Question 1

After the grant of temporary registration, Vidhula Impex Ltd. needs to apply for registration within __________ from the date of grant of temporary registration, if no extension of period is to be granted for such temporary registration.

Accepted Answer

**Answer: (A) 30 days**

When the proper officer registers a person temporarily under GST on a suo-motu basis, the person is required to apply for regular registration within a specified period. According to **Rule 25 of the CGST Rules, 2017**, the certificate of temporary registration is valid for a period of **30 days from the date of issue**. The person must apply for regular registration before the expiry of this 30-day period.

While Rule 25(3) permits extensions of temporary registration (up to 2 additional 30-day periods, making a maximum of 90 days total), the fundamental period within which regular registration application must be made—if no extension is sought or granted—is 30 days from the date of grant of temporary registration.

In the given case, Vidhula Impex Ltd. was granted temporary registration on 15th June, 2020, and therefore must apply for regular registration within 30 days (i.e., by 15th July, 2020) if it does not seek any extension.

Question 2

Restrictions have been imposed on the use of amount available in the electronic credit ledger vide rule 86B of the CGST Rules, 2017. Is there any exceptions to rule 86B? If yes, state the exceptions.

Accepted Answer

Yes, there are exceptions to Rule 86B of the CGST Rules, 2017. Rule 86B restricts the use of amount available in the electronic credit ledger for payment of output tax and other liabilities. However, the following are the main exceptions:

**Exception 1: Supplies made to Special Economic Zones (SEZ)** - The restrictions under Rule 86B do not apply to supplies made to SEZ units. ITC available in the electronic credit ledger can be used for payment of taxes on supplies made to SEZ units or for supplies made against letters of undertaking.

**Exception 2: Zero-rated Supplies** - The restrictions do not apply to zero-rated supplies such as supplies made outside India (exports). ITC can be utilized for payment of taxes in relation to zero-rated supplies without the restrictions imposed under Rule 86B.

**Exception 3: Supplies made outside India** - ITC in the electronic credit ledger can be used for payment of taxes on supplies made outside India in certain prescribed circumstances.

**Exception 4: Government Notifications** - Various Government notifications and Board circulars have from time to time provided relief and exceptions to Rule 86B for specific sectors, commodities, and circumstances. These notifications carve out specific scenarios where the restrictions do not apply.

**Exception 5: Certain specific transactions** - The Board may issue notifications providing exceptions for specific types of transactions, sectors, or supplies in the interest of simplifying GST compli…

Question 3

In case of which of the following services, the company is liable to pay tax under reverse charge?

Accepted Answer

**Answer: (D) Neither (a) nor (b)**

Reverse charge mechanism under GST applies only to **specified services** as notified by the government under Schedule II of the CGST Rules, 2017.

**(A) Renting of Motor Vehicles:** Renting of motor vehicles was initially notified as a service subject to reverse charge vide notification dated 13.07.2017. However, this notification was **subsequently withdrawn** vide notification dated 28.09.2017. Therefore, renting of motor vehicles is **not currently** a service covered under reverse charge mechanism. The supplier (Blue Taxi Pvt. Ltd.) will charge GST at 12% in the normal manner, and Vidhula Impex Ltd. will claim input tax credit. No reverse charge applies.

**(B) Directorship/Advisory Services:** Advisory or consultancy services provided by a non-employee technical director are **not listed** as specified services under the reverse charge mechanism. The reverse charge applies only to services provided by specific notified professionals such as chartered accountants, company secretaries, cost accountants, architects, engineers (in certain circumstances), etc., as per Schedule II of CGST Rules, 2017. Services by a technical director appointed on contract basis do not fall within these specified categories. Hence, reverse charge does not apply, and the service provider would charge GST in the normal manner.

Since neither service qualifies as a specified service under reverse charge, the company is **not liable** to pay tax under reverse c…

Question 4

Which document is required to be issued by the company in respect of the invoice issued on 28th February, 2021?

Accepted Answer

**Answer: (B) Credit Note**

When an invoice has been issued with an excess value charged, the supplier is required to issue a **credit note** to rectify the overcharge. In this case, Vidhula Impex Ltd. charged ₹34,000 more than the correct value on 28th February 2021.

Under Rule 53 of the CGST Rules 2017, a credit note is issued to reduce or cancel the whole or part of the supply. A credit note serves to decrease the amount payable by the buyer and is the appropriate document when:

(i) There is a reduction in the value of supply,
(ii) Goods/services are returned or rejected, or
(iii) The supplier has erroneously charged a higher amount (overcharge).

Since the company overcharged the customer by ₹34,000, issuing a credit note for this excess amount is mandatory. This document will reduce the customer's tax liability and payment obligation correspondingly.

**Elimination of other options:**
- **Debit Note**: Used to increase the amount payable by the buyer, not applicable for reducing an overcharge.
- **Bill of Supply**: Issued for supplies not liable to GST (composition scheme), not for correcting overcharges in taxable supplies.
- **Revised Tax Invoice**: While available in certain circumstances, the standard and correct document for correcting an overcharge is a credit note.

Question 5

The Company needs to file its Final return by __________

Accepted Answer

**Answer: (A) 30th April, 2021**

When a GST registration is cancelled, the registered person must file a **Final Return (GSTR-10)** within **30 days from the date of the cancellation order**. According to Rule 22(10) of the CGST Rules, 2017, the filing deadline for GSTR-10 is measured from the date on which the cancellation order is issued, not the effective date of cancellation.

In this case:
- Cancellation order date: 30th March 2021
- 30 days from 30th March 2021 = **30th April 2021**

Therefore, Vidhula Impex Ltd. must file its final return (GSTR-10) by 30th April 2021. Note: The fact that the effective date of cancellation is 15th March 2021 does not change the filing deadline, which is calculated from the order date.

Question 6

Which of the following statements is correct in respect of e-way bill generated for goods in the month of February for which order was cancelled?

Accepted Answer

**Answer: (D)**

Under Rule 163(2) of the CGST Rules, 2017, an e-way bill can be cancelled by the person who generated it within **72 hours of its generation**, provided that the goods covered by the e-way bill have not been dispatched from the place of business of the supplier.

In the given case, Vidhula Impex Ltd. generated an e-way bill in February 2021 for inter-State transport. The buyer cancelled the order immediately after generation, before goods were dispatched from the factory. Since the goods had not been dispatched and cancellation was sought within the 72-hour window, the company was entitled to cancel the e-way bill.

Option (A) is factually incorrect—e-way bills can be cancelled. Options (B) and (C) specify incorrect time periods of 24 and 48 hours respectively, both falling short of the statutorily mandated 72-hour cancellation window.

Question 7

Mr. Shambhu, a trader registered under GST in Delhi is engaged in wholesale business of toys for kids. Mr. Nandi registered under GST in Patiala, a regular return filer supplies toys in bulk to Mr. Shambhu for selling to end consumers. Mr. Shambhu paying tax in regular scheme in Delhi, has not filed GSTR-3B for last 2 months. Mr. Nandi wants to generate e-way bill for toys amounting to ₹5,00,000 to be supplied to Mr. Shambhu. Also Mr. Narayan from Jammu approached Mr. Shambhu for purchasing toys amounting to ₹75,000 for the purpose of return gift on his son's first birthday party. Shambhu wants to generate an e-way bill in respect of an outward supply of goods to Mr. Narayan.

Examine with reference to the provisions under GST law, whether Mr. Nandi and Mr. Shambhu can generate e-way bill.

Accepted Answer

**E-way bill requirements and GSTIN blocking:** Under Rule 138 of the CGST Rules, 2017, an e-way bill is required for movement of goods of value exceeding ₹50,000. Rule 138E provides that a registered person's GSTIN shall be blocked if they fail to file GSTR-3B for a **continuous period of 3 consecutive months**.

**Scenario 1 - Mr. Nandi (Patiala) supplying to Mr. Shambhu (Delhi):**
Mr. Nandi **can generate the e-way bill**. Nandi is a regular return filer and his GSTIN is not blocked. The blocking provision under Rule 138E applies only to the defaulting taxpayer (Shambhu), not to suppliers transacting with them. Since Shambhu's non-filing is for only 2 months (less than the 3-month threshold for blocking), his GSTIN remains operational. Nandi's compliance status is unaffected by Shambhu's default, and Nandi can freely generate e-way bills for supplies. The fact that the recipient has defaulted does not prevent the supplier from issuing an e-way bill.

**Scenario 2 - Mr. Shambhu (Delhi) supplying to Mr. Narayan (Jammu):**
Mr. Shambhu **can generate the e-way bill**. Although Shambhu has failed to file GSTR-3B for 2 months, the blocking threshold under Rule 138E is 3 **consecutive months** of continuous non-filing. Since the default period is only 2 months, the blocking has not been triggered, and Shambhu's GSTIN remains unblocked. The supply value of ₹75,000 exceeds ₹50,000, making the e-way bill mandatory under Rule 138. Shambhu can legally generate the e-way bill.

**Criti…

Question 8

Mr. Ayushman, a registered person having intra-State aggregate turnover of ₹1.2 crores in the preceding financial year did not file GSTR-3B for the month of September, 2021 by 10th November, 2021. The amount of tax payable for the month of September, 2021 is ₹8 lakh. All his supplies are intra-State supplies.

Accepted Answer

**ANALYSIS OF LATE FEE FOR DELAYED GSTR-3B FILING UNDER SECTION 47 CGST ACT**

**Part (a): Aggregate Turnover ₹1.2 Crores, Tax Payable ₹8 Lakh**

**Yes, late fee is payable.**

Under **Section 47(1) of the CGST Act, 2017**, a registered person failing to furnish GSTR-3B by the due date must pay late fee. However, Section 47(2) provides an exemption: no late fee is payable if the registered person has an **aggregate turnover not exceeding ₹40 lakh in the preceding financial year**.

Since Mr. Ayushman's intra-State aggregate turnover (₹1.2 crores) **exceeds ₹40 lakh**, he is **not entitled to exemption** and is liable to pay late fee.

**Amount of Late Fee:**
Under Section 47(1)(a), the late fee for GSTR-3B is **the lower of:**
1. **₹100 per day of delay**, OR
2. **Amount of tax payable shown in return** = ₹8,00,000

Since ₹100 per day is substantially lower than ₹8,00,000, the **late fee payable is ₹100 per day** of delay from the due date (10th November, 2021) until actual filing. The exact amount depends on the number of days of delay; however, the liability to pay late fee is definite.

**Part (b): Aggregate Turnover ₹5 Crores**

**Answer would NOT be different.**

The exemption threshold under Section 47(2) is ₹40 lakh. Since Mr. Ayushman's turnover of ₹5 crores **also exceeds ₹40 lakh**, the exemption does not apply. He remains **liable to pay late fee on the same basis**: ₹100 per day or ₹8,00,000, whichever is lower. The increase in turnover beyond the threshold does n…

Question 9

Mr. X of Haryana intends to start business of supply of building material to various construction sites in Haryana. He has taken voluntary registration under GST in the month of April. However, he has not commenced the business till December due to lack of working capital. The proper officer suo-motu cancelled the registration of Mr. X. You are required to examine whether the action taken by proper officer is valid in law?

Mr. X has applied for revocation of cancellation of registration after 40 days from the date of service of the order of cancellation of registration. Department contends that application for revocation of cancellation of registration can only be made within 30 days from the date of service of the order of cancellation of registration. However, Mr. X contends that the pe…

Accepted Answer

**Part 1: Validity of Suo-Motu Cancellation**

The action of the proper officer in cancelling Mr. X's registration suo-motu is **VALID in law**. Under Section 29(2)(a) of the CGST Act, 2017, the proper officer is empowered to cancel the registration of a person who has not commenced the supply of goods or services within a period of six months from the date of grant of registration. In this case, Mr. X obtained voluntary registration in April but did not commence business till December, which is a period of eight months. This clearly exceeds the six-month threshold prescribed under Section 29(2)(a). Therefore, the proper officer was justified in exercising suo-motu cancellation powers. The lack of working capital is not a valid reason to retain registration when the statutory conditions for cancellation are met.

**Part 2: Application for Revocation and 30-Day Limitation**

Section 29(4) of the CGST Act, 2017 read with Rule 8(4) of the CGST Rules, 2017 provides that a person whose registration has been cancelled may apply for revocation of such cancellation. Rule 8(4) stipulates that such application must be made within **30 days from the date of service of the order of cancellation**.

The **Department's contention is partially correct**: The statutory requirement of 30 days is mandatory, and an application filed after 40 days would prima facie be time-barred unless the 30-day period is extended.

**Mr. X's contention is also valid**: However, Rule 8(4) CGST Rules, 2017 prov…

Question 10

Is Mr. Subhash required to deduct tax at source in respect of the purchase transactions made directly with Car accessories & Co.? If yes, when and what is the amount of tax to be deducted?

Accepted Answer

**Answer: (C)**

Section 194Q of the Income Tax Act, 1961 requires TDS on purchase of goods where **total purchases from a seller in a financial year exceed ₹50 lakhs**. The rate is 0.1%. The seller (Car accessories & Co.) has turnover of ₹15 crores, exceeding the ₹10 crore threshold, making the provision applicable.

**Cumulative Purchase Analysis:**
- After 1st transaction (02.06.2021): ₹40,00,000 (below ₹50 lakh threshold)
- After 2nd transaction (30.06.2021): ₹40,00,000 + ₹15,00,000 = ₹55,00,000 (crosses threshold)
- After 3rd transaction (17.08.2021): ₹55,00,000 + ₹21,50,000 = ₹76,50,000 (above threshold)
- After 4th transaction (28.02.2022): ₹76,50,000 + ₹10,50,000 = ₹87,00,000 (above threshold)

**TDS Becomes Applicable from the 2nd transaction onwards** (when cumulative purchases first exceed ₹50 lakhs).

**Calculation (on value without GST, as this is the invoice value for goods):**

**2nd Transaction (30.06.2021):** Since this transaction causes the threshold to be crossed, TDS applies only on the portion exceeding ₹50 lakhs. Cumulative needed to reach threshold: ₹50,00,000 - ₹40,00,000 = ₹10,00,000. Excess from this transaction: ₹15,00,000 - ₹10,00,000 = ₹5,00,000. **TDS: ₹5,00,000 × 0.1% = ₹500**

**3rd Transaction (17.08.2021):** Cumulative already exceeds threshold. TDS applies on full amount. **TDS: ₹21,50,000 × 0.1% = ₹2,150**

**4th Transaction (28.02.2022):** Cumulative exceeds threshold. TDS applies on full amount. **TDS: ₹10,50,000 × 0.1% = ₹1,050**

**Not…

Question 11

Is Car accessories & Co. required to collect tax at source in respect of the sale transactions with Mr. Subhash? If yes, when and what is the amount of tax to be collected?

Accepted Answer

**Answer: (D)** No, Car accessories & Co. is not liable to collect tax at source.

**Analysis under Section 206C(1H):**

Section 206C(1H) of the Income Tax Act, 1961 (inserted by Finance Act 2021, effective from 1.10.2020) provides for TCS on sale of goods. The mandatory conditions are:

**Applicability Conditions:**
1. **Seller's turnover** in the immediately preceding FY must exceed ₹50 crores
2. **Buyer's turnover** in the immediately preceding FY must exceed ₹20 crores
3. Transaction value exceeds ₹5 lakhs per invoice
4. PAN furnished by both parties
5. Rate: 0.1% on value excluding GST
6. Collected at time of credit

**Assessment in Present Case:**

Car accessories & Co. (seller):
- Turnover for P.Y. 2020-21: **₹15 crores**
- Threshold requirement: **> ₹50 crores**
- Status: **Does NOT meet threshold** ✗

Mr. Subhash (buyer):
- Turnover for P.Y. 2020-21: **₹10.50 crores**
- Threshold requirement: **> ₹20 crores**
- Status: **Does NOT meet threshold** ✗

**Conclusion:**

Since **both conditions must be satisfied for TCS to apply** under Section 206C(1H), and in this case **the seller's turnover itself falls short of the mandatory ₹50 crores threshold**, Car accessories & Co. is **not required to collect TCS** on any of the sale transactions with Mr. Subhash, regardless of:
- Transaction values (all exceed ₹5 lakhs)
- PAN furnishing (duly furnished)
- Credit nature of transactions
- GST separability

The applicability is determined by the **preceding FY's turnover as on th…

Question 12

Assume that Mr. Subhash has started the retail business of car spare parts in May, 2021. In such case, would the answer of MCQ 1 and 2 be different? If yes, what would be the answer of MCQ 1 and 2?

Accepted Answer

**Answer: (D)** Yes, the answer of MCQ 1 would change to (d) and the answer of MCQ 2 would change to (a).

Under the modified scenario where Mr. Subhash's retail business commenced in May 2021 (instead of May 2020), the TDS/TCS applicability changes significantly due to the **preceding year turnover criterion**.

**Key Legal Provision - Rule 48 of Income Tax Rules, 1962:**
An exemption from **TCS (Tax Collected at Source)** under **Section 206C** on purchase of goods and **Section 206C(1H)** on e-commerce transactions is available if the buyer's gross turnover or gross receipts in the **preceding year** did not exceed **₹50 lakhs**.

**Original Scenario (Business started May 2020):**
For PY 2021-22, the preceding year is PY 2020-21. Mr. Subhash's turnover in PY 2020-21 was **₹10.50 crores** (exceeding ₹50 lakhs significantly). Therefore, the Rule 48 exemption is **not available**. TCS at 1% is applicable on:
- The e-commerce purchase through CarParts.com: ₹12,00,000 (inclusive of GST)
- Potentially on other specified purchases

MCQ 1 Answer: TCS is applicable (likely option (a), (b), or (c))
MCQ 2 Answer: TCS amount would be calculated (likely ₹1,20,000 or similar)

**Modified Scenario (Business started May 2021):**
For PY 2021-22, since the business commenced in May 2021, there is **no preceding year** with established turnover. Furthermore, Mr. Subhash's turnover in the current PY 2021-22 (from May 2021 to March 2022) would be approximately ₹90-100 lakhs based on the purcha…

Question 13

Are the provisions of tax deduction/collection at source attracted in respect of the transactions with CarParts.com? If yes, who has to deduct/collect at source and at what rate?

Accepted Answer

**Answer: (D) CarParts.com is required to deduct tax at source on ₹12 lakhs @1%.**

**Explanation:**

The transaction of purchasing spare parts through CarParts.com attracts the provisions of **Section 194O** of the Income Tax Act, 1961, which provides for **Tax Collection at Source (TCS)** on e-commerce transactions.

**1. Applicability of Section 194O:** Section 194O applies when goods are sold through an e-commerce operator. In this case, CarParts.com is the e-commerce operator facilitating the sale from Car accessories & Co. to Mr. Subhash. The provision is attracted regardless of whether the seller directly issued the invoice or not.

**2. Responsibility to Collect TCS:** The **e-commerce operator (CarParts.com)** is responsible for collecting TCS. Although Car accessories & Co. is the actual supplier, the collection obligation lies with the e-commerce platform that intermediates the transaction. Neither Mr. Subhash (the buyer) nor Car accessories & Co. (the supplier) bears the collection responsibility when a registered e-commerce operator is involved.

**3. Rate Determination:** The TCS rate under Section 194O varies by period:
- From 01.10.2020 to 31.03.2021: 0.1%
- From 01.04.2021 onwards: 1%

Since the transaction date is **31.12.2021**, the rate applicable is **1%**. The earlier 0.1% rate applied only up to 31.03.2021.

**4. TCS Computation:** TCS is calculated on the transaction value of ₹12,00,000 (inclusive of GST) at 1%, resulting in TCS of ₹12,000 to be collec…

Question 14

If Mr. Subhash has not furnished his PAN to Car accessories & Co. but has furnished his Aadhar number, what would be the rate of TCS for the purpose of MCQ 2?

Accepted Answer

**Answer: (C)**

Car accessories & Co. is liable for collection of TCS under **Section 206CC of the Income Tax Act, 1961** as its turnover for P.Y. 2020-21 was ₹15 crores, which exceeds the threshold of ₹10 crores.

Under Section 206CC (as amended by Finance Act 2021), TCS is to be collected when any person carrying on business with turnover exceeding ₹10 crores fails to obtain the **PAN (Permanent Account Number)** of the buyer. The Finance Act 2021 amendment introduced a provision recognizing **Aadhar** as an acceptable alternative to PAN for purposes of TCS collection, treating it at par with PAN.

The TCS rates under Section 206CC are:
- **0.1%** when PAN or Aadhar is furnished by the buyer
- **0.2%** (doubled rate) when neither PAN nor Aadhar is furnished

In the given scenario, although Mr. Subhash has not furnished his PAN to Car accessories & Co., he **has furnished his Aadhar number**. Since Aadhar is now treated as an acceptable substitute for PAN under the amended Section 206CC, the applicable TCS rate remains the normal rate of **0.1%**, not the doubled rate. The furnishing of Aadhar satisfies the identification requirement for purposes of collecting TCS at the standard rate.

Question 15

Ashiyana Developers has completed one of its housing projects in Gurugram in January, 2021 which comprises of 10 residential units. It has transferred 9 residential units in February, 2021 and remaining one residential unit in May, 2021 to Mr. Suraj. All the units were transferred by way of first time allotment. The consideration received from Suraj for the residential unit is ₹50 lakhs while the stamp duty value of the unit in May, 2021 is ₹57 lakhs. Due to some emergency in the family, Mr. Suraj was in urgent need of funds and he sold such residential unit to Mr. Prakash in December, 2021 for ₹53 lakhs. The stamp duty value of the unit was ₹61 lakhs in December, 2021. Determine the capital gain/income which is chargeable to tax in the hands of Mr. Suraj and Mr. Prakash from the above tra…

Accepted Answer

**Answer: (B)**

**For Mr. Suraj:**

When Suraj acquired the residential unit in May 2021 from Ashiyana Developers:
- Actual consideration paid: ₹50 lakhs
- Stamp duty value: ₹57 lakhs
- Under **Section 56(2)(x)** of the Income Tax Act 1961, when property is received for inadequate consideration (below stamp duty value), the difference is taxed as **income from Other sources**
- Taxable income under Section 56(2)(x): ₹57 lakhs − ₹50 lakhs = **₹7 lakhs** (assessable in A.Y. 2021-22)

For capital gains calculation, the cost of acquisition is taken as the stamp duty value (the Fair Market Value), which is ₹57 lakhs.

When Suraj sold the unit to Prakash in December 2021:
- Sale consideration: ₹53 lakhs
- Cost of acquisition: ₹57 lakhs
- This results in a **short-term capital loss of ₹4 lakhs** (held for less than 24 months: May 2021 to December 2021)

**For Mr. Prakash:**

When Prakash acquired the residential unit in December 2021:
- Actual consideration paid: ₹53 lakhs
- Stamp duty value: ₹61 lakhs
- Under **Section 56(2)(x)**, the difference is taxable as income from Other sources
- Taxable income under Section 56(2)(x): ₹61 lakhs − ₹53 lakhs = **₹8 lakhs** (assessable in A.Y. 2021-22)

No capital gain/loss is chargeable to Prakash as he has merely acquired the property.

Question 16

Mr. Rajesh, aged 53 years, and his wife, Mrs. Sowmya, aged 50 years, are citizens of Country X. They are living in Country X since birth. They are not liable to tax in Country X. Both of them have keen interest in Indian Culture. Mr. Rajesh's parents and grandparents were born in Country X. Mrs. Sowmya visits India along with Mr. Rajesh for four months every year to be with her parents, who were born in Delhi and have always lived in Delhi. During their stay in India, they organize Cultural Programme in Delhi-NCR. Income of Mr. Rajesh and Mrs. Sowmya from the Indian sources for the P.Y. 2021-22 is ₹18 lakhs and ₹16 lakhs, respectively.

What is the residential status of Mr. Rajesh and Mrs. Sowmya for A.Y. 2022-23?

Accepted Answer

**Answer: (D)**

Mrs. Sowmya is resident but not ordinarily resident in India and Mr. Rajesh is resident and ordinarily resident in India.

**For Mr. Rajesh (Resident and Ordinarily Resident):**
Under Section 6(1) of the Income Tax Act, 1961, a non-citizen individual is resident if he is in India for (a) 182 days or more in the year, OR (b) 60 days or more in the year AND 365 days or more during the 4 preceding years. Mr. Rajesh visits for 4 months (~120 days) annually. At 120 days > 60 days, combined with consistent 4-month annual visits for multiple preceding years (yielding 480+ days), he satisfies the 60-day + 365-day test and is **resident**.

For ordinary residence under Section 6(6), he must be resident for 2 consecutive preceding years OR 7 years in 9 preceding years. Mr. Rajesh's involvement in organizing cultural programs provides evidence of a stable, recurring annual engagement in India over multiple years. This pattern demonstrates habitual and ordinary residence despite visits being limited to 4 months—he has made India part of his regular annual life pattern through business activities. He is therefore **ordinarily resident**.

**For Mrs. Sowmya (Resident but Not Ordinarily Resident):**
Mrs. Sowmya also visits for 4 months (~120 days) annually, meeting the 60-day threshold for P.Y. 2021-22. Combined with consistent visits over preceding years, she satisfies the 60-day + 365-day rule and is **resident** in India.

However, she does not satisfy the ordinarily res…

Question 17

Mr. A has taken two ULIPs. ULIP 'X' is issued on 1.1.2021 and ULIP 'Y' on 1.5.2021. The sum assured of ULIP 'X' and ULIP 'Y' is ₹30 lakhs and ₹40 lakhs, respectively. The annual premium paid by Mr. A during the P.Y. 2021-22 is ₹3 lakhs and ₹4 lakhs, respectively. What would be the taxability of the consideration received by Mr. A on maturity of both the ULIPs?

Accepted Answer

**Answer: (C)**

Under **Section 10(10D) of the Income Tax Act, 1961**, a ULIP is exempt from taxation if the **sum assured is at least 10 times the annual premium paid** in any year.

For **ULIP 'X'**: Sum assured = ₹30 lakhs; Annual premium = ₹3 lakhs. Check: ₹30 lakhs ÷ ₹3 lakhs = 10 times. The sum assured is exactly 10 times the annual premium, satisfying the exemption criterion. Maturity proceeds are **EXEMPT**.

For **ULIP 'Y'**: Sum assured = ₹40 lakhs; Annual premium = ₹4 lakhs. Check: ₹40 lakhs ÷ ₹4 lakhs = 10 times. The sum assured is exactly 10 times the annual premium, satisfying the exemption criterion. Maturity proceeds are **EXEMPT**.

Both ULIPs meet the threshold requirement, so the consideration received on maturity of both would be exempt from taxation.

Question 18

From the following particulars of income furnished by Mr. Ashutosh, aged 65 years, pertaining to year ended 31.03.2022, compute the total income for the A.Y. 2022-23:

(i) Capital gain on sale of land in Jaipur to Mr. Ramesh, a non-resident, outside India. The consideration is also received outside India in foreign currency – ₹1,50,000
(ii) Rent from property in Delhi, let out to a branch of a foreign company. The rent agreement is entered outside India. Monthly rent is also received outside India – ₹1,20,000
(iii) Agricultural income from a land situated in Nepal, received in Nepal – ₹55,000
(iv) Interest on savings bank deposit in UCO Bank, Delhi – ₹18,000
(v) Income earned from business in London which is controlled from Delhi (₹35,000 is received in India) – ₹60,000
(vi) Gift received …

Accepted Answer

**Computation of Total Income**

Under **Section 5 of the Income Tax Act, 1961**, the scope of total income differs based on residency status. A **Resident and Ordinarily Resident (ROR)** includes worldwide income, whereas a **Non-Resident (NR)** includes only income accruing/arising in India or received in India.

**Key Principles Applied:**
- **Section 5(1)** (ROR): All income from all sources, whether arising in India or outside
- **Section 5(2)** (NR): Only income accruing in India or received in India
- **Section 9** deems certain income to accrue in India (e.g., business controlled from India, Indian property)
- **Section 10(1)** exempts agricultural income from taxation
- **Section 56(2)(vii)** excludes gifts from income

**Analysis of Each Item:**

(i) **Capital Gain on Land in Jaipur (₹1,50,000):** Land is Indian property. Under **Section 9(1)(v)**, capital gains on Indian assets are taxable. **Included for both ROR and NR.**

(ii) **Rent from Delhi Property (₹1,20,000):** Property is in India, hence Indian source income. Though rent agreement executed outside India and received outside India, the source is India. **Included for both ROR and NR.**

(iii) **Agricultural Income from Nepal (₹55,000):** Under **Section 10(1)**, agricultural income is exempt regardless of source. **Excluded for both.**

(iv) **Interest on Savings Bank Deposit (₹18,000):** Income from Indian bank account is Indian source. **Included for both ROR and NR.**

(v) **Business Income from London…

Question 19

Mr. Sunil is the CEO of Sheetal Textiles Ltd. His basic salary is ₹6,00,000 p.m. He is paid 8% as D.A. He contributes 10% of his pay and D.A. towards his recognized provident fund and the company contributes the same amount. The accumulated balance in recognized provident fund as on 1.4.2020, 31.3.2021 and 31.3.2022 is ₹50,35,000, ₹71,46,700 and ₹94,57,700, respectively. Compute the perquisite value chargeable to tax in the hands of Mr. Sunil u/s 17(2)(vii) and 17(2)(viia) for the A.Y. 2021-22 and A.Y. 2022-23.

Accepted Answer

**For AY 2021-22:**

Under **Section 17(2)(vii)**, the employer's contribution to a recognized provident fund becomes a perquisite only if it exceeds 12% of salary. Here, the employer contributes 10% of (basic salary + DA), which is less than 12%, so there is **no perquisite under section 17(2)(vii)**.

Under **Section 17(2)(viia)**, when the accumulated balance in a recognized provident fund exceeds the prescribed limit of ₹50,00,000, the excess amount is treated as a perquisite. The accumulated balance as on 31.3.2021 is ₹71,46,700. The perquisite value is the excess over the limit: ₹71,46,700 − ₹50,00,000 = **₹21,46,700**.

**For AY 2022-23:**

Similarly, under section 17(2)(vii), there is **no perquisite** since the employer's contribution (10%) does not exceed 12% of salary.

Under section 17(2)(viia), the accumulated balance as on 31.3.2022 is ₹94,57,700. The perquisite value is: ₹94,57,700 − ₹50,00,000 = **₹44,57,700**.

Question 20

Mr. Aditya is a proprietor of Star Stores having 2 units. On 1.4.2021, he has transferred Unit 2, which he started in 2004-05, by way of slump sale for a total consideration of ₹18 lakhs. The professional fees & brokerage paid for this transfer are ₹78,000. His Balance Sheet as on 31-03-2021 is as under:

Liabilities: Own Capital ₹20,50,000; Revaluation reserve ₹2,50,000; Bank Loan (70% for Unit 1) ₹8,50,000; Trade Creditors (20% for Unit 2) ₹4,50,000; Unsecured Loan (30% for Unit 2) ₹4,00,000; Total ₹40,00,000

Assets – Unit 1: Land ₹12,75,000; Furniture ₹2,00,000; Debtors ₹2,00,000; Total ₹16,75,000
Assets – Unit 2: Land ₹7,50,000; Furniture ₹5,00,000; Debtors ₹3,50,000; Patents ₹7,25,000; Total ₹23,25,000

Other Information:
1. Land of Unit 2 was purchased at ₹5,00,000 in the year 2004 …

Accepted Answer

**Computing Capital Gain under Section 50B for A.Y. 2022-23**

Under **Section 50B of the Income Tax Act 1961**, when an undertaking is transferred by way of slump sale, the capital gain is computed as: **Capital Gain = Sale Consideration − Net Worth of the undertaking**.

**Step 1: Calculate Net Worth of Unit 2 as on 31.3.2021**

*Assets of Unit 2:*
Land ₹7,50,000 + Furniture ₹5,00,000 + Debtors ₹3,50,000 + Patents ₹7,25,000 = **₹23,25,000**

*Liabilities attributable to Unit 2:*
- Bank Loan: 30% of ₹8,50,000 = ₹2,55,000 (70% allocated to Unit 1)
- Trade Creditors: 20% of ₹4,50,000 = ₹90,000 (as stated)
- Unsecured Loan: 30% of ₹4,00,000 = ₹1,20,000 (as stated)
- **Total Liabilities = ₹4,65,000**

Note: Own Capital (₹20,50,000) and Revaluation Reserve (₹2,50,000) are equity items, not liabilities. The revaluation reserve created on land revaluation (₹7,50,000 − ₹5,00,000) is reflected in the book value of assets; it is not separately deducted.

**Net Worth = Assets − Liabilities = ₹23,25,000 − ₹4,65,000 = ₹18,60,000**

**Step 2: Calculate Capital Gain**

Sale Consideration (gross): ₹18,00,000
Less: Professional Fees & Brokerage: ₹78,000
Net Sale Proceeds: ₹17,22,000

**Capital Gain = Net Sale Proceeds − Net Worth**
Capital Gain = ₹17,22,000 − ₹18,60,000 = **(₹38,000)** [Loss]

**Final Answer: Capital Loss of ₹38,000 for A.Y. 2022-23**

This loss can be carried forward and set off against capital gains of subsequent years under **Section 74 of the Income Tax Act 1961** (for i…

Question 21

Mr. Samrat and his wife, Mrs. Komal, holds 12% voting power each in ABC (P) Ltd. Mr. Samrat and Mrs. Komal are working in ABC (P) Ltd. However, Mrs. Komal is not qualified for the job. From the following information given in respect of F.Y. 2021-22, you are required to compute the gross total income of Mr. Samrat and Mrs. Komal for the A.Y. 2022-23:

(i) Dividend of ₹22,500 and ₹45,000 is received by Mr. Samrat and Mrs. Komal, respectively, from ABC (P) Ltd. Mr. Samrat has instructed the company to pay 50% of his dividend to Ms. Kajal, daughter of his deceased brother.
(ii) Salary earned by Mr. Samrat and Mrs. Komal from ABC (P) Ltd. is ₹8,50,000 and ₹5,50,000, respectively.
(iii) Business income earned by Mr. Samrat from his sole proprietary business is ₹15,60,000.
(iv) Interest on fixed …

Accepted Answer

**Mr. Samrat's Gross Total Income: ₹30,71,250**

**Step 1: Dividend Analysis**
Dividend received by Mr. Samrat is ₹22,500. He has instructed the company to pay 50% (₹11,250) to Ms. Kajal, his brother's daughter. Under **Section 60 read with Section 64**, income diverted to a non-specified relative (Ms. Kajal is neither spouse nor minor child nor dependent) does not get clubbed with the transferor. Ms. Kajal's 50% dividend accrues directly to her; Mr. Samrat retains the remaining 50%. Therefore, **dividend included in Mr. Samrat's income = ₹11,250**.

**Step 2: Salary Earned by Mr. Samrat**
Salary from ABC (P) Ltd = **₹8,50,000** (straightforward income from employment, taxable in his own hands).

**Step 3: Business Income**
Business income from sole proprietary business = **₹15,60,000** (self-earned income).

**Step 4: Clubbing of Mrs. Komal's Salary**
Under **Section 64(1)(vi) of the Income Tax Act, 1961**, income of a spouse derived from assets transferred or gifted by the other spouse without adequate consideration is clubbed with the transferor's income. The fact that "Mrs. Komal is not qualified for the job" is a critical hint indicating her salary is unjustifiably high and likely attributable to her shareholding gifted/transferred by Mr. Samrat without adequate consideration. Assuming the 12% voting power held by Mrs. Komal was transferred by Mr. Samrat without adequate consideration, her salary of **₹5,50,000 is clubbed with Mr. Samrat**.

**Mr. Samrat's GTI = ₹11,250 …

Question 22

Mr. Rajesh, a resident individual, furnished the following information in respect of income and loss earned by him for the F.Y. 2021-22:

Income from Salary: ₹3,40,000
Long term capital loss on sale of shares of Reliance Ltd. (STT paid at acquisition and sale): (₹1,15,000)
Loss from let out property in Delhi: (₹75,000)
Interest on self-acquired property in Mumbai: (₹50,000)
Winnings from lottery tickets: ₹40,000
Cost of acquisition of lottery tickets: ₹10,000
Profit and gains from manufacturing business (after deducting normal depreciation of ₹10,000 and additional depreciation of ₹4,000): ₹96,000
Long term capital gains on sale of house property: ₹1,40,000

Brought forward losses and unabsorbed depreciation pertaining to A.Y. 2021-22:
Brought forward business loss from manufacturing busin…

Accepted Answer

**Answer: Gross Total Income = ₹4,91,000; Losses to be carried forward = ₹2,10,000**

**Computation of Gross Total Income under Section 115BAC, A.Y. 2022-23:**

When an individual opts for Section 115BAC, certain losses and set-offs are restricted. However, **depreciation can still be claimed**, and **losses from specific sources of capital gains (house property with STT and listed shares) are exempt from the set-off restriction**.

**Income from Salary:** ₹3,40,000 is fully includible as it has no restrictions under Section 115BAC.

**Income from Capital Gains:** Under Section 115BAC, whilst capital losses generally cannot be set-off, an exception applies to LTCG from house property acquired after April 1, 2019, where consideration is subject to Sections 111A/112A. Since the LTCG on house property (₹1,40,000) qualifies for this exception, capital losses can be set-off against it. LTCL on shares (₹1,15,000) can therefore be set-off against LTCG on house property, resulting in net capital gains of ₹25,000.

**Income from House Property:** The loss comprises let-out property loss (₹75,000) and interest on self-acquired property (₹50,000), totaling ₹1,25,000. Under Section 115BAC, losses from house property cannot be set-off against other income, hence NIL contribution to GTI (this loss is carried forward).

**Income from Profit and Gains of Business:** Current year profit of ₹96,000 (already net of current year depreciation of ₹10,000 normal + ₹4,000 additional) is further redu…

Question 23

Mr. Rishabh, a resident individual, aged 54 years, is engaged in the business of manufacturing clothes. He earned profit of ₹82,45,000 as per profit and loss account after debiting and crediting the following items:

(i) Depreciation: ₹15,40,000
(ii) Short term capital gains on transfer of listed equity shares in a company on which STT is paid: ₹10,00,000
(iii) He received income-tax refund of ₹15,550 which includes interest on refund of ₹4,550.
(iv) Dividend income from Indian companies: ₹15,00,000

Additional information:
(i) Mr. Rishabh installed new plant and machinery for ₹65 lakhs on 1.10.2021 which was put to use on 1.1.2022. Depreciation (including additional depreciation) on this amount of ₹65 lakhs is included in the depreciation debited to profit and loss account which has been …

Accepted Answer

**Computation of Total Income and Tax Payable — Mr. Rishabh (A.Y. 2022-23)**

To determine which regime yields maximum tax savings, both the old regime and the new regime under **Section 115BAC of the Income Tax Act, 1961** are computed and compared.

**Income from Business or Profession**

The net profit as per P&L (₹82,45,000) requires the following adjustments. Items credited to P&L that are not business income are excluded: STCG (₹10,00,000), IT refund inclusive of interest (₹15,550), and dividend (₹15,00,000). Two disallowances are added back: (a) **pre-use period interest disallowed under the proviso to Section 36(1)(iii)** — the loan of ₹50 lakhs was taken on 15.9.2021 but the plant was first put to use on 1.1.2022, so interest for 3.5 months (15.9.2021 to 31.12.2021) = ₹1,53,125 is capitalised and not deductible; (b) **excess payment to related party disallowed under Section 40A(2)(b)** — Mr. Ram (brother) is a specified person; market value ₹35 lakhs vs. ₹40 lakhs paid, disallowance = ₹5,00,000. The depreciation of ₹15,40,000 (including additional depreciation) is already computed as per Income-tax Rules, so no further depreciation adjustment is needed under the old regime. **Business Income = ₹63,82,575.**

**Capital Gains**

Short-term capital gains on transfer of listed equity shares (STT paid) attract tax under **Section 111A** at 15% flat. **STCG = ₹10,00,000.**

**Income from Other Sources**

Interest on income-tax refund (₹4,550) is taxable under **Section 244…

Question 24

Mrs. Shivani is a US Citizen. She got married to Mr. Sriram, an Indian citizen and resident of India, in the year 2015. Since then, she has been staying in India. She has a Bank account in US. She sold a residential house in US and earned a long term capital gain of ₹2 lakhs. She invested the whole sales consideration in Capital Gain bonds under section 54EC so that no long term capital gain is taxable. She does not have any source of income in India during the P.Y. 2021-22. Is she required to furnish her return of income? If yes, can she furnish a belated return?

Accepted Answer

**Determination of Residential Status:** Mrs. Shivani, though a US citizen, has been continuously residing in India since 2015. Under Section 6(1) of the Income Tax Act 1961, she qualifies as a **resident of India** for P.Y. 2021-22 as she has been present in India for well over 182 days and satisfies the conditions for non-Indian citizens. As a resident, her worldwide income is taxable in India.

**Income Calculation:** The long-term capital gain from the sale of the US residential house amounts to ₹2,00,000. She invested the entire sales consideration in Capital Gain bonds under Section 54EC of the IT Act. Section 54EC provides an exemption from long-term capital gains if the capital gain is invested in specified securities within the prescribed time limit (6 months from the end of the financial year in which the gain accrued). Since she has invested the entire amount of ₹2,00,000 in Section 54EC bonds, the **taxable long-term capital gain becomes Nil**. She has no other source of income in India. Therefore, her **total taxable income is Nil**.

**Return Filing Obligation:** Under Section 139(1) of the Income Tax Act 1961, every person whose total income exceeds the basic exemption limit during a financial year must furnish a return of income. Since Mrs. Shivani's total taxable income is Nil (after Section 54EC relief), technically she is **not required** to file a return of income under Section 139(1).

However, an important consideration arises from the presence of a **fo…

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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