M.K.

G
CA EDUCATION
9811429230 / 9212011367
WWW.MKGEDUCATION.COM

INCOME TAX
(Volume – 1)
 COMPUTATION OF TOTAL INCOME AND TAX LIABILITY 13-62
 TAXABILITY OF GIFT 63-79
 ADVANCE PAYMENT OF TAX 80-94
 RESIDENTIAL STATUS & SCOPE OF TOTAL INCOME 95-145
 INCOME UNDER THE HEAD HOUSE PROPERTY 146-219
 DEDUCTION FROM GROSS TOTAL INCOME 220-260
 AGRICULTURAL INCOME 261-280
 CLUBBING OF INCOME 281-300
 INCOME UNDER THE HEAD OTHER SOURCES 301-322
 DEDUCTION OF TAX AT SOURCE 323-362
MISCELLANEOUS TOPICS 363-368

Including EXAMINATION QUESTIONS/RTP/MTP

After the book has been published, some error/mistake etc. may be detected/or there
may be some amendments etc., all such corrections/amendments shall be uploaded at
our website www.mkgeducation.com in icon no.11.

51st Edition
CA (INTER)
MAY-2025/SEPT-2025/JAN-2026 Author
P.Y. 2024-25 This Book is the result of combined efforts of
A.Y. 2025-26 Chartered Accountants/ company executives /
Finance Act – 2024 other professionals / feedback of our thousands of students
 2

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 3

PAPER – 3 : TAXATION
(One paper ─ Three hours – 100 Marks)

SECTION A: INCOME TAX LAW (50 MARKS)

Objective:
(a) To develop an understanding of the provisions of income-tax law
(b) To acquire the ability to apply such provisions to solve problems and address application-oriented issues.
Contents:
1. Basic Concepts
(i) Income-tax law: An introduction
(ii) Significant concepts in income-tax law, including person, assessee, previous year, assessment year,
income, agricultural income
(iii) Basis of Charge
(iv) Procedure for computation of total income and tax payable in case of individuals

2. Residential status and scope of total income

(i) Residential status
(ii) Scope of total income

3. Heads of income and the provisions governing computation of income under different heads
(i) Salaries
(ii) Income from house property
(iii) Profits and gains of business or profession
(iv) Capital gains
(v) Income from other sources

4. Provisions relating to clubbing of income, set-off or carry forward and setoff of losses, deductions from
gross total income

5. Advance Tax, Tax deduction at source and tax collection at source

6. Provisions for filing return of income and self-assessment

7. Computation of total income and income-tax payable by an individual under the alternative tax regimes
under the Income-tax Act, 1961 to optimise tax liability

Note: If any new legislation(s) are enacted in place of an existing legislation(s), the syllabus will
accordingly include the corresponding provisions of such new legislation(s) in the place of the existing
legislation(s) with effect from the date to be notified by the Institute. Similarly, if any existing legislation(s)
on income tax law ceases to be in force, the syllabus will accordingly exclude such legislation(s) with effect
from the date to be notified by the Institute.

Further, the specific inclusions/exclusions in any topic covered in the syllabus will be effected by way of
Study Guidelines every year, if required. Specific inclusions/exclusions in a topic may also arise due to
additions/deletions made every year by the Annual Finance Act.
 4

SECTION B: GOODS AND SERVICES TAX (50 MARKS)

Objective:
(a) To develop an understanding of the provisions of goods and services tax law.
(b) To acquire the ability to apply such provisions to address/solve issues in moderately complex scenarios.

Contents:
1. GST Laws: An introduction including Constitutional aspects

2. Levy and collection of CGST and IGST

(i) Application of CGST/IGST law
(ii) Concept of supply including composite and mixed supplies
(iii) Charge of tax including reverse charge
(iv) Exemption from tax
(v) Composition levy

3. Basic concepts of:

(i) Classification
(ii) Place of supply
(iii) Time of supply
(iv) Value of supply
(v) Input tax credit

4. Computation of GST liability

5. Registration

6. Tax invoice; Credit and Debit Notes; Electronic way bill

7. Accounts and Records

8. Returns

9. Payment of tax

Note – If any new legislation(s) is enacted in place of an existing legislation(s), the syllabus will accordingly
include the corresponding provisions of such new legislation(s) in place of the existing legislation(s) with
effect from the date to be notified by the Institute. Similarly, if any existing legislation ceases to have effect,
the syllabus will accordingly exclude such legislation with effect from the date to be notified by the Institute.
Students shall not be examined with reference to any particular State GST Law.

Consequential/corresponding amendments made in the provisions of the Goods and Services Tax laws
covered in the syllabus of this paper which arise out of the amendments made in the provisions not covered
in the syllabus will not form part of the syllabus. Further, the specific inclusions/exclusions in the various
topics covered in the syllabus will be effected every year by way of Study Guidelines. The specific
inclusions/exclusions may also arise due to additions/ deletions every year by the annual Finance Act.
 5

ETI AGARWAL
ALL INDIA TOPPER OF CA-IPC (NOV-13)
ROLL NO. - 366539

MARKS IN TAXATION:89%
(HIGHEST MARKS IN TAXATION ALL OVER INDIA)
(AGGREGATE MARKS 79.71%)

(FEEDBACK)
A man for whom teaching is neither a business nor a profession, rather a passion for doing good,
great and unique in the field of teaching is none other than MK Gupta Sir.

Sir"s unmatchable style of teaching coupled with his patience and calmness in dealing with students
is simply excellent.

The structure of learning pattern, regular mock tests, motivational cash prizes and student friendly
study material covering practical illustrations, past year questions and bare act.. all contributed to
making this journey easy and building up the confidence needed for IPCC.

Moreover, the vast knowledge and experience of the faculty assisted in making the concepts crystal
clear and handling each n every doubt of students.

The administration and management stands second to none.

MK GUPTA classes is a place which can change the word impossible 2 I M POSSIBLE. It made
me a better person both personally n professionally.

I think 4 success 4 elements are necessary-desire, dedication, direction and discipline...and all the 4
i got from Sir..

THANK YOU so much Sir..

In the end i would just like to say MK GUPTA SIR NOT ONLY MAKES CA. HE MAKES
HUMANS!!

ETI AGARWAL
 6

AKSHAY JAIN
ALL INDIA TOPPER OF CA-IPC (NOV-13)
ROLL NO.- 368162

MARKS IN TAXATION : 87%

(SECOND HIGHEST MARKS IN TAXATION ALL OVER INDIA)
(AGGREGATE MARKS 79.71%)

(FEEDBACK)
Experience of those four months with M.K. GUPTA SIR was out of the world.

As a teacher, M.K. GUPTA SIR is just like a sea of knowledge & you get each and everything from
very beginning to end from him.

Sir is really a nice person. He is very motivational and his words of motivation can influence
anybody to work hard & make their parents proud.

M.K. GUPTA CA EDUCATION is the only place where the provisions of tax laws are combined
with the practical knowledge. Study material provided is excellent and it contains numerous
problems covering all aspects and such type of problems are not available anywhere. Sir is not
giving any home work rather home work is done in the class itself and students are invited to solve
the problem before the entire class.

Be honest towards your studies & Sir will show you the way of success. The way, Sir is making
students ready for the professional world is praiseworthy. Exposure given by sir to face interview of
Big four CA Firms is excellent.

The test Series conducted by the Sir in all the subjects of IPC is very nice Scheme to score such
good marks and exam are conducted in the similar manner as it is conducted by ICAI.

I would like to express my gratitude to Sir because it was only his efforts that helped me reach this
position.

Sir its your Success.

A Message to all : -

“COME & HAVE A TIME THAT YOU WILL CHERISH THROUGHOUT YOUR LIFE”.

AKSHAY JAIN
 7

VIJENDER AGGARWAL
ALL INDIA TOPPER OF CA-IPCC (NOV-10)
ROLL NO. - 174639

MARKS IN TAXATION:92%
(HIGHEST MARKS IN TAXATION ALL OVER INDIA)
(AGGREGATE MARKS 83.71%)

(FEEDBACK)
A person who possesses such vast knowledge in the field of taxation, that we people can only dream
of, is none other than M. K. Gupta Sir.

He possesses the rare ability to teach this procedural subject with utmost ease, enabling his students
to grasp all the provisions without any confusion.

The quality of study material provided is such that a good study of it helped me score 92 marks. The
variety and complexity of practical problems covered in the books are not available anywhere else.

One can find many places where taxation is being taught but it is hardly possible to find a better
place where tax laws are combined with their practical applicability to ensure that all concepts are
crystal clear.

Sir is extremely generous. Money-making doesn’t appear to be his priority and it is clearly reflected
in his classes, where the infrastructure and administration stands second to none and students are
awarded handsome cash-prizes not only in classes but also in tests, which are regularly conducted.

Thanking Sir for all what he has done would be an insult since it was only his efforts that helped me
reach this position. Sir, its your success. The relationship between us started in CPT only and
continued in IPCC and I hope it will continue forever.

VIJENDER AGGARWAL
 8

PRACHI JAIN
ALL INDIA TOPPER OF CA-PCC (MAY-10)
ROLL NO. - 66312

MARKS IN TAXATION:88%
(HIGHEST MARKS IN TAXATION ALL OVER INDIA)
(AGGREGATE MARKS 77.67%)

(FEEDBACK)

M. K. Gupta Sir is an outstanding teacher. He is not only a good teacher but a good person by heart.
His way of teaching is excellent. There are many provisions in tax but Sir repeats every provision
atleast two times. This helps in understanding those provisions easily.

His books are very good. Everything from theory to PRACTICAL ILLUSTRATION,
EXAMINATION QUESTIONS and BARE ACT is covered in his books.

Sir’s staff and management is also very good. Everything is handled in a systematic manner and on
time. Overall it was a good experience.

Thanks Sir !! :-

PRACHI JAIN
 9

RESULTS
(CA-Intermediate)
NO OTHER TEACHER OF TAXATION IN INDIA HAS BETTER RESULT THAN OURS

OPINION OF OUR STUDENTS

1. AKSHAY (Roll No. 685445) (Total Marks- 607) AIR-6 (Taxation-80)

Firstly, I want to thanks M.K. Gupta Sir for teaching me the tax in the easiest manner many student can
think. Tax is very hard subject but the way Sir teach the Tax is excellent. I also want to say one more thing
that the staff of MKG is very supporting. They listen to the students problem very patiently and help them to
solve their problem. At last, I want to say that no one in this CA field can teach so nicely that MK Gupta Sir
teaches.
Thank You

2. DEEPANSHU GOYAL (Roll No. 625914) (Total Marks- 570) AIR-17 (Taxation-75)
MK Gupta sir is powerhouse of knowledge. I can’t thank him enough for providing me with vast exposure
about taxation. His mock tests are so good that I was eager to attempt them. He is proactive in solving
doubts. This subject became so light & interesting that I started gaining knowledge in it. It was my best
experience with MKG with rank in both foundation & intermediate. Recorded classes was very helpful for
me, I used to reach at 6:30 am and continued till 11 am and studied taxation. It was a beautiful journey
altogether, and with 10 views, you can view the lectures many times. It helped me revise many concepts. It
became my interest rather than burden. I was so excited to give mock test so that I can build my confidence.

3. SHIVAM MISHRA (Roll No. 624937) (Total Marks- 560) AIR-20 (Taxation-83)
MK Gupta sir has very unique style of teaching. He teaches every concept very clearly and correlates every
provision with practical life. Taxation is very vast subject you cannot learn every provision rather you can
understand them. Talking about study material, it covers all types of Question. You do not need to refer
study material as it is incorporated in sir’s books. I would recommend every one to join MK Gupta CA
Education.

4. PRASHANT YADAV (Roll No.354233) 92 Marks

M.K. Gupta Sir is an outstanding teacher. He possesses very vast knowledge of taxation. Sir repeats every
concept atleast three times which makes all concepts crystal clear. Study material provided is very good, it
covers everything from illustration to examination problem and from theory to Bare Act. Staff and
infrastructure facilities of MKG Classes is incomparable. Thank you Sir for your love and support.

5. MOHIT SHARMA (Roll No.353392) 89 Marks

A brilliant personality in my life who has motivated the student to a good path. He is very different from
others. Sir concentrates not only on the Marks but also on the overall development of the student.
I am truly glad that I studied from Sir. He taught me how to compete in life. Every student get very good
marks with a little effort, if he is a student of M.K. Gupta CA Education.

6. MANISHA BHAMBRI (Roll No.456626) 89 Marks

M.K. Gupta Sir is the best teacher I have ever met. His study material being the best helped me a lot in my
exams. He is the most sincere teacher who never waste a single moment and gives his best towards his
profession. He teaches not only the theoretical portion but the practical approach too. He teaches us how to
be a good human being and how to live life happily. Thank you Sir for your support every time I needed.
 10

7. ANISH SHRESTHA (Roll No.344028) 88 Marks

M.K. Gupta Sir is a very excellent teacher. The way he is dedicated towards teaching make us to be
dedicated towards our study. Every concept and every doubt of taxation whichever do I had, he has make
clear. The best thing about Sir is, he use to revise the concept more than 3 times which makes student very
easy for preparing their exam.
You will have all the sufficient material for study and lots of questions with answers for practice a
systematically designed materials.
Thank a lot to Sir for being so much helpful and lot of love.

8. KAPIL KHANNA (Roll No.341539) 85 Marks

Sir ‘M.K. Gupta’ is the best teacher for Taxation. I feel fortunate to be his student, the amount of knowledge
he imparts is fantastic and uncomparable. He is a person who burns himself up like a candle to light the path
of his dearest students to the road of success. I wish Sir teaches all the subjects of IPCC, since he is simply
the best. Thank you for everything Sir. It you and only you who can guide students like us to reach the
zenith.

9. JITENDRA (Roll No.337780) 85 Marks

Before joining CA, I was so much scary about the “Taxation” but after joining M.K. Gupta CA Education
for taking taxation class my scary converted into my strength now. This is just because of Sir’s knowledge
& teaching style with practicality. Study material provided by Sir is also awesome for study.

10. PUNEET WASAN (Roll No.368537) 84 Marks

M.K. Gupta Sir has a vast knowledge in the subject. The topics taken in the class are very well planned.
I found the book really very good. Infact, I practiced all the previous attempts questions of each chapter and
every small question was covered in the chapter. I recommend the students to be thorough with book and
one will score undoubtedly high marks in tax. All the best!! Thank you so much Sir.

11. ISHA MALIK (Roll No.339842) 84 Marks

I do not have words to express my greatfulness for M.K. Gupta Sir. He really possesses vast knowledge and
rich experience in taxation. Study material provided by Sir is also very good which covers everything for
getting through the exam. There is no doubt that due to excellent coaching given by Sir, I have been able to
secure good marks. I pray to God for his long, happy and prospective life. I wish him to continue give
coaching to the prospective students for a longer period. I appeal to all the students who qualify CPT to take
coaching from Gupta Sir for getting sure success. Thank you Sir.

12. RUPAL GARG(Roll No.393844) 84 Marks

M.K. Gupta Sir is, as I believe, the best teacher for Taxation. He is so knowledgeable that I was totally awe
inspired by him. Every day in the class was exciting as he explains everything with real examples and full
depth. The books are superb with lots of practical questions. Thank you Sir.

13. AKANSHA GOEL (Roll No.336693) 84 Marks

It was a great experience studying from M.K. Gupta Sir. He has a vast pool of the knowledge of the subject.
The book is a comprehensive one too.

14. PRASIT SHARMA (Roll No.344702) 84 Marks

Taking about the coaching, the teaching style of M.K. Gupta Sir is too much excellent. He has good dealing
with student in every situation. If anyone asked about the taxes coaching, I prefer M.K. Gupta Sir because he
is the one & only best teacher in Taxation.
 11

15. MANSI BAJAJ (Roll No.354329) 83 Marks

Sir teaches so well and clarifies all our queries. He makes us understand the whole concept very clearly. He
is an amazing teacher and the best teacher in the field of Taxation.

16. RASHI GUPTA (Roll No.337864) 83 Marks

M.K. Gupta Sir is a very friendly and helping teacher. He always answered my queries well. His coaching
classes are very knowledgeable and books are also very good.

17. HARSH AGARWAL (Roll No.491097) 83 Marks

M.K. Gupta Sir is a good teacher. He teaches all aspects of Taxation whether it is practical knowledge or
theoretical knowledge. He teaches every point for 2-3 times and it gets learn in class only. His practical
knowledge about the subject is very good.

18. RAHUL ARORA (Roll No.337403) 83 Marks

M.K. Gupta Sir is a great mentor. Sir has excellent knowledge about the subject. He makes every concept
crystal clear. Every concept is explained atleast twice in the class. He connect every topic with practical life.
Study material is excellent. Bare Act is covered in the study material. Three months experience with M.K.
Gupta Sir is memorable moments of my life. Thank you Sir, for your guidance and encouragement.

19. SEJAL MEHTA (Roll No.353096) 83 Marks

Coaching for Taxation was an enriching experience in terms of the conceptual clarity which I gained on
each and every topic. Learning tax became so easy with the simplified notes provided.
Also, the kind of knowledge that Sir shares with the students is very commendable and useful in
understanding the practical aspects of Taxation. Attending the coaching is worth the time spent.

20. ANU SETHI (Roll No.353491) 83 Marks

I have never seen teacher like M.K. Gupta Sir. His way to teaching, knowledge and experience is awesome
i.e. brilliant. Overall regards for such marks is only M.K. Gupta Sir.

21. ASHISH GUPTA (Roll No.353575) 82 Marks

M.K. Gupta Sir is a very good teacher and he has a very vast knowledge of taxation. He gives his best to
every student in a class. The atmosphere of the class when he was teaching in a class is very awesome. I am
giving all my credit to M.K. Gupta Sir for securing marks in Taxation.

22. RAGHAV GUPTA (Roll No.491122) 82 Marks

M.K. Gupta Sir is an outstanding teacher. He possesses a very vast knowledge about the subject. His way of
teaching is fabulous. Every concept is explained with help of an example. Study material is all exhaustive
that he provides. Also, queries are taken up promptly. Thank you Sir for your guidance.

23. SHREYA MALIK (Roll No.340228) 82 Marks

M.K. Gupta Sir is the best teacher I have ever come across. His level of knowledge is tremendous. The way
he teaches, with so much patience and willingness, keeps every student motivated. The marks I have scored
in tax is all because of him. Thank you so much Sir. I am a student of video class and I have never met Sir in
person. I would be grateful if I would be given a chance to meet him in person.

24. PRABHAW KUMAR AGARWALLA (Roll No.369428) 82 Marks

Teaching was excellent and queries handled were excellent. Teaching methodology was really excellent and
helped a lot to me.
 12

25. PRABHAT RANJAN (Roll No.347926) 81 Marks

M.K. Gupta Sir has a very deep knowledge about the subject and his practical approach towards the subject.
Sir repeats every provision atleast twice. This helps in understanding those provision easily.
The books notes and all the management is done very properly and in a smooth manner. All in all the best
way to study tax.

26. ANKIT KHEMKA (Roll No.338055) 81 Marks

M.K. Gupta Sir is excellent teacher of Tax. He repeats the provision two to three times and doubts are also
taken by the faculty. His books are also very good. Bare Act is covered in his books for more understanding
about the Act. Sir also provide regular test and prize also given by him motivates the student to work hard.
Environment provided by M.K. Gupta Classes is also very good to study.

27. ARTI SRIVASTAVA (Roll No.347859) 80 Marks

Sir’s unmatchable style of teaching. Regular mock test, also help in to achieve good marks in Taxation. Sir’s
books contain illustration. Past year question also help to achiever to good marks. Sir’s build confidence in
every student to achieve success in life. Thank you, so much Sir.

28. SHIVANGI GUPTA (Roll No.337956) 80 Marks

M.K. Gupta Sir is an amazing teacher. The tax subject is all about provisions so many sections but Sir makes
it simpler for us out of all the subjects, I found Taxation to be the most interesting one.
Sir’s study material and notes are sufficient. Study material covers all the past year exam questions, practice
questions with solutions. His practical experiences help our understanding level to reach new heights. Thank
you Sir for everything.
 Computation of Total Income And Tax Liability 13

COMPUTATION OF TOTAL INCOME

AND TAX LIABILITY
BASIS OF CHARGE AND RATES OF TAXES
SECTIONS PARTICULARS
15 to 17 Salary
22 to 27 House Property
28 to 44DB Business/Profession
45 to 55A Capital Gains
56 to 59 Other Sources
288A Rounding off of Total Income
288B Rounding off of Tax
87A Rebate from Income Tax
2(24)(ix) Meaning of Casual Income
115BB Rate of tax on Casual Income
112 Long Term Capital Gains
112A Long Term Capital Gains when STT has been paid
111A Short Term Capital Gains when STT has been paid
2(31) Meaning of Person
10(1) Agricultural Income
115BAC Default Tax Regime
Question 1: Write a note on Computation of Total Income.
Answer: Computation of Total Income
If the income is taxable, it will be further divided into five different categories of income which are called
heads of income i.e. if the income is received from the employer, it will be considered to be income under
the head salary; if the income is in connection with letting out of house property, income is taxable under the
head house property; if the income is from any business or profession, it is taxable under the head profits
and gains of business/profession; if any capital asset (gold, land, house etc.) has been transferred, income is
taxable under the head capital gains; if there is any other income like interest or winnings from a lottery etc,
it is covered under the head other sources.
Income shall be computed under each head i.e. expenses incurred shall be deducted from the gross receipt as
per the provisions of the relevant head.
Income computed under each head shall be added up to compute the gross total income.
Certain concessions are allowed from the gross total income which are called deduction from gross total
income under chapter VI-A.
After permitting the deductions, remaining income is called total income.
Computation of total income can be shown mathematically in the manner given below:
Total Income of an assessee shall be computed in the following steps:
Compute the income of the assessee under all the five heads, permitting exemption/deductions of each head.
₹
(i) Income from Salaries (Section 15 to 17) ………..
(ii) Income from House Property (Section 22 to 27) ………..
(iii) Profits and gains of Business or Profession (Section 28 to 44DB) ………..
(iv) Capital Gains (Section 45 to 55A) ………..
(v) Income from Other Sources (Section 56 to 59) ………..
Gross Total Income ………..
_______
Deductions from gross total income [under chapter VI-A] ………..
_______
Total Income ………..
_______
 Computation of Total Income And Tax Liability 14

Total Income shall be rounded off u/s 288A in the multiples of 10 and for this purpose, any paisa shall be
ignored and if the last digit is 5 or more, it will be rounded off to the higher multiple otherwise it will be
rounded off to the lower multiple.
Example
(i) ₹6,28,456 shall be rounded off as 6,28,460
(ii) ₹6,28,455 shall be rounded off as 6,28,460
(iii) ₹6,28,454 shall be rounded off as 6,28,450
(iv) ₹6,28,455.99 shall be rounded off as 6,28,460
(v) ₹6,28,454.99 shall be rounded off as 6,28,450

Question 2: Write a note on Computation of Tax Liability of individual.

Answer: Computation of Tax Liability
Default Tax Regime Section 115BAC
Tax liability of an individual shall be computed at the slab rates given in the relevant Finance Act i.e.
Finance Act, 2024 and the rates are as given below:
If total Income upto ₹3,00,000 Nil
On next ₹4,00,000 5%
On next ₹3,00,000 10%
On next ₹2,00,000 15%
On next ₹3,00,000 20%
On Balance amount 30%

Example
(i) Mr. X has total income of ₹9,00,000
(ii) Mr. X has total income of ₹8,00,000
(iii) Mr. X has total income of ₹10,00,000
(iv) Mr. X has total income of ₹15,00,000
(v) Mr. X has total income of ₹20,00,000
Solution:
(i)
Total income 9,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹2,00,000 @ 10% 20,000
Tax before health and education cess 40,000
Add: health & education cess @ 4% 1,600
Tax Liability 41,600

(ii)
Total income 8,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹1,00,000 @ 10% 10,000
Tax before health and education cess 30,000
Add: health & education cess @ 4% 1,200
Tax Liability 31,200

(iii)
Total income 10,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On balance ₹3,00,000 @ 10% 30,000
Tax before health and education cess 50,000
 Computation of Total Income And Tax Liability 15

Add: health & education cess @ 4% 2,000

Tax Liability 52,000

(iv)
Total income 15,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
Tax before health and education cess 1,40,000
Add: health & education cess @ 4% 5,600
Tax Liability 1,45,600

(v)
Total income 20,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹5,00,000 @ 30% 1,50,000
Tax before health and education cess 2,90,000
Add: health & education cess @ 4% 11,600
Tax Liability 3,01,600

Illustration 1:
(i)
Mr. X has income as given below:
Income under the head Salary 4,00,000
Income under the head House Property 5,00,000
Income under the head Business/Profession 6,30,253
Deductions allowed under chapter VI-A are ₹1,10,000.
Compute the income and the tax liability for previous year 2024-25.

(ii)
Mr. X has income as given below:
Income under the head Salary 26,10,000
Income under the head House Property 6,00,000
Income under the head Business/Profession 3,30,500
Deductions allowed under chapter VI-A are ₹3,10,000.
Compute the total income and tax liability for previous year 2024-25.
Solution:
(i)
Computation of Total Income of Mr. X
Previous Year 2024-25, Assessment Year 2025-26
₹
Income under the head Salary 4,00,000.00
Income under the head House Property 5,00,000.00
Income under the Business/Profession 6,30,253.00
Gross Total Income 15,30,253.00
Less: Deduction under chapter VI-A 1,10,000.00
Total Income 14,20,253.00
 Computation of Total Income And Tax Liability 16

Rounded off u/s 288A 14,20,250.00

Computation of Tax Liability
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹2,20,250 @ 20% 44,050
Tax before health and education cess 1,24,050
Add: health & education cess @ 4% 4,962
Tax Liability 1,29,012
Rounded off u/s 288B 1,29,010

(ii)
Computation of Total Income of Mr. X
Previous Year 2024-25, Assessment Year 2025-26
₹
Income under the head Salary 26,10,000.00
Income under the head House Property 6,00,000.00
Income under the Business/Profession 3,30,500.00
Gross Total Income 35,40,500.00
Less: Deduction under chapter VI-A (3,10,000.00)
Total Income 32,30,500.00

Computation of Tax Liability

On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹17,30,500 @ 30% 5,19,150
Tax before health and education cess 6,59,150
Add: health & education cess @ 4% 26,366
Tax Liability 6,85,516
Rounded off u/s 288B 6,85,520

Question 3: Explain Health and Education Cess

Answer: Health and Education Cess
If any tax is charged for any specific purpose, it is called Cess. Health and Education Cess shall be charged
@ 4% on the amount of income tax.

Rounding off of Tax Section 288B

Any amount payable, and the amount of refund due, shall be rounded off in the multiples of ₹10 in the
similar manner as in case of total income under section 288A.

Question 4: Explain Previous Year and Assessment Year

Answer: Every person has to pay tax on Income of a particular financial year and such year is called
previous year. Further computation of income and tax liability is computed in the subsequent year and it is
called assessment year, e.g. if income is to be computed for financial year 2024-25, it will be called previous
year and subsequent year i.e. 2025-26 shall be called assessment year. The term previous year is defined u/s
3 and assessment year is defined u/s 2(9).
 Computation of Total Income And Tax Liability 17

Question 5: Explain Budget / Finance Bill / Finance Act

Answer: Budget / Finance Bill / Finance Act
Every year budget is presented in general in February and all the amendments are given in general in the
budget e.g. Budget presented in 2024 shall be called budget 2024 and subsequently it will be called Finance
Bill 2024 and after it has been passed by the parliament and signed by the President, it will be called Finance
Act 2024 and its provisions shall be applicable from previous year 2024-25/ assessment year 2025-26.
For the students appearing in May/Sept-2025/Jan-2026, previous year shall be 2024-25 and assessment year
shall be 2025-26.

Practice Problem 1:
(i) Mr. X has total income ₹9,00,000
(ii) Mr. X has total income ₹25,00,000
(iii)Mr. X has total income ₹37,50,000
(iv) Mr. X has total income ₹41,32,000
(v) Mr. X has total income ₹50,00,000
(vi) Mr. X has total income ₹36,66,000
(vii) Mr. X has total income ₹26,32,300
(viii) Mr. X has total income ₹21,22,220
(ix) Mr. X has total income ₹32,42,405
(x) Mr. X has total income ₹49,49,495

Question 6: Explain surcharge in case of individual.

Answer: Surcharge shall be applicable
Default Tax Regime Section 115BAC
- @ 10% provided total income is exceeding ₹ 50 lakhs but it is upto ₹ 100 lakhs.
- @ 15% provided total income is exceeding ₹ 100 lakhs but it is upto ₹ 200 lakh.
- @ 25% provided total income is exceeding ₹ 200 lakhs.

Health & education cess shall be charged on the total of tax plus surcharge.

Illustration 2:
Mr. X has total income
(i) ₹50 lakh
(ii) ₹70 lakh
(iii) ₹100 lakh
(iv) ₹200 lakh
(v) ₹500 lakh
(vi) ₹1000 lakh

Solution:
(i)
Total income 50,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹35,00,000 @ 30% 10,50,000
Tax before health and education cess 11,90,000
Add: health & education cess @ 4% 47,600
Tax Liability 12,37,600
 Computation of Total Income And Tax Liability 18

(ii)
Total income 70,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹55,00,000 @ 30% 16,50,000
Tax before surcharge 17,90,000
Add: Surcharge @ 10% 1,79,000
Tax before health and education cess 19,69,000
Add: health & education cess @ 4% 78,760
Tax Liability 20,47,760

(iii)
Total income 100,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹85,00,000 @ 30% 25,50,000
Tax before surcharge 26,90,000
Add: Surcharge @ 10% 2,69,000
Tax before health and education cess 29,59,000
Add: health & education cess @ 4% 1,18,360
Tax Liability 30,77,360

(iv)
Total income 200,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹185,00,000 @ 30% 55,50,000
Tax before surcharge 56,90,000
Add: Surcharge @ 15% 8,53,500
Tax before health and education cess 65,43,500
Add: health & education cess @ 4% 2,61,740
Tax Liability 68,05,240

(v)
Total income 500,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹485,00,000 @ 30% 1,45,50,000
Tax before surcharge 1,46,90,000
Add: Surcharge @ 25% 36,72,500
Tax before health and education cess 1,83,62,500
 Computation of Total Income And Tax Liability 19

Add: health & education cess @ 4% 7,34,500

Tax Liability 1,90,97,000

(vi)
Total income 1000,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹985,00,000 @ 30% 2,95,50,000
Tax before surcharge 2,96,90,000
Add: Surcharge @ 25% 74,22,500
Tax before health and education cess 3,71,12,500
Add: health & education cess @ 4% 14,84,500
Tax Liability 3,85,97,000

Marginal Relief
If there is marginal increase in income over ₹50 lakhs/ ₹100 lakhs/ ₹200 lakhs, surcharge is applicable on
entire amount of income tax and as a result increase in tax is more than the increase in income. In order to
remove this defect, assessee shall be allowed relief to the extent increase in tax is more than the increase in
income and it is called marginal relief and it can be shown in the manner given below:
e.g.
(i) If Mr. X has total income of ₹51,00,000, his tax liability shall be computed in the manner given below:
Total Income 51,00,000.00
Tax on ₹51,00,000 at slab rate 12,20,000.00
Add: Surcharge @ 10% 1,22,000.00
Tax before marginal relief 13,42,000.00
Less: Marginal Relief (52,000.00)
Working Note:
Tax + surcharge @10% on income of ₹51,00,000 13,42,000
Tax on income of ₹50,00,000 (11,90,000)
Increase in tax 1,52,000
Increase in income 1,00,000
Marginal Relief (1,52,000 – 1,00,000) 52,000
Tax after marginal relief 12,90,000.00
Add: HEC @ 4% 51,600.00
Tax Liability 13,41,600.00

(ii) If Mr. X has total income of ₹102,00,000, his tax liability shall be computed in the manner given below:
Total Income 102,00,000.00
Tax on ₹102,00,000 at slab rate 27,50,000.00
Add: Surcharge @ 15% 4,12,500.00
Tax before marginal relief 31,62,500.00
Less: Marginal Relief (3,500.00)
Working Note:
Tax + surcharge @15% on income of ₹102,00,000 31,62,500
Tax + surcharge @10% on income of ₹100,00,000 (29,59,000)
Increase in tax 2,03,500
Increase in income 2,00,000
Marginal Relief (2,03,500 – 2,00,000) 3,500
Tax after marginal relief 31,59,000.00
Add: HEC @ 4% 1,26,360.00
 Computation of Total Income And Tax Liability 20

Tax Liability 32,85,360.00

(iii) If Mr. X has total income of ₹101,80,000, his tax liability shall be computed in the manner given below:
Total Income 101,80,000.00
Tax on ₹101,80,000 at slab rate 27,44,000.00
Add: Surcharge @ 15% 4,11,600.00
Tax before marginal relief 31,55,600.00
Less: Marginal Relief (16,600.00)
Working Note:
Tax + surcharge @15% on income of ₹101,80,000 31,55,600
Tax + surcharge @10% on income of ₹100,00,000 (29,59,000)
Increase in tax 1,96,600
Increase in income 1,80,000
Marginal Relief (1,96,600 – 1,80,000) 16,600
Tax after marginal relief 31,39,000.00
Add: HEC @ 4% 1,25,560.00
Tax Liability 32,64,560.00

Limit for marginal relief

A person having total income from ₹50 lakhs to ₹100 lakhs shall be eligible for marginal relief upto total
income of ₹51,77,610 and afterwards he will not be eligible for marginal relief.
A person having total income from ₹100 lakhs to ₹200 lakhs shall be eligible for marginal relief upto total
income of ₹102,05,350 and afterwards he will not be eligible for marginal relief.
A person having total income from ₹200 lakhs to ₹500 lakhs shall be eligible for marginal relief upto total
income of ₹209,10,400 and afterwards he will not be eligible for marginal relief.

Practice Problem 2:
(i) Mr. X has total income ₹70,00,000
(ii) Mr. X has total income ₹150,00,000
(iii)Mr. X has total income ₹200,00,000
(iv) Mr. X has total income ₹300,00,000
(v) Mr. X has total income ₹700,00,000
(vi) Mr. X has total income ₹1000,00,000
(vii) Mr. X has total income ₹51,00,000
(viii) Mr. X has total income ₹101,00,000
(ix) Mr. X has total income ₹201,00,000
(x) Mr. X has total income ₹501,00,000

Question 7: Write a note on Rebate under section 87A.

Answer:
Rebate in case of Resident Individual Section 87A
Default Tax Regime Section 115BAC
 Rebate i.e. concession from income tax shall be allowed only to RESIDENT INDIVIDUAL (not to
non-resident individual or any other person).
 Rebate shall be allowed only if total income is upto ₹7,00,000
 Rebate shall be allowed upto ₹25,000.
 Health & education cess shall be applied only after permitting rebate under section 87A.

Illustration 3:
Mr. X has total income
(i) ₹6,00,000
(ii) ₹7,00,000
(iii) ₹7,40,000
 Computation of Total Income And Tax Liability 21

(iv) ₹8,00,000
Solution:
(i)
Total income 6,00,000
On first ₹3,00,000 Nil
On next ₹3,00,000 @ 5% 15,000
Tax before Rebate 15,000
Less: Rebate u/s 87A (15,000)
Tax before health & education cess Nil
Add: HEC @ 4% Nil
Tax Liability Nil

(ii)
Total income 7,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
Tax before Rebate 20,000
Less: Rebate u/s 87A (20,000)
Tax before health & education cess Nil
Add: HEC @ 4% Nil
Tax Liability Nil

(iii)
Total income 7,40,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹40,000 @ 10% 4,000
Tax before Rebate 24,000
Less: Rebate u/s 87A Nil
Tax before health & education cess 24,000
Add: HEC @ 4% 960
Tax Liability 24,960

(iv)
Total income 8,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹1,00,000 @ 10% 10,000
Tax before Rebate 30,000
Less: Rebate u/s 87A Nil
Tax before health & education cess 30,000
Add: HEC @ 4% 1,200
Tax Liability 31,200

Marginal Relief
If income is exceeding ₹7,00,000 and increase in tax is more than increase in income in comparison to
₹7,00,000, relief shall be allowed equal to the amount of tax which is exceeding the amount of income.
e.g. Mr. X has income of ₹7,05,000, in this case his tax liability shall be
Tax on ₹7,05,000 20,500
Less : Marginal relief 15,500
Working Note:
Tax on ₹7,05,000 20,500
Tax on ₹7,00,000 Nil
 Computation of Total Income And Tax Liability 22

Increase in tax 20,500

Increase in income 5,000
Marginal Relief (20,500 – 5,000) 15,500
Tax after marginal relief 5,000
Add: HEC @ 4% 200
Tax Liability 5,200

e.g. Mr. X has income of ₹7,10,000, in this case his tax liability shall be
Tax on ₹7,10,000 21,000
Less : Marginal relief 11,000
Working Note:
Tax on ₹7,10,000 21,000
Tax on ₹7,00,000 Nil
Increase in tax 21,000
Increase in income 10,000
Marginal Relief (21,000 – 10,000) 11,000
Tax after marginal relief 10,000
Add: HEC @ 4% 400
Tax Liability 10,400

e.g. Mr. X has income of ₹7,22,000, in this case his tax liability shall be
Tax on ₹7,22,000 22,200
Less : Marginal relief 200
Working Note:
Tax on ₹7,22,000 22,200
Tax on ₹7,00,000 Nil
Increase in tax 22,200
Increase in income 22,000
Marginal Relief (22,200 – 22,000) 200
Tax after marginal relief 22,000
Add: HEC @ 4% 880
Tax Liability 22,880

Limit for Marginal Relief

Marginal relief shall be allowed upto 7,22,220

Practice Problem 3:
(i) Mr. X has total income ₹6,00,000
(ii) Mr. X has total income ₹7,00,000
(iii)Mr. X has total income ₹7,02,000
(iv) Mr. X has total income ₹7,19,000
(v) Mr. X has total income ₹7,26,000
(vi) Mr. X (non-resident) has total income ₹4,00,000
(vii) Mr. X (non-resident) has total income ₹5,00,000
(viii) Mr. X (non-resident) has total income ₹6,90,000
(ix) Mr. X (non-resident) has total income ₹7,10,000
(x) Mr. X (non-resident) has total income ₹5,20,000

Question 8: Explain taxability of Casual Income.

Answer: As per section 115BB, casual income shall be taxable @ 30%.
As per section 2(24)(ix), casual income means any winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of any sort or from gambling or betting of any form or
nature whatsoever.
 Computation of Total Income And Tax Liability 23

Lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other
manner whatsoever, under any scheme or arrangement by whatever name called.
Card game and other game of any sort includes any game show, an entertainment programme on television
or electronic mode, in which people compete to win prizes or any other similar game.
Casual income shall be taxable under the head Other Sources and it will be included in the gross total
income and also total income but while computing tax liability, casual income shall be separated from total
income and shall be taxable @ 30%.

If assessee has incurred any expenditure in connection with earning of casual income, such expenditure shall
not be allowed to be deducted, eg. Mr. X purchased lottery tickets of ₹10,000 and he had a winning of
₹1,00,000, in this case expenditure of ₹10,000 shall not be allowed to be deducted and income of ₹1,00,000
shall be taxable @ 30%.
As per section 58(4), deduction under chapter VI-A shall not be allowed from casual income however as per
section 87A, rebate shall be allowed.

Illustration 4:
Mr. X has casual income
(i) ₹5,00,000 and deduction allowed under chapter VI-A is ₹1,00,000
(ii) ₹7,00,000 and deduction allowed under chapter VI-A is ₹1,00,000
(iii) ₹10,00,000 and deduction allowed under chapter VI-A is ₹1,00,000
(iv) ₹51,00,000 and deduction allowed under chapter VI-A is ₹1,00,000
(v) ₹102,00,000 and deduction allowed under chapter VI-A is ₹1,00,000
(vi) ₹7,10,0000 and deduction allowed under chapter VI-A is ₹1,00,000
(vii) ₹7,15,0000 and deduction allowed under chapter VI-A is ₹1,00,000
(viii) ₹7,20,0000 and deduction allowed under chapter VI-A is ₹1,00,000
Compute tax liability for A.Y. 2025-26.
Solution:
(i)
Income under the Other Sources (Casual income) 5,00,000.00
Gross Total Income 5,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 5,00,000.00
Computation of Tax Liability
Tax on casual income ₹5,00,000 @ 30% 1,50,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 1,25,000.00
Add: HEC @ 4% 5,000.00
Tax Liability 1,30,000.00

(ii)
Income under the Other Sources (Casual income) 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on casual income ₹7,00,000 @ 30% 2,10,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 1,85,000.00
Add: HEC @ 4% 7,400.00
Tax Liability 1,92,400.00
 Computation of Total Income And Tax Liability 24

(iii)
Income under the Other Sources (Casual income) 10,00,000.00
Gross Total Income 10,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 10,00,000.00
Computation of Tax Liability
Tax on casual income ₹10,00,000 @ 30% 3,00,000.00
Add: HEC @ 4% 12,000.00
Tax Liability 3,12,000.00

(iv)
Income under the Other Sources (Casual income) 51,00,000.00
Gross Total Income 51,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 51,00,000.00
Computation of Tax Liability
Tax on casual income ₹51,00,000 @ 30% 15,30,000.00
Add: Surcharge @ 10% 1,53,000.00
Tax before marginal relief 16,83,000.00
Less: Marginal Relief (83,000.00)
Working Note:
Tax + surcharge @10% on income of ₹51,00,000 16,83,000
Tax on income of ₹50,00,000 (15,00,000)
Increase in tax 1,83,000
Increase in income 1,00,000
Marginal Relief (1,83,000 – 1,00,000) 83,000
Tax after marginal relief 16,00,000.00
Add: HEC @ 4% 64,000.00
Tax Liability 16,64,000.00

(v)
Income under the Other Sources (Casual income) 102,00,000.00
Gross Total Income 102,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 102,00,000.00
Computation of Tax Liability
Tax on casual income ₹102,00,000 @ 30% 30,60,000.00
Add: Surcharge @ 15% 4,59,000.00
Tax before marginal relief 35,19,000.00
Less: Marginal Relief (19,000.00)
Working Note:
Tax + surcharge @15% on income of ₹102,00,000 35,19,000
Tax + surcharge @10% on income of ₹100,00,000 (33,00,000)
Increase in tax 2,19,000
Increase in income 2,00,000
Marginal Relief (2,19,000 – 2,00,000) 19,000
Tax after marginal relief 35,00,000.00
Add: HEC @ 4% 1,40,000.00
Tax Liability 36,40,000.00

(vi)
Income under the Other Sources (Casual income) 7,10,000.00
Gross Total Income 7,10,000.00
 Computation of Total Income And Tax Liability 25

Less: Deduction under chapter VI-A Nil

Total Income 7,10,000.00
Computation of Tax Liability
Tax on casual income ₹7,10,000 @ 30% 2,13,000.00
Less: Rebate u/s 87A Nil
Less: Marginal Relief (18,000.00)
Tax on ₹7,10,000 2,13,000
Tax on ₹7,00,000 (2,10,000 – 25,000) 1,85,000
Increase in Tax 28,000
Increase in Income 10,000
Marginal Relief 18,000
Tax before health & education cess 1,95,000.00
Add: HEC @ 4% 7,800.00
Tax Liability 2,02,800.00

(vii)
Income under the Other Sources (Casual income) 7,15,000.00
Gross Total Income 7,15,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,15,000.00
Computation of Tax Liability
Tax on casual income ₹7,15,000 @ 30% 2,14,500.00
Less: Rebate u/s 87A Nil
Less: Marginal Relief (14,500.00)
Tax on ₹7,15,000 2,14,500
Tax on ₹7,00,000 (2,10,000 – 25,000) 1,85,000
Increase in Tax 29,500
Increase in Income 15,000
Marginal Relief 14,500
Tax before health & education cess 2,00,000.00
Add: HEC @ 4% 8,000.00
Tax Liability 2,08,000.00

(viii)
Income under the Other Sources (Casual income) 7,20,000.00
Gross Total Income 7,20,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,20,000.00
Computation of Tax Liability
Tax on casual income ₹7,20,000 @ 30% 2,16,000.00
Less: Rebate u/s 87A Nil
Less: Marginal Relief (11,000.00)
Tax on ₹7,20,000 2,16,000
Tax on ₹7,00,000 (2,10,000 – 25,000) 1,85,000
Increase in Tax 31,000
Increase in Income 20,000
Marginal Relief 11,000
Tax before health & education cess 2,05,000.00
Add: HEC @ 4% 8,200.00
Tax Liability 2,13,200.00
 Computation of Total Income And Tax Liability 26

Question 9: Explain taxability of Capital Gains.

Answer: If any capital asset has been transferred like land, building, gold etc. profit shall be called capital
gains and if the asset has been transferred within a period of two years, capital gains shall be short term and
shall be taxable at the normal rate and if asset is sold after 2 years, it will be long term capital gain and as
per section 112, it shall be taxable @ 20% (if asset is sold before 23rd July 2024) and @ 12.5% (if asset is
sold on or after 23rd July 2024) and also deductions under chapter VI-A, shall not be allowed from long
term capital gains.
In case of listed shares or units of equity oriented mutual fund etc., period of 2 years shall be taken as one
year.
If any person has transferred listed equity shares or listed units of equity oriented mutual funds and has paid
securities transaction tax, in such cases long term capital gain shall be taxable @ 10% (if asset is sold before
23rd July 2024) u/s 112A and @ 12.5% (if asset is sold on or after 23rd July 2024) but only amount in
excess of ₹1,25,000 and short term capital gains shall be covered under section 111A and shall be taxable @
15% (if asset is sold before 23rd July 2024) and @ 20% (if asset is sold on or after 23rd July 2024) and
deductions under chapter VI-A, shall not be allowed from such long term or short term capital gains.

Rebate u/s 87A shall be allowed from tax on LTCG or STCG 111A. (No Rebate u/s 87A from LTCG 112A)

Special provision for resident individual

In case of a resident individual if total income excluding long term capital gains 112/112A and short term
capital gain covered under section 111A and casual income, is below the amount which is exempt from
income tax (i.e.3,00,000), in such cases deficiency in the exemption shall be allowed from long term capital
gains 112 or short term capital gain under section 111A or long term capital gains under section 112A, in
that order. Such benefit is not allowed to a non-resident.

Illustration 5:
Compute Tax Liability in the following independent cases:
(i) Mr. X has LTCG ₹7,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(ii) Mr. X has LTCG 112A ₹7,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(iii) Mr. X has STCG 111A ₹7,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(iv) Mr. X has causal income ₹7,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(v) Mr. X has income under the head House Property ₹7,00,000 and deduction allowed under chapter VI-
A ₹1,00,000
(vi) Mr. X has causal income ₹300,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(vii) Mr. X has income under the head House Property ₹300,00,000 and deduction allowed under chapter
VI-A ₹1,00,000
(viii) Mr. X has short term capital gains u/s 111A ₹7,12,000 and deduction allowed under chapter VI-A
₹1,00,000
(ix) Mr. X has long term capital gains u/s 112A ₹7,15,000 and deduction allowed under chapter VI-A
₹1,00,000
(x) Mr. X has long term capital gains u/s 112 ₹7,22,000 and deduction allowed under chapter VI-A
₹1,00,000
Solution:
(i)
Income under the Capital Gains (LTCG) 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on LTCG ₹4,00,000 (7,00,000-3,00,000) @ 12.5% 50,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 25,000.00
 Computation of Total Income And Tax Liability 27

Add: HEC @ 4% 1,000.00

Tax Liability 26,000.00

(ii)
Income under the Capital Gains (LTCG 112A) 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on LTCG 112A ₹2,75,000 (7,00,000-3,00,000-1,25,000) @ 12.5% 34,375.00
Less: Rebate u/s 87A Nil
Tax before health & education cess 34,375.00
Add: HEC @ 4% 1,375.00
Tax Liability 35,750.00

(iii)
Income under the Capital Gains (STCG 111A) 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on STCG 111A ₹4,00,000 (7,00,000-3,00,000) @ 20% 80,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 55,000.00
Add: HEC @ 4% 2,200.00
Tax Liability 57,200.00

(iv)
Income under the Other Sources (Casual income) 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on casual income ₹7,00,000 @ 30% 2,10,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 1,85,000.00
Add: HEC @ 4% 7,400.00
Tax Liability 1,92,400.00

(v)
Income under the House Property 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A 1,00,000.00
Total Income 6,00,000.00
Computation of Tax Liability
Tax on ₹6,00,000 at slab rate 15,000.00
Less: Rebate u/s 87A (15,000.00)
Tax before health & education cess Nil
Add: HEC @ 4% Nil
Tax Liability Nil

(vi)
Tax on casual income ₹300,00,000 @ 30% 90,00,000.00
 Computation of Total Income And Tax Liability 28

Tax before surcharge 90,00,000.00

Add: Surcharge @ 25% 22,50,000.00
Tax before health & education cess 112,50,000.00
Add: HEC @ 4% 4,50,000.00
Tax Liability 117,00,000.00

(vii)
Income under the House Property 300,00,000.00
Gross Total Income 300,00,000.00
Less: Deduction under chapter VI-A 1,00,000.00
Total Income 299,00,000.00
Computation of Tax Liability
Tax on ₹299,00,000 at slab rate 86,60,000.00
Add: Surcharge @ 25% 21,65,000.00
Tax before health & education cess 108,25,000.00
Add: HEC @ 4% 4,33,000.00
Tax Liability 112,58,000.00

(viii)
Income under the Capital Gains (short term capital gains u/s 111A) 7,12,000.00
Gross Total Income 7,12,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,12,000.00
Computation of Tax Liability
Tax on STCG u/s 111A (₹7,12,000 – 3,00,000) @ 20% 82,400.00
Less: Rebate u/s 87A Nil
Less: Marginal Relief (15,400.00)
Tax on ₹7,12,000 82,400
Tax on (7,00,000 – 3,00,000) @ 20% (80,000 – 25,000) 55,000
Increase in Tax 27,400
Increase in Income 12,000
Marginal Relief 15,400
Tax before health & education cess 67,000.00
Add: HEC @ 4% 2,680.00
Tax Liability 69,680.00

(ix)
Income under the Capital Gains (long term capital gains u/s 112A) 7,15,000.00
Gross Total Income 7,15,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,15,000.00
Computation of Tax Liability
Tax on LTCG u/s 112A (₹7,15,000 – 3,00,000 – 1,25,000) @ 12.5% 36,250.00
Less: Rebate u/s 87A Nil
Tax before health & education cess 36,250.00
Add: HEC @ 4% 1,450.00
Tax Liability 37,700.00

(x)
Income under the Capital Gains (long term capital gains u/s 112) 7,22,000.00
Gross Total Income 7,22,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,22,000.00
 Computation of Total Income And Tax Liability 29

Computation of Tax Liability

Tax on LTCG u/s 112 (₹7,22,000 – 3,00,000) @ 12.5% 52,750.00
Less: Rebate u/s 87A Nil
Less: Marginal Relief 5,750.00
Tax on ₹7,22,000 52,750
Tax on (7,00,000 – 3,00,000) @ 12.5% (50,000 – 25,000) 25,000
Increase in Tax 27,750
Increase in Income 22,000
Marginal Relief 5,750
Tax before health & education cess 47,000.00
Add: HEC @ 4% 1,880.00
Tax Liability 48,880.00

Practice Problem 4
(i) Mr. X has income under the head House Property ₹1,00,000 and LTCG ₹2,00,000 and STCG 111A
₹5,00,000. Compute his income and tax liability for A.Y. 2025-26.
(ii) Mr. X has income under the head House Property ₹50,000 and LTCG ₹1,00,000 and STCG 111A
₹50,000 LTCG 112A ₹8,00,000. Compute his income and tax liability for A.Y. 2025-26.
(iii) Mr. X has income under the head House Property ₹50,000 and LTCG ₹1,00,000 and STCG 111A
₹50,000 LTCG 112A ₹5,00,000. Compute his income and tax liability for A.Y. 2025-26.
(iv) Mr. X has income under the head House Property ₹4,00,000 and LTCG ₹1,00,000 and STCG 111A
₹50,000 LTCG 112A ₹1,00,000. Compute his income and tax liability for A.Y. 2025-26.
(v) Mr. X has LTCG ₹51,00,000. Compute his income and tax liability for A.Y. 2025-26.
(vi) Mr. X has LTCG 112A ₹200,00,000. Compute his income and tax liability for A.Y. 2025-26.
(vii) Mr. X has STCG 111A ₹102,00,000. Compute his income and tax liability for A.Y. 2025-26.

Illustration 6:
Mr. X has long term capital gain ₹31 lakh and normal income ₹70 lakh, in this case his tax liability shall be
Total income 101,00,000.00
LTCG ₹31,00,000 x 12.5% 3,87,500.00
Normal income at slab rate 17,90,000.00
Tax before surcharge 21,77,500.00
Add: Surcharge @ 15% 3,26,625.00
Tax before marginal relief 25,04,125.00
Less: Marginal relief (22,625.00)
Tax + Surcharge on ₹101 lakhs 25,04,125
Tax + Surcharge on ₹100 lakhs
(₹100 lakhs can be normal income ₹70 lakhs + LTCG ₹30 lakhs or
normal income ₹69 lakhs and LTCG ₹31 lakhs . It is not given in
the Act what combination should be taken. Hence it is a question
of law and any of the combination can be taken and it will be
correct)
If first combination is taken, income tax shall be
Normal income ₹70 lakhs 17,90,000
LTCG ₹30 lakhs 3,75,000
Total 21,65,000
Add: Surcharge @ 10% 2,16,500
Total 23,81,500
Increase in tax (25,04,125 – 23,81,500) 1,22,625
Marginal relief (1,22,625 – 1,00,000) 22,625
Tax before health & education cess 24,81,500.00
Add: HEC @ 4% 99,260.00
Tax Liability 25,80,760.00
 Computation of Total Income And Tax Liability 30

Second option: Normal income ₹69 lakhs and LTCG ₹31 lakhs
Total income 101,00,000.00
LTCG ₹31,00,000 x 12.5% 3,87,500.00
Normal income at slab rate 17,90,000.00
Tax before surcharge 21,77,500.00
Add: Surcharge @ 15% 3,26,625.00
Tax before marginal relief 25,04,125.00
Less: Marginal relief (41,875.00)
Tax + Surcharge on ₹101 lakhs 25,04,125
Tax + Surcharge on ₹100 lakhs
(₹100 lakhs can be normal income ₹70 lakhs + LTCG ₹30 lakhs or
normal income ₹69 lakhs and LTCG ₹31 lakhs . It is not given in
the Act what combination should be taken. Hence it is a question
of law and any of the combination can be taken and it will be
correct)
If second combination is taken, income tax shall be
Normal income ₹69 lakhs 17,60,000
LTCG ₹31 lakhs 3,87,500
Total 21,47,500
Add: Surcharge @ 10% 2,14,750
Total 23,62,250
Increase in tax (25,04,125 – 23,62,250) 1,41,875
Marginal relief (1,41,875 – 1,00,000) 41,875
Tax before health & education cess 24,62,250.00
Add: HEC @ 4% 98,490.00
Tax Liability 25,60,740.00
Special Provision of Surcharge for short term 111A , Long term 112, Long term 112A and Dividend
Income
Surcharge @ 25% shall never be applicable on short term capital gain 111A, Long term capital gains 112
and Long term capital gains 112A and dividend income i.e. surcharge of 25% shall be applicable only if
total income excluding short term capital gain under section 111A, long term capital gain section 112, long
term capital gain under section 112A and dividend income is exceeding ₹ 200 Lakhs.

The calculations shall be done in the manner given below:

(i) Compute total income taking into consideration all the taxable incomes and if such total income is upto
₹50,00,000, no surcharge is applicable but if it is more than ₹50,00,000 but upto ₹100,00,000, surcharge is
applicable @ 10% and if it is more than ₹100,00,000, surcharge is applicable @ 15%.
(ii) Surcharge of 25% shall be applicable only if total income minus specified income (i.e. short term capital
gain 111A, Long term capital gains 112 and Long term capital gains 112A and dividend income) is
exceeding ₹200,00,000.

Illustration 7:
(i) Mr. X has income under the head House Property ₹70,00,000 and LTCG 112 ₹100,00,000 LTCG
112A ₹50,00,000 STCG 111A ₹150,00,000. Compute income and tax A.Y. 2025-26.
(ii) Mr. X has income under the head House Property ₹220,00,000 and LTCG 112 ₹100,00,000 LTCG
112A ₹50,00,000 STCG 111A ₹150,00,000. Compute income and tax A.Y. 2025-26.
(iii) Mr. X has income under the head House Property ₹80,00,000 and LTCG 112 ₹40,00,000 LTCG 112A
₹90,00,000 STCG 111A ₹30,00,000. Compute income and tax A.Y. 2025-26.
(iv) Mr. X has LTCG 112A ₹202,00,000. Compute income and tax A.Y. 2025-26.
(v) Mr. X has STCG 111A ₹202,00,000. Compute income and tax A.Y. 2025-26.
(vi) Mr. X has income under head House Property ₹202,00,000. Compute income and tax A.Y. 2025-26.
 Computation of Total Income And Tax Liability 31

(vii) Mr. X has LTCG ₹51,00,000 and income under the head House Property ₹205,00,000. Compute
income and tax A.Y. 2025-26.
(viii) Mr. X has LTCG ₹101,00,000 and income under the head House Property ₹204,00,000. Compute
income and tax A.Y. 2025-26.
(ix) Mr. X has LTCG 112A ₹101,00,000. Compute income and tax A.Y. 2025-26.
(x) Mr. X has STCG 111A ₹300,00,000. Compute income and tax A.Y. 2025-26.
(xi) Mr. X has dividend income ₹100,00,000 and income under the head House Property ₹300,00,000.
(xii) Mr. X has LTCG ₹300,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(xiii) Mr. X has LTCG 112A ₹300,00,000 and deduction allowed under chapter VI-A ₹1,00,000
(xiv) Mr. X has STCG 111A ₹300,00,000 and deduction allowed under chapter VI-A ₹1,00,000
Compute income and tax A.Y. 2025-26.
Solution:
(i)
Income under the House Property 70,00,000.00
Income under the Capital Gains (LTCG 112) 100,00,000.00
Income under the Capital Gains (LTCG 112A) 50,00,000.00
Income under the Capital Gains (STCG 111A) 150,00,000.00
Gross Total Income 370,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 370,00,000.00

Computation of Tax Liability

Tax on normal income at slab rate 17,50,000.00
Tax on LTCG 112 ₹100,00,000 @ 12.5% 12,50,000.00
Tax on LTCG 112A (₹50,00,000 – ₹1,25,000) @ 12.5% 6,09,375.00
Tax on STCG 111A ₹150,00,000 @ 20% 30,00,000.00
Tax before Surcharge 66,49,375.00
Add: Surcharge @ 15% 9,97,406.25
Tax before health & education cess 76,46,781.25
Add: HEC @ 4% 3,05,871.25
Tax Liability 79,52,652.50
Rounded off u/s 288B 79,52,650.00
(ii)
Income under the House Property 220,00,000.00
Income under the Capital Gains (LTCG 112) 100,00,000.00
Income under the Capital Gains (LTCG 112A) 50,00,000.00
Income under the Capital Gains (STCG 111A) 150,00,000.00
Gross Total Income 520,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 520,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 62,90,000.00
Tax on LTCG ₹100,00,000 @ 12.5% 12,50,000.00
Tax on STCG 111A ₹150,00,000 @ 20% 30,00,000.00
Tax on LTCG 112A ₹48,75,000 (50,00,000-1,25,000) @ 12.5% 6,09,375.00
Tax before surcharge 1,11,49,375.00
Add: Surcharge @ 25% on ₹62,90,000 15,72,500.00
Add: Surcharge @ 15% on ₹48,59,375 7,28,906.25
Tax before HEC 134,50,781.25
Add: HEC @ 4% 5,38,031.25
Tax Liability 139,88,812.50
Rounded off u/s 288B 139,88,810.00
 Computation of Total Income And Tax Liability 32

(iii)
Income under the House Property 80,00,000.00
Income under the Capital Gains (LTCG) 40,00,000.00
Income under the Capital Gains (STCG 111A) 30,00,000.00
Income under the Capital Gains (LTCG 112A) 90,00,000.00
Gross Total Income 240,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 240,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 20,90,000.00
Tax on LTCG 40,00,000 @ 12.5% 5,00,000.00
Tax on STCG 111A 30,00,000 @ 20% 6,00,000.00
Tax on LTCG 112A 88,75,000 (90,00,000-1,25,000) @ 12.5% 11,09,375.00
Tax before surcharge 42,99,375.00
Add: Surcharge @ 15% on ₹42,99,375 6,44,906.25
Tax before HEC 49,44,281.25
Add: HEC @ 4% 1,97,771.25
Tax Liability 51,42,052.50
Rounded off u/s 288B 51,42,050.00

(iv)
Income under the Capital Gains (LTCG 112A) 202,00,000.00
Gross Total Income 202,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 202,00,000.00

Computation of Tax Liability

Tax on LTCG 112A ₹197,75,000 (202,00,000-3,00,000-1,25,000) @ 12.5% 24,71,875.00
Tax before surcharge 24,71,875.00
Add: Surcharge @ 15% 3,70,781.25
Tax before health & education cess 28,42,656.25
Add: HEC @ 4% 1,13,706.25
Tax Liability 29,56,362.50
Rounded off u/s 288B 29,56,360.00

(v)
Income under the Capital Gains (STCG 111A) 202,00,000.00
Gross Total Income 202,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 202,00,000.00
Computation of Tax Liability
Tax on STCG 111A ₹199,00,000 (202,00,000-3,00,000) @ 20% 39,80,000.00
Tax before surcharge 39,80,000.00
Add: Surcharge @ 15% 5,97,000.00
Tax before health & education cess 45,77,000.00
Add: HEC @ 4% 1,83,080.00
Tax Liability 47,60,080.00

(vi)
Income under the House Property 202,00,000.00
Gross Total Income 202,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 202,00,000.00
 Computation of Total Income And Tax Liability 33

Computation of Tax Liability

Tax on normal income at slab rate 57,50,000.00
Tax before surcharge 57,50,000.00
Add: Surcharge @ 25% 14,37,500.00
Tax before marginal relief 71,87,500.00
Less: Marginal Relief (4,44,000.00)
Working Note:
Tax + surcharge @25% on income of ₹202,00,000 71,87,500
Tax + surcharge @15% on income of ₹200,00,000 (65,43,500)
Increase in tax 6,44,000
Increase in income 2,00,000
Marginal Relief (6,44,000 – 2,00,000) 4,44,000
Tax after marginal relief 67,43,500.00
Add: HEC @ 4% 2,69,740.00
Tax Liability 70,13,240.00

(vii)
Income under the House Property 205,00,000.00
Income under the head Capital Gains (LTCG) 51,00,000.00
Gross Total Income 256,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 256,00,000.00

Computation of Tax Liability

Tax on normal income ₹205,00,000 at slab rate 58,40,000.00
Add: Surcharge @ 25% on ₹58,40,000 14,60,000.00
Total 73,00,000.00
Less: Marginal Relief
Tax + Surcharge on ₹205,00,000 73,00,000
Tax + Surcharge on ₹200,00,000 65,43,500
Increase in Tax 7,56,500
Less: Increase in income 5,00,000 2,56,500.00
Tax after marginal relief 70,43,500.00
Tax on LTCG ₹51,00,000 @ 12.5% 6,37,500.00
Add: Surcharge @ 15% on ₹6,37,500 95,625.00
Tax before HEC 77,76,625.00
Add: HEC @ 4% 3,11,065.00
Tax Liability 80,87,690.00

(viii)
Income under the House Property 204,00,000.00
Income under the head Capital Gains (LTCG) 101,00,000.00
Gross Total Income 305,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 305,00,000.00

Computation of Tax Liability

Tax on normal income ₹204,00,000 at slab rate 58,10,000.00
Add: Surcharge @ 25% on 58,20,000 14,52,500.00
Total 72,62,500.00
Less: Marginal Relief
Tax + Surcharge on ₹204,00,000 72,62,500
Tax + Surcharge on ₹200,00,000 65,43,500
 Computation of Total Income And Tax Liability 34

Increase in Tax 7,19,000

Less: Increase in income 4,00,000 3,19,000.00
Tax after marginal relief 69,43,500.00
Tax on LTCG 101,00,000 @ 12.5% 12,62,500.00
Add: Surcharge @ 15% on 12,62,500 1,89,375.00
Tax before HEC 83,95,375.00
Add: HEC @ 4% 3,35,815.00
Tax Liability 87,31,190.00

(ix)
Income under the Capital Gains (LTCG 112A) 101,00,000.00
Gross Total Income 101,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 101,00,000.00
Computation of Tax Liability
Tax on LTCG 112A ₹96,75,000 (101,00,000-3,00,000-1,25,000) @ 12.5% 12,09,375.00
Add: Surcharge @ 15% 1,81,406.30
Tax before HEC 13,90,781.30
Add: HEC @ 4% 55,631.25
Tax Liability 14,46,412.55
Rounded off u/s 288B 14,46,410.00

(x)
Income under the Capital Gains (STCG 111A) 300,00,000.00
Gross Total Income 300,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 300,00,000.00
Computation of Tax Liability
Tax on STCG 111A ₹297,00,000 (300,00,000-3,00,000) @ 20% 59,40,000.00
Tax before surcharge 59,40,000.00
Add: Surcharge @ 15% 8,91,000.00
Tax before health & education cess 68,31,000.00
Add: HEC @ 4% 2,73,240.00
Tax Liability 71,04,240.00

(xi)
Income under the House Property 300,00,000.00
Income under the Other sources (Dividend) 100,00,000.00
Gross Total Income 400,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 400,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 116,90,000.00
Tax before surcharge 116,90,000.00
Add: Surcharge @ 25% on 116,90,000/400,00,000 x 300,00,000 21,91,875.00
Add: Surcharge @ 15% on 116,90,000/400,00,000 x 100,00,000 4,38,375.00
Tax before HEC 143,20,250.00
Add: HEC @ 4% 5,72,810.00
Tax Liability 148,93,060.00

(xii)
Income under the Capital Gains (LTCG) 300,00,000.00
Gross Total Income 300,00,000.00
 Computation of Total Income And Tax Liability 35

Less: Deduction under chapter VI-A Nil

Total Income 300,00,000.00
Computation of Tax Liability
Tax on LTCG ₹297,00,000 (300,00,000-3,00,000) @ 12.5% 37,12,500.00
Add: Surcharge @ 15% 5,56,875.00
Tax before health & education cess 42,69,375.00
Add: HEC @ 4% 1,70,775.00
Tax Liability 44,04,150.00

(xiii)
Income under the Capital Gains (LTCG 112A) 300,00,000.00
Gross Total Income 300,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 300,00,000.00
Computation of Tax Liability
Tax on LTCG 112A ₹295,75,000 (300,00,000-3,00,000-1,25,000) @ 12.5% 36,96,875.00
Add: Surcharge @ 15% 5,54,531.25
Tax before health & education cess 42,51,406.25
Add: HEC @ 4% 1,70,056.25
Tax Liability 44,21,462.50
Rounded off u/s 288B 44,21,460.00

(xiv)
Income under the Capital Gains (STCG 111A) 300,00,000.00
Gross Total Income 300,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 300,00,000.00
Computation of Tax Liability
Tax on STCG 111A ₹297,00,000 (300,00,000-3,00,000) @ 20% 59,40,000.00
Add: Surcharge @ 15% 8,91,000.00
Tax before health & education cess 68,31,000.00
Add: HEC @ 4% 2,73,240.00
Tax Liability 71,04,240.00

Question 10: Write a note on taxability of income of Partnership Firm/Limited Liability Partnership
Firm.
Answer: Partnership firm/LLP
Long term capital gains are taxable @ 12.5%, STCG u/s 111A shall be taxable @ 20% , LTCG u/s 112A
shall be taxable in excess of 1,25,000 @ 12.5% and casual income @ 30% and other incomes are also
taxable @ 30%.
Surcharge shall be applicable @ 12% provided total income is exceeding ₹ 1 crore.
Marginal Relief
Marginal relief shall be allowed if income has exceeded ₹100 lakhs.
Health & education cess is applicable @ 4%

Deductions under chapter VI-A shall be allowed in the normal manner.

Partnership firm is regulated through Partnership Act,1932 and Limited Liability Partnership firm is
regulated through Limited Liability Partnership Act, 2008.

Question 11: Write a note on taxability of income of domestic company.

Answer: Domestic Company
Long term capital gains are taxable @ 12.5%, STCG u/s 111A shall be taxable @ 20% , LTCG u/s 112A
 Computation of Total Income And Tax Liability 36

shall be taxable in excess of 1,25,000 @ 12.5% and casual income @ 30% and other incomes are also
taxable @ 30%.

Surcharge shall be applicable

- @ 7% provided total income is exceeding ₹100 lakhs but it is upto ₹1000 lakhs
- @ 12% provided total income is exceeding ₹1000 lakhs.
Marginal relief shall be allowed if income has exceeded ₹100 lakhs / 1000 lakhs
Health & education cess is applicable @ 4%
Deductions under chapter VI-A shall be allowed in the normal manner.
Example
Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is
₹1,01,00,000 and the total income does not include any income in the nature of capital gains.
Answer
Total income 1,01,00,000
Tax on @ 30% 30,30,000
Add: Surcharge @ 7% 2,12,100
Tax before marginal relief 32,42,100
Less: Marginal Relief (1,42,100)
Working Note:
Tax + surcharge on income of ₹101,00,000 32,42,100
Tax on income of ₹100,00,000 (30,00,000)
Increase in tax 2,42,100
Increase in income 1,00,000
Marginal Relief (2,42,100 – 1,00,000) 1,42,100
Tax after marginal relief 31,00,000
Add: HEC @ 4% 1,24,000
Tax Liability 32,24,000
Example
Compute the tax liability of X Ltd., a domestic company, assuming that the total income of X Ltd. is
₹10,01,00,000 and the total income does not include any income in the nature of capital gains.
Answer:
Total income 10,01,00,000
Tax on @ 30% 300,30,000
Add: Surcharge @ 12% 36,03,600
Tax before marginal relief 336,33,600
Less: Marginal Relief (14,33,600)
Working Note:
Tax + surcharge @ 12% on income of ₹10,01,00,000 336,33,600
Tax + surcharge @ 7% on income of ₹1000,00,000 (321,00,000)
Increase in tax 15,33,600
Increase in income 1,00,000
Marginal Relief (15,33,600 – 1,00,000) 14,33,600
Tax after marginal relief 322,00,000
Add: HEC @ 4% 12,88,000
Tax Liability 334,88,000

Question 12: Write a note on taxability of income of Foreign company.

Answer: Foreign Company
Long term capital gains are taxable @ 12.5%, STCG u/s 111A shall be taxable @ 20%, LTCG u/s 112A
shall be taxable in excess of 1,25,000 @ 12.5% and casual income @ 30% and other incomes are taxable @
40%.
Surcharge shall be applicable
 Computation of Total Income And Tax Liability 37

- @ 2% provided total income is exceeding ₹100 lakhs but it is upto ₹1000 lakhs.
- @ 5% provided total income is exceeding ₹1000 lakhs
Marginal relief shall be allowed if income has exceeded ₹100 lakhs / 1000 lakhs
Health & education cess is applicable @ 4%
Deductions under chapter VI-A shall be allowed in the normal manner.

Question 13: Explain meaning of domestic company.

Answer: Meaning of domestic company
As per section 2(22A), "Domestic company" means an Indian company. Any other company i.e. foreign
company shall also be considered to be domestic company if it has complied with all the three conditions
given below:
(1) The share-register of the company for all shareholders shall be regularly maintained at its principal place
of business within India throughout the year.
(2) The Annual General meeting is held in India.
(3) The dividends declared, if any, shall be payable only within India to all shareholders.
If any foreign company has complied with all the above conditions, it will be considered to be domestic
company otherwise it will be considered to be foreign company.

Illustration 8: Compute tax liability of ABC Ltd. a domestic company in the following situations:
(i) The company has income under the head Business/Profession ₹50,000.
(ii) The company has income under the head Business/Profession ₹1,00,000.
(iii) The company has income under the head Business/Profession ₹500,00,000.
(iv) The company has income under the head Business/Profession ₹100,00,000.
(v) The company has long term capital gains of ₹50,000.
(vi) The company has long term capital gains of ₹200,00,000.
(vii) The company has long term capital gains of ₹5,00,000.
(viii) The company has long term capital gains of ₹10,20,000.
(ix) The company has income under the head Business/Profession ₹11 crore.
Solution: ₹
(i) Computation of Tax Liability
Income under the head Business/Profession 50,000
Total Income 50,000
Tax on ₹50,000 @ 30% 15,000
Add: HEC @ 4% 600
Tax Liability 15,600

(ii) Computation of Tax Liability

Income under the head Business/Profession 1,00,000
Total Income 1,00,000
Tax on ₹1,00,000 @ 30% 30,000
Add: HEC @ 4% 1,200
Tax Liability 31,200

(iii) Computation of Tax Liability

Income under the head Business/Profession 500,00,000
Total Income 500,00,000
Tax on ₹500,00,000 @ 30% 150,00,000
Add: Surcharge @ 7% 10,50,000
Add: HEC @ 4% 6,42,000
Tax Liability 166,92,000
 Computation of Total Income And Tax Liability 38

(iv) Computation of Tax Liability

Income under the head Business/Profession 100,00,000
Total Income 100,00,000
Tax on ₹100,00,000 @ 30% 30,00,000
Add: HEC @ 4% 1,20,000
Tax Liability 31,20,000

(v) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 50,000
Total Income 50,000
Tax on ₹50,000 @ 12.5% 6,250
Add: HEC @ 4% 250
Tax Liability 6,500

(vi) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 200,00,000
Total Income 200,00,000
Tax on ₹200,00,000 @ 12.5% 25,00,000
Add: Surcharge @ 7% 1,75,000
Add: HEC @ 4% 1,07,000
Tax Liability 27,82,000

(vii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 5,00,000
Total Income 5,00,000
Tax on ₹5,00,000 @ 12.5% 62,500
Add: HEC @ 4% 2,500
Tax Liability 65,000

(viii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 10,20,000
Total Income 10,20,000
Tax on ₹10,20,000 @ 12.5% 1,27,500
Add: HEC @ 4% 5,100
Tax Liability 1,32,600

(ix) Computation of Tax Liability

Income under the head Business/profession 11,00,00,000
Total Income 11,00,00,000
Tax on ₹11,00,00,000 @ 30% 330,00,000
Add: Surcharge @ 12% 39,60,000
Tax before health & education cess 369,60,000
Add: HEC @ 4% 14,78,400
Tax Liability 384,38,400

Illustration 9: Presume in all the above situations the assessee is a partnership firm .
Solution: ₹
(i) Computation of Tax Liability
Income under the head Business/Profession 50,000
Total Income 50,000
Tax on ₹50,000 @ 30% 15,000
Add: HEC @ 4% 600
Tax Liability 15,600
 Computation of Total Income And Tax Liability 39

(ii) Computation of Tax Liability

Income under the head Business/Profession 1,00,000
Total Income 1,00,000
Tax on ₹1,00,000 @ 30% 30,000
Add: HEC @ 4% 1,200
Tax Liability 31,200

(iii) Computation of Tax Liability

Income under the head Business/Profession 500,00,000
Total Income 500,00,000
Tax on ₹500,00,000 @ 30% 150,00,000
Add: Surcharge @ 12% 18,00,000
Tax before health & education cess 168,00,000
Add: HEC @ 4% 6,72,000
Tax Liability 174,72,000

(iv) Computation of Tax Liability

Income under the head Business/Profession 100,00,000
Total Income 100,00,000
Tax on ₹100,00,000 @ 30% 30,00,000
Add: HEC @ 4% 1,20,000
Tax Liability 31,20,000
(v) Computation of Tax Liability
Income under the head Capital Gains (long term capital gains) 50,000
Total Income 50,000
Tax on ₹50,000 @ 12.5% 6,250
Add: HEC @ 4% 250
Tax Liability 6,500

(vi) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 200,00,000
Total Income 200,00,000
Tax on ₹200,00,000 @ 12.5% 25,00,000
Add: Surcharge @ 12% 3,00,000
Add: HEC @ 4% 1,12,000
Tax Liability 29,12,000
(vii) Computation of Tax Liability
Income under the head Capital Gains (long term capital gains) 5,00,000
Total Income 5,00,000
Tax on ₹5,00,000 @ 12.5% 62,500
Add: HEC @ 4% 2,500
Tax Liability 65,000

(viii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 10,20,000
Total Income 10,20,000
Tax on ₹10,20,000 @ 12.5% 1,27,500
Add: HEC @ 4% 5,100
Tax Liability 1,32,600
 Computation of Total Income And Tax Liability 40

(ix) Computation of Tax Liability

Income under the head Business/profession 11,00,00,000
Total Income 11,00,00,000
Tax on ₹11,00,00,000 @ 30% 330,00,000
Add: Surcharge @ 12% 39,60,000
Tax before health & education cess 369,60,000
Add: HEC @ 4% 14,78,400
Tax Liability 384,38,400

Illustration 10: Presume in all the above situations the assessee is a foreign company.
Solution: ₹
(i) Computation of Tax Liability
Income under the head Business/Profession 50,000
Total Income 50,000
Tax on ₹50,000 @ 40% 20,000
Add: HEC @ 4% 800
Tax Liability 20,800

(ii) Computation of Tax Liability

Income under the head Business/Profession 1,00,000
Total Income 1,00,000
Tax on ₹1,00,000 @ 40% 40,000
Add: HEC @ 4% 1,600
Tax Liability 41,600

(iii) Computation of Tax Liability

Income under the head Business/Profession 500,00,000
Total Income 500,00,000
Tax on ₹500,00,000 @ 40% 200,00,000
Add: Surcharge @ 2% 4,00,000
Add: HEC @ 4% 8,16,000
Tax Liability 212,16,000

(iv) Computation of Tax Liability

Income under the head Business/Profession 100,00,000
Total Income 100,00,000
Tax on ₹100,00,000 @ 40% 40,00,000
Add: HEC @ 4% 1,60,000
Tax Liability 41,60,000

(v) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 50,000
Total Income 50,000
Tax on ₹50,000 @ 12.5% 6,250
Add: HEC @ 4% 250
Tax Liability 6,500

(vi) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 200,00,000
Total Income 200,00,000
Tax on ₹200,00,000 @ 12.5% 25,00,000
Add: Surcharge @ 2% 50,000
Add: HEC @ 4% 1,02,000
 Computation of Total Income And Tax Liability 41

Tax Liability 26,52,000

(vii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 5,00,000
Total Income 5,00,000
Tax on ₹5,00,000 @ 12.5% 62,500
Add: HEC @ 4% 2,500
Tax Liability 65,000

(viii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 10,20,000
Total Income 10,20,000
Tax on ₹10,20,000 @ 12.5% 1,27,500
Add: HEC @ 4% 5,100
Tax Liability 1,32,600

(ix) Computation of Tax Liability

Income under the head Business/profession 11,00,00,000
Total Income 11,00,00,000
Tax on ₹11,00,00,000 @ 40% 440,00,000
Add: Surcharge @ 5% 22,00,000
Tax before health & education cess 462,00,000
Add: HEC @ 4% 18,48,000
Tax Liability 480,48,000

Problem 5:
Compute tax liability of ABC Ltd. a domestic company in the following situations for assessment year
2025-26:
(i) The company has income under the head Business/Profession ₹70,000.
(ii) The company has income under the head Business/Profession ₹150,00,000.
(iii) The company has income under the head Business/Profession ₹6,00,000.
(iv) The company has income under the head Business/Profession ₹10,30,000.
(v) The company has long term capital gains of ₹700,00,000.
(vi) The company has long term capital gains of ₹1,50,000.
(vii) The company has long term capital gains of ₹6,00,000.
(viii) The company has long term capital gains of ₹10,30,000.
(ix) The company has casual income ₹400,00,000.
Answer = (i) Tax Liability: ₹21,840; (ii) ₹50,07,600; (iii) ₹1,87,200; (iv) ₹3,21,360; (v) ₹97,37,200; (vi)
₹19,500; (vii) ₹78,000; (viii) ₹1,33,900; (ix) ₹133,53,600

(b) Presume all the above situations the company is a foreign company.
Answer = (i) Tax Liability: ₹29,120; (ii) ₹63,64,800; (iii) ₹2,49,600; (iv) ₹4,28,480; (v) ₹92,82,000; (vi)
₹19,500; (vii) ₹78,000; (viii) ₹1,33,900; (ix) ₹127,29,600

Question 14: Write a note on Computation of Tax Liability of HUF.

Answer: Tax liability of Hindu undivided family
Hindu undivided family means any family which is Hindu by religion and its senior most male member is
called karta and karta is responsible for control and management of HUF. Parental property / business etc
received by karta shall be considered to be common property and taxability shall be as given below:
Normal income of Hindu undivided family shall be computed at the normal slab rate as given below:
Income shall be taxable at the slab rates given below:
If total Income upto ₹3,00,000 Nil
On next ₹4,00,000 5%
 Computation of Total Income And Tax Liability 42

On next ₹3,00,000 10%

On next ₹2,00,000 15%
On next ₹3,00,000 20%
On Balance amount 30%
Surcharge shall be applicable
@ 10% if total income has exceeded ₹50 lakhs but upto ₹100 lakhs.
@ 15% if total income has exceeded ₹100 lakhs but upto ₹200 lakhs.
@ 25% if total income has exceeded ₹200 lakhs.
Surcharge of 25% shall be applicable only if total income excluding short term capital gain under section
111A and long term capital gain under section 112 and long term capital gain under section 112A and
dividend income, is exceeding ₹ 200 Lakhs

All other provisions shall be similar to individual but rebate under section 87A is not allowed. Tax rates for
LTCG /LTCG 112A/ STCG u/s 111A and casual income are the same for all the persons.
If normal income of resident HUF is less than the exemption limit, the difference of the amount shall be
allowed to be deducted from long term capital gain and if long term capital gains are not sufficient, it will be
allowed to be adjusted from short term capital gains under section 111A or long term capital gains u/s 112A
but it will not be allowed to be adjusted from casual income.
(What is HUF is given in the Hindu Law and it is not covered in the syllabus)
Example
XY HUF has income under the head business/profession ₹20 lakhs and its Karta Mr. X has individual
income ₹12 lakhs, in this case tax liability of HUF and that of Karta shall be
Tax liability of HUF ₹20 lakhs at slab rate 2,90,000
Add: HEC @ 4% 11,600
Tax Liability 3,01,600
Tax Liability of Karta ₹12 lakhs at slab rate 80,000
Add: HEC @ 4% 3,200
Tax Liability 83,200

Question 15: Write a note on Computation of Tax Liability of Body of Individuals/Association of

Persons.
Answer: Tax liability of BOI/AOP
Body of individual means a group of individuals which is neither a company nor a partnership firm. If it is
registered in some other Act, it will be called incorporated BOI. E.g. Trust etc. If such a group includes
persons other than individual also, it will be called AOP.
In general normal income shall be taxable at normal slab rate but rate may change as per provisions of
section 167B. (NOT COVERED IN SYLLABUS)
Surcharge shall be applicable
@ 10% if total income has exceeded ₹50 lakhs but upto ₹100 lakhs.
@ 15% if total income has exceeded ₹100 lakhs but upto ₹200 lakhs.
@ 25% if total income has exceeded ₹200 lakhs.
Surcharge of 25% shall be applicable only if total income excluding short term capital gain under section
111A and long term capital gains under section 112 and long term capital gain under section 112A and
dividend income, is exceeding ₹ 200 Lakhs.
Deductions under section 80C to 80U shall be allowed in the normal manner.

Question 16: Write a note on Computation of Tax Liability of Local Authority.

Answer: Tax liability of local authority
In order to maintain any town or city, there is always some authority responsible and such authority is called
local authority e.g. MCD in Delhi. Such authority is allowed to collect house tax with regard to every type of
house property and also some other tax are collected by such authority. In general income of such authority
is exempt from income tax under section 10(20) but if such authority is doing any business, its income is
 Computation of Total Income And Tax Liability 43

taxable just like a partnership firm. Deductions under section 80C to 80U shall be allowed in the normal
manner.

Question 17: Explain meaning of Person Section 2(31).

Answer: Meaning of Person Section 2(31)
“Person” includes—
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority,
(vii) every artificial juridical person, not covered above and income is taxable as slab rate (juridical means
legal) e.g. ICAI or Delhi University etc.

Question 18 [V. Imp.]: Discuss Partial Integration of Agricultural Income?

Or
Discuss Indirect Taxing of Agricultural Income?
Or
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?
Answer:
Agricultural Income Section 10(1)
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. (As per entry no. 82 of Union List, Central
Government has the power to levy income tax on income except agricultural income and power to levy tax
on agricultural income has been given to the State Government vide entry no. 46 of State List)

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 (₹3,00,000) and agricultural income considering it to be total income.
3. Deduct tax computed under Step 2 from Step 1 and apply surcharge if any and allow rebate if any and
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 ₹5,000, or non-agricultural income is upto the limit not chargeable to tax
(₹3,00,000), partial integration is not applicable.
6. Partial integration is not applicable in case of a partnership firm or a company.

Power to levy taxes

Constitution of India gives the power to levy and collect taxes, whether direct or indirect, to the Central and
State Government. The Parliament and State Legislatures are empowered to make laws on the matters
enumerated in the Seventh Schedule which contains three lists under which the Parliament and the State
Legislatures have the authority to make laws for the purpose of levy of taxes.
 Computation of Total Income And Tax Liability 44

The following are the lists:

(i) Union List: Parliament has the exclusive power to make laws on the matters contained in Union List.
(ii) State List: The Legislatures of any State has the exclusive power to make laws on the matters contained
in the State List.
(iii) Concurrent List: Both Parliament and State Legislatures have the power to make laws on the matters
contained in the Concurrent list.
Income-tax is the most significant direct tax. Entry 82 of the Union List of the Constitution of India has
given the power to the Parliament to make laws on taxes on income other than agricultural income.

Illustration 11:
(i) Mr. X has income under the head House Property ₹7,00,000 and agricultural income ₹3,00,000
(ii) Mr. X has income under the head House Property ₹10,00,000 and agricultural income ₹3,00,000
(iii) Mr. X has income under the head House Property ₹15,00,000 and agricultural income ₹3,00,000
(iv) Mr. X has income under the head House Property ₹2,00,000 and agricultural income ₹5,00,000
(v) Mr. X has income under the head House Property ₹7,00,000 and agricultural income ₹4,000
(vi) Mr. X has LTCG ₹7,00,000 and agricultural income ₹3,00,000
(vii) Mr. X has income under the head House Property ₹8,00,000 and deduction allowed under chapter VI-
A ₹1,00,000 and agricultural income ₹3,00,000
(viii) Mr. X has income under the head House Property ₹101,00,000 and agricultural income ₹6,00,000
Solution:
(i)
Computation of Total Income
Income under the head House Property 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Agricultural Income 3,00,000.00

Computation of Tax Liability

Normal income 7,00,000
Step 1. Tax on (7,00,000 + 3,00,000) at slab rate 50,000.00
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 35,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 10,000.00
Add: HEC @ 4% 400.00
Tax Liability 10,400.00

(ii)
Computation of Total Income
Income under the head House Property 10,00,000.00
Gross Total Income 10,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 10,00,000.00
Agricultural Income 3,00,000.00

Computation of Tax Liability

Normal income 10,00,000
Step 1. Tax on (10,00,000 + 3,00,000) at slab rate 1,00,000.00
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 85,000.00
 Computation of Total Income And Tax Liability 45

Tax before health & education cess 85,000.00

Add: HEC @ 4% 3,400.00
Tax Liability 88,400.00

(iii)
Computation of Total Income
Income under the head House Property 15,00,000.00
Gross Total Income 15,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 15,00,000.00
Agricultural Income 3,00,000.00

Computation of Tax Liability

Normal income 15,00,000
Step 1. Tax on (15,00,000 + 3,00,000) at slab rate 2,30,000.00
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 2,15,000.00
Tax before health & education cess 2,15,000.00
Add: HEC @ 4% 8,600.00
Tax Liability 2,23,600.00

(iv)
Computation of Total Income
Income under the head House Property 2,00,000.00
Gross Total Income 2,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 2,00,000.00
Agricultural Income 5,00,000.00

There will be no partial Integration as normal income is less than the exemption limit and Tax Liability is
Nil.

(v)
Computation of Total Income
Income under the head House Property 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Agricultural Income 4,000.00

In this case, Agricultural income is upto ₹5000/-, thereby, partial integration shall not be applicable.
Computation of Tax Liability
Tax on ₹7,00,000 at slab rate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil

(vi) There will be no partial integration as normal income is Nil

Computation of Total Income
Income under the head Capital Gains 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Agricultural Income 3,00,000.00
 Computation of Total Income And Tax Liability 46

Computation of Tax Liability

Tax on LTCG 4,00,000 (7,00,000 - 3,00,000) @ 12.5% 50,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 25,000.00
Add: HEC @ 4% 1,000.00
Tax Liability 26,000.00

(vii)
Computation of Total Income
Income under the head House Property 8,00,000.00
Gross Total Income 8,00,000.00
Less: Deduction under chapter VI-A (1,00,000.00)
Total Income 7,00,000.00
Agricultural Income 3,00,000.00

Computation of Tax Liability

Normal income 7,00,000
Step 1. Tax on (7,00,000 + 3,00,000) at slab rate 50,000.00
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 35,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 10,000.00
Add: HEC @ 4% 400.00
Tax Liability 10,400.00

(viii)
Computation of Total Income
Income under the head House Property 101,00,000.00
Gross Total Income 101,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 101,00,000.00
Agricultural Income 6,00,000.00
Computation of Tax Liability
Normal income 101,00,000
Step 1. Tax on (101,00,000 + 6,00,000) at slab rate 29,00,000.00
Step 2. Tax on (₹3,00,000 + 6,00,000) at slab rates (40,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 28,60,000.00
Tax before surcharge 28,60,000.00
Add: Surcharge @ 15% 4,29,000.00
Tax before marginal relief 32,89,000.00
Less: Marginal Relief (76,000.00)
Working Note:
Tax + surcharge 15% on income of ₹101,00,000 32,89,000
Tax + surcharge 10% on income of ₹100,00,000 (31,13,000)
Tax on 100,00,000 + 6,00,000 = 28,70,000
Tax on 3,00,000 + 6,00,000 = 40,000
Balance = 28,30,000
Add: Surcharge @ 10% 2,83,000
Total 31,13,000
Increase in tax 1,76,000
Increase in income 1,00,000
Marginal Relief (1,76,000 – 1,00,000) 76,000
 Computation of Total Income And Tax Liability 47

Tax after marginal relief 32,13,000.00

Add: HEC @ 4% 1,28,520.00
Tax Liability 33,41,520.00

Practice Problem 6:
(i) Mr. X has income under the head House Property ₹7,20,000 and agricultural income ₹5,00,000
(ii) Mr. X has income under the head House Property ₹15,00,000 and agricultural income ₹10,00,000
(iii) Mr. X has income under the head House Property ₹3,00,000 and agricultural income ₹5,00,000
(iv) Mr. X has income under the head House Property ₹10,00,000 and agricultural income ₹4,000
(v) Mr. X has LTCG ₹7,00,000 and agricultural income ₹6,00,000
(vi) Mr. X has income under the head House Property ₹9,00,000 and deduction allowed under chapter VI-A
₹1,00,000 and agricultural income ₹3,00,000

Optional Tax Regime

(i) Income shall be taxable at the slab rates given below:
If total Income upto ₹2,50,000 NIL
On next ₹2,50,000 5%
On next ₹5,00,000 20%
On Balance amount 30%
(ii) Senior Citizen (60 and above)
If total income is upto ₹3,00,000 NIL
On next ₹2,00,000 5%
On next ₹5,00,000 20%
On Balance amount 30%
(iii) Very Senior Citizen (80 and above)
If total income is upto ₹5,00,000 NIL
On next ₹5,00,000 20%
On Balance amount 30%

Rebate u/s 87A

Rebate shall be allowed if total income is upto ₹5,00,000 (instead of ₹7,00,000). Maximum amount of rebate
shall be ₹ 12,500 (instead of ₹25,000)
Surcharge
- @ 10% provided total income is exceeding ₹ 50 lakhs but it is upto ₹ 100 lakhs.
- @ 15% provided total income is exceeding ₹ 100 lakhs but it is upto ₹ 200 lakh.
- @ 25% provided total income is exceeding ₹ 200 lakhs but it is upto ₹ 500 lakh.
- @ 37% provided total income is exceeding ₹ 500 Lakhs.
 Computation of Total Income And Tax Liability 48

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1:
(i)
Total income 9,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹2,00,000 @ 10% 20,000
Tax before health and education cess 40,000
Add: health & education cess @ 4% 1,600
Tax Liability 41,600

(ii)
Total income 25,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹10,00,000 @ 30% 3,00,000
Tax before health and education cess 4,40,000
Add: health & education cess @ 4% 17,600
Tax Liability 4,57,600

(iii)
Total income 37,50,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹22,50,000 @ 30% 6,75,000
Tax before health and education cess 8,15,000
Add: health & education cess @ 4% 32,600
Tax Liability 8,47,600

(iv)
Total income 41,32,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹26,32,000 @ 30% 7,89,600
Tax before health and education cess 9,29,600
 Computation of Total Income And Tax Liability 49

Add: health & education cess @ 4% 37,184

Tax Liability 9,66,784
Rounded off u/s 288B 9,66,780

(v)
Total income 50,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹35,00,000 @ 30% 10,50,000
Tax before health and education cess 11,90,000
Add: health & education cess @ 4% 47,600
Tax Liability 12,37,600

(vi)
Total income 36,66,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹21,66,000 @ 30% 6,49,800
Tax before health and education cess 7,89,800
Add: health & education cess @ 4% 31,592
Tax Liability 8,21,392
Rounded off u/s 288B 8,21,390

(vii)
Total income 26,32,300
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹11,32,300 @ 30% 3,39,690
Tax before health and education cess 4,79,690
Add: health & education cess @ 4% 19,187.60
Tax Liability 4,98,877.60
Rounded off u/s 288B 4,98,880.00

(viii)
Total income 21,22,220
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹6,22,220 @ 30% 1,86,666
Tax before health and education cess 3,26,666
Add: health & education cess @ 4% 13,066.64
Tax Liability 3,39,732.64
 Computation of Total Income And Tax Liability 50

Rounded off u/s 288B 3,39,730.00

(ix)
Total income 32,42,405
Rounded off u/s 288A 32,42,410
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹17,42,410 @ 30% 5,22,723
Tax before health and education cess 6,62,723
Add: health & education cess @ 4% 26,508.92
Tax Liability 6,89,231.92
Rounded off u/s 288B 6,89,230.00

(x)
Total income 49,49,495
Rounded off u/s 288A 49,49,500
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹3,00,000 @ 10% 30,000
On next ₹2,00,000 @ 15% 30,000
On next ₹3,00,000 @ 20% 60,000
On balance ₹34,49,500 @ 30% 10,34,850
Tax before health and education cess 11,74,850
Add: health & education cess @ 4% 46,994
Tax Liability 12,21,844
Rounded off u/s 288B 12,21,840

Solution 2:
(i)
Total Income 70,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 17,90,000.00
Tax before surcharge 17,90,000.00
Add: Surcharge @ 10% 1,79,000.00
Tax before HEC 19,69,000.00
Add: HEC @ 4% 78,760.00
Tax Liability 20,47,760.00

(ii)
Total Income 150,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 41,90,000.00
Tax before surcharge 41,90,000.00
Add: Surcharge @ 15% 6,28,500.00
Tax before HEC 48,18,500.00
Add: HEC @ 4% 1,92,740.00
Tax Liability 50,11,240.00
 Computation of Total Income And Tax Liability 51

(iii)
Total Income 200,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 56,90,000.00
Tax before surcharge 56,90,000.00
Add: Surcharge @ 15% 8,53,500.00
Tax before HEC 65,43,500.00
Add: HEC @ 4% 2,61,740.00
Tax Liability 68,05,240.00

(iv)
Total Income 300,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 86,90,000.00
Tax before surcharge 86,90,000.00
Add: Surcharge @ 25% 21,72,500.00
Tax before HEC 108,62,500.00
Add: HEC @ 4% 4,34,500.00
Tax Liability 112,97,000.00

(v)
Total Income 700,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 206,90,000.00
Tax before surcharge 206,90,000.00
Add: Surcharge @ 25% 51,72,500.00
Tax before HEC 258,62,500.00
Add: HEC @ 4% 10,34,500.00
Tax Liability 268,97,000.00

(vi)
Total Income 1000,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 296,90,000.00
Tax before surcharge 296,90,000.00
Add: Surcharge @ 25% 74,22,500.00
Tax before HEC 371,12,500.00
Add: HEC @ 4% 14,84,500.00
Tax Liability 385,97,000.00

(vii)
Total Income 51,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 12,20,000.00
Add: Surcharge @ 10% 1,22,000.00
Tax before marginal relief 13,42,000.00
Less: Marginal Relief (52,000.00)
Working Note:
Tax + surcharge @ 10% on income of ₹51,00,000 13,42,000
Tax on income of ₹50,00,000 (11,90,000)
Increase in tax 1,52,000
Increase in income 1,00,000
Marginal Relief (1,52,000 – 1,00,000) 52,000
 Computation of Total Income And Tax Liability 52

Tax after marginal relief 12,90,000.00

Add: HEC @ 4% 51,600.00
Tax Liability 13,41,600.00

(viii)
Total Income 101,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 27,20,000.00
Add: Surcharge @ 15% 4,08,000.00
Tax before marginal relief 31,28,000.00
Less: Marginal Relief (69,000.00)
Working Note:
Tax + surcharge @ 15% on income of ₹101,00,000 31,28,000
Tax + surcharge @ 10% on income of ₹100,00,000 (29,59,000)
Increase in tax 1,69,000
Increase in income 1,00,000
Marginal Relief (1,69,000 – 1,00,000) 69,000
Tax after marginal relief 30,59,000.00
Add: HEC @ 4% 1,22,360.00
Tax Liability 31,81,360.00

(ix)
Total Income 201,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 57,20,000.00
Add: Surcharge @ 25% 14,30,000.00
Tax before marginal relief 71,50,000.00
Less: Marginal Relief (5,06,500.00)
Working Note:
Tax + surcharge @ 25% on income of ₹201,00,000 71,50,000
Tax + surcharge @ 15% on income of ₹200,00,000 (65,43,500)
Increase in tax 6,06,500
Increase in income 1,00,000
Marginal Relief (6,06,500 – 1,00,000) 5,06,500
Tax after marginal relief 66,43,500.00
Add: HEC @ 4% 2,65,740.00
Tax Liability 69,09,240.00

(x)
Total Income 501,00,000.00
Computation of Tax Liability
Tax on normal income at slab rate 147,20,000.00
Add: Surcharge @ 25% 36,80,000.00
Tax before HEC 184,00,000.00
Add: HEC @ 4% 7,36,000.00
Tax Liability 1,91,36,000.00

Solution 3:
(i)
Total income 6,00,000
On first ₹3,00,000 Nil
On next ₹3,00,000 @ 5% 15,000
Tax before Rebate 15,000
 Computation of Total Income And Tax Liability 53

Less: Rebate u/s 87A (15,000)

Tax Liability Nil

(ii)
Total income 7,00,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
Tax before Rebate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil

(iii)
Total income 7,02,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹2,000 @ 10% 200
Tax before Rebate 20,200
Less: Rebate u/s 87A Nil
Less: Marginal Relief (18,200)
Working Note:
Tax on income of ₹7,02,000 20,200
Tax on income of ₹7,00,000 (Nil)
Increase in tax 20,200
Increase in income 2,000
Marginal Relief (20,200 – 2,000) 18,200
Tax before HEC 2,000
Add: HEC@ 4% 80
Tax Liability 2,080

(iv)
Total income 7,19,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹19,000 @ 10% 1,900
Tax before Rebate 21,900
Less: Rebate u/s 87A Nil
Less: Marginal Relief (2,900)
Working Note:
Tax on income of ₹7,19,000 21,900
Tax on income of ₹7,00,000 (Nil)
Increase in tax 21,900
Increase in income 19,000
Marginal Relief (21,900 – 19,000) 2,900
Tax before HEC 19,000
Add: HEC@ 4% 760
Tax Liability 19,760

(v)
Total income 7,26,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹26,000 @ 10% 2,600
Tax before Rebate 22,600
 Computation of Total Income And Tax Liability 54

Less: Rebate u/s 87A Nil

Tax before HEC 22,600
Add: HEC@ 4% 904
Tax Liability 23,504
Rounded off u/s 288B 23,500

(vi)
Total income 4,00,000
On first ₹3,00,000 Nil
On next ₹1,00,000 @ 5% 5,000
Tax before Rebate 5,000
Less: Rebate u/s 87A (Nil)
Tax before HEC 5,000
Add: HEC @ 4% 200
Tax Liability 5,200

Note: Rebate u/s 87A is not allowed in case of non- resident.

(vii)
Total income 5,00,000
On first ₹3,00,000 Nil
On next ₹2,00,000 @ 5% 10,000
Tax before Rebate 10,000
Less: Rebate u/s 87A (Nil)
Tax before HEC 10,000
Add: HEC @ 4% 400
Tax Liability 10,400

Note: Rebate u/s 87A is not allowed in case of non- resident.

(viii)
Total income 6,90,000
On first ₹3,00,000 Nil
On next ₹3,90,000 @ 5% 19,500
Tax before Rebate 19,500
Less: Rebate u/s 87A (Nil)
Tax before HEC 19,500
Add: HEC @ 4% 780
Tax Liability 20,280

Note: Rebate u/s 87A is not allowed in case of non- resident.

(ix)
Total income 7,10,000
On first ₹3,00,000 Nil
On next ₹4,00,000 @ 5% 20,000
On next ₹10,000 @ 10% 1,000
Tax before Rebate 21,000
Less: Rebate u/s 87A (Nil)
Tax before HEC 21,000
Add: HEC @ 4% 840
Tax Liability 21,840
 Computation of Total Income And Tax Liability 55

Note: Rebate u/s 87A is not allowed in case of non- resident.

(x)
Total income 5,20,000
On first ₹3,00,000 Nil
On next ₹2,20,000 @ 5% 11,000
Tax before Rebate 11,000
Less: Rebate u/s 87A (Nil)
Tax before HEC 11,000
Add: HEC @ 4% 440
Tax Liability 11,440

Note: Rebate u/s 87A is not allowed in case of non- resident.

Solution 4:
(i)
Income under the House Property 1,00,000.00
Income under the Capital Gains (LTCG) 2,00,000.00
Income under the Capital Gains (STCG 111A) 5,00,000.00
Gross Total Income 8,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 8,00,000.00
Computation of Tax Liability
Tax on normal income Nil at slab rate (1,00,000-1,00,000) Nil
Tax on LTCG Nil (2,00,000-2,00,000) @ 12.5% Nil
Tax on STCG 111A 5,00,000 @ 20% 1,00,000.00
Less: Rebate u/s 87A Nil
Tax before health & education cess 1,00,000.00
Add: HEC @ 4% 4,000.00
Tax Liability 1,04,000.00

(ii)
Income under the House Property 50,000.00
Income under the Capital Gains (LTCG) 1,00,000.00
Income under the Capital Gains (STCG 111A) 50,000.00
Income under the Capital Gains (LTCG 112A) 8,00,000.00
Gross Total Income 10,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 10,00,000.00
Computation of Tax Liability
Tax on normal income Nil at slab rate (50,000-50,000) Nil
Tax on LTCG Nil (1,00,000-1,00,000) @ 12.5% Nil
Tax on STCG 111A Nil (50,000-50,000) @ 20% Nil
Tax on LTCG 112A 5,75,000 (8,00,000-1,00,000-1,25,000) @ 12.5% 71,875.00
Less: Rebate u/s 87A Nil
Tax before health & education cess 71,875.00
Add: HEC @ 4% 2,875.00
Tax Liability 74,750.00

(iii)
Income under the House Property 50,000.00
Income under the Capital Gains (LTCG) 1,00,000.00
Income under the Capital Gains (STCG 111A) 50,000.00
 Computation of Total Income And Tax Liability 56

Income under the Capital Gains (LTCG 112A) 5,00,000.00

Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on normal income Nil at slab rate (50,000-50,000) Nil
Tax on LTCG Nil (1,00,000-1,00,000) @ 12.5% Nil
Tax on STCG 111A Nil (50,000-50,000) @ 20% Nil
Tax on LTCG 112A 2,75,000 (5,00,000-1,00,000-1,25,000) @ 12.5% 34,375.00
Less: Rebate u/s 87A Nil
Tax before health & education cess 34,375.00
Add: HEC @ 4% 1,375.00
Tax Liability 35,750.00

(iv)
Income under the House Property 4,00,000.00
Income under the Capital Gains (LTCG) 1,00,000.00
Income under the Capital Gains (STCG 111A) 50,000.00
Income under the Capital Gains (LTCG 112A) 1,00,000.00
Gross Total Income 6,50,000.00
Less: Deduction under chapter VI-A Nil
Total Income 6,50,000.00
Computation of Tax Liability
Tax on normal income at slab rate 5,000
Tax on LTCG 1,00,000 @ 12.5% 12,500
Tax on STCG 111A 50,000 @ 20% 10,000
Tax on LTCG 112A (1,00,000-1,00,000) @ 12.5% Nil
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 2,500.00
Add: HEC @ 4% 100.00
Tax Liability 2,600.00

(v)
Income under the Capital Gains (LTCG) 51,00,000.00
Gross Total Income 51,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 51,00,000.00
Computation of Tax Liability
Tax on LTCG ₹48,00,000 (51,00,000-3,00,000) @ 12.5% 6,00,000.00
Less: Rebate u/s 87A Nil
Tax before surcharge 6,00,000.00
Add: Surcharge @ 10% 60,000.00
Tax before HEC 6,60,000.00
Add: HEC @ 4% 26,400.00
Tax Liability 6,86,400.00

(vi)
Income under the Capital Gains (LTCG 112A) 200,00,000.00
Gross Total Income 200,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 200,00,000.00
Computation of Tax Liability
Tax on LTCG 112A ₹195,75,000 (200,00,000-3,00,000-1,25,000) @ 12.5% 24,46,875.00
 Computation of Total Income And Tax Liability 57

Tax before surcharge 24,46,875.00

Add: Surcharge @ 15% 3,67,031.25
Tax before health & education cess 28,13,906.25
Add: HEC @ 4% 1,12,556.25
Tax Liability 29,26,462.50
Rounded off u/s 288B 29,26,460.00

(vii)
Income under the Capital Gains (STCG 111A) 102,00,000.00
Gross Total Income 102,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 102,00,000.00
Computation of Tax Liability
Tax on STCG 111A ₹99,00,000 (102,00,000-3,00,000) @ 20% 19,80,000.00
Less: Rebate u/s 87A Nil
Tax before surcharge 19,80,000.00
Add: Surcharge @ 15% 2,97,000.00
Tax before Health and education cess 22,77,000.00
Add: HEC @ 4% 91,080.00
Tax Liability 23,68,080.00

Solution 5:
(i) Computation of Tax Liability
Income under the head Business/Profession 70,000
Total Income 70,000
Tax on ₹70,000 @ 30% 21,000
Add: HEC @ 4% 840
Tax Liability 21,840

(ii) Computation of Tax Liability

Income under the head Business/Profession 150,00,000
Total Income 150,00,000
Tax on ₹150,00,000 @ 30% 45,00,000
Add: Surcharge @ 7% 3,15,000
Add: HEC @ 4% 1,92,600
Tax Liability 50,07,600

(iii) Computation of Tax Liability

Income under the head Business/Profession 6,00,000
Total Income 6,00,000
Tax on ₹6,00,000 @ 30% 1,80,000
Add: HEC @ 4% 7,200
Tax Liability 1,87,200

(iv) Computation of Tax Liability

Income under the head Business/Profession 10,30,000
Total Income 10,30,000
Tax on ₹10,30,000 @ 30% 3,09,000
Add: HEC @ 4% 12,360
Tax Liability 3,21,360

(v) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 700,00,000
 Computation of Total Income And Tax Liability 58

Total Income 700,00,000

Tax on ₹700,00,000 @ 12.5% 87,50,000
Add: Surcharge @ 7% 6,12,500
Add: HEC @ 4% 3,74,500
Tax Liability 97,37,000

(vi) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 1,50,000
Total Income 1,50,000
Tax on ₹1,50,000 @ 12.5% 18,750
Add: HEC @ 4% 750
Tax Liability 19,500

(vii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 6,00,000
Total Income 6,00,000
Tax on ₹6,00,000 @ 12.5% 75,000
Add: HEC @ 4% 3,000
Tax Liability 78,000

(viii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 10,30,000
Total Income 10,30,000
Tax on ₹10,30,000 @ 12.5% 1,28,750
Add: HEC @ 4% 5,150
Tax Liability 1,33,900

(ix) Computation of Tax Liability

Income under the head Other Sources (Casual Income) 400,00,000
Total Income 400,00,000
Tax on ₹400,00,000 @ 30% 120,00,000
Add: Surcharge @ 7% 8,40,000
Add: HEC @ 4% 5,13,600
Tax Liability 133,53,600

Solution 5(b): ₹
(i) Computation of Tax Liability
Income under the head Business/Profession 70,000
Total Income 70,000
Tax on ₹70,000 @ 40% 28,000
Add: HEC @ 4% 1,120
Tax Liability 29,120

(ii) Computation of Tax Liability

Income under the head Business/Profession 150,00,000
Total Income 150,00,000
Tax on ₹150,00,000 @ 40% 60,00,000
Add: Surcharge @ 2% 1,20,000
Add: HEC @ 4% 2,44,800
Tax Liability 63,64,800

(iii) Computation of Tax Liability

Income under the head Business/Profession 6,00,000
 Computation of Total Income And Tax Liability 59

Total Income 6,00,000

Tax on ₹6,00,000 @ 40% 2,40,000
Add: HEC @ 4% 9,600
Tax Liability 2,49,600

(iv) Computation of Tax Liability

Income under the head Business/Profession 10,30,000
Total Income 10,30,000
Tax on ₹10,30,000 @ 40% 4,12,000
Add: HEC @ 4% 16,480
Tax Liability 4,28,480

(v) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 700,00,000
Total Income 700,00,000
Tax on ₹700,00,000 @ 12.5% 87,50,000
Add: Surcharge @ 2% 1,75,000
Add: HEC @ 4% 3,57,000
Tax Liability 92,82,000

(vi) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 1,50,000
Total Income 1,50,000
Tax on ₹1,50,000 @ 12.5% 18,750
Add: HEC @ 4% 750
Tax Liability 19,500

(vii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 6,00,000
Total Income 6,00,000
Tax on ₹6,00,000 @ 12.5% 75,000
Add: HEC @ 4% 3,000
Tax Liability 78,000

(viii) Computation of Tax Liability

Income under the head Capital Gains (long term capital gains) 10,30,000
Total Income 10,30,000
Tax on ₹10,30,000 @ 12.5% 1,28,750
Add: HEC @ 4% 5,150
Tax Liability 1,33,900

(ix) Computation of Tax Liability

Income under the head Other Sources (Casual Income) 400,00,000
Total Income 400,00,000
Tax on ₹400,00,000 @ 30% 120,00,000
Add: Surcharge @ 2% 2,40,000
Add: HEC @ 4% 4,89,600
Tax Liability 127,29,600
 Computation of Total Income And Tax Liability 60

Solution 6:
(i)
Computation of Total Income
Income under the head House Property 7,20,000.00
Gross Total Income 7,20,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,20,000.00
Agricultural Income 5,00,000.00
Computation of Tax Liability
Normal income 7,20,000
Step 1. Tax on (7,20,000 + 5,00,000) at slab rate 84,000.00
Step 2. Tax on (₹3,00,000 + 5,00,000) at slab rates (30,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 54,000.00
Less: Marginal Relief 5,000.00
Step 1. Tax on (7,00,000 + 5,00,000) at slab rate 80,000.00
Step 2. Tax on (₹3,00,000 + 5,00,000) at slab rates (30,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 50,000.00
Less: Rebate u/s 87A (25,000.00)
Balance amount of Tax 25,000.00
Increase in Tax 50,000 – 25,000 = 25,000
Increase in income 20,000
Marginal Relief 5,000
Tax before health & education cess 49,000.00
Add: HEC @ 4% 1,960.00
Tax Liability 50,960.00

(ii)
Computation of Total Income
Income under the head House Property 15,00,000.00
Gross Total Income 15,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 15,00,000.00
Agricultural Income 10,00,000.00
Computation of Tax Liability
Normal income 15,00,000
Step 1. Tax on (15,00,000 + 10,00,000) at slab rate 4,40,000.00
Step 2. Tax on (₹3,00,000 + 10,00,000) at slab rates (1,00,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 3,40,000.00
Less: Rebate u/s 87A (Nil)
Tax before health & education cess 3,40,000.00
Add: HEC @ 4% 13,600.00
Tax Liability 3,53,600.00

(iii)
Computation of Total Income
Income under the head House Property 3,00,000.00
Gross Total Income 3,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 3,00,000.00
Agricultural Income 5,00,000.00
There will be no partial Integration as normal income is upto the exemption limit and Tax Liability is Nil.
 Computation of Total Income And Tax Liability 61

(iv)
Computation of Total Income
Income under the head House Property 10,00,000.00
Gross Total Income 10,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 10,00,000.00
Agricultural Income 4,000.00
In this case, Agricultural income is upto ₹5000/-, thereby, partial integration shall not be applicable.
Computation of Tax Liability
Tax on normal income at slab rate 50,000.00
Tax before health & education cess 50,000.00
Add: HEC @ 4% 2,000.00
Tax Liability 52,000.00

(v) There will be no partial integration as normal income is Nil

Computation of Total Income
Income under the head Capital Gains 7,00,000.00
Gross Total Income 7,00,000.00
Less: Deduction under chapter VI-A Nil
Total Income 7,00,000.00
Agricultural Income 6,00,000.00
Computation of Tax Liability
Tax on LTCG 4,00,000 (7,00,000 - 3,00,000) @ 12.5% 50,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 25,000.00
Add: HEC @ 4% 1,000.00
Tax Liability 26,000.00

(vi)
Computation of Total Income
Income under the head House Property 9,00,000.00
Gross Total Income 9,00,000.00
Less: Deduction under chapter VI-A (1,00,000.00)
Total Income 8,00,000.00
Agricultural Income 3,00,000.00
Computation of Tax Liability
Normal income 8,00,000
Step 1. Tax on (8,00,000 + 3,00,000) at slab rate 65,000.00
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 50,000.00
Less: Rebate u/s 87A (Nil)
Tax before health & education cess 50,000.00
Add: HEC @ 4% 2000.00
Tax Liability 52,000.00
 Computation of Total Income And Tax Liability 62

EXAMINATION QUESTIONS
MAY – 2019
Question 5 (a) (3 Marks)
Miss Himanshi (68 years) is a resident individual. During the assessment year 2025-26, she has income from
Long-term capital gain on transfer of equity shares ₹3,80,000 (Securities transaction has been paid on
acquisition and transfer of the said shares) and income from Other sources ₹ 2,75,000.
Compute her tax liability for Assessment year 2025-26.
Solution:
Computation of Total Income ₹
Long term capital gains u/s 112A 3,80,000
Income from other sources 2,75,000
Gross Total Income 6,55,000
Less: Deduction under chapter VI-A Nil
Total Income 6,55,000

Computation of Tax Liability

Tax on Long term capital gains 2,30,000 (3,80,000-1,25,000-25,000) @ 12.5% u/s 112A 28,750
Tax on normal income Nil (2,75,000-2,75,000) Nil
Tax before health & education cess 28,750
Add: HEC @ 4% 1,150
Tax Liability 29,900

Note: No rebate u/s 87A from tax on LTCG 112A

 Taxability of Gift 63

TAXABILITY OF GIFT
SECTION 56
TAXABILITY OF GIFT
SECTION 56(2)(x)
Question 1: Explain taxability of gift.
Answer:
Gift received by any person shall be taxable and the gifts shall be divided into 3 parts.
1. Gift of sum of money
2. Gift of any property other than immovable property
3. Gift of immovable property
Taxability is as given below:
1. Gift of sum of money
If any person has received any sum of money from one or more persons without consideration and the
aggregate value of all such gifts received during the year exceeds fifty thousand rupees, the whole of the
aggregate value of such sum shall be taxable under the head Other Sources but if the aggregate value is upto
₹50,000, entire amount shall be exempt from income tax. E.g. Mr. X has received 3 gifts of ₹15,000 each
from his 3 friends, entire amount of ₹45,000 is exempt from income tax but if he has received 3 gifts of
₹20,000 each, entire amount of ₹60,000 shall be taxable. Further it will be considered to be normal income.
2. Gift of any property other than immovable property
If any person has received gift of any property other than immovable property without consideration and the
aggregate fair market value of such properties received during a particular year exceeds ₹50,000, it will be
taxable under the head Other Sources but if aggregate value of all such properties is upto ₹50,000, it will be
exempt from income tax.
If the consideration is less than the aggregate fair market value of such properties by an amount exceeding
₹50,000, aggregate fair market value as exceeds such consideration shall be taxable under the head Other
Sources. Further it will be considered to be normal income.
3. Gift of immovable property
If any person has received any immovable property without consideration, it will be exempt if stamp duty
value is upto ₹50,000 but if the stamp duty value exceeds fifty thousand rupees, entire stamp duty value
shall be taxable under the head Other Sources. Value of individual immovable property shall be taken into
consideration instead of aggregate value of all such properties.
(If any person is selling immovable property, its Conveyance Deed shall be prepared in the office of
Registrar and some tax has to be paid to the State Government for transferring the property and it is called
stamp duty and the value on which such duty is charged is called stamp duty value (also called circle rate).
A person may not disclose the right value hence the value is determined by State Government.)
If immovable property has been received for a consideration which is less than the stamp duty value of the
property by an amount exceeding fifty thousand rupees and also stamp duty value is exceeding by more than
10% of the actual consideration, in such cases taxable amount shall be the stamp duty value of such
property as exceeds such consideration.

Example
(i) Mr. X purchased immovable property for ₹3,00,000 but stamp duty value is ₹5,00,000, taxable amount
shall be ₹2,00,000
(ii) Mr. X has sold immovable property to Mr. Y for ₹100,00,000 but stamp duty value is ₹110,00,000, in
this taxable amount shall be Nil because stamp duty value is not exceeding the actual consideration by more
 Taxability of Gift 64

than 10% but if stamp duty value is ₹ 111,00,000, taxable amount shall be ₹ 11,00,000 because stamp duty
is exceeding by more than 10% of actual consideration.
If the date of the agreement fixing the amount of consideration for the transfer of immovable property and
the date of registration are not the same and in such cases, the stamp duty value on the date of the agreement
shall be taken into consideration but part of consideration should have been paid by account payee cheque,
an account payee bank draft or by use of electronic clearing system through a bank account or through such
other electronic modes as may be prescribed. (Other electronic mode means Credit Card, Debit Card, Net
Banking, IMPS (Immediate Payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross
Settlement), NEFT (National Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhaar
Pay) on or before the date of agreement. E.g. Mr. X has entered into agreement with a builder ABC Limited
on 01.07.2016 for purchase of one building for ₹20,00,000 but stamp duty value was ₹27,00,000 and
advance of ₹3,00,000 was given by account payee cheque but property was transferred in his name on
01.07.2024 and on that date stamp duty value was ₹35,00,000, in this case amount of gift shall be ₹7,00,000
(27,00,000 – 20,00,000). (Difference amount is more than ₹50,000 and more than 10% of the consideration).
Similarly, it will also be considered to be normal income.
The gift is exempt in the following cases
(a) If any individual has received any gift from any of his relative, it will be exempt from income tax. The
term relative shall include
(a) spouse of the individual;
(b) brother or sister of the individual;
(c) brother or sister of the spouse of the individual;
(d) brother or sister of either of the parents of the individual;
(e) any lineal ascendant or descendant of the individual; (ascendant means mother/ father/ grand mother /
grand father and so on: Descendant means son / daughter / grand son / grand daughter etc.
(f) any lineal ascendant or descendant of the spouse of the individual;
(g) spouse of the person referred to in items (b) to (f)
Whether mother’s parents shall be included in lineal ascended is a question of law.
(b) If any individual has received any gift from any person of any amount on the occasion of his/her
marriage. If gift is received by the parents of such individual, in that case it will be taxable. If any individual
has received gift on the occasion of anniversary, it will be taxable.
(c) If any person has received any gift under a will/ inheritance, it will be exempt from income tax.
(d) in contemplation of death of the payer or donor (Contemplation of Death means the apprehension of an
individual that his life will end in the immediate future by a particular illness etc.)
(e) from any local authority or charitable hospital or charitable educational institution or charitable trust or
other similar organisation.
(f) Payment received for treatment of COVID-19
If any individual has received any amount from any person for treatment of illness related to COVID-19, it
will be exempt from income tax. Payment may be received even for the treatment of family member of such
individual. The individual must have a record of the COVID-19 positive report and should also mention all
necessary documents of treatment of the disease upto a period of 6 months from the date of declaring
COVID-19 positive.
The details of the amount so received in any financial year has to be furnished in the prescribed form to the
Income-tax Department within 9 months from the end of such financial year or 31.12.2022, whichever is
later.
(g) Payment in connection with death from COVID-19
If a member of the family of a deceased person has received,—
(A) from the employer of the deceased person (any amount); or
(B) from any other person or persons to the extent that such sum or aggregate of such sums does not exceed
ten lakh rupees,
where the cause of death of such person is illness related to COVID-19, it will be exempt from income tax
but the payment is received within twelve months from the date of death of such person; and death should be
 Taxability of Gift 65

within 6 months from the date of testing positive. The person should mention detail of COVID positive
report and also he should retain death certificate in which it is mentioned reason of death is COVID-19.
The details of the amount so received in any financial year has to be furnished in the prescribed form to the
Income-tax Department within 9 months from the end of such financial year or 31.12.2022, whichever is
later.

Question 2: Explain meaning of property.

Answer:
"PROPERTY" means the following capital asset of the assessee, namely:—
(i) immovable property being land or building or both;
(ii) shares and securities;
(iii) jewellery;
(iv) archaeological collections (relating to past/ ancient)
(v) drawings (a picture or diagram made with a pencil, pen, or crayon without paint.)
(vi) paintings;
(vii) sculptures;
(viii) any work of art; or
(ix) bullion (Gold and silver in the form of biscuits / bricks / bars)
If any person has received gift of any other property, it will not be taxable e.g. motor car or plant and
machinery or a watch or a mobile phone etc.
E.g. Mr. X received a mobile phone valued ₹70,000 from his friend, in this case, it will be exempt from
income tax.

Question 3: Write a note on Taxability of gift received by HUF from its members.
Answer:
If any Hindu undivided family has received any gift from any of its members, it will be exempt from
income tax. E.g. One HUF has received cash gift of ₹10,00,000 from one of its members, it will be exempt
from income tax.
If HUF has given gift to its member, it will be taxable.

Question 4: Write a note on Taxability of stock-in-trade.

Answer:
If any person has received any asset as stock-in-trade, it will not be taxable as gift e.g. Mr. X is a dealer in
gold and he has purchased gold for ₹20 lakhs but market value is ₹ 27 lakhs, in this case it will not be
taxable as gift (because cost will be shown in the books as ₹20 lakhs and entire profit on sale shall be
taxable under the head business/profession.)

Illustration 1: Mr. X, a dealer in shares, received the following without consideration during the P.Y.2024-
25 from his friend Mr. Y, -
(1) Cash gift of ₹ 75,000 on his anniversary, 15th April, 2024.
(2) Bullion, the fair market value of which was ₹ 60,000, on his birthday, 19th June, 2024.
(3) A plot of land at Faridabad on 1st July, 2024, the stamp value of which is ₹ 5 lakh on that date. Mr. Y had
purchased the land in April, 2015.
Mr. X purchased from his friend Z, who is also a dealer in shares, 1000 shares of X Ltd. @ ₹ 400 each
on 19th June, 2024, the fair market value of which was ₹ 600 each on that date.
(4) Mr. X sold these shares in the course of his business on 23rd June, 2024.
(5) On 1st November, 2024, Mr. X took possession of property (building) booked by him two years back at ₹
20 lakh. The stamp duty value of the property as on 1st November, 2024 was ₹ 32 lakh and on the date of
booking was ₹ 23 lakh. He had paid ₹ 1 lakh by account payee cheque as down payment on the date of
booking.
Compute the income of Mr. X chargeable under the head “Income from other sources” for A.Y.2025-26.
 Taxability of Gift 66

Solution:
Particulars ₹
(1) Cash gift is taxable 75,000
(2) Since bullion is included in the definition of property, it is taxable. 60,000
(3) Stamp duty value of plot of land at Faridabad is taxable. 5,00,000
(4) Difference of ₹ 2 lakh in the value of shares of X Ltd. purchased from Mr. Z, a dealer in -
shares, is not taxable as it represents the stock-in-trade of Mr. X. Since Mr. X is a dealer in
shares and it has been mentioned that the shares were subsequently sold in the course of
his business, such shares represent the stock-in-trade of Mr. X.
(5) Difference between the stamp duty value of ₹23 lakh on the date of booking and the actual 3,00,000
consideration of ₹20 lakh paid is taxable. (Difference amount is more than ₹50,000 and
more than 10% of the consideration)
Income from Other Sources 9,35,000
Illustration 2: Discuss the taxability or otherwise of the following in the hands of the recipient under
section 56(2)(x) the Income-tax Act, 1961 -
(i) X HUF received ₹ 75,000 in cash from niece of Mr. X (i.e., daughter of Mr. X’s sister). Mr. X is the
Karta of the HUF.
(ii) Miss. X, a member of her father’s HUF, transferred a house property to the HUF without consideration.
The stamp duty value of the house property is ₹ 9,00,000.
(iii) Mr. X received 100 shares of A Ltd. from his friend as a gift on occasion of his 25th marriage
anniversary. The fair market value on that date was ₹ 100 per share. He also received jewellery worth
₹45,000 (FMV) from his nephew on the same day.
(iv) X HUF gifted a car to son of Karta for achieving good marks in XII board examination. The fair market
value of the car is ₹ 5,25,000.
Solution:
Taxable/ Amount Reason
Non-taxable liable to
tax (₹)
(i) Taxable 75,000 Sum of money exceeding ₹50,000 received without consideration from a
non-relative is taxable under section 56(2)(x). Daughter of Mr. X’s sister
is not a relative of X HUF, since she is not a member of X HUF.
(ii) Non-taxable Nil Immovable property received without consideration by a HUF from its
relative is not taxable under section 56(2)(x). Since Miss. X is a member
of the HUF, she is a relative of the HUF.
(iii) Taxable 55,000 As per provisions of section 56(2)(x), in case the aggregate fair market
value of property, other than immovable property, received without
consideration exceeds ₹50,000, the whole of the aggregate value shall be
taxable. In this case, the aggregate fair market value of shares (₹10,000)
and jewellery (₹45,000) exceeds ₹50,000. Hence, the entire amount of
₹55,000 shall be taxable.
(iv) Non-taxable Nil Car is not included in the definition of property for the purpose of section
56(2)(x), therefore, the same shall not be taxable.
Illustration 3: Discuss taxability in the following cases:
(i) Mr. X has received three gifts from his three friends
(a) ₹55,000 in cash
(b) Land with market value ₹5,00,000 but the value for the purpose of charging stamp duty ₹4,00,000.
(c) Jewellery with market value ₹3,00,000
In this case, taxable amount shall be 55,000 + 4,00,000 + 3,00,000 = 7,55,000
(ii) Mr. X has received gift of ₹50,000 in cash from his friend, in this case it will not be considered to be
his income.
(iii) Mr. X has received gift of ₹1,50,000 in cash from his brother, in this case it will not be considered to
be his income.
 Taxability of Gift 67

(iv) Mr. X has received gift of ₹1,50,000 in cash from his mother’s sister, in this case it will not be
considered to be his income.
(v) Mr. X has received gift of ₹1,50,000 in cash from his father’s brother, in this case it will not be
considered to be his income.
(vi) Mr. X has received gift of ₹1,50,000 in cash from his cousin, in this case it will be chargeable to tax.
(vii) Mr. X has received gift of ₹1,50,000 in cash from brother of his spouse, in this case it will not be
considered to be his income.
(viii) Mr. X has received gift of ₹1,50,000 in cash from his grand father, in this case it will not be
considered to be his income.
(ix) Mr. X has received gift of ₹1,50,000 in cash from spouse of his brother, in this case it will not be
considered to be his income.
(x) Mr. X has received gift of ₹1,50,000 in cash from husband of his sister, in this case it will not be
considered to be his income.
(xi) Mr. X has received gift of ₹1,50,000 in cash from sister of his brother’s wife, in this case it will be
considered to be his income.
(xii) Mr. X has received gift of ₹1,50,000 in cash from the sister of his spouse, in this case it will not be
considered to be his income.
(xiii) Mr. X has received gift of ₹5,000 in cash on his birthday from each of his eleven friends, in this case
it will be considered to be his income because the total amount is exceeding ₹50,000.
(xiv) Mr. X has received gift of property valued ₹1,50,000 from his friend, in this case it will be
considered to be his income.
(xv) Mr. X has received gift of ₹1,50,000 in cash from his friend on the occasion of his marriage, in this
case it will not be considered to be his income.
(xvi) Mr. X has received gift of ₹75,000 in cash and property ₹75,000 from his fiancee, in this case gift in
cash will be considered to be his income and the gift as property shall also be considered to be his
income.
Question 5: Explain taxability of gift received from employer.
Answer: Gifts to the Employees Section 17(2)(viii) Rule 3(7)(iv)
Gift given by the employer in kind upto ₹5,000 in aggregate during a particular year is exempt and excess
over it is taxable. If the employer has given any voucher or token in lieu of which such gift may be received,
it will also be exempt in the similar manner.
Gifts in cash or gifts convertible into cash i.e. gift cheques etc. shall be fully chargeable to tax.
E.g. Mr. X is employed in ABC Ltd. and he has received a cash gift of ₹11,000 from his employer, in this
case taxable amount shall be ₹11,000 and it will be income under the head Salary and shall be taxable at the
normal rate but if Mr. X has received one wrist watch of ₹11,000 from his employer, taxable amount shall
be ₹6,000.
Question 6: Explain Taxability of gift received in connection with business/profession.
Answer: Gifts or Perquisites from Clients Section 28
The value of any benefit or perquisite, whether convertible into money or not, arising from business or the
exercise of a profession, shall be taxable under the head business profession.
If any person has received any gift or perquisite or benefit either in cash or in kind from any of his clients, it
will be considered to be business receipt and shall be taken into consideration while computing income
under the head business/profession.
Example: A Doctor has received a gift of ₹ 40,000 from one of his clients, in this case it will be considered
to be income under the head business/profession.
Question 7: Explain taxability of scholarship/ award / reward.
Answer: Scholarship Section 10(16)
Any scholarship received by a person for meeting the cost of education shall be exempt from income tax.
Award/ Reward Section 10(17A)
Any award or reward whether in cash or in kind instituted by the Central Government or the State
Government shall be exempt from income tax. Similarly any private award or reward shall be exempt from
income tax if approved by the Central Government.
 Taxability of Gift 68

MULTIPLE CHOICE QUESTIONS

1. Gift of sum of money is exempt if
(a) aggregate value during particular year is less ₹50,000
(b) aggregate value during particular year is upto ₹50,000
(c) if value of individual gift is upto ₹50,000
(d) aggregate value during particular year is less ₹1,00,000
2. In case of gift of immovable property, value to be taken into consideration shall be
(a) market value of individual property
(b) market value of all the properties
(c) stamp duty value of individual property
(d) stamp duty value of all the properties
3. For the purpose of gift, the term relative shall include
(a) grand father of individual
(b) bother’s son of individual
(c) brother of father of spouse
(d) all the above
4. Property for the purpose of gift shall include
(a) shares and securities
(b) jewellery
(c) mobile phone
(d) work of art
(e) (a), (b) and (d)
5. Which of the statement is correct
(a) gift received by an employee is exempt upto ₹10,000
(b) cash gift received by an employee upto ₹5,000 is exempt
(c) gift in kind received by an employee upto ₹5,000 is exempt
(d) gift in kind received by an employee upto ₹50,000 is exempt
6. Which of the statement is correct
(a) scholarship received by any person is exempt u/s 10(17A)
(b) award or reward of central government is taxable u/s 28
(c) gift received by a professional from his client is taxable as per section 28
(d) gift received by an employee exceeding ₹5,000 is taxable u/h other sources
7. which of the statement is false
(a) gift received by HUF from its member is exempt
(b) gift received from sister of spouse is exempt
(c) gift of motor car received from a friend is exempt
(d) cash gift upto ₹5,000 received from employer is exempt
8. The term relative do not include
(a) lineal ascendant or descendant of individual
(b) lineal ascendant or descendant of spouse of individual
(c) lineal ascendant or descendant of brother of individual
(d) none of the above
9. If any person has purchased immovable property for ₹20 lakh but stamp duty value is ₹23 lakhs, in
this case taxable amount of gift shall be
(a) 3 lakh
(b) 1 lakh
(c) Nil
(d) 23 lakh
10. Which of the following gift is taxable
(a) Mr. X received cash gift ₹51,000 from his friend
(b) Mr. Y received cash gift ₹51,000 from his fiancée
 Taxability of Gift 69

(c) Mr. Z received cash gift ₹51,000 from his friend’s father
(d) all the above
(e) none of the above
11. Mr. Kashyap has acquired a building from his friend on 10.10.2024 for ₹15,00,000. The stamp
duty value of the building on the date of purchase is ₹15,70,000. Income chargeable to tax in the hands
of Mr. Kashyap is
(a) ₹ 70,000
(b) ₹ 50,000
(c) Nil
(d) ₹ 20,000
12. Ganesh received ₹60,000 from his friend on the occasion of his birthday
(a) The entire amount of ₹60,000 is taxable
(b) ₹50,000 is taxable
(c) The entire amount is exempt
(d) ₹10,000 is taxable
13. Mr. Y has received a sum of ₹51,000 on 24.10.2024 from relatives on the occasion of his marriage.
(a) Entire ₹51,000 is chargeable to tax.
(b) Only ₹ 1,000 is chargeable to tax
(c) Entire ₹ 51,000 is exempt from tax
(d) Only 50% i.e., ₹ 25,500 is chargeable to tax
14. Mr. Mayank has received a sum of ₹ 75,000 on 24.10.2024 from his friend on the occasion of his
marriage anniversary.
(a) Entire ₹ 75,000 is chargeable to tax.
(b) Entire ₹75,000 is exempt from tax
(c) Only ₹ 25,000 is chargeable to tax
(d) Only 50% i.e., ₹ 37,500 is chargeable to tax
15. Ashok took possession of property on 31st August 2024 booked by him three years back at ₹25
lakhs, The Stamp Duty Value (SDV) of the property as on 31st August 2024 was ₹31 lakh and on date
of booking it was ₹29 lakh. He had paid ₹2 lakh by A/c payee cheque as down payment on date of
booking. Which of the following will be considered as income, if any, and in which previous year
(a) ₹4 lakhs in P.Y. 2024-25
(b) ₹4 lakhs in P.Y. 2021-22
(c) ₹6 lakhs in P.Y. 2024-25
(d) No income shall be taxable, since down payment was paid by A/c payee cheque while booking the
property
16. Mr. Kishore celebrated his 50th marriage anniversary. On this occasion, his wife received a
diamond necklace worth ₹5,00,000 from Kishore's brother. Kishore's son gifted him a luxurious car
worth ₹15,00,000, His grandchildren gifted them a new furniture set worth ₹3,00,000. Also, he
received cash gifts from his friends amounting collectively to ₹80,000. Which of them the following
statements stand true on taxability.
(a) Neither Mr. Kishore nor Mrs. Kishore will be liable for tax for any gifts since they have been received on
occasion of marriage anniversary
(b) Mr. Kishore & Mrs. Kishore will jointly share the tax liability on all the gifts
(c) Mrs. Kishore will be liable to pay tax on diamond set and Mr. Kishore will bear tax for the cash gifts
received
(d) Mr. Kishore will be liable for tax on cash gifts only.
17. Sujata, aged 16 years, received scholarship of ₹50,000 during the previous year 2024-25. Which of
the following statements are true regarding taxability of such income:
(a) Such income shall be assessed in hands of Sujata
(b) Such income to be included with the income of parent whose income before such clubbing is higher
(c) Such income is completely exempt from tax
(d) Such income to be clubbed with father's income
 Taxability of Gift 70

18. Mr. X received cash gift ₹ 51,000 and gift of jewelry valued ₹ 49,000, in this case taxable amount
shall be
(a) ₹ 51,000
(b) ₹ 49,000
(c) ₹ 1,00,000
(d) Nil
(e) none of these
19. Mr. X received cash gift ₹ 40,000, gift of land stamp duty value ₹ 40,000 and gift of building stamp
duty value ₹ 40,000, in this case taxable amount shall be
(a) ₹ 40,000
(b) ₹ 80,000
(c) ₹ 1,20,000
(d) Nil
(e) none of these
20. Mr. X purchased one house property for ₹ 3,00,000 market value ₹ 7,00,000 stamp duty value ₹
3,40,000, in this case taxable amount shall be
(a) ₹ 4,00,000
(b) ₹ 40,000
(c) Nil
(d) ₹ 3,40,000
(e) none of these

Answer:
1. (b); 2. (c); 3. (a); 4. (e); 5. (c); 6. (c); 7. (d); 8. (c); 9. (a); 10. (d); 11.(c); 12.(a);13.(c); 14. (a) 15. (a) ; 16.
(d) ; 17. (c); 18. (a); 19. (d); 20. (c)
 Taxability of Gift 71

PRACTICE PROBLEMS
TOTAL PROBLEMS 5
Problem 1.
Discuss taxability in the following cases:
(i) Mr. X has received gift of ₹ 50,000 in cash from his friend.
(ii) Mr. X has received gift of ₹ 2,50,000 in cash from his brother.
(iii) Mr. X has received gift of ₹ 2,50,000 in cash from his mother’s sister.
(iv) Mr. X has received gift of ₹ 2,50,000 in cash from his father’s brother.
(v) Mr. X has received gift of ₹ 2,50,000 in cash from his cousin.
(vi) Mr. X has received gift of ₹ 2,50,000 in cash from brother of his spouse.
(vii) Mr. X has received gift of ₹ 2,50,000 in cash from his grand father.
(viii) Mr. X has received gift of ₹ 2,50,000 in cash from spouse of his brother.
(ix) Mr. X has received gift of ₹ 2,50,000 in cash from husband of his sister.
(x) Mr. X has received gift of ₹ 2,50,000 in cash from sister of his brother’s wife.
(xi) Mr. X has received gift of ₹ 2,50,000 in cash from the sister of his spouse.
(xii) Mr. X has received gift of ₹6,000 in cash on his birthday from each of his eleven friends.
(xiii) Mr. X has received gift of ₹ 2,50,000 as property from his friend.
(xiv) Mr. X has received gift of ₹2,50,000 in cash from his friend on the occasion of his marriage.
(xv) Mr. X has received gift of ₹1,00,000 in cash and ₹1,00,000 as property from his fiancée.

Problem 2.
Mr. X submits the particulars for the previous year 2024-25 as given below:
1. He has received a gift of ₹27,000 from one of his friend on 01.09.2024.
2. He has received a gift of ₹11,000 on 01.10.2024 from his wife Mrs. X.
3. He has received a gift of ₹29,000 from his step daughter on 01.01.2025.
4. He has received a gift of ₹27,000 from grand mother of Mrs. X on 07.01.2025.
5. He has received a gift of ₹95,000 in kind from his employer on 01.03.2025.
6. He has received gold as gift from his friend on 01.12.2024 with value ₹2,00,000.
7. He has received ₹27,000 as gift from his maternal aunt (mother’s sister) on 10.12.2024.
8. He has received two gifts of ₹30,000 each from his neighbours on 01.06.2024.
Compute his tax liability for assessment year 2025-26.
Answer = Tax Liability: Nil

Problem 3.
Mr. X received gift in cash ₹5,00,000 from son of his father’s brother and gift of ₹1,00,000 in cash from
brother of father of Mrs. X. He has agricultural income ₹5,00,000.
Compute his tax liability for Assessment Year 2025-26.
Answer = Tax Liability: ₹10,400

Problem 4.
Mr. X received jewellery valued ₹8,00,000 from brother of his grand father and his agricultural income is
₹1,00,000.
Compute his income and tax liability for Assessment Year 2025-26.
Answer = Total Income: ₹8,00,000; Tax Liability: ₹36,400

Problem 5.
Following gifts are received by Mrs. X, who is carrying on jewellery business, during the previous year
2024-25:
(i) On the occasion of her marriage on 07.09.2024, she has received ₹1,20,000 as gift out of which ₹85,000
are from relatives and balance from friends.
(ii) On 03.10.2024, she has received cash gift of ₹2,50,000 from cousin of her mother.
(iii) A mobile phone worth ₹15,000 is gifted by her friend on 21.09.2024.
(iv) She gets a cash gift of ₹2,40,000 from the elder brother of her husband's grandfather on 10.12.2024.
 Taxability of Gift 72

(v) She has received a cash gift of ₹6,00,000 from her friend on 27.01.2025.
(vi) She has received bullion, the fair market value of which was ₹4,75,000 on her birthday,19.01.2025.
Mrs. X purchased from her friend, who is also carrying jewellery business, jewellery at ₹ 2,50,000 on
25.01.2025, the fair market value of which was ₹5,00,000 on that date.
Compute total income and tax liability of Mrs. X for A.Y.2025-26.
Answer = Total Income: ₹15,65,000; Tax Liability: ₹1,65,880
 Taxability of Gift 73

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1:
(i) Mr. X has received gift of ₹50,000 in cash from his friend, in this case it will not be considered to be his
income.
(ii) Mr. X has received gift of ₹2,50,000 in cash from his brother, in this case it will not be considered to be
his income.
(iii) Mr. X has received gift of ₹ 2,50,000 in cash from his mother’s sister, in this case it will not be
considered to be his income.
(iv) Mr. X has received gift of ₹2,50,000 in cash from his father’s brother, in this case it will not be
considered to be his income.
(v) Mr. X has received gift of ₹2,50,000 in cash from his cousin, in this case it will be chargeable to tax.
(vi) Mr. X has received gift of ₹2,50,000 in cash from brother of his spouse, in this case it will not be
considered to be his income.
(vii) Mr. X has received gift of ₹2,50,000 in cash from his grand father, in this case it will not be considered
to be his income.
(viii) Mr. X has received gift of ₹2,50,000 in cash from spouse of his brother, in this case it will not be
considered to be his income.
(ix) Mr. X has received gift of ₹2,50,000 in cash from husband of his sister, in this case it will not be
considered to be his income.
(x) Mr. X has received gift of ₹2,50,000 in cash from sister of his brother’s wife, in this case it will be
considered to be his income.
(xi) Mr. X has received gift of ₹2,50,000 in cash from the sister of his spouse, in this case it will not be
considered to be his income.
(xii) Mr. X has received gift of ₹6,000 in cash on his birthday from each of his eleven friends, in this case it
will be considered to be his income because the total amount is exceeding ₹50,000.
(xiii) Mr. X has received gift of ₹2,50,000 in kind from his friend, in this case it will be considered to be his
income.
(xiv) Mr. X has received gift of ₹2,50,000 in cash from his friend on the occasion of his marriage, in this
case it will not be considered to be his income.
(xv) Mr. X has received gift of ₹1,00,000 in cash and ₹1,00,000 as property from his fiancee, in this case
gift in cash will be considered to be his income and the gift in kind shall also be considered to be his income.

Solution 2: ₹
Computation of income under the head Salary
Gift in kind from his employer (95,000 – 5,000) 90,000.00
Less: Standard deduction u/s 16(ia) (75,000.00)
Income under the head Salary 15,000.00
Computation of income under the head Other Sources
Gift received from friend 27,000.00
Gifts received from neighbours 60,000.00
Gift received from friend in kind 2,00,000.00
Income under the head Other Sources 2,87,000.00
Gross Total Income 3,02,000.00
Less: Deduction under chapter VI-A Nil
Total Income 3,02,000.00
 Taxability of Gift 74

Computation of Tax Liability

Tax on ₹3,02,000 at slab rate 100.00
Less: Rebate u/s 87A (100.00)
Tax before health & education cess Nil
Add: HEC @ 4% Nil
Tax Liability Nil

Solution 3: ₹
Computation of income under the head Other Sources
Gift received from son of his father’s brother 5,00,000
Gift received from bother of father’s of Mrs. X 1,00,000
Income under the head Other Sources 6,00,000
Gross Total Income 6,00,000
Less: Deduction under chapter VI-A Nil
Total Income 6,00,000
Agricultural Income 5,00,000
Computation of Tax Liability
Step 1. Tax on (6,00,000 + 5,00,000) at slab rates 65,000
Step 2. Tax on (₹3,00,000 + 5,00,000) at slab rates (30,000)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 35,000
Tax before Rebate 35,000
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 10,000
Add: HEC @ 4% 400
Tax Liability 10,400

Solution 4: ₹
Computation of income under the head Other Sources
Gift in kind from brother of his grand father 8,00,000
Income under the head Other Sources 8,00,000
Gross Total Income 8,00,000
Less: Deduction under chapter VI-A Nil
Total Income 8,00,000
Agricultural Income 1,00,000
Computation of Tax Liability
Step 1. Tax on (8,00,000 + 1,00,000) at slab rates 40,000
Step 2. Tax on (₹3,00,000 + 1,00,000) at slab rates (5,000)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 35,000
Tax before health & education cess 35,000
Add: HEC @ 4% 1,400
Tax Liability 36,400

Solution 5:
Computation of Total Income of Mrs. X for the A.Y. 2025-26 ₹
Gift received on the occasion of marriage are exempt --
Cash gift received from cousin of Mrs. X’s mother is taxable under section 56(2)(x) 2,50,000
(Cousin of Mrs. X’s mother is not a relative)
Mobile phone gifted by her friend is not taxable since it is not included in the definition
of “property” under section 56(2)(x) --
Cash gift received from elder brother of husband’s grandfather is taxable 2,40,000
(Brother of husband’s grandfather is not a relative)
Cash gift from friend is taxable 6,00,000
Since bullion is included in the definition of property, therefore, when bullion is
 Taxability of Gift 75

received without consideration, the same is taxable, since the aggregate fair
market value exceeds ₹50,000 4,75,000
Difference of ₹2.5 lakh in the value of jewellery purchased from her friend, is not
taxable as it represents the stock-in-trade of Mrs. X. Since Mrs. X is carrying
jewellery business and it has been mentioned that the jewellery were subsequently
sold in the course of her business, such jewellery represent the stock-in-trade
of Mrs. X. Nil
Income under the head Other Sources 15,65,000
Gross Total Income 15,65,000
Less: Deduction under chapter VI-A Nil
Total Income 15,65,000
Computation of Tax Liability
Tax on ₹ 15,65,000 at slab rate 1,59,500
Add: HEC @ 4% 6,380
Tax Liability 1,65,880
 Taxability of Gift 76

EXAMINATION QUESTIONS
MAY – 2018 (NEW COURSE)
Question 5 (a) Marks 3
Discuss the taxability of the following receipts in the hands of Mr. Sanjay Kamboj under the Income Tax
Act, 1961 for A.Y.2025-26:
(i) ₹51,000 received from his sister living in US on 1-6-2025.
(ii) Received a car from his friend on payment of ₹2,50,000 the FMV of which was ₹5,50,000.

Provisions of taxability or Non-taxability must be discussed.

Answer:
(i) As per section 56(2), Gift received from relative is not taxable. In the given case, Sister is covered
under the definition of relative and Gift received from her is not taxable.
(ii) As per section 56(2), Gift in Kind exceeding ₹50,000 received from non - relative is taxable but in
the given case Car is not covered under the definition of Gift in Kind hence Car received from
non-relative is not taxable.

MAY – 2016
Question 4(a) (2 x 2 = 4 Marks)
Discuss the taxability or otherwise in the hands of the recipients, as per the provisions of the Income-tax
Act, 1961:
(i) Mr. N, a member of his father's HUF, transferred a house property to the HUF without
consideration. The value of the house is ₹10 lacs as per the Registrar of stamp duty.
(ii) Mr. Kumar gifted a car to his sister's son (Sunil) for achieving good marks in CA Final exam. The
fair market value of the car is ₹5,00,000.
Answer:
(i) Non-Taxable: As per sec 56(2)(x), if HUF has received any Gift from its member, it will be exempt from
Income tax. In the given case, HUF has received a Gift of house property from its member Mr. N hence it
will be exempt from income tax and what is the value of house property shall not matter.
(ii) Non-Taxable: If any person has received a gift from brother of mother, it will be covered in the
definition of relative and shall be exempt from income tax further if a gift is taxable it should be covered in
the definition of property as given u/s 56(2)(x). In the given case gift is from relative and further gift is of
motor car which is not covered in the definition of property hence it will be exempt from Income Tax.

MAY – 2012
Question 1 (1 Marks)
State whether the following are chargeable to tax and the amount liable to tax.
A sum of ₹1,20,000 was received as gift from non-relatives by Mr. X on the occasion of the marriage of his
son Mr. Y.
Answer: As per section 56(2)(x), if any gift has been received on the occasion of marriage, it will be exempt
from income tax but if gift has been received by the parents of the person getting married, such gift shall be
taxable hence in this case gift received by Mr. X is taxable because marriage is that of his son Mr. Y.

MAY – 2011
Question 7 (4 Marks)
The following details have been furnished by Mrs. X, pertaining to the year ended 31.03.2025:
(i) Cash gift of ₹51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a wedding
function celebrated on her husband completing 60 years of age. This was also her 25th wedding anniversary.
 Taxability of Gift 77

(ii) On the above occasion, a diamond necklace worth ₹2 lacs was presented by her sister living in Dubai.
(iii) When she celebrated her daughter’s wedding on 21.02.2025, her friend assigned in Mrs. X’s favour, a
fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit and the accrued
interest on the said date was ₹51,000.
(iv) She has short term capital gains under section 111A ₹10 lakhs.
Compute total income and tax liability for assessment year 2025-26.
Answer: (i) Any sum of money received by an individual on the occasion of the marriage of the individual
is exempt. This provision is, however, not applicable to a cash gift received during a wedding function
celebrated on completion of 60 years of age.
The gift of ₹51,000 received from a non-relative is, therefore, chargeable to tax under section 56(2)(x) in the
hands of Mrs. X.
(ii) The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property received
from a relative. Thus, the gift of diamond necklace received from her sister is not taxable under section
56(2)(x), even though jewellery falls within the definition of “property”.
(iii) To be exempt from applicability of section 56(2)(x), the property should be received on the occasion of
the marriage of the individual, not that of the individual’s son or daughter. Therefore, this exemption
provision is not attracted in this case.
Any sum of money received without consideration by an individual is chargeable to tax under section
56(2)(x), if the aggregate value exceeds ₹50,000 in a year. “Sum of money” has, however, not been defined
under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in favour of Mrs.
X–
(1)The first view is that fixed deposit does not fall within the meaning of “sum of money” and therefore, the
provisions of section 56(2)(x) are not attracted. Fixed deposit is also not included in the definition of
“property”.
(2) However, another possible view is that fixed deposit assigned in favour of Mrs. X falls within the
meaning of “sum of money” received.
Income assessable as “Income from other sources”
If the first view is taken, the total amount chargeable to tax as “Income from other sources” would be
₹51,000, being cash gift received from a friend on her Shastiaptha Poorthi.
As per the second view, the provisions of section 56(2)(x) would be attracted in respect of the fixed deposit
assigned and the “Income from other sources” of Mrs. X would be ₹1,02,000 (₹51,000 + ₹51,000).
Tax liability as per first view
Income under the head Other Sources 51,000.00
Income under the head Capital Gains (STCG u/s 111A) 10,00,000.00
Gross Total Income 10,51,000.00
Less: Deduction under chapter VI-A Nil
Total Income 10,51,000.00
Computation of Tax Liability
Tax on ₹51,000 at slab rate Nil
Tax on ₹7,51,000 (₹10,00,000 – ₹2,49,000) @ 20% 1,50,200.00
Add: HEC @ 4% 6,008.00
Tax Liability 1,56,208.00
Rounded off u/s 288B 1,56,210.00
Tax liability as per second view
Income under the head Other Sources 1,02,000.00
Income under the head Capital Gains (STCG u/s 111A) 10,00,000.00
Gross Total Income 11,02,000.00
Less: Deduction under chapter VI-A Nil
Total Income 11,02,000.00
Computation of Tax Liability
Tax on ₹1,02,000 at slab rate Nil
Tax on ₹8,02,000 (₹10,00,000 – ₹1,98,000) @ 20% 1,60,400.00
 Taxability of Gift 78

Add: HEC @ 4% 6,416.00

Tax Liability 1,66,816.00
Rounded off u/s 288B 1,66,820.00

NOV – 2008
Question 2 (4 Marks)
Mrs. X has received the following gifts during previous year 2024-25.
(i) On the occasion of her marriage on 14.08.2024, she has received ₹90,000 as gift out of which ₹70,000 are
from relatives and balance from friends.
(ii) On 12.09.2024, she has received gift of ₹18,000 from cousin of her mother.
(iii) A cell phone of ₹71,000 is gifted by her employer on 15.08.2024.
(iv) She gets a gift of ₹25,000 from the elder brother of her husband's grandfather on 25.10.2024.
(v) She has received a gift of ₹2,000 from her friend on 14.04.2024.
(vi) She has won ₹4 lakh from a game show on electronic media.
Compute her tax liability for assessment year 2025-26.
Answer:
Computation of taxable income of Mrs. X from gifts for A.Y. 2025-26
Particulars Taxable amount Reason for taxability or
₹ otherwise of each gift
• Relatives and friends Nil Gifts received on the occasion of
marriage are not taxable.
• Cousin of Mrs. X’s mother 18,000 Cousin of Mrs. X’s mother is
not a relative. Hence, the gift is taxable.
• Elder brother of husband’s grandfather 25,000 Brother of husband’s grandfather is
not a relative. Hence, the gift is taxable.
• Friend 2,000 Gift from friend is taxable.
Aggregate value of gifts 45,000
Since the aggregate value of gifts received by Mrs. X during the previous year 2024-25 does not exceed
₹50,000, the same is not chargeable to tax under section 56(2)(x) of the Income-Tax Act, 1961.
Gift received from the employer in kind upto ₹5,000 is exempt from income tax but excess over it is taxable
hence in this case taxable amount of gift shall be ₹66,000 (71,000 – 5,000) and it will be taxable under the
head Salary.
Gross Salary 66,000
Less: Standard deduction u/s 16(ia) (66,000)
Income under the head Salary Nil

Income under the head Other Sources 4,00,000

Gross Total Income 4,00,000
Less: Deduction under chapter VI-A Nil
Total Income 4,00,000
Computation of Tax Liability
Tax on ₹4,00,000 @ 30% 1,20,000
Less: Rebate u/s 87A (25,000)
Tax before HEC 95,000
Add: HEC @ 4% 3,800
Tax Liability 98,800

MAY – 2008
Question 3 (1 Marks)
Choose the correct answer with reference to the provisions of the Income-tax Act, 1961:
Mr. X received ₹70,000 from his friend on the occasion of his birthday.
(a) The entire amount of ₹70,000 is taxable
 Taxability of Gift 79

(b) ₹25,000 is taxable

(c) The entire amount is exempt
(d) None of the above.
Answer:
(a) The entire amount of ₹70,000 is taxable.

MAY – 2005
Question 1 (1 Marks)
Gift of ₹5,00,000 received on 10th July, 2024 through account payee cheque from a non-relative regularly
assessed to income-tax, is
(a) A capital receipt not chargeable to tax
(b) Chargeable to tax as income from other sources
(c) Chargeable to tax as business income
(d) Exempt upto ₹50,000 and balance chargeable to tax as income from other sources.
Answer:
(b) Chargeable to tax as income from other sources
 Advance Payment of Income Tax 80

ADVANCE PAYMENT OF TAX

OR

PAY AS YOU EARN SCHEME

SECTION 207 TO 219
SECTIONS PARTICULARS
207 Liability for payment of advance tax
208 Conditions of liability to pay advance tax
211 Instalments of advance tax and due dates
234A Computation of interest in case of payment of tax after last date of filing of ROI
234B Computation of interest in case of payment of tax after end of previous year
234C Computation of interest in case of default in payment of advance tax
Rule 119A Rounded off of the amount on which interest is to be computed

Question 1: Write a note on advance payment of income tax.

Answer: As per section 207, every person shall pay tax in advance as per the provisions of advance tax i.e.
in general every person should estimate his income and pay tax however exact amount of income tax shall
be calculated at the end of the year.
As per section 208, advance tax shall be payable during a financial year in every case where the amount of
such tax payable by the assessee during that year, is ten thousand rupees or more.
As per section 211, all assessee have to pay advance tax in the manner given below:
Due date of installment Amount payable
Upto 15th June of P.Y. 15% of tax payable
Upto 15th September of P.Y. 45% of tax payable
Upto 15th December of P.Y. 75% of tax payable
Upto 15th March of P.Y. 100% of tax payable
Example
For the previous year 2024-25, ABC Ltd. has estimated its tax payable to be ₹2,00,000, in this case advance
tax shall be paid by the company as given below:
Upto 15.06.2024 30,000
Upto 15.09.2024 90,000
Upto 15.12.2024 1,50,000
Upto 15.03.2025 2,00,000
If the last day for payment of any installment of advance tax is a day on which the receiving bank is closed,
the assessee can make the payment on the next immediately following working day.

Question 2: Write a note on payment of interest for late payment of income tax
Answer: As per section 234C, if any person has defaulted in payment of advance tax, interest shall be
charged @ 1% per month for a period of 3 months on the amount of default in each installment, but for the
last installment, interest shall be charged only for one month.
Income tax paid upto 31st March of previous year is also called advance tax.
As per section 234B, if advance tax paid is less than 90% of actual tax liability, assessee shall be required to
pay interest @ 1% per month or part of a month from 1st April of assessment year upto the date of payment.
If advance tax paid is 90% or more of actual tax liability, no interest is payable.
 Advance Payment of Income Tax 81

As per section 234A, if any person has paid income tax after expiry of the last date of filing of return of
income, interest shall be payable @ 1% p.m. or part of the month for the period subsequent to the last date
of filing of return of income.

Illustration 1: ABC Ltd. has estimated its tax liability for assessment year 2025-26 ₹4,40,000 and has paid
advance tax accordingly but actual tax liability was found to be ₹10,00,000.
The company has paid balance amount on 02.12.2025 and filed return of income on the same date.
Compute interest payable under section 234A, 234B, and 234C.
Solution:
Estimated Tax = 4,40,000 Actual Tax = 10,00,000
Interest under section 234C shall be computed in the manner given below:
Tax Payable Tax Paid Default
15.06.2024 1,50,000 66,000 84,000
Interest u/s 234C = 84000 x 1% x 3 = 2,520
15.09.2024 4,50,000 1,98,000 2,52,000
Interest u/s 234C = 2,52,000 x 1% x 3 = 7,560
15.12.2024 7,50,000 3,30,000 4,20,000
Interest u/s 234C = 4,20,000 x 1% x 3 = 12,600
15.03.2025 10,00,000 4,40,000 5,60,000
Interest u/s 234C = 5,60,000 x 1% x 1 = 5,600

Total interest payable u/s 234C 28,280

Interest under section 234B shall be computed from 01.04.2025 to 02.12.2025 and is as given below:
10,00,000 – 4,40,000 = 5,60,000 x 1% x 9 = 50,400

Interest under section 234A shall be computed from 01.11.2025 to 02.12.2025 and is as given below:
5,60,000 x 1% x 2 = 11,200
Total interest payable (28,280 + 50,400 + 11,200) 89,880

Illustration 2: ABC Ltd. has tax liability of ₹7,00,000 for the previous year 2024-25 and the company has
not paid any advance tax and entire tax amount was paid by the company on 31.12.2025. In this case,
interest shall be calculated in the manner given below:
1. Interest u/s 234C
₹
15.06.2024 1,05,000 x 1% x 3 = 3,150
15.09.2024 3,15,000 x 1% x 3 = 9,450
15.12.2024 5,25,000 x 1% x 3 = 15,750
15.03.2025 7,00,000 x 1% x 1 = 7,000
Total interest payable 35,350
2. Interest u/s 234B (01-04-2025 to 31-12-2025)
7,00,000 x 1% x 9 = 63,000

3. Interest u/s 234A (01-11-2025 to 31-12-2025)

7,00,000 x 1% x 2 = 14,000
Total Interest Payable 1,12,350
Question 3: Explain Special Provision for all assessee.
Answer: Special Provision for all assessee
If the advance tax paid by the assessee upto 15th June is 12% of the tax payable and upto 15th September,
is 36% of the tax payable, in such cases no interest shall be charged for default in such instalment.
 Advance Payment of Income Tax 82

Illustration 3: ABC Ltd. has estimated its tax payable to be ₹5,00,000 for previous year 2024-25 and has
paid advance tax accordingly but actual tax liability of the company was found to be ₹5,50,000 and
difference of tax amount was paid on 10.12.2025. Compute interest under section 234A, 234B and 234C.
Solution:
Interest under section 234C shall be computed in the manner given below:
Tax Payable Tax Paid Default
15.06.2024 82,500 75,000 7,500
Interest u/s 234C = Nil (because advance tax paid is at least 12%)
15.09.2024 2,47,500 2,25,000 22,500
Interest u/s 234C = Nil (because advance tax paid is at least 36%)
15.12.2024 4,12,500 3,75,000 37,500
Interest u/s 234C = 37,500 x 1% x 3 = 1,125
15.03.2025 5,50,000 5,00,000 50,000
Interest u/s 234C = 50,000 x 1% x 1 = 500
Total interest payable u/s 234C 1,625
Interest under section 234B
Advance tax paid is more than 90% of actual tax liability, no interest is payable
Interest under section 234A shall be computed from 01.11.2025 to 10.12.2025 and is as given below:
50,000 x 1% x 2 = 1,000
Total interest payable (1,625 + 1,000) 2,625

A senior citizen who do not have income under the head business/profession shall be exempt from payment
of advance tax. In this case, interest u/s 234B & 234C shall not be payable but Interest u/s 234A shall
be payable.

Question 4: Explain Payment of advance tax in case of capital gains/casual income/ newly setup
business/ profession/dividend income.
Answer: Payment of advance tax in case of capital gains/casual income/newly setup business/
profession/ dividend income Section 234C
In case of capital gains, casual income and dividend income, no advance tax is payable on estimated basis
but if there is actual accrual of casual income or capital gains or dividend income, advance tax is to be paid
in the subsequent installments and if such accrual is after 15th March, advance tax is to be paid upto 31st
March of previous year otherwise interest shall be charged under section 234C.

Illustration 4: Mr. X has paid advance tax as given below:

Upto 15.06.2024 ₹ 15,000
Upto 15.09.2024 ₹ 45,000
Upto 15.12.2024 ₹ 95,000
Upto 15.03.2025 ₹1,70,000
He had long term capital gains of ₹3,00,000 on 01.01.2025 and his income under the head
business/Profession is ₹20,00,000
He has filed return of income on 10.12.2025 and has paid difference of the tax on 10.12.2025.
Last date for filing of return is 31.07.2025.
Compute interest payable under section 234A, 234B and 234C.
Solution:
Computation of Tax Liability ₹
Normal Income 20,00,000
Long term capital gains 3,00,000
Total Income 23,00,000
Tax on ₹20,00,000 at slab rate 2,90,000
Tax on ₹3,00,000 @ 12.5% 37,500
Tax before health & education cess 3,27,500
Add: HEC @ 4% 13,100
 Advance Payment of Income Tax 83

Tax Liability 3,40,600

(Tax liability excluding capital gains i.e. ₹23,00,000 - ₹3,00,000 = ₹20,00,000 at slab rate + HEC @ 4%
3,01,600)
Interest u/s 234C
Since capital gains arises on 1st January 2025, installments for 15th June, 15th September and 15th December
shall be checked without including tax on capital gain and shall be as given below:
Amount payable Amount actually paid Shortfall
₹ ₹ ₹
Upto 15.06.2024 (3,01,600 x 15%) 45,240.00 15,000 30,240.00
Interest u/s 234C = 30,200 x 1% x 3 = 906

Upto 15.09.2024 (3,01,600 x 45%) 1,35,720.00 45,000 90,720.00

Interest u/s 234C = 90,700 x 1% x 3 =2,721

Upto 15.12.2024 (3,01,600 x 75%) 2,26,200.00 95,000 1,31,200.00

Interest u/s 234C = 1,31,200 x 1% x 3 = 3,936

Installment for 15th March shall be including tax on capital gains and is as given below:
Upto 15.03.2025 (3,40,600 x 100%) 3,40,600 1,70,000 1,70,600.00
Interest u/s 234C = 1,70,600 x 1% x 1 = 1,706
Total Interest u/s 234C ₹9,269
Interest u/s 234B (01-04-2025 to 10-12-2025)
1,70,600 x 1% x 9 ₹15,354
Interest u/s 234A (01-08-2025 to 10-12-2025)
1,70,600 x 1% x 5 ₹8,530
Similar provision shall be applicable in case of a newly setup Business/Profession
If any Assessee has started Business/Profession in the current year, assessee shall be exempt from payment
of advance tax prior to commencement of Business/Profession i.e. advance tax has to be paid in installments
subsequent to commencement of Business/Profession.
If Business/Profession has been started after 15th March, advance tax should be paid upto 31st March
otherwise Interest shall be charged under section 234C for one month @ 1%.
Example: Mr. X started his business on 01.10.2024 and had income ₹10,00,000 upto 31.03.2025, In this
case, he will be required to pay advance tax in the manner given below: ₹
Income under the head Business/ Profession 10,00,000
Gross Total Income/Total Income 10,00,000
Computation of Tax Liability
Tax on 10,00,000 at slab rate 50,000
Add: HEC @ 4% 2,000
Tax Liability 52,000
Advance Tax Payment
15.06.2024 Nil
15.09.2024 Nil
15.12.2024 (52,000 x 75%) 39,000.00
15.03.2025 (52,000 x 100%) 52,000.00

Illustration 5: ABC Ltd. started his business on 01.10.2024 and had earning from business from 01.10.2024
to 31.03.2025 ₹20,00,000, in this case company need not pay advance tax upto 15.09.2024 but advance tax
is to be paid in subsequent installments. Company should pay advance tax on 15.12.2024 equal to
(20,00,000 x 30% + HEC) x 75% = 4,68,000 and company should pay total advance tax on 15.03.2025 equal
to (20,00,000 x 30% + HEC) x 100% = 6,24,000.
 Advance Payment of Income Tax 84

Illustration 6: A partnership firm made the following payments of advance tax during the financial year
2025-26: ₹
Upto June 15, 2024 4,15,000
Upto September 15, 2024 8,25,000
Upto December 15, 2024 16,64,000
Upto March 15, 2025 26,23,000
Return of income filed by the firm is ₹88,00,000 under the head “profits and gains of business or profession”
and ₹9,50,000 by way of long term capital gains on sale of a property effected on December 1, 2024. What
is the interest payable by the assessee under section 234B and section 234C for assessment year 2025-26?
Assume that the return of income was filed on 31.10.2025 i.e. the due date and tax was fully paid on self
assessment.
Solution: Computation of Tax Liability
₹
Business income 88,00,000
Long term capital gains 9,50,000
Total Income 97,50,000
Tax on ₹88,00,000 @ 30% 26,40,000
Tax on ₹9,50,000 @ 12.5% 1,18,750
Add: HEC @ 4% 1,10,350
Tax Liability 28,69,100
(Tax liability excluding capital gains ₹97,50,000 - ₹9,50,000 = ₹88,00,000 x 30% + HEC@ 4%
27,45,600)

Interest u/s 234C

Since capital gains arises on 1st December 2024, installment for 15th June and 15th September shall be
checked without including tax on capital gain and shall be as given below:
Amount payable Amount actually paid Shortfall
₹ ₹ ₹
Upto 15.06 2024 (27,45,600 x 15%) 4,11,840 4,15,000 NIL
Interest u/s 234C = Nil

Upto 15.09 2024 (27,45,600 x 45%) 12,35,520 8,25,000 4,10,520

Rounded off under rule 119A = 4,10,500
Interest u/s 234C = 4,10,500 x 1% x 3 month = 12,315

Installments for 15th December and 15th March shall be including tax on capital gains and is as given below:
Upto 15.12.2024 (28,69,100 x 75%) 21,51,825 16,64,000 4,87,825
Interest u/s 234C = 4,87,800 x 1% x 3 month = 14,634

Upto 15.03.2025 (28,69,100 x 100%) 28,69,100 26,23,000 2,46,100

Interest u/s 234C = 2,46,100 x 1% x 1 month = 2,461

Total Interest u/s 234C ₹29,410

Interest u/s 234B (01-04-2025 to 31-10-2025)

2,46,100 x 1% x 7 ₹17,227

Rounding off for the purpose of calculating Interest Rule 119A

As per rule 119A, the principal amount shall be rounded off in the multiples of ₹100 and for this purpose
any fraction of ₹100 shall be ignored. E.g. ₹1,60,275 shall be rounded off as 1,60,200.

Illustration 7: ABC Ltd. has paid advance tax for the previous year 2024-25 as given below:
1. Upto 15.06.2024 ₹ 50,000
 Advance Payment of Income Tax 85

2. Upto 15.09.2024 ₹1,50,000

3. Upto 15.12.2024 ₹3,00,000
4. Upto 15.03.2025 ₹6,00,000
Actual tax liability was found to be ₹7,00,000 and balance tax was paid on 10.12.2025. Compute interest
payable under section 234A, 234B, 234C.
Solution:
Interest under section 234C shall be computed in the manner given below:
Tax Payable Tax Paid Shortfall
15.06.2024 1,05,000 50,000 55,000
Interest u/s 234C = 55,000 x 1% x 3 = 1,650
15.09.2024 3,15,000 1,50,000 1,65,000
Interest u/s 234C = 1,65,000 x 1% x 3 = 4,950
15.12.2024 5,25,000 3,00,000 2,25,000
Interest u/s 234C = 2,25,000 x 1% x 3 = 6,750
15.03.2025 7,00,000 6,00,000 1,00,000
Interest u/s 234C = 1,00,000 x 1% x 1 = 1,000
Total interest payable u/s 234C 14,350
Interest under section 234B shall be computed from 01.04.2025 to 10.12.2025 and is as given below:
7,00,000 – 6,00,000 = 1,00,000 x 1% x 9 = 9,000
Interest under section 234A shall be computed from 01.11.2025 to 10.12.2025 and is as given below:
1,00,000 x 1% x 2 = 2,000
Total interest payable (14,350 + 9,000 + 2,000) 25,350

(b) Presume actual tax liability is ₹6,50,000.

Solution:
Interest under section 234C shall be computed in the manner given below:
Tax Payable Tax Paid Shortfall
15.06.2024 97,500 50,000 47,500
Interest u/s 234C = 47,500 x 1% x 3 = 1,425
15.09.2024 2,92,500 1,50,000 1,42,500
Interest u/s 234C = 1,42,500 x 1% x 3 = 4,275
15.12.2024 4,87,500 3,00,000 1,87,500
Interest u/s 234C = 1,87,500 x 1% x 3 = 5,625
15.03.2025 6,50,000 6,00,000 50,000
Interest u/s 234C = 50,000 x 1% x 1 = 500
Total interest payable u/s 234C 11,825
Interest under section 234B
Advance tax paid is more than 90% of actual tax liability, no interest is payable
Interest under section 234A shall be computed from 01.11.2025 to 10.12.2025 and is as given below:
50,000 x 1% x 2 = 1,000
Total interest payable (11,825 + 1,000) 12,825

Due date for filing the return of income Section 139(1)

Return is to be filed in general upto 31st July of the assessment year, however, in the following cases, the last
date shall be 31st October of the assessment year.
1. Every company assessee

Example
For the previous year 2024-25, ABC Ltd. has to file its return of income upto 31.10.2025.
2. Any other person who is required to get his accounts audited either under Income Tax Act or under any
other Act.
Example
Mr. X has his own business and his turnover for previous year 2024-25 is ₹102 lakhs. In this case, the last
 Advance Payment of Income Tax 86

date of filing the return of income shall be 31.10.2025, but if turnover is ₹97 lakhs, the last date shall be
31.07.2025.
Similarly if a partnership firm XY has turnover of its business ₹ 65 lakhs for previous year 2024-25, in this
case, the last date of filing of return of income shall be 31.07.2025.

Audit u/s 44AB

1. As per Section 44AB, Audit is compulsory for every person carrying on business and sales turnover or
gross receipts exceeds ₹ 1 crore during the previous year and every person carrying on profession and gross
receipts is exceeding ₹50 lakh during the previous year. In case of business audit is not required is gross
receipt is upto 10 crore but the following conditions should be fulfilled
(a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during
the previous year, in cash, does not exceed five per cent. of the said amount. and
(b) aggregate of all payments made including amount incurred for expenditure, in cash, during the previous
year does not exceed five per cent. of the said payment.
If turnover is exceeding 10 crores, audit is required under all circumstances.

If tax liability is less than ₹ 10,000 then interest u/s 234B & 234C shall not be payable but Interest u/s 234A
shall be payable.
Eg. Mr. X has Income under LTCG 112A is ₹ 4,50,000 and he paid income tax on 10/12/2025. Compute
Interest u/s 234A,234B & 234C. In this case, His Tax Liability shall be :
₹
Income under the head Capital Gains 4,50,000
Gross Total Income/Total Income 4,50,000
Computation of Tax Liability
Tax on ₹25,000 (4,50,000-1,25,000-3,00,000) @ 12.5% u/s 112A 3,125
Add: HEC @ 4% 125
Tax Liability 3,250

Since Tax Liability is less than ₹ 10,000 hence Interest u/s 234B & 234C is not payable.
Interest u/s 234A = 3,200 x 1% x 5 = ₹160

Question 5: Explain Powers of Assessing officer to direct the Assessee to pay Advance Tax.
Answer: Powers of Assessing Officer to direct the Assessee to pay Advance Tax Section 209, 210
If any person has not paid advance tax and Assessing Officer is of the opinion that such person has to pay
advance tax, in such cases Assessing Officer may issue him a notice in Form No.28 directing such person to
pay advance tax but notice can be given only if such person has already been assessed through regular
assessment in any of the earlier years. Regular assessment shall include scrutiny assessment under section
143(3) or Best judgement assessment under section 144. If Assessing Officer has issue notice, estimated
income for such year shall be the income of the latest previous year in respect of which the assessee has
been assessed by way of regular assessment but if assessee has filed any return subsequently and income
reported in such return is higher than the income selected above, in that case income reported by the
assessee shall be considered to be estimated income of current year.
If the assessee do not pay the advance tax even after receiving such notice, he will be considered to be
assessee in-default as per section 218 and penalty can be imposed equal to the amount not paid as per
section 221.
If the assessee finds that his tax liability shall be less than the amount computed by the Assessing Officer,
assessee may give a reply in Form No.28A and can pay tax as per his own estimate.
Example
For the previous year 2024-25, ABC Ltd. has not paid any advance tax till 10.10.2024 and in the earlier
years the company was assessed in the manner given below:
2021-22 143(3) (Scrutiny Assessment) 7,00,000
2022-23 144 (Best Judgement Assessment) 10,00,000
 Advance Payment of Income Tax 87

2023-24 ROI 8,00,000

In this case Assessing officer shall have the powers to give notice to the assessee and its estimated income
shall be considered to be ₹10,00,000. If any assessee has received a notice in form no. 28 but he finds that
his tax liability shall be less than the amount computed by the Assessing Officer, in that case he can give a
reply in form no. 28A and can pay tax as per his own estimate.
 Advance Payment of Income Tax 88

MULTIPLE CHOICE QUESTIONS

1. Which of the following statement is not correct.
(a) advance tax is payable only if tax payable during a particular year is ₹10,000 or more
(b) a senior citizen is always exempt from payment of advance tax
(c) upto 15th Dec of previous year, advance tax payable is atleast 75%
(d) in case of default in payment of advance tax interest shall be charged @ 1% p.m.
2. Which of the following statement is not correct.
(a) if atleast 12% of actual tax has been paid upto 15th June, interest u/s 234C is not payable
(b) if atleast 24% of actual tax has been paid upto 15th Sept, interest u/s 234C is not payable
(c) if atleast 75% of actual tax has been paid upto 15th Dec, interest u/s 234C is not payable
(d) last date for Filing of ROI in case of a company is 31st Oct of the assessment year
3. Which of the following statement is not correct.
(a) advance tax payable upto 15th June of the previous year is atleast 15%
(b) advance tax payable upto 15th Sept of the previous year is atleast 45%
(c) advance tax payable upto 15th Dec of the previous year is atleast 70%
(d) advance tax payable upto 15th March of the previous year is atleast 100%
4. In case of default in payment of advance tax, interest shall be charged
(a) 2% p.m. u/s 234C
(b) 1% p.m. u/s 234B
(c) 1.5% p.m. u/s 234A
(d) 1% p.m. u/s 234C
5. In case of default in payment of Self assessment tax, interest shall be charged
(a) 2% p.m. u/s 234C , (b) 1% p.m. u/s 234B ,(c) 1.5% p.m. u/s 234A , (d) 1% p.m. u/s 234C
6. In case of default in payment of self assessment tax after last date of filing of ROI, interest shall be
charged
(a) 2% p.m. u/s 234C
(b) 1% p.m. u/s 234B
(c) 1% p.m. u/s 234A + 1% p.m. u/s 234B
(d) 1% p.m. u/s 234C
7. Advance tax is payable by a senior citizen only when
(a) he has income u/h capital gains
(b) he has income u/h house property
(c) he has income u/h business/profession
(d) he has income u/h casual income
8. Which of the statement is correct
(a) a company has to pay advance tax irrespective of tax payable
(b) a partnership firm has to pay advance tax if tax payable is ₹1,00,000 or more
(c) all the assessees are required to pay advance tax if tax payable is ₹10,000 or above
(d) an individual is exempt from payment of advance tax
9. Audit is required
(a) if turnover of business exceeding ₹100 lakhs
(b) if turnover of profession exceeding ₹50 lakhs
(c) (a) or (b)
(d) if income of business is exceeding ₹10 lakhs
10. Assessing Officer can issue a notice for payment of advance tax
(a) to any assessee
(b) any assessee who has been assessed trough regular assessment
(c) any assessee who paid tax of ₹10 lakh or more in the earlier years
(d) any assessee who has not paid advance tax for last three year

Answer
1. (b); 2. (b); 3. (c); 4. (d); 5. (b); 6. (c); 7. (c); 8. (c); 9. (c); 10. (b)
 Advance Payment of Income Tax 89

PRACTICE PROBLEMS
TOTAL PROBLEMS 3
Problem 1.
Mr. X has incomes as given below:
1. Income under the head house property ₹15,00,000
2. Gift of a painting from a friend with market value ₹2,00,000
3. Gift of shares and securities from Mrs. X valued ₹3,00,000
4. Agricultural income ₹3,00,000
He has paid advance tax as given below:
Upto 15th June 2024 ₹15,000
Upto 15th Sept 2024 ₹30,000
Upto 15th Dec 2024 ₹50,000
Upto 15th March 2025 ₹60,000
Balance amount of tax was paid and return of income was filed on 10th Sept 2025.
Compute his tax liability for the Assessment Year 2025-26 and also interest under section 234A, 234B and
234C.
Answer = Tax Liability: ₹2,86,000; Interest under section 234A: ₹4,520; Interest under section 234B:
₹13,560; Interest under section 234C: ₹10,993

Problem 2.
ABC Ltd. (an Indian Company) has income as given below:
1. Income from Business ₹20,00,000
2. Income under the head House Property ₹7,00,000
The company has paid advance tax as given below:
Upto 15th June 2024 ₹ 20,000
Upto 15th Sept 2024 ₹ 30,000
Upto 15th Dec 2024 ₹ 80,000
Upto 15th March 2025 ₹1,00,000
Balance amount of tax was paid and return of income was filed on 10th Dec 2025.
Due date for filing of ROI in case of ABC Ltd. is 31.10.2025.
Compute tax liability for the Assessment Year 2025-26 and also interest under section 234A, 234B and
234C.
Answer = Tax Liability: ₹8,42,400; Interest under section 234A: ₹14,848; Interest under section 234B:
₹66,816; Interest under section 234C: ₹37,637

Problem 3.
Mrs. X has income under the head house property ₹18,00,000 and she has received gift of ₹3,00,000 in cash
from her husband’s sister and ₹1,00,000 from her sister’s husband and ₹1,20,000 from sister of her mother
in law. She has agricultural income of ₹4,00,000. She has paid advance tax as given below:
Upto 15th June 2024 ₹ 15,000
Upto 15th Sept 2024 ₹ 45,000
Upto 15th Dec 2024 ₹ 75,000
th
Upto 15 March 2025 ₹1,00,000
Balance amount of tax was paid on 10th Dec 2025 and return of income filed on the same date and due date
for filing return of income is 31.07.2025.
Compute her tax liability for the Assessment Year 2025-26 and also interest under section 234A, 234B and
234C.
Answer = Tax Liability: ₹3,80,640; Interest under section 234A: ₹14,030; Interest under section 234B:
₹25,254; Interest under section 234C: ₹14,167
 Advance Payment of Income Tax 90

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1: ₹
Computation of Total Income
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 under Chapter VI-A 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 2,90,000
Step 2. Tax on (₹3,00,000 + 3,00,000) at slab rates (15,000)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 2,75,000
Add: HEC @ 4% 11,000
Tax Liability 2,86,000

Interest u/s 234C

Amount payable Amount actually paid Shortfall
₹ ₹ ₹
Upto 15.06 2024 (2,86,000 x 15%) 42,900 15,000 27,900
Interest u/s 234C = 27,900 x 1% x 3 month = 837

Upto 15.09 2024 (2,86,000 x 45%) 1,28,700 30,000 98,700

Interest u/s 234C = 98,700 x 1% x 3 month = 2,961

Upto 15.12.2024 (2,86,000 x 75%) 2,14,500 50,000 1,64,500

Interest u/s 234C = 1,64,500 x 1% x 3 month = 4,935

Upto 15.03.2025 (2,86,000 x 100%) 2,86,000 60,000 2,26,000

Interest u/s 234C = 2,26,000 x 1% x 1 month = 2,260

Interest liability under section 234C ₹10,993

Interest under section 234B (01-04-2025 to 10-09-2025)

2,26,000 x 1% x 6 ₹13,560
Interest under section 234A (01-08-2025 to 10-09-2025)
2,26,000 x 1% x 2 ₹ 4,520

Solution 2: ₹
Total Income 27,00,000
Computation of Tax Liability
Tax on ₹27,00,000 @ 30% 8,10,000
Add: HEC @ 4% 32,400
Tax Liability 8,42,400

Interest u/s 234C

 Advance Payment of Income Tax 91

Amount payable Amount actually paid Shortfall

₹ ₹ ₹
Upto 15.06 2024 (8,42,400 x 15%) 1,26,360 20,000 1,06,360
Rounded off under rule 119A = 1,06,300
Interest u/s 234C = 1,06,300 x 1% x 3 month = 3,189

Upto 15.09 2024 (8,42,400 x 45%) 3,79,080 30,000 3,49,080

Rounded off under rule 119A = 3,49,000
Interest u/s 234C = 3,49,000 x 1% x 3 month = 10,470

Upto 15.12.2024 (8,42,400 x 75%) 6,31,800 80,000 5,51,800

Interest u/s 234C = 5,51,800 x 1% x 3 month = 16,554

Upto 15.03.2025 (8,42,400 x 100%) 8,42,400 1,00,000 7,42,400

Interest u/s 234C = 7,42,400 x 1% x 1 month = 7,424

Interest liability under section 234C ₹37,637

Interest under section 234B (01-04-2025 to 10-12-2025)

7,42,400 x 1% x 9 ₹66,816

Interest under section 234A (01-11-2025 to 10-12-2025)

7,42,400 x 1% x 2 ₹14,848

Solution 3: ₹
Computation of Total Income
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 under Chapter VI-A 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 3,86,000
Step 2. Tax on (₹3,00,000 + 4,00,000) at slab rates (20,000)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 3,66,000
Add: HEC @ 4% 14,640
Tax Liability 3,80,640

Interest u/s 234C

Amount payable Amount actually paid Shortfall
₹ ₹ ₹
Upto 15.06 2024 (3,80,640 x 15%) 57,096 15,000 42,096
Rounded off under rule 119A = 42,000
Interest u/s 234C = 42,000 x 1% x 3 month = 1,260

Upto 15.09 2024 (3,80,640 x 45%) 1,71,288 45,000 1,26,288

Rounded off under rule 119A = 1,26,200
Interest u/s 234C = 1,26,200 x 1% x 3 month = 3,786

Upto 15.12.2024 (3,80,640 x 75%) 2,85,480 75,000 2,10,480

Rounded off under rule 119A = 2,10,400
 Advance Payment of Income Tax 92

Interest u/s 234C = 2,10,400 x 1% x 3 month = 6,312

Upto 15.03.2025 (3,80,640 x 100%) 3,80,640 1,00,000 2,80,640

Rounded off under rule 119A = 2,80,600
Interest u/s 234C = 2,80,600 x 1% x 1 month = 2,806

Interest liability under section 234C ₹14,164

Interest under section 234B (01-04-2025 to 10-12-2025)

2,80,600 x 1% x 9 ₹25,254
Interest under section 234A (01-08-2025 to 10-12-2025)
2,80,600 x 1% x 5 ₹14,030
 Advance Payment of Income Tax 93

CHALLAN Tax Applicable (Tick One)*

NO./ (0020) INCOME-TAX ON COMPANIES Assessment Year
ITNS 280 (CORPORATION TAX) -
(0021) INCOME TAX (OTHER THAN
COMPANIES)
Permanent Account
Number

Full Name

Complete Address with City & State

Tel. No. Pin

Type Of Payment (Tick One)
Advance Tax (100)
Self Assessment Tax (300) Tax on Distributed Profits of Domestic Companies (106)
Tax on Regular Assessment (400) Tax on Distributed Income to Unit Holders (107)
DETAILS OF PAYMENTS Amount (in Rs. Only) FOR USE IN RECEIVING BANK
Income Tax Debit to A/c / Cheque credited on
Surcharge - -
Health & education cess D D M M Y Y
Interest
Penalty
Others SPACE FOR BANK SEAL
Total
Total (in words)
CRORES LACS THOUSANDS HUNDREDS TENS UNITS

Paid in Cash/Debit to A/c /Cheque No. Dated

Drawn on
(Name of the Bank and Branch)
Date: Rs.
Signature of person making payment
Taxpayers Counterfoil (To be filled up by tax payer) SPACE FOR BANK SEAL
PAN
Received from
(Name)
Cash/ Debit to A/c /Cheque No. For Rs.
Rs. (in words)
Drawn on
(Name of the Bank and Branch)
on account of Companies/Other than Companies/Tax
(Strike out whichever is not
Income Tax on applicable)
(To be filled up by person making the
Type of Payment payment)
for the Assessment Year - Rs.
 Advance Payment of Income Tax 94

EXAMINATION QUESTIONS
NOV – 2022
Question 4(b) (Marks 4)
Ms. Priya, aged 61 years, has total income of ₹12,00,000, including income from profession, for AY 2025-
2026, and has paid advance tax of ₹10,000 on 13.12.2024. She has filed her return of income on 15.06.2025.
Calculate the self-assessment tax payable and the interest thereon u/s 234A, 234B and 234C, if any by Ms.
Priya.
Solution:
Tax on ₹ 12,00,000 at slab rate 80,000
Add: Health and education cess @ 4% 3,200
Total tax 83,200
Self Assessment Tax 83,200 – 10,000 73,200
Computation of Interest u/s 234C
15.06.2024 12,480 [15% of ₹ 83,200] 372
(12,400 x 1% x 3)
15.09.2024 37,440 [45% of ₹ 83,200] 1,122
(37,400 x 1%x 3)
15.12.2024 52,400 [(75% of ₹ 83,200) – ₹10,000] x 1% x 3 1,572
15.03.2025 73,200 x 1% x 1 732
Total interest under section 234C 3,798

Computation of Interest u/s 234B (01.04.2025 to 15.06.2025)

73,200 x 1% x 3 2,196

Computation of Interest u/s 234A Nil

Total Interest (3,798 + 2,196) 5,994
Rounded off u/s 288B 5,990
 Residential Status & Scope of Total Income 95

RESIDENTIAL STATUS
&
SCOPE OF TOTAL INCOME
SECTION 5 TO 9
PARTICULARS SECTIONS

Scope of total income/incidence of tax 5

Residential status of an individual 6(1), 6(6)(a), 6(6)(c)
Deemed Resident 6(1A), 6(6)(d)
Residential status of an Hindu Undivided Family 6(2), 6(6)(b)
Residential status of Firm/ Association of person/Body of individual 6(2)
Residential status of a company 6(3)
Residential status of any other person 6(4)
Incomes deemed to be received 7
Income deemed to accrue or arise in India 9

Question 1: How to determine Residential status of individuals Section 6(1)/6(6)(a)

Answer: Under section 6(1), an individual is said to be resident in India in any previous year, if he satisfies
any one of the following conditions:
(i) He stays in India for 182 days or more during the relevant previous year
(ii) He stays in India for 60 days or more and also for 365 days or more during 4 years preceding the
relevant previous year.
If the individual satisfies any one of the conditions mentioned above, he is a resident, otherwise the
individual is a non-resident.
e.g. Mr. X stayed in India for 200 days in previous year 2024-25, in this case he will be considered to be
resident in India.
If Mr. X stayed in India for 100 days in previous year 2024-25 and also for 365 days during 4 years
preceding the previous year 2024-25, he will be considered to be resident in India.
If Mr. X stayed in India during previous year 2024-25 for 59 days, he will be considered to be non-resident
in previous year 2024-25.
Meaning of Not-ordinarily resident Section 6(6)(a)
An individual who is resident of India shall be considered to be NOR if he has complied with at least one of
the conditions given below:
(i) If such individual has during the 7 previous years preceding the relevant previous year been in India
for a period of 729 days or less or
(ii) If such individual has been non-resident in India in 9 years out of 10 previous years preceding the
relevant previous year
If he has not complied with even a single condition, he will be considered to be ROR.

Income Tax Act has defined NOR but we can define ROR in the manner given below:
An individual is said to be a resident and ordinarily resident if he satisfies both the following conditions:
(i) He is a resident in any 2 out of the last 10 years preceding the relevant previous year, and
(ii) His total stay in India in the last 7 years preceding the relevant previous year is 730 days or more.
 Residential Status & Scope of Total Income 96

If the individual satisfies both the conditions mentioned above, he is a resident and ordinarily resident but if
only one or none of the conditions are satisfied, the individual is a resident but not ordinarily resident.

For the purpose of counting the number of days stayed in India, both the date of departure as well as the date
of arrival are considered to be in India.
It is not necessary that the period of stay must be continuous nor is it essential that the stay should be at the
usual place of residence, business or employment of the individual.
The term “stay in India” includes stay in the territorial waters of India (i.e. 12 nautical miles into the sea
from the Indian coastline). Even the stay in a ship or boat in the territorial waters of India shall be
considered to be stay in India. (1 nautical mile = 1.1515 miles = 1.852 Kms).

Illustration 1: Determine residential status of Mr. X for the assessment year 2025-26, who stays in India
during various financial years asunder:
Previous Years Stay 2017-18 91
2024-25 100 2016-17 90
2023-24 200 2015-16 88
2022-23 91 2014-15 89
2021-22 90 2013-14 86
2020-21 89 2012-13 87
2019-20 87 2011-12 89
2018-19 82 2010-11 90
Solution:
As per section 6(1), Stay in India is 60 days plus 365 days during 4 years preceding the relevant previous
year, hence he is resident.
His stay during 7 years is 730 hence he is not able to comply with first condition of section 6(6)(a). He is
able to comply with second condition of 6(6)(a) i.e. he is non-resident in atleast 9 years out of 10 years
preceding the relevant previous year hence he is NOR.
Years Status 2019-20 Non-resident
2024-25 Resident 2018-19 Non-resident
2023-24 Resident 2017-18 Non-resident
2022-23 Non-resident 2016-17 Non-resident
2021-22 Non-resident 2015-16 Non-resident
2020-21 Non-resident 2014-15 Non-resident
Illustration 2: Determine residential status of Mr. X for the assessment year 2025-26, who stays in India
during various financial years asunder:
Previous Years Stay 2017-18 80
2024-25 75 2016-17 91
2023-24 197 2015-16 86
2022-23 94 2014-15 85
2021-22 89 2013-14 89
2020-21 90 2012-13 72
2019-20 89 2011-12 69
2018-19 91 2010-11 92
Solution:
As per section 6(1), Stay in India is 60 days plus 365 days during 4 years preceding the relevant previous
year, hence he is resident.
His stay during 7 years is 730 hence he is not able to comply with first condition of section 6(6)(a). He is
able to comply with second condition of 6(6)(a) i.e. he is non-resident in atleast 9 years out of 10 years
preceding the relevant previous year hence he is NOR.
 Residential Status & Scope of Total Income 97

Years Status 2019-20 Non-resident

2024-25 Resident 2018-19 Non-resident
2023-24 Resident 2017-18 Non-resident
2022-23 Non-resident 2016-17 Non-resident
2021-22 Non-resident 2015-16 Non-resident
2020-21 Non-resident 2014-15 Non-resident
Illustration 3: Mr. X an American citizen has come to India for the first time on 10.07.2020, as an
employee of a multinational company. The particulars of his arrival and departure are as given below:
Date of arrival Date of departure
10.07.2020 07.08.2021
07.10.2021 27.11.2022
01.03.2023 01.02.2024
10.05.2024 30.03.2025
Not yet returned
Determine his residential status for previous year 2020-21 to 2024-25.
Solution:
Previous Year 2020-21
{July – 22, August – 31, September 30, October 31, November 30, December 31, January 31, February – 28,
March – 31}
Days of stay in India are 265.
As per section 6(1), Stay in India is 182 days or more during the relevant previous year, hence he is resident.
and his stay during 7 years is Nil hence he is able to comply with first condition of section 6(6)(a). hence he
is NOR.
Previous Year 2021-22
{April – 30, May – 31, June – 30, July – 31,August – 7,October – 25, November – 30, December – 31,
January – 31, February – 28, March – 31}
Days of stay in India are 305.
As per section 6(1), Stay in India is 182 days or more during the relevant previous year, hence he is resident.
and his stay during 7 years is 265 days hence he is able to comply with first condition of section 6(6)(a).
hence he is NOR.
Previous Year 2022-23
{April – 30, May – 31, June – 30, July – 31,August – 31,September – 30 , October – 31, November – 27,
March – 31}
Days of stay in India are 272, so Mr. X is Resident.
As per section 6(1), Stay in India is 182 days or more during the relevant previous year, hence he is resident.
and his stay during 7 years is 570 days hence he is able to comply with first condition of section 6(6)(a).
hence he is NOR.
Previous Year 2023-24
{April – 30, May – 31, June – 30, July – 31,August – 31, September – 30, October – 31, November – 30,
December – 31, January – 31, February – 1}
Days of stay in India are 307.
As per section 6(1), Stay in India is 182 days or more during the relevant previous year, hence he is resident.
and his stay during 7 years is more than 729 days hence he is not able to comply with first condition of
section 6(6)(a) and he is not able to comply second condition also i.e. non-resident in atleast 9 years out of
10 years preceding the relevant previous year. hence he is ROR.
Previous Year 2024-25
{May – 22, June – 30, July – 31, August – 31, September – 30, October – 31, November – 30, December –
31, January – 31, February – 28, March - 30}
Days of stay in India are 325.
As per section 6(1), Stay in India is 182 days or more during the relevant previous year, hence he is resident.
and his stay during 7 years is more than 729 days hence he is not able to comply with first condition of
 Residential Status & Scope of Total Income 98

section 6(6)(a) and he is not able to comply second condition of section 6(6)(a) also i.e. non-resident in
atleast 9 years out of 10 years preceding the relevant previous year. hence he is ROR.
Illustration 4: Mr. X an American citizen has come to India for the first time on 01.07.2021 as an executive
of a multinational company. His employer has allowed him to visit USA every year and for this purpose he
will be leaving India every year on 1st November and shall come back on 31st December, besides that he has
visited Hong Kong on several occasions in connection with the official work, because he is looking after the
employer’s operations in Hong Kong also, with details asunder:
Date of leaving India Date of arriving in India
10.09.2021 30.09.2021
07.02.2022 08.05.2022
11.07.2023 21.10.2022
10.02.2023 23.07.2023
11.02.2024 12.06.2024
01.02.2025 10.04.2025
Determine his residential status for the previous years 2021-22 to 2024-25.
Solution:
Previous Year 2021-22
{July – 31, August – 31, September – 11, October – 31, November – 1, December – 1, January – 31,
February – 7}
Days of stay in India are 144
As per section 6(1), Stay in India is less than 182 days but more than 60 days during the relevant previous
year but Stay in India is less than 365 days during 4 years preceding the relevant previous year, hence he is
not complying even a single condition of section 6(1) hence he is Non – resident.
Previous Year 2022-23
{May – 24, June – 30, July – 11, October – 11, November – 1, December – 1, January – 31, February – 10}
Days of stay in India are 119.
As per section 6(1), Stay in India is less than 182 days but more than 60 days during the relevant previous
year but Stay in India is less than 365 days during 4 years preceding the relevant previous year, hence he is
not complying even a single condition of section 6(1) hence he is Non – resident.
Previous Year 2023-24
{July – 9, August – 31, September – 30, October – 31, November – 1, December – 1, January – 31, February
– 11}
Days of stay in India are 145
As per section 6(1), Stay in India is less than 182 days but more than 60 days during the relevant previous
year but Stay in India is less than 365 days during 4 years preceding the relevant previous year, hence he is
not complying even a single condition of section 6(1) hence he is Non – resident.
Previous Year 2024-25
{June – 19, July – 31, August – 31, September – 30, October – 31, November – 1, December – 1, January –
31, February – 1}
Days of stay in India are 176. During the preceding 4 years, his stay is for 365 days or more so he is
resident. His stay during 7 years is 729 days or less, hence he is resident but not ordinarily resident.
Illustration 5: Mr. X, the Australian cricketer comes to India for 105 days every year. Find out his
residential status for the A.Y. 2025-26.
Solution: He has complied with condition of 60 + 365 days hence he is resident further stay in 7 years is
more than 729 days and also condition of non-resident in 9 years out of 10 years is not complied with hence
he is ROR.
Illustration 6: Mr. X, a Canadian citizen, comes to India for the first time during the P.Y.2020-21. During
the financial years 2020-21, 2021-22, 2022-23, 2023-24 and 2024-25 he was in India for 55 days, 60 days,
90 days, 150 days and 70 days respectively. Determine his residential status for the A.Y.2025-26.
 Residential Status & Scope of Total Income 99

Solution:
During the previous year 2024-25, Mr. B was in India for 70 days and during the 4 years preceding the
previous year 2024-25, he was in India for 355 days (i.e. 55 + 60 + 90 + 150 days).
Thus, he does not satisfy section 6(1). Therefore, he is a non-resident for the previous year 2024-25.
Illustration 7: On 01.06.2022 Mr. X, a Malaysian citizen leaves India after stay of 10 years. During the
financial year 2023-24 he comes to India for a period of 46 days. Later, he returns to India for one year on
10.10.2024.
Determine Mr. X’s residential status for the assessment year 2025-26.
Solution:
No. of days of stay in India
P.Y. 2024-25 173 Days
{22 + 30 + 31 + 31 + 28 + 31}
P.Y. 2023-24 46 Days
P.Y. 2022-23 62 Days
{30 + 31 + 1}
P.Y. 2021-22 365 Days
P.Y. 2020-21 365 Days
P.Y. 2019-20 366 Days
P.Y. 2018-19 365 Days
P.Y. 2017-18 365 Days
P.Y. 2016-17 365 Days
P.Y. 2015-16 366 Days
P.Y. 2014-15 365 Days
The person is resident and ordinarily resident. Mr. X was in India for 60 days in 2024-25 and for 365 days
or more in the 4 years immediately preceding the relevant previous year and he does not satisfy even a
single condition of section 6(6)(a).

Question 2: Write a note on determination of residential status of Individual covered in special

category.
Answer: Special category: explanation to section 6(1)
Certain individuals are covered in the special category and they will be considered to be resident only if they
stay in India for 182 days or more i.e. second condition of 60 plus 365 days shall not be applicable and such
individuals are:
1. Any individual who is a citizen of India and has left India for taking up any business or profession or
employment outside India e.g. Mr. X is a citizen of India and has left India on 01.09.2024 for taking up an
employment in Germany, in this case he will be covered in the special category and his status shall be non-
resident. If any such person is employed in India and he has been transferred outside India, he will also be
covered in the special category. E.g. Mr. X is employed in Punjab National Bank in India and he has been
transferred to the London branch, in this case he will be covered in the special category. If any person has
business or profession in India and he is going out of India in connection with business or profession, he will
not be covered in special category.
2. Any individual who is a citizen of India or is a person of Indian origin and is having
business/profession/employment outside India and has come to India on a visit shall also be covered in the
special category e.g. Mr. X is a citizen of India and is settled as a doctor in USA and has come to India on a
visit for 181 days, he will be covered in the special category and his status shall be non-resident.
A person is said to be of Indian origin if he or either of his parents or either of his grandparents (including
parents of mother) were born in undivided India. e.g. Mr. X has taken birth in UK and is a citizen of UK but
his grand father has taken birth in India in 1942, in this case Mr. X will be considered to be person of Indian
origin.

Further in case of citizen of India or person of Indian origin having total income other than income from
foreign sources, exceeding 15 lakhs during the year, such individual shall be resident in India if he stays for
120 days during the year and also for 365 days during 4 years preceding the relevant previous year. Further
 Residential Status & Scope of Total Income 100

as per section 6 (6)(c), he will be considered to be NOR, if his stay is maximum upto 181 days. If stay is 182
days or more, he will be ROR/NOR as per section 6(6)(a) i.e. such person can stay in India for maximum
119 days to maintain his status of Non Resident. e.g. Mr. X is a citizen of India and is settled outside India.
(he has total income other than income from foreign sources exceeding 15 lakhs) He visits India 120 days and
earlier 4 years, he was in India for 365 days, now he will be NOR but earlier he was NR and impact shall be
his income accruing / arising abroad and received abroad but from a business controlled from India or from a
profession setup in India shall be taxable. If his total income other than income from foreign sources is upto
15 lakhs, he will be non resident. E.g. Mr. X is a citizen of India and is a doctor having practice in India but
in the year 2016 he opened a hospital outside India also and closed the hospital in India on 31.03.2019 and
left India on 01.04.2019 he visits India every year for 100 days but in the previous year 2024-25 he visited
India for 120 days. He has income from hospital outside India ₹500 lakhs, in this case his status shall be
NOR because he visited for 120 days and also for 365 days or more during 4 years preceding the relevant
previous year. He income accruing/arising abroad but from a profession setup in India shall be taxable but if
he has visited for maximum 119 days, he will be Non-resident and his income shall not be taxable.

"income from foreign sources" means income which accrues or arises outside India (except income derived
from a business controlled in or a profession set up in India).
Example
Mr. X has income accruing/arising abroad ₹ 25 lakh, out of which income from a business controlled from
India or profession set up in India is ₹ 18 lakh. He has income accruing/arising in India 13 lakh, in this case
income from foreign sources is ₹ 7 lakh (25-18) and income other than income from foreign sources is ₹ 31
lakh (18+13)

3. Any individual who is a citizen of India and has left India as a member of crew of an Indian ship, shall
also be covered in special category. The time period mentioned in Continuous Discharge Certificate shall be
considered to be the period of stay outside India and remaining time period shall be considered to be stay in
India.

4. Deemed Resident Section 6(1A)

As per section 6(1A), If any individual is a citizen of India and has total income other than the income from
foreign sources, exceeding 15 lakhs during the previous year, he shall be considered to be resident in India
if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other
criteria of similar nature. Further as per section 6 (6)(d), he will be NOR. This clause shall not apply in case
of an individual who is resident in India in the previous year under section 6(1) E.g. Mr. X is a citizen of
India and is settled in a country where he is not liable to tax (he has total income other than income from
foreign sources exceeding 15 lakhs) and he has not visited India during the current year, in this case he will
be considered to be resident and further as per section 6(6)(d), he will be considered to be NOR. (purpose is
to tax stateless persons in India provided they are Indian citizens) If his total income other than income from
foreign sources is upto 15 lakhs, he will be non resident.

Example
Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship engaged in
international traffic departing from Chennai port on 6th June, 2024. From the following details for the
P.Y.2024-25, determine the residential status of Mr. Anand for A.Y.2025-26, assuming that his stay in India
in the last 4 previous years (preceding P.Y.2024-25) is 400 days and last seven previous years (preceding
P.Y.2024-25) is 750 days:

Particulars Date
Date entered into the Continuous Discharge Certificate in respect of joining the 6th June, 2024
ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect of signing off the 9th December, 2024
ship by Mr. Anand
 Residential Status & Scope of Total Income 101

Answer.
In this case, the voyage is undertaken by an Indian ship engaged in international traffic, originating from a
port in India (i.e., the Chennai port) and having its destination at a port outside India (i.e., the Singapore
port). Hence, the voyage is an eligible voyage for the purposes of section 6(1). Therefore, the period
beginning from 6th June, 2024 and ending on 9th December, 2024, being the dates entered into the
Continuous Discharge Certificate in respect of joining the ship and signing off from the ship by Mr. Anand,
an Indian citizen who is a member of the crew of the ship, has to be excluded for computing the period of
his stay in India. Accordingly, 187 days [25+31+31+30+31+30+9] have to be excluded from the period of
his stay in India. Consequently, Mr. Anand’s period of stay in India during the P.Y.2024-25 would be 178
days [i.e., 365 days – 187 days]. Since his period of stay in India during the P.Y.2024-25 is less than 182
days, he is a non-resident for A.Y.2025-26.
Note - Since the residential status of Mr. Anand is “non-resident” for A.Y.2025-26 consequent to his
number of days of stay in P.Y.2024-25 being less than 182 days, his period of stay in the earlier previous
years become irrelevant.
Illustration 8: Mr. X, an Indian citizen, leaves India on 22.09.2024 for the first time, to work as an officer
of a company in France. Determine his residential status for the A.Y. 2025-26.
Solution:
During the previous year 2024-25, Mr. X, an Indian citizen, was in India for 175 days (i.e. 30 + 31+ 30 + 31
+ 31 + 22 days). He does not satisfy the minimum criteria of 182 days. Also, since he is an Indian citizen
leaving India for the purposes of employment, the second condition under section 6(1) is not applicable to
him. Therefore, Mr. X is a non-resident for the A.Y.2025-26.

Illustration 9: Mr. X and Mrs. X are settled outside India for the purpose of employment and they came to
India on 15.10.2024 on a visit for 7 months. Both of them are Indian citizens. In the earlier years they were
in India as follows:
Year Mr. X Mrs. X
2023 – 2024 235 Days 365 Days
2022 – 2023 330 Days 30 Days
2021 – 2022 Nil 28 Days
2020 – 2021 118 Days 120 Days
Find out the residential status of Mr. X and Mrs. X for the assessment year 2025-26.
Solution:
Both are NR for the assessment year 2025-26
Stay of Mr. X in India
Previous Year 2024-25 168 Days
{17 + 30 + 31 + 31 + 28 + 31}
Stay of Mrs. X in India
Previous Year 2024-25 168 Days
{17 + 30 + 31 + 31 + 28 + 31}
Since they are covered in special category they will be resident only if their stay in India in relevant previous
year is 182 days or more, hence they are non–resident.

Question 3: Explain how to determine residential status of HUF Section 6(2)/6(6)(b).

Answer: As per section 6(2), an HUF would be resident in India if the control and management of its
affairs is situated wholly or partly in India. If the control and management of the affairs is situated wholly
outside India it will be considered to be non-resident. Since control and management of HUF is in the hands
of its Karta hence place of stay of Karta shall be taken into consideration i.e. if Karta is out of India
throughout the year, HUF shall be Non-resident but if Karta has come to India for a few days, HUF shall be
resident.
The expression ‘control and management’ refers to the central control and management and not to the
carrying on of day-to-day business by servants, employees or agents.
 Residential Status & Scope of Total Income 102

Meaning of Not-ordinarily resident Section 6(6)(b)

If an HUF is resident, as per section 6(6)(b), it will be considered to be NOR if its Karta has complied with
at least one of the conditions given below:
(i) If the karta is in India during the 7 previous years preceding the relevant previous year for a period of
729 days or less.
(ii) If the karta is non-resident in India in any 9 out of the 10 previous years preceding the relevant
previous year, or
If karta has not complied with even a single condition, HUF shall be ROR.

Illustration 10: Karta of one Hindu Undivided Family comes to India every year for minimum 60 days and
maximum 91 days. Determine residential status of the Hindu Undivided Family and also that of the Karta
for the assessment year 2025-26.
Solution:
Hindu Undivided Family is resident since the Karta has come to India for at least 60 days but the stay of
Karta during seven years can be maximum 637 days hence Hindu Undivided Family shall be considered to
be resident but not ordinarily resident.
Karta in his individual capacity is non-resident because he cannot comply with even one of the two
conditions given under section 6(1).

Illustration 11: One Hindu Undivided Family is being managed partly from Mumbai and partly from
Nepal. Mr. X (a foreign citizen), Karta of Hindu Undivided Family, comes on a visit to India every year
since 1982 in month of April for 105 days.
Determine residential status of the Hindu Undivided Family and also that of the Karta in his individual
capacity for the assessment year 2025-26.
Solution:
For the previous year 2024-25, the control and management of the affairs of Hindu Undivided Family is
being partly managed from India. Hence Hindu Undivided Family is resident but Mr. X cannot comply with
any of the conditions of section 6(6)(b), hence Hindu Undivided Family is resident and ordinarily resident.
Karta shall be considered to be resident and ordinarily resident because his stay during 7 years is 735 days.
Also, he will not be non-resident in nine years out of ten years preceding the relevant previous year.
Question 4: Explain how to determine residential status of partnership firm or Body of Individual or
Association of Persons.
Answer:
Firms and Association of Persons Section 6(2)
A firm and an AOP would be resident in India if the control and management of its affairs is situated wholly
or partly in India. Where the control and management of the affairs is situated wholly outside India, the firm
and AOP would become a non-resident. There are no ROR or NOR in case of persons other than individual
or HUF. E.g. XY partnership firm has two partners Mr. X and Mr. Y and Mr. X is working partner and is in
USA throughout the year and Mr. Y is a dormant partner and is in India throughout the year, in this case
partnership firm shall be non-resident but if Mr. X has come to India for a few days, partnership firm shall
be resident.
Question 5: Explain how to determine residential status of a Company.
Answer:
Companies Section 6(3)
An Indian company is always resident in India even if its control and management is outside India or its
business is outside India.
A foreign company shall be resident in India if its place of effective management, at any time in that year, is
in India.
“Place of effective management” means a place where key management and commercial decisions are made
for the conduct of the business of an entity.
e.g. Micromax Informatics Ltd. was incorporated in India and it has business in many countries outside
India, in this case company shall be considered to be resident.
 Residential Status & Scope of Total Income 103

e.g. HCL Technologies Ltd. was incorporated in India and it has its control and management outside India
also, in this case company shall be considered to be resident.
e.g. ABC Ltd. was incorporated outside India and place of effective management is in India, in this case
company shall be considered to be resident.
e.g. Videocon Industries Ltd. was incorporated in India, in this case company shall be considered to be
resident.
e.g. Samsung Electronics Co., Ltd. was incorporated in South Korea and place of effective management is
also in South Korea , in this case company shall be considered to be non-resident.
e.g. BlackBerry Ltd. was incorporated in Canada and place of effective management is also in Canada, in
this case company shall be considered to be non-resident.
Illustration 12: ABC Inc., a Swedish company headquartered at Stockholm, not having a permanent
establishment in India, has set up a liaison office in Mumbai in April, 2024 in compliance with RBI
guidelines to look after its day to day business operations in India, spread awareness about the company’s
products and explore further opportunities. The liaison office takes decisions relating to day to day routine
operations and performs support functions that are preparatory and auxiliary in nature. The significant
management and commercial decisions are, however, in substance made by the Board of Directors at
Sweden. Determine the residential status of ABC Inc. for A.Y.2025-26.
Answer.
As per Section 6(3), a company would be resident in India in any previous year, if-
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India .
In this case, ABC Inc. is a foreign company. Therefore, it would be resident in India for P.Y.2024-25 only if
its place of effective management, in that year, is in India.
Explanation to section 6(3) defines “place of effective management” to mean a place where key
management and commercial decisions that are necessary for the conduct of the business of an entity as a
whole are, in substance made. In the case of ABC Inc., its place of effective management for P.Y.2024-25 is
not in India, since the significant management and commercial decisions are, in substance, made by the
Board of Directors outside India in Sweden.
ABC Inc. has only a liaison office in India through which it looks after its routine day to day business
operations in India. The place where decisions relating to day to day routine operations are taken and
support functions that are preparatory or auxiliary in nature are performed are not relevant in determining
the place of effective management.
Hence, ABC Inc., being a foreign company is a non-resident for A.Y.2025-26, since its place of effective
management is outside India in the P.Y.2024-25.
Illustration 13: Wipro Ltd. an Indian company has most of its business outside India. Determine its
residential status.
Solution:
An Indian company shall always be considered to be resident in India.
Illustration 14: Afcons Infrastructure International Ltd. is incorporated in Mauritius and its place of
effective management is in Mauritius. Determine its residential status for the assessment year 2025-26.
Solution:
Foreign company shall be resident in India only if its place of effective management, at any time in that
year, is in India. Hence, Afcons Infrastructure International Ltd. is a non-resident company.
Illustration 15: Bista Ltd., a foreign company and it carries on majority of its operations and decision
making activities from Calcutta and Assam but some part of operational activities and few decisions are
being taken from the place at which registered office of Bista Ltd. is located, i.e. Dhaka.
Determine its residential status for the assessment year 2025-26.
Solution:
Bista Ltd. is a foreign company and its place of effective management is in India. Hence Bista Ltd. is
resident in India for the assessment year 2025-26.
 Residential Status & Scope of Total Income 104

Question 6: Explain how to determine residential status of other persons.

Answer:
Local Authorities and Artificial Juridical Persons Section 6(4)
Local authorities and artificial juridical persons would be resident in India if the control and management of
its affairs is situated wholly or partly in India. Where the control and management of the affairs is situated
wholly outside India, they would become non-residents.
 Residential Status & Scope of Total Income 105

TAX INCIDENCE / SCOPE OF TOTAL INCOME

Question 7: Write a note on scope of total income or tax incidence.
Answer: As per section 5, scope of total income or tax incidence in various status shall be as given
below:
(1) Resident and ordinarily resident – In case of ROR, the following incomes shall be taxable.
(i) income accruing / arising in India.
(ii) income received or deemed to be received in India even if accruing /arising abroad.
(iii) income accruing / arising aboard and received aboard.
In simpler terms, ROR has to pay tax on his world income in India.

(2) Resident but not ordinarily resident – The following incomes shall be taxable.
(i) income accruing / arising in India.
(ii) income received or deemed to be received in India even if accruing /arising abroad.
(iii) income accruing / arising aboard and received aboard but from a business controlled from India or
from a profession which was set up in India.
Meaning of profession setup in India
Profession set up in India means that it was originally setup in India and subsequently there was an
expansion outside India. E.g. Mr. X started his profession of an advocate in Delhi and subsequently he
opened his branch outside India, it will be called profession setup in India.
(3) Non-resident –The following incomes shall be taxable.
(i) income accruing /arising in India.
(ii) income received or deemed to be received in India even if accruing /arising abroad.

Meaning of income received in India

Income shall be considered to be received in India if it has been received directly in India from its source i.e.
if the income has been received outside India and after that it was transferred to India, it will not be
considered to be income received in India rather it is income received abroad.
Therefore, when once an amount is received as income, remittance or transmission of that amount from one
place or person to another does not constitute receipt of income in the hands of the subsequent recipient or at
the place of subsequent receipt.
Example
Mr. X has one house in USA and rent has been received directly in India. It will be considered to be income
received in India and it is chargeable to tax in case of all the three status, but if Mr. X has one bank account
with Bank of America, New York and rent has been deposited in that account and subsequently the bank has
transferred the amount to Mr. X in India, it will be considered to be income received outside India, because
income has already been received outside India and subsequently it was remitted to India.
Similarly, if Mr. X has income in Nepal and it was deposited in the branch of an Indian bank in Nepal,
subsequently the amount was remitted in India, it will be considered to be income received outside India.

Illustration 16: Mr. X has income asunder:

1. He has income from a business in Germany amounting to ₹3,00,000 and half of it was received in
India.
2. He has interest income of ₹1,00,000 from UK Development Bond and entire interest income was
credited to a bank account in UK. Subsequently, the amount was transferred in India.
3. He has a business in Bombay and entire income of ₹3,00,000 was received in UK.
4. He has one house property in Ghaziabad and income of ₹5,00,000 was received in UK.
5. He has received salary income of ₹5,00,000 (computed) in India and half of the services were
rendered in UK and half in India.
(Presume all the above incomes are computed incomes)
Compute his income presuming that he is NOR, NR and ROR.
 Residential Status & Scope of Total Income 106

Solution:
ROR NOR NR
1. Income received in India 1,50,000 1,50,000 1,50,000
Income accruing/arising abroad and received abroad 1,50,000 xxxxx xxxxx
2. Income accruing/arising abroad and received abroad 1,00,000 xxxxx xxxxx
3. Income accruing/arising in India 3,00,000 3,00,000 3,00,000
4. Income accruing/arising in India 5,00,000 5,00,000 5,00,000
5. Income received in India 5,00,000 5,00,000 5,00,000
Total 17,00,000 14,50,000 14,50,000

Illustration 17: Mr. X had following income during the previous year ended 31st March, 2025: ₹
(1) Salary accruing and arising abroad and also received abroad but brought to India
(being computed income) 25,000
(2) Income from house property in India 20,000
(3) Interest on savings bank deposit in SBI, in India 10,000
(4) Income from business in Bangladesh, received there but controlled from India 2,00,000
(5) Income from a profession in USA and received there but profession was set up in India 4,00,000

You are required to compute his gross total income for the assessment year 2025-26, if he is a
(a) resident and ordinarily resident;
(b) not ordinarily resident; and
(c) non-resident.
Presume all the above income is computed income.
Solution:
ROR NOR NR
(1) Salary income accruing/arising abroad and also received abroad 25,000 Nil Nil
(2) Income from house property in India 20,000 20,000 20,000
• Income accruing/arising in India
(3) Interest on savings bank deposit in SBI, in India 10,000 10,000 10,000
• Income accruing/arising in India
(4) Income from business in Bangladesh being controlled from India 2,00,000 2,00,000 —
• Not taxable in case of non resident
(5) Income from profession set up in India 4,00,000 4,00,000 Nil
Gross Total Income 6,55,000 6,30,000 30,000
Illustration 18: Mr. X earns the following income during the financial year 2024-25: ₹
(1) Income from house property in London, received in India 60,000
(2) Profits from business in Japan and managed from there (received in Japan) 9,00,000
(3) Profits from business in Kenya, controlled from India, Profits received in Kenya 3,00,000
(4) Profits from business in Delhi, managed from Japan 7,00,000
(5) Capital gains on transfer of shares of Indian companies, sold in USA and gains were
received there 2,00,000
(6) Pension from former employer in India, received in Japan 50,000
(7) Profits from business in Pakistan, deposited in bank there 20,000
(8) Profit on sale of asset in India but received in London 8,000
(9) Interest on Government securities accrued in India but received in Paris 80,000
(10) Interest on USA Government securities, received in India 20,000
(11) Salary earned in Bombay, but received in UK 60,000
(12) Income from property in Paris, received there 1,00,000
(Presume all the above incomes are computed incomes)
Determine the gross total income of Mr. X if he is (i) resident and ordinarily resident, resident but not
 Residential Status & Scope of Total Income 107

ordinarily resident, non-resident in India during the financial year 2024-25.

Solution:
ROR NOR NR
(1) Income received in India 60,000 60,000 60,000
(2) Income accruing/arising and received outside India 9,00,000 — —
(3) Income accruing/arising and received outside India, but 3,00,000 3,00,000 —
business controlled from India
(4) Income accruing/arising in India 7,00,000 7,00,000 7,00,000
(5) Income accruing/arising in India 2,00,000 2,00,000 2,00,000
(6) Income accruing/arising in India 50,000 50,000 50,000
(7) Income accruing/arising and received outside India 20,000 — —
(8) Income accruing/arising in India 8,000 8,000 8,000
(9) Income accruing/arising in India 80,000 80,000 80,000
(10) Income received in India 20,000 20,000 20,000
(11) Income accruing/arising in India 60,000 60,000 60,000
(12) Income accruing/arising and received outside India 1,00,000 — —
Gross Total Income 24,98,000 14,78,000 11,78,000

Illustration 19: Mr. X, a foreign citizen (not being a person of Indian origin) came to India for the first time
on 2nd December, 2024 for a visit of 210 days. Mr. X had the following income during the previous year
ended 31st March, 2025: ₹
(1) Salary (computed) received in India for three months 1,00,000
(2) Income from house property in London (received there) 2,75,200
(3) Amount brought into India out of the past-untaxed profits earned in Germany 80,000
(4) Income from agriculture in Sri Lanka, received and invested there 12,300
(5) Income from business in Nepal, being controlled from India 35,000
(6) Income from house property in USA received in USA
(₹76,000 is used in Canada for meeting the educational expenses of Mr. X’s daughter and
₹ 10,000 is later on remitted in India) 86,000
You are required to compute his total income for the assessment year 2025-26.
Solution:
Mr. X is a foreign citizen. He was in India during the previous year 2024-25 for 120 (30 + 31 + 28 + 31)
days. Thus, he does not satisfy the first condition of 182 days. The second condition is also not satisfied as
Mr. X came to India for first time during the previous year 2024-25.
Mr. X is therefore non–resident in India. The total income of Mr. X for the assessment year 2025-26 will be:
₹
(1) Salary (computed) received in India for three months
• Taxable on receipt basis 1,00,000
(2) Income from house property in London (received there)
• Not taxable as income is accruing & arising outside India and is also received outside India —
(3) Amount brought in India out of the past untaxed-profits earned in Germany
• Not taxable as it is not income —
(4) Income from agriculture in Sri Lanka being invested there
• Income accrued and received outside India —
(5) Income from business in Nepal, being controlled from India
• Not taxable in the case of non- resident —
(6) Income from house property in USA received in USA
(₹ 76,000 is used in Canada or meeting the educational expenses of Mr. X’s daughter and
₹ 10,000 is later on received in India)
• Income accrued and received outside India —
Gross Total Income 1,00,000
 Residential Status & Scope of Total Income 108

Less: Deduction under chapter VI-A Nil

Total Income 1,00,000

Illustration 20: Mr. X earns the following incomes during the financial year 2024-25. ₹
(1) Profits from a business in Japan, controlled from India,
(half of the profits received in India) 40,000
(2) Income from property in Bombay, received in UK 70,000
(3) Income from a property in USA, received there but subsequently remitted to India 2,00,000
(4) Income from property in USA, received there (₹50,000 remitted in India) 80,000
(5) Salary received in India for services rendered in USA 50,000
(6) Income from profession in Paris, which was set up in India, received in Paris 80,000
(7) Interest from deposit with an Indian company, received in Japan 9,000
(8) Income from profession in Bombay received in Paris 30,000
(9) Profits of business in Iran, deposited in a bank there, business controlled from India
(out of ₹4,00,000, ₹ 1,00,000 is remitted in India) 4,00,000
(10) Interest on German development bonds, half of which is received in India 10,000
(11) Income from 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 2024-25.
Solution:
ROR NOR NR
(1) Income accruing/arising outside India from a business controlled in 40,000 40,000 20,000
India, half of the income received in India
(2) Income accruing/arising in India 70,000 70,000 70,000
(3) Income accruing/arising outside India and received outside India 2,00,000 — —
(4) Income accruing/arising outside India and received outside India 80,000 — —
(5) Income received in India 50,000 50,000 50,000
(6) Income accruing/arising and received outside India, but profession 80,000 80,000 —
set up in India
(7) Income accruing/arising in India 9,000 9,000 9,000
(8) Income accruing/arising in India 30,000 30,000 30,000
(9) Income accruing/arising outside India and received outside India,
but business controlled from India 4,00,000 4,00,000 —
(10) Income accruing/arising outside India, half received outside India 10,000 5,000 5,000
and half in India
(11) Income accruing/arising outside India, 4/5th received outside India 50,000 10,000 10,000
and 1/5th in India
Gross Total Income 10,19,000 6,94,000 1,94,000

Illustration 21: ABC partnership firm has an income of ₹3 lakhs in India and income accruing/arising
abroad and also received abroad ₹23 lakhs. It consists of two partners. Mr. X who is an active partner, is
staying outside India throughout the year. Mr. Y is a dormant partner and is staying in India throughout the
year.
Compute tax liability of the partnership firm in India for the assessment year 2025-26.
(b) Also compute tax liability of the firm if Mr. Y is also an active partner.
Solution: ₹
(a) Partnership firm is non-resident
Income from business/profession in India 3,00,000
Gross Total Income 3,00,000
 Residential Status & Scope of Total Income 109

Less: Deduction u/s under chapter VI-A Nil

Total Income 3,00,000
Tax @ 30% + HEC @ 4% 93,600
(b) Partnership firm is resident
Income from business/profession 26,00,000
Gross Total Income 26,00,000
Less: Deduction under chapter VI-A Nil
Total Income 26,00,000
Tax @ 30% + HEC @ 4% 8,11,200

Illustration 22: ABC Pvt. Ltd., an Indian company has an income of ₹30 lakhs from a business in India.
This company has a business income of ₹12 lakhs from outside India. Out of which 7 lakhs were received in
India and balance outside India.
Compute tax liability of the Indian company for the assessment year 2025-26.
Solution: ₹
Income from business in India 30,00,000
Income from outside India 12,00,000
Income under the head Business/Profession 42,00,000
Gross Total Income 42,00,000
Less: Deductions under chapter VI-A Nil
Total Income 42,00,000
Computation of Tax Liability
Tax on ₹42,00,000 @ 30% 12,60,000
Add: HEC @ 4% 50,400
Tax Liability 13,10,400
Note: Indian company is always considered to be resident in India and its incomes even earned and received
outside India shall be chargeable to tax in India.

Illustration 23: Mr. X is a citizen of India and is employed in ABC Limited and getting salary ₹1,00,000
p.m. He was transferred out of India on 01.09.2024 and he left India for first time on 01.09.2024. He visited
India from 26.01.2025 to 15.02.2025 and salary for January 2025 was received in India. At the time of
departure, he received 3 gifts ₹20,000 (each) from his 3 friends and also a mobile phone of ₹70,000.
He has agricultural income in India ₹4,00,000
Compute his tax liability for assessment year 2025-26.
(i) Default regime
(ii) Optional regime
Solution:
(i) Default regime
Mr. X shall be covered in special category, therefore as per section 6(1), his status shall be non-resident.
(30 + 31 + 30 + 31 + 31 + 1 + 6 + 15) 175 days. ₹
Income under the head Salary
Accruing / arising in India
1,00,000 x 5 5,00,000
Income received in India
1,00,000 x 1 1,00,000
Gross Salary 6,00,000
Less: Deduction u/s 16(ia) (75,000)
Income under the head salary 5,25,000

Income under the head Other Sources 60,000

Gross Total Income 5,85,000
Less: Deduction under Chapter VI-A Nil
Total Income 5,85,000
 Residential Status & Scope of Total Income 110

Agricultural Income 4,00,000

Computation of Tax Liability

Step 1. Tax on (5,85,000 + 4,00,000 = 9,85,000) at slab rate 48,500
Step 2. Tax on (4,00,000 + 3,00,000 = 7,00,000) at slab rate (20,000)
Deduct step 2 from step 1 28,500
Add: HEC 4% 1,140
Tax Liability 29,640

(ii) Optional regime

Mr. X shall be covered in special category so therefore his status shall be non-resident. ₹
(30 + 31 + 30 + 31 + 31 + 1 + 6 + 15) 175 days.
Income under the head Salary
Accruing / arising in India
1,00,000 x 5 5,00,000
Income received in India
1,00,000 x 1 1,00,000
Gross Salary 6,00,000
Less: Deduction u/s 16(ia) (50,000)
Income under the head salary 5,50,000

Income under the head Other Sources 60,000

Gross Total Income 6,10,000
Less: Deduction 80C to 80U Nil
Total Income 6,10,000
Agricultural Income 4,00,000
Computation of Tax Liability
Step 1. Tax on (6,10,000 + 4,00,000 = 10,10,000) at slab rate 1,15,500
Step 2. Tax on (4,00,000 + 2,50,000 = 6,50,000) at slab rate (42,500)
Deduct step 2 from step 1 73,000
Add: HEC 4% 2,920
Tax Liability 75,920

Question 8: Explain meaning of income deemed to accrue or arise in India Section 9.

Answer:
Income deemed to the accruing/arising in India shall be taxable in all the three status i.e. ROR/NOR/NR.
As per section 9, the following incomes shall be deemed to be accruing / arising in India.
1. If any income has its source in India, such income shall be considered to be accruing / arising in India i.e.
employment/house property/business/profession/capital asset or any other source of income is in India but if
source is partly in India and partly outside India, income shall be accruing / arising in India only to the
extent the source is in India e.g. Mr. X is employed in Punjab National Bank and is posted in Delhi branch
on a salary of ₹1,00,000 p.m. In this case, his income shall be deemed to be accruing/arising in India but if
he is transferred to the London branch w.e.f 01.01.2025, his income accruing/arising in India shall be
₹9,00,000 i.e. salary upto 31.12.2024 and the income which is accruing/arising abroad shall be ₹3,00,000
(i.e. salary from 01.01.2025 to 31.03.2025)

2. Business connection
If any person has business in India as well as outside India, it will be called business connection and in case
of such business, the income of the business deemed to accrue or arise in India shall be only such part of the
income as is reasonably attributable to the operations carried out in India and as per rule 10, assessing
officer shall have the powers to determine the extent upto which income is accruing/arising in India.
There will be a business connection if any non-resident has business outside India but has agent in India who
(a) habitually secures orders in India, for the non-resident.
 Residential Status & Scope of Total Income 111

(b) habitually maintains in India a stock of goods from which he regularly delivers goods on behalf of the
non-resident or
(c) habitually concludes contracts on behalf of the non-resident or plays the principal role leading to
conclusion of contracts and the contracts are in the name of non - resident or the contracts are for the transfer
of ownership or for granting of right to use property owned by that non- resident or the provision of services
by the non - resident.

Significant economic presence

Significant economic presence of a non-resident in India shall also constitute business connection in India.
Significant economic presence means-
(a) in respect of any goods, services or property carried out by a non-resident with any person in India
including provision of download of data or software in India and aggregate of payments arising from
such transaction or transactions during the previous year is exceeding ₹ 2 crores.
OR
(b) systematic and continuous soliciting of business activities or engaging in interaction with users in India
and the number of users should be atleast 3 lakhs.
Further, the above transactions or activities shall constitute significant economic presence in India,
whether or not,—
(i) the agreement for such transactions or activities is entered in India;
(ii) the non-resident has a residence or place of business in India; or
(iii) the non-resident renders services in India:

Business connection shall also include

The income attributable to the operations carried out in India for the purpose of business connection, shall
include income from––
(i) such advertisement which targets a customer who resides in India or a customer who accesses the
advertisement through internet protocol address located in India;
(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol
address located in India; and
(iii) sale of goods or services using data collected from a person who resides in India or from a person who
uses internet protocol address located in India.”

There is no business connection in the following three cases:

(a) If any non-resident has business outside India but such person is purchasing goods from India and do not
have any other activity in India, in this case there is no business connection but if such person has any other
activity in India, it will be considered to be business connection. e.g. Mr. X a non-resident has one shop in
New York for selling Indian goods and all these goods are purchased from India. In this case, there is no
business connection. However, if assessee is carrying out any other activity in India, it will be considered to
be business connection.
If in the above case the assessee has manufacturing unit in India, it will be considered to be a business
connection.
(b) If any non-resident has the business of running a news agency or of publishing newspapers,
magazines or journals etc. outside India, no income shall be deemed to accrue or arise in India to him
from activities which are confined to the collection of news and views in India for transmission out of India
but if newspaper etc. is being sold in India, there will be business connection or if there is telecasting or
broadcasting of such news/views etc. in India, there will be business connection and income shall be taxable
to that extent.
(c) If any non-resident is doing shooting of any cinematograph film in India, there is no business
 Residential Status & Scope of Total Income 112

connection but if such film is being shown in India, there will be business connection.

2. If any person is holding shares of any Indian company, any capital gain on transfer of such shares shall be
considered to be income accruing/arising in India even if shares were sold outside India.
In case of shares of a foreign company, capital gains shall be accruing / arising in India if the value of the
shares is because of the assets located in India or because of business in India (the amendment is to overrule
the judgment in Vodafone case).
3. If any individual is a citizen of India and is an employee of the government and is posted outside India,
his salary income shall be accruing / arising in India e.g. Mr. X is citizen of India and is an IFS. He is posted
in Indian embassy in USA, in this case, his salary income shall be accruing/arising in India.
4. If any loan has been taken by the government from outside India, interest paid by the government shall be
considered to be income of the person who has received such interest and it is accruing / arising in India and
it do not matter whether loan was used in India or outside India. e.g. If Central Government has taken a loan
from an agency in USA, equivalent to Indian ₹1,000 lakh @ 10%, in this case, interest of ₹100 lakhs paid by
the Government to such agency shall be considered to be the income of such agency accruing/arising in
India.
If such loan has been taken by a person who is resident in India, interest income shall be accruing / arising in
India only if loan amount has been used in India but if loan amount has been utilized outside India it will be
accruing / arising abroad. E.g. ABC Ltd. an Indian company has taken a loan from an agency in USA and
the amount was utilized in USA. In this case, interest income shall be accruing/arising in USA but if loan
amount is used in India in any source, it will be accruing / arising in India
If such loan has been taken by a non-resident, interest income shall be accruing / arising in India only if loan
amount has been utilised in India in business/profession but if loan amount is utilised in any other source in
India or it has been used outside India, interest income shall be accruing / arising abroad. E.g. X Ltd. a non-
resident company has taken a loan from outside India and loan amount was utilized in India in house
property. In this case, interest paid by the company shall be income of the recipient accruing/arising abroad
but if loan amount was utilised in India in business/profession, interest income shall be considered to be
accruing/arising in India. The person receiving interest shall be liable to pay income tax on such income
even if such person do not have any Territorial Nexus with India i.e. such non-resident do not have a
residence or place of business or business connection in India

MAY – 2006 (2 Marks)

Mr. X, left for USA on 01.05.2024. He has not visited India thereafter. Mr. X borrows money from his
friend Mr. Y, who left India one week before Mr. X's departure, to the extent of ₹10 lakhs and buys shares in
X Ltd., an Indian company. Discuss the taxability of the interest charged @ 10% in Mr. Y's hands where the
same has been received in New York.
Answer: Stay of Mr. X and Mr. Y during the previous year 2024-25 is less than 60 days hence both of them
are non-residents as per section 6(1).
As per section 9, if any non-resident has taken loan from outside India and the loan was utilized in India in
any source other than business or profession, interest received by the person who has given the loan shall not
be considered to be accruing/arising in India and is not taxable in India. In the given case, loan amount was
invested in the shares of an Indian company hence interest received by Mr. Y shall not be considered to be
income accruing/arising in India.

5. If government has taken any patent right or any technical services from outside India and has paid royalty
or technical fee for such patent right etc., it will be considered to be income of the person who has received
it and it is accruing / arising in India even if the patent right etc. has been used outside India.
If such payment is being given by any resident or non-resident, it will be income of the recipient accruing /
arising in India only if such patent right etc. has been used in India otherwise it will be accruing / arising
abroad.
Royalty means amount payable in connection with patent, invention, model, design, formula, process, trade
marks etc.
Fees for Technical Services means any consideration for the rendering of Managerial, Technical or
 Residential Status & Scope of Total Income 113

Consultancy Services.
If any income is accruing and arising in India relating to royalty or technical fees etc., it will be taxable in
India even if the person receiving income is non-resident and even if such non-resident do not have any
Territorial Nexus with India i.e. such non-resident do not have a residence or place of business or business
connection in India and also the non-resident has not rendered services in India.
6. If any person has received pension, it will be deemed to be accruing/arising in India if the employer is in
India. E.g. Mr. X is settled in Canada and is getting a pension of ₹30,000 p.m. from Punjab National Bank,
in this case his pension income shall be accruing/arising in India.
7. Income arising outside India shall be taxable if it is a gift of sum of money covered u/s 56(2)(x) and it is
given by a person resident in India to any person who is NOR or non-resident.

Question 9: Explain income deemed to be received in India.

Answer: Such incomes is taxable in all the three status. Under section 7, employer’s contribution to
Recognised Provident Fund in excess of 12% of salary of the employee shall be considered to be income
deemed to be received in India. Similarly, interest on the provident fund balance in excess of 9.5% p.a. shall
be considered to be income deemed to be received in India.

Illustration 24: Mrs. X is a citizen of India and is employed in ABC Ltd. in India and is getting salary of
₹60,000 p.m. and she was transferred out of India w.e.f 01.09.2024 and for this purpose she left India on
01.09.2024 for the first time and she visited India from 27.12.2024 to 07.01.2025 and her salary for the
month of Dec’ 2024 was received in India. Employer and employee both have contributed @ 13% (each) of
salary to the recognized provident fund and during the year interest of ₹50,000 was credited to the
recognized provident fund @ 10% p.a.
Compute her total income and tax liability in India for assessment year 2025-26.
(i) Default regime
(ii) Optional regime
(b) Presume she was transferred w.e.f 01.11.2024 and she left India on 01.11.2024 for the first time.
Solution:
(i) Default regime
As per section 6(1), in this case, Mrs. X is covered in special category and her stay in India is less than 182
days hence she will be non-resident and her incomes taxable in India shall be
₹
Income under the head Salary
Accruing/arising in India 3,00,000.00
60,000 x 5
Income received in India 60,000.00
60,000 x 1
Income deemed to be received in India
Employer contribution 7,200.00
(60,000 x 12) x 1% (13% - 12%)
Interest in excess of 9.5%
50,000 /10% x 0.5% = 2,500
Interest on employer contribution 1,250.00
2,500 /2
(Interest on employee contribution i.e. ₹1,250
shall be taxable under the head Other Sources)
Gross Salary 3,68,450.00
Less: Standard Deduction u/s 16(ia) (75,000.00)
Income under the head Salary 2,93,450.00
Income under the head Other Sources 1,250.00
Gross Total Income 2,94,700.00
Less: Deduction under Chapter VI-A Nil
Total Income 2,94,700.00
 Residential Status & Scope of Total Income 114

Computation of Tax Liability

Tax on ₹2,94,700 at slab rate Nil
Tax Liability Nil

Solution (b):
In this case, Mrs. X is covered in special category and her stay in India is more than 182 days hence she will
be ROR and her incomes taxable in India shall be ₹
Income under the head Salary
Accruing/arising in India 4,20,000.00
60,000 x 7
Income received in India 60,000.00
60,000 x 1
Income accruing/arising abroad / received abroad 2,40,000.00
60,000 x 4
Income deemed to be received in India
Employer contribution 7,200.00
(60,000 x 12) x 1% (13% - 12%)
Interest in excess of 9.5%
50,000 /10% x 0.5% = 2,500
Interest on employer contribution 1,250.00
2,500 /2
(Interest on employee contribution i.e. ₹1,250
shall be taxable under the head Other Sources)
Gross Salary 7,28,450.00
Less: Deduction u/s 16(ia) (75,000.00)
Income under the head Salary 6,53,450.00
Income under the head Other Sources 1,250.00
Gross Total Income 6,54,700.00
Less: Deduction under Chapter VI-A Nil
Total Income 6,54,700.00

Computation of Tax Liability

Tax on ₹6,54,700 at slab rate 17,735.00
Less: Rebate u/s 87A (17,735.00)
Tax Liability Nil

(ii) Optional regime

As per section 6(1), in this case, Mrs. X is covered in special category and her stay in India is less than 182
days hence she will be non-resident and her incomes taxable in India shall be
₹
Income under the head Salary
Accruing/arising in India 3,00,000.00
60,000 x 5
Income received in India 60,000.00
60,000 x 1
Income deemed to be received in India
Employer contribution 7,200.00
(60,000 x 12) x 1% (13% - 12%)
Interest in excess of 9.5%
50,000 /10% x 0.5% = 2,500
Interest on employer contribution 1,250.00
2,500 /2
(Interest on employee contribution i.e. ₹1,250
 Residential Status & Scope of Total Income 115

shall be taxable under the head Other Sources)

Gross Salary 3,68,450.00
Less: Standard Deduction u/s 16(ia) (50,000.00)
Income under the head Salary 3,18,450.00
Income under the head Other Sources 1,250.00
Gross Total Income 3,19,700.00
Less: Deduction u/s 80C (93,600.00)
Contribution to recognized provident fund
(60,000 x 12) x 13%
Total Income 2,26,100.00
Computation of Tax Liability
Tax on ₹2,26,100 at slab rate Nil
Tax Liability Nil

Solution (b):
In this case, Mrs. X is covered in special category and her stay in India is more than 182 days hence she will
be ROR and her incomes taxable in India shall be ₹
Income under the head Salary
Accruing/arising in India 4,20,000.00
60,000 x 7
Income received in India 60,000.00
60,000 x 1
Income accruing/arising abroad / received abroad 2,40,000.00
60,000 x 4
Income deemed to be received in India
Employer contribution 7,200.00
(60,000 x 12) x 1% (13% - 12%)
Interest in excess of 9.5%
50,000 /10% x 0.5% = 2,500
Interest on employer contribution 1,250.00
2,500 /2
(Interest on employee contribution i.e. ₹1,250
shall be taxable under the head Other Sources)
Gross Salary 7,28,450.00
Less: Deduction u/s 16(ia) (50,000.00)
Income under the head Salary 6,78,450.00
Income under the head Other Sources 1,250.00
Gross Total Income 6,79,700.00
Less: Deduction u/s 80C (93,600.00)
Contribution to recognized provident fund
(60,000 x 12) x 13%
Total Income 5,86,100.00
Computation of Tax Liability
Tax on ₹5,86,100 at slab rate 29,720.00
Add: HEC @ 4% 1,188.80
Tax Liability 30,908.80
Rounded off u/s 288B 30,910.00

If any Seafarer (crew member of ship) is Non-resident and Income is accruing/arising abroad and his
income has been received directly in his bank account in India, such income shall not be taxable.

Any past untaxed profits shall not be considered to be the income of the current year in any status i.e.
ROR, NOR, NR.
 Residential Status & Scope of Total Income 116

Example
Mr. X had income of ₹3,00,000 in the year 2021-22 but he has not disclosed the income. It was detected in
the previous year 2024-25. In this case, it will not be considered to be income of 2024-25 in any status,
rather it will be considered to be income of the year 2021-22.
Illustration 25: Determine the taxability of the following incomes in the hands of a resident and ordinarily
resident, resident but not ordinarily resident, and non-resident for the A.Y. 2025-26 –
Particulars Amount (₹ )
(1) Interest on UK Development Bonds, 50% of interest received in India 10,000
(2) Income from a business in Chennai (50% is received in India) 20,000
(3) Profits on sale of shares of an Indian company received in London 20,000
(4) Profits on sale of plant at Germany 50% of profits are received in India 40,000
(5) Income earned from business in Germany which is controlled from Delhi (₹40,000 is 70,000
received in India)
(6) Profits from a business in Delhi but managed entirely from London 15,000
(7) Income from property in London deposited in a Indian Bank at London, brought to 50,000
India
(8) Interest for debentures in an Indian company received in London. 12,000
(9) Fees for technical services rendered in India but received in London 8,000
(10) Profits from a business in Bombay managed from London 26,000
(11) Pension for services rendered in India but received in Burma 4,000
(12) Income from property situated in Pakistan received there 16,000
(13) Past foreign untaxed income brought to India during the previous year 5,000
(14) Income from agricultural land in Nepal received there and then brought to India 18,000
(15) Income from profession in Kenya which was set up in India, received there but spent 5,000
in India
(16) Gift received on the occasion of his wedding 20,000
(17) Interest on savings bank deposit in State Bank of India 10,000
(18) Income from a business in Russia, controlled from Russia 20,000
(19) Agricultural income from a land in Rajasthan 15,000

Solution: Computation of Gross Total Income for the A.Y.2025-26

Particulars Resident and Resident but not Non
ordinarily resident ordinarily resident resident
₹ ₹ ₹
(1) Interest on UK Development Bonds, 50% of 10,000 5,000 5,000
interest received in India
(2) Income from a business in Chennai (50% is 20,000 20,000 20,000
received in India)
(3) Profits on sale of shares of an Indian company 20,000 20,000 20,000
received in London
(4) Profits on sale of plant at Germany 50% of 40,000 20,000 20,000
profits are received in India
(5) Income earned from business in Germany 70,000 70,000 40,000
which is controlled from Delhi, out of which
₹40,000 is received in India
(6) Profits from a business in Delhi but managed 15,000 15,000 15,000
entirely from London
(7) Income from property in London deposited in 50,000 - -
a Bank at London, later on remitted to India
(8) Interest for debentures in an Indian company 12,000 12,000 12,000
received in London.
(9) Fees for technical services rendered in India 8,000 8,000 8,000
 Residential Status & Scope of Total Income 117

but received in London

(10) Profits from a business in Bombay managed 26,000 26,000 26,000
from London
(11) Pension for services rendered in India but 4,000 4,000 4,000
received in Burma
(12) Income from property situated in Pakistan 16,000 - -
received there
(13) Past foreign untaxed income brought to India - - -
during the previous year
(14) Income from agricultural land in Nepal 18,000 - -
received there and then brought to India
(15) Income from profession in Kenya which was 5,000 5,000 -
set up in India, received there but spent in India
(16) Gift received on the occasion of his wedding - - -
[not an income]
(17) Interest on savings bank deposit in State 10,000 10,000 10,000
Bank of India
(18) Income from a business in Russia, controlled 20,000 - -
from Russia
(19) Agricultural income from a land in Rajasthan - - -
[it is exempt u/s 10(1)]
Gross Total Income 3,44,000 2,15,000 1,80,000
 Residential Status & Scope of Total Income 118

MULTIPLE CHOICE QUESTIONS

1. If Anirudh has stayed in India in the P.Y. 2024-25 for 181 days, and he is non-resident in 9 out of 10
years immediately preceding the current previous year and he has stayed in India for 365 days in all
in the 4 years immediately preceding the current previous year and 420 days in all in the 7 years
immediately preceding the current previous year, his residential status for the A.Y.2025-26 would be-
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
2. Raman was employed in Hindustan Lever Ltd. He received a salary of ₹40,000 p.m. from 1.4.2024
to 27.9.2024. He resigned and left for Dubai for the first time on 1.10.2024 and got salary of rupee
equivalent of ₹80,000 p.m. from 1.10.2024 to 31.3.2025. His salary for October to December 2024 was
credited in his Dubai bank account and the salary for January to March 2025 was credited in his
Bombay account directly. He is liable to tax in respect of -
(a) Income received in India from Hindustan Lever Ltd;
(b) Income received in India and in Dubai;
(c) Income received in India from Hindustan Lever Ltd. and income directly credited in India;
(d) Income received in Dubai
3. A company would be a resident in India for the P.Y. 2024-25, if
(a) it is an Indian company
(b) during the year, majority of its directors are resident in India
(c) during the year, its Place of Effective Management is in India
(d) both (a) and (c)
4. Income accruing in London and received there is taxable in India in the case of-
(a) resident and ordinarily resident only
(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) both resident and non-resident
(d) non-resident
5. Incomes which accrue or arise outside India but received directly in India are taxable in case of-
(a) resident and ordinarily resident only
(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) non-resident
(d) All the above
6. Income earned from a contract negotiated by an agent in India in the name of a non-resident and
approved by such non-resident shall:
(a) be taxable in India as such income is deemed to accrue or arise in India
(b) not be taxable in India as there is no business connection in India
(c) be taxable in India only if it is received in India
(d) not taxable in India as such income accrues or arises outside India
7. Fees for technical services paid by the Central Government will be taxable in case of –
(a) resident and ordinarily resident only
(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) non-resident
(d) All the above
8. Short term capital gains on sale of shares of an Indian company received in Australia is taxable in
case of–
(a) resident and ordinarily resident only
(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) non-resident only
(d) All the above
9. Income from a business in Canada, controlled from Canada is taxable in case of –
(a) resident and ordinarily resident only
 Residential Status & Scope of Total Income 119

(b) both resident and ordinarily resident and resident but not ordinarily resident
(c) non-resident
(d) All the above
10. Income from Australian company received in Australia in the year 2023, brought to India during
the previous year 2024-25 is taxable in case of –
(a) resident and ordinarily resident only
(b) resident but not ordinarily resident
(c) non-resident
(d) None of the above
11. If Mr. Akash has stayed in India in the P.Y. 2024-25 for 100 days, and he is non-resident in 9 out
of 10 years immediately preceding the current previous year and he has stayed in India for 365 days
in all in the 4 years immediately preceding the current previous year and 730 days in all in the 7 years
immediately preceding the current previous year, his residential status for the A.Y.2025 - 26 would
be-
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
12. If Mr. A has stayed in India in the P.Y. 2024-25 for 100 days, and he is non-resident in 8 out of 10
years immediately preceding the current previous year and he has stayed in India for 365 days in all
in the 4 years immediately preceding the current previous year and 710 days in all in the 7 years
immediately preceding the current previous year, his residential status for the A.Y.2025 - 26 would
be-
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
13. Mr. A, a Canadian citizen, comes to India for the first time during the P.Y. 2020-21. He was in
India during 2020-21- 55 days, 2021-22 – 60 days, 2022-23 – 90 days, 2023-24 – 150 days, 2024-25 – 70
days. Residential status for the previous year 2024-25 shall be
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
14. Karta of one HUF comes to India every year for minimum 10 days and maximum 104 days,
residential status of HUF shall be
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Cannot be ascertained with the given information
15. ABC Ltd. an Indian company has most of its business outside India and also control and
management outside India. Residential status of company shall be
(a) Resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) None of the above
16. A Korean company received ₹20 lakhs from a non – resident for use of patent for a business in
India is _____________
(a) taxable in India
(b) not taxable in India
(c) None of the above
17. A non-resident received ₹15 lakhs from a Foreign Company outside India, it is_____
(a) taxable in India
 Residential Status & Scope of Total Income 120

(b) not taxable in India

(c) partly taxable in India
(d) None of the above
18. John is a foreign citizen born in USA. His father was born in Delhi in 1960 and his grand-father
was born in Lahore in 1935 but his mother was born in UK in 1963. John came to India for the first
time on 1st June, 2024 and stayed in India for 183 days and then left for USA. His residential status
for the A.Y. 2025-26 shall be :
(a) Resident and ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Foreign National
19. The following income of Ms. Nargis who is a non-resident shall be included in her total income:
(i) Salary for 2 months received in Delhi ₹40,000.
(ii) Interest on Savings Bank Account in Mumbai ₹2,100.
(iii) Agricultural income in Bangladesh and Invested in shares in Bangladesh.
(iv) Amount brought into India out of past non-taxed profits earned in USA.
(a) (i), (iii) and (iv)
(b) (i) and (ii)
(c) (i), (ii) and (iv)
(d) All the four above
20. The income earned during the previous year is subject to tax under the Act on the basis of
residential status of an assessee. However, the residential status of an assessee ........................ every
year.
(a) will not change
(b) will certainly change
(c) may change
(d) None of the above
21. Mr. Rajiv, born and brought up in India left for employment in Belgium on 15-10-2024. He has
never gone out of India, previously. What is his residential status for the assessment year 2025-26?
(a) Non-resident
(b) Not ordinarily resident
(c) Resident and ordinarily resident in India
(d) Indian citizen
22. Mr. Ramji (age 55) is Karta of HUF doing textile business at Nagur. Mr. Ramji is residing in
Dubai for the past 10 years and visited India for 20 days every year for filing the income tax return of
HUF. His two major sons take care of the day to day affairs of the business in India. The residential
status of HUF for the assessment year 2025-26 is :
(a) Non-resident
(b) Resident and ordinarily resident in India
(c) Not ordinarily resident
(d) None of the above
23. Past untaxed profit of the previous year 2019-20 brought to India in 2024-25 is chargeable to tax in
the assessment year 2025-26 in the hands of
(a) All the assessees
(b) Resident and ordinarily resident in India
(c) Non-resident in India
(d) None of the above.
24. Total income of a person is determined on the basis of his
(a) Residential status in India
(b) Citizenship in India
(c) Both (a) and (b) above
(d) None of the above.
 Residential Status & Scope of Total Income 121

25. Alpha Ltd. is an Indian company. It carries its business in Delhi and London. Total control and
management of the company is situated in London. More than 85% of its business income is from the
business in England. If so, its residential status will be —
(a) Resident
(b) Non-resident
(c) Not ordinarily resident
(d) Foreign company.

Answer:
1. (b); 2. (b); 3. (d); 4. (a); 5. (d); 6. (a); 7. (d); 8. (d); 9. (a); 10. (d); 11. (b); 12. (b); 13. (c); 14. (b); 15. (a);
16. (a); 17. (b); 18. (b); 19. (b); 20. (c); 21. (c); 22. (c); 23. (d); 24. (a); 25. (a)
 Residential Status & Scope of Total Income 122

PRACTICE PROBLEMS
TOTAL PROBLEMS 24
Problem 1 TO 10
Determine residential status of Mr. X for the assessment year 2025-26, who stays in India during various
financial years asunder:
Previous 1 2 3 4 5 6 7 8 9 10
Years
2024-25 65 183 181 69 300 70 72 95 180 93
2023-24 91 90 87 110 97 99 94 92 91 90
2022-23 190 78 98 91 103 104 101 100 99 80
2021-22 89 120 189 196 110 98 97 96 95 90
2020-21 87 91 92 93 94 95 94 93 92 100
2019-20 86 99 92 95 99 100 101 100 99 90
2018-19 84 66 93 94 365 210 209 208 207 80
2017-18 105 210 91 93 — 0 91 92 91 90
2016-17 110 110 92 92 362 300 200 100 — 100
2015-16 112 94 93 91 10 99 88 77 66 110
2014-15 100 96 91 90 310 100 99 92 94 120
2013-14 91 199 90 89 210 92 94 96 98 130
2012-13 94 81 89 8 92 80 70 60 50 100
2011-12 97 82 88 87 88 55 65 75 85 80
2010-11 99 83 87 86 84 40 50 60 70 60
Answer = (1) ROR; (2) ROR; (3) ROR; (4) ROR; (5) ROR; (6) NOR; (7) ROR; (8) ROR; (9) ROR; (10)
NR

Problem 11.
Mr. X, a citizen of USA, has come to India for the first time on 01.07.2020. The particulars of his arrival and
departure are as given below:
Date of arrival Date of departure
01.07.2020 11.12.2020
27.03.2021 21.07.2021
10.09.2021 01.03.2022
01.01.2023 23.09.2023
01.02.2024 01.07.2024
11.02.2025 ——
Determine his residential status for various years.
Answer = 2020-21 – Non-Resident (NR)
2021-22 – Resident but not ordinarily resident (NOR)
2022-23 – Resident but not ordinarily resident (NOR)
2023-24 – Resident but not ordinarily resident (NOR)
2024-25– Resident and ordinarily resident (ROR)

Problem 12.
Mr. X, a citizen of U.K., has come to India for the first time on 01.07.2020. The particulars of his arrival and
departure are as given below:
Date of arrival Date of departure
01.07.2020 07.09.2020
01.01.2021 08.03.2021
11.07.2021 20.09.2021
 Residential Status & Scope of Total Income 123

10.02.2022 09.05.2022
01.01.2023 20.05.2023
11.03.2024 21.06.2024
27.03.2025 ——
Determine his residential status for various years.
Answer = 2020-21 – Non-Resident (NR)
2021-22 – Non-Resident (NR)
2022-23 – Non-Resident (NR)
2023-24 – Resident but not ordinarily resident (NOR)
2024-25 – Resident but not ordinarily resident (NOR)

Problem 13.
Mr. X goes out of India every year for 274 days.
Determine his residential status for the previous year 2024-25.
Answer = Resident but not ordinarily resident (NOR)

Problem 14.
Mr. X, a citizen of Japan, has come to India for the first time on 01.10.2024 for 200 days.
Determine his residential status for the assessment year 2025-26.
Answer = Resident but not ordinarily resident (NOR)

Problem 15.
Mr. X, a citizen of U.K. came to India for the first time on 01.07.2014 in connection with his employment.
He left India on 01.11.2023 for taking up a job in USA. He again came to India on 01.01.2025 on a visit and
left India on 01.03.2025.
Determine his residential status for the assessment year 2025-26.
Answer = Resident and ordinarily resident (ROR)

Problem 16.
Mr. X, a German citizen, came to India on 23.05.2023 and left India on 30.05.2024.
Determine his residential status for the assessment year 2024-25, 2025-26.
Answer = Assessment Year 2024-25: Resident but not ordinarily resident (NOR)
Assessment Year 2025-26: Non- Resident (NR)

Problem 17.
Mr. X, a citizen of India, is employed in Soliton Technologies, an Indian company. His employer has
transferred him to his branch in Japan. Mr. X left India on 29.09.2024 for his new posting in Japan.
Determine his residential status for the assessment year 2025-26.
Prior to this, Mr. X was posted outside India for 11 months in the previous year 2019-20 and for 10.5
months in the year 2015-16.
Answer = Resident and ordinarily resident (ROR)

Problem 18.
Dr. Reddy’s Labs is an Indian company and has borrowed funds from Bank of America, New York for
investing it in one of its projects in USA. In this case, interest paid by Dr. Reddy’s Labs to Bank of America
shall be accruing/arising __________.
Answer = Outside India

Problem 19.
Calculate taxable income of an individual on the basis of the following informations, for the assessment year
2025-26, if he is:
(a) Ordinarily Resident
(b) Not Ordinarily Resident; and
 Residential Status & Scope of Total Income 124

(c) Non-Resident
₹
(i) Profit from business in Japan received in India. 10,000
(ii) Income from agriculture in Pakistan – it is all spent on the education of children there 5,000
(iii) Income accrued in India but received in England 10,000
(iv) Income from house property in Pakistan deposited in a bank there 2,000
(v) Profits of business in America deposited in a bank there. This business is controlled from India 50,000
(vi) Profits earned from business in Meerut 12,000
(vii) Past untaxed foreign income brought into India during the previous year 10,000
(Presume that all the incomes are computed incomes)
Answer: Taxable Income: Resident and ordinarily resident (ROR): ₹89,000;
Resident but not ordinarily resident (NOR) : ₹82,000;
Non-Resident (NR) : ₹32,000

Problem 20.
Mr. X earns the following income during the previous year 2024-25.
Compute his gross total income for assessment year 2025-26 if he is
(i) resident and ordinarily resident.
(ii) resident but not ordinarily resident.
(iii) non-resident. ₹
(1) Income from agricultural land in Bhutan received there and remitted to India later on 40,000
(2) Pension for service rendered in India, but received in Paris 15,000
(3) Past untaxed profits of 2023-24 brought into India in 2024-25 50,000
(4) Profits from business in Paris, deposited in bank there 1,00,000
(5) Profits from business in Canada, controlled from India, profits received there 1,75,000
(6) Interest on saving bank deposit in Punjab National Bank, in India 20,000
(7) Capital gain on sale of a house in Delhi, amount received in Paris 2,00,000
Answer: Resident and ordinarily resident (ROR): ₹5,50,000
Resident but not ordinarily resident (NOR): ₹4,10,000
Non-Resident (NR): ₹2,35,000

Problem 21.
Mr. X earns the following income during the previous year 2024-25.
Compute his Gross total income for assessment year 2025-26 if he is
(i) resident and ordinarily resident.
(ii) resident but not ordinarily resident.
(iii) non-resident. ₹
(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)
Answer: Resident and ordinarily resident (ROR): ₹10,50,000
Resident but not ordinarily resident (NOR): ₹6,80,000
Non-Resident (NR): ₹6,80,000
 Residential Status & Scope of Total Income 125

Problem 22.
Mr. X earns the following incomes during the financial year 2024-25. ₹
(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 (₹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 ₹4,80,000, ₹ 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 2024-25.
Answer: Resident and ordinarily resident (ROR): ₹13,10,000
Resident but not ordinarily resident (NOR): ₹9,34,000
Non-Resident (NR): ₹3,34,000

Problem 23.
Mr. X is a citizen of India and is employed in ABC Ltd and is getting a salary of ₹60,000 p.m. He purchased
one building in India on 1st May, 2024 for ₹10,00,000 and its market value is ₹22,00,000 and value for the
purpose of charging stamp duty is ₹13,00,000. He purchased gold for ₹8,00,000 and its market value is
₹11,00,000. He was transferred out of India w.e.f. 1st Sept, 2024 and he left India on 1st Sept, 2024 and one
of his friend gifted him one colour TV on this occasion, market value ₹1,00,000.
He has gone out of India in earlier years also.
P.Y. 2023-24 100 days
P.Y. 2022-23 200 days
He visited India from 01.02.2025 to 14.02.2025 and salary for January, 2025 was received in India.

He has purchased one house property in USA in December 2024 and sold in March 2025 and there were
short term capital gain of ₹6,00,000 and the amount was received in USA.
Compute his tax liability for the A.Y.2025-26.
Answer: Tax Liability: ₹40,040

Problem 24.
Mrs. X is employed in ABC Ltd in India and she is an American citizen and is getting a salary of ₹2,00,000
p.m.
She received gift of one painting in India from her friend on 01.07.2024 and its market value is ₹49,000 and
she also received gift in cash of ₹49,000 from the same friend and gift of immovable property with value for
the purpose of charging stamp duty is ₹51,000 from the same friend.
She purchased UK Development bond and interest equivalent of ₹2,00,000 was received in USA.
She visited USA for 182 days during P.Y.2024-25.
In the earlier year her stay in India was
P.Y. 2023-24 110 days
P.Y. 2022-23 120 days
 Residential Status & Scope of Total Income 126

P.Y. 2021-22 300 days

P.Y. 2020-21 182 days
P.Y. 2019-20 185 days
P.Y. 2018-19 200 days
P.Y. 2017-18 300 days
Compute her tax liability in India for the A.Y. 2025-26.
Answer: Tax Liability: ₹4,81,310
 Residential Status & Scope of Total Income 127

SOLUTIONS
TO

PRACTICE PROBLEMS
Solution 1:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Non-Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Resident
2016-17 Resident
2015-16 Resident
2014-15 Resident
Total stay in 7 years preceding the relevant previous year is 732 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 2:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Resident
2016-17 Resident
2015-16 Resident
2014-15 Resident
Total stay in 7 years preceding the relevant previous year is 754 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.
 Residential Status & Scope of Total Income 128

Solution 3:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Resident
2016-17 Non-Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 742 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 4:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Non-Resident
2016-17 Non-Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 772 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 5:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Non-Resident
2016-17 Resident
2015-16 Non-Resident
2014-15 Resident
Total stay in 7 years preceding the relevant previous year is 868 days.
 Residential Status & Scope of Total Income 129

Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 6:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Non-Resident
2016-17 Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 706 days.
Since the assessee is able to comply with any of the conditions of section 6(6)(a), as listed below, he will be
considered to be NOR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 7:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Resident
2018-19 Resident
2017-18 Resident
2016-17 Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 787 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 8:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
 Residential Status & Scope of Total Income 130

2019-20 Resident
2018-19 Resident
2017-18 Resident
2016-17 Non-Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 781 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 9:
2024-25 Resident
2023-24 Resident
2022-23 Resident
2021-22 Resident
2020-21 Resident
2019-20 Non-Resident
2018-19 Resident
2017-18 Non-Resident
2016-17 Non-Resident
2015-16 Non-Resident
2014-15 Non-Resident
Total stay in 7 years preceding the relevant previous year is 774 days.
Since the assessee is not able to comply with any of the conditions of section 6(6)(a), as listed below, he will
be considered to be ROR.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.

Solution 10:
Mr. X is in India for 60 days or more in 2024-25 but for less than 365 days in 4 years immediately preceding
2024-25, so he is non-resident in 2024-25.

Solution 11:
Stay of Mr. X in various years is as given below.
In P.Y. 2020-21
{July – 31, August – 31, September – 30, October – 31, November – 30, December – 11, March – 5}
Days of stay in India are 169, so Mr. X is non-resident.
In P.Y. 2021-22
{April – 30, May – 31, June – 30, July – 21, September – 21, October – 31, November – 30, December – 31,
January – 31, February – 28, March – 1}
Days of stay in India are 285. So, he is resident and also he is non-resident in at least 9 years out of 10 years
preceding the relevant previous year, hence he is NOR.
In P.Y. 2022-23
{January – 31, February – 28, March – 31}
Days of stay in India are 90. So, he is resident and also he is non-resident in at least 9 years out of 10 years
preceding the relevant previous year, hence he is NOR.
In P.Y. 2023-24
 Residential Status & Scope of Total Income 131

{April – 30, May – 31, June – 30, July – 31, August – 31, September – 23, February – 29, March – 31}
Days of stay in India are 236. So, he is resident and also his stay during seven years preceding the relevant
previous year is 729 days or less, hence he is NOR.
In P.Y. 2024-25
{April – 30, May – 31, June – 30, July – 1, February – 18, March – 31}
Days of stay in India are 141 and during the previous 4 years his stay is for 365 days or more so he is
resident and also he is ROR because he is not able to fulfil any of the conditions of section 6(6)(a). i.e.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.
Hence he is ROR .

Solution 12:
In P.Y. 2020-21
{July – 31, August – 31, September – 7, January – 31, February – 28, March – 8}
Days of stay in India are 137, so Mr. Daniel is non-resident.
In P.Y. 2021-22
{July – 21, August – 31, September – 20, February – 20, March – 31}
Days of stay in India are 123, so, he is non-resident.
In P.Y. 2022-23
{April – 30, May – 9, January – 31, February – 28, March – 31}
Days of stay in India are 129, so, he is non-resident.
In P.Y. 2023-24
{April – 30, May – 20, March – 21}
Days of stay in India are 71 and also he stays for 365 days or more during 4 years preceding the relevant
previous year and also he is able to comply with at least one of the conditions of section 6(6)(a) as given
below.
1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.
Hence he is NOR.
In P.Y. 2024-25
{April – 30, May – 31, June – 21, March – 5}
Days of stay in India are 87 and during the previous 4 years his stay is more than 365 days. So he is resident
but not ordinarily resident because he is able to fulfill at least one of the two condition given u/s 6(6)(a).

Solution 13:
Since he is out of India every year for 274 days so his days of stay in India are –
In 2024-25 91 Days
In 2023-24 92 Days
In 2022-23 91 Days
In 2021-22 91 Days
In 2020-21 91 Days
So his stay in India during the seven years immediately preceding the relevant previous year is less than 729
days, so he is resident but not ordinarily resident.

Solution 14:
Days of stay in India in P.Y. 2024-25 are 182.
{October – 31, November – 30, December – 31, January – 31, February – 28, March – 31}
So he is resident and also he will be able to comply with at least one of the conditions of section 6(6)(a) as
given below.
 Residential Status & Scope of Total Income 132

1. He is non resident in India in at least nine out of ten previous years preceding that year.
or
2. He has during the seven previous years preceding that year been in India for a period of 729 days or
less.
Hence he is NOR.

Solution 15:
His days of stay in India are as under –
In P.Y. 2014-15 274 days
{July – 31, August – 31, September – 30, October – 31, November – 30, December – 31, January – 31,
February – 28, March – 31}
In P.Y. 2015-16 366
In P.Y. 2016-17 365
In P.Y. 2017-18 365
In P.Y. 2018-19 365
In P.Y. 2019-20 366
In P.Y. 2020-21 365
In P.Y. 2021-22 365
In P.Y. 2022-23 365
In P.Y. 2023-24 215
{April – 30, May – 31, June – 30, July – 31, August – 31, September – 30, October – 31, November – 1}
In P.Y. 2024-25 60
{January – 31, February – 28, March – 1}
He is resident in 2024-25 but he is not able to comply with any of the conditions of section 6(6)(a) hence he
is resident and ordinarily resident.

Solution 16:
His days of stay in India in year 2023-24 are 313.
{May – 9, June – 30, July – 31, August – 31, September – 30, October – 31, November – 30, December –
31, January – 31, February – 28, March – 31}
So he is resident and he is also able to comply with one of the condition of section 6(6)(a) hence he will be
considered to be resident but not ordinarily resident.
His days of stay in India in 2024-25 are 60.
{April – 30 and May – 30}
So he is non–resident in the year 2024-25.

Solution 17:
His days of stay in India during 2024-25 are 182.
{April – 30, May – 31, June – 30, July – 31, August – 31, September – 29}
So Mr. X is resident in previous year 2024-25 and also he is not able to comply with any of the conditions of
section 6(6)(a) hence he will be considered to be ROR.
Solution 18:
It will be accruing arising abroad because if any loan has been taken by a person resident in India from
outside India then interest income shall be accruing arising in India only if such resident has utilized the loan
amount in India.

Solution 19:
Particulars ROR NOR NR
(i) Income accruing/arising outside India but received in India 10,000 10,000 10,000
(ii) Income accruing/arising outside India and also received abroad. 5,000 -------- --------
(iii) Income accruing/arising in India 10,000 10,000 10,000
(iv) Income accruing/arising outside India and also received abroad. 2,000 -------- --------
 Residential Status & Scope of Total Income 133

(v) Income accruing/arising outside India and also received outside India but 50,000 50,000 --------
from a business controlled from India
(vi) Income accruing/arising in India 12,000 12,000 12,000
(vii) Past profits -------- ------- --------
Taxable Income 89,000 82,000 32,000

Solution 20:
Particulars ROR NOR NR
(1) Income accruing/arising outside India and received outside India 40,000 ------- -------
(2) Income accruing/arising in India 15,000 15,000 15,000
(3) Past profits ------- ------- -------
(4) Income accruing/arising and received outside India 1,00,000 ------- -------
(5) Income accruing/arising and received outside India, but business 1,75,000 1,75,000 -------
controlled from India
(6) Income deemed to be accruing/ arising in India 20,000 20,000 20,000
(7) Income deemed to be accruing/ arising in India 2,00,000 2,00,000 2,00,000
Gross Total Income 5,50,000 4,10,000 2,35,000

Solution 21:
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

Solution 22:
ROR NOR NR
(1) Income accruing/arising outside India from a business controlled in 60,000 60,000 30,000
India, half of the income received in India
(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 90,000 90,000 ------
set up in India
(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, 4,80,000 4,80,000 ------
but business controlled from India
(11) Income accruing/arising outside India, half received outside India 12,000 6,000 6,000
and half in India
 Residential Status & Scope of Total Income 134

(12) Income accruing/arising outside India, 4/5th received outside India 50,000 10,000 10,000
and 1/5th in India
Gross Total Income 13,10,000 9,34,000 3,34,000

Solution 23:
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
Income accruing/arising in India 3,00,000.00
(60,000 x 5)
Income received in India 60,000.00
(60,000 x 1)
Gross Salary 3,60,000.00
Less: Standard Deduction u/s 16(ia) (75,000.00)
Gross Salary 2,85,000.00
Income under the head Other Sources
Gift of gold (₹11,00,000 – ₹8,00,000) 3,00,000.00
Gift of building (₹13,00,000 – ₹10,00,000) 3,00,000.00
Income under the head Other Sources 6,00,000.00
Gross Total Income 8,85,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 8,85,000.00
Computation of Tax Liability
Tax on ₹8,85,000 at slab rate 38,500.00
Add: HEC @ 4% 1,540.00
Tax Liability 40,040.00

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

Solution 24:
In this case, Mrs. X stays in India for more than 182 days during the previous year 2024-25 and also she is
not able to comply with any of the conditions of section 6(6)(a), she will be considered to be ROR.
Her incomes taxable in India shall be ₹
Income under the head Salary
Income accruing/arising in India 24,00,000.00
(2,00,000 x 12)
Gross Salary 24,00,000.00
Less: Standard deduction u/s 16(ia) (75,000.00)
Income under the head Salary 23,25,000.00
Income under the head Other Sources
Gift from friend (immovable property) 51,000.00
Interest from UK Development bond 2,00,000.00
(Received in USA)
Income under the head Other Sources 2,51,000.00
Gross Total Income 25,76,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 25,76,000.00
Computation of Tax Liability
Tax on ₹25,76,000 at slab rate 4,62,800.00
Add: HEC @ 4% 18,512.00
Tax Liability 4,81,312.00
Rounded off u/s 288B 4,81,310.00
 Residential Status & Scope of Total Income 135

EXAMINATION QUESTIONS
NOV– 2023
Question 2(a) (3 Marks)
State (Yes/No) whether the following transactions can be treated as income deemed to accrue or arise in
India:
(i) Hire charges paid outside India for the use of machinery situated in India.
(ii) Income of a non-resident and non-citizen of India from the shooting of cinematograph film in India.
(iii) Capital gain arising through a transfer of a house property situated in India, the place of registration and
the place of payment of consideration being outside India.
(iv) Salary paid by the Government to a citizen of India for the services rendered outside India.
(v) Past period foreign untaxed income brought to India during the previous year.
(vi) Gift received by a non-resident on the occasion of his wedding in India.
Solution:
(i) Hire charges paid outside India for the use of machinery situated in India. It is accruing/arising in India
because source of income is in India.
(ii) Income of a non-resident and non-citizen of India from the shooting of cinematograph film in India. It is
income accruing/arising abroad, provided the film is shown outside India.
(iii) Capital gain arising through a transfer of a house property situated in India, the place of registration and
the place of payment of consideration being outside India. It is accruing/arising in India because source
of income is in India.
(iv) Salary paid by the Government to a citizen of India for the services rendered outside India. It is
accruing/arising in India.
(v) Past period foreign untaxed income brought to India during the previous year. Such income is not
taxable, hence not accruing/arising in India.
(vi) Gift received by a non-resident on the occasion of his wedding in India. It is accruing/arising in India
however it is exempt from income tax.

NOV– 2023
Question 2(b) (4 Marks)
Mr. Sanjay has following incomes during the previous year 2024-25. Compute taxable income of Mr. Sanjay
for the assessment year 2025-26 if he is a
(i) Not Ordinarily resident (ii) Non resident
(i) Interest on England Development Bonds (1/3 received in India) ₹ 60,000.
(ii) Interest received from a non-resident ₹ 5,000 against a loan given to him to run a business in India.
(iii) Royalty received from Akhil, a resident, for technical services given to run a business outside India
₹20,000.
(iv) Income from business in Sri Lanka ₹ 25,000 out of which ₹ 15,000 were received in India. The business
is controlled from India.
Solution:
NOR NR
(i)(a) Income accruing/arising abroad and received abroad ₹40,000 Nil Nil
(i)(b) Income received in India ₹20,000 20,000 20,000
(ii) Interest received from a non-resident ₹ 5,000 against a loan given to 5,000 5,000
him to run a business in India.
(iii) Royalty received from Akhil, a resident, for technical services given to Nil Nil
run a business outside India ₹20,000.
(iv)(a) Income accruing/arising abroad and received abroad ₹10,000 10,000 Nil
(iv)(b) Income received in India ₹15,000 15,000 15,000
Taxable Income 50,000 40,000
 Residential Status & Scope of Total Income 136

MAY– 2023
Question 2(a)(i) (3 Marks)
Mr. Jai Chand (an Indian citizen) left India for doing a business in country X on 5th June, 2015. He regularly
visited India and stayed for 119 days in every previous year since then. He has business in country X which
is controlled from India and income from such business is ₹600 lakhs.
Country X does not tax any individual on their income as there is no personal income-tax regime there.
Determine the residential status of Mr. Jai Chand for the Assessment year 2025-26.
Solution:
Determination of residential status of Mr. Jai Chand for A.Y. 2025-26
Since Mr. Jai Chand, an Indian citizen is coming to India every year for 119 days, he is non-resident for P.Y.
2024-25 as per section 6(1).
However, since he is an Indian citizen having total income (excluding income from foreign sources) of ₹600
lakhs which exceeds the threshold of ₹ 15 lakhs during the previous year; and not liable to tax in Country X,
he would be deemed resident in India for the P.Y. 2024-25 as per section 6(1A)
A deemed resident is always a resident but not ordinarily resident in India (RNOR) as per section 6(6)(d)
and his income shall be taxable in India

MAY– 2023
Question 2(a)(ii) (Modified) (4 Marks)
Mr. Prashant (aged 35 years) is an Australian citizen (but he is a person of Indian origin) who is settled in
Australia and visits India for 125 days in every financial year since past 11 years. During the F.Y. 2024-25,
he visited India for a total period of 181 days. The purpose of his visit was to meet his family members who
are settled in India and also for managing his family members who are settled in India and also for managing
his business in Sri Lanka through his office in Chennai, India.
During the P.Y. 2024-25, he has the following incomes:
(A) Income from business in Australia controlled form Australia - ₹ 20,00,000
(B) Income from business in Sri Lanka controlled form Chennai - ₹ 16,00,000
(C) Short-term capital gains on sale of shares of an Indian company received in Australia - ₹ 50,000.
(The shares were sold online from Australia.)
(D) Income from agricultural land in Australia, received there and then brought to India - ₹ 2,00,000

Find out the residential status of Mr. Prashant and compute his total income for Assessment Year 2025-26.
Solution:
As per section 6(1) Mr. Prashant is covered in special category and his income other than income from
foreign sources is exceeding ₹15,00,000 and he comes to India for atleast 120 days and also for 365 days
during 4 years preceding the relevant previous year hence he is resident and further as per section 6(6)(c) he
is NOR. Tax incidence for various incomes shall be as given below:

(A) Income from business in Australia controlled from Australia Nil

(not taxable in case of RNOR, since it accrues and arises outside India)
(B) Income from business in Sri Lanka (taxable since it is controlled from India) 16,00,000
(C) Short-term capital gains on sale of shares of an Indian company 50,000
(D) Income from agricultural land in Australia would not be taxable in case of RNOR Nil
(since it accrues and arises outside India)
Total Income 16,50,000
NOV– 2022
Question 2(a) (6 Marks)
Mr. Sarthak, an individual and Indian citizen living abroad (UAE), a tax haven, since year 2017 and never
came to India for a single day since then, earned the following incomes during previous year 2024-25:
 Residential Status & Scope of Total Income 137

PARTICULARS Amount
(in ₹)
(i) Income accrued and arised in UAE not taxable in UAE (being tax haven) 20,00,000
(ii) Income accrued and arised in India 5,00,000
(iii) Income deemed to accrue and arise in India 8,00,000
(iv) Income arising in UAE from a profession set up in India 10,00,000

I. Determine the residential status of Mr. Sarthak and taxable income for the previous year 2024-25
(assuming no other income arised during the previous year).
II. What would be your answer if income arising in UAE from a profession set up in India is ₹2 lakhs
instead of ₹10 lakhs?
III. What would be your answer, if Mr. Sarthak born in UAE and his parents were born in undivided India?
Solution:
I. Mr. Sarthak is an Indian citizen living in UAE since 2017 who never came to India for a single day
since then, he would be non-resident in India for the P.Y. 2024 -25 on the basis of number of days of his
stay in India as per section 6(1). However, since he is an Indian citizen having total income (excluding
income from foreign sources) of ₹ 23 lakhs, which exceeds the threshold of ₹ 15 lakhs during the
previous year and not liable to tax in UAE, he would be deemed resident in India for the P.Y. 2024-25
u/s 6(1A) and further u/s 6(6)(d), he will be NOR and his total income shall be as given below:

(i) Income accrued and arisen in UAE (not taxable in case of an RNOR) Nil
(ii) Income accrued and arisen in India (taxable) 5,00,000
(iii) Income deemed to accrue or arise in India (taxable) 8,00,000
(iv) Income arising in UAE from a profession set up in India 10,00,000
Total income 23,00,000

II. If income arising in UAE from a profession set up in India is ₹ 2 lakhs instead of ₹ 10 lakhs, his total
income (excluding income from foreign sources) would be only ₹ 15 lakhs. Since the same does not
exceed the threshold limit of ₹ 15 lakhs, he would be non-resident and his total income would be only
₹13 lakhs (₹ 5 lakhs + ₹ 8 lakhs).

III. If Mr. Sarthak is born in UAE and his parents were born in India, he would not be an Indian citizen, but
he may qualify as person of Indian origin. In such case, the provisions relating to deemed resident
would not apply to him. Accordingly, he would be non-resident in India during the P.Y. 2024-25 and
his total income would be ₹13 lakhs.

DEC – 2021
Question 2(a) (modified) (5 Marks)
Examine the tax implications of the following transactions for the assessment year 2025-26: (Give brief
reason)
(i) Ms. Juhi, a non-resident in India is engaged in operations which are confined to purchase of goods in
India for the purpose of export. She has earned ₹2,50,000 during the previous year 2024-25.
(ii) Mr. Naveen, a non-resident in India, has earned ₹3,00,000 as royalty for a patent right made available to
Mr. Rakesh who is also a non-resident. Mr. Rakesh has utilized patent rights for development of a
product in India and 50% royalty is received in India and 50% outside India.
(iii) Mr. James, a NRI, borrowed ₹10,00,000 on 01.04.2024 from Mr. Akash who is also non-resident and
invested such money in the shares of an Indian Company. Mr. Akash has received interest @ 12% per
annum.
Answer
(i) In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or
 Residential Status & Scope of Total Income 138

from operations which are confined to the purchase of goods in India for the purpose of export.
Thus, income of ₹ 2,50,000 arising in the hands of Ms. Juhi would not be taxable in her hands in
India, since her operations are confined to purchase of goods in India for the purpose of export.
(ii) Royalty payable by a non-resident would be deemed to accrue or arise in India in the hands of the
recipient only when such royalty is payable in respect of any right, property or information used for
the purposes of a business or profession carried on by such non-resident in India or earning any
income from any source in India.
In the present case, since Mr. Rakesh, a non-resident, paid the royalty of ₹ 3,00,000 for a patent right
used for development of a product in India, the same would be taxable in India in the hands of the
recipient, Mr. Naveen, a non-resident, irrespective of the fact that only 50% of the royalty is received
in India.
(iii) Interest payable by a non-resident on the money borrowed for any purpose other than a business or
profession in India, would not be deemed to accrue or arise in India.
In the present case, since Mr. James, a non-resident borrowed the money for investment in shares of
an Indian company, the interest on such borrowing of ₹ 1,20,000 (₹ 10,00,000 x 12%) payable to Mr.
Akash, a non-resident would not be deemed to accrue or arise to him in India. Hence, the same would
not be taxable in India in the hands of Mr. Akash.

MAY – 2021
Question 3(b) (4 Marks)
Mrs. Shruti is an Indian citizen, is currently in employment with an overseas company located in USA.
During the previous year 2024-25, she comes to India for 157 days. She is in India for 200 days, 100 days,
76 days and 45 days in the financial years 2020-21, 2021-22, 2022-23 and 2023-24 respectively. Her annual
income for the previous year 2024-25 is as follows:
Particulars Amount
(₹)
Income from salary earned and received in USA 2,00,000
Income earned and received from a house property situated in USA 5,00,000
Income deemed to be accrued and arise in India 5,00,000
Income from retail business (accrued and received outside India, controlled from India) 10,00,000
Income accrued and arise in India 3,00,000
Life insurance premium paid by cheque in India 1,50,000

Determine the residential status of Mrs. Shruti for the assessment year 2025-26. (Support your Answer with
computation)
Answer:
Mrs. Shruti is an Indian citizen in employment in USA and she comes on a visit to India during the
P.Y.2024-25, she is covered in special category and her total income other than income from foreign sources
is exceeding ₹15 lakh, she will be resident if her stay in India is 120 days or more and also for 365 days or
more during 4 years preceding the relevant previous year.
Stay in previous year 2024-25 is 157 days and during 4 years preceding previous year 2024-25 is 421 days
(200 + 100 + 76 + 45). She is resident and also as per section 6(6)(c) is NOR.
Working Note:
Computation of Total Income of Mrs. Shruti (excluding income from foreign sources)
Particulars ₹
Income from salary earned and received in USA (income from a foreign source, hence,
 Residential Status & Scope of Total Income 139

to be excluded) Nil
Income earned and received from a house property situated in USA (income from a foreign
source, hence, to be excluded) Nil
Income deemed to accrue or arise in India 5,00,000
Income from retail business (to be included since the business is controlled from India,
even though such income accrues and is received outside India) 10,00,000
Income accrued and arising in India 3,00,000
18,00,000
Less: Deduction under chapter VI-A Nil
Total income (excluding income from foreign sources) 18,00,000

NOV – 2020
Question 4 (a) (5 Marks)
Mr. Thomas, a non-resident and citizen of Japan entered into following transactions during the previous year
ended 31.03.2025. Examine the tax implications in the hands of Mr. Thomas for the Assessment Year 2025-
26 as per Income Tax Act, 1961. (Give brief reasoning)
(l) Interest received from Mr. Marshal, a non-resident outside India (The borrowed fund is used by Mr.
Marshal for investing in Indian company's debt fund for earning interest)
(2) Received ₹10 lakhs in Japan from a business enterprise in India for granting license for computer
software (not hardware Specific).
(3) He is also engaged in the business of running news agency and earned income of ₹10 lakhs from
collection of news and views in India for transmission outside India.
(4) He entered into an agreement with SKK & Co., a partnership firm for transfer of technical documents
and design and for providing. services relating thereto, to set up a Denim Jeans manufacturing plant, in
Surat (India). He charged ₹10 lakhs for these services from SKK & Co.
Solution:
(1) As per section 9, If loan has been taken by a non-resident, interest income shall be accruing / arising in
India only if loan amount has been utilised in India in business/profession but if loan amount is utilised in
any other source in India or it has been used outside India, interest income shall be accruing / arising abroad.
In the given case, loan amount is used for investing in Indian company debt fund for earning interest and
not for business purpose hence interest income shall not be considered to be accruing arising from India and
shall not be taxable in India.
(2) As per section 9, If any income is accruing and arising in India relating to royalty or technical fees etc., it
will be taxable in India even if the person receiving income is non-resident and even if such non-resident do
not have any Territorial Nexus with India i.e. such non-resident do not have a residence or place of business
or business connection in India and also the non-resident has not rendered services in India. In the given
case, income received for granting licence for computer software shall be deemed to be income accruing
arising in India and shall be taxable in India.
(3) As per section 9, If any non-resident has the business of running a news agency or of publishing
newspapers, magazines or journals etc. outside India, no income shall be deemed to accrue or arise in
India to him from activities which are confined to the collection of news and views in India for transmission
out of India but if newspaper etc. is being sold in India, there will be business connection or if there is
telecasting or broadcasting of such news/views etc. in India, there will be business connection and income
shall be taxable to that extent.
In the given case, income is from transmission outside India hence income shall not be deemed to accrue
arise in India and shall not be taxable in India.
(4) As per section 9, income by way of fees for technical services payable by a person who is a non-
resident, where the fees are payable in respect of services utilised in a business or profession carried on by
such person in India or for the purposes of making or earning any income from any source in India.
In the given case, services utilized in a business in India hence income shall be accruing arising from India
and same shall be taxable in India.
 Residential Status & Scope of Total Income 140

MAY – 2019
Question 2 (a) (7 Marks)
The following are the income of Shri Subhash Chandra, a citizen of India for the previous year 2024-25:

(i) Income from business in India ₹ 2,00,000. The business is controlled from London and
₹ 60,000 were remitted to London.
(ii) Profits from business earned in Japan ₹ 70,000 of which ₹ 20,000 were received in India.
This business is controlled from India.
(iii) Untaxed income of ₹ 1,30,000 for the year 2021-22 of a business in England which was
brought in India on 3rd March, 2025.
(iv) Royalty of ₹ 4,00,000 received from Shri Ramesh, a resident for technical service provided to
run a business outside India.
(v) Agricultural income ₹ 90,000 in Bhutan.
(vi) Income of ₹ 73,000 from house property in Dubai, which was deposited in bank at Dubai.
Compute Gross total income of Shri Subhash Chandra for the A.Y. 2025-26, if he is –
(1) A resident and Ordinarily Resident, and
(2) A resident and Not Ordinarily Resident

Solution 2(a) :
As per section 5, All Global Income of ROR shall be taxable in India but in case of NOR income accruing
arising in India or received in India shall be taxable in India. In case of NOR, income accruing / arising
aboard and received aboard but from a business controlled from India or from a profession which was set up
in India shall be taxable in India.
S.No. Particulars ROR NOR
(i) Income from business in India, controlled from London 2,00,000 2,00,000
(ii) Profit from business in Japan, controlled from India 70,000 70,000
(iii) Past years untaxed foreign income brought to India - -
(iv) Royalty Income from a resident for technical service to run business 4,00,000 4,00,000
outside India (assumed amount received in India)
(v) Agriculture Income from Bhutan (i.e. outside India) assumed received 90,000 -
in Bhutan
(vi) Income from house property in Dubai received in Dubai 73,000 -
Gross Total Income 8,33,000 6,70,000

Note: Student can take assumption that royalty received outside India, in such case royalty shall be
taxable in case of ROR only.
Note: In the above solution income of 73,000 is presumed to be computed income under the head
house property. Student can also presume such amount as rent received (as the amount is deposited in
bank account) and standard deduction u/s 24(a) @ 30% shall be allowed from 73,000 and taxable
amount shall be 51,100.

MAY – 2019
Question 2(a) Marks 4
Mr. Bachhan has provided the following details of his income for the year ended 31-3-2025.
Particulars ₹

(1) Short term capital gains on sale of shares in Indian company received in Japan. 85,000
(2) Rent from property in Bangladesh deposited in a bank at Dhaka, later on remitted to
India through approved banking channels. 96,000
Compute his total income for the Assessment Year 2025-26 in case of he is:
 Residential Status & Scope of Total Income 141

(i) Resident and ordinarily resident;

(ii) Resident but not ordinarily resident; or
(iii) Non-resident
Solution 2(a):
As per section 5, All Global Income of ROR shall be taxable in India but in case of NOR/NR income
accruing arising in India or received in India shall be taxable in India. In case of NOR, income accruing /
arising abroad and received abroad but from a business controlled from India or from a profession which
was set up in India shall be taxable in India.
S.No. Particulars ROR NOR NR
(i) Short term capital gains on sale of shares in Indian 85,000 85,000 85,000
company received in Japan (income accruing/arising
from India)
(ii) Rent from property in Bangladesh deposited in a bank 67,200 - -
at Dhaka, later on remitted to India through approved
banking channels (income accruing arising abroad
received abroad) (96,000 – 30% of 96,000)
Gross Total Income 1,52,200 85,000 85,000
Less: Deduction under chapter VI-A - - -
Total Income 1,52,200 85,000 85,000

NOV – 2014
Question 2(a). (5 Marks)
Mrs. X and Mrs. Y are sisters and they earned the following income during the Financial Year 2024-25.
Mrs. X is settled in Malaysia since 2018 and visits India for a month every year. Mrs. Y is settled in Indore
since her marriage in 2019. Compute the total income of Mrs. X and Mrs. Y for the assessment year 2025-
26:
Sl. Particulars Mrs. X Mrs. Y
No. ₹ ₹
(i) Income from Profession in Malaysia, (set up in India) received there 15,000 -
(ii) Profit from business in Delhi, but managed directly from Malaysia 40,000 -
(iii) Rent (computed) from property in Malaysia deposited in a Bank at Malaysia, 1,20,000 -
later on remitted to India through approved banking channels.
(iv) Cash gift received from a friend on Mrs. Y’s 50th birthday - 51,000
(v) Agricultural income from land in Maharashtra 7,500 4,000
(vi) Past foreign untaxed income brought to India 5,000 -
(vii) Fees for technical services rendered in India received in Malaysia 25,000 -
(viii) Income from a business in Pune (Mrs. X receives 50% of the income in India) 12,000 15,000
(ix) Interest on debentures in an Indian company (Mrs. X received the same in 18,500 14,000
Malaysia)
(x) Short-term capital gain on sale of shares of an Indian company 15,000 25,500
(xi) Interest on Fixed Deposit with SBI in India 12,000 8,000
Solution: Computation of Total Income of Mrs. X and Mrs. Y for the A.Y. 2025-26
Sl.No. Particulars Mrs. X Mrs. Y
NR ROR
(i) Income from Profession in Malaysia, (set up in India) received - -
there
(ii) Profit from business in Delhi, but managed directly from Malaysia 40,000 -
(iii) Rent (computed) from property in Malaysia deposited in a Bank at - -
Malaysia, later on remitted to India through approved banking
channels.
(iv) Cash gift received from a friend on Mrs. Y’s 50th birthday - 51,000
 Residential Status & Scope of Total Income 142

(v) Agricultural income from land in Maharashtra (exempt u/s 10(1)) - -

(vi) Past foreign untaxed income brought to India - -
(vii) Fees for technical services rendered in India received in Malaysia 25,000 -
(viii) Income from a business in Pune (Mrs. X receives 50% of the 12,000 15,000
income in India)
(ix) Interest on debentures in an Indian company (Mrs. X received the 18,500 14,000
same in Malaysia)
(x) Short-term capital gain on sale of shares of an Indian company 15,000 25,500
(xi) Interest on fixed deposit with SBI in India 12,000 8,000
Total Income 1,22,500 1,13,500

MAY – 2013
Question 2(a). (4 Marks)
Mr. X and Mr. Y are brothers and they earned the following incomes during the financial year 2024-25.
Mr. X settled in America in the year 2019 and Mr. Y settled in Mumbai. Mr. X visits India for 20 days
every year. Mr. Y also visits America every year for a month. Compute their total income for the
Assessment year 2025-26 from the following information.
Sl. Particulars Mr. X Mr. Y
No. ₹ ₹
1. Interest on American Development bonds, 50% of interest received in 46,000 18,000
India.
2. Short term capital gains on sale of shares of an Indian company 45,000 75,000
received in India.
3. Profit from a business in Mumbai, but managed directly from America. 10,000 -
4. Income from a business in Mumbai. 32,000 28,000
5. Fees for technical services rendered in America and received in America. 1,50,000 -
The services were, however, utilized in India.
6. Interest on fixed deposit with State Bank of India, Mumbai. 4,500 12,000
7. Income from house property at Mumbai. 67,200 38,500
Solution:
Computation of Total Income of Mr. X & Mr. Y for the A.Y. 2025-26
Sl. Particulars Mr. X Mr. Y
No. NR ROR
(₹) (₹)
1. Interest on American Development Bonds 23,000 18,000
2. Short term capital gains on sale of shares of an Indian company 45,000 75,000
received in India
3. Profit from a business in Mumbai but managed directly from America 10,000 -
4. Income from a business in Mumbai 32,000 28,000
5. Fees for technical services rendered in America, and received in 1,50,000 -
America, but services utilized in India
6. Interest on fixed deposit with State Bank of India, Mumbai 4,500 12,000
7. Income from house property at Mumbai 67,200 38,500
Total Income 3,31,700 1,71,500

MAY – 2012
Question 2 (5 Marks)
Mr. X & Mr. Y are brothers and they earned the following incomes during the financial year 2024-25. Mr. X
settled in Canada in the year 2019 and Mr. Y settled in Delhi. Compute the total income for the assessment
year 2025-26.
 Residential Status & Scope of Total Income 143

Sl. Particulars Mr. X Mr. Y

No.
1. Interest on Canada Development Bond, (only 50% of interest 35,000 40,000
received in India)
2. Profit from a business in Nagpur, but managed directly from 1,00,000 1,40,000
London
3. Short term capital gain on sale of shares of an Indian 60,000 90,000
company received in India
4. Income from a business in Chennai 80,000 70,000
5. Fees for technical services rendered in India, but received in 1,00,000 -----
Canada
6. Interest on fixed deposit in UCO Bank, Delhi 7,000 12,000
7. Agricultural income from a land situated in Andhra Pradesh 55,000 45,000
8. Income under the head house property at Bhopal 1,00,000 60,000
Answer: Computation of Total Income of Mr. X and Mr. Y for the A.Y. 2025-26
Sl. Particulars Mr. X Mr. Y
No. Non-Resident ROR
1. Interest on Canada Development Bond, (only 50% of interest received 17,500 40,000
in India)
2. Profit from a business in Nagpur, but managed directly from London 1,00,000 1,40,000
3. Short term capital gain on sale of shares of an Indian company 60,000 90,000
received in India
4. Income from a business in Chennai 80,000 70,000
5. Fees for technical services rendered in India, but received in Canada 1,00,000 -----
6. Interest on fixed bank deposit in UCO Bank, Delhi 7,000 12,000
7. Agricultural income from a land situated in Andhra Pradesh ------ ------
8. Income under the head house property at Bhopal 1,00,000 60,000
Total Income 4,64,500 4,12,000
Notes:
1. Agricultural income from a land situated in Andhra Pradesh (in India), is exempted under section 10(1) of
Income tax Act, 1961 in case of both non-resident and resident assessee.

MAY-2012 (3 Marks)
Discuss the correctness or otherwise of the statement – “Income deemed to accrue or arise in India to a non-
resident by way of interest, royalty and fees for technical services is to be taxed irrespective of territorial
nexus”.
Answer: As per section 9, if any non-resident has provided any patent right or any managerial, technical
services and such patent right etc. was used in India, in such cases any royalty or fee received by non-
resident shall be considered to be income accruing/arising in India and shall be taxable and it do not matter
that the non-resident do not have residence or place of business or business connection in India i.e. there is
no territorial nexus or non-resident has not rendered services in India. E.g. If Suzuki Incorporation of Japan
a non-resident company has provided technical know-how in Japan to Maruti Udyog Limited for use in
India and has received ₹300,00,000 in this case, such income is deemed to be accruing/arising in India and is
taxable in India even if Suzuki Incorporation do not have any Territorial Nexus with India i.e. the company
do not have place of residence or place of business in India. Similarly if any loan was given by a non-
resident to some other non-resident and such other non-resident has utilized loan amount in India in
business/profession, interest received by the non-resident shall be considered to be his income
accruing/arising in India even if such non-resident do not have any territorial nexus with India.
 Residential Status & Scope of Total Income 144

MAY – 2011 (3 Marks)

Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management consultant practicing in Colombo,
specializing in project financing. The payment was made in Colombo. Mr. Kulasekhara is a non-resident.
The consultancy related to a project in India with possible Ceylonese collaboration. Is this payment
chargeable to tax in India in the hands of Mr. Kulasekhara, since the services were used in India?
Answer: As per section 9, if any non-resident has provided any patent right or any managerial, technical
services and such patent right etc. was used in India, in such cases any royalty or fee received by non-
resident shall be considered to be income accruing/arising in India and shall be taxable and it do not matter
that the non-resident do not have residence or place of business or business connection in India i.e. there is
no territorial nexus or non-resident has not rendered services in India. In the instant case, since the services
were utilized in India, the payment received by Mr. Kulasekhara, a non-resident, in Colombo is chargeable
to tax in his hands in India, as it is deemed to accrue or arise in India.

NOV – 2009 (4 Marks)

Determine the taxability of income of US based company ABC Ltd., in India on entering following
transactions during the financial year 2024-25:
(i) ₹5 lacs received from an Indian domestic company for providing technical know how in India.
(ii) ₹6 lacs from an Indian firm for conducting the feasibility study for the new project in Finland.
(iii) ₹4 lacs from a non-resident for use of patent for a business in India.
(iv) ₹8 lacs from a non-resident Indian for use of know how for a business in Singapore.
(v) ₹10 lacs for supply of manuals and designs for the business to be established in Singapore.
Explain the rate of tax applicable on taxable income for US based company, ABC Ltd., in India.
Answer: A non resident is chargeable to tax in India in respect of following incomes:
(i) Income received or deemed to be received in India.
(ii) Income accruing or arising or deemed to accrue or arise in India.
In view of the above provisions, taxability of income is determined in following manner:
S. No. Transaction details Amount (₹)
(i) Amount received from an Indian domestic company for providing technical 5 Lacs
know how in India is taxable in India
(ii) Conducting the feasibility study for the new project in Finland for the Indian firm Nil
is not taxable in India as it is for the business outside India.
(iii) Money received from a non resident for use of patent for a business in India is 4 Lacs
taxable in India
(iv) Money received from a non resident Indian for use of know-how for a business in Nil
Singapore is for the business outside India, therefore not taxable in India.
(v) Payment received for supply of manuals and designs for the business to be Nil
established in Singapore is not taxable in India.
Total Income in India 9 Lacs
The basic normal rate applicable for the US based company who is a foreign company is 40% In case the
taxable income is more than 1 crore but upto ₹10 crore in the previous year, the surcharge @ 2% is
applicable. The HEC is payable @ 4%.

MAY – 1998 (4 Marks)

Mr. Nixon, an American citizen, is appointed by a multi-national company to its branch in New Delhi in
2021. Mr. Nixon has never been to India before this appointment. He arrives in Bombay on 15th April, 2021
and joins the New Delhi office on 20th April, 2021. His wife and children join him in India on 20th October,
2021. The company allotted him a leased residence for purposes of his stay. This residence is occupied by
him from the beginning of October, 2021.
On 10th February, 2022, he is transferred by his employer, on deputation basis, to be the Regional Chief of
his employer’s operations in South East Asia having headquarters in Hongkong. He leaves New Delhi on
11th February and arrives in Hongkong on 12th February, 2022. Mr. Nixon leaves behind his wife and
children in India till 14th August, 2023, when they leave along with him for Hongkong. Mr. Nixon had come
 Residential Status & Scope of Total Income 145

to India earlier on 15th June, 2023, on two months’ leave. The members of the family occupied the residence
till date of departure to Hongkong.
At the end of the period of deputation, Mr. Nixon is reposted to India and joins the New Delhi office of his
employer as Chief of Indian operations on 2nd February, 2025.
In what residential status Mr. Nixon will be assessable, for the various years, to income tax in India?
Answer:
The period of stay of Mr. Nixon for various years is given below:
P.Y. 2021-22 Period of stay 303 days
(April – 16, May -31, June – 30, July – 31, August – 31, September – 30, October – 31, November – 30,
December – 31, January – 31, February – 11)
P.Y. 2022-23 Period of stay Nil
P.Y. 2023-24 Period of stay 61 days
(June – 16, July – 31, August – 14)
P.Y. 2024-25 Period of stay 58 days
(February – 27, March – 31)
Under section 6(1) of the Act, an individual is said to be resident in India in any previous year if he satisfies
one of the following basic conditions:
(i) is in India in the previous year for a period of 182 days or more ;
(ii) is in India for a period of 60 days or more in the previous year and 365 days or more during the four
years preceding the previous year.
A person will be considered to be ‘not ordinarily resident’ if he satisfies any of the following two conditions
viz;
(i) he has been in India for a period of 729 days or less in 7 previous years preceding the relevant previous
year.
(ii) he has been a non resident in India in 9 out of 10 previous years preceding the relevant previous year ; or
Maintenance of a residence in India or the stay of the wife and children in India are not relevant for
determining the residential status of Mr. Nixon.
In the above background, Mr. Nixon’s case will be decided as under:
(i) P.Y. 2021-22: has been in India for 303 days. He will be a resident under the basic conditions. Since his
stay in seven years preceding the relevant previous year is Nil i.e. 729 days or less, hence he will be NOR
(ii) P.Y. 2022-23: has not been in India at all ; though his wife and children continue to reside in New Delhi,
he will be a non-resident for this year.
(iii) P.Y. 2023-24: has been in India for 61 days and for 303 days in 4 years preceding the relevant previous
year hence he will be non-resident.
(iv) P.Y. 2024-25: has been in India for 58 days, he will be non-resident.
 Income Under The Head House Property 146

INCOME UNDER THE HEAD

HOUSE PROPERTY
SECTION 22 TO 27
PARTICULARS SECTIONS
Income from house property—Chargeability and meaning of house property 22
Annual value—
House let out throughout the year/partly let out/partly vacant 23(1)
One house which is self-occupied 23(2)
House partly self-occupied/partly let out, may or may not be vacant 23(3)
More than one house which are self-occupied 23(4)
Municipal tax Proviso to sec 23(1)
Treatment of unrealised rent Explanation to 23(1)
Statutory Deduction/Standard Deduction 24(a)
Interest on capital borrowed 24(b)
Interest in case of loan taken from outside India 25
Recovery of unrealised rent / Arrears of rent 25A
Property owned by co-owners 26
Deemed ownership 27
Meaning of unrealised rent Rule 4

Question 1: Explain chargeability of income under the head house property.

Answer: Chargeability of income under the head house property Section 22
Income from letting out of house property is chargeable to tax under the head House Property. If the income
is from sale or purchase of house property, it will be taxable under the head Capital Gains, however if the
sale or purchase is part of a business, income is taxable under the head Business/Profession.
House property shall include all types of house properties i.e. residential houses, shops, godowns, cinema
building, workshop building, hotel buildings etc.
The term house property shall include not only the buildings but also the lands appurtenant thereto i.e. the
term house property shall include even any open land which is part and parcel of the building. E.g. Mr. X
has one big house and it includes vast open area within its boundaries. The house has been let out at a rent of
₹1,00,000 p.m., out of which rent of ₹25,000 p.m. is attributable to the open land. In this case, entire rental
income is taxable under the head house property.
If any person has let out only land, which is not essential part of any building, income is taxable under the
head other sources. E.g. Mr. X has one big piece of land which is let out for arranging exhibitions or for the
purpose of marriage parties etc., rent received or receivable is taxable under the head other sources (It is also
called vacant site lease rent). If any person has business of letting out of open land, income shall be taxable
under the head business profession

Income from property held as stock-in-trade/ from business of letting out house property
If any person is holding house property as stock-in-trade i.e. for sale/purchase of house property, income
shall be taxable under the head Business/Profession. Similarly if any person has business of letting out of
house property, income shall be taxable under the head Business/Profession. E.g. ABC Ltd. is holding 500
flats for the purpose of letting out, income shall be taxable under the head business/profession.
 Income Under The Head House Property 147

If any person is holding house property for the purpose of sale/purchase but it has been let out for some
time, income shall be taxable under the head House Property.

Computation of Income under the head House Property

Gross Annual Value (GAV) ₹…………….
Less: Municipal Taxes ₹.……………
Net Annual Value (NAV) ₹.….………..
Less:
Deduction allowed under section 24
- Statutory deduction / standard deduction @ 30% of NAV [Section 24(a)] ₹……..………
- Interest on borrowed capital for construction etc. [Section 24(b)] ₹……………..
Income under the head “House Property” ₹……………..

Question 1: Write a note on computation of income of a house property which is let out throughout
the year.
Answer: As per section 23(1)(a)/(b), gross annual value i.e. reasonable rental value shall be computed in
the manner given below:
1. Compare Fair Rent and Municipal Valuation and select the higher.
2. Compare the rent so selected with Standard Rent and the lower of the two shall be considered to be
Expected Rent. (It is also called Annual Letting Value)
3. Compare Expected Rent with Rent Received or Receivable and the higher shall be considered to be Gross
Annual Value.
Fair rent i.e. the rent of similar types of buildings in the same locality.
Municipal valuation i.e. rental value determined by the municipality for the purpose of charging municipal
tax. It is also called rateable value.
Standard rent i.e. the highest possible rent as per Rent Control Act.
Rent received or receivable
Illustration 1: Mr. X has one house property which is let out @ ₹1,80,000 p.m. Fair rent ₹1,90,000 p.m.,
Municipal Valuation ₹1,70,000 p.m., Standard Rent ₹1,81,000 p.m. Municipal tax paid ₹60,000 and interest
paid on loan for construction of house property is ₹ 50,000.
Compute his Income Tax Liability for A.Y 2025-26.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value 21,72,000.00
Working Note: ₹
(a) Fair Rent (1,90,000 x 12) 22,80,000
(b) Municipal Value (1,70,000 x 12) 20,40,000
(c) Higher of (a) or (b) 22,80,000
(d) Standard Rent (1,81,000 x 12) 21,72,000
(e) Expected Rent {Lower of c or d} 21,72,000
(f) Rent received /receivable (1,80,000 x 12) 21,60,000
GAV shall be higher of (e) or (f) 21,72,000
Less: Municipal Tax (60,000.00)
Net Annual Value 21,12,000.00
Less: 30% of NAV u/s 24(a) (6,33,600.00)
Less: Interest on capital borrowed u/s 24(b) (50,000.00)
Income under the head House Property 14,28,400.00
Gross Total Income 14,28,400.00
Less: Deduction under Chapter VI-A NIL
Total Income 14,28,400.00
Computation of Tax Liability
Tax on ₹14,28,400 at slab rate 1,25,680.00
 Income Under The Head House Property 148

Add: HEC @ 4% 5,027.20

Tax Liability 1,30,707.20
Rounded off u/s 288B 1,30,710.00

Illustration 2: Mrs. X has let out one House property @ ₹62,000 p.m., Municipal Valuation ₹72,000 p.m.,
Fair Rent ₹90,000 p.m., Standard Rent ₹1,00,000 p.m., Municipal Tax paid ₹40,000 and Interest on loan
taken for construction ₹60,000. She has income under the head Business/Profession ₹10,00,000.
She has completed the age of 60 years on 31.03.2026.
Compute Income Tax Liability for the A.Y 2025-26.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value 10,80,000.00
Working Note: ₹
(a) Fair Rent (90,000 x 12) 10,80,000
(b) Municipal Value (72,000 x 12) 8,64,000
(c) Higher of (a) or (b) 10,80,000
(d) Standard Rent (1,00,000 x 12) 12,00,000
(e) Expected Rent {Lower of c or d} 10,80,000
(f) Rent received /receivable (62,000 x 12) 7,44,000
GAV shall be higher of (e) or (f) 10,80,000
Less: Municipal Tax (40,000.00)
Net Annual Value 10,40,000.00
Less: 30% of NAV u/s 24(a) (3,12,000.00)
Less: Interest on capital borrowed u/s 24(b) (60,000.00)
Income from house property 6,68,000.00
Income under the head Business/Profession 10,00,000.00
Gross Total Income 16,68,000.00
Less: Deduction under Chapter VI-A NIL
Total Income 16,68,000.00
Computation of Tax Liability
Tax on ₹16,68,000 at slab rate 1,90,400.00
Add: HEC @ 4% 7,616.00
Tax Liability 1,98,016.00
Rounded off u/s 288B 1,98,020.00

Illustration 3: Mr. X owns five houses in Chennai, all of which are let-out. Compute the GAV of each
house from the information given below –
Particulars House I House II House III House IV House V
Municipal Value 80,000 55,000 65,000 24,000 75,000
Fair Rent 90,000 60,000 65,000 25,000 80,000
Standard Rent N.A. 75,000 58,000 N.A. 78,000
Actual rent received/ receivable 72,000 72,000 60,000 30,000 72,000
Solution:
GAV 90,000 72,000 60,000 30,000 78,000

MAY – 2012 (5 Marks)

Mr. X owns five houses at Cochin. Compute the gross annual value of each house from the information
given below:
House-I House-II House-III House-IV House –V
Municipal value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard rent 1,08,000 N.A. 1,44,000 N.A. 78,000
 Income Under The Head House Property 149

Actual rent received/ 1,80,000 2,10,000 1,20,000 1,08,000 72,000

receivable
Answer:
House I ₹
Computation of Gross Annual Value
(a) Fair Rent 1,50,000
(b) Municipal Valuation 1,20,000
(c) Higher of (a) or (b) 1,50,000
(d) Standard Rent 1,08,000
(e) Expected Rent {Lower of (c) or (d)} 1,08,000
(f) Rent Received/Receivable 1,80,000
(g) Higher of (e) or (f) shall be GAV 1,80,000
House II ₹
Computation of Gross Annual Value
(a) Fair Rent 2,40,000
(b) Municipal Valuation 2,40,000
(c) Higher of (a) or (b) 2,40,000
(d) Standard Rent N.A
(e) Expected Rent {Lower of (c) or (d)} 2,40,000
(f) Rent Received/Receivable 2,10,000
(g) Higher of (e) or (f) shall be GAV 2,40,000
House III ₹
Computation of Gross Annual Value
(a) Fair Rent 1,14,000
(b) Municipal Valuation 1,10,000
(c) Higher of (a) or (b) 1,14,000
(d) Standard Rent 1,44,000
(e) Expected Rent {Lower of (c) or (d)} 1,14,000
(f) Rent Received/Receivable 1,20,000
(g) Higher of (e) or (f) shall be GAV 1,20,000
House IV ₹
Computation of Gross Annual Value
(a) Fair Rent 84,000
(b) Municipal Valuation 90,000
(c) Higher of (a) or (b) 90,000
(d) Standard Rent N.A
(e) Expected Rent {Lower of (c) or (d)} 90,000
(f) Rent Received/Receivable 1,08,000
(g) Higher of (e) or (f) shall be GAV 1,08,000
House V ₹
Computation of Gross Annual Value
(a) Fair Rent 80,000
(b) Municipal Valuation 75,000
(c) Higher of (a) or (b) 80,000
(d) Standard Rent 78,000
(e) Expected Rent {Lower of (c) or (d)} 78,000
(f) Rent Received/Receivable 72,000
(g) Higher of (e) or (f) shall be GAV 78,000

Question 2: Explain deductibility of property taxes (municipal taxes).

Answer: Property Taxes (municipal taxes) Proviso to Section 23(1)
In order to maintain any particular town or city, there is always some authority and it is called local authority
e.g. MCD in Delhi and such authority is allowed to charge certain tax in connection with house property and
 Income Under The Head House Property 150

such tax are called municipal tax or house tax or property tax. If an assessee has paid such tax, deduction
shall be allowed for the tax so paid from GAV but if tax is due but not paid, deduction is not allowed.
If tax has been paid by the tenant, in that case tax shall not be allowed to be deducted.
Example
During the previous year 2024-25 municipality has levied taxes ₹20,000, but the assessee has paid ₹15,000.
In this case, amount allowed to be deducted is ₹15,000. In the next year, municipality has levied taxes of
₹45,000 but the assessee has paid ₹ 55,000 which includes ₹5,000 for the earlier year and ₹5,000 for the
subsequent year. In this case, amount allowed to be deducted in previous year 2025-26 shall be ₹55,000.

Question 3: Write a note on set off and carry forward of losses under the head house property.
Answer: Set off and carry forward of losses under the head house property Section 70/71/71B
Inter Source adjustment Section 70
As per section 70, if any person has loss from any house property, such loss can be set off from income of
any other house property and it is called inter-source adjustment or intra-head adjustment. E.g. Mr. X has
two houses: there is loss of ₹5,00,000 from one house and income of ₹8,00,000 from the other house, in this
case, loss of one source (house) can be set off from income of the other source (house).
Inter Head adjustment Section 71
As per section 71, unadjusted loss can not be set off from incomes of other heads. E.g. Mr. X has loss from
house property ₹1,50,000 and income from business/profession ₹5,00,000, in this case, loss is not allowed to
be set off.
Carry Forward and Set Off Section 71B
As per section 71B, unadjusted loss is allowed to be carried forward to the subsequent years but for a
maximum period of 8 years starting from the year subsequent to the year in which the loss was incurred and
in the subsequent years, loss can be set off only from income under the head house property. E.g. Mr. X has
incurred loss under the head house property in the previous year 2025-26/assessment year 2026-27 and it
could not be set off in the same year, it can be carried forward upto Previous Year 2033-34/Assessment Year
2034-35 (as shown below)
Year 1 Previous year 2026-27 Assessment Year 2027-28
Year 2 Previous year 2027-28 Assessment Year 2028-29
Year 3 Previous year 2028-29 Assessment Year 2029-30
Year 4 Previous year 2029-30 Assessment Year 2030-31
Year 5 Previous year 2030-31 Assessment Year 2031-32
Year 6 Previous year 2031-32 Assessment Year 2032-33
Year 7 Previous year 2032-33 Assessment Year 2033-34
Year 8 Previous year 2033-34 Assessment Year 2034-35
E.g. Mr. X has loss under the head house property of the previous year 2017-18/assessment year 2018-19
₹5,00,000 and income under the head house property ₹5,00,000 in previous year 2025-26/assessment year
2026-27, in this case, loss shall be allowed to be set off because it will be allowed to be carried forward upto
a period of 8 years starting from Previous Year 2018-19/Assessment Year 2019-20 and is as shown below:
Year 1 Previous year 2018-19 Assessment Year 2019-20
Year 2 Previous year 2019-20 Assessment Year 2020-21
Year 3 Previous year 2020-21 Assessment Year 2021-22
Year 4 Previous year 2021-22 Assessment Year 2022-23
Year 5 Previous year 2022-23 Assessment Year 2023-24
Year 6 Previous year 2023-24 Assessment Year 2024-25
Year 7 Previous year 2024-25 Assessment Year 2025-26
Year 8 Previous year 2025-26 Assessment Year 2026-27

Additional Points
1. If the loss can be set off, it has to be set off compulsorily i.e. it is not voluntary. E.g. Mr. X has loss from
one house property ₹3,00,000 in previous year 2025-26/assessment year 2026-27 and income from under
head property ₹3,00,000 in the same year, in this case loss has to be set off.
2. Any loss has to be set off first within the same head and after that under some other heads and after that
 Income Under The Head House Property 151

carry forward is allowed.

3. Loss of current year shall be set off first and only after that brought forward losses can be adjusted, eg.
Mr. X has income from one house ₹ 10,00,000 and loss from other house ₹ 10,00,000 in P.Y. 2025-26 and
also unadjusted loss of ₹ 10,00,000 under the head house property of P.Y. 2017-18, in this case loss of
current year is to be adjusted first.

Question 4: Write a note on computation of income of house lying vacant for some period.
Answer: House lying vacant for some period Section 23(1)(c)
If the house is partly let out and partly vacant, in such cases expected rent shall be computed for 12 months
but while computing rent received /receivable, rent for the period for which the house was vacant shall be
excluded and GAV shall be higher of expected rent and rent received/receivable but if the rent
received/receivable is less than the expected rent owing to vacancy, in that case rent received/receivable
shall be gross annual value. e.g. If expected rent is ₹20,000 p.m. and rent received/receivable is ₹15,000
p.m. and there is vacancy for 5 months, in this case GAV shall be the expected rent because even if there
was no vacancy, still rent received/receivable was less than expected rent.
If in this case rent received/receivable is ₹25,000 p.m. and it is vacant for 5 months, gross annual value shall
be the rent received/receivable because if there was no vacancy, rent R/R would have been higher than
expected rent accordingly in the given case, R/R is lower than expected rent owing to vacancy.

Illustration 4: Compute gross annual value in the following cases for the assessment year 2025-26:
Particulars Situation 1 Situation 2 Situation 3 Situation 4
Fair Rent (p.m.) 9,000 13,000 16,000 12,000
Municipal Valuation (p.m.) 10,000 9,000 18,000 9,000
Standard Rent (p.m.) 12,000 11,000 16,000 7,000
Rent received/ receivable 7,000 11,500 16,000 20,000
(p.m.)
Vacancy 1 month 1 month 2 months 2 month
Solution:
Situation 1 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,08,000
(9,000 x 12)
(b) Municipal Valuation 1,20,000
(10,000 x 12)
(c) Higher of (a) or (b) 1,20,000
(d) Standard Rent 1,44,000
(12,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,20,000
(f) Rent Received/Receivable 77,000
(7,000 x 11)
If there was no vacancy, in that case rent received/receivable would have been ₹7000 x 12 = ₹84,000
and it is still less than expected rent, therefore GAV shall be expected rent.
Gross Annual Value 1,20,000
Situation 2 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,56,000
(13,000 x 12)
(b) Municipal Valuation 1,08,000
(9,000 x 12)
(c) Higher of (a) or (b) 1,56,000
(d) Standard Rent 1,32,000
(11,000 x 12)
 Income Under The Head House Property 152

(e) Expected Rent {Lower of (c) or (d)} 1,32,000

(f) Rent Received/Receivable 1,26,500
(11,500 x 11)
In this case, if there was no vacancy, rent received/receivable would have been ₹11500 x 12 = ₹1,38,000
hence rent received/receivable is lower in this case due to vacancy, therefore GAV
shall be the rent received/receivable.
Gross Annual Value 1,26,500
Situation 3 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,92,000
(16,000 x 12)
(b) Municipal Valuation 2,16,000
(18,000 x 12)
(c) Higher of (a) or (b) 2,16,000
(d) Standard Rent 1,92,000
(16,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,92,000
(f) Rent Received/Receivable 1,60,000
(16,000 x 10)
In this case, if there was no vacancy, rent received/receivable would have been ₹16,000 x 12 = ₹1,92,000
hence rent received/receivable is lower in this case owing to vacancy, therefore GAV
shall be the rent received/receivable.
Gross Annual Value 1,60,000
Situation 4 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,44,000
(12,000 x 12)
(b) Municipal Valuation 1,08,000
(9,000 x 12)
(c) Higher of (a) or (b) 1,44,000
(d) Standard Rent 84,000
(7,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 84,000
(f) Rent Received/Receivable 2,00,000
(20,000 x 10)
In this case, rent R/R is higher than the expected rent, GAV shall be Rent R/R
Gross Annual Value 2,00,000

Question 5: Write a note on House lying vacant for full year.

Answer: As per section 23(1)(c), if any House Property is lying vacant throughout the year, it will be
considered to be deemed to be let out and income shall be computed in the similar manner as in case of a let
out house. Expected Rent shall be considered to be Gross annual value.

As per section 23 (5), Where the property consisting of any building or land appurtenant thereto is held as
stock-in trade and the property or any part of the property is not let during the whole of the previous year,
the annual value of such property or part of the property, for the period up to two year from the end of the
financial year in which the certificate of completion of construction of the property is obtained from the
competent authority, shall be taken to be nil.

Question 6: Write a note on unrealized rent.

Answer: Treatment of unrealised rent Explanation to Section 23(1)/Rule 4
Unrealised rent means such rent which is irrecoverable and is considered to be lost i.e. bad debt and in such
cases, expected rent shall be computed for full year and while computing rent received or receivable, such
 Income Under The Head House Property 153

unrealised rent shall be excluded and GAV shall be higher of expected rent and rent received/receivable (no
special treatment like vacancy).
e.g. Mr. X has let out one house ₹50,000 p.m. , fair rent ₹45,000 p.m., municipal valuation ₹40,000 p.m.
standard rent ₹70,000 p.m. and there was unrealized rent for 3 months, in this case GAV of the house shall
be
Expected rent (45,000 x 12) 5,40,000
Rent received /receivable (50,000 x 9) 4,50,000
GAV 5,40,000
Rent shall be considered to be unrealised rent only if all the conditions of Rule 4 have been complied
with and such conditions are:
(a) the assessee should take legal steps to get the house property vacated from the tenant including any other
property of the assessee occupied by the same tenant.
(b) the assessee has taken legal steps for recovery of rent or satisfies the Assessing Officer that legal
proceedings would be useless.
(c) the tenancy is bona fide (genuine)

Recovery of unrealised rent Section 25A

If any assessee has recovered unrealized rent in subsequent years, rent so recovered shall be considered to be
income of the assessee under the head house property and it do not matter whether the assessee has any
house property in his name in that year or not. If assessee has received any interest, it will be considered to
be income of the assessee under the head other sources. If assessee has incurred any expenses on legal
proceedings, it will not be allowed to be deducted.
A sum equal to thirty per cent of the unrealised rent shall be allowed as deduction.

Illustration 5: Compute gross annual value in the following cases for the assessment year 2025-26:
Particulars Situation 1 Situation 2 Situation 3 Situation 4
Fair Rent (p.m.) 11,000 13,000 16,000 14,000
Municipal Valuation (p.m.) 12,000 11,000 18,000 9,000
Standard Rent (p.m.) 13,000 12,000 17,000 8,000
Rent received/ receivable 8,000 12,500 17,000 21,000
(p.m.)
Vacancy - 2 months 3 month 1 month
Unrealised rent 1 month - 1 month 3 month
Solution:
Situation 1 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,32,000
(11,000 x 12)
(b) Municipal Valuation 1,44,000
(12,000 x 12)
(c) Higher of (a) or (b) 1,44,000
(d) Standard Rent 1,56,000
(13,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,44,000
(f) Rent Received/Receivable 88,000
(8,000 x 11)
GAV = Higher of (e) or (f) 1,44,000
Gross Annual Value 1,44,000
Situation 2
Computation of Gross Annual Value
(a) Fair Rent 1,56,000
(13,000 x 12)
 Income Under The Head House Property 154

(b) Municipal Valuation 1,32,000

(11,000 x 12)
(c) Higher of (a) or (b) 1,56,000
(d) Standard Rent 1,44,000
(12,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,44,000
(f) Rent Received/Receivable 1,25,000
(12,500 x 10)
In this case, if there was no vacancy, rent received/receivable would have been ₹12,500 x 12 = ₹1,50,000
hence rent received/receivable is lower in this case due to vacancy, therefore GAV
shall be the rent received/receivable.
Gross Annual Value 1,25,000
Situation 3
Computation of Gross Annual Value
(a) Fair Rent 1,92,000
(16,000 x 12)
(b) Municipal Valuation 2,16,000
(18,000 x 12)
(c) Higher of (a) or (b) 2,16,000
(d) Standard Rent 2,04,000
(17,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 2,04,000
(f) Rent Received/Receivable 1,36,000
(17,000 x 8)
If there was no vacancy, in that case rent received/receivable would have been ₹17,000 x 11= ₹1,87,000
and It was still less than expected rent, therefore GAV shall be expected rent.
Gross Annual Value 2,04,000
Situation 4
Computation of Gross Annual Value
(a) Fair Rent 1,68,000
(14,000 x 12)
(b) Municipal Valuation 1,08,000
(9,000 x 12)
(c) Higher of (a) or (b) 1,68,000
(d) Standard Rent 96,000
(8,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 96,000
(f) Rent Received/Receivable 1,68,000
(21,000 x 8)
In this case, rent R/R is higher than the expected rent, GAV shall be Rent R/R
Gross Annual Value 1,68,000

Illustration 6: Mr. X has let out one house property to Mr. Y @ ₹ 80,000 p.m. Fair rent ₹90,000 p.m.
Municipal valuation ₹80,000 p.m. and Standard rent of the house ₹76,000 p.m. The house remained vacant
for 2 months and there was unrealised rent for 3 months. Mr. X has paid municipal tax of ₹60,000 and
interest on loan for construction of house property is ₹69,000. He has income under the head
Business/Profession ₹2,00,000.
Compute his Income and Tax Liability for A.Y.2025-26.
Solution: ₹
Computation of income under the head house property
Gross Annual Value 9,12,000.00
Working Note: ₹
(a) Fair Rent (90,000 x 12) 10,80,000
 Income Under The Head House Property 155

(b) Municipal Valuation (80,000 x 12) 9,60,000

(c) Higher of (a) or (b) 10,80,000
(d) Standard Rent (76,000 x 12) 9,12,000
(e) Expected Rent {Lower of (c) or (d)} 9,12,000
(f) Rent received /receivable (80,000 x 7) 5,60,000
If there was no vacancy, in that case rent received receivable would have been
₹7,20,000 and it was still less than expected rent ,therefore GAV shall be expected rent
GAV 9,12,000
Less: Municipal Tax (60,000.00)
Net Annual Value 8,52,000.00
Less: 30% of NAV u/s 24(a) (2,55,600.00)
Less: Interest on capital borrowed u/s 24(b) (69,000.00)
Income under the head House Property 5,27,400.00
Income under the head Business/Profession 2,00,000.00
Gross Total Income 7,27,400.00
Less: Deduction under Chapter VI-A NIL
Total Income 7,27,400.00
Computation of Tax Liability
Tax on ₹ 7,27,400 at slab rate 22,740.00
Tax before HEC 22,740.00
Add: HEC @ 4% 909.60
Tax Liability 23,649.60
Rounded off u/s 288B 23,650.00

Illustration 7: Mr. X has let out one house at ₹70,000 per month fair rent ₹80,000 per month municipal
valuation ₹60,000 per month, Standard Rent ₹ 65,000 per month. Municipal tax paid ₹40,000, Interest u/s 24
(b) ₹50,000. Assessee has recovered unrealized rent of ₹60,000 plus interest ₹7,000. He has incurred legal
expenses ₹12,000 compute his Income and Tax Liability A.Y.2025-26. He has income from STCG u/s 111A
₹5,00,000
Solution:
Computation of income under the head house property ₹
Gross Annual Value 8,40,000.00
Working Note: ₹
(a) Fair Rent (80,000 x 12) 9,60,000
(b) Municipal Valuation (60,000 x 12) 7,20,000
(c) Higher of (a) or (b) 9,60,000
(d) Standard Rent (65,000 x 12) 7,80,000
(e) Expected Rent {Lower of (c) or (d)} 7,80,000
(f) Rent received /receivable (70,000 x 12) 8,40,000
(g) Higher of (e) or (f) shall be GAV 8,40,000
Less: Municipal Tax (40,000.00)
Net Annual Value 8,00,000.00
Less: 30% of NAV u/s 24(a) (2,40,000.00)
Less: Interest on capital borrowed u/s 24(b) (50,000.00)
Income under the head House Property 5,10,000.00
Add: Recovery of Unrealised rent u/s 25A 60,000.00
Less: Deduction @ 30% (18,000.00) 42,000.00
Income under the head House Property 5,52,000.00

Income under the head other sources

Interest from unrealized rent 7,000.00

Income under the head Capital Gains

 Income Under The Head House Property 156

Income from STCG u/s 111A 5,00,000.00

Gross Total Income 10,59,000.00

Less: Deduction under Chapter VI-A NIL
Total Income 10,59,000.00
Computation of Tax Liability
Tax on ₹ 5,59,000 at slab rate 12,950.00
Tax on STCG u/s 111A ₹5,00,000 @ 20% 1,00,000.00
Tax before health and education cess 1,12,950.00
Add: HEC @ 4% 4,518.00
Tax Liability 1,17,468.00
Rounded off u/s 288B 1,17,470.00

Question 7: Write a note on Statutory Deduction or Standard Deduction.

Answer: Statutory Deduction or Standard Deduction Section 24(a)
Under section 24(a), every assessee shall be allowed a notional expenditure equal to thirty per cent of the
net annual value of the house for the various expenditures incurred by him.
Actual expenditure incurred by the assessee shall not be taken into consideration.
Example
Net annual value of one house is ₹3,00,000 and actual expenditure incurred on repairs are ₹75,000,
deduction allowed under section 24(a) shall be ₹90,000.

Question 8: Write a note on deduction for interest on the capital borrowed.

Answer: Interest on borrowed capital is allowed as deduction under section 24(b)
If any assessee has taken a loan or advance for purchase/ construction / renovation / addition / alteration /
substitution or repair etc. of the house property, interest on such loan shall be allowed to be deducted under
section 24(b) from NAV and interest is allowed on due basis but only simple interest is allowed i.e. interest
on interest is not allowed. The assessee can take any number of loan. Interest for the year for which income
is being computed shall be allowed in the same year and shall be called current period interest. Interest for
the period prior to the year in which the house was purchased or constructed shall be called prior period
interest and such interest shall be allowed in 5 annual equal instalments starting from the year in which the
house was purchased or constructed. E.g. If Mr. X had taken a loan of ₹5,00,000 for construction of property
on 01.10.2023 and interest is payable @ 10% p.a. and the construction was completed on 30.06.2024, in this
case interest allowed under section 24(b) shall be:
Interest for the year (01.04.2024 to 31.03.2025) = 10% of ₹ 5,00,000 = ₹ 50,000
Prior period interest =10% of ₹ 5,00,000 for 6 months (from 01.10.2023 to 31.03.2024)=₹ 25,000
Prior period interest to be allowed in 5 equal annual installments of ₹ 5,000 from the year of completion of
construction i.e. in this case, P.Y.2024-25.
Therefore, total interest deduction under section 24(b) = 50,000 + 5000 = ₹ 55,000.
If any assessee has taken a new loan to repay the original loan, in such cases interest for such new loan shall
be allowed in the similar manner.
Unpaid purchase price would be considered as capital borrowed:
Where a buyer enters into an arrangement with a seller to pay the sale price in installments along with
interest due thereon, the seller becomes the lender in relation to the unpaid purchase price and the buyer
becomes the borrower. In such a case, unpaid purchase price can be treated as capital borrowed for acquiring
property and interest paid thereon can be allowed as deduction under section 24.

Illustration 8: Mr. X has taken a loan of ₹15,00,000 on 01.07.2020 from State Bank of India @ 12% p.a.
for construction of one house which was completed on 01.05.2024 and was let out @ ₹90,000 p.m. w.e.f
01.07.2024 and Fair rent is ₹1,25,000 p.m. and the assessee has paid municipal tax of ₹30,000 in P.Y. 2024-
25 and the assessee has repaid the loan amount in annual instalment of ₹1,00,000 starting from 01.01.2023.
Compute his income tax liability for the assessment year 2025-26. He has dividend income ₹10,00,000.
 Income Under The Head House Property 157

Solution: ₹
Computation of income under the head House Property
Gross Annual Value 13,75,000.00
Working Note: ₹
(a) Fair Rent (1,25,000 x 11) 13,75,000
(b) Expected Rent 13,75,000
(c) Rent received /receivable (90,000 x 9) 8,10,000
If there was no vacancy, in that case rent received/receivable would have been
₹9,90,000 and it was still less than expected rent ,therefore GAV shall be expected rent
GAV 13,75,000
Less: Municipal Tax (30,000.00)
Net Annual Value 13,45,000.00
Less: 30% of NAV u/s 24(a) (4,03,500.00)
Less: Interest on capital borrowed u/s 24(b) (2,84,400.00)
Working Note: ₹
Current period Interest
From 01.04.2024 to 31.03.2025
(13,00,000 x 12% x 9/12) + (12,00,000 x 12% x 3 /12) = 1,53,000
Prior period interest
From 01.07.2020 to 31.03.2024
15,00,000 x 12% x 30/12 = 4,50,000
14,00,000 x 12% x 12/12 = 1,68,000
13,00,000 x 12% x 3/12 = 39,000
Instalment = 6,57,000 / 5 = 1,31,400
Total Interest = ₹1,53,000 + ₹1,31,400= 2,84,400
Income under the head house property 6,57,100.00
Income under the head Other Sources 10,00,000.00
Gross Total Income 16,57,100.00
Less: Deduction under Chapter VI-A Nil
Total Income 16,57,100.00
Computation of Tax Liability
Tax on normal income ₹16,57,100 at slab rate 1,87,130.00
Add: HEC @ 4% 7,485.20
Tax Liability 1,94,615.20
Rounded off u/s 288B 1,94,620.00

Illustration 9: Mr. X has taken a loan of ₹15,00,000 on 01.07.2020 from State Bank of India @ 12% p.a.
for construction of one house which was completed on 01.04.2023 and was let out @ ₹90,000 p.m. w.e.f
01.05.2023 and Fair rent is ₹1,00,000 p.m. and the assessee has paid municipal tax of ₹30,000 in P.Y. 2024-
25 and the assessee has repaid the loan amount in annual instalment of ₹1,00,000 starting from 01.01.2023.
Compute his income tax liability for the assessment year 2025-26. He has income from Business/Profession
₹8,00,000.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value 12,00,000.00
Working Note: ₹
(a) Fair Rent (1,00,000 x 12) 12,00,000
(b) Expected Rent 12,00,000
(c) Rent received /receivable (90,000 x 12) 10,80,000
GAV 12,00,000
Less: Municipal Tax (30,000.00)
Net Annual Value 11,70,000.00
 Income Under The Head House Property 158

Less: 30% of NAV u/s 24(a) (3,51,000.00)

Less: Interest on capital borrowed u/s 24(b) (2,51,400.00)
Working Note: ₹
Current period Interest
From 01.04.2024 to 31.03.2025
(13,00,000 x 12% x 9/12) + (12,00,000 x 12% x 3 /12) = 1,53,000
Prior period interest
From 01.07.2020 to 31.03.2023
15,00,000 x 12% x 30/12 = 4,50,000
14,00,000 x 12% x 3/12 = 42,000
Instalment = 4,92,000 / 5 = 98,400
Total Interest = ₹1,53,000 + ₹98,400= 2,51,400
Income under the head house property 5,67,600.00
Income under the head Business/Profession 8,00,000.00
Gross Total Income 13,67,600.00
Less: Deduction under Chapter VI-A Nil
Total Income 13,67,600.00
Computation of Tax Liability
Tax on normal income ₹13,67,600 at slab rate 1,13,520.00
Add: HEC @ 4% 4,540.80
Tax Liability 1,18,060.80
Rounded off u/s 288B 1,18,060.00
Illustration 10: Mr. X took a loan of ₹5,00,000 on 01.10.2021 @ 10% p.a. for construction of house which
was completed on 31.03.2025.
Compute interest on capital borrowed for the previous year 2024-25.
Solution:
Prior period interest
From 01.10.2021 to 31.03.2024
= 5,00,000 x 10% x 30/12 = ₹1,25,000
Installment = ₹1,25,000/5 = ₹25,000
Current year interest
From 01.04.2024 to 31.03.2025
= 5,00,000 x 10% = ₹50,000
Total Interest = ₹25,000 + ₹50,000 = ₹75,000

Illustration 11: Mr. X has taken a loan of ₹10,00,000 from SBI on 01/04/2022 @ 10% p.a. for construction
of one house which was completed on 01/07/2024 and was let out at a rent of ₹30,000 per month paid
municipal taxes ₹40,000. He has taken loan of ₹10,00,000 from PNB on 01/10/2024 @ 12% p.a. to repay
the original loan compute his income and tax liability for Assessment year 2025-26. He has LTCG u/s 112
₹16,00,000.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value (30,000 X 9) 2,70,000.00
Less: Municipal Tax (40,000.00)
Net Annual Value 2,30,000.00
Less: 30% of NAV u/s 24(a) (69,000.00)
Less: Interest on capital borrowed u/s 24(b) (1,50,000.00)
Working Note: ₹
Current period Interest
From 01.04.2024 to 31.03.2025
(10,00,000 x 10% x 6/12) + (10,00,000 x 12% x 6 /12) = 1,10,000
Prior period interest
 Income Under The Head House Property 159

From 01.04.2022 to 31.03.2024

10,00,000 x 10% x 2 = 2,00,000
Instalment = 2,00,000 / 5 = 40,000
Total Interest = ₹1,10,000 + ₹40,000= 1,50,000
Income under the head house property 11,000.00
Income under the head Capital gains (LTCG u/s 112) 16,00,000.00
Gross Total Income 16,11,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 16,11,000.00
Computation of Tax Liability
Tax on normal income ₹11,000 at slab rate Nil
Tax on LTCG u/s 112 (16,00,000 – 2,89,000) @ 12.5% 1,63,875.00
Add: HEC @ 4% 6,555.00
Tax Liability 1,70,430.00

Illustration 12: Mr. X has taken a loan of ₹10,00,000 from SBI on 01/04/2021 @ 10% p.a. for construction
of one house. The Assessee has taken a loan of 6,00,000 from PNB on 01/10/2023 @ 12% p.a. to repay loan
to SBI. House was completed on 01/07/2024 and was let out at a rent of ₹1,00,000 per month paid
municipal taxes ₹10,000. Compute his income and tax liability for Assessment year 2025-26.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value (100,000 X 9) 9,00,000.00
Less: Municipal Tax (10,000.00)
Net Annual Value 8,90,000.00
Less: 30% of NAV u/s 24(a) (2,67,000.00)
Less: Interest on capital borrowed u/s 24(b) (1,73,200.00)
Working Note: ₹
Current period Interest
From 01.04.2024 to 31.03.2025
(4,00,000 x 10% ) + (6,00,000 x 12%) = 1,12,000
Prior period interest
From 01.04.2021 to 31.03.2024
10,00,000 x 10% x 30/12 = 2,50,000
4,00,000 x 10% x 6/12 = 20,000
6,00,000 x 12% x 6/12 = 36,000

Instalment = 3,06,000 / 5 = 61,200

Total Interest = ₹1,12,000 + ₹61,200= 1,73,200
Income under the head house property 4,49,800.00
Gross Total Income 4,49,800.00
Less: Deduction under Chapter VI-A Nil
Total Income 4,49,800.00
Computation of Tax Liability
Tax on ₹4,49,800 at slab rate 7,490.00
Less: Rebate u/s 87A (7,490.00)
Tax Liability Nil
Loan from outside India
As per section 25 if loan is taken from outside India, in that case also interest is allowed but the person
making payment of interest should deduct tax at source or the person receiving interest should have an agent
in India.
Illustration 13: Mr. X has constructed one house on 01.09.2024 and it was let out @ ₹2,25,000 p.m. and
municipal taxes paid are ₹35,000. The house was constructed after taking a loan from outside India and
 Income Under The Head House Property 160

interest allowed under section 24(b) is ₹2,10,000, but the assessee has not deducted tax at source.
Compute assessee’s tax liability for assessment year 2025-26.
Solution: ₹
Gross Annual Value (2,25,000 x 7) 15,75,000.00
Less: Municipal Taxes (35,000.00)
Net Annual Value 15,40,000.00
Less: 30% of NAV u/s 24(a) (4,62,000.00)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 10,78,000.00
Computation of Tax Liability
Tax on ₹10,78,000 at slab rate 61,700.00
Add: HEC @ 4% 2,468.00
Tax Liability 64,168.00
Rounded off u/s 288B 64,170.00

(b) Presume in the above question, the person who has given the loan has one agent in India as per section
163.
Compute tax liability for the assessment year 2025-26.
Solution: ₹
Gross Annual Value (2,25,000 x 7) 15,75,000.00
Less: Municipal Taxes (35,000.00)
Net Annual Value 15,40,000.00
Less: 30% of NAV u/s 24(a) (4,62,000.00)
Less: Interest on capital borrowed u/s 24(b) (2,10,000.00)
Income under the head House Property 8,68,000.00
Computation of Tax Liability
Tax on ₹8,68,000 at slab rate 36,800.00
Add: HEC @ 4% 1,472.00
Tax Liability 38,272.00
Rounded off u/s 288B 38,270.00

(c) Presume in the above question, the assessee has deducted tax at source.
Compute tax liability for the assessment year 2025-26.
Solution: ₹
Gross Annual Value (2,25,000 x 7) 15,75,000.00
Less: Municipal Taxes (35,000.00)
Net Annual Value 15,40,000.00
Less: 30% of NAV u/s 24(a) (4,62,000.00)
Less: Interest on capital borrowed u/s 24(b) (2,10,000.00)
Income under the head House Property 8,68,000.00
Computation of Tax Liability
Tax on ₹8,68,000 at slab rate 36,800.00
Add: HEC @ 4% 1,472.00
Tax Liability 38,272.00
Rounded off u/s 288B 38,270.00

Question 9: Write a note on house which is self-occupied.

Answer: House which is self-occupied Section 23(2)(a)
If any person has house which is self-occupied (maximum two house), its GAV shall be nil and municipal
tax are not allowed to be deducted and NAV shall also be nil and deduction under section 24(a) is not
allowed and deduction under section 24(b) is also not allowed.
 Income Under The Head House Property 161

If the house is self occupied as well as vacant, its income shall be computed as if it is self occupied house.
E.g. Mr. X has one house which is vacant for 3 months and self occupied for 9 months, its income shall be
computed considering it to be self occupied house.

Question 10: Write a note on more than two house which are self-occupied (deemed to be let out
property).
Answer: More than two house which are self-occupied (deemed to be let out property) Section 23(4)
If any assessee has more than two house which are self-occupied, in such cases only two of these houses
shall be considered to be self-occupied and income shall be nil under section 23(2) and all other houses shall
be deemed to be let out and income shall be computed in the similar manner as in case of let out house.
Expected rent shall be considered to be GAV of the house.

Illustration 14: Mr. X has 3 houses which are self occupied and the details of these houses is as under.
Particulars House I House II House III
(In ₹) (In ₹) (In ₹)
Fair rent 11,00,000 12,00,000 11,50,000
Municipal valuation 11,24,000 11,78,000 11,25,000
Standard rent 13,00,000 12,50,000 11,40,000
Municipal taxes paid 1,00,000 80,000 90,000
Interest on capital borrowed on 3,20,000 2,90,000 1,90,000
01.04.2018 and all the necessary
conditions are complied with to avail
higher amount of interest.
Repair charges 10,000 3,000 8,000
Date of completion of house 01.10.2020 01.10.2020 01.10.2020
Compute income under the head house property.

Solution:
Option I ₹
House I & II is Self Occupied
Income Nil

House III is deemed to be Let Out

Gross Annual Value 11,40,000
Working Note: ₹
(a) Fair rent 11,50,000
(b) Municipal valuation 11,25,000
(c) Higher of (a) or (b) 11,50,000
(d) Standard rent 11,40,000
(e) Expected rent {Lower of (c) or (d)} 11,40,000
GAV = Expected rent 11,40,000
Less: Municipal Taxes (90,000)
Net Annual Value 10,50,000
Less: 30% of NAV u/s 24(a) (3,15,000)
Less: Interest on capital borrowed u/s 24(b) (1,90,000)
Income 5,45,000
Income under Option I [Nil + 5,45,000] 5,45,000

Option II
House II & III is Self Occupied
Income Nil
 Income Under The Head House Property 162

House I is deemed to be Let Out

Gross Annual Value 11,24,000
Working Note: ₹
(a) Fair rent 11,00,000
(b) Municipal valuation 11,24,000
(c) Higher of (a) or (b) 11,24,000
(d) Standard rent 13,00,000
(e) Expected rent {Lower of (c) or (d)} 11,24,000
GAV = Expected rent 11,24,000
Less: Municipal Taxes (1,00,000)
Net Annual Value 10,24,000
Less: 30% of NAV u/s 24(a) (3,07,200)
Less: Interest on capital borrowed u/s 24(b) (3,20,000)
Income 3,96,800
Income under Option II [3,96,800 + Nil] 3,96,800

Option III
House I & III is Self Occupied
Income Nil
House II is deemed to be Let Out
Gross Annual Value 12,00,000
Working Note: ₹
(a) Fair rent 12,00,000
(b) Municipal valuation 11,78,000
(c) Higher of (a) or (b) 12,00,000
(d) Standard rent 12,50,000
(e) Expected rent {Lower of (c) or (d)} 12,00,000
GAV = Expected rent 12,00,000
Less: Municipal Taxes (80,000)
Net Annual Value 11,20,000
Less: 30% of NAV u/s 24(a) (3,36,000)
Less: Interest on capital borrowed u/s 24(b) (2,90,000)
Income 4,94,000
Income under Option III [4,94,000 + Nil] 4,94,000
Second Option is the best
Income under the head House Property 3,96,800

Question 11: Write a note on computation of Income of Unoccupied House.

Answer: Income of unoccupied house section 23(2)(b)
As per section 23(2)(b),if any house cannot actually be occupied by the owner by reason of the fact that
owing to his employment, business or profession carried on at any other place, he has to reside at that other
place in a building not belonging to him, in such cases assessee shall have the option to compute income of
such house as if it is self-occupied.

Question 12: Write a note on house property which is divided into different portions/units.
Answer: If any house property is divided into different portions, every portion shall be considered to be a
separate house and income shall be computed accordingly. There is no need to treat the whole property as a
single unit for computation of income from house property.
Municipal valuation/fair rent/standard rent, if not given separately, shall be apportioned between the let-out
portion and self-occupied portion either on plinth area or built-up floor space or on such other reasonable
basis.
 Income Under The Head House Property 163

Property taxes, if given on a consolidated basis can be bifurcated as attributable to each portion or floor on a
reasonable basis.

Illustration 15: Mr. X owns a house in Madras. During the previous year 2024-25, 2/3rd portion of the
house was self-occupied and 1/3rd portion was let out for residential purposes at a rent of ₹ 8,000 p.m.
Municipal value of the property is ₹3,00,000 p.a., fair rent is ₹2,70,000 p.a. and standard rent is ₹ 3,30,000
p.a. He paid municipal taxes @ 10% of municipal value during the year. A loan of ₹25,00,000 was taken by
him during the year 2020 for acquiring the property. Interest on loan paid during the previous year 2024-25
was ₹1,20,000. Compute Mr. X’s income from house property for the A.Y. 2025-26. All the conditions for
higher deduction of interest in case of self-occupied property is satisfied.
Solution:
There are two units of the house. Unit I with 2/3rd area is used by Mr. X for self-occupation throughout the
year and no benefit is derived from that unit, hence it will be treated as self-occupied and its annual value
will be nil. Unit 2 with 1/3rd area is let-out through out the previous year and its annual value has to be
determined as per section 23(1).

Computation of income from house property of Mr. X for A.Y. 2025-26

Particulars ₹
Unit I (2/3rd area – self-occupied)
Annual Value Nil
Less: Deduction under section 24(b) Nil
Loss from Unit I (self-occupied) Nil
Unit II (1/3rd area – let out)
Gross Annual Value 1,00,000
Working Note: ₹
(a) Fair rent 90,000
(b) Municipal valuation 1,00,000
(c) Higher of (a) or (b) 1,00,000
(d) Standard rent 1,10,000
(e) Expected rent {Lower of (c) or (d)} 1,00,000
(f) Rent received/ receivable (8,000 x 12) 96,000
GAV = Expected rent 1,00,000
Less: Municipal Taxes (10,000)
Net Annual Value 90,000
Less: 30% of NAV u/s 24(a) (27,000)
Less: Interest on capital borrowed u/s 24(b) (40,000)
Income under the head House Property 23,000
Question 13: Write a note on house property owned by the assessee and used for own
business/profession.
Answer: House property owned by the assessee and used for own business/profession Section
22/section 30
If any person owns any house property and it is being used by him in his own business/profession, income of
such building shall not be computed under the head house property rather income shall be computed under
the head business/profession and as per section 30, for this purpose, while computing the income under the
head business/profession, no rent shall be allowed to be debited to the profit & loss account in connection
with such building. All the expenses of the house property shall be debited to the profit and loss account and
deduction under section 24(a) is not allowed rather actual expenditure shall be debited to the profit and loss
account. Such expenditure may be municipal tax, repairs, depreciation, land revenue, ground rent etc.

Illustration 16: Mrs. X aged 62 years is engaged in a business in her own building and furnishes the
following information.
 Income Under The Head House Property 164

Market rent of the building is ₹1,00,000 p.m. and expenses incurred on repairs are ₹37,000 and interest on
loan taken for construction of the building is ₹65,000 and depreciation ₹30,000 and municipal tax paid
₹30,000 and land revenue paid ₹10,000 and premium paid for insurance of the house ₹7,000. ground rent
paid ₹8,000.
Income from business before debiting any expense of house property is ₹16,00,000.
Compute her income tax liability for Assessment Year 2025-26.
Solution: ₹
Income from business before debiting any expense of house property 16,00,000.00
Less: Repair of Building (37,000.00)
Less: Interest on loan taken for construction of building (65,000.00)
Less: Depreciation (30,000.00)
Less: Municipal Taxes (30,000.00)
Less: Land revenue (10,000.00)
Less: Insurance premium of the house (7,000.00)
Less: Ground rent (8,000.00)
Income under the head Business/Profession 14,13,000.00
Gross Total Income 14,13,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 14,13,000.00

Computation of Tax Liability

Tax on ₹14,13,000 at slab rate 1,22,600.00
Add: HEC @ 4% 4,904.00
Tax Liability 1,27,504.00
Rounded off u/s 288B 1,27,500.00

Question 14: Write a note on a house property which is let-out for part of the year and self-occupied
for part of the year and may or may not be vacant.
Answer: A house property which is let-out for part of the year and self-occupied for part of the year
and may or may not be vacant Section 23(3)
If any house property is let out as well as self-occupied, in such cases expected rent (also called annual
letting value) shall be computed for full year but Rent received/receivable shall be only for the period the
house was let out and GAV shall be the higher. There will not be any such adjustment as in case of vacancy.

Illustration 17: Mr. X constructed one house in 2023 and it is let out for 4 months and self occupied for 6
months and vacant for 2 months during previous year 2024-25. Municipal valuation of the house is ₹40,000
p.m. and fair rent ₹30,000 p.m. Standard rent of the house is ₹38,000 p.m. It was let out @ ₹32,000 p.m.
Municipal tax levied is ₹6,000 out of which ₹2,000 was paid by the tenant and ₹2,000 by the assessee and
balance ₹2,000 yet to be paid.
Interest on the capital borrowed for construction of the house is ₹30,000.
Long Term Capital Gains is ₹2,10,000
Compute his income and tax Liability for the assessment year 2025-26.
Solution: ₹
Computation of income from House Property of Mr. X
Gross Annual Value 4,56,000
Working Note: ₹
(a) Fair Rent (30,000 x 12) 3,60,000
(b) Municipal Valuation (40,000 x 12) 4,80,000
(c) Higher of (a) or (b) 4,80,000
(d) Standard Rent (38,000 x 12) 4,56,000
(e) Expected Rent {Lower of (c) or (d)} 4,56,000
(f) Rent Received/Receivable (32,000 x 4) 1,28,000
If there was no vacancy, in that case rent received/receivable would have been
 Income Under The Head House Property 165

₹1,92,000 and it was still less than expected rent, therefore GAV shall be expected
rent.
GAV 4,56,000
Less: Municipal Taxes (2,000)
Net Annual Value 4,54,000
Less: 30% of NAV u/s 24(a) (1,36,200)
Less: Interest on capital borrowed u/s 24(b) (30,000)
Income under the head House Property 2,87,800
Long Term Capital Gains 2,10,000
Gross Total Income 4,97,800
Less: Deduction under Chapter VI-A Nil
Total Income 4,97,800

Computation of Tax Liability

Tax on ₹1,97,800 (2,10,000 – 12,200) @ 12.5% u/s 112 24,725.00
Tax on ₹2,87,800 at slab rate Nil
Less: Rebate u/s 87A (24,725.00)
Tax Liability Nil

Illustration 18: Mrs. X owns a house property at Adyar in Chennai. The municipal value of the property is
₹5,00,000, fair rent is ₹ 4,20,000 and standard rent is ₹ 4,80,000. The property was let-out for ₹50,000 p.m.
up to December 2024. Thereafter, the tenant vacated the property and Mrs. X used the house for self-
occupation. Rent for the months of November and December 2024 could not be realised in spite of the
owner’s efforts. All the conditions prescribed under Rule 4 are satisfied. She paid municipal taxes @ 12%
during the year. She had paid interest of ₹ 25,000 during the year for amount borrowed for repairs for the
house property. She has LTCG ₹110,00,000. She has completed age of 80 years as on 31.03.2025. Compute
her tax liability for the A.Y. 2025-26.
Solution:
Computation of income from house property of Mrs. X for the A.Y.2025-26
Gross Annual Value 4,80,000.00
Working Note: ₹
(a) Fair rent 4,20,000
(b) Municipal valuation 5,00,000
(c) Higher of (a) or (b) 5,00,000
(d) Standard rent 4,80,000
(e) Expected rent {Lower of (c) or (d)} 4,80,000
(f) Rent received/ receivable (50,000 x 7) 3,50,000
(unrealised rent 2 months and self occupied 3 months)
GAV = Expected rent 4,80,000
Less: Municipal Taxes (60,000.00)
Net Annual Value 4,20,000.00
Less: 30% of NAV u/s 24(a) (1,26,000.00)
Less: Interest on capital borrowed u/s 24(b) (25,000.00)
Income under the head House Property 2,69,000.00
LTCG 110,00,000.00
Total Income 112,69,000.00
Computation of Tax Liability
Tax on Normal income at slab rate Nil
LTCG (110,00,000 – 31,000) x 12.5% 13,71,125.00
Add: Surcharge @ 15% 2,05,668.75
Tax before health & education cess 15,76,793.75
Add: HEC @ 4% 63,071.75
Tax Liability 16,39,865.50
 Income Under The Head House Property 166

Rounded off u/s 288B 16,39,870.00

Illustration 19: Mr. X has one big house. 25% of it is being used by the assessee in his own
business/profession and 50% of the house is let out @ ₹10,000 p.m. However, it remained vacant for one
month and there is unrealised rent for 1½ month. Remaining 25% is self occupied throughout the year. Fair
rent of the entire house is ₹25,000 p.m., municipal valuation ₹22,000 p.m. and municipal tax paid is
₹22,000. Insurance premium paid is ₹6,000, repair charges ₹8,000, land revenue paid ₹4,000, ground rent is
₹3,000 and depreciation of the house is ₹12,000. Assessee’s income under the head business/profession
before charging expenditure relating to house property is ₹8,00,000.
Compute his total income and tax liability for assessment year 2025-26.
Solution: ₹
Computation of income under the head House Property
Income from self occupied portion
Income of self occupied portion Nil
Income of let out portion
Gross Annual Value 1,50,000.00
Working Note: ₹
(a) Fair Rent (12,500 x 12) 1,50,000
(b) Municipal Valuation (11,000 x 12) 1,32,000
(c) Expected rent {Higher of (a) or (b)} 1,50,000
(d) Rent Received/Receivable (10,000 x 9.5) 95,000
If there was no vacancy, in that case rent received/receivable would have been
₹1,05,000 and it was still less than expected rent, therefore GAV shall be expected
rent
GAV 1,50,000
Less: Municipal taxes (11,000.00)
Net Annual Value 1,39,000.00
Less: 30% of NAV u/s 24(a) (41,700.00)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 97,300.00
Computation of income under the head Business/Profession
Income before debiting any expense of the house property 8,00,000.00
Less: Municipal taxes (5,500.00)
Less: Insurance premium (1,500.00)
Less: Repairs charges (2,000.00)
Less: Land revenue (1,000.00)
Less: Ground Rent (750.00)
Less: Depreciation (3,000.00)
Income under the head Business/Profession 7,86,250.00
Computation of Total Income
Income under the head House Property 97,300.00
Income under the head Business/Profession 7,86,250.00
Gross Total Income 8,83,550.00
Less: Deductions under Chapter VI-A Nil
Total Income 8,83,550.00
Computation of Tax Liability
Tax on ₹8,83,550 at slab rate 38,355.00
Add: HEC @ 4% 1,534.20
Tax Liability 39,889.20
Rounded off u/s 288B 39,890.00
 Income Under The Head House Property 167

Question 15: Write a note on composite rent.

Answer: Composite Rent
A person may let out a house property alongwith some facilities like generator or security etc. and rent may
be charged combined for the house property as well as facility, such rent is called composite rent and in such
cases rent for house property shall be taxable under the head house property and rent for facilities shall be
taxable under the head other sources but after deducting all the expenses relating to such facility.
If there are so many facilities and bifurcation is not possible, income shall be taxable under the head
business/profession or other sources e.g. in case of hotel business/paying guest accommodation/warehousing
or auditorium etc., income is taxable under the head business/profession.

Illustration 20: Mr. X has let out one house alongwith generator facility and has charged a sum of ₹40,000
p.m. as rent, out of which ₹3,000 p.m. is attributable to the generator. He has paid ₹2,300 and the tenant has
paid ₹900 towards municipal taxes. The interest on the capital borrowed for construction of the house is
₹7,000. Mr. X has paid repair charge of the generator ₹3,400, fuel charges ₹5,600 and operator’s salary ₹300
p.m. Mr. X has income from Business/Profession ₹12,00,000.
Compute the tax liability of Mr. X for assessment year 2025-26.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value (37,000 x 12) 4,44,000.00
Less: Municipal Taxes (2,300.00)
Net Annual Value 4,41,700.00
Less: 30% of NAV u/s 24(a) (1,32,510.00)
Less: Interest on capital borrowed u/s 24(b) (7,000.00)
Income under the head House Property 3,02,190.00

Computation of income under the head Other Sources

Income from generator 36,000.00
(3,000 x 12)
Less: Repair charges (3,400.00)
Less: Fuel charges (5,600.00)
Less: Operator Salary (3,600.00)
(300 x 12)
Income under the head Other Sources 23,400.00
Computation of Total Income
Income under the head House Property 3,02,190.00
Income under the head Other Sources 23,400.00
Income under the head Business/Profession 12,00,000.00
Gross Total Income 15,25,590.00
Less: Deduction under chapter VI-A Nil
Total Income 15,25,590.00
Computation of Tax Liability
Tax on ₹15,25,590 at slab rate 1,47,677.00
Add: HEC @ 4% 5,907.08
Tax Liability 1,53,584.08
Rounded off u/s 288B 1,53,580.00

Question 16: Write a note on letting out of building which is supplementary to the business.
Answer: Letting out of building which is supplementary to the business
If any person has let out any house property for any purpose which is supplementary to the business of the
assessee, in such cases rental income shall be taxable under the head business/profession and all expenses of
such house property shall be debited to the profit and loss account. E.g. If a Public school has let out a part
of its building to a Bank, in this case rent received shall be considered to be income under the head
Business/Profession and all expenses of such house property shall be debited to profit and loss account.
 Income Under The Head House Property 168

Similarly, if any company has constructed houses for the employees in their premises and it is let out to the
employees, rental income is taxable under the head Business/Profession.

Question 17: Write a note on tax liability in respect of arrears of rent.

Answer: Tax liability in respect of arrears of rent Section 25A
Sometimes rent of a house property may be increased from retrospective effect i.e. from back date and the
assessee may receive arrear of rent, such arrears are taxable in the year in which arrears have been received,
however deduction shall be allowed @ 30% of such arrears and only the balance amount shall be taxable. It
do not matter that the assessee do not have any house property in his name in that year.
There is no specific provision given in the Income Tax Act relating to advance payment of rent.

Illustration 21: Mr. X has let out his house to State Bank @ ₹20,000 p.m. The bank has increased the rent
on 1st July, 2024 to ₹27,000 p.m. retrospectively w.e.f. 01.11.2023. The assessee has paid municipal taxes of
₹7,000 during the previous year 2024-25.
Compute income under the head House Property for assessment year 2025-26.
Solution:
Computation of income under the head House Property ₹ ₹
Gross Annual Value (27,000 x 12) 3,24,000
Less: Municipal Taxes (7,000)
Net Annual Value 3,17,000
Less: 30% of NAV u/s 24(a) (95,100)
Less: Interest on capital borrowed u/s 24(b) Nil
2,21,900
Add: Arrears of rent (Sec 25A) (7,000 x 5) 35,000
Less: 30% of ₹35,000 (10,500) 24,500
Income under the House Property 2,46,400

Question 18: Write a note on sub-letting of house property.

Answer: Sub-letting of house property Section 56
If any person has let out any house property and the tenant has further given the same house property on
rent, it is called sub-letting and in this case, income of the person who has sub-let the house property, shall
be computed under the head Other Sources and income shall be equal to gross rent received – expenses
incurred for such house property.
Example
Mr. X has let out one house to Mr. Y at a rent of ₹1,00,000 p.m. and has paid municipal tax of ₹1,00,000.
Mr. Y has sub-let 50% of the house property to Mr. Z at a rent of ₹70,000 p.m., in this case income of Mr. X
and Mr. Y shall be computed in the manner given below:
Income of Mr. X shall be computed under the head House Property
GAV (1,00,000 x 12) 12,00,000
Less: Municipal Tax (1,00,000)
NAV 11,00,000
Less: Deduction u/s 24(a) (3,30,000)
Income under the head House Property 7,70,000
Income of Mr. Y shall be computed under the head Other Sources
Gross Rent received (70,000 x 12) 8,40,000
Less: Rent paid by him (1,00,000 x 50% x 12) (6,00,000)
Income under the head Other Sources 2,40,000

Question 19: Write a note on computation of income from house property situated outside India.
Answer:
Income of house property situated outside India shall be computed in the similar manner as in case of house
property situated in India and such income shall be taxable in the case of ROR. In case of NR or NOR such
 Income Under The Head House Property 169

income is exempt provided income is received outside India i.e. if income is received in India, it will be
taxable in case of NR/NOR also.

Illustration 22: Mr. X, a British national, is a resident and ordinarily resident in India during the P.Y.2024-
25. He owns a house in London, which he has let out at £ 10,000 p.m. The municipal taxes paid to the
Municipal Corporation of London is £ 8,000 during the P.Y.2024-25. The value of one £ in Indian rupee to
be taken at ₹ 100. Compute Mr. X’s taxable income for the A.Y. 2025-26.
Solution:
For the P.Y.2024-25, Mr. X, a British national, is resident and ordinarily resident in India. Therefore,
income received by him by way of rent of the house property located in London is to be included in the total
income in India. Municipal taxes paid in London is be to allowed as deduction from the gross annual value.

Computation of Income from house property of Mr. X for A.Y. 2025-26

Particulars ₹
Gross Annual Value (£ 10,000 × 12 × 100) 1,20,00,000
Less: Municipal taxes paid (£ 8,000 × 100) (8,00,000)
Net Annual Value (NAV) 1,12,00,000
Less: Deduction under section 24
(a) 30% of NAV (33,60,000)
Income from house property 78,40,000

Question 20: Write a note on treatment of income from co-owned property.

Answer: Treatment of income from co-owned property Section 26
If any house property is owned by co-owners and their shares are given, in such cases each such co-owner
has to pay tax on his share in the income of house property but if shares are not given, it will be considered
to be income of co-owners (BOI/AOP) e.g. Mr. X and Mr. Y are co-owners of a house property and their
shares are not given and income is ₹20 lakhs, in this case it will be taxable as income of co-owners but if
share of each one is 50%, Mr. X will pay tax on income of ₹10 lakh and Mr. Y will pay tax on income of
₹10 lakh.
If any house property is owned by a partnership firm or company, it will be considered to be income of
partnership firm or company and not that of partners or shareholders.
Where the house property owned by co-owners is self occupied by each of the co-owners and share of
individual co-owner is not given, income shall be nil of the BOI and if the share is given, income shall be nil
for each of the co-owner.

Question 21: Write a note on owner / deemed owner.

Answer: Owner / deemed owner Section 22 / 27
As per section 22, the owner of house property shall be liable to pay income tax and if the title of the
ownership of the property is under dispute in a court of law, the decision as to who will be the owner
chargeable to income-tax under section 22 will be of the Income-tax Department till the court gives its
decision to the suit filed in respect of such property. E.g. Ownership of a house property is disputed among
two brothers Mr. X and Mr. Y and rent is being received by Mr. X, in this case Mr. X shall be considered to
be the owner of the house property till decision is given by the Court and after that amount of tax shall be
adjusted as per court decision.
As per section 27, the following persons, are deemed to be the owners.
(i) Transfer of a house property to spouse – In case of transfer of house property by an individual to his or
her spouse otherwise than for adequate consideration, the transferor is deemed to be the owner of the
transferred property. In case of transfer to spouse in connection with an agreement to live apart, the
transferor will not be deemed to be the owner. The transferee will be the owner of the house property. In
case of transfer of house property by an individual to his or her minor child, the transferor is deemed to be
the owner of the house property transferred. In case of transfer to a minor married daughter, the transferor is
 Income Under The Head House Property 170

not deemed to be the owner. E.g. Mr. X has two house property each having income of ₹10 lakh and Mr. X
has gifted one house property to Mrs. X, in this case income from such house property shall be taxable in the
hands of Mr. X but if Mr. X has sold the house property to Mrs. X and has taken full payment, in that case
income from house property shall be taxable in the hands of Mrs. X.
(ii) Person in possession of a property – If any person has given possession of house property and has
taken full payment but ownership in documents has not yet been transferred, in such cases the proposed
buyer is the deemed owner and shall be liable to pay income tax and it is called part performance of a
contract of the nature referred to in section 53A of the Transfer of Property Act. E.g. Mr. X has sold his
house property to Mr. Y for ₹50 lakhs and has taken full payment and possession has been given to Mr. Y
but conveyance deed is not prepared in the name of Mr. Y, in this case Mr. Y is the deemed owner.
(iii) Member of a co-operative society etc. – A member of a co-operative society, company or other
association of persons to whom a building or part thereof is allotted or leased under a House Building
Scheme of a society/company/association, shall be deemed to be owner of that building or part thereof
allotted to him although the co-operative society/company/ association is the legal owner of that building.
(iv) Holder of an impartible estate – The impartible estate is a property which is not divisible. The holder
of an impartible estate shall be deemed to be the individual owner of all properties comprised in the estate.

Illustration 23: Mr. Anand sold his residential house property in March, 2024. In June, 2024, he recovered
rent of ₹10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2018 to March
2020. He could not realise two months rent of ₹20,000 from him and to that extent his actual rent was
reduced while computing income from house property for A.Y.2020-21.
Further, he had let out his property from April, 2020 to February, 2024 to Mr. Satish. In April, 2022, he had
increased the rent from ₹12,000 to ₹15,000 per month and the same was a subject matter of dispute. In
September, 2024, the matter was finally settled and Mr. Anand received ₹69,000 as arrears of rent for the
period April 2022 to February, 2024. Would the recovery of unrealised rent and arrears of rent be taxable in
the hands of Mr. Anand, and if so in which year?
Solution:
Since the unrealised rent was recovered in the P.Y.2024-25, the same would be taxable in the A.Y.2025-26
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.2024-25, and hence the same would be taxable in the
A.Y.2025-26 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.2025-26.
Computation of income from house property of Mr. Anand for A.Y.2025-26
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

Illustration 24: Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and ordinarily resident in India
during the financial year 2024-25. She owns a house property at Los Angeles, U.S.A., which is used as her
residence. The annual value of the house is $20,000. The value of one USD ($) may be taken as ₹ 65.
She took ownership and possession of a flat in Chennai on 1.7.2024, which is used for self-occupation,
while she is in India. The flat was used by her for 7 months only during the year ended 31.3.2025. The
municipal valuation is ₹32,000 p.m. and the fair rent is ₹4,20,000 p.a.
She paid the following to Corporation of Chennai: Property Tax ₹16,200 Sewerage Tax ₹1,800
She had taken a loan from Standard Chartered Bank in June, 2022 for purchasing this flat. Interest on loan
was as under:
Period prior to 1.4.2024 ₹49,200
1.4.2024 to 30.6.2024 ₹50,800
1.7.2024 to 31.3.2025 ₹1,31,300
Certificate confirming the amount of Interest has been deposited.
 Income Under The Head House Property 171

She had a house property in Bangalore, which was sold in March, 2020. In respect of this house, she
received arrears of rent of ₹60,000 in March, 2025. This amount has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini Ravi for the assessment year 2025-26.
Solution: Since the assessee is a resident and ordinarily resident in India, her global income would form part
of her total income i.e., income earned in India as well as outside India will form part of her total income.
She possesses a self-occupied house at Los Angeles as well as at Chennai. She can take the benefit of “Nil”
Annual Value in respect of both the house properties. As regards the Bangalore house, arrears of rent will be
chargeable to tax as income from house property in the year of receipt under section 25A.

It is not essential that the assessee should continue to be the owner. 30% of the arrears of rent shall be
allowed as deduction. Accordingly, the income from house property of Mrs. Rohini Ravi will be calculated
as under:
Self - occupied house at Los Angeles
Gross Annual Value Nil
Less: Municipal taxes Nil
Net Annual Value Nil
Less: Statutory deduction under section 24(a) @ 30% of NAV Nil
Less: Interest on Housing Loan u/s 24(b) Nil
Loss from House property Nil
Self - occupied property at Chennai
Gross Annual Value Nil
Less: Municipal taxes Nil
Net Annual Value Nil
Less: Statutory deduction under section 24(a) @ 30% of NAV Nil
Less: Interest on Housing Loan u/s 24(b) Nil
Loss from House property Nil
Arrears in respect of Bangalore Property (Section 25A)
Arrears of rent received 60,000.00
Less: Deduction under section 25A @ 30% (18,000.00)
Income from House property 42,000.00

Optional Regime
In case of a self occupied house, interest shall be allowed to be deducted u/s 24(b) maximum to the extent of
₹30,000 but interest shall be allowed maximum upto ₹2,00,000 if all the four conditions mentioned below
have been complied with:
(i) If loan has been taken w.e.f. 01.04.1999 onwards
(ii) The loan is only for purchase or construction of house property
(iii) The house has been purchased or constructed within 5 years from the end of the year in which loan or
advance was taken
(iv) The assessee has submitted a certificate confirming the amount of interest.

Question 22: Write a note on set off and carry forward of losses under the head house property under
optional regime.
Answer: Set off and carry forward of losses under the head house property Section 70/71/71B
Inter Source adjustment Section 70
As per section 70, if any person has loss from any house property, such loss can be set off from income of
any other house property and it is called inter-source adjustment or intra-head adjustment. E.g. Mr. X has
two houses: there is loss of ₹5,00,000 from one house and income of ₹8,00,000 from the other house, in this
case, loss of one source (house) can be set off from income of the other source (house).
Inter Head adjustment Section 71
As per section 71, unadjusted loss can be set off from incomes of other heads but as per section 58(4), such
loss can not be set off from casual income and it is called inter-head adjustment. E.g. Mr. X has loss from
house property ₹1,50,000 and income from business/profession ₹5,00,000, in this case, loss is allowed to be
 Income Under The Head House Property 172

set off but if he has any casual income, loss can not be set off from casual income. Loss of House Property
shall be allowed to be set off from other heads maximum upto ₹2,00,000.

Carry Forward and Set Off Section 71B

As per section 71B, unadjusted loss is allowed to be carried forward to the subsequent years but for a
maximum period of 8 years starting from the year subsequent to the year in which the loss was incurred and
in the subsequent years, loss can be set off only from income under the head house property. E.g. Mr. X has
incurred loss under the head house property in the previous year 2025-26/assessment year 2026-27 and it
could not be set off in the same year, it can be carried forward upto Previous Year 2033-34/Assessment Year
2034-35 (as shown below)
Year 1 Previous year 2026-27 Assessment Year 2027-28
Year 2 Previous year 2027-28 Assessment Year 2028-29
Year 3 Previous year 2028-29 Assessment Year 2029-30
Year 4 Previous year 2029-30 Assessment Year 2030-31
Year 5 Previous year 2030-31 Assessment Year 2031-32
Year 6 Previous year 2031-32 Assessment Year 2032-33
Year 7 Previous year 2032-33 Assessment Year 2033-34
Year 8 Previous year 2033-34 Assessment Year 2034-35

E.g. Mr. X has loss under the head house property of the previous year 2017-18/assessment year 2018-19
₹5,00,000 and income under the head house property ₹5,00,000 in previous year 2025-26/assessment year
2026-27, in this case, loss shall be allowed to be set off because it will be allowed to be carried forward upto
a period of 8 years starting from Previous Year 2018-19/Assessment Year 2019-20 and is as shown below:
Year 1 Previous year 2018-19 Assessment Year 2019-20
Year 2 Previous year 2019-20 Assessment Year 2020-21
Year 3 Previous year 2020-21 Assessment Year 2021-22
Year 4 Previous year 2021-22 Assessment Year 2022-23
Year 5 Previous year 2022-23 Assessment Year 2023-24
Year 6 Previous year 2023-24 Assessment Year 2024-25
Year 7 Previous year 2024-25 Assessment Year 2025-26
Year 8 Previous year 2025-26 Assessment Year 2026-27
Additional Points
1. If the loss can be set off, it has to be set off compulsorily i.e. it is not voluntary. E.g. Mr. X has loss under
the head house property ₹1,50,000 in previous year 2025-26/assessment year 2026-27 and income under the
head business/profession ₹1,50,000 in the same year, in this case loss has to be set off.
2. Any loss has to be set off first within the same head and after that under some other heads and after that
carry forward is allowed.
3. Loss of current year shall be set off first and only after that brought forward losses can be adjusted, e.g.
Mr. X has income from one house ₹ 10,00,000 and loss from other house ₹ 10,00,000 in P.Y. 2025-26 and
also unadjusted loss of ₹ 10,00,000 under the head house property of P.Y. 2017-18, in this case loss of
current year is to be adjusted first.

Illustration 25: Mr. X has Loss under the head House Property ₹13,00,000 and income under the head
Salary ₹8,00,000 and income under the head Business/Profession ₹6,00,000 and LTCG ₹20,00,000 and
Casual income ₹5,00,000. Compute his tax liability for A.Y. 2025-26, under optional regime.
Solution:
In this case, Mr. X has the option to set off the loss under the head House Property either from normal
income or from LTCG and tax liability in two options shall be:
Option-1: Set off from normal income:
Computation of Total Income ₹
Income under the head Salary 8,00,000
Less: Loss under the head House Property (2,00,000)
Income under the head Salary 6,00,000
 Income Under The Head House Property 173

Income under the head Business/Profession 6,00,000

Long term capital gain 20,00,000
Casual income 5,00,000
Gross Total Income 37,00,000
Less: Deduction u/s 80C to 80U Nil
Total Income 37,00,000
Computation of Tax Liability
Tax on Casual income ₹5,00,000 @ 30% u/s 115BB 1,50,000
Tax on LTCG ₹20,00,000 @ 12.5% u/s 112 2,50,000
Tax on normal income ₹12,00,000 at slab rate 1,72,500
Tax before HEC 5,72,500
Add: HEC @ 4% 22,900
Tax Liability 5,95,400
Loss under the head house property of ₹11,00,000 shall be carried forward.
Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.
Option-2: Set off from LTCG:
Computation of Total Income ₹
Income under the head Salary 8,00,000
Income under the head Business/Profession 6,00,000
Long term capital gain 20,00,000
Less: Loss under the head House Property (2,00,000)
Long term capital gain 18,00,000
Casual income 5,00,000
Gross Total Income 37,00,000
Less: Deduction u/s 80C to 80U Nil
Total Income 37,00,000
Computation of Tax Liability
Tax on Casual income ₹5,00,000 @ 30% u/s 115BB 1,50,000
Tax on LTCG ₹18,00,000 @ 12.5% u/s 112 2,25,000
Tax on normal income ₹14,00,000 at slab rate 2,32,500
Tax before HEC 6,07,500
Add: HEC @ 4% 24,300
Tax Liability 6,31,800
Loss under the head house property of ₹11,00,000 shall be carried forward.
Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.
Option-1 is better since Total Tax Liability is lower in this option.

Illustration 26: Mr. X has Loss under the head House Property ₹ 20,00,000 and income under the head
Salary ₹ 10,00,000 and income under the head Business/Profession ₹ 11,00,000 and LTCG ₹ 10,00,000 and
deduction u/s 80C to 80U is ₹ 2,00,000. Compute his tax liability for A.Y. 2025-26, under optional regime.
Solution:
In this case, Mr. X has the option to set off the loss under the head House Property either from normal
income or from LTCG and tax liability in two options shall be:
Option-1: Set off from normal income:
Computation of Total Income ₹
Income under the head Salary 10,00,000
Less: Loss under the head House Property (2,00,000)
Income under the head Salary 8,00,000
Income under the head Business/Profession 11,00,000
Long term capital gain 10,00,000
Gross Total Income 29,00,000
Less: Deduction u/s 80C to 80U (2,00,000)
Total Income 27,00,000
 Income Under The Head House Property 174

Computation of Tax Liability

Tax on LTCG ₹10,00,000 @ 12.5% u/s 112 1,25,000
Tax on normal income 17,00,000 at slab rate 3,22,500
Tax before HEC 4,47,500
Add: HEC @ 4% 17,900
Tax Liability 4,65,400
Loss under the head house property of ₹18,00,000 shall be carried forward.
Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.

Option-2: Set off from LTCG:

Computation of Total Income ₹
Income under the head Salary 10,00,000
Income under the head Business/Profession 11,00,000
Long term capital gain 10,00,000
Less: Loss under the head House Property (2,00,000)
Long term capital gain 8,00,000
Gross Total Income 29,00,000
Less: Deduction u/s 80C to 80U (2,00,000)
Total Income 27,00,000
Computation of Tax Liability
Tax on LTCG ₹8,00,000 @ 12.5% u/s 112 1,00,000
Tax on normal income ₹19,00,000 at slab rate 3,82,500
Tax before HEC 4,82,500
Add: HEC @ 4% 19,300
Tax Liability 5,01,800
Loss under the head house property of ₹18,00,000 shall be carried forward.

Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.
Option-1 is better since Total Tax Liability is lower in this option.

Illustration 27: Mr. X has let out one house ₹20,000 p.m. and municipal due is ₹40,000 which are paid by
the tenant. Interest on loan for construction of house is ₹4,00,000. He has LTCG ₹7,00,000 and income
under the head Business/Profession ₹11,00,000. Compute his tax liability for A.Y. 2025-26, under optional
regime.
Solution: ₹
Computation of income under the head House Property
Gross Annual Value (20,000 x 12) 2,40,000.00
Less: Municipal Tax Nil
Net Annual Value 2,40,000.00
Less: 30% of NAV u/s 24(a) (72,000.00)
Less: Interest on capital borrowed u/s 24(b) (4,00,000.00)
Loss under the head house property 2,32,000.00
In this case, Mr. X has the option to set off the loss under the head House Property either from normal
income or from LTCG and tax liability in two options shall be:
Option-1: Set off from normal income:
Computation of Total Income ₹
Income under the head Business/Profession 11,00,000
Less: Loss under the head House Property (2,00,000)
Income under the head Business/Profession 9,00,000
Long term capital gain 7,00,000
Gross Total Income 16,00,000
Less: Deduction u/s 80C to 80U Nil
Total Income 16,00,000
 Income Under The Head House Property 175

Computation of Tax Liability

Tax on LTCG ₹7,00,000 @ 12.5% u/s 112 87,500
Tax on normal income ₹9,00,000 at slab rate 92,500
Tax before HEC 1,80,000
Add: HEC @ 4% 7,200
Tax Liability 1,87,200
Loss under the head house property of ₹32,000 shall be carried forward.
Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.
Option-2: Set off from LTCG:
Computation of Total Income ₹
Income under the head Business/Profession 11,00,000
Long term capital gain 7,00,000
Less: Loss under the head House Property (2,00,000)
Long term capital gain 5,00,000
Gross Total Income 16,00,000
Less: Deduction u/s 80C to 80U Nil
Total Income 16,00,000
Computation of Tax Liability
Tax on LTCG ₹5,00,000 @ 12.5% u/s 112 62,500
Tax on normal income ₹11,00,000 at slab rate 1,42,500
Tax before HEC 2,05,000
Add: HEC @ 4% 8,200
Tax Liability 2,13,200
Loss under the head house property of ₹32,000 shall be carried forward.
Note: As per section 71, Maximum loss of ₹2,00,000 is allowed to be set off from other heads.
Option-1 is better since Total Tax Liability is lower in this option.
 Income Under The Head House Property 176

MULTIPLE CHOICE QUESTIONS

1. Vacant site lease rent is taxable as
(a) Income from house property
(b) Business income or income from house property, as the case may be
(c) Income from other sources or business income, as the case may be
(d) Income from other sources or income from house property, as the case may be
2. Treatment of unrealized rent for determining income from house property
(a) To be deducted from expected rent
(b) To be deducted from actual rent
(c) To be deducted under section 24 from annual value
(d) To be deducted from both expected rent and actual rent
3. Municipal taxes to be deducted from GAV should be
(a) Paid by the tenant during the previous year
(b) Paid by the owner during the previous year
(c) Accrued during the previous year
(d) Paid during the previous year either by tenant or owner
4. Deduction under section 24(a) is
(a) 1/3rd of NAV
(b) repairs actually incurred by the owner
(c) 30% of NAV
(d) Interest on borrowed capital
5. Interest on borrowed capital accrued up to the end of the previous year prior to the year of
completion of construction is
(a) allowed as a deduction in the year of completion of construction
(b) allowed in 5 equal annual installments from the year of completion of construction
(c) allowed in the respective year in which the interest accrues
(d) not allowed
6. Leena received ₹30,000 as arrears of rent during the P.Y. 2024-25. The amount taxable under
section 25A would be -
(a) ₹30,000
(b) ₹21,000
(c) ₹20,000
(d) ₹15,000
7. Vidya received ₹90,000 in May, 2024 towards recovery of unrealised rent, which was deducted from
actual rent during the P.Y. 2022-23 for determining annual value. Legal expense incurred in relation
to unrealized rent is ₹20,000. The amount taxable under section 25A for A.Y.2025-26 would be -
(a) ₹70,000
(b) ₹63,000
(c) ₹60,000
(d) ₹49,000
8. Ganesh and Rajesh are co-owners of a self-occupied property. They own 50% share each. The
interest paid by each co-owner during the previous year on loan (taken for acquisition of property
during the year 2004) is ₹2,05,000. The amount of allowable deduction in respect of each co-owner is –
(a) ₹2,05,000
(b) ₹1,02,500
(c) Nil
(d) ₹1,00,000
9. Mr. Zen owns a flat in Mumbai which was let out by him in the previous year 2024 – 25 on a rent of
₹20,000 p.m. upto December, 2024 and for ₹30,000 p.m. thereafter. The annual municipal value is of
₹3,00,000, Fair Rent is ₹2,50,000 and Standard Rent is ₹2,90,000. The Gross Annual Value of the flat
shall be taken as:
(a) ₹ 2,70,000
 Income Under The Head House Property 177

(b) ₹ 3,00,000
(c) ₹ 2,50,000
(d) ₹ 2,90,000
10. A borrowed ₹5,00,000 @ 12% p.a. on 1-4-2020 for construction of house property which was
completed on 15-3-2024. The amount is still unpaid. The deduction of interest for previous year 2024-
25 shall be :
(a) ₹60,000
(b) ₹96,000
(c) ₹1,80,000
(d) ₹2,40,000
11. Ms. Padmaja let out a property for ₹20,000 per month during the year 2024-25. The municipal tax
on the let-out property was enhanced retrospectively. Hence, she paid ₹60,000 as municipal tax which
included arrears of municipal tax of ₹45,000. Her income from house property is —
(a) ₹1,80,000
(b) ₹1,57,500
(c) ₹1,26,000
(d) ₹1,36,500
12. The construction of a house was completed on 31st January, 2025. The owner of the house took a
loan of ₹20,00,000 @ 6% p.a. on 1st May, 2023. In this case the deduction allowable for the previous
year 2024-25 towards interest on borrowings is —
(a) 22,000
(b) 24,000
(c) 1,10,000
(d) None of the above.
13. Standard Deduction u/s 24(a) shall be
(a) 25% of NAV
(b) 30% of NAV
(c) 25% of GAV
(d) 30% of GAV
14. GAV shall be
(a) Higher of expected rent and rent received/receivable
(b) Lower of expected rent and rent received/receivable
(c) Higher of municipal value and fair rent
(d) NAV minus municipal taxes
15. Expected rent shall be
(a) Higher of municipal value and fair rent but restricted to Standard rent
(a) Lower of municipal value and fair rent but maximum to Standard rent
(c) Higher of municipal value and fair rent
(d) Lower of municipal value and fair rent
16. Prior Period Interest shall be allowed in
(a) 5 annual equal installments
(a) 4 annual equal installments
(c) 3 annual equal installments
(d) 2 annual equal installments
17. The Ceiling limit of deduction u/s 24(b) in respect of interest on loan taken for let out property
shall be
(a) ₹ 30,000 p.a.
(a) ₹ 1,50,000 p.a.
(c) ₹ 2,00,000 p.a.
(d) No limit
18. Recovery of unrealized rent shall be taxable under the head
(a) House Property
(b) Business/Profession
 Income Under The Head House Property 178

(c) Other sources the

(d) None of the above
19. If any person is engaged in the business of letting out of house property, income shall be taxable
under the head
(a) Business/profession
(b) House property
(c) Other sources
(d) Capital gains
(e) None of these
20. If loan has been taken on 01.04.2024 and house was completed on 31.03.2025, in this case
(a) no prior period installment in P.Y. 2024-25
(b) there is prior period installment in P.Y. 2024-25

Answer
1.(c); 2.(b); 3. (b); 4. (c); 5. (b); 6. (b); 7. (b); 8. (c); 9. (d); 10. (b); 11. (c); 12. (c); 13. (b); 14. (a); 15. (a);
16. (a); 17. (d); 18. (a); 19. (a); 20. (a)
Hint for answer 6.
Arrears of rent received 30,000.00
Less: Deduction under section 25A @ 30% (9,000.00)
Income from House property 21,000.00
Hint for answer 7.
Recovery of Unrealised Rent 90,000
Less: Deduction @ 30% (27,000)
Income under the head House Property 63,000
Hint for answer 9.
₹ ₹
Gross Annual Value 2,90,000
Working Note:
(a) Municipal value of property 3,00,000
(b) Fair rent 2,50,000
(c) Higher of (a) and (b) 3,00,000
(d) Standard rent 2,90,000
(e) Annual Letting Value / Expected Rent [lower of (c) and (d)] 2,90,000
(f) Actual rent [20,000 x 9] + [30,000 x 3] 2,70,000
(g) Gross Annual Value [higher of (e) and (f)] 2,90,000

Hint for answer 10.

Prior period interest
From 01.04.2020 to 31.03.2023
= 5,00,000 x 12% x 3 = 1,80,000
1,80,000 allowed in 5 equal instalments
= 1,80,000 / 5 = ₹ 36,000 per annum
Current period interest
From 01.04.2024 to 31.03.2025
= 5,00,000 x 12% x 1 = ₹60,000
Total Interest = ₹60,000 + ₹ 36,000 = ₹96,000

Hint for answer 11.

Computation of income under the head House Property
Gross Annual Value (20,000 X 12) 2,40,000.00
Less: Municipal Tax (60,000.00)
Net Annual Value 1,80,000.00
Less: Standard Deduction u/s 24(a) (54,000.00)
 Income Under The Head House Property 179

Less: Interest u/s 24(b) NIL

Income from House Property 1,26,000.00

Hint for answer 12.

Prior period interest NIL
Current period interest
From 01.05.2024 to 31.03.2025
= 20,00,000 x 6% x 11/12 = ₹1,10,000
Total Interest = ₹1,10,000 + ₹ 0 = ₹1,10,000
 Income Under The Head House Property 180

PRACTICE PROBLEMS
TOTAL PROBLEMS 26
Problem 1:
Mr. X has let out one building @ ₹ 90,000 p.m. and fair rent is ₹ 80,000 p.m. standard rent ₹ 1,00,000 p.m.
Municipal valuation ₹ 81,000 p.m., Municipal Tax paid ₹ 70,000 p.a., Interest on loan for construction of
house property ₹ 82,000. Mr. X has causal income ₹11,00,000.
Compute his tax liability for assessment year 2025-26.
Answer: Tax Liability: ₹3,60,100

Problem 2:
X Ltd. has let out one building to ABC Ltd. @ ₹3,00,000 p.m. and X Ltd. has paid municipal tax of
₹6,00,000 p.a. X Ltd. has paid interest of ₹3,00,000 on loan taken for construction of building. Fair rent of
the building is ₹2,50,000 p.m. and Municipal Valuation is ₹2,75,000 p.m. and Standard Rent is ₹2,80,000
p.m.
Compute Income Tax Liability for assessment year 2025-26.
Answer: Income Tax Liability: ₹5,61,600

Problem 3:
XYZ Ltd. has let out one building to ABC Ltd. @ ₹2,00,000 p.m. Fair rent is ₹1,80,000 p.m. and standard
rent ₹2,20,000 p.m. The company paid municipal tax of ₹6,00,000 during the year.
Compute income tax Liability of XYZ Ltd.
Answer: Income Tax Liability: ₹3,93,120

Problem 4:
Mr. X has let out one house at a rent of ₹50,000 p.m. Fair rent ₹55,000 p.m. Municipal Valuation ₹52,000
p.m., standard rent ₹60,000 p.m.. The house remain vacant for 3 months. The assessee paid municipal tax
₹30,000. Interest on loan u/s 24(b) is ₹20,000. Mr. X has STCG u/s 111A ₹9,00,000. Compute Income and
Tax Liability A.Y. 2025-26.
Answer: Income Tax Liability: 1,93,490
(b) Presume it is let out at a rent of ₹60,000 P.m.
Answer: Income Tax Liability: 1,89,120
(c) Presume it is let out at a rent of ₹55,000 P.m.
Answer: Income Tax Liability: 1,87,490
(d) Presume it is let out at a rent of ₹1,00,000 P.m.
Answer: Income Tax Liability: 2,02,230

Problem 5:
Mr. X has let out one house at a rent of ₹15,00,000 p.m. Fair rent ₹15,50,000 p.m. Municipal Valuation
₹15,20,000 p.m., standard rent ₹16,00,000 p.m.. The house remain vacant for 3 months. The assessee paid
municipal tax ₹13,00,000. Interest on loan u/s 24(b) is ₹12,00,000.Compute Income and Tax Liability A.Y.
2025-26.
Answer: Income Tax Liability: ₹35,43,750
(b) Presume it is let out at a rent of ₹16,00,000 P.m.
Answer: Income Tax Liability: ₹23,80,660
(c) Presume it is let out at a rent of ₹15,60,000 P.m.
Answer: Income Tax Liability: ₹22,94,180
(d) Presume it is let out at a rent of ₹20,00,000 P.m.
Answer: Income Tax Liability: ₹33,93,050
 Income Under The Head House Property 181

Problem 6.
Compute gross annual value in the following cases for the assessment year 2025-26:
Particulars Situation 1 Situation 2 Situation 3 Situation 4
Fair Rent (p.m.) 10,000 12,000 13,000 15,000
Municipal Valuation (p.m.) 11,000 10,000 8,000 17,000
Standard Rent (p.m.) 12,000 11,000 7,000 16,000
Rent received/ receivable (p.m.) 7,000 11,500 20,000 16,000
Vacancy - 2 months 1 month 3 month
Unrealised rent 1 month - 3 month 1 month
Answer = Gross Annual Value: Situation 1: ₹1,32,000; Situation 2: ₹1,15,000; Situation 3: ₹1,60,000;
Situation 4: ₹1,92,000

Problem 7.
Mr. X has let out one house property @ ₹70000 per month and there is unrealised Rent of 2 months and
there is vacancy of 3 month. Fair rent ₹60,000 per month, municipal valuation ₹55,000 per month and
standard rent ₹80,000 per month. Municipal tax paid ₹62,000. Interest on loan for construction of the house
property is ₹75,000.The assessee has unrealised Rent of ₹2,00,000 in P.Y. 2022-23 and he has recovered
₹1,50,000 in P.Y. 2024-25 and interest of ₹18,000 and he has incurred ₹11,000 as legal expense. He has
income from LTCG u/s 112 ₹4,00,000 and STCG u/s 111A ₹1,00,000.
Compute his tax liability for assessment year 2025-26.
Answer: Tax Liability: ₹83,650

Problem 8.
Mr. X (non-resident) has one house with fair rent ₹20,000 p.m., municipal valuation ₹10,000 p.m., standard
rent ₹18,000 p.m. It was let out for ₹12,000 p.m. but it remains vacant for 1½ months and there was
unrealised rent for 2 months. Municipal taxes paid are ₹11,000 and interest on capital borrowed for
construction of the house is ₹3,00,000.
Mr. X has income under the head other sources ₹7,00,000.
Compute his total income and tax liability for the assessment year 2025-26.
Answer = Total Income: ₹7,00,000; Tax Liability: ₹20,800

Problem 9.
Mrs. X has taken a loan of ₹ 11,00,000 on 01.07.2018 at a rate of 10% per annum from SBI for construction
of one house which was completed on 31.03.2020 and the house was let out at a rate of ₹80,000 per month
w.e.f. 01.11.2023 and fair rent is ₹1,00,000 per month. Municipal taxes paid in previous year 2024-2025
₹30,000. She has taken a fresh loan of ₹11,00,000 on 01.07.2023 @ 11% per annum and it was utilized to
repay the original amount. She has income from Causal income ₹8,00,000.
Compute her income tax liability for assessment year 2025-26.
Answer: Income Tax Liability: ₹2,70,300

Problem 10.
Mr. X took a loan of ₹ 6,10,500 @ 7% p.a. on 01.09.2021 from his friend for construction of one house
which was completed on 01.06.2024 and it was let out @ ₹9,000 p.m. It remained vacant for 1½ month and
there is unrealised rent of ₹1,000. The fair rent of house is ₹10,000 p.m. Assessee has repaid half of the loan
amount on 01.07.2023 and remaining amount on 01.02.2025. He has also paid municipal tax of ₹3,000. His
income under the head salary ₹8,65,000.
Compute his total income and tax liability for the assessment year 2025-26.
Answer = Total Income: ₹8,96,220; Tax Liability: ₹41,210

Problem 11.
Mr. X has taken a loan on 01.07.2021 from SBI @ 11% p.a. of ₹15,00,000 for construction of one house
which was completed on 01.11.2023 and was self occupied and municipal taxes paid in previous year
 Income Under The Head House Property 182

2024-25 ₹32,000. He has given repayment of loan of ₹70,000 on 01.01.2025. He has submitted a certificate
confirming the amount of interest.
He has income under the head Salary ₹10,50,000
Compute income tax liability for assessment year 2025-26.
Answer: Tax Liability: ₹59,800

Problem 12.
Mrs. X has taken a loan on 01.11.2020 from PNB @ 10% p.a. of ₹10,00,000 for purchase of one house
which was purchased on 01.01.2021 and was self occupied and municipal taxes paid in previous year 2024-
2025 ₹30,000. She has repaid the loan amount in annual installments of ₹50,000 starting from 01.01.2022.
The house was vacant for 1 month in previous year 2024-25. She has submitted a certificate confirming the
amount of interest.
She has short term capital gains under section 111A ₹10,00,000.
Compute Income Tax Liability for assessment year 2025-26.
Answer: Tax Liability: ₹1,45,600

Problem 13.
Mr. X has taken a loan of ₹15,00,000 from State Bank on 01.07.2022 @ 10% p.a. and the residential house
was completed on 01.05.2024 and was let out w.e.f. 01.06.2024 @ 80,000 p.m. and fair rent of the house is
₹90,000 p.m.
He repaid half of the loan amount on 01.01.2025. He has income under the head Business/Profession
₹6,00,000.
Compute his Income Tax Liability for assessment year 2025-26.
Answer = Total Income: ₹11,09,250; Tax Liability: ₹69,040

Problem 14.
Mr. X has taken a loan of ₹11,00,000 on 01.07.2021 @ 10% p.a. from his friend for construction of one
house which was completed on 01.09.2023 and the house is self occupied during the previous year 2024-25
and Mr. X has paid municipal tax of ₹12,000.
The assessee has submitted a certificate confirming the amount of interest. Mr. X has short term capital
gains under section 111A ₹120 lakhs.
Compute his income and Tax Liability for the assessment year 2025-26.
Answer: Total Income: ₹ 120,00,000; Tax Liability: ₹27,98,640

Problem 15.
Mr. X has 2 houses. First is self occupied with fair rent ₹20,000 p.a., municipal valuation is ₹55,000 p.a..
Fair rent as per Rent Control Act is ₹50,000 p.a.. However the house remains vacant for 2 months Architect
has issued completion certificate on 01.07.2022. Mr. X has taken loan for addition to house ₹3,50,000 on
01.04.2024 @ 13% p.a. The loan was repaid on 01.03.2025 and assessee has submitted a certificate from the
person from whom he has taken the loan certifying that the amount of interest claimed by Mr. X is correct.
In the earlier years, the house was let out and the assessee has recovered unrealised rent of ₹2,000 in the
previous year 2024-25. The assessee has also incurred legal expenses of ₹350.
The second house is also self-occupied. However its similar building rent is ₹64,000 p.a. and rent
determined by municipality for charging house tax is ₹66,000 p.a. Its standard rent is ₹6,000 p.m. municipal
tax payable are ₹5,000.
He has long term capital gains ₹20,00,000.
Compute his income tax liability for Assessment Year 2025-26.
Answer = Income Tax Liability: ₹2,21,180

Problem 16.
Mr. X has let out one house @ ₹45,000 p.m., but this house was vacated on 01.11.2024. The house was self
occupied w.e.f. 01.01.2025. Fair rent of this house is ₹50,000 p.m., municipal valuation is ₹47,000 p.m. and
standard rent is ₹48,000 p.m. The assessee has paid municipal taxes @ 10% of municipal valuation. Interest
 Income Under The Head House Property 183

on capital borrowed is ₹42,000. Land revenue paid by the assessee is ₹11,000 and ground rent paid by him is
₹3,000. The assessee has taken a loan for payment of municipal tax and interest paid on loan is ₹500. He has
income from LTCG u/s 112 ₹7,50,000.
Compute his income under the head house property and tax liability for assessment year 2025-26.
Answer = Income under the head House Property: ₹3,21,720; Tax Liability: ₹98,630

Problem 17.
Mr. X has two houses one of which is self occupied throughout the year. Its fair rent is ₹10,000 p.m.,
municipal valuation ₹11,000 p.m. and standard rent is ₹10,500 p.m. Municipal taxes paid are ₹6,000 and
interest on capital borrowed is ₹41,000. The assessee has taken the loan for construction of the house on
01.04.1998.
Second house is self occupied for 4 months and let out for 8 months @ of ₹45,000 p.m. Its fair rent is
₹20,000 p.m., municipal valuation is ₹18,000 p.m. and standard rent ₹15,000 p.m. Municipal taxes paid are
₹20,000 and interest on capital borrowed is ₹45,000. The assessee has taken the loan for construction of the
house on 01.04.1998.
Compute his income under the head house property for the assessment year 2025-26.
Answer = Income under the head House Property: ₹ 1,93,000

Problem 18.
Mr. X has let out one showroom building in Pitam Pura @ 1,00,000 p.m. and has paid municipal tax
₹85,000 and fair rent of the house is ₹98,000 p.m.
He has received arrears of rent ₹3,00,000 relating to the previous year 2023-24.
He has also received unrealized rent of ₹4,00,000 of previous year 2022-23 and also interest of ₹20,000 on
such unrealised rent and he has paid ₹27,000 to the advocate in connection with recovery of unrealized rent.
Compute his income tax liability for assessment year 2025-26.
Answer: Tax Liability: ₹1,02,020

Problem 19.
Mr. X occupied two flats for his residential purposes, particulars of which are as follows:
Particulars Flat I Flat II
(in ₹) (in ₹)
Municipal Valuation 95,000 p.a. 50,000 p.a.
Fair Rent 1,25,000 p.a. 45,000 p.a.
Fair Rent under Rent Control Act 85,000 p.a. Not available
Municipal taxes paid 10% 10%
Fire Insurance paid 1,500 650
Ground rent due 700 900
Land revenue paid 600 800
Interest payable on capital borrowed for purchase of flat 45,000 Nil
Income of Mr. X from his proprietary business–warehousing corporation is ₹12,00,000. Determine the total
income and tax liability for the assessment year 2025-26, you are informed that Mr. X could not occupy flat
for 2 months commencing from December 1st, 2024 and that he has attained the age of 82 on 23.08.2024.
Answer = Total Income: ₹12,00,000; Tax Liability: ₹83,200

Problem 20.
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 01.04.2023 and completed it on 31.03.2024. Mr. X occupied the
entire house on 01.04.2024. Mr. X has availed a housing loan of ₹25 lakhs @ 12% p.a. on 01.04.2023 and
has also submitted a certificate from the lender certifying the amount of interest.
Mr. Y started construction on 01.04.2023 and completed it on 30.06.2024. Mr. Y occupied the ground floor
on 01.07.2024 and let out the first floor for a rent of ₹20,000 per month. However, the tenant vacated the
house on 31.12.2024 and Mr. Y occupied the entire house during the period 01.01.2025 to 31.03.2025. Mr.
 Income Under The Head House Property 184

Y has availed a housing loan of ₹15 lakhs @ 10% p.a. on 01.07.2023 and has also submitted a certificate
from the lender certifying the amount of interest.
Following are the other information: ₹
(i) Fair rental value of each unit 1,20,000 Per annum
(Ground floor / first floor)
(ii) Municipal value of each unit 92,000 Per annum
(Ground floor / first floor)
(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 31.03.2025. Compute income from house property for Mr. X
and Mr. Y for the previous year 2024-25 (assessment year 2025-26).
Answer = Mr. X: Nil; Mr. Y: ₹ (5,750)

Problem 21.
Mrs. X is the owner of a house property. She borrowed ₹60,000 from life insurance corporation of India on
1st September 2017 @ 15% p.a. for the construction of this house. The construction was completed on
31.03.2020. Since then the house is under her self-occupation. On 1st June 2024 the house was let out @
₹3,000 p.m. The tenant vacated the house on 1st August 2024. She occupied the house for self-occupancy.
The house is again let out @ ₹3,500 p.m. from 1st October 2024.
Other particulars of the house for the previous year 2024-25. ₹
Municipal Valuation 22,000 p.a.
Municipal taxes disputed, hence not paid 2,200 p.a.
Ground rent for the previous year 2024-25 outstanding 3,200
Insurance premium paid 1,200
Refund of first loan instalment to LIC on 01.10.2024 15,000
Compute the income from house property for assessment year 2025-26.
Answer = Income under the head House Property: ₹11,025

Problem 22.
Mr. X owns a residential house property. It has two identical units—unit I and unit II. Unit I is self–occupied
by Mr. X and his family members, unit II is let out (rent being ₹10,500 per month, this unit remained vacant
for one month during which it was self-occupied). Municipal value of the property is ₹1,30,000. Standard
rent is ₹1,40,000 and fair rent is ₹1,53,000. Municipal taxes is imposed @ 12% (on municipal value) which
is paid by Mr. X. Other expenses for the previous year 2024-25 being repairs ₹5,100 and insurance ₹6,300.
Mr. X borrowed ₹9,00,000 on 01.07.2021 from LIC @ 12% p.a. to construct the property. Construction of
the house was completed on 30.06.2023. The entire loan is still unpaid.
Compute the total income and tax liability of Mr. X for the assessment year 2025-26 on the assumption that
income of Mr. X from other sources is ₹8,90,000.
Answer = Total Income: ₹8,92,490; Tax Liability: ₹40,820

Problem 23.
Mr. X has a house property situated in Mumbai which has two units. Unit I has a floor area of 70% whereas
the unit II has a floor area of 30%. Both the units were self-occupied by the assessee. As the assessee was
allowed a rent free accommodation by his employer w.e.f. 01.04.2024, he vacated both of the units and let
out unit I at a rent of ₹13,000 p.m. and unit II for ₹5,000 p.m. unit I remained vacant for 1½ months whereas
unit II was vacant for one month. Other particulars of the house property are asunder: ₹
Municipal Valuation 1,55,000
Fair Rent 1,75,000
Standard Rent 1,65,000
Municipal taxes paid 35,000
Ground rent due 15,000
 Income Under The Head House Property 185

Compute income from house property for the assessment year 2025-26.
Answer = Income under the head House Property: ₹1,09,550

Problem 24.
Mr. X is the owner of a residential house whose construction was completed on 31.08.2020. It has been let
out from 01.01.2021 for residential purposes. Its particulars for the financial year 2024-25 are given below:
₹
(i) Municipal Valuation (p.a.) 68,000
(ii) Expected Fair Rent (p.a.) 75,000
(iii) Standard Rent under the Rent Control Act (p.m.) 7,200
(iv) Actual Rent (p.m.) 7,200
(v) Municipal taxes paid (including ₹7,000 paid by tenant) 21,000
(vi) Water/sewerage benefit tax, levied by State Government paid under protest 5,100
(vii) Interest on loan taken for the construction of the house. The interest has been paid
outside India to a non-resident without deduction of tax at source 20,000
(viii) Stamp duty and registration charges incurred in respect of the lease agreement of the house 2,500
(ix) The unrealised rent for previous year 2023-24 amounts to ₹42,000.
There is recovery of ₹22,000 from the defaulting tenant.
Legal charges for the recovery of rent 4,500
Compute income from house property for the assessment year 2025-26.
Answer = Income under the head House Property: ₹66,080

Problem 25.
Mr. X has three houses with details given below:
House I
It is self occupied with fair rent of ₹20,000, municipal valuation ₹55,000, rent as per Rent Control Act is
₹50,000. However the house remains vacant for 2 months. Architect has issued completion certificate on
01.07.2022. Loan taken for addition to the house ₹5,00,000 on 01.04.2024 @ 13% p.a. and loan amount was
repaid on 01.03.2025. The assessee has submitted a certificate from the person from whom he has taken the
loan certifying the amount of the interest claimed.
In the earlier years the house was let out and the assessee has recovered unrealised rent of ₹2,000 in the
previous year 2024-25 and interest on such unrealised rent also amounting to ₹250. However the assessee
has incurred legal expenses of ₹350.
House II
It is self occupied. Its similar building rent is ₹64,000 and rent determined by municipality for charging
house tax is ₹66,000 and its fair rent under Rent Control Act (p.m.) is ₹6,000. Municipal taxes payable
₹5,000.
The assessee has also recovered unrealised rent of ₹2,000 in the previous year 2022-23 but the expenses
thereon are paid in the year 2024-25 amounting to ₹200.
House III
It is let out @ ₹50,000 p.m. and fair rent is ₹60,000 p.m. Water tax and house tax paid to municipality is
₹11,000. Insurance premium paid ₹6,500 and expenses on repairs ₹3,000.
Interest on capital borrowed for purchase of house is ₹55,000.
He has long term capital gains of ₹3,50,000.
Compute his total income and tax liability for assessment year 2025-26.
Answer = Total Income: ₹7,92,950; Tax Liability: ₹52,930
Problem 26.
Determine the income head under which the following incomes shall be taxable.
(i) Mr. X has income from letting out house property.
(ii) Mr. X has sold one house property.
(iii) ABC Ltd. has 500 flats for the purpose of sale/purchase.
(iv) Mr. X has let out an open land.
 Income Under The Head House Property 186

(v) ABC Ltd. has 500 flats for the purpose of letting out and ABC Ltd. is engaged in the business
of letting out.
(vi) ABC Ltd. has constructed flats within its premises for letting out to the employees.
(vii) Mr. X is engaged in the business of providing paying guest accommodation in his own
building.
(viii) Mr. X is engaged in the business of warehousing.
(ix) Mr. X has sublet one house property.
(x) Mr. X has let out his hotel building.
Answer = (i) House Property; (ii) Capital Gains; (iii) Business/Profession; (iv) Other Sources; (v)
Business/Profession; (vi) Business/Profession; (vii) Business/Profession; (viii) Business/Profession; (ix)
Other Sources; (x) House Property
 Income Under The Head House Property 187

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1: ₹
Computation of income under the head House Property
Gross Annual Value 10,80,000
Working Note: ₹
(a) Fair Rent ( ₹ 80,000 x 12) 9,60,000
(b) Municipal Valuation (₹ 81,000 x 12) 9,72,000
(c) Higher of (a) or (b) 9,72,000
(d) Standard Rent (₹ 1,00,000 x 12) 12,00,000
(e) Expected Rent {Lower of (c) or (d)} 9,72,000
(f) Rent received (₹90,000 x 12) 10,80,000
GAV = Higher of (e) or (f) 10,80,000
Less: Municipal Tax (70,000)
Net Annual Value 10,10,000
Less: 30% of NAV u/s 24(a) (3,03,000)
Less: Interest on capital borrowed u/s 24(b) (82,000)
Income under the head House Property 6,25,000
Income under the head Other Sources (Causal income) 11,00,000
Gross Total Income 17,25,000
Less: Deduction under Chapter VI-A Nil
Total Income 17,25,000
Computation of Tax Liability
Tax on ₹6,25,000 at slab rate 16,250
Tax on causal income ₹11,00,000 @ 30% 3,30,000
Tax before health & education cess 3,46,250
Add: HEC @ 4% 13,800
Tax Liability 3,60,100

Solution 2: ₹
Computation of income under the head House Property
Gross Annual Value 36,00,000.00
Working Note: ₹
(a) Fair Rent (2,50,000 x 12) 30,00,000
(b) Municipal Value (2,75,000 x 12) 33,00,000
(c) Higher of (a) or (b) 33,00,000
(d) Standard Rent (2,80,000 x 12) 33,60,000
(e) Expected Rent {Lower of (c) or (d)} 33,00,000
(f) Rent received /receivable (3,00,000 x 12) 36,00,000
GAV shall be higher of (e) or (f) 36,00,000
Less: Municipal Tax (6,00,000.00)
Net Annual Value 30,00,000.00
Less: 30% of NAV u/s 24(a) (9,00,000.00)
Less: Interest on capital borrowed u/s 24(b) (3,00,000.00)
 Income Under The Head House Property 188

Income under the head House Property 18,00,000.00

Gross Total Income 18,00,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 18,00,000.00
Computation of Tax Liability
Tax on ₹18,00,000 @ 30% 5,40,000.00
Add: HEC @ 4% 21,600.00
Tax Liability 5,61,600.00

Solution 3. ₹
Computation of income under the head House Property
Gross Annual Value (2,00,000 x 12) 24,00,000.00
Working Note: ₹
(a) Fair Rent (1,80,000 x 12) 21,60,000
(b) Standard Rent (2,20,000 x 12) 26,40,000
(c) Expected Rent (lower of (a) or (b) 21,60,000
(d) Rent Received/Receivable (2,00,000 x 12) 24,00,000
GAV = Higher of (c) or (d) 24,00,000
Less: Municipal Tax (6,00,000.00)
Net Annual Value 18,00,000.00
Less: 30% of NAV u/s 24(a) (5,40,000.00)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 12,60,000.00
Gross Total Income 12,60,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 12,60,000.00
Computation of Tax Liability
Tax on ₹12,60,000 @ 30% 3,78,000.00
Add: HEC @ 4% 15,120.00
Tax Liability 3,93,120.00

Solution 4: Computation of Total Income & Tax Liability of Mr. X ₹

Gross Annual Value 6,60,000.00
Working Note: ₹
(a) Fair Rent (₹55,000 x 12) 6,60,000
(b) Municipal Valuation (₹52,000 x 12) 6,24,000
(c) Higher of (a) or (b) 6,60,000
(d) Standard Rent (₹60,000 x 12) 7,20,000
(e) Expected Rent {Lower of (c) or (d)} 6,60,000
(f) Rent received /receivable (50,000 x 9) 4,50,000
If there was no vacancy, in that case rent received/receivable would have been
(50,000 x 12) ₹6,00,000 which is not exceeding expected rent hence GAV shall be
expected rent i.e. ₹6,60,000
GAV 6,60,000
Less: Municipal Tax (30,000.00)
Net Annual Value 6,30,000.00
Less: 30% of NAV u/s 24(a) (1,89,000.00)
Less: Interest on capital borrowed u/s 24(b) (20,000.00)
Income under the head House Property 4,21,000.00
Income under the head Capital Gains (STCG u/s 111A) 9,00,000.00
Total Income 13,21,000.00
 Income Under The Head House Property 189

Computation of Tax Liability

Tax on Normal Income ₹4,21,000 at slab rate 6,050.00
Tax on STCG u/s 111A ₹9,00,000 @ 20% 1,80,000.00
Tax before health & education cess 1,86,050.00
Add: HEC @ 4% 7,442.00
Tax Liability 1,93,492.00
Rounded off u/s 288B 1,93,490.00

Solution 4(b): Computation of Total Income & Tax Liability of Mr. X ₹

Gross Annual Value 5,40,000.00
Working Note: ₹
(a) Fair Rent (₹55,000 x 12) 6,60,000
(b) Municipal Valuation (₹52,000 x 12) 6,24,000
(c) Higher of (a) or (b) 6,60,000
(d) Standard Rent (₹60,000 x 12) 7,20,000
(e) Expected Rent {Lower of (c) or (d)} 6,60,000
(f) Rent received /receivable (60,000 x 9) 5,40,000
If there was no vacancy, in that case rent received/receivable would have been
(60,000 x 12) ₹7,20,000 which is exceeding expected rent hence GAV shall be Rent
received/receivable i.e. ₹5,40,000
GAV 5,40,000
Less: Municipal Tax (30,000.00)
Net Annual Value 5,10,000.00
Less: 30% of NAV u/s 24(a) (1,53,000.00)
Less: Interest on capital borrowed u/s 24(b) (20,000.00)
Income under the head House Property 3,37,000.00
Income under the head Capital Gains (STCG u/s 111A) 9,00,000.00
Total Income 12,37,000.00

Computation of Tax Liability

Tax on Normal Income ₹3,37,000 at slab rate 1,850.00
Tax on STCG u/s 111A ₹9,00,000 @ 20% 1,80,000.00
Tax before health & education cess 1,81,850.00
Add: HEC @ 4% 7,274.00
Tax Liability 1,89,124.00
Rounded off u/s 288B 1,89,120.00

Solution 4(c): Computation of Total Income & Tax Liability of Mr. X ₹

Gross Annual Value 4,95,000.00
Working Note: ₹
(a) Fair Rent (₹55,000 x 12) 6,60,000
(b) Municipal Valuation (₹52,000 x 12) 6,24,000
(c) Higher of (a) or (b) 6,60,000
(d) Standard Rent (₹60,000 x 12) 7,20,000
(e) Expected Rent {Lower of (c) or (d)} 6,60,000
(f) Rent received /receivable (55,000 x 9) 4,95,000
If there was no vacancy, in that case rent received/receivable would have been
(55,000 x 12) ₹6,60,000 which is equal to expected rent hence GAV shall be Rent
Received/ receivable i.e. ₹4,95,000
GAV 4,95,000
Less: Municipal Tax (30,000.00)
Net Annual Value 4,65,000.00
Less: 30% of NAV u/s 24(a) (1,39,500.00)
 Income Under The Head House Property 190

Less: Interest on capital borrowed u/s 24(b) (20,000.00)

Income under the head House Property 3,05,500.00
Income under the head Capital Gains (STCG u/s 111A) 9,00,000.00
Total Income 12,05,500.00

Computation of Tax Liability

Tax on Normal Income ₹3,05,500 at slab rate 275.00
Tax on STCG u/s 111A ₹9,00,000 @ 20% 1,80,000.00
Tax before health & education cess 1,80,275.00
Add: HEC @ 4% 7,211.00
Tax Liability 1,87,486.00
Rounded off u/s 288B 1,87,490.00

Solution 4(d): Computation of Total Income & Tax Liability of Mr. X ₹

Gross Annual Value 9,00,000.00
Working Note: ₹
(a) Fair Rent (₹55,000 x 12) 6,60,000
(b) Municipal Valuation (₹52,000 x 12) 6,24,000
(c) Higher of (a) or (b) 6,60,000
(d) Standard Rent (₹60,000 x 12) 7,20,000
(e) Expected Rent {Lower of (c) or (d)} 6,60,000
(f) Rent received /receivable (1,00,000 x 9) 9,00,000
If there was no vacancy, in that case rent received/receivable would have been
(1,00,000 x 12) ₹12,00,000 which is exceeding expected rent hence GAV shall be Rent
received/receivable i.e. ₹9,00,000
GAV 9,00,000
Less: Municipal Tax (30,000.00)
Net Annual Value 8,70,000.00
Less: 30% of NAV u/s 24(a) (2,61,000.00)
Less: Interest on capital borrowed u/s 24(b) (20,000.00)
Income under the head House Property 5,89,000.00
Income under the head Capital Gains (STCG u/s 111A) 9,00,000.00
Total Income 14,89,000.00
Computation of Tax Liability
Tax on Normal Income ₹5,89,000 at slab rate 14,450.00
Tax on STCG u/s 111A ₹9,00,000 @ 20% 1,80,000.00
Tax before health & education cess 1,94,450.00
Add: HEC @ 4% 7,778.00
Tax Liability 2,02,228.00
Rounded off u/s 288B 2,02,230.00

Solution 5: ₹
Computation of Total Income & Tax Liability of Mr. X
Gross Annual Value 186,00,000.00
Working Note: ₹
(a) Fair Rent (₹15,50,000 x 12) 186,00,000
(b) Municipal Valuation (₹15,20,000 x 12) 182,40,000
(c) Higher of (a) or (b) 186,00,000
(d) Standard Rent (₹16,00,000 x 12) 192,00,000
(e) Expected Rent {Lower of (c) or (d)} 186,00,000
(f) Rent received /receivable (15,00,000 x 9) 135,00,000
If there was no vacancy, in that case rent received/receivable would have been
 Income Under The Head House Property 191

(15,00,000 x 12) ₹180,00,000 which is not exceeding expected rent hence GAV shall
be expected rent i.e. ₹186,00,000
GAV 186,00,000
Less: Municipal Tax (13,00,000.00)
Net Annual Value 173,00,000.00
Less: 30% of NAV u/s 24(a) (51,90,000.00)
Less: Interest on capital borrowed u/s 24(b) (12,00,000.00)
Income under the head House Property 109,10,000.00
Total Income 109,10,000.00
Computation of Tax Liability
Tax on Normal Income ₹109,10,000 at slab rate 29,63,000.00
Add: Surcharge @ 15% 4,44,450.00
Tax before health & education cess 34,07,450.00
Add: HEC @ 4% 1,36,298.00
Tax Liability 35,43,748.00
Rounded off u/s 288B 35,43,750.00

Solution 5(b): ₹
Computation of Total Income & Tax Liability of Mr. X
Gross Annual Value 144,00,000.00
Working Note: ₹
(a) Fair Rent (₹15,50,000 x 12) 186,00,000
(b) Municipal Valuation (₹15,20,000 x 12) 182,40,000
(c) Higher of (a) or (b) 186,00,000
(d) Standard Rent (₹16,00,000 x 12) 192,00,000
(e) Expected Rent {Lower of (c) or (d)} 186,00,000
(f) Rent received /receivable (16,00,000 x 9) 144,00,000
If there was no vacancy, in that case rent received/receivable would have been
(16,00,000 x 12) ₹192,00,000 which is exceeding expected rent hence GAV shall be
rent received/receivable i.e. ₹144,00,000
GAV 144,00,000
Less: Municipal Tax (13,00,000.00)
Net Annual Value 131,00,000.00
Less: 30% of NAV u/s 24(a) (39,30,000.00)
Less: Interest on capital borrowed u/s 24(b) (12,00,000.00)
Income under the head House Property 79,70,000.00
Total Income 79,70,000.00
Computation of Tax Liability
Tax on Normal Income ₹79,70,000 at slab rate 20,81,000.00
Add: Surcharge @ 10% 2,08,100.00
Tax before health & education cess 22,89,100.00
Add: HEC @ 4% 91,564.00
Tax Liability 23,80,664.00
Rounded off u/s 288B 23,80,660.00

Solution 5(c): ₹
Computation of Total Income & Tax Liability of Mr. X
Gross Annual Value 140,40,000.00
Working Note: ₹
(a) Fair Rent (₹15,50,000 x 12) 186,00,000
(b) Municipal Valuation (₹15,20,000 x 12) 182,40,000
(c) Higher of (a) or (b) 186,00,000
 Income Under The Head House Property 192

(d) Standard Rent (₹16,00,000 x 12) 192,00,000

(e) Expected Rent {Lower of (c) or (d)} 186,00,000
(f) Rent received /receivable (15,60,000 x 9) 140,40,000
If there was no vacancy, in that case rent received/receivable would have been
(15,60,000 x 12) ₹187,20,000 which is exceeding expected rent hence GAV shall be
rent received/ receivable i.e. ₹140,40,000
GAV 140,40,000
Less: Municipal Tax (13,00,000.00)
Net Annual Value 127,40,000.00
Less: 30% of NAV u/s 24(a) (38,22,000.00)
Less: Interest on capital borrowed u/s 24(b) (12,00,000.00)
Income under the head House Property 77,18,000.00
Total Income 77,18,000.00
Computation of Tax Liability
Tax on Normal Income ₹77,18,000 at slab rate 20,05,400.00
Add: Surcharge @ 10% 2,00,540.00
Tax before health & education cess 22,05,940.00
Add: HEC @ 4% 88,237.60
Tax Liability 22,94,177.60
Rounded off u/s 288B 22,94,180.00

Solution 5(d): ₹
Computation of Total Income & Tax Liability of Mr. X
Gross Annual Value 180,00,000.00
Working Note: ₹
(a) Fair Rent (₹15,50,000 x 12) 186,00,000
(b) Municipal Valuation (₹15,20,000 x 12) 182,40,000
(c) Higher of (a) or (b) 186,00,000
(d) Standard Rent (₹16,00,000 x 12) 192,00,000
(e) Expected Rent {Lower of (c) or (d)} 186,00,000
(f) Rent received /receivable (20,00,000 x 9) 180,00,000
If there was no vacancy, in that case rent received/receivable would have been
(20,00,000 x 12) ₹240,00,000 which is exceeding expected rent hence GAV shall be
rent received/ receivable i.e. ₹180,00,000
GAV 180,00,000
Less: Municipal Tax (13,00,000.00)
Net Annual Value 167,00,000.00
Less: 30% of NAV u/s 24(a) (50,10,000.00)
Less: Interest on capital borrowed u/s 24(b) (12,00,000.00)
Income under the head House Property 104,90,000.00
Total Income 104,90,000.00

Computation of Tax Liability

Tax on Normal Income ₹104,90,000 at slab rate 28,37,000.00
Add: Surcharge @ 15% 4,25,550.00
Tax before health & education cess 32,62,550.00
Add: HEC @ 4% 1,30,502.00
Tax Liability 33,93,052.00
Rounded off u/s 288B 33,93,050.00
 Income Under The Head House Property 193

Solution 6:
Situation 1 ₹
Computation of Gross Annual Value
(a) Fair Rent 1,20,000
(10,000 x 12)
(b) Municipal Valuation 1,32,000
(11,000 x 12)
(c) Higher of (a) or (b) 1,32,000
(d) Standard Rent 1,44,000
(12,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,32,000
(f) Rent Received/Receivable 77,000
(7,000 x 11)
GAV = Higher of (e) or (f) 1,32,000
Gross Annual Value 1,32,000
Situation 2
Computation of Gross Annual Value
(a) Fair Rent 1,44,000
(12,000 x 12)
(b) Municipal Valuation 1,20,000
(10,000 x 12)
(c) Higher of (a) or (b) 1,44,000
(d) Standard Rent 1,32,000
(11,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,32,000
(f) Rent Received/Receivable 1,15,000
(11,500 x 10)
In this case, if there was no vacancy, rent received/receivable would have been ₹1,38,000
hence rent received/receivable is lower in this case due to vacancy, therefore GAV
shall be the rent received/receivable.
Gross Annual Value 1,15,000
Situation 3
Computation of Gross Annual Value
(a) Fair Rent 1,56,000
(13,000 x 12)
(b) Municipal Valuation 96,000
(8,000 x 12)
(c) Higher of (a) or (b) 1,56,000
(d) Standard Rent 84,000
(7,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 84,000
(f) Rent Received/Receivable 1,60,000
(20,000 x 8)
In this case, rent R/R is higher than the expected rent, GAV shall be Rent R/R
Gross Annual Value 1,60,000
Situation 4
Computation of Gross Annual Value
(a) Fair Rent 1,80,000
(15,000 x 12)
(b) Municipal Valuation 2,04,000
(17,000 x 12)
(c) Higher of (a) or (b) 2,04,000
(d) Standard Rent 1,92,000
 Income Under The Head House Property 194

(16,000 x 12)
(e) Expected Rent {Lower of (c) or (d)} 1,92,000
(f) Rent Received/Receivable 1,28,000
(16,000 x 8)
If there was no vacancy, in that case rent received/receivable would have been ₹1,76,000
and it was still less than expected rent, therefore GAV shall be expected rent.
Gross Annual Value 1,92,000

Solution 7: ₹
Income under the head House Property
Gross annual value 7,20,000.00
Working Note: ₹
(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
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 2022-23 section 25A 1,05,000.00
(1,50,000 – 45,000)
Income under the head House Property 4,90,600.00
Income from other sources 18,000.00
Income under the head Capital Gains
Income from LTCG u/s 112 4,00,000.00
Income from STCG u/s 111A 1,00,000.00
Income under the head Capital Gains 5,00,000.00
Gross Total Income 10,08,600.00
Less: Deduction under Chapter VI-A Nil
Total Income 10,08,600.00
Computation of Tax Liability
Tax on ₹5,08,600 at slab rate 10,430.00
Tax on LTCG u/s 112 ₹4,00,000 @ 12.5% 50,000.00
Tax on STCG u/s 111A ₹1,00,000 @ 20% 20,000.00
Tax before health & education cess 80,430.00
Add: HEC @ 4% 3,217.20
Tax Liability 83,647.20
Rounded off u/s 288B 83,650.00

Solution 8: ₹
Gross Annual Value 2,16,000.00
Working Note: ₹
(a) Fair Rent (20,000 x 12) 2,40,000
(b) Municipal Valuation (10,000 x 12) 1,20,000
(c) Higher of (a) or (b) 2,40,000
(d) Standard Rent (18,000 x 12) 2,16,000
 Income Under The Head House Property 195

(e) Expected Rent {Lower of (c) or (d)} 2,16,000

(f) Rent Receivable = (12,000 x 8.5) 1,02,000
If there was no vacancy, in that case rent received/receivable would have been
₹1,20,000 and it was still less than expected rent, therefore GAV shall be expected
rent.
GAV 2,16,000
Less: Municipal Tax (11,000.00)
Net Annual Value 2,05,000.00
Less: 30% of NAV u/s 24(a) (61,500.00)
Less: Interest on capital borrowed u/s 24(b) (3,00,000.00)
Loss under the head House Property (1,56,500.00)

Income under the head Other Sources 7,00,000.00

Gross Total Income 7,00,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 7,00,000.00
Computation of Tax Liability
Tax on ₹7,00,000 at slab rate 20,000.00
Add: HEC @ 4% 800.00
Tax Liability 20,800.00
Loss under the head House Property to be carried forward (1,56,500.00)

Solution 9: ₹
Income under the head House Property
Gross annual value 12,00,000.00
Working Note: ₹
Fair rent (1,00,000 x 12) 12,00,000
Rent received (80,000 x 12) 9,60,000
Higher shall be the GAV i.e. 12,00,000
Less: Municipal taxes paid (30,000.00)
Net Annual Value 11,70,000.00
Less: 30% of NAV u/s 24(a) (3,51,000.00)
Less: Interest on capital borrowed u/s 24(b) (1,21,000.00)
Working Note:
Prior period interest Nil
Current year interest 11,00,000 x 11% = 1,21,000
Income under the head House Property 6,98,000.00
Income under the head Other Sources (Casual income) 8,00,000.00
Gross Total Income 14,98,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 14,98,000.00

Computation of Tax Liability

Tax on ₹6,98,000 at slab rate 19,900.00
Tax on casual income ₹8,00,000 @ 30% 2,40,000.00
Tax before health & education cess 2,59,900.00
Add: HEC @ 4% 10,396.00
Tax Liability 2,70,296.00
Rounded off u/s 288B 2,70,300.00
 Income Under The Head House Property 196

Solution 10: ₹
Gross Annual Value 1,00,000.00
Working Note: ₹
(a) Fair Rent (10,000 x 10) 1,00,000
(b) Expected Rent 1,00,000
(c) Received/Receivable = 9,000 x 8.5 = 76,500 – 1,000 = 75,500
If there was no vacancy, in that case rent received/receivable would have been
₹89,000 and it was still less than expected rent, therefore GAV shall be expected
rent.
GAV 1,00,000
Less: Municipal taxes (3,000.00)
Net Annual Value 97,000.00
Less: 30% of NAV u/s 24(a) (29,100.00)
Less: Interest on capital borrowed u/s 24(b) (36,680.88)
Working Note:
Current Period interest
From 01.04.2024 to 31.01.2025
= 3,05,250 x 7% x 10/12 = ₹17,806.25
Prior period interest
From 01.09.2021 to 31.03.2024
From 01.09.2021 to 30.06.2023
= 6,10,500 x 7% x 22/12 = ₹78,347.5
From 01.07.2023 to 31.03.2024
= 3,05,250 x 7% x 9/12 = ₹16,025.63
Total = ₹94,373.13
Instalment = ₹94,373.13/5 = ₹18,874.63
Total interest = ₹17,806.25 + ₹18,874.63 = ₹36,680.88
Income under the head House Property 31,219.12
Income under the head Salary 8,65,000.00
Gross Total Income 8,96,219.12
Less: Deductions under Chapter VI-A Nil
Total Income (rounded off u/s 288A) 8,96,220.00
Computation of Tax Liability
Tax on ₹8,96,220 at slab rate 39,622.00
Add: HEC @ 4% 1,584.88
Tax Liability 41,206.88
Rounded off u/s 288B 41,210.00

Solution 11: ₹
Income under the head House Property
Income under the head House Property Nil
Income under the head Salary 10,50,000.00
Gross Total Income 10,50,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 10,50,000.00
Computation of Tax Liability
Tax on ₹10,50,000 at slab rate 57,500.00
Add: HEC @ 4% 2,300.00
Tax Liability 59,800.00
 Income Under The Head House Property 197

Solution 12: ₹
Income under the head House Property
Income under the head House Property Nil
Income under the head capital gains (STCG u/s 111A) 10,00,000.00
Gross Total Income 10,00,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 10,00,000.00
Computation of Tax Liability
Tax on ₹7,00,000 (₹10,00,000 – 3,00,000) @ 20% 1,40,000.00
Add: HEC @ 4% 5,600.00
Tax Liability 1,45,600.00
Solution 13:
Computation of income under the head House Property
Gross Annual Value 9,90,000.00
Working Note: ₹
(a) Fair Rent (90,000 x 11) 9,90,000
(b) Expected Rent 9,90,000
(c) Rent Received/Receivable (80,000 x 10) 8,00,000
If there was no vacancy, in that case rent received/receivable would have
been ₹8,80,000 and it was still less than expected rent, therefore GAV
shall be expected rent.
GAV 9,90,000
Less: Municipal Tax Nil
Net Annual Value 9,90,000.00
Less: 30% of NAV u/s 24(a) (2,97,000.00)
Less: Interest on capital borrowed u/s 24(b) (1,83,750.00)
Working Note:
Prior period interest
From 01.07.2022 to 31.03.2024
= (15,00,000 x 10% x 1) + (15,00,000 x 10% x 9/12)
= ₹1,50,000 + ₹1,12,500 = ₹2,62,500
Installment = ₹2,62,500/5 = ₹52,500
Current period interest
From 01.04.2024 to 31.03.2025
= (15,00,000 x 10% x 9/12) + (7,50,000 x 10% x 3/12)
= ₹1,12,500 + ₹18,750 = ₹1,31,250
Total interest on capital borrowed
= ₹52,500 + ₹ 1,31,250 = ₹1,83,750
Income under the head House Property 5,09,250.00
Income under the head Business/Profession 6,00,000.00
Gross Total Income 11,09,250.00
Less: Deduction under Chapter VI-A Nil
Total Income 11,09,250.00
Computation of Tax Liability
Tax on ₹11,09,250 at slab rate 66,387.50
Add: HEC @ 4% 2,655.50
Tax Liability 69,043.00
Rounded off u/s 288B 69,040.00
 Income Under The Head House Property 198

Solution 14: ₹
Computation of income under the head House Property
Income under the head House Property Nil
Income under the head capital gains
Short term capital gains u/s 111A 120,00,000.00
Gross Total Income 120,00,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 120,00,000.00
Computation of Tax Liability
Tax on ₹117,00,000 (₹120,00,000 – 3,00,000) @ 20% 23,40,000.00
Add: Surcharge @ 15% 3,51,000.00
Tax before health & education cess 26,91,000.00
Add: HEC @ 4% 1,07,640.00
Tax liability 27,98,640.00

Solution 15: ₹
As per the amendments now two house shall be treated as self-occupied.
House I & II is self-occupied
Income from house I & II Nil
Income under the head House Property Nil
Add: Unrealised rent received (2,000 – 600) 1,400.00
Income under the head House Property 1,400.00
Income under the head Capital Gains (LTCG) 20,00,000.00
Gross Total Income 20,01,400.00
Less: Deduction under Chapter VI-A Nil
Total Income 20,01,400.00
Computation of Tax Liability
Normal Income 1,400 Nil
LTCG (20,00,000 – 2,98,600) x 12.5% 2,12,675.00
Add: HEC @ 4% 8,507.00
Tax Liability 2,21,182.00
Rounded off u/s 288B 2,21,180.00

Solution 16: ₹
Gross Annual Value 5,76,000.00
Working Note: ₹
(a) Fair Rent (50,000 x 12) 6,00,000
(b) Municipal Valuation (47,000 x 12) 5,64,000
(c) Higher of (a) or (b) 6,00,000
(d) Standard Rent (48,000 x 12) 5,76,000
(e) Expected rent {Lower of (c) or (d)} 5,76,000
(f) Rent Receivable (45,000 x 7) 3,15,000
If there was no vacancy, in that case rent received/receivable would have been
₹4,05,000 and it was still less than expected rent, therefore GAV shall be expected
rent
GAV 5,76,000
Less: Municipal Tax (56,400.00)
Net Annual Value 5,19,600.00
Less: 30% of NAV u/s 24(a) (1,55,880.00)
Less: Interest on capital borrowed u/s 24(b) (42,000.00)
Income under the head House Property 3,21,720.00
Income under the head Capital Gains (LTCG u/s 112) 7,50,000.00
Gross Total Income 10,71,720.00
 Income Under The Head House Property 199

Less: Deduction under Chapter VI-A Nil

Total Income 10,71,720.00

Computation of Tax Liability

Tax on ₹3,21,720 at slab rate 1,086.00
Tax on LTCG u/s 112 ₹7,50,0000 @ 12.5% 93,750.00
Tax before health & education cess 94,836.00
Add: HEC @ 4% 3,793.44
Tax Liability 98,629.44
Rounded off u/s 288B 98,630.00

Solution 17: ₹
Income from self occupied house Nil
Income from partly self occupied and partly let out house
Gross Annual Value 3,60,000
Working Note: ₹
(a) Fair Rent (20,000 x 12) 2,40,000
(b) Municipal Valuation (18,000 x 12) 2,16,000
(c) Higher of (a) or (b) 2,40,000
(d) Standard Rent (15,000 x 12) 1,80,000
(e) Expected Rent 1,80,000
(f) Rent Receivable (45,000 x 8) 3,60,000
GAV = Higher of (e) or (f) 3,60,000
Less: Municipal taxes (20,000)
Net Annual Value 3,40,000
Less: 30% of NAV u/s 24(a) (1,02,000)
Less: Interest on capital borrowed u/s 24(b) (45,000)
Income from House Property 1,93,000
Income under the head House Property 1,93,000
[₹1,93,000 + Nil]

Solution 18: ₹ ₹
Gross Annual Value 12,00,000.00
Working Note: ₹
(a) Fair rent (98,000 x 12) 11,76,000
(b) Rent receivable (1,00,000 x 12) 12,00,000
GAV {Higher of (a) or (b)} 12,00,000
Less: Municipal Taxes (85,000.00)
Net Annual Value 11,15,000.00
Less: 30% of NAV u/s 24(a) (3,34,500.00)
Less: Interest on capital borrowed u/s 24(b) Nil
7,80,500.00
Add: Arrears of rent (Sec 25A) 3,00,000
Less: 30% of ₹3,00,000 (90,000) 2,10,000.00
9,90,500.00
Add: Unrealised Rent (4,00,000 – 1,20,000) 2,80,000.00
Income under the head House Property 12,70,500.00
Income under the head Other Sources 20,000.00
Gross Total Income 12,90,500.00
Less: Deduction under Chapter VI-A Nil
Total Income 12,90,500.00
 Income Under The Head House Property 200

Computation of Tax Liability

Tax on ₹12,90,500 at slab rate 98,100.00
Add: HEC @ 4% 3,924.00
Tax Liability 1,02,024.00
Rounded off u/s 288B 1,02,020.00

Solution 19: ₹
As per the amendments now two house shall be treated as self-occupied.
Flat I & II is self-occupied
Income Nil
Computation of Total Income
Income under the head House Property Nil
Income under the head Business Profession 12,00,000.00
Gross Total Income 12,00,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 12,00,000.00
Computation of Tax Liability
Tax on ₹12,00,000 at slab rate 80,000.00
Add: HEC @ 4% 3,200.00
Tax Liability 83,200.00

Solution 20: ₹
Computation of income from House Property of Mr. X
Net annual value is Nil Nil
(Since house is self – occupied)
Computation of income from house property of Mr. Y
Ground Floor (Self Occupied)
Income from house property Nil

First Floor (Let Out)

Gross Annual Value 1,20,000
Working Note: ₹
(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
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) (86,250)
Working Note:
Current period interest
From 01.04.2024 to 31.03.2025
= 15,00,000 x 10% x 1/2 = ₹75,000
Prior period interest
From 01.07.2023 to 31.03.2024
= 15,00,000 x 10% x 9 / 12 = 1,12,500
1,12,500 allowed in 5 equal instalments
= 1,12,500 / 5 = ₹ 22,500 per annum
= 22,500 /2 = ₹11,250
 Income Under The Head House Property 201

Total Interest = ₹75,000 + ₹11,250 = ₹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) (5,750)

Solution 21: ₹
Computation of income under the head House Property
Gross Annual Value 27,000
Working Note: ₹
(a) Municipal Valuation 22,000
(b) Expected Rent 22,000
(c) Rent Received/Receivable (3,000 x 2) + (3,500 x 6) 27,000
GAV = Higher of (b) or (c) 27,000
Less: Municipal taxes Nil
Net Annual Value 27,000
Less: 30% of NAV u/s 24(a) (8,100)
Less: Interest on capital borrowed u/s 24(b) (7,875)
Working Note:
= [(60,000 x 15% x 6/12) + (45,000 x 15% x 6/12)] = ₹7,875
Income under the head House Property 11,025

Solution 22:
Computation of income of Unit-I
Since the unit is self-occupied throughout the year. Hence its income shall be Nil
Computation of income of Unit-II
It will be considered to be partially self-occupied and partially let out and income shall be computed under
section 23(3) in the manner given below: ₹
Gross Annual Value 1,15,500.00
Working Note: ₹
(a) Fair Rental Value 76,500
(b) Municipal Valuation 65,000
(c) Higher of (a) or (b) 76,500
(d) Standard Rent 70,000
Expected Rent {Lower of (c) or (d) 70,000
(e) Expected Rent 70,000
(f) Rent Received/Receivable (10,500 x 11) 1,15,500
GAV = Higher of (e) or (f) 1,15,500
Less: Municipal taxes (7,800.00)
Net Annual Value 1,07,700.00
Less: 30% of NAV u/s 24(a) (32,310.00)
Less: Interest on capital borrowed u/s 24(b) (72,900.00)
Working note:
Current period interest
From 01.04.2024 to 31.03.2025
= 9,00,000 x 12% = ₹1,08,000
Prior period interest
From 01.07.2021 to 31.03.2023
= 9,00,000 x 12% x 21 / 12 =1,89,000
Installment = 1,89,000 / 5 = 37,800
Total interest= 1,08,000 + 37,800 = 1,45,800
Interest allowed for one unit = 1,45,800 / 2 = ₹72,900
 Income Under The Head House Property 202

Income from house property 2,490.00

Income under the head Other Sources 8,90,000.00
Gross Total Income 8,92,490.00
Less: Deductions under Chapter VI-A Nil
Total Income 8,92,490.00

Computation of Tax Liability

Tax on ₹8,92,490 at slab rate 39,249.00
Add: HEC @ 4% 1,569.96
Tax Liability 40,818.96
Rounded off u/s 288B 40,820.00

Solution 23: ₹
Unit I
Gross Annual Value 1,36,500
Working Note: ₹
(a) Fair Rental Value (1,75,000 x 70%) 1,22,500
(b) Municipal Valuation (1,55,000 x 70%) 1,08,500
(c) Higher of (a) or (b) 1,22,500
(d) Standard Rent (1,65,000 x 70%) 1,15,500
(e) Expected Rent {Lower of (c) or (d)} 1,15,500
(f) Rent Received/Receivable (13,000 x 10.5) 1,36,500
In this case, rent R/R is higher than the expected rent, GAV shall be Rent R/R
GAV 1,36,500
Less: Municipal taxes (35,000 x 70%) (24,500)
Net Annual Value 1,12,000
Less: 30% of NAV u/s 24(a) (33,600)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 78,400
Unit II
Gross Annual Value 55,000
Working Note: ₹
(a) Fair Rental Value (1,75,000 x 30%) 52,500
(b) Municipal Valuation (1,55,000 x 30%) 46,500
(c) Higher of (a) or (b) 52,500
(d) Standard Rent (1,65,000 x 30%) 49,500
(e) Expected Rent {Lower of (c) or (d)} 49,500
(f) Rent Received/Receivable (5,000 x 11) 55,000
In this case, rent R/R is higher than the expected rent, GAV shall be Rent R/R
GAV 55,000
Less: Municipal taxes (35,000 x 30%) (10,500)
Net Annual Value 44,500
Less: 30% of NAV u/s 24(a) (13,350)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head house property 31,150
Total income from house property (78,400 + 31,150) 1,09,550

Solution 24: ₹
Gross Annual Value 86,400
Working Note: ₹
(a) Fair Rental Value 75,000
(b) Municipal Valuation 68,000
 Income Under The Head House Property 203

(c) Higher of (a) or (b) 75,000

(d) Standard Rent (7,200 x 12) 86,400
(e) Expected Rent {Lower of (c) or (d)} 75,000
(f) Rent Received/Receivable (7,200 x 12) 86,400
GAV = Higher of (e) or (f) 86,400
Less: Municipal taxes (14,000)
Net Annual Value 72,400
Less: 30% of NAV u/s 24(a) (21,720)
Less: Interest on capital borrowed u/s 24(b) Nil
Interest paid to non-resident without deducting tax at source is not deductible
Income from house property 50,680
Add: Recovery of unrealised rent sec 25A 15,400
(22,000 – 6,600)
Income under the head House property 66,080

Solution 25: ₹
House I self-occupied
Income from house property I Nil
House II Self Occupied
Income from house II Nil
House III
Gross Annual Value 7,20,000
Working Note: ₹
(a) Fair rent (60,000 x 12) 7,20,000
(b) Expected Rent 7,20,000
(c) Rent Received/Receivable (50,000 x 12) 6,00,000
GAV = Expected Rent 7,20,000
Less: Municipal Taxes (11,000.00)
Net Annual Value 7,09,000.00
Less: 30% of NAV u/s 24(a) (2,12,700.00)
Less: Interest on capital borrowed u/s 24(b) (55,000.00)
Income from house III 4,41,300.00
Income under the head House Property
House I and II Nil
House III 4,41,300.00
Recovery of unrealised rent (house I) 1,400.00
(2,000 – 600)
Income under the head House Property 4,42,700.00
Computation of Total Income
Income under the head House Property 4,42,700.00
Income under the head Capital Gains (long term capital gain) 3,50,000.00
Income from Other Sources 250.00
Gross Total Income 7,92,950.00
Less: Deduction under Chapter VI-A Nil
Total Income 7,92,950.00

Computation of Tax Liability

Tax on ₹4,42,950 at slab rate 7,147.50
Tax on ₹3,50,000 @ 12.5% u/s 112 43,750.00
Tax before health & education cess 50,897.50
Add: HEC @ 4% 2,035.90
Tax Liability 52,933.40
 Income Under The Head House Property 204

Rounded off u/s 288B 52,930.00

Solution 26:
(i) Income under the head House Property.
(ii) Income under the head Capital Gains.
(iii) Income under the head Business/Profession.
(iv) Income under the head Other Sources.
(v) Income under the head Business/Profession.
(vi) Income under the head Business/Profession.
(vii) Income under the head Business/Profession.
(viii) Income under the head Business/Profession.
(ix) Income under the head Other Sources.
(x) Income under the head House Property.
 Income Under The Head House Property 205

EXAMINATION QUESTIONS
MAY – 2023
Question No.1 (Part) (4 Marks)
Mr. Bhasin owns a big house with 2 independent units.
Unit - 1 (with 50% floor area) has been let our for residential purposes at a monthly rent of ₹ 20,000 for the
entire year.
Unit - 2 (with the balance 50% of the floor area) is used by Mr. Bhasin as his residence.
Other particulars of the house are:
Municipal Valuation - ₹ 3,60,000 p.a.
Fair Rent - ₹ 4,20,000 p.a.
Standard Rent under Rent Control Act -₹ 4,00,000 p.a.
Interest on loan paid – ₹80,000
He has paid a sum of ₹ 10,000 as municipal taxes of the house. Interest expenses represent interest on capital
borrowed from a nationalised bank for the construction of the house. The construction was completed in
F.Y.2018-19. Neither the loan nor the interest was paid. He has LTCG 112A ₹5,00,000. Compute his
income and tax.
Solution:
Computation of income of let out portion ₹
Gross Annual Value 2,40,000
(a) Fair rent ₹2,10,000
(b) Municipal Valuation ₹1,80,000
(c) Higher of (a) or (b) ₹2,10,000
(d) Standard Rent ₹2,00,000
(e) Expected Rent {Lower of (c) or (d)} ₹2,00,000
(f) Rent received/receivable (20,000 x 12) ₹2,40,000
Gross annual value ₹2,40,000
Less: Municipal Taxes (10,000 x 50%) (5,000)
Net Annual Value 2,35,000
Less: 30% of NAV u/s 24(a) (70,500)
Less: Interest on capital borrowed u/s 24(b) (80,000 x 50%) (40,000)
Income from let out portion 1,24,500
Income from self-occupied portion Nil
Income under the head House Property 1,24,500
Income under the head Capital Gains (LTCG u/s 112A) 5,00,000
Gross Total Income/Total Income 6,24,500
Computation of Tax Liability
Tax on normal income ₹1,24,500 Nil
Tax on LTCG u/s 112A (5,00,000 – 1,25,000 – 1,75,500) x 12.5% 24,937.50
Add: HEC @ 4% 997.50
Tax Liability 25,935.00
Rounded off u/s 288B 25,940.00

DEC – 2021
Question 3(c) (6 Marks)
Mr. Ravi, a resident and ordinarily resident in India, owns a let out house property having different flats in
Kanpur which has municipal value of ₹27,00,000 and standard rent of ₹29,80,000. Market rent of similar
property is ₹30,00,000. Annual rent was ₹40,00,000 which includes ₹10,00,000 pertaining to different
amenities provided in the building. One flat in the property (annual rent is 2,40,000) remains vacant for 4
months during the previous year. He has incurred following expenses in respect of aforesaid property:
 Income Under The Head House Property 206

Municipal taxes of ₹4,00,000 for the financial year 2024-25 (10% rebate is obtained for payment before due
date.) Arrears of municipal tax of financial year 2023-24 paid during the year of ₹1,40,000 which includes
interest on arrears of ₹25,000.
Lift maintenance expenses of ₹2,40,000 which includes a payment of ₹9,000 which made in cash.
Salary of ₹88,000 paid to staff for collecting house rent and other charges. .
Compute the total income of Mr. Ravi for the assessment year 2025-26.
Answer
Computation of total income of Mr. Ravi for A.Y. 2025-26
Gross Annual Value 29,40,000
(a) Fair Rent ₹ 30,00,000
(b) Municipal Value ₹ 27,00,000
(c) Higher of (a) or (b) ₹ 30,00,000
(d) Standard Rent ₹ 29,80,000
(e) Expected Rent {Lower of (c) or (d)} ₹ 29,80,000
(f) Rent Received/Receivable ₹ 29,40,000
[30,00,000 - (₹ 2,40,000 x 4/12 x 3/4)]
In this case, if there was no vacancy, rent received/receivable
would have been ₹30,00,000 hence rent received/receivable is
lower in this case due to vacancy, therefore GAV shall be rent
received/receivable
Less: Municipal Taxes (4,75,000)
[₹ 4,00,000 – rebate of ₹ 40,000] = ₹ 3,60,000
[₹ 1,40,000 arrears – ₹ 25,000 interest] = ₹ 1,15,000
Net Annual Value 24,65,000
Less: 30% of NAV u/s 24(a) (7,39,500)
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 17,25,500
Income from Other Sources
Rent for amenities 10,00,000
Less: Loss due to vacancy [₹ 2,40,000 x 4/12 x ¼] (20,000)
Less: Lift maintenance expenses (2,40,000)
Less: Salary to staff [₹ 88,000 x1/4, being the proportion pertaining to amenities] (22,000)
Income under the head Other Sources 7,18,000
Gross Total Income 24,43,500
Less: Deduction under Chapter VI-A Nil
Total Income 24,43,500

JULY – 2021
Question 3(a) (6 Marks)
Mr. Ramesh constructed a big house (construction completed in Previous Year 2019-2020) with 3
independent units.
Unit-1 (50% of floor area) is let out for residential purpose at monthly rent of ₹15,000. A sum of 3,000
could not be collected from the tenant and a notice to vacate the unit was given to the tenant and also a suit
was filed for recovery of rent. No other property of Mr. Ramesh is occupied by the tenant. Unit- 1 remains
vacant for 2 months when it is not put to any use.
Unit – 2 (25% of the floor area) is used by Mr. Ramesh for the purpose of his business.
Unit – 3 (the remaining 25%) is utilized for the purpose of his residence.
Other particulars of the house are as follows: Municipal valuation - ₹ 1,88,000, fair rent - ₹2,48,000,
Standard rent under the Rent Control Act - ₹ 2,28,000, Standard rent under the Rent Control Act -
₹2,28,000, Municipal taxes paid - ₹ 20,000, repairs - ₹ 5,000, Interest on capital borrowed for the
construction of the property - ₹ 60,000, ground rent – 6,000 and fire the insurance premium paid - ₹60,000.
 Income Under The Head House Property 207

Income of Ramesh from the business is ₹ 1,40,000 (without debiting house rent and other incidental
expenditure).
Determine the taxable of Mr. Ramesh for the assessment year 2025-26.
Solution:
Computation of Taxable Income of Mr. Ramesh for A.Y. 2025-26
Income from house property
Unit - 1 [50% of floor area - Let out]
Gross Annual Value 1,47,000
(a) Fair Rent ₹ 1,24,000
(b) Municipal Value ₹ 94,000
(c) Higher of (a) or (b) ₹ 1,24,000
(d) Standard Rent ₹ 1,14,000
(e) Expected Rent {Lower of (c) or (d)} ₹ 1,14,000
(f) Rent Received/Receivable ₹ 1,47,000
[(₹15,000 x 10) – unlrealized rent ₹3000]
In this case, rent received/receivable is higher than expected
rent hence rent received/receivable is GAV
Less: Municipal taxes [50% of ₹20,000] (10,000)
Net annual value 1,37,000
Less: 30% of NAV u/s 24(a) (41,100)
Less: Interest on capital borrowed u/s 24(b) (30,000)
Income from Unit – 1 65,900
Unit – 3 [25% of floor area – Self occupied]
Income from Unit – 3 Nil
Income under the head House Property 65,900

Profits and gains from business or profession

Business Income [without deducting expenditure on Unit – 2 1,40,000
25% floor area used for business purposes]
Less: Municipal taxes [25% of ₹ 20,000] (5,000)
Less: Repairs [25% of ₹ 5,000] (1,250)
Less: Interest on loan [25% of ₹ 60,000] (15,000)
Less: Ground rent [ 25% of ₹ 6,000] (1,500)
Less: Fire Insurance premium [25% of ₹ 60,000] (15,000)
Income under the head Business/Profession 1,02,250
Gross Total Income 1,68,150
Less: Deduction under Chapter VI-A Nil
Total Income 1,68,150

NOV – 2018 (NEW COURSE)

Question 3(a) (7 Marks)
Mrs. Disha Khanna, a resident of India, owns a house property at Bhiwani in Haryana. The Municipal
value of the property is ₹7,50,000, Fair Rent of the property is ₹6,30,000 and Standard Rent is ₹7,20,000
per annum.
The property was let out for ₹75,000 per month for the period April 2024 to December 2024.
Thereafter, the tenant vacated the property and Mrs. Disha Khanna used the house for self-occupation. Rent
for the months of November and December 2023 could not be realize from the tenant. The tenancy was
bonafide but the defaulting tenant was in occupation of another property of the assessee, paying rent
regularly.
She paid municipal taxes @ 12% during the year and paid interest of ₹35,000 during the year for amount
borrowed towards repairs of the house property.
You are required to compute her income from "House Property” for the A.Y. 2025-26.
 Income Under The Head House Property 208

Solution:
Computation of Income under the head House Property
Gross Annual Value 7,20,000.00
Working Note: ₹
(a) Fair rent 6,30,000
(b) Municipal Valuation 7,50,000
(c) Higher of (a) or (b) 7,50,000
(d) Standard Rent 7,20,000
(e) Expected Rent {Lower of (c) or (d)} 7,20,000
(f) Rent Received/Receivable (75,000 x 9) 6,75,000
GAV = Higher of (e) or (f) 7,20,000
Less: Municipal taxes (90,000.00)
Net Annual Value 6,30,000.00
Less: 30% of NAV u/s 24(a) (1,89,000.00)
Less: Interest on capital borrowed u/s 24(b) (35,000.00)
Income from house property 4,06,000.00

Note: As per explanation to section 23(1)/Rule 4, in case of unrealised rent expected rent shall be computed
for full year and while computing rent received/receivable, such unrealised rent shall be excluded and GAV
shall be higher of expected rent and rent received or receivable.
In the given case conditions of rule 4 has not been complied hence rent shall not be treated as unrealised and
shall not be excluded.

NOV – 2018 (OLD COURSE)

Question 2(b) (5 Marks)
Mr. Chakrobarty, a resident, aged 35 years, works as a deputy manager in Dews Limited, located in Noida
since April 2014. He own two houses and uses it for self-purpose. The following information relates to the
houses for the previous year 2024-2025:
Location House-1 House-II
Noida Gurgaon
(He and his family reside) (His parents reside)
Municipal value per annum (₹) 8,00,000 9,00,000
Fair rent (₹) 9,20,000 8,80,000
Standard rent per annum (₹) 8,40,000 9,20,000
Actual rent (per month) (₹) - -
Municipal taxes paid during the year 8% 10%
Date of completion of construction of properties 31st March, 2017 25th May, 2023
He had taken a loan of ₹18,00,000 for the construction of the House-II on 1st April, 2021. Interest was payable
@ 10% per annum. Certificate confirming interest has been submitted. Till date, no payment was made
towards the principal amount.
Compute his income under the head House Property
Solution:
As per the amendments now two house shall be treated as self-occupied and after two house all house shall
be treated as deemed to be let out.
House I is Self-Occupied
Income Nil
House II is Self-Occupied
Income Nil
Income under the head house property Nil
 Income Under The Head House Property 209

MAY – 2018 (OLD COURSE)

Question 3 (b) Marks 5
Mr. Rohan a residential individual, owns 3 houses in Chennai. One house is self-occupied by him, second
house is self-occupied by his mjor son and the third house is vacant during the year.
You are required to highlight the steps involved to compute Income from House Property for Mr. Rohan
under deemed to be let out concept.
Solution: Refer answer given in the book

NOV – 2017
Question 4(a) (5 Marks)
Mr. Aditya, a resident but not ordinarily resident in India during the Assessment Year 2025-26. He owns
two houses, one in Dubai and the other in Mumbai. The house in Dubai is let out there at a rent of DHS
20,000 p.m. (1 DIRHAM=INR 18). The entire rent is received in India. He paid Property tax of DHS 2,500
and Sewerage Tax DHS 1,500 there, for the Financial Year 2024-25. The house in Mumbai is self-occupied.
He has taken a loan of ₹25,00,000 to construct the house on 1st June, 2021 @ 12%. The construction was
completed on 31st May, 2023 and he occupied the house on 1st June, 2023. The entire loan is outstanding as
on 31st March, 2025. Property tax paid in respect of the second house is ₹2,400 for the Financial Year 2024-
25. Compute the income chargeable under the head “Income from House property” in the hands of Mr.
Aditya for the Assessment Year 2025-26.
Solution:
In the given Mr. Aditya is NOR Hence Income received in India is taxable in India.
Computation of Income from House Property of Mr. Aditya for the Assessment Year 2025-26
₹
GAV of the house in Dubai
(20,000 p.m. x ₹18 per DHS x 12 months) 43,20,000.00
Less: Municipal taxes paid (1500 +2500) x ₹18 per DHS (72,000.00)
Net Annual Value 42,48,000.00
Less: Statutory deduction under section 24(a) @ 30% of NAV (12,74,400.00)
Income from House property 29,73,600.00
GAV of house at Mumbai (self occupied)
Income from House property Nil
Income from House property 29,73,600.00

MAY – 2017
Question 4(a) (ii) (4 Marks)
Mr. Ganesh owns a commercial building whose construction got completed in June 2023. He took a loan of
₹15 lakhs from his friend on 01.08.2022 and had been paying interest calculated at 15% per annum. He is
eligible for pre-construction interest as deduction as per the provisions of the Income Tax Act.
Mr. Ganesh has let out the commercial building at a monthly rent of ₹40,000 during the financial year 2024-
25. He paid municipal tax of ₹18,000 each for the financial year 2023-24 and 2024-25 on 1-5-2024 and 5-4-
2025 respectively.
Compute income under the head. 'House Property' of Mr. Ganesh for the Assessment Year 2025-26.
Solution:
Computation of Income under the head House Property ₹
Gross Annual Value (40,000 x 12) 4,80,000
Less: Municipal Taxes (18,000)
Net Annual Value 4,62,000
Less: 30% of NAV u/s 24(a) (1,38,600)
Less: Interest on capital borrowed u/s 24(b) (2,55,000)
Working Note:
Prior period interest
 Income Under The Head House Property 210

From 01.08.2022 to 31.03.2023

= 15,00,000 x 15% x 8 / 12 = 1,50,000
1,50,000 allowed in 5 equal instalments
= 1,50,000 / 5 = 30,000 per annum
Current period interest
From 01.04.2024 to 31.03.2025
= 15,00,000 x 15% x 1 = 2,25,000
Total Interest = 30,000 + 2,25,000 = 2,55,000
Income under the head House Property 68,400
Note: As per proviso to section 23(1), Municipal Taxes actually paid by the owner during the previous year
is allowed to be deducted from GAV.

NOV – 2015
Question 6(a). (8 Marks)
Mr. X constructed a shopping complex. He had taken a loan of ₹25 lakhs for construction of the said
property on 01.08.2022 from SBI @ 10% for 5 years. The construction was completed on 30.06.2023.
Rental income received from shopping complex ₹30,000 per month let out for the whole year. Municipal
Taxes paid for shopping complex ₹8,000.
Arrears of rent received from shopping complex ₹1,20,000.
Interest paid on loan taken from SBI for purchase of house for use as own residence for the period 2024-
2025 ₹3 lakhs. The loan was taken after 01.04.1999 and house was purchased within 5 years from the end of
the year in which loan was taken and assessee has submitted certificate certifying the amount of interest.
You are required to compute Income from House property of Mr. X for AY 2025-2026 as per Income Tax
Act, 1961.
Solution:
Income under the head House Property
Income from shopping Complex
Gross Annual Value 3,60,000.00
Less: Municipal taxes paid (8,000.00)
Net Annual Value 3,52,000.00
Less: 30% of NAV u/s 24(a) (1,05,600.00)
Less: Interest on capital borrowed u/s 24(b) (2,83,333.33)
Working Note: ₹
Prior period interest
From 01.08.2022 to 31.03.2023
25,00,000 x 10% x 8/12 = 1,66,666.67
Installment allowed = 1,66,666.67/5 = 33,333.33 33,333.33
Current year interest
From 01.04.2024 to 31.03.2025
25,00,000 x 10% x 1 = 2,50,000 2,50,000.00
Total 2,83,333.33
Loss from shopping complex (36,933.33)
Add: Arrear of Rent Received Section 25A 1,20,000
Less: Deduction @ 30% (36,000) 84,000.00

Income from shopping complex 47,066.67

Income from self-occupied property Nil
Income under the had House Property (47,066.67 + Nil) 47,066.67
 Income Under The Head House Property 211

MAY – 2014
(5 Marks)
Mrs. X has two houses, both of which are self occupied. The particulars of these are given below:
Particulars (Value in ₹)
House — I House — II
Municipal Valuation per annum 1,20,000 1,15,000
Fair Rent per annum 1,50,000 1,75,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31-03-1999 31-03-2001
Municipal taxes payable during the year (paid for House II only) 12% 8%
Interest on money borrowed for repair of property during current year - 55,000
Compute Mrs. X’s income from the House Property for the Assessment Year 2025-26.
Solution:
In this case, Mrs. X has more than one house property for self-occupation. As per section 23(2), Mrs. X can
avail the benefit of self-occupation (i.e., benefit of “Nil” Annual Value) in respect of both the house
properties.

House I & II – Self-occupied ₹

Income Nil

NOV – 2013
(5 Marks)
Mr. X owns a residential house in Delhi. The house is having two identical units. First unit of the house is
self-occupied by Mr. X and another unit is rented for ₹55,000 p.m. The rented unit was vacant for three
months during the year. The particulars of the house for the previous year 2024-25 are as under:
Standard Rent ₹11,20,000 p.a.
Municipal Valuation ₹10,44,000 p.a.
Fair Rent ₹11,35,000 p.a.
Municipal tax paid by Mr. X 12% of the Municipal Valuation
Light and water charges ₹800 p.m.
Interest on borrowed capital ₹2,000 p.m.
Insurance charges ₹3,500 p.a.
Painting expenses ₹16,000 p.a.
Compute his income and tax liability of Mr. X for the assessment year 2025-26.
Answer:
Computation of Income from house property of Mr. X for A.Y. 2025-26
Rented unit (50% of total area)
Gross Annual Value (GAV) 4,95,000
(a) Municipal valuation (₹ 10,44,000 x ½) 5,22,000
(b) Fair rent (₹ 11,35,000 x ½) 5,67,500
(c) Higher of (a) or (b) 5,67,500
(d) Standard rent (₹ 11,20,000 x ½) 5,60,000
(e) Expected rent lower of (c) or (d) 5,60,000
(f) Rent receivable for the whole year (₹ 55,000 x 9) 4,95,000
If there was no vacancy, rent received/receivable would have been 55,000 x 12 =
6,60,000, which is higher than Expected rent, hence GAV shall be rent
received/receivable
Less: Municipal taxes (12% of ₹ 5,22,000) (62,640)
Net Annual Value (NAV) 4,32,360
Less : Deductions
(a) 30% of NAV under section 24(a) (1,29,708)
(b) Interest on borrowed capital (₹ 1,000 x 12) u/s 24(b) (12,000)
 Income Under The Head House Property 212

Taxable income from let out portion 2,90,652

Self occupied unit (50% of total area)
Annual value Nil
Less : Deduction under section 24(b):
Interest on borrowed capital Nil
Income from house property 2,90,652
Gross Total Income 2,90,652
Less: Deduction under Chapter VI-A Nil
Total Income (Rounded off u/s 288A) 2,90,650
Computation of Tax Liability
Tax on ₹2,90,650 at slab rate Nil
Tax Liability Nil
Note: No deduction will be allowed separately for light and water charges, insurance charges and painting
expenses.

MAY – 2012
(4 Marks)
Explain the treatment of unrealized rent and its recovery in subsequent years under the provisions of Income
Tax Act, 1961.
Answer: Refer answer given in the book

NOV – 2010
(2 Marks each)
Explain briefly the applicability of section 22 for chargeability of income tax for:
(i) House property situated in foreign country and
(ii) House property with disputed ownership.
Answer:
Applicability of section 22 for chargeability of income-tax for –
(i) House property situated in foreign country
A resident and ordinarily assessee is taxable under section 22 in respect of a house property situated in
foreign country. A resident but not ordinarily resident or a non resident is taxable in respect of income from
such property if the income is received in India during the previous year.
(ii) House property with disputed ownership
If the title of ownership of the house property is under dispute in a court of law, the decision about who is
the owner lies with the Court but till then income tax shall be required from the person who is the beneficial
owner of the house property.

NOV – 2009
(4 Marks)
Mrs. X, a resident and ordinarily resident individual, owns a house in U.S.A. She receives rent @ $ 2,000
per month. She paid municipal taxes of $ 1,500 during the financial year 2024-25.
She also owns a two storied house in Mumbai, ground floor is used for her residence and first floor is let out
at a monthly rent of ₹10,000.
Municipal taxes paid for the house amounts to ₹7,500. Mrs. X had constructed the house by taking a loan
from a nationalized bank on 20.06.2021. She repaid the loan of ₹54,000 including interest of ₹24,000 in the
current year.
The value of one dollar is to be taken as ₹45.
Compute total income from house property and also tax liability of Mrs. X for assessment year 2025-26.
Answer.
Computation of Income from House Property of Mrs. X for the Assessment Year 2025-26 ₹
GAV of the house in USA
($2000 p.m. x ₹45 per USD x 12 months) 10,80,000.00
 Income Under The Head House Property 213

Less: Municipal taxes paid ($1500 x ₹45 per USD) (67,500.00)

Net Annual Value 10,12,500.00
Less: Statutory deduction under section 24(a) @ 30% of NAV (3,03,750.00)
Income from House property 7,08,750.00
GAV of house at Mumbai (let out portion)- Ist Floor
Gross Annual Value (10,000 x 12) 1,20,000.00
Less: Municipal taxes paid (1/2 of ₹7,500) (3,750.00)
Net Annual Value (NAV) 1,16,250.00
Less: Statutory deduction under section 24(a) @ 30% of NAV (34,875)
Less: Interest on Housing loan (1/2 of ₹24,000) 24(b) (12,000)
Income from House property 69,375.00
House at Mumbai (self occupied portion) – Ground Floor
Income from House property Nil
Income under the head House Property 7,78,125.00
Gross Total Income 7,78,125.00
Less: Deduction under chapter VI-A Nil
Total Income (rounded off u/s 288A) 7,78,130.00
Computation of Tax Liability
Tax on ₹7,78,130 at slab rate 27,813.00
Add: HEC @ 4% 1,112.52
Tax Liability 28,925.52
Rounded off u/s 288B 28,930.00

NOV – 2009
(4 Marks)
Mr. X is a co-owner of a house property alongwith his brother.
Municipal value of the Property 1,60,000
Fair Rent 1,50,000
Standard Rent under the Rent Control Act 1,70,000
Rent received 15,000 p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is ₹25,000
out of which ₹21,000 have been paid. Interest on the unpaid interest is ₹450. To repay this loan, X and his
brother have taken a fresh loan and interest charged on this loan is ₹5,000.
The Municipal taxes of ₹5,100 have been paid by the tenant.
Mr. X has 50% share in the house property.
Mr. X has income from Other Sources ₹2,60,000.
Compute the income from this property chargeable in the hands of Mr. X and tax liability for A.Y. 2025-26.
Answer. Computation of income from house property of Mr. X for A.Y. 2025-26
₹ ₹
Gross Annual Value 1,80,000
Working Note:
(a) Municipal value of property 1,60,000
(b) Fair rent 1,50,000
(c) Higher of (a) and (b) 1,60,000
(d) Standard rent 1,70,000
(e) Annual Letting Value / Expected Rent [lower of (c) and (d)] 1,60,000
(f) Actual rent [15,000 x 12] 1,80,000
(g) Gross Annual Value [higher of (e) and (f)] 1,80,000
Less: Municipal taxes – paid by the tenant, hence not deductible Nil
Net Annual Value (NAV) 1,80,000
Less: Standard deduction 30% of NAV u/s 24(a) (54,000)
Less: Interest on housing loan u/s 24(b)
Interest on loan taken from bank (25,000)
 Income Under The Head House Property 214

Interest on fresh loan to repay old loan for this property (5,000)
Income under the head house property 96,000
50% share taxable in the hands of Mr. X 48,000
Income under the head House Property 48,000
Income under the head Other Sources 2,60,000
Gross Total Income 3,08,000
Less: Deduction under chapter VI-A Nil
Total Income 3,08,000
Computation of Tax Liability
Tax on ₹3,08,000 at slab rate 400
Less: Rebate u/s 87A (400)
Tax Liability Nil

Note: Interest on housing loan is allowable as a deduction under section 24 on accrual basis. Further,
interest on fresh loan taken to repay old loan is also allowable as deduction. However, interest on unpaid
interest is not allowable as deduction under section 24.

NOV – 2008
(5 Marks)
Mr. X owns one residential house in Mumbai. The house is having two units. First unit of the house is self
occupied by Mr. X and another unit is rented for ₹55,000 p.m. The rented unit was vacant for 2 months
during the year.
The particulars of the house for the previous year 2024-25 are as under:
Standard rent ₹ 10,62,000 p.a.
Municipal valuation ₹ 8,90,000 p.a.
Fair rent ₹ 10,85,000 p. a
Municipal tax 15% of municipal valuation
Light and water charges paid by the tenant ₹ 500 p.m.
Interest on borrowed capital ₹ 1,500 p.m.
Insurance charges paid by Mr. X ₹ 3,000 p.a.
Repairs ₹ 12,000 p.a.
Compute income from house property of Mr. X and tax liability for the A.Y. 2025-26.
Answer.
Computation of Income from house property for A.Y. 2025-26
(A) Rented unit (50% of total area) ₹
Gross Annual Value 5,50,000

Working note: ₹
(a) Fair rent (₹10,85,000 x ½) 5,42,500
(b) Municipal valuation (₹8,90,000 x ½) 4,45,000
(c) Higher of (a) or (b) 5,42,500
(d) Standard rent (₹10,62,000 x ½) 5,31,000
(e) Expected rent (lower of (c) or (d) 5,31,000
(f) Rent received or receivable (₹55,000 x 10) 5,50,000
Since, the actual rent received is higher than the annual letting value, the actual
rent received is the Gross Annual value i.e. ₹5,50,000
Less: Municipal taxes (15% of ₹4,45,000) (66,750)
Net Annual value 4,83,250
Less: Deductions under section 24
(i) 30% of net annual value u/s 24(a) 1,44,975
(ii) Interest on borrowed capital (₹750 x 12) u/s 24(b) 9,000 (1,53,975)
Taxable income from let out portion 3,29,275
 Income Under The Head House Property 215

(B) Self occupied unit (50% of total area) Nil

Income under the head House Property 3,29,275
Gross Total Income 3,29,275
Less: Deduction u under chapter VI-A Nil
Total Income (rounded off u/s 288A) 3,29,280
Computation of Tax Liability
Tax on ₹3,29,280 at slab rate 1,464.00
Less: Rebate u/s 87A (1,464.00)
Tax Liability Nil
Notes:
(i) It is assumed that both the units are of identical size. Therefore, the rented unit would represent 50% of
total area and the self-occupied unit would represent 50% of total area.
(ii) No deduction will be allowed separately for light and water charges, insurance charges and repairs.

MAY – 2007
(6 Marks)
Miss Charlie, an American national, got married to Mr. Radhey of India in USA on 02.03.2024 and came to
India for the first time on 16.03.2024. She left for USA on 23.09.2024.
She returned to India again on 27.03.2025. While in India, she had purchased a show room in Mumbai on
22.04.2024, which was leased out to a company on a rent of ₹25,000 p.m. from 01.05.2024. She had taken
loan from a bank for purchase of this show room on which bank had charged interest of ₹97,500 upto
31.03.2025.
She had received the following gifts from her relatives and friends during 01.04.2024 to 30.06.2024:
- From parents of husband ₹ 51,000
- From married sister of husband ₹ 11,000
- From two very close friends of her husband, ₹1,51,000 and ₹21,000 ₹1,72,000
Determine her residential status and compute the total income chargeable to tax alongwith the amount of tax
payable on such income for the Assessment Year 2025-26.
Answer.
As per section 6(1), an individual is considered to be resident in India if he stays in India for 182 days or
more or he stays in India for 60 days or more during the relevant previous year and also for 365 days or
more during 4 years preceding the relevant previous year.
Since Miss Charlie is not able to comply with any of the condition mentioned above, she is non-resident in
previous year 2024-25.
Her stay in India during the previous year 2024-25 and in the preceding four years is as under:-

P.Y. 2024-25
01.04.2024 to 23.09.2024 - 176 days
27.03.2025 to 31.03.2025 - 5 days
Total 181 days

Four preceding previous years

P.Y. 2023- 2024 [16.03.2024 to 31.03.2024] - 16 days
P.Y. 2022- 2023 [01.04.2022 to 31.03.2023] - Nil
P.Y. 2021- 2022 [01.04.2021 to 31.03.2022] - Nil
P.Y. 2020- 2021 [01.04.2020 to 31.03.2021] - Nil
Total 16 days

Computation of total income of Miss. Charlie for the A.Y. 2025-26 ₹

Income from house property
Gross Annual Value [25,000 x 11] 2,75,000
Less: Municipal taxes Nil
Net Annual Value 2,75,000
 Income Under The Head House Property 216

Less: Standard deduction 30% of NAV u/s 24(a) (82,500)

Less: Interest on loan 24(b) (97,500)
Income under the Head House Property 95,000
Income from other sources
- ₹51,000 received from parents of husband would be exempt Nil
- ₹11,000 received from married sister of husband is exempt Nil
- From two friends of husband ₹1,51,000 and ₹21,000
aggregating to ₹1,72,000. 1,72,000
Income under the head Other Sources 1,72,000
Total Income 2,67,000
Computation of tax payable by Miss. Charlie for the A.Y. 2025-26
Tax on total income of ₹2,67,000 Nil
Tax Liability Nil
Notes –
1. Actual rent received has been taken as the gross annual value in the absence of other information (i.e.
Municipal value, fair rental value and standard rent) in the question.

NOV – 2003
(5 Marks)
Mr. A and B 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 in the first floor.
A started construction on 01.04.2023 and completed on 31.03.2024. A occupied the entire house on
01.04.2024. A has availed a housing loan of ₹20 lakhs @ 12% p.a. on 01.04.2023 and has also submitted a
certificate from the lender certifying the amount of interest.
B started construction on 01.07.2023 and completed on 01.07.2024. B occupied the ground floor on
01.07.2024 and let out the first floor for a rent of ₹15,000 per month. However, the tenant vacated the house
on 31.12.2024 and B occupied the entire house during the period 01.01.2025 to 31.03.2025. B has availed a
housing loan of ₹12 lakhs @ 10% p.a. on 01.07.2023 and has also submitted a certificate from the lender
certifying the amount of interest.
Following are the other information: ₹
(i) Fair rental value of each unit 6,00,000 per annum
(Ground floor / First floor)
(ii) Municipal value of each unit 3,00,000 per annum
(Ground floor / First floor)
(iii) Municipal taxes paid by A - 8,000
B - 8,000
(iv) Repair and maintenance charges paid by A - 28,000
B - 30,000
No repayment was made by either of them till 31.03.2025.
Compute tax liability for the assessment year 2025-26.
Answer:
Computation of income from House Property of Mr. A ₹
Income under the head “House Property” Nil
Tax Liability Nil
Computation of income from House Property of Mr. B
Ground floor (self occupied)
Income from House Property Nil

First floor (Let out)

Gross Annual Value 4,50,000
Working Note: ₹
(a) Fair Rent (6,00,000 x 9/12) 4,50,000
 Income Under The Head House Property 217

(b) Municipal Valuation (3,00,000 x 9/12) 2,25,000

(c) Higher of (a) or (b) 4,50,000
(d) Expected Rent 4,50,000
(e) Rent Received/Receivable (15,000 x 6) 90,000
GAV = Higher of (d) or (e) 4,50,000
Less: Municipal taxes (4,000)
Net Annual Value 4,46,000
Less: 30% of NAV u/s 24(a) (1,33,800)
Less: Interest on capital borrowed u/s 24(b) (69,000)
Working Note:
Prior period interest
From 01.07.2023 to 31.03.2024
= 12,00,000 x 10% x 9 / 12 = 90,000
90,000 allowed in 5 equal instalments
= 90,000 / 5 = ₹ 18,000 per annum
= 18,000 / 2 = ₹9,000
Current period interest
From 01.04.2024 to 31.03.2025
= 12,00,000 x 10% x 1/2 = ₹60,000
Total Interest = ₹60,000 + ₹ 9,000 = ₹69,000
Income from House Property 2,43,200
Income under the head “Income from House Property” of Mr. B 2,43,200
(Both ground floor and first floor)
Tax Liability Nil

MAY – 2002
(4 Marks)
Mr. X owns a house property which is let out. During the previous year ending 31.03.2025 he receives (i)
arrears of rent of ₹30,000 and (ii) unrealised rent of ₹20,000.
You are requested to
(a) state, how they should be dealt with as per the provisions of the Act, and
(b) compute the income chargeable under the head “Income from house property”.
Answer:
(a) As per provisions of section 25A, arrears of rent will be charged to tax as income from house property in
the previous year in which such rent is received, after deducting a sum equal to 30% of such amount. The
taxability shall be there whether Mr. X remains as the owner of the property in the concerned year or not. In
this case, it shall be taxed as income from house property in the year of receipt of such arrear rent.
(b) As per the provisions of section 25A, the unrealised rent when received, it shall be deemed to be the
income chargeable under the head “Income from house property” and shall be charged to tax in the year of
receipt, after deducting a sum equal to 30% of such amount. In this case also, the taxability shall be there,
irrespective of the fact whether Mr. X is the owner of property or not in the year of receipt.
Computation of income from house property
₹
Arrears of rent 30,000
Less : Deduction @ 30% of ₹30,000/- u/s 25A (9,000)
21,000
Add : Unrealised rent received 20,000
Less : Deduction @ 30% of ₹20,000/- u/s 25A (6,000)
14,000
Income from house property 35,000
 Income Under The Head House Property 218

NOV – 2001
(4 Marks)
From the following particulars furnished by Mr. X for the previous year ending 31.03.2025. Compute the
taxable income and tax liability for assessment year 2025-26:
(i) He owns a house property at metro city. The fair rental value per annum is ₹ 47,000 and the municipal
value is ₹ 44,000.
(ii) The house was let out from 01.04.2024 to 31.08.2024 @ ₹12,100 per month. From 01.09.2024 Mr. X
occupies the house for his residence.
(iii) Expenditure incurred on property and paid:
(a) Municipal tax ₹4,000
(b) Fire insurance ₹2,500
(c) Land revenue ₹4,600
(d) Repairs ₹1,000
(iv) Interest paid on borrowings for construction:
(a) For the current year ₹21,600
(b) Instalment of prior period ₹12,960
He has long term capital gains of ₹5,00,000.
Answer:
Computation of income under the head House Property ₹
Gross Annual Value 60,500.00
Working Note: ₹
(a) Fair Rent 47,000
(b) Municipal Valuation 44,000
(c) Higher of (a) or (b) 47,000
(d) Expected rent 47,000
(e) Rent Received/Receivable (12,100 x 5) 60,500
GAV = Higher of (d) or (e) 60,500
Less: Municipal taxes (4,000.00)
Net Annual Value 56,500.00
Less: 30% of NAV u/s 24(a) (16,950.00)
Less: Interest on capital borrowed u/s 24(b) (21,600 +12,960) (34,560.00)
Income from house property 4,990.00
Income under the head Capital Gains (LTCG) 5,00,000.00
Gross Total Income 5,04,990.00
Less: Deduction under Chapter VI-A Nil
Total Income 5,04,990.00
Computation of Tax Liability
Tax on ₹2,04,990 (₹5,04,990 – ₹3,00,000) @ 12.5% u/s 112 25,623.75
Less: Rebate u/s 87A (25,000.00)
Tax before health and education cess 623.75
Add: HEC @ 4% 24.95
Tax Liability 648.70
Rounded off u/s 288B 650.00

NOV – 1999
(6 Marks)
Mr. X occupied two flats for his residential purposes, particulars of which are as follows:
Particulars Flat I(in ₹) Flat II(in ₹)
Municipal Valuation 90,000 45,000
Fair Rent 1,20,000 40,000
Fair rent under Rent Control Act
(i.e. Standard Rent) 80,000 Not available
 Income Under The Head House Property 219

Municipal taxes paid 10% of municipal valuation 10% of municipal valuation

Fire insurance paid 1,000 600
Interest payable on capital borrowed
for purchase of flat 40,000 Nil
Income of Mr. X from his Proprietary business– XYZ Warehousing Corporation is ₹6,50,000.
Determine the taxable income and tax liability for the assessment year 2025-26. You are informed that Mr.
X could not occupy flat for 2 months commencing from December 1st, 2024 and that he has attained the age
of 60 on 23.08.2024.
Answer: ₹
As per the amendments, two house shall be treated as self-occupied instead of one house.
Income shall be computed as per Section 23(2)
Flat I & II is Self Occupied Sec 23(2)
Income Nil
Computation of Gross Total Income
Income under the head House Property Nil
Income under the head Business/Profession 6,50,000.00
Gross Total Income 6,50,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 6,50,000.00
Computation of Tax Liability
Tax on ₹6,50,000 at slab rate 17,500.00
Less: Rebate u/s 87A (17,500.00)
Tax Liability Nil
 Deduction From Gross Total Income 220

DEDUCTION FROM GROSS

TOTAL INCOME
CHAPTER VI-A
SECTION 80C TO 80U
Under optional regime all the deductions are allowed but under default regime u/s 115BAC, only three
deductions shall be allowed under Chapter VI-A.
1. Section 80JJAA
2. Section 80CCD(2)
3. Section 80CCH(2)

Optional regime
Deductions under section 80C to 80U are allowed from gross total income to compute total income however
such deduction is allowed only from normal income.
 As per section 112, such deductions are not allowed from long term capital gains.
 As per section 58(4), such deductions are not allowed from casual income.
 As per section 111A, such deduction are not allowed from short term capital gains on the sale of
short term equity shares or short term units of equity oriented mutual funds provided securities
transaction tax has been paid.
 As per section 112A, such deduction are not allowed from long term capital gains on the sale of long
term equity shares or long term units of equity oriented mutual funds provided securities transaction
tax has been paid.
Example
Mr. X has income under the head salary ₹75,000, income from long term capital gains ₹2,10,000 and casual
income ₹35,000, in this case maximum amount of deductions allowed shall be ₹75,000.

Section 80C
Deduction under section 80C shall be allowed only to (i) an individual (ii) Hindu Undivided Family to the
extent of the investment given below:
1. Investment in NSC: Deduction shall be allowed if amount has been invested in National Saving
Certificate (NSC) and NSC are just like a fixed deposit with a bank. Amount can be invested in the
name of self, spouse or minor children and HUF can invest the amount in the name of any of its
members. Deduction shall be allowed equal to the amount invested and amount received on maturity
shall be exempt from income tax but interest shall be taxable every year on accrual basis but payment of
interest shall be received on maturity. Deduction under section 80C shall also be allowed for such
accrued interest but no deduction shall be allowed for accrued interest of the year in which assessee has
received payment. NSC are issued for 5 years.
Example
Mr. X has income under the head House Property ₹10 lakh and he invested ₹50,000 in NSC on
01.10.2024. He has invested ₹40,000 in previous year 2024-25 also and there is accrued interest of
₹4,000 in previous year 2024-25. He has also received ₹1,00,000 on maturity of NSC which were
invested in the earlier year and original amount is ₹60,000 and interest for current year is ₹8,000, in this
case his tax liability shall be
Income under the head House Property 10,00,000
Income under the head Other Sources (4,000+ 8,000) 12,000
Gross Total Income 10,12,000
Less: Deduction u/s 80C
Investment in current year 50,000
Accrued interest 4,000 (54,000)
 Deduction From Gross Total Income 221

(no deduction shall be allowed for interest received on maturity)

Total Income 9,58,000
Tax on ₹9,58,000 at slab rate 1,04,100
Add: HEC @ 4% 4,164
Tax Liability 1,08,264
Rounded off u/s 288B 1,08,260
2. Investment in Public provident fund: Public provident fund is a deposit scheme run by Central
Government and account can be opened in the bank or post office and maturity shall be after 15 years
and the account can be opened in the name of self, spouse or children. HUF can open the account in
the name of any of its members. Amount received on maturity shall be exempt from income tax and
also interest is exempt from income tax. No deduction is allowed under section 80C for interest.
3. Investment in Five Year Post Office Time Deposit Account: An assessee is allowed to invest the
amount in five year post office time deposit account and deduction shall be allowed equal to the
amount invested. Interest shall be paid on annual basis and it will be taxable and deduction under
section 80C is not allowed. Amount received on maturity shall be exempt. Individual can invest the
amount in his name and HUF can invest the amount in the name of any of its member.
Pre-mature payment is allowed but amount received on pre-mature payment shall be taxable.
4. Investment in fixed deposit for a period of 5 years or more with scheduled banks: Investment in
fixed deposit for a period of 5 years or more with scheduled banks, provided the term deposit are
issued in accordance with a scheme notified by the Central Government. (Bank Term Deposit Scheme,
2006 – depositor can be individual or Hindu Undivided Family. The deposit should be for a minimum
period of 5 years. Interest income shall be taxable on accrual basis and it will not qualify for deduction
under section 80C.) Principal amount received on maturity shall be exempt. Individual can deposit the
amount only in his own name and HUF can deposit the amount in the name of any of its member.
5. Repayment of loan taken for purchase or construction of house: If an assessee has taken a loan from
a notified organization like banks or financial institution etc. for purchase or construction of a residential
house, in such cases deduction shall be allowed equal to the amount re-paid by the assessee towards
principal (not towards interest).

If loan has been taken for Addition, Alteration, or Repairs etc of the house property, no deduction is
allowed.
If the assessee has transferred the house property before the expiry of 5 years from the end of the
financial year in which possession of such properties was taken by him, no deduction shall be allowable
in the previous year in which the house property has been transferred. The deduction allowed in the past
years shall be considered to be income of the assessee of the previous year in which the house property
is transferred.

Deduction shall also be allowed for stamp duty , registration fee and other expenses for the purpose of
transfer of such house property to the assessee.
6. Payment of premium for life insurance policy: If any individual or HUF has taken life policy,
deduction shall be allowed for the premium paid for such life policy and individual can take the policy in
the name of self, spouse and children and Hindu Undivided Family can take the policy in the name
of any of its members. (Children may be dependant or independent or may be married or unmarried or
step or adopted.)
Deduction is allowed equal to the premium paid but maximum upto 10% of capital sum assured, i.e. if
premium paid is more than 10% of capital sum assured, deduction shall be allowed only for 10% of sum
assured. (In respect of policy issued before 01.04.2012, 10% shall be taken as 20%)
If LIC policy has been taken in the name of a person who is suffering from disability given under section
80U or from a specified disease given under section 80DDB, 10% shall be taken as 15% but it is
applicable for the policies taken w.e.f 01.4.2013 onwards.
If an assessee has discontinued a life insurance policy before paying premium for a period of atleast 2
years, deduction allowed in the earlier years shall be considered to be income of the year in which
policy has been discontinued.
 Deduction From Gross Total Income 222

As per section 10(10D), any payment received on maturity of insurance policy shall be exempt from
income tax i.e. even the amount of bonus received shall be exempt from income tax. If the policy
holder has paid premium of more than the specified limit (10% / 15% / 20%) in any of the years,
amount received on maturity shall be chargeable to tax but if the amount has been received on the
death of the policy holder, it will be exempt from income tax.
e.g. Mr. X has paid premium of one life policy ₹25,000 and sum assured is ₹ 1,00,000 and policy was
taken on 01.04.2012 onwards, in this case deduction allowed shall be ₹10,000 but if policy was taken
before 01.04.2012, deduction allowed shall be ₹20,000. If Mr. X is a handicapped person and policy was
taken w.e.f 01.04.2013 onwards, deduction allowed shall be ₹15,000
7. Payment of tuition fees to School, College, University or any other Educational Institution in
India: Payment of tuition fees to School, College, University or any other Educational Institution
in India provided the fees has been paid in connection with the children of the assessee and further for
maximum two children and it should be whole time education. Children shall include even adopted
and step children also. Deduction is not allowed to HUF. If payment is made outside India, deduction is
not allowed. Similarly if payment is given for part time education or correspondence course, deduction is
not allowed.
8. Employees contribution to recognised provident fund
9. Employees contribution to statutory provident fund
10. Investment in Units of Mutual Fund/ Unit trust of India.
11. Subscription to Notified Deposit Schemes of National Housing Bank
12. Investment in equity shares or debentures etc. of Infrastructure Development Companies
13. Investment in notified bonds issued by the National Bank for Agriculture and Rural Development.
14. Investment in Senior Citizens Savings Scheme: Senior Citizens Savings Scheme. Amount should be
invested in the name of self and amount received on maturity shall be exempt and interest shall be
payable on quarterly basis and interest received is taxable. Deduction under section 80C for interest is
not allowed.
15. Investment in Sukanya Samridhi Account: Investment in Sukanya Samridhi Account and amount
can be invested by an individual as guardian in the name of girl child who is of the age of 10 years or
less. Interest received is exempt. Amount received on maturity is exempt. Account can be closed after
the completion of 21 years of age. In case of marriage, payment is allowed after completion of 18 years
of age.
16. Contribution to additional account under NPS

Deduction shall be allowed to the extent of the investments listed above but as per section 80CCE,
maximum deduction allowed shall be ₹1,50,000 (Including deduction under section 80CCC and section
80CCD(1)).

Illustration 1: Mr. X is employed in ABC Ltd. getting salary ₹2,00,000 p.m. The employer and employee
each have contributed to recognised provident fund @ 12% of the salary of the employee, in this case tax
liability of the employee shall be as given below:
Solution:
Default Regime
Income under the head Salary
2,00,000 x 12 24,00,000
Employer’s contribution -
Gross Salary 24,00,000
Less: Standard Deduction u/s 16(i)(a) 75,000
Income under the head Salary 23,25,000
Gross Total Income 23,25,000
Less: Deduction u/s 80C Nil
Total Income 23,25,000
 Deduction From Gross Total Income 223

Computation of Tax Liability

Tax on ₹23,25,000 at slab rate 3,87,500
Add: HEC @ 4% 15,500
Tax Liability 4,03,000

Optional Regime
Income under the head Salary
2,00,000 x 12 24,00,000
Employer’s contribution -
Gross Salary 24,00,000
Less: Standard Deduction u/s 16(i)(a) 50,000
Income under the head Salary 23,50,000
Gross Total Income 23,50,000
Less: Deduction u/s 80C (Employee’s contribution in RPF) 1,50,000
Total Income 22,00,000

Computation of Tax Liability

Tax on ₹22,00,000 at slab rate 4,72,500
Add: HEC @ 4% 18,900
Tax Liability 4,91,400

Illustration 2: Mr. X has income under the head Business/Profession ₹30,00,000 and he has made the
following investments:
(i) Investment in NSC ₹40,000.
(ii) Investment in PPF ₹50,000.
(iii) Investment in bank Fixed deposit for 5 year ₹10,000.
(iv) Investment in Post office 5 years time deposit account ₹20,000.
(v) Payment of premium of LIC policy ₹60,000.
Compute income and tax liability.
Solution:
Default Regime
Income under the head Business/Profession 30,00,000
Gross Total Income 30,00,000
Less: Deduction u/s 80C Nil
Total Income 30,00,000

Computation of Tax Liability

Tax on ₹30,00,000 at slab rate 5,90,000
Add: HEC @ 4% 23,600
Tax Liability 6,13,600

Optional Regime
Income under the head Business/Profession 30,00,000
Gross Total Income 30,00,000
Less: Deduction u/s 80C 1,50,000
(40,000 + 50,000 + 10,000 + 20,000 + 60,000 = 1,80,000 but maximum upto ₹1,50,000)
Total Income 28,50,000

Computation of Tax Liability

Tax on ₹28,50,000 at slab rate 6,67,500
Add: HEC @ 4% 26,700
Tax Liability 6,94,200
 Deduction From Gross Total Income 224

Illustration 3: Mr. X, aged about 61 years, has earned a lottery income of ₹ 1,20,000 (gross) during the P.Y.
2024-25. He also has a business income of ₹6,00,000. He invested an amount of ₹10,000 in Public Provident
Fund account and ₹ 24,000 in National Saving Certificates and ₹60,000 in eligible mutual funds. He has
paid premium of ₹30,000 for a life policy having sum assured ₹2,00,000 and policy was taken after
01.04.2012. Compute his tax liability for assessment year 2025-26. (Optional Regime)
Solution:
Computation of total taxable income of Mr. X for A.Y.2025-26
Income under the head business/profession 6,00,000
Income under the head Other Sources (casual income) 1,20,000
Gross Total Income 7,20,000
Less: Deduction u/s 80C
1. Public Provident Fund (10,000)
2. Investment in NSC (24,000)
3. Mutual Fund (60,000)
4. Payment of premium for LIC policy (20,000)
Total Income 6,06,000
Computation of Tax Liability
Tax on casual income ₹1,20,000 @ 30% 36,000
Tax on ₹4,86,000 at slab rate 9,300
Tax before health & education cess 45,300
Add: HEC @ 4% 1,812
Tax Liability 47,112
Rounded off u/s 288B 47,110

Illustration 4: Mr. X has income under the head Business/Profession ₹19,90,000.

His investments are as given below:
1. Investment in NSC ₹50,000
2. Investment in PPF in name of Mrs. X ₹5,000
3. Payment of premium for LIC policy taken in the name of dependent father on 16.06.2024 and its premium
paid is ₹11,000
4. Payment of premium for LIC policy taken in the name of independent son on 15.04.2024 and its premium
paid is ₹6,000 (sum assured ₹1,00,000)
5. Payment of premium for LIC policy taken in the name of independent married daughter on 11.01.2025
and its premium paid is ₹21,000 (sum assured ₹1,00,000)
Compute Income Tax liability for the A.Y. 2025-26. (Optional Regime)
Solution: ₹
Income under the head business/profession 19,90,000
Gross Total Income 19,90,000
Less: Deduction u/s 80C
1. Investment in NSC (50,000)
2. Investment in PPF in the name of Mrs. X (5,000)
3. Payment of premium for LIC policy taken in the name of dependent father NIL
4. Payment of premium for LIC policy taken in the name of independent son (6,000)
5. Payment of premium for LIC policy taken in the name of independent married
daughter (allowed 10% of sum assured) (10,000)
Total Income 19,19,000
Computation of Tax Liability
Tax on ₹19,19,000 at slab rate 3,88,200
Add: HEC @ 4% 15,528
Tax Liability 4,03,728
Rounded off u/s 288B 4,03,730
 Deduction From Gross Total Income 225

Illustration 5: Mr. X furnishes you the following information:

Raw material purchased ₹5,00,000. Manufacturing expenses (revenue nature) ₹2,00,000.
Sale price ₹18,00,000. Plant & machinery acquired ₹2,60,000. Depreciation is allowed @ 15%.
He has made the investments as given below:
(i) Fixed deposit with State Bank for two years ₹5,000.
(ii) Investment in National Saving Certificates ₹5,000.
(iii) Deposit in Public Provident Fund Account in the name of major married independent son ₹5,000.
(iv) Deposit in Public Provident Fund Account in the name of minor son ₹5,000.
(v) Payment of premium for LIC policy in name of major married independent daughter on
15.09.2024 ₹5,000. (sum assured ₹1,00,000).
(vi) Payment of premium for LIC policy in name of major married independent son on 11.11.2024
₹5,000. (sum assured ₹20,000)
(vii) Investment in Home Loan Account Scheme of National Housing Bank ₹5,000 (Investment was
made out of past savings).
(viii) Investment in units of Mutual Funds notified under section 10(23D) ₹5,000. (Investment was
made out of current income exempt from income tax).
(ix) Investment in Equity Shares of Infrastructure Companies ₹5,000.
(x) Payment of Tuition fees of his son to a private coaching centre for coaching in taxation ₹5,000.
Compute his income and tax liability for assessment year 2025-26. (Optional Regime)
Solution:
Computation of income under the head Business/profession
Sale price 18,00,000.00
Less: Purchase Price (5,00,000.00)
Less: Manufacturing expenses (2,00,000.00)
Less: Depreciation on plant and machinery (2,60,000 x 15%) (39,000.00)
Income under the head Business/profession 10,61,000.00
Gross Total Income 10,61,000.00
Less: Deduction u/s 80C
National Saving Certificate (5,000.00)
Public Provident Fund (10,000.00)
LIC policy in name of major married independent daughter (5,000.00)
LIC policy in name of major married independent son (2,000.00)
Home Loan Account Scheme (5,000.00)
Units of Mutual Funds (5,000.00)
Equity Shares of Infrastructure Companies (5,000.00)
Total Income 10,24,000.00
Computation of Tax Liability
Tax on ₹10,24,000 at slab rate 1,19,700.00
Add: HEC @ 4% 4,788.00
Tax Liability 1,24,488.00
Rounded off u/s 288B 1,24,490.00

Illustration 6: Compute the eligible deduction under section 80C for A.Y.2025-26 in respect of life
insurance premium paid by Mr. X during the P.Y.2024-25, the details of which are given hereunder –
Date of issue Person insured Actual capital sum Insurance premium
of policy assured (₹) paid during 2024-25
(₹)
(i) 01.04.2011 Self 2,00,000 50,000
(ii) 01.05.2020 Spouse 1,50,000 20,000
(iii) 01.06.2021 Handicapped Son 3,00,000 60,000
(section 80U disability)
 Deduction From Gross Total Income 226

Solution:
Date of issue Person insured Actual Insurance Deduction Remark
of policy capital sum premium u/s 80C for (restricted to
assured paid during A.Y.2025-26 % of sum
2024-25 assured)
(i) 01.04.2011 Self 2,00,000 50,000 40,000 20%
(ii) 01.05.2020 Spouse 1,50,000 20,000 15,000 10%
(iii) 01.06.2021 Handicapped 3,00,000 60,000 45,000 15%
Son (section
80U disability)
Total 1,00,000

JULY – 2021 (6 Marks)

Mrs. Rohini, aged 62 years, was born and brought up in New Delhi. She got married in Russia in 1996 and
settled there since then. Since her marriage, she visits India for 60 days each year during her summer break.
The following are the details of her income for the previous year ended 31.03.2025:
S. No. Particulars Amount
(in ₹)
1. Pension received from Russian Government 65,000
2. Long-term capital gain on sale of land at New Delhi (computed) 3,00,000
3. Short-term capital gain on sale of share of Indian listed companies in respect of 60,000
which STT was paid both at the time acquisition as well as at the time of sale
(computed)
4. Premium paid to Russian Life Insurance Corporation at Russia 75,000
5. Rent received (equivalent to Annual Value) in respect of house property in New 90,000
Delhi
You are required to ascertain the residential status of Mrs. Rohini and compute her total income and tax
liability in India for Assessment year 2025-26. (Optional Regime)
Solution:
An Indian citizen or a person of Indian origin who, being outside India, comes on a visit to India (and whose
total income, other than from foreign sources, does not exceed ₹ 15,00,000) would be resident in India only
if he or she stays in India for a period of 182 days or more during the previous year.
Since Mrs. Rohini is a person of Indian origin who comes on a visit to India only for 60 days in the
P.Y.2024-25 and her income other than from foreign sources does not exceed ₹ 15,00,000, she is non-
resident for the A.Y. 2025-26.
A non-resident is chargeable to tax in respect of income received or deemed to be received in India and
income which accrues or arises or is deemed to accrue or arise to her in India. Accordingly, her total income
and tax liability would be determined in the following manner:
Computation of total income and tax liability of Mrs. Rohini for A.Y. 2025-26
Particulars Amt (₹)
Salaries
Pension received from Russian Government [Not taxable, since it neither accrues or arises Nil
in India nor is it received in India]
Income from House Property
 Deduction From Gross Total Income 227

Annual Value [Rental Income from house property in New Delhi is taxable, 90,000
since it is deemed to accrue or arise in India, as it accrues or arises from a
property situated in India]
Less: Deduction u/s 24(a) @ 30% (27,000) 63,000
Capital Gains
Long-term capital gains on sale of land at New Delhi [Taxable, since it is deemed to accrue 3,00,000
or arise in India as it is arising from transfer of land situated in India]

Short-term capital gains on sale of shares of Indian listed companies in respect of which 60,000
STT was paid [Taxable, since it is deemed to accrue or arise in India, as such income arises
on transfer of shares of Indian listed companies]
Gross Total Income 4,23,000
Less: Deduction under Chapter VI-A
Deduction under section 80C (63,000)
- Life insurance premium of ₹ 75,000 [Premium paid to Russian Life Insurance
Corporation allowable as deduction. However, the same has to be restricted to gross total
income excluding LTCG and STCG, as Chapter VI-A deductions are not allowable
against such income chargeable to tax u/s 112 and 111A, respectively]
Total Income 3,60,000
Computation of Tax Liability
Long-term capital gains taxable @12.5% u/s 112 [3,00,000 x 12.5%] 37,500
Short-term capital gains taxable @20% u/s 111A [60,000 x 20%] 12,000
49,500
Add: Health and Education Cess @4% 1,980
Tax Liability 51,480
Note –
(i) Even if her total income exceeds ₹ 15 lakh, still, she would be non-resident since the minimum period of
stay required in the current year for being a resident is 120 days.
(ii) The benefit of adjustment of unexhausted basic exemption limit against long-term capital gains taxable
u/s 112 and short-term capital gains taxable u/s 111A is not available in case of non-resident. Further,
rebate u/s 87A is not allowable to a non-resident, even if his income does not exceed ₹ 5 lakh.
(iii) It is assumed that such premium is paid for self or spouse or any child of Mrs. Rohini.

NOV – 2014 (2 Marks)

Determine the eligibility and quantum of deduction under Chapter VI-A in the following case:
Mr. X has paid life insurance premium of ₹70,000 during the year. (Sum Assured 3,50,000 policy issued on
31.03.2011)
Solution:
Deduction for Life Insurance Premium shall be available under section 80C of ₹70,000 (being maximum
20% of ₹3,50,000 as the policy was issued before 01.04.2012)

MAY – 2001 (5 Marks)

The particulars of income of Mrs. X. aged 55 years for the financial year 2024-25 are given below: ₹
 Deduction From Gross Total Income 228

(1) Income under the head salary received from M/s ABC Ltd. for the year 4,00,000
(2) Rental income received from a commercial complex 12,000 p.m.
(3) Arrears of rent received from the complex, which were not charged to
tax in any earlier years 30,000
(4) Interest paid on loan taken for the purchase of a house from a scheduled
bank for use as own residence 1,20,000
(5) Repayment of instalments of loan taken from the bank for the purchase
of the above property 60,000
(6) Deposits in public provident fund account
(i) Towards loan taken from public provident account 20,000
(ii) Out of current year’s income 40,000
(7) Investment made in units of a mutual fund approved by the board under
section 80C of the Income-Tax Act. 40,000
Compute the total income of Mrs. X and the tax payable thereon in respect of assessment year 2025-26.
(Optional Regime)
Answer: ₹ ₹
Computation of total income and tax liability Mrs. X
Income from under the head salary
Income under the head Salary 4,00,000.00

Income from house property

Let out commercial complex
Gross Annual Value (12,000 x 12) 1,44,000.00
Less: Municipal taxes Nil
Net Annual Value 1,44,000.00
Less: 30% of NAV u/s 24(a) (43,200.00)
Less: Interest on capital borrowed u/s 24(b) Nil
Income from let out property 1,00,800.00
Property self- occupied for residence
Net Annual Value Nil
Less: Interest on capital borrowed u/s 24(b) (30,000.00)
Loss from self–occupied property (30,000.00)
Arrears of rent Section 25A 30,000
Less: (30% of ₹30,000) (9,000) 21,000.00
Income under the head House Property 91,800.00
Gross Total Income 4,91,800.00
Less: Deduction u/s 80C (1,40,000.00)
Repayment of loan taken to purchase residential house property 60,000
Deposit in public provident fund out of current income 40,000
Investment made in units of mutual fund for infrastructure facility 40,000
Total Income 3,51,800.00
Computation of Tax Liability
Tax on ₹3,51,800 at slab rate 5,090.00
Less: Rebate u/s 87A (5,090.00)
Add: HEC @ 4% Nil
Tax Liability Nil

Contribution to Pension Fund Section 80CCC

In general in case of life insurance, lump sum amount is paid to the policyholder but in some of the life
policies pension is given instead of lump sum amount e.g. Jeevan Suraksha policy. If any person has paid
premium for such policy, deduction is allowed under section 80CCC instead of section 80C. Deduction is
allowed only to an individual and individual can take the policy only in his name (and not in name of spouse
or children). Any pension received shall be taxable under the head Other Sources. If the assessee has
 Deduction From Gross Total Income 229

surrendered the policy, amount received shall be taxable under the head Other Sources.

Illustration 8: Mr. X has income under the head business/profession ₹3,35,000.

He has made the following investments:-
• NSC ₹10,000
• Investment in post office 5 year time deposit account ₹15,000
• Payment of premium for life policy in the name of major married independent son on 10.10.2024
₹30,000 (sum assured ₹90,000)
• Paid premium of ₹ 11,000 for Jeeven Suraksha policy taken in name of Mr. X on 11.11.2024.
Compute income tax liability for A.Y 2025-26. (Optional Regime)

Solution: ₹
Income under the head Business/Profession 3,35,000.00
Gross Total Income 3,35,000.00
Less: Deduction u/s 80C
NSC (10,000.00)
Investment in 5 years post office (15,000.00)
Payment of premium of LIC (9,000.00)
Less: Deduction u/s 80CCC (11,000.00)
Total Income 2,90,000.00

Computation of Tax Liability

Tax on ₹2,90,000 at slab rate 2,000.00
Less: Rebate u/s 87A (2,000.00)
Tax Liability Nil

Illustration 9: The gross total income of Mr. X for the A.Y.2025-26 is ₹ 5,00,000. He has made the
following investments/payments during the F.Y.2024-25 ₹
(1) Contribution to PPF 90,000
(2) Payment of tuition fees to Apeejay School, New Delhi, for education of his son
studying in Class XI 45,000
(3) Repayment of housing loan taken from Standard Chartered Bank 25,000
(4) Contribution to approved pension fund of LIC 10,000
Compute the eligible deduction under Chapter VI-A for the A.Y.2025-26. (Optional Regime)
Solution:
Computation of deduction under Chapter VI-A for the A.Y.2025-26
Particular ₹
Deduction under section 80C
(1) Contribution to PPF 90,000
(2) Payment of tuition fees to Apeejay School, New Delhi, for education of his son studying in 45,000
Class XI
(3) Repayment of housing loan 25,000
1,60,000
Deduction under section 80CCC
(1) Contribution to approved pension fund of LIC 10,000
1,70,000
As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD has to be
restricted to ₹ 1,50,000
Deduction allowable under Chapter VI-A for the A.Y.2025-26 1,50,000
 Deduction From Gross Total Income 230

Deduction in case of contribution to notified Pension scheme section 80CCD

Shall be discussed under the head Salary
Deduction in respect of contribution to Agnipath Scheme Section 80CCH
(1) Where an assessee, being an individual enrolled in the Agnipath Scheme and subscribing to the Agniveer
Corpus Fund on or after the 1st day of November, 2022, has in the previous year paid or deposited any
amount in his account in the said Fund, he shall be allowed a deduction in the computation of his total
income, of the whole of the amount so paid or deposited.
(2) Where the Central Government makes any contribution to the account of an assessee in the Agniveer
Corpus Fund referred to in sub-section (1), the assessee shall be allowed a deduction in the computation of
his total income of the whole of the amount so contributed.
Explanation.—For the purposes of this section,––
(a) "Agnipath Scheme" means the scheme for enrolment in Indian Armed Forces introduced vide letter
No.1(23)2022/D(Pay/Services), dated the 29th December, 2022 of the Government of India in the
Ministry of Defence;
(b) "Agniveer Corpus Fund" means a fund in which consolidated contributions of all the Agniveers
and matching contributions of the Central Government along with interest on both these
contributions are held.
Under default regime only deduction u/s 80CCH(2) shall be allowed.

Section 80D
1. Deduction shall be allowed only to an individual or Hindu Undivided Family.
2. Deduction shall be allowed if the assessee has made payment towards
(i) Medical Insurance or
(ii) Central Government Health Scheme or such other scheme as may be notified by the Central
Government in this behalf
(iii) Preventive Health Check-up
3. Individual can make payment for wife or husband or dependent children and deduction shall be allowed
equal to the amount paid but subject to a maximum of ₹25,000 but in case of senior citizen deduction
shall be allowed upto ₹50,000.
If the individual has taken policy in the name of parents (dependent or independent), additional
deduction shall be allowed to the extent of the premium paid but maximum ₹25,000, however, if the
policy has been taken in the name of senior citizen, deduction shall be allowed to the extent of ₹50,000.
Deduction for Preventive Health Check up shall be maximum ₹5,000 in aggregate for self, spouse,
dependant children and parents. Parents may be dependant or independant
Hindu Undivided Family can take the policy in the name of any of its members and deduction shall be
allowed in the similar manner.
Payment should be made otherwise than in cash but payment for preventive health check-up can be
made in any manner.
In case of a senior citizen, in general medi-claim policy is not issued hence expenditure can be incurred
on their medical treatment and deduction for such expenditure shall also be allowed but limit shall be the
same as given above.
e.g. (i) Mr. X has taken medi claim policy in his name and paid premium ₹27,000 by cheque, in this case
deduction allowed shall be ₹25,000 but if Mr. X is a senior citizen, deduction allowed shall be ₹27,000
(ii) Mr. X has paid ₹7,000 for self for preventive health checkup and ₹7,000 for preventive health checkup
of his father, in this case deduction allowed shall be ₹5,000
(iii) Mr. X paid premium of medi claim policy by cheque for self, spouse and children ₹22,000 and for
parents ₹28,000, in this case deduction allowed shall be ₹47,000
(iv) Mr. X paid premium of medi claim policy ₹15,000 in cash, deduction allowed shall be Nil
(v) Mr. X paid premium of medi claim policy by cheque ₹18,000 in the name of his father who is not
dependant on Mr. X, deduction allowed shall be ₹18,000
In case premium is paid for more than one year, proportionate deduction shall be allowed e.g. Mr. X paid
 Deduction From Gross Total Income 231

premium of ₹ 30,000 for 2 years, in this case deduction allowed shall be 15,000 for each of the year.

Illustration 10: Mr. X, aged 40 years, paid medical insurance premium of ₹18,000 by cheque during the
P.Y.2024-25 to insure his health as well as the health of his spouse. He also paid medical insurance premium
of ₹26,000 by cheque during the year to insure the health of his father, aged 63 years, who is not dependent
on him. He contributed ₹ 5,000 by cheque to Central Government Health Scheme during the year. He has
incurred ₹3,000 in cash on preventive health check-up of himself and his spouse and ₹4,000 by cheque on
preventive health check-up of his father.
Compute the deduction allowable under section 80D for the A.Y.2025-26.
Solution:
Deduction allowable under section 80D for the A.Y.2025-26
Particulars ₹ ₹
Actual Maximum
Payment deduction
allowable
A. Premium paid and medical expenditure incurred for self and spouse
(i) Medical insurance premium paid for self and spouse 18,000 18,000
(ii) Contribution to CGHS 5,000 5,000
(iii) Exp. on preventive health check-up of self & spouse 3,000 2,000
26,000 25,000
B. Premium paid and medical expenditure incurred for father, who is a
senior citizen
(i) Mediclaim premium paid for father, who is 63 years of age 26,000 26,000
(ii) Expenditure on preventive health check-up of father 4,000 3,000
30,000 29,000
Total deduction under section 80D (25,000 + 29,000) 54,000

Illustration 11: Mr. X, aged 40 years, paid medical insurance premium of ₹ 20,000 by cheque during the
P.Y.2024-25 to insure his health as well as the health of his spouse and dependent children. He also paid
medical insurance premium of ₹51,000 by cheque during the year to insure the health of his father, aged 67
years, who is not dependent on him. He contributed ₹6,000 by cheque to Central Government Health
Scheme during the year. Compute the deduction allowable under section 80D for the A.Y.2025-26.
Solution:
Deduction allowable under section 80D for the A.Y.2025-26
Particulars ₹
(i) Medical insurance premium paid for self, spouse and dependent children 20,000
(ii) Contribution to CGHS 6,000
26,000
Deduction allowed 25,000
(iii) Mediclaim premium paid for father, who is 67 years of age (restricted to 50,000) 50,000
75,000
Note – The total deduction under (i) and (ii) above should not exceed ₹ 25,000. In this case, since the total
of (i) and (ii) is exceeding ₹25,000 (i.e., ₹ 26,000) hence it is restricted to ₹ 25,000.
Illustration 12: Mr. Arjun (52 years old) furnishes the following particulars in respect of the following
payments:
S. No. Particulars Amount (₹)
1. Premium paid for insuring the health of –
• Self 10,000
• Spouse 8,000
• Dependant son 4,000
• Mother 18,000
2. Paid for Preventive Health Check-up of
 Deduction From Gross Total Income 232

• himself 2,000
• spouse 1,500
• mother 4,000
3. Incurred medical expenditure of ₹ 25,000 and ₹15,000 for his mother, aged 80 years
and father, aged 85 years. Both mother and father are resident in India.

Compute the deduction available to Mr. Arjun under section 80D for the A.Y. 2025-26.
Solution:
Computation of deduction under section 80D for the A.Y. 2025-26
S. No. Particulars Amount (₹)
1. I. In respect of premium paid for insuring the health of -
• Self 10,000
• Spouse 8,000
• Dependant son 4,000
22,000
II. In respect of expenditure on preventive health check-up of -
• Self 2,000
• Spouse 1,500
3,500
Restricted to [₹25,000 – ₹ 22,000, since maximum deduction is ₹25,000] 3,000
Aggregate of deduction (I+II) under (1) restricted to 25,000
2. I. In respect of payment towards health insurance premium for his mother 18,000
II. In respect of preventive health check-up of his mother [₹4,000,
restricted to ₹2,000, (₹5,000 – ₹3,000), since maximum deduction for 2,000
preventive health check-up under section 80D is ₹5,000]
III. Medical expenditure for father would only be eligible for deduction
[See Note below] 15,000
35,000
Amount of deduction under (2) 35,000
Total deduction under section 80D [(1) + (2)] 60,000
Note: Irrespective of the fact that the mother of Arjun is a very senior citizen the deduction under section
80D would not available to him in respect of the medical expenditure incurred for his mother, since Mr.
Arjun has taken a health insurance policy for his mother.

MAY – 2015 (4 Marks)

Compute the eligible deduction under Chapter VI-A for the Assessment year 2025-26 of Ms. Roma, who has
a gross total income of ₹15,00,000 for the assessment year 2025-26 and provide the following informations
about his investments/payments during the financial year 2024-25:
SI. Particulars Amount
No. (₹ )
1. Life Insurance premium paid (Policy taken on 01.01.2012 and sum assured is 35,000
₹1,50,000)
2. Public Provident Fund contribution. 90,000
3. Repayment of Housing loan to Bhartiya Mahila Bank, Bangalore. 20,000
4. Payment to L.I.C. Pension Fund 25,000
5. Mediclaim Policy taken for self, spouse and dependent children, premium paid by 20,000
cheque
6. Medical Insurance premium paid for parents (Senior Citizen), premium paid by cheque 25,000
Solution: ₹ ₹
Gross Total Income 15,00,000
Less:
Deduction u/s 80C
 Deduction From Gross Total Income 233

L.I.C. Premium paid 30,000

(Paid ₹35,000, but maximum allowed 20% of ₹1,50,000)
P.P.F. amount paid 90,000
Repayment of housing loan to Bhartiya Mahila Bank 20,000
Deduction u/s 80 CCC
L.I.C. pension fund 25,000
Total 1,65,000
Maximum deduction allowed 80CCE (1,50,000)
Deduction u/s 80D
Mediclaim for self, spouse and dependent children (20,000)
(assumed amount paid through cheque)
Mediclaim premium for parents (25,000)
(assumed amount paid through cheque)
Total Income 13,05,000

NOV – 2011 (3 Marks)

The gross total income of Mr. X for the Assessment Year 2025-26, was ₹12,00,000. He has made the
following investments/payments during the financial year 2024-25.
1. L.I.C. Premium paid (Policy value ₹1,00,000) (Policy taken after 01.04.2012) 25,000
2. P.P.F. amount paid 70,000
3. Repayment of housing Loan to Indian Bank 50,000
4. Payment made to L.I.C. pension fund 25,000
5. Medical insurance premium for self, wife and dependant Children. 18,000
6. Mediclaim premium for parents (aged over 80 years) 30,000
Compute eligible deduction under Chapter VI-A for the Assessment Year 2025-26 and also compute his tax
liability. (Optional Regime)
Answer: ₹ ₹
Gross Total Income 12,00,000
Less:

Deduction u/s 80C

L.I.C. Premium paid 10,000
(Paid ₹25,000, but maximum allowed 10% of ₹1,00,000)
P.P.F. amount paid 70,000
Repayment of housing loan to Indian Bank 50,000

Deduction u/s 80 CCC

L.I.C. pension fund 25,000
Total 1,55,000
Maximum deduction allowed 80CCE (1,50,000)
Deduction u/s 80D
Mediclaim for self, wife and dependant children (18,000)
(assumed amount paid through cheque)
Mediclaim premium for parents (30,000)
(assumed amount paid through cheque)
Total Income 10,02,000
Computation of Tax Liability
Tax on ₹10,02,000 at slab rate 1,13,100
Add: HEC @ 4% 4,524
Tax Liability 1,17,624
Rounded off u/s 288B 1,17,620
 Deduction From Gross Total Income 234

JUNE – 2009 (2 Marks)

Mr. X, an individual, made payment of health insurance premium to General Insurance Corporation in an
approved scheme. Premium paid on his health is ₹10,000 and his spouse’s health is ₹15,000 during the year
2024-25. He also paid health insurance premium of ₹25,000 on his father’s health who is a senior citizen and
not dependent on him. The payments have not been made by cash. Compute the amount of deduction under
Chapter VI-A of the Act, available to Mr. X from his gross total income for the assessment year 2025-26.
Answer.
Mr. X will be eligible to claim deduction under section 80D on payment of health insurance premium. The
premium is paid otherwise than by way of cash and hence qualifies for deduction under section 80D.
Therefore, the amount of deduction under section 80D would be –
Particulars Amount (₹)
On health insurance premium paid on the health of himself and his spouse
(₹10,000 + ₹15,000 = ₹25,000) 25,000
On health insurance premium paid on the health of his father, ₹25,000
(whether dependent or not) 25,000
Total deduction under section 80D 50,000

Section 80DD
1. Deduction is allowed only to a resident individual and a resident Hindu Undivided Family.
2. Deduction is allowed if the assessee has incurred any expenditure for the medical treatment, training and
rehabilitation etc. of a dependant disabled person, or has deposited any amount with LIC or any other
insurer for the benefit of such dependant.
3. “Dependant” in the case of an individual, means the spouse, children, parents, brothers and sisters who
are dependant on the individual and in the case of Hindu Undivided Family means any member of the
Hindu Undivided Family who is dependant on such Hindu Undivided Family.
4. Deduction allowed shall be ₹75,000 irrespective of the expenditure incurred by the assessee and in case
of severe disability, deduction allowed shall be ₹1,25,000.
5. The assessee should enclose a certificate with the return from prescribed medical authority.
6. The beneficiary should received the amount after the death of the person who has deposited the amount or
when the person depositing the amount has completed the age of 60 years or more

Illustration 13: Mr. X is a resident individual. He deposits a sum of ₹25,000 with Life Insurance
Corporation every year for the maintenance of his handicapped grandfather. A copy of the certificate from
the medical authority is submitted. Compute the amount of deduction available under section 80DD for the
A.Y. 2025-26.
Solution: Since the amount deposited by Mr. X was for his grandfather, he will not be allowed any
deduction under section 80DD. The deduction is available if the individual assessee incurs any expense for a
dependant disabled relative. Grandfather does not come within the definition of dependant relative.

Illustration 14: What will be the deduction if Mr. X had made this deposit for his dependant father?
Solution: Since the expense was incurred for a dependant disabled relative, Mr. X will be entitled to claim a
deduction of ₹75,000 under section 80DD, irrespective of the amount deposited. In case his father has severe
disability, the deduction would be ₹1,25,000.
MAY – 1997 (4 Marks)
In respect of assessment year 2025-26, an author of text-books for schools furnishes the following
particulars and request you to work out his tax liability: ₹ ₹
1. Royalty from Printers Ltd. on publication of books 2,20,000
2. Capital gains long term 1,90,000
3. Other Sources:
(a) Interest on Bank fixed Deposits 12,000
(b) Dividend income from Indian company 3,000
(c) Income from units of U.T.I. 5,000 20,000
 Deduction From Gross Total Income 235

Deductions: (i) Contributions towards:

(a) LIC Pension Scheme 15,000
(b) LIC Premium 10,000
(ii) Contribution to public provident fund 10,000
(iii) Investment in National Savings Certificates 50,000
(iv) Medical treatment of handicapped dependent relative 20,000
(Optional Regime)
Answer: ₹
Income under the head Capital Gains (LTCG) 1,90,000
Computation of income under the head Other Sources
Royalty income 2,20,000
Interest from bank fixed deposits 12,000
Dividend income 3,000
Interest from units of UTI 5,000
Income under the head Other Sources 2,40,000
Gross Total Income 4,30,000
Less: Deduction u/s 80C
LIC Premium (10,000)
Contribution in Public provident fund (10,000)
National Saving Certificate (50,000)
Less: Deduction u/s 80CCC (15,000)
Less: Deduction u/s 80DD (75,000)
Total Income 2,70,000
Computation of Tax Liability
Tax on LTCG ₹20,000 (₹1,90,000 – ₹1,70,000) @ 12.5% u/s 112 2,500
Tax on ₹80,000 at slab rate Nil
Less: Rebate u/s 87A (2,500)
Tax Liability Nil

Section 80U
(1) Deduction shall be allowed only to a resident individual who is a disabled person and deduction allowed
shall be ₹75,000 but in case of severe disability, deduction allowed shall be ₹1,25,000.
(2) The assessee should enclose a certificate with the return from prescribed medical authority.
e.g. (i) Mr. X is suffering from a disability and has income under the head salary ₹10,00,000 and he has
invested ₹1,00,000 in NSC, in this case deduction allowed under section 80C shall be ₹1,00,000 and under
section 80U shall be ₹75,000
(ii) Mr. X is suffering from a severe disability and has income under the head salary ₹10,00,000 and he has
invested ₹2,00,000 in NSC, in this case deduction allowed under section 80C shall be ₹1,50,000 and under
section 80U shall be ₹1,25,000.

Section 80DDB
1. Deduction is allowed only to a resident individual or resident Hindu Undivided Family.
2. Deduction is allowed if the assessee has incurred any amount for treatment of such disease as are
specified in the rule 11DD.
3. The expenditure can be incurred for himself or a dependant person, and in case of an individual, such
person may be spouse, children, parents, brothers or sisters who are dependant on such individual and
in case of Hindu Undivided Family such person may be any member of the Hindu Undivided Family
who is dependant on the Hindu Undivided Family.
4. Deduction allowed shall be the amount incurred or ₹40,000 whichever is less and if the amount has
been paid with regard to a Senior Citizen, deduction allowed shall be upto ₹1,00,000.
5. Deduction allowed shall be reduced by the amount received under medi claim insurance and also by
the amount which has been paid by the employer.
6. The assessee should enclose a certificate with the return from prescribed medical authority.
 Deduction From Gross Total Income 236

Example
Mr. X has incurred ₹1,25,000 on the treatment of a specified disease for himself, in this case deduction
allowed shall be ₹40,000 but if a claim of ₹10,000 has been received under medi-claim policy, deduction
allowed shall be ₹30,000. If Mr. X is a senior citizen, deduction allowed shall be 1,00,000 – 10,000 = 90,000

Section 80E
1. Deduction is allowed only to an individual.
2. Deduction is allowed if the assessee has paid interest on loan taken by him from any financial institutions
or any approved charitable institution.
3. The loan should have been taken for pursuing higher education which means any course of study
pursued after passing the Senior Secondary Examination or its equivalent.
4. Education can be either of self or spouse or children or any person for whom the assessee is legal
guardian.
5. The entire amount of interest paid by an individual is allowed as deduction.
6. No deduction shall be allowed for repayment of the principal loan amount.
7. Deduction is allowed for a maximum period of 8 years starting from the year in which first payment of
interest was given.
8. Approved charitable institution means the institution notified by the Central Government.
Financial institution means banking company or other financial institution notified by the Government.
9. No deduction is allowed after the period of 8 years.
Example
Mr. X has taken a loan of ₹2,00,000 from State Bank on 01.10.2016 for pursuing MBBS course & after
becoming a doctor he has given payment of interest of ₹45,000 on 01.10.2024, in this case deduction
allowed shall be ₹45,000.

Illustration 15: Mr. X has taken three education loans on April 1st, 2024, the details of which are given
below:
Loan 1 Loan 2 Loan 3
For whose education loan was taken Mr. X Son of Mr. X Daughter of Mr. X
Purpose of loan MBA B. Sc. B.A.
Amount of loan (₹) 5,00,000 2,00,000 4,00,000
Annual repayment of loan (₹) 1,00,000 40,000 80,000
Annual repayment of interest (₹) 20,000 10,000 18,000
Compute the amount deductible under section 80E for the A.Y.2025-26.
Solution:
Deduction under section 80E is available to an individual assessee in respect of any interest paid by him in
the previous year in respect of loan taken for pursuing his higher education or higher education of his spouse
or children. Higher education means any course of study pursued after senior secondary examination.
Therefore, interest repayment in respect of all the above loans would be eligible for deduction.
Deduction under section 80E = ₹20,000 + ₹10,000 + ₹18,000 = ₹48,000

Section 80G
Deduction is allowed to all the assessees if they have given any donation or contribution to any of the below
mentioned institutions or funds and deduction allowed shall be in the manner given below:
Category A Deduction is allowed equal to 100% of donation
1. The Prime Minister’s National Relief Fund
2. The Prime Minister’s Armenia Earthquake Relief Fund
3. The National Foundation for Communal Harmony
4. The National Defence Fund
5. The National Children’s Fund
6. The Africa Fund
7. A University or any educational institution of national eminence as may be approved by the prescribed
authority in this behalf
 Deduction From Gross Total Income 237

8. The Chief Minister’s Earthquake Relief Fund, Maharashtra

9. The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
10. Any fund set up by the State Government of Gujarat for providing relief to the victims of earthquake
11. The Chief Minister’s Relief Fund
12. The Lieutenant Governor’s Relief Fund in respect of any Union territory
13. Zila Saksharta Samiti.
14. The National Blood Transfusion Council
15. The State Blood Transfusion Council.
16. The National Illness Assistance Fund
17. The Army Central Welfare Fund
18. The Air Force Central Welfare Fund
19. The Indian Naval Benevolent Fund
20. The National Sports Fund
21. The National Cultural Fund
22. The Fund for Technology Development and Application
23. Any fund set up by a State Government to provide medical relief to the poor
24. The National Trust for Welfare of Persons suffering with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities.
25. Swachh Bharat Kosh
26. Clean Ganga Fund
27. National Fund for Control of Drugs
28. The Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES
FUND)
Category B Deduction shall be allowed equal to 50% of Donation
1. The Prime Minister’s Drought Relief Fund
Category C Deduction shall be allowed equal to 50% of Qualifying amount (Not Donation)
Donation can be given to any institution or fund which is notified by the government and such institution
may be social, religious, charitable or other similar organisations including local authority.
Category D Deduction shall be allowed equal to 100% of Qualifying amount (Not Donation)
Donation can be given to government or to any local authority (e.g. MCD), Institution or association as may
be approved by the central government for the purpose of promoting family planning. Similarly deduction
shall be allowed to a company for donation to the Indian Olympic Association or to any other association or
institution established in India notified by the government.

Qualifying amount = 10% of the adjusted gross total income or the donation (except donation to the above
mentioned 28+1 funds) given, whichever is less.

Adjusted gross total income = Gross Total Income – Long term capital Gains (including LTCG u/s 112A)
– Short term capital gains u/s 111A – All Deduction under section 80C to 80U except section 80G

No deduction shall be allowed under this section in respect of any donation unless such donation is of a sum
of money i.e. if donation is given in kind, deduction is not allowed.

Donation can be given in cash upto ₹2,000.

Illustration 16: Mr. X has income from business/profession ₹6,00,000 and long term capital gain ₹4,00,000
and short term capital gain u/s 111A ₹2,00,000 and casual income ₹1,00,000.
He has paid premium of a mediclaim policy amounting to ₹20,000 taken in the name of his dependant grand
father who is senior citizen and payment was made by a cheque on 09.01.2025.
He has given premium of Jeevan Suraksha policy ₹7,000, has donated ₹12,000 to the National Defence
Fund, ₹4,000 to The Prime Minister’s Drought Relief Fund and ₹3,00,000 to a charitable institution and
₹1,00,000 to a social organization and ₹4,00,000 to religious organization and all such organization are
notified under section 80G. (all the donations was made by cheque)
 Deduction From Gross Total Income 238

Compute his total income and tax liability for A.Y. 2025-26. (Optional Regime)
(b) Presume in the above question the assessee has given donation of ₹10,000 by cheque for promotion of
family planning also to the Government.
Compute his total income and tax liability for the assessment year 2025-26. (Optional Regime)
(c) Presume in part (b), donation to government for family planning is ₹2,00,000 by cheque. (Optional
Regime)
Solution 16(a): ₹
Income under the head Business/Profession 6,00,000.00
Income under the head Capital Gain (LTCG) 4,00,000.00
Income under the head Capital Gain (STCG u/s 111A) 2,00,000.00
Income under the head Other Sources (casual income) 1,00,000.00
Gross Total Income 13,00,000.00
Less: Deduction u/s 80CCC (7,000.00)
Less: Deduction u/s 80G
(i) National Defence Fund (12,000.00)
(ii) The Prime Minister’s Drought Relief Fund (2,000.00)
(iii) Charitable Institution/ Social organization/ Religious organization (34,650.00)
Working Note:
Charitable Institution 3,00,000
Social organization 1,00,000
Religious organization 4,00,000
8,00,000

AGTI = GTI – LTCG – STCG u/s 111A – Deduction u/s 80C to 80U (except 80G)
= 13,00,000 – 4,00,000 – 2,00,000 – 7,000
= 6,93,000
Qualifying amount = 10% of AGTI or donation whichever is less
= 69,300 or 8,00,000 whichever is less
= 69,300
50% of the qualifying amount = 34,650
Total Income 12,44,350.00

Computation of Tax Liability

Tax on casual income ₹1,00,000 @ 30% u/s 115BB 30,000.00
Tax on STCG ₹2,00,000 @ 20% u/s 111A 40,000.00
Tax on LTCG ₹4,00,000 @ 12.5% u/s 112 50,000.00
Tax on normal income ₹5,44,350 at slab rate 21,370.00
Tax before health & education cess 1,41,370.00
Add: HEC @ 4% 5,654.80
Tax Liability 1,47,024.80
Rounded off u/s 288B 1,47,020.00

Solution 16(b):
Computation of Total Income
Gross Total Income 13,00,000.00
Less: Deduction u/s 80CCC (7,000.00)
Less: Deduction u/s 80G
(i) National Defence Fund (12,000.00)
(ii) The Prime Minister’s Drought Relief Fund (2,000.00)
(iii) Other Donations u/s 80G (39,650.00)
Working Note: ₹
Charitable Institution 3,00,000
Social organization 1,00,000
 Deduction From Gross Total Income 239

religious organization 4,00,000

Family planning 10,000
8,10,000
AGTI = GTI – LTCG – STCG u/s 111A – Deduction u/s 80C to 80U (except 80G)
= 13,00,000 – 4,00,000 – 2,00,000 – 7,000
= 6,93,000
Qualifying amount = 10% of AGTI or donation whichever is less
= 69,300 or 8,10,000 whichever is less
= 69,300
Deduction of donation for family planning ₹10,000
50% of balance amount (i.e. ₹59,300) ₹29,650
Total deduction allowed 10,000 + 29,650 = 39,650
Total Income 12,39,350.00
Computation of Tax Liability
Tax on casual income ₹1,00,000 @ 30% u/s 115BB 30,000.00
Tax on STCG ₹2,00,000 @ 20% u/s 111A 40,000.00
Tax on LTCG ₹4,00,000 @ 12.5% u/s 112 50,000.00
Tax on normal income ₹5,39,350 at slab rate 20,370.00
Tax before health & education cess 1,40,370.00
Add: HEC @ 4% 5,614.80
Tax Liability 1,45,984.80
Rounded off u/s 288B 1,45,980.00

Solution 16(c): ₹
Computation of Total Income
Gross Total Income 13,00,000.00
Less: Deduction u/s 80CCC (7,000.00)
Less: Deduction u/s 80G
(i) National Defence Fund (12,000.00)
(ii) The Prime Minister’s Drought Relief Fund (2,000.00)
(iii) Other donations u/s 80G (69,300.00)
Working Note: ₹
Charitable Institution 3,00,000
Social organization 1,00,000
religious organization 4,00,000
Family planning 2,00,000
10,00,000
AGTI = GTI – LTCG – STCG u/s 111A – Deduction u/s 80C to 80U (except 80G)
= 13,00,000 – 4,00,000 – 2,00,000 – 7,000
= 6,93,000
Qualifying amount = 10% of AGTI or donation whichever is less
= 69,300 or 10,00,000 whichever is less
= 69,300
Donation for family planning is ₹2,00,000 but maximum deduction allowed shall be
₹69,300
Total Income 12,09,700.00
Computation of tax liability
Tax on casual income ₹1,00,000 @ 30% u/s 115BB 30,000.00
Tax on STCG ₹2,00,000 @ 20% u/s 111A 40,000.00
Tax on LTCG ₹4,00,000 @ 12.5% u/s 112 50,000.00
Tax on normal income ₹5,09,700 at slab rate 14,440.00
Tax before health & education cess 1,34,440.00
 Deduction From Gross Total Income 240

Add: HEC @ 4% 5,377.60

Tax Liability 1,39,817.60
Rounded off u/s 288B 1,39,820.00

MAY – 2017
Question 6(a) (ii) (4 Marks)
Mr. Rohan, a resident individual has Gross Total Income of ₹7,50,000 comprising of Income from Salary
and income from house property for the assessment year 2025-26. He provides the following information:

Paid ₹70,000 towards premium on life insurance policy of his Handicapped Son (Section 80U disability).
Sum assured ₹4,00,000 ; and date of issue of policy 1-8-2020.

Deposited ₹90,000 in tax saver deposit in the name of his major son in State Bank of India.

Contributed by cheque ₹25,000 to The Clean Ganga Fund, set up by the Central Government.
Compute the Total Income and deduction under Chapter VI-A for the Assessment year 2025-26.
Solution:
Computation of Total Income and deduction under chapter VI-A ₹
Gross Total Income 7,50,000
Less: Deduction under chapter VI-A
Deduction u/s 80C for LIC Premium (15% of 4,00,000) (60,000)
Deposited in Tax Saver Deposit in the name of major son (Nil)
Deduction u/s 80G – Contribution in Clean Ganga Fund (100%) (25,000)
Total Income 6,65,000
Note: Tax Saver deposits in the name of major son does not qualify for deduction u/s 80C since such
deposits has to be made in the name of assessee himself.

NOV – 2008 (4 Marks)

Mr. X declares gross total income ₹4,00,000 for the assessment year 2025-26. The gross total income
includes taxable long term capital gain ₹ 65,000 and short term capital gain ₹35,000 which is taxable @
20% under section 111A of the Income-tax Act, 1961. The details of fund investment made during the year
2024-25 are: ₹
(i) Medical insurance premium paid by cheque –
(a) in the name of Mr. X 4,000
(b) in name of Mrs. X 5,000
(ii) Contribution made to –
(a) Indira Gandhi Memorial Trust by cheque 7,000
(b) Delhi University (declared as an institution of national eminence) by cheque 3,000
(c) Zila Saksharta Samiti by cheque 5,000
(d) An approved charitable institute by cheque 30,000
(e) Government by cheque for the purpose of promoting family planning 10,000
(f) Hanuman Temple in Mohalla by cheque 20,000
Compute the total income of Mr. X chargeable to tax for the Assessment year 2025-26 and also compute his
tax liability. (Optional Regime)
Answer. (₹)
Computation of Total Income of Mr. X for the A.Y. 2025-26
Gross Total Income 4,00,000.00
Less : Deduction
Section 80D
Medical insurance premium paid by cheque
(i) in the name of Mr. Prasad (4,000.00)
(ii) in name of Mrs. Prasad (5,000.00)
Section 80G
 Deduction From Gross Total Income 241

Donation to Indira Gandhi Memorial trust Nil

Donation to Delhi University @ 100% (3,000.00)
Donation to Zila Saksharta Samiti @ 100% (5,000.00)
Other donations u/s 80G (19,550.00)
Working Note:
Donation to approved Charitable Institute 30,000
Donation to Government for promoting family planning 10,000
40,000
AGTI = GTI – LTCG – STCG u/s 111A – Deduction u/s
80C to 80U (Except 80G)
= 4,00,000 – 65,000 – 35,000 – 9,000
= 2,91,000
Qualifying amount = 10% of AGTI or donation whichever is less
= 29,100 or 40,000
= 29,100
Deduction for family planning ₹10,000
50% of balance amount (i.e. 19,100)
= 9,550
Total deduction = 10,000 + 9,550 = 19,550
Total Income 3,63,450.00
Computation of Tax Liability
Tax on LTCG ₹65,000 @ 12.5% u/s 112 8,125.00
Tax on STCG ₹35,000 @ 20% u/s 111A 7,000.00
Tax on ₹2,63,450 at slab rate 672.50
Less: Rebate u/s 87A (12,500.00)
Tax before health & education cess 3,297.50
Add: HEC @ 4% 131.90
Tax Liability 3,429.40
Rounded off u/s 288B 3,430.00

NOV – 2002 (4 Marks)

For the assessment year 2025-26, the gross total income of Mr. X was ₹4,50,240 which includes long term
capital gain of ₹45,000 and short term capital gain of ₹80,000.The gross total income also includes interest
income (fixed deposits) from banks of ₹12,000.
Mr. X has invested in public provident fund ₹60,000 and also paid medical insurance premium ₹11,000 by
cheque. Mr. X also contributed ₹15,000 by cheque to public charitable trust eligible for deduction u/s 80G.
Compute the total income and tax thereon of Mr. X, who is 50 years old as on 31.03.2025. (Optional
Regime)
Answer:
Computation of Total Income ₹
Long Term Capital Gain 45,000.00
Short Term Capital Gain 80,000.00
Bank Interest 12,000.00
Other Income 3,13,240.00
Gross Total Income 4,50,240.00
Less: Deduction u/s 80C {Public Provident Fund} (60,000.00)
Less: Deduction u/s 80D (11,000.00)
Less: Deduction u/s 80G (7,500.00)
Working Note:
AGTI = GTI – LTCG – Deductions u/s 80C to 80U (Except 80G)
= 4,50,240 – 60,000 – 45,000 – 11,000
= ₹3,34,240
Qualifying Amount = 10% of AGTI or Donation given whichever is less
 Deduction From Gross Total Income 242

= ₹33,424 or 15,000
= 15,000
50% of qualifying amount = ₹7,500
Total Income 3,71,740.00
Computation of Tax Liability
Tax on long term capital gain ₹45,000 @ 12.5% u/s 112 5,625.00
Tax on normal income ₹3,26,740 at slab rate 3,837.00
Less: Rebate u/s 87A (9,462.00)
Tax before HEC Nil
Add: HEC @ 4% Nil
Tax liability Nil

Section 80GG
1. Deduction is allowed only to an individual.
2. He should not be getting any house rent allowance and also he is not being provided with Rent Free
Accommodation by his employer.
3. He should not have any house in his name or in the name of the spouse or in the name of minor child or
in the name of Hindu Undivided Family of which he is a member, at a place where he ordinarily resides
or performs duties of his office or carries on his business or profession.
4. The assessee may have house at any other place but it should not be self occupied i.e. it may be let out or
vacant.
5. He has paid rent for the accommodation taken by him for his residence.
6. Deduction shall be allowed to such individual in case of payment of rent and deduction shall be allowed
to the extent of the least of the following:
(i) Rent paid over 10% of the adjusted gross total income
(ii) ₹5,000 p.m.
(iii) 25% of the adjusted gross total income
Adjusted Gross Total Income = Gross Total Income – Long term capital gains (including LTCG u/s 112A)
– Short term capital gains u/s 111A – All Deduction of section 80C to 80U except section 80GG.
• Deduction can be allowed even where the assessee is not an employee i.e. the persons having
business/profession can also avail deduction under section 80GG.

Illustration 17: Mr. X has income under the head Business/Profession ₹5,00,000 and LTCG of ₹2,00,000,
STCG u/s 111A ₹3,00,000 and casual income of ₹1,00,000.
He is paying rent for a house of ₹40,000 p.m. He has deposited ₹30,000 in home loan account scheme of
National Housing Bank.
He has complied with all the condition of section 80GG.
Compute income tax liability for A.Y. 2025-26. (Optional Regime)
Solution: ₹
Income under the head Business/Profession 5,00,000
Computation of income under the head Capital Gain
Long Term Capital Gain 2,00,000
Short Term Capital Gain u/s 111A 3,00,000
Income under the head capital gain 5,00,000
Computation of income under the head Other Sources
Casual income 1,00,000
Income under the head Other Sources 1,00,000
Gross Total Income 11,00,000
Less:
Deduction u/s 80C (30,000)
Deduction u/s 80GG (60,000)
Working Note:
Least of the following:
 Deduction From Gross Total Income 243

1. ₹4,80,000 – 57,000 = 4,23,000

2. 60,000
3. 25% x 5,70,000 = 1,42,500
AGTI = GTI – LTCG – STCG 111A – Deduction u/s 80C to 80U
(except 80GG)
= 11,00,000 – 2,00,000 – 3,00,000 – 30,000
= 5,70,000
Total Income 10,10,000
Computation of Tax Liability
Tax on casual income ₹ 1,00,000 @ 30% 30,000
Tax on LTCG ₹2,00,000 @ 12.5% 25,000
Tax on STCG 111A ₹ 3,00,000 @ 20% 60,000
Tax on ₹4,10,000 at slab rate 8,000
Tax before health & education cess 1,23,000
Add: HEC @ 4% 4,920
Tax Liability 1,27,920
MAY – 2000 (4 Marks)
Mr. X is a retired Government officer aged 40 years, who derived the following income in respect of
financial year 2024-25. He resides in Cochin: ₹
Salary 6,00,000
Interest from bank deposits (fixed deposits) 2,00,000
He has paid ₹28,000 as premium to effect an insurance on his health and it was paid by a cheque. He pays a
rent of ₹10,000 per month in respect of furnished accommodation. He is eligible for deduction under Section
80GG. Compute his total income and tax liability for assessment year 2025-26. (Optional Regime)
What are the conditions to be satisfied by him to qualify for the deduction?
Answer: ₹
Salary 6,00,000.00
Less: Deduction u/s 16(ia) (50,000.00)
Income under the head Salary 5,50,000.00
Income under the head Other Sources {Bank Interest} 2,00,000.00
Gross Total Income 7,50,000.00
Less: Deduction under section 80D (25,000.00)
Less: Deduction under section 80GG (47,500.00)
Working Note:
Least of the following:
1. ₹1,20,000 – ₹72,500 = ₹47,500
2. ₹60,000
3. 25% x 7,25,000 = ₹1,81,250
(AGTI = ₹7,50,000 – ₹25,000 = ₹7,25,000)
Total Income 6,77,500.00
Computation of Tax Liability
Tax on ₹6,77,500 at slab rate 48,000.00
Add: HEC @ 4% 1,920.00
Tax Liability 49,920.00

Section 80GGA
Deduction is allowed to all the assessees except the assessees whose gross total income includes income
which is chargeable under the head “Profits and gains of business or profession”. (because such assesses is
allowed to debit the amount to profit and loss account of business/profession)
Deduction is allowed in case of donation or contributions to any of the below mentioned institutions.
Deduction allowed is equal to the amount of donations.
(i) Donation given to an institution notified under section 35 for scientific research / research in social
 Deduction From Gross Total Income 244

science or statistical research.

(ii) Donation given to an institution notified under section 35AC for eligible project i.e. the projects of
social or economic importance like construction of houses for the poor person or taking up drinking
water project or other similar projects.
(iii) Donation given to an institution notified under section 35CCA for rural development including
donation to Rural Development Fund setup by central Government or donation to National Urban
Poverty Eradication Fund.
Donation can be given in cash upto ₹2,000.
Example:
(i) Mr. X has donated ₹2,00,000 by cheque to an institution notified under section 35AC for eligible projects
and Mr. X do not have any business/profession, in this case he will be allowed deduction under section
80GGA for ₹2,00,000 provided the payee has filed the statement but if he has business/profession, he will
not be allowed deduction under section 80GGA rather he will be allowed to debit the amount to profit and
loss account.
(ii) ABC Ltd. has donated ₹2,00,000 by cheque to an institution notified under section 35CCA for rural
development and company has business/profession, in this case deduction under section 80GGA is not
allowed but company can debit the amount to profit and loss account.

Illustration 18: Mr. X has income under the head salary ₹6,00,000 and income under the head house
property ₹7,00,000 and he has submitted information as given below:
(i) Paid premium of life policy ₹40,000 (sum assured ₹1,50,000) and policy has taken before 01.04.2012 in
the name of Mr. X
(ii) Paid premium of life policy ₹40,000 (sum assured ₹1,50,000) and policy has taken after 01.04.2012 in
the name of Mrs. X
(iii) Paid premium of life policy ₹40,000 (sum assured ₹1,50,000) and policy has taken before 01.04.2012 in
the name of father of Mr. X who is dependant on Mr. X.
(iv) Paid premium of life policy ₹40,000 (sum assured ₹1,50,000) and policy has taken before 01.04.2012 in
the name of son of Mr. X who is not dependant on Mr. X.
(v) He has donated ₹1,00,000 by cheque in rural development fund setup by government.
(vi) He has paid premium of Jeevan Suraksha Policy ₹10,000 by cheque in the name of Mrs. X.
(vii) He has paid ₹15,000 in cash in connection with preventive health checkup for his father.
(viii) He has donated ₹60,000 by cheque to a charitable institution notified under section 80G
Compute his tax liability assessment year 2025-26. (Optional Regime)
Solution: ₹
Income under the head Salary 6,00,000
Income under the head House Property 7,00,000
Gross Total Income 13,00,000
Less: Deduction u/s 80C
Premium of life policy in name of Mr. X (30,000)
Premium of life policy in name of Mrs. X (15,000)
Premium of life policy in name of Son (30,000)
Less: Deduction u/s 80D (Preventive Health Checkup) (5,000)
Less: Deduction u/s 80GGA (1,00,000)
Less: Deduction u/s 80G
Charitable Institution (30,000)
Working Note:
AGTI = GTI – Deductions u/s 80C to 80U (Except 80G)
= 13,00,000 – 30,000 – 15,000 – 30,000 – 1,00,000 – 5,000
= ₹11,20,000
Qualifying Amount = 10% of AGTI or Donation given whichever is less
= ₹1,12,000 or 60,000
= 60,000
50% of qualifying amount = ₹30,000
 Deduction From Gross Total Income 245

Total Income 10,90,000

Computation of Tax Liability

Tax on ₹10,90,000 at slab rate 1,39,500
Add: HEC @ 4% 5,580
Tax Liability 1,45,080

MAY – 2011 (3 Marks)

Mr. X having gross total income of ₹6,35,000 for the financial year 2024-25 furnishes you the following
information:
(i) Paid ₹25,000 towards premium on life insurance policy of his married daughter.
(ii) Contributed ₹10,000 by cheque to Prime Minister’s National Relief Fund.
(iii) Donated ₹20,000 to a Government recognized institution (by cheque) for scientific research.
Note: Assume that the gross total income of Mr. X does not include any income under the head ‘profits and
gains of business or profession’.
Compute the total income of Mr. X for the assessment year 2025-26.
Answer.
Computation of total income of Mr. X for the A.Y. 2025-26
Particulars ₹ ₹
Gross Total Income 6,35,000
Less: Deductions under Chapter VI-A
(i) Premium on life insurance policy of his married daughter - Eligible for 25,000
deduction under section 80C
(ii) Contribution of ₹10,000 to PM’s National Relief Fund - Eligible for 100% 10,000
deduction under section 80G
(iii) Payment of ₹20,000 to a Government recognized institution for scientific 20,000
research - Eligible for deduction under section 80GGA (55,000)
Total Income 5,80,000

Donation to Political Party Section 80GGB

Deduction shall be allowed to an Indian Company in case of donation or contribution to a political party or
electoral trust and deduction is allowed equal to the amount of donation or contribution. Donation is not
allowed in cash. The word “contribute” has the same meaning as given in section 182 of the Companies Act,
2013, which provides that a donation or subscription or payment given by a company to a person for
carrying on any activity which is likely to effect public support for a political party shall also be deemed to
be contribution for a political purpose. The expenditure incurred, directly or indirectly, by a company on
advertisement in any publication (being a publication in the nature of a souvenir, brochure, tract, pamphlet
or the like) by or on behalf of a political party or for its advantage shall also be deemed to be a contribution
to such political party or a contribution for a political purpose to the person publishing it.

Illustration 19: During the P.Y.2024-25, ABC Ltd., an Indian company,

(1) contributed a sum of ₹2 lakh to an electoral trust; and
(2) incurred expenditure of ₹25,000 on advertisement in a brochure of a political party.
Is the company eligible for deduction in respect of such contribution/expenditure, assuming that the
contribution was made by cheque? If so, what is the quantum of deduction?
Solution:
An Indian company is eligible for deduction under section 80GGB in respect of any sum contributed by it in
the previous year to any political party or an electoral trust. Further, the word “contribute” in section 80GGB
has the meaning assigned to it in section 182 of the Companies Act, 2013, and accordingly, it includes the
amount of expenditure incurred on advertisement in a brochure of a political party.
 Deduction From Gross Total Income 246

Therefore, ABC Ltd. is eligible for a deduction of ₹2,25,000 under section 80GGB in respect of sum of ₹2
lakh contributed to an electoral trust and ₹25,000 incurred by it on advertisement in a brochure of a political
party.

Donation to Political Party Section 80GGC

If any other person has given donation/contribution to a political party/electoral trust, deduction shall be
allowed equal to the amount of donation but donation in cash is not allowed.

Deduction in case of new employment Section 80JJAA

1. Deduction is allowed to all assessee whose accounts are required to be audited.
2. Deduction shall be allowed equal to 30% of the salary paid to the employees employed in the first
year. In the second year or third year deduction shall be allowed @ 30% of salary but only for
those employees whose employment has effect of increasing the number of employees employed as
on the last day of the preceding year. E.g. ABC Ltd. commenced business in the year 2024-25 and has
given employment to 100 employees, in this case deduction shall be allowed @ 30% of the salary of the
employees. In P.Y. 2025-26, 20 employees have left the job and 70 new have joined, in this case net
increase is of 50 employees, they will be called additional employees and 30% of their salary shall be
allowed as deduction and in third year also deduction shall be allowed in the similar manner.
3. Deduction is allowed for 3 assessment years including the assessment year in which such employment
is provided.
4. It should be a new business.
5. Emoluments should be paid through account payee cheque, an account payee bank draft or by use of
electronic clearing system through a bank account or through such other electronic modes as may be
prescribed. (Other electronic mode means Credit Card, Debit Card, Net Banking, IMPS (Immediate
Payment Service), UPI (Unified Payment Interface), RTGS (Real Time Gross Settlement), NEFT
(National Electronic Funds Transfer), and BHIM (Bharat Interface for Money) Aadhaar Pay)
6. No deduction shall be allowed with regard to the employees given below:
(a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or
(b) an employee employed for a period of less than two hundred and forty days during the previous year.

In the case of an assessee who is engaged in the business of manufacturing of apparel or footwear or leather
products, 240 days shall be taken as 150 days.
Where an employee is employed during the previous year for a period of less than two hundred and forty
days or one hundred and fifty days, as the case may be, but is employed for a period of two hundred and
forty days or one hundred and fifty days, as the case may be, in the immediately succeeding year, he shall be
deemed to have been employed in the succeeding year and the provisions of this section shall apply
accordingly.
The Assessee shall be required to submit a certificate from a Chartered Accountant in form No. 10DA
certifying the amount of deduction claimed.
NOV-2016 (4 Marks)
Mr. Satya is a manufacturer of household goods in a factory located in Navi Mumbai and commenced his
business on 1st April 2024 and he employed 120 new work men during the previous year 2024-25 which
included:
(a) 20 employee whose total emoluments paid @ ₹30,000 p.m. per employee;
(b) 40 worker employed on 01st April, 2024
(c) 35 worker employed on 1st May, 2024
(d) 25 worker employed on 5th October, 2024
Compute the Deduction under Section 80JJAA, if available to Mr. Satya for Assessment year 2025-26, if
wages are paid to each worker @ ₹3,000 per month. His profit from the manufacture of goods for
Assessment year 2025-26 is ₹9.50 lakhs. (after debiting all the wages paid)
The Assessee is liable to Audit his accounts.
 Deduction From Gross Total Income 247

If in the previous year 2025-26, he has given employment to 35 workmen on 01-05-2025 and each getting
salary 15,000 per month. Compute deduction allowed in previous year 2025-26.
If in the previous year 2026-27, he has given employment to 40 workmen on 01-05-2026 and each getting
salary 12,000 per month. Compute deduction allowed in previous year 2026-27.
Solution:
Mr. Satya is eligible for deduction under section 80JJAA since he is liable to Audit of his accounts in the
previous year 2024-25. Deduction allowed shall be as given below:
(a) 20 employee whose total emoluments paid @ ₹30,000 p.m. per employee - Not eligible
(b) 40 worker employed on 01st April, 2024 - Eligible – 3,000 x 12 x 40 = 14,40,000
(c) 35 worker employed on 1st May, 2024 - Eligible – 3,000 x 11 x 35 = 11,55,000
th
(d) 25 worker employed on 5 October, 2024 - will be considered next year
Total 25,95,000
Deduction allowed @ 30% 7,78,500
Previous year 2025-26
(a) 25 worker employed on 5th October, 2024 - eligible – 3,000 x 12 x 25 = 9,00,000
(b) New Employed in P.Y. 2025-26 (01.05.2025) eligible – 15,000 x 11 x 35= 57,75,000
Total 66,75,000
Deduction allowed @ 30% 20,02,500

Previous year 2026-27

(a) New Employed in P.Y. 2026-27 (01.05.2026) eligible – 12,000 x 11 x 40= 52,80,000
Total 52,80,000
Deduction allowed @ 30% 15,84,000

Section 80QQB
1. Deduction is allowed only to a resident individual who is an author.
2. He should have income through his copyright in a book which is a work of literary, artistic or scientific
nature but such should not be text-books for schools/colleges etc. and also it should not be any help
book or guide etc. or any newspaper or magazine etc.
3. Deduction allowed shall be equal to the amount of royalty income or ₹3,00,000 whichever is less.
4. Royalty received by the author in excess of 15% of the value of such books sold during the previous year
shall be ignored.
5. In respect of any income earned from any source outside India, so much of the income shall be taken into
account for the purpose of this section as is brought into India by the assessee in convertible foreign
exchange within a period of six months from the end of the previous year in which such income is earned
or within such further period as the competent authority may allow in this behalf. E.g. Mr. X received a
royalty of ₹4,00,000 from outside India in connection with a book of literary nature but amount brought
in India within 6 months from the end of relevant previous year is ₹2,30,000, in this case amount to be
added to income shall be ₹4,00,000 but deduction allowed shall be ₹2,30,000.
6. The Assessee should retain information with him in form no. 10CCD and it should be produced when
demanded by the department.

Illustration 20: Mrs. X is author of one book of scientific nature and its print price is ₹500 and total copies
sold are 2000 and she has received royalty @ 50%.
She has taken a loan from State Bank in 2016 for pursuing bachelor’s degree in Engineering and she has
given repayment of principal amount ₹80,000 and interest ₹20,000 to State Bank. (payment of interest was
given for the first time in financial year 2021-22)
She has paid tuition fee of her son for whole time education ₹ 3,000 in India
Compute Income Tax liability A.Y. 2025-26. (Optional Regime)
Solution: ₹
Income under the head Other Sources
 Deduction From Gross Total Income 248

500 x 50% x 2000 5,00,000.00

Gross Total Income 5,00,000.00
Less: Deduction u/s 80C
Tuition Fee (3,000.00)
Less: Deduction u/s 80E
Payment of Interest (20,000.00)
Less: Deduction u/s 80QQB
500 x 15% x 2000 (1,50,000.00)
Total Income 3,27,000.00
Computation of tax liability
Tax on ₹3,27,000 at slab rate 3,850.00
Less: Rebate u/s 87A (3,850.00)
Tax Liability Nil

Example 1: Mr. X received royalty of ₹2,00,000 from abroad for a book authored by him which is a work
of artistic nature. The rate of royalty is 20% of value of books and expenditure made for earning this royalty
was ₹50,000. The amount remitted to India till 30th September, 2025 is ₹1,20,000. Compute deduction u/s
80QQB and also compute income to be added in Gross Total Income.
Solution:
Amount to be added in Income (2,00,000-50,000) 1,50,000

Deduction allowed u/s 80QQB

Deductions u/s 80QQB 70,000
15% of value of books 1,50,000
(2,00,000/20% x 15%)
but cannot exceed amount brought in India within 6
months from the end of the previous year i.e.
1,20,000
Allowed 1,20,000
Less: Expenses (50,000)
Deduction allowed 70,000

Example 2: Mr. X received royalty of ₹6,00,000 from abroad for a book authored by him which is a work
of artistic nature. The rate of royalty is 25% of value of books and expenditure made for earning this royalty
was ₹2,50,000. The amount remitted to India till 30th September, 2025 is ₹3,80,000. Compute deduction u/s
80QQB and also compute income to be added in Gross Total Income.
Solution:
Amount to be added in Income (6,00,000-2,50,000) 3,50,000

Deduction allowed u/s 80QQB

Deductions u/s 80QQB 1,10,000
15% of value of books 3,60,000
(6,00,000/25% x 15%)
but cannot exceed amount brought in India within 6
months from the end of the previous year i.e.
3,80,000
Allowed 3,60,000
Less: Expenses (2,50,000)
Deduction allowed 1,10,000

Example 3: Mr. X received royalty of ₹10,00,000 from ABC Ltd. situated in India for a book authored by
him which is a work of artistic nature. The rate of royalty is 10% of value of books and expenditure made
 Deduction From Gross Total Income 249

for earning this royalty was ₹5,00,000. Compute deduction u/s 80QQB and also compute income to be
added in Gross Total Income.
Solution:
Amount to be added in Income (10,00,000-5,00,000) 5,00,000
Deduction allowed u/s 80QQB
Deductions u/s 80QQB 3,00,000
Royalty received 10,00,000
Less: Expenses (5,00,000)
Deduction allowed 5,00,000
But maximum ₹3,00,000
Example 4: Mr. X received royalty (lumpsum) of ₹6,00,000 from abroad for a book authored by him which
is a work of artistic nature. Expenditure made for earning this royalty was ₹2,50,000. The amount remitted
to India till 30th September, 2025 is ₹4,00,000. Compute deduction u/s 80QQB and also compute income to
be added in Gross Total Income.
Solution:
Amount to be added in Income (6,00,000-2,50,000) 3,50,000

Deduction allowed u/s 80QQB

Deductions u/s 80QQB 1,50,000
Royalty received 6,00,000
but cannot exceed amount brought in India within 6
months from the end of the previous year i.e.
4,00,000
Allowed 4,00,000
Less: Expenses (2,50,000)
Deduction allowed 1,50,000

NOV – 2020
Mr. X received royalty of ₹2,88,000 from abroad for a book authored by him which is a work of artistic
nature. The rate of royalty is 18% of value of books and expenditure made for earning this royalty was
₹40,000. The amount remitted to India till 30th September, 2025 is ₹2,30,000. Compute deduction u/s
80QQB. Also compute tax liability if he has income under the head House Property ₹7,00,000. (Optional
Regime)
Solution: Deduction allowed u/s 80QQB
Deductions u/s 80QQB 1,90,000
15% of value of books 2,40,000
(2,88,000/18% x 15%)
but cannot exceed amount received within 6 months
from the end of the previous year i.e. 2,30,000
Allowed 2,30,000
Less: Expenses (40,000)
Deduction allowed 1,90,000
Computation of Total Income & Tax Liability
Income under the head house property 7,00,000
Income under the head other sources
Royalty Received 2,88,000
Less: Expenses (40,000)
Income under the head other sources 2,48,000
Gross Total Income 9,48,000
Less: Deduction u/s 80QQB (1,90,000)
Total Income 7,58,000
 Deduction From Gross Total Income 250

Computation of Tax Liability

Tax on 7,58,000 at slab rate 64,100
Add: HEC @ 4% 2,564
Tax Liability 66,664
Rounded off u/s 288B 66,660
NOV – 2001 (3 Marks)
Mr. X, a writer and a professional furnishes the following particulars for the previous year ended
31.03.2025: ₹
(a) Royalty on books (eligible for deduction u/s 80QQB) 42,000
(b) Expenditure on books 8,000
(c) Income from profession 3,80,000
(d) Deposited in public provident fund (15.03.2025) 70,000
You are required to compute
(i) Taxable income,
(ii) Tax payable for assessment year 2025-26. (Optional Regime)
Answer:
Computation of total income and tax payable by Mr. X ₹
Income from business/profession
Income from profession 3,80,000
Income under the head Business/Profession 3,80,000
Income under the head Other Sources
Royalty on books 42,000
Less: Expenses (8,000)
Income under the head Other Sources 34,000
Gross Total Income 4,14,000
Less: Deduction u/s 80C (70,000)
Less: Deduction u/s 80QQB (34,000)
Total Income 3,10,000

Computation of Tax Payable

Tax on ₹3,10,000 at slab rate 3,000
Less: Rebate u/s 87A (3,000)
Tax Payable Nil

Section 80RRB
1. Deduction is allowed only to resident individual.
2. His gross total income should include royalty in respect of a patent.
3. Deduction allowed shall be equal to the amount of royalty or ₹3,00,000 whichever is less.
4. In respect of any income earned from any source outside India, so much of the income, shall be taken
into account for the purpose of this section as is brought into India by the assessee in convertible foreign
exchange within a period of six months from the end of the previous year in which such income is earned
or within such further period as the competent authority may allow in this behalf.
5. The Assessee should retain information with him in form no. 10CCE and it should be produced when
demanded by the department.

Section 80TTA
1. Deduction is allowed only to an individual or HUF. (Other than those covered in 80TTB)
2. Deduction is allowed is the assessee has interest income on saving bank accounts with any bank/ Post
Office.
3. No deduction is allowed from interest on time deposit/ fixed deposit.
4. Deduction is allowed to the extent of ₹10,000.
E.g. Mr. X has interest income ₹8,000 from savings bank account with State Bank and interest income of
₹13,000 from fixed deposit with State Bank, deduction allowed under section 80TTA shall be ₹8,000.
 Deduction From Gross Total Income 251

As per section 10(15), Interest on Post Office Savings Bank Account to the extent of ₹3,500 per year shall
be exempt from income tax and in the case of joint account, exemption shall be allowed upto ₹7,000 per
year.
Example: Mr. X has Income under the head salary ₹7,00,000 and interest on post office savings bank
account ₹7,000 and interest on savings bank account with State Bank ₹9,000, in this case tax liability of Mr.
X shall be (Optional Regime)
₹
Income under the head Salary 7,00,000
Income under the head Other sources
Interest on Post office Saving Bank Account 7,000
Less: Exemption u/s 10(15) (3,500) 3,500
Interest on Saving Bank Account with SBI 9,000
Income under the head other sources 12,500

Gross Total Income 7,12,500

Less: Deduction u/s 80TTA (10,000)
Total Income 7,02,500
Computation of Tax Liability
Tax on ₹ 7,02,500 at slab rate 53,000
Add: HEC @ 4% 2,120
Tax Liability 55,120

Section 80TTB
Deduction shall be allowed only to a senior citizen with regard to interest income from banks/cooperative
bank/ cooperative society/post office and further it may be in connection with time deposits/saving bank
account or any other deposits.
Deduction shall be allowed upto such income but maximum ₹ 50,000.
(Deduction 80TTA not allowed)

Illustration 21: Mr. X, aged 62 years, earned professional income (computed) of ₹5,50,000 during the year
ended 31.03.2025. He has earned interest of ₹14,500 on the saving bank account with State Bank of India
during the year. Compute the total income of Mr. X for the assessment year 2025-26 from the following
particulars:
(i) Life insurance premium paid to Birla Sun life Insurance in cash amounting to ₹25,000 for insurance of
life of his dependent parents. The insurance policy was taken on 15.07.2024 and the sum assured on life of
his dependent parents is ₹ 1,25,000.
(ii) Life insurance premium of ₹ 25,000 paid for the insurance of life of his major son who is not dependent
on him. The sum assured on life of his son is ₹1,75,000 and the life insurance policy was taken on
18.04.2011.
(iii) Life insurance premium paid by cheque of ₹ 22,500 for insurance of his life. The insurance policy was
taken on 08.09.2024 and the sum assured is ₹ 2,00,000.
(iv) Premium of ₹ 16,000 paid by cheque for health insurance of self and his wife (₹8,000 for self and
₹8,000 for spouse).
(v) ₹1,500 paid in cash for his health check-up and ₹ 4,500 paid in cheque for health checkup for his parents.
(vi) Paid interest of ₹ 6,500 on loan taken from bank for MBA course pursued by his daughter.
(vii) A sum of ₹ 15,000 donated in cash to an institution approved for purpose of section 80G for promoting
family planning.
(viii) Contribution ₹ 10,500 made in cheque to an electoral trust.
Solution: Computation of total income of Mr. X for the Assessment Year 2025-26
Particulars ₹
Professional Income (computed) 5,50,000
Interest on saving bank deposit 14,500
Gross Total Income 5,64,500
 Deduction From Gross Total Income 252

Less: Deduction under Chapter VIA

Under section 80C
Life insurance premium paid for life insurance of:
- major son (25,000)
- self ₹ 22,500 restricted to 10% of ₹ 2,00,000 (20,000)
Under section 80D
Premium paid for health insurance of self and wife by cheque (16,000)
Payment made for health check-up: - Self (1,500)
Parents ₹ 4,500 (but maximum amount PHC is ₹5,000) (3,500)
Under section 80E
For payment of interest on loan taken from bank for MBA course of his daughter (6,500)
Under section 80GGC
Contribution to electoral trust (10,500)
Under section 80TTB
Interest on savings bank account (14,500)
Total Income 4,67,000

Illustration 22: For the Assessment year 2025-26, the Gross Total Income of Mr. Chaturvedi, a resident in
India, was ₹8,18,240 which includes long-term capital gain of ₹2,45,000 taxable under section 112 and
Short-term capital gain of ₹58,000. The Gross Total Income also includes interest income of ₹12,000 from
savings bank deposits with banks and ₹40,000 interest on fixed deposits with banks. Mr. Chaturvedi has
invested in PPF ₹1,20,000 and also paid a medical insurance premium ₹51,000. Mr. Chaturvedi also
contributed ₹50,000 to Public Charitable Trust eligible for deduction under section 80G by way of an
account payee cheque. Compute the total income and tax thereon of Mr. Chaturvedi, who is 70 years old as
on 31.3.2025. (Optional Regime)
Solution: Computation of total income and tax payable by Mr. Chaturvedi for
the A.Y. 2025-26
Particulars ₹ ₹
Gross total income including capital gain 8,18,240
Less: Long term capital gain u/s 112 (2,45,000)
5,73,240
Less: Deductions under Chapter VI-A:
Under section 80C in respect of PPF deposit 1,20,000 1,20,000
Under section 80D (it is assumed that premium of ₹51,000 is paid by 50,000
otherwise than by cash. The deduction would be restricted to ₹50,000, since
Mr. Chaturvedi is a senior citizen)
Under section 80G (See Notes 1 & 2 below) 17,662
Under section 80TTB (See Note 3 below) 50,000 (2,37,662)
Total income (excluding long term capital gains) 3,35,578
Total income (including long term capital gains) 5,80,578
Total income rounded off u/s 288A 5,80,580
Computation of Tax Liability ₹
LTCG ₹2,45,000 @ 12.5% u/s 112 30,625.00
Balance total income ₹3,35,580 at slab rate 1,779.00
32,404.00
Add: Health and Education cess @4% 1,296.16
Total tax liability (Rounded off u/s 288B) 33,700.00

Notes:
1. Computation of deduction under section 80G:
Particulars ₹
Gross total income (excluding long term capital gains) 5,73,240
Less : Deduction under section 80C, 80D & 80TTB 2,20,000
 Deduction From Gross Total Income 253

Adjusted Gross Total Income 3,53,240

10% of the above 35,324
Contribution made 50,000
Lower of the two eligible for deduction under section 80G 35,324
Deduction under section 80G – 50% of ₹35,324 17,662

2. Deduction under section 80G is allowed only if amount is paid by any mode other than cash, in case of
amount exceeding ₹2,000. Therefore, the contribution made to public charitable trust is eligible for
deduction since it is made by way of an account payee cheque.
3. Deduction of upto ₹50,000 under section 80TTB is allowed to a senior citizen if gross total income
includes interest income on bank deposits, both fixed deposits and savings account.

Illustration 23: Mr. Rajmohan whose gross total income was ₹6,40,000 for the financial year 2024–25,
furnishes you the following information:
(i) Stamp duty paid on acquisition of residential house (self-occupied) - ₹50,000.
(ii) Five year post office time deposit - ₹20,000.
(iii) Donation to a recognized charitable trust ₹25,000 which is eligible for deduction under section 80G at
the applicable rate.
(iv) Interest on loan taken for higher education of spouse paid during the year - ₹10,000.
Compute the total income of Mr. Rajmohan for the Assessment year 2025-26.
Answer
Computation of total income of Mr. Rajmohan for the A.Y.2025-26 ₹
Gross Total Income 6,40,000
Less: Deduction under Chapter VI-A
Under section 80C
Stamp duty paid on acquisition of residential house (50,000)
Five year time deposit with Post Office (20,000)
Under section 80E
Interest on loan taken for higher education of spouse, being a relative. (10,000)
Under section 80G (See Note below)
Donation to recognized charitable trust
(50% of ₹25,000) (12,500)
Total Income 5,47,500
Note: In case of deduction under section 80G in respect of donation to a charitable trust, the net qualifying
amount has to be restricted to 10% of adjusted total income, i.e., gross total income less deductions under
Chapter VI-A except 80G. The adjusted total income is, therefore, ₹5,60,000 (i.e. 6,40,000 – ₹80,000), 10%
of which is ₹56,000, which is higher than the actual donation of ₹25,000. Therefore, the deduction under
section 80G would be ₹12,500, being 50% of the actual donation of ₹25,000.
MAY – 2019 (OLD COURSE) 4 Marks
(i) Prakash is retired Government Officer aged 65 years, resides in Cochin, derived following income:
₹
Pension 6,60,000
Interest from bank on fixed deposits (Gross) 55,000
Compute the total income of Mr. Prakash for the assessment year 2025-26 from the following
particulars:
(i) Life insurance premium paid by cheque ₹22,500 for insurance of his life. The insurance policy was
taken on 08-09-2021 and the sum assured is ₹2,00,000.
(ii) Premium of ₹ 26,000 paid by cheque for health insurance of self.
(iii) ₹ 1,500 paid in cash and ₹ 4,500 paid through cheque for preventive health check-up of his parents,
who are senior citizens.
(iv) Paid interest ₹ 6,500 on loan taken from bank for MBA course pursued by his daughter.
 Deduction From Gross Total Income 254

(v) A sum of ₹ 15,000 donated in cash to an institution approved for purpose of section 80G for
promoting family planning.
Solution:
Computation of Total Income for the A.Y. 2025-26
Income under the head salary ₹
Pension 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
Income under the head other sources
Interest income on Fixed Deposits 55,000
Income under the head other sources 55,000
Gross Total Income 6,65,000
Less: Deduction u/s 80C- LIC (22,500 limited to 10% of 2,00,000) (20,000)
Less: Deduction u/s 80D- Health Insurance (26,000)
Less: Deduction u/s 80D- PHC of parents (6,000 limited to 5,000) (5,000)
Less: Deduction u/s 80E Interest paid on higher studies (6,500)
Less: Deduction u/s 80TTB - Interest on FD (50,000)
Total Income 5,57,500
Note:
1. As per section 80D, Maximum deduction of PHC can be allowed is 5,000 whether paid in cash or
by cheque.
2. As per section 80G, Deduction of Donation is not allowed if the payment is made in cash in
excess of 2,000.
3. As per section 80TTB, Deduction shall be allowed in case of senior citizen receiving interest
income from saving account or from FD. Maximum deduction can be 50,000.

Section 10AA
Units established in Special Economic Zone
1. Deduction shall be allowed to all the assessees, may be individual, firm, company etc. provided the
assessee has its unit in Special Economic Zone and it is engaged in manufacturing or in providing services
including computer software
2. Quantum of deduction:
Deduction shall be allowed to the units in the Special Economic Zone for a continuous period of 15 years in
the manner given below:
For first 5 Years 100% of export profits
For next 5 Years 50% of export profits
For next 5 Years 50% of export profit provided such profits have been credited to the Special
Economic Zone Re-investment Reserve Account.
3. The amount credited to the Special Economic Zone Reinvestment Reserve Account should be utilised for
acquiring a new plant and machinery within a period of 3 years. The period of 3 years shall be determined
from the end of the previous year in which the reserve was created e.g. If amount has been transferred in
reserve account in the previous year 2024-25, amount should be utilized for purchasing plant and machinery
upto 31.03.2028.
If the amount credited to the Special Economic Zone Reinvestment Reserve Account is not utilised within 3
years, it will be taxable in the 4th year. Till the acquisition of plant and machinery amount will be utilized
for the purpose of business/profession but it should not be used for distribution as dividends or for
remittance out of India or for creation of asset out of India. After the assessee has purchased plant and
machinery, information should be retained in form no.56FF
If the amount is misutilised within the period of 3 years, it will be taxable in the year in which it was
misutilised.
 Deduction From Gross Total Income 255

4. Export profits = Profits of Business x Export Turnover

Total Turnover
5. Export turnover means the consideration in respect of export by the undertaking, being the Unit of articles
or things or services received in, or brought into, India by the assessee in convertible foreign exchange
within a period of 6 months from the end of the previous year or within the time allowed by the competent
authority, but does not include freight, telecommunication charges or insurance attributable to the delivery of
the articles or things outside India or expenses, if any, incurred in foreign exchange in rendering of services
(including computer software) outside India.
6. No deduction shall be allowed to an assessee who does not furnish the return of income within the time
allowed u/s 139(1).

MAY – 2019 (3 Marks)

Krishna furnishes the following particulars for the previous year 2023-24 and 2024-25 in respect of an
industrial undertaking established in “Special Economic Zone” during the financial year 2019-20.
2023-24 2024-25
Particulars (₹) (₹)
Total sales 60,00,000 85,00,000
Export sales 48,00,000 55,00,000
Domestic sales 12,00,000 30,00,000
Money received in or brought to India in convertible foreign exchange up to 43,20,000 40,00,000
30-09-2024/30-09-2025.
Profit from the above undertaking 6,00,000 10,00,000
Total Sales of F.Y. of 2024-25 includes freight of ₹ 5 lacs for delivery of goods outside India. Compute the
amount of deduction available to Mr. Krishna under section 10AA.
Solution:
Computation of the amount of deduction available to Mr. Krishna u/s 10AA
Since A.Y. 2025-26 is the 6th assessment year from A.Y. 2019-20, relevant to the previous year 2019-20, in
which the SEZ unit began manufacturing of articles or things, it shall be eligible for deduction of 50% of the
profits derived from export of such articles or things, assuming all the other conditions specified in section
10AA are fulfilled.
= (Profit of Unit in SEZ /Total Turnover of Unit in SEZ X Export turnover of Unit in SEZ) X 50%
= (10,00,000 /80,00,000 X 35,00,000) X 50%
= 2,18,750

Working Note:
Export Turnover
Sale proceeds received in India 40,00,000
Less: Freight not includible in export turnover (5,00,000)
35,00,000

Total turnover 85,00,000

Less: Freight not includible [Since freight has been excluded from export
turnover, the same has to be excluded from total turnover also]. (5,00,000)
80,00,000

NOV – 2018 (NEW COURSE) 6 Marks

Mrs. Vibha Gupta, a resident individual is running a SEZ unit, as well as a unit in Domestic Tariff Area
(DTA). She furnishes the following details relating to the year ended 31-3-2025, pertaining to these two
units (₹ in lakhs)
 Deduction From Gross Total Income 256

DTA Unit SEZ Unit

Export turnover 100 1000
Total turnover 400 1100
Net profit 50 220

Compute the deduction available u/s 10AA:

(i) When the SEZ unit had been set up on 12-3-2017, and
(ii) When the SEZ unit had been set up on 12-8-2022
Solution:
(i) 50% of the profit derived from export of articles or things or services is eligible for deduction under
section 10AA, F.Y.2024-25 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 Export Turnover of Unit in SEZ
Total Turnover of Unit in SEZ
= 50% of ₹ 220 lakhs x 1000 Lakhs
1100 Lakhs
= 50% x ₹200 lakhs
= ₹100 lakhs

(ii) 100% of the profit derived from export of articles or things or services is eligible for deduction under
section 10AA, F.Y.2024-25 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
Total Turnover of Unit in SEZ
= 100% of ₹ 220 lakhs x 1000 Lakhs
1100 Lakhs
= 100% x ₹200 lakhs
= ₹200 lakhs

MAY – 2016 (4 Marks)

Mr. Suresh has set up an undertaking in SEZ (Unit A) and another undertaking in DTA (Unit B) in the
financial year 2019-20. In the Previous year 2024-25, total turnover of the unit A is ₹180 lacs and total
turnover of Unit B is ₹120 lacs. Export Turnover of Unit A for the year is ₹150 lacs and Profit for the unit A
is ₹60 lacs.
Calculate the deduction available, if any, to Mr. Suresh under section 10AA of the Income-tax Act, 1961, for
the Assessment Year 2025-26, If the manufacturing started in Unit A in the Financial year 2019-20.
Solution:
As per Section 10AA,in case of a unit in SEZ, Deduction shall be allowed to the extent of 100% of Export
Profits in the first five years and 50% of export profits in the next five years. In the given case Unit was
setup in Financial year 2019-20 hence it is sixth year in Previous year 2024-25 and Deduction shall be
allowed to the extent of 50% of export profit and shall be as given below:
= Profit of the business of Unit in SEZ x Export Turnover of Unit in SEZ
Total Turnover of Unit in SEZ
= ₹60 lacs x 150 Lacs
180 Lacs
= ₹50lacs
Deduction allowed = 50% of ₹50 lacs
= ₹25lacs
Taxable amount of Unit A (₹60 lacs – ₹25 lacs) = ₹35 lacs
 Deduction From Gross Total Income 257

MAY – 2015 (4 Marks)

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 2023-24.
Particulars Rudra Ltd. Unit in DTA
(₹) (₹)
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
2025-26, in the following situations:
(i) If both the units were set up and start manufacturing from 22.05.2018.
(ii) If both the units were set up and start manufacturing from 14.05.2022.
Solution:
(i) 50% of the profit derived from export of articles or things or services is eligible for deduction under
section 10AA, F.Y.2024-25 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 Export Turnover of Unit in SEZ
Total Turnover of Unit in SEZ
= 50% of ₹ 60 lakhs x 300 Lakhs
400 Lakhs
= 50% x ₹45 lakhs
= ₹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.2024-25 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
Total Turnover of Unit in SEZ
= 100% of ₹60 lakhs x 300 Lakhs
400 Lakhs
= 100% x ₹45 lakhs
= ₹45 lakhs

NOV – 2013 (4 Marks)

Mr. X is running two industrial undertakings, one in a SEZ (Unit A) and another in a Domestic Tariff Area
(Unit B). The brief details for the year ended 31.03.2025 are as under:

Particulars Amount (₹ in lacs)

Unit A Unit B
Domestic turnover 10 100
Export turnover 120 Nil
Gross Profit 20 10
Less: Expenses and depreciation (07) (05)
Profits derived from the units 13 05
The brought forward business loss pertaining to assessment year 2022-23 for Unit B is ₹3.2 lacs. Briefly
compute the business income of the assessee.
Answer.
Computation of business income of Mr. X
Particulars ₹ (in lacs)
Profit derived from Units A (20 lacs -7 lacs) 13.0
 Deduction From Gross Total Income 258

13 × 120 (12.0)
Less: Deduction under section 10AA ( )
130
Income from unit A 1.0
Profit derived from Units B (₹ 10 lacs -₹ 5 lacs) 05.0
Less: Set-off of brought forward business loss as per section 72 (3.2)
Income from unit B 1.8
Total Income from unit A & B (1+1.8) 2.8
Note - 100% of the profit derived from export of articles or things or services is eligible for deduction under
section 10AA, assuming that F.Y.2024-25 falls within the first five year period commencing from the year
of manufacture or production of articles or things or provision of services by Unit A in SEZ.

MAY – 2011 (5 Marks)

ABC Ltd. is running two industrial undertakings, one in a SEZ (Unit S) and another in a normal area (Unit
N). The brief summarized details for the year ended 31.03.2025 are as under:
(₹ in lacs)
S N
Domestic turnover 10 100
Export turnover 120 Nil
Gross profit 20 10
Less: Expenses and depreciation (7) (6)
Profits derived from the unit 13 4
The brought forward business loss pertaining to Unit N is ₹2 lacs. Briefly compute the business income of
the assessee.

Answer. Computation of business income of ABC Ltd.

Particulars ₹ in lacs
Total profit derived from Units S & N (₹13 lacs + ₹4 lacs) 17
13 × 120 (12)
Less: Deduction under section 10AA ( ) 5
130
Less: Brought forward business loss (2)
3
Note – 100% of the profit derived from export of articles or things or from services is eligible for deduction
under section 10AA, assuming that F.Y. 2024-25 falls within 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.
MAY – 2011 (4 Marks)
Y Co. Ltd. Furnishes you the following information for the year ended 31.03.2025: ₹
Total turnover of Unit A located in Special Economic Zone 100 lakhs
Profit of the business of Unit A 30 lakhs
Export turnover of Unit A 50 lakhs
Total turnover of Unit B located in Domestic Tariff Area (DTA) 200 lakhs
Profit of the business of Unit B 20 lakhs
Compute deduction under section 10AA for the assessment year 2025-26.
Answer.
100% of the profit derived from export of articles or things or services is eligible for deduction under section
10AA, assuming that F.Y.2024-25 falls within 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 A x Export Turnover of Unit A
Total Turnover of Unit A
= ₹ 30 lakhs x 50
100
= ₹15 lakhs.
 Deduction From Gross Total Income 259

EXAMINATION QUESTIONS
NOV – 2023
Question 4(b) (3 Marks)
Mr. Suraj, an Indian Citizen, gives the following details of his income and expenses during the year 2024-
25: ₹
Income from profession 11,70,000
Winnings from lottery 70,000
Contribution to ULIP 1971 plan for spouse 70,000
Cheque donation to National Defence Fund 60,000
Cheque donation to Government for promoting family planning 35,000
Cheque donation to approved public charitable institute 1,20,000
Compute the deduction under section 80G allowable to him for the assessment year 2025-26.
Answer:
Computation of deduction available to Mr. Suraj under section 80G for A.Y. 2025-26
Particulars Amount (₹)
(i) Donation to National Defence Fund by cheque [100% of ₹ 60,000 is allowed as 60,000
deduction without any qualifying limit]
(ii) Donation to Government for promoting family planning by cheque - 100% of 35,000
₹35,000, subject to qualifying limit of ₹ 1,17,000 [See Note below] is allowed as
deduction
(iii) Donation to approved public charitable institute by cheque is to be restricted to 41,000
lower of
- ₹ 60,000 (50% of ₹ 1,20,000) or
- ₹ 41,000 [50% of qualifying limit after adjusting donation for family planning
i.e., ₹ 82,000 (₹ 1,17,000 – ₹ 35,000)]
Deduction under section 80G 1,36,000
Note - Qualifying limit is ₹ 1,17,000 (10% of ₹ 11,70,000, being adjusted total income)
Adjusted total income = ₹ 11,70,000 (₹ 11,70,000, being income from profession + ₹ 70,000, being
winnings from lottery – ₹ 70,000, being deduction under section 80C)

MAY – 2023
Question 4(b) (4 Marks)
Mr. Ray, a resident individual, aged 37 years gives the following information with respect to various loans
taken by him from scheduled banks for various purposes-
(i) A housing loan of ₹ 36,00,000/- taken on 15th March, 2024 for the purchase of a house to be used for
self-residence at a cost of ₹ 47,00,000/-. The stamp duty value of the house was ₹ 42,00,000/- at the
time of purchase. Amount of re-payment of loan during P.Y.2024-25 was:
(A) towards principal - ₹ 1,25,000/-
(B) towards interest - ₹ 3,65,000/-
This is the first and only residential house owned by Mr. Ray.
(ii) A vehicle loan of ₹ 16,00,000/- taken on 31st October, 2023 for the purchase of electric vehicle for
personal use. Amount of re-payment of loan during P.Y.2024-25 was:
(A) towards principal - ₹ 75,000/-
(B) towards interest - ₹ 1,90,000/-
 Deduction From Gross Total Income 260

Besides these loans, he has also paid a sum of ₹ 15,000 to a political party as contribution. The entire
amount was paid in cash.
You are required to compute the amount of deduction(s) available to Mr. Ray under various provisions of
Income-tax Act for A.Y.2025-26 so that he gets the maximum benefits assuming that he does not opt to pay
tax under section 115BAC.
Answer:
Computation of amount of deductions available to Mr. Ray for A.Y. 2025-26
(i) Deduction allowable while computing income under the head “Income from house property”
Deduction under section 24(b) for interest on loan of
₹ 3,65,000 in respect of self-occupied property restricted to 2,00,000
(ii) Deduction under Chapter VI-A from Gross Total Income
Deduction under section 80C
For repayment of loan of ₹ 1,25,000 to bank 1,25,000
Deduction under section 80GGC
Contribution of ₹ 15,000 to political party not allowable since the sum is paid in cash Nil
Deduction under Chapter VI-A from Gross Total Income 3,25,000
 Agricultural Income 261

AGRICULTURAL INCOME
PARTICULARS SECTIONS
Definition of agricultural income 2(1A)
• Rent or revenue derived from agricultural land 2(1A)(a)
• Income derived from agricultural land by agricultural operations 2(1A)(b)
• Income of a farm building 2(1A)(c)
Exemption of agricultural income 10(1)
Income which is partially agricultural and partially from business Rule 7
Income from growing and manufacturing of rubber Rule 7A
Income from growing and manufacturing of coffee Rule 7B
Income from growing and manufacturing of tea Rule 8

Question 1. [V. Imp.] Explain meaning of agricultural income.

Answer: Meaning of Agricultural Income Section 2(1A)
The term Agricultural Income is defined in three parts under Income Tax Act under section 2(1A) (a), 2(1A)
(b), 2(1A) (c) as given below:
Income from leasing out of agricultural land Section 2(1A) (a)
If any person has given any agricultural land on rent, rent so received shall be considered to be agricultural
income and shall be exempt from income tax e.g. Mr. X has ten acres of agricultural land in India which is
given on lease at a rent of ₹ 2,00,000. It will be considered to be agricultural income.
If rent is received in kind, still it will be considered to be agricultural income e.g. Mr. X has leased out ten
acres of agricultural land and has received wheat crop and it was sold for ₹2,00,000. In this case, ₹2,00,000
shall be considered to be his agricultural income.
The rent can either be received by the owner of the land or by the original tenant from the sub-tenant. It
implies that ownership of land is not necessary. Thus, the rent received by the original tenant from sub-
tenant would also be agricultural income.

If rent to be received has not been received in time and accordingly interest has been received, such interest
shall not be considered to be agricultural income, rather it is his income under the head other sources.
If the agricultural land is situated outside India, income from agricultural land is taxable as income from
other sources.
Rent received for letting out agricultural land for a movie shooting shall not be considered to be agricultural
income.

Income from Agricultural Operations Section 2(1A)(b)

If any person is engaged in agricultural activities, income derived from such agricultural operations shall be
considered to be agricultural income. If any company is doing agriculture, its income shall also be exempt.
Dividends received by a shareholder from the company having agricultural income
If any shareholder has received dividend from a company having income from agricultural activities, such
income shall not be considered to be agricultural income rather it will be considered to be dividend income.
E.g. ABC Ltd. an Indian company has agricultural income of ₹500 lakhs and company has distributed
dividend of ₹50 lakh and one of the shareholder Mr. X has received dividend of ₹8 lakh, in this case tax
treatment shall be: Tax liability of ABC Ltd. Shall be nil as per section 10(1) and dividend received by Mr.
X shall be taxable.
If any foreign company is doing agriculture, its agricultural income in India shall also be exempt and if the
company has paid dividend, it will be taxable in the hands of the shareholder e.g. If in the above case it is a
foreign company, its tax liability shall be nil and tax liability of shareholder shall be as given below:
Tax on ₹8,00,000 at slab rate 30,000
Add: HEC @ 4% 1,200
Tax Liability 31,200
 Agricultural Income 262

Illustration 1: ABC Ltd. an Indian company has agricultural income ₹350 lakhs and company has
distributed dividend of ₹60 lakhs to its shareholders and one of the shareholder Mr. X has received dividend
of ₹7,00,000. Compute tax liability of the company and tax liability of shareholder.
Solution:
Tax liability of ABC Ltd. Shall be nil as per section 10(1),
Tax liability of shareholder shall be as given below:
Tax on ₹7,00,000 at slab rate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil
(b) Presume it is foreign company.
Solution:
It is a foreign company, its tax liability shall be nil and tax liability of shareholder shall be as given below:
Tax on ₹7,00,000 at slab rate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil
(c) Presume it is Indian company and income is from business and not from agriculture.
Solution:
Tax liability of the company shall be as given below:
Profit before tax 350,00,000.00
Income tax on ₹350,00,000 @ 30% 105,00,000.00
Add: Surcharge @ 7% 7,35,000.00
Add: HEC @ 4% 4,49,400.00
Income tax liability 116,84,400.00
Tax liability of the shareholder shall be as given below:
Tax on ₹7,00,000 at slab rate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil
(d) Presume it is foreign company and income is from business and not from agriculture
Solution:
Tax liability of the company shall be as given below:
Profit before tax 350,00,000.00
Income tax on ₹350,00,000 @ 40% 140,00,000.00
Add: Surcharge @ 2% 2,80,000.00
Add: HEC @ 4% 5,71,200.00
Income tax liability 148,51,200.00
Tax liability of the shareholder shall be as given below:
Dividend from foreign company 7,00,000
Tax on ₹7,00,000 at slab rate 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil
Payments received by a partner from the partnership firm
If any partnership firm has agricultural income, it will be exempt from income tax and if partnership firm
has paid any salary or interest to the partners, it will be considered to be agricultural income to the partners
as decided in R.M. Chidambaram Pillai v CIT (SC)
If any partner has received any share out of profits of partnership firm, it will be exempt under section
10(2A) and it do not matter whether partnership firm has agricultural income or non-agricultural income.
If partnership firm has non-agricultural income, salary or interest received by a partner from the partnership
firm shall be considered to be their income under the head business/profession as per section 28 and shall be
taxable in the hands of partner e.g. XY partnership firm has two partners Mr. X and Mr. Y and profit sharing
ratio is 1:1 and the firm has agricultural income ₹300 lakhs without debiting salary or interest to the
partners. The firm has paid salary of ₹8 lakh to each of the partner and interest of ₹4 lakh to each of the
partner. Mr. X has income under the head house property ₹6 lakh and Mr. Y has income under the head
house property ₹7 lakh. Compute tax liability of the firm and also that of partners.
 Agricultural Income 263

Solution:
Since partnership firm has agricultural income, it is exempt from income tax under section 10(1).
Tax liability of Mr. X shall be
Income under the head House Property 6,00,000
Agricultural income (₹8,00,000 + ₹4,00,000) 12,00,000
Partial integration
Step 1. ₹6,00,000 + ₹12,00,000 = ₹18,00,000 at slab rate 2,30,000
Step 2. ₹3,00,000 + ₹12,00,000 = ₹15,00,000 at slab rate (1,40,000)
Step 3. (₹2,30,000 – ₹1,40,000) 90,000
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 65,000
Add: HEC @ 4% 2,600
Tax Liability 67,600

Tax liability of Mr. Y shall be

Income under the head House Property 7,00,000
Agricultural income (8,00,000 + 4,00,000) 12,00,000
Partial integration
7,00,000 + 12,00,000 = 19,00,000 at slab rate 2,60,000
3,00,000 + 12,00,000 = 15,00,000 at slab rate (1,40,000)
(2,70,000 – 1,50,000) 1,20,000
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 95,000
Add: HEC @ 4% 3,800
Tax Liability 98,800
Share received out of profits is exempt under section 10(2A).
Presume in the above case partnership firm has income from business and not agricultural income.
Solution:
Tax Liability of partnership firm shall be as given below:
Profits before debiting salary and interest 300,00,000
Less: Salary and Interest 24,00,000
Income under the head Business/Profession 276,00,000
Gross Total Income/Total Income 276,00,000
Tax Liability 276,00,000 x 30% 82,80,000
Add: Surcharge @ 12% 9,93,600
Tax before health & education cess 92,73,600
Add: HEC @ 4% 3,70,944
Tax Liability 96,44,544
Rounded off u/s 288B 96,44,540
Tax Liability of Mr. X
Income under the head Business/Profession (salary + interest) 12,00,000
Income under the head House Property 6,00,000
Gross Total Income/Total Income 18,00,000
Tax on ₹18,00,000 at slab rate 2,30,000
Add: HEC @ 4% 9,200
Tax Liability 2,39,200
Tax Liability of Mr. Y
Income under the head Business/Profession (salary + interest) 12,00,000
Income under the head House Property 7,00,000
Gross Total Income/Total Income 19,00,000
Tax on ₹19,00,000 at slab rate 2,60,000
Add: HEC @ 4% 10,400
Tax Liability 2,70,400
 Agricultural Income 264

Meaning of Agriculture: The term agriculture and agricultural purposes has not been defined under Income
Tax Act, accordingly its meaning has been explained in Raja Benoy Kumar Sahas Roy v CIT (SC). If any
person has performed the following two operations, it will be called agriculture.
1. Basic Operations:
In order to constitute agriculture, there must be basic operations like ploughing of land, sowing of seeds,
planting and similar kind of operations on the land.
2. Subsequent Operations:
After carrying out basic operations, there must be subsequent operations like weeding, digging the soil
around the growth, watering of the plant at regular intervals, using pesticides and insecticides to
protect the crop and it will also include pruning, cutting, harvesting etc.
(Pruning means to trim (a tree, shrub, or bush) by cutting away dead or overgrown branches or stems,
especially to encourage growth.)
If there are basic and subsequent operations, it will be considered to be agricultural income even if what is
produced is not food grains, example:
(i) If a person is growing betel, coffee, tea, spices etc. through basic and subsequent operations, it will be
agricultural income.
(ii) If a person is growing commercial crops like cotton, flax, jute, indigo etc. through basic and
subsequent operations, it will be considered to be agricultural income.
(iii)If a person is growing trees like Sal, Seesam, Sangwan etc. for obtaining timber, it will be considered
to be agricultural income, provided there are basic and subsequent operations.
Income which is partially agricultural and partially from business Rule 7
If any person is engaged in growing as well as manufacturing activity, in such cases it will be presumed that
he has transferred his agricultural produce to his industrial undertaking at the market price and expenses on
agriculture shall be deducted from such amount and balance shall be agricultural income. While computing
income of business, such market price is allowed to be deducted as cost of raw material. E.g. Mr. X is
engaged in growing of sugarcane and also has a sugar factory. He has incurred expenses of ₹3,00,000 in
connection with growing of sugarcane crop. Entire sugarcane crop was transferred to the industrial unit
when market price of sugarcane was ₹ 10,00,000. In this case, agricultural income of Mr. X shall be ₹
7,00,000. While computing income of sugar factory, ₹ 10,00,000 shall be debited to profit and loss account
as the cost of raw material.
Example
Mr. X grows sugarcane and uses the same for the purpose of manufacturing sugar in his factory.
50% of sugarcane produce is sold for ₹10 lacs, and the cost of cultivation of such sugarcane is ₹3 lacs.
The cost of cultivation of the balance sugarcane (50%) is 3 lacs and the market value of the same is ₹10 lacs.
After incurring ₹1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was sold for ₹25
lacs.
Compute Mr. X’s business income and agricultural income. Compute his Tax Liability.
Solution:
Agricultural income = Actual sale of sugarcane + Market value of sugarcane transferred to the
manufacturing unit – Cost of cultivation
= [₹10 lacs + ₹10 lacs] – [₹3 lacs + ₹3 lacs]
= ₹20 lacs – ₹6 lacs
= ₹14 lacs
Business income = Sales – Market value of 50% of sugarcane produce – Manufacturing expenses
= ₹25 lacs – 10 lacs – 1.5 lacs
= ₹13.5 lacs
Computation of tax liability
Step 1: Tax on (₹14,00,000 + ₹ 13,50,000 = ₹ 27,50,000) 5,15,000
Step 2: Tax on (₹ 3,00,000 + ₹ 14,00,000) = ₹ 17,00,000) (2,00,000)
Step 3: ₹ 5,25,000 – ₹ 2,10,000 3,15,000
Tax before health & education cess 3,15,000
Add : HEC @ 4% 12,600
Tax Liability 3,27,600
 Agricultural Income 265

Computation of income in case of growing and manufacturing of Rubber Rule 7A

If any person is engaged in growing and manufacturing of rubber, income shall be computed combined for
agriculture as well as business and 35% of such income shall be business income and balance shall be
agricultural income e.g. If income from growing + manufacturing is ₹100 lakhs, income from business shall
be ₹35 lakhs and income from agriculture shall be ₹65 lakhs.
Computation of income from the growing and manufacturing of Coffee Rule 7B
If any person is engaged in growing and manufacturing of coffee, income shall be computed combined for
agriculture as well as business and 40% of such income shall be business income and balance shall be
agricultural income e.g. If income from growing + manufacturing is ₹100 lakhs, income from business shall
be ₹40 lakhs and income from agriculture shall be ₹60 lakhs.
If any person is engaged in growing and curing of coffee, 25% of such income shall be business income and
balance shall be agricultural income.
Computation of income in case of persons Growing and Manufacturing Tea Rule 8
If any person is engaged in growing and manufacturing of tea, income shall be computed combined for
agriculture as well as business and 40% of such income shall be business income and balance shall be
agricultural income e.g. If income from growing + manufacturing is ₹100 lakhs, income from business shall
be ₹40 lakhs and income from agriculture shall be ₹60 lakhs.

Marketing operations /Marketing process

Process ordinarily employed to render the produce fit to be taken to the market: Sometimes, to make
the agricultural produce a saleable commodity, it becomes necessary to perform some kind of process on the
produce. The income from the process employed to render the produce fit to be taken to the market would be
agricultural income.
However, it must be a process ordinarily employed by the cultivator or receiver of rent in kind and the
process must be applied to make the produce fit to be taken to the market.
The ordinary process employed to render the produce fit to be taken to market includes threshing,
winnowing, cleaning, drying, crushing etc.
For example, the process ordinarily employed by the cultivator to obtain the rice from paddy is to first
remove the hay from the basic grain, and thereafter to remove the chaff from the grain. The grain has to be
properly filtered to remove stones etc. and finally the rice has to be packed in gunny bags for sale in the
market.
After such process, the rice can be taken to the market for sale. This process of making the rice ready for the
market may involve manual operations or mechanical operations. All these operations constitute the process
ordinarily employed to make the product fit for the market.
Example: Threshing is done in case of wheat crop to render it fit for sale, similarly, tobacco leaves are dried
to make them fit for sale. In all such cases, it will continue to be agricultural income.

 Income derived from animal husbandry, fisheries, poultry farming, dairy farming etc. shall not
be considered to be agricultural income.
 Income derived from saplings or seedlings growing in a nursery shall be considered to be
agricultural income. (whether basic and subsequent operations have been carried out or not)
 Income from sale of agricultural land shall not be considered to be agricultural income rather
it will be considered to be capital gain.
Illustration 2: Mr. X, a resident, has provided the following particulars of his income for the P.Y.2024-25.
i. Income under the head salary ₹3,40,000
ii. Income under the head house property ₹3,00,000
iii. Agricultural income from a land in Jaipur ₹1,80,000
iv. Expenses incurred for earning agricultural income ₹1,20,000
Compute his tax liability.
Solution: Computation of total income and tax liability of Mr. X for the A.Y.2025-26
Particulars ₹
Income under the head salary 3,40,000
Income under the head house property 3,00,000
 Agricultural Income 266

Gross Total Income 6,40,000

Less: Deductions under Chapter VI-A Nil
Total Income 6,40,000
Agricultural income (1,80,000 – 1,20,000) = 60,000
Computation of tax liability
Step 1: Tax on (₹6,40,000 + ₹ 60,000 = ₹ 7,00,000) 20,000
Step 2: Tax on (₹ 3,00,000 + ₹ 60,000) = ₹ 3,60,000) (3,000)
Step 3: ₹ 20,000 – ₹ 3,000 17,000
Tax before health & education cess 17,000
Less: Rebate u/s 87A (17,000)
Tax Liability Nil

Illustration 3: Mr. X grows sugarcane and uses the same for the purpose of manufacturing sugar in his
factory. 30% of sugarcane produce is sold for ₹ 10 lacs, and the cost of cultivation of such sugarcane is ₹ 5
lacs. The cost of cultivation of the balance sugarcane (70%) is ₹14 lacs and the market value of the same is
₹22 lacs. After incurring ₹ 1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was
sold for ₹ 25 lacs. Compute Mr. X’s business income and agricultural income.
Solution:
Income from sale of sugarcane gives rise to agricultural income and from sale of sugar gives rise to business
income.
Business income = Sales – Market value of 70% of sugarcane produce – Manufacturing expenses
= ₹25 lacs – ₹22 lacs - ₹1.5 lacs = ₹1.5 lacs.
Agricultural income = Market value of sugarcane produce – Cost of cultivation
= [₹10 lacs + ₹22 lacs] – [₹5 lacs + ₹14 lacs]
= ₹32 lacs – ₹19 lacs
= ₹13 lacs.
Illustration 4: Mr. X is engaged in growing and manufacturing of rubber. These are then sold in the market
for ₹30 lacs. The cost of growing rubber plants is ₹10 lacs and that of manufacturing rubber is ₹8 lacs.
Compute his total income.
Solution:
The total income of Mr. X comprises of agricultural income and business income.
Total profits from the sale of rubber = ₹30 lacs – ₹10 lacs – ₹8 lacs = ₹12 lacs.
Agricultural income = 65% of ₹12 lacs. = ₹7.8 lacs
Business income = 35% of ₹12 lacs. = ₹4.2 lacs

Illustration 5: Mr. X has estates in rubber, tea and coffee. He derives income from them. He has a nursery
wherein he grows and sells the plants. For the previous year ending 31.03.2025, he furnishes the following
particulars of his income from estates and sale of plants. You are requested to compute the taxable income
and tax liability for the assessment year 2025-26: ₹
(i) Growing and manufacturing of rubber 5,00,000
(ii) Sale of coffee grown and cured 3,50,000
(iii) Growing and manufacturing of tea 7,00,000
(iv) Sale of plants from nursery 1,00,000
He has long term capital gain on the sale of agricultural land in Delhi ₹3,13,500. He has received rent of
₹9,000 p.m. by letting out one farm house near Delhi and he has incurred ₹20,000 on the repairs of the farm
house. He has not paid municipal taxes for the last ten years in connection with farm house and MCD has
issued him a notice for selling of farm house, hence he has paid municipal tax of ₹90,000.
Solution:
Agricultural Income Business Income
(a) Income from growing and manufacturing of Rubber {Rule 7A}
[Agricultural income 65% and business income 35%] 3,25,000 1,75,000
(b) Income from Coffee grown and cured {Rule 7B}
[Agricultural income 75% and business income 25%] 2,62,500 87,500
 Agricultural Income 267

(c) Income from growing and manufacturing of Tea {Rule 8}

[Agricultural income 60% and business income 40%] 4,20,000 2,80,000
(d) Income from growing and selling of plants 1,00,000 ----------
Total 11,07,500 5,42,500
Computation of Income under the head House Property ₹
Gross Annual Value (9,000 x 12) 1,08,000.00
Less: Municipal Taxes (90,000.00)
Net Annual Value 18,000.00
Less: 30% of NAV u/s 24(a) 5,400.00
Less: Interest on capital borrowed u/s 24(b) Nil
Income under the head House Property 12,600.00
Long term capital gains 3,13,500.00
Income under the head Business/Profession 5,42,500.00
Gross Total Income 8,68,600.00
Less: Deduction under Chapter VI-A Nil
Total Income 8,68,600.00
Computation of Tax Liability
Tax on long term capital gain ₹3,13,500 @ 12.5% u/s 112 39,187.50
Normal income ₹5,55,100
Step 1. Tax on (5,55,100 + 11,07,500) 1,88,780.00
Step 2. Tax on (3,00,000 + 11,07,500) (1,21,500.00)
Step 3. Tax on Normal Income (1,98,780 – 1,31,500) 67,280.00
Tax before health & education cess 1,06,467.50
Add: HEC @ 4% 4,258.70
Tax Liability 1,10,726.20
Rounded off u/s 288B 1,10,730.00

Income from a Farm Building Section 2(1A)(c)

If any building is in the agricultural field or is very near to the agricultural field and it is being used for
storing agricultural produce or for storing agricultural implements or it is being used as dwelling unit
by the farmer himself, such building is called farm building and its income shall be computed as per
provisions given under the head house property and income shall be considered to be agricultural income
however such land should be in the rural area. If it is in the urban area, its classification should be
agricultural land.
If the rural area is very near to the urban area, it will be considered to be urban area in the manner given
below:
(i) If population of urban area is more than 10,000 but upto 1,00,000, rural area within distance of 2 kms
shall be considered to be urban area
(ii) If population of urban area is more than 1,00,000 but upto 10,00,000, rural area within distance of 6 kms
shall be considered to be urban area
(iii) If population of urban area is more than 10,00,000, rural area within distance of 8 kms shall be
considered to be urban area
Examples:
Urban area with Population Rural area is situated away Whether it will be
from urban area at a rural area
distance of
(i) 20,000 3 km Yes
(ii) 12,000 1.5 kms No
(iii) 11,00,000 2 kms No
(iv) 80,000 3 kms Yes
(v) 3,00,000 4 kms No
(vi) 12,00,000 5 kms No
(vii) 8,000 6 kms Yes
 Agricultural Income 268

(viii) 4,00,000 7 kms Yes

(ix) 10,50,000 8 kms No
(x) 15,00,000 9 kms Yes

Self Reading
Judicial Decisions
B. Gupta Private Ltd. v CIT, (HC)
Compensation received from an insurance company on account of damage caused to the crops is
agricultural income.
Venkataswamy Naidu v CIT, (SC)
Income from butter and cheese making is not agricultural income.
Sri Ranga Vilas Ginning & Oil Mills v. CIT, (HC)
Income from supplying surplus water to other agriculturists is not agricultural income.
New Ambadi Estates Ltd. v CIT, (SC)
Harvest crops on purchased land is not agricultural income.
K. Lakshmansa & Co. v CIT, (SC)
If the assessee was growing mulberry leaves, feeding them to silkworms and obtaining silk cocoons,
income from sale of silk cocoons would not be agricultural income.

Illustration 6: Mr. X is employed in MP Agricultural University and getting basic pay ₹20,000 p.m. He
claims that it is his agricultural income. Discuss.
Solution: Income from an agricultural university cannot be considered to be agricultural income rather it is
his income under the head salary.
Illustration 7: Mr. X has sold his agricultural land in Delhi and there are long term capital gains of
₹10,00,000. Mr. X claims it to be his agricultural income. Discuss.
Solution: Income from sale of agricultural land cannot be considered to be agricultural income and
accordingly it is chargeable to tax under the head capital gains.
Illustration 8: Mr. X holds shares in ABC Ltd., an Indian Company, which is engaged in agricultural
operations. He has received dividends of ₹1,20,000 from ABC Ltd. and claims that it is his agricultural
income. Discuss.
Solution: Dividend from a company which is engaged in agricultural operations cannot be considered to be
agricultural income rather it is dividend income of the recipient. Such dividend income shall be taxable in
the hands of shareholder.
 Agricultural Income 269

MULTIPLE CHOICE QUESTIONS

AGRICULTURAL INCOME
1. Which of the following would be agricultural income -
(a) Income from breeding of livestock
(b) Income from poultry farming
(c) Rent received from land used for movie shooting
(d) Rent received from land used for grazing of cattle required for agricultural activities
2. The proportion of agricultural and business income in case of income derived from the sale of coffee
grown and cured by the assessee in India is -
(a) 65% and 35%, respectively (b) 75% and 25%, respectively
(c) 60% and 40%, respectively (d) 70% and 30%, respectively
3. The proportion of agricultural and business income in case of income derived by the assessee from
growing of tea leaves in India and manufacturing of tea is -
(a) 65% and 35%, respectively (b) 75% and 25%, respectively
(c) 60% and 40%, respectively (d) 70% and 30%, respectively
4. In case of an individual aged 61 years, partial integration of agricultural income is not required if
his–
(a) Net agricultural income does not exceed ₹5,000.
(b) Non-agricultural income does not exceed ₹2,50,000.
(c) Non-agricultural income does not exceed ₹3,00,000.
(d) Either (a) or (c) above.
5. Income derived from farm building situated in the immediate vicinity of an agricultural land (not
assessed to land revenue) would be treated as agricultural income if such land is situated in –
(a) an area at a distance of 3 kms from the local limits of a municipality which has a population of 80,000 as
per last census
(b) an area within 1.5 kms from the local limits of a municipality and has a population of 12,000 as per last
census
(c) an area within 2 kms from the local limits of a municipality and has a population of 11,00,000 as per last
census
(d) an area within 8 kms from the local limits of a municipality and has a population of 10,50,000 as per last
census
6. Mr. Harini earned income of ₹4,00,000 from sale of tea grown and manufactured in Shimla. Income
from sapling and seedling grown in nursery at Cochin is ₹80,000. Her agricultural income is
(a) ₹4,80,000 (b) ₹4,00,000 (c) ₹2,40,000 (d) ₹3,20,000
7. Mr. Prem earned income of ₹22 lakhs from manufacture and sale of coffee grown, cured, roasted
and grounded by him in India. The business income chargeable to tax in his hands would be –
(a) ₹8,80,000 (b) ₹5,50,000 (c) ₹13,20,000 (d) ₹16,50,000
8. Mr. X has agricultural land which he has given on rent, in this case income shall be
(a) taxable under the head other sources (b) taxable under the head house property
(c) taxable under the head Business/Profession (d) Agricultural income
(e) none of these
9. Which of the following statements is correct?
(a) Dividend received from a domestic company doing agriculture is agricultural income
(b) Share received by a partner out of profits of partnership firm doing agriculture is taxable under the head
Business/Profession
(c) Salary and interest received by a partner from partnership firm doing agriculture is taxable under the
head Business/Profession
(d) none of these
 Agricultural Income 270

10. Which of the following statements is correct?

(a) Dividend received from a foreign company doing agriculture is agricultural income
(b) Share received by a partner out of profits of partnership firm doing agriculture is exempt u/s 10(2A)
(c) Salary received by a partner from partnership firm doing agriculture is taxable under the head Salary
(d) none of these
11. Which of the following statements is correct?
(a) Dividend received from a foreign company doing agriculture is exempt.
(b) Share received by a partner out of profits of partnership firm doing agriculture is taxable under the head
other sources
(c) Salary received by a partner from partnership firm doing agriculture is taxable under the head Salary
(d) Interest received by a partner from partnership firm doing agriculture is taxable under the head other
sources
(e) none of these
12. Which of the following statements is correct?
(a) in order to constitute agriculture there must be basic operations
(b) in order to constitute agriculture there must be subsequent operations
(c) in order to constitute agriculture there must be both basic and subsequent operations
(d) in order to constitute agriculture there must be ploughing of field
(e) in order to constitute agriculture there must be either basic or subsequent operations
(f) none of these
13. Which of the following statements is not correct?
(a) If any person is engaged in growing and manufacturing of rubber, income from business shall be 35%
(b) If any person is engaged in growing and manufacturing of coffee, income from business shall be 35%
(c) If any person is engaged in growing and manufacturing of tea, income from business shall be 40%
(d) If any person is engaged in growing and curing of coffee, income from business shall be 25%
(e) none of these
14. Which of the following statements is not correct?
(a) Income from animal husbandry or fisheries etc. shall be considered to be agriculture income
(b) Income from sale of sapling or seeding grown in nursery shall be considered to be agriculture income
(c) Income from sale of agricultural land is taxable under the head capital gains
(d) Rent received for letting out agriculture land for a movie shooting shall not be considered to be
agriculture income
(e) none of these
15. Which of the following statements is not correct?
(a) If an individual has income from salary ₹ 3,50,000 and agricultural income ₹ 2,00,000, partial integration
is applicable
(b) If an individual has income from salary ₹ 5,00,000 and agricultural income ₹ 50,000, partial integration
is applicable
(c) If an individual has income from salary ₹2,00,000 and agricultural income ₹10,00,000, partial integration
is applicable
(d) If an individual has income from salary ₹ 3,00,000 and agricultural income ₹ 5,000, partial integration is
applicable
(e) (b) & (c)
(f) (c) & (d)
(g) none of these

Answer
1.(d); 2.(b); 3.(c); 4.(d); 5.(a); 6.(d); 7.(a); 8(d); 9(d); 10(b); 11(e); 12(c); 13(b); 14(a); 15(f)
 Agricultural Income 271

PRACTICE PROBLEMS
TOTAL PROBLEMS 6
Problem 1.
Mr. X (non-resident, aged 68 years) has incomes as given below:
(i) Income under the head Salary ₹3,00,000
(ii) Income under the head House Property ₹1,20,000
(iii) Income from long term capital gains ₹50,000
(iv) Casual income ₹30,000
(v) Agricultural income ₹60,000
(vi) Deductions under chapter VI-A ₹1,40,000
(vii) He has invested ₹40,000 in Kisan Vikas Patra, ₹20,000 in equity shares of infrastructure
development companies.
Compute his total income and tax liability for the assessment year 2025-26.
Answer: Total Income: ₹5,00,000; Tax Liability: ₹22,100
Problem 2.
Mrs. X (aged 58 years) has income and losses as given below:
(i) Income from growing and manufacturing of Rubber ₹3,00,000
(ii) Income from growing and curing coffee ₹2,00,000
(iii) Income under the head Salary ₹2,40,000
(iv) Income under the head House Property ₹1,00,000
(v) Income from short term capital gains ₹40,000
(vi) Income from long term capital gains ₹50,000
(vii) Casual income ₹60,000
Compute her total income and tax liability for the assessment year 2025-26.
Answer: Total Income: ₹6,45,000; Tax Liability: ₹20,800
Problem 3.
Mrs. X (resident but not ordinarily resident) have incomes as given below:
(i) Income from growing and manufacturing of Tea in India ₹10,00,000
(ii) Income from house property situated outside India ₹3,50,000, received outside India.
(iii) Income from agriculture in Nepal ₹1,50,000, received in India
(iv) Income from business in Paris and received in Paris ₹ 1,00,000
Compute her total income and tax liability for the assessment year 2025-26.
Answer: Total Income: ₹5,50,000; Tax Liability: ₹7,800
Problem 4.
Mr. X (resident but not ordinarily resident) have incomes and losses as given below:
(i) Income from house I in India ₹80,000
(ii) Income from house II in India ₹1,00,000
(iii) Carried forward loss assessment year 2012-13 from house III in India ₹50,000
(iv) Income under the head Business/Profession in India ₹2,20,000
(v) Royalty received in the UK for use of formula in U.K. ₹30,000
(vi) Long term capital gains in India ₹1,00,000
(vii) Income from agriculture in Indonesia but received in India and subsequently invested it in
Indonesia ₹50,000
(viii) Income from agriculture in India ₹2,00,000
Compute his total income and tax liability for the assessment year 2025-26.
Answer: Total Income: ₹5,50,000; Tax Liability: Nil
Problem 5.
A partnership firm XY has agricultural income ₹2,00,000, income under the head business/profession
₹1,00,000 and long term capital gains ₹10,000.
Compute its tax liability for the assessment year 2025-26.
 Agricultural Income 272

Answer: Tax Liability: ₹32,500

Problem 6.
A partnership firm Z & Co. has agricultural income ₹20,00,000 and its partner Mr. Z has received ₹5,00,000
being his share in the profits of partnership. Mr. Z has income under the head house property ₹3,75,000.
Compute tax liability of the partnership firm and also that of Mr. Z.
Answer: Tax Liability: Partnership Firm: Nil; Mr. Z: Nil
 Agricultural Income 273

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1: ₹
Income under the head Salary 3,00,000
Income under the head House Property 1,20,000
Income under the head Capital Gains (LTCG) 50,000
Income under the head Other Sources (Casual Income) 30,000
Gross Total Income 5,00,000
Less: Deduction under Chapter VI-A Nil
Total Income 5,00,000
Agricultural income 60,000
Computation of Tax Liability
Tax on casual income ₹30,000 @ 30% u/s 115BB 9,000
Tax on Long term capital gain ₹50,000 @ 12.5% u/s 112 6,250
Normal income ₹4,20,000
Tax on (4,20,000 + 60,000) at slab rate 9,000
Tax on (3,00,000 + 60,000) at slab rate (3,000)
Tax on normal income (9,000 – 3,000) 6,000
Tax before health & education cess 21,250
Add: HEC @ 4% 850
Tax Liability 22,100
Note: 1. Rebate u/s 87A is not allowed to non-resident.

Solution 2:
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
₹
Income under the head Salary 2,40,000
Income under the head House Property 1,00,000
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 6,45,000
Less: Deductions under Chapter VI-A Nil
Total Income 6,45,000
Agricultural income 3,45,000
Computation of Tax Liability
Tax on casual income ₹60,000 @ 30% u/s 115BB 18,000
Tax on Long term capital gain ₹50,000 @ 12.5% u/s 112 6,250
 Agricultural Income 274

Normal income ₹5,35,000

Tax on (5,35,000 + 3,45,000) at slab rate 38,000
Tax on (3,00,000 + 3,45,000) at slab rate (17,250)
Tax on normal income (38,000 – 17,250) 20,750
Tax before Rebate u/s 87A 45,000
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 20,000
Add: HEC @ 4% 800
Tax Liability 20,800
Solution 3:
Agricultural Income Business Income
Income from growing and manufacturing of Tea {Rule 8}
Agricultural income 60% and business income 40% 6,00,000 4,00,000
Total 6,00,000 4,00,000
₹
Income under the head business/Profession 4,00,000
Income from agriculture in Nepal but received in India 1,50,000
Income under the head Other Sources 1,50,000
Gross Total Income 5,50,000
Less: Deductions under Chapter VI-A Nil
Total Income 5,50,000
Agricultural income 6,00,000
Computation of Tax Liability
Tax on (5,50,000 + 6,00,000) at slab rate 72,500
Tax on (3,00,000 + 6,00,000) at slab rate (40,000)
Tax on normal income (82,500 – 45,000) 32,500
Less: Rebate u/s 87A (25,000)
Tax before Education and Health cess 7,500
Add: HEC @ 4% 300
Tax Liability 7,800

Solution 4: ₹
Income from House I 80,000
Income from House II 1,00,000
Income under the head House Property 1,80,000
Income under the head Business/Profession 2,20,000
Income under the head Capital Gains (LTCG) 1,00,000
Income under the head Other Sources
{Income from agriculture in Indonesia, received in India} 50,000
Gross Total Income 5,50,000
Less: Deduction under Chapter VI-A Nil
Total Income 5,50,000
Agricultural Income 2,00,000
Computation of Tax Liability
Tax on Long term capital gain ₹1,00,000 @ 12.5% u/s 112 12,500
Normal income ₹4,50,000
Tax on (₹4,50,000 + ₹2,00,000) at slab rate 17,500
Tax on (₹3,00,000 + ₹2,00,000) at slab rate (10,000)
Tax on normal income (20,000 – 10,000) 7,500
Tax before Rebate u/s 87A 20,000
Less: Rebate u/s 87A (20,000)
Tax Liability Nil
 Agricultural Income 275

Solution 5: ₹
Income under the head Business/Profession 1,00,000
Income under the head Capital Gains (LTCG) 10,000
Gross Total Income 1,10,000
Less: Deduction under Chapter VI-A Nil
Total Income 1,10,000
Agricultural income 2,00,000
Computation of Tax Liability
Tax on ₹1,00,000 @ 30% 30,000
Tax on Long term capital gain ₹10,000 @ 12.5% u/s 112 1,250
Tax before health & education cess 31,250
Add: HEC @ 4% 1,250
Tax Liability 32,500
Note: Partial integration is not applicable in case of a partnership firm or a company.

Solution 6: ₹
Computation of Tax Liability of Partnership firm
Agricultural income 20,00,000
Tax liability Nil

Computation of Tax Liability of Mr. Z

Share of profit from partnership firm {exempt u/s 10(2A)} Nil
Income under the head House Property 3,75,000
Gross Total Income 3,75,000
Less: Deduction under Chapter VI-A Nil
Total Income 3,75,000
Tax on ₹3,75,000 at slab rate 3,750
Less: Rebate u/s 87A (3,750)
Tax Liability Nil
 Agricultural Income 276

EXAMINATION QUESTIONS
JAN – 2021
Question 4(b) (3 x 2 = 6 Marks)
Discuss the taxability of the following transactions giving reasons, in the light of relevant provisions, for
your conclusion.
Attempt any two out of the following three parts:
(i) Mr. Rajpal took a land on rent from Ms. Shilpa on monthly rent of ₹ 10,000. He sublets the land to Mr.
Manish for a monthly rent of ₹ 11,500. Manish uses the land for agricultural activities (grazing of cattle).
Mr. Rajpal wants to claim deduction of ₹ 10,000 (being rent paid by him to Ms. Shilpa) from the rental
income received by it from Mr. Manish.
(ii) Mr. Pratham, a non-resident in India, received a sum of ₹ 1,14,000 from Mr. Rakesh, a resident and
ordinarily resident in India. The amount was paid to Pratham on account of transfer of right to use the
manufacturing process developed by Pratham. The manufacturing process was developed by Mr. Pratham in
Singapore and Mr. Rakesh uses such process for his business carried on by him in Dubai.
(iii) Mr. Netram grows paddy on land. He then employs mechanical operations on grain to make it fit for
sale in the market, like removing hay and chaff from the grain, filtering the grain and finally packing the rice
in gunny bags. He claims that entire income earned by him from sale of rice is agricultural income not liable
to income tax since paddy as grown on land is not fit for sale in its original form.
Solution:
(i) The rent or revenue derived from land situated in India and used for agricultural purposes would be
agricultural income under section 2(1A)(a). Therefore, rent received from sub-letting of the land used for
grazing of cattle required for agriculture activities is agricultural income. The rent can either be received by
the owner of the land or by the original tenant from the sub-tenant.
Accordingly, rent received by Mr. Rajpal from Mr. Manish for using land for grazing of cattle required for
agricultural activities is agricultural income exempt u/s 10(1). Further Mr. Rajpal can deduct ₹10,000 from
the rental income received by him from Mr. Manish
(ii) Consideration for transfer of right to use the manufacturing process falls within the definition of royalty.
Income by way royalty payable by Mr. Rakesh, a resident and ordinarily resident, is not deemed to accrue or
arise in India in the hands of Mr. Pratham as per section 9, since royalty is payable in respect of right used
for the purposes of a business carried on by Mr. Rakesh outside India i.e., in Dubai.
(iii) The income from the process ordinarily employed to render the produce fit to be taken to the market
would be agricultural income under section 2(1A)(b)(ii). The process of making the rice ready from paddy
for the market may involve manual operations or mechanical operations, both of which constitute processes
ordinarily employed to make the product fit for the market.
Accordingly, the entire income earned by Mr. Netram from sale of rice is agricultural income.

MAY – 2018 (Old Course)

Question 2(a) (5 Marks)
Miss. Kavita, a resident and ordinarily resident in India, has derived the following income for the year ended
31-3-2025.
₹
(i) Income from sale of centrifuged latex processed from rubber plants grown in Darjeeling. 1,00,000
(ii) Income from sale of coffee grown and cured in Yercaud, Tamil Nadu 2,00,000
(iii) Income from sale of coffee grown, cured in Colombo. 5,00,000
Sale Consideration was received in Chennai.
(iv) Income from sale of tea grown and manufactured in Shimla. 10,00,000
(v) Income from sapling and seedling grown in a nursery at Cochin. 2,00,000
Basic operations were not carried out by her on land.
You are required to compute the Income of Miss. Kavita for the Assessment Year 2025-26.
 Agricultural Income 277

Solution:
Computation of Income
Sources Agricultural Business Income Other
Income Sources
(i) Income from growing and manufacturing of 65,000 35,000 -
Rubber {Rule 7A}
Agricultural income 65% and business income 35%
(ii) Income from Coffee grown and cured {Rule 7B} 1,50,000 50,000
Agricultural income 75% and business income 25%
(iii) Income from Coffee grown and cured outside 1,25,000 3,75,000
India
(iv) Income from growing and manufacturing of Tea 6,00,000 4,00,000
{Rule 8} Agricultural income 60% and business
income 40%
(v) Income from sapling and seedling grown in a 2,00,000 - -
nursery at Cochin
Total 10,15,000 6,10,000 3,75,000

MAY – 2018 (New Course)

Question 5(b) (7 Marks)
Mr. Avani, a resident aged 25 years, manufactures tea from the tea plants grown by him in India. These are
then sold in the Indian market for ₹40 lakhs. The cost of growing tea plants was ₹15 lakhs and the cost of
manufacturing tea leaves was ₹10 lakhs.
Compute her tax liability for the Assessment year 2025-26.
Solution:
As per Rule 8, If any person is engaged in growing and manufacturing of tea, income shall be computed
combined for agriculture as well as business and 40% of such income shall be business income and balance
shall be agricultural Income. Combined income shall be as given below:
Sales – Cost of growing tea plants – cost of manufacturing tea leaves = ₹40 lacs – ₹15 lacs - ₹10 lacs = ₹15
lacs.
Business Income = 15,00,000 x 40% = 6,00,000
Agriculture Income = 15,00,000 x 60% = 9,00,000
Computation of Tax Liability ₹
Tax on (6,00,000 + 9,00,000) at slab rate 1,40,000
Tax on (3,00,000 + 9,00,000) at slab rate (80,000)
Tax on normal income (1,50,000 – 90,000) 60,000
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 35,000
Add: HEC @ 4% 1,400
Tax Liability 36,400

MAY – 2017
Question 2(a) (ii) (4 Marks)
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.
Answer:
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.
 Agricultural Income 278

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.
NOV – 2016
Question 5(a) (4 Marks)
Mr. Kamal grows paddy and uses the same for the purpose of manufacturing of rice in his own Rice Mill.
The cost of cultivation of 50% of paddy produce is ₹7,00,000 which is sold for ₹15,00,000; and the cost of
cultivation of balance 50% of paddy is ₹7,00,000 and the market value of such paddy is ₹15,00,000. To
manufacture the rice, he incurred ₹5,00,000 in the manufacturing process on the balance (50%) paddy.
The rice was sold for ₹32,00,000.
Compute the Business income and Agriculture Income of Mr. Kamal.
Solution:
As per Rule 7 of Income Tax Rules 1962, if any person is growing agricultural produce and is using it in his
own factory to manufacture a product, in such cases it will be presumed that the assessee has sold his
agricultural produce to his manufacturing unit at the market price and income shall be computed
accordingly. In the given case, computation of income shall be as given below:

Agricultural income = Actual sale of paddy + Market value of paddy transferred to the
manufacturing unit – Cost of cultivation
= [₹15 lacs + ₹15 lacs] – [₹7 lacs + ₹7 lacs]
= ₹30 lacs – ₹14 lacs
= ₹16 lacs

Business income = Sales – Market value of 50% of paddy produce – Manufacturing expenses
= ₹32 lacs – 15 lacs – 5 lacs = 12 lacs
NOV – 2011
Question 4 (2 Marks)
Mr. X, a 60 years old individual, is engaged in growing and curing of coffee and derives income ₹50 lacs
during the financial year 2024-25. Compute the tax payable by him assuming he has not earned any other
income during the financial year 2024-25.
Answer:
As per Rule 7B, income from agricultural shall be 75% and income from business shall be 25% and tax
liability shall be as given below:
Business income 50,00,000 x 25% 12,50,000
Agricultural income 50,00,000 x 75% 37,50,000
Computation of Tax Liability ₹
Tax on (12,50,000 + 37,50,000) at slab rate 11,90,000
Tax on (3,00,000 + 37,50,000) at slab rate (9,05,000)
Tax on normal income (1,50,000 – 90,000) 2,85,000
Add: HEC @ 4% 11,400
Tax Liability 2,96,400

MAY – 2011
Question 1 (2 Marks)
Mr. X earned ₹5,00,000 from sale of Coffee grown and cured by him. He claims the entire income as
agricultural income, hence exempt from tax. Is he correct?
Answer.
 Agricultural Income 279

Mr. X is not correct in claiming the entire income as agricultural income. As per rule 7B, in the case of
income derived from the sale of coffee grown and cured by the seller in India, 25% of such income is
taxable as business income under the head ‘Profits and gains from business or profession’ and the balance
(i.e. 75%) is agricultural income. Hence, only ₹3,75,000 (75% of ₹5,00,000) being agricultural income is
exempt from tax.
JUNE – 2009
Question 1 (2 Marks)
Whether the income derived from saplings or seedlings grown in a nursery is taxable under the Income-tax
Act, 1961?
Answer .
As per Explanation 3 to section 2(1A) of the Act, income derived from saplings or seedlings grown in a
nursery shall be deemed to be agricultural income and exempt from tax, whether or not the basic operations
were carried out on land.
NOV – 2004
Question 1 (3 Marks)
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 31.03.2025, 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 2025-26. ₹
(i) Manufacture of rubber 15,00,000
(ii) Manufacture of coffee grown and cured 13,50,000
(iii) Manufacture of tea 17,00,000
(iv) Sale of plants from nursery 1,00,000
Answer:
Agricultural Business
Income Income
Income from growing and manufacturing of Rubber {Rule 7A}
Agricultural income 65% and business income 35% 9,75,000 5,25,000
Income from Coffee grown and cured {Rule 7B}
Agricultural income 75% and business income 25% 10,12,500 3,37,500
Income from growing and manufacturing of Tea {Rule 8}
Agricultural income 60% and business income 40% 10,20,000 6,80,000
Income from growing and selling of plants 1,00,000 xxxxx
Total 31,07,500 15,42,500
Computation of Tax Liability
Normal income ₹15,42,500
Tax on (15,42,500 + 31,07,500) 10,85,000.00
Tax on (3,00,000 + 31,07,500) (7,12,250.00)
Tax before education cess 3,72,750.00
Add: HEC @ 4% 14,910.00
Tax Liability 3,87,660.00
MAY – 1998
Question 2 (3 Marks)
From the following information, compute taxable income and tax liability of Mrs. X for the assessment year
2025-26.
₹
Income from business – letting cycles on hire 2,40,000
Fixed deposit interest received from companies on deposits made of sale proceeds of land 18,000
Dividends from an Indian company having rubber plantations 6,000
 Agricultural Income 280

Salary received as a partner from a firm growing and manufacturing tea 40,000
Sale of agricultural produce 1,75,000
Payment of government tax on agricultural lands 6,000
Expenses on power, irrigation cess and farm labour 10,000
Purchase of seeds 1,000
Tractor hire charges (for agricultural operations) 2,500
Answer:
Computation of income from agriculture
Salary from firm growing and manufacturing tea 24,000
40,000 x 60% (as per decision in R.M. Chidambaram Pillai v CIT)
Sale of agricultural produce 1,75,000
Less : Government tax (6,000)
Power, Irrigation cess etc. (10,000)
Purchase of seeds (1,000)
Tractor hire charges (2,500)
Agricultural income 1,79,500
Computation of Non agricultural income :
Income from Business:
Cycle hire charges 2,40,000
Salary from firm (non –agricultural part – 40,000 x 40%) 16,000
Other sources:
Dividenssds from Plantation company – 6,000
Interest on fixed deposit with companies: 18,000
Non-Agricultural Income 2,80,000
Since total income is less than exemption limit, tax liability is nil.
 Clubbing of Income 281

CLUBBING OF INCOME
(INCOME OF OTHER PERSONS INCLUDED
IN ASSESSEE’S TOTAL INCOME)

SECTION 60 TO 65
PARTICULARS SECTIONS
Transfer of income without transfer of assets 60
Revocable transfer of assets 61
Transfer irrevocable for a specified period 62
Transfer and revocable transfer 63
Income from assets transferred to the spouse 64(1)
Income from assets transferred to son’s wife 64(1)
Income from assets transferred to any person for the benefit of the spouse of the 64(1)
transferor/ son’s wife of the transferor
Remuneration of a spouse from a concern in which the other spouse has substantial 64(1)
interest
Clubbing of income of a minor child 64(1A)
Income from self acquired property converted to joint family property 64(2)
Liability of person in respect of income included in the income of another person 65
(Deleted from syllabus)

In general a person has to pay tax only on his own income but sometimes incomes of other persons is added
to his income to charge tax from him, it is called ‘clubbing of income’. Clubbing provision are applicable to
check tax evasion.
Clubbing provision are applicable in the following cases: -
1. Transfer of income without transferring the asset Section 60
If any person has transferred any income without transferring the asset, in such cases clubbing provision
shall be applicable.
Example
Mr. X has two deposits of ₹50 lakhs each and interest income of each deposit is ₹15 lakhs. He has
transferred income of one of the deposit to his brother Mr. Y. In this case, clubbing provision shall be
applicable and income shall be taxable in the hands of Mr. X.

2. Transfer of asset through revocable transfer Section 61

If any person has transferred any asset through revocable transfer, income from that asset shall be clubbed in
the income of transferor.
Example
Mr. X has transferred a deposit of ₹10 lakhs to his friend Mr. Y with the condition that the deposit can be
taken back by him at any time. In this case, clubbing provision shall be applicable.

3. Transfer of an asset through irrevocable transfer Section 62

If any person has transferred any asset through irrevocable transfer, in this case clubbing provision shall not
apply. Similarly If any person has transferred any asset through a transfer which is not revocable during the
life time of the beneficiary, clubbing provision shall not apply.
Example: Mr. X has transferred one asset to Mr. Y with the condition that the asset shall be retained by Mr.
 Clubbing of Income 282

Y as long as he is alive and after that the asset shall be taken back by Mr. X. In this case, clubbing provision
shall not apply.

Provided that the transferor derives no direct or indirect benefit from such income in either case.
All income arising to any person by virtue of any such transfer shall be chargeable to income-tax as the
income of the transferor as and when the power to revoke the transfer arises, and shall then be included in
his total income

Meaning of revocable transfer Section 63

For the purposes of sections 60, 61 and 62 and of this section,—
A transfer shall be deemed to be revocable if—
(i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of the income or
assets to the transferor, or
(ii) it, in any way, gives the transferor a right to re-assume power directly or indirectly over the whole or any
part of the income or assets

4. TRANSFER OF ASSETS TO SPOUSE SECTION 64(1)[V. IMP.]

(i) If any person has transferred any asset, other than a house property to his or her spouse directly or
indirectly without adequate consideration, in such cases, income of the asset shall be clubbed in the
income of transferor.
(ii) If the asset is transferred for adequate consideration, clubbing provisions are not applicable. Similarly if
the asset is transferred under an agreement to live apart, clubbing provision shall not apply.
Example
Mr. X has transferred one deposit to his wife Mrs. X by charging full consideration of ₹10,00,000. In this
case, interest income shall not be clubbed in the income of Mr. X.
(iii) If there is inadequate consideration, clubbing provisions shall be applicable only with regard to the
income relating to that part of the consideration which is considered to be inadequate.
Example
Mr. X has transferred one deposit of ₹10,00,000 for a consideration of ₹7,00,000 and there is interest
income of ₹1,00,000 from the said deposit, in this case income of ₹30,000 shall be clubbed.
(iv) In order to apply clubbing provision relationship of husband and wife must exist on the date of transfer
of the asset and also on the date of accrual of income otherwise clubbing provision shall not be apply, as
decided in Philip Johan Plasket Thomas v. CIT (SC).
Example
Mr. X has transferred certain assets on 01.01.2025 to his would be wife. He got married on 10.01.2025, in
this case clubbing provision shall not apply.
(v) If any person has transferred the asset to the spouse and there is accretion to the asset, income from such
accretion shall not be clubbed, as decided in case of M. P. Birla (HC).e.g. Mr. X gifted certain shares to
Mrs. X and Mrs. X has received bonus shares. In this case dividend or capital gains from original shares
shall be clubbed in the hands of Mr. X but dividend or capital gains from bonus shares shall not be
clubbed rather Mrs. X herself has to pay tax.

Similarly if any asset has been transferred to spouse, income from the asset shall be clubbed but if same
income is invested further, income from such income shall not be clubbed e.g. Mr. X has gifted one fixed
deposit to Mrs. X, interest income from such fixed deposit shall be clubbed but if interest income is
invested further, any fresh income from such income shall not be clubbed.

Illustration 1: Mr. X transferred 2,000 debentures of ₹100 each of Wild Fox Ltd. to Mrs. X on 03.04.2024
without consideration. The company paid interest of ₹30,000 in September, 2024 which was deposited by
Mrs. X with Kartar Finance Co. in October, 2024. Kartar Finance Co. paid interest of ₹3,000 upto March,
2025. How would both the interest income be charged to tax in assessment year 2025-26?
 Clubbing of Income 283

Solution:
As per section 64(1), income arising from assets transferred without adequate consideration by an individual
to his spouse is liable to be clubbed in the hands of the individual, but if there is any further income from
such income, it will not be clubbed.
Therefore, ₹30,000, being the interest on debentures received by Mrs. X in September, 2024 will be clubbed
with the income of Mr. X, since he had transferred the debentures of the company without consideration to
her.
However, the interest of ₹3,000 upto March 2025 earned by Mrs. X on the interest of the debentures
deposited by her with Kartar Finance Company shall be taxable in her individual capacity and will not be
clubbed with the income of Mr. X.
(vi) Where the asset transferred directly or indirectly by an individual to the spouse has been invested by the
transferee in any business, the income arising out of the business to the transferee in any previous year
shall be clubbed in the income of transferor but for this purpose capital as on first day of relevant
previous year shall be taken into consideration.
Example
(a) Mr. X has gifted ₹5,00,000 to Mrs. X on 01.04.2024 and She invested it in the proprietary business on
the same date and there were profits of ₹2,00,000. In this case, entire income of ₹2,00,000 shall be
clubbed in the income of Mr. X.
(b) Mrs. X has one business on 01.04.2024 with capital of ₹5 lakh and Mr. X has gifted ₹5,00,000 to Mrs. X
on 01.04.2024 and She invested it in the proprietary business on the same date and there were profits of
₹2,00,000. In this case, income of ₹1,00,000 shall be clubbed in the income of Mr. X.
(c) Mrs. X has one business on 01.04.2024 with capital of ₹5 lakh and Mr. X has gifted ₹5,00,000 to Mrs. X
on 20.04.2024 and She invested it in the proprietary business on the same date and there were profits of
₹2,00,000. In this case, income from business shall not be clubbed in the income of Mr. X because
amount was transferred in business after first day of previous year .

Illustration 2: A proprietary business was started by Mrs. X in the year 2022. As on 01.04.2024 her capital
in business was ₹4,00,000. Her husband gifted ₹3,00,000, on 01.04.2024, which Mrs. X invested in her
business on the same date. Mrs. X earned profits from her proprietary business for the
Financial year 2024-25 ₹2,00,000
Financial year 2025-26 ₹2,40,000
Financial year 2026-27 ₹2,80,000
Financial year 2027-28 ₹3,00,000
Amount of profit was further invested in the business.
Compute amount to be clubbed in the income of Mr. X in each of the year.
Solution:
Amount to be clubbed in various years shall be as given below:
(i) Previous Year 2024-25: amount to be clubbed shall be as given below:
2,00,000 / 7,00,000 x 3,00,000 = 85,714.29
(ii) Previous Year 2025-26: amount to be clubbed shall be
2,40,000 / 9,00,000 x 3,00,000 = 80,000
(iii) Previous Year 2026-27: amount to be clubbed shall be
2,80,000 / 11,40,000 x 3,00,000 = 73,684.21
(iv) Previous Year 2027-28: amount to be clubbed shall be
3,00,000 / 14,20,000 x 3,00,000 = 63,380.28

(b) Presume amount was gifted on 10.04.2024.

Solution:
Amount to be clubbed in various years shall be as given below:
(i) Previous Year 2024-25: amount to be clubbed shall be Nil because amount was not invested in business
on the first day of the previous year
(ii) Previous Year 2025-26: amount to be clubbed shall be
2,40,000 / 9,00,000 x 3,00,000 = 80,000
 Clubbing of Income 284

(iii) Previous Year 2026-27: amount to be clubbed shall be

2,80,000 / 11,40,000 x 3,00,000 = 73,684.21
(iv) Previous Year 2027-28: amount to be clubbed shall be
3,00,000 / 14,20,000 x 3,00,000 = 63,380.28

(vii) If any person has transferred the asset to the spouse and the spouse has invested it in some partnership
firm as capital contribution or otherwise, in this case interest received from the partnership firm shall
be clubbed in the income of the transferor and capital as on first day of relevant previous year shall be
taken into consideration.
If any salary has been received from partnership firm, it will not be clubbed.
If any share has been received from the profits of partnership firm, such shares shall be exempt under
section 10(2A).

(viii) If any person has transferred any asset to the spouse and spouse has further transferred this asset, in
this case, capital gain shall be considered to be the income of the transferor.
(ix) Cross-transfers are also covered
The Supreme Court, in case of Keshavji Morarji, observed that clubbing provisions shall be applicable in
case of cross transfers also e.g. A making gift of ₹ 50,000 to the wife of his brother B for the purchase of a
house by her and a simultaneous gift by B to A’s minor son of shares in a foreign company worth ₹ 50,000
owned by him, in the case, the income arising to Mrs. B from the house property should be included in the
total income of B and the dividend from shares transferred to A’s minor son would be taxable in the hands
of A.
Example: Mr. Vasudevan gifted a sum of ₹6 lakhs to his brother's wife on 14-6-2024. On 12-7-2024, his
brother gifted a sum of ₹5 lakhs to Mr. Vasudevan's wife. The gifted amounts were invested as fixed
deposits in banks by Mrs. Vasudevan and wife of Mr. Vasudevan's brother on 01-8-2024 at 9% interest.
Examine the consequences of the above under the provisions of the Income-tax Act, 1961 in the hands of
Mr. Vasudevan and his brother.

Answer: In the given case, Mr. Vasudevan gifted a sum of ₹6 lakhs to his brother’s wife on 14.06.2024 and
simultaneously, his brother gifted a sum of ₹5 lakhs to Mr. Vasudevan’s wife on 12.07.2024. The gifted
amounts were invested as fixed deposits in banks by Mrs. Vasudevan and his brother’s wife. These transfers
are in the nature of cross transfers.
Accordingly, the income from the assets transferred would be assessed in the hands of the deemed transferor
because the transfers are so intimately connected to form part of a single transaction and each transfer
constitutes consideration for the other by being mutual or otherwise.
If two transactions are inter-connected and are part of the same transaction in such a way that it can be said
that the circuitous method was adopted as a device to evade tax, the implication of clubbing provisions
would be attracted. It was so held by the Apex Court in CIT vs. Keshavji Morarji (1967) 66 ITR 142.
Accordingly, the interest income arising to Mrs. Vasudevan in the form of interest on fixed deposits would
be included in the total income of Mr. Vasudevan and interest income arising in the hands of his brother’s
wife would be taxable in the hands of Mr. Vasudevan’s brother as per section 64(1), to the extent of amount
of cross transfers i.e., ₹5 lakhs.
This is because both Mr. Vasudevan and his brother are the indirect transferors of the income to their
respective spouses with an intention to reduce their burden of taxation However, the interest income earned
by his spouse on fixed deposit of ₹5 lakhs alone would be included in the hands of Mr. Vasudevan’s brother
and not the interest income on the entire fixed deposit of ₹6 lakhs, since the cross transfer is only to the
extent of ₹5 lakhs.
(x) If there is indirect transfer, clubbing provisions shall be applicable in that case also e.g. Mr. X gifted
certain cash/ asset to his major son and son gifted the same asset to mother, in this case it will be considered
transfer and income shall be clubbed in the income of Mr. X.
(xi) If any person has given loan to the spouse, income from such loan shall not be clubbed.
 Clubbing of Income 285

Transfer of house property: In the case of transfer of house property, the provisions are contained in
section 27. If an individual transfers a house property to his spouse, without adequate consideration or
otherwise than in connection with an agreement to live apart, the transferor shall be deemed to be the owner
of the house property and its annual value will be taxed in his hands.
5. Transfer of the asset to the son’s wife Section 64(1)
If any person has transferred the asset to the son’s wife, in this case, clubbing provision shall apply in the
similar manner as in the case of transfer of the assets to the spouse.
Such clubbing provisions are applicable from 01.06.1973.
6. Transfer of assets to any other person Section 64(1)
If any person has transferred the asset to any other person, clubbing provision shall not be applicable, but if
the transferor has any right to receive any benefit from the asset or the benefit shall be received by the
spouse of the transferor or by the son’s wife of the transferor, in that case, clubbing provision shall be
applicable.

7. Salary/commission/fee etc. from a concern in which the spouse has substantial interest Section
64(1)
(i) If any person is getting salary, commission, fee or any other remuneration whether in cash or in kind
from a concern in which his or her spouse has substantial interest and further salary etc. is being received
without any technical or professional qualification, in such case, salary etc. so received shall be
clubbed in the income of the spouse having substantial interest. However clubbing shall not be applicable
in relation to any income arising to the spouse where the spouse possesses technical or professional
qualifications and the income is solely attributable to the application of his or her technical or professional
knowledge and experience.
If the spouse has substantial interest along with his relative, even in that case clubbing provisions are
applicable.
Example
Mr. X is holding 11% shares of ABC Ltd. and his father is holding 10% shares in ABC Ltd. and his wife
Mrs. X is employed in ABC Ltd. without any technical or professional qualification, in this case, salary
income of Mrs. X shall be clubbed in the income of Mr. X.
(ii) Technical and professional qualification shall include not only degree or membership but also any
experience or expertise or any natural talent also, as decided in Batta Kalyani v. CIT, (HC).
(iii) As per section 2(41), Relative, means the husband, wife, brother or sister or any lineal ascendant or
descendant.
(iv) As per section 2(32), Substantial Interest means having 20% or more of the equity shares in a
company or having 20% of more of the shares in profits in any other concern.
(v) Both husband and wife have substantial interest in a concern: Where both husband and wife have
substantial interest in a concern and both are in receipt of income by way of salary etc. from the said
concern, such income will be includible in the hands of that spouse, whose total income, excluding such
income is higher. E.g. Mr. X has 12% shares in ABC limited and Mrs. X has 13% shares in ABC limited
and both are getting salary of 13,00,000 and 10,00,000 from ABC limited without any technical or
professional qualification. Mr. X has income under the head house property 6,00,000 and Mrs. X has
income under the head house property 7,00,000, in this case salary income of both of them shall be
clubbed in the income of Mrs. X. Tax liability of each one of them shall be:
Mr. X
Income under the head house property 6,00,000
Gross Total Income 6,00,000
Less: Deductions under Chapter VI-A Nil
Total Income 6,00,000
Computation of Tax Liability
Tax on 6,00,000 at slab rate 15,000
Less: Rebate u/s 87A (15,000)
Tax Liability Nil
 Clubbing of Income 286

Mrs. X
Income under the head house property 7,00,000
Income under the head salary
Salary of Mr. X 13,00,000
Salary of Mrs. X 10,00,000
Gross salary 23,00,000
Less: Standard Deduction u/s 16(ia) (75,000)
Income under the head salary 22,25,000

Gross Total Income 29,25,000

Less: Deductions under Chapter VI-A Nil
Total Income 29,25,000
Computation of Tax Liability
Tax on 29,25,000 at slab rate 5,67,500
Add: HEC @ 4% 22,700
Tax Liability 5,90,200

Illustration 3: Mr. X is an employee of X Ltd. and he has 25% shares of that company. His salary is
₹50,000 p.m. Mrs. X is working as a computer software programmer in X Ltd. at a salary of ₹30,000 p.m.
She is, however, not qualified for the job. Compute the gross total income of Mr. X and Mrs. X for the
A.Y.2025-26, assuming that they do not have any other income.
Solution:
Mr. X is an employee of X Ltd and has 25% shares of X Ltd i.e. a substantial interest in the company. His
wife is working in the same company without any professional qualifications for the same. Thus, by virtue
of the clubbing provisions of the Act, the salary received by Mrs. X from X Ltd. will be clubbed in the hands
of Mr. X.
Computation of Gross Total Income of Mr. X
Particulars ₹
Salary received by Mr. X (₹ 50,000 x 12) 6,00,000
Salary received by Mrs. X (₹ 30,000 x 12) 3,60,000
Gross Salary 9,60,000
Less: Deduction u/s 16(ia) (75,000)
Income under the head salary 8,85,000
Gross Total Income 8,85,000
The gross total income of Mrs. X is nil.

Illustration 4: Will your answer be different if Mrs. A was qualified for the job?
Solution:
If Mrs. A possesses professional qualifications for the job, then the clubbing provisions shall not be
applicable.
Gross total income of Mr. X = Salary received by Mr. A [₹ 50,000 × 12 ] = ₹ 6,00,000 - 50,000 = 5,50,000
Gross total income of Mrs. X = Salary received by Mrs. A [₹ 30,000×12] = ₹ 3,60,000 - 50,000= 3,10,000

Illustration 5: Mr. X is an employee of Y Ltd. and has substantial interest in the company. His salary is
₹20,000 p.m. Mrs. X is also working in Y Ltd. at a salary of ₹12,000 p.m. without any qualifications. Mr. X
also receives ₹30,000 as interest on securities. Mrs. X owns a house property which she has let out. Rent
received from tenants is ₹6000 p.m. Compute the gross total income of Mr. X and Mrs. X for the A.Y.2025-
26.
Solution:
Since Mrs. X is not professionally qualified for the job, the clubbing provisions shall be applicable.
 Clubbing of Income 287

Computation of Gross Total Income of Mr. X

Particulars ₹
Income from Salary
Salary received by Mr. X (₹ 20,000 × 12) 2,40,000
Salary received by Mrs. X (₹ 12,000 × 12) 1,44,000
Gross salary 3,84,000
Less: Deduction u/s 16(ia) (75,000)
Income from salary 3,09,000
Income from other sources
Interest on securities 30,000
3,39,000
Computation of Gross Total Income of Mrs. X
Particulars ₹ ₹
Income from Salary Nil
[clubbed in the hands of Mr. X]
Income from house property
Gross Annual Value [₹ 6,000 × 12] 72,000
Less: Municipal taxes paid -
Net Annual Value (NAV) 72,000
Less: Deductions under section 24
- 30% of NAV i.e., 30% of ₹ 72,000 (21,600)
- Interest on loan - 50,400

Gross Total Income 50,400

8. Asset held by Minor Child Section 64(1A) [V. IMP.]

(i) 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.
(ii) If the marriage of mother, father doesn’t subsist, in that case, income shall be clubbed in the income
of mother or father whosoever maintains the minor child.
(iii) Minor child for this purpose shall include even an adopted child and also step child, however, it will not
include the minor child suffering from a disability mentioned under section 80U. e.g. Minor son of
Mr. X has interest income of ₹2,00,000 and the minor child is suffering from a disability, in this case,
clubbing provisions shall not be applicable.
(iv) If any minor child has income through
(i) Manual labour or
(ii) 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.
(v) If any person has transferred any asset to minor married daughter, clubbing provision shall applicable in
that case also e.g. Minor married daughter of Mr. X has interest income of ₹1,00,000 from bank deposit,
in this case income shall be clubbed in the income of mother or father whosoever has higher income.
(vi) 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.
Example
Minor son of Mr. X is a child actor. He has income of ₹5,00,000 from stage acting, this income will not be
clubbed but if this amount was invested by him in a bank as fixed deposit, interest received by him shall be
clubbed.
 Clubbing of Income 288

Illustration 6: Mr. X, a mentally retarded minor, has a total income of ₹1,20,000 for the assessment year
2025-26. The total income of his father Mr. Y and of his mother Mrs. Y for the relevant assessment year is
₹2,40,000 and ₹1,80,000 respectively. Discuss the treatment to be accorded to the total income of Mr. X for
the relevant assessment year.
Solution: Section 64(1A) provides that all income accruing or arising to a minor child has to be included in
the income of that parent, whose total income is greater. However, the income of a minor child suffering
from any disability of the nature specified in section 80U shall not be included in the income of the parents
but shall be assessed in the hands of the child. Thus, the total income of Mr. X has to be assessed in his
hands and cannot be included in the total income of either his father or his mother.

9. Transfer of the asset by the member of Hindu Undivided Family to the Hindu undivided family
Section 64(2)(Conversion of self-acquired property into common property of HUF)
If any member of HUF has gifted any asset to the HUF, income from such asset shall be clubbed in the
income of such member but if partition has been taken place, in that case clubbing provision shall not be
applicable however income from that part of asset which has been received by the spouse of such person,
shall be clubbed in the income of such member.

Rules for Clubbing of Income

Clubbing of income will also include clubbing of loss and income shall be clubbed in the following manner:
Step 1: Calculate the income/loss on the hands of recipient as if it is the income of recipient.
Step 2: The income or loss calculated as above will then be clubbed with the income of the transferor under
the same head (i.e. the head to which such income belongs).
Step 3: Such clubbed income is the income of the transferor and provisions relating to set off and carry
forward of losses shall apply in the normal manner.
Illustration 7: Mr. X gifts ₹1 lakh to his wife Mrs. X on April 1, 2024 which she invests in a firm on
interest rate of 14% per annum. On January 1, 2025, Mrs. X withdraws the money and gift it to her son’s
wife. She claims that interest which has accrued to the daughter-in-law, from January 1, 2025 to March 31,
2025 on investment made by her is not assessable in her hands but in the hands of Mr. X. Is this correct?
What would be the position, if Mrs. X has gifted the money to minor grandson, instead of the daughter-in-
law?
Solution: Section 64(1) provides that in computing the total income of any individual, there shall be clubbed
all such income as arises directly or indirectly to the son’s wife, of such individual, from assets transferred
directly or indirectly to the son’s wife by such individual otherwise than for adequate consideration.
There is an indirect transfer by Mr. X to the daughter-in-law and therefore, the interest income shall be
clubbed with income of Mr. X.
If Mrs. X had gifted the money to her minor grandson, then the interest income arising to the minor shall be
clubbed under section 64(1A) in the total income of that parent (son/daughter-in-law) whose total income
(before including such income) is higher.
Illustration 8: Mr. X, entered into the following transactions during the previous year 2025-26:
(a) Mr. X had a fixed deposit of ₹ 8,00,000 with State Bank of India. He instructed the bank to credit the
interest on the deposit @ 9% from 01.04.2024 to 31.03.2025 to the savings bank account of Ms. Y, his
niece, to help her in her higher education.
(b) Mr. X holds 51% share in a partnership firm. Mrs. X (wife of Mr. X) received a remuneration of ₹45,000
from the firm for writing its books of accounts. Mrs. X, being a fashion designer, does not possess any
qualification or training in the accountancy field.
(c) Mr. X gifted a flat to Mrs. X on April 1, 2024. During the previous year 2024-25, she received rent of
₹8,500 p.m. from letting out of the flat.
(d) Mr. X gifted ₹ 4,00,000 to his minor son who invested the same in a business and he derived income of
₹40,000 from the investment.
(e) Mr. X’s minor daughter derived an income of ₹ 25,000 from participation in music shows.
During the year, Mr. X got a monthly pension of ₹ 18,000. He had no other income. Mrs. X received salary
of ₹ 25,000 per month from a part time job as a fashion designer.
Discuss the tax implications of each transaction and compute the total income of Mr. X and Mrs. X.
 Clubbing of Income 289

Solution: ₹
Computation of Total Income of Mr. X
(a) Interest income received by Miss. Y shall be clubbed in the income of Mr. X
as per section 60 (8,00,000 x 9%) 72,000
(b) Remuneration of ₹45,000 received by Mrs. X shall be clubbed in the income of Mr. X
as per section 64(1) 45,000
(c) Income from House Property gifted to Mrs. X shall be taxable in the hands of Mr. X
because as per section 27 Mr. X is the deemed owner 71,400
(Rent received (i.e. ₹ 1,02,000) is taken as Gross Annual Value. Deduction @ 30% of
Net Annual Value is allowed u/s 24. The net income from house property would be
₹71,400 (i.e. ₹ 1,02,000- ₹30,600 being 30% of NAV)
(d) Income of minor child shall be clubbed in the income of Mr. X as per section 64(1A)
because Mr. X has higher income 40,000
(e) Income of minor daughter from music show shall not be clubbed Nil
Pension income of Mr. X (₹ 18,000×12) 2,16,000
Less: Standard deduction u/s 16(ia) (75,000)
Income under the head salary 1,41,000
Total Income 3,69,400
Salary income of Mrs. X 3,00,000
Less: Standard deduction u/s 16(ia) (75,000)
Income under the head salary 2,25,000
Illustration 9: Mr. A has gifted a house property valued at ₹50 lakhs to his wife, Mrs. B, who in turn has
gifted the ·same to Mrs. C, their daughter-in-law. The house was let out at ₹25,000 per month throughout the
year. Compute the total income of Mr. A and Mrs. C. Will your answer be different if the said property was
gifted to his son, husband of Mrs. C?
Answer: As per section 27(i), an individual who transfers otherwise than for adequate consideration any
house property to his 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. Therefore, in this case, Mr. A would be the
deemed owner of the house property transferred to his wife Mrs. B without consideration. As per section
64(1)(vi), income arising to the son’s wife from assets transferred, directly or indirectly, to her by an
individual otherwise than for adequate consideration would be included in the total income of such
individual. Income from let-out property is ₹2,10,000 [i.e., ₹3,00,000, being the actual rent calculated at ₹
25,000 per month less ₹90,000, being deduction under section 24 @ 30% of ₹3,00,000]
In this case, income of ₹2,10,000 from let-out property arising to Mrs. C, being Mr. A’s son’s wife, would
be included in the income of Mr. A, applying the provisions of section 27(i) and section 64(1)(vi). Such
income would, therefore, not be taxable in the hands of Mrs. C. In case the property was gifted to Mr. A’s
son, the clubbing provisions under section 64 would not apply, since the son is not a minor child. Therefore,
the income of ₹2,10,000 from letting out of property gifted to the son would be taxable in the hands of the
son. It may be noted that the provisions of section 56(2)(x) would not be attracted in the hands of the
recipient of house property, since the receipt of property in each case was from a “relative” of such
individual. Therefore, the stamp duty value of house property would not be chargeable to tax in the hands of
the recipient of immovable property, even though the house property was received by her or him without
consideration.
Note - The first part of the question can also be answered by applying the provisions of section 64(1)(vi)
directly to include the income of ₹2,10,000 arising to Mrs. C in the hands of Mr. A. [without first applying
the provisions of section 27(i) to deem Mr. A as the owner of the house property transferred to his wife Mrs.
B without consideration], since section 64(1)(vi) speaks of clubbing of income arising to son’s wife from
indirect transfer of assets to her by her husband’s parent, without consideration. Gift of house property by
Mr. A to Mrs. C, via Mrs. B, can be viewed as an indirect transfer by Mr. A to Mrs. C.
Optional Regime
Under optional regime, exemption shall be allowed u/s 10(32) upto ₹1,500 per minor child while doing
clubbing of income. E.g. Minor son of Mr. X has interest income of ₹3,00,000 from fixed deposit, in this
case amount to be clubbed shall be ₹2,98,500.
 Clubbing of Income 290

MULTIPLE CHOICE QUESTIONS

1. Income of a minor child suffering from any disability of the nature specified in section 80U is -
(a) to be assessed in the hands of the minor child
(b) to be clubbed with the income of that parent whose total income, before including minor’s income, is
higher
(c) completely exempt from tax
(d) to be clubbed with the income of father
2. Income arising to a minor married daughter is -
(a) to be assessed in the hands of the minor married daughter
(b) to be clubbed with the income of that parent whose total income, before including minor’s income, is
higher
(c) completely exempt from tax
(d) to be clubbed with the income of her husband
3. Where a member of a HUF has converted or transferred his self-acquired property for inadequate
consideration into joint family property, income arising therefrom is -
(a) taxable as the income of the transferor-member.
(b) taxable in the hands of the HUF.
(c) taxable in the hands of the karta of the HUF.
(d) exempt from tax.
4. If the converted property is subsequently partitioned among the members of the family, the income
derived from such converted property as is received by the spouse of the transferor will be taxable -
(a) as the income of the karta of the HUF
(b) as the income of the spouse of the transferor
(c) as the income of the HUF.
(d) as the income of the transferor-member
5. Mr. A gifts a sum of ₹ 1,00,000 to his brother’s wife Mrs. B. Mr. B gifts a sum of ₹ 1,00,000 to Mrs.
A. From the sum gifted to her, Mrs. B invests in a fixed deposit, income therefrom is ₹10,000.
Aforesaid ₹10,000 will be included in the total income of ............
(a) Mr. A
(b) Mrs. A
(c) Mrs. B
(d) Mr. B
6. Scholarship received by a minor child is –
(a) to be assessed in the hands of the minor child
(b) to be clubbed with the income of that parent whose total income, before including minor’s income, is
higher
(c) completely exempt from tax u/s 10(16)
(d) to be clubbed with the income of father
7. Income of a minor child from a fixed deposit with a bank, made out of income earned from
scholarship is–
(a) to be assessed in the hands of the minor child
(b) to be clubbed with the income of that parent whose total income, before including minor’s income, is
higher
(c) completely exempt from tax
(d) to be clubbed with the income of father
8. Mr. X transfers income of ₹51,000 from rent to his major son without transfer of house property.
Rent of ₹51,000 is –
(a) taxable in the hands of the transferor-father
(b) taxable in the hands of the his son
(c) taxable in the hands of the that parent whose total income is higher
(d) exempt from tax
 Clubbing of Income 291

9. Interest from a fixed deposit received by a minor married daughter is –

(a) to be assessed in the hands of the minor child
(b) to be clubbed with the income of that parent whose total income, before including minor’s income, is
higher
(c) completely exempt from tax
(d) to be clubbed with the income of her husband
10. Mr. Aarav gifted a house property valued at ₹50 lakhs to his wife, Geetha, who in turn has gifted
the same to her daughter-in-law Deepa. The house was let out at ₹25,000 per month throughout the
P.Y.2024-25. Compute income from house property for A.Y.2025-26.
In whose hands is the income from house property chargeable to tax?
(a) ₹3,00,000 in the hands of Mr. Aarav
(b) ₹2,10,000 in the hands of Mr. Aarav
(c) ₹2,10,000 in the hands of Geetha
(d) ₹2,10,000 in the hands of Deepa
11. As per section 60, which of the following statement is correct?
(a) If any person has not transferred the asset but has transferred income from such asset to any person, such
income shall be included in the income of transferor
(b) If any person has not transferred the asset but has transferred income from such asset to any person, such
income shall be included in the income of transferee
(c) If any person has not transferred the asset but has transferred income from such asset to any person, such
income is not taxable in the hands of transferor or transferee
(d) none of these
12. Which of the following is correct as per section 61?
(a) All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to
income-tax as the income of the transferee and shall be included in his total income.
(b) All income arising to any person by virtue of a revocable transfer of assets shall be chargeable to
income-tax as the income of the transferor and shall be included in his total income.
(c) All income arising to any person by virtue of a irrevocable transfer of assets shall be chargeable to
income-tax as the income of the transferor and shall be included in his total income.
(d) none of these
13. Which of the following statement is correct as per section 64(1)?
(a) If any individual has transferred any asset other than house property to the spouse, directly or indirectly,
income from the asset transferred, directly or indirectly shall be included in the income of transferor
provided the asset was transferred for adequate consideration or in connection with an agreement to live
apart.
(b) If any individual has transferred any asset other than house property to the spouse, directly or indirectly,
income from the asset transferred, directly or indirectly shall be included in the income of transferee
provided the asset was transferred otherwise than for adequate consideration or in connection with an
agreement to live together.
(c) If any individual has transferred any asset other than house property to the spouse, directly or indirectly,
income from the asset transferred, directly or indirectly shall be included in the income of transferor
provided the asset was transferred otherwise than for adequate consideration or in connection with an
agreement to live apart.
(d) none of these
14. Which of the following statements is correct?
(a) As per section 64(1A), in computing the total income of any individual, there shall be included all such
income as arises or accrues to his minor child, including a minor child suffering from any disability of the
nature specified in section 80U:
Provided that nothing contained in this sub-section shall apply in respect of such income as arises or
accrues to the minor child on account of any—
(a) manual work done by him; or
(b) activity involving application of his skill, talent or specialised knowledge and experience.
 Clubbing of Income 292

(b) As per section 64(1A), in computing the total income of any individual, there shall be included all such
income as arises or accrues to his minor child, not being a minor child suffering from any disability of the
nature specified in section 80U:
This section shall also apply in respect of such income as arises or accrues to the minor child on account of
any—
(a) manual work done by him; or
(b) activity involving application of his skill, talent or specialised knowledge and experience.
(c) As per section 64(1A), in computing the total income of any individual, there shall be included all such
income as arises or accrues to his minor child, not being a minor child suffering from any disability of the
nature specified in section 80U:
Provided that nothing contained in this sub-section shall apply in respect of such income as arises or
accrues to the minor child on account of any—
(a) manual work done by him; or
(b) activity involving application of his skill, talent or specialised knowledge and experience.
(d) As per section 64(1A), in computing the total income of any individual, there shall be included all such
income as arises or accrues to his major child, not being a major child suffering from any disability of the
nature specified in section 80U:
Provided that nothing contained in this sub-section shall apply in respect of such income as arises or
accrues to the minor child on account of any—
(a) manual work done by him; or
(b) activity involving application of his skill, talent or specialised knowledge and experience.
(e) none of these

Answer
1.(a); 2.(b); 3. (a); 4.(d); 5.(d); 6.(c); 7.(b); 8. (a); 9.(b); 10.(b); 11. (a); 12(b); 13. (c); 14. (c)
 Clubbing of Income 293

EXAMINATION QUESTIONS
MAY – 2023
Question 4(a). (6 Marks)
Mr. Chaman who is 50 years old and his wife Mrs. Chaman who in 48 years old furnish the following
information (all the amount of incomes/gains/losses are computed as per the provisions of Income-tax Act):
(i) Mr. Chaman's salary income (computed) - ₹ 11,00,000
(ii) Mrs. Chaman's income from Kathak performances - ₹ 2,50,000. She is a professional Kathak dancer
and pursue dancing as her profession.
(iii) Mrs. Chaman earned long-term capital gains of ₹ 5,50,000 from sale of shares.
(iv) Mrs. Chaman gifted ₹ 2,00,000 to Mr. Chaman out of her Stridhan on 1.4.2024, Mr. Chaman invested
the entire amount in stock market but suffered a short-term capital loss of ₹ 2,00,000
(v) Miss Naina, their minor daughter, earned ₹ 3,56,000 by performing in various quiz competitions held
online during the year 2024-25. She kept that amount in savings bank account and earned interest of
₹15,000 during the year 2024-25.
(vi) Master Neelabh, their minor son earned ₹ 35,000 from fixed deposit which was made out of the cash he
received on his birthday from his friends and family. Neelabh suffers from disability as mentioned
under section 80U. The medical certificate shows a disability of upto 75%.
Compute the total income in the hands of Mr. and Mrs. Chaman and their minor children for the Assessment
Year 2025-26 in default regime.
Solution:
Computation of total income of Mr. Chaman, Mrs. Chaman and their minor children
for the A.Y.2025-26
Particulars Mr. Mrs. Naina, Neelabh,
Chaman Chaman minor minor
daughter son
₹ ₹ ₹ ₹
Income under the head “Salaries”
Salaries (computed) 11,00,000
Profits and gains from business or profession
Income from Kathak performances 2,50,000
Capital Gains
Long term capital gains from sale of shares 5,50,000
Less: Set off of short-term capital loss (2,00,000)
Income [before considering income of minor 11,00,000 6,00,000
son and minor daughter]
Income of Naina, minor daughter, from 3,56,000
performances in various quiz competitions
would not be included in the hands of either
parent, since such income arises from her own
skills/talent.
However, interest of ₹ 15,000 on saving bank 15,000
account is to be included in the hands of Mr.
Chaman, since his income is higher than that of
his wife
Income of Neelabh, minor son suffering from
disability u/s 80U, from fixed deposits would 35,000
not be included in the income of parent but
would be taxable in his hands.
Gross Total Income / Total Income 11,15,000 6,00,000 3,56,000 35,000
 Clubbing of Income 294

NOV – 2022
Question 4(c). (4 Marks)
From the following transactions compute the total income of Mr. Raman and his wife Savita for the
Assessment year 2025-26.
(i) Mr. Raman had a fixed deposit of ₹5,00,000 in the bank. He instructed the bank to credit the interest on
deposit @ 6% from 01.04.2024 to 31.03.2025 to the savings account of his brother’s son for his
education.
(ii) Savita is a B.com graduate and working in the ABC Private Limited as an accountant with a monthly
salary of ₹25,000. Raman holds 30% equity shares of the ABC Private Limited.
(iii) Raman started proprietary business on 01.04.2023 with a capital of ₹10,00,000. He incurred a loss of
₹2,00,000 during the previous year 2023-24. To overcome the financial position, Savita gifted a sum of
₹4,00,000 to him on 01.04.2024 which was immediately invested in the business by Mr. Raman. He
earned a profit of ₹3,00,000 during the previous year 2024-25.
(iv) Sajan, younger son of Raman, aged 17 years won in a debate competition during the annual
competitions held at his school and received a cash award of ₹10,000 and he also earned interest of
₹7,000 on balance maintained in his savings bank account.
Solution:
Computation of Total Income of Mr. Raman and Mrs. Savita for A.Y. 2025-26
Particulars Mr. Raman Mrs. Savita
Amount (₹)
(i) Interest on fixed deposits [Income would be included in the hands of 30,000
Raman, since he has transferred income to his brother’s son without
transfer of the asset, being fixed deposit] [₹ 5,00,000 x 6%]
(ii) Salary income [₹ 3,00,000 (₹ 25,000 x 12) less standard deduction of 2,50,000
₹50,000]
[Mrs. Savita’s salary would not be included in the income of Raman,
who has substantial interest in the company, since she possesses the
relevant professional qualifications for working as an accountant]
(iii) Savita gifted ₹ 4,00,000 to Mr. Raman, which Mr. Raman has invested 2,00,000 1,00,000
in the business. In such case, proportionate income (i.e., 1/3 x
₹3,00,000) arising from such investment is to be included in the total
income of Savita.
Mr. Raman’s contribution in capital as on 1.4.2024 = ₹ 8,00,000
[₹10,00,000 – ₹ 2,00,000] Mrs. Savita’s contribution on 1.4.2024 =
₹4,00,000
₹ 3,00,000, being the profit for P.Y.2024-25 to be apportioned on the basis
of capital employed on the first day of the previous year i.e., as on 1.4.2024
(8:4 or 2:1)
Total income [before considering minor income from interest on savings 2,30,000 3,50,000
account]
(iv) Cash award won in a debate by Sajan, minor son, would not be included - -
in the hands of either parent, since such income arises from his own
skills/talent.
However, interest of ₹ 7,000 on savings bank account is to be included in
the hands of Mrs. Savita, since her income is higher than that of her
- 7,000
husband
Gross Total Income 2,30,000 3,57,000
Less: Deduction under Chapter VI-A - -
Total Income 2,30,000 3,57,000
 Clubbing of Income 295

MAY – 2022
Question 2(c). (4 Marks)
Mr. Sarthak is a member of HUF. It consists of himself, his wife Juhi and his major son Arjun and his minor
daughter Aditi. Mr. Sarthak transferred his house property acquired through his personal income to the HUF
without any consideration.
On 01.10.2024, HUF is partitioned and such property being divided equally. Net annual value of the
property for the Previous Year 2024-25 is 1,00,000. Determine the tax implications.
Answer:
₹
Since Mr. Sarthak, who is a member of the HUF, transfers the house property acquired by 35,000
him out of his personal income to the HUF without any consideration, the income from
such property would continue to be included in his total income upto the date of partition.
Accordingly, income from such property for six months upto the date of partition i.e.,
30.9.2024 (6/12 x ₹ 70,000 [Net Annual Value of ₹ 1,00,000 less deduction under section
24(a) @30%) would be included in the total income of Mr. Sarthak.
Since the HUF was partitioned on 1.10.2024, the income derived from such converted
house property as is received by Mr. Sarthak’s spouse, Juhi, on partition will be deemed to
arise to Mr. Sarthak from house property transferred indirectly by him to her and
consequently, such income would also be included in the total income of Mr. Sarthak.
Accordingly, Mr. Sarthak’s share (25%) and Juhi’s share (25%) would be included in the
total income of Mr. Sarthak.
Sarthak’s Share [25% of ₹ 35,000 (₹ 70,000 x 6/12)] 8,750
Juhi’s Share [25% of ₹ 35,000] included in the total income of Sarthak 8,750
Income from house property includible in the income of Mr. Sarthak 52,500
25% share of Sarthak’s minor daughter, Aditi, i.e., ₹ 8,750, being 25% of ₹ 35,000, would be included in
the total income of Mr. Sarthak or Juhi, whosoever’s total income, before including Aditi’s income, is
higher.
25% share of Sarthak’s major son, Arjun, i.e., ₹ 8,750, being 25% of ₹ 35,000, would be included in
Arjun’s total income.
Distribution of house property on partition of HUF is not a transfer for levy of capital gains tax.

DEC – 2021
Question 4(a). (4 Marks)
Details of Income of Mr. R and his wife Mrs. R for the previous year 2024-25 are as under :
(i) Mr. R transferred his self-occupied property without any consideration to the HUF of which he is a
member. During the previous year 2024-25 the HUF earned an income of ₹50,000 from such property.
(ii) Mr. R transferred ₹4,00,000 to his wife Mrs. R on 01.04.2006 without any consideration which was
given as a loan by her to Mr. Girish. She earned ₹3,50,000 as interest during the earlier previous years
which was also given as a loan to Mr. Girish. During the previous year 2024-25, she earned interest @
11% per annum.
(iii) Mr. R and Mrs. R both hold equity shares of 27% and 25% respectively in AMG Limited. They are also
working as employees in such Company without technical or professional qualification. During the
financial year 2024-25 they have withdrawn a salary of ₹3,20,000 and ₹ 2,70,000 respectively.
(iv) Mrs. R transferred 5,000 equity shares of RSB Ltd. on 17.09.2014 to Mr. R without any consideration.
The Company issued 3,000 bonus shares to Mr. R in 2017. On 04.03.2025, Mr. R sold entire share
holdings and earned ₹5,20,000 as capital gains.
Apart from above income, Mr. R has income from commission ₹4,00,000 and Mrs. R has interest income of
₹3,30,000.
 Clubbing of Income 296

Compute Gross Total income of Mr. R and Mrs. R for the assessment year 2025-26.
Answer
Computation of Gross Total Income of Mr. R and Mrs. R for A.Y. 2025-26

Particulars Mr. R Mrs. R

Amount (₹)
I. Income from house property
Income from property transferred to HUF without consideration
Since Mr. R has transferred his property to his HUF without
50,000
consideration, income of ₹ 50,000 from such property would be
included in the total income of Mr. R as per section 64(2).
II. Capital Gains
Income from equity shares transferred by Mrs. R to Mr. R
without consideration
Capital gains arising to Mr. R from transfer of equity shares of 3,25,000
RSB Ltd. gifted to him by Mrs. R would be included in the hands
of Mrs. R [₹ 5,20,000 x 5,000/8,000]
Capital gains arising to Mr. R from transfer of bonus shares issued 1,95,000
by RSB Ltd. on the basis of holding of the said equity shares
would be included in the income of Mr. R and not Mrs. R, since
income derived from accretion of the transferred asset cannot be
clubbed with the income of transferor of the original asset i.e.,
Mrs. R [₹ 5,20,000 x 3,000/8,000]
III. Income from Other Sources
Income from commission 4,00,000
Interest income 3,30,000
Interest income on ₹ 4 lakh transferred by Mr. R to Mrs. R
without consideration
Income of ₹ 44,000, i.e., 11% of ₹4,00,000, being the amount 44,000
transferred by Mr. R to Mrs. R without any consideration and
loaned by her to Mr. Girish, would be included in the income of
Mr. R
Income of ₹ 38,500 i.e., 11% of ₹ 3,50,000, being the interest 38,500
earned by Mrs. R out of amount gifted by Mr. R and thereafter,
given by her as loan to Mr. Girish, would be included in the
income of Mrs. R, as income derived by Mrs. R from accretion of
the amount gifted by Mr. R (i.e., interest income) cannot be
included in the income of Mr. R.
Total income [before considering adjustment on account of item 6,89,000 6,93,500
(iii) i.e., salary income from a company in which both Mr. R and
Mrs. R have substantial interest]
IV. Salary income from a company in which both Mr. R and Mrs. R
have substantial interest
 Clubbing of Income 297

Since both Mr. R and Mrs. R have substantial interest in AMG

Ltd. (on account of holding equity shares carrying 20% or more of
voting power) and both are in receipt of income by way of salary
from AMG Ltd., such salary income would be includible in the
hands of that spouse, whose total income, before including such
salary income, is higher. Accordingly, the salary income of both
Mr. R and Mrs. R would be included in the hands of Mrs. R in this
case, since her total income, before including such income, is
higher than that of Mr. R.
Salary income of Mr. R = ₹ 3,20,000 – ₹ 75,000 (standard 2,45,000
deduction)
Salary income of Mrs. R = ₹ 2,70,000 – ₹ 75,000 (standard 1,95,000
deduction)
Gross Total Income 6,89,000 11,33,500
Note: Whether salary income should be clubbed after standard deduction or before standard deduction is
controversial.

JULY – 2021
Question 4(a). (5 Marks)
Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi who is 42 years old furnished the following
information:
Particulars Amount (₹)
(i) Salary income (computed) of Mrs. Anandi 9,60,000
(ii) Income of minor Son “A” who suffers from disability specified in Section 80U 3,08,000
(iii) Income of minor daughter “C” from script writing for Television Serials 1,86,000
(iv) Income from garment trading business of Mr. Dharmesh 17,50,000
(v) Cash gift received by minor daughter “C” on 02.10.2024 from friend of Mr. Anandi on 45,000
winning of a story writing competition
(vi) Income of minor son “B” from Scholarship received from his school 1,00,000
(vii) Income of minor son “B” from fixed deposit with Punjab National Bank, made out of 3,500
income earned from Scholarship
Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for Assessment Year 2025-26.
Answer:
Computation of Total Income of Mr. Dharmesh and Mrs. Anandi for A.Y. 2025-26
Particulars Mr. Dharmesh Mrs. Anandi
Amount (₹)
Salary income (computed) 9,60,000
Income from garment trading business 17,50,000
Total Income before including income of minor children 17,50,000 9,60,000
Income of minor son “A”
Income of ₹ 3,08,000 of minor son A who suffers from
disability specified in section 80U [Since minor child A is
 Clubbing of Income 298

suffering from disability specified under section 80U, hence, his

income would not be included in the income of the parent but
would be taxable in the hands of the minor child]
Income of minor son “B”
Income of ₹ 1,00,000 from scholarship [Exempt u/s 10(16)] -

Income from fixed deposit with PNB 3,500

[Since Mr. Dharmesh’s income is greater than that of
Mrs. Anandi, income of minor son B from fixed
deposit would be included in the hands of Mr.
Dharmesh. Interest from bank deposit has to be
included in Mr. Dharmesh’s income, even if deposit
is made out of income earned from scholarship]
3,500
Income of minor daughter “C”
Income of ₹ 1,86,000 from script writing for television serials
[Income derived by a minor child from any activity involving
application of his/her skill, talent, specialized knowledge and
experience is not to be included in the hands of the parent] Nil

Hence, clubbing provisions will not apply in this case/no

adjustment is required.
Cash gifts of ₹ 45,000 received from friend of Mrs. Anandi
[Gift not exceeding ₹ 50,000 received from a non-relative is
not taxable under section 56(2)(x)]
Hence, clubbing provisions will not apply in this case / no Nil
adjustment is required.
Gross Total Income/ Total Income 17,53,500 9,60,000
Note - As per section 10(16), scholarships granted to meet the cost of education is exempt from tax. The
purpose of scholarship received by minor son B is explicitly not mentioned in the question. However,
scholarships given by schools are generally in the form of financial assistance for meeting the cost of
education. Hence, it is logical to assume that the scholarship to B has been granted to him to meet his cost of
education. Based on this assumption, the same has been treated as exempt from tax u/s 10(16).
Alternate view - However, in absence of specific information, it is possible to assume that
such scholarship has been granted on account of B’s exceptional academic achievements i.e., involving
application of his skill, talent, specialised knowledge and experience and hence would be covered under the
proviso to section 64(1A) and thus should not be included in the income of parent.

NOV – 2020
Question 3 (b) 6 Marks
Determine the Gross total income of Shri Ram Kumar and Smt. Ram Kumar for the assessment year 2025-
26 from the following:
(i) Salary received by Shri Ram Kumar from a company ₹1,80,000 per annum and Smt. Ram Kumar also
doing job in a company and getting salary of ₹2,40,000 per annum
(ii) Shri Ram Kumar transferred a flat to his wife Smt. Ram Kumar on 1st September, 2024 for adequate
consideration. The rent received from this let-out flat is ₹9,000 per month.
(iii) Shri Ram Kumar and his wife Smt. Ram Kumar both are partners in a firm. Shri Ram Kumar received
₹36,000 and Smt. Ram Kumar received ₹64,000 as interest from the firm and also had a share of profit of
₹12,000 and ₹26,000 respectively.
 Clubbing of Income 299

(iv) Smt. Ram Kumar transferred 10% debentures worth ₹3,00,000 to Shri Ram Kumar. The whole amount
of ₹3,30,000 invested by Shri Ram Kumar in the similar investments and earned income of ₹39,000.
(v) Mother of Shri Ram Kumar transferred a property to Master Rohit (son of Shri Ram Kumar) in the
year 2023. Master Rohit (Aged 13 years) received of ₹15,000 as income from this property on 20th
February, 2025.
Solution: Computation of Gross Total Income of Shri Ram Kumar
Income under the head salary
Salary received 1,80,000.00
Less: Standard deduction u/s 16(ia) (75,000.00)
Income under the head salary 1,05,000.00

Income under the head house property

Gross Annual value (9,000 x 5) 45,000.00
Less: Municipal taxes Nil
Net Annual value 45,000.00
Less: Standard deduction @ 30% u/s 24(a) (13,500.00)
Less: Interest on capital borrowed u/s 24(b) Nil
Income from house property 31,500.00
Income under the business/Profession
Interest income from Firm 36,000.00

Income under the head other sources

Interest income of debentures 3,545.45
(39,000 /3,30,000 x 30,000)
Gross Total Income 1,76,045.45
Computation of Gross Total Income of Smt. Ram Kumar
Income under the head salary
Salary received 2,40,000
Less: Standard deduction u/s 16(ia) (75,000)
Income under the head salary 1,65,000

Income under the head house property (Transferred with adequate consideration)
Gross Annual value (9,000 x 7) 63,000
Less: Municipal taxes Nil
Net Annual value 63,000
Less: Standard deduction @ 30% u/s 24(a) (18,900)
Less: Interest on capital borrowed u/s 24(b) Nil
Income from house property 44,100

Income under the business/Profession

Interest income from Firm 64,000

Income of Minor son – Rohit

Income from house property 15,000

Income under the head other sources

Interest on debentures (3,00,000 x 10%) 30,000.00
Interest income of debentures shall be clubbed u/s 64(1) 35,454.55
(39,000 /3,30,000 x 3,00,000)
Income under the head other sources 65,454.55
Gross Total Income 3,53,554.55
 Clubbing of Income 300

Note:
(i) Mother of Shri Ram Kumar transferred a Property to master Rohit, it is not mentioned it is House
Property, hence it is presumed that it is other than House Property. Accordingly income has been clubbed.
(ii) In case of transfer of debentures date of transfer is not given and whether it is transferred for adequate
consideration or not is not mentioned. Above solution is given on the assumption that it is transferred for
inadequate consideration and clubbing provisions shall be applicable.

MAY – 2019 (Old Course)

Question 4(b). (3 Marks)
Briefly explain with example, the meaning of Cross Transfer, the objective to make such transactions
and implications thereof under the Income Tax Laws.
Answer: Refer answer given in the book.
 Income Under The Head Other Sources 301

INCOME UNDER THE HEAD

OTHER SOURCES
SECTION 56 TO 59
PARTICULARS SECTIONS
Income from other sources 56
Deductions while computing income under the head other sources 57
Amounts not deductible 58
Deemed income chargeable to tax 59
Deemed dividend 2(22)
Method of accounting 145

Question 1: What are the incomes taxable under the head Other Sources.
Answer: Incomes taxable under the head Other Sources Section 56
If any income cannot be taxed under first 4 heads, such income shall be taxable under the head other sources
and such income may be
1. Interest income
2. Dividend income
3. Casual income
4. Gift
5. Family pension
6. Payment received under keyman insurance policy to a person who is not an employee
7. Income from owning and maintaining of race horses
8. Forfeiture of advance money
9. Any other income which is not taxable under first four heads.

Question 2 [Imp.]: Discuss the deductions allowable under section 57 of the Income Tax Act, 1961, in
respect of Income from Other Sources.
Answer:
Deductions allowable under Section 57
While computing income under the head other sources, expenses incurred in connection with earning of
such income shall be allowed to be deducted. However, in case of dividend income or income in respect of
units of mutual fund specified u/s 10(23D) or units of UTI, deduction shall be allowed only for the
interest expenses and that too shall also be restricted to 20% of the such income. Mr. X has taken a loan of
₹10 Lakh and paid interest ₹1 lakh and amount was invested in shares of a company and dividend received
is ₹ 2 lakh, in this case ₹1 lakh shall not be allowed to be deducted rather amount allowed to be deducted
shall be ₹40,000 and income shall be considered to be ₹1,60,000.

Amounts not deductible Section 58

While computing income, any personal expense shall not be allowed to be deducted and also in case of
capital expenditure only depreciation shall be allowed.
As per section 58(4), no deduction in respect of any expenditure or allowance shall be allowed in
computing the income by way of any winnings from lotteries, crossword puzzles, races including horse
races, card games and other games of any sort or from gambling or betting of any form or nature,
whatsoever.
e.g. Mr. X purchased lottery tickets of ₹10,000 and he had a winning of ₹1,00,000, in this case, his income
 Income Under The Head Other Sources 302

shall be considered to be ₹1,00,000 and expenditure of ₹10,000 shall not be allowed.

Profits chargeable to tax Section 59

If the assessee has claimed any expenditure while computing income and subsequently he has recovered the
same amount, the amount so recovered shall be considered to be income of the year in which amount has
been recovered, e.g. Mr. X has received a cheque of ₹ 1,00,000 being interest from ABC Ltd. and cheque
was deposited in his bank account and bank has deducted ₹ 1,000 being collection charge. His income was
considered to be ₹ 99,000. In the next year bank has refunded ₹ 500 being excess charges collected, in this
case ₹ 500 shall be considered to be income of the year in which the amount has been received.
Question 3: Write a note on Family Pension.
Answer: Family Pension
Regular payments given by the employer to the employee after retirement is called pension and it is taxable
under the head Salary and standard deduction is allowed under section 16(ia), e.g. Mr. X is retired from
ABC Ltd. and is getting pension ₹ 40,000 per month, in this case taxable amount under the head salary shall
be 40,000 X 12 – 75,000 = 4,05,000.
After the death of the employee, employer may pay some pension to the family member of the employee
and it is called family pension. It is taxable under the head Other Sources but as per section 57 deduction is
allowed equal to 1/3rd of such pension but maximum ₹25,000 (for optional scheme it is 15,000)
E.g. Mrs. X is getting family pension of ₹10,000 p.m., in this case taxable amount shall be (10,000 x 12)
minus 1/3 of ₹1,20,000 or ₹25,000 whichever is less i.e. taxable amount shall be ₹95,000. If family pension
is ₹ 3,000 per month, taxable amount shall be 36,000 – 12,000 = 24,000
Illustration 1: Mrs. X is getting family pension of ₹7,000 p.m. She also has dividend income from domestic
company of ₹31,000. She has long term capital gain under section 112A ₹4,00,000.
Compute her tax liability for assessment year 2025-26.
Solution: ₹ ₹
Income under the head Other Sources
Family Pension 84,000
(7,000 x 12)
Less: Deduction u/s 57 (25,000) 59,000
1/3 of ₹84,000 or ₹25,000 whichever is less
Dividend income 31,000
Income under the head Other Sources 90,000
Income under the head Capital Gains
Long term capital gain 112A 4,00,000
Gross Total Income 4,90,000
Less: Deduction under Chapter VI-A Nil
Total Income 4,90,000
Computation of Tax Liability
Tax on LTCG 112A ₹4,00,000 – 2,10,000 – 1,25,000 @ 12.5% 8,125
Tax on ₹90,000 at slab rate Nil
Tax before health & education cess 8,125
Add: HEC @ 4% 325
Tax Liability 8,450
Note: Rebate not allowed from LTCG 112A
Question 4: Write a note on taxability of interest received on payment of compensation from the
government.
Answer:
As per section 145B, interest received for payment of compensation from the Government or other
similar agency in connection with compulsory acquisition of land or building shall be taxable in the year in
which it has been received and it will be taxable under the head other sources however, as per section 57
deduction shall be allowed @ 50% of such interest. e.g. Government has acquired one land of Mr. X in
Noida in 2019 and payment was given by the Government in the year 2024-25 and has also paid interest of
 Income Under The Head Other Sources 303

₹1,00,000, in this case, taxable amount shall be ₹1,00,000 – ₹50,000 = ₹50,000.

Illustration 2: Interest on enhanced compensation received by Mr. X during the previous year 2024-25 is
₹6,50,000. Out of this interest, ₹ 2,00,000 relates to the previous year 2021-22, ₹2,15,000 relates to previous
year 2022-23 and ₹2,35,000 relates to previous year 2023-24. Discuss the tax implication, if any, of such
interest income for A.Y.2025-26.
Solution:
The entire interest of ₹ 6,50,000 would be taxable in the year of receipt, namely, P.Y.2024-25.
Particulars ₹
Interest on enhanced compensation taxable u/s 56 6,50,000
Less: Deduction under section 57 @ 50% (3,25,000)
Interest chargeable under the head “Income from other sources” 3,25,000

Question 5 [V. Imp.]: Write a note on taxability of Dividend Income.

Answer: Dividend Income Section 56
Dividend income from the domestic company shall be Taxable in the hands of the shareholder. Dividends
from a foreign company shall also be taxable in the hands of the shareholder.

If any such person is engaged in the business of sale purchase of shares , even in that case dividend income
shall be taxable under the head other sources.

As per section 57, in case of dividend income, deduction shall be allowed only for the interest expenses
and that too shall also be restricted to 20% of the dividend income.

MEANING OF DIVIDEND SECTION 2(22)

The term dividend has a very limited meaning under Companies Act but it has a very wide meaning under
Income Tax Act and is called deemed dividend and it is divided into 5 parts:
(i) Distribution in cash or as assets Section 2(22)(a)
(ii) Issue of bonus shares etc. Section 2(22)(b)
(iii) Distribution on liquidation Section 2(22)(c)
(iv) Distribution on reduction of share capital Section 2(22)(d)
(v) Loan and advance by a closely held company Section 2(22)(e)
(vi) Buy Back of shares by a company Section 2(22)(f)

(i) Distribution in cash or as assets Section 2(22)(a)

If any company has distributed any amount to its shareholders either in cash or in kind, it will be considered
to be dividend but only to the extent of accumulated profits including capitalized profit.
Example
Balance sheet of ABC limited.
Liability Amount Assets Amount
Share Capital (includes Bonus shares 17,00,000 Assets 25,00,000
of ₹ 2 Lacs)
Reserve and Surplus 3,00,000
Liability 5,00,000
Total 25,00,000 Total 25,00,000
Company distributed assets having Book value of ₹3,00,000 to is shareholders. Calculate the Deemed
Dividend u/s 2(22)(a) having market Value-
1. 5,00,000
2. 7,00,000
Solution:
Accumulated Profit of the Company (whether Capitalised or Not)
- Reserves and Surplus + Bonus Shares
- 3,00,000 + 2,00,000 = 5,00,000
 Income Under The Head Other Sources 304

Deemed Dividend u/s 2(22)(a) shall be as follows-

Market Value Deemed Dividend
5,00,000 5,00,000
7,00,000 5,00,000

(ii) Issue of bonus shares etc. Section 2(22)(b)

If any company has issued bonus shares to the equity shareholders, it will not be considered to be dividend
but if the bonus shares have been issued to the preference shareholders, it will be considered to be dividend
but to the extent of accumulated profits whether capitalised or not. Further, market value of the bonus shares
shall be taken into consideration.
Example
Mr. X is holding 100 preference share in ABC Ltd. The company has issued him 100 bonus shares and their
market value is ₹1,200. In this case, it will be considered to be dividend but only to the extent of
accumulated profits whether capitalized or not.
(iii) Distribution on liquidation Section 2(22)(c)
If any company has distributed any amount to its shareholders in connection with its liquidation, it will be
considered to be dividend but only to the extent of accumulated profits and any excess over it shall be
considered to be full value of consideration as per section 46 and capital gains shall be computed
accordingly.
Example
ABC Ltd. has 1,00,000 equity shares of ₹10 each and the company goes into liquidation on 31.07.2024 and
company has net distributable amount of ₹60 lakhs after discharging all the liabilities including income tax
and it includes accumulated profits of ₹20 lakhs and the entire amount was distributed among the
shareholders and Mr. X is holding 10,000 equity shares which were purchased by him on 01.03.2024 for
₹1,10,000, in this case, tax treatment shall be as given below:
₹
Net Distributable Amount 60,00,000
Share of Mr. X (10%) 6,00,000
Share of Mr. X out of accumulated profits which is considered dividend u/s 2(22)(c) (2,00,000)
Balance to be considered full value of consideration 4,00,000
Less: Cost of acquisition of shares (1,10,000)
Short term Capital Gain 2,90,000
Dividend u/s 2(22)(c) 2,00,000
Tax liability on ₹ 4,90,000 at slab rate 9,500
Less: Rebate u/s 87A (9,500)
Tax Liability Nil
(iv) Distribution on reduction of share capital Section 2(22)(d)
Any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the
company possesses accumulated profits e.g. Mr. X is holding 100 shares in ABC Ltd. of ₹10 each and
company has paid ₹5 per share in connection with reduction of share capital, in this case amount so received
shall be considered to be dividend but only to the extent of accumulated profits including capitalized profits.
Example
Mr. X is holding 1000 shares of ABC Ltd. of ₹10 each and company has reduced its share capital and has
refunded ₹5 per share to the shareholders, the amount so received by the shareholders shall be considered to
be dividend to the extent of accumulated profit.
ABC Ltd. has share capital 50,00,000 and Reserve and Surplus ₹ 10,00,000 and company has distributed
₹15,00,000 in correction with reduction of share capital, in this case dividend under section 2(22)(d) shall be
₹ 10,00,000.
(v) Loan and advance by a closely held company Section 2(22)(e)
If any closely held company (also called company in which public are not substantially interested) has given
any loan or advance to an equity shareholder who is holding not less than 10% of the voting power of the
company, in such cases such loan or advance shall be considered to be dividend in the hands of such
 Income Under The Head Other Sources 305

shareholder but only to the extent of accumulated profits excluding capitalized profits e.g. ABC Pvt. Ltd. a
closely held company has general reserves of ₹7,00,000 and current profits of ₹2,00,000. The company has
given a loan of ₹3,00,000 to one such shareholder Mr. X. in this case, it will be considered to be dividend in
the hands of Mr. X. If loan given by the company is ₹10,00,000, the amount of dividend shall be ₹9,00,000.
If the loan or advance has been given to any concern (Partnership firm, company, AOP, BOI etc.) in which
such a shareholder has substantial interest, such loan or advance shall also be considered to be dividend in
the hands of such concern but only to the extent of accumulated profits excluding capitalized profits .
Example
(i) Mr. X is the beneficial owner of 10% equity shares in ABC Pvt. Ltd. (A closely held company) and the
company has general reserve of ₹10,00,000 and has given a loan of ₹6,00,000 to a partnership firm XY in
which Mr. X is holding 20% shares. In this case, the loan so given shall be considered to be dividend in the
hands of partnership firm .
(ii) Mr. X is a shareholder in a Company A (A Closely held company) as well as Company B. He has 10%
shareholding in Company A and 20% shareholding in Company B. The accumulated profits of Company A
= ₹10 lakh. A loan of ₹12 lakh is given by Company A to Company B.
This loan up to the extent of accumulated profits of ₹ 10 lakh is treated as dividend and is taxable in the
hands of Company B.
If the loan or advance has been given to any person on behalf of such a shareholder, it will also be
considered to be dividend.

Where a loan had been treated as dividend and subsequently, the company declares and distributes dividend
to all its shareholders including the borrowing shareholder, and the dividend so paid is set off by the
company against the previous borrowing, the adjusted amount will not be again treated as a dividend.
E.g. Mr. X is holding 10% shares in ABC private limited a closely held company and has taken a loan of
10,00,000 and it was considered to be dividend under section 2(22)(e) and in subsequent year the company
has declared dividend of 10,00,000 which was deposited in the loan account of Mr. X, in this case it will not
be considered to be dividend.

If any such company has the business of lending as substantial part of its business, in such cases the above
provisions shall not apply e.g. ABC Pvt. Ltd. is a closely held company and is engaged in banking business
(lending of money), in this case section 2(22)(e) is not applicable for ABC Pvt. Ltd.

As per section 2(22)(e), if any trade advance is given to the shareholder covered under section 2(22)(e), it
will not be considered to be dividend, eg. Mr. X is holding 10% share in XYZ private limited a closely held
company and Mr. X is supplying certain goods to the company and has received some advance, it will not be
considered to be dividend.

(vi) Buy Back of shares by a company Section 2(22)(f)

As per section 2(22)(f), Any payment by a company on purchase of its own shares from a shareholder in
accordance with the provisions of section 68 of the Companies Act, 2013 shall be considered to be dividend in
the hands of the shareholders.

(As per section 8, dividends are taxable in the year in which it is declared or distributed whichever is
earlier.)

Question 6 [V. Imp.]: Write a note on taxability of Casual Income.

Answer: Casual Income Section 56
Under section 2(24)(ix), casual income shall include card games, cross word puzzles, betting, races
including horse races, any game show on electronic media or any other gambling.
While computing income from casual income, as per section 58(4) no expenditure or allowance or
deductions shall be allowed and accordingly the gross receipt itself shall be considered to be income.
Example
Mr. X purchased one lottery ticket of ₹10,000 and there was a winning of ₹1,20,000. Deductions allowed
 Income Under The Head Other Sources 306

under chapter VI-A ₹ 1,00,000. He has loss under the head house property ₹ 50,000, In this case, his taxable
income shall be ₹1,20,000 and tax liability shall be
Tax on ₹1,20,000 @ 30% 36,000
Less: Rebate u/s 87A (25,000)
Tax before HEC 11,000
Add: HEC @ 4% 440
Tax Liability 11,440
Note: No expenditure or deduction or loss is allowed to be adjusted from casual income however rebate is
allowed from tax of casual income

Question 7. Write a note on taxability of income from Owning and Maintaining of Race Horses.
Answer: Income from Owning and Maintaining of Race Horses Section 56
If any person has income from owning and maintaining of race horses, such income shall be taxable under
the head other sources and income shall be computed in the normal manner and will be taxed at the
normal rates.
As per Section 74A, If any person has any loss from the activities of owning and maintaining race horse,
such loss is not allowed to be set off from any income under any head. However, if the assessee has any
other business of owning and maintaining race horses, loss of one such business can be set off from the
income of other such business.
If the loss can not be set off, it will be allowed to be carried forward, but such carry forward is allowed for a
maximum period of four years and brought forward loss can be set off only from the income of owning and
maintaining race horses.
Income from owning and maintaining of any other animal
If the assessee is engaged in the business of owning and maintaining any other animal, his income shall be
computed under the head business/profession because section 56 includes only income from owning and
maintaining race horses. E.g. Mr. X has income from owning and maintaining of race camels, in this case
income shall be taxable under the head business/profession.
E.g. (i) Mr. X has loss of ₹5,00,000 from owning and maintaining of race horses and income under the head
house property ₹5,00,000, in this case loss is not allowed to be setoff, however its carry forward is allowed
for a period of 4 years.
(ii) Mr. X has loss of ₹2,00,000 from house property and income from owning and maintaining of race
horses ₹2,00,000, in this case loss is not allowed to be setoff.
(iii) Mr. X has loss of ₹5,00,000 from business/profession and income from owning and maintaining of race
horses ₹5,00,000, in this case loss is allowed to be setoff.
(iv) Mr. X has loss of ₹5,00,000 from owning and maintaining of race horses and income under the head
capital gains ₹5,00,000, in this case loss is not allowed to be setoff, however its carry forward is allowed for
a period of 4 years.

Question 8 [Imp.]: Write a note on taxability of interest income.

Answer: Taxability of interest income Section 56
Any Interest income shall be taxable under the head Other Sources however some of the interest incomes
shall be exempt from income tax under section 10(15) and are as given below:
1. Interest on Capital Investment Bonds issued by the Government.
2. Interest on Relief Bonds issued by RBI.
3. Interest on Post Office Savings Bank Account to the extent of ₹3,500 per year and in the case of joint
account, exemption shall be allowed upto ₹7,000 per year.
4. Interest on Public Provident Fund Account
5. Any other interest income notified under section 10(15).

Question 9: Explain taxability of income from letting out of building alongwith furniture, fixtures etc.
Answer: If any person has let out any building alongwith plant and machinery and furniture, fixtures etc.
and it is not a case of composite rent and also income is not taxable under the head business/profession, in
 Income Under The Head Other Sources 307

such cases income shall be taxable under the head Other sources and while computing income all expenses
incurred shall be allowed to be deducted e.g. Mr. X has one factory building along with machines and
furniture in Bombay which has been let out @ ₹50,000 p.m. Repair charges of the building is ₹7,000 and
that of furniture fixtures are ₹4,000, insurance premium paid ₹3,000 and depreciation is ₹27,000, in this case
income shall be computed in the manner given below:
Solution: ₹
Gross Rent (50,000 x 12) 6,00,000
Less: Repair of building (7,000)
Less: Repair of Furniture and fixtures (4,000)
Less: Insurance premium (3,000)
Less: Depreciation (27,000)
Income under the head Other Sources 5,59,000

Question 10: Write a note on Books of Accounts.

Answer: Books of Accounts Section 145
A person is not required to maintain any books of accounts under the head salary or house property or
capital gains and income has to be computed as per the procedure given in the relevant head.
Books of accounts are required under the head Business/Profession and under the head Other Sources. An
assessee has the option to maintain books of accounts either on the basis of mercantile system of accounting
or on cash basis. Any system of accounting once adopted has to be followed consistently, however it can be
changed with the permission of Assessing Officer.
Example
Mr. X has deposited ₹10,00,000 in ABC Ltd. @ 10% p.a. and interest income is due on yearly basis on 31st
March every year. Interest income which was due on 31.03.2025 was received on 01.04.2025. In this case, if
the assessee is maintaining books of account on the basis of mercantile system of accounting, income is
taxable in previous year 2024-25, and if the books are maintained on cash basis, income is taxable in the
previous year 2025-26
Question 11: Write a note on payment under keyman insurance policy.
Answer: Payment under Keyman Insurance Policy
Sometimes employer may take a life policy in the name of any of his employees who are considered to be
very important for business or profession and such policy is called keyman insurance policy and premium is
paid by employer and employer is allowed to debit it to profit and loss account and amount received on
maturity shall be considered to be income of employer as per section 28.
If any payment has been received by the employee, it will be considered to be income under the head salary.
Similarly a policy may be taken in the name of any other person who is considered to be very important for
the business of the employer, such policy is also called keyman insurance policy. If payment has been
received by such other person, it will be considered to be his income under the head other sources as per
section 56.
Question 12: Write a note on forfeiture of advance money.
Answer: Forfeiture of advance money
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. e.g. Mr. X has entered
into agreement to sell a house property for ₹50 lakh to Mr. Y and advance money of ₹5,00,000 was received
but Mr. Y refused to purchase the property and advance money was forfeited, in this case ₹5,00,000 shall be
considered to be income of Mr. X under the head Other Sources.
Question 13 [Imp.]: Write short note on Set Off and Carry Forward of loss arising under the head
“Income from Other Sources”.
Answer: Set Off and Carry Forward of Losses under the head “Income from Other Sources”
As per section 70, if there is loss in one source under the head other sources, such loss can be set off from
income of any other source under the same head.
 Income Under The Head Other Sources 308

However, as per section 58(4), no deduction or set off shall be allowed from the income by way of any
winnings from lotteries, crossword puzzles, races including horse races, card games, and other games of any
sort or from gambling or betting of any form whatsoever.
As per section 71, if the loss can not be set off under the same head, it can be set off from the incomes of
other heads.
If the loss can not be set off even from the incomes of other heads, its carry forward is not allowed.
e.g. (i) Mr. X has loss under the head other sources ₹2,00,000 and income under the head other sources
₹5,00,000, in this case loss is allowed to be setoff.
(ii) Mr. X has loss under the head other sources ₹2,00,000 and income under the head house property
₹5,00,000, in this case loss is allowed to be setoff.
(iii) Mr. X has loss under the head other sources ₹2,00,000 and income from owning and maintaining of race
horses ₹5,00,000, in this case loss is allowed to be setoff.
(iv) Mr. X has loss under the head other sources ₹2,00,000 but do not have income under any other head, in
this case carry forward of loss is not allowed.
Question 14: Write a note on income of closely held company by issue of Shares.
Answer:
As per section 56 (2) (viib), where a company, not being a company in which the public are substantially
interested, receives, in any previous year, from any person, any consideration for issue of shares that
exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the
fair market value of the shares. In other words if shares are issued at a price which is higher than the market
value and also higher than the face value, in that case taxable amount shall be the issue price less market
price. E.g. ABC Pvt. Ltd. a closely held company has submitted information as given below:
1. Face value ₹ 100 per share, Market value ₹ 120 per share and issue price ₹ 150 per share, in this case
taxable amount shall be ₹ 30 per share.
2. Face value ₹ 100 per share, Market value ₹ 80 per share and issue price ₹ 95 per share, in this case
taxable amount shall be Nil because issue price is not exceeding the face value.
3. Face value ₹ 100 per share, Market value ₹ 80 per share and issue price ₹ 110 per share, in this case
taxable amount shall be 110 – 80 = 30 because issue price is exceeding the face value and also market
value.
The Above Provision is not applicable w.e.f. 01.04.2025 i.e. it is applicable upto 31.03.2025

Question 15: Write a note on Bond Washing Transactions.

Answer: Bond Washing Transactions Section 94
If any person has transferred any security in the name of any other person sometimes before the due date and
has reacquired it sometimes after the due date in order to evade tax, it will be considered to be a bond
washing transaction and income shall be considered to be of the person who has manipulated in this manner.
Example
Mr. Yuvraj Arora has purchased security of ₹10,00,000 in ABC Ltd. on 01.04.2024 @ 10% and interest is
due on half yearly basis i.e. on 30th Sept and 31st March of every year. If Mr. Yuvraj Arora has transferred
this security just before the due date in the name of any other person through a fictitious sale transaction and
has re-transferred it in his name after the due date through a fictitious purchase transaction so that he can
evade tax, it will be called bond washing transaction and in such cases interest income is taxable in the
hands of Mr. Yuvraj Arora.
[This practice is generally adopted by high-income class assessees to evade the tax by transferring securities
to low income class assessee on the eve of due date of payment of interest.]

Illustration 3: Mr. X has taken a loan of ₹1,00,000 @ 10%. The amount was invested by him in the
securities of one company. During the year he has received gross interest of ₹18,000 and has paid collection
charges to the bank ₹500. He has paid interest ₹10,000 on the loan taken by him for investment and has long
term capital gain under section 112A of ₹4,00,000 and casual income ₹ 10,000. Deductions allowed under
Chapter VI-A ₹ 10,000
Compute his tax liability for assessment year 2025-26.
 Income Under The Head Other Sources 309

Solution: ₹
Gross Interest 18,000
Less:
(i) Bank Charges u/s 57 (500)
(ii) Interest paid for borrowing the amount u/s 57 (10,000)
7,500
Casual Income 10,000
Income under the head Other Sources 17,500
Income under the head Capital Gains (LTCG 112A) 4,00,000
Gross Total Income 4,17,500
Less: Deductions under Chapter VI-A Nil
Total Income 4,17,500
Computation of Tax Liability
Tax on Casual Income 10,000 X 30% 3,000
Tax on LTCG 112A (4,00,000 – 2,92,500 – 1,07,500) X 12.5% Nil
Less: Rebate u/s 87A (3,000)
Tax before HEC Nil
Add: HEC @ 4% Nil
Tax Liability Nil
Note: Rebate is not allowed from tax on LTCG 112A

Question 16: Explain taxability of amount received on maturity of LIC policy.

Answer:
As per section 10(10D), amount received on maturity of life policy including bonus shall be exempt from
income tax provided premium paid is not exceeding 10% of sum assured. Prior to 01.04.2012 it was 20% of
sum assured. If payment has been received after the death of the policy holder, it will be exempt from
income tax.
New Provision w.e.f. 01.04.2023
If life policy have been taken w.e.f. 01.04.2023, in that case if aggregate of premium paid for one or more
policy is exceeding ₹5 lakh in any of the years during the term of such policy, amount received in excess of
the premium paid shall be taxable but if amount is received after the death of the policy holder, it will be
exempt. Further if any deduction was claimed for the premium paid, it will also be taxable
Example 1. Mr. X has taken one policy on 01.04.2024 for 10 years and premium paid is ₹5,00,000 p.a. and
amount received on maturity is ₹60,00,000, in this case entire amount is exempt.
Example 2. Mr. X has taken one policy on 01.04.2024 for 10 years and premium paid is ₹6,00,000 p.a. and
amount received on maturity is ₹75,00,000, in this case taxable amount shall be ₹75,00,000 – 60,00,000 =
₹15,00,000. If deduction was allowed under section 80C for the premium paid ₹1,50,000 x 10 = ₹15,00,000,
taxable amount shall be ₹30,00,000.
Example 3.
LIP A B C D
Date of issue 1.4.2024 1.4.2024 1.4.2025 1.4.2025
Annual premium 2,00,000 2,00,000 3,00,000 6,00,000
Sum assured 20,00,000 20,00,000 30,00,000 60,00,000
Consideration received on surrender as 12,00,000
on 31.03.2030
Consideration received as on 24,00,000
31.03.2034 on maturity
Consideration received as on 36,00,000 70,00,000
31.03.2035 on maturity

In this case assessee can take exemption in the manner given below:
(i) Take exemption for A & B
 Income Under The Head Other Sources 310

(ii) Take exemption for B & C

(iii) Take exemption for A & C
No exemption shall be allowed for LIP D i.e. amount received in excess of premium paid shall be taxable.
Clarification on GST Component: It is also clarified by the CBDT that the premium payable/ aggregate
premium payable for a life insurance policy/policies, would be exclusive of the amount of GST payable on
such premium.
Clarification on premium of Term life insurance policy: It is further clarified by the CBDT that the limit
of ₹ 5,00,000 of amount of premium payable would not be applicable in case of a term life insurance
policy i.e. where sum under a life insurance policy is only paid to the nominee in case of the death of the
person insured during the term of the policy and no amount is paid to anyone if the insured person survives
the policy tenure.
Hence, any sum received under a term insurance policy shall continue to be exempt under section 10(10D),
irrespective of the amount of the premium payable in respect of such policy. Further the premium paid for
such policies would not be counted for checking the limit of ₹ 5,00,000 of amount of premium payable.
 Income Under The Head Other Sources 311

MULTIPLE CHOICE QUESTIONS

1. Income from letting of machinery, plant and furniture is -
(a) always chargeable to tax under the head “Profits and gains of business and profession”
(b) always chargeable to tax under the head “Income from other sources”
(c) chargeable under the head “Income from other sources” only if not chargeable under the head “Profits
and gains of business and profession”
(d) chargeable to tax under the head “Income from house property”
2. In respect of winnings from lottery, crossword puzzle or race including horse race or card game etc.
(a) no deduction under Chapter VI-A is allowed and basic exemption limit cannot be exhausted
(b) no deduction under Chapter VI-A is allowed but unexhausted basic exemption can be exhausted
(c) both deduction under Chapter VI-A and basic exemption are allowed
(d) deduction under Chapter VI-A is allowed but basic exemption limit cannot be exhausted
3. The deduction allowable in respect of family pension taxable under “Income from other sources” is
(a) 33-1/3% of the pension
(b) 30% of the pension or ₹25,000, whichever is less
(c) 33-1/3% of the pension or ₹25,000, whichever is less
(d) 30% of the pension
4. The deduction in respect of interest on enhanced compensation of ₹1,50,000 received during the
previous year 2024-25, would be –
(a) ₹ 1,50,000, being 100% of ₹ 1,50,000 (b) ₹ 75,000, being 50% of ₹ 1,50,000
(c) ₹ 45,000, being 30% of ₹ 1,50,000 (d) Nil
5. Mr. Harish, aged 40 years, earned interest of ₹15,000 during P.Y. 2024-25 from post office savings
bank account. What portion of such income would be ultimately included in his total income?
(a) ₹15,000 (b) ₹5,000 (c) ₹1,500 (d) Nil
6. Which of the following statement is not correct?
(a) Loss from owning and maintaining of race horses cannot be set off from the income of house property
(b) Loss from owning and maintaining of race horses cannot be set off from any income except income of
owning and maintaining race horses
(c) Loss from owning and maintaining of race horses is allowed to be carry forward for a period of 4 years
(d) Loss from owning and maintaining of race horses is allowed to be carry forward for a period of 4 years
and in subsequent years it can be set off from any income
7. Jenny has invested in debt securities of Haryali Pvt. Ltd., a company deriving its main source of
income from business of growing and processing organic vegetables and fruits. Thus, the company has
80% of income exempt as agricultural income and 20% is taxable as business income. During the P.Y.
2024-25, Jenny derived ₹ 5,000 as interest income from the above investments. Which of the following
statements are correct on taxability:
(a) Interest will be exempt from tax to the extent of 80%, since Hariyali Pvt. Ltd has 80% exempted income.
(b) Interest will be exempt from tax to the extent of 20%, since Hariyali Pvt. Ltd has claimed 80% of income
as exempt.
(c) Interest will be fully taxable
(d) Interest will be fully exempt
8. Which of the following statements is not correct?
(a) Issue of bonus shares to the preference shareholders shall be considered to be dividend
(b) Issue of bonus shares to the equity shareholders shall be considered to be dividend
(c) Distribution on the liquidation to the extent of accumulated profits shall be considered to be dividend
(d) None of these
9. Loan or advance by a closely held company shall be dividend
(a) If such loan and advance has been given to any equity shareholder who is holding not less than 20% of
the voting power of the company
(b) If such loan and advance has been given to any equity shareholder who is holding not less than 10% of
the voting power of the company
 Income Under The Head Other Sources 312

(c) If such loan and advance has been given to any equity shareholder who is holding not less than 15% of
the voting power of the company
(d) If such loan and advance has been given to any equity shareholder who is holding not less than 12% of
the voting power of the company
(e) None of these
10. Which is the correct statement.
(a) Section (2)(22)(a), 2(22)(b) and 2(22)(e) is applicable only in case of a closely held company
(b) Section (2)(22)(a), 2(22)(b) and 2(22)(e) is applicable only in case of a widely held company
(c) Section (2)(22)(a), 2(22)(b) and 2(22)(c) is applicable only in case of a closely held company
(d) Section (2)(22)(a), 2(22)(b) and 2(22)(c) is applicable in case of all the companies
(e) None of these
11. Salary received by a member of parliament is taxable under the head
(a) Salary (b) Business/Profession (c) Capital Gains (d) Other Sources
(e) None of these
12. Salary and interest received by a partner from a partnership firm shall be
(a) Exempt from Income tax
(b) Salary taxable under the head salary and interest taxable under the head other sources
(c) Salary taxable under the head Business/Profession and interest taxable under the head other sources
(d) Salary taxable under the head salary and interest taxable under the head Business/Profession
(e) Salary taxable under the head Business/Profession and interest taxable under the head Business/
Profession
(f) None of these
13. Mr. X has taken a loan and the amount was given as deposit to a company and interest received is
less than interest paid, in this case loss can be
(a) Set off within the same head including casual income
(b) Set off within the same head excluding casual income and also its carry forward is allowed
(c) Set off within the same head excluding casual income or it can be set off from the income of other heads
but its carry forward is not allowed
(d) None of these
14. Mr. X received a cell phone as a gift from his friend valued ₹ 1,00,000, in this case
(a) It is taxable under the head Other Sources
(b) It is taxable under the head Salary
(c) It is taxable under the head Business/Profession
(d) It is not taxable
(e) None of these

Answer
1.(c); 2.(a); 3.(c); 4.(b); 5.(c); 6.(d); 7.(c); 8.(b); 9. (b); 10. (d); 11. (d); 12. (e); 13. (c); 14. (d)
 Income Under The Head Other Sources 313

PRACTICE PROBLEMS
TOTAL PROBLEMS 6
Problem 1.
Mr. X has income from business of owning and maintaining race camels ₹60,000, loss from owning and
maintaining race horses ₹7,000 and income from horse races ₹7,000. He has brought forward business loss
of ₹7,000 of the assessment year 2014-15 and brought forward business loss of ₹7,000 of the assessment
year 2020-21.
Compute his tax liability for the assessment year 2025-26.
Answer = Total Income: ₹60,000; Tax Liability: Nil; Carry forward loss from owning and maintaining race
horses: ₹7,000

Problem 2.
Mr. X has income from owning and maintaining of race horses ₹ 4 lakhs and loss from horse races ₹ 10
lakhs.
Determine his tax liability for the assessment year 2025-26.
Answer = Tax Liability: Nil

Problem 3.
Mr. X has loss from owning and maintaining of race horses ₹4 lakhs and income from owning and
maintaining of race camels ₹4 lakhs.
Determine his tax liability for the assessment year 2025-26.
Answer = Tax Nil; Carry forward loss from owning and maintaining of race horses: ₹4,00,000

Problem 4.
Find the tax liability of Mrs. X (age 40 years), a resident individual, for the assessment year 2025-26. From
the following particulars of her incomes and spending for the previous year ending March 31st, 2025.
₹
Income from house property (Computed) 90,000
Dividend from UTI 35,000
Family pension (gross) 90,000
Interest on bank FD (gross) 14,000
Dividend from foreign company 36,000
Gift received from her sister 26,000
Winnings from lotteries (gross) 70,000
Long-term capital gain 1,20,000
Payment for purchase of National Savings Certificates 35,000
Answer = Tax Liability: ₹4,940

Problem 5.
Mr. X has submitted information given below.
i) Income from owning and maintaining of race horse ₹2,00,000.
ii) Income from owning and maintaining of race camels ₹1,00,000.
iii) He had winning of ₹1,60,000 from horse race on 01.12.2024 and winning from camel race
₹1,80,000 on 07.12.2024.
iv) He purchased lottery tickets of ₹10,000 on 01.02.2025 and had winning of ₹2,00,000 on
12.02.2025.
v) He has received Royalty of book of literary nature @ 50% of print price of ₹ 600 and total copies
sold are 2,000
vi) He has paid advance tax as given below:
Upto 15.06.2024 ₹ 20,000
Upto 15.09.2024 ₹ 35,000
 Income Under The Head Other Sources 314

Upto 15.12.2024 ₹ 80,000

Upto 15.03.2025 ₹ 1,30,000
Balance was paid on 10.06.2025
Compute tax liability for the A.Y 2025-26 and interest under section 234A, 234B and 234C.
Answer = Tax Liability: ₹2,10,080; Interest under section 234A: Nil; 234B: ₹2,400; 234C: ₹1,721
Problem 6.
ABC Ltd. has 1,00,000 equity shares of ₹10 each and Mr. X purchased 10,000 equity shares on 01.01.2024
of ₹10 each and the company goes into liquidation on 31.07.2024 and company has net distributable amount
of ₹60 lakhs after discharging all the liabilities and it includes accumulated profits of ₹ 20 lakhs and the
entire amount was distributed among the shareholders.
Minor son of Mr. X has interest income of ₹2 lakhs from one bank deposit which was gifted to him by his
grand father.
Mrs. X has one business and income from business is ₹1 lakh entire capital was gifted by Mr. X.
Mr. X is growing flowers and has income of ₹ 7 lakh from sale of flowers.
Compute his tax liability for Assessment Year 2025-26.
Answer = Tax Liability: ₹93,600
 Income Under The Head Other Sources 315

SOLUTIONS
TO
PRACTICE PROBLEMS
Solution 1: ₹
Income under the head Business/Profession 60,000
Less: Brought forward business loss (7,000)
Income under the head Business/Profession 53,000
Income under the head Other Sources (horse races) 7,000
Gross Total Income 60,000
Less: Deductions under Chapter VI-A Nil
Total Income 60,000
Computation of tax liability
Tax on ₹7,000 @ 30% 2,100
Tax on ₹53,000 at slab rate Nil
Less: Rebate u/s 87A (2,100)
Tax Liability Nil
Carry forward loss from owning and maintaining race horses 7,000

Solution 2: ₹
Income under the head Other Sources 4,00,000
Gross Total Income 4,00,000
Less: Deductions under Chapter VI-A Nil
Total Income 4,00,000
Tax on ₹4,00,000 at slab rate 5,000
Less: Rebate u/s 87A (5,000)
Tax Liability Nil
Note: Loss from casual income has no tax treatment and hence it is dead loss.

Solution 3: ₹
Income under the head Business/Profession 4,00,000
Gross Total Income 4,00,000
Less: Deductions under Chapter VI-A Nil
Total Income 4,00,000
Tax on ₹4,00,000 at slab rate 5,000
Less: Rebate u/s 87A (5,000)
Tax Liability Nil
Carry forward loss from owning and maintaining race horses 4,00,000

Solution 4: ₹
Income from House Property 90,000
Computation of income under the head Other Sources
Dividend from UTI 35,000
Pension 65,000
Working Note:
Received = ₹90,000
 Income Under The Head Other Sources 316

Exempt = 1/3 of pension or ₹25,000,whichever is less

Taxable = ₹65,000
Interest on bank FD 14,000
Dividend from foreign company 36,000
Winning from lottery 70,000
Income under the head Other Sources 2,20,000
Income under the head Capital Gains (LTCG) 1,20,000
Gross Total Income 4,30,000
Less: Deduction under Chapter VI-A Nil
Total Income 4,30,000
Computation of Tax Liability
Tax on Long term capital gain ₹70,000 (1,20,000 – 50,000) @ 12.5% u/s 112 8,750
Tax on casual income ₹70,000 @ 30% u/s 115BB 21,000
Tax on ₹2,50,000 at slab rate Nil
Less: Rebate u/s 87A (25,000)
Tax before health & education cess 4,750
Add: HEC @ 4% 190
Tax Liability 4,940

Solution 5:
Computation of Total Income for the A.Y 2025-26 ₹
Income under head Other Source
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 under Chapter VI-A Nil
Total Income 14,40,000
Computation of Tax Liability
Tax on ₹9,00,000 at slab rate 40,000
Tax on casual income i.e. ₹5,40,000 @ 30% 1,62,000
Tax before health & education cess 2,02,000
Add: HEC @ 4% 8,080
Tax Liability 2,10,080
Tax Liability excluding amount of casual income
Tax on ₹ 9,00,000 at slab rate 40,000
Add: HEC @ 4% 1,600
Total 41,600
Tax Liability including amount of casual income upto 15.12.2024
Tax on ₹ 9,00,000 at slab rate 40,000
Tax on casual income i.e. ₹ 3,40,000 @ 30% 1,02,000
Tax before health & education cess 1,42,000
Add: HEC @ 4% 5,680
Total 1,47,680
Interest u/s 234A
Nil
Interest u/s 234B
2,10,080 – 1,30,000= 80,080 = 80,000 x 1% x 3 2,400
 Income Under The Head Other Sources 317

Interest u/s 234C

Date Advance tax paid Amount payable Shortfall
upto 15.06.2024 20,000 6,240 (41,600 x 15%) NIL
Interest = NIL

upto 15.09.2024 35,000 18,720 (41,600 x 45%) NIL

Interest = NIL

upto 15.12.2024 80,000 1,10,760 (1,47,680 x 75%) 30,760

Rounded off 119A = 30,700
Interest = 30,700 x 1% x 3 = 921

upto 15.03.2025 1,30,000 2,10,080 80,080

Rounded off 119A = 80,000
Interest = 80,000 x 1% x 1 = 800
Interest u/s 234C 1,721
Total Interest Payable 4,121
Rounded off u/s 288B 4,120
Solution 6: ₹
Net Distributable Amount 60,00,000
Share of Mr. X (10%) 6,00,000
Share of Mr. X out of accumulated profits which is considered dividend u/s 2(22)(c) (2,00,000)
Balance to be considered full value of consideration 4,00,000
Less: Cost of acquisition of shares (1,00,000)
Short term Capital Gain 3,00,000
Dividend u/s 2(22)(c) 2,00,000
Computation of Total Income of Mr. X for A.Y. 2025-26
Income under the head Capital Gains
Short Term Capital Gains 3,00,000
Income under the head Other Sources
Interest Income of Minor Son clubbed u/s 64(1A) 2,00,000
Dividend u/s 2(22)(c) 2,00,000
Income under the head Other Sources 4,00,000
Income under the head Business Profession
Income of Mrs. X clubbed u/s 64(1) 1,00,000
Gross Total Income 8,00,000
Less: Deduction under Chapter VI-A Nil
Total Income 8,00,000
Agricultural Income 7,00,000
Computation of Tax Liability
Normal income ₹8,00,000
Step 1. Tax on (₹8,00,000 + 7,00,000) at slab rate 1,40,000.00
Step 2. Tax on (₹3,00,000 + 7,00,000) at slab rates (50,000.00)
Step 3. Deduct Tax at Step 2 from Tax at Step 1 90,000.00
Add: HEC @ 4% 3,600.00
Tax Liability 93,600.00
 Income Under The Head Other Sources 318

EXAMINATION QUESTIONS
NOV – 2023
Question 3 (c) (4 Marks)
From the following calculate the taxable amount under the proper head of income for the Financial Year
2024-25 of Mr. L, who is resident and 56 years old. The reasons should form part of your answer:
(i) Dividend of ₹ 50,000 received in April 2024. The dividend was declared by the company- LMN
Limited at its annual general meeting held in October 2023.
(ii) Advance forfeited amounting to ₹ 1,00,000 on 01.05.2024 as the negotiation for transfer of capital asset
did not result in transfer of Capital Asset.
(iii) Cash Gift received from non-relative on the occasion of marriage of Son. ₹ 51,000.
(iv) During the Financial Year 2024-25, he received ₹ 99,000 as pension from the employer of deceased
wife.
Solution:
Computation of taxable amount of Mr. L for the A.Y.2025-26
Particulars ₹
Income from other Sources
(i) Dividend from LMN Ltd. would be chargeable to tax under the head “Income from -
Other Sources”, in the year in which it is declared. Since dividend was declared by
LMN Ltd. at its annual general meeting held in October 2023, the amount of
dividend was taxable in the P.Y. 2023-24. Accordingly, the dividend of ₹ 50,000
would not be taxable in the current P.Y. 2024-25.
(ii) Advance of ₹ 1,00,000 forfeited on 1.5.2024 - The advance received and forfeited 1,00,000
would be subject to tax under section 56(2)(ix) under the head “Income from Other
Sources”.
(iii) Cash gifts from non-relative on marriage of son of ₹ 51,000 – Since gift is 51,000
received by Mr. L from a non-relative on the occasion of marriage of his son, it
would be taxable in his hands under section 56(2)(x) under the head “Income from
Other Sources”.
(iv) Pension from employer of deceased wife of ₹ 99,000 - Pension after deducting 74,000
lower of ₹ 33,000 i.e., 1/3 of such income or ₹ 25,000, is chargeable to tax under the
head “Income from Other Sources”. [₹ 99,000 – ₹ 25,000]
Taxable amount 2,25,000

NOV – 2020
Question 4 (c) (4 Marks)
Ms. Julie received following amounts during the previous year 2024-25.
(1) Received loan of ₹5,00,000 from ABC Private Limited, a closely held company engaged in textile
business. She is holding 10% of the equity share capital in the said company. The accumulated profit of the
company was ₹2,00,000 on the date of the loan.
(2) Received Interest on enhanced compensation of ₹5,00,000. Out of this interest, ₹1,50,000 relates to the
previous year 2021-22, ₹1,90,000 relates to previous year 2022-23 and ₹1,60,000 relates to previous
year 2023-24. She paid 1 lakh to her advocate for his efforts in the matter.
Discuss the tax implications, if any, arising from these transactions in her hand with reference to
Assessment Year 2025-26.
Answer:
(1) As per section 2(22)(e), If any closely held company (also called company in which public are not
substantially interested) has given any loan or advance to an equity shareholder who is holding not less than
 Income Under The Head Other Sources 319

10% of the voting power of the company, in such cases such loan or advance shall be considered to be
dividend in the hands of such shareholder but only to the extent of accumulated profits excluding capitalized
profits.
In the given case, She is holding 10% and company is a closely held company, hence amount received to the
extent of accumulated profits i.e. 2,00,000 shall be considered to be deemed dividend u/s 2(22)(e).
(2) As per section 145B, interest received for late payment of compensation from the Government or
other similar agency in connection with compulsory acquisition of land or building shall be taxable in the
year in which it has been received and it will be taxable under the head other sources however, as per
section 57 deduction shall be allowed @ 50% of such interest.
Interest on enhanced compensation 5,00,000
Less: Deduction @ 50% u/s 57 (2,50,000)
Income under the head other sources 2,50,000

NOV – 2019
Question.2. (a) (7 Marks)
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 ₹6,00,000). The annual value of the house in Thailand is ₹50,00,000
i.e. converted value in INR.
He purchased a flat in Pune during F.Y. 2020-21, which has been given on monthly rent of ₹27,500 since
01.07.2023. The annual property tax of Pune flat is ₹ 40,000 which is paid by Mr. Jagdish whenever he
comes to India. Mr. Jagdish last visited India in July 2023. He has taken a loan from Union Bank of India for
purchase of the Pune flat amounting to ₹15,00,000. The interest on such loan for the F.Y. 2024-25 was
₹84,000. However, interest for March 2025 quarter has not yet been paid by Mr. Jagdish.
He had a house in Jaipur which was sold in May 2020. In respect of this house he received arrear of rent of
₹96,000 in Feb. 2025 (not taxed earlier).
He also derived some other incomes during F.Y. 2024-25 which are as follows.
Profit from business in Thailand ₹2,75,000
Interest on bonds of a Japanese Co. ₹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 ₹5,00,000, for F.Y.
2024-25 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 2025-26 chargeable to income tax in India.
Solution:
Computation of total income of Mr. Jagdish for the A.Y. 2025-26
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.2024-25,
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
 Income Under The Head Other Sources 320

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 under Chapter VI-A 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 23-24 and not paid in 24-25 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

Question.4. (a) (5 Marks)

Mr. Mahadev, a noted bhajan singer of Rajasthan and his wife Mrs. Dariya furnish the following
information relating to the Assessment Year 2025-26.
₹
1 Income of Mr. Mahadev- professional bhajan singer (computed) 5,65,000
2 Income under the head salary of Mrs. Dariya (computed) 3,80,000
3 Loan received by Mrs. Dariya from Ramu & Jay (Pvt) Ltd. (Mrs. Dariya holds 35% shares of 2,50,000
the Co. has incurred losses since its inception 2 years back)
4 Income of their minor son Golu winning signing reality show on T.V. 2,50,000
5 Cash gift received by Golu from friend of Mr. Mahadev on winning the show 21,000
6 Interest income received by minor married daughter Gudia from deposit with Ramu & Jay 40,000
Pvt Ltd.
Compute total taxable income of Mr. Mahadev & Mrs. Dariya for the Assessment Year 2025-26.
Solution:
Computation of Taxable income of Mr. Mahadev for the A.Y. 2025-26
Income under the head business profession
Professional income (computed) 5,65,000
Income under the head other sources
Interest income of daughter Gudia 40,000
Income under the head other sources 40,000
Gross Total Income 6,05,000
Less: Deduction under Chapter VI-A Nil
Total Income 6,05,000
Computation of Taxable income of Mrs. Dariya for the A.Y. 2025-26
Income under the head salary (computed) 3,80,000
Gross Total Income 3,80,000
Less: Deduction under Chapter VI-A Nil
Total Income 3,80,000
Notes:
1. Income of Minor shall be clubbed in the income of parents who have higher income before clubbing the
income of minor. In the given case income of father is greater than mother’s income hence amount shall be
clubbed in the income of Father.
2. Loan amount would not be considered as deemed dividend u/s 2(22)(e) as company does not have
accumulated profits.
3. Income from skill and talent shall not be clubbed in the income of the parents and shall be taxable in the
hands of children itself.
4. As per section 56(2)(x), Gift shall be taxable if amount received during the year exceed 50,000 but in the
given case, cash gift received is less than 50,000 hence nothing shall be clubbed in the hands of the parent.
 Income Under The Head Other Sources 321

MAY – 2018
Question 3(b) (3 Marks)
XYZ Ltd. A domestic company, declared dividend of ₹170 lakh for the Financial Year 2023-24 and
distributed the same on 31-07-2024. Mr. A holding 10% share in XYZ Ltd. received dividend of ₹17 lakh in
July, 2024. Mr. B holding 5 % share in XYZ Ltd. received dividend of ₹8.5 lakh in July 2024.
Discuss the tax liabilities in the hands of Mr. A and Mr. B assuming that Mr. A and Mr. B have not received
dividend from any other domestic company during the year.
Solution:
Tax Liability of Mr. A
Dividend received 17,00,000
Income under the head Other Sources 17,00,000
Total Income 17,00,000
Computation of Tax Liability
Tax on ₹ 17,00,000 at slab rate 2,00,000
Add: HEC @ 4% 8,000
Tax Liability 2,08,000

Tax Liability of Mr. B

Dividend received 8,50,000
Income under the head Other Sources 8,50,000
Total Income 8,50,000
Computation of Tax Liability
Tax on ₹ 8,50,000 at slab rate 35,000
Add: HEC @ 4% 1,400
Tax Liability 36,400

NOV – 2016
Question 3(a) (4 Marks)
Mr. Rakesh has 15% share holding in RSL (P) Ltd and has also 50% share in Rakesh & Sons, a partnership
firm.
The accumulated profit of RSL (P) Ltd. is 20 Lakh. Rakesh & Sons had taken a loan of ₹25 Lakh, from RSL
(P) Ltd. Explain, whether the above loan is treated as dividend, as per the provision of Income Tax Act,
1961.
Solution:
As per Section 2(22)(e), If the loan or advance has been given to any concern in which shareholder has
substantial interest, such loan or advance shall be considered to be dividend in the hands of such concern but
only to the extent of accumulated profits excluding capitalized profits.
In this case dividend in the hands of the shareholder is nil and in hands of the firm are ₹20 lakhs.

MAY – 2016
Question 7(a)(iii) (2 Marks)
Discuss with reason, whether the following transactions are true or false, as per the provisions of Income
Tax Act, 1961:
Dividend received by a dealer in shares or one engaged in buying/selling of shares, is chargeable under the
head “Income from other sources”. (Discussion must be on the head of income).
Answer:
True: Dividend received by a dealer of shares is chargeable under the head “Income from Other Sources”.
MAY – 2011 (2 Marks)
Mr. X holding 28% of equity shares in a company took a loan of ₹5,00,000 from the same company. On the
date of granting the loan, the company had accumulated profit of ₹4,00,000. The company is engaged in
some manufacturing activity.
 Income Under The Head Other Sources 322

(i) Is the amount of loan taxable as deemed dividend in the hands of Mr. X, if the company is a
company in which the public are substantially interested?
(ii) What would be your answer, if the lending company is a private limited company (i.e.) a
company in which the public are not substantially interested?
Answer:
Any payment by a company, other than a company in which the public are substantially interested, of any
sum by way of advance or loan to an equity shareholder, being a person who is the beneficial owner of
shares holding not less than 10% of the voting power, is deemed as dividend under section 2(22)(e), to the
extent the company possesses accumulated profits.
(i) The provisions of section 2(22)(e), however, will not apply where the loan is given by a company in
which public are substantially interested. In such a case, the loan would not be taxable as deemed dividend.
(ii) However, if the loan is taken from a private company (i.e. a company in which the public are not
substantially interested), which is a manufacturing company and not a company where lending of money is a
substantial part of the business of the company, then, the provisions of section 2(22)(e) would be attracted,
since Mr. X holds more than 10% of the equity shares in the company.
The amount chargeable as deemed dividend cannot, however, exceed the accumulated profits held by the
company on the date of giving the loan. Therefore, the amount taxable as deemed dividend would be limited
to the accumulated profit i.e., ₹4,00,000 and not the amount of loan which is ₹5,00,000.

NOV – 2010
Question 7 (4 Marks)
State under which heads the following incomes are taxable:
(i) Rental income in case of a dealer engaged in business of letting out of house property
(ii) Dividend on shares in case of a dealer in shares
(iii) Salary by a partner from his partnership firm
(iv) Rental income of machinery
(v) Winnings from lotteries by a person having the same as business activity
(vi) Salaries payable to a Member of Parliament
(vii) Receipts without consideration
Answer.
Particulars Head of Income
(i) Rental income in case of a dealer engaged in business of Profit and gains of business or
letting out of house property profession

(ii) Dividend on shares in case of a dealer in shares Income from other sources
(iii) Salary by partner from his partnership firm Profit and gains of business or
profession
(iv) Rental income of machinery (See Note below) Income from other sources/ Profits and
gains of business or profession
(v) Winnings from lotteries by a person having the same as Income from other sources
business activity
(vi) Salaries payable to a Member of Parliament Income from other sources
(vii) Receipts without consideration Income from other sources
Note: As per section 56, rental income of machinery would be chargeable to tax under the head “Income
from Other Sources”, if the same is not chargeable to income-tax under the head “Profits and gains of
business or profession”.
 Deduction Of Tax At Source 323

DEDUCTION OF TAX AT SOURCE/

TAX COLLECTION AT SOURCE
SECTION 190 TO 206CCA
• Section 190 Deduction at source and advance payment
• Section 191 Direct payment
• Section 192 Deduction of tax from salary income
• Section 192A Deduction of tax at source in case of payment from recognized provident fund
• Section 193 Deduction of tax from interest on securities
• Section 194 Deduction of Tax in case of Dividends
• Section 194A Deduction of tax from interest other than “interest on securities”
• Section 194B Deduction of tax from winnings from lottery, crossword puzzle, card game, etc.
• Section 194BA Deduction of tax in case of online gaming
• Section 194BB Dedssuction of tax from winnings from horse races
• Section 194C Deduction of tax from payment to contractors (V. Imp.)
• Section 194D Deduction of tax from insurance commission
• Section 194DA Payment in respect of life insurance policy
• Section 194G Deduction of tax from commission, etc. on sale of lottery tickets
• Section 194H Commission or brokerage
• Section 194-I Deduction of tax from rent (V. Imp.)
• Section 194-IA Payment for purchase of immovable property
• Section 194-IB Payment of rent by certain individuals or HUF.
• Section 194J Deduction of tax from fees for professional or technical services
• Section 194K Deduction of tax in case of Income on units of Mutual Fund
• Section 194LA Payment of compensation on acquisition of certain immovable property
• Section 194M Payment of certain sums by certain individuals or Hindu undivided family
• Section 194N Payment of certain amounts in cash
• Section 194P Deduction of tax in case of specified senior citizen
• Section 194Q Deduction of tax at source on payment of certain sum for purchase of goods
• Section 194R TDS in case of payment of benefit or perquisite in respect of business or
profession
• Section 196 Interest or dividend or other sums payable to Government, Reserve Bank or
certain corporations
• Section 197 Certificate for deduction at lower rate (V. Imp.)
• Section 197A Declaration for not Deducting Tax at Source
• Section 200 Duty of person deducting tax (V. Imp.)
• Section 201 Consequences of failure to deduct or pay (V. Imp.)
• Section 203 Certificate for tax deducted
• Section 203A Tax deduction account number
• Section 206AA Requirements to furnish Permanent Account Number
• Section 206AB Special provision for deduction of tax at source for non-filers of income-tax
return.
• Section 206C Collection of Tax Source
• Section 206CA Tax collection Account Number
• Section 206CC Requirement to furnish Permanent Account number by collectee
• Section 206CCA Special provision for collection of tax at source for non-filers of income-tax
return
 Deduction Of Tax At Source 324

Deduction at Source and Advance Payment Section 190

Every person shall be required to pay tax through TDS/TCS and advance tax and exact tax shall be
computed in the assessment year and balance if any shall be paid in the assessment year and it is called self
assessment tax.
Direct Payment Section 191
If tax is not to be deducted at source with regard to any income, assessee shall pay advance tax. Similarly if
tax was to be deducted at source but it has not been deducted at source, in such cases also the assessee is
required to pay advance tax.

Question 1: Write a note on Deduction of Tax at Source with regard to Salary Income.
Answer: Deduction of Tax at Source with regard to Salary Income Section 192
1. Every person (including individual and HUF even if limit prescribed under section 44AB has not
exceeded in the preceding year) making payment of salary income to resident or non-resident shall deduct
tax at source and for this purpose the employer shall estimate tax liability of the employee and tax so
estimated shall be deducted in 12 monthly equal installments. While estimating tax liability, deduction under
Chapter VI-A shall be allowed. It can be shown in the manner given below:
Mr. X is employed in ABC Ltd. and salary is ₹70,000 p.m. and he has invested ₹50,000 in NSC. In this case,
tax to be deducted at source at the time of payment of salary shall be:
₹
Gross Salary (70,000 x 12) 8,40,000.00
Less: Standard Deduction u/s 16(ia) (75,000.00)
Income under the head Salary 7,65,000.00
Gross Total Income 7,65,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 7,65,000.00
Tax on ₹7,65,000 at slab rate 26,500.00
Add: HEC @ 4% 1,060.00
Tax Liability 27,560.00
Monthly installment shall be 27,560 / 12 2,296.67
If employer has deducted tax at source for the month of April and May and salary was increased to ₹80,000
p.m. w.e.f. 01.06.2024, tax to be deducted in subsequent installments shall be
Gross Salary (70,000 x 2) + (80,000 x 10) 9,40,000.00
Less: Standard Deduction u/s 16(ia) (75,000.00)
Income under the head Salary 8,65,000.00
Gross Total Income 8,65,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 8,65,000.00
Tax at slab rate including HEC 37,960.00
Tax deducted at source in April and May (2,296.67 x 2) (4,593.34)
Balance amount of tax 33,366.66
Tax to be deducted in subsequent installments (33,366.66 / 10) 3,336.67
2. If any person is working with two or more employers, in that case he should submit the particulars of his
salary income from all the employers to one of the employer who will deduct tax at source taking into
consideration income from all employers. (Information has to be given in Form 12B)
Example
Mr. X is working with two employer A Ltd. and B Ltd. and is getting basic pay of ₹30,000 p.m. from each
of the employer. In this case, he must inform one of the employer regarding his salary income from other
employer and such employer shall deduct tax at source taking into consideration income from other
employer.
3. If any employee has income under any other head, the employee shall be allowed even to report such
incomes to the employer and the employer shall take it into consideration. If employee has loss under the
 Deduction Of Tax At Source 325

head house property, he shall be allowed to report such loss to the employer. The employee shall be required
to give proof.

Where an assessee who receives any income chargeable under the head “Salaries” has, in addition,—
(i) any income chargeable under any other head of income (not being a loss under any such head other
than the loss under the head “Income from house property”); or
(ii) any tax deducted or collected under the provisions of this Chapter, as the case may be,
for the same financial year, he may send to the person responsible for making the payment referred to in
sub-section (1), the particulars of—
(a) such other income;
(b) any tax deducted or collected under any other provision of this Chapter, as the case may be; and
(c) the loss, if any, under the head “Income from house property”,
in such form and verified in such manner as may be prescribed, and thereupon the person responsible as
aforesaid shall take into account the particulars referred to in clauses (a), (b) and (c) for the purposes of
making the deduction under sub-section (1):

Provided that this sub-section shall not in any case have the effect of reducing the tax deductible from
income under the head “Salaries”, except where the loss under the head “Income from house property”
and the tax deducted in accordance with other provisions and tax collected in accordance with the
provisions, of this Chapter, has been taken into account.

Question 2: Write a note on deduction of tax at source in case of payment from recognized provident
fund.
Answer: Deduction of tax at source in case of payment from recognized provident fund Section 192A
The person responsible for making payment of recognized provident fund to any person shall deduct tax
at source if the amount to be paid is taxable and tax shall be deducted at source @ 10% provided the amount
paid or payable during a particular year is ₹50,000 or more.

Question 3: Write a note on TDS in case of interest on securities.

Answer: TDS in case of interest on securities Section 193
Every person responsible for making payment of interest on securities to any resident shall deduct tax at
source @ 10%.
No tax shall be deducted at source in the following cases:
1. In case of, any interest payable to an individual or a Hindu undivided family, who is resident in India, on any
debenture issued by a company in which the public are substantially interested, if the aggregate amount of such
interest paid or likely to be paid on such debenture during the financial year by the company to such individual or
Hindu undivided family does not exceed five thousand rupees; and such interest is paid by the company by an
account payee cheque;
2. Any interest payable on any security of the Central Government or a State Government.

But TDS is applicable if the interest exceeding ten thousand rupees payable during the financial year on
8% Savings (Taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 or Floating Rate Savings
Bonds, 2020 (Taxable) or any other security of the Central Government or State Government as the
Central Government may, by notification in the Official Gazette, specify in this behalf. [ applicable w.e.f.
01.10.2024]

3. Any interest being paid to Bank/LIC or other notified financial organizations.

4. Interest payable by a company in connection with security held in dematerialised form.
“Interest on securities” as per section 2(28B), interest on securities means interest on bond / debenture etc.
issued by Government / local authority / company or statutory corporation etc.
Example
(i) ABC Ltd. has to pay interest of ₹2,00,000 to Mr. X in connection with listed debentures, amount of TDS
shall be ₹ 20,000.
(ii) ABC Ltd. has to pay interest of ₹12,00,000 to Mr. X in connection with listed debentures, amount of
 Deduction Of Tax At Source 326

TDS shall be ₹1,20,000

(iii) ABC Ltd. has to pay interest of ₹5,000 to Mr. X, no tax shall be deducted at source in this case.

Illustration 1: Mr. X has invested some amount in ABC Ltd. and the company has paid him interest of
₹5,40,000 after deducting tax at source @ 10%. The cheque was collected by the bank and the bank charges
were 1%. He has income under the head house property ₹ 10,00,000
Compute his tax liability and tax refund for assessment year 2025-26.
Solution: ₹
Income under the head House Property 10,00,000.00
Gross interest (5,40,000 x 100 /90) 6,00,000.00
Less: bank charges u/s 57 (1% of 5,40,000) (5,400.00)
Income under the head Other Sources 5,94,600.00
Gross Total Income 15,94,600.00
Less: Deductions u/s under Chapter VI-A Nil
Total Income 15,94,600.00
Computation of Tax Liability
Tax on ₹15,94,600 at slab rate 1,68,380.00
Add: HEC 4% 6,735.20
Tax Liability 1,75,115.20
Less: TDS (60,000.00)
Tax Payable 1,15,115.20
Rounded off u/s 288B 1,15,120.00

Illustration 2: Mr. X has invested some amount in ABC Ltd. and the company has paid him interest of
₹3,60,000 after deducting tax at source @ 10%. The cheque was collected by the bank and the bank charges
were 1%.
Compute his tax liability and tax refund for assessment year 2025-26.
Solution: ₹
Gross interest (3,60,000 x 100 /90) 4,00,000.00
Less: bank charges u/s 57 (1% of 3,60,000) (3,600.00)
Income under the head Other Sources 3,96,400.00
Total Income 3,96,400.00
Computation of Tax Liability
Tax on ₹3,96,400 at slab rate 4,820.0
Less: Rebate u/s 87A (4,820.00)
Tax Liability Nil
Less: TDS (40,000.00)
Refund 40,000.00
Assesse can take benefit of section 197 (not 197A)

Illustration 3: Mr. X has invested some amount in ABC Ltd. and the company has paid him interest of
₹1,80,000 after deducting tax at source @ 10%. The cheque was collected by the bank and the bank charges
were 1%.
Compute his tax liability and tax refund for assessment year 2025-26.
Solution: ₹
Gross interest (1,80,000 x 100 /90) 2,00,000.00
Less: bank charges u/s 57 (1% of 1,80,000) (1,800.00)
Income under the head Other Sources 1,98,200.00
Total Income 1,98,200.00
Computation of Tax Liability
Tax Liability Nil
Less: TDS (20,000.00)
Refund 20,000.00
 Deduction Of Tax At Source 327

In this case assesse can avail benefit of section 197 or 197A

Illustration 4: Mr. X has borrowed ₹1,00,000 from the market. The amount was invested in security of
some company and the assessee has received a cheque for ₹ 45,000 (after TDS @ 10%) being the amount of
interest and assessee has paid interest of ₹ 11,000. He has casual income ₹ 2,00,000
The cheque was given for collection to a bank and the bank has deducted collection charges of 2%.
Mr. X has income under the head house property ₹ 2,50,000.
Compute his tax liability / tax payable for assessment year 2025-26.
Solution: ₹
Income under the head House Property 2,50,000.00
Income under the head other sources
Interest income 38,100.00
(45,000 x 100 / 90) -11,000-900}
(50,000 – 11,000 – 900)
Casual income 2,00,000.00
Income under the head other sources 2,38,100.00
Gross Total Income 4,88,100.00
Less: Deduction under Chapter VI-A Nil
Total Income 4,88,100.00
Computation of Tax Liability
Tax on Casual Income 2,00,000 X 30% 60,000.00
Tax on ₹2,88,100 at slab rate Nil
Total Tax 60,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before HEC 35,000.00
Add: HEC @ 4% 1,400.00
Tax Liability 36,400.00
Less: TDS (5,000.00)
Tax Payable 31,400.00

Question 4: Write a note on TDS in case of “Dividends”.

Answer: TDS in case of “Dividends” Section 194
Every company making payment of dividends to any resident shareholder shall deduct tax at source @ 10%,
however, no tax shall be deducted at source if the following conditions have been satisfied:
(i) dividend has been paid to an individual, and
(ii) payment is made by any mode other than cash, and
(iii) the amount being paid or payable during a particular year to such individual does not exceed ₹5,000.
No tax shall be deducted at source in case of payment of dividend to Life Insurance Corporation of India,
General Insurance Corporation of India, or any other insurer

Question 5: Write a note on TDS in case of Interest other than “Interest on Securities”.
Answer: TDS in case of Interest other than “Interest on Securities” Section 194A
Every person making payment of interest other than interest on securities to any resident shall deduct tax at
source @ 10% provided the amount being paid or payable during a particular year to a particular person is
exceeding ₹5,000 but if payment is being made by bank or post office or Co-Operative Society, tax shall be
deducted only if interest being paid or payable is exceeding ₹40,000, however if the payee is senior citizen,
₹40,000 shall be taken as ₹50,000 .
Further TDS shall be only on time deposit including recurring deposit. Limit of ₹40,000 (₹50,000 for senior
citizen) shall be per branch of the bank but if the bank has core banking solution, limit shall be per bank and
not per branch.
An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
during the financial year immediately preceding the relevant year.
 Deduction Of Tax At Source 328

Example
(i) Punjab National Bank has to pay interest of ₹1,00,000 to Mr. X. In this case, amount of TDS shall be
₹10,000.
(ii) Punjab National Bank has to pay interest of ₹10,00,000 to Mr. X. In this case, amount of TDS shall be
₹1,00,000.
(iii) Punjab National Bank has to pay interest of ₹1,00,000 to X Ltd. In this case, amount of TDS shall be
₹10,000.
(iv) Punjab National Bank has to pay interest of ₹1,00,000 to an Hindu Undivided Family. In this case,
amount of TDS shall be ₹10,000.
(v) Punjab National Bank has to pay interest of ₹1,000 to a Hindu Undivided Family. In this case, amount of
TDS shall be Nil.
(vi) Punjab National Bank has to pay interest of ₹39,900 to Mr. X. In this case, amount of TDS shall be Nil.
No tax shall be deducted at source in the following cases:
(1) Interest paid by a firm to a partner of the firm;
(2) Any interest being paid to Bank/LIC or other notified financial organizations
(3) Interest on income tax refund or wealth tax refund etc.
(4) Income paid in relation to a Zero Coupon Bond.
(5) Interest paid in respect of deposits under any scheme notified by the government.
"Zero Coupon Bond" Section 2(48)
means a bond which are issued by the specified companies and which are issued for minimum 10 years and
maximum 20 years and in respect of which no payment and benefit is received before maturity or
redemption from such specified company and further such bonds shall be notified by the Central
Government.
Additional amount received on redemption shall be considered to be capital gain.

“Interest” Section 2(28A) means interest payable in any manner in respect of any moneys borrowed or debt
incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other
charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been
utilized

Illustration 5: Mrs. Nupur Sharma is getting a family pension of ₹7,000 p.m. She has also received interest
on fixed deposit of ₹90,000 after deducting tax at source of ₹10,000. The bank has deducted collection
charges @ 1.5%. She has short term capital gains under section 111A ₹ 4,00,000. Deductions under Chapter
VI-A ₹ 67,650
Compute her tax liability for assessment year 2025-26.
Solution: ₹ ₹
Family Pension 84,000
(7,000 x 12)
Less: Deduction u/s 57 (25,000) 59,000
1/3 of ₹84,000 or ₹25,000 whichever is less
Interest 1,00,000
Less: Bank Charges [90,000 @ 1.5 %] (1,350) 98,650
Income under the head Other Sources 1,57,650
Income under the capital gains (STCG 111A) 4,00,000
Gross Total Income 5,57,650
Less: Deductions under Chapter VI-A Nil
Total Income 5,57,650
Computation of tax liability
Tax on Normal Income ₹ 1,57,650 at slab rate Nil
Tax on STCG 111A (4,00,000 – 1,42,350) X 20% 51,530.00
Less: Rebate 87A (25,000.00)
Tax before HEC 26,530.00
Add: HEC @ 4% 1,061.20
Tax Liability 27,591.20
 Deduction Of Tax At Source 329

Rounded off u/s 288B 27,590.00

Illustration 6 (From RTP): Examine the implications of tax deduction at source under section 194A in the
cases mentioned hereunder, based on the provisions of the Income-tax Act, 1961.
(i) On 01.10.2024, Mr. Mohit made a six-month fixed deposit of ₹ 12 lakh @ 8% p.a. with Theta Co-
operative Bank. The fixed deposit matures on 31.3.2025.
(ii) Mr. Harish made fixed deposits carrying interest @10% p.a. with the following branches of Omega
Bank, a bank which has adopted CBS.
Branch Amount (₹) Date of deposit Date of Maturity
Adyar 60,000 01.06.2024 31.03.2025
Anna Nagar 80,000 01.07.2024 31.03.2025
Nungambakkam 75,000 01.08.2024 31.03.2025
(iii) On 01.04.2024, Ms. Meena started a 1 year recurring deposit of ₹ 50,000 per month @ 10% p.a. with
Gamma Bank. The recurring deposit matures on 31.3.2025. Gamma bank pays interest of ₹43,000.
Solution:
(i) Theta Co-operative Bank has to deduct tax at source @ 10% on the interest of ₹ 48,000 (8% × ₹ 12 lakh
× ½) under section 194A.
(ii) Since Omega Bank has adopted CBS, the aggregate interest credited/paid by all branches has to be
considered, and if the same exceeds ₹ 40,000, tax is deductible under section 194A. Omega Bank is not
required to deduct tax at source @10% under section 194A, since the aggregate interest on fixed deposit
with the three branches of the bank is ₹ 16,000, which does not exceed the threshold limit of ₹ 40,000.
Branch Amount of Rate of Period in Amount of
deposit (₹) Interest months Interest (₹)
Adyar 60,000 10% 10 5,000
Anna Nagar 80,000 10% 9 6,000
Nungambakkam 75,000 10% 8 5,000
Total 16,000
(iii) Tax has to be deducted @ 10% under section 194A by Gamma Bank on the interest of ₹43,000 on
recurring deposit on 31.3.2025 to Ms. Meena, since –
(1) ―recurring deposit has been included in the definition of “time deposit”; and
(2) such interest exceeds the threshold limit of ₹ 40,000.

Illustration 7 (From RTP): Examine the TDS implications under section 194A in the cases mentioned
hereunder –
(i) On 1.10.2024, Mr. Harish made a six-month fixed deposit of ₹ 10 lakh @ 9% p.a. with ABC Co-
operative Bank. The fixed deposit matures on 31.3.2025.
(ii) On 01.06.2024, Mr. Ganesh made three nine month fixed deposits of ₹ 2 lakh each carrying interest @
9% per annum with Dwarka Branch, Janakpuri Branch and Rohini Branches of XYZ Bank, a bank which
has adopted CBS. The fixed deposits mature on 28.2.2025.
(iii) On 01.04.2024, Mr. Rajesh started a 1 year recurring deposit of ₹ 60,000 per month @ 8% p.a. with
PQR Bank. The recurring deposit matures on 31.03.2025. PQR bank pays interest of ₹50,400.
Answer:
(i) ABC Co-operative Bank has to deduct tax at source @10% on the interest of ₹ 45,000 (9% × ₹ 10 lakh ×
½) under section 194A. The tax deductible at source under section 194A from such interest is, therefore,
₹4,500.
(ii) XYZ Bank has to deduct tax at source@10% under section 194A, since the aggregate interest on fixed
deposit with the three branches of the bank is ₹ 40,500 [2,00,000 × 3 × 9% × 9/12], which exceeds the
threshold limit of ₹ 40,000. Since XYZ Bank has adopted CBS, the aggregate interest credited/paid by all
branches has to be considered. Since the aggregate interest of ₹ 40,500 exceeds the threshold limit of
₹40,000, tax has to be deducted @ 10% under section 194A.
(iii) Tax has to be deducted under section 194A @ 10% by PQR Bank on the interest of ₹50,400 on
recurring deposit on 31.03.2025 to Mr. Rajesh, since –
(1) “recurring deposit” has been included in the definition of “time deposit”; and
 Deduction Of Tax At Source 330

(2) such interest exceeds the threshold limit of ₹ 40,000.

Question 6: Write a note on TDS in case of Winnings from Lottery or Crossword Puzzle etc.
Answer: TDS in case of Winnings from Lottery or Crossword Puzzle etc. Section 194B
Every person (including individual and HUF) responsible for paying to any resident or non-resident, any
income by way of winnings from any lottery or crossword puzzle or card game and other game of any
sort or from gambling or betting of any form or nature whatsoever shall deduct tax at source @ 30%
provided the amount or aggregate of amounts being paid or payable during a particular to a particular
person is exceeding ₹10,000. e.g. If ABC Ltd. has to pay ₹7,000 being winning of a lottery, no tax shall be
deducted at source but if amount being paid is ₹7,000 and ₹8,000, tax to be deducted at source shall be
₹15,000 x 30% = ₹4,500.
similarly if amount being paid is ₹10 lakh, tax to be deducted at source shall be ₹10,00,000 x 30% =
₹3,00,000
If any such winning is in kind, winning shall be released only after collecting the amount of tax e.g. Mr. X
has won a motor car valued ₹5,00,000, in this case the organizer should collect tax of ₹1,50,000 and only
after that motor car shall be released.

Question 7: Write a note on TDS in case of Winnings from Online Games.

Answer: TDS in case of Winnings from Online Games Section 194BA
Every person responsible for making payment of any income from online game shall deduct tax at source @
30% and tax shall be deducted at the end of the year but if winnings are withdrawn during the year, tax shall
be deducted at the time of withdrawal of such income. Also tax shall be deducted at source on the remaining
amount of net winnings. E.g. Mr. X opened one user account for online gaming and deposited ₹1,00,000 and
winnings are ₹10,00,000. He withdrew ₹4,00,000 in July 2024 and balance amount was lying in his account,
in this case TDS on ₹4,00,000 shall be deducted in July 2024 and on balance at the end of the year i.e.
31.03.2025. In case amount of withdrawal in a particular month is less than ₹100, no tax shall be deducted at
source but if the aggregate amount is ₹100 or more in the same month or in the subsequent month, tax shall
be deducted at source e.g. Mr. X has withdrawn ₹80 in July 2024, no tax shall be deducted at source. He has
withdrawn ₹60 in the month of Aug 2024, in this case tax shall be deducted at source on ₹140 in the month
of Aug 2024. In case balance at the end of the year is not sufficient to deduct tax at source, in that case
deductor shall be responsible for payment of tax.

Where the net winnings are wholly in kind or partly in cash, and partly in kind but the part in cash is not
sufficient to meet the liability of deduction of tax in respect of whole of the net winnings. In these situations,
the person responsible for paying, shall, before releasing the winnings, ensure that tax has been paid in
respect of the net winnings. In the above situation, the deductor will release the net winnings in kind after
the deductee provides proof of payment of such tax (e.g. Challan details etc.).

The valuation would be based on fair market value of the winnings in kind except in following cases:-
(i) The online game intermediary has purchased the winnings before providing it to the user. In that case the
purchase price shall be the value for winnings.
(ii) The online game intermediary manufactures such items given as winnings. In that case, the price that it
charges to its customers for such items shall be the value for such winnings.
As per section 115BBJ, income from online gaming shall be taxable @ 30% under the head other sources.

Question 8: Write a note on TDS in case of Winnings from Horse Race.

Answer: TDS in case of Winnings from Horse Race Section 194BB
Every person (including individual and HUF), responsible for paying to any resident or non-resident, shall
be required to deduct tax at source @ 30% in case of payment of winning from horse races but tax shall be
deducted at source only if amount or aggregate of amounts paid or payable during a particular year to a
particular person is exceeding ₹10,000.
Example
ABC Ltd. has to pay winnings of horse race ₹3,00,000 to Mr. X, amount of TDS shall be ₹90,000 but if the
 Deduction Of Tax At Source 331

amount to be paid is ₹2,000, amount of TDS shall be Nil.

Illustration 8: Mr. X purchased 20 lottery tickets of ₹ 250 each with a winning of ₹2.80 lakhs (after TDS
@ 30%). He has also received interest of ₹72,000 after deducting tax at source @ 10% in connection with
fixed deposit. and the cheque was collected by bank and service charges @ 2% was taken by the bank. He
has income from subletting of house property ₹9,000 p.m. He has received family pension of ₹ 4,000 p.m.
Compute his tax liability and also tax payable/refund for assessment year 2025-26.
Solution: ₹ ₹
Income from lottery (2,80,000 /70% x 100%) 4,00,000.00
Interest (72,000 / 90% X 100%) 80,000.00
Less: Bank charges u/s 57 (2% of ₹72,000) (1,440) 78,560.00
Sub-letting of house property (9,000 x 12) 1,08,000.00
Family pension 48,000
Less: 1/3 of income or ₹25,000 whichever is less (16,000) 32,000.00
Income under the head Other Sources 6,18,560.00

Computation of Tax Liability

Tax on casual income ₹4,00,000 @ 30% u/s 115BB 1,20,000.00
Tax on ₹2,18,560 at slab rate Nil
Tax before health & education cess 1,20,000.00
Less: Rebate u/s 87A (25,000.00)
Tax before health & education cess 95,000.00
Add: HEC @ 4% 3,800.00
Tax Liability 98,800.00
Less: TDS (1,20,000 + 8,000) (1,28,000.00)
Tax Refund 29,200.00
Question 9: Write a note on TDS in case of Payments to Contractors.
Answer: TDS in case of Payments to Contractors Section 194C
1. Every person responsible for making payment to a resident contractor in connection with any work shall
deduct tax at source @ 2% and in case of payment to individual or Hindu Undivided Family, the rate of
TDS shall be 1%. Tax shall be deducted at source only if the amount being paid is exceeding ₹30,000 or the
amount paid or payable during a particular financial year to a particular person exceeds ₹1,00,000.
Example
ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during the P.Y.2024-25 –
₹ 15,000 on 01.05.2024
₹ 25,000 on 01.08.2024
₹ 30,000 on 01.12.2024
On 01.03.2025, a payment of ₹ 48,000 is due to Mr. X on account of a contract work.
Discuss whether ABC Ltd. is liable to deduct tax at source under section 194C from payments made to Mr.
X.
Solution:
In this case, the individual contract payments made to Mr. X does not exceed ₹ 30,000. However, since the
aggregate amount paid to Mr. X during the P.Y.2024-25 exceeds ₹ 1,00,000 (on account of the last payment
of ₹48,000, due on 01.03.2025, taking the total from ₹ 70,000 to ₹ 1,18,000), the TDS provisions under
section 194C would get attracted. Tax has to be deducted @ 1% on the entire amount of 1,18,000 from the
last payment of ₹ 48,000 and the balance of ₹ 46,820 (i.e. ₹ 48,000 – ₹ 1,180) has to be paid to Mr. X.
Example
(i) If DDA has to pay a sum of ₹5,00,000 to Mr. X in connection with a particular contract, amount of TDS
shall be ₹5,000.
(ii) If in the above case amount is to be paid to X Ltd. An Indian company, amount of TDS shall be ₹10,000.

2. An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
 Deduction Of Tax At Source 332

during the financial year immediately preceding the relevant year.

Example
If Mr. X is engaged in a business and turnover of business is ₹41,00,000 in the previous year 2023-24 and he
has to pay ₹1,10,000 to Mr. Y in the previous year 2024-25 in connection with a contract, amount of TDS
shall be Nil but if his turnover in previous year 2023-24 was ₹110,00,000, amount of TDS shall be ₹1,100
but if payment is to given to Y Ltd., amount of TDS shall be ₹2,200.
3. No individual or HUF shall deduct tax at source under this section, if the amount is paid for personal
purpose of such individual or HUF.
Example
If in the above case, Mr. X has to pay ₹1,10,000 to Mr. Y in connection with a contract which is for personal
purpose of Mr. X, TDS under section 194C, shall be Nil.
4. Contract for this purpose shall include every type of contract e.g. Advertising contract/Broadcasting and
telecasting contract / Carriage of passenger by any mode of transport / Catering contract / Contract for
construction / Contract for courier services / Contract of maintenance of plant and machinery etc.
5. If any person making payment for purchase of goods, no tax shall be deducted at source but TDS shall be
applicable in case of manufacturing or supplying a product according to the requirement or specification of a
customer by using material purchased from such customer or its associate, i.e. a person covered u/s
40A(2)(b),
but does not include
manufacturing or supplying a product according to the requirement or specification of a customer by using
material purchased from a person, other than such customer or associate of such customer or
any sum referred to in sub-section (1) of section 194J.

Further tax shall be deducted at source on the invoice value excluding the value of material, if such value is
mention separately in the invoice. If value is not mention separately, tax shall be deducted at source on
whole of the invoice value.
Example
ABC Ltd. has given orders to Mr. X to stitch uniform for their employees and Mr. X purchased material
from the market and has stitched uniform for ABC Ltd. and has charged ₹7,00,000, in this case amount of
TDS shall be nil but if material is supplied by ABC Ltd. or its associates and Mr. X has charged ₹1,10,000
as labour charge, tax shall be deducted at source @ 1% i.e. ₹1,100. If value of material and amount for
labour is not shown separately, tax shall be deducted at source on the entire amount.
6. 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.
Example
ABC Ltd. has paid ₹5,00,000 to Mr. X for transportation of goods and Mr. X do not have more than 10
goods carriages and he has furnished a declaration in this regard and has submitted permanent account
number, in this case no tax shall be deducted at source but if PAN has not been provided, tax shall be
deducted at source @ 20%.
TDS provisions on payments by television channels and publishing houses to advertisement companies
for procuring or canvassing for advertisements [Circular No. 05/2016, dated 29-2-2016]
There are two types of payments involved in the advertising business:
(i) Payment by client to the advertising agency, and
(ii) Payment by advertising agency to the television channel/newspaper company
The applicability of TDS on these payments has been dealt with in Circular No. 715 dated 8-8-1995, where
it has been clarified that while TDS under section 194C (as work contract) will be applicable on the first
type of payment, there will be no TDS under section 194C on the second type of payment e.g. payment by
advertising agency to the media company.
However, another issue has been raised in various cases as to whether the fees/charges taken or retained by
advertising companies from media companies for canvasing/booking advertisements (typically 15% of the
 Deduction Of Tax At Source 333

billing) is 'commission' or 'discount' for attracting the provisions of section 194H.

The CBDT has clarified that no TDS is attracted on payments made by television channels/newspaper
companies to the advertising agency for booking or procuring of or canvassing for advertisements.
TDS provisions on payments by broadcasters or Television Channels to production houses for
production of content or programme for telecasting [Circular No. 04/2016, dated 29-2-2016]
The issue under consideration is whether payments made by the broadcaster/telecaster to production houses
for production of content/programme are payments under a ‘work contract’ liable for tax deduction at source
under section 194C or a contract for ‘professional or technical services’ liable for tax deduction at source
under section 194J.
In this regard, the CBDT has clarified that while applying the relevant provisions of TDS on a contract for
content production, a distinction is required to be made between:
(i) a payment for production of content/programme as per the specifications of the broadcaster/telecaster;
and
(ii) a payment for acquisition of broadcasting/ telecasting rights of the content already produced by the
production house.
In the first situation where the content is produced as per the specifications provided by the broadcaster/
telecaster and the copyright of the content/programme also gets transferred to the telecaster/ broadcaster,
such contract is covered by the definition of the term work’ in section 194C and, therefore, subject to TDS
under that section.
However, in a case where the telecaster/broadcaster acquires only the telecasting/ broadcasting rights of the
content already produced by the production house, there is no contract for “carrying out any work”, as
required in section 194C. Therefore, such payments are not liable for TDS under section 194C. However,
payments of this nature may be liable for TDS under other sections of Chapter XVII-B of the Act.
ILLUSTRATION
Moon TV, a television channel, made payment of ₹50 lakhs to a production house for production of
programme for telecasting as per the specifications given by the channel. The copyright of the programme is
also transferred to Moon TV. Would such payment be liable for tax deduction at source under section 194C?
Discuss.
Also, examine whether the provisions of tax deduction at source under section 194C would be attracted if
the payment was made by Moon TV for acquisition of telecasting rights of the content already produced by
the production house.
SOLUTION:
In this case, since the programme is produced by the production house as per the specifications given by
Moon TV, a television channel, and the copyright is also transferred to the television channel, the same falls
within the scope of definition of the term ‘work’ under section 194C. Therefore, the payment of ₹50 lakhs
made by Moon TV to the production house would be subject to tax deduction at source under section 194C.
If, however, the payment was made by Moon TV for acquisition of telecasting rights of the content already
produced by the production house, there is no contract for “carrying out any work”, as required in section
194C . Therefore, such payment would not be liable for tax deduction at source under section 194C.

Question 10: Write a note on TDS in case of payment of Insurance Commission.

Answer: TDS in case of payment of Insurance Commission Section 194D
Every person responsible for making payment for insurance commission to a resident insurance agent shall
deduct tax at source @ 5% provided the amount paid or payable during a particular year to a particular agent
is exceeding ₹15,000 e.g. If LIC has to pay commission of ₹5,00,000 to one of the agent Mr. X, amount of
TDS shall be ₹5,00,000 x 5% = 25,000. If payment is being given to a domestic company, rate of TDS shall
be 10%.
Question 11: Write a note on Payment on maturity of life insurance policy.
 Deduction Of Tax At Source 334

Answer: Payment on maturity of life insurance policy Section 194DA

In general payment on maturity of Life policy is exempt from income tax under section 10(10D) however
sometimes the amount is taxable (if premium paid has exceeded the prescribed percentage (i.e. 10% / 15% /
20%)) and in that case tax has to deducted at source @ 5% (upto 30.09.2024) and @ 2% (from 01.10.2024)
on the amount of income provided the amount paid or payable to any resident during a particular financial
year is ₹1,00,000 or more.

Example
Examine the applicability of the provisions for tax deduction at source under section 194DA in the following
cases -
(i) Mr. X, a resident, is due to receive ₹ 4.50 lakhs on 31.03.2025, towards maturity proceeds of LIC policy
taken on 01.4.2021, for which the sum assured is ₹ 3.75 lakhs and the annual premium is ₹ 1,25,000.
(ii) Mr. Y, a resident, is due to receive ₹ 4.50 lakhs on 31.03.2025 on LIC policy taken on 01.04.2013, for
which the sum assured is ₹ 3.50 lakhs and the annual premium is ₹35,000.
(iii) Mr. Z, a resident, is due to receive ₹95,000 on 31.03.2025 towards maturity proceeds of LIC policy
taken on 01.04.2020 for which the sum assured is ₹ 80,000 and the annual premium was ₹ 20,000.
Answer
(i) Since the annual premium exceeds 10% of sum assured in respect of a policy taken on 01.04.2021, the
maturity proceeds of ₹ 4.50 lakhs are not exempt under section 10(10D) in the hands of Mr. X. Therefore,
tax is required to be deducted @ 2% under section 194DA on the amount of income of ₹75,000 (₹4,50,000-
3,75,000).
(ii) Since the annual premium is 10% of sum assured in respect of a policy taken w.e.f. 01.04.2012, the sum
of ₹4.50 lakhs due to Mr. Y would be exempt under section 10(10D) in his hands. Hence, no tax is required
to be deducted at source under section 194DA on such sum payable to Mr. Y.
(iii) Even though the annual premium exceeds 10% of sum assured in respect of a policy taken after
31.03.2012, and consequently, the maturity proceeds of ₹95,000 due on 31.03.2025 would be taxable under
section 10(10D) in the hands of Mr. Z, the tax deduction provisions under section 194DA are not attracted
since the maturity proceeds are less than ₹ 1 lakh.

Question 12: Write a note on TDS in case of Commission, etc., on the Sale of Lottery Tickets.
Answer: TDS in case of Commission, etc., on the Sale of Lottery Tickets Section 194G
Every person (including individual and HUF) making payment of commission for sale of lottery tickets to
any person resident or non-resident, shall deduct tax at source @ 5% (upto 30.09.2024) and @ 2% (from
01.10.2024) provided the amount paid or payable to a particular person during a particular year is exceeding
₹15,000.

Question 13: Write a note on TDS on payment of Commission or Brokerage.

Answer: TDS on payment of Commission or Brokerage Section 194H
Every person making payment of any commission or brokerage to a resident shall, deduct income-tax @
5% (upto 30.09.2024) and @ 2% (from 01.10.2024), provided amount paid or payable during a particular
year to a particular person is exceeding ₹15,000.
An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
during the financial year immediately preceding the relevant year.
Example
Manoj trading limited rendered services in relation to sale of mustard oil to Ashish oils limited and
commission charged is ₹7,00,000, in this case, tax to be deducted at source by Ashish oils limited shall be
7,00,000 x 2% = ₹14,000 and amount payable to Manoj trading limited shall be
Commission 7,00,000
Less: TDS(7,00,000 x 2%) (14,000)
Amount Payable 6,86,000
 Deduction Of Tax At Source 335

Question 14: Write a note on TDS in case of payment of rent.

Answer: TDS in case of payment of rent Section 194-I
Every person making payment of rent to a resident shall deduct tax at source provided the amount paid or
payable during a particular year is exceeding ₹2,40,000. Tax shall be deducted at source @ 2% if rent is for
plant and machinery but @ 10% if rent is for land/building / furniture / fixture etc.

An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
during the financial year immediately preceding the relevant year.

Illustration 9:
(i) Amount of TDS in the following cases shall be:
Person receiving the payment Mr. A Mr. B Mr. C Mr. D
Person making the payment Individual (not Individual Partnership firm Company
exceeded the limit (exceeded the (Indian
in P.Y. 2023-24) limit in P.Y. company)
2023-24)
Rent for house property ₹3,00,000 ₹3,00,000 ₹3,00,000 ₹3,00,000
Amount of TDS Nil ₹30,000 ₹30,000 ₹30,000
Rent for plant and machinery ₹3,00,000 ₹3,00,000 ₹3,00,000 ₹3,00,000
Amount of TDS Nil ₹6,000 ₹6,000 ₹6,000
Rent for house property ₹1,00,000 ₹1,00,000 ₹1,00,000 ₹1,00,000
Amount of TDS Nil Nil Nil Nil
Rent for plant and machinery ₹1,00,000 ₹1,00,000 ₹1,00,000 ₹1,00,000
Amount of TDS Nil Nil Nil Nil
Example 1.
XYZ Ltd. raised an invoice of ₹3,00,000/- to ABC Limited for renting of commercial building. The above
figure includes ₹50,000/- of parking charges. The bill is raised on 30th June, 2024 and ABC Limited made
the payment on the same date.
Compute the Amount of TDS required to be deducted by ABC Limited and the due date of deposit of TDS
amount and last date of filing of quarterly Statement?
Solution:
Rent 3,00,000
Less: TDS(3,00,000 x 10%) (30,000)
Amount payable 2,70,000
Last date of deposit = 7th July, 2024.
Last date of filing of quarterly Statement = 31st July, 2024.
Example 2
ABC limited has let out one commercial building to Idea cellular limited at Gurgaon and rent charged is
₹2,50,000 per month, in this case, tax to be deducted at source by Idea cellular limited shall be as given
below:
Solution:
Rent (2,50,000 x 12) 30,00,000
Less: TDS(30,00,000 x 10%) (3,00,000)
Amount payable 27,00,000

Question 15: Write a note on TDS in case of Payment for purchase of immovable property.
Answer: TDS in case of Payment for purchase of immovable property Section 194-IA
1. Every person (including individual and HUF) making payment to a resident for purchase of immovable
property and stamp duty value of ₹50 lakhs or more shall deduct tax at source @ 1% of such sum or the
stamp duty value of such property, whichever is higher.
 Deduction Of Tax At Source 336

Provided that where there is more than one transferor or transferee in respect of any immovable property,
then the consideration shall be the aggregate of the amounts paid or payable by all the transferees to the
transferor or all the transferors for transfer of such immovable property

2. Consideration for immovable property” shall include all charges of the nature of club membership fee, car
parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar
nature, which are incidental to transfer of the immovable property.
3. No tax shall be deducted at source in case of payment for purchase of agricultural land which is
situated in the rural area.
E.g. Mr. X has purchased one building for ₹65 lakhs, in this case amount of TDS shall be 65,00,000 x 1% =
₹65,000 but if building was purchased for ₹47 lakhs, amount of TDS shall be nil.
4. The person deducting tax at source shall not be required to obtain Tax Deduction Account Number as per
section 203A.
Example: Mr. X sold his house property in Chennai for a consideration of ₹75 lakh to Mr. Y on 31.01.2025,
in this case, Mr. Y is required to deduct tax at source under section 194-IA @ 1% of ₹75 lakh and tax
deductible under section 194-IA shall be ₹ 75 lakh × 1% = ₹ 75,000
Question 16: Write a note on TDS in case of Payment of Rent by Certain Individual and HUF.
Answer: TDS in case of Payment of Rent by Certain Individual and HUF Section 194-IB
(1) Any person, being an individual or a Hindu undivided family not covered under section 194-I,
responsible for paying to a resident any income by way of rent exceeding ₹50,000 for a month or part of a
month during the previous year, shall deduct tax @ 5% (upto 30.09.2024) and @ 2% (from 01.10.2024).
(2) Tax shall be deducted at the time of making payment of rent for the last month of the previous year or
the last month of tenancy whichever is earlier.
(3) No requirement to take tax deduction account number.
(4) If the person receiving payment of rent has not submitted PAN, tax shall be deducted @ 20% but
maximum rent payable for the last month.
Example: Mr. X has taken a house on rent ₹60,000 p.m. not required to deduct tax at source under section
194-I, in this case he will be required to deduct tax at source @ 2% but tax is to be deducted in the last
month instead of every month. While paying rent of ₹ 60,000 for March 2025 he should deduct tax at source
₹ 7,20,000 x 2% = 14,400 but if person receiving payment has not submitted PAN, amount of TDS shall be
7,20,000 x 20% = 1,44,000 but maximum ₹ 60,000.

Question 17: Write a note on TDS in case of Fees for Professional or Technical Services.
Answer: TDS in case of Fees for Professional or Technical Services Section 194J
1. Every person, who is responsible for paying to a resident any sum by way of –
(i) fees for Professional services
(ii) any Remuneration or fees or commission to a director of a company (in case salary is being paid to a
director, tax shall be deducted at source under section 192).
(iii) Royalty
(iv) Non-compete fee referred to in section 28
shall deduct tax at source at the rate of 10%, however rate of TDS shall be 2% in the following cases
(i) in case of Fees for Technical Services.
(ii) royalty where such royalty is in the nature of consideration for sale, distribution or exhibition of
cinematographic films
(iii) in case of a payee engaged only in the business of operation of a call centre.

An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
during the financial year immediately preceding the relevant year.

2. No tax shall be deducted at source where the amount paid or payable during the year do not exceed
₹30,000. (limit of ₹30,000 is applicable separately for each of the above payments). There is no such limit in
case of payment to a director i.e. tax has to be deducted at source in case of payment to a director
 Deduction Of Tax At Source 337

irrespective of the amount to be paid.

Illustration 10: XYZ Ltd. makes a payment of ₹28,000 to Mr. X on 02.08.2024 towards fees for
professional services and another payment of ₹25,000 to him on the same date towards fees for technical
services. Discuss whether TDS provisions under section 194J are attracted.
Solution:
TDS provisions under section 194J would not get attracted, since the limit of ₹30,000 is applicable for fees
for professional services and fees for technical services, separately. It is assumed that there is no other
payment to Mr. X towards fees for professional services and fees for technical services during the P.Y.2024-
25.
Example: X Ltd. paid retainership fees of ₹25,000 to its Director, Mr. Ram Sharma, on 30.01.2025, as per
section 194J, the company shall be liable to deduct tax at source @ 10% on any remuneration or fees or
commission paid to a director, on which the tax is not deductible under section 192. The limit of ₹30,000
under section 194J is not applicable on any remuneration or fees or commission payable to director of
a company.
Tax deductible under section 194J = ₹ 25,000 x 10% = ₹ 2,500

Example
(i) If ABC Ltd. has to pay a sum of ₹2,00,000 to an architect, amount of TDS shall be ₹20,000.
(ii) If ABC Ltd. has to pay ₹10,00,000 to a Chartered Accountant, amount of TDS shall be ₹1,00,000.
(iii) If Mr. X has to pay ₹50,000 to an advocate, amount of TDS shall be Nil and if Turnover of Mr. X was
exceeded the prescribed limit during 2023-24, amount of TDS shall be ₹5,000.
(iv) If Z Ltd. has to pay ₹15,000 in connection with technical services, amount of TDS shall be Nil.

3. If individual or HUF is making payment for professional services and it is for personal purpose, no tax
shall be deducted at source.

4. Meaning of “Professional services”

As per section 44AA, rule 6F, “Professional services” means:
(a) Legal profession
(b) Medical Profession
(c) engineering Profession
(d) architectural profession
(e) profession of accountancy
(f) technical consultancy
(g) interior decoration
(h) advertising
(i) Profession of “authorised representatives”;
(j) Profession of “film artist”;
(k) Profession of “company secretary”;
(l) Profession of “information technology”.
The CBDT has notified the services also as professional services
(a) Sports Persons,
(b) Umpires and Referees,
(c) Coaches and Trainers,
(d) Team Physicians and Physiotherapists,
 Deduction Of Tax At Source 338

(e) Event Managers,

(f) Commentators,
(g) Anchors and
(h) Sports Columnists.
Accordingly, the requirement of TDS as per section 194J would apply to all the aforesaid professions. The
term “profession”, as such, is of a very wide import. However, the term has been defined in this section
exhaustively. For the purposes of TDS, therefore, all other professions would be outside the scope of section
194J. For example, this section will not apply to professions of teaching, sculpture, painting etc. unless they
are notified.
Meaning of “Fees for technical services”
The term ‘fees for technical services’ means any consideration (including any lump sum consideration) for
rendering of any of the following services:
(i) Managerial services;
(ii) Technical services;
(iii) Consultancy services;
(iv) Provision of services of technical or other personnel.
It is expressly provided that the term ‘fees for technical services’ will not include following types of
consideration:
(i) Consideration for any construction, assembly, mining or like project, or
(ii) Consideration which is chargeable under the head ‘Salaries’.

Question 18: Write a note on TDS in case of “Income on units of Mutual Fund”.
Answer: TDS in case of “Income on units of Mutual Fund” Section 194K
Any person making payment of Income on units of Mutual Fund to a resident shall deduct tax at source @
10%, provided the amount being paid or payable during a particular year to a particular person is exceeding
₹5,000. Also TDS shall not be deducted, if the income is of the nature of capital gains.

Question 19: Write a note on TDS in case of Payment of Compensation on Acquisition of certain
Immovable Property.
Answer: TDS in case of Payment of Compensation on Acquisition of certain Immovable Property
Section 194LA
If any land or building has been acquired by the government or other similar agency, tax shall be deducted at
source @ 10% provided the amount paid or payable to any resident is exceeding ₹2,50,000. No tax shall be
deducted at source if the payment relates to acquisition of agricultural land.
Example: If ₹3,00,000 is to be paid to Mr. X on 05.05.2024 by State Government on compulsory
acquisition of his urban land, amount of TDS shall be 3,00,000 x 10% = 30,000.

Question 20: Write a note on TDS in case of Payment of certain sums by certain individuals or Hindu
undivided family.
Answer: TDS in case of Payment of certain sums by certain individuals or Hindu undivided family
Section 194M
Any person, being an individual or a Hindu undivided family (other than those who are required to deduct
income-tax as per section 194C or section 194H or section 194J) responsible for paying any sum to any
resident under contract or by way of fees for professional services or commission or brokerage during the
financial year, shall deduct an amount equal to 5% (upto 30.09.2024) and 2% (from 01.10.2024) of such
sum as income –tax but tax shall be deducted only when amount paid or payable is exceeding ₹50,00,000.
The person deducting tax at source shall be exempt from obtaining Tax Deduction Account Number.
 Deduction Of Tax At Source 339

Illustration 11: 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.2024-
25
1. Mr. Ganesh, an individual carrying on Contract Payment for repair of ₹5 lakhs
retail business with turnover of ₹ 2.5 residential house
crores in the P.Y.2023-24 Payment of commission to Mr. ₹80,000
Vallish for business purposes
2. Mr. Rajesh, a wholesale trader and Contract payment for reconstruction ₹20 lakhs in January,
turnover for P.Y.2023-24 is 95 lakhs of residential house (made during 2025, ₹15 lakhs in Feb
and for P.Y.2024-25 105 lakhs the period January-March, 2025) 2025 and ₹20 lakhs in
March 2025.
3. Mr. Satish, a salaried individual Payment of brokerage for buying a ₹51 lakhs
residential house in March, 2025
4. Mr. Dheeraj, a pensioner Contract payment made during ₹48 lakhs
October–November 2024 for
reconstruction of residential house

Solution:
Particulars of the Nature of payment Aggregate of Whether TDS provisions are
payer payment in attracted?
the F.Y. 2024-
25
1. Mr. Ganesh, an Contract Payment for ₹ 5 lakhs No, TDS under section 194C is
individual carrying on repair of residential not attracted since the payment
retail business with house is for personal purpose and TDS
turnover of ₹ 2.5 crores under section 194M is not
in the P.Y.2023-24 attracted as aggregate of contract
payment to the payee in the
P.Y.2024-25 does not exceed ₹
50 lakh.
Payment of ₹ 80,000 Yes, u/s 194H, since the
commission to Mr. payment exceeds ₹15,000, and
Vallish for business Mr. Ganesh’s turnover exceeds
₹1 crore in the P.Y.2023-24.
purposes
2. Mr. Rajesh Contract Payment for ₹ 55 lakhs Yes, under section 194M, since
reconstruction of the aggregate of payments (i.e.,
residential house ₹55 lakhs) exceed ₹50 lakhs,
Since his turnover is below ₹100
lakhs in the P.Y.2023-24. Hence,
TDS provisions under section
194C are not attracted in respect
of payments made in the
P.Y.2024-25.
3. Mr. Satish, a salaried Payment of brokerage ₹ 51 lakhs Yes, under section 194M, since
individual for buying a residential the payment of ₹ 51 lakhs made
 Deduction Of Tax At Source 340

house in March 2024 exceeds the

threshold limit of ₹50 lakhs.
Since Mr. Satish is a salaried
individual, the provisions of
section 194H are not applicable
in this case.
4. Mr. Dheeraj, a Contract payment for ₹ 48 lakhs TDS provisions under section
pensioner reconstruction of 194C are not attracted since Mr.
residential house Dheeraj is a pensioner and TDS
provisions under section 194M
are also not applicable in this
case, since the payment of ₹ 48
lakhs does not exceed the
threshold limit of ₹ 50 lakhs.

Question 21: Write a note on TDS in case of Payment of certain amounts in cash.
Answer: TDS in case of Payment of certain amounts in cash Section 194N
Every person, being,––
(i) a banking company to which the Banking Regulation Act, 1949 applies
(ii) a co-operative society engaged in carrying on the business of banking; or
(iii) a post office,
who is responsible for paying any sum, being the amount or the aggregate of amounts, as the case may be, in
cash exceeding one crore rupees during the previous year, to any person (herein referred to as the recipient)
from one or more accounts maintained by the recipient with it shall, at the time of payment of such sum,
deduct an amount equal to two per cent of such sum, as income-tax:
Provided that in case of a recipient who has not filed the returns of income for all of the three previous years,
for which the time limit to file return of income under sub-section (1) of section 139 has expired, in the year
immediately preceding the previous year in which the payment of the sum is made to him, the provision of
this section shall apply with the modification that-
(i) the sum shall be the amount or the aggregate of amounts, as the case may be, in cash exceeding
twenty lakh rupees during the previous year; and
(ii) the deduction shall be—
(a) an amount equal to two per cent. of the sum where the amount or aggregate of amounts, as the
case may be, being paid in cash exceeds twenty lakh rupees during the previous year but does not
exceed one crore rupees; or
(b) an amount equal to five per cent. of the sum where the amount or aggregate of amounts, as the
case may be, being paid in cash exceeds one crore rupees during the previous year:
Provided also that nothing contained in this section shall apply to any payment made to,––
(i) the Government;
(ii) bank or post office;
(iii) any teller machine operator of a banking company, maintaining a separate bank account from which
withdrawal is made only for the purposes of replenishing cash in the Automated Teller Machines.
(iv) Commission agent or trader, operating under Agriculture Produce Market Committee (APMC).
(v) The authorised dealer or Money Changer licensed by the RBI.
Example
Mr. X has withdrawn ₹120 Lakh in F.Y. 2024-25 in cash, amount of TDS shall be 120 lakh x 2% =
₹2,40,000 but if he has not filing return for last three years and time limit has expired in the preceding year,
amount of TDS shall be 100 lakh x 2% i.e. ₹2,00,000 and 20 lakh x 5% = 1,00,000. If amount withdrawn is
₹15 lakh, there is no TDS. If amount withdrawn is ₹70 lakh, there is no TDS but if return has not been filed
 Deduction Of Tax At Source 341

for last three years, amount of TDS shall be 70 lakh x 2% = ₹1,40,000.

Question 22: Explain TDS in case of senior citizen.

Answer: TDS in case of specified senior citizen Section 194P
Section 194P shall be applicable only in case of senior citizen and senior citizen for this purpose means any
resident individual who is of the age of 75 years or more. The individual should have only pension income
or interest income and the incomes are received in the bank account held with a specified bank. The
specified bank shall compute income and tax liability of such individual and same amount shall be deducted
as tax at source. The senior citizen shall be exempt from filing the return of income.

Question 23: Write a note on Deduction of tax at source on payment of certain sum for purchase of
goods.
Answer: TDS in case of payment of certain sum for purchase of goods Section 194Q
If any person is purchasing goods of aggregate value during a particular year exceeding ₹50 lakh, such
person shall deduct tax at source @ 0.1% of the sum exceeding ₹50 lakh however such buyer should also be
engaged in a business and turnover from such business should exceed ₹10 crores in financial year
immediately preceding the year in which goods are being purchased. E.g. ABC Ltd. is engaged in the
business of sale of generators and its turnover in F.Y. 2023-24 was ₹12 crore and company has purchased
generators from the manufacturer in the year 2024-25 for ₹70 lakh, in this case amount of TDS shall be
0.1% of ₹20 lakh = ₹2,000. But if turnover of business in F.Y. 2023-24 is upto ₹10 crore, no tax shall be
deducted at source.

If any transaction is subject of tax collection at source and also TDS under section 194Q, in that case tax
shall be collected at source and section 194Q shall not be applicable. E.g. ABC Ltd. is engaged in the sale of
alcoholic liquor and it has sold alcoholic liquor of ₹70 lakh to XYZ Ltd. and XYZ Ltd. had turnover of ₹12
crore in P.Y. 2023-24, in this case ABC Ltd. shall collect tax from XYZ Ltd. @ 1% of ₹70 lakh and XYZ
Ltd. shall not do any TDS under section 194Q.

If TCS provisions under section 206C(1H) are applicable and also 194Q is applicable, section 206C(1H)
shall not apply rather section 194Q shall be applicable. E.g. ABC Ltd. has turnover of ₹12 crore and it has
sold goods to XYZ Ltd. of the value of ₹70 lakh and XYZ Ltd. has turnover in P.Y. 2023-24 ₹12 crores, in
this case XYZ Ltd. shall do TDS under section 194Q = 20 lakh x 0.1% = ₹2,000 and ABC Ltd. shall not
collect tax at source.

Question 24: Write a note on Deduction of tax on benefit or perquisite in respect of business or
profession
Answer: TDS in case of payment of benefit or perquisite in respect of business or profession Section
194R
Every person responsible for providing any benefit or perquisite to a resident person shall deduct tax at
source @ 10% provided the aggregate amount during a particular year is exceeding ₹20,000 further turnover
of the person providing such benefit should exceed 100 lakh in business or ₹50 lakh in profession in the
immediately preceding year.
It is clarified that the provisions of sub-section shall apply to any benefit or perquisite, whether in cash or
in kind or partly in cash and partly in kind.
E.g. Maruti Udyog Ltd. Has gifted one motor car value ₹5 lakh to one of its dealer for achieving the sales
target, in this case gift has to be deducted at source @ 10%. Since the gift is in kind, it is a duty of Maruti
Udyog Ltd. to ensure that tax has been deposited by the recipient.

Question 25: Write a note on Deduction of tax on payment to partners of firms of Partnership Firm
or LLP.
Answer: TDS in case of payment to partners of firms of Partnership Firm or LLP Section 194T w.e.f.
01-04-2025
 Deduction Of Tax At Source 342

Any person, being a firm, responsible for paying any sum in the nature of salary, remuneration, commission,
bonus or interest to a partner of the firm, shall, at the time of credit of such sum to the account of the partner
(including the capital account) or at the time of payment thereof, whichever is earlier shall, deduct income-
tax thereon at the rate of 10%.

No deduction shall be made under sub-section (1) where such sum or the aggregate of such sums credited or
paid or likely to be credited or paid to the partner of the firm does not exceed ₹20,000 during the financial
year

Question 26: Write a note on TDS in case of Payment to Non-Resident or Foreign Company.
Answer: TDS in case of Payment to Non-Resident or Foreign Company Section 195
Every person making any payment to a non-resident or to a foreign company shall deduct tax at source at the
prescribed rate.

Question 27: Explain TDS provision in case of payment to Government.

Answer: Interest or dividend or other sums payable to Government, Reserve Bank or certain
corporations. Section 196
Notwithstanding anything contained in the foregoing provisions of this Chapter, no deduction of tax shall be
made by any person from any sums payable to—
(i) the Government, or
(ii) the Reserve Bank of India, or
(iii) a corporation established by or under a Central Act which is, under any law for the time being in force,
exempt from income-tax on its income, or
(iv) a Mutual Fund specified under clause (23D) of section 10, where such sum is payable to it by way of
interest or dividend in respect of any securities or shares owned by it.

Question 28: Write a note on TDS in case of payment by individual or Hindu Undivided Family.
Answer: TDS in case of payment by individual or Hindu Undivided Family
An Individual or Hindu Undivided Family shall be required to deduct tax at source only if the turnover in
case of business has exceeded ₹ 1 crore and gross receipts in case of profession has exceeded ₹ 50 lakhs,
during the financial year immediately preceding the relevant year.
The above provisions are applicable for TDS under section 194A, 194C, 194H, 194I, 194J.
The above provisions are not applicable for TDS under other sections like 192, 192A, 193, 194, 194B,
194BA, 194BB, 194D, 194DA, 194E, 194G, 194-IA,194-IB, 194LA, 194K, 194M, 194N, 195.

Question 29: Write a note on Deduction of tax at Lower Rate.

Answer: Deduction of tax at Lower Rate Section 197
If on income of any person, income-tax is required to be deducted at the time of payment under section 192,
193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K, 194LA,194M, and 195 and the Assessing
Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower
rates or no deduction of income-tax, as the case may be, the Assessing Officer shall, on an application made
by the assessee in this behalf, give to him such certificate as may be appropriate.
Application should be given in Form No. 13.
(Section 197 is not applicable in case of TDS under section 192A, 194B, 194BA, 194BB, 194DA, 194E,
194-IA, 194N)

Question 30: Write a note on self declaration for not deducting tax at source.
Answer: Self declaration for not deducting tax at source Section 197A
As per section 197A, if any individual or Hindu Undivided Family has total income not exceeding the
exemption limit and also his tax liability is nil, such individual or HUF can furnish a declaration in Form
No. 15G to the person making payment and in that case no tax shall be deducted at source. A senior citizen
 Deduction Of Tax At Source 343

can give a declaration in Form No 15H if his tax liability is nil.

The above provision shall be applicable in case of section 192A, 193, 194, 194A, 194D, 194DA & 194I.

Question 31: Write a note on time period for depositing tax deducted at source.
Answer: Time period for depositing tax deducted at source Section 200 / Rule 30
As per Rule 30, the payment is to be made in general within 7 days from the last day of the month in
which the deduction is made.
If the tax has been deducted in the month of March, tax should be deposited on or before 30th April.
In certain cases, Assessing Officer may permit the payments on quarterly basis.

Question 32: Write a note on filing of quarterly statement of TDS.

Answer: Filing of quarterly statement of TDS Section 200 / Rule 31A
Every person deducting tax at source has to submit quarterly statement containing details of the tax deducted
at source. The statement should be submitted latest by 31st of the month succeeding the relevant quarter but
statement for the quarter ending March can be submitted upto 31st May. e.g. Statement for quarter ending
March, 2025 can be submitted upto 31st May, 2025.

Question 33: Write a note on Consequences of Failure to Deduct or Pay.

Answer: Consequences of Failure to Deduct or Pay Section 201
1. If any person has failed to deduct tax at source, interest shall be charged @ 1% p.m. or part of a
month for the period of delay. E.g. ABC Ltd. has made one payment on 03.01.2025 but tax was deducted at
source on 20.01.2025, in this case interest shall be charged @ 1% for one month.
2. If person has deducted tax at source but tax was not deposited within the time allowed under section
200, interest shall be charged @ 1.5% p.m. or part of a month from date of deducting tax at source upto
the date of depositing the amount
Example
Assessee deduct TDS on 10.10.2024 but pays TDS on 31.12.2024, Interest under section 201 shall be
charged from 10.10.2024 to 31.12.2024 @ 1.5% per month i.e., for 3 months.
If in the above case assessee has not deducted tax at source on 10.10.2024 rather assessee deducted TDS on
31.12.2024 and assessee pays TDS on 17.01.2025, interest shall be charged in the manner given below:
(i) Interest under section 201 shall be charged for 3 months @ 1% for the period 10.10.2024 to 31.12.2024.
(ii) Interest under section 201 shall be charged @ 1.5% per month for one month from 31.12.2024 to
17.01.2025.
3. Assessee shall also be considered to be assessee in default and penalty may be imposed equal to the
amount which he has failed to deduct or pay but in following two situations he will not be considered to be
assessee in default
1. If there were sufficient reasons for not deducting tax at source
2. Payment was made to a payee and such payee has shown the amount in his income and has paid tax and
also return has been filed and it has been confirmed by a Chartered Accountant.
In this case assessee shall pay interest from the date when tax was to be deducted upto the date of filing the
return.
Example
ABC Ltd. paid certain amount on 05.01.2025 to Mr. X and tax was not deducted at source but Mr. X himself
has paid his tax and return was filed on 31.07.2025, in this case interest shall be charged @ 1% p.m. for a
period of 7 months i.e. from 05.01.2025 to 31.07.2025.

Illustration 12: An amount of ₹40,000 was paid to Mr. X on 01.07.2024 towards fees for professional
services without deduction of tax at source. Subsequently, another payment of ₹50,000 was due to Mr. X on
28.02.2025, from which tax @ 10% (amounting to ₹9,000) on the entire amount of ₹ 90,000 was deducted.
However, this tax of ₹ 9,000 was deposited only on 22.06.2025.
Compute the interest chargeable under section 201.
Solution:
Interest under section 201 would be computed as follows –
 Deduction Of Tax At Source 344

Particulars ₹
1% on tax deductible but not deducted i.e., 1% on ₹ 4,000 for 8 months 320
(01.07.2024 to 28.02.2025)
1½% on tax deducted but not deposited i.e. 1½% on ₹ 9,000 for 4 months 540
(28.02.2025 to 22.06.2025) 860

Question 34: Write a note on Certificate for Tax Deducted.

Answer: Certificate for Tax Deducted Section 203/ Rule 31
TDS Certificate
Every person deducting tax at source shall issue a certificate to the person with regard to whom tax has been
deducted at source. In case of payment of salary, certificate shall be issued in Form No. 16 and in other
cases it will be in Form No. 16A.
The certificate in Form No. 16 should be given upto 15th June of the succeeding year in case of an employee
and it will be an annual certificate.
In other cases certificate in Form No. 16A should be issued on quarterly basis and it should be issued within
15 days from the last date of submitting the quarterly statement under section 200.
Question 35: Write a note on Tax Deduction Account Number (TAN).
Answer: Tax Deduction Account Number (TAN) Section 203A
Every person, deducting tax at source shall apply for allotment of tax deduction account number and
application has to be given in Form No.49B within one month from the end of the month in which tax
was deducted for the first time.

Question 36: Write a note on Requirement to Furnish Permanent Account Number.

Answer: Requirement to Furnish Permanent Account Number Section 206AA
Every person on whose behalf, tax is being deducted at source shall submit his PAN to the person deducting
tax at source otherwise rate of TDS shall be the actual rate or 20% whichever is higher. The person
deducting tax at source has to mention such PAN in the quarterly statement. However, if the assessee,
whose tax is required to be deducted under section 194-O or 194Q, does not submit his PAN or Aadhar,
rate of TDS shall be 5% instead of 20%.

Question 37: Write a note on Special provision for deduction of tax at source for non-filers of income-
tax return.
Answer: Special provision for deduction of tax at source for non-filers of income-tax return Section
206AB
(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be
deducted at source under the provisions of Chapter XVIIB, other than sections 192, 192A, 194B, 194BA,
194BB, 194-IA, 194-IB, 194M or 194N on any sum or income or amount paid, or payable or credited, by a
person to a specified person, the tax shall be deducted at the higher of the following rates, namely:–
at twice the rate in force or at the rate of five per cent.

(2) If the provisions of section 206AA is applicable to a specified person, in addition to the provision of this
section, the tax shall be deducted at higher of the two rates provided in this section and in section 206AA.
(3) For the purposes of this section “specified person” means a person who has not furnished the return of
income for the assessment year relevant to the previous year immediately preceding the financial year in
which tax is required to be deducted, for which the time limit for furnishing the return of income under sub-
section (1) of section 139 has expired and the aggregate of tax deducted at source and tax collected at source
in his case is rupees fifty thousand or more in the said previous year.

TDS shall be on the amount excluding GST

As per Circular No. 23/2017, Dated 19-7-2017, wherever in terms of the agreement/contract between the
payer and the payee, the GST component comprised in the amount payable to a resident is indicated
 Deduction Of Tax At Source 345

separately, tax shall be deducted at source on the amount paid/payable without including such GST
component.

Illustration 13: Mrs. X has received incomes as given below during the previous year 2024-25:
1. Interest on savings bank account with State Bank ₹50,000 (gross).
2. Interest from Government securities ₹1,00,000 on 01.01.2025 (collection charge paid to the bank @
1.5%).
3. Interest from ABC Ltd on non listed debentures ₹3,60,000 (after TDS) on 01.03.2025 (collection
charge paid to the bank ₹30).
4. Interest credited to post office savings bank account during the year ₹ 10,000.
5. Interest credited to public provident fund during the year ₹ 15,000.
6. Interest received from XYZ Ltd on listed debentures ₹ 1,35,000 (Net).
(Collection charge ₹30) The amount was invested by taking a loan of ₹15,00,000 @ 12% p.a.
7. Mrs. X received rent of house property ₹ 72,000 per month after TDS.
8. Winnings from a lottery ₹70,000 (after TDS)
Compute her tax liability and also tax payable for the assessment year 2025-26.
Solution: ₹
Income under the head other sources
Gross interest from State Bank of India 50,000.00
Interest from Government securities
{₹1,00,000 – ₹1,500} 98,500.00
Interest from ABC Ltd 3,99,970.00
{(₹3,60,000 / 90 x 100) – ₹30}
Interest on P.O.S.B (10,000 – 3,500) 6,500.00
Interest on PPF (exempt u/s 10(15)) Nil
Interest from XYZ Ltd. (30,030.00)
{Gross interest = ₹1,35,000 / 90 x 100 = 1,50,000
Less: Collection charges = (₹30)
Less: Interest paid on loan = (₹1,80,000)}
Winning from lottery 1,00,000.00
(70,000 / 70 x 100)
Income under the head Other Sources 6,24,940.00
Income under the head House Property
Gross Annual Value (72,000/90% x 12) 9,60,000.00
Less: Municipal Tax (Nil)
Net Annual Value 9,60,000.00
Less: 30% of NAV u/s 24(a) (2,88,000.00)
Less: Interest on capital borrowed u/s 24(b) (Nil)
Income from house property 6,72,000.00

Gross Total Income 12,96,940.00

Less: Deduction under Chapter VI-A Nil
Total Income 12,96,940.00
Computation of tax liability
Tax on winning from lottery ₹1,00,000 @ 30% u/s 115BB 30,000.00
Tax on ₹11,96,940 at slab rate 79,541.00
Tax before health & education cess 1,09,541.00
Add: HEC @ 4% 4,381.64
Tax Liability 1,13,922.64
Less: TDS u/s 193 on Non Listed Debentures (40,000.00)
Less: TDS u/s 193 on Listed Debentures (15,000.00)
Less: TDS u/s 194B on winning from lottery (30,000.00)
Less: TDS u/s 194I (96,000.00)
 Deduction Of Tax At Source 346

Refund 67,077.36
Rounded off u/s 288B 67,080.00

Illustration 14: Mr. X has let out one House property and rent received is ₹90,000 p.m. after TDS. He paid
Municipal Tax ₹1,00,000 and Interest u/s 24 (b) is ₹2,00,000. He has received ₹ 12,60,000 in connection
with professional services after TDS. The Assessee made the payment of tax on 10.05.2025. Compute Total
Income and Tax Payable and also Compute Interest u/s 234A, 234B & 234C.
Solution:
Computation of income under the head House Property ₹
Gross Annual Value (90,000/90% x 12) 12,00,000.00
Less: Municipal Tax (1,00,000.00)
Net Annual Value 11,00,000.00
Less: 30% of NAV u/s 24(a) (3,30,000.00)
Less: Interest on capital borrowed u/s 24(b) (2,00,000.00)
Income from house property 5,70,000.00
Income under the head Business/Profession (12,60,000/90%) 14,00,000.00
Gross Total Income 19,70,000.00
Less: Deduction under Chapter VI-A Nil
Total Income 19,70,000.00

Computation of Tax Liability

Tax on ₹ 19,70,000 at slab rate 2,81,000.00
Add: HEC @ 4% 11,240.00
Tax Liability 2,92,240.00
Less: TDS u/s 194I (1,20,000.00)
Less: TDS u/s 194J (1,40,000.00)
Tax Payable 32,240.00
Interest under section 234C shall be computed in the manner given below:
Tax Payable Tax Paid Shortfall
15.06.2024 4,836 (32,240 x 15%) Nil 4,836
Rounded off Rule 119A = 4,800
Interest u/s 234C = 4,800 x 1% x 3 = 144
15.09.2024 14,508 (32,240 x 45%) Nil 14,508
Rounded off Rule 119A = 14,500
Interest u/s 234C = 14,500 x 1% x 3 = 435
15.12.2024 24,180 (32,240 x 75%) Nil 24,180
Rounded off Rule 119A = 24,100
Interest u/s 234C = 24,100 x 1% x 3 = 723
15.03.2025 32,240 (32,240 x 100%) Nil 32,240
Rounded off Rule 119A = 32,200
Interest u/s 234C = 32,200 x 1% x 1 = 322

Total interest payable u/s 234C 1,624

Interest under section 234B shall be computed from 01.04.2025 to 10.05.2025 and is as given below:
Tax Liability – TDS shall be considered to be tax payable i.e. 32,240
32,240 = 32,200 x 1% x 2 = 644
(Rounded off Rule 119A = 32,200)
Total interest payable (1,624 + 644) 2,268
Rounded off u/s 288B 2,270
 Deduction Of Tax At Source 347

TAX COLLECTION AT SOURCE

206C

Question : Write a note on TCS under the Income- tax Act, 1961.
Answer:
If the person making the payment has deducted tax, it is called TDS but if the person collecting payment for
goods or other purpose has also collected tax, it is called TCS and it is applicable in the following cases:
1. As per section 206C(1), every seller shall collected tax in the following cases:
(i) Alcoholic Liquor for human consumption 1%
(ii) Tendu leaves 5%
(iii)Timber obtained under a forest lease 2.5%
(iv) Timber obtained by any mode other than under a forest lease 2.5%
(v) Any other forest produce not being timber or tendu leaves 2.5%
(vi) Scrap 1%
(vii) Minerals, being coal or lignite or iron ore 1%
Buyer" means any person but does not include,— a public sector company, the Central Government, a State
Government, and an embassy, a High Commission, and a club. It will also not include a buyer in the retail
sale of such goods purchased by him for personal consumption;
"seller" means the Central Government, a State Government or any local authority or corporation or
authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative
society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or
turnover from the business or profession carried on by him exceed one crore rupees in case of business or
fifty lakh rupees in case of profession during the financial year immediately preceding the financial year.

2. As per section 206C(1C), every person giving license shall collect tax in the following cases:
(i) Parking lot 2%
(ii) Toll plaza 2%
(iii) Mining and quarrying 2%
3. As per section 206C(1F), every seller of motor vehicle or any other goods, as may be specified by the
Central Government by notification in the Official Gazette (effective w.e.f. 01-01-2025) shall collect tax at
source in the following cases:
Motor vehicle exceeding value ₹ 10 lakh 1%
Any other Goods (effective w.e.f. 01-01-2025) 1%

“Buyer” means any person but does not include,— the Central Government, a State Government and an
embassy, a High Commission, a local authority, a public sector company which is engaged in the business of
carrying passengers.]
It will also not include sale by manufacturer to dealers and distributors
"Seller" means the Central Government, a State Government or any local authority or corporation or
authority established by or under a Central, State or Provincial Act, or any company or firm or co-operative
society and also includes an individual or a Hindu undivided family whose total sales, gross receipts or
turnover from the business or profession carried on by him exceed one crore rupees in case of business or
fifty lakh rupees in case of profession during the financial year immediately preceding the financial year.

Q.1 Whether TCS @ 1% is on sale of motor vehicle at retail level or also on sale of motor vehicles by
manufacturers to dealers/ distributors?
A. To bring high value transactions within the tax net, section 206C has been amended to provide that the
seller shall collect the tax @ 1% from the purchaser on sale of motor vehicle of the value exceeding ₹ 10
lakhs. This is brought to cover all transactions of retail sales and accordingly, it will not apply on sale of
motor vehicles by manufacturers to dealers/distributors.
 Deduction Of Tax At Source 348

Q.2 Whether TCS @ 1% on sale of motor vehicle is applicable only to luxury cars?
A. No, as per section 206C(1F), the seller shall collect tax@1% from the purchaser on sale of any motor
vehicle of the value exceeding ₹ 10 lakhs.

Q.3 Whether TCS @ 1% is applicable in the case of sale to Government Departments, Embassies,
Consulates and United Nation Institutions, of motor vehicle or any other goods or provision of
services?
A. Government, institutions notified under United Nations (Privileges and Immunities) Act 1947, and
Embassies, Consulates, High Commission, Legation, Commission and trade representation of a foreign State
shall not be liable to levy of TCS.
Q.4 Whether TCS is applicable on each sale of motor vehicle or on aggregate value of sale during the
year?
A. Tax is to be collected at source@1% on sale consideration of a motor vehicle exceeding ₹ 10 lakhs. It is
applicable to each sale and not to aggregate value of sale made during the year.

Q.5 Whether TCS @ 1% on sale of motor vehicle is applicable in case of an individual?

A. An individual who is liable to audit as per the provisions of section 44AB during the financial year
immediately preceding the financial year in which the motor vehicle is sold shall be liable for collection of
tax at source on sale of motor vehicle by him.

Q.6 How would the provisions of TCS on sale of motor vehicle be applicable in a case where part of
the payment is made in cash and part is made by cheque?
A. The provisions of TCS on sale of motor vehicle exceeding ₹ 10 lakhs is not dependent on mode of
payment. Any sale of motor vehicle exceeding ₹ 10 lakhs would attract TCS @ 1%.

4. As per section 206C(1G), tax shall be collected at source in the following cases:
1. In case of remittance out of India, authorized dealer shall collect tax at source on the amount exceeding
₹7 lakh at the rates given below:
(i) 20% on the amount exceeding 7 lakh
(ii) 5% on the amount exceeding 7 lakh if remittance is for the purpose of education or for medical
treatment.
(iii) 0.5% on the amount exceeding 7 lakh if remittance is for the purpose of making repayment of
education loan.
(iv) TCS shall be applicable in case of overseas tour programme and for this purpose every seller who
is selling overseas tour program package shall collect at source at a rate of 5% upto 7,00,000 and 20%
on the amount exceeding 7,00,000
“Overseas tour programme package” means any tour package which offers visit to a country or
territories outside India and includes expenses for travel or hotel stay or boarding or lodging or any other
expenditure of similar nature or in relation thereto.

The provisions of section 206C(1G) shall not apply if the buyer is the Central Government, a State
Government, an embassy, a High Commission, a local authority or any other person as the Central Government
may notify.

5. As per 206C(1H), every seller whose turnover in the preceding year was exceeding ₹ 10 crores shall
collect tax at source from a buyer at a rate of 0.1% provided sale consideration is exceeding ₹ 50 lakh and
TCS shall be only on the amount exceeding ₹ 50 lakhs.

"Buyer" means a person who purchases any goods, but does not include,—the Central Government, a State
Government, an embassy, a High Commission, a local authority, a person importing goods into India or any
other person as the Central Government may notify.
 Deduction Of Tax At Source 349

Tax collection Account Number Section 206CA

Every person collecting tax as per section 206C shall apply for allotment of tax collection account number in
the similar manner as in case of tax deduction account number.

Requirement to furnish Permanent Account number by collectee Section 206 CC

(1) Notwithstanding anything contained in any other provisions of this Act, any person paying any sum or
amount, on which tax is collectible at source under Chapter XVII-BB shall furnish his Permanent Account
Number to the person responsible for collecting such tax, failing which tax shall be collected at the higher of
the following rates, namely:—
(i) at twice the rate
(ii) at the rate of five per cent. (In case of TCS u/s 206C(1H), rate of tax shall be twice the rate or 1%
whichever is higher.)
However the maximum rate of TCS can be 20%.
The provisions of this section shall not apply to a non-resident who does not have permanent establishment
in India.

Special provision for collection of tax at source for non-filers of income-tax return Section 206CCA
(1) Notwithstanding anything contained in any other provisions of this Act, where tax is required to be
collected at source under the provisions of Chapter XVII-BB, on any sum or amount received by a person
(hereafter referred to as collectee) from a specified person, the tax shall be collected at the higher of the
following two rates, namely:—
at twice the rate in force or at the rate of five per cent.
However the maximum rate of TCS can be 20%.

(2) If the provisions of section 206CC is applicable to a specified person, in addition to the provisions of this
section, the tax shall be collected at higher of the two rates provided in this section and in section 206CC.

(3) For the purposes of this section "specified person" means a person who has not furnished the return of
income for the previous year immediately preceding the financial year in which tax is required to be
collected, for which the time limit for furnishing the return of income under sub-section (1) of section 139
has expired in the preceding previous year and the aggregate of tax deducted at source and tax collected at
source in his case is rupees fifty thousand or more in the said previous year:
 Deduction Of Tax At Source 350

MULTIPLE CHOICE QUESTIONS

1. The rate of TDS on rental payments of plant, machinery or equipment is -
(a) 2% (b) 5% (c) 10% (d) 1%
2. Advance tax will not be paid if tax payable after TDS is less than–
(a) ₹ 10,000 (b) ₹5,000 (c) ₹20,000 (d) ₹25,000
3. For deferment of advance tax -
(a) interest is payable under section 234A
(b) interest is payable under section 234B
(c) interest is payable under section 234C
(d) interest is payable under all the three sections 234A, 234B and 234C
4. Mr. X, a resident Indian, wins ₹10,000 in a lottery. Which of the statement is true?
(a) Tax is deductible u/s 194B @ 30%
(b) Tax is deductible u/s 194B @ 30.9%
(c) No tax is deductible at source
(d) None of the above
5. Mr. X paid fees for professional services of ₹40,000 to Mr. Y, who is engaged only in the business of
operation of call centre, on 15.7.2024. Tax is to be deducted by Mr. X at the rate of –
(a) 1% (b) 2% (c) 10% (d) 20%
6. Mr. A, a salaried individual, pays rent of ₹51,000 per month to Mr. B from June,2024. Which of the
statement is true?
(a) No tax is deductible at source since Mr. A is not liable to tax audit u/s 44AB.
(b) Tax is deductible at source every month @ 10% on rent paid to Mr. B.
(c) Tax is deductible at source every month @ 5% on rent paid to Mr. B.
(d) Tax is deductible at source @ 5% on annual rent from the rent paid for March 2025.
7. ₹2 lakh is paid to Mr. Vallish, a resident individual on 15.3.2025 by the State of Haryana on
compulsory acquisition of his urban agricultural land.
(a) No tax is deductible at source (b) Tax is deductible@ 1%
(c) Tax is deductible @ 5% (d) Tax is deductible@ 10%
8. Two motor cars of the value of ₹12 lakhs and ₹8 lakhs was sold by a dealer to two different
customers.
(a) Tax @ 1% has to be collected on ₹20 lakhs
(b) Tax @ 1% has to be collected on ₹12 lakhs
(c) Tax @ 1% has to be collected on ₹8 lakhs
(d) No tax collection at source is required in this case
9. A registered firm pays salary and interest on capital to its resident partners. Which of the following
statements is true?
(a) Tax has to be deducted u/s 192 on salary and u/s 194A on interest
(b) Tax has to be deducted u/s 192 on salary but no tax needs to be deducted on interest
(c) No tax has to be deducted on salary but tax has to be deducted u/s 194A on interest
(d) Tax has to be deducted u/s 194T on salary and interest.
10. M/S Mohan & Sons (liable to audit) paid ₹35,000 to Mr. Goel on 01.05.2024 towards fee for legal
advisory services without deduction of tax at source. Another payment of ₹47,000 was due to Mr. Goel
on 31.07.2024 and TDS on entire amount (i.e. ₹35,000 plus ₹47,000) was deducted and then the net
amount was paid. However, the total tax deducted was deposited on 15.11.2024. The interest
chargeable under section 201 will be:
(a) ₹650
(b) ₹433
(c) ₹486
(d) ₹597
 Deduction Of Tax At Source 351

11. Which of the following statement is correct.

(a) As per section 192A tax shall be deducted at source @ 12% provided the amount paid or payable during
a particular year is ₹ 50,000 or more
(b) As per section 192A tax shall be deducted at source @ 10% provided the amount paid or payable during
a particular year is ₹ 1,50,000 or more
(c) As per section 192A tax shall be deducted at source @ 10% provided the amount paid or payable during
a particular year is ₹ 50,000 or more
(d) None of these
12. Which of the following statement is correct.
(a) As per section 193 tax shall be deducted at source @ 10% provided the amount paid or payable during a
particular year is exceeding ₹ 10,000
(b) As per section 193 tax shall be deducted at source @ 10% provided the amount paid or payable during a
particular year is exceeding ₹ 50,000
(c) As per section 193 tax shall be deducted at source @ 10% provided the amount paid or payable during a
particular year is exceeding ₹ 5,000
(d) None of these
13. Which of the following statement is correct.
(a) As per section 194A, in case of payment of interest on fixed deposit by a bank to a senior citizen, tax
deducted at source @ 10% provided the amount paid or payable during a particular year is exceeding
₹50,000
(b) As per section 194A, in case of payment of interest on fixed deposit by a bank to a senior citizen, tax
deducted at source @ 10% provided the amount paid or payable during a particular year is exceeding
₹40,000
(c) As per section 194A, in case of payment of interest on fixed deposit by a bank to a senior citizen, tax
deducted at source @ 10% provided the amount paid or payable during a particular year is exceeding
₹1,50,000
(d) None of these
14. Which of the following statement is correct.
(a) As per section 194C, tax shall be deducted at source @ 2% in case of payment to individual or HUF and
@ 1% in case of payment to any other person provided the amount being paid is exceeding ₹ 1,00,000
(b) As per section 194C, tax shall be deducted at source @ 10% in case of payment to individual or HUF
and @ 1% in case of payment to any other person provided the amount being paid is exceeding ₹ 30,000
(c) As per section 194C, tax shall be deducted at source @ 1% in case of payment to individual or HUF and
@ 2% in case of payment to any other person provided the amount being paid is exceeding ₹ 30,000
(d) None of these
15. Which of the following statement is correct.
(a) As per section 194H tax shall be deducted at source @ 2% provided the amount being paid or payable to
a particular person during a particular year is ₹ 15,000 or more
(b) As per section 194H tax shall be deducted at source @ 2% provided the amount being paid or payable to
a particular person during a particular year is exceeding ₹ 15,000
(c) As per section 194H tax shall be deducted at source @ 10% provided the amount being paid or payable
to a particular person during a particular year is exceeding ₹ 15,000
(d) None of these

Answer
1.(a); 2.(a); 3.(c); 4. (c); 5. (b); 6. (d); 7. (a); 8.(b); 9.(d); 10.(d); 11. (c); 12. (c); 13(a); 14. (c); 15. (b)
 Deduction Of Tax At Source 352

EXAMINATION QUESTIONS
NOV – 2023
Question.2.(c) (3 + 1 + 3 = 7 Marks)
Discuss the liability of tax deduction at source under the Income Tax Act 1961 in respect of the following
cases with reference to A.Y. 2025-26. (State applicable provision and give brief reasons for your answer,
wherever applicable)
(i) XYZ, a resident partnership firm is in retail business buying fabric material regularly from ABC, a
resident proprietorship firm. Details of transactions during P.Y. 2024-25 are as given:
Particulars Date of payment Amt. (₹)
Advance payment 1.4.2024 40,00,000
Payment of supplies 2.7.2024 20,00,000
Advance payment 4.8.2024 12,00,000
XYZ achieved gross turnover of ₹ 12 crore from the business during the financial year 2023-24 and the
gross business turnover for financial year 2024-25 turns out to be ₹ 9 crores. Gross business turnover of
ABC for the financial year 2023-24 was ₹ 6 crores.
Will your answer be same, if the gross turnover of XYZ during the financial year 2023-24 includes ₹ 4
crores towards supply of material for charitable purposes?
(ii) MJ, a part time director of ABZ Pvt. Ltd. was paid an amount of ₹ 2,49,000 as commission on sales
(which was not in the nature of Salary) for the period 01.04.2024 to 31.03.2025.
(iii) Mr. Kumar, a resident senior citizen, aged 86 years, is a retired State Govt. employee. He gets pension
of ₹72,000 p.m. He has his saving account with Bank of Baroda, a bank notified by the Central Govt.
u/s 194P, has received the interest on saving account ₹ 15,000 during the P.Y. 2024-25. His pension is
also credited in this account. In the same bank he has deposited ₹ 10 lakh in a Term Deposit @ 7%
simple interest on 01.07.2024. He has no other income. He has not opted Section 115BAC. Discuss
requirement of filing of income tax return also.
Solution:
(i) Tax is required to be deducted at source under section 194Q by XYZ, being a buyer, since its turnover in
the immediately preceding financial year i.e., F.Y. 2023-24 exceeds ₹ 10 crores and it has purchased goods
exceeding ₹ 50 lakhs in the F.Y. 2024-25. TDS u/s 194Q would be 0.1% of the sum exceeding ₹ 50 lakhs
and the same has to be deducted at the time of payment or credit of such sum to the account of resident
seller, whichever is earlier.
Therefore, in the present case, XYZ, a resident partnership, is required to deduct tax at source –
On 2.7.2024 of ₹ 1,000, being @0.1% on ₹ 10 lakhs exceeding ₹ 50 lakhs (₹ 40,00,000 on 1.4.2024 +
₹20,00,000 on 2.7.2024).
On 4.8.2024 of ₹ 1,200, being @0.1% ₹ 12 lakhs.
No, in such case, the amount of turnover of XYZ would not exceed ₹ 10 crores in F.Y. 2023-24, since ₹ 4
crores towards supply of material for charitable purposes, being a non-business activity, would not be
considered for the purpose of turnover.
Accordingly, XYZ is not required to deduct tax at source under section 194Q.

(ii)ABZ Pvt. Ltd. is required to deduct tax at source u/s 194J @10% on ₹ 2,49,000 paid to MJ, a part time
director, as commission, which is not in the nature of salary on which tax is deductible under section 192.
Therefore, ₹ 24,900 (₹ 2,49,000 x 10%) is required to be deducted at source.

(iii) Bank of Baroda, being a specified bank notified by the Central Government u/s 194P is required to
deduct tax at source at the rates in force on the total income of Mr. Kumar, being a specified senior citizen
(75 years or more) computed as follows:
 Deduction Of Tax At Source 353

Computation of total income of Mr. Kumar not opting for section 115BAC
and tax liability for A.Y.2025-26
Particulars ₹ ₹
I Salaries
Pension (₹ 72,000 x 12) 8,64,000
Less: Standard deduction u/s 16(ia) 50,000 8,14,000
II Income from Other Sources
Interest on savings account 15,000
Interest on fixed deposit (₹ 10 lakh x 7% x 9/12) 52,500
67,500
Gross total income 8,81,500
Less: Deductions under Chapter VI-A
Under section 80TTB
Interest on fixed deposit and savings account, restricted to ₹ 50,000,
since Mr. Kumar is a resident Indian of the age of 60 years or more 50,000 50,000
Total Income 8,31,500
Computation of tax liability for A.Y. 2025-26
Tax on ₹ 8,31,500 [20% on income exceeding ₹ 5 lakhs, being the basic 66,300
exemption limit, since Mr. Kumar is of the age of 80 years or more]
Add: Health and Education Cess@4% 2,652
Tax liability 68,952
Tax liability (Rounded off) 68,950
Accordingly, Bank of Baroda is required to deduct tax at source of ₹ 68,950 for the P.Y. 2024 -25. In such
case, Mr. Kumar is not required to file his return of income for A.Y. 2025-26.
Note – The question mentions that Mr. Kumar has deposited ₹ 10 lakhs in a Term Deposit in the same bank
but does not specify the duration of the term deposit. The above solution is given assuming that term deposit
is not for 5 years. However, alternate assumption that such term deposit is for 5 years is also possible. In
such a case, Mr. Kumar would be eligible for deduction under section 80C of ₹ 1,50,000 for deposit in 5
years term deposit. In that case, deduction under Chapter VI-A would be ₹ 2,00,000, total income would be
₹ 6,81,500 and tax liability (rounded off) would be ₹ 37,750.

NOV – 2023
Question.4.(c) (4 Marks)
Explain the provisions of Tax collection at source for overseas remittance by an authorized dealer. Also
enumerate the rate of tax to be collected and the amount on which no tax is to be collected.
Solution: Refer answer given in the book

MAY – 2023
Question.2.(b) (6 Marks)
Answer the following:
(i) Miss Tara, resident individual aged 32 years, is a social media influencer. She makes videos reviewing
various electronic items and posts those videos on social media. On 1st December 2024, XYZ Ltd., an
Indian company manufacturer of electronic cars gave her a brand new car having fair market value of
 Deduction Of Tax At Source 354

₹ 6 lakhs to promote on her social media page. She used that car for 7 months for her personal
purposes, recorded a video reviewing the car and then returned the car to the company. You are
required to discuss the applicable provisions in the Income-tax Act regarding the deduction of tax at
source in respect of such transaction.
(ii) Ms. Aruna is a Chief Executive Officer of a multi-national company. She hires Mr. Suresh for supply
of her housing staff (like gardener, chefs and drivers etc.) and makes the following payments to him:
₹ 25,00,000/- on 10th August, 2024 and ₹ 30,00,000 on 22nd November, 2024. Determine the amount
of tax to be deducted/ collected at source, if any.
Would your answer be different, if Ms. Aruna is a business woman and her books are not audited in
immediately preceding financial year and payment to Mr. Suresh is for business purposes.
(iii) By virtue of an agreement with Nationalized Bank, M/s ABC Pvt Ltd., a company engaged in
catering business received ₹ 60,000 p.m. towards supply of food, water, snacks, etc. during office
hours to the employees of the bank. Discuss the TDS implication of this transaction/agreement.
Solution:
(i) Under section 194R, the person who is responsible for providing to a resident, any benefit or perquisite
whether convertible into money or not, arising from business or the exercise of a profession by such
resident, has to first ensure deduction of tax@10% of the value of such benefit or perquisite, if the same
exceeds ₹20,000.
However, in case of benefit or perquisite being a product like car, mobile etc. if the product is returned to the
manufacturing company after using for the purpose of rendering service, then it will not be treated as a
benefit/perquisite for the purposes of section 194R.
Accordingly, in the present case, since Miss Tara has returned the car to XYZ Ltd., TDS provisions under
section 194R would not apply.
(ii) The provisions of section 194C would not apply in the hands of Ms. Aruna since the amount paid to Mr.
Suresh is for supply of her housing staff. Hence, it is used exclusively for her personal purposes.
In this case, tax is required to be deducted at source from such amount under section 194M @ 2%, since the
aggregate payment made to Mr. Suresh for the said contract exceeds ₹ 50 lakhs during the P.Y.2024-25.
Accordingly, ₹ 1,10,000, being 2% of ₹ 55,00,000 [₹ 25,00,000 + ₹ 30,00,000], is required to be deducted at
source.
In case Ms. Aruna made payment to Mr. Suresh for business purposes and she is not required to get her
books of account audited [assuming her turnover from such business does not exceed ₹ 1 crore in P.Y. 2023-
24], she is not required to deduct tax at source under section 194C. In such case also, she is required to
deducted tax at source of ₹ 1,10,000 under section 194M.
Note – In the question, it is mentioned that Ms. Aruna is a business woman and her books are not audited in
immediately preceding financial year. However, whether the provisions of section 194C would be attracted
are dependent on whether the turnover of business carried on by her during the financial year immediately
preceding the financial year in which the sum credited or paid exceeds ₹ 1 crore. In the absence of this
information, it is possible that audit may not be required in her case due to the following reasons-
- her turnover exceeds ₹ 1 crore but does not exceed ₹ 10 crores and receipts and payments in cash
does not exceed 2% of such receipts or payments, respectively.
- her turnover exceeds ₹ 1 crore but does not exceed ₹ 2 crore and she is declaring profits under the
presumptive provisions of section 44AD.
Accordingly, following alternate answer is also possible based on the assumption that turnover of Ms.
Aruna’s business exceeds ₹ 1 crore.

Alternative answer - In case Ms. Aruna made payment to Mr. Suresh for business purposes during the P.Y.
2023-24, she would be required to deduct tax at source @1% under section 194C amounting to ₹ 55,000
(since payment is made to Mr. Suresh, an individual) of ₹ 55,00,000.
(iii) According to section 194C, the definition of “work” include catering. In the present case, nationalised
bank is required to deduct tax source @2% on ₹ 7,20,000 [₹ 60,000 x 12] paid to ABC Pvt. Ltd. for
providing catering services to the bank, since amount of ₹ 60,000 paid every month exceeds the threshold of
₹ 30,000.
 Deduction Of Tax At Source 355

Therefore, nationalised bank is required to deduct tax at source of ₹ 1,200 per month amounting to ₹14,400
for the year.

NOV – 2022
Question.3.(a) (6 Marks)
Examine the applicability and the amount of TDS to be deducted in the following cases for F.Y. 2024-25:
(i) S and Co. Ltd. paid ₹ 25,000 to one of its Directors as sitting fees on 02-02-2025.
(ii) ₹ 2,20,000 paid to Mr. Mohan, a resident individual, on 28-02-2025 by the State of Haryana on
compulsory acquisition of his urban land.
(iii) Mr. Purushotham, a resident Indian, dealing in hardware goods has a turnover of ₹12 crores in the
previous year 2023-24. He purchased goods from Mr. Agarwal a resident seller, regularly in the course
of his business. The aggregate purchase made during the previous year 2024-25 on various dates is 80
lakhs which are as under:

10-06-2024 ₹25,00,000
20-08-2024 ₹27,00,000
12-10-2024 ₹28,00,000

He credited Mr. Agarwal's account in the books of accounts on the same date and made the payment on
28.02.2025 ₹80 lakh. Mr. Agarwal's turnover for the financial year 2023-24 is ₹20 crores.
Solution:
(i) Tax @10% has to be deducted by S and Co. Ltd. under section 194J on directors sitting fees of
₹25,000. The threshold limit of ₹ 30,000 is not applicable in respect of sum paid to a director.
The amount of tax to be deducted at source = ₹ 25,000 x 10% = ₹ 2,500
(ii) There is no liability to deduct tax at source under section 194LA, since the payment to Mr. Mohan, a
resident, by State of Haryana on compulsory acquisition of his urban land does not exceed ₹ 2,50,000.
(iii) Since Mr. Purushotham’s turnover for F.Y.2023-24 exceeds ₹ 10 crores, and value of goods purchased
from Mr. Agarwal, a resident seller, exceeds ₹ 50 lakhs in the P.Y.2024-25, he is liable to deduct tax
@ 0.1% on ₹ 30 lakhs (being the sum exceeding ₹ 50 lakhs), at the time of credit or payment,
whichever is earlier.
On 10.6.24= Nil (No tax is to be deducted u/s 194Q on the purchases made on 10.6.2024 since the
purchases made till that date has not exceeded the threshold of ₹ 50 lakhs and TDS provisions u/s
194Q)
On 20.8.2024 = 0.1% of ₹ 2 lakhs (amount exceeding ₹ 50 lakhs) = ₹ 200
On 12.10.2024 = 0.1% of ₹ 28 lakhs = ₹ 2,800.

MAY – 2022
Question.2.(a) (6 Marks)
Discuss the liability of tax deduction at source under the Income Tax Act, 1961 in respect of the following
cases with reference to A.Y. 2025-26.
(i) ABC Ltd is a producer of natural gas; During the year it sold natural gas worth ₹26,50,000 to
M/s Deep Co., a partnership firm. It also incurred ₹1,70,000 as freight for the transportation of
gas. It raised the invoice and clearly segregated the value of gas as well as the transportation
charges.
(ii) ABC LLP paid job charges to XYZ, a partnership firm for doing embroidery work on the fabric
supplied by the ABC LLP during the previous year 2024-25 as under ;

BILL NO DATE AMOUNT

₹
 Deduction Of Tax At Source 356

1 30-04-2024 27,000
57 30-06-2024 25,000

105 30-09-2024 28,000

151 30-12-2024 32,000

Answer:
(i) Since ABC Ltd., being the producer of the natural gas, sells as well as transports the gas to M/s. Deep
Co., the purchaser, till the point of delivery, where the ownership of gas is simultaneously transferred to
M/s. Deep Co, the manner of raising the invoice (whether the transportation charges are embedded in the
cost of gas or shown separately) does not alter the basic nature of such contract which remains
essentially a ‘contract for sale’ and not a ‘works contract’ as envisaged in section 194C.
Therefore, in such circumstances, the TDS provisions would not be attracted on ₹1,70,000, being the
component of gas transportation charges paid by M/s. Deep Co. to ABC Ltd.

Alternate Answer:
The above solution is based on Circular No. 9/2012 dated 17.10.2012, wherein it has been clarified that
in case the Owner/Seller of the gas sells as well as transports the gas to the purchaser till the point of
delivery, where the ownership of gas to the purchaser is simultaneously transferred, the manner of
raising the sale bill, does not alter the basic nature of such contract which remains essentially a 'contract
for sale' and not a 'works contract' as envisaged in section 194C of the Act.
Since, the question is silent on the timing of the transfer of ownership of the gas to the purchaser, an
assumption that the ownership of the gas to the purchaser is transferred before its transportation is
possible. In such a case, the transportation of gas after transfer of ownership may be considered as a
separate contract for transportation of gas i.e. ‘works contract’ u/s 194C, and hence TDS @ 2% has to be
deducted by M/s. Deep Co. on ₹ 1,70,000/- i.e. ₹ 3,400/-.

(ii) In this case, the individual contract payments (through the bills dated 30.4.2024, 30.6.2024 and
30.9.2024) made by ABC LLP to XYZ does not exceed ₹ 30,000. However, since the aggregate amount
paid to XYZ during the P.Y. 2024-25 exceeds ₹ 1,00,000 (on account of the last payment of ₹ 32,000,
due on 30.12.2024, taking the total from ₹ 80,000 to ₹ 1,12,000), the TDS provisions under section
194C would get attracted on the entire sum of ₹ 1,12,000.
Tax has to be deducted @ 2% (since payment is to a firm, XYZ) on the entire amount of ₹ 1,12,000,
from the last payment of ₹ 32,000 on 30.12.2024.
Hence, TDS u/s 194C = ₹ 2,240.

DEC – 2021
Question.3.(a) (4 Marks)
State in brief the applicability of provisions of tax deduction at source, the rate and amount of tax deduction
in the following cases for the financial year 2024-25 under Income Tax Act, 1961. Assume that all payments
are made to residents:
(i) Mr. Mahesh has paid ₹6,00,000 on 15.10.2024 to M/s Fresh Cold Storage Pvt. Ltd. for preservation of
fruits and vegetables. He is engaged in the wholesale business of fruits & vegetable in India having
turnover of ₹3 Crores during the previous year 2023-24.
(ii) Mr. Ramu, a salaried individual, has paid rent of ₹60,000 per month to Mr. Shiv Kumar from 1st Oct,
2024 to 31st March, 2025. Mr. Shiv Kumar has not furnished his Permanent Account Number.
Answer
(i) The arrangement between Mr. Mahesh, the customer, and M/s. Fresh Cold Storage Pvt. Ltd., the cold
storage owner, is basically contractual in nature and main object of the cold storage is to preserve perishable
 Deduction Of Tax At Source 357

goods by mechanical process and storage of such goods is only incidental. Hence, the provisions of section
194C will be applicable to the amount of ₹ 6 lakh paid by Mr. Mahesh to the cold storage company.
Accordingly, tax has to be deducted @ 2% on ₹ 6 lakh.
TDS u/s 194C = 2% x ₹ 6 lakh = ₹ 12,000
(ii) Mr. Ramu, being a salaried individual, has to deduct tax at source @ 2% u/s 194-IB on the annual rent
paid by him from the last month’s rent (rent of March, 2025), since the rent paid by him exceeds ₹ 50,000
p.m.
Since his landlord Mr. Shiv Kumar has not furnished his PAN to Mr. Ramu, tax has to be deducted @ 20%
instead of 2%. However, the same cannot exceed ₹ 60,000, being rent for March, 2025.
TDS u/s 194-IB = ₹ 3,60,000 (₹ 60,000 x 6) x 20% = ₹ 72,000, but restricted to ₹60,000, being rent for
March, 2025.

Question.3. (b) (4 Marks)

Examine the following transactions with reference to applicability of the provision of tax collected at source
and the rate and amount of the TCS for the Assessment year 2025-26.
(i) Mr. Kalpit bought an overseas tour programme package for Singapore for himself and his family of ₹5
lakhs on 01.11.2024 from an agent who is engaged in organising foreign tours in course of his business.
He made the payment by an account payee cheque and provided the permanent account number to the
seller. Assuming Kalpit is not liable to deduct tax at source under any other provisions of the Act.
(ii) Mr. Anu doing business of textile as a proprietor. His turnover in the business is ₹11 crores in the
previous year 2023-24. He received payment against sale of textile goods from Mr. Ram ₹75 lakhs
against the sales made to him in the previous year and preceeding previous years. (Assuming all the sales
are domestic sales and Mr. Ram is neither liable to deduct tax on the purchase from Mr. Anu nor he
deducted any tax at source).
Answer
(i) Tax @ 5% is required to be collected u/s 206C by the seller of an overseas tour programme package,
from Mr. Kalpit, being the buyer of an overseas tour package, even if payment is made by account
payee cheque.
Accordingly, tax has to be collected @ 5% on ₹ 5 lakh.
TCS = 5% x ₹ 5 lakh = ₹ 25,000
(ii) Mr. Anu is required to collect tax @ 0.1% u/s 206C from Mr. Ram, since his turnover in the P.Y.2023-
24 exceeds ₹10 crores, and the sales receipts from Mr. Ram in the P.Y.2024-25 exceeds ₹ 50 lakhs.
Tax has to be collected by Mr. Anu on ₹ 25 lakhs, being the amount exceeding ₹ 50 lakhs, at the time
of receipt. Since receipt is in the P.Y.2024-25, TCS provisions are attracted even though part of the
sales may relate to the preceding previous years.
TCS = 0.1% x ₹ 25 lakhs = ₹ 2,500

JULY – 2021
Question. 2.(b) (2 × 4 = 8 Marks)
Examine whether TDS provisions would be attracted in the following cases, and if so, under which section.
Also specify the rate of TDS and amount required to be deducted at source as applicable in each case.
Assume that all payment are made to residents.
S.No. Particulars of the payer Nature of Payment Aggregate of payments
made in the F.Y. 2024-25
(Amt. in ₹)
(A) Mr. Kale, receiving pension Contractual payment made during 52,50,000
from Central Government October 2024 for reconstruction of
his residential house in Arunachal
Pradesh
(B) Mr. Rahul, a wholesale Contract payment for Construction 50,00,000
 Deduction Of Tax At Source 358

trader of spices whose of Office godown during January to

turnover was ₹ 5 crores in March, 2025 to Mr. Akhilesh, and
F.Y. 2023-24 individual
(C) Mr. Golu, an individual Payment of commission to Mr. 1,20,000
carrying on garment trading Vinay for securing a contract for big
business with turn-over of ₹ Business House in November 2024
95 lakhs in F.Y. 2023-24
(D) XYZ Urban Co-operative Payment by way of cash withdrawal, 1,20,00,000
bank by ABC & Co. a partnership firm,
amounting ₹ 1.2 crores during
Financial year 2024-25 ABC & Co.
has field his tax returns for the last 3
financial year with in time.

Answer 2(b):
(i) Mr. Kale, being a pensioner, would not be liable to deduct tax at source under section 194C. However, he
has to deduct tax at source @ 2% u/s 194M, since the aggregate amount of payment to the contractor for his
personal purposes i.e., for reconstruction of his residential house in Arunachal Pradesh, exceeds the
threshold limit of ₹ 50,00,000.
Therefore, TDS u/s 194M would be = ₹ 52,50,000 x 2% = ₹ 1,05,000.

(ii) Mr. Rahul is required to deduct tax at source u/s 194C, since his turnover from business in the financial
year 2023-24, being the financial year immediately preceding F.Y.2024-25 in which such sum is paid,
exceeds ₹ 1 crore. Tax is to be deducted at source at the rate 1% as the payment is made to an Individual.
Therefore, TDS u/s 194C would be = ₹ 50,00,000 x 1% = ₹ 50,000

(iii) Tax is required to be deducted u/s 194H, if the payer is an individual whose turnover from business
carried on by him in the financial year immediately preceding the financial year in which commission is
paid, exceeds ₹ 1 crore. However, where TDS u/s 194H is not applicable, tax is required to be deducted u/s
194M where payment of commission during the relevant previous year exceeds ₹ 50 lakhs.

In the present case, Mr. Golu is not required to deduct tax at source u/s 194H on the commission paid to Mr.
Vinay in the P.Y.2024-25 since his turnover from his business does not exceed ₹ 1 crore during the P.Y.
2023-24.

Further, Mr. Golu is also not required to deduct tax at source u/s 194M on the said commission paid to Mr.
Vinay since the commission paid does not exceed ₹ 50 lakhs during the P.Y. 2024-25.

(iv) A co-operative bank which is responsible for paying any sum, being the amount or aggregate of
amounts, as the case may be, in cash exceeding ₹ 1 crore during the previous year, to any person from an
account maintained by such person with it, has to deduct an amount equal to 2% of such sum, as income-tax
at the time of payment. Accordingly, since XYZ Urban Co-operative is responsible for paying a sum
exceeding ₹ 1 crore (₹ 1.2 crore, in this case) in cash to ABC & Co., a partnership firm, during the
F.Y.2024-25, the bank is required deduct tax at source @ 2% of such sum.
Therefore, TDS u/s 194N would be = ₹ 20,00,000 x 2% = ₹ 40,000.

NOV – 2020
Question 2 (b) (5 Marks)
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 2024-2025 under the Income -tax Act,1961. Assume that all
payments are made to residents:
 Deduction Of Tax At Source 359

(i) Sanjay, a resident individual, not deriving any income from business or profession makes payment of ₹12
lakhs in January, 2025, ₹20 lakh in February, 2025 and ₹20 lakh in March, 2025 to Mohan, a contractor
for reconstruction of his residential house.
(ii) ABC Ltd. makes the payment of ₹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 ₹5,000 on 17th April,2024 to Smt. Deepa from the deposits in National savings
Scheme account.
Answer:
(i) Yes, under section 194M since the aggregate of payments (i.e., ₹52 lakhs) exceeds ₹50 lakhs and his
turnover is below ₹100 lakhs in the P.Y.2023-24. Hence, TDS provisions under section 194C are not
attracted in respect of payments made in the P.Y.2024-25 and section 194M gets attracted as the aggregate
payments exceeds 50 lakhs, hence he is liable to deduct TDS @ 2% on 52,00,000 = 1,04,000.
(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.

NOV -2020
Question 4 (c) (4 Marks)
Briefly explain the provisions relating to tax deduction at source on cash withdrawal under section
194N of the Income Tax Act, 1961.
Answer: Refer answer given in the chapter

NOV – 2019
Question. 2. (b) (7 Marks)
Examine & explain the TDS implications in the following cases along with reasons thereof, assuming that
the deductees are residents and having a PAN which they have duly furnished to the respective deductors.
(i) Mr. Tandon received a sum of ₹1,75,000 as pre-mature withdrawal from Employees Provident Fund
Scheme before continuous service of 5 years on account of termination of employment due to ill-health.
(ii) A sum of ₹42,000 has been credited as interest on recurring deposit by a banking company to the
account of Mr. Hasan (aged 63 years).
(iii) Ms. Kaul won a lucky draw prize of ₹21,000. The lucky draw was organized by M/s. Maximus Retail
Ltd. for its customer.
(iv) Finance Bank Ltd. sanctioned and disbursed a loan of ₹10 crores to Borrower Ltd. on 31-3-2025.
Borrower Ltd. paid a sum of ₹1,00,000 as service fee to Finance Bank Ltd. for processing the loan
application.
(v) Mr. Ashok, working in a private company, is on deputation for 3 months (from December, 2024 to
February, 2025) at Hyderabad where he pays a monthly house rent of ₹52,000 for those three months,
totaling to ₹1,56,000. Rent is paid by him on the first day of the relevant month.
Answer:
(i) As per section 192A, If person responsible for making payment of recognized provident fund to any
person shall deduct tax @ 10% if amount paid/payable is taxable and amount is exceeding ₹50,000 but if
amount is withdrawn before continuous period of five years due to ill health then it is not taxable and TDS
shall not be deducted.
 Deduction Of Tax At Source 360

In the given case amount is withdrawn from Employees provident fund before continuous period of 5 years
due to ill health hence the amount is not taxable hence TDS shall not be deducted.

(ii) As per section 194A, Tax shall be deducted @ 10% if interest paid by banking company is exceeding
₹50,000 for senior citizens. In the given case, interest is paid to senior citizen and amount is not exceeding
₹50,000 hence banking company is not liable to deduct TDS.

(iii) As per section 194B, Every person responsible for paying resident any income by way of winning and
amount paid or payable is exceeding ₹10,000 then tax shall be deducted @ 30%.
In the given case, amount paid is exceeding ₹10,000 hence liable to deduct tax @ 30% on ₹21,000 = ₹6,300.

(iv) As per section 2(28A), Interest means interest payable in any manner and includes service fee also.
As per section 194A, TDS is not deductible in case any payment is made to a banking company.
In the given case, Service fee is paid to banking company and interest includes service hence TDS is not
deductible in case of payment to a banking company.

(v) As per section 194IB, any person responsible for paying rent to a resident exceeding ₹50,000 for a month
shall deduct tax @ 2%, in the given case rent paid is exceeding ₹50,000 hence Mr. Ashok is liable to deduct
tax @ 2% on ₹1,56,000 = ₹3,120

Question.4. (c) (4 Marks)

What are the clarifications made by CBDT with respect to Section 206 C (1F) relating to following issues:
(i) Whether TCS on sale of motor vehicle is applicable only to luxury car?
(ii) Whether TCS is applicable on each sale or aggregate value of sale motor vehicle, exceeding ₹ 10 lakhs?
(iii) Whether TCS is applicable in case of an individual?
(iv) Whether TCS on sale of motor vehicle is at retail level or only by manufacturer to distributor or dealer?
Answer:
(i) No. As per section 206C, TCS shall be applicable on sale of motor vehicle of the value exceeding 10
lakhs.
(ii) TCS @ 1% is collected on sale consideration of motor vehicle exceeding 10,00,000. It is applicable to
each sale and not on aggregate value of sale during the year.
(iii) An individual who is liable to tax audit during the financial year immediately preceding the financial
year in which the motor vehicle is sold shall be liable for collection of tax at source.
(iv) TCS on sale of motor vehicle is applicable on all transactions of retail sales only and not applicable on
sale by manufacturer to distributor or dealer.

MAY – 2019
Question 2 (b) (3 Marks)
The following issues arise in connection with the deduction of tax at sources under chapter XVII-B. Discuss
the liability for tax deduction in these cases:
(i) An employee of the Central Government receives arrears of salary for the earlier 3 years. He inquires
whether amount will be received after deduction of tax at source during the current year.
(ii) A T.V. channel pays ₹ 10 lacs as prize money to the winner of a quiz programme.
(iii) A Nationalized bank pays ₹ 50,000 per month as rent to ABC limited for a building in which one of its
branch is situated.
(iv) A television company pays ₹ 50,000 to a cameraman for shooting of a documentary film.
Answer:
(i) As per section 192, in respect of salary payments to employees of Government deduction of tax should be
made after allowing relief under section 89. In the given case arrears of salary received in current year if the
 Deduction Of Tax At Source 361

same was not taxed earlier year then same will be taxable and TDS is required to be deducted but if the same
was considered earlier as part of salary then TDS is not required in the current year.
(ii) Every person (including individual and HUF even if limit prescribed has not exceeded in the preceding
year) responsible for paying to any resident or non-resident, any income by way of winnings from any
lottery or crossword puzzle or card game and other game of any sort shall deduct tax at source @ 30%
provided the amount being paid or payable is exceeding ₹ 10,000.
In the given case a T.V. channel pays 10 lacs as prize hence TDS is required to be deducted @ 30%.
(iii) As per section 194I, TDS is required to be deducted in case of person responsible for paying to a
resident any income by way of rent shall deduct tax @ 10% on renting of immovable property provided the
amount paid or payable is more than ₹ 2,40,000 in a year.
In the given case Nationalized bank pays ₹ 50,000 per month which is more than ₹ 2,40,000 in a year hence
TDS is required to be deducted @ 10% on ₹ 50,000 per month.
(iv) The television company is required to deduct tax at source @ 10% u/s 194J on the professional fees
payable to the cameraman for shooting a documentary film, since such amount exceeds 30,000 during the
year.
 Deduction Of Tax At Source 362

T.D.S./TCS TAX CHALLAN

CHALLAN NO. Tax Applicable(Tick One)*

Assessment Year
ITNS
281 TAX DEDUCTED/COLLECTED AT SOURCE FROM

(0020) Company (0021) Non-Company

-
Deductees Deductees

Tax Deduction Account No.(T.A.N.)

Full Name

Complete Address with City & State

Tel. No. Pin

Type of Payment
(Tick One) FOR USE IN
TDS/TCS Payable by Taxpayer (200) RECEIVING BANK
TDS/TCS Regular Assessment (Raised by I.T. Deptt.) (400)
DETAILS OF PAYMENTS Amount (in Rs. Only) Debit to A/c / Cheque credited on
Income Tax
_
Surcharge
Health & education cess D D M M Y Y
Interest
Penalty SPACE FOR BANK SEAL
Total
Total (in words)
CRORES LACS THOUSANDS HUNDREDS TENS UNITS

Paid in Cash/Debit to A/c /Cheque No. Dated

Drawn on
(Name of the Bank and Branch)
Date:
Signature of person making payment Rs.
Taxpayers Counterfoil (To be filled by the taxpayer) SPACE FOR BANK SEAL
TAN
Received From

(Name)
Cash/Debit to A/c / Cheque No. For Rs.
Rs. (in words)
drawn on
(Name of the Bank and Branch)
Company/Non-Company Deductees
on account of Tax Deducted at Source(TDS)/Tax Collected at
Source(TCS)
from___________(Fill up Code)
(Strike out whichever is not applicable)
For the Assessment Year - Rs.
 Deduction Of Tax At Source 363

MISCELLANEOUS TOPICS
Assessee Section 2(7)
“Assessee” means
• Any person who is liable to pay income tax or interest or penalty or any other sum under Income Tax
Act
• Any person with regard to whom any proceedings are pending under Income Tax Act for assessment
of income or loss or refund or any other proceeding
• Any person who is assessable on behalf of any other assessee i.e. deemed assessee and any proceeding
is pending with regard to such other person like assessment of income or loss or refund or any other
proceeding e.g. Minor son of Mr. X has income from talent ₹5,00,000, in this case Mr. X shall be
deemed to be an assessee.

Assessment year
As per section 2(9), assessment year means a period of 12 months starting from 01st April of every year
ending with 31st March i.e. every financial year is an assessment year e.g. Financial year 2024-25 is one
assessment year.
Previous year
As per section 3, previous year means financial year preceding the assessment year e.g. If financial year
2025-26 is one assessment year, financial year 2024-25 is the previous year for such assessment year.
Income of previous year is taxable in its assessment year i.e. exact tax liability for previous year 2023-24
shall be determined in assessment year 2025-26 (however the person has to pay advance tax on estimated
basis in previous year 2024-25.)
In general previous year shall be of full year but in case of a newly setup business or profession, first
previous year will start from the date of commencement of business / profession e.g. If Mr. X started
business on 01.07.2024, first previous year shall be from 01.07.2024 to 31.03.2025.
Income Section 2(24)
Every person shall be required to pay tax on his income as per section 4 and the term income is divided into
5 different categories which are called heads of income and such incomes shall include
1. Payment by employer to employee.
2. Rent received or receivable in connection with house property
3. Payments in connection with business/profession as per section 28
4. Profit and gains on the transfer of capital asset as per section 45(1)
5. Incomes under section 56 like, dividend, interest, casual income, gift etc.
6. Any other income given under section 2(24).
Charging section of Income-Tax Section 4
Every person shall be liable to pay income tax on his income. Normal income of every person shall be
taxable at the rates given in the relevant Finance Act. Special incomes like Long term capital gains or Short
term capital gains under section 111A or casual income shall be taxable at the rates given in the Income Tax
Act. Tax shall be deducted at source as per the relevant provision also advance tax is to be paid as per the
relevant provision.

Expenditure incurred in relation to income not includible in Total Income Section 14A
If any income is exempt from income tax, expenditure incurred in connection with such income shall not be
allowed to be deducted either from same income or from some other income. If expenditure is incurred for
taxable income as well as exempt income, only expenditure relating to taxable income shall be allowed to be
deducted.

Question 1 [V. Imp.]: Discuss exceptions to the General Rule that the income of the Previous Year is
taxed in the Assessment Year.
Answer: Exceptions to the General Rule that the income of the Previous Year is taxed in the
Assessment Year
Generally the income of the Previous Year is taxable in the immediately succeeding year called the
 Deduction Of Tax At Source 364

assessment year. But, in the following cases, the income of the current year may be brought to tax in the
same year–being exception to the general rule that incomes earned in the previous year are taxed in its
assessment year following: -
1. Profits of non-resident from Shipping Business Section 172: If any ship owned by a non-resident
has entered in India, the ship shall not be allowed to leave India unless tax has been paid and return has been
filed
2. Assessment of persons Leaving India Section 174: If any person is leaving India with no present
intention of returning to India, the total income of such individual up to the probable date of his departure
from India shall be chargeable to tax in the previous year itself.
3. Assessment of association of persons or Body of Individuals or Artificial Juridical Person formed
for a particular event or purpose Section 174A: If any association of persons or a body of individuals
etc. has been incorporated for a particular event or purpose and it is likely to be dissolved in the same year in
which it was formed, the total income of such association or body or juridical person for the period up to the
date of its dissolution shall be chargeable to tax in that year itself.
4. Assessment of persons likely to transfer property to avoid tax Section 175: If it appears to the
Assessing Officer that any person is likely to sell, transfer or otherwise part with any of his assets with a
view to avoid payment of any liability under the provisions of this Act, the total income of such person shall
be taxable in the same previous year.
5. Discontinued Business Section 176: If any person has closed down his business/profession, such person
should inform Income Tax Department within 15 days of closing down such business/profession and the
Department may direct such a person to pay tax and file return in the previous year itself.

NOV – 2022
Question 4(c) (4 Marks)
Mr. X a resident, aged 56 years, till recently was a successful businessman filing his return of incomes
regularly and promptly ever since he obtained PAN card. During the COVID-Pandemic period his business
suffered severely and he incurred huge losses. He was not able to continue his business and finally on 1st
January, 2025 he decided to wind-up his business which he also promptly intimated to the jurisdictional
assessing officer about the closure of his business.
The Assessing officer sent him a notice to tax the income of AY 2025-26 during the AY 2024-25 itself.
Does the Assessing Officer have the power to do so? Are there any exceptions to the general rule “Income
of the previous year is assessed in the assessment year following the previous year”?
Solution:
Yes, he has the power to do so.
Since the business of Mr. X is discontinued on 1st January, 2025, the income of the period from 1.4.2024 to
1.1.2025 may, at the discretion of the Assessing Officer, be charged to tax in A.Y.2024-25 itself.
Following are the other exceptions to the general rule “Income of the previous year is assessed in the
assessment year following the previous year” i.e., the income of the previous year is assessed in the previous
year itself.
(i) Shipping business of non-resident
(ii) Persons leaving India with no present intention of returning
(iii) AOP/BOI/Artificial Juridical Person formed for a particular event or purpose and likely to be
dissolved
(iv) Persons likely to transfer property to avoid tax.

10(2) Share received by a member of Hindu undivided family from income of Hindu Undivided
Family
If any Hindu Undivided Family has paid income tax on the income of the family, such income shall not be
taxable in the hands of its members. E.g. Mr. X is a member of one HUF and has received ₹3,00,000 from
HUF as his share, it will be exempt from income tax under section 10(2).
 Deduction Of Tax At Source 365

10(10BC) Compensation received or receivable on account of any disaster

As per section 10(10BC), if any person has received any payment from government or other similar
authority as compensation for loss or damage caused by any disaster whether natural calamity or any
accident etc., such compensation shall be exempt from income tax.

10(26AAA) Exemption in case of Income of an Individual being Sikkimese

As per section 10(26AAA), income of an individual of Sikkim shall be exempt from income tax if such
income is from Sikkim. If he has received dividend or interest on securities from any where, it will also be
exempt from income tax.
Question 2: Explain the Treatment of Unexplained money, investments etc.
Answer: Unexplained money, investments etc. to attract tax @60% [Section 115BBE]
(i) In order to control laundering of unaccounted money by availing the benefit of basic exemption limit,
the unexplained money, investment, expenditure, etc. deemed as income under section 68 or section 69 or
section 69A or section 69B or section 69C would be taxed at the rate of 60% plus surcharge @25% of tax.
Thus, the effective rate of tax (including surcharge @25% of tax and HEC @4% of tax and surcharge) is
78%.
(ii) No basic exemption or allowance or expenditure shall be allowed to the assessee under any provision of
the Income-tax Act, 1961 in computing such deemed income.
(iii) Further, no set off of any loss shall be allowable against income brought to tax under sections 68 or
section 69 or section 69A or section 69B or section 69C.
(i) Cash Credits [Section 68]: Where any sum is found credited in the books of the assessee and the
assessee offers no explanation about the nature and source or the explanation offered is not satisfactory in
the opinion of the Assessing Officer, the sum so credited may be charged as income of the assessee of that
previous year.
(ii) Unexplained Investments [Section 69]: Where in the financial year immediately preceding the
assessment year, the assessee has made investments which are not recorded in the books of account and the
assessee offers no explanation about the nature and the source of investments or the explanation offered is
not satisfactory in the opinion of the Assessing Officer, the value of the investments are taxed as deemed
income of the assessee of such financial year.
(iii) Unexplained money etc. [Section 69A]: Where in any financial year the assessee is found to be the
owner of any money, bullion, jewellery or other valuable article and the same is not recorded in the books of
account and the assessee offers no explanation about the nature and source of acquisition of such money,
bullion etc. or the explanation offered is not satisfactory in the opinion of the Assessing Officer, the money
and the value of bullion etc. may be deemed to be the income of the assessee for such financial year.
(iv) Amount of investments etc., not fully disclosed in the books of account [Section 69B]: Where in any
financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or
other valuable article and the Assessing Officer finds that the amount spent on making such investments or
in acquiring such articles exceeds the amount recorded in the books of account maintained by the assessee
and he offers no explanation for the difference or the explanation offered is unsatisfactory in the opinion of
the Assessing Officer, such excess may be deemed to be the income of the assessee for such financial year.
Example: If the assessee is found to be the owner of say 300 gms of gold (market value of which is
₹15,00,000) during the financial year ending 31.3.2025 but he has recorded to have spent ₹10,00,000 in
acquiring it, the Assessing Officer can add ₹5,00,000 as the income of the assessee, if the assessee offers no
satisfactory explanation thereof
(v) Unexplained expenditure [Section 69C]: Where in any financial year an assessee has incurred any
expenditure and he offers no explanation about the source of such expenditure or the explanation is
unsatisfactory in the opinion of the Assessing Officer, Assessing Officer can treat such unexplained
expenditure as the income of the assessee for such financial year. Such unexplained expenditure which is
deemed to be the income of the assessee shall not be allowed as deduction under any head of income.

INCOME-TAX RULES, 1962

The administration of direct taxes is looked after by the Central Board of Direct Taxes (CBDT).
 Deduction Of Tax At Source 366

• The CBDT is empowered to make rules for carrying out the purposes of the Act.
• For the proper administration of the Income-tax Act, 1961, the CBDT frames rules from time to time.
These rules are collectively called Income-tax Rules, 1962.
• Rules also have sub-rules, provisos and Explanations. The proviso to a Rule/Sub-rule spells out the
exception/conditions, to the Rule/Sub-rule. The Explanation gives clarification for the purposes of the Rule.
CIRCULARS AND NOTIFICATIONS
Circulars
• Circulars are issued by the CBDT from time to time to deal with certain specific problems and to clarify
doubts regarding the scope and meaning of certain provisions of the Act.
• Circulars are issued for the guidance of the officers and/or assessees.

Notifications
Notifications are issued by the Central Government to give effect to the provisions of the Act. The CBDT is
also empowered to make and amend rules for the purposes of the Act by issue of notifications.

Case Laws
Case Laws refer to decision given by courts. The study of case laws is an important and unavoidable part of
the study of Income-tax law. It is not possible for Parliament to conceive and provide for all possible issues
that may arise in the implementation of any Act. Hence the judiciary will hear the disputes between the
assessees and the department and give decisions on various issues.
 Deduction Of Tax At Source 367

MULTIPLE CHOICE QUESTIONS

1. Which of the following income would be exempt in the hands of a Sikkimese Individual?
(a) only income from any source in the State of Sikkim
(b) only income by way of dividend
(c) only income from interest on securities
(d) All the above
2. In case of a Member of Parliament –
(a) Daily allowance is exempt but constituency allowance received as per applicable Rules is taxable.
(b) Constituency allowance received as per applicable Rules is exempt but daily allowance is taxable.
(c) Both daily allowance and constituency allowance received as per applicable Rules are taxable.
(d) Both daily allowance and constituency allowance received as per applicable Rules are exempt.
3. The quantum of deduction available under section 10AA in respect of profits and gains derived by a
SEZ unit from export of articles is –
(a) 100% of export profits for first 10 consecutive AYs and 50% for next 5 consecutive AYs
(b) 100% of export profits for first 5 consecutive AYs and 50% for next 10 consecutive AYs
(c) 100% of export profits for first 15 consecutive AYs
(d) 100% of export profits for first 5 consecutive AYs, 50% for export profits for next 5 consecutive AYs
and upto 50% of export profits for next 5 consecutive AYs, as is credited to Special Reserve Account
4. Which of the following income is not exempt under section 10?
(a) Share income of a member from a HUF
(b) Share income of a partner from a firm
(c) Salary received by a partner from a firm
(d) Both (b) and (c)
5. Income under the Income-tax Act, 1961, is to be computed under -
(a) five heads
(b) six heads
(c) four heads
(d) seven heads
6. Share of profit of Mr. P, who is a partner in M/s PQR, a firm resident in India, is –
(a) exempt from tax
(b) taxable as his business income
(c) taxable as his salary
(d) taxable as other sources
7. Mr. A, whose total sales is ₹201 lakhs, declare profit of ₹10 lakhs for the F.Y. 2024-25 . He is liable
to pay advance tax-
(a) in one instalment
(b) in two instalments
(c) in three instalments
(d) in four instalments
8. Mr. Ramanan, a resident aged 40 years, has a total income of ₹3,25,000 for A.Y.2025-26,
comprising of his salary income and income from house property. His tax liability for A.Y.2025-26
would be –
(a) ₹3,900 , (b) ₹1,300, (c) ₹2,600, (d) Nil
9. Which of the following benefits are not allowable to Ms. Geetha, a non-resident, while computing
her total income and tax liability for A.Y.2025-26 under the Income-tax Act, 1961?
(a) Deduction of 30% of gross annual value while computing her income from house property in Bangalore,
India
(b) Tax rebate of ₹25,000 from tax payable on her total income of ₹7,00,000
(c) Deduction for donation made by her to Prime Minister’s National Relief Fund
(d) Deduction for interest earned by her on NRO savings account.
Answer
1.(d); 2.(d); 3.(d); 4.(c); 5.(a); 6.(a); 7.(d); 8. (d); 9.(b)
 Deduction Of Tax At Source 368

EXAMINATION QUESTIONS
MAY – 2022
Question.3.(c) (2 Marks)
The assesse is found to be the owner of the gold (market value of which is ₹50,00,000) during the financial
year ending 31-03-2025 but he recorded to have spent ₹10,00,000 in acquiring the same. Explain how the
assessing officer will deal with the issue.
Answer:
As per section 69B, if the assessee is found to be the owner of gold (market value of which is ₹ 50 lakhs)
during the financial year ending 31.3.2025 but he has recorded to have spent only ₹ 10 lakhs in acquiring it,
the Assessing Officer can add the difference of the market value of such gold and ₹ 10 lakhs i.e., ₹ 40 lakhs
as the income of the assessee for A.Y.2025-26, if the assessee offers no satisfactory explanation thereof.
Such income would be chargeable to tax @ 78% (@60% plus surcharge @25% and cess @ 4%).