CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

Mock Test – 2
(Taxation of Individuals, Income from Salary, House Property, Clubbing of
Income, Chapter VIA Deductions)
Key Instructions:
1) Read the questions very carefully.
2) For descriptive questions, the answers should be in line
with the specific question asked and the marks allocated.
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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

Multiple Choice Questions M

Mr. Hari, a salaried individual, pays rent of Rs.55,000 per month to Mr. Raghav from June, 2019. 1
Q.1 I Which of the following statement is correct?

a) No tax is required to be deducted for F.Y.2019-20 since Mr. Hari is not subject to tax audit u/s
44AB
b) Mr. Hari has to deduct tax@5% from rent paid every month
c) Mr. Hari has to deduct tax@5% on the entire rent paid for F.Y.2019-20 from the rent payable
for March, 2020
d) Mr. Hari has to deduct tax of Rs.55,000 from rent payable for March, 2020
Rental income earned from the business of letting out of properties is – 1
II
a) always taxable as income from house property
b) always taxable as business income
c) taxable as business income or income from house property, at the option of the assessee.
However, the practice should be followed consistently.
d) taxable as business income only if the entire or substantial income of the assessee was from
letting out of property. Otherwise, the same would be taxable as income from house property.
Mr. Aryan is constructing a residential house property in Mumbai for self-occupation. He has 1
III taken a loan of Rs.35 lakhs on 30.3.2019 for this purpose. He pays interest of Rs.3 lakhs during
the P.Y.2019-20. He repays Rs.3 lakhs towards principal on 31.3.2020. The construction is
completed in April, 2020. This is the only house property of Mr. Aryan. For A.Y.2020-21:

a) Mr. Aryan is entitled for deduction of Rs.2 lakhs under section 24 and Rs.1.50 lakhs under
section 80C
b) Mr. Aryan is entitled for deduction of Rs.2 lakhs under section 24, Rs.1,00,000 under section
80EEA and Rs.1.50 lakhs under section 80C.
c) Mr. Aryan is neither entitled for deduction under section 24 nor under section 80C. He is,
however, entitled for deduction of Rs.1,50,000 under section 80EEA.
d) Mr. Aryan is not entitled for deduction under section 24, section 80C and section 80EEA
Abhinav, an individual aged 52 years resident in India, bought 3,000 equity shares of Rs.10 each 1
IV of Theta Ltd. at Rs.70 per share on 1.6.2019. He sold 1,800 equity shares at Rs.50 per share on
3.11.2019 and the remaining 1,200 shares at Rs.60 per share on 23.3.2020. Theta Ltd. declared a
dividend of 40%, the record date being 14.8.2019. On 15.3.2020, Abhinav sold a house from
which he derived a long-term capital gain of Rs.1,25,000. Assuming Abhinav’s interest income
from bank fixed deposit is Rs.3,00,000, his tax liability (rounded off) for A.Y.2020-21 would be-

a) Rs.18,620
b) Rs.19,920
c) Rs.20,110
d) Rs.18,440
Nikhil, an individual whose age is 35 years incurs the following expenses for the benefit of his 1
V family (i.e., Nikhil, Mrs. Nikhil and dependent children) and parents [father (80 years), mother
(76 years)] during the previous year 2019-20:
Medi-claim Preventive Medical
insurance health check- expenditure
premium (by up expenditure (by cheque)
cheque) (in cash)
For the benefit of Nikhil, Mrs. Rs.20,000 Rs.7,000 Rs.2,000
Nikhil and children

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

For the benefit of father Nil Nil Rs.32,000

For the benefit of mother 6,000 Nil Nil
Compute the amount of deduction allowable to Nikhil for assessment year 2020-21.

a) Rs.63,000
b) Rs.55,000
c) Rs.67,000
d) Rs.65,000
Mr. Gagan, aged 67 years and resident, is a retired person earning a monthly pension of Rs. 1
VI 12,000 from his employer. He purchased a piece of land in Delhi in December, 2010 and sold
the same in April, 2019. Taxable LTCG amounted to Rs.2,80,000. Apart from pension income and
gain on sale of land, he is not having any other income. What will be his tax liability (rounded
off) for the year 2019-20?

a) Rs.25,790
b) Rs.6,450
c) Rs.4,370
d) Rs.12,790
X Ltd. is engaged in the business of letting out of properties. As per the memorandum of 1
VII association of X Ltd., letting out of properties is its main objective. The total income of X Ltd.
comprises only of rental income from the business of letting out of properties. Y Ltd. is engaged
in the construction and sale of properties, which is also its main objective as per its
memorandum of association. Incidentally, it lets out some properties which are held as stock-in-
trade and earns rental income therefrom. Which of the following statements are correct?

a) Rental income from letting out of properties by X Ltd. and Y Ltd. is taxable under the head
“Income from house property”
b) Rental income from letting out of properties by X Ltd. and Y Ltd. is taxable under the head
“Profits and gains of business or profession”
c) Rental income from letting out of properties by X Ltd. is taxable under the head “Income
from house property” and by Y Ltd is taxable under the head “Profits and gains of business
or profession”
d) Rental income from letting out of properties by Y Ltd. is taxable under the head “Income
from house property” and X Ltd is taxable under the head “Profits and gains of business
or profession”.
Ajay stays in New Delhi. His basic salary is Rs.10,000 p.m., D.A. (60% of which forms part of pay) 1
VIII is Rs.6,000 p.m., HRA is Rs.5,000 p.m. and he is entitled to a commission of 1% on the turnover
achieved by him. Ajay pays a rent of Rs.5,500 p.m. The turnover achieved by him during the
current year is Rs.12 lakhs. The amount of HRA exempt under section 10(13A) is -

a) Rs.48,480
b) Rs.45,600
c) Rs.49,680
d) Rs. 46,800
Mr. Karan received basic salary of Rs.20,000 p.m. from his employer. He also received children 1
IX education allowance of Rs.3,000 for three children and transport allowance of Rs.1,800 p.m. The
amount of salary chargeable to tax for P.Y. 2019-20 is –

a) Rs.2,62,600
b) Rs.2,12,600
c) Rs.2,22,200

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

d) Rs.2,12,200
Surya received Rs.90,000 in May, 2019 towards recovery of unrealised rent, which was deducted 1
X from actual rent during the P.Y. 2017-18 for determining annual value. Legal expense incurred
in relation to unrealized rent is Rs.20,000. The amount taxable under section 25A for A.Y. 2020-
21 would be ;–

a) Rs. 70,000
b) Rs.63,000
c) Rs.60,000
d) Rs.49,000
A and H are co-owners of a self-occupied property. They own 50% share each. The interest paid 1
XI by each co-owner during the previous year on loan (taken for acquisition of property during the
year 2004) is Rs. 2,05,000. The amount of allowable deduction in respect of each co-owner is -

a) Rs.2,05,000
b) Rs.1,02,500
c) Rs.2,00,000
d) Rs.1,00,000
Mr. Sumit owns a residential house in Delhi. The house is having two identical units. First unit of 1
XII the house is self-occupied by Mr. Sumit and another unit is rented for Rs. 12,000 p.m. The rented
unit was vacant for three months during the year. The particulars of the house for the previous
year 2019-20 are as under:
Standard Rent Rs.2,20,000 p.a
Municipal valuation Rs.2,44,000 p.a.
Fair rent Rs.2,35,000 p.a.
Municipal tax paid by Mr. Sumit 12%of the municipal valuation
Light and water charges Rs.800 p.m.
Interest on borrowed capital Rs.2,000 p.m
Insurance charges Rs.3,500 p.a.
Painting expenses Rs.16,000 p.a.
Compute income from house property of Mr. Sumit for the A.Y. 2020-21.

a) Rs.87,973
b) Rs. 35,989
c) Rs.41,352
d) Rs. 35,341
Mr Keval owns a residential house, let out for a monthly rent of Rs.15,000. The fair rental value 1
XIII of the property for the let out period is Rs. 1,50,000. The house was self-occupied by him from 1st
January, 2020 to 31st March, 2020. He has taken a loan from bank of Rs.20 lacs for the
construction of the property, and has repaid Rs.1,05,000 (including interest Rs.40,000) during
the year.
Compute Keval income from house property for the Assessment Year 2020-21.

a) Rs.1,20,000
b) Rs.1,00,000
c) Rs.97,890
d) Rs.1,01,000
Exemption of a certain amount (not exceeding the income clubbed) is available under section 1
XIV 10(32), where a minor’s income is clubbed with the income of the parent. The maximum
exemption available is -

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

a) upto Rs.1,500 in respect of each minor child

b) upto Rs.1,500 in respect of each minor child maximum of two children
c) upto Rs.2,000 in respect of each minor child
d) upto Rs.2000 in respect of each minor child maximum of two children
Mr. A gifts a sum of Rs.1,00,000 to his brother’s wife Mrs. B. Mr. B gifts a sum of Rs.1,00,000 to 1
XV Mrs. A. From the sum gifted to her, Mrs. B invests in a fixed deposit, income therefrom is
Rs.10,000. Aforesaid Rs.10,000 will be included in the total income of …………:

a) Mr. A
b) Mrs. A
c) Mrs. B
d) Mr. B
Anirudh stays in New Delhi. His basic salary is Rs.10,000 p.m., D.A.(60% of which forms part of 1
XVI pay) is Rs.6,000 p.m., HRA is Rs.5,000 p.m.& he is entitled to a commission of 1% on the turnover
achieved by him. Anirudh pays a rent of Rs.5,500 p.m. The turnover achieved by him during the
current year is Rs.12 lakhs. The amount of HRA exempt u/s 10(13A) is-

a) Rs.48,480
b) Rs.45,600
c) Rs.49,600
d) Rs.46,800

Descriptive Questions
In 2015 Rocky borrowed Rs.15 lakhs at 15% interest per annum from Ashok for his business 6
Q.2 purpose. This loan has not been repaid so far by Rocky. His average bank balance in current account
was around Rs.7 lakhs on which the bank was not paying him any interest. On 1st June, 2019 Rocky's
wife, Taniya borrowed from him Rs.7.50 lakhs repayable on demand at 7.5% interest per annum. She
lent this money and received interest @ 18% p.a. In course of assessment of Rocky, the Assessing Officer
disallowed 50% of this interest paid to Ashok on the ground that the loan to the extent of 50% has been
diverted for non-business purpose i.e. for lending to wife.
Further, interest earned by Taniya by advancing Rs.7.50 lakhs was included in the hands of Rocky by
invoking section 64(1)(iv).
Examine the correctness of the actions of the Assessing Officer.
Mr. Manish is entitled to salary of Rs.50,000 per month. He is given an option by his employer 4
Q.3 either to choose house rent allowance or rent free accommodation owned by the company. The HRA
would be Rs.7,500 per month though he has to pay actual monthly rent of Rs.10,000. He is
employed in the city of Jaipur.
Compute the most beneficial option which the assessee should exercise, based on net take-home cash
benefits.
Compute the total income from the following data relating to Mr. Abhimanyu, aged 59, a resident 8
Q.4 Indian, for the assessment year 2020-21:
Particulars Rs.
Income from let out property (Loss) 2,30,000
Salary received from ABC Ltd. 3,92,000
Income from capital gains:
Short-term from sale of house plot Loss 3,10,000
Long-term from sale of listed shares in NSE 2,90,000
Income from fertiliser business carried on by minor son 3,20,000
Loss from gambling 35,000
Winnings from a TV Games show (Net of TDS Rs.2,40,000) 5,60,000
Expenses incurred for attending this TV show 60,000

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

Life insurance premium paid for minor son 1,20,000

Additional Information:
Brought forward business loss for the assessment year 2018-19, carries on 1,40,000
by the assessee in his name (Business was stopped on 31-03-2018)
The following incomes have been earned by Kedia (HUF) and members of the said HUF: 5
Q.5 (i) The HUF is represented in a partnership firm by Sumit, the karta. Interest on capital received at
15% is Rs.3 lacs. Sumit has also been paid a remuneration of Rs.4 lacs, which is specified in the
partnership deed. This amount is within the limits specified in section 40(b).
(ii) On 01.01.2020, Sumit has blended his individual house property into the hotch pot of the HUF.
Gross rental form this house property is Rs.3 lacs.
(iii) Sumit has gifted cash of Rs 2 lacs to the HUF.
(iv) Sumit 's minor son M has received stipend of Rs. 60,000 from a Cost Accountant under whom he
is undergoing partical training.
(v) From the income earned by HUF, salary of Rs.1.2 lacs was paid to Sumit, for looking after the
family affairs.
How will the above items be treated in the hands of the HUF and individual assessment of Sumit? Head
of income is to be specified.
Computation of total income is NOT required.
Mr. Prashant is employed in a private limited company and has earned salary of Rs. 14 lakhs for the year 5
Q.6 ended 31.03.2020. He has paid profession tax of Rs.14,000, life insurance premium of Rs.1,70,000
(capital sum assured is Rs.16 lacs on policy taken on 01.02.2016), donation of Rs. 86,000 to a project
eligible for deduction under section 35AC and donation of Rs.1,00,000 by cheque to a charitable trust
recognised for section 80G. Compute his total income for the assessment year 2020-21.
The following particulars relating to Mr. Gopal relating to the assessment year 2020-21 are furnished to 8
Q.7 you:
(Rs.)
Gross total income 9,10,000
Above includes the following:
Short-term capital gains from sale of listed securities 40,000
Long-term capital gains from sale of house plot 1,10,000
Winnings from lotteries (Gross) 60,000
Loss from let outhouse property 45,000
Other information:
Contribution towards Sukanya Samriddhi Scheme in the name of 95,000
minor daughter
Stamp paper and registration expenses relating to residential house 45,000
Contribution to National Pension Scheme of the Central Government 1,10,000
Donation to Prime Minister's Relief Fund 35,000
Donation given to Navrang Charitable Trust registered u/s 12AA and 60,000
recognised for section 80G purposes
Compute the deduction available to him under Chapter VIA of the Income-tax Act, 1961.
Ms. Unnati is partner in a firm with 30% share. Her capital contribution representing her own funds in 7
Q.8 the firm on 01.04.2018 was Rs. 5 lakhs. She received a gift of Rs. 10 lakhs from her husband on
01.07.2018 and invested Rs. 7 lakhs as her capital contribution in the firm. She withdrew the entire
interest on capital and working partner salary and share of profit for the year ended 31.03.2019. Her
capital on 01.04.2019 was Rs. 12 lakhs in the firm. She received a gift of Rs. 4 lakhs from her father-in-
law on 01.05.2019 and invested the same into the firm.
For the year ended 31.03.2020, her income from the firm are as under: Interest on capital at 12% on Rs.
16 lakhs for 11 months Rs. 1,76,000.
Interest on capital at 12% on Rs. 12 lakhs for 1 month = Rs. 12,000.
Share of profit from the firm Rs. 90,000.

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

State how Ms. Unnati's income from the firm would be taxed for the Assessment Year.
Govind Syndicates Pvt Ltd., owns several house properties, let out on commercial basis to various kinds 3
Q.9 of people like business houses, corporate entities, etc. One of the objectives of the company is to own &
derived was offered by the company as its business income. Various deductions for earning such income
was claimed, as also depreciation on the buildings owned by the company.
The Assessing Officer treated the rental income as income from house property & granted deduction
only u/s 24.
Discuss whether the treatment of the impugned income made by the company is correct.
Mr. Abhi, a Director of ABC Pvt Ltd. Pune is offered an employment with the following two alternative 8
Q . 10 packages:
Particulars I II
Basic Pay per annum 1,98,000 1,98,000
Conveyance allowance for private use 9,000 --
Motor car facility for private use of Abhi & his family -- 9,000
members(Valued)
Entertainment Allowance 18,000 --
Club Facility(Valued) -- 18,000
Children Education Allowance(for 2 childrens) 9,700 --
Free Education Facility in Institution run by employer for -- 9,700
children(Valued)
Rent free unfurnished house with fair rental value 30,000 30,000
Which of the 2 packages should Abhi opt for the assumption that both employer & employee will
contribute 20% of the basic pay towards an unrecognised provident fund. Assume the population of
Pune is more than 25 lakhs as per 2011 census.
For following particulars furnished by Mr.X for the year ended 31.03.2020, you are requested to 8
Q . 11 compute his Gross Salary for the assessment year 2020-21.
a. Mr.X retired on 31.12.2019 at the age of 58, after putting in 25 years & 9 months of service, from
a private company at Mumbai.
b. He was paid a salary of Rs.25,000 p.m. & house rent allowance of Rs.6,000 p.m. He paid rent of
Rs.6,500 p.m. during his tenure of service.
c. On retirement, he was paid a gratuity of Rs.3,50,000. He was not covered by the payment of
Gratuity Act. His average salary in this regard may be taken as Rs.24,500. Mr.X has not received
any other gratuity at any point of time earlier, other than this gratuity.
d. He has accumulated leave of 15 days per annum during the period of his service, this was
encashed by Mr.X at the time of his retirement. A sum of Rs.3,15,000 was received by him in this
regard. His average salary may be taken as Rs.24,500.
From the following details, compute the total income of Siddhant of Delhi for A.Y. 2020-21: 12
Q . 12 Particulars `
Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by the employer 12,000
Rent paid by Siddhant for his accommodation 49,600
Bills paid by the employer for gas, electricity and water provided free of cost at the
above flat 11,000
Siddhant purchased a flat in a co-operative housing society in Delhi for ` 4,75,000 in April, 2012, which
was financed by a loan from Life Insurance Corporation of India of ` 1,60,000 @ 15% interest, his own
saving of ` 65,000 and deposit from a nationalized bank for ` 2,50,000 to whom this flat was given on
lease for ten years. The rent payable by the bank was ` 3,500 per month. The following particulars are
relevant:
a) Municipal taxes paid by Mr. Siddhant - ` 4,300 (per annum)

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

b) House Insurance - `860

c) He earned ` 2,700 in share speculation business and loss ` 4,200 in cotton speculation business.
d) In the year 2013-14, he had gifted ` 30,000 to his wife and ` 20,000 to his son who was aged
11. The gifted amounts were advanced to Mr. Rajesh, who was paying interest @ 19% per
annum.
e) Siddhant received a gift of ` 25,000 each from four friends.
f) He contributed ` 50,000 to public provident fund.
Mr. Venus Provides the following details for the previous year 31.03.2020 8
Q . 13 (i) Salary from HNL Ltd Rs. 50,000 P.M.
(ii) Interest on FD with SBI for the financial year 2019-20 Rs. 96,000
(iii) Brought forward long term capital loss of A.Y. 2017-18 Rs. 75,000
(iv) Long Term Capital gain Rs.75,000
(v) Loss of minor son Rs. 90,000 computed in accordance with the provisions of
Income Tax Act 1961. Mr Venus transferred his own house to his minor son
without adequate consideration few year backs and minor son let it out and
suffered loss.
(vi) Loss of his wife’s business (2,00,000)
(she Carried business with funds which Mr. Venus gifted to her)
You are required to compute taxable income of Mr. Venus for the AY 2020-21.

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 CA Final Direct Tax Laws and International Taxation (Paper – 7) Mock Test Series - 2

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