the
income from foreign sources exceeds Rs.15 lakhs during the P.Y. 2023-24 as she is an Indian
citizen and is not liable to tax in Dubai.
Computation of total Income other than the income from foreign sources of Mrs. Asha
Particulars of income (Rs.)
1 Profit from consultancy profession in Dubai which was set up in India 12,00,000
[Includible]
2 Profit from consultancy profession in India [Includible] 3,00,000
3 Long term capital gain on sale of shares of British company [Not -
includible, since it is a foreign source income]
4 Short term capital loss on sale of listed shares of an Indian company -
[It accrues and arises in India. However, short term capital loss is not
allowed to be set off from business or profession income, hence, not
includible]
15,00,000
Since, total income other than the income from foreign sources of Mrs. Asha does not exceed Rs.15
lakhs, she would not be a deemed resident. Hence, Mrs. Asha is a non- resident during the A.Y.
2024-25.
Since Mrs. Asha is a non-resident, income which accrues or arises in India, deemed to accrue or
arises in India, received in India and deemed to be received in India is chargeable to tax in India in
her hands.
Particulars of income (Rs.)

RESIDENCE AND SCOPE OF TOTAL INCOME 19

 1 Profit from consultancy profession in Dubai which was set up in India -
[Not taxable]
2 Profit from consultancy profession in India [Taxable, since it accrues 3,00,000
and arises in India]
3 Long term capital gain on sale of shares of British company [Not -
taxable, since it accrues and arises outside India]
4 Short term capital loss on sale of listed shares of an Indian company -
[Since, it accrues and arises in India, it is allowed to be carry forward
to A.Y. 2025-26]
3,00,000

2. Mrs. Roma, an Indian Citizen, is a government employee working for the Indian
Government. She submits the following information for the previous year ending
31.03.2024:
Rs.
1 Salary income received in Malaysia for services rendered there 2,00,000
2 Profit from business carried on in Orissa 80,000
3 Loss from business carried on in Baroda (20,000)
4 Profit from business carried on in Paris (income is earned and 42,000
received in Sydney and business is controlled from Paris)
5 Loss from business carried on in Canada (though profits are not (46,000)
received in India, business is controlled from Dehradun)
6 Unabsorbed depreciation of business in Canada 16,000
7 Profit from Indonesia business (controlled form Delhi) and 60% of 70,000
profit deposited in a bank in Indonesia and 40% received in India
8 Rent from house property situated in Canada and received in Canada 1,92,000

Determine the gross total income of Roma for the A.Y. 2024-25 ignoring the provisions of section
115BAC on the assumption that she is:
(1) Resident but not ordinarily resident in India
(2) Non-resident in India.
[RTP May 23]
Ans: Computation of gross total Income of Mrs. Roma for the A.Y. 2024-25
Particulars of income Resident but not Non- Resident
ordinarily (Rs.)
Resident (Rs.)
1 Salary income received in Malaysia for 2,00,000 2,00,000
services rendered there (Note 1)
Less: Standard deduction under section 50,000 50,000
16(ia)

RESIDENCE AND SCOPE OF TOTAL INCOME 20

 1,50,000 1,50,000
2 Profit from business carried on in 80,000 80,000
Orissa [Since it accrues or arises in
India]
3 Loss from business carried on in (20,000) (20,000)
Baroda [Since it accrues or arises in
India]
4 Profit from business carried on in Paris Nil Nil
(income is earned and received in
Sydney and business is controlled from
Paris) [Since it accrues or arises outside
India]
5 Loss from business carried on in (46,000) Nil
Canada (business is controlled from
Dehradun)
6 Unabsorbed depreciation of business in (16,000) Nil
Canada
7 Profit from Indonesia business 70,000 28,000
(business is controlled from Delhi)
8 Rent from property situated in Canada Nil Nil
and received in Canada
Gross Total Income 2,18,000 2,38,000
Note 1 - Income from “Salaries” payable by the Government to a citizen of India for services
rendered outside India is deemed to accrue or arise in India as per section 9(1)(iii). Standard
deduction under section 16(ia) is allowable, irrespective of residential status.
Note 2 – In case of a non-resident, only income received or deemed to be received in India and
income accruing or arising or deemed to accrue or arise in India is chargeable to tax. However,
in case of a resident but not ordinarily resident, income derived from a business controlled in
or profession set up in India is also taxable even though it accrues or arises outside India.
Therefore, income referred to in S. No. 1, 2 and 3 are taxable in the hands of Mrs. Roma in
both cases if she is a resident but not ordinarily resident or if she is a non-resident.
Loss from business carried on in Canada, unabsorbed depreciation of business in Canada and
Profit from Indonesia business would be fully chargeable to tax in India if she is a resident but
not ordinarily resident as it derived from a business controlled in India. However, Profit from
Indonesia business is taxable in case of non-resident to the extent of such profits received in
India.

3. Mr. Dhanush, an Indian citizen aged 35 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. Dhanush visited India from

RESIDENCE AND SCOPE OF TOTAL INCOME 21

 25.05.2023 to 22.09.2023. He has received the following income for the previous year 2023-
24 – [RTP Nov 22]
Particulars Rs.
Salary from XYZ Inc., USA received in USA 7,00,000
Dividend from Indian companies 5,50,000
Agricultural income from land situated in Punjab 55,000
Rent received/receivable from house property in Lucknow 4,00,000
Profits from a profession in USA, which was set up in India, received there 6,00,000
Determine the residential status of Mr. Dhanush and compute his total income for the A.Y. 2024- 25
Ans: 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 Rs.15 lakhs. However, if such person has total
income, other than the income from foreign sources, exceeding Rs.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. Dhanush for P.Y.
2023-24 would be
Particulars Amount
(Rs.)
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 5,50,000
to accrue or arise in India)
Agricultural income from land situated in Punjab [Exempt u/s 10(1)] -
Rent received/receivable from house property in Lucknow 4,00,000
(Included in total income, since deemed to accrue or arise
in India)
Less: 30% of Rs. 4 lakhs 1,20,000 2,80,000
Profits from a profession in USA, which was set up in India, received 6,00,000
there
Total income, other than the income from foreign sources 14,30,000

Since, Mr. Dhanush 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
Rs.15 lakhs, he would be non-resident for the A.Y. 2024-25.

RESIDENCE AND SCOPE OF TOTAL INCOME 22

 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 Amount
(Rs.)
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 5,50,000
arise in India)
Agricultural income from land situated in Punjab [Exempt u/s 10(1)] -
Rent received/receivable from house property in Lucknow 4,00,000
(Taxable, since it is deemed to accrue or arise in India
Less: 30% of Rs.4 lakhs 1,20,000 2,80,000
Profits from a profession in USA, which was set up in India, received -
there
Gross Total Income/ Total income 8,30,000

4. From the following particulars of income furnished by Mr. Ashutosh, aged 65 years, pertaining
to year ended 31.03.2024, compute the total income for the A.Y. 2024-25, if he is
(a) Resident and ordinarily resident
(b) Non-resident
Particulars Amount (Rs.)
(i) Capital gain on sale of land in Jaipur to Mr. Ramesh, a non- resident, outside 1,50,000
India. The consideration is also received outside India in foreign currency
(ii) Rent from property in Delhi, let out to a branch of a foreign company. The 1,20,000
rent agreement is entered outside India. Monthly rent is also received outside
India
(iii) Agricultural income from a land situated in Nepal, received in Nepal 55,000

(iv) Interest on savings bank deposit in UCO Bank, Delhi 18,000

(v) Income earned from business in London which is controlled from Delhi 60,000
(Rs.35,000 is received in India)
(vi) Gift received from his daughter on his birthday 55,000
(vii) Past foreign taxed income brought to India 37,000
(viii) Fees for technical services rendered to Shine, Ltd., a foreign company, for 12,000
business outside India and received also outside India
[RTP May 22]
Ans: Computation of total income of Mr. Ashutosh for the A.Y. 2024-25

RESIDENCE AND SCOPE OF TOTAL INCOME 23

 Particulars Resident and Non- resident
ordinarily (Rs.)
resident (Rs.)
Capital gain on sale of land in Jaipur to Mr. Ramesh, 1,50,000 1,50,000
a non-resident, outside India and received outside
India
Rent from property in Delhi, received outside India 84,000 84,000
[Rs.1,20,000 – 30% of Rs.1,20,000 under section
24(a)]
Agricultural income from a land situated in Nepal, 55,000 -
received in Nepal
Interest on savings bank deposit in UCO Bank, Delhi 18,000 18,000
Income earned from business in London which is 60,000 35,000
controlled from Delhi
Gift received from daughter (Not taxable, since - -
daughter is a relative)
Past foreign taxed income brought to India (Not - -
taxable)
Fees for technical services rendered to Shine, Ltd., a
foreign company, for business outside India and
received also outside India 12,000 -
Gross Total Income 3,79,000 2,87,000

Less: Deduction under section 80TTB/80TTA

[Interest on savings bank account subject to a
maximum of Rs.50,000/Rs.10,000] 18,000 10,000
Total Income 3,61,000 2,77,000
Notes –
1. In case of a resident and ordinarily resident, global income is taxable as per section 5(1).
However, as per section 5(2), in case of a non-resident, only the following incomes are
chargeable to tax:
(i) Income received or deemed to be received in India; and
(ii) Income accruing or arising or deemed to accrue or arise in India.
Therefore, agricultural income from a land situated in Nepal, income earned from business
in London which is controlled from Delhi, received outside India and fees for technical
services from a non-resident for business outside India is not taxable in case of non-
resident.
2. In case of a senior citizen, being a resident aged 60 years or more, interest upto Rs.50,000 from
saving account with, inter alia, a bank is allowable as deduction under section 80TTB while in
case of a non-resident, interest upto Rs.10,000 from saving account with, inter alia, a bank is

RESIDENCE AND SCOPE OF TOTAL INCOME 24

 allowable as deduction under section 80TTA.

5.
(i) Mr. Jai Chand (an Indian citizen) left India for employment in country X on 5 th June, 2015.
He regularly visited India and stayed for 60 days in every previous year since then. However,
in the financial year 2023-24, he did not come to India at all. He owns a commercial building
in Delhi which is let out. He has also set a retail store in India which is controlled by his
brother from India. He provides the following information to you regarding his income for
the financial year 2023-24:
Income from commercial building in Delhi – Rs.12,00,000 (computed as per the provisions of
the Act).
Income from the retail store – Rs. 4,50,000 (computed as per the provisions of the Act)
Country X does not tax any individual on their income as there is no personal income-tax
regime there.
Determine the residential status of Mr. Jai Chand for the Assessment year 2024-25. Will your
answer change if he is a citizen of Country X? (3 Marks)
(ii) Mr. Prashant (aged 35 years) is an Australian citizen who is settled in Australia and visits
India for 125 days in every financial year since past 11 years. During the F.Y. 2023- 24, he
visited India for a total period of 200 days. The purpose of his visit was to meet his family
members who are settled in India and also for managing his family members who are settled in
India and also for managing his business in Sri Lanka through his office in Chennai, India.
During the P.Y. 2023-24, he has the following incomes:
(A) Income from business in Australia controlled form Australia - Rs.20,00,000
(B) Income from business in Sri Lanka controlled form Chennai - Rs.16,00,000
(C) Short-term capital gains on sale of shares of an Indian company received in Australia
- Rs.50,000. The shares were sold online from Australia.
(D) Income from agricultural land in Australia, received there and then brought to India -
Rs.2,00,000
Find out the residential status of Mr. Prashant and compute his total income for
Assessment Year 2024-25. (4 Marks)[May 23]
Ans: (i) Determination of residential status of Mr. Jai Chand for A.Y. 2024-25
Since Mr. Jai Chand, an Indian citizen employed in Country X, did not come to India at all during
the P.Y. 2023-24, he would not be a resident for A.Y.2024-25 as per section 6(1).
However, since he is an Indian citizen
- having total income (excluding income from foreign sources) of Rs.16,50,000 [Rs.12,00,000,
being income from commercial building in India + Rs.4,50,000, being Income from retail store in

RESIDENCE AND SCOPE OF TOTAL INCOME 25

 India], which exceeds the threshold of Rs.15 lakhs during the previous year; and
- not liable to tax in Country X,
he would be deemed resident in India for the P.Y. 2023-24.
A deemed resident is always a resident but not ordinarily resident in India (RNOR).
Yes, in case Mr. Jai Chand is a citizen of Country X, he would be non-resident in India for the P.Y.
2023-24, since the provisions of deemed resident are applicable only to an Indian citizen.
(ii) Determination of Residential Status of Mr. Prashant
Mr. Prashant is an Australian citizen who comes on a visit to India for 125 days in every financial
year since the past 11 years. During the P.Y. 2023 -24, he visited India for 200 days. Since he
stayed in India for 182 days or more during the P.Y. 2023-24, he would be resident in India for the
A.Y. 2024-25.
An individual is said to be “Resident and ordinarily resident [ROR]” in India in any previous
year, if he satisfies both the following conditions:
• He is a resident in at least 2 out of 10 previous years preceding the relevant previous year;
and
• His stay in India in the last 7 years preceding the relevant previous year is 730 days or
more
First condition
Residential status for P.Y.2022-23 (A.Y.2023-24) – Resident, since he has stayed in India for ≥ 60
days (125 days) in the said P.Y. and ≥ 365 days (500 days, being 125 days x 4) in the four
immediately preceding PYs.
Residential status for P.Y.2021-22 (A.Y.2022-23) – Resident, since he has stayed in India for ≥ 60
days (125 days) in the said P.Y. and ≥ 365 days (500 days, being 125 days x 4) in the four
immediately preceding PYs.
Therefore, he satisfies the first condition of being resident in India in at least 2 out of 10 previous
years preceding the relevant P.Y.
Second condition
Stay in India in 7 immediately preceding PYs = 7 x 125 days = 875 days > 730 days Since both
the conditions are satisfied, he is Resident and Ordinarily Resident (ROR).
In case of ROR, global income would be taxable in India. Accordingly, his total income for
A.Y. 2024-25 would as follows:
Computation of Total Income of Mr. Prashant for A.Y.2024-25
Particulars Rs.
(i) Income from business in Australia 20,00,000
(ii) Income from business in Sri Lanka 16,00,000
(iii) Short-term capital gains on sale of shares of an Indian company 50,000
(iv) Income from agricultural land in Australia [would not be exempt, since
it is not from an agricultural land in India] 2,00,000

RESIDENCE AND SCOPE OF TOTAL INCOME 26

 Total Income 38,50,000

6. Mr. Sarthak, an individual and Indian citizen living abroad (Dubai), a tax haven, since year 2007
and never came to India for a single day since then, earned the following incomes during previous
year 2023-24:
Particulars Amount (in Rs.)
(i) Income accrued and arisen in Dubai not taxable in Dubai (being 20,00,000
tax haven)
(ii) Income accrued and arisen in India 5,00,000
(iii) Income deemed to accrue and arise in India 8,00,000
(iv) Income arising in Dubai from a profession set up in India 10,00,000
I. Determine the residential status of Mr. Sarthak and taxable income for the previous year
2023-24 (assuming no other income arise during the previous year).
II. What would be your answer if income arising in Dubai from a profession set up in India is
Rs.2 lakhs instead of Rs.10 lakhs?
III. What would be your answer, if Mr. Sarthak born in Dubai and his parents were born in
India? (6 Marks) [Nov 22]
Ans: I. Mr. Sarthak is an Indian citizen living in Dubai since 2007 who never came to India for a
single day since then, he would not be a resident in India for the P.Y. 2023 -24 on the basis of
number of days of his stay in India as per section 6(1).
However, since he is an Indian citizen
- having total income (excluding income from foreign sources) of Rs. 23 lakhs, which
exceeds the threshold of Rs.15 lakhs during the previous year; and
- not liable to tax in Dubai,
he would be deemed resident in India for the P.Y. 2023-24 by virtue of section 6(1A). A
deemed resident is always a resident but not ordinarily resident in India (RNOR).
Computation of Total Income for A.Y.2024-25
Particulars Rs.
(i) Income accrued and arisen in Dubai (not taxable in case of an RNOR) -
(ii) Income accrued and arisen in India (taxable) 5,00,000
(iii) Income deemed to accrue or arise in India (taxable) 8,00,000
(iv) Income arising in Dubai from a profession set up in India would be
taxable in case of RNOR 10,00,000
Total income 23,00,000
II. If income arising in Dubai from a profession set up in India is Rs. 2 lakhs instead of Rs. 10
lakhs, his total income (excluding income from foreign sources) would be only Rs. 15 lakhs.
Since the same does not exceed the threshold limit of Rs. 15 lakhs, he would not be deemed
resident.

RESIDENCE AND SCOPE OF TOTAL INCOME 27

 Accordingly, he would be non-resident in India for the P.Y. 2023-24 and hence, his total income
would be only Rs. 13 lakhs (aggregate of (ii) and (iii) above i.e., Rs. 5 lakhs
+ Rs. 8 lakhs).
III. If Mr. Sarthak is born in Dubai and his parents were born in India, he would not be an Indian
citizen, but he may qualify as person of Indian origin. In such case, the provisions relating to
deemed resident would not apply to him.
Accordingly, he would be non-resident in India during the P.Y. 2023-24 and his total income
would be Rs. 13 lakhs.
Note – In sub-part III., it is inferred that he is not a citizen of India since he is not born in India.
It is assumed that he has not applied for citizenship by fulfilling the other specified eligibility
conditions.
7. Mrs. Shruti is an Indian citizen, is currently in employment with an overseas company located
in UAE. During the previous year 2023-24, she comes to India for 157 days. She is in India
for 200 days, 100 days, 76 days and 45 days in the financial years 2019-20, 2020- 21, 2021-22
and 2022-23, respectively. Her annual income for the previous year 2023-24 is as follows:
Particulars Amount
(Rs.)
Income from salary earned and received in UAE 2,00,000
Income earned and received from a house property situated in UAE 5,00,000
Income deemed to be accrued and arise in India 5,00,000
Income from retail business (accrued and received outside India, controlled 10,00,000
from India)
Income accrued and arise in India 3,00,000
Life insurance premium paid by cheque in India 1,50,000
Determine the residential status of Mrs. Shruti for the assessment year 2024-25. (Support your
Answer with computation) (4 Marks)[May 22]
Ans: Mrs. Shruti is an Indian citizen in employment in UAE. She comes on a visit to India during
the P.Y.2023-24 for 157 days.
Her stay in India in the four immediately preceding previous years is as follows:
P.Y No. of days
P.Y.2019-20 200
P.Y.2021-21 100
P.Y.2021-22 76
P.Y.2022-23 45
Total 421
Computation of Total Income of Mrs. Shruti (excluding income from foreign sources)
Particulars Rs.
Income from salary earned and received in UAE (income from a foreign -
source, hence, to be excluded)

RESIDENCE AND SCOPE OF TOTAL INCOME 28

 Income earned and received from a house property situated in UAE -
(income from a foreign source, hence, to be excluded)
Income deemed to accrue or arise in India 5,00,000
Income from retail business (to be included since the business is controlled 10,00,000
from India, even though such income accrues and is received outside India)
Income accrued and arising in India 3,00,000
18,00,000
Less: Deduction u/s 80C (LIC premium paid by cheque in India) – 1,50,000
Assuming other conditions are fulfilled
Total income (excluding income from foreign sources) 16,50,000
Mrs. Shruti, an Indian citizen visiting India in the P.Y.2023-24, would be a resident in
India for A.Y.2024-25, if she satisfies either of the following conditions -

(i) She is in India for 182 days or more during the P.Y.2023-24 or
(ii) She is in India for a period of 120 days or more during the P.Y.2023-24 and her
stay in India in the four immediately preceding previous years is 365 days or more.
[This condition will apply to her since she comes on a visit to India during the
previous year 2023-24 and her total income (excluding income from foreign
sources) is Rs.16.50 lakhs, which exceeds the threshold of Rs.15 lakhs]
This first condition is not satisfied since she is in India only for 157 days during the
P.Y.2023-24.
The second condition is satisfied, since she has stayed in India for 157 days during the
P.Y.2023-24 and 421 days in the four immediately preceding previous years. Since she
has become resident in India for A.Y.2024-25 by satisfying this condition, by default, she
would be treated as resident but not ordinarily resident.
Conclusion – Mrs. Shruti’s residential status for A.Y.2024-25 is resident but not
ordinarily resident.

Note – The provisions of section 6(1A) deeming an Indian citizen to be a resident but not
ordinarily resident, irrespective of the period of her stay in India in the relevant previous year,
if she is not liable to tax in any other country would not apply to Shruti, since she is a resident
as per the provisions of section 6(1)
8. Examine the tax implications of the following transactions for the assessment year 2024-25:
(Give brief reason)
(i) Government of India has appointed Mr. Rahul as an ambassador in Japan. He received salary
of Rs.7,50,000 and allowances of Rs.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. Juhi, 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 Rs.2,50,000 during the previous

RESIDENCE AND SCOPE OF TOTAL INCOME 29

 year 2023-24.
(iii) Mr. Naveen, a non-resident in India, has earned Rs.3,00,000 as royalty for a patent right
made available to Mr. Rakesh who is also a non-resident. Mr. Rakesh has utilized patent
rights for development of a product in India and 50% royalty is received in India and 50%
outside India.
(iv) Mr. James, a NRI, borrowed Rs.10,00,000 on 01.04.2023 from Mr. Akash who is also a
non-resident and invested such money in the shares of an Indian Company. Mr. Akash
has received interest @ 12% per annum. (7 Marks) [Dec 21]
Ans:
(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. Rahul, being a non-resident of
Rs.7,50,000 for rendering services in Japan would be taxable in his hands, after allowing
standard deduction of Rs.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,
Rs. 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 Rs. 2,50,000 arising in the hands of Ms. Juhi 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. Rakesh, a non-resident, paid the royalty of Rs. 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. Naveen, 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. James, a non-resident borrowed the money for investment in
shares of an Indian company, the interest on such borrowing of Rs.1,20,000 (Rs. 10,00,000
× 12%) payable to Mr. Akash, 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. Akash.

RESIDENCE AND SCOPE OF TOTAL INCOME 30

 9. Mr. Rajat Saini, aged 32 years, furnishes the following details of his total income for
theA.Y.2024-25:
Income from salaries (after standard deduction) 27,88,000
Income from house property (after standard deduction) - 15,80,000
interest income from FDR's 7,22,000
He has not claimed any deduction under chapter VI-A. You are required to compute tax
liability of Mr. Rajat Saini as per the provisions of Income Tax Act,1961. (Optional Tax
Scheme) (Nov18)
Ans: Computation of total income of Mr. Rajat Siani for the AY 2024-25
Particulars Rs.
Income from Salaries(Note i) 27,88,000
Income from house property 15,80.000
Income from other sources - Interest income from FDR's 722,000
Total Income 50,90,000
Computation of tax liability of Mr. Rajat Saini
Steps Computation methodology Rs.
1 Tax on Rs.50,90,000 (40,90,000*30%+1,12,500) 13,39,500
Add: Sur charge @10% 1,33,950
Actual tax liability without marginal relief 14,73,450
2 Tax on 50,00,000 13,12,500
Excess of Total Income over 50,00,00 90,000
Aggregate amount of the step 2 14,02,500
3 Amount payable as Income tax and surcharge shall be 14,02,500
amount arrived in Step 1 or Step 2, whichever is
lower
4 Add: Health and Education Cess @ 4% 56,100
Total Tax Payable 14,58,600

Income deemed to accrue or arise in India

[Link] ltd., a foreign company, incorporated in USA and engaged in the manufacturingand
distribution of diamonds, sets up a branch office in India in June 2022. The branchoffice
was required to purchase uncut and unassorted diamonds from the dealers of Mumbai and
export them to USA.
During the previous year 2023-24 profit from such export amounted to Rs. 75 lakhs. Out
of 20 Shareholders of DAISY Ltd, 12 shareholders are non-resident in India. All the
major decisions were taken through Board Meetings held at USA.
a. Determine the residential status of DAISY Ltd. for the Assessment year 2024-25.
b. Discuss the tax treatment of profit from export business. (Nov '17)

RESIDENCE AND SCOPE OF TOTAL INCOME 31

 Answer:
(i) As per Sec.6(3), a foreign company is said to be resident in India, if its place of
effective management (POEM) is in India.
POEM means the place where key management decisions (decisions which
arenecessary for conduct of business) are, in substance made. Accordingly, in
the given case, since all the major decisions were taken through board meetings
heldat USA; it is a non-resident in India for the assessment year 2024-25.
(ii) According to Sec. 9(1), in case of a non-resident, no income shall be deemed
toaccrue or arise in India to him through or from operations which are confined
tothe purchase of goods in India for the purpose of export. Accordingly, profit
of Rs.75lakhs from export of uncut and unassorted diamonds purchased from
dealers of Mumbai by the branch office of Daisy Ltd. in India would not be
deemed to accrue or arise in India in the hands of Daisy Ltd., being a non-
resident. Hence, the same would not be taxable in India in the hands of Daisy
Ltd. Residential Status
11.A Korean Company Damjung ltd. entered into the following transactions during the
financial year 2023-24:
a. Received Rs.20 lakhs from a non-resident for use of patent for a business in
India.
b. Received Rs.15 lakhs from a non-resident Indian for use of know-how for a
business in Sri Lanka and this amount was received in Japan. (Assume that
the above amount is converted/stated in Indian Rupees Explain briefly,
whether theabove receipts are chargeable to tax in India.)
c. Received Rs.7 lakhs from RR Co. Ltd., an Indian company for providing
technical know-how in India.
d. Received Rs.5 lakhs from R & Co. Mumbai for conducting the feasibility
studyfor a new project in Nepal and the payment was made in Nepal.
Explain briefly whether the above receipts are chargeable to tax in India.

Ans: Pursuant to the provisions of the Income tax Act 1961

a. Royalty payable to a non-resident by a non-resident is deemed to accrue or arisein

India when used for the purpose of business or profession carried on in [Link] the
given situation, Damjung Ltd, a non-resident, received royalty for the useof patent for
a business in India, therefore this royalty income is deemed to accrue or arise in
India, and is chargeable to tax in India.
b. Since Damjung It received royalty in Japan, for know-how used for a businessin Sri

RESIDENCE AND SCOPE OF TOTAL INCOME 32

 Lanka, it is neither received in India, not used for the purpose of businessin India,
and is therefore not chargeable to tax in India.
c. When technical knowhow is paid by a resident to a non-resident, it is deemed to
accrue or arise in India except when used for a business or profession carried on
outside India or for any source of income outside India. Payment by resident
in this case for providing technical know-how in India by Damjung Ltd is deemed
to accrue or arise in India and is chargeable to tax in India.
d. Payment by a resident to a Non-resident for providing technical services is deemed
to accrue or arise in India except when used for a business or professioncarried on
outside India or for any source of income outside India. Since the amount paid was
for conducting feasibility study used for a project in Nepal, itdoes not deem to accrue
or arise in India and is hence not charge able to tax in India.

[Link]. Federer, a non-resident residing in Sweden, has received rent from Mr. Nadal,
alsonon-resident residing in France in respect of a property taken on lease at Mumbai.
Sincethis income is received outside India from non-resident, Federer claims that his
incomeis not chargeable to tax in India, (Nov'16)

Ans: As per Sec.9(1), all income accruing or arising, whether directly or indirectly,
through or from any business connection in India, or through or from any property in
India, or through or from any asset or source of income in India shall be deemed to
accrue or arise in India, In the given case, Mr. Federer, a non-resident residing in
Sweden has received rent from Mr. Nadal, also a nonresident residing in France in
respect of a property taken on lease at Mumbai. The said rent is deemed to accrue or
arise in India since the property is situated in India and hence taxable in the hands of
Mr. Federer.

[Link]. Thomas, a non-resident and citizen of Japan entered into following transactions during
the previous year ended 31.3.2024, 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)
a. Interest received from Mr. Marshal, a non-resident outside India (The borrowedfund is
used by Mr. Marshal for investing in Indian company's debt fund for earning interest).
b. Received Rs. 10 Lakhs in Japan from a business enterprise in India for grantinglicense
for computer software (not hardware specific).
c. He is also engaged in the business of running new agency and earned income of Rs.
10 Lakhs from collection of news and views in India for transmission outside India,

RESIDENCE AND SCOPE OF TOTAL INCOME 33

 d. He entered into an agreement with SKK & 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 Rs. 10 Lakhs for these
services from SKK&Co
Ans:
a. According to sec. 9(1)(v) any interest payable to a non-resident by non-resident
in respect of any debt incurred or moneys borrowed shall be deemed to accrue or arise in India
only when such loan is used for the purpose of business or profession carried on in India. In
the given case, interest paid by Mr. Thomas isnot taxable as it is not used for carrying business
or profession, but as an investing activity and earning interest therefrom.
b. According to sec.9(1)(vi), transfer of all or any rights in respect of any right, property or
information includes and has always included transfer of all or any right for use or right to use
a computer software (including granting of a license)irrespective of the medium through which
such right is transferred by a residentshall be deemed to have accrued in India. In the
given case Rs.10 lakhs received from a business enterprise in India for grantinglicense for
computer software is taxable in the hands of Mr. Thomas.
c. According to sec. 9(1)(1), in case of non-resident being a person engaged in thebusiness of
running a news agency or of publishing newspapers, magazines or journals, no income shall
be deemed to accrue or arise in India through or fromactivities which are confined to the
collection of news and views in India for transmission out of India. In the given case, such
operations are not considered as business connection in India and thus, the amount of Rs.
10,00,000 is not betaxable in the hands of Mr. Thomas in India.
d. According to sec. 9(1)(vii) any fee for technical service paid by a non-residentwill not be
deemed to accrue or arise in India, if the same is utilized for earningany income or carrying
business outside India. In the given case, the technical services have been used for the purpose
of carrying on business in India, the income shall be deemed to have accrued in India Hence
the income shall be taxable in the hands of Mr. Thomas.

[Link]. Rohini, aged 62 years, was born and brought up in New Delhi. She got married in
Russia 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

Amount
[Link] Particulars
(in Rs.)
1 Pension received from Russian Government 65,000
Long-Term capital gain on sale of land at New Delhi
2 3,00,000
(computed)

RESIDENCE AND SCOPE OF TOTAL INCOME 34

 Short-Term capital gain on sale of shares of Indian listed
3 companies in respect of which STT was paid both at the time 60,000
of acquisition as well as at the time of sale (computed)
Premium paid on Russia Life Insurance Corporation at
4 75,000
Russia
Rent received (equivalent to Annual Value) in respect of
5 90,000
house property in New Delhi
You are required to ascertain the residential status of Mrs. Rohini and compute her total
income and tax liability India for Assessment year 2024-25. (Optional Tax Scheme)
(July,2021)
Answer
An Indian citizen or a person of Indian origin who, being outside India, comes on a visitto India
(and whose total income, other than foreign source does not exceed Rs.15,00,000) would be a
resident in India only if he/she stays in India for a period of 182 days or more during the previous
year.
Since Mrs. Rohini is a person of Indian origin who comes on a visit to India only for 60 days in
the PY 2023-24 and her income other than from foreign sources does not exceed Rs.15 lakhs, she
is a non-resident for the AY 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 thefollowing manner
Particulars Rs. Rs.
Pension from Russian Government (Note (i) Nil
Income from House Property (Note ii) Annual value(Rent in 90,000
Delhi)
Deduction u/s 24(a) - 30% of NAV (27,000) 63,000
Capital Gains
Long term capital gain on sale of Land at Delhi -sec.112 3,00,000
(Note iii)
Short term capital gain on sale of shares of IndianCompany - 60,000
sec. 111A (Note iv)
Gross Total Income 4,23,000
Less: Deduction under Chapter VI-A
Life insurance premium of Rs. 75,000 (Note v) (63,000)
Total Income 3,60,000
Computation of Tax (Note vi):
Particulars Rs.
Long term capital gain @ 20% (3,00,000*20%) 60,000

RESIDENCE AND SCOPE OF TOTAL INCOME 35

 Short term capital gain @15% (60,000*15%) 9,000
Total tax 69,000
Add: Health and Education Cass @ 4% 2,760
Tax Liability 71,760
Notes:
a. Pension from Russian government is not taxable since neither accrues or arises inIndia
or is it received in India.
b. As the property is situated in India, the rental income is deemed to accrue or arise
in India.
c. As the land is situated in India, it is deemed to accrue or arise in India.
d. As the income is arising on transfer of shares of Indian listed companies, it is deemed to
accrue or arise in India.
Premium paid to Russian Life Insurance Corporation is allowable as deduction, on
e. assumption that premium paid for self, spouse or for her child. However, deduction under
chapter VI-A has been restricted to gross total income other than long term capital gain
and short-term capital gain.
f. The benefit of unexhausted basic exemption limit against long term capital gains under
section 112 and short-term capital gains taxable under section 111A is not available in case
of non- resident. Further, rebate under section 87A is not allowableto a non-resident even if
his income does not exceed Rs. 5,00,000.
[Link]. Pratap earned following incomes during the F.Y. 2023-24. He settled in Singaporein
the year 1996.
i. Interest on Singapore Development Bonds (only 50% of interest received inIndia)
Rs. 35,000.
ii. Dividend from German Company received in Germany Rs. 28,000.
iii. Profits from a business in Kanpur, which is managed directly from Singapore Rs.
1,00,000.
iv. Short term capital gain on sale of shares of an Indian company received in India
Rs. 60,000.
v. income from Business in Mumbai Rs. 80,000
vi. Fees for technical services rendered in India, but received in Singapore Rs.
1,00,000.
vii. Agricultural income from land situated in Punjab Rs. 55,000
viii. Rent received from house property at Lucknow Rs. 1,00,000.
Compute his total income for the A.Y. 2024-25. (July,2021)

Ans:
Computation of total income of Mr. Pratap, a non-resident, for the A.Y.2024-25
Particulars Rs. Rs.

RESIDENCE AND SCOPE OF TOTAL INCOME 36

 Interest on Singapore Development Bonds (Note I) 17,500
Dividend from German company received in Germany (Note ii) Nil
Profit from business in. Kanpur, which is managed from
1,00,000
Singapore (Note iii)
Short-term capital gains on sale of shares of an Indian company
60,000
received in India (Note iv)
Income from business in. Mumbai (Note v) 80,000
Fees from technical services rendered in India, but received in
1,00,000
Singapore (Note vi)
Agricultural Income from land situated in Punjab (Note vii) Nil
Rent from house property in Lucknow (Note viii) 1,00,00
Less: Deduction u/s 24(a) @ 30%of NAV 30,000 70,000
Total Income 4,27,500

Notes:
i. 50% of Rs.3,50,000 would be taxable in India in the hands of a non-resident, since the same
is received in India. The remaining 50% would not be taxable in India, since it neither
accrues In India nor is received in India
ii. Not taxable as the accrual and receipt of income are outside India
iii. Taxable as income from a business in India is deemed to accrue or arise in India
iv. Taxable as the income arises from transfer of a capital asset situated in India and received in
India
v. Taxable as income from a business in India is deemed to accrue or arise in India
vi. Taxable as income from services rendered in India is deemed to accrue or arise in India
vii. Exempt u/s 10(1), both in the hands of resident and non-resident
viii. Taxable as income from a property situated in India is deemed to accrue or arise In India.

RESIDENCE AND SCOPE OF TOTAL INCOME 37

 INCOME FROM SALARY
Question 1:
Raghav furnished the following particulars and requests you to compute his taxable salary for
the previous year ending 31.3.2024:
a) Joined service on 1.10.2023, on a consolidated salary of ₹ 25,000 per month.
b) He was paid ₹ 1,30,000 in September, 2023, so that he should not join elsewhere.

Answer:
Computation of salary income of Raghav for the previous year:
On the assumption that salary
Particulars becomes due on the last day of each
month
₹
Basic salary (25,000*6) 1,50,000
Lump-sum payment 1,30,000
Gross Salary 2,80,000
Less: Deduction u/s 16(ia) 50,000
Income from Salary 2,30,000

Question 2:
Up till June 30th 2023, X is in the employment of A Ltd. on the fixed salary of ₹ 25,000 per
month which becomes "due" on the first day of the next month. On July 1, 2023, X joins B
Ltd. (salary being ₹ 30,000 per month which becomes "due" on the last day of each month).
Salary is actually paid on the seventh day of the next month in both cases. Find out the amount
of Gross salary chargeable to tax.
Answer:
Computation of gross salary for the previous year:
"Due" date or "receipt" Amount
Month
date, whichever is earlier ₹
1. March 2023 April 1, 2023 25,000
2. April 2023 May 1, 2023 25,000
3. May 2023 June 1, 2023 25,000
4. June 2023 July 1, 2023 25,000
5. July 2023 July 31, 2023 30,000
6. August 2023 August 31, 2023 30,000
7. September 2023 September 30, 2023 30,000
8. October 2023 October 31, 2023 30,000
9. November 2023 November 30, 2023 30,000
[Link] 2023 December 31, 2023 30,000

SALARY 38
 11. January 2024 January 31, 2024 30,000
12. February 2024 February 28, 2024 30,000
13. March 2024 March 31, 2024 30,000
Gross Salary 3,70,000

Question 3:
Mr. Sunil is working as an employee in ABC Ltd. He received the following amounts during
the previous year 2023-24. Compute the gross salary:
(a) He received ₹ 1,85,000 as salary after deducting ₹ 15,000 as income tax and ₹ 12,000
as contribution towards provident fund.
(b) He received ₹ 4,000 as commission.
(c) He was also acting MP and received ₹ 1,25,000 as salary from the consolidated fund
of India.
(d) He took 1 month's salary as loan for his daughter's marriage.

Answer:
Computation of Gross Salary of Mr. Sunil (amounts in ₹)
₹ ₹
Salary received 1,85,000
Add: Income tax deducted at source 15,000
Contribution to Provident Fund 12,000
2,12,000
Commission 4,000
Gross salary 2,16,000
Note:
1. Salary received as MP is taxable under Income from other sources.
2. Loan taken against salary cannot be regarded as 'advance' of salary. Hence, the
same is not taxable.
Question 4:
Rajesh Kumar, an Indian citizen, is posted in the Indian High Commission at London during
the PY 2023-24. His emoluments consist of basic pay of ₹ 1,00,000 per month and overseas
allowance of ₹ 2,000 per month. Besides, he is entitled to airfare for going from and coming
to India and also to free use of Government's car at London. He has no taxable income except
salary income stated above. Compute taxable salary.

Answer:
As per section 9(1)(iii), Income deemed to accrue or arise in India includes, income chargeable
under the head 'Salaries' payable by the Government of India to a citizen of India for services
rendered outside India. As per section 10(7), any allowance or perquisites paid or allowed as
such outside India by the Government to a citizen of India for rendering service outside India
shall be exempt.
In view of the above, the computation of taxable income of Mr. Rajesh is as follows.

SALARY 39
 ₹ ₹
Basic Pay 100,000 x 12 12,00,000
Overseas allowance 2,000 x 12 24,000
Less: Exempt under section 10(7) 24,000 Nil
12,00,000
Deduction under section 16 50,000
Income under the head salaries 11,50,000

Question 5:
X, who is not covered by the Payment of Gratuity Act, 1972, retires on November 20, 2023
from ABC Ltd. and receives ₹ 1,86,000 as gratuity after service of 38 years and 10 months.
His salary is ₹ 8,000 per month up to July 31, 2023 and ₹ 9,000 per month from August 1,
2023. Besides, he gets ₹ 500 per month as dearness allowance (69 per cent of which is part of
salary for computing retirement benefits). What amount of gratuity will be exempt from tax?

Answer:
Amount of exempt gratuity is the least of the following:
a. ₹ 1,86,000 (Actual Gratuity received)
b. ₹ 20,00,000 (Statutory Limit)
c. ₹ 1,64,255 [being half month's salary for each completed year of service (₹
8,645 x ½ x 38)]; and
₹ 1,64,255, being the least, is exempt from tax

Computation of average monthly salary

₹
Basic salary from January 1, 2023 to October 31, 2023 83,000
(i.e., ₹ 8,000 × 7 ÷ ₹ 9,000 x 3)
69% of dearness allowance [i.e., 69% of ₹ 500 × 10) *] 3,450
Total 86,450
Average monthly salary 8,645

Question 6:
X, a marketing specialist of Bombay, is working with two companies, viz., A Co. and B Co.
He retires from A Co. on November 30, 1994 (salary at the time of retirement: ₹ 2,600) and
receives ₹ 22,000 as gratuity out of which ₹ 20,000 is exempt under section 10(10). He also
retires from B Co. on December 10, 2023 after 38 years and 8 months of service and receives
₹ 3,90,000 as death – cum – retirement gratuity. His average basic salary drawn from B Co.
for the preceding 10 months ending on November 30, 2023 is ₹ 18,200 per month. Besides,
he has received ₹ 1,000 per month as dearness allowance, 80 per cent of which forms part of
salary for the purpose of computation of retirement benefits and 6 per cent commission on
turnover achieved by him. Total turnover achieved by him during 10 months ending on
November 30, 2023 is ₹ 2,00,000.

SALARY 40
Determine the amount of gratuity exempt under section 10(10).

Answer:
Exempt Gratuity
a. ₹ 19,80,000 [₹ 20,00,000 - ₹ 20,000, being amount of exempt gratuity received from A
Co.);
b. ₹ 3,83,800 [being half month's salary for each completed year of service (₹ 20,200 x ½ x
38)]; and
c. ₹ 3,90,000 (being amount of gratuity received from B Co.).
₹ 3,83,800, being the least, is exempts from tax.
Salary for the purpose of computation of exempt gratuity:
₹
Basic salary of 10 months (₹ 18,200 x 10) 1,82,000
Dearness allowance of 10 months (80% of ₹ 1,000 x 10) 8,000
Commission @ 6% of turnover of preceding 10 months [6% of ₹ 2,00,000] 12,000
Total 2,02,000
Average monthly salary (₹ 2,02,000 / 10) 20,200
Amount of exempt gratuity is the least of the following (not covered)
Notes: -
If an employee, who has received gratuity in earlier year from his former employer,
receives gratuity from another employer in the same year or a later year, the limit of ₹
20,00,000 is reduced by the amount of gratuity exempt from tax under section 10(10) in
earlier year. Therefore, ₹ 20,000, being the amount of exempt gratuity from A Co., is
deducted from ₹ 20,00,000.

Question 7:
Determine the amount of pension taxable for the previous year in the following cases on the
assumption that it becomes due on the last day of each month:
a) X receives ₹ 18,250 per month as pension from the Central Government during the
previous year 2023-24.
b) X receives ₹ 21,000 per month as pension from the Government of Punjab during
the previous year 2023-24.
c) X receives ₹ 20,000 per month as pension from ABC Ltd., a public limited company
in the private sector, during the previous year 2023-24.
d) X retires from the Central Government service on May 31, 2023. He gets pension of
₹ 15,000 per month up to November 30, 2023 [i.e., ₹ 15,000 x 6]. With effect from
December 1, 2023, he gets one – third of his pension commuted for ₹ 7,18,000.
e) X retires from ABC Co. on June 30, 2023. He gets pension of ₹ 20,000 per month
up to January 31st 2024. With effect from February 1, 2024, he gets 60 per cent of
pension commuted for ₹ 10,71,000. Does it make any difference if he also gets
gratuity of ₹ 40,000 at the time of retirement?
Answer:

SALARY 41
 a) Uncommuted pension of ₹ 2,19,000 (i.e., ₹ 18,250 x 12) is chargeable to tax as salary
b) Uncommuted pension of ₹ 2,52,000 (i.e., ₹ 21,000 x 12) is chargeable to tax as salary
c) Uncommuted pension of ₹ 2,40,000 (i.e., ₹ 20,000 × 12) is chargeable to tax
d) While uncommuted pension is chargeable to tax, commuted pension is exempt from tax
in the case of Government employees. Therefore, commuted pension of ₹ 7,18,000 is
exempt from tax. The amount of uncommuted pension will be calculated as under:
₹
Uncommuted pension up to November 30, 2023 (i.e., ₹ 15,000 × 6) 90,000
Uncommuted pension from December 1, 2023 to March 31, 2024 40,000
(i.e., 2/3 x ₹ 15,000 x 4)
Total uncommuted pension 1,30,000
e) In the case of non-Government employee while uncommuted pension is fully chargeable
to tax, commuted pension is partly chargeable to tax and partly exempt from tax.
Amount of taxable pension will be commuted as under
Particulars ₹
Uncommuted pension from July 1, 2023 to January 31, 2024 (i.e., ₹ 140,000
20,000 x 7}
Uncommuted pension from Feb 1, 2024 to March 31, 2024 (i.e., 40% 16,000
of ₹ 20,000 x 2)
Total uncommuted pension chargeable to tax as salary 1,56,000
Commuted value of 60% of usual pension 10,71,000
Commuted value of full pension (i.e., ₹ 10,71,000 x 100/60) 17,85,000
If X does not receive gratuity
Amount exempt (1/2 of commuted value of full pension (i.e., 1/2 x ₹ 8,92,500
17,85,000)]
Commuted pension chargeable to tax as salary (i.e., ₹ 10,71,000 - ₹ 1,78,500
8,92,500)
If X receives gratuity
Amount exempt [1/3 of commuted value of full pension (i.e., 1/3 × ₹ 5,95,000
17,85,000)]
Commuted pension chargeable to tax as salary (i.e., ₹ 10,71,000 – ₹ 4,76,000
5,95,000)

Question 8:
a) Mr. Kumar retires from Government service on 1-1-2024. He was drawing a salary of
₹ 6,000 p.m. He was drawing dearness allowance of ₹ 1,200 p.m. On retirement, he
receives a gratuity of ₹ 1,20,000. He is paid monthly pension of ₹ 4,200. Compute the
Gross salary in his case.
b) Mr. Dalai retires from an employment covered by Payment of Gratuity Act on
30.11.2023 and he is paid gratuity of ₹ 55,000. While the last drawn salary is ₹ 1,950,

SALARY 42
 the average of last 10 months’ salary is ₹ 1,800. He served for 36 years and 4 months
before retirement. Compute the taxable gratuity in his case.

Answer:
(a) 6000 x 9 + 1200 x 9 + NIL + 4200 x 3 = 77400.
(b) Taxable Gratuity = ₹ 55,000 – ₹ 40,500 = ₹ 14,500

Question 9:
Determine the gross amount of taxable pension includible in salary income for the AY 2024-
25 in the following cases:
a) On 30th June 2023, Mr. Santhosh retires from Central Government service and gets
pension of ₹ 3,000 p.m. up to 31-1-2024. With effect from 1-2-2024 he gets 1/3 of his
pension commuted for ₹ 1,20,000.
b) Mr. Kamath retires from X Ltd., on 31.10.2022. He gets pension of ₹ 2,000 p.m. up to
31-10- 2023. With effect from Nov 1st 2023, he gets 60% of pension commuted for ₹
30,000. He is not in receipt of gratuity.

Answer:
(a) Taxable pension of Mr. Santhosh
Particulars ₹ ₹
(1) Uncommuted pension before the date of commutation
(₹ 3,000 x 7) 21,000
(2) Uncommuted pension after the date of commutation
(₹ 3,000 x 2 x 2/3) 4,000
(3) Commuted pension 1,20,000
Less: exempt u/s 10 (10A) 1,20,000 Nil
Taxable pension includible in salary 25,000
(b)Taxable pension of Mr. Kamath
Particulars ₹ ₹
(1) Uncommuted pension before the date of commutation
(₹ 2,000 x 7) 14,000
(2) Uncommuted pension after the date of commutation
(₹ 2,000 x 40% x 5) 4,000
(3) Commuted pension 30,000
Half of the full value of commuted pension is exempt u/s.10(10A)
as he is not in receipt of gratuity (₹ 30,000 x 100 ÷ 60 x ½) 25,000 5,000
Taxable pension includible in salary 23,000

Question 10:
Mr. Daniel resigned from his employment and is paid leave salary of ₹ 92,400. He completed
32 years of service and he was drawing a salary of ₹ 4,200 p.m. throughout the period of 10
months before retirement. During service he availed 10 months leave. Calculate the leave
salary taxable in his case. [Company Policy – 1 Month]

SALARY 43
Answer:
Taxable Leave salary
Particulars ₹ ₹
Actual Leave salary 92,400
Less exemption u/s 10(10AA) least of the following
(i) Statutory limit 25,00,000
(ii) ₹ 4200 x 22 92,400
(iii) 10 months average salary (10 x ₹ 4,200) 42,000
(iv) Actual amount received 92,400 42,000
Taxable Leave salary 50,400

Question 11:
Mr. Arif retired from service after serving for 12 years and encashed leave of 15 months to his
credit at ₹ 60,000. As per the rules of employment he was eligible for 2 months leave per year
of completed service and he was drawing ₹ 4,000 p.m. as salary throughout the period of 10
months before retirement. Determine taxable amount of leave salary.
Answer:
Taxable Leave salary
Particulars Amount (₹) Amount (₹)
Actual Leave Salary 60,000
Less exemption u/s 10(10AA) least of the following
(i) Statutory limit 25,00,000
(ii) ₹ 4000 x 3 12,000
(iii) 10 months average salary (10 x ₹ 4,000) 40,000
(iv) Actual amount received 60,000 12,000
Taxable Leave Salary 48,000

Question 12:
Shri A.K. Gupta was employed in a factory in Faridabad. He retired on 1.1.2024 after
completing a service of 26 years and 5 months. He had been getting a salary of ₹ 23,000 per
month and a dearness allowance of ₹ 2,000 per month (forming part of retirement benefits) for
the last four years. His pension was determined @ ₹ 9,000 p.m. and 3/4 portion of it was
commuted for ₹ 2,70,000. In addition to this he received a gratuity of ₹ 4,00,000 and as per
entitlement of 30 days earned leave for each year of service, he also received ₹ 3,00,000 for
encashment of earned leave of 12 months during the previous year. Compute gross salary of
Shri Gupta, assuming he is not covered under Payment of Gratuity Act.

Answer:
Computation of Gross Salary of Mr. A.K. Gupta
Particulars ₹ ₹
(1) Salary ₹ 23,000 x 9 2,07,000
(2) DA (2,000 x 9) 18,000

SALARY 44
 (3) Uncommuted Pension ₹ 9,000 x 25% x 3 6,750
(4) Commuted Pension Received 2,70,000
Less: Exempt [₹ 2,70,000 x 4/3 x 1/3] 1,20,000 1,50,000
(5) Gratuity Received (not covered) 4,00,000
Less: Exempt
(i) ₹ 4,00,000
(ii) [25,000 / 2 x 26] = ₹ 3,25,000
(iii) ₹ 20,00,000 3,25,000 75,000
(6) Leave Encashment Received 3,00,000
Less: Exempt – least of the following
(i) Actual 3,00,000
(ii) 12 months x AMS 12 x 25,000 = 3,00,000
(iii) 10 months x AMS = 2,50,000
(iv) Stat. Limit: 25,00,000 2,50,000 50,000
Gross Salary 5,06,750

Question 13
X was employed with ABC Ltd. He retired w.e.f. 1.2.2024 after completing a service of 24
years and 4 months. He submits the following information:
Basic Salary ₹ 5,000 per month (at the time of
retirement)
Dearness Allowance 100% of Basic Salary (40% of which forms
part of salary for retirement benefits).
Last increment ₹ 500 w.e.f. 1.7.2023
His pension – was determined at ₹ 3,000 per month. He got 50% of the pension commuted
w.e.f. 1.3.2024 and received a sum of ₹ 1,00,000 as commuted pension. In addition to this, he
received a gratuity of ₹ 1,20,000 and leave encashment amounting to ₹ 56,000 on account of
accumulated leave of 240 days. He was entitled to 40 days leave for every year of service.
Compute his Gross Salary assuming that he is not covered under Payment of Gratuity Act.

Answer:
Computation of Gross Salary
Particulars ₹ ₹
Basic Salary (4,500 x 3 + 5,000 x7) 48,500
Dearness Allowance (100%) 48,500
Uncommuted Pension (3,000 x 1 + 1,500 x 1) 4,500
Commuted Pension 1,00,000
Less : Exempt [(1,00,000/ 50%) × 1/3] 66,667 33,333
Gratuity :
Amount received 1,20,000
Less : Exempt 81,480 38,520

SALARY 45
 Leave Encashment
Amount received 56,000
Less : Exempt Nil 56,000
Gross Salary 2,29,353

Question 14:
Mr. Narendra, who retired from the services of Hotel Samode Ltd. on 31.1.2024 after putting
on service for 5 years, received the following amounts from the employer for the year ending
on 31.3.2024: Salary @ ₹ 16,000 p.m. comprising of basic salary of ₹ 10,000, Dearness
allowance of ₹ 3,000, City compensatory allowance of ₹ 2,000 and Night duty allowance of ₹
1,000. Pension @ 30% of basic salary from 1.2.2024. Leave salary of ₹ 75,000 for 225 days
of leave accumulated during 5 years @ 45 days leave in each year. Gratuity of ₹ 50,000.
Compute Gross Salary of Mr Narendra.
Answer:
Computation of Total Income of Mr. Narendra
Amount
Particulars
(₹)
Income from Salaries
Gross salary received during 1/4/2023 to 31/1/2024 @ ₹
16,000 p.m. (₹ 16,000 x 10) 1,60,000
Pension for 2 months @ 30% of the basic salary of ₹ 10,000
6,000
p.m.
Leave Salary 75,000
Less: Exempt under section 10(10AA) (Note 1) 50,000 25,000
Gratuity 50,000
Less: Exempt under section 10(10) (Note 2) 25,000 25,000
Gross Salary 2,16,000
Notes:
1. Leave enactment is exempt to the extent of least of the following:
Amount
Particulars
(₹)
(i) Statutory limit 25,00,000
(ii) Cash equivalent of leave for 30 days (10,000*5) 50,000
(iii) 10 months average salary (10 x ₹ 10,000) 1,00,000
(iv) Actual amount received 75,000
Therefore, ₹ 50,000 is exempt under section 10(10AA)
2. Gratuity is exempt to the extent of least of the following:
Particulars Amount
(i) Statutory limit 20,00,000
(ii) Half month's salary for 5 years of service (5 × ₹ 5,000) 25,000

SALARY 46
 (iii) Actual gratuity received 50,000
Therefore, ₹ 25,000 is exempt under section 10(10). It is assumed that the employee is not
covered under the Payment of Gratuity Act, 1972.

Question 15:
Mr. Zakaria, staying at Chennai, receives ₹ 12,500 monthly as basic salary; ₹ 1,500 as D.A.
p.m. provided in terms of employment and 4% as commission on turnover achieved by him.
He is paid an house rent allowance of ₹1,800 p.m. The turnover achieved by him for the year
is ₹15 lakhs. House rent paid by him is ₹ 2,500 p.m. He received advance salary of ₹ 50,000/
– in March 2024 relating to the period April to July 2024. Determine the taxable quantum of
HRA. (Optional Tax Scheme)
Answer:
Computation of taxable house rent allowance - Mr Zakaria
Particulars ₹ ₹
Actual House Rent allowance 21,600
Less: Exempt u/s. 10(13A) to the extent of least of the
following:
1. Excess of rent paid over 10% of the salary 7,200
(30,000 – 22,800)
2. 50% of salary 1,14,000
3. Actual HRA received 21,600 7,200
Taxable HRA 14,400
Working Note ₹
Basic Salary 12,500 x 12 1,50,000
Dearness Allowance 1,500 x 12 18,000
Commission @ 4% on 15,00,000 60,000
Salary for this purpose 2,28,000
Note: Though advance Salary is taxable in A.Y. 2024-25 on receipt basis, it should not be
considered in computing Salary for the purpose of calculating exemption u/s. 10(13A).
Default Tax Scheme entire HRA of ₹21,600 is Taxable

Question 16:
Mr. Kapil is in receipt of the following allowances and seeks your advice about the taxable
quantum of these allowances for FY 2023-24: (Optional Tax Scheme)
i) Helper allowance ₹ 300 p.m. Mr. Kapil had appointed a helper for 9 months during
the year to whom he paid ₹ 200 p.m.
ii) Conveyance allowance of ₹ 750 p.m. Mr. Kapil owned car which is used both for
personal purposes and official purposes. Total monthly expenses Amounts to ₹ 1,200
of which 40% is attributable to office use.
iii) During the year Mr. Kapil received education allowance for his 3 children a sum of
₹ 250 per month each towards education and hostel expenditure. All the children are

SALARY 47
 staying in hostel.

Answer:
Computation of taxable quantum of various allowances of Mr. Kapil
Particulars ₹ ₹
Helper allowance received 3,600
Less: Exempt (Actually spent - 9 x 200) 1,800 1,800
Conveyance allowance received 9,000
Less: Exempt (Actually spent] ₹ 1,200 x 40% x 12 5,760 3,240
Education & hostel expenditure allowance 250 x 3 x 12 9,000
Less: Education & hostel expenses ₹ 250 x 2 x 12 6,000 3,000
Taxable amount of allowances 8,040
Default Tax Scheme- 15,840

Question 17:
Compute the gross salary of Mr. Kamlesh on the basis of the following information: under
optional Tax Scheme
a) Basic pay ₹ 8,000 per month
b) Dearness allowance - 40% of basic pay
c) City compensatory allowance -10% of basic pay.
d) Medical allowance- ₹ 800 per month
e) Children education allowance - ₹ 80 per month per child for 3 children
f) Hostel expenditure allowance - ₹ 400 per child per month for 2 children.
g) Tribal area allowance- ₹ 500 per month
h) Travelling allowance - ₹ 12,000 (However actual expenditure was only ₹ 8000 for
official duties)
i) Conveyance allowance - ₹ 500 per month. (The whole amount was spent for official
duties)
j) Transport Allowance - ₹ 28,200
k) Overtime allowance - ₹ 4,000

Answer:
Computation of Gross salary of Mr. Kamlesh (amounts in ₹)
Basic salary (₹ 8,000 × 12) 96,000
Dearness allowance (40% of basic pay) 38,400
City compensatory allowance (10% of basic pay) 9,600
Medical allowance (800 x 12) 9,600
Children education allowance [2,880 - (80 × 2 × 12)] 9,60
Hostel expenditure allowance (9,600 - 7,200) 2,400
Tribal area allowance (6,000 - 2,400) 3,600
Travelling allowance (12,000 - 8,000) 4,000
Conveyance allowance Exempt
Transport allowance 28,200

SALARY 48
 Overtime allowance 4,000
Gross salary 1,96,760
Default Tax Scheme— (1,96,760+1,920+7,200+2,400) =2,08,280

Question 18:
Mr. Khanna, an employee of lOL, New Delhi, a Private Sector Company, received the
following for the FY 2023-24:
₹
1. Basic pay . 1,20,000
2. House rent allowance 90,000
3. Special allowance 30,000
X was residing at New Delhi and was paying a rent of ₹ 10,000 a month
Compute Taxable HRA(Optional Scheme).

Answer:
Taxable HRA
HRA received 90,000
Less: Exemption from HRA u/s 10(13A)
Least of the following
(1) Actual amount received 90,000
(2) Rent paid - 10% of salary (1,20,000-12,000) 1,08,000
(3) 50% of salary 60,000 60,000
Taxable HRA 30,000

Question 19:
Mr. M is an area manager of M/s N. Steels Co. – Ltd. During the financial year 2023-24, he
gets following emoluments from his employer:
Basic Salary
– Up to 31.08.2023 ₹ 20,000 p.m.
– From 01.09.2023 ₹ 25,000 p.m.
Transport allowance ₹ 1,200 p.m.
Contribution to recognized provident fund 15% of basic salary and D.A.
Children education allowance ₹ 500 p.m. for two children
City compensatory allowance ₹ 300 p.m.
Hostel expenses allowance ₹ 380 p. m. for two children
Tiffin Allowance ₹ 5,000 p.a.
(Actual expenses ₹ 3700)
Tax paid on employment ₹ 2,500
Compute taxable salary of Mr. M. (Optional Tax Scheme)

SALARY 49
 Answer:
Basic Salary
Upto 31.8.2023 (20,000 x 5) 1,00,000
from 1.9.2023 (25,000 x 7) 1,75,000 2,75,000
Transport allowance (1,200*12) 14,400
City Compensatory Allowance (300*12) 3,600
Contribution to RPF (in excess of 12% of salary) (W.N - 1) 8,250
Children education allowance (W.N - 2) 3,600
Hostel Expense Allowance (W.N - 3) NIL
Tiffin Allowance (W.N. 4) 5,000
Tax paid by employer on employment (W.N. 5) 2,500
Gross Salary 3,12,350
Less: Deduction u/s 16(ia) & (iii) -52,500
Income from Salary 2,59,850
Working notes:
(1) Contribution to recognized PF is taxable in excess of 12% of salary. Taxable
contribution = Actual - 12% of salary
= (15% x 2,75,000) - (12% x 2,75,000)
= ₹ 41,250 - ₹ 33,000 = ₹ 8,250
(2) Children Education Allowance is exempt upto ₹ 100 per month per child. (₹ 500 for 2
Child) Taxable Allowance = (500 - 100 x 2) x 12 = 3,600
(3) Hostel expense allowance is exempt upto ₹ 300 per month per child
Taxable Allowance = (380 - 300 x 2) therefore NIL
(4) Tiffin Allowance is fully taxable
(5) Tax on employment is paid by Mr. M's employer. Hence it is taxable in his hand i.e.
Mr. X.
Question 20:
Mr A, a civil engineer was in Government service till 30.06.2023. He joined as an adviser (part
time) from 1st October, 2023 in an organisation on an honorarium of ₹ 32,000 per month. He
owns a house properly which is self-occupied. From the following further information,
furnished for the year ending 31st March, 2024, you are requested to
(a) compute his income under the head salary
₹
(a) Salary from Government service 30,000
(b) Leave at credit (encashment) 50,000
(c) Provident fund 78,000
(d) Commuted pension 35,000
(e) Uncommuted Pension 20,000
(f) House rent allowance 5,000
(g) Gratuity Received 1,20,000

SALARY 50
Answer:
Computation of income under the head salary
Salary 30,000
House Rent Allowance (As he owns the house where he
resides, this is taxable) 5,000
Gratuity (Exempt u/s 10(10)- Government Employee) Nil
Leave encashment at the time of retirement (Exempt u/s
10(10AA)- Government Employee)
Provident Fund (Exempt u/s 10(11) Nil
Commuted Pension (Exempt u/s 10(10A)) Nil
Pension from Government 20,000
Honorarium from charitable dispensary (Assuming he is in
1,92,000
part time employment) (32,000×6)
Gross Salary 2,47,000
Less: Deduction u/s 16(ia) 50,000
Income from Salary 1,97,000

Question 21:
From the following particulars furnished by Mr. X for the year ended 31.03.2024. Compute
his total income. (Optional Tax Scheme)
a. Mr. X retired on 31.12.2023 at the age of 59, after putting in 25 years and 11 months of
service, for a private company at Delhi.
b. He was paid a salary of ₹ 30,000 p.m. and house rent allowance of ₹ 7,000 p.m. He paid
rent of ₹ 6,500 p.m. during his tenure of service.
c. On retirement, he was paid a gratuity of ₹ 3,75,000. He was not covered by the payment
of Gratuity Act. His average salary in this regard may be taken as ₹ 26,500. Mr. X has not
received any other gratuity at any point of time earlier, other than this gratuity.
d. He had accumulated leave of 15 days per annum during the period of his service; this was
encashed by Mr. X at the time of his retirement. A sum of ₹ 3,20,000 was received by him
in this regard. His average salary may be taken as ₹ 26,500.
e. Mr. X has invested ₹ 20,500 in recognised provident fund, ₹ 45,000 in public provident
fund and ₹ 29,500 in National Savings Certificates.

Answer:
₹ ₹
Basic Pay (30,000 x 9) 2,70,000.00
House Rent Allowance (Sec 10(13A) Rule 2A) (W
31,500,00
Note 1)
Gratuity {Sec 10(10)} (W Note 2) 43,750,00
Leave Salary {Sec 10(10AA)} (W Note 3) 55,000,00
Gross Salary 4,00,250,00
Less: Deduction u/s 16(ia) 50,000.00

SALARY 51
 Income under the head Salary 3,50,250.00
Gross Total Income 3,50,250.00
Less: Deduction u/s 80C
Recognized Provident Fund 20,500
Public Provident Fund 45,000
National Saving Certificates 29,500 95,000.00
Total Income 2,55,250,00
Working Note
1. HRA
Least of the following is exempt:
1. ₹ 63,000
2. ₹ 58,500 - ₹ 27,000 = ₹ 31,500
3. 50% of retirement benefit salary = ₹ 1,35,000 (Retirement benefit salary = ₹
2,70,000)
Received = ₹ 63,000
Exempt = ₹ 31,500
Taxable = ₹ 31,500
2. Gratuity – least of the following exempt
1. ₹ 3,75,000
2. ₹ 20,00,000 (not covered)
3. 1/2 x 26,500 x 25 = ₹ 3,31,250
Received = ₹ 3,75,000 Exempt = ₹ 3,31,250 Taxable = ₹ 43,750
3. Leave Salary – Lease of the following exempt
1. ₹ 3,20,000
2. ₹ 25,00,000
3. 26,500 x 10 = ₹ 2,65,000
4. 26,500 x 25 * 15/30 = 3,31,250
Received = ₹ 3,20,000 Exempt =₹ 2,65,000
Taxable = ₹ 55,000
Default Tax Scheme – Total Income =3,81,750
Question 22:
Mr. X is employed in A Ltd. getting basic pay ₹ 20,000 p.m., dearness allowance ₹ 7,000 p.m.
The employer has contributed ₹ 3,500 to the unrecognised provident fund and the employee
has also contributed equal amount. The employee was retired on 31.10.2023 after serving the
employer for 20 years and 6 months and employer has credited interest ₹ 21,000 to the
provident fund account on 31.10.2023 and interest rate is 12% p.a.
The employer has paid provident fund balance ₹ 10,00,000 to the employee on 01.11.2023 out
of which employee's contribution is ₹ 4,00,000 and employer's contribution is also ₹ 4,00,000
and balance is interest. Employer has paid gratuity ₹ 2,60,000 and allowed him pension ₹ 5,000
p.m. The employee was allowed commutation of pension on 01.01.2024 for 40% of the
pension and has paid ₹ 2,40,000. Compute employee's total income for the assessment year
2024-25.

SALARY 52
Answer:
Computation of income under the head Salary
₹
Basic Pay (20,000 x 7) 1,40,000
Dearness Allowance (7,000 x 7) 49,000
Refund of employer's contribution in unrecognised provident fund 4,00,000
Refund of Interest on employer's contribution in unrecognised 1,00,000
provident fund
Gratuity {Sec 10(10A)} (W Note 1) 60,000
Uncommitted Pension (W Note 2) 19,000
Commuted Pension {Sec 10(10A)} (W Note 3) 40,000
Gross Salary 8,08,000
Less: Deduction u/s 16(ia) 50,000
Income under the head Salary 7,58,000
Income under the head Other Sources
(Interest on employee's contribution) 1,00,000
Gross Total Income 8,58,000
Less: Deduction u/s 80C to 80U Nil
Total Income 8,58,000
Working Note:
1. Gratuity (not covered)
Least of the following is exempt:
1. ₹ 2,60,000
2. ₹ 20,00,000
3. ½ x 20,000 x 20 = ₹ 2,00,000
Received = ₹ 2,60,000
Exempt = ₹ 2,00,000
Taxable - ₹ 60,000
2. Uncommuted Pension
For November to December
5,000 x 2 = 10,000'
For January to March
5.000 x 60% x 3 =9,000
Total = ₹ 10,000 + ₹ 9,000 = 19,000
3. Commuted Pension ₹
Received = 2,40,000
Exempt = ₹ 2,40,000 / 40% x 100% x 1/3 = 2,00,000
Taxable 40,000

Question 23:
Mr. Prabhu, a private sector employee gets ₹ 60,000 as basic pay, ₹ 6,000 as commission, ₹

SALARY 53
4,000 as bonus, ₹ 2,400 as Dearness allowance ₹ 3,000 as Tiffin allowance and entertainment
allowance ₹ 5,000. His employer has paid income – tax of ₹ 3,000 and profession tax of ₹
1,000 on his behalf. A rent-free unfurnished accommodation is provided in a place where
population is
a) more than 25 lakhs,
b) less than 10 lakhs,
c) between 10 lakhs and 25 lakhs. Determine the value of rent-free accommodation.

Answer:
Determination of value of rent-free accommodation
Salary for this purpose: ₹
Basic pay 60,000
Commission 6,000
Bonus 4,000
Dearness allowance 2,400
Tiffin allowance 3,000
Entertainment allowance 5,000
Total ₹ 80,400

(a) where the population is more than 25 lakhs. = 15% of salary

Value of rent free accommodation = 15% of ₹ 80,400 = ₹ 12,060
(b) where the population is less than 10 lakhs. = 7.5% of salary
Value of rent free accommodation = 7.5% of ₹ 80,400 = ₹ 6,030
(c) where the population is between 10 lakhs and
= 10% of salary
25 lakhs.
Value of rent free accommodation = 10% of ₹ 80,400 = ₹ 8,040
Note: Income-tax and Profession-tax are the obligation cast on the employee. In case
the same was paid by the employer they are taxable as perquisite u/s. 17(2)(iv).

Question 24:
X received during the previous year ending March 31, 2024, emoluments consisting of basic
pay: ₹ 1,62,000; special allowance: ₹ 17,000 and reimbursement of medical expenditure: ₹
3,800. His employer has also provided a rent – free furnished flat in Bombay. Lease rent of the
unfurnished flat is ₹ 50,000. Some of the household appliances provided to X (with effect from
June 1, 2023) are owned by the employer (cost price of which is ₹ 36,000, date of purchase is
April 1, 1961 and written down value, as on April 1, 2023 is ₹ 620). Employer pays ₹ 10,000
annually as hire charges for three air – conditioners installed throughout the previous year in
rent – free flat.
Compute the value of the perquisite if:
a. X is a Secretary in the Ministry of Law and ₹ 4,000 is the licence fee of unfurnished
flat as per the Central Government rules;
b. X is the Managing Director of ABC (P.) Ltd.
Does it make any difference if, X has been provided a hotel accommodation throughout the

SALARY 54
year (tariff being ₹ 1,20,000 per annum)?

Answer:
a. Valuation of unfurnished flat:
1. If X is a Secretary to the Central Government ₹ 4,000 is the taxable value of the
unfurnished flat.
2. If X is the Managing Director of ABC (P.) Ltd. - Salary for the purpose of
calculating taxable value of the perquisite works out to be ₹ 1,79,000 (₹ 1,62,000
+ ₹ 17,000). As lease rent of unfurnished flat (₹ 50,000) exceeds 15% of salary, ₹
26,850 (being 15% of salary) is taxable value of the perquisite.
Valuation of furniture ₹
10% per annum of cost of furniture [₹ 36,000 x 10/100 x 10/12] 3,000
Add : Rent of air-conditioners 10,000
Valuation of furniture 13,000
Valuation of furnished flat:

Valuation of
Furnished
Unfurnished flat Furniture
flat
If X is a Secretary to the Central
4,000 13,000 17,000
Government
If X is a Managing Director of ABC
26,850 13,000 39,850
(P.) Ltd.
b. Valuation of hotel accommodation - ₹ 42,960 (being 24% of salary or ₹ 1,20,000,
whichever is lower) is chargeable to tax whether X is a Government employee or
non-Government employee.

Question25:
X, a regular employee of A Ltd., gets the following emoluments during the PY 2023-24:
Basic salary: ₹ 6,000 per month (which has been increased to ₹ 7,000 per month from January
1, 2024); dearness allowance ₹ 4,000 per month (72 per cent of which is part of salary for
computing retirement benefits); overtime allowance: ₹ 2,000 per month medical allowance: ₹
400 per month; transport allowance: ₹ 350 per month (out of which ₹ 100 per month is used
for covering the journey between office and residence and ₹ 250 per month is used for other
purposes). Besides, he gets ₹ 4,500 per month as house rent allowance upto November 30,
2023 (rent paid at Ghaziabad: ₹ 5,500 per month). With effect from December 1, 2023, he has
been provided a furnished flat by the employer at Delhi (rent paid by employer: ₹ 7,500 per
month; rent of furniture provided: ₹ 500; rent recovered from X : ₹ 900 per month). Find out
the Gross salary chargeable to tax on the assumption that with effect from January 1, 2024,
he joins a part – time employment with B Ltd. (salary ₹ 2,000 per month) with the permission
of A Ltd (without leaving the job of A Ltd.)

SALARY 55
Answer:
₹ ₹
Basic salary (6,000 x 9 + 7,000 x 3) 75,000
Dearness allowance (4,000 x 12) 48,000
Overtime allowance (2,000x 12) 24,000
Medical allowance (400 x 12) 4,800
Transport allowance (350 x 12) 4,200
House rent allowance (4,500 x 8) 36,000
Less : Exempt [see note 1]] 28,416 7,584
Furnished house [see note 2 5,228
Salary from B Ltd. (2,000 x 3) 6,000
Gross Salary 1,74,812
Notes :-
(1) House rent allowance exempt from tax - Salary for this purpose is ₹ 8,880 per
month (basic salary : ₹ 6,000 per month + dearness allowance : 72% of ₹ 4,000
per month). The amount of exemption is —
a) ₹ 3,552 per month (being 40% of ₹ 8,880);
b) ₹ 4,500 per month (being house rent allowance); or
c) ₹ 4,612 per month (being excess of rent paid over 10% salary, ₹ 5,500 -
₹ 888), whichever is lower. Hence, the amount exempt from tax is ₹
3,552 per month from April 1, 2023 to November 30, 2023 - ₹ 28,416)
i.e. for 8 months
(2) Valuation of the perquisite in respect of furnished flat - X has been provided a
furnished flat at Delhi with effect from December 1, 2023. Salary, for this purpose,
from December 1, 2023 to March 31, 2024 is as follows –
Basic Salary (6,000 x 1 + 7,000 x 3) 27,000
Dearness allowance (72% of 4,000 x 4) 11,520
Overtime allowance [2,000x4] 8,000
Medical allowance (400 x 4) 1,600
Transport allowance [350 x 4] 1,400
House rent allowance (not received during December 1, 2022
—
to March 31, 2023)
Salary from B Ltd. (2,000 x 3) 6,000
Total salary 55,520
Lease rent of 4 months (7,500 x 4) : ₹ 30,000. The perquisite
shall be valued as follows - Value of unfurnished flat (15% of
55,520 or 30,000, whichever is lower) 8,328
Add : Rent of furniture 500
Value of rent-free furnished flat 8,828
Less : Rent paid by X (900 x 4) 3,600
Value of the perquisite 5,228

SALARY 56
Question 26:
Mr. X is employed in ABC Ltd. getting basic pay ₹ 11,000 p.m., dearness allowance ₹ 5,000
p.m. and 30% of it forms part of salary.
The employee is also getting dearness pay ₹ 1,000 p.m. and 10% of it forms part of salary. He
is getting bonus ₹ 1,200 p.m. The employer has provided him one accommodation in Delhi for
which rent paid by the employer is ₹ 1,200 p.m.
The employee was transferred to Bombay with effect from 01.01.2024 and the employer has
provided him rent free accommodation at Bombay also which is owned by the employer
himself.
The employee has received arrears of salary ₹ 32,000 and advance salary of ₹ 11,000.
Compute employee's total income.

Answer:
Computation of Gross Salary
₹
Basic Pay (11,000 x 12) 1,32,000.00
Dearness Allowance (5,000 x 12) 60,000.00
Dearness Pay (1,000 x 12) 12,000.00
Bonus (1,200 x 12) 14,400.00
Rent Free Accommodation {Sec 17(2)(i)} (W. Note1) 14,400.00
Arrears of Salary {Sec 15} 32,000.00
Advance of Salary {Sec 15} 11,000.00
Gross Salary 2,75,800.00
Working note
1. Rent Free Accommodation
From April to December
15% of Rent-free accommodation Salary or rent paid whichever is less
Rent free accommodation Salary
= Basic Pay + Dearness Allowance + Dearness Pay + Bonus
= 99,000 + 13,500 + 900+ 10,800 = ₹ 1,24,200
15% of rent free accommodation Salary = ₹ 18,630 Rent Paid = ₹ 1,200 x 9 = ₹
10,800
(A)Perquisite value of unfurnished house = ₹ 10,800
From January to March
Rent free accommodation Salary of Delhi
= Basic Pay + Dearness Allowance + Dearness Pay + Bonus
= 33,000 + 4,500 + 300 + 3,600 = ₹ 41,400
15% of Rent free accommodation Salary = ₹ 6,210 Rent paid = ₹ 3,600
Perquisite value of Rent free accommodation of Delhi = ₹ 3,600
Rent free accommodation of Bombay
Rent free accommodation Salary
= Basic Pay + Dearness Allowance + Dearness Pay + Bonus
= 33,000 + 4,500 + 300 + 3,600 = ₹ 41,400

SALARY 57
 15% of Rent free accommodation Salary = ₹ 6,210
Perquisite value of rent free accommodation of Bombay = ₹ 6,210
(B) Perquisite value of unfurnished house {least is in Delhi} = ₹ 3,600 [90 days – only
one accommodation is taxable]
Total Amount = A + B = ₹ 10,800 + 3,600 = ₹ 14,400

Question 27:
Determine the value of perquisite in the following cases with brief reasons for your answer:
Motorcar (cubic capacity of engine below 1600 CC) owned by employer and provided to
employee since 1.04.2018. It is partly used for official and personal purposes by the
employee. Expenditure fully met by the employer ₹ 25,600. (Car is self – driven by the
employee)

Answer:
The perquisite value of the motor car partly used for official and partly for private purpose
shall be computed at the rate of ₹ 1,800 p.m. In the present case the actual expenditure
incurred by the employer has no relevance. Therefore, the perquisite value shall be ₹ 1,800 x
12 = ₹ 21,600.

Question 28:
Mr. A is provided with two cars, to be used for official and personal work, by his employer
ABC Ltd. The following information is available from the company records
Car 1 Car 2
(1,500 CC) (1,550 CC)
Cost of the Car 6,00,000 4,00,000
Running and maintenance
(Borne by the company) 40,800 28,000
Salary of driver (Borne by the company) 24,000 24,000
The taxable monetary emoluments of Mr. A are ₹ 90,000. Compute the taxable Perk in respect
of Cars.

Answer:
Car1 [(1,800 + 900) x 12] 32,400
Car2 [ (40,000 + 28,000 + 24,000)] 92,000
Total 1,24,400
If more than one car given only one can be treated as for official and personal purpose
and rest has to be treated for personal purpose.

Question 29:
Mr. Guru receives ₹ 15,000 p.m. as basic salary and ₹ 1,500 p.m. as D.A. not forming part of
retirement benefit. He has been provided with the following perquisites:
a) Unfurnished accommodation at Bangalore. Rent paid by Mr. Guru towards this
accommodation is ₹ 1,000/ – p.m.
b) He has provided with the services of cook and watchman. Company pays a salary of

SALARY 58
 ₹ 1,000 p.m. each to cook and watchman.
Compute the Gross salary. [Ans: ₹ 2,37,000]

Answer:180000 + 18000 + 15000 + 24000 = 2,37,000.

Question 30:
Please determine the taxable value of the perquisite in the following cases:
i) X is employed by A Ltd. On June 1, 2023, the company gives an interest – free
housing loan of ₹ 14,00,000. Loan is repayable within 5 years. [Assumed SBI rate is
8%]
ii) Y is employed by B Ltd. On April 1, 2023, he takes a personal loan of ₹ 25,000 from
B Ltd. B Ltd. recovers interest @ 7 per cent per annum from Y. [Assumed SBI rate
is 16%]
iii) C Ltd. gives the following interest – free loan to Z, an employee of the company - ₹
15,000 for child's education and ₹ 5,000 for purchasing a refrigerator. No other loan
is given by C Ltd.
iv) A purchase a Honda City 1.6 Lacks on March 1st 2023 from a loan of ₹ 8,00,000
taken at concessional rate of 7 per cent per annum from his employer XYZ Ltd. As
per the agreed terms of repayment, A is supposed to repay in monthly instalments of
₹ 25,000 starting from January 1, 2023. [Assumed SBI rate is 8%]
Compute the taxable value of perquisite in respect of concessional loan.
Answer;
For the assessment year 2024-25, the taxable value of the perquisite will be as under
1. The lending rate of SBI on April 1, 2023 for similar loan is 8% per annum. ₹ 93,333 (being
interest @ 8% on ₹ 14,00,000 from June 1, 2023 to March 31, 2024) is taxable in the
hands of X.
2. The SBI lending rate for a similar loan is 16%. ₹ 2,250 [being interest @ 9% (i.e., 16% -
7%) on ₹ 25,000 for one year] is taxable in the hands of Y.
3. Nothing is taxable in the hands of Z as the amount of loan does not exceed ₹ 20,000.
4. The lending rate of SBI for a for a similar loan is 8%. Maximum monthly outstanding
amount for the various months in the previous year 2023-24 is as follows:
Maximum monthly
outstanding amount on last Interest
Month day of the month
₹ ₹
666.67 (i.e., ₹ 8,00,000 x 1% x
April 30, 2023 8,00,000
1/12)
May 31,2023 8,00,000 666.67
June 30, 2023 8,00,000 666.67
July 31, 2023 8,00,000 666.67
August 31, 2023 8,00,000 666.67
September 30, 2023 8,00,000 666.67

SALARY 59
 October 31, 2023 8,00,000 666.67
November 30, 2023 8,00,000 666.67
December 31, 2023 8,00,000 666.67
645.83 (i.e. ₹ 7,75,000 x 1% x
January 31, 2024 7,75,000
1/12)
625 (i.e., ₹ 7,50,000 x 1% x
February 28, 2024 7,50,000
1/12)
604.16 (i.e. ₹ 7,25,000 x 1% x
March 31, 2024 7,25,000
1/12)
Total 7,875
Taxable value of concessional loan is ₹ 7,875 for the previous year 2023-24.

Question 31:
Find out the taxable value of the perquisite in the following cases–(Optional Tax Scheme)
X is given a laptop by the employer – company for using it for office and private purpose
(ownership is not transferred). Cost of the laptop to the employer is ₹ 96,000.
(1) On October 01, 2023, the company gives its music system to Y for domestic use.
Ownership is not transferred. Cost of music system to the employer is ₹ 15,000.
(2) The employer company sells the following assets to the employees on January 1,
2024 —
Name of employee Z A B
Asset sold Car Computer Fridge
Cost of the asset to employer ₹ 6,96,000 ₹ 1,17,000 ₹ 40,000
Date of purchase (put to use - same day) May 15, 2021 May 15, 2021 May 2021
Sale price ₹ 2,10,000 ₹ 24,270 ₹ 1,000
Before sale on January 1, 2024, these assets were used for business purpose by the employer.
Answer:
X s provided use of laptop by the employer. The perquisite is not chargeable to tax.
Y is provided a music system by the employer. The taxable value of the perquisite is
determined 10% per annum of cost. Accordingly, ₹ 750 (being ₹ 15,000 × 10/100 × 6/12) is
chargeable to tax.
The taxable value of the perquisite in the hands of Z, A and B shall be determined as follows
Car Computer Fridge
₹ ₹ ₹
Cost of the asset on May 15, 2021 6,96,000 1,17,000 40,000
Less: Normal wear and tear for the first year ending 1,39,200 58,500 4,000
May 14, 2022 (20% of
₹ 6,96,000, 50% of ₹ 1,17,000, 10% of ₹ 40,000)
Balance on May 15, 2022 5,56,800 58,500 36,000
Less: Normal wear and tear for the second year ending 1,11,360 29,250 4,000
May 14, 2023 (20%

SALARY 60
 of ₹ 5,56,800, 50% of ₹ 58,500, 10% of ₹ 40,000)
Balance on May 14, 2023 4,45,440 29,250 32,000
Less: Sale consideration 2,10,000 24,270 1,000
Taxable Value of the perquisite 2,35,440 4,980 31,000
Note: In the case of car and computer/electronic items, normal wear and tear is calculated @
20% and 50% per annum respectively on the basis of written down value. In the case of any
other asset, normal wear and tear is calculated at the rate of 10% per annum of cost of the asset
to the employer. Normal wear and tear far part of the year is not taken into consideration.

Question 32:
Following benefits have been granted by Ved Software Ltd. to one of its employees Mr. Badri:
a) Housing loan @ 6% per annum. Amount outstanding on 1.4.2023 is ₹ 6,00,000. Mr.
Badri pays₹ 12,000 per month on 5th of each month.
b) Air – conditioners purchased 4 years back for ₹ 2,00,000 have been given to Mr.
Badri for ₹ 90,000.
Compute the chargeable perquisite in the hands of Mr. Badri.
The lending rate of State Bank of India as on 1.4.2023 for housing loan may be taken as 10%.

Answer:
Chargeable perquisite in the hands of Mr. Badri for Assessment Year 2024-25
Housing Loan @ 6% p.a. is taken
SBI home loan @ 10% p.a.
Difference rate 4% p.a.
Month Maximum outstanding Interest
Balance
30 April 2023 5,88,000 1960 (5,88,000 x 4% x 1/12)
31 May 2023 5,76,000 1920 (5,76,000 x 4% x 1/12)
30 June 2023 5,64,000 1880 (5,64,000 x 4% x 1/12)
31 July 2023 5,52,000 1840 (5,52,000 x 4% x 1/12)
31 August 2023 5,40,000 1800 (5,40,000 x 4% x 1/12)
30 September 2023 5,28,000 1760 (5,28,000 x 4% x 1/12)
31 October 2023 5,16,000 1720 (5,16,000 x 4% x 1/12)
30 November 2023 5,04,000 1680 (5,04,000 x 4% x 1/12)
31 December 2023 4,92,000 1640 (4,92,000 x 4% x 1/12)
31 Jan 2024 4,80,000 1600 (4,80,000 x 4% x 1/12)
28 February 2024 4,68,000 1560 (4,68,000 x 4% x 1/12)
31 March 2024 4,56,000 1520 (4,56,000 x 4% x 1/12)
Total interest as a perquisite 20880
(ii) Air Conditioner
Cost of air conditioners 2,00,000
Less: Depreciation for 4 yrs. @ 10% p.a. 80,000
1,20,000
Less: Amount charged from Badri 90,000

SALARY 61
 Value of perquisite 30,000
Chargeable perquisite in the hands of Mr. Badri for the Assessment Year 2024-25
₹
Housing loan 20,880
Air conditioner 30,000
Total 50,880

Question 33:
Mr. Raghu Raj is employed with Bhoruka Power Corporation Ltd., as General Manager,
Finance, on a monthly salary of ₹ 26,000. He has been provided with the following perquisites:
Rent free accommodation is provided in Bangalore. The company has given him housing loan
of ₹ 4 lakhs repayable in 8 years during the previous year @ 3% per annum [SBI Rate –
10.5%]. The company had purchased a car on 01.05.2021 for ₹ 2,50,000/ –. This car is sold to
Mr. Raghu Raj on 1-7-2023 for ₹ 1,20,000/ –. He made Diwali purchases for office gifts
amounting to ₹ 19,000/ – on his corporate credit card. This amount was paid by the company.
He was allowed to use the video camera and laptop belonging to the company. The company
had purchased these assets for ₹ 40,000/ – and ₹ 2 lakhs respectively. Compute taxable salary
of Mr. Raghu Raj

Answer:
Computation of taxable salary of Mr. Raghu Raj
Particulars ₹
Salary (26,000 x 12) 3,12,000
Perquisite value in respect of accommodation (3,12,000 x 15%) 46,800
Value of housing loan - 4,00,000 x 7.5% (i.e. 10.5% - 3%) 30,000
Perquisite in respect of sale of car (1,60,000 - 1,20,000) 40,000
Credit card expenses reimbursed (Not a perquisite) Nil
Perquisite value of Video camera (40,000 x 10%) 4,000
Perquisite value of laptop Nil
Gross Salary 4,32,800
Less: Deduction u/s 16(ia) 50,000
Taxable Salary 3,82,800

Question 34:
Mr. Syed Zaki receives ₹ 10,000 p.m. as basic salary and ₹ 1,000 p.m. as D.A. forming part of
retirement benefit. He has been provided with the following perquisites:
Unfurnished accommodation at Chennai. Rent paid by Mr. Zaki towards this accommodation
is ₹ 750/ – p.m. He has been provided with the services of watchman and sweeper. Company
pays a salary is ₹ 1,000 p.m. each to watchman and sweeper. He has been offered 1000 shares
of the employer company at ₹ 120 per share under "Employee Stock Purchase Scheme". Public
offer is ₹ 140 per share. The said scheme is approved by SEBI. Compute the taxable salary.

SALARY 62
Answer:
Computation of taxable salary of Mr. Syed Zaki
Particulars ₹
Basic salary (10,000 x 12) 1,20,000
D.A. (1,000 x 12) 12,000
Perquisite value of concession in the matter of rent (15% of 1,32,000 – 750 x 12) 10,800
Perquisite value in respect of services of watchman and sweeper (1,000 x 2 x 12) 24,000
Shares offered under approved scheme (1,000 shares X ₹ 20 each) 20,000
Gross Salary 1,86,800
Less: Deduction u/s 16(ia) 50,000
Taxable salary 1,36,800

Question 35:
A Ltd. has offered you a job in Delhi at a basic salary of ₹ 11,500 per month and an option to
choose any one of the following two packages :
Package I
(1) HRA ₹ 4,500 p.m. (Rent to be paid ₹ 4,500 p.m.)
(2) Education allowance ₹ 300 p.m. (for one child)
(3) Telephone allowance ₹ 1,000 p.m.
(4) Medical Allowance ₹ 1,500 p.m.
(5) Conveyance allowance ₹ 1,500 p.m. (for private user)
(6) Lunch allowance – ₹ 1500 p.m.
Package II
(i) Company owned unfurnished accommodation FRV ₹ 54,000 p a.
(ii) Education facility for one child valued at ₹ 300 p.m.(Not owned by employer)
(iii) Free telephone facility at residence upto ₹ 1,000 p.m.
(iv) Medical reimbursement upto ₹ 18,000 p.a.
(v) Motor Car facility for private use with expenditure valued at ₹ 18,000 (including
normal wear & tear).
(vi) Free Lunch (₹ 60 x 300 days)
The company also offers you the services of watchman, sweeper and gardener in both the
above packages. The salary of each employee is ₹ 500 p.m.
Which package will you choose so that your tax liability is minimum? (Optional Tax Scheme)

Answer:
Option I Option II
₹ ₹
Salary 1,38,000 1,38,000
Rent Free Accommodation 20,700
HRA (₹ 54,000 - 40,200) 13,800 —

SALARY 63
 Education facilities — 3,600
Education allowance (₹ 3,600 - 1,200) 2,400 —
Telephone facility — —
Telephone Allowance 12,000 —
Medical Allowance / Reimbursement 18,000 18,000
Motor Car facility — 18,000
Conveyance Allowance 18,000 —
Lunch Allowance 18,000 —
Free Lunch (Free Lunch exempt upto ₹ 50 per
meal) then taxable amount = (60 - 50) x 300 days 3000
Sweeper's Salary 6,000 6,000
Gardner's Salary 6,000 6,000
Watchman's Salary 6,000 6,000
2,38,200 2,19,300
Less : Deduction under section 16 50,000 50,000
Net Salary 1,88,200 1,69,300

Question 36:
Mr. Albert is employed with Sonata Software Ltd., as Vice – President, Marketing, on a
monthly salary of ₹ 30,000. He has been provided with the following perquisites:
• Rent free accommodation is provided in Hyderabad
• During the previous year, the company has given him interest free housing loan of ₹
6 lakhs repayable within 12 years. (SBI rate of interest – 10%)
• The company had purchased a car on 1-4-2022 for ₹ 3,50,000/ – . This car is sold to
him on 1-5-2023 for ₹ 1,00,000/–
• He was allowed to use the Air conditioner and Invertor belonging to the company.
The company had purchased these assets for ₹ 50,000/– and ₹ 75,000/– respectively.
Compute Taxable Salary.
Answer:
360000 + 54000 + 60000 + 180000 (20% WDV) + 5000 + 7500 = ₹ 6,66,500

PAST EXAMINATIONS
1. Mr. Rajesh Sharma, aged 54 years, an Indian citizen, is working as Assistant Manager in
ABC India Ltd. He is getting basic salary of Rs.58,000 per month. He used to travel
frequently out of India for his office work. He left India from Delhi Airport on 5th October,
2023 and returned to India on 2nd April, 2024.
For previous year 2023-24, following information are relevant;
(a) Dearness Allowance - 10 % of Basic Pay (considered for retirement purposes)
(b) Bonus - Rs.98,000

SALARY 64
 (c) Medical allowance paid during P.Y. 2023-24 amounting to Rs.60,000
(d) He was also reimbursed medical bill of his mother amounting to Rs.15,000.
(e) He was also transferred a laptop by company for Rs.15,000 on 31st December, 2023. The
laptop was acquired by company on 1st October, 2020 for Rs.1,00,000. Company was
charging depreciation at 31.666 % assuming useful life of laptop as 3 years.
(f) He was also reimbursed salary of house servant of Rs.4,000 per month.
(g) Professional Tax paid by employer amounting to Rs.2,400.
(h) 400 equity shares allotted by ABC India Ltd. at the rate of Rs.250 per share against fair
market value of share of Rs.350 on the date of exercise of option.
(i) Short-term capital gain on sale of shares of listed company on which STT is paid
amounting to Rs.94,000.
(j) Mr. Rajesh does not opt for the provisions of section 115BAC.
Based on the facts of the case scenario given above, choose the most appropriate answer to
the following questions:
1.1 What is Mr. Rajesh Sharma’s residential status for the A.Y.
2024- 25?
(a) Resident but can’t determine resident and ordinarily resident or resident
but not ordinarily resident from the given information
(b) Non-Resident
(c) Resident but not ordinarily resident
(d) Resident and ordinarily resident
1.2 What are his taxable perquisites for A.Y. 2024-25?
(a) Rs.55,000
(b) Rs.90,400
(c) Rs.1,05,400
(d) Rs.1,03,000
1.3 What is the income chargeable under the head “Salaries” in the hands of Mr.
Rajesh Sharma for A.Y. 2024-25?
(a) Rs.9,76,600
(b) Rs.9,86,600
(c) Rs.9,71,600
(d) Rs.9,61,600
1.4 The total tax liability of Mr. Rajesh Sharma for A.Y. 2024-25 is:
(a) Rs.1,26,800
(b) Rs.1,40,710
(c) Rs.1,12,130
(d) Rs.1,39,960
1.5 Assume for the purpose of this question only, that Mr. Rajesh was found owner
of Rs.5 lakh worth jewellery acquired in F.Y. 2023-24, of which he could not
provide any satisfactory explanation about source of income. What would be the
tax liability (without considering surcharge and Health and education cess, if

SALARY 65
 any) of Mr. Rajesh Sharma towards such unexplained expenditure:
(a) Rs.1,00,000
(b) Rs.1,50,000
(c) Rs. 3,00,000
(d) Rs. 3,90,000
Ans:
Question No. Answer
1.1 (a) Resident but can’t determine ordinarily resident or resident
but resident from the given information resident and not
ordinarily
1.2 (c) Rs.1,05,400
1.3 (a) Rs.9,76,600
1.4 (a) Rs.1,26,800
1.5 (c) Rs.3,00,000

2. Mr. Sunil is the CEO of Sheetal Textiles Ltd. His basic salary is Rs.6,00,000 p.m. He is
paid 8% as D.A. He contributes 10% of his pay and D.A. towards his recognized provident
fund and the company contributes the same amount. The accumulated balance in recognized
provident fund as on 1.4.2022, 31.3.2023 and 31.3.2024 is Rs.50,35,000, Rs.71,46,700 and
Rs.94,57,700, respectively. Compute the perquisite value chargeable to tax in the hands of
Mr. Sunil u/s 17(2)(vii) and 17(2)(viia) for the A.Y. 2023-24 and A.Y. 2024-25.
Ans: Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y.
2023-24
1. Perquisite value taxable u/s 17(2)(vii) = Rs.7,77,600, being employer’s
contribution to recognized provident fund during the P.Y. 2022-23 – Rs.7,50,000 =
Rs.27,600
2. Perquisite value taxable u/s 17(2)(viia) = Annual accretion on perquisite
taxable u/s 17(2)(vii) = (PC/2)*R + (PC1 + TP1)*R
= (27,600/2) × 0.0914 + 0
= Rs.1,261
PC Sheetal Textile Ltd.’s contribution in excess of Rs.7.5 lakh to
recognized provident fund during P.Y. 2022-23 = Rs.27,600
PC1 Nil
TP1 Nil
R I/Favg = 5,56,500/60,90,850 = 0.0914
I RPF balance as on 31.3.2023 – employee’s and employer’s contribution
during the year – RPF balance as on 1.4.2022 = Rs.5,56,500 (Rs.71,46,700
– Rs.7,77,600 – Rs.7,77,600 – Rs.50,35,000)
Favg Balance to the credit of recognized provident fund as on 1 st April, 2022 +
Balance to the credit of recognized provident fund as on 31st March,
2023)/2 = (Rs. 50,35,000 + Rs.71,46,700)/2 = Rs.60,90,850

SALARY 66
 Computation of perquisite value taxable u/s 17(2)(vii) and 17(2)(viia) for A.Y.
2024- 25
1. Perquisite value taxable u/s 17(2)(vii) = Rs.7,77,600, being employer’s
contribution to recognized provident fund during the P.Y. 2023-24 – Rs.7,50,000
= Rs.27,600
2. Perquisite value taxable u/s 17(2)(viia) = Annual accretion on perquisite
taxable u/s 17(2)(vii) = (PC/2)*R + (PC1 + TP1)*R
= (27,600/2) × 0.0910 + (27,600 + 1,261) × 0.0910
= Rs.1,256 + Rs.2,626
= Rs.3,882
PC Sheetal Textile Ltd.’s contribution in excess of Rs.7.5 lakh to
recognized provident fund during P.Y. 2023-24 = Rs.27,600
PC1 Amount of employer’s contribution in excess of Rs.7,50,000 to RPF in
P.Y. 2022- 23 = Rs.27,600
TP1 Taxable perquisite under section 17(2)(viia) for the P.Y. 2022 -23 =
Rs.1,261 R I/Favg = 7,55,800/83,02,200 = 0.0910
I RPF balance as on 31.3.2024 – employee’s and employer’s contribution
during the year – RPF balance as on 1.4.2023 = Rs.7,55,800 (Rs.94,57,700
– Rs.7,77,600 – Rs.7,77,600 – Rs.71,46,700)
Favg Balance to the credit of recognized provident fund as on 1st April, 2023 +
Balance to the credit of recognized provident fund as on 31st March,
2024)/2 = (Rs.71,46,700 + Rs.94,57,700)/2 = Rs.83,02,200
Note – Since the employee’s contribution to RPF exceeds Rs.2,50,000 in the
P.Y.2023-24, interest on Rs.5,27,600 (i.e., Rs. 7,77,600 – Rs.2,50,000) will
also be chargeable to tax.

3. Mr. B is a sales manager in PQR Ltd. During F.Y. 2023-24 he has received the following
towards his salary and allowances/perquisites;
(i) Basic pay Rs.85,000 per month upto December 2023 and thereafter an increase of Rs.
2,000 per month.
(ii) Dearness allowance 40% of basic pay forming part of retirement benefits.
(iii) Bonus 1 month basic pay based on the salary drawn during January month every year.
(iv) He contributes 14% of his basic pay & DA towards his recognized provident fund and
his employer company contributes the same amount.
(v) Travelling allowance of Rs.5,000 per month towards on duty tours.
(vi) Research and training allowance Rs.3,000 per month.
(vii) Children education allowance of Rs.600 per month, per child for his 2 sons and
1 daughter.
(viii) Accommodation owned by PQR Ltd. was provided to him in Hyderabad for the whole
year and furniture of Rs.2,00,000 was provided from 1st October, 2023
(ix) Reimbursement of medical expenses on his treatment in private hospital - Rs.15,000,

SALARY 67
 medical allowance Rs.1,500 per month. Company has paid premium on medical policy
purchased on his health Rs.12,500.
You are required to:
I. Compute the income chargeable to tax under the head "Income from Salary",
assuming that he does not opt for the provisions under section 115BAC.
II. What will be the income under the head “Salaries”, if he opts for the provisions
under section 115BAC? (8 Marks)
Ans: I. Computation of income chargeable to tax under the head “Salaries” for
A.Y.2024-25, if Mr. B does not opt for the provisions of section 115BAC
Particulars Rs. Rs.
Basic Pay [Rs.85,000 x 9 + Rs. 87,000 x 3] 10,26,000
Dearness Allowance [Rs. 10,26,000 x 40%] 4,10,400
Bonus 87,000
Travelling allowance [Exempt, since provided towards -
duty tours]
Research and training allowance [Rs.3,000 x 12] 36,000
Medical allowance [Rs.1500 x 12] 18,000
Children Education allowance [Rs.600 x 12 x 3] 21,600
Less: Exempt [Rs.100 x 12 x 2] 2,400 19,200
Salary (for the purpose of valuation of Rent-free 15,96,600
accommodation)
Value of Rent-free accommodation [15% of 2,39,490
Rs.15,96,600]
Add: Value of furniture [Rs.2,00,000 × 10% p.a. for 6
months] 10,000 2,49,490
Reimbursement of medical expenses [taxable, since
amount is reimbursed for treatment in private hospital] 15,000
Health insurance premium paid by PQR Ltd. [Exempt] -
Employers’ contribution to RPF in excess of 12% of
salary = 2% of Rs.14,36,400 (Rs.10,26,000 + Rs.
4,10,400) 28,728
Gross Salary 18,89,818
Less: Deductions under section 16
Standard deduction 50,000
Income chargeable under the head “Salaries” 18,39,818
[Link] of income chargeable to tax under the head “Salaries” for
A.Y.2024- 25, if Mr. B opts for the provisions of section 115BAC
Income chargeable under the head “Salaries” 18,39,818
Add: Exemption in respect of children education 2400
allowance [Not allowable as per section 115BAC]
19,42,218

SALARY 68
Less: Value of rent-free accommodation (As per regular 2,49,490
provisions)
16,92,728
Add: Value of Rent-free accommodation [15% of
Rs.15,99,000 (Rs.15,96,600 (as calculated above) +
Rs.2,400)] 2,39,850
Add: Value of furniture [Rs.2,00,000 × 10% p.a. for 6 2,49,850
months] 10,000
Income chargeable under the head “Salaries” 18,92,578

4. Examine with brief reasons, whether the following is chargeable to income-tax and the
amount liable to tax with reference to the provisions of the Income tax Act, 1961.
Allowance received by an employee Mr. Ram working in a transport system at Rs. 12,000
p.m. which has been granted to meet his personal expenditure while on duty. He is not in
receipt of any daily allowance from his employer. (Nov ’18)
Ans: Computation of taxable amount for Mr. Ram AY2024-25
Particulars Rs. Rs.
Actual allowance 1,44,000
Least of the following is exempt:
70% of such allowance {(12,000*12)*70%} 1,00,800
Rs. 10,000p.m. (10,000*12) 1,20,000 (1,00,800)
Taxable Value (Optional Tax Scheme) 43,200
Note: As per Rule 2BB, deduction is allowed to an employee only if he is not in
receipt of daily allowance.
Default Tax Scheme Rs. 1,44,000
5. Compute the amount of LTC Exemption in the following cases with reference to the
provision under Income-tax Act, 1961:
• Mr. Suresh went on holiday on 09/09/2023 to Mysore with his wife and 3
children – one daughter born on 02/02/2015 and twin sons born on
05/05/2017. The total cost of travel was Rs. 80,000. The ticket cost for Mr.
Suresh and his wife was Rs. 50,000 and for all three children was Rs. 30,000.
The employer reimbursed total ticket cost of Rs. 80,000.
• In the above Case (a), if among his 3 children the twin sons born on
02/02/2015 and the daughter was born on 05/05/2017, what shall be the
exemption?
(Nov’16)

Answer:
Default Tax Scheme Rs.80,000 is taxable
Optional Tax Scheme

SALARY 69
 Case (a) Computation of amount of LTC exemption of Mr. Suresh AY2024-25
Particulars Rs.
Exemption u/s. 10(5)
Cost of Travel on the shortest route
- For assessee and his spouse 50,000
- For the three children (where second children is twins) 30,000
Total Amount Exempt 80,000
Case (b): Computation of amount of LTC exemption of Mr. Suresh AY 2024-25
Particulars Amount
Exemption u/s. 10(5)
Cost of Travel on the shortest route
- For assessee and his spouse 50,000
- For the two children (30,000/3x2) (where first children is 20,000
twins)
Total Amount Exempt 70,000
Note: Exemption u/s. 10(5) shall not be available to more than two surviving children
of individual. However, this restriction shall not apply where an individual after getting
one child, gets multiple children on second occasion. Hence in the case (a), exemption
u/s. 10(5) in respect of cost for 3 children is available, while in case (b) exemption u/s.
10(5) shall be available only to the extent of 2 children.
6. Discuss whether the following receipts are taxable and also indicate the head of income under
which the same is taxable:
• Medical allowance received by an employee, the entire amount of which has been spent by
him for medical treatment.
• Payment from unrecognized provident fund at the time of retirement which consists of
employee's contribution, employer's contribution and interest on both contributions.
(Nov’12)
Ans:
i) Medical allowance received by an employee from employer shall be subject to tax under
the head “Salary”;
ii) Employer's contribution and interest thereon shall be taxed under the head “Salary” and
interest on employee contribution will be taxed under the head “Income from Other
Sources”. Employees' contribution is not chargeable to tax.

7. Ms. Rakhi is an employee in a private company. She receives the following medical benefits
from the company during the previous year 2023-24:
• Reimbursement of following medical expenses incurred by Ms. Rakhi.
• On treatment of her self-employed daughter in a private clinic – Rs. 4,000
• On treatment of herself by family doctor Rs. 8,000.
• On treatment of her mother-in-law dependent on her, in a nursing home – Rs. 5,000

SALARY 70
 • Payment of premium on Medi-claim Policy taken on her health – Rs. 7,500
• Medical allowance – Rs. 2,000 per month
• Medical expenses reimbursed on her son's treatment in a government hospital – Rs. 5,000
Discuss about the Taxability of above benefits and allowances in the hands of Rakhi.

Ans: Taxability of benefits and allowances in the hands of Ms. Rakhi

• Reimbursement of following medical expenses incurred by Ms. Rakhi.
a. On treatment of her self-employed daughter in a private clinic – Rs. 4,000 is taxable.
b. On treatment of herself by family doctor- Rs. 8,000 is taxable
c. On treatment of her mother –in-law dependent on her, in a nursing home – Rs. 5,000:
this is taxable by virtue of proviso to Sec. 17(2) as Mother –in-law is not covered in the
definition of family u/s.17(2)
ii. Payment of premium on Medi-claim Policy taken on her health – Rs. 7,500 is exempt
Any amount of premium paid in relation to group medical insurance taken by the
employer for his employees or reimbursement of medical insurance premium paid by
the employee on his health or on the health of any member of his family under scheme
approved by the Central Government or Insurance Regulatory and Development
Authority (IRDA) for the purpose of Sec. 80D is not taxable by virtue of Sec. 17(2)
iii. Medical allowance – Rs 2,000 per month:
Any fixed medical allowance shall be taxed in hands of employee Hence, fixed
allowance of Rs. 24,000 shall be taxable.
iv. Medical expenses reimbursed on her son's treatment in a government hospital Rs. 5,000:
This is not taxable by virtue of proviso to sec. 17(2)

8. Ms. Jaya is the marketing manager in XYZ Ltd., She gives you the following particulars:
Basic Salary : Rs. 65,000p.m.
Dearness Allowance : Rs. 22,000 p.m. (30% is for retirement benefits)
Bonus : Rs. 17,000 p.m.
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 Rs. 12,000 p.m. Ms. Jaya occupied the
house from 1st November, 2023. Rs. 4,800 p.m. is recovered from the salary of Ms. Jaya.
The employer gave her a gift voucher of Rs. 8,000 on her birthday. She contributes 18% of
her salary (Basic Pay + DA) towards recognized provident fund and the company
contributes the same amount. The company pays medical insurance premium to effect
insurance on the health of Ms. Jaya, Rs. 18,000. Motor car owned by the employer (cubic
capacity of engine exceeds 1.6 litres) provided to Ms. Jaya from 1st November, 2023 which
is used for both official and personal purposes. Repair and running expenses of Rs. 50,000
were fully met by company. The motor car was self-driven by the employee. Compute the
income chargeable to tax under the head “Salaries” in the hands of Ms. Jaya for the AY
2024-25. (Nov’17)

Ans: Computation of taxable salary: AY2024-25

Particulars Note Amount (Rs.)
Basic Pay (65000*12) 7,80,000

SALARY 71
 Bonus(17000*12) 2,04,000
Dearness Allowance (22000*12) 2,64,000
Gift from employer (i) 8,000
Accommodation provided at concessional rates (ii) 36,000
Employers contribution exceeding 12% of salary to
(iii) 84,816
recognized PF
Taxable value of motor car (iv) 12,000
Gross Salary 13,88,816
Less: Standard deduction u/s. 16(ia) 50,000
Taxable Salary 13,38,816
Note: (i) Where the aggregate value of the gifts is Rs. 5,000 or more, then entire
amount is taxable as per Rule 3(7) (iv)
Computation of value of accommodation provided at concessional rate. Salary for this purpose
Particulars Amount (Rs.)
Basic pay (65,000*5) 3,25,000
Bonus (17,000*5) 85,000
Dearness allowance (forming part of salary) (22,000 *5*30%) 33,000
4,43,000
Value of accommodation shall be the least of the following:
a. Actual lease rental paid (12,000*5) = 60,000
b. 15% of salary (4,43,000*15%) = 66,450
Value of accommodation taxable=Rs. 60,000-4,800 x 5= Rs. 36,000
(i) Any amount contributed to recognized provident fund in excess of 12% of
salary is taxable as salary in the hands of employee 18% x(Rs. 65,000 + Rs.
22,000) x12] – 12% x {[Rs. 65,000 + Rs. 6,600 (being 30% of Rs. 22,000)] x 12} =
1,87,920 – 1,03,104;]
(ii) Where the motor car is owned by the employer and where all expenses are met by the
employer and where it is used partly for personal purpose and official purpose, the
value of perquisite amounts to Rs. 12,000 (2,400*5);
9. From the following details find out the salary chargeable to tax of Mr. Anand for the AY
2024-25: Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on
1st March 2023 in the scale of 25,000-2,500-35,000. He is paid dearness allowance (which
forms part of salary for retirement benefits) @ 15% of basic pay and bonus equivalent to one
and half month's basic pay as at end of the year. He contributes 18% of his salary (basic pay
plus dearness allowance) towards recognized provident fund and the company contributes
the same amount. He is provided free housing facility which has been taken on rent by the
company at Rs. 15,000 p.m. He is also provided with the following facilities:

SALARY 72
 • The company reimbursed the medical treatment bill of Rs. 40,000 of his daughter who is
dependent on him.
• The monthly salary of Rs. 2,000 of a house keeper is reimbursed by the company.
• He is getting a telephone allowance @ Rs. 1,000p.m.
• A gift voucher of Rs. 4,700 was given on occasion of his marriage anniversary.
• The company pays medical insurance to effect insurance on the health of Mr. Anand @
Rs.12,000.
• Motor car running and maintenance charges fully paid by employer of Rs. 36,600. (The
motor car is owned and driven by Mr. Anand. The engine cubic capacity is below 1.6 Lts.
The motor car is used for both official and personal purpose by the employee)
• Value of free lunch provided during the office hours is Rs. 2,200 (Nov’13)
Basic Salary [(Rs. 25,000 x 11) + (Rs. 27,500 x 1)] 3,02,500
Dearness Allowance (Rs. 3,02,500 x 15%) 45,375
Bonus [Rs. 27,500 x 11/2 months] 41,250
Recognized Provident fund in excess of 12% of salary [(Rs. 3,02,500
20,873
+ Rs. 45,375 ) x (18% - 12%)]
Medical bill reimbursed by employer 40,000
Housekeeper salary reimbursed by employer 24,000
Telephone allowance (Working Note-1) 12,000
Gift voucher (Less than Rs. 5,000) Nil
Medical Insurance Premium paid by employer Nil
Motor car 36,600
Less: Exempt (Rs. 1,800 x 12) 21,600 15,000
Rent free accommodation at Mumbai (Working Note-2) 60,169
Lunch at office hours (Refer Note) Nil
Gross Salary 5,61,167
Less: Standard deduction u/s. 16(ia) 50,000
Taxable Salary 5,11,167
Working Note 1: Rent Free Accommodation
Particulars Rs.
Actual Rent paid by employer (Rs. 15,000 x 12) (A) 1,80,000
15% of Salary [(Rs. 3,02,500 + Rs. 45,375 + Rs. 41,250 +12,000) x 15%](B) 60,169
Rent Free Accommodation (Lower of A & B) 60,169
Note: (i) Telephone expenses when reimbursed of actual expenses by the employer is
exempt. However, telephone allowances are taxable. (ii) Meals/lunch in office
hours is not taxable, if cost to the employer is less than Rs.50 Per meal

SALARY 73
 INCOME FROM HP
PAST EXAMINATION
1. Mrs. Disha Khanna, a resident of India, owns a house property at Bhiwani in Haryana. The
Municipal value of the property is Rs.7,50,000 Fair Rent of the property is Rs.6,30,000
and Standard Rent isRs.7,20,000 per annum. The property was let out for Rs.75,000 per
month for the period April 2023 to December 2023 Thereafter, the tenant vacated the
property and Mrs. Disha Khanna used the house for self-occupation. Rent for the months of
November and December 2023 could not be realized from the tenant. The tenancy was bona
fide but the defaulting tenant was in occupation of another property of the assessee, paying
rent regularly. She paid municipal taxes @ 12% during the year and paid interest of
Rs.35,000 during the year for amount borrowed towards repairs of the house property. You
are required to compute her income from "House Property for the AY 2024-25

Answer
Computation of Income from House Property of Mrs. Disha Khanna for AY 2024-25
Particulars Rs. Rs.
Gross Annual Value (Note (i) 7,20,000
Less: Municipal taxes (7,50,000 x 12%) 90,000
Net Annual Value 6,30,000
Less: Deduction u/s. 24
(a) Standard deduction @30% (6.30,000*30%) 1,89,000
(b) Interest on loan borrowed 35,000 2,24,000
Income from House Property 4,06,000
Notes: 1. Computation of Gross Annual Value
a. Expected Rent is Higher of Municipal value (Rs. 7,50,000) or Fair Rent (Rs.6,30,000)
Bur restricted to Standard Rent (Rs.7,20,000)-Rs. 7,20,000
b. Actual rent received or receivable 75,000*9 = 6,75,000.
c. GAV is higher of a or b i.e., Rs. 7,20,000.
Note: 2
Only if the conditions as per Rule 4. are satisfied actual rent shall be adjusted (reduced) to the
extent of unrealized rent. In this case the tenant is in occupation of another property of the
assessee, therefore the entire rental income is taxable
2. Mr. Aditya, a resident but not ordinarily resident in India during the Assessment year 2024-
25. He owns two houses, one in Dubai and the other in Mumbai. The house in Dubaiis let
out there at a rent of AED 20,000 p.m. (1AED= 20 INR). The entire rent is received inIndia.
He paid the property tax of AED 2,500 and Sewerage Tax AED 1,500 there, for the
Financial Year 2023-24. The house in Mumbai is self-occupied. He had taken loan of Rs
25,00,000 to construct the house on 1st June 2020 @ 12%. The construction was completed
on 31st May 2022 and he occupied the house on 19th June 2022. The entire loan is
outstanding as on 31st March 2024. Property tax paid in respect of the second house is

INCOME FROM HP 74
 Rs.2,400 for the Financial Year 2023-24. Compute the income chargeable under the head
“Income from House Property" in the hands of Mr. Aditya for the AY 2024-25. under
optional tax scheme (Nov'17)
Answer
Computation of income from house property of for Mr. Aditya For AY 2024-25.
Particulars Note Rs.
Income from house property in Dubai (a) 33,25,000
Income from self-occupied property in Mumbai (b) (2,00,000)
Total Income from house property 31,25,000
Notes: (a) Income from house property in Dubai
Particulars Rs.
Gross Annual Value (Rental Income) (AED 20,000*12*20) 48,00,000
Less: Municipal taxes paid (AED 2500*20) 50,000
Net annual value 47,50,000
Less: Deductions u/s 24
a) Standard deduction – (30% of NAV) 14,25,000
b) Interest on loan Nil
Income from House Property 33,25,000
(b) Income from self-occupied property in Mumbai
Particulars Rs.
Annual Value Nil
Less: Deductions u/s 24(b)Interest on loan 2,00,000
Loss from House Property (2,00,000)
Notes:
i) The pre-construction period is from 1st June 2020 to 31st March 2022. The interest
payable during that period amounts to Rs.5,50,000. This has been split over 5 years i.e.,
Rs 1,10,000 every year starting from the FY 2022-23 and ending in FY 2026-27.
Therefore, for the current year, the interest on loan amounts to Rs.4,10,000, which is
Rs.3,00,000 for the current year and Rs.1,10,000 of pre- construction period interest.
However as per proviso 2 to sec.24 (b), it is restricted to Rs. 2,00,000;
ii) Sec. 23 provides for deduction only in respect of taxes levied by any local authority
in respect of the property. Accordingly, only Municipal tax is allowed as deduction
and not Sewerage tax.
3. Mr. Ganesh owns a commercial building whose construction got completed in June 2022.
He took a loan of Rs. 15 lakhs from his friend on 1-8-2021 and had been paying interest
calculated at 15% per annum. He is eligible for preconstruction interest as deduction as per
the provisions of Income Tax Act.

INCOME FROM HP 75
 Mr. Ganesh has let out the commercial building at a monthly rent of Rs. 40,000 during the
financial year 2023-24. He paid Municipal tax of Rs. 18,000 each for the financial year
2022-23 and 2023-24 on 1-5-2023 and 5-4-2024 respectively. Compute Income under the
head 'House Property' of Mr. Ganesh for the AY 2024-25. (May'17)

Answer
Computation of Income from House Property AY 2024-25
Particulars Note Rs Rs
Gross Annual Value (GAV) (40,000*12) 4,80,000
Less: Property taxes paid to Local Authority 1 18,000
Net Annual Value (NAV) 4,62,000
Less: Deductions u/s. 24
a) Standard Deduction - 30% of NAV 1,38,600
b) Interest on Housing Loan 2 2,55,000 3,93,600
Income from House Property 68,400
Notes:
(i) The Municipal tax of Rs. 18,000/- paid on 01.05.2023 for the financial year
2022-23 is deducted from the Gross Annual Value since only the municipal taxes
paid during the previous year irrespective of the year for which it is paid is
deductible from the Gross Annual Value. Municipal Tax of Rs. 18,000 paid on 5th
April 2024 relating to Financial Year 2023-24 will not be allowed as deduction as it is not
paid during the relevant Previous year
(ii) The interest for the period prior to the previous year in which the property got
constructed is claimable in five equal installments starting from the previous year
in which the construction got completed.
Particulars Rs.
Pre-Construction interest [For the period 01.08.21 to 31.03.22] 30,000
(15,00,000 X 15% X 8/12) X. 1/5
Interest for the current previous year (For the period 01.04.23 to 2,25,000
31.03.24]15,00,000 X 15%
Total Interest claimable for PY 2023-2024 2,55,000

4. Mr. Raphael constructed a shopping complex. He had taken a loan of Rs. 25 Lakhs for
construction of the said property on 01.08.2021 from SBI at 10% for 5 years. The
construction was completed on 30.06.2022. Rental income received from shopping complex
Rs. 30,000 per month-let out for the whole year. Municipal taxes paid for shopping complex
Rs. 8,000. Arrears of rent received from shopping complex Rs. 1,20,000. Interest paid on
loan taken from SBI for purchase of house for use as own residence for the period 2023-24,
Rs. 3 Lakhs. You are required to compute Income from House Property of Mr. Raphael for
AY 2024-25 As Per Income-tax Act, [Link] Optional Tax Scheme. (Nov 15)

INCOME FROM HP 76
 Answer
Computation of income from House Property of Mr. Raphael for AY 2024-25
Particulars Rs
Let-out property (Note-1) (36,933)
Self-occupied property (Note-2) (2,00,000)
Arrears or rent (Note-3) 84,000
Loss from House Property (1,52,933)
(Note-1) Let -out property:
Particulars Rs Rs
Gross Annual Value (GAV) (30,000 x 12) 3,60,000
Less: Property taxes paid to local authority 8,000
Net Annual Value (NAV) 3,52,000
Less: Deductions u/s.24
- a) 30% of the NAV 1,05,600
- b) Interest on housing loan (WN - 1) 2,83,333 3,88,933
Loss from House Property (36,933)
Working Note-1: Interest on Housing Loan
Particulars Rs
1) Pre-construction interest from 01.08.2019 to 31.03.2020
(25,00,000 x 10% x 8/12) 1,66,667
In five equal installments (1,66,667/5) 33,333
Interest on housing loan for current year - 25,00,000 x10% 2,50,000
Total 2,83,333
Any Interest paid on loan taken to the construction of house is allowable as a deduction in 5
equal installments from the year of completion of construction,
(Note-2) Self-occupied Property:
Particulars Rs Rs
Annual Value Nil
Less: Deductions u/s.24(b)
Interest on housing loan Rs.3,00,000 (restricted to
Rs.2,00,000) 2,00,000
Loss from House Property (2,00,000)
The annual value in case of self-occupied house property shall always be taken as nil.
Insurance and municipal taxes in case of self-occupied property cannot be claimed as
deduction.

(Note-3) Arrears of rent received u/s. 25A

INCOME FROM HP 77
 Particulars Rs
Arrears of rent received 1,20,000
Less: Deduction u/s 25A – (30% of 1,20,000) 36,000
Taxable arrears of rent 84,000

5. Nisha has two houses, both of which are self-occupied. The particulars of these are given
below:
Particulars Value in Rs.
House 1 House 1I
Municipal valuation per annum 1,20,000 1,15,000
Fair rent per annum 1,50,000 1,75,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31.03.1999 31.03.2001
Municipal taxes payable during the year (paid for 12% 8%
House ll only)
Interest on money borrowed for repair of property 55,000
during the current year
Compute Nisha's income from the house property for the assessment year 2024-25. (June'14)
Answer:
Default Tax Scheme
In Default Tax Scheme Annual value of self-occupied property is Nil and interest cannot be
claimed for self-occupied property. Hence Income from house property shall be taken as Nil.
Optional Tax Scheme
Computation of income from house property of Nisha for AY 2024-25
Particulars House 1 House 1I
Annual Value Nil Nil
Less: Deduction u/s. 24
Interest on loans Nil 30,000
Income from House Property Nil (30,000)
Note: In case of self-occupied property interest up to Rs. 30,000 is only allowed in case
of loan taken for purposes other than acquisition or construction of house property.

6. Mr. Ramesh constructed a big house (construction completed in Previous Year 2009-10
with 3 independent units. Unit 1 (50%of floor area) is let out for residential purpose at
monthly rent of Rs.15,000. A sum of Rs.3,000 could not be collected from the tenant and a
notice to vacate the unit was given to the tenant. No other property of Mr. Ramesh is
occupied by the tenant. Unit - 1 remains vacant for 2 months when it is not put to any use.

INCOME FROM HP 78
 Unit - 2 (25% of the floor area) is used by Mr. Ramesh for the purpose of his business, while
Unit - 3 (the remaining 25%) is utilized for the purpose of his residence. Other particulars
of the house are as follows: Municipal Valuation Rs.1,88,000, fair rent Rs. 2,48,000,
Standard rent under the Rent Control Act - Rs.2,28,000, Municipal Taxes - Rs.20,000,
repairs - Rs.5,000, Interest on capital borrowed for the construction of the property -
Rs.60,000, ground rent - Rs.6,000 and fire insurance premium paid - Rs.60,000.
Income of Ramesh from the business is Rs. 1,40,000 (without debiting house rent and other
incidental expenditure). Determine the taxable income of Mr. Ramesh for the assessment
year 2024-25 if he does not opt be taxed undersection 115 BAC. (July'21)

Ans: Computation of Total Taxable income of Mr. Ramesh for AY 2024-25

Particulars Rs. Rs.
Income from House Property
Let out property 65,900
Self-occupied (15,000) 50,900
income from Profits & Gains from Business & Profession 1,02,250
(Profit)
Taxable income for the AY 2024-25 1,53,150
Note 1: Unit -1 (50%-Let-out property);
Particulars Rs. Rs.
Gross Annual Value (GAV) -W. N-Í 1,47,000
Less: Property taxes paid to local authority (10,000)
(50% ofRs.20,000)
Net Annual Value (NAV) 1,37,000
Less: Deductions u/s.24
a) 30% of the NAV 41,100
b) Interest on housing loan 30,000 71,100
Income from House Property 65,900
Working Note-1: Computation of Gross Annual Value
Particulars Rs. Rs.
1) Higher of municipal value of Rs.94,000 pa. and fair 1,14,000
rent of Rs.1,24,000 p.a. but restricted to standard rent of
Rs.1,14,000 p.a.
2)Actual Rent (15,000* 10) 1,50,000
Less: Unrealized Rent 3,000 1,47,000
Gross Annual Value is higher of 1 or 2 1,47,000

INCOME FROM HP 79
 Note: 2 Unit - 3 (25% - Self-occupied Property):
Particulars Rs. Rs.
Annual Value Nil
Less: Deductions u/s.24(b)
- Interest on loan (25%* 60,000) 15,000
Loss from House Property (15,000)
The annual value in case of self-occupied house property shall always be taken as nil.
Insurance and municipal taxes in case of self-occupied property cannot be claimedas
deduction.

Note: 3 Computation of income from Profits & Gains from Business and Profession:
Particulars Rs. Rs.
Business income (without deducting expense on Unit --2) 1,40,000
Less: Expenses in respect to Unit -- 2
Municipal Tax (25%* 20,000) 5,000
Repairs (25%5,000) 1,250
Interest on Loan (25% 60,000) 15,000
Ground Rent (25%* 6,000) 1,500
Fire Insurance Premium (25%* 60,000) 15,000 37,750
Income from Profits & Gains from Business & Profession 1,02,250

7. Mr. Akash owns a residential house property whose Municipal Value, Fair Rent and Standard
Rent are Rs.1,60,000, Rs.1,70,000 and Rs.1,90,000, respectively. The house has two independent
units. Unit I (25% of floor area) is utilized for the purpose of his profession and Unit II (75% of
floor area) is let out for residential purposes at a monthly rent of Rs. 8,500. Municipal taxes
@8% of the Municipal Value were paid during the year by Mr. Akash. He made the following
payments in respect of the house property during the previous year 2023-24:
Light and Water charges Rs.2,000, Repairs Rs.1,45,000, Interest on loan taken for the repair of
property Rs.36,000. Mr. Akash has taken a loan of Rs.5,00,000 in July, 2017 for the
construction of the above house property. Construction was completed on 30th June, 2020. He
paid interest on loan @12% per annum and every month such interest was paid. No repayment
of loan has been made so far.
Income of Mr. Akash from his profession amounted to Rs.8,00,000 during the year (without
debiting house rent and other incidental expenditure including admissible depreciation of
Rs.8,000 on the portion of house used for profession).
Determine the Gross total income of Mr. Akash for the A.Y. 2024-25 ignoring the
provisions of section 115BAC. [RTP May 23]

INCOME FROM HP 80
 Ans: Computation of Gross total income of Mr. Akash for the A.Y. 2024-25
Particulars Rs. Rs.
I. Income From House Property
Unit-II (75% of floor area)
Gross Annual Value
(a) Actual rent received (Rs. 8,500 x 12) Rs.1,02,000
(b) Expected rent Rs.1,27,500
[Higher of municipal value (i.e. Rs. 1,60,000) and
fair rent (i.e. Rs.1,70,000) but restricted to
standard rent (i.e. Rs.1,90,000) Rs.1,70,000 x
75%] 1,27,500
Higher of (a) or (b) is GAV 9600
Less: Municipal taxes (Rs.1,60,000 x 8% x 75%) 1,17,900
NAV
Less: Deductions u/s 24
(a) 30% of NAV Rs.35,370 1,32,120 (14,220)
(b) Interest on loan (See note) Rs.96,750
II. Profits & Gains of business & profession
Income from Profession 8,00,000
Less: Light & Water Charges (25% of Rs.2,000) Rs. 500
Municipal taxes (25% of Rs.12,800) Rs.3,200
Repairs (25% of Rs.1,45,000) Rs.36,250
Interest on loan taken for repair (25% of Rs.9,000
Rs. 36,000)
Interest on loan taken for construction of
house property (25% of Rs. 60,000) Rs. 15,000
Depreciation Rs. 8,000 71,950 7,28,050
Gross Total Income 7,13,830
Note:
Computation of Interest on loan
Rs.
Interest for the year (Rs.5,00,000 x 12%) 60,000
Pre-construction period Interest-
12% of Rs.5,00,000 for 33 months = Rs.1,65,000
To be allowed in 5 equal instalments from the year of completion 33,000
(Rs.1,65,000 x 1/5)
Interest on loan taken for repair (no restriction for let out property) 36,000
Total Interest deduction u/s 24(b) 1,29,000
Total Interest deduction u/s 24(b) for let out property (75% x Rs.1,29,000) 96,750

8. Mr. Roy 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 Rs.12,000
p.m. The tenant vacated the property on 28th February, 2024. The property was vacant during
INCOME FROM HP 81
March, 2024. 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 Rs.4,50,000 p.a., fair rent is Rs.4,70,000 p.a. and standard
rent is Rs.5,00,000. He paid municipal taxes @10% of municipal value during the year. A loan
of Rs.30,00,000 was taken by him during the year 2014 for acquiring the property. Interest on
loan paid during the previous year 2023-24 was Rs.1,51,000. Compute Roy’s income from house
property for the A.Y. 2024-25. (Optional Tax Scheme)
[RTP Nov 22]
Ans: There are two units of the house. Unit I with 3/4th area is used by Mr. Roy 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. Roy for the A.Y. 2024-25
Particulars Rs.
Unit I (3/4th area – self-occupied)
Annual Value Nil
Less: Deduction under section 24(b) 3/4th of Rs.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 1,17,500
restricted to standard rent (SR).
However, in this case, standard rent of Rs.1,25,000 (1/4th of
Rs.5,00,000) is more than the higher of MV of Rs.1,12,500
(1/4th of Rs.4,50,000) and FR of Rs.1,17,500 (1/4th of
Rs.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
Rs.12,000 × 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
Rs.1,17,500 owing to vacancy, since had the property not been 1,08,000
vacant in March 2024, the actual rent would have been
Rs.1,20,000 (i.e. Rs.1,08,000 + Rs.12,000), which is higher
than the ER of Rs.1,17,500. Therefore, actual rent is the GAV.
Gross Annual Value (GAV) 1,08,000

INCOME FROM HP 82
 Less: Municipal taxes paid by the owner during the previous
year relating to let-out portion 1/4th of (10% of Rs.4,50,000) =
Rs.45,000/4 = Rs.11,250 11,250
Net Annual Value (NAV) 96,750
Less: Deductions under section 24
(a) 30% of NAV = 30% of Rs. 96,750 29,025
(b) Interest paid on borrowed capital (relating to let out portion)
[1/4th of Rs. 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 Rs.1,32,000, being higher of expected rent of Rs.1,17,500 and
actual rent of Rs.1,32,000. Thereafter, unrealized rent of Rs. 24,000 and municipal taxes of Rs.
11,250 would be deducted from GAV of Rs.1,32,000 to arrive at the NAV of Rs. 96,750.
9. Mr. Ravi, a resident and ordinarily resident in India, owns a let out house property having different
flats in Kanpur which has municipal value of Rs. 27,00,000 and standard rent of Rs.29,80,000.
Market rent of similar property is Rs. 30,00,000. Annual rent was Rs. 40,00,000 which includes
Rs. 10,00,000 pertaining to different amenities provided in the building. One flat in the property
(annual rent is Rs.2,40,000) remains vacant for 4 months during the previous year. He has
incurred following expenses in respect of aforesaid property:
Municipal taxes of Rs. 4,00,000 for the financial year 2023-24 (10% rebate is obtained for
payment before due date). Arrears of municipal tax of financial year 2022 -23 paid during the
year of Rs. 1,40,000 which includes interest on arrears of Rs. 25,000.
Lift maintenance expenses of Rs. 2,40,000 which includes a payment of Rs. 30,000 which is made
in cash.
Salary of Rs. 88,000 paid to staff for collecting house rent and other charges.
Compute the total income of Mr. Ravi for the assessment year 2024-25 assuming that Mr. Ravi
has not opted for the provisions under section 115BAC. (6 Marks)
(Dec 21)
Ans: Computation of total income of Mr. Ravi for A.Y. 2024-25 under the regular provisions
of the Act
Particulars Amount Amount
(Rs.) (Rs.)
Income from house property
Gross Annual Value
- Expected rent Rs. 29,80,000 [Higher of Municipal Value
of Rs. 27,00,000 p.a. and Fair Rent of Rs. 30,00,000 p.a., but
restricted to Standard Rent of Rs. 29,80,000 p.a.]
- Actual rent Rs. 29,40,000 [Rs. 30,00,000, being annual rent
for house property less rent of Rs. 60,000 (Rs. 2,40,000
x 4/12 x 3/4) due to vacancy]
INCOME FROM HP 83
Gross Annual Value 29,40,000
In this case, the actual rent is lower than the expected rent due
to vacancy. Otherwise, the actual rent of Rs. 30,00,000 would
have been higher than the expected rent. In such a case, the
actual rent would be the gross annual value, even if it is lower
than the expected rent.
Less: Municipal taxes actually paid during the year: [Rs. 4,75,000
4,00,000 – rebate of Rs.40,000] = Rs.3,60,000
[Rs.1,40,000 arrears – Rs.25,000 interest] = Rs.1,15,000
Net Annual Value 24,65,000 17,25,500
Less: Deduction from Net Annual Value
30% of Net Annual Value 7,39,500
Income from Other Sources/Profits and gains from business
or profession
Rent for amenities 10,00,000
Less: Loss due to vacancy
[Rs.2,40,000 x 4/12 x ¼] 20,000
9,80,000
Less: Expenditure in respect thereof
- Lift maintenance expenses [excluding cash 2,10,000
payment of Rs. 30,000 disallowed]
= Rs. 2,40,000 – Rs. 30,000
- Salary to staff [Rs.88,000 x1/4, being the 22,000
proportion pertaining to amenities] 2,32,000 7,48,000
Total Income 24,73,500

INCOME FROM HP 84
 PROFITS AND GAINS OF BUSINESS OR PROFESSION

Question 1:
M/s. Loshini Ltd. purchased a machinery worth Rs. 25,00,000 on 01.08.2023 out of which Rs.
10,00,000 was financed through a loan from NBFC. The company borrowed the loan on
30.04.2023 at the rate of 12% p.a. specifically for the purpose of purchasing the machinery.
The purchase consideration was settled in installment as follows:
Date of payment Mode of payment Amount
17. 07.2023 ECS 17,00,000
31.07.2023 Crossed cheque 5,50,000
15.08.2023 Cash 2,50,000
You are asked to arrive at the value of the machinery as per the Income Tax Act.

Ans: Computation of actual cost

Particulars Amount (Rs.)
Cost of purchase of asset 25,00,000
Add: Interest on loan borrowed for acquiring the asset, payable up to
the date on which the asset is first put to use – Sec. 36(1)(iii) 30,000
(10,00,000*12%*3/12)
25,30,000
Less: Sum paid through cash and crossed cheque 8,00,000
Actual cost 17,30,000
Note: Crossed cheque and cash are not specified modes of payment as per the Proviso to Sec.
43(1) and thus reduced to determine the actual cost of machinery.

Question 2:
GEA India Ltd., manufacturers of equipment's for power projects as EPC Contractor furnish
the following information as on 31.03.2023:
Particulars Rs.
W.D.V of Plant & Machinery as on 01.04.2023 10 Crores
Additions made to Plant & Machinery during 2023-24
2 Crores
(Out of this assets put to use for more than 180 days is Rs. 1.5 crores)
Compute the depreciation admissible for the AY 2024-25. (Optional Tax Scheme for 2024-25)
Ans: Computation of Depreciation admissible to GEA India Ltd. AY 2023-24
Rs. (in Rs. (in
Particulars
crores) crores)
Depreciation on opening WD.V (Rs. 10 crores X 15%) 1.5
Add: Normal depreciation:
- put to use for 180 days or more (Rs. 1.5 cr. X 15%) 0.225
- put to use for less than 180 days (Rs. 0.5 cr. X 7,5%) 0.038 0.263
Add: additional depreciation
PPPGBP 85
 -put to use for less than 180 days (Rs. 1.5 er. X 20%) 0.300
-put to use for less than 180 days (Rs. 0.5 er. X 10%) 0.050 0.35
Total Depreciation admissible for AY 2023-24 2.113
Note: It may be noted that the balance of additional depreciation Rs. 0.050 crore shall be
allowed for the AY 2025-26. Default Scheme - 1.763 crores.

Question 3:
A Ltd., engaged in the business of generation and distribution of power has claimed
depreciation on Straight Line Method for Income-tax purposes. You are informed that a second-
hand Diesel Electric and Gas Plant was acquired for Rs. 60,00,000 on 01.04.2021 and
depreciation at 8.24% was claimed for 2 years on Straight Line Method. Assuming that the said
Plant is sold for a consideration of (i) Rs. 36,00,000; or (ii) Rs. 55,00,000; or (iii) Rs. 62,00,000
during the previous year 2023-24 examine the treatment under tax law.
Ans: Depreciation claimed as on 01.04.2023= (Rs. 60,00,000 X 8.24% X 2) - Rs. 9,88,800. i)
i) Sale price Rs. 36,00,000: The actual cost of the plant is Rs. 60,00,000. The
depreciation claimed is Rs. 9,88,800 and consequently, the depreciated value after 2
years is Rs. 50,11,200. The sale consideration of Rs. 36,00,000 being less than the
depreciated value, the short fall of Rs. 14,11,200 shall be allowed to be written off
This is normally known as Terminal Depreciation,
ii) Sale price Rs. 55,00,000: The sale consideration of Rs. 55,00,000 is more than the
depreciated value of Rs. 50,11,200 but not more than the actual cost of Rs. 60,00,000.
Therefore, the surplus of Rs. 4,88,800 shall be assessed to tax u/s. 41(2) as Balancing
Charge.
iii) Sale price Rs. 62,00,000: The sale consideration of Rs. 62,00,000 is not only more
than the depreciated value of Rs. 50,11,200 but also more than the actual cost of Rs.
60,00,000. Therefore, the surplus of Rs. 9,88,800 (Rs. 60,00,000 Jess Rs. 50,11,200)
shall be assessed to tax u/s, 41(2) as balancing charge under the head "Profits and
gains of business or professions and the remaining surplus of Rs. 2,00,000 (Rs.
62,00,000 --Rs. 60,00,000) shall be assessed to tax as Short-term capital gains.

Question 4:
MCA Ltd derived a net profit of Rs.5,00,000 for the year ended 31.03.2024 before debiting
capital expenses of Rs.10 Lakhs and Rs.6 Lakhs of revenue expenses relating to in-house
scientific research. Advise the company on treatment of losses.

Ans:
Particulars Rs. In lakhs
Net profit 5
Less: Revenue expenses on scientific research 6
Business loss – covered u/s 72- refer to Chapter set off of losses (1)
Capital Expenses of Rs.10 lakhs incurred for in-house scientific research which is unabsorbed
shall be carried forward for indefinite period for set off. The treatment shall be similar to that of
unabsorbed depreciation u/s. 32(2).

PPPGBP 86
 Question 5:
The assessee company claimed the following expenditure u/s. 35 for the AY 2024-25 Comment
on the allow ability of deductions.
i. Zeal & Co donated an amount of Rs. 5,00,000 to Kenith University approved by the
Central Government uls.35. The university undertakes detailed statistical survey in the
state of Maharashtra. Is Zeal & Co entitled to any deduction u/s. 35?

Ans: U/s. 35 any contribution made to an Approved university or college or educational

institution which undertakes statistical survey is eligible for a deduction of 100% of the
contribution made which is Rs. 5,00,000.

ii. Will the answer to (i) above differ in case Kenith University undertakes scientific
research notified by the Central Government,

Ans: Any contribution to scientific research shall be entitled to a deduction of 100%.

Accordingly, Rs. 5,00,000 shall be allowed as deduction.
iii. Will & Sons, a partnership firm contributes an amount of Rs. 20,000 for scientific
research to Killer Ltd. having its main objects as scientific research approved by the
prescribed authority u/s. 35.
Ans: Contribution to a company which is engaged in scientific research activities shall
be entitled to a deduction of 100%. In the given case, Rs. 20,000 shall be allowed as
deduction u/s.35.

iv. Donation of Rs. 2.5 lakhs to an approved research association carrying on social science
research unconnected with the company's business and Rs. 3 lakhs to recognised
University for statistical research unconnected to the business. Whether the claims are
sustainable?
Ans: Yes, the claims are sustainable. Contributions made as indicated above qualify for
deduction of 100% even if the research carried on is unconnected to assessee's business.
Assessee can claim Rs. 2,50,000 and Rs. 3,00,000 as deduction respectively u/s. 35.

Question 6:
Priyanka engaged in the business of building and operating new hotel had purchased plant &
machinery on 01.07.2020 and claimed deduction us. 35AD of Rs.10,00,000 in the AY 2021-22
in respect of investment in plant & machinery, During FY 2023-24 the said machinery is
deployed for activities other than the hotel business. Compute the deemed income chargeable to
profits and gains of business or profession as per Sec.35AD and the actual cost of the machinery
u./s.43(1) for AY 2024-25.

Ans: Priyanka had claimed deduction of Rs.10 Lakhs in AY 2021-22. Since the asset was used
for other than specified business in FY 2023-24, the deduction previously claimed u/s. 35AD
as reduced by the notional depreciation from AY 2021-22 till AY 2023-24 shall be deemed to
be the income chargeable under the head Profits or gains of business or profession

for AY 2024-25.
PPPGBP 87
 In a case where there is a violation on usage of the asset in respect of which deduction u/s.35AD
was availed, the actual cost of the asset for the purpose of depreciation shall undergo a change
in accordance with Explanation 13 to Sec.43(1).
The actual cost of the machinery for AY 2024-25 and the deemed income chargeable shall be
as follows
Particulars Amount Amount
Rs Rs.
Amount of deduction claimed u/s. 35AD in AY 2021-22 10,00,000
Less: Notional depreciation for:
(i) AY 2021. 22 (10,00.000 X 15%) 1,50,000
(ii) AY 2022-23 (WDV -8,50,000 X 15%) 1,27,500
(iii)AY 2023-24 (WDV - 7.22,500 X 15%) 1,08,375 3,85,875
Income chargeable under the head Profits and gains of business 6,14,125
or profession as per Sec.35AD
Cost of acquisition for AY 2024-25 6,14,125
Students may note that for the purpose of charging depreciation u/s.32, Rs.6,14,125 shall be the
actual cost for AY 2024-25.

Question 7:
Anirudh Ltd. is an Indian company which undertakes extension of its existing undertaking. It
incurs the following expenditure in respect of such extension during AY 2024-25. Legal
Expense - Rs. 5,00,000; Preparation of feasibility report - Rs. 3,00,000; Survey Expenses - Rs.
1,00,000.
The following additional data is made available: Cost of the project - Rs. 36,00,000; Share
capital- Rs. 20 Lakhs, Debenture - Rs. 10 Lakhs; Long term borrowings Rs. 20 Lakhs. Compute
the deduction u/s. 35D for AY 2024-25.

Ans: Computation of permissible deduction u/s. 35D AY 2024-25

Particulars Rs.
(a)Actual expense incurred 9,00,000
(b)(i) 5% of cost of project (36 lakhs x 5%) 1,80,000
(ii) 5% of capital employed (50 lakhs x 5%) 2,50,000
(c)Higher of (i) and (ii) in b 2,50,000
Amount eligible for amortization -- Least of (a) or (c) 2,50,000
Deduction for AY 2024-25 1/5 of the qualifying amount = 1/5 x 2,50,000 Rs. 50,000. The
balance 2,00,000 will be allowed in four subsequent Assessment Years
Question 8:
M/s. A company, pays VRS compensation of Rs. 10 lakhs for 2 of its employees during the
FY 2023-24. Compute the deduction allowable for AY 2024-25.
Ans: Deduction allowable u/s. 35DDA will be Rs. 2 lakhs (Rs. 10 lakhs/ 5 years). The balance
of Rs. 8 lakhs will be claimed deduction in equal installments (Rs. 2 lakhs) in each of the four
succeeding assessment years.
PPPGBP 88
 Question 9:
M/s. X Ltd. purchased a machinery on 01.04.2023 for Rs. 10 Cr. by availing 80% loan facility
from Bank. This machinery was put to use on 01.01.2024 into effective production. The interest
on loan works out to 10% p.a. Advise X Ltd. on the treatment of interest payments made on this
loan.
Ans: AY 2024-25
Sl no Particulars
Actual date of purchase of asset 01.04.2023
Actual date of put to use of asset 01.012024
No. of months for which the asset was not put to use 9 months
Total interest for the year (Rs.10 crores*80%*10%p.a) Rs.80 Lakhs
Interest to be Capitalized with the asset cost Rs. 60 Lakhs
(Rs.80 Lakhs*9m/12)- As per proviso to Sec.36(1)(iii)
Interest to be claimed as deduction-u/s 36(1)(iii) Rs.20 Lakhs
Thus, the cost of asset will be 10.60 Crs. (10Cr+60 Lakhs)

Question 10:
Mr. X made a credit sale to Mr. Y for Rs. 25,000 on 05.08.2021. On 01.03.2022, Rs.12,000
was written off in the books as bad debts. On demise of Mr. Y, Mr. X was able to recover only
Rs.10,000 towards the final settlement on 10.10.2023. Compute the amount of bad debts
allowable.
Ans: As per Sec. 36 the extent to which the final settlement falls short of the difference between
the debt and deduction allowed can be claimed as deduction Accordingly, the bad debt allowed
for AY 2024-25 is as follows:
[Link] Particulars Ref Amount
a. Amount of debt 25,000
b. Bad Debt written off 12,000
c. Debt due [Difference between (a) and (b)] 13,000
d. Final settlement 10,000
[Bad debt allowable (c ) - (d)] 3,000

Question 11:
Mr. Yusuf 'anticipated Rs. 10 lakhs as irrecoverable from his debtors. During financial year
2023- 24, he created a provision for bad and doubtful debts for Rs. 10 lakhs and charged the
same in his Profit & Loss Account Advise him on the deductibility of the same.

Ans: According to section 36 bad debts is an admissible deduction against income from
business. Apart from Satisfying the other conditions the debt should have been written off in
the books of assessee. Merely by creating a provision for bad and doubtful debts, an assessee
cannot claim deduction. Therefore, in the given case Mr. Yusuf is not eligible for deduction, as
the amount considered as irrecoverable is not written off in the books of account.
Question 12:
PPPGBP 89
 Mr. Aashish has incurred an expenditure of Rs. 1,00,000 for the P.Y.2023-24 which is subject
to TDS. The due date for filing return of income is 31st July 2024 u/s. 139(1). The following
table analyze the different situations and the applicability of disallowance:
Date of Date of Remarks
Deduction Remittance
23.02.2024 05.03.2024 Tax is deducted and remitted within the relevant previous
year. Therefore, allowed as deduction
18.03.2024 05.05.2024 Tax deducted in the previous year and remitted within Sec.
139(1)-time limit. Therefore, allowed as deduction
18.03.2024 05.12.2024 Tax is deducted in the previous year but not remitted within
Sec.139(1) time limit. Hence, only 70% of the expenditure
is allowed as deduction in the AY 2024-25 & remaining
30% is allowed as deduction only in the year of remittance
AY 2025-26.
05.04.2024 30.04.2024 Tax is deducted and remitted only in the previous year
2024-25. Hence, 70% of the expenditure is allowed as
deduction in the AY 2024-25 and remaining 30% will be
allowed as deduction in the AY 2025-26
Not Not Since Tax is not deducted only 70% of the amount will be
Deducted Remitted allowed as deduction during AY 2024-25 and remaining
30% will be allowed as deduction in the year of remittance,

Question 13:
Sahini & co paid audit fee of Rs.1,00,000 for the year ended 31st March 2024 to MAC
Chartered Accountants without deduction of tax at source. While computing the taxable
income no disallowance was made u/s. 40(a)(ia) on the contention that entire sum was remitted
to the payee. Is it correct? Would your answer differ if Sahini & co did not remit the fee and the
same was held as payable in the books of account as on 31st March 2024.

Ans: Disallowance u/s. 40(a)(ia) shall be made to the extent of 30% of the sum which is subject
to tax deduction. The violation could be in the nature of non-deduction or non -payment within
the prescribed time. Once the liability to TDS arise, it is immaterial whether the sum is paid or
payable in the books of the payer. Accordingly, in the given case Sahini & co shall be subject
to disallowance for a sum of Rs.30,000 (1,00,000x30%) u/s. 40(a)(ia). This position does not
alter even in a case where the audit fee is payable in the books of Sahini & co.

Question 14:
M/s. Matrix Pvt. Ltd., furnishes the details of the following expenditure incurred during the year
2023-24:
Nature of payment Rs. Details of tax deduction
a. Contract payment 2,40,000 Tax not deducted at source
b. Salary to a resident 7,00,000 Tax not deducted at source
PPPGBP 90
 c. Rent 10,00,000 Tax deducted at source on 31.12.2023.
Actual remittance made on 28.09.2024
d. Interest 2,00.000 Tax deducted only on 01.04.2024 and
remitted on 07.04.2024
5,00,000 Liability towards this expense was
e. Professional charges accounted inthe books on 31.03.2024 and
TDS was remitted on 18.11.2024.
f. Non-compete fee 10.00,000 Tax not deducted at source
Advise the company on the allowability of the above expenses for the AY 2024-25.

Ans: According to Sec. 40(a)(ia), where tax has not been deducted or the amount of tax
deducted has not been remitted to the credit of Central Government as per the provisions of
Tax Deduction at Source, then, 30% of such expenditure shall be disallowed while computing
income under the head "Profits and gains from business or profession" Accordingly, in respect
of various situations given in question, the following shall be the consequences u/s. 40(a)(ia);
Nature of
S no Compliance/Violation Tax Consequences
payment
Tax not deducted at Rs. 72,000 shall be disallowed (
i) Contract payment
source 2,40,000*30%)
Tax not deducted at Rs.2,10,000 shall be disallowed.
ii) Salary to a resident
source (7,00,000*30%)
The assessee has remitted the
amount of TDS on 28.09.2024
which is within the time limit for
TDS remitted within
iii) Rent filing return of income i.e.,
stipulated time limit
31.10.2024. Accordingly, no
disallowance of expenditure u/s.
40(a)(ia) is warranted.
Tax not deducted at Rs. 60,000 shall be disallowed in
source during the AY 2024-25. However, same
iv) Interest
financial year shall be allowed as a deduction in
AY 2025-26. (2,00,000*30%).
Rs.1,50,000 shall be disallowed in
AY 2024-25 since it is not
remitted within time limit
Professional Delay in remittance of
v) stipulated u/s. 139(1). However,
charges TDS
the same shall be allowed as a
deduction in AY 2025-26 (Rs.
5,00,000*30%).
vi) Non-compete fee Tax not deducted at Rs.3,00,000 shall be disallowed

PPPGBP 91
 source (Rs.10,00,000*30%).

Question 15:
XYZ Lid. furnishes the following information based on the e-TDS returns in connection with
tax deduction at source for the year ended 31st March, 2024:
i. Rent for office building paid to landlord, Mr. Agarwal amounting to Rs. 2,50,000 was
paid on 07.01.2024 and tax was not deducted on the payment made;
ii. TDS on salary payments to residents and non-residents amounting to Rs. 5,00,000 and Rs.
10,00,000 not made;
iii. Audit fee of Rs. 1,00,000 has been credited to the account of CWP Co., of Chartered
Accountants on 31.12.2023. TDS of Rs. 2,500 was remitted on 03.01.2024:
iv. Payment made on 30.01.2023 to Taj India Ltd amounting to Rs. 5,00,000 on catering
contract for employees get together. Tax of Rs. 10,000 was deducted and remitted on
07.02.2024;
v. Interest borrowed from sister concern, Sujatha Publications Pvt. Ltd. amounting Rs.
10,00,000 was credited on 31.12.2023. TDS of Rs. 1,00,000 was remitted on 03.01.2024 in
the name of the payee.
Assuming that the assessee is deemed to be in default us. 201(1), with the above information,
advice on the amount of disallowance u/s. 40(a)(ia) for the AY 2024-25
Ans: According to Sec. 40(a)(ia), where tax has not been deducted in the previous year or the
amount of tax deducted has not been remitted to the credit of Central Government on or before
the due date specified u/s. 139(1), then, 30% of such expenditure shall be disallowed while
computing income under the head "Profits and Gains of Business or Profession". Accordingly,
in respect of various situations given in question, the following shall be the consequences
40(a)(ia):
[Link] Nature of Payment Compliance/Violation Tax Consequences
Rent for office Tax not deducted at Rs. 75,000 shall be disallowed
(i)
building source (2,50,000*30%)
Salary to residents is covered u/s.
40(a)(ia) and consequently, 30% of
the expenditure being Rs. 1,50,000
Salary to residents Tax not deducted at
(ii) disallowed (Rs. 5,00,000 x 30%)
and non- residents source
Salary to non-residents is covered
u/s.40(a)(i) and the entire expense of
Rs.10,00,000 is disallowed.
Assessee is liable to deduct tax 10%
u/s. 194J. Since 75% of the TDS
(iii) Audit fee Short deduction of tax amount has not been deducted, Rs.
22,500 shall be disallowed (Rs.
1,00,000 x 75% X 30%)

PPPGBP 92
 Allowed. Since Rs. 10,000 being 2%
(iv) Contract payments Tax deducted at source of Rs. 5,00,000 has been properly
deducted and remitted,
Allowed. Since Rs. 1,00,000 (10% of
(v) Interest on loan Tax deducted at source Rs. 10,00,000) has been properly
deducted and remitted

Question 16:
AB & Co., a partnership firm was formed in the A.Y. 2024-25 through a partnership deed dated
01.04.2023. Ms. Rithika, one of the working partners of the firm was paid a salary of Rs.20
lakhs which included bonus of Rs. 2 lakhs for the services rendered by her prior to the formation
of the firm. Comment on the deductibility of the salary paid in the bands of AB & Co. for the
A.Y.2024-25

Ans: As per Sec.40(b), any salary, bonus, commission or remuneration paid to a working
partner will be allowed as deduction provided the same is authorized by the partnership deed
and the same pertains to a period falling after the partnership deed date. In this case, Ms. Rithika
is a working partner of AB & Co. and it is assumed that salary payment is authorized by the
partnership deed. The amount of Rs. 18 lakhs will be allowed as expense in the hands of AB &
Co. for the A.Y. 2024-25 Rs.2 lakhs relating to bonus pertains to a period prior to the date of
deed and hence the same is disallowed in the hands of AB & Co.

Question 17:
X & Co., a partnership firm as such, furnishes the following Profit and Loss Account for the
previous year ending 31st March, 2024:
Particulars Rs. Particulars Rs.
TO Cost of Goods 2,80,000 By Sales 2,92,000
To Other Expenses 91,000 By Net Loss 1,72,000
To Interest to Partners 25,000
To Remuneration to Partners 68,000
4,64,000 4,64,000
The other expenses debited include Rs. 13,600 not allowable u/s. 37(1) of the Act. Interest to
partners in excess by Rs. 7.100 (not statutorily allowable). You are required to compute for the
AY 2024-25.
(i) Book profits of the firm.
(ii) Permissible remuneration to partners u/s. 40(b)(ii).

Ans: Computation of book profits of X &Co

Particulars Rs. Rs.
i) Net Loss as per profit and loss account (1,72,000)
Add: Inadmissible expenses
a) other expenses 13,600
b) Interest to partners 7,100
PPPGBP 93
 c) Remuneration to partners 88,700 Book profit/(loss) 68,000 88,700
(83,300)
Less: Admissible remuneration to partners (Refer Note-(ii)) 68,000
Loss of the Firm/ Book Profit (1,51,300)
(ii) Remuneration as per books is Rs. 68,000. Thus, the lower of Rs. 68,000 or Rs. 1,50,000
shall be allowed, in case of a loss, as per Sec.40(b)(ii)

Question 18:
Muthu Pvt. Ltd. provides the following information for the AY 2024-25:
a. Payment in cash for a bill amounting to Rs. 1 lakh on a single day for carriage.
b. Payment in cash on 01.04.2023 Rs. 9,000 and on 01.01.2024 Rs. 81,000 towards one single
bill.
c. Payment in cash on 01.10.2023, a sum of Rs. 1,00.000 for different bills each Rs. 7,500
to a single creditor.
d. Payment of Rs. 32,500 is made in cash to Anandhi Transport Agencies on 05.10.2023
towards lease charges for goods carriage
e. An amount of Rs. 35,000 stood as audit fees payable, claimed on accrual basis for the AY
2022-23 was paid through crossed cheque during the current previous year.
f. Purchase of scrap amounting to Rs.60,000 on 26.12.2023 and the payment was made by
crossed cheque Rs.20,000 and Rs. 25,000 by electronic clearing system (ECS) through bank
and the balance Rs. 15,000 by cash on the same day in two payment vouchers of Rs.7.500
each.
Discuss the allowability of the above payments in the hands of Muthu Pvt. Lid. assuming
none of the above payments are covered under Rule 6DD.
Ans:
a. Rs. 1 lakh shall be disallowed u/s. 40A(3) as the payment was made in cash which is in
excess of Rs. 10,000/
b. Rs. 81,000 shall be disallowed. Since Rs. 9,000, paid on 01.04.2023, is below the
specified limit u/s. 40A(3), the same shall not be disallowed.
c. The entire amount of Rs. 1,00,000 is disallowed as Sec. 40A (3) disallows if a payment
made to a person in a day, otherwise than by way of specified mode exceeds Rs. 10,000.
d. The amount paid of Rs. 32,500 to Anandhi Transport Agencies shall not be disallowed
as the payment made to the goods carriage does not exceed Rs. 35,000.
e. The entire amount is deemed to be the business income in the AY 2024-25 as the
payment, for which the deduction was allowed on accrual basis in AY 2022-23, was
made otherwise than by way of specified mode.
f. Payment made by way of ECS Rs.25,000 shall be allowed as deduction. Whereas
Rs.35,000 made on a single day otherwise than by specified mode shall be disallowed
for the reason that Rs.20,000 is paid by way of crossed cheque and Rs.15.000 by way
of cash.

Question 19:

PPPGBP 94
During the previous year 2023-24 the assessee incurred the following business expenditure in
respect of which the payment was made in cash in a single day:
(i) Rs. 3 lakhs towards freight to Railways;
(ii) Rs. 2 lakhs towards purchase of agricultural produce; and (iii)Rs. 62,000 towards
consultancy services rendered by technician. Advice whether the above are admissible.

Ans: - (i) & (ii) deductible: (iii) Rs. 62,000 is to be disallowed as it is not covered by any of
the exceptions specified under Rule 6DD.

Question 20:
a) An assessee has incurred an expenditure of Rs. 50,000 for purchase of raw material from
Mr. Pawar. He makes separate payments of Rs. 9,000, Rs. 22,000 and Rs. 19,000 all by
cash in a single day. Advice whether the above are admissible.
b) Would your answer be different if the separate payment is made to Mr. Pawar, Ms.
Mamta & Mr. Navin respectively?
Ans:
a) The aggregate payment made to a person by cash in a day exceeds Rs. 10,000 and thus
entire sum of Rs. 50,000 shall be disallowed.

b) The amount paid to Mr. Pawar shall be fully allowed aggregate of payments made Mr.
Pawar does not exceed the limit of Rs. 10,000. However, the amount paid to Ms. Mamta
and Mr. Navin shall be fully disallowed as aggregate of payments made to Each person
in a day exceeds the limit of Rs. 10.000.
Question 21:
Mr. Deena furnishes the following information for the year ending 31st March 2024:
a. Audit fee of Rs. 35,000 paid by bearer cheque.
b. Purchase of raw material amounting to Rs. 50,000 paid by crossed cheque,
c. Payment made for purchase of stationery by crossed account payee cheque amounting to
Rs. 75,000.

Ans: Applicability of Sec. 40A(3)

Sl Nature of
Compliance/Violation
no Payment
Payment made more than Rs. 10,000 otherwise than by
an Account payee cheque or any other specified mode
a Audit fee will be disallowed u/s.40A(3). Therefore, entire sum of
Rs. 35,000 paid by way of bearer cheque will be
disallowed.
Payment made more than Rs. 10,000 otherwise than by
an Account payee cheque or any other specified mode
b Raw material
will be disallowed u/s. 40A(3). Therefore, entire sum of
Rs. 50,000 paid by way of crossed cheque will be
PPPGBP 95
 disallowed.

Payment has been made by crossed account payee

c Stationery cheque hence the entire sum of Rs. 75,000 will be
allowed as deduction for purchase of agriculture income.

Question 22:
Ms. Apoorva, who maintains books of account on accrual system of accounting, debited the
following expenses in the Profit and Loss Account for the previous year 2023-24 (Due date for
filing return of income is 31st July). An analysis of Sec. 43B is made hereunder in respect of
certain situations:
Accrued and
accounted Date of
in the payme Description Amount Treatment under section 43B
books on nt
50,000 Though the expenses pertain to
P.Y. 2023-24, the same was
actually paid after due date of
filing of return of income and
accordingly would have been
Goods & disallowed u/s. 43B for the
01.03.2024 14.09.2024
service Tax A.Y.2024 -25. In the year of
actual payment, being the P.Y.
2024-25 relevant to AY, 2025-26
the same shall be allowed as
deduction.
Interest on 2,50,000 Such interest expense is
loan disallowed u/s. 43B in the
received A.Y.2024-25 as it was not paid on
from a or before the due date for filing of
31.03.2024 30.09.2024
Deposit return of income of such
taking assessment year. But it can be
NBFC claimed in the previous year of
actual payment i.e. A.Y.2025-26
Employer's 1,20,000 Eligible for deduction for the P.
contributio Y. 2023-24 as the 1,20,000
01.03.2024 30.07.24 n to expenditure is actually paid
provident before the due date of filing of
fund return of income.

PPPGBP 96
 Fee for 2,50,000 For the P.Y. 2023-24, the payment
use of made to railway shall be treated as
railway advance and not an expenditure
10.04.2024 25.03.2024 asset 2,50,000 | since the same is accrued
only on 10.04.2024 For the
P.Y.2024-25 the same shall be
allowed as deduction

Question 23:
Mr. Gautam, a businessman, paid sales tax of Rs. 1,50,000 in FY 2015-16 and the entire
amount was allowed as deduction. In October 2014, he died and the business was continued to
be carried on by his wife Ms. Suchitra. In April 2023, she is refunded Rs. 60,000 by the
Commercial taxes department being the excess of Sales tax paid by her husband. Assessing
Officer wants to treat the amounts as taxable. Is he correct in doing so?

Ans: Yes. The Assessing Officer is correct in treating the sum of Rs. 60.000 as taxable income
in the case of Ms. Suchitra as the provisions of Sec. 41(1) apply even to the successor of the
business. She cannot contest that she didn't avail the deduction earlier. Even if the predecessor
availed deduction for an expenditure and the successor of the business receives refund, the
amount so received is deemed as income.
Question 24:
M/s. Ram Ltd. purchased an asset worth USS 1 million from Germany. The asset was delivered
in India on 01.07.2023. The sum was paid in 4 equal installments, each falling due on a 6
months interval starting from the date on which the asset was delivered in India. The exchange
rates prevailing on each of the installments are Rs. 63.56, Rs. 63.89, Rs. 64.01 and Rs. 63.15
respectively. The asset was put to use on 10.10.2023. Compute the cost of asset and the
depreciation allowable for AY 2024-25 and AY 2025-26.

Ans: Computation of cost of asset and depreciation allowable of M/s Ram Ltd. AY2024-25
Particulars Rs.
Purchase cost --- US$ 1 Million x Rs. 63.56 6,35,60,000
Add: Forex variation (US$ 0.25 M x (Rs. 63.89- Rs. 63.56)) on 82,500
payment made on 01.01.24
6,36,42,500
Less: Depreciation (less than 180 days) - (Rs. 6, 36, 42,500 x 15% x 1,11,37,438
50%) + (Rs. 6, 36, 42,500 x 20%' x 50%) (less than 180 days) (Refer
note.)
WDV as on 01.04.2024 5,25,05,062

Computation of cost of asset and depreciation allowable of M/s Ram Ltd. AY2025-26
Particulars Rs.
Opening WDV as on 01.04.2024 5,25,05,0621

PPPGBP 97
 Add: Forex variation Payment on 01.07.2024 - (US$ 0.25 M x
1,12 500
(Rs. 64.01- Rs. 63.56))
5,26,17,562
Less: Forex variation Payment on 01.01.2024- (1.35$ 0.25 M x
1,02,500
(Rs. 63.15- Rs. 63.56))
5,25,15,062
Less: Depreciation (entire year)- (Rs. 5,25,15,062 x 15%) +
1,42,41.502
(6,36,42,500 x 20% x 50%)
WDV as on 01.04.2025 3,82,73,553

Question 25:
From the following situations, where land is held as stock in trade, examine the applicability
of Sec. 43CA and the amount of full value of consideration:
i. The Stamp Duty Value (SDV) is Rs. 100 Lakhs and the sale price is Rs. 70 Lakhs;
ii. Sale agreement is entered into for Rs. 200 Lakhs on 12.12.2023. SDV as on that date
is Rs. 220 Lakhs. Advance of Rs. 20 Lakhs was received on 12.12.2023 by way of
A/c payee cheque. Sales Deed was registered on 01.02.2024 and the SDV as on that
date is Rs. 300 Lakhs;
iii. Sale agreement is entered into for Rs. 500 Lakhs on 10.09.2023. SDV as on that date
is Rs. 500 Lakhs. Advance of Rs. 50 Lakhs was received on 12.12.2023 by way of
A/c payee cheque. Sale Deed was registered on 30.03.2024 and the SDV as on that
date is Rs. 800 Lakhs.
iv. Sale agreement is entered into for Rs.250 Lakhs on 15.05.2022. SDV as on that date
is Rs.300 Lakhs. Advance of Rs.50 Lakhs was received on the same date by crossed
cheque. Sale deed was entered into on 14.06.2023 and the stamp duty value on that
date was Rs.380 Lakhs.
v. Sale agreement was entered into for Rs.500 Lakhs on 21.01.2024. Sale deed was also
executed on the same day on which the SDV was Rs. 552 Lakhs.

Ans:
i) Full value of consideration shall be adopted as Rs.100 lakhs, as the 110% of sale
consideration of stock is Rs.77 lakhs which is less than the stamp duty value of Rs.100
Lakhs.
ii) Where any sum is received on or before the date of agreement for transfer of the asset
by way of account payee cheque or account payee bank draft or through use of ECS,
SDV as on the date of agreement shall be considered as full value for the purpose of
Sec. 43CA. In the given case, full value of consideration to be adopted is Rs. 200 Lakhs
(as SDV does not exceed 110% of the actual consideration).
iii) As the advance in connection with sale was received subsequent to the date of sale
agreement, the benefit of SDV as on the date of sale agreement cannot be availed.
Accordingly, higher of sale price agreed (Rs. 500 Lakhs) or SDV as on the date of
registration (Rs. 800 Lakhs) shall be adopted as full values of consideration. In the given
case, Rs. 800 Lakhs shall be adopted for the purpose of Sec. 43CA (as 110% of the
actual consideration is less than SDV).
iv) Where any sum is received on or before the date of sale agreement by way of account
PPPGBP 98
 payee cheque or account payee bank draft or through use of ECS or any other prescribed
mode, SDV as on the date of agreement shall be considered as full value of consideration
for the purpose of Sec.43CA. In the given case as the advance is not received in specified
modes, full value of consideration to be adopted is Rs.380 Lakhs (as 110% of the actual
consideration is less than SDV).
v) Where SDV exceed 110% of actual consideration, then SDV shall be taken as the full
value of consideration. Accordingly, in the given, case Rs.552 Lakhs shall be taken as
the full value of consideration (Rs.500 Lakhs * 110%).
Question 26:
Jamuna furnishes the following information for the year ended 31st March 2024
a. Sales includes a sum of Rs. 10 lakhs received by way of crossed cheque on 31st March
2024;
b. A sum of Rs. 20 lakhs included in sales was received by way of account payee cheque on
10.04.2024;
c. Rs. 30 lakhs representing sales was received by ECS through bank on 10.11.2024;
d. Rs. 15 lakhs accounted as sales on 15.07.2023 was realized on the same day by way of
cash;
e. Rs. 25 lakhs being sales made on 31.03.2024 and the proceeds was realized in cash on
20.07.2024;
f. A sum of Rs. 18 lakhs accounted as sales on 01.01.2024 was received by ECS on the
same day.
g. A sum of Rs. 10 lakhs were accounted as sales and the customer demised before making
the payment and the debt becomes bad.
Assuming all the conditions of Sec.44AD is satisfied, compute the income chargeable under
the head Profits and gains of business or profession, specifying the applicability of 8% or 6%,
as the case may be. (Due date for filing of return of income by Jamuna is 31.07.2024).
Would your answer differ if Jamuna made one more sale of Rs.80 lakhs in addition to the
above by way of ECS?
Scenario Specified Amount Remarks
% (Rs.)
Higher % is applicable since the sales consideration was
a. 8% 80,000
not received in specified modes (Rs. 10 lakhs X 8%).
Though the amount is realised after 31.03.2024, lower %
is applicable since the proceeds are received before the
b. 6%) 1,20,000
due date of filing of return u/s. 139(1) in the specified
mode (Rs. 20 lakhs X 6%).
Sale proceeds though received in specified mode, it is
c. 8% 2.40,000 received beyond the due date for filing of return of
income thus, higher % shall apply (Rs. 30 lakhs X 8%),
Sale proceeds are realised otherwise than by specified
d. 8% 1,20,000
modes and thus higher shall apply (Rs. 15 lakhs x 8%).
As the sale proceeds are received in cash higher % shall
e. 8% 2,00,000 apply in respective of its date of receipt (Rs. 25 lakhs X
8%).

PPPGBP 99
 Since the sale proceeds is received in the specified mode
f. 6%). 1,08,000 and within the due date lower % shall apply (Rs. 18 lakhs
X 6%).
Non- realisation of sale proceeds shall warrant
application of higher % (Rs. 10 lakhs X 8%). Jamuna is
not entitled to claim Rs.10 lakhs as bad debt u/s. 36(1)
g. as the same is deemed to have been allowed while
8% 80,000 availing presumptive taxation u/s.44AD

Thus, the income chargeable under the head Profits or gains of business or profession amounts
to Rs. 9,48,000.
Special provisions of Sec. 44AD shall not apply to an assessee whose gross receipts or turnover
exceeds Rs.2 crores. In the given case, with the additional sale of Rs.80 lakhs the turnover for
the year ended 31.03.2024 is Rs.2.08 crores and thus, presumptive taxation is not applicable.
Accordingly, Jamuna shall maintain the books of account and compute the taxable income in
accordance with the normal provisions of the act.

PPPGBP 100
 CAPITAL GAIN

Question 1:
Rekha purchases a house property for ₹ 6,50,000 on 28.12.1998. She paid registration
fees of ₹ 65,000. The fair market value of the property as on 1st April, 2001 was ₹
7,25,000 and Stamp duty value was ₹ 7,50,000. She constructed first floor on 10.12.2009
and spent ₹ 3,70,000 on the said construction. On 15.12.2023, She sold this house for ₹
96,00,000. The expenses on transfer were ₹ 96,000. Compute his capital gain.
Answer:
COMPUTATION OF CAPITAL GAIN Ms. REKHA
Particulars ₹
Full Value of Consideration 96,00,000
Less: Expenses on Transfer 96,000
Net Sale Considetaion 95,04,000
Less: Indexed Cost of acquisition (7,25,000x348/100) 25,23,000
Less: Indexed Cost of Improvement
8,70,000
(3,70,000x348/148)
Long term Capital Gains 61,11,000

Question 2:
Mr. F sells a plot of land on 1-8-2023 for ₹ 30,00,000. He inherited the plot from his
father on 1-4-2004. His father had acquired the plot on 1-3-2001 for ₹ 30,000. His father
had incurred land development charges ₹ 10,000 on 31-3-2001 and ₹ 20,000 on 1-5-
2003. Mr. F had incurred land development charges ₹ 50,000 on 1-9-2007. The sale
stamp deed expenses were 1% of the selling price. The FMV of the plot as on 1-4-2001
was ₹ 29,000 and Stamp duty value was ₹ 29,500. Compute the capital gains.
Answer:
In case of property acquired in modes specified under section 49(1) (here, inheritance),
higher of cost to the previous owner or FMV as on 1-4-2001 will be taken. Further, FMV
should not exceeds SDV of property as on 1.4.2001. Cost of improvement incurred after
1-4-2001 by previous owner or the assessee, is deductible.
For determining long-term or short-term nature of land, the period of holding of Mr. F's
father will be included, as a result of which, the plot of land becomes long-term capital
asset for Mr. F.
For indexation purposes, CII of the year in which property was first held by the assessee
i.e., year of inheritance being 2004-05 will be taken as denominator.

CAPITAL GAIN 101

 COMPUTATION OF CAPITAL GAIN MR. F
Particulars Rs.
Full value of consideration 30,00,000
Less; Expenses on transfer being sale stamp deed expenses @ 1% of
30,000
30,00,000
Net consideration 29,70,000
Less: Indexed cost of acquisition (30,000x 348 ÷ 113) 92,389
Less: Cost of improvement incurred after 1-4-2001
Mr. F's father (20,000x348/109 63,853
Mr. F (50,000x348/129) 1,34,884
Taxable LTCG 26,78,874

Question 3:
Mr. Rakesh purchased a house property on 14th April, 1999 for ₹ 1,05,000. He entered
into an agreement with Mr. B for the sale of house on 15th September, 2005 and received
an advance of ₹ 25,000. However, since Mr. B did not remit the balance amount, Mr.
Rakesh forfeited the advance. Later on, he gifted the house property to his son Mr. A on
15th June, 2006. Following renovations were carried out by Mr. Rakesh and Mr. A to
the house property:
Particulars ₹
By Mr. Rakesh during FY 2000-01 10,000
By Mr. Rakesh during FY 2005-06 50,000
By Mr. A during FY 2008-09 1,90,000
The fair market value of the property as on 1.4.2001 is ₹ 1,50,000 and Stamp duty value
was ₹ 1,70,000. Mr. A entered into an agreement with Mr. C for sale of the house on 1st
June, 2010 and received an advance of ₹ 80,000. The said amount was forfeited by Mr.
A, since Mr. C could not fulfil the terms of the agreement. Finally, the house was sold
by Mr. A to Mr. Sanjay on 2nd January, 2024 for a consideration of ₹ 12,00,000.
Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment
year 2024-25.
Answer:
Computation of capital gains chargeable to tax in the hands of Mr. A
Particulars ₹
sales consideration ₹ 12,00,000
Less: Indexed cost of acquisition (Note 1) ₹ 1,99,672
Indexed cost of improvement (Note 2) ₹ 6,31,346
Long term capital Gain ₹ 3,68,982
Note 1

CAPITAL GAIN 102

Indexed cost of acquisition is determined as
under:
1. Cost to the previous owner i.e., Mr. Rakesh is ₹ 1,05,000
2. a) Fair Market Value on 1st April, 2001 is ₹ 1,50,000
b) (SDV as on 01/04/2001 is ₹ 1,70,000
Less: Advance money forfeited by Mr. A (as
per section 51) ₹ 80,000
(Note: Advance forfeited by Mr. Rakesh, the
previous owner, should, however, not be
deducted) Nil
Cost of acquisition ₹ 70,000
Indexed cost of acquisition (₹ 70,000 ×
348/122) ₹ 1,99,672

Alternative view: In the case of CIT v. Manjula J. Shah, the Bombay High Court held
that the indexed cost of acquisition in case of gifted asset can be computed with
reference to the year in which the previous owner first held the asset. As per this view,
the indexation cost of acquisition of house would be ₹ 2,43,600 taking Cost Inflation
Index of 100 for the F.Y. 2001-02 since F.M.V. as on 1st April, 2001 is taken as cost of
acquisition of Mr. A.

Note: Clause (ix) of Section 56(2) provides that the advance which is forfeited on
or after 01/04/2014 would be chargeable to tax under the head “Income from Other
sources” and hence, such forfeited amount shall not be reduced from the cost of
acquisition of the transferred capital asset. In the present case, the advance was
forfeited in a previous year prior to P.Y. 2014-15. Therefore, such amount
would be deductible from the cost of acquisition while determining the Capital
gains on transfer of such asset.

NOTE 2
Indexed cost of Improvement is determined as under: Nil
Expenditure incurred before 1st April, 2001 should not be
considered
Expenditure incurred on or after 1st April, 2001
During 2005-06 Indexed cost of Improvement 50,000x348/117) ₹ 1,48,718
During 2008-09 Indexed cost of Improvement
(1,90,000x348/137) ₹ 4,82,628
Total indexed cost of improvement ₹ 6,31,346

Question 4:

CAPITAL GAIN 103

M₹ X, an individual resident woman, wanted to know whether income-tax is attracted
on sale of gold and jewellery gifted to her by her parents on the occasion of her marriage
in the year 1979 which was purchased at a total cost of ₹ 2,00,000?
Answer:
The definition of capital asset under section 2(14) includes jewellery. Therefore, capital
gains is attracted on sale of jewellery, since jewellery is not excluded from personal
effects. The cost to the previous owner or the fair market value as on 1.4.2001,
whichever is more beneficial to the assessee, would be treated as the cost of acquisition.
Accordingly, in this case, long term capital gain @ 20% will be attracted in the year in
which the gold and jewellery is sold by M₹ X.

Question 5:
Ms. Chhaya transferred a vacant site to Ms. Dayama for ₹ 4,25,000. The stamp valuation
authority fixed the value of vacant site for stamp duty purpose at 6,00,000. The total
income of Chhaya and Dayama before considering the transfer of vacant site are ₹
50,000 and ₹ 2,05,000, respectively. The indexed cost of acquisition for Ms. Chhaya in
respect of vacant site is ₹ 4,00,000 (computed). Determine the total income of both Ms.
Chhaya and Ms. Dayama taking into account the above said transaction

Answer:
Transfer of immovable property for inadequate consideration will have following tax
implication in the hands of transferee under section 56(2)(x) as difference exceeds
higher of ₹ 50,000 or 10% of sales consideration. Therefore, in the hands of transferee,
i.e., Ms. Dayama, Income under the head IOS will be ₹ 1,75,000. Further, for the
transferor, Ms. Chhaya, the value adopted for stamp duty purpose will be taken as the
deemed sale consideration under section 50C for computation of capital gains.

Chhaya Dayama
Particulars
(Transferor) ₹ (Transferee) ₹
Capital gains
Deemed sale consideration under section 50C 6,00,000
Less: Indexed cost of acquisition 4,00,000
LTCG 2,00,000
Income from other sources
Difference between stamp duty value and sale
consideration of immovable property, taxable 1,75,000
under section 56(2)(x)
Other income (computed) 50,000 2,05,000
Total income 2,50,000 3,80,000

CAPITAL GAIN 104

Question 6:
Mr. Raj Kumar sold a house to his friend Mr. Dhuruv on 1 st November, 2023 for a
consideration of ₹ 25,00,000. The Sub-Registrar refused to register the document for the
said value, as according to him, stamp duty had to be paid on ₹ 45,00,000, which was
the Government guideline value. Mr. Raj Kumar preferred an appeal to the Revenue
Divisional Officer, who fixed the value of the house as ₹ 32,00,000 (₹ 22,00,000 for
land and the balance for building portion). The differential stamp duty was paid,
accepting the said value determined. Assuming that the fair market value is ₹ 32,00,000,
what are the tax implications in the hands of Mr. Raj Kumar and Mr. Dhuruv for the
assessment year 2024-25. Mr. Raj Kumar had purchased the land on 1 st June, 2011 for
₹ 5,19,000 and completed the construction of house on 1st October, 2022 for ₹ 14,00,000.

Answer:
In the hands of the seller, Mr. Raj Kumar As per section 50C(1), where the consideration
received or accruing as a result of transfer of land or building or both, is less than the
value adopted or assessed or assessable by the stamp valuation authority, the value
adopted or assessed or assessable by the stamp valuation authority shall be deemed to
be the full value of consideration received or accruing as a result of transfer if such
value exceeds 110% of the actual sales consideration. Where the assessee appeals
against the stamp valuation and the value is reduced in appeal by the appellate authority
(Revenue Divisional Officer, in this case), such value will be regarded as the
consideration received or accruing as a result of transfer.
In the given problem, land has been held for a period exceeding 24 months and building
for a period less than 24 months immediately preceding the date of transfer. So, land is
a long-term capital asset, while building is a short-term capital asset
Particulars ₹
Long term capital gain on sale of land
Full value of considertaion 22,00,000
Less: Indexed cost of acquisition ₹ 5,19,000 x 348/184 9,81,587
Long-term capital gain (A) 12,18,413

Short-term capital loss on sale of building

Full value of consideration 10,00,000
Less: Cost of acquisition 14,00,000
Short term capital loss (B)
Taxable Capital Gain(A)-(B) -4,00,000

As per section 70, short-term capital loss can be set-off against long-term capital gains.

CAPITAL GAIN 105

In the hands of the buyer Mr. Dhuruv
As per section 56(2)(x), where an individual or HUF receives from a non-relative, any
immovable property for a consideration which is less than the stamp value (or the value
reduced by the appellate authority, as in this case) by an amount exceeding ₹ 50,000 or
10% of the sales consideration, whichever is higher, then the difference between such
value and actual consideration of such property is chargeable to tax as income from other
sources. Therefore, ₹ 7,00,000 (i.e., ₹ 32,00,000 - ₹ 25,00,000) would be charged to tax
as income from other sources under section 56(2)(x) in the hands of Mr. Dhuruv.
Question 7:
Mr. Y submits the following information pertaining to the year ended 31 st March, 2024:
i. On 30.11.2023, when he attained the age of 60, his friends in India gave a flat at
Surat as a gift, each contributing a sum of ₹ 20,000 in cash. The cost of the flat
purchased using the various gifts was ₹ 3.40 lacs.
ii. His close friend abroad sent him a cash gift of ₹ 75,000 through his relative for the
above occasion.
iii. Mr. Y sold the above flat on 30.1.2024 for ₹ 3.2 lacs. The Registrar’s valuation for
stamp duty purposes was ₹ 3.7 lacs. Neither Mr. Y nor the buyer, questioned the
value fixed by the Registrar.
iv. He had purchased some equity shares in X Pvt. Ltd., on 5.2.2007 for ₹ 3.5 lacs. These
shares were sold on 15.3.2024 for ₹ 2.8 lacs.
You are requested to calculate the total income of Mr. Y for the assessment year 2024-
25. Computation of total income of Mr. Y for A.Y. 2024-25

Answer:

CAPITAL GAIN 106

 Particulars ₹
Capital Gains
Short term capital gains (on sale of flat)
(i) Sale consideration 3,20,000
(ii) Stamp duty valuation 3,70,000
Consideration for the purpose of capital gains as per section 50C (stamp
3,70,000
duty value, since it is higher than sale consideration)
Less: Cost of acquisition [As per section 49(4), cost to be taken into
3,40,000
consideration for 56(2)(x) will be the cost of acquisition]
30,000
Long term capital Gain on sale of equity shares of X Pvt. Ltd
Sale consideration 2,80,000
Less: Indexed cost of acquisition (3,50,000x348/122 9,98,361
Long term capital loss to be carried forward (See Note 1 below) -7,18,361
Income from other sources:
Gift from friends by way of immovable property on 30.11.2023 [See
3,40,000
Note 3 below].
Gift received from a close friend (unrelated person) [See Note 2 below ] 75,000

Total income 4,45,000

Notes:
1. In the given problem, unlisted shares of X Pvt. Ltd. have been held for more than 24
months and hence, constitute a long-term capital asset. The loss arising from sale of
such shares is, therefore, a long-term capital loss. As per section 70, long term capital
loss can be set-off only against long-term capital gains. Therefore, long-term capital
loss cannot be set-off against short-term capital gains. However, such long- term
capital loss can be carried forward for next 8 AYs.
2. Any sum received from an unrelated person will be deemed as income and taxed as
income from other sources if the aggregate sum received exceeds ₹ 50,000 in a year
[Section 56(2)(x)].
3. Receipt of immovable property without consideration would attract the provisions
of section 56(2)(x).

Question 8:
Dinesh received a vacant site as gift from his father in November 2007. The site was
acquired by his father for ₹ 3,00,000 in April 2002. Dinesh constructed a residential
building during the year 2008-09 in the said site for ₹ 15,00,000. He carried out some
further extension of the construction in the year 2011-12 for ₹ 5,00,000. Dinesh sold the
residential building for ₹ 55,00,000 in January 2023 but the State stamp valuation
authority adopted ₹ 65,00,000 as value for the purpose of stamp duty. Compute his long-

CAPITAL GAIN 107

term capital gain, for the assessment year 2024-25 based on the above information. The
cost inflation indices are as follows:
Answer:
Computation of long-term capital gain of Dinesh for the A.Y. 2024-25
Particulars ₹
Full value of consideration (Note 1) 65,00,000
Less: Indexed cost of acquisition-land (3,00,000*348/129) 8,09,302
Indexed Cost of acquisition-building (15,00,000*348/137) 38,10,219
Indexed Cost of improvement-building (5,00,000*348/184) 9,45,652
55,65,173
Long-term capital gain 9,34,827

Notes:
1. As per section 50C, where the consideration received or accruing as a result of
transfer of a capital asset, being land or building or both, is less than the value
adopted by the Stamp Valuation Authority and Value exceeds 110% of the
consideration, such value adopted by the Stamp Valuation Authority shall be
deemed to be the full value of the consideration received or accruing as a result
of such transfer. Accordingly, full value of consideration will be ₹ 65 lakhs in
this case.
2. Since Dinesh has acquired the asset by way of gift, therefore, as per section 49(1),
cost of the asset to Dinesh shall be deemed to be cost for which the previous
owner acquired the asset i.e., ₹ 3,00,000, in this case.
3. Indexation benefit is available since both land and building are long-term capital
assets. However, as per the definition of indexation cost of acquisition,
indexation benefit for land will be available only from the previous year in which
Mr. Dinesh first held the asset i.e., P.Y. 2007-08.
Alternative view: In the case of CIT v. Manjula J. Shah, the Bombay High court held
that indexation cost of acquisition in case of gifted asset can be computed with reference
to the year in which the previous owner first held the asset. As per this view, the
indexation cost of acquisition of land would be ₹ 9,94,286(3,00,000*348/105)
Question 9.
Mr. Thomas inherited a house in Jaipur under will of his father in May, 2005. The house
was purchased by his father in January, 2000 for ₹ 2,50,000. He invested an amount of
₹ 6,45,000 in construction of one more floor in this house in June, 2007. The house was
sold by him in November, 2023 for ₹ 37,50,000. The valuation adopted by the
registration authorities for charge of stamp duty was ₹ 47,25,000 which was not
contested by the buyer, but as per assessee’s request, the Assessing Officer made a
reference to Valuation officer. The value determined by the Valuation officer was ₹
47,50,000. Brokerage @ 1% of sale consideration was paid by Mr. Thomas to Mr. Sunil.
The fair market value of house as on 01.04.2001 was ₹ 2,69,100 and Stamp duty value

CAPITAL GAIN 108

was ₹ 3,70, [Link] are required to compute the amount of capital gain chargeable to
tax for A.Y. 2024-25
Answer:
Computation of Long-term Capital Gain for A.Y. 2024-25
Particulars ₹
Sale consideration as per section 50C (Note-1) 47,25,000
Less: Expenses incurred on transfer being brokerage @ 1%
of sale consideration of ₹ 37.50 lacs 37,500
46,87,500
Less: Indexed cost of acquisition (Note-2)
(2,69,100*348/117) 8,00,400
Indexed cost of improveme (6,45,000*348/129) 17,40,000

Long term capital gain 21,47,100

Notes:
1. As per section 50C, where the consideration received or accruing as a result of transfer
of a capital asset, being land or building or both, is less than the valuation by the stamp
valuation authority, such value adopted or assessed by the stamp valuation authority
shall be deemed to be the full value of consideration if value exceeds 110% of the
sales consideration. Where a reference is made to the valuation officer, and the value
ascertained by the valuation officer exceeds the value adopted by the stamp valuation
authority, the value adopted by the stamp valuation authority shall be taken as the full
value of consideration.
Sale consideration ₹ 37,50,000
Valuation made by registration authority for stamp duty ₹ 47,25,000
Valuation made by the valuation officer on a reference ₹ 47,50,000
Applying the provisions of section 50C to the present case, ₹ 47,25,000, being, the value
adopted by the registration authority for stamp duty, shall be taken as the sale
consideration for the purpose of charge of capital gain.
2. The house was inherited by Mr. Thomas under the will of his father and therefore, the
cost incurred by the previous owner shall be taken as the cost. Fair market value as
on 01.04.2001, accordingly, shall be adopted as the cost of acquisition of the house
property. Here, FMV as on 01.04.2001 does not exceeds SDV of the same. However,
indexation benefit will be given from the year in which Mr. Thomas first held the asset
i.e., P.Y. 2005-06
Alternative view: In the case of CIT v. Manjula J. Shah, the Bombay High Court held
that the indexed cost of acquisition in case of gifted asset can be computed with

CAPITAL GAIN 109

reference to the year in which the previous owner first held the asset. As per this view,
the indexation cost of acquisition of house would be ₹ 9,36,468 (2,69,100*348/100)

Question 10:
X owns a piece of land situated in Noida (date of acquisition: March 1, 2003, cost of
acquisition: ₹ 73,500, value adopted by Stamp duty authority at the time of purchase: ₹
80,000). On March 30, 2023, the piece of land is transferred for ₹ 4 lakh. Find out the
capital gains chargeable to tax in the following situations:
1. The value adopted by Stamp duty authority is ₹ 5.5 lakh. X does not dispute it.
2. The value adopted by the Stamp duty authority is ₹ 5.75 lakh. X files on appeal
under the Stamp Act and
Stamp duty valuation has been reduced to ₹ 4.90 lakh by the Allahabad High Court.
3. The value adopted by the Stamp duty authority is ₹ 5.60 lakh. X does not
challenge it under the Stamp Act. However, he claims before the Assessing
Officer that ₹ 5.60 lakh is more than the fair market value of the land. The
Assessing Officer refers it to the Valuation Officer who determines ₹ 5.25 lakh
as fair market value.
4. In Situation (3), suppose the value adopted by the Valuation Officer is ₹ 6.10
lakh.

Answer:
Situations
1 2 3 4
₹ ₹ ₹ ₹
[Link] of consideration 5,50,000 4,90,000 5,25,000 5,60,000
Less: Indexed cost of acquisition
2,43,600 2,43,600 2,43,600 2,43,600
[₹ 73,500 x 348 ÷ 105]
Long-term capital gains 3,06,400 2,46,400 2,81,400 3,16,400

Question 11:
Ms. Paulomi has transferred 1,000 shares (unlisted) of Hetal Ltd., (which she acquired
at a cost of ₹ 10,500 in the financial year 2002-03) to Dhaval, her brother, at a
consideration of ₹ 3,33,100 on 15.5.2023 privately. During the financial year 2023-24,
she has paid through e-banking ₹ 15,000 towards medical premium, ₹ 50,000 towards
life insurance premium and ₹ 25,000 towards PPF. Assuming she has no other source of
income, compute her total income and tax payable for the Assessment Year 2024-25

Answer:

CAPITAL GAIN 110

 Particulars ₹
Sale consideration 3,33,100
Less: Indexed cost of acquisition (₹ 10,500 × 348/105) 34,800
Long term capital gain 2,98,300
Total income 2,98,300
Tax liability Nil
Note:
As per section 112, deductions under Chapter VI-A are not allowable against long term
capital gain. Therefore, Paulomi is not entitled to deduction under section 80C in respect
of payment of life insurance premium and contribution to PPF. She is also not entitled
to deduction under section 80D in respect of medical insurance premium paid by her.
She is, however, entitled to reduce the long-term capital gain by the unexhausted basic
exemption limit and pay tax on the balance @20% as per section 112. In this case, since
she has no other source of income, the entire basic exemption limit of ₹ 3,00,000 is
unexhausted- Hence her tax liability is Nil.

Question 12:
For the AY 2024-25, M₹ X (29 years), a resident individual, gives the following
information. Compute the tax liability-

₹
Short-term capital gain which satisfies conditions given in 1,27,000
Section 111A
Other income 2,96,000
Answer:
Tax liability 18,450
Less: Rebate u/s87A 18,450
Nil

Question 13:
X a resident HUF, has the following income for the PY 2023-24:
Business income (-) 15,000
Long-term capital gain on sale of land 8,41,000
Find out the tax liability for the AY 2024-25 under optional tax scheme assuming that
the family pays life insurance premium of ₹ 65,000 (sum assured: ₹ 8,00,000)

CAPITAL GAIN 111

Answer:
Long-term
Capital gain
Capital gain 8,41,000
Less: Business loss (-) 15,000
Gross total income 8,26,000
Less: Deduction under section 80C
Net income 8,26,000 Nil
Tax [i.e., 20% of (₹ 8,26,000 - ₹ 2,50,000)] 1,15,200
Add: Health & Education Cess – 4% 4,608
Tax liability 1,19,808

Question 14:
The house property of Abhinav is compulsorily acquired by the Government for ₹
10,00,000 vide Notification issued on 12th March 2008. Abhinav has purchased the
house in 2002-03 for ₹ 2,00,000. The compensation is received on 15th April 2023. The
compensation is further enhanced by an order of the court on 5 th April 2024 and a sum
of ₹ 2,00,000 is received as enhanced compensation on 25 th May 2024. Compute the
capital gains and determine the year in which it is taxable.
Answer:
The compulsory acquisition of Mr. Abhinav's house property took place in the financial
year 2007-08. Accordingly, the year of transfer is the financial year 2007-08. However,
by virtue of specific provisions of section 45(5), the capital gains so computed shall be
charged to tax in the year in which the compensation or part thereof is first received i.e.,
in the financial year 2023-24 or assessment year 2024-25.
Computation of long-term capital gain for the assessment year 2024-25
Full value of consideration 10,00,000
Less: Indexed cost of acquisition (2,00,000 x 129 ÷ 105) 2,45,714
Long term capital gains 7,54,286
Taxability of enhanced compensation: LTCG due to enhanced compensation = ₹
2,00,000, which will be chargeable to tax in the previous year 2024-25 (Assessment year
2025-26).

CAPITAL GAIN 112

 Question 15
S, an owner of 3 houses, sells a residential house property in Chennai for ₹ 12,40,000
on 23-5-2023. This house was purchased by him in April 2004 for ₹ 2,80,000. On 30-5-
2022, he purchased a flat in Mumbai of ₹ 8,70,000 for the purpose of the residence of
his son-in-law. On 1-3-2024, S sells the flat in Mumbai for ₹ 12,10,000. Compute the
capital gains arising on the two transactions. Is S eligible for exemption under section
54 in respect of the second sale? S, has another income of ₹ 10,00,000
Answer:
Computation of capital gains of Mr. S for the AY 2024-25
Sale proceeds of the property located in Chennai 12,40,000
Less: Indexed Cost of Acquisition (₹ 2,80,000 x 348 ÷ 113) 8,62,301
Long Term Capital Gain (1) 3,77,699
Sales Consideration from the flat 12,10,000
Less : Cost of Acquisition 8,70,000
Short Term Capital Gain (2) 3,40,000
Total Capital Gains (1 + 2) 7,17,699
Note: In this case, after transfer of residential house, Mr. S has purchased a new flat
during the previous year 2023-24 and sold the same in the previous year 2023-24 itself.
If Mr. S claims exemption in respect of the flat while computing long-term capital gains,
then, on sale of the flat, the cost of the flat will be reduced by the amount of exemption
claimed. This will have the effect of decreasing the amount of long-term capital gains
and increasing the amount of short-term capital gains. While long-term capital gains are
taxable @ 20%; short- term capital gains are taxable as per normal rates (highest slab
being 30% due to other income of ₹ 10,00,000).
Therefore, in order to avoid higher tax liability, Mr. S should not claim exemption in
respect of the flat. It is assumed that Mr. S has other incomes also, so as to take his tax
rate at highest slab of 30%.
Further, no exemption is available in respect of sale of new house, as the same is a short-
term capital asset.
Question 16:
X’ give the following information
Residential house property situated of Kolkata X
₹
Date of transfer December 30, 2023
Date of purchase June 30, 2002
Sale consideration 35,00,000
Cost of acquisition 2,00,000
Expenses on transfer 40,000
Amount deposited in capital gains deposit account scheme 21,00,000
on May 20, 2024

CAPITAL GAIN 113

To get the exemption under section 54, the following residential house properties are
purchased in Chennai by X by withdrawing from the deposit account
Date of purchase June 20, 2024
Cost of acquisition 15,00,000
Find out the following in the case of X— capital gain chargeable to tax for different
assessment years;
Answer:
Assessment year 2024-25 ₹
Sale consideration (being stamp duty value) ₹ 35,00,000
Less: Indexed cost of acquisition [₹ 2,00,000 x 348 ÷ 105] ₹ 6,62,857
Expenses on transfer ₹ 40,000
Balance ₹ 27,97,143
Less: Exemption under section 54 [amount deposited in capital gain
deposit account scheme, i.e.,₹ 21,00,000 or amount of capital gain, ₹ 21,00,000
i.e., ₹ 28,29,524, whichever is lower]
Long -term capital gains chargeable to tax for the assessment
₹ 6,97,143
year 2024-25
Assessment Year 2027-28
Amount deposited in capital gains deposit account scheme ₹ 21,00,000
Less: Amount utilized by purchasing a new residential property at
₹ 15,00,000
Chennai
Unutilized amount ₹ 6,00,000
Notes:
1. In this case, X can purchase a new residential property, by withdrawing from the
deposit account, up to December 29, 2025 or he can complete construction of a
residential property up to December 29, 2026. if he does not want to purchase or
complete construction of another property, he can withdraw the unutilized amount
of ₹ 6,00,000 in the deposit account at any time after December 29, 2026.
2. ₹ 6,00,000 would be taxable as long-term capital gains of the previous year 2026-
27, i.e., assessment year 2027-28.
The new residential property purchased at Chennai should not be transferred before 3
years from the date of its purchase (in other words, the new residential property should
not be transferred up to June 19, 2027
Question 17:
X sells agricultural land situated in an urban area for ₹ 10,31,000 (brokerage paid @ 2
percent) on March 31, 2024 (cost of acquisition: ₹ 1,05,000 on March 1, 2003; it was
used for agricultural purposes since 2006). On March 31, 2023, he owns one residential
house property. On April 6, 2024, he purchases the following assets
a. agricultural land: ₹ 1,50,000; and
b. a residential house property: ₹ 5,00,000.

CAPITAL GAIN 114

Find out the capital gains chargeable to tax for the AY 2024-25.
Answer:
₹
Sale consideration ₹ 10,31,000
Less: Brokerage (2% of ₹ 10,31,000) ₹ 20,620
Net Sales Consideration ₹ 10,10,380
Indexed cost of acquisition (i.e., ₹ 1,05,000 x 348/105) ₹ 3,48,000
Long-term capital gain ₹ 6,62,380
Less : Exemptions
Under section 54B ₹ 1,50,000
Under section 54F [i.e., ₹6,62,380 x ₹ 5,00,000/(₹ 10,10,380] ₹ 3,27,788
Long-term capital gains ₹ -1,77,788

Question 18:
Mr. ‘X’ furnishes the following data for the previous year ending 31.3.2023:
(a) Unlisted Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2023, at
₹ 200 for each share.
(b) The above shares of 10,000 were acquired by ‘X’ in the following manner:
(c) Received as gift from his father on 1.6.2000 (5,000 shares) the fair market value
on 1.4.2001 ₹ 50 per share.
(d) Bonus shares received from AB Ltd. on 21.7.2005 (2,000 shares).
(e) Purchased on 1.2.2007 at the price of ₹ 125 per share (3,000 shares).
(f) Purchased one residential house at ₹ 10 lakhs, on 1.5.2023 from the sale proceeds
of shares.
(g) ‘X’ is already owning a residential house, even before the purchase of above
house.
You are required to compute the taxable capital gain. He has no other source of income
chargeable to tax.
Answer:
Computation of taxable capital gain of Mr. ‘X’ for A.Y. 2024-25

CAPITAL GAIN 115

 Particulars ₹ ₹
Sale consideration received on sale of 10,000 shares @ ₹ 200 each 20,00,000
Less: Indexed cost of acquisition
(a) 5,000 shares received as gift from father on 1.6.2000 Indexed
8,70,000
cost 5,000 x ₹ 50 x 348/100
(b) 2,000 bonus shares received from AB Ltd Bonus shares are
acquired on 21.7.2005 i..e after 01.04.2001. Hence, the cost is Nil. nil

(c) 3000 shares purchased on 1.2.2007 @ ₹ 125 per share. The

indexed cost is 3000 x 125 x 348/122 10,69,672 19,39,672
Long term capital gain 60,328
Less : Exemption under section 54F (See Note below)₹ 60,328 x ₹
10,00,000 / ₹ 20,00,000 30,164
Taxable long term capital gain 30,164
Note:
Exemption under section 54F can be availed by the assessee subject to fulfilment of the
following conditions:
(a) The assessee should not own more than one residential house on the date of
transfer of the long-term capital asset;
(b) The assessee should not purchase a residential house within a period of 1 year
before or 2 years after the date of transfer or construct a residential house within
a period of 3 years from the date of transfer of the long- term capital asset.
In this case, the assessee has fulfilled the two conditions mentioned above. Therefore,
he is entitled to exemption under section 54F.

Question 19:
Shri Aniket purchased 1,00,000 shares of Nahar Spinning mills Limited (50% of total
shares of the company) in 2002-03 for ₹ 8,00,000. The company was liquidated on
17.12.2023 and on liquidation he received ₹ 20 per share and immovable property whose
market value worth ₹ 25,50,000. On liquidation the company possessed accumulated
profits of ₹ 8,00,000. Find out the capital gains in hands of Aniket for the assessment
year 2024-25.

Answer:
Computation of capital gains in case of Shri Aniket for the Assessment Year 2024-25

CAPITAL GAIN 116

 ₹
Amount received on liquidation (₹ 20 x 1,00,000 + ₹ 25,50,000) 45,50,000
Less: Amount taxable as deemed dividend i.e. share in
accumulated profits (50% of 8,00,000) 4,00,000
Full value of consideration 41,50,000
Less: Indexed cost of acquisition (₹ 8,00,000 x 348 ÷ 105) 26,51,429
Long term capital Gain 14,98,571

Question 20:
Ms. Vasumathi purchased 10,000 equity shares of ABC Co. Pvt. Ltd. on 28.2.2005 for
₹ 1,20,000. The company was wound up on 31.7.2023. The following is the summarized
financial position of the company as on 31.7.2023:
Liabilities ₹ Assets ₹
60,000 Equity shares 6,00,000 Agricultural lands 42,00,000
General reserve 40,00,000 Cash at bank 6,50,000
Provision for taxation 2,50,000
48,50,000 48,50,000
The tax liability was ascertained at ₹ 3,00,000. The remaining assets were distributed to
the shareholders in the proportion of their shareholding. The market value of 6 acres of
agricultural land (in an urban area) as on 31.7.2023 is ₹ 10,00,000 per acre. The
agricultural land received above was sold by Ms. Vasumathi on 28.2.2024 for ₹
15,00,000.
Discuss the tax consequences in the hands of the company and Ms. Vasumathi.

Answer:
In the hands of the company
As per section 46(1), distribution of capital assets amongst the shareholders on
liquidation of the company is not regarded as “transfer” in the hands of the company.
Consequently, there will be no capital gains in the hands of the company.

In the hands of Ms. Vasumathi (shareholder) Section 46(2) provides that such capital
gains would be chargeable in the hands of the shareholder.

CAPITAL GAIN 117

 Particulars ₹
Ms. Vasumathi holds 1/6th of the shareholding of the company Market
10,00,000
value of agricultural land received (1 acre @ ₹ 10 Lakhs)
Cash at bank [1/6th of (₹ 6,50,000 – ₹ 3,00,000)] 58,333
10,58,333
Less: Deemed dividend under section 2(22)(c) - 1/6th of (₹ 40,00,000-
6,58,333
₹ 50,000)
Consideration for computing Capital Gain 4,00,000
Less: Indexed cost of acquisition of Shares (₹ 1,20,000 x 348/ 113) 3,69,558
Long term capital gains 30,442

Notes:
1. Where the capital asset became the property of the assessee on the distribution of
the capital assets of a company on its liquidation and the assessee has been
assessed to capital gains in respect of that asset under section 46, the cost of
acquisition means the fair market value of the asset on the date of distribution.
Hence, the short-term capital gains in the hands of Ms. Vasumati (shareholder) at
the time of sale of urban agricultural land should be computed as follows:
Particulars ₹
Sale consideration 15,00,000
Less: Fair market value of the agricultural
10,00,000
land on the date of distribution
Short term capital gain 5,00,000
2. Dividend under section 2(22)(c) amounting to ₹ 6,58,333 will be taxable in the
hands of shareholder under the head “income from other sources”.
3. The tax liability ascertained at ₹ 3,00,000 has to be reduced from bank balance
while computing full value of consideration under section 46(2). ₹ 50,000, being
the difference between ₹ 3,00,000 and ₹ 2,50,000, has to be reduced from
General Reserve for calculating deemed dividend under section 2(22)(c).
4. TDS compliance u/s 194 is required by company

CAPITAL GAIN 118

 INCOME FROM OTHER SOURCE
1. Examine whether the following are chargeable to tax and the amount liable to tax:
i. Interest on enhanced compensation Rs. 3,00,000 received on 31.03.2024 from
Government of Tamil Nadu towards urban land acquired by it. 40% of enhanced
compensation interest pertains to previous year 2022-23.
ii. Narayanan transferred 1000 shares of BS Ltd to AB Pvt. Ltd on 01-06-2023 for a
consideration of Rs. 2,00,000 when the fair market value of the same as on
transaction date was Rs. 3,00,000. The indexed cost of acquisition of shares for
Narayanan was Rs. 2,75,000. The transfer was effected off market on which
securities transaction tax was not paid. BS Ltd is a closely held unlisted company.
iii. Mr. A received Rs. 5,00,000 on 1st March 2024 from Sree Pushpaka Charitable
Trust for meeting his medical expenses. The trust is registered under section 12AB
of Income-tax Act. (6 Marks)
Ans: (a) (i) Interest on enhanced compensation received on 31.03.2024 from
Government of Tamil Nadu (including 40% of interest on enhanced compensation
relating to P.Y. 2022 -23) would be deemed to be the income of P.Y. 2023-24, being
the year in which it is received irrespective of the method of accounting followed by the
assessee.
Interest of Rs. 3,00,000 on enhanced compensation is chargeable to tax during the P.Y.
2023-24 after providing deduction of 50% under section 57. Therefore, Rs. 1,50,000 is
chargeable to tax under the head “Income from other sources”.
(ii) In the hands of Mr. Narayanan
Since the consideration of Rs. 2,00,000 is less than Rs. 3,00,000, being the fair market
value of unquoted shares of BS Ltd., the fair market value of shares i.e., Rs. 3,00,000
would be deemed to be the full value of consideration.
Accordingly, Rs. 25,000 [Rs. 3,00,000 – Rs. 2,75,000, being indexed cost of acquisition]
would be liable to tax as long term capital gains in the hands of Mr. Narayanan.
In the hands of AB Pvt. Ltd.
Shares received by AB Pvt. Ltd. from Mr. Narayanan for inadequate consideration is
chargeable to tax, since the difference exceeds Rs. 50,000. Accordingly, Rs. 1,00,000,
being the difference between aggregate Fair Market Value of the shares i.e., Rs.
3,00,000 and consideration i.e., Rs. 2,00,000 would be chargeable to tax under the
head “Income from other sources”.
(ii) The sum of Rs. 5,00,000 received from Sree Pushpaka Charitable Trust,
without consideration, for meeting medical expenses would not be chargeable to tax
in the hands of Mr. A, since the same is received from a trust registered under section
12AB.

2. Mr. Lalit, a dealer in shares and securities, has entered into following transactions during the
previous year 2023-24:

INCOME FROM OTHER SOURCE 119

 (i) Received a motor car of Rs. 5,00,000 as gift from his friend Sunil on the occasion
of his marriage anniversary.
(ii) Cash gift of Rs. 21,000 each from his four friends.
(iii) Land at Jaipur on 1st July,2023 as a gift from his friend Kabra, the stamp duty
value of the land is Rs. 6 lakhs as on the date. The land was acquired by Mr. Kabra
in the previous year 2001-02 for Rs. 2 lakhs.
Mr. Lalit purchased from his friend Mr. Abhishek, who is also a dealer in shares, 1000 shares
of ABC Ltd. @ 400 each on 19th June, 2023 the fair market value of which was Rs. 600
each on that date. Mr. Lalit sold these shares in the course of his business on 23rd June,2023.
Further, on 1st November, 2023, Mr. Lalit took possession of his residential house booked
by him two years back at Rs. 20 lakh. The stamp duty value of the property as on 1st
November, 2023 was Rs 32 lakh and on the date of booking was Rs. 24 lakh. He had paid
Rs. 1 lakh by account payee cheque as down payment on the date of booking.
He received a shop (building) of the fair market value Rs.1,50,000 and cash Rs. 50,000 in
distribution from the ABC (P) Ltd at the time of liquidation process of the company in
proportion of his share capital. The balance in general reserve of the company attributable to
his share capital is Rs. 1,25,000.
On 1st March,2023, he sold the plot of land at Jaipur for Rs. 8 lakh.
The value of the cost inflation index is 100 and 348 for the previous year 2001 -02 and
2023-24 respectively.
Compute the income of Mr. Lalit chargeable under the head "Income from other
sources" and "Capital Gains" for A.Y. 2024-25. (8 Marks)
Ans: Computation of “Income from Other Sources” of Mr. Lalit for the A.Y. 2024- 25
Particulars Rs.
(i) Motor car is not included in the definition of “property” for the -
purpose of section 56(2)(x), hence, value of the same is not
taxable, even though it is received without any consideration.
(ii) Cash gift is taxable under section 56(2)(x) 84,000
[since the aggregate of Rs. 84,000 (Rs. 21,000 x 4) exceeds Rs.
50,000]
(iii) Stamp value of plot of land at Jaipur, received without 6,00,000
consideration, is taxable under section 56(2)(x), since the same
exceeds Rs. 50,000
(iv) Difference of Rs. 2 lakh [1000 shares x Rs. 200] in the value of -
shares of ABC Ltd. purchased from Mr. Abhishek, a dealer in
shares, is not taxable as it represents the stock-in-trade of Mr.
Lalit (since he is a dealer in shares) and not capital asset.

INCOME FROM OTHER SOURCE 120

 (v) Difference between the stamp duty value of Rs. 24 lakh on the 4,00,000
date of booking (since advance was paid by account payee
cheque on that date) and the actual consideration of Rs. 20 lakh
paid is taxable under section 56(2)(x) since the difference
exceeds Rs. 2,00,000, being the higher of Rs. 50,000 and 10% of
consideration
(vi) Distribution of assets by ABC (P) Ltd. on liquidation attributable 1,25,000
to the accumulated profits (general reserve) of the company is
taxable as dividend under section 2(22)(c).
Income taxable under the head “Income from other sources” 12,09,000

Computation of “Capital Gains” of Mr. Lalit for the A.Y.2024-25

Particulars Rs.
Capital gains on sale of land at Jaipur
Sale Consideration 8,00,000
Less: Cost of acquisition [deemed to be the stamp value charged to tax 6,00,000
under section 56(2)(x)]
Short-term capital gains (since held for a period of not more than 24 2,00,000
months. Period of holding of previous owner, Mr. Kabra, not to be
considered)
Capital gains on distribution of assets on liquidation of ABC (P) Ltd.
Full value of consideration for capital gains on distribution of assets on
liquidation of ABC (P) Ltd.
FMV of assets distributed 1,50,000
Cash 50,000
2,00,000
Less: Deemed dividend under section 2(22)(c) 1,25,000
Full value of consideration for computing capital gains 75,000
Note -
(i) As cost of acquisition of shares in ABC(P) Ltd. is not given in the question,
capital gains on distribution of assets on liquidation of ABC(P) Ltd. in the
hands of Mr. Lalit has not been computed.
(ii) As per section 56(1)(i), dividend income is chargeable under the head
“Income from Other Sources”. Hence, deemed dividend u/s 2(22)(c) would
be taxable under the head “Income from Other Sources” in the hands of
Mr. Lalit, who is a dealer in shares.

INCOME FROM OTHER SOURCE 121

 CLUBBING, SET OFF AND CHAPTER VI A
DEDUCTION
Question 1 (Nov 19)
Following are the details of incomes/losses of Mr. Rishi for the F.Y. 2023-24:
(Figures in brackets represents losses) Rs.
Taxable salary income (computed) 3,60,000
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 16,000
- from owning & maintenance of race horses (7,000)
- interest on securities 5,000
You are required to determine the Gross total income of Mr. Rishi for Assessment Year.
(Optional Tax Scheme ) (5 Marks)
Answer:
Computation of gross total income of Mr. Rishi for the A.Y 2024-25
Particulars Rs. Rs.
Salary Income (computed) ₹ 3,60,000
Less: Set-off of loss from house property Rs. 2,20,000
₹ 2,00,000 ₹ 1,60,000
restricted to
Income from House Property
Income from Property X ₹ 1,20,000
Less: Loss from Property Y [inter-source set-off is
permitted under section 70(1)] ₹ 3,40,000
Loss from house property ₹ 2,20,000
Less: Loss eligible for set-off against salary income as per
section 71(3A), restricted to ₹ 2,00,000
Loss to be carried forward to A.Y. 2025-26 as per section
71B, for set- off against income from house property, if
any, in that year ₹ -20,000
Profits and gains of business or profession

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 122

 Income from business P ₹ 2,30,000
Less: Loss from business Q (inter-source set-off is
permitted) ₹ 12,000 ₹ 2,18,000
Income from speculation business R ₹ 15,000
Less: Loss from speculation business T [can be set-off
only against income from speculation business as per
section 73(1)] ₹ 25,000
Loss to be carried forward to A.Y. 2024-25 for set-off
again speculative business income of that year by virtue of ₹ -10,000
section 73(2).
Income from Other Sources
Income from card games ₹ 16,000
Interest on securities ₹ 5,000 ₹ 21,000
Loss from owning & maintaining race horses ₹ -7,000

[Not allowed to be set-off against any other income under

this head or under any other head. Thus, such loss has to
be carried forward to A.Y. 2025-26 for set-off against
income, if any, from owning and maintaining race horses
in that year by virtue of section 74A (3)]

Gross Total Income ₹ 3,99,000

Note: Loss from house property of Rs. 2 lakh can also be set-off against business
income instead of salary income. In such a case, salary income would be Rs.
3,60,000 and business income would be Rs. 18,000. Gross total income would
remain the same.
Any other permutation for set-off of house property (other than income from card
games), including partial set-off against one head and the remaining against
another, is also possible.
Question 2 (Nov 19)
(a) Mr. Mahadev, a noted bhajan singer of Rajasthan and his wife Mrs Dariya furnish
the following information relating to the Assessment Year 2024-25

S N0 PARTICULARS Rs.
1 Income of Mr. Mahadev - professional bhajan singer (computed) 5,65,000
2 Salary income of Mrs. Dariya (computed) 3,80,000
3 Loan received by Mrs. Dariya from Ramu & Jay (Pvt) Ltd. 2,50,000
(Mrs. Dariya holds 35% shares of the Co. The Co. has incurred
losses since its inception 2 years back)

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 123

 4 Income of their minor son Golu from winning singing reality 2,50,000
show on T.V.
5 Cash gift received by Golu from friend of Mr. Mahadev on 21,000
winning the TV Show
6 Interest income received by minor married daughter Gudia 40,000
from deposit with Ramu & Jay Pvt Ltd.
Compute total taxable income of Mr. Mahadev & Mrs. Dariya for the Assessment
Year 2024-25. (Optional Tax scheme) (5 Marks)
Answer
(a) Computation of Taxable income of Mr. Mahadev for A.Y. 2024-25
Particulars Rs.
Professional income (bhajan singer) ₹ 5,65,000
Income of minor son – Golu
Income from winning singing reality show on T.V.
Income derived by a minor child from any activity involving
application of his/her skill, talent, specialized knowledge and
Nil
experience is not to be included in the hands of parent. Hence, Rs.
2,50,000 earned by minor son Golu from reality show on TV would
not be included in the income of either parent
Cash gift received by Golu from friend of Mr. Mahadev on
winning the show
The cash gift received by his minor son Golu (not on account of his Nil
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 Ramu & Jay Pvt. Ltd. ₹ 40,000
Less: Exempt under section 10(32) ₹ 1,500
(Income of minor daughter would be included in the hands of Mr. ₹ 38,500
Mahadev, since his income, before including minor daughter’s
income, is higher than his wife’s income).
Taxable Income ₹ 6,03,500
Computation of Taxable income of Mrs. Dariya for A.Y. 2024-25
Particulars Rs.
Salary income (computed) ₹ 3,80,000
Loan received from Ramu & Jay (Pvt.) Ltd.
Nil
[Such loan amount would not be considered as deemed dividend
under section 2(22)(e), even though Mrs. Dariya has substantial
interest (holding 20% shares or more) in the Ramu & Jay (Pvt.)
Ltd., a closely held company, since the company does not have any

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 124

 accumulated profits on account of losses incurred in last 2 years
from inception]
Taxable Income ₹ 3,80,000

Question 3: (Nov.20)
Ms. Pooja a resident individual provides the following information of her
income/losses for the year ended on 31st March, 2024
S. No. Particulars (Rs)
1. Income from salary (Computed) 2,20,000
2. Income from House Property (let out) (Net Annual Value) 1,50,000
3. Share of loss from firm in which she is partner 10,000
4. Loss from specified business covered under section 35AD 20,000
5. Income from textile business before adjusting the following 3,00,000
items:
(a) Current year depreciation 60,000
(b) Unabsorbed depreciation of earlier year 2,25,000
(c) Brought forward loss of textile business of the A.Y. 90,000
2020-21
6. Long-term capital gain on sale of debentures 75,000
7. Long-term capital loss on sale of equity shares (STT not paid) 1,00,000
8. Long-term capital gain on sale of equity shares listed in 1,50,000
recognized stock exchange (STT paid at the time of
acquisition and sale)
9. Dividend from units of UTI 5,000
During the previous year 2023-24, Ms. Pooja has repaid Rs.5,25,000 towards
housing loan from a scheduled bank. Out of this Rs. 3,16,000 was towards
payment of interest and rest towards principal.
Compute the gross total income of Ms. Pooja and ascertain the amount of loss that
can be carried forward. Ms. Pooja has always filed her return within the due date
specified under section 139(1) of the Income-tax Act, 1961. (8 Marks)
(Optional Tax Scheme)
Answer:
Computation of gross total income of Ms. Pooja for the A.Y.2024-25
Particulars Rs. Rs.
Salary Income (computed) 2,20,000
Less: As per section 71(3A), loss from house
property of Rs. 2,11,000 can be set-off 2,00,000 20,000
Income from House Property
Net Annual Value of House 1,50,000
Property

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 125

 Less: Deduction u/s 24
(a) 30% of NAV 45,000
(b) Interest on housing loan 3,16,000 3,61,000
Loss from house property (2,11,000)
Less: Loss eligible for set-off against salary
income restricted to 2,00,000
Loss to be carried forward to A.Y. 2025-26 for
set-off against income from house property, if (11,000)
any, in that year
Profits and gains of business or profession
Share of loss from firm [loss from exempt source ----
cannot be set-off against profit from taxable source.
Hence such loss - can neither be set-off nor be carried
forward]
Loss from specified business u/s 35AD Rs. 20,000 ----
[Can be - set-off only against income from any
specified business.
Hence, it has to be carried forward to A.Y.2025-26]
Income from textile business 3,00,000
Less: Current year depreciation 60,000
2,40,000
Less: Brought forward loss of textile business 90,000
1,50,000
Less: Unabsorbed depreciation (Rs. 2,25,000) set-
1,50,000 Nil
off to the extent of
Capital Gains
Long-term capital gains on sale of debentures 75,000
Less: Set-off of Long-term capital loss on sale of
equity shares (STT not paid) 75000
NIL
Long-term capital gains on sale of listed equity 1,50,000
shares (STT Paid)
Less: Set-off of balance long-term capital loss on sale
of equity shares (STT not paid) [Rs. 1,00,000 – Rs. 25,000
75,000] 1,25,000
Less: Set-off of balance unabsorbed
depreciation [Rs. 2,25,000 – Rs. 1,50,000 s/o 75,000 50,000
against business income]
Income from Other Sources
Dividend from units of UTI 5000

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 126

 Gross Total Income 75,000

Losses to be carried forward to A.Y.2025-26 Rs.

(i) Losses from specified business [can be carried 20,000
forward indefinitely for set-off against income
from any specified business]
(ii) Loss from house property [can be carried forward 11,000
upto 8 successive assessment years for set-off
against income from house property]
Question 4: (Nov20)

(a) Determine the Gross total income of Shri Ram Kumar and Smt. Ram Kumar for
the assessment year 2024-25 from the following
(i) Salary received by Shri Ram Kumar from a company Rs. 1,80,000 per annum
and Smt. Ram Kumar also doing job in a company and getting salary of Rs.
2,40,000 per annum.
(ii) Shri Ram Kumar transferred a flat to his wife Smt. Ram Kumar on 1 st
September, 2023 for adequate consideration. The rent received from this let-
out flat is Rs. 9,000 per month.
(iii) Shri Ram Kumar and his wife Smt. Ram Kumar both are partners in a firm.
Shri Ram Kumar received Rs. 36,000 and Smt. Ram Kumar received Rs.
64,000 as interest from the firm and also had a share of profit of Rs. 12,000
and Rs. 26,000respectively.
(iv) Smt. Ram Kumar transferred 10% debentures worth Rs. 3,00,000 to Shri
Ram Kumar. The whole amount of Rs. 3,30,000 invested by Shri Ram Kumar
in the similar investments and earned income of Rs. 39,000.
(v) Mother of Shri Ram Kumar transferred a property to Master Rohit (son of
Shri Ram Kumar) in the year 2021. Master Rohit (aged 13 years) received
Rs.15,000 as income from this property on 20th February, 2024.
(Optional Tax Scheme) (6 Marks)
(a) Computation of Gross Total Income of Shri Ram Kumar, [Link] Kumar
for A.Y. 2024- 25
Shri Ram Kumar Smt. Ram Kumar
Rs. Rs. Rs. Rs
Salary 1,80,000 2,40,000
Less: Standard deduction 50,000 1,30,000 50,000 1,90,000
Income from house property

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 127

Rent received (taken as annual 45,000 63,000
value in the absence of other
information)
Less: Deduction u/s
24(a)@30% of Annual 13,500 31,500 18,900 44,100
Value
Note – Clubbing provisions are not
attracted since the transfer to spouse is
for adequate consideration. Therefore,
the rent for the 5 months upto the date
of transfer is taxable in
the hands of Ram Kumar and thereafter,
in the hands of his wife.
Profits and gains of business or
Profession
Share of profit from firm [Exempt
under section 10(2A)]
Interest from firm (assumed that the 36,000 36,000 64,000 64,000
same is fully deductible in the hand of
the firm)
Income from other sources
Interest on debentures(interest@10% 30,000
on debentures transferred to Shri Ram
Kumar without consideration to be
included
in the hands of the transferor-
spouse, Smt. Ram Kumar) =
10% of Rs. 3 lakh
(See Note 1 below)
Income from investments [Rs. 39,000 x
3,00,000/3,30,000] (The clubbing
provisions will apply even if the form of
the asset is changed. If the debentures
are redeemed and invested in similar
investments, income from Rs. 3 lakh
invested (being the value of debentures
transferred) alone will be included in the
hands of the transferor-spouse, Smt.
Ram Kumar. Income from accretion to
such debentures (i.e., income earned by
investing debenture interest of

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 128

 Rs. 30,000 will not be included in the 3545 3545 35,455 65,455
hands of Smt. Ram Kumar. The same
i.e., Rs. 3,545, will
be taxable in the hands of the Shri Ram
Kumar himself) (See Note 1 below)
Total income (before including minor’s 2,01,045 3,63,555
income)
Income of minor son Rohit to be
included in Smt. Ram Kumar’s income,
since her total income before including
minor’s income is higher than that of
her husband. She is eligible for
exemption of Rs. 1,500 u/s 10(32) in
respect of the income so included. 13,500
Therefore, income to be included in her
income is Rs. 13,500 (Rs. 15,000 – Rs.
1,500)
(See Note 2 below)
Total Income 2,01,045 3,77,055

Note –
1. In respect of transfer of debentures by Smt. Ram Kumar to Shri Ram Kumar, it is
not mentioned whether the transfer is for adequate consideration or not. It is assumed
that transfer is for inadequate consideration.
However, if it is assumed that transfer is for adequate consideration, the clubbing
provisions would not be attracted. In such case, the interest on Debentures of Rs.
30,000 as well as income from investment of Rs. 39,000 will be taxable in the hands
of Shri Ram Kumar.
2. In respect of property transferred to Rohit, the question simply states Rs. 15,000 as
the income from property, without mentioning the nature of income (whether rental
income or otherwise) or nature of property (whether house property or otherwise).
Therefore, the said amount has not been treated as income from house property and
deduction u/s 24(a) has not been provided in the above solution. However, if such
sum is treated as income from house property, the income to be included in Smt.
Ram Kumar’s income would be Rs. 9,000 [Rs. 15,000 – Rs. 4,500 (30% of Rs.
15,000 allowable as deduction u/s 24(a)) – Rs. 1,500 (exemption u/s 10(32)], and the
same would be included under the head “Income from house property”.
Consequently, her total income would be Rs. 3,72,555.

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 129

Question 5:(July 21)
(a) Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi who is 42 years
old furnished the following information:

S. No. Particulars Amount

(Rs.)
(i) Salary income (computed) of Mrs. Anandi 9,60,000
(ii) Income of minor son "A" who suffers from 3,08,000
disability specified in section 80U
(iii) Income of minor daughter "C" from script writing 1,86,000
for Television Serials
(iv) Income from garment trading business of Mr. 17,50,000
Dharmesh
(v) Cash gift received by minor daughter "C" on 02- 45,000
10-2023 from friend of Mrs. Anandi, on winning of
a story writing competition
(vi) Income of minor son "B" form scholarship received 1,00,000
from his school
(vii) Income of minor son "B" from fixed deposit with 5,000
Punjab National Bank, made out of income earned
from scholarship
Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for Assessment
Year 2024- 25 assuming that they have not opted to be taxed under section 115BAC.
(5 Marks)
Answer
(a) Computation of Total Income of Mr. Dharmesh and Mrs. Anandi for A.Y. 2024-25
Particulars Mr. Dharmesh Mrs. Anandi
Amount (Rs.)
Salary income (computed) 9,60,000
Income from garment trading business 17,50,000
Total Income before including income of 17,50,000 9,60,000
minor children
Income of minor son “A
Income of Rs. 3,08,000 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]

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 130

 Income of minor son “B”
Income of Rs. 1,00,000 from scholarship
[Exempt u/s 10(16)]
Income from fixed deposit with PNB 5,000
[Since Mr. Dharmesh’s income is greater than
that of Mrs. Anandi, income of minor son B
from fixed deposit would be included in the
hands of Mr. Dharmesh. Interest from bank
deposit has to be
included in Mr. Dharmesh’s income, even if
deposit is made out of income earned from
scholarship]
Less: Exemption under section 10(32) 1,500 3500
Income of minor daughter “C”
Income of Rs. 1,86,000 from script writing
for television serials [Income derived by a
minor child from any activity involving
application of his/her
skill, talent, specialized knowledge and Nil
experience is not to be included in the hands
of the parent]
Hence, clubbing provisions will not apply
in this case/no adjustment is required.
Cash gifts of Rs. 45,000 received from friend
of Mrs. Anandi [Gift not exceeding Rs. 50,000
received from a non-relative is not taxable
under section 56(2)(x)]
Hence, clubbing provisions will not apply nil
in this case / no adjustment is required.
Gross Total Income/ Total Income 17,53,500 9,60,000
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
Question :6 (July 21)
Mr. X a resident individual submits the following information, relevant to the
previous year ending March 31, 2024:

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 131

 S. No. Particulars Amount (Rs.)
(i) Income from Salary (Computed) 2,22,000
(ii) Income from House
Property House in Delhi 22,000
House in Chennai (-) 2,60,000
House in Mumbai (self-occupied) (-) 20,000
(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 (-) 16,000
Long term capital gains from sale of 15,400
property
(v) Income from other sources
(Computed) Income from betting 34,000
Income from card games 46,000
Loss on maintenance of race horses (-)14,600
Answer:
Computation of Gross Total Income of Mr. X for A.Y. 2024-25
Particulars Amount Amount
Salaries
Income from salary (computed) 2,22,000
Less: Set-off of loss from house property of Rs.
2,58,000 to the extent of Rs. 2 lakhs by virtue of section 2,00,000 22,000
71(3A)
Income from house property
- House in Delhi 22,000
- House in Chennai (2,60,000)
- House in Mumbai (self-occupied) (20,000)
Loss upto Rs. 2 lakhs can be set off against income (2,58,000)
from salary. Balance loss of Rs. 58,000 from house
property has to be carried forward to A.Y. 2025-26
Profits and gains from business or profession
Profits from Speculative business – 2 46,000
Less: Loss of Rs. 74,000 from speculation business - 1 (46,000) Nil
set off to the extent of profits of Rs. 46,000 as per
section 73(1) from another speculation business. Loss

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 132

 from speculation business cannot be set-off against any
income other than profit and gains of another -
speculation business.
Hence, the balance loss of Rs. 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 Rs. 22,000 set off
against profits from textile business to the extent of
Rs. 18,000 as per section 70(1). (18,000) Nil -
Balance loss of Rs. 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
Long term capital gain from sale of property 15,400
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 Rs.
16,000 set off against long- term capital gains to the 15,400 Nil
extent of Rs. 15,400 as per section 74(1).
Balance short term capital loss of Rs. 600 has to be
carry forward to A.Y. 2025-26
Income from Other Sources
Income from betting [No loss is allowed to be set
off against such income] 34,000
Income from card games [No loss is allowed to be set
off against such income] 46,000
Loss on activity of owning and maintenance of race NIL
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
80,000
owning and maintaining race horses. Hence, such loss of
Rs. 14,600 has to be carried forward to A.Y. 2025-26]
Gross Total Income 1,02000
Question :7 (Dec.21)
(a) Details of Income of Mr. R and his wife Mrs. R for the previous year 2023-24 are
as under:
(i) Mr. R transferred his self-occupied property without any consideration to the
HUF of which he is a member. During the previous year 2023-24 the HUF
earned an income of Rs. 50,000 from such property.
(ii) Mr. R transferred Rs. 4,00,000 to his wife Mrs. R on 01.04.2006 without any

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 133

 consideration which was given as a loan by her to Mr. Girish. She earned Rs.
3,50,000 as interest during the earlier previous years which was also given
as a loan to Mr. Girish. During the previous year 2023-24, she earned interest
@ 11% per annum.
(iii) Mr. R and Mrs. R both hold equity shares of 27% and 25% respectively in
AMG Limited. They are also working as employees in such Company.
During the financial year 2023-24 they have withdrawn a salary of Rs.
3,20,000 and 2,70,000 respectively.
(iv) Mrs. R transferred 5,000 equity shares of RSB Ltd. on 17.09.2014 to Mr. R
without any consideration. The Company issued 3,000 bonus shares to Mr.
R in 2017. On 04.03.2024, Mr. R sold entire share holdings and earned Rs.
5,20,000 as capital gains. Apart from above income, Mr. R has income from
commission Rs. 4,00,000 and Mrs. R has interest income of Rs. 3,30,000.
Compute Gross Total income of Mr. R and Mrs. R for the assessment year
2024-25:
(4 Marks)
(b) Mr. X, an employee of the Central Government is posted at New Delhi. He joined
the service on 1st February, 2018. Details of his income for the previous year 2023-
24, are as follows:
(i) Basic salary: Rs. 3,80,000
(ii) Dearness allowance: Rs. 1,20,000 (40% forms part of pay for retirement
benefits)
(iii) Both Mr. X and Government contribute 20% of basic salary to the pension
scheme referred to in section 80CCD.
(iv) Gift received by X’s minor son on his birthday from friend: Rs. 70,000.
(No other gift is received by him during the previous year 2023-24)
(v) During the year 2014-15, Mr. X gifted a sum of Rs. 6,00,000 to Mrs. X. She
started a business by introducing such amount as her capital. On 1 st April,
2023, her total investments in business was Rs. 10,00,000. During the
previous year 2023-24, she has loss from such business Rs. 1,30,000
(vi) Mr. X deposited Rs. 70,000 in Sukanya Samridhi account on 23.01.2024. He
also contributed Rs. 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 MBA
course from Gujarat University. He has paid Rs. 15,000 as interest on such
loan which includes Rs. 5,000 for the financial year 2023-24.
Determine the total income of Mr. X for the assessment year 2024-25. Ignore provisions
under section 115BAC.
Answer;
(a) Computation of Gross Total Income of Mr. R and Mrs. R for A.Y. 2024-25:

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 134

Particulars Mr. R Mrs. R
Income from house property
Income from property transferred to HUF without
consideration
Since Mr. R has transferred his property to his HUF
without consideration, income of Rs. 50,0006 from such
property would be included in the total income of Mr. R
as per section 64(2). 50,000
Capital Gains
Income from equity shares transferred by Mrs. R to Mr.
R without consideration
Capital gains arising to Mr. R from transfer of equity shares
of RSB Ltd. gifted to him by Mrs. R would be included in the 3,25,000
hands of Mrs. R [ Rs. 5,20,000 x 5,000/8,000]
Capital gains arising to Mr. R from transfer of bonus shares
issued by RSB Ltd. on the basis of holding of the said equity
shares would be included in the income of Mr. R and not Mrs.
1,95,000
R, since income derived from accretion of transferor of the
original asset i.e., Mrs. R [ Rs. 5,20,000 x 3,000/8,000]7 the
transferred asset cannot be clubbed with the income
Income from Other Sources
Income from commission 4,00,000
Interest income 3,30,000
Interest income on Rs. 4 lakhs transferred by Mr. R to Mrs.
R without consideration Income of Rs. 44,000, i.e., 11% of
Rs.4,00,000, being the amount transferred by Mr. R to Mrs.
R without any consideration and loaned by her to Mr. Girish,
44,000 38,500
would be included in the income of Mr. R Income of Rs.
38,500 i.e., 11% of Rs. 3,50,000, being the by Mrs. R from
accretion of the amount gifted by Mr. R (i.e., interest income)
cannot be included in the income of Mr. R.
Total income [before considering adjustment on account of
item (iii) i.e., salary income from a company in which 689,000 6,93,500
both Mr. R and Mrs. R have substantial interest]
Salary income from a company in which both Mr. R and
Mrs. R have substantial interest

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 135

Since both Mr. R and Mrs. R have substantial interest in
AMG Ltd. (on account of holding equity shares carrying 20%
or more of voting power) and both are in receipt of income
by way of salary from AMG Ltd., such salary income would
be includible in the hands of that spouse, whose total income,
before including such salary income, is higher. Accordingly,
the salary income of both Mr. R and Mrs. R would be
included in the hands of Mrs. R in this case, since her total
income, before including such income, is higher than that of
Mr. R.
Salary income of Mr. R = Rs. 3,20,000 – Rs. 50,000
(standard deduction) 2,70,000
Salary income of Mrs. R = Rs. 2,70,000 – Rs. 50,000
(standard deduction) 2,20,000
Gross Total Income 6,89,000 11,83,500
(b) Computation of Total Income of Mr. X for A.Y. 2024-25:
Particulars Amount Amount
Salaries
Basic Salary 3,80,000
Dearness Allowance 1,20,000
Employer contribution to NPS = 20% of ` 3,80,000 76,000
5,76,000
Less: Standard deduction [` 50,000 or ` 5,76,000, whichever
50,000 5,26,000
is lower]
Profits and gains of business or profession
Where the amount gifted by Mr. X (` 6 lakh, in this case) is
invested by Mrs. X in a business as her capital,
proportionate share of profit or loss, as the case may be,
-78,000
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. X
Income from other sources
All income of the minor son would be included in the
income of the parent Mr. X, since his income is higher than 70,000
the `50,000.
Less: Exemption in respect of income of minor child
1,500
included in Mr. X’s income

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 136

 68,500
Less: Business loss of ` 78,000 set-off to the extent of 68,500
(Balance business loss of ` 9,500 to be carried forward to Nil
the next year, since the same cannot be set-off against salary
income)
Gross Total Income 5,26,000
Less: Deductions under Chapter VI-A
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 claimed u/s 80CCD(1B)], since
26,000
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 u/s 80C, 80CCC & 1,36,000
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 salary + DA forming part of pay,
59,920
since employer is Central Government = 14% x (` 3,80,000
+ ` 48,000)
Under section 80E – Interest paid on loan taken for higher
15,000
education 2,60,920
Total Income 2,65,000
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.
Question:8 (Nov 22)
(b) Compute the gross total income of Mr. Prakhar for A.Y. 2024-25 and the losses
to be carried forward, from the information given below:

(i) Income from House Property (computed) ₹ 3,60,000

(ii) Short term capital loss on shares of a company ₹ (-) 18,700
(iii) Long term capital gain on sale of agricultural land ₹ 6000
(iv) Income from rubber business (plants grown by Mr. Prakhar) ₹ 80,000
(v) Loss from garment business b/f discontinued in F.Y. 2022-23 ₹(-) 70,000
(vi) Loss from betting ₹ (-) 5,500
(vii) Income from lotteries (net) ₹ 5,460
(4 Marks)

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 137

(b) Computation of gross total income of Mr. Prakhar for the A.Y.2024-25

Particulars ₹ ₹
Income from house property (computed) 3,60,000
Profits and gains from business and profession
Income from rubber business [35% of income from manufacture of
rubber is business income [₹ 80,000 x 35%] and the balance 65% 28,000
would be agricultural income
Less: Brought forward loss of ₹ 70,000 from garment
business set-off to the extent of ₹ 28,000, set-off is 28,000 Nil
permissible even if the business is discontinued
Capital Gains
Long-term capital gain on sale of agricultural land (Exempt, assuming
that the same is rural agricultural land)

Income from Other Sources

Income from lotteries (₹ 5,460 x 100/70) 7,800
[Note – Tax @30% has to be deducted on winnings from
lotteries u/s 194B only if the amount of payment exceeds
₹ 10,000. However, in the question, winnings from lotteries
is only ₹ 5,460 and the word “net” is given in the bracket.
Since, the word “net” is written in the bracket in question,
main solution is given based on the view that tax has been
deducted on income from lotteries @30% and accordingly,
the lottery income is grossed up. However, since no tax is
deductible u/s 194B where lottery income does not exceed
₹ 10,000, the question can be answered without grossing
up the lottery income of ₹ 5,460. In such a case, gross total
income would be ₹ 3,65,460]
Gross Total Income 3,67,800
Losses to be carried forward to A.Y.2025-26 -
Loss from garment business pertaining to P.Y. 2022-23
42,000
(₹₹ 70,000 – ₹ 28,000)
Short term capital loss on shares of a company of A.Y.
18,700
2024-25
Loss of ₹ 5,500 from betting can neither be set-off nor be
carried forward.

Note –

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 138

 In the question, long term capital gain on sale of agricultural land is given as
₹ 6,000. However, it is not mentioned as to whether the same is rural agricultural
land or urban agricultural land. The main solution given above is based on the
assumption that it is rural agricultural land. An alternate solution has been given
below based on the assumption that it is urban agricultural land –
Alternate Solution
Computation of gross total income of Mr. Prakhar for the A.Y.2024-25
Particulars ₹ ₹
Income from house property (computed) 3,60,000
Profits and gains from business and profession

Income from rubber business [35% of income from manufacture

of rubber is business income [80,000 x 35%] and the balance 28,000
65% would be agricultural income

Less: Brought forward loss of ₹ 70,000 from garment business

set-off to the extent of ₹ 28,000, set-off is permissible even if the 28,000 Nil
business is discontinued
Capital Gains
Long-term capital gain on sale of agricultural land, assuming that the same is
6,000
urban agricultural land.
Less: Set-off of Short-term capital loss of ₹ 18,700 against long-
term capital gains to the extent of ₹ 6,000 by virtue of section 6,000
74(1) Nil
Income from Other Sources
Income from lotteries (₹ 5,460 x 100/70) 7,800
[Note – Tax @30% has to be deducted on winnings from
lotteries u/s 194B only if the amount of payment exceeds ₹
10,000. However, in the question, winnings from lotteries is only
₹ 5,460 and the word “net” is given in the bracket. Since, the
word “net” is written in the bracket in question, main solution is
given based on the view that tax has been deducted on income
from lotteries @30% and accordingly, the lottery income is
grossed up. However, since no tax is deductible u/s 194B where
lottery income does not exceed ₹ 10,000, the question can be
answered without grossing up the lottery income of ₹ 5,460. In
such a case, gross total income would be ₹ 3,65,460]
Gross Total Income 3,67,800
Losses to be carried forward to A.Y. 2023-24 ₹
Loss from garment business pertaining to P.Y. 2022-23
42,000
(₹ 70,000 – ₹ 28,000)

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 139

 Short term capital loss on shares of a company of A.Y. 2024-25
12,700
(₹ 18,700 – ₹ 6,000)
Loss of ₹ 5,500 from betting can neither be set-off nor be
-
carried forward.

Question: 9
Mr. Ray, a resident individual, aged 37 years gives the following information with respect to
various loans taken by him from scheduled banks for various purposes-
(i) A housing loan of Rs. 36,00,000/- taken on 15th March, 2022 for the purchase of a
house to be used for self-residence at a cost of Rs. 47,00,000/-. The stamp duty value
of the house was Rs. 42,00,000/- at the time of purchase. Amount of re-payment of
loan during P.Y.2023-24 was:
(A) towards principal - Rs. 1,25,000/-
(B) towards interest - Rs. 3,65,000/-
This is the first and only residential house owned by Mr. Ray.
(ii) A vehicle loan of Rs. 16,00,000/- taken on 31st October, 2021 for the purchase of
electric vehicle for personal use. Amount of re-payment of loan during P.Y.2023-24
was:
(A) towards principal - Rs. 75,000/-
(B) towards interest - Rs. 1,90,000/-
Besides these loans, he has also paid a sum of Rs. 15,000 to a political party as
contribution. The entire amount was paid in cash.
You are required to compute the amount of deduction (s) available to Mr. Ray under various
provisions of Income-tax Act for A.Y.2024-25 so that he gets the maximum benefits assuming
that he does not opt to pay tax under section 115BAC. (4 Marks)

Ans: Computation of amount of deductions available to Mr. Ray for A.Y. 2024 -25

Amount (Rs.)
(i) Deduction allowable while computing income under the
head “Income from house property”
Deduction under section 24(b) for interest on loan of Rs. 2,00,000
3,65,000 in respect of self-occupied property restricted to
(ii) Deduction under Chapter VI-A from Gross Total Income
Deduction under section 80C
For repayment of loan of Rs. 1,25,000 to bank 1,25,000
Deduction under section 80EEA
Since stamp duty value does not exceed Rs. 45 lakhs and
Mr. Ray does not own any residential house, he is eligible
for deduction of upto Rs. 1,50,000 in respect of such
interest on loan since loan is sanctioned between 1.4.2019
and 31.3.2022.

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 140

 Rs. 3,65,000 – Rs. 2,00,000 [claimed as deduction u/s
24(b)] = Rs. 1,65,000 restricted to Rs. 1,50,000, being the 1,50,000
maximum permissible deduction
Deduction under section 80EEB
Deduction for interest on loan for purchase of electric
vehicle of Rs. 1,90,000 restricted to Rs. 1,50,000, being
the maximum permissible deduction, since loan is 1,50,000
sanctioned between 1.4.2019 and 31.3.2023.
No deduction in respect of principal repayment of loan for
purchase of electric vehicle is allowable
Deduction under section 80G Nil
Contribution of Rs. 15,000 to political party not allowable
since the sum is paid in cash
Deduction under Chapter VI-A from Gross Total Income 4,25,000

CLUBBING AND SET OFF AND CHAPTER VI A DEDUCTION 141

 TDS, TCS, ADVANCE TAX
QUESTION-1 (Nov19)
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. Tandon received a sum of Rs. 1,75,000 as pre-mature 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 Rs. 42,000 has been credited as interest on recurring deposit by a
banking company to the account of Mr. Hasan (aged 63 years).
(iii) Ms. Kaul won a lucky draw prize of Rs. 21,000. The lucky draw was organized
by M/s. Maximus Retail Ltd. for its customer.
(iv) Finance Bank Ltd. sanctioned and disbursed a loan of Rs. 10 crores to Borrower
Ltd. Borrower Ltd. paid a sum of Rs. 1,00,000 as service fee to Finance Bank
Ltd. for processing the loan application.
(v) Mr. Ashok, working in a private company, is on deputation for 3 months (from
December, 2023 to February, 2024) at Hyderabad where he pays a monthly
house rent of Rs. 52,000 for those three months, totalling to Rs. 1,56,000. Rent
is paid by him on the first day of the relevant month.
(7 Marks)

Answer: TDS implications

(i) On pre-mature withdrawal from EPF
No tax is deductible under section 192A even though the employee, Mr. Tandon,
has not completed 5 years of continuous service, since termination of employment
is on account of his ill-health. Hence, it is exempt and TDS is not applicable
(ii) On credit of interest on recurring deposit by a banking company
Since the interest on recurring deposit credited to the account of Mr. Hasan, a
senior citizen, does not exceed Rs. 50,000 during previous year Hence,no tax is
deductible at source under section 194A.
(iii) On payment of prize winnings of Rs. 21,000
Tax is deductible @ 30% under section 194B by M/s. Maximus Retail Ltd., from
the prize money of Rs. 21,000 payables to the customer, since the winnings exceed
Rs. 10,000.
(iv) On payment of service fee to bank
Even though service fee is included in the definition of “interest” as defined under
section 2(28A), no tax is deductible at source under section 194A, since the service

TDS, TCS, ADVANCE TAX 142

 fee are paid to a banking company, i.e., Finance Bank Ltd.
(v) On payment of rent exceeding Rs. 50,000 by a salaried individual
Mr. Ashok, a salaried individual, is liable to deduct tax at source @ 5% under
section 194-IB on Rs. 1,56,000 (being rent for 3 months from December 2023 to
February 2024) from the rent of Rs. 52,000 payables on 1st February, 2024, since
the monthly rent exceeds Rs. 50,000.

Question:2 (Nov 2020)

State in brief the applicability of tax deduction at source provisions, the rate and
amount of tax deduction in the following cases for the financial year 2023-24 under
the Income- tax Act, 1961. Assume that all payments are made to residents:
(i) Sanjay, a resident Indian individual, not deriving any income from business
or profession makes payments of Rs. 12 lakhs in January, 2024, Rs. 20 lakhs
in February, 2024 and Rs. 20 lakhs in March, 2024 to Mohan, a contractor
for reconstruction of his residential house.
(ii) ABC Ltd. makes the payment of Rs. 1,50,000 to Ramlal, an individual
transporter who owned 6 goods carriages throughout the previous year. He
does not furnish his PAN.
(iii) Smt. Sarita paid Rs. 5,000 on 17th April, 2023 to Smt. Deepa from the
deposits in National Savings Scheme account. (Not Applicable)
(5 Marks)
Answer:
TDS implications
i. On payments made to contractor
Tax is deductible @5% under section 194M, since payments to Mr. Mohan,
a contractor, for reconstruction of his residential house exceeds Rs. 50 lakhs
in aggregate during the F.Y.2022-24
Amount of tax to be deducted = 5% of Rs. 52 lakhs = Rs. 2,60,000
ii. Payment to transporter who has not furnished PAN
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 Ramlal has not furnished his PAN to
ABC 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 = Rs. 1,50,000 x 20% = Rs. 30,000
Question 3: Jan 21
(a) Examine TDS/TCS implications in case of following transactions, briefly explaining
provisions involved assuming that all the payees are residents; state the rate and

TDS, TCS, ADVANCE TAX 143

 amount to be deducted, in case TDS/TCS is required to be deducted/collected.
i. On 1.5.2023, Mr. Brijesh made three fixed deposits of nine months each of Rs.
3 lakh each, carrying interest @ 9% with Mumbai Branch, Delhi Branch and
Chandigarh Branch of CBZ Bank, a bank which had adopted CBS. These
Fixed Deposits mature on 31.01.2024.
ii. Mr. Marwah, aged 80 years, holds 6½% Gold Bonds, 1977 of Rs. 2,00,000 and
7% Gold Bonds 1980 of Rs. 3,00,000. He received yearly interest on these
bonds on 28.02.2024.
iii. M/s AG Pvt. Ltd. took a loan of Rs. 50,00,000 from Mr. Haridas. It credited
interest of Rs. 79,000 payable to Mr. Haridas during the previous year 2023-
24. M/s AG Pvt. [Link] not liable for tax audit during previous years 2022-23
and 2023-24
iv. Mr. Prabhakar is due to receive Rs. 6 lakhs on 31.3.2024 towards maturity
proceeds of LIC policy taken on 1.4.2020, for which the sum assured is Rs. 5
lakhs and the annual premium is Rs. 1,40,000. (8 Marks)

Answer:
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 Rs.
60,750 [3,00,000 x 9% x 3 x 9/12], which exceeds the threshold limit of Rs.
40,000.
Since CBZ Bank has adopted core banking solution (CBS), the aggregate
interest credited/paid by all branches has to be considered.
Tax to be deducted at source = Rs. 60,750 x 10% = Rs. 6,0751
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. Marwah i.e., Rs. 5,00,000 and interest exceed Rs. 10,000.
Interest on 6½ Gold Bonds, 1977 – (Rs. 2,00,000 x 6.5%) Rs. 13,000
Interest on 7% Gold Bonds 1980 (Rs. 3,00,000 x 7%) Rs. 21,000
Total Rs. 34,000
Tax to be deducted at source (Rs. 34,000 x 10%) Rs. 3,400

iii. M/s AG 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.
Interest on loan payable is Rs. 79,000 which exceeds the threshold limit of Rs.
5,000.
Tax to be deducted at source = Rs. 79,000 x 10% = Rs. 7,900
iv. Since the annual premium exceeds 10% of sum assured in respect of a policy
taken after 31.3.2012, the maturity proceeds of Rs. 6 lakhs due on 31.3.2024
are not exempt under section 10(10D) in the hands of Mr. Prabhakar. Therefore,

TDS, TCS, ADVANCE TAX 144

 tax is required to be deducted @5% under section 194DA on the amount of
income comprised therein i.e., on Rs. 40,000 [Rs. 6,00,000, being maturity
proceeds - Rs. 5,60,000, being the amount of insurance premium paid.
Tax to be deducted at source = Rs. 40,000 x 5% = Rs. 2,000]
Question 4: July 21
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.
Aggregate of
S. Particulars of the Nature of payment payments made
No. payer in the F.Y. 2023-
24 (Amt. in Rs.)
(i) Mr. Kale, receiving Contractual payment made during 52,50,000
pension from Central April 2023 for reconstruction of his
Government residential house in Arunachal
Pradesh
(ii) Mr. Rahul, a wholesale Contract payment for 50,00,000
trader of spices whose construction of office godown
turn over was Rs. 5 crores during January to March 2024 to
for F.Y.2022-23 Mr. Akhilesh, an individual
(iii) Mr. Golu, an individual Payment of commission to Mr. 1,20,000
carrying garment trading Vinay for securing a contract from a
business with turnover of big business house
Rs. 95 lakhs in F.Y.
2022-23
(iv) XYZ Urban Co- Payment by way of cash withdrawal, 1,20,00,000
operative bank by ABC & Co. a partnership firm,
amounting Rs. 1.2 crores during
Financial Year 2023-
24. ABC & Co. has filed its tax
returns for the last 3 financial years
with in time.

Answer:

(i) Mr. Kale, 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 Rs. 50,00,000.
Therefore, TDS u/s 194M would be = Rs. 52,50,000 x 5% = Rs. 2,62,500.
(ii) Mr. Rahul is required to deduct tax at source u/s 194C, since his turnover from

TDS, TCS, ADVANCE TAX 145

 business in the financial year 2022-23, being the financial year immediately
preceding F.Y.2023-24 in which such sum is paid, exceeds Rs. 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 = Rs. 50,00,000 x 1% = Rs. 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 Rs. 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 Rs. 50 lakhs
In the present case, Mr. Golu is not required to deduct tax at source u/s 194H
on the commission paid to Mr. Vinay in the P.Y.2023-24 since his turnover
from his business does not exceed Rs. 1 crore during the P.Y. 2022-23.
Further, Mr. Golu is also not required to deduct tax at source u/s 194M on the
said commission paid to Mr. Vinay since the commission paid does not exceed
Rs. 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 Rs. 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 XYZ Urban Co-operative is
responsible for paying a sum exceeding Rs. 1 crore (Rs. 1.2 crore, in this case)
in cash to ABC & Co., a partnership firm, during the F.Y.2023-24, the bank is
required to deduct tax at source @ 2% of such sum.
Therefore, TDS u/s 194N would be = Rs. 20,00,000 x 2% = Rs. 40,000
Question 5: (Dec 21)

State in brief the applicability of provisions of tax deduction at source, the rate and
amount of tax deduction in the following cases for the financial year 2023 -24 under
Income-tax Act, 1961. Assume that all payments are made to residents:
(i) Mr. Mahesh has paid Rs. 6,00,000 on 15.10.2023 to M/s Fresh Cold Storage
Pvt. Ltd. for preservation of fruits and vegetables. He is engaged in the
wholesale business of fruits & vegetable in India having turnover of Rs. 3
Crores during the previous year 2022-23
(ii) Mr. Ramu, a salaried individual, has paid rent of Rs. 60,000 per month to Mr.
Shiv Kumar from 1st July, 2023 to 31st March, 2024. Mr. Shiv Kumar has not
furnished his Permanent Account Number. (4 Marks)
Answer:
(i) The arrangement between Mr. Mahesh, the customer, and M/s. Fresh Cold

TDS, TCS, ADVANCE TAX 146

 Storage Pvt. Ltd., the cold storage owner, is basically contractual in nature and
main object of the cold storage is to preserve perishable goods by mechanical
process and storage of such goods is only incidental. Hence, the provisions of
section 194C will be applicable to the amount of Rs. 6 lakh paid by Mr. Mahesh
to the cold storage company1.
Accordingly, tax has to be deducted @ 2% on Rs. 6 lakh.
TDS u/s 194C = 2% x Rs. 6 lakh = Rs. 12,000
(ii) Mr. Ramu, being a salaried individual, has to deduct tax at source @ 5% u/s
194-IB on the annual rent paid by him from the last month’s rent (rent of March,
2024), since the rent paid by him exceeds Rs. 50,000 p.m.
Since his landlord Mr. Shiv Kumar has not furnished his PAN to Mr. Ramu,
tax has to be deducted @ 20% instead of 5%. However, the same cannot exceed
Rs. 60,000, being rent for March, 2024.
TDS u/s 194-IB = Rs. 5,40,000 (Rs. 60,000 x 9) x 20% = Rs. 1,08,000, but
restricted to Rs. 60,000, being rent for March, 2024.
Question 6: (May 22)
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) XY a partnership firm is selling its product 'R' through the E-commerce
Platform provided by AB Ltd. (E-commerce Operator). AB Ltd., credited in its
books of account, the account of XY on 28th February, 2024 by sum of Rs.
4,90,000 for the sale of product R, made during the month February, [Link].
Rai, who purchased product 'R' through the platform provided by AB Ltd. made
payment of Rs. 60,000 directly to XY on 21st February, 2024.
(ii) ABC Ltd is a producer of natural gas. During the year it sold natural gas worth
Rs. 26,50,000 to M/s Deep Co., a partnership firm. It also incurred Rs. 1,70,000
as freight for the transportation of gas. It raised the invoice and clearly
segregated the value of gas as well as the transportation charges.
(iii) ABC LLP paid job charges to XYZ, a partnership firm for doing embroidery
work on the fabric supplied by the ABC LLP during the previous year 2023-24
as under:
BILL DATE AMOUNT Rs.
NO.
1 30-04-2023 27,000
57 30-06-2023 25,000
105 30-09-2023 28,000
151 30-12-2023 32,000

TDS, TCS, ADVANCE TAX 147

 Answer:
(i) AB Ltd, an e-commerce operator is required to deduct tax @1% under section
194-O on Rs. 5,50,000 (i.e., Rs. 4,90,000 credited on 28.2.2024 plus deemed
payment of Rs. 60,000 on 21.2.2024, being payment directly made by Mr. Rai
to the e-commerce participant XY), being the gross amount of sale of product
‘R’ of XY, an e-commerce participant, since such sale is effected in February,
2024 is facilitated by AB Ltd. through its e-commerce platform.
Hence, TDS u/s 194O = 1% on Rs. 5,50,000 = Rs. 5,500
(ii) Since ABC Ltd., being the producer of the natural gas, sells as well as transports
the gas to M/s. Deep Co., the purchaser, till the point of delivery, where the
ownership of gas is simultaneously transferred to M/s. Deep Co, the manner of
raising the invoice (whether the transportation charges are embedded in the cost
of gas or shown separately) does not alter the basic nature of such contract
which remains essentially a ‘contract for sale’ and not a ‘works contract’ as
envisaged in section 194C.
Therefore, in such circumstances, the TDS provisions would not be attracted
on Rs.1,70,000, being the component of gas transportation charges paid by M/s.
Deep Co. to ABC Ltd.
Alternate Answer:
The above solution is based on Circular No. 9/2012 dated 17.10.2013, wherein it has
been clarified that in case the Owner/Seller of the gas sells as well as transports the
gas to the purchaser till the point of delivery, where the ownership of gas to the
purchaser is simultaneously transferred, the manner of raising the sale bill, does not
alter the basic nature of such contract which remains essentially a 'contract for sale'
and not a 'works contract' as envisaged in section 194C of the Act.
Since, the question is silent on the timing of the transfer of ownership of the gas to
the purchaser, an assumption that the ownership of the gas to the purchaser is
transferred before its transportation is possible. In such a case, the transportation of
gas after transfer of ownership may be considered as a separate contract for
transportation of gas i.e., ‘works contract’ u/s 194C, and hence TDS @ 2% has to be
deducted by M/s. Deep Co. on Rs. 1,70,000/- i.e., Rs. 3,400/-.

(iii) In this case, the individual contract payments (through the bills dated
30.4.2023, 30.6.2023 and 30.9.2023) made by ABC LLP to XYZ does not
exceed Rs. 30,000. However, since the aggregate amount paid to XYZ during

TDS, TCS, ADVANCE TAX 148

 the P.Y. 2023-24. exceeds Rs. 1,00,000 (on account of the last payment of Rs.
32,000, due on 30.12.2023, taking the total from Rs. 80,000 to Rs. 1,12,000),
the TDS provisions under section 194C would get attracted on the entire sum
of Rs. 1,12,000.
Tax has to be deducted @ 2% (since payment is to a firm, XYZ) on the entire
amount of Rs. 1,12,000, from the last payment of Rs. 32,000 on 30.12.2023.
Hence, TDS u/s 194C = Rs. 2,240.

Question 7 (Nov 22)

(a) Examine the applicability and the amount of TDS to be deducted in the following
cases for F.Y. 2023-24
(i) S and Co. Ltd. paid ₹ 25,000 to one of its directors as sitting fees
(ii) ₹2,20,000 paid to Mr. Mohan, a resident individual, by the State of Haryana
on compulsory acquisition of his urban land.
(iii) Mr. Purushottam, a resident Indian, dealing in hardware goods has a turnover
of ₹ 12 crores in the preceding previous year 2022-23. He purchased goods
from Mr. Agarwal a resident seller, regularly in the course of his business. The
aggregate purchase made during the previous year 2023-24 on various dates is
₹ 80 lakhs which are as under:
10-06-2023 ₹ 25,00,000
20-08-2023 ₹ 27,00,000
12-10-2023 ₹ 28,00,000

He credited Mr. Agarwal's account in the books of accounts on the same date
and made the payment on the 28-02-2024 ₹ 80 lakh. Mr. Agarwal's turnover
for the financial year 2022-23 is ₹20 crores.
(6 Marks)

Answer:
(a) (i) Tax @10% has to be deducted by S and Co. Ltd. under section 194J on directors
sitting fees of ₹ 25,000. The threshold limit of ₹30,000 is not applicable in respect
of sum paid to a director
The amount of tax to be deducted at source = ₹25,000 x 10% = ₹2,500
(ii) There is no liability to deduct tax at source under section 194LA, since the payment
to Mr. Mohan, a resident, by State of Haryana on compulsory acquisition of his
urban land does not exceed ₹ 2,50,000.
(iii) Since Mr. Purushottam’s turnover for preceding P.Y exceeds ₹ 10 crores, and value
of goods purchased from Mr. Agarwal, a resident seller, exceeds ₹50 lakhs in the
P.Y.2023-24 he is liable to deduct [email protected]% on ₹ 30 lakhs (being the sum

TDS, TCS, ADVANCE TAX 149

 exceeding ₹50 lakhs), at the time of credit or payment, whichever is earlier.
On 10.6.23 Nil (No tax is to be deducted u/s 194Q on the purchases made on
10.6.2023 since the purchases made till that date has not exceeded the threshold of
₹ 50 lakhs
On 20.8.2023 = 0.1% of ₹ 2 lakhs (amount exceeding ₹50 lakhs) = ₹ 200
On 12.10.2023 = 0.1% of ₹ 28 lakhs = ₹2,800.

Question- 8 (May 23)

Answer the following

(i) Miss Tara, resident individual aged 32 years, is a social media influencer. She makes
videos reviewing various electronic items and posts those videos on social media. On
1st December 2023, XYZ Ltd., an Indian company manufacturer of electronic cars
gave her a brand-new car having fair market value of ₹ 6 lakhs to promote on her
social media page. She used that car for 7 months for her personal purposes, recorded
a video reviewing the car and then returned the car to the company. You are required
to discuss the applicable provisions in the Income-tax Act regarding the deduction of
tax at source in respect of such transaction.
(ii) Ms. Aruna is a Chief Executive Officer of a multi-national company. She hires Mr.
Suresh for supply of her housing staff (like gardener, chefs and drivers etc.) and makes
the following payments to him:
₹ 25,00,000/- on 10th August, 2023 and ₹ 30,00,000 on 22nd November, 2023.
Determine the amount of tax to be deducted/ collected at source, if any.
Would your answer be different, if Ms. Aruna is a business woman and her books are
not audited in immediately preceding financial year and payment to Mr. Suresh is for
business purposes.
(iii) By virtue of an agreement with Nationalized Bank, M/s ABC Pvt Ltd., a company
engaged in catering business received ₹ 60,000 p.m. towards supply of food, water,
snacks, etc. during office hours to the employees of the bank. Discuss the TDS
implication of this transaction/agreement. (7 Marks)

Answer:
3 (i) Under section 194R, the person who is responsible for providing to a resident, any
benefit or perquisite whether convertible into money or not, arising from business
or the exercise of a profession by such resident, has to first ensure deduction of
tax@10% of the value of such benefit or perquisite, if the same exceeds ₹ 20,000.
However, in case of benefit or perquisite being a product like car, mobile etc. if the
product is returned to the manufacturing company after using for the purpose of
rendering service, then it will not be treated as a benefit/perquisite for the purposes
of section 194R.
Accordingly, in the present case, since Miss Tara has returned the car to XYZ Ltd.,

TDS, TCS, ADVANCE TAX 150

 TDS provisions under section 194R would not apply.
(ii) The provisions of section 194C would not apply in the hands of Ms. Aruna since
the amount paid to Mr. Suresh is for supply of her housing staff. Hence, it is used
exclusively for her personal purposes.
In this case, tax is required to be deducted at source from such amount under section
194M @5%, since the aggregate payment made to Mr. Suresh for the said contract
exceeds ₹ 50 lakhs during the P.Y.2023-24
Accordingly, ₹ 2,75,000, being 5% of ₹ 55,00,000 [₹ 25,00,000 + ₹ 30,00,000], is
required to be deducted at source.
In case Ms. Aruna made payment to Mr. Suresh for business purposes and she is
not required to get her books of account audited [assuming her turnover from such
business does not exceed ₹ 1 crore in P.Y. 2022-23], she is not required to deduct
tax at source under section 194C. In such case also, she is required to deducted tax
at source of ₹ 2,75,000 under section 194M.
Note – In the question, it is mentioned that Ms. Aruna is a business woman and her
books are not audited in immediately preceding financial year. However, whether
the provisions of section 194C would be attracted are dependent on whether the
turnover of business carried on by her during the financial year immediately
preceding the financial year in which the sum credited or paid exceeds ₹ 1 crore.
In the absence of this information, it is possible that audit may not be required in
her case due to the following reasons-
- her turnover exceeds ₹ 1 crore but does not exceed ₹ 10 crores and receipts
and payments in cash does not exceed 5% of such receipts or payments,
respectively.
- her turnover exceeds ₹ 1 crore but does not exceed ₹ 2 crore and she is
declaring profits under the presumptive provisions of section 44AD.
Accordingly, following alternate answer is also possible based on the assumption
that turnover of Ms. Aruna’s business exceeds ₹ 1 crore.
Alternative answer - In case Ms. Aruna made payment to Mr. Suresh for business
purposes during the P.Y. 2023-24, she would be required to deduct tax at source
@1% under section 194C amounting to ₹ 55,000 (since payment is made to Mr.
Suresh, an individual) of ₹55,00,000.
(iii) According to section 194C, the definition of “work” include catering. In the present
case, nationalised bank is required to deduct tax source @2% on ₹7,20,000
[₹60,000 x 12] paid to ABC Pvt. Ltd. for providing catering services to the bank,
since amount of ₹ 60,000 paid every month exceeds the threshold of ₹ 30,000.
Therefore, nationalised bank is required to deduct tax at source of ₹ 1,200 per
month amounting to ₹ 14,400 for the year.

TDS, TCS, ADVANCE TAX 151

 RETURN FILING
Question 1: (Nov.20)
Mr. Mukesh born on 1 4.1964 furnished his original return for Assessment Year 2024-
25 on 30.07.2024. He has shown salary income of Rs. 7.30 lakhs (computed) and interest
from his savings bank of Rs. 12,700 and from his fixed deposits of Rs. 43,000. He also
claimed deduction under section 80C of Rs. 1.50 lakhs. He had claimed deduction u/s
80D of Rs. 25,000. He also claimed deduction u/s 80TTA of Rs. 10,000. His employer
had deducted TDS of Rs. 33,950 from his salary, which he adjusted fully against tax
payable.
He paid health insurance premium of Rs. 38,000 by account payee cheque for self and
wife. He paid Rs. 1,500 in cash for his health check-up and Rs. 4,000 by cheque for
preventive health check-up of his parents. He also paid medical insurance premium of
Rs. 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 Rs. 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 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. (Optional Tax Scheme) (9 Marks)

Answer:
Total Income of Mr. Mukesh as per original Return

[Link] Particulars Rs. Rs.

(i) Salaries (Computed) 7,30,000
(ii) Income from Other Sources
Interest on savings bank account 12,700
Interest on fixed deposits 43,000 55,700
7,85,700
Less: Deductions under Chapter VI-A
(i) Deduction u/s 80C 1,50,000
(ii) Deduction u/s 80D 25,000
(iii) Deduction u/s 80TTA 10,000 1,85,000
Total Income 6,00,700
Computation of tax liability of Mr. Mukesh for A.Y.2024-25(As per original
return)

RETURN FILING 152

 Rs.
Tax on total income [20% of Rs. 1,00,700 (i.e., Rs. 6,00,700 – 32,640
Rs. 5,00,000) + Rs. 12,500]
Add: HEC@4% 1,306
Tax payable on total income 33,946
Tax payable on total income (rounded off) 33,950
Less: Tax deducted at source u/s 192 33,950
Tax Payable Nil
Need for filing revised return – Analysis
Since Mr. Mukesh'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 ensure 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 31-12-2024 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. Mukesh for the A.Y 2024-25 [As per the Revised
Return]

S No PARTICULARS Rs Rs
(i) Salary (Computed) 7,30,000
(ii) Income from Other Source
Interest on savings bank account 12,700
Interest on fixed deposits 43,000
Gross Total Income 55,700
Less: Deductions under VI A 7,85,700
(i) Deductions under 80C 1,50,000
(ii) Deductions under 80D
Medical insurance premium for self
38,000
and spouse
Preventive health check-up for self-
1,500 39,500
allowable even (if paid in cash)
Fully allowed as it is within the overall
limit of Rs.50,000 for family
Medical insurance premium for mother 33,000

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 Medical expenditure for father not
25,000
covered under any policy
Preventive health checkup for parents
(Rs. 4,000 restricted to Rs.3,500, being
5000- Rs.1,500 claimed for self and 3,500
spouse Restricted to maximum of
Rs.50,000 for parents
61,500 50,000
(iii) Deduction u/s 80TTB
Interest on savings bank account 12,700
Interest on fixed deposits 43,000
Restricted to a maximum of Rs.50,000 55,700 50,000 2,89,500
Total Income 4,96,200
Computation of tax liability of Mr. Mukesh for A.Y.2024-25 [As per the Revised
Return]
Rs.
Tax on total income [5% of Rs.1,96,200 (i.e., Rs.4,96,200 – Rs. 9,810
3,00,000basic exemption limit)
Less: Rebate u/s 87A (Since his total income does not exceed Rs. 5
lakh) – Rs. 12,500 or tax on total income, whichever is lower 9,810
Tax payable on total income Nil
Less: Tax deducted at source u/s 192 33,950
Refund due 33,950
Therefore, Mr. Mukesh 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 Rs. 33,950 deducted at source by his employer.

Question:2 (Jan 21)

Mr. Hari aged 57 years is a resident of India. He provides you the following details
of his incomes pertaining to F.Y. 2023-24

- Interest on Non-Resident (External) Account maintained Rs. 3,55,000

with State Bank of India as per RBI stipulations
- Interest on savings bank account maintained Rs. 8,000
with State Bank of India
- Interest on Fixed Deposits with Punjab National Bank- Rs. 40,000

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 He seeks your advice on his liability to file return of income as per Income-tax Act,
1961 for the Assessment Year 2024-25.
What will be your answer, if he has incurred Rs. 4 lakhs on travel expenses of his
newly married son and daughter in law's honeymoon in Canada?

(4 Marks)
An individual is required to furnish a return of income under section 139(1) if his
total income, before giving effect to the deductions under Chapter VI-A or exemption
under section 54/54B/54D/54EC or 54F, exceeds the maximum amount not
chargeable to tax i.e., Rs. 2,50,000. (Optional Tax Scheme)/Rs.3,00,000 (Default Tax
Scheme)

Computation of total income of Mr. Hari for A.Y. 2024-25.

Particulars Rs.
Income from other sources
Interest earned from Non-resident (External) Account Rs.
3,55,000 [Exempt u/s 10(4)(ii), since he is maintaining the said NIL
account as per RBI stipulations]
Interest on savings bank account 8,000
Interest on fixed deposit with Punjab National Bank 40,000
Gross Total Income 48,000
Less: Deduction u/s 80TTA (Interest on saving bank account) 8,000
Total Income 40,000
Since the total income of Mr. Hari for A.Y. 2024-25., before giving effect, inter alia, to
the deductions under Chapter VI-A, is less than the basic exemption limit he is not
required to file return of income for A.Y. 2024-25
However, if he has incurred expenditure exceeding Rs. 2 lakhs for himself or any other
person for travel to a foreign country, he would be required to file a return of income,
even if his total income does not exceed the basic exemption limit. Since he has incurred
expenditure of Rs. 4 lakhs on foreign travel of his newly married son and daughter in
law in the F.Y. 2023-24, he has to mandatorily file his return of income for A A.Y. 2024-
25 on or before the due date under section 139(1).
Question 3: (July 21)
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.
(4 Marks)
or

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In the following cases relating to P.Y.2023-24, the total income of the assessee or the
total income of any other person in respect of which he/she is assessable under Income-
tax Act does not exceed the basic exemption limit. You are required to state with
reasons, whether the assessee is still required to file the return of income or loss for A.Y.
2024-25 in each of the following independent situations. (Default Tax Scheme)

(i) Manish & Sons (HUF) sold a residential house on which there arose a long-
term capital gain of Rs. 12 lakhs which was invested in Capital Gain Bonds
u/s 54EC so that no long-term capital gain was taxable. (1½Marks)
(ii) Mrs. Archana 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
(1½ Marks)
(iii) Sudhakar has incurred an expenditure of Rs. 1,20,000 towards consumption
of electricity, the entire payment of which was made through banking
channels. (1 Mark)

Answer:
First alternative
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
- losses 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.
[Second Alternative]
(i) A HUF whose total income without giving effect to, inter alia, section 54EC,
exceeds the basic exemption limit of Rs. 3,00,000, is required to file a return
of its income on or before the due date under section 139(1). In this case,
since the total income without giving effect to exemption under section 54EC

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 is Rs. 12 lakhs, exceeds the basic exemption limit, the HUF is required to file
its return of income for A.Y. 2024-25 on or before the due date under section
139(1).
(ii) 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. Archana owns a car in Germany, the same does not
fall within the ambit of “capital asset” as it is a personal effect. Hence, Mrs.
Archana 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 proviso to section 139(1) has not
been specifically defined in the said section or elsewhere in the Act. Schedule
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 car. 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. Archana is required to file her return of income as she owns
an asset, i.e., a car in Germany. Accordingly, due credit may also be given to
the candidates who have answered on this basis.
(iii) If an individual has incurred expenditure exceeding Rs. 1 lakh towards
consumption of electricity during the previous year, he would be required to
file a return of income, even if his total income does not exceed the basic
exemption limit. Since Mr. Sudhakar has incurred expenditure of Rs.
1,20,000 in the P.Y 2023-24 consumption of electricity, he has to file his
return of income for A.Y. 2024-25 on or before the due date u/s 139(1).

Question 4: (Dec.21)
Mr. Kailash, a resident and ordinarily resident in India, could not file his return of
Income for the assessment year 2024-25 before due date prescribed under section
139(1). Advise Mr. Kailash as a tax consultant. What are the consequences for non-filing
of return of Income within the due date under section 139(1)?
(4 Marks)

RETURN FILING 157

Answer:
Consequences for non-filing return of income within the due date under section
139(1)
1 Interest under section 234A

Interest under section 234A@1% per month or part of the month for the period
commencing from the date immediately following the due date under section 139(1)
till the date of furnishing of return of income is payable, where the return of income
is furnished after the due date.
However, no interest u/s 234A shall be charged on self-assessment tax paid by the
assessee on or before the due date of filing of return.
2 Fee under section 234F
Late fee of
- Rs. 5,000 would be payable under section 234F, if the return of income is not
filed before the due date specified in section 139(1) and
However, such fee cannot exceed Rs. 1,000, if the total income does not exceed Rs.
5,00,000.
3 Carry forward and set-off of certain losses not permissible
Following losses would not be allowed to be carried forward, where a return of
income is not furnished within the time allowed under section 139(1):
- business loss, speculation business loss, loss from specified business,
- loss under the head “Capital Gains”; and
- loss from the activity of owning and maintaining race horses.

Question 5: (May 22)

Explain with brief reasons, whether the return of income can be revised under
Section 139(5) of the Income-tax Act, 1961 in the following cases:
i. Belated return filed under Section 139(4)
ii. Return already revised twice under Section 139(5) (iii)Return of loss
filed under Section 139(3)
OR
Due to some inconsistent information provided in the return of income furnished
under Section 139(1), the Assessing Officer considers it defective under Section
139(9) of the Income-tax Act, 1961.
(i) How, the Assessing Officer would deal with the issue?
(ii) What are the consequences if defect is not rectified within the time
allowed?
(iii) Specify the remedies available if not rectified within time allowed by the

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 Assessing Officer?
(4 Marks)
Answer:
First Alternative
Any person who has furnished a return under section 139(1) or 139(4) can file a revised
return at any time
- before three months prior to the end of the relevant assessment year or
- before the completion of assessment
whichever is earlier, if he discovers any omission or any wrong statement in the return
filed earlier. Accordingly,
(i) A belated return filed under section 139(4) can be revised.
(ii) A return revised earlier can be revised again as the first revised return replaces the
original return; and the second revised return replaces the earlier return filed.
(iii) A return of loss filed under section 139(3) is deemed to be return filed under section
139(1), and therefore, can be revised under section 139(5).
(c) Second Alternative
(i) Where the Assessing Officer considers that the return of income furnished by
the assessee is defective,
- he may intimate the defect to the assessee and
- give him an opportunity to rectify the defect within a period of 15 days from the
date of such intimation.
The Assessing Officer has the discretion to extend the time period beyond 15 days, on
an application made by the assessee.
(ii) If the defect is not rectified within the period of 15 days or such further extended
period, then, the return would be treated as an invalid return. The consequential effect
would be the same as if the assessee had failed to furnish the return
(iii) The Assessing Officer has the power to condone the delay and treat the return as a valid
return, if the assessee has rectified the return after the expiry of 15 days or the further
extended period, but before the assessment is made.

Question no 6: (Nov-22)
Mr. A employed with B Pvt. Ltd. residing in Chennai, filed his return of Income on
30th July. He has no other income other than salary. He however has failed to link
his Aadhar with PAN as on return filing date.

(i) What is the last date for linking Aadhar with PAN?
(ii) What is the consequence for him if he has linked the Aadhar with PAN on
31st August 2023
(iii) Are there any exceptions provided under section 139AA from quoting of
Aadhar number? (4 Marks)
Answer:
(i) Every person who has been allotted PAN as on 1st July, 2017, and who is eligible to

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 obtain Aadhar Number, has to intimate his Aadhar Number to prescribed authority
on or before 31st March, 2022.
(ii) Since, Mr. A fail to link his Aadhar number with PAN on or before 31.3.2022,
consequently, at the time of linking his Aadhaar number with PAN on 31.8.2023, he
would be liable to pay fee of ₹ 1,000 as per section 234H.
(iii) Yes, the following are the exceptions -
An individual who does not possess the Aadhar number or Enrolment ID and is:
(i) residing in Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India

Question 7: (Nov 22)

(a) Ms. Priya, aged 61 years, has total income of ₹ 10,00,000, including income from
profession, for A.Y. 2024-25, and has paid advance tax of ₹10,000 on 13.12.2023. She has
filed her return of income on 15.06.2024.
Calculate the self-assessment tax payable and the interest thereon u/s 234A, 234B and
234C, if any, by Ms. Priya. (Optional Tax Scheme) (4
Marks)
Or
(b) Mr. X a resident, aged 56 years, till recently was a successful businessman filing his return
of incomes regularly and promptly ever since he obtained PAN card. During the COVID-
Pandemic period his business suffered severely and he incurred huge losses. He was not
able to continue his business and finally on 1st January, 2024 he decided to wind-up his
business which he also promptly intimated to the jurisdictional Assessing Officer about
the closure of his business.
The Assessing Officer sent him a notice to tax income of A.Y. 2024-25 during the
A.Y.2023-24 itself. Does the Assessing Officer have the power to do so? Are there any
exceptions to the general rule “Income of the previous year is assessed in the assessment
year following the previous year”? (4 Marks)

Answer:
First Alternative
Self-assessment tax payable
Tax on ₹ 10,00,000 60,000
Add: Health and education cess @4% 2,400
62,400
Less: Advance tax 10,000
Tax payable 52,400
Add: Interest under section 234A [Interest under section 234A would not
be attracted, since Ms. Priya has furnished her return of income on
15.06.2024 which is before the due date of filing return of income]

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 Add: Interest under section 234B would be levied on ₹ 52,400 at 1% for 3
months i.e., From April to June. The interest under section 234B amount
to ₹ 1,572 1,572
Add: Interest under section 234C 2,747

Date of Instalment Specified Amount due and Period Interest

% of unpaid (rounded off to @ 1%
estimated nearest ₹ 100, ignoring
tax fraction)
th
15 June 2023 15% 9,300 [15% of 3 months 279
₹ 62,400]
th
15 September 2023 45% 28,000 [45% of 3 months 840
₹ 62,400]
th
15 December 2023 75% 36,800 [(75% of 3 months 1104
₹ 62,400) – ₹10,000]
th
15 March 2024 100% ₹ 52,400 1 month 524
Total interest under section 234C 2,747
Self-assessment tax payable and interest thereon 56,719
Self-assessment tax payable and interest thereon (rounded off) 56,720
(ii) Yes, he has the power to do so.
Since the business of Mr. X is discontinued on 1st January, 2023, the income
of the period from 1.4.2023 to 1.1.2024 may, at the discretion of the Assessing
Officer, be charged to tax in A.Y.2024-25 itself.
Following are the other exceptions to the general rule “Income of the previous
year is assessed in the assessment year following the previous year” i.e., the
income of the previous year is assessed in the previous year itself.
(i) Shipping business of non-resident
(ii) Persons leaving India with no present intention of returning
(iii) AOP/BOI/Artificial Juridical Person formed for a particular event or
purpose and likely to be dissolved
(iv) Persons likely to transfer property to avoid tax.
Question: 8 (May23)
What is the time limit within which an updated return can be filed? Also
enumerate the circumstances in which updated return cannot be furnished.
or
A person other than a company or a firm who is otherwise not required to furnish
the return of income, needs to furnish return of income provided they fulfil
certain conditions prescribed. Enumerate.
(4 Marks)

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Answer:
[First Alternative]
Any person may furnish an updated return of his income or the income of any other person
in respect of which he is assessable, for the previous year relevant to the assessment year at
any time within 24 months from the end of the relevant assessment year.
Circumstances in which updated return cannot be furnished
No updated return can be furnished by any person for the relevant assessment year, where
(a) an updated return has been furnished by him for the relevant assessment year

(b) any proceeding for assessment or reassessment or recomputation or revision of income

is pending or has been completed for the relevant assessment year in his case;
(c) he is such person or belongs to such class of persons, as may be notified by the CBDT
(d) an updated return is a loss return
(e) the updated return has the effect of decreasing the total tax liability determined on the
basis of return furnished under section 139(1)/(4)/(5) / original or revised return
(f) the updated return results in refund or increases the refund due on the basis of return
furnished under section 139(1)/(4)/(5) / original or revised return.
[second Alternative]
A person, other than a company or a firm, who is not required to furnish a return under
section 139(1), has to furnish their return of income on or before the due date if they
fulfil any of the following conditions -
(i) if his total sales, turnover or gross receipts, as the case may be, in the business
> ₹ 60 lakhs during the previous year; or if his total gross receipts in profession > ₹ 10
lakhs during the previous year; or
(ii) if the aggregate of TDS and TCS during the previous year, in the case of the person,
is ₹ 25,000 or more; or
However, a resident individual who is of the age of 60 years or more, at any time
during the relevant previous year would be required to file return of income only, if
the aggregate of TDS and TCS during the previous year, in his case, is ₹ 50,000 or
more.
(iii) the deposit in one or more savings bank account of the person, in aggregate, is ₹ 50
lakhs or more during the previous year

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