Topic wise Test Papers of CA Inter - Direct Tax -MAY/SEP-25 Exams

Topic: Adv. Tax, TDS, TCS, Return Filing

Total Marks: 36 Marks

Time Allowed: 70 minute

Answers:

Part-A Multiple Choice Questions

[Total 20 Marks]
1. Answer : C
2. Answer : D
3. Answer : B
4. Answer : D
5. Answer : A
6. Answer : D
7. Answer : D
8. Answer : B
Part- B Descriptive Questions
[Total 30 Marks]
Solution 1:
(i) XYZ Bank has to deduct tax at source@10% u/s 194A, since the aggregate interest on fixed
deposit with the three branches of the bank is ` 60,750 [3,00,000 × 3 × 9% × 9/12], which
exceeds the threshold limit of ` 40,000. Since XYZ Bank has adopted CBS, the aggregate interest
credited/paid by all branches has to be considered. Since the aggregate interest of ` 60,750
exceeds the threshold limit of ` 40,000, tax has to be deducted@10% u/s 194A.
(ii) No tax has to be deducted u/s 194A by PQR Bank on the interest of ` 28,000 falling due on
recurring deposit on 31.3.2025 to Mr. Rajesh, since such interest does not exceed the threshold
limit of ` 40,000.
(iii) Since the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.3.2012, the maturity proceeds of ` 4.50 lakhs due on 31.3.2025 are not exempt under section
10(10D) in the hands of Mr. X. Therefore, tax is required to be deducted@2% under section
194DA on the amount of income comprised therein i.e., on ` 75,000 (` 4,50,000, being maturity
proceeds - ` 3,75,000, being the aggregate amount of insurance premium paid).
(iv) Since the annual premium is less than 20% of sum assured in respect of a policy taken before
1.4.2012, the sum of ` 3.95 lakhs due to Mr. Y would be exempt under section 10(10D) in his
hands. Hence, no tax is required to be deducted at source under section 194DA on such sum
payable to Mr. Y.
(v) Even though the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.3.2012, and consequently, the maturity proceeds of ` 95,000 due on 1.8.2023 would not be
exempt under section 10(10D) in the hands of Mr. Z, the tax deduction provisions under section
194DA are not attracted since the maturity proceeds are less than ` 1 lakh.

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2 Test Papers of CA Inter - Direct Tax - MAY/SEP-25 Exams — Answers
(vi) Since Mr. X pays rent exceeding ` 50,000 per month in the F.Y. 2024-25, he is liable to deduct
tax at source @2% of such rent for F.Y. 2024-25 under section 194-IB. Thus, ` 11,000 [` 55,000
x 2% x 10] has to be deducted from rent payable for March, 2025.
If Mr. X vacated the premises in December, 2024, then tax of ` 7,700 [` 55,000 x 2% x 7] has
to be deducted from rent payable for December, 2024.
In case Mr. Y does not provide his PAN to Mr. X, tax would be deductible@20%, instead of
2%.
In case 1 above, this would amount to ` 1,10,000 [` 55,000 x 20% x 10], but the same has to
be restricted to ` 55,000, being rent for March, 2025.
In case 2 above, this would amount to ` 77,000 [` 55,000 x 20% x 7], but the same has to be
restricted to ` 55,000, being rent for December, 2024.
(vii) TDS provisions under section 194J would not get attracted, since the limit of ` 30,000 is
applicable for fees for professional services and fees for technical services, separately. It is
assumed that there is no other payment to Mr. Ganesh towards fees for professional services and
fees for technical services during the P.Y.2024-25
(viii) No tax is required to be deducted at source under section 194C by M/s S Ltd. on payment to
transporter Mr. R, since he satisfies the following conditions:
-He owns ten or less goods carriages at any time during the previous year.
-He is engaged in the business of plying, hiring or leasing goods carriages;
-He has furnished a declaration to this effect along with his PAN.
(ix) Section 194J provides for deduction of tax at source @10% from any sum paid by way of any
remuneration or fees or commission, by whatever name called, to a resident director, which is
not in the nature of salary on which tax is deductible under section 192. The threshold limit of `
30,000 upto which the provisions of tax deduction at source are not attracted in respect of every
other payment covered u/s 194J is, however, not applicable in respect of sum paid to a director.
Therefore, tax@10% has to be deducted at source u/s 194J in respect of the sum of ` 19,000
paid by ABC Ltd. to its director.
Therefore, the amount of tax to be deducted at source: = ` 19,000 x 10% = ` 1,900
(x) As per the provisions of section 194J, a Hindu Undivided Family is required to deduct tax at
source on fees paid for professional services only if the total sales, gross receipts or turnover
form the business or profession exceed ` 1 crore in case of business or ` 50 lakhs in case of
profession, as the case may be, in the financial year preceding the current financial year and such
payment made for professional services is not exclusively for the personal purpose of any
member of Hindu Undivided Family.
Section 194M, provides for deduction of tax at source by a HUF (which is not required to deduct
tax at source under section 194J) in respect of fees for professional service if such sum or
aggregate of such sum exceeds ` 50 lakhs during the financial year.
In the given case, the fees for professional service to Dr. Srivatsan is paid on 1.12.2024 for a
personal purpose, therefore, section 194J is not attracted. Section 194M would have been
attracted, if the payment or aggregate of payments exceeded ` 50 lakhs in the P.Y.2024-25.
However, since the payment does not exceed ` 50 lakh in this case, there is no liability to deduct
tax at source under section 194M also.
(xi) As per section 194LA, any person responsible for payment to a resident, any sum in the nature
of compensation or consideration on account of compulsory acquisition under any law, of any
immovable property, is required to deduct tax at source, if such payment or the aggregate amount
of such payments to the resident during the financial year exceeds ` 2,50,000.
In the given case, there is no liability to deduct tax at source as the payment made to Mr. A does
not exceed ` 2,50,000.

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 Test Papers of CA Inter - Direct Tax - MAY/SEP-25 Exams — Answers 3
(xii) On payment of sale consideration for purchase of residential house property – As per section
194-IA if consideration or SDV is 50 lakhs or more then TDS @1% applicable on consideration
or SDV whichever is higher. Mr. Arun is required to deduct tax at source u/s 194-IA on 55 lakhs
i.e., 55,000.
(xiii) On payment of call centre service charges - Since Rashi Limited is engaged only in the business
of operation of call centre, Jigar Limited is required deduct tax at source@2% on the amount of
` 70,000 u/s 194J on 18.3.2025 i.e., at the time of credit of call centre service charges to the
account of Rashi Limited, since the said date is earlier than the payment date i.e., 28.3.2025.
(xiv) On payment of prize winnings of ` 21,000 -Tax is deductible @ 30% under section 194B by
M/s. Maximus Retail Ltd.., from the prize money of ` 21,000 payable to the customer, since the
winnings exceed ` 10,000.

Solution 2:
Requirement of filing return of income
(i) Yes, Mr. Albert is required to file his return of income for A.Y.2025-26.
As per section 139(1)(b), an individual is required to file his return if his total income,
without giving effect to deductions under, inter alia, Chapter VI-A and section 10AA,
exceeds the basic exemption limit. In this case, Mr. Albert’s total income of ` 2,00,000 is
lower than the basic exemption limit of ` 2,50,000. However, such person referred to in
section 139(1)(b) who is not required to file his return on account of his total income being
lower than the basic exemption limit would be required to file return of income if, inter alia,
his turnover in business exceeds ` 60 lakhs. In this case, since Mr. Albert’s turnover from
business for the P.Y. 2024-25 is ` 70 lakhs, he has to file return of his income for A.Y.2025-
26.
(ii) Yes, Mr. Ashish is required to file his return of income for A.Y.2025-26.
Mr. Ashish’s total income for A.Y. 2025-26 without giving effect to Chapter VI-A
deductions is ` 7 lakhs [` 2.50 lakhs from profession + ` 4 lakhs interest on fixed deposits
+ ` 0.50 lakhs interest on savings bank account], which exceeds the basic exemption limit
of ` 2,50,000. Hence, he is required to file his return of income for A.Y. 2025-26 as per
section 139(1)(b).
Note - The threshold limit of ` 10 lakhs for gross receipts in profession has to be looked into
only in a case where an individual referred to in section 139(1)(b) is not required to file his
return of income thereunder i.e., only if Ashish’s total income without giving effect to
Chapter VI-A deductions is lower than the basic exemption limit.

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4 Test Papers of CA Inter - Direct Tax - MAY/SEP-25 Exams — Answers
(iii) Yes, M/s. ABC & Co. is required to file its return of income for A.Y.2025-26.
As per section 139(1)(a), a firm is compulsorily required to file its return of income. The
threshold limit of ` 10 lakhs for gross receipts in profession is relevant only for a person
other than a company or a firm.
(iv) Yes, XYZ (P) Ltd. is required to file its return of income for A.Y.2025-26.
As per section 139(1)(a), a company has to mandatorily file its return of income. The
condition of filing of return of income where expenditure towards consumption of electricity
exceeds ` 1 lakh applies to a person other than a company or a firm.
(v) Yes, Mr. Vallish is required to file his return of income for A.Y.2025-26.
Gift of ` 50 lakhs received from son is not taxable under section 56(2)(x) in the hands of
Mr. Vallish, since his son is his relative, and gifts from a relative are excluded from the
applicability of section 56(2)(x). The only income of Mr. Vallish for the P.Y.2024-25 would
be interest on savings account for a period of 4 days from 28th March, 2025 to 31st March,
2025 on ` 50 lakhs, which would be lower than the basic exemption limit. As per section
139(1)(b), an individual is required to file his return if his total income exceeds the basic
exemption limit. In this case, Mr. Vallish’s total income is lower than the basic exemption
limit of ` 2,50,000.
However, such person referred to in section 139(1)(b) who is not required to file his return
on account of his total income being lower than the basic exemption limit would be required
to file return of income if, inter alia, the deposit in his savings account is ` 50 lakhs or more
during the previous year.
Since a deposit of ` 50 lakhs has been made in the savings account of Mr. Vallish in the
P.Y.2024-25, he is required to file his return of income for A.Y.2025-26.
(vi) Mrs. Sudha’s income from house property would be ` 2,10,000 (` 3,00,000 less 30% of net
annual value). Since this is her only source of income, her gross total income/total income for
A.Y.2025-26 would be ` 2,10,000, which is lower than the basic exemption limit. Hence, she
is not required file her return of income for A.Y.2025-26 as per section 139(1)(b), since her
gross total income/total income does not exceed the basic exemption limit of ` 2,50,000.
However, clause (iv) to seventh proviso of section 139(1) provides that a person (other than
a company or a firm) who is not required to furnish a return u/s 139(1) has to furnish return
on or before the due date if he/she fulfills such other conditions as may be prescribed under
Rule 12AB.
Rule 12AB, inter alia, prescribes that any person other than a company or a firm, who is not
required to furnish a return under section 139(1), has to file income-tax return in the
prescribed form and manner on or before the due date if, the aggregate of tax deducted at
source and tax collected at source during the previous year, in case of such person, is ` 25,000
or more.
Accordingly, it has to be examined whether, in Mrs. Sudha’s case, the requirement to file
return for A.Y.2025-26 arises due to TDS/TCS, in her case, exceeding ` 25,000 in the
P.Y.2024-25.
As per section 206C(1F), every person, being a seller, who receives any amount as
consideration for sale of a motor vehicle of the value exceeding ` 10 lakhs, has to collect tax
from the buyer @1% of the sale consideration.
Accordingly, dealer of the car is required to collect tax at source of ` 26,247 @1% on ex-
showroom price i.e., ` 26,24,710 (` 29,52,000 – ` 2,15,000 – ` 51,575 – ` 25,255 – ` 35,460)
from Mrs. Sudha, being the buyer of the car.
Hence, as per the seventh proviso to section 139(1) read with Rule 12AB, Mrs. Sudha is
required to mandatorily file her return of income for A.Y.2025-26, even though her gross total
income/total income does not exceed the basic exemption limit, since tax collected at source
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 Test Papers of CA Inter - Direct Tax - MAY/SEP-25 Exams — Answers 5
during the P.Y. 2024-25, in her case is ` 26,247 which exceeds the threshold of ` 25,000.

Solution 3:
(i) Section 194-IA requires deduction of tax@1% by every transferee responsible for paying any sum
as consideration for transfer of immovable property (land, other than agricultural land, or building or
part of building) to a resident transferor. Tax is not required to be deducted at source where the total
amount of consideration for the transfer and SDV of immovable property is less than ` 50 lakhs.
Consideration for transfer of any immovable property includes, inter alia, club membership fee, car
parking fee, maintenance fee, which are incidental to transfer of the immovable property.
As amendment made by FA 2024, w.e.f. 1/10/2024, Where there is more than one transferor or
transferee in respect of any immovable property, then the consideration shall be the aggregate of the
amounts paid or payable by all the transferees to the transferor or all the transferors for transfer of such
immovable property.
In the present case, since the consideration for transfer of flat by Mr. Mani & Mrs. Bani to Omkar
Construction Ltd. is ` 52,20,000 (` 48 lakhs + ` 1,20,000, being ` 5,000 x 24 + ` 2 lakhs + ` 1 lakh)
which is not less than ` 50 lakhs, Mr. Mani is required to deduct tax @1% on ` 26,100,000 & Bani
also require to deduct tax @1% on ` 26,100,000.
Total Tax deductible by Mr. Mani & Mrs. Bani would be ` 52,200.

(ii) Mr. Hardik last year T/O more than ` 100 lakhs then also he is not required to deduct TDS u/s 194J
as fees for professional service is for personal purpose of Individual.
However, tax is required to be deducted at source@2% u/s 194M, on the payment of ` 65,00,000, since
such amount exceeds ` 50 lakhs.
Therefore, tax deducted at source would be ` 1,30,000, being 2% of ` 65,00,000.

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