CFP Tax Planning & Estate Planning Practice Book Sample

Roots Institute of Financial Markets
RIFM
Practice Book
Tax Planning and Estate Planning
Assessment Year 2010-11

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Index
Ethical consideration in tax planning

Tax compliance matters
1-3
Taxation terminology
4-13
Tax calculations and special rules
14-20
Tax characteristics of business forms
21-33
Non Resident Indians (NRIs)
34-51
Heads of income
52-63
Capital Gains tax rules
64-116
Tax relief
117-134
Non taxable transactions (e.g., gifts, estate)
135-158
Interest and penalty taxes and other charges
159-162
Tax and estate planning
163-168
169-183
Sample paper A
Sample Paper B
184-194
Important Questions
195-206
Most Important Questions
207-211
212-226
Annexure 1 Income Tax Rates for AY 2010-11
Annexure 2 DIVIDEND TAX UNDER SECTION 115-O
227-229
Annexure 3 SECURITIES TRANSACTION TAX
230-231
Annexure 4 Minimum Alternate Tax
232
233

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Chapter-4
Tax Calculations and special Rules
1. The maximum amount on which income-tax is not chargeable in case of H.U.F. for
assessment year 2010-11 is:
A. Rs.110000
B. Rs. 1,60,000
C. Rs.l,80,000
D. None of above
2. The maximum amount on which income tax is not chargeable for the assessment year
2010-11 in case of a resident woman who is less than 65 years old is:
A. Rs. 1,60,000
B. Rs. 1,90,000
C. Rs. 2,400.00
D. Rs. 1,80,000
3. The maximum amount on which income-tax is not chargeable for-the assessment year
20 I0-11 in case of women who is not resident in India and who is less than 65years old
is:
A. Rs. 1,90,000
B. Rs. 1,60,000
C. Rs. 2,40,000
D. Rs. 1,50,000
2010-11 in case of an individual other than a resident woman or a resident individual
less than 65 years old is:
A. Rs. 1,90,000
B. Rs. 1,60,000
C. Rs. 2,40,000
D. Rs. 1,10,000
5. The maximum amount on which income-tax is not chargeable for the assessment year
20 I0-11 in case of a man/women who is of the age of 65 years or above but who is not
resident of India is:

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A. Rs. 1,90,000
B. Rs. 2,40,000
C. Rs. 1,60,000
D. Rs. 1,50,000
20 I0-11 in case of an individual who is resident in India and 65 years old is:
A. Rs. 1,60,000
B. Rs. 1,90,000
C. Rs. 2,40,000
D. Rs.2,75,000
7. The maximum amount on which income-tax is not chargeable in case of firm is:
A. Rs. 1,60,000
B. Rs. 1,50,000
C. Rs.l,10,000
D. Nil
50. Securities transaction tax paid by the purchaser of shares/units shall
A. form part of the cost of such shares and units

B. not form part of the cost of such shares and units
52. Sumit purchased a house property for Rs. 26,000 on 10-5-1962. He gets the first floor
of the house constructed in 1967-68 by spending Rs. 40,000. He died on 12-9-1978
property is transferred to Mrs. Sumit by his will. Mrs. Sumit spends Rs. 30,000 and
Rs.26,700 during 1979-80 and 1985-86 respectively for renewals/reconstruction of the
property .Mrs. Sumit sells the house property for Rs. 12,00,000 on 15-3-2010,
brokerage paid by Mrs. R is Rs. 12,000. The fair market value of the house on 1-4-1981
was Rs. 1,60,000.
Find out the amount of capital gain chargeable to tax for the assessment year 2010-11
A. 1040000
B. 1013300
C. 61925
D. 49925
55. Sumit purchased a plot for Rs. 3,00,000 in 1987-88 and it was sold on 10-6-2009 for

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Rs. 17,00,000. He paid Rs. 40,000 as brokerage charges. He invested Rs. 4,00,000 in
Bonds of NHAI (Notified u/s 54EC) on 28-8-2009.
Compute the taxable amount of capital gain if CII for 1987-88 is 150.
A. 396000
B. 1400000
C. NIL
D. (-)4000
56. Amit had purchased 1200 listed shares of Rs. 10 each of a company on 15-4-1991 for
Rs. 54,600. Company declared a right issue in the ratio of 2:1 at a price of Rs. 3.0 per
share in October, 2009. He sold the right for 300 shares against Rs. 20 per share and
remaining 300 shares were purchased by him which was allotted on 5-11-2009. He
sold all the shares @ Rs. 90 each on 15-3-20 I0 through a recognized stock exchange.
He paid brokerage @ 2% and securities transaction tax at the applicable rate. Cost
inflation index for 1991-92 is 199 and for 2009-10 is 632. Compute taxable capital
gains.
A. (-) 44103
B. 23460
C. 17460
D. (-)67563
57. Namit purchased 500 listed equity shares of Rs. 10 each for Rs. 40 per share in 10
each for Rs. 40 per share in 1989-90 and incurs an expenditure of Rs. 400 on
brokerage. In May 1993 he receives 100 bonus shares. In September, 2009 he gets
100 rights shares for Rs. 20 each. He sold 100 bonus shares in November, 2009 at Rs.
30 per share and 100 right shares @ 30 per share in December 2009. The bonus
shares as well as right shares have been kept in a separate
depository. Both the sales were made through the stock exchange. Rs. 15 were paid as
securities transaction tax. Find out the taxable capital gain for the assessment year
2010-11
A. 4000
B. 1000
C. 3000
D. NIL
58. On 1-8-1976, Mrs. Sumit purchased 400 shares of Atal Ltd., @ Rs. 100 per share. On
31-12-1980. Atal Ltd., issued bonus shares, Mrs. R was allotted 600 bonus shares. The

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fair market value of the shares on 1-4-1981 was Rs. 150 per share. On 3-10-2009 Mrs.
Sumit sold all the 1,000 share @ Rs. I, I00 per share and paid brokerage etc. @ 2% on
sale consideration. Out of the sale consideration, she invested Rs. 3,00,000 in the
construction of a residential house which was completed before 30-6-2010.
Compute the taxable income from capital gains of Mrs. Sumit for the assessment year
20I0-11 assuming that she does not own any other residential house and the above
shares are not sold through recognized stock exchange.
A. 130000
B. 950000
C. 93822
D. NIL
59. Sumit is a resident of India. He furnishes the following information about his incomes
during previous year 2009-10:
(i) Capital gain Rs. 10,500 from a house which he occupied for two years before the
date of sale 31-7-2009
(ii) On 31-12-2009, he sold equity shares of Thapar Ltd., for Rs. 1,25,000 through the
recognized stock exchange, which were purchased by him on 1-4-1986 for Rs. 21,000.
Securities transaction tax paid Rs. 125.
(iii) He sold an agricultural land for Rs. 5,25,500 on 5-4-2009. The land was owned by
him since 4-7-2000, and was purchased for Rs. 6,000. The land is situated in a village
with population of 8,000.
(iv) On 1-3-2010, he sold a flat for Rs. 6,82,500 which was purchased by him on 1-1-
1977 for Rs. 60,000. The fair market value of this flat was Rs. 90,000 on 1-4-1981.
Compute his taxable income from capital gain for assessment year 2010-11.
A. 124200
B. 124075
C. 154400
D. 154275
60. Namit is shareholder of G Ltd. He acquired 5,000 shares of the company of the face
value of Rs. 10 per' share in 1972. The fair market value of the shares as on 1-4-1981
was Rs. 90 per share. He made a further purchase of 2,000 shares at the rate of Rs.
200 in \985-86, G Ltd., issued bonus shares in 1989-90 in the proportion of 2: 1, when
the market value was Rs. 300 per share.
AB Ltd., Company, in a scheme of amalgamation in 2009-10 made proposal to acquire

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the shares of G Ltd., as per offer given below:
Rs. 400 per share in cash plus 1 share in AB Ltd., for every 3 shares of G Ltd.
The market value of shares of AB Ltd., on the date of offer is Rs. 400 per share
Compute the Capital Gain, if any, arising to Namit if he accepts the offer.[C.I.I for 1981-
82 is 100, for 1985-86 is 133 and for 1989-90 is 172.
A. 855248
B. 4750000
C. NIL
D. None of above

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Answers Chapter 4
1 B 29 C 57 C
2 B 30 C 58 C
3 B 31 C 59 C
4 B 32 C 60 C
5 C 33 B 61 C
6 C 34 B 62 B
7 D 35 B 63 B
8 C 36 B 64 C
9 B 37 B 65 B
10 A 38 B 66 B
11 D 39 B 67 C
12 B 40 B 68 A
13 B 41 B 69 B
14 C 42 B
15 C 43 C
16 C 44 B
17 B 45 D
18 A 46 C
19 B 47 B
20 A 48 A
21 B 49 B
22 A 50 B
23 A 51 A
24 C 52 B
25 B 53 C
26 C 54 B
27 C 55 B
28 C 56. B

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Solution 51
Section 64( 1)(iv) of the Income-tax Act provides that when an asset is transferred by an individual to his
spouse, otherwise than for adequate consideration, the income arising from that asset is included in the total
income of the transferor. However, for applying this provision, the marital status must exist both at the time of
transfer of asset and at the time of accrual of income. This view is also upheld by the Supreme Court. In the
present problem, shares were transferred by Sumit to Vidya before marriage. Hence, clubbing provisions are
not applicable and as such Sumit is not liable to capital gain tax. Tax in this case shall be chargeable in the
hands of Vidya as under:
Rs.
Consideration price 1,500 x 300 4,50,000
Less: Indexed cost 150000*632
259 3,66,023
Long-term capital gain 83,977
Note.-It has not been mentioned that the above shares are listed shares. If these shares had been listed
shares and were sold through a recognized stock exchange, then long-term capital gain would have been
exempt.
Solution 52
Taxable capital gain

Sales consideration 12,00,000
Less: Indexed cost of acquisition
1,60,000*632
100 10,11,200
Indexed cost of improvement
26 ,700*632
133 1,26,875
Expenses on transfer 12,000 11,50,075
Solution 53
Land Gold Debentures
Rs. Rs. Rs.
Sale proceeds 1,98,00,000 11,86,000 1,57,0000
Less: Cost of acquisition 75000
Indexed cost of acquisition
2800000 x 632
100
241000 x 632
100 1,76,96,000 15,23,120
Long-term capital gain/(Ioss) 21,04,000 (-) 3,37,120 82,000
Long-term capital gain:

Land 21,04,000
Gold (-) 3,37,120
Debentures 82,000
18,48,880

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Computation of Total Income of Mr. Namit
(For assessment year 2010-11)
Income from business 1,46,000
Income from capital gain 18,48,880
19,94,830
I. No indexation is allowed in. case of bonds and debentures

2. As debentures are listed, the tax on long-term capital gain on such debentures is chargeable @ 10% instead
of 20% as the capital gain has been calculated without indexation.
Solution 54
Gold Shares
Rs. Rs.
Sale Consideration 19,00,000 6,00,000
Less: Indexed Cost of Acquisition (91,000 x 632 ) 2,35,705 7,07,115
244
(2,73,000 x 632 ) __________ ___________
244
Long-term capital gain/loss 16,64,295 16,64,295 (-) 1,07,115
Net long-term capital gain 16,64,295
Note.-tong-term capital loss on sale of shares is not allowed to be set off as long term capital gain on such
shares is exempt u/s 10(38).
Solution 55
Computation of taxable Capital Gain .
Rs. Rs.
Sale price of plot 17,00,000
Less: Indexed cost [3,00,000 x 632]
150 12,64,000
Expenses of transfer 40,000 13,04,000
3,96,000
Less: Exemption u/s 54EC
Amount invested in Bonds of NHAI Rs. 4,00,000 but limited to 3,96,000
Taxable long-term capital gain Nil
Solution 56
Computation of capital gain

Capital gain on sale of right (300 shares)
Sale price 6,000
Less: Cost of acquisition Nil
Short-term capital gain 6,000
Capital gain on sale of right share (300)

Sale price (300 x 90) 27,000
Less: Cost of acquisition (300 x 30) 9,000
Expenses of transfer (2% of27,000) 540
Securities transaction tax Not allowed 9,540
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Capital gain on sale of Original Share 1,08,000
Full value of consideration (1,200 x 90)
. . . 54600 x 632
Less: Indexed cost of acquisition(54600*632) 1,73,403
199
Expenses of transfer 2,160
Securities transaction tax Not allowed* 1,75,563
Long-term capital loss (-) 67,563

Short-term capital gain (6,000 + 17,460)
Note1I: Long-term capital loss Rs. 67,563, not allowed to be set off as long-term capital gain on such shares is
exempt u/s 10(38).
Note 2: Short-term capital gain of Rs. 17,460 on account of listed shares transferred through recognized stock
exchange shall be taxable @ 15%.
* Securities transaction tax paid is not allowed as deduction as per proviso 5 to section 48
Solution 57
Income from capital gain

Bonus share
Sales consideration (30 x 100) 3,000
Less: Cost of acquisition Nil
Long-term capital gain (Exempt) 3,000
Right share:
Sales consideration (100 x 30) 3,000
Less: Cost acquisition (20 x 100) 2,000
Note.-1. Long-term capital gain on sale of listed shares is exempt u/s 10(38) and short-term capital gain shall
be taxable @ 15% provided these shares are sold through recognized stock exchange.
2. Securities transaction tax is not allowed as deduction
Solution 58
Capital gain on sale a/shares

Rs.
Less: Index cost of acquisition (1000 x 150 x 632)
100 9,48,000
Expenses of transfer (commission) 22,000 9,70,000
Long-term capital gain 1,30,000

Less: Exempt u/s 54F (1,30,000 x300000)
1078000 36,178
Solution 59

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Income from capital gain of R
1. Capital gain on sale of house
2. Capital gain from sale of equity shares of Thapar Ltd.

Sale consideration 1,25,000
Less: Indexed cost 0 acquisition ( 21000*632)
140 94,800
Securities transaction tax Not allowed
Long-term capital gain [Exempt U/S 10(38)] 30,200
3. Capital gain on sale of flat

Sale consideration 6,82,500
Less: Indexed cost of acquisition (90000 x 632 )
100 5,68,800
Taxable income from capital gain

Total 1,24,200
Solution 60
Computation of capital gain

Rs.
(i) Cash received (Rs. 400 x 10,500) 42,00,000
(ii) Value of shares in AB Ltd., [400 x 3,500 shares] 14,00,000
Total sale price 56,00,000
Less: Indexed cost of acquisition (See Note 2) 47,44,752
1. In the present case capital gain shall be taxable as benefit of section 47(vii) cannot
be given to Namit as it is an essential condition that for a transfer to be not regarded
as transfer, the consideration for shares to be surrendered must be in shares and not
in 'cash. It should not be in cash or in a composite consideration as in the present
case.
2. Calculation of cost of shares of G Ltd.
Rs.
Cost of original shares in 1972 (5,000 x 10)
50,000
Fair market value on 1-4-1981 (5,000 x 90)
4,50,000
Whichever is higher is taken as cost
4,50,000
Indexed cost of original shares (4,50,000 x632)

100
28,44,000
Indexed cost of new shares acquired in 1985-86
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(2,000 x 200 = 4,00,000 x 632)
133
19,00,752
Cost of bonus shares (3;500)
Nil
Total indexed cost
47,44,752

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Chapter- 7
Heads of Income
1. R Ltd, pays a salary of Rs. 1,90,000 to his employee G and undertakes to pay the
Income Tax amounting to Rs. 3,090 during the previous year 2009-10 on behalf of
G. The gross Salary of G shall be:
A. Rs. 1,90,000
B. Rs. 1,93,090
C. Rs. 1,86,910
2. R, who is entitled to a Salary of Rs.·1 0,000 p.m., took an advance of Rs. 20,000
against the salary in the month of March 2010. The gross salary of R for
assessment year 20 I0-1 I shall be:
A. Rs. 1,40,000
B. Rs. 1,20,000
C. none of these two
5. Salary of R is Rs. 10,000 p.m. R had taken Salary in advance for the months of April
2009 to June 2009 in March 2009 itself. The gross salary of R for assessment year
20 10-1 I shall be:
A. Rs. 1,20,000
B. Rs. 90,000
6. The Government of India announced increase in the D.A on 15-3-2009 with

retrospective effect from 1-5-2005 and the same were paid on 6-4-2009. The arrears
of D.A shall be taxable in the previous year:
A. 2008-09
B. 2009-10
C. in respective previous years to which these relate
7. R is employed with G Ltd., at a salary of Rs. 10,000 p/m. As G Ltd., was in financial
crisis, it paid the salary of January 2010 to March 2010 to R only in July 2010. The
gross salary of R for assessment year 2010-11
A. Rs. 1,20,000
B. Rs. 90,000

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8. R, who is entitled to Salary of Rs. 10,000 p.m. took advance salary from his
employer for the months of April and May 2010 along with Salary of March 2010 on
31-3-2010.The gross salary of R for assessment year 20 I0-11 shall be:
A. Rs. 1,20,000
B. Rs. 1,40,000
9. R who was working with another company joined the present employer w.e.f. 1-5-
2009 at a Salary of Rs. 10,000 p.m. His salary becomes due on first of next month.
He was also entitled to a pension of Rs. 4,000 p.m. From his former employer as he
retired on 31-3-2009. His gross salary for assessment year 2010-11 shall be:
A. Rs.1,10,000
B. Rs. 1,58,000
C. Rs. 1,48,000
10. Salary of R becomes due on Ist of next month and it is paid on 7th of that month.
For assessment year 20 I0-11, the salary of R shall be taken from:
A. April 2009 to March 2010

B. March 2009 to February 2010
C. none of these
11. Encashment of leave salary at the time of retirement is fully exempt in the case of:
A. Central Government employee

B. State Government employee
C. Both Central and State Government employees
D. Government employee and employee of local authority.
13 Salary for exemption of leave encashment shall be taken as:
A. last drawn Salary

B. average Salary of 10 months immediately preceding the month of retirement
C. average Salary of 10 months immediately preceding the date of retirement.
14 The maximum exemption in case of leave encashment shall be:
A. Rs. 2,40,000
B. Rs.3,50,000
C. Rs. 3,00,000
15 An employee availed the exemption of leave encashment of Rs. 1,00,000 in the

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past. He received from the second employer a sum of Rs. 2,50,000 as encashment
of leave. He will be entitled to exemption to the extent of:
A. Nil
B. Rs. 2,50,000
C. Rs. 2,00,000
D. Rs. 1,40,000
80 Employer's contribution to unrecognized provident fund is taxable as "profits in lieu
of salary" in the year in which contribution is made by the employer.
A. True
B. False
81 Bonus received on Keyman insurance policy taken by the employer and assigned in
favour of the employee is taxable under the head "Income from other sources".
A. True
B. False
82 "Overtime allowance" is taxable as "profits in lieu of salary".
A. True
B. False
84 Mr. Sunil was employed with XYZ Ltd. on a weekly basis .He was offered a
retrenchment compensation of Rs.450000 as there was change in ownership of
company .His total service period in this company was of 15 years and 4 months
.His salary for the last four weeks is as below :
1-06-2009 to 07-06-2009 Rs.5000
08-06-2009 to 14-06-2009 Rs.4800
15-06-2009 to 21-06-2009 Rs.6200
22-06-2009 to 28-06-2009 Rs.5600
Calculate the amount of retrenchment compensation chargeable to tax?
A. Rs.267429
B. Rs.276249
C. Rs.276429
D. Rs.276029

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85 Mr. Prem Kumar was employed with HKL Ltd. at a weekly wage of Rs.5000.His total
tenure of service is 11 years and 4 months; his average salary for the last 4 weeks
is Rs.4800.The company has offered him a retrenchment compensation of
Rs.150000.He wants to know if he accepts the offer, then on what amount he will be
liable to pay tax?
A. Rs.150, 000
B. Rs.1, 13,142
C. Rs.36, 587
D. Rs.36, 857
86 Mr. Sohan is working with LT Ltd. At a monthly salary of Rs.19000 p.m. His total
service period in the organization is 18 years and 7 months and his average salary
for last 3 months is Rs.18000 p.m. He has been paid a retrenchment compensation
of Rs.200000. Calculate the taxable and tax free retrenchment compensation.
A. Rs.29, 000 and Rs.1, 71,000
B. Rs.1, 71,000 and Rs.29, 000
C. Rs.21, 000 and Rs.1, 71,000
D. Rs.200, 000 and Rs.0
87 Shri Shyam Mohan an employee completed 27 years and 8 months of service with
Messrs Jaipur Iron and Steel Ltd. and at the time of retirement on 1-1-20 I0, he
received Rs. 3,30,000 as gratuity. His monthly salary on the date of retirement was
Rs. 19,500. He was drawing Rs. 19,000 p.m. prior to July 2009. Find out the amount
of taxable gratuity if Payment of Gratuity Act, 1972 applies.
A. 15000
B. 330000
C. 350000
D. NIL

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.
88 Mr. Suresh was employed since 1-1-1978 in a commercial establishment. His salary
was fixed at Rs. 14,800 in the grade of Rs. 14,000 - 400 - 22,000 with effect from 1-
7-2007. He got 15% of his salary as dearness allowance which is treated as salary
for computation of retirement benefits. He retired from service on 1-2-2010. He
received Rs. 3,40,000 as gratuity from his employer. Calculate his gross income
under the head 'Salaries' for the assessment year 20 I0-11 if-
(I) Payment of Gratuity Act, 1972 applies,
(II) Payment of Gratuity Act, 1972 does not apply.
(I)
A. 178020
B. 8800
C. 186820
D. 233188
(II)
A. 178020
B. 8800
C. 186820
D. 233188
89 Rajesh retires on 8-1-2010 after serving XY company Ltd. for a period of 19 years
and 6 months. At the time of retirement his basic salary was Rs. 14,400 per month
and he was also entitled to Dearness Allowance of Rs. 8,000 per month (which is
not counted for retirement purposes). On his retirement, he received Rs. 6,00,000
as gratuity. Compute the amount of gratuity exempt from tax. He is covered under
the Payment of Gratuity Act.
A. 350000
B. 600000
C. 245538
D. 354462

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90 Anil joined a service in the grade of Rs. 10,400 - 400 - 16,000 - 500 - 20,000 on 1-
7-1993 and resigned from the service on 15-9-2009. He was also entitled to
dearness allowance @ 50%, which forms part of salary for retirement benefits. On
retirement, he received a gratuity of Rs. 2,40,000. He was entitled to a pension of
Rs. 8,000 per month w.e.f 16-9-2009. He got 75% of his pension commuted w.e.f. 1-
1-2010 and received a sum of Rs. 6,00,000 as commuted pension.
Compute his Gross Salary for assessment year 2010-11.
A. 546133
B. 812800
C. 212800
D. None of above

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Answers Chapter 7
i)A,ii)C,
1 B 36 C 71 iii)E 106 C
2 B 37 A,B,D,F,I 72 i)B,ii)F 107 C
3 C 38 C 73 C 108 B
i)C,ii)C,iii)C
4 C 39 C 74 ,iv)E,v)E 109 C
A,C,D,E,F,
5 B 40 G,H,Q 75 i)B,ii)B 110 C
6 B 41 I)B II)D 76 i)A,ii)A, 111 B
7 A 42 B 77 i)A,ii)A,iii)B 112 B
8 B 43 A 78 i)B,ii)B 113 D
9 C 44 C 79 B 114 B
10 B 45 C 80 B 115 C
11 C 46 C 81 B 116 C
12 B 47 A 82 A 117 B
13 C 48 C 83 B 118 C
14 C 49 B 84 C 119 C
15 C 50 B 85 D 120 C
A,C,E,F,G,H
16 B 51 B 86 A 121 ,I,J
17 A 52 C 87 A 122 C
18 A,E,G 53 C 88 i)A,ii)D 123 C
19 C 54 C 89 C 124 A
20 B 55 A 90 A 125 B
i)A ii)A
21 iii)B iv) A
v) B vi)C 56 A 91 B 126 A
i)B ii)C
22 iii)B iv) C 57 A 92 A 127 B
23 A 58 A 93 C 128 C
24 C 59 A 94 B 129 B
25 B 60 C 95 A 130 C
26 C 61 C 96 D 131 C
27 B 62 C 97 B 132 B
A,B,C,F,G,H
,I,K,M,P,Q,S
,U,W,Y,Z,AA
28 C 63 D 98 C 133 ,BB,CC,DD
29 D 64 D 99 A 134 C
B,C,D,G,I,K,
30 A 65 C 100 B 135 L.M
31 B 66 D 101 C 136 C
32 C 67 C 102 C 137 B
33 C 68 B 103 A 138 B
34 B 69 A 104 A 139 C
35 B 70 B 105 A 140 C
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Answers Chapter 7
141 B 176 B 211 B
142 B 177 B 212 C
143 B 178 C.D 213 C
144 C 179 B,C,D,E,F,G,H,I 214 B
145 D 180 B 215 B
146 C 181 B 216 A
147 B 182 D 217 B
148 C 183 B 218 a)B b)D
149 B 184 B 219 B
150 D 185 B 220 B
151 C 186 C.D 221 A
152 B 187 D 222 C
153 C 188 C 223 A
154 B 189 C 224 C
155 A 190 C 225 C
156 A 191 A 226 C
157 A 192 C 227 C
158 C 193 B
159 C 194 C
160 D 195 B
161 C 196 B
162 C 197 C
163 C 198 A
164 B 199 B
165 B 200 B
166 B 201 C
167 C 202 C
168 B 203 B
169 B 204 C
170 C 205 B
171 B 206 C
172 C 207 B
173 C 208 B
174 B 209 C
175 C 210 C

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Solution: 83
Exempted amount is minimum of the following:

Actual amount received =Rs.400000
15 days average salary for 12 years = (15000 x12x15)/30 =Rs.90000
Amount specified= Rs.500000
So tax free amount is Rs.90000 and taxable amount is (400000-90000) =Rs.310000
Solution:84
Four weeks average salary = (5000+4800+6200+5600)/4 =5400

Actual amount received =Rs.450000
15 days average salary for completed years of service = 15 x 5400 x 15/7 =Rs.1, 73,571
Amount specified= Rs.5, 00,000
So tax free amount is Rs.1, 73,571 and taxable amount is (450000-173571) =Rs.2, 76,429
Solution: 85

Actual amount received =Rs.1, 50,000
15 days average salary for 11 years = (4800 x11x15)/7 =Rs.1, 13,142
Amount specified= Rs.5, 00,000
So tax free amount is Rs.1, 13,142 and taxable amount is (150000-113142) =Rs.36, 857
Solution: 86
Exempted amount is the minimum of the following:

Actual amount received = Rs.200000
15 days average salary for 19 years = (18000 x 19 x 15)/30 =Rs.171000
Amount specified = Rs.500000
So tax free amount is Rs.171000 and taxable amount is (200000-171000) = Rs29000
Solution 87
19500
(i) 19500 x 15 x 28 = 3,15,000
26
(ii) 3,50,000
(iii) 3,30,000
:. 3, 15,000 is exempt and balance Rs. 15,000 is taxable.
Note.-If an employee is covered under Payment of Gratuity Act, 1972, salary last drawn is taken and not the
salary of preceding 10 months
Solution 88

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Rs.
Salary from April, 2009 to January, 2010
April 2009 to June, 2009 15,200 x 3 45,600
July 2009 to January, 2010 15,600 x 7 1,09,200
___________
1,54,800
DA @ 15% 23,220
___________
1,78,020
____________
(a) Gratuity Act Applies
(I) 15600 + 2340 x 15 x 32 = 3,31,200
26
(ii) Rs.3,50,000
(iii) Rs. 3,40,000
Hence Taxable Amt. = 3,40,000 - 3,31,200 = 8,800
Gross Salary = 1,78,020 + 8,800 1,86,820
(b) Gratuity Act does not apply

Ams *32 = 17802*32
2 2 2,84,832
3,50,000
3,40,000
:. Taxable Amt. = 3,40,000 - 2,84,832 55,168
Gross Salary 1,78,020 + 55,168 Rs. 2,33,188
* Average salary on the basis of preceding 10 months 178020 = Rs. 17,802.
10
Solution 89
The exemption snail be to the extent of the minimum of the following three amounts:
(a) Amount of gratuity received Rs. 6,00,000.
(b) 15 days' salary for every year of service i.e.,22400 x 15 x 19 = Rs. 2,45,538
26
(c) Rs. 3,50,000
Therefore Rs. 2,45,538 shall be exempt From tax .
Solution 90 Rs. Rs.

Salary (16,500 x 3 + 17,000 x 2 1/2) 92,000
Dearness Allowance @ 50% 46,000
Gratuity received 2,40,000
Less: Exempt
(i) Amount specified 3,50,000
(ii) Half month average salary for
every year of service
[24900 x 16] 1,99,200
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2
(iii) Actual amount received 2,40,000 1,99,200 40800
Pension (4,000 + 8000 + 8000 + 8000 + 2000 x 3) 34,000
Computed pension received 6,00,000

Less: Exempt [6,00,000 x 4/3 x 1/3] 2,66,667 3,33,333
_________ ________
Gross Salary 5,46,133
__________
Note.-Average Salary = 16,500 x 8 + 17,000 x 2 = 1,66,000 + 50% of 1,66,000 =2,49,000/10 = 24,900

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Chapter- 8 Capital Gain Tax Rules
1. In case of compulsory acquisition, the period for investment in specified assets under
section 54, 54B, 54D and 54F shall be reckoned from:
A. the date of transfer

B. the date when the part or full compensation is received
C. the date as and when any compensation is received
2. Deduction under section 80C to 80U is allowed from:
A. gross total income .

B. gross total income exclusive of long-term capital gain
C. gross total income exclusive of long-term capital gain as well as short-term
capital gain.
D. gross total income exclusive of long-term capital gain from any asset and short-
term capital from the transfer of shares and units through a recognized stock
exchange
3. Total income for assessment year 2010-11 of an individual including long-term capital
gain of Rs. 60,000 is Rs. 1,90,000. The tax on total income shall be:
A. Rs. 6,600
B. Rs. 6,180
C. Rs.6,798
4. Total income of an individual including long-term capital gain of Rs. 50,000 is Rs.
1,70,000, the tax on total income shall be:
A. Rs. 1,030
B. Rs. 2,060
C. Rs. 2,266
5. Long-term capital gain on sale of equity snares and units of an equal oriented fund
shall be
A. taxable @ 10% without indexation

B. exempt

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C. exempt if sold on or after 1-10-2004
D. exempt if sold on or after 1-10-2004 through a recognized stock exchange in
India and such transaction is chargeable to securities transaction tax
6. Long-term capital gain from the sale of units of equity oriented fund shall be:
A. exempt if sold through a recognized stock exchange and securities transaction

tax is paid
B. exempt if sold through a recognized stock exchange or to mutual fund and
securities transaction tax is paid
7. Any short-term capital gain arising for the transfer of equity shares and units of equity
oriented fund shall be taxable
A. at the normal rate

B. at the rate of20%
C. at the rate of 10% if transferred on or after 1-10-2004 through a recognized .
stock exchange and such transaction is chargeable to securities transaction tax
D. at the rate of 15% if transferred on or after 1-10-2004 through a recognized
stock exchange and such transaction is chargeable to securities transaction tax
8. Period of holding of bonus shares or any other. financial asset allotted without any
payment shall be reckoned from:
A. the date of holding of original shares/financial asset

B. the date of offer of bonus shares /financial asset
C. the date of allotment of such bonus shares/financial assets
9. Period of holding of right shares or any other security shall be reckoned from:
A. the date of the right shares/any other securities are offered

B. the date of right shares/such securities are applied by the assessee
C. the date of allotment of right shares/such securities.
10. If physical shares are sold through brokers, the date of transfer shall be:
A. the date on which shares are transferred by the company

B. the date of broker's note book
C. the date of broker's note book provided such transaction is followed by delivery
of shares.
50. Securities transaction tax paid by the purchaser of shares/units shall
C. form part of the cost of such shares and units

D. not form part of the cost of such shares and units

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51. SUMIT proposed to marry Vidya. In consideration of Vidya having agreed to marry
Sumit, he transferred 1,500 shares in a company valued at Rs. 100 per share to Vidya
on 1-10-1994. The marriage took place on 27-1-1996. Vidya sold the shares on 1-3-
2010 @ Rs. 300 per shares.
On the basis of the above facts, decide whether R is liable to tax on capital gain, if any
arising from sale of shares.
A. 83977
B. 300000
C. 450000
D. (498000)
52. Sumit purchased a house property for Rs. 26,000 on 10-5-1962. He gets the first floor
of the house constructed in 1967-68 by spending Rs. 40,000. He died on 12-9-1978
property is transferred to Mrs. Sumit by his will. Mrs. Sumit spends Rs. 30,000 and
Rs.26,700 during 1979-80 and 1985-86 respectively for renewals/reconstruction of the
property .Mrs. Sumit sells the house property for Rs. 12,00,000 on 15-3-2010,
brokerage paid by Mrs. R is Rs. 12,000. The fair market value of the house on 1-4-1981
was Rs. 1,60,000.
Find out the amount of capital gain chargeable to tax for the assessment year 2010-11
E. 1040000
F. 1013300
G. 61925
H. 49925
54. AMIT was the owner of the following assets:
Year of Cost Fair

market value
Purchase as on
1-4-1981
(Rs.)
(Rs.)
Gold 1976-77 70,000

91,000
Listed shares in A Ltd. 1972-73 2,73,000

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1,82,000
AMIT died on 16-8-1993 and as per his will these assets get transferred to his son B. B.
now sells these assets on 10-10-2009 for a total consideration of Rs. 25,00,000 (gold
Rs. 19,00,000 and shares Rs. 6,00,000). Find out the amount of capital gains
chargeable to tax for the assessment year 2010-11 assuming that shares were sold
through a recognized stock exchange and securities transaction tax was paid on such
sale. CII for the financial years 1981-82, 1993-94 and 2009-10 is 100,244 and 632
respectively.
A. 1557180
B. 1664295
C. 1771410
D. None of Above
55. Sumit purchased a plot for Rs. 3,00,000 in 1987-88 and it was sold on 10-6-2009 for
Rs. 17,00,000. He paid Rs. 40,000 as brokerage charges. He invested Rs. 4,00,000 in
Bonds of NHAI (Notified u/s 54EC) on 28-8-2009.
Compute the taxable amount of capital gain if CII for 1987-88 is 150.
E. 396000
F. 1400000
G. NIL
H. (-)4000
Solution 51
Section 64( 1)(iv) of the Income-tax Act provides that when an asset is transferred by
an individual to his spouse, otherwise than for adequate consideration, the income
arising from that asset is included in the total income of the transferor. However, for
applying this provision, the marital status must exist both at the time of transfer of asset
and at the time of accrual of income. This view is also upheld by the Supreme Court. In
the present problem, shares were transferred by Sumit to Vidya before marriage.
Hence, clubbing provisions are not applicable and as such Sumit is not liable to capital
gain tax. Tax in this case shall be chargeable in the hands of Vidya as under:
Rs.
Consideration price 1,500 x 300 4,50,000
Less: Indexed cost 150000*632
259 3,66,023
Note.-It has not been mentioned that the above shares are listed shares. If these
shares had been listed shares and were sold through a recognized stock exchange,
then long-term capital gain would have been exempt.

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Solution 52

Less: Indexed cost of acquisition
1,60,000*632
100 10,11,200
Indexed cost of improvement
26 ,700*632
133 1,26,875
Expenses on transfer 12,000 11,50,075
Solution 53
Land Gold
Debentures
Rs. Rs.
Rs.
Sale proceeds 1,98,00,000 11,86,000
1,57,0000
Less: Cost of acquisition
75000
Indexed cost of acquisition
2800000 x 632
100
241000 x 632
100 1,76,96,000 15,23,120
Long-term capital gain/(Ioss) 21,04,000 (-) 3,37,120
82,000
Long-term capital gain:

Land 21,04,000
Gold (-) 3,37,120
Debentures 82,000
18,48,880
Computation of Total Income of Mr. Namit

(For assessment year 2010-11)
Income from business 1,46,000
Income from capital gain 18,48,880
19,94,830
I. No indexation is allowed in. case of bonds and debentures

2. As debentures are listed, the tax on long-term capital gain on such debentures is
chargeable @ 10% instead of 20% as the capital gain has been calculated without
indexation.
Solution 54
Gold
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Shares
Rs.
Rs.
Sale Consideration 19,00,000
6,00,000
Less: Indexed Cost of Acquisition (91,000 x 632 ) 2,35,705
7,07,115
244
(2,73,000 x 632 ) __________
___________
244
Long-term capital gain/loss 16,64,295 16,64,295 (-)
1,07,115
Net long-term capital gain 16,64,295
Note.-tong-term capital loss on sale of shares is not allowed to be set off as long term
capital gain on such shares is exempt u/s 10(38).
Solution 55
Computation of taxable Capital Gain .
Rs.
Rs.
Sale price of plot
17,00,000
Less: Indexed cost [3,00,000 x 632]
150 12,64,000
Expenses of transfer 40,000
13,04,000
3,96,000
Less: Exemption u/s 54EC
Amount invested in Bonds of NHAI Rs. 4,00,000 but limited to
3,96,000
Taxable long-term capital gain
Nil

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Answer Sheet Chapter 8
1 C 36 B
2 D 37 B
3 B 38 B
4 B 39 B
5 D 40 C
6 B 41 B
7 D 42 B
8 C 43 B
9 C 44 A
10 C 45 A
11 B 46 C
12 D 47 A
13 B 48 C
14 B 49 B
15 C 50 B
16 B 51 A
17 C 52 D
18 B 53 A
19 B 54 B
20 C 55 C
21 A 56 B
22 A 57 B
(i)(c),
23 (ii)(B) 58 C
24 C 59 A
25 (i)(B), (ii)© 60 A
26 A 61 B
27 C 62 B
28 B 63 A
29 C
30 B
31 A
32 B
33 C
34 C
35 C

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Any mistake, error or discrepancy noted may be brought to our notice, which, shall be taken care of in the
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Roots Institute of Financial Markets

CA. Ravi Malhotra

Vipin Sehgal CFPCM

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Roots Institute of Financial Markets

Ethical consideration in tax planning

Roots Institute of Financial Markets

Roots Institute of Financial Markets

50. Securities transaction tax paid by the purchaser of shares/units shall

A. form part of the cost of such shares and units

Roots Institute of Financial Markets

Roots Institute of Financial Markets

AB Ltd., Company, in a scheme of amalgamation in 2009-10 made proposal to acquire

Roots Institute of Financial Markets

Roots Institute of Financial Markets

Roots Institute of Financial Markets

Taxable capital gain

Long-term capital gain:

Roots Institute of Financial Markets

I. No indexation is allowed in. case of bonds and debentures

Computation of capital gain

Capital gain on sale of right share (300)

Taxable capital gain

Income from capital gain

Capital gain on sale a/shares

Long-term capital gain 1,30,000

Roots Institute of Financial Markets

2. Capital gain from sale of equity shares of Thapar Ltd.

3. Capital gain on sale of flat

Taxable income from capital gain

Computation of capital gain

2. Calculation of cost of shares of G Ltd.

Indexed cost of original shares (4,50,000 x632)

Roots Institute of Financial Markets

6. The Government of India announced increase in the D.A on 15-3-2009 with

Roots Institute of Financial Markets

A. April 2009 to March 2010

A. Central Government employee

13 Salary for exemption of leave encashment shall be taken as:

A. last drawn Salary

14 The maximum exemption in case of leave encashment shall be:

15 An employee availed the exemption of leave encashment of Rs. 1,00,000 in the

Roots Institute of Financial Markets

82 "Overtime allowance" is taxable as "profits in lieu of salary".

1-06-2009 to 07-06-2009 Rs.5000

08-06-2009 to 14-06-2009 Rs.4800

15-06-2009 to 21-06-2009 Rs.6200

22-06-2009 to 28-06-2009 Rs.5600

Calculate the amount of retrenchment compensation chargeable to tax?

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A. Rs.29, 000 and Rs.1, 71,000

B. Rs.1, 71,000 and Rs.29, 000

C. Rs.21, 000 and Rs.1, 71,000

D. Rs.200, 000 and Rs.0

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