No.

1 for CA/CWA & MEC/CEC MASTER MINDS

13. PROBLEMS ON TOTAL INCOME

SOLUTIONS TO ASSIGNMENT PROBLEMS
Problem No.1
Name of the Assessee: Mr. Rajesh A.Y: 2015-2016
Computation of Taxable Income :
Particulars Amount Amount
Income from salaries (W.N -1) 9,86,800
Income from H.P (W.N – 2) 1,00,000
Income from C.G (W.N – 3) 2,115
Income from other sources (W.N – 4) 750
Gross Total Income 10,89,665
(-) Chapter VI A Deduction
Sec.80C - Housing Loan Repayment (Principal only) 65,000
Taxable Income 10,24,665
Taxable Income (rounded off u/s 288A) 10,24,670

W.N - 1: Income from Salaries

Particulars Amount Amount
Basic 5,40,000
H.R.A 1,80,000
Transport Allowance 12,400
(-) Exemption U/S 10(14) (800 X 12) 9,600 2,800
Value of laptop – Transfer (Note 1) 40,000
Value of car – Transfer (Note 2) 2,24,000
9,86,800
Note 1 – Value of Laptop - Transfer
Particulars Amount
1. Value of Asset Sold
Cost of the Asset 1,20,000
(-) Dep. For first completed year of usage @ 50% 60,000
60,000
2. Asset sold for 20,000
3. Value of perquisite (1-2) 40,000

Note 1 – Value of Car - Transfer

Particulars Amount
1. Value of Asset Sold
Cost of the Asset 8,50,000
(-) Dep. For first completed year of usage @ 20% (April 2012-March 2013) 1,70,000
6,80,000
nd
(-) Dep. for 2 completed year of usage @ 20% (April 2013-March 2014) 1,36,000
5,44,000
2. Asset sold for 3,20,000
3. Value of perquisite (1-2) 2,24,000
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W.N. - 2: Income from house property:
Status: Part of the year let out and part of the year S.O.P
Treatment: Treat it as if the property was let out for full year
1,50,000
Step 1: Fair rent = 2,00,000 (1,50,000 is for 9 months. Therefore, Fair Rent = x12 )
9
Step 2: Answer in Step. 1(2,00,000) or Actual Rent 1,35,000 (15,000X9) Whichever is higher
Step 3:
Particulars Amount
GAV 2,00,000
(-) Municipal Taxes Nil
NAV 2,00,000
(-) Deductions u/s 24
Repairs 30% NAV 60,000
Interest 40,000
Income from House Property 1,00,000

W.N. -3 Computation of Short Term Capital Gains

Sale of shares of A Ltd is exempted u/s.10(38)
Sale of shares of B Ltd. Sec.111A

Particulars Amount
Consideration (82 X 125) 10,250
(-) Brokerage (0.1%) 10
Net Consideration 10,240
(-) Cost of acquisition (65 X 125) 8,125
Taxable Capital Gain 2,115

Income from Other Sources: As income Tax paid will not be allowed as deduction Income Tax
refundable will not be Taxable. Interest on Income Tax refundable Taxable = 750

Note: Assumed that the housing loan was taken either from specified employer or from notified financial
Institution.

Problem No.2
Name of the Assessee: Dr. Sparsh Kumar Assessment Year: 2015-16
Computation of Total Income
Particulars Amount
Income from salary (W.N.1) 72,000
Income from P.G.B.P (W.N.2) 2,65,550
Income from Long term C.G (W.N.3) 15,424
Income from other sources (W.N.4) 54,000
Gross total income 4,06,974
(-) Deductions under chapter VIA:
L.I.C premium - Sec. 80C (See Note) 5,000
P.M relief fund - Sec. 80G 15,000
Net Total Income 3,86,974

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Computation of tax liability:
Particulars `
Tax on total income (Working Note - 5) 23,240
Less: Rebate under section 87A 2,000
21,240
Add: Education cess @ 2% and SHEC @1% 637
Total tax liability 21,877
Less: Tax deducted at source (TDS) 12,000
Tax payable 9,877
Rounded off 9,880
W.N.1: Income from salaries:
Particulars Amount
Gross Salary ( 6,000 X 12M) 72,000
Less: Deductions U/S 16 Nil
Salary Income 72,000
W.N.2: Income from P.G.B.P:
Particulars Amount
Surplus as per Income & Exp. a/c 2,47,800
Add: Depreciation as per books 91,000
Medicines consumed 16,000
Donation to P.M. relief fund 15,000
Less: Depreciation allowable 50,000
Winnings from lotteries 28,000
Income tax refund 2,750
Dividend from Indian co. 9,500
Honorarium for valuing answer books 14,000
Taxable Income from P.G.B.P 2,65,550

W.N.3: Income from Capital Gains – Sec.50 C

Particulars Amount
Consideration 12,00,000
 4,50,000  11,84,576
Less: Indexed cost of acquisition  ×1024 
 389 
Taxable Income from Long term capital gains 15,424
W.N.4: Income from Other Sources
Dividend from Indian Co’s [Sec.10(34)] Exempted
Winning from lotteries (net) 28,000
Add: TDS 12,000 40,000
Honorarium for valuing answer books 14,000
Income from Other Sources 54,000
Note: As per section 58(4), no expense or deduction is allowable in respect of winnings from lotteries.
W.N.5: Computation of tax on total income
Particulars `
Tax on agricultural income plus non-agricultural income 32,240
i.e. tax on ` 4,76,974(being ` 90,000 + ` 3,86,974) [See Note below]
Less: Tax on agricultural income plus basic exemption limit 9,000
i.e. tax on ` 3,40,000, (being ` 90,000 + ` 2,50,000)
Tax on total income 23,240
Note: Tax on ` 3,86,974 plus agricultural income of ` 90,000 is computed hereunder :
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Particulars `
Tax on long term capital gain ` 15,424 @ 20% 3,085
Tax on winnings from lotteries ` 40,000 @ 30% 12,000
Tax on balance income of ` 4,21,550 (` 4,76,974 – ` 15,424 - ` 40,000) 17,155
32,240
Note: Agricultural income is exempt from tax. It is considered for rate purpose only.

Problem No.3
Computation of Total Income & Taxable Income
Name of the Assessee: Mr. RAM. Assessment year: 2015-16
Particulars Amount
Income from salaries (W.N.1) 2,79,600
Income from P.G.B.P (W.N.2) 75,000
Income from other sources (W.N.3) 15,500
Gross total income 3,70,100
(-) Deductions under chapter VIA (W.N.4) 1,13,000
Net total Income 2,57,100

W.N.1: Income from salaries

Particulars Amount
Basic (20,000 X 12M) 2,40,000
C.C.A (1,000 X 12M) 12,000
H.R.A (5,000 X 12) 60,000
(-) Exempted [Sec.10 (13A)]* 48,000 12,000
Employer’s contribution to staff ins. (Sec. 17(2) (V) ) Exempted
Education allowance (500 X 12 X 3) 18,000
(-) Exempted U/S 10(14) (100 X 12 X2) 2,400 15,600
Taxable Income from salaries 2,85,040
(*) HRA Exempted
Particulars Amount
(i) Excess of Rent paid over 10% of salary 48,000
(72,000-10% of salary) (72,000-24,000)
(ii) H.R.A Received 60,000
(iii) 50% of salary 1,20,000
Least above three is exempted 48,000

W.N.2: Income from P.G.B.P:

In the case of a person owning not more than 10 vehicles at any time during the previous year,
estimated income from each vehicle, whether heavy goods vehicle or not, will be deemed to be `
7,500/- for every month or part of the month during which the heavy vehicle is owned by the assessee
during the previous year [Section 44AE].
Presumptive income = ` 7,500 × 10 = 75,000
If, however, the assessee declares a higher amount, such amount will be considered as income. In the
instant case, since the assessee declares a lower amount, it cannot be considered, since no books of
account are maintained. Also, interest is not deductible, since under section 44AE, all deductions under
sections 30 to 38 are deemed to have been allowed.
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 No.1 for CA/CWA & MEC/CEC MASTER MINDS
W.N.3:- Income from Other Sources

Interest on company deposits 15,000

Int. on bank deposits 5,000
 6 
(-) Deductions U/s. 57(3) 1,00,000 × 9% ×  4,500
 12 
Taxable Income from other sources 15,500

W.N.4:- Deduction under Chapter VIA

Particulars Rs.
i. Us. 80C
a. Investment in ELSS of UTI 12,000
b. LIC Premia (Restricted to Rs.4,000 being 10% of Sum assured) 4,000
c. Tuition Fees (Restricted to two children (Rs.15,000 + Rs.10,000) 25,000
d. Investment in PPF 52,000
ii. U/s. 80CCC – Pension Fund 15,000
iii. U/s. 80TTA – Interest on deposit in savings account 5,000
Total Chapter VI A Deductions 1,13,000

Note: Total deduction under sections 80C, 80CC and 80CCD is limited to ` 1,50,000 as per section
80CCE. Deduction under section 80TTA is allowed in respect of interest from Saving Bank Account upto a
maximum of ` 10,000. Therefore, interest from Saving Bank Account of ` 5,000 is allowed as deduction.

Tax payable / Tax liability

Particulars Amount
Gross Tax liability 710
Rebate u/s87A 710
Tax payable before Education cess Nil
(+) Education cess @ 3% Nil
Net tax liability Nil

Problem No.4
Name of the Assessee: Mr. Rinku A.Y: 2015-2016
Computation of Taxable income:

Particulars Amount Amount

Income from PGBP 2,20,000
Income from capital gains (2,00,000+30,000) 2,30,000
Income from other sources (T.V. Show) 20,000
Grass Total Income 4,70,000
(-) Chapter VI A deductions
Life insurance premium of self 40,000
Life insurance premium of husband 20,000 60,000
Taxable Income 4,10,000

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Computation of tax liability:

Particulars Amount Amount

Step 1: Non – agricultural income and Agricultural income (4,10,000+ 40,000) 4,50,000
Step 2: Tax on above income
Tax on prize winning from TV show U/S. 115BB (Rs.20,000 X 30%) 6,000
Tax on long term capital gains U/S. 112 (1,30,000 X 20%) (Note 1) 26,000
Tax on balance income `2,30,000 Nil 32,000
Step 3: Agricultural income + Basic exemption
(Rs.40,000+Rs.3,00,000) 3,40,000
Step 4: Tax on Step 3 4,000
Step 5: Tax payable (Step 2 – Step 4) 28,000
Less: Rebate u/s 87A 2,000
Tax payable before education cess 26,000
Add: Education cess @ 3% (Including 1% Secondary and higher education cess) 780
Total Tax Payable (Rounded off U/s 288 B) 26,780

Notes:
1. Repayment of house loan was not taken for deduction under chapter VI-A as the loan was taken in
the name of assessee’s dependant son.
2. Since the basic exemption limit of Rs.2,00,000 is not yet exhausted, the unutilized part of Rs.70,000
is reduced from long-term capital gains.
3. As the assessee has attained 60 years of age during the previous year, basic exemption limit of
Rs.3,00,000/- was claimed.

Problem No.5
Computation of total income of Mr. Raghu for the A.Y. 2015-16

Particulars Rs. Rs.

Basic salary 12,00,000
Dearness allowance 6,00,000
Bonus 2,00,000
Employer contribution to recognized provident fund in excess of 12% is 54,000
taxable (3% of 18,00,000)
Rent free accommodation @ 15% of Rs.20 lakh (basic salary + dearness
allowance + bonus) 3,00,000
23,54,000
Less: Deductions under Chapter VI-A
Section 80C
Contribution to recognized provident fund Rs.1,50,000 1,50,000
Section 80D – Health insurance premium
Wife Rs.20,000 restricted to 15,000
Parents (Senior Citizens) Rs.28,000 restricted to 20,000 35,000
Section 80DD
Medical treatment of dependent brother with severe disability (flat 1,00,000
deduction irrespective of expenditure incurred)
Section 80E – Interest on loan taken for full-time education of
- his son studying B.Com. 24,000
- a student studying B.Sc. for whom he is the legal 44,000
Guardian 20,000 3,29,000
Total income 20,25,000

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No.1 for CA/CWA & MEC/CEC MASTER MINDS
Problem No.6
Computation of Total Income of Mr. Rajat for Assessment Year 2015-16

Particulars Working Note Nos. Rs.

Income from House Property 1 58,100
Profit and gains of Business or Profession 2 7,73,300
Short-term capital gains 3 15,620
Income from other sources 4 16,350
Gross Total Income 8,63,370
Less: Deduction under Chapter VI-A 5 15,500
Total Income 8,47,870
Tax on total income
Total Income 8,47,870
Less: Short-term capital gains (See Note 9 below) 15,620
Normal Income 8,32,250

Tax on normal income 91,450

Tax on short-term capital gains @15% 2,343
93,793
Add: Education cess @ 2% and SHEC @ 1% 2,814
Total tax liability 96,607
Total tax liability (rounded off) 96,610

Notes:

1. Income from House Property

Gross annual value 84,000
Less: Municipal taxes paid by owner 1,000
Net Annual Value (NAV) 83,000
Less: Deduction under section 24 @ 30% of NAV 24,900 58,100

Rent received has been taken as the Gross Annual Value in the absence
of other information relating to Municipal Value, Fair Rent and Standard
Rent.
2. Income under the head “Profits & Gains of Business or Profession”
Net profit as per Profit & Loss Account 8,76,005

Add: Expenses debited to the Profit & Loss Account but not allowable
i. Salary paid to computer specialist in cash disallowed under section
40A(3), since such cash payment exceeds Rs.20,000 30,000
ii. Municipal Taxes paid in respect of residential flat let out 1,000 31,000
9,07,005
Less: Expenses allowable but not debited to profit and loss account
Interest paid on loan taken from LIC used for repair of computer 1,500
9,05,505
Less: Income credited to Profit & Loss Account but not taxable under
this head:
i. Dividend on shares of Indian companies 9,635
ii. Income from UTI 6,600
iii. Profit on sale of shares 15,620
iv. Honorarium for valuation of answer papers 16,350
84,000 1,32,205
v. Rent received from letting out of residential flat 7,73,300
3. Capital gains:
Short term capital gain on sale of shares 15,620

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4. Income from other sources:
Dividend on shares of Indian companies 9,635
Less: Exempt under section 10(34) 9,635 Nil

Income from UTI 6,600

Less: Exempt under section 10(35) 6,600 Nil

Honorarium for valuation of answer papers 16,350 16,350

5. Deduction under Chapter VI-A:
Deduction under section 80D (Medical Insurance Premium)

Amount of Amt. eligible for

Policy holder
Premium (Rs.) deduction (Rs.)
Self 10,000 10,000
Dependent brother 5,000 Nil
Major son dependent on him 3,000 Nil
Minor married daughter 2,000 Nil
Wife dependent on assessee 6,000 6,000
6,000

Amount of deduction is restricted to Rs.15,000 15,000

Deduction under section 80G (Donation)
Donation to CA Benevolent Fund (50% of Rs.1,000) 500
Total deduction under Chapter VI-A 15,500
Note: Premium paid to insure the health of brother is not eligible for
deduction under section 80D. Premium paid to insure the health of son is
not eligible for deduction since payment is made in cash. Premium paid
to insure the health of minor married daughter is not eligible for
deduction as she is not dependent on Mr.Rajat.
6. Rs.20,000 expended on foreign tour is allowable as deduction assuming that it was incurred in
connection with his professional work. Therefore, it requires no further treatment.
7. Incentive to articled assistants passing IPCC examination in their first attempt is deductible
under section 37(1).
8. Repairs and maintenance paid in advance for the period 1.4.2014 to 30.9.2014 i.e. for 6 months
amounting to Rs.800 will be allowed since Mr. Rajat is following the cash system of accounting.
9. Since securities transaction tax has been paid on the shares and the period of holding of these
shares is less than 12 months, the profit arising there from is a short-term capital gain
chargeable to tax at 15% under section 111A.
10. Since depreciation debited to income and expenditure account is as per the Income tax Rules,
1962, no adjustment for the same has been made.

Problem No.7
Computation of taxable income of Mr. X for the A.Y. 2015-16

Particulars Rs. Rs. Rs.

1. Income from House Property ( Note 1) 26,250
2. Profits and gain of business or profession (Note 2) 2,78,450
3. Capital gains (Note 3) 33,200
4. Income from other sources (Note 4) 26,470
Gross Total income 3,64,370
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Less: Deductions under Chapter VIA 35,000
i. Deduction under section 80C (Note 5) 40,000
ii. Deduction under section 80DDB in respect of
expenditure on medical treatment incurred on treatment
of his father 7,500 32,500
Less: Expenditure reimbursed by insurance Company
iii. Deduction under section 80GGC in respect of 1,000
contribution to the Political Party (Note 11) 68,500
Total income 2,95,870
Components of total income
Special Income 4,200
Short-term capital gains from sale of shares (chargeable at
a special rate of 15% u/s 111A) 2,91,670
Normal income 2,95,870

Computation of tax payable by Mr. X for the A.Y. 2015-16

Particulars Rs. Rs.

Tax on short-term capital gains from sale of shares @ 15% of Rs.4,200 630
Tax on agricultural income plus non-agricultural income aggregating to
Rs.3,36,670
First Rs.2,50,000 Nil
Next Rs. 86,670 @ 10% 8,667
Rs.3,36,670 8,667 8,667
9,297
Less: Tax on agricultural income plus basic exemption limit aggregating to
Rs.2,95,000
First Rs.2,50,000 NIL
Next Rs.45,000 @ 10% 4,500
Rs.2,95,000 4,500 4,500
Income tax payable 4,797
Less: Rebate u/s87A 2,000
Add: Education cess @ 2% 56
Secondary and higher education cess @ 1% 28
Total tax 2,881
Less: Tax deducted at source 2,500
381
Less: Advance tax paid 17,000
Tax refundable 16,620

Notes:
1. Computation of Income from House Property

Particulars Rs.
Gross Annual Value (GAV) 37,500
Rent received is taken as the GAV in the absence of other information
Less: Municipal taxes paid Nil
Net Annual Value (NAV) 37,500
Less: Deduction under section 24 @ 30% of NAV 11,250
26,250

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2. Computation of Profits and gains of business or profession

Particulars Rs. Rs.

Net profit as per Profit & Loss account 3,47,294
Add: Inadmissible expenses
Depreciation charges 1,25,656
Advance tax (Note 9) 17,000
Donation to political party 1,000
1,43,656
Add: Recovery of bad debt (Note 8) 15,000
5,05,950
Less: Income chargeable under any other head/exempt income
Rent received 37,500
Interest on debentures (gross) 25,000
Agricultural income (Note 10) 45,000
Short term capital gain on sale of investment 29,000
Dividend from Indian Company (Note 10) 16,000 1,52,500
3,53,450
Less: Depreciation as per Income-tax Rules, 1962 75,000
2,78,450

3. Computation of Capital Gains

Particulars Rs. Rs.

Short term capital gains on sale of investment 29,000
Short term capital gains on sale of shares
Shares of AB Co. Ltd.
Sale consideration 150 shares @ Rs.98 each Rs.14,700
Less: Cost of 150 shares @ Rs.60 each Rs.9,000 5,700
Shares of PQ Co. Ltd.
Sale consideration 150 shares @ Rs.102 each Rs.15,300
Less: Cost of 150 shares @ Rs.112 each Rs.16,800 (1500) 4,200
33,200
Long term capital gains on sale of shares
Since the holding period of 200 shares of AB Co. Ltd. is more than 12
months, the capital gain on sale of such shares is a long term capital
gain and hence, exempt from income-tax under section 10 (38). Nil
Capital Gains 33,200

4. Computation of Income from other sources

Particulars Rs.
Interest on debentures 25,000
Interest on refund from IT authority (Note 7) 1,470
Income from other sources 26,470

5. Five year time deposit in an account under Post Office Time Deposit Rules, 1981, is eligible for
deduction under section 80C.
6. The maturity proceeds of the life insurance policy are exempt under section 10(10D) assuming that
the policy does not fall under the exceptions stated under that section.
7. Refund of income tax is not taxable. However, interest on such refund is chargeable to tax under
the head “Income from other sources”.
8. Recovery of bad debts, assumed to be allowed in full in an earlier year, is taxable under section
41(4), whether or not the business or profession in respect of which the deduction has been allowed
is in existence at the time when it is recovered.
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9. Advance tax is not allowable as deduction.
10. Agricultural income is exempt under section 10(1) and dividend from an Indian company is exempt
from tax under section 10(34).
11. Contribution to a Political Party registered under section 29A of the Representation of the People
Act, 1951 is deductible under section 80GGC

Problem No.8
Computation of total income of Mr. Ashok for the A.Y.2015-16

Particulars Rs. Rs. Rs.

Income from house property [ See Note 1 ]
House block 1 used for business, hence GAV Nil
House block 2 let out (higher of fair rent and rent receivable) 1,80,000
Less: Municipal tax paid
Net annual value (NAV) 12,000
Less: Deductions under section 24 1,68,000
a. 30% of NAV 50,400
b. Interest on bank loan @ 10% on Rs.5,00,000 50,000 1,00,400 67,600
Profits and gains of business or profession [See Note 2]
Income prior to adjustment for depreciation 2,20,000
Less: Depreciation on equipments used for Business 30,000
Depreciation on building Rs.5,00,000 @ 10% 50,000 80,000
1,40,000
Less: Set off of brought forward business loss relating to
discontinued business [ See Note 3] 80,000 60,000
Capital Gains [See Note 4]
Short term capital gains from sale of listed shares
Full value of consideration 2,30,000
Less: Cost of acquisition 1,80,000 50,000
Gross Total Income 1,77,600
Less: Deduction under section 80C in respect of LIP
Rs.32,000 and housing loan repayment in respect of II block
Rs.23,000 55,000
Deduction under section 80D (for self) 6,000 61,000
Total income 1,16,600
Tax on total income Nil

Notes:
1. On computation of Income from house property:
a) The annual value of the house property which is used for business would not fall under the
head “Income from house property”. Therefore, the annual value of the first block is not
chargeable to tax under the head “Income from house property”. However, depreciation there
on at 10% has been claimed while computing the income from business.
b) As regards the second block, the sum for which the property may be reasonably expected to be
let is Rs.15,000 per month. The Gross Annual Value (GAV) of the block is the higher of fair rent
(i.e., Rs.15,000 p.m.) or the actual rent received (Rs.10,000 p.m.) Hence, the GAV of the
second block is Rs.1,80,000 (i.e. Rs.15,000 p.m.)
c) Under section 24(b), interest on bank loan for construction of house is deductible. However,
penal interest is not deductible. Interest due during the year in respect of the second block is
Rs.50,000 (i.e. 10% of Rs.5 lakhs), which is allowable as deduction under section 24(b).
2. On computation of Profits and gains of business or profession: Mr. Ashok can claim
depreciation @ 10% on the building used by him for business purposes. The depreciation on the
first block is Rs.50,000 (being 10% of Rs.5,00,000) and depreciation on equipments used for
business is Rs.30,000. Hence the depreciation allowable during the year is Rs.80,000.
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3. On set off of business loss: As per section 72, business loss relating to discontinued business is
eligible for set off.
4. On treatment of short-term capital gains (STCG): The listed shares have been sold and
securities transaction tax is paid, hence it is taxable at 15% as per section 111A. For the purpose of
providing deduction under Chapter VI-A, the gross total income should be reduced by the STCG on
listed shares.
5. On computation of deductions under sections 80C and 80D: Deduction under section 80C can
be claimed in respect of life insurance premium paid for major son, even though he is not
dependent on the assessee. It is assumed Block 2 let out to cousin was used for residential
purpose and accordingly principal repayment was considered for deduction under section 80C.
However, deduction under section 80D cannot be claimed in respect of mediclaim premium paid for
non-dependant son. Mediclaim premium paid for self of Rs.6,000 is eligible for deduction.

THE END

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