undefined | unit 3 computation of tax liability of individual huf

TAX3

Unit IIIComputation of Tax Liability of Individuals and HUF Q1) How to compute Total Income & Tax Liability of an Individual?A1) Computation Of Total Income & Tax Liability of an IndividualStep 1: Compute the income of an individual under 5 heads of income on the basis of his residential status.Step 2: Income of any other person, if includible u/s 60 to 64, will be included under respective heads.Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of income.Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction under these sections will be allowed from short-term capital gain covered under section 111A, any long-term capital gain and winning of lotteries etc., though these incomes are part of gross total income.Step 6: The balance income after allowing the deductions is known as total income which will be rounded off to the nearest Rs. 10.Step 7: Compute tax on such Total Income at the prescribed rates of tax.Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual having total income upto Rs. 3,50,000. Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and upto Rs. 1 crore and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if applicable).Step 11: Allow relief under section 89, if any.Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of nearest ten rupees and must be paid as self-assessment tax before submitting the return of income. Rebate of maximum Rs. 2,500 for resident individuals having total income up to Rs. 3,50,000 [Section 87A]With a view to provide tax relief to the individual tax payers who are in lower income bracket, the Act has provided rebate from the tax payable by an assessee, if the following condition and satisfied:

The assessee is an individual

He is resident in India,

His total income does not exceed Rs. 3,50,000.

Quantum of Rebate:The rebate shall be equal to the amount of income-tax payable on the total income for any assessment year, or Rs. 2,500, whichever is less. Q2) (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.

A2) Mr SwarajStatementt 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) (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.A3) Mr SagarStatement 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.

Q4) (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.A4) Mr AvinashStatement 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

Q5) (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.A5) Mrs SharmaStatement 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

Q6) What are the points to be considered for computation of total income of HUF?A6) Before discussing the Steps for computation of total income of HUF, the following points should be considered:As per section 64(2), income from the transfer of a self acquired asset, without adequate consideration or conversion of the same into joint family property, shall not be treated as the income of the HUF. It shall continued to be taxed in the hands of the transferor who is the member of the HUF.Similarly, income from an impartible estate is taxable in the hands of the holder of the estate and not in the hands of the HUF.Any fee or remuneration received by a member of the HUF as a director or a partner in a company or firm which is as a result of the investment made in such concern out of the funds of the HUF, shall be treated as income of the HUF. However, if such fee or remuneration is earned by the member as a director or partner for services rendered purely in his personal capacity because of his personal aptitude to the business of the concern, it shall be treated as the income of the individual and not the HUF. In a case decided by the Supreme Court it has been held that remuneration and commission received by the Karta of HUF on account of his personal qualifications and exertions and not on account of investments of the family funds in the company cannot be treated as income of HUF.If remuneration is paid to the Karta of a HUF or any other member of HUF:

under a valid agreement which is bona fide

is in the interest of, and expedient for, the business of the family, and

the payment is genuine and not excessive

such remuneration paid wholly and exclusively for the business of the family, shall be allowable as an expenditure while computing the income of the HUF and such salary shall be taxable in the hands of karta/member as his individual income.As already discussed above, the son is not a coparcener in Dayabhaga School of law. Therefore, if the father does not have a brother as a coparcener, income arising from ancestral property is taxable as his individual income.Karta in his individual capacity and Karta representing HUF are two different entities. HUF can sublet its contract to Karta in his individual capacity. Income earned by Karta in his individual capacity from such contract cannot be assessed in the hands of HUF. Q7) How to compute Total Income & Tax Liability of HUF?A7) Computation Of Total Income & Tax Liability of HUFSteps involved in computation of total income and tax liability of HUF:Step 1: The Gross Total Income of HUF, like any other person, shall be computed under four heads of income, on the basis of their residential status. There can be no income under the head income from salaries in the case of HUF.Step 2: Sections 60 to 63 relating to income of other person included in the assessee’s total income are applicable in case of HUF but section 64 is not applicable to HUF as it is applicable in case of individual assessee only.Step 3: Set off of losses is permissible while aggregating the income under different heads of income.Step 4: Carry forward and set off of losses of past years, if permissible, is allowed.Step 5: The income computed in steps 1 to 4 is known as gross total income from which the deductions u/s 80C, 80D, 80DD, 80DDB, 80G, 80GGA, 80GGC, 80-IA, 80-IB, 80-IBA, 80-IC, 80- ID, 80-IE, 80JJA, 80JJAA, 80TTA will be allowed.Step 6: The balance income after allowing the deductions is known as Total income which will be rounded off to the nearest Rs. 10.Step 7: Compute the tax on such total income at the prescribed rates of tax i.e. at special rates and normal slab rates.Step 8: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and upto Rs. 1 crore and 15% of such income tax in case of a person having a total income exceeding Rs. 1 crore.Step 9: Education cess @ 2% plus SHEC @ 1% on the tax plus surcharge if any, shall be levied.Step 10: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded off to nearest Rs. 10 and must be paid as self-assessment tax before submitting the return of income.

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