Taxation Notes
Taxation Notes
Taxation Notes
Profession which is approved by the Income Tax officer like CA, doctor, Lawyer, architect etc
Q1;
Professional Receipts
Audit fees 200000
Prof work 100000 300000
Q2: Dr. Anilkumar, who maintains books of accounts under cash system furnishes the following receipt
and payments account for the year ended 31st March 2019.
Other information
1General expense includes purchase of professional books Rs. 3600/- and car maintenance expense Rs.
16000/- Half of the use of car is for personal purpose.
6 During the year he paid Rs.6000/-to a poor boy for his higher education .
7. Visiting fees due but not received from a hospital Rs. 30000/-
Q3 Anilkumar, Lawyer who maintains books of accounts under cash system furnishes the following
receipt and payments account for the year ended 31st March 2019.
Q1: from the following particulars of Mr A for the year ending 31 march 2020, find out the income from
business.
Q2: From the profit & loss account of Mr. K. C. Saha, a manufacturer, Calculate the taxable income from
business for the year ending 31st March 2020.
Advertisement expenses in
24,000 Interest on securities 14,000
cash
Interest on proprietor
7,000
capital
Repairs 2,500
Rent 21,000
Depreciation 15,000
Donations 2,000
4,31,000 4,31,000
a) Rs. 3,000 was spent on the purchase of land and is included in legal expenses.
d) Bonus was paid to employees on 30-6-2018 and Mr. K.C. Saha filed his returns on 31-7-2020.
Q3: From the below-given profit & loss account and additional information of Mr. David. Compute his
taxable business income for the A.Y.
Wages 15,000
Freight 10,000
Drawings 4,000
Repairs 7,500
Depreciation 20,500
3,06,000 3,06,000
Additional Information:
a) Salaries include payment to a relative employee, which is considered to be unreasonable upto Rs.
6,000.
b) Purchases include two payments of Rs. 30,000 and Rs. 10,000 paid in cash to a supplier.
Whenever General Expenses is given in adjustments, take only those items related to
profession, if not given in adjustment, take the entire amount as it is
See the first line of the question, if it says cash basis- ignore the closing stock of medicines. If it
says accrual basis- sale of medicine= opening stock+ purchases- closing stock
For calculating income from business, follow the 4 points I made you write in the notebook
For calculating income from profession, take those receipts and payments jo uske profession ki
wajah se hai
Asset would not be considered, only dep on that asset would be
Dep on professional books will always be 60%. If given in adjustment, full amount of books will
be taken
Advance and Outstanding ki adjustment ko ignore. Income tax is calculated on the amount
received or payed, whether for this year, or next year or previous year
In case the loan is taken for professional purpose, int on loan will be shown. If not taken for
professional purpose, nothing would be shown
For calculating the value of stock in income from business follow the format sent on the
whatsapp
Q2: Mr. Ganesh of Bangalore, sold the following properties during the year ending
31st March 2020.
1) A residential house sold for Rs 970000 in October 2019, which was purchased for
Rs 200000 in 2001-02. Expenses in connection with sale was Rs 20000.
2) He had inherited few shares of a company from his father in May 2007, which his
father had purchased in January 2003 for Rs 80000. He sold these shares in
February 2020 for Rs1065000 and the selling expenses were Rs 10650.
In case of inheritance, the date of inheritance is not considered.
3) He sold jewellery for Rs 720000 in December 2019, which was purchased in
September 2010 for Rs 280000.Expenses on sale amounted to Rs3600.
4) He sold household furniture in May 2019 for Rs 75000, which was purchased in
June 2010 for Rs 120000.
5) He sold an agricultural land(rural area) in March 2020 for Rs 1200000 which was
purchased in July 2003 for Rs 140000.
Compute the income from capital gain for the A Y 20-21.
C I I = 2001-2002, 100. 2002-2003, 105. 2007-2008,129. 2010-2011,167. 2019-2020,
289.
1. Residential house
Sale Price 970000
Less: brokerage 20000
Net sale consideration 950000
Less: Indexed COA 200000*289/100=5780000 578000
Less: indexed COI ---
Income from LT capital 372000
gain
2. SHARES
Sale Price 1065000
Less: brokerage 10650
Net sale 1054350
consideration
Less: Indexed 80000*289/105=220190 220190
COA
Less: indexed COI ---
LTCG 834160
3. Jewellery
Sale Price 720000
Less: brokerage 3600
Net sale
consideration
Less: Indexed 280000*289/167
COA
Less: indexed COI ----
LTCG
4. household -----
furniture
5. agricultural ----
land(rural area)
TOTAL LTCG
Q3: Mr. Sidharth sold the following properties during the year 19-20.
1) Residential building sold in May 2019 for Rs 6200000 which was constructed
in January 1997 at a cost of 220000 and the FMV as on 1 st April 2001 was Rs
520000. Cost of improvement made in 99-2000 was Rs 40000 and in 2008- 2009, Rs
240000.
2) Commercial building sold in December 2019 for Rs 4800000 which was
purchased in February 2018 at Rs 3300000.
3) Debentures of ABLtd; sold in March 2020 for Rs 250000 which were
purchased in March 2015 for Rs 190000.
4) Sold 550 equity shares of Reliance Ltd; at Rs 1400 each in November 2019
which were purchased in October 2018 at Rs 950 per share.
Machinery sold in April 2019 for Rs 180000 and the W D V as on 1 st April 2019
was Rs 120000. Machinery was purchased in June 2014 at Rs 1200000.
6) Sold his personal car for Rs 440000 in August 2019 which was purchased in
May 2010 for Rs 700000.
7) In July 2011 he was allotted 120 Bonus shares which were sold in March 2020
for Rs 650 per share.The FMV of these shares in 2011 was Rs 90 per share.
8) Sold jewellery in November 2019 for Rs 540000 which was purchased in
December 2016 for Rs 410000. Expenses on transfer Rs 2700.
Compute the income from capital gain for the A Y 20-21.
C I I; 2001 - 2002, 100. 2008-2009, 137. 2016-2017, 264. 2017-2018, 272.
2018-2019, 280. 2019-2020, 289.
Q4: Mr. Jeevan sold the following assets during the year 19-20. Compute the income
from capital gain for the A Y 20-21.
1) Sold a residential house , inherited by him in June 2015 for Rs 6500000, selling
expenses Rs 50000. It was purchased by his father in September,2004 for Rs
2200000. Extension made by his father in October 2008 for Rs 500000.
Improvement made by Jeevan in December 2016 for Rs 900000.
2) Sold a residential site for Rs 8400000 in January 2020, which was acquired in 1996
for Rs 450000 and the F M V as on 1st April 2001 was Rs 900000.
3) Sold machinery for Rs 80000 in March 2020, which was purchased in July 2015
for Rs 300000 and the WD V as on 1st April 2019 was Rs 60000.
4) Sold Debentures of a company for Rs 310000 in June 2019 which was purchased
in February 2006 for Rs 33000.
5) Sold household furniture for Rs 74000 in August 2019 which was purchased in
September 2012 for 140000
C I I = 2001-02, 100. 2004 - 05, 113. 2008 – 09,137. 2016 – 17, 264. 2019 – 20,
289.
Dividend
Dividend from Indian companies up to Rs 10 lakh is exempted from tax, in excess of
Rs 10 lakh is taxable.
2) Gift
i) Gift from relatives is exempted from tax.
ii) Gift received on the occasion of wedding, is exempted from tax.
iii) Gift from non relatives – the aggregate amount of gift received during the
previous year is not exceeding Rs 50000, then it is exempted. If the aggregate
amount exceeds Rs 50000, then the entire amount is taxable.
Casual income
Winnings from lotteries, crossword puzzles, races, card games and betting fall
under casual income. These incomes are taxed at 30%. Tax will be deducted at
source and only net amount will be given if the wining is above Rs 10000
( winnings from horse races Rs 5000). If the amount received or net amount is
given, it is to be grossed up to find out the gross amount.
Grossing up = Amount received x 100/ 100 – 30.
Eg: Kumar won a lottery of Rs 5 lakhs.
Kumar was credited Rs 3 lakhs as a sum received by wining lottery.
300000*100/100-30=428571 Rs
Note. Expenses and losses relating to these are not deductible.
Interest on securities
i) Interest on tax free central govt.securities are exempted from tax.
ii) In the case of other securities, if the interest amount received is
given, it has to be grossed up to find out the taxable amount.
Grossing up = Amount received x 100/ 100 – Rate of tax .
Note. No T D S with respect to following;
i) Interest on govt.securities.( both central and state)
ii) Interest on debentures issued by co operative societies,
iii) Interest on term deposit with bank not exceeding Rs 10000,
iv) Interest on debentures issued by companies if the interest amount does
exceed Rs 2500 p.,a.
Deductions
Following deductions can be made while computing the income from other
sources.
i) Collection charges of interest and dividend.
ii) Interest on loan taken to purchase the securities.
iii) Depreciation, repairs and insurance of plant, machinery, furniture let on hire.
iv) Standard deduction for family pension received- 1/3 rd of such amount or Rs
15000 w e l.
v) Any expenditure incurred exclusively for earning such income.
Illustration 1
From the following details compute the income from other sources for the A Y 20-21.
1) Dividend from an Indian company Rs 40000. Exempted
2) Interest on debentures of a company Rs 24000(gross).
3) Interest on bank deposit Rs 27000(net, TDS at 10%)
4) Winning from lottery, amount received Rs 70000 (TDS at 30%).
5) Winning from lottery Rs 100000.
6) Interest received from Central govt.security Rs 12000 (tax free).
7) Interest received from Karnataka govt.security Rs 18000.
8) Interest on post office saving bank deposit Rs 5000-3500
9) Family pension received Rs 48000.
Actual amt recievd: 48000
Less: 1/3rd of pension or 15000 (wel)
16000 or 15000 wel 15000 33000
10) Gift from friends on birth day Rs 75000.
11) Gift from father Rs 500000.
12) He spent Rs 5000 to buy lottery tickets.
13) Interest collection charges Rs 3000.
14) Dividend collection charges Rs 1000.
Q2: From the following details compute the income from other sources for the A Y 20-
21.
1) Dividend from an Indian company Rs 60000
2) Interest on debentures of a company Rs 24000(net).
3) Interest on bank deposit Rs 27000(gross, TDS at 10%)
4) Winning from lottery, amount received Rs 90000 (TDS at 30%).
5) Winning from lottery Rs 100000.
6) Interest received from Central govt.security Rs 12000 (tax free).
7) Interest received from Karnataka govt.security Rs 20000.
8) Interest on post office saving bank deposit(joint account) Rs 9000
9) Family pension received Rs 68000.
10) Gift from friends on birth day Rs 45000.
11) Gift from father Rs 500000.
12) He spent Rs 5000 to buy lottery tickets.
13) Interest collection charges Rs 3000.
14) Dividend collection charges Rs 4000.
Q3: Mr. Jai furnishes the following particulars of his income for the P.Y.
a) Rs. 40,000 – 10% tax – free debentures of a company listed on a recognized stock exchange in
India.
b) Interests on P.O.S.B account Rs. 2,000.
c) Rs. 16,000 - 9% Tax – free commercial securities .(unlisted)
d) Dividend Rs. 7,000(Gross) from a Tea Co., 60% of the income of the company is agricultural
income.
e) Rs.30,000 – 8% port Trust Bonds.
f) Dividend from a foreign company Rs. 4,000. The company deducted tax at source Rs. 1,000.
g) Rs. 15,000 – 9% Municipal debentures.
h) Winning from lottery, net amount received Rs. 18,920.
i) Rs. 2,00,000 – 10% debentures of a public limited co., (Not listed)
j) 12,000, 5% debentures of Delhi Development Authority.
IMP POINTS TO BE NOTED
If given in net, gross up. Standard rate for grossing up of debentures is 10% and
for casual incomes like lottery is 30%. Upar mentioned hai kin cases mein gross
up nahi karte. Remember those, ok? Also debentures mein first find interest - eg.
200000 10% Debentures of Airtel.- Pehle iska int niklega: 200000*10%= 20000
Ab ye amount gross amount hi hai toh isko le lengey
Agar Govt Debentures hote ye, toh 20000 - 20000*10%= 18000 would be taxable.
This is because this is the net amount. Agar samjh na aaye toh call me
Expenses and losses immediately related to casual incomes, like purchase of
lottery tickets, etc cannot be deducted
DEDUCTIONS
2) Under section 80ccc - Contribution to the annuity plan of LIC or any other
insurer for receiving pension.
Q A is, amount deposited or Rs.150000, whichever is less.
3) Section 80ccd- contribution to pension scheme of Central Govt.
Q A= Amount deposited by the employee or 10%of his salary, whichever
is less.
In case of other individual, up to 20% of his gross total income.
Also the amount contributed by the employer, or 10% of salary,
whichever is less.
Note. The aggregate amount of deduction u/s 80c, 80ccc and 80ccd is limited to
Rs 150000.
4) Section 80D- Deduction in respect of Medical Insurance Premia.
a) For the assessee, spouse and dependent children- up to Rs. 25000.
b) For parents- additional up to Rs 25000,
For senior citizen-up to Rs 30000.
Note. Payment should be made by any mode of payment other than cash.
5) Section 80DD-Deduction with respect of maintenance including medical
treatment of a dependent with disability.
Rs 75000 and in case of severe disability Rs 125000.
6) Section DDB- Deduction in respect of Medical treatment.
For the treatment of the assessee,Spouse, and dependants, actual amount
spent or Rs 40000, whichever is less.
For senior citizens Rs 60000 and for very senior citizen Rs 80000.
Dependant means assessee, spouse, children,parents brothers and
sisters of the assessee.
7) Section 80E- Deduction in respect of interest on loan taken for higher education.
Interest paid during the previous year on the loan for the Higher education
of the assessee, spouse and children is deductible.
8) Section 80G- Deduction in respect of Donations.
A- No limit donations- amount donated is fully qualified for deduction.
1) to National Defence fund-100%
2) to PMs National Relief fund-100%
3) National foundation for Communal Harmony-100%
4) university or educational institution of national eminence-100%
5)Chief Ministers Relief fund -100%
6) any fund set up by state govt. to provide medical relief to the poor-100%
7) the national trust for the welfare of persons with Autism,Cerebral
palsy,Mental Retardation and Multiple Disabilities-100%
8) National Children's fund-100%
9) Jawaharlal Nehru Memorial Fund-50%
10)Prime Ministers Drought Relief Fund-50%
11)Indira Gandhi Memorial Trust-50%
12)Rajeev Gandhi Foundation-50%.
B- With limit Donation.
a) to govt. or any authority for the purpose of promoting family planning-100%
b) to govt. or any authority for any charitable purpose-50%
c) to any corporation established by any govt. for promoting the interests of the
members of the minority community-50%
d) donation for the renovation, repair of any religious centres renown throughout
any state or states or any other place which is notified by the central govt.as
historic, archaeological or artistic importance – 50%.
Qualified amount for deduction U/S 80G.
The sum total of 1to 12,
+
the sum total of a to d,or 10% of Total Income, whichever is
less.
Rate of Deduction.
At the rate mentioned against each item.
Note.
Donation in Kind is not eligible for deduction.
Amount exceeding Rs.2000, must be paid by any mode other than cash.
9)Section 80GGA- Deduction in respect of donations for scientific research or
rural development to a college, University,or institution approved for the purpose.
Full amount is deductible.
10) Section 80U-Deduction in the case of a person with disability.
a) Rs 75000,
b) Rs 125000, in case of severe disability.
80TTA For normal citizens: interest from bank deposits, cooperative societies and
post office. Exempt upto 10000 p.a
80 TTB For senior citizens: interest from bank deposits, cooperative societies and
post office. Exempt upto 50000 p.a
ALL ARE VERY SIMPLE HRIDS, BUT JUST MAKE SURE YOU PUT
THE CORRECT AMOUNT. AND THE TOTAL AMOUNT OF
DEDUCTIONS FROM 80 C TO 80 CCD SHOULD NOT CROSS 150000.
MASTER QUESTIONS
Steps to Compute the Tax Liability.
1) Compute the GTI (ye gross total income hai, which means incomes from all
heads- salary, house property, etc) after adjusting set off and c/f of lossess,
2) Claim deductions U/S 80C to 80U.
3) Calculate tax on the general income at the normal rate. (jab hum short term
capital gain and long term capital gain wale amount minus karke tax slabs mein
daalte hai)
4)Calculate tax on STC u/s 111A,LTC on Equity shares and Casual Incomes at the
special rate. (Alag se tax on items jo upar wale step mein minus ki)
5)To the total of 3 and 4, deduct TDS
6)From this total amount, deduct 4% cess and if the gross total income is more
than 50L then 10% surcharge also, and if more them 1 cr, 15% surcharge.
Tax slabs are given up.
Q1: Following are the details of income of Mr.Vijay,( Age-45) for the financial
year 19-20.
1) Income from Salary Rs 1800000 (TDS made by the employer Rs 180000).
2)Income from House property;
a)Let out house (Computed) Rs 84000.
b) He has a self occupied house for which the annual loan repayment is
Rs 144000,of which interest is amounted to Rs.96000.
3)Sold 200 equity shares of Reliance Ltd; at Rs 1050 each, after holding them for 9
months.Purchased at Rs 950 per share.
4) Sold a residential site for Rs 5200000, and the indexed cost of acquisition
is Rs 4400000.
5) Dividend from Reliance Ltd; Rs 3000.
6) Interest on Bank deposit Rs 20000 (TDS-Rs 2000).
7) Interest on Debentures of Airtel Ltd; Rs 4500(net)
8) Interest on post office savings a/c in the name of Mrs.&Mr. Vijay, Rs 6500.
9) Winnings from lottery, amount received, Rs 35000.He spent Rs 12000 during
the last two years for purchasing lottery tickets, of which Rs 9000 is of 2017-18.
Bank charged Rs 350 for collecting this amount.
10) His income from agriculture is Rs 280000.Expenditure relating to this is
Rs 130000.
Step 1: To calculate GTI
Income from salary 1800000
HP (12000)
i)let out:84000
ii)self occupied:
NAV-NIL
LESS: INT ON LOAN U/S 24(B)
96000
Loss from self occupied: (96000)
Tax slabs
0-2.5 l- nil
250000-500000-250000*5%-12500
500000-1000000-500000*20%-100000
Above 1000000-1614500*30%=484395
Total tax liability: 596895+3000+15000=614895
STEP 5: Less: TDS 180000
Less: TDS on lottery:15000
Less: TDS on debt:500
Net tax payable: 419395+4% cess =16775+419395=436170
Q2: Compute his total income and tax liability for the assessment year 18-19,
after considering the following;
1) Life Insurance premium paid,
On the life of Mrs.&Mr.Vijay and his daughter Rs48000,
Q3: From the following details compute the total income and tax liability
of Mr Narayan for the A Y 20 – 21.
1) Income from salary Rs 2200000(computed). T D S Rs 280000.
PRACTICE A LOT
I KNOW YOU CAN DO IT
ALL THE BEST!!!!!
THEORY END MEIN DAAL RAHI CUZ NOT IMP AND IK TUM
PADHOGEY BHI NAHI
Set off and Carry forward of Losses
While computing the gross total Income during the previous year, an assessee can
set off any losses under various heads of the current year or the c/f losses of the
preceding years, against the income of the current year, and this process is called
set of off losses.
First, the loss in one source of income should be set of against the income from
another source under the same head.This is called Intra head set off. (with in the
same head)The loss under one head can be set off against the income from another
head. This is called Inter head set off.
1) House property loss.
a) Loss on one house can be set off to income from other house.
b) Loss under house property can be set off against other heads of
income up to a maximum of Rs two lakhs,
c) loss which could not set off, Can be carried forward for the next eight
assessment years, to be set off against house property income only.
2) Loss from Business and profession.
a) Loss in one business can be set off to income from another business,
including speculation profit.
b) Loss under the head Business can be set off to other Heads of income,
except against salary income.
c) Loss which could not be set off, can be carried forward for eight years,
to be set of against business Income only.
3) Speculation Loss.
a) Speculation loss can be set off only against speculation profit.
b) Loss which could not set off, can be carried forward for Four years,to
be set off against speculation profit.
4) Capital losses.
1) Short term capital loss- a) Can be set off against short term or long term
gain only.
b) Loss which could not set off, can be carried forward for Eight years
to be set off against capital gains only.
2) Long term capital loss.
a) Can be set off against long term capital gain only.
b) Loss which could not set off, can be carried forward for Eight years,
to be set off against long term capital gain only.
5) Loss of lottery, betting, gambling, - this losses cannot be set off against
any income.
6) Loss from the activity of owning and maintaining race horses,
a) can be set off only against income from this source only.
b) Can be carried forward for Four years, to be set off against income
this source only.
7) Loss under the head Income from other source can be set off against any
other head of income. If not possible can be carried forward for Eight
years to be set off against Income from other sources.
Note.
1) Loss on capital gain can be set off against capital gains only.Similerly
loss under any other head cannot be set off against capital gains.
2) No losses can be set off against Casual Incomes.