TYBMS SEM : 5 Finance : Direct Taxes (Q.P. November 2019 with Solution)

 Paper/Subject Code: 46018/Finance: Direct Taxes

TYBMS SEM :5 

Finance 

Direct Taxes

(Q.P. November 2019 with Solution)

                    

Note: 

1. All Questions are compulsory

2. Figure to the right indicate full marks 

3. Use of simple calculator is allowed. 

Q.1 (A) Choose correct alternative and rewrite the statement: (Any 8)        (8)

1. Every assessee is a person and _______.

(a) Every person is also an assessee

(b) Every person need not be an assessee

(c) An individual is always an assessee

2. The Legal status of Ms. Hima Das, Indian sprint runner is _______.

(a) an individual

(b) a body of individuals

(c) a sportman

3. Total income of a person is determined on the basis of ________

(a) Citizenship

(b) Residential Status

(c) Both Citizenship and Residential Status

4. Uncommuted Pension received by a Government employee _________.

(a) Exempt

(b) Taxable

(c) Partly Exempts

5. Mr. Kaustubh, a Chartered Accountant lets out his ownership office to another Chartered Accountant, rent received by him is

(a) Income from Business

(b) Income from House Property

(c) Income from Other Sources.

6 Donation to Chief Minister's Relief Fund is ________.

(a) Allowed as business expenditure

(b) Not allowed as business expenditure

(c) Partly allowed as business expenditure

7. Cost inflation index is applicable when there is _________.

(a) Long term capital gain

(b) Business income

(c) Short term capital gain

8. Dividend received is exempt if it is received from __________.

(a) An Indian Company

(b) A Co-operative Bank

(c) Any Company

9. Gift received from brother Rs 1,00,000 is ________

(a) fully taxable

(b) fully exempt

(c) Exempt up to Rs 50,000

10. Mr. Anil is a person with a physically disability of 50%. He is entitled to a deduction

(a) Rs 75,000

(b) Rs 1,25,000

(c) Nil

Q.1 (B) State whether given statements are True or False: (Any 7)            (7)

1. An association of persons consists of any person.

Ans: False

2. Family pension received by a widow of a deceased employee is income from other sources.

Ans: True

3. Gratuity received by Government employee on retirement is fully taxable.

Ans: False

4. Capital gain arises on transfer of any asset.

Ans: True

5. Advance salary received by an employee from the employer is not a part of Gross Salary.

Ans: False

6. Past untaxed profits brought into India is always taxable.

Ans: False

7. Provision for Doubtful Debts can be deducted from profits of business.

Ans: False

8. Mediclaim premium paid by cash Rs 15,000 is allowed as deduction u/s 80D.

Ans: False

9. Municipal tax paid by owner is allowed as deduction from deemed to be let out property.

Ans: True

10. Mr. Amitabh paid Life Insurance Premium of Rs. 50,000 on behalf of his wife who is dependent on him. He can claim deduction u/s 80C.

Ans: True

Q.2 Mr. Ganesh Kubal is employed with The New College, Thane. He gives you information for the year ended 31 March,2019.

Particulars	Rs.
Basic Salary	50,000 per month.
Dearness allowance	60,000 per month
Leave Salary	20,000
Perquisite value of Rent-Free House	24,000 per annum
Arrears of salary (Not taxed earlier)	1,60,000
Examination Remuneration received from his college	15,000
Examination Remuneration received from Mumbai University	8,500
Profession Tax Deducted from salary	Rs. 200 per month

Other Information:

a) He received Royalty from writing books Rs. 26,000. Expenses on typing, stationery etc. were Rs. 2,000.

b) He received Honorarium from Sandip Management Institute as a visiting lecturer Rs. 5,000. Conveyance for visiting the institute Rs. 600

c) He received Best Teacher Award of Rs 21,000 from State Government.

d) He received cash gift from father-in-law Rs. 51,000 on his anniversary on 15-03-2019.

e) He purchased National Savings certificates VIII worth Rs 50,000 & paid LIC premium of Rs 60,000 for a policy of Rs. 6,00,000 issued on 1-4-2011.

f) He had a taken a loan from Bank of India for higher education of his daughter pursuing Engineering from IIT, Roorkee. For which he paid interest of Rs 60,000 during the year.

Compute his taxable Income for the Assessment Year 2019-20.

OR

Q.2 Mrs. Riya Ghosh has earned the following incomes during the financial year ended on 318 March, 2019. Compute her Gross Total Income for the assessment year 2019-20.         (15)

a) Resident and Ordinary Resident

b) Resident but not Ordinarily Resident

c) Non-Resident

Particulars	Rs
1. Payments received in U.K., for services rendered in Korea	3,00,000
2. Income from agriculture in Bangladesh	1,50,000
3. Dividend from German Company, received in India	60,000
4. Interest income earned and received in India	1,70,000
5. Income from business in Japan, controlled from India.	2,50,000
6. Royalty Income received from Indian Companies	1,80,000
7. Rent from house in Kolkata, received in Korea.	3,00,000
8. Amount brought to India, out of past untaxed profits earned in London.	1,50,000

Q.3 Mrs. Anjali Kapoor is a physically disabled person (60% disability). She gives you the following information for previous year 2018-19.                (15)

Particulars	House I	House II
Nature of occupancy	Self-occupied	Let Out
Fair Rent
Municipal Valuation (per month)	17,500	26,000
Rent Received (per month) (House no 2. was vacant for 3 months)	Nil	35,000
Municipal taxes paid on 26-07-2018	12,000	15,000
Other Expenses:
Repairs	12,000	15,000
Fire Insurance Premium paid	10,000	13,000
Rent collection charges	-	12,000
Land Revenue payable	5,000	7,000
Details of Borrowed Capital:
Interest Paid during the year	80,000	90,000
Principal repaid	30,000	40,000
Date on which loan taken	15-10-2011	11-12-2010

Mrs. Anjali Kapoor also received the following other income:

1. Dividend from Reliance Industries Ltd Rs 25,000.

2. Interest on fixed deposits with Bank of Baroda Rs. 50,000.

3. Winning from lottery Rs. 70,000

4. Mrs. Anjali paid Medical Insurance Premium of Rs. 15,000 for self by cheque.

Compute her Net taxable Income for the Assessment Year 2019-20.

OR

Q.3 Mr. Ramesh Mehta acquired a residential property for Rs. 2, 50,000 on 1 October 1994.

Additional information pertaining to property was as follows.                     (15)

a) Fair market value as on 1-4-2001 was Rs. 12, 50,000

b) Cost of improvement are as follows:

Financial Year	Rs.
1997-98	80,000
2009-10	1,50,000
2014-15	4,00,000
2016-17	5,50,000

c) He sold residential property on 15-2-19 for Rs 2,00,00,000

d) He acquired new residential house for Rs. 65,00,000 on 20-03-2019.

e) He also purchased NHAI bonds of Rs 10,00,000 on 27-03-2019.

f) Expenses on transfer amounted to Rs 1,00,000.

Relevant Cost Inflation Indices are as follows:

Financial Year	Cost Inflation Index
2001-02	100
2009-10	148
2014-15	240
2016-17	264
2018-19	280

Compute the capital gains for Assessment year 2019-20.

Q.4 Following is Profit & Loss Account of Mr. Anil Dharmadhikari for the year ended 31st March, 2019.

Particulars	Rs.	Particulars	Rs.
To Staff Salaries	2,50,000	By Gross Profit.	14.29,000
To Salary to Anil Dharmadhikari	70,000	By Winning from Horse racing	81,000
To Printing & Stationery	50,000	By Dividend from Indian Co.	20,000
To Travelling expenses	60,000
To Rent	48,000
To Depreciation	64,000
To GST paid	30.000
To Advertisement	90.000
To Embezzlement by Employee	14,000
To Drawings	56,000
To Staff welfare expenses.	1.58,000
To Income Tax	42,000
To Net Profit	5,98,000
	15,30,000		15,30,000

Additional Information:

1) Depreciation allowable as per Income Tax Rules Rs 70,000.

2) Staff welfare expenses include Rs 40,000 incurred for medical treatment of his physically handicapped brother (90% disability)

3) Half of the Rent is for her residential flat and 1/3 of the Travelling expenses is personal in nature.

4) Advertisement expenses include Rs. 20,000 spent on advertisement in a magazine published by a political party. You are required to compute her Taxable income for the assessment year 2019-20.

OR

Q.4 (a): Mrs. Rani Rane, submit the following particulars of her income for the assessment year 2019-20.

Particulars	Rs.
Interest on Bank deposits	5,000
Interest on Government securities	7,000
Interest on Public Provident Fund	6,600
Interest accrued on NSC	7,500
Dividend from Tata Co.	9,700
Income from Agriculture in Konkan	22,000
Family Pension	42,000

Compute her taxable income under the head Income from other sources.            (8)

Q.4 (b): Dr. Leonard, a USA citizen provides you the details of his visit to India during the last 6 years. (7)

Previous Year	Days
2018-19	183
2017-18	190
2016-17	20
2015-16	125
2014-15	195
2013-14	100

Prior to 1-4-2013 he did not visit India. Find out the residential status of Dr. Leonard for the assessment year 2019-20.

Q.5 (a) Explain Deduction u/s 80D.

Deduction under Section 80D of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to claim a deduction for expenses incurred on medical insurance premiums and certain preventive health check-ups. This provision aims to incentivize individuals to secure health insurance and prioritize preventive healthcare.

• Eligible Assessee: Individuals and HUFs.   
• Eligible Payments:
  • Premiums paid for medical insurance policies for self, spouse, dependent children, and parents.   
  • Contributions to Central Government Health Scheme or other notified schemes.   
  • Expenses incurred on preventive health check-ups (subject to certain limits).   
• Maximum Deduction Limits (for individuals):
  • For self, spouse, and dependent children: Up to ₹ 25,000.   
  • Additional deduction for parents (if their age is below 60 years): Up to ₹ 25,000.   
  • Additional deduction for parents (if their age is 60 years or above): Up to ₹ 50,000.   
  • For preventive health check-ups: Limited to ₹ 5,000 in total, within the overall limits mentioned above.   
• Mode of Payment: Premiums generally need to be paid through modes other than cash to be eligible for deduction. However, payment for preventive health check-ups can be made in any mode, including cash.   
• Specific Situations: There are specific rules regarding deductions for senior citizens, dependent parents, and multi-year policies.

(b) Discuss any Seven items specifically taxable under the head-Income from other sources.

1) Agricultural Income [Section 10(1)]: Income derived from agriculture in India is exempt from income tax. This includes rent or revenue derived from land used for agricultural purposes, income from agricultural operations, and income from processing or marketing of agricultural produce.

2) Amount Received from Life Insurance Policy [Section 10(10D)]: Any sum received under a life insurance policy, including bonus allocated on such policy, is generally exempt. However, there are certain exceptions, such as amounts received under keyman insurance policies or policies that do not meet specific conditions regarding premium and sum assured.

3) Retirement Benefits (within specified limits):

• Death-cum-Retirement Gratuity [Section 10(10)]: Gratuity received by a government employee is fully exempt. For non-government employees, exemption is limited to the least of: (a) ₹ 20,00,000, (b) actual gratuity received, or (c) half month's salary for each completed year of service.
• Commuted Value of Pension [Section 10(10A)]: For government employees, the commuted value of pension is fully exempt. For non-government employees, the extent of exemption depends on whether they also receive gratuity.
• Leave Encashment [Section 10(10AA)]: For government employees, cash equivalent of leave salary on retirement is fully exempt. For non-government employees, the exemption is subject to certain limits.

4) Scholarships [Section 10(16)]: Scholarships granted to meet the cost of education are exempt from tax.

5) Income of a Minor Child [Section 10(32)] (subject to clubbing provisions): While the income of a minor child is generally clubbed with the income of the parent with the higher income, Section 10(32) provides an exemption of up to ₹ 1,500 per minor child per annum to the parent whose income is clubbed.

6) Allowances to Government Employees Outside India [Section 10(7)]: Any allowance or perquisite paid or allowed outside India by the Government to a citizen of India for rendering services ¹ outside India is exempt from tax.  

7) Dividends from Indian Companies [Section 10(34)]: Dividends received by shareholders from Indian companies are exempt from tax in the hands of the shareholders. (Note: The company distributing the dividend is subject to Dividend Distribution Tax under Section 115-O, although this has been abolished and dividends are now taxable in the hands of shareholders from FY 2020-21 onwards. However, for historical context and understanding of Section 10, this was a significant exemption).

OR

Q.5 Write short notes on (any three):                    (15)

1) Any Five items exempt u/s 10.

Section 10 of the Income Tax Act lists various incomes that are exempt from tax. Here are five notable examples:

1. Agricultural Income (Section 10(1)): Income derived from agriculture in India is entirely exempt from income tax. This includes rent or revenue derived from land used for agricultural purposes, income from agricultural operations, and income from processing or marketing agricultural produce. This exemption aims to support the agricultural sector.

2. House Rent Allowance (HRA) (Section 10(13A)): Salaried individuals receiving HRA from their employer can claim an exemption on a portion of it, subject to certain conditions. The exempt amount is the least of: actual HRA received, actual rent paid minus 10% of salary, or 50% of salary (for those living in metro cities) or 40% of salary (for those living in non-metro cities). This helps employees offset the cost of rented accommodation.

3. Leave Travel Concession (LTC) / Leave Travel Allowance (LTA) (Section 10(5)): Employees are entitled to an exemption for the amount received as LTC/LTA from their employer for travel within India by themselves and their family. The exemption is limited to the actual travel expenses incurred and is subject to specific rules regarding the number of journeys in a block of four years and the mode of travel.

4. Death-cum-Retirement Gratuity (Section 10(10)): Gratuity received by government employees is fully exempt from tax. For non-government employees, the exemption is the least ¹ of: actual gratuity received, ₹20 lakh (as per current limits), or half-month's salary for each completed year of service. Gratuity is a lump-sum payment received by an employee upon retirement or death.

5. Interest on Provident Fund (PF) (specified limits under Section 10(11) and 10(12)): Interest earned on the accumulated balance in a recognized Provident Fund (RPF) is exempt up to a certain limit. Similarly, the accumulated balance received on retirement or resignation from a recognized Provident Fund is also generally exempt, subject to certain conditions regarding continuous service. These exemptions encourage long-term savings for retirement.

2) Long term Capital Gain.

Under the Income Tax Act of India, if an individual owns more than two house properties, only two can be treated as self-occupied (from FY 2019-20 onwards). The remaining properties are considered “deemed to be let out”, even if they are actually vacant or used occasionally. For such properties, notional rent (expected reasonable rent) is considered as income under the head “Income from House Property.”

Key points:

• Annual Value is calculated based on expected rent, not actual rent.

• Standard Deduction of 30% is allowed under Section 24.

• Interest on Home Loan is deductible, subject to limits.

• This provision ensures that individuals with multiple properties are taxed fairly on potential rental income.

3) Deduction U/s 80D.

Deduction under Section 80D of the Income Tax Act allows individuals and Hindu Undivided Families (HUFs) to claim a deduction for expenses incurred on medical insurance premiums and certain preventive health check-ups. This provision aims to incentivize individuals to secure health insurance and prioritize preventive healthcare.

• Eligible Assessee: Individuals and HUFs.   
• Eligible Payments:
  • Premiums paid for medical insurance policies for self, spouse, dependent children, and parents.   
  • Contributions to Central Government Health Scheme or other notified schemes.   
  • Expenses incurred on preventive health check-ups (subject to certain limits).   
• Maximum Deduction Limits (for individuals):
  • For self, spouse, and dependent children: Up to ₹ 25,000.   
  • Additional deduction for parents (if their age is below 60 years): Up to ₹ 25,000.   
  • Additional deduction for parents (if their age is 60 years or above): Up to ₹ 50,000.   
  • For preventive health check-ups: Limited to ₹ 5,000 in total, within the overall limits mentioned above.   
• Mode of Payment: Premiums generally need to be paid through modes other than cash to be eligible for deduction. However, payment for preventive health check-ups can be made in any mode, including cash.   
• Specific Situations: There are specific rules regarding deductions for senior citizens, dependent parents, and multi-year policies.

4) Income from Deemed to be Let Out Property.

In India, if an individual owns more than two residential properties, beyond the permitted two self-occupied houses, the remaining are considered "deemed to be let out" for income tax purposes, even if they are vacant. This means a notional rent, representing the property's earning potential, is calculated and taxed as "Income from House Property."   

The Gross Annual Value (GAV) is determined based on factors like municipal value, fair rent, and standard rent (if applicable). After deducting municipal taxes paid, the Net Annual Value (NAV) is arrived at. Taxpayers can then claim a standard deduction of 30% of the NAV and deduct the entire interest paid on any home loan associated with the deemed let-out property. The resulting income (or loss) is added to the individual's total taxable income. This provision ensures that individuals holding multiple properties contribute to the tax revenue based on the potential income they could have earned.

5) Deduction from Income from Salary

Income from salary is a significant component of many individuals' taxable income. Fortunately, the Income Tax Act provides several avenues for deductions, allowing taxpayers to reduce their tax liability.   

A key deduction is the standard deduction, currently a fixed amount, which can be claimed by all salaried individuals. This is a flat deduction intended to cover general expenses.   

Beyond the standard deduction, employees can claim deductions for specific investments and expenditures under Chapter VIA of the Income Tax Act. Some common deductions relevant to salaried individuals include:   

• Section 80C: Investments in schemes like Public Provident Fund (PPF), Employees' Provident Fund (EPF), Life Insurance Premiums, Equity Linked Savings Schemes (ELSS), and principal repayment of home loans qualify for deduction up to a specified limit.   
• Section 80D: Premiums paid for health insurance for self, family, and parents are deductible.   
• Section 80TTA/80TTB: Interest earned on savings accounts (and in the case of senior citizens, on deposits with banks, post offices, etc.) can be claimed up to a certain limit.
• Section 80G: Donations made to specified charitable institutions and funds are eligible for deduction.   
• Section 80E: Interest paid on education loans taken for higher education of self, spouse, children, or legal guardian can be deducted.   
• House Rent Allowance (HRA) Exemption (under Section 10(13A)): Salaried individuals receiving HRA can claim exemption based on certain conditions, such as actual HRA received, actual rent paid, and a percentage of their salary.