4.1 Computation of Total Income and Tax Liability of an individual | unit 4 computation of tax liability

UNIT IV

Computation of Tax liability

4.1 Computation of Total Income and Tax Liability of an individual

Computation of Total Income:

Particulars					Amt (Rs)
Income from Salary					XX
Income from House Property					XX
Profits & Gains from Business & Profession					XX
Capital Gains					XX
Income From Other Sources					XX
Gross Total Income					XX
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc	Remaining GTI	Total
	XX	XX	XX	XX	XX
Less: Deduction under chapter VI A				(XX)	(XX)
Net Taxable Income					XX

Solved Examples

Q.1 (PGBP + IFOS + Deduction)

From the following Profit & Loss Account of Mr. Swaraj, Pune compute his total taxable income & Tax Liability from for A.Y 2020-21

Particulars	Rs	Particulars	Rs
To Salary	40,000	By Gross profit B/d By Bad debts Recovered By Commission (Business Related) By Dividend from Domestic company By FD Interest	5,22,400
To Rent	46,000		15,000
To Advertisement	15,000		85,000
To Int. on loan (Business)	16,000
To Depreciation	95,000		15,000
To Printing & Stationery	24,000
To Postage	2,400		40,000
To General Expenses	15,000
To Patents	20,000
To Bad debts	5,000
To Income Tax	2,000
To Wealth Tax	1,000
To R.D.D.	15,000
To Penalty on GST	4,000
To Charity to poor	2,000
To LIP (Self)	12,000
To Net Profit	3,63,000

	6,77,400		6,77,400

Additional Information:

Printing Stationery & Advertisement Expenses is 50% related to Private Purpose.

Allowable Depreciation as per Income Tax Act Rs 90,000.

Business receipts Rs 90,000 is not entered into Profit & Loss Account.

Depreciation on Patents @ 25% is allowed as deduction.

Solution: Mr. Swaraj

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Profits & Gains from Business & Profession
Net Profit as per Profit & Loss Account						3,63,000
Add: Disallowed Expenses
Advertisement for Private Purpose (15,000 x 50%)				7,500
Printing & Stationery for Private Purpose (24,000 x 50%)				12,000
Depreciation as per P/L A/c				95,000
Patents (capital expenditure)				20,000
Income Tax				2,000
Wealth Tax				1,000
R.D.D				15,000
Penalty on GST				4,000
Charity to Poor(Personal Expense)				2,000
Life Insurance Premium Self(Personal Expense)				12,000		1,70,500

Less: Non Business Incomes
Dividend from Domestic Company				15,000
FD Interest				40,000		(55,000)

Add: Unrecorded Business Incomes
Business receipts not recorded						90,000

Less: Unrecorded Business Expenses
Depreciation as per Income Tax Act				90,000
Depreciation on Patents(20,000 x 25%)				5,000		(95,000)	4,73,500

Income From Other Sources
Dividend from Domestic Company (Exempt)						-
FD Interest						40,000	40,000


Gross Total Income							5,13,500
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		5,13,500		5,13,500
Less: Deduction under chapter VI A
Section 80C- LIC Premium					(12,000)		(12,000)

Net Taxable Income	-	-	-		5,01,500		5,01,500

Notes:

Income tax , wealth tax and penalty on GST are expressly disallowed.

Patents made during the year are of capital nature, hence disallowed.

Bad debts recovered are assumed as business incomes in absence of information.

Dividend on shares & FD interest are non business incomes.

Q.2 (PGBP + IFHP + IFOS + Deduction)

The following is the Profit & Loss account for previous year furnished by Mr. Sagar for financial year ended 31st March, 2020. (AY 2020-21)

Particulars	Amount Rs.	Particulars	Amount Rs.
To salary	88,500	By Gross Profit	2,23,000
To general Expenses	l2,500	By Sundry Receipt	8,400
To Advertisement	8,000	By Gift from father	25,000
To Fire insurance	3,500	By Interest on saving
To Depreciation	l5,800	Bank deposit	6,000
To office expenses	4,500	By Bad debts
To Bonus	l2,800	recovered	5,400
To Income tax	8,600	(not allowed earlier
To VAT	4,500	as deduction)
To interest on Bank Loan To Municipal Tax of House To Interest on Loan for House Property	5,600 10,000 1,08,000	By Rent from House Property	2,40,000


To Interest on Income Tax	3,500
To Net Profit	2,22,000
	5,07,800		5,07,800

Additional Information:

Salary includes Rs. 4,200 paid to domestic servant.

Advertisement includes Rs. 550 as expenditure incurred for selling house hold furniture.

Allowable depreciation as per Income Tax Rules Rs. l4,000.

VAT includes Rs. 500 as penalty for not filling return in time.

General expenses include Rs. 5850 as the gift given to friend on his marriage ceremony.

You are required to compute total Taxable income & tax liability thereon for relevant A. Y. 2020-21 of Mr. Sagar.

Solution:

Mr. Sagar

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Profits & Gains from Business & Profession
Net Profit as per Profit & Loss Account						2,22,000
Add: Disallowed Expenses
Salary to domestic servant				4,200
Gift to Friend(general expense)				5,850
Advertisement for personal purpose				550
Depreciation as per P/L A/c				15,800
Income Tax				8,600
Penalty for late filing of VAT returns				500
Interest on Housing Loan				1,08,000
Municipal Tax Paid for House Property				10,000
Interest on Income Tax				3,500		1,57,000

Less: Non Business Incomes
Sundry Receipts				8,400
Gift from Father				25,000
Bad Debts recovered				5,400
Rent from House Property				2,40,000
Interest on Bank deposit				6,000		(2,84,800)

Add: Unrecorded Business Incomes

Less: Unrecorded Business Expenses
Depreciation as per Income Tax Act						(14,000)	80,200

Income From House Property
Gross Annual Value(Actual Rent received)						2,40,000
Less: Municipal Tax Paid						(10,000)
Net Annual Value						2,30,000
Less: Deduction under section 24
Standard Deduction @ 30% of NAV						(69,000)
Interest on Housing Loan						(1,08,000)	53,000

Income From Other Sources
Sundry Receipt						8,400
Gift from Father(Exempt)						-
Interest on Savings bank deposit						6,000	14,400

Gross Total Income							1,47,600
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		1,47,600		1,47,600
Less: Deduction under chapter VI A
Section 80TTA- Saving Bank Interest					6,000		(6,000)

Net Taxable Income	-	-	-				1,41,600

Notes:

Personal expenses like salary to domestic servant, advertisement for personal sale of asset and gift to friend are disallowed.

Income Tax and any penalties are expressly disallowed.

Depreciation as per P/L A/c is disallowed.

Bad debts recovered (not allowed earlier as deduction) is not taxable. Hence deducted.

Q.3 (IFS + IFHP + PGBP + CG + IFOS + Deductions)

Mr. Avinash aged 50 years working in PQR Ltd., Mumbai. He has furnished the following details on his income for the year ended 31.3.2020.

Particulars	Rs
Salary	6,80,000
Dearness Allowance	1,20,000
Bonus Received	1,20,000
Taxable Income from Let out property	1,72,000
Municipal Tax paid
Current Year	4,000
Last Year	2,000
Free car (1800 CC) use both purpose office as well as private
Cost of expenses is born by employee himself.	22,000
Share of profit from
20% share of profit from partnership firm	40,000
A Hindu undivided Family	38,000
Income from Business	6,20,000
Dividend received from Domestic company	60,000
Interest received on FD	80,000
Income from Lottery	80,000
Interest received on Saving Bank A/c.	16,000
Long Term Capital gain	1,60,000
His Saving & Investment
1) LIC premium	60,000
2) Repayment of Higher Education Loan
(Including Interest Rs. - 20,000)	60,000
3) Repayment of Housing Loan
(Including Interest Rs 30,000)	90,000
4) Medical Insurance Premium
Mother (by cheque) (Age 69 years)	32,000
Himself (by cash)	15,000
5) National saving certificate	60,000
6) Deposited in PPF Account	60,000
He paid Professional Tax	2,500

Compute total taxable Income & Tax liability of Mr. Avinash for the A.Y. 2020-2021.

Solution:

Mr. Avinash

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Income from Salary
Basic Salary						6,80,000
Dearness Allowance						1,20,000
Bonus Received						1,20,000
Perquisite value of Motor Car				22,000
Value calculated as per Income Tax Act (1800 x 12)				21,600		22,000
Gross Taxable Salary						9,42,000
Less: Deduction u/s 16
Standard Deduction						(50,000)
Profession Tax						(2,500)
Net Taxable Income from Salary							8,89,500

Income From House Property
Gross Annual Value(Actual Rent received)						1,72,000
Less: Municipal Tax Paid(4,000+2,000)						(6,000)
Net Annual Value						1,66,000
Less: Deduction under section 24
Standard Deduction @ 30% of NAV						(49,800)
Interest on Housing Loan						(30,000)	86,200

Profits & Gains from Business & Profession
Income from Business						6,20,000
Share of Profit from Partnership Firm (Exempt)						-
Share of Profit from HUF (Exempt)						-
Total Income from Business & Profession							6,20,000

Capital Gains – LTCG							1,60,000

Income From Other Sources
Dividend received from Domestic company(Exempt)
Interest received on FD						80,000
Income from Lottery						80,000
Interest received on Saving Bank A/c						16,000	1,76,000

Gross Total Income							19,31,700
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	1,60,000	80,000		16,91,700		19,31,700
Less: Deduction under chapter VI A
Section 80C
Life Insurance Premium					60,000
Repayment of Housing Loan					60,000
Investment in NSC					60,000
Investment in PPF					60,000
Total					2,40,000
Maximum Deduction allowed					1,50,000		1,50,000
Section 80D
Medical Insurance Premium of Mother(Senior citizen)					32,000		32,000
Section 80E
Interest on repayment of Higher Education Loan					20,000		20,000
Section 80TTA
Interest received is 16000 but maximum deduction allowed is 10000					10,000		10,000


Net Taxable Income	-	1,60,000	80,000		14,79,700		17,19,700

Q.4 (IFS + PGBP + IFOS)

Mrs. Sharma is working in Mahendra Ltd. Delhi. She was furnished the following details of her income for the year 20l9-20.

Basic salary Rs. 28,000 p.m.

D.A. Rs. l7,200 p.m. (not considered for retirement benefit)

Bonus Rs. l,00,000.

Entertainment allowance Rs. 600 p.m.

Transport allowance (for coming to office & going back to her residence) Rs. l800 p.m.

Agricultural income from land situated at Sri Lanka Rs. 30,000.

Income from business Rs. 45,000.

Income from unit of UTI Rs. 4,500.

Interest on Debentures Rs. 12,000

She has taken life insurance policy of Rs. 2,00,000. LIC premium of Rs. 25,800 & professional tax Rs. 2,500 is paid by employer.

Repayment of loan borrowed for higher education of her son Rs. 59,000 including interest Rs. 29,000.

Compute the total taxable income & Tax payable by Mrs. Sharma for AY 2020-21.

Solution:

Mrs. Sharma

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Income from Salary
Basic Salary(28,000 x 12)						3,36,000
Dearness Allowance(17,200 x 12)						2,06,400
Bonus Received						1,00,000
Entertainment allowance(600 x 12)						7,200
Transport Allowance(1,800 x 12)						21,600
Gross Taxable Salary						6,71,200
Less: Deduction u/s 16
Standard Deduction						(50,000)
Profession Tax						(2,500)
Net Taxable Income from Salary							6,18,700

Profits & Gains from Business & Profession
Income from Business							45,000

Income From Other Sources
Agricultural income from land in Sri lanka						30,000
Income from units of UTI(Exempt)						-
Interest on Debentures						12,000	42,000

Gross Total Income							7,05,700
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		7,05,700		7,05,700
Less: Deduction under chapter VI A
Section 80C
Life Insurance Premium(Note 1)					25,800		25,800

Section 80E
Interest on repayment of Higher Education Loan					29,000		29,000

Net Taxable Income					6,50,900		6,50,900

Note:

LIC Premium- Lower of

Premium Paid Rs 25,800

Limit of 20% of sum assured (2,00,000 x 20%) Rs 40,000 Rs 25800

Computation of Tax Liability

Particulars					Amt (Rs)
Income from Salary					XX
Income from House Property					XX
Profits & Gains from Business & Profession					XX
Capital Gains					XX
Income From Other Sources					XX
Gross Total Income					XX
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc	Remaining GTI	Total
	XX	XX	XX	XX	XX
Less: Deduction under chapter VI A				(XX)	(XX)
Net Taxable Income					XX
Apply Tax	15%	20%/10%	30%	Slab rate
Gross Tax Liability					XX
Add: Surcharge					XX
Add: Health & Education Cess(4%)					XX
Total Tax Liability					XX
Less: Relief					(XX)
Less: TDS/TCS					(XX)
Less: Tax paid					(XX)
Net Tax Liability/Refund					XX/(XX)

Solved Examples

Q.1 (PGBP + IFOS + Deduction)

From the following Profit & Loss Account of Mr. Swaraj, Pune compute his total taxable income for A.Y 2020-21

Particulars	Rs	Particulars	Rs
To Salary	40,000	By Gross profit B/d By Bad debts Recovered By Commission (Business Related) By Dividend from Domestic company By FD Interest	5,22,400
To Rent	46,000		15,000
To Advertisement	15,000		85,000
To Int. on loan (Business)	16,000
To Depreciation	95,000		15,000
To Printing & Stationery	24,000
To Postage	2,400		40,000
To General Expenses	15,000
To Patents	20,000
To Bad debts	5,000
To Income Tax	2,000
To Wealth Tax	1,000
To R.D.D.	15,000
To Penalty on GST	4,000
To Charity to poor	2,000
To LIP (Self)	12,000
To Net Profit	3,63,000

	6,77,400		6,77,400

Additional Information:

Printing Stationery & Advertisement Expenses is 50% related to Private Purpose.

Allowable Depreciation as per Income Tax Act Rs 90,000.

Business receipts Rs 90,000 is not entered into Profit & Loss Account.

Depreciation on Patents @ 25% is allowed as deduction.

Solution: Mr. Swaraj

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Profits & Gains from Business & Profession
Net Profit as per Profit & Loss Account						3,63,000
Add: Disallowed Expenses
Advertisement for Private Purpose(15,000 x 50%)				7,500
Printing & Stationery for Private Purpose(24,000 x 50%)				12,000
Depreciation as per P/L A/c				95,000
Patents (capital expenditure)				20,000
Income Tax				2,000
Wealth Tax				1,000
R.D.D				15,000
Penalty on GST				4,000
Charity to Poor(Personal Expense)				2,000
Life Insurance Premium Self(Personal Expense)				12,000		1,70,500

Less: Non Business Incomes
Dividend from Domestic Company				15,000
FD Interest				40,000		(55,000)

Add: Unrecorded Business Incomes
Business receipts not recorded						90,000

Less: Unrecorded Business Expenses
Depreciation as per Income Tax Act				90,000
Depreciation on Patents(20,000 x 25%)				5,000		(95,000)	4,73,500

Income From Other Sources
Dividend from Domestic Company (Exempt)						-
FD Interest						40,000	40,000


Gross Total Income							5,13,500
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		5,13,500		5,13,500
Less: Deduction under chapter VI A
Section 80C- LIC Premium					(12,000)		(12,000)

Net Taxable Income	-	-	-		5,01,500		5,01,500

Notes:

Income tax , wealth tax and penalty on GST are expressly disallowed.

Patents made during the year are of capital nature, hence disallowed.

Bad debts recovered are assumed as business incomes in absence of information.

Dividend on shares & FD interest are non business incomes.

Q.2 (PGBP + IFHP + IFOS + Deduction)

The following is the Profit & Loss account for previous year furnished by Mr. Sagar for financial year ended 31st March, 2020. (AY 2020-21)

Particulars	Amount Rs.	Particulars	Amount Rs.
To salary	78,000	By Gross Profit	2,23,000
To general Expenses	l2,500	By Sundry Receipt	8,400
To Advertisement	8,000	By Gift from father	25,000
To Fire insurance	3,500	By Interest on saving
To Depreciation	l5,800	Bank deposit	6,000
To office expenses	4,500	By Bad debts
To Bonus	l2,800	recovered	5,400
To Income tax	8,600	(not allowed earlier
To VAT	4,500	as deduction)
To interest on Bank Loan To Municipal Tax of House To Interest on Loan for House Property	5,600 10,000 1,08,000	By Rent from House Property	2,40,000
To Donation to Educational
Institution	l0,500
To Interest on Income Tax	3,500
To Net Profit	2,22,000
	5,07,800		5,07,800

Additional Information:

Salary includes Rs. 4,200 paid to domestic servant.

Advertisement includes Rs. 550 as expenditure incurred for selling house hold furniture.

Allowable depreciation as per Income Tax Rules Rs. l4,000.

VAT includes Rs. 500 as penalty for not filling return in time.

General expenses include Rs. 5850 as the gift given to friend on his marriage ceremony.

You are required to compute total Taxable income for relevant A. Y. 2020-21 of Mr. Sagar.

Solution:

Mr. Sagar

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Profits & Gains from Business & Profession
Net Profit as per Profit & Loss Account						2,22,000
Add: Disallowed Expenses
Salary to domestic servant				4,200
Gift to Friend(general expense)				5,850
Advertisement for personal purpose				550
Depreciation as per P/L A/c				15,800
Income Tax				8,600
Penalty for late filing of VAT returns				500
Interest on Housing Loan				1,08,000
Municipal Tax Paid for House Property				10,000
Interest on Income Tax				3,500		1,57,000

Less: Non Business Incomes
Sundry Receipts				8,400
Gift from Father				25,000
Bad Debts recovered				5,400
Rent from House Property				2,40,000
Interest on Bank deposit				6,000		(2,84,800)

Add: Unrecorded Business Incomes

Less: Unrecorded Business Expenses
Depreciation as per Income Tax Act						(14,000)	80,200

Income From House Property
Gross Annual Value(Actual Rent received)						2,40,000
Less: Municipal Tax Paid						(10,000)
Net Annual Value						2,30,000
Less: Deduction under section 24
Standard Deduction @ 30% of NAV						(69,000)
Interest on Housing Loan						(1,08,000)	53,000

Income From Other Sources
Sundry Receipt						8,400
Gift from Father(Exempt)						-
Interest on Savings bank deposit						6,000	14,400

Gross Total Income							1,47,600
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		1,47,600		1,47,600
Less: Deduction under chapter VI A
Section 80TTA- Saving Bank Interest					6,000		(6,000)
Section 80G- Donation to Educational Institution					10,500		(10,500)

Net Taxable Income	-	-	-				1,31,100

Notes:

Personal expenses like salary to domestic servant, advertisement for personal sale of asset and gift to friend are disallowed.

Income Tax and any penalties are expressly disallowed.

Depreciation as per P/L A/c is disallowed.

Bad debts recovered (not allowed earlier as deduction) is not taxable. Hence deducted.

Q.3 (IFS + IFHP + PGBP + CG + IFOS + Deductions)

Mr. Avinash aged 50 years working in PQR Ltd., Mumbai. He has furnished the following details on his income for the year ended 31.3.2020.

Particulars	Rs
Salary	6,80,000
Dearness Allowance	1,20,000
Bonus Received	1,20,000
Taxable Income from Let out property	1,72,000
Municipal Tax paid
Current Year	4,000
Last Year	2,000
Free car (1800 CC) use both purpose office as well as private
Cost of expenses is born by employee himself.	22,000
Share of profit from
20% share of profit from partnership firm	40,000
A Hindu undivided Family	38,000
Income from Business	6,20,000
Dividend received from Domestic company	60,000
Interest received on FD	80,000
Income from Lottery	80,000
Interest received on Saving Bank A/c.	16,000
Long Term Capital gain	1,60,000
His Saving & Investment
1) LIC premium	60,000
2) Donation to National Defence Fund	20,000
3) Repayment of Higher Education Loan
(Including Interest Rs. - 20,000)	60,000
4) Repayment of Housing Loan
(Including Interest Rs 30,000)	90,000
5) Medical Insurance Premium
Mother (by cheque) (Age 69 years)	32,000
Himself (by cash)	15,000
6) National saving certificate	60,000
7) Deposited in PPF Account	60,000
He paid Professional Tax	2,500
Company has deducted TDS from his salary for the year	2,40,000

Compute total taxable Income of Mr. Avinash for the A.Y. 2020-2021.

Solution:

Mr. Avinash

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Income from Salary
Basic Salary						6,80,000
Dearness Allowance						1,20,000
Bonus Received						1,20,000
Perquisite value of Motor Car				22,000
Value calculated as per Income Tax Act (1800 x 12)				21,600		22,000
Gross Taxable Salary						9,42,000
Less: Deduction u/s 16
Standard Deduction						(50,000)
Profession Tax						(2,500)
Net Taxable Income from Salary							8,89,500

Income From House Property
Gross Annual Value(Actual Rent received)						1,72,000
Less: Municipal Tax Paid(4,000+2,000)						(6,000)
Net Annual Value						1,66,000
Less: Deduction under section 24
Standard Deduction @ 30% of NAV						(49,800)
Interest on Housing Loan						(30,000)	86,200

Profits & Gains from Business & Profession
Income from Business						6,20,000
Share of Profit from Partnership Firm (Exempt)						-
Share of Profit from HUF (Exempt)						-
Total Income from Business & Profession							6,20,000

Capital Gains – LTCG							1,60,000

Income From Other Sources
Dividend received from Domestic company(Exempt)
Interest received on FD						80,000
Income from Lottery						80,000
Interest received on Saving Bank A/c						16,000	1,76,000

Gross Total Income							19,31,700
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	1,60,000	80,000		16,91,700		19,31,700
Less: Deduction under chapter VI A
Section 80C
Life Insurance Premium					60,000
Repayment of Housing Loan					60,000
Investment in NSC					60,000
Investment in PPF					60,000
Total					2,40,000
Maximum Deduction allowed					1,50,000		1,50,000
Section 80D
Medical Insurance Premium of Mother(Senior citizen)					32,000		32,000
Section 80E
Interest on repayment of Higher Education Loan					20,000		20,000
Section 80G
Donation to National Defense Fund					20,000		20,000
Section 80TTA
Interest received is 16000 but maximum deduction allowed is 10000					10,000		10,000


Net Taxable Income	-	1,60,000	80,000		14,59,700		16,99,700

Q.4 (IFS + PGBP + IFOS + Deduction 80G)

Mrs. Sharma is working in Mahendra Ltd. Delhi. She was furnished the following details of her income for the year 20l9-20.

Basic salary Rs. 28,000 p.m.

D.A. Rs. l7,200 p.m. (not considered for retirement benefit)

Bonus Rs. l,00,000.

Entertainment allowance Rs. 600 p.m.

Transport allowance (for coming to office & going back to her residence) Rs. l800 p.m.

Agricultural income from land situated at Sri Lanka Rs. 30,000.

Income from business Rs. 45,000.

Income from unit of UTI Rs. 4,500.

Interest on Debentures Rs. 12,000

She has taken life insurance policy of Rs. 2,00,000. LIC premium of Rs. 25,800 & professional tax Rs. 2,500 is paid by employer.

Repayment of loan borrowed for higher education of her son Rs. 59,000 including interest Rs. 29,000.

She paid donation to the Government for the promotion of family planning Rs. 5,000 & Prime minister drought relief fund Rs. 5,000.

Compute the total taxable income of Mrs. Sharma for AY 2020-21.

Solution:

Mrs. Sharma

Statement showing calculation of total income & tax liability for AY 2020-21

Particulars				Amount (Rs)		Amount (Rs)	Amount (Rs)
Income from Salary
Basic Salary(28,000 x 12)						3,36,000
Dearness Allowance(17,200 x 12)						2,06,400
Bonus Received						1,00,000
Entertainment allowance(600 x 12)						7,200
Transport Allowance(1,800 x 12)						21,600
Gross Taxable Salary						6,71,200
Less: Deduction u/s 16
Standard Deduction						(50,000)
Profession Tax						(2,500)
Net Taxable Income from Salary							6,18,700

Profits & Gains from Business & Profession
Income from Business							45,000

Income From Other Sources
Agricultural income from land in Sri lanka						30,000
Income from units of UTI(Exempt)						-
Interest on Debentures						12,000	42,000

Gross Total Income							7,05,700
Subdivision of GTI	STCG u/s 111	LTCG	Winnings, lottery Etc		Remaining GTI		Total
	-	-	-		7,05,700		7,05,700
Less: Deduction under chapter VI A
Section 80C
Life Insurance Premium(Note 1)					25,800		25,800

Section 80E
Interest on repayment of Higher Education Loan					29,000		29,000
Section 80G
Donation to Government for Promotion of Family Planning(100%) (Note 2)					5,000		5,000
Donation to Prime Minister Drought Relief Fund (5,000 x 50%)					2,500		2,500

Net Taxable Income					6,43,400		6,43,400

Note:

LIC Premium- Lower of

c. Premium Paid Rs 25,800

d. Limit of 20% of sum assured (2,00,000 x 20%) Rs 40,000 Rs 25800

2. Calculation of limit for Donation to Government for Promotion of Family Planning

Calculation of Adjusted GTI
Gross Total Income	7,05,700
Less: STCG/LTCG	-
Less: Deductions except 80G(25,800+29,000)	(54,800)
Adjusted GTI	6,50,900
Limit is 10% of AGTI (650900 x 10%)	65,090
Actual Deduction(100% can be claimed)	5,000
Whichever is lower	5,000

4.2 Aggregation of Income

In certain cases, some amounts are deemed as income in the hands of the assessee though they are actually not in the nature of income. These cases are contained in sections 68, 69, 69A, 69B, 69C and 69D. The Assessing Officer may require the assessee to furnish explanation in such cases. If the assessee does not offer any explanation or the explanation offered by the assessee is not satisfactory, the amounts referred to in these sections would be deemed to be the income of the assessee. Such amounts have to be aggregated with the assessee’s income.

4.3 Set off and Carry forward of Losses

Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However, the Income-tax law in India does provide taxpayers some benefits of incurring losses too. The law contains provisions for set-off and carry forward of losses which are discussed in detail in this article.

1. Set off of losses

2. Carry forward of losses

Set off of losses

Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be an intra-head set-off or an inter-head set-off.

a. An intra-head set-off

b. An inter-head set-off

a. Intra-head Set Off

The losses from one source of income can be set off against income from another source under the same head of income.

For eg: Loss from Business A can be set off against profit from Business B, where Business A is one source and Business B is another source and the common head of income is “Business”.

Exceptions to an intra-head set off:

1. Losses from a Speculative business will only be set off against the profit of the speculative business. One cannot adjust the losses of speculative business with the income from any other business or profession.

2. Loss from an activity of owning and maintaining race-horses will be set off only against the profit from an activity of owning and maintaining race-horses.

3. Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term capital loss can be set off against both long-term capital gains and short-term capital gain.

4. Losses from a specified business will be set off only against profit of specified businesses. But the losses from any other businesses or profession can be set off against profits from the specified businesses.

b. Inter-head Set Off

After the intra-head adjustments, the taxpayers can set off remaining losses against income from other heads.

Eg. Loss from house property can be set off against salary income

Given below are few more such instances of an inter-head set off of losses:

1. Loss from House property can be set off against income under any head

2. Business loss other than speculative business can be set off against any head of income except income from salary.

One needs to also note that the following losses can’t be set off against any other head of income:

a. Speculative Business loss

b. Specified business loss

c. Capital Losses

d. Losses from an activity of owning and maintaining race-horses

Carry forward of losses

After making the appropriate and permissible intra-head and inter-head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rules as regards carry forward differ slightly for different heads of income. These have been discussed here:

Losses from House Property :

Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred

Can be adjusted only against Income from house property

Can be carried forward even if the return of income for the loss year is belatedly filed.

2. Losses from Non-speculative Business (regular business) loss :

Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred

Can be adjusted only against Income from business or profession

Not necessary to continue the business at the time of set off in future years

Cannot be carried forward if the return is not filed within the original due date.

3. Speculative Business Loss :

Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred

Can be adjusted only against Income from speculative business

Cannot be carried forward if the return is not filed within the original due date.

Not necessary to continue the business at the time of set off in future years

4. Specified Business Loss under 35AD :

No time limit to carry forward the losses from the specified business under 35AD

Not necessary to continue the business at the time of set off in future years

Cannot be carried forward if the return is not filed within the original due date

Can be adjusted only against Income from specified business under 35AD

5. Capital Losses :

Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred

Long-term capital losses can be adjusted only against long-term capital gains.

Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains

Cannot be carried forward if the return is not filed within the original due date

6. Losses from owning and maintaining race-horses :

Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred

Cannot be carried forward if the return is not filed within the original due date

Can only be set off against income from owning and maintaining race-horses only

Key Takeaways:

A taxpayer incurring a loss from a source, income from which is otherwise exempt from tax, cannot set off these losses against profit from any taxable source of Income

Losses cannot be set off against casual income i.e. crossword puzzles, winning from lotteries, races, card games, betting etc.

4.4 Deduction from Gross Total Income

Deductions under chapter VI A

Basic Rules

Deductions not available from: Deductions under chapter VIA are not available from -

long-term capital gain;

short term capital gain covered u/s 111A (i.e., STCG on which STT is charged); and

Casual income like winning from lotteries, races, etc.

2. Limit of deduction: The aggregate amount of deduction under chapter VIA cannot exceed Gross Total Income of the assessee excluding -

long term capital gain;

short term capital gain covered u/s 111A;

casual income like winning from lotteries, card-games, horse races, etc.; and

Income referred in Sec.115A, 115AB, 115AC, 115ACA, etc.

3. Deduction must be claimed: Deduction under chapter VIA shall be available only if the assessee claims for it.

4. Double deduction not permissible: Where deduction under any section of chapter VIA has been claimed then the same shall not qualify for deduction in any other section.

Deduction under Section 80C

Applicable to: An Individual or a Hindu Undivided Family (whether resident or non-resident)

Condition to be satisfied: Assessee has made a deposit or an investment in any one or more of the listed items (as given below) during the previous year.

Various options under 80C:

Investment in Life Insurance Premium (LIC)

Maximum Premium allowed is 20% of Sum Assured

2. Investment/Contribution in Public Provident Fund (PPF)

3. Investment in National Savings Certificate (NSC)- VIII or IX issue

4. Contribution for participating in the Unit-linked Insurance Plan (ULIP) of Unit Trust of India (UTI) or ULIP of LIC Mutual fund u/s 10(23D) formerly known as Dhanraksha 1989.

5. Sum paid to effect or keep in force a contract for notified annuity plan of the LIC or any other insurer.

6. Subscription to notified units of a specified Mutual fund u/s 10(23D)/ administrator or the specified company as referred in sec. 2 of UTI (ELSS, 2005).

7. Any sum paid as subscription to Home Loan Account Scheme or notified pension fund of the National Housing Bank.

8. Any sum paid as subscription to a notified deposit scheme of Public sector companies or Any authority constituted in India for the purpose of satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or for both.

9. Repayment of Principal amount of Housing Loan.

10. Investment in Debentures/Equity shares of a Public Financial Institution.

11. Subscription to units of any mutual fund u/s 10(23D) provided amount of subscription to such units is subscribed only in the eligible issue of capital.

12. Investment as term deposit for a period of 5 years or more with a scheduled bank.

13. Notified Bonds issued by the National Bank for Agriculture and Rural Development (NABARD).

14. Senior Citizens Savings Scheme Rules, 2004

15. 5 year time deposit in an account under the Post Office Time Deposit Rules, 1981

Deductions only for Individuals:

Contribution made towards statutory provident fund (SPF) and recognised provident fund (RPF).

Contribution made towards approved superannuation fund (ASAF).

Contribution to Sukanya Samriddhi Account Scheme.

Contribution to any notified pension fund set up by a Mutual Fund u/s 10(23D) or by the administrator or the specified company referred u/s 2 of the UTI.

Any payment of tuition fees to any university, college, school or other educational institution situated within India for the purpose of full-time education. Restriction on number of child: Deduction shall be allowed in respect of maximum 2 children.

Quantum of Deduction:

Deduction under this section shall be minimum of the following:

● Aggregate of the eligible contributions, expenditure or investments (discussed above)

● Rs 1,50,000

Deduction under Section 80CCC

Contribution to Pension Fund of LIC or any other insurer

Applicable to: An individual (irrespective of residential status or citizenship of the individual)

Condition to be satisfied

1. Amount paid under an annuity plan: During the previous year, assessee has paid or deposited a sum under an annuity plan of the Life Insurance Corporation of India (LIC) or any other insurer for receiving pension from the fund referred to in Sec. 10(23AAB).

2. Payment out of taxable income: The amount must be paid out of income which is chargeable to tax. However, it is not necessary that such income relates to current year.

Quantum of deduction

Minimum of the following -

a) Amount deposited; or

b) Rs 1,50,000

Other Points

a) Treatment of Interest or Bonus accrued: Interest or bonus accrued or credited as per the scheme to the assessee’s account shall not be eligible for deduction.

b) Withdrawal from such fund [Sec. 80CCC(2)]: Any amount received by the assessee or his nominee as pension; or on surrender of such annuity is taxable in the hands of recipient in the year of receipt.

Note: Interest or bonus received from such fund shall also be taxable.

c) Deduction u/s 80C [Sec.80CCC(3)]: Deduction u/s 80C will not be available for the amount paid or deposited and for which deduction has been claimed u/s 80CCC.

Deduction under Section 80CCD

Contribution to Pension Fund of Central Government (New Pension System or Atal Pension Yojna)

Applicable to: An individual

Condition to be satisfied

During the previous years, the assessee has paid or deposited any amount in his account under a pension scheme notified by the Central Government (New Pension System and Atal Pension Yojna).

Quantum of Deduction

Deduction u/s 80CCD(1)

A. In case of salaried individual

Lower of the following Rs

● Amount so paid or deposited ***

● 10% of his salary in the previous year ***

***

Add: The whole of the contribution made by the employer to such

account to the maximum of 10% of his salary1 in the previous year. ***

Amount of Deduction ***

B. In case of other individual

Lower of the following

● Amount so paid or deposited

● 20% of his gross total income in the previous year

Additional Deduction u/s 80CCD(1B)

Lower of the following shall also be eligible for deduction Rs

● Contribution to the scheme by any individual [Other than amount

claimed and allowed as deduction u/s 80CCD(1)] ***

● Rs 50,000

*Salary means Basic + DA

Deduction under Section 80CCE

The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD [other than deduction in respect of employer’s contribution and additional deduction u/s 80CCD(1B)] shall not exceed Rs 1,50,000.

Deduction under Section 80D

Medical Insurance Premium

Applicable to: An individual or an HUF (irrespective of residential status or citizenship)

Conditions to be satisfied

Payment for health insurance or medical check-up: The assessee has made payment for health insurance of the following person:

Individual/HUF
Nature of Payment	Expenditure for	Quantum of Deduction
Medical Insurance Premium or Contribution to Central Govt Health Scheme or Preventive Health Check up	For Individual: Himself/ Herself or Spouse or dependent children For HUF: Any member	Lower of : Amount actually spent, or Rs. 25,000 pa (Where the person, for whom such premium (not for payment made for preventive health check up) is paid, is a senior citizen, then maximum limit of deduction shall be increased to Rs 50,000 instead of Rs 25,000)

2. Individual/HUF
Nature of Payment	Expenditure for	Quantum of Deduction
Medical Insurance Premium or Preventive Health Check up	Parents (whether dependent or not)	Lower of : Amount actually spent, or Rs. 25,000 pa (Where the person, for whom such premium (not for payment made for preventive health check up) is paid, is a senior citizen, then maximum limit of deduction shall be increased to Rs 50,000 instead of Rs 25,000)
Note: The deduction for payment made for preventive health check up (for self, spouse, dependent children and parents) for category 1 & 2 does not exceed in the aggregate Rs 5,000 subject to overall limit of Rs 25,000/- or Rs 50,000/-
3. Individual/HUF
Nature of Payment	Expenditure for	Quantum of Deduction
Amount paid on account of medical expenditure provided mediclaim insurance is not paid on the health of such person	Expenditure incurred for any of the following person who is a senior citizen: In case of Individual a. Himself/herself, spouse; or b. dependent children; or c. Either or both of the parents In case of HUF Any member of the family	Lower of : Medical Expenditure incurred, or Rs. 50,000 pa

2. Mode of payment: The premium or medical expenditure must be paid by any mode other than cash. However, payment shall be made by any mode, including cash, in respect of any sum paid on account of preventive health check-up.

Deduction under Section 80E

Interest on Educational Loan

Applicable to: An Individual (irrespective of residential status and citizenship of the individual).

Conditions to be satisfied

1. Loan from specified institution: The assessee had taken a loan from -

a financial institution; or

an approved charitable institution

2. Purpose of loan: The loan must have been taken for the purpose of pursuing higher education of himself/herself or for any other following persons:

a. Spouse

b. Children (dependent or not); or

c. the student for whom the individual is the legal guardian

“Higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so

3. Payment of interest: The assessee pays interest on such loan.

Quantum of deduction: Amount paid during the year by way of payment of interest.

Maximum permissible period for which deduction is available

Deduction under this section shall be allowed for the initial assessment year and 7 assessment years immediately succeeding the initial assessment year* or until interest is paid by the assessee in full, whichever is earlier.

*Initial Assessment Year means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.

Taxpoint

■ The deduction is available for a maximum period of 8 consecutive years.

■ The period starts from the year in which the assessee starts paying the interest on such loan.

Deduction under Section 80DD & Section 80 U

Deduction in respect of Handicapped/Disabled Person

Applicable to: A resident individual (irrespective of citizenship) or a resident HUF

Section 80DD Maintenance of Dependent Disabled Relative	Section 80U Deduction for Disabled Assessee
Who is Handicapped/Disabled
Dependent Relative of Assessee	Assessee himself
Relative means: Individual- Spouse, children, parents, brothers and sisters of the individual HUF – Any member of HUF
2. Condition
1. Assessee incurred medical expenses and other expenses for maintenance of Disabled relative. 2. Medical Certificate is furnished with return of income	-
3. Quantum of Deduction- Same for 80DD & 80U
Disability from 40% to 79% - Rs 75,000 Disability of 80% and above(Severe Disability) - Rs 1,25,000 Note: Deduction under section 80DD is irrespective of the amount spent on maintenance of disable dependent relative.

Deduction under Section 80TTA

Applicable to: An individual (other than senior citizen covered u/s 80TTB) or a Hindu Undivided Family.

Conditions to be satisfied

Gross total income of an assessee includes any income by way of interest on deposits (not being time deposits) in a savings account with:

- a banking company;

- a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

- a Post Office

Quantum of deduction

Minimum of the following

a. Interest on such deposits in saving account

b. Rs 10,000

Note: As per Notification No. 32/2011 dated 03-06-2011, interest on Post Office Saving Bank is exempt u/s 10(15(i) to the extent of the interest of Rs 3,500 (in case of single account) and Rs 7,000 (in case of joint account)

Deduction under Section 80TTB

Applicable to: Senior Citizen

Conditions to be satisfied

Gross total income of an assessee includes any income by way of interest on deposits (not being time deposits) in a savings account with:

- a banking company;

- a co-operative society engaged in carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank); or

- a Post Office

Quantum of deduction

Minimum of the following

a. Interest on such deposits in saving account

b. Rs 50,000

Note: Where such income is derived from any deposit held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed.

Key Takeaways:

Deduction under chapter VIA shall be available only if the assessee claims for it.

2. Deduction u/s 80C will not be available for the amount paid or deposited and for which deduction has been claimed u/s 80CCC.

References:

Income Tax Act with Gist of Supreme Court Rulings Book (Bharat Law House).

Income Tax Law & Accounts For B.Com Vth Semester of Calicut University (English, Paperback, Dr. H.C. Mehrotra, Dr. S.P. Goyal).

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