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## Taxation

INTER TAXATION

Q-1:

Mr. X earns the following income during the previous year 2021-22.

Compute his Gross total income for assessment year 2022-23 if he is

(i) resident and ordinarily resident.

(ii) resident but not ordinarily resident.

(iii) non-resident.

 Rs. (1) Profit on sale of machinery in India, but received in Japan 1,20,000 (2) Profits from business in Bombay, managed from Japan 2,25,000 (3) Profits from business in Japan, managed from there, received there 1,45,000 (4) Income from house property in India 1,50,000 (5) Income from property in Japan and received there 1,50,000 (6) Income from agriculture in Japan being invested there 75,000 (7) Fees for technical services rendered in India but received in Japan 65,000 (8) Interest on Government securities accrued in India but received in  Japan 80,000 (9) Interest on Japan Government securities, received in India 40,000

(Presume that all the incomes are computed incomes)

Ans:-

 Particulars ROR NOR NR (1) Income accruing /arising in India 1,20,000 1,20,000 1,20,000 (2) Income accruing/arising in India 2,25,000 2,25,000 2,25,000 (3) Income accruing/arising and received outside India 1,45,000 ---- ---- (4) Income accruing/arising in India 1,50,000 1,50,000 1,50,000 (5) Income accruing/arising outside India and received  outside India 1,50,000 ---- ---- (6) Income accruing/arising outside India and received  outside India 75,000 ---- ---- (7) Income accruing/arising in India 65,000 65,000 65,000 (8) Income accruing/arising in India 80,000 80,000 80,000 (9) Income received in India 40,000 40,000 40,000 Gross Total Income 10,50,000 6,80,000 6,80,000

Q-2:

Mr. X earns the following incomes during the financial year 2021-22.

 Rs. (1) Profits from a business  in Japan, controlled from India, half of the  profits received in India 60,000 (2) Income from agriculture in Nepal, brought to India 10,000 (3) Income u/h house property in Bombay, received in UK 1,70,000 (4) Income u/h house property in USA, received there but subsequently  remitted to India 2,20,000 (5) Income u/h house property in USA, received there (Rs. 50,000 remitted  in India) 1,00,000 (6) Salary received in India for services rendered in USA 60,000 (7) Income from profession in Paris, which was set up in India, received in Paris 90,000
 (8) Interest from deposit with an Indian company, received in Japan 19,000 (9) Income from profession in Bombay received in Paris 39,000 (10) Profits of business in Iran, deposited in a bank there, business controlled from   India(out of Rs. 4,80,000, Rs. 1,00,000 is remitted in India) 4,80,000 (11) Interest on German development bonds, half of which is received in India 12,000 (12) Income under the head house property in Canada, one-fifth is received  in India 50,000

(Presume all the above incomes are computed income i.e. all the exemptions and deductions have already been allowed)

Determine the gross total income of Mr. X if he is

(i) resident and ordinarily resident,

(ii) resident but not ordinarily resident,

(iii) non-resident in India during the financial year 2021-22.

Ans:-

 ROR NOR NR (1) Income   accruing/arising   outside   India   from   a  business controlled in India, half of the income received in India 60,000 60,000 30,000 (2) Income accruing/arising outside India and received  outside India 10,000 ---- ---- (3) Income accruing/arising in India 1,70,000 1,70,000 1,70,000 (4) Income accruing/arising outside India and received outside   India 2,20,000 ---- ----
 (5) Income accruing/arising outside India and received  outside India 1,00,000 ---- ---- (6) Income received in India 60,000 60,000 60,000 (7) Income accruing/arising and received outside India,  but profession set up in India 90,000 90,000 ---- (8) Income accruing/arising in India 19,000 19,000 19,000 (9) Income accruing/arising in India 39,000 39,000 39,000 (10) Income accruing/arising outside India and received  outside India, but business controlled from India 4,80,000 4,80,000 ---- (11) Income    accruing/arising   outside India, half received     outside India and half in India 12,000 6,000 6,000 (12) Income   accruing/arising  outside India, 4/5th received       outside India and 1/5th in India 50,000 10,000 10,000 Gross Total Income 13,10,000 9,34,000 3,34,000

Q-3: Mr. X is a citizen of India and is employed in ABC Ltd and is getting a salary of Rs. 60,000

p.m. He purchased one building in India on 1st May, 2021 for Rs. 10,00,000 and its market value is Rs. 22,00,000 and value for the purpose of charging stamp duty is Rs. 13,00,000. He purchased gold for Rs. 8,00,000 and its market value is Rs.11,00,000. He was transferred out of India w.e.f. 1st Sept, 2021 and he left India on 1st Sept, 2021 and one of his friend gifted him one colour TV on this occasion, market value Rs.1,00,000.

He has gone out of India in earlier years also.

 P.Y. 2020-21 100 days P.Y. 2019-20 200 days

He visited India from 01.02.2022 to 14.02.2022 and salary for January, 2022 was received in India.

He has purchased one house property in USA in December 2021 and sold in March 2022 and there were short term capital gain of Rs. 6,00,000 and the amount was received in USA.

Compute his tax liability for the A.Y.2022-23.

Ans:-

Since Mr. X is covered in special category and will be resident, if his stay in India in relevant previous year is 182 days or more, hence Mr. X is a non–resident as his stay in India is less than 182 days and his income taxable in India shall be

 Income under the head Salary Rs. Income accruing/arising in India (60,000 x 5) 3,00,000.00 Income received in India (60,000 x 1) 60,000.00 Gross Salary 3,60,000.00 Less: Standard Deduction u/s 16(ia) (50,000.00) Gross Salary 3,10,000.00 Income under the head Other Sources Gift of gold (Rs.11,00,000 – Rs.8,00,000) 3,00,000.00 Gift of building (Rs.13,00,000 – Rs.10,00,000) 3,00,000.00 Income under the head Other Sources 6,00,000.00 Gross Total Income 9,10,000.00 Less: Deduction u/s 80C to 80U Nil Total Income 9,10,000.00 Computation of Tax Liability Tax on Rs. 9,10,000 at slab rate 94,500.00 Add: HEC @ 4% 3,780.00 Tax Liability 98,280.00

Note: STCG is received in USA is not taxable in India as the assessee is a non-resident.

Q-4: Mrs. X (aged 58 years) has income and losses as given below:

1. Income from growing and manufacturing of Rubber Rs.3,00,000

2. Income from growing and curing coffee Rs.2,00,000

3. Income under the head Salary Rs.2,40,000

4. Loss under the head House Property Rs.1,00,000

5. Income from short term capital gains Rs.40,000

6. Income from long term capital gains Rs.50,000

7. Casual income Rs.60,000

Compute her total income and tax liability for the assessment year 2022-23.

Ans:-

 Agricultural Income Business Income Income from growing and manufacturing of Rubber {Rule 7A} Agricultural income 65% and business income 35% 1,95,000 1,05,000 Income from Coffee grown and cured {Rule 7B} Agricultural income 75% and business income 25% 1,50,000 50,000 Total 3,45,000 1,55,000

Option I

House property loss can be set off from normal income

 Rs. Income under the head Salary 2,40,000 Loss under the head House Property (1,00,000) Income under the head salary after adjusting house property loss 1,40,000 Income under the head Business/Profession 1,55,000 Income under the head Capital Gains Short term capital gains 40,000 Long term capital gains 50,000 Income under the head Other Sources (Casual Income) 60,000 Gross Total Income 4,45,000 Less: Deductions u/s 80C to 80U Nil Total Income 4,45,000 Agricultural income 3,45,000 Computation of Tax Liability Tax on casual income Rs.60,000 @ 30% u/s 115BB 18,000 Tax on Long term capital gain Rs.50,000 @ 20% u/s 112 10,000 Normal income Rs.3,35,000 Tax on (3,35,000 + 3,45,000) at slab rate 48,500 Tax on (2,50,000 + 3,45,000) at slab rate (31,500) Tax on normal income (48,500 – 31,500) 17,000 Tax before Rebate u/s 87A 45,000 Less: Rebate u/s 87A (12,500) Tax before health & education cess 32,500 Add: HEC @ 4% 1,300 Tax Liability 33,800

Option II

House property loss can be set off from LTCG

Tax liability is same in both the options. Therefore, house property loss can be set off either from income of normal business or from income of long term capital gain.

Q-5:

Mr. X has estates in Rubber, Tea and Coffee. He derives income from them. He has also a nursery wherein he grows plants and sells. For the previous year ending 31.03.2022, he furnishes the following particulars of his sources of income from estates and sale of Plants.

You are requested to compute the taxable income and tax liability for the assessment year 2022-23.

 Rs. (i) Manufacture of rubber 5,00,000 (ii) Manufacture of coffee grown and cured 3,50,000 (iii) Manufacture of tea 7,00,000 (iv) Sale of plants from nursery 1,00,000

Ans:-

 Agricultural Income Business Income Income from growing and manufacturing of Rubber  {Rule 7A} Agricultural income 65% and business income 35% 3,25,000 1,75,000 Income from Coffee grown and cured {Rule 7B} Agricultural income 75% and business income 25% 2,62,500 87,500 Income from growing and manufacturing of Tea {Rule 8} Agricultural income 60% and business income 40% 4,20,000 2,80,000 Income from growing and selling of plants 1,00,000 xxxxx Total 11,07,500 5,42,500

Computation of Tax Liability

 Normal income Rs.5,42,500 Tax on (5,42,500 + 11,07,500) 3,07,500.00 Tax on (2,50,000 + 11,07,500) (2,19,750.00) Tax before education cess (3,07,500 – 2,19,750) 87,750.00 Add: HEC @ 4% 3,510.00 Tax Liability 91,260.00

Q-6:

Discuss with brief reasons, whether rent received for letting out agricultural land for a movie shooting and amounts received from sale of seedlings in a nursery adjacent to the agricultural lands owned by an assessee can be regarded as agricultural income, as per the provisions of the provisions of the Income tax Act, 1961.

Ans:-

Rent received from letting out agricultural land for a movie shooting: As per section 2(1A) Agricultural income means, any rent or revenue derived from land which is situated in India and is used for agricultural purposes. In the present case, rent is being derived from letting out of agricultural land for a movie shoot, which is not an agricultural purpose. Hence, Rent received from letting out agricultural land for a movie shooting is not Agricultural income

Amount received from sale of seedlings in a nursery: As per Section 2(1A), Income derived from sapling or seedling grown in nursery is deemed to be agricultural Income.

Therefore, Amount received from sale of seedlings in a nursery adjacent to the agricultural lands is Agricultural income.

Q-7:

Mr. X is retired from ABC Ltd. on 28.02.2022 after serving the employer for 21 years and 10 months. At the time of his retirement his basic pay was Rs.13,000 p.m. but upto 30.09.2021 it was Rs.9,500 p.m. The employer has allowed him dearness allowance @ 10% of his basic pay.

The employee was entitled for 45 days leave per year of service. During entire service the employee has availed 65 days leave and has encashed 45 days leave. The employer has paid him leave salary of Rs.3,10,000 at the time of retirement

Employer has also paid him gratuity of Rs.2,50,000, pension of Rs.6,000 p.m. and the employee was allowed commutation of 40% of his pension amounting to Rs. 2,88,000. Compute his Tax Liability for the Assessment Year 2022-23.

Ans:-

Computation of income under the head Salary

 Rs. Basic Pay  [(9,500 x 6) + (13,000 x 5)] 1,22,000.00 Dearness Allowance  (10% of basic pay) 12,200.00 Gratuity {Sec 10(10)} (W.N.1) 1,35,550.00 Commuted Pension {Sec 10(10A)} Received = 2,88,000  Exempt = 2,88,000 / 40% x 100% x 1/3 = (2,40,000)  Taxable = 48,000 48,000.00 Uncommuted Pension {Sec 17(1)(ii)}  (6,000 x 60%) x 1 = Rs.3,600 3,600.00 Leave Salary {Sec 10(10AA)} (W.N.2) 1,97,500.00 Gross Salary 5,18,850.00 Less: Standard Deduction u/s 16(ia) (50,000.00) Income under the head Salary 4,68,850.00 Gross Total Income 4,68,850.00 Less: Deductions u/s 80C to 80U Nil Total Income 4,68,850.00

Computation of Tax Liability

 Tax on Rs.4,68,850 at slab rate 10,942.50 Less: Rebate u/s 87A (10,942.50) Tax Liability Nil

Working Note 1:

Least of the following is exempt:

1. Rs.2,50,000

2. Rs.20,00,000

3. ½ x 1,09,000/10 x 21 = Rs.1,14,450

Received = Rs.2,50,000 Exempt = (Rs.1,14,450) Taxable = Rs.1,35,550

Calculation of Average Salary

Computation of Basic Pay

[(9,500 x 6) + (13,000 x 4)] = 1,09,000

Average Salary = 1,09,000/10 = 10,900

Working Note 2:

Least of the following is exempt:

1. Rs.3,10,000

2. Rs.3,00,000

3.10 x 1,12,500/10 = Rs.1,12,500

4. Rs.1,12,500/10 x 520/30 = Rs.1,95,000

Received = Rs.3,10,000 Exempt = (Rs.1,12,500) Taxable = Rs.1,97,500

Computation of leave at credit

Leave Entitlement = 30 x 21 = 630 days Less: Leave Encashed = (45 days)

Less: Leave Availed = (65 days) Leave at Credit = 520 days

Calculation of Average Salary Computation of Basic Pay

[(9,500 x 5) + (13,000 x 5)] = 1,12,500

Average Salary = 1,12,500/10 = 11,250

Q-8:

Mrs. X is employed in ABC Ltd. and her salary is Rs.6,00,000, but it is increased to Rs.6,60,000 in previous year 2021-22 w.e.f. previous year 2020-21. Compute Tax Liability and relief under section 89.

Tax Rate of Previous Year 2020-21 for resident woman

 If total income upto Rs.2,50,000 Nil On Next 2,50,000 5% On Next 5,00,000 20% On Balance amount 30

Heath & education cess @ 4%, rebate u/s 87A will be allowed up to Rs. 12,500 if total income of the person is up to Rs. 5,00,000.

Standard deduction u/s 16(ia) was Rs. 50,000 in year 2020-21.

Ans:-

Step 1. Previous Year 2021–22

 Rs. Salary 6,60,000 Add: Arrears for previous year 2020-21 60,000 Gross Salary 7,20,000 Less: Standard deduction u/s 16(ia) (50,000) Income under the head Salary 6,70,000 Tax before health & education cess 46,500 Add: HEC @ 4% 1,860 Tax Liability 48,360

Step 2. Previous Year 2021–22

 Salary 6,60,000 Gross Salary 6,60,000 Less: Standard deduction u/s 16(ia) (50,000) Income under the head Salary 6,10,000 Tax before health & education cess 34,500 Add: HEC @ 4% 1,380 Tax Liability 35,880

Step 3.

 Difference between Step 1 and Step 2 12,480

Step 4. Previous Year 2020–21

 Salary 6,00,000 Add: Arrears 60,000 Gross Salary 6,60,000 Less: Standard deduction u/s 16(ia) (50,000) Income under the head Salary 6,10,000 Tax before health & education cess 34,500 Add: HEC @ 4% 1,380

Q-9:

Mr. Janakaraj, employed as General Manager in Rajus Refractories Pvt. Ltd., furnishes you the undermentioned information for the year ended 31-03-2022:

(i) Basic salary upto 30-11-2021 Rs.70,000 p.m.

Basic salary from 01-12-2021 Rs.80,000 p.m.

Note: Salary is due and paid on the last day of every month.

(ii) Dearness allowance @ 50% of basic salary (not forming part of salary for retirement benefits).

(iii) Bonus equal to one month salary. This was paid in November, 2021 on basic salary plus dearness allowance applicable for that month.

(iv) Contribution of employer to recognized provident fund account of the employee @ 18% of basic salary, employee also contributing an equivalent amount.

(v) Profession tax paid Rs.6,000 of which Rs.3,000 was paid by the employer.

(vi) Facility of laptop was provided to Janakaraj for both official and personal use. Cost of laptop Rs.65,000 and was purchased by the company on 11-10-2021.

(vii) Leave travel concession given to Janakaraj, his wife and three children (one daughter aged 6 and twin sons aged 4). Cost of air tickets (economy class) reimbursed by the employer Rs.20,000 for adults and lumpsum of Rs.25,000 for three children. Janakaraj is eligible for availing exemption this year to the extent it is permissible under the Income-tax Act, 1961.

Compute the taxable salary of Mr. Janakaraj.

Ans:-

Computation of Taxable salary of Mr. Janakaraj

 Rs. Basic Salary  (70,000 x 8) + (80,000 x 4) 8,80,000.00 Dearness Allowance  (50% x 8,80,000) 4,40,000.00 Bonus  (70,000 + 35,000) 1,05,000.00 Contribution to recognized provident fund (8,80,000 x 6%) (in excess of 12% shall be   taxable)  (Salary includes only basic salary, since dearness allowance, in this case,  does not form part of salary for retirement benefits) 52,800.00 Professional Tax paid by the employer Section 17 (2)(iv)  (Perquisite includes any sum paid by the employer in respect of any obligation which   would have been payable by the employee) 3,000.00 Facility of Laptop/computer (Section 17 (2)(viii)/Rule 3(7)(vii))  (Facility of laptop is an exempt perquisite, whether used for official or personal purpose   or both) Nil
 Leave Travel concession (section 10(5)/Rule 2B) Nil Gross Salary 14,80,800.00 Less: Standard Deduction u/s 16(ia) (50,000.00) Less: Deduction of professional tax u/s 16(iii) (6,000.00) Income under the head Salary 14,24,800.00

Note:

Mr. Janakaraj can avail exemption on the entire amount of 45,000 reimbursed by the employer towards leave travel concession since the leave travel concession was availed for himself, wife and three children and the journey was undertaken by economy class airfare. The restriction imposed for two children is not applicable in case of multiple birth which take place after the first child.

Q-10:

(a) Examine with brief reasons, whether the following are chargeable to income tax and· the amount liable to tax with reference to the provisions of the Income Tax Act,1961:

(i) Allowance received by an employee Mr. Ram working in a transport system at Rs. 12,000p.m. which has been granted to meet his personal expenditure while on duty. He is not in receipt of any daily allowance from his employer.

(b) Mr. Srivastava, aged 40 years, a salaried employee of Nirja Ltd. was contributing to National Pension Scheme Rs.50,000 every year since 2018 and was claiming deduction under section 80CCD. In December 2021, he opted out of the pension scheme and withdrew a lump sum amount of Rs.2,00,000. Is the amount so withdrawn taxable? If yes, how much is the taxable amount?

Ans:-

(a) Partly taxable

Any allowance granted to an employee working in a transport system to meet his personal expenditure during his duty is exempt provided he is not in receipt of any daily allowance. The exemption is 70% of such allowance (i.e., Rs.8,400 per month being, 70% of Rs.12,000) or Rs.10,000 per month, whichever is less.

Hence, 1,00,800 (i.e., Rs.8,400 x 12) is exempt. Balance Rs.43,200 (Rs.1,44,000 – Rs.1,00,800) is taxable in the hands of Mr. Ram.

(b) As per section 80CCD, If an assessee has received any amount from the accumulated balance under National Pension Scheme, the amount so received is taxable but w.e.f. assessment year 18-19 some exemption has been granted u/s 10(12A) and is as given below:

Any payment from the National Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD shall be exempt to the extent of 60% of the total amount payable to him at the time of such closure or his opting out of the scheme.

Further as per section 80CCD, Lumpsum amount received by the nominee on the death of the assessee shall be fully exempt from Income Tax.

 Gross Value 2,00,000 Less: Exempt u/s 10(12A) (60% x 2,00,000) (1,20,000) Taxable Value 80,000

Q-11: Mr. Anand sold his residential house property in March, 2021. In June, 2021, he recovered rent of Rs.10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2015 to March 2017. He could not realise two months rent of Rs.20,000 from him and to that extent his actual rent was reduced while computing income from house property for A.Y.2017-18.

Further, he had let out his property from April, 2017 to February, 2021 to Mr. Satish. In April, 2019, he had increased the rent from Rs.12,000 to Rs.15,000 per month and the same was a subject matter of dispute. In September, 2021, the matter was finally settled and Mr. Anand received Rs.69,000 as arrears of rent for the period April 2019 to February, 2021. Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year?

Ans:-

Since the unrealised rent was recovered in the P.Y.2021-22, the same would be taxable in the A.Y.2022-23 under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that year. Further, the arrears of rent was also received in the P.Y.2021-22, and hence the same would be taxable in the A.Y.2022-23 under section 25A, even though Mr. Anand was not the owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while computing income from house property of Mr. Anand for A.Y.2022-23.

Computation of income from house property of Mr. Anand for A.Y.2022-23

 Recovery of Unrealised Rent 10,000 Add: Arrear of Rent Received 69,000 Total 79,000 Less: Deduction @ 30% (23,700) Income under the head House Property 55,300

Q-12:

Mr. X has let out one house property @ Rs.70000 per month and there is unrealised Rent of 2 months and there is vacancy of 3 month. Fair rent Rs.60,000 per month, municipal valuation Rs.55,000 per month and standard rent Rs.80,000 per month. Municipal tax paid Rs.62,000. Interest on loan for construction of the house property is Rs.75,000.The assessee has unrealised Rent of Rs.2,00,000 in P.Y. 2018-19 and he has recovered Rs.1,50,000 in P.Y. 2021-22 and interest of Rs.18,000 and he has incurred Rs.11,000 as legal expense.

Compute his tax liability for assessment year 2022-23.

Ans:-

Income under the head House Property

 Rs. Gross annual value 7,20,000.00 Less: Municipal taxes paid (62,000.00) Net Annual Value 6,58,000.00 Less: 30% of NAV u/s 24(a) (1,97,400.00) Less: Interest on capital borrowed u/s 24(b) (75,000.00) 3,85,600.00 Unrealised rent recovered of 2018-19 section 25A (1,50,000 – 45,000) 1,05,000.00 Income under the head House Property 4,90,600.00 Income from other sources 18,000.00 Gross Total Income 5,08,600.00 Less: Deduction u/s 80C to 80U Nil Total Income 5,08,600.00

Computation of Tax Liability

 Tax on Rs.5,08,600 at slab rate 14,220.00 Add: HEC @ 4% 568.80 Tax Liability 14,788.80 Rounded off u/s 288B 14,790.00

Working Note:

 Rs. (a) Fair rent (60,000 x 12) 7,20,000 (b) Municipal valuation (55,000 x 12) 6,60,000 (c) Higher of (a) or (b) 7,20,000 (d) Standard Rent (80,000 x 12) 9,60,000 (e) Expected Rent {Lower of (c) or (d)} 7,20,000 (f) Rent Received (70,000 x 7) 4,90,000 If there was no vacancy , then Rent Receivable shall be 70,000 x 10 = 7,00,000, which is lower  than the expected rent , hence the GAV shall be 7,20,000

Q-13:

Mr. X and Mr. Y constructed their houses on a piece of land purchased by them at New Delhi. The built up area of each house was 1,000 sq. ft. ground floor and an equal area at the first floor.

Mr. X started construction of the house on 01.04.2020 and completed it on 31.03.2021. Mr. X occupied the entire house on 01.04.2021. Mr. X has availed a housing loan of Rs.25 lakhs @ 12% p.a. on 01.04.2020 and has also submitted a certificate from the lender certifying the amount of interest.

Mr. Y started construction on 01.04.2020 and completed it on 30.06.2021. Mr. Y occupied the ground floor on 01.07.2021 and let out the first floor for a rent of Rs.20,000 per month. However, the tenant vacated the house on 31.12.2021 and Mr. Y occupied the entire house during the period 01.01.2022 to 31.03.2022. Mr. Y has availed a housing loan of Rs.15 lakhs @ 10% p.a. on 01.07.2020 and has also submitted a certificate from the lender certifying the amount of interest.

 Following are the other information: Rs. (i) Fair rental value of each unit  (Ground floor / first floor) 1,20,000 Per annum (ii) Municipal value of each unit  (Ground floor / first floor) 92,000 Per annum (iii) Municipal taxes paid by X 10,000 Y 10,000 (iv) Repair and maintenance charges paid by X 30,000 Y 32,000

No repayment  was made  by either of them  till 31.03.2022. Compute  income from house property for Mr. X and Mr. Y for the previous year 2021-22 (assessment year 2022-23).

Ans:-

 Computation of income from House Property of Mr. X Rs. Net annual value is Nil  (Since house is self – occupied) Nil Less: Deduction u/s 24(b) (2,00,000) Interest paid on borrowed capital  25,00,000 @ 12% = Rs. 3,00,000 As per second proviso to section 24(b)  interest deduction restricted to Rs. 2,00,000 Loss under the head “House Property” (2,00,000)

Computation of income from house property of Mr. Y

 Ground Floor (Self Occupied) Net Annual Value Nil Less: 30% of NAV u/s 24(a) Nil Less: Interest on capital borrowed u/s 24(b) (W.N.1) (86,250) Loss from house property (86,250) First Floor (Let Out)
 Gross Annual Value (W.N.2) 1,20,000 Less: Municipal taxes (5,000) Net Annual Value 1,15,000 Less: 30% of NAV u/s 24(a) (34,500) Less: Interest on capital borrowed u/s 24(b) (W.N.3) (86,250) Loss from house property (5,750) Loss under the head “income from house property” of Mr. Y  (Both ground floor and first floor) (92,000)

Working Note 1:

Current period interest

From 01.04.2021 to 31.03.2022

= 15,00,000 x 10% x 1/2 = Rs.75,000

Prior period interest

From 01.07.2020 to 31.03.2021

= 15,00,000 x 10% x 9 / 12 = 1,12,500

1,12,500 allowed in 5 equal instalments

= 1,12,500 / 5 = Rs. 22,500 per annum

= 22,500 / 2 = Rs.11,250

Total interest = Rs.75,000 + Rs. 11,250 = Rs.86,250

Working Note 2:

 Rs. (a) Fair Rent (1,20,000 x 9/12) 90,000 (b) Municipal Value (92,000 x 9/12) 69,000 (c) Higher of (a) or (b) 90,000 (d) Expected Rent 90,000 (e) Rent Received/Receivable = 20,000 x 6 1,20,000 GAV = Higher of (d) or (e) 1,20,000

Working Note 3:

Current period interest

From 01.04.2021 to 31.03.2022

= 15,00,000 x 10% x 1/2 = Rs.75,000

Prior period interest

From 01.07.2020 to 31.03.2021

= 15,00,000 x 10% x 9 / 12 = 1,12,500

1,12,500 allowed in 5 equal instalments

= 1,12,500 / 5 = Rs. 22,500 per annum

= 22,500 /2 = Rs.11,250

Total Interest = Rs.75,000 + Rs.11,250 = Rs.86,250

Q-14:

State the conditions to be satisfied for claiming deduction under section 37(1) of the Act.

Ans:-

As per section 37(1), if any expenditure is neither allowed nor disallowed specifically under any particular section, such expenditure is allowed to be debited if it is related to

business or profession and is revenue in nature. If it is capital expenditure, depreciation is allowed. Personal expenditure is never allowed. Illegal expense is not allowed. Any fine or penalty for an offence is not allowed.

Various expenditure which may be allowed under section 37(1) are as given below:

1. Expenditure in connection with advertisement e.g. ABC Ltd. has incurred Rs.20,000 on printing of diaries and calendars, the expenditure is allowed. Similarly if expenditure has been incurred on advertisement in newspaper/magazine/ radio / TV / Internet etc., it will be allowed. If the expenditure incurred is capital nature, depreciation is allowed.

2. Expenditure on travelling including the expenses of boarding and lodging in connection with business/profession.

3. Salary paid to the employees.

4. Expenditure in connection with entertainment/amusement of the employees or the customers.

5. Expenditure in connection with opening ceremony (Mahurat) of the business/profession. E.g. ABC Ltd. has incurred Rs.50,000 in connection with ‘shamiana’ and refreshments on occasion of opening ceremony.

6. Expenditure on the occasion of various festivals like Diwali etc. for employees or customers.

7. Incentives given to the articled assistant by a Chartered Accountant.

8. Interest on late payment of GST.

9. Expenditure in connection with legal proceedings.

10. Professional tax paid by a person carrying on business or profession.

11. Expenditure on the filing of return of income, filing of appeal or audit fee etc. is allowed.

12. Any other expenditure which is revenue in nature and it is related to business or profession.

Any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession.

Q-15:

Mr. X, an individual set up a unit in Special Economic Zone (SEZ) in the financial year 2017-18 for production of washing machines. The unit fulfills all the conditions of section 10AA of the Income-tax Act, 1961. During the financial year 2020-21, he has also set up a warehousing facility in a district of Tamil Nadu for storage of agricultural produce. It fulfills all the conditions of section 35AD. Capital expenditure in respect of warehouse amounted to Rs.75 lakhs (including cost of land Rs.10 lakhs). The warehouse became operational with effect from 1st April, 2021 and the expenditure of Rs.75 lakhs was capitalized in the books on that date.

Relevant details for the financial year 2021-22 are as follows:

 Particulars Rs. Profit of unit located in SEZ 40,00,000 Export sales of above unit 80,00,000 Domestic sales of above unit 20,00,000 Profit from operation of warehousing facility  (before considering deduction under Section 35AD) 1,05,00,000

Compute income-tax (including AMT under Section 115JC) liability of Mr. X for Assessment Year 2022-23 both as per regular provisions of the Income-tax Act and as per section 115BAC for Assessment Year 2022-23. Advise Mr. X whether he should opt for section 115BAC.

Ans:-

Computation of total income and tax liability of Mr. X for A.Y.2022-23

 Profits and gains of business or profession Rs. Rs. Profit from unit in SEZ 40,00,000 Less: Deduction u/s 10AA [See Note (1) below] 32,00,000 Business income of SEZ unit chargeable to tax 8,00,000 Profit from operation of warehousing facility 1,05,00,000 Less: Deduction u/s 35AD [See Note (2) below] 65,00,000 Business income of warehousing facility chargeable to tax 40,00,000 Total Income 48,00,000 Computation of tax liability   (under the normal/regular provisions)  Tax on Rs. 48,00,000 12,52,500 Add: Health and Education cess @ 4% 50,100 Total tax liability 13,02,600

(under the regular provisions of the Income-tax Act, 1961)

Computation of adjusted total income of Mr. X for levy of Alternate Minimum Tax

 Particulars Rs. Rs. Total Income (computed above as per regular provisions of  income tax) 48,00,000 Add: Deduction under section 10AA 32,00,000 80,00,000 Add: Deduction under section 35AD 65,00,000 Less: Depreciation under section 32  On building @10% of Rs.65 lakhs 6,50,000 58,50,000 Adjusted Total Income 1,38,50,000
 Alternate Minimum Tax @ 18.5% 25,62,250 Add: Surcharge@15% (since adjusted total income > Rs.1 crore) 3,84,338 29,46,588 Add: Health and Education cess@4% 1,17,863 30,64,451 Tax liability u/s 115JC (rounded off) 30,64,450

Since the regular income-tax payable is less than the alternate minimum tax payable, the adjusted total income shall be deemed to be the total income and tax is leviable @18.5% thereof plus surcharge@15% and cess@4%. Therefore, tax liability as per section 115JC is Rs.30,64,450.

Computation of total income and tax liability of Mr. X for A.Y.2022-23

(under the provisions of section 115BAC of the Income-tax Act, 1961)

 Particulars Rs. Rs. Total Income (as computed above as per regular provisions of  income tax) 48,00,000 Add: Deduction under section 10AA (not allowable) 32,00,000 80,00,000 Add: Deduction under section 35AD 65,00,000 Less: Depreciation under section 32  On building @10% of Rs.65 lakhs (normal depreciation under section 32   is allowable) 6,50,000 58,50,000 Total Income 1,38,50,000

Computation of tax liability as per section 115BAC

 Tax on Rs.1,38,50,000 38,92,500 Add: Surcharge@15% 5,83,875
 44,76,375 Add: Health and Education cess@4% 1,79,055 Total tax liability 46,55,430

Notes:

1. Deductions u/s 10AA and 35AD are not allowable as per section 115BAC(2). However, normal depreciation u/s 32 is allowable.

2. Individuals or HUFs exercising option u/s 115BAC are not liable to alternate minimum tax u/s 115JC.

Since the tax liability of Mr. X under section 115JC is lower than the tax liability as computed u/s 115BAC, it would be beneficial for him not to opt for section 115BAC for A.Y. 2022-23. Moreover, benefit of alternate minimum tax credit is also available to the extent of tax paid in excess over regular tax.

AMT Credit to be carried forward under section 115JEE

 Rs. Tax liability under section 115JC 30,64,450 Less: Tax liability under the regular provisions of the Income tax Act, 1961 13,02,600 17,61,850

Notes:

(1)Deduction under section 10AA in respect of Unit in SEZ =

Profit of the Unit in SEZ × Export turnover of the Unit in SEZ / Total turnover of the Unit in SEZ Rs. 40,00,000 × Rs. 80,00,000 / Rs. 1,00,00,000 = Rs. 32,00,000

(2) Deduction@100% of the capital expenditure is available under section 35AD for A.Y.2022-23 in respect of specified business of setting up and operating a warehousing facility for storage of agricultural produce which commences operation on or after 01.04.2009.

Further, the expenditure incurred, wholly and exclusively, for the purposes of such specified business, shall be allowed as deduction during the previous year in which he commences operations of his specified business if the expenditure is incurred prior to the commencement of its operations and the amount is capitalized in the books of account of the assessee on the date of commencement of its operations.

Deduction under section 35AD would, however, not be available on expenditure incurred on acquisition of land.

In this case, since the capital expenditure of Rs.65 lakhs (i.e., Rs.75 lakhs – Rs.10 lakhs, being expenditure on acquisition of land) has been incurred in the F.Y.2020-21 and capitalized in the books of account on 1.4.2021, being the date when the warehouse became operational, Rs.65,00,000, being 100% of Rs.65 lakhs would qualify for deduction under section 35AD.

Q-16:

ABC Ltd. presents the following information to you pertaining to the year ending March 31st, 2022:

1. Having regard to the vast purchase of a particular chemical by the company, the supplier of the chemical presents a car worth Rs. 2,50,000, which is used for business purposes by the company.

2. Expenditure towards acquisition of technical know-how paid to a foreign company in a lump sum Rs.6 lakhs by account payee cheque.

3. The company has paid income–tax of Rs. 60,000 being the tax in respect to non–monetary perquisites of an employee.

4. The company wanted to start a new plant for manufacturing of a new product. Y Ltd., paid to the company Rs. 10 lakh in order not to start the same and not to compete with it.

5. The company has paid Rs. 20 lakh to four employees at the time of their voluntary retirement, in accordance with the approved scheme of voluntary retirement.

6. The company has borrowed Rs. 15 lakh for acquiring a machinery. Interest paid is Rs.90,000. The machinery is not put to use during the year.

7. Payment of Rs. 40,000 is made to a Don for ensuring that the employees will not indulge in strike.

8. The company has incurred expenditure of Rs. 34,000 in respect of exempt income. This forms part of administrative expenses.

You are requested to briefly state with reasons as to how the above are to be dealt with in computing the total income of the company for the assessment year 2022-23. The total income need not be computed.

Ans:-

1. As per section 28, Any gift received in connection with business/profession shall be considered to be income under the head business/ profession hence Rs. 2,50,000 being value of the motor car shall be considered to be income under the head business/profession. Since car is being used for the purpose of business, depreciation shall be allowed as per section 32.

2. As per section 32, depreciation shall be allowed even for intangible assets, hence Rs. 6 lakh qualifies for depreciation @ 25%.

3. As per section 40(a), while calculating income of the employer, the tax paid by the employer on nonmonetary perquisites to employees is not deductible.

4. As per section 28, any sum received for not carrying out any activity in relation to any business is chargeable to tax as business income. Thus, Rs. 10 lakh is taxable as business income being non-compete fee.

5. Section 35DDA provides that where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee at the time of his voluntary retirement under any scheme of voluntary retirement, one fifth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance shall be deducted in equal instalments for each of the four immediately succeeding previous years. In view of the aforesaid provisions, Rs. 4 lakh shall be allowable as deduction in the assessment year 2021-22.

6. As per section 43(1), all expenses upto the date of putting the asset to use shall be capitalized i.e. it will be added to the actual cost but in the given case asset has not been put to use till the end of the year hence neither the amount can be debited to profit and loss account nor depreciation is allowed.

7. As per section 37(1), in order to claim deduction the expenditure should not have been incurred for any purpose, which is an offence or is prohibited by any law. Since the payment of Rs.40,000 to Don is unlawful, it is not allowable as deduction.

8. As per section 14A, no deduction shall be made in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. Rs.34,000 is, therefore, not allowable as deduction.

Q-17:

Mr. X furnishes the following trading, profit and loss account for the previous year ending on 31.03.2022.

 Particulars Amount Particulars Amount (Debits) Rs. (Credits) Rs. To Stocks 14,000 By Sales 100,84,500 To Purchases 94,80,000 By Maturity proceeds of National  Saving Certificate 19,500 To Freight and duty 5,000 By Maturity proceeds of Bank  Fixed Deposit 24,000 To Manufacturing wages 25,000 By Maturity proceeds of Public  provident fund 13,000 To Factory, rent, rates and taxes 30,000 By Rent of staff quarters built in 2015 19,000 To Office salaries 27,000 By Refund of income tax penalty 1,100 To Establishment expenses 6,100 By Sale of an old machinery 25,000 To Cost of computer 24,000 By Recovery of bad debts (Not  allowed earlier) 6,000 To Interest on capital 3,300 By Income tax refund  (it includes interest- Rs.400) 2,400 To Donation to an orphan 1,000 By Gift from friends and relatives 3,600 To Fire insurance 200 By Sundry receipts 5,000 To Bad debts 6,000 By Maturity proceeds  of LIC policy 24,000 To Income Tax 6,000 By Refund of deposit from a supplier   who could not supply the machine in   time 1,00,000 To National Urban Poverty Eradication   Fund 2,000 By Closing stocks 26,400 To Employer’s contribution to  Recognised provident fund 8,000 To Service charge for air- conditioner 11,000
 To Expenses on GST proceedings 12,000 To Expenses   on   income   tax  proceedings 3,000 To Diwali expenses 4,000 To Legal Expenses 4,000 To Medical expenses  of proprietor 3,000 To Staff welfare fund 2,000 To Repairs of staff quarters 4,000 To Bonus payable to employees 5,000 To Provision for GST 25,000 To Municipal taxes for staff quarters 4,000 To General reserve 5,000 To Entertainment expenses 6,000 To Net Profit 6,27,900 103,53,500 103,53,500

Mr. X has not opted for presumptive taxation of Income u/s 44AD. You are required to compute Tax Liability after taking the following into consideration

1. Purchases include a purchase of Rs. 20,100. Its payment was made by a bearer cheque and also includes a purchase from a relative of Rs.23,000 and the payment was made in cash and market price of the purchases is Rs.22,000.

2. Factory rent, rates and taxes includes municipal tax of the factory building, which was paid on 31.07.2022.

3. Assessee has always valued the stocks at cost price but since 2021-22 he has valued it at market price, which was in excess of the cost price by 10%.

4. Office salaries paid include Rs.12,400 to the proprietor of the business.

6. The written down value of the block consisting of machinery as on 01.04.2021 is Rs. 59,000

7. The written down value of the block consisting of factory building as on 01.04.2021 is Rs. 85,000. An addition was made to building on 01.08.2021 at a cost of Rs.12,000.

8. Service charge for air-conditioner were paid in two instalment of Rs.10,000 and Rs.1,000 on 10.01.2022 and 11.01.2022 in cash.

9. Employer’s contribution was made through an account payee cheque on 10.04.2022 and the cheque realised on 20.04.2022 and the due date for the purpose of provident fund was 15.04.2022.

10. Computer was purchased on 31.03.2021 and it was put to use on 31.03.2022.

Ans:-

 Rs. Net profit as per profit & loss account 6,27,900.00 Add: inadmissible expenses Payment of purchases in excess of Rs. 10,000 {Sec 40A(3)} 20,100.00 Payment of purchases in excess of Rs. 10,000 {Sec 40A(3)} 22,000.00 Payment of purchases {Sec 40A(2)} 1,000.00 Salary to proprietor 12,400.00 Cost of computer 24,000.00 Interest on capital 3,300.00 Donation to orphan 1,000.00 Income tax 6,000.00 Gift to relative 1,000.00
 Medical expenses of proprietor 3,000.00 Staff welfare fund 2,000.00 Bonus payable {Sec 43B} 5,000.00 Provision for GST 25,000.00 General reserve 5,000.00 Less: Maturity proceeds of National Saving Certificate (19,500.00) Maturity proceeds of bank Fixed Deposit (24,000.00) Maturity proceeds of public provident fund (13,000.00) Income tax penalty refund (1,100.00) Sale of machinery (25,000.00) Recovery of bad debts (6,000.00) Income tax refund (2,400.00) Gift from relatives (3,600.00) Maturity proceeds of LIC (24,000.00) Closing Stock{Rs. 26,400 x 10 / 110} (2,400.00) Refund of deposit from supplier (1,00,000.00) Depreciation:  Computer = 40% on Rs. 24,000 (9,600.00) Machinery - w.d.v = Rs.59,000 Less: sale = (Rs.25,000) Written down value Rs.34,000  Dep. @ 15% (5,100.00) Factory building – w.d.v = Rs.85,000 Add: purchase = Rs.12,000  Dep. @ 10% on Rs.97,000 (9,700.00) Income under the head business/profession 5,13,300.00

Computation of income under the head Other Sources

 Interest on income tax refund 400.00 Income under the head other sources 400.00 Income under the head business/profession 5,13,300.00 Gross Total Income 5,13,700.00 Deductions u/s 80C to 80U Nil Total Income 5,13,700.00

Computation of Tax Liability

 Tax on Rs.5,13,700 at slab rates 15,240.00 Add: HEC @ 4% 609.60 Tax liability 15,849.60 Rounded off u/s 288B 15,850.00

Q-18: Star Enterprises has transferred its unit R to A Ltd. by way of Slump Sale on January 23, 2022. The summarized Balance Sheet of Star Enterprises as on that date is given below:

 Liabilities Amount  (Rs. in Lacs) Assets Amount  (Rs. in Lacs) Own Capital 1,1750 Fixed Assets: Accumulated P & L balance 670 Unit P 200 Liabilities : Unit Q 150 Unit P 90 Unit R 600 Unit Q 160 Other Assets: Unit R 140 Unit P 570 Unit Q 850 Unit R 440 TOTAL 2,810 TOTAL 2,810

Using the further information below, compute the Capital Gains arising from slump of unit R for Assessment year 2022-23.

(i) Slump sale consideration on transfer of Unit R was Rs.930 lacs.

(ii) Fixed Assets of Unit R includes land which was purchased at Rs.110 lacs in the year 2008 and was revalued at Rs.140 lacs.

(iii) Other fixed assets are reflected at Rs.460 lacs. (i.e. Rs.600 lacs less value of land) which represents written down value of those assets as per books. The written down value of these asset is Rs.430 lacs.

(iv) Unit R was set up by Star Enterprises in Oct, 2006.

NOTE: Cost of Inflation Indices for the financial year 2006-07 and financial year 2021-22 are 122 and 317 respectively.

Ans:-

Computation of capital gains on slump sale of Unit R for A.Y. 2022-23

 Particulars Rs. Full Value of consideration 930,00,000 Less: Deemed cost of acquisition (Net worth is deemed to be the cost of acquisition)  [Refer Working Note below] (840,00,000) Long term capital gain [Since the Unit is held for more than 36 months] 90,00,000

Note: Computation of net worth of Unit R of Star Enterprises

 Particulars Rs. Cost of Land (Revaluation not to be considered) 110,00,000 WDV of other depreciable fixed assets as per the Income-tax Act, 1961 430,00,000
 Other assets (book value) 440,00,000 Total assets 980,00,000 Less: Liabilities (140,00,000) Net worth 840,00,000

Note:

1. In case of slump sale, net worth of the undertaking transferred shall be deemed to be the cost of acquisition and cost of improvement as per section 50B.

2. “Net worth” of the undertaking shall be the aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in the books of accounts However, any change in the value of assets on account of revaluation shall not be considered for this purpose

3. For calculating aggregate value of total assets of the undertaking or division in case of slump sale in case of depreciable assets, the written down value of block of assets determined in accordance with the provisions contained in section 43(6) of Income-tax Act, 1961 is to be considered and for all other assets, book value is to be considered.

4. Since Unit R is held by the assessee for more than 36 months, the capital gain arising from slump sale is a long-term capital gain.

5. Indexation benefit is not available in case of slump sale.

Q-19:

Mr. Y bought a vacant Land for Rs.80 lakhs in May 2004. Registration and other expenses were 10% of the cost of land. He constructed a residential building on the said land for Rs.100 lakhs during the financial year 2006-07.

He entered into an agreement for sale of the above said residential house with Mr. John (not a relative) in April 2016. The sale consideration was fixed at Rs.700 lakhs and on 23-4-2016, Mr. Y received Rs.20 lakhs as advance in cash by executing an agreement.

The sale deed was executed and registered on 14-1-2022 for the agreed consideration. However, the State stamp valuation authority had revised the values; hence the value of property for stamp duty purposes was Rs.780 lakhs. Mr. Y, paid 1% as brokerage on sale consideration received.

Subsequent to sale, Mr. Y made following investments:

(i) Acquired a residential house at Delhi for Rs.110 lakhs.

(ii) Acquired a residential house at London for Rs.190 lakhs.

(iii) Subscribed to NHAI capital gains bond (approved under section 54EC) for Rs.45 lakhs on 29- 3-2022 and for 50 lakhs on 12-5-2022.

Compute the income chargeable under the head ' Capital Gains '. The choice of exemption must beneficial to the assessee.

Cost Inflation Index: F.Y.2004-05 = 113 F.Y.2006-07 = 122

F.Y.2021-22 = 317

Ans:-

Computation of Capital Gains of Mr. Y for the Assessment Year 2022-23

 Rs. Full value of consideration 780,00,000.00 Less: Indexed cost of acquisition Indexed cost of land (88,00,000 / 113 x 317) (246,86,725.66) Indexed cost of building (100,00,000 / 122 x 317) (259,83,606.56)
 Less: Brokerage (7,00,000.00) Long term capital gain 266,29,667.78 Less: Investment in house property section 54 (110,00,000.00) Less: Investment in NHAI section 54EC (assumed redeemable after 5  years) (50,00,000.00) Long Term Capital Gains 106,29,667.78

Note:

1. Registration and other expenses paid at the time of purchase shall be part of the cost.

2. Stamp duty value on the date of actual sale shall be taken in to consideration as per section 50C because advance was paid in cash.

3. Maximum Deduction allowed u/s 54EC during a particular previous year shall be Rs.50,00,000.

4. Residential house purchased in India is eligible for exemption u/s 54. (Residential house purchased outside India is not eligible for exemption u/s 54.)

Q-20: Mr. X transfers land and building on 02.01.2022 and furnishes the following informations.

 Particulars Rs. (i) Net consideration received 30,00,000 (ii) Value adopted by Stamp Valuation Authority 34,00,000 (iii) Value ascertained by Valuation Officer on reference by the Assessing Officer 35,00,000 (iv) This land was acquired by Mr. X on 01.04.2001. Fair Market value of the land as  on 01.04.2001 was 1,10,000 (v) A Residential building was constructed on land by Mr. X at cost of Rs.3,20,000   (construction completed on 01.12.2002 during financial year 2002-03.) Short term capital loss incurred on sale of shares during financial year 2014-15 b/f  of   Rs.50,000

Mr. X seeks your advice to the amount to be invested in NHAI bonds so as to be exempt from capital gain tax under Income Tax Act.

Cost inflation index of FY 2001-2002 = 100 Cost inflation index of FY 2002-2003 = 105 Cost inflation index of FY 2021-2022 = 317

Ans:-

Computation of Long term Capital Gain for A.Y. 2022-23

 Sale consideration Rs. 30,00,000 Valuation made by registration authority for stamp duty Rs. 34,00,000 Valuation made by the valuation officer on a reference Rs. 35,00,000

Applying the provisions of section 50C to the present case, Rs. 34,00,000, being, the value adopted by the registration authority for stamp duty, shall be taken as the sale consideration for the purpose of charge of capital gain.

 Sale consideration as per section 50C of the Act 34,00,000.00 Less: Indexed cost of acquisition = 1,10,000 /100 x 317 (3,48,700.00) Indexed cost of improvement = 3,20,000 /105 x 317 (9,66,095.24) Long term capital gain 20,85,204.76 Less: Short term capital loss 2014-15 (50,000.00) Long term capital gains 20,35,204.76

Since there is general exemption of Rs.2,50,000, assessee should invest in the bonds of NHAI Rs.20,35,204.76 – 2,50,000 = 17,85,204.76

Q-21:

State with brief reasoning whether the following receipts are chargeable to income-tax or are exempt (if chargeable, the amount taxable is to be mentioned) for the assessment year 2022-23:

 (i) Interest   on   enhanced   compensation   received   on   12.03.2022   for  acquisition of urban land, of which 40% relates to the earlier year. 96,000 (ii) Rent received for letting out agricultural land for a movie shooting. 72,000

Computation is NOT required.

Ans:-

(i) Yes, it is chargeable to tax.

As per section 145B, interest received by the assessee on enhanced compensation shall be deemed to be the income of the year in which it is received, irrespective of the method of accounting followed by the assessee.

Interest of Rs. 96,000 on enhanced compensation is chargeable to tax in the year of receipt i.e. P.Y.2021-22 under section 56 after providing deduction of 50% under section 57. Therefore, Rs. 48,000 is chargeable to tax under the head “Income from other sources”.

(ii) Yes, it is chargeable to tax.

Agricultural income is exempt from tax as per section 10(1). Agricultural income means, inter alia, any rent or revenue derived from land which is situated in India and is used for agricultural purposes. In the present case, rent is being derived from letting out of agricultural land for a movie shoot, which is not an agricultural purpose. In effect, the land is not being put to use for agricultural purposes. Therefore, Rs. 72,000, being rent received from letting out of agricultural land for movie shooting, is not exempt under section 10(1). The same is chargeable to tax under the head “Income from other sources”.

Q-22:

Mr. X has submitted information given below.

1. Income from owning and maintaining of race horse Rs.2,00,000.

2. Income from owning and maintaining of race camels Rs.1,00,000.

3. He had winning of Rs.1,60,000 from horse race on 01.12.2021 and winning from camel race Rs.1,80,000 on 07.12.2021.

4. He purchased lottery tickets of Rs.10,000 on 01.02.2022 and had winning of Rs.2,00,000 on 12.02.2022.

5. He has received Royalty of book of literary nature @ 50% of print price of Rs. 600 and total copies sold are 2,000

6. He has paid advance tax as given below:

Upto 15.06.2021 Rs. 20,000

Upto 15.09.2021 Rs. 35,000

Upto 15.12.2021 Rs. 80,000

Upto 15.03.2022 Rs. 1,30,000

Balance was paid on 10.06.2022

Compute tax liability for the A.Y 2022-23 and interest under section 234A, 234B and 234C.

Ans:-

Computation of Total Income for the A.Y 2022-23

 Income under head Other Source Rs. Income from owning and maintaining race horse 2,00,000 Income from Royalty 6,00,000 Income from winning horse race (casual income) 1,60,000 Income from winning camel race (casual income) 1,80,000 Income from lottery income (casual income) 2,00,000 Income under head Other Sources 13,40,000 Income under head Business/Profession Income from owning and maintaining race camel 1,00,000 Gross Total Income 14,40,000 Less: Deduction u/s 80QQB (WN 1) (1,80,000) Total Income 12,60,000 Computation of Tax Liability Tax on Rs.7,20,000 at slab rate 56,500 Tax on casual income i.e. Rs.5,40,000 @ 30% 1,62,000 Tax before health & education cess 2,18,500 Add: HEC @ 4% 8,740 Tax Liability 2,27,240 Tax Liability excluding amount of casual income Tax on Rs. 7,20,000 at slab rate 56,500 Add: HEC @ 4% 2,260 Total 58,760 Tax Liability including amount of casual income upto 15.12.2021 Tax on Rs. 7,20,000 at slab rate 56,500 Tax on casual income i.e. Rs. 3,40,000 @ 30% 1,02,000 Tax before health & education cess 1,58,500 Add: HEC @ 4% 6,340 Total 1,64,840

 Interest u/s 234A Nil Interest u/s 234B 2,27,240 – 1,30,000= 97,240 = 97,200 x 1% x 3 2,916

Interest u/s 234C

 Date Advance tax paid Amount payable Shortfall upto 15.06.2021 20,000 8,814 (58,760 x 15%) NIL Interest = NIL upto 15.09.2021 35,000 26,442 (58,760 x 45%) NIL Interest = NIL upto 15.12.2021 80,000 1,23,360 (1,64,840 x 75%) 43,630 Rounded off 119A = 43,600  Interest = 43,600 x 1% x 3 = 1,308 upto 15.03.2022 1,30,000 2,27,240 97,240 Rounded off 119A = 97,200  Interest = 97,200 x 1% x 1 = 972

 Interest u/s 234C 2,280 Total Interest Payable 5,196 Rounded off u/s 288B 5,200

Working Notes:

1. Maximum deduction allowed u/s 80QQB

15% of print price i.e. Rs. 600 x 15% x 2,000= Rs.1,80,000.

Q-23:

Mr. Jagdish, aged 61 years, has set-up his business in Thailand and is residing in Thailand since last 20 years. He owns a house property in Bangkok, half of which is used as his residence and half is given on rent (such rent received, converted in INR is Rs.6,00,000). The annual value of the house in Thailand is Rs.50,00,000 i.e. converted value in INR.

He purchased a flat in Pune during F.Y. 2017-18, which has been given on monthly rent of Rs.27,500 since 01.07.2020. The annual property tax of Pune flat is Rs. 40,000 which is paid by Mr. Jagdish whenever he comes to India. Mr. Jagdish last visited India in July 2020. He has taken a loan Union Bank of India for purchase of the Pune flat amounting to Rs.15,00,000. The interest on such loan for the F.Y. 2021-22 was Rs.84,000. However, interest for March 2022 quarter has not yet been paid by Mr. Jagdish.

He had a house in Jaipur which was sold in May 2017. In respect of this house he received arear of rent of Rs.96,000 in Feb. 2022 (not taxed earlier).

He also derived some other incomes during F.Y. 2021-22 which are as follows. Profit from business in Thailand Rs.2,75,000

Interest on bonds of a Japanese Co. Rs.45,000 out of which 50% was received in India.

Income from Apple Orchid in Nepal given on contract and the yearly contract fee of Rs.5,00,000, for F.Y. 2021-22 was deposited directly by the contractor in Kathmandu branch of Union Bank of India in Mr. Jagdish’s bank account maintained with Union Bank of India’s Pune Branch.

Compute the total income of Mr. Jagdish for Assessment Year 2022-23 chargeable to income tax in India.

Ans:-

Computation of total income of Mr. Jagdish for the A.Y. 2022-23

Stay in India for a minimum period of 182 days in the relevant previous year or, in the alternative, 60 days in the relevant previous year and 365 days in the four immediately preceding previous years is required to qualify as a resident. In this case, since Mr. Jagdish has not visited India at any time during the P.Y.2021-22, he would be a non - resident for that year.

Income under the head house property

Flat in pune

 GAV (Rent received/receivable) (27,500 x 12) 3,30,000 Less: Municipal tax paid (Nil) NAV 3,30,000 Less: Standard deduction u/s 24(a) @ 30% (99,000) Less: interest on loan u/s 24(b) (84,000) Income from flat in pune 1,47,000 Arrears of rent (96,000-28,800) 67,200 Income from house property 2,14,200 Income from other sources Interest on bonds (50% received in India) 22,500

Gross total Income

 Income under the head house property 2,14,200 Income under the head other sources 22,500 Gross Total income 2,36,700 Less: Deductions u/s 80C to 80U Nil Total Income 2,36,700

Notes:

1. Rent from Bangkok house property is assumed to be received in Bangkok.

2. Municipal tax paid in 20-21 and not paid in 21-22 hence not deducted from GAV.

3. Income from apple orchid is received in Nepal as deposited in Nepal hence not taxable in India in case of NR. Student can solve the answer by assuming received in India

Q-24: Discuss the taxability or otherwise in the hands of the recipients, as per the provisions of the Income-tax Act, 1961:

(i) ABC Private Limited, a closely held company, issued 10,000 share at Rs.130 per share. (The face value of the share is Rs.100 per share and the fair market value of the share is Rs.120 per share).

(ii)Mr. A received an advance of Rs.50,000 on 01.09.2021 against the sale of his house. However, due to non-payment of instalment in time, the contract has cancelled and the amount of Rs.50,000 was forfeited.

Ans:-

(i) Taxable: As per section 56(2)(viib), If any closely held company receives any consideration for issue of shares that exceeds the face value of shares then the aggregate consideration received as exceeds the fair market value of shares is considered as income under the other sources. In the given case, ABC Private Ltd. issued shares at a price which exceeds the face value of shares. So the taxable amount shall be Rs.1,00,000 (10,000 shares x (Rs.130-Rs.120))

(ii) Taxable: If any person has entered into an agreement to sell any capital asset and some advance money was received but the buyer refused to purchase the capital asset and advance money was forfeited, in such cases the amount so forfeited shall be considered to be income under the head Other Sources. In the given case, Mr. A forfeited Rs.50,000 against sale of his house shall be considered as income under the head other sources.

Q-25: Nishant gifted Rs. 10 lakhs to his wife, Nisha on her birthday on, 1st January, 2021. Nisha lent Rs.5,00,000 out of the gifted amount to Krish on 1st April, 2021 for six months on which she received interest of Rs. 50,000. The said sum of Rs. 50,000 was invested in shares of a listed company on 15th October, 2021, which were sold for Rs. 75,000 on 30th December, 2021. Securities transaction tax was paid on such sale. The balance amount of gift was invested as capital by Nisha in a newly business started on 1.4.2021. She suffered loss of Rs. 15,000 in the business in Financial Year 2021-22.

In whose hands the above income and loss shall be included in Assessment Year 2022-23? Support your answer with brief reasons.

Ans:-

Interest on loan

As per section 64(1)(iv), in computing the total income of any individual, there shall be included all such income as arises directly or indirectly, to the spouse of such individual from assets transferred directly or indirectly, to the spouse by such individual otherwise than for adequate consideration or in connection with an agreement to live apart.

Accordingly, Rs. 50,000, being the amount of interest on loan received by Ms. Nisha, wife of Mr. Nishant, would be includible in the total income of Mr. Nishant, since such loan was given by her out of the sum of money received by her as gift from her husband.

Since the capital was invested in business by Ms. Nisha on 1st April, 2021, and capital invested was entirely out of the funds gifted by her husband, the entire loss of Rs.15,000 from the business carried on by Ms. Nisha would also be includible in the total income of Mr. Nishant.

Since income includes loss as per Explanation 2 to section 64, clubbing provisions would be attracted even if there is loss and not income.

Capital Gain on sale of shares of listed company

The short-term capital gain of Rs. 25,000 (Rs. 75,000, being the sale consideration less Rs. 50,000, being the cost of acquisition) arising in the hands of Ms. Nisha from sale of shares acquired by investing the interest income of Rs. 50,000 earned by her (from the loan given out of the sum gifted to her by her husband), would not be included in the hands of Mr. Nishant.

Income from the accretion of the transferred asset is not liable to be included in the hands of the transferor and therefore such income is taxable in the hands of Ms. Nisha. Since securities transaction tax has been paid, such short-term capital gain on sale of listed shares is taxable@15% in the hands of Ms. Nisha

Q-26: During the previous year 2021-22 the following transactions occurred in respect of Mr. X.

(a) Mr. X had a fixed deposit of Rs. 5,00,000 in Bank of India. He instructed the bank to credit the interest on the deposit @ 9% from 01.04.2021 to 31.03.2022 to the savings bank account of Mr. B, son of his brother, to help him in his education.

(b) Mr. X holds 75% share in a partnership firm. Mrs. X received a commission of Rs.25,000 from the firm for promoting the sales of the firm. Mrs. X possesses no technical or professional qualification.

(c) Mr. X gifted a flat to Mrs. X on April 1, 2021. During the previous year the flat had income under the head House Property Rs.52,000 to Mrs. X.

(d) Mr. X gifted Rs.2,00,000 to his minor son who invested the same in a business and he got a share income of Rs. 20,000 from the investment.

(e) Mr. X’s minor son derived an income of Rs.20,000 through a business activity involving application of his skill and talent.

During the year Mr. X got a monthly pension of Rs.10,000. He had no other income. Mrs. X received salary of Rs. 20,000 per month from a part time job.

Discuss the tax implications of each transaction and compute the total income of Mr. X, Mrs. X and their minor child.

Ans:-

(a) As per Section 60 of the Income Tax Act, if any person has transferred any income without transferring the asset in such case clubbing provision shall be applicable.

In the given case, Mr. X transferred interest on fixed deposit to Mr. B (son of his brother) without transferring the fixed deposit, such income shall be clubbed in the hands of Mr. X as per section 60.

Amount to be clubbed = Rs.5,00,000 x 9% = Rs.45,000

(b) As per Section 64(1) of the Income Tax Act, if any person is getting salary, commission etc. from a concern in which his or her spouse has substantial interest and further salary etc. is received without any professional or technical qualification, in such case, salary etc. so received shall be clubbed in the income of the spouse having substantial interest.

In the given case Mr. X is having substantial interest in the partnership firm and Mrs. X received a commission of Rs.25,000 from the firm for promoting the sales of the firm without any technical or professional qualification. So the commission shall be clubbed in the hands of Mr. X

(c) As per section 27, An individual who transfers otherwise than for adequate consideration any house property to his or her spouse, not being a transfer in connection with an agreement to live apart shall be deemed to be the owner of the house property so transferred.

In the given case Mr. X transfers flat to Mrs. X without adequate consideration on April 1, 2021.

So Mr. X shall be deemed to be the owner of the house property and income Rs.52,000 shall be considered as income of Mr. X.

(d) As per section 64(1A), if any income accrues or arises to a minor child, such income shall be clubbed in the income of mother or father whosoever has higher income before taking in to consideration the income to be clubbed. So in the given case, income of Rs. 20,000 shall be clubbed in the income of mother or father whosoever has higher income before taking in to consideration the income to be clubbed. Amount to be clubbed = 20,000 – 1500 = Rs.18,500

(e) As per section 64(1A), if any minor child has income from manual labour or through activity involving application of his skill, talent or specialized knowledge and experience, such income shall not be clubbed but if such income has been invested further, any new income shall be clubbed in the income of mother or father.

In the given case clubbing provision is not applicable as Mr. X’s minor son derived an income of Rs.20,000 through a business activity involving application of his skill and talent.

Computation of Total Income of Mr. X

 Income under the head Salary Rs. Pension (10,000 x 12) 1,20,000.00 Less: Standard Deduction u/s 16(ia) (50,000.00) Income under the head Salary 70,000.00 Income under the head House property (Since asset is transferred to wife hence deeming provision shall apply) Income under the head house property 52,000.00 Income under the head other sources Commission given to Mrs. X  (Since Mr. X is having substantial interest in firm) 25,000.00 Interest on Fixed deposit transferred to Mr. B 45,000.00 Income from investment made by Minor son 18,500.00 Income under the head other sources 88,500.00 Gross Total Income 2,10,500.00 Less: Deduction u/s 80C to 80U Nil

 Total Income 2,10,500.00 Computation of Total Income of Mrs. X Gross Salary 2,40,000.00 Less: Standard Deduction u/s 16(ia) (50,000.00) Income under the head salary 1,90,000.00 Gross Total Income 1,90,000.00 Less: Deduction u/s 80C to 80U Nil Total Income 1,90,000.00 Computation of Total Income of Minor Child Income from Business 20,000.00 Gross Total Income 20,000.00 Less: Deduction u/s 80C to 80U Nil Total Income 20,000.00

Q-27:

Mrs. and Mr. Vinod Amin have two minor children M and N. The following are the receipts in the hands of M and N during the year ended 31-3-2022:

1. M received a gift of Rs.70,000 from her friend’s father on the occasion of her birthday.

2. M won a prize money of Rs.3,00,000 in National Quiz competition. This was invested in debentures of a company, from which interest of Rs.19,000 (gross) accrued during the year.

3. N won prize in a lottery. The net amount received after deduction of tax at source was Rs.1,05,000.

Mr. Vinod Amin's income before considering clubbing provisions is higher than that of his wife. Discuss how these items will be considered for taxation under the provisions of the Income Tax Act, 1961. Detailed computation of income is not required.

Ans:-

As per section 64(1A), If any income accrues or arises to a minor child, such income shall be clubbed in the income of mother or father whosoever has higher income before taking into consideration the income to be clubbed but if any minor child has income through Manual labour or has income through activity involving application of his skill, talent or specialized knowledge and experience, in this case, clubbing provision shall not apply, rather it will be considered to be the income of minor child and his tax liability shall be computed separately but the return shall be filed by his father as his guardian. If the income of minor child is to be clubbed, exemption shall be allowed under section 10(32) upto Rs.1,500 per annum per child.

In the given case income of father is higher then the mother hence all income to be clubbed shall be clubbed with the income of the Father.

1. Gift of Rs.70,000 received by M from her friend father is taxable as it is not received from any relative of M.

2. Prize money earned by M in National Quiz Competition shall not be clubbed as it is earned through application of her skill, talent or specialized knowledge and experience but income from such income i.e. interest on debentures (Rs.19,000) shall be clubbed with the father.

3. Prize Money earned by N shall be taxable and shall be clubbed with the income of the father. (Rs.1,05,000/70% = Rs.1,50,000 shall be clubbed)

Exemption shall be allowed u/s 10(32) upto Rs.1500 per annum per child but in case of casual income such exemption is allowed or not is controversial.

Q-28: Mr. X (age 67 years) gifted a building owned by him to his son’s wife Mrs. X on 01.10.2020. The building fetched a rental income of Rs.10,000 per month throughout the year. Municipal tax for the first half-year of Rs.5,000 was paid in June 2021 and the municipal tax for the second half-year was not paid till 30.09.2022.

Incomes of Mr. X and Mrs. X other than income from house property are given below:

 Name Business income Capital gain Other sources Mr. X Rs.1,00,000 Rs.50,000 (long-term) Rs.1,50,000 Mrs. X Rs.(75,000) Rs.2,00,000 (short-term) Rs.50,000

Note: Capital gain does not relate to gain from shares and securities.

Compute the total income of Mr. X and Mrs. X taking into account income from property given above and also compute their income-tax liability for the assessment year 2022-23.

Ans:-

Computation of total income and income tax liability of Mr. X

 Rs. Income under the head Business Profession 1,00,000.00 Income under the head Capital gains LTCG 50,000.00 Income under the head House property  (Since asset is transferred to son's wife hence clubbing shall be done) Gross Annual Value 1,20,000.00 Less: Municipal Taxes (5,000.00) Net Annual Value 1,15,000.00 Less: 30% of NAV u/s 24(a) (34,500.00) Less: Interest on capital borrowed u/s 24(b) Nil Income under the head house property 80,500.00 Income under the head other sources 1,50,000.00 Gross Total Income 3,80,500.00 Less: Deduction u/s 80C to 80U Nil Total Income 3,80,500.00

Computation of Tax Liability

 Tax on Rs.3,30,500 at slab rate 1,525.00 Tax on capital gains @ 20% 10,000.00 Less: Rebate u/s 87A (11,525.00) Tax Liability Nil

Computation of total income and tax liability of Mrs. X

 Income from house property Nil Loss from business profession (75,000.00) Income under the head Other Sources 50,000.00 Income under the head Capital Gains (STCG) 2,00,000.00 Gross Total Income 1,75,000.00 Less: Deduction u/s 80C to 80U Nil Total Income 1,75,000.00 Tax Liability Nil

Q-29:

Mr. Krishan, residing in Indore, provides the following information for the financial year 2021-22:

 Particulars Rs. Income from textile business 4,60,000 Income from speculation business 25,000 Loss from gambling 12,000 Loss on maintenance of race horse 15,000 Current year depreciation of textile business not adjusted in the income given above. 5,000 Unabsorbed depreciation of assessment year 2020-21 10,000 Speculation business loss of assessment year 2021-22 30,000

Compute the Gross Total Income of Mr. Krishan for the Assessment year 2022-23 and also state the losses eligible for carry forward and period upto which such losses can be carried forward.

Ans:-

 Particulars Rs. Rs. Profits and gains of business or profession 4,60,000 Income from Textile business Less: Current year depreciation allowable under section 32(1) (5,000) 4,55,000 Less: Unabsorbed depreciation brought  forward  from A.Y.2020-21 as   per section 32(2) (10,000) 4,45,000 Income from speculation business Current year income from speculation business 25,000 Less: Speculation business loss for A.Y. 2021-22 set-off as per  the provisions of section 73(2) (30,000) Speculation business loss to be carried forward (5,000) Nil Gross Total Income 4,45,000

Losses eligible for carry forward to A.Y.2023-24

 Particulars Rs. (1) Loss from speculation business to be carried forward as per section 73  Loss from speculation business can be set off only against income from   another speculation business. The remaining loss from speculation business   can be carried forward for a maximum of four assessment years immediately   succeeding the assessment year for which the loss was first computed. Thus,   such loss can be carried forward upto A.Y.2025-26 5,000 (2) Loss on maintenance of race horses to be carried forward as per section 74A  Loss on maintenance of race horses can be set-off only against income from   the activity of owning and maintaining race horses. Such loss can be carried   forward for a maximum of four assessment years immediately succeeding the   assessment year for which the loss was first computed. Thus, such loss can be   carried forward upto A.Y. 2026-27 15,000 (3) Loss from gambling can neither be set-off nor be carried forward.

Q-30:

Following are the details of incomes/ losses of Mr. Rishi for the F.Y. 2021-22:

 (Figures in brackets represents losses) Rs. Taxable salary income (computed) 3,60,000 Taxable income from house property (computed) - from rented house property X 1,20,000 - from rented house property Y (3,40,000) Taxable profit from business (computed) - business P 2,30,000 - business Q (12,000) - business R (speculative business) 15,000
 - business T (speculative business) (25,000) Taxable Income from other sources: - from card games 16,000 - from owning & maintenance of race horses (7,000) - interest on securities 5,000

You are required to determine the Gross total income of Mr. Rishi for Assessment year 2022-23.

Ans:-

Computation of Gross Total Income for the A.Y. 2022-23

 Gross total income Income under the head salary 1,60,000 Income under the head business profession 2,18,000 Income under the head other sources 21,000 Gross total income 3,99,000 Losses to be carried forward House property 20,000 Speculative business loss 10,000 Loss from owning and maintain of race horses 7,000

Notes:

1. Loss from house property can be adjusted from other head income maximum upto 2,00,000 and balance can be carried forward. (Section 71)

2. Speculative loss can be adjusted only from speculative income and balance can be carried forward. (section 73)

3. Loss from owning and maintain race horses can be adjusted only from such income and not allowed from other income. (section 74A)

4. In the above solution HP loss is adjusted from salary income. Student can adjust such loss from business income also.

Q-31:

Mr. X furnishes you the following details for the year ended 31.03.2022:

 Income (loss) from house property Rs. House – 1 36,000 House – 2 Self occupied (20,000) House – 3 60,000

Profits and gains from Business or Profession

Capital Gains

 Long-term capital gain from sale of shares (STT paid) 1,50,000 Long-term capital gain from sale of vacant site 2,00,000 Short-term capital loss from sale of building 1,00,000

(Note: Assume that the figures given above are computed and arrived at after considering eligible deductions).

Other sources:

 Gift from a Friend (non-relative) on 05.06.2021 60,000 Gift from Maternal Uncle on 25.02.2022 1,00,000 Gift from Grandfather’s Younger Brother on 10.02.2022 1,00,000

Compute the total income of Mr. X for the Assessment Year 2022-23.

Ans:-

Computation of total income of Mr. X for the Assessment year 2022-23

 Rs. Rs. Income (loss) House property House –I 36,000 House-2 –Self occupied (20,000) House-3 60,000 Income from House Property 76,000
 Profits and gains of business and profession Textile business 2,00,000 Automobile business (3,00,000) Speculation business 2,00,000 Income from business or  profession representing speculation   business profit (after set off of loss of automobile business) 1,00,000 Capital Gains Long term capital gain from sale of shares (STT paid) u/s 112A 1,50,000 Long term capital gain from sale of vacant site 2,00,000 Short term capital loss from sale of building (1,00,000) Long term capital gain-after set off of short term loss against 1,00,000 long term capital gain 2,50,000 Income from Other sources Gift from a friend (non relative) on 05.06.2021 60,000 Gift from maternal uncle (on 25.02.2022) Rs.1,00,000, not taxable   since maternal uncle is covered by the definition of the term’   relative’ given in explanation to section 56(2) Nil Gift from grand father’s younger brother on 10.02.2022.  This amount is taxable as grandfather’s younger brother is not   covered by the definition of ‘relative’. 1,00,000 1,60,000 Gross Total Income 5,86,000 Less: Deduction u/s 80C to 80U Nil Total income 5,86,000

Q-32: The following are the details relating to Mr. Rajesh, a resident Indian, relating to the year ended 31.03.2022

 Particulars Amount (Rs.) Short term capital gain 1,40,000 Loss from house property 2,20,000 Loss from speculative business 50,000 Loss from card games 20,000 Brought forward Long term capital loss of A.Y. 2017-18 86,000 Dividend from Shaiba Ltd. 11,00,000 Loss from tea business 96,000

Mr. Rajesh’s wife, Isha is employed with Shine Ltd., at a monthly salary of Rs. 25,000, where Mr. Rajesh holds 21% of the shares of the company. Isha is not adequately qualified for the post held by her in Shine Ltd.

You are required to compute taxable income of Mr. Rajesh for the A.Y. 2022-23. Ascertain the amount of losses which can be carried forward.

Ans:-

computation of Taxable Income of Mr. Rajesh for the A.Y. 2022-23

 Particulars Rs. Rs. Salaries Isha’s salary (Rs. 25,000 x 12) [See Note 1] 3,00,000 Less: Standard deduction under section 16(ia)  upto Rs.50,000 (50,000) 2,50,000 Less: Loss from house property set off against salary income  as per section 71(3A) [See Note 2] (2,00,000) 50,000 Capital Gains Short term capital gain 1,40,000 Less: Loss from tea business (Rs. 96,000 x 40%) [See Note 3 & 4] (38,400) 1,01,600 Income from Other Sources Dividend income 11,00,000 Taxable Income 12,51,600

The following losses can be carried forward for subsequent assessment years:

 (i) Loss from house property to be carried forward and set-off against income from house   property Rs. 20,000 (ii) Long-term capital loss of A.Y. 2017-18 can be carried forward and set-off against long-   term capital gains Rs. 86,000 (iii) Loss from speculative business to be carried forward and set-off against income from   speculative business Rs. 50,000

Notes:

1. As per section 64(1)(ii), all the income which arises directly or indirectly, to the spouse of any individual by way of salary, commission, fees or any other form of remuneration from a concern in which such individual has a substantial interest shall be included in the total income of such individual. However, where spouse possesses technical or professional qualification and the income is solely attributable to the application of such knowledge and experience, clubbing provisions will not apply. Since, Mrs. Isha is not adequately qualified for the post and Mr. Rajesh has substantial interest in Shine Ltd by holding 21% of the shares of the Shine Ltd., the salary income of Mrs. Isha to be included in Mr. Rajesh’s income.

2. As per section 71(3A), loss from house property can be set off against any other head of income to the extent of Rs. 2,00,000 only.

3. 60% of the losses from tea business is treated as agricultural income and therefore exempt. Loss from an exempt source cannot be set off against profits from a taxable source.

4. As per section 71(2A), business loss cannot be set off against salary income. Hence, 40% of the losses from tea business i.e., Rs. 38,400 set off against short term capital gains.

5. Loss from Card games can neither be set off against any other income, nor can it be carried forward.

6. Loss of Rs.50,000 from speculative business can be set-off only against the income from the speculative business. Hence, such loss has to be carried forward.

As per section 74(1), brought forward Long-term capital loss can be set-off only against long- term capital gain. Such loss can be carried forward for eight assessment years immediately succeeding the assessment year for which the loss was first computed. Since, 8 assessment years has not expired, such loss can be carried forward to A.Y. 2023-24 for set-off against long- term capital gains.

Q-33:

Mr. X has taken a loan of Rs.12,00,000 @ 10 % p.a. on 01.07.2017 and the house completed on 01.05.2021. It was let out @ Rs. 30,000 p.m. w.e.f 01.08.2021 and the loan was repaid in annual installment of Rs.40,000 starting from 01.01.2019.

Mr. X has STCG 111A Rs.10,00,000.

He has paid premium of life policy Rs.40,000 on 12.12.2021 and sum assured is Rs.1,00,000. He has paid premium of Jeevan Suraksha Policy Rs.20,000.

Compute his Total Income and Tax Liability for the A.Y. 2022-23.

Ans:-

Computation of income under the head House Property

 Rs. Gross Annual Value 2,40,000 Less: Municipal Tax Nil Net Annual Value 2,40,000 Less: 30% of NAV u/s 24(a) (72,000) Less: Interest on capital borrowed u/s 24(b) (1,94,000) Loss under the head House Property (26,000) Income under the head Capital Gains (STCG u/s 111A) 10,00,000 Gross Total Income 9,74,000 Less: Deduction u/s 80C to 80U NIL Total Income 9,74,000 Computation of Tax Liability Tax on STCG Rs. 7,24,000 (9,74,000-2,50,000) u/s 111A @ 15 % 1,08,600 Add: HEC @ 4% 4,344 Tax Liability 1,12,944 Rounded off u/s 288B 1,12,940

Note: Deduction under section 80C to 80U is not allowed from STCG u/s 111A.

Working Note:

Prior period interest

From 01.07.2017 to 31.03.2021

= (12,00,000 x 10% x 6/12) + (12,00,000 x 10% x 1) + (11,60,000 x 10% x 1) + (11,20,000 x 10% x 1) + (10,80,000 x 10% x 3/12)

= Rs.60,000 + Rs.1,20,000+ Rs.1,16,000+ Rs.1,12,000+ Rs.27,000

= Rs.4,35,000

Installment = Rs.4,35,000/5

= Rs.87,000

Current period interest

From 01.04.2021 to 31.03.2022

= (10,80,000 x 10% x 9/12) + (10,40,000 x 10% x 3/12)

= Rs.81,000 + Rs.26,000

= Rs.1,07,000

Total interest on capital borrowed

= Rs.87,000 + Rs. 1,07,000

= Rs.1,94,000

Q-34:

Mr. X is a Practicing Chartered Accountant and he started his practice from 01.04.2021 and he has income from profession Rs.8,00,000.

He has LTCG of Rs.3,00,000, STCG 111A of Rs.1,00,000, casual income Rs.2,00,000. Investment and donations are as given below:-

• NSC Rs.10,000.

• Medi-claim premium (by cheque) of Rs.15,000.

• Prime Minister’s National Relief Fund Rs.10,000. (Paid by cheque)

• Rajiv Gandhi Foundation Rs.8,000. (Paid by cheque)

• Donation to Birla Temple (Notified u/s 80G) Rs.1,60,000. (Paid by cheque)

• Charitable institution (Notified u/s 80G) Rs.40,000. (Paid by cheque)

• Social organization (Notified u/s 80G) Rs.20,000. (Paid by cheque)

• Municipal Corporation of Delhi (notified under section 80G) Rs.10,000. (Paid by cheque)

Compute income tax liability for A.Y. 2022-23.

Ans:-

 Rs. Income under the head business / profession 8,00,000.00 Income under the head Other Sources Casual income 2,00,000.00 Income under the head other sources 2,00,000.00 Income under the head Capital Gain Long term capital gain 3,00,000.00 Short term capital gain 111A 1,00,000.00 Income under the head capital gain 4,00,000.00 Gross Total Income 14,00,000.00 Less: Deductions Deduction u/s 80C for NSC (10,000.00) Deduction u/s 80D for Mediclaim policy (15,000.00) Deduction u/s 80G Prime Minister National Relief Fund (10,000.00) Rajiv Gandhi Foundation (50% of Rs. 8,000) (4,000.00) Donations (48,750.00) Total Income 13,12,250.00

Computation of Tax Liability

 Tax on casual income Rs.2,00,000 @ 30% u/s 115BB 60,000.00 Tax on LTCG Rs.3,00,000 @ 20% 60,000.00 Tax on STCG 111A Rs.1,00,000 @ 15% 15,000.00 Tax on normal income Rs.7,12,250 at slab rate 54,950.00 Tax before health & education cess 1,89,950.00 Add: HEC @ 4% 7,598.00 Tax Liability 1,97,548.00 Rounded off u/s 288B 1,97,550.00

Working Note:

AGTI = GTI – LTCG – STCG u/s 111A – Deduction u/s 80C to 80U (except 80G)

= 14,00,000 – 3,00,000 – 1,00,000 – 25,000 = 9,75,000

Qualifying amount = 10% of AGTI or donation whichever is less

= 97,500 or 2,30,000 whichever is less = 97,500

50% of qualifying amount = 48,750

Q-35:

For the assessment year 2022-23, Mr. X submits the following information: Income from business 9,800

 Property income House I Rs. House II Rs. Fair Rent 75,000 82,000 Rent Received/Receivable 78,000 85,000 Municipal Valuation 76,000 75,000 Municipal Taxes (due but outstanding) 13,000 14,000 Repairs 3,500 47,000 Insurance 2,000 3,000 Land Revenue (Paid) 2,500 4,000 Ground Rent (due but outstanding) 1,600 6,000 Interest on capital borrowed by mortgaging house I   (Funds are used for construction of house II) 14,000 -------- Nature of Occupation Let out for Residence Let out for Business Date of completion of construction 30.04.2017 07.04.2019

Assume that standard rent is less than rent actually received.

 Mr. X has brought forward losses of house property as under Rs. Assessment year 2013-14 1,00,000 Assessment year 2017-18 10,100

Other incomes of Mr. X

1. Vacant site lease rent 4,12,000

2. Rent from house property at Chennai 3,000 p.m. This house was constructed by taking a loan of Rs. 2,00,000 @ 10% from State Bank of India but it was repaid on 01.10.2021 by taking a loan of Rs.2,00,000 from Punjab National Bank on 01.10.2021 @ 9.5% p.a.

3. He has also received Rs.3,000 during the year from Calcutta University for acting as an examiner and Rs.1,500 from Delhi University also, for acting as an examiner.

4. He has received from Life Insurance Corporation of India Rs.1,20,000 being the maturity amount of life insurance policy.

5. He has received a reward of Rs.5,000 from Central Government and the reward is notified under section 10(17A).

He has invested Rs.1,000 in the notified bonds of NABARD eligible for deduction under section 80C, but the investment is out of past savings and has invested Rs.1,000 in master equity plan of Unit Trust of India.

He is eligible for deductions under section 80D to 80U amounting to Rs.1,005. Compute his income and also tax liability for assessment year 2022-23.

Ans:-

Computation of income under the head House Property

 HOUSE I Rs. Gross Annual Value (W.N. 1) 78,000 Less: Municipal taxes Nil Net Annual Value 78,000 Less: 30% of NAV u/s 24(a) (23,400) Less: Interest on capital borrowed u/s 24(b) Nil Income under the head House Property 54,600 HOUSE II Gross Annual Value (W.N. 2) 85,000 Less: Municipal Taxes Nil Net Annual Value 85,000 Less: 30% of NAV u/s 24(a) (25,500) Less: Interest on capital borrowed u/s 24(b) (14,000) Income under the head House Property 45,500 HOUSE AT CHENNAI Gross Annual Value (3,000 x 12) 36,000 Less: Municipal taxes Nil Net Annual Value 36,000 Less: 30% of NAV u/s 24(a) (10,800) Less: Interest on capital borrowed u/s 24(b) (W.N. 3) (19,500) Income under the head House Property 5,700 Brought forward house property loss of assessment year 2017-18 10,100 Income under the head house property after adjusting losses 95,700 Income under the head Other Sources
 Vacant site lease rent 4,12,000 Remunerations from Calcutta University 3,000 Remuneration from Delhi University 1,500 Income under the head Other Sources 4,16,500 Income under the head Business/Profession 9,800 Gross Total Income 5,22,000 Less: Deduction u/s 80C (1,50,000) Investment in bonds of NABARD 1,000 Investment in master equity plan of UTI 1,000 Repayment of housing loan (Whether deduction u/s 80C on repayment   of the loan by taking a fresh loan is allowed or not is not clear in the   act) (But maximum upto Rs.1,50,000) 2,00,000 Less: Deductions u/s 80D to 80U (1,005) Total Income (rounded off u/s 288A) 3,71,000 Computation of Tax Liability Tax on Rs.3,71,000 at slab rate 6,050.00 Less: Rebate u/s 87A (6,050.00) Add: HEC @ 4% Nil Tax Liability Nil

Explanations

1. Payments received from LIC on maturity of LIC policy is exempt under section 10(10D)

2. Investment under section 80C is allowed even from past savings and out of incomes exempt from tax.

3. Any award/reward of Central Government or State Government notified under section 10(17A) shall be exempt from income tax.

Working Note 1:

 Rs. (a) Fair Rent 75,000 (b) Municipal valuation 76,000 (c) Higher of (a) or (b) 76,000 (d) Expected Rent 76,000 (e) Rent Received or Receivable 78,000 GAV = Higher of (d) or (e) 78,000

Working Note 2:

 Rs. (a) Fair Rent 82,000 (b) Municipal valuation 75,000 (c) Higher of (a) or (b) 82,000 (d) Expected Rent 82,000 (e) Rent Received or Receivable 85,000 GAV = Higher of (d) or (e) 85,000

Working Note 3:

Current period interest

From 01.04.2021 to 30.09.2021

= 2,00,000 x 10% x 6/12

= Rs.10,000 (From 01.10.2021 to 31.03.2022)

= 2,00,000 x 9.5% x 6/12

= Rs. 9,500

Total interest = 10,000 + 9,500 = 19,500

Q-36: Rudra Ltd. has one unit at Special Economic Zone (SEZ) and other unit at Domestic Tariff Area (DTA), the company provides the following details for the previous year 2021-22.

 Particulars Rudra Ltd. (Rs.) Unit in DTA (Rs.) Total Sales 6,00,00,000 2,00,00,000 Export Sales 4,60,00,000 1,60,00,000 Net Profit 80,00,000 20,00,000

Calculate the eligible deduction under section 10AA of the Income-tax Act, 1961, for the Assessment Year 2022-23, in the following situations:

(i) If both the units were set up and start manufacturing from 22.05.2015.

(ii) If both the units were set up and start manufacturing from 14.05.2019.

Ans:-

(i) 50% of the profit derived from export of articles or things or services is eligible for deduction under section 10AA, F.Y.2021-22 falls in the next five year period commencing from the year of manufacture or production of articles or things or provision of services by the Unit in SEZ. As per section 10AA, the profit derived from export of articles or things or services shall be

= Profit of the business of Unit in SEZ x$${???????????????????????? ???????????????????????????????? ???????? ???????????????? ???????? ????????\over ???????????????????? ???????????????????????????????? ???????? ???????????????? ???????? ????????}$$

= 50% of Rs. 60 lakhs x(300 lakhs/400 lakhs)

= 50% x Rs.45 lakhs

= Rs.22.5 lakhs

(ii) 100% of the profit derived from export of articles or things or services is eligible for deduction under section 10AA, F.Y.2021-22 falls in the first five year period commencing from the year of manufacture or production of articles or things or provision of services by the Unit in SEZ. As per section 10AA, the profit derived from export of articles or things or services shall be

= Profit of the business of Unit in SEZ x$${export Turnover of unit in SEZ\over Total Turnover of Unit in SEZ}$$

= 100% of Rs.60 lakhs x{300 lakhs / 400lakh}

= 100% x Rs.45 lakhs

= Rs.45 lakhs

Q-37:

ABC (HUF) has incomes as given below:

2. Income under the head House Property Rs.4,00,000

3. Long term capital gains Rs.4,50,000

4. Short term capital gains under section 111A Rs.3,50,000

5. Casual Income Rs.3,50,000

6. Deductions allowed under section 80C to 80U Rs.1,25,000

Compute tax liability of HUF for the assessment year 2022-23.

Ans:-

 Computation of Total Income Rs. Income under the head Business/Profession 6,00,000.00 Income under the head House Property 4,00,000.00 Income under the head Capital Gains Long term capital gains 4,50,000 Short term capital gains u/s 111A 3,50,000 8,00,000.00 Income under the head Other Sources (Casual Income) 3,50,000.00 Gross Total Income 21,50,000.00 Less: Deduction u/s 80C to 80U (1,25,000.00) Total Income 20,25,000.00

Computation of Tax Liability

 Tax on LTCG Rs.4,50,000 @ 20% u/s 112 90,000.00 Tax on STCG Rs.3,50,000 @ 15% u/s 111A 52,500.00 Tax on Casual income Rs.3,50,000 @ 30% u/s 115BB 1,05,000.00 Tax on Rs.8,75,000 at slab rate 87,500.00 Tax before health & education cess 3,35,000.00 Add: HEC @ 4% 13,400.00 Tax Liability 3,48,400.00

Q-38: Mrs. X has income as given below:

 Rs. Income under the head Salary 3,00,000 Income under the head House Property 1,00,000 Short Term Capital Gain 50,000
 Short Term Capital Gain111A 2,00,000 Long Term Capital Gain 1,50,000 Casual Income 70,000 Deduction u/s 80C to 80U 1,10,000 Agricultural Income 5,00,000

Compute her Tax Liability for the A.Y.2022-23

Ans:-

 Computation of Total Income Rs. Income under the head Salary 3,00,000 Income under the head House Property 1,00,000 Income under the head Capital Gains Short Term Capital Gain 50,000 Short Term Capital Gain111A 2,00,000 Long Term Capital Gain 1,50,000 Income under the head Capital Gains 4,00,000 Casual Income 70,000 Gross Total Income 8,70,000 Less: Deduction u/s 80C to 80U (1,10,000) Total Income 7,60,000 Agricultural Income 5,00,000

Computation of Tax Liability

 Tax on casual income Rs.70,000 @ 30% u/s 115BB 21,000 Tax on long term capital gain Rs.1,50,000 @ 20% u/s 112 30,000 Tax on short term capital gain Rs.2,00,000 @ 15% u/s 111A 30,000 Normal income Rs.3,40,000 Step 1. Tax on (3,40,000 + 5,00,000) 80,500
 Step 2. Tax on (Rs.2,50,000 + 5,00,000) at slab rates (62,500) Step 3. Deduct Tax at Step 2 from Tax at Step 1 18,000 Tax before health & education cess 99,000 Add: HEC @ 4% 3,960 Tax Liability 1,02,960

Q-39: Discuss the taxability of agricultural income under the Income Tax Act, 1961. How will income be computed where an individual derives agricultural and non-agricultural income?

Ans:- Under section 10(1), any agricultural income in India is fully exempt from income tax but if the agricultural income is from outside India, it is chargeable to tax.

Indirect taxing of agricultural income or partial integration of agricultural income (Under the constitution, the power to levy a tax on agricultural income vests in the states. However, parliament has also levied a tax on such income. Explain how this has been achieved?)

If any person has agricultural income as well as non-agricultural income, his tax liability shall be computed in the manner given below:

1. Compute tax on the total of agricultural income and non- agricultural income considering it to be total income of the assessee.

2. Compute tax on exemption limit (Rs.2,50,000 / 3,00,000 / 5,00,000) and agricultural income considering it to be total income.

3. Deduct tax computed under Step 2 from Step 1 and apply health & education cess.

4. Long term capital gain, casual income and short term capital gain u/s 111A shall not be taken into consideration for the purpose of partial integration

5. If Agricultural income is upto Rs.5,000, or non-agricultural income is upto the limit not chargeable to tax (Rs.2,50,000/3,00,000/5,00,000), partial integration is not applicable.

6. Partial integration is not applicable in case of a partnership firm or a company.

Q-40:

Mr. Rajat Saini, aged 32 years, furnishes the following details of his total income for the A.Y. 2022-23:

 Income under the head Salary 27,88,000 Income under the head House Property 15,80,000 Income under the head Other sources 7,22,000

He has not claimed any deduction under chapter VIA. You are required to compute tax liability of Mr. Rajat Saini as per the provisions of Income Tax Act, 1961.

Ans:-

 Computation of Total Income Rs. Income under the head Salary 27,88,000 Income under the head House Property 15,80,000 Income under the head Other sources 7,22,000 Gross Total Income 50,90,000 Less: Deduction u/s 80C to 80U Nil Total Income 50,90,000

Computation of Tax Liability

 Total Income 50,90,000 Tax on Rs.50,90,000 at slab rate 13,39,500 Add: Surcharge @ 10% 1,33,950 Tax before marginal relief 14,73,450 Less: Marginal Relief (70,950) Tax after marginal relief 14,02,500 Add: HEC @ 4% 56,100 Tax Liability 14,58,600

Working Note:

 Tax + surcharge on income of Rs.50,90,000 14,73,450 Tax on income of Rs.50,00,000 (13,12,500) Increase in tax 1,60,950 Increase in income 90,000 Marginal Relief (1,60,950 –90,000) 70,950

Q-41:

Mr. X has incomes as given below:

1. Income under the head house property Rs.15,00,000

2. Gift of a painting from a friend with market value Rs.2,00,000

3. Gift of shares and securities from Mrs. X valued Rs.3,00,000

4. Agricultural income Rs.3,00,000

He has paid advance tax as given below:

 Upto 15th June 2021 Rs.15,000 Upto 15th Sept 2021 Rs.30,000 Upto 15th Dec 2021 Rs.50,000 Upto 15th Dec 2021 Rs.50,000

Balance amount of tax was paid and return of income was filed on 10th Sept 2022.

Compute his tax liability for the Assessment Year 2022-23 and also interest under section 234A, 234B and 234C.

Ans:-

 Computation of Total Income Rs. Income under the head House Property 15,00,000 Income under the head Other Sources Gift in kind received from a friend 2,00,000 Gross Total Income 17,00,000 Less: Deduction u/s 80C to 80U Nil Total Income 17,00,000 Agricultural Income 3,00,000

Computation of Tax Liability

 Step 1. Tax on (17,00,000 + 3,00,000) at slab rates 4,12,500 Step 2. Tax on (Rs.2,50,000 + 3,00,000) at slab rates (22,500) Step 3. Deduct Tax at Step 2 from Tax at Step 1 3,90,000 Add: HEC @ 4% 15,600 Tax Liability 4,05,600

Interest u/s 234C

 Amount payable     Rs. Amount actually   paid Rs. Shortfall Rs. Upto 15.06 2021 (4,05,600 x 15%) 60,840 15,000 45,840 Rounded off under rule 119A = 45,800  Interest u/s 234C = 45,800 x 1% x 3 month = 1,374 Upto 15.09 2021 (4,05,600 x 45%) 1,82,520 30,000 1,52,520 Rounded off under rule 119A = 1,52,500  Interest u/s 234C = 1,52,500 x 1% x 3 month = 4,575 Upto 15.12.2021 (4,05,600 x 75%) 3,04,200 50,000 2,54,200 Interest u/s 234C = 2,54,200 x 1% x 3 month = 7,626 Upto 15.03.2022 (4,05,600 x 100%) 4,05,600 60,000 3,45,600 Interest u/s 234C = 3,45,600 x 1% x 1 month = 3,456

 Interest liability under section 234C Rs.17,031 Interest under section 234B (01-04-2022 to 10-09-2022) 3,45,600 x 1% x 6 Rs.20,736 Interest under section 234A (01-08-2022 to 10-09-2022) 3,45,600 x 1% x 2 Rs. 6,912

Q-42:

Mrs. X has income under the head house property Rs.18,00,000 and she has received gift of Rs.3,00,000 in cash from her husband’s sister and Rs.1,00,000 from her sister’s husband and Rs.1,20,000 from sister of her mother in law. She has agricultural income of Rs.4,00,000. She has paid advance tax as given below:

 Upto 15th June 2021 Rs. 15,000 Upto 15th Sept 2021 Rs. 45,000 Upto 15th Dec 2021 Rs. 75,000 Upto 15th March 2022 Rs.1,00,000

Balance amount of tax was paid on 10th Dec 2022 and return of income filed on the same date and due date for filing return of income is 31.07.2022.

Compute her tax liability for the Assessment Year 2022-23 and also interest under section 234A, 234B and 234C.

Ans:-

 Computation of Total Income Rs. Income under the head House Property 18,00,000 Income under the head Other Sources Gift received from sister of her mother in law 1,20,000 Gross Total Income 19,20,000 Less: Deduction u/s 80C to 80U Nil Total Income 19,20,000 Agricultural Income 4,00,000

Computation of Tax Liability

 Step 1. Tax on (19,20,000 + 4,00,000) at slab rates 5,08,500 Step 2. Tax on (Rs.2,50,000 + 4,00,000) at slab rates (42,500) Step 3. Deduct Tax at Step 2 from Tax at Step 1 4,66,000 Add: HEC @ 4% 18,640 Tax Liability 4,84,640

Interest u/s 234C

 Amount  payable Rs. Amount actually  paid Rs. Shortfall Rs. Upto 15.06 2021 (4,84,640 x 15%) 72,696 15,000 57,696 Rounded off under rule 119A = 57,600  Interest u/s 234C = 57,600 x 1% x 3 month = 1,728 Upto 15.09 2021 (4,84,640 x 45%) 2,18,088 45,000 1,73,088 Rounded off under rule 119A = 1,73,000  Interest u/s 234C = 1,73,000 x 1% x 3 month = 5,190 Upto 15.12.2021 (4,84,640 x 75%) 3,63,480 75,000 2,88,480 Rounded off under rule 119A = 2,88,400  Interest u/s 234C = 2,88,400 x 1% x 3 month = 8,652 Upto 15.03.2022 (4,84,640 x 100%) 4,84,640 1,00,000 3,84,640 Interest u/s 234C = 3,84,600 x 1% x 1 month = 3,846

 Interest liability under section 234C Rs.19,416 Interest under section 234B (01-04-2022 to 10-12-2022) 3,84,600 x 1% x 9 Rs. 34,614 Interest under section 234A (01-08-2022 to 10-12-2022) 3,84,600 x 1% x 5 Rs. 19,230

Q-43

(a) Under section 208, obligation to pay advance tax arises in every case where the advance tax payable is Rs. 10,000 or more, State exception to this rule.

(b) Who is liable to pay Advance Tax? What is the procedure to compute the Advance Tax payable?

Ans:-

(b) As per section 207, every person is liable to pay advance tax however a senior citizen is exempt from payment of advance tax provided he do not have any income under the head Business/Profession. As per section 208, every person in whose case tax payable is less than Rs. 10,000 shall also be exempt from payment of advance tax. For this purpose, the assessee himself shall estimate his tax liability / tax payable and shall pay advance tax in installments given under section 211. An assessee is exempt from payment of advance tax with regard to capital gains and casual income but advance tax should be paid after accrual of such income in subsequent installments. Net agricultural income is also to be considered for the purpose of computing advance tax.

A person may increase or reduce the amount of advance tax payable in subsequent installment(s) in accordance with his estimate of current income.

Q 44:

Examine whether TDS provisions would be attracted in the following cases, and if so, under which section. Also specify rate of TDS applicable in each case. Assume that all payments are made to residents.

 Particulars of the payer Nature of payment Aggregate of payments  made in the F.Y.2021- 22 1 Mr. Ganesh, an individual carrying on   retail business with turnover of Rs. 2.5   crores in the P.Y.2020-21 Contract Payment for   repair of residential house Rs. 5 lakhs Payment of commission to   Mr.  Vallish for business   purposes Rs.80,000 2 Mr. Rajesh, a wholesale trader and   turnover for P.Y.2020-21 is 95 lakhs and   for P.Y.2021-22 105 lakhs Contract  payment for   reconstruction of residential   house (made during the   period  January-March, 2022) Rs. 20 lakhs in January,   2022, Rs.15 lakhs in Feb   2022 and Rs.20 lakhs in   March 2022. 3. Mr. Satish, a salaried individual Payment of brokerage for   buying a residential house in   March, 2022 Rs. 51 lakhs 4. Mr. Dheeraj, a pensioner Contract payment made during    October– November 2021 for reconstruction of residential house Rs. 48 lakhs

Ans:-

 Particulars of the   payer Nature of payment Aggregate of payments   made in the F.Y.2021-22 Whether TDS provisions are attracted? 1. Mr. Ganesh, an individual carrying on retail business with turnover of Rs. 2.5 crores in the P.Y.2020-21 Contract Payment for repair of residential house Rs. 5 lakhs No, TDS under section 194C is not attracted since the payment is for personal purpose and TDS under section 194M is not attracted as aggregate of contract payment to the payee in the P.Y.2021-22 does not exceed Rs. 50 lakh. Payment of   commission to Mr.   Vallish for business purposes Rs. 80,000 Yes, u/s 194H, since the payment exceeds Rs. 15,000, and Mr. Ganesh’s turnover exceeds Rs. 1 crore in the P.Y.2020-21. 2 Mr. Rajesh Contract Payment for reconstruction of residential house Rs. 55 lakhs Yes, under section 194M,   since the aggregate of   payments (i.e., Rs. 55   lakhs) exceed Rs. 50   lakhs, Since his turnover   is  below Rs. 100 lakhs in   the   P.Y.2020-21. Hence,   TDS provisions under   section 194C are not   attracted in respect of   payments made in the   P.Y.2021-22. 3. Mr. Satish, a salaried   individual Payment of brokerage for buying a residential house Rs. 51 lakhs Yes, under section 194M, since the payment of Rs. 51 lakhs made in March 2022 exceeds the threshold limit of Rs. 50 lakhs. Since Mr. Satish is a salaried individual, the CAtestseries.org (Since 2015) – CA Final Inter Foundation online Test Series Page 89 provisions of section 194H are not applicable in this case 4. Mr. Dheeraj,a pensioner Contract payment for reconstruction of residential house Rs. 48 lakhs TDS provisions under section 194C are not attracted since Mr. Dheeraj is a pensioner and TDS provisions under section 194M are also not applicable in this case, since the payment of Rs. 48 lakhs does not exceed the threshold limit of Rs. 50 lakhs

Q 45:

State in brief the applicability of tax deduction at source provisions, the rate and amount of tax deduction in the following cases for the financial year 2021-2022 under the Income -tax Act, 1961. Assume that all payments are made to residents:

(i) Sanjay, a resident individual, not deriving any income from business or profession makes payment of Rs. 12 lakhs in January, 2022, Rs. 20 lakh in February, 2022 and Rs.20 lakh in March, 2022 to Mohan, a contractor for reconstruction of his residential house.

(ii) ABC Ltd. makes the payment of Rs. 1,50,000 to Ramlal, an individual transporter who owned 6 goods carriages throughout the previous year, He does not furnish his PAN.

(iii)Smt. Sarita paid Rs. 5,000 on 17th April,2021 to Smt. Deepa from the deposits in National savings Scheme account.

Ans:-

(i) Yes, under section 194M since the aggregate of payments (i.e., Rs. 52 lakhs) exceeds Rs. 50 lakhs and his turnover is below Rs. 100 lakhs in the P.Y.2020-21. Hence, TDS provisions under section 194C are not attracted in respect of payments made in the P.Y.2021-22 and section 194M gets attracted as the aggregate payments exceeds 50 lakhs, hence he is liable to deduct TDS @ 5% on 52,00,000 = 2,60,000.

(ii) As per section 194C, No tax shall be deducted at source in case of payment to a contractor in connection with transportation of goods where such contractor do not own more than 10 goods carriages at any time during the year and also submitted a declaration in this regard and has also furnished permanent account number. But in the given case transporter has not furnished his PAN hence ABC limited can deduct TDS u/s 194C.

As transporter has not furnished his PAN then section 206AA shall also be applicable and TDS shall be deducted @ 20% on 1,50,000 = 30,000.

(iii) As per section 194EE, the person responsible for paying to any person any amount from deposits under National saving scheme shall, at the time of payment thereof, deduct income- tax thereon at the rate of 10% provided amount is exceeding 2,500 in a financial year. In the given case amount exceeds 2,500 hence TDS shall be deducted @ 10% on 5,000 = 500.

Q-46:

Elaborate the conditions, non-fulfilment of which would render a return of income filed by an assessee not maintaining regular books of accounts, defective.
Ans:-

As per section 139(9) a return shall be considered to be defective if all of columns have not been filled in properly or the required document has not been enclosed with the return. Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of such intimation. The Assessing Officer has the discretion to extend the time period beyond 15 days, on an application made by the assessee. If the defect is not rectified within the period of 15 days or such further extended period, then the return would be treated as an invalid return. The consequential effect would be the same as if the assessee had failed to furnish the return.

Where regular books of accounts is not maintained by the assessee, return shall be accompanied by the followings:

1. amount of turnover or gross receipts

2. gross profit

3. expenses

4. net profit

5. the amount of total sundry debtors, creditors, stock and cash balance at the end of the previous year.

Non fulfilment of above details return shall be treated as defective.

Q-47:

(a) ABC Ltd. has loss under the head Business/Profession Rs.7,00,000 for the previous year 2021-22 and the company has filed the return of loss on 01.11.2022 under section 139(3). Discuss whether set off or carried forward and set off of the loss is allowed or not.

(b) For the previous year 2021-22, Mr. X an assessee shall be allowed to file belated return of income latest upto________.

(c) For the previous year 2021-22, Mr. X has filed original return of income on 01.07.2022, he can file revised return of income latest upto_________       .

(d) For the previous year 2021-22, Mr. X has filed original return of income on 01.11.2022, he can file revised return of income latest upto__________

(e) Mr. X has filed original return for previous year 2021-22 on 01.07.2022 and revised return on 01.11.2022 and he further wants to revise the return on 01.12.2022. Discuss whether he is allowed to do so or not.

Ans:-

(a) The company is allowed to set off the loss during the previous year 2021-22 but its carried forward is not allowed because return of loss has to be filed within the time allowed under section 139(1) i.e. 31.10.2022 in the above case.

(b) 31.12.2022

(c) 31.12.2022

(d) 31.12.2022

(e) A revised return can also be revised further any number of times, however, if the earlier return has already been assessed, revised return is not allowed subsequently. In the given case, revised return can be filed on 01.12.2022.

Q-48: Mr. Hari aged 57 years is a resident of India. He provides you the following details of his incomes pertaining to F.Y. 2021-22.

 - Interest on Non-Resident (External) Account maintained with State Bank of  India as per RBI stipulations Rs. 3,55,000 - Interest on savings bank account maintained with State Bank of India Rs. 8,000 - Interest on Fixed Deposits with Punjab National Bank Rs. 40,000

He seeks your advice on his liability to file return of income as per Income-tax Act, 1961 for the Assessment Year 2022-23.

What will be your answer, if he has incurred Rs. 4 lakhs on travel expenses of his newly married son and daughter in law's honeymoon in Canada?

Ans:-

An individual is required to furnish a return of income under section 139(1) if his total income, before giving effect to the deductions under Chapter VI-A or exemption under section 54/54B/54D/54EC or 54F, exceeds the maximum amount not chargeable to tax i.e., Rs. 2,50,000.

Computation of total income of Mr. Hari for A.Y. 2022-23

 Particulars Rs. Income from other sources Interest earned from Non-resident (External) Account Rs. 3,55,000 [Exempt  u/s 10(4)(ii), since he is maintaining the said account as per RBI stipulations] NIL Interest on savings bank account 8,000 Interest on fixed deposit with Punjab National Bank 40,000 Gross Total Income 48,000 Less: Deduction u/s 80TTA (Interest on saving bank account) (8,000) Total Income 40,000

Since the total income of Mr. Hari for A.Y.2022-23, before giving effect, inter alia, to the deductions under Chapter VI-A, is less than the basic exemption limit of Rs. 2,50,000, he is not required to file return of income for A.Y.2022-23.

However, if he has incurred expenditure exceeding Rs. 2 lakhs for himself or any other person for travel to a foreign country, he would be required to file a return of income, even if his total income does not exceed the basic exemption limit. Since he has incurred expenditure of Rs. 4 lakhs on foreign travel of his newly married son and daughter in law in the F.Y. 2021-22, he has to mandatorily file his return of income for A.Y. 2022-23 on or before the due date under section 139(1).

Q-49:

Write a note on Defective Return of Income Section 139(9).

Ans:-

Defective Return Section 139(9)

1. Under this section, the Assessing Officer has the power to call upon the assessee to rectify a defective return.

2. Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of such intimation. The Assessing Officer has the discretion to extend the time period beyond 15 days, on an application made by the assessee.

3. If the defect is not rectified within the period of 15 days or such further extended period, then the return would be treated as an invalid return. The consequential effect would be the same as if the assessee had failed to furnish the return.

4. Where, however, the assessee rectifies the defect after the expiry of the period of 15 days or the further extended period, but before assessment is made, the Assessing Officer can condone the delay and treat the return as a valid return.

5. A return of income shall be regarded as defective in the following cases:

(a) If annexures, statements and columns in the return of income relating to computation of income have not been filled in properly and also the required documents have not been enclosed.

(b) The columns are filled wrongly or filled incompletely

(c) Where regular books of account are not maintained by the assessee, the return should be accompanied by –

(i) a statement indicating –

1. the amount of turnover or gross receipts,

2. gross profit,

3. expenses; and

4. net profit of the business or profession;

(ii) the basis on which such amounts mentioned in (i) above have been computed,

(iii) the amounts of total sundry debtors, sundry creditors, stock-intrade and cash balance as at the end of the previous year.

Q-50:

Write a note on submission of returns through Tax Return Preparers.

Ans:-

Scheme for submission of returns through Tax Return Preparers Section 139B

In order to help the persons having low income or tax liability, department has started scheme of Tax Return Preparer who will file return for such persons. For this purpose department shall select and appoint TRPs. The tax return preparer shall hold a graduation degree from a recognised Indian university or other specified qualifications but such persons should not be a Chartered Accountant or other specified persons.

A person may approach a TRP for filing the return of income but any person who is required to get his accounts audited shall not be allowed to file the return through the Tax Return Preparer.

Similarly any non-resident shall not be allowed to file return through Tax Return Preparer.

The department shall pay a commission of 3% of the tax paid on the income declared in the return or Rs.1,000 whichever is less. A TRP shall be entitled for a minimum payment of Rs.250 and if commission paid is less than Rs.250, he can receive the difference amount from the assessee whose return is being filed.

e.g. A TRP has deposited tax of Rs.60,000 on the basis of return filed by it, in this case commission payable shall be 60,000 x 3% = 1,800 but maximum Rs.1,000. If tax paid is Rs.20,000, commission payable shall be 20,000 x 3% = 600. If tax paid is Rs.5,000, commission payable shall be Rs.5,000 x 3% = 150 and TRP shall allowed to charge Rs.100 from the assessee.

Q-51:

ABC Ltd is engaged in manufacturing and registered under GST Act and the company has submitted information as given below:

Purchased raw material ‘A’ from some other state Rs.1,00,000 + IGST @ 15%. Purchased raw material ‘B’ from Delhi Rs.3,00,000 + CGST @ 10% + SGST @ 10%

Processing charges 4,00,000. Taken services of production engineer and paid Rs.3,00,000 + CGST @ 7.5% + SGST @ 7.5%. Profit Rs.5,00,000 and entire product was sold and charged output tax CGST @ 10% + SGST @ 10% . Compute Net Tax Payable.

Ans:-

 Raw Material ‘A’ Rs. Transaction Value 1,00,000.00 Add: IGST @ 15% 15,000.00 1,15,000.00 Raw Material ‘B’ Transaction Value 3,00,000.00 Add: CGST @ 10% 30,000.00 Add: SGST @ 10% 30,000.00 3,60,000.00 Services 3,00,000.00 Add: CGST @ 7.5% 22,500.00 Add: SGST @ 7.5% 22,500.00 3,45,000.00 Cost of finished product Raw Material A 1,00,000.00 Raw Material B 3,00,000.00 Services 3,00,000.00 Processing 4,00,000.00 Cost 11,00,000.00 Add: Profit 5,00,000.00 Transaction value 16,00,000.00 Add: CGST @ 10% 1,60,000.00 Add: SGST @ 10% 1,60,000.00 19,20,000.00

Computation of Net Tax

 Particulars CGST Rs. Output Tax 1,60,000 Less : ITC Raw Material A - IGST (15,000) Less: ITC Raw Material B – CGST (30,000) Less: ITC Services – CGST (22,500) Tax Payable 92,500

Computation of Net Tax

 Particulars SGST Rs. Output Tax 1,60,000 Less: ITC Raw Material B – SGST (30,000) Less: ITC Services – SGST (22,500) Tax Payable 1,07,500

Q-52:

Mr. Harihar, a supplier of goods, pays GST under regular scheme. He has made the following outward taxable supplies in a tax period:

 Particulars Rs. Intra-State supply of goods 10,00,000 Inter-State supply of goods 8,00,000

He has also furnished the following information in respect of purchases made by him in that tax period:

 Particulars Rs. Intra-State Purchase of goods 3,00,000 Inter-State Purchase of goods 2,50,000

Mr. Harihar has following ITCs with him at the beginning of the tax period:

 Particulars Rs. CGST 57,000 SGST 60,000 IGST 1,40,000

Notes:

(i)Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.

(ii) Both inward and outward supplies are exclusive of taxes, wherever applicable.

(iii)All the conditions necessary for availing the ITC have been fulfilled.

Compute the minimum GST payable in cash, by Mr. Harihar for the tax period and the ITC to be carried forward to the next month. Make suitable assumptions as required.

Ans:-

Computation of GST payable on outward supplies

 S.NO Particulars CGST @ 9%  (Rs.) SGST@ 9%  (Rs.) IGST@ 18%  (Rs.) Total (Rs.) (i) Intra-State supply of goods for  Rs. 10,00,000 90,000 90,000 1,80,000 (ii) Inter-State supply of goods for  Rs. 8,00,000 1,44,000 1,44,000 Total GST Payable 3,24,000

Computation of total ITC

 Particulars CGST @ 9%  (Rs.) SGST@ 9%  (Rs.) IGST@ 18%  (Rs.) Opening ITC 57,000 60,000 1,40,000 Add: ITC   on   Intra-State   purchases   of  goods valuing Rs.3,00,000 27,000 27,000 Nil Add: ITC on Inter-State purchases of goods   valuing Rs.2,50,000 Nil Nil 45,000 Total ITC 84,000 87,000 1,85,000

Computation of minimum GST payable from cash ledger

 Particulars CGST @ 9% (Rs.) SGST@ 9%  (Rs.) IGST@ 18% (Rs.) Total GST  (Rs.) GST payable 90,000 90,000 1,44,000 3,24,000 Less: ITC [First ITC of IGST should be utilized   in full - first against IGST liability and then   against CGST and SGST liabilities in a manner   to minimize cash outflow] (38,000) IGST (3,000) IGST (1,44,000)   IGST 1,85,000  IGST (52,000)  CGST (87,000)  SGST 1,39,000 Minimum GST payable in cash Nil Nil Nil Nil ITC balance to be carried forward next  month 32,000 Nil Nil 32,000

Notes: The above computation is one of the many ways to set off the ITC of IGST

(Rs.41,000-after set off against IGST liability) against CGST and SGST liability to compute minimum GST payable in cash. To illustrate, IGST of Rs. 10,000 can be set off against SGST payable and IGST of Rs.31,000 can be set off against CGST payable. In this situation also, the net GST payable will be nil but the ITC of CGST and SGST to be carried forward will be Rs.25,000 and Rs.7,000 (totaling to Rs.32,000) respectively. However, if the entire ITC of Rs.41,000 is set off against CGST payable, then SGST of Rs.3,000 will be payable in cash thus, increasing the cash outflow. Therefore, such a set off would not be advisable for computing the minimum GST payable.

Q-53:

Mr. Ajay, a registered supplier of goods, pays GST under regular scheme and provides the following information for the month of August 2021:

 Particulars (Rs.) (i) Inter-state taxable supply of goods 10,00,000 (ii) Intra state taxable supply of goods 2,00,000 (iii)Intra state purchase of taxable goods 5,00,000

He has the following Input tax credit at the beginning of August 2021:

 Nature ITC Amount in (Rs.) CGST 20,000 SGST 30,000 IGST 25,000

Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively.

Both inward and outward supplies are exclusive of taxes wherever applicable. All the conditions necessary for availing the ITC have been fulfilled.

Compute the net GST payable by Mr. Ajay for the month of August 2021.

Ans:-

Computation of net GST payable by Mr. Ajay for the month of August 2021

 Rs. Purchase price 5,00,000 Add: CGST @ 9% 45,000 Add: SGST @ 9% 45,000 Total 5,90,000

Input tax credit of CGST & SGST is allowed.

Output Tax

Inter-state taxable supply of goods

 Sale Value 10,00,000 Add: IGST @ 18% 1,80,000 Total 11,80,000

Intra-state taxable supply of goods

 Sale Value 2,00,000 Add: CGST @ 9% 18,000 Add: SGST @ 9% 18,000 Total 2,36,000

Computation of Net Tax

 IGST Rs. Output tax 1,80,000 Less: ITC b/f – IGST (25,000) Less: ITC – CGST (47,000) Less: ITC – SGST (57,000) Net Tax Payable 51,000
 CGST Rs. Output tax 18,000 Less: ITC Goods – CGST (18,000) Net Tax Payable Nil SGST Rs. Output tax 18,000 Less: ITC Goods – SGST (18,000) Net Tax Payable Nil

Q-54:

ABC Limited is a manufacturing concern and the company has submitted the particulars as given below:-

Purchased raw material, R1: Rs.2,00,000 (+) CGST @10% (+) SGST @10% Purchased raw material, R2: Rs.3,00,000 (+) IGST @ 20%

The company purchased plant and machinery for Rs.10 Lakhs and paid CGST @10% plus SGST @ 10%.

Life of the plant and machinery is 5 years and depreciation is allowed @ 20% on SLM.

The company has taken certain services in connection with manufacturing of goods and has paid Rs.3,00,000 plus CGST @10% plus SGST @ 10%. Other processing expenditure incurred by the company is Rs.5,00,000 and profit is Rs.8,00,000. Final product was sold by the company and output CGST @10% plus SGST @ 10%. Company is registered under GST ACT. Compute Net Tax Payable.

Ans:-

 Rs. Raw material –R1 Purchase price 2,00,000.00 Add: CGST @ 10% 20,000.00 Add: SGST @ 10% 20,000.00 2,40,000.00

 Raw material –R2 Purchase price 3,00,000.00 Add: IGST @ 20% 60,000.00 3,60,000.00 Capital goods Purchase price 10,00,000.00 Add: CGST @10% 1,00,000.00 Add: SGST @10% 1,00,000.00 12,00,000.00 Services 3,00,000.00 Add: CGST @10% 30,000.00 Add: SGST @10% 30,000.00 3,60,000.00

Cost of final product

 Raw material –R1 2,00,000.00 Raw material –R2 3,00,000.00 Depreciation on Capital goods (10,00,000 @ 20%) 2,00,000.00 Services 3,00,000.00 Other processing charges 5,00,000.00 Profit 8,00,000.00 Transaction Value 23,00,000.00 Add: CGST @10% 2,30,000.00 Add: SGST @10% 2,30,000.00 27,60,000.00

Computation of Net Tax Payable

 CGST Rs. Output Tax 2,30,000 Less: ITC Raw Material 2 - IGST (60,000) ITC Raw material – R1 – CGST (20,000) ITC Plant and machinery – CGST (1,00,000) ITC Tax on Input Services – CGST (30,000) Net tax payable 20,000

Computation of Net Tax Payable

 SGST Rs. Output Tax 2,30,000 Less: ITC Raw material – R1 – SGST (20,000) ITC Plant and machinery – SGST (1,00,000) ITC Services – SGST (30,000) Net tax payable 80,000

Assessee has the option to adjust ITC of IGST either from output CGST or from output SGST

Q-55:

Explain the composite supply and mixed supply. If a trader launches a package sales for marriage contained double bed, refrigerator, washing machine, wooden wardrobe at a single rate. He is issuing of invoice showing value of each goods separately, whether this is case of mixed supply of composite supply. Explain.

Ans:-

Composite supply comprises of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply.

Mixed supply means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Items such as double bed, refrigerator, washing machine and wooden wardrobe are not naturally bundled and also the invoice for the supply shows separate values for each item i.e., the package is not supplied for a single price.

Therefore, supply of such items as a package will neither constitute a composite supply nor a mixed supply. Thus, the various items of the package will be treated as being supplied individually.

Note:

The question specifies that the various items are supplied at a ‘single rate’. The “single rate” expression is construed as single rate of tax in the above answer. Further, the “single rate” may also be construed as single price as given in the below mentioned answer.

Items such as double bed, refrigerator, washing machine and wooden wardrobe are not naturally bundled. Therefore, supply of such items as a package will not constitute composite supply. Further, a single price has been charged for the package.

Consequently, supply of such items as a package will be treated as mixed supply.

Q-56:

Prithvi Associates is engaged in supply of taxable goods. It enquires from its tax advisor as to whether any activity can be treated as supply even if made without consideration in accordance with the provisions of the CGST Act. Enumerate such activities, if any.

Ans:-

Section 7 stipulates that the supply should be for a consideration and should be in the course or furtherance of business. However, Schedule I of the CGST Act enumerates the cases where an activity is treated as supply, even if the same is without consideration. These are as follows:

(i) Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

(ii) Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business.

However, gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

(iii) Supply of goods —

1. by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

2. by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

(iv) Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Q-57:

Examine whether the following activities would amount to supply under section 7 read with Schedule I of the CGST Act:

(a) Sulekha Manufacturers have a factory in Delhi and a depot in Mumbai. Both these establishments are registered in respective States. Finished goods are sent from factory in Delhi to the Mumbai depot without consideration so that the same can be sold.

(b) Raman is an architect in Chennai. His brother who is settled in London is a well-known lawyer. Raman has taken legal advice from him free of cost with regard to his family dispute.

(c) Would your answer be different if in the above case, Raman has taken advice in respect of his business unit in Chennai?

Ans:-

(a) Schedule I of CGST Act, inter alia, stipulates that supply of goods or services or both between related persons or between distinct persons as specified in section 25, is supply even without consideration provided it is made in the course or furtherance of business. Further, a person who has obtained more than one registration, whether in one State/Union territory or more than one State/Union territory shall, in respect of each such registration, be treated as distinct persons [Section 25(4) of the CGST Act].

In view of the same, factory and depot of Sulekha Manufacturers are distinct persons. Therefore, supply of goods from Delhi factory of Sulekha Manufacturers to Mumbai Depot without consideration, but in course/furtherance of business, is supply under section 7 read with Schedule I of the CGST Act.

(b) Schedule I of CGST Act, inter alia, stipulates that import of services by a taxable person from a related person located outside India, without consideration is treated as supply if it is provided in the course or furtherance of business. Explanation to section 15, inter alia, provides that persons shall be deemed to be “related persons” if they are members of the same family. Further, as per section 2(49) of the CGST Act, 2017, family means, —

1. the spouse and children of the person, and

2. the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly dependent on the said person.

In the given case, Raman has received free of cost legal services from his brother. However, in view of section 2(49)(ii) above, Raman and his brother cannot be considered to be related as Raman’s brother is a well-known lawyer and is not wholly/mainly dependent on Raman. Further, Raman has taken legal advice from him in personal matter and not in course or furtherance of business. Consequently, services provided by Raman’s brother to him would not be treated as supply under section 7 read with Schedule I of the CGST Act.

(c) In the above case, if Raman has taken advice with regard to his business unit, services provided by Raman’s brother to him would still not be treated as supply under section 7 of the CGST Act read with Schedule I as although the same are provided in course or furtherance of business, such services have not been received from a related person.

Q-58:

PTL Pvt. Ltd. is a retail store of merchandise located in 25 States/UTs in the country. For the purpose of clearance of stock of merchandise and to attract consumers, PTL Pvt. Ltd. launched scheme of “Buy One Get One Free” for the same type of merchandise, for instance, one shirt to be given free with purchase of one shirt. Determine how the taxability of the goods supplied under “Buy One Get One Free” scheme is determined.

Ans:-

As per section 7(1)(a), the goods or services which are supplied free of cost (without any consideration) are not treated as “supply” except in case of activities mentioned in Schedule I of the CGST Act. Under “Buy One Get One Free” scheme, it may appear at first glance that in case of offers like “Buy One, Get One Free”, one item is being “supplied free of cost” without any consideration. However, it is not an individual supply of free goods, but a case of two or more individual supplies where a single price is being charged for the entire supply. It can at best be treated as supplying two goods for the price of one. Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed supply and the rate of tax shall be determined accordingly.

Q-59:

A person availing composition scheme, under sub-sections (1) & (2) of section 10, in Haryana during a financial year crosses the turnover of Rs. 1.5 crore in the month of December. Will he be allowed to pay tax under composition scheme for the remainder of the year, i.e. till 31st March? Please advise.

Ans:-

No. The option to pay tax under composition scheme lapses from the day on which the aggregate turnover of the person availing composition scheme for goods during the financial year exceeds the specified limit (Rs.1.5 crore). Once he crosses the threshold, he is required to file an intimation for withdrawal from the scheme in prescribed form within 7 days of the occurrence of such event.

Every person who has furnished such an intimation, may electronically furnish at the common portal, a statement in prescribed form containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn, within a period of 30 days from the date from which the option is withdrawn.

Q-60:

The due date for payment of tax by a person paying tax under section 10 of the CGST Act, 2017, i.e. a composition supplier is aligned with the due date of return to be filed by the said person. Discuss the correctness or otherwise of the statement.

Ans:-

The statement is not correct. Every registered person paying tax under section 10, i.e. a composition supplier, is required to file a return annually in Form GSTR-4. Form GSTR-4 for a financial year should be furnished by 30th April of the succeeding financial year. However, a composition supplier is required to pay his tax on a quarterly basis. A quarterly statement for payment of self-assessed tax in GST CMP-08 is required to be furnished by 18th day of the month succeeding such quarter. Therefore, while the return is to be furnished annually, payment of tax needs to be made on a quarterly basis, by a composition supplier.

Q-61:

Taxpayer ‘Bholaram’ is a trader, who has opted for composition levy for goods, of both taxable and exempted goods. It has one retail showroom – A1 in Punjab and another retail showroom – A2 in Rajasthan, both selling taxable as well as exempted goods. Total turnover (including taxable and exempted goods) of the two showrooms in last FY was Rs. 115 lakh (Rs. 85 lakh + Rs. 30 lakh). Turnover of showrooms A1 and A2 in the first quarter of current financial year is Rs. 35 lakh [A1 – Rs. 15 lakh (Rs. 5 lakh from sale of taxable goods and Rs. 10 lakh from sale of exempted goods) and A2 – Rs. 20 lakh (Rs. 10 lakh from sale of taxable goods and Rs.10 lakh from sale of exempted goods)].

Compute the amount payable under composition levy under section 10(1) & 10(2) of the CGST Act, 2017 by ‘Bholaram’.

Ans:-

 Retail Showroom Location Turnover in   Previous FY Taxable Turnover in 1st quarter of this  FY Total tax (@1%) A1 Punjab Rs. 85 lakh Rs. 5 lakh Rs. 5,000 A2 Rajsthan Rs. 30 lakh Rs. 10 lakh Rs. 10,000 Total Rs. 115 lakh Rs. 15 lakh Rs. 15,000

Note: A supplier, other than manufacturer and restaurant service provider, eligible for composition levy under section 10(1) & 10(2) has to pay tax @ 1% (CGST+ SGST) of the turnover of only taxable supplies of goods and services in the State.

Q-62: Mr. Ajay has a registered repair centre where electronic goods are repaired/serviced. His repair centre is located in State of Rajasthan and he is not engaged in making any inter-State supply of services. His aggregate turnover in the preceding financial year (FY) is Rs. 45 lakh.

With reference to the provisions of the CGST Act, 2017, examine whether Mr. Ajay can opt for the composition scheme under section 10(1) &10(2) of the CGST Act, 2017 in the current financial year? Or whether he is eligible to avail benefit of composition scheme under section 10(2A)? Considering the option of payment of tax available to Mr. Ajay, compute the amount of tax payable by him assuming that his aggregate turnover in the current financial year is Rs. 35 lakh.

Ans:-

Section 10(1) provides that a registered person, whose aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore, may opt to pay, in lieu of the tax payable by him, an amount calculated at the specified rates. However, as per proviso to section 10(1), person who opts to pay tax under composition scheme may supply services other than restaurant services, of value not exceeding 10% of the turnover in a State or Union territory in the preceding financial year or Rs. 5 lakh, whichever is higher.

In the given case, since Mr. Ajay is an exclusive supplier of services other than restaurant services [viz. repair services], he is not eligible for composition scheme under section 10(1) & 10(2).

However, section 10(2A) provides an option to a registered person (subject to certain conditions) whose aggregate turnover in the preceding financial year is upto Rs. 50 lakh and who is not eligible to pay tax under composition scheme under section 10(1) & 10(2), to pay tax @ 3% [Effective rate 6% (CGST+ SGST/UTGST)] of the turnover of supplies of goods and services in the State or Union territory.

Thus, in view of the above-mentioned provisions, Mr. Ajay is eligible to avail the composition scheme under section 10(2A) as his aggregate turnover in the preceding FY does not exceed Rs. 50 lakh and he is not eligible to opt for the composition scheme under section 10(1) & 10(2).

Thus, the amount of tax payable by him as per the composition scheme under section 10(2A) is Rs. 2,10,000 [6% of Rs. 35 lakh].

A registered person cannot opt for composition scheme under section 10(2A), if, inter alia, he is engaged in making any inter-State outward supplies. However, there is no restriction on inter- State procurement of goods. Hence, answer will remain the same even if Mr. Ajay procures few items from neighboring State of Madhya Pradesh.

Q-63: The temple of ancestral deity of Mr. Aman goel and his family is located at Beri, Haryana. The temple is run by a charitable organisation registered under section 12AA or 12AB of the Income Tax Act, 1961. The family has got unshakeable faith in their ancestral deity. Mr. Aman is a big entrepreneur having flourishing business of tiles in Gurugram. Upon the birth of their first child, he donated Rs.10 lakh to the said temple for construction of a sitting hall in the temple. On the main door of the sitting hall, a name plate was placed stating “Donated by Mr. Aman Goel upon birth of his first child”.

You are required to examine the leviability of GST on the donation received from Mr. Aman Goel?

Ans:- It has been clarified vide Circular No. 116/35/2019 GST dated 11.10.2019 that when the name of the donor is displayed in the religious institution premises, by placing a name plate or similar such acknowledgement, which can be said to be an expression of gratitude and public recognition of donor’s act of philanthropy and is not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of his business, then it can be said that there is no supply of service for a consideration (in the form of donation). There is no obligation (quid pro quo) on part of recipient of the donation or gift to do anything (supply a service). Therefore, there is no GST liability on such consideration.

In the given case, there is no reference or mention of any business activity of the donor which otherwise would have got advertised. Thus, since the gift or donation is made to a charitable organization, the payment has the character of gift or donation and the purpose is philanthropic (i.e., it leads to no commercial gain) and not advertisement, hence GST is not leviable.

Q-64: Discuss whether GST is payable in respect of transportation services provided by Raghav Goods Transport Agency in each of the following independent cases:

 Customer Nature of services provided Amount charged A Transportation of milk Rs. 20,000 B Transportation of books on a consignment transported  in a single goods carriage Rs. 3,000 C Transportation of chairs for a single consignee in the  goods carriage Rs. 600

Ans:-

 Customer Nature of services Provided Amount  Charged Taxability A Transportation of Milk Rs.20,000 Exempt. Transportation of milk  by goods transport agency is exempt. B Transportation of books on a   consignment transported in a single   goods carriage Rs.3,000 GST is payable. Exemption is   available for   transportation of goods   only where the consideration for   transportation of goods on a   consignment transported in a single   goods carriage does not exceed   Rs.1,500 C Transportation of chairs for a single consignee in the goods carriage Rs.600 Exempt. Transportation of goods   where consideration for transportation of all goods for a single consignee   does not exceed Rs.750/- is exempt.

Q-65: Mr. X started rendering services w.e.f. 01.04.2021 and registered under GST on 01.04.2021 and has submitted information as given below: (CGST & SGST has been charged separately @ 9% each).

1. Rendered services on 10.12.2021 to an agricultural farm relating to agricultural operation of Rs.40,00,000.

2. Renting of agro machinery on 05.06.2021 to an agricultural farm of Rs.10,00,000.

4. Renting of commercial property on 10.03.2022 for Rs.25,00,000 to XYZ Ltd.

5. Rendered service to ABC Ltd. for Rs.25,00,000 on 10.03.2022, issued bill on 20.03.2022, received payment on 01.03.2022.

Compute GST Payable for F.Y. 2021-22.

Ans:

Computation of GST Payable

 Particulars Rs. Rendered services to an agricultural farm in relating to agricultural operation Exempt Renting of agro machinery Exempt Advertisement on T.V 20,00,000 Renting of commercial property 25,00,000 Rendered service to ABC Ltd. 25,00,000 Value of Taxable Supply 70,00,000 CGST Payable Rs.70,00,000 x 9% 6,30,000 SGST Payable Rs.70,00,000 x 9% 6,30,000

Notes:

1. Rendered services to an agricultural farm in relating to agricultural operation is exempt.

2. Renting of agro machinery exempt.

Q-66:

Multi services Private Ltd., registered in Punjab, is engaged in supplying a variety of services. Its turnover was Rs.35 lakh in the preceding financial year. It has provided the following information for the month of April:

 Particulars Amount Fee for the coaching provided to students for competitive exams. The  coaching centre is run by Multi services Private Ltd. in Punjab (Intra-State transaction) 6,24,000 Receipts for services provided in relation to conduct of examination in  Pureit University, Delhi (providing education recognized by Indian law), being an inter-   State transaction 19,200 Amount received for transportation of students and faculty from their residence to Lotus   Public School - a higher secondary school – and back  (Intra-State transaction) 24,000 Amount received for providing the security and housekeeping services in  Dhaani Public School – a pre-school (Intra-State transaction) 36,000

Note: Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively. All the amounts given above are exclusive of taxes.

Compute the total GST liability of Multi services Private Ltd. for the month of April

Ans:-

Computation of net GST liability of Multi services Private Ltd. for the month of April:

 Particulars Value CGST @9% SGST @9% IGST @18% Fee for the coaching provided to students    for competitive exams [Note-1] 6,24,000 56,160 56,160 - Services towards conduct of examination   in Pureit University, Delhi [Note-2] 19,200 - - - Services of transportation of students and   faculty from their residence to Lotus Public   School and back [Note-3] 24,000 - - - Security and housekeeping services  in Dhaani Public School [Note-4] 36,000 - - - Total GST Liability 56,160 56,160 -

Notes:-

1. Coaching centre run by Mutiservices Private Ltd. is not an educational institution since competitive exam coaching does not lead to grant of a qualification recognized by law. Therefore, fee received for coaching provided at such coaching centre is taxable.

2. Since Pureit University provides qualification recognized by law, it is an educational institution and services provided to an educational institution, in relation to conduct of examination by such institution are exempt from GST.

3. Since Lotus Public School provides education up to higher secondary school, it is an educational institution and services of transportation of students, faculty and staff provided to an educational institution are exempt.

4. Since Dhaani Public School provides pre-school education, it is an educational institution. Security and housekeeping services provided within the premises of an educational institution are exempt.

Q-67:

M/s. Apna Bank Limited as Scheduled Commercial Bank has furnished the following details for the month of August, 2021:

 Particulars Amount Rs. in  Crores (Excluding   GST) Extended Housing Loan to its customers 100 Processing fees collected from its customers on sanction of loan 20 Commission collected from its customers on bank guarantee 30 Interest income on credit card issued by the bank 40 Interest received on housing loan extended by the bank 25 Minimum balance charges collected from current account and saving account holder 01

Compute the Value of Taxable supply. Give reasons with suitable assumptions.

Ans:-

Computation of value of taxable service and GST Payable by Apna Bank Limited.

 Sl. No Particulars Amount (Rs.) in crores (i) Extended Housing Loan to its customers Nil (ii) Processing fees collected from its customers on sanction of loan 20 (iii) Commission collected from its customers on bank guarantee 30 (iv) Interest income on credit card issued by the bank 40 (v) Interest received on housing loan extended by the bank Nil (vi) Minimum balance charges collected from current account and  saving account holder 01 Value of Taxable supply 91

Q-68:

Mr. X is a supplier of services registered in GST and has submitted the information as given below:

1. Rendered services on 01.05.2021 and issued bill on 10.06.2021 for Rs. 6 lakhs and payment was received on 10.12.2021

2. Rendered services on 07.06.2021 and issued bill on 30.06.2021 for Rs. 15 lakhs and payment was received on 07.03.2022.

3. Rendered services on 12.07.2021 and issued bill on 31.08.2021 for Rs. 30 lakhs and payment was received on 07.01.2022.

4. Rendered services on 22.11.2021 and issued bill on 28.12.2021 for Rs. 60 lakhs and payment was received on 18.11.2021.

All the above amounts are exclusive of GST and Rate of CGST is 9% and SGST is 9%.

Determine TOS in each case and also compute the GST Payable for each month and also last date upto which GST should be paid.

Ans:-

1. .First bill issued after 30 days of rendering of service hence TOS is 01/05/2021 and GST should be paid upto 20th June 2021.

2. Second bill issued within 30 days of rendering of service hence TOS is 30/06/2021 and GST should be paid upto 20th July 2021.

3. Third bill issued after 30 days of rendering of service hence TOS is 12/07/2021 and GST should be paid upto 20th August 2021.

4. Fourth bill issued after 30 days of rendering of service but payment has been received prior to rendering of service hence TOS is 18/11/2021 and GST should be paid upto 20th December 2021.

 Tax Liability for the Month of May Rs. First Bill (TOS 01/05/2021) 6,00,000.00 Add: CGST @ 9% 54,000.00 Add: SGST @ 9% 54,000.00 GST should be paid upto 20th June 2021 7,08,000.00 Tax Liability for the Month of June Rs. Second Bill (TOS 30/06/2021) 15,00,000.00 Add: CGST @ 9% 1,35,000.00 Add: SGST @ 9% 1,35,000.00 GST should be paid upto 20th July 2021. 17,70,000.00 Tax Liability for the Month of July Rs. Third Bill (TOS 12/07/2021) 30,00,000.00 Add: CGST @ 9% 2,70,000.00 Add: SGST @ 9% 2,70,000.00 GST should be paid upto 20th August 2021 35,40,000.00 Tax Liability for the Month of November Rs. Fourth Bill (TOS 18/11/2021) 60,00,000.00 Add: CGST @ 9% 5,40,000.00 Add: SGST @ 9% 5,40,000.00 GST should be paid upto 20th December 2021 70,80,000.00

Q-69: GST is payable on advance received for supply of goods and services taxable under forward charge. Do you agree with the statement? Support your answer with legal provisons.

Ans:- The statement is not correct. While GST is payable on advance received for supply of services taxable under forward charge, the same is not payable in case of advance received for supply of goods taxable under forward charge.

As per section 13, the time of supply of services taxable under forward charge is –

• Date of issue of invoice or date of receipt of payment, whichever is earlier, if the same is issued within 30 days from the date of supply of service;

OR

• Date of provision of service or date of receipt of payment, whichever is earlier, if the invoice is not issued within 30 days from the date of supply of service.

Thus, in case of services, if the supplier receives any payment before the provision of service or before the issuance of invoice for such service, the time of supply gets fixed at that point in time and the liability to pay tax on such payment arises. However, the tax can be paid by the due date prescribed with reference to such time of supply.

As regards time of supply of goods taxable under forward charge is concerned, a registered person (excluding composition supplier) should pay GST on the outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of issue of invoice or the last date on which invoice ought to have been issued in terms of section 31. Therefore, in case of goods, tax is not payable on receipt of advance payment.

Q-70:

You are required to determine the Time of supply for the following service:

ABC & Co., a firm of Chartered Accountants, renders service to M/s. ST & Sons in the month of December, 2021, which gets completed on 31st December, 2021. It is billed on 5th January, 2022, while the payment for the same is received on 2nd January, 2022.

Ans:-

As per section 13, Time of supply of services shall be the date of invoice or payment whichever is earlier but if the invoice is not issued within 30 days of supply of service, TOS shall be the date of supply of service or payment whichever is earlier. In the given case, Invoice is issued within 30 days but payment is received before the date of invoice hence TOS shall be the date of receiving payment i.e. 2nd January 2022.

Q-71:

(a) Sodexo meal coupons are sold to a company on 9th August for being distributed to the employees of the said company. The coupons are valid for six months and can be used against purchase of food items. The employees use them in various stores for purchases of various edible items on different dates throughout the six months. What is the date of supply of the coupons?

(b) Modern Security Co. provides service of testing of electronic devices. In one case, it tested a batch of devices on 4th and 5th September but could not raise invoice till 19th November because of some dispute about the condition of the devices on return. The payment was made in December.

What is the method to fix the time of supply of the service?

Ans:-

(a) As the coupons can be used for a variety of food items, which are taxed at different rates, the supply cannot be identified at the time of purchase of the coupons. Therefore, the time of supply of the coupons is the date of their redemption in terms of section 12.

(b) The time of supply of services, if the invoice is not issued in time, is the date of payment or the date of provision of service, whichever is earlier [Section 13].

In this case, the service is provided on 5th September but not invoiced within the prescribed time limit. Therefore, the date of provision of service, i.e., 5th September, will be the time of supply.

Q-72:

M/s. Flow Pro, a registered supplier, sold a machine to BP Ltd. It provides the following information in this regard: -

 S. No. Particulars Amount (Rs.) (i) Price of  the machine [excluding taxes and other charges  mentioned at S. Nos. (ii) and (iii)] 25,000 (ii) Third party inspection charges  [Such charges were payable by M/s Flow Pro but the same have  been directly paid by BP Ltd. to the inspection agency. These charges were  not recorded in the invoice issued by M/s Flow Pro.] 5,000 (iii) Freight charges for delivery of the machine  [M/s Flow Pro has agreed to deliver the goods at BP Ltd.’s premises] 2,000 (iv) Subsidy received from the State Government on sale of machine  under Skill Development Programme [Subsidy is directly linked to the price] 5,000 (v) Discount of 2% is offered to BP Ltd. on the price mentioned at S. No. (i) above and recorded in the invoice

Note: Price of the machine is net of the subsidy received.

Determine the value of taxable supply made by M/s Flow Pro to BP Ltd.

Ans:-

Computation of value of taxable supply made by M/s. Flow Pro to BP Ltd.

 Particulars Amount (Rs.) Price of the machine  [Since the subsidy is received from the State Government, the same is not includible in   the value of supply in terms of section 15(2)(e)] 25,000 Third party inspection charges  [Any amount that the supplier is liable to pay in relation to the supply but has been   incurred by the recipient and not included in the price actually paid or payable for the   goods, is includible in the value of supply in terms of section 15(2)(b)] 5,000 Freight charges for delivery of the machine  [Since arranging freight is the liability of supplier, it is a case of composite supply and   thus, freight charges are added in the value of principal supply.] 2,000 Total 32,000 Less: Discount @ 2% on Rs. 25,000 being price charged to BP Ltd.  [Discount given before or at the time of supply if duly recorded in the invoice is   deductible from the value of supply in terms of section 15(3)(a)] 500 Value of taxable supply 31,500

Q-73: Kamal Book Depot, a wholesaler of stationery items, registered in Mumbai, has received order for supply of stationery items worth Rs. 2,00,000/- on 12th November, 2021 from another local registered dealer, Mr. Mehta, Mumbai. Kamal Book Depot charged the following additional expenses from Mr. Mehta:-

 Particulars Amount  (Rs.) (i) Packing charges 5,000 (ii) Freight & Cartage 2,000 (iii) Transit insurance 1,500 (iv) Extra designing charges 6,000 (v) Taxes by Municipal Authority 500

The goods were delivered to Mr. Mehta on 14th November, 2021. Since Mr. Mehta was satisfied with the quality of the goods, he made the payment of goods the same day and simultaneously placed another order on Kamal Book Depot of stationery items amounting to Rs.10,00,000 to be delivered in the month of December, 2021**. On receipt of second order, Kamal Book Depot allowed a discount of Rs. 20,000 on the first order placed by Mr. Mehta.

Compute the GST liability of Kamal Book Depot for the month of November, 2021 assuming the rates of GST on the goods supplied as under:

CGST 9%

SGST 9%

Would your answer be different if expenses (i) to (v) given in above table are already included in the price of Rs.2,00,000?

Note:-

1. All the amounts given above are exclusive of GST.

2. Kamal Book Depot and Mr. Mehta are not related persons and price is the sole consideration of the supply.

**Payment and invoice for the second order will also be made in the month of December, 2021 only.

Ans:-

Computation of value of taxable supply and tax liability

 Particulars Amount (Rs.) Price of the goods [Note-1] 2,00,000 (i) Packing charges [Note-2] 5,000 (ii) Freight & Cartage [Note-3] 2,000 (iii) Transit Insurance [Note-3] 1,500 (iv) Extra Designing charges [Note-4] 6,000 (v) Taxes by Municipal Authority [Note-5] 500 Value of taxable supply 2,15,000 CGST @ 9% 19,350 SGST @ 9% 19,350

Notes:-

1. As per section 15(1) of the CGST Act, 2017, the value of a supply is the transaction value i.e. the price actually paid or payable for the said supply.

2. All incidental expenses including packing charged by the supplier to the recipient are includible in the value of supply in terms of section 15(2) of the CGST Act, 2017.

3. The given supply is a composite supply involving supply of goods (stationery items) and services (transit insurance and freight) where the principal supply is the supply of goods.      As per section 8(a) of the CGST Act, 2017, a composite supply is treated as a supply of the principal supply involved therein and charged to tax accordingly.

4. Any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services; is includible in the value of supply vide section 15(2) of the CGST Act, 2017. Thus, extra designing charges are to be included in the value of supply.

5. The taxes by Municipal Authorities are includible in the value of supply in terms of section 15(2) of the CGST Act, 2017.

6. In the given case, Mr. Mehta is allowed a discount of Rs. 20,000 on the goods supplied to him in the month of November, 2021. Since the said goods have already been delivered by Kamal Book Depot, this discount will be a post-supply discount.

Further, value of supply shall not include any discount which is given after the supply has been effected, if—

(ii) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply [Section 15(3) of the CGST Act, 2017].

However, in the given case, post-supply discount given to Mr. Mehta will not be allowed as a deduction from the value of supply since the discount policy was not known before the time of such supply although the discount can be specifically linked to relevant invoice (invoice pertaining to stationery items supplied to Mr. Mehta in November, 2021).

In case the expenses (i) to (v) given in above table are already included in the price of Rs.2,00,000: Since these expenses are includible in the value of supply by virtue of the reasons mentioned in explanatory notes above, no further addition will be required. Resultantly, the value of taxable supply will be Rs.2,00,000 and CGST and SGST will be Rs.18,000 and Rs.18,000 respectively.

Q-74:

Red Pepper Ltd., Delhi, a registered supplier, is manufacturing taxable goods. It provides the following details of taxable inter-State supply made by it during the month of March.

 S.No. Particulars Amount (Rs.) (i) List price of taxable goods supplied inter-state (exclusive of taxes) 15,00,000 (ii) Subsidy received from the Central Government for supply of  taxable goods to Government School (exclusively related to supply of goods   included at S. No. 1) 2,10,000 (iii) Subsidy received from an NGO for supply of taxable goods to an old age   home (exclusively related to supply of goods included at S. No.1) 50,000 (iv) Tax levied by Municipal Authority 20,000 (v) Packing charges 15,000 (vi) Late fee paid by the recipient of supply for delayed payment of consideration   (Recipient has agreed to pay Rs. 6,000 in lump sum and no additional amount   is payable by him) 6,000

The list price of the goods is net of the two subsidies received. However, the other charges/taxes/fee are charged to the customers over and above the list price.

Calculate the total value of taxable supplies made by Red Pepper Ltd. during the month of March. Rate of IGST is 18%.

Ans:-

Computation of total value of taxable supplies made by Red Pepper Ltd. during the month of March

 Particulars Amount (Rs.) List price of the goods 15,00,000 Subsidy amounting to Rs. 2,10,000 received from the Central Government  [Since the subsidy is received from the Government, the same is not includible in the   value in terms of section 15(2)(e)] NIL
 Subsidy received from NGO  [Since the subsidy is received from a non-Government body and directly linked to the   supply, the same is includible in the value in terms of section 15(2)(e)] 50,000 Tax levied by the Municipal Authority  [Includible in the value as per section 15(2)(a)] 20,000 Packing charges  [Being incidental expenses, the same are includible in the value as per section 15(2)(c)] 15,000 Late fees paid by recipient of supply for delayed payment  [Includible in the value as per section 15(2)(d) - As the amount of interest received is a   lump sum amount, the same has to be taken as inclusive of GST]  [Rs. 6,000 x 100/118] rounded off 5,085 Total value of taxable supplies 15,90,085

Q-75:

Mr. X a registered supplier in Kochi (Kerala State) has provided the following detail in respect of her supplies made within Intra-State for the month of March 2022:

 Particulars Amount in (Rs.) (i) List price of goods supplied intra-state  (Exclusive of item given below from ii to v) 3,30,000 (ii) Swachh Bharat cess levied on sale of goods 12,500 (iii) Packing expense charged separately in the invoice 10,800 (iv) Discount of 1% on the list price of the goods was provided (recorded in  the invoice of goods) (v) Subsidy received from State Government for encouraging women entrepreneurs. 5,000

Compute the value of taxable supply and the gross GST liability of Mr. X for the month of March 2022 assuming rate of CGST to be 9% and SGST to be 9%. All the amounts given above are exclusive GST.

Ans:-

Computation of Value of taxable supply

 Particulars Amount in (Rs.) (i) List price of goods supplied intra-state 3,30,000 (ii) Swachh Bharat cess levied on sale of goods (other tax paid shall be  included as per section 15) 12,500 (iii) Packing expense charged separately in the invoice (includible as per section 15) 10,800 (iv) Discount of 1% on the list price of the goods was provided (recorded in the invoice   of goods)  (since discount is known at the time of supply, it is deductible from the  value in terms of section 15) (3,300) (v) Subsidy received from State Government for encouraging women entrepreneurs.  (Subsidy received from Govt. shall not be includible in the value as per section 15) Nil Value of Supply 3,50,000 CGST @ 9% 31,500 SGST @ 9% 31,500

Alternative solution: In the above solution it is assumed that subsidy received from State Government is already adjusted in list price hence no treatment has been done. Alternatively, it is assumed that subsidy is not excluded from list price then subsidy amount shall be deducted hence computation will be

 Particulars Amount in (Rs.) (i) List price of goods supplied intra-state 3,30,000 (ii) Swachh Bharat cess levied on sale of goods (other tax paid shall be  included as per section 15) 12,500 (iii) Packing expense charged separately in the invoice (includible as per section 15) 10,800 (iv) Discount of 1% on the list price of the goods was provided (recorded in the invoice   of goods)  (since discount is known at the time of supply, it is deductible from the  value in terms of section 15) (3,300) (v) Subsidy received from State Government for encouraging women entrepreneurs.  (Subsidy received from Govt. shall not be includible in the value as per section 15) (5,000) Value of Supply 3,45,000 CGST @ 9% 31,050 SGST @ 9% 31,050

Q-76:

Babla & Bros. is exclusively engaged in making exempt supply of goods and is thus, not registered under GST. On 1st October, the exemption available on its goods gets withdrawn. On that day, the turnover of Babla & Bros. was Rs.50 lakh. Examine the eligibility of Babla & Bros. for availing ITC, if any.
Ans:-

Since the exemption available on goods being supplied by Babla & Bros. is withdrawn, it becomes liable to registration as its turnover has crossed the threshold limit (for registration) on the day when the exemption is withdrawn. Assuming that Babla & Bros. applies for registration within 30 days of 1st October and it obtains such registration, it will be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which it becomes liable to pay tax, i.e. 30th September [Section 18(1)(a) of the CGST Act, 2017]. Input tax paid on capital goods will not be available as input tax credit in this case.

Q-77:

ABC Ltd.is registered in GST and company has purchased raw material Rs.10,00,000 + CGST @ 10% + SGST @ 10% on 01/11/2021 and also Plant and Machinery Rs. 20,00,000 + CGST @10% + SGST @ 10%.

Company is manufacturing two products A & B. Product A is exempt and Product B is taxable.

Turnover of product A in November 2021 is Rs.18,00,000 and Turnover of product B is Rs.30,00,000. Rate of Output CGST @ 10% and SGST @ 10%.

Compute ITC/ Output tax/ Net Tax for the month of November 2021.

Ans:-

 Computation of Net Tax Liability of ABC Ltd. Rs. Raw Material 10,00,000 Add: CGST @ 10% 1,00,000 Add: SGST @ 10% 1,00,000 Total 12,00,000 Input tax credit CGST 1,00,000 SGST 1,00,000 Cost of Raw Material 10,00,000 ITC on capital Goods Plant and Machinery 20,00,000 CGST @ 10% 2,00,000
 SGST @ 10% 2,00,000 ITC CGST 2,00,000 ITC SGST 2,00,000 Cost of Plant and Machinery 20,00,000 Output Tax Turnover 30,00,000 CGST @ 10% 3,00,000 SGST @ 10% 3,00,000 Add: ITC to be reversed Raw Material - Rule 42 CGST 1,00,000/48,00,000 x 18,00,000 37,500.00 SGST 1,00,000/48,00,000 x 18,00,000 37,500.00 Capital Goods –Rule 43 CGST (2,00,000/60 x 1)/48,00,000 x 18,00,000 1,250.00 SGST (2,00,000/60 x 1)/48,00,000 x 18,00,000 1,250.00

Computation of Net Tax – CGST

 Output Tax Sale 3,00,000.00 Raw Material 37,500.00 Plant and Machinery 1,250.00 Total 3,38,750.00 Less: ITC Raw Material (1,00,000.00) Capital Goods (2,00,000.00) Tax Payable 38,750.00 Computation of Net Tax - SGST Output Tax
 Sale 3,00,000.00 Raw Material 37,500.00 Plant and Machinery 1,250.00 Total 3,38,750.00 Less: ITC Raw Material (1,00,000.00) Capital Goods (2,00,000.00) Tax Payable 38,750.00

Q-78: Anant Pvt. Ltd., a supplier of goods, pays GST under regular scheme. It has made the following outward taxable supplies in a tax period:

 Particulars Amount (Rs.) Intra-State supply of goods 8,00,000 Inter-State supply of goods 3,00,000

It has also furnished the following information in respect of purchases made by it in that tax period:

 Particulars Amount (Rs.) Intra-State purchases of goods 2,00,000 Inter-State purchases of goods 50,000

The company has following ITCs with it at the beginning of the tax period:

 Particulars Amount (Rs.) CGST 57,000 SGST Nil IGST 70,000

Note:

1. Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.

2. Both inward and outward supplies are exclusive of taxes, wherever applicable.

3. All the conditions necessary for availing the ITC have been fulfilled.

Compute the minimum GST, payable in cash, by Anant Pvt. Ltd. for the tax period. Make suitable assumptions as required.

Ans:-

Computation of GST payable on outward supplies

 S.No. Particulars CGST @  9% (Rs.) SGST @  9% (Rs.) IGST @  18% (Rs.) Total  (Rs.) (i) Intra-State supply of goods for Rs.8,00,000 72,000 72,000 1,44,000 (ii) Inter-State supply of goods for Rs. 3,00,000 54,000 54,000 Total GST payable 1,98,000

Computation of total ITC

 Particulars CGST @ 9%  (Rs.) SGST @  9% (Rs.) IGST @  18% (Rs.) Opening ITC 57,000 Nil 70,000 Add: ITC on Intra-State purchases of goods valuing Rs. 2,00,000 18,000 18,000 Nil Add: ITC on Inter-State purchases of goods valuing Rs. 50,000 Nil Nil 9,000 Total ITC 75,000 18,000 79,000

Computation of minimum GST payable from electronic cash ledger

 Particulars CGST @ 9%  (Rs.) SGST @ 9%  (Rs.) IGST @  18% (Rs.) Total (Rs.) GST payable 72,000 72,000 54,000 1,98,000 Less: ITC [First ITC of IGST should be   utilized  in full - first against IGST liability and   then against CGST and SGST liabilities in a   manner to minimize cash outflow] (Nil) IGST (25,000) IGST (54,000) IGST 79,000 (72,000) CGST (18,000) SGST 90,000 Minimum GST payable in cash Nil 29,000 Nil 29,000

Note: Since sufficient balance of ITC of CGST is available for paying CGST liability and cross utilization of ITC of CGST and SGST is not allowed, ITC of IGST has been used to pay SGST (after paying IGST liability) to minimize cash outflow

Q-79:

Comfortable (P) Ltd. is registered under GST in the State of Odisha. It is engaged in the business of manufacturing of iron and steel products. It has received IT engineering services from High-Fi Infotech (P) Ltd. for Rs. 11,00,000/- (excluding GST @ 18%) on 28th October. Invoice for service rendered was issued on 5th November.

Comfortable (P) Ltd. made part payment of Rs. 4,20,000/- on 30th November. Being unhappy with service provided by High-fi Infotech (P) Ltd., it did not make the balance payment. Deficiency in service rendered was made good by High-Fi Infotech (P) Ltd. by 15th April of next year. Comfortable (P) Ltd. made the balance payment on 6th July of next year.
Examine the availability of ITC with Comfortable (P) Ltd. in respect of IT engineering services received by it from High-Fi Infotech (P) Ltd.

Ans:- Every registered person is entitled to take credit of input tax charged on any supply of goods and/or services which are used or intended to be used in the course or furtherance of his business if, inter alia, he is in possession of a tax invoice issued by a supplier and he has received the goods and/or services.

The registered person must pay to the supplier, the value of the goods and/or services along with the tax within 180 days from the date of issue of invoice. In the event of failure to do so, the corresponding credits availed by the registered person would be added to his output tax liability, with interest. However, once the recipient makes the payment of value of goods and/or services along with tax, he will be entitled to avail the credit again without any time limit. In case part-payment has been made, proportionate credit would be allowed.

In the given case, High-fi Infotech (P) Ltd. provides the service in the month of October and Comfortable (P) Ltd. receives the invoice in the month of November. Therefore, in view of the above provisions and assuming all other conditions required for availing ITC having been fulfilled, ITC of Rs. 1,98,000 (Rs. 11,00,000 x 18%) will be availed by Comfortable (P) Ltd. in the month of November when it receives the invoice issued by High-fi Infotech (P) Ltd.

However, proportionate ITC amounting to Rs. 1,33,932 ⇒ [(Rs. 12,98,000 - Rs. 4,20,000)/118] x 18] will be added to the output tax liability of Comfortable (P) Ltd. as full payment has not been made within 180 days of issuance of the invoice, i.e. by 4th May of next year. ITC of Rs. 1,33,932 can, however, be availed again by Comfortable (P) Ltd. in the month of July next year when it makes the balance payment.

Q-80:

Paritosh & Co., a supplier of goods, pays GST under regular scheme. It has made the following outward taxable supplies in a tax period:

 Particulars Amount (Rs.) Intra-State supply of goods 10,00,000 Inter-State supply of goods 8,00,000

It has also furnished the following information in respect of purchases made by it in that tax period:

 Particulars Amount (Rs.) Intra-State purchases of goods 3,00,000 Inter-State purchases of goods 2,50,000

Paritosh & Co. has following ITCs with it at the beginning of the tax period:

 Particulars Amount (Rs.) CGST 57,000 SGST 60,000 IGST 1,40,000

Note:

(i) Rates of CGST, SGST and IGST are 9%, 9% and 18% respectively.

(ii) Both inward and outward supplies are exclusive of taxes, wherever applicable.

(iii) All the conditions necessary for availing ITC have been fulfilled.

Compute the minimum GST, payable in cash, by Paritosh & Co. for the tax period and the ITC to be carried forward to the next month. Make suitable assumptions as required.

Ans:-

Computation of GST payable on outward supplies

 S.No. Particulars CGST @ 9%  (Rs.) SGST @ 9%  (Rs.) IGST @ 18%  (Rs.) Total (Rs.) (i) Intra State supply of goods for   Rs.10,00,000 90,000 90,000 - 1,80,000 (ii) Inter-State supply of goods   for Rs.8,00,000 1,44,000 1,44,000 Total GST payable 3,24,000

Computation of total ITC

 Particulars CGST @ 9% (Rs.) SGST @ 9% (Rs.) IGST @ 18% (Rs.) Opening ITC 57,000 60,000 1,40,000 Add: ITC on Intra-State purchases  of goods valuing Rs.3,00,000 27,000 27,000 Nil Add: ITC on Inter-State purchases  of goods valuing Rs.2,50,000 Nil Nil 45,000 Total ITC 84,000 87,000 1,85,000

Computation of minimum GST payable from electronic cash ledger

 Particulars CGST @ 9%  (Rs.) SGST @ 9%  (Rs.) IGST @ 18%  (Rs.) Total (Rs.) GST payable 90,000 90,000 1,44,000 3,24,000 Less: ITC [First ITC of IGST   should be utilized in full - first   against IGST liability and then   against CGST and SGST   liabilities  in a manner to minimize   cash outflow] (38,000) IGST (3,000) IGST (1,44,000) IGST 1,85,000 (52,000) (87,000) 1,39,000 CGST SGST Minimum GST   payable   in cash Nil Nil Nil Nil ITC balance to be carried  forward next month 32,000 Nil Nil 32,000

Note: The above computation is one of the many ways to set off the ITC of IGST (Rs. 41,000- after set off against IGST liability) against CGST and SGST liability to compute minimum GST payable in cash. To illustrate, IGST of Rs. 10,000 can be set off against SGST payable and IGST of Rs. 31,000 can be set off against CGST payable. In this situation also, the net GST payable will be nil but the ITC of CGST and SGST to be carried forward will be Rs. 25,000 and Rs. 7,000 (totaling to Rs. 32,000) respectively. However, if the entire ITC of Rs. 41,000 is set off against CGST payable, then SGST of Rs. 3,000 will be payable in cash thus, increasing the cash outflow. Therefore, such a set off would not be advisable for computing the minimum GST payable.

Q-81:

Examine whether the supplier is liable to get registered in the following independent cases:-

(i) Happy Ltd. of Himachal Pradesh is exclusively engaged in intra-State supply of pan masala. It’s aggregate turnover in the current financial year is Rs. 24 lakh.

(ii) Akki Ltd. of Assam is exclusively engaged in intra-State supply of taxable services. It’s aggregate turnover in the current financial year is Rs. 25 lakh.

(iii)Aaru Ltd. of Assam is engaged in intra-State supply of both taxable goods and services. It’s aggregate turnover in the current financial year is Rs. 30 lakh.

Ans:-

As per section 22 of the CGST Act, 2017, a supplier is liable to be registered in the State/Union territory from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a financial year exceeds the threshold limit. The threshold limit for a person making exclusive intra-State taxable supplies of goods is as under:-

(a) Rs.10 lakh for the Special Category States of Mizoram, Tripura, Manipur and Nagaland.

(b) Rs.20 lakh for the States of Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and Uttarakhand.

(c) Rs. 40 lakh for rest of India. However, the higher threshold limit of Rs. 40 lakh is not available to persons engaged in making supplies of ice cream and other edible ice, whether or not containing cocoa, Pan masalas and Tobacco and manufactured tobacco substitutes.

The threshold limit for a person making exclusive taxable supply of services or supply of both goods and services is as under:-

(a) Rs. 10 lakh for the Special Category States of Mizoram, Tripura, Manipur and Nagaland.

(b) Rs. 20 lakh for the rest of India.

In the light of the afore-mentioned provisions, the answer to the independent cases is as under:-

(i) Happy Ltd. being exclusively engaged in supply of pan masala is not eligible for higher threshold limit of Rs.40 lakh. The applicable threshold limit for registration in this case is Rs.20 lakh.

Thus, Happy Ltd. is liable to get registered under GST

(ii) Though Akki Ltd. is dealing in Assam, it is not entitled for higher threshold limit for registration as the same is applicable only in case of exclusive supply of goods while it is exclusively engaged in providing services. Thus, the applicable threshold limit for registration in this case is Rs. 20 lakh and hence, Akki Ltd. is liable to get registered under GST.

(iii) Since Aaru Ltd. is engaged in supply of both taxable goods and services, the applicable threshold limit for registration in this case is Rs.20 lakh. Thus, Aaru Ltd. is liable to get registered under GST as it’s turnover is more than the threshold limit.

Q-82:

Explain the registration requirements under GST law in the following independent cases

1. Mr. Ahmad of Jammu engaged in the business of supplying tobacco based Pan Masala with an aggregate turnover of Rs. 24 lacs.

2. Mr. Lepcha of Mizoram is engaged in the supply of papers with an aggregate turnover of Rs. 13 lacs. Will your answer be different if Mr. Lepcha is located in Meghalaya?

Ans:-

As per section 22, every supplier of goods shall be liable to be registered in the State / Union Territory, if his aggregate turnover in a financial year exceeds the specified limit which is given below:

Limit for person supplying within the State/UT.

 SL.No Name of State/UT Limit for person supplying only goods 01 Mizoram 10,00,000 02 Meghalaya 20,00,000 03 Jammu 40,00,000

 SL. No Name of State/UT Limit for person supplying Specified goods i.e. ice cream and other edible ice, pan masala, Tobacco etc. 01 Jammu 20,00,000
1. As per the above limits Mr. Ahmad of Jammu is engaged in the supply of tobacco based pan masala with an aggregate turnover exceeding Rs.20,00,000, hence he liable to registration.

2. As per the above limits Mr. Lepcha of Mizoram is engaged in the supply of paper with an aggregate turnover exceeding Rs.10,00,000, hence he liable to registration.

Yes answer will change if Mr. Lepcha is located in Meghalaya limit of 20,00,000 shall be applicable and aggregate turnover is less than 20,00,000 hence he is not liable for registration.

Q-83:

Determine the effective date of registration in the following instances:

(i) The aggregate turnover of Madhu Ltd., engaged in taxable supply of services in the state of Punjab, exceeded Rs.20 Lakhs on 25th August, 2021. It applies for registration on 19th September, 2021 and is granted registration certificate on 29th September, 2021.

(ii) What will be your answer, if in the above scenario, Madhu Ltd. submits the application for registration on 27th September, 2021 and is granted registration on 5th October, 2021?

Ans:-

As per section 22 of the CGST Act, a supplier is liable to be registered in the State/Union territory from where he makes a taxable supply of services, if his aggregate turnover in a financial year exceeds Rs.20 lakh, within 30 days from the date on which it becomes so liable to registration. Where an applicant submits application for registration within 30 days from the date he becomes liable to registration, effective date of registration is the date on which he becomes liable to registration otherwise it is the date of grant of registration.

In the given case Madhu Ltd. applied for registration before the expiry of 30 days from the date on which it becomes liable for registration, the effective date of registration in its case is 25.08.2021.

(ii) Yes Answer will be different if Madhu Ltd. applies for registration after the expiry of 30 days, effective date of registration shall be the date of grant of registration i.e. 5th October, 2021.

Q-84:

Explain the circumstances under which proper officer can cancel the registration on his own of a registered person under CGST Act, 2017.

Ans:-

The circumstances under which proper officer can cancel the registration on his own of a registered person under the CGST Act, 2017 are as under:-

1. does not conduct any business from the declared place of business; or

2. issues invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder; or

3. violates the provisions of section 171 of the Act or the rules made thereunder.

4. violates the provision of rule 10A. As per rule 10A, after a certificate of registration in FORM GST REG-06 has been made available on the common portal and a Goods and Services Tax Identification Number has been assigned, the registered person, shall as soon as may be, but not later than forty five days from the date of grant of registration or the date on which the return required under section 39 is due to be furnished, whichever is earlier, furnish information with respect to details of bank account, or any other information, as may be required on the common portal in order to comply with any other provision.

5. avails input tax credit in violation of the provisions of section 16 of the Act

6. furnishes the details of outward supplies in FORM GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 (GSTR 3B) for the said tax periods;

Q-85:

Examine whether the supplier of goods is liable to get registered in the following independent cases:-

(i) Raghav of Assam is exclusively engaged in intra-State taxable supply of readymade garments. His turnover in the current financial year (FY) from Assam showroom is Rs. 33 lakh. He has another showroom in Tripura with a turnover of Rs. 11 lakh in the current FY.

(ii) Pulkit of Panjim, Goa is exclusively engaged in intra-State taxable supply of shoes. His aggregate turnover in the current financial year is Rs. 22 lakh.

(iii) Harshit of Himachal Pradesh is exclusively engaged in intra-State supply of pan masala. His aggregate turnover in the current financial year is Rs. 24 lakh.

Ans:-

As per section 22, a supplier is liable to be registered in the State/Union territory from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a financial year exceeds the threshold limit. The threshold limit for a person making exclusive intra-State taxable supplies of goods is as under:-

(a) Rs. 10 lakh for the Special Category States of Mizoram, Tripura, Manipur and Nagaland.

(b) Rs. 20 lakh for the States, namely, States of Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and Uttarakhand.

(c) Rs. 40 lakh for rest of India except persons engaged in making supplies of ice cream and other edible ice, whether or not containing cocoa, Pan masala and Tobacco and manufactured tobacco substitutes.

In the light of the afore-mentioned provisions, the answer to the independent cases is as under:-

(i) Raghav is eligible for higher threshold limit of turnover for registration, i.e. Rs. 40 lakh as he is exclusively engaged in intra-State supply of goods. However, since Raghav is engaged in supplying readymade garments from a Special Category State i.e. Tripura, the threshold limit gets reduced to Rs. 10 lakh. Thus, Raghav is liable to get registered under GST as his turnover exceeds Rs.10 lakh. Further, he is required to obtain registration in both Assam and Tripura as he is making taxable supplies from both the States.

(ii) The applicable threshold limit for registration for Pulkit in the given case is Rs. 40 lakh as he is exclusively engaged in intra-State taxable supply of goods in Goa. Thus, he is not liable to get registered under GST as his turnover is less than the threshold limit.

(iii) Harshit being exclusively engaged in supply of pan masala is not eligible for higher threshold limit of Rs.40 lakh. The applicable threshold limit for registration in this case is Rs.20 lakh. Thus, Harshit is liable to get registered under GST.

Q-86:

Mr. Lakhan provides Continuous Supply of Services (CSS) to M/s. TNB Limited. He furnishes the following further information:

 (i) Date of commencement of Providing CSS - 01-10-2021 (ii) Date of completion of Providing CSS - 31-01-2022 (iii) Date of receipt of payment by Mr. Lakhan - 30-03-2022

Determine the time of issue of invoice as per provisions of CGST Act, 2017, in the following circumstances:

(i) If no due date for payment is agreed upon by both under the contract of CSS.

(ii) If payment is linked to the completion of service.

(iii)If M/s. TNB Limited has to make payment on 25-03-2022 as per the contract between them.

Ans:-

Invoice in case of Continuous supply of Services

As per section 31 (5) Subject to the provisions of clause (d) of sub-section (3), in case of continuous supply of services—

(i) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment.

(ii) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.

(iii) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment.

In the given case

(i) Since the date of payment is not ascertainable from the contract, invoice shall be issued before or at the time when the supplier of service receives the payment i.e. on or before 30-03- 2022.

(ii) Since the date of payment is linked to the completion of service, invoice shall be issued on or before the date of completion of service i.e. on or before 31-01-2022.

(iii) Since the date of payment is ascertainable from the contract, invoice shall be issued on or before the due date of payment. i.e. on or before 25-03-2022.

Q-87:

List out the situation in which a Credit note / Debit note may be issued under the CGST Act, 2017

Ans:-

Credit note is required to be issued by the Supplier:-

1. If taxable value charged in the tax invoice is found to exceed the taxable value in respect of supply of goods and/or services, or

2. If tax charged in the tax invoice is found to exceed the tax payable in respect of supply of goods and/or services, or

3. if goods supplied are returned by the recipient, or

4. if goods and/or services supplied are found to be deficient.

Debit note is required to be issued by the Supplier:-

1. if taxable value charged in the tax invoice is found to be less than the taxable value in respect of supply of goods and/or services or

2. if tax charged in the tax invoice is found to be less than the tax payable in respect of supply of goods and/or services.

Q-88:

Royal Fashions, a registered supplier of designer outfits in Delhi, decides to exhibit its products in a Fashion Show being organised at Hotel Park Royal, Delhi on 4th January. For the occasion, it gets the service by way of makeover of its models from Aura Beauty Services Ltd., Ashok Vihar, for which a consideration is Rs. 5,00,000 (excluding GST) has been charged. Aura Beauty Services Ltd. issued a duly signed tax invoice on 10th February showing the lumpsum amount of Rs. 5,90,000 inclusive of CGST and SGST @ 9% each for the services provided. Answer the following questions:

(i) Examine whether the tax invoice has been issued within the time limit prescribed under law.

(ii)Tax consultant of Royal Fashions objected to the invoice raised suggesting that the amount of tax charged in respect of the taxable supply should be shown separately in the invoice raised by Aura Beauty Services Ltd. However, Aura Beauty Services Ltd. contended that there is no mandatory requirement of showing tax component separately in the invoice. You are required to examine the validity of the objection raised by tax consultant of Royal Fashions.

Ans:-

(i) As per section 31 read with the CGST Rules, in case of taxable supply of services, invoices should be issued before or after the provision of service, but within a period of 30 days [45 days in case of insurer/banking company or financial institutions including NBFCs] from the date of supply of service.

In view of said provisions, in the present case, the tax invoice should have been issued in the prescribed time limit of 30 days from the date of supply of service i.e. upto 3rd February. However, the invoice has been issued on 10th February.

(ii) Section 31 read with the CGST Rules, inter alia, provides that tax invoice in addition to other mandatory details shall also contain the amount of tax charged in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess). Further, where any supply is made for a consideration, every person who is liable to pay tax for such supply shall prominently indicate in all documents relating to assessment, tax invoice and other like documents, the amount of tax which shall form part of the price at which such supply is made.

The objection raised by the tax consultant of Royal Fashions suggesting that the amount of tax charged in respect of the taxable supply of makeover services should be shown separately in the invoice raised by Aura Beauty Services Ltd., is valid in law.

Q-89:

Discuss the correctness of the following statements:-

(i) Once generated, an e-way bill cannot be cancelled.

(ii) E-way bill generated in one State is valid in another State.

Ans:-

(i) The said statement is partially correct. Where an e-way bill has been generated, but goods are either not transported at all or are not transported as per the details furnished in the e-way bill, the e-way bill may be cancelled electronically on the common portal within 24 hours of generation of the e-way bill. However, an e-way bill cannot be cancelled if it has been verified in transit in accordance with the provisions of rule 138B of the CGST Rules, 2017.

(ii) The said statement is correct. The e-way bill generated under Goods and Services Tax Rules of any State or Union territory shall be valid in every State and Union territory.

Q-90:

Agni Ltd. a registered supplier wishes to transport cargo by road between two cities situated at a distance of 368 kilometres. Calculate the validity period of e-way bill under rule 138(10) of CGST Rules, 2017 for transport of the said cargo, if it is over dimensional cargo or otherwise.

Ans:-

The validity period of e-way bill under rule 138(10) of the CGST Rules, 2017 for transport of cargo by road between two cities situated at a distance of 368 km is as under:

(i)If it is over dimensional cargo: the validity period of the e-way bill is one day from relevant date upto 20 km and one additional day for every 20 km or part thereof thereafter.

Thus, validity period in given case:

= 1 day + 18 days

= 19 days

(ii) If it is a cargo other than over dimensional cargo: the validity period of the e-way bill is one day from relevant date upto 200 km and one additional day for every 200 km or part thereof thereafter.

Thus, validity period in given case:

= 1 day + 1 days

= 2 days

Q-91:

(a) Suhasini is a registered software consultant. On account of her ill health, she could not provide any services during the month of October. However, she had to incur all the expenses relating to her office. She paid Rs.75,000 to various vendors. Total GST involved on the goods and services procured by her is Rs.13,500. Out of the total bills paid by her, one bill for Rs.15,000 relates to security services availed for security of her office, tax on which is payable under reverse charge.

GST involved in such bill is Rs.2,700.

Suhasini is of the opinion that for the month of October, no GST is payable from electronic cash ledger as she has sufficient balance of ITC for payment of GST under reverse charge on security services.

Do you think Suhasini is right? Explain with reasons.

(b) Angira Ltd. is a supplier of taxable goods in Karnataka. It got registered under GST in the month of September, 2021 and wishes to pay its IGST liability for the month. Since it is making the GST payment for the first time, it is of the view that it needs to mandatorily has the online banking facility to make payment of GST; offline payment is not permitted under GST. You are required to apprise Angira Ltd. regarding the various modes of deposit in the electronic cash ledger. Further, advise it with regard to following issues:

(i)Are manual challans allowed under GST?

(ii)What is the validity period of the challan?

Ans:-

(a) The amount available in the electronic credit ledger, i.e. input tax credit may be used for making any payment towards output tax. Output tax, in relation to a taxable person, means the tax chargeable on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis. Therefore, input tax credit cannot be used to pay the tax liability under reverse charge.

The same is always required to be paid through electronic cash ledger and not electronic credit ledger. Thus, Suhasini is wrong and she should pay GST of Rs.2,700 on security service through electronic cash ledger.

(b) As per the provisions of CGST Act, 2017 read with relevant rules, the deposit in electronic cash ledger can be made through any of the following modes, namely:-

1. Internet Banking through authorised banks;

2. Credit card or Debit card through the authorised bank;

3. National Electronic Fund Transfer or Real Time Gross Settlement from any bank; or

4. Over the Counter payment through authorised banks for deposits up to ten thousand rupees per challan per tax period, by cash, cheque or demand draft.

Thus, offline mode is also permitted under GST subject to specified conditions.

(i) Manual or physical Challans are not allowed under the GST regime. It is mandatory to generate Challans online on the GST Portal.

(ii) Challan is valid for a period of 15 days.

Q-92: Sahil is a supplier of taxable goods in Karnataka. He got registered under GST in the month of September, 2021 and wishes to pay his IGST liability for the month. Since he’s making the GST payment for the first time, he is of the view that he needs to mandatorily have the online banking facility to make payment of GST; offline payment is not permitted under GST. You are required to apprise Sahil regarding the various modes of deposit in the electronic cash ledger. Further, advise him with regard to following issues:

(a) Are manual challans allowed under GST?

(b) What is the validity period of the challan?

(c) Is cross utilization among Major and Minor heads of the electronic cash ledger permitted?

Ans:-

Section 49(1) of CGST Act, 2017 read with rule 87 of CGST Rules, 2017 provides that the deposit in electronic cash ledger can be made through any of the following modes, namely:-

1. Internet Banking through authorised banks;

2. Credit card or Debit card through the authorised bank;

3. National Electronic Fund Transfer or Real Time Gross Settlement from any bank; or

4. Over the Counter payment through authorised banks.

Thus, offline mode is also permitted under GST.

(a) Manual or physical Challans are not allowed under the GST regime. It is mandatory to generate Challans online on the GST Portal.

(b) E-challan is valid for a period of 15 days.

(c) Amount entered under any Minor head (Tax, Interest, Penalty, etc.) and Major Head (CGST, IGST, SGST/UTGST) of the Electronic Cash Ledger can be utilized and Cross-utilization among Major and Minor heads is possible.

Q-93:

M/s ABC & Co., have defaulted in filing the return under Section 39 of CGST Act, 2017 i.e. GSTR-3B for the month of March, 2022 within the specified due date . Reason for such delay is attributable to delay in closure of Books for March 2022, which have been finalised during May 2022. The GST Common portal prompted for payment of late fees payable under Section 47 of CGST Act, 2017 for a sum of Rs. 2,000 under CGST and SGST each. Accountant, of M/s ABC & Co., sought your confirmation for payment of such late fees through the balance available in Electronic Credit Ledger for the late fees. Give your guidance in this regard

Ans:-

Section 49(3) of the CGST Act, 2017 provides that the amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made there under in prescribed manner.

Further, section 49(4) provides that the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in prescribed manner.

Accordingly, as per the combined reading of the above provisions, late fees shall be paid only through electronic cash ledger and not possible through electronic credit ledger. Thus, contention of the accountant of M/s ABC & Co., is not correct and the above amount shown on the common portal has to be deposited in Electronic Cash Ledger under appropriate minor head, through any of the specified modes.

Q-94:

How do the new payment system benefit the taxpayer & the Commercial Tax Department?

Ans:-

These are the benefits of the new system for the taxpayer and the Commercial Tax Department.

1. No more queues and waiting for making payments as payments can be made online 24 x 7.

2. Instant online receipts for payments made online.

3. Tax consultants can make payment on behalf of the clients.

4. Single challan form to be created online, replacing the three or four copy challan.

5. Revenue will come earlier into the Government Treasury as compared to the old system.

6. Greater Transparency.

7. Online Payments made after 8 pm will credited to the taxpayers account on the same day.

Q-95:

M/s PPC Ltd., has availed Input Tax credit for Rs. 54,000/- IGST during February 2022 on a particular purchase. Accounting records for the above purchase, indicate that IGST paid to the supplier is Rs. 45,000/- as per the bill received. GSTR1 uploaded by the supplier for the above supply indicates Rs. 45,000/- as tax paid.

Examine as per GST provisions, what value shall be updated in the ledgers maintained on behalf of M/s PPC Ltd., on the common portal

Ans:-

M/s PPC Ltd., have accounted and paid Rs. 45,000/- as IGST to the supplier concerned. However, availment of input tax credit has been made for Rs. 54,000/-.

As per Section 49(2) of CGST Act, 2017 ”The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.”

Accordingly, electronic credit ledger of M/s PPC Ltd., shall be updated with a value of Rs. 54,000/- as per self- assessed return to be filed for February 2022, though the input tax credit shown by the supplier is only for Rs. 45,000/-.

Q-96:

Mr. Gauri Shiva, a registered person in Punjab, supplies goods taxable @ 12% [CGST @ 6%, SGST @ 6% & IGST @ 12%] in the States of Punjab and Haryana. He has furnished the following details in relation to independent supplies made by him in the quarter ending June, 2021:-

 Supply Recipient Nature of supply Value (Rs.) 1 Mr. A, a registered person Inter-State 2,20,000 2 Mr. B, a registered person Inter-State 2,55,000 3 Mr. C, an unregistered person Intra-State 1,80,000 4 Mr. D, an unregistered person Intra-State 2,60,000 5 Mr. M, an unregistered person Inter-State 3,00,000 6 Mr. N, an unregistered person Inter-State 50,000 7 Mr. O, an unregistered person Inter-State 2,50,000 8 Mr. P, an unregistered person Inter-State 2,80,000 9 Mr. Q, a registered person Intra-State 1,50,000 10 Mr. R, a registered person Intra-State 4,10,000

The aggregate annual turnover of Mr. Gauri Shiva in the preceding financial year was Rs. 1.20 crore. With reference to rule 59 of the CGST Rules, 2017, discuss the manner in which the details of above supplies are required to be furnished in GSTR-1.

Ans:-

Rule 59 of the CGST Rules, 2017, inter alia, stipulates that the details of outward supplies of goods and/or services furnished in form GSTR-1 shall include the–

(a) invoice wise details of all –

1. inter-State and intra-State supplies made to the registered persons; and

2. inter-State supplies with invoice value more than two and a half lakh rupees made to the unregistered persons;

(b) consolidated details of all –

1. intra-State supplies made to unregistered persons for each rate of tax; and

2. State wise inter-State supplies with invoice value upto two and a half lakh rupees made to unregistered persons for each rate of tax;

Thus, in view of the above-mentioned provisions, Mr. Gauri Shiva should furnish the details of outward supplies of goods made by him during the quarter ending June 2021 in the following manner: -

 Supply Recipient Nature of  supply Value  (Rs.) Manner of furnishing  details 1 Mr. A, a registered person Inter-State 2,20,000 Invoice-wise details 2 Mr. B, a registered person Inter-State 2,55,000 Invoice-wise details 3 Mr. C, an unregistered person Intra-State 1,80,000 Consolidated details  of supplies 3 and 4 4 Mr. D, an unregistered person Intra-State 2,60,000 5 Mr. M, an unregistered person Inter-State 3,00,000 Invoice-wise details 6 Mr. N, an unregistered person Inter-State 50,000 Consolidated details  of supplies 6 and 7 7 Mr. O, an unregistered person Inter-State 2,50,000 8 Mr. P, an unregistered person Inter-State 2,80,000 Invoice-wise details 9 Mr. Q, a registered person Intra-State 1,50,000 Invoice-wise details 10 Mr. R, a registered person Intra-State 4,10,000 Invoice-wise details

Q-97:

M/s Cavenon Enterprises, a registered supplier of designer wedding dresses under regular scheme, has aggregate annual turnover of Rs.30 lakh in the preceding financial year. It is of the view that in the current financial year, it is permitted to file its monthly statement of outward supplies – GSTR-1 - on a quarterly basis while its accountant advises it to file the same on a monthly basis. You are required to advise M/s Cavenon Enterprises on the same.

During a given tax period in the current financial year, owing to an off-season, M/s Cavenon Enterprises has not made any taxable supply. Therefore, M/s Cavenon Enterprises opines that no return under GST is required to be filed for the said period. You are required to examine the technical veracity of the opinion of M/s Cavenon Enterprises.

Ans:-

Section 37 of the CGST Act, 2017 stipulates that GSTR-1 for a particular month is required to be filed on or before the 11th day of the immediately succeeding month, i.e. on a monthly basis.

However, presently, as a measure of easing the compliance requirement for small tax payers, GSTR-1 has been allowed to be filed quarterly by small tax payers with aggregate annual turnover up to Rs.5 crore in the preceding financial year or the current financial year. Tax payers with annual aggregate turnover above Rs.5 crore will however continue to file GSTR- 1 on a monthly basis.

In view of the same, M/s Cavenon Enterprises can file its GSTR-1 on quarterly basis as its aggregate turnover does not excced Rs.5 crore in the preceding financial year.

Further, GSTR-1 needs to be filed even if there is no business activity in a tax period. Thus, in the present case, even if no supply has been made by M/s Cavenon Enterprises, a nil return is required to be filed for the relevant tax period.

Q-98:

Explain Statement and return by composition dealer.

Ans:-

(1) Every registered person paying tax under section 10 shall-

(a)furnish a statement, every quarter or, as the case may be, part thereof, containing the details of payment of self-assessed tax in FORM GST CMP-08, till the 18th day of the month succeeding such quarter; and

(b) furnish a return for every financial year or, as the case may be, part thereof in FORM GSTR- 4, till the thirtieth day of April following the end of such financial year, electronically through the common portal.

(2) Every such registered person shall discharge his liability towards tax or interest by debiting the electronic cash ledger.

(3) A registered person who has opted to pay tax under section 10 from the beginning of a financial year shall, where required, furnish the details of outward and inward supplies and return under rules 59, 60 and 61 relating to the period during which the person was liable to furnish such details and returns till the due date of furnishing the return for the month of September of the succeeding financial year or furnishing of annual return of the preceding financial year, whichever is earlier.

Explanation—For the purposes of this sub-rule, it is hereby declared that the person shall not be eligible to avail input tax credit on receipt of invoices or debit notes from the supplier for the period prior to his opting for the composition scheme.

(4) A registered person opting to withdraw from the composition scheme at his own motion or where option is withdrawn at the instance of the proper officer shall, where required, furnish [a statement in FORM GST CMP-08 for the period for which he has paid tax under the composition scheme till the 18th day of the month succeeding the quarter in which the date of withdrawal falls and furnish a return in FORM GSTR-4 for the said period till the thirtieth day of April following the end of the financial year during which such withdrawal falls.

Q-99:

KNK Ltd., a registered supplier of Mumbai is a manufacturer of heavy machines. Its outward supplies (exclusive of GST) for the month of January, 2022 are as follows:

 S. No Particulars Amount (Rs.) (i) Inter- State 85,00,000 (ii) Intra State 15,00,000

Applicable rate of CGST, SGST and lGST on outward supply are 9%, 9% and 18% respectively.

Details of GST paid on inward supplies during the month of January, 2022 are as follows:

 S. No Particulars CGST paid Rs. SGST paid Rs. (i) Raw materials A  (of which 70% of inputs procured were used and 30% were   in stock at the end of the January, 2022) 60,000 60,000 (ii) Raw materials B  (of which 90% material received in factory and remaining   material completely damaged due to a road accident on   the way to factory. There was no negligence on the part of   the KNK Ltd.) 50,000 50,000 (iii) Construction of pipelines laid outside the factory premises 30,000 30,000 (iv) Insurance charges paid for trucks used for  transportation of goods 55,000 55,000

(i) There is no opening balance of any Input Tax Credit and all the conditions necessary for availing the Input Tax Credit (ITC) have been fulfilled.

(ii) Details of GST paid on inward supplies are available in GSTR 2A except for item (i) i.e. Raw Material A, for which supplier has not filed its GSTR-1 for the month of January 2022, hence corresponding Input Tax Credit (lTC) is not reflecting in GSTR.2A of KNK Ltd. in January, 2022.

Compute the following:

(i) Amount of eligible Input Tax Credit (ITC) available for the month of January, 2022

(ii)Net minimum GST payable in Cash, for the month of January, 2022 after using available Input Tax Credit.

Ans:-

(i) Amount of eligible Input Tax Credit (ITC) available for the month of January, 2022

 Raw Material B CGST (50,000 X 90%) 45,000 SGST (50,000 X 90%) 45,000 Insurance charges for trucks used for transportation of goods (eligible) CGST 55,000 SGST 55,000 Total ITC of CGST 1,00,000 Add: As per rule 36(4) 5% of 1,00,000 5,000 Total ITC of CGST Eligible 1,05,000 Total ITC of SGST 1,00,000 Add: As per rule 36(4) 5% of 1,00,000 5,000 Total ITC of SGST Eligible 1,05,000 Output tax Inter State Sale 85,00,000 IGST @ 18% 15,30,000 Intra State Sale 15,00,000 CGST @ 9% 1,35,000 SGST @ 9% 1,35,000

(ii) Calculation of Net Minimum GST payable in cash

 IGST CGST SGST Output tax 15,30,000 1,35,000 1,35,000 ITC CGST/SGST - (1,05,000) (1,05,000) Net Tax Payable in cash 15,30,000 30,000 30,000

Notes:

1. In case of Raw material A supplier has not furnished GSTR-1 and due to this amount is not shown in GSTR-2A of the purchaser in this case KNK Ltd is not eligible to take credit but as per rule 36(4), Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers, shall not exceed [ 5 per cent ] of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers.

2. As per section 17(5), ITC on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples shall not be allowed hence only 90% tax credit shall be allowed in case of Raw Material B

3. As per section 17(5), ITC on construction of pipelines laid outside the factory premises shall not be allowed.

Q-100:

Quicktax, a GST return filing service provider, has asked its clients to provide the scanned copies of the tax invoices issued to B2B customers for uploading on the GST portal and filing the return. Whether the process followed by Quicktax is correct?

Ans:-

No, the process followed by Quicktax is not correct.

The registered persons supplying goods or services to B2B customers are required to upload the invoice wise details of supplies made during the tax period. However, there is no requirement to upload the scanned copies of the invoices issued to the customers on the GST portal at the time of filing returns. Only information required as per GST returns is to be captured in the return filing utility and the same is to be uploaded on the GST portal and not the scanned copies of the actual invoices.