Taxation
Taxation
Income tax is a tax that every person is liable to pay on their earnings. It is a direct and only tax charged by the
Government on the income as per the assessment year. It is a source of revenue for the Government. Every
taxpayer should file an income tax return annually to know their tax obligations.
Leave travel concessions subject to conditions and the only actual amount spent
Medical Facilities & Reimbursements
Computer / Laptop for official / personal use
Initial fees paid for corporate membership
Refreshment provided during working hours in office premises
Payment of annual premium on personal accident policy
Subscription to periodicals and journals required for the discharge of work
Provision of Medical Facilities
Gifts not exceeding Rs. 5000 per annum etc.
Q8. What do you mean by “Transfer of capital assets”? Kindly divide the capital assets on their holding
period.
“ Transfer” in relation to Capital asset, includes the sale, exchange or relinquishment of the asset, or the
extinguishment of any rights therein or the compulsory acquisition thereof under any law or in a case where the
asset is converted by the owner thereof into, or is treated by him as stock- in- trade of a business carried on by
him, such conversion or treatment; or the maturity or redemption of a zero coupon bond.
Transfer of immovable property includes possession of immovable property given without registration of
conveyance deed; and also transactions in agreements to buy or sell any immovable property or any rights
thereon.
From the above one can understand that following kinds of transaction are to be considered as transfer.
Sale of asset, Exchange of asset and relinquishment of right from asset, though the person who
relinquish the right, did not get any amount.
Extinguishment of right from asset.
Compulsory acquisition of asset under any law. Corporation or Government may acquire any asset for
furtherance of any public project. For metro rail project many assets are being acquire by corporation,
for bullet train project government acquire land. In acquisition of asset, there is no choice of the owner of
the asset.
Transfer of asset in to stock in trade is not a transfer, but when asset is sold, will considered as transfer.
Distribution of assets by a company to its shareholders on its liquidation. In the case of HUF, at the time
of total or partial partition, distribution of assets are not considered as transfer.
Any transfer of a capital asset under a gift or by will or an irrevocable trust.
Any transfer of a capital asset by a company to its subsidiary company and by subsidiary company to
main company, provided the transferee is an Indian Company and the entire share capital of the
subsidiary company is held by the parent company or its nominees.
Any transfer of asset, in a scheme of amalgamation, of a capital asset by the amalgamating company to
the amalgamating company, if the amalgamated company is an Indian company.
Any transfer of agriculture land in India before 1st March, 1970 Any transfer of capital asset, being any
work of art, archaeological, scientific or art collection, book etc., to Government or the National Museum,
National Art Gallery, National Archives or a University or any notified public museum or institution.
Any transfer by way of conversion of bond or debenture-stock or deposit certificates in any form, of a
company in to shares or debenture of that company.
Any transfer of capital asset including intangible asset by a firm/sole proprietary concern to a company
in certain cases.
A member of a recognized stock exchange in India transfers his membership card(right), for acquisition
of shares and trading or clearing rights acquired by him in the same stock exchange, in accordance with
a scheme for demutualization or corporatization approved by the SEBI.
Any transfer capital asset in a transaction of reverse mortgage under notified scheme.
Any transfer by way of conversion of preference shares of a company in to equity shares of that
company.
Q9. Define “annual value” and state the deductions that are allowed from the annual value in computing the
income from house property.
The annual value of a property is the sum for which a property is reasonably expected to be let from
year to year. Hence, the annual value of a property is the amount of notional rent which could have been
derived, had the property been let.
Q10. What are the provisions of the income tax act regarding the admissibility of the interest on loan
taken for the construction of the house for the period prior to the completion of construction of the house?
When you have taken a loan for the purchase or construction of a house property, you can claim
a deduction on pre-construction interest. However, this is not allowed in the case of the loan for
repairs or reconstruction.
The total amount of pre-construction interest and interest on a housing loan that can be claimed
in a year should not exceed Rs 2 lakh in any case. The deduction for this interest is allowed in 5
equal instalments starting from the year in which the house is purchased or the construction is
completed.
For example, if the construction of your property completed in FY 2018-19, on 25 June 2018,
you can claim 1/5th of interest paid up till 31 March 2018 when you file your return for FY
2018-19.
Q11. Explain the meaning of business and profession.
1. Meaning
Business is an economic activity where people sell goods or services.
Profession is an economic activity where people work with their knowledge and skill.
2. Qualification
No minimum qualification is required in case of business.
Educational or professional degree or specified knowledge is required in case of profession.
3. Transfer of interest
Transfer of interest is possible in case of business.
Generally transfer of interest is not possible in case of profession.
4. Accounting Type
Generally, Manufacturing / Trading / Profit & Loss a/c is maintained in case of Business.
Generally, Income & Expenditure a/c is maintained in case of Profession.
5. Reward
Reward for business is known as ‘profit’
Reward for profession is known as ‘professional fee’
6. Tax Audit
Tax audit u/s. 44AB is required if annual turnover or gross receipt exceeds Rs. 1cr. (2 cr. for
presumptive income scheme u/s 44AD) in case of business.
Tax audit u/s 44AB is required if gross receipt exceeds Rs. 50 lakh in case of a profession.
Q13. What deduction is allowed to a businessman in computing profits? Specify the expenses disallowed.
Any interest, royalties, fees for technical services or other sum allowable as an expense, which is payable, outside
India; or in India to a non-resident, or a foreign company, for which TDS is applicable but not deducted or after
deduction, has not been paid during the previous year, or before due date u/s 200(1).
Q14. What do you understand by the term capital gains used in the income tax act? What are the rules
regarding exemption of capital gains?
Under the Income Tax Act, 1961, the interest earned by an individual through an asset whose net worth has
increased over a period of time is eligible for capital gain exemption after factoring the indexed cost of acquisition
and inflation.
Under the Income Tax Act, 1961, the interest earned by an individual through an asset whose net worth has
increased over a period of time is eligible for capital gain exemption after factoring the indexed cost of acquisition
and inflation.
Capital gain is the increase in value of an asset that gives the asset a higher worth than the purchase price. The
capital gain can be short term or long term. Long term capital gains are usually taxed at a lower rate.
For instance, Sheetal bought a house in the year 2004 for Rs.50 lakhs. The value of the house stands at Rs.1.5 crore.
And since the property was held for over 3 years, the gain will be a long-term capital gain. The cost price of the
house is adjusted according to the inflation and indexed cost of acquisition. After the cost of acquisition is indexed,
the adjusted cost of the house will be Rs.1.06 crore, the net capital gain will be Rs.44 lakhs. Long term capital gain is
taxed at 20 percent and for the net capital gain of Rs.44 lakhs, Sheetal will have to pay Rs.8,80,000 towards tax.
However, this tax outgo can be lowered by taking the benefits of exemption provided by the Income Tax Act, 1961.
Q17. Describe the method of computing income under the head ‘income from other sources’?
Income chargeable to tax under the head “Income from other sources” is to be computed in accordance with the
method of accounting regularly employed by the assessee. Hence, if the assessee follows mercantile system, then
income will be computed on accrual basis.
Q19. Describe any ten item of income which can be included under the head income from other sources
The following types of receipts of income fall under the Income from Other Sources’ category –
1. Dividends
Dividends are taxable under ‘income from other sources,’ based on the residential status of the
source company that paid out the dividend.
4. One-time income
One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games,
gambling or betting of any form are categorized under ‘Income from Other Sources.’
5. Interest on compensation
Interest received by you (as assesse) on the amount of reimbursement or compensation paid
out in situations such as compulsory acquisition is subject to taxation under ‘Income from Other
Sources’ head.
6. Gifts
Gifts received in the form of any sum of money, movable or immovable property, are also
taxable.
Then, there are the following receipts of income, which can only be classified under ‘Income
from Other Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –
Deduction u/s 80 C - Section 80C is one of the most popular and favourite sections amongst the
taxpayers as it allows to reduce taxable income by making tax saving investments or incurring
eligible expenses. It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total
income.
The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership
firms, LLPs cannot avail the benefit of this deduction.
Deduction u/s 80DDB - Deduction for Medical Expenditure on Self or Dependent Relative
a. For individuals and HUFs below age 60
A deduction up to Rs.40,000 is available to a resident individual or a HUF. It is available with respect to any expense
incurred towards treatment of specified medical diseases or ailments for himself or any of his dependents. For an
HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for
any of the HUF members.
b. For senior citizens and super senior citizens
In case the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF
taxpayer can claim a deduction up to Rs 1 lakh. Until FY 2017-18, the deduction that could be claimed for a senior
citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively. This has now become a common
deduction available upto Rs 1 lakh for all senior citizens (including super senior citizens) unlike earlier.
c. For reimbursement claims
Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction
the taxpayer can claim under this section.
Also remember that you need to get a prescription for such medical treatment from the concerned specialist in
order to claim such deduction. Read our detailed article on Section 80DDB.
Deduction u/s 80 D - Deduction for the premium paid for Medical Insurance
You (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse
and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000, if they are less
than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000, which has been increased
in Budget 2018 from Rs 30,000.
In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up
to Rs.1 lakh.
Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under
section 80D is Rs. 100,000.
From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check.
Deduction u/s 80 E - Deduction for Interest on Education Loan for Higher Studies
A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have
been taken for the taxpayer, spouse or children or for a student for whom the taxpayer is a legal guardian.
80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid)
or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed.
Deduction u/s 80 TTA - Section 80TTA is titled as ‘Deduction in respect of interest on deposits in savings
account’ in the Income Tax Act.
Here are the salient features of this section:
1. You can claim exemption on up to Rs. 10,000 received as interest on your savings account deposits.
2. The savings account can be held in any of the following financial institution:
3. Bank
4. Cooperative society
5. Post office
6. You can claim exemption on any number of savings accounts as long as the total amount you are
seeking exemption on is less than Rs. 10,000.
Q22. Kindly write meaning and need of GST? Define the term CGST, SGST, IGST.
The goods and services tax (GST) is a tax on goods and services sold domestically for consumption.
The tax is included in the final price and paid by consumers at point of sale and passed to the government
by the seller. The GST is a common tax used by the majority of countries globally.
GST has replaced multiple taxes like sales tax, service tax, etc., which made India more of an
integrated national market and brought more people into the taxation net is the need for gst. By
improving efficiency, it can add substantially to finances as well as the growth of the country.
Q23. Difference between VAT, Service tax And Excise duty with GST.
The following are the major differences between VAT and Service Tax:
1. The tax imposed on the production and sale of a commodity is known as Value Added Tax (VAT).
Tax on services rendered is known as Service Tax.
2. VAT is a multi-point tax, whereas Service Tax is a single point tax.
3. VAT is charged on physical items i.e. goods while Service Tax is charged on non-physical items i.e.
services.
4. The State Government imposes VAT, but Central Government imposes services Tax.
5. VAT is governed by the statute of the respective state. On the other hand, Service Tax is governed
by the Finance Act, 1994.
6. VAT was introduced in the year 2005, all over the country. Conversely, Service Tax was introduced
in the year 1994.
7. The VAT rate is different for different category of commodities. In contrast to Service Tax, has a flat
rate.
8. VAT is applicable within the jurisdiction of the state, whereas Service Tax is applicable all over the
country except in Jammu & Kashmir.
Tax added on goods as it travels from the point Tax added on the manufacturing
Definition
of production to the point of sale. of stocks.
After the product has entered the final stage of After the product has been
Imposed
selling. manufactured.
Q24. Mr. Malkiat owns two houses, the particulars of which are given below for the previous year 2015-16:
Interest on money borrowed during 1998-99 for construction of 36,000 p.a. 48,000 p.a.
house (50% paid)
Compute income from house property for the assessment year 2016-17 assuming that the assessing
officer is satisfied with the non recovery of rent.
Q25. From the following information compute taxable business income of Mr. Parm for the
assessment year 2016-17. His Profit and Loss Account for the year ending March 31 st, 2015 is as
follows:
a) Salary to staff includes salary paid to a relative employee which is unreasonable uptoRs.10,000.
b) Office expenses include a payment of Rs. 16,000 given to notified
university for carrying on research.
c) Depreciation includes depreciation of personal car of manager Rs.24,000.
Q26. From the following information find out the income from salary of Mr X:-
Q27. Write down the list of the income which shall be taxable under head profit and gain from business and
profession (PGBP)
The following incomes will be chargeable to income tax under the head “Profits and gains of business or
profession”:
1. Profit and gains of any business which was carried on by the assessee at any time during the financial
year
2. Any compensation or other payment due to or received by:
o Any person in connection with termination/modification of an agreement for managing the whole
or substantially the whole of affairs of an Indian company or any other company.
o Any person holding an agency in India for any part of the activities relating to the business of any
other person at or in connection with the termination or modification of the terms of the agency.
o Any person for or in connection with the vesting in the Government, or in any corporation owned
by or controlled by the Government, under any law for the time being imposed, of the
management of any property or business.
3. Income derived by trade, professional or similar association from specific services performed for its
members. This is an exception to the general principle that a surplus arising to a mutual association
cannot be regarded as income chargeable to tax.
4. Export incentives which include:
o Profits on sales of import licenses granted under Imports (Control) Order on account of exports.
o Cash assistance, by whatever name called, received or receivable against export.
o Duty drawbacks of Customs and Central Excise duties.
o Any profit on the transfer of the Duty Entitlement Pass Book Scheme.
o Any profit on the transfer of the Duty Free Replenishment Certificate.
5. Value of any benefit or perquisite, whether convertible into money or not, arising during the course of the
carrying on of any business or profession.
6. Any interest, salary, bonus, commission or remuneration due to or received by a Partner of a Firm from
the firm in which he is a partner.
7. Any sum received or receivable in cash or in kind under an agreement for:
o Not carrying out activity in relation to any business or profession.
o Not sharing any know-how, patent, copyright, trademark, license, franchise or any other business
or commercial right of similar nature or information or technique likely to assist in the
manufacture or processing of goods or services.
8. Any sum received under a Key man Insurance Policy including the sum allocated by way of bonus on
such policy.
9. Any sum whether received or receivable, in cash or kind, on account of any capital asset being
demolished, destroyed, discarded or transferred, if the whole of the expenditure on such capital asset
has been allowed as a deduction under Section 35AD.