Total Income DT

INTER CA.
– DIRECT TAXES
COMPUTATION OF TOTAL
INCOME
Question 1
Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 2.03.2021
and came to India for the first time on 16.03.2021. She left for USA on 19.9.2021. She
returned to India again on 27.03.2022. While in India, she had purchased a show room in
Mumbai on 22.04.2021, which was leased out to a company on a rent of ` 25,000 p.m.
from 1.05.2021. She had taken loan from a bank for purchase of this show room on which
bank had charged interest of ` 97,500 upto 31.03.2022. She had received the following
gifts from her relatives and friends during 1.4.2021 to 31.3.2022:
- From parents of husband ` 51,000
- From married sister of husband ` 11,000
- From two very close friends of her husband, ` 1,51,000 and ` 21000 ` 1,72,000
Determine her residential status and compute the total income chargeable to tax along
with the amount of tax payable on such income for the Assessment Year 2022-23.
Answer
Under section 6(1), an individual is said to be resident in India in any previous year, if he
satisfies any one of the following conditions:
(i) He has been in India during the previous year for a total period of 182 days or more,
or
(ii) He has been in India during the 4 years immediately preceding the previous year for
a total period of 365 days or more and has been in India for at least 60 days in the
previous year.
If an individual satisfies any one of the conditions mentioned above, he is a resident.
If both the above conditions are not satisfied, the individual is a non-resident.
Therefore, the residential status of Miss Charlie, an American National, for A.Y. 2022-23
has to be determined on the basis of her stay in India during the previous year relevant
to A.Y. 2022-23 i.e. P.Y. 2021-22 and in the preceding four assessment year.
640
INTER CA. – DIRECT TAXES
P.Y. 2021-22
01.04.2021 to 19.09.2021 172 days
27.03.2022 to 31.03.2022 5 days
Total 177 days
Four preceding previous years
P.Y. 2020-21 [1.4.2020 to 31.3.2021] 16 days
P.Y. 2019-20 [1.4.2019 to 31.3.2020] Nil
P.Y. 2018-19 [ 1.4.2018 to 31.3.2019] Nil
P.Y. 2017-18 [ 1.4.2017 to 31.3.2018] Nil
Total 16 days
The total stay of the assessee during the previous year in India was less than 182 days
and during the four years preceding this year was for 16 days. Therefore, due on non-
fulfillment of any of the two conditions for a resident, she would be treated as non-
resident for the Assessment Year 2022-23.
Computation of total income of Miss Charile for the A.Y. 2022-23
Particulars ` `
Income from house property
Show room located in Mumbai remained on rent from 2,75,000
01.05.2021 to 31.03.2022 @ ` 25,000/-p.m.
Gross Annual Value [` 25,000 x 11] (See Note 1 below)
Less: Municipal taxes (Nil)
Net Annual Value (NAV) 2,75,000
Less: Deduction under section 24
30% of NAV 82,500
Interest on loan 97,500 (1,80,000) 95,000
Income from other sources
Gifts received from non-relatives is chargeable to tax as per
section 56(2)(x) if the aggregate value of such gifts exceeds
` 50,000
- ` 51,000 received from parents of husband would be Nil
exempt, since parents of husband fall within the
definition of ‘relatives’ and gifts from a relative are
not chargeable to tax
641
- ` 11,000 received from married sister of husband is Nil

exempt, since sister-in-law falls within the definition
of relative and gifts from a relative are not chargeable
to tax
- Gift received from two friends of husband ` 1,51,000 and 1,72,000 1,72,000
` 21,000 aggregating to ` 1,72,000 is taxable under
section 56(2)(x) since the ag gregate of ` 1,72,000
exceeds ` 50,000. (See Note 2 below)
Total income 2,67,000
Computation of tax payable by Miss Charile for the A.Y. 2022-23

Particulars `
Tax on total income of ` 2,67,000 850

Add: Health and Education cess @ 4% 34
Total tax payable 884
Rounded off u/s 288B 880
Notes:
1. Actual rent received has been taken as the gross annual value in the absence of
other information (i.e. Municipal value, fair rental value and standard rent) in the
question.
2. If the aggregate value of taxable gifts received from on-relatives exceeds ` 50,000
during the year, the entire amount received (i.e. the aggregate value of taxable gifts
received) is taxable. Therefore, the entire amount of ` 1,72,000 is taxable under
section 56(2)(x).
3. Since Miss Charlie is a non-resident for the A.Y. 2022-23, rebate under section 87A
would not be available to her, even though her total income is less than ` 5 lacs.
Question 2
Dr. Niranjana, a resident individual. Aged 60 years is running a clinic. Her Income and
Expenditure Account for the year ending March 31, 2022 is as under:
Expenditure ` Income `
To Medicine consumed 35,38,400 By Consultation and medical 58,85,850
charges
To Staff Salary 13,80,000 By Income-tax refund 5,450
642
To clinic consumables 1,10,000 (principal ` 5,000, interest

` 450)
To Rent paid 90,000
To Administrative expenses 2,55,000 By Winning from game 35,000
show on T.V. (net of TDS of
` 15,000)
To Amount paid to 1,50,000 By rent 27,000
scientific research
association approved
under section 35
To Net profit 4,29,900
59,53,300 59,53,300
(i) Rent paid includes ` 30,000 paid by cheque towards rent for her residential house in
Surat.
(ii) Clinic equipment’s are:
1.4.2021 Opening W.D.V ` 5,00,000
7.12.2021 Acquired (cost) by cheque ` 2,00,000
(iii) Rent received relates to property situated at Surat. Gross Annual Value ` 27,000. The
municipal tax of ` 2,000, paid in December, 2021, has been included in “administrative
expenses”.
(iv) She received salary of ` 7,500 p.m. from “Full Cure Hospital” which has not been
included in the “consultation and medical charges”.
(v) Dr. Niranjana availed a long of ` 5,00,000 from a bank for higher education of her
daughter. She repaid principal of ` 1,00,000, and interest thereon ` 55,000 during
the year 2021-22.
(vi) She paid ` 1,00,000 as tuition fee (not in the nature of development fees / donation)
to the university for full time education of her daughter.
(vii) An amount of ` 28,000 has also been paid by cheque on 27th March, 2022 for her
medical insurance premium.
From the above, compute the total income of Dr. Smt. Niranjana for the A.Y. 2022-
23.
643
Answer
Computation of total income and tax liability of Dr. Niranajana for A.Y. 2022-23
Particulars ` ` `
I Income from Salary
Basic Salary (` 7,500 x 12) 90,000
Less: Standard deduction under section 16(ia) (50,000) 40,000
II Income from house property
Gross Annual Value (GAV) 27,000
Less: Municipal taxes paid (2,000)
III Net Annual Value (NAV) 25,000
Less: Deduction u/s 24 @ 30% of ` 25,000 (7,500) 17,500
Income from profession
Net profit as per Income and Expenditure ac- 4,29,900
count
Less: Items of income to be treated separately
(i) Rent received 27,000
(ii) Winning from game show on T.V. (net of 35,000
TDS)
(iii) Income tax refund 5,450 (67,450)
3,62,450
Less: Allowable expenditure
Depreciation on Clinic equipment’s
On ` 5,00,000 @ 15% 75,000
On ` 2,00,000 @ 7.5% 15,000 (90,000)
(On equipment’s acquired during the year in
December 2021, she is entitled to depreciation
@ 50% of normal depreciation, since the same
are put to use for less than 180 days during
the year)
2,72,450
Add: Items of expenditure not allowable while
computing business income
(i) Rent for her residential accommodation
included in Income and Expenditure A/c 30,000
(ii) Municipal tax paid relating to residential
house at Surat included in administrative
expenses 2,000 32,000 3,04,450
644
(a) Interest of income-tax refund 450

(b) Winnings from the game show on T.V.
(` 35,000 + ` 15,000) 50,000 50,450
4,12,400
Gross Total Income
Less:: Deductions under Chapter VI A:
(a) Section 80C – Tuition fee paid to university 1,00,000
for full time education of her daughter
(b) Section 80D – Medical insurance premium 28,000
(fully allowed since she is a senior citizen)
(c) Section 80E – Interest on loan taken for
higher education is deductible 55,000 (1,83,000)
Notes:
(i) The principal amount received towards income-tax refund will be excluded from
computation of total income. Interest received will be taxed under the head “Income
from other sources”.
(ii) Winning from gate show on T.V should be grossed up for the chargeability under
the head “Income from other sources” (` 35,000 + ` 15,000). Thereafter, while
computing tax liability, TDS of ` 15,000 should be deducted to arrive at the tax
payable. Winnings from game show are subject to tax @ 30% as per section 115BB.
(iii) Since Dr. Niranjana is staying in a rented premise in Surat itself, she would not be
eligible for deduction u/s 80GG, as she owns a house in Surat which she has let out.
Question 3
Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her accounts
on cash basis. Her Income and Expenditure account for the year ended March 31, 2022
read as follows:
Expenditure (`) Income (`) (`)
Salary to staff 15,50,000 Fees earned
Stipend to articled 1,37,000 Audit 27,88,000
Assistants Taxation services 15,40,300
Incentive to articled 13,000 Consultancy 12,70,000 55,98,300
assistants
645
Office rent 12,24,000 Share of profit from

partnership firm 18,124
Printing and stationery 12,22,000 Honorarium received from
31,600 various institutions for
valuation of answer
papers 15,800
Rent received from
residential flat let out 85,600
Purchase of Car 80,000
Repair, maintenance 4,000
and petrol of Car
Traveling expenses 5,25,000
Municipal tax paid 3,000
in respect of house
property
Net Profit 9,28,224
57,17,824 57,17,824
Other Information:
(i) Allowable rate of depreciation on motor car is 15%.
(ii) Value of benefits received from clients during the course of profession is ` 10,500.
(iii) Incentives to articled assistants represent amount paid to two articled assistants for
passing IPCC Examination at first attempt.
(iv) Repairs and maintenance of car include ` 2,000 for the period from 1-10-2021 to
30-09-2022.
(v) Salary include ` 30,000 to a compute specialist in cash for assisting Ms. Purvi in one
professional assignment.
(vi) The travelling expenses include expenditure incurred on foreign tour of ` 32,000
which was within the RBI norms.
(vii) Medical Insurance Premium on the health of dependent brother and major son
dependent on her amounts to ` 5,000 and ` 10,000, respectively, paid in cash.
(viii) She invested an amount of ` 10,000 in National Saving Certificate.
Compute the total income and tax payable of Ms. Purvi for the assessment year 2022-23.
646
Answer
Computation of total income and tax liability of Ms. Purvi for the A.Y. 2022-23
Particulars ` `
Income from house property (See Working Note 1) 57,820
Profit and gains of business or profession (See Working Note 2) 9,20,200
Income from other sources (See Working Note 3) 15,800
Gross Total Income 9,93,820
Less: Deductions under Chapter VI-A (See Working Note 4) (10,000)
Total Income 9,83,820
Tax on total income
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @ 5% 12,500
` 5,00,001 – ` 9,83,820 @ 20% 96,764 1,09,264
Add: Health and Education cess @ 4% 4,371

Total tax liability 1,13,635
Tax Payable 1,13,640
Working Notes:
(1) Income from House Property
Particulars ` `
Gross Annual Value under section 23(1) 85,600
Net Annual Value (NAV) 82,600
Less: Deduction under section 24 @ 30% of NAV (24,780) 57,820
(2) Income under the head “Profits & Gains of Business or Profession”
Particulars ` `
Net profit as per Income and Expenditure account 9,28,224
Add: Expenses debited but not allowable
(i) Salary paid to computer specialist in cash 30,000
disallowed under section 40A(3), since such cash
payment exceeds ` 10,000
(ii) Amount paid for purchase of car is not allowable 80,000
under section 37(1) since it is a capital expenditure
(iii) Municipal Taxes paid in respect of residential flat 3,000
let out 1,13,000
647
10,41,224
Add: Value of benefit received from clients during the
course of profession [taxable as business income
under section 28(iv)] 10,500
10,51,724
Less: Income credited but not taxable under this head
(i) Share of profit from partnership firm 18,124
(ii) Honorarium for valuation of answer papers 15,800
(iii) Rent received from letting out of residential flat 85,600 (1,19,524)
9,32,200
Less: Depreciation on motor car @ 15% (See Note (i)
below) (12,000)
9,20,200
Notes :
(i) It has been assumed that the motor car was put to use for more than 180 days
during the previous year and hence, full depreciation @ 15% has been provided
for under section 32(1)(ii).
(ii) Incentive to articled assistants for passing IPCC examination in their first
attempt is deductible under section 37(1).
(iii) Repairs and maintenance paid in advance for the period 1.4.2022 to 30.9.2022
i.e. for 6 months amounting to ` 1,000 is allowable since Ms. Purvi is following
the cash system of accounting.
(iv)
` 32,000 expended on foreign tour is allowable as deduction assuming that it
was incurred in connection with her professional work. Since it has already been
debited to income and expenditure account, no further adjustment is required.
(3) Income from other sources

Particulars ` `
Share of profit from partnership firm 18,124
Less: Exempt under section 10(2A) (18,124) Nil
Honorarium for valuation of answer papers 15,800
15,800
648
(4) Deduction under Chapter VI-A:

Particulars `
Deduction under section 80C (Investment in NSC) 10,000
Deduction under section 80D (See Notes (i) & (ii) below) Nil
Total deduction under Chapter VI-A 10,000
Notes:
(i) Premium paid to insure the health of brother is not eligible for deduction under
section 80D, even though he is a dependent, since brother is not included in the
definition of “family” under section 80D.
(ii) Premium paid to insure the health of major son is not eligible for deduction,
even though he is a dependent, since payment is made in cash.
Question 4
Mr. Y carries on his own business. An analysis of his trading and profit & loss for the year
ended 31-3-2022 revealed the following information:
(1) The net profit was ` 11,20,000.
(2) The following incomes were credited in the profit and loss account:
(a) Share of profit from partnership firm ` 22,000
(b) Interest on debentures ` 17,500.
(c) Winnings from races ` 15,000.
(3) It was found that some stocks were omitted to be included in both the opening and
closing stocks, the value of which were:
Opening stock ` 58,000.
Closing stock ` 12,000.
(4) ` 1,00,000 was debited in the profit and loss account, being contribution to a
University approved and notified under section 35(1)(ii).
(5) Salary includes ` 20,000 paid to his brother which is unreasonable to the extent of
` 2,500.
(6) Advertisement expenses include 15 gift packets of dry fruits costing ` 1,000 per
packet presented to important customers.
(7) Total expenses on car was ` 78,000. The car was used both for business and personal
purposes. 3/4th is for business purposes.
(8) Miscellaneous expenses included ` 30,000 paid to A &Co., a goods transport operator
in cash on 31-1-2022 for distribution of the company’s product to the warehouses.
(9) Depreciation debited in the books was ` 55,00. Depreciation allowed as per income-
tax Rules, 1962 was ` 50,000.
649
(10) Drawings ` 10,000.

(11) Investment in NSC ` 15,000.
Compute the total income of Mr. Y for the assessment year 2022-23.
Answer
Computation of total income of Mr. Y for the A.Y. 2022-23
Particulars `
Profits and gains of business or profession (See Working Note 1 below) 10,71,500
Income from other sources (See Working Note 2 below) 32,500
Less: Deduction under section 80C (Investment in NSC) (15,000)
Working Notes:
1. Computation of profits and gains of business or profession
Particulars ` `
Net profit as per profit and loss account 11,20,000
Add: Expenses debited to profit and loss account but not
allowable as deduction
Salary paid to brother disallowed to the extent 2,500
considered unreasonable [Section 40A(2)]
Motor car expenses attributable to personal use not 19,500
allowable (Rs. 78,000 x ¼)
Depreciation debited in the books of account 55,000
Drawings (not allowable since it is personal in nature) 10,000
[See Note (iii)]
Investment in NSC [See Note (iii) 15,000 1,02,000

12,22,000
Add: Under statement of closing stock 12,000
12,34,000
Less: Under statement of opening stock (58,000)
11,76,000
Less: Incomes credited to profit and loss account but
not taxable as business Income
Share of profit from partnership firm 22,000
(Exempt under section 10(2A)]
650
Interest on debentures (taxable under the head 17,500

“Income from other sources”)
Winnings from races (taxable under the head
Income from other sources”) 15, 000 (54,500)
11,21,500
Less: Depreciation allowable under the Income-tax
Rules, 1962 (50,000)
10,71,500
2. Computation of “Income from other sources”

Particulars `
Interest on debentures 17,500

Winnings from races 15,000
32,500
Notes:
The following assumptions have been made in the above solution:
1. The figures of interest on debentures and winnings from races represent the
gross income (i.e., amount received plus tax deducted at source).
2. In point no. 9 of the question, it has been given that depreciation as per Income-
tax Rules, 1962 is ` 50,000. It has been assumed that, in the said figure of `
50,000, only proportional depreciation (i.e., 75% for business purposes) has
been included in respect of motor car.
Question 5
Balamurugan furnishes the following information for the year ended 31-03-2022:
Particulars `
Income from business (1,35,000)
Income from house property (15,000)
Lottery winning (Gross) 5,00,000
Speculation business income 1,00,000
Income by way of salary (Computed) 60,000
Long term capital gain u/s 112 70,000
Compute his total income, tax liability and advance tax obligations.
651
Answer
Computation of total income of Balamurugan for the year ended 31.03.2022
Particulars ` `
Salaries 60,000
Less: Loss from house property (15,000)
Net Salary (after set off of loss from house property) 45,000
Profits and gains of business or profession
Speculation business income 1,00,000
Less: Business loss set-off (1,35,000)
Net business loss to be set-off against long-term capital (35,000)
gain
Capital Gains
Long term capital gain 70,000
Less: Business loss set-off u/s 71 (35, 000)
35,000
Long term capital gain after setoff of business loss
Lottery winnings (Gross) 5,00,000
Computation of tax liability

Particulars `
On total income of Rs. 80,000 (excluding lottery winning) Nil
On lottery winnings of Rs. 5,00,000 @ 30% 1,50,000
Add: Health and Education cess @ 4% 6,000
Total tax liability 1,56,000
The assessee need not pay advance tax since the total income (excluding lottery income)
liable to tax is below the basic exemption limit. Further, in respect of lottery income, tax
would have been deducted at source @ 30% under section 194B. Since the remaining tax
liability of ` 6,000 (` 1,56,000 – ` 1,50,000) is less than ` 10,000, advance tax liability is
not attracted.
Notes:
(1) The basic exemption limit of ` 2,50,000 has to be first exhausted against salary
income of ` 45,000. The unexhausted basic exemption limit of ` 2,05,000 can be
adjusted against long-term capital gains of ` 35,000 as per section 112, but not
against lottery winnings which are taxable at a flat rate of 30% under section 115BB.
(2) The first proviso to section 234C(1) provides that since it is not possible for the
652
assessee to estimate his income from lotteries, the entire amount of tax payable
(after considering TDS) on such income should be paid in the remaining instalments
of advance tax which are due. Where no such instalment is due, the entire tax should
be paid by 31st March, 2022. The first proviso to section 234C(1) would be attracted
only in case of non-deduction or short-deduction of tax at source under section
194B.
Question 6
Mr. Rajiv, aged 50 years, a resident individual and practicing Chartered Accountant,
furnishes you the receipts and payments account for the financial year 2021-22.
Receipts and Payments Account
Receipts ` Payments `
Opening balance (1.4.2021) 12,000 Staff salary, bonus and 21,50,000
stipend to articled clerks
Cash on hand and at Bank Other administrative 11,48,000
expenses
Fee from professional services 59,38,000 Office rent 30,000
Rent 50,000 Housing loan repaid to SBI 1,88,000
(includes interest of ` 88,000)
Motor car loan from Canara 2,50,000 Life insurance premium 24,000
Bank (@ 9% p.a.)
Motor car (acquired in Jan. 4,25,000
2020 by A/c payee cheque)
Medical insurance premium 18,000
(for self and wife)
Books bought on 1.7.2021 20,000
(annual publications by A/c
payee cheque)
Computer acquired on 30,000
1.11.2021 by A/c payee
cheque (for professional use)
Domestic drawings 2,72,000
Public provident fund 20,000
subscription
Motor car maintenance 10,000
Closing balance (31.3.2022) 19,15,000
Cash on hand and at Bank
62,50,000 62,50,000
653
Following further information is given to you:

(1) He occupies 50% of the building for own residence and let out the balance for
residential use at a monthly rent of ` 5,000. The building was constructed during
the year 1997-98, when the housing loan was taken.
(2) Motor car was put to use both for official and personal purpose. One-fifth of the
motor car use is for personal purpose. No car loan interest was paid during the year.
(3) The written down value of assets as on 1-4-2021 are given below:
Furniture & Fittings ` 60,000
Plant & Machinery ` 80,000
(Air-conditioners, Photocopiers, etc.)
Computers ` 50,000
Note: Mr. Rajiv follows regularly the cash system of accounting.
Compute the total income of Mr. Rajiv for the assessment year 2022-23.
Answer
Computation of total income of Mr. Rajiv for the assessment year 2022-23
Particulars ` ` `
Self-occupied
Annual value Nil
Less: Deduction under section 24(b) interest on
housing loan
50% of ` 88,000 = 44,000 but limited to Loss
from self - occupied property (30,000)
Let out property (30,000)
Annual value (Rent receivable has been taken 60,000
as the annual value in the absence of other
information)
Less: Deductions under section 24
30% of Net Annual Value (18,000)
Interest on housing loan (50% of ` 88,000) (44,000) (2,000)
Loss from house property (32,000)
Profits and gains of business or profession
Fees from professional services 59,38,000
Less: Expenses allowable as deduction
Staff salary, bonus and stipend 21,50,000
654
Other administrative expenses 11,48,000

Office rent 30,000
Motor car maintenance (10,000 x 4/5) 8,000
Car loan interest – not allowable (since the
same has not been paid and the assessee
follows cash system of accounting) Nil (33,36,000)
26,02,000
Motor car ` 4,25,000 x 7.5% x 4/5 25,500
Books being annual publications @ 40% 8,000
Furniture and fittings @ 10% of ` 60,000 6,000
Plant and machinery @ 15% of ` 80,000 12,000
Computer @ 40% of ` 50,000 20,000
Computer (New) ` 30,000 @ 40% x 50% 6,000 (77,500) 25,24,500
Gross Total income 24,92,500

Less: Deduction under Chapter VI-A
Deduction under section 80C
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000
Total amount of ` 1,44,000 is allowed as 1,44,000
deduction since it is within the limit of `
1,50,000
Deduction under section 80D
Medical insurance premium paid ` 18,000 18,000 (1,62,000)
Question 7
From the following details, compute the total income of Siddhant of Delhi for the A.Y.
2022-23:
Particulars `
Salary including dearness allowance 3,35,000
Bonus received 11,000
Salary of servant provided by the employer 12,000
Rent paid by Siddhant for his accommodation cost at the above flat 49,600
Bills paid by the employer for gas, electricity and water provided free of 11,000
cost at the above flat
655
Siddhant purchased a flat in a co-operative housing society in Delhi for ` 4,75,000 in

April, 2012, which was financed by a loan from Life Insurance Corporation of India of `
1,60,000 @ 15% interest, his own savings of ` 65,000 and a deposit from a nationalized
bank for ` 2,50,000 to whom this flat was given on lease for ten years. The rent payable
by the bank was ` 3,500 per month. The following particulars are relevant:
(a) Municipal taxes paid by Mr. Siddhant ` 4,300 (per annum)
(b)
House Insurance ` 860
(c) He earned ` 2,700 in share speculation business and lost ` 4,200 in cotton speculation
business.
(d) In the year 2016-17, he had gifted ` 30,000 to his wife and ` 20,000 to his son who
was aged 11. The gifted amounts were advanced to Mr. Rajesh, who was paying
interest @ 19% per annum.
(e) Siddhant received a gift of ` 25,000 each from four friends.
(f) He contributed ` 50,000 to Public Provident Fund.
Answer
Computation of total income and tax liability of Siddhant For the A.Y. 2022-23
Particulars ` `
Salary Income
Salary including dearness allowance 3,35,000
Value of perquisites
(i) Salary of servant 12,000
(ii) Free gas, electricity and water 11,000 23,000
3,69,000
Less: Standard deduction under section 16(ia) (50,000)
3,19,000
Gross Annual Value (GAV) (Rent receivable is taken as
GAV in the absence of other information) (` 3,500 x 12) 42,000
Less: Deductions under section 24
(i) 30% of NAV ` 11,310
(ii) Interest on loan from LIC @ 15% of ` 24,000 (35,310) 2,390
` 1,60,000 [See Note 2]
Income from speculative business
656
Income from share speculation business 2,700

Less: Loss from cotton speculation business (4,200)
Net Loss (1,500)
Net loss from speculative business has to be carried forward
as it cannot be set off against any other head of income
Income from Other Sources
(i) Income on account of interest earned from advancing 3,800
money gifted to his minor son is includible in the hands
of Siddhant as per section 64(1A)
Less: Exempt under section 10(32) (1,500)
2,300
(ii) Interest income earned from advancing money gifted 5,700
to wife to be clubbed with the income of the assessee
as per section 64(1)(iv)
(iii) Gift received from four friends (taxable under section 1,00,000 1,08,000
56(2)(x) as the aggregate amount received during the
year exceeds ` 50,000)
Less: Deduction under section 80C
Contribution to Public Provident Fund (50,000)
Notes:
(1) It is assumed that the entire loan of `1,60,000 is outstanding as on 31.3.2022;
(2) Since Siddharth’s own flat in a co-operative housing society, which he has rented
out to a nationalized bank, is also in Delhi, he is not eligible for deduction under
section 80GG in respect of rent paid by him for his accommodation in Delhi, since of
the conditions to be satisfied for claiming deduction under section 80GG is that the
assessee should not own any residential accommodation in the same place.
Question 8.
Ramdin working as Manager (Sales) with Frozen Foods Ltd., provides the following
information for the year ended 31.03.2022:
- Basic Salary ` 15,000 p.m.
- DA (50% of it is meant for retirement benefits) ` 12,000 p.m.
- Commission as a percentage of turnover of the Company 0.5 %
- Turnover of the Company ` 50 lacs
657
- Bonus received ` 50,000

- Gratuity ` 30,000
- Own Contribution to R.P.F. ` 30,000
- Employer’s contribution to R.P.F. 20% of basic salary
- Interest credited in the R.P.F. account @ ` 15% p.a. ` 15,000
- Gold Ring worth ` 10,000 was given by employer on his 25th wedding anniversary.
- Music System purchased on 01.04.2021 by the company for ` 85,000 and was given
to him for personal use.
- Two old light goods vehicles owned by him were leased to a transport company
against the fixed charges of ` 6,500 p.m. Books of account are not maintained.
- Received interest of ` 5,860 on bank FDRs and interest of ` 6,786 (Net) from the
debentures of Indian Companies.
- Made payment by cheques of ` 15,370 towards premium on Life Insurance polices
and ` 22,500 for Mediclaim Insurance policy for self and spouse.
- Invested in NSC ` 30,000 and in FDR of SBI for 5 years ` 50,000.
- Donations of ` 11,000 to an institution approved u/s 80G and of ` 5,100 to Prime
Minister’s National Relief Fund were given during the year by way of cheque.
Compute the total income thereon for the A.Y. 2022-23.
Answer Computation of Total Income for the A.Y. 2022-23

Particulars ` `
Income from Salaries
Basic Salary (` 15,000 x 12) 1,80,000
Dearness Allowance (` 12,000 x 12) 1,44,000
Commission on Turnover (0.5 of ` 50 lacs) 25,000
Gratuity (See Note 1) 30,000
Employer’s contribution to recognized provident fund
Actual contribution [20% of ` 1,80,000] 36,000
Less: Exempt (See Note 2) (33,240) 2,760
Interest credited in recognized provident fund account @ 15,000
15% p.a.
Less: Exempt upto 9.5% p.a. (9,500) 5,500
Gift of gold ring worth ` 10,000 on 25th wedding anniversary 10,000
by employer (See Note 3)
Perquisite value of music system given for personal use 8,500
(being 10% of actual cost) i.e. 10% of ` 85,000
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4,55,760
Less: Standard deduction under section 16(ia) (50,000)
4,05,760
Profits and Gains of Business or Profession
Lease of 2 light goods vehicles on contract basis against
fixed charges of ` 6,500 p.m. In this case, presumptive
tax provisions of section 44AE will apply i.e. ` 7,500 p.m.
for each of the two light goods vehicle (`7,500 x 2 x 12).
He cannot claim lower profits and gains since he has not
maintained books of account. 1,80,000
Interest on bank FDRs 5,860
Interest from debentures
(` 6786 x 100/90) recd. 90% : 6786
(+) T.D.S. 10% 754 7,540 13,400
Gross total Income 5,99,160
Less: Deductions under Chapter VI-A
Section 80C
Premium on life insurance policy 15,370
Investment in NSC 30,000
FDR of SBI for 5 years 50,000
Employee’s contribution to recognized provident fund 30,000 (1,25,370)
Section 80D – Mediclaim Insurance (22,500)
Section 80G (See Note 4) (10,600)
Notes:
1. Gratuity received during service is fully taxable.
2. Employer’s contribution in the recognized provident fund is exempt up to 12% of the
salary i.e. 12% of (Basic Salary + DA for retirement benefits + Commission based on
turnover)
= 12% of (` 1,80,000 + (50% of ` 1,44,000) + ` 25,000)
= 12% of 2,77,000 = ` 33,240
3. An alternative view possible is that only the sum is excess of ` 5,000 is taxable in
view of the language of Circular No. 15/2001 dated 12.12.2001 that such gifts upto
` 5,000 in the aggregate per annum would be exempt, beyond which it would be
taxes as a perquisite. As per this view, the value of perquisite would be ` 5,000. In
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such a case the Income from Salaries would be ` 4,10,760.
4. Deduction under section 80G is computed as under:

Particulars `
Donation to PM National Relief Fund (100%) 5,100
Donation to institution approved under section 80G (50% of ` 5,500
11,000) (amount contributed ` 11,000 or 10% of Adjusted Gross Total
Income of 4,51,290 i.e. ` 45,129, whichever is lower)
Total deduction 10,600
Adjusted Gross Total Income = Gross Total Income – Deductions under section 80C
and 80D = ` 5,99,160 – ` 1,47,870 = ` 4,51,290.
660
HOMEWORK PROBLEMS
Question 1
Mr. Venus provides the following details for the financial year 2021-22:
(i) Salary from HNL Ltd. ` 50,000 p.m.
(ii) Interest on FD with SBI (Net of TDS) ` 72,000
(iii) Long-term capital loss of A.Y. 2016-17 ` 96,000
(iv)
Long term capital gain ` 75,000
(v) Loss of minor son ` 90,000 computed in accordance with the provisions of Income-
tax Act, 1961. Mr. Venus transferred his own house to his minor son without adequate
consideration few years back and minor son let it out and suffered loss.
(vi) Loss of his wife's business (She carried business with funds which Mr. Venus gifted to
her) ` (2,00,000).
You are required to compute the taxable income of Mr. Venus for the A.Y. 2022-23.
Question 2
Mrs. Ann provides the following information for the financial year ending 31.03.2022.
Compute her total income and tax payable thereon for the A.Y. 2022-23 as per the
Income-tax Act 1961.
Income/Receipts:
(1) Salary from M/s. Prominent Technologies - ` 60,000 p.m.
(2) She is in receipt of HRA, ` 15,000 p.m. and educational allowance of ` 1,500 p.m.
for all the three of her children.
(3) She bought a light truck on 01-08-2021 and has been letting it on hire. She does
not maintain books of account for this business. But she declares for income-tax
purpose, that she is earning a net income after all expenses of ` 11,000 p.m. from
this business.
(4) She received ` 8,500 as interest on Post Office Savings Account.
(5) She received ` 25,000 as interest from Company Deposits.
(6) Amounts withdrawn from National Savings Scheme, 1992 (Principal ` 20,000 &
Interest ` 35,000)
Expenses / Payments:
(1) Interest payable to bank ` 1,000 p.m. on loan for the purchase of truck.
(2) Total interest paid to bank for loan borrowed for investing in company deposits is `
5,000.
(3) Rent paid for residence is ` 18,000 p.m.
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(4) Tuition fees paid for the year 2021-22 for her three children is ` 50,000, ` 30,000
and ` 20,000, respectively, to educational institution situated in India.
(5) Deposit in 5 years Post Office Recurring Deposit Scheme ` 50,000.
(6) Medical insurance premium for her and for her husband is ` 30,000 (paid by cheque)
and ` 25,000 (paid by cash), respectively.
Question 3
Mr. Vishal is a resident individual. His Profit & Loss A/c for the year ended 31st March,
2022 is given below:
Particulars ` Particulars `
To Staff Salary 3,57,500 By Gross profit 13,55,500
To Office Rent 78,000 By Interest on Post Office 98,400
Monthly Income scheme
To Administrative Expenses 2,14,000 By Bank F.D. interest
To Income-tax 1,60,000 (Net of TDS ` 7,000) 63,000
To Depreciation 67,500 By Rent (on let out property) 66,000
To Net Profit 7,23,400 By Winning from lotteries
(Net of TDS ` 7,500) 17,500
16,00,400 16,00,400
Following further information is given to you:
(i) He deposited ` 1,50,000 into his PPF A/c on 27-03-2022.
(ii) He received annual salary of ` 1,20,000 and annual Commission of ` 60,000 from a
partnership firm in the capacity of working partner. It is fully chargeable to tax u/s
28(v).
(iii) Received pension of ` 72,500 from LIC of India.
(iv) Paid medical insurance premium of ` 26,850. The medical insurance was for self. Mr.
Vishal is not a senior citizen.
(v) Life Insurance Premium of ` 25,000 was paid on the policy standing in the name of
his wife Mrs. Sujatha.
(vi) Administrative expenses include ` 5,000 being municipal tax on let out property.
(vii) Depreciation eligible as per the Income-tax Act, 1961 amounts to ` 57,000.
Compute the total income of Mr. Vishal for the Assessment year 2022-23.
662
Question 4
Mr. A, has furnished the following particulars relating to his house properties:
Particulars House-I Self-occupied Let-out
Municipal valuation 60,000 1,20,000
Fair rent 90,000 1,50,000
Standard rent 75,000 90,000
Actual rent p.m. - 9,000
Municipal taxes paid 6,000 12,000
Interest on capital borrowed 70,000 90,000
Loan for both houses were taken on 01.04.2010. House-II remained vacant for 4 months.
Besides the above two houses, A has inherited during the year an old house from his
grandfather. Due to business commitments, he sold the house immediately for a sum of `
250 lakhs. The house was purchased in 1980 by his grandfather for a sum of Rs. 2 lakhs.
However, the FMV as on 01.04.2001 was ` 20 lakhs. With the sale proceeds, A purchased
a new house in March, 2022 for a sum of ` 100 lakhs and the balance was used in his
business.
The other income particulars of Mr. A besides the above are as follows (A.Y. 2022-23)
Business loss ` 2 lakhs
Income from other sources (Fixed Deposit interest) ` 1 lakh
Deposit made during the year in PPF A/c ` 1,00,000
Cost inflation index (F.Y. 2021-22) 317
Compute the total income of Mr. A who is a resident senior citizen and his tax liability for
the A.Y. 2022-23.
Question 5
From the following particulars furnished by Mr. X for the year ended 31-03-2022, you are
requested to compute his total income and tax payable for the A.Y. 2022-23.
(a) Mr. X retired on 31-12-2021 at the age of 58, after putting in 25 years and 9 months
of service, from a private company at Mumbai.
(b) He was paid a salary of ` 25,000 p.m. and house rent allowance of ` 6,000 p.m. He
paid rent of ` 6,500 p.m. during his tenure of service.
(c) On retirement, he was paid a gratuity of ` 3,50,000. He was not covered by the
payment of Gratuity Act. His average salary in this regard may be taken as ` 24,500.
Mr. X had not received any other gratuity at any point of time earlier, other than this
gratuity.
(d) He had accumulated leave of 15 days per annum during the period of his service;
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this was encashed by Mr. X at the time of his retirement. A sum of ` 3,15,000 was
received by him in this regard. His average salary may be taken as ` 24,500. Employer
allowed 30 days leave p.a.
(e) After retirement, he ventured into textile business and incurred a loss of ` 80,000
for the period up to 31-03-2022.
(f) Mr. X has invested ` 62,500 in PPF & ` 37,500 in NSC.
Question 6
(1) Mr. Anant owns a property consisting of two blocks of identical size. The 1st block is
used for business purposes. The other block has been let-out from 01-04-2021 to
his cousin for ` 10,000 p.m. The cost of construction of each block is ` 5 lakhs (fully
met from bank loan), rate of interest on bank loan is 10% p.a. The construction was
completed on 31-03-2021. During the year ended 31-03-2022, he had to pay a
penal interest of ` 2,000 in respect of each block on account of delayed payments to
the bank for the borrowings. The normal interest paid by him in respect of each block
was ` 42,000. Principal repayment for each block was ` 23,000 made at the end of
the year. An identical block in the same neighbourhood fetches a rent of ` 15,000
p.m. Municipal tax paid in respect of each block was ` 12,000.
(2) The income computed in respect of business prior to adjustment towards depreciation
on any asset is ` 2,20,000. Depreciation on equipments used for business is ` 30,000.
(3) On 23-03-2022, he sold shares of B Ltd., a listed share in BSE for ` 2,30,000. The
share had been purchased 10 months back for ` 1,80,000. STT paid at the time of
sale may be taken as ` 220.
(4) Brought-forward business loss of a business discontinued on 12-01-2021 is `
80,000. This loss has been determined in pursuance of a return of income filed in
time and the current year is the seventh year.
(5) The following payments were also made by him during the year:
(a) LIP of ` 20,000 on his life and ` 12,000 for his son aged 22, engaged as a
software engineer and drawing salary of ` 25,000 p.m.
(b) Mediclaim premium of ` 6,000 for himself and ` 5,000 for above son. The
premiums were paid by cheque.
You are required to compute the total income for the A.Y. 2022-23. The various heads of
income should be properly shown. Ignore the interest on bank loan for the period prior to
01-04-2021, as the bank had waived the same.
664
Question 7
Shri Raman (age 61 years) gifted a building owned by him to his wife Smt. Raman on
01-10-2021. The building fetched a rental income of ` 10,000 p.m. throughout the year.
Municipal tax for the first half-year of ` 5,000 was paid in June 2021 and the municipal
tax for the second half-year was not paid till 30-09-2022. Incomes of Shri Raman &
Smt. Raman other than income from house property are given below.
Assessee Business Income Capital Gain Other Sources
Shri Raman 1,00,000 50,000 (long-term) 1,50,000
Smt. Raman (75,000) 2,00,000 (short-term) 50,000
Note: Capital gain does not relate to gain from shares & securities.
Compute the total income of Shri Raman & Smt. Raman taking into account income from
property given above and also compute their income tax liability for the A.Y. 2022-23.
Question 8
Mr. Deepak (aged 45 years) owned 6 light goods vehicles as on 01-04-2021. He acquired
2 more light goods vehicles on 01-07-2021. He is solely engaged in the business of
plying goods vehicles on hire since F.Y. 2014-15.
He did not opt for presumptive provisions contained u/s 44AE for the F.Y. 2020-21 (i.e.
last year). Therefore, his books were audited u/s 44AB & the return of income for the F.Y.
2020-21 was filed on 05-08-2021.
He has unabsorbed depreciation of ` 70,000 & business loss of ` 1,00,000 for the F.Y.
2020-21.
Following further information is provided to you:
(a) He deposited ` 20,000 for a period of 10 years with Bank of India in the name of his
son.
(b) He paid medical insurance premium amounting to ` 28,000 by means of bank
demand draft for his parents (both aged above 60 years).
(c) He paid premium on life insurance policy of his married daughter ` 25,000. The
policy was taken on 01-04-2017 & the capital sum assured was ` 2,00,000.
(d) Repaid principal of ` 40,000 & interest of ` 15,000 to Canara Bank towards the
education loan taken for his son, who completed B.E. two years ago. He is employed
after completion of his studies.
Assuming that, Mr. Deepak has opted for presumptive provision contained u/s 44AE of
the Income Tax Act, 1961 for the F.Y. 2021-22. Compute the total income of Mr. Deepak
for the A.Y. 2022-23.
665
Question 9
Dr. Chatterjee is a medical practitioner. As on 1st January, 2021 his age is 59 years. The
Receipts & Payments A/c for the F.Y. 2021-22 is as under:
Receipts ` Payments `
Balance b/f 10,000 Purchase of Commercial 4,00,000
Vehicle (before 30-09-2021)
Receipt from Sale of Medicines 2,50,000 Domestic Drawings 2,50,000
Consultation fee 50,000 Deposit in Bank for 5 years 1,50,000
Visiting Fee 2,00,000 Surgical Instruments 50,000
Purchased (before 30-09-
2021)
Lecture Fees 5,000 Instalment of Loan Paid 1,21,000
(Including Interest - Rs.
22,333)
Family Pension 2,80,000 Medical Insurance Premium 32,000
Savings Bank Interest 1,000 Instalment of Housing Loan 1,08,000
Principal - Rs. 48,000)
Loan from Bank 3,00,000 Advance Tax Paid 20,000
Share of Profits from HUF 50,000 Purchase of Medicine 47,000
Agricultural Income 1,00,000 Payment for Medical Journal 5,000
Income from Lottery 35,000 Vehicle Expenses 50,000
(Net of TDS @ 30%) Balance c/f 48,000
12,81,000 12,81,000
Other relevant information:

(1) He resides in his own house which was constructed in 1998 with a loan from LIC Housing
of ` 10,00,000 out of which ` 6,00,000 was still due. He got it refinanced from SBI on
01.04.2021 @ 10%. One-fourth portion of the house is used for clinic purposes.
(2) He invested in term deposit ` 1,50,000 in Bank of Baroda on 01.07.2021 for a period
of 5 years in the name of his minor daughter @ 9% interest p.a.
(3) He purchased a commercial vehicle on 1st July 2021 at ` 4,00,000. A loan of `
3,00,000 was taken to buy the vehicle. One-fourth use of vehicle is estimated to be
personal.
(4) He paid medical insurance premium for himself of ` 16,000 and for mother ` 16,000.
His mother is dependent on him.
(5) He got his share from HUF’s income of ` 50,000.
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Compute the total income of Dr. Chatterjee for the A.Y. 2022-23.
Question 10
Mr. Karthik, a resident individual aged 45, furnishes the following information pertaining
to the year ended 31-03-2022:
He is a partner in Badrinath & Co. He has received the following amounts from the firm:
(a) Interest on capital @ 15% ` 3,00,000
(b) Salary as working partner @ 1% of firm's sales
(allowed fully to the firm) ` 90,000
He is also engaged in a business of manufacturing wheat flour from wheat. The Profit &
Loss A/c pertaining to this business is as under:
To ` By `
Salary 1,20,000 Gross Profit 12,50,000
Bonus 48,000 Interest on Bank FD 45,000
Motor Car Expenses 50,000 (Net of TDS 5,000)
Machinery Repairs 2,34,000 Agricultural Income 60,000
Advance Tax 70,000 Pension from LIC Jeevan 24,000
Dhara
Depreciation on:
Motor Car 3,00,000
Plant & Machinery 1,25,000
Net Profit 4,32,000
13,79,000 13,79,000
Opening WDV of the Assets are as under:

Particulars `
Motor Car 3,00,000
Plant & Machinery (Used during the year for 170 days) 6,50,000
Additions to Plant & Machinery:
New purchased on 23-09-2021 2,00,000
New purchased on 12-11-2021 3,00,000
Old purchased on 12-04-2021 1,25,000
(All assets added during the year were put to use immediately after purchase).
Of the total bonus amount, ` 15,000 was paid on 11-10-2021.
One-fifth of the Motor Car Expenses are towards estimated personal use of the assessee.
In March, 2021, he had sold a house at Chennai. Arrears of rent relating to this house
667
amounting to ` 75,000 was received in February, 2022.
Details of his Savings and Investments are as under:

Particulars `
Life Insurance premium for policy in the name of his major son employed
in LMN Ltd. at a salary of ` 6 lakhs p.a.
(Sum assured ` 2,00,000) (Policy taken on 01.07.2016) 50,000
Contribution to Pension Fund of National Housing Bank 70,000
Medical insurance premium for his father aged 70, who is not dependent on him 32,000
You are required to compute the total income of Mr. Karthik for the A.Y. 2022-23.
Question 11
Mr. Pritam, aged 54 years, provides the following information for the year ending 31-03-
2022:
Particulars `
Rent from vacant site let on lease 1,12,000
Rent from House Property at Delhi 20,000 p.m.
Turnover from retail trade in grains
(No books of accounts are maintained) 24,37,500
Income from salary (computed) 40,000
Purchase of 10,000 unlisted shares of X Co. Ltd. on 01.01.2014. 1,00,000
He received a 1:1 bonus on 01-01-2015.
Sale of 5,000 bonus shares in September, 2021 2,20,000
Brought forward business loss relating to discontinued textile business of 1,97,500

Mr. Pritam relating to the A.Y. 2020-21.
Brought forward depreciation relating to discontinued textile business of 1,50,000
Mr. Pritam
Pritam contributed ` 30,000 to National Children’s Fund & ` 40,000 to a charitable trust
enjoying exemption u/s 80G.
Compute the Total Income & the Tax Liability of Mr. Pritam for the A.Y. 2022-23.
Question 12
Mr. Ram, who does not maintain books of account for the year ended 31.3.2022, requests
you to compute his total income for the A.Y. 2022-23 from the following details:
(i) Basic Salary : ` 20,000 p.m.
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CCA : ` 1,000 p.m.

HRA : ` 5,000 p.m.
(ii) Ram resides in Chennai, paying a rent of ` 6,000 p.m..
(iii) Ram is paid an education allowance of ` 500 p.m. per child for all the three of his
children. Actual expenses (tuition fees only) amounts to ` 15,000, ` 10,000 and `
5,000 respectively.
(iv) He bought a goods vehicle on 07.06.2021 and has been letting it on hire from the
same date. He declares an income of ` 34,900 from the same.
(v) Interest from company deposits is ` 15,000 and bank interest from saving bank
account is ` 5,000.
(vi) Interest is payable on bank loans availed for buying the truck and making
company deposits as follows:
Purpose Date of Loan Amount Interest rate
Truck purchase 01.04.2021 5,00,000 10% p.a.
Company deposit 01.10.2021 1,00,000 9% p.a.
(vii) Loss carried forward arising from speculating in shares during the preceding previous
year and eligible for set-off is ` 1,00,000.
(viii) Ram has invested ` 12,000 in notified equity linked saving scheme of UTI, ` 52,000
in PPF, ` 9,000 as premium on life insurance policy taken on 31.07.2013 on his own
life (sum assured ` 40,000) and ` 15,000 towards pension fund of LIC.
Question 13
Mr. Rahul, an assessee aged 61 years, gives the following information for the P.Y. ended
31-03-2022:
Sr. No. Particulars `
1. Loss from profession 1,05,000
2. Capital loss on the sale of property (short-term) 55,000
3. Capital gains on sale of unlisted shares (long-term) 2,05,000
4. Loss in respect of self-occupied property 15,000
5. Loss in respect of let out property 30,000
6. Share of loss from firm 1,60,000
7. Income from card games 55,000
8. Winnings from lotteries 1,00,000
9. Loss from horse races in Mumbai 40,000
10. Medical Insurance premium paid by cheque 18,000
Compute the total income of Mr. Rahul for the A.Y. 2022-23.
669
HOMEWORK SOLUTIONS
Answer 1
Computation of Taxable Income of Mr. Venus for the A.Y. 2022-23
Particulars ` `
Salaries
Income from Salary (` 50,000 × 12) 6,00,000
Less: Standard Deduction u/s 16(ia) (50,000)
5,50,000
Less: Loss from house property in respect of which Mr. Venus (90,000) 4,60,000
is the deemed owner to be set off against his salary income
as per section 71(1) - [Note 1]
Capital Gains
Long-term capital gain 75,000
Less: Brought-forward long-term capital loss of A.Y. 2016- (75,000) Nil
17 set-off against current year long-term capital gain as
per section 74(1) & (2) - [Note 2]
Balance long-term capital loss of ` 21,000 [` 96,000 (–)
` 75,000] of A.Y. 2016-17 to be carried-forward to A.Y.
2023-24 - [Note 2]
Interest on fixed deposit with SBI (` 72,000 × 100/90) 80,000
Less: Business loss incurred by wife includible in Mr. Venus’s (80,000) Nil
total income to be set-off against interest income as per
section 71(1) - [Note 3 & 4]
Balance business loss of ` 1,20,000
[` 2,00,000 (–) ` 80,000] to be carried-forward to A.Y. 2023-
24
Taxable Income 4,60,000
Notes:
(1) As per section 27(i), Mr. Venus is the deemed owner of the house transferred to his
minor son without adequate consideration. Hence, the income from house property
would be assessable in Mr. Venus’s hands. Since there is a loss from house property
transferred to minor son without adequate consideration, Mr. Venus can set-off the
same against salary income, since he is the deemed owner of such property.
(2) As per section 74(1) and 74(2), brought forward long-term capital loss can be set-
off only against long-term capital gains. Unabsorbed long-term capital loss can be
670
carried forward for a maximum of eight assessment years (upto A.Y. 2024-25, in this
case) for set-off against long-term capital gains.
(3) As per section 64(1)(iv), income from funds gifted to spouse by an individual and
invested in business by the spouse is includible in the hands of the individual. As
per Explanation 2 to section 64, income includes “loss”. Hence, in the given case,
loss arising out of the business carried on by Mr. Venus’s wife is to be included in the
income of Mr. Venus, as she has carried on business with the funds gifted to her by
Mr. Venus.
(4) As per section 71(2A), business loss cannot be set-off against salary income.
However, the same can be set-off against income from other sources (consisting of
interest on fixed deposit).
Answer 2
Computation of total income of Mrs. Ann for the A.Y. 2022-23:
Particulars ` `
Income from Salary
Basic Salary (` 60,000 × 12) 7,20,000
HRA (` 15,000 × 12) 1,80,000
Less: Exempt u/s 10(13A) - [Note 1] (1,44,000) 36,000
Education Allowance (` 1,500×12) 18,000
Less: Exempt u/s 10(14) @ ` 100 p.m. per child for max. 2
children (2,400) 15,600
Gross Taxable Salary 7,71,600
Less: Deduction u/s 16(ia) (50,000)
(A) 7,21,600
Profits and gains from business or profession
Income from the business of letting on hire a truck u/s 44AE
- [Note 2] (B) 88,000
Interest on Post Office Savings Bank Account 8,500
Less: Exempt u/s 10(15) (3,500) 5,000
Interest from company deposits 25,000
Less: Deduction u/s 57 in respect of interest on loan paid for 20,000
investing in company deposits (5,000)
Interest on National Savings Scheme, 1992 35,000
(C) 60,000
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Gross Total Income (A + B + C) 8, 69,600

Section 80C:
Tuition fees paid for two children [most favourable to Mrs. 80,000
Ann being ` 50,000 (+)` 30,000]
Deposit in 5 years Post Office Recurring Deposit Scheme
does not qualify for deduction u/s 80C Nil (80,000)
Section 80D:
Medical Insurance Premium paid by cheque for insurance
of self would qualify for deduction upto a maximum of `
25,000 [Note 3] (25,000)
Section 80TTA:
Interest from Post Office Savings Account - [Note 4] (5,000)
Computation of tax liability of Mrs. Ann for the A.Y. 2022-23

Tax on ` 7,59,600
[` 51,920 (20% of ` 2,59,600) + ` 12,500] 64,420
Add: Health & Education cess @ 4% 2,577
Tax Payable 66,997
Rounded-off u/s 288B 67,000
Notes:
(1) HRA is exempt to the extent of the least of the following u/s 10(13A):
(a) 50% of salary i.e. 50% of ` 7,20,000 = ` 3,60,000 (in case Mrs. Ann resides in
Delhi, Mumbai, Calcutta or Chennai) (or) 40% of salary i.e., 40% of ` 7,20,000
= ` 2,88,000 (in case Mrs. Ann resides in any other place)
(b) Excess of rent paid over 10% of salary = (` 18,000 – ` 6,000) × 12 = ` 1,44,000
(c) Actual HRA received = ` 15,000 × 12 = ` 1,80,000
Least of the above i.e. ` 1,44,000 is exempt u/s 10(13A).
(2) In the case of a person owning not more than 10 vehicles at any time during the P.Y.,
estimated income from each vehicle will be deemed to be ` 7,500 for every month
or part of the month during which such vehicle is owned by the assessee in the P.Y.
or an amount claimed to have been actually earned from such vehicle, whichever is
higher - [Section 44AE].
In this case, since the assessee declares a higher amount of ` 11,000 p.m. as the
net income actually earned by her from letting on hire truck, such amount will be
672
considered as income u/s 44AE.

Interest paid @ ` 1,000 p.m. is not deductible, since u/s 44AE, all deductions as per
sections 30 to 38 are deemed to have been claimed & allowed. Truck was plied for
the period 01.08.2021 to 31.03.2022 for 8 months.
Therefore, in this case, income u/s 44AE is ` 11,000 × 8 = ` 88,000.
(3) Medical Insurance Premium paid in cash for husband amounting to ` 25,000 shall
not qualify for deduction u/s 80D. Hence, the same is ignored.
(4) Interest upto ` 3,500 on post office savings account is exempt u/s 10(15). The balance
interest of ` 5,000 would be included under the head “Other Sources” and shall form
part of GTI.
However, the same would qualify for deduction u/s 80TTA, since interest upto ` 10,000
from, inter alia, post office savings account qualifies for deduction thereunder.
Answer 3
Computation of total income of Mr. Vishal for the A.Y. 2022-23:
Particulars ` ` `
Income from House Property:
Gross Annual Value - Rent received - (Note 1) 66,000
Net Annual Value 61,000
Less: Deduction u/s 24 @ 30% of NAV (18,300) 42,700
Profits and gains of business or profession:

Net Profit as per Profit & Loss Account 7,23, 400
Add: Expenses not allowable
Income-tax 1,60,000
Depreciation charged 67,500
Municipal Taxes paid on let out property 5,000 2,32,500
Total 9,55,900
Less: Income not forming part of business income
Interest on Post Office Monthly Income scheme 98,400
Interest on Bank Fixed Deposit 63,000
Rent received 66,000
Winning from lotteries 17,500 (2,44,900)
7,11,000
Less: Depreciation as per Income-tax Act, 1961 (57,000)
6,54,000
673
Add: Salary received from partnership firm –

(Note 2) 1,20,000
Commission received from partnership firm –
(Note 2) 60,000 1,80,000 8,34,000
Income from other sources:

Interest on Post Office Monthly Income scheme 98,400
Interest on Bank Fixed Deposit [` 63,000 (+) ` 70,000
7,000]
Winning from lotteries [` 17,500 (+) ` 7,500] 25,000
Annuity pension received from LIC of India 72,500 2,65,900

Section 80C:
Deposit in PPF 1,50,000
Life insurance premium paid for his wife 25,000
Total Qualifying Amount u/s 80C 1,75,000
Restricted to Maximum 1,50,000 (1,50,000)
Section 80D
Mediclaim premium of ` 26,850 paid for
insurance on self
However, the deduction is restricted to ` (25,000)
25,000
Notes:
(1) Rent received is assumed to be the gross annual value of the let-out property in
absence of any information regarding municipal value, fair rental value and standard
rent.
(2) Any salary, bonus, commission or remuneration, by whatever name called, due to or
received by a partner of a firm shall not be treated as salary but it shall be treated
as income from business or profession for the purposes of section 28.
674
Answer 4
Computation of Total Income and Tax liability of Mr. A for A.Y. 2022-23:
Particulars ` `
Income from house property - (WN 1)
House-I (70,000)
House II (48,000) (1,18,000)
Profits and gains from business (given) (2,00,000)
Capital gains - (WN 2)
Long-term capital gain 1,30,00,000
Interest on Bank Fixed Deposits 1,00,000
Gross Total Income 1,27,82,000
Less: Deduction under Chapter VI-A:
Section 80C:
Deposit in PPF A/c (1,00,000)
Total Income 1,26,82,000
Computation of tax liability of Mr. A for A.Y. 2022-23:

Tax on total income other than long term capital gain Nil
Tax on long-term capital gain of Rs. 1,23,82,000 (after 24,76,400
adjusting the house property & business losses and
unexhausted basic exemption limit) [i.e. Rs. 1,30,00,000
(-) Rs. 1,18,000 (-) Rs. 2,00,000 (-) Rs. 3,00,000] @ 20% -
(Refer Note below)
Tax on Total Income 24,76,400
Add: Surcharge on Rs. 24,76,400 @ 15% 3,71,460
Tax on Total Income including surcharge 28,47,860
Add: Health & Education Cess @ 4% 1,13,914
Total Tax Liability 29,61,774
Rounded-off u/s 288B 29,61,770
Note:
It has been assumed that the loss from house property and business loss have been set-
off fully against long term capital gains. Therefore, Rs. 1,00,000 relating to section 80C
PPF investment is deducted against the income under the head “Other Sources”. Hence, the
taxable income represents long term capital gains only and the tax liability is computed
accordingly.
675
Working notes:
(1) Calculation of income from house property:
House - I: Self occupied `
Net Annual Value Nil
Less: Interest as per section 24(b) (70,000)
Loss from House-I (70,000)
House-II: Let out `
Gross Annual Value (Rs. 9,000 x 8) 72,000
Less: Municipal taxes (12,000)
Less: Deductions u/s 24
30% of NAV (18,000)
Interest on borrowed capital (90,000)
Loss from House-II (48,000)
Note:
Interest on capital borrowed will be allowed in full for let out properties. As per
section 23(1)(c), where the property or any part of the property is let and was vacant
during the whole or any part of the P.Y. and owing to such vacancy the actual rent
received or receivable by the owner in respect thereof is less than the expected rent
(in this case, standard rent of Rs. 90,000), then, the actual rent received or receivable
would be the Gross Annual Value of the property. In this case, the actual rent received
(i.e. Rs. 72,000) is less than the expected rent (i.e. Rs. 90,000) on account of vacancy
and therefore, the actual rent received is taken as the Gross Annual Value.
(2) Computation of Capital Gains:

Particulars `
Full Value of Consideration (Sale Proceeds) 2,50,00,000
Less: Transfer Expenses (Nil)
Net Consideration 2,50,00,000
Less: Indexed cost of acquisition – [Rs. 20,00,000 (x)317/317] - (Re- (20,00,000)
fer Note below)
Gross long-term capital gains 2,30,00,000
Less: Exemption u/s 54 (1,00,00,000)
Taxable long-term capital gain 1,30,00,000
Note:
As per the definition of the indexed cost of acquisition under clause (iii) of Explanation
to section 48, indexation benefit will be available only from the P.Y. in which Mr. A
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first held the asset i.e. P.Y. 2021-22. Since Mr. A sold the asset in the same year in
which it was held by him, cost of acquisition and indexed cost of acquisition would
be same.
As per the view expressed by Bombay High Court, in the case of CIT v. Manjula J.
Shah, in case the cost of acquisition of the capital asset in the hands of the assessee
is taken to be cost of such asset in the hands of the previous owner, the indexation
benefit would be available from the year in which the capital asset is acquired
by the previous owner. If this view is taken, the indexed cost of acquisition would
be Rs.63,40,000 (20,00,000 x 317/100) and gross long-term capital gain would be
Rs.186,60,000. Therefore, after exemption u/s 54 the taxable long-term capital gains
would be Rs. 86,60,000.
Answer 5
Computation of Total Income of Mr. X for the A.Y. 2022-23:
Particulars ` v`
Income from Salary
Basic salary (Rs. 25,000 x 9 months) 2,25,000
House Rent Allowance (Rs. 6,000 x 9 months) 54,000
Less: Exemption u/s 10(13A) - (Note 1) (36,000) 18,000
Gratuity Received 3,50,000
Less: Exemption u/s 10(10) - (Note 2) (3,06,250) 43,750
Leave Encashment 3,15,000
Less: Exemption u/s 10(10AA) - (Note 3) (2,45,000) 70,000
Less: Standard Deduction u/s 16(ia) (50,000)
Net Taxable Salary 3,06,750
Profits and gains from business or profession
(Business loss of Rs. 80,000 to be carried forward as the Nil
same cannot be set-off against Salary Income)
Less: Deduction u/s 80C:
Investment in PPF (62,500)
Investment in NSC (37,500) (1,00,000)
677
Note:
(1) As per section 10(13A), HRA will be exempt to the extent of least of the following:
(a) HRA actually received (Rs. 6,000 x 9) = Rs. 54,000
(b) Rent paid in excess of 10% of salary (Rs. 6,500 - Rs. 2,500) x 9 months = Rs.
36,000
(c) 50% of salary = Rs. 1,12,500
(2) Gratuity exempt u/s 10(10), shall be least of the following amounts:
(a) Actual amount received = Rs. 3,50,000
(b) Half month’s average salary for each year of completed service i.e. (1/2 x Rs.
24,500 x 25) = Rs. 3,06,250
(c) Statutory Limit = Rs. 20,00,000
(3) Leave encashment is exempt up to the least of the following:
(a) Actual Amount Received = Rs. 3,15,000
(b) 10 months’ average salary i.e. (Rs. 24,500 x 10) = Rs. 2,45,000
(c) Cash equivalent of unavailed leave calculated on the basis of maximum 30
days for every year of actual service rendered to the employer from whose
service he retired (See Note below) = Rs. 3,06,250
(d) Statutory Limit = Rs. 3,00,000
Note:
Since the leave entitlement of Mr. X as per his employer’s rules is 30 days credit for
each year of service and he had accumulated 15 days per annum during the period
of his service, he would have availed/taken the balance 15 days leave every year.
Leave entitlement (30 days/year x 25) 750 days
Less: Leave taken/availed (15 days/year x 25) 375 days
Leave Credit at the time of his retirement 375 days
Cash equivalent of earned leave to the credit of Mr. X at the time of his retirement =
(375 days/30 days × Rs. 24,500) = Rs. 3,06,250.
Answer 6
Computation of Income for A.Y. 2022 - 2023
Particulars ` ` `
Income from House Property - [Note 1]
House block 2 let-out (higher of fair rent and 1,80,000
rent receivable) (12,000)
Less: Municipal tax paid
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Net annual value (NAV) 1,68,000

Less: Deductions u/s:
24(a): Standard Deduction @ 30% of NAV (50,400)
24(b): Interest on housing loan @ 10% on Rs. (50,000) (1,00,400) 67,600
5,00,000
Profits & Gains from Business or Profession - [Note
2] 2,20,000
Income prior to adjustment for depreciation (30,000)
Less: Depreciation on equipments used for (50,000) (80,000)
business
Less: Depreciation on building Rs. 5,00,000 @
10%
1,40,000
Less: Set-off of b/f business loss relating to
discontinued business - [Note 3] (80,000) 60,000
Capital Gains - [Note 4]
Short-term capital gains from sale of listed shares
Full Value of Consideration 2,30,000
Less: Cost of Acquisition (1,80,000) 50,000
Less: Deduction u/s 80C in respect of LIP Rs.
32,000 & housing loan repayment in respect
of 2nd block Rs. 23,000 (subject to maximum (55,000)
Rs. 1,50,000)
Less: Deduction u/s 80D in respect of mediclaim (6,000) (61,000)
premium paid for self (subject to maximum Rs.
25,000)
Note:
(1) Income from House Property:
(i) The annual value of the house property which is used for business would not fall
under the head ‘House Property’. Therefore, the annual value of the 1st block is
not chargeable to tax under the head ‘House Property’. However, depreciation
there on @ 10% has been claimed while computing the income under the head
‘PGBP’.
(ii) As regards the 2nd block, the sum for which the property may be reasonably
679
expected to be let is Rs. 15,000 p.m. The Gross Annual Value (GAV) of the block
is the higher of fair rent (i.e. Rs. 15,000 p.m.) or the actual rent received (i.e. Rs.
10,000 p.m.) Hence, the GAV of the 2nd block is Rs. 1,80,000 (i.e. Rs. 15,000
p.m.)
(iii) U/s 24(b), interest on bank loan for construction of house is deductible. However,
penal interest is not deductible. Interest due during the year in respect of the
2nd block is Rs. 50,000 (i.e. 10% of Rs. 5 lakhs), which is allowable as deduction
u/s 24(b).
(2) Profits & Gains from Business or Profession:
Mr. Ashok can claim depreciation @ 10% on the building used by him for business
purposes. The depreciation on the 1st block is Rs. 50,000 (being 10% of Rs.
5,00,000) and depreciation on equipments used for business is Rs. 30,000. Hence
the depreciation allowable during the year is Rs. 80,000.
(3) Business Loss:
As per section 72, business loss relating to discontinued business is eligible for set-
off.
(4) Short-term capital gains (STCG):
The listed shares have been sold and STT is paid, hence it is taxable at 15% as per
section 111A. For the purpose of providing deduction under Chapter VI-A, the gross
total income should be reduced by the STCG on listed shares. Further, this STT is
shall not be allowed while computing the capital gain on sale of such shares.
(5) Deductions u/s 80C and 80D:
Deduction u/s 80C can be claimed in respect of life insurance premium paid for major
son, even though he is not dependent on the assessee. It is assumed 2nd block let-
out to cousin was used for residential purpose and accordingly principal repayment
was considered for deduction u/s 80C.
However, deduction u/s 80D cannot be claimed in respect of mediclaim premium
paid for non-dependant son. Mediclaim premium paid for self of Rs. 6,000 is eligible
for deduction.
Answer 7
Computation of Total Income & Tax Liability of Shri Raman for the A.Y. 2022-23:
Particulars ` v`
Computation of Total Income:
Income from House Property (See Note below) 80,500
Business Income 1,00,000
680
Long-term capital gains 50,000

Income from Other Sources 1,50,000
Computation of Tax Liability:
Long-term capital gain of Rs. 50,000 @ 20% 10,000
Other Income of Rs. 3,30,500
(Rs. 3,30,500 - Rs. 3,00,000) × 5% 1,525
Tax on Total Income 11,525
Less: Rebate u/s 87A (100% of Tax on Total Income i.e. Rs.
11,525 or Rs. 12,500, whichever is lower) (11,525)
Net Tax liability Nil
Computation of Total Income & Tax Liability of Smt. Raman for A.Y. 2022-23:
Particulars ` v`
Income from House Property (See Note below) Nil
Short-term capital gains 2,00,000
Less: Business loss (75,000) 1,25,000
Income from Other Sources 50,000
Tax liability - Since the total income of Smt. Raman is less Nil
than her basic exemption limit (i.e. Rs. 2,50,000), therefore,
she is not liable to pay any tax.
Note:
As per section 27 Mr. Raman will be considered deemed owner of the house property and
income will be computed in his hands as per L.O.P. provisions. Therefore, the rental income
from building transferred by Shri Raman to his wife Smt. Raman without consideration on
01-10-2021 is computed & taxed in the hands of Shri Raman.
Computation of Income from House Property:
Particulars ` v`
From From
01.04.2021 01.10.2021
to to
30.09.2021 31.03.2022
Gross Annual Value (Rs. 10,000 × 6 months) 60,000 60,000
(Rental income taken as GAV in the absence of information
relating to Municipal Value, Fair Rent and Standard Rent)
681
Less: Municipal Taxes (paid in June for first half year only) (5,000) (NIL)
Net Annual Value (NAV) 55,000 60,000
Less: Deduction u/s 24(a): Std. Deduction @ 30% of NAV (16,500) (18,000)
38,500 42,000
Income from House Property of Smt. Raman to be computed
in the hands of Shri Raman as per section 27. 42,000 -
Income from house property 80,500 -
Answer 8 Computation of total income of Mr. Deepak for the A.Y. 2022-23
Particulars ` v`
Income from business of plying goods vehicle - (Note 1) 6,75,000
Less: Brought forward business loss of F.Y. 2020-21 - (Note (1,00,000)
2 & 3)
Less: Deduction under Chapter VI-A
Section 80C:
Life insurance premium for insurance of married daughter - (20,000)
(Note 5)
Section 80D:
Medical insurance premium paid for insurance of parents - (28,000)
(Note 6)
Section 80E:
Interest paid towards education loan taken for his son - (15,000) (63,000)
(Note 7)
Notes:
(1) Computation of Presumptive Income from business of plying goods vehicles u/s 44AE:
Particulars Rs.
6 goods vehicles held throughout the year (Rs. 7,500×6×12) 5,40,000
2 goods vehicles held for 9 months (Rs. 7,500×2×9) 1,35,000
Presumptive Income as per 44AE 6,75,000
Note:
It is assumed that the goods vehicles owned by Mr. Deepak are other than heavy
goods vehicles.
(2) As per section 44AE, any deduction allowable under the provisions of sections 30
682
to 38 shall be deemed to have been already allowed. Therefore, the unabsorbed

depreciation of Rs. 70,000 shall not be allowed as a deduction since it is covered by section
32.
(3) Brought forward business loss of Rs. 1,00,000 shall be allowed as deduction, by
virtue of section 72, as it is allowed to be carried forward for 8 A.Y.s following the
A.Y. to which it relates, since the return for the A.Y. 2021-22 was filed before the due
date specified u/s 139(1).
(4) Fixed deposit kept with a scheduled bank in the name of son does not qualify for
deduction u/s 80C.
(5) Premium paid for insurance on the life of any child of the individual (whether married
or not), qualifies for deduction u/s 80C. In respect of policies issued on or after 01-
04-2013, only premium paid to the extent of 10% of capital sum assured qualifies
for deduction u/s 80C. Therefore, out of the life insurance premium of Rs. 25,000
paid for insurance policy of married daughter, only Rs. 20,000 (being 10% of Rs.
2,00,000) is qualified for deduction u/s 80C.
(6) Deduction is allowed u/s 80D for payment made for medical insurance of parents.
Medical insurance premium paid for insuring the health of a person who is a senior
citizen i.e. of age 60 years or more, qualifies for deduction u/s 80D, subject to a
maximum of Rs. 50,000. Hence, deduction of Rs. 28,000 is provided to Mr. Deepak,
as his parents are senior citizens.
(7) It is only the payment of interest on education loan which qualifies for deduction u/s
80E. Deduction u/s 80E is allowed in respect of interest on loan taken for education
of children of the individual even if they are not dependent. Principal repayment of
the education loan is not eligible for deduction u/s 80E.
Answer 9
Computation of Income for A.Y. 2022 - 2023 of Mr. Chatterjee Resident Senior Citizen
Particulars ` ` `
Annual value of self-occupied house Nil
Less: Interest on Housing Loan [Rs. 45,000 i.e.
3/4th of Rs. 60,000] (Restricted to Maximum
Rs. 30,000) (30,000) (30,000)
Income from Profession:
Sale of medicine 2,50,000
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Consultation fees 50,000

Visiting fee 2,00,000 5,00,000
Less: Expenses allowable from Professional
Income:
Medicine purchases 47,000
Medical journal 5,000
Vehicle expenses (3/4th) 37,500
Interest on loan (3/4th) 16,750
Interest on housing loan (1/4th) 15,000
Depreciation on: 7,500
Surgical instrument (15% of Rs. 50,000) 45,000 (1,73,750) 3,26,250
Vehicle (3/4th of 15% of Rs. 4,00,000)
Income from Other Sources:
Family Pension 2,80,000
Less: Standard Deduction u/s 57
[33⅓% of Rs. 2,80,000 or Rs. 15,000, whichever (15,000) 2,65,000
is lower]
Lecture Fees 5,000
Savings Bank Interest 1,000
Interest on Bank FD in the name of minor 10,125
daughter [Rs. 1,50,000 × 9% × 9/12] (1,500) 8,625
Less: Exempt u/s 10(32) 50,000 3,29,625
Winnings from Lottery
Less: Deductions under Chapter VI-A:
Section 80C:
Repayment of housing loan (Rs. 48,000 × ¾) (36,000)
Section 80D:
Medical Insurance Premium
Own (Senior Citizen, hence fully allowed) 16,000
Mother (Senior Citizen, hence fully allowed) 16,000 (32,000)
Section 80TTB:
After Interest on deposit in a saving account of bank (1,000)
Interest on bank F.D (8625) (77,625)
684
Note:
(1) Since the residential house was constructed before 01-04-1999, the deduction for
interest is restricted to Rs. 30,000.
(2) Since 1/4th portion of house is used for business purposes, therefore, 1/4th share of
interest paid is deductible while computing business income.
(3) Agricultural income is exempt u/s 10(1) and share of income from HUF is exempt u/s
10(2).
(4) Term deposit of Rs. 1,50,000 in the name of minor daughter does not qualify for
deduction u/s 80C. Principal repayment of housing loan shall qualify for deduction
u/s 80C. But, the qualifying amount u/s 80C would be only Rs. 36,000 (i.e. 3/4th of
Rs. 48,000) and not the whole amount of Rs. 48,000 because only 3/4th portion is
assessed under the head house property.
(5) Depreciation on the portion of the house used for business purposes has not been
provided since the written down value is not given in the question.
Answer 10
Computation of Total Income of Mr. Karthik for the A.Y. 2022-23:
Particulars ` ` `
Arrears of rent received in respect of the 75,000
Chennai House taxable u/s 25A - (Note 2)
Less: Standard Deduction @ 30% u/s 24(a) (22,500) 52,500
Profits & gains from Business or Profession:
(a) Own business - (Note 1) 5,33,250
(b) Partnership Firm
Interest on Capital - (Note 3) 2,40,000
Salary as a working partner - (Note 3) 90,000 3,30,000
Income from Other Sources:
(a) Pension from LIC Jeevan Dhara 24,000
(b) Interest from Bank FD - (Gross) 50,000 74,000
Less: Deductions under Chapter VIA Section
80C:
685
Life insurance premium for policy in the name

of major son qualifies for deduction even
though he is not dependent on the assessee.
However, the same has to be restricted to 10% 20,000
of sum assured i.e. 10% of Rs. 2,00,000.
Contribution to pension fund of National 70,000
Housing Bank
Total Qualifying Amount u/s 80C; or 90,000
Maximum Amount of Deduction u/s 80C 1,50,000 (90,000)
Section 80D:
Mediclaim insurance premium for father 32,000
(senior citizen) 50,000 (32,000) (1,22,000)
Maximum Amount of Deduction u/s 80D

Note:
(1) Computation of Income from Own Business:
Particulars ` v`
Net Profit as per Profit & Loss Account 4,32,000
Less: Items Credited to P&L A/c but not regarded as
Business Income:
Interest on bank FD (Net of TDS Rs. 5,000) 45,000
Agricultural income 60,000
Pension from LIC Jeevan Dhara 24,000 (1,29,000)
3,03,000
Add: Items Debited to Profit & Loss Account to be Disallowed
or to be Considered Separately:
Advance Tax 70,000
Depreciation on Motor Car 3,00,000
Depreciation on Machinery 1,25,000
Motor Car Expenses 10,000 5,05,000
8,08,000
Less: Depreciation Computed as per Income Tax Rules (2,74,750)
(See Working Note)
Income from Own Business 5,33,250
(2) As per section 25A, any arrears of rent recovered shall be chargeable to tax, after
686
deducting a sum equal to 30% of such arrears, as income from house property in
the year of receipt, whether or not the assessee remains the owner of the house
property in the year of such recovery.
(3) The income by way of interest on capital & salary of Mr. Karthik from the partnership
firm, Badrinath & Co., in which he is a partner, to the extent allowed as deduction
in the hands of the firm u/s 40(b), has to be included in the business income of the
partner as per section 28(v). Accordingly, Rs.3,30,000 [i.e. Rs. 90,000 (Salary) + Rs.
2,40,000 (Interest @ 12%)] should be included in his business income.
Working Note:
Computation of Depreciation as per Income Tax Rules:
Particulars ` v`
Normal Depreciation on Motor Car:
15% on Rs. 3,00,000 45,000
Less: 1/5th for personal use (9,000) 36,000
Normal Depreciation on Machinery:
Opening WDV of the Block of Machinery 6,50,000
Add: Additions in the Block during the P.Y. (used for > 180 3,25,000
days)
Add: Additions in the Block during the P.Y. (used for < 180 3,00,000
days)
12,75,000
Less: Sale Proceeds of the Machinery Sold during the P.Y. (NIL)
Depreciable Value of the Block 12,75,000
Depreciation @ 15% on Rs. 9,75,000 1,46,250
Depreciation @ 7.5% on Rs. 3,00,000 22,500
Total Normal Depreciation (A) 2,04,750
Note:
Where an asset is purchased & put to use during the P.Y. for < 180 days, the normal
depreciation shall be allowable @ 50% of the prescribed rate of depreciation. However,
this restriction does not apply to the asset acquired in any earlier year.
Additional Depreciation:
On New Machinery
used for > 180 days @ 20% (Rs. 2,00,000 x 20%) 40,000
uses for < 180 days @ 10% (Rs. 3,00,000 x 10%) 30,000
Total Additional Depreciation (B) 70,000
687
Note:
Balance 10% additional depreciation on machinery purchased & put to use during the
P.Y. for < 180 days amounting to Rs. 30,000 shall be allowable as deduction in the
immediately following P.Y. i.e. during the P.Y. 2022-23.
Total Permissible Depreciation [A + B] 2,74,750
Answer 11
Computation of Total Income & Tax Liability of Mr. Pritam for the A.Y. 2022-23:
Particulars ` v`
Income from Salary (computed) 40,000
Income from House Property - (Note 1) 1,68,000
Profit & Gains from Business or Profession
Income from business of retail trade in grains - (Note 2) 1,95,000
Less: Set-off of brought forward business loss relating to
A.Y. 2020-21 of discontinued textile business - (Note 3) (1,95,000) NIL
Capital Gains - (Note 4)
Sale consideration from sale of bonus shares 2,20,000
Less: Indexed Cost of Acquisition (Nil)
Long-term capital gains 2,20,000
Less: Set-off of unabsorbed depreciation relating to textile
business - (Note 5) (1,50,000) 70,000
Rent from vacant site let on lease 1,12,000
Less: Deduction u/s 80G - (Note 6) (46,000)
Tax on Total Income
Tax on Long-term capital gains @ 20% of Rs. 70,000 14,000
Tax on balance income of Rs. 2,74,000 (i.e. Rs. 3,44,000 - 1,200 15,200
Rs. 70,000) @ 5%
Less: Rebate u/s 87A (100% of Tax on Total Income i.e. Rs. (12,500)
15,200 or Rs. 12,500, whichever is lower)
2,700
Add: Health & Education Cess @ 4% 108
Total Tax Liability 2,808
Rounded-off u/s 288B 2,810
688
Note:
(1) Income from House Property:
Gross Annual Value (GAV) 2,40,000
Less: Municipal taxes paid (NIL)
Net Annual Value (NAV) 2,40,000
Less: Standard Deduction @ 30% of NAV u/s 24(a) (72,000)
Income from House Property 1,68,000
Note: In the absence of other information relating to municipal value, fair rent &
standard rent; rent received has been taken as the GAV.
(2) Since Mr. Pritam has not maintained books of accounts in respect of the business
of retail trade in grains and the turnover from such business is less than Rs. 100
lakhs, the income from such business would be computed on presumptive basis as
per section 44AD @ 8% of turnover. The income u/s 44AD is, therefore, Rs. 1,95,000,
being 8% × Rs. 24,37,500.
Alternatively, the presumptive income u/s 44AD could have been 6% of Rs. 24,37,500
i.e. Rs. 1,46,250 (assuming that the turnover has been received through account
payee cheques, drafts or through ECS).
(3) Business loss of a discontinued business can be carried forward and set-off against
the profits of an existing business in the subsequent years brought forward business
loss of Rs. 1,97,500 from discontinued textile business can be set-off against the
current year income of Rs. 1,95,000 from the business of retail trade. The balance
loss of Rs. 2,500 can be carried forward to the next year to be set-off against the
business income of that year.
(4) Cost of acquisition of bonus shares is Nil as per section 55. The period of holding
of bonus shares exceeds 24 months, therefore, it is a long-term capital asset and
the gain arising from sale of such shares shall be long- term capital gains. Further,
these shares are unlisted, long-term capital gains arising on sale of such shares
shall be taxable.
(5) Unabsorbed Depreciation u/s 32 can be carried forward indefinitely and set-off
against income under any head (except Salary). Section 44AD specifically provides
that while computing income of an eligible business on presumptive basis, any
deduction allowable u/s 30 to 38 shall be deemed to have been given full effect to
and no further deduction under those sections shall be allowed.
However, in the given problem, the unabsorbed depreciation relates to discontinued
textile business and not to the retail trade business (eligible business) in respect
of which income is computed on a presumptive basis u/s 44AD. Therefore, such
689
unabsorbed depreciation can be set-off against any income of the current year.
Accordingly, the same is adjusted against the long-term capital gains arising on
sale of unlisted bonus shares.
(6) In the above solution, the deductions under chapter VI-A and computation of tax
liability has been worked out by setting-off the unabsorbed depreciation against
long-term capital gains, which would be most beneficial for Mr. Pritam, since the
long-term capital gain is taxable @ 20%, whereas the normal income of Mr. Pritam
(i.e. Rs. 2,74,000) after such set- off would be taxable at 5%, which is the rate
applicable to the income slab which Mr. Pritam falls in. Therefore, the deduction u/s
80G is computed as follows:
Deduction u/s 80G:
Particulars ` v`
Contribution to National Children’s Fund - (Eligible for 30,000
100% Deduction)
Contribution to Charitable Trust Recognized for Section 40,000
80G purposes
Deduction shall be 50% of 10% of Adjusted Total
Income
[i.e. 50% × (10% × Rs. 3,20,000); or 50% of 40,000, 16,000
whichever is lower]
Total Deduction u/s 80G 46,000
Adjusted Total Income:
Less: Long term capital gains (70,000)
3,20,000
Answer 12
Computation of total income of Mr. Ram for the Assessment Year 2022-23:
Particulars ` v`
Income from Salary
Basic Salary ( Rs. 20,000 × 12) 2,40,000
CCA (Rs. 1,000 × 12) 12,000
HRA (Rs. 5,000 × 12) 60,000
Less: Exempt u/s 10(13A) - [See Note 1 below] (48,000) 12,000
Education Allowance (Rs. 500×12×3) 18,000
690
Less: Exempt u/s 10(14) (Rs. 100×12×2) (2,400) 15,600

Less: Standard deduction u/s 16(ia) (50,000)
Net Taxable Salary 2,29,600
Profits and gains from business or profession 75,000
Income from the business of letting on hire, goods vehicle
u/s 44AE [Rs. 7,500 (×) 10] - [See Note 2 below]
Interest from company deposits 15,000
Interest from Saving Bank Account 5,000
20,000
Less: Deduction u/s 57:
Rs. 1,00,000 @ 9% for 6 months–towards loan interest (4,500) 15,500
Less: Deduction under Chapter VI-A:
Section 80C - [Note 4 below] 93,000
Section 80CCC 15,000
Total Qualifying Deduction u/s 80C & 80CCC 1,08,000 (1,08,000)
Overall Limit u/s 80CCE 1,50,000
(whichever is lower)
Section 80TTA: 5,000 (5,000)
Interest from Saving Bank Account - [Note 6 below]
Notes:
(1) HRA is exempt to the extent of the least of the following u/s 10(13A)
(1) 50% of salary (as the city is Chennai) i.e. 50% of Rs. 2,40,000=Rs. 1,20,000
(2) Excess of rent paid over 10% of salary = Rs. 72,000 – Rs. 24,000 = Rs. 48,000
(3) Actual HRA received =5,000 × 12 = Rs. 60,000
Least of the above i.e. Rs. 48,000 is exempt u/s 10(13A).
(2) In the case of a person owning not more than 10 vehicles at any time during the
P.Y., estimated income from each vehicle will be deemed to be Rs. 7,500/- for every
month or part of the month during which the heavy vehicle is owned by the assessee
during the P.Y. [Section 44AE].
Therefore, Presumptive income = Rs. 7,500 × 10 = 75,000.
If, however, the assessee declares a higher amount, such amount will be considered
as income. In the instant case, since the assessee declares a lower amount, it
691
cannot be considered, since no books of account are maintained. Also, interest is not
deductible, since u/s 44AE, all deductions u/ss 30 to 38 are deemed to have been
allowed.
(3) Brought-forward loss from speculation business can be set-off only against income
from speculation business and not against other business income.
(4) Deduction u/s 80C:
Investment in notified equity linked saving scheme of UTI 12,000
Investment in PPF 52,000
Life insurance premium on own life restricted to 10% of sum assured 4,000
Tuition fees paid for two of his children (Most favourable to Ram) 25,000
Total Amount eligible for deduction u/s 80C 93,000
(5) Contribution to pension fund of LIC Rs. 15,000 is deductible u/s 80CCC.
(6) Deduction u/s 80TTA is allowed in respect of interest from Saving Bank Account upto
a maximum of Rs. 10,000. Therefore, interest from Saving Bank Account of Rs. 5,000
is allowed as deduction.
Answer 13
Computation of total income of Mr. Rahul for the A.Y. 2022-23
Particulars ` v`
Long-term capital gains on sale of unlisted shares 2,05,000
Less: Short-term capital loss on sale of property (Note 1) (55,000)
1,50,000
Less: Inter-head set-off of losses u/s 71 (Note 2):
Loss from profession (1,05,000)
Loss under the head house property [Rs. 15,000 (+) Rs. (45,000) Nil
30,000]
Income from card games 55,000
Winnings from lotteries 1,00,000 1,55,000
Less: Deductions under Chapter VIA (Note 4) (Nil)
Notes:
(1) As per section 74, short-term capital loss can be set-off against both short-term
capital gains and long-term capital gains.
692
Hence, short-term capital loss of Rs. 55,000 can be set-off against long-term
capital gains of Rs. 2,05,000 on sale of unlisted shares.
(2) Section 71 provides for set-off of loss from one head against income from another.
As per section 71(2), loss under any head of income, other than capital gains, can
be set-off against income under any head, including capital gains.
Therefore, loss of Rs. 1,05,000 from profession and loss of Rs. 45,000 from house
property (both let out and self-occupied) can be set-off against the net income of
Rs. 1,50,000 under the head “Capital Gains”.
(3) Loss from an exempt source cannot be set-off against profit from a taxable source.
Therefore, share of loss from a firm cannot be set-off against any other income,
since share of profit from firm is exempt u/s 10(2A).
(4) As per section 58, no deduction in respect of any expenditure or allowance in
connection with income by way of winnings from lotteries and income from card
games is allowable under any provision of the Income-tax Act, 1961.
Therefore, since the total income comprises only of income from card games and
winnings from lotteries, deduction under Chapter VI-A is not allowable from such
income.
Therefore, Mr. Rahul will not be entitled to claim deduction u/s 80D in respect of
medical insurance premium paid by cheque.
(5) Further, loss from horse races can neither be set-off against winnings from lotteries
and income from card games nor can it be carried forward.
693

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INTER CA.

- ` 11,000 received from married sister of husband is Nil

Computation of tax payable by Miss Charile for the A.Y. 2022-23

Tax on total income of ` 2,67,000 850

To clinic consumables 1,10,000 (principal ` 5,000, interest

7.12.2021 Acquired (cost) by cheque ` 2,00,000

(a) Interest of income-tax refund 450

Total income 2,29,400

Office rent 12,24,000 Share of profit from

Add: Health and Education cess @ 4% 4,371

(3) Income from other sources

(4) Deduction under Chapter VI-A:

(10) Drawings ` 10,000.

Investment in NSC [See Note (iii) 15,000 1,02,000

Interest on debentures (taxable under the head 17,500

2. Computation of “Income from other sources”

Interest on debentures 17,500

Computation of tax liability

Following further information is given to you:

Other administrative expenses 11,48,000

Gross Total income 24,92,500

Siddhant purchased a flat in a co-operative housing society in Delhi for ` 4,75,000 in

Income from share speculation business 2,700

- Bonus received ` 50,000

Answer Computation of Total Income for the A.Y. 2022-23

such a case the Income from Salaries would be ` 4,10,760.

4. Deduction under section 80G is computed as under:

Other relevant information:

Opening WDV of the Assets are as under:

amounting to ` 75,000 was received in February, 2022.

Details of his Savings and Investments are as under:

Brought forward business loss relating to discontinued textile business of 1,97,500

CCA : ` 1,000 p.m.

Gross Total Income (A + B + C) 8, 69,600

Computation of tax liability of Mrs. Ann for the A.Y. 2022-23

considered as income u/s 44AE.

Profits and gains of business or profession:

Add: Salary received from partnership firm –

Income from other sources:

Gross Total income 11,42,600

Computation of tax liability of Mr. A for A.Y. 2022-23:

(2) Computation of Capital Gains:

Net annual value (NAV) 1,68,000

Long-term capital gains 50,000

Total Income 5,12,000

to 38 shall be deemed to have been already allowed. Therefore, the unabsorbed

Consultation fees 50,000

Life insurance premium for policy in the name

Maximum Amount of Deduction u/s 80D

Education Allowance (Rs. 500×12×3) 18,000

Less: Exempt u/s 10(14) (Rs. 100×12×2) (2,400) 15,600

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