Scribd
Upload
249 views82 pages

Untitled

Uploaded by

Gaurav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
249 views82 pages

Untitled

Uploaded by

Gaurav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
You are on page 1/ 82
126 / Income Tax (ii) Who has substantial interest (at least 20% share holding) in the empl company. ver Or (iii), Whose taxable monetary salary (cash receipts - deductions i.e. stands, deduction, Professional tax etc.) is more than & 50,000. In the case of specified employee all perquisites (except tax free perquisites each employee) will be taxable according to the rules. ae (b) Non-specified employee — An employ: specified employee if his taxable monetary salary is no director or having 20% share holding in the employer company: lities or perquisites from taxability o, ute taxable salary easily and correq ee will be treated as a no t more than & 50,000 and ny > Classification of various cash receipts and facil exemption point of view is here given to comp! way Chart : Various item taxable or partly taxab! Je or exempt (A.Y. 2022-23) Fully taxable items i.e. Partly taxable items i.e. Fully exempted items i.e, whole amount shall be | excess amount shall be | any amount not included included included (1) Basic salary (1) Education Allowance (1) Conveyance facility (2) Dearmess Allowance Exempt up to = 100 to attend office or (either under the terms per month per chiled factory from house or not) for maximum two. (2) Motor car for only (3) Deamess pay (2) Hostel Allowance official use (4) Bonus exempt up to% 300 | (8) Conveyance allowance (5) Commission per month per chil for (unexpended amount (6) Advance salary maximum two. taxable) (7) Arrears (3) Tribal Allowance (4) Helper allowance (8) Entertainment exempt up to %_200 (unexpended money allowance per month taxable) (9) Transport Allowance to} (4) House rent allowance | (6) Transfer allowance attend office exempt up to certain | (6) Tour allowance (10) City compensatory limit remaining taxable} (7) Uniform allowance allowance (5) Free meal facility (8) Free medical facility (11) Medical allowance exempt up to & 50 per| in employer's or Govt. (12) Servant allowance meal. Hospital. (13) High cost living (6) Shares issued at (9) Group insurance allowance discount (Difference is premium or accident taxable) insurance premium. (14) Tiffin allowance ai 5) Rent free house as per valuation 5) Motor car for personal and offical use both as per prescribed rates 7) Free Gas, Electric and _ Water facility or bills paid by employer (18) Domestic servent, gardner, watchman ( sweeper etc. (19) Life insurance premium. paid by employer (20) Credit card expenses (21) Personal club bills paid by employer (22) Income Tax or |__ professional tax or any other liability paid by employer on behalf of employee. (23) Interest on concessional or interest free loan if loan amount is more than % 20,000, Income from Salaries / 127 (7) Free education facility in employer's school exempt up to & 1,000 Pam. per child exempt, Gilt from employer exemt up to & 5,000. Asset or Article at concessional rate. 6 (9) Difference amount is taxable (10) Excess contribution of employer to recognised provident fund i.e. more.than 12% of salary, (11) Interest credited to RPF more than 9.5% excess amount shall taxable, (10) Common entertainment and club fa . (11) Telephone facility at home. (12) Free Refereshment (13) Leave travel concession two times in 2018-2021 (14) Interest free loan up to % 20,000. (15) Interest free loan for serious disease, (16) Free use of computer or Laptop. (17) Fees or expenses paid by employer for training or refresher course. System | stem, Note : If any house or building is being used for assessee’s business, it will not be computed under the head ‘Income from house property’. i.e. value of such property will be Nil. SOLVED PRACTICAL PROBLEMS (SPP) SPP-12 Shri Akshaya Jain is owner of the following houses - Particulars House - A | House - B | House -C Annual Fair Rent 18,000} 15,000 12000 Municipal Valuation 16,000} 20,000} 10,000 Let out (per month) 2,000 1,500 a Repair expenses 1,000 fae 4,000 Collection charges 2,000 500 a Ground rent = 300 % Land Revenue 80 Ss 10 Interest on loan for - (a) Construction 10,000 = 3 (b) Marriage of daughter — 6,000 x (c) Repairs ae s on Municipal Tax is 10% of Municipal val jd by owner but municipal tax of house al cipal tax of house 'C’ was pai Muni Find out income from House Soe Municipal tax of house ‘A was Was not paid upto 31st M, by the tenant, mae Propetty for the Assessment Year 2022-23, olution = Statement of Income fr om House Property Assessment Year 2022-23 | Houst se | Goss Annual Rental Value a | Less-M.T. 10% of MV. ae Net Annual Value | 22.500 | Less Deduction : u/s 24 | “Standard deduction 30% of Net AN. 6,750 (i) Interest on loan 10,000 16,750 5,750 House ‘B’ Annual Rental Value oN Less -M.T. (unpaid) oi Net Annual Value | 20,000 Less -Deduction : u/s 24 Standard deduction 30% of Net A.V. 6,000 14,000 House ‘C’ Gross Annual Rental Value 12,000 Less -M.T. (paid by tenant) Nil Net Annual Value 12,000 Less -Deduction : u/s 24 (a) Standard deduction 30% of Net A.V. 3,600 (b) Interest on loan 600 4,200 7,800 Income from House Property 27,550 > Note : Reasonable expected rent i.e. municipal valuation or fair rent or : Rent received which ever is more, will be annual rental value. Therefore incase of house 'A' rent received, 'B' municipal valuation and 'C' fair rent will be Gross Annual Value. : : Municipal tax is deductible when it is actually paid by the owner during the Previous year. x = Standard Deduction will be allowed @ 30% of Net Annual value in resp &xpenses. Actual expenses are not considere lina Deduction for interest on loan is allowed when su Construction or repairs, otherwise it is not deductible. 222/Income Tax TREATMENT OF VACANCY PERIOD SPP-13, Shri Suresh Jajoo is the owner of two houses. The municipal valuai, of one is % 45,000. It is occupied by him for his own residence. The munin valuation of the second house is € 30,000. It is let out at % 4,500 per month jg, residential purpose. The first house was purchased on Ist June 2019 and a log, obtained % 5 Lakh for its improvement. While the second house was completed on jy December 2020. The expenses for the houses are following - First house Second hous, Municipal Tax 2,500 3,000 Ground rent 500 7 Interest on loan taken for improvement or construction (Unpaid) 52,500 (Paid) 9,009 Fire insurance premium 1,500 170 Collection charges — i Find out the income from house property of Mr. Jajoo for the Assessment Yea 2022-23, assuming that second house was vacant for three months and his oe income was % 8,16,700. Solution : Statement of Income from House Property For the Assessment Year 2022-23 Self Residential House (1) Annual Rental Value Nil Less - Interest on Loan for improvement 52,500 Or Or Maximum limit, whichever is less 30,000| — 30,000} (-) 30,00 Rental House (II) Gross Annual Rental Value (Municipal Value % 30,000 or Actual annual Rent € 54,000, whichever is more) 54,000 Less -Loss of rent due to vacancy for 3 months, at actual rent basis i.e. 4,500 x 3 (-) 13,500 Rent received for 9 months (Sec. 23 (1) (C) ] 40,500 Less - Municipal Taxes () 3,000 Net Annual Value | _ 37,500 Less -Deduction : u/s 24 (a) Standard Deduction 30% of Net AV. 11,250 (b) Interest on Loan 9,000] 20,250 Be Income from House Property (Loss) 128 Income From House Property /223 Note : 777. Intereston loan for self occupied house because the Loan taken for improvement not for construction of new house. In the case of loan taken for tepair or improvement the deduction will be allowed up to % 30,000 even the loan taken after 1-4-1999, 2, Second house is let out for 9 months during the previous year, so rent received for 9 months is Gross Annual Value according to provision sec. 23 (1) (C). 3. 30% of Net annual value and interest on loan are allowed as deduction in respect of second let out house. is deductible to the extent of 30,000, HOUSE COMPLETED DURING THE YEAR DURING THE YEAR SPP-14 Shri Shantilal Duggar is the owner of four houses. Particulars of his house properties for the previous year 2021-22 are as under - First House - This house is being used for self-residential purposes. Its municipal value is € 66,000 per annum. The following expenses are made for this house-municipal tax % 6,000, Repairs = 500 and Fire insurance premium & 2,100. Interest on loan taken in 2018 for construction of the house % 1,37,000. Second House - The municipal valuation of this house is 2 Lakh and itis let out for € 15,000 per month, Expenses - Municipal taxes & 15,000, Repairs ® 10,000, Collection Charges € 6,000, Ground rent € 10,000. Third House - This house was completed on Ist August 2021 and let out for residential purpose at the rent of € 12,000 per month. Municipal Tax is 10% on its valuation € 90,000. Repair expenses for this house are nil, but interest 45,000 was Paid for the loan taken for construction of the house. Fourth House - Its municipal valuation is ¥ 30,000 per annum and it is used for Mr. Duggar’s self business. His taxable income from business is € 6,50,000 for the Assessment Year 2022-23. Compute Mr. Duggar's income from house property for the Assessment Year 2022.23, _ Solution : Statement of Income from House Property - For the Assessment Year 2022-23 (l) Self Residential House Goss Annual Rental Value * Deduction for Interest on Loan u/s 24 (2) 2 1,37,000 or 2 Lakh whichever is less. Rental Houses (Ml) House Gross Annual Rental Value 8S Municipal Tax Nil 1,37,000 | (-) 1,37.000 2,00,000 15,000 Annual Value 224/Income Tax | Less -Deductions u/s 24 (a) Standard Deduction 30% of Net A.V. (55,500 | 1.29 ane 00 (111) House Gross Annual Rental Value (8 months) 96,000 Less -Municipal Tax (-) 9,000 Net Annual Value 87,000 Less -Deductions u/s 24 (a) Standard Deduction 30% of Net A.V. 26,100 (b) Interest on Loan 45,000 | _71,100| 1599) Income from House Property 8.04 > Note : 1. Annual value of self occupied house is nil, but interest on loan at actuy amount % 1,37,000 or maximum amount & 2,00,000 is deductible. , 2 1,37,000 will be deducted against rental income. It is assumed that the properly is acquired after 1.4.99, so maximum limit of interest on loan is % 2 Lakh. No other deduction is allowed for such house. 2. Fourth house is used for assessee’s own business, so such house is not considered under this head. 3. Annual rental value of III let out house will be taken for 8 months, because i is completed on Ist August during the year. However municipal tax shall be deducted for whole year. 4. Fixed standard Deduction 30% of Net Annual value in respect of let out house is allowed regarding various expenses, actual expenditure is not noticeable. WHEN OTHER FACILITIES GIVEN UNDER RENT DEED SPP-15 : Particulars of house property of Mr. Nirmal Goyal are as under - He is the owner of a house in Mumbai. It has been let out for % 45,000 per month, lis municipal valuation is € 4.00,000, The municipal tax payable by the owner comes to € 50,000, but the land lord has signed an agreement with the tenant unéet which the municipal taxes will be paid by the tenant direct to the municipality. The land lord, however, bears the following expenses on tenant's amenities under agreement : (1) Water charges & 5,000 (2) Lift maintenance & 15,000 (3) Lighting & stairs € 4,000 (4) Repairs % 45,000 (5) Land revenue % 3,000 (6) Rent collection charges ® 18,000. He has two houses at Indore, which are occupied for himself and family members residence. Those municipal valuation is € 39,000 and 96,000 per annum and municipal tax is 10% thereon. For the construction of first house he has taken? loan in’ 2017 amounting to % 20 Lakh at the interest of 10% from Cloth Matte! Co-operative Bank, on which & 1,26,500 interest was due in the previous yeat. !n th year 2020 he taken a loan from HDFC bank for purchasing second house, interest “ due % 1,88,000 for previous year. Interest relating to first house has been paid interest regarding second house is unpaid. Compute income from house property for the Assessment Year 2022-23. Income From House Property /225 ution : Fental house yal rent received 5,40,000 tae Cost of facilities given to tefiant ° 988" ader agreement- Water 5,000 Lift 15,000 Light 4,000 (-) 24,000 \RV. (Municipal Valuation & 4,00,000 yractual rent & 5,16,000 whichever is more) 5,16,000 less- MT. paid by tenant Nil ess- Deduction u/s 24: Standard Deduction 30% of Net AV. ° 154,800] 3,61,200 II. Self occupied houses (two) a : / ‘Less- Interest on Loan of both houses Statement of Income from House Property For the Assessment Year 2022-23 Net Rent Received 5,16,000 Net Annual Value. | 5,16,000 Annual rental value of two houses at Indore’ Nil (a) Actual % 1,26,500 and 1,88,000 = 3,14,500 or (b) Maximum % 2,00,000 whichever is less 2,00,000} (-)2,00,000 Income from House Property 1,61,200 1. Water, lift and li SPP.16 ht charges are not separately allowed, but if the owner provides such facilities to tenant under the terms of agreement, expenditure on such facilities will be deducted from actual rent. Therefore in aforesaid problem % 24,000 shall be deducted from actual rent % 5,40,000. Thus 5,40,000 - 24,000 =: & 5,16,000 is net rent, more than municipal value 4 Lac, so it will be taken as annual rental value. a 2. Municipal taxes are paid by the’tenant, so they are not deductible. W.e.f. assessment year 2022-23 an assessee may occupied two houses for self residence, therefore annual value of both houses situated at Indore shall be taken Nil, but interest on loan % 1,26,500 and % 1,88,000 = %3,14,500 is deductible up to maximum limit ¥ 2 Lac. Shri Harbhajan Singh is the owner of four houses during the financial | Year 2021-22. Their municipal valuation is ¥ 2,40,000, % 80,000, & 1,75,000 | and 750,01 - 88 follows - 100 respectively. The municipal tax is 10%. The houses were used 1. First Bungalow was used for self residence. It was purchased on Ist May 2020 from borrowed capital. 2. Second house was let out to Mr. Jaheer Khan on the monthly rent € 9,000, p a 226 / Income Tax 3. Third house was let out to Cricket Control Board at the rent of per month. The board paid rent after deduction of Income tax @ gy 4. In the fourth house Harbhajan Singh runs his hotel and its taxable ime, is & 72 lac. He claims for the following deductions - Interest on loan taken for purchasing the firs \ it 1 Lac paid to his foreigner friend Mr. Richard without deducting g, .dia who can be treated as agony source and there is no person in Ini 1 Mr Richards, The remaining interest is paid to HDFC and fire instrany premium & 4,000. 2. Collection charges of second house € 6,000. 3. Lift expenses % 15,000 and gardener's salary € 30,000 relating toi house. the frst house was €1,95,000 rovides these facilities under the term of rent deed. The owner p1 ‘Compute income from house property for the Assessment Year 2022-23, Solution : Statement of Income from House Property (A.Y. 2022-23) jal I. Self occupied House Interest on loan paid in India ¥ 95,000 or maximum: % 2,00,000 whichever is less (See note) 95,000 | (-) 95,000 II. Let out house for residential purpose Annual rental value ; 1,08,000 Less - M.T. @ 10% of Municipal valuation - 8,000 Net Annual Value | 1,00,000 Less- Deduction u/s 24 Standard Deduction 30% of Net Annual Value | - 30,000} 7000 IIL. Let out House : Gross Annual rental value : Gross 2,64,000 i Lift expenses 15,000 Gardener'ssalay 30,000 - 45,000 2,19,000 ot Municipal valuation & 1,75,000 whichever is more, so 2,19,000 Less- M.T. @ 10% of Municipal Valuation % 1,75,000 |__17,500 Net Annual Value | 2,01,500 Lesé- S.D. 30% of Net AN. = 60,450} 1/4108 WV. Self Business House (not taxable) oem Income from House Property 1,16,080 ee ee es > Note : 1. Though the deduction for interest on loan for self occupied house is allows upto @2 Lac, because the house was purchased after 31.3.99 but ® 1 paid out side India without deducting tax at source, so in this case dedua™ will be allowed & 95,000 which is paid in India to HDFC. Income From House Property /227 2, If the owner provides some facilities, e.g, lift, gardener, electricity, water to tenant under the terms of rent deed, then such expenditure would be deducted from rent received. In case of third house the assessee provides such facilities . to the tenant and incurred & 15,000, so net rent will be % 2,64,000 — 45,000 = 2,19,000 which is higher than municipal valuation & 1,75,000. Thus annual rental value will be € 219,000, : 3, Tax deducted at source by board is not deductible, gross rent will be considered. RELATED TO STANDARD RENT STANDARD RENT | SPP-17 ‘ - Q The following are the particulars of house Properties of Mr. Vishwanath “Trivedi. Compute. his Taxable Income from ‘House Property for the ‘Assessment Year, 202223 — Particulars : House -1 House - II ‘Construction Started on Ist April, 17 2nd-dune, 18 Construction Completed on Ist April, 18 7th April, 19 Standard Rent as per Rent Control Act (N.A.) 24,000 Fair Rental Value 28,000 28,000 ‘Municipal Valuation 20,000 15,000 Actual Rent Received. 27,000 * 18,000 : (9months) (12 months) Municipal Tax on Municipal valuation 15% 15% ~ Repair charges ~ 2,000 800 Interest on Loan taken for the construction of the‘house 14,000 —_ Insurance Premium 200 175 Anriual Charges — "2,000 Vacancy Period 3 months 7 Ground Rent 150 75 Both the above houses are let out for residential purposes. Rent for two months in respect of first house was not collected from the tenant. The assessee satisfies all the | conditions regarding the unrealised rent. | Solution ; ned ' Statement of Income from house property For the Assessment Year 2022-23 » First House oe ey . Gross Annual Value (12 months) . 36,000 | Less~ Loss of reni for vacancy period 3 months (9,000 | Gross Rental. Value (9 months) * ” 27,000 ~ (Actual tent received / receivable) *ss- Unrealised rent (2 months) - | 6,000 ; Actual rent received 21,000 ‘Less_ MT. 159% of Municipal Value 3000 Net Annual value | 18,000 228 / Income Tax Less- Deductions : u/s 24 (a) S.D. 30% of Net Annual Value 5,400 |* (b) Interest on Loan 14,000 _ |) 19.400 | (4 14 Second House Gross Annual value based on Standard rent 24,000 Less- M.T. 15% of MV. () 2,250 Net Annual Value 175 Less- Deductions : u/s 24 Standard deduction 30% of Net A.V. |) 6.525 | + 1595 Income from House Property “ T3ay ia > Note : 1. The first house remained vacant for 3 months, 50 actual reni 7 27,000 will taken, unrealised rent for 2 months % 6,000 is also deducted against it, so Net amount 21,000 will be gross annual value of the house as per provisions, 2. If the rent Control Act is applicable and Fair rent or municipal valuation i more than standard rent, the standard rent will be annual rental value, because in such case annual rental value can not exceed the standard rent, It can be determined by the following formula — (a) Rent received or MV or FR, whichever is more 18,000 or 15,000 or 28,000 28,000 {b) Rent received or standard rent whichever is more Be a 18,000 or 24,000 24,00 (c)_ So, Annual value A or B, whichever is less i.e. € 24,000. SPP-18 Mr. Ramashankar Shukla owns a house property at Khandwa. Its annual rental value is € 1,20,000. During the previous year this house waslet out on monthly rent of & 9,000 for 10 months. The tenant has not paid rent for 6 months and legal procedure is in process. Mr. Ramashankar claims for the following deductions - 1. Municipal Tax % 12,000. 2. Legal expenses for recovery of rent ® 7,000. Maintenance allowance paid to the step mother & 15,000 annually, which was a charge on the property according to his father's will. 4. Unrealised rent for six months & 54,000. 5. He had taken a loan from his friend Virendra for construction of ths house. Its interest % 60,000 was sent to America because Mr. Virendra lives there now. Interest has been remitted without deducting any tax from it 4 Virendra's' Brother lives in India and he is his agent. Land revenue due & 3,000 to state Government was not paid. A former tenant was defauilter to pay rent € 15,000 and the same was deem! unrealised in Assessment Year 2017-18. In the previous year % 8,000 was recove™ from the tenant and & 2,000 was spent in legal procedure. Find out income {0 house property for the Assessment Year 2022-23. | Income From House Property / 229 solution : ‘ Statement of Income from House Property Annual Rental Value (10 Months) Gross Annual Rental Value based on Municipal Value pecause it is higher than actual Rent» , 1,20,000 Less “Los of actual rent in vacancy period 2 months (900 x 2) (118,000 | Rental Value for let-out period 1,02,000 Less -Municipal Tax 7 (-) 12,000 : Net Annual Value 90,000 Less -Deduction (i) Standard Deduction 30% of Net Annual Value . 27,000 (i) Interest on loan 60,000. | (-)87,000 Current year H.P income “3,000 ‘Add -Preceding unrealised rent recovered in previous year -—_—8000 Less : S.D. 30% 2,400 | + 5,600 Income from House Property 8,600 > Note : 1. Unrealised rent for six months is not deductible during the previous year, because legal procedure is not completed yet, 2. Municipal Value of the house is ¥ 12,000 annual, while its actual rental value at the rate of % 900 per month for 12 months is Z 10,800; so municipal valuation will be taken as Gross Annual Value i.e. Z 12,000: but loss of rent due to vacancy for 2 months will be reduced on the actual rent basis, ie. 900 X 2 = 1,800, hence & 10,200 will be taken as rental value for letout period. 3. Interest on loan taken for construction is allowed though it is paid outside India and the assessee did not deduct tax at source but there is representative of the receiver in India. 4. Past unrealised rent is recovered during the previous year & 8,000, is included in the income of house property, after deducting 30% S.D. i.e. € 5,600. INTEREST OF PRE-CONSTRUCTION PERIOD Interest payable by an assessee in respect of funds borrowed for the acquisition construction of a house property and pertaining to a period prior to the previous "ear in which such property has been acquired or constructed, will be deducted in five ‘qual annual instalments, commencing from the previous year in which the house is ‘quired or constructed. Interest of pre-construction period is deductible in five equal instalments. The 'stinstalment is deductible in the year in which construction of property is completed ov in which Property is acquired. 230 / Income Tax SPP-19 \ dee Mr. Rakesh Garg has taken a plot on lease from Indore Developm, Authority on let January 2017 and started construction on 1st April 2014' The House was completed on 1st April 2020 and let out Hf the mate Of & 20.09, per month for residential purpose, the owner provided the following ferliities to Bante Mechicito and water £8,000 per annum, Gardener's Salary < 7,000 per mo, te The municipal corporation assessed its valuation _2-00,000 annually, 7, comporation tenes bre ss under. Property tax on valuation 10%, water and light jy 5,000 per annum. Mr. Garg paid current year taxes and also paid © 10.000 for preceding yea, taxes. Per connt etion of this house he has taken a loan # co-operative society, Duting there cous pear ® 40,000 Interest has been due but it was unpaid upto 31st March Boob The aacunt of interest on loan during construction period (1.4.2018 ig 39% 2000) B'S 220,000. The tenant is responsible for repairs. Mr. Garg appointed, Derson on € 2,000 per month salary for the collection of rent. Hind out income from property for the Assessment Year 2022-23. Give alsy necessary notes. Solution : Statement of Income from House Property for the Assessment Year 2022-23 Annual Rental Value 2,40,000 Less -M.T. paid Previous year (Current Previous year property fax 10% of MV. 20,0000} Water and light Tax 5,000 Past year’s arrears 10,000] _(-) 35,000 Net Annual Value "205,000 Deductions : (@®) S. D. 30% of Annual Value 61,500 Interest on Loan for previous year 40,000 + 1/5 of construction period 2,20,000 = 1/5 44,000 84,000] (~) 1,45500 Income from House Property 59,500 > Nate : 1. Municipal taxes are deductible at the payment basis, so such taxes are als deductible which were paid during the previous year even though taxes relsie! to preceding years. 2. Interest on loan during the-constriction period is deductible in five equal yeaty instalments, so 1/5 of © 2,20,000 = £44,000 and current year's in! & 40,000 is allowed. Income From Ho! : use Property /231 3 fs 30% of ee value as. Standard Deduction is alk tenant is liable for maintenance. nae ‘icity, water and gardener’. a 4. Blectlly, water and gerdeners expendi no provision for separate deduction for an are not alowed, cause thre i §,_Inlerest on loan is deductible at due basis whether iti paid or not during th previous year. Pi not during the SP ee | pale ICICI Bank sanctioned a loan of ¥ 20 Lac @ 9% on Ist July, 2013 to y. Ravindra Bhalke for constructing a bungalow for self residence. . Bhalke obtained the loan in instalments Fist Instalment 1-12-2013 . Blac aaa Second Instalment 1-4-2016 - € 12 Lac The ee oe ued on Ist August 2017 and the municipal corporation valued its annual rental Value % 1,50,000 from property tax point of view. Compute Mr. Bhalke's income from house property for the Assessment Year 2022-23 considering the following points — (1) First instalment of loan % 8 Lac has been fully paid on 1.1.2021 but second instalment is wholly unpaid. . (2) He has an another flat which municipal value is € 90,000. The house is occupied by his brother and they are paying a nominal-rent & 1.000 per month. The flat was purchased in 1998. ‘The interest was de during the previous year amounting to % 38,000 regarding the loan obtained for purchasing the flat. (3) Municipal corporation levied 8% properly tax and 5%: sanitation « cess on its valuation. 1 ight Solution : Statement of Income from House Property Assessment Year 2022-23 1 Bungalow for self residence Annual Rental value Nil Deduction for Interest on Ioan () Previous year 2021-22 interest on second 1,08.000 instalment & 12 Lac @ 9% (i) Interest during the construction period (@) On® 8 Lac for 40 months (1.12.13 to 313.17) 8,00,000 x 9 x 40 2,40,000 100 x 12 (&) On & 12 Lac for 12 months (1.4.2016 to 31.3.2017) 1,20,000 x9 1,08,000, 100 282 /Income Tax Total interest during construction period 348,000 So, Interest before completion 1/5 of | %3,48,000 69,600 1,77,600 Or Or Maximum limit aah 2,00,000 | (-) 1,77.609 Whichever is less IL. Flat (let out) Annual Rental Value Less~ Municipal Taxes (8 + 5 = 13%) Annual Value Less- 30% S.D. 23,490 | 38,000| (-)61,490 16,810 Loss from house property (-)1,60,790 Interest on loan 1. The first part of loan is being used during the construction period so interest for, 40 months and second: pait for 12 months (prior to the previous year . 2016-17 in which the house completed) shall be deductible in 5 equal instalments, 2. An another flat is also being used by his brother at nominal rent. Its income will be determined as per the provisions relating to let out house property. So, deduction for municipal taxes, S.D. (30%) and whole amount of interest on Joan (date is not noticeable in case of let out property) shall be allowed against its Annual value. MORE THAN TWO SELF OCCUPIED HOUSES. If the assessee occupied more than two houses for self residence; he can opt any two for exemption then other houses will be deemed rental houses and shall be computed as letout houses. SPP-21 Mr. Vibhora Khandelwal has three houses. Those municipal valuations are % 4,50,000, % 5,00,000 and % 6,00,000 respectively. Interest on loan taken for construction of these houses are € 90,000, & 1,80,000 and 1,20,000 per annum These houses have been used by the members of the assessee's family members ot their residence. Which house should he choose as a self residential house for Incom® tax purpose ? The houses were completed in 2008. Give your advise in respect Assessment Year 2022-23. He has income from other sources % 7 Lakh. — First: | Annt Less Second Ann Less Income From House Property /233 nee a self occupied house for exemption re promi opt for anyone house as minimising ta liablity he choose a such heres? a First option : (I & I) self residential (A.Y. cues Furst and Second House (self a Annual Rental Value (I & II house) House as Nil Less- Interest on loari 90,000 +. 1,80,000 = 9:70,000 : or : Maximum 2 Lakh which ever is less 2,00,000} (-)2,00,000 Third’ House (treated as rental) a f Annual Rental Value 6,00,000 ” Less- 30% Standard deduction 1,80,000 a Interest on loan 1,20,000|(-) 3.00,000 |+ 3,00,000 Tiicome from House Property 7,00,000 Second option : (II & Ill) House as self residential Fist: House (treated rental) Annual Rental Value 4,50,000 Less- 30% standard deduction 135,000} Interest on loan 90,000} 2,25,000 | +2,25,000 Second and Third : House (self) Annual Rental Value (II & Ill house) Nil Less- Actual 1,80,000 + 1,20,000= —— 3,00,000| or maximum which ever is less 2,00,000} (~) 2,00,000 | +- 2,00,000 Income from House Property| 25,000 Third option : (I & Ill) House as a self residential First and third : House (self) Annual Rental Value (I & Ill house) Nil Less~ Interest on loan 90,000+1,20,000 = 2,10,000 or maximum % 2,00,000 (-)2,00,000 |(-) 2.00,000 1. House (treated rental) 00,000 Less- 30% standard deduction 1,50,000 Interest on loan 1,80,000 | ._ 3,30,000] + 1,70,000 Income from House Property (loss) (-) 30000 234/Income Tax Advise - He should opt third option i.e. first and third houses as self occu, house, because in this case his income from house property as loss % 20,044, comparison to I & Il option. So, I & Ill house will be treated deemed let out otis, | He can adjust this loss against income from other sources: SPP-22 — ‘Compute income from house property from the following particula,, of Mr. B.L. Nalwaya's house properties - 1. First House- Municipal Valuation = 36,000 annual, for self residence. Thi, house was purchased on Ist Jan. 1990. He had taken a loan for its repair in Januay 2018 and interest on which ¥ 33,500 was due during the previous year. Other expense, of house Repair and maintenance % 2,000, municipal taxes € 6,000. & 9,000. Its 1/3rd portion was 2. Second House- lis municipal valuation is occupied for Family use and remaining 2/3rd portion wes let out at the rent of 609 per month, Municipal tax and repair charges will be paid by the tenant. The house vas constricted in 1980. Expenses of the house repairs & 1,200. Insurance premium (pei up to 30th June 2022) € 450 and municipal tax was paid € 900. 3. Third House Municipal Valuation = 12,000 annual. This house was given to his brother for residence without rent. The house was constructed on Ist Jan, 2007. 4. Fourth House- Municipal Valuation 5,000 annual. The house is used in his business. Expenses & 2,000 of this house were debited to P and L account. He took a mortgage loan % 30,000 @ 12% interest on second house. The loan was used for following purposes- (i) % 10,000 for repairing of third house. (ii) 20,000 for business. Solution : Statement of Income from House Property For the Assessment Year 2022-23 a First House and 1/3 portion of sec ond house Annual rental value (both) Nil 30,000} (-) 30,000 - Less- Interest on loan for re} air (Maximum) Second House (letout partly) 2/3 Rental portion (actual) Annual rental value 7,200! Less- M.T. 2/3 (paid by tenant) Nil] Net Annual Value 7,200) (-) 2,160} Less- Standard deduction 30% of Net A.V. +50! Income From House Property / 235 House (deemed as Rental) ir TN ross Annual Value 12,000 Nil Net Annual Value 12,000 Less MT. Less- Deductions : (a) SD. 30% of NAV. 3,600 (b) Interest on loan for repair 1,200} (-)4,800} 7,200 Income from House Property (Loss) (917,760 » Notes + 1. _ Ifthe assessee occupies more than two houses are their for self residence, then any two houses would be treated as self occupied. So first house and 1/3 part of second house has been choosen as self occupied house for income tax purpose. 2. 8rd portion of second house is used as self occupied and 2/3rd part is let out for € 600 per month shall be taxable. 3. . Interest on loan taken for the repairs of third house is deductible from the annual value of third house though the loan has been taken against second house. PARTLY LET OUT AND PARTLY SELF OCCUPIED HOUSE THROUGH OUT THE YEAR If a portion of the house is used as self occupied through out the year and remaining part is let out, then each portion will be treated as a separate unit and computed as under - (i) Self occupied portion according to provisions relating to self occupied. (ii) Rental Portion- Computed as Let out house and proportionate rental value will be taken and municipal taxes and interest on loan will also be deducted relating to such part. SPP-23 Dr. Rupesh Modi constructed a big house in July 2020, of which Municipal valuation is ¥ 8 Lakh per annum. Its standard rent under Rent Control Act is 9 Lakh annual. The house has been used in following manner during the previous year - (2) 25% portion for self residence, (b) 25% portion for self clinic, (c) 25% portion let out for residential purpose (¥ 20,000 per month) (4) 25% portion let out to Medical Stores (¥ 20,000 per month) Other particulars of the house are as follows - (i) Municipal corporation tax & 1,28,000 (actual payment during the previous year 2021-22 & 90,000) 236 / Income Tax (i) Repairs % 45,000. (ii) Ground rent % 68,000, « (iv) Fire insurance premium & 20,000, () Rent Collection Charges & 15,000. He has taken a loan (€ 20 lakh) @ 12% from Housing Board to construc, house. Interest due was ® 2,40,000 during the previous year, out of which & 2.0049, - was paid. Compute income from house property for the Assessment Year 2022-23, Solution : 7 25% part of the house is used for self residence and 50% part is let out, so both, are separate units and valued as under- Statement of Income from House Property For the Assessment Year 2022-23 25% self residential use (whole year) Annual Rental Value : Nil Less - Interest on loan (25%) 60,000} (-) 60,000 25% seif clinic (Not taxable under this head) Nil Ni 50% let out (whole year) Gross Annual Rental Value 4,80,000 Less - 50% of municipal tax paid ; 45,000 Net Annual Value] 4,35,000 Less- (a) S.D. 30% of NAV. 1,380,500 (b) Interest on loan (50%) 1,20,000| (-) 2.50,500| 1,84,500 Income from House Property| 1,24,500 1. The assessee used 25% portion for self residence and let out 50% portion for full year, so such house is valued u/s 23 (2) (a). In such case self occupied portion and let out portion u/s 23 (1), thus both are valued separaiely. 2. If thé part of house is let out for full year then first we calculate proportionate annual rental value and then allowed deduction proportionately. PARTLY SELF OCCUPIED AND PARTLY LET OUT HOUSE (PART OF THE YEAR) Computation of such house in which - (a) The assessee resides himself for some months, and (b) The tenant resides for some months, will be as under - Provision of Sec. 23 (2) will hot be applicable if the assessee lives in a house some period during the previous year and the tenant also lives for some period, in of ' Income From House Property / 237 dg the house is being used for self reside wo! ste het ee as well as is let out. Such house is wale). First rental value of the Whole peaks house for ull years taken as annual rental (i) Full municipal taxes will be allowed, (ii) Standard deduction 30% deducted. and full amount of interes} on loan will be 4 ; spP2 : : Mr. Chandra Prakash is owner of a house. Its Municipal valuation is _ 74,000. : The house was constructed on sed for self residence from Ist Apri 2 7021 it was let out at the rent of & ~ sxponses for this house - Municipal taxes ¥ 6,000, Re, ~ jevenue € 2,000. Electricity and wi He took a loan of 50,000 @ 15%. Nothing was repaid on | Ast April 2017. Di 021 to 31st July 2,500 per mon luring the previous year it was 2021, thereafter on Ist August th. He incurred the following Pairs ¥ 4,000, Fire insurance premium % 500. Land ‘ater bills 10,500, gardener’s salary & 1,800, for the construction of this house on Ist April, 2015 loan account so far, 7 f Find out income from house property forthe Assessment Year 2022-23, . | Solution : Statement of Income from House Property ‘Annual Rental Value whole house Municipal Valuation etn ie 7 Or Rent received for 8 months (1.821 to 31.3.22 @ 2,500 per month) 20,000 | Which ever is more, so % 24,000 | Less- MT. i i Net Annual Value - Less- Deduction u/s 24 (i) S.D, 30% of Net AV. . ‘ 5,400 Interest on loan (2021-22) 7,500 (ii) Interest on loan (2 years) construction period ; 1S of & 15,000 3,000} 10,500] (-) 15,900 5 Income from House Property 2,100 E First we will take annual value of the house for the whole year. Entire amount of municipal taxes is deducted. Interest on loan during construction period from 1.4.2015 to 31.3.2017 two years amounting to = 15,000 is deductible in five instalments from the year in which house was completed. So, 1/Sth portion & 3,000 is allowed alongwith Current year’s interest. 238 / Income Tax SPP-25 3 ! The following particulars are about the property of Mr. Ashish Bhandari who is an Indian citizen but non-resident in India - (1) He is owner of a house. Its municipal valuation is % 3 Lakh annually was let out to a company at the rent € 30,000 per uae ite tenant jg liable for repairs. The company deducted tax at source on and paig net amount % 3,24,000. Municipal tax was due © 16,500, out of ths amount % 4,000. were unpaid. He has eopolnied 6 person at & 500 por month for collection and remittance of rent in India. Another residential house annual value of which is © 33,800. He paig ground rent & 500, Insurance premium % 700 and municipal tax 7 1,000, The house is used for self residence while he visits to India. He took a Loan, from his American friend for repairing the house and interest was paiq 1,000 Dollar (@ 57,000) without deducting the tax at source. (8) He has a flat in America which is let out for 100 Dollars (@ 7,000 per 2 month). ; / His busifiess income was % 8,55,800 in India and & 4 Lakh in America, Compute his income from house property and gross total income for the year ending 3st March, 2022. Solution : Statement of Income from House Property (A.Y. 2022-23) (1) Let out house Annual Rental Value'(Gross rent) 30,000 x 12 :.60,000 Less - M.T, (16,500 - 4,000 = 12,100) “12,500 Annual Value| _3,47500 Léss - S,D. 30% of Net AV. 1,04,250] 2,43,250 (2) Self Occupied House Annual Rental value Nil Less - Interest on loan w/s 24 (2) paid out side India Not deductible Nil Ni Income from H.P. 2,43,250 Statement of Gross Total Income 1. Income from house property in India 2,43,250 2. Income from Business (India) 855,800 [tei Gross Total Income| 10,99,050 L___——— Income From House Property / 239 ‘The company (tenant) Paid rent 3,24,000 after deduction of.income tax @ 10%, but at the time of computation of income from house property gross rent would be taken in consideration. The tax deducted at source & 36,000 will be adjusted to tax payable by the assessee, Unpaid municipal tax % 4,000 is not deductible, 3, Annual rental value of self occupied house is nil, but interest on loan paid out a 10! 1. 2 side India without tax deducting at source is not deductible. QUESTIONS FOR EXERCISE ee NG ANSWER TYPE QUESTIONS : Define Annual value and describe the allowed deductions which are deducted from Annual Value for the computation of Income from House property. Discuss the procedure of computation of income from the following houses— (a) Fully Let out house (b) Fully self Occupied house. (c) Self Occupied for a part of the year and Let out for remaining part. SHORT ANSWER TYPE QUESTIONS : 1 2. How will you determine the annual value of let out house covered under Rent Control Act ? (i) Municipal taxes. (i) Interest on loan taken for construction. Write notes : (a) Statutory Deduction. (b) Exempted incomes from house property head. Discuss the provisions of the Income tax Act regarding the following (a) Preceeding unrealised rent recovered, (b) Preceding arrears of rent received. VERY SHORT ANSWER TYPE QUESTIONS : (Answer with in one or two sentences) 1. sou pep Explain ‘Annual Value’. State the exempted income under the head house property. State the standard deduction u/s 24(a) of Income tax Act. State the deduction for interest on loan u/s 24(b) of Income Tax Act. What is Gross Annual Value ? Explain the term 'Fair Rent’ of the house. Mention limit for Interest on loan taken for self house construction. Fr Income From House Property /247 pis c pP me Sart poo an eae! three houses. Their municipal valuation ; e308 :000 per annum. Municipal Tax is 10% of its va The first Pe a 7 Ro for self residence. Se¢oid house is being used for his business an ae jouse is let out on monthly rent % 2,500 from 1st Jan. 2022. fist and second house were completed on Ist Jan., 2017, while the third house completed o Ast oe 2021. ¥ ‘Compute Net annual value and taxable income for the Ass 5 essment Year 2022-23. ans: Annual Vales - First House - Nil; Second House - Self business house need not to be valued; Third House -% 5,100, Taxable income 3,570. ints : Fifth house is constructed during the previous year on Ist October, 2021, own ‘The p Hints iti bat its to fom eee, valued for only three months (6 months ppp-14 Shri Deepak Singh Chouhan is owner of the following houses - Particulars House ‘A’ | House ‘B’ | House ‘C’ z z z Annual Fair Rent 36,000 | 22,500 18,000 (Similar property in the same locality) Municipal valuation * 22,500 | 30,000} 15,000 Let out (per month) 2,000 2,250 1,200 Use by tenant Residence Office | Residence Repair expenses = 1,500 2,000 Collection charges 3,000 750 i Ground rent = 600 300 Land revenue 120 rt a Interest on loan for - () Construction from his brother 25,000 = — (i) Business from bank - 6,000, 7 (ii) Repair from friend iat —|{ 11500 Municipal tax is 10% of municipal Owner, but M.T. of house ‘B’ was not valuation. M.T. of house ‘A’ was paid by the paid upto 31st March 2022. House ‘C’- Municipal tax (half) was paid by the tenant. Compute income from house property for the Assessment Year 2022-23. Ans. : Income from house property % 20,200. (i) House (A) € 1,375 (loss); (ii) House (B) < 21,000 (iii) House (C) & 575. hi Hints : () Municipal valuation or i) Fair rent or (ii) Actual rent, whichever is higher take nas gross renital value. 248 / Income Tax PPP-15 Shri Bhagatsingh Yaday is owner of a house since 1996. Its Munig, valuation is ¥ 2,50,000 annual and let out at the rent of © 22,000 per mot! while its fair Rent is ¥ 23,500 per month. The following expenses were m4" for the house - i) Local tax 10% properly tax and 5% Education and Sanitation cos, Municipal valuation (1/3 tax paid by tenant) of }) Repairs and maintenance & 20,000 annual (ii) Ground rent 200. (iv) Insurance premium ¥ 4,000. (W) Collection charges & 800. On Ist July 2018 he obtained loan of & 12 Lakh from Nagrik Sahkari Bank, @ 8% per annum for repair of the house. During the previous year he paid 1,50,000 a, instalments including interest ¥ 83,700 relating to the previous year. He resides bi, parental house which annual valuation is ¥ 66,000 per annum, * Find out the income from house property for the Assessment Year 2022.23, Ans. : Income from house property % 96,209, > Hints : (i) Half municipal taxes (paid by the owner) and 30% of Net Annual value, will be deducted. Actual expenditure will not be considered. (ii) Parental house ig exempt as self occupied. PPP-16 Mr. Ramprakash Singhal is the owner of a house at Agra, particulars in respect of which for the year ended 31st March, 2022 are as below- 3 I. Letout house 1. Actual rent received 4,50,000 2. Municipal valuation 4,20,000 3. Total municipal tax 63,000 4, Municipal tax paid by Mr. Singal 42,000 5. Municipal tax paid by the tenant 21,000 6. Interest on Loan taken for renewing the house 15,00 IL. House - Self occupied Municipal valuation % 40,000, Municipal Taxes @ 10%, Interest on loan taken on (2019) 93,500. III. House - used in self business Fair rent € 8,000 per month, Municipal Tax @ 10%. paid through business. IV. House in another city used for son's education Municipal valuation = 60,000 annum, Municipal Tax @ 8%, fire insurance P* mium % 6,000, Interest on loan taken in 2021 ¥ 1,28,300. Compute Mr. Singhal Income from House Property for the Assessment Year 2022-23. Ans. : Income from House property € 70,607 (Income from let out property € 2,70,600 less interest on o# self occupied house Il & IV % 2 Lakh maxima" Income From House Property /249 p17 pp Shri Mohanlal Khare owns two houses Mandleshwar. The Particulars of pe two houses for the previous year 2021-22 are given below — ‘! Particulars House I House Il Date of completion of the house Sist March, 2015 31st Dec. 2020 Use of House Self-occupied Let out Municipal Value 36,000 60,000 Fair Rent 35,000 90,000 Rent Received . 1,20,000 Standard Rent 25,000 65,000 Municipal taxes paid 4,000 8,000 Interest on loan for construction of house 1,30,000 40,000 Compute Income from house Property for the Assessment Year 2022-23. Ans. : Loss from House property ¥ 91,600 (I. House self interest on loan & 1,30,000 . Il. Let out house Net income ¥ 38,400) IN CASE OF VACANCY PPP-18 Mr. Devendra Surana is owner of two house at Dhar. The First house, Municipal valuation of which is ¥ 2:25,000 per annum, is grcupied for self residence and the second house, Municipal valuation of which is *1.40,000 was let out for residential purpose at the rent of 14,250 per month. The lullowing expenses were made for the houses - First House Second House Date of Completion 18.1996 1.1.1998 Municipal Tax 7,500 5,400 Ground rent 150 450 Interest on loan for construction 87,750 37,000 Fire Insurance premium 1,450 1,410 Collection charges na 825 Assuming that the second house has remained vacant for 2 months and his feedy made garment business income was & 2,90,700. Find out He mec from house Property for the Assessment Year 2022-23. Ans. : Income from house property ¥ 28,970 [First house (-) 30,000 interest on loan, second house income % 58,970] > Hints ; ‘ 1. First house was completed before 01.4.99, so interest on loan is deductible upto F 30,000 Second house remained vacant for 4 months, so actual rent received for 8 Months will be gross annual value according to new provision sec, 23 (1) (c). “(12 months rent receivable less 2 months loss of rent due to vacancy) 2, 250 / Income Tax sae e 2018. He t m a Atul Vora purchased a flat at Indore on tat une 204 tHe tog Me an for purchasing 1 from State oa ot ae i oval toa of F400 forthe previows year 2021-22. im 8 F600 op {the fa is € 30,000 per annum while ts fait ren . of the flat is € 2 fair rental The Municipal corporation charges the aien e vs, canittion tax 4% 9%, light tax 3%, education tax 2%. Property tax 6%, light tax 2 ae vont by Mr. Vora at 8 2.40 «has paid all the taxes. The flat is Mora at 2. month Donna the previous Yea ZB. he ts gg ‘ s Compe rm hose pay re PS property € a4 ishi ‘cipal valuation and act, tis higher than municipal i 1 the tole rent 736,000 will be taken as Gross Annual Renal ai and there ‘after Joss of actual rent due to vacancy will Sone . So, net amount hal be taken as annual rental value of actual Tet oUt period ig FR. 36,000 ~ 7,200 (actual rent 2,400 x 3) = 28,800. PPP-20 ; / Mrs. Neelam Nahar owns a house property at Udaipur, which municipal valuation is % 96,000 per annum. Its fair rent is 9,000 per th but is let out for € 7,500 per month. _ os ‘Municipal taxes are 12% on its valuation of which half portion is paid by the tenant and half by Mrs. Nahar. The following expenses were made by her during the previous year in connection > Hints : In the above problem fai of the property ~ z (i) Repairs and maintenance 7.200 (i) Collection Charges 1200 (ii) Insurance premium 800 (iv). Interest on loan 32,700 (The loan was obtained on 1.1.1999) Compute income from house property for the Assessment Year 2022-23, if (2) The house is let out for 8 months during the year. (b) The house remain vacant throughout the year, Ans. : (a) Letout 8 months, income & 17,868 (b) Vacant throughout the year-loss ¥ 44,220 > Note : AV = Reasonable rent — Lo: ss of actual t i riod = % 1,08,000 - 30,000 = 78,000 ee ree Ege ADVANCED PRACTICAL PRO! — BLEMS Mr. Vij i ereiiotn ualagant Badjatya house properties details are as under for the He is owner of th and & 1,50,000 first house is let ree houses, Their municip al valuation i 000 Det annum respectively Nr valuation is & 1,80,000, & 1,00. al Tax is 15% on their valuation. : 2,000 per month and second hous? I nso. The frst and second houses w income From House Property /251 ; house was purch ere completed 2 00 on tao ner loan on Is Apa DL, ea ita id after 31.3.22 lerest 2,16,250 . Stamp duty was paid aid after 31.3.2. was due for previous year, Which was hit Following expenses were made in respect ofthe h uses - Expenses Unrealised Rent 7 B Cc Repaits — | 30,000 - Collection charges 3000 | 14000 | 17.000 Interest on Loan 1,000 | 20,000 ee Land revenue 9700 | —| 216250 — | 2400 i Gare income om Hose propery fhe seset Yeo 202.28 ecessry conditions ae satisfied regarding unrealised rent of house ‘3 but municipal tax s still unpaid. eee ‘Ane. : Loan from house property € 22,800. [ House (A) & 97,400 (B) ¥ 79,800, (C) (-) 2,00,000 } : Third house is used for self residence so its annual value will be nil, but deduction for interest on loan % 200,000 will be allowed, because the house was purchased after 31.3.99 and in such case maximum limit is %2 Lac. PPP-22 Mr. Sawan Mandhanya is owner of three houses, whose Municipal valuations are Z 1,20,000; € 1,00,000 and @ 80,000 per annum respectively. Municipal tax is 15% of Municipal valuation. The first house was occupied by Mr. Mandhanya for self residence A loan taken amounting & 15 Lakh for its construction on 1,4,1998 while the house was completed ‘on 1.1.2005. Second house was let out to Mr. Gopal Mundra at the rent of % 10,000 per month. Third house is used for his own business. First and second houses were completed on Ist wes let out from 1st June 2021, third house was comp" The expenses of houses are below - >Hints April 2021 and second house Jeted on Ist January 2021. Repairs Collection charges Insurance premium Interest on loan for construction Mortgage loan for business Purpose Lease rent the AY. 2022-23. é his i from house property for Find out his income vee: Income cope ‘ 19,500. vatal 49,500, Business - Nil] | olf (-) 30,000, Re 292 / Income Tax in accordance with the provisions contained in Sections 30 to 44 — 1. Allowed expenses and allowances - The various sections beginning, 30 to 43D deal with the allowance for expenses which are incurred for the purpose ™ the business including allowance for depreciation and amortisation of certain othe capital expenses. Q 7 IL. Disallowed expenses and deemed income- There are specific provi, for disallowed expenses also for charging to tax certain items as deemed income je business although they may not represent income under the accounting concept, By, these'sections deal primarily with expenses and not with the losses which are incideny to the carrying on of the business or trade. Consequently, losses incidental to tage which are of revenue nature are to be allowed as a deduction under Section 29 g, ordinary principles of commercial accounting for the purpose of computing the taxabj, income from business. : : Ill. Losses incidental to trade- Some of the items of losses incidental 4g trade which ore deductible under Section 29 are the following --losses due jy embezzlement by the employee, losses arising out of theft or robbery, losses resul from destruction of assets, loss of stock in trade in transit or by fire, loss of stock due to ravages of white-ants, loss of business assets by enemy action during war, log resulting from negligence or fraud on the part of employees: _ ‘Simply taxable income from business or profession can be computed in the following manner from Income Tax point of view- (a) Net profit or loss shown by the profit and loss A/e or income & expenditure account prepared by the assessee from accounting point of view (b) Add- Disallowed expenses & losses debited to P&L account. ce (c)' Add- Deemed incomes which are not recorded in the books. +. (@) Less- Allowed expenses and allowances which are not debited to P. & L. A/c wholly or partly, for instance depreciation. 4 (e) Less- Income not related to business but credited to P&L account. O Taxable income from business or Profession a — Business or Profe: in: Important Points Taxable income from business or profession shall be computed in the following {a} If P & L account or Income and Expenditure account is given - Ist Step 5 Net Profit as per P & L account or Net Surplus as per Income & Expenditure account Ind Step Add- Disallowed expenses included directly or indirectly in debit side of P & L account Vrofits and Gains of Business or Profession / 293 Any type of donation, charity, gift etc. which is not a related to business 2, Personal gift, present, or assistance 3, Income Tax or any 4, __ Provision for taxation 5, _ Penally, fine 6, _ Interest on own capital 7. _ Any type of reserve or provision e.g,, Reserve for depreciation, Bad debts reserve etc. 8, _ Ownlife insurance premium 9. Personal expenses, domestic expenses, drawings, expenses on relatives 40. Salary withdrawn by owner 11, Any type of capital expenditure or capital loss 12. Speculation Loss 13. Subscription or advertisement to political party 14, Purchase or acquiring cost of patent, copyright technical know-how is disallowed being capital expenditure, but 25% depreciation will be allowed separately. 15, Preliminary expenses are allowed in 5 instalments so 4/5 portion will be disallowed if whole amount is debited to P & L account. : 16. Voluntarily payment to employee or his relatives. 17. Excess depreciation 18. Municipal Tax, repairs, insurance etc. relating to let out property. 19. Cash payment more than % 10,000 for any business expenditure in a day, 100% of such payment will be disallowed. 20. Books for profession (either annual publication or not capital expenditure-disallowed but depreciation @ 40% will be allowed) 21, Any other item which is not related to business. 22. Any income which is related to business but not credited to P & L account. Wrd Step Deduct such expenses or lossess which are related to business but not recorded or less amount debited to P & L account e.g. 1. Allowed depreciation (+). 294 / Income Tax 2. Allowed bad debis 3. Due bonus to employees. IVth Step Deduct such incomes and receipts which are not related to business or profession - Less- 1. Rent from property 2. Interest and dividend from investments 3., Capital receipts 4, Personal gifts 5. Capital gains 6. Any other income ‘Taxable income from business or profession RATES OF DEPRECIATION : CHART Procedure for computing depreciation on assets is as under from the Income Tax point of view- ‘ (i) Depreciation is allowed on the system of block of assets. Assets eligible for depreciation have been classified in the following blocks - (a) Buildings Factory, office, godown, showroom etc. 10% Residential buildings for employees 5% Building used as hotel, Boarding house 10% ‘Temporary erections 40% (b) Furniture & Fittings Furniture including electric fittings 10% (c) Plant & Machinery (Geneial) 15% Motorcar 15% Buses, Trucks, Taxies 30% Other vehicles (scooter, motor cycle etc.) 15% Ships 20% Pollution control equipment 40% ‘Computers 40% Other machinery & plants 15% Books for profession (a) Annual publication 40% (b) Other books 4% (d) Intangible assets . Patent, copyrights, technical know-how oe Profits and Gains of Business or Profession/319 _ 3. Provision for Bad debts & 6,700. { 4 Penalty paid to Customs authority for importing prohibited.goods & 6,000. 5. Capital expenditure on scientific research & 80,000. : Compute taxable income from business, Ans. : Toxable income from business ¥ 8,93,200. iN PPP-11 : f \ ae eet Me of Mr. Shobhit Sancheti for the year ended on 31-03- 4 z z Insurance Premium 3,600] Gross Profit 4,80,000 Salaries 60,000 | Commission (gross) 16,000 & Depreciation : 42,000 | Interest on company * Interest on loan 6,000} deposits (gross) 24,000 iy Interest on capital 24,000 ‘hk, Provision of Bad debts 8,600 & Advertisement expenses 12,000 Office expenses 16,300 Provision for Income Tax 16,000 Travelling expenses 8,800 ty Net profit 5,20,000 5,20,000 Other information are as follows : (a) According to provision of Income Tax, the allowed depreciations ¥ 30,000. (0) The Joan is taken for payment of outstanding income tax. (c) Income of & 8,000 accrued but not received ‘during the provisions year. This income is not included in the above mentioned P and L A/c. 3) @)_ The advertisement expenses include % 4,000 which is the price of gifts f presented to customers. 7 ©) The salary includes on unreasonable payment of € 6,000 paid to a relative. {) Find out Taxable Income from Business or Profession of Mr. Baheti for the ’ 1{ Assessment Year 2022-23. ; Ans. : Taxable income from business % 3,79,300. [> Note : (1) Accrued income is added to net profit. (2) Excess depreciation, interest on income tax, Interest on capital, provision for income tax excess payment to relative shall be disallowed, hence added. i i PPP-12 Shri Rajesh Kumar Banwarilal is a wholesale Cloth mercha, nt. Foy - th vear ending 31st March, 2022 his P. & L. A/c Is as follows 5 e 2 80,500 | Gross profit i 547; Capertee 3,800 | Discount and Commission 704 Shop rent 60,000} received ee iy Repairs (House) 1,000 | Rent — 0) Collection charges 500 | house Prope 7 2G Stationery 2,700 | Interest on ban a i sit i Interest on Loan (due) 1,200 | Fixed deposi bil Lay Interest on Capital 1,500 | Interest from customers 187 Insurance (Goods) 600 | Dividend on shares Yay, Life Insurance Premium 14,400 Goodsand service 3,000 Income Tax 4,700 Net Profit 4,83,600 eet 6,57,500 657,500 Additional information : i : 1. Salary to employees included % 21,600 paid to domestic servant of Me Rajesh Kumar. Premium on policy taken on oun d to manager's life policy 2. Life insurance policy premium included life € 12,800, remaining premium relate 3. Allowed depreciation for business assets ¥ 16,700, which was Not recorded in P & L. A/c and the assessee does not claim for depreciation allowance 4. General expenses inclided donation to PM. Drought relief © 4% 1500 and % 500 to Cloth Merchants’ Association, 5. Income Tax % 3,500 outstanding. 6. Commercial Tax amount includes % 300 for penalty, Find out income from business for the Assessment Year 2022-23. Ans. : Taxable income from business ¥ 4,82,500. its 1. Repaits, collection charges, interest o N own capital, Life insurance premiu™ Income Tax, penalty, donation are disallowed, so these items will be added Net profit. 2. Allowed depreciation will be deducted because it is not recorded in the boo even the assessee does not claim. 3. Rent received bank interes st and dividend will be deducted, because thes?" not connected with busin less, au Profits and Gains of Business or Profession / 321 4. Subscription to cloth market association is allowed and already indulged in expenses, so any adjustment is not required. 5. Outstanding income tax is not included in P & L A/c , so it is not noticeable. PPP-13 The following is the Profit and Loss account of M/s. Prakash &.Sons for the year ended on 31st March, 2022. Compute his taxable income from business for that year - Opening Stock Purchase Salary Rent Repairs of Car Income Tax Medical Expenses regarding COVID treatment manager General Expenses Depreciation on Car Advance Income Tax paid Profit for the year 23,00,000 z 1,50,000 12,00,000 2,00,000 60,000 30,000 20,000 30,000 1,00,000 30,000 10,000 4,70,000 Sales Closing Stock Gift from Father Sale of Car Income Tax Return z 18,00,000 2,00,000 1,00,000 1,70,000 30,000 23,00,000 Additional Information : (a) Mr. Prakash’carries on his business in rented premises, 1/2 of which is used as his residence. (b) Mr. Prakash bought a car during the year for ® 2,00,000. He charged 15% depreciation on the value of car. The car was sold during the year for % 1,70,000. The use of car was 1/4 for personal purpose. (c)_ Medical expenses were incurred during sickness of Manager for his COVID treatment. (a) Salary includes % 2,500 per month on account of driver's salary for 10 months. > Hints : Ans. : Taxable income from business ¢ 2,73,750. (1) Self use portion for rent, car expenses driver salary and medical expenses is disallowed. (2) Car is not exist on 31.3.22, so depreciation is fully disallowed. PPP-14 ios & TV Mr. Vikas Tanted who is proprietor of Sumen Radios furnisheg the following statement for previous year 2021- Radio business profit 19305) race e TV. business ae 23502 Post and Telephone Profit on Sale of share paris| ° 1,28 95, Advertisement Commission 175a9 debts recovered 1, Computer puichased Bad de! 40 Tax Refund 3 (1st Jan. 2022) Income 009 GST (2020-21) Service charges ‘ for Radio and TV. 2739) Depreciation Establishment charges Bank Interest Rent of Godown Repairs of the building Municipal Tax of building Commission to sales agent Advance Income Tax Net Profit 7,71,300 7,71,300 The following points were revealed from investigation of account books- 1. Shop expenses included salary € 1,08,000 paid to Mr Tanted’s brother which is reasonable to the extent to 7,000 per month. The brother works full time in business, : Depreciation on computer is not included in the item depreciation. Advertisement expenses include the following - (i) Diaries and calendars & 3,900, (i) Advertisement in Janta Dal Souvenir = 4,800. (iii) 20 Radios (each = 350) were gifted to customers. 4, Repairs and Municipal Tax belong to the house of which Mr. Tanted himsell 's the owner. The 2/Srd Portion is used for self tesidence and 1/3rd portion is used for his business Purposes, Compute hi i ipute his taxable income for the Assessment Year 2022-23, Ans. : Taxable income from business ¢ 5,14,100- Profits and Gains of Business or Profession /323 > Hints : 1. Purchase of Computer is capital nature so it is disallowed, b , but de atic allowed for half year ice. 20% (half-of 40%) se es 2. VAT paid before the date of filling of Return is allowed, so it will be deducted, 3. Excess salary paid to brother is disallowed. 4, Advertisement to political party is disallowed, but other advertisement are allowed. 5. if the assessee uses his property for own business, then municipal tax and - repair expenses are allowed for such portion, but expenses related to self residence shall be disallowed. PPP-15 The following is the Profit and Loss Account of Mr. Kishori Lal for the year ending 31st March, 2022. You are required to ascertain his Income from Business for the year ended on that date- Salaries Sundry expenses Reserve for bad debts Insurance Advertising Income tax Car expenses Depreciation on car Interest on capital Interest on Bank loan Charity LILC. Premium (self) Loss of goods by fire (not insured) Depreciation OnBuilding 10,000 On Furniture _2,000 Difference in trial balance Net Profit for the year Gross Profit Discount Brokerage received Sundry receipts Income Tax Refund Dividend Received Interest on FDR 482,672 10,751 2,005 * 7,900 32,000 8,000 5,43,380 Other information : 1. Mr Kishori Lal has purchased an old motor car during the previous year for & 1,40,000. He charg: car was used 1/2 time for the busine 2. Actual bad debt was € 1,700. ed 15% depreciation on the value of motor car. The a 324/Income Tax 3. The amount of depreciation allowable according to Income Tax provision, | in respect of Building and Furniture was € 8.000 and & 2,500 respective, A computer was purchased for business duting the previous year | amounting to % 24,600, depreciation has not been charged. | 4. Advertisement expenses include & 1,000 for a special advertiserneny programme to introduce a new product in market. = 5. Salaries include % 72,000 being the amount drawn by Shri Kishori Ly during the year against profits. ; ‘Ans. : Taxable income from business & 388,949, > Hints : / : 1. Car expenses and depreciation is 1/2 disallowed in respect of personal use, 2. BDR will be disallowed and actual bad debts shall be deducted. 3. Salary received by ihe owner is not allowed. PPP-16 Shri Govind Singhal runs a Dal Mill. His P. & L. A/c (2021-22) is as under- Opening Stock 28,000] Sale of pulses 5,28,000 Purchase of gram 3,40,000] Sale of husk 1,32.000 Factory expenses 60,000} Closing Stock 1,24.000 Wages Gross Profit Gross profit Profit from wheat business Income from commission agency business 76,500 Patent purchased Manager's Salary Stationery Travelling expenses Repairs Insurance Over draft Interest Office expenses Labour welfare expenses Compensation Net Profit |} ca 4,08,000 4,08,000 Additional information available : 1. Gram % 63,700 was purchased on 28th March 2022. This amount is included in purchase, but not included in stock. Its deli ceived on 2nd April 2629, in stock. Its delivery was ret 2. Office expenses include 82,000 expenditure on Deepawali celebration Profits and Gains of Business or Profession /325 3, Mr. Singhal is manager himself and received t! full time to the factory, 4, Assets of the factory was as follows — (i) Factory building ¥ 1,50,000, (i) Machinery 1,35,000 (1-4-2021) . (ii) New Machinery purchased on 1-7-2021 ® 60,000. Depreciation has not been charged to R &L. Alc. Due to new plant production capacity of the factory is increased by 5%. 5, Compensation paid for breach of contract. Compute taxable income from business of Mr. Singhal for the Assessment Year he aforesaid salary. He gives 2022-23. Ans. : Taxable income from business ¢ 3,66,300. 1, Purchase of patent is capital expenditure so it is disallowed, but 25% depreciation is allowed and deducted. 2. The proprietor is himself manager so manager salary is not allowed. 3. Gram amounting to € 63,700 has not been received upto 31-3-2022 so it will be added to profit. 4, Depreciation is allowed on building and machinery @ 10% and 15% respectively. Full depreciation is allowed on the machinery purchased on 1-7-2021, because the machinery is used in business more than 180 days during the previous year. Additional depreciation on new machinery is allowed because from the Assessment year 2022-23 additional depreciation shall be allowed @ 20% whether production capacity increased or not. 5. Compensation is allowed. PROBLEMS RELATING TO INCOME & EXPENDITURE ACCOUNT : PROFESSIONAL INCOME PPP-17 Mowing statement, compute the income of Dr. Sanjay From the fol Gujarati from his profession for the Assessment Year 2022-23 - z z is 6,000 | Visiting fees 1,45,000 Dispensary rent 36) Electricity and water charges 13,000} Consultation fees 3,25,000 Telephone expenses 12,000} Sale of Medicines 72,000 Salary to nurse and Dividends 5,000 Compounder 56,000 | Cardiogram charges 58,000 Purchase of surgical equipments 36,000] Operation fees 78,500 Purchase of medicines fe Stationery “3000 Income tax ‘

You might also like