Code
1.
Questions
Summarize the objectives of tax planning.
2.
List ten incomes which are exempt from
tax.
3.
What are the general rules for claiming
deductions from gross total income?
ANS: (each point carries 2 marks)
The total of all deductions must be limited to the amount
of the total income of the assessee.
The deductions allowed cannot result in a negative
income.
There must be no double-claiming of a deduction. This
can happen when an individual files a tax return separately,
while the association of persons to which he belongs is liable
to file a return.
Deductions have to be specifically claimed by the
assessee, and the assessing officer is not bound to allow an
unclaimed deduction.
The assessee must place all relevant material before the
assessing officer and convince him that he is entitled to the
deductions claimed.
4.
List ten tax free perquisites.
ANS: (each point carries 1 mark)
Medical facility or medical reimbursement.
Food and beverages provided to employees
Recreational facilities
Loans to employees
Perquisites provided outside India
Training of employees
Accommodation in a remote area
Use of health club, sports and similar facilities provided by
2D15 – MF0012
Answers
ANS: (each point carries 2 marks)
Reduction of tax liability by utilizing the benefits available
in the tax laws:
Informed and pragmatic financial decisions: A person
adds the dimension of tax incidence in his decision – making
on financial matters, and this helps him optimize his decisions.
Multi – dimensional investment decisions: In a democratic
welfare state like India the government requires substantial
investment in infrastructure, education and healthcare.
Discharging a citizen’s duty: No one likes to pay tax, and
it is indeed a temptation to hide income earned and skip
paying income tax, or make purchases without bills and
escape sales tax. But these are unlawful methods of reducing
tax liability and result in economic evils like black money.
Reducing pressure on the legal infrastructure: the long
arm of the law invariably catches up with economic offenders,
but the process is tedious and puts an enormous burden on
the legal system. This can be successfully prevented by
sensible tax planning
ANS: (each point carries 1 mark)
Agricultural income as defined in section 2(A)
Receipts by an individual as member of a HUF out of the
income of the family, or estate belonging to the family.
Any income by way of dividends received from domestic
companies.
Income of newly establishes undertakings in free- trade –
zone.
Income of a charitable or religious trust of institution.
Income from political parties
Income from units of mutual funds.
Long – term capital gains on transfer of equity shares or
units of equity-oriented mutual funds.
Casual income subject to certain limits
Gratuity paid to government employees fully exempt and
to other employees exempt up to Rs.350000
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the employer to his employee
Use by the employee or any member of his household of
laptops and computers belonging to the employer or hired by
him.
Leave travel concession subject to limits specified
5.
Mr. Shivananda owns two buildings with
st
the depreciated value on 1 April, 2007 of
Rs. 22.50 lakh. The buildings were
th
bought on 30 April, 1996 for Rs18 lakh.
The block is compulsorily acquired by the
th
government on 15 May, 2007, for which
a sum of Rs. 50 lakh was paid as
th
compensation on 20 March, 2008. The
building was being used by Mr.
Shivananda as a tenant for about four
years prior to the acquisition. Mr.
Shivananda purchased a new building on
th
10 April, 2009 for Rs.14 lakh to set up
another industrial undertaking. Compute
the amount of capital gains for the
assessment year 2010-11. What would
be the capital gains if the new building
th
was purchased on 8 May, 2008?
ANS: (each amt carry 1 mark)
Sale consideration
Less: cost of acquisition being the
depreciated value of the block on 14-2007
Short – term capital gains
Less: exemption under section 54D
Short term capital gain chargeable
to tax
If the new building is purchased on
8-5-08
Sale consideration
Less: depreciated value of the block
Amount
50,00,000
22,50,000
27,50,000
14,00,000
13,50,000
50,00,000
36,50,000
13,50,000
Nil
13,50,000
Exemption under section 54D
Short term capital gain
Computation of capital gains for Assessment Year 2010-11
6.
What is the purpose of tax audit and who
has to get accounts audited?
2D15 – MF0012
ANS: (purpose of audit – 2 marks and other points carries 2
marks)
Purpose of tax audit: the purpose of tax audit is to ensure
that books of accounts have been maintained in accordance
with the provisions of the Income Tax Act. A tax audit
effectively curbs tax evasion and ensures tax compliance.
Accordingly, a proper audit for tax purposes would ensure that
proper records are being maintained, and the accounts
properly reflect the income reported by the assessee.
Who has to get accounts audited?
Audit, under section 44AB, is applicable to four categories of
tax payers.
First category: this category covers persons carrying on
business with a total sales, turnover or gross receipts
exceeding Rs.60 lakh. This definition predominantly covers
private and public limited companies.
Second category: this category covers persons carrying on a
profession with gross receipts exceeding Rs. 15 lakh.
Third category: this category covers persons whose income
is assessed on a presumptive basis under section 44AE,
section 44BB or section 44BBB.
Fourth category: this category is of recent origin. It was
st
introduced by the Finance Act, 2009 with effect from 1 April
2011. This category covers those persons who declare a lower
income than the amount presumed under section 44AD, and if
their income exceeds the basic exemption limit.
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