The Hindu Business Line : Calculating tax on multiple sources of income

Arun, a citizen of India residing in Germany for the past 10 years, came back to India in January 2007. During the financial year 2006-07, he received the following income:

Working in a company in Germany, he earns a salary of Euro 1000 a month;

He owns agricultural land near Bangalore and a residential house in Delhi which has been let-out. While the agricultural income is being remitted to his account in Germany every year, the rental income of Rs 84,000 is being deposited in his bank in Delhi; and

He also owns shares in various Indian companies and received dividend every year, which has been regularly deposited in his bank account in Delhi.

He seeks your advice as to taxability of the above income under the provisions of the Income-tax Act, 1961. (4 marks)

1(b): On December 23, 2006, Rajat sold 500 gm of gold, the sale consideration of which was Rs 4,50,000. He had acquired this gold on August 20, 1980, for Rs 40,000. Fair market value of 500 gm of gold as on April 1, 1981, was Rs 26,000. Find out the amount of capital gain chargeable to tax for the assessment year 2007-08. (Note: Cost Inflation Index for the year and 2006-07: 519). (4 marks)

1(c): S died on July 23, 2003, while being in Central Government service. In terms of rules governing his service, his widow Mrs S, aged 55, is paid a family pension of Rs 10,000 per month and dearness allowance of 40 per cent thereof. State whether the amount of family pension is assessable in her hands and, if so, under what head of income. Can she claim any relief/deduction on such receipt? Compute taxable income for the assessment year 2007-08 and tax thereon. (4 marks)

1(d): Manish is the general manager of a transport company drawing a salary of Rs 15,000 a month. The company has provided him with accommodation in Meerut for which 10 per cent of his basic salary is deducted. Actual rent paid by the company for the accommodation is Rs 1,20,000 per annum. He also receives entertainment allowance of Rs 500 per month. He is provided a car with engine cubic capacity of 1.8 litres for his personal and official use, but running and maintenance expenses for the same are borne by the assessee himself. He is in receipt of bonus equivalent to 2 months' salary. Compute his taxable income under the head `salary for the assessment year 2007-08. (5 marks)

1(e): During the previous year 2006-07, a charitable trust earned an income of Rs 10 lakh out of which Rs 8 lakh was received during the previous year 2006-07 and the balance Rs 2 lakh was received during the previous year 2007-08. To claim full exemption of Rs 10 lakh in the previous year 2006-07, state:

(i) What is the maximum amount which can be accumulated to be utilised for charitable or religious purposes at a later date?

(ii) How much amount should actually be spent during the previous year 2006-07? (4 marks)

1(f): Discuss the allowability or otherwise of the following in the hands of R, who is aged about 67:

(i) He paid insurance premium of Rs 18,000 (Rs 16,000 by cheque and Rs 2,000 by cash) under Medi-claim Policy to New India Insurance Company covering himself and his wife.

(ii) He spent a sum of Rs 55,000 during September 2006 towards medical treatment of his wife who suffered from blindness.

(iii) His younger brother who is fully dependent on him, suffered from chronic renal failure for which he spent a sum of Rs 75,000 towards medical treatment. (4 marks)

Arriving at total income

Q2: Thomas took voluntary retirement from State Bank of India on March 1, 2006, under the Voluntary Retirement Scheme (VRS) and received Rs 25 lakh on account of VRS benefits. He started a business of plying, hiring and leasing of goods carriages from June 1, 2006, by acquiring three heavy goods vehicles for Rs 12 lakh, two medium goods vehicles for Rs 5 lakh and three light commercial vehicles for Rs 6 lakh. Although, he did not maintain regular books of account for his business, the diary maintained by him revealed gross receipts of Rs 10,50,000 for the financial year ended March 31, 2007, and he incurred an expenditure of Rs 8,10,000 on the business towards salaries of drivers repairs, fuel, etc. Depreciation on vehicle is not included in the said expenditure.

During the financial year 2006-07, he received Rs 72,000 on account of pension from bank and he contributed Rs 50,000 to his PPF account maintained with the said bank in the same year. His PPF account was credited with interest of Rs 35,000 during the financial year 2006 -07.

Further, he had two residential properties, one is self-occupied and other, let-out. During the financial year 2006-07, Thomas was able to let-out his property only for 11 months on a monthly rent of Rs 7,000. The total municipal taxes on the let-out property was Rs 8,000, 50 per cent of which was paid by the tenant and 50 per cent by him during the financial year 2006-07. The interest on loan taken for renovation of the house paid by him during the year was Rs 14,000. The insurance premium on the house and actual repairs and collection charges paid are Rs 1,600 and Rs 18,000, respectively, and the entire expenditure is borne by him.

During the financial year 2006-07, he was able to recover the unrealised rent of Rs 13,000 from old tenant, who vacated the house during July, 2005 after spending litigation expenses of Rs 5,000.

During the financial year 2006-07, Thomas suffered long-term capital loss on account of sale of shares of non-listed companies amounting to Rs 31,500. From that aforesaid information, you are required to compute the total income of Thomas for the assessment year 2007-08. (12 marks)

Medical reimbursement

Q2(a): Himalaya Ltd reimburses the following expenditure on medical treatment of the son of an employee. The treatment was done in the UK which involved: i) travelling expenses, Rs 1,15,000; ii) stay expenses in the UK permitted by the RBI, Rs 45,000 (actual expenses, Rs 70,000); iii) medical expenses permitted by the RBI, Rs 50,000 (actual expenses, Rs 70,000). Compute the taxable perquisites for the assessment year 2007-08 in the hands of Karan, if his annual income from salary was: i) Rs 1,40,000; (ii) Rs 2,50,000. (4 marks)

Admissibility of expenses

2(b): Advise an assessee on the admissibility or otherwise of the following aspects giving reasons in respect of its business income: i) brokerage paid for raising loan for the business; ii) cost of erecting medical unit annexed to the factory for emergency treatment of the employees; iii) compensation paid to an employee for the premature termination of his services; iv) travelling expenses of a director, who went to Japan for negotiating the purchase of a new heavy machinery which was to be installed during next year; and v) lumpsum consideration of Rs 5,00,000 paid for acquiring knowhow. (5 marks)

Delayed filing of returns

2(c): The following particulars are furnished by Ms Madhuri for the financial year 2005-06:

Tax on total income (paid on July 31, 2006) — Rs 50,000;

Date of filing the return — August 1, 2006;

Due date for filing the return — July 31, 2006.

Compute the total interest payable under Sections 234A, 234B and 234C of the I-T Act. (3 marks)

Fill in the blanks

3(a)(i): A foreign company is chargeable to tax @_____ per cent, surcharge @ ____ per cent and education cess ____ per cent.

(ii) Ashok, a salaried employee, is carrying on a small proprietary business, the turnover of which is Rs 15 lakh. He suffered a loss of Rs 2,50,000 in the business (including current depreciation of Rs 62,500). He files his return of income for AY 2006-07 on September 30, 2006. He will be able to carry set off/carry forward business loss of Rs____ and unabsorbed deprecation of Rs ____.

(iii) The time limit for completion of assessment/reassessment under Section 147 shall be_____ months from the end of financial year in which notice under Section 148 was served.

(iv) An amendment of order under Section 154 can be made within____ years from the end of the financial year in which the order sought to be amended is passed.

(v) The maximum deduction under Section 80 GG in respect of rent paid shall be limited to Rs ____ per month. (5 marks)

True or false

3(b): State with reasons whether the following are true or false. Marks will not be given for answers without reasons.

i) Mr Anand owns an industrial undertaking established by him on October 2, 2004, in Mumbai. He shifts his industrial undertaking to other specified area on July 8, 2006. The resultant capital gains arising out of transfer of land, building, plant and machinery have been invested in purchasing new land, building, plant and machinery between January 1, 2006 to March 31, 2007. He claims that the resultant capital gain is exempt from tax. (2 marks)

ii) An Hindu Undivided Family (HUF) resident in India having total income of Rs 1,60,500 claims that as the Karta is 70 years old, the entire income is below basic exemption limit and, hence, exempt from tax. (2 marks)

iii) In case of a dealer in shares, income by way of dividend is taxable under the head `Profit and gains from business or profession.' (2 marks)

(iv) Mr Bholeram runs a grocery having a turnover of Rs 42,50,000. He claims that he is covered under presumptive taxation scheme under Section 44 AF and claims business income @ 5 per cent of turnover. (2 marks)

(v) Mrs. Anandibai owns two houses, one is self-occupied and the other, let out. Due to interest on borrowed money, there is negative income under the head `Income from house property'. Part of the loss of the house property she could not set off in that year. Due date for filing return for AY 2007-08 was July 31, 2007. She, however, filed the return on October 15, 2007, and claims that she can still file belated return and claim the carry forward of loss. (2 marks)

Situation analysis

Q4(a): Explain the income-tax implications of converting self-acquired assets into the property of a Hindu Undivided Family (HUF). Illustrate. (3 marks)

(b) "Income of the previous year is assessable as the income of immediate following financial year." State the exceptions to this rule. (3 marks)

(c) Bahadur, a defence personnel, was killed in a war. His wife was paid an ex-gratia payment of Rs 1,00,000 in February 2007. She also received family pension of Rs 7,500 per month during 2006-07. Advise her on the taxability of receipts. (3 marks)

(d) For the assessment year 2007-08, Ms. Puja (date of birth: September 19, 1941) furnishes the following information:

Gross agricultural income — Rs 2,20,000

Expenditure on earning agricultural income — Rs 1,000

Non-agricultural income — Rs 3,50,000

Determine the tax liability of Ms Puja for the assessment year 2007-08 on the assumption that, she contributes Rs 60,000 towards public provident fund and pays insurance premium of Rs 20,000 on her life insurance policy (sum assured: Rs 1,50,000). (3 marks)

(e) What is self-assessment tax. How it is calculated? What are the consequences of non-payment of self-assessment tax. (3 marks)

(f) What are the exceptions to the well-accepted principle that loss of one person cannot be availed for `set off' or `carry forward' by another person under the provisions of the I-T Act? (3 marks)

CST

5(a): Choose the correct answer with regard to the provisions of the Central Sales Tax (CST) Act.

i) R transferred goods to its branch at Mumbai. To claim exemption under CST Act. The branch should provide to R: (a) Form C, (b) Form D, (c) Form F.

ii) R has made an inter-State sale of declared goods to G and charged CST @ 4 per cent against Form C. G did not provide Form C. R shall be liable to tax: (a) at 10 per cent, (b) at 8 per cent, (c) at 4 per cent.

iii) The collection of CST is done by:

(a) the State in which the movement of goods has first taken place;

(b) the State in which the movement of goods ends;

iv) X effected his first inter-State sale on March 12, 2007, and applied for registration on April 10, 2007. The effective date of registration will be: (a) April 10, 2007, (b) March 12, 2007, (c) April 12, 2007.

v) A dealer engaged in effecting inter-State sale is required to get himself registered where his turnover exceeds: (a) Rs 2,50,000, (b) Rs 1,00,000, (c) any amount. (5 marks)

True or false

5(b): State whether the statements are true or false as per the provisions of the CST Act.

i) One Form C issued by the buyer to seller can cover all transactions in one financial year.

ii) In case of penultimate seller making sales to the actual exporters, the actual exporters shall issue a certificate to the penultimate seller in Form H.

iii) An insurance company which has taken possession of damaged goods of the insured is a dealer if such goods are sold by the company later on.

iv) CST is leviable on transactions of leasing/hiring of assets for a defined period.

v) Excise duty would form part of sale price and turnover. (5 marks)

5(c): R sells goods X and Y. Goods X are charged at 4 per cent and goods Y (which are declared goods) at 1 per cent. The aggregate sale price, including CST of X and Y, is Rs 7,07,100 which included Rs 3,53,600 of goods X. Calculate the turnover of R. (5 marks)

Sale of imported goods

6(a): R, an importer based in Mumbai, imported goods for Rs 50 lakh from Germany. From these, goods worth Rs 10 lakh were sold to G, who took delivery from the Mumbai port after paying Customs duty. The State sales tax on such goods is 7 per cent. The balance goods were cleared by R from Customs and kept in a godown in Mumbai. Some of these goods were sold in Maharashtra for Rs 15 lakh (exclusive of tax), the balance was sold to S&T of New Delhi for Rs 23,29,600 and Rs 12,97,920 respectively (inclusive of tax) against Form C. S&T did not provide Form C to R. Compute the tax liability of R in the above cases under the CST Act. (4 marks)

6(b): Attempt the following with reference to the CST Act:

(i) Explain the concept of `sale in the course of import'.

(ii) Circumstances where the subsequent sale made in the course of inter-State sale is exempt. (6 marks)

More Stories on : Accountancy | Income Tax | Taxation | Education

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Calculating tax on multiple sources of income

Assurance vs insurance

Incentive is service taxable

`Future technology breakthroughs will come from Asia`

CA plus MBA

Can Mumbai become an IFC

Pros and cons of convertibility

Just Do IT

Number Crunch

`Don't take marks too seriously'

When peace on campus was shattered

Great to have a day dedicated to `celebrating reading'

Intensive `immersion' for language edge

A gift to my child on World Books Day