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Showing posts with label Supplement to Direct and Indirect Taxation 2008 (Problems and Solutions) (Applicable for December. Show all posts
Showing posts with label Supplement to Direct and Indirect Taxation 2008 (Problems and Solutions) (Applicable for December. Show all posts

ICWAI Assessment of Individuals-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) Applicable for December,2008 term of ICWAI

ICWAI Assessment of Individuals-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions)

1
ASSESSMENT OF INDIVIDUALS

1. Piyush furnishes the particulars of his income/outgoings for the previous year 2007-2008 as follows:
Rs
(i) Gross salary
(ii) Income from house property
(iii) Taxable business profits
(iv) Capital gains: (a) long-term
(v) (b) short-term
(vi) Gross dividends from Indian companies
(vii) Interest from government securities
(viii) Net winnings from lottery (TDS Rs.12,000)
He has made the following contribution/payments:
(i) Insurance premium on self and wife
(ii) Contribution to unrecognised provident fund
(iii) Public provident fund
(iv) NSC VIII Issue
(v) Medical insurance premium under GICApproved policy. Payment was made by
Credit Card (w.e.f.A.Y.2008-09, payment made by any mode other than cash is
allowed)
360,000
45,000
90,000
50,000
20,000
60,000
27,000
28,000
10,000
8,000
30,000
25,000
11,000
He has carried forward business loss amounting Rs 1,20,000 from the assessment year 2004-2005.
Compute his total income and tax liability. He has paid Rs 10,000 as advance tax and the employer has
deducted Rs 30,000 tax from salaries.
(a) Computation of Total Income for the Assessment Year 2008-2009
Particulars Rs Rs
(i) Income from salary: Gross salary
(ii) Income from house property
(iii) Business profits
(iv) Capital gains: long-term
: short-term
(v) Income from other sources:
(a) Dividends from Indian companies: Exempt [Sec. 10(34)]
(b) Interest from government securities
(c ) Winnings from lotteries (28,000 + 12,000)
Aggregated Income
Less: Carried forward business loss to be set-off against business
profits (Sec. 72)
Gross Total Income
Less:
1. Contributions paid under Sec. 80C:
(i) Insurance premium on
self and wife
(ii) Contribution to
unrecognised fund
(iii) Public provident fund
(iv) NSC -VIII Issue
2. Medical insurance premium (Sec. 80 D)
Total Income
50,000
20,000
70,000
(Nil)
27,000
40,000
10,000
-
30,000
25,000
3,60,000
45,000
90,000
70,000
67,000
6,32,000
90,000
5,42,000
65,000
11,000
4,66,000
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(b) Computation of Tax Liability :
Particulars of total income Rs. Rate of tax Rs
(i) Long-term capital gains 50.000 20% 10,000
(ii) Lottery winnings: 40,000 30% 12,000
(iii) Balance of total income Rs .3,76,000
First 1,10,000 Nil -
Next 40,000 10% 4,000
Next 1,00,000 20% 20,000
On the balance 1,26,000 30% 37,800
Gross tax 83,800
Add: Surcharge as income tax Nil
Add: Education cess @ 2% on income and surcharge
Add : SHEC @ 1%
1676
838
Less: (a) Tax deducted at source: 86314
(i) Salary 30,000
(ii) Lottery 12,000
(b) Advance tax 10,000
52,000 (-) 52,000
Tax payable 34,314
Tax payable rounded off to the nearest multiple of Rs 10 (Sec. 288B) 34,310


2. Miss Shristi, resident in India, is employed at a salary of Rs 30,000 p.m. She has sold shares of a company
in July 2007 for Rs 29,600. The shares were purchased in 1975 for Rs 20,000. Their fair market value on 1 April
1981 was Rs 40,000. She paid Rs 5,000 as brokerage on the sale of shares. During the year 2007-2008 she
has received (i) gross interest on bank deposits, Rs 19,000; (ii) interest on Government Securities 75,000; (iii)
gross dividends from cooperative society, Rs 40,000. Compute her total income and determine her tax liability,
making necessary assumptions, for assessment year 2008-2009 if her outgoings during this period are given
below:
Rs
(i) Contribution under Equity Linked Saving Scheme-2005
(ii) Contribution for New Jeevan Akshay-I annuity plan of LIC
(iii) Her contribution to Recognised Provident Fund
(iv) NSC VIII Issue
(v) Medical insurance for her life under GIC scheme by cheque
(vi) Contribution to approved LIC pension fund
(vii) Donation to National Blood Transfusion Council
(viii) Medical expenditure for the treatment of her disease,
Specified under the rules
20,000
12,000
24,000
8,000
3,000
15,00
12,000
50,000
Particulars Rs Rs
1. Income from salary: Gross salary
2. Long-term capital gain: Sale price of shares
Less: 1. Selling expenses:
2. Indexed cost of acquisition:40,000 x (551/100)
Long-term capital loss to be carried forward for future set-off
1,29,600
(-) 5,000
(-) 2,20,400
(-) 95,800
3,60,000
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Particulars Rs Rs
3. Income from other sources:
(a) Interest on bank to deposit
(b) Interest from government Securities
(c) Gross dividend from cooperative society
Gross Total Income
Less: 1. Deductions u/s 80C
(i) Contribution to Equity Linked Savings Scheme-2005
(ii) Contribution to New Jeevan Akshay-I
(iii) Contribution to recognised fund
(iv) NSC-VIII Issue
2. Medical insurance premium (Sec. 80 D)
3. Contribution to LIC pension fund (Sec. 80CCC)
4. Donation to National Blood Transfusion Council (Sec. 80G) Rate of
deduction 100%
5. Medical expenditure for specified diseases (Sec. 80DDB): 40,000
Less: Insurance money 31,000
Amount of deduction 9,000
Total income
19,000
75,000
40,000
20,000
12,000
24,000
8,000
1,34,000
4,94,000
64,000
3,000
15,000
12,000
9,000
3,91,000
Computation of tax liability:
Particulars of total income Rs Rate of tax Rs
First
Next
Next
On the balance
Add : 1. Surcharge on income tax
2. Education cess @ 2% on the aggregate of income tax and
surcharge
Add : SHEC @ 1%
Tax payable
Tax payable rounded off the nearest multiple of Rs 10 (Sec. 288B)
1,45,000
5,000
1,00,000
141,000
3,91,000
Nil
10%
20%
30%
-
500
20,000
42,300
62,800
Nil
1,256
628
64,684
64,680
Note: Long-term capital loss cannot be set-off against the income of any other head. It is carried forward
for next eight assessment years for future set off.


3. Divya, a resident assessee during 2007-2008 is getting pension of Rs. 18,650 p.m. since she retired in
December 1999 after completing 58 years. She has received gross dividends from cooperative society, Rs
16,000. She has also received interest of Rs 5,000 on deposits made with Housing Urban Development
Corporation, engaged in providing long-term finance for house construction/purchase during 2007-2008.
Besides, she has earned long-term capital gain of Rs 2,00,000 on the sale of gold. She has paid Rs 20,000
medical insurance premium on his life by cheque. She has also purchased infrastructure bonds of Rs 80,000
specified under Sec 80C(2)(xix): She has purchased NSC VIII issue on 1-3-2008 for Rs 14,000. Interest of Rs
1000 has accrued on NSC VIII issue purchased in 2004-2005. Compute her total income and tax liability. She
has also deposited Rs. 10,000 under annuity plan of LIC to secure pension from fund referred to under Sec.
23AAB.
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Computation of Total Income for the AY 2008-2009
Particulars Rs Rs
(i) Income from salary: Pension 18,650 x 12
(ii) Long-term capital gains
(iii) Income from other sources:
(a) Interest on deposits with HUDCO
(b) Interest accrued on NSC VIII Issue
(c) Dividend from cooperative society
Gross Total Income
Less: Deduction in computing total income
1. Contributions paid for approved savings [Sec.
80C]:
(i) Infrastructure bonds [Sec. 80C(2)(xix)]
(ii) NSC VIII Issue
(iii) Accrued interest on NSC VIII Issue
2. Deposit under annuity plan of LIC [Sec. 80CCC]
However, deduction is restricted u/s 80CCE:
3. Medical insurance premium (Sec. 80D):
Total income
5,000
620
16,000
80,000
14,000
1000
95,000
10,000
1,05,000
2,23,800
2,00,000
21,620
4,45,420
1,00,000
20,000
3,25,420
Computation of Tax Liability for the AY 2008-2009
Rs Tax Rate Rs
26,084
Nil
522
261
Tax on long-term capital gains [Sec. 112(1)]— [see Note below]
Add: Surcharge on income tax
Add: Education cess @ 2% on income tax + surcharge
Add : SHEC @ 1%
Tax payable
Tax payable rounded off to the nearest multiple of Rs 10 (Sec. 288B)
1,30,420 20%
26,867
26,870
Note: (1) Divya, is a senior citizen. [ Age on retirement + No.of years since retirement till date= 58 + 8=66
years]. Deduction from GTI is Rs 120,000 which has to the allowed against income, other than long-term
capital gain [Sec.112(3)]. Thus, the amount of other incomes included in total income Rs1,25,420
(=2,23,800 + 21,620-1,20,000). Senior citizen is not required to pay any tax up to Rs 1,95,000. Exemption limit
is first adjusted against incomes other that long-term capital gain provided the individual is resident in india.
The unavailed basic exemption limit is Rs.69,580 (Rs.1,95,000 – 1,25,420).Thus, the taxable amount of longterm
capital gain is Rs. 1,30,420 [=2,00,000-69,580]
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4. Mr P. Nandy, resident in India, discloses the following particular of his income/outgoing during the previous
year 2007-2008
Rs
(i) Short-term capital gain from sale of equity shares chargeable to securities
transaction tax: Securities transaction tax paid:
(ii) Loss from the activity of maintaining and owning race horses on which wagering is
lawfully made
(iii) Gross income from Bank of India Mutual Fund [Sec. 10(23D)]
(iv) Annual rent (fair rent Rs 3,50,000) receivable from house property.
It remained vacant for one month and municipal taxes, Rs 30,000, were paid in
two instalments, September 2007 Rs 30,000 and April 2008 Rs 20,000
(v) Repayment of loan (including interest of Rs 1,00,000):
Loan was taken from LIC to purchase house property.
(vi)He has paid school fees for his son (including building fund Rs 15,000)
(vii)Fixed Deposit for 6 years with Scheduled Bank.
(viii) He has incurred expenditure on medical treatment and rehabilitation of his sister,
suffering with 40% disability.
3,00,000
Nil
(-) 1,40,000
2,50,000
2,64,000
1,50,000
40,000
50,000
40,000
Compute his total income and tax liability for the assessment year 2008-2009
Solution: Computation of Total Income for the AY 2008-2009
Particulars Rs Rs
(a) Income from house property:
Gross annual value
(i) ALV:
(ii) Actual rent received
Actual rent is lower than ALV even without vacancy.
Therefore, ALV be reduced to adjust the loss on account of
vacancy 3,50,000 - 22,000 = 3,28,000 GAV
Less: Municipal taxes paid during the previous year
Net Annual Value(NAV)
Less: 1. Statutory deduction—30% of annual value
2. Interest on loan
Income from House Property
Short-term capital gain (Sec. 111A)
Income from other sources:
(i) Loss from owning and maintaining race horses, -1,40,000: it is to be
carried forward for next 4 assessment years.
(ii)Income from units of mutual fund — Exempt [Sec. 10(35)]
Gross Total Income
Less: (1) Deduction u/s 80C
(i) Deposit in CTDS—10-year account not allowed
(ii) Tuition fees for his son (40,000 - 15,000) (only tuition fees allowed)
(iii) Repayment of loan, taken for house constriction
3,50,000
2,42,000
3,28,000
30,000
2,98,000
(-) 84,000
(-) 1,00,000
Nil
25,000
50,000
75,000
1,08,600
3,00,000
-
-
4,08,600
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(2) Expenditure incurred on medical treatment (Sec, 80DD)
As deduction under Chapter VI A can be allowed against short-term
capital gain under Sec. 111A, total deduction including sections 80C and
80 DD is restricted upto the other income of Rs.1,08,600
Total income
Tax Liability
Tax on short-term capital gain @ 10% of Rs 1,90,000
Add: Surcharge on income tax
Add: Education Cess @ 2%
Add : SHEC @ 1%
Tax payable
50,000
1,25,000
19,000
Nil
19,000
380
190
19,570
1,08,600
3,00,000
Note :
1. Sec. 88E rebate is allowed if total income includes any income, chargeable under the head 'business or
profession", arising from taxable securities transactions and the securities transaction tax is paid.
2. No tax is payable by an individual if total income does not exceed Rs 1,10,000. The exemption limit is first
adjusted against income, other than short-term capital gain and thereafter aginst short- term capital gain
provided the assessee individual is resident in India.


5. Mr. Ashis furnishes the following particulars for the assessment year 2008-2009.
Rs
(i) Income from salary
(ii) Income from house property
(iii) Short-term capital gains
(iv) Dividends from Indian companies
(v) Income from stage performance—song and dance shows
4,80,000
90,000
2,00,000
40,000
6,00,000
He has deposited in Public Provident Fund Rs. 30,000 in the name of his widow sister, dependent on him
and Rs. 60,000 in the name of his wife, granted judicial separation. He has repaid Rs 1,00,000 to State Bank
of India against loan taken to complete his master degree in mathematics. 50% repayment is against interest.
He has paid medical insurance premium on his life for Rs 8,000 and on the life of his children Rs 7,000. The
payment was made by cheque. He has made donation (i) Rs 60,000 to Delhi University, and (ii) Rs 70,000 to
Municipal Corporation of Delhi (MCD) for family planning.
His two minor children, Vijay and Sanjay, have earned income of Rs 2,20,000 and Rs 3,50,000 during 2007-2008
from different sources. However income of Sanjay includes a sum of Rs 1,30,000, which he has earned by TV
quiz programme, Vijay is permanently physically handicapped which has reduced gainful employment
opportunities. The physical disability is certified by a doctor of a Government hospital.
Compute his total income for the previous year 2007-2008 and determine his tax liability.
Computation of total income for the AY 2008-2009
Particulars Rs Rs
(i) Income from salary
(ii) Income from house property
(iii) Income from profession: Stage performance
(iv) Short-term capital gains
(v) Income from other sources:
(a)Dividends from Indian companies: Exempt [Sec. 10(34)]
(b) Income of minor child [Sec. 64(1A)]
Sanjay: 3,50,000 - 1,30,000 =
Less: Exemption [Sec. 10(32)]
2,20,000
1,500
4,80,000
90,000
6,00,000
2,00,000
Nil
2,18,500
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Gross Total Income
Less: Deductions under Chapter VI A:
1. Contributions paid for approved savings (Sec. 80C)
(i) Deposit in PPF in the name of wife
(ii) Deposit in PPF in the name dependant sister not allowed
2. Medical Insurance u/s 80D
3. Repayment of interest on loan, taken for higher education [Sec.
80E]
4. Charitable donations:
(a) 1. Delhi University 70,000
2. MCD for family planning 80,000
Actual donations 1,50,000
Or,
(b) 10% x Adjusted Gross Total Income
= 10% [ 15,88,500 – (60,000 + 50,000 + 15000)] = 146,350
whichever is less, is qualifying amount. It is Rs. 1,46,350.
(i)Rs. 80,000 donation to MCD for family planning 100%
(ii) (146350-8000) to Delhli University = 66,350 50%
Total Income
Total income rounded off to the multiple of Rs 10 (Sec. 288A)
60,000
-
15,000
50,000
80,000
33125
15,88,500
2,38,125
13,50,325
13,50,330
Note: From the assessment year 1995-1996, income of a minor child, suffering from a permanent physical
disability cannot be clubbed with the income of parents [Sec. 64(1 A)]. Accordingly, income of Vijay has been
excluded from clubbing operation.
Mr Chopra is required to furnish the return of income on behalf of minor children. P 18.6 Mr J, a noted
lawyer of Jaipur High court, furnishes his receipt and Payment a/c for the year 2006-2007 as follows.
6. Mr. Goutam, a lawyer of Kolkata High Court, furnished his Receipt and Payment a/c for the year 2007-
2008:
Particulars Rs Particulars Rs
To balance b/d
Fees from clients
Salary from law college as part-time lecture
Interest on bank deposits
Dividends from cooperate society
Dividends from UTI
Sale proceeds from house property, used for
residence
Rent from house property
(Municipal value Rs 5,00,000)
5,00,000
30,00,000
4,00,000
60,000
20,000
20,000
10,50,000
6,00,000
56,50,000
Purchase of law books
Rent of chamber
Municipal taxes for house property
Membership fees paid to bar council
Office expenses
Salaries to staff
Motor car purchased in December
2007
Electricity and telephone expenses
Advance income tax paid Donation to
PM's Tsunami relief fund
Life insurance premium paid
Infrastructure bond purchased
By balance c/d
50,000
2,50,000
90,000
20,000
8,00,000
6,00,000
8,00,000
2,00,000
2,00,000
40,000
40,000
1,00,000
24,60,000
56,50,000
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Additional information:
Rs
(i) Outstanding legal fees
(ii) Fees from clients include retainer fees for financial year 2008-2009
(iii) Rent of chamber outstanding
(iv) Law books include subscription for annual law periodical Rs 5,000 and other laws
books purchased in December 2007.
(v) House property remained vacant for one month and tenant and did not pay one
month rent. Conditions of Rule 4 were satisfied in respect of unrealised rent.
(vi) The house property, used for residence, was purchased in 1996-1997 for 2,00,0000.
Compute his total income for the previous year 2007-2008 and his tax liability for the
assessment year 2008-2009.
1,50,000
1,00,000
30,000
Computation of Total Income for the 2008-2009
Particulars Rs Rs
Income from Salary
Income from House Property:
Gross annual value:
(i) ALV 5,00,000
6,00,000
(ii) Rent received for 10 months (assuming conditions of Rule 4 have
been 4,00,000 satisfied). Since rent received even without
vacancy is lower than ALV, only loss due to vacancy is allowed to
be deducted from ALV.
Gross Annual Value (GAV)
Less: Municipal taxes paid
Net annual value
Less: Statutory deduction - 30% of AV
Income from house property
Income from profession
Receipts from profession
Outstanding fees from clients and retainership fees received in advance for
PY 2008-20089 have not to be adjusted as the assesses is following cash
system of accounting
Less: Allowable expenses:
(i) Rent (outstanding rent not to be deducted)
(ii) Membership fees paid to bar council
(iii) Office expenses
(iv) Salaries paid to staff
(v) Electricity and telephone expenses
(vi) Depreciation on law books
(a) Periodicals -100% of 5,000 =
(b) Books – 45,000 x 60% x 50%
(vii) Depreciation on motor car : 8,00,000 x 15% x 50%
Income from Profession
Income from Capital Gains
Sale consideration of the house
Less : indexed cost of acquisition : 2,00,000 x 55%
305
Long-term capital gain
6,00,000
(-) 90,000
5,10,000
1,53,000
3,57,000
30,00,000
(-) 2,50,000
(-) 20,000
(-) 8,00,000
(-) 6,00,000
(-) 2,00,000
(-) 5,000
(-) 13,500
(-) 60,000
10,51,500
10,50,000
3,61,311
6,88,689
4,00,000
3,57,000
10,51,500
6,88,689
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Income from other sources
(I) Interest on bank deposits
(II) Dividends from UTI – Exempt [Sec. 10(35)]
(III) Dividends from cooperative society
Gross Total Income
Less : 1. Contributions paid for approved savings (Sec. 80C) :
(I) LIP
(ii) Infrastructure bonds [Sec. 80C(2) (xix)]
Maximum deduction restricted upto Rs.1,00,000
Less: Deductions u/s 80G
Donation to Charitable Trust @ 100% of Rs.40,000
Total Income
Total Income rounded off u/s 288A
60,000
nil
20,000
40,000
1,00,000
1,40,000
80,000
25,77,189
1,00,000
40,000
24,37,189
24,37,190
Computation of Tax Liability
Rs Rs
Tax on long-term capital gains 20% of Rs 6,88,690 1,37,738
Tax on balance of total income at slab rates= Rs 17,48,500
First 1,10,000 Nil Nil
Next 40,000 10% 4,000
Next 1,00,000 20% 20,000
Balance 14,98,500 30% 4,49,550 4,73,550
Gross income tax 6,11,288
Add : Surcharge 10% on income tax 61,129
6,72,417
Add : Education fees – 2% on income tax and surcharge 13,448
Add : SHEC @ 1% 6,724
Tax payable 6,92,589
Less : Advance income tax 2,00,000
Net Tax Liability 4,92,589
Tax payable rounded off u/s 288B 4,92,590


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ICWAI Assessment of Partnership Firms-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) Applicable for December,2008 term of ICWAI

ICWAI Assessment of Partnership Firms-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) ...

ASSESSMENT OF PARTNERSHIP FIRMS


1. Hitalji Deshpande is a firm of solicitors sharing profit/loss in equal ratio. Its profits and loss account
for the year, 2007-2008 discloses a profit of Rs 5,00,000. Business expenses allowable as per
income-tax law amount Rs 2,00,000 but not charged to profit and loss account. Remuneration paid to
working partners as per partnership deed and debited to profit and loss account, Rs 6,00,000.
Compute the amount of remuneration payable to partners and taxable profit of the firm.
Computation of Book-profits and Taxable Profits for AY 2008-2009
Particulars Rs.
Net profit as per Profit & Loss Account
Less: Expenses deductible but not charged to profit/loss account
Add: Remuneration to working partners to be treated separately
Book-profit
Less: Remuneration to working partners
Taxable Business Profits
(a) Actual remuneration : Rs 6,00,000, or
(b) Statutory limit: Rs 4,30,000 (see Note below)
Whichever is less, is deductible
Taxable business profits
Note: for professional firm,
First 1,00,000 of book-profits 90% =
Next 1,00,000 of book-profits 60% =
Balance 7,00,000 of book-profits 40% =
5,00,000
2,00,000
3,00,000
6,00,000
9,00,000
(-) 4,30,000
4,70,000
90,000
60,000
2,80,000
4,30,000


2. XYZ is a partnership firm, sharing profit/loss in the ratio 3:3:2. Its profit and loss for the previous
year 2007-2008 is given below:
Particulars Rs Particulars Rs
Business expenses
Remuneration to partners
Interest on capitals
8,00,000
3,00,000
1,00,000
Gross profits Net
Net Loss
8,00,000
4,00,000
12,00,000
12,00,000
Business expenses include payments which are not deductible under Sec. 36 and 37(1): Rs 1,00,000.
Compute the remuneration payable to partners on the assumption that X and Z are working partners
and Y is a sleeping partner. Remuneration is payable equally. Partnership deed provides for interest
payment @ 10% p.a.
Compute the amount of remuneration payable to partners and taxable profits of the firm.
Computation of Book-profits and Taxable profits of the firm for AY 2008-2009
Particulars Rs Rs
Net loss as per profit/loss account
Add: 1. Expenses not deductible
2. Remuneration to Y(disallowed, being a sleeping partner)
3. Remuneration to X and Z to be treated separately
Book-profit
Less: Payment of remuneration to working partners
(a) Actual remuneration: Rs 2,00,000 or
(b) Statutory limit: Rs 50,000
whichever is less, is deductible.
Business loss
1,00,000
1,00,000
2,00,000
(-) 4,00,000
+ 4,00,000
NIL
(-) 50,000
(-) 50,000
Note: Interest is allowed if the rate of interest does not exceed 12% p.a. and it is authorised by
partnership deed.
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3. M/s LKJ, a partnership firm discloses its profit at Rs 4,00,000 for the previous year, 2007-2008. The
profit has been arrived at by debiting payments of Rs 2,00,000 which are not allowed under income
tax law. Details of remuneration paid to partners, and allowable as per partnership deed are:
Particulars Remuneration paid to partners Remuneration allowable
as per partnership deed
Rs Rs
(i) Commission paid to L (sleeping partner)
(ii) Salary paid to K (working partner)
(iii) Bonus paid to J (working partner)
50,000
1,50,000
2,00,000
50,000
1,00,000
1,50,000
Profit ratio of the partners is 2:2:1
Compute the amount of remuneration deductible and taxable profits.
Computation of Book-profits and Taxable profits for AY 2008-2009
Particulars Rs Rs
Business profit
Add: Inadmissible items:
i) Expenses not deductible
ii)Commission to sleeping partner not be allowed
iii)Remuneration not in accordance with partnership deed
(a) Salary to K
(b) Bonus to J
(iv) Remuneration to working partners as per partnership deed to be
treated separately
Book-profits
Less: Remuneration allowable to working partners:
(a) Actual remuneration as per partnership deed:
Salary to K + bonus to J =
(b) Statutory limit: (see Note below)
Whichever is less, is deductible
Business profit
Note:
(1) Statutory limit:
First 75,000 of book-profit 90% =
Next 75,000 of book-profit 60% =
Balance 8,50,000 of book-profit 40% =
(2) Commission to N, a non-working partner cannot be allowed even if it is
authorised by partnership deed.
2,00,000
50,000
50,000
50,000
250,000
6,00,000
2,50,000
4,52,500
4,00,000
6,00,000
10,00,000
(-) 2,50,000
7,50,000
67,500
45,000
3,40,000
4,52,500



4. K, B and C are partners in a firm. They share profits in the ratio 2:2:1.
Profit & Loss A/c of the firm for the year ended 2007-2008
Particulars Rs Particulars Rs
Establishment expenses 5,00,000 Gross profit 22,00,000
Depreciation 3,00,000 Income from other sources:
Remuneration to partners 7,00,000 Interest on securities (gross) 50,000
Interest to partners @16% 2,00,000
Income tax 1,50,000
Sundry expenses 50,000
Net profit 3,50,000
22,50,000 22,50,000
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You are further informed that:
(i) Remuneration allowable as per partnership deed is given as below:
(a) K :Rs 2,00,000 (b) B: Rs 1,50,000 (c) C: Rs 1,50,000
(ii) Carried forward losses and allowance are given as below:
Particulars Assessment year Rs
Depreciation
Business loss
2004-2005
2005-2006
5,00,000
8,00,000
Compute the admissible amount of remuneration and the total income. Would you change your
answer in the following cases:
(i) there is no carried forward business loss;
(ii) there is no carry forward depreciation;
(iii) there is carried forward business loss of Rs 14,00,000 instead of Rs 8,00,000.
Computation of amount of remuneration payable to partners and total income of the partnership firm
Particulars Case I
Rs
Case II
Rs
Case III
Rs
Case IV
Rs
Net profit
Add: (i) Income tax
(ii) Interest to partners 2,00,000 x 4 % / 16 %
(iii) Remuneration in excess of partnership deed
(iv) Remuneration to working partners to be
treated separately
3,50,000
1,50,000
50,000
2,00,000
5,00,000
3,50,000
1,50,000
50,000
2,00,000
5,00,000
3,50,000
1,50,000
50,000
2,00,000
5,00,000
3,50,000
1,50,000
50,000
2,00,000
5,00,000
Less : Interest on securities
12,50,000
50,000
12,50,000
50,000
12,50,000
50,000
12,50,000
50,000
Book profits before adjusting carried forward depreciation
Less : Unabsorbed depreciation :
However, carried forward business loss, first should be
reduced notionally [Sec. 32(2) r.w.Sec (2)]
12,00,000
(-) 4,00,000
12,00,000
(-)5,00,000
12,00,000
Nil
12,00,000
Nil
Book-profit
8,00,000 7,00,000 12,00,000 12,00,000
Remuneration allowable to partners (see Note below)
Computation of Total Income
3,72,500 3,32,500 5,00,000 5,00,000
Book-profit before carried forward depreciation 12,00,000 12,00,000 12,00,000 12,00,000
Less: Remuneration to partners (-) 3,72,500 (-) 3,32,500 (-) 5,00,000 (-) 5,00,000
Business profit
8,27,500 8,67,500 7,00,000 7,00,000
Add: Interest on securities 50,000 50,000 50,000 50,000
Aggregate income 8,77,500 9,17,500 7,50,000 7,50,000
Less: 1. Carried forward business loss (-) 8,00,000 Nil (-) 7,00,000 (-) 7,00,000
2. Carried forward depreciation (-) 77,500 (-) 5,00,000 Nil (-) 50,000
Total income Nil 4,17,500 50,000 Nil
Note: Remuneration allowable
(i) Remuneration as per partnership deed 5,00,000 5,00,000 5,00,000 5,00,000
(ii) Statutory limit: Computed with reference to bookprofits
at prescribed rates
3,72,500 3,32,500 5,32,500 5,32,500
Whichever is less, is allowed 3,72,500 3,32,500 5,00,000 5,00,000
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5. ABC & Associates,Profit and loss account for the year ended 31.3.2008
Particulars Rs Particulars Rs
Purchases 15,45,000 Sales 40,00,000
Direct and indirect expenses 8,00,000 Interest on securities (tax deducted at
source
Depreciation 2,00,000 Rs 5,000) 45,000
Interest to partners 2,00,000
Salaries to partners 6,60,000
Net profit 6,40,000
40,45,000 40,45,000
You are further informed:
(i) Depreciation allowable as per Sec. 32 is Rs 1,50,000.
(ii) Purchases include cash purchase of Rs 1,50,000
(iii) A, B, C, share profits in the ratio of 2:1:1. C is a sleeping partner,
(iv) Interest is paid to partners @ 20% p.a. Interest is authorised by partnership deed.
(v) Salaries, authorised by partnership deed, are paid to all the partners equally.
Compute (i) book-profit and (ii) total income of the firm in the following cases:
(I) It is a professional firm.(II) It is business firm.
(Ill) It does not file the return of its income, leading to best judgement assessment.
Computation of Book-profits and Total Income for the PY 2007-2008/AY 2008-2009
Particulars Case I
(Rs)
Case II
(Rs)
Case lll
(Rs)
Net profit 6,40,000 6,40,000 6,40,000
Add: Inadmissible items:
(i) Cash purchases- of Rs. 1,50,000 [Sec. 40A(3)] 1,50,000 1,50,000 1,50,000
(ii) Interest paid to partners 80,000 80,000 2,00,000
(iii) Salary paid to C - sleeping partner (disallowed) 2,20,000 2,20,000 2,20,000
(iv) Salary paid to A&B- working partners(to be treated separately) 4,40,000 4,40,000 4,40,000
(v) Depreciation 50,000 50,000 50,000
15,80,000 15,80,000 17,00,000
Less: Income not related to business or profession: Interest on
securities
(-) 45,000 (-) 45,000 (-) 45,000
Book-profit 15,35,000 15,35,000 16,55,000
Less: Remuneration allowable to working partners [Note 1] (-) 4,40,000 (-) 4,40,00 Nil
Income from business or profession 10,95,000 10,95,000 16,55,000
Add: Income from other sources— interest on securities 50,000 50,000 50,000
Taxable income 11,45,000 11,45,000 17,05,000
Note 1:
Professional firms
Remuneration allowable to working partners
Business firms
Remuneration allowable to working partners
Particulars Rs. Particulars Rs.
(a) Actual remuneration
(b) Statutory limit:
First 1,00,000 90%
Next 1,00,000 60%
Balance13,15,000 40%
Whichever is lower is allowed
4,40,000
90,000
60,000
5,34,000
6,84,000
4,40,000
(a)Actual remuneration
(b)Statutory limit:
First 75,000 90%
Next 75,000 60%
Balance 13,85,000 40%
Whichever is lower is allowed
4,40,000
67,500
45,000
5,54,000
6,66,500
4,40,000
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Note 2: In case III, no deduction has been allowed in respect of interest and remuneration paid to
partners because the firm is assessed by way of best judgement assessment.
Note 3: In cases I & II, interest is allowed @ 12% p.a. Excess interest @ 8% p.a. has been
disallowed.


6. M/s JP & Co. discloses net profit of Rs.1,70,000 for the PY 2007-2008 after debiting and crediting
the following:
Particulars Rs.
(a) Debits:
(i) Installation of computers in September 2007
(ii) Advance tax
(iii) Interest to partners—J&P @ 16% p.a., duly authorised by partnership deed
(iv) Business expenses
(v) Commission to J, authorised by partnership deed
(vi) Salary to P, authorised by partnership deed
(vii) Donation to National Defence Fund
(b) Credits:
(i) Dividend received from Indian companies
(ii) Refund of sales tax allowed as deduction
1,00,000
25,000
1,60,000
5,00,000
1,00,000
1,00,000
50,000
75,000
60,000
Compute (i) book-profits and total income of the firm in the following cases: (I) M/s JP & Co. is a
business firm. (II) M/s JP & Co. is a professional firm.
Computation of book-profits and total income of M/s JP & Co. AY 2008-2009
Particulars
Case I
(Rs)
Case II
(Rs)
Net profit 1,70,000 1,70,000
Add: Inadmissible items:
(i) Purchase of computers 1,00,000 1,00,000
(ii) Advance tax 25,000 25,000
(iii) Interest to partners in excess of 12% 40,000 40,000
(iv) Commission and Salary to J and P to be treated separately 2,00,000 2,00,000
(v) Donation to National Defence Fund 50,000 50,000
5,85,000 5,85,000
Less: Dividend from Indian companies (-) 75,000 (-) 75,000
5,10,000 5,10,000
Less: Depreciation on computers not included in debits:
60% of Rs 1,00,000 (-) 60,000 (-) 60,000
Book-profits 4,50,000 4,50,000
Less: Remuneration to J&P [see Note below] (-) 2,00,000 (-) 2,00,000
Taxable business income 2,50,000 2,50,000
Add: Income from other sources: dividends from Indian companies: Exempt — —
Gross total income 2,50,000 2,50,000
Less: Deductions from GTI
Donation to National Defence Fund @ 100% of Rs 50,000 (-) 50,000 (-) 50,000
Total income 2,00,000 2,00,000
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Note :1
Remuneration to partners : Business firms Remuneration allowable to partners : Professional firms
(a) Actual remuneration 2,00,000 or
(b) Statutory limit based on book-profit:
First 75,000 90% 67,500
Next 75,000 60% 45,000
Balance 3,00,000 40% 120,000
232,500
Whichever is less is allowed 2,00,000
Actual remuneration 2,00,000 or
Statutory limit based on book-profit:
First 1,00,000 90% 90,000
Next 1,00,000 60% 60,000
Balance 2,50,000 40% 1,00,000
2,50,500
Whichever is less is allowed 2,00,000


7. J, K & P are partners in a firm sharing profit and losses in the ratio of 2:1:1.
'K' retires w.e.f. 31 October 2007. The firm income for the PY 2007-2008, before setting-off carried
forward losses and allowances, includes the following:
Rs
(i) Business profits 8,00,000
(ii) Long-term capital gains accruing from land on 1 January 2008 4,00,000
(iii) Income from other sources 1,00,000
Carried forward losses and allowances are given as below:
(i) Business loss C.F. from the AY 2006-2007 5,00,000
(ii) Short-term capital loss C.F. from the AY 2007-2008 2,00,000
(iii) Depreciation C.F. from the AY 2005-2006 1,75,000
Compute the total income and tax liability of the firm for the AY 2008-2009
Computation of remuneration allowable to partners and total income of the firm for the AY 2007-2008
Income form Business 8,00,000
Long term Capital gain 4,00,000
Income from other Sources 1,00,000
Aggregate Income 13,00,000
Less: Carried forward Losses / allowances :
i) Business los to be set-off against business profits 5,00,000
ii) Short term capital loss to be set off against long term capital gains 2,00,000
iii) Depreciation to be set of against business profits 1,75,000
Total Income 4,25,000
Computation of Tax Liability
LTCG @ 20% on 2,00,000 (4,00,000 – 2,00,000) 40,000
Other Income @ 30% on 2,25,000 67,500
1,07,500
(+) Surcharge @ 10% 10,750
1,18,250
(+) Education Cess @ 2% 2,365
(+) SHEC @ 1% 1,183
1,21,798
Tax payable Rounded off u/s 288 B 1,21,800

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ICWAI Clubbing of Income-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) (Applicable for December,2008 term of ICWAI Examinations

ICWAI Clubbing of Income-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) (Applicable f...


INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME


1. Mrs.G holds 7% equity shares in B Ltd., where her married sister, Mrs. N also holds 14% equity
shares. Mr.G is employed with C Ltd., without holding technical professional qualification. The
particulars of their income for the year 2007-2008 are given as follows:
Income of Income of
Mr G Mrs G
Rs Rs
(i) Gross salary from B Ltd. 1,02,000 -----
(ii) Dividend from B Ltd. ---- 6,000
(iii) Income from house property 90,000 -----
Compute taxable income of Mr. G and Mrs. G for the assessment year 2008-2009
Particulars of Income
Mr. G
Rs
Mrs.
Rs
90,000
xxx
Gross salary 1,02,000
Taxable salary to be included in the total income of Mrs G [Sec. 64(1)(ii)]
Add: Income from house property
Add: Income from other sources : Dividends to Mrs G, but exempt under Sec.
10(34)
Total income 90,000 1,02,000
Note:
1. In the instant case, Mrs G along with his sister, holds substantial interest in B Ltd., Mr. G does not
hold professional qualification. Accordingly, remuneration of Mr.G has been included in the total
income of Mrs. G.
2. If the requisite conditions of clubbing are satisfied, clubbing provision will apply even if their
application results into lower incidence of tax.


2. Mrs. C, a law graduate, is legal advisor of L Ltd. She gets salary of Rs 1,80,000. Mr. C is holding 20% shares
in L Ltd. His income from business, during the previous year 2007-2008 is Rs 4,00,000. Compute their
taxable income.
Particulars of income
MrL
Rs
Mrs I
Rs
1. Gross salary 1,80,000
2. Business profits 4,00,000 -
Total income 4,00,000 1,80,000
Note: Since Mrs. C holds professional qualification, salary income is assessable in her hands.
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3. Mr B holds 5% shares in A Ltd., where his brother and nephew hold 11% and 6% shares, respectively.
Mrs B gets commission of Rs 1,00,000 from A Ltd. for canvassing orders. She holds no technical/professional
qualification. Mr B earns income of Rs 5,00,000 from sugar business.
Compute their taxable income for the assessment year 2008-09
Computation of Taxable Income for the AY 2008-09
Particulars of income
Mr .B
Rs
Mrs.B
Rs
Income from sugar business Commission for canvassing orders 2,00,000 90,000
from Z Ltd.: Income from other sources
2,00,000 90,000
Note: In the instant case, Mr B holds 7% and his brother holds only 12% shares in A Ltd. The total of their
shareholding is less than 20%. They have no substantial interest.
Therefore, commission income is assessable as income of Mrs B.


4. The shareholding of Mr K and Mrs K in S Ltd, is given as follows:
(i) Shareholding of K 7%
(ii) Shareholding of Mrs K 9%
(iii) Shareholding of M, brother of K 8%
(iv) Shareholding of F, father of Mrs K 5%
Mr K and Mrs K are employed with S Ltd. None of them hold technical qualification. Mr K
gets salary @ Rs 10,000 p.m and Mrs K gets @ Rs 12,000 p.m.
Income from other sources: Rs
Mr K 80,000
Mrs K 1,00,000
Compute taxable income for the assessment year 2008-2009
Computation of taxable income for the AY 2008-2009
Particulars Mr.K Mrs.K
1. Gross Salary
Salary income of Mr.K to be included in the total income of Mrs.K
as her income from other sources is greater and both of them have
substantial interest alongwith their relative in s Ltd.
2. Income from other sources
1,20,000
80,000
80,000
1,44,000
1,20,000
1,00,000
3,64,000
5. Mr A gifts Rs 4,00,000 to Mrs A 1st February 2008. Mrs A starts crockery business and invests Rs 1,00,000
from her account also. She earns profit of Rs 60,000 during the period ending on 31 March 2008. How would
you tax the business profits?
Answer: Proportionate profits, in proportion the gifted amount from the spouse on the first day of the
previous year bears to the total investment in the business on the first day of the previous year, will be
taxable in the income of the transferor spouse:
As Mrs A has started the new business, the first previous year will begin on the date of setting up and
will end on 31 March, immediately following. Thus, the first previous year will consist a period of 2 months
from 1 February 2008, to 31 March 2008. Therefore, proportionate profit of Rs 50,000, computed as below,
will be included in the income of Mr A:
4,00,000 x 60,000 = 48,000
5,00,000
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6. Mr A gifts Rs 3,00,000 to Mrs A on 1st February 2008. Mrs A invests the same in the existing crockery
business where she has already invested Rs 5,00,000. Mrs A earns Rs 3,00,000 from the business during
the year 2007-2008 ending on 31 March 20089 How would you assess the profits?
Answer: The previous year of the existing business is April to March. On the first day of the previous year
(i.e. 1 April 2007), total investment has come from Mrs A account. As the proportion of the gifted amount
from spouse on 1 April 2006 to the total investment in business on the same day is nil, the whole of the profits
of Rs 3,00,000 for the year 2006-2007 will be included in the total income of Mrs A.
From the previous year 2007-2008, 60% [= 3,00,000/5,00,000 x100] of the business profits will be included
in the total income of Mr A.


7. Mrs Z is the owner of the business units A and B. A unit has been started with capital contribution
from Mr Z and B unit has been started out of capital contribution from Mrs.Z. The particulars of their income
for the previous year 2007-2008 are as follows:
Particulars Mrs Z Mr Z
(i) Income from A unit
(ii) Income from B unit
(iii) Income from house property
------
4,00,000
(-)6,00,000
-----
2,50,000
How would you assess them for the assessment year 2008-2009?
Answer:
(a)Mrs Z is assessable on the profits from B unit. She cannot set-off the loss from A unit against the profits of
B unit. Thus, she would be assessed on Rs 4,00,000.
(b) The loss from A unit will be included in the total income of Mr Z in view of Sec. 64(1)(iv). "Income"
includes "loss" also. Mr Z is entitled to set-off business loss of A's unit against income from house
property. Thus, loss of Rs 3,50,000 would be carried forward but could be set-off only against business
profits.


8. Mr Goutam, out of his own funds, had taken a FDR for Rs 1,00,000 bearing interest @ 10% p.a. payable halfyearly
in the name of his wife Latika. The interest earned for the year 2006-2007 of Rs 10,000, was invested
by Mrs Latika in the business of packed spices which resulted in a net profit of Rs 55,000 for the year ended 31
March 2008. How shall the interest on FDR and income from business be taxed for the Assessment year 2008-
2009?
Answer: Where an individual transfers an asset (excluding house property), directly or indirectly to his/her
spouse, otherwise than for adequate consideration, or in connection with an agreement to live apart, income
from such asset is included in the total income of such individual [Sec. 64(1)(iv)].
Accordingly, interest on FDR, accruing to wife, is included in the total income of her husband. However,
business profits cannot be clubbed with total income of husband. Clubbing applies only to the income from
assets transferred without adequate consideration. It does not apply to the income from accretion of the
transferred assets. Hence, business profit is taxable as the income of wife.



9. Sawant is a fashion designer having lucrative business. His wife is a model. Sawant pays her a monthly
salary of Rs 20,000. The Assessing Officer while admitting that the salary is an admissible deduction, in
computing the total income of Sawant had applied the provisions of Sec. 64(1) and had clubbed the income
(salary) of his wife in Sawant’s hands.
Discuss the correctness of the action of the Assessing Officer.
Answer: Where an individual has got substantial interest in a concern and his spouse derives any income
from such concern by way of salary, commission, fees or by any other mode, such income is clubbed with the
total income of such individual [Sec. 64(1)(ii)].
However, clubbing provision does not apply if the earning spouse holds technical or professional
qualification and the income is solely attributable to the application of such knowledge and experience.
Salary earned by wife as model from the concern where her husband holds substantial interest is
assessable as her income.
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10. Discuss whether the loss could be set-off in the following case:
Smt. Vatika carried on business with the gifted funds of her husband Mr.Dabuu. For the previous year
ending 31.3.2008,Vatika incurred loss of Rs 5 lakh which loss Dabbu wants to set-off from his taxable
income.
Answer: Funds for business were gifted by husband to wife. Accordingly, income from business should be
clubbed with the income of husband [Sec. 64(1)(iv)].
"Income" includes "loss" also. Hence, husband is entitled to set-off the business loss of wife against his
taxable income.


11. Karan held 12% shares in a private limited company. He gifted all the shares to his wife Neha on 1
October 2007. On 1 November 2007, Neha obtained loan of Rs 5,00,000 from the company, when the
company's accumulated profit was Rs 1,20,000.
What are the income tax implications of the above transactions?
Answer: Where a closely held company, other than a money-lending company, grants any loan or
advance to a shareholder, holding 10% or more equity shares, such loan or advance to the extent of
accumulated profits (excluding capitalised profits) up to the date of distribution, is deemed to be dividend
[Sec. 2(22)(e)]. Thus, the loan of Rs 5,00,000, taken by wife, is deemed to be dividend.
As the shares were transferred by husband to wife otherwise than for adequate consideration or in an
agreement to live apart, dividend income from such shares will be included in the total income of her
husband [Sec. 64(1)(iv)].



12. Ayan, an individual engaged in the business of finance, advances Rs 10 lakh to his HUF on interest at
14% p.a., which is the prevailing market rate. The HUF invests the amount in its business and earns profit
of Rs 5 lakh from this money. Can the assessing officer add a sum of Rs 3,60,000 (that is, Rs 5,00,000-Rs
1,40,000) as income of Ayan under Sec. 64(2) of the Income-tax Act? Will the position remain the same, if
Ayan does not charge any interest?
Answer: Section 64(2) is applicable only where an individual member of HUF converts his property into the
property of HUF or throws it into the common stock of the HUF without adequate consideration. In this case,
Ayan does not transfer money to his HUF but only lends an amount of Rs 10 lakh to his HUF at an interest of
14%, which is the prevailing market rate. This is a transaction of loan, which pre-supposes re-payment.
Ayan continues to be the owner of the amount lent. Thus, there is no transfer of property from Ayan to the
HUF. Therefore, the Assessing Officer cannot add the profit arising to HUF in the total income of Ayan by
invoking Sec. 64(2).
Even if no interest is charged by Ayan, the nature of transaction does not change. It still remains a loan
transaction. Therefore, the position will not change, even if Ayan does not charge any interest.

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ICWAI Deductions From Gross Total Income-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions)

ICWAI Deductions From Gross Total Income-Supplement to Direct & Indirect Taxation 2008 (Problems & Solution...

DEDUCTIONS FROM GROSS TOTAL INCOME



1. Mr. N is employed at a gross salary of Rs 8,00,000. He gets Rs 15,000 interest on bank deposit. He
has made the following in vestment/ deposit during the year 2007-2008.
Rs
1. Life insurance premium:
(i) Own life, insured for Rs 80,000
(ii) Brother's life, dependent on him
(iii) Major son, not dependent on him
2. Contribution to unrecognised provident fund
3. Contribution to public provident fund
4. Contribution to ULIP
5. Repayment of loan to SB1 to purchase a residential house: 50% repayment is towards
interest.
6. Infrastucture bonds of an Indian public company under Sec. 80C(2)(xix)
He has paid education fees for his 3 children:
A
B
C
15,000
5,000
4,000
60,000
20,000
5,000
1,20,000
10,000
12,000
9,000
6,000
Besides, interest of Rs. 1,632 on NSC-VIII, (purchased during the year 2005-2006) has been credited on
them during the year 2006-2007.
Compute deduction u/s 80C for the assessment year 2008-2009
Computation of Deduction u/s 80C of Mr. N for the assessment year 2008-2009
Particulars Rs Rs
Deduction in respect of contribution to approved savings (Sec. 80C):
1. Life insurance premium;
(i) Own life- 15,000
(ii) Brother's life -
(iii) Major son 4,000
2. Contribution to unrecognised provident fund -
3. Contribution to ULIP 5,000
4. Contribution to public provident fund 20,000
5. Repayment of housing loan to SBI 60,000
6. Infrastucture bonds of Indian public company [Sec. 80C(xix)] 10,000
7. Accrued interest on NSC- VIII issue 1,632
8. Education fees for two children:
A 12,000
B 9,000
1,33,632
Deduction restricted upto Rs.1,00,000 1,00,000
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2. Mr Jamal resident in India, has paid Rs 60,000 for medical expenses during the previous year 2007-2008 for
his wife suffering from cancer. Mrs. Jamal is also resident in India and turns 65 years of age on 31 March 2008.
The full treatment cost has been reimbursed by the General Insurance Corporation of India. Please determine if
Mr. Jamal is entitled to any deduction under Sec. 80DDB and if the answer is yes, determine the quantum of
deduction. Also, please work but the quantum of deduction in the following circumstances :
I. Mrs. Jamal turns 65 years of age on 1 April 2008 and the amount reimbursed by the insurer is Rs
25,000. Payment of medical treatment was made out of exempted income.
II. Jamal turns 65 years of age on 1 April 2007 but Mrs. Jamal is 64 years, 11 months and 30 days as
on 31 March 2008 and the insurer has not reimbursed any expenditure.
III. Mrs. Jamal is 66 years of age, a non-residential in India and the insurer has reimbursed Rs.
35.000
IV. Mr. Jamal, though having assessable income in India, is actually resident in Sri Lanka and is
getting his wife treated in India for sake of better and more advanced medical facilities Mrs. Jamal
is residential in India and the insurer has reimbursed Rs 20,000.
V. The expenditure is incurred by the assessee on cancer treatment of his 25 year old grandson who
is dependent on him and is resident in India. The insurer has not reimbursed the claim.
VI. Mr. Jamal is able to produce the receipt of the medical expenditure only to the extent of Rs. 10,000
as he misplaced other receipts and the certificate in Form 10-I regarding the treatment of his wife
does not mention the total amount incurred by him during the previous year. The insurer has
reimbursed only Rs. 5,000.
Amount of deduction under Sec. 80DDB: PY 2007-2008 / AY 2008-2009
Particulars Existing I II III IV V VI
Gross deduction u/s 80DDB in
respect of specified ailment of
dependant wife.
Less : Insurance claim received
Net deduction allowable u/s
80DDB
60,000
60,000
Nil
40,000
25,000
15,000
40,000
Nil
40,000
40,000
35,000
5,000
Nil
Nil
Nil
Nil
Nil
Nil
10,000
50,000
5,000
Working Notes :
1. In order to be a senior citizen, a person should be a resident in India and be 65 years of age at any
time during the previous year, be it one the last day of the previous year or at any time during the
previous year. Therefore, except when Mrs. Jamal turns 65 after the end of the previous year or
when she is a non-resident in India, the gross amount of deduction will be Rs. 40,000.
2. The assessee individual must be resident in India in order to be eligible to the deduction. A
grandson is not covered by the definition of “dependant”.
3. Form No. 10-I does not require the doctor to certify the amount incurred.



3. Mr. C, manager of L Ltd., has paid Rs. 38,000 during the previous year 2007-2008 by way of medical
insurance under GIC approved medical policies. The details are given as below:
(i) For himself. Rs.6,000
(ii) For Mrs C, a Canadian citizen resident in Toronto and not dependent on him Rs.5,000
(iii) For B, married son living with him and dependent on him Rs.3,000
(iv) For D, minor son resident in Toronto and not dependent on him Rs.3,000
(v) For Mrs B, daughter-in-law, dependent on him Rs.5,000
(vi) For E, a minor grandson dependent on him Rs.3,000
(vii) For K, father, 67 years, resident and dependent on him Rs.3,000
(viii) For M, mother, 66 years, resident in Toronto and dependent on him Rs.6,000
(ix) For Grandfather, dependent on him, 95 years of age and resident in India Rs.4,000.
C has earned gross salary of Rs 2,50,000 during the year and also earns Rs 95,000 as interest from 7% Capital
Investment Bonds, purchased on 31 May 2002. Compute his eligible deduction u/s 80Dfor the previous year
2007-2008 assuming the following situations:
I. Premium is paid by cheque from his salary income.
II. Premium is paid in cash from his salary income. He holds a valid receipt for cash payment.
III. Premium is paid by cheque out of interest from 7% Capital Investment Bonds, acquired on 31-5-2002.
IV. Premium is paid in cash out of interest from 7% Capital Investment Bonds, acquired on 1-6-2002.
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Computation of Deduction for Medical Insurance Premium u/s 80D
Particulars of Medical Insurance premium paid
I
Rs
II
Rs
III
Rs
IV
Rs
For himself 6,000 Nil Nil Nil
For Mrs. C, a Canadian citizen resident in Toronto and not dependent
on him
3,000 Nil Nil Nil
For B, married son living with him and dependent on him 2,000 Nil Nil Nil
For D, minor son resident in Toronto and not dependent on him Nil Nil Nil Nil
For Mrs. B, daughter-in-law, dependent on him Nil Nil Nil Nil
For E a minor grandson, dependent on him Nil Nil Nil Nil
For K, father, 67 years, resident, a senior citizen and dependent on him 2,000 Nil Nil Nil
For M, mother, 66 years, resident in Toronto -not a senior citizen but
dependent on him
6,000 Nil Nil Nil
For Grandfather, 95 years of age, dependent on him, resident in India, and
senior citizen (not a parent, hence not eligible)
Nil . Nil Nil Nil
Eligible premium for Deduction u/s 80 D 19,000 Nil Nil Nil
Working Notes:
1. Medical insurance premium on spouse's health is always eligible irrespective of whether the spouse is dependent on
the assessee or not. The condition of dependency applies only in case of children and parents.
2. Medical premium on health of grandson, grandparents, daughter-in-law or son in-law are not eligible for
deduction u/s 80D.
3. Only the premium on health of dependent father will qualify for relaxation as a senior citizen. Since dependent mother is
non-resident and, therefore, outside the purview of being a "senior citizen". However, the premium for health of mother
will qualify for the normal limit irrespective of the residential status.
4. Any premium paid in cash or by cheque out or exempted income does not quality for deduction u/s 80D.



4. Mr. Maity, a resident individual, furnishes the following particulars of his income/expenditure for the previous
year 2007-2008:
Rs
(i) Gross salary
(ii) Income from house property
(iii) Share of profit from an AOP
(iv) Long-term capital gain
3,00,000
1,70,000
25,000
50,000
He has paid medical insurance on his life, his wife and his dependent children. Total premium paid under
GIC approved policies is Rs 10,000 but a sum of Rs 1,000 was paid in cash due to a prolonged bank clearing
strike. He has spent Rs 20,000 on the treatment of his brother, a dependant with disability. He has also
deposited Rs 25,000 with a specified company u/s 2(h) of Unit Trust of India (Transfer of Undertaking and
Repeal) Act, 2002 for maintenance of his brother.
He has paid the following donations during the year:
Particulars of donations made during the year Rs
• Donation to P.M.'s National Relief Fund
• Donation to Jamia Milia University
• Donation to National Cultural Fund, set up by Central Government
• Donation to Delhi Municipal Corporation for Family Planning
• Donation to Birla Temple (notified)
• for repair and renovation of the temple
• for religious ceremonies, prasad, etc. for the benefit of devotees in general
• Donation to a temple managed by the Residents Welfare Association for its much
needed repair and maintenance. The Association is a non-profit entity registered with
the Registrar of Societies.
• Following donations to Pt. Pyare Lai Charitable Trust recognised by the Commissioner
u/s 80G(50(vi).
(i) Donation in form of equity shares of blue chip companies: The shares were sold by
the Trust at their market value of Rs 75,000 and used wholly towards its charitable
10,000
5,000
5,000
12,000
2,000
5,000
5,000
25,000
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objectives. However, shares were transferred at cost,
(ii) Donation paid in cash,
(iii) Donation made by cheque,
(iv) 50 blankets costing Rs 100 each.
• Donation made to Indian Olympic Association 80G(20(c) paid by a/c payee cheque,
• Donation for developing low cost homes for slum-dwellers, paid
(i) Delhi Development Authority, and
(ii) Delhi Slum-dwellers Rehabilitation Society duly registered with the Registrar,
• The Rajiv Gandhi Foundation
• National Children's Fund
5,000
7,000
5,000
7,500
3,000
2,500
6,000
3,000
Mr Maity borrowed a sum of Rs 2,00,000 in 2002 @ 9% interest from Harsh Vardhan Charitable Trust
(registered under Sec. 80G) to complete his B.Tech. degree from Nalanda University. In March 2008, he repaid a
sum of Rs 75,000 (including Rs 20,000 interest) to the said trust.
Compute his total income for the assessment year 2008-2009.
Computation of Total Income of Mr. Maity for the Assessment Year 2008-2009
Particulars Rs Rs
1. Income from salary 3,00,000
2. Income from house property 1,70,000
3. Share of profits from an AOP : Exempt (Sec. 86) Nil
4. Long-term capital gains 50,000
Gross total income 5,20,000
5. Deduction from gross total income :
(i) Medical insurance premium (Sec. 80D) 9,000
(ii) Expenditure on medical treatment and deposit for maintenance of a
handicapped dependent relative (Sec. 80DD) :
50,000
(iii) Repayment of interest on loan for higher studies (Sec. 80E) 20,000
(No deduction is allowed for repayment of principal amount of educational
loan w.e.f. A.Y. 2006-2007)
79,000
(iv) Charitable donations Sec. 80G – [See Note below] 42,500 1,21,500
Total Income 3,89,500
Working Note:
Rs Rs
Gross Total Income 5,20,000
Less : Aggregate of:
(i) Share of profit in AOP entitled to rebate u/s 86. Nil
(ii) Any amount qualifying for deduction from GTI exempt for deduction for
donation u/s 80G itself.
79,000
(iii) Long-term capital gain 50,000
(iv) Any to a NRI from dividend and interest etc. on foreign currency investment
referred to u/s 115A, 115AB, 115AC, 115ACA, 115AD.
Nil
1,29,000 1,29,000
Adjusted Gross Total Income 3,91,000
Computation of Deduction for Donations u/s 80G
Rs Rs
A. Donations not subject to qualifying amount, eligible for deduction @ 100% of the
amount donated :
(i) Donation to P.M.’s National Relief Fund 10,000
(ii) Donation to National Cultural Fund, set up by Central Government 5,000 15,000
B. Donation not subject to qualifying amount, eligible for deduction @ 50% of the
amount donated :
(i) The Rajiv Gandhi Foundation 6,000
(ii) National Children’s Fund 3,000
Only 50% of the amount of donation available as deduction 9,000 4,500
C. Donation subject to qualifying amount :
(i) Donation to Delhi Municipal Corporation for Family Planning 12,000
(ii) Donation made to Indian Olympic Association 80G (2)(C)
(available only to a company assessee) Nil
(iii) Donation to Jamia Milia University 5,000
(iv) Donation to Birla Temple (notified) for repair and renovation of the temple. 2,000
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(v) Monetary donation to Pt. Pyare Lal Charitable Trust recognised by the
Commissioner u/s 80G (5) (vi).
12,000
(vi) Donation to Delhi Development Authority 3,000
Aggregate of donations subject to qualifying amount 34,000
Qualifying amount :
Lower of the following :
(a) 10% of Adjusted Gross Total Income, i.e. 39,100, or
(b) Aggregate of donations, 34,000
Whichever is less, is qualifying amount = 34,000
100% of Rs 12,000 out of the QA of 34,000 12,000
50% of the balance of the QA i.e. 50% of (34,000-12,000) 11,000 23,000
Total deduction for donations u/s 80G 42,500
1. Medical Insurance Premium paid in cash is not allowable as a deduction.
2. Donation to a notified temple is allowed only if it is towards its repairs or maintenance and not otherwise.
3. Only donations paid in monetary terms that is, either in cash or by cheque are eligible for deduction.
Conversion of donations in kind into cash by the donee or mere possibility of their conversion is
immaterial.



5. Mr Jamal, a resident assessee, runs a manufacturing business in Delhi. For the previous year 2007-2008,
he disclosed his taxable income as below:
Rs
Business profits 2,55,000
Long-term capital gains 25,000
Short-term capital gain 15,000
He has hired furnished accommodation for his own use and pays Rs 4,000 p.m. He has paid donation
amounting to Rs.10,000 to National Defence Fund. He has deposited Rs 50,000 under a scheme framed by the
Life Insurance Corporation for maintenance of his dependant brother with a disability. The disability is certified
by the medical authority. Compute his total income for the assessment year 2008-2009.
Computation of total income of Mr Jamal — Assessment Year 2008-2009
Particulars Rs. Rs.
Income from business (computed) 2,55,000
Long-term capital gain (computed) 25,000
Short-term capital gain (computed) 15,000
Gross Total Income 2,95,000
Deductions from gross total income:
(i) Deposit for maintenance of a dependent with disability [Sec. 80DD]: 50,000
(ii) Charitable donations to National Defence Fund [Sec. 80G]:
Amount of Deduction @ 100% of Rs 10,000
10,000
60,000
(iii) Expenditure incurred on rent [Sec. 80GG] [ W.N.1 ] 17,000 77,000
Total income 2,18,000
Workings Note 1:
Particulars Rs Rs
60,000
25,000
Expenditure incurred on rent [Sec. 80GG]:
• [Rent paid -10% of ATI], i.e. 48,000 -21,000 = 17,000, or
• 25% of AGTI, i.e. 25% of 2,10,000 = 52,500, or
• Rs 2,000 p.m. = Rs 24,000
whichever is less, is to be deducted, i.e. Rs 17,000
Adjusted Total Income for Sec. 80GG:
Gross total income
Less: Aggregate of
(i) All permissible deduction from GTI except for deduction for u/s 80GG
(ii) Any long-term capital gain
Adjusted Gross Total Income [AGTI] for Sec. 80GG
2,95,000
85,000
2,10,000
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6. M, resident in India, furnishes the following particulars of his receipts and outgoings during the previous
year 2007-2008.
Rs.
Receipts:
(i) Income from salary
(ii) Income from house property
(iii) Gross winning from crossword puzzle
Outgoing:
(i) Contribution to LIC annuity plan
(ii) Medical insurance premium:
(a) For himself
(b) His wife, not dependent
(c) Mother, non-resident, 67 years, dependent
(d) Nephew, wholly dependent with disability
(e) Grandson, dependent
(iii) Expenditure on medical treatment and maintenance of the nephew referred to
(iv) Medical treatment for grandson, suffering from a disease specified under income-tax rules(v)
(v) Donation to Gujarat government for family planning
(vi) Scholarship to a poor but meritorious student
(vii) Contribution to approved scientific research association
viii) Contribution to Delhi Municipal Corporation for sewage scheme for slum-dwellers,
approved by National Committee
(ix) Donation to Congress party paid during November 2007 assembly elections
Compute his total income for the assessment year 2008-2009. Make necessary assumptions
and clarify them.
2,00,000
3,00,000
3,50,000
15,000
4,000
3,000
5,000
3,000
2,000
30,000
50,000
50,000
20,000
30,000
50,000
20,000
Computation of total income for AY 2008-2009
Particulars Rs Rs
Income from salary
Income from house property
Gross winnings from crossword puzzle
Gross Total Income
Less: Deductions under Chapter VIA :
Contribution to LIC annuity plan [Sec. 80CCC]
Medical insurance premium [Sec, 80D]
Assessee 4,000
His wife 3,000
Mother, 67 years old 5,000
Nephew dependent with disability x
Grand son x
12,000
Maintenance and medical treatment of a dependent with disability [Sec. 80DD]
Expenditure for medical treatment of grandson [Sec. 80DDB]
Donations for scientific research or rural development [Sec. 80-GGA]
(a) Donation to approved scientific research association
(b) Contribution to MCD for slum-dwellers scheme, approved by National
Committee
Donations to political party [Sec. 80GGC w.e.f. 22.9.2003]
Charitable donations [Sec. 80G]
(a) Scholarship to a poor meritorious student
(b) Gujarat government for family planning: 100% of qualifying amount
1. Actual donation = 50,000, or
2. 10% of specified GT1 = 37,800
8,50,000 - (3,50,000 + 10,000 + 12,000 + 30,000 + 50,000 + 20,000)= Rs.3,78,000
whichever is less, is QA 37,800= 100% of 37,800
Total income
10,000
12,000
Nil
Nil
30,000
50,000
20,000
xxx
37,800
2,00,000
3,00,000
3,50,000
8,50,000
-
-
1,59,800
6,90,200
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7. Following are the particulars of the two undertakings X and Y of C Ltd., an Indian company. Undertaking A
commences its business on 1 January 2005 and is eligible to claim deduction u/s 80-IA.
Previous year Particulars X Y
2004-2005 Business profits or loss before depreciation (-) 6,00,000 14,00,000
Depreciation 4,00,000 2,00,000
2005-2006 Business profits or loss before depreciation 5,00,000 2,00,000
Depreciation 4,00,000 1,00,000
2006-2007 Business profits or loss before depreciation 8,00,000 10,00,000
Depreciation 4,00,000 2,00,000
2007-2008 Business profits or loss before depreciation 28,00,000 12,00,000
Depreciation 4,00,000 6,00,000
Compute the amount of deduction for X u/s 80-IA and total income of C Ltd. for all four previous years.
Computation of deduction u/s 80-IA for undertaking X
Particulars 2004-2005 2005-2006 2006-2007 2007-2008
(-) 6,00,000
xxx
5,00,000
(-) 4,00,000
8,00,000
(-) 4,00,000
28,00,000
(-) 4,00,000
1,00,000
(-) 1,00,000
xxx
4,00,000
(-) 400,000
xxx
24,00,000
(-) 1,00,000
(-) 4,00,000
Nil Nil Nil 19,00,000
Profits or loss before depreciation
Less: Depreciation
Set-off of carry forward business loss
Set-off of carry forward depreciation
Profits eligible for deduction u/s 80-IA
Amount of deduction @ 100% of profits Nil Nil Nil 19,00,000
Computation of profits of undertaking Y and total income of C Ltd.
Particulars 2004-2005 2005-2006 2006-2007 2007-2008
14,00,000
(-) 2,00,000
2,00,000
(-) 1,00,000
10,00,000
(-) 2,00,000
12,00,000
(-) 6,00,000
12,00,000
Nil
(-) 6,00,000
(-) 4,00,000
1,00,000
1,00,000
8,00,000
4,00,000
6,00,000
24,00,000
2,00,000 2,00,000 12,00,000 30,00,000
Profits or loss before depreciation:
Less: Depreciation of Y
Profits of X after depreciation
Set-off of business loss of X
Set-off of unabsorbed depreciation of X
Gross Total Income
Less: Deduction u/s80-IA
Total income of C Ltd.
Nil
2,00,000
Nil
2,00,000
Nil
12,00,000
19,00,000
11,00,000
Note: 1. Even though the business loss and unabsorbed depreciation of X were set-off during the PY 2005-2006
itself in computation of total income of C Ltd., for the purpose of deduction u/s 80-IA, they will still be
carried forward on notional basis and set-off only against the profits of business eligible u/s 80-IA.
2. The deduction is available for a period of 10 consecutive assessment years out of 15 years from the
commencement of business by the undertaking. Therefore, since all the carry forward losses and
allowances have been set off by PY 2007-2008 and if profits are anticipated to be higher from PY 2008-
2009 onwards, it will be to assesssee’s benefit t o forego the deduction of Rs. 19,00,000 for the AY 2008-
2009 and claim it for 10 years commencing AY 2009-2010.
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8. SK Industries, a diversified group, discloses profit from the following sources for the previous year 2007-
2008.
(Rs. in lakhs)
(i) Profits from small-scale unit, started in 1999-2000
(ii) Profit from industrial undertaking 2001-2002, in Vidisha, a B-class industrially
backward district.
(iii) Profit from multiplex theatre, started in 2005-2006
(a) Delhi
(b) Allahabad
(iv) Profits form convention centre, started in 2006-2007
(a) Delhi
(b) Allahabad
(v) Profits from Hill View, a hotel started in 2001-2002 at Manali in Himachal Pradesh.
Hotel is approved by prescribed authority
(vi) Profits from undertakings engaged in refining of mineral oil since 1 January 2003 in
Uttar Pradesh, not listed in backward state in Eighth Schedule.
Compute the total income for the assessment year 2008-2009
6.00
10.00
4.00
2.00
5.00
3.00
10.00
10.00
Computation of Total Income
Particulars (Rs. lakhs) (Rs. lakhs)
(i) Profits from SSI
(ii) Profits from undertaking located in industrially backward B-class
district
(iii) Profits from multiplex theatre: 4 + 2 =
(iv) Profits from convention centre : 5+3 =
(v) Profits from Hill View Hotel
(vi) Profits from refining undertaking
Gross Total Income
Less : Deduction in respect of profits and gains from certain industrial undertaking,
other than infrastructure undertakings (Sec. 80-IB) :
1. Profits from SSI [Sec. 80-IB (3)] : 25% of Rs 6 Lakh :
2. Profits from undertaking in B-class industrially backward district [Sec. 80-IB
(4)] 25% of Rs 10 lakh
3. Profits from multiplex theatre [Sec. 80-IB(7A) 50% of Rs 2 lakh
(No deduction for Delhi)
4. Profits from convention centre [Sec. 80-IB(7B)] 50% of Rs. 8 lakh
5. Profits from Hill View Hotel [Sec. 80-IB(7)] Allowed only for Indian company
6. Profits from refining undertaking [Sec. 80-IB(9)]-100% of profits for 7
assessment years
Total Income
1.50
2.50
1.00
4.00
Nil
10.00
6.00
10.00
6.00
3.00
10.00
10.00
50.00
19.00
31.00
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9. Evergreen Construction (P) Ltd. has earned profits during the PY 2007-2008 from construction and sale of f lats
under three housing projects, developed at Rajarhat, Kolkata, details of which are given below:
(Rs in lakhs.)
(a) Profits from construction and sale of flats, built up on a plot of 1.5 acres, built up area of
the flat 1400 sq feet, located 30 km from Kolkata.
(b) Profits from construction and sale of flats, built up on a plot of 1 acre, built up area 1050
sq feet,
(c) Profits from construction and sale of flats, built on a plot of 0.90 acre, built up area 1000
sq feet, located 35 km from Kolkata.
80.00
60.00
40.00
The housing projects have been approved by the Kolkata Industrial Development Authority in the year 1 April 2005.
Compute its total income for the previous year 2007-2008 relevant for the AY 2008-2009. Would your answer be different
in the following cases:
(i) The housing projects were not approved.
(ii) The housing project is carried out in accordance with a scheme approved by West Bengal Government for
redevelopment of buildings in slum areas.
(iii) The company was engaged only in the sale of flats and not developing and building the housing project.
Computation of Total Income for the AY 2008-2009
Particulars (Rs in lakh) (Rs in lakh)
Profits from Project (a)
Profits from Project (b)
Profits from Project (c)
Deductions from profits and gains from certain industrial undertaking other than
infrastructure undertaking (Sec. 80-IB):
(i) Profits from Housing Project (a) are fully deductible as the size of
flat not exceeding the prescribed area 1500 sq feet.
(ii) Profits from Housing Project (b) not deductible as the area of the flat
exceeds the prescribed area of 1000 sq feet.
(iii) Profits from Housing Project (c) not deductible as the size of the Housing
plot is less than 1 acre.
Total income
80.00
x
x
80.00
60.00
40.00
180.00
(-) 80.00
100.00



10. Mekon Ltd., an Indian company, starts an industrial undertaking on 1 April 2007. During the previous
year, it earns profits of Rs 80 lakh before allowing any deduction for wages. Compute its total income for the
previous year 2007-2008 taking into account the following employment schedules of workers:
Date of employment Number of workers Status of workers Rate of wages
1-5-2007
1-6-2007
1-7-2007
90
20
10
Casual
Regular
Regular
300 p.m.
4000 p.m.
4000 p.m.
omputation of total income for the AY 2008-2009
Particulars Rs Rs
Profits before allowing deduction for wages
Less: Wages paid to workers [Sec. 37(1)]:
(i) 90 x Rs 3000 x 11
(ii) 20 x Rs 4000 x 10
(iii) 10x Rs4000 x 9
Business Profits and Gross Total Income
Less: Deduction in respect of employment of new workmen
[Sec. 80 JJAA] 30% (Rs .4000 x 10 x 10)
Total Income
29,70,000
8,00,000
3,60,000
80,00,000
(-) 41,30,000
38,70,000
(-) 1,20,000
37,50,000
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11. Mr. R has developed an improved economical model of a motor cycle and got it patented on 31-3-2007
under the Patent Act, 1970. He allowed Z Ltd. to use his patent rights and licenses has been granted to it under
the Patent Act, 1970. He has received royalty of Rs 8,00,000 during the previous year 2007-2008. However, the
royalty in accordance with the terms and conditions of the license settled by the Controllers under the said Act
is Rs. 2,80,000.
He has incurred Rs 1,00,000 expenses in developing his invention and getting it patented.
Compute his total income for the assessment year 2008-2009 (i) if he is resident in India, (ii) non-resident India.
Computation of Total Income for the Assessment Year 2008-2009
Particulars (i)
Rs
(ii)
Rs
Income from other sources
Less : Expenses
Gross Total Income (GTI)
Less : Deduction for respect of royalty on patent (Sec. 80-RRB)
Least of the followings:
(a) Income from royalty 5,00,000; or
(b) Royalty under the terms of license settled by the Controller 2,80,000;
(c) Maximum limit Rs. 3,00,000
Whichever is less, is to be deducted
Total Income
8,00,000
1,00,000
2,80,000
2,20,000
8,00,000
1,00,000
xxx
7,00,000



12. Mr. J is suffering with 60% locomotor disability which is certified by medical authority. He is employed as
Technical Supervisor with Air Tel at a salary of Rs. 20,000 p.m.
Particulars Rs
(i) Income from government securities
(ii) Long-term capital loss
(iii) Short-term capital gain (Sec. 111A)
(iv) Insurance commission (gross)
(v) Interest on Saving Fund a/c from bank
He has incurred the following expenses:
(i) Medical insurance paid by cheque for his father, resident in India and 70 years
(ii) Deposit with LIC for maintenance of father, mainly dependant on him for support and
maintenance and suffering from low-vision with a severe disability of 80%, as per
certificate of the medical authority
(iii) Rent paid for the year 2007-2008 for accommodation hired by him.
Compute his total income for the assessment year 2008-2009.
20,000
(-) 40,000
1,00,000
1,00,000
10,000
18,000
30,000
40,000
Computation of Total Income for the assessment year 2008-2009
Particulars Rs. Rs.
1. Income from salaries
2. Income from capital gains :
(a)Short-term capital gains (Sec. 111A)
(b)Long-term capital loss to be carried forward
3. Income from others sources :
(a)Interest government securities
(b)Interest on savings fund a/c with Bank
(c )Insurance commission
Gross Total income
Less : Deductions under Chapter VIA:
Medical insurance (Sec. 80D)
Deduction in respect of maintenance including medical treatment of
a department, a person with severe disability (Sec. 80DD)
Deduction in case of a person with disability (Sec. 80U) :
Deduction u/s 80GG :( Least of the followings)
(i) Rent paid less 10% of Adjusted Gross Total Income
40,000-23,300 = 16,700,
(ii) 25% of 2,33,000 Adjusted Gross Total Income = 58,250,
(iii) 2,000 p.m. x 12 = 24,000
Whichever is less, is or be deducted
20,000
10,000
1,00,000
18,000
75,000
50,000
16,700
2,40,000
1,00,000
Nil
1,30,000
4,70,000
1,59,700
Total income 3,10,300


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ICWAI Double Taxation Relief-Supplement to Direct & Indirect Taxation 2008 (Problems & Solutions) (Applicab...
DOUBLE TAXATION RELIEF

1. R a resident Indian, has derived the following income for the previous year relevant to theassessment year 2008-2009.Particulars Rs.(1) Income from profession(2) Share income from a partnership in country X (tax paid in country Y for thisincome in equivalent Indian rupees Rs 25,000)(3) Commission income from a concern in country Y (tax paid in country Y at20%) converted in Indian rupee.(4) Interest from schedule banks.3,00,0002,00,00040,00020,000R wishes to know whether he is eligible to any double taxation relief, if so, its quantum. India doesnot have any Double Taxation Avoidance Agreement with countries X and Y.Solution: (a) Computation of total incomeParticulars Rs Rs(a) Income from business:(i) Income from profession 3,00,000(ii) Share income in partnership firm in country X 2,00,000 5,00,000(b) Income from other sources:(i) Interest from schedule bank(ii) Commission earned in country Y, assumed from20,00040,000 60,000Total income5,60,000(b) Computation of tax liability :Tax on total income of Rs. 5,60,000Add : Education cess @ 2%Add : SHEC @ 1%1,17,0002,3401170120,510Less : Double taxation relief : (2,00,00 + 40,000) x 21.52%51,648Tax payable 68,862Tax payable to be rounded off to the nearest multiple of Rs 10 (Sec. 288B)68,860Note: (i) Average rate of tax in the foreign country 20%.(ii) Average rate of tax in India:1,20,510 X 100 = 21.52%5,60,000Whichever is less, is applicablehttp://success-gurus.blogspot.com


2. Mr. Prasad, ordinarily resident in India, furnished the following particulars of his income/savings duringthe previous year 2007-2008.Rs(i) Income from foreign business (Including Rs 2,00,000 from businessconnection in India) accruing outside India(ii) Loss from Indian business(iii) Income from house property(iv) Dividends gross from Indian companies(v) Deposit in Public Provident Fund(vi) Tax paid in foreign countryThere is no double taxation avoidance treaty.Compute the tax liability12,00,000(-) 2,00,0004,00,00060,00070,0002,50,000Solution: (a) Computation of total incomeParticulars Rs Rs1. Income from house property2. Income from business :(a) Income from Indian business(b) (I) Income from foreign business accruing or arising outside India(ii) Income from foreign business deemed to accrue or arise in India


3. Income from other sourcesDividends from Indian companies exempt [Sec. 10(34)]Gross total incomeLess : Deduction for approved savings (Sec. 80C) : PPF DepositsTotal incomeTax liability on total income :Income-tax on slab ratesAdd: Surcharge on income tax @ 10%Add : Education cess : 2% on the aggregate of income tax and surchargeAdd : SHEC @ 1%Tax liabilityLess : Double taxation relief on foreign business profits, not deemed toaccrue or arise in India (Sec. 91) 10,00,000 x 20.833%Tax payableTax payable to be rounded off to thenearest multiple of Rs 10 (Sec.,288B)(-) 2,00,000(+) 10,00,000(+) 2,00,000(+) 10,00,0004,00,00010,00,000Nil14,00,00070,00013,30,0003,48,00034,8003,82,8007,6563,8283,94,2842,08,3301,85,9541,85,950Note: 1. Relief is allowed on the doubly taxed income either at average rate of Indian tax oraverage rate of foreign income tax, whichever is lower;(a) Average rate of Indian income tax : 3,94,284 / 13,30,000 x 100 = 29.65%(b) Average rate of foreign income tax: (2,50,000/12,00,000) x 100 = 20.833%http://success-gurus.blogspot.com2.Income from foreign business, accruing outside India 12,00,000


2. The amount of doubly taxed income has been worked out as under: RsLess: (i) Income from business connection deemed to accrue orarise in India which is not entitled to double taxation relief. 2,00,000Doubly taxed income 10,00,000


3. Loss from Indian business has been set-off against profits from foreign business which isdeemed to accrue or arise in India.The mode of set-off increases the amount of double taxation relief.3. The Income-tax Act, 1961 provides for taxation of a certain income earned by X. The DoubleTaxation Avoidance Agreement, which applies to X, excludes the income earned by X from thepurview of tax. Is X lilable to pay tax on the in come earned by him? Discuss.Answer: Where any conflict arises between the provisions of the Double Taxation AvoidanceAgreement and the Income- tax Act, 1961, the provisions of the Double Taxation AvoidanceAgreement would prevail over those of the Income-tax Act.X is, therefore, not liable to pay tax on the income earned by him.4. Explain briefly the proposition of law in case of any conflict between the provisions of the DoubleTaxation Avoidance Agreement (DTAA) and the Income-tax Act, 1961.Answer: Where there is conflict between the provision as contained in the tax treaty and theprovisions of Income Tax Act, a payer can take advantage of those provisions which are morebeneficial to him. Thus, tax treaties override the provisions of Income Tax Act which can beenforced by the appellate authorities/courts.


5. Arif, a resident both in India and Malaysia in previous year 2007-2008, owns immoveableproperties (including residential house) at Malaysia and India. He has earned income of Rs 50 lakhfrom rubber estates in Malaysia during the financial year 2007-2008. He also sold some property inMalaysia resulting in short-term capital gain of Rs 10 lakh during the year. Arif has no permanentestablishment of business in India. However, he has derived rental income of Rs 6 lakh fromproperty let out in India and he has a house in Lucknow where he stays during his visit to India. TheArticle 4 of the Double Taxation Avoidance agreement between India and Malaysia provides thatwhere an individual is a resident of both the contractting States, he shall be deemed to be residentof the Contracting State in which he has permanent home available to him. If he has permanenthome in both the Contracting States, he shall be deemed to be a resident of the Contracting Statewith which his personal and economic relations are closer (centre of vital interests).You are required to state with reasons whether the business income of Arif arising in Malaysia and thecapital gains in respect of sale of the property situated in Malaysia can be taxed in India.Answer: Where the Central Government has entered into an aggreement with the government ofany other country for granting relief to tax or for avoidance of double taxation, the provisions of theIncome-tax Act, 1961 are applicable in such case to the extent they are more beneficial to theassessee.Arif has a residential house both in Malaysia and India. Thus, he has a permanent home in both thecountries. However, he has no permanent establishment of business in India. The Double TaxationAvoidance Agreement (DTAA) with Malaysia provides that where an individual is a resident of bothcountries, he is deemed to be resident of that country in which he has a permanent home and if hehas a permanent home in both the countries, he is deemed to be resident of that country, which isthe centre of his vital interests, i.e. the country with which he has closer personal and economicrelations. Arif owns rubber estates in Malaysia from which he derives business income. However,Arif has no permanent establishment of his business in India. Therefore, his personal and economicrelations with Malaysia are closer, since Malaysia is the place where—(a) the property is located and(b) the permanent establishment (PE) has been set-up. Therefore, he is deemed to be resident ofMalaysia for AY 2008-2009.So, in this case, Arif is not liable to income tax in India for assessment year 2008-2009 in respect ofbusiness income and capital gains arising in Malaysia.http://success-gurus.blogspot.com


6. Sania , a resident Indian, furnishes the details for the assessment year 2008-2009.Rs(1) Income from profession(2) Share income from a partnership in country X(Tax paid in country X for this income in equivalent Indian rupees Rs 8,000)(3) Commission income from concern in country Y(Tax paid in country Y at 20%) converted in Indian rupee)(4) Interest from scheduled banks1,04,00040,00030,00020,000Sania wishes to know whether he is eligible to any double taxation relief, if so, its quantum. Indiadoes not have any Double Taxation Avoidance Agreement with countries X and Y.Solution : (a) Computation of total incomeParticulars Rs Rs(a) Income from business:(i) Income from profession(ii) Share income in partnership firm in country X(b) Income from other sources:(i) Interest from schedule bank(ii) Commission earned in country Y, assumed from other sourcesTotal income1,04,00040,00020,00030,0001,44,00050,0001,94,000(b) Computation of tax liabilityParticulars RsTax on total income of Rs 1,94,000Add: Surcharge on income taxEducation cess @ 2%SHEC @ 1%Less : Dobule taxation relief : 70,000 x 4.94%Tax payableRounded off u/s 288BNote : (I) Average rate of tax in the foreign country : 20%(ii) Average rate of tax in India : 9579 x 100 = 4.94%1940009300Nil9300186939579345861216120http://success-gurus.blogspot.com


7. A is a musician deriving income from foreign concerts performed outside India, Rs 50,000. Tax ofRs 10,000 was deducted at source in the country where the concerts were given. India does nothave any agreement with that country for avoidance of double taxation. Assuming that Indian incomeof A is Rs.2,00,000, what is the relief due to him under Sec. 91 for the assessment year 2008-2009.Solution(a) Computation of total income: Rs(i) Indian income(ii) Foreign incomeGross total income or total income(b)Computation of tax liability:Income tax on total income at slab rates:Add: (i) Surcharge on income tax(ii) Education cess @ 2%(iii) SHEC @ 1%Less : Double taxation relief under Sec. 91: Rs 50,000 x 9.9%Tax payable2,00,00050,0002,50,00024,00048024024,7204,95019,770Note: 1. Average rate of Indian income tax: = 24720 x 100 = 9.9%2500002. Average rate of foreign income tax:Relief is allowed either at the average rate of Indian income tax or te average rate offoreign income tax,10,000 x 100 = 20%50,000whichever is lower. Accordingly, the relief has been allowed at the average rate of Indian incometax.


8. A resident assessee, earned foreign exchange of Rs 78,800. The foreign income was also subjectedto tax deduction of Rs 8,800 at source in the foreign country with which India had no agreement foravoidance of double taxation. The asses- see claimed relief under Sec. 91 of the Income-tax Act inrespect of the whole foreign income. Discuss his contention withreference to decided case laws.Answer: Where any income is taxed outside India as well as in India, a resident assessee is entitledto claim double taxation relief on such doubly taxed income provided such income is not deemed toaccrue or arise in India. If any income arising outside India, is not subjected to tax in India, suchforeign income does not form part of doubly taxed income for the purposes of Sec. 91. Theexpression "doubly taxed income" refers to foreign income which also suffered tax in India.Where any foreign income, taxed outside India, is also eligible to deduction in computing totalincome in India, double taxation relief would be allowed only on such income as forms part of totalincome.Double taxation relief will be allowed on such doubly taxed income either at the average rate offoreign income tax or Indian income tax, whichever is lower out of the two.

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