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| Income Tax Law and Practice Solved Paper'2021( Held in 2022) |
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks: 1x4=4
(1) Residential status is determined with reference to the individual's "period of stay" presence in India.
(2) Gratuity is ordinarily taxable as "salary".
(3) All those assets to which one rate of depreciation is applicable are known as "blocks of assets".
(4) The Permanent Account Number is a "10" digit alphanumeric number which is issued by an assessing officer of the income tax department.
(b) Write True or False: 1x4=4
(1) The present Income-tax Act came into force with effect from 1st April, 1961.
Ans: False
(2) The annual value of house property must consist of any building or lands appurtenant thereto.
Ans: True
(3) Long-term capital gains on sale of securities listed in stock exchange are taxed u/s 115A of the Income-tax Act, 1961.
Ans: False (Long-term capital gains on sale of securities listed in stock exchange are taxed u/s 112 of the Income-tax Act, 1961)
(4) Total income is also known as taxable income.
Ans: False
2. Write short notes on any four of the following: 4x4=16
(a) Standard deduction (u/s 16).
Ans: Standard Deduction (u/s 16): Standard deduction is a fixed amount that can be deducted from the salary income of an individual. This deduction was introduced in the Budget 2018 to provide relief to salaried taxpayers and to simplify the tax-filing process. The standard deduction amount is INR 40,000 for financial year 2021-22 and earlier.
(b) Home loan.
Ans: Home Loan: A home loan is a type of loan that is provided by banks or other financial institutions to purchase a house or property. The loan amount is repayable in equated monthly instalments over a period of time as agreed between the borrower and the lender. The interest paid on a home loan is eligible for tax benefits under section 24 of the Income-tax Act, 1961.
(c) Deduction u/s 54.
Ans: Deduction u/s 54: Section 54 of the Income-tax Act, 1961 provides for tax benefits on the transfer of a long-term capital asset, such as a house property, by allowing the taxpayer to invest the sale proceeds in a new residential property. The amount of investment is deductible from the capital gains arising from the transfer, thereby reducing the tax liability.
(d) Unexplained investment (u/s 69)
Ans: Unexplained Investment (u/s 69): Section 69 of the Income-tax Act, 1961 provides for the taxation of unexplained investments or cash credits. If the source of an investment or cash credit cannot be established or is found to be not in accordance with the taxpayer's known source of income, then the same may be treated as an unexplained investment and taxed as such.
(e) Filing of return of income.
Ans: Filing of Return of Income: Filing of return of income is the process by which an individual or a company declares its total income earned during a financial year to the income tax department. This is a mandatory requirement for taxpayers whose total income exceeds the exempt limit as specified by the Income-tax Act, 1961. The return of income is filed annually, usually on or before the due date, which is 31st July of the assessment year.
3. (a) Explain the following (any two): 4x2=8
(1) Assessee.
Ans:Assessee: An assessee is a person who is liable to pay tax as per the provisions of the Income-tax Act, 1961. The term "assessee" encompasses individuals, companies, firms, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), etc.
(2) Agricultural income.
Ans: Agricultural income is defined as any income derived from agriculture, which includes rent or revenue derived from land used for agricultural purposes and income derived from any building on such land. Agricultural income is exempt from tax as per the provisions of the Income-tax Act, 1961.
(3) Gross total income.
Ans: Gross Total Income: Gross total income is the total income earned by an individual or a company before making any deductions or exemptions. It is the sum of all sources of income, such as salary, business or profession, house property, capital gains, other sources, etc. Gross total income is the starting point for computing the taxable income, as per the provisions of the Income-tax Act, 1961.
Or
(b) Enumerate any four items of income which are fully exempted from income tax. Also mention any four such incomes which are partially exempted from income tax. 4+4=8
Ans:
Four items of income which are fully exempt from income tax are:
Agricultural income
Gratuity received from employer
Provident fund (PF) withdrawal after 5 years of continuous service
Leave encashment at the time of retirement
Four items of income which are partially exempt from income tax are:
House rent allowance (HRA)
Interest income from savings account
Long-term capital gains (LTCG) on sale of securities listed in stock exchange
Pension received by central or state government employees.
4. (a) Explain the following relating to Income from salary: 3x3=9
(1) House Rent Allowance.
Ans:House Rent Allowance (HRA): HRA is a component of salary received by an individual from his/her employer. It is a tax-free allowance that is paid to an individual to compensate for the expenses incurred on renting a house. The amount of HRA received is partially exempt from tax and can be claimed as a deduction from the total income while computing the taxable income.
(2) Gratuity.
Ans: Gratuity: Gratuity is a benefit paid by an employer to an employee in recognition of his/her long and continuous service. It is a lump sum payment made to an employee at the time of his/her retirement or termination of employment. Gratuity is taxed as income under the head "salaries" and is fully taxable in the hands of the employee.
(3) Recognized Provident Fund.
Ans: Recognized Provident Fund (RPF): RPF is a long-term savings scheme where an individual can contribute a part of his/her salary towards the fund. The amount contributed to the RPF is eligible for tax benefits under section 80C of the Income Tax Act. The amount received from the RPF at the time of maturity or retirement is fully exempt from tax, subject to the fulfillment of certain conditions mentioned in the Income Tax Act.
(b) Mr. Rajiv is a production manager of an industrial unit at Chennai. The particulars of his salary income are as follows:
Car of 1.2 liter capacity provided by employer for private and official use. Employer meets of car. He and his employer (each) contribute 13% of salary to Recognized Provident Fund.
Mr. Rajiv had taken interest-free loan of Rs. 15,000 to purchase refrigerator. Compute income under the head salary for the AY, 2020-21.9
5. (a) From the particulars given below, compute income from house property which consists of two independent units having 1/3rd and 2/3rd area: 10
Date of completion
Municipal rental value
Fair rental value
Self-occupied
Let out
Municipal taxes
Fire insurance premium
Ground rent
Interest on loan
01-11-2013
Rs. 96,000
Rs. 84,000
2/3rd portion.
1/3rd portion from 01-04-2018 to 31-08-2018 @ Rs. 7,200 p.m. and self-occupied from 01-09-2018 onwards.
Rs. 6,000 p.a.
Rs. 2,000 p.a.
Rs. 4,000 p.a.
Rs. 7,500
Or
(b) What is ‘annual value’? How is it determined? What deductions are allowed from the annual value in computing taxable income from house property? 2+3+5=10
Ans: Annual value is the estimated rent for which a property could be let out for a year. It is the basis for determining the taxable income from house property.
The annual value of a property is determined as follows:
Gross annual value (GAV): It is the rent that the property would fetch if it were let out and is usually determined on the basis of the prevailing market rent.
Net annual value (NAV): It is calculated by subtracting the municipal taxes payable by the owner from the gross annual value.
Deductions allowed from the annual value in computing taxable income from house property are:
Standard Deduction: A standard deduction of 30% of the net annual value is allowed for repairs, insurance, and other maintenance expenses.
Interest on Borrowed Capital: Interest paid on borrowed capital used for the construction or acquisition of the property is deductible.
Repairs and Maintenance: Expenses incurred for repairs and maintenance of the property are deductible.
Property Taxes: Property taxes paid to the local authorities are deductible.
Unoccupied Property: If the property is unoccupied for a portion of the year, a deduction equal to 15% of the net annual value is allowed for that period.
6. (a) Dr. Kunal is a medical practitioner. He gives you the following summary of cashbook for the year ending on 31.03.2020:
Other Informations:
(1) 50% of the motorcar expenses incurred in connection with profession. Car was purchased in December 2019.
(2) Household expenses include Rs. 6,800 for insurance premium.
(3) Gift and presents include Rs. 3,000 from relatives.
(4) Closing stock for medicine for Rs. 12,000 and opening stock on 01-04-2019 was Rs. 4,000.
Compute his professional gain for the Assessment Year, 2020-21. 10
Or
(b) Mention ten examples of expenses allowable as deduction u/s 37 of the Income-tax act while computing the profits and gains of business or profession. 10
Ans: Expenses allowable as deduction under section 37 of the Income Tax Act are as follows:
Salaries and wages: Salaries and wages paid to employees can be claimed as a deduction.
Rent, taxes, and repairs: Rent, taxes, and repairs expenses incurred in connection with the business or profession can be claimed as a deduction.
Depreciation: Depreciation on assets used in the business or profession can be claimed as a deduction.
Insurance: Premiums paid for insurance of business assets can be claimed as a deduction.
Interest on borrowed capital: Interest paid on capital borrowed for the purpose of the business or profession can be claimed as a deduction.
Legal and professional fees: Fees paid to lawyers, accountants, or other professionals for services rendered to the business or profession can be claimed as a deduction.
Travel expenses: Travel expenses incurred for the purpose of the business or profession can be claimed as a deduction.
Bad debts: Bad debts incurred in the course of business or profession can be claimed as a deduction.
Advertising and promotion: Expenses incurred for advertising and promoting the business or profession can be claimed as a deduction.
Charitable contributions: Contributions made to charitable institutions for the purpose of the business or profession can be claimed as a deduction.
7. (a) Mr. Sudip purchased a house on 12-04-2018 for Rs. 11,00,000 and spent Rs. 1,80,000 on its improvement on 14-07-2018. On 16-12-2019, he sold the house for Rs. 21,50,000 (stamp duty value Rs. 23,00,000) and incurred Rs. 12,000 as expenses on transfer. Compute the amount of capital gains from the AY, 2020-21. 9
Or
(b) Mention the different kinds of incomes specifically mentioned as chargeable to tax under the head, ‘Income from other sources’. 9
Ans: Income under the head "Income from other sources" includes the following:
Interest on securities: Interest received on government securities, bonds, and other fixed income securities is considered as income under this head.
Interest on deposits: Interest received on savings bank deposits, fixed deposits, recurring deposits, etc. is considered as income under this head.
Dividends: Dividends received from companies, mutual funds, and other sources are considered as income under this head.
Rent received from letting out property: Rent received from letting out property such as land, building, or machinery is considered as income under this head.
Winnings from lottery, crossword puzzles, races, etc.: Winnings from games of chance such as lottery, crossword puzzles, races, etc. are considered as income under this head.
Interest from partners in a firm: Interest received by a partner of a firm from the firm is considered as income under this head.
Commission on the sale of insurance policies: Commission received by an insurance agent for selling insurance policies is considered as income under this head.
Interest on compensation or enhancement: Interest received on compensation or enhancement of property is considered as income under this head.
Gains from transfer of capital assets other than securities: Gains from transfer of capital assets other than securities, such as property, gold, etc. are considered as income under this head.
8. (a) From the following information relating to Financial Year, 2019-20 furnished by Mr. Shiv Prasad Gupta, compute his gross total income for the AY, 2020-21: 10
(1) Income from salary (computed) Rs. 7,00,000.
(2) Interest of Rs. 80,000 on the bank fixed deposit for the Financial Year, 2019-20 was credited to the Savings Bank A/c of Raman, his nephew (son of his sister).
(3) He gifted a flat to his wife on 01-04-2019. The income from house property (computed) for the Financial Year, 2019-20 was Rs. 3,20,000.
(4) Cash gift received by his minor son Bimal during his 10th birthday celebration Rs. 92,000.
(5) Income of minor daughter Sangita from fixed deposit in a bank Rs. 50,000.
(6) Minor son’s income from fixed deposit in a bank Rs. 2,400.
Or
(b) Explain the provisions of the Income-tax Act regarding set-off and carry forward of the following: 3+3+4=10
(1) Loss from house property.
Ans: Loss from House Property: Loss from house property can be set off against any other head of income, including income from salary and business income. If the loss from house property cannot be set off in the current financial year, it can be carried forward to the next eight assessment years and set off against the income under the head "house property" only.
(2) Capital loss.
Ans:Capital Loss: Capital loss can be set off against capital gains of the same financial year. If the capital loss cannot be set off in the current financial year, it can be carried forward to the next assessment year and set off against capital gains of the subsequent years.
(3) Loss of the discontinued business.
Ans: Loss from Discontinued Business: Loss from a discontinued business can be set off against any other head of income, including income from salary and business income. If the loss from a discontinued business cannot be set off in the current financial year, it can be carried forward to the next eight assessment years and set off against the income under the head "business or profession" only. However, the carry forward of loss from a discontinued business is subject to certain conditions mentioned in the Income Tax Act.
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