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Intermediate Course: Group – I (Class Test Paper – Series : 1 ) DATE: 30. 09. 2024 MAXIMUM MARKS: 50 TIMING: 1 1/2^ Hours
PAPER 3 : TAXATION
**1. The question paper comprises two parts, Part I and Part II.
- Part I comprises Case Scenario based Multiple Choice Questions (MCQs).
- Part II comprises questions which require descriptive type answers.**
PART I – CASE SCENARIO BASED MCQs (15 MARKS)
PART - I IS COMPULSORY
Ans. 1 to Ans. 4: CASE SCENARIO
- Ans. c
- Ans. a
- Ans. a
- Ans. c
- Ans. c
- Ans. b
- Ans. b
- Ans. b
PART II - DESCRIPTIVE QUESTIONS (35 MARKS)
QUESTIONS NO. 1 IS COMPULSORY.
CANDIDATES ARE REQUIRED TO ANSWER ANY FOUR QUESTIONS FROM THE
REMAINING FIVE QUESTIONS
Wherever necessary, suitable assumptions may be made and disclosed by way of a note. Working Notes should form part of the answer.
Answer 1: Computation of total income of Mr. Pawan for the A.Y. 2025- Particulars Rs. Rs. Profits and gains of business or profession 5,00, Net profit as per profit and loss account Add: Excess commission paid to brother disallowed under section 40A(2)
Disallowance under section 40A(3) is not attracted since the limit for one time cash payment is Rs. 35,00 0 in respect of payment to transport operators. Therefore, amount of Rs. 33,000 paid in cash to a transport carrier is allowable as deduction.
Nil
Bank term loan interest paid after the due date of filing of return under section 139(1) – disallowed as per section 43B
State GST penalty paid disallowed [See Note 2 below]
Depreciation debited to profit and loss account 2,00,000 2,55, 7,55, Less: Dividend from domestic companies [Chargeable to tax under the head “Income from Other Sources”]
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Income from agriculture [Exempt under section 10(1)]
Salary paid to staff not recorded in the books (Assumed it was an erroneous omission and that the assessee has offered satisfactory explanation for the same. In such a case, the same would be allowable as deduction while computing profits and gains of business and profession) [See Note 1 below]
Depreciation under the Income-tax Act, 1961 (As per working note)
Income from house property Annual value of self-occupied property Nil Less: Deduction u/s 24(b) – interest on housing loan [Not allowable, since Mr. Pawan is paying tax as per default tax regime]
Nil Nil
Income from Other Sources Dividend from domestic companies 15, Gross Total Income 3,03, Less: Deduction u/s 80C [Not allowable, since Mr. Pawan is paying tax as per default tax regime]
Nil
Total Income 3,03,
Working Note: Computation of depreciation under the Income-tax Act, 1961 Particulars Rs. Depreciation@15% on Rs. 13.90 lakhs (WDV as on 31.3.2024 less depreciation for P.Y. 2023 - 24 i.e., Rs. 11.90 lakh plus assets purchased during the year and used for more than 180 days Rs. 2 lakh)
Depreciation @7.5% on Rs. 2 lakh (Assets used for < 180 days) 15, 2,23,
Since Mr. Pawan is paying tax as per default tax regime, additional depreciation u/s 32(1)(iia) would not be available to him.
Notes (Alternate views):
1. It is also possible to take a view that the salary paid to staff not recorded in the
books is in the nature of unexplained expenditure and hence, would be deemed to be income as per section 69C and would be taxable @ 60% under section 115BBE. In such a case, no deduction allowable in respect of such expenditure.
2. Where the imposition of penalty is not for delay in payment of sales tax or VAT or
GST but for contravention of provisions of the Sales Tax Act or VAT Act or GST Law, the levy is not compensatory and therefore, not deductible. However, if the levy is compensatory in nature, it would be fully allowable. Where it is a composite levy, the portion which is compensatory is allowable and that portion which is penal is to be disallowed. Since the question only mentions “GST penalty paid” and the reason for levy of penalty is not given, it has been assumed that the levy is not compensatory and therefore, not deductible. It is, however, possible to assume that such levy is compensatory in nature and hence, allowable as deduction. In such a case, the total income would be Rs. 3,94,500.
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Notes: (1) As per Rule 3(7)(iv), the value of any gift or voucher or token in lieu of gift received by the employee or by member of his household not exceeding Rs. 5,000 in aggregate during the previous year is exempt. In this case, the amount was received on his retirement and the sum exceeds the limit of Rs. 5,000. Therefore, the entire amount of Rs. 6,000 is liable to tax as perquisite. Note – An alternate view possible is that only the sum in excess of Rs. 5,000 is taxable. In such a case, the value of perquisite would be Rs. 1,000 and gross total income would be Rs. 7,27,769. (2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to the employee, arising from the transfer of an asset, being a motor car, by the employer is the actual cost of the motor car to the employer as reduced by 20% of WDV of such motor car for each completed year during which such motor car was put to use by the employer. Therefore, the value of perquisite on transfer of motor car, in this case, would be: Particulars Rs. Purchase price (30.1.2022) 5,00, Less: Depreciation @ 20% 1,00, WDV on 29.1.2023 4,00, Less: Depreciation @ 20% 80, WDV on 29.1.2024 3,20, Less: Depreciation @ 20% 64, WDV on 29.1.2025 2,56, Less: Amount recovered 2,00, Value of perquisite 56,
The rate of 15% as well as the straight line method adopted by the company for depreciation of vehicle is not relevant for calculation of perquisite value of car in the hands of Mr. Chirag.
(3) Taxable gratuity Particulars Rs. Gratuity received 6,00, Less : Exempt under section 10(10) - Least of the following: (i) Notified limit = Rs. 20,00, (ii) Actual gratuity = Rs. 6,00, (iii) 15/26 x last drawn salary x no. of completed years of services or part in excess of 6 months 15/26 x Rs. 30,000 x 30 = Rs. 5,19,231 5,19, Taxable Gratuity 80,
Note: As per the Payment of Gratuity Act, 1972, D.A. is included in the meaning of salary. Since in this case, Mr. Chirag is covered under payment of Payment of Gratuity Act, 1972, D.A. has to be included within the meaning of salary for computation of exemption under section 10(10).
(4) Taxable leave encashment Particulars Rs. Leave Salary received 3,30, Less : Exempt under section 10(10AA) - Least of the following: (i) Notified limit Rs. 25,00, (ii) Actual leave salary Rs. 3,30,
(iii) 10 months x Rs. 20,000 Rs. 2,00, (iv) Cash equivalent of leave to his credit
Rs. 2,20,
Taxable Leave encashment 1,30,
Note – It has been assumed that dearness allowance does not form part of salary for retirement benefits. In case it is assumed that dearness allowance forms part of pay for retirement benefits, then, the third limit for exemption under section 10(10AA) in respect of leave encashment would be Rs. 3,00,000 (i.e. 10 x Rs. 30,000) and the fourth limit Rs. 3,30,000, in which case, the taxable leave encashment would be Rs. 30,000 (Rs. 3,30,000-Rs. 3,00,000). In such a case, the gross total income would be Rs. 6,32,769.
(5) Commuted Pension Since Mr. Chirag is a non-government employee in receipt of gratuity, exemption under section 10(10A) would be available to the extent of 1/3rd^ of the amount of the pension which he would have received had he commuted the whole of the pension. Particulars Rs. Amount received 3,00,
Less: Exemption under section 10(10A) =
Taxable amount 1,50,
(6) The taxability provisions under section 56(2)(x) are not attracted in respect of television received from colleagues, since television is not included in the definition of property therein.
Answer 4: Computation of income chargeable under the head “Salaries” of Ms. Asha for A.Y.2025-26 under default tax regime Particulars Rs. Basic Salary 6,20, Dearness allowance 4,20, Commission 75, Entertainment allowance 9, Medical expenses reimbursed by the employer is fully taxable 18, Professional tax paid by the employer is a taxable perquisite as per section 17(2)(iv), since it is an obligation of the employee which is paid by the employer
Health insurance premium of Rs. 8,000 paid by the employer is an exempt perquisite [Clause (iii) of proviso to section 17(2)]
Nil
Gift voucher given by employer on Ms. Asha birthday (entire amount is taxable since the perquisite value exceeds Rs. 5,000) as per Rule 3(7)(iv)
Life insurance premium of Ms. Asha paid by employer is a taxable perquisite as per section 17(2)(v)
Laptop provided for use at home is an exempt perquisite as per Rule 3(7)(vii) Nil Provision of motor car with driver (engine cubic capacity more than 1.6 litres) owned by employer to employee, the perquisite value would be Rs. 39,
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Net Annual Value (NAV) 6,81, Less: Deduction under section 24 (a) 30% of NAV 2,04, (b) Interest on loan taken for the house [75% of Rs. 3 lakh] 2,25,000 4,29, Income from let-out portion of house property 2,51, Share of each co-owner (50%) 1,25,
(ii) If Arun and Bimal have exercised the option of shifting out of the default tax regime provided under section 115BAC(1A)
Computation of total income for the A.Y. 2025- Particulars Arun (Rs.) Bimal(Rs.) Income from house property I. Self-occupied portion (25%) Annual value Nil Nil Less: Deduction under section 24(b) Interest on loan taken for construction Rs. 37,500 (being 25% of Rs. 1.5 lakh) [Allowable since they have exercised the option of shifting out of the default tax regime provided under section 115BAC(1A)] 37,500 37, Loss from self occupied property (37,500) (37,500) II. Let-out portion (75%) – See Working Note above
Income from house property 88,350 88, Other Income 2,90,000 1,80, Total Income 3,78,350 2,68,
Answer 6: Let us first calculate the income from each house property assuming that they are deemed to be let out.
Computation of income from house property of Ganesh for the A.Y. 2025- Particulars Amount in Rs. House I House II House III Gross Annual Value (GAV) ER is the GAV of house property ER = Higher of MV and FR, but restricted to SR 3,50,000 3,60,000 3,75,
Less: Municipal taxes (paid by the owner during the previous year)
Net Annual Value (NAV) 3,14,000 3,31,200 3,55, Less: Deductions under section 24 (a) 30% of NAV 94,200 99,360 1,06, (b) Interest on borrowed capital - 55,000 1,75, Income from house property 2,19,800 1,76,840 73,
Ganesh can opt to treat any two of the above house properties as self-occupied. Under default tax regime under section 115BAC
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OPTION 1 (House I and II– self-occupied and House III – deemed to be let out)
If House I and II are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs. House I (Self-occupied) Nil House II (Self-occupied) (No interest deduction) Nil House III (Deemed to be let-out) 73, Income from house property 73,
OPTION 2 (House I and III – self-occupied and House II – deemed to be let out)
If House I and III are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs. House I (Self-occupied) Nil House II (Deemed to be let-out) 1,76, House III (Self-occupied) (No interest deduction) Nil Income from house property 1,76,
OPTION 3 (House II and III – self-occupied and House I – deemed to be let out)
If House II and III are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs. House I (Deemed to be let-out) 2,19, House II (Self-occupied) (No interest deduction) - House III (Self-occupied) (No interest deduction) - Income from house property 2,19,
Since Option 1 is most beneficial, Ganesh should opt to treat House I and II as self-occupied
and House III as deemed to be let out. His income from house property would be Rs.
73,640 for the A.Y. 2025-26 under default tax regime under section 115BAC.
If Mr. Ganesh has exercised the option of shifting out of the default tax regime
provided under section 115BAC(1A)
OPTION 1 (House I and II– self-occupied and House III – deemed to be let out)
If House I and II are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs. House I (Self-occupied) Nil House II (Self-occupied) (Interest deduction restricted to Rs. 30,000) (30,000) House III (Deemed to be let-out) 73, Income from house property 43,
OPTION 2 (House I and III – self-occupied and House II – deemed to be let out)
If House I and III are opted to be self-occupied, the income from house property shall be –
Particulars Amount in Rs. House I (Self-occupied) Nil House II (Deemed to be let-out) 1,76, House III (Self-occupied) (1,75,000) Income from house property 1,
