Total Computation QB by CA Pranav Chandak

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Chapter: Total Computation
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Q1. Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.03.2020 & came to
India for the first time on 16.03.2020. She left for USA on 19.9.2020. She returned to India again on
27.03.2021. While in India, she had purchased a show room in Mumbai on 22.04.2020, which was leased out
to a company on a rent of Rs. 25,000 p.m. from 1.05.2020. She had taken loan from a bank for purchase of
this show room on which bank had charged interest of Rs. 97,500 upto 31.03.2021. She had received the
following cash gifts from her relatives & friends during 1.4.2020 to 31.3.2021:
From parents of husband Rs. 51,000
From married sister of husband Rs. 11,000
From two very close friends of her husband (Rs. 1,51,000 & Rs. 21,000) Rs. 1,72,000
(a) Determine her residential status & compute the total income chargeable to tax along with the amount
of tax liability on such income for AY 2021- 22.
(b) Would her residential status undergo any change, assuming that she is a person of Indian origin & her
total income from Indian sources is Rs. 18,00,000 & she is not liable to tax in USA?
Answer:
(a) U/s 6(1), an individual is said to be resident in India in any PY, if he satisfies any one of the following
conditions:
(i) He has been in India during PY for a total period of 182 days or more, or
(ii) He has been in India during the 4 years immediately preceding PY for a total period of 365 days or
more & has been in India for at least 60 days in PY.
If an individual satisfies any one of the conditions mentioned above, he is a resident.
If both the above conditions are not satisfied, the individual is a non- resident.
Therefore, residential status of Miss Charlie, an American National, for AY 2021-22 has to be determined
on the basis of her stay in India during PY 2020-21 & in the preceding 4 AYs.
Her stay in India during PY 2020-21 & in the preceding four years are as under:
Stay in PY 2020-21:
01.04.2020 to 19.09.2020 172 days
27.03.2021 to 31.03.2021 5 days
Total 177 days
Stay in Last 4 PYs

PY 2020-21 [1.4.2019 to 31.3.2020] 16 days
PY 2018-19 [1.4.2018 to 31.3.2019] Nil
PY 2017-18 [1.4.2017 to 31.3.2018] Nil
PY 2016-17 [1.4.2016 to 31.3.2017] Nil
Total 16 days
Total stay of the assessee during PY 2020-21 in India < 182 days & during last 4 PYs = 16 days.
Therefore, due to non-fulfillment of any of the two conditions for a resident, she would be treated as non-
resident for AY 2021-22.
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Computation of total income of Miss Charlie for AY 2021-22
Income from house property
Gross Annual Value [Rs. 25,000 x 11] (See Note 1 below) [Show room located Rs. 2,75,000
in Mumbai on rent from 01.05.2020 to 31.03.2021 @ Rs. 25,000 p.m.]
Less: Municipal taxes Nil
Net Annual Value (NAV) Rs. 2,75,000
Less: Deduction u/s 24(a): 30% of NAV Rs. 82,500
Less: Deduction u/s 24(b): Interest on loan Rs. 97,500 Rs. 95,000
Income from other sources
Rs. 50,000 received from parents of husband would be exempt, since Nil
parents of husband are ‘relative’ & gifts from a relative are not taxable.
Rs. 11,000 received from married sister of husband is exempt, since Nil
sister-in-law falls in relative & gifts from a relative are not taxable.
Gift received from 2 friends of husband Rs. 1,51,000 & Rs. 21,000 Rs. 1,72,000 Rs. 1,72,000
aggregating to Rs. 1,72,000 is taxable u/s 56(2)(x) since > Rs. 50,000
Total Income Rs. 2,67,000
Computation of tax liability by Miss Charlie for AY 2021-22

Tax on total income of Rs. 2,67,000 Rs. 850
Add: Health & Education cess@4% Rs. 34
Total tax liability Rs. 884
Notes:
1. Actual rent received has been taken as the gross annual value in the absence of other information (i.e.
Municipal value, fair rental value & standard rent) in the question.
2. If the aggregate value of taxable gifts received from non-relatives exceed Rs. 50,000 during the year,
the entire amount received (i.e. the aggregate value of taxable gifts received) is taxable. Therefore,
the entire amount of Rs. 1,72,000 is taxable u/s 56(2)(x).
3. Since Miss Charlie is a non-resident for the AY 2021-22, rebate u/s 87A would not be available to her,
even though her total income does not exceed 5 lacs.
4. Tax liability of Miss Charlie would be the same even if she opts to pay tax as per section 115BAC, since
she would be eligible for deduction u/s 24(b), for interest on housing loan i.r.o. let out property under
regular provisions as well as u/s 115BAC of the Income- tax Act, 1961.
(b) Residential status of Miss Charlie in case she is a person of Indian origin & her total income from
Indian sources exceeds Rs. 18,00,000.
▪ If she is a person of Indian origin & her total income from Indian sources exceeds Rs. 15,00,000 (Rs.
18,00,000, in her case), condition of stay in India for a period exceeding 120 days during PY & 365 days
during last 4 PYs would be applicable for being treated as a resident.
▪ Since her stay in India exceeds 120 days in PY 2020-21 but her stay in India during last 4 PYs < 365 days
(only 16 days), her residential status would continue to be same i.e., non-resident in India.
▪ Further, since she is not a citizen of India, the provisions of section 6(1A) deeming an individual to be a
citizen of India would not get attracted in her case, even though she is a person of Indian origin & her
total income from Indian sources exceeds Rs. 5,00,000 & she is not liable to pay tax in USA.
▪ Therefore, her residential status would be non-resident in India for PY 2020-21.
Q2. Dr. Niranjana, a resident individual, aged 60 years is running a clinic in Surat. Her Income & Expenditure
Account for PY 2021-2022 is as under:
Expenditure Rs. Income Rs.
To Medicine consumed Rs. 35,38,400 By Consultation & medical charges Rs. 58,85,850
To Staff salary Rs. 13,80,000 By Income-tax refund (Principal: Rs. Rs. 5,450
5,000 & Interest: Rs. 450)
To Clinic consumables Rs. 1,10,000 By Dividend from units of UTI (Gross) Rs. 10,500
To Rent paid Rs. 90,000 By Winning from game show on TV Rs. 35,000
(Net of TDS of Rs.15,000)
Administrative expenses Rs. 2,55,000 By Rent Rs. 27,000
To Amount paid to scientific Rs. 1,50,000
Research association u/s 35
To Net profit Rs. 4,40,000
Rs. 59,63,800 Rs. 59,63,800
(a) Rent paid includes Rs. 30,000 paid by cheque towards rent for her residential house in Surat.
(b) Clinic equipments are:
01.04.2020 Opening WDV Rs. 5,00,000
07.12.2020 Acquired (cost) by cheque Rs. 2,00,000
(c) Rent received relates to property situated at Surat. Gross Annual Value Rs. 27,000. The municipal tax
of Rs. 2,000, paid in December, 2020, has been included in "administrative expenses".
(d) She received salary of Rs. 7,500 p.m. from "Full Cure Hospital" which has not been included in the
"consultation & medical charges".
(e) Dr. Niranjana availed a loan of Rs. 5,50,000 from a bank for higher education of her daughter. She
repaid principal of Rs. 1,00,000, & interest thereon Rs. 55,000 during PY 2020-21.
(f) She paid Rs. 1,00,000 as tuition fee (not in the nature of development fees/ donation) to the university
for full time education of her daughter.
(g) Rs. 28,000 has also been paid by cheque on 27th March, 2021 for her medical insurance premium.
Compute total income of Dr. Smt. Niranjana for AY 2021-22 under the regular provisions of the Income-tax
Act, 1961, assuming that she has not opted for to pay tax u/s 115BAC.
Answer: Computation of total income of Dr. Niranjana for AY 2021-22
SN Particulars Rs. Rs. Rs.
I Income from Salary
Basic Salary (Rs. 7,500 x 12) Rs. 90,000
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 40,000
II Income from house property
Gross Annual Value (GAV) Rs. 27,000
Less: Municipal taxes paid Rs. 2,000
Net Annual Value (NAV) Rs. 25,000
Less: Deduction u/s 24 @ 30% of Rs. 25,000 Rs. 7,500 Rs. 17,500
III Income from profession
Net profit as per Income & Expenditure A/c Rs. 4,40,400
Less: Items of income to be treated separately
(i) Rent received (taxable u/h ‘House property’) Rs. 27,000
(ii) Dividend from units of UTI (taxable u/h ‘IFOS’) Rs. 10,500
(iii) Winning from game show (Net) [Taxable u/h ‘IFOS’] Rs. 35,000
(iv) Income tax refund Rs. 5,450 Rs. 77,950
Less: Allowable expenditure
Depreciation on clinic equipments
- on Rs. 5,00,000@15% Rs. 75,000
- on 2,00,000 @ 7.5% (On equipments acquired in Rs. 15,000 (Rs. 90,000)
December 2020, she is entitled to depreciation @
50% of normal depreciation, since the same are put
to use for < 180 days during the year)
Add: Expenditure not allowable while computing business income
(i) Rent for her residential accommodation included in Rs. 30,000
Income & Expenditure A/c
(ii) Municipal tax paid relating to residential house at
Surat included in administrative expenses Rs. 2,000 Rs. 3,04,450
IV Income from other sources
(a) Interest on income-tax refund Rs. 450
(b) Dividend from UTI (taxable in the hands of unit holders) Rs. 10,500
(c) Winnings from TV game show (Rs. 35,000 + Rs. 15,000) Rs. 50,000 Rs. 60,950
Gross Total Income Rs. 4,22,900
Less: Deductions under Chapter VI-A:
(a) Section 80C: Tuition fee paid to university for full time education
of her daughter Rs. 1,00,000
(b) Section 80D: Medical insurance premium (fully allowed since she
is a senior citizen) Rs. 28,000
(c) Section 80E: Interest on loan taken for higher education is
deductible Rs. 55,000 Rs. 1,83,000
Total income Rs. 2,39,900
Notes:
1. The principal amount received towards income-tax refund will be excluded from computation of total
income. Interest received will be taxed u/h “Income from other sources”.
2. Winnings from game show on T.V. should be grossed up for the chargeability u/h “Income from other
sources” (Rs. 35,000 + Rs. 15,000). Thereafter, while computing tax liability, TDS of Rs. 15,000 should be
deducted to arrive at the tax payable. Winnings from game show are subject to tax @30% as per section
115BB.
3. Dr. Niranjana would not be eligible for deduction u/s 80GG, as she owns a house in Surat, a place where
she is residing as well as carrying on her profession.
4. 100% deduction is allowable i.r.o. the amount paid to scientific research association allowable, since
whole of the amount is already debited to Income & Expenditure A/c, no further adjustment is required.
Q3. Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her accounts on cash
basis. Her Income & Expenditure account for the year ended March 31, 2021 reads as follows:
Expenditure Rs. Income Rs. Rs.
Salary to staff Rs.15,50,000 Fees earned:
Stipend to articled Rs. 1,37,000 Audit Rs. 27,88,000
Assistants Taxation services Rs. 15,40,300
Incentive to articled Rs. 13,000 Consultancy Rs. 12,70,000 Rs. 55,98,300
Assistants Dividend received on 30.4.2020 Rs. 10,524
on shares of X Ltd., an Indian
company (Gross)
Office rent Rs.12,24,000 Income from UTI (Gross), Rs. 7,600
received on 25.4.2020
Printing & stationery Rs.12,22,000 Honorarium received from Rs. 15,800
various institutions for Valuation
of answer papers
Meeting, seminar & Rs. 31,600 Rent received from residential Rs. 85,600
Conference flat let out
Purchase of car (for Rs. 80,000
official use)
Repair, maintenance & Rs. 4,000
petrol of car
Travelling expenses Rs. 5,25,000
Municipal tax paid Rs. 3,000
i.r.o. house property
Net Profit Rs. 9,28,224
Rs.57,17,824 Rs.57,17,824
(a) Allowable rate of depreciation on motor car is 15%.
(b) Value of benefits received from clients during the course of profession is Rs. 10,500.
(c) Incentives to articled assistants represent amount paid to two articled assistants for passing IPCC
Examination at first attempt.
(d) Repairs & maintenance of car include Rs. 2,000 for the period from 01.10.2020 to 30.09.2021.
(e) Salary include Rs. 30,000 to a computer specialist in cash for assisting Ms. Purvi in one professional
assignment.
(f) Travelling expenses include expenditure incurred on foreign tour of Rs. 32,000 which was within the
RBI norms.
(g) Medical Insurance Premium on the health of dependent brother & major son dependent on her amounts
to Rs. 5,000 & Rs. 10,000, respectively, paid in cash.
(h) She invested an amount of Rs. 10,000 in National Saving Certificate.
(i) She has paid Rs. 70,000 towards advance tax during the PY 2020-21
Compute the total income & tax payable of Ms. Purvi for AY 2021-22.
Answer: Computation of total income & tax payable of Ms. Purvi for AY 2021-22
Particulars Rs. Rs.
Income from house property (See Working Note 1) Rs.57,820
Profit &gains of business or profession (See Working Note 2) Rs. 9,20,200
Income from other sources (See Working Note 3) Rs. 33,924
Less: Deductions under Chapter VI-A (See Working Note 4) Rs. 10,000
Total Income (rounded off) Rs. 10,01,940
Tax on total income
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 - Rs. 5,00,000 @5% Rs. 12,500
Rs. 5,00,001 - Rs. 10,00,000 @20% Rs. 1,00,000
Rs. 10,00,001 - Rs. 10,01,940 @ 30% Rs. 582 Rs. 1,13,082
Add: Health & Education cess @ 4% Rs. 4,523
Total tax liability Rs. 1,17,605
Less: Advance tax paid Rs. 70,000
Less: TDS on dividend from Indian Company u/s 194 Rs. 1,052
Less: TDS on income from UTI u/s 194K Rs. 760 Rs. 1,812
Tax Payable Rs. 45,793
Tax Payable (rounded off) Rs. 45,790
Computation of tax payable in accordance with the provisions of section 115BAC

Particulars Rs. Rs.
Gross Total Income 10,11,944
[Income u/h “Income from house property” “Profits & gains from business or
profession” & “Income from other sources” would remain the same even if Ms.
Purvi opts for special provisions u/s 115BAC, since deduction claimed by her
under these heads is allowable even u/s 115BAC]
Less: Deductions under Chapter VI-A [No deduction is allowable under Nil
Chapter VI-A, by virtue of section 115BAC(2)]
Total Income Rs.10,11,944
Total Income (rounded off) Rs.10,11,940
Tax on total income
Upto Rs. 2,50,000 Nil
Rs. 2,50,001 – Rs. 5,00,000 @5% Rs. 12,500
Rs. 5,00,000 - Rs. 7,50,000 @10% Rs. 25,000
Rs. 7,50,000 - Rs. 10,00,000 @15% Rs. 37,500
Rs. 10,00,000 – Rs. 10,11,940 @ 20% Rs. 2,388 Rs. 77,388
Total tax liability Rs. 80,484
Less: Advance tax paid Rs. 70,000
Less: TDS on dividend income from Indian Companies u/s 194 Rs. 1,052
Tax deducted at source on income from UTI u/s 194K Rs. 760 Rs. 1,812
Tax Payable Rs. 8,672
Tax Payable (rounded off) Rs. 8,670
Since tax payable as per the provisions of section 115BAC is lower than the tax payable under the regular
provisions of the Income-tax Act, 1961, it would be beneficial for Ms. Purvi to opt for section 115BAC. She
has to exercise this option on or before the due date of furnishing the return of income i.e., 31st October
2021, in her case since she is liable to get her books of account audited. Further, since she is having income
from business or profession during PY 2020- 21, if she opts for section 115BAC for this PY, the said provisions
would apply for subsequent assessment years as well.
Working Notes:
(1) Income from House Property
Particulars Rs. Rs.
Gross Annual Value u/s 23(1) Rs. 85,600 Rs. 57,820
Less: Deduction u/s 24@30% of NAV Rs. 24,780
Note: Rent received has been taken as the Gross Annual Value in the absence of other information relating
to Municipal Value, Fair Rent & Standard Rent.
(2) Income u/h “Profits & Gains of Business or Profession”

Particulars Rs. Rs.
Net profit as per Income & Expenditure account Rs. 9,28,224
Add: Expenses debited but not allowable
(i) Salary paid to computer specialist in cash disallowed u/s 40A(3), since
such cash payment exceeds Rs. 10,000 Rs. 30,000
(ii) Amount paid for purchase of car is not allowable u/s 37(1) since it is a
capital expenditure Rs. 80,000
(ii) Municipal Taxes paid i.r.o. residential flat let out Rs. 3,000
Add: Value of benefit received from clients during the course of profession Rs. 10,500
[taxable as business income u/s 28(iv)]
Less: Income credited but not taxable under this head:
(i) Dividend on shares of X Ltd., an Indian company (taxable u/h “IFOS ") Rs. 10,524
(ii) Income from UTI (taxable u/h “Income from other sources") Rs. 7,600
(iii) Honorarium for valuation of answer papers Rs. 15,800
(iv) Rent received from letting out of residential flat Rs. 85,600 Rs. 1,19,524
Less: Depreciation on motor car @15% (See Note (i) below) Rs. 12,000
Rs. 9,20,200
Notes:
1. It has been assumed that the motor car was put to use for more than 180 days during PY & hence, full
depreciation @ 15% has been provided for u/s 32(1)(ii).
Note: Alternatively, the question can be solved by assuming that motor car has been put to use for less
than 180 days & accordingly, only 50% of depreciation would be allowable as per the second proviso
below section 32(1)(ii).
2. Incentive to articled assistants for passing IPCC examination in their first attempt is deductible u/s
37(1).
3. Repairs & maintenance paid in advance for the period 1.4.2021 to 30.9.2021 i.e. for 6 months amounting
to Rs. 1,000 is allowable since Ms. Purvi is following the cash system of accounting.
4. Rs. 32,000 expended on foreign tour is allowable as deduction assuming that it was incurred in
connection with her professional work. Since it has already been debited to income & expenditure
account, no further adjustment is required.
(3) Income from other sources

Particulars Rs.
Dividend on shares of X Ltd., an Indian company (taxable in the hands of Rs. 10,524
shareholders)
Income from UTI (taxable in the hands of unit holders) Rs. 7,600
Honorarium for valuation of answer papers Rs. 15,800
Rs. 33,924
(4) Deduction under Chapter VI-A

Particulars Rs.
Deduction u/s 80C (Investment in NSC) Rs. 10,000
Deduction u/s 80D (See Notes (i) & (ii) below) Nil
Total deduction under Chapter VI-A Rs. 10,000
Notes:
1. Premium paid to insure the health of brother is not eligible for deduction u/s 80D, even though he is a
dependent, since brother is not included in the definition of “family” u/s 80D.
2. Premium paid to insure the health of major son is not eligible for deduction, even though he is a
dependent, since payment is made in cash.
Q4. Mr. Y carries on his own business. Analysis of his trading & P&L A/c for PY 2020-21 reveals the following:
1 Net profit was Rs. 11,20,000 [Mod. MAY 2012]
2 following incomes were credited in the profit & loss account:
(a) Dividend from UTI Rs. 22,000 (Gross)
(b) Interest on debentures Rs. 17,500 (Gross)
(c) Winnings from horse races Rs. 15,000 (Gross)
3 It was found that some stocks were omitted to be included in both the opening & closing stocks, the
value of which were: Opening stock Rs. 8,000 & Closing stock Rs. 12,000
4 Rs. 1,00,000 was debited in P&L A/c being contribution to University approved u/s 35 (1) (ii)
5 Salary includes Rs. 20,000 paid to his brother which is unreasonable to the extent of Rs. 2,500
6 Advertisement expenses include 15 gift packets of dry fruits of Rs. 1,000/packet presented to
important customers.
7 Total expenses on car were Rs.78,000. The car was used both for business & personal purposes. ¾th
is for business purposes
8 Miscellaneous expenses included Rs. 30,000 paid to A &Co., a goods transport operator in cash on
31.01.2021 for distribution of the company’s product to the warehouses
9 Depreciation debited in books was Rs. 55,000. Depreciation allowed as per Income-tax = Rs. 50,000.
10 Drawings Rs. 10,000
11 Investment in NSC Rs. 15,000
Compute the total income of Mr. Y for AY 2021-22, assuming that he has not opted to pay tax u/s 115BAC.
Answer:
Computation of total income of Mr. Y for the AY 2021-22
Profits & gains of business or profession (See Working Note 1 below) Rs. 11,21,500
Income from other sources (See Working Note 2 below) Rs. 54,500
Less: Deduction u/s 80C (Investment in NSC) Rs. 15,000
Working Note: Computation of PGBP Income Rs. Rs.

Net profit as per profit & loss account Rs. 11,20,000
Add: Expenses debited to profits & loss account but not allowable as deduction
Salary paid to brother disallowed to the extent unreasonable [Sec 40A(2)] Rs. 2,500
Motor car expenses related to personal use - Disallowed (Rs. 78,000 × ¼) Rs. 19,500
Depreciation debited in the books of account Rs. 55,000
Drawings (not allowable since it is personal in nature) [See Note (iii)] Rs. 10,000
Investment in NSC [See Note (iii)] Rs. 15,000 Rs. 1,02,000
Add: Under statement of closing stock Rs. 12,000
Less: Under statement of opening stock (Rs. 8,000)
Less: Incomes credited to profit & loss account but not taxable as business income
Income from UTI [taxable u/h “Income from other sources”] Rs. 22,000
Interest on debentures (taxable u/h “Income from other sources”) Rs. 17,500
Winnings from horse races (taxable u/h “Income from other sources”) Rs. 15,000 (Rs. 54,500)
Less: Depreciation allowable under the Income- tax Rules, 1962 (Rs. 50,000)
Rs. 11,21,500
Notes:
1. Advertisement expenses of revenue nature, gift of dry fruits to important customers, is incurred wholly
& exclusively for business purposes. Hence, the same is allowable as deduction u/s 37.
2. Disallowance u/s 40A(3) is not attracted i.r.o. cash payment exceeding Rs. 10,000 to A & Co., a goods
transport operator, since, in case of payment made for plying, hiring or leasing goods carriages, an
increased limit of Rs. 35,000 is applicable (i.e., payment of upto Rs. 35,000 can be made in cash without
attracting disallowance u/s 40A(3)).
3. Since drawings & investment in NSC have been given effect to in the profit & loss account, the same have
to be added back to arrive at the business income.
4. In point no. 9 of the question, it has been given that depreciation as per Income-tax Rules, 1962 is Rs.
50,000. It has been assumed that, in the said figure of Rs. 50,000, only the proportional depreciation
(i.e., 75% for business purposes) has been included i.r.o. motor car.
Computation of “Income from Other Sources”

Dividend from UTI Rs. 22,000
Interest on debentures Rs. 17,500
Winnings from races Rs. 15,000
Income from other sources Rs. 54,500
Q5. Balamurugan furnishes the following information for the year ended 31-03-2021.
Particulars Rs.
Income from textile business Rs. (1,35,000)
Income from house property Rs. (15,000)
Lottery winning (Gross) Rs. 5,00,000
Speculation business income Rs. 1,00,000
Income by way of salary (Computed) Rs. 60,000
Long term capital gain u/s 112 Rs. 70,000
Compute his total income, tax liability & advance tax. Assume he does not opt for section 115BAC.
Answer:
Computation of total income of Balamurugan for the PY 2020 - 2021
Salaries Rs. 60,000
Less: Loss from house property Rs. (15,000)
Net Salary (after set off of loss from house property) Rs. 45,000
Profits & gains of business or profession
Speculation business income Rs. 1,00,000
Less: Business loss set-off Rs. (1,35,000)
Net business loss to be set-off against long-term capital gain Rs. (35,000)
Capital Gains
Long term capital gain Rs. 70,000
Less: Business loss set-off Rs. (35,000)
Long term capital gain after set off of business loss Rs. 35,000
Income from other sources
Lottery winnings (Gross) Rs. 5,00,000
Computation of tax liability for AY 2021-22

On total income of Rs. 80,000 (excluding lottery winning) Nil
On lottery winnings of Rs. 5,00,000 @ 30% Rs. 1,50,000
Rs. 1,50,000
Total tax liability Rs. 1,56,000
The assessee need not pay advance tax since the total income (excluding lottery income) liable to tax is
below the basic exemption limit. Further, i.r.o. lottery income, tax would have been deducted at source @
30% u/s 194B. Since the remaining tax liability of Rs. 6,000 (Rs. 1,56,000 – Rs. 1,50,000) is less than Rs.
10,000, advance tax liability is not attracted.
Notes:
1. BEL of Rs. 2,50,000 has to be first exhausted against salary income of Rs. 45,000. Unexhausted BEL of
Rs. 2,05,000 can be adjusted against LTCG of Rs. 35,000 as per section 112, but not against lottery
winnings which are taxable at a flat rate of 30% u/s 115BB.
2. First proviso to section 234C (1) provides that since it is not possible for the assessee to estimate his
income from lotteries, the entire amount of tax payable (after considering TDS) on such income should
be paid in the remaining instalments of advance tax which are due. Where no such instalment is due,
the entire tax should be paid by 31st March, 2021.The first proviso to section 234C(1) would be attracted
only in case of non-deduction or short-deduction of tax at source u/s 194B. In this case, it has been
assumed that tax has been deducted at source from lottery income.
Q6. Mr. Rajiv, aged 50 years, a resident individual & practicing Chartered Accountant, furnishes you the
receipts & payments account for the FY 2020-21. [MAY 11 + NOV 18 + ICAI Ex. Q6]
Receipts & Payments Account
Receipts Rs. Payments Rs.
Opening balance (1.4.2020) Cash Rs. 12,000 Staff salary, bonus & stipend Rs. 21,50,000
on hand & at Bank to articled clerks
Fee from professional services Rs. 59,38,000 Other administrative expenses Rs. 11,48,000
(Gross)
Rent Rs. 50,000 Office rent Rs. 30,000
Motor car loan from Canara Bank Rs. 2,50,000 Housing loan repaid to SBI Rs. 1,88,000
(@ 9% p.a.) (includes interest of Rs. 88,000)
Life insurance premium (10% of Rs. 24,000
sum assured)
Motor car (acquired in Jan. 2021 Rs. 4,25,000
by A/c payee cheque)
Medical insurance premium (for Rs. 18,000
self & wife)(paid by A/c Payee
cheque)
Books bought on 1.07.2020 Rs. 20,000
(annual publications by A/c
payee cheque)
Computer acquired on 1.11.2020 Rs. 30,000
by A/c payee cheque (for
professional use)
Domestic drawings Rs. 2,72,000
Public provident fund Rs. 20,000
subscription
Motor car maintenance Rs. 10,000
Closing balance (31.3.2021) Cash Rs. 19,15,000
on hand & at Bank
Rs. 62,50,000 Rs. 62,50,000
Following further information is given to you:
1. He occupies 50% of the building for own residence & let out the balance for residential use at a monthly
rent of Rs. 5,000. The building was constructed during the year 1997-98, when the housing loan was taken.
2. Motor car was put to use both for official & personal purpose. One-fifth of the motor car use is for
personal purpose. No car loan interest was paid during the year.
3. The written down value of assets as on 1-4-2020 are given below.
Furniture & Fittings Rs. 60,000
Plant & Machinery Rs. 80,000
(Air-conditioners, Photocopiers, etc.)
Computers Rs. 50,000
Note: Mr. Rajiv follows regularly the cash system of accounting. Compute the total income of Mr. Rajiv for
AY 2021-22 assuming that he has not opted to pay tax u/s 115BAC.
Solution: Computation of Taxable Income and Tax Liability
1 Income from house property
(a) Self-occupied Property: Annual value Nil
Less: Deduction u/s 24(b): Interest on housing loan 50% of Rs.
88,000 = 44,000 but limited to (30,000)
Loss from self occupied property (30,000)
(b) Let out property: Annual value (Rent receivable has been
taken as the annual value in the absence of other information) Rs. 60,000
Sec 24(a): 30% of Net Annual Value: Rs. 18,000
Sec 24(b): Interest on housing loan (50% of Rs. 88,000) Rs. 44,000 (2,000)
Loss from house property (32,000)
2 Profits and gains of business or profession
Fees from professional services 59,38,000
Less: Expenses allowable as deduction
Staff salary, bonus and stipend (21,50,000)
Other administrative expenses (11,48,000)
Office rent (30,000)
Motor car maintenance (10,000 x 4/5) (8,000)
Car loan interest – not allowable (since the same has not been Nil 33,36,000
paid and the assessee follows cash system of accounting)
Motor car (Rs. 4,25,000 x 7.5% x 4/5) 25,500
Books being annual publications @ 40% 8,000
Furniture and fittings @ 10% of Rs. 60,000 6,000
Plant and machinery @ 15% of Rs. 80,000 12,000
Computer @ 40% of Rs. 50,000 20,000
Computer (New) Rs. 30,000 @ 40% x 50% 6,000 77,500 25,24,500
Gross Total income 24,92,500
3 Less: Deduction under Chapter VI-A
1. Deduction u/s 80C 1,44,000
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000 1,44,000
2. Deduction u/s 80D: Medical insurance premium paid 18,000 18,000 (1,62,000)
Total income 23,30,500
Q7. From the following details, compute the total income & tax liability of Siddhant, aged 31 years, of Delhi
both as per the regular provisions of the Income-tax Act, 1961 & as per section 115BAC for AY 2021-22.
Advise Mr. Siddhant whether he would opt for section 115BAC:
Particulars Rs.
Salary including dearness allowance Rs. 3,35,000
Bonus Rs. 11,000
Salary of servant provided by the employer Rs. 12,000
Rent paid by Siddhant for his accommodation Rs. 49,600
Bills paid by the employer for gas, electricity & water provided free of cost at the flat Rs. 11,000
Siddhant purchased a flat in a co-operative housing society in Delhi for Rs. 4,75,000 in April, 2014, which
was financed by a loan from Life Insurance Corporation of India of Rs. 1,60,000 @ 15% interest, his own
savings of Rs. 65,000 & a deposit from nationalized bank for Rs. 2,50,000 to whom this flat was given on
lease for 10 years. Rent payable by bank was Rs. 3,500 per month.
The following particulars are relevant:
(a) Municipal taxes paid by Mr. Siddhant: Rs. 4,300 (per annum)
(b) House Insurance: Rs. 860
(c) He earned Rs. 2,700 in share speculation business & lost Rs. 4,200 in cotton speculation business.
(d) In PY 2015-16, he had gifted Rs. 30,000 to his wife & Rs. 20,000 to his son who was aged 11. The gifted
amounts were advanced to Mr. Rajesh, who was paying interest @ 19% per annum.
(e) Siddhant received a gift of Rs. 30,000 each from four friends.
(f) He contributed Rs. 50,000 to Public Provident Fund. [Mod. Nov 2007]
Answer:
Computation of total income & tax liability of Siddhant for AY 2021-22
Salary Income
Bonus Rs. 11,000
Value of perquisites: (i) Salary of servant Rs. 12,000
Value of perquisites: (ii) Free gas, electricity & water Rs. 11,000
Less: Standard deduction u/s 16(ia) Rs. 50,000 Rs. 3,19,000
Income from house property
Gross Annual Value (GAV) (Rent receivable is taken as GAV) (3,500 × 12) Rs. 42,000
Less: Deduction u/s 24(a): 30% of NAV Rs. 11,310
Less: 24(b): (ii) Interest on loan from LIC @ 15% of Rs. 1,60,000 [Note 2] Rs. 24,000 Rs. 2,390
Income from speculative business
Income from share speculation business Rs. 2,700
Less: Loss from cotton speculation business Rs. 4,200
Net Loss Rs. 1,500
Net loss from speculative business has to be carried forward as it cannot be set off
against any other head of income.
Income from Other Sources
(i) Income on account of interest earned from advancing money gifted to Rs. 3,800
his minor son is includible in the hands of Siddhant as per section 64(1A)
Less: Exempt u/s 10(32) (Rs. 1,500)
(ii) Interest income earned from advancing money gifted to wife has to Rs. 5,700
be clubbed with the income of the assessee as per section 64(1)
(iii) Gift received from four friends (taxable u/s 56(2)(x) as the aggregate Rs. 1,20,000 Rs. 1,28,000
amount received during the year exceeds Rs. 50,000)
Less: Deduction u/s 80C: Contribution to Public Provident Fund (Rs. 50,000)
Particulars Rs.
Tax on total income of Rs. 3,99,390 @ 5% Rs. 7,470
Less: Rebate u/s 87A, since total income does not exceed Rs. 5,00,000 Rs. 7,470
Tax liability Nil
Computation of total income & tax liability of Siddhant as per section 115BAC for AY 2021-22
Particulars Rs. Rs.
Salary Income
Bonus Rs. 11,000
Value of perquisites:
(i) Salary of servant Rs. 12,000
(ii) Free gas, electricity & water Rs. 11,000 Rs. 23,000
Rs. 3,69,000
Less: Standard deduction u/s 16(ia) [not allowable as per section Nil
115BAC(2)]
Income from house property Rs. 3,69,000
Gross Annual Value (GAV) (Rent receivable is taken as GAV in the Rs. 42,000
absence of other information) (3,500 × 12)
Less: Deductions u/s 24
(i) 30% of NAV Rs. 11,310
(ii) Interest on loan from LIC @15% of 1,60,000 [See Note 2] Rs. 24,000 Rs. 35,310 Rs. 2,390
Income from speculative business
Income from share speculation business Rs. 2,700
Less: Loss from cotton speculation business Rs. 4,200
Net Loss Rs. 1,500
Net loss from speculative business has to be carried forward as it
cannot be set off against any other head of income.
(i) Income on account of interest earned from advancing money gifted Rs. 3,800
to his minor son is includible in the hands of Siddhant as per section
64(1A) [Exemption u/s 10(32) would not be available]
(ii) Interest income earned from advancing money gifted to wife has to
be clubbed with the income of the assessee as per section 64(1) Rs. 5,700
(iii) Gift received from four friends (taxable u/s 56(2)(x) as the
aggregate amount received during the year exceeds Rs. 50,000) Rs. 1,20,000 Rs. 1,29,500
Deduction u/s 80C [No deduction under Chapter VI-A would be allowed
as per section 115BAC(2)] Nil
Particulars
Tax on total income Rs. 12,589
Less: Rebate u/s 87A (not available, since total income exceeds Rs. 5,00,000) Nil
Add: Health & education cess @4% Rs. 504
Rs. 13,093
Tax liability Rs. 13,093
Tax liability (rounded off) Rs. 13,090
Since Mr. Siddhant is not liable to pay any tax as per the regular provisions of the Income-tax Act, 1961, it
would be beneficial for him to not opt for section 115BAC for AY2021-22.
Notes:
1. It is assumed that the entire loan of Rs. 1,60,000 is outstanding as on 31.3.2021;
2. Since Siddhant’s own flat in a co-operative housing society, which he has rented out to a nationalized
bank, is also in Delhi, he is not eligible for deduction u/s 80GG i.r.o. rent paid by him for his
accommodation in Delhi, since one of the conditions to be satisfied for claiming deduction u/s 80GG is
that the assessee should not own any residential accommodation in the same place.
3. Alternatively, computation total income as per the special provisions of section 115BAC can also be
presented as follows:
Particulars Rs. Rs.
Total Income as per regular provisions of the Income-tax Act Rs. 3,99,390
Add: (i) Standard deduction u/s 16(ia) as it would not be
allowable under the special provisions Rs. 50,000
(ii) Exemption u/s 10(32) as it would not be available under the Rs. 1,500
special provisions
(iii) Deduction u/s 80C as no deduction under Chapter VI-A
would be allowed under the special provisions Rs. 50,000 Rs. 1,01,500
Q8. Ramdin, aged 33 years, working as Manager (Sales) with Frozen Foods Ltd., provides the following
information for the PY 2020-21:
Basic Salary Rs. 15,000 p.m.
DA (50% of it is meant for retirement benefits) Rs. 2,000 p.m
Commission as percentage of turnover of Company 0.5 %
Turnover of the Company Rs. 50 lacs
Bonus Rs. 50,000
Gratuity Rs. 30,000
Own Contribution to R.P.F. Rs. 30,000
Employer’s contribution to R.P.F. 20% of basic salary
Interest credited in the R.P.F. account @ 15% p.a Rs. 15,000
Gold Ring given by employer on his 25th wedding anniversary Rs. 10,000
Music System purchased on 01.04.2020 by the company for personal use Rs. 85,000
Two old light goods vehicles owned by him were leased to a transport company Rs. 6,500 p.m.
against the fixed charges of Rs. 6,500 p.m. Books of account are not maintained.
Received interest on bank FDRs on 24.4.2020 (net) Rs. 5,860
Received interest from debentures of Indian Companies on 5.5.2020 (net) Rs. 6,786
Made payment by cheques of Rs. 15,370 towards premium on Life Insurance policies Rs. 15,370
Rs. 22,500 for Mediclaim Insurance policy for self & spouse Rs. 22,500
Invested in NSC Rs. 30,000 Rs. 30,000
In FDR of SBI for 5 years Rs. 50,000 Rs. 50,000
Donation of Rs. 11,000 to an institution approved u/s 80G was given during the year Rs. 11,000
by way of cheque.
Donation of Rs. 5,100 to Prime Minister’s National Relief Fund was given during the Rs. 5,100
year by way of cheque.
Compute the total income & tax payable thereon for the AY 2021-22. Assume Ramdin does not opt for
section 115BAC
Answer:
Computation of Total Income for the AY2021-22
Income from Salaries
Basic Salary (Rs. 15,000 x 12) Rs. 1,80,000
Dearness Allowance (Rs. 12,000 x12) Rs. 1,44,000
Commission on Turnover (0.5% of 50 lacs) Rs. 25,000
Bonus Rs. 50,000
Gratuity (See Note 1) Rs. 30,000
Employer’s contribution to recognized provident fund
Actual contribution [20% of Rs. 1,80,000] Rs. 36,000
Less: Exempt (See Note 2) Rs. 33,240 Rs. 2,760
Interest credited in recognized provident fund account @15% p.a. Rs. 15,000
Less: Exempt upto 9.5% p.a. Rs. 9,500 Rs. 5,500
Gift of gold ring worth Rs. 10,000 on 25 wedding anniversary by employer
th
(See Note 3) Rs. 10,000

Perquisite value of music system given for personal use (being 10% of
actual cost) i.e. 10% of Rs. 85,000 Rs. 8,500
Less: Standard deduction u/s 16(ia) Rs. 50,000
Rs. 4,05,760
Profits & Gains of Business or Profession
Lease of 2 light goods vehicles on contract basis against fixed charges of Rs. 6,500 p.m.
In this case, presumptive tax provisions of section 44AE will apply i.e. Rs. 7,500 p.m. for Rs. 1,80,000
each of the two light goods vehicle (Rs. 7,500 x 2 x 12). He cannot claim lower profits &
gains since he has not maintained books of account.
Interest on bank FDRs Rs. 5,860
Interest from debentures (Rs. 6786 x 100/90) Rs. 7,540 Rs. 13,400
Gross total Income Rs. 5,99,160
Less: Deductions under Chapter VI-A
Section 80C
Premium on life insurance policy Rs. 15,370
Investment in NSC Rs. 30,000
FDR of SBI for 5 years Rs. 50,000
Employee’s contribution to recognized provident fund Rs. 30,000 Rs. 1,25,370
Section 80D – Mediclaim Insurance Rs. 22,500
Section 80G (See Note 4) Rs. 10,600
Tax on total income
Income-tax Rs. 9,535
Add: Rebate u/s 87A, since total income does not exceed Rs. 5,00,000 Rs. 9,535
Total Tax Payable Nil
Less: Tax deducted at source (Rs. 7,540 – Rs. 6,786) Rs. 754
Net tax refundable Rs. 754
Tax refundable (rounded off) Rs. 750
Notes:
1. Gratuity received during service is fully taxable.
2. Employer’s contribution in the recognized provident fund is exempt up to 12% of the salary i.e. 12% of
(Basic Salary + DA for retirement benefits + Commission based on turnover)
=12% of (Rs. 1,80,000+ (50% of Rs. 1,44,000) + Rs. 25,000)
=12% of Rs. 2,77,000 = Rs. 33,240
3. An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable in view of the language
of Circular No.15/2001 dated 12.12.2001 that such gifts upto Rs. 5,000 in the aggregate per annum would
be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite
would be 5,000. In such a case the Income from Salaries would be Rs. 4,00,760.
4. Deduction u/s 80G is computed as under:
Particulars Rs.
Donation to PM National Relief Fund (100%) Rs. 5,100
Donation to institution approved u/s 80G (50% of Rs. 11,000) (amount contributed Rs.
11,000 or 10% of Adjusted Gross Total Income i.e. 45,129, whichever is lower)
Rs. 5,500
Total deduction Rs. 10,600
Adjusted Gross Total Income =Gross Total Income - Deductions u/s 80C & 80D= Rs. 5,99,160 - Rs. 1,47,870
= Rs. 4,51,290
Q9. From the following particulars furnished by Mr. X for PY 2020-2021, you are requested to compute his
total income & tax payable for AY 2021-22, assuming that he does not opt for paying tax u/s 115BAC.
(a) Mr. X retired on 31.12.2020 at the age of 58, after putting in 25 years & 9 months of service, from a
private company at Mumbai.
(b) He was paid a salary of Rs. 25,000 p.m. & house rent allowance of Rs. 6,000 p.m. He paid rent of Rs.
6,500 p.m. during his tenure of service.
(c) On retirement, he was paid a gratuity of Rs. 3,50,000. He was covered by the payment of Gratuity Act.
Mr. X had not received any other gratuity at any point of time earlier, other than this gratuity.
(d) He had accumulated leave of 15 days per annum during the period of his service; this was encashed by
Mr. X at the time of his retirement. A sum of Rs. 3,15,000 was received by him in this regard. His average
salary may be taken as 24,500. Employer allowed 30 days leave per annum.
(e) After retirement, he ventured into textile business & incurred a loss of Rs. 80,000 upto 31.3.2021.
(f) Mr. X has deposited Rs. 1,00,000 in public provident fund.
Answer:
Computation of total income of Mr. X for AY 2021-22
Income from Salaries
Basic salary (Rs. 25,000 x 9 months) Rs. 2,25,000
House rent allowance:
Actual amount received (Rs. 6,000 x 9 months) Rs. 54,000
Less: Exemption u/s 10(13A)(Note 1) Rs. 36,000 Rs. 18,000
Gratuity:
Actual amount received Rs. 3,50,000
Less: Exemption u/s 10(10)(ii) (Note 2) Rs. 3,50,000 -
Leave encashment: Rs. 3,15,000
Actual amount received
Less: Exemption u/s 10(10AA) (Note 3) Rs. 2,45,000 Rs. 70,000
Gross Salary Rs. 3,13,000
Less: Standard deduction u/s 16(ia) Rs. 50,000
Profits and gains of business or profession Rs. 2,63,000
Business loss of Rs. 80,000 to be carried forward as the same cannot be
set off against salary income Nil
Gross Total income Rs. 2,63,000
Less: Deduction u/s 80C
Deposit in Public Provident Fund Rs. 1,00,000
Total income Rs. 1,63,000
Tax on total income Nil
Notes:
1. House rent allowance will be exempt to the extent of least of the following three amounts:
(i) HRA actually received (Rs. 6,000 x 9) Rs. 54,000
(ii) Rent paid in excess of 10% of salary (Rs. 6,500 – Rs. 2,500) x 9 months Rs. 36,000
(iii) 50% of salary Rs. 1,12,500
2. Gratuity of Rs. 3,50,000 is exempt u/s 10(10)(ii), being the minimum of the following amounts:
(i) Actual amount received Rs. 3,50,000
(ii) 15 days salary x Length of Service [(Rs. 25,000 x 15/26) x 26 years] Rs. 3,75,000
(iii) Statutory limit Rs. 20,00,000
3. Leave encashment is exempt upto the least of the following:

Actual amount received Rs. 3,15,000
10 months average salary (Rs. 24,500 x 10) Rs. 2,45,000
Cash equivalent of unavailed leave calculated on the basis of maximum 30 days
for every year of actual service rendered to the employer from whose service
he retired (See Note 4 below) Rs. 3,06,250
Statutory limit Rs. 3,00,000
4. Since the leave entitlement of Mr. X as per his employer’s rules is 30 days credit for each year of
service & he had accumulated 15 days per annum during the period of his service, he would have
availed/taken the balance 15 days leave every year.
Leave entitlement of Mr. X on the basis of 30 days for every = 30 days/year x 25= 750 days
year of actual service rendered by him to the employer
Less: Leave taken /availed by Mr. X during the period of his = 15 days/year x 25= 375 days
service
Earned leave to the credit of Mr. X at the time of his 375 days
retirement
Cash equivalent of earned leave to the credit of Mr. X at = 375 × Rs. 24,500/30 = Rs. 3,06,250
the time of his retirement
Q10. Rosy & Mary are sisters, born & brought up at Mumbai. Rosy got married in 1982 & settled at Canada
since 1982. Mary got married & settled in Mumbai. Both of them are below 60 years. The following are the
details of their income for PY ended 31.3.2021:
SN Particulars Rosy Mary
1 Pension received from State Government -- 60,000
2 Pension received from Canadian Government Rs. 20,000 --
3 Long-term capital gain on sale of land at Mumbai Rs. 1 Lac Rs. 1 Lac
4 Short-term capital gain on sale of shares of Indian listed companies i.r.o. Rs. 20,000 Rs. 2.5 Lacs
which STT was paid
5 LIC premium paid -- Rs. 10,000
6 Premium paid to Canadian Life Insurance Corporation at Canada Rs. 40,000 --
7 Mediclaim policy premium paid by A/c Payee Cheque -- Rs. 25,000
8 Deposit in PPF -- Rs. 20,000
9 Rent received i.r.o. house property at Mumbai Rs. 60,000 Rs. 30,000
Compute the taxable income & tax liability of Mrs. Rosy & Mrs. Mary for AY 2021-22 & tax thereon. Ignore
the provisions of section 115BAC.
Answer: Computation of taxable income of Mrs. Rosy & Mrs. Mary for AY 2021-22
Particulars Rosy Marry
[NR] [ROR]
1. Income u/h Salaries:
Pension from State Government 60,000
Less: Standard deduction u/s 16(ia) (50,000) Nil 10,000
Mrs. Rosy is a Non-Resident. Hence, Pension received from Canadian Government is not taxable.
2. Income from House Property:
Gross Annual Value 60,000 30,000
Less: Municipal Tax paid Nil Nil
Net Annual Value 60,000 30,000
Less: Deduction u/s 24(a): 30% of NAV – [60,000 x 30% & 30,000 x 30% ] (18,000) (9,000)
Income from House Property 42,000 21,000
3. Income u/h Capital Gains
STCG on sale of Listed Securities of Indian Co. [STT paid] 20,000 2,50,000
LTCG on sale of Land at Mumbai 1,00,000 1,00,000
Income u/h “Capital Gains” 1,20,000 3,50,000
Gross Total Income 1,62,000 3,81,000
Less: Deduction under Chapter VI-A
80C: Life Insurance Premium (10,000)
80C: PPF (20,000)
80C: Premium paid to Canadian Life insurance corporation (40,000)
80D: Midiclaim Premium paid - (25,000)
Chapter VIA deduction is restricted to incomes other than Cap. Gains (40,000) (31,000)
Total Income 1,22,000 3,50,000
Tax on Total Income of Mrs. Rosy for AY 2021-22

Long Term Capital Gain u/s 112 at 20% = [1,00,000 x 20%] 20,000
Short Term Capital Gain u/s 111A at 15% = [20,000 x 15%] 3,000
Tax on Balance Income of Rs. 2,000 Nil 23,000
Add: HEC at 4% 920
Net Tax Payable (rounded off) 23,920
Tax on Total Income of Mrs. Marry for AY 2021-22

STCG u/s 111A @ 15% of Rs. 1 Lac [Rs. 2.5 Lacs - Rs. 1.5 Lacs (being unexhausted BEL)] 15,000
Less: Rebate u/s 87A (12,500) 2,500
Add: HEC at 4% 100
Net Tax Payable (rounded off) 2,600
Notes:
1. LTCG on sale of land is chargeable to tax @ 20% as per section 112.
2. Short-term capital gains on transfer of equity shares i.r.o. which securities transaction tax is paid is
subject to tax@15% as per section 111A.
3. In case of resident individuals, if the basic exemption limit is not fully exhausted against other income,
then, the long-term capital gains/short-term capital gains will be reduced by the unexhausted basic
exemption limit and only the balance will be taxed at 20%/15%, respectively. However, this benefit is
not available to non-residents. Therefore, while Mrs. Mary can adjust unexhausted basic exemption limit
against long-term capital gains taxable u/s 112 & short-term capital gains taxable u/s 111A, Mrs. Rosy
cannot do so.
4. Since long-term capital gains is taxable at the rate of 20% & short-term capital gains is taxable at the
rate of 15%, it is more beneficial for Mrs. Mary to first exhaust her basic exemption limit of Rs. 2,50,000
against long-term capital gains of Rs. 100,000 & the balance limit of Rs. 1,50,000 (i.e., Rs. 2,50,000 –
Rs. 1,50,000) against short-term capital gains.
5. Rebate u/s 87A would not be available to Mrs. Rosy even though her total income does not exceed Rs.
5,00,000, since she is non-resident for the AY 2021-22.
Q11. Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in PY 2016-17 for production of washing
machines. The unit fulfills all the conditions of section 10AA of the Income-tax Act, 1961. During the financial
year 2019-20, he has also set up a warehousing facility in a district of Tamil Nadu for storage of agricultural
produce. It fulfills all the conditions of section 35AD. Capital expenditure i.r.o. warehouse amounted to 75
Lacs (including cost of land 10 Lacs). The warehouse became operational w.e.f. 1st April, 2020 & expenditure
of Rs. 75 Lacs was capitalized in the books on that date. Relevant details for PY 2020-21 are as follows:
Particulars Rs.
Profit of unit located in SEZ 40,00,000
Export sales of above unit 80,00,000
Domestic sales of above unit 20,00,000
Profit from operation of warehousing facility (before considering deduction u/s 35AD) 1,05,00,000
Compute income tax (including AMT u/s 115JC) payable by Mr. X for AY 2021-22.
Solution: Computation of total income & tax liability of Mr. X for AY 2021-22 (under regular provisions)
Particulars Rs. Rs.
Profits and gains of business or profession
Profit from unit in SEZ 40,00,000
Less: Deduction under section 10AA [See Note (1) below] 32,00,000
Business income of SEZ unit chargeable to tax 8,00,000
Profit from operation of warehousing facility 1,05,00,000
Less: Deduction u/s 35AD 65,00,000
Business income of warehousing facility chargeable to tax 40,00,000
Total Income 48,00,000
Computation of tax liability (under the normal/ regular provisions)
Tax on Rs. 48,00,000 12,52,500
Add: HEC @ 4% 50,100
Total tax liability 13,02,500
Computation of Adjusted Total Income of Mr. X for levy of Alternate Minimum Tax
Particulars Rs. Rs.
Total Income (as computed above) 48,00,000
Add: Deduction under section 10AA 32,00,000
80,00,000
Add: Deduction under section 35AD 65,00,000
Less: Depreciation under section 32 (On building @ 10% of Rs. 65 lakhs) 6,50,000 58,50,000
Adjusted Total Income 1,38,50,00
Alternate Minimum Tax@18.5% 25,62,250
Add: Surcharge@15% (since adjusted total income > Rs. 1 crore) 3,84,338
29,46,588
Add: HEC @ 4% 1,17,863
Tax liability under section 115JC (rounded off) 30,64,450
Note:
❖ It is assumed that the capital expenditure of Rs. 65 lakhs is incurred entirely on buildings.
❖ Since regular tax payable is < AMT, adjusted total income shall be deemed to be total income & tax is leviable
@ 18.5% + surcharge @ 15% & HEC @ 4%. Therefore, tax liability is Rs. 30,64,450.
❖ AMT Credit to be c/f u/s 115JEE = Tax liability u/s 115JC - Tax liability under regular provisions = Rs. 17,61,850.
Notes:
1. Deduction u/s 10AA i.r.o. Unit in SEZ = Profits from unit in SEZ × (Export Turnover of unit in SEZ)/(Total turnover
of Unit in SEZ) = Rs. 40,000 × 80L/100L = Rs. 32,000.
2. Further, expenditure incurred wholly & exclusively for the purposes of such specified business, shall be
allowed as deduction during PY in which he commences operations of his specified business if expenditure is
incurred prior to the commencement of its operations & amount is capitalized in books of A/c of the assessee
on the date of commencement.
3. Deduction u/s 35AD would not be available on expenditure incurred on acquisition of land. Since capital
expenditure of Rs. 65 lacs (i.e. Rs. 75 lacs – Rs. 10 lacs being expenditure on acquisition of land) has been
incurred in PY 2020-21 & capitalized in books of A/c on 1.4.2020, being the date when the warehouse became
operational, Rs. 65,00,000, being 100% of Rs. 65 lakhs would qualify for deduction u/s 35AD.
TOTAL COMPUTATION – PRACTICE QUESTION BANK
PQ1. Following is the Profit & Loss Account of Mr. Aditya, aged 58 years, a resident, for PY 2020-21:
Particulars Rs Particualrs Rs.
Rent 60,000 Gross Profit 1,85,000
Repair of Car 3,000 Gift of Cash from a Friend (received on 15.09.2020) 25,000
Wealth Tax 5,000 Sale of Car 17,000
Medical Expenses 4,500 Interest on Income-Tax refund 3,000
Salary 18,000
Depreciation on Car 3,000
Advance Income-Tax 1,500
Net Profit 1,35,000
Total 2,30,000 Total 2,30,000
Other information:
1. Aditya bought a car during PY 2020-21 for Rs. 20,000. He charged depreciation @ 15%. The above Car was
sold during PY for Rs. 17,000. The use of the car was 3/4th for business & 1/4th for personal use.
2. Medical Expenses were incurred for the treatment of Nikita, his wife.
3. Salary had been paid on account of Car Driver.
4. Rent includes Arrears of Rent from April 2020 to October 2020 @ Rs. 5,000 p.m. paid in cash on 1.11.2020.
5. Mr. Aditya had let out a House Property @ monthly rent of Rs. 25,000. Annual letting value is considered to be
Rs. 2,50,000. Municipal Taxes are Rs. 6,000, out of which Rs. 3,000 are paid by Tenant & Rs. 3,000 are yet to
be paid by Mr. Aditya.
6. Interest on Loan taken for the House Property is Rs. 20,000.
7. Mr. Aditya's Minor Daughter received Rs. 75,000 from Stage Acting. Interest on Company Deposits of Mr.
Aditya's daughter (Deposit was made out of Income from Stage Acting) was Rs. 10,000.
8. Aditya incurred Rs. 50,000 on the medical treatment of his dependent son, who has disability of > 80%.
9. Aditya had taken a Loan during PY 2020-21 for education of his son, who is pursuing B.Com. in Delhi University.
Interest paid during the year was Rs. 10,000. Compute Total Income of Mr. Aditya for AY 2021-22. [Nov 2013]
Solution: Computation of Total Income
Particualrs Rs. Rs.
1. Income from House Property
Gross Annual Value (25000 x 12) 3,00,000
Less: Municipal Taxes paid (Amount paid by Tenant is not allowable as deduction) Nil
Net Annual Value 3,00,000
Less: Deduction u/s 24(a): 30% of NAV (Rs. 3,00,000 × 30%) (90,000)
Less: Deduction u/s 24(b): Interest on Borrowed Capital (20,000) 1,90,000
2. Profits & Gains of Business or Profession
Net Profit as per Profit & Loss Account 1,35,000
Add: Inadmissible expenses debited to P&L A/c
Repairs of Car: 1/4th not allowed being personal use = 1/4th of 3,000 750
Wealth Tax, not allowable u/s 40(a)(iia) 5,000
Medical Expenses incurred for Spouse, being personal expenses disallowed 4,500
Car Driver Salary: 1/4th of Driver Salary not allowed being used for personal use 4,500
Depreciation on Car: considered separately 3,000
Advance Income Tax [not allowable u/s 40(a)(ii)] 1,500
Arrears of Rent paid in Cash, disallowed u/s 40A(3) (Apr to Oct = 7 * 5,000 pm) 35,000
Less: Incomes considered under other heads/Exempt Incomes
Gift from Friend – considered separately (25,000)
Sale of Car – considered separately (17,000)
Interest on Income Tax Refund – considered separately (3,000) 1,44,250
3. Income from Other Sources
Interest on Income Tax Refund 3,000
Cash Gift from Friend (not taxable since amount is less than Rs. 50,000) Nil
Interest on Bank Deposit shall be clubbed in Parent’s hands u/s 64(1A) 10,000
Less: Exemption u/s 10(32) (1,500) 11,500
Less: Deduction under chapter VI-A: 80E: Interest on Education Loan (10,000)
80DD: Expenses on Medical Treatment of Son (Severe Disability) (1,25,000) (1,35,000)
Note: STCL can be set off only against Capital Gain. Rs. 3,000 [20,000 – 17,000] will be c/f to succeeding AYs.
Note: Income earned by Minor Daughter from Stage Acting (i.e. by exercise of Skill, Talent, etc.), is assessable
only in her hands & not clubbed in the Parent’s hands.
PQ2. Mr. Devansh, an Indian Resident aged 38 years carries on his own business. He gives the following details:
Particulars Rs. Particulars Rs.
Salary 48,000 Gross Profit 4,30,400
Advertisement 24,000 Cash Gift (on Marriage) 1,20,000
Sundry Expenses 54,500 Interest on Listed Debentures 3,600
Fire Insurance (Rs. 10,000 relates to House) 30,000 [Net]
Income Tax & Wealth Tax 27,000

Household Expenses 42,500
Depreciation (Allowable) 23,800
Contribution to University approved u/s 35(1)(ii) 1,00,000
Municipal Taxes paid for House 36,000
Printing & Stationery 12,000
Repairs & Maintenance 24,000
Net Profit 1,32,200
Other Information:
1. Mr. Devansh owns a House Property which is being used by him for the following purposes:
- 25% for Own Business; - 25% for Self-Residence; - 50% Let Out for Residential Purpose.
2. Rent Received from 50% Let Out Portion during the year was Rs. 1,65,000.
3. On 1.12.2020, he acquired a vacant site from his friend for Rs. 1,05,000. SDV is Rs. 2,55,000.
4. He received interest on Post Office Savings Bank Account amounting to Rs. 500.
5. Cash Gift on the occasion of Marriage includes gift of Rs. 20,000 from Non-Relatives.
6. LIC Premium Paid (Policy Value - 3,00,000 taken on 1.6.2018) - 60,000 for his handicapped son.
7. He purchased 10,000 Shares of a Company on 1.1.2015 for Rs. 1,00,000 & received a 1:1 Bonus on 1.1.2019. He
sold 5,000 Bonus Shares in September 2020 for Rs. 2,20,000. (Shares are not listed & STT not paid)
Compute Total Income & Net Tax Payable of Mr. Devansh for AY 2021-22. [Nov 2014]
Solution: Computation of Taxable Income & Tax Liability
Particualrs Rs.
1. Income from House Property [Note 1] 1,02,000
2. Profits & Gains from Business or Profession |Note 2| 1,12,600
3. Income from Other Sources [Note 3] 1,54,000
4. Income u/h “Capital Gains” [Note 4] 2,20,000
Less: Deductions under Chapter VI-A [WN 5] (1,20,000)
Computation of Tax Liability
Tax thereon = (4,69,500 – Rs. 2,50,000) x 5% [WN 6] 10,950
Less: Rebate u/s 87A (10,950)
Net Tax Payable Nil
Less: TDS on Interest on Debentures (4,000 – 3,600) (400)
Tax Refund 400
Working Notes:
1. Income from House Property: (25% used for Business, So, such Portion is not covered under this Head).
Particulars SOP LOP
Gross Annual Value - 1,65,000
Less: Municipal Taxes for let out portion = (Rs. 36,000 x 50%) - (18,000)
Net Annual Value Nil 1,47,000
Less: Deduction u/s 24(a): 30% of Net Annual Value - (44,100)
Less: Deduction u/s 24(b): Interest on Borrowed Capital Nil Nil
Income from House Property Nil 1,02,900
2. Profits & Cains from Business or Profession

Profit as per P&L Account 1,32,200
Fire Insurance relating to House disallowed (10,000x75%) [Personal] 7,500
Income Tax & Wealth Tax disallowed u/s 40 27,000
Household Expenses, Personal in nature, disallowed 42,500
Contribution to Notified University 1,00,000
Municipal Tax relating to House is disallowed (36,000x 75%) 27,000 2,04,000
Less: Admissible Expenses not debited to P&L A/c
Contribution to University notified u/s 35(1)(ii) [100% ×1,00,000] (1,00,000) (1,00,000)
Less: Incomes considered under other heads/ Exempt Incomes
Cash Gifts considered under Income from Other Sources (1,20,000)
Interest on Debentures considered under Income from Other Sources (3,600) (1,23,600)
Income from PGBP 1,12,600

Particulars Rs.
(a) Cash Gifts on Marriage [exempt under Proviso to Sec.56(2)(vii)] NIL
(b) Interest on Debentures Received [Rs. 3,600/90%] after grossing up 4,000
(c) Interest on Post Office Savings Bank Account Rs. 500 - Exempt u/s 10(15) upto Rs. 3,500 Nil
(d) Acquisition of Immovable Property @ < SDV [Sec. 56(2)(vii)(b)] (2,55,000 – 1,05,000) 1,50,000
Total 1,54,000
4. Cost of Acquisition of Bonus shares = Nil since allotted after 1.4.2001. Thus, whole Sale Proceeds shall be
taxable.
[Date of Allotment: 1.1.2019 & Date of Sale: September 2020; Holding Period < 24 months & hence it is STCA].
5. Deductions under Chapter VI A

Particulars Rs.
80C: LIC Premium (Assessee’s son is handicapped with Sec.80U Disability, Premium deductible 45,000
= least of 15% of Sum Assured, or Sum Paid, i.e. (3,00,000x 15%) or Rs. 60,000.
80DD: Assessee’s son is handicapped with Sec 80U Disability. It is assumed that no separate 75,000
assessment for Son & thus assessee is eligible for deduction u/s 80DD
Total 1,20,000
Note: If it is assumed that Son claims 80U Deduction in his assessment & he is not dependent on Mr. Devansh,
above 80DD deduction shall is not available to Mr. Devansh.
6. Since STCG Shares are not listed & STT not paid, normal Slab Rate of Tax is applicable.
PQ3. Mr. DK, resident individual aged 45, Partner in B & Co has received the following amounts from the Firm:
▪ Interest on Capital at 15%: Rs. 3,00,000;
▪ Salary as Working Partner (At 0.75% of Firm's Sales): Rs. 90,000
▪ He is engaged in a business in which he manufactures wheat flour from wheat.
Profit & Loss A/c pertaining to this business (Summarized Form)
Particulars Amount Particulars Amount
Salaries 1,20,000 Gross Profit 12,50,000
Bonus 48,000 Interest on Bank FD (Net) 45,000
Car Expenses 50,000 Agricutlure Income 60,000
Machinery Repairs 2,34,000 Pension from LIC Jeevandhara 24,000
Advance Tax 70,000
Depreciation: Car 3,00,000
Depreciation: Machinery 1,25,000
Net profit 4,32000
Opening WDV of Assets

Car 3,00,000
Machinery (Used during the year for 170 days) Addition to Machinery 6,50,000
New purchased on 23.09.2020 2,00,000
New purchased on 12.11.2020 3,00,000
Old purchased on 12.04.2020 (All assets added were put to use immediately after purchase) 1,25,000
Out of the total bonus amount, Rs. 15,000 was paid on October 11, 2020. One-fifth of the car expenses are
towards estimated personal use of the Assessee. In March 2020, he sold a house at Chennai. Arrears of rent
relating to this house amounting to Rs. 75,000 was received in February, 2021.
Details of his Saving & Investments
Life Insurance Premium for policy in the name of his major son employed in LMN Ltd at a Salary 50,000
of Rs. 6 Lacs p.a – Sum assured Rs. 2,00,000.
Contribution to Pension Fund of National Housing Bank 70,000
(This was met partially from out of premature withdrawal of deposit in Post Office Time Deposit
made on 12.3.2013: Principal component Rs. 55,000 & Interest Rs. 5,000)
Medical Expenditure for his father aged 85 (being very Senior Citizen) 22,000
Compute the Total Income of Mr. Dinesh Karthik for AY 2021-22 & tax payable by him. Also indicate whether
Interest, if any, u/s 234A & 234B are payable, assuming that the return was filed on 28.9.2021. [May 2010]
Solution: Computation of Total Income & Tax Liability
Arrears of Rent received for sold property taxable in PY of receipt @ 70% 52,500
2. Profits & Gains from Business or Profession
Interest on Capital from the firm “M/s Badrinath & Co” (to the extent allowed 2,40,000
as deduction for Firm) (Rs. 3,00,000 x 12%/15%)
Salary as Working Partner (to the extent deductible to the Firm) [assumed 90,000
that Salary is fully deductible for Firm & is within the limits u/s 40(b)]
Profits & Gains of Business or Profession from Wheat Flour Business
Net Profit as per Profit & Loss Account 4,32,000
Bonus [Assumed balance of Rs. 33,000 (48,000 – 15,000) is not paid] 33,000
Car Expenses disallowed – Used for personal purposes (1/5 of 50,000)
th
10,000
Advance Tax disallowed, as it is not a Business Expense u/s 40(a) 70,000
Depreciation as per Books [3,00,000 (Car) +1,25,000 (Machinery)] 4,25,000
Less: Admissible expenses not debited to P&L A/c
Depreciation as per Income Tax Act, 1961 (WN 2) (2,74,750)
Less: Incomes considered under other heads/ Exempt Incomes
Interest on Bank FD – Considered as “Income from Other Sources” (45,000)
Agricultural Income – Exempt u/s 10(1) (60,000)
Pension from LIC Jeevandhara – as “Income from Other Sources” (24,000) 8,96,250
Interest on Bank FD – [45,000/90%] 50,000
Pension from LIC Jeevandhara – Taxable as it is not a Life Insurance Policy 24,000
Premature Withdrawal of Post Office Time Deposits - Principal amount is 55,000
taxable whereas interest is not taxable
Interest on Post Office Time Deposit – Not taxable [assumed to be taxed in Nil 1,29,000
year of accrual]
80C: LIC Premium for Son – [to the extent of 10% of sum assured] 20,000
80C: Contribution to Pension Fund of National Housing Bank 70,000
80D: Medical Expenditure on Senior Citizen: [Max. 50,000] 22,000 1,12,000
Add: Agricultural Income 60,000
Total Income including Agricultural Income 10,25,750
Computation of Tax Liability

Tax on Rs. 10,25,750 [Rs. 1,12,500 + [(10,25,750 – 10,00,000) x 30%] 1,20,225
Less: Tax on (BEL + Agri. Income) = Tax on Rs. [(2,50,000 + 60,000) – 2,50,000] x 5% (3,000) 1,17,225
Tax Payable + HEC @ 4% 1,21,914
Less: TDS on Interest on Fixed Deposits (5,000)
Less: Advance Tax Paid (70,000) (75,000)
Net Tax Payable (Rounded Off) 46,914
1. Computation of Depreciation:
Particulars Car (15%) Machinery (15%)
Opening WDV 3,00,000 6,50,000
Add: Additions during PY Nil 6,25,000
Less: Sale Value during PY Nil Nil
WDV for depreciation 3,00,000 12,75,000
(i) WDV of asset used < 180 days Nil = Nil 3,00,000 × 15 × ½ = 22,500
(ii) Balance WDV 3,00,000 × 15 % = 45,000 × 4/5 9,75,000 × 15 = 1,46,250
Total Normal Depreciation 36,000 1,68,750
Addition Depreciation - 2L × 20% = 40,000 +
3L × 20% × ½ = 30,000
Total Depeciation 36,000 2,38,750
Note:
(a) Car used for personal purposes: Only 4/5 of actual depreciation shall be allowed as deduction u/s 32.
(b) Opening WDV used for 170 days: Restriction of 50% shall be applicable only for new machinery bought
during PY & used for less than 180 days during that PY.
(c) Additional Depreciation: Opening WDV shall be eligible for full depreciation. However, Additional
Depreciation shall be allowed only for New P&M purchased & not for second-hand machinery. Since New
Machinery of Rs. 3 lacs is used for < 180 days, only 50% of Additional Depreciation is allowable. Balance
50% shall be allowed in next PY.
2. Production of Wheat Flour from wheat is considered as business, & not as agriculture.
3. Interest u/s 234A: Assessee is a Partner of M/s Badrinath & Co, which is subject to Tax Audit u/s 44AB during
PY 2019-20, as Turnover of the Firm (i.e. 90,000 = 0.75% = 120 Lacs) exceeds Rs. 1 Cr. Hence, due date of filing
ROI shall be 30th Sep 2020. As he had filed his Return on 28.09.2020, he need not pay interest u/s 234A.
4. Interest u/s 234B: Interest u/s 234B is attracted when the total Advance Tax paid is < 90% of Assessed Tax.
Total Advance Tax paid (Rs. 70,000) is less than 90% of Tax Payable [90% of (Rs. 1,21,914 – Rs. 5,000) = Rs.
1,05,226], Interest u/s 234B shall get attracted.
PQ4. Dr. Shuba is medical practitioner (age 64). Her Receipts & Payments account of PY 2020-21 is as under:
Receipts (To) Amount Payment (By) Amount
Balance B/f 10,000 Purchase of Commercial Vehicle 4,00,000
Receipts from Sale of Medicine 2,50,000 Drawings 2,50,000
Consultation Fee 50,000 Deposit in Bank for 5 years 1,50,000
Visiting Fee 2,00,000 Surgical Instrument purchased (RoD = 50,000
40%) [Used for more than 180 days]
Lectures (Part-time employment) 5,000 Loan Repayment (Including Interest of 1,21,000
Rs. 22,333)
Family Pension 2,80,000 Medical Insurance Premium 32,000
Saving Bank Interest 1,000 Instalment of Housing Loan (Principal 1,08,000
component Rs. 48,000)
Loan from Bank @ 8% 3,00,000 Advance Income Tax paid 20,000
Share from HUF 50,000 Purchase of Medicine 47,000
Income from Lottery (Net) 35,000 Payment of Medical Journal 5,000
Expenses of Commercial Vehicle 50,000
Balance C/f 48,000
(i) She resides in her own house which was constructed in 2013 with Loan of Rs. 10 lacs out of which 6 lacs was
still due. She got it refinanced from SBI on 1.4.2020 @ 10%. 1/4th portion of house is used for clinic purposes.
(ii) She invested in Term Deposit 1,50,000 in BOI on 1.7.2020 for 5 years in name of her minor daughter @ 9% p.a.
(iii) She purchased a commercial vehicle on 1st July 2020 at Rs. 4,00,000. A Loan of Rs. 3,00,000 was taken to buy
the van at 8% interest. 1/4th use of vehicle is estimated to be personal.
(iv) She paid Medical Insurance Premium for herself: 46,000 & Mother: 30,000. Her mother is dependent on her.
(v) She got her share from HUF's Income of Rs. 50,000. Compute the Total Income of Dr. Shuba. [Nov 2010]
Particulars Rs. Rs. Rs.
1. Income u/h “Salaries”: Part – time Lectures [WN1] 5,000
Less: Deduction u/s 16(ia) Standard Deduction (5,000) Nil
2. Income from House Property: SOP & thus NAV = Nil. Nil
Less: Deduction u/s 24(b) = Interest (6,00,000 x 10% x 3/4) (45,000) (45,000)
3. Income u/h “Profits & Gains of Business or Profession”
A. Receipts from “Profession”
Receipts from Sale of Medicine 2,50,000
Consultation Fee 50,000
Visiting Fee 2,00,000 5,00,000
B. Expenditures incurred for profession
Interest Paid on House Property used for Clinic (60,000 x 1/4) (15,000)
Medicines Consumed (Assumed to be fully consumed) (47,000)
Payment fee Medical Journal (5,000)
Depreciation on Surgical Lazer (50,000 x 40%) (20,000)
Depreciation on Motor Car (4,00,000 x 15% x 3/4) (45,000)
Vehicle Expenses: For Business Purposes – (50,000 x 3/4) (37,500)
Interest paid on Vehicle Loan: (3 lacs x 8 % x 9/12)= 18,000 x ¾ (13,500) (1,83,000) 3,17,000
(i) Family Pension 2,80,000
Less: Exempt u/s 57 = Least of 15,000 or 1/3 rd
of 2,80,000 (15,000) 2,65,000
(ii) Savings Bank Interest 1,000
(iii) Interest on Deposit in BOI Clubbed (1,50,000 x 9% x 9/12) 10,125
Less: Exempt u/s 10(32) = Rs. 1,500 per Child (1,500) 8,625
(iv) Income from Lottery: Gross = (35,000/70%) 50,000 3,24,625
Less: Deduction under Chapter VI-A
80C: Housing Loan Repayment (Principal Portion) 48,000
80D: Medical Insurance Premium
- Herself, being senior citizen (Lower of 46,000 or 50,000) 46,000
- Mother (Senior Citizen Max. deduction is Rs. 50,000) 30,000 76,000
80EE: Repayment of Housing Loan Interest [Refinance is also 50,000
eligible] subject to a maximum of Rs. 50,000
80TTB: Interest on Savings Bank A/c 1,000 (1,75,000)
Total Income (Rounded off) 4,21,625
Working Notes:
1. Amount of Salary or Rs. 50,000 whichever is less, shall be allowed as deduction u/s 16(ia).
2. Share Income from HUF is exempt u/s 10(2).
3. Drawings, Advance Tax Paid are not allowable expenditures.
4. Loan taken of Rs. 3,00,000 is not an income & thus not taxable under any head of Income.
5. Advance Income Tax paid is not deductible.
PQ5. Following is the P&L A/c for PY 2020-21 of Western Sugar Mills, of which Shri. Daga is the owner:
Particulars Rs. Particulars Rs
To Manufacturing Expenses 7,01,000 By Sale of Sugar & Molasses 11,62,300
To Excise Duty 92,795 By Rent from Agricultural Land 950
To Establishment Charges 49,200 By Revenue from Fisheries 4,000
To Fine paid to Excise Dept 2,000 By Sale Proceeds from Canes 6,05,055
To Salary & Wages 1,21,445 By Profit on Sale of Motor Truck 3,230
To General Charges 16,750
To Interest on Bank Loan 21,000
To Daga's Remuneration 38,750
To Depreciation 91,000
To Income Tax 25,000
To Cultivation Expenses 4,37,500
To Net Profit 1,79,095
Compute the Income from Business of Shri Daga from Sugar Mill for AY 2021-22 after considering the following:
(a) Sale Proceeds of Cane include Rs. 5,32,000 on account of cane produced & consumed in the Factory, &
debited to Manufacturing Expenses, the Average Market Price of such Cane being Rs. 6,00,000.
(b) Motor Truck sold during the year for Rs. 7,230 was purchased in the past for Rs. 19,000. Depreciation claimed
in respect thereof in past assessment was Rs. 15,000.
(c) General Charges include: (i) Rs. 2,000 being the legal expenses incurred in defending a suit regarding the
Company's title to certain agricultural lands, & (ii) Rs. 10,000 paid to Daga's son who is an employee in the
Sugar Mill, for a trip to Hawaii to study modern methods of manufacture.
(d) Depreciation in respect of all assets has been ascertained at Rs. 50,000 as per Income Tax Rules.
Answer: Computation of Profits & Gains of Business or Profession
Particulars Rs. Rs.
1. Income under the head “PGBP”
Net Profit as per P&L A/c 1,79,095
Add: Inadmissible Expenses debited to P & L A/c
(i) Depreciation as per Books of A/c 91,000
(ii) Expenditure incurred to protect the title of the assets of the Company 2,000
related to Agricultural Land shall not be allowed as a deduction.
(iii) Fine paid to Excise Department = Disallowed since it is spent for violation 2,000
of law
(iv) Daga’s Remuneration – Personal in nature & hence not eligible u/s 37 38,750
(v) Income Tax – Not allowed as an expenditure u/s 40(a) 25,000
(vi) Cultivation Expenses (WN 1) (disallowed since FMV is considered) 4,37,500 5,96,250
Less: Admissible Expenses but not debited to P & L A/c
(i) Depreciation as per IT Act (50,000)
(ii) Difference in Average Market Price of Agricultural Produce (WN 1) (68,000) (1,18,000)
Less: Incomes taxable under other heads or Exempt Incomes
(i) STCG on sale of Truck to be considered separately (WN 2) (3,230)
(ii) Rent from Agricultural Land [Exempt from tax u/s 10(1)] (950)
(iii) Revenue from Fisheries = Taxable as Income from Other Sources (4,000)
(iv) Sale Proceeds of Sugarcane [Exempt] (FMV is considered in WN 1) (6,05,055) (6,13,235)
Profits & Gains of Business or Profession (7,75,345 – 7,31,235) (44,120)
Working Notes:
1. Adjustment in respect of Average Market Price: Under Rule 7, where Agricultural Produce is used as a Raw
Material for consumption, FMV of Agricultural Produce consumed shall be charged to Manufacturing A/c. No
other expenditure relating to agricultural activity shall be considered. Adjustment for this item is as under:
FMV of Agricultural Produce consumed - Amount already debited as Manufacturing Expenses = 6,00,000 -
5,32,000 = 68,000 (Balance to be debited to P & L A/c).
2. Computation of Short-Term Capital Gain:
Particulars Rs.
WDV of Motor Truck = Cost – Depreciation [19,000 – 15,000] 4,000
Less: Sale Value 7,230
Short Term Capital Gain [Sale Value Rs. 7,230 – WDV Rs. 4,000] 3,230
3. Expenditure relating to Mr. Daga’s son, who is an Employee, is incurred for the purpose of business & no
portion of the expenditure is considered to be excessive u/s 40A(2). Hence, it is fully allowed as a deduction.
PQ6. Mr. Raju, a Manufacturer at Chennai, gives the following Manufacturing, Trading & P&L A/c for PY 2020-21.
Manufacturing & Trading & Profit & Loss Account for PY 2020-21
Particulars Rs. Particulars Rs.
To Opening Stock 71,000 By Sales 42,00,000
To Purchase of Raw Materials 16,99,000 By Closing Stock 2,00,000
To Manufacturing Wages & Expenses 5,70,000
To Gross Profit 20,60,000
To Administrative Charges 2,86,000 By Gross Profit 20,60,000

To State VAT Penalty paid 5,000 By Dividend from Domestic Companies 15,000
To State VAT paid 1,10,000
To General Expenses 54,000
To Interest to Bank (on Machinery Loan) 60,000
To Depreciation 2,00,000
To Net Profit 15,40,000
Following are the further information relating to PY 2020-21:

(i) Administrative Charges includes 46,000 paid as Commission to brother. Commission @ market rate is 36,000.
(ii) Assessee paid 33,000 in Cash to Transport Carrier on 29.12.2020. This is included in Manufacturing Expenses.
(iii) Rs. 4000 p.m was paid as Salary to a Staff throughout the year & this has not been recorded in the books.
(iv) Bank Term Loan Interest actually paid upto 31.3.2021 was Rs. 20,000 & the balance was paid in October 2021.
(v) Housing Loan Principal repaid during the year was 50,000 & it relates to Residential Property occupied by
him. Interest on Housing Loan was Rs. 2,60,000. Housing Loan was taken from Canara Bank. (Value of HP = Rs.
45 Lacs, Loan Value = Rs. 25 Lacs & Sanction date = 31.03.2017). (Assume housing loan is eligible for 80EE).
These amounts were not dealt with in the Profit & Loss Account given above.
(vi) Depreciation allowable under the Act is to be computed on the basis of following information:
Plant & Machinery (Depreciation Rate @ 15%)
Opening WDV (as on 1.4.2020) 12,00,000
Additions during the year (used for more than 180 days) 2,00,000
Total Additions during the year 4,00,000
Ignore Additional Depreciation. Compute Taxable Income & Tax Liability of Mr. Raju for AY 2021-22. [Nov 2010]
Note: Ignore application of Sec. 14A for disallowance of expenditures in respect of any Exempt Income.
Solution: Computation of Taxable Income & Tax Liability
Particulars Rs. Rs.
Net Annual Value Nil
Less: Deduction u/s 24(b) - Interest on Housing Loan (200000)
Income from House Property (A) (200000)
2. Profits & Gains of Business or Profession
Net profit as per P & L A/c 15,40,000
Add: Inadmissible Expenses debited to P & L A/c
State VAT Penalty 5,000
Interest to bank (WN 1) 40,000
Commission to Brother (46,000 – 36,000) – Disallowed u/s 40A(2) 10,000
Depreciation as per books of A/c 2,00,000
Less: Admissible Expenses not debited to P & L A/c
Salary to staff not deducted (48,000)
Depreciation as per Income tax act (2,25,000)
Less: Income taxable under different head or Exempt Incomes:
Dividend from Domestic Companies, Exempt u/s 10(34) (15,000)
Income from Agriculture (1,80,000) 13,27,000
Less: Deduction u/s 80C – Housing Loan Principal Repayment (50,000)
Total Income (Excluding Agricultural Income) 10,770,000
Computation of Tax Payable
A. Tax on Total Income including Agricultural Income [10,77,000 + 1,80,000] [Tax on 12,57,000] 1,89,600
B. Tax on Agricultural Income + BEL = [Rs. 1,80,000 + Rs. 2,50,000] 9,000
Net Tax Payable [Tax on A – Tax on B] [Rs. 1,89,600 – Rs. 9,000] = 1,80,600 + 4 % HEC 1,87,830
Working Notes:
1. As per Sec. 43B, Payments not made within DD u/s 139 are not allowed as deduction. Thus, Rs. 40,000 is not
allowed as deduction in the Current year.
2. Depreciation: Rs. 14,00,000 × 15% = 2,10,000 + Rs. 2,00,000 × 7.5% = 15,000.
3. Where an Assessee incurs any expenditure, for which aggregate of payments is made to a person in a day is
in excess of Rs. 10,000. (Rs. 35,000 in case of payment made for plying, hiring or leasing goods carriages),
otherwise than by an A/C Payee Cheque/draft or ECS, whole of such expenditure shall not be allowed as a
deduction. Since payment is < Rs. 35,000, (being made to a Transport Carrier) it is an allowable expenditure.
Since it is already debited in P & L A/c, no adjustment need be made.
4. U/s 80EE Repayment of Interest on eligible Housing loan is restricted to Rs. 50,000 only.
PQ7. Mr. Janak, working as Finance Manager in Thilak Reality Ltd, Jaipur, retired from the Company on 31.10.2020
at the age of 58. The following amounts were received from the Employer from 1st April 2020 to 31st Oct 2020:
- Basic Salary: Rs. 90,000 p.m; Dearness Allowance: Rs. 60,000 p.m. (40% reckoned for Superannuation Benefit)
- Ex-gratia (lump sum): Rs. 45,000.
In addition to the above:

1. Company had taken on lease a Residential House at Jaipur, paying a Lease Rent of 27,000 p.m. Mr. Janak, who
was paying to the Company Rs. 18,000 p.m. towards the aforesaid Rent, vacated the premises on 31.10.2020.
2. The Company had also provided to Mr. Janak a Cooking Range & Microwave Oven by it. The original cost of
these assets was Rs. 1,20,000 & the Written Down Value as on 1.4.2020 was Rs. 66,000.
3. Mr. Janak has 2 sons. His second son was studying in a school run by the Employer Company throughout PY
2020-21. Cost of such education in a similar school is Rs. 5,400 per month.
4. Employer-Company was contributing Rs. 21,000 p.m to Central Government Pension Scheme.
5. Profession Tax paid by the Employer: Rs. 9,000.
6. Subsequent to his retirement, Mr. Janak started his own business on 15.11.2020 to 31.03.2021: Business Loss
(excluding Current Depreciation): Rs. 2,70,000 Current year's Depreciation: Rs. 1,80,000.
7. Mr. Janak won a prize in a TV Game Show. Rs. 1,26,000 after deduction of tax at source of Rs. 54,000.
8. Mr. Janak furnishes the under-mentioned data relating to savings investments & outgoings:
(i) Life Insurance Premium, with a Private Insurance Company Rs. 30,000 for his son & Rs. 20,000 for his
married daughter. PPF contribution: Rs. 60,000.
(ii) Medical Insurance Premium of Rs. 12,000 for himself & Rs. 16,000 for his father (aged 82) paid by credit
card. His father is however not dependent on him.
You are required to compute Total Income of Mr. Janak & tax payable by him for AY 2021-22. [May 2009]
Particulars Rs. Rs. Rs.
1. Income u/h “Salaries”
Basic Salary (Rs. 90,000 x 7 months) 6,30,000
Dearness Allowance (Rs. 60,000 x 7 months) 4,20,000
Ex-gratia received in lumpsum 45,000
Contribution by Employer to CG Pension Scheme (21,000 x 7 Mnths) 1,47,000 12,42,000
Value of Accommodation leased by employer (WN 1) 23,850
Use of Movable Assets (WN 2) 7,000
Free Education to son in School owned by Employer (WN 3) 37,800
Professional Tax paid by Employer 9,000
Gross Salary 13,19,650
Less: Deduction u/s 16(ia) Standard Deduction (50,000)
Less: Deduction u/s 16(iii): Professional Tax paid by employer (9,000) (59,000) 12,60,650
2. Business Income Current Year’s Depreciation set off (WN 4) (1,80,000)
3. Income from Other Sources: Winnings from Game Shows on TV [1,26,000/70%] 1,80,000
80C: Premium on Life Insurance Policy (30,000 + 20,000) + PPF 60,000 1,10,000
80CCD: Employer’s Contribution to Central Government Pension Scheme
[Maximum of 10% of Basic Salary + DA for Retirement Benefits]
10% of Rs. 6,30,000 + (4,20,000 x 40%)] i.e. 79,800 or Rs. 1,47,000 (WN 6) 79,800
80D: (Himself – 12,000 & Father Senior Citizen- 16,000) 28,000 (2,17,800)
Total Income (Rounded off) 10,42,850
Income Tax payable
(a) Special Rates: Winnings from Game Shows [30% of Rs. 1,80,000] 54,000
(b) Normal Rates: Rs. 12,500 + [(10,42,850 – 1,80,000 -5,00,000) x 20%] 85,070 1,39,070
Add: HEC at 4% 5,563
Total Tax Payable 1,44,633
Less: Tax Deducted at Source on Winnings from Game Shows (54,000)
Net Tax Payable (Rounded Off) 90,630
Working Notes:
1 Value of Accommodation taken on lease by Employer
Basic Salary (Rs. 90,000 x 7 months) 6,30,000
Dearness Allowance forming part of retirement benefits (Rs. 60,000 x 7 months x 40%) 1,68,000
Ex-Gratia 45,000
Contribution by the Employer to Central Government Pension Schem (See Note Below) 1,47,000
Professional Tax Paid by the Employer 9,000
Salary 9,99,000
Lower of Rent paid by employer or 15% of Salary = (27,000 x 7 = 1,89,000) or (9,99,000 x 15% = 1,49,850
Less: Rent recovered from employee (18,000 x 7 months) (1,26,000)
Taxable Value of Leased Accommodation 23,850
Note: Contribution by the Employer to Central Govt Pension Scheme & Professional Tax Paid by Employer
comes within the meaning of “Monetary Payment from the Employer”.
2 Use of Movable Asset: Taxable value [10% p.a. of Actual Cost] = 1,20,000 x 10% x 7/12 = Rs. 7,000.
3 If cost of Education exceeds Rs. 1,000 p.m, the entire amount is taxable in the Employee’s hands, i.e.
without any reduction of Rs. 1,000 p.m, per child. [CIT (TDS) vs Delhi Public School (2011) 14 taxmann.com
45 (P&H)|. Perquisites shall be taxable as Salaries only during the Subsistence of Employer-Employee
Relationship. Hence, the valuation is considered for only 7 months [(Rs. 5,400 x 7 months= Rs. 37,800).
4 Set off of Depreciation Loss: Since Sec.32(2) is silent about the set off of Current Year Depreciation
against Income under any other head, & no Court decisions are available in that regard, the benefit of
set off is given to the Assessee in above question. However, alternative assumption of non-availability of
set off could also be followed.
5 Set off Current year Business Losses:
(a) Against Salary: Business Losses cannot be set off against Salary Income as per Sec.71.
(b) Against Winnings from Game Show: Not possible.
6 Amount contributed by the Employer to Central Government Pension Scheme u/s 80CCD is excluded while
computing the deduction limit of Rs. 1,50,000 u/s 80CCE.

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Stay in Last 4 PYs

Computation of tax liability by Miss Charlie for AY 2021-22

Computation of tax payable in accordance with the provisions of section 115BAC

(2) Income u/h “Profits & Gains of Business or Profession”

(3) Income from other sources

(4) Deduction under Chapter VI-A

Working Note: Computation of PGBP Income Rs. Rs.

Computation of “Income from Other Sources”

Computation of tax liability for AY 2021-22

(See Note 3) Rs. 10,000

3. Leave encashment is exempt upto the least of the following:

Tax on Total Income of Mrs. Rosy for AY 2021-22

Tax on Total Income of Mrs. Marry for AY 2021-22

Income Tax & Wealth Tax 27,000

2. Profits & Cains from Business or Profession

3. Income from Other Sources

5. Deductions under Chapter VI A

Opening WDV of Assets

Computation of Tax Liability

To Administrative Charges 2,86,000 By Gross Profit 20,60,000

Following are the further information relating to PY 2020-21:

In addition to the above:

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