Question 1

Compute the capital gain/loss for the AY 2024-25.

Accepted Answer

**Computation of Capital Gain/Loss under Section 50B of the Income Tax Act, 1961 (Slump Sale) for AY 2024-25**

When a business undertaking is transferred as a going concern (slump sale), capital gain is computed as: **Sale Consideration less Net Worth** of the undertaking. The **Own Capital of ₹20,00,000** represents the sale consideration (net consideration received by the proprietor).

**Net Worth** is defined under Section 50B(2) as the aggregate value of total assets of the undertaking as reduced by the value of liabilities, with the following statutory adjustments:

- Assets on which **100% deduction has been claimed under Section 35AD** shall be taken at **NIL value**.
- **Self-generated goodwill** has NIL cost and is excluded from net worth computation since no expenditure was incurred to acquire it.
- Personal loans/liabilities included in balance sheet figures must be **excluded** from business liabilities.

**Net Worth Computation:**

Adjusted Total Assets = ₹30,50,000 (see working notes)
Adjusted Total Liabilities = ₹8,60,000 (see working notes)
**Net Worth = ₹30,50,000 − ₹8,60,000 = ₹21,90,000**

**Capital Gain/(Loss) = Sale Consideration − Net Worth**
= ₹20,00,000 − ₹21,90,000
= **(₹1,90,000) — Capital Loss**

Note: Whether this is a **Long-Term Capital Loss (LTCL)** or **Short-Term Capital Loss (STCL)** depends on the period of holding of the undertaking — if held for more than **36 months**, it is LTCL; otherwise STCL. The nature of the loss determines set-off…

Question 2

Examine whether TDS Provisions are applicable for following payments made by Mr. Ganesh to CA Mr. Rajesh:

Accepted Answer

**Mr. Ganesh's TDS Obligations Analysis:**

Mr. Ganesh has professional receipts of ₹1.25 crores, which exceeds the ₹50 lakh threshold, making him liable to deduct TDS under Section 194J and other applicable provisions.

**(i) Professional Fee ₹32,450 (including GST @ 18%):**

Under Section 194J of the Income Tax Act, 1961, TDS is applicable on professional fees to Chartered Accountants at 10% on payments exceeding ₹30,000 in a financial year (cumulative basis) when the payer has gross receipts > ₹50 lakhs.

Amount excluding GST = ₹32,450 ÷ 1.18 = **₹27,500**

Since ₹27,500 is **below the ₹30,000 threshold**, **TDS is not applicable** on this payment. The amount excluding GST must be considered for TDS purposes.

**(ii) Royalty Payment ₹2,50,000 (Use of Computer Software):**

This payment falls under **Section 194H of the Income Tax Act** (Payment of Royalty). TDS @ 20% is applicable on royalty payments exceeding ₹10,000 in a financial year.

Since ₹2,50,000 exceeds ₹10,000, **TDS is applicable @ 20%**.

**TDS to be deducted = ₹2,50,000 × 20% = ₹50,000**

Net payment to CA Rajesh = ₹2,00,000

**(iii) Fee for Technical Services ₹20,000:**

Under **Section 194C of the Income Tax Act** (Payments for technical services and work contracts), TDS @ 2% applies on payments exceeding ₹30,000 per transaction (when payer has gross receipts > ₹50 lakhs).

Since ₹20,000 is **below the ₹30,000 threshold**, **TDS is not applicable** on this payment.

**(iv) Fees for Teaching Accountancy ₹40,…

Question 3

Based on Case Scenario 1 (Mr. Ananth's agricultural income): Paddy Income of ₹4,00,000, Sugarcane Income of ₹3,50,000, and Sale of Mulberry leaves of ₹75,000. Which of the following constitutes Agricultural Income?

Accepted Answer

**Answer: (C)**

All three income sources constitute Agricultural Income under Section 10(1) of the Income Tax Act, 1961.

**Paddy Income (₹4,00,000):** This is clearly agricultural income as it derives from cultivation of land and represents income from the produce (paddy) of agricultural land.

**Sugarcane Income (₹3,50,000):** This also constitutes agricultural income. The fact that payment is received through electronic modes (NEFT/RTGS/IMPS) does not change the classification. The income still flows from cultivation of land and sale of produce. The mode of payment is irrelevant to determining the nature of income.

**Mulberry Leaves Income (₹75,000):** Income from the sale of Mulberry leaves constitutes agricultural income because it represents income from the produce of agricultural land. Under Section 10(1), agricultural income includes income from any produce of land situated in India and used for agricultural purposes. Mulberry leaves are the produce of such land, and their direct sale generates agricultural income independent of whether they are separately sold or used in sericulture.

The condition that the land be situated in India and used for agricultural purposes is satisfied in all cases (rural agricultural land 20 km from town). Therefore, income from Paddy (₹4,00,000), Sugarcane (₹3,50,000), and sale of Mulberry leaves (₹75,000) all qualify as Agricultural Income and are exempt from income tax under this section.

Question 4

Mr. Rohit, a resident individual, aged 65 years, is a qualified medical practitioner. He runs his own clinic. For the Financial Year 2023-2024, his Income & Expenditure account shows various incomes and expenditures including salary from Care Hospital Pvt. Ltd., rental income from house property, and dividend from foreign companies. He owns a residential house where the ground floor is self-occupied and first floor has been rented out since 01/10/2023. The reconstruction of the entire house was started on 01.04.2023 and was completed on 30.09.2023. He took a housing loan of ₹12 lakhs on 01.04.2023. He also employs his sister-in-law at ₹25,000 per month, though market rate is ₹20,000 per month. Compute his net taxable income and net tax liability for the A.Y. 2024-25 if he has exercised the…

Accepted Answer

**Computation of Net Taxable Income and Tax Liability for A.Y. 2024-25**

**Step 1: Identification of Income Sources and Issues**

Mr. Rohit has the following income sources: (i) Salary from Care Hospital Pvt. Ltd., (ii) Professional income from medical practice, (iii) House property income (ground floor self-occupied, first floor rented), and (iv) Dividend from foreign companies. He is a resident individual aged 65 years (senior citizen), opting for old tax regime under Section 115BAC(1A), and is entitled to all deductions under Chapter VI-A.

**Step 2: Professional Income Computation**

The Income & Expenditure account shows gross professional income less admissible expenses. **Critical Issue**: He employs his sister-in-law at ₹25,000 per month when market rate is ₹20,000 per month. Per **Section 40A(2)**, the excess remuneration of ₹5,000 per month (i.e., ₹60,000 annually) is disallowable as it exceeds reasonable remuneration. This disallowance must be added back to his professional income.

**Net Professional Income = Reported Professional Income + ₹60,000 (disallowance for excess salary)**

**Step 3: House Property Income—Complex Reconstruction Scenario**

The house property presents multiple issues due to reconstruction:

**During Construction (01.04.2023 to 30.09.2023—6 months)**
- Ground floor: Deemed self-occupied during reconstruction despite physical non-use; rental income = Nil
- First floor: Also deemed non-residential property during reconstruction; treat as sel…

Question 5

Mr. Rohit, a resident individual, aged 65 years, is a qualified medical practitioner. He runs his own clinic. Income & Expenditure A/c of Mr. Rohit for the year ending March 31st 2024 is as under: [Income & Expenditure table with Expenditure items: To Salary to Staff ₹8,20,000, To Administrative Expenses ₹5,00,000, To Conveyance Expenses ₹24,000, To Power & Fuel ₹24,000, To Interest on Education Loan for son ₹26,000, To Amount paid to scientific research association approved & notified U/s 35 ₹25,000, To Net Profit ₹8,59,000, Total ₹24,68,000; and Income items: By Consultation Fees ₹2,20,000, By Salary received from Care Hospital Pvt. Ltd. ₹1,80,000, By Rental Income from House Property ₹78,000, By Dividend from Foreign Companies ₹10,000, Total ₹24,68,000]

Accepted Answer

**Computation of Total Income and Tax Liability of Mr. Rohit for A.Y. 2024-25**

Mr. Rohit is a 65-year-old resident individual (Senior Citizen). His Income & Expenditure Account includes receipts and payments from multiple sources, so income must be classified and computed under the appropriate heads.

**Head 1 — Income from Salary (Section 15 of the Income Tax Act, 1961)**

Salary received from Care Hospital Pvt. Ltd. of ₹1,80,000 is taxable under this head. A **standard deduction u/s 16(ia)** of ₹50,000 is available. Net Salary Income = **₹1,30,000**.

**Head 2 — Income from House Property (Section 22–24)**

Rental income of ₹78,000 represents the Gross Annual Value (GAV). No municipal taxes are mentioned. A standard deduction of 30% u/s 24(a) = ₹23,400 is allowed. Net Income from House Property = **₹54,600**.

**Head 3 — Income from Profession (PGBP)**

The Net Profit as per I&E is ₹8,59,000. Adjustments are required because the I&E account includes non-professional receipts (salary, rental income, dividend) that inflated the profit, and also includes an inadmissible personal expense (interest on education loan).

Non-professional receipts (salary ₹1,80,000 + rent ₹78,000 + dividend ₹10,000 = ₹2,68,000) must be deducted. The interest on education loan for son (₹26,000) is not an allowable professional deduction under Section 37(1) — it is a personal expenditure — so it must be added back.

Regarding the ₹25,000 paid to a scientific research association approved and notifi…

Question 6

Compute his net taxable income and net tax liability for the A.Y. 2024-25 if he has exercised the option of shifting out of the default tax regime provided under Section 115BAC(1A).

Accepted Answer

**Computation of Net Taxable Income and Net Tax Liability of Mr. Rahul for A.Y. 2024-25**

*Mr. Rahul has exercised the option under **Section 115BAC(1A) of the Income Tax Act 1961** to shift out of the default new tax regime, thereby opting for the **old tax regime**. Under the old regime, all deductions under Chapter VI-A, standard deduction u/s 16(ia), and interest deduction on housing loan u/s 24(b) remain fully available.*

**Note on Scope:** The case states this is 'further information' supplementing a main case scenario (which presumably contained Mr. Rahul's professional clinic receipts and primary P&L). The adjustments to professional income are computed below; the base professional income figure from the main case must be adjusted accordingly.

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**HEAD I — INCOME FROM SALARIES**

Basic Pay (₹13,000 × 12) = ₹1,56,000; Transport Allowance (₹2,600 × 12) = ₹31,200. Gross Salary = ₹1,87,200. Regarding the son's medical treatment (worth ₹1,00,000) at Care Hospital Pvt. Ltd.: since Care Hospital IS the employer and it IS a hospital **maintained by the employer**, the treatment provided to the employee's family member is **exempt from perquisite tax** under the proviso to **Section 17(2)** — no amount is added to income. Standard Deduction of ₹50,000 is allowed under **Section 16(ia)**. **Income from Salary = ₹1,37,200.**

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**HEAD II — INCOME FROM HOUSE PROPERTY**

The house has a self-occupied portion (SOP) and a let-out portion (LOP). Since the given percentages (…

Question 7

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Accepted Answer

**Determination of Residential Status — Mr. Madan (Individual) for AY 2024-25 (PY 2023-24)**

Under **Section 6(1) of the Income Tax Act, 1961**, an individual is Resident if he satisfies either of the two basic conditions:
- **Condition 1:** Present in India for ≥ 182 days during the PY
- **Condition 2:** Present in India for ≥ 60 days during the PY AND ≥ 365 days during the 4 preceding PYs

**Days in India during PY 2023-24:**
April 1 to August 31, 2023 = 30+31+30+31+31 = **153 days**
January 1 to January 15, 2024 = **15 days**
**Total = 168 days**

**Condition 1:** 168 < 182 → **Not satisfied**

**Applicability of exception to Condition 2:** Since Mr. Madan is a **citizen of India** who left India during PY 2023-24 for the **purpose of employment** outside India (transferred to USA branch of M/s. PCS Pvt. Ltd.), the proviso to Section 6(1) substitutes the 60-day threshold with **182 days**.

**Condition 2 (as modified):** 168 < 182 → **Not satisfied**

**Conclusion: Mr. Madan is a Non-Resident (NR) for PY 2023-24.**

As an NR, only income received/deemed to be received in India OR income accruing/arising in India is chargeable to tax under Section 5(2).

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**Determination of Residential Status — HUF for AY 2024-25**

Under **Section 6(2)**, a HUF is Resident if the control and management of its affairs is wholly or partly situated in India during the PY. It is Non-Resident only if control and management is **wholly outside** India.

Mr. Madan (Karta) was in India for 16…

Question 8

Based on Case Scenario 1 (Mr. Ananth's agricultural income): Regarding income from silk cocoons production and sale of mulberry leaves, which statement is correct?

Accepted Answer

**Answer: (D)**

The correct statement is that the net income of ₹1,25,000 from silk cocoon production will not be treated as agricultural income and will be taxed as either business income or income from other sources (IFOS).

**Key Legal Position:**
Under **Section 2(1A) and Section 9 of the Income Tax Act, 1961**, agricultural income includes income derived from land used for agriculture or from direct sale of agricultural produce. However, a crucial distinction exists between:

1. **Direct sale of agricultural produce** (e.g., mulberry leaves: ₹75,000) = Agricultural income — This qualifies as it is the produce of agricultural land sold directly without further processing.

2. **Sericulture/Silk cocoon production** (rearing silkworms, converting leaves into cocoons) = NOT agricultural income — This is treated as a manufacturing or business activity, not agriculture. The income from silk cocoons is taxed as business income or IFOS, not as agricultural income.

**Why Silk Cocoons Are Not Agricultural Income:**
The activity of sericulture involves converting agricultural produce (mulberry leaves) into a finished product (silk cocoons) through a manufacturing process. This value-addition activity is not considered "agriculture" but rather a business/profession. Therefore, the net income derived (₹3,75,000 sale proceeds minus ₹2,50,000 costs including ₹2,00,000 expenses and ₹50,000 value of mulberry leaves used = ₹1,25,000) is taxable as business income or IFOS.

**Why other o…

Question 9

Mr. Paras has a proprietary business since P.Y. 2015-16. He transferred this business on 01.04.2023 by way of a slump sale for a total consideration of ₹40 Lakh. The fair market value of his capital assets as on 01.04.2023 is ₹35 Lakh. He incurred expenses for this deal of ₹1,50,000. His Balance Sheet as on 31.03.2023 shows own capital of ₹20,00,000, bank loan of ₹5,00,000, unsecured loans of ₹2,50,000, creditors of ₹4,10,000; and assets including building of ₹18,00,000, debtors of ₹5,00,000, machinery of ₹5,00,000, and other assets of ₹3,60,000. Bank loan balance includes ₹2 lakh for personal purpose, machinery costing ₹50,000 has been allowed 100% deduction u/s 35AD, other assets include self-generated goodwill of ₹60,000, and unsecured loans include ₹1 lakh for purchase of ornaments of …

Accepted Answer

**Computation of Capital Gain on Slump Sale for A.Y. 2024-25**

Under **Section 50B of the Income Tax Act, 1961**, any profits arising from a slump sale are chargeable as capital gains. The **net worth** of the undertaking is deemed to be the cost of acquisition and cost of improvement. No indexation benefit is available on slump sale.

**Nature of Capital Gain:** The proprietary business was started in P.Y. 2015-16 and transferred on 01.04.2023. Since the holding period exceeds 36 months, the gain is a **Long-Term Capital Gain (LTCG)**.

**Full Value of Consideration:** The actual sale consideration is ₹40,00,000. The fair market value of capital assets is ₹35,00,000. Since actual consideration (₹40 lakh) exceeds FMV (₹35 lakh), the **actual consideration of ₹40,00,000** is taken as the full value of consideration.

**Net Worth Computation:**

Total assets as per books are adjusted as follows: Building ₹18,00,000; Debtors ₹5,00,000; Machinery ₹5,00,000 less ₹50,000 (machinery on which 100% deduction allowed u/s 35AD is assigned **NIL value**) = ₹4,50,000; Other assets ₹3,60,000 less ₹60,000 (self-generated goodwill is assigned **NIL value** as it is not a depreciable asset with a defined cost) = ₹3,00,000. **Total Adjusted Assets = ₹30,50,000.**

Total liabilities are adjusted as follows: Bank loan ₹5,00,000 less ₹2,00,000 (availed for personal purpose, not business liability) = ₹3,00,000; Unsecured loans ₹2,50,000 less ₹1,00,000 (taken for purchase of wife's ornaments, not …

Question 10

Mr. Ganesh whose Professional Receipts for the year ended 31.03.2023 were ₹1.25 crores has made payment to Mr. Rajesh (a Chartered Accountant) during P.Y. 2023-24 who has multi-faced activities. Examine whether TDS Provisions are applicable for the following payments made by Mr. Ganesh to CA Rajesh: (i) Professional Fee for consultation - ₹32,450 on 15.06.2023 including GST paid @18%; (ii) Royalty Payment for Use of Computer Software by various clients of Mr. Rajesh - ₹2,50,000 on 03.03.2024; (iii) Fee for Technical services related to Business of Mr. Ganesh - ₹20,000 on 15.12.2023; (iv) Fees for teaching accountancy to his Son - ₹40,000 on 31.10.2023.

Accepted Answer

**Analysis of TDS Applicability under Section 194J**

Section 194J provides for TDS at 10% on payments made to professionals for rendering professional services. The threshold is ₹30,000 per financial year. GST, being a separate tax, is excluded from the consideration amount for TDS purposes.

**(i) Professional Fee for Consultation - ₹32,450 (including GST @ 18%)**

Amount excluding GST = ₹32,450 ÷ 1.18 = **₹27,500**

This payment qualifies as professional service under Section 194J (CA providing consultation). The amount of ₹27,500 is individually below the ₹30,000 threshold. However, considering cumulative payments to the same professional during the financial year: Professional Fee (₹27,500) + Technical Services (₹20,000) = ₹47,500, which exceeds ₹30,000. **TDS is applicable** on any payments once the annual aggregate crosses ₹30,000. Since this is the first payment made on 15.06.2023, it may not attract TDS at that moment, but once subsequent payments push the aggregate beyond ₹30,000, all payments including this one are covered. **No TDS at the time of this payment, but becomes liable once threshold is crossed.**

**(ii) Royalty Payment for Use of Computer Software - ₹2,50,000**

This is a **royalty payment**, not a professional service payment. Royalty payments are specifically covered under **Section 194D** (TDS on royalty), not Section 194J. Section 194D provides for TDS at 10% on royalty payments exceeding ₹50,000. **Section 194J does NOT apply** to this payment. TD…

Question 11

Compute the total income and tax payable for assessment year 2024-25 by Mr. Raman under default tax regime and optional tax regime as per normal provisions of the Act. Which option is advantageous to Mr. Raman?

Accepted Answer

**Computation of Total Income of Mr. Raman — A.Y. 2024-25**

**I. Income from House Property (First Floor — Let Out)**

First floor let out at ₹35,000 p.m. Municipal taxes ₹20,000 for the building paid equally — Mr. Raman pays ₹10,000 (first floor share) and Mr. Aman pays ₹10,000. Ground floor municipal taxes ₹10,000 are a separate business expense debited to P&L.

Gross Annual Value = ₹35,000 × 12 = ₹4,20,000
Less: Municipal taxes paid by owner (first floor) = ₹10,000
Net Annual Value = ₹4,10,000
Less: Standard Deduction @ 30% [Section 24(a)] = ₹1,23,000
**Income from HP = ₹2,87,000**

**II. Short-Term Capital Gains — Sale of Land**

Land acquired 1st January 2023, sold 12th April 2023. Holding period ≈ 3.5 months, less than 24 months [Section 2(42A)]. Hence **Short-Term Capital Asset**. Gain of ₹4,00,000 credited to P&L must be excluded from PGBP and assessed under Capital Gains. No indexation applies.

Sale Consideration = ₹44,00,000; Less: Cost = ₹40,00,000
**STCG = ₹4,00,000** (taxed at normal slab rates)

**III. Income from Business / Profession (PGBP)**

Net Profit per P&L (from given transactions) = ₹6,11,000

*Adjustments:*

**(a) Less: HP income (rent) credited to P&L — ₹4,20,000** (taxable under HP, not PGBP)

**(b) Less: STCG credited to P&L — ₹4,00,000** (taxable under Capital Gains)

**(c) Add: M/s. Paul Industries — ₹49,000 [Section 43B(h)]**: Purchase from **micro enterprise** on March 10, 2024; no written agreement; due within 15 days i.e., by March 25, 2024.…

Question 12

What is the meaning of Micro and Small Enterprise u/s 43B of Income Tax Act, 1961?

Accepted Answer

**Definition of Micro and Small Enterprise under Section 43B of the Income Tax Act, 1961** refers to enterprises classified based on their investment in **plant and machinery or equipment**.

**Micro Enterprise** is defined as an enterprise where the investment in **plant and machinery** (for manufacturing enterprises) or **equipment and tools** (for service enterprises) does not exceed **₹1 crore** in value.

**Small Enterprise** is defined as an enterprise where the investment in **plant and machinery** (for manufacturing enterprises) or **equipment and tools** (for service enterprises) **exceeds ₹1 crore but does not exceed ₹10 crores** in value.

These definitions are based on the **Micro, Small and Medium Enterprises Development (MSMED) Act, 2006**, which has been integrated into the Income Tax Act for determining eligibility for various tax benefits and compliances. The investment threshold is calculated as the **original cost** of plant and machinery or equipment and tools, **excluding land and building**.

The significance of this classification under Section 43B relates to deductions allowed only when amounts are paid to such enterprises. The definition is critical for determining: (1) eligibility for deduction u/s 43B for payments made to MSEs; (2) applicability of different compliance requirements; and (3) special tax incentives or relief provisions available to such enterprises.

It is important to note that **for the purposes of classification, purchase of second…

Question 13

Mr. Prem has the following assets as on 01.04.2023: (i) A machinery costing ₹4 lakh, which was used for scientific research related to business and deduction u/s 35 was allowed ₹40,000; (ii) A laptop received as a gift from his friend costing ₹60,000 (purchased on 01.04.2022 by his friend); (iii) A temporary wooden structure costing ₹70,000 erected in Dec. 2023 which was used for business purposes. Compute the depreciation allowed on these assets for F.Y. 2023-24.

Accepted Answer

**Computation of Depreciation for F.Y. 2023-24 (A.Y. 2024-25) in the hands of Mr. Prem**

**Asset 1 — Machinery used for Scientific Research**

As per **Section 43(1) Explanation read with Section 35(5) of the Income Tax Act, 1961**, when an asset used for scientific research is subsequently used for business purposes, the **actual cost for depreciation** is computed as: Original Cost MINUS Deduction already allowed under Section 35. Accordingly, Actual Cost = ₹4,00,000 − ₹40,000 = **₹3,60,000**. The applicable depreciation rate on Plant & Machinery is **15%** under Rule 5 read with Appendix I of the Income Tax Rules, 1962.

Depreciation = ₹3,60,000 × 15% = **₹54,000**

**Asset 2 — Laptop received as Gift**

As per **Section 43(1) Explanation 2 of the Income Tax Act, 1961**, where an asset is acquired by way of gift, the **actual cost to the assessee** = Actual cost to the previous owner − Depreciation that would have been allowable to the previous owner. The friend purchased the laptop on 01.04.2022 for ₹60,000. Laptop/computer is depreciable at **40%**. Depreciation allowable to friend for F.Y. 2022-23 = ₹60,000 × 40% = ₹24,000. Actual cost to Mr. Prem (WDV as on 01.04.2023) = ₹60,000 − ₹24,000 = **₹36,000**.

Depreciation for F.Y. 2023-24 = ₹36,000 × 40% = **₹14,400**

**Asset 3 — Temporary Wooden Structure**

As per **Rule 5 read with Appendix I of the Income Tax Rules, 1962**, purely **temporary erections such as wooden structures** are eligible for depreciation at **100…

Question 14

Mr. X, age 83 years, a resident individual, gives the following particulars of his receipts for A.Y. 2024-25: (1) Installment received from the bank under reverse mortgage arrangement ₹1,50,000; (2) Interest on bank term deposits ₹2,00,000; (3) Interest on bank saving a/c ₹45,000; (4) Pension from Central Govt. ₹4,50,000; (5) STCG on sale of dining table and chairs ₹1,00,000; (6) Income from dairy farming on his rural agricultural land ₹50,000. Compute his total income and Income Tax thereon for A.Y. 2024-25 considering that assessee has opted out of Default tax regime.

Accepted Answer

**Computation of Total Income for A.Y. 2024-25:**

The receipts must be analyzed to determine which items constitute taxable income:

1. **Reverse Mortgage Installment (₹1,50,000):** Not income. Under a reverse mortgage arrangement, installments received from the bank are capital receipts (loan proceeds), not income from any source. These should not be included in total income.

2. **Interest on Bank Term Deposits (₹2,00,000):** Taxable as income from other sources under Section 57.

3. **Interest on Bank Savings Account (₹45,000):** Exempt under Section 194A. For individuals aged 60 years and above, interest on savings account deposits is exempt up to ₹50,000 per annum. Since the amount is ₹45,000, it is fully exempt from taxation.

4. **Government Pension (₹4,50,000):** Taxable. Under Section 15(h), government pension is treated as income from salary and is fully taxable.

5. **STCG on Sale of Dining Table and Chairs (₹1,00,000):** Not taxable. Personal-use articles like furniture are excluded from the definition of "capital asset" under Section 2(14). Since these items are not capital assets, no capital gains tax applies on their sale, despite the stated gain.

6. **Agricultural Income (₹50,000):** Taxable. Income from dairy farming on rural agricultural land is taxable.

**Gross Total Income:**
Interest on term deposits: ₹2,00,000
Government pension: ₹4,50,000
Agricultural income: ₹50,000
**Total: ₹7,00,000**

**Less: Standard Deduction under Section 16:**
A standard dedu…

Question 15

The particulars given below are of Mr. Radhey's income (age 47 years) posted in a private company in Delhi, for the previous year 2023-24: (i) Basic Pay ₹ 35,000 per month till January 31, 2024, ₹ 40,000 p.m. from February 2024. (ii) Dearness allowance 30% of basic salary (34% of DA forms part of retirement benefits). (iii) Leave encashment for P.Y. 2023-24 = ₹ 10,000. (iv) He received salary for the month of April 2024 in advance on 31st March 2024. Also, he received an arrear salary for the month of March 2023 on the same day. (v) His employer gave him a rent-free accommodation (fully furnished) in Delhi from 01.01.2019. This house is owned by the employer. During the previous year 2019-20, the perquisite value of such rent-free furnished accommodation was valued at ₹ 39,000. The employe…

Accepted Answer

**Computation of Income from Salary of Mr. Radhey (Age 47) for Previous Year 2023-24 (AY 2024-25)**

**Basic Salary:** For April 2023 to January 2024 (10 months) = 10 × ₹35,000 = ₹3,50,000. For February 2024 to March 2024 (2 months) = 2 × ₹40,000 = ₹80,000. Total Basic Pay = **₹4,30,000**.

**Dearness Allowance:** 30% of Basic Salary = 30% × ₹4,30,000 = **₹1,29,000**. (Note: Only 34% of DA forms part of retirement benefits; the full DA is taxable, but only the retirement-benefit portion is included in 'salary' for perquisite valuation.)

**Leave Encashment:** Leave encashment received during service (not at retirement) is fully taxable = **₹10,000**.

**Advance Salary (April 2024):** Under **Section 15 of the Income Tax Act, 1961**, salary is taxable on due basis or receipt basis, whichever is earlier. April 2024 salary received on 31.03.2024 is taxable in PY 2023-24 = **₹40,000**.

**Arrear Salary (March 2023):** March 2023 salary was 'due' in PY 2022-23. Under Section 15, it was already chargeable to tax on due basis in PY 2022-23. Hence, it is **Nil** in PY 2023-24 to avoid double taxation.

**Perquisite – Rent-Free Furnished Accommodation (RFA):** The accommodation is employer-owned and situated in Delhi (population > 25 lakh). Under **Rule 3(1) of the Income Tax Rules, 1962**, the perquisite value = 15% of 'salary'.

*Salary for perquisite purposes* = Basic Pay + DA forming part of retirement benefits + Leave Encashment + Advance Salary = ₹4,30,000 + ₹43,860 + ₹10,000 + …

Question 16

What is the meaning of Micro and Small Enterprise u/s 43 B of Income Tax Act, 1961?

Accepted Answer

**Meaning of Micro and Small Enterprise u/s 43B of Income Tax Act, 1961:**

Section 43B of the Income Tax Act, 1961 deals with deductions for interest paid by small enterprises. The definition of Micro and Small Enterprise is aligned with the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, which is the primary legislation governing such enterprises.

**Micro Enterprise** is defined as an enterprise where:
- In case of **manufacturing undertakings**: Investment in plant and machinery does not exceed **₹25 lakhs**
- In case of **service undertakings**: Investment in equipment does not exceed **₹10 lakhs**

A micro enterprise is engaged in the manufacture, processing, or preservation of goods or in providing/rendering services.

**Small Enterprise** is defined as an enterprise where:
- In case of **manufacturing undertakings**: Investment in plant and machinery exceeds ₹25 lakhs but does not exceed **₹5 crores**
- In case of **service undertakings**: Investment in equipment exceeds ₹10 lakhs but does not exceed **₹2 crores**

Investment is calculated based on the **original cost** of plant, machinery, or equipment, excluding land and building. An enterprise that exceeds the prescribed limit in either category automatically falls into the next higher category.

**Key Features:**
- The classification is based on investment in **fixed assets** (plant/machinery/equipment), not on turnover
- A clear distinction exists between manufacturing and service sector enterp…

Question 17

Compute the depreciation allowed on these assets for F.Y. 2023-24.

Accepted Answer

**Computation of Depreciation for Mr. Prem for F.Y. 2023-24**

**(i) Machinery used for Scientific Research — Section 32 read with Section 43(1) of the Income Tax Act, 1961**

Where an asset has been used for scientific research and a deduction under **Section 35** has been allowed in respect of the cost of such asset, the **actual cost for depreciation purposes is reduced by the amount so allowed** as per the Explanation to Section 43(1). Accordingly:

Actual cost for depreciation = ₹4,00,000 − ₹40,000 = **₹3,60,000**

Applicable depreciation rate for Plant & Machinery = **15%**

The asset is in existence as on 01.04.2023 (beginning of the year), so it is used for more than 180 days in F.Y. 2023-24 — full depreciation applies.

**Depreciation = ₹3,60,000 × 15% = ₹54,000**

---

**(ii) Laptop received as Gift — Section 32 read with Section 43(1) of the Income Tax Act, 1961**

When an asset is acquired by way of gift, the **actual cost to the assessee** is computed as: Actual cost to the previous owner *minus* depreciation already allowed (or notionally allowable) to the previous owner. This prevents double deduction on the same asset.

The friend purchased the laptop on 01.04.2022 at ₹60,000. Laptops fall under **Computers including Computer Software**, attracting a depreciation rate of **40%**.

Depreciation to the friend for F.Y. 2022-23 = ₹60,000 × 40% = ₹24,000 (used for more than 180 days)
**WDV (i.e., actual cost to Mr. Prem) = ₹60,000 − ₹24,000 = ₹36,000**

The laptop …

Question 18

Mr. X, age 83 years, a resident individual, gives the following particulars of income for the year ending 31-03-25-2025:
1. Installment received from the bank under reverse mortgage: ₹1,50,000
2. Interest on bank term deposits: ₹2,00,000
3. Interest on bank saving a/c: ₹45,000
4. Pension from Central Govt: ₹45,000
5. STCG on sale of dining table and chairs: ₹1,00,000
6. STCG from dairy farming on his rural agricultural land: ₹50,000

Compute his total income and income Tax thereon for A.Y. 2024-25 considering that assessee has opted out of Default tax regime.

Accepted Answer

**Answer:**

**Total Income: ₹3,90,000**
**Income Tax: ₹0** (Nil)

**Computation of Total Income:**

Mr. X is a senior citizen aged 83 years (80+ years), resident individual, assessed under the Old Tax Regime for A.Y. 2024-25.

**Income Classification:**

1. **Reverse Mortgage Installment (₹1,50,000):** Exempt under **Section 10(26AH)** of the Income Tax Act. This section exempts any amount received as an installment under a reverse mortgage scheme by a senior citizen (60+ years). Amount: NIL (Exempt)

2. **Interest on Bank Term Deposits (₹2,00,000):** Taxable as income from other sources under **Section 56**. Amount: ₹2,00,000 (Taxable)

3. **Interest on Bank Saving Account (₹45,000):** Taxable as other income. Amount: ₹45,000 (Taxable)

4. **Pension from Central Government (₹45,000):** Taxable as other income. No exemption is available for government pensions. Amount: ₹45,000 (Taxable)

5. **STCG on Dining Table and Chairs (₹1,00,000):** While **Section 47(vi)** exempts capital gains on transfer of personal movables (other than jewellery/works of art) where cost of acquisition is below ₹50,000, the question explicitly states STCG of ₹1,00,000, indicating the exemption does not apply. Amount: ₹1,00,000 (Taxable)

6. **STCG from Dairy Farming on Rural Agricultural Land (₹50,000):** Characterized as STCG in the question, treated as taxable capital gain. Amount: ₹50,000 (Taxable)

**Gross Total Income:** ₹1,50,000 + ₹2,00,000 + ₹45,000 + ₹45,000 + ₹1,00,000 + ₹50,000 = ₹5,90,00…

Question 19

During the previous year his wife had been admitted in a notified hospital for treatment of her kidney disease, the hospital bills amounting to ₹ 1,50,000 were paid by the employer. You are required to compute the taxable salary income of Mr. Radhey for the Assessment Year 2023-25 assuming that he has opted out of the default tax regime under Section 115BAC.

Accepted Answer

**Tax Treatment of Medical Reimbursement Paid by Employer for Treatment at a Notified Hospital**

Under **Section 17(2)** of the Income Tax Act, 1961, any sum paid by an employer in respect of any expenditure incurred by an employee on his medical treatment or treatment of any member of his family is generally treated as a **perquisite** and included in salary income.

However, an important exception is carved out under the **proviso to Section 17(2)(viii) read with Rule 3A** of the Income Tax Rules, 1962. Where the medical treatment is for a **specified disease or ailment**, and such treatment is received in a **hospital approved by the Chief Commissioner of Income Tax** (commonly referred to as a 'notified hospital'), the entire amount reimbursed by the employer is **fully exempt** from being treated as a perquisite.

**Kidney disease** is specifically listed as a specified disease under **Rule 3A** of the Income Tax Rules, 1962. Since the treatment was received in a notified hospital and the disease qualifies under Rule 3A, the hospital bills of ₹1,50,000 paid by the employer are **completely exempt** from perquisite valuation.

**Effect of opting out of Section 115BAC:** Since Mr. Radhey has opted out of the default tax regime under **Section 115BAC of the Income Tax Act, 1961** (i.e., he is assessed under the old/regular tax regime), all exemptions and perquisite valuation rules under Section 17 read with the Income Tax Rules are fully applicable to him. Under the new (d…

Question 20

Mr. Raj a salaried individual, aged 60 years sold an urban agricultural land for ₹ 75,00,000 to Mr. Vipul on December 15, 2023 when the stamp duty valuation of agricultural land was ₹ 95 lakhs. He purchased the 'agreement to sell' the agricultural land was entered on July 15, 2023 and Mr. Vipul gave ₹ 4 lakhs as advance through IMFS. The stamp duty valuation at the time of agreement was ₹ 85 lakhs. Mr. Raj paid 1% of the sale consideration as a commission to a broker. The land was purchased by him on May 15, 2002 for ₹ 10.85 lakhs and it was being used for agricultural purposes by him since its purchase. Mr. Raj purchased another agricultural land in rural area on January 1, 2024 for ₹ 40 lakhs and this land was sold by him on March 12, 2024 for ₹ 45 lakhs and he invested the entire sale p…

Accepted Answer

**Computation of Capital Gains for Mr. Raj (AY 2024-25) — Old Tax Regime (opted out of Section 115BAC(1A))**

Since Mr. Raj opts out of the default new tax regime under Section 115BAC(1A) of the Income Tax Act, 1961, he is assessed under the old regime, which permits indexation benefit on long-term capital gains.

**Nature of Asset — Urban Agricultural Land:** Urban agricultural land is a **capital asset** under Section 2(14) of the Income Tax Act, 1961 (only rural agricultural land is excluded). Hence, its transfer is subject to capital gains.

**Holding Period:** Land purchased May 15, 2002 and sold December 15, 2023 — held for more than 24 months → **Long-Term Capital Asset**.

**Full Value of Consideration under Section 50C:** The actual sale consideration (₹75 lakhs) is less than the stamp duty valuation (₹95 lakhs at registration). Under Section 50C(1), the stamp duty value is deemed the full value of consideration. However, since the date of agreement (July 15, 2023) differs from the date of transfer (December 15, 2023), and ₹4 lakhs was received as advance through IMPS (an electronic mode as prescribed) on or before the date of agreement, the **proviso to Section 50C(1)** permits adoption of the **stamp duty value on the date of agreement = ₹85 lakhs**.

Applying the 10% safe harbour: 110% of actual consideration = 110% × ₹75 lakhs = ₹82.5 lakhs. Since ₹85 lakhs > ₹82.5 lakhs, the stamp duty value of **₹85 lakhs** is taken as the full value of consideration.

**Indexe…

Question 21

Compute the total income and tax payable for assessment year 2024-25 by Mr. Raman under default tax regime and optional tax regime as per normal provisions of the Act. Which option is advantageous to Mr. Raman?

Accepted Answer

**Note: Items (i) to (iii) providing Mr. Raman's base income are not available in this partial case scenario. The analysis below covers items (iv) to (vii) fully. These figures must be combined with income computed from the earlier facts to arrive at final Total Income and Tax Payable.**

**Treatment of Machinery Purchase [Item (iv)]:**

The purchase of new machinery for ₹2,50,000 on May 15, 2023 is a **capital expenditure** and is not deductible as a revenue expense. It is eligible for **depreciation under Section 32 of the Income Tax Act, 1961**. The machinery was acquired on May 15, 2023 and was in use for approximately 320 days (till March 31, 2024), which exceeds 180 days — therefore **full depreciation rate** applies, not the half-rate.

Since the business involves manufacturing (generation of ice / ice parts), **additional depreciation under Section 32(1)(iia)** is available at **20%** on new plant and machinery used for manufacture or production. Normal depreciation rate for plant and machinery is **15%**. Total depreciation = ₹2,50,000 × 35% = **₹87,500**, which reduces PGBP income.

**Deductions under Chapter VI-A — applicable only under Optional (Old) Tax Regime:**

**Section 80C — Tuition Fees [Item (v)]:** Tuition fees of ₹25,000 paid to a college for the full-time education of Mr. Raman's daughter are eligible under Section 80C. Only **actual tuition fees** qualify (not development fees or capitation fees). The limit under Section 80C is ₹1,50,000. **Deduction =…

Question 22

Based on Case Scenario 2 (Mr. A transferred house property to wife): Mr. A transferred a house property to his wife in P.Y. 2023-24 for inadequate consideration. She received a rent of ₹2 lakh from letting out this property and spent ₹4,800 as municipal taxes. She deposited the same with bank and earned an interest of ₹15,000 during the P.Y. 2023-24. In whose hands will the income of rent and interest be chargeable to tax?

Accepted Answer

**Answer: (D)**

Under **Section 64(1)(iv) of the Income Tax Act, 1961**, when property is transferred by a husband to his wife for inadequate consideration, the income derived from such transferred property is clubbed with the transferor's (husband's) income and taxed in his hands.

**Income from House Property:**
The house property transferred by Mr. A to Mrs. A for inadequate consideration generates rental income. Deductions allowed under **Section 24** (such as municipal taxes, interest on borrowed capital, insurance premiums, and repair costs) are available. The net income from the house property after allowable deductions is clubbed with Mr. A's income and appears under the head 'Income from House Property' in his assessment.

**Interest Income:**
The interest of ₹15,000 earned on the bank deposits made from the rental surplus is **not considered as income directly derived from the transferred property itself**, but as separate income from the investment of surplus funds. This interest remains chargeable to the wife's hands (Mrs. A) under the head 'Income From Other Sources' (IFOS).

**Conclusion:**
The rental income (net of Section 24 deductions) is clubbed and assessed as income from house property in **Mr. A's hands**. The interest earned on deposits is assessed as IFOS in **Mrs. A's hands**. This treatment aligns with the principle that only income directly arising from the transferred property is clubbed, while investment income on surplus amounts is separately ass…

Question 23

Mr. Rakesh furnishes the following details for year ended 31.03.2024: Short Term Capital Gain ₹2,80,000; Loss from Speculative Business ₹1,20,000; Long Term Capital Gain on Sale of Land ₹60,000; Long Term Capital Loss on Sale of shares (STT not paid) ₹2,00,000; Income From Business of Textile (after allowing current year Depreciation) ₹1,00,000; Income From Salary (Computed) ₹2,00,000; Loss from Let-Out House Property ₹80,000; Share of Loss from Firm ₹1,60,000; Investment in PPF ₹21,000; Medical Insurance Premium for self paid by Cheque ₹24,000; Preventive Health Check-up fees for wife paid by Cheque ₹5,000. He has Carry Forward Loss from Business of Textile ₹1,20,000 (8th year from year of Loss). Compute Total Income of Mr. Rakesh for the A.Y. 2024-2025 if he has exercised the option of s…

Accepted Answer

**Computation of Total Income of Mr. Rakesh for A.Y. 2024-25** (Old Tax Regime — opted out of Section 115BAC(1A) default regime)

**Preliminary Notes on Non-Allowable / Special Items:**

**Share of Loss from Firm ₹1,60,000** — As per Section 67A of the Income Tax Act, 1961 read with Section 78, a partner's share of loss from a firm is **not allowed** to be set off in the partner's individual hands. This loss is wholly ignored.

**Loss from Speculative Business ₹1,20,000** — Under Section 73, speculative business loss can be set off **only against speculative business profit**. Since there is no speculative income this year, this loss is carried forward (eligible for 4 years).

**Carry Forward Business Loss — Textile ₹1,20,000 (8th year)** — Under Section 72, business loss can be set off within **8 assessment years** from the year of loss. This being the 8th year, it must be set off now or it lapses.

---

**Head-wise Computation:**

**Income from Salary:** ₹2,00,000

**Income from House Property:** Loss from let-out property = (₹80,000). Under Section 71, this inter-head loss is set off against Salary income → Salary after set-off = ₹1,20,000; House Property = Nil.

**Profits & Gains from Business or Profession:**
Income from Textile Business = ₹1,00,000. Set off of brought forward Textile business loss ₹1,20,000 (8th year) against ₹1,00,000 → Business income = **Nil**. Balance ₹20,000 of carry-forward loss **lapses** (8th year exhausted, cannot carry forward further).

Specu…

Question 24

Answer either part (i) or (ii): (i) Which are all persons required to mandatorily file the Return of Loss as per section 80 of Income Tax Act, 1961? What are the consequences of Non-filing of Return of Loss in time? OR (ii) What is Belated Return u/s 139(4) of Income tax Act, 1961 and when it should be filed? Explain Non-Applicability of Updated Return u/s 139(8A).

Accepted Answer

**Answer to Part (ii): Belated Return and Updated Return Provisions**

**Belated Return under Section 139(4):**

A **belated return** is a return of income filed after the due date prescribed in Section 139(1) of the Income Tax Act, 1961. The key aspects are:

**When Due:** The due date for filing return is July 31st for individuals and HUF, or September 30th for corporate entities, of the financial year following the assessment year. Any return filed after this date is considered belated.

**Filing Window:** A belated return can be filed at any time during the assessment year or even thereafter, **but it must be filed before the Assessing Officer completes the assessment**. Once assessment is completed, even a belated return cannot be filed.

**Effect on Assessment Period:** Filing a belated return extends the time available to the Assessing Officer to complete the assessment. The assessment must be completed within one year from the end of the month in which the belated return is filed (compared to the normal time limit).

**Updated Return under Section 139(8A) – Non-Applicability:**

The **updated return** mechanism was introduced to permit correction and updation of errors, omissions or changes in facts after a return has been filed but before assessment is completed. However, updated return is **NOT applicable** in the following circumstances:

**First Non-Applicability – Belated Return Already Filed:** Where a belated return under Section 139(4) has already been filed, …

Question 25

Mr. Rakesh furnishes the following details for the year ended 31-03-2024:
Short Term Capital Gain: ₹2,80,000; Loss from Speculative Business: ₹1,20,000; Long Term Capital Gain on Sale of Land: ₹60,000; Long Term Capital Loss on Sale of shares (STT not paid): ₹2,00,000; Income From Business of Textile (after allowing current year Depreciation): ₹1,00,000; Income From Salary (Computed): ₹2,00,000; Loss from Let–Out House Property: ₹80,000; Share of Loss from Firm: ₹1,60,000; Medical Insurance Premium for self paid by Cheque: ₹24,000; Preventive Health Check-up fees for wife paid by Cheque: ₹5,000.

Following are the Carry Forward Losses:
Carry Forward Loss from Business of Textile ₹1,20,000 – this being the 8th year from the year of Loss.

Compute Total Income of Mr. Rakesh for the AY 2024-2…

Accepted Answer

**Answer: Total Income = ₹51,000; Eligible Carry Forward Loss: Speculative Business Loss ₹1,20,000**

**Computation of Total Income for AY 2024-2025:**

By shifting out of the default tax regime under **Section 115BAC(1A)**, Mr. Rakesh is assessed under the old tax regime, which permits set-off of losses and deductions under Chapter VI-A.

**Income from Various Sources:**

1. **Salary:** ₹2,00,000

2. **Business Income (Textile):** Current year income of ₹1,00,000 less carry forward loss of ₹1,20,000 (being the 8th and final year of carry forward) = Loss of ₹20,000

3. **Speculative Business Loss:** ₹1,20,000 (cannot be set off against non-speculative income; will be carried forward separately)

4. **Capital Gains:** STCG ₹2,80,000 plus LTCG ₹60,000 less LTCL ₹2,00,000 = Net capital gain of ₹1,40,000. The LTCL is first set off against LTCG (₹60,000), then against STCG to the extent of ₹1,40,000, leaving net STCG of ₹1,40,000.

5. **House Property Loss:** Loss from let-out property ₹80,000 (setoff under **Section 71**)

6. **Firm Loss:** Share of loss from firm ₹1,60,000 (set-off under Section 71)

**Gross Total Income:**
= ₹2,00,000 + (−₹20,000) + ₹1,40,000 − ₹80,000 − ₹1,60,000 = **₹80,000**

(Speculative business loss of ₹1,20,000 carried forward separately as it cannot be set off)

**Less: Deductions under Chapter VI-A:**
Medical Insurance Premium (self, by cheque): ₹24,000 — allowed under **Section 80D** (limit ₹30,000 for non-senior citizen paid by cheque)
Preventive Hea…

Question 26

OPTION 1:
(i) Which are all persons required to mandatorily file the Return of Loss as per Section 80 of Income Tax Act, 1961?
(ii) Consequences of Non-filing of Return of Loss in time

Accepted Answer

**Persons Required to Mandatorily File Return of Loss (Section 139/140, ITA 1961):**

**Residents:** Every resident person must file a return if they have suffered a loss from any source, even if total income is below the exemption limit. This is critical because loss must be carried forward within the due date of return filing, otherwise it is permanently lost.

**Specific categories include:** (1) Individuals with loss from business or profession; (2) Individuals with loss from house property; (3) Individuals with capital loss; (4) Partnership firms with loss; (5) Companies with loss; (6) HUFs with loss; (7) Persons having loss even if income from other sources is below exemption.

**Non-Residents:** A non-resident must also file return if they have loss from Indian sources (business, profession, capital gains) and wish to carry it forward.

**Key Principle:** Regardless of total income or turnover, if a person has incurred a loss and wishes to carry it forward to subsequent years under Sections 70, 72, 73, 74, or 75, the return **must be filed within the due date.** Filing after due date means loss cannot be carried forward.

**Consequences of Non-filing Return of Loss in Time:**

**(1) Loss Forfeiture:** Most critical consequence—if return is not filed within the due date of Section 139(1), the loss **cannot be carried forward to any subsequent year** under Sections 70, 72, 73, 74, or 75. The loss is permanently lost and cannot be utilized to set off against future income…

Question 27

OPTION 2 (OR):
(i) What is Related Return u/s 139(4) of Income tax Act, 1961 and when it should be filed?
(ii) Explain Non-Applicability of Updated Return u/s Sec 139(8A)

Accepted Answer

**Related Return u/s 139(4):**

A **related return** is a return of income filed by a person related to the assessee on behalf of the assessee when the assessee is unable to file the return themselves. A "related person" includes the assessee's spouse, parent, legal heir, legally appointed guardian, or any person duly authorized by the assessee. The related return is filed in the name of the assessee but signed and submitted by the related person.

A related return must be filed **within the prescribed time limit for filing returns**. For individuals, this is generally **31st July of the relevant financial year** (or such extended date as may be notified by the Board). The return should be accompanied by satisfactory explanation for why the assessee could not file the return themselves, such as serious illness, involuntary absence from India, incapacity, or similar circumstances.

**Non-Applicability of Updated Return u/s 139(8A):**

An **updated return** cannot be filed in the following cases:

1. **Pending detention proceedings**: When any proceeding for detention under the Conservation of Foreign Currency Act or any other law is pending against the assessee.

2. **Service of notice**: When the assessee has been served with a notice under **Section 143(2)** (assessment notice) or **Section 142(1)** (notice for producing evidence or documents).

3. **Undisclosed income**: When the return contains income disclosed from undisclosed sources as per **Section 68** (which relates …

Question 28

DEF Pvt. Ltd., a registered supplier of goods and services in Pune, Maharashtra, has furnished the following details for the month of January 2024. The turnover of DEF Pvt. Ltd. was ₹ 3.2 crores in last financial year. [Table with 9 transaction details including: Intra state supply of taxable goods (₹5,00,000), E-Commerce supplies (₹2,00,000), Services for air tickets (₹20,000), Purchase of goods (₹25,000), Supply of unit in Delhi (₹10,00,000), Interstate service provision (₹5,00,000), Interstate supply of service (₹10,00,000), Inward supplies (₹6,00,000), Purchase of confectionery items (₹1,00,000)]. Opening balance of Input Tax credit: CGST ₹25,000, SGST ₹25,000, IGST ₹30,000. Additional Information: (1) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively unless otherwise mentio…

Accepted Answer

**Computation of Output Tax Liability and ITC for DEF Pvt. Ltd. — January 2024**

**Assumptions Made:**
(1) E-commerce supplies are intra-state. (2) 'Services for air tickets' = economy class air transportation (inter-state), taxed at 5% IGST. (3) Inward supplies of ₹6,00,000 are intra-state. (4) All supply values are exclusive of taxes. (5) DEF is registered under regular scheme (turnover ₹3.2 Cr > composition limit of ₹1.5 Cr).

**PART A: OUTPUT TAX LIABILITY**

**(1) Intra-state supply of taxable goods (₹5,00,000):** Intra-state supply attracts CGST and SGST each at 9%. CGST = ₹45,000; SGST = ₹45,000.

**(2) E-Commerce supplies (₹2,00,000):** DEF is a registered supplier; tax liability rests with DEF (not the ECO), as this is not a service notified under **Section 9(5) of the CGST Act, 2017**. Assumed intra-state. CGST = ₹18,000; SGST = ₹18,000.

**(3) Services for air tickets (₹20,000):** Treated as economy class air passenger transport (inter-state) taxable at 5% IGST as per **Notification No. 11/2017-CT(Rate)**. IGST = ₹1,000.

**(4) Supply of unit in Delhi (₹10,00,000):** Supply from Pune (Maharashtra) to Delhi is an **inter-state supply** under **Section 7 of the IGST Act, 2017**. IGST @ 18% = ₹1,80,000.

**(5) Interstate service provision (₹5,00,000):** Outward inter-state supply of services. IGST @ 18% = ₹90,000.

**(6) Interstate supply of service (₹10,00,000):** Outward inter-state supply of services. IGST @ 18% = ₹1,80,000.

**Total Output Tax: CGST = ₹63,000 | S…

Question 29

ABC Infra, is a partnership firm registered under GST. It furnishes the following details about services provided during the month of February 2024: [Table with service particulars: Consideration received from neighbouring Housing Cooperative Society as ABC Infra agrees to install effluent plant (₹5,50,000), Consideration received from distribution of passes for cricket tournament (₹2,42,500), Services given of booking air tickets in economy class for flight between Mumbai to Munger (₹1,20,000), Services given for construction of buildings to State Government in relation to functional relationship under article 243W with Construction material used of ₹2,79,375 included in the given figure (₹8,20,000)].

Accepted Answer

**Answer: Total GST Liability = ₹86,625**

ABC Infra must determine the applicable GST rate for each service separately, as they attract different rates under the CGST Act 2017 and relevant GST rate notifications:

**Service 1: Installation of Effluent Plant (₹5,50,000)** — Services involving erection or installation as part of construction activity of structures and civil works are taxed at **5%** under Schedule III (SAC 5403). Since the effluent plant installation involves construction/erection activity, it qualifies for the 5% rate even when provided to a Housing Cooperative Society, as no exemption is available for services supplied to cooperative societies.

**Service 2: Distribution of Passes for Cricket Tournament (₹2,42,500)** — Admission to sporting events/competitions is classified as a service and taxed at **5%** under the GST rate notification (SAC 9605). The supply of passes for entry to the cricket tournament falls squarely within this category.

**Service 3: Booking Air Tickets – Economy Class (₹1,20,000)** — Services provided by travel agents (air ticket booking agents) are taxed at **5%** under the rate notification (SAC 6820). The amount of ₹1,20,000 represents the service charge/commission for booking domestic flight tickets between Mumbai and Munger, which attracts 5% GST.

**Service 4: Construction Service to State Government (₹8,20,000)** — Construction services, including construction of buildings and structures, are taxed at **5%** under Schedule III (…

Question 30

Based on Case Scenario 2 (Mr. A transferred house property to wife): If Mrs. A invests this rent amount in a business and incurs a loss of ₹20,000 and she has income from other business of ₹4 lakh, in whose hands will the income of rent and business be chargeable to tax?

Accepted Answer

**Answer: (A)**

When a husband transfers property to his wife for inadequate consideration, **Section 64(1)(iv)** of the Income Tax Act, 1961 mandates that income derived from such property shall be included in the total income of the transferor (Mr. A), not the spouse.

**Calculation of Property Income:**
Gross rent received: ₹2,00,000
Less: Municipal taxes: ₹4,800
Gross income from property: ₹1,95,200
Less: Standard deduction (30% of ₹1,95,200): ₹58,560
**Net income from house property chargeable to Mr. A: ₹1,36,640**

**Calculation of Business Income:**
Mrs. A's other business income: ₹4,00,000
Loss from business funded by property income: (₹20,000)
**Net business income in Mrs. A's hands: ₹3,80,000**

The business loss can be set off against her other business income. Although the business was funded using property income (which is clubbed in Mr. A's hands), the business loss and income are Mrs. A's own business transactions and are not directly subject to the clubbing provision. The loss adjustment occurs within her own income profile.

The interest earned on bank deposits (₹15,000) would be additional income from other sources, likely also clubbed under Section 64 provisions as it derives from the property income.

CA Inter Taxation

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Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap