Taxation and Business Regulations Quiz
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Questions and Answers

What type of entity is Surat Gram Panchayat?

  • Artificial Juridical Person
  • Firm
  • Local Authority (correct)
  • Company

    • What is the maximum duration for the previous year for a newly set up business?

  • 12 months only
  • More than 24 months
  • 12 months or less than 12 months (correct)
  • More than 12 months

    • What is the maximum exemption limit for gratuity for non-government employees?

  • Rs. 15,00,000
  • Rs. 10,00,000 (correct)
  • Rs. 5,00,000
  • Rs. 20,00,000

    • What is the maximum allowable employer contribution to Recognised Provident Fund (RPF)?

    <p>12% of salary</p> Signup and view all the answers

    Which party must pay municipal taxes to qualify for a deduction in 'Income from House Property'?

    <p>Owner</p> Signup and view all the answers

    Rent received for letting out land for marriage falls under which tax category?

    <p>Income from Other Sources</p> Signup and view all the answers

    Which type of asset qualifies for depreciation allowances?

    <p>Tangible and intangible assets</p> Signup and view all the answers

    If a person receives a gift of Rs. 50,000 from a non-relative, what is the tax implication?

    <p>Taxable</p> Signup and view all the answers

    What head of income will the exam remuneration of Rs. 5300 received by Professor Phadke be taxed under?

    <p>Income from Salary</p> Signup and view all the answers

    Which statement regarding Agricultural Income in Nepal is accurate?

    <p>It is exempt from tax.</p> Signup and view all the answers

    Who is eligible for the deduction under Section 80E?

    <p>Individuals with interest on education loans</p> Signup and view all the answers

    What is the status of uncommuted pension received by a government employee after retirement for taxation?

    <p>Fully exempt from tax</p> Signup and view all the answers

    Which of the following statements is true regarding the long term capital asset classification?

    <p>Unlisted shares held for 18 months are long-term capital assets.</p> Signup and view all the answers

    Which of the following is allowed as a deduction for deemed to be let out property?

    <p>Municipal tax paid by tenant</p> Signup and view all the answers

    What is the status of the dividend received from an Indian company in terms of taxation?

    <p>It is fully exempt from tax.</p> Signup and view all the answers

    How is the lottery prize received regarded for tax purposes?

    <p>Taxable as income from other sources</p> Signup and view all the answers

    What is the taxable income of Mr. Kushal for the Assessment year 2022-23, considering the provided details?

    <p>Rs. 5,55,000</p> Signup and view all the answers

    Which of the following deductions should be considered in computing Mr. Prem Vijay's taxable income?

    <p>Depreciation as per Income Tax Rules of Rs. 47,000</p> Signup and view all the answers

    Considering Mr. Kushal's interest from savings bank account, what is the total of his other income besides property income?

    <p>Rs. 1,45,000</p> Signup and view all the answers

    What amount is included in Mr. Prem Vijay's income for bank FDR interest after deducting TDS?

    <p>Rs. 12,000</p> Signup and view all the answers

    What is the total gross profit reported in the Profit and Loss account of 'Nilkanth Homes'?

    <p>Rs. 14,32,000</p> Signup and view all the answers

    Which expense listed in Mr. Prem Vijay's Profit and Loss statement is NOT considered a legitimate deduction?

    <p>Interest on loan for son's Marriage</p> Signup and view all the answers

    What is the fair rent value for House 1 owned by Mr. Kushal?

    <p>Rs. 8,00,000</p> Signup and view all the answers

    What is the total amount of municipal taxes that Mr. Kushal paid?

    <p>Rs. 22,000</p> Signup and view all the answers

    What was the total expenditure on advertisement as calculated in the given information?

    <p>Rs. 35,500</p> Signup and view all the answers

    What is the total amount Mr. Quinton Dsouza has invested in Public Provident Fund?

    <p>Rs. 150,000</p> Signup and view all the answers

    How much was the penalty incorrectly included in Mr. Quinton Dsouza's taxable income as salary?

    <p>Rs. 10,000</p> Signup and view all the answers

    What is the cost price of the house property purchased by Mr. Parag Dabke?

    <p>Rs. 19,50,000</p> Signup and view all the answers

    How much was the brokerage paid on the sale of the property by Mr. Parag Dabke?

    <p>Rs. 2,00,000</p> Signup and view all the answers

    What was the Fair Market Value of Mr. Parag Dabke's property on 1.4.2001?

    <p>Rs. 25,75,000</p> Signup and view all the answers

    What is the capital gain for Mr. Parag Dabke if he sold his property for Rs. 2,85,50,000?

    <p>Rs. 1,90,00,000</p> Signup and view all the answers

    Which year did Mr. Rishi first arrive in India?

    <p>2017</p> Signup and view all the answers

    What was the total amount invested in new residential property and eligible bonds?

    <p>Rs 1,20,00,000</p> Signup and view all the answers

    Which specific capital expenditure qualifies for inflation adjustment in this scenario?

    <p>Construction of the first floor</p> Signup and view all the answers

    Which item does NOT count as taxable income for a Resident and Ordinarily Resident individual in this scenario?

    <p>Agricultural income earned and received abroad</p> Signup and view all the answers

    What is the cost inflation index for the financial year 2011-12?

    <p>184</p> Signup and view all the answers

    How is the capital gain calculated when the property is sold?

    <p>Selling price minus adjusted cost of improvements</p> Signup and view all the answers

    Which of the following is considered a tax-free perquisite under section 17(3) of the Income Tax Act?

    <p>Company-provided housing</p> Signup and view all the answers

    Which financial year does the capital asset's fair market value relate to in this scenario?

    <p>2001-02</p> Signup and view all the answers

    Which income is taxable as per the rules for a Resident but not Ordinarily Resident?

    <p>Income earned in India regardless of residency</p> Signup and view all the answers

    Study Notes

    Direct and Indirect Taxation Paper

    • All questions are compulsory carrying 20 marks each.
    • Internal options should be exercised where given.
    • Figures to the right represent full marks to the question.
    • All questions should be answered with respect to assessment year 2022-23.
    • All workings should form part of the main answer.
    • Simple calculator use is allowed.

    Multiple Choice Questions

    • Surat Gram Panchayat is a Local Authority.
    • For a newly set up business, the previous year can be 12 months or less than 12 months.
    • Gratuity for non-government employees is exempt up to a maximum of Rs. 10,00,000
    • Employer Contribution to Recognised Provident Fund (RPF) is allowable up to a maximum of 12% of salary.
    • In the case of Income under the head "Income from House Property", the Municipal taxes will be allowed as a deduction only if it is paid by the Owner.
    • Rent from letting out of an open plot of land for marriage, is taxable under the head of Income from Other Sources.
    • Depreciation is allowed in case of Tangible and Intangible assets.
    • Gift received from a non-relative of Rs. 50,000 is Taxable.
    • Mr.Nishi spends Rs. 5000 on the medical treatment of his dependent brother, who is physically handicapped to the extent of 65%. The deduction available to Mr.Nishi u/s 80DD will be Rs. 75,000.
    • Salary of Member of Parliament is taxable under the head Income from Salary.
    • Bonus to employees is taxable in the year of Accrual or receipt, whichever is earlier.
    • Professor Phadke, who is employed with AJ College of Commerce, received exam remuneration of Rs. 5300 during the previous year. The amount shall be taxed under the head of Income from Salary.

    True or False Statements

    • Deduction for Entertainment Allowance is available to all employees. False
    • Agricultural Income in Nepal is exempt from tax. False
    • Deduction U/s 80E is available to a Hindu Undivided Family. False
    • Uncommuted pension received by a Government employee after retirement is fully exempt from tax. False
    • Unlisted Shares held for 18 months is a long term capital asset. True
    • Municipal tax paid by a tenant is allowed as a deduction for deemed to be let out property. True
    • Cost inflation index is applicable for transfer expenses incurred on transfer of capital assets. False
    • Mediclaim premium paid by cash Rs. 15,000 is allowed as deduction U/s 80D. False
    • Dividend received from an Indian company is fully exempt. True
    • Income from Sub-letting of house property is taxable under the head of Income from Other Sources. True
    • Capital gain on transfer of depreciable business assets is always short-term capital gain. True
    • Thirumalai Devasthanam Temple is an example of Artificial Juridical Person. True

    Q.2 A: Mr.Shastry's Taxable Income

    • Salary:
      • Basic Salary: Rs. 8,00,000
      • Dearness allowance (25% of Basic Salary): Rs. 2,00,000
      • Commission Received: Rs. 1,00,000
      • Bonus: Rs. 75,000
      • House Rent Allowance (Exempt): Rs. 25,000
      • Total Salary: Rs. 11,75,000
      • Less: Profession Tax: Rs. 2,500
      • Taxable Salary: Rs. 11,72,500
    • Other Income:
      • Lottery Prize Received: Rs. 55,000
      • Interest on Term deposit with bank: Rs. 66,000
      • Interest on Income Tax Refund: Rs. 10,000
      • Gift from Brother: Rs. 70,000 (Taxable)
      • Dividend from Mutual Fund: Rs. 22,000
      • Total Other Income: Rs. 223,000
    • Deductions:
      • Section 80DD (Medical Expenses for Dependent Son): Rs. 1,00,000
    • Taxable Income: Rs. 11,72,500 + Rs. 223,000 - Rs. 1,00,000 = Rs. 12,95,500

    Q.2 B: Mr.Kushal's Taxable Income

    • Income from House Property:
      • House 1 (Self-Occupied):
        • Notional Rent (Lower of Fair Rent, Standard Rent, and Municipal Valuation): Rs. 8,00,000
        • Interest on Loan: Rs. 3,00,000
        • Income from House 1: Rs. 8,00,000 - Rs. 3,00,000 = Rs. 5,00,000
      • House 2 (Let Out):
        • Actual Rent Received: Rs. 18,00,000 (Rs. 1,50,000 per month * 12 months)
        • Municipal Taxes Paid By Tenant: Rs. 10,000
        • Interest on Loan: Rs. 3,50,000
        • Income from House 2: Rs. 18,00,000 - Rs. 10,000 - Rs. 3,50,000 = Rs. 14,40,000
    • Other Income:
      • Interest on Savings Bank Account: Rs. 25,000
      • Winning from Lottery (Net of TDS): Rs. 70,000 (Rs. 1,20,000 - Rs. 50,000)
      • Dividend from Tata Ltd.: Rs. 5,000
      • Total Other Income: Rs.100,000
    • Deduction:
      • Section' 80U (Disability)
        • Relief for Disability: Rs. 1,25,000 (Amount depends on the degree of disability and is subject to change)
    • Taxable Income: Rs. 5,00,000 + Rs. 14,40,000 + Rs. 100,000 - Rs. 1,25,000 = **Rs. 18,15,000 **

    Q.3 A: Mr. Prem Vijay's Taxable Income

    • Income from Business:
      • Net Profit as per Profit & Loss Account: Rs. 15,00,000
      • Add: Drawings:
        • Proprietor's Salary: Rs. 3,60,000
        • Life Insurance Premium: Rs. 15,000
        • Total Drawings: Rs. 3,75,000
      • Add: Interest on Loan For Son's Marriage (Personal Expense): Rs. 30,000
      • Add: Loss by Theft (Not a Business Expense): Rs. 11,200
      • Adjusted Business Income: Rs. 15,00,000 + Rs. 3,75,000 + Rs. 30,000 + Rs. 11,200 = Rs. 19,16,200
    • Other Income:
      • Bank FDR Interest (Net of TDS): Rs. 16,000 (Rs. 18,000 - Rs. 2,000)
      • Savings Bank Interest: Rs. 12,000
      • NSC Accrued Interest: Rs. 20,000
      • Total Other Income: Rs. 48,000
    • Deductions:
      • Depreciation: Rs. 47,000
      • Section 80C (Contribution to Pension Fund): Rs. 60,000
    • Taxable Income: Rs. 19,16,200 + Rs. 48,000 - Rs. 47,000 - Rs. 60,000 = Rs. 19,07,200

    Q.3 B: Mr. Quinton Dsouza's Taxable Income

    • Income from Business:
      • Net Profit as per Profit & Loss Account: Rs. 12,07,000
      • Add: Penalty wrongly included in Salaries: Rs. 10,000
      • Add: Stationery Expense (Personal Expense): Rs. 9,500
      • Add: Life Insurance Premium for Wife (Personal Expense): Rs. 10,000
      • Add: Advertisement Expense for Political Party (Not a Business Expense): Rs. 25,500
      • Adjusted Business Income: Rs. 12,07,000 + Rs. 10,000 + Rs. 9,500 + Rs. 10,000 + Rs. 25,500 = Rs. 12,62,000
    • Other Income:
      • Savings Bank Interest: Rs. 12,500
      • LIC Maturity Proceeds: Rs. 3,00,000
      • LIC Monthly Annuity: Rs. 21,000
      • Bank FDR Interest: Rs. 27,000
      • Total Other Income: Rs. 3,60,500
    • Deductions:
      • Depreciation: Rs. 21,000
      • Section 80C (Investment in Public Provident Fund): Rs. 1,50,000
    • Taxable Income: Rs. 12,62,000 + Rs. 3,60,500 - Rs. 21, 000 - Rs. 1,50,000 = Rs. 14,51,500

    Q.4 A: Mr. Parag Dabke's Capital Gains

    • Cost of Acquisition:
      • Original Purchase Price: Rs. 19,50,000
      • Cost of Construction of 1st Floor (Indexed Cost): Rs. 10,00,000 * (317/184) = Rs. 17,23,913
      • Cost of Construction of 2nd Floor (Indexed Cost): Rs. 4,50,000 * (317/272) = Rs. 5,26,765
      • Total Cost of Acquisition: Rs. 19,50,000 + Rs. 17,23,913 + Rs. 5,26,765 = Rs. 42,00,678
    • Sale Consideration: Rs. 2,85,50,000
    • Less: Brokerage: Rs. 2,00,000
    • Net Sale Consideration: Rs. 2,83,50,000
    • Capital Gains (Long Term): Rs. 2,83,50,000 - Rs. 42,00,678 = Rs. 2,41,49,322
    • Exemption Under Section 54:
      • Investment in New Residential Property: Rs. 1,55,00,000
      • Investment in Bonds of Power Finance Corporation Ltd.: Rs. 65,00,000
      • Total Investment (Exempt): Rs. 1,55,00,000 + Rs. 65,00,000 = Rs. 2,20,00,000
    • Taxable Capital Gains: Rs. 2,41,49,322 - Rs. 2,20,00,000 = Rs. 21,49,322

    Q.4 B: Mr. Rishi's Residential Status

    • Assessment Year 2022-23 (Previous Year 2021-2022):
      • Mr. Rishi is a Resident but not Ordinarily Resident. He stayed in India for less than 182 days in the previous financial year (2021-2022) as he stayed until 1 May 2021.

    Q.4 C: Mr. Padmanabh Sathe's Capital Gains

    • Cost of Acquisition:
      • Original Purchase Price: Rs. 29,75,000
      • Registration Charges: Rs. 25,000
      • Cost of Construction of 1st Floor (Indexed Cost): Rs. 7,75,000 * (317/184) = Rs. 13,34,511
      • Cost of Construction of 2nd Floor (Indexed Cost): Rs. 3,50,000 * (317/272) = Rs. 4,07,647
      • Total Cost of Acquisition: Rs. 29,75,000 + Rs. 25,000 + Rs. 13,34,511 + Rs. 4,07,647 = Rs. 47,42,158
    • Sale Consideration: Rs. 1,95,20,000
    • Less: Brokerage: Rs. 2,50,000
    • Net Sale Consideration: Rs. 1,92,70,000
    • Capital Gains (Long Term): Rs. 1,92,70,000 - Rs. 47,42,158 = Rs. 1,45,27,842
    • Exemption Under Section 54:
      • Investment in New Residential Property: Rs. 1,05,00,000
      • Investment in Bonds of Power Finance Corporation Ltd.: Rs. 15,00,000
      • Total Investment (Exempt): Rs. 1,05,00,000 + Rs. 15,00,000 = Rs. 1,20,00,000
    • Taxable Capital Gains: Rs. 1,45,27,842 - Rs. 1,20,00,000 = Rs. 25,27,842

    Q.4 D: Mr. Surendra's Total Income

    • a) He is Resident and Ordinarily Resident*

    • Total Income: Rs. 6,00,000 + Rs. 4,00,000 + Rs. 3,00,000 + Rs. 2,00,000 + Rs. 1,000,000 + Rs. 1,50,000 + Rs. 1,00,000 + Rs. 1,50,000 = Rs. 3,250,000

    • Note: Agriculture income in India is exempt.

    • b) He is Resident but not Ordinarily Resident*

    • Total Income: Rs. 6,00,000 + Rs. 4,00,000 + Rs. 3,00,000 + Rs. 2,00,000 + Rs. 1,000,000 + Rs. 1,50,000 + Rs. 1,50,000 = Rs. 2,750,000

    • Note: Agriculture income in India is exempt. Income from sources outside India is taxed only when it is brought to India.

    Q.5 A: Depreciation

    • Depreciation under Section 32
      • Businesses and individuals can claim depreciation on tangible assets used for business purposes.
      • Depreciation is calculated according to the rate specified in Schedule I of the Income Tax Act, 1961.
      • Written Down Value (WDV) = Cost of asset - accumulated depreciation.
      • Depreciation is calculated on the WDV of the asset.
      • Depreciation is allowed as a deduction from the income of the business.
    • Concept of Block of Assets
      • A block of assets is a group of assets with a similar nature, use, and life.
      • Assets are grouped into different blocks based on their nature.
      • Depreciation is calculated for the entire block.
      • This helps in simplifying the process of depreciation calculation and administration.

    Q.5 B: Perquisites

    • Perquisites under Section 17(3)
      • These are benefits or amenities provided by the employer to an employee in addition to salary.
      • These are considered as part of an employee's income and are therefore taxable.
    • Tax-free Perquisites
      • Free Accommodation: Accommodation provided to employees can be tax-free if certain conditions are met.
      • Education Expenses: Employer contributions to education expenses can be tax-free up to certain limits.
      • Conveyance Facilities: Tax-free limit for conveyance facilities provided by the employer.
      • Medical Facilities: Certain medical facilities provided by the employer are tax-free.
      • Canteen Facilities: Canteen facilities provided by the employer are tax-free if provided at a subsidized rate.
      • Entertainment Expenses: Certain Entertainment Expenses are tax-free within specific conditions.
      • Domestic Servants: Cost of domestic servants provided by the employer is tax-free.
      • Recreation Facilities: Recreational facilities provided by the employer are tax-free.

    Q.5 C: Short Notes

    • a) Taxability of Gift from Relatives under Income Tax Act, 1961.*
    • Gifts received from relatives are not taxed. A "relative" refers to blood relatives.
    • If the gift is received from a non-relative, it is taxed as income from other sources.
    • Any gift received exceeding the limit of Rs. 50,000 from a non-relative is considered taxable.
    • b) Annual Value of a Property*
    • The Annual Value of a Property represents the estimated income the property could generate if it was rented out.
    • It's calculated based on the Fair Rental Value, Standard Rent, or Municipal Valuation, whichever is the lowest.
    • c) Deduction for Interest on Housing Loan under Income tax Act*
    • Interest paid on a housing loan taken for the acquisition, construction, or repair of a residential property is eligible for deduction.
    • Deduction is allowed under Section 80EE, 80EEA, and 24 of the Income Tax Act.
    • Specific conditions apply to eligibility.
    • d) Commutation of Pension*
    • Pension is a periodic payment made to a retired employee.
    • Commutation of Pension refers to the lump sum payment received by a pensioner for a portion of their pension.
    • This reduces the monthly pension amount but results in a lump sum payment.
    • It is taxed in the year of receipt as income from other sources.
    • e) Explain the term "Person" and "assessment year"*
    • Person: The Income Tax Act defines "Person" as an individual, Hindu Undivided Family (HUF), association of persons, body of individuals, company, firm, local authority, trust, etc.
    • Assessment Year: The period for which income tax is levied. It is a financial year, and the assessment year is the year following the financial year in which the income has been earned. For instance, income earned between April 1, 2021, and March 31, 2022, is assessed during assessment year 2022-23.
    • f) Deduction u/s 80U of Income Tax Act*
    • This section allows a deduction for individuals suffering from severe disabilities.
    • The deduction amount depends on the severity of the disability and is subject to change.
    • The deduction is available to eligible individuals with a disability ranging from 40% to 80%.

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