1.

Definitions (Chapter 1)

●​ Person [Pg. 6]:​

Includes:
○​ Individual, Company, AOP (Association of Persons), Local Authority (e.g.,
municipal committee), Partnership Firm, Artificial Juridical Person.
●​ Income [Pg. 5]:​
Money earned by individuals/entities from sources like salary, business, property,
investments, etc., taxable under the Income Tax Act.
●​ Previous Year (PY) [Pg. 5]:​
The financial year (1st April to 31st March) in which income is earned. Tax is paid
in the next Assessment Year (AY).
○​ Exception: Non-residents, persons leaving India, discontinued businesses
(taxed in the same year).

2. Exempt Incomes [Pg. 10-11]

Incomes not part of total income (non-taxable):

1.​ Agricultural Income (from Indian land).

2.​ Share of profit from HUF (Hindu Undivided Family).
3.​ Partnership firm profit share to partners.
4.​ Scholarships (Govt./Non-Govt.).
5.​ Provident Fund contributions.
6.​ Life Insurance proceeds (maturity/death benefit).
7.​ Sukanya Samriddhi Yojana amount.
8.​ Govt. awards/rewards.
9.​ Family pension.
10.​Compensation for disasters (Central/State Govt.).

3. Clubbing of Income [Pg. 29-31]

Income of others added to your income if:

1.​ Spouse's income:

 ○​ From a concern where you have >20% control (unless spouse has
professional skills).
2.​ Minor child's income:
○​ Clubbed with parent's income (higher earner), except income from child's
skills/talent.
○​ Exemption: ₹1,500/year/child (max 2 children).
3.​ Transfers without adequate consideration:
○​ Assets transferred to spouse/daughter-in-law; income from such assets is
clubbed.
○​ Exceptions: Divorce settlements, pre-marriage transfers, or "pin money"
(household allowance).

4. Set-off & Carry Forward of Losses [Pg. 25-27]

●​ Set-off Rules:

Loss Type Set-off Against

House Property Any income (except lottery,

gambling)

Business Any income except salary

(Non-speculative)

Speculative Business Only speculative income

Capital Loss (ST) STCG or LTCG

Capital Loss (LT) Only LTCG

●​ ​
Carry Forward:

Loss Type Years Against

House Property 8 Only house property income

Business 8 Only business income

(Non-spec)

Speculative 4 Only speculative income

Capital Loss 8 LTCG (for LT loss) / STCG/LTCG (for ST

(LT/ST) loss)

5. Theory of House Property [Pg. 14, 18-19]

●​ Taxable Income Calculation:

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Gross Annual Value (GAV) = Higher of [Expected Rent, Actual Rent Received]
Net Annual Value (NAV) = GAV – Municipal Taxes Paid

●​ Income from HP = NAV – [30% Standard Deduction + Interest on Home Loan]

●​ Key Rules:
○​ Self-Occupied Property: GAV = Nil; Interest deduction capped at ₹2 lakh.
○​ Let-Out Property: Full interest deduction allowed.
○​ Multiple Houses: Choose 2 as self-occupied (to minimize tax).
●​ GAV Calculation Factors: Municipal Value, Fair Rent, Standard Rent.

6. Dates of Advance Tax [Pg. 36]

For taxpayers with tax liability ≥ ₹10,000:

Due Date Payable Amount

15 June 15% of tax

15 September 45% (Total 60%)

15 December 75% (Total 75%)

15 March 100%

●​ ​
Penalty: Interest @1%/month for non-payment (Sections 234B/C).
●​ Exemption: Senior citizens (≥60 yrs) without business income.

Key Takeaways for Exam:

●​ Residential Status determines tax liability (ROR/NOR/NR) – Revise Page 12-14.

●​ House Property: Prioritize treating high-loss properties as self-occupied.
●​ Losses: Remember carry-forward limits (e.g., speculative losses only 4 years).
●​ Advance Tax: Dates are strict; penalties apply for delays.
Answer Sheet: Income Tax Laws

Examination: B.Com/BBA​

Date: [Insert Date]​

Time: 3 Hours​

Maximum Marks: 105

Q1. (a) What is agricultural income? In what circumstances non-agricultural income is

partially integrated with agricultural income and taxed?

(15 Marks)

Agricultural Income:​

Agricultural income is defined under Section 2(1A) of the Income Tax Act, 1961, as:

1.​ Income from agricultural land in India derived from:

○​ Cultivation, tilling, or similar agricultural operations.
○​ Rent or revenue from agricultural land.
○​ Farm buildings used for agricultural purposes.​
*(Source: ITL Combined Intact One, p. 21-22; ITLP Book, p. 10)*

Partial Integration of Non-Agricultural Income:​

Non-agricultural income is integrated with agricultural income under these

circumstances:

1.​ Taxpayer Profile: Applicable to Individuals, HUFs, BOIs, or AOPs (not

firms/companies).
2.​ Thresholds:
○​ Agricultural income exceeds ₹5,000.
○​ Non-agricultural income exceeds the basic exemption limit (₹2,50,000 for
individuals <60 years).
3.​ Purpose: To determine higher tax slabs for non-agricultural income.
Steps for Integration:

1.​ Step 1: Compute tax on (Agricultural Income + Non-Agricultural Income).

2.​ Step 2: Compute tax on (Agricultural Income + Basic Exemption Limit).
3.​ Step 3: Tax on non-agricultural income = Step 1 – Step 2.​
(Source: ITL Combined Intact One, p. 22; ITLP Book, p. 10)

Q1. (b) Write any three Exempted Incomes as per the Income Tax Act, 1961.

(15 Marks)

1.​ Agricultural Income [Section 10(1)]:

○​ Fully exempt from tax.
○​ Includes income from cultivation, rent, or farm buildings.​
(Source: ITLP Book, p. 10)
2.​ Share of Profit from HUF [Section 10(2)]:
○​ Exempt for members of a Hindu Undivided Family (HUF).​
(Source: ITLP Book, p. 10)
3.​ Scholarships [Section 10(16)]:
○​ Exempt if received for education.
○​ Applies to government and non-government scholarships.​
(Source: ITL Combined Intact One, p. 21; ITLP Book, p. 11)

Q2. Compute taxable income for Mr. Vedanta for AY 2023-24.

(15 Marks)

Residential Status Rules:

●​ ROR (Resident and Ordinarily Resident): Taxable on global income.

●​ RNOR (Resident but Not Ordinarily Resident): Taxable on Indian income + foreign
income from businesses controlled in India.
●​ NR (Non-Resident): Taxable only on Indian income.​
*(Source: ITL Combined Intact One, p. 15-16; ITLP Book, p. 12-13)*
Income Particulars Amount ROR RNOR NR

(₹)

Salary from Indian company 23,00,00 ✓ ✓ ✓

(Mumbai) 0

Technical fees (Govt. of India) 18,00,00 ✓ ✓ ✓

Royalty (Indian company) 2,00,000 ✓ ✓ ✓

Profit on sale of plant 90,000 ✓ 30,000 (1/3 30,000

(London) received in India)

Profit from business (Delhi) 2,30,000 ✓ ✓ ✓

Dividend (Indian company) 1,00,000 ✓ ✓ ✓

Interest (UK Bonds) 1,20,000 ✓ ✗ ✗

Business income (NZ 3,00,000 ✓ ✓ ✗

controlled from Kolkata)

Gift from father-in-law 1,00,000 Exempt Exempt Exempt

(relative)

Rental income (Nepal) 18,000 ✓ ✗ ✗

Total Taxable Income 50,58,000 49,60,000 46,60,00

Notes:

●​ Gift exempt under Section 56(2)(x) as received from relative.

●​ RNOR/NR: Foreign income taxed only if received/controlled in India.​
*(Source: ITLP Book, p. 13-14)*

Q3. (a) Depreciation on Block of Assets

(5+5+5 = 15 Marks)

(a) Depreciation on Block of Assets:

●​ Block of Assets: Group of assets in the same class (e.g., machinery, buildings)
sharing a common depreciation rate.
●​ Calculation:
○​ Opening WDV (Written Down Value) + Additions - Sales = Closing WDV.
○​ Depreciation = Applicable rate × Closing WDV.
●​ Key Point: If the block is empty after asset sales, the balance is treated as
short-term capital gain.​
(Source: ITL Combined Intact One, p. 62; ITLP Book, p. 37)

(b) Gifts Income Taxability:

●​ Taxable Gifts:
○​ Cash/property exceeding ₹50,000/year (Section 56(2)(x)).
○​ Exceptions: Gifts from relatives, inheritance, marriage.
●​ Tax Treatment: Taxed under "Income from Other Sources."​
(Source: ITL Combined Intact One, p. 21; ITLP Book, p. 33)

(c) Section 80E:

●​ Purpose: Deduction for interest on education loans.

●​ Eligibility: Individuals (not HUFs/firms).
 ●​ Deduction: 100% of interest paid for higher education (self/spouse/children).
●​ Duration: 8 consecutive years from repayment start.​
(Source: ITLP Book, p. 34)

Q4. Income from House Property for Mr. Karan

(15 Marks)

Calculation of Gross Annual Value (GAV):

●​ Expected Rent = Lower of Municipal Value (₹1,45,000) or Fair Rent (₹1,36,000),

capped at Standard Rent (₹1,24,000) = ₹1,24,000.
●​ Actual Rent Received:
○​ Apr–Nov 15 (7.5 months): 7.5 × ₹8,000 = ₹60,000
○​ Nov 16–Mar (4.5 months): 4.5 × ₹14,000 = ₹63,000
○​ Total = ₹1,23,000.
●​ GAV = Higher of Expected Rent or Actual Rent = ₹1,24,000.

Net Annual Value (NAV):

●​ NAV = GAV - Municipal Taxes = ₹1,24,000 - ₹5,000 = ₹1,19,000.

Deductions under Section 24:

●​ Standard Deduction = 30% of NAV = ₹35,700.

●​ Interest on Loan = Nil (not given).

Income from House Property:​

= NAV - Deductions = ₹1,19,000 - ₹35,700 = ₹83,300.​

*(Source: ITL Combined Intact One, p. 37-42; ITLP Book, p. 18-19)*

Q5. Meaning of Transfer and LTCG Calculation

(15 Marks)
Transfer (Section 2(47)):​

Includes:

●​ Sale, exchange, or relinquishment of assets.

●​ Compulsory acquisition, conversion to stock-in-trade.
●​ Possession transfer under contract.​
*(Source: ITL Combined Intact One, p. 81-83)*

LTCG Calculation:

1.​ Full Value of Consideration: Sale price.

2.​ Less: Indexed Cost of Acquisition = (Cost × CII of Sale Year) / CII of Purchase
Year.
3.​ Less: Indexed Cost of Improvement (if any).
4.​ LTCG = (1) - [(2) + (3)].
5.​ Tax Rate: 20% (with indexation).​
*(Source: ITL Combined Intact One, p. 83-86; ITLP Book, p. 42)*

Q6. Income from Other Sources & Special Provisions

(15 Marks)

Definition:​

Residual head covering incomes not under Salary, House Property, Business, or Capital

Gains (Section 56).

Inclusions:

●​ Dividends, interest, rental income from machinery.

●​ Winnings from lotteries/races (taxed at 30%).
●​ Gifts > ₹50,000.​
*(Source: ITL Combined Intact One, p. 88-89; ITLP Book, p. 36)*

Special Provisions:
 ●​ Deductions (Section 57):
○​ Collection charges for dividends.
○​ 30% standard deduction on family pension (max ₹15,000).
●​ No Deductions (Section 58): Personal/capital expenses.
●​ Taxability: Winnings taxed at 30% (no deductions).​
*(Source: ITL Combined Intact One, p. 89-91; ITLP Book, p. 37)*

Q7. Clubbing of Income

(15 Marks)

Circumstances for Clubbing (Section 64):

1.​ Income Transfer without Asset Transfer: Income clubbed with transferor.
2.​ Revocable Transfer: Income from assets transferred temporarily.
3.​ Spouse’s Income: From a business where assessee has >20% ownership.
4.​ Minor’s Income: Clubbed with parent’s income (higher earner).
5.​ Asset Transfer to Son’s Wife: Income clubbed if transferred without adequate
consideration.

Reasons:

●​ Prevent tax evasion by diverting income to low-tax-bracket relatives.

●​ Ensure equitable taxation.​
*(Source: ITL Combined Intact One, p. 105-106; ITLP Book, p. 24-25)*

Q8. Tax Liability of Prof. Swati Goel

(15 Marks)

Step 1: Gross Salary

Component Amount (₹) Taxability

Basic Salary 12,00,000 Taxable

Dearness 2,00,000 Taxable

Allowance

Bonus 1,20,000 Taxable

Transport 25,600 Taxable (no handicap)

Allowance

HRA 1,20,000 Taxable (rent not

given)

Food Vouchers 18,000 Exempt (within limits)

Telephone Bill 20,000 Taxable (perquisite)

Water Bill 8,000 Taxable (perquisite)

Seminar Fees 2,500 Exempt (business)

Gross Salary 16,93,600

Step 2: Income from Other Sources

●​ Interest from Savings Bank: ₹1,69,000

●​ Gifts (₹25,000 + ₹26,000) = ₹51,000 → Taxable (exceeds ₹50,000) = ₹1,000.
●​ Total: ₹1,69,000 + ₹1,000 = ₹1,70,000.

Step 3: Gross Total Income (GTI)​

= ₹16,93,600 + ₹1,70,000 = ₹18,63,600.

Step 4: Deductions

●​ Section 80C: Provident Fund (₹1,40,000) + LIC (₹14,000) = ₹1,50,000 (max).

●​ Section 80G: Donation to Defence Fund = ₹3,200 (100% deduction).
●​ Section 80TTA: Savings Interest = ₹10,000.
●​ Total Deductions: ₹1,63,200.

Step 5: Taxable Income​

= GTI - Deductions = ₹18,63,600 - ₹1,63,200 = ₹17,00,400.

Step 6: Tax Calculation

Slab (₹) Tax

Up to 2,50,000 Nil

2,50,001–5,00,00 ₹12,500

5,00,001–10,00,0 ₹1,00,000

00

Above 10,00,000 ₹2,10,120 (30% × ₹7,00,400)

Total Tax ₹3,22,620

Add: Cess (4%) ₹12,905

Tax Payable ₹3,35,525 → Rounded to

₹3,35,530.

*(Source: ITL Combined Intact One, p. 29-35; ITLP Book, p. 7-9)*