Income from House Property Short Answer Type Questions

Income from House Property Short Answer Questions

Question 1.
State any eight items from house property that are not liable to tax.
Answer:
1. Income from farmhouse

2. Annual value of any one palace of an exruler

3. Property income of trade union

4. Property income of a local authority

5. Property used for own business or profession

6. Property income of the charitable trust

7. Property income of educational institution and hospital

8. Property income of research and scientific association

9. Income from the house meant for self residence

Question 2.
State the provisions pertaining to interest on borrowed capital.
Answer:
1. It is allowed on an accrual basis

2. The loan shall be borrowed only for the purpose of purchase\acquisition, construction, repair, renewal and reconstruction of house property

3. Interest on interest is not allowable

4. Interest on fresh loan raised to repay the old loan taken for the specified purpose is allowed

5. Commission paid to agent or broker who procures the loan is not allowable

6. Restrictions is not imposed with respect to the maximum limit for deduction under section 24(b) let out property.

7. Interest paid outside India on which tax has not been paid or deducted at source and in respect of which there is no person in India who may be treated as agent shall not be deducted.

Question 3.
State the deemed owners under the head income from house property.
Answer:
1. The holder of an impartible estate is deemed to be the owner of all the property comprised in the estate

2. An individual who transfers any house property to his or her spouse without adequate consideration or not being a transfer in connection with an agreement to live apart or to a minor child not being a married daughter shall be the deemed owner of the house property

3. A member of a cooperative society company or an association of persons to whom building or its part is allotted or leased under a house building scheme of the society, company or association shall be deemed to be the owner.

4. A person who is allowed to retain possession of any building in part performance of a contract of the nature referred to in the transfer of property act shall be deemed to be the owner of that building.

Question 4.
Write a note on:
a) Realisation of unrealized rent
b) Assessment of unrealized rent recovered.
Answer:
a) Realisation of unrealized rent:
It is a deduction is allowed upto the assessment year 2002-03 and subsequently during any previous year the assessee has realized any amount in respect of such rent the amount so realized shall be chargeable to tax under the head income from house property as the income of the year irrespective of whether the assessee is the owner of that property in that year or not. If the assessee incurs any expenses for realization of unrealized rent such expenses shall not be deducted
From the amount realized and the whole amount realized shall be included in income.

b) Assessment of arrears of rent received:
If the assessee is the owner of any house property which has been let out to a tenant and the assessee has received from such property any amount by way of arrears of rent which has not been charged to income tax for any previous year it is chargeable to tax as income from house property if the previous year in which the rent is received. Out of the amount received 30% of such amount shall be allowed as standard deduction.

Question 5.
Calculate GAV from the following.
Income from House Property Short Answer Type Questions 1

Question 6.
Calculate GAV from the following information.
Income from House Property Short Answer Type Questions 2

Question 7.
Ganesh Owns a HP at Bangalore occupied by him for self residence through Out PY 2019-20
Municipal value — 6,00,000
FRV — 5,50,000
Std. rent — 5,76,000
Municipal taxes paid — 60,000
Interest on loan borrowed for construction of house — Rs. 1,20,000
Computation of income from HP
GAV — nil
Less: deductions u/s (24)
Interest on Loan borrowed for construction of house — 30.000
Loss from SOP — 30.000
Note: In case of SOP interest on loan borrowed for construction of house is allowed to a maximum exent of Rs. 30,000 if loan taken before 1.4.99. If loan taken after 1.4.99 maxi, amount of deduction is 2,00,000 Rs.

Question 8.
Compute NAV from the following information:
Income from House Property Short Answer Type Questions 3

Question 9.
The particulars of a residential house are given below for the assessment year 2020-21.
Municipal value — Rs. 88,000
Fair Rent — Rs. 96,000
Standard Rmt — Rs. 72,000
Actual rent — Rs. 74,400
Municipal taxes paid — Rs. 17,600
Ground rent payable — Rs. 120
Interest on money borrowed for construction — Rs. 10,000
Collection charges actually paid — Rs. 600
The assessee mortgaged the property for Rs. 72,000 which was spent on his daughters marriage. The assessee paid interest of Rs. 6,000 on the mortgage loan this year. Compute his income form house property.

Question 10.
Determine the annual value of the house in the following cases

Question 11.
From the following information compute the annual value of the house:
Municipal value — Rs. 3,00,000
Fair Rent — Rs. 3,60,000
Standard Rent — Rs. 3,20,000
Actual Rent — Rs. 40,000 p.m.
Municipal tax paid by the owner 20% of Municipal value unrealised rent — Rs. 80,000

Question 12.
Calculate total house property net annual value forthe A.Y. 2020-2021
Particulars
Municipal value — Rs. 1,20,000
Fair rent — Rs. 1,30,000
Standard rent — Rs. 1,10,000
Actual rent (if the property is let out throughout the P.Y.) — Rs. 1,26,000
Unrealized rent — Rs. 10,500
Vacancy period — 1 month
Municipal tax paid by owner — Rs. 17,000

Question 13.
Write are admissible deductions from annual value of house property u/s 24 of the Income Tax Act?
Answer:
Deductions allowed under income from H.P. Includes the following:
a) A sum equal to 30% annual value as standard deduction except interest.

b) Interest on loan taken in respect of the house property: it includes purchasing, constructing, repairing the H.P. allowable as a deduction under accrual basis. However the following points has be considered with respect to interest on loan borrowed for construction of H.P.

  • Interest on unpaid interest is not deductible.
  • Brokerage or commission paid for raising the loan is not deductible.
  • Interest on a Fresh loan taken to repay the original loan is deductible.  Pre-construction interest is deductible in the five equal annual installments.
  • Interest paid outside India for which no tax is deducted at source in India is not allowable.

Question 14.
Write short note on the following:
a) Municipal value of property,
b) Fair rent of property
c) Standard rent of property.
Answer:
a) Municipal value of property. It is the value fixed by municipal authority with respect to house property. It is taken in to consideration for the purpose of determining the notional rental value of the house property.

b) Fair rent of property. Rent prevailing for similar type of accommodation in similar locating is termed as fair rental value. It is one of the aspect to be considered while determining the notional rent of the house property.

c) Standard rent of property. It refers to the rent fixed by rent control act. The object of introducing the standard rent is to prevent the exhorbitant rental charged by the owner the house. Rent fixed by rent control act will be binding on the owner while entering into agreement with his tenant.

Question 15.
Smt. Jaya is the owner of a house at Agra, particulars in respect of which for the year ended 31st March. 2020 as below:
a) Actual rent received — Rs. 10,000
b) Municipal valuation — Rs. 8,000
c) Total Municipal Tax — Rs. 2,500
d) Municipal Tax paid by Smt. Jaya — Rs. 1,250
e) Municipal Tax paid by the tenant — Rs. 1,250
f) Interest paid during PY on loan taken for renewing the house — Rs. 500
g) Repair charges — Rs. 3,000
Compute her income from House Property for the A.Y. 2020-21

Question 16.
Determine the annual value of house property from the following details:
a) Municipal Value — Rs. 90,000
b) Standard Rent — Rs. 1,00,000
c) Fair Rent — Rs. 1,10,000
d) Actual Rent — Rs. 1,12,000
e) Municipal Tax 10% of municipal value
f) Municipal Tax paid in the previous year — Rs. 6,000

Question 17.
Explain the taxation of composite rent under different situations.
Answer:
Taxation of composite rent:
a) If composite rent includes rent of building and charges for other services. Rent attributable to the use of the building will be charged to tax under the income from H.R and rent attributable to the other services rendered will be charged to tax under the head Income from other sources.

b) If composite rent includes rent of building and letting out other assets:
If the above two lettings are inseparable then it will be charged to tax under the head income from other sources.
However, if the two lettings are separable then in such a wise letting of building rent will be charged to tax under the head income from house property and rent received for letting of other assets will be charged to tax under the head income from other sources.

Question 18.
What are admissible deductions from annual value of house property u/s 24 of the Income Tax Act?
Answer:
Deductions allowed under income from H.R Includes the following:
a) A sum equal to 30% of annual value as standard deduction except interest.

b) Interest on loan taken in respect of the house property: it includes purchasing, constructing, repairing the H.P. allowable as a deductioh under accrual basis. However, the following points has be considered with respect to interest on loan borrowed for construction of H.P.

  • Interest on unpaid interest is not deductible.
  • Brokerage or commission paid for raising the loan is not deductible.
  • Interest on Fresh loan taken to repay the original loan is deductible.
  • Pre-construction interest is deductible in the five equal annual instalments.
  • Interest paid outside India for which no tax is deducted at source in India is not allowable.

Question 19.
Determine the annual value of house property from the following details:
a) Municipal Value — Rs. 90,000,
b) Standard Rent — Rs. 1,00,000,
c) Fair Rent — Rs. 1,10,000,
d) Actual Rent — Rs. 1,12,000,
e)Municipal Tax 10% of municipal value,
f) Municipal Tax paid in the previous year — Rs. 6,000.

Question 20.
Explain the taxation of composite rent under different situations.
Answer:
Taxation of composite rent:
a) If composite rent includes rent of building and charges for other services.
Rent attributable to the use of the building will be charged to tax under the income from H.R and rent attributable to the other services rendered will be charged to tax under the head Income from other sources.

b) If composite rent includes rent of building and letting out other assets:
If the above two lettings are inseperable then it will be charged to tax under the head income from other sources.
However if the two lettings are seperable then in such a wise letting of building rent will be charged to tax under the head income from house property and rent received for letting of other assets will be charged to tax under the head income from other sources.

Question 21.
Calculate the Gross Annual Value from the following details:
Municipal value Rs. 61,000; Fair Rental Value Rs. 66,000 ; Standard Rent Rs. 59,000; Annual Rent Rs.57,000 and Vacancy Period 1 1/2 months.

Question 22.
Mr. Shashank is the owner of a house. The particulars of which are given below: Fair Rent 90,000 House let out @ 10,000 per month Municipal tax paid by Shashank 10,000 (10% of municipal value). Determine the annual value of the house if the house is vacant for
a) one-month b) three months.

Question 23.
Determine the annual value of house property from the following details:
a) Municipal value — Rs. 45,000
b) Standard rent — Rs. 50,000
c) Fair rent — Rs. 55,000
d) Actual rent — Rs. 56,000
e) Municipal tax 10% of municipal value
f) Municipal tax paid in the previous year — Rs. 3,000.

Question 24.
Compute the annual value from the following information:
a) Municipal Rental Value — Rs. 50,000
b) Fair Rental Value — Rs. 72,000
c) Let out — Rs. 8,000
d) Standard Rental Value — Rs. 60,000
e) Municipal tax paid in P.Y.
P.Y. 2017-18 Rs. 10,000
P.Y. 2018-20 Rs. 10,000

Question 25.
State the circumstances under which the person can act as a deemed owner.
Answer:
Deemed Owner: Under the following circumstances, Income from House Property is taxable in the hands of tne Individual, even if the property is not registered in his name —
1. Where the Property has been transferred to spouse for inadequate consideration other than in pursuance of an agreement to live apart.

2. Where the Property is transferred to a minor child for inadequate consideration (except a transfer to minor married daughter)

3. Where the Individual holds an impartible estate.

4. Where the Individual is a member of Co-operative Society, Company, or other Association and has been allotted a house property by virtue of his being a member, even though the property is registered in the name of the Society / Company / Association.

5. Where the property has been transferred to the individual’s name as part-performance of a contract u/s 53Aof the Transfer of Property Act, 1882. (i.e. Possession of the Property has been transferred to Individual, but the Title Deeds have not yet been transferred).

6. Where the Individual is a holder of a Pc ver of Attorney enabling the right of possession or enjoyment of the property.

7. Where the property has been constructed on a leasehold land.

8. Where the o wnership of the Property is under dispute.

9. Where the property is taken on a lease for a period of not less than 12 years, then the lessee shall be deemed as the owner of the property

Question 26.
Write a brief note on tax provision relating to interest on loan under section 24 b of the income tax act 1961.
Answer:
Interest on Loan u/s 24(b):
1. Purpose of loan: The loan shall be borrowed for the purpose of acquisition, construction, repairs, renewal or reconstruction of the house property.

2. Accrual basis: The interest will be allowed as a deduction on accrual basis, even though it is not paid during the financial year.

3. Interest on interest: Interest on unpaid interest shall not be allowed as a deduction.

4. Brokerage: Any brokerage or commission paid for acquiring the loan will not be allowed as a deduction.

5. Prior period interest:Prior Period Interest shall be allowed in five equal installments commencing from the financial year in which the property was acquired or construction was completed.
Note: Prior period interest means the interest from the date of borrowal of the loan up to the end of the financial year immediately preceding the financial year in which acquisition was made or construction was completed.

6. Interest on fresh loan to repay existing loan.‘Interest on any fresh loan taken to repay the existing loan shall be allowed as a deduction.

7. Inadmissible interest: Interest payable outside India without deduction of tax at source and in respect of which no person in India is treated as an agent u/s 163 shall not be an allowable expenditure. [Section 25]

8. Certificate: The assessee should furnish a certificate from the person from whom the amount is borrowed.

Question 27.
Explain municipal tax treatment under the head income from house property.
Answer:
Municipal Tax includes services tax like Water Tax and Sewerage Tax levied by any local authority. It can be claimed as a deduction from the Gross Annual Value of the Property.
Conditions:

  1. Paid by Owner. The tax shall be borne by the owner and tie same was paid by him during the previous year.
  2. Property let out:Municipal Tax can be claimed as a deduction only in respect of let out or deemed to be let out properties (i.e. more than one property self occupied).
  3. Year of payment:Municipal Tax relating to earlier previous years, but paid during the current previous year can be claimed as deduction only in the year of payment.
  4. Advance Taxes: Advance Municipal Tax paid shall not be allowed as deduction in the year of payment, but can be claimed in the year in which it falls due.
  5. Borne by Tenant: Municipal taxes met by tenant are not allowed as deduction.

Question 28.
Explain unrealized rent allowable unrer section 24 of the income tax act.
Answer:
Unrealized Rent means the rent not paid by the tenant to the owner and the same shall be deducted from the Actual Rent Receivable from the property before computing income from that property, provided the following conditions are satisfied:

  1. The tenancy is bonafide.
  2. The defaulting tenant should have vacated the property
  3. The assessee has taken steps to compel the defaulting tenant to vacate the property
  4. The defaulting tenant is not in occupation of any other property owned by the assessee
  5. The assessee has taken all reasonable steps for recovery of unrealized rent or satisfies the assessing Officer that such steps would be useless.

Question 29.
From the following information compute Net Annual value of House Property for the A.Y. 2020-21

  • Municipal Value — Rs. 1,80,000
  • Fair Rental Value — Rs. 1,00,000
  • Let out (per month) — Rs. 16,000
  • Standard Rent — Rs. 1,20,000
  • Uneralized rend for one month.
  • Municipal tax paid by the owner of House Property — Rs. 20,000
  • Municipal tax paid by tenants — Rs. 10,000.

Question 30.
Determine the Net Annual Value House property for the AY 2020-21.
Particulars Rs.
Municipal value — 1,50,000
Fair rent — 1,70,000
Standard rent — 1,30,000
Actual rent p.m. — 15,000
Unrealized rent — 18,000
House Vacancy period — 1 month

Question 31.
Miss Sharvani has taken a loan of Rs. 80,000 at 15% p.a. on 1 June 2008 and construction is completed on 21st January 2016 and date of repayment of loan is 31st October 2012 Calculate pre-construction interest.
Answer:
Calculation of interest on loan:
a) Pre construction period = 1.6.2008 to 31.10.2012
1.6.2008 – 31.3.2009 = 80,000 x 15/100 x 10/12 = 10,000
1.4.2009 – 31.3.2010 = 80,000 x 15/100 = 12,000
1.4.2010 – 31.3.2011 = 80,000 x 15/100 x 1 = 12,000
1.4.2011 – 31.3.2012 = 80,000 x 15/100 x 1 = 12,000
1.4.2012 – 31.10.2012 = 80,000 x 15/100 x 7/12 = 7,000
Total pre – construction interest

b) Pre- construction interest = 53,000/5 = 10,600
Note: i) Even though the repayment of loan date is 31.10.2012. pre-construction interest can be allowed only after completion of construction that is from the Financial year 2015-16.
ii) Here post-construction is not allowed. The entire loan is repaid before the previous year.

Question 32.
Mrs. Prashanth took a loan of Rs 1,00,000 on 15.8.2013 at 10% p.a. the construction is completed on 20 January 2017. The loan is repaid on 30.6.2019. Calculate his total interest on loan payable in the previous year 2019-20.
Answer:
Calculation of interest payable:
a) Pre con struction period = i 5.8.2013 to 31.3.2016
15.8.2013-31.3.2014= 1,00,000 x 10/100 x 7.5/12 = 6,250
1.4.2014- 31.3.2015 = 1,00,000 x 10/100 x 1 = 10,000
1.4.2015- 31.3.2016= 1,00,000 x 10/100 x 1 = 10,000
Total pre construction interest = 26,250

b) Pre -construction interest 26,250/5 = 5,250

c) Post construction period = 1.4.2019 – 30.6.19
1,00,000 x 10/100 x 3/12 = 2500
Total interest payable = 5,250 + 2,500 = 7,750 Note: Pre construction interest is allowed in five equal instrument Post construction interest is allowed in full.

Question 33.
Mr. Venkatesh started the construction of a house on 1.6.2015 and took a loan of Rs. 3,00,000 at 15% p.a. He took another loan of Rs. 9,00,000 at 18% p.a. On 1.4.2019. The construction was completed on 30.11.2018 and was self-occupied from 1.12.2019. Compute his income from house property for the A.Y. 2020-21.
Answer:
Calculation of interest on loan
Pre-Construction period: 1.6.2015 to 31.3.2018 – 34months
3,00,000 x 15% x 34/12 = 1,27,500/5 = 25,500
Post construction of interest
3,00,000 x 15% = 45,000
9,00,000 x 18% = 1,62,000
Total interest 25,500 + 45,000 + 1,62,000 = 2,32,500 Computation of income from house property of Mr. Venkatesh for A.Y. 2018-19
Gross Annual value — Nil
Less: Municipal Tax — Nil
Net Annual value — Nil
Less: Deduction u/s 24 * 30% of NAV — Nil
Interest on loan — 2,00,000
Loss from SOP — (2,00,000)
Note. In case of SOP GAY will be nil

Question 34.
From the following information compute net annual value of HP of Mr. Ganesh for the A. Y 2020-21.
FRV — Rs 1,80,090 p.a
Standard Rent — Rs. 1,62,00 p.a
Rent received — Rs, 16,500 pm
Unrealised rent for the year 2019-20 — Rs. 24,750
Loss due to vacancy — Rs. 16,500
Municipal tax paid by owners Rs. 21,600 is 10% of municipal value.

Question 35.
From the following information, compute net annual value of house property for the assessment year 2020-21.
a) Municipal Value — Rs. 1,00,000
b) Fair Rental Value — Rs. 1,50,000
c) Actual Rent — Rs. 18,000 PM
d) Standard Rent — Rs. 1,20,000
Rent not recovered for — 2 months.
Municipal taxes paid by the owner — Rs. 20,000
and paid by the tenant — Rs. 5,000.
All conditions required are satisfied with respect to unrealized rent.

Question 36.
Mr. Sagar, owner of three houses in Chennai, furnished the following information. Compute his income form house property for the assessment year 2020-21.
Income from House Property Short Answer Type Questions 4

Question 37.
Mr. Raju is the owner of following house properties in Hassan. Particulars in respect of which for the year ended 31/3/2020 are as below.
Income from House Property Short Answer Type Questions 5
Unrealised rent allowed in the A.Y. 2020-21 recovered during the year for the 1st house Rs. 8,000
Compute his income from house property for A.Y. 2020-21.

Question 38.
Mr. X is the owners of two houses which he uses for his residential purposes. He submits the following information in respect of these houses for the previous year 2019-20.
Income from House Property Short Answer Type Questions 6
Advise Mr. X which house he should opt for self occupation concession when his other incomes are Rs. 3,00,000

Question 39.
Shri Dinesh Kumar is owner of the three house:
Income from House Property Short Answer Type Questions 7
Income from House Property Short Answer Type Questions 8
Municipal tax is 10% of municipal valuation municipal tax of house ‘A’ was paid by owner but municipal tax of house ‘B’ was not paid up to 31st March, 2020.muncipal paid by tax of house ‘C’ was paid by the tenant the 3rd house
remained vacant for 4 month.
Compute income from house property for the assessment year 2020-21

Question 40.
Mr. Mukesh is owner of the three houses in Bangalore.
Income from House Property Short Answer Type Questions 9
Municipal Tax is 10% of Municipal valuation. Municipal tax of House ‘A’ was paid by owner but Municipal tax of House ‘B’ was not paid upto 31st March 2020. Municipal Tax of House ‘C’ was paid by the tenant. The House ‘C’ was remained vacant for 2 months.
Compute income from House property for the Assessment Year 2020-21.

Question 41.
Jyothi is the owner of a house property in Delhi. It has been let out for Rs. 90,000 p.a. The municipal tax payable by the owner comes to Rs. 10,000 but the landlord has taken an agreement from the tenant stating that the tenant would pay the tax direct to the municipality. The landlord, however, bears the following expenses on tenant’s amenities under an agreement:
Water charges Rs. 1,000
Lift maintenance Rs. 1,000
Lighting of stairs Rs. 800
Gardener’s salary Rs. 1,200
The landlord claims the following deductions:
Repairs Rs. 30,000
Land Revenue Rs. 1,000
Collection charges Rs. 2,000
Legal expenses incurred in connection with the purchase of land on which the house is built Rs. 24,000
Compute the taxable income from house property for the Assessment Year 2020-21.

Question 42.
Sri Ramesh is the owner of two houses constructed 5 years ago. They are identi¬cal in all respects. The municipal value of both the houses is Rs. 60,000 each. The first house is letout at a monthly rent Rs. 6,000 and the second house being self occupied for his residence.
The following are the expenses relating to both the houses in aggregate in the P.Y. 2019-20.
Municipal Taxes paid Rs. 12,000 Insurance Rs. 1,000, Land revenue Rs. 800, Repairs Rs. 6,000.
Interest on loan for construction of the houses amounts to Rs. 44,000 in the year 2019-20.
The unrealized rent of the first house amounts of Rs. 12,000 (conditions satisfied) From the above compute taxable income from house property for the Assessment year 2020-21.

Question 43.
Sri Shankar is the owner of three houses in Mysore. Particulars in respect of which for the year ended 31-03-2020 are as below:
Income from House Property Short Answer Type Questions 10
Compute his income from house property for the assessment year 2020-21.

Question 44.
Mr. Girish is the owner of the following house property in Mysore. Particulars in respect of which for the year ended 31.3.2020 are as follows: Compute his income from the house property the AY 2020-21.
Income from House Property Short Answer Type Questions 11

Question 45.
Mr. Prasad own’s three hosues in Bangalore. The particulars in respect of his houses are given below from which you are required to compute his income from House property for the A.Y. 2020-21.
Income from House Property Short Answer Type Questions 12

Question 46.
Smt. Kathyayini owns 3 house properties. House -1 and House – II are used for her residential purposes and House – III is let out on a monthly rent of Rs. 8,000. Following are the other particulars of these house properties
Income from House Property Short Answer Type Questions 13
Smt. Kathyayini could not occupy House – II for two months commencing from December 1,2019. The particulars given above are related to financial year 2019-20. Compute her income from house property for the A.Y. 2020-21

Question 47.
Smt. Mahalakshmi is the owner of a house property in Bangaluru. Completely k t out for residential purpose consisting of two flats of different sizes. They areletout at Rs. 5,000 p.m. and Rs, 10,000 p.m. respectively. The municipal value of the house is Rs. 1,50,000. The rate of municipal tax is 10% which was paid by her. The other particulars of the house are as under
1) The constructor of the house completed on 10-1-2017
2) A loan if Rs. 1,00,000 was taken on 1-4-2013 at 12% P.A.
3) The second flat remained vacant for two months during the previous year 2019-20.
4) The loan was fully repaid on 31-12-2019.
5) Average outstanding loan amount for the period from 1-4-2019 to 31-12-2019 was Rs. 20,000.
Determine the income from house property of Smt. Mahalakshmi for the A.Y. 2020-21.

Question 48.
Dr. Trivedi constructed a big house in July 2007, of which municipal valuation is 80,000 per annum. While its standard rent under Rent Control Act Rs. 90,000 per annum.
The house was used in the following manner during the previous year.
a) 25% portion for self residence.
b) 25 % portion for own business.
c) 50 % portion let out for residential purpose for rent Rs. 5,000 per month Other particulars of the house are as follows:
i) Municipal tax Rs. 12,800 (actual payment during the previous year 2019-20 Rs 9,000).
ii) Repairs Rs. 4,500.
iii) Fire Insurance Premium Rs. 2,000.
He has taken a loan from housing board to construct the house at 12 % p.a. 2 lakh. Interest was due Rs. 24,000 during the previous year out of which Rs. 20,000 was paid.
Compute Income from House Property for the A. Y. 2020-21.

Question 49.
Mr. Shankar is the owner of three house properties in Bangalore and let out all the houses thought out the year.
Income from House Property Short Answer Type Questions 14
Municipal tax is 10% of Municipal valuation. Municipal tax of House – A was paid by owner but Municipal tax of House – B was not paid up to 31st March 2020. And Municipal tax of House – C was paid by tenant. The House – C was remained vacant for 2 months.
Compute income from House Property for the A.Y. 2020-21 by making assumption Housing loan in respect of House A and C was in respect of House A and C was taken after 1.4.2000.

Question 50.
Mr. Suryakantha has three houses in Mandya and particulars of which are relating to previous year as under:
Income from House Property Short Answer Type Questions 15
Suryakantha borrows Rs. 3,00,000 at 20 % per annum from the bank for construction of House III (date of borrowing 1.6.2009, date of repayment of loan 10.5.2020) Construction of all house is competed in May 2014.
Determine the taxable income from house property for the assessment year 2020-21.

Question 51.
Mr. Anand is the owner of three houses in Bangalore, the particulars of which are given below:
Income from House Property Short Answer Type Questions 16
Income from House Property Short Answer Type Questions 17
Anand took a loan of Rs. 3,00,000 at 8.5% pa. for construction of House ‘B’, date of borrowing loan is 01.07.2014.
Compute taxable income from House property for the Ay 2020-21

Question 52.
Mr. Shankar owns three houses iii K.G.F. from the following particulars compute his taxable income from house property for the AY 2020-21
Income from House Property Short Answer Type Questions 18

Question 53.
Mr. Praveen is owner of a house property in Mysore, The construction of the house was completed on 18th July 2016. He took a loan of Rs.8.75,000 from Canara Bank on 1st Nov 2014 at 11 % p.a. The loan was outstanding during the year 2019-20 to the extent of Rs.5,00,000. From the following information calculate his in¬come from House Property for the A. Y 2020-21
a) Municipal value Rs.1,44,000 p.a
b) Fair Rental Value Rs. 1,80,000 p.a
c) Standard rent Rs.l,20,000 p.a
d) Rent received per month Rs. 18,000
e) Municipal tax paid is 10% of M.V (25 % paid by tenant)
f) Loss due to vacancy Rs. 27,000
g) Unrealised rent for the year 2019-20 Rs. 10,000
h) Unrealised rent for the year 2018-19 was recovered during 2020-21 Rs. 16,000

Question 54.
Mr. Prakash is the owner of following houses in Bangalore and the particulars of which are relating to previous year 2019-20.
Income from House Property Short Answer Type Questions 19
Compute the Taxable Income from House Property for the A.Y 2020-21

Question 55.
Mr. Shekhar is the owner of 3 house properties in Bengaluru and let out all the houses throughout the year.
Income from House Property Short Answer Type Questions 20
Municipal tax is 10% of Municipal Valuation. Municipal tax of House-A was paid by the owner but the Municipal taxes of House -B and House -C were paid by the tenant. The House-C was remained vacant for a months.
Compute the Income from House Property of Mr. Shekhar for the AY 2020-21.

Question 56.
Mr. Harish is the owner of following three House properties in Mysore. The details relating to which are as follows:
Compute the taxable Income from House Property of Mr. Harish for the Assessment Year 2020-21.
Income from House Property Short Answer Type Questions 21

Income from House Property Very Short Answer Type Questions

Income from House Property Very Short Answer Type Questions

Question 1.
State the classification of income from house property.
Answer:

  1. Let out property
  2. Self-occupied property
  3. Deemed to be let out property
  4. Partly let out and partly self-occupied property.

Question 2.
What is fair rental value?
Answer:
Where the property or any part of property is let and the actual rent received or receivable by the owner is in excess of the sum referred to in (a) the amount of rent received or receivable

Question 3.
What is standard rent?
Answer:
Where the property or any part of property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable in respect thereof is less than the sum referred to in (a) the amount so received or receivable.

Question 4.
What is meant by composite rent?
Answer:
Composite rent refers to rent collected by the owner for the property let out along with rent collected for amenities provided by the owner of the property to the tenant like swim¬ming pool facilities, lighting of the staircase, gardening facility, etc.

Question 5.
How do you treat composite rent from an income tax point of view?
Answer:
Composite rent is charged to tax under the head income from other sources if composite rent cannot be bifurcated in two components namely rent received for property let out and rent collected for amenities provided. On the other hand if it is bifurcable rent received for property let out is chargeable to tax under the head income from house property and rent received for amenities provided is chargeable to tax under the head income from other sources.

Question 6.
State any two items from house property that are not liable to income tax.
Answer:

  1. Income from farmhouse
  2. Annual value of any one palace of an exruler,
  3. Property income of local authority.
  4. Property income of scientific research association.

Question 7.
Give the meaning of municipal value.
Answer:
Municipal value of a property. It is the value fixed by municipal authority with respect to house property. It is taken into consideration for the purpose of determining the notional rental value of the house property.

Question 8.
Distinguish between preconstruction and post-construction interest.
Answer:
Preconstruction interest refers to interest paid by the owner of the house prior to the construction of the house whereas post-construction interest refers to interest paid by the owner after the construction of the house.

Question 9.
How do you treat pre-construction interest and post-construction interest from an income tax point of view?
Answer:
Preconstruction interest is allowed in five equal annual installments whereas post-construction interest is allowed in full.

Question 10.
State the conditions to be fulfilled in order to charge income under the head income from house property.
Answer:

  1. Assessee must be the owner of the property
  2. There must be building or lands appurtenant thereto
  3. Property must not be used by the assessee for his own business or profession.

Question 11.
State the provisions pertaining to payment of municipal tax.
Answer:

  • Municipal taxes should be paid by the owner but not by the tenant
  • It is allowed on actual payment basis but not on accrual basis
  • Municipal taxes should be allowed in full whether it relates to previous year preceding the previous year or any other previous year.

Question 12.
State the deductions allowable from the gross annual value in computing the income from house property.
Answer:
It includes the municipal tax paid by the owner and unrealized rent if any, the balancing figure will be the annual value.

Question 13.
State the procedure adopted in the computation of notional rent if standard rent is given and not given.
Answer:
If standard rent is not given notional rent will be higher of municipal value or fair rental however if standard rent is given notional rent will be higher of the municipal and fair rental value or standard rent whichever is less.

Question 14.
How do you treat the income from house property situated abroad from an income tax point view?
Answer:
It is taxable only in case of residents. Not ordinarily residents and nonresidents are required to pay tax only if income is received in India. Its annual property shall be computed as if the property is located in India.

Question 15.
State the components of service tax. Under the head house property.
Answer:
It includes fire tax, water tax, conservancy tax, education, etc.

Question 16.
How do you treat the disputed ownership pertaining to income from house property?
Answer:
In case of title of ownership being disputed in the court of law the decision of deciding the ownership rests with the income tax department. Usually, the recipient of rental income or the person in possession of the property as the owner is treated as the owner.

Question 17.
State the components of land appurtenant to the building.
Answer:
It includes compound, playground, kitchen garden, courtyard etc, In case of non-residential building, car parking spaces, drying grounds, playgrounds, connecting roads in the factory area shall be the land appurtenant to the building.

Question 18.
State the deductions that are allowed from the annual value in computing the income Income from house property.
Answer:
Following deductions are allowed from annual value:

  • Standard deductions 30% of annual value,
  • Interest on loan to purchase, construct, reconstruct or repair the house property.

Question 19.
How do you treat the building or staff quarters let out to employees while computing Income from house property?
Answer:
If the building or staff quarters is let out to employees of business whose residence is necessary for the efficient conduct of business the rent collected from such employees is assess¬able as income from the business but not as income from house property.

Question 20.
How do you treat the building let out for paying guest accommodation and to authorities for Locating bank, post office?
Answer:
It will be charged to tax under the head income from the business but not under the head income from house property.

Question 21.
How do you treat the loss from house property?
Answer:
Loss from house property is set off against income from any other house property. If the loss cannot be set off against income from any other house property in such a case it can be set off against any other head of income in the same year. The balance of unabsorbed loss from house property can be carried forward for eight assessment years to be set off against income from house property only.

Question 22.
How do you treat the loss from self-occupied property while computing income from house property?
Answer:
Loss from self-occupied house property cm be set off against income from house property and the balance of such loss can be set off against income under any other head. The balance of unabsorbed loss can be carried forward for eight assessment years to be set of against income from house property.

Question 23.
How do you treat the property owned by co-owners while computing income from house property?
Answer:
If the share of the co-owners is definite and ascertainable they shall not be assessed as an Association of persons in respect of such property but however, they shall be assessed individually on their shares in the income from house property.

Question 24.
What is loss from house property?
Answer:
If the aggregate of permissible deductions under section 24 exceeds the annual value of the property then it is termed as loss from house property.

Question 25.
State the conditions for allowing unrealized rent.
Answer:
a) There must be a bonafide tenancy
b) Defaulting tenant must not be residing in the same property or steps must have been initiated for making the tenant vacate the property
c) the Defaulting tenant has not occupied any other property of the same assessee
d) All action including legal action must have been taken to recover the rent

Question 26.
What is unrealized rent and how it is treated when it is recovered?
Answer:
Rent not realizable from a tenant is known as unrealized rent. It should be charged to tax under the head income from house property (without making any deduction U/s 23 or 24/ as the income of the year irrespective of the fact that the assessee is the owner of that property or not in that year.

Question 27.
How do you treat the unrealized rent of the past recovered in the current previous year?
Answer:
Unrealized rent of the past recovered in the current year shall be chargeable to tax under the head income from H.R before allowing deductions under section 24.

Question 28.
What is the annual value u/s 23(1) of the Income Tax Act?
Answer:

  1. Annual value may be defined as the sum for which the property might reasonably be expected to be let from year to year or
  2. Where the property or any part of property is let and the actual rent received or receivable by the owner is in excess of the sum referred to in (a) the amount of rent received or receivable or
  3. Where the property or any part of property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable in respect thereof is less than the sum referred to in (a) the amount so received or receivable.

Question 29.
Mention any two incomes from house property but taxable under a different head of income.
Answer:

  • Rent is paid by paying guests.
  • Rental income from subletting if composite rent is not separable.

Question 30.
How do you treat the unrealized rent of the past recovered in the current previous year?
Answer:
Unrealized rent of the past recovered in the current year shall be chargeable to tax under the head income from H.R before allowing deductions under section 24.

Question 31.
What do you mean by the pre-construction period?
Answer:
The preconstruction period is the period commencing from the date of borrowing the loan and ends on the date of repayment of the loan or 31 st march immediately prior to the date of completion of construction/acquisition whichever is earlier.
It is allowed in five equal annual instruments.

Question 32.
What is unrealized Rent?
Answer:
Unrealized rent that the owner was not able to collect from the tenant.

Income from Salary Short Answer Type Questions

Income from Salary Short Answer Questions

Question 1.
State any ten tax free perquisites exempted in case of all employees.
Answer:
1. Computer, laptops given to employee for official or personal use.

2. Employers contribution towards Staff Group Insurance Scheme.

3. Employee’s refreshments provided by an employer to all employees during working hours in office.

4. Refreshments during working hours provided outside the place of work upto Rs. 50 per day will be exempted.

5. Rent free house provided to the judges of High Court, Supreme Court or an officer of Parliament or a.Union Minister.

6. Amount spent on training of employees or fees paid for refreshing management course.

7. Free ration provided to defence force.

8. Medical insurance premium paid by the employer.

9. Telephone facility provided by employer to employee.

10. Interest on loan given by the employer is’not taxable if the loan amount does not exceed Rs. 20,000.

11. Perquisites given to Government employee who is staying abroad.

12. Gifts in kind if the value is less than 5,000

13. Family Planning Expenses.

14. Products at concessional rate to employee sold by his/her employer.

Question 2.
What is entertainment allowance? State the provisions with respect to government employee.
Answer:
Entertainment allowance is an allowance paid by the employer to the employee for entertaining the clients or customers of the organization.
I) Provisions with respect to government employees:

  • Actual entertainment allowance received
  • One fifth of basic salary
  • Maximum limit Rs. 5,000 (Whichever is less)

II) In case of private employees it is fully taxable.

Question 3.
State the provisions regarding house rent allowance.
Answer:
It is a partially taxable allowance. Provisions pertaining to house rent allowance are as follows:

  1. Actual HRA received
  2. Rent paid more thanl0% of salary
  3. 40% or 50% of salary (whichever is less)

Salary for this purpose means basic salary, dearness allowance allowing into retirement benefits, Commission on turnover achieved by the employees. It should be noted that employee cannot claim exemptions regarding HRA if he resides in his own house. 40% of salary in case of non-metropolitan cities and 50% of salary incase of metropolitan cities like Mumbai, Chennai, Kolkata, Delhi.

Question 4.
Write a short note on pension.
Answer:
Pension is a periodic payment made by the employer to the employee in recognition of past meritorious services rendered by the employee to the employer. Pension is taxable as salary. Sometimes the employee desires to receive a lump sum amount in lieu of monthly pension to be received in future termed as commutation of pension.Commutation of pen¬sion amount received by a government employee is fully exempt from tax. However in case of other employee it has been broadly classified into two categories namely:

  1. Employee receiving gratuity:
    One third of the full commuted pension amount is exempt from tax if the employee receives gratuity
  2. Employee not receiving gratuity:
    One half of the full commuted pension amount is exempt from tax if the employee doesn”t receives gratuity.

Question 5.
Write a short note on determination of value of rent free accommodation.
Answer:
For the purpose of valuation of rent free accomodation employees are broadly classified into two categories namely:

  1. Government employees
  2. Non government employees

a) Government employees:
Licence fee determined by the government xxxx
Add: 10% p.a. of cost of furniture or hirecharges if any xxxx
Less: amount paid or payable by the employee xxx
Value of rent free accomodation xx
Total xxx

b) Other employees:
a) Accomodation owned by the employer: 15 % of salary in cities having population exceeding twenty five lakhs as per 2001 census or 10% of salary in cities having population exceeding ten lakhs but not twenty
five lakhs as per 2001 census xxx
Add: 10% p.a. cost of furniture or hire charges if any xxx
xxx
Less: amount paid by employee for value of accomodation xxx
Value of RFA xxx

c) Accomodation taken on lease/ Rent by employer:
Actual amount of lease rental or 15% of salary (Whichever is less ) xxx
Add: 10%p.a.ofcostoffurnitureorhirecharges(ifany) xxx
xxx
Less: Amount paid or payable by employee xxx
Value of accomodation xxx
Salary for this purpose means: Basic salary, Taxable allowance, Bonus, Commission, Any other payment in cash. It excludes dearness allowance not entering into retirement benefits of the employee, allowances exempt from tax, employers contribution to RPF, and value of perquisites.

Question 6.
State the income tax. provisions with respect to statutory provident fund and recognized provident fund.
Answer:
Income tax provisions with respect to statutory provident fund:

  1. Employers’ contribution and interest thereon is neither included in the employees total income nor it is taxable
  2. The maximum amount qualifying for deduction under section 80C will be Rs. 1,50,000
  3. Refund from statutory provident fund is neither included in employees gross total income nor it is taxable. It is fully ignored.

Income tax.provisions with respect with recognized provident fund:

  1. Employers’ contribution to recognized provident fund is exempt up to 12% of salary.
    Salary for this purpose means basic salary plus dearness allowance entering into retirement benefit and commission based on fixed percentage of turnover achieved by the employee excluding all other allowances and perquisites.
  2. Interest accumulated on recognized provident fund is exempt up to 9.5% of salary.
  3. The maximum amount qualifying for deductions under section 80C will be Rs. 1,00,000.
  4. Refund from RPF is exempt from tax provided the employee has continuously served with his employer atleast for a period of five years or else he has left the organization on account of his sickness or reasons beyond his control.

Question 7.
State the differences between recognized provident fund and unrecognized provident fund.
Answer:
1. Recognised provident fund is recognized by the chief commissioner of income tax where as unrecognized provident fund is recognized by commissioner but not recognized by the chief commissioner of income tax.

2. Employee’s own contribution towards RPF will qualify for deduction under section 80C to the extent of Rs. 1,50,000 whereas employers own contribution towards URPF is not included in amount qualifying for deduction.

3. Employer’s contribution to RPF is exempted upto 12% of salary whereas interest accumulated on RPF is exempt up to 9.5% of salary whereas employers contribution to URPF and interest on URPF is not included in the total income from year to year.

4. Refund from RPF is exempt from tax whereas in case of URPF employers contribution and interest thereon is taxable under the head salaries, employees contribution is fully ignored and interest accumulated on employees contribution is chargeable to tax under the head income from other sources.

Question 8.
Ranganath receives Rs. 1,20,000 as gratuity in accordance with the payment of gratuity act of 1972.
He retired on 31-12-2019 after a service of 20 years & 9 months. At the time of retirement he was drawing a basic salary of Rs. 4,200 per month dearness allowance 2,600 per month and house rent allowance Rs. 1,300 per month.
Compute the Amt. of gratuity exempt from tax.

Question 9.
Rohin an employee of Pvt. Ltd. Retired on 31st Jan 2020 after 20 years and 10 months of service during the 10 months proceeding the month of retirement he was drawing a monthly salary of Rs. 7,500 & conveyance allowance of Rs. 1,500.
He received gratuity of Rs. 1,40,000 from Pvt. Ltd. Earlier he had received gratuity of Rs. 15,000 from his former employer and had enjoyed a tax exemp-tion on the same in 2001.
Compute the taxable part of gratuity for the assessment year 2020-2021

Question 10.
From the following information compute the exempted amount of earned leave u/s 10 (10AA) for die assessment year 2020-21 assuming the date of retirement 1/8/08.
Income from Salary Short Answer Type Questions 1

Question 11.
Mr. Tusshas is employed at Amritsar on a salary of Rs. 6,000 per month. The employer is paying HRA of Rs. 700 per month but the actual rent paid by him is Rs. 1,000 per month. He is also getting 2 % commission on turn over achieved by
him and turn over is Rs. 3,00,000 compute his gross salary.

Question 12. Sri. Krupa was manager in a company. He took a premature retirement from service on 1st Oct 2019 after completing 26 years of service. Her average salary for last 10 months was Rs. 8,890 and he was getting DA of Rs. 800 per month which was treated as salary for the purpose of retirement benefit. He had availed 19 months earned leave while is service on the basis of 30 days for every year. He was paid Rs. 58,100 as salary and Rs. 5,600 as DA.
Compute the amount exempt regarding encashment of earned leave for the assessment year 2020-2021.
Answer:
Note:
i) Salary for this purpose means Basic salary + dearness allowance entering into retirement benefit+commission on turn over achieved by the employee

ii) Salary is based on 10 months average salary from the month of retirement.

iii) For every completed year of service the employee is entitled to avail one month earned leave for every completed year of service irrespective of the number of months of earned leave granted by the employer

iv) No. of years of service-26
Leave at the rate of 1 month earned leave = 26 months
Leave availed =19 months
Leave due = 7 months
Computation of taxable earned leave salary for the assessment year 2020-21
Income from Salary Short Answer Type Questions 2

Question 13.
Miss Sharvani Ls a divisional engineer ¡n a government company. During the year 2019-20 he got Rs. 9,000 p.m. as salary Rs. 4,000 p.m. as dearness allow-ance, car allowance 1,000 p.m. and rent free house of the value of Rs. 1,000 p.m. She has been given entertainment allowance of Rs. 400 p.m. since 1st Jan. 2000. She did not spend any amount for official purpose. Compute the amount deductible under section 16 (ii).

Question 14.
Mr. Vinodh retired from services on 31-3-2020.His pension was fixed at Rs. 8,000 per month. He commutes 3/4th of his pension and received Rs. 7,20,000 in P.Y. 2019-20. Find out the taxable amount of commuted pension when,

  1. He is Government employee.
  2. He is non-government employee receives gratuity.
  3. He is non-government employee who doesn’t receives gratuity.

Question 15.
Mr. X, an employee of ABC Co., furnishes the following information for previous year 2019-20.
Basic salary – Rs. 10,000/ month
Dearness allowance – 5,000 per month (50 % entirs into retirement benefit) Commission on turnover achieved by the employee Rs. 10,000 p.a.
HRA received – 3,000 per month
Rent paid by the employer Rs. 4,000 per month
Compute the taxable HRA of Mr. X.

  1. X is a Govt, employee
  2. If he resides in Delhi
  3. If he resides in Bangalore

Question 16.
Mr. Vivek an employer of a Private Co. retired from service on 30 Nov. 2019. He has served for a period of 30 years. Leave availed while in service is 20 months. Leave granted by the employee 1.5 months leave salary amount re-ceived 80,000. Salary drawn by the employer based on average salary 8,000. What would be year conclusion if Mr. Vivek is Govt, employees.

Question 17.
Mr. Kumar resigned from his service from a public Co. on 30. Nov. 2019 after completing 24 years & 10 months of service during the service he was allowed to get 45 days of earned leave for every completed year of service During the service he had availed 10 months leave & had enashed 6 months leave. On resignation he was paid new salary of Rs. 2,20,000 for his credit of 20 months earned leave. His average salary during 10 months preceeding to the date of resignation was 11,000/- compute his taxable leave salary for A.Y. 2020-21.

Question 18.
Mr. Ranganath an employee of Ranganayaki Co retired from service on 31.1.2020. He has been paid a monthly pension of 6,000 Rs.. He commuted 1/3 rd of his pension and received 36,00,000.
Compute the taxable amt. of computed pension of

  1. Govt, employee
  2. Receives gratuity
  3. Does not receives gratuity

Question 19.
Mr. Ramesh is an Non-Govt, employee. He has been provided with a rent free house taken on lease for which the employer pays an annual rent of Rs. 40,000. He has also paid hire charges of Rs. 2,000 for furniture provided in the house. The employee has paid Rs. 25,000 for rent and 1,000 or hire charges to the employer. Annual Salaries of the employee for the above purposes was Rs. 2,00,000.
Calculate value of rent free accommodation for the A. Y. 2020-21
Answer:
Actual lease rental = 40,000
Or
15% of salary
(Whichever is less 2,00,000 x 15/100) = 30,000
Value of unfurnished accommodation = 30,000
Add.: Hire charges of furniture = 2.000
Total = 32,000
Less: rent paid including hire changes (25,000 + 1000) = 26,000
Rent free accommodation at concessional rate = 6.000

Question 20.
What is the difference between Recognised Provident Fund and Unrecognished Provident Fund?
Answer:
RPF

  • Employees own contribution will be allowed as deduction under Sec 80C to a maximum extent of Rs. 1,50,000.
  • Employers contribution to RPF will be exempt upto 12% of salary.
  • Interest on RPF will be exempt upto 9.5%.
  • Refund from RPF is exempt from tax.

URPF

  • Employees own contribution will not be allowed as deduction u/s 80C.
  • Employers contribution to URPF will not be included in the income of the employee.

Question 22.
Mr. Sunder retired from services on 31.3.2019. His pension was fixed at Rs. 6,000 p.m. He commutes one-half of his pension and received Rs. 3,00,000. Find out the taxable amount of commuted pension if:
a) he is Govt, employee
b) he is non Govt, employee who also gets gratuity and
c) he is non-Govt. employee. Who does not get any gratuity.

Question 23.
Mr. Kumar resigned from his service from a public company on 30th November 2019 after completing 24 years and 10 months of service. During his service he was allowed to get 45 days of earned leave for every completed year of service. During his service he had availed 10 months leave and had encashed 6 months leave. On resignation he was paid leave salary of Rs. 2,20,000 for his credit of 20 months earned leave. His average salary during the 10 months preceding to the date of his resignation was Rs. 11,000. Compute his taxable leave salary for the assessment year 2020-21.

Question 24.
Mrs. S working in a company and getting a basic pay of Rs. 8,000 p.m., DA at 20 % of basic pay, commission at 5 % of basic pay, HRA at 12 % of basic pay and bonus equal to two months basic pay. She is residing in a rented house at Rs. 1,800 p.m. Determine her exempted amount of HRA, for the A.Y. 2020-21.

Question 25.
Mr. Mahesh is getting a person of Rs. 4,000 p.m. from a company. During the previous year 2019-20 he got his 2/3 pension commuted and received Rs. 2,46,000. Compute the exempted amount, if he has also received gratuity.
Computation of exempted amount of commuted pension for the assessment year 2020-21.

Question 26.
Mr. Krishna gives you the following information relevant to the previous year 2019-20:
a) Net salary received Rs. 1,09,600.
b) Salary deducted at source: Income Tax Rs. 8,000 employment tax Rs. 2,000, Life insurance premium Rs. 5,000 and contribution to Statutory Provident Fund at the rate of 15% of salary.
c) D.A. Rs. 1,000 p.m., CCA Rs. 300 p.m., HRA Rs. 2,000 p.m. (he lives in his father-in-law’s house)
d) Employer and Employee’s contribution to provident fund is equal.

Question 27.
Mr. Suresh is an employee in a Bank at Bangalore, drawing a basic pay of 12,000 p.m. DA at 20 % of basic pay, fixed medical allowance of Rs. 300 p.m. and special allowance of Rs. 250 p.m. He has been provided with rent free accommodation. The cost of furniture provided being 1? s. 1,20,000. Compute the taxable value of furnished accommodation for the A.Y. 2020-21.
Answer:
Salary for this purpose means basic salary + Dearness allowance entering into retirement benefits + medical allowance + special allowance
12.0 x 12 + nil + 300 x 12 + 250 x 12
1.44.0 + nil + 3,600 + 3,000 = 1,50,600
The population in Bangalore exceeds more than 25 lakhs value of rent free accommoda¬tion (15% of salary)
1,50,600 x 15/100 = 22,590
Add: 10% of cost of Furniture = 12.000
Rent free furnished accommodation = 34.590

Question 28.
Briefly explain the tax treatment of leave encashment.
Answer:
Salary encashed by the employee for not availing the earned leave is known as encashment of earned leave salary. Encashment of earned leave salary received by a government employee is fully exempted from tax. However in case of other employees it is exempted to the least of the following:
a) Actual amount received
b) Maximum limit prescribed by the central government Rs. 3,00,000
c) Maximum of 10 months salary on the basis of average salary drawn by the employee during ten months preceding his retirement on superannuation
d) Amount of salary on the basis of average salary fore the approved period for which earned leave has not been availed. Salary for this purpose means basic salary, dearness allowance entering into retirement benefit, Commission based on fixed percentage of turnover achieved by the employee.

Question 29.
Briefly explain the tax treatment of RPF and SPF.
Answer:
Income tax provisions with respect to statutory provident fund:

  1. Employers’ contribution and interest thereon is neither included in the employees total income nor it is taxable
  2. The maximum amount qualifying for deduction under section 80C will be Rs. 1,00,000
  3. Refund from statutory provident fund is neither included in employees gross total in¬come nor it is taxable. It is fully ignored.

Income tax provisions with respect with recognized provident fund:

  1. Employers Contribution to recognized provident fund is exempt up to 12% of salary. Salary for this purpose means basic sa ary plus dearness allowance entering into re¬tirement benefit and commission based on fixed percentage of turnover achieved by the employee excluding all other allowances and perquisites.
  2. Interest accumulated on recognized provident fund is exempt up to 9.5% of salary
  3. The maximum amount qualifying for deductions under section 80C will be Rs. 1,00,000
  4. Refund from RPF is exempt from tax provided the employee has continuously served with his employer atleast for a period of five years or else he has left the organization on account of his sickness or reasons beyond his control.

Question 30.
Ms. Bhoomika resides in Kolkata. During the P.Y. 2019-20 she gets Rs. 12,000 p.a. as basic salary. She gets DA at 20% of basic salary (enters for retirement benefits). She has also received a commission of Rs. 15,000 (calculated at 2 % on turnover achieved by her). HRA received by her is Rs. 11,800 p.a. but rent aid is Rs. 14,800 p.a. Calculate the taxable HRA for the AY 2020-21.

Question 31.
Mrs. Chandrashekar retires from LMN Ltd., on 30-06-2019. He gets pension of Rs. 2,000 p.m. upto 31-01-2020. With effect from 01-02-2020 he gets 60% of pension commuted for as 40,800. Determine the taxable pension of Mr. Chandrasekhar for the AY2020-21 assuming that he is also receiving gratuity.

Question 32.
Sri Pramod an employee of PQR Ltd, draws 2,00,000 as basic salary, dearness allowance 15,000, bonus 20,000, education allowance to a son Z 300 per month. Besides company provides-a rent-free unfurnished house in Chennai. Determine the taxable value of rent-free accommodation for the assessment year 2020-21, if the house is: a) owned by the company b) leased by the company on lease amount at 20,000 per annum (as rent).
Answer:
a) Value of rent free unfurnished house
2,23,600 x 15% = 33,540
Salary = 2,00,000 + 20,000 + 3,600 = 2,23,600

b) Lease by the company
Rent free house 33,540
OR
Rent paid by the company = 20,000
Therefore value of RF unfurnished house = 20,000

Question 33.
Sri Natesh was employed in a company. He took voluntary retirement on 1st December 2019 after completing 25 years of service. On 1st January, 2019 his salary was Rs. 6,000 per month after adding the annual increment. In this company two months’ leave accrued every year. Compute the amount exempt ‘regarding encashment of earned leave, if his other particulars were as under.
Income from Salary Short Answer Type Questions 3

Question 34.
Mr. Praveen Kumar is the employee of Karnataka Government working in Hubli. He received the following emoluments for the financial year ending 31st March, 2020:
a) Basic pay 8,000 p.m.
Dearness allowance – 20% of basic pay of which 40% enters in to calculation of retirement benefit.
Conveyance allowance 300 per month of which 2,000 was spent. House rent allowance 1,000 p.m.
Mr. Praveen resided in a rented house on a monthly rent of 1,500 per month. But he is allotted rent free quarter on 1st November 2019 from which date he is not entitled to get house rent allowance.
Calculate the taxable house rent allowance for the assessment year 2020-21.
Answer:
Calculation of House Rent allowance
a) Actual HRA received Rs. 1,000 x 7 = 7,000

b) Excess of rent paid over 10% of salary
8,000 x 7 = 56,000
DA 20% of salary
56,0 x 20% 11,200 x 20% = 4,480
Total = 60,480
Rent paid – 10% of salary
10,500 – 6,048 = 4,452

c) 40% of salary 60,480 x 40% = 24,192
Least is exempted u/s 10(13A)
Taxable HRA = HRA received – HRA exempted
= 7,000 – 4,452
= 2,458

Question 35.
Mr. Anand is getting a pension of Rs. 8,000 p.m., from a company. During the previous year 2019-20 he got his 2/3 pension commuted and received Rs. 4,92,000. Compute the exempted amount, if he has also received gratuity.
Computation of exempted amount of commuted pension for the assessment year 2020-21.
Answer:
Commuted value of 2/3 pension = 4,92,000
Commuted value of full pension (4,92,000 x 3/2) = 7,38,000
Exempted amount = commuted value of
Full pension of 1/3 = 7,38,000 x 1/3 = 2,46,000

Question 36.
Mr. Mohith resides in Chennai. During the previous year 2019-20. He get Rs. 12,000 p.m. as basic salary. He get DA at 20% of basic salary, fixed medical allowance of Rs. 300 p.m. and special allowance of Rs. 250 p.m. He has been provided with rent free accommodation. The cost of furniture provided being Rs. 1,20,000. Compute taxable value of furnished accommodation for A.Y. 2020-21.
Answer:
Computation of taxable value of furnished accommodation for the assessment year 2020-21 (at Chennai)
15% of salary (since Chennai is having more than 25 lakhs population)
(12000 x 12 + 300 x 12 + 250 x 12) x 15/100
= 150600 x 15/100 = 22,590
Add.: 10% cost of furniture 12,000 x 10/100 = 12,000
Taxable value of furnished accommodation = 34,590

Question 37.
Mr. Nataraj is employed in a town (population 13 lakh). His particulars of income for the Previous Year. 2019-20 are:

  • Basic salary Rs. 8,000 per month.
  • D.A. Rs. 2,000 per month [60% doesn’t enters into service benefits].
  • Entertainment allowance Rs. 500 per month.
  • Bonus Rs. 8,000 per annum.
  • He has been provided with rent free accommodation, the cost of furniture pro-vided being Rs. 20,000.
    Compute his taxable income from salary for the A.Y. 2020-21.

Question 38.
Write a short note leave travel concession.
Answer:
Leave Travel Concession is a non-taxable perquisite available for salaried class. An Employee with his dependent family members can avail of this facility to travel anywhere in India / native place. Exemption is limited to the amount actually spent. The amount exempt is the value of any travel concession or assistance received or due to the assessee.
a) Journey by Air: Economy Class Airfare of India Airlines by the shortest route or the actual amount spent, whichever is lower.
b) Journey by Rail: A/C 1st Class rail fare by the shortest route or actual amount spent, whichever is lower.
c) Where the place of destination is connected by Rail: Air-conditioned first class Rail fare by the shortest route or the actual amount spent for the journey performed by road whichever is lower.
d) Where the place of destination is NOT connected by Rail:
i) If Recognized public transport exists: First Class or Deluxe Class fare by the shortest route or the actual amount spent whichever is lower,

ii) If No recognized public transport exists: Air-conditioned first Class Rail fare by the shortest route or the actual amount spent whichever is lower.
These exemptions is available only for 2 journeys performed in a block of 4 calendar years. Family of an Individual means:

  • Spouse and children of the individual, and
  • Parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the Individual

Question 39.
Give a brief note on tax provisions relating to gratuity.
Answer:
Gratuity is the payment made by the employer to an employee in appreciation of past services rendered by the employee. It is received by the employee on his retirement. Gratuity is exempted up to certain limit depending upon the category of employee. For the purpose of exemption, employees are divided into 3 categories:
1. Government employees and employees of local authority:
In case of such employees, the entire amount of gratuity received by then is exempted from tax.
Nothing will be added to gross salary.

2. Employees covered under Payment of Gratuity Act, 1972
In case of employees who are covered under Payment of Gratuity Act, the minimum of the following amounts are exempted from tax:
1) Amount of gratuity actually received. 2.)15 days of salary for every completed years of service or part thereof in excess of six months. (15 / 26 x [basic salary + Dearness Allowance] x No. of years of service+1 [if fraction > 6 months]). 3.) Rs.20,0000 (amount specified by government).

3. Other employees.
In case of employees not falling in the above two categories, gratuity received from the employers is exempt to the extent of minimum of following amounts:

  1. The actual amount of gratuity received.
  2. Half month average salary for every completed year of service (1/2 x average salary of last 10 months x completed years of service).
  3. Rs. 20,00,000 (amount specified by government).
    Salary = 10 months average salary preceeding the month of retirement. = Basic Pay + Dearness allowance entering into retirement benefit – Commission on turnover achieved by employee

Question 40.
Who is a specified assessee? State the perquisites taxable only in case of specified assessee.
Answer:
An Individual will be considered as a Specified Employee if:

  • He is a director of a company, or
  • He holds 20% or more of equity voting power in the company,
  • Monetary salary in excess of50,000: His income under the head salaries, (from any employer including a company) excluding non-monetary payments exceeds 50,000. For the above purpose, salary, should be arrived at after making the following deductions:
    (a) Entertainment Allowance
    (b) Professional Tax.

The following perquisites are taxable in case of such employees:

  1. Freesupplyofgas,electricityorwatersupplyforhouseholdconsumption
  2. Free or concessional educational facilities to the members of employees household
  3. Free or concessional transport facilities
  4. Sweeper, watchman, gardener and personal attendant
  5. Any other benefit or amenity

Question 41.
Explain the various types of allowances given by the employer to meet the specific personal expenses of the employee.
Answer:
There are certain allowances given to the employees for specific personal purposes and the amount of exemption is fixed.
1. Children Education Allowance: This allowance is exempt to the extent of Rs. 100 per month per child for maximum of 2 children (grand children are not considered).

2. Children Hostel Allowance: Any allowance granted to an employee to meet the hostel expenditure on his child is exempt to the extent of Rs.300 per month per child for maximum of 2 children.

3. Transport Allowance: This allowance is generally given to government employees to compensate the cost incurred in commuting between place of residence and place of work. An amount uptoRs.800 per month paid is exempt. However, in case of blind and orthopedically handicapped persons, it is exempt up to Rs. 3200 p.m. from 2019¬20

4. Running Allowance (Out of station allowance): An allowance granted to an employee working in a transport system to meet his personal expenses in performance of his duty in the course of running o ~ such transport from one place to another is exempt up to 70% of such allowance or Rs. 10000 per month, whichever is less.

5. Tribal area allowance: Exemption is available as Rs: 200 p.m.

Question 42.
Mr. Harish a General Manager in a private company in Bangalore, retired from his service on December 15, 2019 after 28 years and 8 months of service and receives Rs. 3,50,000 as death cum retirement gratuity. At the time of retirement his basic salary was Rs. 18,200 per month. He has received Rs. 1,000 per month as D.A. 80% of which form part of salary for the purpose of computation of retirement benefits and 6% commission on turnover achieved by him. Total turnover achieved by him for 10 months ended 30th November 2019 is Rs. 1,50,000.
Assume he is not covered under Gratuity Act. Compute his taxable gratuity for the A. Y. 2020-21.

Question 43.
Mr. Srinidhi retires from service on 30.6.2019. He is paid pension of 7,500 per month. He commutes 75% of his pension on 1.12.2019 and received 4,50,000 as commuted pension.
Compute the taxable amount of commuted pension for the assessment year 2020-21 assuming that
a) He is government employee
b) He is non government employee who doesn’t receives gratuity
c) He is non-government employee Receives gratuity.

Question 44.
Mr. Chethan is a production manager of a company in Chennai. His particulars of salary income are:
Basic salary Rs. 15,000 pm.
DA Rs. 5,000 pm (given under terms of employment)
Commission Rs. 12,000 pa on the turnover achieved Bonus Rs. 4,000 pa,
HRA Rs. 8,000 per month and
Travelling allowance Rs. 800 per month (fully spent for official purpose)
He lives in a rented house for which he pays Rs. 9,000 per month as rent Find out his taxable salary income for the AY 2020-21.

Question 45.
Mr. Anand a non-government retired employee is getting a pension of Rs. 12,000 • per month from a company. During the previous year 2019-20 he got his half of pension commuted and received Rs. 5,00,000. Compute the exempted amount of commuted pension for the AY 2020-21
a) He receives gratuity
b) He does not receive any gratuity

Question 46.
Mr. Kumar is non government employee getting pension of Rs. 16,000 per month for a company. During the previous year 2018-19 he got his 2/3 rd pension commuted and received Rs. 9,84,000. Compute taxable pension for Assessment year 2020-21.

Question 47.
Mrs. Bharathi (resident), an employee of SRM Ltd., retires from her service on 16ih January 2020 after serving for 36 years and 6 months and 1 day. he receives Rs. 97,000 as Gratuity under the Gratuity Act 1972. At the time of retirement her Basic Salary was Rs. 2,300 p.m. and Dearness Allowance was Rs. 400 p.m. What amount of Gratuity will be taxable for the assessment year 2020-21.

Question 48.
Mr. Anand Shankar (resident), retired from service in Mysore Minerals Ltd. on 31st December 2019. In this company , he has put in 33 years and 9 months of service. On retirement, the company paid him a gratuity of Rs. 3,25,000. His monthly salary at the time of retirement (since 1.10.2013) was Rs. 12,000, D.A. Rs. 3,000 and H.R.A. Rs. 2,000. Find out the exempted amount of Gratuity if he is : a) Covered under the payment of Gratuity Act 1972. B) Not covered under the payment of Gratuity Act 1972.

Question 49.
State the perquisites exempted in case of all employees
Perquisite exempt in the case of all employees – a) Telephone Facility, b) Transport Facility, c) Privilege passes and tickets, d) Training provided to the employees, e) Leave travel concession subject to certain conditions, f) Medical facilities subject to certain prescribed limits, g) Perquisites allowed by the Government for rendering services outside India.

Question 50.
Mr. Arun is getting a pension of Rs. 8,000 p.m. from a Company. During the pre-vious year 2019-20 he got his 2/3 pension commuted and received Rs. 5,08,000.
Calculate the total taxable pension, if he also receives gratuity.

Question 51.
Following are the particulars of salary of Mr. Kapoor,
a) Basic salary Rs. 35,000 per month
b) Dearness allowances 50% of basic salary.
c) Entertainment allowances Rs. 10,000 per month (actual expenses Rs. 8,900 per month).
d) Rent free furnished house is provid ed, which is owned by the company and its fair value Rs. 12,000 per month.
e) Furniture costing Rs. 2,50,000 is also provided.
f) Services of the following servants (paid by company) are provided.

  • Watchman Rs. 1,000 per month
  • Gardner Rs. 750 per month
  • Sweeper Rs. 800 per month
  • Cook Rs. 600 per month

The company also pro vided free supply of gas, electricity and water worth 18,000 per annum. The Company provides one large car [more than 1600CC] with driver for both official and personal use expenses met by company. He paid employment tax 500 per month.
He works as MD of Royal Airways Ltd. Mumbai. Compute his net salary income for the A.Y. 2020-21

Question 52.
Mr. Anandha Teertha is working as a Marketing Manager in a company in Mumbai. Particulars of his salary for the financial year 2019-20 are as under:
i) Basic Salary Rs. 15,000 per month
ii) Bonus 20% of salary
iii) Conveyance Allowance (Rs.2,500 per month) 80 % spent for official duties
iv) Entertainment Allowance Rs. 3,000 per month.
v) Employer’s contribution to recongnised provident fund 15% of salary.
He has been provided with a house by the company for which a sum of Rs. £,000 PM is deducted from his salary. The company pays a rent of Rs. 6,000 per month for this house directly to the land lord.
Compute the income from salary.

Question 53.
Mr. Kiran is working in a private company in Bangalore. From the following de-tails of his salary compute the income from salary for the A.Y. 2020-21
a) Net basic salary Rs. 74,000. After deduction of tax at source of Rs. 8,000 in the year.
b) D.A. 800 per month (not forming part of salary).
c) Bonus equal to 3 months basic salary.
d) House Rent Allowances Rs. 800 per month, but he is paying rent of 1,200 per month for his residence in Bangalore. ,
e) His son is studying in a residential school in Mysore and company paying education allowances of Rs. 4,000 and hostel allowances Rs. 4,000 yearly.
f) He is contributing to RPF at 15 % of salary and the company contributing an equal amount
g) Interest earned on RPF Rs. 4,200 at 14% p.a/
h) Conveyance allowance Rs. 8,500 of which he spent Rs. 5,500 for official pur-pose.
0 He is the member of Lions Club an annual membership fees Rs. 2,000 paid by company.
j) Kiran has a telephone in his residence for personal and official use and its bill Rs. 5,000 paid by the company
k) He paid Rs. 510 Professional Tax.

Question 54.
Mr. Chethan is a production manager of a company in Chennai. His particulars of salary income are:
Basic salary Rs. 15,000 pm.
DA Rs. 5,000 pm (given under terms of employment)
Commission Rs. 12,000 pa on the turnover achieved
Bonus Rs. 4,000 pa,
HRA Rs. 8,000 per month and
Travelling allowance Rs. 800 per month (fully spent for official purpose)
He lives in a rented house for which he pays Rs. 9,000 per month as rent Find out his taxable salary income for the AY 2020-21.

Question 55.
Sri. Sudeep Sales Manger of ANZ Ltd., Mumbai has furnished the following de-tails of his income for the year ended 31st March 2020. Compute his taxable in-come from salary for the AY 2020-21
a) Basic Salary Rs. 17,500 per month
b) Dearness Allowance Rs. 6,000 per month (forming part of Salary)
c) Commission is 2 % on sales. During the previous year sales target reached by him is Rs. 4,00,000
d) Bonus equal to 3 months basic salary
e) Entertainment allowance Rs. 2,500 per month (amount spent Rs. 12,000)
0 Children Hostel Allowance for his three children Rs. 400 per month per child.
g) Reimbursement of medical bills Rs. 22,000 for the treatment taken in private nursing home.
h) He is provided Rent free furnished accommodation owned by the company. Cost of furniture Rs. 1,00,000. FRV of that accommodation is Rs. 7,500 per month.
i) Free telephone at his residence Rs. 3,500
j) Mediclaim Insurance of Mr. Sudeep paid by the company Rs. 4,000 per an-num. .
k) Employment tax paid by the company Rs. 1,000 per annum.
l) LIC insurance premium paid by the company Rs. 1,500 per annum on behalf of Sudeep.

Question 56.
Sri. Krishna an employee of Transport Company, Bangalore submits the follow-ing information relevant for the AY 2020-21. Compute his taxable income from salary.
a) Basic Salary Rs.8,000 per month
b) Conveyance allowance (60% spent for official) Rs. 2,000 per month.
c) City Compensatory allowance Rs. 300 per month.
d) Bonus Rs. 10,000 per annum.
e) Dearness Allowance Rs. 1,500 per month (does not form part of salary)
f) House Rent Allowance Rs. 5,000 per month (Rent paid Rs. 7,000 per month)
g) Payment of LIC premium by the company Rs. 4*000 per annum.
h) Services of sweeper paid by the company Rs. 200 per month.
i) Leave travel concession Rs. 10,000 (first time in the current block period).
j) Reimbursement of gas, electricity and water bill by the company Rs. 2,500 per annum.
k) Own contribution and Company’s contribution to the RPF is 14% of salary. Interest credited to RPF at 14% Rs. 14,000
l) Gift worth Rs. 10,000 during festival season received from the company dur-ing previous year.

Question 57.
From the following particulars of Sri Balaji, working in firm at Bangalore, compute his taxable income from salary for the A. Y. 2020-21.
Basic salary Rs. 8,600 p.m, Dearness pay @ 20% of Basic pay, CCA Rs. 200 p.m, Medical allowance Rs. 400 p.m. Contribution to Recognised Provident Fund by him is 14 % of salary and the firm contributes at the same rate.
He has been provided with the facility of using official vehicle for attending the work. He has also provided with the facility of Gas, Electricity, Water, Sweeper and Gardener at the total cost of Rs. 25,000 during the previous year for which, the assessee paid Rs. 12,000 during the year.
The employer deducts from the salary of Mr. Balaji every month Rs 600 towards income tax, Rs. 400 towards Life Insurance Premium and Rs. 100 as professional tax.

Question 58.
Mr. X is working in a company of Hyderabad on a salary of Rs. 10,500 p.m. and Dearness Allowance of Rs. 2,000 p.m. and half of widen is paid under terms of employment. He received Rs. 16,000 as bonus for the year 2019-20.
He is given a rent free unfurnished hojpe owned by the company together with the facility of gardener on a monthly salary of Rs. 600. Company paid Rs. 5,000 during the year towards membership fee of a club for Mr. X.
During the year medical bills reimbursed by the company for treatment given in a nursing home to his mother Rs. 20,000.
He is contributing 15 % of his salary to RPF and equal amount by the Co., and interest credited to this account during the previous year at 9.5 % p.tC Rs. 10,000. Compute his taxable income from salary of the assessment year 2020-21.

Question 59.
The following particulars relates to the income of Mr. Pavan for the previous year 2019-20
He is employed in a cotton textile mill at Bangalore on monthly salary of Rs.25,000. He is also entitled to a commission @ 1% of sales effected by him. The sales effected by him during the previous year amounted to Rs 40,00,000. He received the following allowances and perquisites during previous year:
a) Dearness pay at Rs. 6,000 per month.
b)Bonus at two months basic salary
c) Entertainment allowances @ Rs. 2,000 per month.
d) House rent allowances at Rs. 5,000 per month.
e) The employer paid Rs. 10,000 towards the income tax liability of Mr. Pavan.
f) The employer provided a telephone at his residence by meeting all expenses amounting to Rs. 6,000 for the year. g) He and his employer contributed 15 % of his salary to his R.P.F. and interest credited to this fund at 10% amounted to Rs. 30,000 during the previous year.
h)He spent Rs. 6,000 per month as rent of the house occupxedby him in Bangalore.
Compute his taxable income under the head salaries for the assessment year 2020-21.

Question 60.
Mr. Ganesh the manger of Maruthi Suzuki Ltd. Mumbai, has furnished the following details of his income for the year ended 31st Mach 2020.
i) Basic salary Rs 21,000 per month.
ii) Bonus – 2 months basic salary.
iii) Commission is 3 % on sales – During the year he reached a sales of Rs. 5,00,000
iv) Dearness allowance forming part of salary Rs. 7,000 per month (considered to retirement benefits).
v) Medical allowance Rs. 1,400 per jr, nth.
vi) Entertainment allowance Rs. 3,000 per month.
vii) Childrens hostel for his two children at Rs. 500 per month per child.
viii) R.P.F. – Company’s contribution Rs. 6,000 per month.
ix) R.P.F. – Own contribution Rs. 5,000 per month.
x) Interest on R.P.F at 119k p.a. Rs. 44,000.
He has been provided rent free furnished accommodation at Mumbai whose fair rental value is Rs. 10,000 and cost of furniture Rs. 60,000. He paid professional tax of Rs. 2,400.
Compute his taxable salary for the Assessment year 2020-21.

Question 61.
Mrs. Ranga is an employee of State Bank of India; She furnishes the following information for computation of her taxable salary for the assessment year 2020-21:
i) Basic Salary Rs. 12,500-500-18,000 p.m. from 1.1.2015.
ii) Dearness allowance @15% of salary
iii) Entertainment allowance, Rs. 250/- p.m. Bonus Rs. 4,000/- Children Education Allowance for her three children Rs. 200/- p.m. per child and TVavelling allow¬ance for tour Rs. 15,000/- (during the year she spent Rs. 14,000/- on there travels).
iv) She and her family members took medical treatment in a private hospital dur¬ing the year. The Bank reimbursed Rs. 25,000/- regarding these expenditures.
v) The bank has provided her an accommodation by deducting Rs. 1,000/- p.m. from her salary, but the bank is paying a rent of Rs. 5,000/- p.m. to the owner of this house. Furniture costing Rs. 30,000 is also provided in this house by the bank.
vi) Employee and employer contributed 15 % of her salary and D. A. towards the SPF. The interest credited to the P.F.A/c is Rs. 3,300/- @10% during the year.
vii) During the year the bank has paid her employment tax of Rs. 2,000/- Income tax of Rs. 8,000/- and Health Insurance premium of Rs. 1,500/-. (2007)

Question 62.
Mr. Pradeep is an employee in Hindustan Power Corporation Ltd. at Hyderabad. He gives the following information for the A.Y. 2020-21.
1) Basic salary Rs. 8,000 p.m.
2) Dearness allowance Rs. 6,000 p.m. (Rs. 1,000 p.m. enters into retirement ben-efits).
3) Family allowance Rs. 600 p.m.
4) City compensatory allowance Rs. 800 p.m.
5) Education allowance for 2 children at Rs. 350 p.m. per child.
6) Entertainment allowance Rs. 750 p.m.
7) House Rent allowance 1,600 p.m. but he pays Rs. 3,000 p.m. as actual rent.
8) Company has provided a telephone at his residence by meeting all the ex-penses amounting to Rs. 6,000 for the year.
9) Company has paid his income tax Rs. 6,420 during the previous year on his taxable income.
10) Conveyance allowance of Rs. 8,000 for visiting the branches (fully spent).
11) He and the company contribute 14 % of salary towards the R.P.F.
12) Interest on R.P.F. was Rs. 15,000 at 15% p.A.
Compute Income from salary for A.Y. 2020-21.

Question 63.
The following are the particulars of income from salary of Mr. Jayadev ofTUmkur for the previous year ending 31-3-2020:
a) Net salary (after deducting income tax, profession tax and contribution of Jayadev to his recognized provident fund) Rs. 66,000.
b) Income Tax deducted at source from Salary Rs. 13,000.
c) Profession Tax deducted at source from Salary Rs. 2,000.
d) Jayadev’s contribution to provident fund Rs. 9.000.
e) Employer’s contribution to the above fund Rs. 19,200.
f) Interest credited to provident fund at 12 % P.A. was Rs. 2,500.
g) House rent allowance received (actual rent paid by him for the house occupied for his residence at Rs. 1,500 p.m.) Rs. 18,000.
h) Allowance for traveling on transfer received from employer Rs. 2,000.
i) Jayadev has paid life insurance premium on this following policies as under: 1) on the policy of Rs. 20,000 on his own life 3,000 2) On the policy of Rs. 20,000 on his wife life 2,000
Compute his income form salary for the A.Y. 2020-21.

Question 64.
Mr. Prabhakar is an employee of NSK Ltd., Bengaluru. Particulars of his income for the PY 2019-20 are as follows:
Basic salary Rs. 13,500 p.m. DA 35% of basic salary (60% of it forms art of salary for retirement benefits). HRA Rs. 4,000 per month (rent paid Rs, 5,000 per month) Children education allowance Rs. 50 per month per child for 3 children. Helper allowance Rs. 300 per month (Actual amount spent Rs. 200 per month) Bonus Rs.25,000. Leave encashment Rs. 13,500. Advance salary of April 2016 Rs.14,000. Entertainment allowance Rs. 250 per month.
Mr. Prabhakar has been provided with free use of a small car both official and personal use. During the year the company reimbursed Rs. 19,200 towards medi¬cal expenses incurred by him.
His contribution to RPF is 14 % of salary and the company also makes a matching contribution. Interest credited by the company on the accumulated balance of RPF account at 12 % p.a amounts to Rs. 18,000.
Professional tax paid by him is Rs. 200 per month.

Question 65.
Smt. Rekha, an employee of RKS Ltd., Delhi receives the following incomes during the year ending 31-03-2020.
Basic salary upto 31-08-2019 Rs. 12,000 per month and thereafter at Rs. 12,500 per month. Leave travel concession Rs. 4,500 (entire amount spent). Dearness pay Rs. 30,000; Dearness Allowance Rs. 15,000 (it does not enter for retirement benefits); Children Education Allowance Rs. 250 per month for 1 child. Reimbursement of medical expenses Rs. 31,500 (Private Hospital).
Smt. Rekha has been provided with rent free fiat at Delhi (rent paid by the company Rs. 80,000 per annum), facility of a watchman and a cook (each of whom fs paid a salary of Rs.700 per month). Interest free loan for purchasing home appliances Rs. 1,20,000 (date of loan borrowed 01-04-19 and SBI lending rate for similar loan on 01-04-19 is 12% p.a.).
Determine Smt. Rekha’s salary income for the AY 2020-21 assuming that she has paid Rs. 200 per month as professional tax.

Question 66.
Sri. Yadunandan (age: 50 years), an employee director of Maruthi Udyog Ltd., submits the following information relevant for the assessment year 2020-21. Salary 56,000, entertainment allowance 6,000, bonus 10,200, education allowance for a child 3,000, income tax penalty paid by the company 1,500, medical expenses reimbursed by the company for the treatment taken in private hospital 21,000 leave travel concession 1,300 (first time in the current block period), free residential telephone provided by the company telephone bill paid by the company 1,200, free refreshment during office hours 2,000, payment of electricity bills by the employer 1,000, reimbursement of gas bills by the company 1,900, furnished flat owned by the company at Cochin
(Population: 31 lakh) fair rent of the flat 40,800, salary of watchman 1,000.
He is also provided with air condition which is obtained by the company on a rent of 2,000. Furniture costing 18,000 is also provided. He is provided with Maruti 800 CC car, which is used by him for both personal and official purposes and expenses are paid by the company. Company’s contribution towards recognized provident fund is 7,920, interest credited to it @ 14% 14,000.
Sri Yadunandana made the following payments during the financial year 2019-20.
i) Own contribution to R.P.F. @ 14 % of salary.
ii) Professional tax 2,400.
Calculate the net salary income of Sri. Yadunandana for the assessment year 2020-21.

Question 67.
Mr. ‘X’ is an employee in H.M.R. Bangalore. He gives the following information for the previous year 2019-20.
1) Basic salary Rs. 10,000 p.m., 2) D.A. Rs. 6,000 p.m.
3) Family allowance Rs. 600 p.m., 4) City compensatory allowance Rs. 800 p.m.
5) Education allowance for two children at Rs. 350 p.m. per child.
6) Entertainment allowance Rs. 750 p.m.
7) House rent allowance Rs. 1,600 p.m. But he pays Rs. 3,000 p.m. as actual rent
8) Company has provided a telephone at his residence by meeting all the ex-penses amounting to Rs. 6,000 tor the year.
9) Company has paid his income tax of Rs. 6,420 during the previous year on his taxable income.
10) Conveyance allowance of Rs. 8,000 for visiting the branches (fully spent).
11) He and company contribute 14% of salary towards R.P.F.
12) Interest on R.P.F. was Rs. 15,000 at 15% P.A.
Compute income from salary for the A.Y. 2020-21.

Question 68.
Mrs. Smitha is working as sales Executive in Maruthi Suzuki Ltd. Kolkata and his salary details are as follows for the previous year 2019-20.

  • Basic salary Rs. 21,000 per month
  • A bonus equal to two months basic salary
  • Commission 3% on sales (During the year the reached sales targeted (5,00,000)
  • Dearness allowance of Rs. 7,000 per month (Eligible for Retirement benefits)
  • Medical allowances Rs. 1,400 per month (medical expenses Rs. 15,000)
  • Children Hostel Allowance for her two children @ Rs. 500 per month per child.
  • Children Education Allowance for her two children @ Rs. 400 Per Child.
  • RPF contribution by the company Rs. 6,000 per month
  • RPF contribution by employee Rs. 5,000 per month
  • Interest credited on RPF @11% 44,000
  • She has been provided with company’s owned rent free furnished house in Mumbai and cost of furniture provided Rs. 6,00,000
  • Mrs Smitha paid her professional tax Rs. 2,400 p.a.

Compute Taxable Salary for the A.Y. 2020-21.

Question 69.
Mr. Yadav is an employee of State Bank of India Bangalore and he submits the following information relevant for the A.Y. 2020-21. Compute his taxable income from salary
a) Basic salary Rs. 8,000 per month
b) Dearness Allowance Rs. 1,500 per month (does not form part of salary)
c) City compensatory allowance Rs. 300 p.m.
d) Bonus Rs. 10,000 per annum
e) Conveyance allowance Rs. 2,000 p.m. (60% spent for office duties)
f) House Rent Allowance Rs. 5,000 p.m. (Rent paid by employee Rs. 7,000 p.m.)
g) Payment of LIC premium by SBI Rs. 4,000 p.a.
h) Services of sweeper paid by SBI Rs. 200 p.m.
i) Leave ravel Concession Rs. 5,000 (First time in current Block period)
j) Reimbursement of gas, electricity and water bill by the SBI Rs. 2,500 per annum
k) RPF contribution by the bank and own contribution of employee 14% of salary]
l) Interest credited to RPF at 14% Rs. 14,000
m) Professional tax paid by Yadav Rs, 5,000

Question 70.
Mr. Pratham Sales Manager of XYZ Ltd. Mumbai has furnished the following details of his income for the year ended 31.03.2018. compute his income from salary for the AY 2020-21.
a) Basic salary Rs. 20,000 pm.
b) Dearness allowances Rs. 6,000 p.m. (forming part of salary).
c) Bonus equal to 3 months basic salary.
d) Entertainment allowance Rs. 2,500 p.m. (amount spent Rs. 12,000)
e) Children hostel allowance for his three children Rs. 400 p.m. per child.
f) Reimbursement of medical bills Rs. 22,000 for the treatment taken in a private nursing home.
g) He is provided with rent free furnished accommodation owned by the company. Cost of furniture Rs. 1,00,000, FRV of the house is Rs. 7,500 P.M.
h) Free telephone at his residence Rs. 3,500.
i) Medical insurance premium of Mr. Pratham paid by the company Rs. 4,000 p.a.
j) Employment tax paid by the company Rs. 1,000 p.a.
k) Own contribution and company’s contribution to RPF is 14 % of salary. Interest credited to RPF at 14% Rs. 14.000.

Question 71.
The following particulars relates to the income of Mr. Ganesh for the PY 2019-20 He is employed in a Cotton Textile Mill at Bangalore on a monthly salary of Rs. 25,000. He is also entitled to a commission at 1% on sales effected by him. The sales effected by him during the previous year amounted to Rs. 40,00,000. He received the following during the previous year:
a) Dearness pay Rs. 6,000 p.m.
b) Bonus at two months basic salary
c) Entertainment allowance Rs. 2,000 p.m.
d) House rent allowance Rs. 5,000 p.m. .
e) Income tax of Mr. Ganesh paid by employer Rs. 10,000
f) Free telephone installed at his residence Rs. 6,000
g) He and his employer contribute 15% of his salary to his RPF and interest credited to RPF at 10% amounted to Rs. 30,000 during the year, h) He paid Rs. 6,000 p.m. as rent of the house occupied by him.
Compute his income from salary for the AY 2020-21.

Question 72.
Mr. X a physically handicapped person working in ABC Company Ltd. Bangalore has furnished the following details of his income for the year 2019-20. Compute his income from Salary for the A.Y. 2020-21.
a) Basic salary Rs. 40,000 p.m
b) Dearness allowance enters into retirement benefits Rs. 24,Ut>0 p.m
c) Fixed percentage of commission on sales Rs.1,500 p.m
d) Bonus Rs.65,000
e) HRA Rs. 12,500 p.m (Rent paid Rs.10,600 p.m)
f) Transport allowance Rs. 4,000 p.m
g) Reimbursement of medical expenses Rs.17,500 for treatment taken in pri¬vate hospital
h) Management contribution and own contribution to RPF is 15 % of Salary
i) Interest credited to RPF is Rs. 11,000 at 11 % p.a
j) Professional tax paid by employee is Rs. 400 p.m
k) He is provided with more than 1.6 liter capacity car by the company for official use. All the expenses including salary of the driver are met by the company
l) Children education allowance Rs.600 p.m per child for two children and children hostel allowance Rs. 1,000 p.m for two children.

Question 73.
From the following information calculate the income from salary of Mr. Anand for the A.Y 2020-21
1) Basic salary Rs. 40,000
2) Dearness allowance 60 % of basic forming part of salary
3) Commission Rs.18,000
4) Bonus Rs.60,000
5) Employer and employee’s Contribution to contribution to SPF is 15% of sal-ary
6) Interest credited to SPF is Rs. 12,000 at 10% p.a
7) CCA Rs.500 p.m
8) Medical allowance Rs.800 p.m
9) He is provided with a rent free furnished house by,the employer for which his employer paid a rent of Rs.5,000 p.m to the owner of the house. Cost of furniture is Rs. 1,20,000
10) He is also provided with a car less htan 1.6 litre capacity by the employer both for persona] and official use. All the expenses of the car including salary of the driver are paid by the employer.
11) Free telephone at his residence by the employer valued at Rs.12,500
12) Professional tax paid by him Rs.450 p.m
13) Gift voucher worth Rs.12,500 were issued by the employer.

Question 74.
Mr. Praveen is an Employee of XYZ Ltd. At Bangalore. He furnishes the following information for the Assessment year 2020-21.
a) Basic Salary Rs. 8,000 p.m.
b) Dearness Allowance Rs. 6,000 p.m. (Rs. 1,000 enters into all retirement ben-efits)
c) Education allowance for 2 children at Rs. 350 p.m. per child.
d) House Rent Allowance Rs. 1,600 p.m. but Actual Rent paid by him is Rs. 3,000
p.m.
e) He and Company contribute 14 % of salary towards RPF.
f) Interest on RPF was 15% p.a.
g) Company paid Rs. 6,000 towards income tax and Rs. 3,000 towards professional tax of Mr. Praveen.
h) He received bonus equals to 2 months basic salary.
i) Children hostel allowance for 2 children @ Rs. 400 per child, per month. Compute the taxable salary of Mr. Praveen for the Assessment year 2020-21.

Question 75.
Smt. Savita, an employee of Hindustan Lever Ltd. Delhi received the following incomes during the year ending 31-03-2020.
a) Basic Salary upto 31-08-2019 Rs. 12,000 p.m. and there afterwards Rs. 12,500 pan.
b) Dearness pay Rs. 30,000 p.a.
c) Dearness allowancje Rs. 15,000 p.a. (it does not enter into retirement benefits).
d) Children Education allowance Rs. 250 p.m. for one child.
e) Reimbursement of Medical Expenses Rs. 21,500 (Treatment was taken in Private hospital).
f) Smt. Savita has been provided with rent free flat at Delhi (Rent paid by the Company Rs. 80,000 p.a.)
g) Facility of watchman and cook provided, each of whom is paid Rs. 700 p.m. as Salary.
h) Interest free loan fro purchasing home appliances Rs. 1,20,000 (Date of loan borrowed 1-4-2019 and assume SBI lending rate for similar loan on 1.4.2019 @ 12% p.a.)
Determine salary income of Smt. Savita for the Assessment Year 2020-21 assum-ing that she paid Rs. 200 p.m. as professional tax.

Income from Salary Very Short Answer Type Questions

Income from Salary Very Short Answer Type Questions

Question 1.
State any four components of salary.
Answer:

  1. Wages 17(1)(i),
  2. Any annuity or pension 17 (1)(ii),
  3. Anygratuity 17(1)(iii),
  4. Any advance salary 17(1)(v)

Question 2.
What is dearness allowance?
Answer:
Dearness allowance is an allowance paid by the employer to the employee in order to meet the increased cost of living index. It is fully taxable..

Question 3.
State any four examples of taxable allowance.
Answer:

  1. Dearness allowance,
  2. Medical allowance,
  3. Servant allowance,
  4. Family allowance

Question 4.
What is perquisites?
Answer:
Perquisites mean any casual emoluments or profits attached to an office in addition to salary or wages. It may be given in the form of cash or in the form of a kind.

Question 5.
What is the salary?
Answer:
Salary refers to remuneration paid by employer to employee in consideration of his services. It comprises monetary value pertaining to benefits as well as other facilities provided by employers which are taxable.

Question 6.
State the various types of provident funds.
Answer:

  1. Recognized provident fund
  2. Statutory provident fund
  3. Unrecognised provident fund
  4. Public provident fund

Question 7.
Who is a specified assessee?
Answer:
Specified assessee means and includes the following:

  1. Director employee in the employer’s company
  2. Employee having substantial interest in the employer’s company i.e.beneficial owner of equity shares of not less than 20% of voting power
  3. Any employee whose income under the head salaries including all monetary payments from one or more employers excluding the value of all benefits or amenities given in-kind exceeds Rs.50,000.

Question 8.
State any four examples of fully exempted allowance.
Answer:

  1. Foreign allowance
  2. Sumptuary allowance given to high court judges
  3. Sumptuary allowance given to supreme court judges
  4. Allowances from UNO

Question 9.
State any four tax-free perquisites exempted in case of all employees.
Answer:

  1. Perquisites provided to government employees posted abroad
  2. Free ration provided to armed personnel
  3. Conveyance facilities provided to supreme and high court judges
  4. Training program to employee

Question 10.
What is profit in lieu of salary?
Answer:
Section 17(3) it includes the following –

  1. The compensation received for termination of employment.
  2. Refund from URPF.
  3. Amount received under VRS exempted upto Rs. 5.00,000.
  4. Amount received from an insurance policy.

Question 11.
What is a recognized provident fund?
Answer:
A recognized provident fund is a provident fund that is recognized by the chief commis¬sioner of income tax. They are governed by part A of the fourth schedule of the income tax act of 1961. They are maintained by scheduled banks, factories and several business houses.

Question 12.
What is the statutory provident fund?
Answer:
A statutory provident fund is a provident fund where the provident fund act of 1925 ap¬plies. It is maintained by government offices or semi government offices like local authorities, universities, educational institutions nationalized banks.

Question 13.
What is the unrecognized provident fund?
Answer:
An unrecognized provident fund is a provident fund that is neither recognized or statutory. It is not recognized by the commissioner of income tax but approved by the provident fund commissioner. It is maintained by private-sector organizations.

Question 14.
State the perquisites taxable in case of all employees.
Answer:

  1. Payment of life insurance premium of the employee
  2. Payment of employee obligation by employer
  3. Facility of rent-free house or house at concessional rate

Question 15.
State the perquisites taxable in case of the specified assessee.
Answer:
The facility of gardener, servant, watchmen, gas, electricity, water, education expenses of the children of the employee me by the employer.

Question 16.
State the allowance exempted up to the specified limit.
Answer:

  1. House rent allowance
  2. Entertainment allowance
  3. Certain special allowance like education allowance, hostel allowance etc.

Question 17.
What is allowance?
Answer:
Allowance is a fixed sum of money paid regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by an employee.

Question 18.
What is commuted value of pension?
Answer:
The lump sum amount which an employee receives on fore going the pension either full or part is known as the commuted value of the pension.

Question 19.
What is gratuity?
Answer:
Gratuity refers to lump sum amount paid by the employer to the employee in recognition of past meritorious services rendered by the employee to the employer.

Question 20.
What is an approved superannuation fund?
Answer:
It is a fund which is approved by the chief commissioner or commissioner of income tax in accordance the conditions laid down in rule 3 or part B of the Fourth Schedule of the income tax act. The purpose of this fund is to provide annuities to the employees on their retirement.

Question 21.
What is house rent allowance?
Answer:
House rent allowance refers to allowance paid by the employer to the employee in order to assist the employee in meeting the expenses incurred in securing residential accommo¬dation.

Question 22.
How do you treat the education and hostel allowance received by the employee from his employer?
Answer:
Education allowance is exempted to the extent of Rs. 100 per month per child to a maximum of two children whereas hostel allowance is exempted to the extent of Rs. 300 per monthperchildtoamaximumoftwochildren.

Question 23.
How do you treat the entertainment allowance received by an employee from his employer?
Answer:
Entertainment allowance is first included in the income from salary under section 15 and then deduction is allowed to a government employee under section 16(ii).

Question 24.
How will you treat the amount received from the unrecognized provident fund at the time of retirement?
Answer:

  1. Employees contribution is exempt from tax and interest accumulated on employees contribution is chargeable to tax under the head income from other sources
  2. Employers’ contribution and interest thereon is included under the head income from salary.

Question 25.
What is transferred balance?
Answer:
If an unrecognized provident fund is converted into a recognized provident fund the balance standing to the credit of the employee at the time of its recognition is known as transferred balance.

Question 26.
How do you treat the conveyance allowance received by the employee?
Answer:
Conveyance allowance received by the employer fully spent for official duty is exempt from tax however if conveyance allowance is utilized by the employee for private purpose in such a case the entire.

Question 27.
State the various forms of salary.
Answer:
The various forms of salary include wages, any annuity, gratuity, any fees, commission, perquisites or profit in lieu of salary, any payment received by an employee in respect of any earned leave not availed by him.

Question 28.
State any five employers not liable to pay fringe benefit tax.
Answer:

  1. Individual
  2. HUF
  3. Charitable institution
  4. Political party
  5. Person who is not an employer
  6. A person who has no employment base in India.

Question 29.
State any four exempted incomes under section 10 of the income tax act.
Answer:

  1. Agricultural income
  2. Sums received from HUF
  3. Share of income of a partner from a partnership from.
  4. Interest on post office savings bank account.

Question 30.
State how the ‘Leave Travel Concession’ is exempted.
Answer:
Leave travel concession is exempted upto limits laid down under section 10(5). It is given in a block of four calendar year.

Question 31.
How do you treat the transport allowance received by an employee?
Answer:
It is an allowance given to employee for the purpose of commuting between office and residence. It is exempted up to Rs. 1,600 per month for normal employee and Rs. 3,200 p.m. in case the employee is orthopedic or blind.

Question 32.
State the notified fringe benefits taxable in the hands of employee.
Answer:
Interest free loan / concessional loan
Use of movable assets except motor car, computers and laptop/ Transfer of movable asset.

Question 33.
How will you treat the employer contribution to RPF Act for Tax?
Answer:
Employers contributions to RPF is exempted up to 12% Any contribution in excess of 12% is changeable to tax under the head income from salary.

Question 34.
State the salary for the purpose of computation of taxable value of rent-free accommodation.
Answer:
Salary for the purpose of value of RFA includes basic salary excluding advance or arrears of salary + taxable allowance + Bonus + commission + Any payments made in cash + Leave salary received during service period. ;

Question 35.
State how the ‘Leave TVavel Concessionis exempted.
Answer:
LTC received by an employee is exempt to the extent of the least of the following as per income tax rules which is stated below: a) LTC granted by the employer, b) Expenses incurred by an employee, c) Amount determined as per the law.
It should be noted that this exemption is available to an individual in respect of twojour- neys performed in a block of 4 year commencing from calendar year 1986

Question 36.
How will you treat the employer contribution to RPF Act for Tax?
Answer:
Employers contributions to RPF is exempted up to 12% Any contribution in excess of 12% is changeable to tax under the head income from salary.

Question 37.
What are perquisites?
Answer:
Perquisites means any casual emoluments or profits attached to an office in addition to salary or wages. It may be given in the form of cash or in the form of kind.

Question 38.
State the various heads of income.
Answer:

  1. Income from salary,
  2. Income from house property,
  3. Income from business and profession,
  4. Income from capital gains,
  5. Income from other sources.

Question 39.
What is the advance salary? How is it treated?
Answer:
Any salary received by the assessee from his employer in the previous year which was not actually due in the previous year is termed as advance salary and it will be taxable in the year of receipt. It should be noted that if any loan is taken against salary in such a case it is not taxable.

Question 40.
What is meant by an allowance?
Answer:
Allowance is a fixed sum of money paid regularly in addition to salary for the purpose of meeting some particular requirement connected with the services rendered by an employee.

Question 41.
Mention any four tax free perquisites.
Answer:

  1. Medical benefits
  2. Residential accommodation provided at site.
  3. Employers’ contribution to staff group insurance scheme.
  4. Scholarships to employees or their children.

Question 42.
Give the meaning of salary for the purpose of calculating exempted earned leave salary.
Answer:
Salary = Basic Salary + Dearness Pay + Dearness Allowances (enters into service benefit + fixed percent of commission on turnover, achieved by the employee.

Question 43.
Mention any to special allowances notified u/s 10(14) (i) of IT ACT.
Answer:
Two special allowances exempted U/S 10(14) includes the following –

  1. Traveling allowance,
  2. Daily allowance,
  3. Conveyance allowance,
  4. Helper allowance

Question 44.
What is the provision related to Hostel Allowance?
Answer:
Hostel allowance is exempted to the extent of Rs. 300 per child to a maximum of two children.

Question 45.
Give the meaning of salary for the purpose of calculating exempted RPF contribution by the employer.
Answer:
Salary for the purpose of RPF includes Basic salary + DA entering into retirement benefits +commission on turnover achieved by the employee.

Question 46.
What do you mean by Transferred Balance?
Answer:
If an unrecognized provident fund is converted into a recognized provident fund the balance standing to the credit of the employee at the time of its recognition is known as transferred balance.

Question 47.
Mr. Kamal joined as an employee of ABC Company on 1-10-2019, determining the period of his previous year.
Answer:
The period of his previous year is 6 months i.e. from 1.10.2019 to 31.3.2020.

Residential Status Short Answer Type Questions

Residential Status Short Answer Type Questions

Question 1.
State the primary and secondary conditions applicable for the determination of the residential status of an assessee.
Answer:
Primary conditions:/ Basic condition U/s 6(1)
1. An individual should stay in India during the previous year for periods amounting in all to 182 days or more –

2. He should stay in India during the previous year for a period amounting to 60 days or more and for a period of 365 days or more out of four previous years preceding the previous year.
It also includes an Indian citizen or a person of Indian origin visiting India during the previous year.

Secondary conditions. /Additional conditions U/s 6(6)
1. He has been resident in India for 2 out of 10 previous years preceding the relevant previous year

2. He has been in India for a period of730 days or more during the seven previous years preceding the previous year.

There is an exception regarding rule of 60 days if an Indian leaves India during the previous year for the purpose of employment opportunities in foreign countries or if a foreign national of Indian origin visits India during the previous year or an Indian citizen who leaves India as a member of the crew of an Indian ship in such a case assessee should stay compulsorily for a period of 182 days or otherwise he will be treated as non-resident.

If an individual satisfies any one of the primary or both of the primary conditions buts none of the secondary conditions he is regarded as a resident but not ordinarily resident. However, if the assessee fails to satisfy the primary condition then he is regarded as a non-resident.

Question 2.
Mr. Suresh has the following incomes for the financial year 2019-2020.
i) Income from house property situated in UK Rs. 10,000.
ii) Income from salary received in India for services rendered in USA Rs. 58,000.
iii) Profits from business in Pakistan controlled from India Rs. 1,10,000.
iv) Profit from Delhi business Rs. 1,20,000
v) Agricultural income in India Rs. 12,000
vi) Income earned in Australia and received their but brought to India Rs. 80,000 Compute the Income of Mr. Suresh for the assessment year 2020-2021 if Mr. Suresh is
a) Resident
b) Not ordinarily resident
c) Non-resident.

Question 3.
The following are the details of income of Saraswathi compute her taxable income of she is
a) Resident
b) Resident but not ordinary resident
c) Nonresident

  1. Income occurred in Canada but received in India Rs. 2,000
  2. Rs, 5,000 earned in Africa and received there but brought to India.
  3. Rs. 5,000 earned in India but received in Canada
  4. Rs. 10,000 earned and received in Srilanka from a business controlled from India.
  5. House property income (computed) from Sri Lanks Rs. 2,000.
  6. Rs. 4,000 was past untaxed foreign income that was brought to India during the previous year.
  7. Profit from business from Kanpur Rs. 10,000.

Question 4.
State the tax liability of an individual on the basis of residential status.
Tax Incidence, in Brief, The following table highlights the tax incidence in brief:

Income Ordinarily Whether Not Ordinarily Resident Taxable or  Not Non-Resident Resident
1) Income received in India whether accrued or arisen in India or outside India. Yes Yes Yes
2) Income deemed to be received in India whether accrued or arisen in India or outside India. Yes Yes Yes
3) Income accruing or arising in India whether received in India or outside India. Yes Yes Yes
4) Income deemed to accrue or arise in India whether received in India or outside India. Yes Yes Yes
5) Income received and accrued or arisen outside India from a business controlled in or a profession set-up in India. Yes Yes No
6) Income received and accrued or arisen outside India from a business controlled from outside India or a profession set-up outside India. Yes No No
7) Income received and accrued or arisen outside India from any other source. Yes No No
8) Income accrued or arisen and received outside India in earlier years but later on remitted to India during the previous year. No No No

Question 5.
Mrs. Mangala, a citizen of India went to England on 2-10-2013 for higher studies for a period of two years. After she came back she was employed in a Multinational Company in India. The company sent her for 6 months of training to Germany on 1.3.2016. She was transferred to the company’s Head Office in New York on 15.8.2017. However, she left India on 2.10.2017 and reported for duty on 15.10.2017. She visited India during the months on Nov. and Dec. 2018. The company transferred her back to her original post in India and she returned to India on 26.1.2020. Determine her residential status for the AY 2020-21.

Question 6.
Mr. Rama went to England for studies on 5th August, 2019 and came back to India on 25 Feb. 2020. He had never been out of India before. What is the residential Status for the A.Y. 2020-21.

Question 7.
Mr. Ramesh, a citizen of America, comes to India for the first time on 20-03-2019. on 01-09-2019 he leaves India for Nepal on a business trip. He comes back on 26¬02-2020. Determine his residential status, for the assement year 2020-21. Answer:
Step -1 Primary condition: Assessee should stay for a period of 182 days or more relevant previous year or 60 days in 2019-20 and 365 days in 4 years preceding relevant previous year
Secondary condition: Assessee should be Resident in 2 Years out of 10 Years preceding the relevant previous and Assessee should stay for a period of 730 days or more in 7 years preceding the relevant previous year.

Step -2: Calculation of days stayed during previous years
01.04.2019 – 01.09.2019= 154 days
26.02.2020 – 31.03.2020 = 35 days
Total no days = 189 days

Step – 3: Conclusion: Assessee satisfies one of the primary but none of the secondary conditions he is regarded as resident but not ordinary resident.

Note 3: Mr. Ramesh was present in India during the previous year for a period amounting to 182 days or more, as he came to India for the first time Mr. Ramesh fails to satisfy none
of the additional condition, He is a resident but not an ordinary resident for the assessment year 2020-21.

Question 8.
Mr. Frank a citizen of west Indies was appointed as sales Manger in India on 1st Apirl 2012 at Mumbai. On 25th January 2015 he went to Uganda on deputation for a period of 3years but left his wife and children in India. On lsy May 2016 he came to India and took with him his family to Uganda on 30th June 2016. He re¬turned to India and joined his original job on 24th January 2020.
Answer:
Step -1: Primary condition: Assessee should stay for a period of 182 days or a more relevant previous year or
60 days in 2019-20 and 365 days in 4 years preceding relevant previous year Secondary condition: Assessee should be Resident in 2 Years out of 10 Years preced¬ing the relevant previous and Assessee should stay for a period of730 days or more in 7 years preceding the relevant previous year.

Step – 2: Calculation of days stayed during previous years
24.01.2020 – 31.03.2020 = 67 days Stays in India for the following previous years in India.
2018-19 = Nil
2017-18 = Nil
2016-17 = 01/05/16 – 30/06/2016 = 61 2015-16 = NIL

Step – 3: Conclusion: Mr. Frankin fails to satisfy both the primary condition he is regarded as non-resident.

Question 9.
Mr. Veeresh a citizen of England came to India for the first time on 01.05.2013. he stayed here without any break for 3 years and left for Singapur on 01.05.2016. He returned to India on 01.04.2017 and went back to England on 1.12.2017. he was pointed back to India on 20.1.2020.
Determine his residential status for the A. Y. 2020-21.

Question 10.
Mr. Eshwar a foreign citizen leaves India for the first time in the last 20 years on November 20th, 2017, During the calender year 2018 he comes to India on 1st September and stays for a period of 30 days. During the calendar year 2019, he does not visit India at all but comes to India on January 16th, 2020. Determine his residential status for the assessment year 2020-21.

Question 11.
Mr. Pratham, a foreign cricketer comes to India to 100 days every year since the financial year 2010-11. Find out his residential status for the assessment year 2020- 21.
Answer:
Step 1: Basic condition:

  • 182 days or more in relevant previous year Or
  • 60 days in 2019-20 and 365 days in 4 years preceding relevant previous year Additional condition :
  • Resident in 2 years out of 10 years preceding the relevant previous and
  • 730 days or more in 7 years preceding, the relevant previous year.

Note 2: Mr. Pratham stayed in India during the previous years for a period amounting to 100 days. However, in the earlier previous years he stayed for 100 days each in all years since 2010-11.
Note 3: Mr. Pratham satisfied the second basic condition but he fails to satisfy second additional condition. It can be concluded that Mr. Pratham is a resident but not an ordinary resident for the assessment year 2020-21.

Question 12.
Mr. Peter, a foreign cricketer comes to India for 100 days every year since the financial year 2010-11. Find out his residential status for the AY 2020-21.
Answer:
Primary conditions:
a) Stay in India for 182 days or more in the P.Y. Not satisfied
OR
b) stay in India for 60 days or more in the P.Y. (+) satisfied
Secondary conditions :
a) Resident in India for 2 years out of 10 P.Y. s
preceding the P. Y. satisfied
b) Stay in India for 730 days or more during 7 P.Y. s
preceding the P.Y. Not satisfied
Conclusion: Mr. Peter satisfies one of the primary and one of the secondary conditions he is a resident but not ordinarily resident for the assessment year 2020-21.

Question 13.
Mr. Satish an employee of QPR Co., Ld., Mysore, has left India for the first time on 16th July 2019 for higher training in the U.K. Calculate his residential status for the assessment year 2020-21.
Answer:
No of days in India during 2019-20. –

  1. April 30 days +May 31 days + June 30 days + July 16 days = 107 days.
  2. First basic condition is not satisfied as he was in India only for 107 days as against a minimum of 182 days.
  3. As he left India not for employment in abroad, the second basic condition is applicable.
  4. Since he left India for the first time on 16th July 2019, he has satisfied both parts of the second basic condition (365 days during four years preceding and 60 days during 2019-20) Hence he is a resident.
  5. He has also satisfied both the additional conditions as he left India for the first time.
  6. Hence the residential status of Mr.Satish for the A.Y 2020-21 is Resident and Ordinary Resident.

Question 14.
Mr. Kishore went to England for studies on 5th August 2019 and came back to India on 25th February 2020. He had never been out of India before. What is his Residential status for the Assessment Year 2020-21?
Answer:
Mr. Kishore stayed in India for 163 days in the previous year 2019-20 (1.4.2019 – 5.8.2019)
Apr 30, May 31, Jun 30, Jul 31, Aug. 5 = 127
(25.2.2020 – 31.3.2020)
Feb. 5 Mar. 31= 36
Total = 163 days
Therefore he has satisfied the 2nd basic condition and both the additional conditions. So he is a resident and ordinary resident of India for the assessment year 2020-21.

Question 15.
Following is the income of Mr. Nistchal for the financial year 2019-20.
a) Interest on SB deposit in SBM (Delhi) Rs. 2,400.
b) Income from Agriculture in Africa invested in Nepal Rs. 20,000/-
c) Dividend received in UK from an American company out of which Rs. 4,000
was remitted to India Rs. 20,000/-
d) Income from house property situated in Pakistan Rs. 15,000/-
e) Salary drawn for 3 months for working in Indian Embassy office in Australia and salary received their Rs. 1,44,000/-
f) Pension received in Belgium for services rendered in India with a limited company Rs. 40,000/- You are required to compute the Gross total Income for the assessment year 2020-21 if he is a) Resident b) Net Ordinarily Resident c) Net Resident.

Question 16.
The following are the particulars of income of X of the previous year 2019-20.
a) Rent from a property in Delhi received in USA Rs. 1,60,000/-
b) Income from a business in USA, controlled from Delhi Rs. 2,40,000/-
c) Income from a business in Bangalore controlled from US A Rs. 2,60,000-
d) Rent from a property in USA, received their but subsequently remitted to India Rs. 1,20.000
e) Interest from deposits with an Indian company received in USA Rs. 40,000/-
f) Profit for the year 2017-18 of a business in USA remitted to India during 2019¬20 [not taxed earlier] Rs. 75,000/-
g) Gift received from parent Rs. 45,000/-
Compute his income for the assessment year 2020-21 if he is
a) Resident and ordinarily resident
b) Resident but not ordinarily resident,
c) Non Resident

Question 17.
Following are the particulars provided by Mr. Ramesh relevant to the previous year 2019-20.
Compute his gross total income as on different residential status.
a) Royalty received outside India from the Government of India Rs. 8,500.
b) Share of Income from HUF Rs. 4,000/-
c) Income from Agriculture in Mandya Rs. 10,000.
d) Technical fees received from ‘A’ ltd. [an Indian Company] in Germany for advice given by him in respect of project situated in Iran Rs. 58,500-
e) Income from a business situated in Srilanka [Goods are sold in Srilanka, Sale consideration is received in Srilanka, but business is controlled and managed from India] Rs. 1,08,500/-
f) India earned from a business in Uganda the business is controlled from Delhi [Rs. 7,500 is received in India] Rs, 32,500
g) Pension from the Government of India and received in Rangoon Rs. 9,000/-
h) Profit from a business in Goa, the business is wholly controlled and managed from Portugal and the whole profits are received in France Rs. 37,500/-
i) Cash Gifts received in India from a relative in USA Rs. 50,000/-
j) Income from Agriculture in Indonesia, 50 % of the income is received in India Rs. 25,000/- and the balance is received and used for Son’s education in London.

Question 18.
Mr. Anand furnishes the fall particulars of his income earned during the previous yer 2019-20 –
1) Interest on German development bonds (1/3rd is received in India) Rs. 51,000.
2) Income from agriculture in Bangladesh remitted to India Rs. 31,000.
3) Income from property in Canada received in USA Rs. 1,10,000
4) Income earned from business in Kuwait, being controlled from Mumbai.
[Rs. 25,000 is received in Indian] 65,000
5) Dividend received from Indian company Rs. 15,000
6) Royalty received in Singapore from Mr. David, a resident in India for techni-cal services provided for business carried in Singapore Rs. 25,000
7) Profit from business in Chennai, business is controlled from Singapore Rs. 1,25,000/.
8) Profit on sale of building in India but received in Nepal Rs. 2,50,000.
9) Income from agriculture in Punjab received in Mumbai Rs. 30,000
10) Profit from business in Indonesia This business is controlled from Dehli 60 %
of profit deposited in a bank their & 40 % is remitted to India Rs. 40,000.
11) Interest received from Dayal, a non resident on the loan provided for his business in India 28,000
Compute his gross total income
a) Resident
b) Non ordinary resident (NOR)
c) Non Resident (NR)

Question 19.
Sri Hanuman Prasad has furnised income for previous year ending 31. March 2020.
1) Income from salary in India from a Co. Rs. 50,000
2) Dividend from an Indian Co. received on England and spent in London – 10,000
3) Income from house property in India received in Pakistan 20,000
4) Dividend from a foreign Co. received in England and deposited In a bank there Rs. 10,000
5) Income in business in Kolkatta managed from USA 20,000
6) Income from business in USA (controlled from Kanpur head office Rs. 12,000)
7) Income was earned in Australia received there but brought into India Rs. 25,000.
8) His material uncle sent a bank draft from France as a gift to him on his marriage Rs. 20,000.
Compute the gross total income if he is
a) Resident
b) Not ordinary resident
c) Non resident

Question 20.
From the following particulars of Mr. Nagaraj compute his Gross total income for theA.Y. 2020-21. If he is:
i) Resident
ii) Not ordinarily resident and
iii) Non-Resident
a) Income from business from Raichur Rs. 50,000
b) Profit from business in U.K. contrc lied from India Rs. 60,000
c) Income from house property in Japan Rs. 30,000
d) Income from business in India but received in Pakistan Rs. 50,000.
e) Salary received in India for service rendered in U.S.A. Rs. 70,000.
f) Interest on deposit with State Bank in Bangalore Rs. 10,000
g) Profit from business in Ceylon controlled from India (1/3 profit received in India) Rs. 30,000
h) Salary received in India for service rendered in Kuwait Rs. 35,000.
i) Past untaxed foreign income brought in to India Rs. 8,000.
j) Dividend received from Domestic company Rs. 5,000
k) Interest on post office Savings Bank A/c Rs. 1,000
l) Agricultural income earned in Nepal Rs. 25,000.

Question 21.
Following are the particulars of Mr. George relevant to the previous year 2019¬20. Compute the Total Income based on different residential status:
i) Income from agriculture in Indonesia, one-half of the income is received in Bangalore and the balance is received in Pakistan, Rs. 30,000.
ii) Income from agriculture in Punjab, the whole amount is received London and used for children education there, Rs, 25,000
iii) Profit from a business in Chennai, the business is controlled and managed from Colombo, 50% of the profits are received in Colombo, Rs. 50.000.
iv) Profit from a business in Paris, the business is managed from Mumbai, one-half of the profits are received in Bangalore and the balance remitted to India, Rs. 60,000
v) Dividend from Microsoft Corporation Ltd., (domestic Company) Rs. 20,000
vi) Share of profit from a partnership firm in Mumbai, Rs, 22,000.
viii) Interest on fixed deposits in State Bank of India, Rs. 10,000.
viii) Interest on SB account in Post Office, Rs. 2,000.

Question 22.
Sri Suresh submits the following incomes for the financial year 2019-20.
a) Income from house property situated in U.K. 10,000
b) Income from salary received in India for services rendered in USA 58,000
c) Profits from business in Pakistan controlled from India 1,10,000
d) Profit from Delhi business Rs. 1,20,000
e) Agricultural income in India Rs. 12,000
f) Income earned in Australia and received the but brought to India. 80,000 Compute the income of Sri Suresh for the A. Y. 2020-21 if he is:
i) Resident
ii) Not ordinarily Resident
iii) Non Resident

Question 23.
Mr. Krishna Murthy furnished the following particulars of his income for the PY 2019-20:
(a) Interest on German Development Bonds Rs. 60,000 (2/5th is received in In-dia.)
(b) Income from agrifculture in Bangladesh (received there but later on Rs. 50,000 remitted to India/Rs. 1,80,000.
(c) Income from Projferty in Sri Lanka received there (Rs. 80,000 is used in Sri Lanka and the balance remitted to India) Rs. 1,20,000/-
(d) Income from business in Kenya which is controlled from B&lgaiuru (Rs. 18,000 received in Bengaluru) Rs. 78,000.
(e) Dividend aid by an Indian Company received in Canada Rs.56,000
(f) Past untaxed profit Rs. 1,05,000 brought to India during 2008-09.
(g) Profit from business ill Mysore but controlled from London Rs. 72,000.
(h) Profit on sale of building in Mangalore but received in Dubai Rs. 1,48,000.
(i) Pensioji from Indian Company received in London Rs. 36,000.
(j) Gift in cash from a relative received in India Rs. 60,000.
Find out Mr. Krishnamurthy’s Gross Totfll Income for the AY 2020-21 if he is:
(a) Resident and ordinarily resident.
(b) Resident but not ordinarily resident and
(c) Non-resident.(2009)

Question 24.
From the following particulars of Mr. Thushar compute his gross total income. For the assessment year 2020-21 if he is
a) Resident
b) Not-ordinarily resident
c) Non-Resident
A) Income from business in Hubli Rs. 1,00,000
B) Profit from business in U.K. controlled from India Rs. 60,000
C) Income from house property in Japan not received in India Rs. 50,000
D) Income from business in India but received in Pakistan Rs. 30,000.
E) Salary received in India for services rendered in U.S.A. Rs. 70,000.
F) Interest on deposit with State Bank in Bangalore Rs. 20,000.
G) Profit from Busienss in Singapur controlled from India (1/3 Profit received in India) Rs. 30,000.
H) Past untaxed foreign income brought into India Rs. 8,000.
I) Dividend received from domestic company Rs. 5,000.
J) Interest on post office Savings Bank A/c Rs. 1,000.
K) Agricultural income earned in Nepal Rs. 25,000.
L) Commission received in India for the services given in Nepal Rs. 10,000.

Question 25.
From the following particulars of Mr. Manjunath compute his Gross Total Income for the A.Y. 2020-21 if he is:
a) Resident
b) Not-ordinarily resident
c) Non-resident.
a) Income from business in Chennai, business managed from Srilanka Rs. 25,000.
b) Income from House Property in Mysore Rs. 1,00,000.
c) Income from salary in Japan Rs. 1,60,000.
d) Income from business in Kuwait, business being controlled from Mumbai (Rs. 25,000 is received in India) Rs. 65,000.
e) Income from agriculture in Punjab, received in Mumbai Rs. 30,000.
f) Income from agriculture in Bangladesh remitted to India Rs. 10,000.
g) Profit from sale of building in India Rs. 2,50,000.
h) Profit from business in Indonesia: this business controlled from Delhi Rs. 40,000.
i) Income from Indian partnership firm Rs. 5,000.
j) Interest on Savings Bank deposits in State Bank of India Rs. 1,000.
k) Dividend from foreign company received in England Rs. 10,000.
l) Interest on German Development Bonds (1/3 received in India) Rs. 51,000.

Question 26.
Mr. Nischay furnishes the following particulars of his income earned during the previous year 2019-20
a) Profit from business in Chennai Rs. 50,000.
b) Income from agriculture in Srilanka Rs. 1,90,000.
c) Income from property in Mexico received there Rs. 2,00,000.
d) Interest on Singapur Development Bonds Rs. 1,50,000 (1/3 received in India).
e) Income from business in Kuwait controlled from Mumbai Rs. 85,000 (Rs. 35,000 received in India).
f) Dividend from domestic company Rs. 1,000.
g) Profit on sale of building in Bangalore received in Nepal Rs. 50,000.
h) Income from agriculture Punjab Rs. 1,00,000
i) Profit on sale of plant at London Rs. 50,000 (50 % is received in India).
j) Rent from House property in Nepal received there Rs. 20,000.
k) Profit from business in Mysore received in Mandya Rs. 25,000.
l) Dividends from U.K. based company received in U.K. Rs. 27,000.
Compute his Gross Total Income for the Assessment year 2020-21 if he is
a) Ordinary resident
b) Not ordinary resident
c) Nonresident.

Question 27.
Mr. Prakash a foreigner, came to India from Poland for the first time on 1.4.2014. He stayed here continuously for 3 years and went to France on 1.4.2017. He however returned to India on 1.7.2017 and went to Poland on 1.12.2018. He again came back to India 25.1.2020 on a service in India. What is his residential status for the A.Y.: 20-21.

Question 28.
Following are the incomes of Mrs. Vishnu for the previous year 2019-20
a) Received Rs. 20,000 in India, which accrued in England.
b) Rs. 10,000 earned in India but received in England.
c) Rs. 5,000 were earned and received in Africa but brought to India.
d) Rs. 10,000 were earned and received in Japan from a business which was controlled and managed in Japan.
e) Rs. 16,000 was untaxed foreign income of some earlier year, which was brought to India in the previous year.
f) Interest on Fixed Deposit in State Bank of Mysore, Bangalore Rs. 1,200.
g) Income from agriculture in Africa Rs. 10,000
h) Dividends received in U.K. from an American Company Rs. 10,000
i) Salary income for three months for working in Indian Embassy’s Office in Australia and salary received there Rs. 72,000
j) Income from house property in Mumbai Rs. 1,00,000
k) Interest received on POSB A/c Rs. 1,000
l) Pension income from Belgium for services rendered in India with a limited company Rs. 20,000
m) Gift from relatives Rs. 80,000
Which of the above incomes are taxable if Mrs. Vishnu is –
a) Resident and Ordinarily Resident
b) Resident but not Ordinarily Resident
c) Non-Resident

Question 29.
Mr. Krishna furnishes the following particulars of his income earned during the previous year 2019-20.
a) Profit from business in Chennai Rs. 50,000.
b) Income from agriculture in Ceylon Rs. 1,90,000
c) Income from property in Mexico received there Rs. 2,00,000.
d) Interest on Singapore development bonds Rs. 1,50,000 (1/3 received in India).
e) Income from business in Kuwait controlled from Mumbai Rs. 85,000 (Rs. 35,000 yras received in India).
f) Dividend from domestic company Rs. 1,000.
g) Profit on sale of building in Bangalore received in Nepal Rs. 50,000.
h) Income from agriculture in Punjab Rs. 1,00,000.
i) Profit on sale of plant at London Rs. 50,000 (50 % is received in India).
j) Rent from house property in Nepal received there Rs. 20,000.
k) Profit from business in Mysore received in Mandya Rs. 25,000.
l) Dividends from U.K. based company received in U.K. Rs. 27,000.
Compute his Gross Total Income for the AY 2020-21, if he is
a) Ordinary resident
b) Not ordinary resident
c) Non-resident.

Question 30.
Mr. Akshay furnishes the following particulars of his income for the previous year 2019-20. Determine his taxable income for the A.Y. 2020-21 if his residential status is
a) Ordinary resident
b) Not ordinary resident
c) Nonresident
I. Income from business in Hubbii Rs. 1,00,000
II. Profit from business in UK controlled from India Rs. 50,000
III. Income from House Property in Japan Received there is Rs. 50,000
IV. Income from business in India received in Pakistan Rs. 30,000
V. Salary received in India for Service rendered in USA Rs. 70,000
VI. Interest on deposits with SBI in Mysore Rs. 20,000.
VILProfits from business in Singapore controlled from India (1/3rd received in India) 30,000
VIII. Past untaxed foreign brought into India Rs. 8,000.
IX. Dividend received from a domestic company Rs. 5,000
X. Agricultural income earned in Nepal Rs. 25,000
XI. Commission received in India for service given in Japan Rs. 10,000
XII. Income from profession in India but received in France Rs. 10,000

Question 31.
Sri Ram Submits the following particulars of his income for the year 2019-20
Amount (Rs.)
a) Income from HP in Hasana received in Paris 6,50,000
b) Salary income from an Indian employer received in
New York for two months 75,000pm
c) Income from business in Mumbai received in
Bangalore(40% remitted to Nepal) 12,50,000
d) Dividends from foreign company received in Chennai 1,80,000
e) Income from business in Honkong business is controlled
from Thmkur (25 % received in Ilimkur) 15,00,000
f) Interest on post office SB A/C in Bangalore
(account is held in Joint names) 17,500
g) Income from agricultural land in Sri lanka
(50% received in India) 2,05,000
h) Share from HUF 60,000
i) Royalty received in India for the services rendered in Japan 6,00,000
j) Interest earned on US Government Bonds received in London 1,75,000
k) Interest on SBI deposits received in Bhutan 7,080
l) Past untaxed foreign income brought to India 6,10,000
m) Interest on housing loan given to Mr. X for construction of
house in Bangladesh received in Bangalore 65,020
Calculate his GTI for the A.Y 2020-21 if he is
a) Ordinary resident
b) Not-Ordinary resident
c) Non-resident

Question 32.
Mr. Avinash furnishes the following information of income for the AY 2020-21. Find out his total income if his Residential status is:
a) Ordinary Resident
b) Not-ordinary Resident
c) Non-Resident Indian
i) Income from business from Mumbai – Rs. 1,00,000
ii) Profit from business in the USA controlled from India – Rs. 50,000.
iii) Income from House property in Japan received there Rs. 50,000.
iv) Income from a business in India, but received in London Rs. 30,000.
v) Salary received in India for services rendered in USA Rs. 70,000.
vi) Profits from business in Malaysia controlled from India (1/3 received in India) Rs. 30,000
vii) Past untaxed income brought into India Rs. 8,000.
viii) Dividend received from a domestic Company Rs. 5,000.
ix) Agricultural income earned in Nepal Rs. 25,000.
x) Interest earned on Post Office Savings Bank a/c Rs. 3,000.
xi) Interest received on Private Company Securities Rs. 25,000.
xii) Gift in cash from father Rs. 30,000.

Residential Status Very Short Answer Type Questions

Residential Status Very Short Answer Type Questions

Question 1.
Who is a non-resident?
Answer:
A non-resident is one who fails to satisfy the primary conditions however he satisfies the secondary conditions.

Question 2.
State the various types of residents.
Answer:
Types of residents are –

  1. Resident ordinarily resident
  2. Resident but not ordinarily resident
  3. Nonresident

Question 3.
Who is a resident but not ordinarily resident?
Answer:
A resident but not ordinarily resident is one who satisfies any one of the Primary or both of the primary but none of the secondary conditions.

Question 4.
State the primary conditions applicable to determine the residential status of an assessee.
Answer:

  1. An.individual should stay in India during the previous year for a period or periods amounting in to all 182 days or more.
  2. An individual should stay in India during the previous year for a period amounting to 60 days or more and 365 days or more out of 4 previous years preceding the previous year.

Question 5.
State the secondary conditions applicable to determine the residential status of an assessee.
Answer:

  1. An individual should stay in India for at least two years out of ten previous years preceding the previous year.
  2. An individual should stay in India for a period of 730 days or more out of seven previous years preceding the previous year.

Question 6.
Distinguish between residence and citizenship of a person.
Answer:
The residence of a person can be changed from year to year but citizenship cannot be changed year after year.

Question 7.
State the incidence of tax in the case of ordinary residents.
Answer:

  1. Received or deemed to be received in India in such year by or on behalf of such person whether accrued or arisen anywhere
  2. Accrues or arises or deemed to accrue or arise to him in India during such year whether received anywhere
  3. Accrues or arises to him outside India from a business controlled or a profession set up in India.

Question 8.
State the incidence of tax in the case of non-resident.
Answer:

  1. Received or deemed to be received in India in such year by or on behalf of such person whether accrued or arisen anywhere
  2. Accrues or arises or deemed to accrue or arise to him in India during such year whether received anywhere.

Question 9.
What is deemed income? Give any two examples.
Answer:
Deemed incomes are those incomes that are not actually received but the income tax act treats as if the income is received by the assessee.
Examples: a) Tax deducted at source b)Taxable portion of the transferred balance of the unrecognized provident fund is deemed to be received during the previous year.

Question 10.
Give the meaning of deemed to accrue or arise.
Answer:
Deemed to accrue or arise means the income has actually not accrued or arisen in India but it is deemed to accrue or arise in India.
Examples: a. Salary earned in India and received outside India b. Salary payable by the government to a citizen of India for service outside India.

Question 11.
What are the different categories of assesses on the basis of their residential status?
Answer:

  1. Resident ordinarily resident
  2. Resident but not ordinarily resident non-resident.

Question 12.
State any four items in which income is deemed to accrue or arise in India.
Answer:

  1. Income by way of interest.
  2. Income by way of royalty
  3. Dividend paid by an Indian company.
  4. Income from salary if service if rendered outside India.

Question 13.
State any four items in which income is not deemed to accrue or arise in India.
Answer:

  1. Purchase of goods for export.
  2. Collection of news and views
  3. The shooting of cinematograph in India
  4. When all operations are not carried in India.

Question 14.
How do you treat an income as an Indian income or as a foreign income?
Answer:
An income is said to be an Indian income if it is received or deemed to be received or accrues or arises in India. However, if income accrues or arises to him outside India then it is treated as foreign income.

Question 15.
What are the different categories of assesses on the basis of their residential status?
Answer:

  1. Resident ordinarily resident,
  2. Resident but not ordinarily resident,
  3. Non-resident.

Question 16.
Who is a resident and an ordinary resident?
Answer:
A resident ordinarily resident is one who satisfies any one of the primary and both of the secondary conditions.

Question 17.
Who can be a resident but not an ordinary resident under Income Tax Act?
Answer:
An individual is said to be a Resident but No ordinarily resident in Indian if he/she satisfies at least one of the basic conditions U/S 6(1) And one or none of the additional conditions U/S 6(6).

Question 18.
How do you treat past untaxed foreign income?
Answer:
Past untaxed income which was exempted earlier but brought to India in the current previous year is fully exempt from tax.

Question 19.
How do you treat income accruing and received outside India but from a business controlled from or professional set up in India?
Answer:
It shall be taxable only in the case of a resident and not ordinarily resident only. This rule is applicable only on income chargeable to tax under the head profits and gains of business or profession and not on any other income such as salary.

Question 20.
State the various classifications of assesses for the purpose of determining residential status.
Answer:

  1. Individual,
  2. HUF,
  3. Firms,
  4. Companies,
  5. Every other person

Question 21.
State the exceptions to basic conditions.
Answer:
The individual has to stay in India for a period of 182 days or more instead of 60 days or more during the previous year:

  1. If an Indian citizen leaves India for the purpose of employment in the previous year
  2. In case an Indian citizen leaves India as a crew member of a ship in the previous year
  3. If a person of Indian origin coming on a visit to India during the previous year

Question 22.
Give the meaning of a person of Indian origin.
Answer:
Person of Indian origin means either assessee or his\her parents or grandparents or great grandparents are born in undivided India.

Question 23.
What is the residential status?
Answer:
The residential status of an assessee is purely determined on the basis of the total number of days stayed by an assessee in India during the relevant previous year.

Question 24.
State the various condition laid under section 6(6).
Answer:

  1. An individual must be resident in India for at least 2 out of 10 previous years immediately preceding the relevant previous year
  2. An individual must stay for a minimum of730 days out of 7 previous years immediately preceding the relevant previous year.

Question 25.
State the various conditions laid under section 6(1).
Answer:

  1. An individual must stay in India for a period of 182 days or more during the relevant previous year.
  2. An individual must be in India for at least 60 days or more during the relevant previous year and 365 days ore more during four previous years immediately preceding the relevant previous year.

Question 26.
State any four incomes deemed to be received in India,
Answer:

  1. Employers contribution to provident fund
  2. Interest accrued on provident fund balance
  3. Interest accrued on NSC VIII issue
  4. Tax deducted at source.

Question 27.
State any two incomes deemed to accrue or arise in India.
Answer:

  1. Salary paid by the government to its employee posted abroad
  2. Pension paid outside India but for services rendered in India
  3. Dividend paid by an Indian company outside India
  4. Apportionment of profit

Question 28.
Who is a Non-Resident of India?
Answer:
The person who does not satisfy any of the basic conditions U/s 6( 1) of the income tax act is known as a non-resident of India.

Exempted Incomes Questions and Answers

Exempted Incomes Questions and Answers

Question 1.
Give the meaning of exempted incomes.
Answer:
Exempted incomes form part of total income and are fully taxable. These incomes are treated under section 80 of the act. It includes salaries, rent from house property, profit and gains of business or profession, profit on the sale of capital assets, etc.

Question 2.
State any four exempted incomes.
Answer:
a) Agricultural income section 10(1), b) Interest paid to nonresident section 10 (4) (i), c) Share of income from HUF section 10 (2A), d) Any sum received by a coparcener from HUF section 10(2).

Question 3.
What is casual income?
Answer:
Income with unanticipated, non-recurring, earned from unknown sources is called casual income. They are in the nature of windfall.
Ex.: Income from lotteries crossword puzzles, Horse race, etc.,

Question 4.
State any two examples for casual income.
Answer:

  1. Income from the lottery,
  2. Income from crossword puzzles,
  3. Income from gambling
  4. Income from betting.

Question 5.
State any four incomes exempted from salaries.
Answer:

  1. Leave travel concession to an employee,
  2. Allowance or perquisites outside India,
  3. Death cum retirement gratuity,
  4. Commutation of pension.

Question 6.
How do you treat the income of a minor child which has been included in the income of the parent?
Answer:
It is exempted upto Rs. 1,500 for each minor child.

Question 7.
State any ten incomes exempt under section 10 of the income tax act.
Answer:

  1. Agricultural income sec 10(1)
  2. Sums received from HUF sec 10(2)
  3. Share of income of a partner from the firm sec 10(2)
  4. Payments made under Bhopal Gas Leak Disaster Act 1985 sec 10 (10BB)
  5. Income of a minor child sec 10(32)
  6. Allowance received by MP/MLA
  7. The compensation received by victims of Bhopal gas leak disaster
  8. Payments from recognized provident fund
  9. Payments from statutory provident fund
  10. Scholarship received by students

Question 8.
Explain the various incomes exempted under section 10.
Answer:
The various incomes exempted under section 10 are as follows:
1. Agricultural income: Under the provisions of Section 10(1). of the Income Tax Act, agricultural income is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner that results in “no” tax on agricultural income but an increased income tax on the other income.

2. Receipts from Hindu Undivided Family (HUF): Any sum received by an individual as a member of a Hindu Undivided Family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).

3. Share from a partnership firm: Under the provisions of Section 10(2A), in the case of a person being a partner of a firm that is separately assessed as such, his share in the total income of the firm is completely exempt from income tax since AY 1993-94.
For this purpose, the share of a partner in the total income of a firm separately assessed as such would be an amount that bears to the total income of the firm the same share as the amount of the share in the profits of the firm in accordance with the partnership deed bears to such profits.

4. Allowance for foreign service: Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7). This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.

5. Gratuities: Under the provisions of Section 10(10) of the IT Act, any death-cum- retirement gratuity of a government servant is completely exempt from income tax. However, in respect of private-sector employees gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children, or dependants on his death is exempt subject to certain conditions.

The maximum amount of exemption is Rs. 20,00,000;. Of course, this is further subject to certain other limits like the one half-month’s salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months’ salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).

6. Commutation of pension: The entire amount of any payment in commutation of pension by a Government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.
However, in respect of private-sector employees, only the following amount of commuted pension is exempt, namely: (a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and (b) In any other case, the commuted value of half of such pension.

It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a taxpayer.

7. Leave salary of central government employees / Under Section 10(10AA) the maximum amount receivable by the employees of the central government as cash equivalent to the leave salary in respect of earned leave at their credit up to 10 months’ leave at the time of their retirement, whether on superannuation or otherwise, would be Rs. 3,00,000.

8. Voluntary retirement or separation payment: Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2B A, is completely exempt from tax. The maximum amount of money received at such VR which is so exempt is Rs. 500,000.

9. Life insurance receipts: Under Section 10(10D), any sum received under a Life Insurance Policy (LIP), including the sum allocated by way of bonus on such policy, other than u/s 80DDAor under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20 percent of the actual capital sum assured, is fully exempt from tax.
However, all money received on the death of the insured is fully exempt from tax Thus, generally, money received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.

10. Payment received from provident funds: Under the provisions of Sections, 10(11), (12) and (13) any payment from a government or recognized provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.

Introduction to Income Tax Long Answer Type Questions

Introduction to Income Tax Long Answer Type Questions

Question 1.
Classify the following into capital and revenue.
Answer:

  1. Power subsidy received by new industries – revenue receipt
  2. Premium on issue of shares capital receipt.
  3. Shares held stock in trade revenue receipt.
  4. The amount received by a partner as composition in lieu of reduction of his share in the profit from a newly admitted partner. – Capital receipts
  5. Compensation received for granting sublease of conger duration -Capital receipt
  6. Grant received from the government for the purpose of trading – revenue receipts.

Question 2.
Classify the following into capital and revenue expenditure.
Answer:

  1. Expenditure on training apprentice – Revenue expenditure
  2. Expenditure incurred in connection with issue of bonus shares – Revenue Expenditure
  3. Payment made for acquisition of goodwill of business -Capital expenditure
  4. Fees paid to management consultant-Revenue expenditure
  5. Betterment charges paid to effect improvement of land- Capital expenditure.
  6. Expenses incurred with a view to keep competition out of his field of business – Capital expenditure.

Question 3.
State the powers of central board of direct taxes.
Answer:
1. Empowered to declare any institution, association or body as a company for any as¬sessment year

2. To make rules for the whole or any part of India for carrying out the purposes of the act as laid down under section 295 of the act.

3. To authorise an income tax authority to appoint such executive or ministerial staff as may be necessary to assist it in the execution of its function

4. To entertain applications of objection regarding detention of books of account or other documents under section 132(10)

5. To empower the director general or director to perform such function of any other income tax authority as may be assigned to him by the board

6. To issue the instructions and directions to other

7. To issue instructions that income from property held under trust shall not be included in the total income of the recipient.

8. To authorise to sanction issue of notice for reassessment after the expiry of eight years

Question 4.
Discuss whether the following are agricultural income:
a) Compensation received for acquisition of agricultural land for military pur-pose.
b) Income from sale of forest trees of spontaneous growth.
c) Income from interest on simple mortgage of land used for agricultural pur¬poses.
d) Income derived from land used as stone quarries.
e) Rent from house property situated in a village.
Answer:
a) It is an agricultural income because the compensation is received on account of loss of agricultural land.
b) It is a non-agricultural income because basic operations are not performed.
c) It is a non-agricultural income because income is derived from mortgagee but not from land.
d) It is a non-agricultural income because basic operations are not performed.
e) It is a non-agricultural income since it is not connected with land.

Question 5.
State whether the following is agricultural or nonagricultural income.
a) Income from interest on arrears of rent payable in respect of land used for agricultural purposes.
b) Income from agricultural land situated in Australia.
c) Income from sale of forest trees of spontaneous growth
d) Income from lease of land for grazing of cattle required for agricultural pur¬suits.
e) Income from interest on simple mortgage of land used for agriculture.
f) Rent received from house property situated in a village.
g) Remuneration received as manager of an agricultural farmhouse.
h) Income from dairy farm, poultry farming etc.
Answer:
a) Non-agricultural Income .
b) Non-agricultural Income
c) Non-agricultural Income
d) Agricultural Income
e) Non-agricultural Income
f) Non-agricultural Income
g) Non-agricultural Income
h) Non-agricultural Income

Question 6.
State with reasons, whether the following incomes aje agricultural or non-agricultural incomes:
a) Income from growing flowers and creepers.
b) Dividend received from a company engaged in agricultural operations.
c) Interest on loan given to a farmer
c) Income from agricultural activities in Srilanka.
d) Income from the conversion of sugarcane into jaggary by the farmer himself.
Answer:
a) It is an agricultural income because basic operations are performed.
b) Income is derived from investment in shares but not from agricultural land it is a non-agricultural income
c) The land is situated in Srilanka but not in India and hence the income derived is non-agricultural.
d) Difference between the market price and cost price of sugarcane is agricultural income and the balance will be treated as business income.

Question 7.
Explain the income tax provisions of ‘Agricultural Income’.
Answer:
Tax provisions relating to agricultural land:

  1. Land must be situated in India.
  2. Land must be used for agricultural purpose. Tilling of land, watering it, sowing of seeds, planting and similar operations must be performed by the assesses.
  3. The receiver of income from land must have interest in land.
  4. Direct income from agriculture is treated as agricultural income. Indirect income from agriculture is not treated as agricultural income. Salary of from manager or dividend from a company engaged in agricultural activities is not treated as agricultural income.

Question 8.
Discuss whether the following are agricultural income:
a) Compensation received for acquisition of agricultural land for military pur-pose.
b) Income from sale of forest trees of spontaneous growth.
c) Income from interest on simple mortgage of land used for agricultural pur-poses.
d) Income derived from land used as stone quarries.
e) Rent from house property situated in a village.
Answer:
a) It is an agricultural income because the compensation is received on account of loss of agricultural land.
b) It is a non-agricultural income because basic operations are not performed.
c) It is a non-agricultural income because income is derived from mortgagee but not from land.
d) It is a non-agricultural income because basic operations are not performed.
e) It is a non-agricultural income since it is not connected with land.

Question 9.
State the powers of income tax officers.
Answer:
The powers of income tax officers the following –

  • Discovery and production of evidence,
  • Power regarding search and seizure
  • Power of requisition books of accounts
  • Power to call for information
  • Power to survey
  • Power to inspect registers of companies
  • Power to impose penalties
  • Rectification of mistakes
  • To demand advance payment of income tax
  • To reassess escaped income

Question 10.
State whether the following incomes are agricultural or non-agricultural incomes.
i) Dividend from a company engaged in agriculture.
ii) Lease rent received from lands given to tenants for agricultural operations.
iii) Salary received as a partner from a tea manufacturing firm.
iv) Sale of plants from a nursery.
v) Income from self-grown grass and trees.
Answer:
i) Non-agricultural income,
ii) Agricultural income,
iii) Non agricultural income,
v) Agricultural income,
vi) Non-agricultural income

Question 11. Discuss whether the following are agricultural income
a) Sale of plants from nursery.
b) Income derived from land used at stone quarries.
c) Income from sale of forest trees of spontaneous growth.
d) Dividend from a company engaged in agriculture.
e) Income from interest on simple mortgage of land used for agricultural purpose.
Answer:
a) Agricultural income,
b) Non-agricultural income,
c) Non agricultural income
d) Non agricultural income,
e) Non agricultural income

Question 12.
Explain the components of income tax.
Answer:
The income tax law in India consists of the following components:
1. Finance Act: Union Minister of Finance presents the budget to the parliament annually. After obtaining approval from parliament and assent from President it becomes the finance act.

2. Income-tax Rules: is administered by the Central Board of Direct Taxes (CBDT).

3. The CBDT is empowered to make rules for carrying out the purposes of the Act. For the proper administration of the Income-tax Act, the CBDT frames rules from time to time. These rules are collectively called Income-tax Rules, 1962.

4.  Circulars and Notifications: Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify doubts regarding the scope and mean¬ing of the provisions. These circulars are issued for the guidance of the officers and/or assesses

Question 13.
Explain the various cannons of taxation.
Answer:
The various canons of taxation are as follows:
1. Canon of Equality: The word equality here does not mean that everyone should pay the exact, equal amount of tax. What equality really means here is that the rich people should pay more taxes and the poor pay less. This is because the amount of tax should be in proportion to the abilities of the taxpayer. It is one of the fundamental concepts to bring social equality in the country.

2. Canon of Certainty: The tax payers should be well aware of the purpose, amount and manner of the tax payment. Everything should be made clear, simple and absolutely certain for the benefit of the taxpayer. The canon of certainty is considered a very important guidance mle when it comes to formulating the tax laws and procedures in a country.

3. Canon of Convenience: Canon of convenience can be understood as an extension of canon of certainty. Where canon of certainty states that the taxpayer should be well- aware of the amount, manner and mode of paying taxes, the canon of convenience states that all this should easy, convenient and taxpayer-friendly. The time and manner of payment must be convenient for the tax payer so that he is able to pay his taxes in due time. If the time and manner of the payment is not convenient, then it may lead to tax evasion and corruption.

4. Canon of Economy: The whole purpose of collecting taxes is to generate revenue for the company. This revenue, in turn, is spent on public welfare projects. The canon of economy – keeping in view the above-mentioned purpose – states that the cost of collecting taxes should be as minimum as possible.

5. Canon of Productivity: Under this canon it is better to have fewer taxes with large revenues, rather than more taxes with lesser amounts of revenue. It is always considered better to impose the only taxes that are able to produce larger returns. More taxes tend to create panic, chaos and confusion among the taxpayers and it is also against the canon of certainty and convenience to some extent.

6. Canon of Elasticity: An ideal system of taxation should consist of those types of taxes that can easily be adjusted. Taxes, which can be increased or decreased, according to the demand of the revenue, are considered ideal for the system elastic and easily adjustable, many government objectives can be achieved through them,

7. Canon of Simplicity: The system of taxation should be made as simple as possible. The entire process should be simple, non-technical and straightforward. Along with the canon of certainty, where the amount, time duration and manner of payment is made certain, the canon of simplicity avoids cases of corruption and tax evasion if the entire method is made simple and easy.

Question 14.
Explain the role of CBDT.
Answer:
The Central Board of Direct Taxes (CBDT) is a part of the Department of Revenue in the Ministry of Finance of the Government of India. The essential functions of the CBDT include a) It providing the essential inputs, ideas and requirements for planning and policy in India, with regard to direct taxes in India, b) It helping in the administration of direct taxes throughout India through Income Tax Department. It is a Statutory Authority, used for handling both direct and indirect taxes. Due to the heavy burden, it has now split into the Central Board of Direct Taxes and Central Board of Excise and Customs with effect from 1.1.1964. The Chairman and Members of CBDT are selected from the Indian Revenue Service (IRS), a premier civil service of India, whose members constitute the top management of the Income Tax Department and other various departments.

Question 15.
Who is an assessing officer? State the functions of the assessing officer.
Answer:
The expression Assessing Officer will mean an ITO, Assistant Commissioner or a Deputy Commissioner who is vested with powers to assess. AO is the first and foremost officer of the Department who comes in contact wif i the assessee. He is both an administrator and a quasi-judicial officer. He has sweeping powers under various sections of the Act. Some of them are illustrated below:
Powers:

  1. Disallowing excessive or unreasonable expenditure where payment has been made to a relative etc. u/s 40A.
  2. Determining actual cost to the assessee where the plant etc, had been used by the assessee earlier but had been transferred and retransferred.
  3. Deciding about referring valuation of capital asset to the Valuation Officer.
  4. Scrutining transactions where deductions under sections 80 nil, IIHB etc. are claimed.
  5. Granting relief u/s 89 when arrears of salary received.
  6. Income from transactions with non-residents is computed by him u/s 92.
    Computation of transactions of non resident.
  7. Enforcing attendance of witnesses.
  8. Conducting search & seizures.
  9. Calling information u/s 133.
  10. AllotingPAN.
  11. He can ask the assessee to get his accounts audited.
  12. He is empowered to reopen assessment.
  13. Partition of the HUF has to be accepted by him otherwise the HUF will continue to be joint.
  14. Notice of demand for payment of advance tax as well as for payment of the final tax liability is issued by the AO.
  15. He grants refunds.

Question 16.
Who is the commissioner of income tax? State the functions of commissioner of income tax.
Answer:
Chief Commissioner or Commissioner are administrative heads with a little difference. The former has mainly administrative functions whereas the Commissioner combines both administrative and Judicial functions and powers.
Powers:
1. Approving gratuity fund U/s 2(5).

2. Approving Superannuation Fund U/s 2(6).

3. Recognising PF U/s 2(38).

4. Registration of a charitable or religious trust is done by CC or C u/s 12A.

5. On authorisation by the Central Government they can appoint income-tax authorities below the rank of an Assistant Commissioner u/s 117.

6. Jurisdiction of the AO is also determined by them u/s 124.

7. Transfering of cases from one AO to the other AO under their jurisdiction can be ordered by them u/s 127.

8. Enforceing attendance of the witnesses etc. u/s 131.

9. Issuing authorisation to certain officers for conduct of search and seizure u/s 132.

10. Enquiry-can be undertaken by them i/s 135.

11. Revealing information respecting certain assessees u/s 138.

12. The AO has to seek approval of CC or C to call for audit report u/s 142.

13.  Reopening of assessment u/s 151 after expiry of four years requires sanction of CC or C u/s 151.

14. They can reduce or waive interest u/s 220 paid or payable by assessee.

15. They can instruct AO withhold refund u/s 241 in certain cases.

16. They are required to send report to the Settlement Commission u/s 245D.

17. AO is to be directed by them to prefer appeals against the first appellate authority to the Appellate Tribunal u/s 253.
18. The Commissioner is empowered to revise order of the AO u/s 263 if that is prejudicial to the revenue

19. Penalty can be waived or reduced by them u/s 273A

Question 17.
State whether the following are agricultural or Non-agricultural income.
a) Income from agricultural land situated in Australia
b) Income derived from sale of seeds.
c) Income from sale of forests trees of spontaneous growth
d) Lease rent received from land given to tenants for agricultural operations.
e) Income derived from land used as stone quarries.
f) Income from sale of plants from nursery.
Answer:
a) Non Agricultural
b) Agricultural
c) Non Agricultural
d) Agricultural
e) Non Agricultural
f) Agricultural

Question 18.
State whether the following are agricultural or non agricultural income.
a) Income from supply of water for agricultural purpose
b) Profit on sale of agricultural land
c) Income from farm house situated in agricultural land
d) Interest received from loan given to farmers for agricultural purpose
e) Income from land used for the agricultural purpose by the owner
f) Salary received by an employee of a company engaged in agricultural operations.
Answer:
a) Non-Agricultural,
b) Non-Agricultural
c) Agricultural
d) Non-Agricultural
e) Agricultural
f) Non-Agricultural

Question 19.
State whether the following are agricultural income or not.
a) Income from sale of flowers and creepers.
b) Income from agricultural land situated in Punjab.
c) Income from self-grown grass.
d) Interest received on loan given to farmer.
e) Income from Dairy Products.
f) Dividend received from Company engaged in agricultural activities.
Answer:
a) Agricultural Income
b) Agricultural Income
c) Non-Agricultural Income
d) Non-Agricultural Income
e) Non-Agricultural Income
f) Non-Agricultural Income

Introduction to Income Tax Short Answer Questions

Introduction to Income Tax Short Answer Type Questions

Question 1.
State any five agricultural incomes.
Answer:

  1. Profit on sale of standing crops
  2. Income from growing of flowers, plants and trees
  3. Income from lease of land for grazing cattle required for agricultural purpose
  4. Income from sale of replanted trees in the forest
  5. Interest on capital received by a partner from the firm engaged in agricultural operations.
  6. Income from sale of replanted trees where the denuded parts of the forest are re-planted and subsequent operations in forestry are carried out
  7. Income from use of land for grazing of cattle required for agricultural pursuits
  8. Income from sale of plants from nursery

Question 2.
Distinguish between capital loss and revenue loss.
Answer:

1. Capital loss relates to a capital asset whereas a revenue loss relates to trading asset

2. Loss on sale of a capital asset is a capital loss whereas loss on sale of the trading asset is a revenue loss

3. Capital loss does not arise in the ordinary course of business whereas revenue loss arises in the ordinary course of business

4. The Source of capital loss is a capital loss whereas a source of revenue lost is a revenue loss

5. The loss suffered by a person being surety of another person is capital whereas security deposit of due performance of terms of the contract is forfeited is a revenue loss.

6. Loss sustained on account of embezzlement done by an employee is a revenue loss whereas loss on issue of shares is a capital loss.

Question 3.
Distinguish between capital receipt and revenue receipt.
Answer:

1. A receipt on account of fixed capital is a capital receipt whereas receipt on account of circulating capital is a revenue receipt

2. A receipt in lieu of source of income is a capital receipt whereas receipt in lieu of income is a revenue receipt

3. Insurance money received for a capital asset is a capital receipt and for loss of a trading asset is a revenue receipt

4. The compensation received for the surrender of certain rights is a capital receipt whereas the amount received for loss of future profit is a revenue receipt.

5. A receipt in substitution of a source of income is a capital receipt whereas a receipt in substitution of an income is a revenue receipt.

6. Subsidies or grants received from the government for specific capital purposes is capital receipt whereas subsidies or grants received from the government for meeting foreign competition is revenue receipts.

7. Premium on issue of shares is a capital receipt whereas grant received from the government for purpose of trading is a revenue receipt.

Question 4.
Distinguish between capital expenditure and revenue expenditure.
Answer:

1. Expenditure incurred in issuing shares is a capital expenditure whereas expenditure incurred in raising loans and issuing debentures is a revenue expenditure.

2. Expenditure incurred for acquiring the source of income is a capital expenditure whereas expenditure incurred for purpose of earning an income is a revenue expenditure

3. Cost of acquisition and installation of a fixed asset is a capital expenditure whereas the purchase price of goods bought for resale is a revenue receipt

4. Expenditure that increases the earning capacity of a fixed asset is a capital expenditure whereas expenditure incurred for maintaining the fixed asset in good condition is a revenue expenditure.

5. Expenditure incurred in relation to a fixed asset is a capital expenditure whereas ex¬penditure incurred in relation to stock in trade is a revenue expenditure.

6. Expenditure incurred for increasing the earning capacity of a business by improving its fixed assets is capital expenditure whereas expenditure incurred for maintaining the asset in good condition is a revenue expenditure.

7.  Expenditure incurred by a person to free himself from a capital liability is a capital expenditure whereas an expenditure incurred by a person to free himself from a revenue liability is a revenue expenditure.

Question 5.
Classify the following into capital and revenue.
Answer:

  1. The compensation received for nationalization-capital receipt
  2. Unclaimed dividend-Neither capital nor revenue
  3. Premium received on issue of shares – capital receipt
  4. Sales tax from purchaser-Revenue receipt
  5. Dividends and interests from investments-Revenue receipt
  6. Grant received from the government for purpose of trading-Revenue receipt.
  7. Subsidy for welfare and upliftment of weaker section of the community by providing em¬ployment for them – Capital receipt.

Question 6.
Classify the following into agricultural and non-agricultural income.
Answer:

  1. Rent from house property located in village – Non-agricultural income
  2. Income derived from land let out for brick making – Non-agricultural income
  3. Land leased for grazing of animals required for agricultural purposes – Agricultural income
  4. Life annuity received as consideration for transfer of land used for agricultural purposes – Non-agricultural income
  5. Rent received in kind in respect of land given for cultivation – Agricultural income
  6. Self-grown bamboos – Non-agricultural income
  7. Salary of an accountant who works in the agricultural company- Non-agricultural income
  8. Income from poultry farming-Non agricultural income
  9. Shervani a working partner received a salary from her partnership firm where the firm involved in growing flower – Agricultural income
  10. The compensation received Rs. 10,000 from the insurance company due to damage caused by heavy rain for crops – Agricultural income

Question 7.
State the rule under the income tax act where agricultural income is Disinte¬grated from non-agricultural income.
Answer:
Introduction to Income Tax Short Answer Type Questions 1

Question 8.
State the basis of income tax.
Answer:

  1. Tax rates are fixed by the annual finance act.
  2. Tax is charged on every person as defined in section 2(31)
  3. Income of the previous year is chargeable to tax in the assessment year at the rates applicable to assessment year
  4. Tax is charged on the total income of every person as computed in accordance with provisions of the income tax act.
  5. Income tax is deducted at source or paid in advance as provided under provisions of the act.

Question 9.
Briefly explain the evolution of income tax law in India.
Answer:
Income tax was first introduced in India by Sir James Wilson in 1860 in order to meet the losses sustained by the government due to sepoy mutiny in 1857. Amendments were made in 1863, 1867, 1871, 1873 and 1878 and finally in the year 1886 a separate income tax act was passed. This act remained in force with various amendments till 1917. In 1918 a new income tax act was passed and again it was replaced by the new act in 1922. This act remained in force upto the assessment year 1961-62. Meanwhile, the government of India referred it to the law commission in 1956 with a view to simplify and prevent tax evasion. The law commission submitted its report in 1958, the government of India also appointed direct taxes administration enquiry committee to suggest measures to minimize inconve¬nience caused to assessee and prevent tax evasion. The committee submitted its report in 1959, in consultation with the ministry of law finally the income tax act 1961 was passed. It was brought into force in 1962 applicable to the whole of India and Sikkim including Jammu and Kashmir. Thereafter several amendments were made. The amendments made in 1992 and 1993 were based on the recommendations of the Raja Chelliah Committee Report.

Question 10.
State any eight examples of revenue expenditure.
Answer:
It includes –

  1. Salaries paid to staff.
  2. Expenses incurred to protect and preserve assets.
  3. Initial payment for securing telephone connection.
  4. Purchase of raw materials and other consumable stores.
  5. Expenses incurred in sales promotion like an advertisement.
  6. Expenditure on training apprentice.
  7. Fees paid to productivity or management consultant.
  8. Guarantee commission paid on the purchase of a capital asset.

Question 11.
State any eight examples of capital expenditure.
Answer:
It includes –

  1. Cost of purchase of an asset like a plant, buildings etc.
  2. Expenses on research and development
  3. Payment made for acquiring the sole agency rights
  4. Expenditure incurred on acquiring any capital asset and its erection or reconditioning Charges.
  5. Payment made for purchasing the interest of another partner of the firm.
  6. Expenditure for the acquisition of leasehold rights.
  7. Expenditure incurred for acquisition of goodwill.
  8. Betterment charges paid to effect improvements on lands.

Question 12.
State any eight examples of capital receipts.
Answer:
It covers –

  1. Sale proceeds of capital assets.
  2. lease rent received by the lessor.
  3. Amount received for sale of knowhow.
  4. The compensation received for suspension of export licence.
  5. Insurance policy amount received relating to capital asset.
  6. The amount deposited for purchase of machinery required for setting up plant.
  7. The amount received by a partner as compensation in lieu of reduction of share of profit.
  8. The compensation received for granting sublease.

Question 13.
State any eight examples of revenue receipts.
Answer:
It includes –

  1. Hire charges of capital assets
  2. Lump sum received in lieu of royalty
  3. Compensation received for premature termination of contract
  4. Sale proceeds of trees which are cut at the stem but not with roots i.e there is a possibility of growth in future
  5. Pugree received by the owner of the house property from the tenant.
  6. Power subsidy received by new industries
  7. Grant received from the government for purpose of trading
  8. Lump-sum received on commutation of pension

Question 14.
State the various income tax authorities.
Answer:
The various income tax authorities comprise –

  1. Central board of direct taxes
  2. Director-General of income tax
  3. Income tax officers
  4. Tax recovery officers
  5. Inspectors of income tax
  6. Assistant commissioner of income tax
  7. Additional directors of income tax
  8. Joint directors of income tax
  9. Income tax officers
  10. Deputy commissioner of income tax

Question 15.
Determine the residential states of the following persons.
Answer:

  1. Reliance Industries limited-Company
  2. Madras University – Artificial Judicial person
  3. Mr Narendr Modi Prime Minister of India-Individual
  4. Ibrahim Parivar Consisting of Mr. A., his brother Mr. B. Misses A & B – Hindu Undivided Family.
  5. Evershine Publishers Ltd.-Company
  6. Reserve Bank of India-Artificial Judicial Person
  7. Life Insurance Corporation of India-Company.
  8. A village Panchayat-Local authority.
  9. A Partnership firm ofA, B&Cpartners -Firm.
  10. Calcutta Municipal Corporation-Local authority.

Question 16.
Compute agricultural income from cultivation of land
Sale proceeds of agricultural produce 1,60,000
Depreciation of equipment 6,000
Labour charges 24,000
Cost of seeds 6,000
Cost of fertilizers 12,000
Electricity charges 3,000
Answer:
Introduction to Income Tax Short Answer Type Questions 2

Question 17.
State any 10 examples for non-agricultural income.
Answer:

  1. Income from mining royalties.
  2. Income from self-grown trees or bamboos
  3. Income from sale of earth for brick making.
  4. Income of a buyer of a ripe crop
  5. Dividends from a co engaged in agricultural
  6. Remuneration received as a manager of an agricultural farm.
  7. Income from interest on arrears of land of agricultural land.
  8. Income from dairy farm, poultry farm.
  9. Income from land used form storing agricultural products.
  10. Income from stone quarries.

Question 18.
State the powers of the commissioner of income tax.
Answer:

  1. Appointment of income tax officers
  2. Instructions to subordinate authorities
  3. Power to make any enquiry
  4. Power to requisite books of accounts
  5. Disclosure of information regarding the assessee
  6. Set off the funds against tax remaining payable
  7. Reduction or waiver of penalty in certain cases
  8. To award and withdraw recognition to provident fund
  9. Granting sanction for the issue of notice to reopen assessment after the expiry of 4 years

Introduction to Income Tax Very Short Answer Type Questions

Introduction to Income Tax Very Short Answer Type Questions

Question 1.
What is income tax and which is the supreme authority in framing Income tax rules?
Answer:
Income tax is an annual tax levied by the central government on the total income earned by an assessee whose income exceeds the taxable limits.
The Central Board of Direct Taxes is the supreme authority in framing income tax rules.

Question 2.
Define person under income tax act.
Answer:
A person under section 2(31) means and includes the following:

  1. Individual,
  2. HUF,
  3. Company,
  4. Firm,
  5. Association of persons/body of individuals,
  6. Local authority,
  7. Any artificial juridical person does not fall in any of the above-preceding categories.

Question 3.
State any four features of Income.
Answer:

  1. Income may be legal or illegal,
  2. Income should come from an outside source
  3. Income may be temporary or permanently
  4. The nature of income is decided at the time of its first receipt

Question 4.
Define assessment year.
Answer:
According to Sec.2[9] – the assessment year means a period of twelve months commencing from first April of every year and ending on 31st March of next year. The income earned by an individual in the previous year is chargeable to tax in the assessment year. The current assessment year starts on 1 st April 2020 and ends on 31 st March 2021. Assessment year is the year succeeding the previous year.

Question 5.
Define previous year.
Answer:
According to Sec.3 of the Income Tax act -the year in which the income earned is known as the previous year. The previous year is the year preceding the assessment year.
In case of newly set up business or profession, the previous year will be for a span of fewer than twelve months. The previous year starts from the date of commencement of business and ends on 31st March.

Question 6.
What is assessment?
Answer:
According to Sec.2[8] of the Income Tax act- assessment is a wider term where assesses income will be converted into taxable income and tax liability will be calculated on taxable income. It includes reassessment and best judgement assessment.

Question 7.
Who is an assessee?
Answer:
According to Sec.2[7] of Income Tax act – assessee means a person by whom any tax or any other sum of money (fines, penalties etc..) becomes payable under this act. Assessee includes deemed assessee and assessee in default.

Question 8.
Who is a deemed assessee?
Answer:
According to Sec.2[7](b) of the Income Tax act – deemed assessees are those assessees who are liable to pay tax on the income earned by some other person. Example: a) Guardian in case of a minor, b) Legal representative in case of a deceased person.

Question 9.
Who is an assessee in default?
Answer:
According to Sec.2[7](c) of the Income Tax act – the assessee in default refers to a person who fails to fulfil any obligation imposed to him under the income tax act of 1961. If the employer fails to deduct tax at source on the salary income earned by the employee in such a case employer becomes assessee in default.

Question 10.
State the heads of income.
Answer:
The various heads of income are:

  1. Income from salary,
  2. Income from house property,
  3. Income from business and profession,
  4. Income from capital gains,
  5. Income from other sources.

Question 11.
What is gross total income?
Answer:
Gross total income is the sum total of five heads of income namely salary, house property, business and profession, capital gains and other sources.

Question 12.
What is total income?
Answer:
Gross total income excluding long term capital gain and casual income minus deduction under section 80C to 80U plus long term capital gain and casual Income.

Question 13.
State the objectives of income tax.
Answer:
The objectives of income tax are –

  1. To mobilize as a source of revenue to the government
  2. To ensure balanced regional development
  3. To reduce the gap between rich and poor
  4. To deploy the mobilized resource for undertaking various economic development programme by the government.

Question 14.
What is capital loss?
Answer:
Losses incurred on the sale of fixed asset is known as a capital loss.
Ex: Loss on sale of fixed asset

Question 15.
State any four principles of taxation.
Answer:

  1. It should be equitable,
  2. It should be certain
  3. It should be convenient,
  4. It should be economical

Question 16.
What is a finance bill?
Answer:
A finance bill is a bill passed by the parliament every year. The finance bill gives effect to the financial proposal of the central government for the financial Year.

Question 17.
What is one by six scheme?
Answer:
Under this scheme, a person has to file his return of income in form no 2C even if he has no taxable income during the year.

Question 18.
Distinguish between direct tax and indirect tax.
Answer:
In case of direct tax the incidence and impact falls on the same person where as in case of indirect tax the impact and incidence falls on different persons.

Question 19.
Define income.
Answer:
According to Sec. 2[24] income includes

  1. profits and gains,
  2. dividends,
  3. voluntary contributions received by a trust or charitable institutions for religious purposes,
  4. perquisites or profits in lieu of salary received by an employee,
  5. Amount received under a keyman insurance policy, any sum chargeable to tax under the head business or profession.

Question 20.
Distinguish between diversion of income and application of income.
Answer:
Diversion of income means that the income is diverted to some other person under some legal obligation. After receiving income if it is given to someone else then it is termed as the application of income.

Question 21.
State the components of income tax.
Answer:

  1. Income tax act of 1961,
  2. Finance act,
  3. Income tax rules of 1962,
  4. Case law
  5. Circulars/Notification

Question 22.
Give any four examples of casual income.
Answer:

  1. Income from lotteries.,
  2. Income from cross word puzzles,
  3. Income from bettings,
  4. Income from card games,
  5. Income from a horse race.

Question 23.
What is agricultural income?
Answer:
Agricultural incomes include the following:
Income is derived from doing basic agricultural activities such as tilling, sowing, harvesting irrigating.

  1. Any rent or revenue derived from land which is situated in India and used for agricultural purposes.
  2. Income from a farmhouse
  3. Any income derived from such lands by agricultural operations or any process by cultivator or receiver of rent in kind which renders the produce fit for sale in the market.

Question 24.
What is non-agricultural income?
Answer:
Products that grow wild on land or area of spontaneous growth not involving any human labour or skill on the land is termed as non-agricultural income.

Question 25.
State any two non-agricultural incomes.
Answer:
Non-agricultural incomes are –

  1. Income from market
  2. Income from stone quarries.

Question 26.
What is the average rate of income tax?
Answer:
The average rate of income tax means the rate arrived by dividing the amount of income tax calculated on the total income by such total income.

Question 27.
State any two examples of agricultural income.
Answer:

  1. Income derived from the land used for agriculture.
  2. Profit on sale of standing crops

Question 28.
Distinguish between capital loss and revenue loss.
Answer:
Loss relating to a capital asset is a capital loss whereas loss relating to the operations of normal business is a revenue loss.

Question 29.
State the nature of income tax.
Answer:
Income tax is a direct tax in nature in the sense that its immediate money burden and ultimate money burden falls on the same person.

Question 30.
Distinguish between capital receipt and revenue receipt.
Answer:
An amount received as fixed capital is a capital receipt whereas an amount received as a circulating capital is a revenue receipt.

Question 31.
Distinguish between capital and revenue expenditure.
Answer:
Cost of acquisition and installation of a fixed asset is a capital expenditure Whereas the purchase price of goods bought for resale together with expenses incurred regarding their purchase is a revenue expenditure.

Question 32.
What is the need for demarcating capital and revenue receipt?
Answer:
Under the income tax act, income tax is levied only on revenue receipts but not on capital receipts unless they are expressly taxable.

Question 33.
Distinguish between tax evasion and tax avoidance.
Answer:

  1. Tax evasion is illegal where as tax avoidance is legal.
  2. Tax evasion is intentional frauding of books of account in order to reduce tax liability whereas tax avoidance is concerned with the reduction of tax liability by taking into account the loopholes of the taxation system prevailing in the income tax act.

Question 34.
Give the meaning of accrue or arise.
Answer:
Accrue or arise means right to receive the income as against the receipt of income.

Question 35.
State any four canons of taxation.
Answer:

  1. Canon of equity or ability
  2. Canon of convenience
  3. Canon of certainty
  4. Canon of productivity

Question 36.
State the components of the finance bill proposed by the finance minister.
Answer:

  1. Amendments in direct taxes
  2. Amendments in indirect taxes Rates for deduction of tax at source in certain cases.
  3. Rates of income tax for deducting tax from income chargeable under the head salaries.

Question 37.
State the exceptions to the general rule that the income of the previous year is charged to income tax in the assessment year.
Answer:

  1. Income of non-resident shipping company.
  2. Income of persons leaving India.
  3. Income of AOP and BOI.
  4. Income of persons likely to transfer property with a view to avoiding tax.

Question 38.
What do you mean by capital receipt? Give examples.
Answer:
A receipt on account of fixed capital is a capital receipt.
Ex.: Sale proceeds of a capital asset.

Question 39.
Expand abbreviations-PAN, ITAT, CCIT, CBDT.
Answer:
PAN stands for Permanent account number
ITAT stands for Income tax appellate tribunal
CCIT stands for Chief Commissioner of income tax CBDT stands for Central board of direct taxes

Question 40.
Mention any two Capital expenditures and any two revenue losses.
Answer:
Capital expenditures:

  1. Payment made for the acquisition of goodwill.
  2. Expenditure from the acquisition of leasehold rights.

Revenue losses:

  1. Loss on sale of goods in a business
  2. Loss sustained on account of embezzlement made by employees.

Question 41.
State any four income tax authorities.
Answer:

  1. Central board of direct taxes
  2. Tax recovery officers
  3. Inspectors of income tax
  4. Director general of income tax or chief commissioner of income tax

Question 42.
Mention the Income Tax rates applicable to Individial was assesses for the asessemnt year 2020-21. (Age below 60 years)
Answer:
Upto Rs. 2,50,000 – nil
2,50,000 – 5,00,000 5%
5,00,000- 10,00,000 20%
Above 10,00,000 30%

Question 43.
State the exceptions to the general rule that the income of the previous year is charged to income tax in the assessment year.
Answer:

  1. Income of non-resident shipping company. Sec. 172.
  2. Income of persons leaving India. Sec. 174.
  3. Income of AOP and BOI. 174A formed only for a limited period.
  4. Income of persons likely to transfer property with a view to avoid tax. 175.
  5. Incomes of discontinued business Sec. [176]

Question 44.
What are casual incomes? Give an example.
Casual incomes are those incomes that are non-recurring in nature. It is received accidentally and without any stipulation. It is in the nature of unexpected windfall, Ex.: winnings from lottery.

Question 45.
Mention any two capital expenditures and any two revenue losses.
Answer:
Capital Expenditure:

  1. Payment made for the acquisition of goodwill.
  2. Expenditure from the acquisition of leasehold rights.

Revenue losses:

  1. Loss on sale of goods in a business
  2. Loss sustained oil account of embezzlement made by employees.

Question 46.
State any two features of income.
Answer:

  1. It should come from a definite source.
  2. It may be plus or minus.

Question 47.
Mention the income tax rates for resident senior citizens for the assessment year 2020-2021.
Answer:
Upto Rs. 3,00,000 – nil
Rs. 3,00,000 to Rs. 5,00,000 – 5%
Rs. 5,00,000 to Rs. 10,00.000 – 20%
Above Rs. 10,00,000 – 30%

Question 48.
State any four powers of the central board of direct taxes.
Answer:

  1. Power to make rules,
  2. Power to issue instructions
  3. Power to admit belated refund application,
  4. Power to decide jurisdiction.

Question 49.
What is canon of certainty?
Answer:
The second canon of taxation is that of certainty which implies that every tax payer must know the time of payment, manner and mode of payment, so that he may adjust his expenditures accordingly.

Question 50.
Which are basic agricultural operations to be carried out to call as agricultural income?
Answer:
Basic operations include:

  1. Ploughing
  2. Sowing
  3. Tilling
  4. Harvesting
  5. Irrigating

Question 51.
What is the average rate of tax?
Answer:
As per section 2(10), “Average rate of Tax” means the rate arrived at by dividing the amount of tax calculated on the total income, by-such total income.

Question 52.
What is the maximum marginal rate?
Answer:
Section 2(29C) defines “maximum marginal rate” to mean the rate of income tax (including a surcharge on the income-tax, if any) applicable in relation to the highest slab of income in the case of an individual, AOP or BOI, as the case may be, as specified in Finance Act of the relevant year.

Question 53.
What is a revised return?
Answer:
Any person who has furnished the return under section 139 (1) or in response to a notice under section 142(1) discovers any omission or any wrong statement therein he may furnish a revised return at any time before the expiry of one year from the end of the relevan t assessment year or before the completion of the assessment whichever is earlier.

Question 54.
What is the permanent account number?
Answer:
A permanent account number means a number that the assessing officer may allot to any person for the purpose of identification and includes a PAN allotted under the new applicants. PAN under new series means a PAN having ten alphanumeric characters and issued in the form of a laminated card.

Question 55.
Expand CBDT and PAN.
Answer:
CBDT = Central Board of Direct Taxes,
PAN = Permanent Account Number

Question 56.
What is Revenue Receipt?
Answer:
Sale proceeds of trading assets are termed as revenue receipts. It includes proceeds of the sale of forest trees, dividends and interests from investments and are recurring in nature.

Question 57.
Give the meaning of Gross Total Income.
Answer:
Gross total income is the sum total of five heads of income namely salary, house property, business and profession capital gain and income from other sources.

Question 58.
What do you mean by previous year?
Answer:
The previous year is the year in which income is earned or the previous year is a year that is immediately proceeding to the relevant assessment year.

Question 59.
Expand CBDT and Pan.
Answer:
Central Board of Direct Taxes and Permanent Account Number.

Question 60.
What do you mean by Agriculture Income?
Answer:
Any rent or revenue received from land which is used for agricultural purposes and situated in India.

Question 61.
Give any 2 examples for capital expenditure.
Answer:

  1. Expenditure incurred to acquire the tangible assets,
  2. Expenditure for extension or improvement of a fixed asset.