Basics of Income Tax Question Paper 2024
Dibrugarh University BCOM 2nd SEM FYUGP
COMMERCE (Generic Elective Course)
Paper: GECCOM2
Full Marks: 80, Pass Marks: 24, Time: 3 hours
Paper: GECCOM2 (A) (Basics of Income Tax)
The figures in the margin indicate full marks for the questions
1. (a) Fill in the blanks of the following: 1x4=4
(i) _______ income is fully exempted from tax u/S 10(1) and such does not form part of total income.
(ii) For the Assessment Year 2023-24, an assessee can avail deduction u/S 80 (C) to the extent of _______.
(iii) Deduction for interest on loan taken for construction of self occupied house after 01-04-1999 is allowed up to actual amount or Rs. _______, whichever is less.
(iv) Capital gain arises from the transfer of _______ asset.
Answer:
(i) Agricultural income is fully exempted from tax u/S 10(1) and such does not form part of total income.
(ii) For the Assessment Year 2023-24, an assessee can avail deduction u/S 80 (C) to the extent of Rs. 1,50,000.
(iii) Deduction for interest on loan taken for construction of self occupied house after 01-04-1999 is allowed up to actual amount or Rs. 2,00,000, whichever is less.
(iv) Capital gain arises from the transfer of capital asset.
(b) Write ‘True’ or ‘False’ of the following: 1x4=4
(i) Total income of a person is determined on the basis of his citizenship in India.
(ii) Municipal tax is a deduction from net annual value.
(iii) House rent allowance is a fully taxable allowance.
(iv) Income from subletting house will be chargeable under the head ‘income from other sources’.
Answer:
(i) False
(ii) False
(iii) False
(iv) True
2. (a) Explain in brief any fourteen incomes which are exempt u/S 10 of the Income-tax Act, 1961.
Answer: The Income-tax Act, 1961 provides various exemptions under Section 10 for specific types of income. These incomes are not included in the total taxable income. Below are 14 such incomes that are exempt under Section 10:
Agricultural Income [Section 10(1)]:
Income earned from agricultural land in India is fully exempt from income tax. It includes rent from land, income from growing and selling crops, etc.Share of Profit from a Partnership Firm [Section 10(2A)]:
If a person is a partner in a firm, the share of profit received from the firm is exempt from tax in his hands, because the firm has already paid tax on it.Income of a Member of Hindu Undivided Family (HUF) [Section 10(2)]:
Any amount received by a member from the income of the HUF is not taxable in the hands of the member.Interest on Non-Resident (External) Account [Section 10(4)]:
Interest earned on deposits in an NRE account by a Non-Resident Indian is exempt from tax.Leave Travel Allowance (LTA) [Section 10(5)]:
The amount received by an employee from the employer for travel expenses within India (with family) is exempt, subject to certain rules and conditions.Remuneration to Foreign Officials of the United Nations [Section 10(6)(ii)]:
Salaries and allowances received by foreign citizens working in India for the UN or its agencies are not taxable.Allowances to Government Employees Working Abroad [Section 10(7)]:
Indian citizens working for the Government of India in foreign countries receive allowances that are exempt from tax.Gratuity [Section 10(10)]:
Gratuity received by an employee on retirement, death, or resignation is exempt up to a certain limit. The exemption depends on whether the person is a government or private sector employee.Commuted Pension [Section 10(10A)]:
When an employee receives a lump-sum amount of pension (commuted pension), it is exempt under certain conditions. For government employees, it is fully exempt. For others, partly exempt.Leave Encashment [Section 10(10AA)]:
When an employee retires and receives money for unused leaves, the amount is exempt up to a specified limit.Retrenchment Compensation [Section 10(10B)]:
If an employee is terminated from service and receives compensation, it is exempt up to Rs. 5,00,000 or as per the Industrial Disputes Act.Voluntary Retirement Scheme (VRS) Amount [Section 10(10C)]:
The compensation received by employees under a VRS scheme is exempt up to Rs. 5,00,000, subject to certain conditions.Scholarship for Education [Section 10(16)]:
Any scholarship received by a student to meet the cost of education is fully exempt from tax.Awards and Rewards [Section 10(17A)]:
Amounts received as awards from the government (like Bharat Ratna, Padma awards) for public service or performance are not taxable.
Or
(b) Write short notes on the following: 3½ x 4=14
(i) Previous year.
(ii) Assessee.
(iii) Person.
(iv) Residential status and incidence of income tax.
Answer:
(i) Previous Year: The "Previous Year" means the financial year immediately before the Assessment Year.
It is the year in which the income is earned by a person. For example, if the Assessment Year is 2023–24, then the Previous Year is 2022–23.
In most cases, income earned during the previous year is taxed in the following assessment year.
(ii) Assessee: An "Assessee" is any person who is liable to pay tax, or who is being assessed under the Income-tax Act.
It includes individuals, companies, firms, HUFs, local authorities, and others.
Even if a person is not directly paying tax but has to file a return or is responsible for someone else's income, they are considered an assessee.
(iii) Person: Under the Income-tax Act, the term "Person" has a wider meaning. It includes:
An individual (person)
Hindu Undivided Family (HUF)
Company
Firm
Association of Persons (AOP) or Body of Individuals (BOI)
Local Authority
Artificial Juridical Person (like a temple trust, university, etc.)
Every person who has taxable income is covered under this definition.
(iv) Residential Status and Incidence of Income Tax:
Residential status means whether a person is a Resident or Non-Resident in India during a previous year. It is decided based on the number of days the person stayed in India.
A Resident is someone who stayed in India for 182 days or more.
A Non-Resident is someone who did not satisfy that condition.
Incidence of tax means how a person’s global income or Indian income is taxed based on their residential status.
Residents are taxed on global income (income from India and outside).
Non-residents are taxed only on income earned in India.
3. (a) Mr. A has the following income during the previous year, 2022-23:
(i) Basic salary Rs. 2,60,000.
(ii) Dearness allowance (forming part of salary) Rs. 40,000.
(iii) Education allowance (For three children) Rs. 6,000.
(iv) Rend paid for a residential house at Guwahati Rs. 60,000.
(v) House Rent allowance Rs. 48,000.
(vi) He has been provided with a motor car of 1.8 litres engine capacity for the official and personal use. All expenses of the motor car are borne by the employer.
(vii) He contributes 14% of his salary to a recognized provident fund and his employer also contributes the same amount.
(viii) Interest credited to recognized provident fund @ 13% amounted to Rs. 13,000.
(ix) Medical expenses paid by his employer Rs. 25,000.
(x) Mr. A paid Rs. 2,500 for his professional tax.
Compute the income from salary for the Assessment Year, 2023-24. 12
Solution:
Computation of Income from Salary of Mr. A for A.Y. 2023–24
1. Gross Salary Calculation
2. Deductions under Section 16
3. Income from Salary
Or
(b) Explain the provisions of the Income Tax Act, 1961 with regard to different kinds of provident funds. 12
Answer: The Income Tax Act, 1961, provides specific provisions regarding the tax treatment of different kinds of provident funds. Provident funds are savings schemes that provide financial security to employees after retirement. The Act categorizes provident funds into three main types: Statutory Provident Fund, Recognized Provident Fund, and Unrecognized Provident Fund. Here are the provisions related to each type:
1. Statutory Provident Fund
Definition: A Statutory Provident Fund is established under the Provident Funds Act, 1925, and is applicable to government and semi-government employees, railways, universities, and recognized educational institutions.
Tax Treatment:
Employee's Contribution: The contribution made by the employee is eligible for deduction under Section 80C of the Income Tax Act, subject to the overall limit of Rs. 1.5 lakh.
Employer's Contribution: The contribution made by the employer is not taxable in the hands of the employee.
Interest: The interest earned on the contributions is exempt from tax.
Withdrawal: The amount withdrawn from the Statutory Provident Fund is entirely exempt from tax.
2. Recognized Provident Fund
Definition: A Recognized Provident Fund is one that is recognized by the Commissioner of Income Tax under the provisions of the Income Tax Act. It is typically established by private sector employers for their employees.
Tax Treatment:
Employee's Contribution: The contribution made by the employee is eligible for deduction under Section 80C, subject to the overall limit of Rs. 1.5 lakh.
Employer's Contribution: The contribution made by the employer is not taxable in the hands of the employee up to 12% of the employee's salary.
Interest: The interest earned on the contributions is exempt from tax up to a specified rate (currently 9.5%). Any interest earned above this rate is taxable.
Withdrawal: The amount withdrawn from the Recognized Provident Fund is exempt from tax if the employee has rendered continuous service for at least five years. If the service is less than five years, the amount is taxable.
3. Unrecognized Provident Fund
Definition: An Unrecognized Provident Fund is one that is not recognized by the Commissioner of Income Tax. It does not receive the tax benefits available to Statutory and Recognized Provident Funds.
Tax Treatment:
Employee's Contribution: The contribution made by the employee is eligible for deduction under Section 80C, subject to the overall limit of Rs. 1.5 lakh.
Employer's Contribution: The contribution made by the employer is taxable in the hands of the employee in the year of contribution.
Interest: The interest earned on the contributions is taxable in the hands of the employee in the year of accrual.
Withdrawal: The amount withdrawn from the Unrecognized Provident Fund is taxable in the hands of the employee. However, the employee's own contributions are not taxable as they have already been taxed.
Additional Provisions
Transfer of Provident Fund: The transfer of provident fund from one recognized provident fund to another is not treated as a withdrawal and is not taxable.
Premature Withdrawal: In case of premature withdrawal from a Recognized Provident Fund, the amount is taxable if the employee has not rendered continuous service for at least five years. However, if the withdrawal is due to the employee's resignation or termination, the amount is taxable.
These provisions ensure that employees are encouraged to save for their retirement through provident funds while providing tax benefits to make these savings more attractive. It is essential for employees to understand the tax implications of their provident fund contributions and withdrawals to plan their finances effectively.
4. (a) Mr. X is the owner of a house property. From the following particulars, compute the Income from House Property for the Assessment Year, 2023-24: 12
The house was let out w.e.f. 01-04-2022 for Rs. 9,000 p.m. which was vacated by the tenant on 30-09-2022. Since, then it remained vacant for two months. From 01-12-2022 it was again given to rent @ Rs. 12,000 p.m.
Municipal tax paid for the house 20%
Repairs, electricity, etc, paid Rs. 5,000.
Interest on money borrowed for construction of house property Rs. 27,400.
Solution:
Step 1: Computation the Annual Value of the House Property
The annual value is the higher of the following:
- Municipal Valuation: Rs. 1,00,000
- Fair Rent: Rs. 1,20,000
- Standard Rent (Fixed by the Court): Rs. 1,10,000
Therefore, the Annual Value is Rs. 1,20,000 (Fair Rent).
Step 2: Calculation the Gross Annual Value (GAV)
Rent Received:
1. From 01-04-2022 to 30-09-2022 (6 months at Rs. 9,000 per month): Rs. 54,000
2. From 01-12-2022 to 31-03-2023 (4 months at Rs. 12,000 per month): Rs. 48,000
Total Rent Received: Rs. 54,000 + Rs. 48,000 = Rs. 1,02,000
Step 3: Calculate the Vacancy Period
The house was vacant from 01-10-2022 to 30-11-2022 (2 months). Therefore, these 2 months rent is not included in the GAV calculation.
Step 4: Deduction for Municipal Taxes Paid
Municipal taxes paid = 20% of Municipal Valuation = 20% of Rs. 1,00,000 = Rs. 20,000
Step 5: Calculate the Net Annual Value (NAV)
Net Annual Value (NAV) = GAV - Municipal Taxes Paid
NAV = Rs. 1,02,000 - Rs. 20,000 = Rs. 82,000
Step 6: Deduction for Repairs and Maintenance
Repairs, electricity, etc. = Rs. 5,000
Step 7: Deduction for Interest on Borrowed Capital
Interest on loan for construction = Rs. 27,400
Step 8: Final Computation of Income from House Property
Income from House Property = NAV - Repairs - Interest on Borrowed Capital
Income from House Property = Rs. 82,000 - Rs. 5,000 - Rs. 27,400 = Rs. 49,600
Income from House Property for the Assessment Year 2023-24: Rs. 49,600
Or
(b) What are the incomes which are chargeable to income tax under the head ‘Profits and Gains of Business or Profession’? Discuss.
Answer: Under the Income-tax Act, 1961, income earned from carrying on any business or profession is taxable under the head "Profits and Gains of Business or Profession" (PGBP). This includes income from trade, commerce, manufacturing, or professional services. Below are the types of incomes chargeable under this head:
Profits from Business or Trade
Income earned from commercial or trading activities such as running a shop, factory, or any business enterprise.Income from Profession
Income earned by professionals like doctors, engineers, lawyers, chartered accountants, architects, etc.Income from Speculative Transactions
Profits from speculative business activities like intraday stock trading (where delivery of shares does not take place).Commission or Agency Income
Commission earned by agents, brokers, or dealers acting on behalf of others.Profit on Sale of Licenses
Profits from selling rights such as import licenses, liquor licenses, etc.Export Incentives
Income from duty drawbacks, DEPB benefits, and other government schemes given to exporters.Compensation for Business Contracts
Compensation received for cancellation or modification of business contracts.
Value of Perquisites or Benefits
If any benefits or amenities (non-cash) are received in the course of business or profession, their value is taxable.Recovery of Bad Debts
If a bad debt previously written off is recovered later, it is taxable as business income.Income from Professional Activities like Royalties or Technical Fees: Authors, engineers, or other professionals who receive income from books, designs, or patents.
Remuneration from Partnership Firm Salary, interest, or commission received by a partner from a firm (although share of profit is exempt).
Other Business Incomes Any income that arises from regular business operations and doesn’t fall under any other head of income.
Conclusion: All these incomes, after deducting allowable business or professional expenses, are added to the total income of the taxpayer and taxed according to the applicable slab rates.
5. (a) What is capital gain? Differentiate between short-term capital gain and long-term capital gain. Explain the procedure of computation of income from capital gains. 2+4+8=14
Answer: Capital gain refers to the profit or gain arising from the sale or transfer of a capital asset. It is the difference between the sale price of the asset and its purchase price. Capital gains are chargeable to income tax under the head 'Capital Gains' in the year in which the transfer of the capital asset takes place.
Examples of capital assets include land, building, shares, bonds, gold, etc.
Difference between Short-Term Capital Gain and Long-Term Capital Gain (4 Marks)
Short-Term Capital Gain (STCG):
- Asset held for not more than 36 months (or 12/24 months in special cases like listed shares).
- Taxed at 15% for listed shares, otherwise as per slab.
- No indexation benefit is allowed.
Long-Term Capital Gain (LTCG):
- Asset held for more than 36 months (or 12/24 months in special cases).
- Taxed at 10% (above Rs. 1 lakh for shares) or 20% with indexation.
- Indexation benefit is allowed for most assets.
Procedure of Computation of Income from Capital Gains (8 Marks)
A. In case of Short-Term Capital Gain:
Step 1:
Full Value of Consideration (Sale Price)
Less: Expenditure incurred wholly and exclusively in connection with transfer
Less: Cost of Acquisition
Less: Cost of Improvement (if any)
Result: Short-Term Capital Gain
Note: No indexation benefit is allowed.
B. In case of Long-Term Capital Gain:
Step 1:
Full Value of Consideration (Sale Price)
Less: Expenditure incurred wholly and exclusively in connection with transfer
Less: Indexed Cost of Acquisition
Less: Indexed Cost of Improvement
Result: Long-Term Capital Gain
Indexed Cost = Original cost × (CII of year of sale / CII of year of purchase)
CII = Cost Inflation Index
Example for LTCG Calculation:
- Sale price of land = Rs. 10,00,000
- Purchase price in 2005 = Rs. 3,00,000
- CII for 2005 = 117; CII for 2022-23 = 331
Indexed cost of acquisition = 3,00,000 × (331 ÷ 117) = Rs. 8,48,717
LTCG = 10,00,000 – 8,48,717 = Rs. 1,51,283
Conclusion:
Capital gains are classified based on the holding period and are taxed differently. Proper calculation as per the rules ensures correct tax compliance. Long-term gains often enjoy indexation and lower tax rates, encouraging long-term investments.
Or
(b) Discuss in detail the provisions of the Income-tax Act, 1961 for determination of income from other sources. 14
6. (a) Mr. Y has the following income and investment during the previous year, 2022-23:
From the information, compute his taxable income for the Assessment Year, 2023-24. 14
Solution:
Given Information:
Basic Salary (per month): Rs. 50,000
House Rent Allowance: Rs. 40,000
Exempted House Rent Allowance: Rs. 10,000
Uniform Allowance: Rs. 25,000
Official Expenses on Uniform: Rs. 25,000
Leave Travel Concession: Rs. 90,000
Exempted Leave Travel Concession: Rs. 75,000
Income from House Property:
House I: Rs. 80,000
House II: Rs. 1,20,000
Income from Other Sources (Interest on Savings A/c): Rs. 40,000
Deduction under Section 80C: Rs. 1,50,000
Deduction under Section 80D: Rs. 20,000
1. Income from Salary
Basic Salary: Rs. 600000
Taxable HRA: Rs. 30000
Taxable Uniform Allowance: Rs. 0
Taxable Leave Travel Concession: Rs. 15000
Total Income from Salary: Rs. 645000
2. Income from House Property
House I: Rs. 80,000
House II: Rs. 1,20,000
Total Income from House Property: Rs. 200000
3. Income from Other Sources
Interest on Savings A/c: Rs. 40000
4. Gross Total Income
Gross Total Income: Rs. 885000
5. Deductions under Chapter VI-A
Deduction u/s 80C: Rs. 150000
Deduction u/s 80D: Rs. 20000
Total Deductions: Rs. 170000
6. Taxable Income
Taxable Income: Rs. 715000
Or
(b) Explain the following: 7x2=14
(i) Income Tax Authorities:
Answer: Income Tax Authorities are the governmental bodies that are responsible for enforcing and administering the provisions of the Income Tax Act, 1961. They ensure that individuals, businesses, and other entities comply with tax laws and fulfill their tax liabilities. The main authorities under the Income Tax Act are:
Central Board of Direct Taxes (CBDT):
The CBDT is the apex body responsible for formulating policies related to the administration of income tax. It comes under the Department of Revenue, Ministry of Finance, Government of India.
It lays down guidelines and is responsible for the implementation of the provisions of the Income Tax Act.
Income Tax Officer (ITO):
The Income Tax Officer is an officer of the government responsible for the assessment and collection of taxes. They deal with the tax returns filed by individuals, companies, and other entities.
ITOs are categorized based on jurisdiction (e.g., ITOs for different regions or areas).
Assistant Commissioner of Income Tax (ACIT):
An ACIT supervises the work of Income Tax Officers and manages tax-related matters at a higher level.
They are responsible for ensuring that assessments are conducted accurately and in accordance with tax laws.
Commissioner of Income Tax (CIT):
The CIT oversees multiple ITOs and is involved in administrative duties, such as handling disputes, appeals, and the overall management of income tax assessments within their jurisdiction.
Chief Commissioner of Income Tax (CCIT):
The CCIT is in charge of the highest level of regional offices. They oversee multiple Commissioner offices and are responsible for strategic decisions and large-scale tax management.
Tax Recovery Officer (TRO):
A Tax Recovery Officer is responsible for recovering taxes owed by individuals or entities. They initiate actions like tax recovery proceedings, including issuing notices or taking possession of assets.
(ii) Deduction under Section 80C and 80D:
Answer: The Income Tax Act, 1961 provides certain deductions under various sections to reduce taxable income. Section 80C and Section 80D are two such important provisions:
Section 80C:
Objective: To encourage individuals to save for their future by providing tax benefits for certain investments and expenditures.
Eligible Investments: Taxpayers can claim deductions up to Rs. 1.5 lakh per year under Section 80C for the following:
Life Insurance Premiums (on policies for self, spouse, children)
Employee Provident Fund (EPF) contributions
Public Provident Fund (PPF) contributions
National Savings Certificates (NSC)
Tax-saving Fixed Deposits (with a 5-year lock-in period)
Senior Citizens Savings Scheme (SCSS)
Sukanya Samriddhi Yojana (SSY)
Tuition fees (for children’s education, subject to a limit of two children)
Limit: The total deduction under this section is limited to Rs. 1.5 lakh in a financial year.
Section 80D:
Objective: To provide deductions for premiums paid towards health insurance to encourage individuals to cover their health risks.
Eligible Deductions:
Health Insurance Premiums: Premium paid for medical insurance for self, spouse, children, and parents can be deducted.
Preventive Health Checkups: A deduction of up to Rs. 5,000 is available for preventive health checkups, as part of the overall premium deduction.
Limit:
For self, spouse, and children: A maximum deduction of Rs. 25,000 can be claimed.
For parents: A maximum deduction of Rs. 25,000 can be claimed for parents who are below 60 years of age.
For senior citizens (above 60 years): The deduction for health insurance premiums can be up to Rs. 50,000.
These deductions help individuals save on their income tax liability while also encouraging them to invest in long-term financial security and health insurance.
7. Explain the provisions of the Income-tax Act, 1961 with regard to the following briefly: 3x2=6
(a) Advance Payment of Tax:
Answer: Advance tax refers to the income tax that is paid in advance during the financial year instead of paying it as a lump sum at the end of the year. The provisions related to advance payment of tax are as follows:
Who is Required to Pay:
Advance tax is applicable to all taxpayers (individuals, firms, companies) who have a tax liability of Rs. 10,000 or more in a financial year.
Salaried employees whose tax liability is met through TDS (Tax Deducted at Source) are not required to pay advance tax unless their income exceeds the exempt limit or has income from sources other than salary.
Due Dates:
Advance tax is paid in installments throughout the year, and the due dates for payment are:
On or before 15th June: 15% of the total advance tax.
On or before 15th September: 45% of the total advance tax (after including the earlier 15%).
On or before 15th December: 75% of the total advance tax (after including earlier installments).
On or before 15th March: 100% of the total advance tax (after including earlier installments).
Interest on Delay in Payment:
If a taxpayer fails to pay advance tax on time, they are liable to pay interest under sections 234B and 234C.
Calculation of Advance Tax:
Advance tax is calculated based on the estimated income for the year. If the taxpayer's income or tax liability changes during the year, they can revise their advance tax payments.
(b) Capital Assets:
Answer: Under the Income-tax Act, 1961, a capital asset refers to any property held by a taxpayer, either for personal use or as an investment. The provisions related to capital assets are:
Definition of Capital Asset:
A capital asset includes:
Immovable properties such as land, building, and house property.
Movable properties like shares, debentures, jewelry, bonds, etc.
Any property held by the taxpayer for more than one year for the purpose of earning income, i.e., for investment or business purposes.
Exceptions to Capital Assets:
Stock-in-trade: Goods held for sale or trade in the normal course of business are not considered capital assets.
Personal assets: Items like clothing, furniture, and personal vehicles used by the taxpayer for personal use are excluded from the definition of capital assets.
Rural Agricultural Land: Land situated in rural areas and used for agricultural purposes is not considered a capital asset.
Tax Implications:
When a capital asset is sold, exchanged, or transferred, any gain or loss from the transaction is referred to as capital gain and is taxable under the Income-tax Act.
The taxation depends on whether the asset was held for more than three years (long-term capital asset) or less than three years (short-term capital asset).
These provisions aim to ensure that taxpayers pay taxes on the income generated from the transfer of their capital assets, while also providing exemptions for certain personal and agricultural assets.
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