undefined | unit 4 computation of tax liability

Unit IV

Computation of Tax Liability

Q1) How do you compute total income?

A1) 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

Q2: 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.

A2) 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.

Q3: 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.

A3)

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

Q4) How do you compute Tax Liability?

A4) 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)

Q5: 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.

A5)

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

Q6) Write about Aggregation of income.

A6) 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.

Q7) What are the particulars relating to deductions under Sec 80C?

A7) 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

Q8) To whom Sec 80DD and 80U is applicable?

A8) Sec 80DD And Sec 80U is 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.

Q9) What are the conditions to be satisfied to get deduction under Sec 80CCC?

A9) 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.

Q10) What is the Quantum of deduction available under Sec 80CCD?

A10) 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

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