Income Tax Law and Practice – II - Scheme of Valuation (Aug/Sept.

2024)
b. Reserve for doubtful debts
Section – A Inadmissible expense –
a. Two examples of professional incomes of a c. A sum of money spent for maintaining the
medical practitioner: (any two) reputation of business
Consultation fees and Visiting fees, scanning Admissible expense –
charges, gifts from patients d. Penalty paid to customs authority
b. Tax free commercial securities are those securities Inadmissible expense –
issued by a company or local authority or e. Compensation paid to an employee for termination
corporation in the form of debentures or bonds. of his service in the interest of business
Interest on these securities is fully paid to the Admissible expense -
holders without TDS. 4. Income from other sources of Mr. Abhishek
c. Gain or profit arising from the transfer of long Director’s fees 1,000
term capital asset is called LTCG. Income from agriculture in Benagaluru Exempt
d. Any long term capital loss can be set off against A gold chain found 30,000
other long term capital gains only. Rent from vacant land in Hubbali 20,000
e. Four examples of income from other sources (any Winnings from horse race 20,000
Interest from tax-free debentures of X ltd 10,000
four) 9,000
(𝐺𝑟𝑜𝑠𝑠 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑋 100)
Interest, Dividend, Rent from subletting, Winning 90
Exempt
Interest on 7% Capital Investment bonds
from lottery, Composite rent, royalty. 8,000
Interest received from FD with SBI
f. E-filling: The process of submitting the tax return Income from other sources 89,000
electronically.
g. Bad debts recovered which were disallowed in the 5. Taxable Capital Gain of Miss Srushti
earlier years should be deducted from business LTCG on Jewellery
income. Bad debts recovered which were allowed Sale proceeds 10,11,000
in the earlier years should be included in business Less: Selling expenses 10,000
income. Net sale proceeds 10,01,000
Section – B Less:
2. Types of assessment Indexed cost of acquisition 4,96,500
331
i. Self assessment (140A): The assessee has to (1,50,000 X 100 )
compute the tax liability and find out any amount of LTCG (before exemption) 5,04,500
tax and interest payable after making adjustment of Less: Exemption u/s 54F 2,52,250
Cost of new residential house is less than
TDS etc and shall deposit tax with challan for self
net sale proceeds hence exemption
assessment before filing the return. 5,00,500
amount; ( x 5,04,500)
10,01,000
ii. Assessment on the bsis of return (143(1)): Where a Taxable Capital Gain 2,52,250
return has been filed u/s 139 the officer can complete
the assessment without passing a regular assessment 6. Gross Total Income of Mr. Suresh
order. i. Income from house property
Income from HP 90,000
iii. Regular assessment (143(3)): Assessment made on
Less: Loss from SOP 60,000 30,000
the basis of evidence u/s 143(3) or Best judgment
ii. Income from business
assessment u/s 144. Profit from speculation business 1,00,000
iv. Re-assessment (147): If the assessing office has Less: Loss from Non-Spc Business 1,00,000 Nil
iii. Capital gains
reason to believe that any income chargeable to tax
LTCG 2,10,000
has escaped assessment for any AY he may assess Less: Long term capital loss 60,000
such income keeping in view the provisions of 1,50,000
sections 148 to 153. Add: STCG 2,50,000 4,00,000
iv. Income from other sources
3. Admissibility of expenses Interest on securities 2,50,000
a. Embezzlement of cash by an employee Gross Total Income 6,80,000
Admissible expense –
 Section – C Interest – Tax free Securities (36,000x10%) 4,000
7. Short note (Gross 3,600x100/90)
a. Permanent Account Number: The tax department Interest – Tax free debentures 4,000
issues 10 character alphanumeric number to each (20,000x18%) (Gross 3,600x100/90)
Gross Income 11,59,000
assessee to identify the returns, tax payment challans,
Less: Deduction u/s 57
quick disposal of their refund claims or assessments. Int. on loan for purchase of sec 4,000
Collection charges 500 4,500
b. Income Tax Authorities: For the purpose of proper Income from other sources 11,54,500
administration of the department of income tax, the
central government appoints various authorities. 10. Total income of Khushi AY 2023-24
These authorities will look in to the matters which i. Income from salary 3,80,000
come under their purview. ii. Income from house property 80,000
i. Central Board of direct taxes (CBDT) iii. Income from business 1,20,000
ii. Commissioners of income tax Less: Loss from cloth business 30,000 90,000
iii. Chief commissioners of income tax iv. Capital gains 1,10,000
(LTCG 80,000 + STCG 30,000)
iv. Principal Commissioners of Income tax
v. Income from other sources 1,80,000
v. Commissioner of income tax (Lottery 1,00,000 + Other income 80,000)
vi. Additional commissioner of Income tax Gross Total Income 8,40,000
vii. Joint directors of income tax Less: Deductions 80C to 80U
viii. Deputy commissioner of income tax 80C: (LIP 20,000 + PF 10,000) 30,000
ix. Assistant commissioner of income tax 80G: Donation to PMNRF 15,000 45,000
x. Income tax officers Total Income 7,95,000

8. Income from business of a merchant Tax Liability of Khushi AY 2023-24

Net profit 64,000 Particulars Income Rate Tax
Add: Disallowed exp. Debited Tax on LTCG 80,000 20 16,000
Gift to daughter – OS 2,500 Tax on Lottery 1,00,000 30 30,000
Travelling expenses – OS 3,000 Tax on regular income
Proprietor’s salary 15,000 On first 2,50,000 Nil Nil
Interest on capital 5,000 On next 2,50,000 5 12,500
Expense for cable – GE 4,000 On remaining 1,15,000 20 23,000
PDD 6,000 Tax 81,500
Income tax 4,000 Add: HEC (81,500 x 4%) 4 3,260
Donation 2,500 Tax Liability 78,240
Life insurance premium 6,000 Less: TDS on lottery 30,000
Depreciation debited 5,000 53,000 Tax payable 48,240
1,17,000
Less: Non business incomes cr
Profit on sale of car 25,000
Bad debts recovered 5,000
Interest on securities 3,500
Dividend 3,700 37,200
Income from business 79,800

9. Income from other sources of Mr. Vijay

Salary as MP (80,000x12) 9,60,000
Income from agriculture in Srilanka 42,000
Dividend on shares of foreign company 25,000
Dividend on shares of ACC 60,000
Ground rent 40,000
Winnings from lottery (14,000x100/70) 20,000
Interest on 7% capital investment bonds Exempt
Interest - Kar. Govt. securities(40000x10%) 4,000
 Section – D iii. If sold assets are debentures then actual cost of
11. Taxable capital gain acquisition is considered instead of indexed cost.
a. Computation of Capital gains
i. If the capital asset sold is residential building *****
Sale proceeds 13,74,000
Less: Selling expenses 12,000
Net sale proceeds 13,62,000
Less:
Indexed COA
(2,26,000 x 331/113) 6,62,000
LTCG (before exemption) 7,00,000
Less: Exemption u/s 54
Cost of new residential house 6,81000
Rs.6,81,000 or LTCG Rs.7,00,000
whichever is less
LTCG 19,000

ii. If the capital asset sold are shares

Sale proceeds 13,74,000
Less: Selling expenses 12,000
Net sale proceeds 13,62,000
Less:
Indexed COA
(2,26,000 x 331/113) 6,62,000
LTCG (before exemption) 7,00,000
Less: Exemption u/s 54F
Cost of new residential house is 3,50,000
less than NSP
6,81,000
Exempt amt. 13,62,000 x 7,00,000
LTCG 3,50,000

iii. If the capital asset sold are listed debentures

Sale proceeds 13,74,000
Less: Selling expenses 12,000
Net sale proceeds 13,62,000
Less:
Cost of acquisition 2,26,000
LTCG (before exemption) 11,36,000
Less: Exemption u/s 54
Cost of new residential house is 5,68,000
less than NSP
6,81,000
Exempt amt. x 11,36,000
13,62,000
LTCG 5,68,000

b. Reasons for getting different taxable LTCG for

above mentioned assets sold.
i. If the sold asset is residential building an assessee
can get full amount of cost of new asset as exemption
u/s 54.
ii. If the sold assets are other than residential building
then assessee cannot get entire cost of new asset as
exemption if investment in new asset is less than NSP.