Worked Solution
✓ VerifiedComputation of Total Income and Tax Liability of Mr. Samar for A.Y. 2023-24
Note on Applicability of Presumptive Scheme: Mr. Samar's Gross Professional Receipts for P.Y. 2022-23 are ₹58,80,000, exceeding the ₹50,00,000 threshold under Section 44ADA of the Income Tax Act, 1961. Hence, the presumptive scheme is not applicable and income is computed on regular basis from books.
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A. Income from Profession
Net surplus as per Income & Expenditure Account: ₹39,43,000
Less: Non-professional income transferred to other heads:
— Interest on PPF (exempt u/s 10(11)): ₹60,000
— Interest on SB Account (other sources): ₹20,000
— Interest on NSC VIII Issue — 3rd year (other sources): ₹21,000
Adjusted surplus: ₹38,42,000
Add back disallowed expenses:
1. Medical Expenses ₹80,000 — Personal expenditure for father; not a professional expense (disallowed fully). Deduction available separately under Section 80D.
2. Excess Salary to sister-in-law ₹60,000 — Payment to a relative in excess of market rate is disallowed under Section 40A(2)(b). Excess = (₹25,000 − ₹20,000) × 12 months.
3. Employees' EPF Contribution deposited after due date ₹10,000 — Disallowed under Section 36(1)(va). The amended law does not allow deduction even on actual payment if deposited after the due date under the EPF Act.
4. Commission paid without TDS — 30% × ₹25,000 = ₹7,500 — Section 194H mandates TDS on commission exceeding ₹15,000. Payment of ₹25,000 without TDS triggers disallowance of 30% under Section 40(a)(ia).
5. Purchase of Furniture ₹48,000 — Capital expenditure; debited to I&E but not deductible as revenue expense. Added back; depreciation allowed separately.
6. Book Depreciation ₹90,000 — Replaced by depreciation computed under Section 32 read with Income Tax Rules.
Total disallowances: ₹2,95,500
Less: Depreciation as per Income Tax Act: ₹89,400 (see Working Notes)
Income from Profession: ₹38,42,000 + ₹2,95,500 − ₹89,400 = ₹40,48,100
Note: Family planning expenditure of ₹20,000 (revenue in nature, paid by cheque) is allowable under Section 37(1) for non-corporate assessees. No adjustment required.
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B. Income from Other Sources
— Interest on SB Account: ₹20,000
— Interest on NSC VIII Issue (3rd year accrual, deemed reinvested, taxable on accrual basis): ₹21,000
Total: ₹41,000
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C. Gross Total Income: ₹40,48,100 + ₹41,000 = ₹40,89,100
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D. Deductions under Chapter VI-A
Section 80C — PPF contribution: ₹1,00,000 + NSC accrued interest (3rd year, deemed reinvestment in NSC): ₹21,000 = ₹1,21,000 (within ₹1,50,000 limit)
Section 80D — Medical expenditure for father (senior citizen, 72 years, not covered by any health insurance), payment through account payee cheque: ₹50,000 (actual ₹80,000, subject to maximum limit of ₹50,000 for senior citizen parent)
Section 80TTA — Interest on SB Account: ₹20,000, deduction limited to ₹10,000
Total Deductions: ₹1,81,000
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E. Total Income: ₹40,89,100 − ₹1,81,000 = ₹39,08,100
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F. Tax Liability Computation
Total Income: ₹39,08,100 (Mr. Samar, resident individual, 43 years, not opted for Section 115BAC)
| Slab | Amount | Rate | Tax |
|---|---|---|---|
| Up to ₹2,50,000 | ₹2,50,000 | Nil | — |
| ₹2,50,001 – ₹5,00,000 | ₹2,50,000 | 5% | ₹12,500 |
| ₹5,00,001 – ₹10,00,000 | ₹5,00,000 | 20% | ₹1,00,000 |
| ₹10,00,001 – ₹39,08,100 | ₹29,08,100 | 30% | ₹8,72,430 |
Tax before cess: ₹9,84,930
No surcharge (total income < ₹50,00,000). No rebate u/s 87A (total income > ₹5,00,000).
Add: Health & Education Cess @ 4%: ₹39,397
Total Tax Liability: ₹10,24,327, rounded to ₹10,24,330 (u/s 288B)
Write it like this
1The skeleton
- Kill §44ADA in line 1 — state gross receipts = ₹58.8L > ₹50L threshold, so presumptive scheme not applicable; examiners are trained to look for this gatekeeper before anything else, and skipping it signals you don't understand why you're doing regular computation.
- Anchor to net surplus, then strip non-professional income — open your profession workings with 'Net surplus as per I&E A/c: ₹39,43,000' and immediately deduct PPF/SB/NSC interest into their own heads; this shows the examiner you know the I&E is a mixed bag and you're cleaning it up methodically.
- Run disallowances as a numbered list with the section cited inline — write '₹10,000 disallowed u/s 36(1)(va)' not 'EPF was paid late so not allowed'; each disallowance without a section reference is half a mark gone, and the examiner's tick mark is literally looking for the section number.
- Carve depreciation into a working note — bring in car at lower of cost/FMV (₹2,50,000) for the block, apply 50% for computers since it's restricted, and show your block-wise table clearly; if you bury depreciation as one line '₹89,400' without a working, the examiner cannot award the sub-marks.
- Handle the NSC double-entry — 3rd-year NSC interest of ₹21,000 hits income from other sources AND feeds 80C as deemed reinvestment; write both explicitly because missing either half costs you a mark even if your total income is right.
- Close with a clean slab table + cess line — after deductions, confirm no surcharge (TI < ₹50L), no rebate u/s 87A (TI > ₹5L), add 4% cess separately, and round u/s 288B; examiners deduct marks for skipping the surcharge/rebate check even when the answer doesn't change.
2Examiner-rewarded phrases
3Common trap
Heads up — the single deadliest move here is treating ₹80,000 medical expenses as fully disallowed in the profession workings AND then forgetting to claim 80D below; or worse, claiming 80D at the full ₹80,000 instead of the ₹50,000 senior-citizen cap. You lose marks on both sides of the paper if you miss the cap.