Income Tax (May' 2018 Old Course)
(OLD COURSE)
Full Marks: 80
1. (a) Fill in the blanks: 1x4=4
1) The income tax was introduced in Indian for the first time in 1860 by British rulers.
2) Section 10 (10) of the Income-tax Act relates to Gratuity.
3) Advance salary received shall be taxable in the year of its receipts.
4) Cost of improvement incurred after acquisition is to be treated as part of the cost.
(b) Write True or False: 1x4=4
1) A company cannot enjoy the status of not ordinary resident. False, only individual and HUF
2) The full amount of scholarship granted to meet the cost of education is exempted from tax. True, Sec. 10(16)
3) Taxable gratuity = Gratuity received – Arrear. False
4) The annual value of a house property is to be determined according to the provisions of Section 32 of the Income-tax Act. False, sec. 23
2. Write short notes on any four of the following: 4x4=16
a) Assessment Year.
b) Tax Holiday.
c) Perquisites.
d) Self-occupied Property.
e) Capital Gain.
Ans: a) Assessment Year: [Sec. 2 (9)]: “Assessment Year” means the period of 12 months commencing on the 1st day of April every year. In India, the Govt. maintains its accounts for a period of 12 months i.e. 1st April to 31st March every year. As such it is known as Financial Year. The Income Tax department has also selected same year for its Assessment procedure.
The Assessment Year is the Financial Year of the Govt. of India during which income a person relating to the relevant previous year is assessed to tax. Every person who is liable to pay tax under this Act, files Return of Income by prescribed dates. These Returns are processed by the Income Tax Department Officials and Officers. This processing is called Assessment. Under this Income Returned by the assessee is checked and verified.
Tax is calculated and compared with the amount paid and assessment order is issued. The year in which whole of this process is under taken is called Assessment Year. At present the Assessment Year 2019-2020 (1-4-2019 to 31-3-2020) is going on.
c) Perquisites (Sec. 17[2]): The term perquisite is defined to signify some benefit in addition to the amount that may be legally due by way of contract of services rendered. Section 17(2) gives an inclusive definition of perquisites.
As per the Terms of Section 17(2), Perquisites Includes:
(i) The value of rent-free accommodation provided (used or not) to the assessee by his employer;
(ii) The value of any concession in the matter of rent respecting any accommodation provided (used or not) to the assessee by his employer;
(iii) The value of any benefit or amenity granted or provided (used or not) free of cost or at concessional rate in any of the following cases (specified employee):
(a) By a company to an employee, who is a director thereof;
(b) By a company to an employee being a person who has a substantial interest in the company;
‘Substantial Interest’ : In relation to a company, means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits, carrying not less than 20% of the voting power.
(c) by any employer (including a company) to an employee to whom the provision of clause (a) and (b) do not apply and whose income under the head of Salaries (whether due from, or paid or allowed by, one or more employer), exclusive of the value of all benefits or amenities not provided for by way of monetary payment, exceeds Rs. 50,000.
(iv) Any sum actually paid by the employer in respect of any obligation on behalf of the employee;
(v) any sum payable (not necessarily paid) by the employer to effect an assurance on the life of the employee or to effect a contract for an annuity;
(vi) the value of any other fringe benefit or amenity as may be prescribed.
d) Self occupied property: self occupied house properties are those which are used by the assessee for his residential purpose. It is not let out so no income is derived from self occupied house property. From the Assessment year 2020-21, net annual of two self occupied house property will be taken as zero. In Case of Self Occupied House Property: Max. Rs. 2,00,000 is allowed as deduction if the following conditions are satisfied:
Ø Loan taken after 1 – 4 – 99
Ø For construction/purchase (Capital expenditure) of house
Ø Construction completed within 5 years from the end of financial year in which loan is borrowed.
Ø Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000
e) Capital Gain: Capital gain is the gain which arises from the transfer of a capital asset. Any profit or gain, which arises during a previous year, is chargeable under the head "capital gains" under Section 45. For a gain to be charged under the head "capital gain," it should arise due to a transfer of a capital asset. Such a profit or gain should not be exempt from tax under sections 54, 54B, 54D, 54EC, 54ED, 54FD, and 54G of Income Tax Act.
TYPE OF CAPITAL GAINS
a) Long term capital gains: When a capital asset is transferred by an assessee after having held it for 36 months/24months/12 months, as the case may be, the capital gains arising from this transfer is known as Long Term Capital Gains.
b) Short term capital gain: If the period of holding of capital asset before transfer is less than 36 months/24months/12 months, as the case may be, the capital gains arising from such transfer are known as Short Term Capital Gains.
3. (a) What is income tax? Discuss the features of income tax in India. 2+10=12
Ans: Meaning and Definition of Tax
A tax is a fee charged (levied) by a government on a product, income or activity. If tax is levied directly on person or corporate income, it is called direct tax. If tax is levied on the price of a good or service, it is called indirect tax. The purpose of taxation is to finance government expenditure.
According to Hugh Dalton, “A tax is a compulsory contribution imposed by a public authority, irrespective of the exact amount of service rendered to the tax payer in return and not imposed as penalty for any legal offences.” In general, tax is a levy or other type of a financial charge or fee imposed by state or central governments on legal entities or individuals. Local authorities like local governments, like panchayats or municipal corporations also have right to impose taxes.
CHARACTERISTICS OF IDEAL TAX SYSTEM OR REQUIESTES OF A SOUND TAX SYSTEM
A good or ideal tax system is one which fulfils all the canons of taxation, which is helpful to provide sufficient revenue to the government for meeting the expenditure and at the same time offer minimum inconvenience to the tax-payer. According to Edmund Burke, “It is difficult to tax and to please as it is to love and to be wise.” That we mean by a good or deal tax system is simply the predominance of good taxes; taxes which fulfils most the canons taxation. The following characteristics should be there in order to be called a good or deal tax system:
1) Tax Ratio: It is difficult to determine the tax ratios by a fixed norm. The opportunity cost of raising more revenue, the benefit to be derived from extra public spending and cost of servicing public sector debt all changes over time and differ across countries. Decisions on public spending, borrowing the revenue are highly interrelated, if they are to set, they must be set jointly.
2) Efficiency and Growth: It is often difficult to design a tax structure that will satisfy the aims of efficiency as well as growth. In order to raise higher revenue, there is need to change the base or rate of some taxes at least. In that case firms and individuals will bring about a change in the allocation of resources from heavily taxed industries to lightly taxed one. In the event of market prices reasonable reflecting social costs and benefits, the above tax change will require a tradeoff between revenue and efficiency. When market price do not reflect social costs and benefits, taxes can be utilized to improve allocation of resources.
3) Equity in Taxation: Equity is another issue that is associated with any tax reform. There are two types of equity viz. horizontal equity and vertical equity. The former is concerned with the treatment of person with similar incomes, while the latter is more concerned with reduction in income inequality. Tax system of developing countries fails miserably in terms of horizontal equity. In the case of vertical tax equity too, the record is no better and it is so in spite of progressive tax structure because it is not fully applied. Another factor is large scale tax evasion.
4) Taxes should observe all the Canons: The taxes should be so imposed that they are equitable, convenient to pay, certain, economic, productive, elastic and simple. The essence of the argument is that majority of the taxes should observe most of the canons.
5) Taxes should ensure maximum Social Advantage: Another major characteristic of a good tax system is that it should ensure maximum social advantage. The imposition of taxes should be on the basis of this fundamental principle of public finance. It must ensure maximum social advantage or least aggregate sacrifice.
6) Balanced Tax System: Another major pre-requisite of good tax system is that it should be balanced. It means that tax system is simply that it should exist not one kind of taxes but all kinds of them in a proper balance. For example, both direct and indirect tax systems have their advantages and disadvantages. But it is required of a good tax system to have both kinds of taxes in a proper balance.
7) Many Dimensions of Tax System: A tax has many dimensions. We should look into its volume, composition, rates, coverage, timings of collection, mode of collection and so on in order to see its effects in their totality. Each system will have its own merits and demerits in terms of its social and economic effects. Thus, in general, it is very difficult to evolve a tax system which is the best or ideal in every respect.
8) Universal Application of Taxes: Another main characteristic of a good tax system is that it should ensure universal and uniform application of taxes to each individual of the society without any discrimination.
9) Desirable Effects on Production and Distribution: A good tax system is one which has desirable effects on production and distribution. It should ensure a rapid economic development of the country. A good tax system always promotes production, encourages people to work, save and invest, and increases national income and its equitable distribution.
10) Source of Public Revenue: To consider a tax system ideal, it must have the quality to provide public revenue. Tax is an important part of the total revenue of the budget. It is a source of public revenue and hence it should provide necessary revenue to the government.
11) Freedom from Harassment: A good or deal tax system recognizes that tax-payer has some basic rights. He is prepared to pay his taxes but would not like to undergo any harassment. With this in view, tax laws should be simple in language and the tax liability should be easily determinable with certainty.
Or
(b) “The incidence of income tax depends upon the residential status of an assessee.” Explain this statement in detail. 12
Ans: Incidence of Taxes
As per Section 5 of the Income Tax Act 1961, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income.
In order to understand the relationship between residential status and tax liability, one must understand the meaning of “Indian income” and “Foreign income”. An Indian income is one which satisfies any of the following conditions:
1) If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year, or
2) if income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year, or
3) if income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year.
Similarly, foreign income is one which satisfies both the following conditions:
1) Income is not received (or not deemed to be received) in India; and
2) Income does not accrue or arise (or does not deemed to accrue or arise) in India.
Indian income is always taxable in India irrespective of the residential status of the taxpayer. Foreign income of an individual and HUF from a business controlled or profession setup in India will be taxable in the hands of resident and ordinarily resident and resident but not ordinarily resident but not in the hands of a non-resident. However, Foreign income from a business controlled or profession setup outside India will be taxable only in the hands of resident and ordinarily resident and not in the hands of a resident but not ordinarily resident or a non-resident person.
Foreign income of any other taxpayer (Company, Firm, AOP, BOI etc.) will be taxable if the taxpayer is resident in India and will not be taxable in case the taxpayer is non-resident in India.
Tax incidence of different taxpayers is as follows—
Particulars
|
ROR
|
RNOR
|
NR
|
Income received in India
Income deemed to be received in India
Income accruing or arising in India
Income deemed to accrue or arise in India
Income received/ accrued outside India from a business in India
Income received/ accrued outside India from a business controlled outside India
|
Yes
Yes
Yes
Yes
Yes
Yes
|
Yes
Yes
Yes
Yes
Yes
No
|
Yes
Yes
Yes
Yes
No
No
|
4. (a) What do you mean by tax-free income? Given ten examples of income which are totally exempted from income tax? 3+8=11
Ans: Tax free incomes are those on which an assessee is not liable to pay tax under the Income tax Act, 1961. These incomes are also called exempted incomes.
Income Exempted from tax under Sec. 10:
1. Agricultural Income: Income from agriculture is exempt. However, if the net agricultural income exceeds Rs.5,000, it is taken into account for determining the rates of income-tax on incomes liable to tax. [Sec.10 (1)]
2. Receipt from Hindu Undivided Family: Any sum received by an individual as a member of Hindu Undivided Family where such sum has been paid out of the income of the family or in the case of any impartibly estate, where such sum has been paid out of the income of the estate belonging to the family, irrespective of whether tax is payable or not by the HUF on its total income. However, certain receipts from HUF are liable to be clubbed in the hands of an individual member u/s 64(2). [Sec.10 (2)]
3. Partner’s Share in the Firm’s Income: In the case of a person being a partner of a firm which is separately assessed as such, partner’s share in the total income of the firm is exempt. Share of a partner of the firm shall be computed by dividing the total income of the firm in the profit sharing ratio mentioned in the Partnership Deed. [Sec.10 (2A)]
4. Value of Leave Travel Concession: Value of any leave travel concession or assistance received by or due from the employer to employee (including noncitizens) and his family (spouse, children and dependent- father, mother, brother, sister dependent on him) in connection with his proceeding on leave or after retirement or termination of his service to any part of India. [Sec.10(5)]
5. Leave Encashment : Any payment received by a Central/State Govt. employee, as cash equivalent of leave salary in respect of period of earned leave at his credit at the time of his retirement whether o superannuation or otherwise. However, in case of other employees the exemption is available subject to specified limits. For details see ‘Receipts Exempt from Income Tax’ in the chapter ‘Salary’. [Sec.10(10AA)]
6. Compensation to Employee: Any compensation received by a workman under Industrial Disputes Act or under any other Act or rules, order or notification issued there under or under any standing order or under any award, contract of service or otherwise at the time of his retrenchment is exempt to the extent such compensation is in accordance with Section 25F (b) of Industrial Disputes Act, subject to a maximum of Rs.5,00,000.
7. Payment from Provident Fund: Any payment (including interest) from a provident fund under Provident Fund Act, 1925 or Public Provident Fund Scheme, 1968. [Sec.10(11)]
8. Payment from Sukanya Samriddhi Account: Any payment from an account under the Sukanya Samriddhi Account Rules, 2014 [Sec.10(11A)]
9. Accumulated Balance of Recognised Provident Fund: Any accumulated balance due and becoming payable to an employee from a recognised provident fund, on fulfillment of any of the following conditions:
(i) If he has rendered a continuous services of five years or more; or
(ii) If his service, though not as stated in (i) above, has been terminated due to his ill-health or by the contraction or discontinuation of his employer’s business or any other cause beyond his control; or
(iii) If on cessation of his employment, his accumulated balance is transferred to recognised provident fund maintained by his new employer;
10. House Rent Allowance: Any special allowance granted to an assessee by the employer to meet expenditure incurred on payment of rent for residential accommodation subject to prescribed limits and conditions. [Sec.10(13A)]
Or
(b) Explain the following: 5 ½ +5 ½=11
1) Special Economic Zone.
2) Free Trade Zone.
1. CONDITIONS TO BE SATISFIED: In order to get deduction, an undertaking must satisfy the following conditions:
Condition 1:
|
It must begin manufacture or production in free trade zone :
It has begun or begins to manufacture or produce during the previous year relevant to the assessment year—
(a) commencing on or after 1-4-1981, in any free trade zone; or
(b) commencing on or after 1-04-1994, in any software technology park or electronic hardware technology park or;
(c) commencing on or after the 1-04-2001 in any special economic zone;
|
Conditions 2 :
|
It should not be formed by splitting / reconstruction of business.:
|
Conditions 3 :
|
It should not be formed by transfer of old machinery: it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
|
Conditions 4 :
|
Sale construction should be remitted to India in convertible foreign exchange.:
Sale consideration should be remitted to India in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf.
|
Condition 5 :
|
Report of Chartered Accountant :
The deduction under [this section] shall not be admissible for any assessment year beginning on or after the 1st day of April, 2001, unless the assessee furnishes in the prescribed Form 56 , along with the return of income, the report of an Chartered Accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section.
|
Condition 6 :
|
Return of income should be submitted in time.
|
2. AMOUNT OF DEDUCTION – GENERAL PROVISIONS: If the aforesaid conditions are satisfied , the deduction u/s 10A may be computed as under :
Profits of the business of eligible undertaking = Export Turnover of eligible undertaking/Total Turnover of eligible undertaking.
3. PERIOD AND RATE OF DEDUCTION: Out of the total income of an assessee a deduction of 90% of such profits and gains as are derived by an undertaking from the export of articles, or things or computer software shall be allowed. Rate of deduction for unit set up in Special Economic Zone on or after 1-4-2003 shall be as follows for first 10 assessment years:
First 5 Years – 100 % of profits and gains.
Next 2 Years : 50% of such Profit and Gains is deductible for further 2 assessment years.
Next 3 Years : for the next three consecutive assessment years, so much of the amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account.
4. TRANSFER UNDER A SCHEME OF AMALGAMATION OR DEMERGER: In case an undertaking eligible for deduction under this section is transferred, before the expiry of the specified period, to another Indian company in a scheme of amalgamation or demerger:
(a) No deduction shall be admissible under this section to the amalgamating or the demerged company for the previous year in which the amalgamation or demerger takes place ; and
(b) The provisions of this section shall apply to the amalgamated or the resulting company as if the amalgamation or demerger had not taken place.
SPECIAL PROVISION IN RESPECT OF NEWLY ESTABLISHED UNITS IN SPECIAL ECONOMIC ZONE [SECTION 10AA]:
1. CONDITIONS TO BE SATISFIED: The following conditions should be satisfied to claim deduction u/s 10AA:
Condition 1 : Assessee, being an entrepreneur as referred to in clause (j) of section 2 of the Special Economic Zones Act, 2005. Entrepreneur is a person who has been granted a letter of approval by the Development Commissioner to set a unit in a Special Economic Zone.
Conditions 2 : The Unit in Special Economic Zone who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006.
Conditions 3 : It is not formed by the splitting up, or reconstruction, of a business already an existence.
Conditions 4 : It not formed by the transfer to a new business, of old plant and machinery. However, it can be formed by transfer of old plant or machinery to the extent of 20%.
Condition 5 : The assessee has income from export of articles or thing or from services from such unit. In other words, the assessee has exported goods or provided services out of India from the Special Economic Zone by land, sea , air, or by any other mode, whether physical or otherwise.
Conditions 6 : Books of Accounts of the taxpayer should be audited. The Tax payer should submit Audit Report in Form No.56F along with the return of income.
2. AMOUNT OF DEDUCTION: Deduction depends upon quantum of Profit derived from Export of Articles or things or services (including computer software). It is calculated as under: (Profit of the Business of the undertaking X Export turnover)/Total Turnover of the business
Deduction for First 5 Assessment Years – 100% of Profits and Gains derived for a period of five consecutive assessment years beginning with the assessment year relevant to the previous year in which the Unit begins to manufacture or produce such articles or things or provide services.
Deduction for 6th Assessment Year to 10th Assessment Years: 50% of such Profits and Gains for further five assessment years and thereafter;
Deduction for 11th Assessment Year to 15th Assessment Year: Amount not exceeding 50% of the profit as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be created and utilized for the purposes of the business of the assessee.
3. CONSEQUENCES FOR MERGER AND DEMERGER: Where any undertaking is transferred, before the expiry of the period specified in this section, to another undertaking, under a scheme of amalgamation or demerger, no deduction shall be admissible under this section to the amalgamating or the demerged Unit for the previous year in which the amalgamation or the demerger takes place.
5. (a) Write a detailed note on rebate of tax under Section 88 of the Income-tax Act, 1961. 11
Or
(b) From the particulars given below, compute the gross salary of Mr. X for the Assessment Year, 2017 – 18:
1) Salary – Rs. 1,48,000.
2) Bonus – Rs. 12,000.
3) Free gas, electricity, water, etc. (actual bills paid by company) – Rs. 6,000.
4) Furnished flat provided to the employee at Kanpur (population above 25 lakhs) for which actual rent paid by the company – Rs. 78,000.
5) The employee pays rent @ Rs. 1,000 p.m. to the company.
6) Furniture at cost (including television, fridge and air-conditioner) – Rs. 50,000.
Computation of salary income of Mr. X for the Assessment year 2018-19
Particulars
|
Rs.
|
Rs.
|
1. Salary
2. Bonus
3. Value of rent free house;
15% of employee’s salary (Salary for this purpose = 1,48,000 + 12,000 =1,60,000)
Or Rent paid by employer
whichever is less
Add: 10% of cost of furniture (50,000*10%)
Less: Rent recovered from employee
4. Free gas, electricity bill paid by the company
|
24,000
78,000
24,000
5,000
29,000
12,000
|
1,48,000
12,000
17,000
6,000
|
Gross Salaries
Less: Deduction u/s 16
|
1,83,000
Nil
| |
Income from Salaries
|
1,83,000
|
6. (a) State the provisions relating to computation of ‘Income from House Property’ under different categories of house property as per the Income-tax Act, 1961. 11
Ans: Annual Value (Section 23)
The Annual Value of a house property is the inherent capacity of the property to earn income and it has been defined as the amount for which the property may reasonably be expected to be let out from year to year. It is not necessary that the property should actually be let out. It is also not necessary that the reasonable return from property should be equal to the actual rent realized when the property is, in fact, let out.
Computation of annual value: Computation of Annual Value for the determination of Income from House property requires three steps.
Ø STEP 1 Determine the Gross Annual Value(GAV)
Ø STEP 2 Determine the value of Municipal taxes
Ø STEP 3 Compute the Net Annual Value
STEP 1- Determine the Gross Annual Value (GAV):
Calculation of GAV based on the following factors:
1) Fair Rental Value (FRV): The amount of rent which a similar property (similar to the house property the GAV of which is to be determined) in the same locality would fetch.
2) Municipal Rental Value (MRV): The value of the house property under consideration as determined by the Municipal authorities for the purpose of levying Municipal taxes.
3) Standard Rental Value (SRV): The maximum amount of rent which a person can recover from his tenant, legally, as determined by the Rent Control Act.
4) Expected Rental Value (ERV): The Fair rent or Municipal value, whichever is higher, subject to the Standard rent.
5) Unrealised rent: The amount of rent which is not capable of being realised. The amount of Unrealised rent shall not be included in the actual amount of rent receivable from the house property if all the following for conditions are satisfied:
a) Tenancy is in good-faith.
b) The defaulting tenant has vacated or steps must have been taken to vacate such tenant.
c) The defaulting tenant doesn't continue to occupy any other property of the assessee.
d) Assessee has taken all the reasonable steps to proceed against the defaulting tenant legally or he must satisfy the assessing officer that if such steps are taken, it will be of no use.
6) Actual rent receivable (ARR): The amount of rent which is equal to the difference between the Rent receivable and the unrealised rent.
7) Unoccupied property: The House property which cannot be occupied by its owner by reason of his employment, business or profession being in some other place and he resides at that place in a property not owned by him.
It should be noted that the procedure for determination of Gross Annual Value is not same in all the cases. It varies according to the given situation. Various situations and the respective procedures for computation of GAV are given below:
1) Property is let out throughout the previous year (Section 23(1) (a)/ (b)): GAV = ERV or ARR, whichever is higher.
2) Let out property is vacant for a part of the year (Section 23(1) (c)): If the ARR < ERV only because the property was vacant for a part of the year, GAV = ERV. If the ARR < ERV for any other reason, GAV = ERV. If the ARR > ERV even though it was vacant for a part of the year, GAV = ARR. In all the cases, ARR is computed for the let out period only and the ERV is for whole year as usual.
3) Self-occupied or Unoccupied property (Section 23(2)): GAV = Nil
4) Let out for a part of the year and self-occupied for a part of the year (Section 23(3)): GAV = Higher of ERV (calculated for the whole year) and ARR (calculated for let out period only)
5) Deemed to be let out property (Section 23(4)): This case arises when the assessee has more than two Self-occupied properties in a previous year. In such case, only two of such properties is treated as self-occupied and the remaining shall be treated as Deemed to be let out properties. Here, GAV = ERV.
6) A portion of the property is let out and the remaining portion is self-occupied: GAV is calculated separately for self-occupied part and the let out part. The values of FR, MV, SR and Municipal taxes are apportioned on the given basis.
Thus, there is a scope for charging tax on Notional rent too. This happens when the GAV determined according to the above steps is the ERV.
Now that the Gross Annual Value of the house property is determined, the next step is to determine the value of Municipal taxes paid that is deductible from the Gross Annual Value.
STEP 2 - Determine the value of Municipal taxes:
The municipal tax or the property tax paid is allowed as deduction from the Gross Annual Value if the following two conditions are satisfied.
(a) The property is let out during the whole or any part of the previous year,
(b) The Municipal taxes must be borne by the landlord. If the Municipal taxes or any part thereof are borne by the tenant, it will not be allowed.
(c) The Municipal taxes must be paid during the year. Where the municipal taxes become due but have not been actually paid, it will not be allowed.
STEP 3 - Compute the Net Annual Value:
Gross Annual Value ++++++
Less: Municipal Taxes ++++++
Net Annual Value ++++++
Deductions allowable under section 24 of the income tax act
Following two deductions will be allowable from the net annual value to arrive at the taxable income under the head ‘income from house property’:-
(a) Statutory deduction: 30 per cent of the net annual value will be allowed as a deduction towards repairs and collection of rent for the property, irrespective of the actual expenditure incurred.
(b) Interest on borrowed capital: The interest on borrowed capital will be allowable as a deduction on an accrual basis if the money has been borrowed to buy or construct the house. It is immaterial whether the interest has actually been paid during the year or not. If money is borrowed for some other purpose, interest payable thereon cannot be claimed as deduction.
Limit of deduction u/s 24(b)
A. In case of Let out/ deemed to be let out house property: Interest on Money borrowed is allowed as deduction without any limit. Here interest on money borrowed = interest of P/Y + 1/5 of Pre-construction period (PCP) interest. PCP started from the date of borrowing and ended on 31st mar immediately preceding (Before) the year of completion.
B. In Case of Self Occupied House Property: Max. Rs. 2,00,000 is allowed as deduction if the following conditions are satisfied:
Ø Loan taken after 1 – 4 – 99
Ø For construction/purchase (Capital expenditure) of house
Ø Construction completed within 5 years from the end of financial year in which loan is borrowed.
Ø Loan certificate is obtained
For all other cases maximum allowed deduction is Rs. 30000
Or
(b) From the particulars given below, compute the income from house property which consists of two independent units having 1/3rd and 2/3rd area: 11
Date of completion of work
Municipal rental value
Fair rental value
Self-occupied portion
Let-out portion (From 1-4-2017 to 31-08-2017 @ Rs. 7,200 p.m. and self occupied from 01-09-2017 onwards)
Municipal taxes (per annum)
Fire insurance premium (per annum)
Ground rent (per annum)
Interest on loan
|
01.11.2011
Rs. 96,000
Rs. 84,000
2/3
1/3
Rs. 6,000
Rs. 2,000
Rs. 4,000
Rs. 7,500
|
Ans: Computation of Income from house property:
Particulars
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Unit I (2/3 Self – occupied)
|
Unit II (1/3 Let – Out)
|
1. Municipal Rental Value
2. Fair Rental Value
3. Expected Rental Value (MRV or FRV whichever is higher but limited upto SRV)
4. Actual Rent received or receivable (5 months only)
5. Gross Annual Value (higher of 4 or 5) [in case of vacancy only point 4 is considered)
6. Less: Municipal taxes paid
|
32,000
28,000
32,000
36,000
36,000
2,000
| |
8. Net Annual value (6-7)
Less: Deduction under section. 24
(a) Standard Deduction @ 30%
(b) Interest on money borrowed
|
Nil
5,000
|
34,000
10,200
2,500
|
Income/ (Loss from house property)
Total Income from house property = (5,000) + 21,300 = (16,300)
|
(5,000)
|
21,300
|
7. (a) Calculate the income from other sources of Mr. Y from the information given below: 11
Winnings from lottery
Winnings from horse race
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Rs. 1,00,000
Rs. 35,000
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Gifts received during the previous year, 2016 – 17:
1) Received Rs. 20,000 as gift from a friend.
2) Received Rs. 1,00,000 as gift from elder brother.
3) Received Rs. 1,40,000 as gift on his marriage.
4) Received Rs. 80,000 as gift from his NRI friend on 01.01.2017.
5) Another gift of Rs. 18,000 received from his friend.
Or
(b) Define capital gain. Discuss the procedure for computation of capital gains as prescribed by the Income-tax Act, 1961.
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