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PRODIGY

(अद् भुत)
COMPILATION
BY

CA JASPREET SINGH JOHAR


(89010921000)
 SUMMARY
 PAST EXAMINATION QUESTIONS TILL MAY 2017
 RTP QUESTIONS TILL NOV 2017
of
CHAPTER 1 DEFINATION PAGE 1 TO PAGE 4
CHAPTER 2 RESIDENTIAL STATUS PAGE 5 TO PAGE 27
CHAPTER 3 TAX CALCULATION PAGE 28 TO PAGE 33
CHAPTER 4 AGRICULTURE INCOME PAGE 34 TO PAGE 39
CHAPTER 5 SALARY PAGE 40 TO PAGE 76
CHAPTER 6 HOUSE PROPERTY PAGE 77 TO PAGE 94
SUMMARY OF CHAPTER OF INTRODUCTION & DEFINATIONS

SUMMARY OF CHAPTER OF DEFINATIONS


Applicability : Section 1 Income Tax Act , 1961 is applicable to whole of India and became applicable from
1/4/1962
1/4/1962 refers to AY 1962-1963 ie PY 1961-1962

India : Section 2(25A) India means the


 territory of India as referred in Article 1 of the Constitution of India
 its territorial waters
 seabed and subsoil underlying such waters
 continental shelf and
 the air space above its territory and territorial waters

Person : Section 2(31) Person includes:


(a) An individual
(b) A Hindu undivided family
(c) A company
(d) A Firm
(e) An association of persons or a body of individuals
(f) A local authority
(g) Every artificial juridical person not falling within any of the preceding
categories.

Income: Section 2(24) Income includes:


(1) Profits and gains of any business and profession
(2) Dividend
(3) Voluntary contributions received by a trust
(4) Value of any perquisites or profits in lieu of salary received by employee
(5) Any allowance or benefit granted to employee to meet official expenses
(6) Any capital gains chargeable under Section 45
(7) Any winning from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from
(8) Any sum of money or value of property referred to in Section 56(2)
(9) Any consideration received by the company in which public is not
substantially interested, for the issue of shares as exceeds the fair market
value of shares
(10) Any sum of money received as an advance or otherwise in the course of
negotiations for the transfer of capital asset if such sum is forfeited and
negotiations do not result in a transfer of such capital asset.
(11) Assistance in the form of a
 subsidy or
 grant or
 cash incentive or
 duty drawback or
 waiver or
 concession or
 reimbursement (by whatever name called)
by the
 Central Government or

CA JASPREET SINGH JOHAR - 8010921000 PAGE 1


SUMMARY OF CHAPTER OF INTRODUCTION & DEFINATIONS

 a State Government or
 any authority or
 body or agency
in cash or kind to the assessee
If subsidy or grant or reimbursement which is reduced from actual cost of the
asset under section 43 shall not be regarded as income.

Income is a periodical payment with some sort of regularity. It may be recurring in


nature. It may be defined as true increase in the wealth which comes to a person
during a fixed period of time.

Gross total income [GTI] The aggregate of incomes under following five heads is called GTI
: Section 14 1. Income from Salaries
2. Income from house property
3. Income from Profits and gains of business or profession
4. Income from Capital gains
5. Income from other sources

Total Income: Total Income means total amount of income computed by reducing deductions
Section 2(45) from Gross Total Income. In other words, from the Gross Total Income certain
deductions under Section 80C to 80U are allowed and the balance income, after
the deductions, is known as Total Income.

Assessment year : Assessment Year (AY) means the period of 12 months commencing on the 1st
Section 2(9) date of April every year.

Previous year : Previous year means the financial year immediately preceding the assessment
Section 2(34) & year.
Section 3
 A financial year is the period of 12 months starting from 1st April till 31st March
of the following year
 This is also the accounting year for the Government of India.
 The income earned in one financial year is taxable in the next financial year.
 The financial year in which income is earned is called Previous Year.
 And the financial year in which tax is computed is called Assessment Year.
 With effect from (w.e.f.) AY 1989-1990 the previous year has been made
uniform for all persons and is followed in respect of all types of income.
 This uniform Previous Year has to be followed for all sources of income.
 One financial year plays a dual role. It can be a previous year as well as the
assessment year. In one year, it is assessment year and then, it will become
previous year in the next year.

Previous year in the In the case of a newly set-up business/profession or in the case of a new source
case of newly set-up of income, the previous year is determined as follows-
business/profession  The first previous year commences on the date of setting up of the
business/profession (or, as the case may be, the date on which the source of
income newly comes into existence) and ends on the immediately following
March 31. Thus first previous year may be of 12 months or less than 12 months.
 The second and subsequent previous years are always financial year of 12
Months each (i.e., April to March).

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SUMMARY OF CHAPTER OF INTRODUCTION & DEFINATIONS

Connection between Income of Previous Year is taxable in the Previous Year itself at the rate of tax
previous year and applicable in that year
assessment year (a) Income of non-resident from shipping business.
(b) Income of persons leaving India permanently.
(c) Income of bodies formed for short duration.
(d) Income of a person who is transferring his assets with a view to avoiding
payment of tax.
(e) Income of a discontinued business.
Assessee: Section 2(7) Assessee means any person by whom any Tax or any other sum of money is
payable under this Act and includes:
(a) Every person in respect of whom any proceeding under this Act has been
taken for the assessment of:
i.His own income or
ii.Of the income of any other person for which he is liable or
iii.The loss sustained by him or by such other person
(b) Every person who is deemed to be an assessee under any provision of this
Act. (Representative assessee)
(c) Every person who is deemed to be an assessee in default under any provision
of this Act.
Rounding-off Taxable income shall be rounded-off to multiple of ten rupees: Section 288A
Income Tax liability shall be rounded-off to multiple of ten rupees: Section 288B
Exemption vs. EXEMPTION DEDUCTION
Deduction If an income is exempt from tax, it Deduction is generally given from income
is not included in the computation chargeable to tax. Deduction can be less
of income. than or equal to or more than amount of
Exemption can never exceed the income. If amount deductible is more than
amount of income. the amount of income, the resulting amount
will be taken as loss.
Capital receipts vs. CAPITAL RECEIPTS REVENUE RECEIPTS
Revenue receipts  Capital receipts are exempt from  A receipt referable to circulating capital
tax unless they are expressly would be a revenue receipt.
It is not possible to lay taxable. For instance, capital  The circulating capital is one which is
down any single test to gains are taxable under section turned over and yields income or loss in
determine whether a 45 even if they are capital the process.
particular receipt is capital receipts.  Revenue receipts are taxable, unless
or revenue in nature.  Capital receipts cannot be they are expressly exempt from tax. For
taxed, unless they fall within the instance, income exempt under section
The capital or revenue scope of the definition of 10.
nature of the receipt must “income”
be determined with  Certain capital receipts which
reference to the facts and have been specifically included
circumstances of each in the definition of income are
case. compensation for modification or
termination of services, income
by way of capital gains etc.
 Tangible and intangible assets
which the owner keeps in his
possession for making profits
are in the nature of fixed capital.

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SUMMARY OF CHAPTER OF INTRODUCTION & DEFINATIONS

Method of accounting Income chargeable under the head “Profit and gain of business or profession” or
Income from other sources is to be computed in accordance with the method of
accounting regularly employed by the assessee. Thus, it can be cash basis of
accounting or it can be accrual basis of accounting.
In other cases, method of maintaining books of account is irrelevant.
Type of accounting Mainly here are two types of accounting methods – Mercantile system and cash
methods system.
 Mercantile System: Under mercantile system, income and expenditure are
recorded at the time of occurrence during the previous year.
 Cash System: Under cash system of accounting, revenue and expenses are
recorded only when received or paid.
Provisions to tax black There can be occasions when the Assessing Officer (like Income Tax Office)
money detects black money of assessee like cash credits, unexplained investments,
unexplained expenditure etc,
Under section 68, 69, 69A, 69B, 69C or 69D if the assessee offers no
explanation about the nature and source or the explanation offered is not
satisfactory in the opinion of the Assessing Officer then such cash credits,
unexplained investments, unexplained expenditure etc will be taxable as income.
(i) Cash Credits : Section 68
Where any sum is found credited in the books of the assessee then the sum so
found credited may be charged as income of that previous year in which it has
been found credited.
(ii) Unexplained Investments : Section 69
Where the assessee has made investments which are not recorded in the books
of account the value of the investments will be taxed as income of the that PY in
which investment has been made.
(iii) Unexplained money etc. : Section 69A
Where the assessee is found to be the owner of any money, bullion, jewellery or
other valuable article which is not recorded in the books of account then the
money and the value of bullion etc. will be taxed as income of that PY in which
he is found to be the owner.
(iv) Amount of investments etc., not fully disclosed in the books of
account : Section 69B
Where the assessee is found to be the owner of any bullion, jewellery or other
valuable article and the value of this is not fully disclosed in the books of account
then such difference will be taxable as income of that PY in which such
investment etc is found.
(v) Unexplained expenditure : Section 69C
Where assessee has incurred any expenditure then the Assessing Officer can
treat such unexplained expenditure as the income of the assessee of that PY in
which expenditure has been done.
(vi) Amount borrowed or repaid on hundi : Section 69D
Where any amount is borrowed on a hundi then the amount so borrowed will be
taxable as the income of the PY in which such sum is borrowed.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 4


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

SUMMARY OF RESIDENTIAL STATUS


Requirement of Residential status is required for 2 purposes
Residential status a) To determine whether any income is taxable or not taxable
b) To determine the rate of income tax to be applied if the income is taxable
Types For different taxpayers residential status is as follows:
 Individuals/Hindu undivided family:
 Resident in India
 Resident and Ordinarily Resident in India
 Resident but Not-Ordinarily resident in India
 Non-resident in India
 All Other
 Resident in India
 Non-resident in India

Residential status of Rules of residential status of Individual


an individual : ROR NOR NR
Section 6(1) 1-BC + 2-AC = ROR 1-BC + 1-AC = NOR 0-BC = NR
1-BC + 0-AC = NR

Basic Conditions
Stay in India is for 182 days or OR Stay in India is for 60*** days
more in the relevant previous or more during the relevant
year previous years
AND
Stay in India is for 365 days or
more during preceeding 4
years from the relevant
previous

***60 days will be taken as 182


days in following cases:
a) In the case of an Indian
citizen who leaves India for
the purpose of employment.
b)In the case of an Indian
citizen who leaves India as a
crew member of an Indian
ship ♯♯♯.
c) In the case of an Indian
citizen or a person of Indian
origin who ordinarily stays
aboard but comes on a visit
to India during the previous
year.
♯♯♯ In case of member of a crew of an Indian ship , the period of stay in
India shall not include the period computed from beginning on the date
entered into the Continuous Discharge Certificate when joining the ship by
the said individual and ending on the date entered into the Continuous
Discharge Certificate when signing off by that individual from the ship

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

Additional Conditions : Section 6(6)(a)


Resident in India in at least 2 out and Stay in India for 730 days or more
of 10 years immediately during 7 years immediately
preceding the relevant previous preceding the relevant previous
year year

Residential status of a
person other than an
individual Taxpayers other Control and management of business affairs
than an individual of the taxpayer are
Wholly in Wholly Partly in India and
India outside partly outside India
India
Hindu undivided family Resident Non-resident Resident
Partnership Firm / LLP Resident Non-resident Resident
AOP / BOI Resident Non-resident Resident
Domestic Company Resident Resident Resident
Artificial juridical person Resident Non-resident Resident

Place of effective management (POEM)


Wholly in Wholly Partly in India and
India outside partly outside India
India
Foreign company Resident Non - Resident Non - Resident

If HUF is resident then it will be either ROR / NOR. It will be ROR if karta
satisfies following Additional Conditions : Section 6(6)(b)

Resident in India in at least 2 out and Presence of at least 730 days in


of 10 years immediately India during 7 years immediately
preceding the relevant previous preceding the relevant previous
year year

If karta of HUF does not satisfy the two additional conditions then the family is
treated as NOR.

In order to determine the residential status Partnership Firm, AOP/BOI,


Company, AJP the residential status, partners of the firm, members of AOP/BOI,
directors of the company, etc., is not relevant.

For example it is quite possible that partners of a firm are resident in India but
the firm is controlled from a place outside India and consequently, the firm is a
non-resident in India.
Indian income and Indian Income: Income is Indian Income if any one of following three conditions
foreign income when gets satisfied:
taxable / not taxable 1) If income is received (or deemed to be received) in India and it accrues (or is
deemed to accrue or arise) in Indian.
2) If income is received (or deemed to be received) in Indian but it accrues
outside India.
3) If income is received outside India but it accrues in India.

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

Foreign Income: Income is foreign income if it satisfies both of following


condition:
(a) Income is not received (or not deemed to be received) in India
(b) Income does not accrue or arise (or does not deemed to accrue or arise) in
India.

Indian Income: Indian income is always taxable in India irrespective of the


residential status of the taxpayer. That means it is taxable in India for Resident
(ROR / NOR) as well as for non-resident.

Foreign Income: Foreign income is taxable in the hand of


 Resident partnership firm
 Resident AOP / BOI
 Resident Company
 Resident AJP
 Individual / HUF who is resident and ordinarily resident
 Individual / HUF who is resident and but not ordinarily resident only if it is
(a) business income and business is controlled wholly or partly from India
(b) professional income from a profession which is set up in India.
(In any other case, foreign income is not taxable in the hands of NOR)
Foreign income is not taxable in the hands of non-resident in India.
Receipt of income in If income is received in India, it is always chargeable to tax. The “receipt” of
India income refers to the first income; any remittance transmission of the amount to
another place does not result in receipt at the other place.
Income deemed to be Following are cases where income is deemed to be received in India:
received in India  Interest credited to RPF account of an employee in excess of 9.5%.
 Contribution of employer to RPF in excess of 12% of salary.
 Transfered balance.
 Contribution by employer NPS referred u/s 80CCD.
 Tax deducted at source.
 Deemed profit under section 41.
Accrual of income Income accrued in India is chargeable to tax in all cases irrespective of
residential status of an assessee. The words “accrue” and “arise” are used in
contradistinction to the word “receive’. Income is said to be received when it
reaches the assessee when the right to receive the income becomes vested in
the assessee, it is said to accrue or arise.
Income deemed to In some cases, income is deemed to accrue or arise in India u/s 9 even though it
accrue or arise in may actually accrue or arise outside India. The cases enumerated by section 9
India are given below:
 Income from business connection in India.
 Income from any property, asset or source of income in India.
 Capital gain on transfer of a capital asset situated in India.
 Income from salary if service is rendered in India.
 Income from salary (not being perquisite/allowance) if service is rendered
outside India (provided the employer is Government of India and the
employee is a citizen of India).
 Interest, royalty or technical fees received from the Government of India.
 Interest, royalty or technical fees received from a resident (except when the
payment pertains to business carried on by the payer outside India).
 Interest, royalty or technical fees received from a non-resident if the payment
pertains to business carried on by the payer in India.

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

PAST EXAMINATION QUESTIONS


MAY 2017 – 4 MARKS
During the last four years preceding the financial year 2017-2018, Mr. Damodhar, a citizen of India,
was present in India for 430 days. During the last seven PYs preceeding the previous year 2017-
2018, he was present in India for 830 days. Mr. Damodhar is a member of crew of a Dubai bound
Indian ship, carrying passengers in the international waters, which left Kochi port in Kerala, on 12 th
August, 2017. Following details are made available to you for the PY 2017-2018.
Particulars Date
th
Date entered into the Continuous Discharge Certificate in respect of joining the 12 Aug, 2017
ship by Mr. Damodhar
Date entered into the Continuous Discharge Certificate in respect of signing off 21st Jan, 2018
the ship by Mr. Dhamodhar
In May, 2017 he had gone out of India to Singapore and Malaysia on a private tour for a continuous
period of 29 days. You are required to determine the residential status of Mr. Damodhar for the AY
2018-2019 i.e. PY 2017-2018.

Solution : An Indian citizen leaves India as a member of crew of an Indian ship or for the purpose of
employment outside India, he will be resident only if he stayed for 182 days or more during the
previous year. As per newly inserted Rule 126 , in case of the time period between 12/8/2017 and
21/1/2018 (both days inclusive) will not be regarded as a stay in India. Thus number of days of stay in
India for the AY 2018-2019 i.e. PY 2017-2018 will be
Month Number of days
April 2017 30
May 2017 (31-29) 2
June 2017 30
July 2017 31
August 2017 11
September 2017 0
October 2017 0
November 2017 0
December 2017 0
January 2018 (31 - 21) 10
February 2018 28
March 2018 31
Total number of days in the year 2017-2018 173
Since stay in India is less than 182 days Mr. J is a non resident of India.

MAY 2017 – 4 MARKS


A Korean Company Damjung Ltd. entered in to the following transactions during the financial year
2017-2018:
i. Received `20 lakhs from a non-resident for use of patent for a business in India.

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
ii. Received `15 lakhs from a non-resident for use of know-how for a business in Sri Lanka and this
amount was received in Japan. [Assume that the above amount is converted / stated in Indian
Rupees].
iii. Received `7 lakhs from RR Co. Ltd., an Indian company for providing technical know-how in India.
iv. Received `5 lakhs from R & Co, Mumbai for conducting the feasibility study for a new project in
Nepal and the payment was made in Nepal.
Explain briefly, whether the above receipts are chargeable to tax in India.

Solution: We are assuming that Damjung Ltd. Is NR of India


Under Section 5, a non-resident is taxable in India on (a) Income accruing or arising or deemed to
accrue or arise in India and (b) income received or deemed to be received in India. In this
background, the assessability of the receipt by the Damjung Ltd is as under :
1) Where royalty on the use of patent is payable by non-resident in respect of any right utilized for the
purpose of business or profession in India then such royalty is deemed to accrue in India u/s 9 and
thus `20 lakhs will be taxable in India.
2) Where royalty on the use of know how is payable by non-resident in respect of any right utilized for
the purpose of business or profession outside India then such royalty is not deemed to accrue in
India u/s 9. In this case business is being run in Sri Lanka and thus `15 lakhs will not be taxable in
India.
3) Where royalty on the use of patent is payable by resident in respect of any right utilized for the
purpose of business or profession in India then such royalty is deemed to accrue in India u/s 9 and
thus `7 lakhs will be taxable in India.
4) Fees for technical services shall be always deemed to accrue or arise in India except when such
services are used for business or profession outside India. In this case project is in Nepal thus `5
lakh is not deemed to accure in India.

NOV 2016 – 4 MARKS


Question : Mr. J is a citizen of India and Joint Secretary in the Ministry of Finance, Government of India. On
15/3/2017 he got transferred as High Commission to Australia. He did not come to India during the AY 2018-
2019 i.e. PY 2017-2018. His incomes for the year are as follows – `
Salary from Government of India 7,20,000
Foreign allowances from Government of India 6,00,000
Rent of a house situated at London (rent received in London) 3,60,000
Interest accrued on National Saving Certificate during the year 45,000
Compute the gross total income of Mr. J for the AY 2018-2019 i.e. PY 2017-2018

Solution : Calculation of Residential Status


Mr. J did not visit India during the AY 2018-2019 i.e. PY 2017-2018. He fails to satisfy any of the basic
condition mentioned under section 6(1) and thus he is a Non-Resident of India.

Calculation of Gross total income of Mr. J for the AY 2018-2019 i.e. PY 2017-2018 `
Salary from Government of India accrues and arises in India u/s 7 7,20,000
Foreign Allowances [it is exempt under section 10(7)] NIL
Income from house property (it is a foreign income) NIL
Income from other sources (interest accrued on NSC) 45,000
Gross total income 7,65,000

MAY 2016 – 4 MARKS


Question : How is the residential status of a company determined for the purpose of Income-Tax Act, 1961,
for the AY 2018-2019 i.e. PY 2017-2018

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Solution : Residential status of company: Section 6(3)
Resident in India Non-resident in India
Company is said to be resident if a) Indian company can never be a non resident
a) it is an Indian company or b) Foreign company which is not having POEM in
b) it is a foreign company having its place of India is a non resident of India.
effective management (POEM), in that
year, in India.
For the purposes of this clause "place of effective
management" (POEM) means a place where key
management and commercial decisions that are
necessary for the conduct of the business of an
entity as a whole, are in substance, made
NOTE : If company is resident then it shall not be bifurcated into ROR or NOR.

NOV 2015 – 4 MARKS


Question : Mr. J an Indian citizen left India on 20/4/2015 for the first time to set-up a software firm in
Singapore. On 10/4/2017 he enters into an agreement with GGC Ltd., an Indian company, for the transfer of
technical documents and designs to setup an automobile factory in Delhi. He reaches India along with his team
to render the requisite services on 15/5/2017 and completes his assignment on 20/8/2017. He leaves India for
Singapore on 21/8/2017. He charges `50 Lakh for his services, from GGC Ltd. Determine the residential status
of Mr. J for the AY 2018-2019 i.e. PY 2017-2018 and explain as to taxability of the fees charged from GGC Ltd.

Solution : During the AY 2018-2019 i.e. PY 2017-2018, he comes to India for 99 days. He is non-resident in
India for the AY 2018-2019 i.e. PY 2017-2018 (he can become resident only if he is in India for at least 182
days during the relevant previous year). If a non-resident receives technical fees from a resident and technical
fees pertains to a project situated in India, technical fees is deemed to accrue or arise in India. Consequently,
technical fees of `50,00,000 is chargeable to tax in India.

MAY 2015 – 4 MARKS


Question : Explain with reasons whether the following transaction attract income tax in India in the hands of
the recipients ?
(a) Salary paid to Mr. David, a citizen of India, `15,00,000 by the Central Government for the services
rendered in Canada
(b) Legal charges of `7,50,000 paid to Mr. Johnson , a Lawyer of London , who visited India to represent a
case at the Supreme Court
(c) Royalty paid to Rajeev, a non resident by Mr. Mukesh, a resident for the business carried on in Sri
Lanka.
(d) Interest paid of `1,00,000 on money borrowed from France to Mrs Dyana who is non-resident for the
business at Bangalore.
Solution :
(a) Taxable. Salary paid by Central Government to the citizen of India for the services rendered outside India
is deemed to accrue and arise in India as per section 9. However allowances and perquisites received
outside India shall be fully exempt u/s 10(7).
(b) Taxable as the amount has been paid for the services rendered in India.
(c) Not taxable as royalty has been paid for the business done outside India.
(d) Taxable as the amount borrowed has been used for the business in India.

MAY 2015 – 4 MARKS


Question : Mrs. Bindu a non-resident, residing in New York since 1990, came back to India on 19/2/2016 for
the permanent settlement of India. Explain her residential status for the AY 2018-2019 i.e. PY 2017-2018 in
accordance with the provisions of Indian Income Tax Act.
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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Solution: Stay in India for Mrs. Bindu is as under
PY 2017-2018 – 365 days
PY 2016-2017 – 366 days
PY 2015-2016 – 41 days
She is in India for more than 182 days during the AY 2018-2019 i.e. PY 2017-2018 and hence she is a resident
of India. Further she is resident in the PY 2016-2017 but prior to that she was a non-resident. Thus we can say
that she could not satisfy any of the additional conditions and therefore she is NOR in India.

NOV 2014 – 8 MARKS


Question : Mrs. Geetha and Mrs. Leena are sisters and they earned the following income during the AY 2018-
2019 i.e. PY 2017-2018. Mrs. Geetha is settled in Malaysia since 1984 and visits India for a month every year,
Mrs. Leena is settled in Indore since her marriage in 1992. Compute total income of Mrs. Geetha and Mrs.
Leena for the AY 2018-2019 i.e. PY 2017-2018.
Particulars Mrs. Geetha Mrs. Leena

Income from Profession in Malaysia, (Set up in India), received there 15,000 -

Profit from business in Delhi, but managed directly from Malaysia 40,000 -

House property income in Malaysia deposited in a Bank at Malaysia, 1,20,000 -


later on remitted to India through approved banking channels.

Dividend from PQR Ltd., an Indian Company 5,000 9,000

Dividend from a Malaysian company, received in Malaysia 15,000 8,000

Cash gift received from a friend on Mrs. Leena’s 50th birthday - 51,000

Agricultural income from land in Maharashtra 7,500 4,000

Past foreign untaxed income brought to India 5,000 -

Fees for technical service rendered in India, received in Malaysia 25,000 -

Income from a business in Pune (Mrs. Geetha receives 50% of the 12,000 15,000
income in India)

Interest on debentures in an Indian company (Mrs. Geetha received the 18,500 14,000
same in Malaysia)

Short-term capital gain on sale of shares of an Indian company 15,000 25,500

Interest on savings account with SBI 12,000 8,000

Life insurance premium paid to LIC - 30,000

Solution : Mrs. Geetha comes to India for 30 days every year. She is unable to satisfy any of the basic
conditions of section 6(1) and consequently she is non-resident in India. Mrs. Leena is resident and ordinarily
resident (ROR) in India. Income will be calculated as follows
Particulars Nature of Mrs. Mrs.
income Geetha Leena
Income from profession in Malaysia (set up in India) Foreign income Nil --
received there

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SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Profit from business in Delhi, but managed directly from Indian Income 40,000 --
Malaysia
Income from House Property situated in Malaysia Foreign income Nil --
(received in Malaysia)
Dividend from PQR Ltd., an Indian company Indian Income Nil Nil
(exempt from tax)
Dividend from a Malaysian company received in Malaysia Foreign income Nil 8,000
Cash gift received from a friend on Mrs Leena’s 50th Indian Income -- 51,000
birthday
Agricultural income from land in Maharashtra Indian Income Nil Nil
(exempt from tax)
Past foreign untaxed income brought to India Remittance Nil Nil
received
Fees for technical services rendered in India received in Indian Income 25,000 Nil
Malaysia
Income from a business in Pune Indian Income 12,000 15,000
Interest on debentures of an Indian company Indian Income 18,500 14,000
STCG on sale of shares in an Indian company Indian Income 15,000 25,500
Interest on savings account with SBI Indian Income 12,000 8,000
Gross total income 1,22,500 1,21,500
Less: Deductions
Under section 80C -- 30,000
Under section 80TTA (savings bank interest) 10,000 8,000
Taxable Income 1,12,500 83,500

MAY 2013 – 8 MARKS


Question : Devesh and Siddhant are brothers and they earned the following incomes during the AY 2018-
2019 i.e. PY 2017-2018. Devesh got settled in America in the year 1985 and Siddhant got settled in Mumbai.
Devesh visits India for 20 days every year. Siddhant also visits America every year for a month. Compute their
total income for the AY 2018-2019 i.e. PY 2017-2018 from the following information:
Particulars Devesh (`) Siddhant (`)

Interest on American Development bonds, 50% of interest, received in India 46,000 18,000

Dividend from a Japanese company, received in America 10,000 15,000

Profit on sale of shares of an Indian company, received in India 45,000 75,000

Profit from business in Mumbai, but managed directly from America 10,000 ---

Income from business in Mumbai 32,000 28,000

Fees for technical services rendered in America and received in America. 1,50,000 ---
The services were, however, utilized in India

Interest on savings bank deposit in State Bank of India, Mumbai 4,500 12,000

Rent received in respect of house property at Mumbai 96,000 55,000

Life Insurance Premium paid 15,000 25,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 12


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Solution : Since Devesh comes to India for 20 days every year, he is non-resident in India for the AY 2018-
2019 i.e. PY 2017-2018. On the assumption that Siddhant does not visit any country other than USA, he is
ROR in India for the AY 2018-2019 i.e. PY 2017-2018.
Particulars Income Devesh Siddhant
Interest on American Development Books —
- Received in India Indian Income 23,000 9,000
- Received outside India Foreign Income Nil 9,000
Dividend from Japanese company received in America Foreign Income Nil 15,000
Profit on sale of shares of an Indian company received in India Indian Income 45,000 75,000
Profit from a business in Mumbai,but managed directly from America Indian Income 10,000 --
Income from a business in Mumbai Indian Income 32,000 28,000
Fees for technical services received and rendered in America Indian Income 1,50,000 --
(services utilized in India)
Interest on savings bank deposit in SBI, Mumbai Indian Income 4,500 12,000
Rent received in respect of house property at Mumbai Indian Income 67,200 38,500
[after 30% statutory deduction u/s 24(a)]
Gross total income 3,31,700 1,86,500
Less: Deductions Under section 80C 15,000 25,000
Under section 80TTA (savings bank interest up to `10,000) 4,500 10,000
Taxable Income 3,12,200 1,51,500

NOV 2012 – 4 MARK


Question : Discuss the tax treatment of the following:
a) Interest on moneys borrowed from outside India `5,00,000 by a non-resident for the purpose of business
within India say, at Mumbai.
b) Royalty paid by a resident to a non-resident in respect of a business carried on outside India.
c) Legal charges of `5,00,000 paid to a lawyer of United Kingdom who visited India to represent a case at the
Delhi High Court.
d) Salary paid by Central Government to John, a citizen of India `7,00,000 for the services rendered outside
India.

Solution :
a) If money is borrowed by a non-resident from outside India for the purpose of carrying on business in India,
interest on such borrowed money is deemed to accrue or arise in India in the hands of the recipient of
interest by virtue of section 9.
b) Royalty received by a non-resident from a resident is not taxable in India if royalty pertains to a business or
profession carried on by the payer outside India. This rule is given by section 9.
c) Legal charges - Since service is rendered in India, legal charges received by the lawyer is taxable in India.
d) Salary paid by the Central Government to a citizen of India is deemed to accrue or arise in India by virtue
of section 9, even if service is rendered outside India. Consequently, salary will be taxable in the hands of
John whether he is resident or non-resident. However, any allowance or perquisite paid (or provided) by
the Government outside India is exempt by section 10(7).

MAY 2012 – 12 MARKS


Question : Mr. Ramesh and Mr. Suresh are brothers and they earn the following incomes during the AY 2018-
2019 i.e. PY 2017-2018. Mr. Ramesh is settled in Canada since 1995 and Mr. Suresh is settled in Delhi.
Compute the total income for the AY 2018-2019 i.e. PY 2017-2018.
Particulars Ramesh (`) Suresh (`)

Interest on Canada development bonds (50% is received in India) 35,000 40,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 13


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Dividend from British company, received in London 28,000 20,000

Profit from business in Nagpur but managed from London 1,00,000 1,40,000

STCG on sale of shares of an Indian Company, received in India 60,000 90,000

Income from business in Chennai 80,000 70,000

Fees from technical services rendered in India but received in Canada 1,00,000 NIL

Interest on savings bank deposit in UCO bank, Delhi 7,000 12,000

Agriculture income from land situated in Andhra Pradesh 55,000 45,000

House Property income received in respect of house property in Bhopal 1,00,000 60,000

Life insurance premium paid NIL 30,000

Solution : Computation of income of Ramesh (non-resident) and Suresh (resident and ordinarily resident)
Ramesh Suresh
` `
Interest on Canada Development Bond (received in India) 17,500 20,000
Interest on Canada Development Bond (received outside India) NIL 20,000
Dividend from a British company received in London NIL 20,000
Profit from a business in Nagpur, but managed directly from London 1,00,000 1,40,000
Short term capital gain on sale of shares of an Indian company 60,000 90,000
Income from a business in Chennai 80,000 70,000
Fees for technical services rendered in India 1,00,000 NIL
Interest on savings bank deposit in UCO Bank, Delhi 7,000 12,000
Agricultural income in India NIL NIL
House property income 1,00,000 60,000
Gross total income 4,64,500 4,32,000
Less: Deduction under section 80C NIL 30,000
Less: Deduction under section 80TTA 7,000 10,000
Taxable income 4,57,500 3,92,000

MAY 2012 – 4 MARKS


Question : Discuss the correctness or otherwise of the statement – “Income deemed to accrue or arise in
India to a non-resident by way of Interest, Royalty and fees for technical services is to be taxed irrespective of
territorial nexus”

Solution : This statement is correct.


As per Explanation to section 9, income by way of interest, royalty or fee for technical services which is
deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included in
the total income of the non-resident, whether or not -
(i) non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
In effect, the income by way of fee for technical services, interest or royalty from services utilised in India would
be deemed to accrue or arise in India in case of a non-resident and be included in his total income, whether
or not such services were rendered in India and irrespective of whether the non-resident has a residence or
place of business or business connection in India.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 14


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
NOV 2011 – 4 MARKS
Question : Brett Lee, an Australian cricket player visits India for 100 days in every financial year. This has
been his practice for the past 10 financial years. Find out his residential status for the AY 2018-2019 i.e. PY
2017-2018.
Solution: Calculation of residential status of Mr. J for the AY 2018-2019 i.e. PY 2017-2018
Previous Year No of Days in India Status

2017-2018 100 Resident

2016-2017 100 Resident

2015-2016 100 Resident

2014-2015 100 Resident

2013-2014 100 Resident

2012-2013 100 Resident

2011-2012 100 Resident

2010-2011 100 Non-Resident

2009-2010 100 Non-Resident

2008-2009 100 Non-Resident

2007-2008 100 Non-Resident

Brett Lee has satisfied second basic condition and only one additional condition. Therefore he becomes
resident but not ordinary resident.

NOV 2011 – 7 MARKS


Question : Mr. J, a Government employee, serving in the Ministry of External Affairs left India for the first time
on 31/3/2017 due to his transfer to High Commission of Canada. He did not visit India any time during the year
and has received following income during the year Compute GTI for the AY 2018-2019 i.e. PY 2017-2018.
Particulars `

Salary 5,00,000

Foreign Allowance 4,00,000

Interest on fixed deposit from Bank of India 1,00,000

Income from agriculture in Pakistan 2,00,000

Income from House property in Pakistan 2,50,000

Solution : It is assumed that Mr. J is an Indian citizen. Since Mr. J does not come to India during the AY 2018-
2019 i.e. PY 2017-2018, he is non-resident in India. His GTI will be calculated as follows – `
Salary [taxable as it is deemed to be earned in India by virtue of section 9] 5,00,000
Foreign allowance [exempt under section 10(7)] Nil
Salary income 5,00,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 15


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Income from other sources
Bank interest in India (fixed deposits) 1,00,000
Agricultural income in Pakistan (it is assumed that it is received in Pakistan) Nil
House property income from Pakistan (it is assumed that it is received in Pakistan) Nil
Gross total income 6,00,000

MAY 2010 – 4 MARKS


Question : Mrs. J paid a sum of USD 5,000 to Mr. K, a management consultant practicing in Colombo,
specializing in project financing. The payment was made in Colombo. Mr. K is a non-resident. The consultancy
related to a project in India. Is this payment chargeable to tax in India in the hands of Mr. K ?

Solution : Income of K, a non-resident management consultant – K is a non-resident. During the relevant


previous year, he has received a consultancy fee of $ 5,000 from a resident person. Consultancy fee pertains
to a project of the payer in India. By virtue of section 9 it is chargeable to tax in the hands of K in India.

NOV 2010 – 5 MARKS


Question : Mr. J, an Indian citizen, left India for the first time on 22/9/2017 to work as an officer in company in
Germany. Calculate residential status for the AY 2018-2019 i.e. PY 2017-2018 and explain the condition to be
fulfilled for the same.

Solution : Mr. J is leaving India for the purpose of employment outside India and thus exceptional case to
section 6 will be applicable. As per exceptional case, if Indian citizen leave India for the employment outside
India and his stay in India is less than 182 days then such Individual is non-resident of India. In the instant case
Mr. J stays in India for the period of 175 days and thus he is non-resident of India.

NOV 2010 – 2 MARKS


Question : Explain the tax treatment of Agriculture income earned by resident of India from land in Malaysia.

Solution : Agriculture Income earned from land located in India is exempt u/s 10(1) but if agriculture land is
located outside India then agriculture income is taxable as income from other sources. If agriculture land is in
Malaysia then agriculture income will be taxable in India for resident and ordinary resident of India.

MAY 2010 – 10 MARKS


Question : From following particulars of Income furnished by Mr. Anirudh pertaining to the year ended 31/3/
2018, compute the total income for the AY 2018-2019 i.e. PY 2017-2018, if he is (i) ROR; (ii) NOR; (iii) NR
Particulars `

Profit from sale of shares in Indian Company, received in Germany 15,000

Dividend from a Japanese Company, received in Japan 10,000

Income from house property in London deposited in a Bank, later on remitted to India. 75,000

Dividend from RP Ltd., an Indian Company 6,000

Agricultural income from lands in Gujarat 25,000

Solution : Computation of total income of Mr.Anirudh for the AY 2018-2019 i.e. PY 2017-2018
Particulars ROR (`) NOR(`) NR(`)
Profit on sale of shares in an Indian company received in Germany 15,000 15,000 15,000
Dividend from a Japanese company received in Japan 10,000 NIL NIL

CA JASPREET SINGH JOHAR - 8010921000 PAGE 16


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
House Property in London deposited in a bank in London, later on remitted 75,000 NIL NIL
Dividend from RP Ltd., an Indian company [exempt under section 10(34)] NIL NIL NIL
Agricultural income from lands in Gujarat [exempt under section 10 (1)] NIL NIL NIL
Total 1,00,000 15,000 15,000

MAY 2010 – 2 MARKS


Question : State the scope of total income in the case of an individual, whose residential status is ‘non-
resident’ with reference to Section 5(2) of the Act.

Solution : Non-resident individual is chargeable to tax in respect of only Indian income. For detailed
discussion refer section 5(2)

NOV 2009 – 8 MARKS


Question : Determine the taxability of income of US based company Heli Ltd., in India on entering following
transactions during the AY 2018-2019 i.e. PY 2017-2018
(i) `5 lakhs received from a domestic company for providing technical know-how in India.
(ii) `6 lakhs from an Indian firm for conducting the feasibility study for the new project in Finland.
(iii) `4 lakhs from a non-resident for use of patent for a business in India.
(iv) `8 lakhs from a non-resident Indian for use of know-how for a business in Singapore.
(v) `10 lakhs for supply of manuals and designs for the business to be established in Singapore.

Solution : Calculation of Income of Heli Ltd (`)


Fess of providing technical know-how in India 5,00,000
Fess for conduction feasibility study from Indian firm to setup a project in Finland Nil
Use of patent by a non-resident in India 4,00,000
Technical Know-how fee from a non-resident India for a Business in Singapore Nil
Supply of manual and designs for Singapore business Nil
Total 9,00,000

JUNE 2009 – 2 MARKS


Question : True or False: Mr X, Karta of HUF claims that the HUF is non-resident as the business of HUF is
transacted from UK and all the policy decisions are taken there.

Answer: True.

NOV 2008 – 2 MARKS


Question : True or false: Income to a non-resident by way of interest, royalty and fee for technical services
deemed to accrue or arise in India is taxable in India irrespective of territorial nexus.
Answer: False. It will be taxable in India only when it is used for carrying on business or profession in India.

MAY 2007 – 14 MARKS


Question : Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2/3/2017 and
came to India for the first time on 16/3/2017. She remained in India up till 19/9/2017 and left for USA on
20/9/2017. She returned to India again on 27/3/2018. While in India, she had purchased a show room in
Mumbai which was leased out to a company on a rent of `25,000 p.m. from 1/5/2017. She had taken loan from
a bank for purchase of this show room on which bank had charged interest of `97,500 upto 31/3/2018. She
had received the following gifts from the relatives and friends during 1/4/2017 to 30/6/2017:
From parents of husband `51,000
From married sister of husband `11,000
From two very close friends of her husband of `1,51,000 and `21,000 `1,72,000
Determine her residential status and compute total income for the AY 2018-2019 i.e. PY 2017-2018.
CA JASPREET SINGH JOHAR - 8010921000 PAGE 17
SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Solution : Calculation of determination of residential status for AY 2018-2019 i.e. PY 2017-2018
Number of days from 1/4/2017 to 20/9/2017 = 173
Number of days from 27/3/2018 to 31/3/2018 = 5
Total number of days in India = 178
Since stay in India is less than 182 days Miss Charlie is Non-Resident of India.

Calculation of Income from House property


Particulars Amount (`) Amount (`)
Gross annual value 25,000 X 11 2,75,000
Less : municipal taxes paid NIL
Net annual value 2,75,000
Less: deduction u/s 24(a) 82,500
Less: deduction u/s 24(b) 97,500
Taxable house property income 95,000

Calculation of income from other sources


Particulars Amount (`)
Gift received from parents of husband Received from relative Exempt u/s 56(2)
Gift received from married sister of husband Received from relative Exempt u/s 56(2)
Gift received from two very close friends of her husband 1,72,000
Total 1,72,000

Calculation of Taxable Income


Particulars Amount (`)
Income from salary NIL
Income from house property 95,000
Income from business and profession NIL
Income from capital gains NIL
Income from other sources 1,72,000
Gross total income 2,67,000
Less: Deductions u/s 80C to 80U NIL
Taxable income 2,67,000

NOV 2007 – 9 MARKS


Question : Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1975 and settled
at Canada since 1975. Mary got married and is settled at Mumbai. Both of them are below 60 years. Following
are the details of their income for the PY ended 31/3/2018
Particulars Rosy (`) Mary (`)

Pension received from the State Government 10,000

Pension received from the Canadian Government 20,000

Long-term capital gain on sale of land at Mumbai 1,00,000 50,000

STCG on sale of shares in Indian listed company, STT was paid 20,000 2,00,000

LIC premium paid NIL 15,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 18


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Premium paid to the Canadian Life Insurance Corporation at Canada 10,000 NIL

Notified bonds of NABARD purchased in March 2018 30,000 20,000

Rent received in respect of house property at Mumbai 60,000 30,000


Compute the taxable income of Mrs. Rosy and Mrs. Mary for the AY 2018-2019 i.e. PY 2017-2018.

Solution : Mrs. Rosy is NR of India and Mrs. Mary is ROR in India. Income will be calculated as follows
Particulars Nature of Mrs. Rosy Mrs. Mary
income (NR) (ROR)
Pension received from the State Government Indian income NIL 10,000
Pension received from the Canadian Government Foreign Income NIL NIL
Long-term capital gain on sale of land at Mumbai Indian income 1,00,000 50,000
STCG on sale of shares in Indian company Indian Income 20,000 2,00,000
House property income from house at Mumbai Indian Income 42,000 21,000
( Rent – 30% )
Gross total income 1,62,000 2,81,000
Less: Deductions Under section 80C
LIC premium paid NIL 15,000
LIC premium to Canadian company 10,000 NIL
Bonds of NABARD 30,000 20,000
Taxable Income 1,22,000 2,46,000

NOV 2007 – 4 MARKS


Question : Mr. J a non-resident, residing in USA since 1960, came back to India on 1/4/2015 for the
permanent settlement. What will be his residential status for the PY 2016-2017 and PY 2017-2018.
Solution: Calculation of residential status of Mr. J for the PY 2016-2017
Previous Year No of Days in India Status

2016-2017 365 Resident

2015-2016 366 Resident

2014-2015 0 Non-Resident

2013-2014 0 Non-Resident

2012-2013 0 Non-Resident

2011-2012 0 Non-Resident

2010-2011 0 Non-Resident

2009-2010 0 Non-Resident

2008-2009 0 Non-Resident

2007-2008 0 Non-Resident

2006-2007 0 Non-Resident
Mr. J has satisfied first basic condition and could not satisfy any of additional condition. Therefore he becomes
NOR during PY 2016-2017.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 19


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

Calculation of residential status of Mr. J for the AY 2018-2019 i.e. PY 2017-2018


Previous Year No of Days in India Status

2017-2018 365 Resident

2016-2017 365 Resident

2015-2016 366 Resident

2014-2015 0 Non-Resident

2013-2014 0 Non-Resident

2012-2013 0 Non-Resident

2011-2012 0 Non-Resident

2010-2011 0 Non-Resident

2009-2010 0 Non-Resident

2008-2009 0 Non-Resident

2007-2008 0 Non-Resident

Mr. J has satisfied first basic condition and satisfies both of additional condition. Therefore he becomes ROR
during PY 2017-2018.

MAY 2007 – 2 MARKS


Question : True or False: Only individuals and HUFs can be NOR in India. Firms can be either resident or a
non-resident in India.
Answer: True

RTP MAY 2011


QUESTION : Determine the taxability of the following incomes in the hands of Mr. Ganesh, if he is a resident
and ordinarily resident, resident but not ordinarily resident, and non-resident for the AY 2018-2019 i.e. PY
2017-2018.
Particulars Amount (`)
Income from a business in Bangalore (70% of the income is received in India) 35,000
Dividend from German company received in Germany 7,000
Income earned from a business in Germany which is controlled from Pune 60,000
(`25,000 is received in India)
Interest on debentures in an Indian company received in France 8,000
Fees for technical services rendered in India but received in France 12,000
Income from property situated in Germany received there (Computed) 13,000
Past foreign untaxed income brought to India during the previous year 4,000
Income from agricultural and in Nepal received there and then brought to India 14,000
Income from profession in Germany which was set up in India 25,000
received there but spent in India
Cash gift received on the occasion of his wedding in India 1,00,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 20


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
SOLUTION : Computation of total income of Mr. Ganesh for AY 2018-2019 i.e. PY 2017-2018
Particulars ROR(`) NOR(`) NR(`)
Income from a business in Bangalore (70% is received in India) [Income 35,000 35,000 35,000
accruing In India]
Dividend from German company received in Germany [Income accruing and 7,000 - -
arising outside India]
Income earned from a business in Germany which is controlled from Pune 60,000 60,000 25,000
(`25,000 is received in India)
Interest on debentures in an Indian company received in prance [Income 8,000 8,000 8,000
accruing in India]
Fees for technical services rendered in India but received in France [Income 12,000 12,000 12,000
accruing in India]
Income from property situated in Germany received there [Income accruing 13,000 - -
and arising outside India]
Past foreign untaxed income brought to India during the previous year not - - -
taxable [Not income of the current year]
Income from agricultural land in Nepal received there and then brought to 14,000 - -
India [Income accruing and arising outside India]
Income from profession in Germany which was set up in India, received 25,000 25,000 -
there but spent in India
Cash gift of `1,00,000 is not taxable under section 56(2)(vii) since it was - - -
received on the occasion of his wedding
1,74,000 1,40,000 80,000

RTP NOV 2011


QUESTION :
1) Only individuals and HUFs can be NOR; firms and companies can be either a resident or non-resident.
Discuss the correctness of this statement.
2) Ms Diana a French national, got married to Mr. Ravi of India in Paris on 1/4/2016 and came to India for the
first time on 1/12/2016. She remained in India up till 31/7/2017 and left for Paris on 1/8/2017. She returned
to India again on 1/3/2018. While in India, she had purchased a commercial complex in Kolkata on
15/3/2017, which was leased out to a company on a rent of `30,000 pm from 1/4/2017. She had taken loan
from a bank for purchase of this commercial complex on which the bank had charged interest of `1,12,000
upto 31/3/2018 She had received the following gifts from her relatives and friends during the year:
`
From father-in-law 47,000
From brother-in-law 9,000
From two very close friends of her in-laws, `1,67,000 and `25,000 1,92,000
Determine her residential status and compute the total income chargeable to tax for the AY 2018-2019 i.e. PY
2017-2018

SOLUTION :
1) A person is said to be “NOR” in India if he fails to satisfies both of the conditions given in Section 6(6). This
sub-section relates to only individuals and Hindu Undivided Families. Therefore, only individuals and Hindu
Undivided Families can be NOR. All other classes of assessees can be either a resident or non-resident.

2) Calculation of Residential status of Ms Diana for the AY 2018-2019 i.e. PY 2017-2018


PY Number of days of stay Status
2017-2018 153 NR
2016-2017 121 NR

CA JASPREET SINGH JOHAR - 8010921000 PAGE 21


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
2015-2016 0 NR
2014-2015 0 NR
2013-2014 0 NR
The total stay of the assessee during the AY 2018-2019 i.e. PY 2017-2018 in India was less than 182 days and
during the four years preceding this year was for 121 days. Therefore, due to non-fulfillment of any of the two
conditions for a resident, she would be treated as a non-resident for the AY 2018-2019 i.e. PY 2017-2018.

Computation of total income of Ms Diana for the AY 2018-2019 i.e. PY 2017-2018


Particulars ` `
Income from house property
Gross Annual Value [30000 x 12] 3,60,000
Less: Municipal taxes paid NIL
Net Annual Value (NAV) 3,60,000
Less: Deduction under section 24 (a) : 30% of NAV 1,08,000
Less: Deduction under section 24 (b) : Interest 1,12,000 1,40,000
Income from other sources
`47,000 received from her father-in-law. Nil
`9,000 received from brother-in-law. Nil
Gift received from two friends of her in-laws `1,67,000 and `25,000
aggregating to `1,92,000 is taxable. 1,92,000
Total income 3,32,000

RTP MAY 2012


QUESTION : Mr. Shyam and Mr. Mohan are brothers and they earned the following incomes during the AY
2018-2019 i.e. PY 2017-2018. Mr. Shyam settled in Australia in the year 1980 and Mr. Mohan settled in
Hyderabad. Mr. Shyam visits India for 20 days every year. Mr. Mohan also visits Sydney every year for a
month. Compute their total income for the AY 2018-2019 i.e. PY 2017-2018 from the following information:
Particulars Shyam(`) Mohan(`)
Interest on Australian Development Bonds, 50% of interest received in India 36,000 28,000
Dividend from a Japanese Company received in Sydney 10,000 12,000
Profit from a business in Mumbai, but managed directly from Sydney 13,000 -
Profit on sale of shares of an Indian company received in India 65,000 96,000
Income from a business in Chennai 28,000 32,000
Fees for technical services rendered in Sydney and received in Sydney. The 1,25,000 -
services were, however, utilized in India.
Interest on savings bank deposit in Central Bank, Hyderabad 8,000 18,000
Agricultural income from a land situated in Gujarat 40,000 40,000
Rent received in respect of house property at Hyderabad 86,000 60,000
Life insurance premium paid - 35,000

SOLUTION: Computation of Total Income of Shyam and Mohan for the AY 2018-2019 i.e. PY 2017-2018
Particulars Shyam Mohan
(NR) (Resident)
Interest on Australian Development Bonds 18,000 28,000
Dividend from Japanese Company received in Sydney - 12,000
Profit from a business in Mumbai but managed directly from Sydney 13,000 -
Profit on sale of shares of an Indian company received in India 65,000 96,000
Income from a business in Chennai 28,000 32,000
Fees for technical services rendered in Sydney but services utilized in India 1,25,000 -

CA JASPREET SINGH JOHAR - 8010921000 PAGE 22


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Interest on savings bank deposit in Central Bank, Hyderabad 8,000 18,000
Agricultural income from a land in Gujarat - -
House Property income (rent – 30% of rent) 60,200 42,000
Gross Total Income 3,17,200 2,28,000
Less: Deduction under section 80C-Life insurance premium paid NIL 35,000
Less: Deduction under section 80TTA 8,000 10,000
Total Income 3,09,200 1,83,000

RTP NOV 2012


QUESTION : Compute the total income of Mr. Ankit for the AY 2018-2019 i.e. PY 2017-2018 from the following
particulars of income furnished by him, if he is ROR/NOR/NR
Particulars (`)
Rent from property in New York deposited in a bank in New York, later on remitted to India. 90,000
Fees for technical services rendered in Japan and received in Japan. 50,000
The services were, however, utilized in India.
Dividend from an Australian Company received in Australia 15,500
Profit on sale of shares in Indian Company received in Canada 27,500
Dividend from lndicom Ltd., an Indian Company 15,000
Agriculture & income from land in Rajasthan 46,000

SOLUTION : Computation of total income of Mr. Ankit for the AY 2018-2019 i.e. PY 2017-2018
Particulars ROR(`) NOR(`) NR(`)
House property income from New York deposited in a bank in New York 63,000 NIL NIL
Fees for technical services rendered in Japan but services utilized in India 50,000 50,000 50,000
Dividend from Australian company, received in Australia 15,500 NIL NIL
Profit on sale of shares of an Indian company, received in Canada 27,500 27,500 27,500
Dividend from Indicom Ltd., an Indian Company NIL NIL NIL
Agricultural income from land in Rajasthan NIL NIL NIL
Total Income 1,56,000 77,500 77,500

RTP MAY 2013


QUESTION : Determine the taxability for the AY 2018-2019 i.e. PY 2017-2018 from following incomes in the
hands of an individual whose residential status is ROR/NOR/NR
Particulars (`)
Salary received in Canada for rendering service in Bangalore 50,000
Capital gain on sale of a house situated in Surat (sale consideration is received in Canada) 2,00,000
Dividend from foreign company received in Canada 8,000
Income earned from business in London which is controlled from Mumbai (`1,00,000 is 4,00,000
received in India)
Profits from a business in lndore but managed entirely from Canada 1,25,000
House property income from house situated in Canada (rent is deposited in a bank at Canada 1,20,000
and later on remitted to India)
Interest received in London from the Government of India for project situated in London 35,000
Royalty from a non-resident company received in London in connection with business 5,00,000
situated outside India
Past foreign untaxed income brought to India during the previous year 25,000
Interest on savings bank deposit in Bank of India, Bhopal 10,000
Share of income received in India from a partnership firm situated in Dubai 80,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 23


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
Dividend from Dabur India Ltd., an Indian Company 19,000
Agricultural income earned and received in Nepal from a land situated in Nepal 1,50,000

SOLUTION : Computation of total income for the AY 2018-2019 i.e. PY 2017-2018


Particulars ROR(`) NOR(`) NR(`)
Salary received in Canada for rendering service in Bangalore 50,000 50,000 50,000
Capital gain on sale of a house situated in Surat (sale consideration is 2,00,000 2,00,000 2,00,000
received in Canada)
Dividend from foreign company received in Canada 8,000 - -
Income earned from business in London which is controlled from 4,00,000 4,00,000 1,00,000
Mumbai, out of which `1,00,000 is received in India
Profits from a business in Indore but managed entirely from Canada 1,25,000 1,25,000 1,25,000
House property income in Canada deposited in a Bank at Canada, later 1,20,000 - -
on remitted to India
Interest received in London from the Government of India for project 35,000 35,000 35,000
situated in London
Royalty from a non-resident company received in London in connection 5,00,000 - -
with business situated outside India
Past foreign untaxed income brought to India during the previous year - - -
Interest on savings bank deposit in Bank of India 10,000 10,000 10,000
Share of income received in India from a partnership firm situated in 80,000 80,000 80,000
Dubai
Dividend from Dabur India Limited, an Indian Company - - -
Agricultural income from Nepal 1,50,000 - -
Gross Total Income 16,78,000 9,00,000 6,00,000
Less: Deduction under section 80TTA 10,000 10,000 10,000
Total Income 16,68,000 8,90,000 5,90,000

RTP NOV 2013


Same question as of examination question of Nov 2014

RTP MAY 2014


Same question as of examination question of Nov 2011

RTP NOV 2014


QUESTION : From the following particulars of income furnished by Mr. Anand pertaining to the year ended
31/3/2018 compute his total income for the AY 2018-2019 i.e. PY 2017-2018 if he is ROR/NOR/NR
Particulars (`)
Short term capital gain on sale of shares in Indian Company received in Japan 25,000
Dividend from a South African company received in South Africa 25,000
Rent from property in UK deposited in a bank in UK, later on remitted to India 1,50,000
Dividend from SK Ltd., an Indian Company 12,000
Agricultural income from land in Madhya Pradesh 56,000

SOLUTION : Computation of total income of Mr. Anand for the AY 2018-2019 i.e. PY 2017-2018
Particulars ROR NOR NR
Short term capital gain on sale of shares in an Indian company 25,000 25,000 25,00
Dividend from a South African company, received in South Africa 20,000 -- --

CA JASPREET SINGH JOHAR - 8010921000 PAGE 24


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
House property income in UK deposited in a bank in UK 1,05,000 - -
Dividend from Indian Company - - -
Agricultural income from land in Madhya Pradesh - - -
Total Income 1,50,000 25,000 25,000

RTP MAY 2015


QUESTION : The business of a HUF is transacted from India and all the policy decisions are taken here. Mr.
Aryan, the karta of the HUF, who was born in Mumbai, settled in London, since 1999. He visits India every year
for 95 days. Determine residential status of Mr. Aryan and the HUF for the AY 2018-2019 i.e. PY 2017-2018 .

SOLUTION: Determination of Residential Status of Mr. Aryan for the AY 2018-2019 i.e. PY 2017-2018
Mr. Aryan visits India every year for 95 days. Therefore, his period of stay during 4 preceding previous years is
380 days (95 days x 4). Since he satisfies one of the basic conditions, he is a resident for the AY 2018-2019
i.e. PY 2017-2018. Mr. Aryan’s period of stay in India during the past 7 previous years is less than 730 days,
he is a resident but not ordinarily resident for the AY 2018-2019 i.e. PY 2017-2018.

Determination of Residential Status of HUF for the AY 2018-2019 i.e. PY 2017-2018


Since the business of the HUF is transacted from India and nothing is mentioned regarding its control and
management, it is assumed that the control and management is wholly situated in India. Therefore, the HUF is
a resident for the AY 2018-2019 i.e. PY 2017-2018
However, since Mr. Aryan, Karta of the HUF is NOR, the HUF would also be NOR for the AY 2018-2019 i.e.
PY 2017-2018.

RTP NOV 2015


Same question as of examination question of May 2007

RTP MAY 2016


State with reasons whether the following transactions attract income-tax in India in the hands of recipients for
the AY 2018-2019 i.e. PY 2017-2018
(i) Post office savings bank interest of `15,000 received by a resident assessee, Mr. Pankaj.
(ii) Legal charges of `5,00,000 paid in Madras to a lawyer of Canada who visited India to represent a case at
the Madras High Court.
(iii) Royalty of `2,00,000 paid by Mr. Harish, a resident, to Mr. Rajesh, a non-resident, in respect of a business
carried on in France.
(iv) Salary paid by Central Government to Mr. Avi, an Indian citizen `11,00,000 for services rendered in USA.

SOLUTION :
Taxable or taxable Reason
Not Taxable
i. Partly Taxable `1,5000 The interest on Post Office Savings Bank Account, would be exempt
under section 10(15) only to the extent of Rs. 3,500 in case of an
individual account. Hence, Rs. 11,500 will be taxable under the head
‘Income from other sources”. Rs.10,000 would be allowed as
deduction under section 80TTA from GTI.

ii. Taxable `5,00,000 Legal charges paid in India to a non resident lawyer of Canada, who
visited India to represent a case at the Madras High Court would be
taxable in India.
iii. Not Taxable `2,00,000 Royalty paid by a resident to a non-resident in respect of a business
carried in France, would not be taxable in the hands of the non-
resident.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 25


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS
iv. Taxable `11,00,000 Salaries payable by the Government to a citizen of India for service
rendered outside India shall be deemed to accrue or arise in India.
Therefore, salary paid by Central Government to Mr. Avi for services
rendered in USA would be deemed to accrue or arise in India, since he
is a citizen of India.

RTP NOV 2016


QUESTION : Mr. Alok is an Indian citizen and a member of the crew of a Singapore bound Indian ship
engaged in carriage of passengers in international traffic departing from Mumbai port on 6/6/2017. From the
following details for the AY 2018-2019 i.e. PY 2017-2018 determine the residential status of Mr. Alok assuming
that his stay in India in the last 4 previous years is 400 days and last seven previous years is 750 days:
Particulars Date
Date entered into the Continuous Discharge Certificate when joining the ship by Mr. Alok 6/6/2017
Date entered into the Continuous Discharge Certificate when signing off the ship by Mr. Alok 9/12/2017

SOLUTION : An Indian citizen leaves India as a member of crew of an Indian ship or for the purpose of
employment outside India, he will be resident only if he stayed for 182 days during the previous year.
In case of an individual who is a citizen of India and a member of the crew of a ship, the period of stay in India
shall not include the period of stay on the ship. Therefore, the period beginning from 6/6/17 and ending on
9/12/2017 has to be excluded for computing the period of his stay in India. Accordingly, 187 days
[25+31+31+30+31+30+9] have to be excluded from the period of his stay in India. Consequently, Mr. Alok’s
period of stay in India during the AY 2018-2019 i.e. PY 2017-2018 would be 178 days [365 days – 187 days].
Since his period of stay in India is less than 182 days, he is a non-resident.

RTP MAY 2017


QUESTION : Mr. Suhaan furnished the following particulars of his income for the year ended 31/3/2018
Particulars `
Income earned from business in France which is controlled from Mumbai 90,000
(`65,000 is received in India)
Pension for services rendered in India but received in France 14,000
Dividend received in France from Titanium Inc., a French company 25,000
Rent from property in France deposited in a bank in France and later on, remitted to India 85,000
Dividend from Sunset Ltd., an Indian company received in France 98,000
Compute his gross total income for the AY 2018-2019 i.e. PY 2017-2018 if he is ROR/NOR/NR

SOLUTION : Computation of gross total income of Mr. Suhaan for the AY 2018-2019 i.e. PY 2017-2018
Particulars ROR(`) NOR(`) NR(`)
Income earned from business in France which is controlled from Mumbai, 90,000 90,000 65,000
out of which Rs. 65,000 is received in India
Pension for services rendered in India but received in France 14,000 14,000 14,000
Dividend received in France from a Titanium Inc., a French company 25,000 - -
House Property income in France deposited in a bank in France 59,500 - -
Dividend from Sunset Ltd., an Indian Company - - -
Gross Total Income 1,88,500 1,04,000 79,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 26


SUMMARY OF CHAPTER OF RESIDENTIAL STATUS

RTP NOV 2017


Mr. Aakash earns the following income during the AY 2018-2019 i.e. PY 2017-2018. Compute his total income
for if he is (i) resident and ordinarily resident; (ii) resident but not ordinarily resident; (iii) non-resident.
Particulars `
Interest on Canada Development Bonds (only 50% of interest received in India) 40,000
Dividend from Malaysian company received in Malaysia 20,000
Short term capital gain on sale of shares of an Indian company received in India 90,000
Interest on savings bank deposit in UCO Bank, Delhi 12,000
Income from Profession in Malaysia (set up in India), out of which `10,000 is received in India 15,000
Agricultural income from a land situated in Gujarat 45,000
Rent received in London in respect of house property at London 60,000

Computation of total income of Mr. Aakash for the AY 2018-2019 i.e. PY 2017-2018
Particulars ROR(`) NOR(`) NR(`)
Interest on Canada Development Bond 40,000 20,000 20,000
Dividend from Malaysian Company received in Malaysia 20,000 - -
Short term capital gain on sale of shares of an Indian company 90,000 90,000 90,000
received in India
Interest on savings bank deposit in UCO Bank, Delhi 12,000 12,000 12,000
Income from profession in Malaysia (set up in India) out of which Rs. 15,000 15,000 10,000
10,000 is received in India
Agricultural income from a land in Gujarat - - -
Income from house property at London 42,000 - -
Gross Total income 2,19,000 1,37,000 1,32,000
Less: Deduction under Section 80TTA 10,000 10,000 10,000
Total Income 2,09,000 1,27,000 1,22,000

CA JASPREET SINGH JOHAR - 8010921000 PAGE 27


SUMMARY OF TAX CALCULATION

SUMMARY OF INCOME TAX CALCULATION


TAX RATES IN Income of every person is chargeable to tax at the rates prescribed in the Finance
FIANACE ACT OR IN Act.
INCOME TAX ACT However some of the income tax rates are not mentioned in Finance Act but they
have been mentioned in Income Tax Act itself, such as Tax on
a) Casual Incomes is 30% u/s 115BB
b) Long Term Capital Gains is 20% u/s 112
c) Listed Equity Shares are sold on which STT has been paid then STCG are
taxable at 15% u/s 111A.
d) Listed Equity Shares are sold on which STT has been paid then LTCG are
fully exempt u/s 10(38)

SLAB RATES ARE Individuals, HUF, AOP, BOI and every artificial juridical person get their income
taxed on the basis of slab rate. There are 3 slab rates

Slab 1 : This slab applies to:


1) Every resident male and every resident female whose age is less than 60
years.
2) Every non-resident male and non-resident female irrespective of their age.
3) Every HUF, AOP/BOI and AJP whether resident or non-resident, of India.
Up to first `2,50,000 NIL

`2,50,000 to `5,00,000 5%

`5,00,000 to `10,00,000 20%

Above `10,00,000 30%

Slab 2 : This slab applies to every resident male and every resident female whose
age is 60 years or more but age is less than 80 years.
Up to first `3,00,000 NIL

`3,00,000 to `5,00,000 5%

`5,00,000 to `10,00,000 20%

Above `10,00,000 30%

Slab 3 : This slab applies to every resident male and every resident female whose
age is 80 years or more
Up to first `5,00,000 NIL

`5,00,000 to `10,00,000 20%

Above `10,00,000 30%

CA JASPREET SINGH JOHAR - 8010921000 PAGE 28


SUMMARY OF TAX CALCULATION

PERSON TAX SURCHARGE AND


RATE EDUCATION CESS
Partnership Firm 30 %
SURCHARGE
Limited Liability Partnership Firm 30 % AND
Local Authority 30 % EDUCATION
Domestic company CESS IS
a) When total turnover or gross receipts APPLICABLE
for the PY 2015-2016 < = ` 50 crores 25 %
b) Other domestic companies 30%
Foreign company 40%

TAX RATES FOR Special incomes are :


SPECIAL INCOMES a) Casual incomes : table at flat rate of 30%
b) LTCG on listed equity shares and equity oriented mutual funds on which STT
has been paid : exempt u/s 10(38)
c) STCG on listed equity shares and equity oriented mutual funds on which STT
has been paid : taxable at 15% u/s 111A
d) LTCG on all other assets : taxable at 20% u/s 112
e) STCG on all other assets : taxable at normal slab rates

TAX ON BLACK
MONEY Section 68 - Cash credits in books
Section 69 - Unexplained Investments Levy of higher tax flat @ 60%
Section 69A - Unexplained Money
Section 69B - Undisclosed Investments (plus 25%, surcharge and 3% EC).
Section 69C - Unexplained Expenditures
Section 69D - Amount borrowed on Hundi Effective tax rate shall be 77.25%

Following shall not be allowed from above mentioned incomes


a) basic exemption limit
b) expenditure against such income and
c) set-off of losses against such income

SURCHARGE
LEVEL OF INCOME Income is Income is > Income is > Income is
<= `50 lakhs `100 lakhs >
ASSEESEE `50 lakhs But But `1,000 lakhs
Income is < = Income is < =
`100 lakhs `1,000 lakhs
DOMESTIC COMPANY NIL NIL 7% 12%
FOREIGN COMPANY NIL NIL 2% 5%
INDIVIDUAL , HUF , AOP-BOI , NIL 10% 15% 15%
AJP
FIRM , LOCAL AUTHORITY , CO- NIL NIL 12% 12%
OPERATIVE SOCIETY

CA JASPREET SINGH JOHAR - 8010921000 PAGE 29


SUMMARY OF TAX CALCULATION

EDUCATION CESS Education cess is 2% for primary education and 1% for higher and secondary
education. We should not calculate and charge education cess at 3%, it would be
principally wrong.
ROUND OFF U/S 288B Any amount of tax liability shall be rounded off to nearest of `10
REBATE U/S 87A Income tax rebate shall be allowed if both of the following conditions are satisfied:
a) Assessee is an individual who is a resident of India.
b) Total income of such individual is less than or equal to `3,50,000.
The amount of the rebate shall be lower of:
a) Amount of income tax payable on the total income,
b) Maximum limit of `2,500
Education Cess shall be imposed only after allowing rebate u/s 87A
Rebate shall be allowed from the income tax amount of casual incomes
CONCEPT OF In Total Income of resident individuals or resident HUF, if there is:
DEFICIENCY (a) LTCG income which is to be taxed at 20% under Section 112 AND/OR
(b) STCG income which is to be taxed at 15% under Section 111A
And Total Income excluding above said incomes is less than the basic exemption
limit then the deficiency has to be fulfilled from such LTCG or STCG and balance
amount only will be taxed. This deficiency has to be seen excluding LTCG income
u/s 112 and STCG u/s 111A but including casual income. To calculate deficiency,
one can use the following equation:

Deficiency = BEL – (Total Income – LTCG income u/s 112 – STCG income u/s 111A)

If by using this equation we get zero or we get negative amount, then there is no
deficiency.

MARGINAL RELIEF Surcharge is imposed on persons if their total income is more than `50 lakhs / `100
lakhs. Sometimes, additional tax including surcharge but before education cess on
the total income exceeding `50 lakhs / `100 lakhs, will be more than the difference
between the total income and `50 lakhs / `100 lakhs. In such cases, marginal relief
will be provided which is equal to increase in tax less increase in Income.

CLARIFICATIONS REGARDING ATTAINING PRESCRIBED AGE OF 60 / 80 YEARS ON 31st MARCH


ITSELF, IN CASE OF SENIOR / VERY SENIOR CITIZENS WHOSE DATE OF BIRTH FALLS ON 1st APRIL
: CIRCULAR NO.28/2016 , DATED 27-7-2016
CBDT has clarified that a person born on 1st April would be considered to have attained a particular age on
31st March, the day preceding the anniversary of his birthday.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 30


SUMMARY OF TAX CALCULATION

EXAMINATION QUESTIONS
NOV 2012, 4 MARKS

QUESTION : Calculate the income-tax liability for the AY 2018-2019 i.e. PY 2017-2018 in the following cases:
Mr.A (age 45) Mrs B (age 62) Mr.C (age 81) Mr.D (age 82)
Status Resident Non-Resident Resident Non -Resident

Total income other `2,80,000 `3,30,000 `5,90,000 `4,80,000


than LTCG
LTCG `15,000 from `10,000 from sale `60,000 from Nil
sale of land of listed equity sale of
shares on which agricultural land
STT is paid in rural area

Calculation of Taxable Income for AY 2018-2019 i.e. PY 2017-2018


Heads of Income Mr.A (age 45) Mrs B (age 62) Mr.C (age 81) Mr.D (age 82)
Income other than LTCG `2,80,000 `3,30,000 `5,90,000 `4,80,000
Income from LTCG `15,000 Exempt u/s 10(38) Not an Income NIL
Gross Total Income `2,95,000 `3,30,000 `5,90,000 `4,80,000
Less: Deduction u/s 80C to 80U NIL NIL NIL NIL
Taxable Income / Total Income `2,95,000 `3,30,000 `5,90,000 `4,80,000

Calculation of Tax liability for AY 2018-2019 i.e. PY 2017-2018


Incomes Mr.A (age 45) Mrs B (age 62) Mr.C (age 81) Mr.D (age 82)
Resident Non-Resident Resident Non - Resident
Tax on Income of LTCG u/s 3,000 NIL NIL NIL
112 --- `15,000 X 20%
Tax on Ordinary incomes 1,500 4,000 18,000 11,500
At slab rate
Total Tax 4,500 4,000 18,000 11,500
Less: Rebate u/s 87A 2,500 NIL NIL NIL
Total Tax 2,000 4,000 18,000 11,500
Add: Primary Education 40 80 360 230
Cess @ 2%
Add: Secondary and Higher 20 40 180 115
Education Cess @ 1%
Total tax rounded off u/s 2,060 4,120 18,540 11,850
288B

MAY 2007, 1 MARK EACH

QUESTION : True or False : Surcharge payable by the individual having total income of more than `50 lakhs is
15% of tax for AY 2018-2019 i.e. PY 2017-2018. Answer: True

CA JASPREET SINGH JOHAR - 8010921000 PAGE 31


SUMMARY OF TAX CALCULATION

QUESTION : Exemption limit of income available to a senior citizen is `___________ for AY 2018-2019 i.e. PY
2017-2018. Answer: `3,00,000

MAY 2005, 1 MARK EACH

QUESTION : Choose the correct answer with reference to the provisions of the Income Tax Act 1961.

(i)Surcharge of 15% is payable by an individual where the total income exceeds:


(a) `75,00,000
(b) `50,00,000
(c) `100,00,000
(d) None of these Answer: (B)

(ii)Education cess of 2% + 1% is payable on:


(a) Income Tax
(b) Income Tax plus surcharge, if any
(c) Surcharge
(d) Not payable by any assessee Answer : (b)

RTP MAY 2015

QUESTION : Compute the tax liability of Mr. Dherya, aged 58 years, for the AY 2018-2019 i.e. PY 2017-2018,
from the following details:
Rs.
Income from salaries 25,28,000
Profits and gains from business or profession 23,00,000
Income from other sources (Interest on bank Fixed Deposits) 3,82,000
Amount deposited in Public Provident Fund (PPF) 1,30,000

SOLUTION : Computation of tax liability of Mr. Dherya for the AY 2017-2018 i.e. PY 2016-2017
Particulars Rs. Rs.
Income from salaries 25,28,000
Profits and gains from business or profession 23,00,000
Income from other sources (Interest on bank fixed deposit) 3,82,000
Gross total income 52,10,000
Less: Deduction u/s 80C - Amount deposited in PPF 1,30,000
Total Income 50,80,000
Tax liability
Upto Rs. 2,50,000 Nil
Rs. 2,50,000 — Rs. 5,00,000 @ 5% 12,500
Rs. 5,00,000 — Rs. 10,00,000 @ 20% 1,00,000
Rs. 10,00,000— Rs. 40,80,000 @ 30% 12,24,000 13,36,500
Add: Surcharge @ 10%, since total income exceeds `50 Lakhs 1,33,650
Tax Payable 14,70,150
Less: Marginal Relief (See Note below) 77,650
Tax Payable after marginal relief 13,92,500
Add: Primary Education cess @ 2% 27,850

CA JASPREET SINGH JOHAR - 8010921000 PAGE 32


SUMMARY OF TAX CALCULATION

Add: Secondary and higher education cess @ 1% 13,925


Tax liability rounded off u/s 288B 14,34,280

Calculation of amount of marginal relief


Income tax Taxable income Taxable income Incremental income is `80,000
is `50 lakhs is `50.80 lakhs
Tax at slab A) `13,12,500 `13,36,500
Add: surcharge @ 15% NIL `1,33,650
Tax plus surcharge `13,12,500 `14,70,150 Incremental tax including
surcharge is `1,57,650
Difference between incremental tax and incremental income is called `77,650
marginal relief

CA JASPREET SINGH JOHAR - 8010921000 PAGE 33


SUMMARY OF AGRICULTURE INCOME

SUMMARY OF AGRICULTURE INCOME


AGRICULTURE INCOME
DEFINATION OF AGRICULTURE INCOME TAX TREATMENT OF AGRICULTURE INCOME
SECTION 2(1A) SECTION 10(1)
Agricultural income as defined under section 2(1A) is fully exempt from tax. Since agricultural income is
exempt from tax it will not be included in calculation of total income.

Constitution of India gives power to the State Government to make laws with respect to taxes on agricultural
income. (Entry No. 46 of State List given in 7th Schedule of Constitution of India)

DEFINATION OF AGRICULTURE INCOME : SECTION 2(1A)


SECTION 2(1A) (a) SECTION 2(1A) (b) SECTION 2(1A) (c)
Rent from agricultural land Growing of crops on land situated in India. Rent from farm building which is
which is situated in India (including saplings grown in a nursery) constructed on agriculture land or
and is used for agricultural in the immediate vicinity of
purpose SC Case:Raja Benoy Kumar Sahas Roy agricultural land which is situated
in India and used for agricultural
Basic operation Yes Yes No
purpose. Further such land
Subsequent Yes No Yes should not be in urban area.
operation
Whether Agriculture Yes No No
income?
COMPUTATION AS INCOME COMPUTATION AS INCOME FROM COMPUTATION AS INCOME
FROM OTHER SOURCES BUSINESS AND PROFESSION FROM HOUSE PROPERTY
SEC 56 to 59 SEC 28 to 44D SEC 22 to 27
Rent xxx Sale of crops xxx GAV xxx
Less : taxes on land , xxx Less : all business xxx Less : MT xxx
Collection charges expenses like salary ,
depreciation of assets ,
irrigation expenses
IOS xxx Business income xxx NAV xxx
Less : xxx
Statutory
deduction
Less : xxx
Interest
HP income xxx
AI
Composite income - Computation of income which is partly agricultural & partly non agricultural
Rule Income Ag Income PGBP
7A Sale of rubber 65% 35%
7B(1) Sale of coffee grown and cured by seller in India. 75% 25%
7B(1A) Sale of coffee grown, cured and grounded by seller in India. 60% 40%
8 Growing and manufacturing tea in India. 60% 40%
In all of the above said businesses, income is first calculated as if it is the PGBP income after making all
permissible deductions. Such calculated business income is then bifurcated as per the above mentioned rules

CA JASPREET SINGH JOHAR - 8010921000 PAGE 34


SUMMARY OF AGRICULTURE INCOME

to get PGBP income and Agricultural Income. If the business is being done as a partnership business, then the
salary and interest income of partners shall be taken as business expense only to the extent of the above
mentioned percentages and the balance shall be regarded as Agricultural Income.
Rule 7 : composite activity other than rubber , coffee , tea
Agriculture income Business income
Difference between the cost of cultivation and FMV of FMV of the agriculture produce is considered as
agriculture produce the cost of raw material. In this factory overheads ,
selling overheads and all other expenses shall be
added to calculate the total cost.
Difference between cost and sale price will be
regarded as business income.

Computation of tax if assessee is earning both agriculture income and non-agriculture income
(integration of agriculture and non agriculture income)
1. The assessee is an Individual or HUF or BOI, or AOP Computation of tax
or AJP.
Tax on (Net Agriculture Income + A
2. Non-agricultural income exceeds basic exemption limit.
Agriculture Income) at slab rate
3. Net Agricultural Income exceeds `5,000 pa.
Tax on (Net Agriculture Income + B
basic exemption limit) at slab rate
Tax payable A– B
Apply rebate u/s 87A or C
Surcharge is any and thereafter
add education cess
Tax liability D

WHAT IS NOT REGARDED AS AGRICULTURAL INCOME


(i) Dividend received from a company which is doing agricultural activities.
(ii) Share of profits received by a partner from a firm in which he is a partner and is carrying on agricultural
activities is not an Agricultural Income. However, this is exempted from tax under Section 10(2A). But if
the partner receives any interest income or salary from the firm, then it will be considered to be his
Agricultural Income as was decided by the Supreme Court in CIT V. R.M.CHIDAMBARAM PILLAI
(1977/106 ITR 292(SC)).
(iii) Income from fisheries, poultry farming, dairy farming, and animal husbandry.
(iv) Income from sale of spontaneously grown trees and plants.
(v) Royalty Income of mines.
(vi) Income from butter and cheese making.
(vii) Receipts from a shooting in a farm house.
(viii) Income from sale of seeds.
(ix) Income from supply of water for irrigation purposes.

CA JASPREET SINGH JOHAR - 8010921000 PAGE 35


SUMMARY OF AGRICULTURE INCOME

EXAMINATION QUESTIONS
MAY 2017 : 4 MARKS
Discuss with brief reasons, whether the following can be regarded as agricultural income, as per the provisions
of the Income-tax Act, 1961.
1) Rent received for letting out agricultural land for a movie shooting and
2) Amounts received from sale of seedlings in a nursery adjacent to the agricultural lands owned by an
assessee.

SOLUTION
1) Allowing movie shootings : Letting out of agriculture land for movie shootings is not an agriculture
income as it is not covered u/s 2(1A) which defines the agriculture income.
2) Income derived from saplings or seedlings grown in a nursery: As per Explanation 3 to section 2(1A)
introduced from 1/4/2009 by FA 2008, any income derived from saplings or seedlings grown in a nursery
shall be deemed to be agricultural income.

NOV 2016: 4 MARKS


QUESTION : Mr. Kamal grows Paddy and uses the same for the purpose of manufacturing of Rice in his own
Rice Mill. The Cost of Cultivation of 40% of Paddy Produce is `7,00,000 which is sold for `15,00,000, and the
Cost of Cultivation of balance 60% of Paddy is `12,00,000 and the Market Value of such Paddy is `24,00,000.
To manufacture the Rice, he incurred `2,00,000 in the manufacturing process on the balance (60%) Paddy.
The rice was sold for `30,00,000. Compute the Business Income and Agriculture Income of Mr. Kamal.

Solution: Calculation of Income of Mr. Kamal for the for the AY 2018-2019 i.e. PY 2017-2018
Particulars `
Agricultural Income: [40%]
Sale Value of Paddy 15,00,000
Less: Cost of Cultivation (7,00,000)
Balance Agricultural Income and exempt u/s 10(1) 8,00,000
Business Income [60%]
Sale Value of Rice 30,00,000
Less: Cost of Paddy [FMV of Paddy is taken for computing Business Income as per Rule 7] (24,00,000)
Less: Further Processing Cost (2,00,000)
Business Income and taxable 4,00,000

MAY 2010: 2 MARKS


Question Mr. Anil earned `5,00,000 from sale of coffee grown and cured (processed) by him. He claims the
entire income as Agricultural Income, hence exempt from tax. Is Mr. Anil Justified or not ?

Solution : Mr. Anil is not justified. As per rule 7B(1) 75% of the amount of `5,00,000 shall be treated as
agriculture income and 25% shall be treated as his business income. Thus , exempt income will be `3,75,000
and not full `5,00,000.

MAY 2010: 6 MARKS


Question : Mr. J is engaged in composite business of growing and curing of coffee in Coorg, Karnataka. All
the coffee grown in his plantation is cured. Relevant information pertaining to the year ended 31/3/2018 is
given below:

CA JASPREET SINGH JOHAR - 8010921000 PAGE 36


SUMMARY OF AGRICULTURE INCOME

WDV of Car as on 1/4/2017 (15% rate) `3,00,000


WDV of machinery as on 31/3/2017 (15% rate) `15,00,000
Expenses incurred for growing coffee `3,10,000
Expenditure for curing coffee `3,00,000
Sale value of cured coffee `22,00,000
Besides being used for agricultural operations, the car is also used for personal use; disallowance for personal
use may be taken at 20%. The expenses incurred for use running and maintenance are `50,000. The
machines were used in coffee curing business operations. Compute the income arising from the above
activities for the AY 2018-2019 i.e. PY 2017-2018. Show the WDV of the assets as on 1/4/2017.

Solution: Calculation of depreciation u/s 32


Particulars Machine Car
Op value of Block on 1/4/2016 - -
Add: Purchase & put to use - -
Less: sales price - -
Closing value of bock as on 31/3/2017 `15,00,000 -
Less: Depreciation u/s 32 for FY 2016-2017 `2,25,000 -
Op value of Block on 1/4/2017 `12,75,000 `3,00,000
Add: Purchase & put to use - -
Less: sales price - -
Closing value of bock as on 31/3/2018 `12,75,000 `3,00,000
Less: Depreciation u/s 32 for FY 2017-2018 `1,91,250 `45,000
Op value of Block on 1/4/2018 `10,83,750 `2,55,000

Calculation of net profit from business of growing and curing of coffee


Sale value of cured coffee `22,00,000
Less: Expenses incurred for growing coffee `3,10,000
Less: Expenditure for curing coffee `3,00,000
Less: Depreciation of machine `1,91,250
Less: Depreciation of car : `45,000 X 80% `36,000
Less: expenses of car : `50,000 X 80% `40,000
Net Profit `13,22,750

Calculation of agriculture income and business income


PGBP income 25% of `13,22,750 `3,30,687.5
Agriculture income 75% of `13,22,750 `9,92,062.5 (this will be exempt)
Taxable income `3,30,690 (rounded off u/s 288A)

JUNE 2009: 2 MARKS


Question : Whether the Income derived from saplings or seedlings grown in a nursery is taxable?

Solution : Income from sale of saplings and seedlings which are grown in nursery, whether grown in pots or
on land, shall be regarded as agriculture income u/s 2(1A)(b) and thus it is fully exempt from tax and it is not
regarded as the business income

CA JASPREET SINGH JOHAR - 8010921000 PAGE 37


SUMMARY OF AGRICULTURE INCOME

MAY 2007: 10 MARKS


Question : The broad break-up of Tax and allied details of Mrs. Rinku born on 30/3/1958 are as under:
Long-term Capital Gains on sale of House `3,00,000
Short-term Capital Gains on sale of shares in B Pvt. Ltd. `30,000
Prize winning from a TV show `20,000
Business Income `2,20,000
Net Agricultural Income `40,000
Mrs. Rinku has paid the following:
LIC premium of self `40,000
LIC premium of husband `20,000
Premium for pension plan u/s 80CCC in the name of her husband `25,000
Repayment of housing loan principal (loan taken by her son dependent on her) `30,000
Compute the Tax payable by Mrs. Rinku for the AY 2018-2019 i.e. PY 2017-2018

Solution : Calculation of Total Income of Mrs. Rinku for the AY 2018-2019 i.e. PY 2017-2018
Particulars `
Income under the head ‘salary’ NIL
Income under the head ‘House Property’ NIL
Income under the head ‘business and profession’ 2,20,000
Income under the head ‘Capital Gains’
LTCG u/s 112 3,00,000
STCG on the shares of Pvt Ltd. Company (ordinary income) 30,000
Income under the head other ‘sources’
Winnings from game shows 20,000
Net Agriculture Income `40,000
Less: Exempt under Section 10(1) `40,000 NIL
Gross Total Income 5,70,000
Less: Deduction under Chapter VI-A of Income Tax Act
Under Section 80C (`40,000 + `20,000) 60,000
Under Section 80CCC NIL
Total Income 5,10,000

NOTE 1: Deduction under section 80CCC is allowed only when premium for pension plan is paid by the
assesse in his own name.

NOTE 2: Loan repayment of housing loan is allowed as deduction under section 80C when loan is taken by the
assesse in his own name. In this case loan is in the name of son and thus deduction under section 80C has
not been allowed.

Calculation of deficiency for the calculation of tax liability of Mrs. Rinku


Deficiency = BEL – (Taxable income – LTCG u/s 112 – STCG u/s 111A)
= 3,00,000 – (5,10,000 – 3,00,000 - 0)
= 3,00,000 – 2,10,000
= 90,000
Calculation of Tax Liability of Mrs. Rinku
Particulars `
Total Income 5,10,000
Net Agriculture Income given 40,000
Step 1: Tax on non-agriculture Income plus net agriculture Income
Income Tax on `5,50,000
CA JASPREET SINGH JOHAR - 8010921000 PAGE 38
SUMMARY OF AGRICULTURE INCOME

Tax on long term Capital Gains [`3,00,000 – `90,000 x 20%] 42,000


Tax on winnings from game shows [`20,000 x 30%] 6,000
Tax on other Income at slab [`1,90,000 + `90,000] NIL
Total Tax 48,000
Step 2: Tax on net agriculture Income plus basic exemption limit
Income Tax on ` 3,40,000 (i.e., Agricultural Income `40,000 + BEL `3,00,000) 2,000
Step 3: Tax of Step 1 less Tax of Step 2
`48,000 less `2,000 46,000
Add : Education cess of 2% for primary education 920
Add: Education cess of 1% for secondary and higher education 460
Tax Liability rounded off u/s 288B in multiples of `10 47,380

MAY 2004: 6 MARKS


Explain aggregation of Agricultural Income with non-agricultural income for the Income Tax purposes.

MAY 2003: 3 MARKS


Discuss issues relating to the farm building used for the agricultural purposes.

MAY 2002: 6 MARKS


Income from a farm building is considered as Agricultural Income, if certain conditions are fulfilled. State
those conditions.

MAY 2001 : 5 MARKS


Under the Constitution, the power to levy a tax on Agricultural Income vests in the States. However,
Parliament has also levied a tax on such Income. Explain how this has been achieved?

CA JASPREET SINGH JOHAR - 8010921000 PAGE 39


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

SUMMARY OF THE CHAPTER OF SALARY


EMPLOYER AND 1. Income is taxable as salary income only when Payer is employer and Payee
EMPLOYEE is employee.
RELATIONSHIP 2. In the absence of employer and employee relationship income is taxable as
Income of business and profession or as Income of other sources.
3. Exception: Judges have no employer still their remuneration is taxable as
income of salary.
4. Salary to Partner: Not chargeable under the head Salaries but taxable
under the head PGBP. This is because there is absence of employer and
employee relationship and there is a relationship of Principal and Agent

CONTRACT OF Wherever there exists an employer-employee relationship, there is a ‘contract


SERVICES OR of service’.
CONTRACT FOR Where there exists no employer-employee relationship, then two people enjoy
SERVICES the relationship of ‘contract for service’

BASIS OF CHARGE 1. Salary is taxable


SECTION 15 a) on due basis or
b) on receipt basis whichever is earlier
2. Exception : Bonus is taxable on the receipt basis

COMPUTATION OF Salary xxxx


INCOME UNDER THE Allowances (Dearness Allowance) xxxx
HEAD “SALARIES” Perquisites xxxx
Retirement payments xxxx
Extra payments xxxx
Profit in lieu of salary xxxx
Gross salary xxxx
Less: Deduction under section 16
Entertainment allowance deduction [Sec. 16(ii)] xxxx
Professional tax [Sec. 16(iii)] xxxx
Income under the head “Salaries” xxxx
1. Professional tax is deductible on “payment basis”.
2. If it is paid by the employer on behalf of the employee, it is first included in
gross salary as perquisite and the deduction is allowed u/s 16 (iii)

DIFFERENT Basic salary Taxable


COMPONENTS OF Dearness allowance Taxable
SALARY Advance salary Taxable in the year of receipt
Arrears of salary Taxable in the year of receipt
Leave encashment while in Taxable
service
Gratuity while in service Taxable
Bonus Taxable when received

CA JS JOHAR (8010921000) Page 40


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Arrear of Bonus Taxable


Fees and commission Taxable
Profit in lieu of salary Taxable
Pension Taxable as salary
Remuneration for extra duties Taxable
LTC without travelling Taxable

DEDUCTIONS FROM
GROSS SALARY:
SECTION 16 Entertainment 1. This allowance is first included in salary and
Allowance : thereafter a deduction is allowed
Section 16(ii) 2. Deduction is allowed only to government
employee.
3. Government employee is employee of Central
Government and State Government
4. In case of Government employees, least of
following is exempt from tax.
a. Entertainment allowance received
b. `5,000.
c. 20% of BASIC SALARY
Professional 1. Any amount paid by the employee shall be
Tax : Section allowed as deduction in the year of payment. This
16(iii) means that payment should be made on or before
31/3/PY.
2. If the employer has paid any amount of
Professional Tax on the behalf of the employee,
then it shall be first included in the Gross Salary of
the employee and then the deduction under this
section shall be given.

1. Given to Government or Non-Government during service – fully taxable


GRATUITY 2. Given to Government employee at retirement or death - fully exempt.
(AT RETIREMENT / 3. Government employee – employee of Central Government, State
AFTER DEATH) : Government and Local Authority.
SECTION 10(10) 4. Given to Non-Government employee at retirement or death, who is
covered by the Payment of Gratuity Act, 1972: Least of the following is
exempt:
(a) Gratuity actually received.
(b) `10,00,000.
(c) 15/26 X Salary X Completed year of service + fraction of year if in
excess of 6 months
NOTE: Salary is (BS + DA) of only 1 month which is preceeding the month of
retirement.

5. Given to Non-Government employee at retirement or death, who is not


covered by the Payment of Gratuity Act, 1972 : Least of the following is
exempt:
a) Gratuity actually received.
b) `10,00,000.
c) 15 / 30 X Average Salary X Completed year of service (ignoring
fraction)

CA JS JOHAR (8010921000) Page 41


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

NOTE: Average Salary - Average Salary drawn during the period of 10 months
immediately preceding the month in which the employee has retired.
NOTE: Salary means BS + DA(R) + commission of % basis of sales

PENSION AFTER 1. Uncommuted pension is fully taxable for all employees whether he is
RETIREMENT Government Employee or Non Government Employee.
SECTION 10(10A) 2. Commuted Pension is full exempt from tax in the case of a Government
Employee
3. Government employee is employee of the Central Government, State
Government, Local Authority and Statutory Corporation.
4. In the case of non-government employee, commuted pension is exempt to
the extent given below:
a) 1/3 X Full pension - if the employee receives Gratuity + Pension.
b) 1/2 X Full pension - if the employee receives only Gratuity.

PENSION AFTER 1. Pension received by the employees of UNO or his/her family members is
DEATH fully exempt from tax.
(FAMILY PENSION) 2. Section 10(18) : Pension received by winners of gallantry awards shall be
fully exempt from tax. Similarly Family Pension received by the family
members after their death is exempt from Tax.
3. Section 10(19) : In case of the death of a member of the armed forces
during the operational duties, Family Pension received by widow or children
or nominee shall be fully exempt from tax.
4. In all other cases : Family Pension and it is taxable under the head of
‘Other Sources’ as per Section 56 for such family member. But deduction
under Section 57 is allowed which is lower of:
(a) 1/3 X Family Pension
(b) Maximum of `15,000

PENSION UNDER NEW 1. Employer’s contribution is first included in salary and then a deduction is
PENSION SCHEME IN available to the maximum of 10% of salary.
THE CASE OF AN 2. Employee’s contribution is deductible under section 80CCD to the
EMPLOYEE JOINING maximum of 10% of salary.
ON OR AFTER
JANUARY 1, 2004 SECTION 10(12A) : AMOUNT PAYABLE AT THE TIME OF CLOSURE
NPS : SECTION 80CCD OR OPTING OUT OF NATIONAL PENSION SCHEME
Any payment from National Pension System Trust referred to in Section
80CCD , to an employee
 Due to closure of the pension scheme or
 his opting out of the pension scheme
shall be exempt from tax upto 40% of the total amount payable to him.
However, the full amount received by the nominee, on death of the assessee
shall be exempt from tax.

LEAVE ENCASHMENT 1. Received during the continuity of job is fully taxable.


SECTION 10(10AA) 2. Given to family members after the death of the employee is fully exempt.
3. Given to Government employees - full exempt from tax.
4. Government employee - employee of Central Government, State
Government
5. In case of non - government employees, it is exempt to least of:

CA JS JOHAR (8010921000) Page 42


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

(a) Leave encashment actually received.


(b) Maximum limit of `3,00,000
(c) 10 months X Average Salary
(d) Average Salary / 30 X leaved surrendered, which is calculated on the basis
of maximum 30 days of earned leave for every completed year of service
PROVIDENT FUND -- SECTION 10(11) , 10(12) , 10(13)
Particulars SPF RPF URPF SAF
Employee’s Allowed as Allowed as NOT Allowed as Allowed as
contribution deduction u/s 80C deduction u/s 80C deduction u/s 80C deduction u/s 80C
Employer’s Fully exempt Exempt is lower Fully exempt Exempt lower of
contribution of a)Actual
a) Actual contribution
contribution b)Maximum
b) 12% of salary `1,50,000

Salary means
Basic Salary +
DA(R)+
Commission as %
of sales
Interest on total Fully exempt Exempt is lower Fully Fully
contribution of exempt exempt
a) Actual Interest
b) 9.5% pa of total
contribution
Payment at Fully exempt Fully exempt if Taxable as follows Fully
Retirement / certain conditions a) Employer’s exempt
death are satisfied contribution –
salary
b)Interest on
employer’s
contribution –
salary
c) Interest on
employee’s
contribution
income from
other sources

RETRENCHMENT 1. Given in the case of termination of services of employee before the normal
COMPENSATION age of retirement.
SECTION 10(10B) 2. Exempt is lower of:
a) Actual amount
b) 15/26 X Avg Salary X Completed Year of service + Fraction > 6 months
c) Maximum of `5,00,000.
3. Average Salary is average of three months of Salary and Salary means
Basic Salary + DA (forming part of the Salary for the retirement benefits) +
Commission if received as fixed percentage of sales.

CA JS JOHAR (8010921000) Page 43


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

VOLUNTARY 1. When employee takes retirement before his / her scheduled year of
RETIREMENT retirement then it is called Voluntary Retirement.
SCHEME (VRS) 2. Scheme is also known as Golden Handshake.
SECTION 10(10C) 3. Scheme of VRS is applicable to employees of Public Sector Companies,
local authority, cooperative society, Universities, IIT, IIM, State
Governments and Central Governments
4. Many conditions have been prescribed by the central government for the
scheme of VRS
5. The amount of compensation of employee on the voluntary retirement
should not exceed:
a. Salary X 3 X completed number of years OR
b. Salary X Months of service left before the date of his retirement.
6. Amount received is exempt to the lower of the following:
a. Actual amount received or receivable
b. Maximum limit of `5,00,000.

LEAVE TRAVEL 1. Any benefit related to the fare of journey received by an employee for
CONCESSION (LTC) himself, or his family for travelling to any place in India while on leave or
after retirement is called LTC
2. Family to include spouse, children (whether dependent or not dependent),
dependent parents, dependent brothers and dependent sisters.
3. Exemption available only for two children. But in case of multiple births
after one child, then the exemption is allowed for all children.
4. Amount of exemption: If journey is performed
(a) By air, then exempt is economy class fair of the national carrier by the
shortest route
(b) By rail then exempt is first class AC rail fare of the shortest route.
(c) By any other mode, if destination is not connected by rail then:
i) exempt is first class or deluxe class fare if recognized public transport
system exists
ii) exempt is 1st AC rail fare if public transport system does not exist.
DIFFERENT ALLOWANCES
CITY COMPENSATORY Given to compensate difference is prices between two cities which
ALLOWANCE employee may have to incur due to the transfer from one city to
another. It is always fully taxable
HOUSE RENT ALLOWANCE Given to meet expenses of the house rent. Exempt from tax to the
extent of the least of the following
a. House rent allowance.
b.Rent paid - 10% of salary.
c. 50% of salary in Delhi, Bombay, Calcutta, Madras or
40% of salary in other cases.
CHILDREN EDUCATION 1. Given to meet expenses of education of children.
ALLOWANCE 2. It is exempt to the lower of
a. Actual amount
b. Maximum of `100 pm per child for a maximum of two
children
NOTE : Actual expenditure is not taken into consideration.
NOTE : Allowance for grandchildren is fully taxable.

CA JS JOHAR (8010921000) Page 44


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

HOSTEL EXPENDITURE 1. Given to meet expenses of hostel of children.


ALLOWANCE 2. It is exempt to the lower of
a. Actual amount
b. Maximum of `300 pm per child for a maximum of two
children
NOTE : Actual expenditure is not taken into consideration.
NOTE : Allowance for grandchildren is fully taxable.
NOTE : Exemption is in addition to the exemption available in the
case of children education allowance.
TRANSPORT ALLOWANCE 1. Given to an employee to meet his expenditure for the purpose
of commuting between office and residence.
2. It is exempt to the lower of
a. actual amount
b. `1,600 pm. The exemption is `3,200 pm in the case of an
employee who is blind, Deaf , Dumb or handicapped.
 Actual expenditure is not taken into consideration.
 In the case serving chairman and member of UPSC,
transport allowance is exempt from tax without any
monetary ceiling.
OUTSTATION ALLOWANCE 1. Given to employees of transport undertaking to meet their
personal expenditure during duty performed in the course of
running of such transport from one place to another place.
2. The amount is exempt to the lower
a. 70% of the allowance received
b. `10,000 pm
 Actual expenditure is not taken into consideration.
TRIBAL AREA ALLOWANCE 1. Given to employee who is working in backward states of
Madhya Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka,
Tripura, Assam, West Bengal, Orissa, and Bihar
2. It is to the lower of
a. Actual amount
b. `200 pm
CONVEYANCE ALLOWANCE; Official Allowances are exempt to the lower of:
ACADEMIC ALLOWANCE; a. Actual amount received or receivable
TRAVELING ALLOWANCE; b. Amount spent for official duties
RESEARCH ALLOWANCE;
HELPER ALLOWANCE; NOTE : Any amount which is saved or which is spent for personal
UNIFORM ALLOWANCE AND purposes will be fully taxable.
DAILY ALLOWANCE
SECTION 10(14)

FOREIGN ALLOWANCE : Exempt from tax if paid outside India by the Central Government or
SECTION 10(7) State Government to an Indian citizen rendering service outside
India
PERSONAL ALLOWANCES :
DEARNESS ALLOWANCES Fully Taxable
(DA), OVERTIME
ALLOWANCE, CITY
COMPENSATORY
ALLOWANCE (CCA),
SERVANT ALLOWANCE /

CA JS JOHAR (8010921000) Page 45


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

WARDEN ALLOWANCE,
LUNCH ALLOWANCE,
TIFFIN ALLOWANCE,
FAMILY ALLOWANCE,
MEDICAL ALLOWANCE,
TELEPHONE ALLOWANCE,
CAR ALLOWANCE, DATING
ALLOWANCE, SPLIT DUTY
ALLOWANCE ETC.
SUMPTUARY ALLOWANCE Exempt
TO SERVING CHAIRMAN /
MEMBERS OF UPSC
ALLOWANCE TO RETIRED An allowance (subject to a maximum of `14,000 per month) for
CHAIRMAN AND RETIRED defraying the service of an orderly and for meeting expenses
MEMBER OF UPSC incurred towards secretarial assistance on contract basis, is not
chargeable to tax.

PERQUISITES
RENT-FREE 1. In the case of Government employee (i.e., Central Government employee,
UNFURNISHED State Government employee) Taxable value is the license fee the house
HOUSE per house allotment scheme of the Government.
SECTION 17(2)(i) 2. In the case of non-government employees:
a. If the house is owned by employer: Taxable value is 15% / 10% /
7.5% of salary of employee depending on the population of the city in
which accommodation is provided.
b. If house is taken on lease by employer: Taxable value is either 15%
of the salary or lease rent, whichever is lower.

RENT-FREE 1. Value of furniture will be added to the value of rent-free unfurnished house
FURNISHED HOUSE as computed above.
2. Value of furniture is 10% pa of cost of furniture to the employer or rent
paid / payable of the furnishing by the employer, as the case may be.

CONCESSION IN RENT 1. Value of the perquisite in respect rent-free furnished/unfurnished house


SECTION 17(2)(ii) will be calculated as given above.
2. From the amount so calculated, rent charged by employer shall be
deducted.
3. The balance (if it is positive) is taxable value of the perquisite in respect of
concession in rent.

RENT-FREE / 1. Not chargeable to tax if provided in a remote area.


CONCESSIONAL 2. Hotel accommodation provided to an employee is taxable at the rate of
FURNISHED / 24% of salary or hotel rent, whichever is lower.
UNFURNISHED 3. Hotel accommodation for 15 days (in aggregate in a previous year) is
HOUSE IN SPECIAL exempt from tax.
CASES 4. If an employee is transferred and housing facility is provided to him at the
new location (he has yet to vacate a house given at the old location), for a
period of 90 days immediately after transferred only one house (at the
option of the employee at the old location or new location) is chargeable to
tax.

CA JS JOHAR (8010921000) Page 46


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

5. Perquisite in respect of rent-free furnished/unfurnished house is not


taxable if provided to a High Court Judge, Supreme Court Judge, Union
Minister, Leader of opposition in Parliament, an official in parliament and
serving Chairman/member of UPSC.

DEFINITION OF Employee is specified employee if he satisfies any one of the following three
SPECIFIED conditions:
EMPLOYEE 1. He is a director of the company and is also employee of company.
2. He is the employee with the substantial interest in the company, i.e., he
holds 20% or more of the voting power.
3. His income under the head salary excluding non-monetary perquisites
exceeds `50,000. (`50,000 is the annual limit)

PERQUISITES Motor Car


TAXABLE FOR Servants
SPECIFIED Gas / electricity / water
EMPLOYEES ARE Education facility
SECTION 17(2)(iii) Transport facility

MOTOR CAR 1. If the car is owned / hired by employer and is used by employee
SECTION 17(2)(iii)
RULE 3(2) 1.1 Car is used only for the official purposes: Its PV shall be NIL provided
some specified documents have been maintained.
1.2 Car is used only for the private purposes: Its PV shall be aggregate of
following:
 Actual running and maintaince charges
 Actual chauffer charges (driver’s salary)
 Wear,tear charges, which shall be 10% pa of the historical cost of car.

Actual hire charges will be taken as the perquisite value in the case where car
is hired by the employer.

1.3 Car is used partly for official and partly for personal purposes: Its PV
value shall be calculated as follows:
A) If the running and maintaince charges are met by employer then:
(i) If car’s engine capacity is of 1600 cc or less: `1,800 pm.
(ii) If car’s engine capacity is of more than 1600 cc : `2,400 pm.
B) If running and maintaince charges are met by employee then:
(i) If car’s engine capacity is of 1600 cc or less : `600 pm
(ii) If car’s engine capacity is of more than 1600 cc : `900 pm

2. If employee owns car and is used by employee himself and expenses


are met by employer or reimbursed by him

2.1 If the car is used only for the official purposes: Its perquisite value
shall be NIL provided some specified documents have been maintained.
2.2 If the car is used for the private purposes: Its perquisite value shall be
taxed under Section 17(2)(iv) , i.e., it shall be fully taxable for both
specified as well as non-specified employees.
2.3 If the car is used partly for official and partly for personal purposes:
Its perquisite value shall be calculated as follows:

CA JS JOHAR (8010921000) Page 47


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Actual expenditure done by employer


LESS `1,800pm OR `2,400pm as the case may be depending upon cc of car
LESS `900pm for chauffer , if provided along with the car

NOTES
1) Chauffer: If along with car, chauffer is also provided then `900 pm has to
be added in Perquisite Value of the car in all of the above cases.
2) Power of car : Power of car can be defined in terms of cubic capacity (cc)
or in terms of liters. Therefore 1600 cc may be said as 1.6 liters of engine
capacity.
3) Vehicle other than car: If employer has provided any other vehicle other
than car then its perquisite value shall be `900 pm
4) Pick and drop facility: If employer has provided pick and drop facility
then its perquisite value shall be exempt from tax.

FREE DOMESTIC 1. Actual expenditure of the employer as reduced by any amount paid by the
SERVANTS employee is a taxable perquisite in the hands of an employee.
SECTION 17(2)(iii) 2. If facility of Gardner is provided along with the RFA (owned by employer)
RULE 3(3) then facility of Gardner is not taxable for the employee.
GAS, ELECTRICITY 1. Actual amount spent by the employer as reduced by any amount recovered
OR WATER from the employee is a taxable perquisite in the hands of an employee.
SECTION 17(2)(iii) 2. If facility is provided from own sources of the employer then PV will be
RULE 3(4) number of units consumed X manufacturing cost per unit
FREE EDUCATION 1. Expenditure relating to providing training to employees is not taxable.
FACILITY 2. If education facility is provided to the family members of employee,
SECTION 17(2)(iii) expenditure incurred by the employer is the taxable value of perquisite.
RULE 3(5) 3. If education facility is provided to the family members in an educational
institute owned or maintained by the employer, then reasonable cost of
education in a similar institute in or near the locality is taxable.
4. Up to `1,000 per month per child is not taxable if the employer provides
education facility to the children of an employee in an education institution
owned / maintained by the employer.
5. Scholarship given to the children of the employee is exempt from tax under
Section 10(16).
TRANSPORT FACILITY 1. If the transport facility is provided to the employee then it shall be taxable
SECTION 17(2)(iii) for the specified employee.
RULE 3(6) 2. For this purposes, perquisite value shall be the price at which the benefit is
offered by the employer to the general public.
3. Amount recovered by employer from employee shall be reduced from the
PV.
4. However, any facility to employees working in railways or airlines shall be
exempt from Tax.
EMPLOYEE’S Taxable in all cases
OBLIGATION MET BY
EMPLOYER
SECTION : 17(2)(iv)
PAYMENT OF If the employer has paid life insurance premium on behalf of the employees
INSURANCE PREMIUM then it will be taxable for the employee and further employee can claim
BY THE EMPLOYER : deduction under Section 80C from GTI.
SECTION 17(2)(v)

CA JS JOHAR (8010921000) Page 48


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

ISSUE OF SHARES Any share and securities issued by employer to its employees free of cost or
AND SECURITIES at concessional rate shall be taxable for the employee.
UNDER ESOP :
SECTION 17(2)(vi) For Listed equities: Perquisite Value shall be average of opening and closing
price of shares listed on stock exchange on date of exercise of option less any
amount recovered from the employee.

For unlisted equities: Perquisite Value shall be the FMV as determined by


the Merchant Banker on the date of exercise of Option

CONTRIBUTION OF Contribution of the employer to superannuation fund in excess of `1,50,000


EMPLOYER TO lakhs shall be taxable for the employee.
SUPERANNUATION
FUND: SECTION
17(2)(vii)
VALUATION OF THE FRINGE BENEFITS: SECTION 17(2)(viii) RWR 3(7)
INTEREST-FREE / 1. Find out the maximum outstanding balance on the last day of each month.
CONCESSIONAL 2. It shall be multiplied by SBI lending rate on the first day of the previous
LOAN year.
3. Amount recovered from the employee on account of interest is deductible.
4. Perquisite is not taxable
a) if the aggregate amount of original loan does not exceed `20,000.
b) if loan is given by employer for medical treatment
TRAVELLING, 1. When such facility is available uniformly to all employees: PV = actual
TOURING, expenditure of the employer as reduced by any amount recovered from the
ACCOMMODATION employee.
2. When such facility is not available uniformly to all employees: PV =
value at which such facilities are offered by other agencies to the public as
reduced by any amount recovered from the employee.
LUNCH, MEALS AND 1. Food and non-alcoholic beverages are provided in working hours in
REFRESHMENT, ETC. remote area or in an off shore installation: Fully exempt from tax.
2. Lunch/refreshment is provided in working hours at any other place:
Cost to the employer
LESS `50 per meal
LESS Recovered from the employee
3. Tea and snacks in working hours is tax-free perquisite.
GIFT VOUCHER OR 1. Taxable as a perquisite in the hands of an employee on the basis of actual
TOKEN expenditure of the employer
2. Gift-in-kind is exempt up to `5,000 pa. (As per opinion of ICAI amount less
than `5,000 is fully exempt and Amount of `5,000 or more is fully taxable)
CREDIT CARD 1. Official use : fully exempt
2. Personal use : fully taxable
3. Partly official and partly personal use : fully taxable
4. PV is expenditure incurred by the employer minus anything recovered from
the employee.
CLUB 1. Official use : fully exempt
2. Personal use : fully taxable
3. Partly official and partly personal use : fully taxable
4. PV is expenditure incurred by the employer minus anything recovered from

CA JS JOHAR (8010921000) Page 49


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

the employee.
5. Health club / sports club facility given uniformly to all employees in
employer’s premises, is not taxable.
6. The initial one time deposits or fees for corporate or institutional
membership, where benefit does not remain with particular employee after
cessation of employment, are exempt.
USE OF EMPLOYER’S 1. PV = 10% pa of actual cost of asset to the employer or hire charges
MOVABLE ASSET LESS: Reduced by any amount recovered from the employee
2. Nothing is taxable in the case of computer/laptop.
SALE OF MOVABLE 1. PV = Book Value – Sale Price
ASSETS 2. Book Value = Actual cost of the employer - Depreciation
3. Depreciation rates are Depreciation is calculated
a) Computer / electronic items: 50% WDV for every completed year
b) car: 20% WDV from date of put to use
c) any other asset: 10% SLM

MEDICAL FACILITIES 1. Medical facility provided in a hospital owned or maintained by the


IN INDIA employer is not chargeable to tax.
2. Medical facility provided by an employer in a Government hospital,
approved hospital (if a few conditions are satisfied) or a private hospital (if
such private hospital is recommended by the government for the medical
treatment of government employees) is not chargeable to tax.
3. Medical insurance premium paid or reimbursed by the employer is not
chargeable to tax.
4. Any other expenditure incurred or reimbursed by the employer for
providing medical facility in India is not chargeable to tax up `15,000 in
aggregate.

MEDICAL FACILITY 1. Expenditure on medical treatment


OUTSIDE INDIA 2. Expenditure on Stay / boarding and lodging
incurred by an employer is not chargeable to tax in the hands of employee
if it does not exceed the amount permitted by RBI
3. Expenditure on travelling for going outside India for medical treatment

Taxable if GTI > `2,00,000 ; not taxable if GTI = / < `2,00,000

TELEPHONE and Not taxable Rule 3(8)


MOBILE PHONE
NEWSPAPER AND Not taxable Rule 3(8)
MAGAZINE
ANY OTHER FACILITY Taxable as a perquisite in the hands of an employee on the basis of actual
NOT DISCUSSED SO expenditure of the employer as reduced by any amount paid by the employee.
FAR

EXTRA CONCEPTS
ADVANCE SALARY & Advance Salary means that employee has received salary well in advance
ADVANCE AGAINST before it has accrued. Advance against salary means that employee has taken
SALARY a loan against the security of salary which he will receive in future.

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

ARREAR OF SALARY When salary income is increased from back date and the amount of such
increased salary is received in the current period then such amount is called
arrear of salary. An arrear of salary is taxable on the payment basis and not on
the due basis.
ACCRUAL OF Salary is always deemed to accrue or arise at the place where the services
SALARY INCOME: have been rendered.
SECTION 9 If an employee of the Central / State Government has rendered the services
outside India then his salary will be deemed to accrue or arise in India and
therefore taxable in India as per section 9. However allowances and perquisites
shall be fully exempt from tax.
FOREGOING OF If employee donates his salary then it is a case of foregoing of salary. The
SALARY amount forgone shall always be taxable in the hands of employee.
SURRENDER OF According to Section 2 of Voluntary Surrender of Salaries (Exemption from
SALARY: Taxation) Act 1961 salary surrendered will not be included in computing the
income provided salary is surrendered to the Central Government whether
employee is in public sector or private sector or is a Government employee.

MEANING OF SALARY IN DIFFERENT SECTIONS


Section Topic Meaning
16(ii) Entertainment Allowance Basic Salary
10(10) Gratuity (covered) BS+DA
10(10) Gratuity (uncovered) BS+DA(forming part of Retirement benefits)
+ Commission on % basis of sales.
10(10AA) Leave salary Do
10(12) RPF Do
10(13A) HRA Do
17(2)(i) RFA BS+DA(forming part of Retirement benefits) + all types of
17(2)(ii) Concessional commission+ Bonus + Monetary payment which are not in
accommodation nature of perquisites
10(10B) Retrenchment BS+DA(forming part of Retirement benefits) + Commission on %
compensation basis of sales
10(10C) VRS Do

MEANING OF GOVERNMENT EMPLOEE IN DIFFERENT SECTIONS


Section Topic Meaning
16(ii) Entertainment Allowance CG/SG
10(10) Gratuity CG/SG/LA
10(10A) Committed pension CG/SG/LA/SC
10(10AA) Leave salary CG/SG
17(2)(i) & (ii) RFA CG/SG

DISTINGUISH BETWEEN ‘MEMBER OF HOUSEHOLD’ AND ‘FAMILY’


Members of household mean spouse, children, spouse of children, parents, servants and all other
dependents.
Family to include spouse, children dependent parents dependent brothers and dependent sisters.

CA JS JOHAR (8010921000) Page 51


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

SOLVED EXAMINATION QUESTIONS OF CA-IPCC


MAY 2017 : 8 MARKS
Mr. Nambi, a salaried employee, furnishes the following details for the financial year 2017-2018:
Particulars `
Basic salary 6,00,000
Dearness allowance 3,20,000
Commission 50,000
Entertainment allowance 7,500
Medical expenses reimbursed by the employer 21,000
Profession Tax (of this, 50% paid by employer) 7,000
Health insurance premium paid by employer 9,000
Gift voucher given by employer on his birthday 12,000
Life insurance premium of Nambi paid by employer 34,000
Laptop provided for use at home. Actual cost of Laptop to employer 30,000
[Children of the asses see are also using the Laptop at home]
Employer-Company owns a Tata Nano car, which was provided to the assessee, both for official
and personal use. No driver was provided. (Engine cubic capacity less than 1.6 litres)
Annual credit card fees paid by employer [Credit card is not exclusively used for 2,000
official purposes details of usage are not available]
You are required to compute Taxable Salary for AY 2018-2019 i.e. PY 2017-2018

SOLUTION : Calculation of Taxable salary of Mr. Nambi


Particulars ` `
Basic Salary 6,00,000
Dearness Allowance 3,20,000
Commission 50,000
Entertainment Allowance 7,500
Medical expenses reimbursed 21,000
Less: exempt 15,000 6,000
Professional tax paid by employer 3,500
Health insurance premium paid by employer Fully exempt
Gift voucher provided by employer to employee 12,000
Less: exempted value 5,000 7,000
Life insurance premium of Nambi paid by employer 34,000
Use of laptop Fully exempt
Use of car (`1,800 X 12) 21,600
Credit card expenses 2,000
Gross Salary 10,51,600
Less: deduction u/s 16(ii) – entertainment allowance NIL
Less: deduction u/s 16(iii) – professional tax paid (7,000)
Taxable salary 10,44,600

CA JS JOHAR (8010921000) Page 52


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

NOV 2016 : 4 MARKS


QUESTION : Compute the amount of LTC exemption in the following cases
Mr. A goes on a holiday on 9/9/2017 to Mysore with his wife and 3 children (one daughter born on
2/2/2010 and twin sons born on 5/5/2012). The total cost of travel is `80,000. The ticket cost for Mr. A and
his wife is `50,000. Cost of tickets for all three children is `30,000. The employer reimburses total ticket
cost `80,000.
In the above case, if the twin sons were born on 2/2/2010 and the daughter was born on 5/5/2012, what
shall be the exemption?

SOLUTION : LTC exemption is available in respect of fare (i.e., air fare, rail fare, bus fare, etc.) for going
anywhere in India along with family. “Family” does not include more than two children. However, children
born out of multiple births after the first child then exemption shall be allowed for all children. In the first
case (daughter born in 2010 and twin sons born in 2012), the entire `80,000 will be exempt (on the
assumption that fare does not exceed fare of Air India).
In the second case (twin sons born in 2010 and daughter born in 2012), exemption will be available for
twin sons but not for daughter. Consequently, the amount of exemption will be `70,000.

NOV 2014 : 8 MARKS


QUESTION : Mr. J, an employee of GGC Ltd. at Mumbai and covered by the Payment of Gratuity Act,
1972 retires at the age of 64 years on 31/12/2017 after completing 33 years and 7 months of service. At
the time of retirement, his employer pays `20,51,640 as gratuity and `6,00,000 as accumulated balance
of recognized provident fund. He is also entitled for monthly pension of `8,000. He gets 75% of pension
commuted for `4,50,000 on 1/2/2018. Determine the salary chargeable to tax for Mr. J for the AY 2018-
2019 ie PY 2017-2018 with the help of following information - `
Basic salary (`80,000 x 9) 7,20,000
Bonus 36,000
House rent allowance (`15,000 x 9) 1,35,000
Rent paid by Mr. J (`10,000 x 12) 1,20,000
Employer contribution towards recognized provident fund 1,10,000
Professional tax paid by Mr. J 2,000
Salary and pension falls due on the last day of each month.

SOLUTION : Computation of Taxable Salary for the AY 2018-2019 ie PY 2017-2018 of Mr. J `


Basic salary 7,20,000
Bonus 36,000
Taxable HRA (`15,000 pm - `2,000 pm) = `13,000 pm X 9 1,17,000
Employer’s contribution towards recognized provident fund [`1,10,000 – (12% X `7,20,000)] 23,600
Taxable Gratuity ( `20,51,640 – `10,00,000 ) 10,51,640
Accumulated balance out of recognized provident fund
(exempt since retirement is after 5 years of job) Nil
Pension for January 2018 8,000
Pension for February and March 2018 (25% of `8,000 X 2) 4,000
Commuted Pension (`4,50,000 - `2,00,000) 2,50,000
Gross salary 22,10,240
Less: Professional tax paid u/s16(iii) 2,000
Taxable Salary 22,08,240

House rent allowance - Exempt amount is least of the following


a. 50% of salary : `40,000 pm
b. Actual house rent allowance `15,000 pm
c. Rent Paid minus 10% of salary = `10,000 pm – `8,000 pm = `2,000 pm.

CA JS JOHAR (8010921000) Page 53


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Gratuity - Exemption is available under section 10(10) on the basis of the least of the following
a. Gratuity received : `20,51,640
b. Maximum exempt amount : `10,00,000
c. 15/26 x `80,000 x 34 years : `15,69,231

Commuted pension - `4,50,000 is received for commutation of 75% of pension. Commuted value of
100% of pension will be `6,00,000 (i.e.`4,50,000 x 100 / 75). `2,00,000 (being 1/3 x `6,00,000) is exempt
under section 10(I0A).

MAY 2014 : 8 MARKS


Ms. X is an employee in a private company. She receives the following medical benefits from the
company during the AY 2018-2019 ie PY 2017-2018
Particulars `
Reimbursement of following medical expenses incurred by Ms. X
- On treatment of her self-employed daughter in a private clinic 4,000
- On treatment of Ms. X by a family doctor 8,000
- On treatment of her mother-in-law dependent on her, in a nursing home 5,000
Payment of premium on mediclaim policy taken on her health 7,500
Medical allowance (`2,000 pm) 24,000
Medical expenses reimbursed on her son’s treatment in a Government hospital 5,000
Expenses incurred by company on the treatment of her minor son abroad 1,05,000
Expenses in relation to foreign travel and stay abroad of Ms. X and her son for medical 1,20,000
treatment (limit prescribed by RBI for this is `2,00,000)
Discuss about the taxability of above benefits and allowances in the hands of Ms. X.

SOLUTION : Computation of taxable amount in the hands of Ms. X


Complete information pertaining to medical expenditure outside India is not available in the question. It
has been assumed that expenses done have been within the limits prescribed by RBI.

Amount taxable will be calculated as follows `


Reimbursement of medical expenditure
- Treatment of daughter of Ms. X in private clinic : `4,000 exempt
- Treatment of Ms. X : `8,000 exempt
- Treatment of mother-in-law 5,000
Medi-claim insurance premium paid by employer (not taxable) exempt
Medical allowance (fully taxable, no exemption) 24,000
Medical treatment of son in Government’s hospital exempt
Medical treatment expenditure outside India exempt
Expenses on travel to foreign country for medical treatment exempt on the assumption
that GTI is less than `2,00,000
TAXABLE AMOUNT 29,000
Note : Payment of premium of `7,500 on mediclaim policy taken on her health will be allowed as
deduction u/s 80D

NOV 2013 : 8 MARKS


QUESTION : Calculate taxable salary of Mr. Anand for the AY 2018-2019 ie PY 2017-2018
Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 1/3/2017 in the scale
of `25,000 - `2,500 - `35,000. He is paid DA (which forms part of salary for retirement benefits) @ 15%
of basic pay and bonus equivalent to one and a half month’s basic pay at the end of the year. He
contributes 18% of his salary (basic pay plus dearness allowance) towards Recognized Provident Fund
and the company contributes the same amount. He is provided with following facilities:
CA JS JOHAR (8010921000) Page 54
SUMMARY AND QUESTIONS OF INCOME FROM SALARY

1) Company reimbursed the medical treatment bill of `40,000 of his daughter, who is dependent on him.
2) Monthly salary of `2,000 of a house keeper is reimbursed by the Company.
3) He is getting telephone allowance of `1,000 per month.
4) Cash gift of `4,700 was given on the occasion of his marriage anniversary.
5) Company pays medical insurance premium to effect an insurance on the health of Mr. Anand `12,000.
6)Motor car’s running and maintenance charges fully paid by employer of `36,000 (The motor car is
owned and driven by Mr. Anand. The engine cubic facility is below 1.60 litres. The motor car is used
for both official and personal purposes by the employee).
7) Value of free lunch provided during office hours is `2,200.

SOLUTION : Calculation of Income under the head of salary of Mr. Anand


Particulars `
Basic salary (`25,000 x 11 + `27,500) 3,02,500
Dearness allowance (15% of basic salary) 45,375
Bonus (it is 1.5 of basic pay at the end of the year) 41,250
Telephone allowance 12,000
Employer’s contribution to recognized provident fund 20,873
(up to 12% of salary not chargeable to tax, amount taxable is 6% of salary)
Rent-free house 60,169
(amount taxable is 15% of salary or rent whichever is lower)
Reimbursement of medical expenditure (`40,000 — `15,000) 25,000
Reimbursement of salary of house-keeper 24,000
Gift voucher (up to `5,000 is not chargeable to tax) NIL
Medical insurance premium paid by employer (not taxable) NIL
Motor car (car is owned by Anand) `36,600 less `1,800 pm) 15,000
Free lunch (not taxable on the assumption that cost does not exceed `50 per meal) NIL
Income under the head “Salaries” 5,46,167

MAY 2013 : 4 MARKS


QUESTION : Rajesh went to Srinagar on 15/11/2017 with his wife and three children (one son aged six
years and twin daughters - aged three years). They went by airplane (economy class) and total cost of
tickets spent by his employer was `58,000 (`43,000 for adults and `15,000 for three minor children).
Compute the amount of LTC exempt.
Will the answer be any different if among his three children the twin daughters are six years old and son
is three years old.

SOLUTION : LTC exemption is available in respect of fare for going anywhere in India along with family.
Family does not include more than two children. However, for children born out of multiple births after the
first child , exemption shall be allowed for all children. In the first case (son: 6 years, twin daughters : 3
years), the entire `58,000 will be exempt (on the assumption that fare does not exceed fare of Air India).
In the second case (twin daughters :6 years, son :3 years), exemption will be available for twin daughters
but not for son. Consequently, the amount exempt will be `53,000 and taxable will be `5,000.

MAY 2013 : 4 MARKS

QUESTION : Mr. Gobind received retrenchment compensation of `10,00,000 after 30 years and 4
months of service. At the time of retrenchment, he was receiving Basic Salary of `20,000pm; DA
`5,000pm. Compute his taxable retrenchment compensation.

CA JS JOHAR (8010921000) Page 55


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

SOLUTION : U/S 10(I0B), retrenchment compensation is not chargeable to tax to the extent of lower of
(a) Actual amount ie `10,00,000
(b) 15 days’ average salary for every completed year of service or part of year which is more than 6
months `25,000 x 15 / 26 x 30 = `4,32,692
(c) `5,00,000.
Consequently, `4,32,692 is exempt and the balance of `5,67,308 is chargeable to tax.

NOV 2012 : 1 MARK EACH

QUESTION : Medical Allowance received by an employee, the entire amount of which has been spent
by him for medical treatment. Discuss the tax treatment.
Answer: Fully Taxable

QUESTION : Allowances paid by Central Government to Mr. John, a citizen of India `70,000pa for the
services rendered outside India. Discuss the tax treatment.
Answer: Fully Exempt

NOV 2012 : 4 MARKS

QUESTION : Mr. Alok, a Government employee retired from service on 31/7/2017 after rendering
service of 25 years and 7 months. He received Gratuity of `7,00,000. His salary at the time of retirement
was as under
Basic Salary `16,000pm
Dearness Allowance `8,000pm
Compute the taxable portion of Gratuity.
If Mr. Alok is not a Government employee but covered by payment of Gratuity Act, 1972, then determine
the taxable and exempt portion of Gratuity.

SOLUTION : If Alok is a Government employee, gratuity of `7,00,000 will be exempt u/s 10(10).
If Alok is a non-Government employee covered by the Payment of Gratuity Act, exemption will be least of
the following
(a) Actual Gratuity Received `7,00,000.
(b) Maximum Limit of `10,00,000
(c) 15 / 26 X `24,000 X 26 = `3,60,000
`3,60,000 will be exempt and the balance of `3,40,000 will be chargeable to tax if Alok is a non-
Government employee.

MAY 2012 : 8 MARKS

QUESTION : Mr. Mohit is employed with XY Ltd. on a Basic Salary of `10,000 pm. He is also entitled to
DA @ 100% of Basic Salary 50% of which is included for the retirement benefits. The company gives
him HRA of `6,000 pm which is increased to `7,000 pm with effect from 1/1/2018. He also got an
increment of `1,000 pm in his Basic Salary with effect from 1/2/2018. Rent paid by him during the year
AY 2018-2019 ie PY 2017-2018 is as under:
April and May 2017 : NIL as he stayed with his parents
June to October 2017 : `6,000 pm for an accommodation in Ghaziabad Nov to March 2018
`8,000 pm for an accommodation in Delhi.
Compute his gross salary for the AY 2018-2019 ie PY 2017-2018.

CA JS JOHAR (8010921000) Page 56


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

SOLUTION : Computation of taxable house rent allowance


June to November January February
October and 2018 and
2017 December (`) March
(`) 2017 (`) 2018 (`)
Basic salary 10,000 10,000 10,000 11,000
Dearness allowance (R) 5,000 5,000 5,000 5,500
Salary for HRA purpose 15,000 15,000 15,000 16,500
Rent paid 6,000 8,000 8,000 8,000
50% of salary - 7,500 7,500 8,250
40% of salary 6,000 - - -
House rent allowance 6,000 6,000 7,000 7,000
Rent Paid - 10% of salary 4,500 6,500 6,500 6,350
Amount exempt is least of (on monthly basis) 4,500 6,000 6,500 6,350
Amount exempt from tax is `53,700 [i.e., (`4,500 × 5) + (`6,000 × 2) + (`6,500 x 1) + (`6,350 × 2).

Taxable salary will be calculated as follows `


Basic salary [`10,000 × 10) + (`11,000 × 2)] 1,22,000
Dearness allowance (100% of basic salary) 1,22,000
House rent allowance [`6,000 × 9) + (`7,000 × 3) – exemption: `53,700] 21,300
Income under the head “Salary” 2,65,300

MAY 2012 : 8 MARKS


QUESTION : Mr. Harish is a production manager of XYZ Ltd. From the following information, compute
taxable income for the AY 2018-2019 ie PY 2017-2018. `
Basic salary (per month) 50,000
Dearness allowance (40% of basic salary) 20,000
Transport allowance (for commuting between place of residence and office) 3,800pm
Motor car running and maintenance charges fully paid by employer. Car is owned by the company and
driven by Mr. Harish. The engine cubic capacity is above 1.60 liters and car is used for both official and
personal purposes. 60,000
Expenditure on accommodation in hotels while touring on official duties met by the employer 80,000
Loan from recognized provident fund (maintained by the employer) 60,000
300 numbers of lunch provided by the employer during office hours (cost to the employer) 24,000
Computer (cost `35,000) kept by the employer in the residence of Harish from 1/6/2017.
Harish pays medical insurance premium: `4,800 (in cash) and `15,000 (by account payee cheque).

SOLUTION : Computation of taxable salary income of Harish `


Basic salary (`50,000 × 12) 6,00,000
Dearness allowance 2,40,000
Transport allowance [`3,800 – `1,600) × 12] 26,400
Motor car perquisite [`2,400 × 12] 28,800
Hotel accommodation while on duty (not a perquisite) NIL
Loan from provident fund (it is not income) NIL
Lunch [`24,000 – (`50 X 300)] 9,000
Computer’s use NIL
Salary income 9,04,200
Any other income NIL
Gross total income 9,04,200
Less: Deduction under section 80D (cash payment is not deductible) 15,000
Total Income 8,89,200

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

MAY 2012 : 8 MARKS , JUNE 2009 : 10 MARKS


QUESTION : Mr. Ashok Kumar, an employee of a PSU furnishes the following particulars for the year
ending 31/3/2018:
(i) Salary Income for the year `5,25,000
(ii) Salary for Previous Year 2006-2007 received during the year `40,000
(iii) Assessed Income for the Previous Year 2006-2007 `1,40,000
Compute relief u/s 89 for the AY 2018-2019 ie PY 2017-2018. Income tax rates for the PY 2006-2007 i.e.
AY 2007-2008 are:
On first `1,00,000 Nil
On `1,00,000 – `1,50,000 10
On `1,50,000 – `2,50,000 20
Above `2,50,000 30
Education cess 2%
Rebate u/s 87A was not available in PY 2006-2007

Solution: Calculation of relief under Section 89 for the AY 2018-2019 ie PY 2017-2018


Taxable income and tax Taxable income and tax
Liability on "receipt" basis Liability on "accrual" basis
AY 2018-2019 AY 2007-2008 AY 2018-2019 AY 2007-2008
Salary computed `5,25,000 `1,40,000 `5,25,000 `1,40,000
Arrears of salary `40,000 Nil Nil `40,000
Total income `5,65,000 `1,40,000 `5,25,000 `1,80,000
Tax on total income `25,500 `4,000 `17,500 `11,000
Add : Education cess 2% `510 `80 `350 `220
Add : Education cess 1% `255 Nil `175 Nil
Tax liability `26,265 `4,080 `18,025 `11,220

Aggregate of tax liability of the two years on receipt basis `30,345


Aggregate of tax liability of the two years on accrual basis `29,245
Tax relief under section 89 for the AY 2018-2019 ie PY 2017-2018
( i.e., `30,345 – `29,245) `1,100
Tax payable for the AY 2018-2019 ie PY 2017-2018
(i.e., `26,265 – `1,100) `25,165
Tax payable rounded off under section 288B `25,170

NOV 2011 : 10 MARKS


QUESTION : Mr. J is employed as production Manager in C Ltd., furnishes you the following for the year
ending 31/3/2018
- Basic salary up to October 31, 2017: `50,000 p.m.
- Basic salary from November 1, 2017 : `60,000 p.m
- Dearness allowance at the rate of 40% of basic salary.
- Bonus equal to one month salary. Paid in October 2017 on basic salary plus dearness allowance
applicable for that month.
- Contribution of employer to RPF account of the employee at the rate of 16 % of Basic Salary.
- Profession tax paid `3,000 of which `2,000 was paid by the employer.
- Facility of laptop and computer was provided to Mr. J for both official and personal use. Cost of laptop
`45,000 and computer `35,000 were acquired by the company on 1/12/2017.
- Motor car owned by the employer (cubic capacity of engine exceeds 1.60 liters) provided to the
employee form 1/11/2017 meant for both official and personal use. Repair and running expenses of

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

`45,000 from 1/11/2014 to 31/3/2018 were fully met by the employer. The motor car self-driven by
employee.
- Leave travel concession given to employee, his wife and three children (one daughter age 7 years
and twin sons-age 3 years). Cost of air tickets (economy class) reimbursed by the employer `30,000
for adults and `45,000 for three children. Mr. J is eligible for availing exemption this year to the extent
it is permissible in law.
Compute salary income chargeable to tax in the hands of Mr. J for the AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of salary income of Mr. J `


Basic salary [`50,000 × 7 + `60,000 × 5] 6,50,000
Dearness allowance (40% of `6,50,000) 2,60,000
Bonus (`50,000 + 40% of `50,000) 70,000
Employer’s contribution towards recognized provident found (4% of `6,50,000) 26,000
Professional tax paid by employer 2,000
Laptop and computer (not chargeable to tax) Nil
Motor car (`2,400 × 5) 12,000
Leave travel concession Nil
Gross salary 10,20,000
Less: Professional tax deductible under section 16(iii) 3,000
Salary income chargeable to tax 10,17,000

NOV 2011 : 8 MARKS


QUESTION : Mr. J retired from the services of M/S Y Ltd. on 31/1/2018, after completing service of 30
years and 1 month. He had joined the company on 1/1/1987 at the age of 30 years. Following are his
incomes:
a) Gratuity `6,00,000. He was covered under the Payment of Gratuity Act, 1972.
b) Leave encashment of `3,30,000 for 330 days leave balance in his account. He was credited 30
days leave for each completed year of service.
c) As per the scheme of the company, he was offered a car which was purchased on 1/2/2016 by
the company for `5,00,000. Company has recovered `2,00,000 from him for the car.
d) An amount of `3,00,000 as commutation of pension for 2/3 of his pension commutation.
e) Company presented him a gift voucher worth `6,000 on his retirement.
f) His colleagues also gifted him a Television (LCD) worth `50,000 from their own contribution.
g) His Basic Salary is `20,000 pm and DA is 50% (full DA is for retirement benefits)
h) Received un-commuted pension of `5,000 pm for period 1/2/2018 to 31/3/2018
Compute his gross total income from the above for AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of salary income of Mr. J `


Basic salary (`20,000 × 10) 2,00,000
Dearness allowance 1,00,000
Pension (`5,000 × 2) 10,000
Gift of car (`5,00,000 – `2,56,000 – `2,00,000) 56,000
Gratuity taxable 80,769
Leave encashment taxable 30,000
Commuted pension taxable 1,50,000
Gift voucher (`6,000 – `5,000) 1,000
TV gifted by colleagues (not salary) Nil
Salary 6,27,769
Any other income [TV gifted by colleagues cannot be taxed as movable property] Nil
Gross total income 6,27,769

CA JS JOHAR (8010921000) Page 59


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Exemption of Gratuity – Least is exempt


a. Actual amount received `6,00,000
b. Maximum limit of `10,00,000
c. `5,19,231 (15 / 26 X `30,000 × 30)

Exemption of Leave encashment – Least is exempt


a. Actual amount paid : `3,30,000
b. Max limit : `3,00,000
c. 10 X Avg Salary : `3,00,000
d. Avg Salary / 30 X unused number of leaves : `3,30,000

Commuted pension – 2/3 of normal pension is `3,00,000. Commuted value of normal pension will be
`4,50,000 (being `3,00,000 X 3 / 2). As Mr. J has received gratuity at the time of retirement, 1/3 of
`4,50,000 (which comes to `1,50,000) is exempt from tax under section 10(10A). The balance of
`1,50,000 is chargeable to tax.

MAY 2011 : 8 MARKS


QUESTION Mr. J is employed in ABC Co. Ltd. as Finance Manager and gives you the list of Perquisites
provided by the company to him for the entire AY 2018-2019 ie PY 2017-2018:
a) Medical facility given to his family in a hospital maintained by the company. The estimated value of
benefit because of such facility is `40,000.
b) Domestic servant was provided at the residence of Mr. J. Salary of domestic servant is `1,500 per
month. The servant was engaged by him and the salary is reimbursed by the company (employer). In
case, the company has employed the domestic servant, what is the value of Perquisite?
c) Free education was provided to his two children in a school maintained and owned by the company.
The cost of such education for 1st child is computed as `900 pm and for 2nd child at `1,200pm.
d) The employer has provided movable assets such as television, refrigerator and air-conditioner at the
residence of Mr. J. The actual cost of such assets provided to the employee is `1,10,000.
e) A gift voucher worth `10,000 was given on the occasion of his marriage anniversary.
State the taxability or otherwise of the above said perquisites and compute the total value of
Taxable perquisites.

SOLUTION : Different perquisites given in the problem will be taxable as follows `


Medical facility in the employer’s hospital (nothing is taxable) Nil
Domestic servant (`1,500 × 12) 18,000
Education facility provided to child A (up to `1,000 pm, it is not chargeable to tax) Nil
Education facility provided to child B (`200 x 12 ) 2,400
Providing use of movable assets (10% of `1,10,000) 11,000
Gift voucher (`10,000 – `5,000) 5,000
Total `36,400

NOV 2010 : 12 MARKS


QUESTION : Calculate taxable salary for the AY 2018-2019 ie PY 2017-2018:
a) Mr. X is employee of Rama & Co. Ltd in Gurgoan. He was appointed on 1/1/2017 in scale of `20,000 -
`1,000 - `30,000.
b) He is paid DA of 10% of Basic Salary and full amount is for the retirement benefits.
c) Bonus equivalent to one month of Basic Salary in the month of March 2018.
d) He contributed 15% of his Basic Salary and DA towards Recognized Provident Fund and the
company makes the contribution of same amount.
e) He is provided the facility of laptop costing `50,000.
f) Company reimburses the medical treatment bill of his dependent brother of `25,000.

CA JS JOHAR (8010921000) Page 60


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

g) The monthly salary of `1,000 of a house keeper is reimbursed by the company.


h) A gift voucher of `10,000 on the occasion of his marriage anniversary was given to him.
i) He is provided with Conveyance Allowance of `1,000 pm which is given by the company towards
actual expenses.
j) He is provided with personal accident policy, premium of `5,000 is paid by company.
k) He is getting Telephone Allowance of `500 pm.
l) Company pays medical insurance premium of his family of `10,000.

SOLUTION : Computation of salary income of X: `


Basic salary (`20,000 X 9 + `21,000 X 3) 2,43,000
Dearness allowance 24,300
Bonus 20,000
Employers’ contribution to RPF in excess of 12% of salary [3% of (`2,43,000 + `24,300)] 8,019
Facility of laptop (not taxable) Nil
Reimbursement of medical expenditure of dependent brother (`25,000 – `15,000) 10,000
Salary of house keeper 12,000
Gift voucher (`10,000 – `5,000) 5,000
Conveyance allowance Nil
Personal accident policy Nil
Telephone allowance (`500 X 12) 6,000
Mediclaim insurance (exempt from tax) Nil
Salary chargeable to tax 3,72,314

NOV 2010 : 4 MARKS


QUESTION : Mr. J an accounts manager, has retired from J Ltd. on 15/1/2018, after rendering
services for 30 years and 7 months. His salary is `25,000 pm up to 30/9/2017 and `27,000 pm thereafter.
He also gets `2,000 pm as DA (55% of this forms part of salary for the retirement purposes). He is not
covered under the Payment of Gratuity Act,1972. He has received `8,00,000 as Gratuity from his
employer. Calculate the taxable amount of Gratuity.

SOLUTION : Average monthly salary shall be calculated us follows: `


Basic salary for 7 months ending 30/9/2016 (`25,000 X 7) 1,75,000
Basic salary for 3 months ending 31/12/2016 (`27,000 X 3) 81,000
Dearness allowance to the extent of 55% (55% of `2,000 X 10) 11,000
Total 2,67,000
Average monthly salary (`2,67,000 / 10) 26,700
The exemption is least of following:
(a) 15 / 30 X `26,700 × 30 = `4,00,500
(b) Maximum Limit of `10,00,000
(c) Actual amount of Gratuity received `8,00,000.
Thus taxable gratuity shall be `8,00,000 - `4,00,500 = `3,99,500

NOV 2010 : 1 MARK EACH


QUESTION : State with reasons the taxability of the following items:
a) Allowance received by an employee working in a transport system at `10,000 pm to meet his
personal expenditure while on duty. He is not receiving any daily allowance.

SOLUTION : Exempt is lower of :


a) 70% of amount received : 70% of `1,20,000 = `84,000
b) `10,000 X 12 = `1,20,000.
Thus exempt is `84,000

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

b) Amount withdrawn from Public Provident Fund as per relevant rules.


SOLUTION : Exempt

c) Telephone facility provided to employee and the bill aggregating to `25,000 paid by the employer.
SOLUTION : Fully Exempt as per Rule 3(8)

NOV 2010 : 2 MARKS EACH


QUESTION : AB Co. Ltd. allotted 1,000 sweat equity shares to Sri Chand in June 2017. The shares were
allotted at `200 per share as against the Fair Market Value of `300 per share on the date of exercise of
option by the allottee viz. Sri Chand. The Fair Market Value was computed in accordance with the method
prescribed under the Act.
(i) What is the Perquisite value of sweat equity shares allotted to Sri Chand?
(ii) In the case of subsequent sale of those shares by Sri Chand, what would be the cost of acquisition
of those sweat equity shares?

SOLUTION : Allotment of sweat equity shares – Taxable value shall be calculated as follows-
`
Fair market value on the date of exercise of option (`300 x 1,000) 3,00,000
Less : Amount paid to the employer by Shri Chand (`200 x 1,000) 2,00,000
Taxable value of perquisite chargeable to tax 1,00,000
Cost of acquisition in the hands of Shri Chand (for purpose of calculation gains when sweat equity shares
will be transferred) will be `300 per share (being the fair market value on the date of exercise of option).

MAY 2010 : 4 MARKS


QUESTION : Mr. J, a citizen of India receives salary from the Government of India for the services
rendered outside India. Is the salary income chargeable to tax?

SOLUTION : Salary is deemed to be accrued in India u/s 9 and thus taxable in India. However,
allowances and perquisites are fully exempt from tax u/s 10(7)

NOV 2009 : 6 MARKS


QUESTION : From following details, compute taxable salary of Siddhant of Delhi for AY 2018-2019
ie PY 2017-2018:
Basic Salary and DA `3,35,000
Bonus `11,000
Salary of Servant provided by the employer `12,000
RFA provided by the Company in Delhi, Rent paid by Siddhant for this accommodation `9,600
Bills paid by the Employer for Gas, Electricity and Water provided free of Cost `11,000
Siddhant was provided with Company’s Car of 1,900 cc (Self driven) for personal and official use and it
is not possible to determine expenditure on personal use and all expenses were borne by the employer.

SOLUTION : Computation of salary income `


Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by employer 12,000
Perquisite value of gas, electricity and water provided free of cost 11,000
Perquisite value of car (`2,400 X 12) 28,800
RFA (15% of 3,35,000 + 11,000) – 9,600 42,300
Taxable Salary 4,40,100

CA JS JOHAR (8010921000) Page 62


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

NOV 2008 : 6 MARKS


QUESTION : Mr. M is an area manager of M/S N. Steels Co. Ltd. During the AY 2018-2019 ie PY 2017-
2018, he gets following emoluments from his employer:
Particulars `
Basic Salary Upto 31/8/2017 20,000 pm
From 1/9/2017 25,000 pm
Transport Allowance 2,800 pm
Contribution to Recognized Provident Fund 15% of Basis salary
Children Education Allowance 500 pm for two children
City Compensatory Allowance 300 pm
Hostel Expenses Allowance 380 pm for two children
Tiffin Allowance (actual expenses `3,700) 5,000 pa
Tax paid on employment 2,500
Compute taxable salary of Mr. M for the AY 2018-2019 ie PY 2017-2018.

SOLUTION : Computation of salary income of Mr. M `


Basic salary [`20,000 X 5 + `25,000 x 7] 2,75,000
Transport allowance [`2,800 – `1,600) x 12] 14,400
Employers’ contribution towards recognized provident fund [3% of `2,75,000] 8,250
Children education allowance [`250 - `100 x 12 x 2] 3,600
City compensatory allowance [`300 x 12] 3,600
Children hostel allowance [`190 - 190 x 12 x 2] NIL
Tiffin allowance [fully taxable, no exemption is available] 5,000
Tax paid by employer on employment 2,500
Gross salary 3,12,350
Less : tax on employment [sec. 16(iii)] 2,500
Income from salary chargeable to tax 3,09,850

MAY 2008 : 6 MARKS


QUESTION : How is the advance salary taxed in the hands of the employee? Is the tax treatment
same for the advance against salary?

MAY 2008 : 3 MARKS EACH


QUESTION : Following benefits have been granted by Ved Software Ltd. to Mr. Badri:
1) Housing Loan @ 6% pa amount outstanding on 1/4/2017 is `6,00,000. Mr. Badri pays `12,000 pm
th
on 5 of each month. Lending rate of SBI as on 1/4/2017 for housing loan may be taken as 10% pa.
2) Air-Conditioners purchased 4 years ago for `2,00,000 have been given to Mr. Badri for `90,000.
Compute the chargeable perquisites in the hands of Mr. Badri for the AY 2018-2019 ie PY 2017-2018.

SOLUTION : Perquisite in respect of housing loan at concessional rate


Month Outstanding amount on the last day of the month (in `) Interest in `
April 30,2017 5,88,000 1,960
May 31,2017 5,76,000 1,920
June 30,2017 5,64,000 1,880
July 31,2017 5,52,000 1,840
August 31,2017 5,40,000 1,800
September 30,2017 5,28,000 1,760
October 31,2017 5,16,000 1,720
November 30,2017 5,04,000 1,680
December 31,2017 4,92,000 1,640
January 31,2018 4,80,000 1,600
CA JS JOHAR (8010921000) Page 63
SUMMARY AND QUESTIONS OF INCOME FROM SALARY

February 28,2018 4,68,000 1,560


March 31,2018 4,56,000 1,520
Total 20,880

Perquisite in respect of transfer of movable asset `


Cost of air-conditioners purchased 4 years ago 2,00,000
Less: Normal wear and tear for first year (10% of `2,00,000) 20,000
Balance at 1st years end 1,80,000
Less: Normal wear and tear for second year (10% of `2,00,000) 20,000
Balance of 2nd year end 1,60,000
Less: Normal wear and tear for third year (10% of `2,00,000) 20,000
Balance at 3rd year end 1,40,000
Less: Normal wear and tear for fourth year (10% of `2,00,000) 20,000
Balance of 4th year end 1,20,000
Less: Sale consideration 90,000
Taxable value of perquisite 30,000

MAY 2008 : 6 MARKS


QUESTION : Mr. Narinder, who retired from the services of Hotel Sam Ltd. on 31/1/2018 after putting in
services of 5 years, received the following amounts from the employer:
1) Basic Salary of `10,000 pm , DA of `3,000 pm
2) City Compensatory Allowance of `2,000 pm
3) Night Duty Allowance of `1,000pm.
4) Pension @ 30% of the Basic Salary from 1/2/2018.
5) Leave salary of `75,000 for 225 days of leave accumulated during 5 years @ 45 days leave in each
year.
6) Gratuity of `50,000 (Gratuity Act is not applicable).
Compute total income of Mr. Narinder for AY 2018-2019 ie PY 2017-2018.

SOLUTION : Computation of total income of Mr. Narinder `


Basic Salary [`10,000 X 10] 1,00,000
Dearness allowance [`3,000 X 10] 30,000
CCA [`2,000 X 10] 20,000
Night duty allowance [`1,000 X 10] 10,000
Uncommuted pension [(30% of `10,000) X 2] 6,000
Encashment of earned leave 25,000
Gratuity 25,000
Taxable salary 2,16,000

Encashment of earned leave is exempt from tax to the extent of least of:
(a) Amount received from the employer 75,000
(b) Maximum amount not taxable 3,00,000
(c) 10 X average monthly salary = `10,000 X 10 1,00,000
(d) Avg salary / 30 X unused leave = `10,000 / 30 X 150 ) 50,000
Amount not taxable under section 10 (10AA) : `50,000 and amount taxable is `25,000

Gratuity is exempt to the extent of least of the following three :


(a) Actual amount `50,000
(b) Maximum Limit `10,00,000
(c) 15 / 30 X Avg salary X 5 = `25,000.
Gratuity exempt from tax `25,000. Gratuity chargeable to tax `25,000

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

SOLVED RTP QUESTIONS OF CA-IPCC


RTP MAY 2011
QUESTION : Mr. Viren, who retired from the services of Hotel Star Ltd., on 31/12/2017 after being in
service for 8 years, received the following amounts from his employer for the year ending on 31/3/2018:
Salary @ `15,000 p.m. comprising of basic salary of `8,000, dearness allowance of `4,000 (which forms
part of salary for retirement benefits) and city compensatory allowance of `3,000. This has been his
revised salary structure from 1/1/2017. Pension @ 25% of basic salary and dearness allowance from
1/1/2018. Leave encashment received `1,12,000 for 280 days of leave accumulated during 8 years @ 35
days leave in each year. He has not availed any earned leave during his tenure of 8 years and utilized
only his annual casual leave. Gratuity of `80,000.
Compute the income of Mr. Viren chargeable under the head Salary for the AY 2018-2019 ie PY 2017-
2018 assuming that he is not covered under the Payment of Gratuity Act, 1972.

SOLUTION : Computation of salary income of Mr. Viren for the AY 2018-2019 ie PY 2017-2018
Particulars Amount Amount
Basic Salary 8,000 x 9 72,000
Dearness Allowance 4,000 x 9 36,000
City compensatory allowance 3,000 x 9 27,000
Pension (25% of BS + DA) 3,000 x 3 9,000
Leave Salary 1,12,000
Less: Exempt u/s 10(10AA) 96,000 16,000
Gratuity 80,000
Less: Exempt u/s 10(10) 48,000 32,000
Taxable salary 1,92,000

Leave encashment is exempt to the extent of least of the following Amount


(i) Maximum Amount 3,00,000
(ii) Salary of unused leave calculated at 30 days for each year completed year of service 96,000
(30 x 8 x 12,000 / 30)
(iii) 10 months average salary (10 x 12,000) 1,20,000
(iv) Actual amount received 1,12,000
Therefore 96,000 is exempt under section 10(10AA).

Gratuity is exempt to the extent of least of the following Amount


(i) Maximum Amount 10,00,000
(ii) Half month’s salary for 8 years of service (15/30 X 12,000 X 8) 48,000
(iii) Actual gratuity received 80,000
Therefore 48,000 is exempt u/s 10(10)

RTP NOV 2011


QUESTION : Mr. Sinha furnishes the following particulars for the AY 2018-2019 ie PY 2017-2018
1) Salary Rs. 51,000 per month
2) Value of medical facility in a hospital maintained by the company Rs. 8,000
3) Rent free accommodation owned by the company
4) Housing loan of Rs. 5,50,000 at the interest rate of 4% p.a. (No repayment made during the year).
The rate of interest charged by SBI as on 1/4/2017 in respect of housing loan is 10%.
5) Gifts in kind made by company on the occasion of marriage of daughter of Mr. Sinha Rs. 7,250
6) A Cupboard was provided to Mr. Sinha at his residence for his use. This was purchased on 1/8/2014
for Rs. 75,000 and sold to Mr. Sinha on 1/5/2017 for Rs. 35,000.

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

7) Personal purchases through credit card provided by the company amounting to Rs. 12.000 was paid
by the company. No part of the amount was recovered from Mr. Sinha.
8) A maruti car which was purchased by the company on 21/5/2014 for Rs. 4,50,000 was sold to the
assessee on 19/8/17 for Rs. 1,80,000.
Compute taxable salary of Mr. Sinha for the AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of taxable salary of Mr. Sinha for the AY 2018-2019 ie PY 2017-2018
Particulars ` `
Salary [ 51,000 x 12] 6,12,000
Medical facility in the hospital maintained by the company Exempt
Rent free accommodation: 15% of salary 91,800
Valuation of perquisite of interest on loan (5,50,000 x 6%) 33,000
Gift received on occasion of marriage of daughter of Mr. Sinha (7,250 – 5,000) 2,250
Use of Cupboard for 1 month [75,000 x 10/100 x 1/12] 625
Perquisite on sale of cupboard Cost 75,000
Less: Depreciation on straight line method @ 10% for 2 years 15,000
W.D.V. 60.000
Less: Amount paid by the essessee 35,000 25,000
Personal purchase through credit card provided by Company 12,000
Perquisite on sale of Motor Car to Mr. Sinha Car 4,50,000
Less: Depreciation of 1st year @ 20% 90,000
WDV 3,60,000
Less: Depreciation of 2nd year @ 20% on WDV 72,000
WDV 2,88,000
Less: Depreciation of 3rd year @ 20% on WDV 57,600
Value on date of sale to employee 2,30,400
Less : Amount received on sale 1,80,000 50,400
Gross salary 8,27,075

RTP MAY 2012


Same as that of examination question of Nov 2013

RTP NOV 2012


QUESTION : Mr. Rupesh is the Finance Manager of Vaibhav Construction Pvt. Ltd. and he is in receipt of
the following emoluments from his employer. Compute taxable salary for AY 2018-2019 ie PY 2017-2018
Particulars `
Basic Salary upto 30/9/2017 28,000 p.m.
Basic Salary from 1/10/2017 35,000 p.m.
DA (fully forming part of salary for retirement benefits) 16,000 p.m
Transport allowance 3,600 p.m.
Employer’s contribution to RPF 18% of basic salary and DA
Interest credited to recognized provident fund @ 10% 40,000
Children education allowance (total for 2 children) 240 pm
Entertainment allowance 450 p.m.
Hostel expenses allowance (total for 2 children) 600 p.m.
Tiffin allowance 7,500 p.a.
Professional tax paid (2,500 was paid by his employer) 3,200

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Computation of taxable salary of Mr. Rupesh for the AY 2018-2019 ie PY 2017-2018


Particulars ` `
Basic Salary ( 28,000 x 6) + ( 35,000 x 6) 3,78,000
Dearness Allowance (16,000 x 12) 1,92,000
Transport allowance (3,600 x 12) 43,200
Less: Exempt (1,600 x 12) 19,200 24,000
Children education allowance 240 X 12 2,880
Less: exempt 100 X 2 X 12 2,400 480
Hostel Expenses Allowance 600 X 12 7,200
Less: Exempt 300 X 2 X 12 7,200 NIL
Entertainment Allowance ( 450 x 12) 5,400
Tiffin allowance (fully taxable) 7,500
Professional tax paid by employer 2,500
Employer’s contribution to R.P.F in excess of 12% of salary (i.e., 6% of 5,70,000) 34,200
Interest of RPF in excess of 9.5% [(40,000 x 0.5%) /10%] 2,000
Gross Salary 6,46,080
Less: Professional tax under section 16(iii) 3,200
Taxable salary 6,42,880

RTP MAY 2013


Mr. Jatin, employed in Beta Ltd., furnishes you the following information for the year ended 31/3/2018
Particulars `
Basic salary 25,000 pm
DA (100 % is forming part of salary for retirement benefits) 60% of basic salary
Transport allowance 1,600 pm
Conveyance Allowance (fully amount is spent for official purposes) 1,000 pm
Employer’s contribution to recognized provident fund 15% of BS and DA
Interest credited to recognized provident fund @ 12% 24,000
RFA provided to Mr. Jatin in Delhi owned by company
Motor car running and maintenance charges fully paid by employer (The motor car 50,000
is owned and driven by the employee. The engine cubic capacity is above 1.60
litres. Motor car is used for both official and personal purpose by the employee.
Gift voucher given on the occasion of his birthday 4,500
Value of medical facility in a hospital maintained by the company 18,000
Reimbursement of salary of a domestic servant by the company which was 2,500 pm
engaged by Mr. Jatin at his residence
Free education was provided to his three children in a school maintained and owned by the company.
The cost of such education is computed at Rs. 800 per child per month.
Housing loan of Rs.10,00,000 given on 1/1/2018 at the interest rate of 8% pa. (No repayment was made
during the year). The rate of interest charged by SBI as on 1/4/2017 in respect of housing loan is 10%.
You are required to compute his taxable salary the for AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of taxable salary of Mr. Jatin for AY 2018-2019 ie PY 2017-2018


Particulars ` `
Basic salary (Rs. 25,000 x 12) 3,00,000
Dearness allowance @ 60% of basic salary 1,80,000
Transport allowance (Rs. 1,600 x 12) 19,200
Less : Exemption under section 10(14) (Rs. 1,600 x 12) 19,200 NIL

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SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Conveyance allowance Nil


Employer’s contribution to RPF in excess of 12% of salary (i.e. 3% of Rs. 4,80,000) 14,400
Interest credited to RPF in excess of 9.5% (Rs. 24,000 x 2.5% / 12%) 5,000
Rent free accommodation 73,440
Motor car running & maintenance charges paid by employer
Rs. 50,000 – (Rs. 2,400 x 12) 21,200
Gift voucher given on the occasion of birthday Nil
Medical facility (in the hospital maintained by the company) Nil
Salary of domestic servant reimbursed by the company (Rs. 2,500 x 12) 30,000
Value of free education provided to his three children 800 X 12 X 3 28,800
Exempt : 800 X 12 X 3 28,800 Nil
Valuation of perquisite of interest on loan 10 lakhs x 2% x 3/12 5,000
Taxable Salary 6,38,640

Notes:- Salary for RFA


Basic Salary 3,00,000
Dearness Allowance 1,80,000
Transport allowance (taxable portion) NIL
Total 4,80,000
Value of rent-free house 15% of salary (i.e. Rs. 4,80,000) = Rs. 72,000

RTP NOV 2013


QUESTION : Mr. Rishi, employed in CD Ltd at Chennai, furnishes you the following information for the
year ended 31/3/2018
1) Basic salary Rs. 50,000 pm
2) Dearness allowance @ 40% of basic salary (eligible for retirement benefits)
3) Motor car (engine cubic capacity above 1.6 litres) owned by CD Ltd. was given to Mr. Rishi for both
official and personal use, for the whole year. Running expenses are fully met by Mr. Rishi. Actual
expenses Rs. 32,400. The car was self-driven by Mr. Rishi.
4) Cost of laptop Rs. 40,000 acquired by CD Ltd. in August, 2017 given to Mr. Rishi for Rs. 5,000
immediately.
5) Accommodation taken on lease by CD Ltd. given to Mr. Rishi from 1/4/2017 at a concessional monthly
rent of Rs. 5,000. The annual lease rent paid to the landlord by the company is Rs. 3,00,000
6) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and twin
sons aged 3). Cost of air tickets (economy class) reimbursed by the employer Rs. 30,000 for adults
and Rs. 45,000 for three children. Rishi is eligible for availing exemption this year to the extent it is
permissible in law
7) Contribution of employer to PF was 15% of basic salary. Equal amount was contributed by Mr. Rishi
8) Professional tax paid is Rs. 3,000, of which Rs. 2,000 was paid by the employer.
Compute the taxable salary of Mr. Rishi for the AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of total income of Mr. Rishi for the AY 2018-2019 ie PY 2017-2018
Particulars `
Basic Salary 6,00,000
Dearness allowance (40% of basic salary) 2,40,000
Motor car : Perquisite value Rs. 900 per month. 10,800
Cost of laptop Rs. 40,000 less Rs. 5,000, being amount recovered from Mr. Rishi, would be 35,000
chargeable to tax. Since the laptop is immediately transferred on acquisition, there would be
no deduction by way of depreciation.
Accommodation at concessional rent 66,000

CA JS JOHAR (8010921000) Page 68


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Actual lease rent Rs. 3 lakhs or 15% of salary i.e. 15% of Rs. 8,40,000 = Rs. 1,26,000;
whichever is lower. Rs. 1,26,000, being the lower figure, less amount recovered from
employee is the value of perquisite i.e. Rs. 126,000 minus 60,000
Contribution of employer to PF was 15% of basic—salary; Amount contributed above 12% of Nil
basic pay plus dearness allowance is taxable as perquisite. Amount contributed Rs. 90,000
(15% of Rs. 6,00,000). Contribution @ 12% of basic pay and DA is Rs. 1,00,800 (12% of Rs.
8,40,000). Since the amount contributed is less than 12% of basic pay plus DA, there is no
perquisite value
LTC NIL
Professional tax paid by employer 2,000
Gross Salary 9,53,800
Less: Deduction u/s 16(iii) : Professional tax 3,000
Taxable Salary 9,50,800

RTP MAY 2014


QUESTION : Mr. Madhav is the Finance Head of Gamma Ltd. at Ahmedabad. From the following details
compute his total income for the AY 2018-2019 ie PY 2017-2018
PARTICULARS `
Basic salary 22,500 pm
Dearness allowance (1/4th of basic salary)
Transport allowance 2,000 pm
Cost of laptop facility provided for both official and personal use 40,000
Conveyance allowance (`10,000 was incurred on conveyance for his official duties) 12,000
Accommodation in hotels while touring on official duties met by the employer 45,000
Lunch provided by the employer during office hours. Cost to the employer 13,500
Gamma Ltd. had taken a house on lease for which it paid a rent of `3,500 p.m. The said accommodation
was provided to Mr. Madhav, who pays rent @ 1,000 pm to the company. Gamma Ltd. also hired furniture
@ 500 pm and provided the same to Mr. Madhav free of cost. In addition, the company provided a
television owned by it (Cost `20,000) to Mr. Madhav, free of cost

Solution : Computation of total income of Mr. Madhav for the AY 2018-2019 ie PY 2017-2018
Particulars ` `
Basic salary (22,500 x 12) 2,70,000
Dearness allowance (1/4 of basic salary) 67,500
Transport allowance (2,000 x 12) 24,000
Less. Exemption (1,600 x 12) 19,200 4,800
Facility for use of laptop Nil
Conveyance Allowance 2,000
Expenditure on accommodation while on official duty not a perquisite Nil
Value of lunch provided during working hours (assumed 270 meals) = 270 X 50 Nil
Less: Exempt 270 X 50
Value of concessional accommodation 37,520
Gross Salary and taxable salary 3,81,820

Perquisite Value of Furnished Accommodation provided at concessional rent


Particulars `
Basic Salary 2,70,000
Transport Allowance (the portion which is chargeable to tax) 4,800

CA JS JOHAR (8010921000) Page 69


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Conveyance Allowance 2,000


Salary for the purpose of perquisite value of accommodation 2,76,800
Lower would be taken as the perquisite value of accommodation
a) 15% of salary = 41,520
b) Rent paid by the company for the accommodation @ 3,500 pm = 42,000 41,520
Less: Rent paid by Madhav ( 1,000 x 12) 12,000
Taxable Value 29,520
Add: Value of furniture provided by employer:
Rent for furniture (500 x 12) 6,000
Television (20,000 x 10% pa) 2,000
Value of furnished accommodation given at concessional rent 37,520

RTP NOV 2014


Mrs. Meera, aged about 65 years, is the HR Manager of M/S Alpha Pvt. Ltd., based at Mumbai. She is in
continuous service since 1980 and receives the following salary and perks from the company during the
year ending 31/3/2018
(1) Basic Salary (`60,000 x 12) = `7,20,000
(2) D.A. (`24,000 x 12) = `2,88,000 (forms part of salary for retirement benefits)
(3) Bonus 1.5 months basic salary
(4) Commission 0.1% of the turnover. The turnover for the FY 2017 - 2018 was `50 crores
(5) Contribution of the employer and employee to the recognized provident fund Account `3,50,000 each
(6) Interest credited to Recognized Provident Fund Account at 9.5% - `80,000
(7) Rent free unfurnished accommodation provided by the company for which the company pays a rent of
`1,00,000 per annum
(8) Entertainment Allowance `25,000
(9) Hostel allowance for three children `3,500pa each.
She makes the following payments and investments:
a) Premium paid to insure the life of her major son `20,000. Actual Capital Sum Assured is `2,00,000
b) Medical Insurance premium for self & spouse `18,000
c) LIC Pension Fund `15,000.
Determine the taxable income for the AY 2018-2019 ie PY 2017-2018

SOLUTION : Computation of taxable income for the AY 2018-2019 ie PY 2017-2018 `


Basic salary 7,20,000
Dearness allowance 2,88,000
Bonus (60,000 x 1.5 months) 90,000
Commission (calculated as percentage of turnover)[0.1% of `50 crores) 5,00,000
Entertainment allowance 25,000
Children’s hostel allowance (3,500 x 3) 10,500
Less : Exemption 7,000 3,500
Contribution to PF by employer 3,50,000
Less: 12% of BS + DA(R) + Commission on % of sales 1,80,960 1,69,040
Interest credited to RPF exempt
Rent free unfurnished accommodation 1,00,000
Gross salary / GTI 18,95,540
Less: Deduction under sections 80C to 80U
Deduction under section 80C – LIC premium 20,000
Contribution of employee to RPF 3,50,000 1,50,000 (restricted)
Deduction under section 800CC (LIC pension fund) 15,000
Deduction limited to 1,50,000 as per section 80CCE 1,50,000
Deduction under section 80D - Medical Insurance 18,000
Taxable Income 17,27,540
CA JS JOHAR (8010921000) Page 70
SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Working Notes: Value of rent free unfurnished accommodation


Particulars Rs.
Basic salary 7,20,000
Dearness allowance 2,88,000
Bonus 90,000
Commission @ 0.1% of turnover 5,00,000
Entertainment allowance 25,000
Children’s hostel allowance 3,500
Salary 16,26,500
Value of perquisite is lower of
15% of salary 2,43,975 or Actual rent paid by the company 1,00,000

RTP MAY 2015


Same question as that of examination question of Nov 2008

RTP NOV 2015


From the following details, find out the salary income chargeable to tax in the hands of Mr. Vansh for the
AY 2018-2019 ie PY 2017-2018
Mr. Vansh is a regular employee of X Ltd. in Delhi. He was appointed on 1/3/2017 in the scale of 27,000-
3200-35,000. He is paid DA (which forms part of salary for retirement benefits) @ 30% of basic salary and
bonus equivalent to one and a half month’s basic salary as at the end of the year. He contributes 18% of
his salary (BS + DA) towards RPF and company contributes the same amount. He is also provided with
following:
a) He is provided free housing facility which has been taken on rent by the company at Rs. 18,000 per
month.
b) The company reimbursed the medical treatment bill of Rs. 43,000 of his daughter, who is dependent
on him.
c) The monthly salary of Rs. 5,600 of a house keeper is reimbursed by the company.
d) He is getting telephone allowance of Rs. 1,200 per month.
e) A gift voucher of Rs. 4,900 was given on the occasion of his marriage anniversary.
f) The company pays medical insurance premium to effect an insurance on the health of Mr. Vansh Rs.
10,500.
g) Motor car running and maintenance charges of Rs. 48,200 fully paid by employer. (The motor car is
owned and driven by Mr. Vansh. The engine cubic capacity is below 1.60 litres. The motor car is used
for both official and personal purpose by the employee.)
h) Value of free lunch provided during office hours is Rs. 1,000.
i) Facility of laptop and computer-was-provided to Mr. Vansh both for official and personal use. The cost
of laptop and computer acquired by the company on 1/12/2015, are Rs. 45,000 and Rs. 35,000,
respectively.
j) Professional tax paid Rs. 3,000, of which Rs. 2,000 was paid by the employer.

SOLUTION : Computation of taxable salary of Mr. Vansh for the AY 2018-2019 ie PY 2017-2018
Particulars Rs.
Basic Salary [ (Rs. 27,000 x 11) + (Rs. 30,200 x 1) ] 3,27,200
Dearness allowance (30% of basic salary) 98,160
Bonus (Rs. 30,200 x 1.5) 45,300
Employer’s contribution to recognized provident fund in excess of 12% 25,522
(18% - 12% = 6% of Rs. 4,25,360)
Telephone allowance 14,400
Rent-free accommodation 72,759
Medical reimbursement (Rs. 43,000 – Rs. 15,000) 28,000

CA JS JOHAR (8010921000) Page 71


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Reimbursement of salary of housekeeper Rs.5,600 x 12 67,200


Gift voucher Nil
Reimbursement of medical insurance premium Nil
Motor car owned and driven by employee, running and maintenance charges
borne by the employer Rs. 48,200 – (1,800 x 12) 26,600
Value of lunch facility: Assumed that he has consumed 20 lunch @ 50 per lunch Nil
Use of laptop and computer Nil
Professional tax paid by employer 2,000
Gross Salary 7,07,141
Less: Deduction under section 16(iii) - Professional tax 3,000
Salary income chargeable to tax 7,04,141

Notes: For the purposes of valuation of rent free house, salary includes:
(i) Basic salary 3,27,200
(ii) Dearness allowance 98,160
(iii) Bonus 45,300
(iv) Telephone allowance 14,400
Total 4,85,060
15% of salary 72,759
Actual amount of lease rental paid by employer (18,000 x 12) 2,16,000
Therefore, the perquisite value is 72,759.

RTP MAY 2016


Mr Shyam is a Finance Executive at Xerox Ltd. From the following particulars, compute his total income
for the AY 2018-2019 ie PY 2017-2018
Basic salary Rs.30,000 per month
Dearness allowance 30% of basic salary
Transport allowance Rs. 2,800 per month
Motor car running and maintenance charges fully paid by employer Rs. 40,000
(The motor car is owned and driven by employee Shyam. The engine cubic capacity is below 1.60 litres.
The motor car is used for both official and personal purpose by the employee)
Expenditure on accommodation in hotels while on official duties met by the employer. Rs. 30,000
240 Lunch provided by the employer during office hours. Cost to the employer Rs. 12,000
Computer kept by the employer in the residence of Shyam. Cost to the employer Rs. 50,000
Interest on saving bank account Rs. 12,000
Shyam made the following payments:
Tuition fees for 2 children studying post-graduation courses at Madras University Rs. 1,60,000
Medical insurance premium : Paid by cash Rs.5,000
Paid by cheque Rs. 22,000
Expenditure on preventive health checkup (incurred in cash) Rs. 7,000

SOLUTION : Computation of taxable income of Mr. Shyam for the AY 2018-2019 ie PY 2017-2018
Particulars Rs.
Basic salary (Rs. 30,000 x 12) 3,60,000
Dearness allowance @ 30% 1,08,000
Transport allowance Rs. 2,800 x 12 = 33,600
Less: Exemption Rs. 1,600 x 12 = 19,200 14,400
Motor car maintenance borne by employer [Rs. 40,000 – (Rs. 1,800 x 12)] 18,400
Expenditure on accommodation while on official duty. Nil
Value of lunch provided during working hours (value does not exceed Rs. 50 per meal) Nil
Computer provided in the residence of employee by the employer Nil

CA JS JOHAR (8010921000) Page 72


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Taxable Salary 5,00,800


Interest on saving bank account 12,000
Gross total income 5,12,800
Less: Under section 80C - Tuition fees paid for two children Rs. 1,60,000 (Restricted) 1,50,000
Less: Under section 80D - Medical insurance premium : Cash NIL
Cheque 22,000
Expenditure on Preventive health checkup restricted to Rs. 5,000 5,000
Less: Under section 80TTA - Interest on saving bank account -limit of Rs. 10,000 10,000
Taxable Income 3,25,800

RTP NOV 2016


QUESTION : State the taxability or otherwise of the following perquisites and compute the total value of
taxable perquisites, in the hands of Mr. Sarthak, employed with Assam Tea Limited as Chief Compliance
Officer, for the AY 2018-2019 ie PY 2017-2018 assuming that his basic salary is Rs. 60,000 pm
1) Mr. Sarthak paid Rs. 6,000 p.m. to his domestic servant, which is entirely reimbursed by his employer.
2) Air-conditioner purchased 3 years ago for Rs. 50,000 has been given to the of Mr. Sarthak free of cost.
3) The estimated value of medical facility given to his family in a hospital maintained by the company is
Rs. 85,000.
4) Free education was provided to his two children Avani and Aarav in a school maintained and owned by
the company. The cost of such education for Avani is computed at Rs. 950 per month and for Aarav at
Rs. 1,250 per month. No amount was recovered by the company for such education facility from Mr.
Sarthak.
5) Telephone provided at the residence of Mr. Sarthak and the bill aggregating to Rs. 27,000 paid by the
employer.

SOLUTION : Computation of value and taxability of perquisites provided to Mr. Sarthak


Particulars Value
Any sum paid by the employer in respect of any expenditure actually incurred by the 72,000
employee (Rs. 6,000 x 12)
The value of perquisite = actual cost LESS 10% of such cost for each completed year 35,000
50,000 – (5,000 X 3)
Medical facility to employee’s family in a hospital maintained by the employer is not a taxable Nil
perquisite
Where the educational institution is owned by the employer, the value of perquisite in respect
of free education facility shall be cost of such education in a similar institution in or near the
locality.
However, there would be no perquisite if the cost of such education per child does not
exceed Rs. 1,000 per month
Therefore, there would be no perquisite in respect of cost of free education provided to his
child Avani, since the cost does not exceed Rs. 1,000 per month.
However, the cost of free education provided to his child Aarav would be taxable, since the
cost exceeds Rs. 1,000 per month.
The taxable perquisite value would be (Rs. 1,250 × 12) Rs. 15,000 less Rs. 12,000 3,000
Telephone provided at the residence of the employee is a tax free perquisite Nil
Total Value of Perquisite 1,10,000

CA JS JOHAR (8010921000) Page 73


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

RTP MAY 2017


Mrs. Shakshi is a Human Resources Manager of M/s. Trumph & Co. Pvt. Ltd., based at Mumbai. She is
61 years of age and receives the following salary and perquisites from the company during the year
ending 31/3/2018
(1) Basic Salary Rs. 80,000 per month
(2) Dearness Allowance Rs. 22,000 per month (forms part of pay for retirement benefits)
(3) Bonus – 2 months basic pay
(4) Commission is 0.1% of the turnover of the company. The turnover was Rs. 12 crores
(5) Contribution of the employer and employee to the recognized provident fund Account Rs. 2,00,000
each
(6) Interest credited to Recognized Provident Fund Account at 9.5% - Rs. 80,000
(7) Rent free unfurnished accommodation provided by the company for which the company pays a rent of
Rs. 84,000 per annum
(8) Entertainment Allowance – Rs. 35,000
(9) Hostel allowance for three children – Rs. 3,200 each
She makes the following payments and investments
(i) Premium paid to insure the life of her major daughter – Rs. 18,000.
(ii) Medical Insurance premium for self – Rs. 12,000 ; Spouse – Rs. 14,000.
(iii) Donation to a public charitable institution registered under 80G Rs. 1,50,000 by way of cheque.
(iv) LIC Pension Fund – Rs. 60,000.
Determine the taxable income of Mrs. Sakshi for the AY 2018-2019 ie PY 2017-2018.

Solution : Computation of Total Income of Mrs. Shakshi for the AY 2018-2019 ie PY 2017-2018
Basic salary 9,60,000
Dearness allowance 2,64,000
Bonus 1,60,000
Commission (calculated as percentage of turnover) 1,20,000
Entertainment allowance 35,000
Children’s hostel allowance 9,600
Less : Exemption (Rs. 300 x 12 x 2) 7,200 2,400
Interest credited to recognized provident fund account exempt
Rent free unfurnished accommodation 84,000
Contribution to PF by employer 2,00,000
Less : 12% of basic salary, dearness allowance & commission 1,61,280 38,720
Gross salary / Gross Total Income 16,64,120
Less : Deduction under section 80C
Life insurance premium paid for insurance of major daughter 18,000
Contribution to recognized provident fund 2,00,000
2,18,000
Restricted 1,50,000
Deduction u/s 80CCC in respect of LIC pension fund 60,000
2,10,000
As per section 80CCE deduction limited to Rs. 1,50,000 1,50,000
Deduction under section 80D 26,000
Deduction under section 80G Donation to Public Charitable Trust
Rs. 1,50,000 restricted to 50% of Rs. 1,48,812 (10% of adjusted total income) 74,406
Total Income (Rounded Off) 14,13,710

CA JS JOHAR (8010921000) Page 74


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

Working Notes: Value of rent free unfurnished accommodation


Particulars Rs.
Basic salary 9,60,000
Dearness allowance 2,64,000
Bonus 1,60,000
Commission @ 0.1% of turnover 1,20,000
Entertainment allowance 35,000
Children’s hostel allowance 2,400
Gross Salary 15,41,400
15% of salary 2,31,210
Actual rent paid by the company 84,000

Working Notes : Deduction u/s 80G @ 50% is allowable on donation made to public charitable trust
subject to qualifying limit, which is 10% of adjusted total income i.e., Rs. 1,48,812 [i.e., Gross Total
Income Rs. 16,64,120 (-) Deduction under section 80C / 80CCC Rs. 1,50,000 (-) Deduction under section
80D Rs. 26,000].
Therefore, Rs. 74,406, being 50% of Rs. 1,48,812 is allowable as deduction under section 80G. In this
case, since donation is made otherwise than by way of cash, it qualifies for deduction under section 80G.

RTP NOV 2017


Mr. Narender, employed as Marketing Manager in Gama Ltd., furnishes you the following information for
the year ended 31/3/2018
(i) Basic salary upto 31/10/2017 Rs. 50,000 p.m.
Basic salary from 1/11/2017 Rs. 60,000 p.m.
(ii) Dearness allowance @ 40% of basic salary (not forming part of salary for retirement benefits).
(iii) Bonus equal to one month salary. Paid in October 2017 on BS + DA of that month.
(iv) Contribution of employee to recognized provident fund account of the employee @16% of BS.
Employer contributed an equivalent amount.
(v) Profession tax paid Rs. 3,000 of which Rs. 2,000 was paid by the employer.
(vi) Facility of laptop and computer was provided to Narender for both official and personal use. Cost
of laptop Rs. 45,000 and computer Rs. 35,000 were acquired by the company on 1/12/2017.
(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the
employee from 1/11/2017 meant for both official and personal use. Repair and running expenses
of Rs. 45,000 from 1/11/2017 to 31/3/2018 were fully met by the employer. The motor car was
self-driven by the employee.
(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 6 and
twin sons aged 4). Cost of air tickets (economy class) reimbursed by the employer Rs.20,000 for
adults and Rs.30,000 for three children. Narender is eligible for availing exemption this year to the
extent it is permissible in law.
Mr. Narender made the following payments:
(i) Medical insurance premium paid in cash Rs. 4,000
(ii) Medical insurance premium paid by account payee crossed cheque Rs. 25,700
Compute the total income of Mr. Narender and tax thereon for the AY 2018-2019 ie PY 2017-2018

Computation of Total Income and tax liability of Mr. Narender for AY 2018-2019 ie PY 2017-2018
Particulars Rs.
Basic salary [(Rs. 50,000 × 7) + (Rs. 60,000 × 5)] 6,50,000
Dearness Allowance (40% of basic salary) 2,60,000
Bonus (Rs. 50,000 + 40% of Rs. 50,000) 70,000
Employers contribution to recognized provident fund in excess of 12% of salary = 4% 26,000

CA JS JOHAR (8010921000) Page 75


SUMMARY AND QUESTIONS OF INCOME FROM SALARY

of Rs. 6,50,000
Professional tax paid by employer 2,000
Perquisite of Motor Car (Rs. 2,400 for 5 months) 12,000
Gross Salary 10,20,000
Less: Deduction under section 16 (iii) Professional tax 3000
Taxable salary/ Gross Total Income 10,17,000
Less: Deduction u/s 80C (own contribution to recognised provident fund) 1,04,000
Deduction u/s 80D in respect of medical insurance premium paid by cheque 25,000
Total Income 8,88,000

CA JS JOHAR (8010921000) Page 76


SUMMARY OF HOUSE PROPERTY

SUMMARY OF HOUSE PROPERTY


CHARGING SECTION: SECTION 22
Income is taxable as house property income if all of following conditions are satisfied:
1) There must be a building and / or a building with the land attached to it.
2) The receiver of rent must be the owner of the building.
3) The building must not be used for business/profession carried on by the owner.

Type of building This chapter will cover rental income from both residential
building and commercial building.
Building Building means space which has the boundary walls,
which may be with or without roof.
Land attached with If land is attached to building then rent from land is taxable
building as income from house property.
If the land is not attached to the building then rent from
such land is taxable under the head other sources.
Subletting If tenant has let out the property (sub-letting) then income
earned by him shall be chargeable to tax under the head of
Income of Other Sources.
Business to let out If it is the business of the assessee to own and let out the
property on rent the income will be charged to tax under
the head of house property (this point is applicable to
buildings held as stock in trade by property dealer or held
as stock in trade by builders)

EXTRA Section 23(5) : When house property is held as stock-in-


CONCEPTS trade and house property is not let during the whole or part
of the previous year then the annual value of such property
shall be taken to be nil.
This will apply for the period up to one year from the end of
the financial year in which the certificate of completion of
construction of the property is obtained from the competent
authority.
Disputed ownership If the ownership of the house property is disputed then
income shall be taxable for the owner of the property as
declared by the court.
When can be there  The Annual Value of the self-occupied house is always
loss under the head taken to be NIL and no deductions are allowed from it
‘income from the except the deductions of the interest on the capital
house property? borrowed and that too up to a maximum of `30,000 /
`2,00,000, as the case may be.
 For the property, which is let out there is no restriction of
the deductions and, therefore, there can be loss due to
municipal taxes and deductions of Section 24.
Let out house used as If the house is let out to the employer which in turn allots
RFA the same to him as RFA, then such house will not be
treated as self-occupied because in this case, the owner is
not occupying the house in the capacity of the owner.

CA JASPREET SINGH JOHAR -- 8010921000 Page 77


SUMMARY OF HOUSE PROPERTY
Letting Out of the If the property is let out to any agency for the purpose of
Building for the the running of the business more efficiently, the rental
Smooth Running of income from such building would be taxable as business
Business and income.
Profession
Advance Rent Advance Rent shall be taxable in the year to which it
Received relates and not in the year of receipt.
House Property For ROR house property income from a foreign country
Situated in a Foreign shall be chargeable to tax in India. For NOR or NR then
Country income shall be chargeable to tax in India only if the rental
income is received in India. If Municipal Corporation of a
foreign country has charged some Municipal Taxes and
they are paid by the assessee, then such Municipal Taxes
shall be reduced from gross Annual Value to get NAV.
Composite rent If owner charges rent from the tenants for building and for
facilities provided with the building then such rent is known
as Composite Rent.
Concept of Composite Rent can be divided into two
categories:
a) Letting of the property is separable from the letting of the
facilities then rental income from building is taxable as
income of house property and the rental income from
the facilities is taxable as income of other sources or
PGBP income.
b) If letting of the building and facilities are not separable
then the entire rental income would be taxed as income
of other sources or as PGBP income.
Non-Refundable Non refundable deposits will be included in the Rent
Deposits received or receivable on the pro rata basis

INCOME FROM (a)Income from farm building which is in the immediate vicinity of agricultural land
HOUSE and is used as dwelling house or store house.
PROPERTY (b)Property used for own business or profession.
NOT (c)Self-occupied House: Annual Value of one self-occupied house shall be taken to
CHARGEABLE TO be NIL.
TAX (d)Palace of ex-ruler: The Annual Value of one palace in the occupation of ex-ruler
shall be exempt.
(e) HP of a local authority is exempt from tax.
(f) HP of approved scientific research associations is exempt.
(g) HP of an educational institute and hospitals is exempt.
(h) HP of a trade union is exempt.
(i) HP from a house held for charitable or religious purposes is exempt from tax.
(j) HP of a political party is exempt.

CA JASPREET SINGH JOHAR -- 8010921000 Page 78


SUMMARY OF HOUSE PROPERTY
DEEMED
OWNERSHIP OF Section 27(i) Transfer of House Property to Spouse or Minor Child
THE HOUSE Section 27(ii) Holder of the impartible Estate
PROPERTY : Section 27(iii) Member of the Cooperative Society
SECTION 27
Section 27(iiia) Possession of Property under General Power of Attorney
Section 27(iiib) Person having right in a Property for period of 12 years or more

STEPS TO
FOLLOW TO Municipal value
CALCULATE higher
ANNUAL VALUE Fair rent lower

Standard rent

Expected rent

Expected rent
Less: Loss of rent due to vacancy
Reasonable rent
higher

Actual rent

GROSS ANNUAL VALUE


LESS: MUNICIPAL TAXES PAID
NET ANNUAL VALUE
From GAV Municipal Taxes actually paid before the end of the financial year by the
landlord shall be reduced to get the NAV

NAV IN VARIOUS
1) House Property, which is GAV shall be calculated in the manner given
SITUATIONS :
let out for the entire year. above. Further municipal taxes paid by landlord
SECTION 23
are to be reduced to get NAV
2) House Property let out for GAV shall be calculated in the manner given
part of the year and was above. Further municipal taxes paid by landlord
vacant for the balance are to be reduced to get NAV
part of the year.
3) House Property which is GAV shall be NIL. Further, municipal taxes paid
vacant for full year. by the landlord will be reduced and we will get
negative NAV.
4) House Property is self- GAV shall be NIL. Further, municipal taxes paid
occupied throughout the by the landlord are not allowed to be reduced and
year. therefore we can’t have negative NAV
5) House Property, which is GAV shall be NIL. Further, municipal taxes paid
self-occupied for the by the landlord are not allowed to be reduced and
residential purposes but therefore we can’t have negative NAV

CA JASPREET SINGH JOHAR -- 8010921000 Page 79


SUMMARY OF HOUSE PROPERTY
could not be occupied for
the reason of the
employment at any other
place.
6) More than one house in Assessee has an option to choose any one
the occupation of the house to be self-occupied and hence its value
assessee for his shall be taken to be NIL. Further municipal taxes
residence. paid by landlord are not allowed to be reduced
and we can’t have NAV

All other houses are deemed to be let out


houses. Expected Rent shall be considered to be
GAV. Further municipal taxes paid by landlord
are to be reduced to get NAV
7) House property partly let (a) PLO/PSO on the basis of area:
out and partly self MV, FR, SR and Municipal Taxes & Interest on
occupied. loan, if not given separately for let out and self-
occupied portions, will have to be apportioned on
the basis of the area.
(b) PLO/PSO on the Basis of Time:
If single unit (floor, house, flat or apartment) of
HP is SO for a period and LO for the remaining
period then Municipal Value, Fair Rent, Standard
Rent and Municipal Taxes are not to be
bifurcated on the basis of time period. Expected
rent is calculated in the normal manner and it is
compared with actual rent. Higher of the two will
be regarded as GAV
8) House under for the Income shall be calculated under the chapter of
business purposes PGBP and not under the chapter of HP
9) House Property held as Section 23(5) : When house property is held
stock in trade ie inventory as stock-in-trade and house property is not let
during the whole or part of the previous year then
the annual value of such property shall be taken
to be nil.
This will apply for the period up to one year from
the end of the financial year in which the
certificate of completion of construction of the
property is obtained from the competent
authority.

STATUTORY DEDUCTION : SECTION 24(a)


DEDUCTION  From the NAV computed 30% of the NAV is allowed as the deduction called the
FROM NAV statutory Deduction.
UNDER SECTION  The deduction of 30% is allowed for meeting various expenses of repair and
24 maintenance.
 Deduction of 30% is allowed irrespective of any actual expenses incurred.

CA JASPREET SINGH JOHAR -- 8010921000 Page 80


SUMMARY OF HOUSE PROPERTY
INTEREST ON THE BORROWED CAPITAL: SECTION 24(b)
 If property has been acquired, constructed, repaired, renewed or reconstructed with
borrowed capital, then the amount of the interest payable on capital borrowed is
allowed as the deduction.
 The deduction is allowed on the accrual basis (whether interest is paid or is
payable , deduction is allowed).
 If the construction/acquisition of the house gets completed within the financial year
in which the loan is taken, then the interest for pre-construction period shall not be
calculated and deducted under Section 24(b).
 If loan is taken in one FY and construction is completed in any subsequent FY then
follow these steps
STEP 1: Calculate Pre-construction period : This starts from date of taking loan and
ends on date which is later of
 31/3 preceeding the date when construction gets completed
 Date when loan is repaid
STEP 2 : Calculate pre construction period interest and amortise it over the period of
5 years(5 years starting from the year in which construction gets completed)
STEP 3 : Calculate interest for the current PY (if loan is outstanding)
STEP 4 : Add interest of step 2 and step 3 and this aggregate interest is compared it
with following limits
MAXIMUM LIMIT

In case of House Property whose GAV ≠ In case of House Property

NIL, there is no maximum limit for the whose GAV = NIL,


deduction of interest on Borrowed Capital.

Loan borrowed before Loan borrowed


1/4/1999 on or after 1/4/1999
And property has been And property has been And property has
 Acquired  Acquired been
 Constructed  Constructed  Repaired
 Repaired Then maximum limit is  Renewed
 Renewed `2,00,000 pa.  Reconstructed
 Reconstructed Then maximum limit is
Then maximum limit is Construction should be `30,000 pa.
`30,000 pa. completed within five
years from the end of
the financial year in
which loan has been
taken. Else limit is
`30,000

Following are not allowed as deduction :


 Interest on unpaid interest.
 Penalty for non-payment of interest.
 Brokerage or Commission paid for raising the loan.

NOTE : Interest for the fresh loan taken to repay original loan is allowed as
deduction.

CA JASPREET SINGH JOHAR -- 8010921000 Page 81


SUMMARY OF HOUSE PROPERTY
INTEREST If the capital has been borrowed from outside India then interest payable outside
PAYABLE India shall be allowed as deduction if
OUTSIDE INDIA :  tax on the same has been paid by the receiver of the interest or
SECTION 25  TDS has been done by the payer of the interest.
CONCEPT OF Unrealized Rent is not to be included in calculating actual rent if conditions of Rule 4
UNREALISED are satisfied:
RENT : 1) The tenancy is bona fide.
EXPLANATION 2) The defaulting tenant has vacated or the steps have been taken to compel him
TO SECTION 23(1) to vacate the House Property.
3) The defaulting tenant is not in the possession of any other property of the
assessee
4) The assessee has taken all the reasonable steps to institute legal proceedings
for the recovery of the unpaid rent.
RECOVERY OF 30% of the following amounts is allowed as deduction and balance 70% is taxable
UNREALIZED a) Recovery of unrealized rent.
RENT AND b) Arrear of rent
ARREAR OF Such amount shall be chargeable to tax under the head of ‘House Property’ in the
RENT : SEC 25A year of recovery whether the assessee is owner of the house property or not.
PROPERTY When two or more persons own a property, then such a property is called Co-owned
OWNED BY CO- Property and the owners are called Co-owners. The value of such a property shall be
OWNERS : calculated as if one person owns it and then the value calculated shall be
SECTION 26 apportioned to the Co-owners in their definite share

EXAMINATION QUESTIONS
MAY 2017 – 4 MARKS
Mr. Ganesh owns a commercial building whose construction got completed in June 2016. He took a loan of
`15 lakhs from his friend on 1/8/2016 and had been paying interest calculated at 15% pa. He is eligible for pre-
construction interest as deduction as per the provisions of the Income Tax Act. Mr. Ganesh has let out the
commercial building at a monthly rent of `40,000 during the financial year 2017-2018. He paid municipal tax of
`18,000 each for the financial year 2016-2017 and 2017-2018 on 1/5/2017 and 5/4/2018 respectively.
Compute income under the head ‘House Property’ of Mr. Ganesh for the AY 2018-2019 i.e. PY 2017-2018.

Solution : Calculation of house property income for the AY 2018-2019 i.e. PY 2017-2018
Particulars `
Actual Rent (40,000 X 12) 4,80,000
GAV 4,80,000
Less: Municipal Taxes paid 18,000
NAV 4,62,000
Less : deduction u/s 24(a) (1,38,600)
Less : deduction u/s 24(b) (2,55,000)
Income from house property 68,400

CA JASPREET SINGH JOHAR -- 8010921000 Page 82


SUMMARY OF HOUSE PROPERTY
Solution: Calculation of Interest on Borrowed Capital
Step 1 Pre-construction period 1/8/2015 to 31/3/2016 8 months
Step 2 Pre-construction period interest `15,00,000 X 15% X 8/12 `1,50,000
`1,50,000 / 5 = `30,000
Step 3 Current year interest 2017-2018 `15,00,000 X 15% `2,25,000
Step 4 Add interests of step 2 & 3 `30,000 + `2,25,000 `2,55,000
Step 5 Deduction of interest shall be `2,55,000

NOV 2015 – 8 MARKS


QUESTION : X constructed a shopping complex. He had taken a loan of `25 lakhs for construction of the said
property on 1/8/2013 from SBI @ 10% for 5 years. The construction was completed on 30/6/2016. Rental
income received from shopping complex is `30,000 pm (let out for the entire year). During the year he pays
municipal tax of `8,000 and recovers arrears of rent (pertaining to an earlier year) of `1,20,000. Besides, X
owns a residential house which is self-occupied. For this self-occupied property, he pays interest of `3,00,000
on housing loan taken from SBI. Compute house property income for the AY 2018-2019 i.e. PY 2017-2018.

Solution: Calculation of Taxable House Property Income for the AY 2018-2019 i.e. PY 2017-2018
Particulars Let out HP (`) Self Occupied HP (`)
Actual rent received or receivable 3,60,000 -
Gross annual value 3,60,000 NIL
Less: Municipal taxes paid 8,000 NIL
Net annual Value 3,52,000 NIL
Less : Deduction u/s 24(a) 1,05,600 NIL
Less : Deduction u/s 24(b) 4,33,333 2,00,000 (max limit)
House Property Income (1,86,933) (2,00,000)
Add: Recovery of unrealized rent after deducting 30% u/s 25A 84,000
1,20,000 – 30% = 84,000
Net house property income (1,02,933) (2,00,000)
Taxable house property income (3,02,933)

Calculation of Interest on Borrowed Capital


Step 1 Pre-construction period 1/8/2013 to 31/3/2016 32 months
Step 2 Pre-construction period interest `25,00,000 X 10% × 32/12 = `1,33,333
= `6,66,667 / 5
Step 3 Current year interest 2017-2018 = `25,00,000 X 12% = `3,00,000
Step 4 Add interests of step 2 & 3 `1,33,333 + `3,00,000 = `4,33,333

CA JASPREET SINGH JOHAR -- 8010921000 Page 83


SUMMARY OF HOUSE PROPERTY

MAY 2014, 8 MARKS

QUESTION : Mr. J has two houses, both of which are self-occupied. The particulars of these are given below:
Particulars House – I (`) House – II (`)
Municipal Valuation per annum 1,20,000 1,15,000
Fair Rent per annum 1,50,000 1,75,000
Standard rent per annum 1,00,000 1,65,000
Date of completion of construction 31/3/1999 31/3/2001
Municipal taxes payable during the year (paid for House II only) 12% 8%
Interest on money borrowed for current year - 55,000
Compute Mr.J’s income from the House Property for the AY 2018-2019 i.e. PY 2017-2018 and suggest which
house should be opted by Mr J to be assessed as self-occupied so that his tax liability gets minimum.

Solution: Calculation of House Property Income – combination 1


Particulars Self Occupied HP (`) Deemed to be Let out HP (`)
Municipal value 1,20,000 1,15,000
Fair rent 1,50,000 1,75,000
Standard rent 1,00,000 1,65,000
Expected rent 1,00,000 1,65,000
Less : Loss due to vacancy - -
Reasonable rent - -
Actual rent received or receivable - -
Gross annual value NIL 1,65,000
Less: Municipal taxes paid NIL 9,200
Net annual Value NIL 1,55,800
Less : Deduction u/s 24(a) NIL 46,740
Less : Deduction u/s 24(b) NIL 55,000
Taxable House Property Income NIL 54,060
Net House Property Income 54,060

Calculation of House Property Income – combination 2


Particulars Deemed to be Let out HP (`) Self Occupied HP (`)
Municipal value 1,20,000 1,15,000
Fair rent 1,50,000 1,75,000
Standard rent 1,00,000 1,65,000
Expected rent 1,00,000 1,65,000
Less : Loss due to vacancy - -
Reasonable rent - -
Actual rent received or receivable - -
Gross annual value 1,00,000 NIL
Less: Municipal taxes paid NIL NIL

CA JASPREET SINGH JOHAR -- 8010921000 Page 84


SUMMARY OF HOUSE PROPERTY
Net annual Value 1,00,000 NIL
Less : Deduction u/s 24(a) 30,000 NIL
Less : Deduction u/s 24(b) NIL 55,000
Taxable House Property Income 70,000 (55,000)
Net House Property Income 15,000
Since in the option two we have lower house property income and this will result in lower taxable income of Mr.
J, he should choose option two.

NOV 2008 - 9 MARKS , NOV 2013 - 8 MARKS


QUESTION : Mr. J owns a residential house in Delhi. The house is having two identical units. First unit of the
house is self-occupied by Mr. J and another unit is rented for `12,000 pm. The rented unit was vacant for
three months during the year. Particulars of the house for the AY 2018-2019 i.e. PY 2017-2018 are as under:
Amount (`)
Standard Rent 2,20,000 p.a
Municipal Valuation 2,44,000 p.a
Fair Rent 2,35,000 p.a
Municipal Tax paid by Mr. J 12%
Light and water charges 800 p.m
Interest on borrowed capital 2,000 p.m
Insurance charges 3,500 p.a
Painting expenses 16,000 p.a
Compute income from House Property of Mr. J for the AY 2018-2019 i.e. PY 2017-2018.
Solution: Calculation of Taxable House Property Income
Particulars Let out HP (`) Self Occupied HP (`)
Municipal value 1,22,000 1,22,000
Fair rent 1,17,500 1,17,500
Standard rent 1,10,000 1,10,000
Expected rent 1,10,000 1,10,000
Less : Loss due to vacancy 36,000 -
Reasonable rent 74,000 -
Actual rent received or receivable 1,08,000 -
Gross annual value 1,08,000 NIL
Less: Municipal taxes paid 14,640 NIL
Net annual Value 93,360 NIL
Less : Deduction u/s 24(a) 28,008 NIL
Less : Deduction u/s 24(b) 12,000 12,000
Taxable House Property Income 53,352 (12,000)
Net House Property Income (41,352)

CA JASPREET SINGH JOHAR -- 8010921000 Page 85


SUMMARY OF HOUSE PROPERTY
MAY 2013, 4 MARKS
QUESTION : State the head of income in the following cases under which the receipt is to be
assessed and comment.
(A) Mr. J uses his property for his own business. Can he claim depreciation?
(B) Mr. J lets out his property to X. X sublets it. How is sub-letting to be assessed in hands of X?
(C) Mr. J has built a house on a leasehold land which has been leased to him for 99 years. He has let out the
property and claim the rent as income from house property and deducted expenses on repairs, security
charges, insurance and collection charges totalling to 40% of receipts.

Solution :
a) Yes. Mr J is using his property for his business purposes and thus he can claim depreciation u/s 32
b) Income from sub-letting is taxable under the chapter of Income from other sources and not as income from
house property.
c) When property is taken on lease for more than period of 99 years then the person taking the property on
lease is a deemed ownership under section 27. Income from such property is taxable as income from
house property. When we calculate income from house property we are entitled to deduction under section
24(a) which is 30% of NAV. Thus, he will not be entitled to deduction of 40%.

NOV 2012, 8 MARKS


QUESTION : Mr. V owns a house property whose Municipal Value, Fair Rent and Standard Rent are
`96,000, `1,26,000 and `1,80,000 (per annum) respectively. During the AY 2018-2019 i.e. PY 2017-2018,
one-third of the portion of the house was let out for residential purpose at a monthly rent of `5,000. Remaining
two-third portion was self- occupied by him. Municipal tax @ 11% of Municipal Value was paid during the
year. Construction of the house began in June 2008 and was completed on 31/5/2013. Mr. V took a loan of
`1,00,000 on 1/7/2008 for the construction of building. He paid interest on loan @ 12% per annum and every
month such interest was paid. Compute HP income of Mr.V for the AY 2018-2019 i.e. PY 2017-2018.

Solution: Calculation of Taxable House Property Income


Particulars 1/3 Let out HP (`) 2/3 Self Occupied HP (`)
Municipal value 32,000 64000
Fair rent 42,000 84000
Standard rent 60,000 120000
Expected rent 42,000 -
Less : Loss due to vacancy NIL -
Reasonable rent 42,000 -
Actual rent received or receivable 60,000 -
Gross annual value 60,000 NIL
Less: Municipal taxes paid 3,520 NIL
Net annual Value 56,480 NIL
Less : Deduction u/s 24(a) 16,944 NIL
Less : Deduction u/s 24(b) 7,800 15,600
House Property Income 31,736 (15,600)
Net House Property Income 16,136

CA JASPREET SINGH JOHAR -- 8010921000 Page 86


SUMMARY OF HOUSE PROPERTY
Calculation of Interest on Borrowed Capital
Step 1 Pre-construction period 1/7/2008 to 31/3/2013 57 months
Step 2 Pre-construction period interest `1,00,000 X 12% × 57/12 = `11,400
= `57,000 / 5
Step 3 Current year interest 2017-2018 = `1,00,000 X 12% = `12,000
Step 4 Add interests of step 2 & 3 `11,400 + `12,000 = `23,400

MAY 2012, 4 MARKS


QUESTION : Explain tax treatment of unrealized rent and its subsequent recovery as per the provisions of
Income Tax Act.
Solution : Refer Section 25A

MAY 2012, 5 MARKS


QUESTION : Mr. V owns five Houses at Cochin. Compute GAV of each House from the information given
below for the AY 2017-2018 i.e. PY 2016-207
Particulars House 1 House 2 House 3 House 4 House 5
Municipal Value `1,20,000 `2,40,000 `1,10,000 `90,000 `75,000
Fair Rent `1,50,000 `2,40,000 `1,14,000 `84,000 `80,000
Standard Rent `1,08,000 NA `1,44,000 NA `78,000
Actual Rent `1,80,000 `2,10,000 `1,20,000 `1,08,000 `72,000

Solution : Calculation of GAV for the AY 2018-2019 i.e. PY 2017-2018


Particulars House 1 House 2 House 3 House 4 House 5
Municipal Value `1,20,000 `2,40,000 `1,10,000 `90,000 `75,000
Fair Rent `1,50,000 `2,40,000 `1,14,000 `84,000 `80,000
Higher 1,50,000 2,40,000 1,14,000 90,000 80,000
Standard Rent `1,08,000 NA `1,44,000 NA `78,000
Lower = expected rent 1,08,000 2,40,000 1,14,000 90,000 78,000
Actual Rent `1,80,000 `2,10,000 `1,20,000 `1,08,000 `72,000
Higher = GAV `1,80,000 `2,40,000 `1,20,000 `1,08,000 `78,000

NOV 2010, 12 MARKS


QUESTION : Two brothers Mr. A and Mr. B are co-owners of a House Property with equal share. The
Property was constructed during the financial year 1997-1998. The Property consists of eight identical units
and is situated at Cochin. During the AY 2018-2019 i.e. PY 2017-2018 each co-owner occupied one unit for
residence and the balance of six units were let out at a rent of `12,000 pm per unit. Municipal Value of House
Property is `9,00,000 and Municipal Taxes are 20% of Municipal Value, which were paid during year. Other
expenses are as follows:
Particulars Amount (`)
Repairs 40,000
Insurance premium (paid) 15,000
Interest payable on loan taken for construction of House 3,00,000
One of the let out units remained vacant for four months during the year. The other income of Mr. A and Mr. B
are `2,90,000 and `1,80,000 respectively for the AY 2018-2019 i.e. PY 2017-2018. Compute taxable House
Property income and the total income of two brothers for the AY 2018-2019 i.e. PY 2017-2018.

CA JASPREET SINGH JOHAR -- 8010921000 Page 87


SUMMARY OF HOUSE PROPERTY
Solution: Calculation of Taxable House Property Income as if there is a single owner
Particulars Let out HP (`) (6 units) Self Occupied HP (`) (2 units)
Municipal value 6,75,000 2,25,000
Fair rent - -
Standard rent - -
Expected rent - -
Less : Loss due to vacancy 48,000 -
Reasonable rent 6,27,000 2,25,000
Actual rent received or receivable 8,14,000 NIL
Gross annual value 8,14,000 NIL
Less: Municipal taxes paid 1,35,000 NIL
Net annual Value 6,79,000 NIL
Less : Deduction u/s 24(a) 2,03,700 NIL
Less : Deduction u/s 24(b) 2,25,000 60,000 (75,000 will be restricted to
(3,00,000 X 8 / 6) 60,000 since loan was taken before
1/4/1999. 30,000 X 2 = 60,000)
House Property Income 2,50,300 (60,000)
Net House Property Income 1,90,300

NOV 2010: 4 MARKS


QUESTION : Explain applicability of Section 22 for chargeability of Income Tax Act, 1961 for:
1) House Property situated in foreign country.
2) House Property with disputed ownership.

NOV 2009: 8 MARKS


QUESTION : Mr. Raman is a Co-owner of a House Property along with his brother.
Municipal Value of the Property `1,60,000
Fair Rent `1,50,000
Standard Rent under the Rent Control Act `1,70,000
Rent Received `15,000 pm
The loan for the construction of this property is jointly taken and the interest charged by the bank is `25,000
out of which `21,000 have been paid. Interest on the unpaid interest is `450. To repay this loan, Raman and
his brother have taken a fresh loan and interest charged on this loan is `5,000. Municipal taxes of `5,100 have
been paid by the Tenant. Compute the income from this property chargeable in the hands of Mr. Raman for the
AY 2018-2019 i.e. PY 2017-2018.

Solution : Calculation of house property income for the AY 2018-2019 i.e. PY 2017-2018
Particulars House (`)
Municipal Value 1,60,000
Fair Rent 1,50,000
Standard Rent 1,70,000
Expected rent 1,60,000
Less: loss of rent due to vacancy of HP NIL
Reasonable rent 1,60,000
Actual Rent 1,80,000

CA JASPREET SINGH JOHAR -- 8010921000 Page 88


SUMMARY OF HOUSE PROPERTY
Higher = GAV 1,80,000
Less: Municipal Taxes paid by landlord on / before 31/3/2018 NIL
NAV 1,80,000
Less : deduction u/s 24(a) 54,000
Less : deduction u/s 24(b) 30,000
Income from house property 96000
Income from house property = 96,000
Share of Mr. J = 48,000
Share of Mr. D = 48,000

NOV 2008: 7 MARKS


QUESTION : Mrs. Indu, a resident individual, owns a House in U.S.A. She receives Rent @ $2,000 per month.
She paid Municipal Taxes of $1,500 during the AY 2018-2019 i.e. PY 2017-2018. She also owns a two storied
House in Mumbai, ground floor is used for her residence and first floor is let out at `41,000 per month.
Municipal Taxes paid for the House amount to `75,000. Mrs. Indu had constructed the House by taking a loan
from a nationalized bank on 20/6/2012. She repaid the loan of `94,000 including interest of `74,000. $1 = `65.
Compute House Property Income of Mrs. Indu for AY 2018-2019 i.e. PY 2017-2018.

SOLUTION : Calculation of house property income for the AY 2018-2019 i.e. PY 2017-2018
Particulars House in USA House in Mumbai
Half house Half house is
is let out self occupied
Actual Rent $2,000 X 12 X 65 = 15,60,000 4,92,000 NIL
GAV 15,60,000 4,92,000 NIL
Less: Municipal Taxes paid by $1,500 X 65 = 97,500 37,500 NIL
landlord on / before 31/3/2018
NAV 14,62,500 4,54,500 NIL
Less : deduction u/s 24(a) 4,38,750 1,36,350 NIL
Less : deduction u/s 24(b) NIL 37,000 37,000
Income 10,23,750 2,81,150 (37,000)
Income from house property after set off = 12,67,900

RTP QUESTIONS
RTP MAY 2011
Same question as that of examination question NOV 2013

RTP NOV 2011


QUESTION : Mr. X and Y constructed their houses on a piece of land purchased by them at Mumbai. The built
up area of each house was 1,200 sq.ft. ground floor and an equal area in the first floor. X started construction
on 1/5/2015 and completed construction on 1/4/2017. Y started the construction on 1/4/2015 and completed
the construction on 31/5/2017. X occupied the entire house on 1/4/2017. Y occupied the ground floor on
1/6/2017 and let out the first floor for a rent of `20,000 pm 1/7/2017. However, the tenant vacated the house on
28/2/2018 and Y occupied the entire house during the period 1/3/2018 to 31/3/2018. Following are other
information

CA JASPREET SINGH JOHAR -- 8010921000 Page 89


SUMMARY OF HOUSE PROPERTY
Particulars ` (per annum)
(i) Fair rental value of each unit (ground floor /first floor) 1,20,000
(ii) Municipal value of each unit (ground floor / first floor) 90,000
(iii)Municipal taxes paid by X – 12,000
Y – 12,000
(iv) Repair and maintenance charges paid by X – 31,000
Y – 35,000
(v) Interest on loan for the construction of the house property X – 1,92,000
Y – 2,50,000
X has availed a housing loan of `30 lakhs @ 12% pa on 1/10/2015. Y has availed a housing loan of `20 lakhs
@ 12% pa on 1/7/2015. No repayment was made by either of them till 31/3/2018. Compute income from house
property for X and Y for the AY 2018-2019 i.e. PY 2017-2018.

SOLUTION : Computation of house property income of Mr. X for the AY 2018-2019 i.e. PY 2017-2018
Particulars `
Net Annual value (since house is self occupied) Nil
Less: Deduction u/s.24(b) : Interest paid on borrowed capital 1,92,000
Income from house property of Mr. X (1,92,000)

Computation of income from house property of Mr. Y for the AY 2018-2019 i.e. PY 2017-2018
Particulars Ground floor (SO) First floor
Gross annual value Nil 1,60,000
Less :Municipal taxes (for first floor) (12,000 / 2) Nil 6,000
Net annual value Nil 1,54,000
Less: Deduction u/s 24(a) 30% of NAV Nil 46,200
Less: Deduction u/s 24(b) Interest on borrowed capital 1,25,000 1,25,000
lncome from house Property (1,25,000) (17,200)

RTP MAY 2012


Same question as that of examination question NOV 2013

RTP NOV 2012


Same question as that of examination question NOV 2010

RTP MAY 2013


Same question as that of examination question NOV 2008

RTP NOV 2013


Same question as that of examination question NOV 2013

RTP MAY 2014


Mrs. Dholakia owns a house property whose Municipal Value, Fair Rent and Standard Rent are `1,02,000 p.a.
`1,32,000 pa. and `1,14,000 p.a., respectively. During the year, one-third of the portion of the house was let
out for residential purpose at a monthly rent of `7,000. The remaining two-third portion was self-occupied by
her. Municipal tax @ 15% of municipal value was paid by her during the year. The construction of the house
began in May, 2011 and was completed on 31/8/2014. Mrs. Dholakia took a loan of `1,00,000 on 1/5/2011 for
the construction of house. She paid interest on loan @ 12% pa. Compute income from house property of Mrs.
Dholakia for the AY 2018-2019 i.e. PY 2017-2018.

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SUMMARY OF HOUSE PROPERTY
SOLUTION : Computation of income from house property of Mrs. Dholakia
Particulars ` `
Self-occupied portion (Two third)
Net Annual value Nil
Less: Deduction under section 24(a) Nil
Less: Deduction under section 24(b) - Interest on loan (`19,000 x 2/3) 12,667
Loss from self occupied property (12,667)
II. Let-out portion (One third)
Gross Annual Value 84,000
Less: Municipal taxes (`1,02,000 x 15% x 1/3) 5,100
Net Annual Value 78,900
Less: Deductions under section 24(a) 30% of NAV 23,670
Less: Deductions under section 24(a) Interest on loan (`19,000 x 1/3) 6,333 48,897
Income from house property 36,230

Solution: Calculation of Interest on Borrowed Capital


Step 1 Pre-construction period 1/5/2011 to 31/3/2014 35 months
Step 2 Pre-construction period interest `1,00,000 X 12% X 35 / 12 35,000 / 5 = 7,000
Step 3 Current year interest 2017-2018 `1,00,000 X 12% 12,000
Step 4 Add interests of step 2 & 3 56,900 + 30,000 19,000
Step 5 Deduction of interest shall be 19,000

RTP NOV 2014

Same question as that of RTP NOV 2011

RTP MAY 2015


Mr. Vikul acquired a residential house in Delhi at a cost of `42,00,000 on 1/4/2017, in respect of which he took
a housing loan of `24,00,000 from Canara Bank @12% p.a on the same date. There has been no principal
repayment upto 31/3/2018. The house is having two identical units. First unit (area 1200 sq ft) of the house is
self-occupied by Mr. Vikul and another unit (area 400 sq ft) is rented for `6,000 p.m. from 1/4/2017. The rented
unit was vacant for four months during the year. The particulars of the house are as under:
Standard Rent `2,30,000 p.a.
Municipal Valuation `2,67,000 p.a.
Fair Rent `2,48,000 p.a.
Municipal tax paid by Mr. Vikul 12% of the Municipal Valuation
Light and water charges `8,000 p.a.
Insurance charges `7,500 p.a.
Painting expenses `50,000 p.a.
Compute income from house property of Mr. Vikul for the AY 2018-2019 i.e. PY 2017-2018.

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SUMMARY OF HOUSE PROPERTY
Solution: Computation of house property income of Mr. Vikul for the AY 2018-2019 i.e. PY 2017-2018.
Particulars `
Let out area (25% of total area)
Gross Annual Value (GAV) 48,000
Less: Municipal taxes (12% of `66,750) 8,010
Net Annual Value (NAV) 39,990
Less: Deductions under section 24(a) 30% of NAV 11,997
Less: Deductions under section 24(b) Interest on borrowed capital (`2,88,000 X 25%) 72,000
Taxable income from let out portion (44,007)
Self occupied unit (75% of total area)
Net Annual value NIL
Less: Deductions under section 24(a) 30% of NAV
Less: Deductions under section 24(b) Interest on borrowed capital (`2,88,000 X 75%)
Restricted to `2,00,000 (2,00,000)
Income from house property (2,44,007)

RTP MAY 2016

Same question as that of examination question May 2014

RTP NOV 2016

Same question as that of examination question Nov 2008

RTP MAY 2017

QUESTION : In May, 2017, Mr. Aakash recovered rent of `17,000 from Ms. Gunjan, to whom he had let out his
house from June 2011 to August 2013. He could not realise two months rent of `24,000 from her and to that
extent his actual rent was reduced while computing income from house property for AY 2014-2015.
From September 2013 to November 2016, he had let out his property to Mr. Sahil. In October, 2015, he had
increased the rent from `13,000 to `15,000 per month and the same was a subject matter of dispute. The
house remained vacant for three months from December 2016 to February 2017. In April, 2017 the matter was
finally settled and Mr. Aakash received `28,000 as arrears of rent for the period October 2015 to November,
2016. However, in March 2017, Mr. Aakash had already sold this residential house property to Mr. Sagar. Mr.
Aakash, contends that the amount recovered as unrealised rent and arrears of rent in the PY 2017-2018 would
not be taxable in his hands in that year, since he had sold such house property in the PY 2016-2017 itself. Is
the contention of Mr. Aakash correct ? If not, under what head would such income be taxable and compute the
income taxable under that head for the AY 2018-2019 i.e. PY 2017-2018

SOLUTION : Since the unrealised rent was recovered in the AY 2018-2019 i.e. PY 2017-2018, the same
would be taxable in the same year u/s 25A, irrespective of the fact that Mr. Aakash was not the owner of the
house in that year. Further, the arrears of rent was also received in the AY 2018-2019 i.e. PY 2017-2018 and
hence the same would also be taxable u/s 25A, even though Mr. Aakash was not the owner of the house in
that year. Both unrealised rent and arrears of rent would be taxable under the head “Income from house
property”. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while
computing income from house property of Mr. Aakash for the AY 2018-2019 i.e. PY 2017-2018.

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SUMMARY OF HOUSE PROPERTY

Computation of income from house property of Mr. Aakash for the AY 2018-2019 i.e. PY 2017-2018
Particulars `
(i) Unrealised rent recovered 17,000
(ii) Arrears of rent received 28,000 45,000
Less: Deduction @ 30% 13,500
Income from house property 31,500

RTP NOV 2017


QUESTION : Surbhi has two houses, both of which are self-occupied. You are required to compute Surbhi's
income from house property for the AY 2018-2019 i.e. PY 2017-2018 and suggest which house should be
opted by Surbhi to be assessed as self-occupied so that her tax liability is minimum. The particulars of these
are given below:
Particulars House-I (`) House-II (`)
Municipal Valuation per annum 1,30,000 1,15,000
Fair Rent per annum 1,10,000 1,70,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31/3/1999 31/3/2001
Municipal taxes payable during the year (paid for House II only) 12% 8%
Interest on money borrowed for repair of property during current year - 55,000

SOLUTION : In this case, Surbhi has more than one house property for self -occupation. As per section 23(4),
Surbhi can avail the benefit of self -occupation (i.e., benefit of “Nil” Annual Value) only in respect of one of the
house properties, at her option. The other house property would be treated as “deemed let-out” property, in
respect of which the Expected rent would be the gross annual value. Surbhi should, therefore, consider the
most beneficial option while deciding which house property should be treated by her as self-occupied.

OPTION 1 [House I – Self-occupied and House II – Deemed to be let out]


If House I is opted as SO, Surbhi’s income from house property for AY 2018-2019 i.e. PY 2017-2018 would be
Particulars `
House I (Self-occupied) [Annual value is Nil] Nil
House II (Deemed to be let-out) [See Working Note below] 54,060
Income from house property 54,060

OPTION 2 [House I – Deemed to be let out and House II – Self-occupied]


If House II is opted as SO, Surbhi’s income from house property for AY 2018-2019 i.e. PY 2017-2018 would be
Particulars `
House I (Deemed to be let-out) [See Working Note below] 70,000
House II (Self-occupied) [Annual value is Nil, but interest deduction would be available, subject to a (30,000)
maximum of `30,000. In case of money borrowed for repair of self-occupied property, the interest
deduction would be restricted to `30,000, irrespective of the date of borrow]
Income from house property 40,000

Since Option 2 is more beneficial, Surbhi should opt to treat House - II as SO and House I as Deemed to be let
out, in which case, her house property income would be `40,000 for the AY 2018-2019 i.e. PY 2017-2018.

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SUMMARY OF HOUSE PROPERTY
Working Note
Computation of income from House I and House II assuming that both are deemed to be let out
Particulars House I (`) House II (`)
Gross Annual Value (GAV)
Expected rent is the GAV of house property
Expected rent = Higher of MV , FR but restricted to SR 1,00,000 1,65,000
Less: Municipal taxes paid by the owner during the previous year Nil 9,200
Net Annual Value (NAV) 1,00,000 1,55,800
Less: Deduction Under Section 24 (a) 30% of NAV 30,000 46,740
Less: Deduction Under Section 24 (b) Interest on borrowed capital - 55,000
Income from deemed to be let-out house property 70,000 54,060

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