Question 1

What would be the nature of supply and the applicable rate of GST for the supply of package made by Ms. Riya (when not registered under composition scheme)?

Accepted Answer

**Answer: (B)**

The package consisting of stapler, calculator and charger supplied together at a single price of ₹300 constitutes a **mixed supply** under Section 2(74) of the CGST Act, 2017. A mixed supply is a combination of two or more individual supplies of goods or services made together for a single price, where such supply does not constitute a **composite supply**. Since none of these items (stapler, calculator, charger) is naturally bundled or ancillary to the other — they are independent goods — this is not a composite supply. Under Section 8(b) of the CGST Act, 2017, a mixed supply is taxed at the rate applicable to the supply attracting the **highest rate of tax**. Among the three goods, charger attracts the highest rate of **18% GST**, so the entire package is taxable at **18%**.

Question 2

Ms. Riya can opt for composition scheme if she does not undertake the supply of:
(i) Aerated water
(ii) Tobacco
(iii) Pan masala
(iv) Milk

Accepted Answer

**Answer: (C)**

Under Section 10 of the Central Goods and Services Tax Act, 2017, a registered person is **not eligible** to opt for the Composition Scheme if they are engaged in the manufacture of certain notified goods. As per the proviso to Section 10(2), goods notified by the Government that are **ineligible** for the composition scheme include **ice cream and other edible ice, pan masala, and tobacco and manufactured tobacco substitutes, aerated water**.

Thus, among the options given — aerated water (i), tobacco (ii), and pan masala (iii) — all three make Ms. Riya ineligible for the composition scheme if she supplies them. **Milk** (iv) is not in the list of restricted goods; therefore, supply of milk does not disqualify a person from opting for the composition scheme.

Question 3

Out of payments received by Ms. Riya in month of May 20XX, exempt supply amounts to _____

Accepted Answer

**Answer: (B) Rs.70,000**

Under GST, exemptions on supply of services are governed by **Notification No. 12/2017-Central Tax (Rate)**. Each receipt of Ms. Riya in May 20XX is analysed as follows:

**Rs.1,60,000 – Western music performance at a Resort:** The exemption for artist performances applies only to performances in **folk or classical art forms** of music, dance, or theatre (Entry 78 of Notification 12/2017-CT(Rate)). Western music does not qualify as a folk or classical art form. Hence, this is a **taxable supply** — NOT exempt.

**Rs.50,000 – Renting of residential dwelling for use as boutique:** Entry 12 of Notification 12/2017-CT(Rate) exempts services by way of renting of residential dwelling **for use as residence only**. Since the dwelling is being used as a boutique (i.e., for commercial/business purpose), the exemption does not apply. Hence, this is a **taxable supply** — NOT exempt.

**Rs.70,000 – Rent for letting of agro machinery:** Entry 54 of Notification 12/2017-CT(Rate) explicitly exempts services by way of **renting or leasing of agro machinery** or vacant land. Since Ms. Riya is letting agro machinery, this supply is **exempt**.

Therefore, **exempt supply = Rs.70,000**.

Question 4

In respect of supply made by Ms. Riya, the value of supply under section 15 of CGST Act, 2017 is

Accepted Answer

**Answer: (D) Rs.51,000**

Under **Section 15 of the CGST Act, 2017**, the value of supply is the **transaction value**, which includes certain additional amounts as specified under Section 15(2).

**Inclusion of TCS under Income Tax Act, 1961:** As per **Section 15(2)(a) of the CGST Act, 2017**, any taxes, duties, cesses, fees and charges levied under any law for the time being in force *other than GST laws* shall be included in the value of supply. TCS of Rs.2,500 collected under the Income Tax Act, 1961 is a tax levied under another law and forms part of the amount charged from the recipient — hence it is **includible** in the value of supply.

**Inclusion of Subsidy from Green Foundation Pvt. Ltd:** As per **Section 15(2)(e) of the CGST Act, 2017**, subsidies directly linked to the price are included in the value of supply, **except** subsidies provided by the Central Government or State Governments. The subsidy of Rs.3,500 is received from **Green Foundation Pvt. Ltd**, a private entity (not a Government entity). Therefore, this subsidy is **includible** in the value of supply.

Accordingly, the value of supply = Rs.45,000 + Rs.2,500 + Rs.3,500 = **Rs.51,000**.

Question 5

Eligible amount of input tax credit that can be claimed by Ms. Riya in the month of July 20XX is

Accepted Answer

**Answer: (B) Rs.37,000**

Ms. Riya's eligible input tax credit in July is calculated by examining each inward supply and applying the provisions of Section 17(5) of the CGST Act, 2017.

**1. Goods with GST component of Rs.30,000:**
The goods to be delivered in 5 lots with 3 lots received in July. The invoice for goods issued with GST component of Rs.30,000 is eligible for ITC as goods are ordinary inputs for business. **Eligible ITC: Rs.30,000**

**2. Car with GST component of Rs.1,50,000:**
Under **Section 17(5) of the CGST Act, 2017**, input tax credit is not available on **motor vehicles except those for supply of transportation services**. The car is purchased for use in a driving school (for providing driving instruction/training services, not for transportation services). Therefore, this falls within the blocked category of Section 17(5). **Eligible ITC: Rs.0**

**3. Health insurance with GST of Rs.7,000:**
Under Section 17(5), health insurance services are generally blocked from ITC, **except when supplied for employees**. Since the health insurance is availed for her employees, it is eligible for ITC. **Eligible ITC: Rs.7,000**

**Total eligible ITC = Rs.30,000 + Rs.0 + Rs.7,000 = Rs.37,000**

Question 6

Alcoholic liquor for human consumption is subjected to

Accepted Answer

**Answer: (A)**

Alcoholic liquor for human consumption is explicitly excluded from the scope of GST under Article 366(29A) of the Constitution and Schedule III of the CGST Act, 2017. Consequently, it remains outside the GST regime and continues to be governed by state laws.

Alcoholic liquor is primarily subjected to **State Excise Duty** levied by the respective states under their Excise Acts. The Constitution grants states concurrent power to legislate on the production, manufacture, possession, transport, purchase, and sale of alcoholic liquor for human consumption (Entry 8 of List II).

Option (B) references Central Sales Tax/Value Added Tax, which were the pre-GST regime taxes. Post-GST implementation, CST was subsumed into GST, and VAT also ceased to exist as a separate tax instrument (though some states may apply additional levies on alcoholic liquor under state-specific laws).

Option (C) and (D) are incorrect as alcoholic liquor is not subject to GST.

Question 7

Taxes subsumed in GST are

Question 8

Mr. Charlie, a registered supplier of goods at Bhatinda who pays GST under regular scheme, has made the following transactions (exclusive of tax) during April 20XX:

| Source | Purchases | Sales | Tax Rate |
|---|---|---|---|
| Rajasthan | Rs.5,00,000 | Rs.10,00,000 | 18% |
| Punjab | Rs.2,50,000 | Rs.8,00,000 | 9% each for SGST & CGST |
| Total | Rs.7,50,000 | Rs.18,00,000 | |

Opening ITC balance on 01-04-20XX: CGST Rs.50,000; SGST Rs.30,000; IGST Rs.1,00,000

He has complied with all the conditions for availing the input tax credit (ITC). Compute the minimum net CGST, SGST and IGST payable by Mr. Charlie during April 20XX in cash.

Accepted Answer

**Computation of Minimum Net GST Payable in Cash by Mr. Charlie for April 20XX**

**Step 1 — Nature of Transactions**

Mr. Charlie is registered in Punjab (Bhatinda). Purchases from Rajasthan are **inter-state** (IGST applies). Sales to Rajasthan are **inter-state** (IGST). Purchases and sales within Punjab are **intra-state** (CGST + SGST).

**Step 2 — Output Tax Liability**

Inter-state sales to Rajasthan: Rs. 10,00,000 × 18% = **IGST Rs. 1,80,000**
Intra-state sales within Punjab: Rs. 8,00,000 × 9% = **CGST Rs. 72,000** and **SGST Rs. 72,000**

**Step 3 — ITC from Current Month Purchases**

Purchases from Rajasthan (inter-state): Rs. 5,00,000 × 18% = **IGST ITC Rs. 90,000**
Purchases within Punjab (intra-state): Rs. 2,50,000 × 9% = **CGST ITC Rs. 22,500** and **SGST ITC Rs. 22,500**

**Step 4 — Total ITC Available (Opening + Current Month)**

- IGST: Rs. 1,00,000 + Rs. 90,000 = **Rs. 1,90,000**
- CGST: Rs. 50,000 + Rs. 22,500 = **Rs. 72,500**
- SGST: Rs. 30,000 + Rs. 22,500 = **Rs. 52,500**

**Step 5 — ITC Utilisation (Rule 88A of CGST Rules 2017 read with Section 49A of the CGST Act 2017)**

Rule 88A mandates that IGST credit must first be used against IGST liability; the remaining IGST credit may then be applied against CGST or SGST in **any order** chosen by the taxpayer. CGST credit cannot offset SGST and vice versa. To **minimise cash outflow**, remaining IGST credit should be applied against the head where own ITC falls short — here SGST (ITC Rs. 52,500 < liability R…

Question 9

Kaashi Ltd. supplies machinery to Alisha Ltd. (dealer in same State). Determine the value of taxable supply of machinery based on the following particulars:
(i) Price of Machinery (exclusive of taxes and discounts): Rs.5,50,000
(ii) One part is directly fitted in machinery at place of Alisha Ltd. Amount of Rs.20,000 paid by Alisha Ltd. directly to supplier; as per contract this amount should be paid by Kaashi Ltd. and is not included in the price.
(iii) Installation and testing charges for machinery, not included in price: Rs.25,000
(iv) Discount @ 2% on machinery price (recorded in the invoice)
(v) Kaashi Ltd. provides additional 1% discount at year end, based on additional purchase of other machinery. This discount is not linked to the relevant invoice and proportionate ITC has not been …

Accepted Answer

**Value of Taxable Supply — Section 15 of the CGST Act, 2017**

Under **Section 15(1) of the CGST Act, 2017**, the value of a taxable supply is the **transaction value**, i.e., the price actually paid or payable, subject to the inclusions under Section 15(2) and exclusions under Section 15(3).

**Item-wise Analysis:**

**(i) Price of Machinery:** ₹5,50,000 is taken as the base transaction value.

**(ii) Amount of ₹20,000 paid by Alisha Ltd. to the third-party supplier:** As per the contract, this amount was payable by Kaashi Ltd. Since the recipient (Alisha Ltd.) has incurred this on behalf of the supplier, it must be **included** in the value of supply under **Section 15(2)(b)** — which covers amounts incurred by the recipient that the supplier is liable to pay.

**(iii) Installation and testing charges — ₹25,000:** These are incidental expenses charged by the supplier in connection with the supply. As per **Section 15(2)(c)**, incidental expenses, including installation and testing charges, are includible in the value of taxable supply.

**(iv) Trade Discount @ 2% (recorded in invoice):** A discount of 2% × ₹5,50,000 = ₹11,000, given before/at the time of supply and recorded in the invoice, is **deductible** under **Section 15(3)(a)**.

**(v) Year-end additional discount of 1%:** Under **Section 15(3)(b)**, a post-supply discount is deductible only if all three conditions are satisfied: (a) it was known at or before the time of supply and linked to the invoice, (b) it is es…

Question 10

"Richmondkidz" is a Play School located in Delhi. Richmond Kids has outsourced the catering services for supply of food and drink in the canteen of the Play School to Ashoka Caterers, Delhi for a consideration of Rs.8,00,000 per annum. Examine whether supply of food and drink/catering services from Ashoka Caterers to "Richmondkidz" is exempt from GST.

Accepted Answer

**Answer: The supply of catering services from Ashoka Caterers to Richmondkidz is NOT exempt from GST and shall be taxable at 5%.**

**Analysis:**

The question involves a **supply of services TO an educational institution** (catering/food services). To determine GST treatment, we must examine the relevant exemption provisions.

**Exemption Framework under GST:**

Pursuant to **Schedule III of the CGST Act 2017**, exemptions are available for:

(1) **Entry 42**: Supply of goods to an educational institution established, financed and administered by the Government. This entry is restricted to supplies TO **government educational institutions only**.

(2) **Entry 43**: Supply of services by an educational institution. This covers services **supplied BY** the educational institution (e.g., tuition, coaching), not services supplied **TO** it.

**Application to Present Facts:**

1. **Richmondkidz is a private Play School** – not a government institution. Therefore, Entry 42 does not apply, as it is restricted to government educational institutions.

2. **The supply is TO the educational institution (not BY it)** – Ashoka Caterers is supplying catering services to Richmondkidz. This is a supply TO the institution, not a service supplied BY the institution. Entry 43 thus does not apply.

3. **Catering services are restaurant services** – Catering or supply of food and beverages falls under the category of "restaurant services" and is **explicitly taxable** under the GST regime. No s…

Question 11

Balaji Hospital, a clinical establishment located in Tirupati, is specialised in cardiac treatment. The hospital has its own canteen – Healthy Foods. The canteen serves food and drink to the in-patients as advised by the doctors/nutritionists of the hospital. Apart from this, other patients (who are not admitted) or attendants or visitors of the in-patients also take food and drink from the canteen. Examine whether supply of food and drink/catering services to the in-patients and to other patients (who are not admitted) or attendants or visitors of the in-patients is exempt from GST.

Accepted Answer

**Exemption Status: In-Patients vs. Others**

**Supply to In-Patients (Exempted)**

The supply of food and drink to in-patients of Balaji Hospital is **EXEMPT from GST**. This supply is integral to the 'admission to and boarding in hospital' service provided by the clinical establishment. Under Schedule III of the CGST Act, 2017, services comprising admission to hospital and boarding therein are exempted supplies. Food prescribed and provided to in-patients as advised by doctors/nutritionists forms an inseparable part of the clinical treatment and in-patient care package. The fact that a qualified medical professional directs the dietary requirements strengthens this characterization—the food is not a standalone commercial transaction but a component of therapeutic care. Therefore, no GST is chargeable on food supplied to in-patients.

**Supply to Non-Admitted Persons (Subject to GST)**

The supply of food and drink to non-admitted patients, attendants, and visitors is **SUBJECT TO GST**. These supplies do not qualify for the hospital services exemption because the recipients are not in-patients receiving admission and clinical treatment. The supply to these categories constitutes a separate, standalone supply of food and beverages—essentially a canteen or restaurant-like service. Such supplies fall under the category of 'food and beverages' and are taxable at the applicable GST rate (typically 5% for most food items under Notification 12/2017-CT (Rate), or 18% depending on t…

Question 12

Determine the effective date of registration in the following cases:

Accepted Answer

**Effective Date of GST Registration — Applicable Law:** Under **Section 25(1) of the Central Goods and Services Tax Act, 2017**, every person who becomes liable to be registered shall apply for registration within **30 days** from the date he becomes liable. **Rule 10(1) of the CGST Rules, 2017** governs the effective date of registration:

- If the application is submitted **within 30 days** of becoming liable → Effective date = **Date on which the person first became liable to registration**.
- If the application is submitted **after 30 days** (late application) → Effective date = **Date of grant of registration certificate**.

---

**(i) Apsara Teleservices, Lucknow (Architect — Service Provider)**

Apsara Teleservices is an architect providing services, located in Lucknow (Uttar Pradesh — not a special category state). The applicable threshold for services is **₹20 lakh**.

- Date of crossing threshold: **25th October**
- Last date for timely application (within 30 days): **24th November**
- Date of actual application: **27th November** → This is **after 30 days** — the application is **LATE**
- Date of grant of registration: **5th December**

Since the application was submitted after the prescribed 30-day period, the **effective date of registration is 5th December** (the date of grant of the registration certificate).

---

**(ii) Prink Footwear Industries, Delhi (Goods — Footwear)**

Prink Footwear Industries is engaged in supply of goods (footwear). For suppliers of …

Question 13

Mr. Aman, a registered supplier of taxable goods, filed GSTR 3B for the month of January, 20XX on 15th April, 20XX. The prescribed due date to file the said GSTR 3B was 20th February, 20XX. The amount of net GST payable on supplies made by him for the said month worked out to be Rs.36,500 which was paid on the same date of filing the return. Briefly explain the related provisions and compute the amount of interest payable under the CGST Act, 2017 by Mr. Aman.

Accepted Answer

**Provisions under Section 50(1) of the Central Goods and Services Tax Act, 2017:**

As per **Section 50(1) of the CGST Act, 2017**, every registered person who fails to pay the tax or any part thereof to the Government within the prescribed period shall be liable to pay interest on the amount of tax not paid, at the rate **not exceeding 18% per annum**, as notified by the Government. The interest is to be calculated from the day succeeding the day on which such tax was due to be paid.

The **proviso to Section 50(1)** (inserted by the Finance Act, 2021, effective retrospectively from 1st July 2017) provides that interest shall be levied on the **net tax liability** — i.e., only on the portion of tax paid through the **Electronic Cash Ledger** — and not on the gross tax liability (thereby excluding the portion set off through input tax credit).

In the given case, the net GST payable of **₹36,500** represents the cash component (net liability), and the return was filed on **15th April, 20XX** against a due date of **20th February, 20XX**, resulting in a delay of **54 days**.

**Computation of Interest Payable by Mr. Aman:**

Interest = Net GST Payable × Rate × (Number of days of delay ÷ 365)

Interest = ₹36,500 × 18% × (54 ÷ 365) = **₹971.45 ≈ ₹971**

Therefore, the **interest payable by Mr. Aman under Section 50(1) of the CGST Act, 2017 is ₹971** (rounded down to nearest rupee).

Question 14

Explain the services provided by way of tolerating non-performance of a contract and its chargeability under the provisions of the CGST Act, 2017.

Accepted Answer

**Meaning of Tolerating Non-Performance of a Contract under GST**

Under the **CGST Act, 2017**, the concept of 'supply' is broadly defined under **Section 7**, which includes all forms of supply of goods or services made or agreed to be made for a consideration in the course or furtherance of business.

**Schedule II to the CGST Act, 2017** specifies activities that are to be treated as either supply of goods or supply of services. **Entry 5(e) of Schedule II** specifically provides that the following activity shall be treated as a **supply of services**:

*"Agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act."*

Thus, when a party agrees to **tolerate the non-performance** of a contract by another party and receives any payment/consideration in return for such tolerance, it constitutes a **supply of service** chargeable to GST.

**Essential Conditions for Chargeability**

For this to be treated as a taxable supply, the following conditions must be satisfied:

1. There must be an **agreement** (express or implied) to tolerate non-performance, a situation, or to refrain from an act.
2. **Consideration** must flow to the person tolerating such non-performance.
3. The activity must be in the **course or furtherance of business**.

**Practical Illustrations**

- Company A agrees to supply goods to Company B by a specified date. Company B fails to fulfil certain contractual obligations, and Company A agrees to overlook/tolerate…

Question 15

If a return has been filed, how can it be revised if some changes are required to be made?

Accepted Answer

**Revision of GST Returns — Amendment Provisions**

Under the GST framework, there is **no concept of a revised return**. Once a return is filed, it cannot be replaced or withdrawn. However, the law provides a mechanism to correct mistakes through subsequent returns.

**Statutory Provision — Section 39(9) of the Central Goods and Services Tax Act, 2017**

Any registered person who has furnished a return under Section 39 and notices any **omission or incorrect particulars** therein may rectify such omission or incorrect particulars in the return to be furnished for the **tax period during which such omission or incorrect particulars are noticed**. In other words, corrections are reported in the return of the period in which the error is discovered, not by amending the original return.

**Time Limit for Rectification**

Such rectification is permissible only up to the **earlier of** the following two dates:
1. The due date for furnishing the return for the **month of September following the end of the financial year** to which such details pertain (i.e., 20th October of the subsequent year for monthly filers); OR
2. The **actual date of furnishing of the relevant Annual Return** (GSTR-9).

Once either of these events occurs, no further rectification is allowed.

**Practical Mechanism — Amendments in GSTR-1**

For outward supply returns (GSTR-1), amendments are reported in specific amendment tables of a subsequent GSTR-1:
- **Table 9A** — Amendment to details of outward supplies…

Question 16

Mr. Neeraj, aged 45 years, working in Ashiyana Pvt. Ltd. provides the following details pertaining to the financial year 2019-20:
Basic salary: Rs.7,20,000
Dearness allowance: 40% of basic pay (50% of D.A. forms part of retirement benefits)
Commission: Rs.50,000
Entertainment allowance: Rs.7,500
Medical expenses reimbursed by the employer: Rs.10,000
Profession tax (of this, 50% paid by employer): Rs.3,000
Health insurance premium paid by employer: Rs.9,000
Gift voucher given by employer on his birthday: Rs.15,000
Life insurance premium of Neeraj paid by employer: Rs.40,000
Laptop provided for use at home. Actual cost of Laptop to employer: Rs.45,000 [Children of the assessee are also using the Laptop at home]
Employer company owns a motor car, which was provided to the assessee, both for o…

Accepted Answer

**Computation of Income Chargeable under the Head 'Salaries' for Mr. Neeraj (AY 2020-21)**

**Treatment of each item:**

**Basic Salary** – Rs. 7,20,000 – Fully taxable.

**Dearness Allowance** – 40% of Rs. 7,20,000 = Rs. 2,88,000 – Fully taxable. The fact that 50% forms part of retirement benefits is relevant only for EPF/gratuity computation, not for taxability of DA itself.

**Commission** – Rs. 50,000 – Fully taxable under Section 15 of the Income Tax Act, 1961.

**Entertainment Allowance** – Rs. 7,500 – Fully taxable for private sector employees. Deduction under Section 16(ii) is available only to Government employees.

**Medical Expenses Reimbursed** – Rs. 10,000 – Fully taxable. The exemption of Rs. 15,000 on medical reimbursement was withdrawn from AY 2019-20 onwards, replaced by the standard deduction.

**Profession Tax paid by employer (50% of Rs. 3,000 = Rs. 1,500)** – Taxable perquisite under Section 17(2). The employee's own share (Rs. 1,500) is separately deductible under Section 16(iii).

**Health Insurance Premium paid by employer** – Rs. 9,000 – **Exempt; not a perquisite** as per Rule 3(7)(i) of the Income Tax Rules, 1962. Medical insurance premium paid by employer on behalf of employee is not chargeable.

**Gift Voucher on birthday** – Rs. 15,000 – Taxable perquisite = Rs. 15,000 − Rs. 5,000 (exemption limit under Rule 3(7)(iv)) = **Rs. 10,000**.

**Life Insurance Premium paid by employer** – Rs. 40,000 – **Fully taxable perquisite** under Section 17(2). Pa…

Question 17

Mr. Ramesh sold a house plot to Mrs. Vikas for Rs.45 lakhs on 10-9-2019. The valuation determined by the stamp valuation authority was Rs.53 lakhs. Mr. Vikas has sold this plot to Ms. Babli on 21-3-2020 for Rs.55 lakhs. The valuation as per stamp valuation authority was Rs.54 lakhs on 21-3-2020. Discuss the tax consequences of the above in the hands of each one of them, viz. Mr. Ramesh and Mr. Vikas, and compute the capital gain in the hands of Mr. Vikas. Note: None of the parties viz Mr. Ramesh, Mr. Vikas and Ms. Babli are related to each other; the transactions are between outsiders.

Accepted Answer

**Tax Consequences and Capital Gain Computation**

**Transaction 1 — Sale by Mr. Ramesh to Mr. Vikas (10-9-2019)**

**In the hands of Mr. Ramesh (Seller) — Section 50C of the Income Tax Act, 1961:**

Section 50C provides that where the consideration received or accruing on transfer of land or building (or both) is less than the value adopted by the **Stamp Valuation Authority (SVA)**, the stamp duty value (SDV) shall be deemed to be the **full value of consideration (FVC)** for computing capital gains.

A tolerance limit applies: if SDV does not exceed **105%** of the actual consideration (threshold applicable for FY 2019-20 prior to Finance Act 2020 which raised it to 110% from AY 2021-22), actual consideration is taken as FVC.

- 105% of Rs. 45 lakhs = Rs. 47.25 lakhs
- SDV = Rs. 53 lakhs > Rs. 47.25 lakhs → tolerance limit breached

Therefore, **Section 50C applies**. FVC for Mr. Ramesh = **Rs. 53 lakhs** (not Rs. 45 lakhs). Capital gain in his hands will be computed accordingly on Rs. 53 lakhs as FVC (actual cost of acquisition would reduce this).

**In the hands of Mr. Vikas (Buyer) — Section 56(2)(x) of the Income Tax Act, 1961:**

Section 56(2)(x) provides that where an individual receives immovable property for a consideration which is less than the SVA, and the difference exceeds Rs. 50,000, such difference is chargeable as **Income from Other Sources**.

- SDV = Rs. 53 lakhs; Consideration paid = Rs. 45 lakhs
- Difference = Rs. 8 lakhs > Rs. 50,000 → Section 56(2)(x…

Question 18

Mr. Mustafa submits the following information for the previous year 2019-20:
(i) Income from salary: Rs.6,50,000
(ii) Income from House-I: Rs.55,000
(iii) Loss from House-II (self-occupied property): Rs.1,25,000
(iv) Loss from House-III: Rs.1,90,000
(v) Loss from leather business: Rs.68,000
(vi) Profit from cloth business: Rs.1,70,000
(vii) Short term capital loss in equity oriented funds on which STT was paid: Rs.35,000
(viii) Income from crossword puzzles: Rs.12,000
(ix) Dividend from foreign company: Rs.8,500
(x) Loss on owning and maintenance of race horses: Rs.7,500
(xi) Income from owning and maintenance of race bulls: Rs.9,000

Compute the gross total income and losses to be carried forward of Mr. Mustafa for assessment year 2020-21. Mr. Mustafa has filed his return of income on 25.…

Accepted Answer

**Computation of Gross Total Income of Mr. Mustafa for A.Y. 2020-21**

**Step 1 – Income under each head (before inter-head set-off)**

**Income from Salary:** Rs. 6,50,000

**Income from House Property:**
House-I (positive income): Rs. 55,000; House-II (self-occupied, loss): Rs. (1,25,000); House-III (loss): Rs. (1,90,000). Net loss under this head = Rs. (2,60,000). Under **Section 71(3A) of the Income Tax Act, 1961** (inserted w.e.f. A.Y. 2018-19), loss under the head 'Income from House Property' can be set off against income under any other head **only up to Rs. 2,00,000** in the same year. The balance Rs. 60,000 is to be carried forward.

**Profits and Gains of Business or Profession:**
Under **Section 70**, losses from one source of business can be set off against profits from another source under the same head. Loss from leather business: Rs. (68,000) is set off against profit from cloth business: Rs. 1,70,000. Net business income = Rs. 1,02,000.

**Capital Gains:**
Short-term capital loss of Rs. 35,000 on equity-oriented mutual funds (STT paid). Under **Section 70(2)**, capital loss (short-term) cannot be set off against income under any other head. Since there is no capital gain income, this loss is carried forward.

**Income from Other Sources:**
Crossword puzzles: Rs. 12,000; Dividend from foreign company: Rs. 8,500; Income from race bulls: Rs. 9,000. The loss from owning and maintaining race horses (Rs. 7,500) is governed by **Section 74A(3)**, which restricts such…

Question 19

Mr. Vijay gifted a sum of Rs.4 lakhs to his brother's wife on 19-6-2019. On 21-7-2019, his brother gifted a sum of Rs.3 lakhs to Mr. Vijay's wife. The gifted amounts were invested as fixed deposits in banks by Mrs. Vijay and wife of Mr. Vijay's brother on 01-8-2019 at 9% interest. Examine the consequences of the above under the provisions of the Income-tax Act, 1961 in the hands of Mr. Vijay and his brother.

Accepted Answer

**Application of Section 64(1)(vi) – Clubbing of Income:**

Section 64(1)(vi) of the Income-tax Act, 1961 provides that if an individual transfers any asset to his or her spouse, the income produced from such asset shall be included in the total income of the transferor. Prima facie, since Vijay transferred to his brother's wife (not his own spouse) and the brother transferred to Vijay's wife (not his own spouse), Section 64(1)(vi) does not directly apply on the literal reading.

**Principle of Cross-Gifts Between Relatives:**

However, judicial precedent recognizes the principle of **cross-gifts** – when two relatives (typically spouses' siblings) make reciprocal gifts such that A gifts to B's wife and B gifts to A's wife, with evidence of pre-arrangement or mutual understanding, the income is clubbed with the respective donors. The rationale is that despite the nominal transfer to a relative's spouse, the ultimate benefit arrangement benefits each donor's own spouse, triggering Section 64(1)(vi).

**Analysis of Present Arrangement:**

The temporal proximity (Vijay's gift on 19-6-2019 and brother's gift on 21-7-2019 – approximately one month apart) combined with the reciprocal nature of the transfers suggests a possible pre-arranged mutual understanding between the brothers. If the tax authorities establish this as a cross-gift arrangement, clubbing would apply.

**Consequences for Mr. Vijay:**

The Rs. 3 lakhs transferred by his brother to Vijay's wife would generate intere…

Question 20

Briefly mention the provisions of Income-tax Act, 1961 with regard to quoting Aadhar Number under section 139AA of the Act.

Accepted Answer

**Section 139AA – Mandatory Quoting of Aadhaar Number**

**Applicability and Basic Requirement:** Section 139AA, inserted by the Finance Act 2017, mandates that every individual eligible to obtain an Aadhaar number under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 must quote their Aadhaar number while filing income tax returns under Section 139(1) and while applying for allotment of PAN.

**For Filing Income Tax Returns:** Every individual required to file a return of income under Section 139(1) and who has been allotted an Aadhaar number must quote such Aadhaar number in the return. The Aadhaar number serves as an identifier and is mandatory for returns filed during the relevant assessment year.

**For PAN Application:** Any applicant applying for allotment of a new PAN who has been allotted an Aadhaar number must furnish and quote the same. This provision links PAN with Aadhaar, creating a unified identification framework.

**Alternative – Aadhaar Enrolment ID:** In cases where an individual is eligible to obtain an Aadhaar number but has not yet been allotted one, they may quote their Aadhaar Enrolment ID (generated during the Aadhaar enrollment process) in the return of income or PAN application as a temporary measure.

**Eligibility Criterion:** The provision applies only to individuals who are **eligible to obtain Aadhaar** under the Aadhaar Act, 2016. Generally, this covers Indian residents. Non-residents and those …

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Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap