Income Tax Law and Practice Solved Question Paper’2021 | Bcom 3rd Sem CBCS | Gauhati University

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Income Tax Law and Practice Solved Question Paper’2021 (Held in 2022)

Gauhati University B.Com 3rd Sem CBCS Pattern

(SEM-3/CBCS) ITLP HC/RC

2021 (Held in 2022)

COMMERCE (Honours/Regular)

Paper: COM-HC-3026/COM-RC-3026

(Income Tax Law and Practice)

Full Marks: 60

Time: Three hours

The figures in the margin indicate full marks for the questions.

1.Answer the following as directed:      1×7=7                                  

(a)       ‘Assessment Year’ means the period starting from 1st April ending on _______ of the next year. (Fill in the blank)

(b)       The year in which income is earned is known as Assessment Year and the year in which it is taxable is known as Previous Year. (State whether the statement is true or false)

(c)       Under the Income Tax Act, 1961, what is the status of Dibrugarh University as a ‘Person’?

(d)       Tax liability of an assessee depends upon his/her residential status. (State whether the statement is true or false)

(e)       Agricultural income is taxable under section 10(1) of the Income Tax Act, 1961. (State whether the statement is true or false)

(f)        Section 48 of the Income Tax Act deals with income that is exempted from tax. (State whether the statement is true or false)

(g)       Agricultural land situated in a rural area in India is a Capital Asset. (State whether the statement is true or false)

 

Answers: 

(a) The period starting from 1st April ending on 31st March of the next year.

(b) False. The year in which income is earned is known as the Previous Year, and the year in which it is taxable is known as the Assessment Year.

(c) Under the Income Tax Act, 1961, Dibrugarh University is considered a "person" for the purposes of taxation.

(d) True. The tax liability of an assessee depends on their residential status, which determines which tax laws and rates apply to their income.

(e) False. Agricultural income is generally not taxable under the Income Tax Act, 1961.

(f) False. Section 48 of the Income Tax Act deals with the method of computing capital gains, which are taxed under the Act.

(g) True. Agricultural land situated in a rural area in India is considered a capital asset for the purposes of taxation.

 

 

2.Answer the following questions:   2×4=8                                        

(a)       Explain the meaning of long-term capital gain.

Ans: Long-term capital gain refers to the profit or gain that is realized from the sale of a long-term capital asset. A long-term capital asset is generally defined as an asset that is held for more than 36 months (3 years) before it is sold. Examples of long-term capital assets include real estate, long-term investments in stocks or bonds, and certain business assets. Long-term capital gains are typically taxed at a lower rate than short-term capital gains, which are realized from the sale of assets held for a shorter period of time.

(b)       State the meaning of uniform previous year as per the Income Tax Act, 1961.

Ans: Under the Income Tax Act, 1961, the term "uniform previous year" refers to a specific year that is chosen as the basis for calculating tax liability. This year is used as a reference point for determining the tax liability of an assessee for a given assessment year. The uniform previous year is typically the financial year ending on March 31 of the previous year.

(c)       Define ‘Assessee’ as per the Income Tax Act, 1961.

Ans: As per the Income Tax Act, 1961, an assessee is a person who is liable to pay tax under the Act. This may include individuals, companies, firms, trusts, and other legal entities. The term "assessee" may also refer to a person who is required to file a tax return or who is assessed for tax purposes.

(d)       State the meaning of income.

Ans: Income refers to the money or other compensation that is received by an individual or business as a result of their efforts, whether through employment, investments, or other sources. Income may be earned, such as wages or salaries earned through employment, or it may be unearned, such as interest or dividends received from investments. Income is typically taxable under the income tax laws of most countries, and the tax liability of an individual or business is generally based on their total income for a given period of time.

GU Income Tax Law and Practice Solved Question Paper’2021


3. Answer any three questions:                  5×3=15

(a)       Briefly explain various heads of income.

Ans: Under the Income Tax Act, 1961, income is divided into several categories, or "heads," for the purpose of taxation. These heads of income include:

 

Salary: This includes income earned through employment, such as wages, salaries, and other forms of compensation.

Interest: This includes income earned through investments, such as interest earned on bank deposits or bonds.

House Property: This includes income earned from the ownership and rental of real estate.

Capital Gains: This includes profit or gain realized from the sale of a capital asset, such as stocks, bonds, or real estate.

Business or Profession: This includes income earned through the operation of a business or the practice of a profession.

Other Sources: This includes income from sources other than those listed above, such as lottery winnings, gifts, and income from hobbies.

 

(b)       Explain the manner of determining the residential status under ‘resident and ordinarily resident’ in India.

Ans:Under the Income Tax Act, 1961, an individual's residential status is used to determine which tax laws and rates apply to their income. An individual is considered a "resident" if they meet any of the following criteria:

  • They have spent at least 182 days in India in the relevant previous year.

  • They have spent at least 60 days in India in the relevant previous year, and at least 365 days in India during the four previous years.

  • An individual who meets either of these criteria is considered a "resident and ordinarily resident" in India. This means that they are subject to tax on their worldwide income in India, regardless of where it is earned.

An individual who does not meet either of these criteria is considered a "non-resident" in India. Non-residents are only subject to tax on their income that is earned in India or that is received from a source in India.

 

(c)       Explain the meaning of ‘income from other sources’ as per the Income Tax Act, 1961 with any three examples.

Ans: "Income from other sources" refers to any income that is not specifically included in one of the other heads of income under the Income Tax Act, 1961. Examples of income from other sources include:

 

  1. Rent received from property that is not used for the purpose of a business or profession.

  2. Income from a hobby or recreational activity, such as playing a musical instrument or collecting stamps.

  3. Dividends or other distributions received from a trust or mutual fund.

  4. Lottery winnings or gambling income.

  5. Income from the sale of a personal asset, such as a car or jewelry.

 

(d)       Mr. Anil Barua is the owner of a house property which is let out by him at a monthly rent of Rs. 10,000. The particulars of the house are given below:

  1. Municipal Valuation (MV)

  2. Fair Rent (FR)

  3. Standard Rent under Rent Control Act (SR)

  4. Fire Insurance

  5. Municipal Taxes Paid

Determine his income from house property for the assessment year 2021-22.            5

Ans: To determine Mr. Anil Barua's income from house property for the assessment year 2021-22, the following steps can be followed:

 

  • Calculate the gross annual rent for the property by multiplying the monthly rent of Rs. 10,000 by 12 months. This gives a gross annual rent of Rs. 120,000.

  • Deduct any municipal taxes paid on the property from the gross annual rent. For example, if Mr. Barua paid Rs. 15,000 in municipal taxes during the year, the taxable annual rent would be Rs. 105,000 (120,000 - 15,000).

  • Deduct any premiums paid for fire insurance on the property from the taxable annual rent. For example, if Mr. Barua paid Rs. 10,000 in fire insurance premiums during the year, the taxable annual rent would be reduced to Rs. 95,000 (105,000 - 10,000).

  • Determine the highest of the following three amounts: the municipal valuation of the property, the fair rent of the property, and the standard rent of the property under the Rent Control Act. This is known as the "annual value" of the property. For example, if the municipal valuation of the property is Rs. 80,000, the fair rent is Rs. 90,000, and the standard rent under the Rent Control Act is Rs. 100,000, the annual value would be Rs. 100,000.

  • Deduct any applicable deductions from the annual value to determine the taxable income from the house property. For example, if the annual value is Rs. 100,000 and Mr. Barua is entitled to a deduction of Rs. 30,000 for repairs and maintenance, his taxable income from the house property would be Rs. 70,000 (100,000 - 30,000).

  • Compare the taxable income from the house property to the gross annual rent. The lower of the two amounts is the taxable income from the house property for the assessment year. In this example, the gross annual rent of Rs. 120,000 is lower than the taxable income from the house property, so Mr. Barua's income from the house property for the assessment year 2021-22 would be Rs. 120,000.

 

(e)       For the Assessment Year 2021-22, Ramesh is non-resident in India. From the information given below, find out his income chargeable to tax for the Assessment Year 2021-22:

(1)       Royalty received by him outside India from the Government of India Rs. 17,000.

(2)       Technical fees received from P. Ltd. (an Indian Company) in Germany for advice given by him in respect of a project situated in Dubai Rs. 2,40,000.

(3)       Income from a business situated in Sri Lanka (goods are sold in Sri Lanka, sale consideration is received in Sri Lanka but business is controlled partly in Sri Lanka and partly in India) Rs. 1,40,000.

(4)       Income from a business connection in India (it is received outside India) Rs. 3,17,000.

Ans: As a non-resident in India for the Assessment Year 2021-22, Ramesh's income chargeable to tax in India would include:

 

  1. Royalty received by him outside India from the Government of India (Rs. 17,000). This income is taxable in India as it is received from a source in India.

  2. Technical fees received from P. Ltd. (an Indian company) in Germany for advice given in respect of a project situated in Dubai (Rs. 2,40,000). This income is taxable in India as it is received from a business connection in India.

  3. Income from a business situated in Sri Lanka (Rs. 1,40,000). This income is not taxable in India as it is earned from a business outside of India and the sale consideration is received in Sri Lanka.

  4. Income from a business connection in India (Rs. 3,17,000) that is received outside of India. This income is taxable in India as it is received from a business connection in India.

 

Therefore, Ramesh's total income chargeable to tax in India for the Assessment Year 2021-22 would be Rs. 5,77,000 (17,000 + 2,40,000 + 3,17,000).

4. Answer any three questions:  10×3=30

(a)       What is a capital asset as per section 2(14) of the Income Tax Act, 1961? Describe the procedure of computation of long term capital gains as per the provisions of this Act. 5+5=10

Ans: As per section 2(14) of the Income Tax Act, 1961, a capital asset is defined as any property that is owned by an individual or business, with certain exceptions. This includes assets such as real estate, stocks and bonds, jewelry, and personal effects. However, certain types of property are specifically excluded from the definition of capital assets, including agricultural land, personal use assets such as household furnishings and clothing, and certain business assets.

 

(b) The procedure for computing long-term capital gains under the Income Tax Act, 1961 is as follows:

 

  1. Determine the sale price of the capital asset and the cost of acquisition. The cost of acquisition includes any expenses incurred in acquiring the asset, such as brokerage fees or transfer charges.

  2. Deduct the cost of acquisition and any related expenses from the sale price to determine the net sale price.

  3. Deduct any exemptions or deductions that may be available, such as the exemption for long-term capital gains on the sale of residential property.

  4. Calculate the long-term capital gain by applying the applicable tax rate to the net sale price.

  5. Pay the calculated tax on the long-term capital gain.

 

It is important to note that the tax rate and exemptions that apply to long-term capital gains may vary depending on the type of asset being sold and the circumstances of the sale. It is advisable to consult a tax professional or refer to the Income Tax Act, 1961 for more information on the specific rules that apply to the computation of long-term capital gains.

(b)       Sitaram (age 45, resident) is a salaried employee (salary being Rs. 40,000 per month). During the previous year 2020-21, he makes the following investment deposits or payments:

(1)       Life insurance premium (policy taken in 2009) on the life of his married daughter: Rs. 6,000 (sum assured is Rs. 20,000)

(2)       Life insurance premium (policy taken in 2011) on his own life: Rs. 2,700 (sum assured Rs. 60,000).

(3)       Life insurance premium (policy taken in 2011) on his life of his dependent sister: Rs. 10,000.

(4)       Contribution towards recognised Provident Fund: Rs. 9,000.

(5)       Contribution towards public Provident Fund: Rs. 1,30,000.

(6)       Repayment of loan taken from LIC for purchase of residential house property: Rs. 30,000.

(7)       Contribution towards notified equity-linked saving scheme of UTI (i.e., MEP 2021): Rs. 14,000.

Compute his Tax Liability for the Assessment Year 2021-22, assuming that his income from house property is Rs. 2,28,900.  10

(c)       From the following Profit & Loss A/c of Sudesh Bhosale (Age 45 years; resident) for the year ended on 31st March, 2021, ascertain his Gross Total Income for the AY 2021-22:  10

Particulars

Amount (Rs.)

Particulars

Amount (Rs.)

Salaries

Bad Debts

Prepaid Rent

Insurance

General Expenses

Salary to Sudesh Bhosale

Interest on Overdraft

Interest on Loan to wife of Sudesh Bhosale

Interest on Capital of Sudesh Bhosale

Depreciation

Advertisement Expenditure

Contribution to Employees’ Recognised Provident Fund

Net
Profit

26,800

44,000

4,000

1,200

52,000

1,02,000

8,000

84,000

46,000

96,000

14,000

 

26,000

4,00,600

Gross Profits

Commission

Brokerage

Sundry Receipts

Bad debt Recovered (earlier allowed as deduction)

Interest on Debentures

6,91,000

36,600

74,000

5,000

22,000

76,000

Total

9,04,600

Total

9,04,600

Other Information:

(1)       The amount of depreciation allowable is Rs. 57,000 as per Income Tax Rules.

(2)       Advertisement expenditure includes Rs. 3,000 being the cost of permanent sign board fixed on the office premises.

(3)       Income of Rs. 3,08,700, accrued during the previous year, is not recorded in the Profit and Loss A/c.

(4)       Sudesh Bhosale pays Rs. 15,000 as premium on own life insurance policy of Rs. 70,000.

(5)       General expenses include Rs. 12,000 given to Mrs. Sudesh Bhosale for purchasing a gift for a marriage party of a friend’s daughter.

(6)       Loan was taken from Mrs. Sudesh Bhosale for payment of arrears of income tax.

(d)       Briefly explain the basic rules governing the deductions under section 80C to 80U of the Income Tax Act, 1961.

(e)       Explain the process of setting off of losses and their carry forward as per the provisions of the Income Tax Act, 1961.  10

Solution:  Practical solution will be available soon

 

Gauhati University Income Tax Law and Practice Solved Question Paper’2021


(f)Write short notes on the following:                                        5+5=10

(1) On-line filing of returns of income.

Ans: On-line filing of returns of income refers to the process of electronically submitting a tax return through the internet, rather than submitting a paper return through the mail. This method of filing tax returns has several advantages, including:

 

Convenience: On-line filing can be done from anywhere with an internet connection, at any time. This is especially useful for individuals who may not be able to physically visit a tax office or post office to file their return.

Accuracy: On-line tax software is designed to help taxpayers accurately complete their returns and avoid errors. Many of these programs also include features like error checking and tax law updates, which can help ensure that taxpayers are paying the correct amount of tax.

Speed: On-line filing allows taxpayers to receive their tax refunds more quickly, as the process is generally faster than mailing a paper return.

Environmentally friendly: On-line filing reduces the need for paper and printing, which can help to reduce the environmental impact of tax filing.

Gauhati University Income tax law and Practice Solved Question paper 2021 (Held in 2022)

(2) Tax deducted at source.

Ans: Tax deducted at source (TDS) refers to the practice of deducting tax from a payment as it is being made, rather than requiring the recipient of the payment to pay the tax at a later date. This is often done with wages or other types of income, such as rent or commission. The tax is deducted by the payer (e.g. an employer or a landlord) and paid directly to the government on behalf of the recipient.

 

TDS helps to ensure that taxes are paid in a timely manner, as the tax is taken out of the payment as it is being made. It also simplifies the tax-filing process for the recipient, as they do not need to worry about paying the tax at a later date. In many cases, TDS is credited towards the recipient's tax liability for the year, so they may not need to pay any additional tax when they file their tax return.

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