Income Tax II

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Income from Other Sources

It is the last head of income where in any income which is chargeable to tax but does not find place under the first four heads of income will be assessed to tax under the head income from other sources

The following are the incomes taxable under this head under section 56

1. Dividend 2. Interest on securities 3. Bank interest on fixed deposits 4. Casual income 5. Income from family pension 6. Composite rent 7. Income from subletting 8. Rental income from machinery plant or furniture 9. Gifts 10. Insurance commission 11. Deemed income 12. Mining rent royalties ground rent 13. Withdrawal from National savings scheme 14. Agriculture Income from a place outside India 15. Directors fees or commission 16. Salaries received by member of parliament MLA MLC 17. Rent from land 18. Examination fees received by a teacher (not from the employer) 19. Remuneration received for writing short stories or poems 20. Honorarium for checking answer booklets 21. Interest on employee’s contribution to URPF 22. Income from undisclosed source 23. Tips received by taxi drivers 24. All types of casual income 25. Dividend from cooperative society or foreign company 26. Any sum received under keyman insurance policy 27. Gift exceeding 50,000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 2

Allowable deductions under section 57

• In case of dividend and interest on securities any bank charges collection charges commission to a banker for realising such dividend and interest • Interest on loan taken for the purpose of purchasing the shares and securities • Depreciation, repairs, insurance on building machinery plant furniture etc. • Family Pension: Rs.15000/- or 1/3 of Actual Amount received, whichever is less, is exempt.

1. Dividend

The following dividend received are exempted from tax

• Dividend are interior of dividend received from domestic or Indian company • Dividend received from UTI or any mutual fund units of India

The following Dividend received are taxable

• Deemed dividend under section 2 (22) (e) from Indian company • Dividend from a foreign company • Dividend received from a cooperative society.

2. Agriculture Income Agriculture Income is exempted from tax under section 10(34) if the land is situated in India on the other hand Agriculture Income from a place outside India is taxable

3. Gift received Gift received is taxable except in the below mentioned a. If it is less than 50000 b. Received by relative c. At the time of marriage d. By will 4. Casual income a. If Winning from lottery, crossword puzzles, TV game shows is less than Rs.10,000/- then there will be no TDS. Hence no need to gross up

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 3

b. If Income from Horse Race is less than Rs.5,000/- then there will be no TDS Hence no need to gross up. c. Further in case of winning from other races gambling and betting Card games etc., tax is not deducted at source. d. No expenditure is allowed to be deducted out of these incomes.

5. Interest on Securities

Interest on government securities exempted from tax under section 10 subsection 15

1. 12 years National Saving Annuity Certificates 2. National defence gold bonds 1980 3. Special bearer bonds 1991 4. Treasury savings deposit certificate 12 years 5. post office National Savings Certificates 12 years or 7 years 6. Post office CTD 7. Special deposit schemes 1981

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 4

8. post office saving bank interest is exempted only to the extent of rupees 3000 in case of an individual account and rupees 7000 in case of joint account 9. Interest on 7 percentage capital investment bonds 10. Interest on notified relief bonds 11. Interest on notified bonds or debentures of a public sector company 12. Interest on gold deposit bonds issued under gold deposit scheme 1999 13. Interest on notified bonds issued by local authority or state pooled finance entity 14. Interest on Gold monetisation scheme

No TDS is made for the following

1. Interest on less tax government securities 2. 4.25 percentage of National defence bonds 3. National development bonds 4. 8th issue National savings certificates 5. Debentures issued by the cooperative society 6. 6.5 % gold bonds, 1977 or 7 % gold bonds, 1980 7. Interest paid to an individual in account payee cheque for an amount not exceeding rupees 5,000 by listed companies in which public are substantially interested 8. Interest on foreign government securities is not grossed up has no tax is deducted at source in India on such income 9. Post office monthly income accounts 10. Post office time deposits 11. Post office recurring deposits 12. Indira Vikas Patra and Kisan Vikas Patra

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 5

Problem 01:

01. Mr. Suryaputra has the following investments for the year ending 31st March 2019

• Rupees 20,000 units of UTI (income received rupees 4,000) • Rupees 80,000 in post office saving bank account which earns interest at 5 % per annum • Rupees 72000, 10% tax free debentures of Mysore municipal corporation • 14 % Karnataka State electricity board bonds rupees 30,000 • Rupees 50,000 fixed deposits with Canara Bank Mysore @ 8 % per annum

Compute the income from other source of Sri Suryaputra from the investments for the assessment year 2019-20 ( May 2018) Solution Computation of Income from Other sources Particulars Amount 01 Income from Units of UTI (Dividend received from UTI or any mutual fund units of India is

Exempted) Exempted 02 Interest on post office saving bank account (80,000X5%= Rs 4,000) Exempted U/S 10(15) 03 up to 3,500 5,00

04 Interest on tax free debenture of Mysore municipal corporation (72,000X10%) 05 7,200X100/90 (Int Chart) 8,000

Interest on Karnataka State electricity board bonds (30,000 X 14%) (Int Chart) 4,200 Rupees 50,000 fixed deposits with Canara Bank Mysore @ 8 % per annum (50,000 X 8%) (Int Chart) 4,000

Taxable Income from other source 16,700

Problem 02:

From the following receipts and payments of Mr X (resident) compute his taxable income under the head income from other source

1. Winnings from Madhya Pradesh State lottery rupees 28000 2. Winning from horse race rupees 1000 3. Winning from Rajasthan state lottery rupees 3000 4. Winning from horse race 49000 5. Winnings from crossword puzzle rupees 2500

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 6

6. Gift received from a friend in London rupees 100000 7. Winning from card games rupees 2500 8. Purchase of lottery tickets rupees 3000 and payment for betting’s in horse race rupees 6000 9. Winning from camel race rupees 30000

Solution Computation of Income from Other Source

Particulars Amount 1. Winnings from Madhya Pradesh State lottery rupees 28000 (28,000/70X100) 40,000 2. Winning from horse race rupees 1000 (less than 5,000 so no grossing up) 1,000 3. Winning from Rajasthan state lottery rupees 3000 (less than 10,000 so no grossing up) 3,000 4. Winning from horse race 49000 (49.000X100/70) 70,000 5. Winnings from crossword puzzle rupees 2500 (less than 10,000 so no grossing up) 2,500 6. Gift received from a friend in London rupees 1,00,000 1,00,000 7. Winning from card games rupees 2500(not subject to TDS so no grossing) 2,500 8. Winning from camel race rupees 30,000 (not subject to TDS so no grossing) 30,000

Income from other sources 2,49,000

Problem 03:

Following income are received by Mr X resident during the previous year 2018-19. Compute taxable income from the head other source. ( May 2017)

• Directors fees rupees 10,000 • Interest from post office saving bank account rupees 500 • Dividend received from cooperative society rupees 9,000 • Interest on securities rupees 10,000 • Royalty from books written rupees 25,000 {expenses incurred for this purpose rupees 2,500}

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 7

Solution Computation of Income from Other sources Particulars Amount 01 Directors fees rupees 10,000 10,000 02 Interest from post office saving bank account rupees 500 Exempted U/S 10(15) up to 3,500 Exempted 03 Dividend received from cooperative society rupees 9,000 9,000 04 Interest on securities rupees 10,000 (10,000X90/100) 11,111 05 Royalty from books written rupees 25,000 {expenses incurred for this purpose rupees 2,500} (25,000-2500) 22,500

Taxable Income from other source 52,611 Problem 04:

Mr Prashant is a MLA he was given the following particulars of his income for the financial year 2018-19.

• Salary from Government of Karnataka rupees 55,000 per month • Daily allowances for attending session rupees 70,000 • Interest on fixed deposits with Canara Bank of India (gross) rupees 77,000 • Rent from house property in Bangalore rupees 20,000 per month • Dividend from Maruti Suzuki Ltd. rupees 6,000 • Income from letting on hire plant and machinery rupees 24,000 per month • Dividend from Sirsi cooperative society rupees 4,800. Compute income from other source Solution Computation of Income from Other sources Particulars Amount 01 Salary from Government of Karnataka rupees 55,000 per month (55,000X12= 6,60,000) 6,60,000 02 Daily allowances for attending session rupees 70,000 ( only salary ) Not taxed 03 Interest on fixed deposits with Canara Bank of India (gross) rupees 77,000 77,000 04 Rent from house property in Bangalore rupees 20,000 per month ( taxed in HP) Not taxed 05 Dividend from Maruti Suzuki Ltd. rupees 6,000 ( exempted) Exempted 06 Income from letting on hire plant and machinery rupees 24,000 per month (24,000X12= 2,88,000) 2,88,000 07 Dividend from Sirsi cooperative society e rupees 4,800. 4,800 10,29,800 Taxable Income from other source

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 8

Problem 05:

From the following information compute income from other source of Smt. Kavya for the assessment year 2019-20

• Winnings from lottery (net) 1,40,000 • Interest on fixed deposits rupees 14,500 • Interest on securities of X limited (net) rupees 27,000 • Interim dividend from TT company limited rupees 10,000 • Income from agriculture land in Sri Lanka rupees 15,000 • Winning from horse race (net) rupees 70,000 • Received from royalty rupees 50,000.

Solution Computation of Income from Other sources Particulars Amount 01 Winnings from lottery (net) 1,40,000 = 1,40,000X100/70=2,00,000 2,00,000 02 Interest on fixed deposits rupees 14,500 14,500 03 Interest on securities of X limited (net) rupees 27,000 = 27,000X 100/90= 30,000 30,000 04 Interim dividend from TT company limited rupees 10,000 Exempted 05 Income from agriculture land in Sri Lanka rupees 15,000 ( land is outside India) 15,000 06 Winning from horse race (net) rupees 70,000 =70,000X 100/70 = 1,00,000 1,00,000 07 Received from royalty rupees 50,000 =50,000 50,000 Taxable Income from other source 4,09,500

Problem 06:

From the following information of Mr Pranesh compute income from other sources for the assessment year 2019-20

• Royalty from textbooks rupees 3,20,000 (expenses incurred in earning royalty income rupees 20,000) • Director sitting fees received from x company rupees 35,000 • He is residing in a rented house on a rent of rupees 40,000 per month he sublets 40 percentage of House to a sub tenant on rent of rupees 30,000 per month. He has incurred the following expenses on the entire property o Municipal tax rupees 12000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 9

o insurance rupees 10000 o repeats rupees 15000 • Rent from letting of building along with machinery rupees 60000 per month he claims the following expenses depreciation rupees 45000 repairs rupees 32500 • Income from agriculture in Rajasthan rupees 3,50,000 • Insurance commission received rupees 90,000 (net ) and expenses incurred in earning insurance commission rupees 15,500 • Winners from Karnataka State lottery rupees 4,00,000 (gross) • Interest on Bank deposit received rupees 90,000 (net) • Share from HUF RS 1,50,000

Solution Computation of Income from Other Source

Assessee: Mr Pranesh Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount Royalty from textbooks 3,20,000 Less: Expenses 20,000 3,00,000 Director sitting fees 35,000

Income from sub letting the house Rent from subletting (30,000X12) Less: Expenses on House Property for 40% 3,60,000 Municipal Tax (12,000X40 4,800 Insurance (10,000X40%) 4,000 Repairs (15,000X40%) 6,000 Rent Paid to owner (40,000X12X40%) 1,92,000 1,53,200 2,06,800 Rent from letting of building along with machinery (60,000X12) Less: Expenses 7,20,000 Depreciation & Repairs (45,000+32,500) 77,500 6,42,500

Income from agriculture in Rajasthan rupees 3,50,000 Exempted

Insurance commission received rupees (90,000X100/90) 1,00,000 Less: Expenses 15,500 84,500

Winners from Karnataka State lottery 4,00,000 Interest on Bank deposit (90,000X100/90) 1,00,000 Share from HUF Exempted

Income from other source 17,15,200

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 10

Problem 07:

Mr X has held the following investments and incomes during the financial year 2018-19

1. Rupees 2,00,000, 8 percentage state government securities 2. Rupees 5,00,000, 10 % tax free commercial securities 3. 4 lacs 12 % commercial securities 4. Rupees 10,000 (gross) received as interest on public limited companies’ securities 5. Rupees 7,200 interest received on debentures of ABC limited listed 6. Rupees 9,000 interest received on securities of XYZ limited unlisted 7. Rupees 5000 dividend received from Indian company 8. Rupees 4000 interest received from the units of UTI 9. Rupees 2,10,000 (net) lottery income from Kerala state lottery

Bank charged rupees 5000 as a collection charge. Compute his income from other source for the assessment year 2019-20

Solution Computation of Income from Other Source

Assessee: Mr X Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount 1. Rupees 2,00,000, 8 percentage state government securities (2,00,000X8%) 16,000 2. Rupees 5,00,000, 10 % tax free commercial securities 5,00,000X10%=50,000X100/90 55,556 3. 4,00,000, 12 % commercial securities (4,00,000X12%) 48,000 4. Rupees 10,000 (gross) received as interest on public limited companies’ securities 10,000 5. Rupees 7,200 interest received on debentures of ABC limited listed (7,200X100/90) 8,000 6. Rupees 9,000 interest received on securities of XYZ limited unlisted (9,000X100/90) 10,000 7. Rupees 5000 dividend received from Indian company Exempted 8. Rupees 4000 interest received from the units of UTI Exempted 9. Rupees 2,10,000 (net) lottery income from Kerala state lottery (2,10,000X100/70) 3,00,000

4,42,556 Less: Bank charges 5,000 Taxable Income from other sour sources 4,37,556

Problem 08

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 11

Following are the income details of MRS Roshini Gupta, a resident. Compute her income from other source for the assessment year 2019-20 1. She gave management consultancy Service to entrepreneurs during the year and received rupees 55,000 from client she that claims she spent rupees 5,000 on related travelling 2. Income from agriculture in Sri Lanka rupees 20,000 3. Dividend from UTI rupees 5,000 4. Interest on post office saving bank account rupees 1000 5. She holds the following investments a. Rupees 1,00,000, 9 percentage tax free commercial securities (non listed) b. Rs. 30,000, 7 percentage debentures of Canara Mills limited c. Rupees 72000, 10 % tax free debentures of LIC of India unlisted 6. She lives in a rented house and pays rent of rupees 6000 per month. She has sub-let one third portion of the house on rent of rupees 3,000 per month taken up the responsibility of paying municipal taxes of rupees 2500 on the whole house and also repeats of the whole house amounting to rupees 6000 Solution Computation of Income from Other Source Assessee: Mr X Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount 1. Management consultancy Service 55,000 Less: Travelling Expenses 5,000 50,000 2. Income from agriculture in Sri Lanka 20,000 3. Dividend from UTI Exempted 4. Interest on post office saving bank account Exempted 5. Interest on tax free commercial securities (non listed) (1,00,000X9%) 9,000X100/90 10,000 6. 7 percentage debentures of Canara Mills limited (30,000X7%) 2,100 7. 10 % tax free debentures of LIC of India unlisted (72,000X10%) 7,200X100/90 8,000 8. Income from sub letting the house (3,000X12) 36,000 Less: Municipal Tax (1500X1/3) 500 Less: Repairs (6,000X1/3) 2,000 Less: Rent paid (6,000X12) 72,000X1/3 24,000 26,500 9,500

Taxable Income from other sour sources 99,600

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 12

Problem 09

Information about the assessee

1. Composite rent of building along with machinery rupees 2,50,000. The following are the expenses on machinery Depreciation rupees 8000 & Repeats rupees 4000. 2. He earned a royalty of rupees 40,000 and the expenses to earn this income rupees 3,000 3. Salary as MP rupees 35,000 4. Income from Bank fixed deposits rupees 45,000 ( Gross) 5. He earned dividend from foreign companies grossing rupees 65,000 of which 15000 was deducted as a TDS in the country and the balance was received in India 6. Winnings from horse race rupees 210000 net 7. Remuneration as examiner from University rupees 48000 and incidental expenses rupees 6000 of which 50 percentage of expenses were reimbursed by the University 8. Unexplained income rupees 10,000 9. He has taken a house on rent for rupees 21000 per month he has sub let out one third of the ho use at rupees 15000 per month and the expenses relating to the entire house incurred by him municipal tax 15,000 repeats 6000

Compute the income from other source for the assessment year 2019-20

Solution

Computation of Income from Other Source

Assessee: Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount 1. Composite rent of building along with machinery 2,50,000 Less: Expenses Depreciation rupees 8000 & Repeats rupees 4000 12,000 2,38,000 2. Royalty 40,000 Less Expenses 3,000 37,000 3. Salary as MP 35,000 4. Income from Bank fixed deposits rupees 45,000 5. dividend from foreign companies 65,000 TDS in the foreign country 15,000 80,000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 13

6. Winnings from horse race (2,10,000X100/70) 3,00,000 7. Remuneration as examiner from University 48,000 Less: Expenses 50% of 6000 3,000 45,000 8. Unexplained income 10,000 9. Income from subletting rent received (15,000X12) 1,80,000 Less Expenses municipal tax 15,000X1/3 5,000 repeats 6000X1/3 2,000 rent paid 21,000X12X1/3 84,000 91,000 89,000 Taxable Income from other sour sources 8,49,000

Problem 10

Mr. Rama narayana submit the following particulars of his income from other source for the year ending 31st March 2019

1. Royalty from books written rupees 40,000. (expenses incurred for this purpose Rs.4,000) 2. Interest on fixed deposits in a bank rupees 30000 (gross) 3. Family pension from Government of Karnataka annually rupees 48000 4. Winnings from horse race rupees 70000 (net) 5. Rent from subletting of house rupees 3000 per month, rent paid to owner rupees 2,000 per month and repair expenses Rs 400. 6. Cash worth rupees 90000 was found in his private locker. The source of which could not be explained by him 7. Winning from lottery (net) rupees 140000 (purchase of lottery rupees 150) 8. Remuneration from articles published in a magazine rupees 4000

Compute his income from other source for Assessment year 2019-20. Solution Computation of Income from Other Source Assessee: Mr. Rama narayana Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount 1. Royalty from books written 40,000 Less Expenses 4,000 36,000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 14

2. Interest on fixed deposits in a bank 30,000 3. Family pension from Government of Karnataka 48,000 Less: Rs.15,000 or (1/3 of 48,000=16,000) Which ever is less 15,000 33,000 4. Winnings from horse race (70,000X100/70) 1,00,000 5. Rent from subletting ( 3,000X12= 36,000) 36,000 Less: Repair 400 Rent paid to owner (2,000X12) 24,000 24,400 11,600 6. Income from undisclosed source 90,000 7. Winning from lottery (1,40,000X100/70) 2,00,000 8. Remuneration from articles published in a magazine 4,000 Taxable Income from other sour sources 5,04,600

Note no 1: No expenditure is allowed to be deducted in casual incomes

Note No 2: Family Pension: Rs.15000/- or 1/3 of Actual Amount received, whichever is less, is exempt.

Problem 11

Mr. Pushkaram (age 46 years) a resident of Bangalore provides the following information for the year ending 31st March 2019

1. He holds the following investments • Rupees 2,00,000, 9 % tax free commercial securities • Rupees 1,00,000, 8 percentage listed debentures of SRM limited • Rupees 81,000 10 percentage tax free debentures of NRM limited • Rupees 40,000 10 percentage BESCOM bonds 2. He lived in a rented house for which he pays rupees 12,000 per month he has sub-let one third portion of the House on a monthly rent of rupees 6,000 he incurred Rs. 7,200 for repairs and rupees 6,000 for municipal tax of this house 3. Received dividend on TCS limited (gross) rupees 30,000 4. Received interest on post office saving bank account rupees 12,000 5. Received dividend from UTI rupees 8,000 6. Income from letting out plot of land in Mysore for rupees 36,000 7. Winning from Karnataka state lottery net rupees 70000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 15

8. Income from letting out plant and machinery under lease rupees 1,20,000, the allowable depreciation is rupees 12,000, repairs 7,000 & fire insurance premium rupees 1000

Compute taxable income from other source for the assessment year 2019-20

Solution

Computation of Income from Other Source

Assessee: Mr. Pushkaram Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount

1. He Holds the following investments • Rupees 2,00,000, 9 % tax free commercial securities (2,00,000X9% X100/90) 20,000 • Rupees 1,00,000, 8 percentage listed debentures of SRM limited (1,00,000X8%) 8,000 • Rupees 81,000 10 percentage tax free debentures of NRM limited (81,000X10% X100/90) 9,000 • Rupees 40,000 10 percentage BESCOM bonds (40,000X10%) 4,000 72,000 2. Rent from subletting (6,000X12) Less: Repairs (6,000X1/3) 2,000 Municipal Tax (7,200X1/3) 2,400 52,400 Rent paid ( 12,000X12X1/3) 48,000 19,600

3. Received dividend on TCS limited Exempted 4. Received interest on post office saving bank account (12,000-3,500) 8,500 5. Received dividend from UTI Exempted 6. Income from letting out plot of land in Mysore 36,000 7. Winning from Karnataka state lottery (70,000X100/70) 1,20,000 1,00,000 8. Income from letting out plant and machinery 20,000 Less: Expenses ( 12,000+7,000+1,000) 1,00,000

Taxable Income from other sour sources 3,05,100

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 16

Problem 12

Compute income from other source of Dr. Gokak who held the following investments in the previous year 2018-19

1. Rupees 1,10,000, 10 percentage Central Government securities

2. Rupees 4,00,000, 10 percentage commercial securities

3. Rupees 8,000 (gross) received as interest on public limited company securities (listed)

4. Rupees 7,200 received as interest on Karnataka government securities

5. Rupees 3,600 received as interest on debentures of XYZ limited (listed)

6. Rupees 3,00,000, 13.5 percentage securities of X company limited (unlisted)

7. Rupees 3,50,000, 11 % securities of a paper mill company (listed)

8. Interest on post office saving bank account rupees 6,500

9. Dividend received from corona limited (gross) 32,000

For purchasing securities of X company limited he took a loan of rupees 2,50,000 at 12 percentage per annum.

This loan was taken from his friend in UK the interest has been paid in UK but no TDS is made. Bank charges rupees 2,000 as a collection charge.

During the year he also got a prize in Karnataka state lottery the net amount received by him was rupees

2,80,000. Interest on all the securities is payable on 1st July and 1st January every year.

Solution

Computation of Income from Other Source

Assessee: Dr. Gokak Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount 1. 10 percentage Central Government securities (1,10,000X10/100) 11,000 2. 10 percentage commercial securities ( 4,00,000X10/100) 40,000 3. Interest on public limited company securities (Gross) 8,000 4. Interest on Karnataka government securities 7,200

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 17

5. Interest on debentures of XYZ limited (3,600X100/90) 4,000 6. Interest on securities of X company limited (3,00,000X13.5%) 40,500 7. 11 % securities of a paper mill company (3,50,000X11%) 38,500 8. Interest on post office saving bank account (6,500-3500) 3,000 9. Dividend received from corona limited Exempted 10. Prize in Karnataka state lottery (2,80,000X100/70) 4,00,000 Gross Receipts 1 5,52,200

Less: Deductions 2,000 • Bank Collection charges 2,000

• Interest on loan at 12% Not Allowed

5,50,200 Taxable Income from other sour sources

Note: Interest on loan borrowed for purchasing securities is fully deductible. However, interest on loan payable outside India without TDS is not allowed

Problem 13

From the following information of Mr. Bhahubali compute income from other source for the assessment year 2019-20

1. Dividend on equity shares from domestic company gross 12,00,000 2. Income from undisclosed source 7,000 3. Income from letting on hire of building and machinery under lease 30,000, Depreciation allowed on building and machinery 2000 & Fire insurance on building and on plant and machinery rupees 250 4. Interest on Bank deposits 3,200 5. Income received from ground rent 6,000 6. Director sitting fees received rupees 4,000 7. Gift received rupees 80,000 from his friend Mr Keshav 8. Received rupees 1,00,000 as gift from his elder brother

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 18

9. Received rupees 1,40,000 as a gift on his marriage 10. Received a gift from his grandmother rupees 40,00,000 11. Dividend from a foreign company rupees 26,000 12. Interest on postal savings bank account rupees 2,000 13. Income from agriculture land in Bangladesh rupees 20,000 14. Interest on deposit under gold monetisation scheme, 2015 rupees 15,000 15. Dividend received from cooperative society 7,000 16. Family pension received 30,000 per annum 17. Dividend received on preference shades rupees 10,000 per annum 18. Insurance commission received rupees 23,500 expenses incurred in earning insurance commission rupees 2500 19. Rs.30,000 8 percentage Port trust bonds 20. 12,000, 5% debentures of Delhi development authority 21. Interest on 8.5 % relief bonds rupees 8,500 22. Received rupees 4,000 as the remuneration for acting as a chief examiner 23. He won rupees 10,000 in crossword puzzle 24. Interim dividend received on 1.5. 2018 rupees 3000 25. Rupees 5,000, 7 years post office National savings certificates 26. Rupees 10,000, 7 % National plan certificates 27. SBI saving bank interest rupees 19,500 28. Directors fees 10,000 29. Winnings from Card games rupees 20,000 30. Dividend from UTI rupees 4,000 31. He is a member of parliament and received a salary of rupees 15,000 per month daily allowances of rupees 60,000 for attending various sessions he claims an amount of rupees 15,000 as expenditure for maintenance of the office 32. He lives in a rented house paying rent of rupees 6,000 per month the house is too big for her family hence he has sublet one third portion of the house on rent of rupees 3,000 per month to a tenant he has undertaken reliability of paying municipal taxes of rupees 6,000 of the whole house and also repairs of the whole house amount into rupees 3,000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 19

Solution

Computation of Income from Other Source

Assessee: Mr Bhahubali Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Particulars Amount Amount 1. Dividend on equity shares from domestic company Exempted 2. Income from undisclosed source 7,000 3. Income from letting on hire of building and machinery under lease 30,000 Less: Expenses (2,000+250) 2,250 27,750 4. Interest on Bank deposits 3,200 5. Income received from ground rent 6,000 6. Director sitting fees 4,000 7. Gift received rupees 80,000 from his friend 80,000 8. Received rupees 1,00,000 as gift from his elder brother Tax free 9. Received rupees 1,40,000 as a gift on his marriage Tax free 10. Received a gift from his grandmother rupees 40,00,000 Tax free 11. Dividend from a foreign company 26,000 12. Interest on postal savings bank account Exempted 13. Income from agriculture land in Bangladesh 20,000 14. Interest on deposit under gold monetisation scheme, 2015 Tax Free 15. Dividend received from cooperative society 7,000 16. Family pension received 30,000 Less:1/3 of 30,000 or 15,000 WEL 10,000 20,000 17. Dividend received on preference shades Exempted 18. Insurance commission received 23,500 Less Expenses 2,500 21.000 19. 8 percentage Port trust bonds (30,000X8/100) 2,400 20. 5% debentures of Delhi development authority (12,000X5%) 6,00 21. Interest on 8.5 % relief bonds Tax free 22. Remuneration for acting as a chief examiner 4,000 23. He won rupees 10,000 in crossword puzzle 10,000 24. Interim dividend received on 1.5. 2018 Exempted 25. 7 years post office National savings certificates Exempted 26. 7 % National plan certificates Exempted

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME FROM OTHER SOURCES 20

27. SBI saving bank interest 19,500 28. Directors fees 10,000 29. Winnings from Card games 20,000 30. Dividend from UTI Exempted 31. Salary as MP (15,000X12) 1,80,000 Less: Exp on Office maintains 15,000 1,65,000 32. Rent from Sub let (3,000X12) 36,000 Less: Rent paid (6,000X1/3X12) 24,000 Municipal tax (6,000X1/3) 2,000 Repairs (3,000X1/3) 1,000 27,000 9,000

Taxable Income from other sour sources 4,62,450

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 1

1. What is Profession? “Profession” may be defined as a vacation, or a job requiring some thought, skill and special knowledge like that of C.A., Lawyer, Doctor, Engineer, Architect etc. So, profession refers to those activities where the livelihood is earned by the persons through their intellectual or manual skill. 2. Mention any four admissible expenses while calculating income from business. • Audit fees • Bad debts • Allowed depreciation • Printing and stationery 3. What is Long term capital gain? Any profit or gain arising from the sale or transfer of long-term capital asset (Financial asset more than one year & other assets more than three years) is known as capital asset. 4. State the provisions US 80GGA. Section 80GGA allows deductions for donations made towards scientific research or rural development. This deduction is allowed to all assesses. except those who have an income (or loss) from a business and/or a profession. Mode of payment: Donations can be made in the form of a cheque or by a draft or in cash; however, cash donations in excess of Rs 10,000 are not allowed as deductions. 100% of the amount that is donated or contributed is considered eligible for deductions. 5. What is Tax Free Government securities? Tax free government securities are those securities which are exempted from tax under section 10(15) 6. Mention any two-no limit 100% deductible donations U/S 80G. • National Children Fund • National Defence Fund 7. If Net Income from horse race is 210000, find the gross amount. Gross winnings = Net winnings X 100/100 - Tax rate 210000X100/70= 3,00,000

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 2

8. Define Business. Section 2(13) Income Tax: Business means As per Section 2(13) of the Income Tax Act, 1961, the term ‘business’ includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 9. Mention any four disallowed expenses, in calculation of profit from business. • Interest on capital • Speculation losses • Deference in trial balance • Fines and penalties 10. What is short term capital asset? STCA means a capital asset held by an assesses for less than 36 months, (12 months in the case of specified assets), immediately preceding the date of its transfer. 11.What do you mean by less tax securities? Less tax securities can be issued either by government of non-government institutions. They are taxable securities but no tax is deducted at source and interest on these will not be grossed. If the interest payable during the financial year exceeds 10,000 tax will be deducted at source. 12.Explain the provisions U/S 80U. The Income Tax Act, 1961 provides deduction u/s. 80U in pursuance of which an individual (Indian citizen and foreign national) who is resident of India, and who suffers from not less than 40 per cent of any disability is eligible for deduction to the extent of Rs. 75,000/- and in case of severe disability to the extent of Rs. 125,000/- 13.Name any two 50% deductible donations U/S 80G. • Jawaharlal Nehru Memorial Fund • Indera Gandhi Memorial Trust 14.How do you set off the long term capital loss? It is set off against long term capital gain only and any unabsorbed loss can be carry forward for 8 years and such carry forwarded loss can be set off against long term capital loss only. 15.What is Vocation? Vocation means activities which are performed in order to earn livelihood. It comes out from practice and as gods gift. Example: Dancing and singing etc. for tax purpose profession includes vocation.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 3

16. What is Casual Income? Casual income is a non-recurring income that is not likely to occur again in a year. It is an income which is earned by chance. Such income is neither anticipated nor provided for in any agreement. Such incomes are received at uncertain times. Income received from winning lotteries, crosswords, puzzles, card games, horse race, gambling, betting or any other games is known as casual income. 17.State the Provisions of section 80 D. Individual and HUF (Hindu Undivided Family) can claim deduction from taxable income under section 80D. A person can claim deduction for health insurance premium & expense incurred towards preventive health check-up for self, spouse, dependent children and parents 18.What is carry forward and set off of losses? Set off of losses means adjusting the losses against the profit of a particular financial year. If the profits are insufficient to set off the losses, they can be carried forward to the next assessment year. 19.What is meant by cost of improvement? Cost of improvement means expenditure of capital nature in making any additions or alterations to the capital asset. Cost of improvement incurred by the assessee before 1.4.2001 shall be fully ignored. 20.State any four transactions incurred under the term transfer. The term transfer includes

• Sale • Exchange • Relinquishment • Extinguishment • Compulsory acquisition 21.What is meant by cash system of accounting? Cash system of accounting where income received or expenditure paid during the previous year is taxable whether it relates to the previous year of a year preceding or following the previous year.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 4

22.How do you treat bad debt recovered but disallowed earlier? bad debt recovered but disallowed earlier is fully exempted from tax hence should be deducted from net profit. 23.What is grossing up and why it should be done? "Grossing up" is calculating the before-tax income amount from the after-tax amount. calculating the taxable value of the income it is necessary to gross it up and take the grossed-up value as taxable income. The net amount is divided by 70 and multiplied by 100 to gross up the casual income. 24.What are the listed and unlisted securities? Listed Securities are shares, debentures or any other securities that is traded through an exchange such as BSE, NSE, etc. When a private company decides to go public and issue shares, it will need to choose an exchange on which to be listed. Unlisted Securities are shares, debentures or any other securities that are not traded on an exchange but through the over-the-counter (OTC) market. Unlisted securities are also called OTC securities. Market makers facilitate the buying and selling of unlisted securities in the OTC market. 25.How do you treat family pension received by the family members of deceased person? Family pension received by the family members shall be computed after allowing slandered deduction. Such deduction is to be allowed either at 33.33% or Rs 15,000, Which ever is less. 26.Name any four incomes chargeable under the head Other Sources. • Casual Income • Composite rent • Interest on securities • Rent from Land 27.Expand TDS, DTC TDS: Tax Deducted at Source DTC: Direct Tax Code

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 5

28.How do you treat expenditure on patents while calculating taxable business income The expenditure on patents is treated as inadmissible and added to net profit on the other hand depreciation is allowed hence it will be deducted from net profit. 29.What is meant by block of assets? Section 2(11) of Income Tax defines ‘Block of Assets’ as a ‘group of assets’ in respect of which the same percentage of depreciation is to be applied, i.e. proper calculation of Depreciation based on WDV of each block of assets has been prescribed for determining exact tax liability on capital gains/ business profits. 30.What is bond washing transaction? Bond washing transaction under section 94 (1) A bond washing transaction is narrated as a transaction which consist of selling securities to a friend or relative sometimes before the due date and acquiring back the same or similar securities after the due date of interest is over. This practice generally adopted by high income class assesses to avoid the tax. 31.Give the meaning of inter head setoff. Inter head setoff is adjustinf the loss from one head against income from other head, E.g., Loss under the head of house property to be adjusted against salary. 32.Define Capital Asset. Capital asset include property of any kind held by the assessee weather connected with the business or not, fixed or floating, movable or immovable, tangible or intangible under section 2 (14) 33.Mention any two types of assessment. • Self assessment –u/s 140A. • Summary assessment –u/s 143(1) • Scrutiny assessment –u/s 143(3) • Best Judgment Assessment –u/s 144. • Protective assessment. • Re-assessment or Income escaping assessment –u/s 147. • Assessment in case of search –u/s153A.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 6

34.What is gross total income? The ‘gross total income’ (GTI) is the total income earn by adding all heads of income. Income from salary, property, other sources, business or profession, and capital gains earned in a financial year are all added to arrive at the GTI. 35.What is total income? The ‘total income’ (TI) is derived after subtracting the various deductions under Section 80 from the GTI. So, you first calculate the GTI and then subtract the deductions to arrive at the TI. 36.Expand PAN and CBDT PAN Permanent Account Number CBDT Central Board of Direct Taxes 37.How do you calculate indexed cost of acquisition? Indexed cost of acquisition = Cost of acquisition * Cost Inflation Index (CII) of the year in which the asset is transferred / Cost inflation index (CII) of the year in which asset was first held by the seller or 2001-02 whichever is later. 38.How do you calculate indexed cost of improvement? Indexed cost of improvement = Cost of improvement * Cost inflation index of the year in which the asset is transferred / Cost inflation index of the year in which improvement took place 39.List any four items deductible under section 80c The deductions that are eligible for tax exemption under section 80C of the Income Tax Act are:

• Home loan payment. • Life insurance. • Registration charges of house and stamp duty. • Fixed deposit. • Health Insurance. • National Savings certificate. • Provident fund. • Infrastructure bonds.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 7

40.What are tax free government securities Tax free government securities are those securities on which interest is fully exempted from tax under section 10 subsection 15 for example interest on 7 percentage capital investment bonds special bearer bonds 1991. 41.How do you treat daily allowances given to member of parliament The salaries of MPs are taxable under the head "Income from other Sources" and not Income under the head Salaries. However all the daily allowances and all other allowance received by the MPs and MLAs are fully exempted under section 10(17) of income tax act, 1961. 42.Mention the provisions of section 80GGC Assessees other than local authorities and artificial juridical person fully or partly funded by the government can claim deduction for contribution made towards political party Condition any some contributed during the previous year qualifies for deduction provided such contribution made by cheque from the assessment year 2014-15. No deduction shall be allowed in respect of any some contributed by the way of cash Amount of deduction 100 percentage of such contribution qualifies for deduction 43.Mention the rules for carry forward of speculation business loss loss from speculation business can be set off against income from speculation business unabsorbed loss from speculation business can be carried forward for 4 years and search carry forward loss can be set off against speculation business income. 44.What is reassessment? Reassessment means reopening the already completed assessment on fulfillment of certain conditions and reassess the total income of the assessee by including the income which has escaped earlier assessment. Reassessment is completed under section 147 of the Income Tax Act. 45.Who is an inspector of income tax? A job in this section includes work related to desk job details that come with the title of Income Tax Inspector. He will be responsible for assessing income tax that people, company or partnership firms are liable to pay. He will also have to handle refund claims and TDS (Tax Deduction at Source) queries.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 8

46.What is Cost Inflation Index (CII) Cost Inflation Index (CII) is used for calculating the estimated increase in the prices of goods and assets year-by-year due to inflation. 47.What is Speculative Transaction? Speculative transaction means a transaction in which a contract for the purchase or sales of any commodity including stocks and shares is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips [section 43(5)]. 48.State any four long term capital assets for which benefit indication is not available In the following cases the benefits of indexation is not available even if the Capital asset is long term Capital asset

• Depreciating assets • Slump sale • Shares and debentures in an Indian company acquired by non resident in foreign currency • Bond or debenture other than a capital indexed bond issued by the government or sovereign gold

49.What is self-assessment? The assessee himself determines the income tax payable. The tax department has made available various forms for filing income tax return. The assessee consolidates his income from various sources and adjusts the same against losses or deductions or various exemptions if any, available to him during the year. 50.What is Mercantile System of accounting? Under this method total income and total expenditure pertaining to previous year are to be taken. That is outstanding and prepaid adjustments are to be taken into account

Total income = income received + accrued or outstanding - income received in advance.

51.What is written down value? Written down value refers to actual cost incurred by the assessee in purchasing an asset during the previous year however if assessee purchased prior to previous year WDV is the difference between actual cost and depreciation charged on asset

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 9

52.What do you mean by expressly admissible expenses? Expressly admissible expenses are those expenses which are allowed in the interest of business and treated as incidental expenses.

53.What is cost of acquisition? Cost of acquisition means total of all the expenses incurred by the assessee on acquiring the asset that is purchase price + expenses incurred after purchase till its first use. Example installation charges etc.

54.What is a zero-coupon bond? Zero coupon bond also known as accrual bond is a debt security that does not pay interest but is traded at a deep discount redeeming profit at maturity when the bond is redeemed for its full-face value.

55.State the types of securities It can be broadly classified into four categories ▪ Tax free government securities ▪ Less tax government securities ▪ Tax free commercial securities ▪ Less tax commercial securities

56.What is the rate of TDS for casual income and interest on securities? The rate of TDS for casual income is 30 % and on interest on securities 10 %.

57.What is PAN? Permanent Account Number (PAN) is a code that acts as an identification for individuals, corporates (Indian or foreign) especially those who pay income tax. It is a unique 10- character Alpha number identifier issued to all judicial entries identifiable under the Income tax act 1961.

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC INCOME TAX-II 2 MARKS 10

58.What is extinguishment

It means the right of ownership comes to an end by the operation of any law. That is insurance company taking over the damaged assets after paying the insurance amount

59.Give the meaning of slump sale.

Slump sale means sale of running concern for a lump sum consideration. In case of slump sale the benefit of indexation of cost is not available to the assessee.

60.What is income from other sources?

All the Best

Mr. CHIRANJEEVI, ASST.PROF.DR. N.S.A.M FGC

Income from Capital Gain

Meaning: Any profit or gain arising from transfer/sale of a capital asset is a capital gain. This gain or profit is shall be charged to tax in the year in which transfer of capital assets takes place.

Conditions:

There must be a capital asset The transfer must be of capital asset The transfer must have been taken place during the previous year. The transfer of such capital asset must give rise to profit or gain.

Transfer Sec. 2 (47): It includes a sale, exchange or relinquishment of the asset or extinguishment if any right or the compulsory acquisition under the law or conversion of the asset in to stock in trade.

The following are not consider as transfer (Sec 49(1))

 Transfer of asset in a scheme of amalgamation  Transfer of agricultural land before 1/4/1970  Transfer of debenture or bonds into shares  Transfer of assets in kind at the time of liquidation  Transfer of asset by a parent company to the own subsidiary company  Transfer of asset under the gift or will  Transfer of capital asset at the time of partition of HUF

The following are not considered capital assets:

 Stock in trade: Any stocks or consumables or raw material held for the purpose of Business or Profession  Personal effect: Personal goods such as wearing apparel, car, scooter, TV, refrigerator, musical instruments, generator, furniture etc held for personal use.  6½% Gold Bonds, 1977 or 7% Gold Bonds, 1980 or National Defence Gold Bonds, 1980 issued by the Central Government  Special Bearer Bonds 1991

 Gold Deposit Bond issued under the Gold Deposit Scheme, 1999  Agricultural land in a rural in India area: definition of rural area (from AY14-)

1. Financial Asset: It is held for less than 12 months or 1 year like securities, bonds, shares mutual 1.5 Types of Capital Asset Short Term: funds For determining the nature of 2. Other Asset: It is held for less capital assets, the period of holding than 36 months or 3 year like shall be counted from the date of Jewellery etc. & Less than 24 purchase to the date of sale of months for immovable capital asset by the assessee. properties like land ,building, house property 1. Financial Asset: It is held for Long Term: more than 12 months or 1 year 2. Other Asset: It is held for more than 36 months or 3 year & more than 24 months for immovable properties like land ,building, house property

1.6 Type of capital Gain: a) Short term Capital Gain: Any gain arising from transfer of short term capital asset is known as short-term capital gain eg. Equity funds are considered short-term when held for 12 months or less.  Tax on short-term capital gain when securities transaction tax is not applicable: short-term capital gain is added to your income tax return and the taxpayer is taxed according to his income tax slab  Tax on short-term capital gain if securities transaction tax is applicable: short-term capital gain is taxable at the rate of 15% +surcharge and cess

b) Long-term capital Gain: Any gain arising from transfer of long term capital asset is known as long-term capital gain eg. House property held for more than 3 years is termed as a long-term capital asset,  Sale of equity share -10% tax of the gain amount exceeds Rs 1(one) lakhs  Except for sale of equity – 20% tax rate  Financial year -2001-2002 taken as base =100

Section Asset sold Applicability

54 Profit on sale of Assessee Individual / HUF property used for residence Type of asset Residential House Property transferred

Type of LTCG transfer

New asset One Residential House purchased

Time Limit Purchase – Within 1 year before or 2 years after transfer for Construction – Within 3 years from transfer investment in new asset

Exemption Long-Term Capital Gain OR Cost of new asset whichever lesser Amount

CGAS* Yes – deposit by return filing due date available 54B Capital gain on Assessee Individual / HUF transfer of land used for Type of asset Land used for agricultural purposes by the individual / his parent / agricultural transferred HUF as the case may be for 2 years prior to transfer purposes

Type of LTCG transfer

New asset Agricultural land purchased

Time Limit Within 2 years from the date of transfer for investment in new asset

Exemption Long-Term Capital GainORCost of new asset (land)whichever Amount lesser

CGAS* Yes – deposit by return filing due date available

54D Compulsory Assessee Any assessee acquisition of land and Type of asset Land or building forming part of an industrial undertaking used for building used in transferred the same in the past 2 years prior to transfer an industrial undertaking Type of LTCG transfer

New asset Land or building for shifting or re-establishing the industrial purchased undertaking Time Limit Within 3 years from the date of transfer for investment in new asset

Exemption Long Term Capital GainORCost of new asset Amount (land/building)whichever lesser

CGAS* Yes – deposit by return filing due date available

54EC Investment in Assessee Any assessee certain bonds Type of asset Land or building or both transferred

Type of LTCG transfer

New asset NHAI bonds or REC bonds, redeemable after 3 years purchased

Time Limit Within 6 months from the date of transfer for investment in new asset

Exemption Cost of new asset x Capital Gain / Net consideration (maximum up Amount to capital gain)

CGAS* No available

54F Investment in Assessee Individual / HUF residential house Type of asset Any long-term capital asset other than residential house transferred

Type of LTCG transfer

New asset Residential house property purchased

Time Limit Purchase – Within 1 year before or 2 years after for transferConstruction – Within 3 years from transfer investment in new asset

Exemption Cost of new asset x Capital Gain / Net consideration (maximum up Amount to capital gain)

CGAS* Yes – deposit by return filing due date available

Assessee: Mr. X 2011, 14 marks Problem Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Assets Shares Jewellery Debentur Motor Car es Nature of capital assets LTCA LTCA (1976 STCA Not A (1.4.2011 to to (Sep. 2018 Capital 15.12.2018) 15.07.2018) to Asset 31.12.2018 ) Gross Sale Consideration 3,95,000 33,10,000 65,000 Less: Selling Expenses ------20,000 ------Net Sale Consideration 3,95,000 32,90,000 65,000 Less: Cost of acquisition/ Indexed cost of acquisition 1,51,200 7,00,000 50,000

Less: Cost of Improvement / indexed cost of Improvement ------Gross Capital Gain / Loss 2,43,800 25,90,000 15,000 Less: Exemptions U/S 54 ------Net Capital Gain 2,43,800 25,90,000 15,000 Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Shares : 54,000 X 280/100 = 5,60,000 2. Jewellery: Rs.1,50,000 or 2,70,000 Which ever is high = 2,70,000- 20,000( Advance money forfeited )=2,50,000

2,50,000 X 280/100 = 7,00,000

Note No 1: Personal Motor Car is not a capital asset hence it is fully exempted from tax

Note No 2: Any movable asset (excluding jewellery made out of gold, silver, precious stones and paintings, sculpture, archaeological collections etc.) used for personal use by the assessee are excluded from the definition of capital assets. Jewellery is treated as capital asset.

Note No 3: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which ever is high is cost of acquisition.

Note No 5: Advance received and forfeited during the P Y 13-14 or earlier P Y such amount should be deducted from the cost of acquisition. If the forfeited of advance money is received on or after 1.4.2014 shall not be deducted from cost of acquisition.

Assessee: Dr. Kambar 2012, 14 marks Problem Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Assets Gold Shares ( Non Debenture ( Listed ) Non Listed ) Nature of capital assets LTCA (3.6.1998 to LTCA (1.4.2011 LTCA (1.4.92 10.4.2018) to 17.5.2018) to 5.3.2019) Gross Sale Consideration 8,15,000 2,50,000 7,00,000 Less: Selling Expenses ------Net Sale Consideration 8,15,000 2,50,000 7,00,000 Less: Cost of acquisition/ Indexed cost of acquisition 7,00,000 2,66,304 4,00,000

Less: Cost of improvement / indexed cost of improvement ------Gross Capital Gain / Loss 1,15,000 -16,304 3,00,000 Less: Exemptions U/S 54 ------Net Capital Gain 1,15,000 -16,304 3,00,000 Total Taxable LTCG =( 1,15,000+3,00,000-16,304)= 3,98,696

Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Gold : 2,50,000 X 280/100 = 7,00,000 2. Shares ( non Listed ): 1,75,000 X 280/ 184= 2,66,304

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Note No 2: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which ever is high is cost of acquisition.

Note No 3: Indexation benefit is not available for debenture.

Note No 4: In case of LTCG from sale of equity shares ( Listed )security transaction tax @ 0.125% is charged not capital gain however LTCG from the sale of equity shares ( Unlisted) & STCG of listed and unlisted shares will be taxed in capital gain

Assessee: Mrs. U.R Rao 2013, 14 marks Problem Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Assets Residential House Nature of capital assets LTCA (17.10.1990 to 13.3.2019) Gross Sale Consideration 75,00,000 Less: Selling Expenses (1% on 75,00,000) 75,000 Net Sale Consideration 74,25,000 Less: Cost of acquisition/ Indexed cost of acquisition 50,40,000

Less: Cost of Improvement / indexed cost of improvement 3,92,000 11,70,909 Gross Capital Gain / Loss 8,22,019 Less: Exemptions U/S 54 (32,00,000 OR 8,22,019) WHICH EVER IS LESS 8,22,019 Net Capital Gain ------Calculation of indexed cost of acquisition (ICOA): =Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition 1. Residential House: 18,00,000 X 280/100 = 7,00,000 Calculation of indexed cost of improvement (ICOI): =Cost of improvement X CII for the year in which the asset is transferred/ CII of year of improvement 1. 1,40,000X 280/100 = 3,92,000 2. 9,20,000X280/220 = 11,70,909

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Note No 2: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which ever is high is cost of acquisition.

Section Asset sold Applicability

54 Profit on sale of Assessee Individual / HUF property used for residence Type of asset transferred Residential House Property

*CGAS stands for Type of transfer LTCG Capital Gains Accounts Scheme i.e., New asset purchased One Residential House a type of account opened with a bank Time Limit for investment in Purchase – Within 1 year before or 2 years after transfer or specified new asset Construction – Within 3 years from transfer institution that essentially acts as a means to park the Exemption Amount Long-Term Capital Gain OR Cost of new asset whichever lesser capital gains until it can be used for its CGAS* available Yes – deposit by return filing due date prescribed purpose.

Shri Athmananda submitted the following particulars of assets sold during the year 2018-19:

Particulars Gold Securities Plot Sales proceeds 4,00,000 1,50,000 20,00,000 Brokerage paid on sales -- -- 2% Cost of acquisition 60,000 40,000 1,40,000 Year of acquisition 2008-09 2013-14 2004-05 Cost Inflation Index 137 220 113 Date of sale 1.6.2018 1.1.2019 30.8.2018

He has purchased a residential house for Rs 9,00,000 on 25.3.2019on which date he did not own any other residential house. Whether Shri Antmananda is eligible to claim exemption U/S 54F? Calculate his taxable capital gain for the A Y 2019-20. CII for the financial year 2018-19 was 280.

Computation of Income from Capital gain (2018 QP for 14 marks) Assets Gold Securities Plot Nature of capital assets LTCA (2008-09 to LTCA (2013-14 LTCA (2004-05 01.6.2018) to 1.1.2019) to 30.08.2018) Gross Sale Consideration 4,00,000 1,50,000 20,00,000 Less: Selling Expenses ------40,000 Net Sale Consideration 4,00,000 1,50,000 19,60,000 Less: Cost of acquisition/ Indexed cost of acquisition 1,22,628 50,909 3,46,903

Less: Cost of acquisition/ indexed cost of acquisition ------Gross Capital Gain / Loss 2,77,372 99,091 16,13,097 Less: Exemptions U/S 54 ------7,40,708 Net Capital Gain 2,77,372 99,091 8,72,389 Calculation of indexed cost of acquisition (ICOA): =Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition Gold : 60,000 X 280/137 = 1,22,628 Securities: 40,000 X 280/ 220 = 50,909 Plot: 1,40,000X 280/ 113= 3,46,903

Exemption U/S 54F =Cost of New House X Capital Gain /Net sale consideration

=9,00,000 X 16,13,097/ 19,60,000 = 7,40,708

54F Investment Assessee Individual / HUF in residential Type of asset transferred Any long-term capital asset other than residential house house Type of transfer LTCG

New asset purchased Residential house property

Time Limit for investment in Purchase – Within 1 year before or 2 years after new asset transferConstruction – Within 3 years from transfer

Exemption Amount Cost of new asset x Capital Gain / Net consideration (maximum up to capital gain)

CGAS* available Yes – deposit by return filing due date Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Assessee: Ms. Vimala 2017, 14 marks Problem Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Assets Residential Residential Jewellery Motor car House-I House-II Nature of capital assets LTCA (1999 LTCA (2007-8 LTCA (2007-08 STCA to to 31.08.2018) to (Depreciating 30.9.2018) 25.02.20190 asset) Gross Sale Consideration 18,50,000 8,50,000 8,50,000 90,000 Less: Selling Expenses ------47,800 ------Net Sale Consideration 18,50,000 8,02,200 8,50,000 90,000 Less: Cost of acquisition/ Indexed cost of acquisition 5,32,000 3,38,605 2,71,318 WDV 76,000

Less: Cost of acquisition/ indexed cost of acquisition 6,500 ------Gross Capital Gain / Loss 13,11,500 4,63,595 5,78,682 14,000 Less: Exemptions U/S 54 (Long-Term Capital 9,00,000 ------Gain OR Cost of new asset whichever lesser) Net Capital Gain 4,11,500 4,63,595 5,78,682 14,000 Calculation of indexed cost of acquisition (ICOA): =Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition 1. Residential House I: 1,90,000 X 280/100 = 5,32,000 2. Residential House II: 1,56,000 X 280/ 129 = 3,38,605 3. Jewellery: 1,25,000 X 280/129= 2,71,318

Note No 1: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which ever is high is cost of acquisition.

54 Profit on sale Assessee Individual / HUF of property used for Type of asset transferred Residential House Property residence

Type of transfer LTCG

New asset purchased One Residential House

Time Limit for investment in Purchase – Within 1 year before or 2 years after transfer new asset Construction – Within 3 years from transfer

Exemption Amount Long-Term Capital Gain OR Cost of new asset whichever lesser

Assessee: Mr. Aneesh 2010, 14 marks Problem Previous Year:2018-19 Status: Resident Assessment Year:2019-20 Assets Jewellery Residential Machiner Self House y Cultivated Land Nature of capital assets STCA LTCA (1974 STCA LTCA (1.6.2016 to to (Deprecia (1.4.2003 31.5.2018) 31.10.2010) ting to asset) 1.1.2019) Gross Sale Consideration 3,00,000 38,00,000 90,000 14,00,000 Less: Selling Expenses ------50,000 ------Net Sale Consideration 3,00,000 37,50,000 90,000 14,00,000 Less: Cost of acquisition/ Indexed cost of acquisition 1,60,000 5,60,000 76,000 3,36,000

Less: Cost of acquisition/ indexed cost of acquisition ------94,594 ------Gross Capital Gain / Loss 1,40,000 30,95,406 14,000 10,64,000 Less: Exemptions U/S 54 ------Net Capital Gain 1,40,000 30,95,406 14,000 10,64,000 Calculation of indexed cost of acquisition (ICOA):

=Cost of acquisition X CII for the year in which the asset is transferred/ CII of year of acquisition

1. Residential House: 2,00,000 X 280/100 = 5,60,000 2. Self Cultivated Land: 1,30,000 X 280/ 109 = 3,36,000

Calculation of indexed cost of improvement (ICOI):

=Cost of improvement X CII for the year in which the asset is transferred/ CII of year of improvement

1. Residential House: 50,000 X 280/148 = 94,594

Note No 1: House hold furniture is not a capital asset hence it is fully exempted from tax

Note No 3: for determine the nature of capital assets, the period of holding shall be counted from the date of purchase and to the date of sale.

Note No 4: if the assessee acquires the asset before 1.4.2001, actual cost of the asset or FMV as on 1.4.2001, which ever is high is cost of acquisition.

Note no 5: cost of improvement only after 1.4.2001 shall be taken.

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