Question 1

Briefly explain the provision relating to tax deduction at source on cash withdrawal under section 194 N of the Income Tax Act, 1961.

Accepted Answer

**Section 194N** of the Income Tax Act, 1961 provides for **Tax Deduction at Source (TDS)** on cash withdrawals from bank accounts. This provision was introduced to promote digital transactions and monitor high-value cash withdrawals.

**Applicability:** The provision applies to cash withdrawals from a bank account maintained with any banking company or post office. It becomes applicable when the cumulative cash withdrawals made by a person from their bank account during a financial year exceed **₹10 lakhs**. The threshold is cumulative, meaning TDS is triggered once the total withdrawals in the FY cross ₹10 lakhs.

**Rate of TDS:** TDS is deductible at the rate of **2%** on the amount of cash withdrawal. The TDS is calculated and deducted at the time of withdrawal itself from the amount being withdrawn.

**Deductors:** Banking companies and post offices are responsible for deducting TDS under this section. They must deduct TDS from all cash withdrawals made after the cumulative threshold of ₹10 lakhs is crossed in the financial year.

**Applicability to All Persons:** The provision applies irrespective of whether the account holder has filed their income tax return or has PAN status. It applies to individuals, Hindu Undivided Families (HUFs), partnerships, companies, and all other entities.

**Key Provisions:** The TDS deducted is creditable against the assessee's income tax liability. The deductor (bank/post office) must issue a TDS certificate in Form 16A. The assessee mus…

Question 2

Ms. Julie received following amounts during the previous year 2019-20: (a) Received loan of ₹ 5,00,000 from the ABC Private Limited, a company engaged in textile business. She is holding 10% of the equity share capital in the said company. The accumulated profit and loss of the company is ₹ 2,00,000. (b) Received interest on enhanced compensation of ₹ 5,00,000. Out of this interest, ₹ 1,50,000 relates to the previous year 2016-17, ₹ 1,50,000 relates to previous year 2017-18 and ₹ 2,00,000 to the previous year. She paid ₹ 1 lakh to her advocate for his efforts in the matter. Discuss the tax implications, if any, arising from these transactions in her hand with reference to Assessment Year 2020-21.

Accepted Answer

**(a) Loan from ABC Private Limited — Deemed Dividend under Section 2(22)(e) of the Income Tax Act, 1961**

ABC Private Limited is a company in which the public are **not substantially interested** (private limited company). Ms. Julie holds **10% of the equity share capital**, making her a beneficial owner of shares carrying not less than 10% of the voting power. Any payment by way of loan or advance by such a company to such a shareholder is treated as **deemed dividend** under **Section 2(22)(e)**, to the extent of the **accumulated profits** of the company.

Here, the loan received is ₹5,00,000, but accumulated profits are only ₹2,00,000. Therefore, **₹2,00,000 is treated as deemed dividend** and is taxable in Ms. Julie's hands as **Income from Other Sources** under Section 56. The balance ₹3,00,000 is a genuine loan and is **not taxable**.

Note: Deemed dividend under Section 2(22)(e) does not attract Dividend Distribution Tax (DDT), and hence is **not exempt under Section 10(34)**. It is fully taxable at normal slab rates.

**(b) Interest on Enhanced Compensation — Section 56(2)(viii) read with Section 145B(1)**

As per **Section 145B(1)**, interest received on compensation or enhanced compensation shall be deemed to be income of the **previous year in which it is received**, irrespective of the year(s) to which it relates. Accordingly, the entire ₹5,00,000 received in PY 2019-20 is taxable in **AY 2020-21**, even though ₹1,50,000 relates to PY 2016-17, ₹1,50,000 to PY 2…

Question 3

From the following particulars furnished by Mr. Ganesh, aged 58 years, a resident of India, for the previous year ended 31-3-2021, you are requested to compute his total income and tax liability under normal as well as special 2020-21.

Accepted Answer

**Computation of Total Income and Tax Liability of Mr. Ganesh (Age 58, Resident) for AY 2021-22**

*Note: The question refers to 'Section 16AA of the Income Tax Act, 1991' — this section does not exist. The Income Tax Act was enacted in 1961, not 1991. Based on context (export turnover, industrial undertaking established 2005, profit first earned 2017-18), this is treated as **Section 10AA** of the Income Tax Act, 1961 (deduction for SEZ units). The deduction is Profit × Export Turnover/Total Turnover.*

---

**INCOME FROM HOUSE PROPERTY:**

Mr. Ganesh occupies the ground floor (Annual Value = Nil) and lets out the first floor. Municipal taxes of ₹60,000 are apportioned 50:50 between the two floors. For the let-out floor: GAV = ₹2,28,000; Less: Municipal taxes (50%) = ₹30,000; **NAV = ₹1,98,000**; Less: Standard deduction u/s 24(a) @ 30% = ₹59,400; **Income from HP = ₹1,38,600**.

**PROFITS AND GAINS FROM BUSINESS:**

Total profit = ₹23,00,000. Deduction u/s 10AA = Profit × (Export Turnover/Total Turnover) = ₹23,00,000 × (₹10,00,000/₹20,00,000) = ₹11,50,000. **Taxable Business Income = ₹11,50,000**.

**CAPITAL GAINS:**

Vacant land acquired on 3.8.1995, sold on 10.11.2019. Held for more than 24 months → Long-Term Capital Asset. As the asset was acquired before 1.4.2001, cost of acquisition = Higher of actual cost (₹1,40,000 + ₹10,000 registration = ₹1,50,000) or FMV on 1.4.2001 (₹4,00,000) = **₹4,00,000**. Indexed cost of acquisition = ₹4,00,000 × 289/100 = ₹11,56,000. Under …

Question 4

SNK Ltd., a registered supplier of Mumbai is a manufacturer of heavy machines. Its inward supplies (exclusive of GST) for the month of January, were: Inter-state ₹85,00,000; Intra-state ₹15,00,000. Applicable rate of COST, SGST and IGST on inward supplies are 9%, 9% and 18% respectively. Details of GST paid on inward supplies during the month of January, 2020: Raw material A (70% of inputs procured were used and 30% were in stock at end of January) - SGST paid ₹60,000; Raw materials B (90% material received in factory and remaining material with cost of ₹5,000 for accident on way to factory, no negligence on part of SNK Ltd.) - COST paid ₹50,000, SGST paid ₹50,000; Construction of pipelines laid outside factory premises - COST paid ₹30,000, SGST paid ₹30,000; Insurance Charges paid for tru…

Accepted Answer

**(i) Eligible Input Tax Credit (ITC) for January 2020**

**Raw Material A (SGST ₹60,000) — Not reflected in GSTR-2A:**
The supplier has not filed GSTR-1; hence ITC is not appearing in GSTR-2A. Under **Rule 36(4) of the CGST Rules, 2017** (as amended w.e.f. 01.01.2020 reducing the cap to 10%), provisional ITC in respect of invoices not uploaded by suppliers cannot exceed **10% of the eligible ITC available from GSTR-2A**. The 70%/30% usage split is irrelevant — ITC is available when goods are received, not when consumed.

**Raw Material B (CGST ₹50,000 + SGST ₹50,000) — In GSTR-2A:**
10% of material was lost in an accident on the way to the factory. Under **Section 17(5)(h) of the CGST Act, 2017**, ITC is blocked on goods **lost or destroyed**, irrespective of negligence. Accordingly, ITC on 10% is blocked. Eligible ITC = 90% of ₹1,00,000 = CGST ₹45,000 + SGST ₹45,000.

**Construction of Pipelines outside Factory (CGST ₹30,000 + SGST ₹30,000) — In GSTR-2A:**
Pipelines laid **outside factory premises** constitute construction of immovable property (not plant and machinery). ITC is **fully blocked** under **Section 17(5)(d) of the CGST Act, 2017**. Eligible ITC = NIL.

**Insurance Charges for Trucks (CGST ₹55,000 + SGST ₹55,000) — In GSTR-2A:**
Trucks are used for **transportation of goods**, which is an exception carved out under **Section 17(5)(a) of the CGST Act, 2017**. Consequently, per **Section 17(5)(ab)**, insurance services on such vehicles are also eligible. Eligible …

Question 5

Compute the Taxable Value of supply as per provision of GST laws, assuming that the price is the sole consideration for the supply and both parties are unrelated to each other.

Accepted Answer

**Computation of Taxable Value of Supply under GST**

As per **Section 15 of the Central Goods and Services Tax (CGST) Act, 2017**, the taxable value of supply shall be the **transaction value**, which is the price actually paid or payable for the said supply where the supplier and recipient are **not related** and price is the **sole consideration** for the supply.

Since the question states both conditions are satisfied (unrelated parties + price is sole consideration), the transaction value is accepted as the taxable value, subject to the following adjustments:

**Inclusions under Section 15(2) — Added to Transaction Value:**

(a) Any taxes, duties, cesses, fees, and charges levied under any law **other than GST laws** (e.g., customs duty, excise duty on petroleum).

(b) Any amount the supplier is **liable to pay** but which has been **incurred by the recipient** and not included in the price.

(c) **Incidental expenses** — including commission and packing — charged by the supplier to the recipient at the time of, or before, delivery.

(d) **Interest, late fee, or penalty** for delayed payment of consideration.

(e) **Subsidies directly linked to the price**, excluding subsidies provided by the Central or State Governments.

**Exclusions under Section 15(3) — Deducted from Transaction Value:**

(a) **Discounts given before or at the time of supply** — if duly recorded in the invoice.

(b) **Post-supply discounts** — allowed as deduction only if:
  - Discount is established…

Question 6

Following are the particulars, relating to one of the machines sold by M/s KQM Ltd. to M/s ACD Ltd. in the month of February 2020 at list price of ₹9,50,000 (Exclusive of taxes and discount). Further, following additional amounts have been charged from M/s ACD Ltd.: Municipal taxes chargeable on the machine ₹45,000; Outward freight charges (Freight was F.O.B. contract, where each ACD Ltd. factory i.e. F.O.B. contract) ₹65,000.

Accepted Answer

**Determination of Taxable Value of Supply under 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 additions under Section 15(2) and deductions under Section 15(3).

**Treatment of each element:**

**(a) List Price — ₹9,50,000:** This is the base transaction value and is **included** in the taxable value.

**(b) Municipal Taxes — ₹45,000:** Under **Section 15(2)(a) of the CGST Act, 2017**, any taxes, duties, cesses, fees, and charges levied under any law **other than GST** shall form part of the taxable value. Municipal taxes are levied under local body laws and are separately charged to the recipient. Accordingly, ₹45,000 is **includible** in the taxable value.

**(c) Outward Freight Charges under F.O.B. Contract — ₹65,000:** In an **F.O.B. (Free on Board) contract**, the risk and title of goods pass to the buyer at the point of loading/shipment (F.O.B. point). The freight from that point to the buyer's factory is the **liability of the recipient (M/s ACD Ltd.)** and not of the supplier. Where the supplier collects such freight and pays it to the transporter on behalf of the recipient, the supplier acts as a **pure agent** as per **Rule 33 of the CGST Rules, 2017**. Since the conditions of pure agent are satisfied (expense is incurred on behalf of recipient, no profit element, and actual cost is recovered), such freight is **exclud…

Question 7

In the following independent cases, decide, which person is liable to pay GST, if any. You may assume that recipient is located in the taxable territory, ignore the Aggregate Turnover and Exemptions available.

Accepted Answer

**(i) Veer Transport (GTA) paying IGST @ 12% — Supplier on Forward Charge**

Where a **Goods Transport Agency (GTA)** opts to pay GST under the **forward charge mechanism at 12% (with ITC)**, the GTA itself is the person liable to pay GST under Section 9(1) of the CGST Act, 2017. The reverse charge mechanism (RCM) under Section 9(3) of the CGST Act, 2017 read with Notification No. 13/2017-Central Tax (Rate) is triggered only when a GTA has NOT opted for forward charge (i.e., the 5% rate).

Since Veer Transport has expressly opted to pay IGST @ 12%, it has exercised the forward charge option. Accordingly, **Veer Transport (the GTA) is liable to pay GST**. The registration status of Dilip & Co. is immaterial in this case, as the tax liability has already shifted to the supplier under forward charge.

**Conclusion:** Veer Transport is liable to pay IGST @ 12%.

---

**(ii) Mr. Kamal Jain — Unregistered Author, Copyright Services**

Services supplied by an author by way of **temporary transfer of a copyright** covered under the Copyright Act, 1957 relating to **original literary works** are covered under the **Reverse Charge Mechanism (RCM)** as per Notification No. 13/2017-Central Tax (Rate) issued under Section 9(3) of the CGST Act, 2017.

Where the supplier (author) is **unregistered**, the liability to pay GST shifts entirely to the **registered recipient** under RCM. Mr. Kamal Jain being unregistered does not exempt the transaction — it simply means the recipient bears the t…

Question 8

During the previous year 2019-20, Ms. Pooja has repaid ₹ 5,25,000 towards housing loan from a scheduled bank. Out of this ₹ 3,16,000 was towards payment of interest and rest towards principal.

Compute the gross total income of Ms. Pooja and ascertain the amount of loss that can be carried forward. Ms. Pooja has always filed her return within the due date specified under section 139(1) of the Income-tax Act, 1961.

Data: Income from salary (Computed) ₹ 2,20,000; Income from House Property (let out, Annual Value) ₹ 1,50,000; Share of loss from firm ₹ 10,000; Loss from specified business (section 35AD) ₹ 20,000; Income from textile business ₹ 3,00,000 (before adjusting: 2020 year depreciation ₹ 60,000, Unabsorbed depreciation ₹ 2,23,000, Brought forward loss A.Y. 2018-19 ₹ 90,000); Long-term…

Accepted Answer

**Assessment Year: 2020-21 (Previous Year 2019-20)**

**Step 1 — Income from Salary**
Taken as computed: **₹2,20,000**

**Step 2 — Income from House Property (Let Out)**
Annual Value: ₹1,50,000
Less: Standard deduction u/s 24(a) @ 30%: ₹45,000
Less: Interest on housing loan u/s 24(b) (no ceiling for let-out property): ₹3,16,000
**Loss from House Property: ₹2,11,000**

However, as per **Section 71(3A) of the Income-tax Act, 1961** (inserted by Finance Act 2017, applicable from AY 2018-19), the set-off of loss from house property against any other head of income is **restricted to ₹2,00,000** in any assessment year. The balance **₹11,000** will be carried forward u/s **71B** for up to 8 assessment years (set off only against house property income).

**Step 3 — Income from Business (Textile)**
Business income before adjustments: ₹3,00,000
Less: Current year depreciation (mandatory first deduction): ₹60,000 = ₹2,40,000
Less: Brought-forward business loss of AY 2018-19 u/s **72**: ₹90,000 = ₹1,50,000
(Eligible since Ms. Pooja has always filed return within due date u/s 139(1))
Less: Unabsorbed depreciation u/s **32(2)** (restricted to available income): ₹1,50,000
**Income from business = Nil; Unabsorbed depreciation carried forward: ₹73,000**

**Step 4 — Capital Gains**
LTCG on debentures (taxable u/s 112): ₹75,000
LTCG on listed equity shares/STT paid (taxable u/s **112A**, since Section 10(38) was withdrawn w.e.f. AY 2019-20 by Finance Act 2018): ₹1,50,000
Less: LTCL on equity s…

Question 9

BRD Pvt. Ltd. of Gujarat exclusively distributes and sells petrolum "Z" which is sourced from GST authorized dealers and sells petrolum "Z" which is not registered under GST laws. The turnover of the company in the previous year 2019-19 was ₹ 50 lakh. The company expects the sales to grow by 10% in the current year 2019-20. However, effective from 01.01.2020 exemption available on "Z" was withdrawn, and GST @ 5% was levied thereon. The turnover of the company for the last months ended on 31.12.2019 was ₹ 42 lakh.

Accepted Answer

**(a) Registration Liability of BRD Pvt. Ltd. [Assumed question based on scenario context]**

Prior to 01.01.2020, petroleum "Z" was exempt from GST. Under **Section 23(1)(a) of the CGST Act, 2017**, persons engaged exclusively in the supply of exempt goods/services are not required to register, regardless of turnover. Hence BRD Pvt. Ltd. was not required to register during the period April–December 2019 even though its turnover for those 9 months reached ₹42 lakh.

However, with effect from **01.01.2020**, the exemption on "Z" was withdrawn and GST @ 5% was levied. From this date, "Z" becomes a taxable supply. BRD's aggregate turnover for the period up to 31.12.2019 already stood at ₹42 lakh, which exceeds the **threshold of ₹40 lakh** applicable to suppliers of goods in normal category states like Gujarat (enhanced threshold notified w.e.f. 01.04.2019 vide Notification No. 10/2019-CT). Consequently, BRD Pvt. Ltd. becomes **liable to be registered with effect from 01.01.2020** — the date on which the exemption was withdrawn. As per **Section 25(1) of the CGST Act, 2017**, it must apply for registration within **30 days** from the date of becoming liable, i.e., by 31.01.2020.

---

**(b) E-way Bill Validity**

As per **Rule 138 of the CGST Rules, 2017**, an **E-way Bill (EWB) is mandatory** before commencement of movement of goods where the value of the consignment exceeds **₹50,000**, and the movement is in relation to a supply or otherwise (including inward supply from unre…

Question 10

Determine the Gross total income of Shri Ram Kumar for the assessment year 2020-21 from the following:

Accepted Answer

**Computation of Gross Total Income of Shri Ram Kumar for AY 2020-21 (PY 2019-20)**

**(i) Income from Salaries [Section 15 of the Income Tax Act, 1961]:**
Shri Ram Kumar holds two concurrent employments. Both salaries are fully taxable. Total gross salary = ₹1,80,000 + ₹2,40,000 = ₹4,20,000. **Standard Deduction u/s 16(ia)** of ₹50,000 is allowed (aggregate limit applicable across employments). **Income from Salaries = ₹3,70,000.**

**(ii) Flat Transferred to Wife for Adequate Consideration:**
**Section 64(1)(iv)** clubs income from assets transferred to spouse without adequate consideration. Since the flat was transferred on 1st September 2019 *for adequate consideration*, the **clubbing provision is not attracted**. The rental income (₹5,000 × 12 = ₹60,000) is taxable in the **wife's hands only**. Ram Kumar's income under this head = **NIL**.

**(iii) Partnership Firm — Interest and Profit:**
Under **Section 64(1)(ii)**, where both the individual and spouse are partners in the same firm, the spouse's income from the firm is clubbed with the individual's income if the spouse's admission as partner is by virtue of the individual's influence (no technical/professional qualifications specified). Accordingly, wife's interest of ₹64,000 is **clubbed** with Ram Kumar. Wife's profit share (₹56,000) even if clubbed retains its character and remains **exempt u/s 10(2A)** (share of profit from firm). Ram Kumar's own profit share of ₹12,000 is similarly **exempt u/s 10(2A)**. **PGBP f…

Question 11

Mr. Thomas, a non-resident and citizen of Japan entered into following transactions in India during the previous year ended 31.03.2020. Examine the tax implications in the hands of Mr. Thomas for the Assessment Year 2020-21.

Accepted Answer

Mr. Thomas is a non-resident individual and citizen of Japan. The tax implications of each transaction are examined under **Section 9 of the Income Tax Act, 1961** which deals with income deemed to accrue or arise in India.

**(1) Interest received from Mr. Marshal (non-resident) used for investing in Indian company's debt fund:**

Under **Section 9(1)(v)(b)**, interest paid by a **non-resident** is deemed to accrue or arise in India if the money borrowed is used for the purposes of **earning any income from any source in India**. Mr. Marshal, though a non-resident, has used the borrowed funds to invest in an **Indian company's debt fund** — a source of income situated in India. Accordingly, the interest paid by Mr. Marshal to Mr. Thomas is deemed to accrue or arise in India. This interest income is **taxable in India** in the hands of Mr. Thomas.

**(2) ₹10 lakhs received in Japan for granting licence for computer software from an Indian business unit:**

Under **Section 9(1)(vi)**, royalty payable by a **resident** is deemed to accrue or arise in India regardless of where it is received. **Explanation 2 to Section 9(1)(vi)** explicitly includes within the definition of "royalty" any consideration for granting a **licence in respect of a computer programme** (software). The payer here is a business unit situated in India (i.e., a resident). The fact that ₹10 lakhs was received in Japan is irrelevant — the place of receipt does not affect taxability. Accordingly, this royalty…

Question 12

Mr. Govind purchased 600 shares of 'Y' limited at ₹ 130 per share on 20.02.1984. He received three bonus in India on 20.02.1984. The fair market value of these shares of Mumbai Stock Exchange at 01.04.2001 was ₹ 9,000 per share. He held on 31.03.2018 he converted 1000 shares as his stock in trade. The shares was traded at Mumbai Stock Exchange on date at a high of ₹ 2,200 per share and closed for the day at ₹ 2,100 per share. On 07.07.2019 Mr. Govind sold all 1600 shares at ₹ 2,400 per share at Mumbai Stock Exchange and securities transaction tax was paid. Compute total income of Mr. Govind for the assessment year 2020-21.

Accepted Answer

**Computation of Total Income of Mr. Govind for Assessment Year 2020-21 (Previous Year 2019-20)**

**Assumptions / Share Structure:**
Mr. Govind purchased 600 shares on 20.02.1984 at ₹130 per share. Based on the data in the problem, total shares at point of sale = 1,600 (1,000 converted to stock-in-trade + 600 remaining as capital asset). Accordingly, bonus shares received = 1,000 (cost = Nil). The FMV of ₹9,000 per share as on 01.04.2001 is taken for all shares. FMV at 31.01.2018 is taken as ₹2,100 (closing price on conversion date used as proxy, since 31.01.2018 price is not separately stated in the question). On a FIFO basis, the 1,000 shares converted to stock-in-trade comprise: 600 original shares + 400 bonus shares.

**Head: Profits and Gains of Business or Profession (PGBP)**

Under **Section 45(2) of the Income Tax Act, 1961**, when a capital asset is converted to stock-in-trade, the FMV on the date of conversion becomes the **cost of the stock-in-trade for PGBP purposes**. On 07.07.2019, Mr. Govind sold all 1,600 shares through the Bombay Stock Exchange (BSE) at ₹2,400 per share. The business profit on 1,000 SIT shares is:

- Sale proceeds: 1,000 × ₹2,400 = ₹24,00,000
- Less: Cost (FMV at 31.03.2018, i.e., closing price): 1,000 × ₹2,100 = ₹21,00,000
- **Business Income (PGBP) = ₹3,00,000**

**Head: Capital Gains**

**Part A — Section 45(2): Long-Term Capital Loss on 1,000 shares converted to SIT**

The capital gains on conversion to stock-in-trade arise in AY 2020-21…

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap