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PES INSTITUTE OF TECHNOLOGY – BANGALORE SOUTH
CAMPUS
Hosur Road (1Km before Electronic City), Bangalore -560100
INTERNAL TEST # 1
TAX Management– 12MBAFM428
SCHEME AND SOLUTION
Course: MBA Semester IV (FINANCE)
Faculty: Mr.Kannadas .S
Date: 12/02/2014
Time Allowed: 90 Minutes
Max. Marks: 50 (Fifty Marks)
Time: 11.30 AM – 1.00 PM
Note:
Answer all the Questions.
1 (a) Define a person as per INCOME TAX ACT.
ANSWER: “Person” section 2(31)
The term person includes: an individual, a Hindu undivided family, a company, a firm, an
association of persons or a body of individuals, whether incorporated or not, a local
authority and every other juridical person, not falling within any of the preceding
categories.
(b)
Explain the basic condition and additional conditions to prove the residential status of an
individual person for tax treatment
ANSWER: BASIC CONDITIONS TO PROVE AS TO WHEN AN INDIVIDUAL IS
RESIDENT IN INDIA - Under section 6(1) an individual is said to be resident in
Ordinarily resident in India in any previous year, if he satisfies at least one of the
following basic conditions—
Basic condition (a) He is in India in the previous year for a period of 182 days or more
Basic condition (b) He is in India for a period of 60 days or more during the previous year
and 365 days or more during 4 years immediately preceding the previous year
Note: In the following two cases, an individual needs to be present in India for a minimum
of 182 days or more in order to become resident in India:
1. An Indian citizen who leaves India during the previous year for the purpose of taking
employment outside India or an Indian citizen leaving India during the previous year as a
member of the crew of an Indian ship.
2. An Indian citizen or a person of Indian origin who comes on visit to India during the
previous year (a person is said to be of Indian origin if either he or any of his parents or
any of his grand parents was born in undivided India).
ADDITIONAL CONDITIONS TO PROVE AS TO WHEN A RESIDENT
INDIVIDUAL IS ORDINARILY RESIDENT IN INDIA –
Under section 6(6), a resident individual is treated as “resident and ordinarily resident” in
India if he satisfies the following two additional conditions —
Additional condition (i) He has been resident in India in at least 2 out of 10 previous
years [according to basic condition noted above] immediately preceding the relevant
previous year.
Additional condition (ii) He has been in India for a period of 730 days or more during 7
years immediately preceding the relevant previous year.
In brief it can be said that an individual becomes resident and ordinarily resident in India if
he satisfies at least one of the basic conditions [i.e., (a) or (b)] and the two additional
(3 marks)
(7 marks)
conditions [i.e., (i) and (ii)].
It will be worthwhile to note the following propositions:
1. It is not essential that the stay should be at the same place. It is equally not necessary
that the stay should be continuous. Similarly, the place of stay or the purpose of stay is not
material.
2. Where a person is in India only for a part of a day, the calculation of physical presence
in India in respect of such broken period should be made on an hourly basis. A total of 24
hours of stay spread over a number of days is to be counted as being equivalent to the stay
of one day. If, however, data is not available to calculate the period of stay of an individual
in India in terms of hours, then the day on which he enters India as well as the day on
which he leaves India shall be taken into account as stay of the individual in
India.
RESIDENT BUT NOT ORDINARILY RESIDENT
As per section 6(1), an individual who satisfies at least one of the basic conditions but
does not satisfy the two additional conditions is treated as a resident but not ordinarily
resident in India. In other words, an Individual becomes resident but not ordinarily
resident in India in any of the following circumstances:
Case 1 If he satisfies at least one of the basic conditions but none of the additional
conditions
Case 2 If he satisfies at least one of the basic conditions and one of the two additional
conditions
NON-RESIDENT
An individual is a non-resident in India if he satisfies none of the basic conditions. In the
case of non-resident, additional conditions are not relevant.
(c)
(10 marks)
ANSWER: Computation of taxable income from salary of Mr.Ramlal for the
AssessmentYear 2014-15
Particulars
1. Basic salary
2. Entertainment allowance
(As he is not a central or state government
employee, its fully taxable)
3. Dearness allowance
4. Perquisites
I. Gardener, sweeper, watchmen and a
Amt in Rs.
14000x12
500x12
Amt in Rs.
168000
6000
3000x12
36000
(150+200+1100+600)x12
24600
2 (a)
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








domestic servant.
II. Repair charges of Free used
refrigerator
III. Gas electricity and water bill
IV. Annual membership fee to lions club (2400+900)x12
V. Expenses on use of large car
VI. Sons fee education facility in the
Upto
school run by the employer
12000(1000x12)exempted
VII. Sweat equity shares
(300x250)-(300x100)
VIII. Leave vacation stay in simla guest
house (company’s guest house)
Total taxable income from salary
Total
Define salary as per INCOME TAX ACT.
ANSWER: Under section 17 of the Income Tax Act, 1961 there are following
which comes under head of salary:
400
15000
1000
39600
Nil
45000
5000
340600
(3 marks)
incomes
Salary (including advance salary)
Wages
Fees
Commissions
Pensions
Annuity
Perquisite
Gratuity
Annual Bonus
Income From Provident Fund
Leave Encashment
Allowance
Awards
(b)
(7 marks)
ANSWER: Computation of taxable HRA of Mr.Pratap Chowdari
Particulars
Amt in Rs. Amt in Rs.
Actual HRA received
24000
Least of the following is deducted from the actual HRA
1. Actual HRA received
24000
2. 40% of the salary (basic+DA+Fixed % of commission)
86888
40% of (192000+19200+7% of 86000)
3. Excess rent paid over 10% of salary
4. 21500-10% of (192000+19200+7% of 86000)21722=(222)
Nil
Nil
TAXABLE HRA
24000
(c) Dr. VatsanThomas, a medical practitioner provides you the Income & Expenditure account
for the year ended 31st March 2014
(4+6=10
marks)
Following additional information has been provided:
(a) Visit fees include ` 10,000/‐ received as a gift from father.
(b) Entire stock of medicines has been utilised.
(c) Half of the rent is attributable towards residence.
(d) ` 2,300 printing charges are incurred for printing wedding cards of his daughter.
Compute on the basis of the above information Dr. Vatsan thomas’s taxable income from
profession for assessment year 2014‐2015
ANSWER: Computation of taxable income from profession of Mr.Vatsan Thomas for the
AY 2014-15
PARTICULARS
Amt in Rs.
A) Admissible income from profession
1. Consultation fees
260000
2. Visiting fees (30000-10000)
20000
3. Sale of medicine
30000
A
310000
B) Admissible professional expenses
1. Salary to staff
2. Rent (36000x1/2)
3. Purchase of medicine
4. Telephone expenses
5. Printing and stationery (11500-2300)
6. Books and periodicals
Taxable professional income
3
B
A-B
54000
18000
28000
12000
9200
11800
133000
177000
Case Study - (Compulsory)
Mr. subramanyam sells the following longterm capital assets on January 11, 2014.
Particulars
commercial Gold
Non-listed
Diamonds
Property
shares
Sales consideration (in Rs)
1400000
800000
1780000
1560000
Year of acquisition
82-83
83-84
92-93
91-92
CII
109
116
223
199
Cost of acquisition (in Rs)
99964
36684
267268
100881
Mr.Subramanyam owns one residential house property on april 3 2014, he invests in the
following assets,
1. Residential house property Rs.4300007
2. NHAI bonds Rs.740000 (redeemable after 7 years)
3.REC bonds Rs.1560000 (redeemable after 4 years)
ANSWER:
Compute the exemptions and the chargeable capital gain for the assessment year 2014-15
Particulars
commercial Gold
Non-listed Diamonds
Property
shares
(10
marks)
Sales consideration (in Rs)
Indexed cost of acquisition
Long term capital gain (in Rs)
Less : exemptions under section 54F
Less: Exemptions under section
54EC
Taxable capital gain
1400000
861158
538842
800000
296951
503049
1780000
1125402
654598
1560000
476016
1083984
298790
538842
503049
654598
603511
181683