The Hindu Business Line : A doc's tax check-up

For the last several years, the pattern of CA PE-II paper on income-tax and CST (Central Sales Tax) has been similar, with the break-up of marks between income-tax and CST being 75 and 25 respectively. As of now, there is no choice and the candidate has to answer all the six questions — two from CST and four from income-tax.

The paper this time around covers four heads of income. Conspicuous by its absence is the head `Income from house property'. Question 1(a) on income-tax covers all the heads of income, except `Income from house property'. The question also covers deductions from gross total income and exemptions. Therefore, the analysis of chapters accounts for only 55 marks.

Following is the coverage of topics in income-tax:

Basics: 8 marks;

Heads of income: Salaries (3 marks); income from house property (0), profits and gains of business and profession (16), Capital gains (6); other sources (0); set off and carry forward (1)

Deductions under Chapter VI A: 19 marks

Procedures: 20 marks

Total: 73 marks.

The choice in Question 2 is limited; the candidate can choose either A or B, each carrying 12 marks.

In Question 4, there are four sub-questions of six marks each, and the candidate is required to answer only three. Thus, out of 73 marks, the candidate has to attempt questions for 55 marks only.

In CST, Questions 5(a) and 5(b) are worth 10 and 5 marks, respectively, accounting for 15 of the 25 marks allocated for CST. Question 6 has three sub-questions of five marks each and the candidate has to answer any two.

Income and tax calculation

The first question is quite comprehensive, covering, as said earlier, all the heads except house property. Let's work out the solution for the problem:

Dr Sparsh Kumar is running a clinic. His Income and Expenditure Account for the year ending March 31, 2007, is given in Table 1.

i) Deprecation in respect of all assets has been ascertained at Rs 50,000 as per the income-tax rules.

ii) Medicines consumed include medicine of (cost) Rs 16,000 used for his family.

iii) Fee receipts include Rs 14,000 honorarium for valuing medical examination answer books.

iv) He has also received Rs 80,000 on account of agricultural income, which had not been included in the Income and Expenditure Account.

v) He has also received Rs 57,860 on maturity of one LIC Policy, not included in the Income and Expenditure Account.

vi) He received Rs 6,000 per month as salary from a City Care Centre. This has not been included in the `Fees Receipts' credited to the Income and Expenditure Account.

vii) He has sold land in June 2006 for Rs 6,00,000 (valuation as per stamp valuation authority Rs 8,00,000). The land was acquired by him in October 1998 for Rs 4,50,000.

viii) He has paid premium of one LIC policy Rs 12,000 (sum assured Rs 50,000).

ix) He has paid Rs 2,500 for purchase of lottery tickets.

From the above compute the income and tax payable of Dr Sparsh Kumar for assessment year 2007-08. The cost inflation index for FY 1998-99 is 351 and for FY 2006-07, 519.

The solution is presented in Table 2.

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